What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-12 compared with 2023-03-01 · 573 added, 523 removed, 742 unchanged (60% of the section changed)

9 unchanged sentences

To the Stockholders and the Board of Directors of The Beauty Health Company

Long Beach, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Beauty Health Company and its consolidated subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income (loss), stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

We have audited the accompanying consolidated balance sheets of The Beauty Health Company and its subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of comprehensive income (loss), stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2024, expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

As discussed in Note 1 and Note 3 to the financial statements, the Company consummated a merger on May 4, 2021, which has been accounted for as a reverse recapitalization.

The Company’s common stock was adjusted retroactively to give effect to the exchange ratio.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounts Receivable:

Allowance for Estimated Credit Losses — Refer to Note 2 to the financial statements

Critical Audit Matter Description

The allowance for estimated credit losses represents management's best estimate of probable credit losses in accounts receivable.

The allowance is based upon a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the specific customer’s ability to pay its obligation and any other forward-looking data regarding certain customers’ ability to pay which may be available.

Given the significant judgments made by management in estimating its allowance for credit losses related to certain distributors in foreign jurisdictions impacted by COVID-19, performing audit procedures to evaluate the reasonableness of the allowance

for estimated credit losses for certain distributors required a high degree of auditor judgment and an increased extent of effort in evaluating the audit evidence obtained.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to testing the Company's allowance for estimated credit losses for certain distributors in foreign jurisdictions included the following, among others:

• We tested the effectiveness of the control over management’s assessment used to evaluate the allowance for estimated credit losses.

• We evaluated historical payment history and tested the accuracy of payments received from these distributors.

• We confirmed amounts outstanding from these distributors, including confirming their intent and ability to pay.

• We searched for contradictory information regarding the creditworthiness and ability of these distributors to pay outstanding amounts.

Common Stock Repurchases:

Accelerated Share Repurchases — Refer to Note 17 to the financial statements

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Syndeo Program Reserve — Refer to Note 18 to the financial statements

Critical Audit Matter Description

On September 27, 2022 and November 9, 2022, the Company entered into two accelerated share repurchase agreements with a financial institution to repurchase a total of $200 million of Class A Common Stock.

The total number of shares that will be received under the accelerated share repurchase agreements will be based upon the average daily volume weighted average price of the Company’s Class A Common Stock during the repurchase periods, less an agreed upon discount.

The accelerated share repurchase agreements are accounted for as a repurchase and retirement of shares and as equity forward contracts indexed to the Company’s Class A Common Stock.

The equity forward contracts are classified as an equity instrument under ASC 815-40, Contracts in Entity's Own Equity.

The Company’s evaluation of the classification of the accelerated share repurchases was complex due to the significant accounting judgments made by management in the application of accounting guidance.

Auditing these judgments required specialized knowledge and experienced individuals given the complexity of the accounting treatment associated with the accelerated share repurchases.

The Company has accrued $21 million as of December 31, 2023, for the estimated cost for its remediation plan to upgrade or replace customer Syndeo 1.0 or 2.0 devices to meet the Syndeo 3.0 device standard.

The cost of the remediation program is based upon a number of estimates, including the customer response rate, the assumed method of remediation, and the cost of remediation, which include considerations such as the material and labor costs of upgrades and the manufacturing and logistics costs for replacement devices.

Given the significant judgments made by management in estimating the Syndeo Program Reserve, performing audit procedures to evaluate the reasonableness of the assumptions and estimates used by management required a high degree of auditor judgment and an increased extent of effort in evaluating the audit evidence obtained.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the accounting for the accelerated share repurchases included the following, among others:

• We tested the effectiveness of the controls over management's accounting assessment of the accelerated share repurchases and the review of related disclosures.

• With the assistance of professionals in our firm with expertise in accounting in financial instruments and common stock repurchases, we evaluated management's conclusions regarding the application of the appropriate accounting standards and compared the key terms from the accelerated share repurchase agreements to management's analysis.

• We evaluated the Company's disclosures of the accelerated share repurchases, including the related impacts to the financial statements, to ensure the proper recognition and measurement.

Our audit procedures related to testing the Company's Syndeo Program Reserve included the following, among others:

• We tested the effectiveness of the controls over management’s methodology and assumptions used in the Syndeo Program Reserve.

• We tested the completeness and accuracy of the underlying data, including the total devices subject to the program, actual customer participation to-date activity, including the method of remediation, and the costs used in the computation of management’s estimate.

• We obtained information from Company personnel who are responsible for monitoring the status of Syndeo Program Reserve with customers to assess the reasonableness of assumptions used in the calculations.

• We evaluated the Company’s ability to estimate by comparing actual results to previous estimates and judgments made by management.

/s/ Deloitte & Touche LLP

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54,697 76,494

Prepaid expenses and other current assets 26,698 12,322

Income tax receivable 1,280 4,599

Inventories 91,321 109,656

Income tax receivable 332 1,280

Prepaid expenses and other current assets 28,877 27,648

Total current assets 698,252 783,275

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Accrued payroll-related expenses 22,028 21,677

Other accrued expenses 15,183 14,722

Syndeo Program reserves

Lease liabilities, current 4,598 4,958

Income tax payable 2,759 1,429

Other accrued expenses 19,846 15,183

Total current liabilities 115,008 71,714

3 unchanged sentences

Convertible senior notes, net 738,372 734,143

Other long-term liabilities 2,767 —

Total liabilities

869,723 836,030

Commitments (Note 14)

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122,899,002 and 132,214,695 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

Preferred Stock, $ 0.0001 par value;

1,000,000 shares authorized;

no shares issued and outstanding at December 31, 2022 and December 31, 2021

Additional paid-in capital 541,281 550,320

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Total stockholders’ equity 59,390 167,053

LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,008,907 $ 1,218,806

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 929,113 $ 1,003,083

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

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( 130,917 ) ( 25,841 ) ( 39,928 )

Interest expense, net 13,392 11,777 21,275

Interest expense 13,649 13,392 11,777

Interest income ( 23,173 ) ( 9,175 ) ( 39 )

Other expense, net 1,650 4,489 47

Other (income) expense, net ( 5,200 ) 1,650 4,489

Change in fair value of warrant liabilities ( 11,919 ) ( 78,343 ) 277,315

Change in fair value of earn-out shares liability — 47,100 —

Change in fair value of earn-out shares — — 47,100

Foreign currency transaction (gain) loss, net ( 2,385 ) 1,296 69

Income (loss) before provision for income taxes

45,032 ( 377,350 ) ( 38,483 )

(Loss) income before provision for income taxes ( 101,889 ) 45,339 ( 380,639 )

Income tax (benefit) expense ( 1,773 ) 1,115 ( 1,875 )

Net income (loss)

$ 44,384 $ ( 375,108 ) $ ( 29,175 )

Comprehensive income (loss), net of tax:

Net (loss) income ( 100,116 ) 44,224 ( 378,764 )

Comprehensive (loss) income, net of tax:

Foreign currency translation adjustments 1,494 ( 3,273 ) ( 1,499 )

Comprehensive income (loss)

$ 41,111 $ ( 376,607 ) $ ( 29,096 )

Net income (loss) per share

Comprehensive (loss) income $ ( 98,622 ) $ 40,951 $ ( 380,263 )

Net (loss) income per share

$ ( 0.76 ) $ 0.30 $ ( 3.71 )

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(in thousands, except for share amounts)

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

Common Stock Additional Paid-in Capital Note Receivable from Stockholder Accumulated other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity (Deficit)

Shares Amount

BALANCE, December 31, 2020 35,501,743 $ 4 $ 13,952 $ ( 554 ) $ 242 $ ( 44,211 ) $ ( 30,567 )

Retroactive application of recapitalization ( 49,205 ) — ( 935 ) — 32,136,203 3 ( 3 ) — — — —

Adjusted balance, beginning of period — — — — 32,136,203 3 13,744 ( 554 ) 28 ( 14,429 ) ( 1,208 )

Issuance of shares — — — — 3,482,446 1 ( 1 ) — — — —

Repurchases of shares — — — — ( 116,906 ) — ( 154 ) — — — ( 154 )

Stock-based compensation — — — — — — 363 — — — 363

Net loss — — — — — ( 378,764 ) ( 378,764 )

Foreign currency translation adjustment — — — — — — — — 214 — 214

BALANCE, December 31, 2020 — $ — — $ — 35,501,743 $ 4 $ 13,952 $ ( 554 ) $ 242 $ ( 43,604 ) $ ( 29,960 )

Issuance of Class A Common Stock in connection with business acquisitions 590,099 — 9,341 — — — 9,341

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Issuance of Class A Common Stock pursuant to equity compensation plan 30,963 — — — — — —

Shares canceled for tax withholdings on vested restricted stock units — — — — ( 6,812 ) — — — — — —

Shares withheld for tax withholdings on vested stock awards ( 6,812 ) — — — — — —

Reverse recapitalization transaction, net 89,898,170 9 182,397 554 — — 182,960

Purchase of capped calls related to Convertible Senior Notes — — ( 90,150 ) — — — ( 90,150 )

Issuance of Class A Common Stock in connection with the Public and Private Warrant exercises — — — — 17,083,884 2 457,718 — — — 457,720

Stock-based compensation — — — — — — 12,418 — — — 12,418

Net loss — — — — — — — — — ( 375,108 ) ( 375,108 )

Issuance of Class A Common Stock in connection with the Warrant Redemptions 17,083,884 2 457,718 — — — 457,720

Share-based compensation — — 12,418 — — — 12,418

Foreign currency translation adjustment — — — — ( 1,499 ) — ( 1,499 )

BALANCE, December 31, 2021 150,598,047 $ 16 $ 722,250 $ — $ ( 1,257 ) $ ( 422,975 ) $ 298,034

Net income — — — — — 44,224 44,224

Issuance of Class A Common Stock in connection with asset acquisition 28,733 — 500 — — — 500

Issuance of Class A Common Stock pursuant to equity compensation plan 409,565 — — — — — —

Repurchase and retirement of Class A Common Stock ( 18,759,243 ) ( 2 ) ( 159,998 ) — — — ( 160,000 )

Equity forward contract in connection with accelerated share repurchase — — ( 40,000 ) — — — ( 40,000 )

Shares withheld for tax withholdings on vested stock awards ( 62,407 ) — ( 927 ) — — — ( 927 )

Share-based compensation — — 28,495 — — — 28,495

Foreign currency translation adjustment — — — — ( 3,273 ) — ( 3,273 )

BALANCE, December 31, 2022 132,214,695 $ 14 $ 550,320 $ — $ ( 4,530 ) $ ( 378,751 ) $ 167,053

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

2 unchanged sentences

(in thousands, except for share amounts)

Shares Amount Shares Amount Shares Amount

Common Stock Additional Paid-in Capital Note Receivable from Stockholder Accumulated other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity (Deficit)

Shares Amount

BALANCE, December 31, 2022 132,214,695 $ 14 $ 550,320 $ — $ ( 4,530 ) $ ( 378,751 ) $ 167,053

Repurchase and retirement of Class A Common Stock — — — — ( 18,759,243 ) ( 2 ) ( 159,998 ) — — — ( 160,000 )

Equity forward contract in connection with accelerated share repurchase — — — — — — ( 40,000 ) — — — ( 40,000 )

Net loss — — — — — ( 100,116 ) ( 100,116 )

Issuance of Class A Common Stock in connection with asset acquisition 109,625 — 1,310 — — — 1,310

Issuance of Class A Common Stock pursuant to equity compensation plan 1,039,176 — — — — — —

Stock-based compensation — — — — — — 28,495 — — — 28,495

Issuance of Class A Common Stock relating to employee stock purchase plan 241,342 — 3,036 — — — 3,036

Shares withheld for tax withholdings on vested stock awards ( 355,087 ) — ( 3,234 ) — — — ( 3,234 )

Net income — — — — — — — — — 44,384 44,384

Accelerated share repurchase payment — — ( 2,240 ) — — — ( 2,240 )

Repurchase and retirement of Class A Common Stock ( 10,350,749 ) ( 2 ) ( 30,455 ) — — — ( 30,457 )

Share-based compensation — — 22,544 — — — 22,544

Foreign currency translation adjustment — — — — 1,494 — 1,494

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Cash flows from operating activities:

Net income (loss) $ 44,384 $ ( 375,108 ) $ ( 29,175 )

Adjustments to reconcile net income (loss) to net cash from operating activities

Depreciation of property and equipment 7,164 4,486 2,552

Amortization of capitalized software — — —

Provision for estimated credit losses 1,622 854 1,442

Non-cash lease expense 4,561 3,352 —

Net (loss) income $ ( 100,116 ) $ 44,224 $ ( 378,764 )

Adjustments to reconcile net (loss) income to net cash from operating activities

Share-based compensation 22,544 28,495 12,418

Amortization of intangible assets 20,907 14,852 13,297

Depreciation of property and equipment 11,332 7,164 4,486

Amortization of other assets 2,436 857 147

Amortization of deferred financing costs 4,229 4,061 1,515

Stock-based compensation 28,495 12,418 363

Amortization of unfavorable lease terms — — ( 36 )

Write-off of unfavorable lease — — ( 384 )

Loss on sale and disposal of long-lived assets 5,239 — 110

In-kind interest — 4,130 6,119

Deferred income tax benefit ( 1,787 ) ( 3,763 ) ( 4,341 )

