The Beauty Health Company ($SKIN)

Good day, and welcome to The Beauty Health Company 2025 Fourth Quarter Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Norberto Aja, Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining The Beauty Health Company's Fourth Quarter 2025 Conference Call. We released our results earlier this afternoon via an earnings press release, which can be found on our corporate website at beautyhealth.com. Joining me on the call today is Beauty Health's Executive Officer, Pedro Malha, along with our Chief Financial Officer, Mike Monahan. Before we begin, I would like 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 and 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 forward-looking statements. For a further discussion of risks related to our business, please refer to the risk factors contained in the company's filings with the SEC. This call will present non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is in the earnings press release furnished to the SEC and 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 CEO, Pedro Malha. Please go ahead, Pedro.

Good afternoon, everybody, and thank you for joining us today. The Beauty Health has built 1 of the most recognized platforms in professional skin health. And my first 5 months with the company have reinforced my conviction in the long-term opportunity ahead of us. But before we review the quarter, I'd like to share a few observations here. My background is in global med tech business built around differentiated technology and disciplined commercial execution to drive growth. And what attracted me to The Beauty Health was the opportunity to bring the same model to the company. The foundation is already in place. We have a global recognized brand. We have a large installed base of systems placed with providers around the world and we operate a consumables model that when executed well, generates meaningful operating leverage. So our task now is straightforward to unlock the full economic potential of these assets. And that means strengthened the commercial engine behind the platform with greater discipline and operating rigor consistent with established med tech companies. And it all begins with activating the installed base, improving utilization, reinforcing the economies of our providers and continue to invest in clinically meaningful innovation. But before discussing the progress we are making, I think it will be useful to step back a little and look at the broader market. First, the fundamentals of the aesthetic category remains strong. Research shows that consumers continue to invest in their scheme even when they pull back in other areas. Skin Health is increasingly becoming a lifestyle category 1 that is built around prevention, routing care and clinical proven outcomes. And we have seen this evolution before in areas like oral health or wellness where treatments that once happen occasionally became part of everyday consumers' behavior. We believe skin health is following the similar trajectory, which can make the long-term opportunity for this category significant. The market itself has expanded dramatically. According to industry data, the U.S. med spa market has grown from roughly 1,600 locations in 2010 to more than 13,000 today. And at the same time, the consumer has evolved. We are seeing broader demographics entering the category, manned, Gen Z and younger consumers are engaging with treatment earlier and today's consumers are seeking outcomes that look healthy, natural and authentic. Also, consumers are more informed than ever before. They understand ingredients, treatment mechanisms and outcomes. So they're not simply purchasing a brand they're looking for results. Providers also have evolved as well. They are more focused on return on investment and are increasingly building treatment protocols that combine multiple modalities to deliver better clinical outcomes. So taken together, we believe that all of these trends are well aligned with our core product strength. Hydrophacial treatments are noninvasive, clinically credible and repeatable and they also serve as an accessible entry price point for consumers into the aesthetic category, which helps to bring new patients into the providers' practices and in creating opportunities for additional procedures. Hydrofacial is also uniquely versatile. The treatment works across genders, ages and skin types, a combination that very few technologies in the medical aesthetics space can match. Because our treatment is repeatable and easy to integrate, it also fits naturally into prevented skin health routines and combination protocols, which is exactly where the market is moving. So The Beauty Health is uniquely positioned at the intersection of clinical skin health and consumer aesthetics. However, our commercial model was built for an early phase of the market. One where the category was newer, competition was lighter and placing devices with the primary growth driver. That plate worked well for a long time, but markets mature, and we need to evolve our model ahead of that curve and shifted from a model of device placement to a model of device utilization which is where we believe the long-term growth of the business is. Over the past year, the company strengthened its balance sheet. It improved its cost structure, and restored financial discipline across the organization. Our fourth quarter results reflect that progress. But at the same time, we hold the view that these results do not yet reflect the full potential of BeautyHealth. What they do demonstrate is that the foundation of the business has stabilized. So for the fourth quarter, total revenue was $82.4 million, representing a decrease of 1.3% compared to the prior year's quarter. A meaningful improvement from the double-digit decline we experienced in Q3. Consumables revenue increased to $57.7 million from $56.7 million in the prior year, representing a growth of 1.7% year-over-year and reinforcing the resilience of our recurring revenue model. Device revenue was $24.7 million, still down 7.9% year-over-year, but performance improved meaningfully here related to the third quarter. And this number still reflects some pressure in the capital equipment segment, which is consistent with the broader macroeconomic environment. That said, the trend is moving in the right direction. And the improvement we saw from the prior quarter is an encouraged sign that the capital equipment business is stabilizing. Adjusted gross margin expanded to 67.4%, while GAAP gross margin expanded to 64.4%, driven primarily by a favorable mix shift towards consumables revenue. Additionally, profitability improved significantly. Adjusted EBITDA was $5 million in the fourth quarter compared to $9 million of last year's quarter, representing approximately 700 basis