Well, good afternoon. Thank you all for joining us. So my name is Brian Nagel. I'm a senior equity research analyst here at Oppenheimer, covering consumer growth and e-commerce. So this is, I guess, the second half of day two of our 26th annual Oppenheimer Consumer Growth and E-commerce conference. So we very much appreciate everyone tuning in here. So I'm very pleased to have with us our next presenting company, AirSculpt Technologies. and two of the company's senior executives, Yogi Jashani, who's the CEO, and Michael Arthur, who serves as CFO. So gentlemen, thank you for joining us.
Ryan, thank you for having us. Thanks for having us, Brad.
So we're going to structure this as an informal fireside chat with me asking questions and the Aeroscult team responding to those questions. To the extent there are questions from the audience, just send them through the chat, and I'll be happy to work them into our conversation. So, guys, I thought we'd start, you know, just maybe for those in the audience that are less familiar with aerosculpt technologies, just talk about, you know, the company and basically the strategic positioning of the company within, you know, the broader, what I consider, health and wellness space.
Absolutely, Brian. I can get started on that. Just as an overview of who we are, we're a premier body contouring company. We've got a proven track record doing 75,000-plus cases. The main body contouring procedures we do are fat removal, fat transfer, and skin tightening. So these are elective plastic surgery procedures, essentially. We do those in our facilities. These are patented process is such that these are minimally invasive procedures that we do. The patient is awake through the procedure, and that leads to fewer complications and low downtime. Many of our patients are back to their regular routines within 24 to 48 hours. Do this across 31 centers, 150 top line roughly last year. It's a high margin business. So our average ticket is $12,000 to $13,000. It's all cash pay, so we don't work with insurance. And it's about 60-ish percent gross margins. All centers generate a strong forward profitability. How we do that, so that's what we do. The how behind that has been. So we are a D2C on the front end. So it's a direct-to-consumer model to get folks interested. As you can imagine, it's a $12,000 elective plastic cosmetic surgery. So it's a very considered purchase. So there's a consultative sales process with the surgeon involved in helping build a custom surgery plan. And then all of our surgeries are done by both certified plastic surgeons or cosmetic surgeons, some of the best out there. And they are $10.99 with us. So with 1099, they get a percentage of revenue. So we have a revenue share model with the surgeons that work with us. I joined a year ago. So in the past years, we've embarked on a transformation. And we're now seeing the initial fruits of that transformation and turning around our top line and putting a first positive print in years on same-store sales. We can talk more about what drove that and future growth levels as well. But that's a bit of who we are and what we do.
That's helpful. So let's talk about that, Yogi. One of the notes I had here is there has been a rather notable upturn in the business. So maybe talk about what's behind that and then the sustainability of it.
Yeah, absolutely, Brian. So as I mentioned, I joined early last year, and we have a new leadership team in place. Michael joined early this year as a CFO, the new head of operations as well. We've been focused on transformation. That starts with stabilize the revenue base. So when I joined, we were running negative 15, negative 20% same-store sales. As we've added talent, we've improved our marketing and sales execution, which is really driving the core business. So the Q1 positive print was we enhanced sales and marketing that includes who we are targeting, what message are we giving her, the channels we are using to talk to her, and really testing into those to see what resonates more with our target audience. she is 35 to 55 uh for the most part uh target audience is female uh higher household income so if you're paying 12 13 000 out of pocket uh you'd have the disposable income and uh she's investing in herself like this is an investment in in herself so we've been spending a lot of time figuring out what works on the sales and marketing front and enhance sales and marketing strategies, which have helped us go from negative sales for a few years to a plus one in Q1. That's been the driver of growth thus far. We're also seeing GLP-1 is a huge opportunity for us, which we're investing in as a driver for the next phase, and then footprint expansion in the future as well.
So, Yogi, talk about your consumer. So one of the themes of our consumer conference has been what we view as a more challenged consumer. We talk a lot about factors such as elevated gas prices, inflation more broadly, et cetera. So you're clearly, given the price point, like you mentioned, you have an upper income consumer. But how do you view the consumer backdrop and to what extent has that been a headwind for your business?
