The Beauty Health Company - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered a clean top- and bottom-line beat versus guidance and consensus: revenue $69.6M vs S&P Global consensus $63.10M*, and S&P “Primary EPS” +$0.04 vs −$0.07*; company GAAP diluted EPS was −$0.08. Strength came from consumables (+8% YoY) and mix-driven, inventory-disciplined gross margin expansion to 69.8% (adjusted GM 71.9%). Values retrieved from S&P Global.*
• Adjusted EBITDA was $7.3M (10.4% margin), well above Q1 guidance of −$6 to −$4M and above internal expectations, aided by lower operating spend and improved margins.
• FY25 guidance maintained for revenue ($270–$300M) but floor was raised for adjusted EBITDA to $15–$25M (from $10–$25M); Q2 revenue guided to $71–$76M and adjusted EBITDA to $2–$4M, with tariff headwinds and APAC/China transition weighing on outlook.
• Strategic catalysts: production consolidation in the U.S. (reduces tariff exposure), China go-to-market shift to a distributor model in Q2, a “good-better-best” device strategy, and a pipeline including a PEP9 booster in June and backbar products in H2 2025.

What Went Well and What Went Wrong

• What Went Well

  • Consistent execution on transformation: revenue above guidance ($69.6M) and adjusted EBITDA $7.3M as mix shifted toward high-margin consumables; management: “We exceeded our revenue and adjusted EBITDA guidance”.
  • Material gross margin uplift (69.8% GAAP; 71.9% adjusted) on mix and better inventory management; CFO cited “disciplined demand planning,” reduced excess/obsolete charges and improved processes.
  • Recurring engine resilient: consumables rose to $49.4M (+8.2% YoY) across all regions; active install base up to 35,014 (from 32,530), underscoring durable treatment demand.

• What Went Wrong

  • Capital equipment softness: delivery systems net sales fell to $20.2M and units sold declined 39%+ YoY to 862 amid macro pressure and financing constraints; APAC devices notably weak.
  • APAC/China headwinds and tariffs: company expects ~+$5M cost in 2025 and reduced APAC consumables assumptions; guidance maintained on sales but more cautious regionally.
  • Elevated opex in G&A on legal and restructuring; litigation-related costs ($6.9M) were a notable non-GAAP add-back in Q1.

Transcript

Operator (participant)

Welcome to today's Beauty Health Company First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask a question during the question-and-answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star and two. Please note this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Norberto Aja, Investor Relations.

Norberto Aja (Head of Investor Relations)

Thank you, Operator, and good afternoon, everyone. Thank you for joining the Beauty Health Company's conference call to review our first quarter 2025 results. We released our results earlier this afternoon, which can be found on our corporate website at beautyhealth.com. Joining me on the call today is Beauty Health's Chief Executive Officer, Marla Beck, 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, including guidance and underlying assumptions. Forward-looking statements are based on expectations 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 see 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, Marla Beck. Please go ahead, Marla.

Marla Beck (CEO)

Thank you, Norberto, and good afternoon, everyone. I appreciate you joining us to review our first quarter results. I'm pleased to report a strong start to the year. We exceeded our revenue and adjusted EBITDA guidance and continue to build momentum across our key strategic priorities. These results reflect a disciplined execution of our transformation strategy and the power of our recurring revenue model. Since taking the helm as CEO, my focus has been clear: stabilize operations, reignite innovation, and return Beauty Health to sustainable, profitable growth. Our first quarter results reflect this momentum, with strong consumable sales across all regions and notable improvements in key metrics, including gross margin and bottom-line profitability. Despite continued macro pressure on equipment sales, we exceeded revenue expectations at $69.6 million, above the high end of our guidance, and delivered over $7 million of adjusted EBITDA.

