| Filed Pursuant to Rule 424(b)(3) | |||||
| Registration No. 333-257995 | |||||
PROSPECTUS SUPPLEMENT NO. 7 (to prospectus dated May 5, 2022) | |||||
THE BEAUTY HEALTH COMPANY
76,040,010 SHARES OF CLASS A COMMON STOCK
6,970,000 WARRANTS TO PURCHASE SHARES OF CLASS A COMMON STOCK
6,970,000 SHARES OF CLASS A COMMON STOCK UNDERLYING WARRANTS
This prospectus supplement is being filed to update and supplement the information contained in the prospectus dated May 5, 2022 (the “Prospectus”), related to (i) the resale, from time to time, by the selling stockholders identified in the Prospectus, or their permitted transferees, of (a) an aggregate of 76,040,010 shares of Class A common stock, par value $0.0001 per share (the “Class A Common Stock”), of The Beauty Health Company, a Delaware corporation, and (b) 6,970,000 warrants to purchase Class A Common Stock at an exercise price of $11.50 per share (the “warrants”) and (ii) the issuance by us of up to 6,970,000 shares of Class A Common Stock upon the exercise of warrants, with the information contained in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (“SEC”) on August 9, 2022 (the “Quarterly Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.
This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.
The Beauty Health Company’s Class A Common Stock is quoted on The Nasdaq Capital Market LLC (“Nasdaq”) under the symbol, “SKIN”. On August 8, 2022, the closing price of our Class A Common Stock was $15.27.
Investing in shares of our Class A Common Stock or warrants involves risks that are described in the “Risk Factors” section beginning on page 4 of the Prospectus.
Neither the SEC nor any state securities commission has approved or disapproved of the securities to be issued under the Prospectus or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is August 9, 2022
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
(Exact name of registrant as specified in its charter)
| Delaware | 85-1908962 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
2165 Spring Street Long Beach, CA 90806 | (800) 603-4996 | |||||||
| (Address of principal executive offices, including zip code) | Registrant's telephone number, including area code | |||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Class A Common Stock, par value $0.0001 per share | SKIN | The Nasdaq Capital Market | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 5, 2022, there were 150,877,489 shares of Class A Common Stock, par value $0.0001 per share issued and outstanding.
THE BEAUTY HEALTH COMPANY
FORM 10-Q FOR THE QUARTER ENDED 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
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, 2022 | December 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 | 79,918 | 46,824 | |||||||||
| Prepaid expenses and other current assets | 20,336 | 12,322 | |||||||||
| Income tax receivable | 1,008 | 4,599 | |||||||||
| Inventories | 73,526 | 35,261 | |||||||||
| Total current assets | 995,758 | 1,000,892 | |||||||||
| Property and equipment, net | 18,041 | 16,183 | |||||||||
| Right-of-use assets, net | 15,791 | 14,992 | |||||||||
| Intangible assets, net | 51,202 | 56,010 | |||||||||
| Goodwill | 124,033 | 123,694 | |||||||||
| Deferred income tax assets, net | 312 | 330 | |||||||||
| Other assets | 9,823 | 6,705 | |||||||||
| TOTAL ASSETS | $ | 1,214,960 | $ | 1,218,806 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 36,830 | $ | 29,049 | |||||||
| Accrued payroll-related expenses | 27,786 | 28,662 | |||||||||
| Other accrued expenses | 15,385 | 14,722 | |||||||||
| Lease liabilities, current | 4,547 | 3,712 | |||||||||
| Income tax payable | 2,510 | 292 | |||||||||
| Total current liabilities | 87,058 | 76,437 | |||||||||
| Lease liabilities, non-current | 13,116 | 12,781 | |||||||||
| Deferred income tax liabilities, net | 3,844 | 3,561 | |||||||||
| Warrant liabilities | 26,579 | 93,816 | |||||||||
| Convertible senior notes, net | 732,028 | 729,914 | |||||||||
| TOTAL LIABILITIES | 862,625 | 916,509 | |||||||||
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’ equity | 352,335 | 302,297 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,214,960 | $ | 1,218,806 | |||||||
The accompanying notes are an integral part of these unaudited financial statements.
3
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, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net sales | $ | 103,536 | $ | 66,508 | $ | 178,951 | $ | 114,050 | |||||||||||||||
| Cost of sales | 31,882 | 19,257 | 55,360 | 35,059 | |||||||||||||||||||
| Gross profit | 71,654 | 47,251 | 123,591 | 78,991 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling and marketing | 44,881 | 26,214 | 81,288 | 43,309 | |||||||||||||||||||
| Research and development | 2,601 | 2,988 | 4,831 | 4,440 | |||||||||||||||||||
| General and administrative | 27,585 | 44,402 | 53,846 | 55,213 | |||||||||||||||||||
| Total operating expenses | 75,067 | 73,604 | 139,965 | 102,962 | |||||||||||||||||||
Loss from operations | (3,413) | (26,353) | (16,374) | (23,971) | |||||||||||||||||||
| Other (income) expense: | |||||||||||||||||||||||
| Interest expense, net | 3,217 | 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), net | 2,206 | (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 | |||||||||||||||||||
| Diluted | 151,719,451 | 91,798,837 | 152,274,394 | 63,805,807 | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
4
THE BEAUTY HEALTH COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except for share amounts)
(Unaudited)
| Legacy Common Stock | Legacy Preferred Stock | Common Stock | Additional Paid-in Capital | Note Receivable from Stockholder | Accumulated other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2020 | 54,358 | $ | — | 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 | ||||||||||||||||||||||||||||||||||||||||||||||
5
THE BEAUTY HEALTH COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| 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 equipment | 3,268 | 1,418 | |||||||||
| Amortization of capitalized software | 903 | 626 | |||||||||
| Provision for doubtful accounts | 435 | 646 | |||||||||
| Non-cash lease expense | 2,282 | — | |||||||||
| Amortization of intangible assets | 6,468 | 5,229 | |||||||||
| Amortization of other assets | 280 | 66 | |||||||||
| Amortization of deferred financing costs | — | 2,806 | |||||||||
| Stock-based compensation | 13,427 | 3,542 | |||||||||
| Loss on sale and disposal of assets | 988 | — | |||||||||
| 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 costs | 2,114 | — | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (34,410) | (21,089) | |||||||||
| Prepaid expense and other current assets | (9,374) | (1,562) | |||||||||
| Income taxes receivable | 4,165 | 333 | |||||||||
| Inventory | (39,234) | (229) | |||||||||
| Other assets | (2,634) | 730 | |||||||||
| Accounts payable | 7,675 | (2,369) | |||||||||
| Accrued payroll and other expenses | 385 | 9,047 | |||||||||
| Other long-term liabilities | — | (87) | |||||||||
| Lease liabilities | (1,972) | — | |||||||||
| Income taxes payable | 2,227 | 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 period | 901,886 | 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.
