Good day, and thank you for joining us. Welcome to The Beauty Health Company's Second Quarter 2021 Earnings Call. All participants are currently in listen-only mode. After the presentations, there will be a question-and-answer session. I will now turn the conference over to your speaker, Dawn Francfort. Please proceed.

Good afternoon, everyone. Thank you for joining The Beauty Health Company’s conference call to discuss the Company’s second quarter 2021 financial results, which we released this afternoon and can be found on our website at investors.beautyhealth.com. With me on the call is Clint Carnell, Chief Executive Officer of The Beauty Health Company; and Liyuan Woo, Chief Financial Officer. Before we get started, I would like to remind you of the Company’s safe harbor language, which I’m sure you’re all familiar with. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our filings with the SEC. This call will contain non-GAAP financial measures such as adjusted gross profit, adjusted gross margin, adjusted net income, adjusted EBITDA, and adjusted EBITDA margin. Reconciliations of these non-GAAP measures to the most comparable GAAP measure are included in the earnings release, furnished to the SEC and available on our website. Now, I would like to turn the call over to Clint Carnell, Chief Executive Officer of The Beauty Health Company.

Thank you, Dawn. Good afternoon, everyone. And thank you for joining us today for a discussion of our second quarter results. Before I get started, I’d like to first thank our employees and providers worldwide. Despite the still challenging environment, our employees and providers have shown a level of resilience and passion, enabling us to achieve our record performance. They are at the center of everything we do and a key driver of our success, and we simply could not have achieved any of this without them. Now, turning to a review of our quarter. We are very pleased with our second quarter performance and strong first half of 2021, with both sales and adjusted EBITDA materially exceeding our expectations. Our key strategic initiatives continue to gain traction, and we are capitalizing on the favorable self-care trends, which we believe represent a lasting shift in consumer behavior towards health and wellness. Now, subsequent to the quarter end, we have grown our Delivery Systems to over 18,000 units as we accelerate our investments in brand building programs and forge significant progress on strengthening our global connection with our consumers. While a portion of the outsized growth was related to easier comparisons from COVID-19 and closures in the prior year, we drove significant growth compared to 2019 levels. We are also pleased to welcome distributors in Germany, Australia, France, and Mexico to the HydraFacial family. We’re thrilled to have them join the team as we see these markets as strategic to growing our business internationally. Turning to financials, adjusted EBITDA was $11.4 million, driven by strong net sales growth of over 370% year-over-year, significant gross margin expansion, and disciplined expense management, while we continue to ramp up our strategic investments. We further strengthened our financial position, paying off our debt and improving our leverage profile following our business combination in May. We are making significant progress on our vision of deeply connecting our consumers to the Beauty Health community where they live, work, and play. We remain firmly on track to achieve our long-term strategic goals as our brand is resonating globally. Therefore, we're raising our full-year top-line 2021 guidance on the back of our strong results, and I’ll discuss those in more detail. For today’s call, I will provide color around our second-quarter performance and then discuss the confidence we have in our growth strategies and outlook, given the evolving consumer behavior favoring Beauty Health and our unique business model driven by our HydraFacial Nation. Our second-quarter results exceeded expectations across the board. Sales strengthened as we moved through the period and meaningfully exceeded pre-pandemic 2019 levels, increasing 57% versus 2019. On a year-over-year comparison, our second-quarter sales grew by over 370%, led by continued strength in our Delivery Systems, which increased 481%, and a 290% increase in our Consumables revenue. Our adjusted gross profit increased over 500% from a year ago, generating a 75% adjusted gross margin. Our adjusted EBITDA improved to $11.4 million, driving an adjusted EBITDA margin improvement of 2,480 basis points compared to the prior year. During the quarter, we continued to build our platform with the objective of