points of margin expansion. For the full year, adjusted EBITDA increased to $45.1 million compared to $12.3 million in the prior year, again, a significant improvement. So the results for this quarter highlight 2 important characteristics of our model. First, this business has meaningful operating leverage. Second, that leverage responds directly to disciplined execution. Operationally, we placed more than 1,000 devices in the quarter, and they ended up the year with over 36,000 systems in our global installed base. That installed base is the strategic core of this company, and it represents a recurring revenue infrastructure that is already in place. While this base has already been built, we think it remains underutilized. We believe that even modest improvements in utilization can drive significant consumables revenue and margin expansion. So is to unlock the full productivity of that installed base. Now looking ahead, the message here is that we remain optimistic about the category in which we operate. Demand for non or minimally invasive science-based treatments continues to grow globally. The market is shifting away from procedures driven primarily by short-term trends towards treatments outcome-driven protocols. The market is also shifting from individual treatments towards combination therapies and from soft marketing claims towards more clinically validated results. These trends favor companies with scale, clinical credibility, stronger provider education and durable recurring economics, which is exactly where BeautyHealth is positioned. At the center of our strategy is a powerful commercial model. Our brand credibility drives consumer demand, consumer demand drives patient traffic into the providers' practices, Patient traffic drives higher treatment utilization per device and utilization drives consumables revenue, which is our margin engine. For providers, this generates additional revenue and motivates them to expand, upgrade and deepen their relationship with us. But utilization is at the center of gravity. And we believe that when utilization improves, it creates a positive momentum across the model. So to accelerate this flywheel, we are focused on 3 priorities: first, sales force excellence; second, marketing discipline; and third, focused innovation. Starting with sales force excellence. Historically, much of our commercial success was relationship-driven, that work well in the early stages of the company, but the next phase of growth requires a much more structured, disciplined commercial approach. So we are now transitioning to a value-based selling model, 1 where our teams clearly demonstrate how hydroficial drives revenue, patient demand and attractive returns for provided practices. That means also sharpening our clinical and economic differentiation, improving how we segment and prioritize accounts, and we are implementing more structured sales plans. These plans focus not only on acquiring new practices, but also on expanding utilization across our installed base and reactivating low utilization accounts. We are also deploying stronger commercial tools and analytics, so we can track activation, utilization and retention across the installed base in real time. And this gives us better visibility into performance and allows us to manage the business with greater precision. Second, marketing discipline. Our marketing strategy needs to be more focused on demand generation that directly supports provider growth. So we are working to refine the position of hydrophacial as a clinical-grade skin health platform, 1 that is supported by science outcomes and stronger provider education. At the same time, we are activating an underleveraged asset in our portfolio, skim styles. It's a strong technology in the growing microneedling category that historically has never received the commercial focus it deserves, and we see a meaningful opportunity to expand its role with the providers' practices. We are also expanding consumer demand generation programs designed to bring new patients into the provider's office and strengthens the economic value proposition of these providers. Additionally, we recently brought a new brand and clinical strategy office with deep med tech experience to lead our brand and marketing strategy and strengthen the clinic position of our technology. Third, focus innovation. So innovation will remain disciplined and targeted at opportunities that only strengthen our platform. This includes the development of a next-generation hydro facial system, which will be designed to drive upgrades across the installed base and expand our market share. We are also investing in a much more selective portfolio of clinically backed boosters designed to increase booster attachment rates, improve provider economics and expand treatment protocols. If we look back, hydrofacial has historically been viewed primarily as a single treatment, but we see it differently. We see hydrophacial as the foundation of a broader skin health platform, 1 that integrates devices, boosters, protocols and complementary technology into a comprehensive ecosystem for providers and customers. So we are also exploring selective commercial and technology external partnerships aimed to broaden our product ecosystem and enlarge our relationship and offer to providers. So all in all, we believe that taken together, these initiatives will strengthen the installed base, expand Hydro facials role in providers practices and accelerate the compounding economics of our model. But this means that we will shift from a single product company to a skin health platform. And for that reason, 2026 will be an execution year, focus on stabilization and investment into the next phase of growth. This means that with the operational changes that we are implementing, we expect to return to growth in 2027 and accelerate beyond that as innovation and product launches scale. BeautyHealth has 1 of the largest installed bases in the aesthetics industry, 1 of the most recognized brands in skin health and a proven device plus consumables model. a global and a global commercial infrastructure across North America, Europe and Asia Pacific. These are proven and durable advantages. Our task now is to match those advantages with the commercial discipline and the operating rigor of the best-in-class med tech company. So before I turn over to Mike, let me quickly frame our expectations for the year. The first half of 2026 is likely to come in modestly below the prior year. But as our initiatives take hold, we expect momentum to build through the second half, position the company to exit 2026 on a stronger trajectory setting up the stage for returning to growth in 2027. And so with that, I'll turn over the call to Mike to walk you through the financials and our 2026 guidance in more detail. Mike?

