Greetings and welcome to the AirSculpt Technologies Inc. Fourth Quarter 2024 Earnings Call. This conference is being recorded. I am pleased to introduce Allison Malkin from Investor Relations. Allison, you may now begin.

Good morning, everyone. Thank you for joining us to discuss AirSculpt Technologies results for the fourth quarter and year 2024. Joining me on the call today are Yogesh Jashnani, Chief Executive Officer; and Dennis Dean, Chief Financial Officer. 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.airsculpt.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-K, which will also be available on our website. For today's call, Yogesh will begin with an overview of the fourth quarter and full-year performance and share an update on our strategic priorities that we are implementing at the start of fiscal 2025. Then Dennis will review our financial results in more detail and provide our outlook. With that, I'll turn the call over to Yogesh.

Thank you, Allison. Good morning, everyone, and thank you for joining today's call. It is a pleasure to speak with you on my first earnings call as AirSculpt's Chief Executive Officer at a pivotal time for the company. While I have met many of our shareholders and analysts since joining the company in January, for those of you who don't know me, I will begin my remarks by sharing my background and why I believe my experience will enable our transformation and return to growth. I have driven profitable growth in consumer businesses spanning Fortune 500 companies to high-growth private enterprises. Most relevant to AirSculpt, I was at Idle Image Met Spa, where I led a strategy that nearly doubled revenue and expanded margins by transforming marketing, sales and our go-to-market model. I was attracted to AirSculpt given its unique strength and significant expansion opportunity. AirSculpt has a proprietary solution and a decade-long track record completing more than 70,000 successful body contouring procedures across 32 centers, and we have meaningful growth potential as we operate in an $11 billion total addressable market in the U.S. alone. Since joining in January, I have spent time in our centers, speaking with our teams, reviewing performance and assessing what's needed for a successful transformation. What is exciting to me is the passion for our business and our team's commitment to embrace the changes that are needed to support our return to growth. While challenges remain, I am confident we have the right plan to restore growth and increase profitability as we focus on executing better as a direct-to-consumer healthcare business. I will share our priorities and the initiatives we are implementing that we expect will allow us to achieve this objective. But first, let me review our fourth quarter and fiscal year results. For the fourth quarter of 2024, revenue totaled $39.2 million declining 17.7% from the 2023 4th quarter with case volume down 16.7% from the prior year fourth quarter. Same-store revenue declined 22.6% over the prior year quarter. Our fourth quarter results were in line with our revised expectations, which were updated in January and reflected the challenging consumer backdrop, which continues to pressure sales across the aesthetics space. However, our performance also highlights internal missteps that we must course correct, which is my highest priority. As you are aware, AirSculpt is a considered purchase with an average spend between $12,000 and $13,000. In this environment, it is common to see a longer time frame to convert leads into cases. Historically, our experience shows that it takes approximately 45 days to convert a lead to a case. For the second half of 2024, it was closer to 60 days. We also believe our cost-saving efforts that included a reduction in marketing expense resulted in lower lead volumes which further pressured case growth. As a result, we did not experience the sales trend we typically see in Q4 and continue to experience sales pressure into Q1 of 2025. Adjusted EBITDA was $1.9 million or 4.7% of revenue versus $10.1 million or 21.2% of revenue in the fourth quarter last year. The decline in revenue accounted for approximately $6 million of the decrease, with the remaining mostly due to costs related to increased marketing and corporate costs to support our recent de novo openings. During the quarter, we opened 2 locations, 1 in Birmingham, Michigan, a suburb of Detroit, and the second in White Plains, New York, giving us 5 new de novo centers for the year. While early, these locations are also experiencing the same headwinds that are facing our mature centers. For the full year, revenues were $180.4 million, and adjusted EBITDA totaled $20.7 million with adjusted EBITDA margin of 11.5%. This compares to revenues of $195.9 million and adjusted EBITDA of $43.2 million with an adjusted EBITDA margin of 22.1% for the prior year. As we begin 2025, we expect our first quarter same-store sales performance to be similar to the trend we experienced in the fourth quarter as our lead volumes in late 2024 were negatively impacted by the reduction in our marketing spend associated with our second half 2024 cost-saving initiatives. In addition, we continue to be pressured by the difficult macro environment. That said, as we have increased our marketing spend in 2025, we have seen an improvement in lead volumes. This, along with additional actions that are underway are expected to improve our ability to convert leads to cases as we move through the year. With that in mind, to accelerate our return to growth, we have 2 business imperatives. First, to enhance our culture and drive alignment on 1 vision with a singular voice across all aspects of our business; and secondly, to improve our go-to-market strategy to drive consistent revenue growth. There are 5 key priorities that underpin our business imperatives; one, marketing to drive more consumer interest and generate leads; two, sales to convert those leads to cases; three, new services to tap into more consumer demand; four, customer experience to ensure we consistently provide premium results; and five, technology that accelerates these priorities. Let me provide some perspective on each. First, marketing. We have focused our marketing spend on techniques that have proven successful for us in the past using a returns-based approach. We are also testing new areas such as online video and other social marketing channels. This effort began in January under our new Chief Digital Officer and has already driven a significant increase in lead volume. Second, sales. Under our new Chief Sales Officer, we are strengthening our consultative sales model with enhanced training, improved sales processes and a greater focus on lead conversion. Early results show encouraging signs, and we expect momentum to build throughout the year. Third, new services. Today, we provide fat removal, fat transfer, and skin tightening services. Almost always, they are done within the same procedure. There is an opportunity for us to look at each of these services individually as well as introduce new services. I believe we already possess some of the best surgeons, and we have an entire infrastructure of centers, nurses, managers, and sales force. The opportunity exists to leverage our centers and people to further capture our addressable market. An example of this is skin tightening services, which we plan to pilot in the second quarter. This way, we tap into the complementary impact of GLP-1, which has led to an increased demand for skin tightening. We believe this can be a sizable opportunity for us to expand our customer reach and generate incremental revenues with a procedure that we already do. Fourth is customer experience. We are evaluating our current customer journey and how we can make improvements to further enhance the experience. This will be an ongoing focus, especially in the back half of the year and into 2026. Lastly, is the technology to accelerate these priorities. We are introducing new solutions to help our sales team close deals better and faster. For example, we plan to add new payment options that give consumers added flexibility to finance procedures. We believe this will be an effective way to drive incremental revenue and improve our margins while meeting consumer needs. Later this year, we will expand the use of our sales force platform to more efficiently and effectively convert leads to cases. We are also planning to test solutions that can improve the experience of our clinic teams, allowing them to spend even more time on patient care. All of these initiatives will enable us to improve our go-to-market strategy with a direct-to-consumer approach. AirSculpt's stability to return to sales growth and generate strong free cash flow is aided by our light business model. In the near term, we are pausing de novo openings to focus on improving our same-center performance. As always, we will operate with rigor and adapt our strategy as needed, but our focus is clear: execution and efficiency around culture and return to revenue growth. We have already begun to see an increase in our lead volume in the first quarter with the marketing changes. That said, this leads growth time is expected to take time. As I mentioned, we expect our Q1 same-store revenue decline to be similar to Q4 2024, with an expected sequential improvement in quarterly sales trends as we move through the year. We expect to provide a full year outlook when we release first quarter results in May. This will give us additional time to evaluate the level of progress we are experiencing and help inform our expectations of when we expect a positive inflection in our business performance. Additionally, we have amended our credit agreement, which enhances our ability to invest in the business while the transformation takes its course. Importantly, we have evaluated the various scenarios that may occur throughout the year and expect to be compliant with our bank covenants throughout 2025. Additionally, we are actively pursuing initiatives to reduce our leverage ratio to be closer to historical levels. Overall, I remain convinced that AirSculpt is an attractive business with a competitive moat. I believe the best years lie ahead for AirSculpt and its shareholders. And now I will turn the call over to Dennis to review our fourth quarter and fiscal year results in more detail.

