SkinHealth Systems Inc. (SKIN) Earnings Call Transcript & Summary

This call is being recorded on Thursday, November 5, 2026. I would now like to turn the conference over to Norberto Aja, Investor Relations. Thank you.

Thank you, operator, and good afternoon, everyone. Thank you for joining SkinHealth Systems' third quarter 2026 conference. We released our results earlier this afternoon, which can be found on our corporate website at skinhealthsystems.com. Joining me on the call today is SkinHealth Systems President and Chief Executive Officer Pedro Malo, along with our Chief Financial Officer, Mike Monahan. Before we begin, I want to remind everyone of the company's safe harbor language. Management may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including guidance and underlying assumptions. Forward-looking statements are based on current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially. Listeners are cautioned not to place undue reliance on any forward-looking statements. For further discussion of risks related to our business, please refer to the Risk Factors contained in the company's filings with the Securities and Exchange Commission. In addition, this call will present non-GAAP financial measures. Management uses adjusted EBITDA and other non-GAAP measures as supplemental measures to evaluate operating performance and to facilitate period-to-period comparisons. These non-GAAP measures should be considered in addition to and not as a substitute for financial information prepared in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is available in the earnings press release, which was furnished to the SEC, as well as available on our website. Following management's prepared remarks, we will open the call for a question-and-answer session. With that, I would now like to turn the call over to our President and CEO, Pedro Malo. Please go ahead, Pedro.