establishing a connected community to Beauty Health that benefits everyone—the consumer, the provider, and our Company. We continue to make progress this quarter on our key three growth initiatives, which are comprised of raising consumer awareness, delivering innovation, and expanding our international infrastructure. I’d like to touch on each with some specificity. First, with respect to our efforts to drive consumer awareness, we accelerated our investments to build awareness of the HydraFacial brand, leveraging our passionate community in the HydraFacial Nation and expanded our marketing efforts. We continue to build on our HydraFacial CONNECT, our clinical training, professional development, and holistic business education program, as we strive to be the world’s largest universities for estheticians. Through our partnership with estheticians, we have created a passionate community of loyal and highly influential providers. We’re beginning to see our business in the retail channel improve as more locations reopen following the closures related to COVID-19. We continue to make progress on expanding our retail partnerships and elevating consumer awareness of our brand. As markets reopened this quarter, we began to activate these marketing initiatives, accelerating our investments in brand-building programs. We hosted our first inaugural virtual event in Las Vegas on May 1st called EstiPalooza that drove over 1,500 people to register and see the event alongside our 150 in-person attendees, properly distanced. GLOWvolution, our U.S. coast-to-coast bus tour, kicked off in Miami on June 4th and will continue well into September. During this event, we were able to provide treatments to 250 customers on-site over a two-day period. We also hosted two international pop-up events, in Dubai and a London Experience Center. These events are highly effective at activating demand. They drive community engagement with the esthetician and consumer awareness, which turns results into consumer demand. At the same time, we strategically implement promotional offerings to activate delivery system sales, effectively expanding our partnerships in these select regions. This allows us to build the delivery system capacity in these locations to meet the expanded consumer demand these events create in our local markets. Our strong consumer multiplier effects make these events highly effective, because you have to try it to get it, and approximately two-thirds of consumers who try a HydraFacial for the first time become repeat customers. Furthermore, roughly one-third of the customers will become frequent super users of HydraFacial, going six to eight times per year. In our most recent event, approximately 85% of people who tried HydraFacial for the very first time indicated their intention to undergo another treatment. Given that once we know people learn about HydraFacial, they become repeat users, we are intently focused on building awareness of the brand and treatment with consumers through these programs. Second, we continue to invest in our innovation initiative to create products and technology that seamlessly connects with our HydraFacial community. As previously mentioned, we are accelerating our R&D investments to ensure we are delivering the right product and technology to build upon our connected community. Our upcoming new product launches, which I will discuss in more detail shortly, remain on track, and we could not be more thrilled about launching them. We are adding innovation at serums, including our Dr. Murad co-branded serum that launched during the quarter. We are testing our new app that allows us to connect with our consumers and providers directly, where they live, work and play, as we expand our direct-to-consumer connected capabilities. While our app remains in beta mode, we are highly encouraged by the early response we are seeing from our customers. Finally, we continued to build up our international presence this quarter, as we invested in growth and announced the acquisition of four distributors. Global expansion is a top priority for our team, with sales increasing over 400% this quarter. We are investing in marketing initiatives globally to grow consumer demand while scaling our infrastructure and the team to support our rapid expansion. During the quarter, we announced agreements to acquire four global distributors, including our partners in Germany, Australia, France, and Mexico for a total purchase price of approximately $35 million in cash and stock. These acquisitions are consistent with our focus on accelerating our growth internationally, which further solidifies our direct presence in key strategic markets. We’re building out