Beauty Health Co
For the period ended Jun 30, 2024. Filed Aug 8, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 8, 2024
SKIN$15.71+51.8%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-09.
0001628280-24-022336
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0001628280-24-036238
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 72 previous paragraphs and 89 current paragraphs.
46 unchanged; 20 reworded; 16 added; 6 removed; 0 previous and 7 current paragraphs rearranged.
Tables are not compared: 8 previous and 15 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (16)
Current report
Cost of sales for the three months ended June 30, 2024 increased $0.1 million, compared to the three months ended June 30, 2023 primarily due to higher inventory related charges, offset by lower net sales. Cost of sales for the three months ended June 30, 2024 include$13.8 million of inventory charges for discontinued, excess, obsolete inventory, including the write-down of Delivery System inventory to its net realizable value and the write-off of excess raw materials. Gross margin decreased to 45.2% during the three months ended June 30, 2024 from 57.8% during the three months ended June 30, 2023 primarily due to higher inventory related charges resulting from the inventory write-downs.
Current report
Interest income for the three months ended June 30, 2024 decreased $1.5 million compared to the three months ended June 30, 2023 primarily due to lower average invested balances during the three months ended June 30, 2024.
Current report
Comparison of Six Months Ended June 30, 2024 to Six Months Ended June 30, 2023
Current report
Net Sales
Current report
Total net sales for thesix months ended June 30, 2024 decreased $31.8 million, or 15.6%, compared to thesix months ended June 30, 2023. Delivery System net sales for thesix months ended June 30, 2024 decreased $40.0 million, or 36.0%, compared to thesix months ended June 30, 2023, with decreases across all regions. The decrease in Delivery Systems net sales reflects a challenging year-over-year comparison due to the prior year international launch of Syndeo, which included trade-up net sales. Delivery Systems net sales were negatively impacted globally by unfavorable macroeconomic and credit conditions and as the Company works to strengthen customer confidence in Syndeo.
Current report
Cost of sales for the six months ended June 30, 2024 increased $0.9 million, compared to the six months ended June 30, 2023 primarily due to higher inventory related charges, offset by lower net sales. Cost of sales for the six months ended June 30, 2024 include$19.3 million of inventory charges for discontinued, excess, obsolete inventory, including the write-down of Delivery System inventory to its net realizable value and the write-off of excess raw materials. Gross margin decreased to 51.9% during the six months ended June 30, 2024 from 59.9% during the six months ended June 30, 2023 primarily due to higher inventory related charges resulting from the inventory write-downs.
Current report
Operating Expenses
Current report
Selling and Marketing
Current report
Research and Development
Current report
Research and development expense for the six months ended June 30, 2024 decreased $1.3 million, or 24.0%, compared to the six months ended June 30, 2023. The decrease is primarily driven by lower personnel-related expenses, including lower share-based compensation expense.
Current report
General and Administrative
Current report
General and administrative expense for thesix months ended June 30, 2024 decreased $5.2 million, or 8.0%, compared to thesix months ended June 30, 2023. The decrease is primarily driven by lower personnel-related expenses, professional fees, and software expenses.
Current report
Interest income for thesix months ended June 30, 2024 decreased $0.5 million compared to thesix months ended June 30, 2023 primarily due to lower average invested balances during the six months ended June 30, 2024.
Current report
We may, from time to time, seek to redeem or repurchase our outstanding debt or equity securities through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. For information regarding the Company’s repurchases of its Notes during the first and second quarter of 2024, see Note 7, Long-Term Debt, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Current report
During the three months ended March 31, 2024, the Company repurchased $75.0 million principal amount of its Notes at a weighted-average price equal to 77% for $57.8 million. Additionally, during the three months ended June 30, 2024, the Company repurchased $117.3 million principal amount of its Notes at a weighted-average price equal to 84% for $98.3 million. The total amount paid to repurchase $192.3 million principal amount was $156.1 million for the six months ended June 30, 2024.
Current report
On August 6, 2024, the Company prepaid all obligations and terminated all commitments, liabilities, and other obligations under the Credit Agreement. There were no material early termination penalties incurred in connection therewith, all outstanding obligations and commitments under the Credit Agreement were satisfied and terminated, and all related security interests and liens securing such obligations and commitments were released.
Removed paragraphs (6)
Previous report
Cost of sales for the three months ended March 31, 2024 increased $0.9 million, which was impactedby higher indirect product costs and inventory related charges. Gross profit decreased from$54.1 million during the three months ended March 31, 2023 to$48.4 million during the three months ended March 31, 2024, which was impacted by higher indirect product costs and inventory related charges.
