SkinHealth Systems Inc. 10-Q

Item 1. Financial Statements. SKINHEALTH SYSTEMS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except for share amounts) (Unaudited) March 31, 2026 December 31, 2025 ASSETS Current assets: Cash, cash equivalents, and restricted cash $ 204,358 $ 232,673 Accounts receivable, net of allowances for estimated credit losses of $ 4,988 and $ 6,022 at March 31, 2026 and December 31, 2025, respectively 18,615 21,741 Inventories 47,693 48,012 Income tax receivable 1,638 1,696 Prepaid expenses and other current assets 5,391 5,395 Total current assets 277,695 309,517 Property and equipment, net 2,336 2,538 Right-of-use assets, net 20,293 11,570 Intangible assets, net 32,798 35,763 Goodwill 126,246 126,621 Deferred income tax assets, net 2,413 1,925 Other assets 11,452 11,869 TOTAL ASSETS $ 473,233 $ 499,803 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of convertible senior notes, net $ 102,944 $ 123,959 Accounts payable 15,885 15,631 Accrued payroll-related expenses 13,031 24,947 Lease liabilities, current 4,158 5,128 Income tax payable 462 1,226 Other accrued expenses 18,722 15,384 Total current liabilities 155,202 186,275 Lease liabilities, non-current 18,751 9,238 Deferred income tax liabilities, net 393 393 Convertible senior notes, net 241,276 240,431 Other long-term liabilities 2,371 2,410 Total liabilities 417,993 438,747 Commitments and Contingencies (Note 6) Stockholders’ equity: Class A Common Stock, $ 0.0001 par value; 320,000,000 shares authorized; 129,144,801 and 127,520,823 shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively 13 13 Additional paid-in capital 581,053 579,961 Accumulated other comprehensive loss ( 1,712 ) ( 1,434 ) Accumulated deficit ( 524,114 ) ( 517,484 ) Total stockholders’ equity 55,240 61,056 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 473,233 $ 499,803 The accompanying notes are an integral part of these unaudited financial statements. 3 SKINHEALTH SYSTEMS INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands, except for share and per share amounts) (Unaudited) Three Months Ended March 31, 2026 2025 Net sales $ 64,910 $ 69,580 Cost of sales 20,471 21,000 Gross profit 44,439 48,580 Operating expenses: Selling and marketing 23,195 26,040 Research and development 1,102 998 General and administrative 21,943 33,565 Total operating expenses 46,240 60,603 Loss from operations ( 1,801 ) ( 12,023 ) Interest expense 6,346 2,498 Interest income ( 1,485 ) ( 3,028 ) Other income, net ( 1,044 ) ( 60 ) Change in fair value of warrant liabilities — ( 349 ) Foreign currency transaction loss (gain), net 1,196 ( 1,880 ) Loss before provision for income taxes ( 6,814 ) ( 9,204 ) Income tax (benefit) expense ( 184 ) 892 Net loss ( 6,630 ) ( 10,096 ) Comprehensive loss, net of tax: Foreign currency translation adjustments ( 278 ) 1,128 Comprehensive loss $ ( 6,908 ) $ ( 8,968 ) Net loss per share Basic $ ( 0.05 ) $ ( 0.08 ) Diluted $ ( 0.05 ) $ ( 0.08 ) Weighted average common stock outstanding Basic 127,792,611 125,079,470 Diluted 131,399,898 125,079,470 The accompanying notes are an integral part of these unaudited financial statements. 4 SKINHEALTH SYSTEMS INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except for share amounts) (Unaudited) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders’ Equity Shares Amount BALANCE, December 31, 2024 124,924,185 $ 12 $ 566,709 $ ( 6,953 ) $ ( 507,965 ) $ 51,803 Net loss — — — — ( 10,096 ) ( 10,096 ) Issuance of common stock pursuant to equity compensation plan 483,396 — — — — — Shares withheld for tax withholdings on vested stock awards ( 161,295 ) — ( 250 ) — — ( 250 ) Share-based compensation — — 3,476 — — 3,476 Foreign currency translation adjustments — — — 1,128 — 1,128 BALANCE, March 31, 2025 125,246,286 $ 13 $ 569,935 $ ( 5,825 ) $ ( 518,061 ) $ 46,062 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount BALANCE, December 31, 2025 127,520,823 $ 13 $ 579,961 $ ( 1,434 ) $ ( 517,484 ) $ 61,056 Net loss — — — — ( 6,630 ) ( 6,630 ) Issuance of common stock pursuant to equity compensation plan 2,469,895 — — — — — Shares withheld for tax withholdings on vested stock awards ( 845,917 ) — ( 987 ) — — ( 987 ) Share-based compensation — — 2,079 — — 2,079 Foreign currency translation adjustments — — — ( 278 ) — ( 278 ) BALANCE, March 31, 2026 129,144,801 $ 13 $ 581,053 $ ( 1,712 ) $ ( 524,114 ) $ 55,240 The accompanying notes are an integral part of these unaudited financial statements. 