6
THE BEAUTY HEALTH COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
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 acquisition | 500 | — | |||||||||
| Common stock issued for business acquisitions | — | 1,557 | |||||||||
| Cash (received) paid for income taxes | (2,967) | 96 | |||||||||
| Capital expenditures included in accounts payable | 404 | 1,440 | |||||||||
| Change in deferred tax liability due to reverse recapitalization | — | 90 | |||||||||
The accompanying notes are an integral part of these unaudited financial statements.
7
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 — PIPE | 350,000 | ||||
| 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 Combination | 46,000,000 | ||||
| Less: Redemption of Vesper Class A Common Stock | (2,672,690) | ||||
| Class A common stock of Vesper | 43,327,310 | ||||
| Founder shares (Vesper Class B Common Stock) | 11,500,000 | ||||
| PIPE Shares | 35,000,000 | ||||
| Business Combination and PIPE shares | 89,827,310 | ||||
Legacy HydraFacial shares (1) | 35,501,743 | ||||
| Working capital adjustment Class A Common Stock issued | 70,860 | ||||
| Total Shares of Class A Common Stock after Business Combination | 125,399,913 | ||||
(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 seller | 1,027 | 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 agreement | 100 | 60 | 588 | 100 | |||||||||||||||||||
| Customer relationships | 2,696 | 2,276 | 5,487 | 2,700 | |||||||||||||||||||
| Inventory and other assets | 354 | 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 assets | 2,738 | 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) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Net Sales | |||||||||||||||||||||||
Delivery Systems | $ | 64,783 | $ | 34,944 | $ | 106,430 | $ | 60,616 | |||||||||||||||
| Consumables | 38,753 | 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, 2022 | December 31, 2021 | |||||||||
| Raw materials | $ | 19,008 | $ | 12,024 | |||||||
| Finished goods | 54,518 | 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, 2022 | December 31, 2021 | |||||||||
| Accrued compensation | $ | 10,935 | $ | 15,262 | |||||||
| Accrued payroll taxes | 2,448 | 922 | |||||||||
| Accrued benefits | 3,976 | 3,022 | |||||||||
| Accrued sales commissions | 10,427 | 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, 2022 | December 31, 2021 | |||||||||
| Sales and VAT tax payables | $ | 5,840 | $ | 5,817 | |||||||
| Accrued interest | 2,344 | 2,786 | |||||||||
| Contingent consideration | — | 783 | |||||||||
| Note payable due seller | 2,125 | 2,153 | |||||||||
| Royalty liabilities | 1,024 | 1,074 | |||||||||
| Other | 4,052 | 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 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| 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 accounted for as liabilities in accordance with ASC 815-40 and are presented within Warrant liabilities on the Company’s Condensed Consolidated Balance Sheets. The Warrants are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss). At June 30, 2022, the outstanding Private Placement Warrants was determined using their redemption value because these 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 instruments as of June 30, 2022. There were no Public Warrants outstanding as of June 30, 2022.
On October 4, 2021, the Company issued a press release stating that it would redeem all of the Public Warrants that remained outstanding following 5:00 p.m. New York City time on November 3, 2021, for a redemption price of $0.10 per Public Warrant. All 16.2 million outstanding Public Warrants were either exercised for cash or on a cashless basis or were redeemed. These outstanding Public Warrants that were exercised comprised 15.3 million Public Warrants issued in connection with the Vesper initial public offering and an additional 0.9 million warrants that became Public Warrants due to the sale of Private Placement Warrants. Approximately 16.1 million Public Warrants were exercised for cash at an exercise price of $11.50 per share of Class A Common Stock, 74,104 Public Warrants were exercised on a cashless basis in exchange for an aggregate of 26,732 shares of Class A Common Stock, and 75,016 warrants were redeemed for $0.10 per warrant, in each case in accordance with the terms of the Warrant Agreement. In 2021, total cash proceeds generated from exercises of the Public Warrants were $185.4 million. In addition, 0.3 million Private Placement Warrants were exercised in 2021 for total cash proceeds of $3.0 million. As of June 30, 2022, the Company had approximately 7 million Private Placement Warrants outstanding.
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Note 8 – Property and Equipment, net
Property and equipment consist of the following as of the periods indicated:
| (in thousands) | Useful life (years) | June 30, 2022 | December 31, 2021 | ||||||||||||||
| Furniture and fixtures | 2-7 | $ | 4,891 | $ | 4,074 | ||||||||||||
| Computers and equipment | 3-5 | 4,975 | 4,010 | ||||||||||||||
| Machinery and equipment | 2-5 | 5,288 | 3,669 | ||||||||||||||
| Autos and trucks | 5 | 1,184 | 1,163 | ||||||||||||||
| Tooling | 5 | 1,837 | 1,389 | ||||||||||||||
| Leasehold improvements | Shorter of remaining lease term or estimated useful life | 10,438 | 5,086 | ||||||||||||||
| Total property and equipment | 28,613 | 19,391 | |||||||||||||||
| Less: accumulated depreciation and amortization | (11,434) | (8,561) | |||||||||||||||
| Construction in progress | 862 | 5,353 | |||||||||||||||
| Property and equipment, net | $ | 18,041 | $ | 16,183 | |||||||||||||
Depreciation expense was as follows for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Cost of sales | $ | 591 | $ | 321 | $ | 1,005 | $ | 626 | |||||||||||||||
| General and administrative | 861 | 407 | 1,536 | 792 | |||||||||||||||||||
| Selling and marketing | 400 | — | 727 | — | |||||||||||||||||||
| Total depreciation expense | $ | 1,852 | $ | 728 | $ | 3,268 | $ | 1,418 | |||||||||||||||
Note 9 – Goodwill and Intangible Assets, net
The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of June 30, 2022 were as follows:
| (in thousands) | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Estimated Useful Life (Years) | |||||||||||||||||||
| Trademarks | $ | 10,012 | $ | (3,781) | $ | 6,231 | 15 | ||||||||||||||||
| Non-compete agreement | 758 | (538) | 220 | 3 | |||||||||||||||||||
| Customer relationships | 17,821 | (5,607) | 12,214 | 5-10 | |||||||||||||||||||
| Developed technology | 73,188 | (49,610) | 23,578 | 3-8 | |||||||||||||||||||
| Patents | 2,034 | (355) | 1,679 | 3-19 | |||||||||||||||||||
| Capitalized software | 11,154 | (3,874) | 7,280 | 3-5 | |||||||||||||||||||
| Total intangible assets | $ | 114,967 | $ | (63,765) | $ | 51,202 | |||||||||||||||||
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The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of December 31, 2021 were as follows:
| (in thousands) | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Estimated Useful Life (Years) | |||||||||||||||||||
| Trademarks | $ | 10,048 | $ | (3,442) | $ | 6,606 | 15 | ||||||||||||||||
| Non-compete agreement | 809 | (139) | 670 | 3 | |||||||||||||||||||
| Customer relationships | 18,625 | (4,391) | 14,234 | 5-10 | |||||||||||||||||||
| Developed technology | 70,900 | (45,051) | 25,849 | 8 | |||||||||||||||||||
| Patents | 2,050 | (295) | 1,755 | 3-19 | |||||||||||||||||||
| Capitalized software | 9,867 | (2,971) | 6,896 | 3-5 | |||||||||||||||||||
| Total intangible assets | $ | 112,299 | $ | (56,289) | $ | 56,010 | |||||||||||||||||
Amortization expense was as follows for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Cost of sales | $ | 2,378 | $ | 2,233 | $ | 4,619 | $ | 4,464 | |||||||||||||||
| General and administrative | 796 | 466 | 1,498 | 968 | |||||||||||||||||||
| Selling and marketing | 619 | 235 | 1,254 | 423 | |||||||||||||||||||
| Total amortization expense | $ | 3,793 | $ | 2,934 | $ | 7,371 | $ | 5,855 | |||||||||||||||
The changes in the carrying value of goodwill are as follows:
| Six Months Ended June 30, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Beginning balance | $ | 123,694 | $ | 98,531 | |||||||
| Measurement period adjustments | 2,154 | 4,766 | |||||||||
| Foreign currency translation impact | (1,815) | (197) | |||||||||
| Ending balance | $ | 124,033 | $ | 103,100 | |||||||
The measurement period adjustments include a $0.2 million increase due to adjustment of acquisition date tax liability for Ecomedic and a $1.98 million increase due to contingent consideration paid to former owner of Sidermica during the six months ended June 30, 2022.