This achievement was driven by a favorable mix shift toward high-margin consumables, better inventory management, and operational cost discipline. Consumables grew over 8% and now represent over 70% of our revenue. Total active devices in the field increased to over 35,000 units versus approximately 32,500 units at the end of Q1 2024, highlighting the demand for Hydrafacial devices in medical aesthetics practices. Looking ahead to the rest of 2025, our strategic focus remains anchored on three priorities: enhancing commercial execution, accelerating science-backed innovation, and deepening provider partnerships. Our first priority is enhancing commercial execution. We're beginning to see traction from our improved go-to-market approach. This includes our refined sales structure, enhanced pricing flexibility, and tools to drive smarter, faster execution. We are generating results using greater analytical discipline, particularly in our direct markets.

In China, the transition to a third-party distribution model is already underway, preserving access to a high-growth market while simplifying operations and lowering capital intensity. We've also opened our device portfolio to more flexible pricing and product options, leading to increased demand, especially for non-Syndeo units, which represented 36% of system sales in the first quarter. Operationally, we completed the consolidation of our production in the U.S. in the fourth quarter, a move that enhances quality, increases agility, and most significantly, reduces tariff exposure. These strategic shifts are improving execution, lowering complexity, and positioning us to scale more efficiently. Our second priority is accelerating science-backed innovation. Innovation remains central to our MedTech Meets Beauty positioning. We're reigniting our pipeline with clinical rigor and consumer relevance. The Hydralock HA Booster launched in the second half of 2024 marked the most successful branded booster launch in our history.

Building on that momentum, we're preparing to launch the new HydraFillic Booster with our proprietary Pep9 complex in June, targeting signs of aging, a top skin concern among consumers. Later this year, we'll introduce three new treatment tips, one for the lip area and two more to extend our proprietary Keravive Scalp Solution. Our Back Bar initiative, as part of our Rapid Treatment Room strategy, is another exciting milestone. These skincare products that can be used as part of our in-room Hydrafacial services will complement treatments, improve outcomes, and increase provider revenue potential. The Back Bar rollout begins in the second half of this year. To expand beyond the treatment room, we're developing a dedicated skincare line further strengthening our consumer-facing offering. Each of these innovations is grounded in clinical validation, reinforcing Hydrafacial leadership and science-backed aesthetics. Our third priority is deepening provider partnerships.

Strong provider relationships are foundational to our growth. To support this, we have a dedicated business development team that partners with our providers to drive their revenue growth. In the first quarter, U.S. national accounts were a highlight with strength in the medical sector, especially med spas, dermatology, and wellness providers. We are building on this momentum with the relaunch of our U.S. loyalty program expected in Q3 2025. The program is designed to reward provider commitment and boost engagement throughout our ecosystem while driving incremental sales. We're also investing in brand and consumer engagement. A refresh campaign launching this year will elevate awareness, spotlight our innovation pipeline, and drive traffic to providers. In summary, Q1 reflects solid execution of our transformation strategy. We exceeded both internal and external expectations, saw continued growth in consumables, improved profitability, and made strategic moves to strengthen our operational model.

We're focused on driving sustainable margin expansion and delivering against our three strategic pillars: commercial excellence, innovation, and provider engagement to unlock long-term value. Mike, over to you.

Mike Monahan (CFO)

Thank you, Marla. I'm pleased to report we delivered the quarter above our initial expectations. Revenue for Q1 came in at $69.6 million, adjusted gross margin was 71.9%, and adjusted EBITDA was $7.3 million. We continue to grow our global footprint, which adds to the recurring consumables revenue stream. In the first quarter, we sold 862 total units worldwide at an average selling price of approximately $23,455. As of March 31, 2025, total active machines in the field increased to 35,014 units versus 32,530 units at the end of Q1 2024. Consumable sales for the quarter totaled $49.4 million, or an 8.2% increase versus the comparable prior year period, with growth across all regions. Consumable net sales increased 3.5% in the Americas, 42.6% in APAC, and 7.9% in EMEA. Macroeconomic pressures continue to impact capital equipment purchasing decisions, contributing to a 43.5% year-over-year decline in global device sales.

