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

Thank you. Good afternoon, ladies and gentlemen, and welcome to the Skin Health Systems, Inc. Second Quarter 2026 Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 6, 2026. I would now like to turn the conference over to Dr. K.

and Vesta Relations. Please go ahead. Thank you, operator, and good afternoon, everyone. Thank you for joining us today to review Skin Health Systems' 2026 Second Quarter Results. 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 Skin Health Systems Chief Executive Officer, Pedro Mala, along with their 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, including guidance and underlying assumptions. Looking statements are based on current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially. The centers are cautioned not to place undue reliance on any forward-looking statements. For further discussion of risks related to our business, please contact the Director These refer to the risk factors contained in the company's filings with the FCC. In addition, this call presents non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure is available in the earnings crest release, which was 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 Mala. Please go ahead, Pedro.

Good afternoon, everybody, and thank you for joining us to discuss our second quarter results. Let me start with a quarter at a high level. Overall, this was a mixed quarter. Revenue came in at approximately $72 million at a lower end of our guidance range. Equipment sales remain the biggest headwind as providers continue to take a cautious approach to capital investments. consumables proven a bit more resilient, supported by the continuous growth of our installed base, although treatment activity remained below expectations. This overall revenue pressure was evident across both our domestic and international businesses, with international markets remaining a bit more challenging. At the same time, profitability for the quarter was significantly stronger than we expected. Adjusted EBITDA came in at $17 million, well above our guidance range and driven by strong gross margins and continued discipline in how we manage the business. In summary, we are not satisfied with our top-line performance, but the quarter reinforced an important point. Even in a more demanding commercial environment, we are building a stronger company with better margins, greater operating discipline, and a more resilient financial model. As importantly, nothing we saw this quarter change our strategic direction. If anything, it reinforced it. Let me spend a few minutes now on what we are seeing in the market, because it can provide an important context for both the quarter and the strategic choices we are making. The long-term demand for skin health remains healthy. What is changing is how that demand is being distributed. Consumers have more treatment options than ever before, and providers are making more selective capital investment decisions as they evaluate a broader range of technologies. We believe that that environment rewards companies with trusted brands, meaningful innovation, strong clinical evidence, and deep provider relationships. And those are the areas where our company is best positioned to compete and where we continue to focus our investments. As we said last quarter, market conditions are only a part of this story. responsibility is to execute better. And that is exactly where our efforts are focused. We are strengthening our commercial capabilities, improving how we engage with customers, and becoming more effective at converting opportunities. Those are the things we can control, and that is where our team is focused every day. We also continue to believe strongly in the long-term opportunity for this business. For more than 20 years, HydroFacial has built one of the most recognized and clinically validated brands in professional skin health. Today, we serve more than 36,000 providers worldwide, have a large and growing install base, and generate around 75 percent of our revenue from recurring consumables, which together build durable, competitive advantage that position us to create long-term value. Last quarter, we discussed several of the investments we're making across the business, including consumable boosters and the next generation of the hydrofacial device. Today I want to explain how this worked together to support our long-term strategy. Our strategy is built around three priorities. First, strengthening and growing the core hydrafacial franchise. Second, increasing the value of every system already in the field. And third, leveraging our platform and provider relationships to expand into attractive adjacent categories. Together, these priorities are designed to accelerate sustainable growth by expanding our installed base, increasing