All right. Thank you for joining us today. My name is Jonah Kim. I'm the retail and beauty analyst at TD. I have the pleasure of hosting AirSculpt's management team, Yogi Jashnani, CEO, and Michael Arthur, CFO. And AirSculpt is a next-generation body contouring treatment designed to optimize both comfort and precision, available exclusively at AirSculpt offices. So with that, I mean, I gave a quick intro, but better to hear from you. To those that are new to the story, could you provide a quick overview of AirSculpt?
And, Chana, first of all, thank you for having us. It's great to be here at the conference. So for those who don't know about AirSculpt, we're a premier body contouring service provider. What does that mean? Well, it's fat removal, fat transfer, skin tightening kind of services. We do those with a patented method in our 31 offices across the country. We have, we do it in a minimally invasive manner, so patients are awake through the procedure, and as a result of that, complication rates are lower. Many people are out and about and back to their normal routines within 24 to 48 hours. typical consumer, this is a $12,000-$13,000 procedure, all cash pay out of pocket, so typically more affluent consumers. She is 35 to 55 years of age, kind of business. We've grown to about $150 million in top line, and we're the place where you can address GLP-1 side effects, and we'll talk more about that hopefully because everybody's looking to sell GLP one medication but as you think about GLP one side effects we are the place to address that and we are seeing growing demand related to our services from consumers who've taken GLP
one and you know last quarter you infected same source sales to one percent in which you highlighted as a first positive comp quarter in over two years can you share just the drivers that led to that civilization and the companies returned to same store growth and sort of what you're seeing um going forward uh sure so we've been uh uh we've
seen same store sales uh were were soft for for a long time over the last year so i joined january of last year michael joined jan of this year we have a new leadership team in place uh we have brought in a lot of expertise on direct to consumer marketing so while we're a healthcare service it's direct to consumer on the front end and sales and marketing so we've spent a lot of energy invested heavily in revamping our sales and marketing engine that's been the key driver which has gotten us to positive same-store sales comp for the first time in years yeah and we talked about it a
little bit, the GLP-1 opportunity is massive, and, you know, obviously the side effects that come from, you see that in an opportunity to sort of address that. How are you addressing the opportunity and what KPIs should investors watch as, you know, they measure the traction of that type of
procedure? Absolutely. First, the opportunity itself. Again, folks heard on GLP-1, that penetration is increasing. There's studies out there that says the usage is going to go up from five, six million consumers back in 23 to 25, 30 million consumers pretty shortly over here. So GLP-1 usage is going up. Many people in this room and in the investor community are tracking that. What's also happening is that the same studies are saying now that consumers have had a couple of years of usage of GLP-1, there are major side effects coming through, primarily loose skin. You've lost the weight, but now you have loose skin, first of all. Secondly, GLP-1 is not really targeted, so there's still stubborn fat deposits that remain. And thirdly, an extension of that, there might be, he had fat in my abdomen, which I wanted gone, but I lost volume in my face. Ozempic face is a term. Ozempic buttocks is a term, right? So those are the side effects of GLP-1s. The services we offer and some of the extensions which we have address many of those concerns. So we are able to remove stubborn fat deposits, and we see increasing demand for that. But more importantly, we are the scaled player to address loose skin in terms of skin tightening as well as skin removal from certain areas, again, under local in and awake procedures so that people can get back to their normal routines. We're increasingly seeing more and more demand from consumers who are coming in with, you have lost weight through GLP-1 and now have loose skin. help me get the last 10% done because I've lost the weight, that's 90% of the work but I didn't count on the loose skin, help me address skin laxity that's our key opportunity middle of last year we rolled out skin tightening as a standalone service that's in all of our centers Q4 of last year we also launched skin removal in pilot Q4 we did about 100 procedures, Q1 we did about 150. Just as a benchmark, we do about 1,000 procedures a quarter, 3,000 procedures a quarter, sorry. So that number is still small but growing. And with any medical procedure, there's an element of piloted, make sure that the protocols are where you want it to be, wait a few months for before and afters to come in and then scale that. So we're in really early innings of addressing GLP-1 side effects and capturing that market.
And just going back to overall sort of Aerosculpt's competitive positioning, why would a customer go to Aerosculpt versus other plastic surgeons? What is your competitive mode?
