Thread by @spacanpanman

1/ $VSPR merger w/ Hydrafacial: Invest in the Leading Beauty Care Services Platform Positioned for Accretive M&A Growth and Post-COVID Reopening Demand

Thread Below @jimcramer @brentlsaunders @HydraFacial

2/ Hydrafacial offers one of the most popular facial skincare treatments across the world with an army of loyal mid and upper-class customers receiving regular treatments on a monthly basis at ~$200 / session.

3/ Skincare is a fast growing market (14% CAGR in US alone) with a worldwide TAM of +$200B.

Consumers have been shifting their expenditures from goods to experiences and have shown an increasing willingness to spend on high end beauty and health services.

4/ Growth in the beauty industry is now being driven by an emphasis on skincare rather than cosmetics.

Hydrafacial is a patented protected (38 awarded, 18 pending), 30-minute, 3 step treatment that cleanses, extracts, and hydrates

5/ Hydrafacial is known for its high customer loyalty and satisfaction, and great reputation among estheticians.

Hydrafacial is the only beauty product/service with a higher Net Promoter Score than Botox.

6/ Hydrafacial boasts a broad and growing base of estheticians including Advanced Dermatology and Cosmetic Surgery, Marina Plastic Surgery, Ideal Image, Bella Sante, Equinox, Four Seasons, Lifetime, OrangeTwist, The Ritz-Carlton, and Sephora.

7/ The Company operates a "razor & razor blade" model with highly attractive blended gross margins of +75%.

The razor: Hydrafacial delivery machine estimated at $25-30k per unit accounts for ~49% of sales with an install base of 15,124

8/ The razorblade: 10% of the ~$200 / session fee covers the cost of consumables (serums, applicator tips, boosters) that Hydrafacial sells to estheticians accounting for 51% of sales. Consumables will grow bigger as % of sales as the install base of delivery equipment expands.

9/ While the upfront cost of a Hydrafacial delivery machine and training time is fairly high, the economics garnered by the estheticians are highly compelling. These together make the switching cost very high and unattractive.

10/ A standard $200 treatment yields 90% GM or $180 gross profit to the esthetician.

Adding a booster, like a SkinCeutical antioxidant treatment, can increase the treatment price to $325 with minimal increased cost ($3.39), yielding a 93% GM or $301.61 gross profit.

11/ Assuming 60 treatments per month at $200 / session, that's $144,000 of revenue or $129,600 of gross profit a year for the esthetician.

12/ These compelling economics for estheticians along with high customer satisfaction and loyalty have driven increased adoption across 87 countries.

13/ Historically the company enjoyed a healthy +50$ CAGR, reaching $167M in revenue and $41M EBITDA in 2019 (25% EBITDA margin)

14/ However when the COVID pandemic arrived, sales of delivery machines and consumables took a big hit in Q1 and Q2 of 2020 as many estheticians closed during the lockdowns.

Sales quickly recovered in Q3 2020 back to levels comparable to Q3 2019.

15/ The company's delivery machine install base grew significantly despite COVID, up 18% YoY in Q3 2020 compared to Q3 2019.

16/ As world economies are fully reopened in 2021, Hydrafacial expects revenues to rebound to $181M in 2021E and $250M in 2022, a 47% CAGR from 2020.

17/ Gross Margins are expected to rebound back to 76% in 2022E, however the company plans to heavily reinvest in topline growh resulting which will dampen near-term EBITDA Margins at 14-16% vs. a steady state of ~25%

18/ 2022E projections are realistic: assuming 18k installed base, 3k new units ($30k each) and $8.5k consumable rev per unit, Hydrafacial will reach $250M revenue just by keeping with its past performance.

19/ Hydrafacial has unique value creation levers it can pull:

-Implement annual price increases on consumables given low cost vs. treatment price

- Expand US and Intl delivery machine install base by using IPO proceeds to aggressively buildout salesforce.

20/ - Become delivery platform of choice by partnering with leading cosmetic companies to develop co-branded serum treatments

21/ While there are few direct competitors, Chinese knockoffs do exist. However these competitors have failed to gain traction outside of the Chinese market. Branding power matters a lot in high end beauty.

22/ Management and M&A - the X FACTOR
Brent Saunders of Vesper is a legend in beauty care and specialty pharma. As former CEO of Allergan, he led the commercial expansion of dozens of healthcare products, most notably Botox.

23/ Saunders has an exceptional track record of driving shareholder value through accretive M&A for companies that he's led (Bausch & Lomb, Forest Labs, Actavis, Allergan).

24/ Each of these cos traded at premium valuations to peers due to the market's expectation that he'd executive accretive M&A deals or finally sell in a strategic exit.

Saunders has executed +80 M&A transactions over his career.

25/ It's likely Saunders has grand ambitions to use Hydrafacial as an M&A platform to bring additional products & services to customers.

26/ Vesper has set aside $75M of $1.1B purchase price in the form of an earn-out upon completion of certain identified acquisitions within 12 months of closing.

27/ The earn-out will be paid based on 2.5x LTM revenue of target. Assuming $75M earn-out, that's likely $30M of revenue currently identified, which would be a material boost to current projected 2021E revenue of $181M.

28/ Saunders also has a close relationship with Jim Cramer of Mad Money and has been a frequent guest as the CEO of Allergan. It would not be surprising to see Cramer hosting Saunders to discuss Hydrafacial sometime prior to merger consummation in Feb/Mar 2021.

29/ Saunders has built a loyal following, VSPR's largest shareholder Seth Klarman of Baupost owns 10% of the float.

The $350M PIPE is being anchored by quality long-term investors: Fidelity, Redmile Group, Principal Group, Camber Capital, and Woodline Partners.

30/ Hydrafacial currently trades at $11.45 or 5.3x 2022E rev, inline with low growth traditional beauty cos. Given Hydrafacial's strong growth prospects in the coming years, it should trade at a premium to high growth medical aesthetic peers.

31/ For example, InMode projects 2020E-2022E CAGR of 22.7% and trades at 6.1x 2022E rev while Hydrafacial projects a CAGR of 47.4%, which could justify trading at 12x 2022E revenue or $22.50 per share. The market should start pricing in M&A upside for Hydrafacial as well.

32/ The setup: at $11.45, you're basically risking $1.45 ($10 hard floor of VSPR SPAC) to make potentially $8-11 if the market starts to value Hydrafacial's growth and M&A potential as it progresses towards the merger closing in late Feb or early Mar 2021.

33/ Risks? currently a single product company, alternative cheaper competitors exist, COVID uncertainties could impact reopening and financial performance, the merger could fail and your investment would go back down to $10.

34/ Company Pres: …j22q7jr2xnc83-wpengine.netdna-ssl.com/wp-content/upl…

Deal Webcast: public.viavid.com/player/index.p…

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