Previous report
Interest income for thethree months ended March 31, 2024 increased $1.0 million compared to thethree months ended March 31, 2023 primarily due to higher interest earned on our investment in money market funds.
Previous report
The Company may also evaluate opportunities to repurchase and retire debt; the Company repurchased its Notes in both the first and second quarter of 2024.
Previous report
The Credit Agreement contains various restrictive covenants subject to certain exceptions, including limitations on the Company’s ability to incur indebtedness and certain liens, make certain investments, become liable under contingent obligations in certain circumstances, make certain restricted payments, make certain dispositions within guidelines and limits, engage in certain affiliate transactions, alter its fundamental business or make certain fundamental changes, and requirements to maintain financial covenants, including maintaining a leverage ratio of no greater than 3.00 to 1.00 and maintaining a fixed charge coverage ratio of not less than 1.15 to 1.00. As of March 31, 2024, the Company was in compliance with all restrictive and financial covenants of the Credit Agreement.
Previous report
In January 2024, the Company repurchased$75.0 million principal amount of its Notes at a weighted-average price equal to 77% for$57.8 million.
Previous report
Additionally, in April 2024, the Company repurchased $98.3 million principal amount of its Notes at a weighted-average price equal to 84% for $82.4 million. In the month of May, through May 8, 2024, the Company repurchased $19.0 million principal amount of its Notes at a weighted-average price equal to 84% for $15.9 million.
Reworded paragraphs (20)
Previous wording
During the three months ended March 31, 2024, we continued to execute against our plan to expand our footprint by selling and placing our patented hydradermabrasion delivery systems (“Delivery Systems”) worldwide, drive consumables, which consist of single-use tips, solutions, serums and other consumables used to provide a hydrafacial treatment that cleanses, extracts, and hydrates the skin (collectively “Consumables”), invest in our community of providers, partners, and consumers, drive brand awareness, and optimize our global infrastructure. Although we believe we can be successful in our current operating environment, various factors may impact our business in unpredictable ways such as:
Current wording
During thethree and six months ended June 30, 2024, we continued to execute against our plan to expand our footprint by selling and placing our patented hydradermabrasion delivery systems (“Delivery Systems”) worldwide, drive consumables, which consist of single-use tips, solutions, serums and other consumables used to provide a hydrafacial treatment that cleanses, extracts, and hydrates the skin (collectively “Consumables”), invest in our community of providers, partners, and consumers, drive brand awareness, and optimize our global infrastructure. Although we believe we can be successful in our current operating environment, various factors may impact our business in unpredictable ways such as:
Previous wording
•Ongoing issues related to new and older models of Hydrafacial’s current generation Delivery System, Syndeo (“Syndeo”), and our actions to remediate such ongoing issues. The Company has continued to execute replacements under the Syndeo Program and continues to address customer cases under warranty. The Company has accrued approximately$8 million as part of its Syndeo Program and approximately$7 million for its warranty reserve as of March 31, 2024 based on the Company’s estimated cost to replace older Syndeo models and address incidences for delivery systems under warranty.
Current wording
•Ongoing issues related to new and older models of Hydrafacial’s current generation Delivery System, Syndeo (“Syndeo”), and our actions to remediate such ongoing issues. The Company executed replacements under the Syndeo Program and continues to address customer cases under warranty. As of June 30, 2024, the Syndeo Program is substantially complete.
Previous wording
Total net sales for the three months ended March 31, 2024 decreased $4.9 million, or 5.7%, compared to the three months ended March 31, 2023. Delivery System net sales for the three months ended March 31, 2024 decreased $9.6 million, or 21.1%, compared to the three months ended March 31, 2023, with decreases across all regions. Delivery Systems net sales were impacted as the Company works to strengthen customer confidence in Syndeo.
Current wording
Total net sales for the three months ended June 30, 2024 decreased $26.9 million, or 22.9%, compared to the three months ended June 30, 2023. Delivery Systems net sales for the three months ended June 30, 2024 decreased $30.4 million, or 46.3%, compared to the three months ended June 30, 2023, with decreases across all regions. The decrease in Delivery Systems net sales reflects a challenging year-over-year comparison due to the prior year international launch of Syndeo, which included trade-up net sales. Delivery Systems net sales were negatively impacted globally by unfavorable macroeconomic and credit conditions and as the Company works to strengthen customer confidence in Syndeo.