Yeah, absolutely, Brian. Look, what I'd say, the broader consumer environment certainly remains mixed. And we see that in the wide range of messages from other companies in the consumer space. And we've certainly seen that despite the fact that our audience tends to skew higher income, broadly aesthetics has been impacted by the uncertainty in the consumer. And we have faced those impacts as well. we remain focused on making the strategic changes to drive growth, regardless of the consumer cycle. With the consumer cycle being where it is, it will turn at some point. We know that that's just the way consumer cycles work, but we're not waiting for that. So to answer your question, we continue to see the consumer is very mixed and very choppy, even at the work that we are doing. regardless of that, we're able to drive growth in the business in Q1. And that's, you know, that's pretty encouraging. And we have other levels focused to continue driving growth. And when the consumer health improves, that will be a massive tailwind for us.
You mentioned a moment ago, growth in the footprint. So maybe you can just talk about what the footprint looks like now, and where that could go over time.
Yeah, absolutely. So currently we have 31 locations, 30 stateside plus one in Toronto. All of our locations are in major metropolitan areas and the higher end of those cities as well. So in New York, Manhattan, for example, we'd be next to the plaza in Beverly Hills. We are right off of Rodeo Drive, South Beach in Miami. So we have, our locations are in the major cities where you would expect our target audience to be. But our model also works across different tiers of cities. So we're just as successful in New York City as we are in Salt Lake City. Different demographics, different sizes of cities, but we see that all of our locations are four-wall positive and the business model works across different sizes of cities. So from a footprint perspective, it's probably easier also to say, hey, where we're not, right? Like the last large places where we are not present. So we're not in Long Island, not in Indianapolis, not in Tampa, Florida, where I'm based out of Portland, San Francisco. Like these are places that we don't have locations. So even though we have 31 locations nationwide in North America, still a lot of white space. So the work we have done shows us there's at least another 100 we could put in with minimal cannibalization risk.
How far will a consumer of your services travel to a location?
Right. Great question. Because it's a one and done procedure, like this is not a repeat procedure and it's a surgery. Consumers actually are willing to travel further to seek out the right quality surgeon and the right knee. so we routinely see people are coming from one to two hours out because remember you're coming in for for a consultation and then you're coming in for your surgery so it's not they thought too many visits uh but we do see that uh that the trade area or the catchment area is much larger uh for for what we're doing so michael i want to bring you into the conversation
yogi mentioned the uh we talked about the you know the improvement same short sales and then you know the outside gross margins here but how should we as investors how should we think about you know currently maybe more important over time just the overall economic model here i mean how should how i guess the question i'm asking is you know is is the business continues to grow i mean how should we think about the scalability and ultimate you know in in longer term margin profile
yeah maybe i'll start with you know right now so great great question brian we're our even margins right now are roughly 10 percent um but we've historically uh have reached and exceeded over 20% EBITDA margins, and we think we can get back there. As Yogi alluded to, our gross margins are roughly 60%, and that kind of will stay steady as we scale because our cost of services and the way we've structured the business is highly variable. So that kind of will scale up and down, which is nice. It still gives us 40%, 50% of revenue that has some level of operating leverage that we can gain over time. And some of that will come through just more volume as we grow the business. But also, you know, as Yogi alluded to, you know, we're really focused also on streamlining the business, taking out complexity, becoming more nimble and flexible to lean in, reallocate capital to higher, you know, ROI opportunities. And we've started doing that and we'll continue to do that. When we think about also de novos and adding new clinics, um as you alluded to that it's certainly um there's a lot of growth opportunity in front of us on how many clinics we can open and the unit economics are really attractive and so you know just to kind of put some numbers to it for a new clinic historically the build-out cost has been roughly a million to two million um and those have historically have gotten profitable in a few months and you know paying back in in a year certainly within two years which is really kind of unheard of for a multi-site consumer business so the clinic level economics on the on themselves are are a real strength of ours and we continue to look favorably on how we will expand de novo's with the long kind of runway ahead of us of where we can do that and so we do we do think that's attractive and we'll get as we grow even on the Denovo side you know we'll be able to continue to to um see and drive operating leverage in the fixed cost base of you know GNA
