The Beauty Health Company Price & Performance (SKIN)

Thank you for joining The Beauty Health Company's conference call to discuss our fourth quarter and twenty twenty four full year financial results. We will release our results earlier this afternoon which can be found on our corporate website at beautyhealth.com. Joining me on the call today is BeautyHealth's Chief Executive Officer, Marla Beck along with our Chief Financial Officer, Mike Monahan. Before we begin, however, would like to remind everyone of the company's Safe Harbor language. Management may make forward looking statements, including guidance, and underlying assumptions, Forward looking statements are based on expectations The involve risks and uncertainties that could cause actual results to differ materially. Listeners are cautioned not to place undue reliance on any forward looking statements. [indiscernible] For a further discussion of risks related to our business, please see the company's filings with the SEC. This call will present non GAAP financial measures. A reconciliation of these non GAAP measures to the most comparable GAAP measure [indiscernible] are in the earnings press release furnished to the SEC and available on our website. Following management's prepared remarks, will open the call for a question and answer session. With that, I would now like to turn the call over to our CEO, Marla Beck.

Please go ahead, Marla.

Thank you, Norberto. Good afternoon and thank you for joining us to review our fourth quarter and full year twenty A year ago, I expressed my enthusiasm for the opportunity I saw Leading Dutty Health an innovative category creator at the intersection of beauty, aesthetics, wellness and health that needed a transformational strategy and disciplined execution. Over the past twelve months, we have made significant strides in stabilizing the operations optimizing costs, reigniting our product pipeline, attracting top talent and building a stronger foundation for long term profitable growth. Our fourth quarter financials demonstrate that our transformation efforts are beginning to take hold with continued growth in consumable sales across all regions and substantial improvements in gross margin and bottom line profitability. For the full year, we delivered net revenue of $334,000,000 and adjusted EBITDA of $12,300,000 both of which exceeded our guidance. In addition, we reduced operating expenses by over $30,000,000 demonstrating our commitment to financial discipline and operational excellence. More importantly, we are transforming our business to set us up for long term leadership and scalability. HydraFacial was in a hyper growth mode for many years, but lacked certain infrastructure commercial execution and financial discipline needed for a sustainable high margin business.

That has now changed.

Let me walk you through our key accomplishments in 2024 and what's ahead. At the start of the year, we identified three transformation priorities. Sales execution, operational excellence and financial discipline. Starting with sales execution, during the fourth quarter of twenty twenty four, we continue to build a more robust and scalable go to market model as we were refined our sales structure, expanded pricing options and introduced new tools to improve sales execution. We diversified our device sales strategy by expanding our good better, best pricing model for Allegro, Elite, and Sondayo. In Q4, we saw continued increase in non Syndeo unit sales demonstrating that this strategy is working.

In addition, we enhanced our lead generation process implementing advanced analytics and segmentation tools to improve targeting and conversion. We also expanded our consumables offering with demonstrated success, specifically within our U. S. Corporate accounts, which grew approximately 25% year on year. [indiscernible] We've added a new commercial leadership team with deep industry expertise.

Have been with us for a little over four months and share a clear mandate of driving device and consumables sales increasing utilization, deepening relationships with our providers and executing our product launch plans. As a result, we are now better positioned to capture demand and drive long term device and consumables growth. With regard to operational excellence, we are driving efficiency and improving profitability as we streamline operations, strengthen supply chain oversight and stabilize key product lines.

Our new manufacturing and supply chain leadership consolidated manufacturing in Long Beach and exited China production, reducing costs and improving quality control.

We also completed the Cyndeos three point zero global replacement program ensuring all providers have the most advanced version of our device. Lastly, we implemented new inventory management processes ensuring alignment with demand and improving working capital efficiency. These initiatives prove critical in helping to restore provider trust and reliability while enhancing our gross margin profile in bringing added operational rigor across the organization. Turning to financial discipline, we are focused on creating a leaner, more profitable business driven by cost discipline. Reduced full year operating expenses by over $30,000,000 year over year improving our adjusted EBITDA profile and implemented data driven decision making across all functions ensuring a higher return on investments.

We are optimizing our international footprint with the intent to shift our direct business in China to a third party distributor model.

Allowing us to capture market potential maintaining a capital light approach.