Great question, Sharna. So a couple of things. One is, the biggest one is the patented process that we have. You're doing this in a minimally invasive approach for fat removal So we're going through an opening less than two millimeters, no stitches, no scapula, body heals by itself, and we're literally sucking the fat out using compressed air. By doing that, you can do it under local anesthesia in an awake environment. Complication rates are lower. Many people are back to their normal routines within 24 to 48 hours, and our patients value that. She doesn't want to go under general anesthesia, be out for two weeks for recovery, and have those kinds of challenges. So the way we bring all of that together, we're also able to tighten skin at the same time. For a significant portion of our patients, the fat we remove because it's their own fat, we're able to insert it back into the body. So we also do fat transfers to the breasts, fat transfers to the buttocks, and those are valuable also. So if you don't want implants in your body or foreign objects in your body, this is your own fat which is getting transferred. And many of our patients prefer that kind of a natural approach.
And Michael, this is more a question for you. Can you share the key drivers of this year's outlook? It implies roughly 2.5% same-store sales growth at the midpoint. Maybe you could just walk us through sort of the key components of that.
I think, really, there's not a lot of contemplation around expanding services in the GLP-1 market that we think is a big driver for us. It's really just stabilizing the business through enhanced sales and marketing efforts that Yogi's talked about. It's a Q1 positive for the first quarter in a couple of years, plus one. And so it's just showing kind of continued improvement and momentum and pace of improved change in the business just as we operate the core business today.
And of the 3,000 procedure you mentioned per quarter, what's the mix like? Which procedure is the highest? And then as we look at sort of the skin removal that we talked about earlier, how is the economics look like? Maybe not now, it's pretty nascent, but as you look longer term, how does that unit economics work and sort of other key metrics versus the core?
Sure. So of the procedures we do today, almost all of them have the foundation of fat removal. On top of that, some consumers would get skin tightening along with that. So 80% of our fat removal consumers get skin tightening today along with that. A third would also get fat transfers done. So it's primarily fat removal with these as add-ons on top of that. Skin excisions, as we said, are growing. So we did about 115 Q1 just over that. The good thing is the way our business model is set up, our gross margin on those is very similar to the core business. So as a result, as we expand the TAM, as we expand our revenue and EBITDA, these end up being margin accretive in many ways.
And just touching on the GLP-1 opportunity, do you think you'll get a new set of customers through skin tightening and removal versus your current target customer group? How are you thinking about that?
Great question. Absolutely. So what we are seeing with loose skin is it is a different customer who's coming in. And their primary need is, I do have loose skin, I do have these GLP-1 side effects. They started off on their journey with GLP-1s versus our traditional fat removal. Consumers would start off on the journey slightly differently. So we're seeing an expansion, a potential expansion of the TAM over here. Just to give you a sense, fat removal TAM versus just skin removal, skin tightening. Skin removal, skin tightening is as big currently in terms of market TAM as fat removal would be. So that gives us an opportunity to double our TAM and really double our revenue in the long term. That's before GLP-1 really expands in terms of its core usage, and we're seeing that happen as well. So there's a lot of upside there.
And it's great to see the business improve despite the current inflationary consumer environment. Can you characterize who your typical customer is and why the business is resilient to the current economic headwinds? And your ticket is, as you noted, pretty pricey, but it's still growing.
Yeah, for sure. So I'll answer both thoughts of it. Let me just start with we see the consumer sentiment is very mixed. That's what we're seeing. You have to look at others in the consumer space, and you see that in messaging. Some are seeing strengths, some are seeing not so much. So our character is the consumer continues to be very choppy. That's what we're seeing. Now, the benefit we have is our consumer tends to be she is typically 35 to 55, higher household income, 100K plus, 150K plus, and she's investing in herself. But it is still discretionary. A lot of the changes that we have made in our business, whether it's sales and marketing, cost removals and the likes, we know that the consumer will come back but we're not waiting for that so even in this environment we are making the right changes to drive the business to growth but yeah we continue to see the consumers very choppy and and that certainly plays a role yeah and you mentioned earlier in
terms of marketing you're increasing more the end consumer marketing what is your marketing strategy which channels do you go after and how do you see sort of this year evolving in terms of
your marketing plan? So for us we're unique in the sense that we are a direct to consumer business on the front end providing a healthcare service as the service that we are giving. So it's what you would expect from a D2C organization which is a lot of focus on who's my consumer, where are they shopping, where are they in the mindset of shopping, and what messages resonate with them. So with our consumer we see that when she's actively looking for solutions, she's researching us a lot more, she's researching a lot of blogs a lot more, she's in paid search, and if she is in passive mode, like well I have a need but I don't quite know how to address it, it's much more upper funnel in terms of paid social so our primary mechanisms are digital marketing we're also seeing that uh influencers play a pretty heavy role in this space and we've expanded our presence with influencers over the last few months and we've seen good results from that we're experimenting with new channels such as connected tv and podcasts as well so we're constantly looking as to you know where can we get her attention and then how do we how do we engage her that's That's been the big change in marketing.