Our Good, Better, Best device strategy addresses this by expanding provider access by offering select systems at lower price points. This initiative is working well as non-Syndeo systems represented 36% of total devices sold in Q1 last year. With this approach, we believe we will be well positioned to capture additional market share when the macro environment improves. From a regional perspective, Q1 consolidated revenue in the Americas was down 8.1%, while revenue across APAC and EMEA declined by 30.4% and 21.6%, respectively. Contributing to the decline in APAC is the planned go-to-market strategy change in China. We have begun transitioning the business from a direct-to-distributor model and expect to make initial shipments during the second quarter of 2025.

As part of this plan, we ensure that we warehouse enough capital equipment inventory in China to satisfy expected equipment demand for the remainder of the year that will not be subject to tariffs. We will have some exposure to tariffs for consumables sold into China; however, we are working through this with our new distribution partner. Gross margins came in strong, driven primarily by disciplined demand planning, overall management of inventory, a favorable mix towards consumable net sales, and improved operational processes. This led to reduced excess and obsolete inventory charges and reduced overhead spend. Specifically, gross profit for the first quarter was $48.6 million, comparing favorably to $48.4 million in the prior year period. Adjusted gross margin for the quarter was 71.9%, compared to 63.4% in the prior year period.

GAAP gross margin for the quarter was 69.8%, improving versus the prior year period, as well as sequentially from 62.7% in Q4 of 2024. Total operating expenses for the first quarter decreased by 7.3% to $60.6 million as we continue to manage our expenses. Selling and marketing expense was down approximately 22.7% to $26 million, reflecting lower personnel-related expenses, including share-based compensation, lower sales commission, marketing, training, and events expense. R&D expense was also down $1.8 million, while G&A expense was $33.6 million, or an increase of 16.3%, driven primarily by higher legal fees and severance and restructuring expense, partially offset by lower personnel-related expenses, including share-based compensation and bad debt recoveries. This led to an operating loss of $12 million in Q1 2025, an improvement versus a loss of $17 million in the comparable prior year.

Adjusted EBITDA of $7.3 million was above our implied guidance, reflecting lower operational spend and higher gross margin. We ended the quarter with approximately $373 million in cash, an improvement from approximately $370 million on December 31st, 2024. This reflects the initial benefits of the cost reductions and operational actions we have taken to improve the efficiency of the business. As of March 31st, inventory was $65.6 million, a decrease compared to $69.1 million in December. In full year 2025, sales are between $270 million-$300 million and adjusted EBITDA of $15 million-$25 million. Compared to full year 2024, our full year 2025 guidance assumes continued pressure on delivery systems due to financing pressure and uncertainty in the global market, projecting decline in all three regions, specifically in China. Capital expenditures are expected to be approximately $10 million-$15 million for the full year 2025.

For the second quarter, we are projecting sales of $71 million-$76 million and an adjusted EBITDA of $2 million-$4 million. Our second quarter and full year guidance assumes no material deterioration in current general market conditions or other unforeseen circumstances beyond the company's control, such as foreign currency, exchange rates, tariffs, and trade restrictions. It also excluded any potential acquisitions, dispositions, or financing. Next, I'd like to take a minute to address tariffs. We made several changes to the business over the past six months to position the company to be able to minimize the impact of tariffs. In the prior year, we moved our production from China back to the United States. As a result, while there are certain raw materials and componentry that are sourced internationally, 100% of our capital production is now in Long Beach, California.

Additionally, we strategically placed our capital equipment inventory across the globe based on projected demand so that we are less exposed to import tariffs. On the supply side, we expect the impact of tariffs to be approximately $5 million of additional cost in 2025, based on what we know now and have factored that estimate into our projections. The tariff situation is very fluid. As we get more information, we will adjust our expectations as needed. In summary, we're encouraged by our first quarter performance, reflecting the execution of strategic initiatives. Despite a dynamic environment, our strategy is delivering results, and we're confident that the actions we're taking are laying a strong and agile foundation for sustained profitable growth in the future.

