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Table of Contents
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 June 30, 2022 
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)
Delaware85-1908962
(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
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per shareSKIN
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 filerAccelerated filer
Non-accelerated filerSmaller 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 August 5, 2022, there were 150,877,489 shares of Class A Common Stock, par value $0.0001 per share issued and outstanding.



Table of Contents
THE BEAUTY HEALTH COMPANY
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022
TABLE OF CONTENTS

Page
PART I—FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.




















2

Table of Contents
PART I— FINANCIAL INFORMATION
Item 1. Financial Statements.
THE BEAUTY HEALTH COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share amounts)
(Unaudited)
June 30, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$820,970$901,886
Accounts receivable, net of allowances for doubtful accounts of $2,482 and $2,681 at June 30, 2022 and December 31, 2021, respectively
79,91846,824
Prepaid expenses and other current assets20,33612,322
Income tax receivable 1,0084,599
Inventories 73,52635,261
Total current assets995,7581,000,892
Property and equipment, net18,04116,183
Right-of-use assets, net15,79114,992
Intangible assets, net 51,20256,010
Goodwill124,033123,694
Deferred income tax assets, net312330
Other assets 9,8236,705
TOTAL ASSETS$1,214,960$1,218,806
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$36,830$29,049
Accrued payroll-related expenses27,78628,662
Other accrued expenses15,38514,722
Lease liabilities, current4,5473,712
Income tax payable2,510292
Total current liabilities 87,05876,437
Lease liabilities, non-current13,11612,781
Deferred income tax liabilities, net 3,8443,561
Warrant liabilities 26,57993,816
Convertible senior notes, net732,028729,914
TOTAL LIABILITIES862,625916,509
Commitments (Note 13)
Stockholders’ equity:
Class A Common Stock, $0.0001 par value; 320,000,000 shares authorized; 150,855,025 and 150,598,047 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
16 16 
Preferred Stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding at June 30, 2022 and December 31, 2021
  
Additional paid-in capital 735,682 722,250 
Accumulated other comprehensive income (loss)(5,089)(1,257)
Accumulated deficit(378,274)(418,712)
Total stockholders’ equity352,335 302,297 
 LIABILITIES AND STOCKHOLDERS’ EQUITY$1,214,960 $1,218,806 

The accompanying notes are an integral part of these unaudited financial statements.
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THE BEAUTY HEALTH COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except for share and per share amounts)
(Unaudited)

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Net sales$103,536 $66,508 $178,951 $114,050 
Cost of sales31,882 19,257 55,360 35,059 
Gross profit71,654 47,251 123,591 78,991 
Operating expenses:
Selling and marketing44,881 26,214 81,288 43,309 
Research and development2,601 2,988 4,831 4,440 
General and administrative27,585 44,402 53,846 55,213 
Total operating expenses75,067 73,604 139,965 102,962 
Loss from operations
(3,413)(26,353)(16,374)(23,971)
Other (income) expense:
Interest expense, net3,217 2,060 6,617 7,759 
Other (income) expense, net (1,658)4,307 (721)4,314 
Change in fair value of warrant liabilities(15,185)72,027 (67,237)72,027 
Change in fair value of earn-out shares liability 36,525  36,525 
Foreign currency transaction loss (gain), net2,206 (24)1,838 232 
Total other (income) expense(11,420)114,895 (59,503)120,857 
Income (loss) before provision for income taxes
8,007 (141,248)43,129 (144,828)
Income tax expense (benefit) 76 (1,870)2,691 (2,176)
Net income (loss)
$7,931 $(139,378)$40,438 $(142,652)
Comprehensive income (loss), net of tax:
Foreign currency translation adjustments(3,687)(276)(3,832)(281)
Comprehensive income (loss)
$4,244$(139,654)$36,606$(142,933)
Net income (loss) per share
Basic
$0.05$(1.52)$0.27$(2.24)
Diluted$(0.05)$(1.52)$(0.18)$(2.24)
Weighted average common shares outstanding
Basic
150,731,491 91,798,837 150,665,166 63,805,807 
Diluted151,719,451 91,798,837 152,274,394 63,805,807 

