What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-12 compared with 2021-08-13 · 388 added, 217 removed, 404 unchanged (60% of the section changed)

3 unchanged sentences

(in thousands, except for share amounts)

As of June 30, As of December 31,

September 30, 2021 December 31, 2020

Current assets:

Cash and cash equivalents $ 718,622 $ 9,486

Accounts receivable, net of allowances for doubtful accounts of $ 2,681 and $ 2,032 at June 30, 2021 and December 31, 2020, respectively

Accounts receivable, net of allowances for doubtful accounts of $ 2,677 and $ 2,032 at September 30, 2021 and December 31, 2020, respectively

38,386 18,576

17 unchanged sentences

Total current liabilities 49,468 30,930

Earn-out shares liability 126,000 —

Other long-term liabilities 1,755 1,854

2 unchanged sentences

Warrant liabilities 357,173 —

Convertible senior notes, net 728,858 —

Total liabilities 1,139,930 252,795

3 unchanged sentences

320,000,000 shares authorized;

125,439,779 and 35,501,743 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

133,490,012 and 35,501,743 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

Preferred Stock, $ 0.0001 par value;

1,000,000 shares authorized;

no shares issued and outstanding at June 30, 2021 and December 31, 2020

no shares issued and outstanding at September 30, 2021 and December 31, 2020

Additional paid-in capital 260,908 13,952

2 unchanged sentences

Accumulated deficit ( 401,401 ) ( 43,604 )

Total stockholders’ equity (deficit) 16,070 ( 29,960 )

Total liabilities and stockholders’ equity (deficit) $ 342,508 $ 222,835

Total stockholders’ deficit ( 142,055 ) ( 29,960 )

Total liabilities and stockholders’ deficit $ 997,875 $ 222,835

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

2 unchanged sentences

(in thousands, except for share and per share amounts)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

7 unchanged sentences

Total operating expenses 51,531 18,172 154,493 56,633

Loss from operations

(Loss) income from operations

( 5,456 ) 2,785 ( 29,427 ) ( 12,471 )

1 unchanged sentence

Interest expense, net 530 5,629 8,289 15,447

Other expense (income), net 4,307 ( 56 ) 4,314 ( 61 )

Other (income) expense, net ( 24 ) ( 23 ) 4,290 ( 84 )

Change in fair value of Warrant liabilities 199,306 — 271,333 —

Change in fair value of Earn-out Shares liability 10,575 — 47,100 —

Foreign currency (gain) loss, net ( 24 ) ( 81 ) 232 122

Foreign currency loss (gain), net 431 ( 14 ) 663 108

Total other expense 210,818 5,592 331,675 15,471

26 unchanged sentences

BALANCE, June 30, 2020 — — — — 32,136,203 3 13,994 ( 554 ) ( 60 ) ( 33,896 ) ( 20,513 )

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

Stock-based compensation — — — — — — 76 — — — 76

Net loss — — — — — — — — — ( 2,214 ) ( 2,214 )

Foreign currency translation adjustment — — — — — — — — 108 — 108

BALANCE, September 30, 2020 — $ — — $ — $ 35,618,649 $ 4 $ 14,069 $ ( 554 ) $ 48 $ ( 36,110 ) $ ( 22,543 )

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

THE BEAUTY HEALTH COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (continued)

(in thousands, except for share amounts)

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

Shares Amount

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

9 unchanged sentences

BALANCE, June 30, 2021 125,439,779 $ 13 $ 202,352 $ — $ ( 39 ) $ ( 186,256 ) $ 16,070

Issuance of Class A Common Stock in connection with business acquisitions 479,373 — 7,784 — — — 7,784

Issuance of Earn-out Shares 7,500,000 1 136,574 — — — 136,575

Reverse recapitalization transaction, net 70,860 — ( 734 ) — — — ( 734 )

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

Stock-based compensation — — 5,082 — — — 5,082

Net loss — — — — — ( 215,145 ) ( 215,145 )

Foreign currency translation adjustment — — — — ( 1,537 ) — ( 1,537 )

BALANCE, September 30, 2021 133,490,012 $ 14 $ 260,908 $ — $ ( 1,576 ) $ ( 401,401 ) $ ( 142,055 )

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

2 unchanged sentences

(in thousands, unaudited)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

7 unchanged sentences

Amortization of deferred financing costs 3,005 1,055

Share-based compensation 3,542 250

Stock-based compensation 8,624 326

Amortization of unfavorable lease terms — ( 36 )

4 unchanged sentences

Fair value adjustment of Earn-out Shares liability 47,100 —

Fair value adjustment of warrant liability 72,027 —

Fair value adjustment of Warrant liabilities 271,333 —

Debt prepayment expense 2,014 —

17 unchanged sentences

Cash flows from financing activities:

Proceeds from issuance of convertible senior notes 750,000 —

Purchase of capped calls related to convertible senior notes ( 90,150 ) —

Proceeds from revolving facility 5,000 6,500

4 unchanged sentences

Proceeds from Business Combination, net of transaction costs (See Note 3) 357,802 —

Deferred payment for acquisition — ( 901 )

Net cash from financing activities 770,825 19,193

6 unchanged sentences

Cash paid for income taxes 188 2,399

Capital expenditures included in accounts payable 1,440 1,242

Issuance of Earn-out shares 136,575 —

Trade receivables due from seller 6,623 —

Notes payable to seller 2,153 —

Change in deferred tax liability due to reverse recapitalization 90 —

Capital expenditures included in accounts payable 512 739

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

3 unchanged sentences

Note 1 – Description of Business

The Beauty Health Company (formerly known as Vesper Healthcare Acquisition Corp.) (the “Company”) was incorporated in Delaware on July 8, 2020.