Previous wording
Consumables net sales for the three months ended March 31, 2024 increased $4.7 million, or 11.5%, compared to the three months ended March 31, 2023. The increase in Consumables net sales was primarily attributable to increased placements of delivery systems and the adjoining consumption of consumables during the three months ended March 31, 2024.
Current wording
Consumables net sales for the three months ended June 30, 2024 increased $3.5 million, or 6.7%, compared to the three months ended June 30, 2023. The increase in Consumables net sales was primarily attributable to increased placements of Delivery Systems and the adjoining consumption of Consumables during the three months ended June 30, 2024.
Previous wording
Selling and marketing expense for the three months ended March 31, 2024 decreased $5.0 million, or 13.0%, compared to the three months ended March 31, 2023. The decrease is primarily driven by lower personnel-related expenses, including sales commission expense and lower marketing spend.
Current wording
Selling and marketing expense for the three months ended June 30, 2024 decreased $12.6 million, or 29.2%, compared to the three months ended June 30, 2023. The decrease is primarily driven by lower personnel-related expenses, including sales commission expense and lower marketing spend.
Previous wording
Research and development expense for the three months ended March 31, 2024 increased $0.5 million, or 20.2%, compared to the three months ended March 31, 2023. The increase is primarily driven by higher share-based compensation expense.
Current wording
Research and development expense for the three months ended June 30, 2024 decreased $1.7 million, or 59.8%, compared to the three months ended June 30, 2023. The decrease is primarily driven by lower personnel-related expenses, including share-based compensation expense.
Previous wording
General and administrative expense for the three months ended March 31, 2024 decreased $1.5 million, or 5.0%, compared to the three months ended March 31, 2023. The decrease is primarily driven by lower professional fees and software expenses, partially offset by higher share-based compensation expense.
Current wording
General and administrative expense for the three months ended June 30, 2024 decreased $3.7 million, or 10.5%, compared to the three months ended June 30, 2023. The decrease is primarily driven by lower personnel-related expenses, including share-based compensation expense.
Previous wording
During thethree months ended March 31, 2024, the Company recognized income of $1.5 million related to the change in the fair value of the warrant liabilities, a decrease of $7.6 million, as compared to income of $9.1 million for thethree months ended March 31, 2023, driven primarily by the fluctuation of the Company’s stock price.
Current wording
During the three months ended June 30, 2024, the Company recognized income of $4.0 million related to the change in the fair value of the warrant liabilities, a decrease of $7.5 million, as compared to income of $11.6 million for the three months ended June 30, 2023, driven primarily by the fluctuation of the Company’s stock price.
Previous wording
During thethree months ended March 31, 2024, the Company recognized$16.1 million net gain related to the repurchase of its Notes.
Current wording
During thesix months ended June 30, 2024, the Company recognized$33.4 million net gain related to the repurchase of its Notes.
Previous wording
Our primary sources of capital have been (i) cash flow from operating activities, (ii) net proceeds received from the consummation of the Business Combination, (iii) net proceeds received from the 1.25% Convertible Senior Notes due 2026 (the “Notes”), and (iv) net proceeds received from the exercise of public and private placement warrants. As of March 31, 2024, we had cash, cash equivalents, and restricted cash of approximately $444.6 million. A revolving credit facility of$50 million is also available to us as a source of capital. As of March 31, 2024, the revolving credit facility remains undrawn and there is no outstanding balance thereunder.
Current wording
Our primary sources of capital have been (i) cash flow from operating activities, (ii) net proceeds received from the consummation of the Business Combination, (iii) net proceeds received from the Notes, and (iv) net proceeds received from the exercise of public and private placement warrants. As of June 30, 2024, we had cash, cash equivalents, and restricted cash of approximately $349.5 million.
Previous wording
Our sources of liquidity and cash flows are used to fund ongoing operations, research and development projects for new products, services, and technologies, and provide ongoing support services for our providers and customers, including liabilities associated with the Syndeo Program. As part of our business strategy, we occasionally evaluate potential acquisitions of businesses and products and technologies. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products, services, or businesses. Such potential transactions may require substantial capital resources, which may require us to seek additional debt or equity financing. We cannot assure you that we will be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our current operations, or expand into new markets. Furthermore, we cannot provide assurances that additional financing will be available to us in any required time frame and on commercially reasonable terms, if at all.
Current wording
Our sources of liquidity and cash flows are used to fund ongoing operations, research and development projects for new products, services, and technologies, and provide ongoing support services for our providers and customers, including liabilities associated with the recently completed Syndeo Program. As part of our business strategy, we occasionally evaluate potential acquisitions of businesses and products and technologies. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products, services, or businesses. Such potential transactions may require substantial capital resources, which may require us to seek additional debt or equity financing. We cannot assure you that we will be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into our current operations, or expand into new markets. Furthermore, we cannot provide assurances that additional financing will be available to us in any required time frame and on commercially reasonable terms, if at all.
