UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022 

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

For the transition period from __________ to __________.

Commission File Number: 001-39565 

The Beauty Health Company

(Exact name of registrant as specified in its charter)

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.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	43
SIGNATURES

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

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

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.

8

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:

9

(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

10

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 $