The Company was formed for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

On May 4, 2021 (the “Closing Date”), LCP Edge Intermediate, Inc.

(“HydraFacial”) consummated a merger with the Company pursuant to the Agreement and Plan of Merger, dated December 8, 2020 (the “Merger Agreement”), which provided for, among other things, the merger with and into the Company.

Upon closing, the surviving entity was renamed The Beauty Health Company (“BeautyHealth”) and began to trade on the Nasdaq Capital Market under the ticker symbol “SKIN.” The transactions set forth in the Merger Agreement constitute a “Business Combination” as contemplated by Vesper’s Amended & Restated Certificate of Incorporation.

The Beauty Health Company, formerly known as Vesper Healthcare Acquisition Corp.

(the “Company” or “BeautyHealth”), was incorporated in Delaware on July 8, 2020.

The Company was originally formed for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

On May 4, 2021 (the “Closing Date”), the Company consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated December 8, 2020 (the “Merger Agreement”), by and among Vesper Healthcare Acquisition Corp.

(“Vesper 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 Edge Systems LLC d/b/a The HydraFacial Company (“HydraFacial”), and LCP Edge Holdco, LLC (“LCP,” or “Former Parent,” and, in its capacity as the stockholders’ representative, the “Stockholders’ Representative”), which provided for:

(a) the merger of Merger Sub I with and into HydraFacial, with HydraFacial continuing as the surviving corporation (the “First Merger”), and (b) immediately following the First Merger and as part of the same overall transaction as the First Merger, the merger of HydraFacial with and into Merger Sub II, with Merger Sub II continuing as the surviving entity (the “Second Merger” and, together with the First Merger, the “Mergers” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”).

As a result of the First Merger, the Company owns 100 % of the outstanding common stock of HydraFacial and each share of common stock and preferred stock of HydraFacial has been cancelled and converted into the right to receive a portion of the consideration payable in connection with the Mergers.

As a result of the Second Merger, the Company owns 100 % of the outstanding interests in Merger Sub II.

In connection with the closing of the Business Combination (the “Closing”), the Company owns, directly or indirectly, 100 % of the stock of HydraFacial and its subsidiaries and the stockholders of HydraFacial as of immediately prior to the effective time of the First Merger (the “HydraFacial Stockholders”) hold a portion of the Company’s Class A Common Stock, par value $ 0.0001 per share (the “Class A Common Stock”).

In connection with the Closing, the Company changed its name from “Vesper Healthcare Acquisition Corp.” to “The Beauty Health Company”.

Following the Closing, on May 6, 2021, the Company’s Class A Common Stock and publicly traded warrants were listed on the Nasdaq Capital Market (“Nasdaq”) under the symbols, “SKIN” and “SKINW”, respectively.

The transactions set forth in the Merger Agreement constitute a “Business Combination” as contemplated by Vesper Healthcare’s Second Amended and Restated Certificate of Incorporation.

Unless the context otherwise requires, in this Quarterly Report on Form 10-Q, the “Company” refers to Vesper Healthcare Acquisition Corp.

prior to the closing of the Business Combination and to the combined company and its subsidiaries following the Closing and “HydraFacial” refers to the business of LCP Edge Intermediate, Inc.

and its subsidiaries prior to the Closing and the business of the combined company and its subsidiaries following the Closing.

BeautyHealth is a category-creating beauty health company focused on bringing innovative products to market.

1 unchanged sentence

The Company’s flagship brand, HydraFacial, is a non-invasive and approachable beauty health platform and ecosystem.

HydraFacial offers hydradermabrasion systems that enhance the skin to cleanse, exfoliate, extract, and hydrate simultaneously;

HydraFacial® Daily Essentials, which provides detoxification, rejuvenation, and protection of skin;

crystal microdermabrasion systems;

and light emitting diode systems.

The premiere system is the HydraFacial MD® liquid based skin exfoliation system.

HydraFacial uses a unique delivery system to cleanse, extract, and hydrate with their patented hydradermabrasion technology and super serums that are made with nourishing ingredients.

Note 2 – Summary of Significant Accounting Policies

3 unchanged sentences

This determination was primarily based on the following:

• the stockholders of Edge Intermediate, Inc., the indirect parent of Edge Systems LLC d/b/a The HydraFacial Company (“HydraFacial”) as of immediately prior to the effective time of the First Merger (the “HydraFacial Stockholders”) considered in the aggregate have the largest minority interest of the voting power in the combined entity after taking into account actual redemptions;

• the stockholders of LCP Edge Intermediate, Inc., the indirect parent of Edge Systems LLC d/b/a The HydraFacial Company as of immediately prior to the effective time of the First Merger (the “HydraFacial Stockholders”) considered in the aggregate have the largest minority interest of the voting power in the combined entity after taking into account actual redemptions;

• the operations of HydraFacial prior to the acquisition comprise the only ongoing operations of the post-combination company;

1 unchanged sentence

• the relative size and valuation of HydraFacial compared to the Company;

• pursuant to that certain Investor Rights Agreement, dated as of May 4, 2021, by and between the Company and HydraFacial, HydraFacial was given the right to designate certain initial members of the board of directors of the Company immediately after giving effect to the transactions.

Consideration was also given to the fact that the Company paid a purchase price consisting of a combination of cash and equity consideration and its shareholders may have a significant amount of voting power, should the Company’s public stockholders be considered in the aggregate.

2 unchanged sentences

The net assets of the Company are stated at historical cost, with no goodwill or other intangible assets recorded.