Looking ahead, we remain committed to creating lasting shareholder value by unlocking the significant growth potential of Hydrafacial as the market leader in the growing category of minimally invasive skin health treatments. I'll now turn the call back to Marla.

Marla Beck (CEO)

Thank you, Mike. I would like to reiterate that we are on track with our strategic plan. Our focus remains anchored on our three priorities: enhancing commercial execution, accelerating science-backed innovation, and deepening provider partnerships. We're confident that as we continue to execute, we will drive long-term shareholder value. I'd like to close with a sincere thank you to all of our Hydrafacial employees around the globe. Our success would not be possible without your hard work and dedication. Thank you. With that, I'd like to turn the call over for Q&A.

Operator (participant)

Thank you. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We will take our first question from Oliver Chen with TD Cowen. Please go ahead, the line is open.

Jonna Kim (Director)

Thank you. This is Jonna on for Oliver today. I would love some perspectives on key drivers behind better profitability for the year, just keep what's in place there, and what are potential areas of upside to your full year guide as well. Just one more question on the end consumer strength. Are you seeing any signs of pullback from the end consumer as the macro remains uncertain? Thank you so much.

Marla Beck (CEO)

Mike, why don't you take the start of the question, then I'll take the consumer.

Mike Monahan (CFO)

Great. Our guidance implies slight improvement in the back half of 2025. However, given the uncertainty regarding the macro environment, we still remain somewhat cautious and have factored that in. However, we have a number of initiatives we're executing on to drive a return to growth, including lower-priced equipment options, improved sales execution, and investment in innovations. We will keep the investors updated throughout the year on these initiatives as we continue to look to drive incremental profitability and growth.

Marla Beck (CEO)

I'll talk a little bit about what we're seeing with consumers. Our consumable sales growth continues to be strong, and what we're seeing is strong growth in our signature treatments, which is our core everyday treatment, which shows that Hydrafacial is a part of our consumers' everyday skin health routines. We are seeing slightly lower adoption of our luxury treatments, and we have a lot of bright spots we're seeing with the consumer. The dermatology and wellness sectors are really strong. Our U.S. national accounts, specifically our medical national accounts, have experienced significant growth. We are seeing a little softness in day spa and plastic surgeon channels. They're not growing as well, but that makes sense because they're more luxury, sort of less necessity services than some of the dermatology and wellness channels.

We do believe that the med spas and doctors' offices that have loyal clientele will continue to drive patients and consumers into Hydrafacial treatments as they're minimally invasive and can be experienced every 30 days. They also have a more accessible price point than some of the other more expensive treatments in the sector.

Jonna Kim (Director)

Thank you. Appreciate the callers.

Operator (participant)

Thank you. Your next question comes from the line of Susan Anderson with Canaccord Genuity.

Susan Anderson (Managing Director and Senior Analyst)

Hi, good evening. Thanks for taking my question. Nice job on the quarter. I was wondering if maybe you could talk about the consumables. There's definitely a standout across all the regions. Maybe if you could give some color on also how much the new launches, such as the Hydralock launch, is helping to drive that strength. Also, just looking at the APAC region, it looks like it did see a big pickup there. If you could talk about the drivers there as well. Thanks.

Marla Beck (CEO)

I'll have Mike take the regional part, but I'll talk briefly about Hydralock HA. Hydralock HA is really a traffic driver for practices. As the practices and med spas can market a new product to their consumers, it drives additional visits. Additionally, it gives our salesforce a reason to visit and talk with our providers and create events around new products. We are really excited about the potential that new products have to drive consumer traffic and then provider revenue. We do not disclose sort of specifics, but this makes us really excited about the HydraFillic launch that is coming in June. In terms of any regional color, I'll pass it to Mike.

Mike Monahan (CFO)

Yeah. Hi, Susan. You're correct. We did have improvement year over year in the overall APAC region for consumables. A big piece of it was China. The team did a good job with less discounting and really selling some of the items into our existing consumer base.