our international infrastructure with plans for headquarters in EMEA and APAC, as well as larger teams in the local markets. We are extremely proud of what we have accomplished this quarter, as well as the past year, particularly given the challenging environment. The sustained momentum this quarter of over 370% sales growth is further proof of our powerful consumer brand and platform business we have built in Beauty Health. As we look forward to our third quarter and beyond, we see significant opportunities for our business by leveraging infrastructure and growing our installed base to fund these new investments. As a result of another strong quarter, we are raising our top-line guidance for 2021. We now expect sales in the range of $230 million to $240 million, which is up from our previous guidance of approximately $200 million. This increased top-line guidance is based on our strong results in the second quarter as well as the continued momentum in self-care. Coming out of the pandemic, we see the sustainability in health and wellness as a lasting shift in consumer behavior. We see significant opportunity and are accelerating our investments to capitalize on the multi-dimensional growth ahead of us. I would like to walk you through details of our upcoming investments in the three key strategic growth initiatives that I previously highlighted. First, building and expanding consumer awareness is an important priority for us. By increasing our consumer awareness through accelerated marketing initiatives, continuing to build out our team and expanding our partnerships, particularly in the retail channel, we will address the significant white space opportunity before us. We will continue to deploy our highly effective events to activate consumer demand. Our GLOWvolution coast-to-coast U.S. bus tour will continue into September. On August 4th, we announced the appointment of Ben Baum to the newly created role of Chief Experience Officer. This position is fundamental in further supporting our consumer awareness strategy. We are expanding our presence in the retail channel with our new Nordstrom partnership, where we are entering select locations. This partnership will further build upon our focus to expand our presence in the retail channel as we see significant opportunity to extend consumer awareness through this channel. Second, we are increasing R&D investments to accelerate the rollout and innovation that will connect our entire HydraFacial community. We’re testing the launch of our connected handheld device in the fourth quarter, with a broader rollout expected in 2022. We remain on track to launch a HydraFacial 2.0 connected device in 2022. Additionally, we are continuing to test our app, which will expand our ability to seamlessly connect with our consumer, and early results are highly encouraging. We’re launching innovative products and technologies, driving our long-term focus on building a seamlessly connected and interactive beauty health community. The ability to directly interact with the consumer and engage them through our connected community will be a significant driver of our long-term business. Third, we’re celebrating our global footprint as we go direct in key strategic markets and build our presence in other markets through new distribution partnerships. We will continue to add incremental resources to our team globally to meet the growing consumer demand and expand our infrastructure to support this rapid growth. This includes the announcement on August 4th of Stephan Becker being named our President of EMEA, effective this October. We also hired Indra Pamamull as President of APAC, who joined just yesterday, The Beauty Health family. We’re continuing to establish new distributor partnerships in certain markets, and we’ll go direct in other markets where we see an important strategic opportunity. Our international presence presents a compelling opportunity for us, which we expect will exceed our U.S. business in just a couple of years. In conclusion, we are extremely pleased with our second quarter results. The momentum in our business is further proof of the strong foundation we have built as a platform company in the dynamic beauty health category. This is a growth story with significant opportunity, and we are well-positioned to capitalize on multiple opportunities as we accelerate these investments in our business and build a unique, connected community. I’d like to turn the call over to Liyuan, who will discuss our financial performance in the second quarter, as well as provide you with our updated financial outlook for the year as we continue to deliver profitable growth and reinvest in our unique platform.