Good afternoon, everyone. Key financial metrics for 2025 reflected meaningful improvement. Our global footprint surpassed 36,000 systems. We increased our adjusted gross margins from 62% to over 68%, and GAAP gross margins increased from 54.5% to 65.3%. We grew adjusted EBITDA from $12.3 million to $45.1 million or 268%. We generated over $37 million in operating cash flows and we strengthened our balance sheet by proactively restructuring our debt. Because of this, we exited 2025 a stronger company than we were a year earlier. These improvements did not happen overnight and are the result of the hard work of our dedicated teams. As we continue to stabilize the company and prepare to return to growth, we believe we are positioned to drive improved profitability and increase margins in the future. For the full 2025 fiscal year, net sales were $300.8 million compared to $334.3 million in 2024. We Consumables revenue totaled $212.7 million, while device revenue was $88.1 million. We ended the year with an installed base of over 36,000 systems globally, which remains the foundation of our recurring consumables revenue model. We delivered adjusted EBITDA of $45.1 million, representing a significant improvement from $12.3 million in the year prior. The year-over-year change was driven by our continued focus on expense discipline and sustained margin improvement, demonstrating the operating leverage of our business model. On the balance sheet, we ended the year with approximately $232.7 million in cash, cash equivalents and restricted cash compared to approximately $370.1 million at the end of 2024 and representing a 37% decrease. The year-over-year change was primarily driven by the repurchase of convertible senior notes during the first half of 2025, which, along with the refinancing of our notes significantly strengthened our capital structure and extended our debt maturity profile. For the fourth quarter, net sales were $82.4 million, a slight decrease of approximately 1.3% compared to the previous year. The year-over-year decline primarily reflects lower delivery system sales. We placed 1,032 delivery systems during the quarter compared to 1,087 units in the prior year period. GAAP gross margin was 64.4% in the fourth quarter compared to 62.7% in Q4 of last year. The improvement in gross margin was primarily driven by lower inventory related charges and a favorable mix shift towards consumables, partially offset by lower average selling prices on equipment. As planned, we successfully sold through the majority of our Elite FRC devices during the quarter, which are sold at a lower ASP than our new Ceneo devices. Adjusted gross margin was 67.4% in the fourth quarter versus 67.1% in the prior year. We continue to manage costs tightly throughout the quarter with GAAP total operating expenses coming in at $52.9 million in Q4, down from $59.5 million in the prior year. Selling and marketing expenses declined to $23.5 million, reflecting lower head count and disciplined spend management. Research and development expense was $1.7 million, up modestly year-over-year, reflecting professional services related to early-stage product investments. General and administrative expense declined to $27.7 million, driven primarily by cost control, lower bad debt expense and reduced expenses resulting from our shift from direct to distributor distribution in China. As a result, adjusted EBITDA for the quarter came in much stronger than the prior year at $15 million compared to $9 million in Q4 of last year. Net loss for the quarter improved to $8.1 million compared to a net loss of $10.3 million in the prior year. Moving to guidance. 2026 projections reflect the execution priorities Pedro outlined earlier. For the full year, we expect revenue in the range of $285 million to $305 million with positive adjusted EBITDA of $35 million to $45 million. At the midpoint, this implies revenue broadly consistent with 2025 when normalizing for our go-to-market change and softness in China with a more back half-weighted cadence as execution initiatives take hold. We believe this is the appropriate framing for 2026, given the work underway to strengthen the commercial foundation of the business, including sales execution, installed base activation and targeted investments in marketing, education and innovation. From a cadence perspective, we currently expect the first half of 2026 to be modestly below the prior year. This expectation reflects continued macro pressure in capital equipment, increased competitive activity that has lengthened the device sales cycle the transition work underway within our sales organization and ongoing investments in certain international markets, ongoing adjustments in certain international markets, including China. It's also worth noting that fourth quarter results typically benefit from year-end ordering patterns, which do not repeat in the fourth quarter. As these actions take hold, we expect improving momentum in the second half with the business exiting 2026 on a stronger underlying trajectory than where we began. We believe these actions will strengthen the underlying productivity of our installed base and reinforce the durability of our recurring consumables model, positioning the company for a return to growth in 2027. For the first quarter of 2026, we expect revenue of $63 million to $68 million and positive adjusted EBITDA of $3.5 million to $5.5 million. As a reminder, the first quarter is historically our lowest revenue quarter due to seasonal dynamics, including increased sales and marketing activity early in the year and typical ordering patterns among providers. Overall, our outlook reflects a disciplined approach, prioritizing operational execution while investing in long-term growth. With that, I'll turn the call back to Pedro.