The accompanying notes are an integral part of these unaudited financial statements.
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THE BEAUTY HEALTH COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except for share amounts)
(Unaudited)
Legacy Common StockLegacy Preferred StockCommon StockAdditional Paid-in CapitalNote Receivable from StockholderAccumulated other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’Equity (Deficit)
SharesAmountSharesAmountSharesAmount
BALANCE, December 31, 202054,358 $ 931 $  $ $13,956 $(554)$242 $(43,604)$(29,960)
Retroactive application of recapitalization(54,358) (931) 35,501,743 4 (4)    
Adjusted balance, beginning of period    35,501,743 4 13,952 (554)242 (43,604)(29,960)
Stock-based compensation— — — — — — 34 — — — 34 
Net income (loss)— — — — — — — — — (3,274)(3,274)
Foreign currency translation adjustment— — — — — — — — (5)— (5)
BALANCE, March 31, 2021— $— — $— 35,501,743 $4 $13,986 $(554)$237 $(46,878)$(33,205)
Reverse recapitalization transaction, net— — — — 89,827,310 9 183,301 554   183,864 
Issuance of Class A Common Stock in connection with business acquisition— — — — 110,726 — 1,557 — — — 1,557 
Stock-based compensation— — — — — — 3,508 — — — 3,508 
Net income (loss)— — — — — — — — — (139,378)(139,378)
Foreign currency translation adjustment— — — — — — — — (276)— (276)
BALANCE, June 30, 2021— $— — $— 125,439,779 $13 $202,352 $ $(39)$(186,256)$16,070 
BALANCE, December 31, 2021— $— — $— 150,598,047 $16 $722,250 $ $(1,257)$(418,712)$302,297 
Issuance of common stock for vesting of restricted stock units— — — — 5,184 — — — — — — 
Stock-based compensation— — — — — — 7,049 — — — 7,049 
Net income (loss)— — — — — — — — — 32,507 32,507 
Foreign currency translation adjustment— — — — — — — — (145)— (145)
BALANCE, March 31, 2022— $— — $— 150,603,231 $16 $729,299 $ $(1,402)$(386,205)$341,708 
Issuance of Class A Common Stock in connection with asset acquisition— — — — 28,733 — 500 — — — 500 
Issuance of common stock pursuant to equity compensation plan— — — — 252,536 — — — — — — 
Stock-based compensation— — — — — — 6,378 — — — 6,378 
Shares withheld for tax withholdings on vested stock awards— — — — (29,475)— (495)— — — (495)
Net income (loss)— — — — — — — — — 7,931 7,931 
Foreign currency translation adjustment— — — — — — — — (3,687)— (3,687)
BALANCE, June 30, 2022— $— — $— 150,855,025 $16 $735,682 $ $(5,089)$(378,274)$352,335 
The accompanying notes are an integral part of these unaudited financial statements.
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THE BEAUTY HEALTH COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended June 30,
20222021
Cash flows from operating activities:
Net income (loss)$40,438 $(142,652)
Adjustments to reconcile net income (loss) to net cash from operating
Depreciation of property and equipment3,268 1,418 
Amortization of capitalized software903 626 
Provision for doubtful accounts435 646 
Non-cash lease expense2,282  
Amortization of intangible assets6,468 5,229 
Amortization of other assets280 66 
Amortization of deferred financing costs 2,806 
Stock-based compensation13,427 3,542 
Loss on sale and disposal of assets988  
In-kind interest 4,130 
Deferred income tax benefit (3,471)
Change in fair value of earn-out shares liability 36,525 
Change in fair value adjustment of warrant liabilities(67,237)72,027 
Debt prepayment expense 2,014 
Amortization of debt issuance costs2,114  
Changes in operating assets and liabilities:
Accounts receivable(34,410)(21,089)
Prepaid expense and other current assets(9,374)(1,562)
Income taxes receivable4,165 333 
Inventory(39,234)(229)
Other assets(2,634)730 
Accounts payable7,675 (2,369)
Accrued payroll and other expenses385 9,047 
Other long-term liabilities (87)
Lease liabilities(1,972) 
Income taxes payable2,227 382 
Net cash used in operating activities(69,806)(31,938)
Cash flows used in investing activities:
Cash paid for business acquisitions, net of cash acquired (4,920)
Cash paid for asset acquisition(1,475) 
Repayment of notes receivables from shareholders 781 
Capital expenditures for intangible assets(1,252)(273)
Capital expenditures for property and equipment(5,577)(4,707)
Net cash used in investing activities(8,304)(9,119)
Cash flows from financing activities:
Payment of contingent consideration related to acquisitions(2,763) 
Proceeds from revolving facility 5,000 
Repayment of revolving facility (5,000)
Proceeds from Business Combination, net of transaction costs (See Note 3) 358,536 
Repayment of term loan (225,487)
Net cash (used in) provided by financing activities(2,763)133,049 
Net (decrease) increase in cash and cash equivalents(80,873)91,992 
Effect of foreign currency translation on cash(43)(11)
Cash and cash equivalents, beginning of period901,886 9,486 
Cash and cash equivalents, end of period$820,970 $101,467 