And can you just walk us through the clinic level unit economics in a bit more detail? You discussed approximately a million dollar of build-out costs per clinic, around 60% gross margin. Maybe give us what the mature stores look like. How's the ramp period sort of from, you know, start to mature and the other details you can provide around that.
Yeah, let me start with just the mature kind of clinic. So what I would say, it's a really key strength of the business and the economics of each clinic are really strong. So an average clinic does roughly $5 million of revenue annually with 60% gross margins and fairly high profit margins as well. All of our clinics are profitable to date and have been since the opening of them. They get profitable pretty quickly. On new clinics, the build-out cost for a new clinic is roughly a million to two million. There's, you know, variables in that. That's usually around the cost to build out a new clinic. And they get profitable in a few months, but definitely minimum six this much. We find them profitable. And the payback period is usually within a year, which, you know, sometimes two. But within the first year is kind of what we've seen historically. And that's pretty unique for a multi-site consumer business, right? So that's what's really interesting about us is as we start to look to add new clinics, they're highly accretive at the top line and bottom line with high ROI.
And on that point, you have 31 centers today with the opportunities to grow 300 locations in the U.S. How should we sort of think about the cadence of the expansion and what regions are you going after? I know you still have a lot of white space, but what is your plan forward?
Yeah, maybe I'll take the first part, certainly. So we've made the conscious decision to stop DeNovo's the last couple of years as we stabilize the business and stabilize and clean up our balance sheet. So it's really the kind of two main markers for us to kind of start new DeNovo growth again is seeing the stabilization in the core business. We saw, as Yogi alluded to, Q1 positive comps. So we're on our way. We want to see more than one quarter before we can kind of call that victory there. But we're really pleased with the progress we're making in the business and stabilizing it. So that's kind of seeing true stabilization in our core and showing that we can have some level of growth in same-source sales is kind of marker number one. And then secondly, is also stabilizing and strengthening our balance sheet. So in the last year, we've decreased our debt by $30 million and improved liquidity, which gives us the financial flexibility to invest in the capex. While they do pay back within a short period of time, it does require some upfront commitment and we wanna make sure we have the right balance sheet and liquidity to do that as well. In terms of expanded locations, we have 31 now. we've said you know we've done studies where there's 200 300 possible locations where we can expand I think more reasonably is probably a hundred we could easily get to without any sort of cannibalization or kind of concentration of clinics but just give you some examples of where we're not and you would think that'd be surprising we're not in Long Island we're not in the Bay Area we're in San Jose but not San Francisco or on the other side of Oakland, Portland, Indy, Tampa. So there's a lot of just natural places to go where we'll be able to capture the opportunity. And again, like I said, all of our clinics today are profitable. So as we open them, the model works wherever big market, small market, they work. And so it's just a matter of executing on them, which has us really excited. And as volumes recover, how much
operating leverage is embedded in the model and where do you see the biggest opportunity to expand your margin just from you know current level today yeah yeah it's you know historically the business
has been at EBITDA margins at or above 20 percent and so we're at 10 percent EBITDA margins now so there there is real opportunity to improve our EBITDA margins and profitability and so that obviously has us excited. As mentioned before, our gross margin has historically been around 60% and highly variable. So as we drive more volume and revenue into the business, each incremental case gross margin is, you know, going to be around 60%, but that still leaves us with 40 or 50% of kind of fixed costs that we'll be able to gain operating leverage over time as we see increase in revenue beyond that though there's so there's still opportunity for us to just get more efficient and streamline the business to kind of create that operating leverage and not having to wait for significant kind of volume flow through which you know we're expecting those really come in the two buckets of continue to optimize our sales and marketing efforts and in corporate SG&A. In the last year, we've taken already steps to do that. We've, you know, already taken roughly $4 million of costs out of the system and streamlined operations, really just through getting more efficient, taking out complexities where it wasn't necessary to be as complex as we are. We have really a new management team. Yogi's been here a year. I've been here four or five months. We have a new president of operations, new general counsel as well. So we continue to evaluate the business to find ways to streamline, become more nimble and flexible to generate that operating leverage, both on the steady state of the business, but certainly as we see more volume flow through, we'll see pretty strong flow through on the profitability side as well.