Thanks, Mike. So to close our fourth quarter reflects meaningful structural progress in margins, profitability, balance sheet strength and in the operating foundations of the business. key characteristics that make Beauty Health a compelling long-term platform remain unchanged. The scale, the brand equity, a recurring revenue model with an operating leverage and a global distribution. What is changing is a discipline and operational focus we are bringing to those assets. We believe that as utilization improves, and innovation strengthens the platform, the compounding economics of this business will become increasingly visible. We expect 2026 to be the year we demonstrate that operationally, and 2027 is when we expect that progress to translate into sustainable revenue growth. and we look forward to updating you on our progress in the next quarter. So I will turn now the call back to the operator for questions. Thank you.

[Operator Instructions] And the first question will come from Alan Gong with JPMorgan.

So I guess like my first is going to be on the guide. I think following -- you've been taking in the last couple of years to really stabilize the underlying Syndeo business, and I understand that you're doing a pretty substantive overhaul of the underlying sales organization. But when I look at your outlook for next year, despite the fact that you have another year of sales declines on tap, it looks like you're still expecting to generate pretty good adjusted EBITDA. So just help me to right set expectations for these investments into the sales force and this overall with being able to drive continued leverage I'll just...

Thanks for the questions. So I'll just summarize back on what we're guiding here. So -- on revenue, at the midpoint, we are expecting to be flat year-on-year. Once you normalize actually mostly for the China transition, and that's pre intentional, the guide. Because in the end, we view this 2026 as an execution year. On adjusted EBITDA, that number means that at the midpoint of the guidance, this will be slightly below 2025, largely because of the reinvestment that we're doing into the business with an increase in R&D for basically future innovation. So the expectation, and Mike alluded to this is that with all in the first half of the year, we expect to be down mid-single digits. And in the second half, we expect to be flat. Without the EPC, which is majority a China impact here, the first half is expected to be down low single digits in the second half to be positive low single digits in terms of growth. And the main drivers are actually both consumers and devices here. As we ramp up towards the second back half of the year. Mike, I don't know if you will...

Sure, Alan. I can add. If you also wanted to know where the middle of the P&L, how we were thinking about the guide on the gross margin side, I would expect we modeled in gross margin for the full year to be relatively consistent with where we have been in 2025. The team has made a lot of improvements on the cost side of the business to get leverage within overall gross margin. We expect that to continue for the full year of 2025. And then on the OpEx side of the business, as you mentioned, we still are driving savings and cost efficiencies through the G&A line of the business, but we're reinvesting that back into the R&D line of the business into innovation for new products into the future.

Got it. And then I guess just on the underlying environment. I know you called out continued challenges on the capital side, but you clearly had a very, very strong systems placement performance to close out the year. So when we think about the underlying assumptions for the market environment, especially given all the volatility from a broader macro perspective, can you just help us with your underlying assumptions for trends throughout the year and in the first quarter?