In connection with the Business Combination each share of HydraFacial common stock outstanding immediately prior to the Business Combination converted into the right to receive 653.109 shares (the “Exchange Ratio”) of Class A Common Stock, par value $ 0.0001 (the “Class A Common Stock”), of the Company.

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

The interim Condensed Consolidated Financial Statements are presented in accordance with GAAP and include the Company’s consolidated domestic and international subsidiaries.

The interim Condensed Consolidated Financial Statements in this report on Form 10-Q are presented in accordance with GAAP and include the Company’s consolidated domestic and international subsidiaries.

Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted.

Accordingly, these interim Condensed Consolidated Financial Statements and accompanying footnotes should be read in conjunction with the audited consolidated financial statements of BeautyHealth and HydraFacial as of and for the year ended December 31, 2020 presented in the Company’s Registration Statement on Form S-1 filed on July 19, 2021.

Accordingly, the interim Condensed Consolidated Financial Statements in this report on Form 10-Q and the accompanying footnotes should be read in conjunction with the audited consolidated financial statements of BeautyHealth and HydraFacial as of and for the year ended December 31, 2020 presented in the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission (“SEC” or “Commission”) on July 19, 2021.

Except as described elsewhere in this Note 2, there have been no material changes to the Company’s significant accounting policies as described in HydraFacial’s Consolidated Financial Statements as of and for the year ended December 31, 2020.

In the opinion of management, all adjustments, of a normal recurring nature, considered necessary for a fair presentation have been included in the Condensed Consolidated Financial Statements.

In the opinion of management, all adjustments, of a normal recurring nature, considered necessary for a fair presentation have been included in the Condensed Consolidated Financial Statements in this report on Form 10-Q.

The Company believes that the disclosures provided herein are adequate to prevent the information presented from being misleading.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results of operations to be expected for the full year ending December 31, 2021.

However, the results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results of operations to be expected for the full year ending December 31, 2021.

Use of estimates and assumptions in preparing consolidated financial statements

5 unchanged sentences

Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to comply with the new or revised financial accounting standards.

The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable.

1 unchanged sentence

This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

The Company will lose its emerging growth company status on December 31, 2021, at which point, it will qualify as a large accelerated filer based on its market capitalization as of June 30, 2021, according to Rule 12b-2 of the Securities Exchange Act of 1934, as amended.

As a result, the Company will adopt all accounting pronouncements currently deferred under the emerging growth company election according to public company standards at December 31, 2021 on the Company’s Form 10-K for the year ended December 31, 2021.

The adoption dates for the new accounting pronouncements disclosed below have been presented as such.

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.

Convertible Senior Notes

On September 14, 2021, the Company issued an aggregate of $ 750 million in principal amount of its 1.25 % Convertible Senior Notes due 2026 (the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144 under the Securities Act of 1933, as amended.

The Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of September 14, 2021, between the Company and U.S.

Bank National Association, as trustee (the “Trustee”).

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

The Company records the Notes in “Long-term liabilities” 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 9 - Long-term Debt for further detail.

Capped Call Transactions

Capped call transactions cover the aggregate number of shares of the Company’s common stock that will initially underlie the Notes, and generally reduce potential dilution to the Company’s common stock upon any conversion of Notes and/or offset any cash payments the Company may make in excess of the principal amount of the converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the capped call transactions.

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

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

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

Issuance Costs

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

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

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

Warrant Liabilities

During October 2020, in connection with the Vesper Healthcare Acquisition Corp IPO, the Company issued 15,333,333 warrants (the “Public Warrants”) to purchase shares of Common Stock at $ 11.50 per share.

Simultaneously, with the consummation of the Vesper Healthcare Acquisition Corp IPO, the Company issued 9,333,333 warrants (the “Private Placement Warrants” and, together with the Public Warrants, the “Public and Private Placement Warrants”) to purchase shares of Common Stock at $ 11.50 per share, to BLS Investor Group LLC (the “Sponsor”).

All of the Public and Private Placement Warrants were outstanding as of June 30, 2021.

We classify the Public and Private Placement Warrants as liabilities on our consolidated balance sheets as these instruments are precluded from being indexed to our 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 our control, the Public Warrant and Private Placement Warrant holders are entitled to receive cash while in certain scenarios the holders of the 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.

During October 2020, in connection with Vesper Healthcare Acquisition Corp’s initial public offering, the Company issued 15,333,333 warrants (the “Public Warrants”) to purchase shares of the Company’s common stock at $ 11.50 per share.

Simultaneously, with the consummation of Vesper Healthcare Acquisition Corp’s initial public offering, the Company issued 9,333,333 warrants (the “Private Placement Warrants” and, together with the Public Warrants, the “Public and Private Placement Warrants”) to purchase shares of the Company’s common stock at $ 11.50 per share, to BLS Investor Group LLC (the “Sponsor”).

All of the Public and Private Placement Warrants were outstanding as of September 30, 2021.

Subsequent to September 30, 2021, the Company delivered a Notice of Redemption (the “Notice of Redemption”) calling for the redemption of all of its outstanding Public Warrants to purchase shares of the Company’s Class A Common Stock, par value $ 0.0001 per share.

Refer to Note 18 - Subsequent Events for further detail.

The Company classifies the Public and Private Placement Warrants as liabilities on its Condensed Consolidated Balance Sheets as these instruments are precluded from being indexed to our own stock given the terms allow for a settlement adjustment that does not meet the scope of the fixed-for-fixed exception in ASC 815, Derivatives and Hedging .

In certain events outside of the Company’s control, the Public Warrant and Private Placement Warrant holders are entitled to receive cash while in certain scenarios the holders of the Company’s 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 Public and Private Placement Warrants were initially recorded at fair value on the date of the Business Combination and are subsequently adjusted to fair value at each subsequent reporting date.

