Hello, and welcome to the AirSculpt Technologies, Inc. First Quarter 2024 Earnings Call. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dennis Dean, Chief Financial Officer. Please go ahead.

Good morning, everyone, and thanks for joining us to discuss AirSculpt Technologies results for the first quarter. Joining me on the call today is the company's Founder and Executive Chairman, Dr. Aaron Rollins; and Chief Executive Officer, Todd Magazine. Before we begin, I would like to remind you that this conference call may include forward-looking statements. These statements may include our future expectations regarding financial results and guidance, market opportunities, and our growth. Risks and uncertainties that may impact these statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we will file with the SEC, all of which can be found on our website at investors.elitebodysculpture.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we will also reference certain non-GAAP financial measures. We use non-GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. A reconciliation of these measures can be found in our earnings release as filed this morning and in our most recent 10-Q, which will also be available on our website. With that, I'll turn the call over to Todd.

Thanks, Dennis. Good morning, everyone, and thank you for joining the call. We delivered approximately 4% revenue growth in the quarter versus the prior year, which was driven primarily by contributions from the de novo centers opened in 2023. These centers continue to outperform our internal metrics. However, we did experience some softness in our same-store centers, which was related to temporary macroeconomic headwinds that affected a portion of our customer base that tends to be more price sensitive. The challenges we are experiencing are consistent with those highlighted by others in the aesthetic and high-end consumer retail spaces. As we noted on our last call, we saw some isolated softness exiting 2023, which carried into the first quarter. Our revenues have picked up as a result of our typical seasonal pattern, but the degree of the seasonal increase has not been up to the level we have seen in prior years. This drove overall same-store revenue down approximately 10% during the quarter. Our Q1 adjusted EBITDA was $7.3 million, which is a decline from the prior year period. As we mentioned on our last call, we anticipated the EBITDA decline both due to recent revenue trends as well as higher SG&A spending. The higher SG&A spending was a result of increases in paid search costs, mostly due to increased competitive spend, as well as our higher investment in customer awareness building. As we are now in the early part of Q2, which is the height of our season, we are still tracking behind our internal revenue projections. As a result, we expect our year-over-year revenues for the quarter to be somewhat flat or slightly below prior year. Despite our recent trends, we are not making changes to our guidance at this time. That's because we are cautiously optimistic that the trends will improve in the latter part of our season and into the second half of the year. This optimism is related to five factors: one, our significant investment in customer acquisition marketing; two, changes we made to our media mix; three, optimizations we've made to performance marketing; four, continued outperformance of our 2023 de novo class; and five, our confidence in the 2024 de novos. Let me elaborate on our marketing and de novo efforts. We have seen some very promising improvements toward lead generation as a result of some changes we made to our media mix. This is driving a higher percentage of organic search traffic. These leads have high intent and are lower in cost compared to paid search. Noting the length of time it takes to convert leads to an actual procedure, these improvements are only now starting to impact our actual procedure volume. We have also evolved our celebrity partnership approach to provide a more consistent stream of relevant earned media impressions. Most recently, we worked with Kristen Doute, a podcast host, entrepreneur, and star of two Bravo hit shows, the Valley and Vanderpump Rules. Kristen showcased AirSculpt, which drove over 3.4 billion earned media impressions and contributed to year-on-year growth in direct and organic traffic to our website. In addition to garnering new leads, celebrity testimonials have also proven to be a strong lever to reengage and convert existing leads. As for our 2024 de novos, we remain on track to open six locations, with four openings projected in Q3, the first of which is Kansas City, Kansas. We remain highly optimistic about these locations given the improved analytics work we have done on de novos in the last year. Finally, we continue to focus heavily on our cost management efforts. We exited the year with a $5 million run rate in cost savings and have identified further opportunities to achieve even greater efficiencies. We have and will continue to use these savings to further support our customer acquisition strategies for the remainder of the year. In summary, we remain focused on the longer-term success of the overall business and are prudently investing in this outlook. We are closely monitoring our performance and will continue to build the AirSculpt brand, open new centers, and enhance our profitability. Now I'd like to turn the call back to Dennis to provide further details on the quarter.