Sure. So in terms of the overall, I'll say, end consumer signals that we are basing ourselves into our data shows that the consumer is still spending, but it's being more selective in choosing treatments that deliver clinical proven results at an accessible, we can call it an accessible price point. But actually, that is exactly the space that hydro facial occupies. The aesthetics category has been pressure and has been pressured for the last couple of years. And this is mainly due to the tightness of credit and the capital spending decisions taking longer because of that. But if these conditions improve, then we can see procedure volume pick up, and after that, we typically see device placements pick up as well. But actually, if you look at it, our ability to return to growth is not relying on the change of these market trends. Rather, it hinges on our ability to execute on our strategy. If you want to go down and dip a little bit to a lower level in terms of the provider trends that are shaping this market -- in the Medical segment, which, by the way, is 70% in the U.S. of our business, which medical pass occupy the large, large percentage of that segment continues to be the engine of this market. And we believe that this engine will continue to grow, because they are indeed using hydrofhacial as a way to bring patients in and upselling them into higher ticket treatments. Plastics surgeons seem to be losing some traction and dermatologies are more stable. But this is driven more by the specific patient treatments needed rather than just pure discretionary spending. At the high end, more -- the way we summarize it is the more the invasive side of aesthetics seems to be softening, while the noninvasive skin quality treatments like ours are holding up. If you look at the nonmedical segment, which is 30% of our business, which includes the DaaS and the single room staticions, we see that playing out more stable throughout the year.

The next question will come from Oliver Chen with TD Towers.

This is Jonna on for Oliver. Would love to get additional color just around the trend that you saw in the quarter and what's baked in, in terms of the trend rate in your guide? And how do you anticipate tackling the churn rate throughout the year? And another question is you mentioned men and Gen Z or the newer customer set how are you repositioning your marketing messaging, if at all, to target those new customer set? We appreciate the color there. .

Mike will take the first part of that question, and I'll take the second.

Sure. Thanks for the question. Churn was a little bit higher than usual for the full year 2025, but it improved in Q4, both year-over-year and sequentially from what we saw in -- so in the fourth quarter, it was about 1.1%. When you look versus the year prior, as I said, it was a little bit higher than that. In Q3, it averaged around 1.8%. So we're moving in the right direction. The driver of the churn is mostly our smaller accounts that don't have a business development manager assigned to them. So we began over the last few months restructuring our inside sales and customer service teams to better meet the needs of these accounts. So our focus in 2026 is we expect to potentially improve on that area. The guide, however, assumes that we'll hold churn on a year-over-year basis, flat. So our hope is that there's upside to the guide that we gave in that particular line item.

In terms of the segments that are moving in our way, as I mentioned in my initial remarks, the strategy is based on 3 assets. We have a great brand, a very large installed base and it raised a razor blade model. That basically means that for every device we place, it can become an annuity from a high-margin consumables that potentially can last many years. So our job here is the different customers getting to the fold and different segments of customers getting to the fold is to basically unlock the full potential of these assets. And to support this strategy, we have a market, again, that is moving in various ways our way. As I mentioned, the Mets past continue to grow. There is this set of new demographics entering the category, which we are building and addressing their needs, their specific concerns in terms of skin health. We are seeing more and more tumors getting into treatments earlier in age, and they wanted to treat Ken very, very much like a lifestyle routine which is definitely well positioning well hydrophacial and beauty health to take advantage of this shift, because we are indeed moving towards much more of an outcome driven protocol combination therapies and clinically validated results, which is exactly, yes. So all in all, as more consumers, more demographics seems to be expanding into the category, we are very well positioned to be at the forefront and to offer the exact solution that they're looking for.

The next question will come from Susan Anderson with Canaccord Genuity.

Alec Legg on for Susan. You hinted that you have a potential new system in the works or focus of your innovation. I guess, is there a time line that you're targeting for that launch, if you're able to talk about it? And then what type of additional services would that system potentially offer?

