Good morning, everyone. Thank you for joining us as part of ICR. I'm Olivia Tong, Beauty and HPC analyst for Raymond James. I'm pleased to be chatting today with The Beauty Health Company, ticker SKIN, S-K-I-N, and CFO, Liyuan Woo. Liyuan joined Beauty Health in September 2020. We're very excited to see you today. Thanks, Liyuan, for joining us.
Hi, Olivia.
I think, you know, one thing I would highlight is, The Beauty Health Company did put together a presentation. It's on their website. If you want to have a look at that'll get you a little bit more familiar with the company. Maybe can we start broad before we dig in? As, you know, you're still relatively new to the public markets. Can you just give a quick overview of SKIN's focus? What exactly is a HydraFacial? What's the opportunity in front of you from here? Thanks.
Yeah, no, absolutely, Olivia. Good morning, everybody. So Beauty Health is a category creator, and it's really a healthcare and consumer crossover. We're trying to bridge the wide space between medical aesthetics and traditional prestige beauty. We are building a connected community to our providers, consumers, and partners. HydraFacial really our core brand and the creator of hydradermabrasion technology, which is really the device and the service for aestheticians to provide to the customer that starts with cleanse, extract, and hydrate the skin with a very clear outcome. Unlike traditional facial or other facial treatment that require more precision from the aesthetician, our treatment really has no pain. It's a 30-minute service. We really, with the technology and the handpiece, get all the stuff out of your skin.
We show you in the Gunkie canister, so you can see it's very effective, and it's also socially very engaging. Because the fact that there's no pain, it's very popular with men. We truly service men, women, young, old, different race or gender. We focus on our aestheticians. That's very special for us. They are the trusted advisors for our consumers. We partner with them. We train them. They are incredibly influential and loyal to the community. Our product offering is a winning proposition for everybody, right? Because it's a very attainable price point for our consumers with high satisfaction. It's very profitable for our providers, because you know, there's usually a 3- to 5-month payback for the providers. It's highly profitable, razor blade model unit economics to ourselves as well. We are global.
We're in 87 countries, growing fast internationally because those markets are relatively nascent. Our TAM is huge, and we have multiple avenue to expand within the beauty health category. Given how under-penetrated we are, we're truly trying to do a profitable land grab. Organically, we grow through selling more systems. Very much focused on that. Building brand awareness is important to us, so we can create consumer demand and increase utilization all over the world. Overall, we are thoughtfully expanding the various bundles of product and services to our communities through both innovation and M&A.
That sounds great. It's a great product, for sure. I think, you know, one thing that is important is you obviously talked to the fiscal 2021 outlook yesterday in a press release announcing at the high end of the range on sales and in line on EBITDA. You've had several beat and raise quarters so far. First, do you expect that to continue? Then you also referenced COVID with respect to Q4, but could you potentially bring us up to date to the extent that you can? You know, obviously, things have gotten a little bit more interesting in terms of the environment. Have you seen any disruptions related to COVID, the increase in COVID? And if so, how severe compared to a year ago?
Yeah, no, absolutely. Olivia, you know, what's interesting is we've been battling and working under COVID this whole time, and we feel really good about it. We actually increasingly feeling very good about predicting our business against this backdrop because overall, if you recall, even last year and the first quarter of last year before vaccine came out, there's a lot of open and close, and we've been tracking that very closely. We also raised our guidance multiple times because as we learn more about how each region behaves, we're able to get closer to how we predict the future. As a result, you know, as you can see, we actually got really close by the time, you know, we're giving guidance in November.
Olivia, the other thing I would emphasize is because we're a growth company, because the fact that we're growing so fast internationally, you know, we've been very clear about we now can truly see and predict quite well when it comes to behaviors in the U.S. and EMEA markets. The only one that's a little bit tougher to predict is APAC, and we actually took that into consideration. As you know, especially in Japan or China, given how militant and the way they perceive vaccine and how they shut down the city is very different than what you observe in EMEA, and Americas. The other thing I will emphasize, you know, if we're just to look back, you know, since the beginning, the SPAC went live in May.
You know, when folks were looking at our guidance back in November of 2020, obviously the world was quite different. As you can see, you know, our initial projection was actually at $180 million, high $190s million, but, you know, we were able to raise it multiple times, ending the year at $255 million on the high end. You know, with that said, for the pandemic, the other thing to keep in mind is we lived through some of the shifts for seasonality as well. You know, we bought the four acquisitions back in July, which was Q3. The way we shift for direct versus acquisitions is a little different. You know, we also emphasize a lot in marketing and test and learn.