Note 10 – Long-term Debt
Credit Facility
On December 30, 2021, Edge Systems LLC, a California limited liability company (the “Borrower”) and an indirect wholly owned subsidiary of The Beauty Health Company, as borrower, entered into a Credit Agreement (the “Credit Agreement”) with Edge Systems Intermediate LLC, an indirect wholly owned subsidiary of the Company and the direct parent of the Borrower that holds the Company’s foreign and domestic operating entities, and The Hydrafacial Company Mexico Holdings, LLC, a direct wholly owned subsidiary of the Borrower that conducts the Mexican business operations , as guarantors (the “Guarantors” and, together with the Borrower, the “Loan Parties”), and JPMorgan Chase Bank, N.A., as administrative agent.
The Credit Agreement provides for a $50 million revolving credit facility with a maturity date of December 30, 2026. In addition, the Borrower 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 million, subject to receipt of lender commitments and certain conditions precedent. As of June 30, 2022 the Credit Agreement remains undrawn and there is no outstanding balance under the revolving credit facility.
Borrowings under the Credit Agreement are secured by certain collateral of the Loan Parties and are guaranteed by the Guarantors, each of whom will derive substantial benefit from the revolving credit facility. In specified circumstances, additional guarantors are required to be added. The Credit Agreement contains various restrictive covenants subject to certain exceptions, including limitations on the Borrower’s ability to incur indebtedness and certain liens, make certain investments,
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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 June 30, 2022 the Company was in compliance with all restricted and financial covenants.
The leverage ratio also determines pricing under the Credit Agreement. At the Borrower’s option, borrowings under the revolving credit facility accrue interest at a rate equal to either LIBOR or a specified base rate plus an applicable margin. The applicable margin is linked to the leverage ratio. The margins range from 2.00% to 2.50% per annum for LIBOR loans and 1.00% to 1.50% per annum for base rate loans. The revolving credit facility is subject to a commitment fee payable on the unused revolving credit facility commitments ranging from 0.25% to 0.35%, depending on the Borrower’s leverage ratio. As of June 30, 2022 the Company’s unused commitment rate was 0.25%. The Borrower is also required to pay certain fees to the administrative agent and letter of credit issuers under the revolving credit facility. During the term of the revolving credit facility, the Borrower may borrow, repay and re-borrow amounts available under the revolving credit facility, subject to voluntary reductions of the swing line, letter of credit and revolving credit commitments.
Convertible Senior Notes
On September 14, 2021, the Company issued an aggregate of $750 million in principal amount of its 1.25% Convertible Senior Notes due 2026 (the “Notes”). The Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of September 14, 2021, between the Company and U.S. Bank National Association, as trustee. Pursuant to the purchase agreement between the Company and the initial purchasers of the Notes, the Company granted the initial purchasers an option to purchase, for settlement within a period of 13 days from, and including, the date the Notes were first issued, up to an additional $100 million principal amount of Notes. The Notes issued on September 14, 2021 include the $100 million principal amount of Notes issued pursuant to the full exercise by the initial purchasers of such option.
The Notes are the Company’s senior, unsecured obligations and are (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries.
The Notes accrue interest at a rate of 1.25% per annum, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022. The Notes mature on October 1, 2026, unless earlier repurchased, redeemed or converted. Before April 1, 2026, noteholders have the right to convert their Notes only upon the occurrence of certain events. From and after April 1, 2026, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate is 31.4859 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $31.76 per share of common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.
The Notes are redeemable, in whole or in part (subject to certain limitations described below), at the Company’s option at any time, and from time to time, on or after October 6, 2024, and on or before the 40th scheduled trading day immediately before the maturity date, but only if certain liquidity conditions are satisfied and the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. However, the Company may not redeem less than all of the outstanding notes unless at least $100.0 million aggregate principal amount of notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice. The redemption price will be a cash amount equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling any Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.
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If certain corporate events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock.
The Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of interest on the Notes, will be subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the Indenture within specified periods of time; (iii) the Company’s failure to convert a Note upon the exercise of the conversion right with respect to such Note, subject to a three business-day cure period; (iv) the Company’s failure to comply with certain covenants in the Indenture relating to the Company’s ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (v) a default by the Company in its other obligations or agreements under the Indenture or the Notes if such default is not cured or waived within 60 days after notice is given in accordance with the Indenture; (vi) certain defaults by the Company or any of its subsidiaries with respect to indebtedness for money borrowed of at least $45,000,000; (vii) the rendering of certain judgments against the Company or any of its significant subsidiaries for the payment of at least $45,000,000, where such judgments are not discharged or stayed within 60 days after the date on which the right to appeal has expired or on which all rights to appeal have been extinguished and (viii) certain events of bankruptcy, insolvency and reorganization involving the Company or any of its significant subsidiaries.
If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company (and not solely with respect to a significant subsidiary of the Company) occurs, then the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least 25% of the aggregate principal amount of Notes then outstanding, by notice to the Company and the Trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 1.00% on the principal amount of the Notes.
The Notes were issued to the initial purchasers of such Notes in transactions not involving any public offering in reliance upon Section 4(a)(2) of the Securities Act. The Notes were resold by the initial purchasers to persons whom the initial purchasers reasonably believe are “qualified institutional buyers,” as defined in, and in accordance with, Rule 144A under the Securities Act.
