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Get Some Skin In The Game

The Rundown (7/10/21)

This Beauty Health Company is Making Up a Lot of Ground, Fast

The Beauty Health company is a category creating company which focuses on bringing innovative products to the market. The company’s flagship brand, HydraFacial is a non-invasive and approachable beauty health platform and ecosystem with a powerful community of aestheticians, consumers and partners, bridging medical and consumer retail to democratize and personalize skin care solutions for the masses.

After completing a merger with SPAC Vesper Healthcare Acquisition Corp in December 2020, the company’s stock has skyrocketed by 80% on account of strong demand for its products and accompanied consumables. 

A Better Spa

HydraFacial is a non-invasive facial treatment procedure which uses a patented delivery system to make the skin glow. The 30 minute procedure involves a machine cleansing the face by cleansing and hydrating the skin with nourishing ingredients. Somewhere in the world, A HydraFacial procedure is performed every 10 seconds, with 3.2 million procedures performed last year.

That’s more than the total number of Botox injections administered in the US. The company’s skincare treatment is popular, especially amongst millennials and Gen-Z, who will define the emerging trend of beauty in the future. 

The company has a huge opportunity with the global Beauty Health market, which is estimated at around $240 Billion. The company has products which participate in high growth categories within personal care.

HydraFacial’s unique procedure is complementary to most other skin care products, with 95% of the company’s customers using other treatments in a year. Customers can get a HydraFacial treatment on the same day as injectables, laser treatments and other serums. 


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Bridging the Gap in Beauty Health 

In the world of beauty health, products lie between the spectrum of skin correction and skin care. Skin correction focuses on medical delivery technology such as Lasers, Ultrasounds, Fillers and Toxins and can be invasive and expensive.

On the other hand, Skin Care focuses on daily, over-the-counter skin care products such as Serums, Creams, Lotions and Supplements, which are less invasive and more affordable. 

HydraFacial focuses on bridging the gap between the professional and retail skin care markets by providing a highly effective, non invasive and affordable treatment.

The results from the HydraFacial procedure are similar to a professional medical treatment with the experience of a consumer brand. 

Favorable Market Conditions 

The company’s differentiated offerings participate in high growth categories in the personal care space. For instance, the US Spa Facial Treatment Sales is expected to grow from $1.3 Billion in 2020 to $2.3 billion at a CAGR of 11%. As the US economy grows, consumers have more disposable income to spend on premium products. 

The company has a strong base of engaged customers to fuel growth. Facial consumers are more diverse across genders and are younger than ever before, offering a significant market opportunity.

For instance, Ageing millennials are spending more on skincare, preferring holistic experiences over products. Millennials account for 60% of the company’s demographic and are a highly engaged demographic. 

HydraFacial also continues to grow in popularity with male customers as providers predict a 2x growth in the male mix in the future.

HydraFacial also continues to grow across geographies with huge international opportunity in Asia and Europe, making up 50% and 20% of the opportunity respectively. The company’s services are sticky, with 15% of the users getting over 4 HydraFacial treatments in a year. 

Business Model

The company makes money by selling delivery systems and consumables such as serums and boosters. The delivery systems and consumables both account for around 50% of the revenues, with consumables providing a recurring revenue stream in the future.

The company has a presence in over 87 countries through both a direct and distribution model and has sold over 17,000 delivery systems. The company’s distributions channels include aesthetics, spa services and beauty retail. 

Aesthetic channels account for around 60% of the sales and primarily consist of medical spas where clients get the HydraFacial treatment, in conjunction with other services.

Spa services are available at high end hotels and gyms where customers treat themselves on a vacation or after workouts. Beauty retail distribution includes Sephora and Bath and Body Works, where consumers get a face treatment while buying other beauty essentials. 

The company continues to drive consumer demand within the ecosystem by investing in various promotional activities and partnerships. This includes turning up the marketing of the brand as well as wellness and personalized messaging. The company is also engaging in provider engagement through education and events. 

Financials and Valuation 

The company has experienced significant disruption in its operations on account of the pandemic. The company’s significant historical revenues growth was negatively impacted, with revenues declining 29% to $119 million in 2020.

Margins also significantly declined with EBITDA margins down from 22% in 2019 to 6.5% in 2020. Despite the significant disruptions, the company still sold over 1900 delivery systems, growing its install base.

The company has also experienced a significant rebound in the first quarter of 2021, despite the ongoing impact of the pandemic in some international markets. The company is projected to continue its growth and projects $200 million in sales this year, with EBITDA margins recovering to 13%. The company’s asset light structure requires minimal Capex spending, with the company planning an investment of $15 million over the next two years. 

The company is expected to continue its strong profitable growth and generate strong free cash flows to support its continued investments and M&A activities. The company currently trades at a Price/Sales ratio of 11.35, which is significantly more expensive compared to similar competitors in the industry, who trade at a Price/Sales ratio of around 1.5 and have higher margins.

If the company can deliver on its growth projections through its ever expanding ecosystem of products and services, it could soon catch up to its valuation and create huge shareholder value.  

Conclusion

The Beauty Health Company is well positioned to take advantage of the growing trend in the retail skin care market. While the company has seen a huge impact on account of the pandemic it expects to see a recovery with sales growth reaching pre-pandemic levels this year.

The company’s asset light model should ensure higher margins and free cash flow generating opportunities enabling the company to deliver higher shareholder value in the future.  

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