Changes in the fair value of these instruments are recognized within change in fair value of warrant liabilities in the Condensed Consolidated Statements of Comprehensive Loss .

Changes in the fair value of these instruments are recognized within change in fair value of warrant liabilities in the Company’s Condensed Consolidated Statements of Comprehensive Loss .

Earn-out Shares Liability

In addition to the consideration paid at the closing of the Business Combination, the former stockholders of HydraFacial received contingent consideration in the form of an aggregate of 7.5 million shares of Class A Common Stock (the “Earn-out Shares”) as a result of the Company’s completion in June and July 2021 of the acquisition of certain target businesses identified by HydraFacial as contemplated by the Merger Agreement.

With the closing of the four distributor acquisitions in Australia, France, Germany and Mexico, the 7.5 million Earn-out Shares were earned and subsequently issued on July 15, 2021.

We account for the earn-out shares liability as contingent consideration and have recorded an earn-out shares liability for the earn-out shares in accordance with ASC 480 – Distinguishing Liabilities from Equity .

In addition to the consideration paid at the closing of the Business Combination, the former stockholders of HydraFacial received contingent consideration in the form of an aggregate of 7.5 million shares of the Company’s Class A Common Stock (the “Earn-out Shares”) as a result of the Company’s completion of the acquisitions of four target businesses, as contemplated by the Merger Agreement, in June and July 2021 that were identified by HydraFacial.

With the closing of these four distributor acquisitions in Australia, France, Germany and Mexico, the 7.5 million Earn-out Shares were earned and subsequently issued on July 15, 2021.

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

The liability was included as part of the consideration transferred in the Business Combination and was recorded at its then current fair value.

The earn-out shares liability is recorded at fair value and remeasured at the end of each reporting period, with the corresponding gain or loss recorded in the Condensed Consolidated Statements of Comprehensive Loss as a component of Other (income) expense, net.

The Earn-out Shares liability was recorded at fair value and remeasured at the end of each reporting period, with the corresponding gain or loss recorded in the Company’s Condensed Consolidated Statements of Comprehensive Loss as a component of Other (income) expense, net.

Fair Value of Financial Instruments

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, Fair Value Measurement , approximates the carrying amounts represented in the Condensed Consolidated Balance Sheets, primarily due to their short-term nature.

The fair value of the Notes that are recorded at historical cost was $ 833 million as of September 30, 2021, and was determined using the last trade price in active markets.

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

Fair Value Measurements

9 unchanged sentences

Recently Adopted Accounting Pronouncements

Income Taxes.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15), which requires implementation costs incurred by customers in cloud computing arrangements (i.e.

hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the non-cancellable term of the cloud computing arrangements plus any optional renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider.

ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted.

The Company adopted ASU 2018-15 on January 1, 2021 and the guidance did not have a material impact on its Condensed Consolidated Financial Statements.

In December 2019, FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

3 unchanged sentences

The Company adopted ASU 2019-12 on January 1, 2021, which did not have a material impact on its Condensed Consolidated Financial Statements.

In August 2020, the FASB issued ASU No.

2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) :

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

The amendments eliminate two of the three accounting models that require separate accounting for convertible features of debt securities, simplify the contract settlement assessment for equity classification, require the use of the if-converted method for all convertible instruments in the diluted earnings per share calculation and expand disclosure requirements.

The amendments are effective for our annual and interim reporting periods beginning after December 15, 2021, with early adoption permitted for reporting periods beginning after December 15, 2020.

The guidance can be applied on a full retrospective basis to all periods presented or a modified retrospective basis with a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption.

The Company adopted ASU 2020-06 on January 1, 2021.

There were no changes to the Company’s previously issued financial statements since the Company had no existing convertible notes prior to issuance of the Notes.

With the adoption of ASU 2020-06, the Company recorded the issuance of the Notes at their face value net of issuance costs in long-term liabilities and the value of the capped call options in APIC.

Accounting Pronouncements Not Yet Adopted

Leases— In February 2016, FASB issued ASU 2016–02, Leases (Topic 842 ).

In February 2016, FASB issued ASU 2016–02, Leases (Topic 842 ).

ASU 2016–02 requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months.

The Company is evaluating the impact of the amended lease guidance on its consolidated financial statements, and will adopt this guidance on December 31, 2021.

The Company will adopt this guidance on December 31, 2021 and expects to recognize approximately $ 17 million to $ 21 million of operating lease liabilities and related right-of-use assets on the Company’s Condensed Consolidated Balance Sheets upon adoption.

Note 3 – Business Combinations

3 unchanged sentences

• Certain accredited investors (the “PIPE Investors”) entered into subscription agreements (the “PIPE Subscription Agreements”) pursuant to which the PIPE Investors agreed to purchase 35,000,000 shares (the “PIPE Shares”) of the Company’s Class A Common Stock at a purchase price per share of $ 10.00 and an aggregate purchase price of $ 350,000,000 (the “PIPE Investment”).

The PIPE Investment was consummated substantially concurrently with the Closing.

Prior to the Business Combination, the Company issued an aggregate of 11,500,000 shares of Class B common stock (the “Founder Shares”) to the Sponsor for an aggregate purchase price of $ 25,000 in cash.

All outstanding Founder Shares were automatically converted into shares of Class A Common Stock on a one -for-one basis at the Closing and will continue to be subject to the transfer restrictions applicable to such shares of Founder Shares.

In connection with the Closing, holders of 2,672,690 shares of Class A Common Stock exercised their rights to redeem those shares for cash at an approximate price of $ 10.00 per share, for an aggregate of approximately $ 26,737,737 , which was paid to such holders at Closing.