We expect to complete this transition in the second quarter of twenty twenty five. These actions have given us the flexibility to reinvest in innovation, brand elevation and commercial execution while maintaining strong financial discipline. Towards the end of twenty twenty four, we showcased introducing our MedTech Meets Beauty positioning at the intersection of aesthetics, beauty and wellness. We released the Hydralock booster in Q3 our first clinically backed booster and the most successful HydraFacial branded booster launch to date. Selling out in record time. We are planning to launch additional boosters in 2025, continuing our momentum in science backed high efficacy consumables. Our wrap The treatment room strategy which includes skincare and back bar expansion extends our presence in treatment rooms to drive higher revenue per provider. We are also validating the efficacy of HydraFacial when combined with other treatments such as non ablative lasers.

Providers are stacking treatments to enhance outcomes for their clients and HydraFacial is offering the ideal complement. Clinical validation demonstrates HydraFacial's ability to address multiple skin concerns in a compelling way, which resonates with our medical and med spa providers. Aestheticians and consumers. In short, we are taking steps to shift HydraFacial from a great treatment to a true science batch clinically validated skin care leader. As we enter 2025, we remain laser focused on executing our vision with precision. This includes deepening our provider partnerships, increasing engagement, simplifying sales execution and expanding brand support.

Accelerating science backed innovation expanding our booster pipeline skincare offerings and clinical validation initiative while leveraging our 179 patents. And enhancing commercial execution. Refining our pricing model, increasing lead conversion and strengthening international partnerships.

While we are facing the same near term macroeconomic uncertainty, uncertainty and industry headwinds as many of our peers we have strengthened our leadership team and fortified our foundation outlining a clear strategy to unlock the full potential of this business.

HydraFacial is a category defining treatment. With over 34,000 active global devices and over 60% market share in The U. S. Microdermabrasion category. It is a traffic driver for providers, a compelling consumer experience and a uniquely differentiated offering in the medical aesthetic space.

Will continue to leverage this distinct advantage to drive long term success. Before turning the call over to Mike, I want to thank our team for their dedication and execution. Commitment has been instrumental in reaching The pivotal moment, and I look forward to building on our momentum as we execute our vision in 2025. With that, I'll turn it over to Mike.

Thank you, Marla.

I'm encouraged by our performance in 2024 as we strengthened our financial foundation and delivered on our full year net revenue and adjusted EBITDA commitments. Both exceeding the high end of our guidance.

Fourth quarter revenue came in at $83,500,000 representing a 13.8% year over year decline. We are seeing the continuation of a challenging environment for many of our providers as they remain cautious on capital equipment purchases, particularly in The international market. As a result, we saw a decrease in global equipment sales of 40% in the fourth quarter. To improve access to our devices, we introduced a good, better, best strategy in 2024 by opening up our portfolio of select legacy devices at lower price points.

In the fourth quarter, non Sondeo sales represented 29% of total systems sold as compared to 21% in the prior year fourth quarter globally. Current year fourth quarter non Sondeo device sales represented 39% of systems sold in The Americas. Total units sold worldwide during the fourth quarter was ten eighty seven units, [indiscernible] compared to fifteen fifty one units sold globally in Q4 twenty twenty three. In The Americas, we sold six forty nine units compared to seven fifty eight units in the fourth quarter of twenty twenty three. Additionally, we sold 140 units in APAC compared to four fifty in Q4 twenty twenty three and two 98 units in EMEA compared to three forty three units in Q4 twenty twenty three. For the full year, we sold 4,907 The thirty four thousand seven hundred and thirty five units versus 31,446 units at the end of Q4 twenty twenty three. Consumables sales for the quarter totaled $56,700,000 or an 8.7% increase versus Q4 twenty twenty three, with growth across all regions. These results bring our consumable sales for full year 2024 to $208,900,000 compared to $191,400,000 for full year 2023. For the full year, consumables net sales increased 10.1% in The Americas 5.3% in APAC and 8.2% in EMEA.