The accompanying notes are an integral part of these unaudited financial statements.
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THE BEAUTY HEALTH COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(Unaudited)
Six Months Ended June 30,
20222021
Supplemental disclosures of cash flow information and non-cash investing and financing activities:
Cash paid for interest$5,130 $10,249 
Common stock issued for asset acquisition500  
Common stock issued for business acquisitions 1,557 
Cash (received) paid for income taxes(2,967)96 
Capital expenditures included in accounts payable404 1,440 
Change in deferred tax liability due to reverse recapitalization 90 


The accompanying notes are an integral part of these unaudited financial statements.
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THE BEAUTY HEALTH COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Description of Business

The Beauty Health Company, formerly known as Vesper Healthcare Acquisition Corp. (the “Company” or “BeautyHealth”), was incorporated in Delaware on July 8, 2020. The Company was originally formed for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

On May 4, 2021 (the “Closing Date”), the Company consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated December 8, 2020 (the “Merger Agreement”), by and among Vesper Healthcare Acquisition Corp. (“Vesper”), Hydrate Merger Sub I, Inc. (“Merger Sub I”), Hydrate Merger Sub II, LLC (“Merger Sub II”), LCP Edge Intermediate, Inc., the indirect parent of Edge Systems LLC d/b/a The HydraFacial Company (“HydraFacial”), and LCP Edge Holdco, LLC (“LCP,” or “Former Parent,” and, in its capacity as the stockholders’ representative, the “Stockholders’ Representative”), 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 has been 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 “Closing”), 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”).

In connection with the Closing, the Company changed its name from “Vesper Healthcare Acquisition Corp.” to “The Beauty Health Company.” Following the Closing, on May 6, 2021, the Company’s Class A Common Stock and publicly traded warrants were listed on the Nasdaq Capital Market (“Nasdaq”) under the symbols, “SKIN” and “SKINW”, respectively. The transactions set forth in the Merger Agreement constitute a “Business Combination” as contemplated by Vesper’s Second Amended and Restated Certificate of Incorporation.

Unless the context otherwise requires, in this Quarterly Report on Form 10-Q, the “Company” refers to Vesper Healthcare Acquisition Corp. prior to the closing of the Business Combination and to the combined company and its subsidiaries following the Closing and “HydraFacial” refers to the business of LCP Edge Intermediate, Inc. and its subsidiaries prior to the Closing. References to “Vesper” refer to Vesper Healthcare Acquisition Corp. prior to the consummation of the Business Combination.

The Company is a category-creating beauty health company focused on bringing innovative products to market. The Company and its subsidiaries design, develop, manufacture, market, and sell a/esthetic technologies and products. The Company’s flagship brand, HydraFacial, is a non-invasive and approachable beauty health platform and ecosystem. HydraFacial uses a unique delivery system to cleanse, extract, and hydrate with their patented hydradermabrasion technology and serums that are made with nourishing ingredients.

The COVID-19 pandemic has had, and may continue to have adverse impacts on our business. As government authorities around the world continue to implement significant measures intended to control the spread of the virus and institute restrictions on commercial operations, while simultaneously implementing policies designed to reopen certain markets, we are working to ensure our compliance and maintain business continuity for essential operations. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous factors we cannot reliably predict, including the duration and scope of the pandemic; businesses and individuals’ actions in response to the pandemic; and the impact on economic activity including the possibility of recession or financial market instability.

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Note 2 – Summary of Significant Accounting Policies

Information regarding the Company’s significant accounting policies is contained in Note 2, “Summary of Significant Accounting Policies”, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2022.

New Accounting Pronouncements Not Yet Adopted

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2021-08, Business Combinations (Topic 805), which primarily relates to the accounting for contract assets and contract liabilities from contracts with customers in a business combination. The standard will be effective for annual reporting periods beginning after December 31, 2022, including interim reporting periods within those periods, with early adoption permitted. We are currently evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.