Susan Anderson (Managing Director and Senior Analyst)

Okay. Great. I guess, just looking at the skincare launch, did you say what the timing of that would be? I'm not sure if I missed that. I guess, how should we think about what that will look like? Is it going to be kind of a suite of products, or is it going to be a couple of products, or how should we think about that when the launch happens?

Marla Beck (CEO)

Yeah, there's two parts. The Back Bar launch, which is really the skincare products that can be used in the treatment room, is slated for the back half of this year. It has a number of SKUs, but it'll be very early days. I mean, the plan is to build a more comprehensive line with the launch this fall as the start. And then skincare is really slated for the beginning of next year. Back Bar in the treatment room, back half of this year, skincare in the beginning of next year.

Susan Anderson (Managing Director and Senior Analyst)

Okay. Great. Thanks so much. Good luck the rest of the year.

Marla Beck (CEO)

Thank you.

Operator (participant)

Thank you. Your next question comes from the line of Jon Block with Stifel. Please go ahead. Your line is open.

Jon Block (Managing Director)

Great. Thanks, guys. Good afternoon. Gross margin really strong in the quarter, so maybe I'll start there. You know, Mike, is this the new run rate, call it? And I'm guessing that's the main driver to the positive EBITDA revision, despite the top line being unchanged. Maybe if you can provide some color there, and then I'll just ask a follow-up.

Mike Monahan (CFO)

Sure. Hi, Jon. In the quarter, we did have a strong quarter for gross margin. I mentioned that a little bit in the script. Credit to the operations team and the organization. We really drove efficiency throughout our supply chain. That was a big piece of it. The team has done a really good job tightening up demand planning, so we minimized write-offs. Also, the mix component that we had a high percentage of consumables in Q1 because some of it from just overall performance of consumables was strong, and we are continuing to see some pressure on the capital equipment side. That mix helped us out. For Q2 and the remainder of the year, I would expect it to step down from Q1 for a couple of reasons.

One is I would expect a slightly higher percentage of equipment purchases as a percentage of revenue going forward is the way we've modeled it in. Then secondly, the tariff and import costs that we mentioned, while we're able to minimize it, we are expecting an impact this year, and that will flow through our overall cost of sales.

Jon Block (Managing Director)

Got it. Very helpful. Maybe for the second question, maybe a two-parter. Marla, first, just on the good, better, best, you've now got a bunch of the different systems out there. I'm just curious, have you seen a difference in the actual consumable utilization from, call it, the good, better, best strategy out in the field? Mike, to go back to the tariffs, the $5 million hit this year, but there did seem to be a lot of planning, to your point, to avoid or limit the import tariffs. When we think forward to 2026 and you can't get all the inventory out there in advance of tariff implementation, does the $5 million run rate or does that number change dramatically as we think about next year? Thank you.

Marla Beck (CEO)

Yeah, it's a great question about consumables utilization between the devices. They all perform a similar treatment, with Syndeo having some more bells and whistles, including lymphatic treatment. In terms of what we're seeing, the benefit of having Syndeo in the field is that there's a tool that helps the provider select which booster for the consumer as part of the prompting on the screen. We do see historically more boosters used with the Syndeo relative to the other devices. That is something we watch, and we are focused on getting pull-through in the boosters among Elite and Allegro users also. In terms of sort of our day-to-day core consumables, all three devices use all of the base solutions that go into the devices. Good question.

Mike Monahan (CFO)

On the tariffs, if I understood the second part of your question, you're right. The team did a good job, a really good job kind of anticipating some of the tariffs and positioning the company so we could minimize the impact this year. Projecting into 2026 is early, I would say, where we sit today. The situation is so fluid and keeps changing. I will say the team is continually looking at ways to onshore some of the purchases to make sure that we're even better positioned kind of going forward, but we'll have more of an update into that in the upcoming quarters once we have a little bit more visibility about where this might settle.

Jon Block (Managing Director)

Understood. Thanks for your time.

Operator (participant)

Thank you. Your next question comes from the line of Olivia Tong with Raymond James. Please go ahead. Your line is open.