The total amount of debt issuance costs of $21.3 million was recorded as a reduction to “Convertible senior notes, net” in the Company’s Condensed Consolidated Balance Sheets and are being amortized as interest expense over the term of the Notes using the effective interest method. During the three and six months ended June 30, 2022, the Company recognized $1.1 million and $2.1 million in interest expense related to the amortization of the debt issuance costs related to the Notes, respectively. There was no such expense related to the Notes in the three and six months ended June 30, 2021.
The following is a summary of the Company’s Notes as of June 30, 2022:
| Fair Value | |||||||||||||||||||||||||||||
| (in thousands) | Principal Amount | Unamortized Issuance Costs | Net Carrying Value | Amount | Level | ||||||||||||||||||||||||
1.25% Convertible Notes due 2026 | $ | 750,000 | $ | 17,972 | $ | 732,028 | $ | 602,250 | Level 2 | ||||||||||||||||||||
The Notes are carried at face value less the unamortized debt issuance costs on the Company’s Consolidated Balance Sheets. As of June 30, 2022, the estimated fair value of the Notes was approximately $602 million. The estimated fair value of the Notes was determined based on the actual bid price of the Notes on June 30, 2022.
As of June 30, 2022, the remaining life of the Notes is approximately 4.3 years.
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Capped Call Transactions
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 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 (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 approximately $90.2 million.
The Capped Call Transactions are separate transactions, each between the Company and the applicable Option Counterparty, and are not part of the terms of the Notes and do not affect any holder’s rights under the Notes or the Indenture. Holders of the Notes will not have any rights with respect to the Capped Call Transactions.
Business Combination
In connection with the Closing of the Business Combination, all of HydraFacial’s existing debt under its credit facilities were repaid and its credit facilities were extinguished. The related write-off of the deferred financing costs totaled $2.3 million and prepayment penalties totaled $2.0 million in 2021. Both are included in the Other expense (income), net on the Company’s Consolidated Statements of Comprehensive Income (Loss).
Deferred financing costs expense prior to the Closing of the Business Combination for the three and six months ended June 30, 2021 amounted to $0.1 million and $0.5 million and is included in Interest expense, net on the Company’s Consolidated Statements of Comprehensive Income (Loss).
Note 11 – Income Taxes
The income tax expense for the three months and six months ended June 30, 2022 is $0.1 million and $2.7 million, respectively
The income tax benefit for the three and six months ended June 30, 2021 is $1.9 million and $2.2 million, respectively.
The effective tax rate for the three and six months ended June 30, 2022 is 0.95% and 6.24%, which is lower than the federal statutory rate of 21.0% primarily due to the exclusion of book income from the revaluation of warrant liabilities and adjustments for various non-deductible expenses for officer’s compensation and meals and entertainment.
The effective tax rate for the three and six months ended June 30, 2021 is 1.32% and 1.50%, which is lower than the federal statutory rate of 21.0% primarily due to the increase in valuation allowance and non-deductible expense related to stock-based compensation and meals and entertainment.
The Company has established a valuation allowance against a portion of its remaining deferred tax assets because it is more likely than not that certain deferred tax assets will not be realized. In determining whether deferred tax assets are realizable, the Company considered numerous factors including historical profitability, the amount of future taxable income and the existence of taxable temporary differences that can be used to realize deferred tax assets.
Additionally, the Company applies ASC 740, the accounting standard governing uncertainty in income taxes that prescribes rules for recognition, measurement and classification in the financial statements of tax positions taken or expected to be taken in a tax return. The Company has gross unrecognized tax benefits of $0.2 million and $0.1 million for the six months ended June 30, 2022 and June 30, 2021, respectively.
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On March 11, 2021 the United States enacted the American Rescue Plan Act of 2021 (“American Rescue Plan”). The American Rescue Plan includes various income and payroll tax measures. The Company does not expect a material impact of the American Rescue Plan on the Company’s Condensed Consolidated Financial Statements and related disclosures.
Note 12 – Equity-Based Compensation
Compensation expense attributable to net stock-based compensation was as follows for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Cost of sales | 207 | 150 | 433 | 152 | |||||||||||||||||||
| Selling and marketing | 2,019 | 343 | 4,833 | 349 | |||||||||||||||||||
| Research and development | 277 | 33 | 387 | 33 | |||||||||||||||||||
| General and administrative | 3,875 | 2,982 | 7,774 | 3,008 | |||||||||||||||||||
| Stock-based compensation expense | $ | 6,378 | $ | 3,508 | $ | 13,427 | $ | 3,542 | |||||||||||||||
Restricted Stock Units (“RSUs”) and Performance-based restricted stock units (“PSUs”)
The following table summarizes the Company’s equity award activity for the six months ended June 30, 2022:
| Weighted Average Grant Date Fair Value | ||||||||||||||||||||||||||
| RSUs | PSUs | RSUs | PSUs | |||||||||||||||||||||||
Outstanding - January 1, 2022 | 380,775 | 975,000 | $ | 25.88 | $ | 11.39 | ||||||||||||||||||||
| Granted | 2,501,324 | 1,488,770 | 13.82 | 10.02 | ||||||||||||||||||||||
| Vested | (122,952) | — | 24.27 | — | ||||||||||||||||||||||
| Forfeited | (227,889) | (209,738) | 15.76 | 14.30 | ||||||||||||||||||||||
Outstanding - June 30, 2022 | 2,531,258 | 2,254,032 | 14.95 | 10.22 | ||||||||||||||||||||||
The following table summarizes the Company’s stock option activity for the six months ended June 30, 2022:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||||||||||||
Outstanding - January 1, 2022 | 6,785,020 | $ | 15.64 | |||||||||||||||||||||||
| Granted | 10,500 | 22.68 | ||||||||||||||||||||||||
| Exercised | — | — | ||||||||||||||||||||||||
| Unvested Forfeited | (813,850) | 17.78 | ||||||||||||||||||||||||
Outstanding - June 30, 2022 | 5,981,670 | $ | 15.36 | 8.89 | $ | (14,967) | ||||||||||||||||||||
| Options Exercisable | 1,227,750 | $ | 13.45 | 8.60 | $ | (727) | ||||||||||||||||||||
| Options vested and expected to vest - June 30, 2022 | 5,981,670 | $ | 15.36 | 8.89 | $ | (14,967) | ||||||||||||||||||||
Note 13 – Commitments and Contingencies
From time to time the Company may be involved in claims, legal actions and governmental proceedings that arise from its business operations. As of June 30, 2022, the Company was not a party to any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, that it believes would have a material adverse effect on its business, financial condition or results of operations.
Note 14 – Concentrations
As of June 30, 2022, the Company had no customers that accounted for 10% or more of the Accounts receivable balance.