Thank you, Clint, and good afternoon, everyone. Before I begin, I’d like to thank our team around the globe for their continued dedication throughout the quarter. Their hard work and commitment of our people drove our impressive growth this quarter. This, along with the stacking and closing of four distributor acquisitions in a still challenging environment demonstrates a unique outcome-driven growth mindset of our team and our business model. Just as a reminder, since we finalized the reverse merger on May 4th of this year, The Beauty Health financials reflect mainly HydraFacial historical information. There were a few significant non-cash accounting entries from the valuation of our word and mark-to-market valuation of the 7.5 million earnout shares related to the four acquisitions, which we will address and adjust out as non-GAAP measures to focus our discussion on our core business performance. I’m going to review our second quarter results, touch on our balance sheet and then provide details on our updated 2021 guidance. We’ll make select comparisons to our second quarter of 2019 in my prepared remarks, as we believe it is a more meaningful comparison due to the COVID-19 related market closures in 2020. Let me start with our second quarter results. As Clint mentioned, we are very pleased with our record performance this past quarter as we continue to build on our key strategic initiatives with second quarter results exceeding our expectations across all metrics. Since many of you may be new to our company, let me take a minute to talk about our business model. We have a fairly predictable sales cycle, with our seasonally strongest quarters in the second and fourth quarters of the year. Net sales of $66.5 million increased materially from last year’s COVID-impacted sales of $14.1 million and up 57% from $42.3 million in the second quarter of 2019. The significant increase was largely due to expansion in our Delivery Systems with almost 18,000 active systems globally at the end of the quarter and acceleration in our Consumables as COVID-19 restrictions lifted and more of our partners reopened. The strength in the U.S. and EMEA businesses continued while the strong growth in the APAC region accelerated in the quarter. I’ll share a few highlights from our three regions. Second quarter sales in the Americas region increased to $42.7 million, compared to $9.5 million a year ago, and grew over 34% from our 2019 level. This strength was driven by continued traction in the U.S., primarily due to higher sales representative productivity on our solid Delivery Systems rollout. It’s important to note that more partners began to reopen as vaccines were available and government restrictions were lifted. However, we still had partners in the non-medical channels in select states who did not reopen until late in the quarter. Some U.S. locations continued to operate with reduced capacity to accommodate state and local regulations. We also saw some Consumable orders increase for customers reopening, which contributed to our record second quarter. As Clint mentioned earlier, marketing and training activations, such as EstiPalooza and GLOWvolution, also positively contributed to the increase in sales. EstiPalooza celebrated HydraFacial’s birthday on May 1st, and we successfully capitalized on our own prime day promotional activity. That sales event was equal to our Black Friday volume. We’re very selective with our promotional events and focus our efforts on digital and physical marketing activation with a trackable outcome. EMEA net sales of $11.4 million grew from $2.1 million in the prior year and expanded 46% from the second quarter in 2019, driven by strength in the United Kingdom, Russia, and the Middle East. This result is especially impressive, given the continued COVID-related closures we have experienced in many European markets. Pop-up activations and other marketing events launched by our distributors also positively impacted our results. Turning to APAC, net sales of $12.4 million meaningfully increased over 360% for both the second quarter of 2020 and 2019, primarily driven by growth in China, Japan, Taiwan, and Australia. While we continue to be focused on our system rollout in China, we have experienced increased sales productivity and are continuously expanding our presence in the region through both medical and non-medical channels. Our marketing and training programs throughout the APAC market also contributed to sales increases for both Delivery Systems and Consumables sales. Overall, our growth has been demand-driven across all channels. Consumers are asking for HydraFacial services by name, especially in our more mature markets. Against this backdrop, Beauty Health is well-positioned to continue taking share as our brand awareness expands globally. Moving to profitability, our adjusted gross margin was 75%, up significantly from last year’s COVID-impacted 51% and a 270 basis points sequential improvement from the first quarter of 2021. The bulk of the increase for both comparisons was driven by several sustainable attributes, including fixed cost leverage from higher sales, improved selling prices for Delivery Systems, as well as cost savings initiatives. We’ve remained focused on enhancing our margin structure through strategic initiatives while managing global supply chain risks. SG&A expenses in the quarter were $70.6 million as compared to $11.6 million for the