Beauty Health Co

Previous 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:

Current wording

During thethree and nine months ended September 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 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.

Current wording

•Ongoing issues related to new and older models of Hydrafacial’s current generation Delivery System, Syndeo, and our actions to remediate such ongoing issues. The Company provided, at no cost to the customer, the option of (i) a technician upgrade to their Syndeo 1.0 or 2.0 devices to 3.0 standards in the field; or (ii) a replacement Syndeo 3.0 device for their existing device (the “Syndeo Program”). The Company executed replacements under the Syndeo Program and continues to address customer cases under warranty. As of September 30, 2024, the Syndeo Program is complete.

Previous wording

Business and macroeconomic factors may also negatively impact, in the short-term or long-term, the global economy, the beauty health industry, our providers and their budgets with us, our business, the Company’s brand reputation, financial condition, and results of operations. We remain attentive to these business and macroeconomic conditions that may materially impact our business, and we continue to explore and implement reporting and quality management systems and risk mitigation strategies in the face of these unfolding conditions to remain agile in adopting to changing circumstances.

Current wording

Business and macroeconomic factors may also negatively impact, in the short-term or long-term, the global economy, the beauty health industry, our providers and their budgets with us, our business, the Company’s brand reputation, financial condition, and results of operations. We remain attentive to these business and macroeconomic conditions that may materially impact our business, and we continue to explore and implement reporting and quality management systems and risk mitigation strategies so that the Company can remain agile in responding to changing circumstances.

Previous wording

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 the three 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 wording

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 the three months ended September 30, 2024 and September 30, 2023, have been derived from the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Amounts and percentages may not foot due to rounding.

Previous 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.

Current wording

Total net sales for the three months ended September 30, 2024 decreased $18.6 million, or 19.1%, compared to the three months ended September 30, 2023. Delivery Systems net sales for the three months ended September 30, 2024 decreased $23.4 million, or 45.9%, compared to the three months ended September 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 net sales from the trade-up program. Delivery Systems net sales were also 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 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.

Current wording

Consumables net sales for the three months ended September 30, 2024 increased $4.8 million, or 10.4%, compared to the three months ended September 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 September 30, 2024.

Previous wording

Cost of Sales, Gross Profit, and Gross Margin

Current wording

Cost of Sales, Gross Profit (Loss), and Gross Margin

Previous wording

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 wording

Selling and marketing expense for the three months ended September 30, 2024 decreased $3.1 million, or 10.1%, compared to the three months ended September 30, 2023. The decrease is primarily driven by lower sales commission expense, personnel-related expenses, and marketing tradeshows and event expenses.

Previous 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.

Current wording

Research and development expense for the three months ended September 30, 2024 decreased $0.7 million, or 39.7%, compared to the three months ended September 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 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.

Current wording

General and administrative expense for the three months ended September 30, 2024 decreased $3.5 million, or 9.6%, compared to the three months ended September 30, 2023. The decrease is primarily driven by lower losses on sale of assets and personnel-related expenses, partially offset by higher provision for estimated credit losses.

Previous wording

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 wording

Interest income for the three months ended September 30, 2024 decreased $1.9 million compared to the three months ended September 30, 2023 primarily due to lower average invested balances during the three months ended September 30, 2024.

Previous 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.

Current wording

During the three months ended September 30, 2024, the Company recognized income of $0.4 million related to the change in the fair value of the warrant liabilities, adecrease of $5.4 million, as compared to income of $5.9 million for the three months ended September 30, 2023, driven primarily by the fluctuation of the price of the Company’s Class A common stock (the “Class A Common Stock”).

Previous wording

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 wording

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 thenine months ended September 30, 2024 and September 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.

Previous wording

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 wording

Total net sales for thenine months ended September 30, 2024 decreased $50.4 million, or 16.7%, compared to thenine months ended September 30, 2023. Delivery System net sales for thenine months ended September 30, 2024 decreased $63.4 million, or 39.1%, compared to thenine months ended September 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 net sales from the trade-up program. Delivery Systems net sales were also 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 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 wording

Consumables net sales for thenine months ended September 30, 2024 increased $13.0 million, or 9.3%, compared to thenine months ended September 30, 2023. The increase in Consumables net sales was primarily attributable toincreased placements of Delivery Systems and the adjoining consumption of Consumables during thenine months ended September 30, 2024.

Previous wording

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 wording

Cost of sales for thenine months ended September 30, 2024 decreased $70.9 million, compared to the nine months ended September 30, 2023 primarily due to the absence of charges and inventory write-downs associated with the Syndeo Program of $63.1 million in 2023 and lower net sales, partially offset by higher inventory related charges and approximately $8 million of manufacturing optimization related costs incurred in 2024. Cost of sales for the nine months ended September 30, 2024 include $22.7 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 increased to 51.8% for thenine months ended September 30, 2024 from 36.3% for thenine months ended September 30, 2023 primarily due to prior year’s charges and inventory write-downs associated with the Syndeo Program, partially offset by higher inventory related charges and the manufacturing optimization related costs.

Previous 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.

Current wording

Selling and marketing expense for the nine months ended September 30, 2024 decreased $20.7 million, or 18.4%, compared to the nine months ended September 30, 2023. The decrease is primarily driven by lower personnel-related expenses, including sales commission expense and lower marketing related spend.