treatment utilization, growing recurring revenue, and creating a more diversified business over time. Let me start with the first priority, strengthening and growing our core hydrafacial franchise. A key part of strengthening the franchise is making the platform accessible to a broader range of providers. As we discussed in prior quarters, capital constraints remain one of the most significant barriers of adoption. So to address that, early this month, we introduced in the U.S. a new device range. rental program designed to lower the upfront investment by providers and make hydrofacial accessible to more practices. We believe this will expand our addressable market and support growth of our installed base. The financial accounting for the program is similar to our existing sales program with With the revenue for the sales being booked upfront upon shipment, also the program was built with a third-party financing partner who takes ownership of the devices and administers the program. Part of this strategy of strengthening and growing our core Hydrofacial franchise is also the investment we are making in the next generation of Hydrofacial platform, as well As we discussed last quarter, this remains a multi-year development program targeting a 2028 launch. Our objective here, with the next generation of the HydroFacial platform, is to deliver a meaningful step forward in clinical outcomes, treatment experience, and provider workflow, while also creating a compelling reason for existing customers to upgrade and for new customers to choose HydroFacial. Moving now into our second strategic priority. increasing the value of every system already in the field. Our installed base is one of our company's greatest competitive advantages. It gives us longstanding relationship with providers around the world and supports a highly recurring revenue model that few companies in our industry can match. As we discussed last quarter, improving utilization remains one of the largest and most immediate growth opportunities that we have. So our objective here is very clear, is to help providers perform more treatment. deliver better clinical outcomes, and improve the value of every customer visit. And that is exactly what our investments in clinically validated boosters and treatment enhancements are designed to do. To support that strategy, our next clinically validated booster is expected to launch globally in the fourth quarter with additional launches planned throughout 2027. Finally, our third strategic priority, which is to use our platform and provider relationships that we've built over the past two decades and leverage those to expand into adjacent categories where providers and consumers are increasingly investing. This strategy is intended to diversify our portfolio, create additional growth engines, and to do so by building on capabilities we already have. The skin styling, skin stylus micro-needling device is a good example of that strategy in action. It gives us participation in one of the fastest growing categories in aesthetics and continues to perform well. And recently we received the FDA clearance for the improvement in the appearance of periorbital wrinkles, and more importantly, it also demonstrates our ability to introduce clinically differentiated technology through the provider relationships we already established. Hydrosculpt is another example. The reposition and relaunch of CareViv extends our presence into the growing scalp and hair wellness category, while increasing the value of hydrafacial systems already in the field. Following its June relaunch, we are encouraged by how Hydroscope continues to gain traction. Also, as we discussed on our last call, we continue to make progress on our plans to introduce a new device to the U.S. market in 2027. This is not another hydrafacial device and reflects our broader strategy of building a platform of clinically differentiated skin health solutions that leverages the provider relationships and commercial infrastructure we spent more than two decades building. So before I turn the call over to Mike, let me leave you with two observations here. First, we are not satisfied with our current performance. Despite our current business environment remaining challenging, improving execution is our responsibility and remains our highest priority. Secondly, we believe our company has exceptional access and a clear path to using them more effectively. The rental program and the continued advancement of our next generation platform demonstrates that the strategy is moving from planning to execution. We know that there is still plenty of work to do, but we are in the process of building a stronger and more diversified company with multiple opportunities for long-term growth. So with that, I'll turn the call over to Mike to review the financial results in more detail.