Sure. So let me bring you back into our innovation strategy and the initiatives that we have to support that same strategy. So we are improving -- let me start by saying that we are improving the discipline around new product launches, Period. And basically, we're not going to go and chase trends instead what we are going is to invest and launch products and technologies and solutions that materially add value to our providers. And not only that, and that they are different versus our competitors, and they provide outcomes that consumers want. And in the end, they are created financially to our business in terms of margins. So that's kind of kind of the framework that we are taking and using for innovation. Now when it comes to the next-gen hydro facial, the goal here is to build 1 that will give our existing more than 36,000 providers a compelling reason for upgrade. A new provider is a compelling reason to get into the hydrophacial universe. I don't want to go too much into the specific pictures of the next gen hydrophycial device at this moment. But what I can tell you and what I can commit is that we will launch a device that will materially advance the value proposition and the return on investment of hydrofacial to our providers. And in terms of time line, we are right now at the early stages of development, but the plans are to launch the next gen of hydrophacial in 2028. And for sure, we're going to keep you updated as we get closer to those time lines.

That's pretty exciting. And then just thinking longer term about sales between consumables and new device placements right now, it's around 70% consumables, 30% new devices. Is that I guess, the rate that we should think about it? Is there a different target that you're thinking about longer term? We're not in a position to give a target right now, obviously, but our hope is -- or our expectation is that as we move through not just this year and into next year that we return to device growth. And so we haven't been able to give kind of specifics outside of being able to focus on growing both of those categories kind of into the future. So later in the year, into next year, we'll continue to provide updates on where we think that can be.

Next question will come from Jon Block with Stifel.

Joe Federico on for Jon Block. Maybe just to dig a little bit deeper into the consumables performance in the quarter. EMEA has been pretty strong in terms of consumable sales over the past or so quarters and in the back half of the year off of more difficult comps as well. So I mean, can you just give us some color on what's driving that? Is it just a healthier end market? Or -- is there any sales execution drivers that can be replicated in some of the other regions? Any thoughts would be helpful.

Sure, Joe. So overall, at the highest level, in terms of the full quarter performance, so on consumables, we grew low single digits compared to actually negative subsequential growth in Q3. For the full year, we grew as well, low single digits. An but the booster sales grew much more, and that's an important point, high single digits. So if you want to break out that by region, the U.S. and looking at the larger provider groups and dermatology practice, both of these guys are growing. While small independent providers we see that they are still under pressure. Now you touch a good point, which was EMEA. And within EMEA, specifically Germany is performing exceptionally well. The only pressure that we saw in the quarter when it comes to consumer performance was actually coming from China and is a direct result of the China transition. Now -- if you add this to what is the underlying trends driving this consumer demand, what I can tell you is the core demand is still there. Consumers seem to continue to to prioritize our treatments as part of their skin health time and also because of our price position versus other aesthetic treatments. Actually, the average spend per treatment in the U.S. in consumables is up 10% year-over-year, and that is driven by our premium boosters and the strategy of the booster. Mike?

If I could just add 1 thing, additionally to that. EMEA was a little bit different than the other regions last year because they launched 5 new boosters throughout the year. And these were some of the -- some of them got regulatory approval later. So these were boosters that were launched earlier in the Americas. And so the booster growth that we saw there really kind of demonstrates the power of innovation kind of in this business and when you can launch new innovative products that can actually drive demand. And within EMEA, we saw that not just in the direct markets, but also in the distributor channel, where we saw really good consumable and specifically booster growth.

Okay. That's really helpful color. And then maybe just a follow-up on guidance. The 1Q '26 revenue guidance at the midpoint implies kind of a more outsized sequential decline than we've seen over the past handful of years. And so the past couple of quarters, actual performance has come in pretty solidly ahead of guidance and expectations. Should we assume any more conservatism to the guidance philosophy going forward? Or is there like a specific reason to point to for more pronounced decline in 1Q quarter-over-quarter?

The Q1 midpoint does assume a decline in the mid-single digits. It's primarily due to softness in the APAC region and the equipment softness in the Americas. That's reason number one. The second point is on the consumables revenue for Q1. We're projecting that to be lower year-over-year on a consolidated basis. for a couple of reasons. First, distributor orders that came in, in Q4. There's some timing a lot of times it happens with the distributor channel. They came in strong at the end of the quarter. So we're factoring in a bit of a decline in Q1 just due to timing. And also, overall, as Pedro mentioned, we're seeing lower signature treatments due to kind of macro pressures even though consumers who are coming in to get treatments there they're electing more boosters than they have in the past, which is driving up the overall treatment. But we factored in that lower consumable revenue and treatments into the first quarter. So I would suggest the way we guide is to -- towards kind of the midpoint. So we don't really factor in deliberately conservatism. That's kind of where what we're seeing in the business. we're obviously always striving to do as best we can. And if we can outperform, we will certainly do so.

