skin-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission File Number: 001-39565

The Beauty Health Company

(Exact name of registrant as specified in its charter)


Delaware						85-1908962
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


2165 Spring Street Long Beach, CA 90806						(800) 603-4996
(Address of principal executive offices, including zip code)						Registrant's telephone number, including area code


N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

SKIN

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 6, 2024, there were 123,632,222 shares of Class A Common Stock, par value $0.0001 per share issued and outstanding.

THE BEAUTY HEALTH COMPANY

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
SIGNATURES

PART I— FINANCIAL INFORMATION

Item 1. Financial Statements.

THE BEAUTY HEALTH COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share amounts)

(Unaudited)


	March 31, 2024		December 31, 2023
ASSETS
Current assets:
Cash, cash equivalents, and restricted cash	$	444,634	$	523,025
Accounts receivable, net of allowances for estimated credit losses of $7,228 and $6,604 at March 31, 2024 and December 31, 2023, respectively	47,666		54,697
Inventories	95,721		91,321
Income tax receivable	1,204		332
Prepaid expenses and other current assets	25,599		28,877
Total current assets	614,824		698,252
Property and equipment, net	12,048		14,226
Right-of-use assets, net	16,383		12,120
Intangible assets, net	58,405		62,123
Goodwill	125,365		125,818
Deferred income tax assets, net	1,932		531
Other assets	15,784		16,043
TOTAL ASSETS	$	844,741	$	929,113
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	37,312	$	44,768
Accrued payroll-related expenses	15,456		22,028
Syndeo Program reserves	8,314		21,009
Lease liabilities, current	4,648		4,598
Income tax payable	3,443		2,759
Other accrued expenses	24,395		19,846
Total current liabilities	93,568		115,008
Lease liabilities, non-current	13,688		9,319
Deferred income tax liabilities, net	1,068		702
Warrant liabilities	5,019		3,555
Convertible senior notes, net	665,486		738,372
Other long-term liabilities	2,617		2,767
Total liabilities	781,446		869,723
Commitments (Note 10)
Stockholders’ equity:
Class A Common Stock, $0.0001 par value; 320,000,000 shares authorized; 123,453,419 and 122,899,002 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively	12		12
Additional paid-in capital	546,912		541,281
Accumulated other comprehensive loss	(4,083)		(3,036)
Accumulated deficit	(479,546)		(478,867)
Total stockholders’ equity	63,295		59,390
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	844,741	$	929,113

The accompanying notes are an integral part of these unaudited financial statements.

THE BEAUTY HEALTH COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except for share and per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2024		2023
Net sales	$	81,403	$	86,278
Cost of sales	33,042		32,174
Gross profit	48,361		54,104
Operating expenses:
Selling and marketing	33,684		38,699
Research and development	2,807		2,336
General and administrative	28,861		30,379
Total operating expenses	65,352		71,414
Loss from operations	(16,991)		(17,310)
Interest expense	3,029		3,417
Interest income	(5,356)		(4,315)
Other income, net	(16,087)		(418)
Change in fair value of warrant liabilities	1,464		9,076

Foreign currency transaction loss (gain), net	1,297		(1,149)
Loss before provision for income taxes	(1,338)		(23,921)
Income tax benefit	(659)		(3,662)
Net loss	$	(679)	$	(20,259)
Comprehensive loss, net of tax:
Foreign currency translation adjustments	(1,047)		888
Comprehensive loss	$	(1,726)	$	(19,371)
Net loss per share
Basic	$	(0.01)	$	(0.15)
Diluted	$	(0.10)	$	(0.15)
Weighted average common shares outstanding
Basic	123,120,426		132,420,762
Diluted	144,477,208		132,420,762

The accompanying notes are an integral part of these unaudited financial statements.