5 SKINHEALTH SYSTEMS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three Months Ended March 31, 2026 2025 Cash flows from operating activities: Net loss $ ( 6,630 ) $ ( 10,096 ) Adjustments to reconcile net loss to net cash from operating activities Share-based compensation 2,079 3,476 Amortization of intangible assets 3,558 3,180 Depreciation of property and equipment 563 1,856 Amortization of other assets 1,215 1,128 Amortization of debt issuance costs 1,010 786 Inventory write-down 376 277 Provision for estimated credit losses 540 739 Change in fair value of warrant liabilities — ( 349 ) Gain on repurchase of 2026 Notes ( 1,019 ) — Deferred income taxes ( 515 ) ( 265 ) Other, net 2,406 ( 663 ) Changes in operating assets and liabilities: Accounts receivable 2,491 3,989 Inventories ( 136 ) 3,761 Prepaid expenses, other current assets, and income tax receivable 28 2,906 Accounts payable, accrued expenses, and income tax payable ( 9,558 ) ( 5,730 ) Other, net ( 1,962 ) ( 1,999 ) Net cash (used for) provided by operating activities ( 5,554 ) 2,996 Cash flows from investing activities: Cash paid for intangible assets ( 1,425 ) ( 1,100 ) Cash paid for property and equipment ( 224 ) ( 45 ) Net cash used for investing activities ( 1,649 ) ( 1,145 ) Cash flows from financing activities: Repurchase of 2026 Notes ( 20,161 ) — Payment of tax withholdings on vested stock awards ( 745 ) ( 250 ) Net cash used for financing activities ( 20,906 ) ( 250 ) Net change in cash, cash equivalents, and restricted cash ( 28,109 ) 1,601 Effect of foreign currency translation on cash ( 206 ) 1,367 Cash, cash equivalents, and restricted cash beginning of period 232,673 370,063 Cash, cash equivalents, and restricted cash end of period $ 204,358 $ 373,031 The accompanying notes are an integral part of these unaudited financial statements 6 SKINHEALTH SYSTEMS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 — Description of Business SkinHealth Systems Inc. (the “Company”) is a global medical aesthetics company delivering an integrated ecosystem of clinically proven solutions designed to help consumers achieve superior skin health and support the success of providers. Anchored by Hydrafacial, a leading and widely requested professional skincare treatment, and supported by complementary offerings including SkinStylus microneedling and HydraScalp powered by Keravive, the Company combines advanced device technology, proprietary consumables, and clinical validation to deliver trusted treatment experiences through an omnichannel network of providers worldwide. Historical Information The Company (previously, The Beauty Health Company, and formerly, 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., 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”). Basis of Presentation The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in, or presented as exhibits to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. 7 Note 2 — Balance Sheet Components Inventories consist of the following as of the periods indicated: (in thousands) March 31, 2026 December 31, 2025 Raw materials $ 19,631 $ 18,546 Finished goods 28,062 29,466 Total inventories $ 47,693 $ 48,012 Accrued payroll-related expenses consist of the following as of the periods indicated: (in thousands) March 31, 2026 December 31, 2025 Accrued compensation and payroll taxes $ 7,586 $ 17,905 Accrued sales commissions 3,216 4,791 Accrued benefits 2,229 2,251 Total accrued payroll-related expenses $ 13,031 $ 24,947 Other accrued expenses consist of the following as of the periods indicated: (in thousands) March 31, 2026 December 31, 2025 Accrued interest $ 7,508 $ 2,929 Sales and VAT tax payables 2,899 3,571 Royalty liabilities 1,318 1,571 Deferred revenue 1,101 1,012 Other 5,896 6,301 Total other accrued expenses $ 18,722 $ 15,384 As of March 31, 2026 and December 31, 2025, total warranty reserve was approximately $ 1 million, which was included in other accrued expenses on the Condensed Consolidated Balance Sheets. As of March 31, 2026 and December 31, 2025, 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 Condensed Consolidated Balance Sheets. During the three months ended March 31, 2026, the Company amended the terms of its principal executive office lease agreement to expire in November 2032, resulting in an increase of approximately $ 14 million in future operating lease payments and an approximately $ 10 million increase in lease-related balances on the Condensed Consolidated Balance Sheets. 8 Note 3 — Property and Equipment, net Property and equipment, net consist of the following as of the periods indicated: (in thousands) Useful life (years) March 31, 2026 December 31, 2025 Leasehold improvements Shorter of remaining lease term or estimated useful life $ 11,035 $ 11,080 Machinery and equipment 2 - 5 4,565 4,723 Furniture and fixtures 2 - 7 5,438 5,320 Computers and equipment 3 - 5 3,566 3,556 Tooling 5 541 541 Autos and trucks 5 61 61 Construction in progress 261 55 Total property and equipment 25,467 25,336 Less: accumulated depreciation and amortization ( 23,131 ) ( 22,798 ) Property and equipment, net $ 2,336 $ 2,538 Note 4 — Goodwill and Intangible Assets, net Goodwill The changes in the carrying value of goodwill for the three months ended March 31, 2026 are as follows (in thousands): December 31, 2025 126,621 Foreign currency translation impact ( 375 ) March 31, 2026 $ 126,246 Intangible Assets, Net The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of March 31, 2026 were as follows: (in thousands) Gross Carrying Value Accumulated Amortization Net Carrying Value Estimated Useful Life (Years) Developed technology $ 91,629 $ ( 80,815 ) $ 10,814 3 - 10 Capitalized software 26,732 ( 16,012 ) 10,720 3 - 5 Customer relationships 18,944 ( 18,152 ) 792 5 - 10 Trademarks 11,802 ( 7,237 ) 4,565 15 Non-compete agreement 5,895 ( 3,952 ) 1,943 3 Patents 5,102 ( 1,138 ) 3,964 3 - 19 