and things like that as we go and from a balance sheet perspective how conducive is the balance right now to either your ongoing operations but more importantly the growth you've discussed in
year yeah so yeah we've made meaningful progress on over the last year on strengthening the balance sheet so you know as of q1 net debt has come down um to below 30 million and we've have cash on the balance sheet above 16 million as of q1 and leverage below two and a half times so you know we definitely feel like we're in considerably better place than we were you know a year or so ago um you know kind of over that time period we've reduced debt by 30 million while continuing to um you know lean into investing those growth initiatives initiatives that that yogi alluded to expanding into marketing capabilities pursuing your service expansions where where we see them and so we want to continue to maintain that financial flexibility and you know that's important to us so that as we see continued attractive opportunities to present themselves, you know, we'll be positioned to act on them. And, you know, we continue to see that, whether it be continuing to enhance marketing, expanding services on the GLP-1 to serve that GLP-1 patient, and obviously de novos are all important. So we want to continue to maintain the financial flexibility there. That being said, the most kind of immediate priority for us on the capital structure side is really refinancing our existing debt which matures may of 2027 and so getting that done is is critical to us and so that's really where our near-term focus is aimed at at the moment is making sure that we we have that refinance and then ensuring that we continue to maintain financial flexibility to lean into the the growth initiatives that you have easily
to help so you'll be on the glp1 side um you know again in the work i've done here starting starting your company you know it seems to me you're it's quite new i mean like there's a big opportunity but you know for as a company you're you're you're quite new into it so maybe we can talk a little further about what you've seen already and then then the opportunity here and i guess importantly i mean how different is the glp1 side versus what your traditional business
would be yeah no brian great question so sort of broadly on glp1s the glp1s are here to stay We've seen adoption. I feel like Avery knows somebody who's on the medication, whether they admit it or not. And JP Morgan did some study where they said users are going to go from roughly 5 million, 6 million a year or two ago to up to 30 million in a few years. So lots of focus on GLP-1 and the drugs that are coming out there. We see GLP-1s as a significant opportunity. So while they're effective for weight loss, what's happening is the side effect of GLP-1s, which people are just starting to now come into mainstream, right? So folks who've taken it for 12, 18, 24 months, now you're starting to see the long-term side effects, which is around primarily loose skin. So you lost the weight, but you have loose skin. The second one is GLP-1s are not very targeted. So you are left with some stubborn fat deposits still. And you're 90% towards your target for how you want to look. The loose skin or stubborn fat deposits, you want to address that. And then lastly, some of the volume that gets lost. So everybody's heard the word olympic phase. Like that's the terminology now. So where you just lose fat from areas you don't want to lose fat. The good thing is our whole body contouring and fat transfer procedures already address many of these concerns, and we have been addressing many of these concerns. And we've seen an uptake of GLP-1 users who are interested in aesthetic procedures. What we've further done is we saw, as I came in, we saw an increasing amount of patients walking in with loose skin. And so we expanded our service offerings to standalone skin tightening middle of last year. But then we also saw that the weight loss, if you've lost 5, 10 pounds, skin tightening can help. But if you've had larger weight loss, we see there's need for skin removal. So we started piloting skin removal procedures in Q4. Again, all under local anesthesia while the patient is awake. So certain areas of the body where there is a lot of opportunity, like your abdomen or your upper arms. um so those have been expanding we uh we reported uh some growth in those pilots from q4 to q1 as well we've deployed marketing against that so everybody's marketing uh and talking about they want to sell you glp ones we're over here saying the side effects of glp ones we are the scaled player to address that and to complete the transformation people are looking to do it's a big opportunity. Just skin tightening and skin removal time is as large as fat removal when I'm measured and just procedures done in the past alone by the industry. So we view this as 100 million plus revenue opportunity in the long term. So excited about that. We have to execute obviously with medical procedures, you do pilots, you get your initial cohorts for before and afters, refine your medical protocols and then grow from there.
So does the, we talked a little bit about the, you know, the ticket, so to say, you know, I think you've mentioned $12,000. Is the GLP-1 focused procedure similar economically for the company? Is it more the legacy procedures?