Thank you, Pedro. In the second quarter, total net sales were 72.1 million, down 7.8% versus the prior year. The delivery systems revenue was $18.3 million, down 18.4 percent, with 770 systems placed compared to 957 in the prior year. Consumables revenue was $53.9 million, down 3.5%, driven primarily by lower utilization and a tougher prior year comparison that included booster launches. Our active install base grew to 36,516 systems globally, up 3.8% year over year, and remains the foundation of our recurring revenue. Despite this continued top-line pressure, adjusted EBITDA came in above our projections. This was primarily driven by adjusted gross margin expansion, disciplined cost management, and timing of R&D investments and commercial initiatives. Sales performance by region is as follows. America's net sales were 49.9 million, down 4.2 percent. Consumable sales were down 1.4 percent, while delivery systems reflected the broader capital equipment pressure. EMEA net sales were 14.9 million, down 19%, driven by softness in both equipment and consumables. We've been actively addressing headwinds in the EMEA market. We had personnel shortages in the region, along with a shift of timing in distributor orders, which we expect to improve in the second half of the year. APAC net sales were 7.3 million down 5.4 percent. During the second quarter we transitioned Australia and New Zealand back to a distributor model from a direct model. We now have the entire APAC region being served by a distributor model. We believe this approach better serves the region going forward. The 2026 financial impact of the Australia-New Zealand transition to a distributor model is a reduction of revenue of approximately $1 million. Gap gross margin was 68.4%, up from 62.8%. adjusted gross margin was 71.8% compared to 65.9% in the prior year, representing a 590 basis point improvement. The year-over-year improvement was primarily driven by three factors. First, lower cost of goods on equipment due to sell-through of trade-in units that pressured margins a year ago. Second, lower inventory-related charges and continued efficiency in operations as we realize the benefits of tightened inventory purchasing and disciplined cost management. And third, a favorable mixed shift towards consumables. Gap operating expenses were $45.8 million down from $51.8 million, reflecting lower personnel costs and improved efficiencies. With total operating expense, selling and marketing was $21 million, GNA was $23.3 million, and R&D was $1.4 million. We expect R&D to step up in the second half of the year as our innovation initiatives On a GAAP basis, we generated income from operations of $3.6 million compared to a loss of $2.7 million in the prior year. Net loss was 2.7 million compared to net income of 19.7 million a year ago. The prior year figure included an 18.1 million net gain related to the exchange and repurchases of our 2026 notes. Adjusted EBITDA was $17 million, up from $13.9 million in the prior year and above our guidance range of $11 to $13 million. The year-over-year increase in adjusted EBITDA was largely driven by operating expense savings from lower selling and marketing expenses and lower professional service fees in GNA. We ended the quarter with approximately $206 million in cash, cash equivalents, and restricted cash. This is approximately 1.5 million above our first quarter ending cash position. Our October 2026 convertible maturity is approximately 103 million. Based on our current cash position and our expected second half cash needs, we remain confident in our ability to address this maturity. will continue to evaluate options based on our cash needs and market conditions. As of today, our current plan is to repay the October 2026 maturity with cash on hand at the end of the third quarter. We are lowering our revenue outlook to $280 to $290 million by reducing the top end of the previous guide, reflecting continued pressure on year-over-year device sales. We are raising our adjusted EBITDA outlook to $39 to $46 million from $35 to $45 million previously, reflecting the margin strength and cost discipline we delivered in the first half of the year. Our second half guidance reflects increased investment of 4 million in R&D and commercial initiatives versus the first half of the year. result, we are projecting our second half adjusted EBITDA to decline relative to the first half. For the third quarter, we expect revenue of $65 to $70 million and adjusted EBITDA of $5 to $7 million. Finally, I'd like to briefly address our NASDAQ listing. As we disclosed, we received notice from NASDAQ that our stock had traded below the dollar minimum bid price requirement for 30 days. As outlined in our preliminary proxy statement filed last Friday, we will be asking stockholders to approve a reverse stock split at a special meeting scheduled for September 22nd to remain compliant. The proxy provides a range of potential split ratios, and if approved, our board will determine the specific ratio within that range it believes is appropriate based on market conditions and other relevant factors at the time of implementation. For more information, please read the definitive proxy statement that we will file with the SEC.