Immediately after giving effect to the Merger and the PIPE Investment, there were 125,329,053 shares of The Beauty Health Company Class A Common Stock outstanding.

The PIPE Investment was consummated substantially concurrently with the Closing of the Business Combination.

• Prior to the Business Combination, the Company issued an aggregate of 11,500,000 shares of the Company’s Class B Common Stock (the “Founder Shares”) to the Sponsor for an aggregate purchase price of $ 25,000 in cash.

All outstanding Founder Shares were automatically converted into shares of the Company’s Class A Common Stock on a one -for-one basis at the Closing and will continue to be subject to the transfer restrictions applicable to such shares of Founder Shares.

• In connection with the Closing, holders of 2,672,690 shares of the Company’s Class A Common Stock exercised their rights for the Company to redeem their respective shares for cash at an approximate price of $ 10.00 per share, for an aggregate of approximately $ 26,737,737 , which was paid to such holders at Closing.

• Immediately after giving effect to the Merger and the PIPE Investment, there were 125,329,053 shares of the Company’s Class A Common Stock issued and outstanding.

• The aggregate gross cash consideration received by the Company in connection with the Business Combination was $ 783 million, which consisted of proceeds of $ 350 million from the PIPE Investment, plus approximately $ 433 million of cash from the Company’s trust account that held the proceeds from the Company’s initial public offering (the “Trust Account”).

The aggregate cash consideration received was reduced by $ 368 million of cash payments made to the former shareholders of HydraFacial, and reduced by $ 57 million for the payment of direct transaction costs incurred by HydraFacial and the Company which were reflected as a reduction of proceeds.

The aggregate gross cash consideration received was reduced by $ 368 million, which consisted of cash payments made to the former shareholders of HydraFacial, and further reduced by an additional $ 57 million for the payment of direct transaction costs incurred by HydraFacial and the Company which were reflected as a reduction of proceeds.

The Company used the net proceeds to repay all of its outstanding indebtedness at the Closing.

The remainder of the consideration paid to the HydraFacial Stockholders consisted of 35,501,743 newly issued shares of Class A Common Stock (the “Stock Consideration”).

The net cash received from the Business Combination is subject to a net capital working adjustment.

The following table reconciles the elements of the Business Combination to the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the six months ended June 30, 2021:

The net cash received from the Business Combination was subject to a working capital adjustment of $ 0.7 million.

The Company also issued 70,860 shares related to the working capital adjustment.

The following table reconciles the elements of the Business Combination to the Company’s Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the nine months ended September 30, 2021:

(in thousands) Recapitalization

3 unchanged sentences

transaction costs and advisory fees ( 56,976 )

Cash paid out from net working capital adjustment related to acquisitions $ ( 734 )

Net Cash Received from Business Combination $ 357,802

The number of shares of common stock issued immediately following the consummation of the Business Combination:

The number of shares of Class A Common Stock issued following the consummation of the Business Combination:

Number of Shares

2 unchanged sentences

Class A common stock of Vesper 43,327,310

Vesper Founder shares 11,500,000

Founder shares (Vesper Class B Common Stock) 11,500,000

PIPE Shares 35,000,000

1 unchanged sentence

Legacy HydraFacial shares (1)

Total Shares of Class A Common Stock Immediately after Business Combination 125,329,053

Working capital adjustment Class A Common Stock issued 70,860

Total Shares of Class A Common Stock after Business Combination 125,399,913

_______________

(1) The number of Legacy HydraFacial shares was determined from the 54,358 shares of HydraFacial common stock outstanding immediately prior to the closing of the Business Combination multiplied by the Exchange Ratio of 653.109 .

Acquisition of High Tech Laser

On June 4, 2021 the Company purchased substantially all assets of High Tech Laser, Australia Pty Ltd (“HTL”), a distributor in Australia.

The fair value of the consideration transferred to the selling members was $ 4.9 million in cash consideration and $ 1.6 million of equity consideration consisting of 110,726 shares of the Company’s Class A Common Stock.

The Company incurred certain costs related to this transaction that were not material.

The Company applied the acquisition method of accounting and established a new basis of accounting on the date of the acquisition.

The assets acquired by the Company are accordingly measured at their estimated fair values.

The following table summarizes the consideration paid and estimated preliminary fair values assigned to the assets acquired and liabilities assumed at the date of acquisition:

(in thousands)

Business Acquisitions

On June 4, 2021, the Company acquired High Tech Laser, Australia Pty Ltd (“HTL”), a distributor of the Company’s products in Australia.

On July 1, 2021, the Company acquired Wigmore Medical France (“Wigmore”), Ecomedic GmbH (“Ecomedic”) and Sistemas Dermatologicos Internacionales (“Sidermica”), distributors of the Company’s products in France, Germany and Mexico, respectively.

Through these acquisitions, the Company plans to directly sell to the respective markets and improve services for its products.

The Company applied the acquisition method of accounting and established a new basis of accounting on the dates of the respective acquisitions.

The assets acquired by the Company are accordingly measured at their estimated fair values as of the acquisition date.

The goodwill arising from the acquisitions consists largely of the business reputation of the acquired company in the marketplace and its assembled workforce.

The goodwill is not deductible for income tax purposes.

The transaction costs for the acquisitions totaled $ 0.8 million.

The following table summarizes the consideration and estimated preliminary fair values assigned to the assets acquired and liabilities assumed at the dates of acquisition for the Wigmore, Ecomedic and Sidermica acquisitions and summarizes the HTL acquisition after measurement period adjustments.