Total intangible assets $ 160,104 $ ( 127,306 ) $ 32,798 9 The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of December 31, 2025 were as follows: (in thousands) Gross Carrying Value Accumulated Amortization Net Carrying Value Estimated Useful Life (Years) Developed technology $ 91,629 $ ( 79,405 ) $ 12,224 3 - 10 Capitalized software 26,260 ( 15,082 ) 11,178 3 - 5 Customer relationships 19,112 ( 17,461 ) 1,651 5 - 10 Trademarks 11,730 ( 7,019 ) 4,711 15 Non-compete agreement 5,908 ( 3,711 ) 2,197 3 Patents 4,855 ( 1,053 ) 3,802 3 - 19 Total intangible assets $ 159,494 $ ( 123,731 ) $ 35,763 Note 5 — Long-Term Debt Convertible Senior Secured Notes - 2028 On May 21, 2025, the Company entered into privately negotiated exchange agreements (the “Exchange Agreements”) with certain holders (the “Exchanging Holders”) of the 1.25 % Convertible Senior Notes due October 1, 2026 (the “2026 Notes”). Pursuant to the Exchange Agreements, the Company exchanged and repurchased $ 413.2 million aggregate principal amount of the 2026 Notes. Of the $ 413.2 million aggregate principal amount of the 2026 Notes, $ 263.2 million principal amount were exchanged at a weighted-average price equal to 95 % for $ 250.0 million principal amount of new 7.95 % Convertible Senior Secured Notes due November 15, 2028 (the “2028 Notes”, and together with the 2026 Notes, the “Notes”), and $ 150.1 million principal amount were repurchased at a weighted-average price equal to 95 % for $ 142.6 million. On May 27, 2025, the Company issued the 2028 Notes to the Exchanging Holders. The 2028 Notes were issued pursuant to, and are governed by, an indenture, dated as of May 27, 2025, between the Company, the guarantors party thereto, and U.S. Bank Trust Company, National Association, as trustee and collateral agent. Convertible Senior Notes - 2026 On September 14, 2021, the Company issued an aggregate of $ 750.0 million in principal amount of its 2026 Notes pursuant to, and governed by, an indenture dated as of September 14, 2021, between the Company and U.S. Bank National Association, as trustee. Pursuant to the purchase agreement between the Company and the initial purchasers of the 2026 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 2026 Notes were first issued, up to an additional $ 100.0 million principal amount of 2026 Notes. The 2026 Notes issued on September 14, 2021 include the $ 100.0 million principal amount of 2026 Notes issued pursuant to the full exercise by the initial purchasers of such option. During the three months ended March 31, 2026, the Company repurchased $ 21.3 million principal amount of its 2026 Notes at a weighted-average price equal to 94.875 % for $ 20.2 million and recognized a net gain of $ 1.0 million, which includes $ 0.1 million of unamortized debt issuance costs. During the three months ended March 31, 2025, there were no repurchases related to the 2026 Notes. Since inception through December 31, 2025, the Company exchanged and repurchased in total $ 625.5 million principal amount of its 2026 Notes. The net gain recognized related to the repurchase is included in other income, net in the Condensed Consolidated Statements of Comprehensive Income (Loss). 10 The following is a summary of the Company’s Notes for the periods indicated: (in thousands) March 31, 2026 December 31, 2025 2026 Notes $ 103,235 $ 124,485 2028 Notes 250,000 250,000 Unamortized debt issuance costs ( 9,015 ) ( 10,095 ) Total convertible senior notes, net 344,220 364,390 Current portion of convertible senior notes, net ( 102,944 ) ( 123,959 ) Convertible senior notes, net $ 241,276 $ 240,431 As of March 31, 2026 and December 31, 2025 , the estimated fair value of the Notes were $ 345.3 million (compared to a carrying amount of $ 353.2 million ) and $ 383.1 million (compared to a carrying amount of $ 374.5 million ), respectively. The estimated fair value of the Notes was determined based on the actual bid price of the Notes on March 31, 2026 and December 31, 2025, and are classified as Level 2 within the fair value hierarchy. Note 6 — Commitments and Contingencies The Company is a party to various lawsuits, claims, and other legal proceedings that arise from time to time in the ordinary course of business, including but not limited to commercial disputes, product liability, and employment related matters. In addition, the Company may bring claims or initiate lawsuits from time to time against various third parties with respect to matters arising out of the ordinary course of the Company’s business, including but not limited to commercial and intellectual property related matters. With respect to all such lawsuits, claims, and proceedings, if the Company determines a loss is probable and its amount can be reasonably estimated, the Company accrues an amount equal to the estimated loss. The assessment of whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. In all instances, management has assessed the matter based on current information and made a judgment concerning its potential outcome, giving due consideration to the nature of the claim, the amount and nature of damages sought and the probability of success, and taking into account, among other