Through that marketing, we can actually react to how we sell the equipment very differently as well. Meaning Q3 actually emphasized to the market there's a little bit of pull forward, right? Because the fact that we did a heavy marketing in Q3, when the pandemic got slightly worse in Q4, we only end up doing one. That's in New York City. All of that play into how we manage the business, how we perceive the pandemic.
Got it. I think one of the concerns that I heard yesterday is just about how the current environment might impact the launch of 2.0. I wanna talk a little bit more about 2.0 later. Is there any risk insofar as, you know, worries about spa visitation or anything with respect to the current environment and how that may or may not impact the launch of 2.0?
Yeah. I'll say, Olivia, we've been planning ahead, you know, for launching of the 2.0 all along the first half of 2022, especially for the U.S., right? We've shared with everybody the launch plan is really first half for the Americas region, especially in the U.S., and then we have regional launch in early second half. That's how we're planning that out. You know, we've lived through this pandemic, we've seen how the trend work. The way we were planning all along is you have to have marketing support when you launch. We're being very thoughtful. Overall, we feel very confident in terms of what 2022 is gonna bring. It's really more about thinking through seasonality, thinking through our marketing effort.
'Cause one thing I'll truly emphasize again is we see our business, we manage it based on that golden triangle, which is sales, marketing, and training. You need all three to work to very successfully launch and expand in regions. We're very thoughtful on how we launch and when to launch.
Got it. Thank you. Maybe we could talk a little bit about other risk factors, what you think are the biggest ones right now, other than obviously the pandemic. Maybe supply chain, for example. If you could talk a little bit about the global constraints and how that's affecting your business, any particular part of the business, and how that could potentially transpire in 2022.
Yeah, no, absolutely. You know, I think what we always emphasize is our TAM is huge. We're very nascent. We're all about execution. When we think about risk, when we think about how we manage our business, it's all how quickly can we grow? What kind of people? How fast we can hire the right type of folks with the entrepreneurial mindset of builders, but also understand we're scaling and growing at the same time. One, two, three focus are all pegged on execution. When we really think about overall our business trend, and how we launch in 2022, there's a lot to do, so it's really much more about how do we sequence it, how do we bring that to fruition.
Got it. That makes sense. Perhaps we could pivot over to growth and talk about some of the biggest growth drivers in your model, particularly for those investors who may not be as familiar with your story. Could you highlight some of your biggest growth initiatives across the different geographies and maybe some retailers as well?
Yeah, for us, you know, again, you know, I emphasize that golden triangle because we had the past five years' experience really test and learn a lot, and that's kind of our muscle, right? For us, what's really interesting, number one, is just push out as many systems as possible, because as you know, Olivia, we're trying to build out a platform. What's critically important about this product 2.0 is the fact that it truly bring RFID and Wi-Fi capability. The fact that we've been test and learning our app, this is the first time we're gonna have a true consumption model.
We'll be able to not only provide the consumer level data to our customers, to the consumer themselves, to help them with different services and maintain this lifestyle, but also, you know, we'll have that data to observe and help ourselves drive utilization and help the whole market doing better marketing, right? Because we kinda talk about ourselves as a B to C to B business, in the sense that we are investing a lot in marketing and making sure there's brand awareness, and that in turn really benefit everybody. In that vein, I again emphasize the point of golden triangle, because of the way we grow, it is a push and pull method. You know, based on the marketing activation, I'm sure you saw. I'm not sure if you actually stopped by our GLOWvolution, it's that big truck city takeover in New York.
We give free services and we do, you know, micro-influencer around that. With that event, we usually engage both the consumers and also customer. With that brand awareness, our, you know, funnel keep on growing, our leads keep on growing. The way from lead to conversion close the deal is very fast for us. It's usually 14 days. The sales folks can be very focused. What's really interesting about us is we don't necessarily have different sales team for different channel. Because the fact that we're really focused on the aesthetician, as I said earlier, they're trusted, you know, service providers and advisors to the consumer. Our sales force just really very much focused on the aesthetician layer, right?
Because in that sense, we don't have to have team for just medical channel or non-medical channel, retail or our hotel, we can be very focused to engage in that conversation. I think I shared with you previously, too, we're about 60/40 split. Sixty percent of our business overall are in the medical channel and 40% is in the non-medical channel. Those channels keep on growing. You know, as you can see on the medical side, you have your traditional classic derm. A really medical spa is a trend. You see a tremendous thing with the growth around the globe. On the non-medical channel, you know, we've always had a business in hotels and, you know, in gyms, but with the retail, you know, Sephora has been our business, our partner for almost 5 years now.