From a regional perspective, Q4 consolidated revenue in The Americas was down 3.9% while revenue across APAC and EMEA declined by 50.5% In APAC, China accounted for $23,900,000 of the The dollars a decline of 56.4% year over year. The decline in China reflects a 70.2% drop in system sales along with an 8.3% decrease in consumables revenue. As a reminder, the international launch of Zendeo took place in Q2 twenty twenty three creating a challenging sales comparison for subsequent quarters. Which combined with the ongoing macro headwinds impacted our 2024 top line Despite these top line challenges, I'm pleased with our ability to improve our gross margins and profitability. Gross profit for the fourth quarter was $52,300,000 dollars favorably comparing to $45,700,000 in the prior year period. Adjusted gross margin for the quarter was 67.1% compared to 54.6% in the prior year period. Primarily driven by lower inventory related charges and a favorable mix shift towards consumable net sales. Partially offset by lower average selling price of equipment net sales. GAAP gross margin for the quarter was 62.7% improving versus the prior year period as well as sequentially from 51.6% in Q3 of this year. On a full year basis, gross profit improved by 17.5% to $182,300,000 compared to full year 2023.

Adjusted gross margin was relatively flat at 62% in 2024 compared while GAAP gross margin was 54.5% in 2024, compared to 39% in 2023. The improvement in gross margin was primarily due to the absence of charges and inventory related write downs, associated with the Sendeo program of $65,200,000 in 2023 and favorable mix shift towards consumable net sales, partially offset by higher inventory related charges and $8,000,000 of manufacturing optimization related costs incurred in 2024. Total operating expenses for the fourth quarter decreased by 7.1% to $59,500,000 as we continue to strategically manage our expense Selling and marketing expense was down approximately 17.2% to $26,500,000 reflecting lower personnel related including sales commission expense. R and D expense was also down $1,800,000 while G and A expense was $31,800,000 or an increase of 9.6% driven by higher share based compensation expense and legal and other professional fees partially offset by lower bad debt and severance expense. This led to an operating loss of $7,200,000 in Q4 of twenty twenty four, an improvement versus a loss of $18,400,000 in Q4 of twenty twenty three. Adjusted EBITDA of $9,000,000 was well above our implied guidance reflecting lower operational spend and higher gross margins, partially offset by lower net sales.

Moving to the balance sheet. We ended the quarter with approximately $370,000,000 in cash. [indiscernible] 2024, we deployed $156,000,000 of cash to repurchase $192,000,000 of our convertible debt, leveraging our healthy and robust liquidity position. This is further strengthened by the cost reductions we are gaining as we take additional actions to improve the efficiency of the business. Looking at inventory, we ended the quarter with approximately $69,000,000 a decrease compared to $91,000,000 in December of twenty twenty three. [indiscernible] While we have made significant improvements in our supply chain, the decrease was primarily driven by excess and obsolescence charges. We are now projecting full year 2025 sales of between $270,000,000 to $300,000,000 and adjusted EBITDA of $1,025,000,000 dollars Compared to full year 2024, our full year 2025 guidance is assumes continued pressure on delivery systems due to financing pressure and uncertainty in the global market projecting decline in all three regions specifically China.

Capital expenditures are expected to be approximately $10,000,000 to $15,000,000 for the full year 2025. For Q1 twenty twenty five, we are projecting sales of $61,000,000 to $66,000,000 an adjusted EBITDA loss of negative $6,000,000 to negative $4,000,000 As a reminder, the first quarter is historically our lowest sales quarter coupled with higher trade shows and sales meetings as we build our pipeline and prepare for our annual sales strategy. In summary, we are encouraged by our progress as our Building on our 2024 results, we remain committed to to driving long term shareholder value through strong sales execution, operational efficiency and financial discipline. While work remains, we are confident that our actions over the past year have provided a solid foundation for sustained profitable growth.

I'll now turn the call back to the operator for our Q and A. Thank you. We will now begin the question and answer session. And the first question Please go ahead.

Hi, good evening. Thanks for taking my question. I wanted to maybe ask on the delivery to [indiscernible] a macro perspective it looks like you're expecting them to be down pretty significantly again in first quarter. Do you think this is really kind of all macro driven or kind of higher interest rates? Maybe if you could just give some more color The? Thanks.

Mike, do you want to take that?

Sure. Hi, Susan. Yes, that's what the main drivers are for overall delivery systems. We're seeing providers that are taking a little bit longer to make a decision as to buy the device and we believe that's driven by the uncertain continuing to put pressure overall on that sales process. We are continuing to pull levers that we've talked about. We've seen we've had success with introducing [indiscernible] that's been improving as a percentage of overall sales. And we continue to work with the sales force continues to focus on emphasizing the return on investment from the HydraFacial machine, which it can pay itself back in less than nine months.