Yeah, Brian, it's a good question for, the gross margin profile is pretty similar because my costs are, my surgeon cost is the primary gross margin cost and then some supplies, nursing and the like. So it is just as accretive as our core business. If I'm just doing skin excision, the average ticket would be $6,000 to $8,000. What we are seeing though is someone who's coming in with loose skin, they tend to have stubborn fat deposits as well. They tend to on skin tightening. So the ticket actually ends up being larger than the $12,000, $13,000 average ticket. Remember that $12,000, $13,000 is average of just fat removals, fat removals with skin tightening, fat removal with skin tightening, fat transfers, skin excisions, all of that.
How much of your business is repeat? It's a low percentage. So
what because our procedures are so effective at permanent fat removal you literally see fat come out of your body into a canister right next to you probably not a lunchtime conversation but it is the reality because they because the procedures are permanent fat removal the repeat visits we would get is if someone wants to get fat removed from another part of the body, but not a, I've done my abdomen, I'm back in six months, one year, two years to do abdomen again.
Got it. So just to send me back, competition, you know, so I guess I can ask you, you know, who are your primary competitors, are their primary competitors, but maybe the better way to ask the question is, you know, from a consumer's standpoint, you know, if I'm a consumer that's looking to have this type of procedure done, why do I choose Aerosculpt technologies, you know, versus some other competitor?
Yeah. So, Brian, the market is, as a consumer, when someone is interested in either fat removal, fat transfer, skin tightening, skin excisions, it starts with a need, right? I have a need. The market remains highly fragmented. More than 90% of the competition comes from your local plastic and cosmetic surgeons. we're differentiated as a scaled national player specializing in awake body contouring procedures so we're not trying to do all all sorts of plastic surgery procedures our main competitive advantages we are minimally invasive your your minimal downtime many people are back to their normal routine within 24 to 48 hours this is what we specialize in so a local plastic surgeon were to all range of procedures, we do what I would consider the slightly boring end of plastic surgery. Like this is not your facial reconstruction. This is not your nose job. This is not your breast implants. But it is a high volume procedure. And by focusing on that, we become really good at that and become really good at body contouring. So that's what we see with patients. If anything, a lot of what we hear from patients is after the procedure, particularly, we're best kept secret out there and they'd wish they'd known about us before. That's great to hear from an outcome perspective. Obviously, I want more people to know about us
though. Then marketing, as I can tell you, you mentioned maybe some shifts you're making in marketing. Then Michael, I'd love to bring you in the conversation too, but from a more financial standpoint i mean how do we think about marketing so let's just start with how how you market now how that that shifted then we can talk about the financial implications of it yeah absolutely so
for us very direct to consumer marketing engine on the front end what that means is that nobody's out there thinking about the people out there thinking about i need these procedures but unlike uh like folks are in research mode so a lot of folks on research modes we make sure that We are present in all the places where people are researching with its information on our site, on paid search and the likes. We're also present where people are passively trying to understand where they're not as committed to, I want to get a procedure done, but they're trying to understand what's So it's a direct-to-consumer model on the front end with consultative sales right after So someone raises their hand, hey, I'm interested, and then we build a custom surgery solution for them with a sales consultant and the surgeon involved. Over the past year, my background's been in consumer all throughout and accelerating profitable growth. That's what we've been bringing D2C practices, whether it's what channels are we in, depending upon who our consumer is, how she consumes the media. What are we testing in terms of marketing approaches? and doubling down on areas that we find profitable. So a lot of this enhancements to sales and marketing particularly started to take hold in Q4, where we bent the curve on our same show sales decline and then turned it positive in Q1. It's things like increasing influencer engagement. The space is highly coveted from that perspective. of improving meat and potato, website functionality, conversion optimization, optimizing our spend towards higher value audiences to deliver sustained momentum in our business? I'll let Michael speak to just what the economics are for those.