THE BEAUTY HEALTH COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except for share amounts)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount
BALANCE, December 31, 2022	132,214,695	$	14	$	550,320	$	(4,530)	$	(378,751)	$	167,053
Net loss	—	—		—		—		(20,259)		(20,259)
Issuance of Common Stock pursuant to equity compensation plan	473,049	—		—		—		—		—
Shares withheld for tax withholdings on vested stock awards	(170,415)	—		(2,195)		—		—		(2,195)
Issuance of Common Stock relating to employee stock purchase plan	—	—		2,034		—		—		2,034
Share-based compensation	—	—		3,577		—		—		3,577
Common Stock relating to asset acquisition	109,625	—		1,310		—		—		1,310
Foreign currency translation adjustment	—	—		—		888		—		888
BALANCE, March 31, 2023	132,626,954	$	14	$	555,046	$	(3,642)	$	(399,010)	$	152,408

BALANCE, December 31, 2023	122,899,002	$	12	$	541,281	$	(3,036)	$	(478,867)	$	59,390
Net loss	—	—		—		—		(679)		(679)
Issuance of Common Stock pursuant to equity compensation plan	843,950	—		—		—		—		—
Shares withheld for tax withholdings on vested stock awards	(289,533)	—		(1,005)		—		—		(1,005)
Share-based compensation	—	—		6,636		—		—		6,636
Foreign currency translation adjustment	—	—		—		(1,047)		—		(1,047)
BALANCE, March 31, 2024	123,453,419	$	12	$	546,912	$	(4,083)	$	(479,546)	$	63,295

The accompanying notes are an integral part of these unaudited financial statements.

THE BEAUTY HEALTH COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net loss	$	(679)	$	(20,259)
Adjustments to reconcile net loss to net cash from operating activities
Share-based compensation	6,636		3,577
Amortization of intangible assets	4,985		3,874
Depreciation of property and equipment	2,773		1,834
Amortization of other assets	890		548
Amortization of debt issuance costs	951		1,058

Inventory write-down	5,479		3,337
Provision for estimated credit losses	656		1,093
Change in fair value of warrant liabilities	1,464		9,076
Gain on repurchase of convertible senior notes, net	(16,087)		—
Deferred income taxes	(1,030)		(279)
Other, net	3,108		(515)
Changes in operating assets and liabilities:
Accounts receivable	5,879		4,793
Inventories	(11,081)		(13,905)
Prepaid expenses, other current assets, and income tax receivable	1,936		(1,325)
Accounts payable, accrued expenses, and income tax payable	(20,786)		(3,829)
Other, net	(1,948)		(2,088)



Net cash used for operating activities	(16,854)		(13,010)
Cash flows from investing activities:
Cash paid for intangible assets	(1,458)		(2,450)
Cash paid for property and equipment	(344)		(2,319)
Cash paid for asset acquisitions	—		(16,915)

Net cash used for investing activities	(1,802)		(21,684)
Cash flows from financing activities:


Repurchase of convertible senior notes	(57,750)		—
Payment of tax withholdings on vested stock awards	(868)		(2,195)










Net cash used for financing activities	(58,618)		(2,195)
Net change in cash, cash equivalents, and restricted cash	(77,274)		(36,889)
Effect of foreign currency translation on cash	(1,117)		974
Cash, cash equivalents, and restricted cash beginning of period	523,025		568,197
Cash, cash equivalents, and restricted cash end of period	$	444,634	$	532,282

The accompanying notes are an integral part of these unaudited financial statements

THE BEAUTY HEALTH COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Description of Business

The Beauty Health Company (the “Company”) is a global category-creating company focused on delivering skin health experiences that help consumers reinvent their relationship with their skin, bodies, and self-confidence. The Company and its subsidiaries design, develop, manufacture, market, and sell esthetic technologies and products. The Company’s brands are pioneers: Hydrafacial in hydradermabrasion; SkinStylus in microneedling; and Keravive in scalp health. Together, with its powerful global community of estheticians, partners, and consumers, the Company is personalizing skin health for all ages, genders, skin tones, and skin types.