Okay, great. Thanks for the color. And then maybe if I could add more one more just on the consumables side. So obviously is that you continue to see growth there. How are you feeling just in terms of the consumer and their continued demand consumable side as we move into 2025. And then I was curious, did you see growth across all of the regions with consumables?

Thanks.

Thanks, Susan. I'll start and then I'll have Mike add in. First, we noted a consistent signature consumables revenue per system in The U. S. For 2024 compared to 2023. So consumers are continuing to prioritize hydrofacial treatments as part of their skin health regimen. And we're excited to see that continued growth. In terms of macro, the trends are in our favor, macro trends. The GLP usage is certainly driving consumers and we're seeing a lot of treatment stacking on the part of providers where they require that hydro facial HydraFacial is the first treatment before lasers or other treatments. And some of the other trends around returning to sort of this natural look is benefiting us. In terms of the actual global, I'll have Mike talk a little bit more in detail.

For regional growth, we expect consumables. I would expect to see growth. We factored in at the midpoint of our guidance growth for The Americas and EMEA. As we move China to a third party distributor, there is we expect lower growth in Q4 sorry for the year in APAC as we make that transition.

Okay, great. Thanks so much. Good luck this year.

Susan.

And our next question will come from Oliver Chen with TD Cowen.

Hi, Marla and Mike. Regarding what you're seeing, you made lots of improvements. What are you seeing with reliability now, Marla, in terms of the machines and the feedback you're getting and what inning you are The? As we do think about good, better, best to Marla, happens to the consumer in terms of incrementality versus cannibalization? It sounds like a really customer centric approach to have all offerings, but I was curious about the dynamics of customers perhaps trading up later Or are you losing the better invest when you sell the good And then Mike on the modeling, as we think about regional modeling, I'd love some color in terms of the equipment sales by region. It's pretty different by region. And it could be also useful to dive into why third party makes the most sense in terms of that strategy you're choosing to take? Thank you.

Thanks, Oliver. Lots of great questions. So in terms of provider sentiment around Sondeo, in 2024, we enhanced our manufacturing quality process and invested in both customer service and technical support, we are seeing meaningful improvement in our overall manufacturing quality We're seeing minor technical issues The remain, but we're we're able to quickly address them with our teams. And so we're in a completely different position today than we were a year ago.

And then in terms of your next question, best strategy, I think what's happening is we're still seeing a number of trade ups even though, we're not doing sort of the trade up accounting strategy that we did in the past. What happens is there are a fair number of aestheticians and meds spas that want to get into HydraFacial into a hydro facial device, but don't have The credit do so, especially brand new businesses that don't have the credit history. I think credit markets are a little tighter than they were in the past. So The provider may start with an Elite or an Allegro, and then trade up later. The trade up are still very robust. I don't know, Mike, if you want to add to that, and The, take his third question about global demand.

Sure. Let me focus on the global demand. I think in each of the regions, we expect overall equipment sales to be pressured. That's what the midpoint of the guidance assumes. I expect to see it the most in APAC and that's largely from the transition from China from a direct model to a distributor model and I'll talk about that in a minute. Second, we're seeing more pressure in EMEA than we are in The U. S. And so while we still expect at the midpoint of our guidance to see overall equipment sales to be down, We're expecting it to be a little bit less in The U. S. And specifically overall in The Americas. The reasons for China moving to a third party distributor model, it's really around overall global focus and the size and potential for us to execute within China. So China last year was little over $20,000,000 in revenue. And in terms of scale, we have quite a large infrastructure in order to support that revenue stream. Our belief was by moving to a distributor model, The particular distributor that we're working with can apply more focus to that particular region and do it more that enables us to drive profitability even though there will be a lower revenue stream associated with that.

So overall, we believe that this is the right move for the company over the long term and we'll be able to return to growth and drive more profitability.

Okay. I know you've been making changes to your sales force. Where are you in that journey Marlin, in terms of where the sales force is now and how it's structured versus prior? And Mike, on your regional comments, is there any color on EMEA because I imagine there's certain divergence between countries within EMEA or maybe not? Thank you. All great questions. So we have a new Chief Revenue Officer who's extremely focused on adding process and technology to how our sales force addresses our provider needs. And in terms of our structure, we still have the same structure, which is we have capital sales managers that focus on selling the The. We have business development managers, which focus on driving consumables sales and really partnering deeply with the providers enhance the number of HydraFacial treatments they're doing. And then we have regional trainers, which really focus on onboarding new providers. We have streamlined that for optimization, but it's really enabling our Chief Revenue Officer to spend a lot of time in the field with our teams. So we have reduced some of the numbers, but it's really about focusing on the providers and their utilization.