things, negotiations with claimants, discovery, settlements and payments, judicial rulings, arbitration and mediation decisions, advice of internal and external legal counsel, and other information and events pertaining to a particular matter. Costs incurred for litigation are expensed as incurred. For the matters we disclose that do not include an estimate of the amount of loss or range of losses, such an estimate is not possible or is immaterial, and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies. Until the final resolution of such matters, if any of our estimates and assumptions change or prove to have been incorrect, we may experience losses in excess of the amounts recorded, which could have a material effect on our business, consolidated financial position, results of operations, or cash flows. Except as otherwise disclosed below, we believe that none of our pending lawsuits, claims, and other proceedings are expected to have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or cash flows. However, management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties of litigation. 11 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 “Defendants”). 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”), asserted 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 alleged 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 included 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 was assigned to U.S. District Judge Sherilyn Peace Garnett. On September 30, 2024, Defendants filed a motion to dismiss the consolidated amended class action complaint in its entirety. Plaintiffs filed their opposition brief on November 22, 2024, and Defendants filed their 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 could complete a private mediation. The parties conducted the private mediation on March 27, 2025. The parties were unable to reach a settlement at the mediation. On May 5, 2025, the plaintiffs filed a second amended complaint (the “SAC”), pursuant to the parties’ stipulation, which was so-ordered by the Court on April 16, 2025. On July 11, 2025, Defendants filed a motion to dismiss the SAC in its entirety. The Court scheduled a hearing on Defendants’ motion for September 17, 2025. On September 15, 2025, the Court vacated the hearing sua sponte . On September 25, 2025, the Court denied Defendants’ motion to dismiss. On November 24, 2025, each Defendant filed an answer to the SAC. On November 26, 2025, the parties filed a Fed. R. Civ. P. 26(f) joint report and proposed stipulated pretrial schedule. On December 15, 2025, the Court so-ordered the parties’ stipulated pretrial schedule, set the final pretrial conference for November 17, 2027, and set trial for December 7, 2027. On the same day, the Court referred the parties to a private mediation before a private mediator of their choice, to be completed by October 13, 2027. On March 24, 2026, the parties entered into a stipulation to extend the case schedule by approximately three months to allow them to focus on mediation efforts. The Court approved the stipulation on March 25, 2026, resulting in a three-month extension of the case schedule, including all discovery deadlines. The parties have agreed to participate in a private mediation, which is currently scheduled to take place on May 20, 2026. The Company believes that the claims asserted in the Securities Class Action have no merit and intends to vigorously defend them. 12 Customer 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 (the “Complaint”) against Hydrafacial LLC d/b/a The Hydrafacial Company (“Hydrafacial”) and The Beauty Health Company (“BHC” and collectively with Hydrafacial, the “Class Action Defendants”) for alleged violations of New York consumer fraud statutes, breach of contract, and common law breach of implied warranties (the “Customer 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 alleged 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 purported 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 asserted 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 included 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. On December 30, 2024, the Class Action Defendants filed a motion to dismiss the 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 Customer 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. The parties conducted the private mediation on April 29, 2025; however, the parties were unable to reach a settlement at the mediation. Pursuant to the parties’ so-ordered January 16 joint stipulation, on May 7, 2025, the parties filed a revised proposed case management plan and a revised joint letter in accordance with the Court’s Notice of Initial Pretrial Conference. On the same day, the Court endorsed the joint submission and ordered Plaintiff to file an amended complaint no later than June 2, 2025, and scheduled an initial pretrial conference for July 18, 2025. 