SkinHealth Systems Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 88 Consolidated Balance Sheets 90 Consolidated Statements of Comprehensive Income (Loss ) 91 Consolidated Statements of Stockholders’ Equity 92 Consolidated Statements of Cash Flows 93 Notes to Consolidated Financial Statements 94 87 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of The Beauty Health Company Opinion on 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, 2024 and 2023, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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, 2025, expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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. Inventories — Provision for obsolete and excess inventory – Refer to Notes 2 and 3 to the financial statements Critical Audit Matter Description Inventories are stated at the lower of cost or net realizable value. The Company estimates the net realizable value and makes a provision as necessary based on economic trends, future demand for products, and technological obsolescence to value goods that are obsolete or in excess. As of December 31, 2024, the Company’s inventories balance was $69.1 million. We identified the provision for obsolete and excess inventories as a critical audit matter because of the significant judgment required by management in developing its assumptions about future demand, selling prices and market conditions. Testing management’s assumptions and estimates used in calculating the provision required a high degree of auditor judgment and the use of more experienced audit professionals. 88 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to testing the provision for obsolete and excess inventories included the following, among others: • We observed the physical condition of inventories during physical inventory counts. • We performed a retrospective review on the prior year provision for obsolete and excess inventories by considering current year write-off activity. • We compared on-hand inventories to current year sales to assess the projected future demand and to identify potential indicators of excess inventory. • For a sample of inventory products, we estimated the future demand based on historical usage, and compared the projected sell through to the quantity on hand, including consideration of expiration dates, if applicable. • We corroborated the assumptions with individuals outside of the accounting department to identify whether any changes in the business would impact the future demand, selling prices, market conditions and technological obsolescence. /s/ Deloitte & Touche LLP Los Angeles, California March 12, 2025 We have served as the Company's auditor since 2020. 89 THE BEAUTY HEALTH COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except for share amounts) December 31, 2024 December 31, 2023 ASSETS Current assets: Cash, cash equivalents, and restricted cash $ 370,063 $ 523,025 Accounts receivable, net of allowances for estimated credit losses of $ 9,597 and $ 6,604 at December 31, 2024 and December 31, 2023, respectively 27,643 54,697 Inventories 69,113 91,321 Income tax receivable 818 332 Prepaid expenses and other current assets 9,487 28,877 Total current assets 477,124 698,252 Property and equipment, net 5,978 14,226 Right-of-use assets, net 13,590 12,120 Intangible assets, net 47,512 62,123 Goodwill 123,499 125,818 Deferred income tax assets, net 3,894 531 Other assets 14,086 16,043 TOTAL ASSETS $ 685,683 $ 929,113 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 21,941 $ 44,768 Accrued payroll-related expenses 17,636 22,028 Lease liabilities, current 5,147 4,598 Income tax payable 3,426 2,759 Syndeo Program reserves — 21,009 Other accrued expenses 20,002 19,846 Total current liabilities 68,152 115,008 Lease liabilities, non-current 10,813 9,319 Deferred income tax liabilities, net 396 702 Warrant liabilities 488 3,555 Convertible senior notes, net 552,198 738,372 Other long-term liabilities 1,833 2,767 Total liabilities 633,880 869,723 Commitments (Note 8) Stockholders’ equity: Class A Common Stock, $ 0.0001 par value; 320,000,000 shares authorized; 124,924,185 and 122,899,002 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively 12 12 Additional paid-in capital 566,709 541,281 Accumulated other comprehensive loss ( 6,953 ) ( 3,036 ) Accumulated deficit ( 507,965 ) ( 478,867 ) Total stockholders’ equity 51,803 59,390 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 685,683 $ 929,113 The accompanying notes are an integral part of these consolidated financial statements. 90 THE BEAUTY HEALTH COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands, except for share and per share amounts) Year Ended December 31, 2024 2023 2022 Net sales $ 334,294 $ 397,991 $ 365,876 Cost of sales 151,998 242,878 117,097 Gross profit 182,296 155,113 248,779 Operating expenses: Selling and marketing 118,311 144,496 160,076 Research and development 6,296 10,102 8,444 General and administrative 125,463 131,432 106,100 Total operating expenses 250,070 286,030 274,620 Loss from operations ( 67,774 ) ( 130,917 ) ( 25,841 ) Interest expense 10,412 13,649 13,392 Interest income ( 16,644 ) ( 23,173 ) ( 9,175 ) Other (income) expense, net ( 33,563 ) ( 5,200 ) 1,650 Change in fair value of warrant liabilities ( 3,067 ) ( 11,919 ) ( 78,343 ) Foreign currency transaction loss (gain), net 4,638 ( 2,385 ) 1,296 (Loss) income before provision for income taxes ( 29,550 ) ( 101,889 ) 45,339 Income tax (benefit) expense ( 452 ) ( 1,773 ) 1,115 Net (loss) income ( 29,098 ) ( 100,116 ) 44,224 Comprehensive (loss) income, net of tax: Foreign currency translation adjustments ( 3,917 ) 1,494 ( 3,273 ) Comprehensive (loss) income $ ( 33,015 ) $ ( 98,622 ) $ 40,951 Net (loss) income per share Basic $ ( 0.23 ) $ ( 0.76 ) $ 0.30 Diluted $ ( 0.36 ) $ ( 0.76 ) $ ( 0.23 ) Weighted average common stock outstanding Basic 123,827,372 131,680,605 147,554,090 Diluted 142,492,575 131,680,605 148,506,312 The accompanying notes are an integral part of these consolidated financial statements. 91 THE BEAUTY HEALTH COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except for share amounts) Common Stock Additional Paid-in Capital Accumulated other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount BALANCE, December 31, 2021 150,598,047 $ 16 $ 722,250 $ ( 1,257 ) $ ( 422,975 ) $ 298,034 Net income — — — — 44,224 44,224 Repurchase and retirement of common stock ( 18,759,243 ) ( 2 ) ( 159,998 ) — — ( 160,000 ) Equity forward contract in connection with accelerated share repurchase — — ( 40,000 ) — — ( 40,000 ) Issuance of common stock in connection with asset acquisition 28,733 — 500 — — 500 Issuance of common stock pursuant to equity compensation plan 409,565 — — — — — 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 Net loss — — — — ( 100,116 ) ( 100,116 ) Repurchase and retirement of common stock ( 10,350,749 ) ( 2 ) ( 30,455 ) — — ( 30,457 ) Accelerated share repurchase payment — — ( 2,240 ) — — ( 2,240 ) Issuance of common stock in connection with asset acquisition 109,625 — 1,310 — — 1,310 Issuance of common stock pursuant to equity compensation plan 1,039,176 — — — — — Issuance of 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 ) Share-based compensation — — 22,544 — — 22,544 Foreign currency translation adjustment — — — 1,494 — 1,494 BALANCE, December 31, 2023 122,899,002 $ 12 $ 541,281 $ ( 3,036 ) $ ( 478,867 ) $ 59,390 Net loss — — — — ( 29,098 ) ( 29,098 ) Issuance of common stock pursuant to equity compensation plan 2,407,671 — — — — — Issuance of common stock relating to employee stock purchase plan 373,245 — 629 — — 629 Shares withheld for tax withholdings on vested stock awards ( 755,733 ) — ( 1,897 ) — — ( 1,897 ) Share-based compensation — — 26,696 — — 26,696 Foreign currency translation adjustment — — — ( 3,917 ) — ( 3,917 ) BALANCE, December 31, 2024 124,924,185 $ 12 $ 566,709 $ ( 6,953 ) $ ( 507,965 ) $ 51,803 The accompanying notes are an integral part of these consolidated financial statements. 92 THE BEAUTY HEALTH COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2024 2023 2022 Cash flows from operating activities: Net (loss) income $ ( 29,098 ) $ ( 100,116 ) $ 44,224 Adjustments to reconcile net (loss) income to net cash from operating activities Share-based compensation 26,696 22,544 28,495 Amortization of intangible assets 19,537 20,907 14,852 Depreciation of property and equipment 9,940 11,332 7,164 Amortization of other assets 4,203 2,436 857 Amortization of debt issuance costs 3,319 4,229 4,229 Inventory write-down 28,041 18,272 5,144 Syndeo inventory write-down — 19,568 — Provision for estimated credit losses 5,134 5,153 1,622 Change in fair value of warrant liabilities ( 3,067 ) ( 11,919 ) ( 78,343 ) Gain on repurchase of convertible senior notes, net ( 33,411 ) — — Deferred income taxes ( 3,748 ) ( 1,079 ) ( 1,787 ) Other, net 15,981 7,067 12,210 Changes in operating assets and liabilities: Accounts receivable 20,804 16,520 ( 32,025 ) Inventories ( 10,500 ) ( 22,617 ) ( 84,363 ) Prepaid expenses, other current assets, and income tax receivable 15,479 ( 6,951 ) ( 13,847 ) Accounts payable, accrued expenses, and income tax payable ( 43,776 ) 44,001 ( 2,954 ) Other, net ( 9,400 ) ( 7,597 ) ( 12,078 ) Net cash provided by (used for) operating activities 16,134 21,750 ( 106,600 ) Cash flows from investing activities: Cash paid for intangible assets ( 6,038 ) ( 9,224 ) ( 6,547 ) Cash paid for property and equipment ( 756 ) ( 3,825 ) ( 10,847 ) Cash paid for asset acquisitions — ( 18,458 ) ( 1,475 ) Net cash used for investing activities ( 6,794 ) ( 31,507 ) ( 18,869 ) Cash flows from financing activities: Repurchase of convertible senior notes ( 156,082 ) — — Payment of tax withholdings on vested stock awards ( 1,957 ) ( 3,234 ) ( 927 ) Repurchase of common stock — ( 30,155 ) ( 160,000 ) Advanced payment for equity forward contract — — ( 40,000 ) Payment of accelerated share repurchases — ( 2,240 ) — Payment of contingent considerations related to acquisitions — ( 1,819 ) ( 4,315 ) Other, net ( 302 ) — — Net cash used for financing activities ( 158,341 ) ( 37,448 ) ( 205,242 ) Net change in cash, cash equivalents, and restricted cash ( 149,001 ) ( 47,205 ) ( 330,711 ) Effect of foreign currency translation on cash ( 3,961 ) 2,033 ( 2,978 ) Cash, cash equivalents, and restricted cash beginning of period 523,025 568,197 901,886 Cash, cash equivalents, and restricted cash end of period $ 370,063 $ 523,025 $ 568,197 Supplemental disclosures of cash flow information and non-cash investing activities: Cash paid for interest $ 8,014 $ 9,375 $ 9,818 Cash paid (received) for income taxes 2,801 2,269 ( 1,339 ) Class A Common Stock issued for asset acquisition — 1,310 500 The accompanying notes are an integral part of these consolidated financial statements 93 THE BEAUTY HEALTH COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 — Description of Business The Beauty Health Company (the “Company” or “we”) is a medtech meets beauty company that delivers 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 nanoneedling and 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 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 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”). Note 2 — Summary of Significant Accounting Policies Principles of Consolidation and 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. Use of Estimates In preparing its consolidated financial statements in conformity with GAAP, the Company makes assumptions, estimates, and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of net sales and expenses during the reported periods. On an ongoing basis, the Company evaluates its estimates, including, among others, those related to revenue related reserves, allowance for estimated credit losses, the realizability of inventory, fair value measurements including common stock and warrant liabilities, useful lives of property and equipment, goodwill and finite-lived intangible assets, accounting for income taxes, stock-based compensation expense and commitments and contingencies. The Company’s estimates are based on historical experience and on its future expectations that are believed to be reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from current estimates and those differences may be material. 