Note 3 – Business Combinations and Asset Acquisitions

Business Combination — Reverse Recapitalization

The closing of the Business Combination occurred on May 4, 2021. In connection with the Business Combination:

Certain accredited investors (the “PIPE Investors”) entered into subscription agreements (the “PIPE Subscription Agreements”) pursuant to which the PIPE Investors agreed to purchase 35,000,000 shares (the “PIPE Shares”) of the Company’s Class A Common Stock at a purchase price per share of $10.00 for an aggregate purchase price of $350.0 million (the “PIPE Investment”). The PIPE Investment was consummated substantially concurrently with the Closing of the Business Combination.

Prior to the Business Combination, the Company issued an aggregate of 11,500,000 shares of the Company’s Class B Common Stock (the “Founder Shares”) to the Sponsor for an aggregate purchase price of $25,000 in cash. All outstanding Founder Shares were automatically converted into shares of the Company’s Class A Common Stock on a one-for-one basis at the Closing and will continue to be subject to the transfer restrictions applicable to such shares of Founder Shares.

In connection with the Closing, holders of 2,672,690 shares of the Company’s Class A Common Stock exercised their rights for the Company to redeem their respective shares for cash at an approximate price of $10.00 per share, for an aggregate of approximately $26.7 million, which was paid to such holders at Closing.

Immediately after giving effect to the Merger and the PIPE Investment, there were 125,329,053 shares of the Company’s Class A Common Stock issued and outstanding.

The aggregate gross cash consideration received by the Company in connection with the Business Combination was $783 million, which consisted of proceeds of $350 million from the PIPE Investment, plus approximately $433 million of cash from the Company’s trust account that held the proceeds from the Company’s initial public offering (the “Trust Account”). The aggregate gross cash consideration received was reduced by $368 million, which consisted of cash payments made to the former shareholders of HydraFacial, and further reduced by an additional $57 million for the payment of direct transaction costs incurred by HydraFacial and the Company which were reflected as a reduction of proceeds. The Company used the net proceeds to repay all of its outstanding indebtedness at the Closing. The remainder of the consideration paid to the HydraFacial Stockholders consisted of 35,501,743 newly issued shares of Class A Common Stock (the “Stock Consideration”). The net cash received from the Business Combination was subject to a working capital adjustment of $0.9 million. The Company also issued 70,860 shares related to the working capital adjustment.

The following table reconciles the elements of the Business Combination to the Company’s Consolidated Statements of Cash Flows and the Consolidated Statements of Stockholders’ Equity (Deficit) for the year ended December 31, 2021:
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(in thousands)Recapitalization
Cash in trust, net of redemptions$433,382 
Cash — PIPE350,000 
Less: Cash paid out to Former Parent(367,870)
Less: Transaction costs and advisory fees(56,976)
Less: Cash paid out from net working capital adjustment related to acquisitions(902)
Net Cash Received from Business Combination$357,634 

The number of shares of Class A Common Stock issued following the consummation of the Business Combination:
Number of Shares
Class A common stock outstanding prior to Business Combination46,000,000 
Less: Redemption of Vesper Class A Common Stock(2,672,690)
Class A common stock of Vesper43,327,310 
Founder shares (Vesper Class B Common Stock)11,500,000 
PIPE Shares35,000,000 
Business Combination and PIPE shares89,827,310 
Legacy HydraFacial shares (1)
35,501,743 
Working capital adjustment Class A Common Stock issued70,860 
Total Shares of Class A Common Stock after Business Combination125,399,913 
_______________
(1)    The number of Legacy HydraFacial shares was determined from the 54,358 shares of HydraFacial common stock outstanding immediately prior to the closing of the Business Combination multiplied by the Exchange Ratio of 653.109.

Distributor Acquisitions

On June 4, 2021, the Company acquired High Tech Laser, Australia Pty Ltd (“HTL”), a distributor of the Company’s products in Australia. On July 1, 2021, the Company acquired Wigmore Medical France (“Wigmore”), Ecomedic GmbH (“Ecomedic”) and Sistemas Dermatologicos Internacionales (“Sidermica”), distributors of the Company’s products in France, Germany and Mexico, respectively. Through these acquisitions, the Company plans to directly sell to the respective markets and improve services for its products. Cash paid for the four distributors totaled $23.7 million.