Yeah, the way I would think about economics or the way we think about it internally really is starting with what are the unit economics of a single case? So as Yogi alluded to, average case, roughly $12,000, $13,000. Our gross margin on that is pretty steady, around 60%. So per case, we're making, let's call it $8,000 per case. And our blended CAC is around $3,000, give or take it can fluctuate quarter to quarter. So our margin profile per case is $5,000, right? Now, that CAC is a blended number. So really what then our conversations are, what is that incremental dollar and how much, you know, if we spend an incremental dollar to get another case, you know, what is that relative to the EBITDA we'll get? And as long as that incremental dollar is going to return more than a dollar and some change on that, we'll continue to lean into marketing. So really it's underneath the hood of, you know, can we drive the leads, you know, can we drive that into someone coming in, getting a consult and obviously driving into an incremental case. And as long as that can be done, you know, for less than what we're spending, then we'll continue to lean into that marketing. So that's kind of how we think about our marketing engine. But at large, right, our margins are healthy enough that we can lean into marketing to drive incremental revenue when we see the opportunity.
Now, to what extent, you mentioned the kind of the surgeon dynamic that I would say, the contract, contract surgeons. So how, I guess the question I want to ask is how difficult is it for AirSculpt to recruit surgeons? I mean, is that a gating factor to the operations of the growth of the business?
Yeah, Brian, I'd say that's not the gating factor. For us, demand generation on the front end with consumers, that's the key unlock for higher revenue. On the surgeon side, we've got a network of 80 plus surgeons, and we're very blessed to have the surgeon partners that we have. uh now again both certified plastics or cosmetic surgeons before we bring them on board we want to make sure they they have a uh they have a book of results they've done awake procedures before uh we make sure that they find this as much of a fit uh on on both ends so they do observations uh come in they train for a few weeks because remember these are surgeons they already know how to do a lot of these procedures they're trained in the air sculpt way and look for them they get 20 of the revenue that comes in so you're working two three days a week and making mid six figures what surgeons like about that model is we take away all of the hassle of marketing and sales and getting a consumer in and running the practice and dealing with staffing and dealing with all of the other things that come in surgeons most of the ones that I've met, they love to do surgeries, they love to treat. All of the other stuff that comes with running a business, we take that away. So I think many of our surgeons prefer that model and actually quite like it. So we've had a stable set of surgeons. We're very happy with the partners that we have.
Because I think our time is going to wind down. Is there anything we did not discuss that we should have discussed?
Yeah, I can take that, Brian. You know, you can kind of fill in. I'd say largely, I think, really the key takeaway here and message we've been trying to deliver to the investment community is really, you know, we're executing on the key initiatives that we've laid out, primarily around, one, stabilizing the business, getting same sort of sales comps turned around, you know, from a year ago down 20% same source sales to, as Yogi alluded to, positive, same source sales in Q1, mostly through just enhanced sales and marketing efforts, right? So we're really executing the background on getting our sales and marketing engine running and operating more efficiently. So excited about that. Second is making sure that we can be well-positioned to capture this GLP-1 opportunity that we think is large and untapped. Everyone's meeting the upfront of getting GLP-1s to consumers, but those consumers we know of GLP-1s have side effects that are kind of unmet and we're a scale player that can meet those side effects. And we've been working on expanding the services as well as enhancing our marketing messaging so that we're making sure we're able to reach those consumers in the right way to bring them in the door and then serve them appropriately. So excited about that. And then thirdly, as I mentioned, is our efforts around refinancing our debt that kind of matures in a year, which is important to us and to continue to maintain that financial flexibility that we have to continue to lean into these growth initiatives that we're excited about. Once those kind of steps, I think de novos also are a question that we get a lot, which is some version of just when will you start adding clinics again? And we've kind of, you know, we've made the conscious decision to stop as we stabilize the business and refinance our debt. And so as we see those markers, we execute on those markers, you know, de novos will be, you know, soon to follow, which we're also excited about.
You nailed it, Michael. Yeah, there's, Ryan, lots of growth ahead of us, just in the core business with new services and with footprint expansion. So we feel pretty excited on where the business is and where we're going, and we're just getting started. Just like any transformation, it's never linear, and we've seen some ups and downs already, but the opportunity is there, and we're focused on execution.
Well, thank you. We very much appreciate having you here at our Oppenheimer Consumer Conference. Exciting story. We look forward to watching it continue to play out.
Thanks for having us, Brad. Thanks for having us.