prior year. As a percentage of sales, selling and marketing decreased by approximately 440 basis points to 39.4% compared to 43.8% in the second quarter of 2020. This decrease was mainly due to sales leverage. The increase of 340 basis points compared to the first quarter of 2021 was due to our strategically planned ramp up in marketing expenses. As we shared during our first quarter 2021 earnings call, we delayed select marketing programs until COVID-19 restrictions were lifted and market reopened in the second quarter. Creating consumer demand is our key investment strategy, and we will continue to focus on optimizing investments in sales, marketing and training, as well as strengthening our community engagement. We invested $3 million in R&D in the second quarter of 2021 to accelerate our launch of the HydraFacial Nation app, our new home device, and our upgraded delivery system. As Clint has shared, innovation is one of the main pillars of our strategic investments, and we will continue to invest in innovation in the second half of 2021. Our G&A expenses totaled $44.4 million, which included $30.4 million of transaction costs and $3.5 million of non-cash stock-based compensation expenses. Excluding these items, our G&A expenses were $10.5 million compared to $10 million in Q1 2021. The increase against the first quarter of 2021 was mainly driven by non-payroll-related public company costs of $0.9 million, which includes D&O insurance and SOX costs. We expect such public company costs will continue totaling approximately $3 million for the second half of 2021. We also started to invest in technology at the international infrastructure and expect such investments will ramp up in the second half of 2021. As a leader in this category, we’re accelerating our investments to capitalize on the long run ahead of us for growth. In addition to GAAP measures, adjusted EBITDA is an important profitability measure that we use to manage our business internally. For the quarter, adjusted EBITDA was $11.4 million versus an adjusted EBITDA loss of $1.1 million in 2020. The improvement in our profitability is a result of higher sales and gross margin improvement, partially offset by increased commissions and personnel-related expenses, due to strong sales and increased headcount for growth, as well as increased marketing and scaling spend. Our adjusted net income for the quarter was $7.8 million. Weighted average shares outstanding were approximately $92 million in 2021. As of today, we have approximately $133 million shares outstanding, including the 7.5 million earnout shares issued for the four distributors acquisition closed by July 1st, 2021. Our 15.3 million public warrants and 9.3 private placement warrants are not exercisable nor redeemable until October 2, 2021. Turning to the balance sheet. We ended the quarter with more than $100 million in cash and cash equivalents with no outstanding debt. As a reminder, we repaid all outstanding debt on May 6th as part of our business combination with Vesper Healthcare. Now, I will share more details regarding our outlook for the full year. As Clint mentioned, we expect net sales in the range of $230 million to $240 million, barring any deterioration related to COVID-19 trends, up from our prior guidance of approximately $200 million. Sales in the first quarter have historically been higher than sales in the third quarter. We remain cautiously optimistic while observing the situation related to the Delta variant in both APAC and EMEA regions. We’re leaving our adjusted EBITDA outlook at $25 million, as we intend to prioritize investing the additional sales generated back into the business. This will involve increased spending on branding and global infrastructure initiatives that will accelerate our share gain in the global beauty health category we created. While we might not see significant returns on these investments immediately in the second half of 2021, we believe investing ahead in our international infrastructure, including personnel assistance will provide us with speed and readiness for both growth deployment and potential M&A. We anticipate capital expenditure of up to $15 million in 2021. Our upward net sales guidance revision reflects our highly encouraging performance thus far in 2021. Our forecast includes solid results in the first half and strong trends that we have continued into the third quarter. However, given the uncertainty of the environment in which we’re operating, we remain cautious of the potential risks from further market closures caused by the new COVID-19 Delta variant and uneven global rollout of the vaccines. Our second-half guidance factors in a largely reopened global market, which could be negatively impacted if closures persist. Subsequent to quarter-end, we have grown our Delivery Systems installed base to over 18,000. I would like to note that due to factors such as trade-in, trade-out, varying system price points, and our international distributor model, our total Delivery Systems figures do not directly correlate to sales. In summary, we’re pleased with our strong first half of 2021. We have solid visibility as we look ahead to the remainder of the year, barring COVID. We have confidence that our strategy will uniquely position Beauty Health for global growth as we focus on creating long-term shareholder value. With those comments, I’ll turn the call back to the operator to open it up for questions.