(in thousands) HTL Wigmore Ecomedic Sidermica

Consideration paid:

1 unchanged sentence

Class A Common Stock issued (1)

1,557 456 6,513 815

Contingent consideration — 535 — —

Trade receivables due from seller 1,027 2,336 1,679 1,581

Notes payable to seller — — 2,153 —

$ 7,504 $ 5,084 $ 21,683 $ 7,277

Identifiable assets acquired and liabilities assumed

8 unchanged sentences

Goodwill $ 4,766 $ 895 $ 17,277 $ 2,366

The primary purpose of the acquisition was to expand the Company’s operations in the Australia market.

The goodwill arising from the acquisition consists largely of the business reputation of the acquired company in the marketplace and its assembled workforce.

The goodwill is not deductible for income tax purposes.

Intangible assets consist of customer relationships with a weighted average amortization period of 5 years.

{1} Class A Common Stock issued as consideration for the acquisitions was 110,726 , 28,157 , 401,021 and 50,195 shares for HTL, Wigmore, Ecomedic and Sidermica, respectively.

Intangible assets acquired included customer relationships and non-compete agreements.

The valuation of the acquired intangible asset was estimated by performing projections of discounted cash flows, whereby revenues and costs associated with each intangible asset are forecasted to derive expected cash flow which is discounted to present value at discount rates commensurate with perceived risk.

The valuation and projection process is inherently subjective and relies on significant unobservable inputs (Level 3 inputs).

The unaudited pro forma financial information assuming these fiscal 2021 acquisitions had occurred as of the beginning of the fiscal year prior to the fiscal year of acquisition, as well as the revenue and earnings generated during the current fiscal year, were not material for disclosure purposes.

The Company is currently in the process of finalizing the preliminary fair value allocation, and expects this to be completed prior to December 31, 2021.

The weighted average amortization period of customer relationship was 5 years, while the non-compete agreements are amortized over 3 years.

The Company is currently in the process of finalizing the preliminary fair value allocations, and expects this to be completed prior to December 31, 2021.

Note 4 – Revenue Recognition

5 unchanged sentences

Disaggregated Revenue

The Company generates revenue through manufacturing and selling HydraFacial and Perk Delivery Systems (the “Delivery Systems”).

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

The Consumables are sold by the Company and are available for purchase separately from the purchase of the Delivery System.

The Company generates revenue through manufacturing and selling HydraFacial and Perk Delivery Systems (collectively, the “Delivery Systems”).

In conjunction with the sale of Delivery Systems, the Company also sells consumable single- and multi-use serum solutions, tips and boosters (the “Consumables”) that are used when customers provide a hydradermabrasion facial experience for their customers using a Delivery System.

The Consumables are sold by the Company and are available for purchase separately from the purchase of a Delivery System.

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

Three Months Ended Six Months Ended

(in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

Delivery Systems

3 unchanged sentences

See Note 16 for revenue disaggregated by geographical region.

Note 5 – Inventories

Note 5 – Balance Sheet Components

Inventories consist of the following as of the periods indicated:

(in thousands) June 30, 2021 December 31, 2020

(in thousands) September 30, 2021 December 31, 2020

Raw materials $ 11,693 $ 9,335

1 unchanged sentence

Total inventories $ 28,105 $ 23,202

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

(in thousands) September 30, 2021 December 31, 2020

Accrued compensation $ 10,561 $ 3,535

Accrued payroll taxes 1,218 1,388

Accrued benefits 1,881 1,132

Accrued sales commissions 7,614 3,420

Total accrued payroll-related expenses $ 21,274 $ 9,475

Other accrued expenses consist of the following as of the periods indicated:

(in thousands) September 30, 2021 December 31, 2020

Sales tax payable $ 2,867 $ 1,538

Notes payable to seller (Note 3) 2,154 —

Other 2,875 920

Total other accrued expenses $ 7,896 $ 2,458

Note 6 - Fair Value Measurements

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date.

In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities).

The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Quoted prices in active markets for identical assets or liabilities.

An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Observable inputs other than Level 1 inputs.

Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

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

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.

There were no transfers of financial instruments between valuation levels during the nine months ended September 30, 2021.

Fair Value Measurements on a Recurring Basis

(in thousands) Level 1 Level 2 Level 3 Total

Cash and cash equivalents:

Money Market Funds $ 637,989 $ — $ — $ 637,989

Warrant Liability - Public Warrants $ 222,027 $ — $ — $ 222,027

Warrant Liability - Private Placement Warrants $ — $ 135,146 $ — $ 135,146

Money Market Funds

The Company’s investment in money market funds that are classified as cash equivalents hold underlying investments with a weighted average maturity of 90 days or less and are recognized at fair value.

The valuations of these securities are based on quoted prices in active markets for identical assets, when available, or pricing models whereby all significant inputs are observable or can be derived from or corroborated by observable market data.

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

As of September 30, 2021 , the Company’s U.S.

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

Warrant Liabilities

The Public Warrants and Private Placement Warrants (collectively, the “Warrants”) were accounted for as liabilities in accordance with ASC 815-40 and are presented within Warrant liabilities on the Company’s Condensed Consolidated Balance Sheets.

The Warrants are measured at fair value at inception and on a recurring basis, with changes in fair value presented within Change in fair value of Warrants in the Company’s Condensed Consolidated Statements of Comprehensive Loss .

The Public Warrant Liability associated with the Public Warrants as of September 30, 2021 is classified as a Level 1 fair value measurement due to the use of an observable market quote in an active market.

The Private Placement Warrant Liability associated with the Private Placement Warrants as of September 30, 2021 is classified as a Level 2 fair value measurement.