Change in fair value of earn-out shares liability — 47,100 —

Amortization of debt issuance costs 4,229 4,229 4,061

Syndeo inventory write-down 19,568 — —

Inventory write-down 18,272 5,144 1,134

Provision for estimated credit losses 5,153 1,622 854

Change in fair value adjustment of warrant liabilities ( 11,919 ) ( 78,343 ) 277,315

Debt prepayment expense — 2,014 —

Foreign currency transactions 2,410 — —

Change in fair value adjustment of earn-out shares — — 47,100

Other, net 5,988 10,423 5,733

Changes in operating assets and liabilities:

Accounts receivable 16,520 ( 32,025 ) ( 31,013 )

Prepaid expense and other current assets ( 16,401 ) ( 5,434 ) 489

Income taxes receivable 3,871 35 ( 4,611 )

Inventories ( 22,617 ) ( 84,363 ) ( 7,288 )

Other assets ( 8,045 ) ( 6,129 ) ( 2,286 )

Income taxes receivable ( 3,666 ) 3,871 35

Prepaid expenses and other current assets ( 3,285 ) ( 17,718 ) ( 5,067 )

Accounts payable 15,783 ( 262 ) 10,523

Accrued payroll and other expenses 26,936 ( 3,357 ) 24,784

Other long-term liabilities — — 1,529

Lease liabilities ( 4,033 ) ( 1,393 ) —

Income taxes payable 1,282 665 ( 594 )

Net cash used in operating activities ( 106,600 ) ( 28,361 ) ( 12,436 )

Other, net ( 7,597 ) ( 12,078 ) ( 7,522 )

Net cash provided by (used for) operating activities 21,750 ( 106,600 ) ( 28,361 )

Cash flows used in investing activities:

Capital expenditures for intangible assets ( 6,547 ) ( 4,415 ) ( 316 )

Capital expenditures for property and equipment ( 10,847 ) ( 11,201 ) ( 3,501 )

Cash paid for asset acquisition ( 1,475 ) — —

Cash paid for business acquisitions, net of cash acquired — ( 22,896 ) —

Repayment of notes receivables from stockholders — 781 —

Net cash used in investing activities ( 18,869 ) ( 37,731 ) ( 3,817 )

The accompanying notes are an integral part of these consolidated financial statements

THE BEAUTY HEALTH COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

Year Ended December 31,

2022 2021 2020

Cash paid for intangible assets ( 9,224 ) ( 6,547 ) ( 4,415 )

Cash paid for property and equipment ( 3,825 ) ( 10,847 ) ( 11,201 )

Cash paid for asset acquisitions ( 18,458 ) ( 1,475 ) —

Cash paid for business acquisition — — ( 22,896 )

Other, net — — 781

Net cash used for investing activities ( 31,507 ) ( 18,869 ) ( 37,731 )

Cash flows from financing activities:

Repurchases of Class A Common Shares ( 30,155 ) ( 160,000 ) —

Payment of equity forward contract in connection with accelerated share repurchase ( 40,000 ) — —

Payments of tax withholdings on vested stock awards ( 927 ) — —

Payment of accelerated share repurchases ( 2,240 ) — —

Payment of tax withholdings on vested stock awards ( 3,234 ) ( 927 ) —

Payment of contingent consideration related to acquisitions ( 1,819 ) — —

4 unchanged sentences

Repayment of revolving facility — — ( 5,000 )

Proceeds from term loan — — 30,000

The accompanying notes are an integral part of these consolidated financial statements

THE BEAUTY HEALTH COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

Year Ended December 31,

2023 2022 2021

Payment of debt issuance costs — — ( 21,341 )

Proceeds from Business Combination, net of transaction costs (See Note 3) — 357,634 —

Repayment of term loan — — ( 225,486 )

Payments for transaction costs — — ( 323 )

Deferred payment for acquisition — — ( 901 )

Net cash (used in) provided by financing activities ( 205,242 ) 959,035 18,273

Net increase in cash and cash equivalents ( 330,711 ) 892,943 2,020

Proceed from Business Combination — — 357,634

Advanced payment for equity forward contract — ( 40,000 ) —

Other, net — ( 4,315 ) —

Net cash (used for) provided by financing activities ( 37,448 ) ( 205,242 ) 959,035

Net change in cash and cash equivalents ( 47,205 ) ( 330,711 ) 892,943

Effect of foreign currency translation on cash 2,033 ( 2,978 ) ( 543 )

3 unchanged sentences

Cash paid for interest $ 9,375 $ 9,818 $ 10,249

Common stock issued for asset acquisition 500 — —

Cash (received) paid for income taxes ( 1,339 ) 1,700 2,434

Capital expenditures included in accounts payable 90 321 240

Class A Common Stock issued for asset acquisition 1,310 500 —

Cash paid (received) for income taxes 2,269 ( 1,339 ) 1,700

Issuance of earn-out shares — — 136,575

3 unchanged sentences

Issuance of Class A Common Stock in connection with business acquisitions — — 9,341

Deferred unpaid offering costs — — 2,036

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

2 unchanged sentences

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 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:

The Beauty Health Company (the “Company”) is a global category-creating company focused on delivering skin health experiences that help consumers reinvent their relationship with their skin, bodies, and self-confidence.

The Company and its subsidiaries design, develop, manufacture, market, and sell esthetic technologies and products.

The Company’s brands are pioneers:

Hydrafacial in hydradermabrasion;

SkinStylus in microneedling;

and Keravive in scalp health.

Together, with its powerful global community of estheticians, partners, and consumers, the Company is personalizing skin health for all ages, genders, skin tones, and skin types.

Historical Information

The Company (f.k.a.

Vesper Healthcare Acquisition Corp.) was incorporated in the State of Delaware on July 8, 2020.

On May 4, 2021, we consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated December 8, 2020, by and among Vesper Healthcare Acquisition Corp.

(“Vesper Healthcare”), Hydrate Merger Sub I, Inc.

(“Merger Sub I”), Hydrate Merger Sub II, LLC (“Merger Sub II”), LCP Edge Intermediate, Inc., the indirect parent of HydraFacial LLC, f.k.a.

Edge Systems LLC (“Hydrafacial”), and LCP Edge Holdco, LLC (“LCP,” or “Former Parent,” and, in its capacity as the stockholders’ representative, the “Stockholders’ Representative”) (the “Merger Agreement”), 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 First Merger, the Company owns 100 % of the outstanding common stock of Hydrafacial and each share of common stock and preferred stock of Hydrafacial was 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 Annual Report on Form 10-K, 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.

Related government and private sector responsive actions, as well as changes in consumer spending behaviors, supply chain challenges, and intermittent store closures in certain parts of the world have adversely affected and may continue to adversely affect our business, financial condition and results of operations.

We will continue to monitor mandates, guidelines, and recommendations issued by the U.S.

Department of State, Center for Disease Control (“CDC”) and World Health Organization (“WHO”), and local governments as they are released, and revise our health and safety protocols accordingly.

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.

In connection with the closing of the Business Combination, 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”).

Basis of Presentation

The Consolidated Financial Statements in this Annual Report on Form 10-K are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the Company’s consolidated domestic and international subsidiaries.

Intercompany accounts and transactions have been eliminated.

Subsequent to the issuance of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, during the six months ended June 30, 2023, the Company identified prior period misstatements related to the elimination of intercompany balances and right of return assets.

Although the Company concluded that these misstatements were not material, either individually or in the aggregate, the Company elected to revise its previously issued consolidated financial statements to correct for these misstatements.

These misstatements impacted the fiscal years 2020 to 2022.

The revision of the previously issued consolidated financial statements is presented in the accompanying consolidated financial statements and related disclosures.

For further detail, refer to Note 19 – Revision for Immaterial Misstatements.

Certain prior period amounts have been reclassified to conform to the current period presentation, including previously reported inventories in the consolidated statement of cash flows which were disclosed net of $ 5.1 million and $ 1.1 million inventory write-down for the years ended December 31, 2022 and December 31, 2021, respectively.

We reclassified the inventory write-down in the prior period to conform to the current period presentation of inventory write-down as an adjustment to reconcile net income to net cash from operating activities.

This reclassification had no effect on the previously reported net cash used for operating activities.

Note 2 — Summary of Significant Accounting Policies

Basis of presentation and consolidation

The Business Combination was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Business Combination

The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP.

Under this method of accounting, the Company is treated as the “acquired” company for financial reporting purposes and Hydrafacial is treated as the accounting acquirer.

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The recapitalization of the number of shares of Class A Common Stock attributable to Hydrafacial is reflected retroactively to the earliest period presented based upon the Exchange Ratio and is utilized for calculating earnings per share in all prior periods presented.

The Consolidated Financial Statements in this Annual Report on Form 10-K are presented in accordance with GAAP and include the Company’s consolidated domestic and international subsidiaries.

Intercompany accounts and transactions have been eliminated.

Use of estimates and assumptions in preparing consolidated financial statements

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All highly liquid investments, including credit card receivables due from banks, with original maturities of 90 days or less at date of purchase, are reported at fair value and are considered to be cash equivalents.

The balances of cash at financial

institutions may exceed the federally insured limit.

The Company has not experienced any losses in such accounts and believes its cash and cash equivalents are not subject to any significant credit risk.

The balances of cash at financial institutions may exceed the federally insured limit.

Accounts Receivable

Accounts receivable primarily arise out of product purchases by customers from various distribution channels.

Typical payment terms provide that customers pay within 30 to 120 days of the invoice.

Accounts receivable primarily arise out of product purchases by customers and from various distribution channels.

Typical payment terms provide that customers pay within less than a year of the invoice.

The allowance for estimated credit losses represents management's best estimate of probable credit losses in accounts receivable.

In addition, management considered other qualitative factors, particularly in relation to the volatility in the economies of certain foreign jurisdictions that arose from the COVID-19 pandemic.

The allowance is based upon a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the specific customer’s ability to pay its obligation and any other forward-looking data regarding customers’ ability to pay which may be available, and other qualitative factors.

Receivables are written off against the allowance when management believes that the amount receivable will not be recovered.

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If changes in market conditions result in reductions in the estimated net realizable value of its inventory below its previous estimate, the Company would decrease its basis in the inventory in the period in which it made such a determination.

During the quarter ended December 31, 2023, the Company determined with respect to Syndeo devices, to market and sell Syndeo 3.0 devices exclusively, and as such, the Company designated all Syndeo 1.0 and 2.0 builds on-hand as obsolete, resulting in an inventory write-down of $ 19.6 million during the year ended December 31, 2023.

Refer to Note 18 – Restructuring Charges for further detail.

Business Combinations

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The key estimates and factors used in the valuation models would include revenue growth rates and profit margins based on our internal forecasts, our specific weighted-average cost of capital used to discount future cash flows, and comparable market multiples for the industry segment, when applicable, as well as our historical operating trends.

A revision of these assumptions could cause the fair values of the reporting units to fall below their respective carrying values, resulting in a non-cash impairment charge.

Certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in actual and expected consumer consumption and demands, could result in changes to these assumptions and judgments and could cause the fair values of the reporting units to fall below their respective carrying values, resulting in a non-cash impairment charge.

Such charge could have a material effect on the consolidated financial statements.

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Leasehold improvements are depreciated on a straight-line basis over the lesser of the length of the lease and the estimated useful life of the improvement.

Leased Property and Equipment

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

The Company uses an incremental borrowing rate to determine the present value of lease payments as the rate implicit in the lease is generally not readily determinable.

The Company excludes right-of-use assets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet,and combines lease and non-lease components for property leases, which primarily relate to ancillary expenses such as common area maintenance expenses, property taxes, property insurance, and management fees.

The Company determines if an arrangement is a lease at inception by assessing whether it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Renewal and termination options are included in the lease term when it is reasonably certain that the Company will exercise the option.

Certain of these leases include escalation clauses that adjust rental expense to reflect changes in price indices, as well as renewal and termination options.

Operating lease costs are recognized on a straight-line basis over the lease term.

Impairment of Long-lived Assets

Long-lived assets, including intangible assets with finite lives, held for use are evaluated for impairment when the occurrence of events or a change in circumstances indicates that the carrying value of the assets may not be recoverable as measured by comparing their carrying value to the estimated undiscounted future cash flows generated by their use and eventual disposition.

Long-lived assets, including intangible assets with finite lives and right-of-use assets, are evaluated for impairment when the occurrence of events or a change in circumstances indicates that the carrying value of the assets may not be recoverable as measured by comparing their carrying value to the estimated undiscounted future cash flows generated by their use and eventual disposition.

Impaired assets are recorded at fair value, determined principally by discounting the future cash flows expected from their use and eventual disposition.

Reductions in asset values resulting from impairment valuations are recognized in income in the period that the impairment is determined.

Leased Property and Equipment

Prior to the adoption of ASU No.

2016-02, Leases (“ASC 842”), the Company recognized rent expense for operating leases on a straight‑line basis (including the effect of reduced or free rent and rent escalations) over the lease term.

The difference between the cash paid to the landlord and the amount recognized as rent expense on a straight‑line basis was recognized as an adjustment to deferred rent in the consolidated balance sheets.

Cash reimbursements received from landlords for leasehold improvements and other cash payments received from landlords as lease incentives were recorded as an asset and depreciated using the straight‑line method over the lease term as an offset to rent expense.

