Item 9A. Controls and Procedures
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective due to a material weakness in internal control over financial reporting related to the Company's inventory process described below.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Based on the Company’s assessment, management has identified a material weakness in our internal control over financial reporting, due to the Company’s lack of sufficient resources within inventory operations with an appropriate level of accounting knowledge, training, and experience which resulted in the ineffective design and operating effectiveness of controls over the accounting for inventory. As a result, the Company’s accounting department was not provided with complete and adequate support, documentation, and information to effectively analyze and record accounting matters timely and account for the financial statement effects of the areas impacted. This resulted in inadequate controls over 1) physical existence of inventory, 2) excess and obsolete inventory, and 3) inventory pricing and purchase arrangements, including non-trade vendor receivables and potential disputes with vendors. The material weakness did not result in any material misstatements to our consolidated financial statements as of December 31, 2023 or in previous periods.
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an audit report on the Company’s internal control over financial reporting, which is included herein.
Remediation Plan for Material Weakness
The Company, with oversight from our Audit Committee, is in the process of developing and implementing its remediation plan specific to the material weakness, which is expected to include the addition of personnel within inventory operations and the enhancement of certain inventory processes and use of information systems. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time, and management has concluded, through testing, that the related controls are operating effectively.
Changes in Internal Control over Financial Reporting
Other than the material weakness described above, there were no changes in our internal control over financial reporting (as such term is defined in the Exchange Act) that occurred during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
128
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of The Beauty Health Company
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of The Beauty Health Company and subsidiaries (the “Company”) 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 (COSO). In our opinion, because of the effect of the material weakness identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated March 12, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
129
Material Weakness
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment:
The Company lacks sufficient resources within inventory operations, with an appropriate level of accounting knowledge, training and experience which resulted in the ineffective design and operating effectiveness of controls over the accounting for inventory. As a result, the accounting department was not provided with complete and adequate support, documentation, and information to effectively analyze and record accounting matters timely and account for the financial statement effects of the areas impacted. This resulted in inadequate controls over 1) physical existence of inventory 2) excess and obsolete inventory and 3) inventory pricing and purchase arrangements, including non-trade vendor receivables and potential disputes with vendors.
This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2023, of the Company, and this report does not affect our report on such financial statements.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 12, 2024
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
130
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item will be included in the Company’s definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after our fiscal year end December 31, 2023, in connection with the solicitation of proxies for the Company’s 2024 Annual Meeting of Stockholders (the “2024 Proxy Statement”), under the captions “Proposal 1: Election of Three Class III Directors”, “Directors and Nominees”, “Corporate Governance — Board Committees — Audit Committee,”, and “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item will be included in the 2024 Proxy Statement under the captions “Compensation Discussion and Analysis”, “Executive Compensation”, “Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table”, “2023 Director Compensation”, “Corporate Governance - Compensation committee interlocks and insider participation,”, “Compensation Committee Report”, and “CEO Pay Ratio Disclosure”, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will be included in the 2024 Proxy Statement under the captions “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management”, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item will be included in the 2024 Proxy Statement under the captions “Certain Relationships and Related Party Transactions” and “Corporate Governance - Affirmative Determinations Regarding Director and Nominee Independence”, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this Item will be included in the 2024 Proxy Statement under the caption “Proposal 3: Ratification of Appointment of Independent Registered Public Accounting Firm”, and is incorporated herein by reference.
131
PART IV
Item 15. Exhibit and Financial Statements
(a)(1) Financial Statements
See Index to Financial Statements in Item 8 of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted as the information is not required under the related instructions or is not applicable or because the information required is already included in the financial statements or the notes to those financial statements.
(a)(3) Exhibits
List of Exhibits required by Item 601 of Regulation S-K. See part (b) below .
(b) Exhibits
The following exhibits listed in the accompanying index to exhibits are filed, furnished, or incorporated by reference as part of this Annual Report on Form 10-K.
Certain of the agreements filed as exhibits to this Annual Report on Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:
• may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;
• may apply standards of materiality that differ from those of a reasonable investor; and
• were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.
EXHIBIT INDEX
No. Description of Exhibit Form
File No.
Exhibit
Filing Date
Filed Herewith
2.1
Agreement and Plan of Merger, dated as of December 8, 2020, by and among Vesper Healthcare Acquisition Corp., Hydrate Merger Sub I, Inc., Hydrate Merger Sub II, LLC, LCP Edge Intermediate, Inc. and LCP Edge Holdco, LLC, in its capacity as the Stockholders’ Representative
8-K 001-39565 2.1 December 9, 2020
2.2 †
Stock Purchase Agreement by and among Dr. Lawrence Groop, Kristin Groop, Esthetic Education, LLC, and Edge Systems Intermediate, LLC, dated as of February 27, 2023
8-K 001-39565 2.1 February 28, 2023
132
EXHIBIT INDEX
No. Description of Exhibit Form
File No.