13 On June 2, 2025, Plaintiff and fifteen other alleged purchasers of the Syndeo machines (“Plaintiffs”) filed an amended complaint (the “Amended Complaint”) asserting: (1) violations of N.Y. G.B.L., § 349 (Count IV), the state consumer protection statute; (2) violations of N.Y. G.B.L., § 350 (Count V), the state’s false advertising statute; (3) breach of the implied warranty of merchantability (Count I); (4) breach of express and implied contract and class-wide rescission (Count II); and (5) breach of express warranty (Count III). The relief sought in the Amended Complaint included 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. For Counts IV (violations of N.Y. G.B.L., § 349) and V (violations of N.Y. G.B.L., § 350), plaintiff Jennifer Skuratov d/b/a Spa Thirsty, Inc. (“Spa Thirsty”), sought certification of an alternative subclass of New York purchasers of Syndeo devices (the “Putative New York Subclass”). On June 23, 2025, Defendants moved to (i) dismiss Counts I, II, IV, and V in full; (ii) partially dismiss Count III to the extent it alleges design defects; (iii) dismiss all claims brought by plaintiff Spa Thirsty in full; (iv) dismiss all claims against BHC in full; and (v) dismiss Plaintiffs’ claim for injunctive relief. On December 22, 2025, the Court granted Defendants’ motion to dismiss in its entirety, except it denied Defendants’ request that the claims brought by plaintiff Spa Thirsty be dismissed with prejudice. Specifically, the Court dismissed (i) all of Plaintiffs’ claims against BHC; (ii) Plaintiffs’ claims for breach of the implied warranty of merchantability (Count I), breach of express and implied contract and class-wide rescission based on fraudulent inducement (Count II), and violations of N.Y. G.B.L., §§ 349 and 350 (Counts IV and V), and their request for injunctive relief; and (iii) the Class Action Plaintiffs’ claim for breach of express warranty (Count III) to the extent it arises out of alleged defects affirmatively identified as “design defects” in the amended complaint. In addition, the Court denied the Class Action Plaintiffs’ request for leave to amend as to all of the dismissed causes of action except for plaintiff Spa Thirsty’s claims pursuant to N.Y. G.B.L. §§ 349 and 350. The Court gave plaintiff Spa Thirsty until January 9, 2026 to move for leave to file a second amended complaint that addresses the deficiencies with plaintiff Spa Thirsty’s §§ 349 and 350 claims. Those deficiencies included plaintiff Spa Thirsty’s failure to allege that it “was aware of any of Defendants’ purportedly deceptive statements ‘before [it] purchased or came into possession’ of the Syndeo.” On January 9, 2026, Class Action Plaintiffs filed a letter motion for leave to file a second amended complaint and for reconsideration of the Court’s dismissal of Plaintiffs’ claims for breach of express and implied contract and class-wide rescission based on fraudulent inducement (Count II). Class Action Plaintiffs appended a proposed second amended complaint (the “Second Amended Complaint”) to their letter motion. The Second Amended Complaint alleged that plaintiff Spa Thirsty purchased a Syndeo in reliance on representations made by Hydrafacial to plaintiff Spa Thirsty at an aesthetic conference in New York, including that Syndeo was “top of the line,” “hands free,” “had superior cleanliness,” “superior,” “a major upgrade,” “works great,” and “yielded ‘more than 15 uses per bottle of solution serum.” The Second Amended Complaint alleged that those representations were deceptive in violation of N.Y. G.B.L. §§ 349 and 350 because the Syndeo allegedly lacked attributes Hydrafacial had represented to plaintiff Spa Thirsty and did not yield the promised treatments per bottle of solution serum. On January 23, 2026, Hydrafacial filed its opposition to Class Action Plaintiffs’ letter motion. Hydrafacial argued that the Second Amended Complaint was futile because all of its alleged representations about the Syndeo were inactionable puffery, except for, arguably, the representation regarding the number of treatments per bottle of solution serum. For that representation, Hydrafacial argued that plaintiff Spa Thirsty did not allege that its Syndeo yielded fewer than 15 treatments per bottle and failed to allege other facts required to state §§ 349 and 350 claims. Hydrafacial also argued that Class Action Plaintiffs’ request for reconsideration of the dismissal of Count II should be denied as untimely. On January 27, 2026, the Court issued an order granting Class Action Plaintiffs’ motion for leave to file the Second Amended Complaint but denied their request that the Court reconsider its order dismissing the claim for breach of contract in Count II of the Amended Complaint. Although the Court agreed with Hydrafacial that “many of the claims attributed to HydraFacial in the Second Amended Complaint are non-actionable puffery, the claim that the Syndeo ‘yielded more than 15 uses per bottle of serum’ is a verifiable statement of fact,” and the Court could “infer that plaintiff Spa Thirsty’s machine failed to yield the promised number of uses per bottle of serum …. From plaintiff Spa Thirsty’s allegation that its ‘machines run through serums faster than Defendant states it should.’” The Court denied reconsideration because Class Action Plaintiffs’ request was both untimely and “would fail on the merits,” as Class Action Plaintiffs “failed to allege the specific provisions of the contract upon which