Because the transfer of the Private Placement Warrants to anyone outside of the Sponsor of Vesper would result in the Private Placement Warrants having substantially the same terms as the Public Warrants, management determined that the fair value of each Private Placement Warrant is the same as that of a Public Warrant, with an insignificant adjustment for short-term marketability restrictions.

Accordingly, the Private Warrants are classified as Level 2 financial instruments.

Subsequent to September 30, 2021, the Company delivered a Notice of Redemption calling for the redemption of all of its outstanding Public Warrants to purchase shares of the Company’s Class A Common Stock, par value $ 0.0001 per share.

Refer to Note 18 - Subsequent Events for further detail.

Note 7 – Property and Equipment, net

1 unchanged sentence

(in thousands) Useful life

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Furniture and fixtures 2 - 7

9 unchanged sentences

Property and equipment, net $ 12,070 $ 9,191

Depreciation expense was $ 0.7 million and $ 0.6 million for the three months ended June 30, 2021 and 2020, respectively.

Depreciation expense was $ 1.4 million and $ 1.3 million for the six months ended June 30, 2021 and 2020, respectively.

Of the total depreciation for the three months ended June 30, 2021 and 2020, $ 0.3 million and $ 0.3 million were recorded in Cost of sales and $ 0.4 million and $ 0.3 million were recorded in General and administrative expenses, respectively.

For the six months ended June 30, 2021 and 2020 the total depreciation recorded in Cost of sales was $ 0.6 million and $ 0.6 million and the depreciation recorded in General and administrative were $ 0.8 million and $ 0.7 million, respectively.

Depreciation expense was $ 1.0 million and $ 0.7 million for the three months ended September 30, 2021 and 2020, respectively.

Depreciation expense was $ 2.4 million and $ 1.4 million for the nine months ended September 30, 2021 and 2020, respectively.

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

Cost of sales $ 339 $ 304 $ 965 $ 384

General and administrative 689 373 1,481 1,057

Total depreciation expense $ 1,028 $ 677 $ 2,446 $ 1,441

Note 8 – Goodwill and Intangible Assets, net

The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of June 30, 2021 were as follows:

The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of September 30, 2021 were as follows:

(in thousands) Gross

20 unchanged sentences

Total intangible assets $ 93,978 $ ( 43,043 ) $ 50,935

Amortization expense for the three months ended June 30, 2021 and 2020, was $ 3.0 million and $ 3.2 million, respectively.

Amortization expense for the six months ended June 30, 2021 and 2020, was $ 5.9 million and $ 6.4 million, respectively.

Of the total amortization expense for three months ended June 30, 2021 and 2020, $ 2.3 million and $ 2.7 million, respectively, were recorded in Cost of sales and $ 0.7 million and $ 0.5 million, respectively, were recorded in General and administrative expenses

in the Consolidated Statements of Comprehensive Loss.

For the six months ended June 30, 2021 and 2020, $ 4.5 million and $ 5.4 million, respectively, were recorded in Cost of sales and $ 1.4 million and $ 1.0 million, respectively, were recorded in General and administrative expenses in the Consolidated Statements of Comprehensive Loss.

Amortization expense for the three months ended September 30, 2021 and 2020 was $ 3.5 million and $ 3.1 million, respectively.

Amortization expense for the nine months ended September 30, 2021 and 2020 was $ 9.4 million and $ 9.5 million, respectively.

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

Cost of sales $ 2,233 $ 2,391 $ 6,697 $ 7,740

Selling and marketing 770 — 1,193 —

General and administrative 500 677 1,464 1,727

Total amortization expense $ 3,503 $ 3,068 $ 9,354 $ 9,467

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2021 2020

Beginning balance $ 98,531 $ 98,520

Acquisition of HTL 4,766 —

Business acquisitions 25,304 —

Foreign currency translation impact ( 970 ) ( 10 )

1 unchanged sentence

Note 9 – Long-term Debt

Convertible Senior Notes

On September 14, 2021, the Company issued an aggregate of $ 750 million in principal amount of its 1.25 % Convertible Senior Notes due 2026 (the “Notes”).

The Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of September 14, 2021, between the Company and U.S.

Bank National Association, as trustee.

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 million principal amount of Notes.

The Notes issued on September 14, 2021 include the $ 100 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 common stock or a combination of cash and shares of its common stock, at the Company’s election.

The initial conversion rate is 31.4859 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $ 31.76 per share of 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 defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

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 40th 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 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 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 $ 45,000,000 ;

(vii) the rendering of certain judgments against the Company or any of its significant subsidiaries for the payment of at least $ 45,000,000 , where such judgments are not discharged or stayed within 60 days after the date on which the right to appeal has expired or on which all rights to appeal have been extinguished and (viii) certain events of bankruptcy, insolvency and reorganization involving the Company or any of its significant subsidiaries.

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

During the three and nine months ended September 30, 2021, the Company recognized $ 0.2 million in interest expense related to the amortization of the debt issuance costs related to the Notes.

There was no such expense related to the Notes in the three and nine months ended September 30, 2020.

The following is a summary of the Company’s Notes as of September 30, 2021:

(in thousands) Principal Amount Unamortized Issuance Costs Net Carrying

Value Amount Level

1.25 % Convertible Notes due 2026

$ 750,000 $ 21,142 $ 728,858 $ 832,988 Level 2

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

As of September 30, 2021, the estimated fair value of the Notes was approximately $ 833 million.

The estimated fair value of the Notes was determined based on the actual bid price of the Notes on September 30, 2021, the last business day of the period, or Level 2 Inputs.

As of September 30, 2021, the remaining life of the Notes is approximately 5.0 years.