ASC 842 became effective for the Company in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, with an effective date of January 1, 2021.

Subsequent to the adoption of ASC 842 on January 1, 2021, the first day of

fiscal 2021, operating and finance lease liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company’s incremental borrowing rates for its population of leases.

The Company uses an incremental borrowing rate to determine the present value of lease payments as the rate implicit in the lease is generally not readily determinable.

The Company’s incremental borrowing rate is the rate of interest that it would have to pay to borrow an amount equal to the lease payments, on a collateralized basis and in a similar economic environment over a similar term.

The Company determines if an arrangement is or contains a lease at inception.

This determination depends on whether the arrangement conveys the right to control the use of an explicitly or implicitly identified asset for a period of time in exchange for consideration.

Control of an underlying asset is conveyed if the Company obtains the right to direct the use of and obtains substantially all of the economic benefits from using the underlying asset.

As a result of the adoption of the new accounting standard, the Company elected transition-related practical expedients as accounting policies which allowed it to not reassess, as of the adoption date, (1) whether any expired or existing contracts are or contain leases, (2) the classification of any expired or existing leases, and (3) if previously capitalized initial direct costs qualify for capitalization under ASC 842.

The Company elected the practical expedient option to not separate lease and non-lease components for all of its leases, and also elected the short-term lease recognition exemption that keeps leases with an initial term of 12 months or less excluded from balance sheet capitalization.

This results in recognizing those lease payments in the consolidated statements of operations on a straight-line basis over the lease term.

Related operating and finance lease right-of-use assets are recognized based on the initial present value of the fixed lease payments, reduced by cash payments received from landlords as lease incentives, plus any prepaid rent and other direct costs from executing the leases.

Amortization of both operating and finance lease right-of-use assets is performed on a straight-line basis and recorded as part of rent expense in cost of goods sold and selling, general and administrative expenses on the consolidated statements of operations.

The interest expense amortization component of the finance lease liabilities is recorded within interest expense on the consolidated statements of operations.

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”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

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 (the “Trustee”).

The Company accounts for the Notes under Accounting Standards Codification (“ASC”) ASC 470-20 - Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity's Own Equity (“ASU 2020-06”), which the Company early adopted in the first quarter of 2021 concurrent with the issuance of the Notes.

The Company records the Notes as a long-term liability at face value net of issuance costs.

If any of the conditions to the convertibility of the Notes is satisfied, or the Notes become due within one year, then the Company may be required under applicable accounting standards to reclassify the carrying value of the Notes as a current, rather than a long-term liability.

Refer to Note 10 — Long-term Debt for further detail.

Capped Call Transactions

Capped call transactions cover the aggregate number of shares of the Company’s common stock that will initially underlie the Notes, and generally reduce potential dilution to the Company’s common stock upon any conversion of Notes and/or offset any cash payments the Company may make in excess of the principal amount of the 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 Company determined that the freestanding capped call option contracts qualify as equity under the accounting guidance on indexation and equity classification, and recognized the contract by recording an entry to “Additional paid-in capital” (“APIC”) in stockholders’ equity in its Consolidated Balance Sheet.

The Company also determined that the capped call option contracts meet the definition of a derivative under ASC 815 — Derivatives and Hedging (“ASC 815”), but are not required to be accounted for as a derivative as they meet the scope exception outlined in ASC 815.

The capped call options are recorded in APIC and not remeasured.

Issuance Costs

Issuance costs related to our Notes offering were capitalized and offset against proceeds from the Notes.

Issuance costs consist of legal and other direct costs related to the issuance of the Notes and are amortized to interest expense over the term of the Notes.

Refer to Note 10 – Long-term Debt for further detail.

Warrant Liabilities

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As of December 31, 2023 and 2022, no Public Warrants were outstanding and approximately 7 million Private Placement Warrants remain outstanding.

As of December 31, 2022 the Private Placement Warrants are measured at fair value using a Monte Carlo simulation because these warrants are not 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 3 financial instruments as of December 31, 2022.

As of December 31, 2023 and 2022, the Private Placement Warrants are measured at fair value using a Monte Carlo simulation model because these warrants are not 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 3 financial instruments as of December 31, 2023 and 2022.

The Private Placement Warrants expire five years after the Business Combination.

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The Earn-out Shares liability was recorded at fair value and remeasured at the end of each reporting period, with the corresponding gain or loss recorded in the Company’s Consolidated Statements of Comprehensive Income (Loss) as change in the fair value of earn-out shares liability.

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 202 6 (the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

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 (the “Trustee”).

The Company accounts for the Notes under Accounting Standards Codification (“ASC”) ASC 470-20 - Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity's Own Equity (“ASU 2020-06”), which the Company early ad opted in the first quarter of 2021 concurrent with the issuance of the Notes.

The Company records the Notes as a long-term liability at face value net of issuance costs.

Refer to Note 9— Long-term Debt for further detail.

Capped Call Transactions

The Company determined that the freestanding capped call option contracts qualify as equity under the accounting guidance on indexation and equity classification, and recognized the contract by recording an entry to additional paid-in capital (“APIC”) in stockholders’ equity in its Consolidated Balance Sheets.

The capped call options are recorded in APIC and not remeasured.

Issuance Costs

Issuance costs related to our Notes offering were capitalized and offset against proceeds from the Notes.

Issuance costs consist of legal and other direct costs related to the issuance of the Notes and are amortized to interest expense over the term of the Notes using the effective interest method.

Refer to Note 9 – Long-term Debt for further detail.

Revenue Recognition

Net sales consist of the sale of products to retail and wholesale customers through e-commerce and distributor sales.

The Company generates revenue through manufacturing and selling Hydrafacial Delivery Systems (“Delivery Systems”).

In conjunction with the sale of Delivery Systems, the Company also sells its serum solutions and consumables (collectively “Consumables”).

The Company generates revenue through manufacturing and selling its patented hydradermabrasion delivery systems (“Delivery Systems”).

In conjunction with the sale of Delivery Systems, the Company also sells single-use tips, solutions, and serums used to provide a Hydrafacial treatment (collectively “Consumables”).

Original Consumables are sold solely and exclusively by the Company (and from authorized retailers) and are available for purchase separately from the purchase of Delivery Systems.

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For distributors, a customer submits an order request which is processed in the system by a sales representative.

This is also considered accepted upon the subsequent

issuance of an invoice by the Company.

This is also considered accepted upon the subsequent issuance of an invoice by the Company.

For all customers, each invoice is considered a separate contract for accounting purposes.

Revenue is recognized in an amount that reflects the consideration that the Company expects to receive in exchange for the sale of its products which is determined based upon the sales price per the invoice or contract.

Discounts applied to invoices are not associated with future purchases and solely relate to the product invoiced.

As a result, the invoice and transaction price are recorded net of any discounts.

The Company’s sales terms for its Delivery Systems allow for the right of return within 30 days, subject to a restocking fee.

The Company’s sales terms for its Delivery Systems generally allow for the right of return within 30 days, subject to a restocking fee.

Estimates for variable consideration, which relate to sales returns associated with Delivery Systems, are based on the expected amount the Company will be entitled to receive, subject to constraint, and is recorded as a reduction against net sales.

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Depending on the type of Delivery System that was purchased, the Company offers its customers with a one -year or two -year standard type warranty that provides the customer with the assurance that its Delivery Systems will function as intended.

Returns related to warranty have been immaterial.

During the fourth quarter of 2023, the Company announced a one year extension of warranty for certain Syndeo systems from the date it was either brought to the 3.0 standards or the customer received a Syndeo 3.0 device.

The warranty reserve is assessed periodically, and the reserve is adjusted as necessary based on a review of historical warranty experience as well as the length and actual terms of the warranties.

Total warranty reserve was approximately $ 6 million and $ 2 million as of December 31, 2023 and 2022, respectively.

As of December 31, 2023, approximately $ 4 million was included in other accrued expenses and approximately $ 2 million was included in other long-term liabilities on the Consolidated Balance Sheets.

As of December 31, 2022, approximately $ 2 million was included in other accrued expenses on the Consolidated Balance Sheets.

The Company also has a loyalty program that allows members to receive points based on qualifying Consumable purchases that may be redeemed as a discount on future consumable purchases.

This customer option is a material right and, accordingly, represents a separate performance obligation to the customer.

The related loyalty program deferred revenue included in other accrued expenses on the consolidated balance sheet was approximately $ 0.8 million and $ 1.2 million as of December 31, 2021 and 2022, respectively.

In addition, during fiscal 2022 the Company provided certain customers with the option to trade-in their existing Delivery System and apply the fair value of their old Delivery System towards the transaction price of the Company’s new Syndeo Delivery System.

The related loyalty program deferred revenue included in other accrued expenses on the Consolidated Balance Sheets was approximately $ 1 million as of December 31, 2023 and 2022.

In addition, during the fiscal years 2023 and 2022 the Company provided certain customers with the option to trade-in their existing Delivery System and apply the fair value of their old Delivery System towards the transaction price of a Syndeo device, the Company’s current generation Delivery System (“Syndeo”).

The Company determined that the trade-in is viewed as a marketing offer due to the fact that it does not constitute the Company’s customary business practice and was not offered at contract inception.

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The estimated selling price is determined based on the Company’s historical experience of reselling refurbished Delivery Systems.

The total value of these refurbished Delivery Systems included in inventory as of December 31, 2022 was $ 8.8 million.

Payment terms vary by customer but typically provide for the customer to pay within 30 to 120 days;

however, the Company provides an option for qualified customers to pay for Delivery Systems over 12 monthly installments.

Therefore, customer payment terms are for 12 months or less and do not include significant financing components.

The Company recognized revenue based on the estimated fair value of such Delivery Systems for the fiscal years ended 2023 and 2022 of approximately $ 17 million and $ 9 million, respectively.

Payment terms vary by customer but typically provide for the customer to pay within less than a year;

however, the Company provides options for qualified customers through third party financing companies, generally without recourse to the Company, or through internal financing to pay for Delivery Systems over 12 monthly installments or less.

Under certain limited arrangements, which are not material, the customer’s receivable balance is with recourse whereby we are responsible for repaying the financing company should the customer default.

The Company performs credit evaluations of customers and evaluates the need for allowances for potential credit losses based on historical experience, as well as current and expected general economic conditions.

The Company does not evaluate contracts of one year or less for the existence of a significant financing component.

Cost of Sales

The Company’s cost of sales consists of Delivery Systems and Consumables product costs, including the cost of materials, labor costs, overhead, depreciation and amortization of developed technology, shipping and handling costs, and the costs associated with excess and obsolete inventory.

As the Company launches new products and expand presence internationally, the Company expects to incur higher cost of sales as a percentage of sales because we have not yet achieved economies of scale with these items.

Selling and Marketing Expense

Selling and marketing expense consists of personnel-related expenses, sales commissions, travel costs, and advertising expenses incurred in connection with the sale of our products.

The Company intends to continue to invest in sales and marketing capabilities in the future and expect this expense to increase in absolute dollars in future periods as it releases new products, grow our global footprint, and drive consumer demand in the ecosystem.

Selling and marketing expense as a percentage of total revenue may fluctuate from period to period based on total revenue and the timing of investments in sales and marketing functions as these investments may vary in scope and scale over future periods.

Selling and marketing expense consists of personnel-related expenses, sales commissions, travel costs, training, and advertising expenses incurred in connection with the sale of our products.

Advertising costs are expensed in the period in which they are incurred.

Total advertising costs, included in selling and marketing expenses on the Consolidated Statements of Comprehensive Income (Loss) , were $ 3.8 million, $ 3.2 million and $ 3.3 million for each of the three years ending December 31, 2022, 2021, and 2020 respectively.

Research and Development Costs

Total advertising costs were $ 2.3 million, $ 3.8 million and $ 3.2 million for the years ending December 31, 2023, 2022, and 2021 respectively.

Research and Development Expense

Research and development expense primarily consists of personnel-related expenses, tooling and prototype materials, technology investments, and other expenses incurred in connection with the development of new products and internal technologies.

The Company expects research and development expenses to increase in absolute dollars in future periods and vary from period to period as a percentage of total revenue, as the Company plans to continue to innovate and invest in new technologies and to enhance existing technologies to fuel future growth as a category creator.

General and Administrative Expense

General and administrative expense includes personnel-related expenses, professional fees, credit card and wire fees and facilities-related costs primarily for our executive, finance, accounting, legal, human resources, and IT functions.

General and administrative expenses include personnel-related expenses, professional fees, credit card and wire fees and facilities-related costs primarily for our executive, corporate affairs, finance, accounting, legal, human resources, and information technology (“IT”) functions.

General and administrative expense also includes fees for professional services principally comprising legal, audit, tax and accounting services and insurance.

The Company expects to continue to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance and reporting obligations of public companies, and increased costs for insurance, investor relations expenses, and professional services.

In addition, the Company expects to continue to incur additional IT expenses as the Company scales and enhances its e-commerce, digital and data utilization capabilities.

As a result, the Company expects that our general and administrative expenses will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue.

Interest Expense, Net

Interest expense consists of interest accrued on the Company’s Convertible Senior Notes and amortization of debt issuance costs relating to the Notes.

Interest Expense

Interest expense primarily consists of interest accrued on the Company’s Notes and amortization of debt issuance costs relating to the Notes.

The Notes mature on October 1, 2026 and accrue interest at a rate of 1.25 % per annum.