liability was predicated.” Pursuant to the Court’s order, Class Action Plaintiffs filed the Second Amended Complaint on January 29, 2026. As a result of the Court’s ruling, the only claims still pending before the Court in the Customer Class Action are (i) the Class Action Plaintiffs’ claim against Hydrafacial for breach of its express warranty against defects in materials and workmanship; and (ii) plaintiff Spa Thirsty’s claim, asserted on behalf of itself and the Putative New York Subclass against Hydrafacial, for alleged violations of N.Y. G.B.L., § 349 and § 350. On February 26, 2026, the parties jointly notified the Court that a settlement-in-principle had been reached and requested that all deadlines be stayed for sixty (60) days. On March 2, 2026, the Court ordered Class Action Plaintiffs to file the necessary motion papers for preliminary approval of the settlement on or before May 29, 2026, and canceled all other deadlines in the case. 14 The Company believes that the claims asserted in the Customer Class Action have no merit and it intends to vigorously defend them. 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. 15 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 was filed on May 2, 2025, and Defendants’ reply brief was filed on June 3, 2025. The parties held a mediation on November 4, 2025 and reached agreement on terms of a mutually agreeable resolution. On February 9, 2026, the parties entered into a Stipulation of Settlement, which is subject to court approval. On February 20, 2026, the Delaware Court of Chancery entered a Scheduling Order with respect to Notice and Settlement Hearing, requiring the Company to file a copy of the Notice of Pendency and Proposed Settlement of Derivative Action as an exhibit to a Current Report on Form 8-K, which the Company filed on March 6, 2026. The Court has scheduled the settlement hearing for May 13, 2026 . Securities and Exchange Commission (the “SEC”) Subpoena On January 11, 2024, the Company was informed that the SEC is conducting a formal investigation of the Company related to, among other things, the allegations brought against the Company in the Securities Class Action lawsuit. The Company has subsequently received subpoenas from the SEC for the production of documents and witness testimony related to its investigation. The Company is in the process of responding to the subpoenas and intends to continue to fully cooperate with the SEC investigation. We cannot predict the duration, scope, or outcome of this matter at this time. 16 Note 7 — 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 9,333,333 warrants to purchase shares of the Company’s Class A Common Stock at $ 11.50 per share (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. 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. As of March 31, 2026 and December 31, 2025 , the Company had approximately 7 million Private Placement Warrants outstanding, which will expire in May 2026. The fair value of the Private Placement Warrants was immaterial as of March 31, 2026 and December 31, 2025 . 17 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. Note 8 — 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 March 31, 2026 and December 31, 2025, there were 129,144,801 and 127,520,823 , 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 . 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 March 31, 2026 and December 31, 2025 , there were no shares of preferred stock issued or outstanding. Note 9 — 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 March 31, 2026 and December 31, 2025, and indicate the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value. The three levels of the fair value hierarchy are as follows: 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. As of March 31, 2026 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash, cash equivalents, and restricted cash: Money market funds $ 128,303 $ — $ — $ 128,303 As of December 31, 2025 (in thousands) Level 1 Level 2 Level 3 Total Assets Cash, cash equivalents, and restricted cash: Money market funds $ 149,927 $ — $ — $ 149,927 18 Note 10 — Revenue 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, serums, and other products 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. Net sales disaggregated by major product line were as follows for the periods indicated: Three Months Ended March 31, (in thousands) 2026 2025 Delivery Systems $ 18,539 $ 20,218 Consumables 46,371 49,362 Total net sales $ 64,910 $ 69,580 Net sales by geographic region were as follows for the periods indicated: Three Months Ended March 31, (in thousands) 2026 2025 Americas $ 44,608 $ 46,257 Europe, the Middle East and Africa 13,735 14,987 Asia-Pacific 6,567 8,336 Total net sales $ 64,910 $ 69,580 Note 11 — Share-Based Compensation The Company has various stock compensation plans, which are more fully described in Part II, Item 8 “Financial Statements and Supplementary Data—Note 12 to the Consolidated Financial Statements—Share-Based Compensation” in the Company’s 2025 Annual Report on Form 10-K. Under The Beauty Health Company 2021 Incentive Award 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. Share-based compensation