The Beauty Health Co. Q2 FY2026 earnings call

Overall Quarter Performance

• Mixed Q2 2026 results: total revenue hit $72.1 million at the lower end of the prior guidance range, while adjusted EBITDA came in at $17 million, well above the prior guidance range of $11-$13 million, driven by expanded gross margins and strict cost discipline.
• Long-term demand for skin health remains healthy, but consumer aesthetic spending is spread across more treatment options, and providers are making more selective capital investment decisions. The company believes its trusted brand, clinical innovation, and deep provider relationships position it well to compete in this environment.

Core Strategic Priorities

• Strengthen and grow the core HydroFacial franchise: Early this month, the U.S. launched a new device rental program in partnership with a third-party financing firm, which lowers upfront provider investment to expand the addressable market and grow the installed base. Revenue for shipped devices is booked upfront, same as existing sales models. Development of the next-generation HydroFacial platform continues, with a targeted 2028 launch that will deliver improved clinical outcomes, workflow, and create upgrade incentives for existing customers.
• Increase the value of existing installed systems: The global active install base grew 3.8% YoY to 36,516 systems, the foundation of the company's recurring revenue model. Improving provider utilization of existing devices is the most immediate growth opportunity; a new clinically validated booster is scheduled for global Q4 2026 launch, with additional launches planned through 2027 to drive more treatments and higher value per visit.
• Expand into attractive adjacent categories to diversify growth: The Skin Stylus Microneedling Device (entering the fast-growing microneedling category) recently received FDA clearance for periorbital wrinkle improvement and continues to gain traction. Hydrosculpt (relaunched KeraViv) entered the growing scalp and hair wellness category in June 2026 and is showing positive early traction. A new non-HydroFacial device is on track for U.S. launch in 2027, leveraging existing provider relationships and commercial infrastructure.

Financial Operational Highlights

• GAAP gross margin hit 68.4% (up from 62.8% YoY), and adjusted gross margin hit 71.8% (up 590 basis points from 65.9% YoY), driven by lower equipment COGS from last year's trade-in margin pressure, reduced inventory charges, operational efficiencies, and a favorable mix shift toward higher-margin consumables.
• GAAP operating expenses fell to $45.8 million from $51.8 million YoY, driven by lower personnel costs and improved efficiencies. R&D spending was $1.4 million in Q2, expected to increase in H2 2026 as innovation initiatives ramp up.
• Ended Q2 with $206 million in total cash, cash equivalents, and restricted cash, and management expects to repay the $103 million October 2026 convertible note maturity with cash on hand by the end of Q3.
• The company received a NASDAQ non-compliance notice for trading below the $1 minimum bid price; a special shareholder meeting on September 22 will vote on approving a reverse stock split to regain compliance.

By product segment: 1) Delivery Systems (equipment): Revenue of $18.3 million, down 18.4% year-over-year (YoY). 770 systems were placed, compared to 950+ in the prior year, accounting for 25.4% of total Q2 2026 net revenue. 2) Consumables: Revenue of $53.9 million, down 3.5% YoY. Lower utilization and a tough YoY comparison driven by prior-year booster launches caused the decline, accounting for 74.6% of total Q2 2026 net revenue. By geographic region: 1) Americas: Net sales of $49.9 million, down 4.2% YoY; consumable sales down just 1.4% YoY, with equipment seeing broad capital investment pressure. 2) EMEA: Net sales of $14.9 million, down 19% YoY, with softness across both equipment and consumables driven by recent personnel shortages and shifted distributor order timing. 3) APAC: Net sales of $7.3 million, down 5.4% YoY. The region completed its transition to a full distributor model (moving Australia and New Zealand from direct to distributor), with an expected 2026 full-year revenue reduction of $1 million from the transition.

• Full-year 2026 revenue guidance was lowered to $280-$290 million, from the prior range of $280-$300 million, reflecting continued sustained pressure on year-over-year device sales.
• Full-year 2026 adjusted EBITDA guidance was raised to $39-$46 million, from the prior range of $35-$45 million, reflecting stronger-than-expected margin performance and cost discipline in H1 2026.
• H2 2026 will see a $4 million increase in R&D and commercial investment compared to H1 2026, so management projects H2 adjusted EBITDA will decline relative to H1.
• Q3 2026 guidance calls for revenue of $65-$70 million and adjusted EBITDA of $5-$7 million.
• Adjusted gross margins are expected to step down to a midpoint of ~68% in H2 from 72% in H1, driven by higher expected mix of lower-margin Cindeo devices (the only device eligible for the new U.S. rental program) which have higher cost of goods.

• Sustained cautious provider capital investment continues to pressure equipment sales and overall top-line performance.
• The aesthetic market has become increasingly competitive, with competitors using aggressive pricing and commercial incentives that could pressure market share.
• Consumer aesthetic spending is fragmented across more treatment options, leading to lower-than-expected treatment utilization that pressures consumables revenue.
• The company is out of compliance with NASDAQ's $1 minimum bid requirement; failure to get shareholder approval for a reverse stock split could result in delisting.
• The $103 million October 2026 convertible note maturity requires significant cash repayment, and unexpected cash needs or market changes could force alternative financing on less favorable terms.
• EMEA markets face continued softness from personnel shortages and distributor order timing disruptions.

Q: What is driving lower consumables utilization relative to the growing installed base, how will the new rental program avoid cannibalizing existing device sales, and what is the cash outlook for repaying the October 2026 convertible note? / A: Consumer demand for skin health remains healthy, but consumers now split aesthetic spending across more treatment options, so the company frames lower consumables as an opportunity to drive more treatments from existing devices via new boosters and improved provider education. The rental program addresses the major barrier of high upfront capital cost for new providers, and management expects it to expand the total install base rather than cannibalize existing sales, as it targets providers who could not otherwise afford an upfront purchase. Management expects to end 2026 with ~$100 million in cash after repaying the convertible note, which provides enough of a buffer for 2027 working capital needs.

Q: What is the development timeline and current status of the next-generation HydroFacial platform, and why will gross margin and adjusted EBITDA step down in H2 2026? / A: The next-gen platform remains on track for a 2028 launch, with ongoing development focused on delivering meaningful improvements in clinical outcomes, patient experience, and provider workflow to drive upgrades and new customer adoption; no additional product details are available at this time. The H2 margin and EBITDA step down is driven by three factors: higher mix of lower-margin Cindeo devices from the new rental program, R&D and commercial investment that is back-weighted to H2 2026, and the return of general operating expenses (such as bad debt expense) to normalized levels after unusually low first-half expenses.

Q: For your expansion into adjacent categories, do you expect growth to come from new providers or existing installed base providers, and can you share details on the upcoming 2027 new device launch? / A: Management expects most adjacent category growth to come from penetration within the company's large existing installed provider base, which is one of its most valuable assets and provides an immediate ready sales channel. The 2027 new device launch remains on track, and it will expand the range of clinical solutions offered to the provider network while leveraging existing commercial infrastructure. No additional details on the device technology are available at this stage of development.

Q: Can you share an example of early progress in improving existing installed base productivity? / A: Skin Stylus, the company's microneedling product, is an early example: after refocusing the sales team on selling this device into the existing HydroFacial install base, it grew nearly 50% year-over-year in Q2 2026. While this is still a small revenue stream that did not materially impact overall Q2 results, it demonstrates that focused execution on existing base penetration can drive meaningful incremental growth.