94 Cash and Cash Equivalents 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. Accounts Receivable 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. 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. Inventories Inventories are stated at the lower of cost (determined using the average cost method which approximates the first-in, first-out method) or net realizable value. Obsolete inventory or inventory in excess of management’s estimated usage is written-down to its estimated net realizable value. Inherent in the net realizable value are management’s estimates related to economic trends, future demand for products, and technological obsolescence of our products. Cost is determined using weighted average costs, and includes all costs incurred to deliver inventory to the Company’s distribution centers including freight, non-refundable taxes, duty, and other landing costs. The Company periodically reviews its inventories and makes a provision as necessary to appropriately value goods that are obsolete or in excess, have quality issues, or are damaged. The amount of the provision is equal to the difference between the cost of the inventory and its net realizable value based upon assumptions about product quality, damages, future demand, selling prices, and market conditions. 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. Property and Equipment Property and equipment is stated at cost less accumulated depreciation. Repair and maintenance costs are expensed as incurred. Depreciation commences when an asset is ready for its intended use. Depreciation is recorded on a straight-line basis over each asset’s estimated useful life. Leasehold improvements are depreciated on a straight-line basis over the lesser of the length of the lease or 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, 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. Intangible Assets Intangible assets primarily consist of developed technology, capitalized software, customer relationships and trademarks and are amortized on a straight-line basis over the estimated useful life of the asset. 95 Impairment of Long-lived Assets Long-lived assets, including property and equipment, right-of-use assets, and intangible assets with finite lives 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. Goodwill Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the assets acquired and liabilities assumed. Goodwill is not amortized but is evaluated for impairment at least annually or more frequently if indicators of impairment are present or changes in circumstances suggest that impairment may exist. The Company has one reporting unit and management evaluates the carrying value of the Company’s goodwill annually in the fourth quarter of its fiscal year or whenever events or changes in circumstances indicate that an impairment may exist. When testing goodwill for impairment, management has the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as the basis to determine if it is necessary to perform a quantitative goodwill impairment test. In performing the qualitative assessment, management considers the extent to which unfavorable events or circumstances identified, such as changes in economic conditions, industry and market conditions or company specific events, could affect the comparison of the reporting unit’s fair value with its carrying amount. If management concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, management is required to perform a quantitative impairment test. Quantitative impairment testing for goodwill is based upon the fair value of the reporting unit as compared to its carrying value. The impairment loss recognized would be the difference between the reporting unit’s carrying value and fair value in an amount not to exceed the carrying value of the reporting unit’s goodwill. Testing goodwill for impairment requires management to estimate fair value of the reporting unit using significant estimates and assumptions. The assumptions made will impact the outcome and ultimate results of the testing. Management will use industry accepted valuation models and set criteria that are reviewed and approved by various levels of management and, in certain instances, we will engage independent third-party valuation specialists for advice. The key estimates and factors used in the valuation models may include as applicable, revenue growth rates and profit margins based on internal forecasts, weighted-average cost of capital used to discount future cash flows, comparable market multiples for the industry segment, and historical operating trends. 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 value of the reporting unit to fall below its respective carrying value, resulting in a non-cash impairment charge. Such charge could have a material effect on the consolidated financial statements. Warrant Liabilities In October 2020, in connection with Vesper’s initial public offering, the Company issued 9,333,333 warrants to purchase shares of the Company’s Class A common stock at $ 11.50 per share (the “Private Placement Warrants”), to BLS Investor Group LLC, which will expire five years after the Business Combination. The Company classifies the Private Placement Warrants as liabilities on its Consolidated Balance Sheets as these instruments are precluded from being indexed to its own stock given the terms allow for a settlement adjustment that does not meet the scope of the fixed-for-fixed exception in Accounting Standards Codification (“ ASC”) 815, Derivatives and Hedging . In certain events outside of the Company’s control, the Private Placement Warrant holders are entitled to receive cash while in certain scenarios the holders of the Company’s Class A common stock are not entitled to receive cash or may receive less than 100% of any proceeds in cash, which precludes these instruments from being classified within equity pursuant to ASC 815-40. The Private Placement Warrants were initially measured at fair value at inception and are subsequently adjusted to fair value at each subsequent reporting date. The fair value of the Private Placement Warrants was determined using a Monte Carlo simulation model. Changes in the fair value of these instruments are recognized within change in fair value of warrant liabilities in the Consolidated Statements of Comprehensive Income (Loss) . 96 Convertible Senior Notes On September 14, 2021, the Company issued an aggregate of $ 750.0 million in principal amount of 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 ASC 470-20 - Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity's Own Equity , 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. 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 7 – Long-term Debt for further detail. 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 7 – 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 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. 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 distributes products to customers both through national and international retailers as well as direct-to-consumers through its e-commerce and store channels. The Company sells to direct customers, including non-corporate customers (such as spas and dermatologist offices), corporate customers, and international distributors. For non-corporate customers, a contract exists when the customer initiates an order by submitting a purchase request. Such requests are accepted by the Company upon issuance of a corresponding invoice. For corporate customers, a contract exists when the customer submits a purchase order and is accepted upon issuance of a subsequent invoice. 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. 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 be entitled to in exchange for the sale of its products which is determined based upon the sales price per the invoice or contract and the estimated fair market value for any non-cash consideration received in connection with the trade-in program. During the years ended December 31, 2023 and 2022 the Company provided certain customers with the option to trade-in their existing Delivery System and applied the fair value of their old Delivery System towards the transaction price of a Syndeo device. The Company determined that the trade-in is viewed as a marketing offer due to the fact that it did not constitute the Company’s customary business practice and was not offered at contract inception. Therefore, the trade-in was accounted for under ASC 606, Revenue from Contracts with Customers, and represented a type of noncash consideration, which the Company measured at its estimated fair value. The estimated fair value represented the estimated selling price, less the cost to refurbish the inventory and the expected margin to be earned on the refurbishment, along with the expected margin to be earned on the selling effort. The estimated selling price was determined based on the Company’s historical experience of reselling refurbished Delivery Systems. The Company recognized revenue based on the estimated fair value of such Delivery Systems for the years ended December 31, 2023 and 2022 of approximately $ 17 million and $ 9 million, respectively. No trade-in revenue was recognized for the year ended December 31, 2024. 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. 97 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 expected to be entitled to, subject to constraint, and is recorded as a reduction against net sales. Sales returns are estimated based on historical sales and returns data and have not significantly impacted net sales because sales returns are not material. 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 elected the practical expedient and does not evaluate contracts of one year or less for the existence of a significant financing component. Depending on the type of Delivery System that was purchased, the Company offers its customers with a one to two-year standard type warranty from point of sale that provides the customer with the assurance that its Delivery Systems will function as intended. 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. As of December 31, 2024, total warranty reserve was approximately $ 4 million, which was included in other accrued expenses on the Consolidated Balance Sheets. As of December 31, 2023, total warranty reserve was approximately $ 6 million, of which 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. 