And just on the clinician side, on the doctor side, why would they choose to partner with you and how how does your vetting process also work from you know how do you choose your doctors
at the same time uh we'd love to hear a little bit more yeah so uh great great question goes to the heart of uh why people choose us right so we we ensure that we work with elite you know both certified plastic surgeons or cosmetic surgeons like that's that's who we work with uh before someone joins our team they've you know they have a book of results already and uh and that's where we that's where we go from the the vetting process is you know what are your certifications what's your book of uh results where do we have openings and uh really even within that we would have a process where they're observing we're observing their work uh we're training them for a few weeks before they can start. Again, remember, because these are both certified plastics, for example, they know all of this, but it's the air sculpt method. How do you do it under a wake? How do you do it in our settings, which is critical, and how do we make sure that we are providing the right experience? If someone's paying $12,000, $13,000 out of pocket, those things matter. Now, from an economics perspective, what's in it for the surgeon as well? The interesting thing is all of our surgeons are 1099s, so they get a percentage of the revenue that they treat. This is very powerful for them because it does a couple of things. One is they have full medical freedom to say, hey, I don't want to take this case. So there's no pressure when they're an employee. There's an implicit pressure of I need to do volume. here they have full medical flexibility and we pride ourselves on that on being medically first secondly if you think about surgeons and you're going to talk to them many of them say look I got into this for the surgery aspect of it what you guys allow me to do is focus on that we take care of marketing sales operations, supplies, somebody called out, you know, somebody quit, the plumbing is backed up, the landscaping of the office or outside, like those are the kinds of things for surgeons, they're like, I come, I do what I love, which is surgery, I leave, you all take care of everything else and I get paid fairly. So many of our surgeons work with us two, three days a week and they're making you know mid six figures so in that sense that's that's appealing to a lot of surgeons and we have a strong network of 80 plus yeah no that's very
impressive where do you think the biggest self-help opportunities still remain inside the business is it you know marketing size sales conversion we talked about clinic productivity any other sort of areas that you as you assess the business as you said with the new management team what are key opportunities that you see that can still improve significantly from here?
Absolutely. So I'll point out three. One is definitely around sales and marketing. We are still one of the best-kept secrets out there and that's not a good thing. So how do we get a name out? How do we make sure that people understand what we're doing? Even early steps towards that has inflected to positive growth. So that's what's driving growth now. The next level of growth is going to be capturing the glp1 opportunity as i said we are the scale player who has the ability to do that um we're in early innings of that but that's going to be the next stage of growth for us and then over time just expanding our geographic footprint because there's a huge amount of populations where we are not able to serve and we're not able to access our services So how do we expand that? So that's almost a, you know, now, soon and future growth vectors that we are looking at.
Yeah. Before I jump to any other questions, any questions from audience, by the way, that you like?
So just to repeat the question. So the question was, would we consider putting the technology in any other plastic surgeon's office or would we only do this in our setting? So we've historically only done it in our settings because it's not just the technology, it's also the training and how you go about that. Currently, that's not a focus to expand that to other plastic surgeons' offices, but never say never.
Any other questions? And just on, Michael, on the capital allocation priorities, you obviously mentioned the debt reduction. Do you anticipate investing more in your growth in the near term versus other alternatives? How are you thinking about that internally?