For your question, Oliver, on EMEA, yes, the markets are very different. On the direct side, in EMEA, our two largest markets are Germany and The UK. The smaller markets are direct markets are France and Spain We've seen The most success within EMEA in the the German market, where they've been able to execute in really focused in on the higher end of the market, the medical side of the business. And we've also made a number of leadership focus changes brought in some new leadership in in France. And then the new Chief Revenue Officer us the team to focus in the right areas to return the regions to growth.

Thank you. Best regards. Thank you.

Our next question will come from Olivia Tong with Raymond James. Please go ahead.

Great.

Thanks. Good afternoon. Presumably at this point, you have reasonably strong visibility on March results. So can you talk about why the rate of decline worsens and what what implied a pretty remarkable worsening in sales in Q1 versus the exit rate in Q3 I know you mentioned macros. Given the base change already, would expect that macros was already sort of embedded in The.

And then on expenses, I know that first half is heavier in spend given the trade shows and other events associated with that. So can you talk about your fixed cost base, cost of the events and such? It looks like probably need to have at least $30,000,000 in COGS Just your sort of fixed cost base as we think about the guide on Q1. Thank you.

Mike, do you want to take The Sure. So there's three factors driving the guidance in Q1. And the full year. The first is the China slowdown and the shift to the distributor model. So on a year over year basis, the midpoint of the guidance assumes $5,000,000 to $6,000,000 of The Q1 pressure.

Year over year is driven by China And China also is impacting on full year about $10,000,000 to $15,000,000 So I think it's important to kind of model in that impact because it is having an impact on the overall revenue. The second piece is lower device sales globally due to The macro uncertainty and the high borrowing cost we talked about. And then the third is, we're seeing lower consumable sales per device despite consistent treatments due to a decline in platinum and Deluxe treatment election. So effectively what's happening is we're seeing very similar number of treatments for the end consumer coming in But for the more expensive options, they're electing for the more base HydraFacial treatments.

I think your follow-up question was was really around specifically sorry, yes, the fixed costs. Most of the variable costs in our business are on the selling and marketing line. And they're really around commissions and the marketing spend. That we do. The variable costs in the G and A line are largely around kind of salary and wages. And professional fees, which make up a big portion of our G and A. Got it. And then perhaps I just want to follow-up on Ciscan. Consumables because despite the shift in systems, which we understand, have continued to grow consumables at a fairly steady high single digit rate. So can you talk through sustainability of The?

And what your expectations are going forward? I mean, I'll talk a little bit about strategy and then Mike can talk about how he's thinking about the numbers. But we're incredibly focused on partnering with our providers to drive utilization and therefore consumable sales. So we think our rapid treatment room strategy and the launching of more clinically backed consumables really drives excitement and attention to the treatment room. So with the success of Hydrolock, which we launched late in twenty twenty four, it shows how impactful consumables launches can be on the business. Hydrolock was roughly 15% to 20% of the revenue in its category for us in Q4. And so it shows how consumables drive traffic drive excitement, drive purchase. And so it's really igniting this innovation pipeline around consumables, especially in the back half of the year, that can be impactful to both our providers and the end consumers.

For overall consumable sales, as two factors. There's the total number of systems deployed globally The then the average sales per device. So last year, we talked about we ended the year with over 34,000 systems globally. The average consumable revenue per system was about $6,300 And so as we look to the future in growing consumable sales, even though we're projecting a slowdown in terms of new capital and new devices deployed, we still expect to grow that base, which is important. We're still bringing in new providers into the HydraFacial brand. The second metric, we are very focused in on is to drive that consumable sales per device, which as I mentioned, we saw some declines in that primarily around the The not seeing folks elect in this economy the higher price boosters or upsells We are specifically focused on, as Marla mentioned, introducing new boosters, new products, putting the marketing behind those products in order to drive excitement that we think we can start to grow that metric, which will further support the overall consumable sales in the business.

Understood. Thank you.

Our next question will come from Ashley Helgans with Jefferies. Please go ahead.

Hi, thanks for taking our questions. So maybe first now that the Zendeso issues have stabilized, are there any plans on on releasing a new updated system and if so, just curious how you'd approach the trade in, trade up dynamic? And then any color you can give us on kind of the average income of of the HydraFacial customer, that would be great. Thanks.