Debt issuance costs are being amortized over the term of the Notes using the effective interest method.

If the Notes are repurchased, redeemed, or converted prior to the maturity date, the interest on the Notes would no longer be accrued and the amortization of debt issuance costs would be accelerated.

The Company expects interest expense to increase in absolute dollars as the Company grows internationally and obtains more financing to support such growth.

Interest expense as a percentage of revenue will fluctuate period to period along with fluctuations in interest rates, which is not related to normal business operations.

If the Notes are repurchased, redeemed, or converted prior to the maturity date, the interest on the Notes would no longer be accrued and the amortization of debt issuance costs would be accelerated for the portion of the Notes which are repurchased, redeemed, or converted.

Interest Income

Interest income consists of interest earned from investments in money market funds that the Company classifies as cash equivalents.

Interest income as a percentage of revenue will fluctuate period to period along with fluctuations in interest rates, which is not related to normal business operations.

Change in Fair Value of Warrant Liabilities

In accordance with ASC 815-40 – Contracts in Entity's Own Equity , the Company’s Public and Private Placement Warrants are accounted for as liabilities in the Consolidated Balance Sheets and 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 Consolidated Statements of Comprehensive Income (Loss).

There were no Public Warrants outstanding as of December 31, 2022.

There were no Public Warrants outstanding as of December 31, 2023 and 2022.

The value of the Private Placement Warrants was determined at year end using the Monte Carlo simulation model.

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In accordance with ASC 480 – Distinguishing Liabilities from Equity , the Company accounted for its Earn-out Shares liability as contingent consideration and recorded an Earn-out Shares liability for the Earn-out Shares.

The Earn-out Shares liability was recorded at fair value and remeasured at the end of each reporting period, with the corresponding gain or loss

recorded in the Company’s Consolidated Statements of Comprehensive Income (Loss).

The Earn-out Shares were earned and subsequently issued on July 15, 2021.

Foreign Currency Transaction (Gain) Loss, Net

Foreign currency transaction gains and losses are generated by settlements of intercompany balances and invoices denominated in other currencies other than the reporting currency.

Foreign currency gains and losses as a percentage of revenue will fluctuate period to period along with fluctuations in exchange rates, which is not related to normal business operations.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets (DTA)s and deferred tax liabilities (DTL)s for the expected future tax consequences of events that have been included in the financial statements.

Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) for the expected future tax consequences of events that have been included in the financial statements.

Under this method, it determines DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse.

The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.

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If the Company determines that it would be able to realize our DTAs in the future in excess of the net recorded amount, it would make an adjustment to the DTA valuation allowance, which would reduce the provision for income taxes.

The Company would record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it determined whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

If any, the Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

If any, the Company recognizes interest and penalties on unrecognized tax benefits in income tax expense.

Foreign Currency

The Company’s reporting currency is the U.S.

The functional currency for each entity included in these consolidated financial statements that is domiciled outside of the United States is generally the applicable local currency.

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Net revenue and expenses are translated at the average rate in effect during the period.

Unrealized translation gains and losses are recorded as a foreign currency translation adjustment, which is included in other comprehensive income or loss, which is a component of accumulated other comprehensive income or loss included in stockholders’ equity.

Transactions between the parent company and its foreign subsidiaries are denominated in US Dollars.

Accordingly, amounts due to or from the parent company are remeasured from local currency to its US Dollar equivalent on the balance sheet date.

This remeasurement is recorded as a foreign currency transaction gain or loss in the consolidated statements of comprehensive income.

The resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss within stockholders' equity.

Transactions between the parent company and its foreign subsidiaries are denominated in U.S.

Dollars or in local currency.

Accordingly, amounts are remeasured on the balance sheet date and recorded as a foreign currency transaction gain or loss in the Consolidated Statements of Comprehensive Income (Loss).

Foreign currency transaction gains and losses are generated by intercompany balances and transactions denominated in other currencies other than the functional currency of the entity.

Concentration of Credit Risk

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Stock-based Compensation

Stock-based compensation is accounted for under FASB ASC Topic 718, Compensation—Stock Compensation (“ASC 718”).

The Company accounts for all stock-based compensation transactions using a fair-value method and recognizes the fair value of each award as an expense over the service period.

The Company accounts for stock-based compensation transactions using a fair-value method and recognizes the fair value of each award as an expense over the service period.

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model.

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Diluted earnings per share is calculated by dividing net income available to stockholders for the period by the diluted weighted-average number of shares outstanding during the period.

Diluted earnings per share reflects the potential dilution from common shares issuable through stock options, performance-based restricted stock units that have satisfied their performance factor, restricted shares, and restricted stock units using the treasury stock method.

Diluted earnings per share reflects the potential dilution from common shares issuable through stock options, performance-based restricted stock units, and restricted stock units using the treasury stock method and the "if-converted" met hod related to the Notes .

Fair Value of Financial Instruments

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date.

GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

These tiers include:

• Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;

• Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active;

• Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy.

In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

The fair value of the Notes that are recorded at historical cost was $ 567 million as of December 31, 2022, and was determined using the last trade price in active markets.

With the exception of the Company’s Notes, the fair value of the Company’s assets and liabilities that are recorded at historical amounts and that qualify as financial instruments under ASC 820, Fair Value Measurement , approximates the carrying amounts represented in the Company’s Consolidated Balance Sheets, primarily due to their short-term nature.

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:

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.

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.

Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.

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

In November 2023, the Financial Standards Accounting Board (“FASB”) issued Accounting Standards Update 2023-07 "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures" which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

ASU 2023-07 is effective for annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted.

The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid.

ASU 2023-09 is effective for annual periods beginning January 1, 2025, with early adoption permitted.

The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.

Note 3 — Business Combinations

Business Combination — Reverse Recapitalization

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The historical operating results are not material to the consolidated financial statements, and, therefore, the Company has not presented the unaudited pro forma results of operations for the distributor acquisitions.

Acquisition of The Personalized Beauty Company, Inc.

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.

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 and as of December 31, 2022.

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

Disaggregated Revenue

The Company generates revenue through manufacturing and selling Hydrafacial Delivery Systems.

In conjunction with the sale of Delivery Systems, the Company also sells its Consumables.

Original Consumables are sold solely and exclusively by the Company (and from authorized retailers) 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 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, reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources and evaluating financial performance.

The Company’s revenue disaggregated by major product line consists of the following for the periods indicated:

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Total net sales $ 397,991 $ 365,876 $ 260,086

See Note 18 — Segment Reporting for revenue disaggregated by geographical region.

Net sales by geographic region were as follows for the periods indicated:

Year Ended December 31,

(in thousands) 2023 2022 2021

Americas $ 227,709 $ 243,243 $ 169,426

Asia-Pacific 82,193 54,306 43,701

Europe, the Middle East and Africa 88,089 68,327 46,959

Total net sales $ 397,991 $ 365,876 $ 260,086

No single customer accounted for 10% or more of consolidated net sales during the years ended December 31, 2023, 2022, and 2021.

As of December 31, 2023, the Company had no customers that accounted for 10% or more of the Company’s accounts receivable balance.

As of December 31, 2022, the Company had one customer that accounted for 12 % of the Company’s accounts receivable balance.

The changes in allowance for estimated credit losses are as follows:

(in thousands) Year Ended December 31, 2023

Beginning balance

Provision for estimated credit losses

Write-offs, recoveries of previous write-offs, and foreign currency translation impact

Ending balance

Note 5 — Balance Sheet Components

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Total inventories $ 91,321 $ 109,656

As a result of the Company’s decision, with respect to Syndeo devices, to market and sell Syndeo 3.0 devices exclusively, the Company has designated all Syndeo 1.0 and 2.0 builds on-hand as obsolete, resulting in an inventory write-down of $ 19.6 million during the year ended December 31, 2023.

Refer to Note 18 – Restructuring Charges for further detail.

The Company also identified $ 18.3 million in discontinued, excess, or obsolete inventory during the year ended December 31, 2023.

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

(in thousands) December 31, 2023 December 31, 2022

Accrued compensation $ 4,154 $ 15,262

Accrued payroll taxes 1,357 922

Accrued benefits 5,643 3,022

Accrued compensation and payroll taxes

$ 10,458 $ 5,511

Accrued sales commissions 7,565 10,523

Accrued benefits 4,005 5,643

Total accrued payroll-related expenses $ 22,028 $ 21,677

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Sales and VAT tax payables $ 4,971 $ 4,904

Royalty liabilities 3,914 2,348

Accrued interest 2,344 2,344

Contingent consideration — 783

Note payable due seller — 1,819

Royalty liabilities 2,348 1,074

Other 8,617 3,768

Total other accrued expenses $ 19,846 $ 15,183

Long-lived assets, which includes property and equipment, net and right-of-use assets, net, by geographic region were as follows for the periods indicated:

(in thousands) December 31, 2023 December 31, 2022

$ 13,937 $ 19,974

United Kingdom 4,174 3,577

China 3,398 4,620

Rest of World 4,837 5,650

Total long-lived assets $ 26,346 $ 33,821

As of December 31, 2023 and 2022, the Company has approximately $ 15 million and $ 6 million, respectively, of non-trade receivables from certain of its manufacturing vendors resulting from the sale of components to these vendors who manufacture or assemble final products for the Company, which is included in prepaid expenses and other current assets on the Consolidated Balance Sheets.

The Company purchases components directly from suppliers and do not reflect the sale of these components to the manufacturing vendors in net sales.

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 and are included in property and equipment, other accrued expenses, and other long-term liabilities of the Consolidated Balance Sheets.

Lease terms include the non-cancellable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods, termination options and purchase options.

The Company's leases do not contain significant restrictive provisions nor residual value guarantees.

Operating and finance lease right-of-use (“ROU”) liabilities are recognized at the lease commencement date based on the present value of the fixed lease payments using the Company’s incremental borrowing rates for its population of leases.

Related operating and finance lease ROU assets are recognized based on the initial present value of the fixed lease payments, reduced by cash payments received from landlords as lease incentives, plus any prepaid rent and other direct costs from executing the leases.

The interest expense amortization component of the finance lease ROU liabilities is recorded within interest expense on the Consolidated Statements of Comprehensive Income (Loss).

ROU assets are tested for impairment in the same manner as long-lived assets.

Operating ROU assets and liabilities as of December 31, 2022 and December 31, 2021 comprises the following:

Operating right-of-use assets and lease liabilities as of December 31, 2023 and December 31, 2022 comprises the following:

(in thousands)

Assets Balance Sheet Classification December 31, 2022 December 31, 2021

Operating lease assets Right-of-use assets, net $ 15,637 $ 14,992

Operating Lease liabilities, current $ 4,958 $ 3,712

Operating Lease liabilities, non-current $ 12,689 $ 12,781

December 31, 2023 December 31, 2022

Right-of-use assets, net

$ 12,120 $ 15,637

Lease liabilities, current

$ 4,598 $ 4,958

Lease liabilities, non-current

Total lease liabilities $ 13,917 $ 17,647

Total lease cost for the years ended December 31, 2022 and December 31, 2021 are summarized in the table below.

The variable lease costs were not included in the measurement of the lease liabilities.

These primarily include property taxes, property insurance, and common area maintenance expenses.

(in thousands) Statement of Operations Classification December 31, 2022 December 31, 2021

Operating lease cost

Operating lease cost Cost of sales $ 835 $ 811

Operating lease cost Selling and marketing, general and administrative 4,139 2,535

Short-term lease cost

Short-term lease cost Selling and marketing, general and administrative 1,662 879

Variable lease cost

Variable lease cost Cost of sales — 236

Variable lease cost Selling and marketing, general and administrative — 270

Total operating lease cost $ 6,636 $ 4,731

Operating lease costs for the years ended December 31, 2023, 2022, and 2021 were $ 5.2 million, $ 5.0 million, and $ 3.3 million, respectively.

Short-term lease cost and variable lease costs were immaterial for the years ended December 31, 2023, 2022, and 2021.

The following table summarizes future operating lease payments as of December 31, 2023 :

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Present value of net lease payments $ 13,917

The following table includes supplemental lease information:

Supplemental Cash Flow Information (dollars in thousands) December 31, 2022 December 31, 2021

The following table includes supplemental operating lease information:

Year Ended December 31,

Supplemental Cash Flow Information (dollars in thousands) 2023 2022 2021

Cash paid for amounts included in the measurement of lease liabilities $ 5,419 $ 2,981 $ 3,041

Operating cash flows from operating leases $ 2,981 $ 3,041

Lease liabilities arising from new ROU assets

Operating leases $ 4,476 $ 5,707

Lease liabilities arising from new right-of-use assets

$ 1,181 $ 4,476 $ 5,707

Weighted average remaining lease term (in years) 6.1 6.0 6.3

Operating leases 6.0 6.3

Weighted average discount rate 3.18 % 2.98 % 2.75 %

Operating leases 2.98 % 2.75 %

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 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:

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.

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.

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 December 31, 2022 and 2021, and indicates the fair value hierarchy of the valuation inputs the Company

utilized to determine such fair value.

As of December 31, 2022 and 2021, the value of the Private Placement Warrants was determined using a Monte Carlo simulation.

The Private Placement Warrants are classified as a Level 3 financial instrument.

There was no activity in Warrant liability related to the Private Placement Warrants during the periods presented.

The contingent consideration outstanding as of December 31, 2021 was paid in the second quarter of 2022.