Thanks, Todd. Our revenue for the quarter was $47.6 million, a 3.9% increase over the prior year quarter. Our growth was primarily due to the contributions of new de novo centers versus the prior year base. As of March 31, 2024, we operated 27 centers versus 23 at the end of the first quarter of 2023. Our same-store revenue was down 9.8% in the quarter. As Todd mentioned, we attributed the softness to weaker-than-expected performance across the broader aesthetics and consumer retail landscape, particularly related to customers that are more price sensitive. While we are seeing similar trends in the second quarter, we expect to see some improvement as we move through our later seasonal months and into the second half of 2024. Our average revenue per case for the quarter was $12,712, a 1% increase over the prior year's quarter. Our percentage of patients using financing to pay for procedures was approximately 50%, which is consistent with recent quarters. As a reminder, we received full payment of all procedures upfront and we do not have any recourse related to patients who finance their procedures with third-party vendors. Our cost of service as a percentage of revenue was 37.9% versus 39.3% in the same period last year. This improvement was the result of our cost management initiatives, which continue to be a focus for us. As a reminder, we will achieve $2.5 million of savings for a total of $5 million, and we see additional opportunities to further increase our savings in the second half of 2024. Our customer acquisition cost for the quarter was $2,990 per case, as compared to $2,360 in the prior year. This increase, as Todd mentioned in his remarks, is due to further investments in our brand awareness activities. We expect our CAC to stay at an elevated level in the second quarter as we expand these initiatives. For the first quarter, our adjusted EBITDA was approximately $7.3 million, compared to $9.5 million from the prior year period, a decrease of 22.4%. Our adjusted EBITDA margin during the quarter was 15.4%, compared to 20.6% in the prior year quarter. This decrease was primarily associated with our investment in new customer acquisition and brand awareness initiatives. Our adjusted diluted net income per share for the quarter was $0.03. Our cash position as of March 31, 2024, remained healthy at $11 million, and our $5 million revolver remains undrawn. Our gross debt outstanding is now $71.2 million, and our leverage ratio at the end of the quarter, as calculated under our credit agreement, was 1.47 times. Cash flow from operations for the quarter was $3.4 million, compared to $6.2 million in the prior year quarter. The decrease is primarily due to the decline in adjusted EBITDA. Also, during the quarter, we invested $1.6 million, which was mostly related to new center openings. For the quarter, our cash flow from operations to adjusted EBITDA conversion ratio was 46%, which was in line with our expectations for the quarter. As Todd mentioned in his comments, our first quarter was softer than we expected, and the second quarter is seeing similar trends. However, we are seeing positive signs and lead volumes from our recent marketing initiatives. Furthermore, we continue to see overperformance in recent de novo centers and expect strong openings in the new fleet of centers that will come online in the second half of the year. As a result, we are maintaining our full-year outlook of revenues of approximately $220 million and adjusted EBITDA of approximately $50 million.

Thank you. We'll now be conducting a question-and-answer session. Our first question today is coming from Josh Raskin from Devin Research. Your line is now live.

Hi, thanks. Good morning. So I understand Q1 is seasonally lower. You talked about some of the pressures. But I guess, if you look at the full-year guidance, EBITDA implies Q1 EBITDA is only 15% of the full year, historically, the first quarter has been closer to 22%. And then I hear sort of assuming cautious optimism and guidance. I guess why are you assuming cautious optimism if we've seen softness in procedures over the last two quarters? And I guess what does guidance look like if that cautious optimism doesn't come through, right, if you sort of just run rate where we are in Q2?

Hey Josh, it's Dennis. So yes, one of the optimistic aspects of what we're looking at hinges really on marketing endeavors that we've been implementing during the quarter. It takes a while for leads to convert into cases. And we're seeing a fairly sizable uptick in our lead volumes as a result, which gives us one portion of optimism. Our 2023 de novos are significantly outperforming where we had expected them to perform, making us very excited about that. We're basically using a very similar plan for the 2024 deals coming online. If you remember, about a year or so ago, we kind of started implementing what we call a quick ramp from our de novos, and I believe that's what's accelerating these centers to open and perform better than we had originally expected. So those three factors, the 2024 class coming on in the second half of the year, will drive growth differences from what we've seen in previous years.

And I guess, Dennis, embedded in that, what are your assumptions for same-store case growth maybe starting just in Q2, but even for the full year?

Sure, sure. From that standpoint, we are looking at a consistent case aspect for the second quarter, a high-single-digit decline, somewhat similar to where we finished the first quarter. We expect to see improvement in the third quarter, getting close to flat and then toward mid-single digits in the fourth quarter. Last year, in the fourth quarter, a couple of centers experienced a significant hiccup, and we've since done some recruiting to improve that situation. So we anticipate not having that same issue this year. Therefore, think of the comp for Q4 of last year as relatively low.

Okay. And then maybe just last one. Are you at the point where you're thinking about more aggressive promotion or discounting, specifically because price is holding up better? I'm just curious, are you thinking about the supply and demand curve and possibly reducing price to see if that increases case volume?

Hey Josh, this is Todd. I would say we're doing it very selectively and targeted. We don't want to devalue the brand with broad price reductions. But we are using selective and targeted promotions, retargeting through email and text offers, etc. We've relied heavily on the 'buy more, save more' approach, which has been beneficial. However, we remain cautious so as not to diminish the brand value or engage in unwanted competition.

Okay, makes sense. Thanks.

Thank you. Next question today is coming from Korinne Wolfmeyer from Piper Sandler. Your line is now live.