As of December 31, 2021, the Company had no customers that accounted for 10% or more of the Accounts receivable balance.
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No single customer accounted for 10% or more of consolidated Net sales during the three and six months ended June 30, 2022 and June 30, 2021.
Note 15 – Related-Party Transactions
Registration Rights Agreement
In connection with the consummation of the Business Combination, on May 4, 2021, the Company entered into that certain Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”) with BLS Investor Group LLC and the HydraFacial Stockholders.
Pursuant to the terms of the Registration Rights Agreement, (i) any outstanding share of Class A Common Stock or any other equity security (including the Private Placement Warrants and including shares of Class A Common Stock issued or issuable upon the exercise of any other equity security) of the Company held by the Sponsor or the HydraFacial Stockholders (together, the “Restricted Stockholders”) as of the date of the Registration Rights Agreement or thereafter acquired by a Restricted Stockholder (including the shares of Class A Common Stock issued upon conversion of the 11,500,000 Founder Shares that were owned by the Sponsor and converted to shares of Class A Common Stock prior in connection with the Business Combination and upon exercise of any Private Placement Warrants) and shares of Class A Common Stock issued as earn-out shares to the HydraFacial Stockholders and (ii) any other equity security of the Company issued or issuable with respect to any such share of common stock by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise will be entitled to registration rights.
The Registration Rights Agreement provides that the Company will, within 60 days after the consummation of the Business Combination, file with the SEC a shelf registration statement registering the resale of the shares of common stock held by the Restricted Stockholders and will use its reasonable best efforts to have such registration statement declared effective as soon as practicable after the filing thereof, but in no event later than 60 days following the filing deadline. The Company filed such registration statement on July 19, 2021 and it was declared effective by the SEC on July 26, 2021. The HydraFacial Stockholders are entitled to make up to an aggregate of two demands for registration, excluding short form demands, that the Company register shares of common stock held by these parties. In addition, the Restricted Stockholders have certain “piggy-back” registration rights. The Company will bear the expenses incurred in connection with the filing of any registration statements filed pursuant to the terms of the Registration Rights Agreement. The Company and the Restricted Stockholders agree in the Registration Rights Agreement to provide customary indemnification in connection with any offerings of common stock effected pursuant to the terms of the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, the Sponsor agreed to restrictions on the transfer of their securities issued in the Company’s initial public offering, which (i) in the case of the Founder Shares is one year after the completion of the Business Combination unless (A) the closing price of the common stock equals or exceeds $12.00 per share for 20 days out of any 30-trading-day period commencing at least 150 days following the Closing of the Business Combination or (B) the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property, and (ii) in the case of the Private Placement Warrants and the respective Class A Common Stock underlying the Private Placement Warrants is 30 days after the completion of the Business Combination. The Sponsor and its permitted transferees will also be required, subject to the terms and conditions in the Registration Rights Agreement, not to transfer their Private Placement Warrants (as defined in the Registration Rights Agreement) or shares of common stock issuable upon the exercise thereof for 30 days following the Closing.
Investor Rights Agreement
In connection with the consummation of the Business Combination, on May 4, 2021, the Company and LCP Edge Holdco, LLC entered into that certain Investor Rights Agreement (the “Investor Rights Agreement”). Pursuant to the Investor Rights Agreement, LCP has the right to designate a number of directors for appointment or election to the Company’s board of directors as follows: (i) one director for so long as LCP holds at least 10% of the outstanding Class A Common Stock, (ii) two directors for so long as LCP holds at least 15% of the outstanding Class A Common Stock, and (iii) three directors for so long as LCP holds at least 40% of the outstanding Class A Common Stock. Pursuant to the Investor Rights Agreement, for so long as LCP holds at least 10% of the outstanding Class A Common Stock, LCP will be entitled to have at least one of its designees represented on the compensation committee and nominating committee and corporate governance committee of the Company’s board of directors.
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Amended and Restated Management Services Agreement
HydraFacial entered into a Management Services Agreement, dated December 1, 2016 with Linden Capital Partners III LP (“Linden Capital Partners III”) and DW Management Services, L.L.C. (“DW Management Services”) pursuant to which the parties receive quarterly monitoring fees of the greater of (a) $125,000 and (b) 1.25% of Last Twelve Months EBITDA multiplied by the quotient of (x) the aggregate capital invested by the investors of DW Healthcare Partners IV (B), L.P. (“DWHP Investors”) into LCP and/or its subsidiaries as of such date, divided by (y) the sum of (i) the aggregate capital invested by the DWHP Investors into LCP and/or its subsidiaries, plus (ii) the aggregate capital invested by Linden Capital Partners III into LCP and/or its subsidiaries as of the date of payment. In addition, the management services agreement provides for other fees in relation to services that may be provided in connection with equity and/or debt financing, acquisition of any other business, company, product line or enterprise, or divestiture of any division, business, and product or material assets. The fees vary between 1% and 2% of the related transaction amount. Linden Capital Partners III also received a transaction fee upon the consummation of the Business Combination.
In connection with the consummation of the Business Combination, on May 4, 2021, the Company, its subsidiary, Edge Systems LLC, and Linden Capital III LLC, the general partner of Linden Manager III LP (the “Linden Manager”) entered into an Amended and Restated Management Services Agreement (the “Linden Management Services Agreement”) pursuant to which the Linden Manager may continue to provide advisory services at the request of the Company related to mergers and acquisitions for one year following the Business Combination. As consideration for such services, the Company will pay a fee, equal to 1% of enterprise value of the target acquired, to the Linden Manager upon the consummation of any such transaction (the “1% Fee”). The Company has also agreed to reimburse Linden Manager for certain expenses in connection with such advisory services. However, pursuant to the Linden Management Services Agreement, the Company’s obligation to pay the 1% Pursuant to the terms of the agreement, the fee expired twelve months after the consummation of the Business Combination on May 4, 2022.
HydraFacial recorded approximately $0.1 million of charges related to management services fees for the six months ended June 30, 2021. There were no management fees during the three and six months ended June 30, 2022. These amounts are included in General and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income (Loss). In relation to the consummation of the Business Combination, $21.0 million in transaction fees was paid to the Former Parent. These amounts are included in General and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income (Loss).
Miami Beach Office
The Company maintains an office in Miami Beach, Florida, whereby the Company, on a monthly basis, reimburses an entity owned by the Company’s Executive Chairman that makes such office available to the Company for its employees and affiliates. Expense for this property was not material for the six months ended June 30, 2022. No such expenses existed for the six months ended June 30, 2021.
Note 16 - Stockholders’ Deficit
Common Stock
The Company is authorized to issue 320,000,000 shares of Class A Common Stock, par value of $0.0001 per share. Holders of Class A Common Stock are entitled to one vote for each share. As of June 30, 2022 and December 31, 2021, there were 150,855,025 and 150,598,047, respectively, of Class A Common Stock issued and outstanding. The Class A Common Stock is entitled to one vote per share and all shares are outstanding. The Company has not declared or paid any dividends with respect to its Class A Common Stock.