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 Sheets was approximately $ 1 million as of December 31, 2024 and 2023. Cost of Sales Cost of sales primarily 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. Selling and Marketing Expense Selling and marketing expense primarily 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 were $ 1.7 million, $ 2.3 million and $ 3.8 million for the years ending December 31, 2024, 2023, and 2022 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. Research and development expenses are expensed in the period in which they are incurred. General and Administrative Expense General and administrative expense primarily consists of personnel-related expenses, 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. 98 Interest Expense Interest expense 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 for the portion of the Notes which are repurchased, redeemed, or converted. Interest Income Interest income primarily consists of interest earned from investments in money market funds that the Company classifies as cash equivalents. Income Taxes The Company follows the asset and liability method for accounting for income taxes. This approach requires recognizing deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) based on the expected future tax consequences of events recorded in the financial statements. DTAs and DTLs are determined by the differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates applicable to the periods in which these differences are expected to reverse. Any changes in tax rates affecting DTAs and DTLs are recorded in income during the period the tax rate change is enacted. The Company recognizes DTAs only when it believes they are more likely than not to be realized. This assessment considers various factors, including future reversals of taxable temporary differences, projected taxable income, tax-planning strategies, potential carrybacks (if permitted by law), and recent operating results. A valuation allowance is applied when necessary to reduce DTAs to the amount expected to be realized. If the Company later determines that additional DTAs can be utilized, it will adjust the valuation allowance, reducing income tax expense. For uncertain tax positions, the Company applies ASC 740, Income Taxes , using a two-step approach: (1) determining whether a tax position is more likely than not to be upheld based on its technical merits, and (2) recognizing the largest amount of tax benefit that is more than 50 percent likely to be realized upon settlement with the tax authority. Any interest and penalties related to unrecognized tax benefits are recorded in income tax (benefit) expense on the Consolidated Statements of Comprehensive Loss. Foreign Currency The Company’s reporting currency is the U.S. Dollars. 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. Assets and liabilities of each foreign entity are translated into U.S. dollars at the foreign currency exchange rate in effect on the balance sheet date. Net revenue and expenses are translated at the average foreign currency rate in effect during the period. The resulting foreign currency translation adjustments are recorded as a component of accumulated other comprehensive loss within Consolidated Statements of Stockholders' Equity. 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 and are recorded in foreign currency transaction loss (gain), net on the Consolidated Statements of Comprehensive Income (Loss) in the period in which the foreign currency exchange rate changes. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company primarily maintains its operating cash balance with a major financial institution. At times, cash balances may be in excess of Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses in these accounts and does not believe it is exposed to any significant credit risk in this area. Accounts receivable are unsecured and the Company is at risk to the extent such amounts become uncollectible. Concentration of credit risk with respect to accounts receivable is generally mitigated by the Company performing ongoing credit evaluations of its customers. 99 Share-Based Compensation The Company accounts for share-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. The use of the Black-Scholes model requires a number of estimates, including the expected option term, the expected volatility in the price of the Company’s Class A Common Stock, the risk-free rate of interest and the dividend yield on the Company’s Class A Common Stock. The fair value of the Company’s restricted stock units is the closing price of the Company’s Class A Common Stock on the grant date. The fair value of the Company’s performance-based restricted stock units is estimated using a Monte Carlo simulation model. The consolidated financial statements include amounts that are based on the Company’s best estimates and judgments. The Company classifies compensation expense related to these awards on the Consolidated Statements of Comprehensive Income (Loss) based on the department to which the recipient reports. Forfeitures are accounted for in the period they occur. Earnings per Share Earnings per share is calculated using the weighted average number of common and exchangeable shares outstanding during the period. Exchangeable shares are the equivalent of common shares in all material respects. 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, restricted stock units, and Private Placement Warrants using the treasury stock method and the "if-converted" met hod related to the Notes . Fair Value of Financial Instruments The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities: Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. Level 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. Recently Adopted Accounting Pronouncements In November 2023, the Financial Standards Accounting Board (“FASB”) issued Accounting Standards Update (“ASU”) 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. The Company adopted ASU 2023-07 during the year ended December 31, 2024 on a retrospective basis. See Note 16 - Segment, Geographic, and Other Information for additional information. New Accounting Pronouncements Not Yet Adopted 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. 100 In November 2024, the FASB issued ASU 2024-03 “Disaggregation of Income Statement Expenses” which expands interim and annual requirements to disclose about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. The guidance will be effective for annual periods beginning after December 15, 2026, with either retrospective or prospective application. The standard allows for early adoption of these requirements. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures. Note 3 — Balance Sheet Components Inventories consist of the following as of the periods indicated: (in thousands) December 31, 2024 December 31, 2023 Raw materials $ 26,019 $ 24,406 Finished goods 43,094 66,915 Total inventories $ 69,113 $ 91,321 During the year ended December 31, 2024, the Company recognized $ 28.0 million of inventory charges for discontinued, excess, obsolete inventory, including the write-down of Delivery System inventory to its net realizable value and the write-off of excess raw materials. Accrued payroll-related expenses consist of the following as of the periods indicated: (in thousands) December 31, 2024 December 31, 2023 Accrued compensation and payroll taxes $ 10,708 $ 10,458 Accrued sales commissions 4,784 7,565 Accrued benefits 2,144 4,005 Total accrued payroll-related expenses $ 17,636 $ 22,028 Other accrued expenses consist of the following as of the periods indicated: (in thousands) December 31, 2024 December 31, 2023 Sales and VAT tax payables $ 5,244 $ 4,971 Accrued interest 1,743 2,344 Royalty liabilities 1,897 3,914 Deferred revenue 2,375 450 Other 8,743 8,167 Total other accrued expenses $ 20,002 $ 19,846 During the year ended December 31, 2024, in connection with the Company’s manufacturing optimization plans, the Company recorded approximately $ 8 million of contract termination costs related to the Company concluding its relationship with its third-party manufacturing partner in China, which was recorded within cost of sales on the Consolidated Statements of Comprehensive Income (Loss). As of December 31, 2024, the Company has accrued $ 0.5 million for the contract termination related costs, which was included in other accrued expenses on the Consolidated Balance Sheets. As of December 31, 2024, total warranty reserve was approximately $ 4 million, which was included in other accrued expenses on the Consolidated Balance Sheets. As of December 31, 2023 , total warranty reserve was approximately $ 6 million, of which 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, 2024, the Company has approximately $ 2 million in restricted cash held as collateral for the Company’s credit cards, which was included in cash, cash equivalents and restricted cash on the Consolidated Balance Sheets. 101 As of December 31, 2024 and December 31, 2023, the Company has approximately $ 1 million and $ 15 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. The changes in allowance for estimated credit losses are as follows: Year Ended December 31, (in thousands) 2024 2023 2022 Beginning balance $ 6,604 $ 2,929 $ 2,681 Provision for estimated credit losses 5,134 5,153 1,622 Write-offs, recoveries of previous write-offs, and foreign currency translation impact ( 2,141 ) ( 1,478 ) ( 1,374 ) Ending balance $ 9,597 $ 6,604 $ 2,929 Note 4 — Property and Equipment, net Property and equipment, net consist of the following as of the periods indicated: (in thousands) Useful life (years) December 31, 2024 December 31, 2023 Leasehold improvements Shorter of remaining lease term or estimated useful life $ 12,019 $ 12,323 Machinery and equipment 2 - 5 7,076 8,597 Furniture and fixtures 2 - 7 6,096 5,903 Computers and equipment 3 - 5 5,496 5,479 Tooling 5 732 887 Autos and trucks 5 59 242 Construction in progress — 748 Total property and equipment 31,478 34,179 Less: accumulated depreciation and amortization ( 25,500 ) ( 19,953 ) Property and equipment, net $ 5,978 $ 14,226 102 Note 5 — Leases Operating leases primarily consist of property leases related to the Company’s warehouse, which also serves as its production, manufacturing, and distribution facility, corporate offices, experience centers, and sales and marketing offices. Operating right-of-use assets and lease liabilities as of December 31, 2024 and December 31, 2023 comprises the following: (in thousands) December 31, 2024 December 31, 2023 Right-of-use assets, net $ 13,590 $ 12,120 Lease liabilities, current $ 5,147 $ 4,598 Lease liabilities, non-current 10,813 9,319 Total lease liabilities $ 15,960 $ 13,917 Operating lease costs for the years ended December 31, 2024, 2023, and 2022 were $ 5.9 million, $ 5.2 million, and $ 5.0 million, respectively. Short-term lease costs and variable lease costs were immaterial for the years ended December 31, 2024, 2023, and 2022. The following table summarizes future operating lease payments as of December 31, 2024 : (in thousands) Future Minimum Payments 2025 $ 5,758 2026 5,189 2027 1,430 2028 1,013 2029 1,006 Thereafter 2,979 Total 17,375 Less: Imputed Interest ( 1,415 ) Present value of net lease payments $ 15,960 The following table includes supplemental operating lease information (dollars in thousands): Year Ended December 31, 2024 2023 2022 Cash paid for amounts included in the measurement of lease liabilities $ 5,123 $ 5,419 $ 2,981 Right-of-use assets obtained in exchange for new and modified lease liabilities $ 6,593 $ 1,181 $ 4,476 Weighted average remaining lease term (in years) 5.0 6.1 6.0 Weighted average discount rate 4.6 % 3.2 % 3.0 % Finance leases are not material and are included in property and equipment, net and other accrued expenses on the Consolidated Balance Sheets. Note 6 — Goodwill and Intangible Assets, net Goodwill The changes in the carrying value of goodwill for the year ended December 31, 2024 is as follows (in thousands): December 31, 2023 $ 125,818 Foreign currency translation impact ( 2,319 ) December 31, 2024 $ 123,499 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. 