Thank you. Our first question comes from Matthew O’Brien with Piper Sandler. Your line is open. Please go ahead.

Good afternoon. Thank you for the questions. Liyuan or Clint, I’m curious about your comments regarding the guidance for the year. It seems you are not expecting any significant COVID impact in the second half of the year, despite some hotspots. You believe operations will continue as normal. The new distributors are starting to make investments, which should contribute as well. Therefore, the second half guidance does not anticipate much growth compared to the first half of the year. Were there any delays in orders during Q2 that will not affect Q3? Or are you being cautious as a newer public company?

Thanks, Matt. I appreciate you joining and your question. Yes, we want to be thoughtful with the guidance, but I think that 2020 and early 2021 showed us we have a very durable business, and any challenges related to COVID-19, the current Delta variant appear to be temporary. So, we feel really good about the visibility for the back half of the year.

Well, technically speaking on our guidance, we did capture some of the trends into Q3, Matt, and we are assuming Q4 will open up more. That’s how we model the numbers out.

Thank you for that. Clint, the Delivery Systems number was quite impressive from the release. Can you explain where some of that growth is coming from? It seems like this is the best quarter you've had for Delivery Systems. I'm curious if there was some pent-up demand from earlier this year that manifested in Q2 instead of Q1. I believe that's a positive sign for the business's future growth. Could you discuss which channels contributed to this performance and how you anticipate these systems will progress over the next 6 to 12 months?

Sure. Matt, I think, one is we’re benefiting from macro tailwinds focused on health and wellness, and certainly the zoom boom effect has benefited HydraFacial. During the lockdowns, we worked very hard to collaborate with our HydraFacial community and particularly the estheticians, med spa owners, and physicians that were concerned about their sustainability. I think we’re being rewarded for that as we return to the marketplace. We continue to increase our spend on consumer awareness. As more consumers engage with those Delivery Systems, we’re witnessing multiple systems purchases. Currently, we see leads at an all-time high and strong yield rates. This is positive for the business when we’re installing more Delivery Systems than expected, and we hope to see that trend continue.

Got it. If I could sneak one more in here. The investments, you’re increasing the guidance by about $35 million with EBITDA staying the same. You’ve talked about these investments. Is it primarily for international infrastructure versus some other areas on the investment side that’s ramping up domestically? You called out some of the things. But, if you can maybe bucket where some of those returns could be a little bit sooner than you’ve previously planned versus more of a ‘22 event. That would be helpful. Thanks.

It’s a great question. The three buckets are simple. Consumer awareness, when consumers become aware, similar to events like the Dubai Experience Center and GLOWvolution, a very high percentage of those consumers are experiencing HydraFacial for the first time. They tend to show strong retention, providing great lifetime value for us as part of the HydraFacial Nation. Secondly, accelerating innovation—we have Project Casa and Syndeo on track, and we are getting great early feedback. Our app is now out in beta. Finally, the growth in international numbers necessitates that we get in front of the infrastructure, systems, processes, and personnel. You’ve seen us hire senior leaders with significant successful experiences scaling multinational organizations. Given the tailwinds we have and the performance of the business, we need to keep our foot on the accelerator to ensure we have all the infrastructure in place to handle the growth, particularly outside of the U.S.

Just to add to that point, we know how to test, learn, and react regarding marketing activation, depending on the country and the situation, which allows us to strategically adjust our approach. Additionally, in terms of R&D, we are increasing investments for speed, which is an incremental investment in that domain. The largest investments will primarily focus on people, processes, and systems for international infrastructure, as well as the implementation of an ERP system.

Thank you. Our next question comes from the line of Steph Wissink with Jefferies. Your line is open. Please go ahead.

Thank you. Good afternoon, everyone. I have a follow-up question on Matt’s prior question. But just wanted to unpack R&D spend a little bit. I think Liyuan you mentioned speed. But just curious a little bit of how we should think about the R&D step up in front of the handheld device in the fourth quarter, and then 2.0 as you plan for 2022?

Yes. When we referred to that, we were including external support and where the production is taking place. In that transitional period, we can roll out the product on time and execute a robust rollout. When we talk about investment for speed, it encompasses both the R&D function and execution specified in that category for product rollout.

That’s very helpful. So, just in terms of framing the adjusted EBITDA guidance, would you recommend that the biggest step function maybe to prior expectations would be slightly higher R&D spend than we had previously modeled?

I think the emphasis on R&D is a smaller bucket and is followed by a more significant dollar investment in marketing and in infrastructure scaling.

Okay. That’s really helpful. And then, on marketing, I wanted to just unpack a little bit of what you’re finding as you think about your new device launches. Any change in your go-to-market strategy or the commercial mix of how you plan to market, whether that’s to the consumer or to your professional partners?

Yes. As we evolve, we are becoming a B2C2B company. Think about it: we have a significant provider base accelerating sales. By increasing consumer awareness, our engagement is improving, and our providers are benefitting from higher profitability. We’re focused on adding experienced consumer-focused executives to our team to drive awareness and engagement for the HydraFacial brand. This combination will activate and bolster our consumable revenue which is central to our financial success.

