AirSculpt Technologies, Inc. (NASDAQ:AIRS) Q4 2023 Earnings Call Transcript
AirSculpt Technologies, Inc. (NASDAQ:AIRS) Q4 2023 Earnings Call Transcript February 27, 2024
AirSculpt Technologies, Inc. misses on earnings expectations. Reported EPS is $-0.08 EPS, expectations were $0.11. AirSculpt Technologies, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the AirSculpt Technologies Fourth Quarter and Full Year 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dennis Dean, Chief Financial Officer. You may begin.
Dennis Dean: Good morning, everyone, and thanks for joining us to discuss AirSculpt Technologies results for the fourth quarter. Joining me on the call today is the company's Founder and Executive Chairman, Dr. Aaron Rollins; and Chief Executive Officer, Todd Magazine. Before we begin, I would like to remind you that this conference call may include forward-looking statements. These statements may include our future expectations regarding financial results and guidance, market opportunities and our growth. Risks and uncertainties that may impact these statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we will file with the SEC.
All of which can be found on our website at investors.elitebodysculpture.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. During our call today, we will also reference certain non-GAAP financial measures. 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-K when filed, which will also be available on our website. With that, I'll turn the call over to Aaron.
Aaron Rollins: Thank you, Dennis. Good morning to everyone, and thank you for joining the call. I'm very pleased with our fourth quarter results and our achievement of consistent double-digit growth in both revenue and adjusted EBITDA. We remain focused on reestablishing our same-store growth trajectory, improving operating margins and making prudent investments that build upon our solid foundation as well as drive long-term success of the overall business. In addition to increasing our revenue and adjusted EBITDA, the year included several noteworthy accomplishments. We generated strong free cash flow, which allowed us to pay down debt. We opened five new centers, marking the highest number of openings in the history of the company.
We invested in brand building activities that drove 30% growth in brand awareness, we expanded our product and service offerings by adding AirSculpt Lift, a facial fat transfer procedure. We expanded our talent, particularly at the executive level. And finally, we quantified our TAM of $9 billion as well as the potential opportunity for opening hundreds of AirSculpt centers globally. I am proud of the many contributions of our teams and want to personally thank each one of them for their dedication that delivered our strong results in 2023. I am also very proud of our strong track record in having safely completed more than 50,000 procedures. The safety and well-being of our patients is our top priority, and we have policies and procedures that have ensured positive outcomes throughout our history.
Our ability to achieve these positive outcomes is directly related to the professionalism of our staff. Our surgeons are respected in their field and together with our other clinical team members, are deeply committed to the care of our patients and achieving results that are in their best interest. As we look ahead, our strategy continues to focus on strengthening the AirSculpt brand accelerating our store openings and further enhancing our profitability, as we scale our business both domestically and internationally to further increase shareholder value. With that, let me now turn things over to Todd.
Todd Magazine: Thank you, Aaron, and good morning to everyone on the call. Our business remained strong in Q4, highlighted by 17% revenue growth and 28% adjusted EBITDA growth compared to the prior year. Our robust top line performance continues to be driven by our de novo locations that opened over the last two years with our 2023 centers continuing to ramp very favorably compared to their budgeted objectives. In fact, the average revenue of these centers in their first three months was the highest level in company history, excluding our 2021 de novos, which, as shared in previous calls, had a pronounced benefit from COVID. Our overall same-store revenue performance was minus 1.7%, which was below our expectations for the quarter.
Just to put this in perspective, the difference between our actual same-store performance and our expectations represents about one procedure per location per month. I'd like to briefly comment on our recent revenue performance. We did see some slight softness as we exited 2023 which carried into January. However, as the quarter has progressed, we are encouraged with what we are seeing and fully expect a robust season. Importantly, our performance in Q1 is built into the 2024 outlook that we issued in our press release earlier this morning and that Dennis will go through later. Our adjusted EBITDA margin for the quarter improved year-over-year by 180 basis points to 21.2%, which was driven by our increased focus on cost management. Importantly, our margin expansion would have been even more substantial, but we decided late in the quarter to make additional awareness building media investments as this initiative continues to achieve its objective of driving brand awareness and brand recognition.