Thank you so much, Ashley. So in terms of investing in new device, we think we believe that investing in innovation around our devices critical and the team is working on that. For the future, including leveraging some of our 179 patents into that. So we're excited about that and excited about our commercial team in place that's helping us work through this. In terms of trade in, trade up, Mike, do you want to talk a little I mean, for the future, we can talk about trading up [indiscernible] then go forward, we'll make that decision long term.

Mike, do you want to talk about that?

Yes. I mean, once we have a new device, that's an [indiscernible] sell that to our existing provider base. So we don't have anything planned or factored into the 2025, That is a key piece of the business that we will factor in and roll out at the appropriate time.

Great.

And our next question will come from John Block with Stifel. Please go ahead. Thanks guys. Good afternoon. Marla or Mike, I guess on a good, better, best Can you get that good below the financing bogey? I mean The overall capital ASP is I think roughly $25,000 Can good get down to I don't know, 12,000, 15,000 and then sort of tack on some consumable commitment from the practice to sort of remove this interest rate overhang that you guys keep on referring to that's pretty pervasive? And then I'll ask my follow-up.

Mike, do you want to tackle The?

Sure. Hi, John. I think the device that we have the ability to do that are on the used devices. You remember we have the Elite systems that we took back as part of The the trade up when the company introduced Sendeo. We've had a lot of success in selling those at lower price points for providers who are looking for aren't willing to pay 20 high 20s or aren't able to at this time. So we sold over 500 of those devices globally last year. And we factored in approximately $500,000,000 into our guidance this year. And so in the near term, we think that's the lever that we would pull and we've had great success lot of confidence in the quality of the device. And we're able to sell it at a lower price point. That particular device pressures our overall gross margins. It has lower gross profit. Given the price point, the cost basis that we have for it, but it's still a way to get people into the brand and drive future consumable sales. So we're utilizing that lever.

Got it. And The maybe for the follow-up. Marlene, The prior management team, there was a ton of excitement for China and HydraFacial The the long term opportunity there. So I'm just curious if you can talk to the decision to move to the distributor approach in China Maybe if you can just flush out how you weighed the near term versus the long term the change in the economics with the distributor And then Mike, all of the models I'm guessing from the sell side had China direct. So is there a quick and dirty way to like pro form a for us? I thought you might have said it's a $10,000,000 to $15,000,000 dilutive impact for revenue. But is there also some sort of accretive benefit from an EBITDA perspective because you guys might have been operating at a net loss in China if you were direct this year? Thank you.

Great question, John. So in terms of China, we still think it's a significant and important opportunity. It's a large market [indiscernible] Our realization when we made this decision was that the investment [indiscernible] and we were better off as a company focusing our investments in our core markets and our product pipeline and working with the distributors that have the wherewithal to be in market, be able to scale The the sales team and the marketing focus, and be more of an expert at China than we are. So [indiscernible] perspective hasn't changed from prior management. We still think it's it's an amazing high growth, high potential market. The perspective that's changed is, what do we think it takes to capture share and are we willing to make that investment now or in the future and our determination is right now, we want to focus on the core and partner with a great distributor to access and grow the Chinese market. And then Mike, do you want to talk about the modeling?

Sure. On the financials, yes, it's I would assume 10% to [indiscernible] top line pressure as a result of the change. We're in the middle of working through The. So there will be sales disruption in the short term as we make that transition. The purpose, as Marla said, of moving to a distributor is we believe over the long term, it will be accretive. You take the expenses moving to a distributor, we can take out the large expenses that we have invested in the region and drive profitability we believe over the longer term. During 2025, I would assume, right now, we haven't quantified the cost to make the change. We're expecting to announce those costs later in Q2 once we have them finalized. But excluding those costs, I would anticipate that you'd move from a slightly of a net loss, which we incurred in 2024 to EBITDA neutral, I would say, in 2025. Positioning the company for adjusted EBITDA growth in 2026.

Thank you.

And our next question comes from Navin Tsai with BNP Paribas. Please go ahead. [indiscernible] line may be muted. [indiscernible] Can you discuss the 2025 go to market strategy including pricing, the partnership strategy in The U. S. And internationally and R and D spend. And I also saw some policy and the Chief Supply Chain duties? So how does that translate into twenty twenty five strategy?