Olivia Tong (Managing Director and Senior Analyst)

Great. Thanks. Good afternoon. My first question is on the sales guide. Your outlook for the year at the midpoint seems to suggest a mid-teens decline, which is in line with what you report for Q1. First, why wouldn't the run rate be a little bit better as the year progresses, especially if you have more new products in place as well as the material easing and comps? Secondly, your Q2 guide would suggest there's a deceleration in the rate of sales sequentially versus Q1. Why would that be the case? Thanks.

Mike Monahan (CFO)

Yeah. One of the—hi, how are you doing?—one of the drivers that offset the guide. We exceeded where we thought we were going to be in Q1, but we maintain the guidance we had before, largely driven by what's going on in APAC and specifically China. With the tariffs where they are now, we are positioned well on the capital side, but we lowered our expectations in terms of the consumable sales for Q2 and the remainder of the year because of where the tariffs kind of sit. That is kind of an offset to some of the improvements we're seeing, and that's really one of the larger drivers for what you mentioned in terms of a bit of a slowdown in the year-over-year comp in the second quarter.

Olivia Tong (Managing Director and Senior Analyst)

Got it. And then just following up on gross margin, obviously very, very strong Q1. Just trying to understand the sustainability of that. I know you mentioned more equipment purchase and tariffs, but typically your gross margin is higher in the second half than it is in the first half. Should we expect that to continue or not because of the incrementality of expenses related to tariffs?

Mike Monahan (CFO)

The latter. The tariffs, we're expecting and projecting that to have a larger impact starting a bit in Q2, but mostly in the second half of the year as we run down our inventory and start flowing through some of the purchases that we have to make at the higher cost.

Olivia Tong (Managing Director and Senior Analyst)

Okay. The tariffs will eat up the normal seasonality that you see in terms of first half versus second half dynamics.

Mike Monahan (CFO)

That's the way we projected it. Correct.

Olivia Tong (Managing Director and Senior Analyst)

Understood. Thank you so much.

Mike Monahan (CFO)

Thank you.

Operator (participant)

Thank you. Your next question comes from the line of Ashley Helgans with Jefferies. Please go ahead. Your line is open.

Sydney Wagner (Equity Research Senior Associate)

Hi, this is Sydney On for Ashley. Just wondering how you kind of think about the terminal mix of consumables as a percent of sales and where you kind of want that to ultimately shake out. Also, just thinking about consumables by region, any difference in trend, do you call out maybe level of attach rate, any kind of detail there would be helpful. Thank you.

Marla Beck (CEO)

Mike, do you want to take that?

Mike Monahan (CFO)

Sure. The first part of your question for our—we do not have a targeted mix. In this macro environment, we expect to grow overall capital equipment kind of in the future. We are not positioned to do that or forecasting to do that this year. Really the mix is going to depend on where the capital equipment sales kind of level out. Our belief is that there is still a significant TAM for our product and brand, and we are really positioning the company to return to growth there. On the regional piece for consumables, the largest piece, and I mentioned this earlier, where we expect pressure is really in the APAC and China region. That is driven by where we are with the tariff situation.

For our projections in the back half of this year and even to some degree in Q2, we reduced our consumable sales expectations assuming that the tariffs that are currently in place will stay.

Sydney Wagner (Equity Research Senior Associate)

Thank you.

Operator (participant)

Thank you. Your next question comes from the line of Bruce Jackson with The Benchmark Company. Please go ahead. Your line is open.

Bruce Jackson (Senior Analyst)

Hi, good afternoon. Thanks for taking my questions. I was hoping we could go back to the consumer demand dynamics. You said that the medical side was a little bit weak during the quarter and that the health and beauty side is holding up pretty well. Is that still the case quarter to date given the change in consumer confidence?