With that, I'll turn the call back to Pedro. Thanks, Mike. Let me close with one final thought. This quarter did not change our view of the business. The market remains demanding, and we know that we need to continue improving on execution. But at the same time, we are making tangible progress against the strategic priorities that we laid out. The rental program is underway. Hydroscope has been relaunched. Skin stylist is taking good traction. The development of our next boosters and next generation hydrophacial platform continues to advance, and we continue to make progress on our plans to introduce a new device. in the US in 2027. All of these are meaningful milestones, and they reinforce our conviction that we are building a stronger, more diversified company with multiple drivers of future growth. Operator, you can now open the line for questions. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. moment. Your first question comes from Oliver with TD Cohen. Please go ahead.

Hi, Pedro and Mike. Regarding what you're seeing with consumables being down relative to the active installed base, what's happening there with utilization and or the inventory on the installed base that you're noticing? And also, I think you had a tough compare there too. Second question on the convertible note due in October, what do you need for cash in terms of your base level of cash and also things we should know about working capital dynamics and needs there in terms of the cash flow? And finally, regarding the rental program, program. How do you manage for incrementality and not cannibalization? And what's the thinking that goes through? It sounds like it's going to increase your TAM and there's a reason for people to buy and a different reason for people to rent. Thank you.

Thanks, Oliver. So I'll address the consumable dynamics, and then I'll go just right into the rental program, and then I'll let Mark address the convertible note, the cash, and the working capital question. So in terms of what we're seeing in consumer dynamics, I don't think that the consumer itself has fundamentally changed. Meaning people, continue to invest in skin health, and they continue to believe in the long-term demand for non-invasive skin treatments. So that continues to be healthy. What has changed in our view is that consumers now have more choices than they ever did years ago. And they're basically spreading their static spending across a broader range of treatments. And also, on the same line of thinking, providers have to now work harder to keep these patients engaged. consumers engage and and these consumers coming back into their doors so that's why WE DON'T LOOK AT THIS AS SIMPLY AS A DEMAND ISSUE WHEN IT COMES TO CONSUMER BEHAVIOR, WHEN IT COMES TO OUR CONSUMABLES PERFORMANCE. WE SEE IT ACTUALLY AS AN OPPORTUNITY TO INCREASE THE PRODUCTIVITY OF EVERY HYDROFACIAL SYSTEM THAT WE HAVE IN THE FIELD. WHY I DISCUSSED, YOU KNOW, DOING MY PREPARED REMARKS, THE SECOND PILLAR OF OUR STRATEGY, WHICH IS BASICALLY FOCUSED ON IMPROVING INCREASING THE UTILIZATION. WE HAVE THE BOOSTERS, HYDROSCOPES, ALL OF THAT ENHANCES THE UTILIZATION OF THE we also are working in in better provider education and And better protocols and all of those they they basically are they come with one single objective, which is for these providers to perform more treatments and to be able to personalize those treatments and be able to create a better economic return from every system that they own. So yes, consumables have been under pressure, and we think that they have been under pressure in the near term, but we see this as an execution opportunity for us. And that is exactly where we are investing. In terms of the rental program, you're talking now more about devices. As I explain, and if we look back, The rental program addresses one of our biggest barriers that we have seen in the last quarters, which is basically the upfront capital commitment from providers. And with this new program that we launched in the U.S., we are giving qualified U.S. providers another way to access hydrofacial through a much more manageable payment structure and conditions. I'm not going to go through all the mechanics of the program right here, but the objective, and I'm sure it's pretty clear, the objective is simple. It's basically to remove a quite meaningful adoption barrier that we have been noticing in the past quarters, and when doing that, but the expectation is to expand the installed base. And we don't expect to cannibalize, WE EXPECT JUST TO BRING MORE PROVIDERS INTO THE FOLD GIVING THAT WE'RE GOING TO BE LIFTING THIS BARRIER. Mike, do you want to address the capital questions? Sure. Hi, Oliver.

The forecast, the midpoint of our forecast assumes that we'll end the year roughly with about $100 million in cash. That would exclude any kind of unforeseen items that we don't have in the model, but we feel pretty comfortable kind of with that level, and that gives us enough cushion in our view heading into 2027 to kind of manage that. the business and meet the working capital needs. Thank you. Best regards.

All right, thank you. Your next question comes from Susan with Canaccord. Please go ahead.

Hi, thanks for taking my questions. I guess maybe I was just kind of first looking for some color just around the consumer behavior you're seeing out there. The consumable is now down two quarters in a row. I guess, are you seeing consumers maybe extend the timeframe between treatments or maybe foregoing a treatment? more just that they're you know not trading up and adding consumables to their treatments that they're getting done. Thanks.