In terms of pricing, do you want to take The? Mike?

Sure. Our pricing strategy we expect to be consistent 25% with 24%. I would model in some ASP year over year pressure is what our The midpoint of our guidance factored in largely due to product mix. And so as we continue to deploy the good, better, best strategy, that impacts kind of overall pricing. Additionally, the mix of distributor versus direct is modeled in to be slightly higher. Of distributor revenue in 2025. On partnership, On partnerships, I think you're I'm assuming you're referring to the consumables business in terms of booster partnerships versus direct?

Is that correct? Yes, that's right.

Yes. So in terms of booster partnerships, we continue to invest in both our HydraFacial branded boosters and in driving partnership booster sales. Our HydraFacial branded boosters have obviously a higher gross margin And so, our investment priority is in marketing The we saw with the success of HydraFacial, HydraLock booster, how important the clinical backing is in terms of sell through of our boosters and so we're able to do that and perform that clinical backing pretty quickly on our own. And so that's really our priority is hydrofacial branded boosters.

Thank you. And one follow-up on the distributor model in China. If you could tell us more about the distributor you are working with, including their experience in aesthetics?

We were not able to announce that on this call, but we'll have more to talk about during Q2 when we expect to make the transition.

Our next question will come from Corinne Wolfmeier with Piper Sandler. Please go ahead.

The. This is Sarah on for Corinne.

Related to the progress on the manufacturing consolidation, how results been with that? And then are you finding any capacity issues And then just how much better quality control do you believe you have now?

All great questions. So we reshored manufacturing in the fall. That's complete. We put in our quality improvement program in the spring of last year. And so in our Long Beach facility and we're excited about the results we have seen from The. And so we feel like reshoring really had an impact in terms of our ability to drive quality throughout our manufacturing and do all of the testing that we think is critical And then in terms of capacity, we have we have plenty of capacity to manufacture Great. Thank you.

Our next question will come from Margaret Kacchore with William Blair. Please go ahead. Hey guys, it's Max on for Margaret.

Thanks for taking the question. Two quick ones for me, I'll ask both upfront.

The first is on OpEx. Dollars 30,000,000 OpEx decrease year over year this year.

I know you guys are focused on disciplined spending. But just as we think about OpEx spend $25,000,000 Mike, you had mentioned that majority of the variable costs is call them compensation related expenses. But is there more room for leverage here Are you expecting any extra costs associated with The shift in China?

Mike, go ahead.

And then the second one. Sorry. Just the second one. Go ahead.

Just expectations for cash.

For the year on 2025. I know you guys repurchased some convertible notes in 2024, but any color on plans for cash throughout the year?

Thanks.

Go ahead, Matt. Sure. So our guidance implies adjusted EBITDA improvement on a percentage basis. If you take the midpoint of the revenue and the midpoint adjusted EBITDA range for the full year that we gave, That's driven by two things. One, we continue to expect adjusted gross margin to improve Our operations team is doing a great job driving efficiency through throughout the The. And a piece of that relates to the last question that came up around consolidating operations and really getting leverage out of that. The second piece of it is the overall mix of the revenue streams. So we're forecasting a larger percentage of consumables as a percentage of revenue versus prior year, which drive higher margins. And so that's the piece there. On OpEx, I would expect we modeled in The the revenue the forecasted revenue decline, on a total dollar basis to see the dollars come down in selling and marketing and G and A. On a percentage basis, we model them to be relatively consistent at the midpoint. From where we were last year. So most of the leverage is being driven by the gross margin improvements.

Your second question on cash, at the midpoint of our guidance, I would assume that cash is largely or cash neutral. As you think throughout the year free cash flow neutral As you think throughout the year, the first half of the year is typically where we have a use of cash. And so there's a bit of pressure in the first half of the year. And then as we enter into the back half of the year, just based on how our revenue stream flows and what our expenses look like, we expect that convert to a source of cash ultimately putting us near neutral to the end of the The full year.

That's great color. Thanks guys.

This concludes our question and answer session. Would like to turn the conference back over to Ms. Marla Beck, CEO for any closing remarks.

Thank you, operator. In closing, we are well positioned to build on our momentum, driving innovation, operational excellence HydraFacial remains a strong global brand and we believe our strategic focus will I want to thank our team for their dedication and commitment. We're excited for the opportunities ahead and and confident in our ability to deliver long term value.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.