Very helpful. Congrats on the good quarter, everybody.

Thank you. Our next question comes from the line of Linda Bolton Weiser with D.A. Davidson. Your line is open. Please go ahead.

Yes. Hi. Thank you. I was wondering if you could talk a little bit more about the distributor acquisitions. And what the effect on the income statement is. I would imagine it lifts your sales a little bit, but maybe it increases your SG&A. And then, kind of what you think that will mean longer term as you take these distributors internal?

Yes. Thanks for the question. We have found that acquiring existing partners helps secure local relationships, which are vital. We don’t expect disruption in the business. We’ve conducted these acquisitions collaboratively. This approach allows us to provide the necessary infrastructure, systems and processes to ensure they deliver on local expectations. The distributors have already established a sizable business within these countries. In essence, we are enhancing these markets by connecting them closer to the consumer and executing marketing strategies and events similar to what we have established domestically.

As we shared previously, we’ve been modeling these four distributors into our numbers for the second half of the year, primarily Germany, France, Australia, and Mexico. There will be a top-line transfer that we expect to see pickup, which we’ve integrated into our projections, but part of our investment is specifically about enhancing our infrastructure globally, particularly in EMEA and APAC, to support this growth.

Okay, sounds good. And then, I was just curious if many companies are talking about component shortages, are you experiencing any shortages of any of your components, or any difficulties at all in the supply chain as you move for the robust demand for your products?

Yes, we’re always top of mind with the supply chain. We’re working hard to diversify our vendor base and secure components to keep pace with demand. As we innovate new product lines, we have experienced the typical shortage challenges evident globally. We’re working to optimize our network and ensure we mitigate risks associated with these external challenges.

Historically, we had been owned by private equity, and improving our supply chain and demand planning was a key part of our investment thesis. The team has made significant strides, and we moved into our new facility at the end of 2019, which was designed to offer significant capacity. During COVID, we capitalized on the opportunity to automate our warehouse management system, reducing reliance on personnel. External challenges can impact our supply chain, but we do not have any major fundamental concerns about the business.

Okay, great. And then, finally, I’ll just give it a try. But are you willing to disclose the number of systems that were sold in the quarter or year-to-date?

We are providing directional numbers, which is that, at the end of the quarter, we were almost at 18,000 systems. However, given factors such as trade-ins, trade-outs, and our unique distributor model, precise system sales figures may vary, so we'll provide exact numbers by the end of the year.

Thank you. And our next question comes from the line of Kyle Rose with Canaccord. Your line is open. Please go ahead.

Great. Thank you for taking the questions. I think, in the prepared remarks, you commented just on the positive pricing trends you’re seeing on the box side. Is that related to the acquisition of the international distributors or is there some other trend in the U.S. that you’d like to call out?

Currently, it’s not due to the international acquisitions, Kyle. These acquisitions occurred on July 1st and would not factor into immediate pricing trends. The increase in price reflects the overall brand strength. Our sales force experiences high retention rates and our unit productivity remains strong. Price increases typically indicate underlying strength, demand, and ability to price competitively in the market. As such, we must be careful with disclosures of unit numbers due to trade-ins and upgrades. Yet, we continue to see strength in ASP and units, which benefits our recurring revenue model.

Great. And then, can you maybe just talk a little bit more about the app that you’re working on now and in testing? Maybe how you envision that from a longer-term perspective, interacting and connecting the company closer to consumers as well as physicians or estheticians?

Sure. The app is a tool that helps consumers understand their skin conditions and what products or services they should consider. It acts as a guide for discussions with estheticians during consultations. Going forward, purchasing the home health device could involve scanning a QR code that connects to the app. This will facilitate data sharing between the consumer and the esthetician. Ultimately, we aim to engage and support our consumers in their skin health journey and provide providers with valuable insights to enhance treatment outcomes.