103 Intangible Assets, Net The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of December 31, 2024 were as follows: (in thousands) Gross Carrying Value Accumulated Amortization Net Carrying Value Estimated Useful Life (Years) Developed technology $ 91,629 $ ( 74,655 ) $ 16,974 3 - 10 Capitalized software 22,983 ( 8,027 ) 14,956 3 - 5 Customer relationships 17,569 ( 13,696 ) 3,873 5 - 10 Trademarks 11,674 ( 6,189 ) 5,485 15 Non-compete agreement 5,814 ( 2,605 ) 3,209 3 Patents 3,781 ( 766 ) 3,015 3 - 19 Total intangible assets $ 153,450 $ ( 105,938 ) $ 47,512 The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of December 31, 2023 were as follows: (in thousands) Gross Carrying Value Accumulated Amortization Net Carrying Value Estimated Useful Life (Years) Developed technology $ 91,629 $ ( 64,453 ) $ 27,176 3 - 10 Capitalized software 18,423 ( 4,078 ) 14,345 3 - 5 Customer relationships 18,809 ( 11,317 ) 7,492 5 - 10 Trademarks 11,521 ( 5,367 ) 6,154 15 Non-compete agreement 5,878 ( 1,530 ) 4,348 3 Patents 3,132 ( 524 ) 2,608 3 - 19 Total intangible assets $ 149,392 $ ( 87,269 ) $ 62,123 Acquisition of Esthetic Medical, Inc. 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. Acquisition of Anacapa Aesthetics LLC 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. 104 Acquisition of The Personalized Beauty Company, Inc. (“Mxt”) In April 2022, Edge Systems Intermediate, LLC, acquired The Personalized Beauty Company, Inc., a Delaware corporation d.b.a. Mxt in exchange for (i) cash payment of $ 1.5 million and (ii) 28,733 shares of the Class A Common Stock of the Company ($ 0.5 million). In addition, depending on the achievement of certain revenue milestones, the former Mxt shareholders were entitled to receive up to $ 30 million of earn-out payments. The Company accounted for this transaction as an asset acquisition and allocated substantially all of the purchase price totaling $ 1.9 million to intangible assets, primarily related to developed technology. 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 2025 $ 11,007 2026 9,907 2027 7,737 2028 5,456 2029 4,126 Thereafter 9,279 $ 47,512 Note 7 — Long-Term Debt Convertible Senior Notes On September 14, 2021, the Company issued an aggregate of $ 750.0 million in principal amount of its 1.25 % Convertible Senior Notes due 2026. The Notes were issued pursuant to, and are governed by, an indenture dated as of September 14, 2021, between the Company and U.S. Bank National Association, as trustee (the “Indenture”). Pursuant to the purchase agreement between the Company and the initial purchasers of the Notes, the Company granted the initial purchasers an option to purchase, for settlement within a period of 13 days from, and including, the date the Notes were first issued, up to an additional $ 100.0 million principal amount of Notes. The Notes issued on September 14, 2021 include the $ 100.0 million principal amount of Notes issued pursuant to the full exercise by the initial purchasers of such option. The Notes are the Company’s senior, unsecured obligations and are (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries. The Notes accrue interest at a rate of 1.25 % per annum, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2022. The Notes mature on October 1, 2026, unless earlier repurchased, redeemed or converted. Before April 1, 2026, noteholders have the right to convert their Notes only upon the occurrence of certain events. From and after April 1, 2026, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its Class A Common Stock or a combination of cash and shares of its Class A Common Stock , at the Company’s election. The initial conversion rate is 31.4859 shares of Class A Common Stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $ 31.76 per share of Class A Common Stock . The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as 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, 2024 was $ 31.76 per share of Class A Common Stock. 105 The Notes are redeemable, in whole or in part (subject to certain limitations described below), at the Company’s option at any time, and from time to time, on or after October 6, 2024, and on or before the 40 th scheduled trading day immediately before the maturity date, but only if certain liquidity conditions are satisfied and the last reported sale price per share of the Company’s Class A Common Stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. However, the Company may not redeem less than all of the outstanding notes unless at least $ 100.0 million aggregate principal amount of notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice. The redemption price will be a cash amount equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling any Note for redemption will constitute a Make-Whole Fundamental Change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption. If certain corporate events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then, subject to a limited exception for certain cash mergers, noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s Class A Common Stock . The Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following: (i) certain payment defaults on the Notes (which, in the case of a default in the payment of interest on the Notes, will be subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the Indenture within specified periods of time; (iii) the Company’s failure to convert a Note upon the exercise of the conversion right with respect to such Note, subject to a three business-day cure period; (iv) the Company’s failure to comply with certain covenants in the Indenture relating to the Company’s ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (v) a default by the Company in its other obligations or agreements under the Indenture or the Notes if such default is not cured or waived within 60 days after notice is given in accordance with the Indenture; (vi) certain defaults by the Company or any of its subsidiaries with respect to indebtedness for money borrowed of at least $ 45.0 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. If any other Event of Default occurs and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least 25 % of the aggregate principal amount of Notes then outstanding, by notice to the Company and the Trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 1.00 % on the principal amount of the Notes. The Notes were issued to the initial purchasers of such Notes in transactions not involving any public offering in reliance upon Section 4(a)(2) of the Securities Act. The Notes were resold by the initial purchasers to persons whom the initial purchasers reasonably believe are “qualified institutional buyers,” as defined in, and in accordance with, Rule 144A under the Securities Act. The total amount of debt issuance costs of $ 21.3 million was recorded as a reduction to Convertible senior notes, net in the 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, 2024, 2023, and 2022, the Company recognized $ 3.3 million, $ 4.2 million, and $ 4.2 million, respectively, in interest expense related to the amortization of the debt issuance costs related to the Notes. 106 The following is a summary of the Company’s Notes for the periods indicated: (in thousands) December 31, 2024 December 31, 2023 Notes due in 2026 $ 557,700 $ 750,000 Unamortized debt issuance costs ( 5,502 ) ( 11,628 ) Net carrying value $ 552,198 $ 738,372 The Notes are carried at face value less the unamortized debt issuance costs on the Company’s Consolidated Balance Sheets. Notes Repurchase During the year ended December 31, 2024, the Company repurchased $ 192.3 million principal amount of the Notes for $ 156.1 million and recognized a net gain of $ 33.4 million, which includes $ 2.8 million of unamortized debt issuance costs related to the repurchase. The net gain is included in other income, net on the Consolidated Statements of Comprehensive Income (Loss). Amended and Restated Credit Facility On November 14, 2022, the Company, as successor by assumption to Hydrafacial, a California limited liability company, entered into an Amended and Restated Credit Agreement (as it may be further amended, restated, supplemented or modified from time to time, the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (the “Administrative Agent”). The Credit Agreement provided the Company with a $ 50.0 million revolving credit facility that had a maturity date of November 14, 2027. On August 6, 2024, the Company prepaid all obligations and terminated all commitments, liabilities, and other obligations under the Credit Agreement. There were no material early termination penalties incurred in connection therewith, all outstanding obligations and commitments under the Credit Agreement were satisfied and terminated, and all related security interests and liens securing such obligations and commitments were released. Note 8 — Commitments and Contingencies Cartessa Aesthetics, LLC 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 (the “Cartessa Case”), for patent infringement arising from Cartessa’s sale of Cartessa’s hydrodermabrasion 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. The parties agreed to dismiss the remaining claims without prejudice so that Hydrafacial can appeal the New York Court’s grant of Cartessa’s Motion for Summary Judgment. Final judgment was entered on October 15, 2024. On October 8, 2024, Hydrafacial filed an appeal in the New York Court challenging the New York Court’s final judgment and summary judgment decision of Cartessa’s non-infringement regarding the fourth patent-in-suit. On November 13, 2024, Cartessa filed a cross-appeal challenging the New York Court’s final judgment and summary judgment decision of granting Hydrafacial’s motion for summary judgment of no invalidity regarding the fourth patent-in-suit. The appeal is in its early stages with opening briefs set to be exchanged on March 12, 2025. 