As of December 31, 2022

(in thousands) Level 1 Level 2 Level 3 Total

Cash and cash equivalents:

Money market funds $ 513,009 $ — $ — $ 513,009

Warrant liability — Private Placement Warrants — — 15,473 15,473

As of December 31, 2021

(in thousands) Level 1 Level 2 Level 3 Total

Cash and cash equivalents:

Money market funds $ 861,943 $ — $ — $ 861,943

Contingent consideration $ — $ — $ 783 $ 783

Warrant liability — Private Placement Warrants $ — $ — $ 93,816 $ 93,816

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 December 31, 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”) are accounted for as liabilities in accordance with ASC 815-40 and are presented within Warrant liabilities on the Company’s 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 Consolidated Statements of Comprehensive Income (Loss) .

On October 4, 2021, the Company issued a press release stating that it would redeem all of the Public Warrants that remained outstanding on November 3, 2021, for a redemption price of $ 0.10 per Public Warrant.

On November 3, 2021, 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.

Accordingly, as of December 31, 2022 and 2021, there were no Public Warrants outstanding.

At December 31, 2022 and 2021 , the outstanding Private Placement Warrants were valued using a Monte Carlo simulation.

As of December 31, 2022, the Company had approximately 7 million Private Placement Warrants outstanding.

Contingent Consideration

On July 1, 2021, in connection with the acquisition of Wigmore contingent consideration was payable to the previous owners.

Upon acquisition, the contingent considered was measured using discounted cash flows based on the probability of meeting certain earn-out revenue targets.

As of December 31, 2021, the Company accrued the full amount of the contingent consideration as the earn-out revenue targets were met.

The contingent consideration outstanding as of December 31, 2021 was paid in the second quarter of 2022.

Finance lease balances are not material and are included in property and equipment and other accrued expenses on the Consolidated Balance Sheets.

Note 7 — Property and Equipment, net

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term or estimated useful life

12,323 11,812

Construction in progress 748 1,375

Total property and equipment 34,179 30,678

accumulated depreciation and amortization ( 19,953 ) ( 12,494 )

Construction in progress 1,375 5,353

Property and equipment, net $ 14,226 $ 18,184

During the year ended December 31, 2022, the Company recorded a loss on the disposal of property and equipment, net of $ 2.0 million.

The loss on disposal of property and equipment, net was recorded in the Consolidated Statements of Comprehensive Income (Loss) primarily in general and administrative expense.

Depreciation expense was as follows for the periods indicated:

Note 8 — Goodwill and Intangible Assets, net

The changes in the carrying value of goodwill are as follows:

Year Ended December 31,

(in thousands) 2023 2022 2021

Cost of sales $ 2,126 $ 1,313 $ 1,161

General and administrative 3,295 1,625 1,391

Selling and marketing 1,743 1,548 —

Total depreciation expense $ 7,164 $ 4,486 $ 2,552

Note 9 – Goodwill and Intangible Assets, net

Beginning balance $ 124,593 $ 123,694 $ 98,531

Measurement period adjustments — 2,154 26,600

Foreign currency translation impact 1,225 ( 1,255 ) ( 1,437 )

Ending balance $ 125,818 $ 124,593 $ 123,694

The Company performed its annual impairment test and determined that goodwill was not impaired since the reporting unit's fair value exceeded its carrying value.

Intangible Assets, Net

The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of December 31, 2023 were as follows:

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Value Estimated

Developed technology $ 91,629 $ ( 64,453 ) $ 27,176 3 - 10

Customer relationships 18,809 ( 11,317 ) 7,492 5 - 10

Capitalized software 18,423 ( 4,078 ) 14,345 3 - 5

Trademarks 11,521 ( 5,367 ) 6,154 15

Non-compete agreement 5,878 ( 1,530 ) 4,348 3

Customer relationships 18,089 ( 7,602 ) 10,487 5 - 10

Developed technology 73,188 ( 54,422 ) 18,766 3 - 8

Patents 3,132 ( 524 ) 2,608 3 - 19

Capitalized software 9,620 ( 1,507 ) 8,113 3 - 5

Total intangible assets $ 149,392 $ ( 87,269 ) $ 62,123

During the year ended December 31, 2022, the Company recorded a loss on the disposal of intangible assets of $ 2.5 million.

The loss on disposal of intangible assets was recorded in the Consolidated Statements of Comprehensive Income (Loss) primarily in general and administrative expense.

Acquisition of Esthetic Medical, Inc.

and Anacapa Aesthetics LLC

In February 2023, Edge Systems Intermediate, LLC, an indirect, wholly-owned subsidiary of the Company, acquired all of the outstanding shares of Esthetic Medical, Inc.

(“EMI”) in exchange for (i) a cash payment of $ 11.8 million and (ii) 109,625 shares of Class A Common Stock of the Company ($ 1.3 million).

In addition, Dr.

Lawrence Groop (the “Seller”) is entitled to receive up to an additional $ 3.2 million in contingent consideration based upon the achievement of certain conditions defined in the purchase agreement, of which $ 1.9 million was considered probable as of the acquisition date.

Applicable tax guidance was used to apply the simultaneous equation method to incrementally assign $ 4.6 million to the book value of the intangible asset in excess of the purchase price.

The Company accounted for this transaction as an asset acquisition and allocated substantially all of the purchase price and the tax basis difference totaling $ 19.9 million to intangible assets, primarily related to developed technology.

In July 2023, EMI obtained clearance from the U.S.

Food and Drug Administration that the SkinStylus Sterilock MicroSystem is cleared for use as a treatment to improve the appearance of facial acne scars in Fitzpatrick skin types I, II, and III in adults aged 22 years and older (the “Facial Indication Approval”).

Obtaining the Facial Indication Approval triggered a $ 1.3 million contingent payment made in July 2023 by the Company to the Seller, which was previously not considered probable of payment.

In March 2023, the Company acquired assets from Anacapa Aesthetics LLC and recognized approximately $ 5 million of intangible assets, primarily related to non-compete agreements.

The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of December 31, 2022 were as follows:

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Value Estimated

Developed technology $ 73,188 $ ( 54,422 ) $ 18,766 3 - 8

Customer relationships 18,089 ( 7,602 ) 10,487 5 - 10

Trademarks 10,907 ( 4,119 ) 6,788 15

Capitalized software 9,620 ( 1,507 ) 8,113 3 - 5

Non-compete agreement 776 ( 395 ) 381 3

Customer relationships 18,625 ( 4,391 ) 14,234 5 - 10

Developed technology 70,900 ( 45,051 ) 25,849 8

Patents 2,226 ( 375 ) 1,851 3 - 19

Capitalized software 9,867 ( 2,971 ) 6,896 3 - 5

Total intangible assets $ 114,806 $ ( 68,420 ) $ 46,386

Amortization expense was as follows for the periods indicated:

Year Ended December 31,

(in thousands) 2022 2021 2020

Cost of sales $ 9,450 $ 9,000 $ 9,465

General and administrative 2,969 2,477 2,384

Selling and marketing 2,433 1,820 —

Total amortization expense $ 14,852 $ 13,297 $ 11,849

The changes in the carrying value of goodwill are as follows:

Year Ended December 31,

(in thousands) 2022 2021 2020

Beginning balance $ 123,694 $ 98,531 $ 98,520

Measurement period adjustments 2,154 26,600 —

Foreign currency translation impact ( 1,255 ) ( 1,437 ) 11

Ending balance $ 124,593 $ 123,694 $ 98,531

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 the finalization of the fair value of contingent consideration related to Sidermica during the year ended December 31, 2022 .

The Company finalized the valuation of assets acquired and liabilities assumed for the Ecomedic acquisition and all other distributor acquisitions as of June 30, 2022.

Acquisition of The Personalized Beauty Company, Inc.

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.

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 earn-out payments.

The estimated fair value of the earn-out was not material as of the acquisition date and as of December 31, 2022.

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.

During the year ended December 31, 2023, Mxt was sold, resulting in a loss on sale of $ 2.8 million.

The estimated future amortization expense for the next five years is as follows:

(in thousands) Amortization Expense

2024 $ 19,698

Thereafter 11,811

The Company tests its amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

As of December 31, 2023 and 2022, the Company’s amortizable intangible assets were not impaired.

Note 9 — Long-term Debt

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Hydrafacial and the Administrative Agent were party to that certain Credit Agreement, dated as of December 30, 2021 (the “Original Credit Agreement”).

The Company, Hydrafacial, the other loan parties thereto, the lenders party thereto, and the Administrative Agent agreed to amend and restate the Original Credit Agreement in order to (i) extend the maturity date with respect to the existing revolving credit facility under the Original Credit Agreement to November 14, 2027, (ii) re-evidence the “Obligations” under, and as defined in, the Original Credit Agreement, which shall be repayable in accordance with the terms of the Credit Agreement, (iii) set forth the terms and conditions under which the lenders will, from time to time, make loans and extend other financial accommodations to or for the benefit of the Company and (iv) transition from LIBOR to the secured overnight financing rate (SOFR), (v) provide that the Company shall assume all of the rights and “Obligations” of Hydrafacial under, and as each such

term is defined in, the Original Credit Agreement and (vi) provide that Hydrafacial shall be released and discharged solely from the obligations of the “Borrower” under, and as defined in, the Original Credit Agreement, and shall be a subsidiary guarantor and a loan party thereunder.

The Credit Agreement provides for a $ 50 million revolving credit facility with a maturity date of November 14, 2027.

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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.

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 were issued pursuant to, and are governed by, the Indenture between the Company and U.S.

Bank National Association, as trustee.

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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.

In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defi ned in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

The conversion price as of December 31, 2023 was $ 31.76 per share of common stock.

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(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.

(vi) certain defaults by the Company or any of its subsidiaries with respect to indebtedness for money borrowed of at least $ 45.0 million;

(vii) the rendering of certain judgments against the Company or any of its significant subsidiaries for the payment of at least $ 45.0 million, 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.

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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 Consolidated Balance Sheets and are being amortized as interest expense over the term of the Notes using the effective interest method.

During the years ended December 31, 2022 and December 31, 2021, the Company recognized $ 4.2 million and $ 1.3 million in interest expense related to the amortization of the debt issuance costs related to the Notes, respectively.

The following is a summary of the Company’s Notes as of December 31, 2022:

(in thousands) Principal Amount Unamortized Issuance Costs Net Carrying

Value Amount Level

1.25 % Convertible Notes due 2026

$ 750,000 $ 15,857 $ 734,143 $ 567,000 Level 2

The following is a summary of the Company’s Notes as of December 31, 2021:

(in thousands) Principal Amount Unamortized Issuance Costs Net Carrying

Value Amount Level

During the years ended December 31, 2023, 2022, and 2021, the Company recognized $ 4.2 million, $ 4.2 million, and $ 1.3 million, respectively, in interest expense related to the amortization of the debt issuance costs related to the Notes.

The following is a summary of the Company’s Notes for the periods indicated:

(in thousands) December 31, 2023 December 31, 2022

1.25 % Convertible Notes due 2026

$ 750,000 $ 20,086 $ 729,914 $ 794,325 Level 2

$ 750,000 $ 750,000

Unamortized debt issuance costs

( 11,628 ) ( 15,857 )

Net carrying value

$ 738,372 $ 734,143

The Notes are carried at face value less the unamortized debt issuance costs on the Company’s Consolidated Balance Sheets.

As of December 31, 2022, the estimated fair value of the Notes was approximately $ 567 million.

The estimated fair value of the Notes was determined based on the actual bid price of the Notes on December 31, 2022.

The Notes mature on October 2026, and as of December 31, 2022, the remaining life of the Notes is approximately 3.8 years.

Capped Call Transactions

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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.

T he 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).

Defer red financing costs expense for the year ended December 31, 2021 amounted to $ 0.5 million for the existing debt prior to the Closing of the Business Combination while the amortization of issuance costs for the Notes amounted to $ 1.3 million during 2021 .

T he related write-off of the deferred financing costs totaled $ 2.3 million and prepayment penalties totaled $ 2.0 million for the year ended December 31, 2021.

Both are included in the Other (income) expense, net on the Company’s Consolidated Statements of Comprehensive Income (Loss).

Defer red financing costs expense for the year ended December 31, 2022 amounted to $ 0.5 million for the existing debt prior to the Closing of the Business Combination while the amortization of issuance costs for the Notes amounted to $ 1.3 million for the year ended December 31, 2021 .

Debt Repurchase

In January 2024, the Company redeemed $ 75.0 million principal amount of our Notes at a weighted-average redemption price equal to 77 % for $ 57.8 million.

Note 10 — Fair Value Measurements

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2023 and 2022, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.

As of December 31, 2023

(in thousands) Level 1 Level 2 Level 3 Total

Cash and cash equivalents:

Money market funds $ 458,676 $ — $ — $ 458,676

International treasuries $ — $ 3,777 $ — $ 3,777

Warrant liability — Private Placement Warrants $ — $ — $ 3,555 $ 3,555

As of December 31, 2022

(in thousands) Level 1 Level 2 Level 3 Total

Cash and cash equivalents:

Money market funds $ 513,009 $ — $ — $ 513,009

Warrant liability — Private Placement Warrants $ — $ — $ 15,473 $ 15,473

Money Market Funds

The Company reviews security pricing and assesses liquidity on a quarterly basis.