Previous wording

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 wording

Research and development expense for the nine months ended September 30, 2024 decreased $2.0 million, or 28.1%, compared to the nine months ended September 30, 2023. The decrease is primarily driven by lower personnel-related expenses, including share-based compensation expense.

Previous wording

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 wording

General and administrative expense for thenine months ended September 30, 2024 decreased $8.8 million, or 8.5%, compared to thenine months ended September 30, 2023. The decrease is primarily driven by lower personnel-related expenses, losses on the sale of assets, and software expenses, partially offset by higher provision for estimated credit losses.

Previous wording

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 wording

Interest income for thenine months ended September 30, 2024 decreased $2.4 million compared to thenine months ended September 30, 2023 primarily due to lower average invested balances during thenine months ended September 30, 2024.

Previous wording

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.

Current wording

During thenine months ended September 30, 2024, the Company recognized income of$3.0 million related to the change in the fair value of the warrant liabilities, adecrease of$5.4 million, as compared to income of$8.4 million for thenine months ended September 30, 2023, driven primarily by the fluctuation of the price of the Class A Common Stock.

Previous wording

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 wording

Other income, netfor thenine months ended September 30, 2024 increased $28.1 million compared to the nine months ended September 30, 2023 primarily due to a net gain of $33.4 million related to therepurchase of the Company’s 1.25% Convertible Senior Notes due 2026 (the “Notes”). During thenine months ended September 30, 2023, the Company received$4.9 million for the Employee Retention Credit under the CARES Act.

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 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.

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 September 30, 2024, we had cash, cash equivalents, and restricted cash of approximately $358.9 million.

Previous wording

On September 9, 2021, in connection with the pricing of the offering of Notes, the Company entered into privately negotiated capped call transactions (the “Base Capped Call Transactions”) with the Bank of Montreal, Credit Suisse Capital LLC, Deutsche Bank AG, London Branch, Goldman Sachs & Co. LLC, JPMorgan Chase Bank, National Association, Mizuho Markets Americas LLC and Wells Fargo Bank, National Association (collectively, the “Option Counterparties”). In addition, on September 10, 2021, in connection with the initial purchasers’ exercise of their option to purchase additional Notes, the Company entered into additional capped call transactions (the “Additional Capped Call Transactions”, and together with the Base Capped Call Transactions, the “Capped Call Transactions”) with each of the Option Counterparties. The Capped Call Transactions cover, subject to customary anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that initially underlie the Notes, and are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions is initially $47.94, which represents a premium of 100% over the last reported sale price of the Company’s common stock on September 9, 2021. The cost of the Capped Call Transactions was $90.2 million.

Current wording

On September 9, 2021, in connection with the pricing of the offering of Notes, the Company entered into privately negotiated capped call transactions (the “Base Capped Call Transactions”) with the Bank of Montreal, Credit Suisse Capital LLC, Deutsche Bank AG, London Branch, Goldman Sachs & Co. LLC, JPMorgan Chase Bank, National Association, Mizuho Markets Americas LLC and Wells Fargo Bank, National Association (collectively, the “Option Counterparties”). In addition, on September 10, 2021, in connection with the initial purchasers’ exercise of their option to purchase additional Notes, the Company entered into additional capped call transactions (the “Additional Capped Call Transactions”, and together with the Base Capped Call Transactions, the “Capped Call Transactions”) with each of the Option Counterparties. The Capped Call Transactions cover, subject to customary anti-dilution adjustments, the aggregate number of shares of the Company’s Class A Common Stock that initially underlie the Notes, and are expected generally to reduce potential dilution to the Company’s Class A Common Stock upon any conversion of Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions is initially $47.94, which represents a premium of 100% over the last reported sale price of the Company’s Class A Common Stock on September 9, 2021. The cost of the Capped Call Transactions was $90.2 million.

Previous 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.

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 provided the Company with a $50.0 million revolving credit facility that had a maturity date of November 14, 2027.

Previous 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.

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 net 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

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.

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 nine months ended September 30, 2023 and the year ended December 31, 2023, the Company recognized approximately $12 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 discontinued the use of trade-up transactions and the ensuing revenue recognition for noncash consideration.

Previous 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.

Current wording

Net cash used for operating activities for thenine months ended September 30, 2024 was $0.3 million, as compared to net cash provided by operating activities of $26.9 million for thenine months ended September 30, 2023. The change in cash used for operating activities was primarily related to higher working capital usage and changes in net loss and non-cash adjustments. The current year netloss and non-cash adjustments include a netgain of $33.4 million related to the repurchase of the Company’s Notes. The prior year net loss and non-cash adjustments, and changes in working capital include the impact of the Syndeo Program charges.

Previous 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.

Current wording

Net cash used for investing activitiesfor thenine months ended September 30, 2024 was$5.9 million, as compared to $29.3 million for thenine months ended September 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 $18.5 million.

Previous 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.

Current wording

Net cash used for financing activities for thenine months ended September 30, 2024 was $157.6 million, as compared to $6.1 million for thenine months ended September 30, 2023. The change in cash used for financing activities was primarily related to the repurchase of $192.3 million principal amount of the Company’s Notes at a weighted-average price equal to 81% for $156.1 million.