With respect to our 2023 revenue guidance, we met expectations of $196 million, which represents 16% growth versus the prior year. Our full year adjusted EBITDA of $43.2 million which increased 11.2% versus the prior year, fell below our updated guidance of at least $45 million. This shortfall was mostly due to the additional investment in awareness building, which I just referenced. However, we were also anticipating some cost savings in 2024 to accelerate into Q4 2023, which would have put us above our $2.5 million of in-year savings for 2023 but this timing acceleration did not happen. Having recently celebrated my one year anniversary at AirSculpt, I have come to appreciate even more the impact we have on people's lives. Specifically, the ability to improve self-esteem among people who have had a lifelong battle with excess fat as well as people who have hit a dead end regarding certain areas of their body that can't be addressed by diet, exercise or even weight loss medications.
There is nothing better on planet Earth than AirSculpt for removing stubborn fat and transferring that to places where people want it. And with the $9 billion TAM, we have only scratched the surface of the huge opportunity that exists. That's why I continue to be extremely optimistic about our future. Just as I did last year, I'd like to share with you my focus areas for 2024, which reflect our learning and our latest thinking. Our first priority is to continue to drive double-digit revenue growth. Like always, we will focus on our de novo openings, an area where we have had a very successful track record but we will also increase our focus on same-store growth, knowing that we have opportunities to drive productivity across the fleet. Second, we will continue to strengthen our organizational capabilities.
We have increased our focus on the broader team of employees in regional offices and across our locations to ensure we have the right structure, talent and tools necessary to support a larger and more robust fleet of centers. And lastly, we will continue to focus on cost management with an objective of redeploying savings into our growth investments while expanding EBITDA margins. Let me go a little bit deeper on each of these priorities, starting with revenue growth. As previously shared, our work with a third-party real estate analytics company has helped us determine that the runway for AirSculpt locations is in the hundreds, which gives us confidence to continue to increase the number of annual openings. That said, we also need to make sure that we have the organizational bandwidth and capability to open more locations each year.
As such, we will expand our de novo program in a thoughtful and measured way. As announced previously, we have increased our de novo openings to six in 2024. We previously announced Birmingham, Michigan; Deerfield, Illinois and Kansas City, Kansas. I'm happy to share that we will also open locations in White Plains, New York and Columbus, Ohio. Our sixth de novo location will be announced at a later date. It's important to note that our guidance is based on all of these centers opening in the second half of 2024. The timing of which is driven by the additional analytics work we did last year with a third-party real estate company. While we are excited about all these locations, three of which were in new states, I'm particularly excited about our Chicago land and New York metro locations.
Expanding in existing markets represents an evolutionary step in our growth strategy as these centers will give us a tremendous opportunity to leverage scale in these markets, something we have not been able to do with our previous approach of one location per market. We fully expect to take advantage of the awareness building opportunities and the operational efficiency benefits these multisite markets will provide. Sticking with revenue. Let me now turn to same-store performance. As noted earlier, same-store growth will be a key focus area for the company, particularly given the size and maturity of our fleet. A key aspect of this will be on our patient acquisition efforts. We have been working on new approaches related to our paid search efforts in order to maximize the return on investment.
We are already starting to see an improvement in our total leads, our lead quality and our console to case conversion rate. Let me now turn to my second priority of strengthening organizational capabilities. As shared previously, we are in the throes of transitioning from our legacy systems to an enterprise-wide Salesforce CRM implementation, which will take our sales and marketing processes to a completely new level. Historically, our processes have been very manual and tracking relevant KPIs has been very challenging. Salesforce will provide us more real-time data and will allow us to better analyze our sales and marketing performance as well as our patient experience, all of which will help drive growth. We anticipate this implementation to take the balance of 2024 to complete.
In addition to Salesforce, we are focusing on improving talent acquisition and talent development. With the goal of increasing employee retention as well as increasing the percentage of highly seasoned field level staff. We will do this by building in-house capabilities for talent acquisition as well as for learning and development. Finally, let me share some thoughts on our cost management priority. Our organization did a good job in 2023 in this area, and we are reiterating our previously shared objective of delivering $5 million of in-year savings for 2024, but we know we need to push for more. One of our most important areas of focus will be on customer acquisition costs, or CAC, as noted previously, we continue to see good outcomes from the investments we made in our celebrity program, which has helped increase our brand awareness by 30% over the prior year.