In connection with the Business Combination on May 4, 2021, the Company issued 35,000,000 shares of Class A Common Stock to certain qualified institutional buyers and accredited investors that agreed to purchase such shares in connection with the Business Combination for aggregate consideration of $350 million. The Company also issued 35,501,743 shares of Class A Common Stock as partial compensation to the HydraFacial Stockholders for the Business Combination.
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Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At June 30, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.
Note 17 - Segment Reporting
The Company manages its business on the basis of one operating segment and one reportable segment. As a result, the chief operating decision maker, who is the Chief Executive Officer, decides how to allocate resources and assess performance, reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocates resources and evaluates financial performance.
Net sales by geographic region were as follows for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Americas | $ | 75,354 | $ | 42,660 | $ | 119,960 | $ | 73,940 | |||||||||||||||
| Asia-Pacific | 10,386 | 12,440 | 23,287 | 21,231 | |||||||||||||||||||
| Europe, the Middle East and Africa | 17,796 | 11,408 | 35,704 | 18,879 | |||||||||||||||||||
| Total net sales | $ | 103,536 | $ | 66,508 | $ | 178,951 | $ | 114,050 | |||||||||||||||
As of June 30, 2022 and December 31, 2021 substantially all of the Company’s property, plant and equipment were held in the United States.
Note 18 – Net Income (Loss) Attributable to Common Shareholders
The following table sets forth the calculation of both basic and diluted net income (loss) per share as follows for the periods indicated:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands, except share and per share amounts) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Net income (loss) available to common shareholders - basic | $ | 7,931 | $ | (139,378) | $ | 40,438 | $ | (142,652) | |||||||||||||||
| Plus: Income on Private placement warrants | (15,185) | — | (67,237) | — | |||||||||||||||||||
| Net income (loss) available to common shareholders - diluted | $ | (7,254) | $ | (139,378) | $ | (26,799) | $ | (142,652) | |||||||||||||||
Weighted average common shares outstanding - basic | 150,731,491 | 91,798,837 | 150,665,166 | 63,805,807 | |||||||||||||||||||
| Effect of dilutive shares: | |||||||||||||||||||||||
| Private placement warrants | 987,960 | — | 1,609,228 | — | |||||||||||||||||||
| Weighted average common shares outstanding - diluted | 151,719,451 | 91,798,837 | 152,274,394 | 63,805,807 | |||||||||||||||||||
| Basic net income (loss) per share: | $ | 0.05 | $ | (1.52) | $ | 0.27 | $ | (2.24) | |||||||||||||||
| Diluted net income (loss) per share | $ | (0.05) | $ | (1.52) | $ | (0.18) | $ | (2.24) | |||||||||||||||
The following shares have been excluded from the calculation of the weighted average diluted shares outstanding as the effect would have been anti-dilutive:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Convertible Notes | 23,614,425 | — | 23,614,425 | — | |||||||||||||||||||
| RSUs | 2,531,258 | — | 2,531,258 | — | |||||||||||||||||||
| PSUs | 2,254,032 | 129,231 | 2,254,032 | 64,972 | |||||||||||||||||||
| Stock Options | 5,981,670 | 4,769,062 | 5,981,670 | 2,411,280 | |||||||||||||||||||
| Public and Private Warrants | — | 15,450,549 | — | 7,767,956 | |||||||||||||||||||
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Note 19 – Subsequent Events
Other than as disclosed elsewhere, no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the accompanying notes.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Quarterly Report contains “forward looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements.
These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside The Beauty Health Company’s control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled Risk Factors of this filing.
Important factors, among others, that may affect actual results or outcomes include the inability to recognize the anticipated benefits of the Business Combination; costs related to the Business Combination; The Beauty Health Company’s availability of cash for debt service and exposure to risk of default under debt obligations; The Beauty Health Company’s ability to manage growth; The Beauty Health Company’s ability to execute its business plan; potential litigation involving The Beauty Health Company; changes in applicable laws or regulations; the possibility that The Beauty Health Company may be adversely affected by other economic, business, and/or competitive factors; and the impact of the continuing COVID-19 pandemic on our business. The Beauty Health Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 filed with the U.S. Securities and Exchange Commission (SEC) on May 10, 2022 and also with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 1, 2022.
Unless the context otherwise requires, references to “HydraFacial”, “we”, “us”, and “our” in this section are intended to mean the business and operations of The Beauty Health Company and its consolidated subsidiaries.
Company Overview
The Beauty Health Company is a global category-creating company focused on delivering beauty health experiences by reinventing our consumer’s relationship with their skin, their bodies and their self-confidence. Our flagship brand, HydraFacial, created the category of hydradermabrasion by using a patented Vortex-Fusion Delivery System to cleanse, peel, exfoliate, extract, infuse, and hydrate the skin with proprietary solutions and serums. HydraFacial provides a non-invasive and approachable experience with a powerful community of a/estheticians, consumers and partners, bridging medical skin correction to traditional over-the-counter beauty. Our vision is to expand our platform and connected community of providers, consumers, brand partners, and retail partners to democratize and personalize beauty health solutions across ages, genders, skin tones, and skin types.
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Factors Affecting Our Performance
Market Trends
HydraFacial is a pioneer in the attractive and growing beauty-health industry and there are several emerging market trends that we believe will play a key role in shaping the future of this industry. Recent growth in the skincare industry has been driven by an emphasis on skincare rather than cosmetics and HydraFacial is poised to capture a larger share of wallet from consumers. Further, HydraFacial’s market research conducted in 2019 demonstrated that consumers are increasingly willing to spend on high-end beauty health products. To the extent disposable income grows, we expect impacts of this trend to be amplified. We believe these favorable market trends will continue and strengthen going forward. However, we operate in the beauty health industry, which is highly competitive and changes rapidly. Our operating results could be significantly affected by our ability to develop new products and find new distribution channels for new and existing product.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has had, and may continue to have, adverse impacts on our business. Most markets have recently shown encouraging signs of emergence from the pandemic; however, sporadic containment measures and travel restrictions continue to impact volume trends in certain markets.
As previously reported, we have implemented several key measures in response to the COVID-19 pandemic which continue to be in place. We have also amplified our measures to address the potentially longer-lasting impacts of the COVID-19 pandemic, the intermittent lockdowns and possible economic uncertainty resulting from COVID-19 that continue in many markets. We anticipate the recovery to be non-linear until COVID-19 containment measures are discontinued across all regions and normal consumer traffic resumes on a consistent basis. We currently expect that any easing of containment measures and recovery of the impacted sectors of the economy will be gradual and uneven, as regions face resurgence of COVID-19 and related uncertainties, and the availability and widespread distribution of a safe and effective vaccine varies across regions. As a result, we anticipate that consumer spending habits and consumer confidence will continue to shift, causing future sales and volume trends to be non-linear.