Historical Information

The Company (f.k.a. Vesper Healthcare Acquisition Corp.) was incorporated in the State of Delaware on July 8, 2020. On May 4, 2021, we consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated December 8, 2020, by and among Vesper Healthcare Acquisition Corp. (“Vesper Healthcare”), Hydrate Merger Sub I, Inc. (“Merger Sub I”), Hydrate Merger Sub II, LLC (“Merger Sub II”), LCP Edge Intermediate, Inc., the indirect parent of HydraFacial LLC, f.k.a. Edge Systems LLC (“Hydrafacial”), and LCP Edge Holdco, LLC (“LCP,” or “Former Parent,” and, in its capacity as the stockholders’ representative, the “Stockholders’ Representative”) (the “Merger Agreement”), which provided for: (a) the merger of Merger Sub I with and into Hydrafacial, with Hydrafacial continuing as the surviving corporation (the “First Merger”), and (b) immediately following the First Merger and as part of the same overall transaction as the First Merger, the merger of Hydrafacial with and into Merger Sub II, with Merger Sub II continuing as the surviving entity (the “Second Merger” and, together with the First Merger, the “Mergers” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). As a result of the First Merger, the Company owns 100% of the outstanding common stock of Hydrafacial and each share of common stock and preferred stock of Hydrafacial was cancelled and converted into the right to receive a portion of the consideration payable in connection with the Mergers. As a result of the Second Merger, the Company owns 100% of the outstanding interests in Merger Sub II. In connection with the closing of the Business Combination, the Company owns, directly or indirectly, 100% of the stock of Hydrafacial and its subsidiaries and the stockholders of Hydrafacial as of immediately prior to the effective time of the First Merger (the “Hydrafacial Stockholders”) hold a portion of the Company’s Class A common stock, par value $0.0001 per share (the “Class A Common Stock”).

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented.

These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in, or presented as exhibits to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Subsequent to the issuance of the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2023, during the quarter ended June 30, 2023, the Company identified prior period misstatements related to the elimination of intercompany balances and right of return assets. Although the Company concluded that these misstatements were not material, either individually or in the aggregate, the Company elected to revise its previously issued unaudited consolidated financial statements to correct for these misstatements.

The revision of the previously issued unaudited consolidated financial statements is presented in the accompanying unaudited consolidated financial statements and related disclosures. For further detail, refer to Note 16 – Revision for Immaterial Misstatements.

Note 2 — Revenue

The Company generates revenue through manufacturing and selling its patented hydradermabrasion delivery systems (“Delivery Systems”). In conjunction with the sale of Delivery Systems, the Company also sells single-use tips, solutions, and serums used to provide a Hydrafacial treatment that cleanses, extracts, and hydrates the skin (collectively “Consumables”). Original Consumables are sold solely and exclusively by the Company (and from authorized retailers) and are available for purchase separately from the purchase of Delivery Systems. For both Delivery Systems and Consumables, revenue is recognized upon transfer of control to the customer, which generally takes place at the point of shipment.

The Company manages its business on the basis of one operating segment and one reportable segment. As a result, the chief operating decision maker, who is the Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources and evaluating financial performance.

The Company’s revenue disaggregated by major product line consists of the following for the periods indicated:


	Three Months Ended March 31,
(in thousands)	2024		2023
Net Sales
Delivery Systems	$	35,783	$	45,353
Consumables	45,620		40,925
Total net sales	$	81,403	$	86,278

Net sales by geographic region were as follows for the periods indicated:


	Three Months Ended March 31,
(in thousands)	2024		2023
Americas	$	50,326	$	52,978
Asia-Pacific (“APAC”)	11,972		13,620
Europe, the Middle East and Africa (“EMEA”)	19,105		19,680
Total net sales	$	81,403	$	86,278

Note 3 — Balance Sheet Components

Inventories consist of the following as of the periods indicated:


(in thousands)	March 31, 2024		December 31, 2023
Raw materials	$	23,793	$	24,406

Finished goods	71,928		66,915
Total inventories	$	95,721	$	91,321

Accrued payroll-related expenses consist of the following as of the periods indicated:


(in thousands)	March 31, 2024		December 31, 2023
Accrued compensation and payroll taxes	$	7,296	$	10,458
Accrued sales commissions	5,572		7,565
Accrued benefits	2,588		4,005
Total accrued payroll-related expenses	$	15,456	$	22,028

Other accrued expenses consist of the following as of the periods indicated:


(in thousands)	March 31, 2024		December 31, 2023
Sales and VAT tax payables	$	4,328	$	4,971
Accrued interest	4,219		2,344
Royalty liabilities	3,783		3,914
Other	12,065		8,617
Total other accrued expenses	$	24,395	$	19,846

As of March 31, 2024 and December 31, 2023, the Company has approximately $12 million and $15 million, respectively, of non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture or assemble final products for the Company, which is included in prepaid expenses and other current assets on the Consolidated Balance Sheets. The Company purchases components directly from suppliers and do not reflect the sale of these components to the manufacturing vendors in net sales.