expense was as follows for the periods indicated: Three Months Ended March 31, (in thousands) 2026 2025 Cost of sales $ 118 $ 150 Selling and marketing 565 217 Research and development 75 143 General and administrative 1,321 2,966 Total share-based compensation $ 2,079 $ 3,476 19 Restricted Stock Units (“RSU”) and Performance-based Restricted Stock Units (“PSU”) The following table summarizes the Company’s RSU and PSU activity: Weighted Average Grant Date Fair Value RSU Shares PSU Shares RSU PSU Outstanding - January 1, 2026 12,311,446 2,154,230 $ 1.97 $ 3.02 Granted 9,007,477 434,068 1.14 1.86 Vested ( 2,469,895 ) — 2.11 — Forfeited ( 1,241,717 ) ( 378,245 ) 2.01 3.20 Outstanding - March 31, 2026 17,607,311 2,210,053 $ 1.52 $ 2.76 As of March 31, 2026 , total unrecognized compensation expense related to unvested RSU and PSU totaled $ 25.7 million and is expected to be recognized over a weighted-average period of 2.3 years. Stock Options The following table summarizes the Company’s stock option activity: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Outstanding - January 1, 2026 2,459,920 $ 13.51 5.37 Granted — — Exercised — — Forfeited — — Expired — — Outstanding - March 31, 2026 2,459,920 13.51 5.08 Vested and Exercisable - March 31, 2026 2,459,920 13.51 5.08 Options vested and expected to vest - March 31, 2026 2,459,920 $ 13.51 5.08 Cash Performance Awards During the three months ended March 31, 2026, cash performance awards with a total target value of $ 2.8 million were granted for which the final payout will range from 0 % to 200 % of the target value based on the total shareholder return of the Company’s Class A Common stock relative to a defined peer group. The cash performance awards vest over a two to three-year period. The cash performance awards can be settled in either cash or Class A Common Stock upon vesting at the Company’s discretion. These awards are accounted for as liability awards under Accounting Standards Codification (“ASC”) 718 and are measured at fair value through the end of the performance period using the Monte Carlo simulation model. For the three months ended March 31, 2026, the expense associated with the cash performance awards was immaterial . The estimated future cash payments of these awards are included within other long-term liabilities in the Condensed Consolidated Balance Sheets. As of March 31, 2026 , total unrecognized compensation expense related to unvested cash performance awards totaled $ 0.9 million and is expected to be recognized over a weighted-average period of 2.2 years. 20 Note 12 — Income Taxes The Company is required to calculate its interim income tax provision using the estimated annual effective tax rate (“AETR”) method prescribed by ASC 740-270, and as such, excludes losses in jurisdictions where the Company cannot benefit in computing its worldwide AETR. A separate AETR is computed and applied to ordinary losses in the U.S. and China as required by ASC 740-270-30-36(a). For the three months ended March 31, 2026, the Company recorded income tax benefit of $ 0.2 million. The AETR differed from the U.S. federal statutory tax rate of 21% due primarily to a full valuation allowance against the Company's deferred tax assets in the U.S. and China, income in foreign jurisdictions that are taxed at higher rates than the U.S. federal rate, and the impact of discrete items that may occur in any given year but are not consistent from year to year. For the three months ended March 31, 2025, the Company recorded income tax expense of $ 0.9 million. The estimated worldwide AETR differed from the U.S. federal statutory tax rate of 21% due primarily to a full valuation allowance against the Company's U.S. deferred tax assets, income in foreign jurisdictions that are taxed at higher rates than the U.S. federal rate, and the impact of discrete items that may occur in any given year but are not consistent from year to year. The Company has established a valuation allowance against its deferred tax assets in the U.S. and China, because it is more likely than not that the deferred tax assets will not be realized. In determining whether deferred tax assets are realizable, the Company considers numerous factors including historical profitability, the amount of future taxable income and the existence of taxable temporary differences that can be used to realize deferred tax assets. The Company applies ASC 740, the accounting standard addressing the accounting for uncertainty in income taxes, which prescribes rules for recognition, measurement and classification in the financial statements of tax positions taken or expected to be taken in a tax return. The Company has gross unrecognized tax benefits of $ 1.8 million and $ 1.7 million as of March 31, 2026 and December 31, 2025, respectively. Note 13 — Net Loss Attributable to Common Stockholders The following table sets forth the calculation of both basic and diluted net loss per share as follows for the periods indicated: Three Months Ended March 31, (in thousands, except share and per share amounts) 2026 2025 Net loss available to common stockholders - basic $ ( 6,630 ) $ ( 10,096 ) Adjustments related to the 2026 Notes (1) ( 491 ) — Net loss available to common stockholders - diluted $ ( 7,121 ) $ ( 10,096 ) Weighted average common stock outstanding - basic 127,792,611 125,079,470 Effect of dilutive shares: 2026 Notes 3,607,287 — Weighted average common stock outstanding - diluted 131,399,898 125,079,470 Basic net loss per share: $ ( 0.05 ) $ ( 0.08 ) Diluted net loss per share: $ ( 0.05 ) $ ( 0.08 ) (1) For the three months ended March 31, 2026, the adjustments related to the 2026 Notes include the net gain related to the repurchase offset by interest expense and amortization of debt issuance costs related to the 2026 Notes (net of taxes). 