Hey, good morning, team. Thanks for the question. I'd like to touch a little bit on the CAC and the lead generation you're seeing from your increased marketing efforts. The CAC was really high this quarter. At what point will that start coming down a little bit more? And can you provide us some color on these early customer leads you're getting from your heightened marketing spend, just to give us a little confidence that maybe once we get to the back half of the year, case volume will improve? How are you shifting the marketing strategy over the course of the year? Thank you.

Yes. Hey Korinne, it's Todd. So what I would say is, obviously, we believe in the business long-term, which is why we're heavily investing in lead generation. Our cost basis has definitely gone up, largely due to competitive activity. However, the early signs are very promising, giving us optimism. Number one, we have historically relied heavily on paid search, which has been the majority of our lead generation efforts. We're beginning to diversify away from that, experimenting with connected TV, display media retargeting, and in some markets radio and outdoor advertising. We're actually seeing more organic search, which is promising for us. This indicates that more people are finding us rather than us actively seeking out to buy those leads, which is encouraging. The second initiative is focusing on existing or aged leads. We have many individuals in our databases who were initially interested but have not converted. Our analytics tools allow us to target them more effectively, showing promising improvement. Lastly, we are continually optimizing our paid search, ensuring more efficient and targeted spending. These changes should help us manage our CAC effectively, and while it's elevated now, we expect to decrease it over time. Ultimately, the increase in organic search rather than paid search will reduce costs and boost efficiency. So these media diversifications are key to our strategy, and we hope to see the benefits soon.

One thing I would add, Korinne, is that our cost initiatives are not only keeping those at the EBITDA level, but we're reinvesting back into marketing. This is an opportunity for us to use these excess resources to support our marketing efforts. We expect that as we continue to identify initiatives throughout the year from a cost perspective, we will likely do a similar process.

Very helpful. Thank you so much for all the color. Then just to touch on the GLP-1 issue. We are seeing more offerings or better accessibility for people to get GLP-1s. Do you still view that as more of an awareness driver versus a demand taker for AirSculpt? Or is there any change in thinking there? Thank you.

Look, all of our research indicates that GLP-1s are ultimately a tailwind for us. We're seeing many patients come to us who are interested in weight loss medications, which we have been marketing as well. The combination of weight loss medication and AirSculpt seems very powerful. While some patients may choose weight loss medications over us, many discover our services after looking into these medications. We view this as a symbiotic relationship, and so far, we see it as an opportunity and a tailwind rather than a significant risk. We continue to believe it will help us over time.

Great. Thanks so much.

Thank you. Your next question is coming from John Ransom from Raymond James. Your line is now live.

Hey, good morning. Just talking about the second quarter. This is your big quarter historically. Do you usually see this lag at the start with the quarter back-end loaded? Or are you kind of like-for-like off to a slower start compared to the last couple of years?

Yes. So John, the timing of when the quarter starts is always challenging to manage. Last year, it started in March, but this year it had a delayed start. Thus, we talked about lead generation and its impact; it started later in the typical seasonal flow we've seen in the past. It's possible the season extends further into the summer; however, we just don't have clarity on that yet.

Okay. And then secondly, on marketing, I appreciate all the comments you're making about that. But we've been hearing for a couple of years now about how you're pivoting from the Instagram channel to something more brand awareness and celebrity endorsements. Looking in the rearview mirror, how would you critique your performance in terms of that transition? And what maybe should have been done that hasn't been done so far? Thanks.

Yes. Look, it's a good question. Generally, these changes need to be made over time. We have historically relied heavily on paid search. Last year, we began implementing celebrity marketing, which helped improve our brand awareness. However, we observed that it resulted in spikes that would then decline. The changes we are making now involve smaller celebrity partnerships more frequently, instead of fewer larger ones. Smaller celebrities often have significant social followings, which proves beneficial. Overall, I believe these are steps in the right direction despite unexpected market changes. Therefore, while our performance has been moving in a positive direction, optimizing and continuing to diversify our media strategy are crucial.

Okay. Just lastly, are there any locations now that are unprofitable? Do you foresee any closures, or are all your locations still profitable even if the volume is down?

Yes, all of our locations are still generating a profit, so there are no considerations for closures. I would mention the London Center is slower to ramp as we continue learning about that market. It's not achieving profitability at the same rate as the rest of the 2023 cohorts. However, we remain optimistic about that center's future.

The only comment I'd make on London is that, while Europe presents a learning curve, we are optimistic about the market. Although it may take longer to sort it out, we believe it will become a very strong center for us.

I mean my editorial comment, the next healthcare company on the services side that has a good outcome in London might be... it's been a trail of tears for a lot of your peers that have been in that market. You're not alone in that regard. Thank you.

Thanks, John.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thanks, everybody. We will talk to you in a few months and have a great weekend.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.