Sure. As I explained, yes, all of you, but there's definitely more choices for the consumables, for the consumers to come in, which is great, which means that the segment is healthy, continues to have innovation, and consumers continue to spend money in the category. And that is all the way through. WE NEED TO POSITION OURSELVES BETTER TO TAKE ADVANTAGE OF THAT WILLINGNESS TO SPEND IN AESTHETICS. SO, I THINK THAT'S THE ALL THE THINGS THAT I REFERRED, ALL THE INITIATIVES, ALL THE that we are putting basically into place specifically speak to that, right? The boosters, basically all the investment that we're doing in the boosters is there to increase the treatment frequency. RELOAD OF HYDROSCOPES IS THERE TO CREATE ADDITIONAL RECURRING REVENUE FROM THE SAME DEVICES ON THE SAME PRACTICES. the relaunch of the skin stylist. Basically, we put that there and we're putting a lot of focus because we want to leverage the relationship into a fast category that we currently have, which is microneedling. So all of that is actually targets to take advantage of that healthy spend that we have.

see happening. Okay, great. And then maybe if you could just talk a little bit about just the competitive landscape that you're seeing out there. I think last quarter you mentioned that it was intensifying, I guess. Are you still seeing a pretty intense competitive landscape from, you know, other competitors out there? Thanks.

Sure, Susan. No different from what I said last quarter. Basically, indeed, the market has become more competitive, and some competitors are using pricing and other commercial incentives more aggressively. We have seen this throughout the year. Nothing new here. But our focus is rather on showing these providers where we can differentiate hydrofacial, where we can differentiate skin stylus, and so forth. and where the economics of our treatment come in and where we can create value to their practice. So short answer, no change from last quarter in what we discussed, but these are kind of the undercurrent dynamics that we have been noticing in the market.

Okay, great. Thanks so much. Good luck the rest of the year. Thank you. Your next question comes from JP with Roth Capital Partners. Please go ahead.

Great. Hi, guys. I appreciate you taking my questions. If I could maybe just start, you know, hoping that you could give us an update on sort of new Cindeo equipment and where payback periods are. I know you opened up the rental program, but just kind of for those providers who are still making the full investment. kind of where do payback periods sit today, and how is that influencing your thoughts about, you know, the pricing for the eventual new equipment in 2028?.

So I can speak a little bit, I'll touch on the new Sindale. in terms of innovation roadmap. And Mike, you can share some of these numbers, just to round down the answer here. In terms of the next gen hydrafacial, AS WE'VE BEEN DISCUSSING IN THE PAST QUARTERS, THIS CONTINUES TO BE A PROGRAM THAT HAS A 2028 LAUNCH TARGET. AND THE OBJECTIVE AND WHERE THE TEAM HAS BEEN WORKING AND MOVING FORWARD IS TO BRING TO MARKET A MEANFUL STEP OF INVESTMENT innovation in terms of clinical outcomes, of the overall experience, in terms of provider workflow, and basically giving... the existing providers that have Hydrofacial now, a pretty compelling reason to upgrade, or obviously bring new providers into the fold with a strong reason to choose hydrafacial versus other procedures. It's a bit too early to discuss more details on specifically the features that we're working on or the economics behind it. And obviously, we'll provide all the details as the program progresses. But we feel very encouraged by the development.

and the gate cycle of the process that we are currently doing. Mike, do you want to? Sure. Hi, JP. Typically, we tell consumer and providers that the payback can be roughly around nine months. That obviously depends on... treatments and the volume that you do, the more treatments that a provider is able to do, the faster the payback is. But generally that's the,.

overall kind of number that we give. Okay. And then a follow up, Mike, maybe more for you. But, you know, on the last call, I think we sort of talked about Q1 gross margin, maybe kind of being the high for the year. Just curious, you broke down a little bit of where the strength in 2Q is coming from, but just if there's any more detail there and then about how you kind of expect gross margin to run through the back half of the year, it would be appreciated. And really the question then is sort of the implication for EBITDA on the back half. you've done obviously such a great job of managing costs that you've The question really is sort of why is that stepping down, and is that baking in a little bit of conservatism?.