Good morning and welcome to AirSculpt Technologies' First Quarter 2022 Earnings Conference Call. Currently, all participants are in a listen-only mode. As a reminder, today's call is being recorded, and we have allotted one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Dennis Dean, Chief Financial Officer at AirSculpt Technologies. Thank you. You may begin.

Good morning, everyone and thanks for joining us to discuss AirSculpt Technologies' results for the first quarter. Joining me on the call today is our Founder and Chief Executive Officer, Dr. Aaron Rollins, and our Chief Operating Officer, Ron Zelhof. 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. Risk 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, that's filed this morning, and in our most recently quarterly report when filed which will also be available on our website. With that, I'll turn the call over to Dr. Aaron Rollins.

Thank you Dennis. Good morning and thank you all for joining us today. First I want to say that first quarter saw us reach the highest quarterly volume and revenue that we have ever achieved in the history of our company. For the quarter we generated 39.5 million of revenue reflecting outstanding growth of 51% over the prior year quarter. Additionally going into the second quarter the demand we are seeing is higher than we have ever experienced. We developed AirSculpt 10 years ago with one center in Beverly Hills, we now have a national network of 19 centers across 15 states and we continued executing on our growth plans and opened a new location in Las Vegas during the quarter. We remain on target to execute on our de novo strategy of opening four centers this year which speaks to the demand for our services domestically. As we mentioned on our previous call, we also believe there is a great opportunity to also expand our network of centers internationally and we anticipate opening a center in Toronto, Canada in the second half of this year. We look forward to continuing the momentum for the rest of 2022 and beyond and we are excited about the opportunities ahead of us as we continue to expand into new markets and deliver incredible results for our patients and our investors. There's tremendous wind in our sails from favorable trends in the aesthetic space especially in fat reduction and body contouring. A recent publication by the Aesthetic Society showed that liposuction surgical procedures increased to approximately 500,000 procedures in 2021 and is now the top aesthetic plastic surgical procedure performed today surpassing breast augmentation. These statistics are further evidence of the opportunity for us to increase our market share due to our superior…

Thank you Dr. Rollins and good morning everyone. I'm going to share some information regarding our de novo procedure room expansion project but before I do I want to say thank you to the AirSculpt team. You performed magnificently every day by bringing first class results to the patients we treat especially in the face of challenging times brought on by COVID. Now I'll provide you with a development update. As you know we opened a center in Las Vegas in March and up to this point demand has exceeded our initial expectations. We've now opened three centers over a four-month period and each of these centers are performing exceptionally well. As previously discussed, it takes approximately four-months for a center to become cash flow positive and while these new centers have a short-term negative impact to our margins, they give us a great platform for margin expansion as we grow revenue over the rest of the year. We expect to open our next center in Boston in June which will be the first de novo that we have opened with three procedure rooms. Three procedure rooms not only allow us to meet the demand we anticipate in the market but it also provides operational efficiencies as utilization increases. Looking to the rest of 2022, we have plans to open two additional facilities later in the second half of this year; one in Philadelphia and another in Toronto, Canada which will be our first international facility. We are also diligently working on our centers for 2023 and we look forward to sharing some more about those markets in the coming months. We have also been busy adding more procedure rooms to some of our existing centers. As mentioned on previous calls, our legacy centers were built with only one procedure…