Previous wording
On November 14, 2022, the Company, as successor by assumption to Hydrafacial (formerly known as Edge Systems LLC), a California limited liability company, entered into an Amended and Restated Credit Agreement (as it may be further amended, restated, supplemented or modified from time to time, the “Credit Agreement”) with JPMorgan Chase Bank, N.A. The Credit Agreement provides for a $50.0 million revolving credit facility with a maturity date of November 14, 2027. In addition, the Company has the ability from time to time to increase the revolving commitments or enter into one or more tranches of term loans up to an additional aggregate amount not to exceed $50.0 million, subject to receipt of lender commitments and certain conditions precedent. As of March 31, 2024, the Credit Agreement remains undrawn and there is no outstanding balance under the revolving credit facility.
Current wording
On November 14, 2022, the Company, as successor by assumption to Hydrafacial, a California limited liability company, entered into an Amended and Restated Credit Agreement (as it may be further amended, restated, supplemented or modified from time to time, the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (the “Administrative Agent”). The Credit Agreement provides for a $50.0 million revolving credit facility with a maturity date of November 14, 2027. As of June 30, 2024, the Credit Agreement was undrawn and there was no outstanding balance under the revolving credit facility.
Previous wording
The majority of our customers operate within the medical industry (dermatologists and plastic surgeons), esthetician, and beauty retail industry. Although we have not seen any significant reduction in revenues to date due to consolidations, we have seen some consolidation in our industry during economic downturns. These consolidations have not had a negative effect on our total sales; however, should consolidations and downsizing in the industry continue to occur, those events could adversely impact our revenues and earnings going forward.
Current wording
The majority of our customers operate within the medical industry (dermatologists and plastic surgeons), esthetician industry, and beauty retail industry. Although we have not seen any significant reduction in revenues to date due to consolidations, we have seen some consolidation in these industries during economic downturns. These consolidations have not had a negative effect on our total sales; however, should consolidations and downsizing in the industries continue to occur, those events could adversely impact our revenues and earnings going forward.
Previous wording
In addition, we continue to face macro-economic challenges such as the possibility of recession or financial market instability, and the impact of any governmental actions on the economy. These factors may adversely impact consumer, business, and government spending as well as customers' ability to pay for our products and services on an ongoing basis.
Current wording
In addition, we continue to face macro-economic challenges such as the possibility of recession or financial market instability, and the impact of any governmental actions on the economy. These factors may adversely impact consumers, business, and government spending as well as our customers' ability to pay for our products and services on an ongoing basis.
Previous wording
As a result, if economic and social conditions or the degree of uncertainty or volatility worsen, or the adverse conditions previously described are further prolonged, our growth rate could be affected by consolidation and downsizing in the medical, esthetician, and beauty retail industry. We are continuing to monitor these and other risks that may affect our business so that we can respond appropriately.
Current wording
If economic and social conditions or the degree of uncertainty or volatility worsen, or the adverse conditions previously described are further prolonged, our revenues could be adversely affected. Macro-economic challenges and credit conditions have negatively impacted our revenues in 2024. We are continuing to monitor these and other risks that may affect our business so that we can respond appropriately. Negative trends in our financial performance or financial condition may result in a sustained decline in our stock price, which may result in a triggering event necessitating an interim goodwill impairment assessment and potential goodwill impairment.
Previous wording
The Company has accrued $8.3 millionas of March 31, 2024 for the estimated cost for its remediation plan to upgrade or exchange customer Syndeo devices to meet the Syndeo 3.0 device standard which is expected to be substantially complete by June 30, 2024 related to initial replacement devices.
Current wording
The Company accrued $0.9 millionas of June 30, 2024 for the remaining estimated cost for its remediation plan to upgrade or exchange customer Syndeo devices to meet the Syndeo 3.0 device standard. As of June 30, 2024, the Syndeo Program is substantially complete.
Previous wording
The Company has historically accepted Delivery Systems in trade-up transactions with the intent to refurbish and resell such Delivery Systems received from the customer. During the year ended December 31, 2023, the Company recognized approximately $17 million of revenue based on the estimated fair value of such Delivery Systems. The revenue recognized for such Delivery Systems during the three months ended March 31, 2023 was immaterial. While the Company still expects to resell Delivery Systems previously received in trade-up transactions, starting in 2024, the Company will discontinue the use of trade-up transactions and the ensuing revenue recognition for noncash consideration.
