The Beauty Health Co. Q3 FY2025 earnings call

• Thanked Marla Beck for her leadership during transition. - Company has an opportunity to leverage Hydrafacial device platform to expand into a skin health technology solutions ecosystem. - Priority areas: protect and grow Hydrafacial installed base, drive consumable utilization, keep innovating across devices and consumable platforms, strengthen operational discipline. - Delivered on new product launches, with Hydralock HA and HydraFillic with Pep9 Boosters contributing to booster sales growth. - Inventory held below $60 million, lowest in 3 years due to improved demand planning, forecasting, and production quality. - Q3 adjusted gross margins 68%, adjusted EBITDA $8.9 million up 11% from last year.

For Q3, total net sales were $70.7 million, down 10.3% year-over-year. In the device segment, Q3 revenues were $20.8 million, a decrease of 24.6% year-over-year. In the consumables segment, Q3 revenues were $49.8 million, a decrease of 2.6% year-over-year. If net out the China impact, consumables sales would have increased modestly versus last year. The consumable mix moved from 65% of net sales in Q3 of last year to 71% this quarter. Hydralock HA and HydraFillic with Pep9 Boosters together contributed to 14% growth in the booster sales category this quarter. Inventory is held below $60 million, the lowest in 3 years. Q3 adjusted gross margins were 68%, a decline of approximately 150 bps from Q3 of last year. Adjusted EBITDA was $8.9 million, up 11% from Q3 of last year.

• Raising the low end of our full year 2025 revenue guidance to between $293 million and $300 million and increasing our adjusted EBITDA guidance to between $37 million and $39 million. - For Q4, expect net sales between $74.5 million and $81.5 million and adjusted EBITDA between $6.9 million and $8.9 million.

• Macro environment challenges like inflation, access to financing for capital equipment purchases, and uneven consumer confidence. - Device sales pressure due to macroeconomic factors. - China transition to distributor market impact on devices and consumables.

Q: Encouraging on the guidance. I would love your thoughts on what's happening in Americas and also the more cautious trends you cited in Americas, and how you weigh that against the guidance you gave? And as you mentioned, the 4 focus areas, which ones were going to be more near term in terms of what you're seeing in your hypothesis and which ones may be longer term? And as you mentioned, the skin health technology ecosystem, how do you envision that? Or how would you frame that in terms of device platforms, digital diagnostics or partnerships as you think more broadly?

A: Pedro Malha responded on regional dynamics in Americas, EMEA, and APAC, and discussed the near-term and longer-term focus areas and vision for the skin health technology ecosystem.

Q: As you mentioned, the 4 focus areas, which ones were going to be more near term in terms of what you're seeing in your hypothesis and which ones may be longer term? And as you mentioned, the skin health technology ecosystem, how do you envision that? Or how would you frame that in terms of device platforms, digital diagnostics or partnerships as you think more broadly?

A: Pedro Malha discussed the near-term and longer-term focus areas and the vision for the skin health technology ecosystem.

Q: I'd love to hear maybe just kind of your thoughts on stabilizing the systems. I mean, it looks like they're already stabilizing, but what initiatives do you think you need to put in place to get those to grow again? And then I guess to add one follow-up on the consumables front. I guess, just curious your thoughts around -- I guess, I think Marla was creating some products not just necessarily for treatment such as boosters, but also for use maybe during treatment or for purchase in private spa. I guess just curious on your thoughts around the consumables area and kind of where you're going to be focused at.

A: Pedro Malha talked about initiatives to stabilize systems and the focus on consumables area including pausing the skin care initiative.

Q: I'm wondering if you could talk through the trends you're seeing in different channels? And then also any color on what you're seeing from an end consumer standpoint and whether you've noticed any incremental weakness as macros remain pretty choppy?

A: Pedro Malha discussed trends in different channels and end consumer standpoint.

Q: This is a broader strategy question. This has been a reset year for BeautyHealth. You are hopefully stabilizing. This will be a nice baseline for you to grow off going forwards. So when I think about the outlook for 2026, how should I think about how you're going to prioritize top line growth versus profitability and diving deeper into existing accounts and focusing more on consumables versus trying to drive a reacceleration in delivery systems?

A: Pedro Malha talked about the outlook for 2026 and priorities.

Q: Maybe to start, and Mike, this might be more for you, but just to flush through some of the updated guidance dynamics. Revenue expectations, I think, came up by $4 million at the midpoint and EBITDA came up by $7 million, so a decent clip more. Can you just maybe walk us through some of the moving parts more specifically as to why there's so much more of a drop-through on the incremental sales? I know gross margin outperformed in the quarter. So is that just sustainable in coming quarters? Any additional color would be helpful. And then maybe just a quick follow-up. We're calculating that churn in the quarter was just under 2%, which is a modest improvement compared with last quarter, but it's still pretty elevated compared to the last 7 or 8 quarters, call it. I know you had planned actions to moderate that in the back half of this year. Maybe just how are some of those progressing? Are you starting to see them moderate more in 4Q to date? Just your latest thoughts there.

A: Michael Monahan and Pedro Malha discussed updated guidance dynamics, gross margin sustainability, and churn progress.