107 On June 11, 2024, Hydrafacial filed a complaint against Cartessa and its foreign manufacturer, Eunsung Global Corp (“Eunsung”), in the United States International Trade Commission. A Notice of Institution of Investigation was issued on July 11, 2024, and the investigation was assigned investigation number 337-TA-1408 (the “ITC Cartessa Matter”). In the ITC Cartessa Matter, Hydrafacial has asserted that Cartessa and Eunsung infringe Hydrafacial’s U.S. Patent No. 11,865,287, which relates to hydrodermabrasion systems but was not asserted in the Cartessa Case. Eunsung has consented to an exclusion order during the term of the Hydrafacial patent-in-suit. In the ITC Cartessa Matter, both fact and expert discovery have been completed, motions for summary determination have been filed, and the parties are preparing for evidentiary hearing, which will be held April 9-15, 2025. Hydrafacial continues to seek an exclusion order preventing importation or sale of Cartessa’s hydrodermabrasion systems within the United States. Cartessa Aesthetics, LLC - Second Complaint On June 14, 2024, Hydrafacial filed a complaint (the “Second Cartessa Complaint”) against Cartessa in the New York Court, captioned HydraFacial LLC v. Cartessa Aesthetics, LLC, Case No. 2:24-cv-04253 (the “Second Cartessa Case”), for patent infringement arising from Cartessa’s sale of Cartessa’s hydrodermabrasion system that Hydrafacial alleged has infringed Hydrafacial’s U.S. Patent No. 11,865,287. The Second Cartessa Case has been stayed pending resolution of the ITC Cartessa Matter and there will be no activity until the conclusion of the ITC Cartessa Matter. After conclusion of the ITC Cartessa Matter, Hydrafacial plans to reopen the Second Cartessa Case to seek monetary damages and plans to vigorously pursue its claims against Cartessa. Eunsung Global Corp (and Sinclair Pharma Ltd) On September 30, 2024, Eunsung filed a Petition for inter partes review (“IPR”), IPR2024-01491, challenging the validity of Hydrafacial’s U.S. Patent No. 11,865, 287. On November 25, 2024, Sinclair Pharma Ltd filed a similar IPR Petition, IPR2025-00145, challenging the same patent and relying on the same arguments. On January 10, 2025, Eunsung filed an IPR Petition, IPR2025-00445, challenging the validity of Hydrafacial’s U.S. Patent No. 9,550,052. On January 13, 2025, Eunsung filed an IPR Petition, IPR2025-00452, challenging the validity of Hydrafacial’s U.S. Patent No. 12,053,607. On January 14, 2025, Eunsung filed an IPR Petition, IPR2025-00453, challenging the validity of Hydrafacial’s U.S. Patent No. 11,446,477. These IPR proceedings are in their early stages, with initial briefing due between March-May 2025, and Hydrafacial plans to vigorously defend its patents against each of these challenges. Medicreations LLC On May 6, 2024, Hydrafacial filed a complaint against Medicreations LLC (“Medicreations”) in the United States District Court for Nevada, Case Number 2:24-cv-00855 (the “Medicreations Case”), for patent infringement arising from Medicreations’ sale of hydrodermabrasion systems that Hydrafacial alleged to have infringed twelve of Hydrafacial’s patents. On July 26, 2024, Medicreations filed a motion to dismiss the complaint. Briefing on the motion to dismiss is complete, but no order has been issued yet. The Medicreations Case is in its early stages, and Hydrafacial is seeking monetary damages and plans to vigorously pursue its claims against Medicreations. Sinclair Pharma US, Inc On July 24, 2024, Hydrafacial filed a complaint against Sinclair Pharma US, Inc (“Sinclair”), and its distributor Viora, Inc (“Viora”), in the United States District Court for the Central District of California, Case No. 2:24-cv-06250 (the “Sinclair Case”), for patent infringement arising from Sinclair’s sale of hydrodermabrasion systems that Hydrafacial alleged to have infringed five of Hydrafacial’s patents on its device. The Sinclair Case has been stayed pending the resolution of the ITC Sinclair Matter, discussed below, and there will be no activity on the Sinclair Case until the conclusion of the ITC Sinclair Matter. After conclusion of the ITC Sinclair Matter, Hydrafacial plans to reopen the Sinclair Case to seek monetary damages and plans to vigorously pursue its claims against Sinclair and Viora. On August 2, 2024, Hydrafacial filed a complaint against Sinclair, Aesthetic Management Partners, Inc. (“AMP”), their foreign manufacturer, EMA Aesthetics, Ltd. (“EMA Aesthetics”), and H.R. Meditech (“H.R. Meditech”) in the United States International Trade Commission. A Notice of Institution of Investigation was issued on September 10, 2024, and the investigation was assigned investigation number 337-TA-1416 (the “ITC Sinclair Matter”). In the ITC Sinclair Matter, Hydrafacial has asserted that Sinclair, AMP, EMA Aesthetics, and H.R. Meditech infringe Hydrafacial’s U.S. Patent Nos. 11,865,287 and 9,550,052, which relate to hydrodermabrasion systems. Hydrafacial is seeking an exclusion order preventing importation or sale of each of the respondents’ hydrodermabrasion systems within the United States. On February 19, 2025, the Administrative Law Judge issued an Initial Determination granting Hydrafacial’s motion to terminate the ITC Sinclair Matter. 108 Aesthetic Management Partners Inc. On July 8, 2024, Hydrafacial filed a complaint against AMP in the United States District Court for the Western District of Tennessee, Case No. 2:24-cv-02480-JPM-TMP (the “AMP Case”), for patent infringement arising from Aesthetic Management Partners’ sale of hydrodermabrasion systems that Hydrafacial alleged to have infringed five of Hydrafacial’s patents on its device. The AMP Case is now stayed, and there will be no activity until the conclusion of the ITC Sinclair Matter. After conclusion of the ITC Sinclair Matter, Hydrafacial plans to reopen the AMP Case to seek monetary damages and plans to vigorously pursue its claims against AMP. Medical Purchasing Resource, LLC On June 4, 2024, Hydrafacial filed a complaint against Medical Purchasing Resource, LLC (“Medical Purchasing Resource”) in the United States District Court for the Central District of California, Case No. 2:24-cv-4655 (the “MPR Case”), for trademark infringement, false designation of origin, unfair competition, tortious interference, and other causes of action relating to Hydrafacial’s trademark rights. The MPR Case is in its early stages, and Hydrafacial is seeking monetary damages and plans to vigorously pursue its claims against Medical Purchasing Resource. Luvo Medical Technologies Inc On August 16, 2024, Hydrafacial filed a complaint against Luvo Medical Technologies Inc (“Luvo”), Healthcare Markets, Inc (“Healthcare Markets”), and their foreign manufacturer Eunsung in the United States District Court of Utah, Case No. 2:24-cv-00587 (the “Luvo Case”), for patent infringement arising from Healthcare Markets’ sale of Luvo’s hydrodermabrasion systems that Hydrafacial alleged to have infringed five of Hydrafacial’s patents on its device. The Luvo Case is now stayed, and there will be no any activity until the conclusion of the ITC Luvo Matter. After conclusion of the ITC’s investigation, Hydrafacial plans to reopen the Luvo Case to seek monetary damages and plans to vigorously pursue its claims against Luvo, Healthcare Markets, and Eunsung. On August 7, 2024, Hydrafacial filed a complaint against Luvo, its distributor Healthcare Markets, Medical Purchasing Resource, eMIRAmed, and its manufacturer, MIRAmedtech, in the United States International Trade Commission. A Notice of Institution of Investigation was issued on September 16, 2024, and the investigation was assigned investigation number 337-TA-1417 (the “ITC Luvo Matter”). In the ITC Luvo Matter, Hydrafacial has asserted that Luvo, Healthcare Markets, Medical Purchasing Resource, and eMIRAmed USA, LLC (“eMIRAmed”) infringe Hydrafacial’s U.S. Patent No. 11,446,477, which is not asserted in the ITC Cartessa Matter or ITC Sinclair Matter, and relates to hydrodermabrasion systems. Hydrafacial is seeking an exclusion order preventing importation or sale of each of the respondents’ hydrodermabrasion systems within the United States. In the ITC Luvo Matter, the parties have completed fact discovery and will complete expert discovery on February 20, 2025. The evidentiary hearing is scheduled for April 23-29, 2025. eMIRAmed USA, LLC On August 26, 2024, Hydrafacial filed a complaint against eMIRAmed USA, LLC (“eMIRAmed”), and its manufacturer MIRAmedtech UG (“MIRAmedtech”), in the United States District Court for the Central District of California, Case No. 2:24-cv-01865 (the “eMIRAmed Case”), for patent infringement arising from eMIRAmed’s sale of hydrodermabrasion systems that Hydrafacial alleged to have infringed five of Hydrafacial’s patents on its device. Hydrafacial is seeking monetary damages and plans to vigorously pursue its claims against eMIRAmed and MIRAmedtech. On January 22, 2025, Hydrafacial moved for default judgment against eMIRAmed and MIRAmedtech. On January 30, 2025, eMIRAmed filed notice of Chapter 7 bankruptcy. 109 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 Health 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 Jou 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. On May 2, 2024, the court granted the Dijkgraafs’ motion for appointment as lead plaintiff and approved the Dijkgraafs’ counsel, Hagens Berman, as lead counsel. On July 1, 2024, lead plaintiffs filed a consolidated amended class action complaint asserting the same causes of action as the original complaint. The Securities Class Action case is assigned to U.S. District Judge Sherilyn Peace Garnett. On September 30, 2024, the Company filed a motion to dismiss the consolidated amended class action complaint in its entirety. Plaintiffs filed their opposition brief on November 22, 2024, and the Company filed its reply brief on December 23, 2024. A hearing on the Defendants’ motion to dismiss was scheduled for January 15, 2025. On January 10, 2025, the court granted the parties’ joint stipulation to adjourn the January 15, 2025 hearing. On January 17, 2025, the court granted the parties’ joint stipulation to withdraw briefing on Defendants’ motion to dismiss without prejudice to refiling and to briefly stay proceedings so that the parties can complete a private mediation that is scheduled to occur on March 27, 2025. 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. Consumer Class Action On October 24, 2024, Jason Davalos (“Jason Davalos”), Sonia Davalos (“Sonia Davalos”, and collectively with Jason Davalos, the “Davaloses”), and Sol Tan Tanning & Spa LLC (“Sol Tan”, and collectively with the Davaloses, the “Class Action Plaintiffs”), individually and on behalf of all others similarly situated, filed a putative class action complaint against Hydrafacial LLC d/b/a The Hydrafacial Company and The Beauty Health Company (collectively, the “Class Action Defendants”) for alleged violations of New York consumer fraud statutes, breach of contract, and common law breach of implied warranties (the “Consumer Class Action”). The case is captioned Jason Davalos, Sonia Davalos, Sol Tan Tanning & Spa LLC, on behalf of themselves and all others similarly situated v. Hydrafacial LLC dba The Hydrafacial Company, and The Beauty Health Company, Case No. 24-cv-8073 (S.D.N.Y.) (Caproni, J.) The complaint alleges that all three versions of the Syndeo machine (Syndeo 1.0, Syndeo 2.0, and Syndeo 3.0) were defective and did not perform in the manner in which it had been represented by Class Action Defendants. Class Action Plaintiffs claim that Class Action Defendants made various misrepresentations in its marketing and sales of the Syndeo machines and, rather than provide a refund to customers for the defective machines, replaced them with another Syndeo machine that exhibited the same defects. Class Action Plaintiffs purport to bring claims on behalf of themselves, and all other similarly situated purchasers within the United States, of Class Action Defendants’ Syndeo machines. The complaint asserts five causes of action: (1) violations of N.Y. G.B.L., § 349, the state consumer production statute; (2) violations of N.Y. G.B.L., § 350, the state’s false advertising statute; (3) breach of contract; (4) breach of the implied warranty of merchantability; and (5) breach of the implied warranty of fitness. The relief sought in the complaint includes monetary damages allegedly suffered by Class Action Plaintiffs and other members of the putative class as a result of Class Action Defendants’ alleged violations and breaches, including a trebling of any money damages award for alleged violations of N.Y. G.B.L., § 349 and § 350. 