Thank you, Yogesh, and good morning everyone. As mentioned, revenue for the quarter was $39.2 million, a 17.7% decline versus the prior year quarter, with the same-store revenue down 22.6%. The decline in revenue this quarter was mainly driven by lower case and lead volume due to our reducing marketing spend and the challenging consumer spending environment. The percentage of patients using financing to pay for procedures was 50%, which is below the 53% rate we have experienced in recent quarters. We remain pleased with the financing partnerships in place and are adding to our base of lenders to expand choices for prospective patients as part of our return-to-growth strategy. As a reminder, we received full payment of all procedures upfront, and we have no recourse related to patients who finance their procedures with third-party vendors. Cost of services decreased $1.1 million compared to the prior year period. However, as a percentage of revenue, increased to 42.7% versus 37.5% due to our inability to flex certain costs such as rent and nursing. As revenues begin to rebound, we expect this percentage to return to previous levels. Selling, general, and administrative expenses declined $2.2 million in the quarter compared to the same period in fiscal 2023 primarily due to a decrease in equity-based compensation. On a sequential basis, SG&A decreased $2.1 million, of which $1.1 million was from equity-based compensation and the remainder due to our cost reduction initiatives we initiated in the back half of 2024. Our customer acquisition cost for the quarter was $3,250 per case as compared to $2,600 in the prior year quarter. CAC has continued to be elevated beyond what we expected to be due to the decline in our case volumes and to an increase in our cost to obtain leads. As our marketing sales efforts begin to improve our case conversion, we expect to see a reduction in our customer acquisition costs in future periods. Adjusted EBITDA was $1.9 million compared to $10.1 million for the fiscal 2023 4th quarter driven by our revenue declines. Adjusted EBITDA margin was 4.7% compared to 21.2% in the prior year quarter. Adjusted net loss for the quarter was negative $4.5 million or a loss of $0.08 per diluted share. For the full year, we reported revenue of $180.4 million, a decline of 7.9% from fiscal 2023. Adjusted EBITDA was $20.7 million or an adjusted EBITDA margin of 11.5%. This compares to adjusted EBITDA of $43.2 million or an adjusted EBITDA margin of 22.1% in fiscal 2023. Adjusted net income was $1.1 million or $0.02 per diluted share compared to $16.3 million or $0.28 per diluted share in fiscal 2023. Turning to our balance sheet. As of December 31, 2024, cash was $8.2 million. We drew down our revolving credit facility during the quarter, and our gross debt outstanding was $75.8 million. Our leverage ratio was 3.0x at year-end, and we are in compliance with all covenants under the terms of our credit agreement. Cash flow from operations for the year was $11.4 million compared to $24 million in fiscal 2023, and we invested approximately $9 million in 2024 in de novo facilities. In addition, as Yogesh mentioned, we revised our credit agreement relaxing various covenants with revised terms. We are confident that these new terms will provide us with the added flexibility to invest and support our return to growth. Turning to our outlook. As Yogesh mentioned, we are not providing a fiscal year outlook for revenue and adjusted EBITDA and with expectations of introducing guidance when we report first quarter results in May. For the first quarter of fiscal 2025, we currently expect a decline in our same-store revenue to be similar to the percentage decline reported in the fourth quarter of 2024. In addition, we do not expect to open de novo centers as we continue to focus our efforts and resources on revenue growth in our existing centers, and we expect to be in compliance with the terms of our credit agreement throughout the fiscal year.