Thank you, Norberto, and good afternoon, everybody. Let me start with a central message from this quarter. We are making progress on the things that matter the most: the Hydrafacial business and improving the economics of the company. At the same time, we are developing new opportunities for growth. To be clear, the work isn't done. Equipment sales remain challenging, particularly in EMEA. Utilization in our installed base is still below where it should be, but we are making good progress against our plan, and the third quarter results provide tangible evidence that we are operating from a stronger foundation than 1 year ago. Our third quarter revenue was $69.2 million, towards the upper end of our $65 million to $70 million guidance range, meaning that our quarterly revenue declined 2.1% year-over-year, which is a meaningful improvement from the declines of 7.8% in the second quarter and 6.7% in the first quarter. Importantly, global consumables returned to growth, up 1.2% on a year-over-year comparison. Equipment remained the primary headwind, but the rate of the overall revenue decline has moderated significantly. At the same time, the earnings profile of the business continues to improve. On a GAAP basis, gross margin was 68.2%, operating income was approximately $5 million, and net loss was approximately $1 million. We delivered positive GAAP operating income for the second consecutive quarter, and adjusted gross margin was 71.8%, our third consecutive quarter above 70%. Adjusted EBITDA was $13.4 million. Some of our quarterly bottom-line outperformance benefited from 1-time items and expense timing, but we are also seeing the benefits of better margins, tighter cost management, and a more efficient operating model. The priority now is to sustain those improvements while returning revenue to growth. Looking across our regions, we are seeing encouraging signs in the Americas, which grew 1.4%, with consumables growing 4.3% on a year-over-year comparison. EMEA remained challenging with revenues down approximately 12% on a year-over-year comparison, reflecting pressure in delivery systems, particularly in Germany, where execution has been below expectations. To address this, we have strengthened regional leadership, and we are taking actions to improve field execution and customer engagement. In APAC, revenue declined approximately 4% on a year-over-year comparison, primarily reflecting the transition in Australia and New Zealand to a distributor model. So while our performance varies across markets, we know where the pressure is, and we are taking actions to address it. Let me turn now to our 3 strategic priorities and the progress we are making in building a stronger, more sustainable growth business. Our first priority is strengthening the core Hydrafacial franchise. We have a fantastic global brand and deep customer relationships, but we need to translate those advantages into better commercial execution. So over the past year, we reorganized our commercial teams, strengthened accountability, and invested in better training, processes, and selling tools. We are also taking a more targeted approach to customers, with a greater emphasis on Hydrafacial clinical differentiation and the economic value it creates for providers. Additionally, we are expanding our relationships with corporate and multi-location accounts, where we see opportunities to broaden our installed base and increase treatment volumes. During the quarter, we introduced a U.S. rental program to address 1 of the key barriers to equipment adoption: upfront capital investment. It's still early, but the objective is to make Hydrafacial more accessible, bringing more providers into the Hydrafacial ecosystem and supporting long-term relationships with them. We are also advancing our next-generation Hydrafacial platform, currently targeted for 2028, with the goal of improving clinical outcomes, provider workflow, and overall treatment experience. On competition, we haven't seen a meaningful change in intensity from what we discussed last quarter. Our strategy isn't simply to compete on price; it's to strengthen our differentiation, improve commercial execution, and deliver greater value to our providers. Our second strategic priority is getting more value from the Hydrafacial installed base. Throughout the years, we have built a substantial global network of providers, and that represents 1 of our biggest competitive advantages. But placing a system is only the beginning of the customer relationship. The real opportunity lies in helping providers perform more treatments, increase utilization, and generate more recurring consumables revenue. We saw encouraging progress in the quarter, with global consumables growing 1.2% on a year-over-year comparison, and Americas consumables returning to growth for the first time this year, supported by strong signature consumables performance, plus a Hydrafacial relaunch and other commercial initiatives. But consumables revenue per system remained below last year, and we believe we can do more to improve productivity across the installed base. That's an important part of our innovation strategy: bringing providers clinically differentiated treatments that address real consumer needs and create more reasons for consumers to come back. So in September, we introduced our treatment enhancers: the HydraGlow pre-extraction peel and the Hydralock HA biocellulose mask. In October, we launched a new booster, HydraClear, for blemish-prone skin, which in clinical evaluation showed that a series of HydraClear treatments produced a 38% mean reduction in total blemishes. So these launches are a good example of the direction we're taking with innovation: more targeted, clinically supported products that address specific customer needs. Our HydraScalp relaunch is another good example of how we are working to expand how providers can use their existing Hydrafacial system in the scalp and in hair health. Equally important is our work in helping providers turn this innovation into greater treatment volumes, and we are doing this with education programs like Hydrafacial Impact, which was built to help providers attract more customers, increase repeat visits, and improve their treatment economics. The point isn't simply to launch more products; it's to make the systems already in the market more productive. If we execute well, we can create a meaningful recurring revenue opportunity without relying entirely on new equipment placements. Our third strategic priority is to build a broader skin health business. Our ambition is not to be limited to 1 product or 1 category. We want to participate in attractive, high-growth segments of the aesthetics market, offer providers complementary treatments, and give consumers more reasons to engage with our brands. SkinStylus is a good example of that strategy in play. Microneedling is an attractive and growing segment that complements Hydrafacial, and SkinStylus gives us a strong platform to compete in that market, offering both microneedling and nano-channeling treatments. SkinStylus consumables grew 39% year-over-year this quarter, and very recently, we expanded SkinStylus into 6 key European markets, leveraging our existing international commercial infrastructure. We are also making good progress towards a planned introduction of another complementary device in 2027, with more details to come. What's important strategically is that we believe we already have the customer relationships, the commercial infrastructure, and the clinical credibility, so we can leverage those advantages across a broader portfolio. That's how we can build a stronger company, not by moving away from what made it successful, but by building on it. So let me bring all of this together. The revenue decline has narrowed significantly. Overall, consumables have returned to growth, margins are substantially stronger, and we're making progress on the commercial and innovation initiatives that can drive the next phase of our business. We still have work to do on equipment sales, utilization, and EMEA. When I look at SkinHealth Systems, I see a much bigger opportunity than the one we are capturing today. We have a strong global brand, a substantial installed base, a more efficient operating model, and an expanding portfolio. Our job now is to turn those advantages into sustainable growth through better execution in the core business, greater productivity from our installed base, and a disciplined expansion into new categories. That is exactly what we are focusing on delivering. With that, I'll turn the call over to Mike.