Furthermore, 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.
Demographics
HydraFacial benefits from a large, young and diverse customer base and the ability to serve a large percentage of the population given that HydraFacial’s patented technology addresses all skin, regardless of type, tone, age or gender. At the intersection of the medical and consumer retail markets, the large potential customer base should provide significant upside to drive top-line growth. HydraFacial over indexes with males, significantly increasing the Total Addressable Market (TAM) compared to its peers. Based on a survey we conducted in 2022, we believe HydraFacial resonates strongly with Gen Z and Millennials, with over 50% of our consumers being 37 years old or younger. Millennial and Gen Z consumers appear to be taking skincare more seriously and are willing to invest in treatments such as those offered by HydraFacial.
Marketing
Effective marketing is vital to our ability to drive growth. We plan to further our successful demand-generating activities through educational campaigns that focus on our brand, values, and quality, as well as enhancing our digitally integrated media campaigns.
Innovation
Our strategy involves innovating our current product offering while also diversifying into attractive adjacent categories where we can leverage our strengths, capabilities and community. We intend to maintain investment in research and development to stay at the forefront of cutting-edge technology.
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Technology
Our investments in technology enhance the HydraFacial experience for consumers while capturing valuable and leverageable data. As we expand our capabilities, we hope to enable the world’s largest skin health database. We believe this data will allow us to drive habituation by enhancing personalization, access, trend identification and consumer education.
Geographic Expansion
HydraFacial’s recent growth has been driven in part by our international strategy. 27% of HydraFacial’s total revenue during the second quarter of fiscal year 2022 came from outside the United States and Canada. Our diverse distribution channels create a significant opportunity within our existing retail and wholesale channels, as well as new locations abroad. We plan to expand our global footprint, building out our team and infrastructure for further penetration across Asia, Europe and Latin America.
Regulation
It remains unclear how governmental authorities, including the Food and Drug Administration (“FDA”) and foreign government authorities, will regulate the products that we sell, and in the case of the FDA, whether and when it will propose or implement new or additional regulations. Unforeseen regulatory obstacles or compliance costs may hinder our business in both the short and long-term as well.
Key Operational and Business Metrics
In addition to the measures presented in our consolidated financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts, and make strategic decisions. Amounts and percentages may not foot due to rounding.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (dollars in millions) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Delivery Systems net sales | $ | 64.8 | $ | 34.9 | $ | 106.4 | $ | 60.6 | |||||||||||||||
| Consumables net sales | 38.8 | 31.6 | 72.5 | 53.4 | |||||||||||||||||||
| Total net sales | $ | 103.5 | $ | 66.5 | $ | 179.0 | $ | 114.1 | |||||||||||||||
| Gross profit | $ | 71.7 | $ | 47.3 | $ | 123.6 | $ | 79.0 | |||||||||||||||
| Gross margin | 69.2% | 71.0% | 69.1% | 69.3% | |||||||||||||||||||
| Net income (loss) | $ | 7.9 | $ | (139.4) | $ | 40.4 | $ | (142.7) | |||||||||||||||
| Adjusted net income (loss) | $ | 2.2 | $ | 7.8 | $ | (6.3) | $ | 7.7 | |||||||||||||||
| Adjusted EBITDA | $ | 12.6 | $ | 11.4 | $ | 14.9 | $ | 18.4 | |||||||||||||||
| Adjusted EBITDA margin | 12.2% | 17.1% | 8.3% | 16.1% | |||||||||||||||||||
| Adjusted gross profit | $ | 74.8 | $ | 49.8 | $ | 129.6 | $ | 84.1 | |||||||||||||||
| Adjusted gross margin | 72.3% | 74.9% | 72.4% | 73.8% | |||||||||||||||||||
Adjusted Net Income (Loss), Adjusted EBITDA (Loss) and Adjusted EBITDA Margin
Adjusted net income (loss), adjusted EBITDA (loss) and adjusted EBITDA margin are key performance measures that our management uses to assess our operating performance. See the section titled “Non-GAAP Financial Measures—adjusted net income (loss), adjusted EBITDA (loss) and adjusted EBITDA margin” for information regarding our use of adjusted net income (loss) and adjusted EBITDA and reconciliations of adjusted net income (loss) and adjusted EBITDA to net loss.
Adjusted Gross Profit and Adjusted Gross Margin
We use adjusted gross profit and adjusted gross margin to measure our profitability and ability to scale and leverage the costs of our Delivery Systems and Consumables sales. See the section titled “Non-GAAP Financial Measures—adjusted gross profit and adjusted gross margin” for information regarding our use of adjusted gross profit and a reconciliation of adjusted gross profit to gross profit.
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Comparison of Three Months Ended June 30, 2022 to Three Months Ended June 30, 2021
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 and six months ended June 30, 2022 and June 30, 2021 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.
| Three Months Ended June 30, | |||||||||||||||||||||||
| (in millions) | 2022 | % of Net Sales | 2021 | % of Net Sales | |||||||||||||||||||
| Net sales | $ | 103.5 | 100.0 | % | $ | 66.5 | 100.0 | % | |||||||||||||||
| Cost of sales | 31.9 | 30.8 | % | 19.3 | 29.0 | ||||||||||||||||||
| Gross profit | 71.7 | 69.2 | % | 47.3 | 71.0 | ||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Selling and marketing | 44.9 | 43.3 | 26.2 | 39.4 | |||||||||||||||||||
| Research and development | 2.6 | 2.5 | 3.0 | 4.5 | |||||||||||||||||||
| General and administrative | 27.6 | 26.6 | 44.4 | 66.8 | |||||||||||||||||||
| Total operating expenses | 75.1 | 72.5 | 73.6 | 110.7 | |||||||||||||||||||
| Income (loss) from operations | (3.4) | (3.3) | (26.4) | (39.6) | |||||||||||||||||||
| Other (income) expense, net | (11.4) | (11.0) | 114.9 | 172.8 | |||||||||||||||||||
| Income (loss) before provision for income tax | 8.0 | 7.7 | (141.2) | (212.4) | |||||||||||||||||||
| Income tax expense (benefit) | 0.1 | 0.1 | (1.9) | (2.8) | |||||||||||||||||||
| Net income (loss) | $ | 7.9 | 7.7 | % | $ | (139.4) | (209.6) | % | |||||||||||||||
Net Sales
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| Net sales | |||||||||||||||||||||||
Delivery Systems | $ | 64.8 | $ | 34.9 | $ | 29.9 | 85.4% | ||||||||||||||||
| Consumables | 38.8 | 31.6 | 7.2 | 22.8% | |||||||||||||||||||
| Total net sales | $ | 103.5 | $ | 66.5 | $ | 37.0 | 55.7% | ||||||||||||||||
| Percentage of net sales | |||||||||||||||||||||||
| Delivery Systems | 62.6% | 52.5% | |||||||||||||||||||||
| Consumables | 37.4% | 47.5% | |||||||||||||||||||||
| Total | 100.0% | 100.0% | |||||||||||||||||||||
Total net sales for the three months ended June 30, 2022 increased $37.0 million, or 55.7%, compared to the three months ended June 30, 2021. Delivery System sales for the three months ended June 30, 2022 increased $29.9 million, or 85.4%, compared to the three months ended June 30, 2021. Delivery Systems units sold for the three months ended June 30, 2022 increased primarily due to the strong demand for the Company’s new Syndeo delivery system.