21 The following shares have been excluded from the calculation of the weighted average diluted shares outstanding as the effect would have been anti-dilutive: Three Months Ended March 31, 2026 2025 2026 Notes — 17,559,686 2028 Notes 87,412,575 — RSUs 17,607,311 15,813,008 Stock Options 2,459,920 3,145,320 PSUs 2,210,053 2,845,617 For the three months ended March 31, 2026 and 2025, 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 14 — Segment 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 Condensed 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 Condensed 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 commission 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, software, facilities-related costs, credit card and wire fees, and insurance. The following summarizes the components of operating expenses for the periods indicated: Three Months Ended March 31, (in thousands) 2026 2025 Total operating expenses: Personnel-related expenses $ 22,705 $ 28,819 Other segment expenses 23,535 31,784 Total operating expenses $ 46,240 $ 60,603 Note 15 — New Accounting Pronouncements Recently Adopted Accounting Pronouncements In November 2024, the Financial Standards Accounting Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-04 “Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments” which is intended to clarify requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion. The Company adopted ASU 2024-04 on a prospective basis beginning January 1, 2026 and the adoption did not have a material impact on its consolidated financial statements and related disclosures. 22 In July 2025, the FASB issued ASU 2025-05 “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets” which simplifies the application of the current expected credit loss model for current accounts receivable and current contract assets under ASC 606. The Company adopted ASU 2025-05 on a prospective basis beginning January 1, 2026 and the adoption did not have a material impact on its consolidated financial statements and related disclosures. Accounting Pronouncements Not Yet Adopted 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. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, which was clarified in ASU 2025-01. 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 consolidated financial statement disclosures. In September 2025, the FASB issued ASU 2025-06 “Intangibles: Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software” which modernizes the accounting for internal-use software to current development practices, clarifies when to begin capitalizing costs, and enhances disclosure requirements. ASU 2025-06 is effective for interim and annual reporting periods beginning after December 15, 2027, with early adoption permitted, and should be applied either prospectively, retrospectively, or under a modified prospective transition approach. The Company is currently evaluating the potential effect that the updated standard will have on its consolidated financial statements and related disclosures. In December 2025, the FASB issued ASU 2025-11 “Interim Reporting (Topic 270): Narrow Scope Improvements” which clarifies and reorganize GAAP interim reporting guidance to improve navigability, applicability, and consistency without changing the fundamental nature or volume of required interim disclosures. This amendment clarifies when ASC 270 is applicable, establishes a disclosure principle requiring disclosure of material events or changes occurring since the most recent annual reporting period, and consolidates into ASC Topic 270 a comprehensive list of interim disclosures required by other Codification Topics. The amendment also clarifies the form and content of interim financial statements, including guidance for condensed interim reporting. ASU 2025-11 is effective for interim reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its consolidated financial statements and related disclosures. In December 2025, the FASB issued ASU 2025-12 “Codification Improvements” to address suggestions received from stakeholders on the Accounting Standards Codification and to make other incremental improvements to GAAP. The update represents changes to the Codification that (1) clarify, (2) correct errors or (3) make minor improvements. ASU 2025-12 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted, and should be applied either prospectively or retrospectively. The Company is currently evaluating the potential effect that the updated standard will have on its consolidated financial statements and related disclosures. 23