Thank you, Pedro. We are pleased with our company's performance this quarter. Our cross-functional teams were able to deliver on our revenue commitments, and we overperformed on driving adjusted EBITDA. The team was able to do this while continuing to invest in future growth initiatives. We're grateful for the hard work that everyone in this organization put into delivering. Thank you to the team. Total net sales in the third quarter were $69.2 million, down 2.1% compared with the prior year. This was primarily driven by a decline in delivery system units sold year-over-year, partially offset by an increase in consumables revenue. Specifically, at the end of Q3, global active systems grew to [indiscernible]. We continue to grow our footprint and provider reach each quarter. Q3 delivery systems revenue was $18.8 million, down 9.9%. We placed 798 systems during the quarter compared with 875 in the prior year period, a decline of 8.8%. Average selling price was $23,509, down 1.2% year-over-year. Consumables revenue was $50.4 million, up 1.2% year-over-year, representing approximately 73% of total revenue. On a year-over-year comparison, Americas net sales were $48.9 million, up 1.4%, with consumables up 4.3%, partially offset by continued pressure on equipment. EMEA net sales were $14.2 million, down 11.7%, with delivery systems the largest source of pressure, and consumables down 6.6%. APAC net sales were $6.1 million, down 4.2%, primarily reflecting the Australia and New Zealand distributor transition. GAAP gross margin was 68.2% compared with 64.6% in the prior year period. Adjusted gross margin was 71.8% compared with 68% in Q3 2025, an improvement of approximately 380 basis points, and our third consecutive quarter above 70%. There were several drivers of the year-over-year improvement. First, the prior year period included higher costs associated with Elite trade-in systems that did not repeat. As a reminder, we sold through our fair market value Elite systems that were acquired prior to 2024, going through the same process. Going forward, this inventory is no longer on our balance sheet. Second, we recorded approximately $1 million of tariff refunds during the quarter, which contributed approximately 140 basis points to adjusted gross margin. This was a 1-time benefit. Third, we continue to benefit from improved inventory management, including lower excess, obsolete, and scrap charges. And fourth, revenue mix benefited from a higher proportion of consumables as our consolidated consumables revenue reached 73% for the quarter. For the fourth quarter, we expect adjusted gross margin to moderate from third quarter levels as equipment becomes a larger percentage of the mix and the tariff benefit does not repeat. GAAP operating expenses were approximately $42.2 million compared with $51.9 million in the prior year period. Adjusted operating expenses were approximately $36.3 million compared with $39.1 million. The year-over-year improvement reflects the benefit of our APAC go-to-market changes, lower professional fees, and lower commissions, partially offset by increased marketing and event spending. Approximately $1.3 million of planned third quarter expense also shifted into the fourth quarter: roughly $600,000 of marketing, $600,000 of research and development, and $100,000 of G&A. As a result, we are projecting the fourth quarter run rate to be higher than the third quarter expense level. Research and development is expected to increase meaningfully in the fourth quarter as our device development programs, clinical studies, and other innovation initiatives advance. On a GAAP basis, income from operations was approximately $5 million compared with an operating loss of $6.2 million in the prior year quarter. This is our second consecutive quarter of positive GAAP operating income. Net loss was approximately $0.9 million. Adjusted EBITDA was $13.4 million, or 19.3% of revenue, compared with $8.9 million, or 12.6% in the prior year period, an increase of approximately 50%. Cash flow from operations was approximately $11.3 million in the third quarter, and capital expenditures were approximately $1.1 million, resulting in free cash flow of approximately $10.2 million. On September 30, we repaid the remaining $103.2 million principal amount of our 1.25% convertible senior notes due in 2026. Together with approximately $645,000 of accrued and unpaid interest, the related indenture was satisfied and discharged. This completed the retirement of the 2026 notes and delivered on the plan we communicated earlier this year to address the maturity with cash on hand. Following the repayment, we ended the quarter with approximately $112.4 million in cash and cash equivalents. We believe our liquidity position provides sufficient flexibility to operate and invest in the business. We have approximately $250 million in convertible debt remaining that matures in Q4 of 2028. We expect to address this in 2027 and will evaluate all alternatives thoughtfully as we move forward. Turning to our outlook. Based on third quarter results and our current expectations for the balance of the year, we are updating our full year 2026 guidance. We now expect net sales of $281 million to $287 million compared with our previous guidance of $280 million to $290 million. We now expect adjusted EBITDA of $48 million to $50 million compared with our previous guidance of $39 million to $46 million. Our fourth quarter assumptions reflect continued pressure on equipment and further work to improve the EMEA revenue performance. We expect adjusted gross margin to moderate sequentially as equipment represents a greater percentage of the mix and the 1-time tariff benefit does not repeat. Finally, the guidance reflects increased operating expenses quarter-over-quarter. This is primarily driven by increased sales and marketing expenses due to normal seasonal commission increases tied to revenue, along with some timing of marketing expenses that are now expected to impact the fourth quarter. Research and development expenses are projected to increase meaningfully from the third quarter as a number of our 2027 and 2028 projects are beginning to ramp. Finally, we are projecting increased G&A expenses primarily due to increased professional fees, more normalized bad debt expense, and some timing of legal expenses. With that, I'll turn the call back to Pedro.