As of December 31, 2023 , the Company’s U.S.

portfolio had no material exposure to money market funds with a fluctuating net asset value.

Warrant Liabilities

On November 3, 2021, all 16.2 million outstanding Public Warrants were either exercised for cash or on a cashless basis or were redeemed.

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.

Accordingly, as of December 31, 2023 and 2022, there were no Public Warrants outstanding.

As of December 31, 2023 and 2022, the Company had approximately 7 million Private Placement Warrants outstanding, for which the fair value was determined using a Monte Carlo simulation model.

Long-Term Debt

As of December 31, 2023 and 2022 , the estimated fair value of the Notes were approximately $ 558 million and $ 567 million, respectively.

The estimated fair value of the Notes was determined based on the actual bid price of the Notes on December 31, 2023 and 2022.

The estimated fair values have been calculated based on broker quotes or rates for the same or similar instruments and are classified as Level 2 within the fair value hierarchy.

Note 11 — Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law.

The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, the creation of certain refundable employee retention credits, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property (“QIP”).

On December 27, 2020, the United States enacted the Consolidated Appropriations Act which extended many of the benefits of the CARES Act that were scheduled to expire.

The Company does not expect a material impact of Consolidated Appropriations Act on the Company’s Consolidated Financial Statements and related disclosures.

On June 29, 2020, the State of California passed Assembly Bill 85 which suspends the California net operating loss deduction for the 2020-2022 tax years and the research and development credit usage for the same period (for credit usages in excess of $5.0 million).

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 Consolidated Financial Statements and related disclosures.

The Inflation Reduction Act, signed into law on August 16, 2022, provides tax incentives for certain industries and imposes a 15% minimum tax on the book income of certain large corporations and a 1% excise tax on stock buybacks.

The Company may be subject to the new excise tax on certain stock buybacks that occur after December 31, 2022.

The Company is subjected to the new excise tax on certain stock buybacks that occur after December 31, 2023.

The Company does not anticipate a material impact from the Inflation Reduction Act on the Company's consolidated financial statements.

The following table presents domestic and foreign components of net income (loss) before income taxes as follows for the periods indicated:

The following table presents domestic and foreign components of (loss) income before income taxes as follows for the periods indicated:

Year Ended December 31,

2 unchanged sentences

Foreign 2,272 3,259 ( 1,808 )

Income (loss) before taxes $ 45,032 $ ( 377,350 )

The federal, state and foreign components of the income tax expense (benefit) are summarized as follows:

(Loss) income before taxes

$ ( 101,889 ) $ 45,339 $ ( 380,639 )

The federal, state and foreign components of the income tax (benefit) expense are summarized as follows:

Year Ended December 31,

7 unchanged sentences

Foreign ( 1,046 ) ( 1,364 ) ( 364 )

Total deferred tax benefit

( 5,816 ) ( 1,787 ) ( 3,396 )

Total income tax expense (benefit) $ 648 $ ( 2,242 )

Total income tax (benefit) expense

$ ( 1,773 ) $ 1,115 $ ( 1,875 )

The effective tax rate of the provision for income tax differs from the federal statutory rate as follows for the periods indicated:

7 unchanged sentences

Transaction costs

— — ( 32 ) ( 0.1 ) 3,312 ( 0.9 )

Share-based compensation

2,922 ( 2.9 ) — — — —

Foreign rate differential 338 ( 0.3 ) ( 10 ) — 475 ( 0.1 )

R&D credit ( 824 ) 0.8 ( 900 ) ( 2.0 ) ( 152 ) —

Permanent differences

2,183 ( 2.1 ) — — — —

Change in valuation allowance 18,400 ( 18.1 ) 6,242 13.8 4,755 ( 1.2 )

Other 1,348 ( 1.3 ) 1,464 3.2 2,098 ( 0.6 )

Income tax expense (benefit) $ 648 1.5 % $ ( 2,242 ) 0.6 %

Income tax (benefit) expense

$ ( 1,773 ) 1.7 % $ 1,115 2.4 % $ ( 1,875 ) 0.5 %

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

1 unchanged sentence

The components of the deferred tax assets are as follows for the periods indicated:

Year Ended December 31,

(in thousands) 2022 2021

(in thousands) December 31, 2023 December 31, 2022

Deferred income tax assets

5 unchanged sentences

Net operating loss carryforwards 12,379 3,680

Stock-based compensation 5,072 1,883

Share-based compensation

Lease liabilities 3,191 4,469

Capitalized research

Other 1,611 685

4 unchanged sentences

Right-of-use assets

( 2,506 ) ( 3,966 )

Property and equipment ( 2,165 ) ( 3,852 )

6 unchanged sentences

Deferred income tax liabilities ( 702 ) ( 2,011 )

Net deferred income tax liability $ ( 1,196 ) $ ( 3,231 )

Net deferred income tax liabilities

$ ( 171 ) $ ( 1,196 )

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.

The valuation allowance increased approximately $ 5.9 million in 2022 from 2021 primarily due to recognizing valuation allowances against deferred tax assets of certain state and foreign net operating loss carryforwards and federal and state interest carryforwards.

If the Company were to release the valuation allowance upon management determining that it is more likely than not the deferred tax assets could be recognized, approximately $ 14.8 million of income tax benefit would be recorded to continuing operations.

At December 31, 2022, the Company had gross federal, state and foreign net operating loss carryforwards of approximately $ 9.0 million, $ 14.7 million and $ 4.7 million, respectively.

The valuation allowance increased $ 18.4 million in 2023 from 2022 primarily due to recognizing valuation allowances against deferred tax assets of certain state and foreign net operating loss carryforwards and federal and state interest carryforwards.

If the Company were to release the valuation allowance upon management determining that it is more likely than not the deferred tax assets could be recognized, $ 33.2 million of income tax benefit would be recorded to continuing operations.

At December 31, 2023, the Company had gross federal, state and foreign net operating loss carryforwards of $ 42.6 million, $ 57.3 million and $ 1.8 million, respectively.

The state losses expire beginning in 2030 and the foreign losses beginning in 2028.

The federal net operating losses carryforward indefinitely.

As of December 31, 2022 and December 31, 2021, the Company had recorded gross unrecognized tax benefits of approximately $ 0.7 million and $ 0.2 million, respectively.

As of December 31, 2023 and December 31, 2022, the Company had recorded gross unrecognized tax benefits of $ 1.1 million and $ 0.7 million, respectively.

All of the unrecognized tax benefits as of December 31, 2023, if recognized, would not materially impact the effective tax rate.

12 unchanged sentences

The Company’s tax returns remain open for examination in the United States for years 2020 through 2022.

Our foreign subsidiaries are generally subject to examination three years following the year in which the tax obligation originated.

Its foreign subsidiaries are generally subject to examination three years following the year in which the tax obligation originated.

The years subject to audit may be extended if the entity substantially understates corporate income tax.

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subsidiaries.

Under this exception, a U.S.

multinational company is not required to accrue U.S.

taxes on foreign earnings that are indefinitely reinvested in its foreign subsidiaries.

The Company will continue to indefinitely reinvest earnings from its foreign subsidiaries, which are not significant.

During the year ended December 31, 2023, the Company received $ 5.4 million for the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act, of which $ 4.9 million was recorded in other (income) expense, net and $ 0.5 million was recorded in interest income on the Company’s Consolidated Statements of Comprehensive Income (Loss).

Note 12 — Employee Benefit Plan

The Company sponsors a defined contribution 401(k) and profit sharing plan that all regular employees are eligible to participate in after one month of service.

The Plan is administered by a third-party administrator.

Contributions to the plans were $ 2.2 million, $ 1.4 million and $ 0.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company sponsors a defined contribution 401(k) plan that all regular domestic employees are eligible to participate in after one month of service.

Contributions to the 401(k) plan include voluntary contributions by eligible employees and employer matching contributions by the Company.

Certain international employees participate in other defined contribution retirement plans with varying vesting and contribution provisions.

Defined contributions expense was $ 3.0 million, $ 2.2 million and $ 1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Note 13 — Equity-Based Compensation

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The aggregate number of shares of the Company’s Class A Common Stock that may be issued pursuant to awards granted under the 2021 Plan is the sum of (i) 14,839,640 and (ii) an annual increase on January 1 of each calendar year (commencing with January 1, 2022 and ending on and including January 1, 2031) equal to a number of shares equal to 4 % of the aggregate shares outstanding as of December 31 of the immediately preceding calendar year (or such lesser number of shares as is determined by the Company’s Board of Directors), subject to adjustment by the plan administrator in the event of certain changes in our corporate structure.

The annual increase on January 1, 2022 amounted to 6.0 million shares of the Company’s Class A Common Stock.

The maximum number of shares that may be granted with respect to incentive stock options (“ISOs”) under the 2021 Plan is 7,500,000 .

At December 31, 2022 , an aggregate 9.9 million shares of the Company’s Class A Common Stock were reserved for the issuance of awards under the 2021 Plan.

The Company maintains the Employee Stock Purchase Plan (the “ESPP”) for employees located in the United States, which became effective upon the consummation of the Business Combination.

The aggregate number of shares of the Company’s Class A Common Stock initially reserved for issuance pursuant to rights granted under the ESPP was 2,000,000 .

In addition, on the first day of each calendar year beginning on January 1, 2022 and ending on (and including) January 1, 2031, the number of shares available for issuance under the ESPP will be increased by a number of shares equal to the lesser of (1) one percent ( 1 %) of the shares outstanding on the final day of the immediately preceding calendar year, and (2) such smaller number of shares as determined by the Company’s Board of Directors.

Under the ESPP, eligible employees can have up to 10 % of their earnings withheld, up to certain maximums, to be used to purchase shares of the Company’s Class A Common Stock at certain purchase dates.

The price of the Company’s Class A Common Stock purchased under the ESPP for the offering periods is equal to 85 % of the lesser of the fair market value of a share of Class A Common Stock of the Company on the beginning or the end of the offering period.

As of December 31, 2022, there were 206,112 shares of the Company’s Class A Common Stock that were purchased under the ESPP.

The Company is currently going through its third offering period which ends May 19, 2023.

The Company recognized an immaterial amount of compensation expense related to the ESPP for the year ended December 31, 2022.

As of December 31, 2021, there were no shares of the Company’s Class A Common Stock that were purchased under the ESPP.

The Company recognized an immaterial amount of compensation expense related to the ESPP for the year ended December 31, 2021.

At December 31, 2023 , approximately 15 million shares of the Company’s Class A Common Stock were reserved for the issuance of awards under the 2021 Plan.

Stock Options

The following table summarizes the Company’s stock option activity for the year ended December 31, 2022:

The following table summarizes the Company’s stock option activity:

Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value

2 unchanged sentences

5,601,770 $ 15.21 8.34 $ —

Granted 10,500 22.68

( 31,000 ) 12.85

Forfeited ( 1,431,038 ) 17.34

5 unchanged sentences

Options vested and expected to vest - December 31, 2023

The weighted-average grant date fair value of the stock options granted during the year ended December 31, 2022 and 2021 was $ 12.23 and $ 7.84 , respectively.

At December 31, 2022, aggregate unrecognized compensation cost for unvested stock options was $ 27.1 million recognized over a weighted average period of 2.46 years.

3,732,420 $ 14.00 6.73 $ —

The weighted-average grant date fair value of the stock options granted during the years ended December 31, 2022 and 2021 was $ 12.23 and $ 7.84 , respectively.

At December 31, 2023, aggregate unrecognized compensation cost for unvested stock options was $ 8.6 million recognized over a weighted average period of 1.4 years.

10 unchanged sentences

The fair value of PSUs was determined using a Monte Carlo simulation subject to the performance conditions of the underlying PSUs with the following assumptions:

Input 2022 Grants 2021 Grants

Input 2023 Grants

Risk-free interest rate 3.5 %

1.5 % - 4.2 %

0.5 % - 0.7 %

Expected volatility of the Company’s Class A Common Stock 74.9 %

57.7 % - 66.0 %

The following table summarizes the Company’s equity award activity for the year ended December 31, 2023:

8 unchanged sentences

5,242,680 1,306,558 $ 8.77 $ 9.13

The fair value of equity awards that vested, determined based on their respective fair values at vesting date, was $ 2.7 million for the fiscal year ended December 31, 2022, and $ 0.7 million for the fiscal year ended December 31, 2021.

The fair value of equity awards that vested, determined based on their respective fair values at vesting date, during the years ended December 31, 2023, 2022, and 2021 was $ 9.7 million, $ 2.7 million, and $ 0.7 million, respectively.

All of the outstanding equity awards are expected to vest.

At December 31, 2023, the aggregate unrecognized compensation cost for unvested RSUs and PSUs was $ 33.1 million and $ 5.8 million, respectively, recognized over a weighted average period of 1.9 years and 1.1 years, respectively.

Compensation expense attributable to net stock-based compensation was as follows for the periods indicated:

Employee Stock Purchase Plan (“ESPP”)

The Company maintains the ESPP for employees located in the United States, which became effective upon the consummation of the Business Combination.

The aggregate number of shares of the Company’s Class A Common Stock initially reserved for issuance pursuant to rights granted under the ESPP was 2,000,000 .

As of December 31, 2023, approximately 4 million shares were reserved for the future issuance under the ESPP.