Current wording
The Company has historically accepted Delivery Systems in trade-up transactions with the intent to refurbish and resell such Delivery Systems received from the customer. During the six months ended June 30, 2023 and the year ended December 31, 2023, the Company recognized approximately $6 million and $17 million, respectively, of revenue based on the estimated fair value of such Delivery Systems. While the Company still expects to resell Delivery Systems previously received in trade-up transactions, starting in 2024, the Company plans to discontinue the use of trade-up transactions and the ensuing revenue recognition for noncash consideration.
Previous wording
Net cash used for operating activities for thethree months ended March 31, 2024 was $16.9 million, as compared to net cash used for operating activities of $13.0 million for thethree months ended March 31, 2023. The change in cash used for operating activities was primarily related to the net impact of current year net loss and other non-cash adjustments, which include a netgain of $16.1 million related to the repurchase of our Notes. The prior year net loss and non-cash adjustments include the impact of $9.1 million loss resulting from the change in fair value of the Company’s warrants.
Current wording
Net cash used for operating activities for thesix months ended June 30, 2024 was $10.7 million, as compared to net cash provided by operating activities of $9.0 million for thesix months ended June 30, 2023. The change in cash used for operating activities was primarily related to higher working capital usage, the net impact of current year netloss, and other non-cash adjustments. The current year netloss and non-cash adjustments include a netgain of $33.4 million related to the repurchase of our Notes and higher inventory related charges as compared to the prior year.
Previous wording
Net cash used for investing activitiesfor thethree months ended March 31, 2024 was$1.8 million, as compared to $21.7 million for thethree months ended March 31, 2023. The change in cash used for investing activities was primarily related to prior year’s asset acquisitions of Esthetic Medical Inc. and Anacapa Aesthetics LLC for $16.9 million.
Current wording
Net cash used for investing activitiesfor thesix months ended June 30, 2024 was$3.8 million, as compared to $24.9 million for thesix months ended June 30, 2023. The change in cash used for investing activities was primarily related to prior year’s asset acquisitions of Esthetic Medical Inc. and Anacapa Aesthetics LLC for $16.9 million.
Previous wording
Net cash used for financing activities for thethree months ended March 31, 2024 was $58.6 million, as compared to $2.2 million for thethree months ended March 31, 2023. The change in cash used for financing activities was primarily related to the repurchase of $75.0 million principal amount of our Notes at a weighted-average price equal to 77% for $57.8 million.
Current wording
Net cash used for financing activities for thesix months ended June 30, 2024 was $157.4 million, as compared to $3.7 million for thesix months ended June 30, 2023. The change in cash used for financing activities was primarily related to the repurchase of $192.3 million principal amount of our Notes at a weighted-average price equal to 81% for $156.1 million.
Rearranged current paragraphs (7)
Current report — wording carried from elsewhere
During the three months ended June 30, 2024, the Company recognized$17.3 million net gain related to the repurchase of its 1.25% Convertible Senior Notes due 2026 (the “Notes”).
Current report — wording carried from elsewhere
The following tables set forth our consolidated results of operations in dollars and as a percentage of net sales for the periods presented. The period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future. The results of operations data for thesix months ended June 30, 2024 and June 30, 2023 have been derived from the condensed consolidated financial statements included elsewhere in this Form 10-Q. Amounts and percentages may not foot due to rounding.
Current report — wording carried from elsewhere
Consumables net sales for thesix months ended June 30, 2024 increased $8.2 million, or 8.8%, compared to thesix months ended June 30, 2023. The increase in Consumables net sales was primarily attributable toincreased placements of Delivery Systems and the adjoining consumption of Consumables during thesix months ended June 30, 2024.
Current report — wording carried from elsewhere
Cost of Sales, Gross Profit, and Gross Margin
Current report — wording carried from elsewhere
Selling and marketing expense for the six months ended June 30, 2024 decreased $17.6 million, or 21.5%, compared to the six months ended June 30, 2023. The decrease is primarily driven by lower personnel-related expenses, including sales commission expense and lower marketing spend.
Current report — wording carried from elsewhere
Interest Income, Change in Fair Value of Warrant Liabilities, and Other Income, Net
Current report — wording carried from elsewhere
During thesix months ended June 30, 2024, the Company recognized income of$2.6 million related to the change in the fair value of the warrant liabilities, an increase of$0.1 million, as compared to income of$2.5 million for thesix months ended June 30, 2023, driven primarily by the fluctuation of the Company’s stock price.