The next phase of this effort is to couple the celebrity program with a top-of-funnel investment in local media which could include initiatives such as over-the-top media marketing, also referred to as OTT as well as radio, billboards or direct mail, just to name a few. We will be testing this approach in different markets in 2024 with the goal of driving more organic leads and reducing our reliance on paid search. While we are not building in any CAC savings in 2024, given the cost we are seeing related to paid search, we believe our top-of-funnel marketing tests will provide valuable learning that will help drive future CAC reductions. We'll keep you posted as this initiative progresses. To summarize, I'm very proud of our performance in 2023 and continue to be bullish on our ability to drive double-digit top and bottom line performance in 2024 and beyond.
Now let me turn the call over to Dennis to provide further details on the quarter and our 2024 guidance.
Dennis Dean: Thanks, Todd. Our revenue for the quarter was $47.6 million, a 17% increase over the prior year quarter. Our growth was primarily due to the addition of five de novo centers versus the prior year base. As of December 31, 2023, we operated 27 centers versus 22 at the end of the fourth quarter of 2022. Our same-store revenue was slightly negative in the quarter. Average revenue per case for the quarter was $12,937, a 6.1% increase over the prior year's quarter. As we have said previously, rates can vary from quarter-to-quarter, mostly from procedure mix fluctuations, and we expect our rates to range from $12,000 to $13,000. We are pleased that our rates continue to pace on the high end of our expected range, which reflects the fact that our core consumer is in a higher socioeconomic group, which provide us more insulation from some of the economic volatility in the market.
Our percentage of patients using financing to pay for procedures was 48% during the quarter, which was consistent to the prior quarter. As a reminder, we received full payment of all procedures upfront, and we did either have any recourse related to patients who finance their procedures with third-party vendors. Our cost of services as a percentage of revenue was 37.5% versus 38.7% in the same period last year. This improvement was a result of certain cost management initiatives that were implemented during the quarter. Our customer acquisition cost for the quarter was approximately $2,600 per case as compared to $2,300 in the prior year. This increase, as Todd mentioned in his remarks, is due to further investments in our brand awareness activities above what we originally forecasted.
For clarity, our calculation of customer acquisition costs includes both our advertising and media spend plus the full salaries and commissions of our sales and marketing teams. For the quarter, our adjusted EBITDA was approximately $10.1 million compared to $7.9 million from the prior year period, an increase of 27.9%. As you know, our adjusted EBITDA results now exclude the impact of preopening costs for de novo centers in our calculation. This impact was approximately $100,000 in the quarter. Our preopening costs will fluctuate from quarter-to-quarter based on the number of centers that are in the process of opening. Our adjusted EBITDA margin during the quarter was 21.2% compared to 19.4% in the prior year's quarter. Much of this increase was from our cost management initiatives.
As Todd pointed out, we were able to achieve the $2.5 million of in-year savings and our 2024 outlook includes an incremental $2.5 million of savings for a total run rate of $5 million. Our adjusted net income per share diluted for the quarter was $0.01 and $0.28 for the full year. From a liquidity standpoint, our cash position as of December 31, 2023, was $10.3 million, and our $5 million revolver remains undrawn. Our gross debt outstanding is now $72.9 million, and our leverage ratio at the end of the quarter as calculated under our credit agreement was 1.4x. Cash flow from operations for the quarter was $4.9 million compared to $6.6 million in the prior year quarter. The decrease related to timing of working capital payments primarily related to lease deposits on upcoming de novo projects.
Also during the quarter, we invested $1.8 million, which was mostly related to new center openings. For the quarter, our cash flow from operations to adjusted EBITDA conversion ratio was 48.2%, which was slightly below our expectations and primarily due to the lease deposits previously mentioned on our upcoming de novo centers. Our 2024 revenue guidance of approximately $220 million represents a 12% increase over 2023 and contemplates the trends that Todd noted in his comments. We expect contributions from our six de novo centers to drive the magnitude of the year-over-year revenue growth. We anticipate flat to slightly positive full year growth in our same-store sales, while revenue from our de novos will be weighted to the back half of the year with three centers opening in the third quarter and three in the fourth quarter.
Our adjusted EBITDA guidance for 2024 is approximately $50 million, which represents year-over-year growth of 15.6% and margins of 22.7%. Due to the de novos coming on later in the year, the 2024 de novos will have a negative impact to our margins of approximately 1.5%. Additionally, included in our outlook is approximately $4 million in de novo preopening costs. With that, I'd like to turn the call over to the operator for some questions. Operator?
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