AirSculpt Technologies, Inc. Price & Performance (AIRS)

We use non GAAP measures in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. A reconciliation of these measures can be found in our earnings release as filed this morning and in our most recent 10 ks which will also be available on our website. For today's call, Yogi will begin with an overview of the fourth quarter and full year performance, and share an update on our strategic priorities. That we are implementing at the start of fiscal twenty twenty five. Then Dennis will review our financial results in more detail and provide our outlook. With that, I'll turn the call over to Yogi.

Thank you, Alison. Good morning, everyone, and thank you for joining today's call.

It is a pleasure to speak with you on my first earnings call as AirScout's Chief Executive Officer at a pivotal time for the company. While I have met many of our shareholders and analysts since joining the company in January, For those of you who don't know me, I will begin my remarks by sharing my background and why I believe my experience will enable our transformation and return to growth. I have driven profitable growth in consumer businesses spanning Fortune 500 companies to high growth private enterprises. Most relevant to AirSculpt I was at Ideal Image MedSpa where I led a strategy that nearly doubled revenue and expanded margins by transforming marketing, sales, and our go to market model. I was attracted to EdCast given its unique strength and significant expansion opportunity. AirSculpt has a proprietary solution and a decade long track record completing more than 70,000 successful body contouring procedures across 32 centers. And we have meaningful growth potential as we operate in $11,000,000,000 total addressable market in The U. S. Alone. Since joining in January, I have spent time in our centers speaking with our teams reviewing performance and assessing what's needed for a successful transformation.

What is exciting to me is the passion for our business and our team's commitment to embrace the changes that are needed to support our return to growth. While challenges remain, I am confident we have the right plan to restore growth and increase profitability as we focus on executing better as a direct to consumer healthcare I will share our priorities and the initiatives we are implementing that we expect will allow us to achieve this objective. But first, let me review our fourth quarter and fiscal year results. For the fourth quarter of twenty twenty four, revenue totaled $39,200,000 declining 17.7% from the twenty twenty three fourth quarter with case volume down 16.7% from the prior year fourth quarter. Same store revenue declined 22.6% over the prior year quarter. Our fourth quarter results were in line with our revised expectations which were updated in January and reflected the challenging consumer backdrop which continues to pressure sales across the aesthetic space. However, our performance also highlights internal missteps that we must course correct which is my highest priority. As you are aware, ASCO is a considered purchase with an average spend between $12,000 and $13,000 In this environment, it is common to see a longer timeframe to convert leads Historically, our experience shows that it takes a approximately forty five days to convert a lead to a case.

For the second half of twenty twenty four, it was closer to sixty days. We also believe our cost saving efforts that included a reduction in marketing expense resulted in lower lead volumes which further pressured case growth. As a result, we did not experience the sales trend we typically see in Q4 and continue to experience sales pressure into Q1 of twenty twenty five. Adjusted EBITDA was $1,900,000 or 4.7% of revenue versus $10,100,000 or 21.2% of revenue in the fourth quarter last year. The decline in revenue accounted for approximately $6,000,000 of the decrease with the remaining mostly due to cost related to increased marketing and corporate costs to support our recent de novo openings. During the quarter, we opened two locations one in Birmingham, Michigan a suburb of Detroit and the second in White Plains, New York, giving us five new de novo centers for the year. While early, these locations are also experiencing the same headwinds that are facing our mature centers. For the full year, revenues were $180,400,000 and adjusted EBITDA totaled $20,700,000 with adjusted EBITDA margin of 11.5%. This compares to revenues of $195,900,000 and adjusted EBITDA of $43,200,000 with an adjusted EBITDA margin of 22.1% for the prior year.

As we begin 2025, we expect our first quarter same store sales performance to be similar to the trend we experienced in the fourth quarter as our lead volumes in late twenty twenty four were negatively impacted by the reduction in our marketing spend associated with our second half twenty twenty four cost saving initiatives. In addition, we continue to be pressured by the difficult macro environment. That said, as we have increased our marketing spend in 2025, we have seen an improvement in lead volumes This along with additional actions that are underway are expected to improve our ability to convert leads to cases as we move through the year. With that in mind, to accelerate our return to growth, we have two business imperatives.