The Company applied the acquisition method of accounting and established a new basis of accounting on the dates of the respective acquisitions. The assets acquired by the Company are accordingly measured at their estimated fair values as of the acquisition date. The goodwill arising from the acquisitions consists largely of the business reputation of the acquired company in the marketplace and its assembled workforce. The goodwill is not deductible for income tax purposes.
The Company finalized the valuation of assets acquired and liabilities assumed for the distributor acquisitions as of June 30, 2022. The following table summarizes the consideration and fair values assigned to the assets acquired and liabilities
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assumed at the dates of acquisition for the Wigmore, Ecomedic and Sidermica acquisitions and summarizes the HTL acquisition after measurement period adjustments.

(in thousands)HTL
Wigmore (2)
Ecomedic (3)
Sidermica (4)
Consideration paid:
Cash, net of cash acquired$4,920 $2,540 $11,338 $6,861 
Class A Common Stock issued (1)
1,557 456 6,513 815 
Trade receivables due from seller1,027 2,336 1,679 1,581 
Notes payable to seller  2,153  
$7,504 $5,332 $21,683 $9,257 
Identifiable assets acquired and liabilities assumed
Accounts receivable$1,110 $2,079 $15 $1,657 
Non-compete agreement100 60 588 100 
Customer relationships2,696 2,276 5,487 2,700 
Inventory and other assets354 341 1,262 454 
Accounts payable(45)(456)(772) 
Deferred tax liabilities, net(675)(842)(2,008) 
Accrued and other liabilities(802)(317)(340) 
Total identifiable net assets2,738 3,141 4,232 4,911 
Goodwill$4,766 $2,191 $17,451 $4,346 
___________
(1)    Class A Common Stock issued as consideration for the acquisitions was 110,726, 28,157, 401,021 and 50,195 shares for HTL, Wigmore, Ecomedic and Sidermica, respectively.
(2)    During the fourth quarter of 2021, adjustments were made to the Wigmore valuation pertaining to contingent consideration and intangible assets. Goodwill was adjusted due to an increase of $0.3 million in contingent consideration and a decrease of $1.0 million in intangible assets. Contingent consideration payments for the Wigmore acquisition were paid during the three months ended March 31, 2022.
(3)    During the first quarter of 2022, adjustments were made to the Ecomedic valuation pertaining to acquisition date tax liability. Goodwill was adjusted due to an increase of $0.2 million to acquisition date tax liability.     
(4)    During the second quarter of 2022, adjustments were made to the Sidermica valuation pertaining to contingent consideration. Goodwill was adjusted due to an increase in contingent consideration of $1.98 million. Contingent consideration payments for the Sidermica acquisition were paid during the three months ended June 30, 2022.

Intangible assets acquired included customer relationships and non-compete agreements. The valuation of the acquired intangible asset was estimated by performing projections of discounted cash flows, whereby revenues and costs associated with each intangible asset are forecasted to derive expected cash flow which is discounted to present value at discount rates commensurate with perceived risk. The valuation and projection process is inherently subjective and relies on significant unobservable inputs (Level 3 inputs). The weighted average amortization period of customer relationship was 5 years, while the non-compete agreements are amortized over 3 years.

The operating results of the distributor acquisitions from the dates of acquisitions through June 30, 2022 are included in the Condensed Consolidated Statements of Comprehensive Income (Loss). The operating results are not material to the consolidated financial statements, and, therefore, the Company has not presented pro forma results of operations for the distributor acquisitions.


Acquisition of The Personalized Beauty Company, Inc. (“Mxt”)

On April 12, 2022, the Company, through its indirect, wholly-owned subsidiary, Edge Systems Intermediate, LLC, acquired The Personalized Beauty Company, Inc., a Delaware corporation d.b.a. Mxt. Consideration paid in the aggregate was $1.5 million plus equity consideration of $0.5 million or 28,733 shares of the Company’s Class A Common Stock. Depending on the achievement of certain revenue milestones, the former Mxt shareholders are entitled to receive up to $30 million of earnout payments. The estimated fair value of the earnout was not material as of the acquisition date.

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The Company accounted for this transaction as an asset acquisition based on an evaluation of the U.S. GAAP guidance for business combinations and concluded that the Company acquired developed technology of $1.9 million and inventory of $0.1 million. The Company concluded that the developed technology acquired from Mxt comprised substantially all of the fair value of the gross assets acquired and that the assets acquired did not meet the definition of a business under the guidance for business combinations. The developed technology intangible asset is being amortized on a straight-line basis over 3 years and recorded in cost of sales.