Share-based compensation expense was as follows for the periods indicated:

Year Ended December 31,

4 unchanged sentences

General and administrative 11,644 17,691 8,271

Stock-based compensation expense $ 28,495 $ 12,418 $ 363

Total share-based compensation $ 22,544 $ 28,495 $ 12,418

Note 14 — Commitments and Contingencies

On October 21, 2020, Hydrafacial filed a complaint against Ageless Serums LLC (“Ageless”) in the United States District Court for the Central District of California, Western Division, captioned Edge Systems LLC v.

On October 21, 2020, Hydrafacial filed a complaint (the “California Complaint”) against Ageless Serums LLC (“Ageless”) in the United States District Court for the Central District of California, Western Division, captioned Edge Systems LLC v.

Ageless Serums LLC, Case No.

2:20-cv-09669-FMO-PVC (the “California Case”), for contributory trademark infringement, false designation of origin, induced breach of contract, tortious interference with contractual relations, and unfair competition.

In the complaint, Hydrafacial alleges that Ageless is selling its serums to Hydrafacial customers and intentionally encouraging those customers to market treatments performed by such customers as “Hydrafacial Treatments,” in violation of the customers’ license agreements with Hydrafacial and that Ageless improperly markets its products for use as part of the Hydrafacial treatment.

Hydrafacial is seeking monetary damages and injunctive relief.

Additionally, on December 22, 2020, Hydrafacial filed a complaint against Ageless in the United States District Court for the Southern District of Texas, Houston Division, captioned Edge Systems LLC v.

2:20-cv-09669-FMO-PVC (the “California Case”), for various claims, including contributory trademark infringement, false designation of origin, induced breach of contract, tortious interference with contractual relations, and unfair competition.

In the California Complaint, Hydrafacial alleged that Ageless is selling its serums to Hydrafacial customers and intentionally encouraging those customers to market treatments performed by such customers as “Hydrafacial Treatments,” in violation of the customers’ license agreements with Hydrafacial and that Ageless is improperly marketing its products for use as part of the Hydrafacial treatment.

Hydrafacial sought monetary damages and injunctive relief from Ageless in the California Case.

Additionally, on December 22, 2020, Hydrafacial filed a complaint (the “Texas Complaint”) against Ageless in the United States District Court for the Southern District of Texas, Houston Division, captioned Edge Systems LLC v.

Ageless Serums LLC, Case No.

4:20-cv 04335 (the “Texas Case”), alleging infringement of six of Hydrafacial’s patents.

Hydrafacial is seeking monetary damages and injunctive relief.

Ageless ultimately answered and asserted counterclaims in both actions.

On May 5, 2022, Ageless filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Southern District of Texas, Houston Division, and the California Case and Texas Case were stayed.

On September 7, 2022, Hydrafacial filed a proof of claim, asserting a $ 12,616,983 general unsecured claim for damages arising from claims alleged in the California Case and Texas Case.

Hydrafacial sought monetary damages and injunctive relief from Ageless in the Texas Case.

On November 30, 2020, Ageless answered the California Complaint and asserted counterclaims for violation of antitrust, California statutory and common law unfair competition, false advertising, defamation, and tortious interference with prospective and actual economic advantage.

On July 12, 2021, Ageless answered the Texas Complaint and asserted similar counterclaims as those in the California Case.

On May 5, 2022, Ageless filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Houston Bankruptcy Court”), and the California Case and Texas Case were thus stayed under 11 U.S.C.

Section 362(a)(1).

On September 7, 2022, Hydrafacial filed a proof of claim, asserting general unsecured claim for damages arising from claims alleged in the California Case and Texas Case.

On January 4, 2023, Hydrafacial filed an Objection to the Confirmation of Debtor’s Subchapter V Plan of Reorganization and Brief in Support.

Hydrafacial plans to continue a vigorous pursuit of its claims against Ageless.

On December 14, 2020, Hydrafacial filed a complaint against Cartessa Aesthetics, LLC (“Cartessa”) in the United States District Court for the Eastern District of New York, captioned Edge Systems LLC v.

On March 8, 2023, Hydrafacial and Ageless engaged in mediation to settle the claims alleged in the California Case and Texas Case.

Ultimately, Hydrafacial and Ageless reached a tentative settlement agreement of all claims alleged in the California Case and Texas Case.

On September 18, 2023, Ageless filed the Debtor’s Third Amended Subchapter V Plan of Reorganization (the “Plan”).

The Plan incorporated the material terms of the settlement that Hydrafacial and Ageless reached at the mediation.

Under the Plan, Ageless was required to pay to Hydrafacial $ 0.1 million on or before October 15, 2023 and tender thirteen (13) subsequent quarterly payments, each consisting of $ 0.1 million, for a total of $ 1.4 million.

Ageless also agreed to various sales and marketing conditions that restrict Ageless from selling to Hydrafacial’s customers that use its service mark to provide hydradermabrasion treatments.

Ageless agreed to other covenants that are contained in Article VIII of the Plan.

The Plan also includes mutual releases between Hydrafacial and Ageless.

The Plan includes remedies for Hydrafacial’s benefit in the event that Ageless defaults on any of its material obligations under the Plan.

The Houston Bankruptcy Court considered confirmation of the Plan at a hearing held on September 22, 2023, and Hydrafacial expressed its support of the Plan at the hearing.

The Houston Bankruptcy Court entered the Findings of Fact, Conclusions of Law, and Order Confirming Debtor’s Third Amended Plan of Reorganization on September 22, 2023.

The Plan contains various conditions precedent to the effectiveness of the Plan that are contained in Article X of the Plan.

The Plan required Hydrafacial to dismiss the California Case and the Texas Case within ten (10) days of the occurrence of the effective date of the Plan.

On October 13, 2023, Ageless tendered its initial payment of $ 0.1 million to Hydrafacial pursuant to the terms and conditions of the Plan.

On February 2, 2024, all claims, counterclaims, and defenses in the California Case and the Texas Case were dismissed with prejudice.

On December 14, 2020, Hydrafacial filed a complaint (the “Cartessa Complaint”) against Cartessa Aesthetics, LLC (“Cartessa”) in the United States District Court for the Eastern District of New York (the “New York Court”), captioned Edge Systems LLC v.

Cartessa Aesthetics, LLC, Case No.

1:20-cv-6082, for patent infringement arising from Cartessa’s sale of a delivery system that allegedly infringes five of Hydrafacial’s

patents on its device.

Hydrafacial is seeking money damages and injunctive relief and plans to vigorously pursue its claims against Cartessa.

Note 15 – Concentrations

No single customer accounted for 10% or more of consolidated Net sales during the years ended December 31, 2022 and December 31, 2021.

As of December 31, 2022 the Company had one customer that accounted for 12 % of the Company’s accounts receivable balance.

As of December 31, 2021, the Company had no customers that accounted for 10% or more of the accounts receivable balance.

1:20-cv-6082, for patent infringement arising from Cartessa’s sale of Cartessa’s hydradermabrasion system that Hydrafacial alleged has infringed five of Hydrafacial’s patents on its device.

Hydrafacial narrowed its allegation in the Cartessa Complaint to assert infringement of just four of its patents.

On September 15, 2022, the New York Court granted Hydrafacial’s Motion for Summary Judgment of No Unclean Hands and denied

Cartessa’s Motion for Summary Judgment of non-infringement on three of the four patents-in-suit.

On June 6, 2023, the New York Court granted Hydrafacial’s Motion for Summary Judgment of No Invalidity of the fourth patent-in-suit and granted Cartessa’s Motion for Summary Judgment of non-infringement of that same patent.

As of the date of this report, Hydrafacial and Cartessa are awaiting the New York Court to set a trial date on Hydrafacial’s remaining three patents-in-suit in the Cartessa Complaint.

Hydrafacial is seeking monetary damages and plans to vigorously pursue its claims against Cartessa.

Hydrafacial also plans to appeal the New York Court’s grant of Cartessa’s Motion for Summary Judgment.

Securities Class Action

On November 16, 2023, a putative class action was filed in the United States District Court for the Central District of California against the Company, its then-current president and chief executive officer, Andrew Stanleick, its former chief financial officer, Liyuan Woo, and its current chief financial officer, Michael Monahan.

The complaint, styled, Abduladhim A.

Alghazwi, individually and on behalf of all others similarly situated, v.

The Beauty Healthy Company, Andrew Stanleick, Liyuan Woo, and Michael Monahan, Case No.

2:23-cv-09733 (C.D.

Ca.) (the “Securities Class Action”), asserts claims for violation of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder against all defendants (First Claim), and violation of Section 20(a) of the Exchange Act against the individual defendants (Second Claim).

The complaint alleges that, between May 10, 2022 and November 13, 2023, defendants materially misled the investing public by publicly issuing false and/or misleading statements and/or omissions relating to Hydrafacial's business, operations, and prospects, specifically with respect to the performance of and demand for the Syndeo 1.0 and 2.0 devices.

The relief sought in the complaint includes a request for compensatory damages suffered by the plaintiff and other members of the putative class for damages allegedly sustained as a result of the alleged securities violations.

On January 16, 2024, putative class members Jeff and Kevin Brown (the “Browns”), Priscilla and Martjn Dijkgraaf (the “Dijkgraafs”), and Joseph Jue filed three competing motions for appointment as lead plaintiff under the Private Securities Litigation Reform Act (“PSLRA”), 17 U.S.C.

§ 78u-4(a)(3).

On January 31, 2024, Joseph Jou filed a notice of non-opposition to the Browns’ and Dijkgraafs’ motions for appointment as lead plaintiff.

The court is currently deciding the motions for appointment of lead counsel and lead plaintiff..

Within ten days of entry of the order appointing lead plaintiff and approving lead counsel, the court-appointed lead plaintiff and defendants shall confer and submit a proposed schedule for the filing of an amended complaint and defendants’ response(s) thereto.

The Securities Class Action case is assigned to U.S.

District Judge Sherilyn Peace Garnett.

The Company believes that the claims asserted in the Securities Class Action have no merit and intends to vigorously defend them.

The Company is unable to reasonably estimate the possible loss or range of loss, if any, associated with these claims, and, accordingly, it has not accrued any liability associated with the Securities Class Action.

Derivative Action

On February 8, 2024, a derivative complaint was filed in the Delaware Court of Chancery against the Company’s former president and chief executive officer, Andrew Stanleick;

its former chief financial officer, Liyuan Woo, and current members of the Company’s Board of Directors:

Brenton Saunders, Marla Beck, Michael Capellas, Julius Few, Desiree Gruber, Michelle Kerrick, Brian Miller, and Doug Schillinger, with the Company as the nominal defendant.

The complaint, styled Margie Elstein, derivatively on behalf of The Beauty Health Company v.

Brenton Saunders, Marla Beck, Michael Capellas, Julius Few, Desiree Gruber, Michelle C.

Kerrick, Brian Miller, Doug Schillinger Andrew Stanleick, and Liyuan Woo, C.A.

2024-0114-LWW (Del.

Ch.) (the “Derivative Action”), asserts a single claim for breach of fiduciary duty against the individual defendants based on the alleged disclosure of knowingly false information and/or the alleged failure to respond to red flags relating to Hydrafacial’s business, operations, and prospects, specifically with respect to the performance of and demand for the Syndeo 1.0 and 2.0 devices.

The plaintiff-stockholder further maintains that no demand was made upon the Company’s board prior to the initiation of the Derivative Action based on allegations that a majority of the board was not disinterested or independent with respect to the fiduciary duty claim, such that demand should be excused as futile.

The relief sought in the complaint includes a finding of demand futility, a finding that the individual defendants are liable for breaching their fiduciary duties (as current/former officers and directors), and an award of compensatory damages for harm suffered by the Company and its stockholders for harm allegedly sustained as a result of the alleged fiduciary duty violation.

The Derivative Action has been assigned to Vice Chancellor Lori Will.

The Company believes that the claims asserted in the Derivative Action have no merit and intends to vigorously defend them.

Contractual Obligations and Other Commercial Commitments

As of December 31, 2023, the Company has $ 73.7 million of non-cancelable contractual obligations and other commercial commitments related to the purchase of inventory, service, other items, of which the majority will be paid within the next twelve months.

Note 15 — Related-Party Transactions

17 unchanged sentences

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.

(“DW Management Services”) pursuant to which the parties received 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.

In addition, the management services agreement provided 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 varied 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.

As consideration for such services, the Company would 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 had 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 % Fee expired twelve months after the consummation of the Business Combination on May 4, 2022.

Hydrafacial recorded approximately $ 0.2 million of charges related to management services fees for th e year ended December 31, 2021.

There were no management fees during the year ended December 31, 2022.

Hydrafacial recorded approximately $ 0.2 million of charges related to management services fees for the year ended December 31, 2021.

There were no management fees during the years ended December 31, 2022 and 2023.

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.

In relation to the consummation of the Business Combination, $ 21.0 million in transaction fees was paid to the Former Parent during the year ended December 31, 2021.

These amounts are included in General and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income (Loss).

Miami Beach Office

For the year ended December 31, 2022, the Company maintained an office in Miami Beach, Florida, whereby the Company, on a monthly basis, reimbursed 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 year ended December 31, 2022.

No such expenses existed for the year ended December 31, 2021 .

Note 16 — Stockholders’ Equity

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Common Stock Repurchases

On September 12, 2023, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $ 100.0 million of the Company’s Class A Common Stock.

Under the share repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions, transactions structured through investment banking institutions, or a combination of the foregoing.