First, to enhance our culture and drive alignment on one vision with a singular voice across all aspects of our business. And second, to improve our go to market strategy to drive consistent revenue growth. There are five key priorities that underpin our business imperatives. One, marketing, to drive more consumer interest and generate leads two, sales to convert those leads to cases three, new services to tap into more consumer demand four, customer experience to ensure we and five is the technology that accelerates these priorities. Let me provide some perspective on each. First, marketing. We have focused our marketing spend on techniques that have proven successful for us in the past using a returns based approach. We are also testing new areas such as online video and other social marketing channels. This effort began in January under our new Chief Digital Officer, and has already driven a significant increase in lead volume. Second, sales. Under our new Chief Sales Officer, we are strengthening our consultative sales model with enhanced training improved sales processes and a greater focus on lead conversion. Early results show encouraging signs and we expect momentum to build throughout the year. Third, new services. Today, we provide fat removal fact transfer, and skin tightening services.

Almost always, they are done within the same procedure. There is an opportunity for us to look at each of these services individually as well as introduce new services. I believe we already possess some of the best surgeons and we have an entire infrastructure of centers, nurses, managers, and sales force the opportunity exists to leverage our centers and people to further capture our addressable market. An example of this is skin tightening services which we plan to pilot in the second quarter. This way, we tap into the complementary impact of GLP-one which has led to an increased demand for skin tightening. We believe this can be a sizable opportunity for us to expand our customer reach and generate incremental revenues with the procedure that we already do. Fourth, customer experience. We are evaluating our current customer journey and how we can make improvements to further enhance the experience. This will be an ongoing focus especially in the back half of the year and into 2026. Lastly, it's the technology to accelerate these priorities. We are introducing new solutions to help our sales team close deals better and faster. For example, we plan to add new payment options that give consumers added flexibility to finance procedures.

We believe this will be an effective way to drive incremental revenue and improve our margins while meeting consumer needs. Later this year, we will expand the use of our Salesforce platform to more efficiently and effectively convert leads to cases. We are also planning to test solutions that can improve the experience of our clinic teams allowing them to spend even more time on patient care. All of these initiatives will enable us to improve our go to market strategy with a direct to consumer approach. I am convinced in AirSculpt ability to return to sales growth and generate strong free cash flow aided by our asset light business model. In the near term, we are pausing de novo openings to focus on improving our same center performance. As always, we will operate with rigor and adapt our [indiscernible] but our focus is clear. Execution and efficiency around culture, We have already begun to see an increase in our lead volume in the first quarter. With the marketing changes. That said, this lead growth takes time to materialize to revenue. As I mentioned, we expect our Q1 same store revenue decline to be similar to Q4 twenty twenty four with an expected sequential improvement in quarterly sales trends as we move through the year.

We expect to provide a full year outlook when we release first quarter results in May. This will give us additional time to evaluate the level of progress we are experiencing and help inform our expectation of when we expect a positive inflection in our business performance. Additionally, we have amended our credit agreement which enhances our ability to invest in the business while the transformation takes its course. Importantly, we have evaluated the various scenarios that may occur throughout the year and expect to be compliant with our bank covenants throughout 2025. Additionally, we are actively pursuing initiatives to reduce our leverage ratio to be closer to historical levels. Overall, I remain convinced that AirSculpt is an attractive business with a competitive moat I believe the best years lie ahead for AirSculpt and its shareholders. And now I will turn the call over to Dennis to review our fourth quarter and fiscal year results in more detail. Thank you, Yogi, and good morning, everyone. As mentioned, revenue for the quarter was $39,200,000 a 17.7% decline versus the prior year quarter. With the same store revenue down 22.6%. The decline in revenue this quarter was mainly driven by lower case and lead volume due to reducing our marketing spend and the challenging consumer spending environment.

The percentage of patients using financing to pay for procedures was 50% which is below the 53% rate we have experienced in recent quarters.