As of March 31, 2024 and December 31, 2023, total warranty reserve was approximately $7 million and $6 million, respectively. As of March 31, 2024, approximately $5 million was included in other accrued expenses and approximately $2 million was included in other long-term liabilities on the Condensed Consolidated Balance Sheets. As of December 31, 2023, approximately $4 million was included in other accrued expenses and approximately $2 million was included in other long-term liabilities on the Consolidated Balance Sheets.

As of March 31, 2024, the Company has approximately $2 million in restricted cash held as collateral for the Company’s credit cards.

Note 4 — Fair Value Measurements

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023, and indicate the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.

The three levels of the fair value hierarchy are as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Level 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.


	As of March 31, 2024
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash, cash equivalents, and restricted cash:
Money market funds	$	363,070	$	—	$	—	$	363,070
International treasuries	$	—	$	3,740	$	—	$	3,740
Liabilities
Warrant liability — Private Placement Warrants	$	—	$	—	$	5,019	$	5,019


	As of December 31, 2023
(in thousands)	Level 1		Level 2		Level 3		Total
Assets
Cash, cash equivalents, and restricted cash:
Money market funds	$	458,676	$	—	$	—	$	458,676
International treasuries	$	—	$	3,777	$	—	$	3,777
Liabilities
Warrant liability — Private Placement Warrants	$	—	$	—	$	3,555	$	3,555

In October 2020, in connection with the consummation of Vesper Healthcare’s initial public offering, the Company issued 9,333,333 warrants to purchase shares of the Company’s Class A Common Stock at $11.50 per share (the “Private Placement Warrants”), to BLS Investor Group LLC. As of March 31, 2024 and December 31, 2023, the Company had approximately 7 million Private Placement Warrants outstanding for which the fair value was determined using a Monte Carlo simulation.

Note 5 — Property and Equipment, net

Property and equipment consist of the following as of the periods indicated:


(in thousands)	Useful life (years)	March 31, 2024		December 31, 2023
Leasehold improvements	Shorter of remaining lease term or estimated useful life	$	12,399	$	12,323
Machinery and equipment	2-5	8,683		8,597
Furniture and fixtures	2-7	5,942		5,903
Computers and equipment	3-5	5,530		5,479
Tooling	5	887		887
Autos and trucks	5	199		242
Construction in progress		765		748
Total property and equipment		34,405		34,179
Less: accumulated depreciation and amortization		(22,357)		(19,953)
Property and equipment, net		$	12,048	$	14,226

Note 6 — Goodwill and Intangible Assets, net

Goodwill

The changes in the carrying value of goodwill for the three months ended March 31, 2024 is as follows (in thousands):


December 31, 2023	$	125,818
Foreign currency translation impact	(453)
March 31, 2024	$	125,365

Intangible Assets, Net

The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of March 31, 2024 were as follows:


(in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Estimated Useful Life (Years)
Developed technology	$	91,629	$	(67,186)	$	24,443	3 - 10
Capitalized software	19,782		(4,899)		14,883		3 - 5
Customer relationships	18,620		(12,060)		6,560		5 - 10
Trademarks	11,568		(5,571)		5,997		15
Non-compete agreement	5,863		(1,834)		4,029		3
Patents	3,068		(575)		2,493		3 - 19
Total intangible assets	$	150,530	$	(92,125)	$	58,405

The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of December 31, 2023 were as follows:


(in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Estimated Useful Life (Years)
Developed technology	$	91,629	$	(64,453)	$	27,176	3 - 10
Capitalized software	18,423		(4,078)		14,345

SEC Form 10-Q filed by The Beauty Health Company