The Beauty Health Company (SKIN) – Aesthetic Growth
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The Beauty Health Company (SKIN) manufactures and sells serum-based hydradermabrasion systems and aesthetic products for skin care. Back on May 17th in Conversations is when we first discussed this company. Shares have done very well since and based on our recent discussion on the medtech sector and with the recent launch of MedTech Monitor, I wanted to refresh the bull case.
This company derives approximately 60% of revenue from what it classifies as medical customers, which include plastic surgeons, dermatologists and medical spas, and the remaining roughly 40% of revenue from beauty retail, which is comprised of pure aesthetic businesses such as salons, gyms, and retail businesses.
Beauty Health also has two revenue streams: Delivery Systems (53% of Net Sales), which are purchased upfront by practitioners, and Consumables (47% of Net Sales), which are primarily single-use, including tips, serums, and boosters.
When it comes to Delivery Systems, its flagship product is called the HydraFacial System, a non-invasive beauty health platform that cleanses, exfoliates, and hydrates a patient’s skin. The average cost of HydraFacial treatment to the consumer is $200 and the procedure takes approximately 30 minutes with a recommended monthly frequency. HydraFacial has no down time, as opposed to more invasive in-clinic skin correction procedures, which often require a recovery period of 1-20 days depending on the procedure.
Turning to its Consumables segment, the HydraFacial system uses single-use, consumable serums that are “nutrient rich” with exfoliating ingredients. The tips used to physically deliver the serums provide a physical exfoliation, and are used during each phase of treatment, with a series of base and upgradeable tips used during the cleansing stage, and extraction tip used during extraction, and HydraFacial’s Vortex Fusion tips used during the hydration portion. HydraFacial boosters provide treatment customization, to address individual customer needs as well as target specific facial regions such as the eyes and lips.
Shares gapped higher back in August following its Q2 earnings report where the company reported revenue of $66.5M, an increase of 371%. Delivery systems revenue came in at $34.9M, up 482% Y/Y while Consumables revenue came in at $31.6M, up ~290% Y/Y.
Canaccord Genuity analyst Kyle Rose, in his post-earnings note, would highlight that late in the quarter, the company announced the expansion of its global footprint via the acquisition of four OUS distributors for HydraFacial. The acquisitions include the key OUS geographies of Germany, France, Australia, and Mexico. Total consideration for the acquisitions is ~$35M. Given this, operational costs were driven up for the quarter. This falls in line with management’s commentary around investing in growth in the near-term to drive leverage in the longer-term. The company noted the acquisitions will be immediately accretive to earnings.
The analyst also added that another near-term cost driver has been SKIN’s ongoing investments in marketing initiatives to drive consumer and physician/esthetician demand. The bulk of patient treatments in the non-invasive facial aesthetics and beauty market are delivered by physician extenders (PAs, NPs, estheticians). “The Beauty Health Company has built its sales, marketing, and customer support resources to deliver value to these providers and has oriented its organization around building a culture focused on the customer experience, its brand, and driving sustainable customer demand/loyalty. The company aims to leverage its brand and engaged customer base (both physicians/estheticians and patients) to drive a flywheel of cash-pay procedures sitting at the intersection of aesthetics, skincare, and experiential beauty/wellness.”
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