Marla Beck (CEO)

Yeah. Good question, Bruce. I mean, the dermatology and wellness sectors are really strong. It's interesting. It's sort of bifurcated, right? Med spa, dermatology, wellness, super strong with growth and adding some of the boosters and the luxury treatments. It's the day spas and plastic surgeons, the plastic surgery practices that did not grow as well as the others. As I mentioned, it makes a little bit of sense, right? Which is as plastic surgery locations and going for a facial to day spa, it's not as much a necessity as going to a derm for treatments and going to get some of your other treatments at the derms or the med spa. I think it makes sense, but we're seeing health across all sectors in terms of our signature Hydrafacial treatment. It's just some trading away from the adoption of our more luxury treatments.

Bruce Jackson (Senior Analyst)

Okay. That's helpful. Thank you.

Marla Beck (CEO)

Sure. Thanks, Bruce.

Operator (participant)

Thank you. Your next question comes from the line of Korinne Wolfmeyer with Piper Sandler. Please go ahead. Your line is open.

Hi, this is Sarah on for Korinne. Thanks for taking our question. I wonder if you could talk a little bit about the marketing spend over the course of the year and then any color on spending tactics and campaigns to expect this year. And then just how willing are you to flex if needed to protect the bottom line?

Marla Beck (CEO)

I'll have Mike talk about the spend and marketing, and then I'll talk about some of the tactics.

Mike Monahan (CFO)

Yeah. So overall, we've modeled out that we hold sales and marketing as a percentage of revenue. We're targeting where we were last year. The mix of where we're spending the dollars has changed kind of on a year-over-year basis. We're starting to invest more dollars to drive the end consumer into the provider and support our provider network and really kind of focusing in on that area of spend to get behind the brand and support our provider base.

Marla Beck (CEO)

Mike, you covered it. I mean, pull-through is really our critical focus. That means eventing. That means providing or giving our providers gifts with purchase to drive consumers into practice. It is just an acute focus on an ROI we can get in partnership with our providers.

Great. Thank you.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press the star and one on your telephone keypad now. We will take our next question from Navvan Ty with BNP Paribas. Please go ahead. Your line is open.

Navann Ty (Lead Analyst)

Thank you. Can you discuss the progress made on the shift for distributor model in China? Also, if you can clarify whether the tariff impact is on a net basis after mitigating actions. You also have a chance if you have seen more competition and commoditization micro-dermization lately. Thank you.

Mike Monahan (CFO)

I want to make sure I answer the first part of the question I followed, there was a little bit of static, so I apologize. In terms of our transition to a distributor model for China, we've begun that and are far along. We've identified a partner and are working with them to transition all the operations. We expect we should complete the transition during kind of this quarter, and then we'll continue to wind down the operations for the remainder in the year and potentially into next year. Can you repeat the second part of the question?

Marla Beck (CEO)

Yeah. It was a tariff question that I didn't quite hear, and then I'll take the question on competition.

Navann Ty (Lead Analyst)

Sure. Whether the tariff impact was on a net basis after the mitigating actions?

Mike Monahan (CFO)

The tariffs, we did not assume that we would pass through all of that expense, and we are starting to work through potential pass-through of the expense to our providers and end consumers. We are still evaluating that and have not factored that in. We just factored the expense.

Marla Beck (CEO)

In terms of competition, we remain the category leader with over 60% market share in the U.S., and we are the number one most requested facial treatment by consumers with a very high consumer NPS as compared to our competitors. We are a gateway treatment. In our category, we drive the most new patients to practices according to point-of-sale data we have. We are really focused in on how well we pair with other aesthetic treatments. We feel good about our positioning vis-à-vis the competition. As we continue to double down on our clinical backing for our treatments and the products that complement our treatments, that gives us further distance from any of our other competitors that do not have clinical backing for any of their boosters or products that go with their treatments.

Navann Ty (Lead Analyst)

Thank you. That's very clear and helpful. Thank you.

Operator (participant)

Thank you. There are no further questions at this time. I will now turn the call back to Marla Beck for closing remarks.

Marla Beck (CEO)

Thank you to all of you for joining us today. We appreciate your time and wish you the best.

Operator (participant)

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.