110 On December 30, 2024, the Class Action Defendants filed a motion to dismiss the Consumer Class Action complaint in its entirety. On January 3, 2025, the Class Action Defendants filed a motion to stay discovery during the pendency of their motion to dismiss. On January 8, 2025, the Davaloses voluntarily dismissed their claims against the Class Action Defendants pursuant to Fed. R. Civ. P. 41(a)(1)(A)(i), leaving Plaintiff Sol Tan as the sole remaining Consumer Class Action Plaintiff. Plaintiff Sol Tan filed their opposition brief on January 9, 2025, and the Class Action Defendants filed their reply brief on January 13, 2025. On January 16, 2025, the court granted the parties’ joint stipulation to adjourn the January 17, 2025 initial pretrial conference and stay the action pending the parties’ completion of a private mediation. As part of its order, the court also (1) adjourned Plaintiff Sol Tan’s deadline to respond to the Class Action Defendants’ motion to dismiss sine die pending the outcome of mediation; (2) denied as moot the Class Action Defendants’ motion to stay discovery in light of the parties’ agreement to stay discovery pending the outcome of mediation; and (3) directed the parties to (a) file a joint letter on or before February 7, 2025, indicating the date (not later than May 8, 2025) on which the mediation is scheduled to occur; and (b) within seven days after the mediation, either (i) file a joint letter indicating that settlement was reached; or (ii) file a revised proposed case management plan and a revised joint letter required by the court’s Notice of Initial Pretrial Conference. On February 7, 2025, the parties filed a joint letter notifying the court that they had agreed to mediate before Greg Danilow of Phillips ADR Enterprises on April 29, 2025. The Company believes that the claims asserted in the Consumer Class Action have no merit and Class Action Defendants intend 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 Consumer Class Action. Consolidated 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 (the “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 Kerrick, Brian Miller, Doug Schillinger, Andrew Stanleick, and Liyuan Woo, C.A. No. 2024-0114-LWW (Del. Ch.) (the “Elstein 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 of Directors prior to the initiation of the Elstein Derivative Action based on allegations that a majority of the Board of Directors 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. On May 1, 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: Brent 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 Richard Montague, derivatively on behalf of The Beauty Health Company v. Andrew Stanleick, Liyuan Woo, Brent Saunders, Marla Beck, Michael Capellas, Julius Few, Desiree Gruber, Michelle Kerrick, Brian Miller, and Doug Schillinger, C.A. No. 2024-0463-LWW (Del. Ch.) (the “Montague Derivative Action”), asserts claims for (i) breach of fiduciary duty, (ii) gross mismanagement, (iii) waste of corporate assets, (iv) unjust enrichment, and (v) aiding and abetting against the individual defendants based on allegations that the individual defendants made materially false and/or misleading statements, as well as failing to disclose material adverse facts about the Company’s business, operations, and prospects, specifically relating to the Syndeo 1.0 and 2.0 devices. The relief sought in the Montague Derivative Action includes (a) awarding damages for harm suffered by the Company allegedly sustained as a result of the individual defendants’ alleged breach of fiduciary duties, gross mismanagement, waste of corporate assets, and unjust enrichment, (b) awarding damages for harm suffered by the Company allegedly sustained as a result of the Company’s directors’ alleged aiding and abetting of breaching their fiduciary duties, (c) directing the Company to reform and improve its corporate governance and internal procedures, to comply with its existing governance obligations and all applicable laws, and to protect its investors from a recurrence of the alleged damaging events, and (d) awarding the plaintiff-stockholder the costs and disbursements of the Montague Derivative Action, including reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses. 111 On May 22, 2024, the parties to the Elstein Derivative Action and Montague Derivative Action submitted a Stipulation and Proposed Order Governing Consolidation, Appointment of Lead, and Deadline to Respond to Operative Complaint. On May 24, 2024, Vice Chancellor Will, who was assigned to both the Elstein Derivative Action and the Montague Derivative Action, entered the Stipulation and Order Governing Consolidation, Appointment of Lead, and Deadline to Respond to Operative Complaint (the “Consolidation Order”). Per the Consolidation Order, the Elstein Derivative Action and the Montague Derivative Action were consolidated into a single derivative action, styled In re The Beauty Health Company Consolidated Stockholder Derivative Litigation, C.A. No. 2024-0114-LWW (Del. Ch.) (the “Consolidated Derivative Action”). The Consolidation Order designated the law firms of Gainey McKenna & Egleston and Komlossy Law, P.A. as co-lead counsel for plaintiffs in the Consolidated Derivative Action, and designated the law firm of Cooch and Taylor, P.A. as Delaware counsel for plaintiffs in the Consolidated Derivative Action. Additionally, the Consolidation Order designated the complaint filed in the Elstein Derivative Action as the operative complaint for the Consolidated Derivative Action, further providing that defendants are not obligated to answer or otherwise respond to the complaint filed in the Montague Derivative Action. The Consolidation Order further provided that defendants shall answer or otherwise respond to the complaint filed in the Elstein Derivative Action by August 25, 2024. This response deadline was subsequently vacated, prior to plaintiffs’ filing, on September 9, 2024, of their Verified Consolidated Amended Stockholder Derivative Complaint (the “Operative Complaint”). On September 16, 2024, defendants filed their Motion to Dismiss the Operative Complaint, or Alternatively, Stay the Proceedings (the “Motion to Dismiss”). Defendants filed their opening brief in support of their Motion to Dismiss and stay on February 28, 2025. Pursuant to a scheduling order entered by the court, Plaintiffs’ answering brief is due May 2, 2025, and Defendants’ reply brief is due June 3, 2025. The Company believes that the claims asserted in the Consolidated Derivative 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 Consolidated Derivative Action. Securities and Exchange Commission (the “SEC”) Subpoena The Division of Enforcement of the SEC has issued a subpoena in connection with a formal order of investigation of the Company seeking documents and information from us. The Company is in the process of responding to the subpoena and intends to fully cooperate with the SEC investigation. We cannot predict the duration, scope, or outcome of this matter at this time. Contractual Obligations and Other Commercial Commitments As of December 31, 2024, the Company has $ 30.2 million of non-cancelable contractual obligations and other commercial commitments related to the purchase of inventory, service, other items, of which $ 21.8 million will be paid within the next twelve months. Note 9 — Related-Party Transactions Registration Rights Agreement In connection with the consummation of the Business Combination, on May 4, 2021, the Company entered into that certain Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”) with BLS Investor Group LLC and the Hydrafacial Stockholders. Pursuant to the terms of the Registration Rights Agreement, (i) any outstanding shares of Class A Common Stock or any other equity securities (including the Private Placement Warrants and including shares of Class A Common Stock issued or issuable upon the exercise of any other equity security) of the Company held by BLS Investor Group LLC (the “Sponsor”) or the Hydrafacial Stockholders (together, the “Restricted Stockholders”) as of the date of the Registration Rights Agreement or thereafter acquired by a Restricted Stockholder (including the shares of Class A Common Stock issued upon conversion of the 11,500,000 shares of Class B common stock (the “Founder Shares”) that were owned by the Sponsor and converted into shares of Class A Common Stock in connection with the Business Combination and upon exercise of any Private Placement Warrants) and shares of Class A Common Stock issued as earn-out shares to the Hydrafacial Stockholders and (ii) any other equity security of the Company issued or issuable with respect to any such share of Class A Common Stock by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise will be entitled to registration rights. 112 The Registration Rights Agreement provides that the Company will, within 60 days after the consummation of the Business Combination, file with the SEC a shelf registration statement registering the resale of the shares of Class A Common Stock held by the Restricted Stockholders and will use its reasonable best efforts to have such registration statement declared effective as soon as practicable after the filing thereof, but in no event later than 60 days following the filing deadline. The Company filed such registration statement on July 19, 2021 and it was declared effective by the SEC on July 26, 2021. The Hydrafacial Stockholders are entitled to make up to an aggregate of two demands for registration, excluding short form demands, that the Company register shares of Class A Common Stock held by these parties. In addition, the Restricted Stockholders have certain “piggy-back” registration rights. The Company will bear the expenses incurred in connection with the filing of any registration statements filed pursuant to the terms of the Registration Rights Agreement. The Company and the Restricted Stockholders agree in the Registration Rights Agreement to provide customary indemnification in connection with any offerings of Class A Common Stock effected pursuant to the terms of the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the Sponsor agreed to restrictions on the transfer of its securities issued in the Company’s initial public offering, which (i) in the case of the Founder Shares is one year after the completion of the Business Combination unless (A) the closing price of the Class A Common Stock equals or exceeds $ 12.00 per share for 20 days out of any 30 -trading-day period commencing at least 150 days following the Closing of the Business Combination or (B) the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of Class A Common Stock for cash, securities or other property, and (ii) in the case of the Private Placement Warrants and the respective Class A Common Stock underlying the Private Placement Warrants is 30 days after the completion of the Business Combination. The Sponsor and its permitted transferees will also be required, subject to the terms and conditions in the Registration Rights Agreement, not to transfer their Private Placement Warrants (as defined in the Registration Rights Agreement) or shares of Class A Common Stock issuable upon the exercise thereof for 30 days following the Closing. Investor Rights Agreement In connection with the consummation of the Business Combination, on May 4, 2021, the Company and LCP Edge Holdco, LLC entered into that certain Investor Rights Agreement (the “Investor Rights Agreement”). Pursuant to the Investor Rights Agreement, LCP has the right to designate a number of directors for appointment or election to the Company’s Board of Directors as follows: (i) one director for so long as LCP holds at least 10 % of the outstanding Class A Common Stock, (ii) two directors for so long as LCP holds at least 15 % of the outstanding Class A Common Stock, and (iii) three directors for so long as LCP holds at least 40 % of the outstanding Class A Common Stock. Pursuant to the Investor Rights Agreement, for so long as LCP holds at least 10 % of the outstanding Class A Common Stock, LCP will be entitled to have at least one of its designees represented on the compensation committee and nominating committee and corporate governance committee of the Company’s Board of Directors. 