Thank you, Dennis. In summary, while we recognize that fiscal 2024 was a challenging period for our company, we remain confident in our strategy and are intently focused on enhancing our culture and improving our go-to-market strategy. We expect the execution of our 5 business priorities along with the actions to increase our liquidity and financial flexibility will enable us to return to same-store sales growth. We look forward to sharing our progress with you as we move through the year. With that, I'd like to turn the call over to the operator for some questions. Operator?

That question comes from the line of Josh Raskin with Nephron Research.

So I certainly understand you want some time to implement a new strategy and sort of see how trends are going before you give full year guidance. But maybe if you could give a little bit more color as to what you meant in terms of sequential growth each quarter. Is that a starting point of $1.9 million of EBITDA in 4Q? And then there's typically a lot of seasonality, would you expect EBITDA in 2Q to be higher and then 3Q to be higher than 2Q next year? I'm just curious to get sort of a little bit more color on what you mean by the sequential improvements?

Yes. Josh, this is Yogesh. Thank you for your question. So as I mentioned, the reason for not giving guidance, I've been in the role for a couple of months and continuing to deepen my understanding of the business, the decision is not a reflection of business performance but I want to make sure that our guidance is well informed and reflects a comprehensive view of our strategy and early execution results. Regardless of that, we do expect to see a similar seasonal trend that historically we've seen in the business, with sequential improvement in particularly same-store performance year-over-year. So we would expect Q2 to be higher than Q1 just on an absolute basis because that is historically our seasonal strength, and then the rest of the year follows a similar seasonal curve.

You mentioned that the sequential improvement is related to same-store revenue growth and not necessarily to overall top line or EBITDA. I understand that. Can you elaborate on the actions you're taking to improve liquidity? I'm curious about why you accessed the revolver during the quarter. Additionally, it seems contradictory to slow down marketing and not open new locations while still expecting revenue growth, unless those initiatives are not yielding a positive return on investment. I thought new locations were previously outperforming the same-store business, so I'm interested in how all these elements fit together.

Josh, it's Dennis. We opened five centers in the latter half of last year, which required nearly $10 million in capital for their launch. These centers are still experiencing similar challenges as our existing locations. Except for the one we opened at the end of December, they are generating positive cash flow, but not to the level we typically expect based on the performance of new openings in the past. We invested a considerable amount of capital, and as Yogi noted, our Q4 results fell a bit short of our expectations. This led to some difficulties, and as we looked ahead to Q1, we wanted to ensure that we would not have to significantly cut our marketing efforts. Therefore, we decided to draw on the revolver to sustain our marketing capacity as we approach the season. That was the reasoning behind that decision.