We did a lot of test and learn with that smaller perk system that's engaging the younger consumer. We've also started to truly test and learn with players like, Ulta, like Nordstrom or John Lewis in, Europe, to really trying to provide that experiential services to, the retail partners while they go through Amazon-proof, of their experiences. From a growth point of view, I would say continue to roll out as many systems as possible. We're doing a lot of marketing activation with that golden triangle to drive utilization. We're so nascent in terms of international market. You can see based on the trend, you know the U.S., we grow call it 50%-ish, right? If you look at EMEA, it's been 50%-60%.
You know, I'm saying comparison against 2019 because you kind of have to skip through 2020 due to the pandemic and 200%-300% growth when it comes to APAC region. There's tremendous room to grow. Last but not least, from an M&A's point of view, the fact that we raised $900 million, it's truly to be used to build and buy in terms of expanding the bundle, to, Beauty Health as a platform.
That's great. Goodness. Where do I wanna start with that? Maybe we do with M&A, and then we'll switch back to some of the marketing and retail efforts that you're making. Obviously M&A has been a hot topic on investors' minds. You talked about the cash raise. You know, Brent has a lot of experience with respect to M&A. You know, could you talk a little bit about what kind of transaction you're looking for? You know, what we should expect and then, you know, the potential transformational nature of something that you might be looking at.
Yeah. No, absolutely. You know, we did the deal back in December with Brent. As you know, Brent is our Executive Chairman, and he's been very active in terms of setting strategy and really think through as we build out the platform, what kind of target, M&A target we're looking at. Suffice to say, we've been actually quite busy. There's no shortage of target, and Olivia would be emphasizing, you know, the three key areas we're focused on. We don't necessarily discriminate. It doesn't have to be transformational or, you know, string of pearls. It's whatever really truly fit the three criteria, right? One, high NPS score, because HydraFacial actually has the highest NPS score, you know, if you especially compared to all the other procedures. And two, you know, leverage the call point, which are aestheticians, right?
The fact that we have over 19,000 installed base out there already, and as you can, you know, some of the folks can see from our deck, in the LTM September, we rolled out 5,000 systems. Just give you a sense of we keep on expanding so that installed base can either supercharge the target or vice versa for us, so we can have that natural synergy. Last but not least, accretive. If you look at our profile, we're very much a top-line growth profile. You know, historically speaking, Olivia, we've always been generating 25%+ EBITDA margin.
We've been purposefully saying, "This is a growth, you know, situations, land grab, profitable land grab." As a result, for 2021, 2022, we're very much focused on building that infrastructure, invest every dollar back, you know, drive marketing and really test and learn from that. The target that we'll be looking at should have the similar type of, you know, attractive margin profile. Because even if you look at our gross margin, you know, it's kinda in the mid-70s%, if you recall, before the pandemic noise, right? I'm talking about adjusted gross margins. You take away depreciation, amortization, all that, how we measure internally. We're looking at the target. You know, ideal target would be similar razor blade with recurring revenue, but more importantly, accretive for both top and bottom line for us.
Got it. That makes sense. Can you talk a little bit about maybe the systems versus the consumables? Obviously, as you mentioned, 2021, 2022 very much focused on building the base of the systems, you know, sort of an if you build it, they will come type model, right? Maybe we could talk a little bit about the consumables portion and what you're expecting there in terms of the growth, you know, not just in units, but what sort of a unit consumables per system type metric.
Yeah, no, absolutely. I would say, Olivia, I will emphasize the fact that we're very underpenetrated, right? If you look at even in the US, we've been existing for a long time. You know, this is over 10 years old. This is not new. Yet, you can see we keep on growing. You know, I think we always joke about at some point, consumable should be our rent system. The fact that we're rolling out systems so aggressively and there's no end, our conversion just keep on getting better, right? As a result, when we roll out the system, we actually usually sell one quarter worth of the consumable along with that. You usually see a little bit of a delay until they reorder again.
The way we look at it, you know, during the pandemic, obviously, you can measure what's open, what's closed. For example, retail, we talk about Sephora being our biggest customer, but you know, obviously it's less than 5% penetration. They haven't been open this whole year, right? We have 500 doors with them. There's less than 100 that's open. Because of the pandemic. As a result, we definitely see that slower growth on the consumable side because they keep on. You know, even with the EMEA region, you recall, they keep on opening and closing for various countries. When locations shut down, they just shut down. For the ones that open, we continue to see very strong demand. With that all said, our utilization is still relatively low, right?
What we truly observe is when our top-tier customers' utilization is very high, that's why we have a lot of multiple system sales, right? Almost over 12% of our customer base have multiple systems. Like Caesars Palace, for example, in Vegas, that one casino has 17 systems. Just to give you a sense, you know, when it works, it really works. We also observe if you know, location use it 5 or 6 times a day, they buy the second system. That really give you a sense of, you know, as the market open up from the pandemic, there's a lot of room for us to invest in marketing for that brand awareness because our unaided brand awareness in the U.S. is low single digit. That's how unknown we are.