113 Note 10 — Stockholders' Equity Common Stock The Company is authorized to issue 320,000,000 shares of Class A Common Stock, par value of $ 0.0001 per share. Holders of Class A Common Stock are entitled to one vote for each share. As of December 31, 2024 and December 31, 2023, there were 124,924,185 and 122,899,002 , respectively, of Class A Common Stock issued and outstanding. The Company has not declared or paid any dividends with respect to its Class A Common Stock . 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. During the year ended December 31, 2024, the Company did no t repurchase any shares of its Class A Common Stock. 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. 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, or accelerated share repurchase programs. 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. 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 year ended December 31, 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. The equity forward contracts are classified as equity instruments under ASC 815-40, Contracts in Entity's Own Equity. The par value of the initial shares received is recorded as a reduction to the Company’s Class A Common Stock and the excess of par value is recognized as a reduction to additional paid in capital. The equity forward stock purchase contracts are classified as equity instruments and are recognized as a reduction to additional paid in capital. Preferred Stock The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $ 0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s Board of Directors. At December 31, 2024 and December 31, 2023 , there were no shares of preferred stock issued or outstanding. Note 11 — Fair Value Measurements The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2024 and December 31, 2023, and indicate the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value. As of December 31, 2024 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash, cash equivalents, and restricted cash: Money market funds $ 284,462 $ — $ — $ 284,462 Liabilities Warrant liability — Private Placement Warrants $ — $ — $ 488 $ 488 114 As of December 31, 2023 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash, cash equivalents, and restricted cash: Money market funds $ 458,676 $ — $ — $ 458,676 International treasuries $ — $ 3,777 $ — $ 3,777 Liabilities Warrant liability — Private Placement Warrants $ — $ — $ 3,555 $ 3,555 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 bas is. As of December 31, 2024 , the Company’s U.S. portfolio had no material exposure to money market funds with a fluctuating net asset value. Private Placement Warrants As of December 31, 2024 and 2023, the Company had approximately 7 million Private Placement Warrants outstanding for which the fair value was determined 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. Long-Term Debt As of December 31, 2024 and 2023 , the estimated fair value of the Notes were approximately $ 446 million and $ 558 million, respectively. The estimated fair value of the Notes was determined based on the actual bid price of the Notes on December 31, 2024 and 2023. 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. 115 Note 12 — Share-Based Compensation The Beauty Health Company 2021 Incentive Award Plan (the “2021 Plan”) became effective upon the consummation of the Business Combination. Pursuant to the 2021 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, other stock or cash based awards to eligible service providers. 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 maximum number of shares that may be granted with respect to incentive stock options under the 2021 Plan is 7,500,000 . At December 31, 2024 , approximately 17 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: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding - January 1, 2024 3,732,420 $ 14.00 6.73 $ — Granted — — Exercised — — Forfeited ( 141,900 ) 17.54 Expired ( 107,450 ) 21.28 Outstanding - December 31, 2024 3,483,070 13.64 5.29 — Vested and Exercisable - December 31, 2024 2,769,240 13.60 5.01 — Options vested and expected to vest - December 31, 2024 3,483,070 $ 13.64 5.29 $ — At December 31, 2024, aggregate unrecognized compensation cost for unvested stock options was $ 1.9 million recognized over a weighted average period of 0.4 years . The stock options granted generally vest over a four year period. There were no stock options granted during the year ended December 31, 2023. The weighted average grant date fair value of the stock options granted during the year ended December 31, 2022 was $ 12.23 . The intrinsic value of a stock option is the amount by which the current market value of the underlying stock exceeds the exercise price of the option. For the year ended December 31, 2023, t he total intrinsic value of stock options exercised was immaterial. There were no stock options exercised during the year ended December 31, 2022. Restricted Stock Units (“RSU”) and Performance-based Restricted Stock Units (“PSU”) The Company reserves the right to grant RSUs to certain employees, executives and directors. The RSUs granted are eligible to vest over the service period, which is generally over three to four years , subject to the recipient’s continued employment through each vesting date. PSUs are granted to select executive officers pursuant to the 2021 Plan and vest based on either (i) the performance of the Company’s Class A Common Stock (“Top-hat”) or (ii) the total shareholder return of the Company’s Class A Common Stock relative to a defined peer group (“TSR”). Top-hat PSUs are earned over a three or four-year performance period, based on the attainment of pre-determined goals related to the performance of the Company’s Class A Common Stock, and subject to the recipient’s continued employment through the end of the performance period. The actual number of shares of the Company’s Class A Common Stock to be issued related to Top-hat PSUs will range from 0 % to 100 % of the number of PSUs granted. 116 TSR PSUs are earned over a three-year performance period, based on the attainment of pre-determined goals related to the Company’s total shareholder return relative to a defined peer group, and subject to the recipient’s continued employment through the end of the performance period. The actual number of shares of the Company’s Class A Common Stock to be issued related to TSR PSUs will range from 0 % to 200 % of the number of PSUs granted. The fair value of PSUs is recognized on a straight-line basis over their measurement period as compensation expense, and is not subject to reversal even if the market condition is not achieved. 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 2024 Grants 2023 Grants 2022 Grants Risk-free interest rate 4.5 % 3.5 % 1.5 % - 4.2 % Expected volatility of the Company’s Class A Common Stock 101.5 % 74.9 % 57.7 % - 66.0 % The following table summarizes the Company’s RSU and PSU activity for the year ended December 31, 2024: Weighted Average Grant Date Fair Value RSU Shares PSU Shares RSU PSU Outstanding - January 1, 2024 5,242,680 1,306,558 $ 8.77 $ 9.13 Granted 6,421,618 1,258,112 3.17 5.27 Vested ( 2,407,671 ) — 7.69 — Forfeited ( 2,002,236 ) ( 375,097 ) 6.68 9.80 Cancelled (1) — ( 951,751 ) — 7.93 Outstanding - December 31, 2024 7,254,391 1,237,822 $ 4.56 $ 5.93 (1) Cancelled PSU shares represent Top-hat PSUs and TSR PSUs that were not earned for the performance period that ended during the year ended December 31, 2024. The fair value of RSUs that vested, determined based on their respective fair values at vesting date, during the years ended December 31, 2024, 2023, and 2022 was $ 5.9 million, $ 9.7 million, and $ 2.7 million, respectively. At December 31, 2024, the aggregate unrecognized compensation cost for unvested RSUs and PSUs was $ 21.4 million and $ 4.9 million, respectively, recognized over a weighted average period of 1.8 years and 1.9 years, respectively. The weighted average grant date fair value of RSUs granted during the years ended December 31, 2023 and 2022 was $ 8.58 and $ 13.47 , respectively. The weighted average grant date fair value of PSUs granted during the years ended December 31, 2023 and 2022 was $ 17.54 and $ 8.79 , respectively. 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. 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. In November 2024, the Company suspended the operation of the ESPP after the conclusion of its sixth offering period. 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. As of December 31, 2024, approximately 5 million shares were reserved for the future issuance under the ESPP. 117 Share-Based Compensation Expense Share-based compensation expense was as follows for the periods indicated: Year Ended December 31, (in thousands) 2024 2023 2022 Cost of sales $ 52 $ 1,513 839 Selling and marketing 7,716 7,962 9,363 Research and development 345 1,425 602 General and administrative 18,583 11,644 17,691 Total share-based compensation $ 26,696 $ 22,544 $ 28,495 Note 13 — Employee Benefit Plan 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 $ 2.7 million, $ 3.0 million and $ 2.2 million for the years ended December 31, 2024, 2023 and 2022, respectively. Note 14 — Income Taxes The following table presents domestic and foreign components of (loss) income before income taxes as follows for the periods indicated: Year Ended December 31, (in thousands) 2024 2023 2022 Domestic $ ( 28,332 ) $ ( 104,161 ) $ 42,080 Foreign ( 1,218 ) 2,272 3,259 (Loss) income before taxes $ ( 29,550 ) $ ( 101,889 ) $ 45,339 The federal, state and foreign components of the income tax (benefit) expense are summarized as follows for the periods indicated: Year Ended December 31, (in thousands) 2024 2023 2022 Current: Federal $ 9 $ 34 $ 407 State 133 216 306 Foreign 3,001 3,793 2,189 Total current income tax expense 3,143 4,043 2,902 Deferred: Federal — ( 4,137 ) ( 257 ) State — ( 633 ) ( 166 ) Foreign ( 3,595 ) ( 1,046 ) ( 1,364 ) Total deferred tax benefit ( 3,595 ) ( 5,816 ) ( 1,787 ) Total income tax (benefit) expense $ ( 452 ) $ ( 1,773 ) $ 1,115 118 The effective tax rate of the provision for income tax differs from the federal statutory rate as follows for the periods indicated: Year Ended December 31, (in thousands) 2024 2023 2022 Federal statutory income tax rate $ ( 6,206 ) 21.0 % $ ( 21,398 ) 21.0 % $ 9,521 21.0 % State taxes, net of federal benefit 475 ( 1.6 ) ( 3,083 ) 3.0 ( 1,041 ) ( 2.3 ) Officer compensation 905 ( 3.1 ) 844 ( 0.8 ) 2,323 5.1 Change in fair value of warrants ( 644 ) 2.2 ( 2,503 ) 2.5 ( 16,452 ) ( 36.3 ) Transaction costs — — — — ( 32 ) ( 0.1 ) Share-based compensation 5,130 ( 17.4 ) 2,922 ( 2.9 ) — — Foreign rate differential ( 64 ) 0.2 338 ( 0.3 ) ( 10 ) — R&D credit ( 289 ) 1.0 ( 824 ) 0.8 ( 900 ) ( 2.0 ) Permanent differences 296 ( 1.0 ) 2,183 ( 2.1 ) — — Change in valuation allowance 1,006 ( 3.4 ) 18,400 ( 18.1 ) 6,242 13.8 Other ( 1,061 ) 3.6 1,348 ( 1.3 ) 1,464 3.2 Income tax (benefit) expense $ ( 452 ) 1.5 % $ ( 1,773 ) 1.7 % $ 1,115 2.4 % 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. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized. The components of the deferred tax assets are as follows for the periods indicated: (in thousands) December 31, 2024 December 31, 2023 Deferred income tax assets State taxes $ 20 $ 23 Accrued expenses 3,497 5,807 Inventories 6,226 4,944 Accounts receivable 1,840 1,563 Section 163(j) limitation 6,822 6,031 Net operating loss carryforwards 11,722 12,379 Share-based compensation 2,927 4,032 Lease liabilities 3,983 3,191 Capitalized research 5,249 5,305 Other 3,480 1,611 Total deferred income tax assets 45,766 44,886 Deferred income tax liabilities Goodwill and intangibles ( 3,710 ) ( 6,713 ) Prepaid expenses ( 283 ) ( 434 ) Right-of-use assets ( 3,401 ) ( 2,506 ) Property and equipment ( 630 ) ( 2,165 ) Total deferred tax liabilities ( 8,024 ) ( 11,818 ) Valuation allowance ( 34,244 ) ( 33,239 ) Net deferred income tax assets (liabilities) $ 3,498 $ ( 171 ) 119 The Company’s net deferred income tax assets (liabilities) as presented on the Consolidated Balance Sheets consists of the following items as of the dates indicated: (in thousands) December 31, 2024 December 31, 2023 Deferred income tax assets $ 3,894 $ 531 Deferred income tax liabilities ( 396 ) ( 702 ) Net deferred income tax assets (liabilities) $ 3,498 $ ( 171 ) The Company increased the valuation allowance on the net U.S. federal and state deferred tax assets by $ 1.0 million for the year ended December 31, 2024. 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 the deferred tax assets. The Company has provided a full valuation allowance against the net U.S. federal and state deferred tax assets that management believes is not more likely than not to be realized. 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, $ 34.2 million of income tax benefit would be recorded to continuing operations. At December 31, 2024, the Company had gross federal and state net operating loss carryforwards of $ 40.6 million and $ 23.0 million, respectively, that can be carried forward indefinitely, subject to an 80% taxable income limitation, and state net operating loss carryforward of $ 37.3 million, which will expire in varying amounts beginning in 2025. The Company has federal and state research and development credit carryforwards of $ 1.0 million and $ 1.1 million, respectively. The federal credits will expire in 2041 and the state credits are available indefinitely. As of December 31, 2024 and December 31, 2023, the Company had recorded gross unrecognized tax benefits of $ 1.2 million and $ 1.1 million, respectively. As of December 31, 2024, the Company has $ 0.2 million of unrecognized tax benefits that, if recognized and realized, will affect the effective tax rate. The Company does not expect a significant change in the unrecognized tax benefits over the next 12 months. The Company recognizes interest expense and penalties associated with uncertain tax positions as a component of income tax expense. Accruals for interest and penalties related to income tax matters were not material as of December 31, 2024. A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows: (in thousands) December 31, 2024 December 31, 2023 Unrecognized tax benefits at beginning of period $ 1,104 $ 674 Increases for tax positions in prior periods — 230 Decreases for tax positions in prior periods ( 54 ) ( 112 ) Increases for tax positions in current period 261 312 Settlements/statute expirations ( 117 ) — Unrecognized tax benefits at end of period $ 1,194 $ 1,104 The Company is subject to taxation and files income tax returns in the U.S. federal and various state and foreign jurisdictions. The Company’s tax returns remain open for examination in the United States for years 2020 through 2023, while tax returns in the foreign jurisdictions in which the Company operates are generally subject to examination up to three years following the year in which the tax obligation originated. The Company is not currently under examination by income tax authorities in federal, state, or other jurisdictions. APB 23 (codified as FASB ASC 740-10-25-3) allows an exception to the general rule that a U.S. multinational company must accrue U.S. taxes on foreign earnings of its controlled non-U.S. 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). 120 Note 15 — Net (Loss) Income Attributable to Common Stockholders The following table sets forth the calculation of both basic and diluted net (loss) income per share as follows for the periods indicated: Year Ended December 31, (in thousands, except share and per share amounts) 2024 2023 2022 Net (loss) income available to common stockholders - basic $ ( 29,098 ) $ ( 100,116 ) $ 44,224 Adjustments related to the Notes (1) ( 22,671 ) — — Income on Private Placement Warrants — — ( 78,343 ) Net loss available to common stockholders - diluted $ ( 51,769 ) $ ( 100,116 ) $ ( 34,119 ) Weighted average common stock outstanding - basic 123,827,372 131,680,605 147,554,090 Effect of dilutive shares: Notes 18,665,203 — — Private Placement Warrants — — 952,222 Weighted average common stock outstanding - diluted 142,492,575 131,680,605 148,506,312 Basic net (loss) income per share: $ ( 0.23 ) $ ( 0.76 ) $ 0.30 Dilutive net loss per share: $ ( 0.36 ) $ ( 0.76 ) $ ( 0.23 ) (1) For the year ended December 31, 2024, the adjustments related to the Notes include the net gain on repurchase offset by interest expense and amortization of debt issuance costs related to the Company’s Notes (net of taxes). The following shares have been excluded from the calculation of the weighted average diluted shares outstanding as the effect would have been anti-dilutive: Year Ended December 31, 2024 2023 2022 Notes — 23,614,425 23,614,425 RSUs 7,254,391 5,242,680 2,580,152 Stock Options 3,483,070 3,732,420 5,601,770 PSUs 1,237,822 1,306,558 2,500,126 For the years ended December 31, 2024 and 2023, income and shares related to the Private Placement Warrants were excluded from the calculation of diluted net loss per share of Class A Common Stock because their effect would be anti-dilutive. Note 16 — Segment, Geographic, and Other Information The Company manages its business on the basis of one operating segment and one reportable segment. The chief operating decision maker (“CODM”), who is the Chief Executive Officer, assesses performance for the one operating segment and decides how to allocate resources based on consolidated net income (loss) and consolidated income (loss) from operations, which is also reported on the Consolidated Statements of Comprehensive Income (Loss). Significant expenses within consolidated net (loss) income include cost of sales, total operating expenses, interest expense, interest income, other (income) expense, net, change in fair value of warrant liabilities, foreign currency transaction loss (gain), net, and income tax expense (benefit), all of which are each separately reported on the Consolidated Statements of Comprehensive Income (Loss). The CODM also reviews the disaggregation of total operating expenses, of which significant segment expenses are related to personnel-related expenses, which includes sales commissions and share-based compensation expense. Other segment expenses included in total operating expenses primarily consist of fees for professional services principally comprising legal, audit, tax and accounting services, depreciation and amortization expenses, advertising and marketing related expenses, 121 software, facilities-related costs, credit card and wire fees, and insurance. The following summarizes the components of operating expenses for the periods indicated: Year Ended December 31, (in thousands) 2024 2023 2022 Total operating expenses: Personnel-related expenses $ 131,134 $ 152,625 $ 146,748 Other segment expenses 118,936 133,405 127,872 Total operating expenses $ 250,070 $ 286,030 $ 274,620 Net sales disaggregated by major product line were as follows for the periods indicated: Year Ended December 31, (in thousands) 2024 2023 2022 Net Sales Delivery Systems $ 125,400 $ 206,630 $ 206,235 Consumables 208,894 191,361 159,641 Total net sales $ 334,294 $ 397,991 $ 365,876 Net sales by geographic region were as follows for the periods indicated: Year Ended December 31, (in thousands) 2024 2023 2022 Americas $ 216,993 $ 227,709 $ 243,243 Asia-Pacific 45,668 82,193 54,306 Europe, the Middle East and Africa 71,633 88,089 68,327 Total net sales $ 334,294 $ 397,991 $ 365,876 No single customer accounted for 10% or more of consolidated net sales during the years ended December 31, 2024, 2023, and 2022. No single customer accounted for 10% or more of the Company’s accounts receivable balance as December 31, 2024 and 2023. 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, 2024 December 31, 2023 U.S. $ 13,285 $ 13,937 United Kingdom 2,066 4,174 Germany 1,595 2,312 China 1,406 3,398 Rest of World 1,216 2,525 Total long-lived assets $ 19,568 $ 26,346 122 Note 17 — 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 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, in October 2023, the Company’s management decided that, with respect to Syndeo devices, the Company would only market and sell Syndeo 3.0 devices. The Company provided, 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 extended 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 incurred costs of $ 45.6 million during the year ended December 31, 2023, associated with the costs to upgrade, replace, and remediate Syndeo 1.0 or 2.0 devices. As of December 31, 2024, the Syndeo Program is complete. The following table summarizes the Syndeo Program charges and usage (in thousands): Program liability as of December 31, 2022 $ — Charges 45,638 Usage ( 24,629 ) Program liability as of December 31, 2023 $ 21,009 Usage ( 21,009 ) Program liability as of December 31, 2024 $ — With respect to Syndeo devices, as a result of the decision to market and sell Syndeo 3.0 devices exclusively, 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. Syndeo Program charges and Syndeo inventory write-down were recognized in cost of sales for the year ended December 31, 2023. 123 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.