Thanks Ron. First I will share some remarks on the first quarter and our liquidity and then provide some thoughts on our outlook for the remainder of the year. Our revenue increased 13.4 million to 39.5 million, a 51% increase from the prior year quarter and our cases increased to 31.1% to 3156. The increase is primarily a result of adding five de novo centers over the prior year quarter which expanded our footprint to 19 centers as of March 31, 2022. Additionally, we experienced same center increases in both volume and revenue per case. Our revenue per case was $12,530, a 15% increase over the prior year quarter. As a reminder there are several variables that determine our pricing. While it is primarily based on the length of time a patient is in the procedure room which can vary due to the number of areas being treated, other factors include the volume of fat being removed and whether a procedure involves fat transfers. For the first quarter fat transfers continue to make up greater than 20% of our procedures performed. Not every patient is a candidate for a fat transfer for a variety of reasons. However, we expect to maintain this percentage as case volumes grow. Same center revenue increased 29% over the prior year quarter driven by strong case growth and an increase in rate. Much of our same store growth can be attributed to favorable trends in the aesthetic space and to expanding our marketing and selling capabilities especially AirSculpt TV to increase brand awareness and to attract more patients into our centers. Our cost of services for the quarter as a percentage of revenue was 37.1% versus 33.6% in the same period last year. As Dr. Rollins and Ron both mentioned, due to our rapid growth…

Thank you. . Our first question is from the line of Josh Raskin with Nephron Research. Please go ahead.

Thanks and good morning everyone. Two questions for you, the first one here is the boost in guidance for revenues of $3 million. How much of that is sort of Boston coming online faster, I think about each month being maybe $750,000, $800,000 of revenue? And then how much of that was better demand and if it's -- and regarding the better demand, if you could just talk about what specifically is driving that geography-wise, product mix-wise?

Thanks for the question, Josh. I would say it's probably equally weighted if I were looking at it from the standpoint of the increase. We did bring Boston on a little bit earlier. But remember, when we bring those on, they tend to ramp up a little slower intentionally for quality purposes. But the demand is really the main driver as far as us increasing the revenue guidance.

Alright. Could I hear half and half or more -- ?

I would weight it a little bit more on the demand side.

Okay. And what specifically is driving that, is that more higher cost procedures, it certainly looked like you saw that in pricing, is it more fat transfers, is there specific geographies that are outperforming?

It's really not related to what I would consider the activities that we are doing, it's really more of the industry itself. I mean we've discussed a report that came out recently that just showed the massive demand for fat reduction type procedures and body contouring. And that is really what is putting this major win behind us. And again, we're extremely bullish from that standpoint, which is why we've kind of looked at it from the standpoint of same demand is really the key driver here. And our procedures, they fluctuate from month to month. I mean we don't -- we're not a high volume center. Our centers don't run a lot of volume. And so there could be some movement within our rates just due to the types of procedures that come in the door. There's nothing anything that we would call out significantly. I mean at certain months, we may do more chins, which are really short procedures, but they're very profitable procedures. And so while the rate might dip a bit, it really has no significant impact to what we think of from a bottom line perspective. So we like where our business is. You called out fat transfers. Fat transfers aren't for everyone. Not every patient is a candidate and quite frankly, most patients aren't candidates for that for various reasons. 20% is kind of what we've been sort of calling out as what we expect to maintain as we -- as our volume grows, and that's where we expect to maintain and it's kind of where we've been over the last several quarters.

And then just separately on the new centers, I'm assuming it's a little too early to know anything about Las Vegas, but Miami, Salt Lake, I'm just curious, it sounds like you've seen a little bit of outperformance there. Anything particular there and maybe any lessons you've learned in terms of the newer openings that are going to be helpful in the future?

Hey Josh, it's Ron. How are you? All of our centers are performing slightly actually ahead of expectations, and we're extremely pleased with how they're performing right now.

I think the biggest surprise might be our Miami Beach location. When we opened it, we were maybe concerned about pricing just because of the -- some of the challenges maybe in the Miami, South Florida market area as far as these types of procedures. So that's been a -- quite frankly, a positive for us that the rate there hasn't seen significant pressure at all. We've actually been very successful in our -- in getting our rates.

Alright, perfect, thanks.

Thank you. Our next question is from the line of Simeon Gutman. Please go ahead.

Thanks everyone, good morning. I have two questions. First on demand and then second on some costs. So first, on demand. Can you share with us what, I guess, forward bookings look like, I don't know if you'll touch on quarter-to-date, but that's fine but in light of the backdrop, which mostly is stock market changes and geopolitical worries, curious if there's any correlation to how demand is shaping up going forward? That was my first question.