Thanks, Mike. Let me close with a few thoughts. We are not simply waiting for the equipment market to recover. We are taking action to build a stronger, more profitable business with multiple opportunities for growth. This quarter demonstrates that we are making progress. Revenue is stabilizing, consumables on an overall basis have returned to growth, and the economics of the business continue to improve. At the same time, we are investing in the things that will drive our future: strengthening our Hydrafacial franchise, getting more value from our installed base, and building a broader portfolio of products and treatments. Like Mike mentioned, we also retired our near-term 2026 notes upon maturity as planned, while maintaining meaningful liquidity to continue investing in our business. So while there's still work ahead, we believe we are operating from a much stronger foundation than we were at the beginning of the year. We also believe that we have the brand, the infrastructure, the relationships, and the innovation pipeline to build a substantially better and more diversified business. Our focus now is on execution: translating those advantages into consistent revenue growth, sustained profitability, and long-term value for our shareholders. Operator, you can now open the line for questions.

[Operator Instructions] We have our first question from Olivia Tong with Raymond James.

First, can you talk about the growth in consumables? Do you think you've turned the corner and we can expect continued growth from here? Or was there anything particularly notable this quarter that doesn't repeat? And then what drove the growth? Was it more treatments, more boosters, pricing, or other factors there? And then secondly, can you give us a sense on the delivery—on the system side—what churn looks like? It's a bit difficult to assess now that you've got the leasing program in place, so would love to understand.

Thank you so much. Sure, Olivia. So on the consumables, let me bring you back. Global consumables increased 1.2% in this quarter, and actually the Americas consumables grew 4.3%—so good numbers. These are encouraging signals in terms of performance. To support that, the signature consumables are also performing better, and together with the HydraScalp relaunch, that basically added more treatments. So the Americas, specifically the U.S., is looking good. This is the direct result of the execution work, the commercial work, the retraining of the sales force, the marketing resegmentation, remessaging—all that work is starting to pay off in the U.S. We feel also encouraged that in the quarter we launched HydraClear, a very promising booster, and also the non-medical channel is supporting that growth. So overall, I think things are starting to shape up on the consumable side, specifically in our most important market, which is the U.S. In terms of the system churn, Mike, do you want to take that one?

Sure, I'd love to. So we had positive net churn of 59 units if you roll it forward. This was primarily driven in the Americas, as we saw a lower falloff of devices and some consumers repurchasing that were previously dormant. So we're encouraged by some of the improvements that we've made, specifically around our outreach to past dormant accounts. We're seeing some of them come back.