We remain pleased with the financing partnerships in place and are adding to our base of lenders to expand choices for prospective patients as part of our return to growth strategy. As a reminder, we receive full payment of all procedures upfront and we have no recourse related to patients who finance their procedures with third party vendors. Cost of services decreased $1,100,000 compared to the prior year period However, as a percentage of revenue increased to 42.7% versus 37.5% due to our inability to flex certain fixed costs such as rent and nursing. As revenues begin to rebound, we expect this percentage to return to previous levels. Selling, general and administrative expenses declined $2,200,000 in the quarter compared to the same period in fiscal twenty twenty three, primarily due to a decrease in equity based compensation. On a sequential basis, SG and A decreased $2,100,000 of which $1,100,000 was from equity based compensation, and the remainder due to our cost reduction initiatives we initiated in the back half of twenty Our customer acquisition cost for the quarter was $3,250 per case as compared to $2,600 in the prior year quarter. CAC has continued to be elevated beyond what we expect it to be due to the decline in our case volumes.

And to an increase in our cost to obtain leads. As our marketing sales efforts begin to improve our case conversion, we expect to see a reduction in our customer acquisition costs in future periods. Adjusted EBITDA was $1,900,000 compared to $10,100,000 for the fiscal twenty twenty three fourth quarter driven by our revenue declines. Adjusted EBITDA margin was 4.7% compared to 21.2% in the prior year quarter. Adjusted net loss for the quarter was negative $4,500,000 or a loss of $0.08 per diluted share. For the full year, we reported revenue of $180,400,000 a decline of 7.9% from fiscal twenty twenty three. Adjusted EBITDA was $20,700,000 dollars for an adjusted EBITDA margin of 11.5%. This compares to adjusted EBITDA of $43,200,000 or an adjusted EBITDA margin of 2.1% fiscal twenty twenty three. Adjusted net income was $1,100,000 or or $0.02 per diluted share compared to $16,300,000 or $0.28 per diluted share in fiscal twenty twenty three. Turning to our balance sheet. As of 12/31/2024, cash was $8,200,000 We drew down our revolving credit facility during the quarter and our gross debt outstanding was $75,800,000 Our leverage ratio was three point zero times at year end we are in compliance with all covenants under the terms of our credit agreement.

Cash flow from operations for the year was 11,400,000.0 compared to 24,000,000 in fiscal twenty twenty three and we invested approximately $9,000,000 in 2024 in de novo facilities. In addition, as Yogi mentioned, we revised our credit agreement relaxing various covenants with revised terms. We are confident that these new terms will provide us with the added flexibility to invest and support our return to growth. Turning to our outlook. As Yogi mentioned, we are not providing a fiscal year outlook for revenue and adjusted EBITDA.

With expectations of introducing guidance when we report first quarter results in May. For the first quarter of fiscal twenty twenty five, we currently expect the decline in our same store revenue to be similar to the percentage decline reported in the fourth quarter of twenty twenty four. In addition, we do not expect to open de novo centers as we continue to focus our efforts and resources on revenue growth our existing centers. And we expect to be in compliance with the terms of our credit agreement throughout the fiscal year. I will now turn the call back over to Yogi for some closing remarks.

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

Thank you.

The last question comes from the line of Josh Rask with Nephron Research.

Please proceed with your questions.

Thanks. Good morning. So I certainly understand you want some time to implement the new strategy and sort of see how trends are going before you give full year guidance. But maybe if you could give a little bit more color as to what you meant in terms of sequential growth each quarter. Is that Is that a starting point of $1,900,000 of EBITDA in 4Q? And then there's typically a lot of seasonality. Would you expect EBITDA in 2Q to be higher and then 3Q to be higher than 2Q next year? I'm just curious to get sort of a little bit more color on what you mean by the sequential improvements? [indiscernible] Josh, this is Yogi. Thank you for your question. So as I mentioned, the reason for not giving guidance been in the role for a couple of months and continuing to deepen my understanding of the business. The decision is not a reflection of business performance. But I want to make sure that our guidance is well informed and reflects a comprehensive view of our strategy and early execution results. Regardless of that, we do expect to see a similar seasonal trend that historically we've seen in the business with sequential improvement in particularly same store performance year over year.

So we would expect Q2 to be higher than Q1 just on an absolute basis because that is historically our seasonal strength. And then the rest of the year follow the similar seasonal curve.

Okay. So you were taught the sequential improvement is same store revenue growth. It's not necessarily overall top line and certainly not EBITDA. Okay. So I think I get that. And then just a follow-up, can you speak to the LeCleo mean, curious why you drew on the revolver during the quarter? And then then when you're stopping the marketing or slowing down the marketing and then you're not opening up de novos that seems incongruent with what would be driving revenue, right, unless those are ROI negative My understanding is the de novo used to be performing better than the the same store business. So I'd just be curious like like sort of the juxtaposition of all those pieces.