Yes. Thanks, Simeon. You're right. While we don't give any sort of forward-looking specific information, what we would say though is that the first part of the second quarter is really, really going strong. We're very positive as to what we're seeing from volumes and sales and bookings. And so we're extremely, extremely excited about what's ahead of us. Second quarter is looking really good so far.

Okay, great, thanks. And then the second question is on cost and scaling. There were two buckets that, I don't know if it's caught our attention, marketing spend and then surgeons but especially the second trainer. Can you talk about how much of this is planned versus unplanned as the business scales and grows, what portion of this is proactive for example, marketing, where you see an opportunity and you think it would have a good return versus there is a certain level that needs to be spent to support and then at the same time, more surgeon trainers, this is being scaled for the first time, you guys are doing it, are there areas you finding that the business needs more investment or is this all planned as the number of centers ramp up?

I can start. It's Aaron Rollins. I can start with some answers about our investments in the business. Getting our second surgery trainer, it was wonderful for us, and it was hoped for and planned. There's not many people that can do that and we're really happy to have them. Having two full-time surgical trainers really allows us to scale at a different pace, and it allows us to maintain our quality and our safety in a way that we couldn't before. So we're thrilled about that as a money very, very well spent. We don't plan on hiring a third at this time. Dennis, do you want to fill in some more?

Yes, I would say, as I look at kind of the original outlook, I think those costs, we've pulled forward a little bit earlier in the year compared to what we sort of expected to. And quite frankly, we did so because our revenue has been so strong and the demand has been so strong. One of the things that we want to do is prepare for growth, and we want to accelerate our growth, not only in same-store, but also accelerate our growth in new facilities. And so we've -- again, because of the demand, we felt that it was the right time to invest a little bit sooner.

Another thing is we're happy to see our customer acquisition cost went down to $2,200 per patient for the quarter. And that's a strong return on CAC spend because our gross margin is in excess of $8,000 per patient, which is close to a four times return.

Thanks everyone, good luck.

Thanks Simeon.

Thank you. Our next question is from the line of Korinne Wolfmeyer with Piper Sandler. Please go ahead.

Hi, good morning and thanks for taking the questions. So I'd like to, one, expand on kind of what's going on in the current macro environment and I'd just like to get your thoughts. I mean, I know demand is obviously trending very well. But as we hear more about consumer sentiment starting to decline, both here in the U.S. and internationally and maybe consumers starting to cut spending, how are you viewing the resiliency of the broader aesthetics market through these conditions? And how do you -- how are you expecting the market to fare if we do continue to go into a downturn here?

This is Aaron Rollins. Thanks so much for the question. I've been doing this my whole life, and I've been the CEO of AirSculpt now for over 10 years. And I can say with absolute certainty that I have never seen this level of demand. Our volumes have never been better. Our financing rate is exactly the same and I see demand actually accelerating. So that's all I can really tell you. So I feel great about the coming quarters here. And these macro conditions have had no effect on our business. I mean, in fact, it's accelerating.

I would add a little bit that we are a luxury brand and so with that, our customer base tends to be a bit more resilient to some of these macro environment trends that we're seeing. But again, like Dr. Rollins says, from our demand that we're seeing, it's again, I'd say, knock on wood, we're excited about where we're going.

Helpful, thank you. I really appreciate the color there. And then I just like to touch a bit on Renuvion. You didn't really mention it in the prepared remarks, but can you just give us any color on how that's been going, how many offices now have this technology, what has demand been? And can you just walk us through the economic procedures or economic of this procedure again, so we understand what's the add-on cost and what's the cost for -- on you bringing this on, just any color there would be helpful?

I can start. So we're really happy to offer Renuvion. And Ron, how many offices do we have it in to date?

Seven.