Got it. Thank you.

We have our next question from Sydney Wagner with Jefferies.

As wellness becomes a larger part of the med spa offering, are hair health concerns, including those associated just with GLP-1 use and the side effects from that, bringing new consumers to the ecosystem? And then if we think about HydraScalp and the opportunity there, are you primarily seeing deepened engagement with existing consumers or seeing incremental consumers coming in through that offering? And then just on EMEA, last quarter you cited personnel gaps and distributor order timing as temporary pressures, and they were expected to improve in the second half. So just curious how those issues are running now and what needs to change for that region to improve further? Thank you.

So in terms of scalp health, this is a segment that is getting a lot of attention and a lot of traction, independently of what's driving it. Obviously, GLP-1s could be a good contributor for that renewed interest in scalp health. HydraScalp for us, and HydraScalp with Keravive, is a particularly good example of the strategy that we put in place of getting more value out of our installed base. And basically, the whole premise of this is that we want to extend the use of our existing Hydrafacial system beyond just the facial treatments and going to the scalp and going to hair health, which, as I mentioned in the beginning, is getting some good traction as a segment overall in the market and getting a lot of growing consumer interest. Basically, what is so appealing for us in terms of this treatment is that it offers and combines an in-office treatment with a home spray of peptides and basically creates another opportunity for providers. And we saw, and as I kept mentioning in the first answer to the first question, we saw this being a good contributor to the numbers of the consumables that we have seen in the U.S. in terms of the quarter. So now the opportunity is to expand that provider adoption of HydraScalp with Keravive and just build that recurring treatment volume on top of it. In terms of EMEA, yes, definitely a point of pressure. It has been a point of pressure for our business for some quarters now. We have taken decisive action in terms of leadership and organization design to better address the needs and the dynamics of the EMEA market in the past quarter. I feel very encouraged and very positive with those changes and the tools and processes that we are bringing in place, and I feel optimistic that EMEA will start providing better results in the future.

The only thing I would add, Sydney, on the numbers: so we did see some improvement. Even though in EMEA we were down 19% year-over-year, as you might remember in Q2, that improved—still down, but down 11.7% in Q3. So to Pedro's point, even though the changes came throughout the summer, we're starting to see some improvement there.

Great, thank you.

Our next question comes from Joe Federico with Stifel.

Maybe just to start a little high level, delivery systems in the quarter—placements were actually pretty impressive relative to our estimate. So I know it's now early days for the U.S. rental program, but maybe just any early learnings you're seeing from that program, and can you give us a bit of color on the economics of those placements from the system side?

Thanks. Yes, Joe, I appreciate the comment. So in terms of delivery systems, yes, the numbers were—I won't call it good, but they were less severe than they were in the last quarter. But definitely, and I can be straightforward with this, we're still below where we need to be. What we're seeing in the market is that capital decisions still remain a barrier, sales cycles are longer, and competition is there. And as I mentioned before, EMEA is the largest source of pressure that we have right now, but we are focused on making the product easier to access and the value proposition easier to sell. I do believe that devices eventually will return to growth, but we have to improve conversion, bring more discipline to channel coverage, reduce adoption friction, and basically give customers and providers a compelling reason to invest. The rental program—and I will also add to this, the corporate account strategy that we have now in place—addresses today. The next-generation platform that is slated for 2028 will be the long-term innovation driver. So in terms of the U.S. rental program specifically, that program was introduced during the quarter, so it's still too early to attribute a meaningful share of Q3 performance to it. But it was designed to remove the upfront capital hurdle for qualified providers. So the process that we are going through right now is that we are evaluating the lead quality, evaluating the conversion, evaluating the provider adoption, and importantly, the treatment activity after every placement. Our expectation is that this program will build contribution over time as it scales in the U.S. right now.