Note 4 – Revenue Recognition

The Company has determined that each of its products is distinct and represents a separate performance obligation. The customer can benefit from each product on its own or together with other resources that are readily available to the customer. The products are separately identifiable from other promises in the contract. Control over the Company’s products generally transfers to the customer upon shipment of the products from the Company’s warehouse facility. Therefore, revenue associated with product purchases is recognized at a point in time upon shipment to the intended customer. Typical payment terms provide for the customer to pay within 30 to 120 days, however, we provide an option for qualified customers to pay for delivery systems over 12 monthly installments.

Disaggregated Revenue

The Company generates revenue through manufacturing and selling HydraFacial Delivery Systems (“Delivery Systems”). In conjunction with the sale of Delivery Systems, HydraFacial also sells its serum solutions and consumables (collectively “Consumables”). Consumables are sold solely and exclusively by HydraFacial 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’s revenue disaggregated by major product line consists of the following for the periods indicated:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2022202120222021
Net Sales
Delivery Systems
$64,783 $34,944 $106,430 $60,616 
Consumables38,753 31,564 72,521 53,434 
Total net sales$103,536 $66,508 $178,951 $114,050 

See Note 17 for revenue disaggregated by geographical region.

Note 5 — Balance Sheet Components

Inventories consist of the following as of the periods indicated:

(in thousands)June 30, 2022December 31, 2021
Raw materials$19,008 $12,024 
Finished goods54,518 23,237 
Total inventories $73,526 $35,261 

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

(in thousands)June 30, 2022December 31, 2021
Accrued compensation$10,935 $15,262 
Accrued payroll taxes2,448 922 
Accrued benefits3,976 3,022 
Accrued sales commissions10,427 9,456 
Total accrued payroll-related expenses$27,786 $28,662 

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

(in thousands)June 30, 2022December 31, 2021
Sales and VAT tax payables$5,840 $5,817 
Accrued interest2,344 2,786 
Contingent consideration 783 
Note payable due seller 2,125 2,153 
Royalty liabilities1,024 1,074 
Other4,052 2,109 
Total other accrued expenses$15,385 $14,722 


Note 6 — Leases

The Company does not own any real estate. The majority of the Company’s lease liability consists of the Company’s international office spaces and warehouses, all of which are classified as operating leases. The Company’s finance leases relate to leased equipment such as office and warehouse equipment. The finance lease balances are not material but are included in property and equipment, other accrued expenses, and other long-term liabilities of the Condensed Consolidated Balance Sheets. During the three months ended June 30, 2022 the Company entered into leases for a new experience center in Paris for a right-of-use asset and lease liability of $1.1 million and an office in Frankfurt for a right-of-use asset and lease liability of $1.6 million.


Note 7 — Fair Value Measurements

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

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.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2022, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value. As of the Business Combination date, the Private Placement Warrants were valued using the Public Warrant Price, and was considered to be a Level 2 financial instrument as of that date. As of June 30, 2022, the value of the Private Placement Warrants was determined using their redemption value because these Private Placement Warrants are subject to redemption if the reference value of the common stock, as defined, is between $10.00 and $18.00 per share. The Private Placement Warrants are classified as a Level 2 financial instrument. There were no Public Warrants outstanding as of June 30, 2022. There were no valuation level transfers during the six months ended June 30, 2022.

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Fair Value Measurements on a Recurring Basis
(in thousands)Level 1Level 2Level 3Total
Assets
Cash and cash equivalents:
Money market funds$768,575 $ $ $768,575 
Liabilities
Warrant liability — Private Placement Warrants 26,579  26,579 

Money Market Funds

The Company’s investment in money market funds that are classified as cash equivalents hold underlying investments with a weighted average maturity of 90 days or less and are recognized at fair value. The valuations of these securities are based on quoted prices in active markets for identical assets, when available, or pricing models whereby all significant inputs are observable or can be derived from or corroborated by observable market data. The Company reviews security pricing and assesses liquidity on a quarterly basis. As of June 30, 2022, the Company’s U.S. portfolio had no material exposure to money market funds with a fluctuating net asset value.

Warrant Liabilities

The Public Warrants and Private Placement Warrants (collectively, the “Warrants”) were accounte