We have it in seven and the way we're rolling it out is based on demand. If there's an office where patients are asking for it and which we call AirSculpt Plus then we immediately get them a machine. There are some offices that do a lot more of it than others, and it's really just based on patient demand for it. The economics are very good. I'm not sure, Dennis, do you want to say what we're allowed to say about that.

Sure. We usually see about a $2,500 add-on typically for that. Obviously, it depends on the -- every case is different, but that's on average about what it looks like.

And the good thing is for that $2,500 add-on, that's about 20 minutes more of operating room time. So it's really good. And I'd like to say, because we're a results-focused company, it actually works very well. So I'm very happy with the technology. I think it's extremely safe and we have every plan to continue to roll it out based on demand from any individual office.

Great, thank you.

Thank you. Our next question is from the line of Whit Mayo with SVB Leerink. Please go ahead.

Hey, thanks, good morning. Dennis, I just wanted to go back to the topic of the increased investments and the timing. I totally appreciate the decision to pull the trigger on these. I don't think it's actually fully within your control when you find the right people, the right talent to join the team. So that decision seems to oftentimes be made for you, not really easy to put that into a budget. And you guys don't give quarterly guidance, and we're getting a few questions here. So if we just kind of take all the puts and takes here of like how the quarter developed with these increased investments, how did it really compare with your internal plan?

Hey thanks, Whit. First, before we get into the investment side, I mean, we obviously get impacted heavily by being a public company. And so I just wanted to make sure that, again, we sort of reiterated that point, that we saw excellent adjusted EBITDA growth year-over-year when you account for those costs that we incur. And I know that wasn't part of your question, Whit, but I think it's just a significant number. We just need to continue to make sure everybody's calling that out as well. But, Whit, and kind of like what I'd shared earlier, the demand has really what caused us to pull these costs forward. We've -- again, as we've always talked about quality, safety are paramount for us. And so that's caused us to really focus on bringing our nurses up to a higher standard and that we're hiring more RNs, whereas in the past, we had LPNs. We put nurse managers in place. And all of this is because, as you grow a business like we are in the health care space, you can't sacrifice quality for rapid growth. And we see the opportunities out in front of us for this growth. And so we invested these dollars primarily into the quarter. We feel like we're right at the point of maxing out from that standpoint. So we feel like the investments we've made in that arena are about where we need to be. And so we're going to be able to leverage that number as we move forward through the year. We had probably a $400,000 impact in the quarter. If we think of it from a sequential and over prior year, we had about $400,000 to $500,000 impact there related to adding these nurses and other clinical items. As Dr. Rollins…

Yes. No, I think I get it, it seems like you guys kind of come out of this quarter with a little bit more enthusiasm than when you entered the quarter. Can I just ask one other question on the relocations, any way to size disruption that you historically feel when you do a relocation, I think you stagger these pretty efficiently, but just trying to get a sense if there is any expected disruption from a relocation such as Sacramento or whatever?

Sure, hey Whit, it's Ron. Number one, I appreciate the question. The answer is no, we don't -- the way we do it is we do it over a long weekend. And the last one we did in Dallas, which was a large relocation for us. Again, Friday afternoon comes along Friday evening, and we're already been packing up. And then we move over the weekend, and we start the new cases on Monday. So that's how we go ahead and do these. So there's no disruption whatsoever.

I'd like to add -- I'd just like to add that I'm very happy to say that we recently used all three procedure rooms in relocated office for the first time at the same time. And that's really big for us.

Okay, thanks guys.

Thank you. Our next question is from the line of John Ransom with Raymond James. Please go ahead.

Hey, good morning. I guess this one is for Dennis. I mean normally, 2Q is your high watermark. Is that going to be even more the case this year if we think about sequential revenues, just given the preopening and maybe the first quarter had some more Omicron effect?

