AIRS - AirSculpt Technologies Continues Steady Expansion

Summary

• AirSculpt Technologies, Inc. went public in October 2021, raising approximately $77 million in gross proceeds in a U.S. IPO.
• The firm provides body contouring and aesthetic medical procedures in its U.S. locations.
• AirSculpt Technologies continues to expand location coverage and revenue growth, but I'm cautious about an economic downturn in 2023.
• My outlook on AirSculpt is a Hold in the near term, but interested investors should put the stock on a watch list for future consideration.

A Quick Take On AirSculpt Technologies

AirSculpt Technologies, Inc. ( AIRS ) went public in October 2021, raising approximately $77 million in gross proceeds from an IPO that priced at $11.00 per share.

The firm provides a range of aesthetic services to patients in the United States.

While optimistic investors could make a case for AIRS as it continues to steadily build out its location coverage, I’m more cautious due to my concern about a slowing economy in 2023.

My outlook on AIRS for the near term is a Hold, but the stock is worth putting on a watch list for future consideration.

AirSculpt Technologies Overview

Miami Beach, Florida-based AirSculpt was founded to develop a network of U.S. spa-like centers (Elite Body Sculpture) that provide medical aesthetic procedures for body contouring using its AirSculpt non-invasive technology.

Management is headed by founder and CEO Dr. Aaron Rollins, who has been with the firm since inception and previously received awards for medical inventions and distinguished work in the medical aesthetic industry.

The firm offers patients a "gentler alternative to traditional fat removal procedures."

The firm markets its services via online, social media, and via its various retail locations.

AirSculpt’s Market

According to a 2020 market research report by Grand View Research, the global market for non-invasive fat reduction was an estimated $993 million in 2019 and is forecast to reach $3.3 billion by 2027.

This represents a forecast CAGR of 16.4% from 2020 to 2027.

The main drivers for this expected growth are a growing demand for services owing to a sedentary lifestyle leading to overweight conditions and an aging population worldwide.

Also, the chart below shows the historical and projected future growth trajectory of the market by type of technology:

The firm competes for patients, high quality surgeons and against other types of fat reduction procedures including tummy tuck, gastric bypass, liposuction and other non-surgical procedures using cooling, injected medication, or heat to reduce the number of fat cells.

AirSculpt’s Recent Financial Performance

• Total revenue by quarter has risen according to the following chart:

• Gross profit by quarter has grown in a similar trajectory as total revenue:

• Selling, G&A expenses by quarter have risen markedly as the company has scaled operations:

• Operating income by quarter has been negative in two of the last three quarters:

• Earnings per share (Diluted) have recently turned positive:

(All data in above charts is GAAP.)

Since its IPO, AIRS’ stock price has fallen 68.7% vs. the U.S. S&P 500 index’ drop of around 15.2%, as the chart below indicates:

Valuation And Other Metrics For AIRS

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha.)

Commentary On AirSculpt Technologies

In its last earnings call ( Source - Seeking Alpha), covering Q2 2022’s results , management highlighted reaching a milestone of 30,000 procedures performed during the quarter.

As for new center openings, the firm launched its Boston and Philadelphia centers and expects to launch its first Canadian location in Toronto by the end of 2022.

Management also announced a special dividend of $0.41 per share funded by excess cash on hand that was paid on September 14.

As to its financial results, topline revenue grew by 42% year-over-year and customer cost of acquisition dropped from $2,200 to $2,000 per customer.

Notably, revenue per case rose 16% year-over-year, due to patients choosing "to have more areas treated at once."

However, management did not disclose the company's overall customer retention rate.

Its cost of service also rose to 35.2% from 32.1% due in part to clinical staff additions.

Adjusted EBITDA was $15.2 million, representing a 24% increase adjusted for public company costs in the current period.

For the balance sheet , the firm finished the quarter with cash and equivalents of $35.3 million and long-term debt of $83 million.

Over the trailing twelve months, free cash flow was $10.2 million, which included $10.1 million in capital expenditures.

Looking ahead, management reaffirmed previous revenue and adjusted EBITDA guidance.

Regarding valuation, the market is valuing AIRS at an EV/Revenue multiple of 2.1x and EV/EBITDA multiple of 38.3x.

The primary risk to the company’s outlook is a macroeconomic slowdown, reducing consumer discretionary spending on big-ticket items that can be deferred.

But, management says the firm targets upper middle class and above demographics, which it believes "tends to be more resilient to challenging economic conditions."

While optimistic investors could make a case for AIRS as it continues to steadily build out its location coverage, I’m more cautious due to my concern about a slowing economy in 2023.

My outlook on AIRS for the near term is a Hold, but the stock is worth putting on a watch list for future consideration.

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