Yeah, from a capital allocation perspective, our top priority over the last year has been paying down debt. We've done that. We've decreased it by roughly $30 million. Our leverage ratio is below two and a half times. We're in a much healthier place. Still a priority for us, but less so than it was a year or so ago. Beyond that, it really is around investing in growth initiatives that we see. And there's high ROI opportunities in our business today to invest in those growth initiatives, whether it be just continuing the sales and marketing efforts, getting our brand name out there, and then expanding our services as well. You know, those two both have really high ROI. We want to be thoughtful about how we deploy capital to those areas. But we see significant opportunity there, and we're going to lean in. And we've done that in Q1. We've got to be thoughtful about and we'll continue to be so but that's really the balance it's it's continuing to make sure we have a strong balance sheet and it'll lean into the growth opportunities we see this is a question for both of
you what made you join aerosculpt and what are you most excited about since
you since you joined I can go first you have to hear your point so for me it was it was a few things one was look at my backgrounds always been in consumer so I've led and grown consumer-focused organizations, driven revenue growth and profitable growth. What I really liked about Sculpt is, one, it's an effective procedure. I want to be able to stand behind something which I say, yes, I'm proud to stand behind the service. I've gotten the service done myself, and I can attest firsthand the value there is. and you have to talk to the consumers and people who have gotten the procedure done. They call it life-changing. It's not just your physical appearance changes, but the impact it has on your confidence. It really matters. So just the effectiveness and the value it adds to the consumer was number one for me. The second one was just the unit-level economics. It's a significantly profitable business, variable costs, 60% gross margins, and even at its low point, we're at 9, 10% EBITDA margins. That's a good business to be in, in my mind. And 20% is what we are targeting. We've been there before. And lastly, honestly, it was the culture of the team. So the focus on the consumer, the passion behind delivering great service was the hallmark. And I saw that from the outside, but as I've joined, I've seen that firsthand while visiting our clinic. So I really think it's, what am I selling, being able to stand behind that, great economics and a great team that goes along with it.
Still a lot of the same reasons. The one thing I would just add to that really is the revenue runway that this company has. With the economics of the business, with that kind of revenue runway, made it really interesting just to kind of put finer points on it. One, as we mentioned, same sort of sales. We knew we could stabilize that and get it to growing at least low single digits at a minimum. Expanding services to capture the GLP-1 opportunity is huge and growing. I mean, there's not really other players out there that are servicing the side effects of GLP-1s, and we think we're primed to service that consumer base even more broadly. And then couple that with de novo growth with only 31 locations and natural places to move there. All those compound on itself where revenue, there's a large revenue runway ahead of us that we know we can kind of go get with strong flow through. It's not like you have to invest into revenue, And so profitability has to be diluted significantly. There'll be some investments made, but we can do it really, really economically and efficiently, which got me really excited.
Yeah. And what do you think is the most misunderstood by investors about Aerosculpt at this point? What do you want them to take away the most?
Yeah, I think really just the investment community is starting to see the progress the business is making. we're still in the very early innings but you know we are we're executing on the key initiatives really yogi laid out a year ago uh whether it be stabilized the business q1 again one quarter but q getting same sort of sales the positive after comping q1 last year was down 20 over 20 percent right that's a huge turnaround in and of itself through the enhanced sales and marketing efforts we talked about and we're still just scratching the services on expanding the glp1 um services in our clinics that's going to capture that opportunity. We've cleaned up the balance sheet quite significantly, a fairly new management team to kind of streamline operations, take out complexity, get more efficient, allow us to move more quickly into Genova's expanded services. So I think it's really just getting our story out there and investors starting to see the progress we're making. And we're kind of putting our own tailwinds behind our back and not waiting for, you know, a robust consumer to take us where we need to be. I think that's really it, yeah.
Yeah, I'd echo that. It's more of a, ours is now, we have the right plan, we have the right team in place. It's a focus on execution. Yes, the consumer will remain uncertain and choppy, but we're not waiting for the consumer to go on. So we're executing on our priorities and look forward to continuing to report progress.
Yeah. And as we close out, I love your perspective on sort of the structural trend towards longevity and wellness that we are seeing. How are you? What's your sort of personal outlook of the sector as a whole? And, you know, what you're most excited about as you look out to the next three to five years?
The sector is just getting started. I've been in aesthetics before this as well. and just it's a long-term focus I think a lot of the solutions which will come in the next three to five years there's a few different disruptive trends that are coming together everything from you know some of the CRISPR solutions becoming more mainstream which is gene editing combined with what AI can bring to the table combined with how just the pace of innovation is picking up in this space. So I think we're just at the starting point. A lot of what's coming will be really, really positive over the next few years. Any thoughts, Michael? Not much to add, by the way.
Yeah. Yeah. Well, thank you, Yui and Michael, for joining us. Really excited to get to know more about your scope. And yeah, thank you, everyone, for joining. Thank you for having us.