Under this share repurchase program, for the year ended December 31, 2023, the Company repurchased and retired 10.4 million shares for $ 30.2 million excluding taxes.

On September 26, 2022, the Company’s Board of Directors approved a common stock repurchase program pursuant to which the Company may repurchase up to $ 200.0 million of its outstanding shares of Class A Common Stock.

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The Company entered into two accelerated share repurchase agreements on September 27, 2022 and November 9, 2022, respectively, with a financial institution to repurchase a total of $ 200.0 million of Class A Common Stock.

On September 27, 2022 and November 9, 2022, the Company made a payment of $ 100 million and $ 100 million, respectively, and received initial deliveries of approximately 7.7 million shares and 9.5 million shares, respectively, which represented 80 % of the payment amount divided by the Company’s closing stock price on those respective dates.

Under the September 27, 2022 accelerated share repurchase agreement, the Company received a final settlement of 1.6 million shares on December 16, 2022, which was based upon the average daily volume weighted average price of the Company’s Class A Common Stock during the repurchase period, less agreed upon discount.

The final settlement of the November 9, 2022 accelerated share repurchase agreement is expected to occur no later than June 30, 2023.

Under the September 27, 2022 accelerated share repurchase agreement, the Company repurchased and retired 9.3 million shares for $ 100.0 million.

Under the November 9, 2022 accelerated share repurchase agreement, the Company made a payment of $ 100.0 million and received initial deliveries of 9.5 million shares, which were also retired, which represented 80 % of the payment amount divided by the Company’s closing stock price on that date.

During the three months ended June 30, 2023, the Company paid $ 2.2 million as the final settlement of the November 9, 2022 accelerated share repurchase agreement, which was based upon the average daily volume weighted average price of the Company’s Class A Common Stock during the repurchase period, less an agreed upon discount.

The accelerated share repurchase agreements are accounted for as a repurchases and retirements of shares and as equity forward contracts indexed to the Company’s Class A Common Stock.

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The equity forward stock purchase contracts are classified as equity instruments and are recognized as a reduction to additional paid in capital.

The initial deliveries of 7.7 million shares and 9.5 million shares under the accelerated share repurchase agreements as well as the final settlement of shares reduced the number of Class A Common Stock outstanding on the transaction date and, as a result, reduced the weighted average number of shares of Class A Common Stock outstanding used to calculate basic income per share and diluted income per share for the year ended December 31, 2022.

The Company performed analysis of the average of the daily volume-weighted average price of our Class A Common Stock since the transaction dates and has determined, as of December 31, 2022, that the potential final settlement of shares of Class A Common Stock under the November 9, 2022 accelerated share repurchase agreement is anti-dilutive and therefore excluded from the calculation of diluted earnings per share.

Preferred Stock

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At December 31, 2023 and December 31, 2022 , there were no shares of preferred stock issued or outstanding.

Note 18 - 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:

Year Ended December 31,

(in thousands) 2022 2021 2020

Americas $ 243,243 $ 169,426 $ 81,453

Asia-Pacific 54,306 43,701 14,464

Europe, the Middle East and Africa 68,327 46,959 23,175

Total net sales $ 365,876 $ 260,086 $ 119,092

As of December 31, 2022 and December 31, 2021 substantially all of the Company’s property and equipment were held in the United States.

Note 17 — Net Income (Loss) Attributable to Common Stockholders

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(in thousands, except share and per share amounts) 2023 2022 2021

Net income (loss) available to common stockholders - basic

Net (loss) income available to common stockholders - basic

$ ( 100,116 ) $ 44,224 $ ( 378,764 )

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Weighted average common shares outstanding - diluted 131,680,605 148,506,312 102,114,949

Basic net income (loss) per share:

Basic net (loss) income per share:

$ ( 0.76 ) $ 0.30 $ ( 3.71 )

Diluted net income (loss) per share $ ( 0.23 ) $ ( 3.67 ) $ ( 0.85 )

Diluted net (loss) per share

$ ( 0.76 ) $ ( 0.23 ) $ ( 3.71 )

The following shares have been excluded from the calculation of the weighted average diluted shares outstanding as the effect would have been anti-dilutive or requisite performance conditions were not met:

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Stock Options 3,732,420 5,601,770 6,785,020

The Company performed analysis of the average of the daily volume-weighted average price of our Class A Common Stock since the transaction date and has determined, as of December 31, 2022, that the potential final settlement of shares of Class A Common Stock under the November 9, 2022 accelerated share repurchase agreement is anti-dilutive and therefore excluded from the calculation of diluted earnings per share.

Note 20 – Subsequent Events

Stock Purchase Agreement - Esthetic Medical Inc.

On February 27, 2023, Edge Systems Intermediate, LLC, an indirect, wholly-owned subsidiary of the Company, entered into a Stock Purchase Agreement with Dr.

Lawrence Groop, Kristin Groop, and Esthetic Education, LLC.

Pursuant to the Stock Purchase Agreement, Edge Systems Intermediate, LLC will purchase all of the outstanding shares of Esthetic Medical Inc.

in exchange for a total consideration of $ 16.3 million, which includes stock equal to $ 1.3 million in the form of Class A common stock of the Company, at par value, and a cash payment equal to $ 15.0 million, which is inclusive of the payment of up to an additional $ 3.2 million in contingent consideration based upon the achievement of certain conditions as described in the Stock Purchase Agreement.

In addition, the potential final settlement of shares related to the November 9, 2022 accelerated share repurchase agreement was excluded from the calculation of the weighted average diluted shares outstanding for the year ended December 31, 2022 as the effect would have been anti-dilutive.

For the years ended December 31, 2023 and 2021, income and shares related to the Private Placement Warrants were excluded from the calculation of diluted net loss per common share because their effect would be antidilutive.

Note 18 — Restructuring Charges

Syndeo Program

The Company launched Syndeo in March 2022, the first new Delivery System model in five years.

Subsequent to launch, many customers with Syndeo 1.0 and Syndeo 2.0 builds began to experience frequent treatment interruptions and unacceptable device conditions.

In addition to issues such as distractive noise and difficult bottle insertion, a significant issue was low flow and clogs in the system, due to recommended maintenance requiring overly rigorous levels to prevent serum build-up inside the system’s fluidics manifold.

Throughout 2022 and the first half of 2023, the Company made several enhancements to each version of the Syndeo in an effort to address and remediate these issues, but despite these efforts, performance interruptions that negatively impacted customer productivity and satisfaction continued to persist.

In July 2023 the Company developed Syndeo 3.0 and has noted a significant improvement in user experience and a substantial decline in initial return rates, primarily due to hardware and software enhancements that automate and force effective rinse cycles and manifold cleaning with an air blast procedure that reduce build-up and clogging as well as improvements in the connector to the handpiece to facilitate user cleaning.

During the third quarter of 2023, the Company announced its Syndeo Enhancement Program (the “Syndeo Program”) to upgrade devices to Syndeo 3.0 build standards via field service.

To stand behind its commitment to its customers and protect the Company’s brand reputation, during October 2023, the Company’s management decided that, with respect to Syndeo devices, the Company will only market and sell Syndeo 3.0 devices.

The Company will provide, at no cost to the customer, the option of (i) a technician upgrade to their Syndeo 1.0 or 2.0 devices to 3.0 standards in the field;

or (ii) a replacement Syndeo 3.0 device for their existing device.

Additionally, the Company will extend the customer’s warranty by one year for each system from the date it was either brought to the 3.0 standards or the customer received a Syndeo 3.0 device.

The Company anticipates that the vast majority of its customers will elect to request a replacement Syndeo 3.0 device.

With respect to Syndeo devices, as a result of the decision to market and sell Syndeo 3.0 devices exclusively, the Company has designated all Syndeo 1.0 and 2.0 builds on-hand as obsolete, resulting in an inventory write-down in cost of sales of $ 19.6 million during the year ended December 31, 2023.

The following table summarizes the Syndeo Program charges and usage:

(in thousands)

Year Ended December 31, 2023

Program charges

Program usage

Ending balance

Syndeo inventory write-down and Syndeo Program charges were recognized in cost of sales for the year ended December 31, 2023.

Business Transformation Program and Other Restructuring Actions

The Company has recognized restructuring charges of $ 7.2 million primarily related to reductions in workforce and consulting expenses for the year ended December 31, 2023 for the first phase of the Company’s business transformation plan and other restructuring actions.

Outstanding liabilities for consulting expenses was $ 2.4 million as of the year ended December 31, 2023.

Outstanding liabilities for employee reductions in force were immaterial as of the year ended December 31, 2023.

In the second phase (“Phase 2”), of the Business Transformation Program, the Company expects cost savings to be driven by optimizing manufacturing operations and reduced operating spend.

While the Company believes there are long-term savings to be achieved, as of the date of the issuance of these financial statements, Phase 2 of the restructuring program is not finalized, and the Company is re-evaluating the expected timing and savings.

Note 19 — Revision for Immaterial Misstatements

As disclosed in Note 1 – Description of Business, subsequent to the issuance of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, during the six months ended June 30, 2023, the Company identified misstatements related to the elimination of intercompany balances and right of return assets.

The revision to the accompanying Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income (Loss), and Consolidated Statements of Cash Flows and related disclosures in Note 5 – Balance Sheet Components and Note 17 – Net Income (Loss) Attributable to Common Stockholders are detailed in the tables below.

As of December 31, 2021, accumulated deficit was understated by $ 4.3 million, and as such, previously reported stockholders’ equity of $ 302.3 million was revised to $ 298.0 million.

There were no other changes to the consolidated statements of stockholders’ equity that have not otherwise been reflected in the Consolidated Balance Sheets and Consolidated Statements of Comprehensive Income (Loss) as detailed in the tables below.

Year Ended December 31, 2021

Consolidated Statement of Comprehensive Income (Loss) (in thousands, except per share amounts) As Previously Reported Adjustment As Revised

Cost of sales $ 78,259 $ 3,289 $ 81,548

Gross profit $ 181,827 $ ( 3,289 ) $ 178,538

Loss from operations $ ( 36,639 ) $ ( 3,289 ) $ ( 39,928 )

Loss before provision for income taxes $ ( 377,350 ) $ ( 3,289 ) $ ( 380,639 )

Income tax benefit $ ( 2,242 ) $ 367 $ ( 1,875 )

Net loss $ ( 375,108 ) $ ( 3,656 ) $ ( 378,764 )

Comprehensive loss $ ( 376,607 ) $ ( 3,656 ) $ ( 380,263 )

Net loss per share - Basic $ ( 3.67 ) $ ( 0.04 ) $ ( 3.71 )

Net loss per share - Diluted $ ( 3.67 ) $ ( 0.04 ) $ ( 3.71 )

Year Ended December 31, 2021

Consolidated Statement of Cash Flows (in thousands) As Previously Reported Adjustment As Revised

Net loss $ ( 375,108 ) $ ( 3,656 ) $ ( 378,764 )

Change in operating assets and liabilities:

Inventories $ ( 10,577 ) $ 3,289 $ ( 7,288 )

Prepaid expenses and other current assets $ ( 5,434 ) 367 $ ( 5,067 )

As of December 31, 2022

Consolidated Balance Sheet (in thousands)

As Previously Reported Adjustment As Revised

Inventories $ 116,430 $ ( 6,774 ) $ 109,656

Prepaid expenses and other current assets $ 26,698 $ 950 $ 27,648

Total current assets $ 789,099 $ ( 5,824 ) $ 783,275

TOTAL ASSETS $ 1,008,907 $ ( 5,824 ) $ 1,003,083

Accounts payable $ 30,335 $ ( 1,868 ) $ 28,467

Income tax payable $ 962 $ 467 $ 1,429

Total current liabilities $ 73,115 $ ( 1,401 ) $ 71,714

TOTAL LIABILITIES $ 837,431 $ ( 1,401 ) $ 836,030

Accumulated deficit $ ( 374,328 ) $ ( 4,423 ) $ ( 378,751 )

Total stockholders' equity $ 171,476 $ ( 4,423 ) $ 167,053

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,008,907 $ ( 5,824 ) $ 1,003,083

Year Ended December 31, 2022

Consolidated Statement of Comprehensive Income (Loss) (in thousands) As Previously Reported Adjustment As Revised

Cost of sales $ 115,536 $ 1,561 $ 117,097

Gross profit $ 250,340 $ ( 1,561 ) $ 248,779

Loss from operations $ ( 24,280 ) $ ( 1,561 ) $ ( 25,841 )

Foreign currency transaction loss, net $ 3,164 $ ( 1,868 ) $ 1,296

Income before provision for income taxes $ 45,032 $ 307 $ 45,339

Income tax expense $ 648 $ 467 $ 1,115

Net income $ 44,384 $ ( 160 ) $ 44,224

Comprehensive income $ 41,111 $ ( 160 ) $ 40,951

Year Ended December 31, 2022

Consolidated Statement of Cash Flows (in thousands) As Previously Reported Adjustment As Revised

Net income $ 44,384 $ ( 160 ) $ 44,224

Change in operating assets and liabilities:

Inventories $ ( 87,241 ) $ 2,878 $ ( 84,363 )

Prepaid expenses and other current assets $ ( 16,401 ) $ ( 1,317 ) $ ( 17,718 )

Accounts payable $ 1,606 $ ( 1,868 ) $ ( 262 )

Income taxes payable $ 198 $ 467 $ 665

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data