Great. And then, just last question for me is, some of the diligence we’ve been talking to physicians and users is that they might like something a little bit more acne-focused or at least customized based on the oil levels on specific patients. Wondering if you could comment on that and any updates regarding the serums and boosters you plan to launch?

Certainly. We want to be careful not to make overwhelming clinical claims, as acne is complex with diverse conditions. However, we are working closely with dermatologists and estheticians to ensure HydraFacial can be a component of treatment regimens for these concerns. We have more acne-focused serums in development and will bring those to market responsibly, leveraging professional guidance.

Thank you. Our next question comes from the line of Amit Hazan with Goldman Sachs. Your line is open. Please go ahead.

Good afternoon, everyone, and congratulations on a strong quarter. I’d like to revisit the guidance briefly to ensure we're aligned on expectations for the third and fourth quarters. Could you provide an update on what's happening in the U.S. with Delta and share any insights into what you’re observing this quarter? Additionally, you mentioned some general guidance comparing the third quarter to the first quarter; what else can you add regarding the third and fourth quarters to help us refine our projections? Lastly, related to a previous question, what is the expected contribution from the distributors that you are now purchasing directly, and how does that factor into the revised guidance you provided?

Sure. Thanks for joining and for the question. Look, we view Delta, like COVID, as a temporary challenge, not inhibiting our visibility or durability. We're witnessing robust business demand and resilience. Our diverse channels give us confidence. Our guidance remains thoughtful, and while we continue investing through the pandemic, our approach caters to lifting consumer awareness and enhancing infrastructure, which increases shareholder value.

Yes, regarding current trends, there are regions experiencing openings and closures. For instance, many European countries faced closures during Q2, and in relation to the Delta variant, the APAC region is currently affected the most, impacting our projections for Q3 and Q4. We accounted for these variances when establishing our guidance.

Okay. And then, I was hoping for just an update on both Sephora and the progress you’re anticipating there this year, and also the new Nordstrom partnership. It would be great to get any more detail and color you could provide around that.

Sephora continues to be a valuable partner for us. They are facing retail challenges in the current climate, and we are working collaboratively to adjust our service offerings accordingly. The Nordstrom partnership enhances HydraFacial treatments within their flagship stores, which is a point of pride for me as a Seattle local. These partnerships provide mutual benefits: we enhance their services while driving consumer awareness of HydraFacial treatments.

To add to that, we do not have an issue with revenue concentration. Our partnerships with retailers remain under 5%, allowing us ample opportunity for growth with multiple clients.

Thank you. Our last question comes from the line of Bruce Jackson with Benchmark. Your line is open. Please go ahead.

Hi. Good afternoon. Thank you for taking the questions. The gross margins in the quarter were impressive. I was wondering if it was a role of mix and volume in driving the gross margin improvement.

Yes. The leverage on sales played a significant role in our gross margin improvements, along with the successful realization of cost-saving initiatives, especially impacting the first half of the year.

We moved to our new facility in December 2019, designed for significant capacity. The pandemic provided opportunities to enhance our capabilities through automation. Early in 2021, we managed to streamline operations. We’re pleased with how our systems have normalized, but we remain experienced in a challenging environment. The focus remains on maintaining strong margins while adapting to external supply challenges.

Okay. And then, do you think these levels are sustainable going forward?

We’ve raised our guidance twice during a challenging time, and we want to ensure our investors have confidence in our performance. We remain focused on increasing consumer awareness, expanding our systems, and enhancing infrastructure to support growth while delivering exceptional experiences to our consumers and providers.

Okay, great. Well, congratulations on the quarter. Thank you for taking my question.

Thank you, Bruce. I appreciate it.

Thank you. That concludes our question-and-answer session. I would like to turn the conference back over to Clint Carnell for any further remarks.

Great. Well, thanks everyone. I appreciate you joining us today and thank you for the thoughtful questions from our analyst community. We look forward to sharing our Q3 results. Please follow us #hydrafacialnation on Instagram and Facebook. More importantly, I want to show all of you HydraFacials. I’ll talk to you next quarter. Thanks so much.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.