This is precisely why we wanna really focus on the marketing, branding effort, making sure everybody know this should be a lifestyle choice, and you should really be getting HydraFacial once a month. You know, those are kind of effort we put in and that's how we're thinking about driving utilization and consumable. Suffice to say, Olivia, we believe given rolling our system, building that platform is our number one, consumable will still just catch up. We're probably gonna be seeing this 50/50 for a little while.
Right. Great. There's so many questions to ask. Perhaps we switch over to CEO transition and just, if there's any update there since last quarter, obviously the company announced departure of Clint. You know, could you give an update on the transition? How the search has been going? I think, at some point in the past, you had mentioned that, there should be an announcement in Q1. If you could just bring us up to date. I'm assuming you're getting close to an announcement. Would love to hear a little bit more there.
Yeah, no, absolutely. You know, as we shared earlier, Olivia, Brent has been very active, you know, since day one. Clint did a fantastic job, right? He built a really strong team. We've been just working very closely executing. We haven't changed our strategy or vision at all, so it's, you know, purely execution. The candidate we've been emphasizing are someone that really can supplement and complement the team, that bring, you know, this consumer beauty marketing experience as well as international experience. With that said, you know, we had the finalist and Brent really wanted to announce and open up the market so we can make sure no, you know, stones left unturned. We have the best candidate.
I'm very happy to report that we're very close, that we will certainly announce in Q1 and welcome our CEO to join us.
Great. Great. Looking forward to it. Maybe one thing that you guys talked about in the past is the at-home device, the Glow & Go. Can you just talk a little bit more about the initiative there? How it complements the in-office experience? You know, and then just with respect to positioning, how that's going at retail.
Yeah, no, absolutely. 'Cause what we're building is a community and it's a platform. This whole data connectivity element is so important. If you think about, for us, the most important thing is to roll out the, you know, second generation system first half of this year. Because we've been testing, learning the app, we have to close the loop. Once we launch the system, you can truly start to connect the consumer data with the provider data. By the same token, the consumers would love to have a maintenance tool in between of their visit, right? 'Cause our average customer visit, you know, 3.2 different type of locations, and they also do it, you know, 4 times a year.
This way, you know, once you have an at-home device, it won't cannibalize our professional services because it won't have the same level of suction, but it will really be providing a lifestyle maintenance tool. We've been testing and co-creating with our super consumers, right? Because for us, one, we are building community. We've been an end-to-end company. We've been very transparent with our customers. We want the customer to test that with us. Happy to report so far with very limited testing. By the way, they have to pay for it, right? 'Cause we want to have a very organic experience, is that they love it, and they really believe this is a maintenance tool, and they will still go see their professional services. From a timing point of view, Olivia, this is our first consumer product.
We wanted to do it right, and we wanna be very thoughtful. We will be very much focused on the professional launch and let us take our time 'cause we truly wanted to make sure the function, the form, you know, usability, the right pricing, all of that work for us.
Got it. Just, second to last question, maybe as we run out of time. Just talking about the investments that you're planning to make in order to support the rollout. Because obviously there's been a lot, the top-line-driven story, you know, there's a lot of investment behind it. Could you talk a little bit about what investments, well, specifically what kind of investments you're making?
Yeah, absolutely. Double down on marketing, 'cause we talk about how nascent we are from a brand awareness point of view. We've been investing in R&D innovation, but our investment cycle, Olivia, is 3-5 years when it comes to heavy hitting R&D, right? We just invested that, building our infrastructure, again, we're investing a lot, setting up headquarters. We just rolled out ERP around the globe, hiring folks. All of the heavy lifting will be done by this year, right? We're buying speed along the way as well, 'cause that's very important to us, then obviously with M&A integration. From a fixed cost point of view, most of the investment will be done by the end of this year. Now, obviously, with marketing, we see such significant return on investment for us.
if we continue, we're gonna continue to pump in the dollar. As soon as we see that slow down, we'll slow down as well. We're very much of a quick test and learn orientation.
Great. Well, I guess, you know, we're sort of closing in on time. If there's anything, last things that you wanna talk about in terms of things that you're excited about for 2022,
Yeah, no. We're really excited. We performed really well against the pandemic noise, and we're looking forward to, you know, kill it again next year.
Sounds great. Well, Liyuan, thank you very much. Appreciate it. Thank you, everybody, for joining us. Really appreciate it, and have a great day. Take care. Thanks, Liyuan.
Bye, Olivia.
Bye.