And just to add to that, on your question on de novos that we continue to be excited about the long-term center opportunity and will open de novos at the appropriate time. In the short term, my focus is on improving same-center sales growth. We strongly believe that is the right place for us to be spending our energy for the long-term health of the business. And as we improve those, the benefit of those activities will come into the de novos and allow us to turbocharge de novos when we get back to opening them.

Our next question comes from the line of Korinne Wolfmeyer with Piper Sandler.

I want to touch a little bit on what's going on with the marketing spend versus the CAC. So it sounds like the marketing went down or was cut out or cut back a little bit in the quarter, but the CAC was that just the dynamic of the softer case volumes that you saw in the quarter? And then how should we be thinking about that going forward and the level of pickup of marketing spend we should expect here in 2025 and how that should translate into CAC?

Korinne, it's Dennis. I'll provide some commentary on the fourth quarter, and then Yogi can add details regarding 2025. Our customer acquisition cost remained high, mainly due to the decline in case volume. As we mentioned in earlier calls, we significantly reduced our marketing expenses in the latter half of last year compared to the first half. This decision led to a decrease in our lead volumes, which affected our case volume and related revenue results. Consequently, these factors contributed to the increase in customer acquisition costs. However, if we analyze it sequentially, our advertising expenses remained relatively stable from Q3 to Q4, and were significantly lower than our average spending in the first half of the year. It's also important to note that we launched five new centers and are actively marketing them. When looking at comparable centers, our spending in Q4 was considerably less.

And then just on the go-forward basis, certainly, we have reversed some of those full tax in marketing spend on a center basis. But it's not just about spending more; it's also about spending differently. So as we go back to a returns-based focus and innovate in our marketing, we expect that our marketing investments will get better in terms of the returns that we would see as the year progresses.

Great. And then can you just give us a little bit more context around the cost savings program? It sounds like there's going to be about $3 million in annual savings. One, where is that all coming from? And then two, do you have a projection as to when those savings will start to be realized?

Yes, this is Yogesh. The cost reductions for us are based on our strategic assessment, where we identified areas in the business that were not aligned with our future direction. Most of the cost savings came from those areas, particularly in corporate headcount that did not fit our current strategy. We've already executed on about $3 million of that, which is a net figure. While we have made some reductions, we have also invested in areas like technology, data, and analytics. We implemented this net amount in the middle of Q1, and we expect to see the benefits begin to materialize in Q1. Thank you.

The next question comes from the line of Sam Eiber with BTIG.

Maybe I can start on some of the new efforts on the marketing side to drive those leads. And I heard you mention online video and some other social marketing initiatives. We'd love to maybe better understand more specifics in terms of what those entail. And if those are being complemented with maybe some of the historic programs like paid search as more of an offset of that. We'd love to better understand those dynamics.

Sam, thank you for the question. It is definitely a combination. So what we are doing is we are still spending heavily on paid search and paid social as we have done in the past. The difference is we are with a returns-based approach that we are taking, we're looking at every subsegment, for example, within those and how those are performing and making sure that we are rebalancing, whether it's across centers or whether it's across areas we are seeing pockets where there is opportunity for us to reach more customers and be more efficient with our spend. The areas like online video, we are expanding our use and our messaging, that would be for example, things like YouTube in the pipeline. We'd also have things like connected TV, and we're seeing encouraging early results from those, and we expect to refine our strategy as we move along. We are keeping our spending dynamic to make sure that we are able to direct it wherever we are seeing higher returns in the market.

Okay. That's helpful. And then maybe as my follow-up here on some of the new services you mentioned, particularly in the skin tightening area. From my understanding, there were already a few centers that were maybe implementing those skin tightening procedures. So is this maybe more of an effort to expand that throughout the 32 centers you have? Is it adding additional types of skin tightening? I want to better understand that as well.

Absolutely, Sam. So as a quick refresher, just like you mentioned. Today, we offer skin tightening in all of our locations as a complement, as an add-on to our fat removal services. What we're planning to do, what we are looking to pilot is doing that as a stand-alone service in our centers. We have done that on a one-off basis, but the goal over here would be to have a pilot program, which helps us capture that not just from a center performance perspective, but align the entire organization from marketing to sales to clinics and everything in between, so that end-to-end, we are making that offering available. This is, in many ways, our efforts to capitalize on trends we are seeing with consumers. We continue to see skin tightening is a pretty big area of interest for consumers. Some of that we see as an outcome from GLP-1s, where customers who are on GLP-1s tend to have excessive skin, and they are looking for solutions for that. We believe we have one of the best solutions in the marketplace and how do we meet that consumer need. So that's really the why and how around it. We'll start with a pilot in certain centers. And based on our learnings, we expect to expand later in the year.

Thank you. At this time, I would like to turn the floor back to Yogesh Jashnani for closing remarks.

Thank you, everyone, for joining and I look forward to providing an update at our next quarterly call.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.