Exhibit
Filing Date
Filed Herewith
3.1
Second Amended and Restated Certificate of Incorporation of The Beauty Health Company
8-K 001-39565 3.1 May 10, 2021
3.2
Amended and Restated Bylaws of The Beauty Health Company
8-K 001-39565 3.2 May 10, 2021
4.1
Indenture, dated as of September 14, 2021, between The Beauty Health Company and U.S. Bank National Association, as trustee
8-K 001-39565 4.1 September 14, 2021
4.2
Form of certificate representing the 1.25% Convertible Senior Notes due 2026 (included as Exhibit A to Exhibit 4.1)
8-K 001-39565 4.2 September 14, 2021
4.3
Warrant Agreement, dated September 29, 2020, between the Company and Continental Stock Transfer & Trust Company, as warrant agent
8-K
001-39565 4.1 October 5, 2020
4.4
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
10-K
001-39565 4.4 March 1, 2022
10.1
Amended and Restated Registration Rights Agreement dated as of May 4, 2021, by and among the Company, BLS Investor Group LLC and the stockholders of LCP Edge Intermediate, Inc.
8-K 001-39565 10.2 May 10, 2021
10.2
Investor Rights Agreement dated as of May 4, 2021, by and between the Company and LCP Edge Holdco, LLC
8-K 001-39565 10.3 May 10, 2021
10.3#
The Beauty Health Company 2021 Incentive Award Plan
8-K 001-39565 10.1 April 30, 2021
10.4#
The Beauty Health Company 2021 Employee Stock Purchase Plan
8-K 001-39565 10.2 April 30, 2021
10. 5 #
The Beauty Health Company Executive Severance Plan
8-K 001-39565 10.12 May 10, 2021
1 0.6#
F irst Amendment to The Beauty Health Company Executive Severanc e Plan
8-K
001-39565 10.1 April 14, 2023
10. 7 #
Form of Confirmation for Capped Call Transactions
8-K 001-39565 10.1 September 14, 2021
10.8
Amended and Restated Credit Agreement, dates as of November 14, 2022, among The Beauty Health Company, as borrower, the other loan parties thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent
8-K 001-39565 10.1 November 15, 2022
10.9
Master Confirmation - Uncollared Accelerated Share Repurchase, dates as of September 27, 2022, between JPMorgan Chase Bank, National Association and The Beauty Health Company
8-K 001-39565 10.1 September 27, 2022
10.1 0 #
O ffer Letter , dated November 13, 2023, by and between The Beauty Health Company and Marla Beck
8-K
001-39565 10.1 November 13, 2023
10.1 1 #
E mployment Agreement, dated August 10, 2023, by and among The Beauty Health Company, HydraFacial LLC, and Michael Mon ahan
8-K
001-39565
10.1 August 9, 2023
10.1 2 #
P romotion Offer Letter with Brad Hauser, dated April 7, 2023
8-K
001-39565
10.1 April 19, 2023
10.13 #
F orm of Restricted Stock Unit Agreement
8-K
001-39565
10.1 December 1, 2023
10.1 4 †
Separation Agreement , dated December 8, 2023, by and between The Beauty Health Company and Andrew Sta nleick
8-K/A
001-39565
10.1 December 14, 2023
133
EXHIBIT INDEX
No. Description of Exhibit Form
File No.
Exhibit
Filing Date
Filed Herewith
10.1 5 †
S eparation Agreement , dated August 10, 2023, by and between The Beauty Health Company and Liyuan Woo
8-K
001-39565
10.2 August 9, 2023
21.1
Subsidiaries of The Beauty Health Company
X
23.1
Consent of Deloitte & Touche LLP
X
31.1
Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
97.1
T he Beauty Health Company Amended and Restated Clawback Policy
X
101.INS**
Inline XBRL Instance Document
X
101.SCH**
Inline XBRL Taxonomy Extension Schema Document
X
101.CAL**
Inline XBRL Taxonomy Extension Calculation Linkbase Document
X
101.DEF**
Inline XBRL Taxonomy Extension Definition Linkbase Document
X
101.LAB**
Inline XBRL Taxonomy Extension Labels Linkbase Document X
101.PRE**
Inline XBRL Taxonomy Extension Presentation Linkbase Document
X
104** Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 attachments
_______________
* These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
** The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
† Certain confidential information (indicated by brackets and asterisks) has been omitted from this exhibit because it is both (i) not material and (ii) the type of information that the registrant treats as private or confidential.
# Management contract or compensatory plan or arrangement.
(c) Financial Statement Schedule
See Item 15(a)(2) above.
134
Item 16. Form 10–K Summary.
None.
135
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE BEAUTY HEALTH COMPANY
Date: March 12, 2024
By: /s/ Marla Beck
Name: Marla Beck
Title: Chief Executive Officer
(Principal Executive Officer)
136
Power of Attorney
Each person whose individual signature appears below hereby authorizes, constitutes, and appoints Marla Beck and Michael Monahan, and each of them, with full power of substitution and re-substitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place, and stead, in any and all capacities, to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this annual report on Form 10‑K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Marla Beck Chief Executive Officer and Director March 12, 2024
Marla Beck
(Principal Executive Officer)
/s/ Michael Monahan Chief Financial Officer
March 12, 2024
Michael Monahan
(Principal Financial and Accounting Officer)
/s/ Brenton L. Saunders
Chairman March 12, 2024
Brenton L. Saunders
/s/ Michael D. Capellas Director March 12, 2024
Michael D. Capellas
/s/ Julius Few Director March 12, 2024
Julius Few
/s/ Desiree Gruber Director March 12, 2024
Desiree Gruber
/s/ Michelle Kerrick Director March 12, 2024
Michelle Kerrick
/s/ Brian Miller Director March 12, 2024
Brian Miller
/s/ Doug Schillinger Director March 12, 2024
Doug Schillinger