I think on a sequential basis, John, how we're seeing it is obviously Q2 is going to ramp up significantly. I mean that's been our history. How we look at -- I'm looking at the mid-40 range for revenue for the next -- actually, for the next two quarters and then upper 40s for the fourth quarter on a revenue perspective. Obviously, the fourth quarter is getting benefit from additional ramp and some new centers that we'll bring online throughout the year. But that's kind of how I see it laying out for the remaining quarters from a revenue perspective.

And I know you mentioned the extra -- the audit costs, sorry if that's not the right word, but the extra public company costs in the first quarter. But how should we think about your fixed cost kind of 1Q to 2Q if we fully -- quarter as, if you will, the investment that you made, what's the kind of step up taking a few things into consideration?

Sure. One thing I would make a point is also, if you look at the numbers on a sequential basis, Q4, we were only public for two months, and our public company costs run on average about 650 to 700 a month. So that's a sequential impact that we bear in the first quarter that we didn't necessarily see in the fourth quarter. Now that's going to run with us. And in the first quarter, we usually see about a $650,000 to $700,000 increase over future quarters because of the annual SEC requirements.

Got you. Was there anything else in the first quarter that maybe you layered in the expense mid-quarter that will be fuller which is kind of ?

I think from that standpoint, I would run with it. I mean, again, we've made the majority, if not all, of our clinical investments. So we feel good about that. And so now we're just again have prepared for our -- for that growth that's coming up.

And then last one for me, could you remind us stock comp kind of what your expectations are for the balance of the year, is there any seasonality to it, and what's the full amount you need to invest before it levels off, I know that was part of the pre-IPO discussion, but maybe just level set everybody for that?

Yes. So we -- there's not really going to be what I would consider a significant seasonality to that. Most of what we see on the stock comp line is due to the original IPO grant that took place. It's about 7.3 a quarter. But what I would also add to that, just for modeling purposes, is that due to 162M requirements for tax purposes and the deductibility of various executive comp, we won't get the benefit, if you will, from an income tax perspective for that. And so that will definitely impact our effective income tax rate this year.

How are you going to be running at this level and so if you fully absorbed the pre-IPO grant?

Yes, so you will be running for three years. And so we're basically six months into it, so about another two and half years, John.

Okay. Very good. And then just remind me, if you would, I know you haven't seen -- I guess, two other things. First of all, how far out are your bookings typically?

Well, that really -- yes, go ahead.

Our bookings run depending on facility. There can be anywhere from just two weeks to six to eight weeks. It just depends on our one-room existing legacy centers. Those tend to be a little longer. But on our newer centers, it's not long at all.

Okay. But between you're sitting here almost mid-quarter, and then you've got probably maybe three weeks of bookings, so you get pretty solid visibility on 2Q, that's my -- will that be -- for your comments just to be kept in obvious?

Right.

Right. We do have -- we have some pretty good view on it, John.

Yes. Okay. And lastly, maybe I'm just thinking about this because I'm in Tampa, and I know you've got one in Orlando, but do you think, if we look down the road three years or something, the company might think about densifying a little bit or maybe like doing a couple of days a week, and there's a satellite market an hour and half away. How do you think about something like that, when you think about building this out, what's the -- have you thought any more about like, well, maybe we can put more of these out there and we thought we did?

I'll take that. Thank you. So we're currently building our support teams, both clinically and operationally, to increase our growth point. We don't want to jeopardize quality and results for the sake of growing faster. And that's why we're making these investments in the business now is because we do see that opportunity moving forward.

And if your "secondary markets", not the traditional super MSAs, but places like Charlotte and Orlando, have they ramped consistent with some of your bigger market opening?

Frankly, our mid-markets are performing exceptionally well. So some recent openings have really exceeded my ramping predictions. And the ramp-up and the performance is better than I've ever seen in this business.

Great, that’s it for me. Thank you.

Okay, thanks John.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Dr. Rollins for closing remarks.

Thank you. I'd like to conclude by thanking you all for listening, and I'd like to thank all of our employees and doctors for such excellent work. I couldn't be more excited about our growth and our performance, and I'm looking forward to the future. Thank you all.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.