There were 2,738 Delivery Systems units sold for the three months ended June 30, 2022, of which 1,203 were trade-ups. Consumables sales for the three months ended June 30, 2022 increased $7.2 million, or 22.8%, compared to the three months ended June 30, 2021. The increase in Consumables sales was primarily attributable to increased placements of delivery systems and the adjoining consumption of consumables during the three months ended June 30, 2022.
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Cost of Sales, Gross Profit, and Gross Margin
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| Cost of sales | $ | 31.9 | $ | 19.3 | $ | 12.6 | 65.6% | ||||||||||||||||
| Gross profit | $ | 71.7 | $ | 47.3 | $ | 24.4 | 51.6% | ||||||||||||||||
| Gross margin | 69.2 | % | 71.0 | % | |||||||||||||||||||
Cost of sales increased $12.6 million driven by and in conjunction with increased sales volume in delivery systems and consumables. Gross margin decreased from 71.0% during the three months ended June 30, 2021 to 69.2% during the three months ended June 30, 2022 primarily due to the shift in sales mix of delivery systems from 53% to 63% of sales in the period including lower margin trade-up units, along with higher supply chain and logistics costs. The Company expects continued headwinds from global supply chain challenges and inflationary pressures to weigh on gross margin through 2022, specifically higher shipping costs, offset by fixed cost leverage from higher sales volumes coupled with pricing initiatives, and margin accretion related to the acquired distributor inventory.
Operating Expenses
Sales and Marketing
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| Selling and marketing | $ | 44.9 | $ | 26.2 | $ | 18.7 | 71.2 | % | |||||||||||||||
| As a percentage of net sales | 43.3 | % | 39.4 | % | |||||||||||||||||||
Selling and marketing expense for the three months ended June 30, 2022 increased $18.7 million, or 71.2%, compared to the three months ended June 30, 2021. The overall increase as a percentage of net sales was driven by an increase in sales commissions of $3.3 million associated with higher revenue, an increase in personnel-related expenses of $5.8 million resulting from an increase in headcount, and an increase in stock-based compensation expense of $1.7 million. In addition, expenses related to training and travel expenses increased by $0.5 million due primarily to the launch of Syndeo and marketing spend increased by $5.3 million as we invested forward in Americas and EMEA in key tradeshows, GlowVolution and other marketing programs.
Research and Development
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| Research and development | $ | 2.6 | $ | 3.0 | $ | (0.4) | (13.0) | % | |||||||||||||||
| As a percentage of net sales | 2.5 | % | 4.5 | % | |||||||||||||||||||
Research and development expense for the three months ended June 30, 2022 decreased $0.4 million, or 13.0%, compared to the three months ended June 30, 2021. The decrease was primarily due to the shifting of investments from outside consultants that were offset by increased investments in personnel of $1.2 million and additional investments into our data infrastructure.
General and Administrative
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| General and administrative | $ | 27.6 | $ | 44.4 | $ | (16.8) | (37.9) | % | |||||||||||||||
| As a percentage of net sales | 26.6 | % | 66.8 | % | |||||||||||||||||||
General and administrative expense for the three months ended June 30, 2022 decreased $16.8 million, or 37.9%, compared to the three months ended June 30, 2021. This decrease is primarily attributable to a decrease in transaction costs of $27.6 million related to the consummation of the Business Combination. The decrease in transaction costs were offset by an increase of $0.9 million in stock-based compensation, $3.0 million in personnel-related expenses, $3.1 million in recruiting & other professional fees, and $1.1 million in legal fees which includes expenses related to litigating and enforcing patent and trademark infringement claims against third parties.
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Other (Income) Expense, Net and Income Tax Provision
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| Other (income) expense, net | $ | (11.4) | $ | 114.9 | $ | (126.3) | (109.9) | % | |||||||||||||||
| Income tax expense (benefit) | $ | 0.1 | $ | (1.9) | $ | 2.0 | (104.1) | % | |||||||||||||||
Other income, net was $11.4 million for the three months ended June 30, 2022 compared to other expense of $114.9 million for the three months ended June 30, 2021. The change was primarily driven by the changes in the fair values of our warrants and earn-out shares issued on July 15, 2021. During the three months ended June 30, 2022 the Company recognized other income of $15.2 million due to the change in the fair value of the warrant liabilities compared to an expense of $72.0 million for the three months ended June 30, 2021. In addition, during the three months ended June 30, 2021 the Company recognized a $36.5 million expense for the change in the fair value of the earn-out shares liability.
Comparison of Six Months Ended June 30, 2022 to Six Months Ended June 30, 2021
Amounts and percentages may not foot due to rounding
| Six Months Ended June 30, | |||||||||||||||||||||||
| (in millions) | 2022 | % of Net Sales | 2021 | % of Net Sales | |||||||||||||||||||
| Net sales | $ | 179.0 | 100.0 | % | $ | 114.1 | 100.0 | % | |||||||||||||||
| Cost of sales | 55.4 | 30.9 | 35.1 | 30.7 | |||||||||||||||||||
| Gross profit | 123.6 | 69.1 | 79.0 | 69.3 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Selling and marketing | 81.3 | 45.4 | 43.3 | 38.0 | |||||||||||||||||||
| Research and development | 4.8 | 2.7 | 4.4 | 3.9 | |||||||||||||||||||
| General and administrative | 53.8 | 30.1 | 55.2 | 48.4 | |||||||||||||||||||
| Total operating expenses | 140.0 | 78.2 | 103.0 | 90.3 | |||||||||||||||||||
| Loss from operations | (16.4) | (9.1) | (24.0) | (21.0) | |||||||||||||||||||
| Other expense (income), net | (59.5) | (33.3) | 120.9 | 106.0 | |||||||||||||||||||
| Income (loss) before provision for income tax | 43.1 | 24.1 | (144.8) | (127.0) | |||||||||||||||||||
| Income tax expense (benefit) | 2.7 | 1.5 | (2.2) | (1.9) | |||||||||||||||||||
| Net income (loss) | $ | 40.4 | 22.6 | % | $ | (142.7) | (125.1) | % | |||||||||||||||