Next question will come from Bruce Jackson with the Benchmark Company.

Looking at the strength in consumables this quarter, was there anything going on in terms of average selling price increases or additional upselling. Can you provide any color on that? And then given the importance of the boosters, what is the anticipated launch cadence for 2026? So Bruce, so in terms of the boosters themselves, roughly, they're about 1/5 of the treatments. 15 of the treatments use a booster and what we are seeing is that, that ratio keeps improving. For Q4, the booster revenue was up 7% year-on-year. And this happened and it was driven by the clinical proven hydrophilic and hydro lock boosters launch in the medical channel because the providers and the consumers actually saw the results and that was a major engine of growth from the boosters. In terms of -- and this speaks exactly to the strategy that we are putting forward, which is we are going to be over-indexing in launching clinical differentiated boosters with a very disciplined cadence. And also, we're going to be equipment providers with impactful marketing, good, strong marketing tools and keep investing in education. And also, we're going to amp the post sales onboarding and making sure that every provider knows how to maximize their return on investment. And finally, we're going to invest our marketing into driving customer mind share and investing in the brand. So that's kind of the backdrop of the Q4 performance is mainly heavy on the way the boosters are taking share out of the main treatments. But in terms of 2026, yes, we just spoke that Q1 will be pressure a little bit modestly, with a modest decline versus prior year. But as Mike just said, that is largely driven by the APAC region with -- and majority with a change in China. But as the year progresses in terms of consumables, we expect to see modest growth in the Americas to happen.

The next question will come from JP Hallam with ROTH Capital Partners.

Right. I appreciate. If we could maybe start on the consumables side. So I think 4Q would have been kind of the first promo or busy season for consumables following the price increase. So just curious if you can talk about reception to the pricing increase and kind of what that means for whether price might be a lever going forward? And just as a follow-up there, like -- when you think about consumable utilization between your best partners and your worst, what's separating them? What does that difference look like? .

I can speak to a couple of those questions. The first on the price increase, we did the price increase on consumables actually at the beginning of -- so the third quarter was the first quarter where you saw the impact. I think the follow-up to that question was we really didn't see -- we did a 5% increase, and we really didn't have a lot of complaints or pushback on that. so far, we -- that's been very successful for us. Going forward, the sales and marketing team continue to evaluate the overall pricing strategy. So we don't have any plans at this point to make any changes, but we'll keep you posted if anything changes there.

In terms of -- I'll just chime in, in terms of what we see being the reasons why boosters get higher attachment rates in certain specific segments of customers versus others. And what we have seen and what actually our data shows is that a provider who understands how to prescribe a booster uses roughly 3x more as many as boosters as the 1 that doesn't. And that is exactly why we are investing in marketing and investing in education to these providers. .

Understood. And maybe, Mike, for you as a follow-up. As we think about kind of OpEx and you've done such a great job kind of managing expenses there, understanding the need to invest from here. But just curious, as you think about kind of some offsets to the investment, where are you in terms of maybe kind of centralizing some international double costs, whether that's accounting, finance, anything of that nature? Like are there still offsets that you see in terms of the OpEx line for the upcoming investments? .

Yes. In terms of shared service centers, we are creating them. That's been a process that's been ongoing over the last year and will continue -- so we're continuing to see really 2 things. We're making investments in the back-end system infrastructure that enables us to manage the global business effectively through shared service centers, which is helping us with cost. We expect that to all be finalized more so by the end of this year. We made a lot of progress in some of the global entities the past year, and we have a few more to do this year and we'll continue to do that. Our guide this year assumes that there is G&A as a whole is stable to slightly up. And then there's the additional reinvestment back into R&D. I think over the long term, there is opportunity to continue to gain efficiencies in this business. But most importantly, I think when you look at the overall OpEx there's a huge opportunity as we return to growth to get leverage out of that fixed cost infrastructure going forward. And that's really, as we continue to get more focused on system innovation processes. We've done a lot of work there. We're really positioning the company in our view, to start to have a lot more of that gross profit drop down to adjusted EBITDA when we return to growth.

And this will conclude our question-and-answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect. Goodbye.