Hey, Josh, it's Dennis. So couple of things. One, we did, as you know, open up five centers in the back half of last year. That was pretty close to $10,000,000 of capital used to open those. Those centers are still facing similar pressures some of the headwinds that our existing footprint is seeing. They are with the exception of the one we opened, late in in December, they are generating positive cash flow but just not quite to the degree as we would expect them to based on how the de novos have historically performed. So we used a significant amount of capital and as Yogi mentioned in his remarks, our Q4 results were a little bit lighter than we had expected. That sort of caused some challenges there that we as we were looking forward into Q1, we wanted to make sure that we didn't have to significantly reduce our marketing. So we drew down on the revolver so that we could maintain our ability to market as we kind of move towards season. So that was kind of the thought process around that.

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

Okay. Thanks.

Next question is coming from the line of Corinne Wolfmeyer with Piper Sandler. Please proceed with your questions.

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

Hey, Corinne, it's Dennis. I'll pick up and kind of give sort of the fourth quarter commentary and then I'll let Yogi supplement as it relates to as we kind think through 2025. Yes, our CAC was continuing to be elevated. It The softness in case volume was the key driver there. One of the things that we noticed or that we noted in previous call is in the back half of last year, we were cutting our marketing cost pretty significantly from where we were spending in the first half of the year And by doing that, it kind of reduced our lead volumes from that standpoint, which impacted our case volume, case results there from a revenue standpoint. And so those along with the case volume challenges that we were faced kind of caused that CAC elevated. But what I'd also if you look at it on a sequential basis, sequentially, our actual advertising expense stayed somewhat the same Q3 to Q4. Significantly less than the average spend in the first half of the year. But what you also have to see is that we opened up those five new centers and we're marketing those centers. So on a same store type picture of centers, we actually spent significantly less from that standpoint in Q4.

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

Great. Thank you so much for all that helpful color. And then, can you just give us a little bit more context around the cost savings program? It sounds like there's going to be about $3,000,000 in annual savings. One, where is that all coming from? And then two, do you have a projection as to when those savings will start to be realized? Thanks. [indiscernible] So Karim, this is Yogi. The cost out for us look, as we set the strategy that I talked about, we realized that there were areas within the business where we which were not exactly aligned with where we were going, And those were the places where most of the cost reductions came from. For example, Alorvik was in corporate headcount that we felt was not aligned with our current go forward strategy. Now as a reminder, the $3,000,000 we have already executed on most of it. And that is a net number because there is cost out, but then there is also investments that we have made to in areas like technology, data and analytics and as we said marketing So we implemented the net number somewhere in the middle of Q1. We should see the benefit of that.

That's a full year number, which we should start to see the benefit of that in Q1 itself. Great.

Thanks so much.

Thank you.

The next question at this time comes from the line of Sam Ibert with BTIG. Please proceed with your question.

Hi, good morning. Thanks for taking the questions here.

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

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

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

Absolutely, Sam. So as the quick refresher, just like you mentioned, so today, we offer skin tightening in all of our locations as a complement, as an add on to our [indiscernible] What we're planning to do, what we are looking to pilot is doing that as a standalone service in our centers. We have done that on one off basis. But the goal over here would be to have a pilot program, which helps us capture that not just from a performance perspective, but align the entire organization from marketing to sales to clinics and everything in between, so that end to end we are making that offering available This is in many ways our efforts to capitalize on trends we are seeing with the consumers. We continue to see skin tightening [indiscernible] pretty big area of interest for consumers. Some of that we see as a outcome from GLP-one where customers who've been on GLP-1s are tend to have many of them tend to have loose skin and they're looking for solutions for that. We believe we have one of the best solutions in the marketplace and how do we meet that consumer needs. So that's really the why and the how around it.

We'll start with pilot in certain centers. And based on our learnings, we expect to expand later in the year.

Great. Thanks for taking the questions here.

Thank you.

At this time, I would like to turn the floor back to Yogi Jastani for closing remarks.

Thank you, everyone, for joining and look forward to providing an update at our next quarterly call. Thank you. Will conclude today's conference.