Capped Call Transactions

On September 9, 2021, in connection with the pricing of the offering of Notes, the Company entered into privately negotiated capped call transactions (the “Base Capped Call Transactions”) with Bank of Montreal, Credit Suisse Capital LLC, Deutsche Bank AG, London Branch, Goldman Sachs & Co.

LLC, JPMorgan Chase Bank, National Association, Mizuho Markets Americas LLC and Wells Fargo Bank, National Association (the “Option Counterparties”).

In addition, on September 10, 2021, in connection with the initial purchasers’ exercise of their option to purchase additional Notes, the Company entered into additional capped call transactions (the “Additional Capped Call Transactions,” and, together with the Base Capped Call Transactions, the “Capped Call Transactions”) with each of the Option Counterparties.

The Capped Call Transactions cover, subject to customary anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that initially underlie the Notes, and are expected generally to reduce potential dilution to the Company’s common stock upon any conversion of Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Call Transactions.

The cap price of the Capped Call Transactions is initially $ 47.94 , which represents a premium of 100 % over the last reported sale price of the Company’s common stock on September 9, 2021.

The cost of the Capped Call Transactions was approximately $ 90.2 million.

The Capped Call Transactions are separate transactions, each between the Company and the applicable Option Counterparty, and are not part of the terms of the Notes and do not affect any holder’s rights under the Notes or the Indenture.

Holders of the Notes will not have any rights with respect to the Capped Call Transactions.

Business Combination

In connection with the Closing of the Business Combination, all of HydraFacial’s existing debt under its credit facilities were repaid and its credit facilities were extinguished.

As of June 30, 2021, there is no long-term debt outstanding.

T he related write-off of the deferred financing costs and prepayment penalties totaled $ 4.3 million and are included in the Other expense (income), net on the Condensed Consolidated Statements of Comprehensive Loss.

Defer red financing costs expense for the three and six months ended June 30, 2021 amounted to $ 0.1 million and $ 0.5 million, respectively.

Defer red financing costs expense for the three and six months ended June 30, 2020 amounted to $ 0.4 million and $ 0.7 million, respectively, and is included in Interest expense, net on the Condensed Consolidated Statements of Comprehensive Loss.

T he related write-off of the deferred financing costs totaled $ 2.3 million and prepayment penalties totaled $ 2.0 million.

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

Defer red financing costs expense for the nine months ended September 30, 2021 amounted to $ 0.5 million for the existing debt prior to the Business Combination while issuance costs for the Notes amounted to $ 0.2 million .

Defer red financing costs expense for the three and nine months ended September 30, 2020 amounted to $ 0.4 million and $ 1.1 million, respectively, and is included in Interest expense, net on the Company’s Condensed Consolidated Statements of Comprehensive Loss.

Note 10 – Income Taxes

The income tax benefit for the three months and six months ended June 30, 2021 is $ 1.9 million and $ 2.2 million, respectively, and the income tax benefit for the three and six months ended June 30, 2020 is $ 3.1 million and $ 5.7 million, respectively.

The effective tax rate for the three and six months ended June 30, 2021 is 1.32 % and 1.50 %, respectively, which is lower than the federal statutory rate of 21.0% primarily due to the increase in valuation allowance and non-deductible expenses related to stock-based compensation, transaction costs and meals and entertainment.

The effective tax rate for the three and six months ended June 30, 2020 is 22.7 % and 22.5 %, respectively, which is greater than the federal statutory rate of 21.0% primarily due to state taxes based on apportioned income, research and development credits, and the net operating loss carryback applied to the 2017 tax year which benefited the tax rate.

The income tax benefit for the three months and nine months ended September 30, 2021 is $ 1.1 million and $ 3.3 million, respectively, and the income tax benefit for the three and nine months ended September 30, 2020 is $ 0.6 million and $ 6.3 million, respectively.

The effective tax rate for the three and nine months ended September 30, 2021 is 0.53 % and 0.92 %, respectively, which is lower than the federal statutory rate of 21.0% primarily due to the increase in valuation allowance and non-deductible expenses related to stock-based compensation, transaction costs and meals and entertainment.

The effective tax rate for the three and nine months ended September 30, 2020 is 21.1 % and 22.4 %, respectively, which is greater than the federal statutory rate of 21.0% primarily due to state taxes based on apportioned income, research and development credits, and the net operating loss carryback applied to the 2017 tax year which benefited the tax rate.

The increased benefit was partially offset by decreases in the rate for foreign taxes based on local country statutory rates, increase in valuation allowance and non-deductible expenses related to stock-based compensation and meals and entertainment.

2 unchanged sentences

Additionally, the Company follows an accounting standard addressing the accounting for uncertainty in income taxes that 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 $ 0.1 million for the six months ended June 30, 2021.

The Company did no t have any gross unrecognized tax benefits for the three months ended June 30, 2020.

The Company has gross unrecognized tax benefits of $ 0.1 million for the nine months ended September 30, 2021.

The Company did no t have any gross unrecognized tax benefits for the three months ended September 30, 2020.

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

2 unchanged sentences

The net operating loss will be increased due to the changes in QIP and favorable interest expense limitation changes.

The anticipated impact to the ETR is an income tax benefit of approximately $ 0.2 million for the year ended

December 31, 2020.

The anticipated impact to the effective tax rate is an income tax benefit of approximately $ 0.2 million for the year ended December 31, 2020.

The Company estimates the net operating loss carryback will result in a federal refund of approximately $ 4.5 million.

Additionally, the favorable interest expense limitations will reduce its 2019 federal tax payable by approximately $ 1.2 million.

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

The Company does not expect a material impact of Consolidated Appropriations Act on its Condensed Consolidated Financial Statements and related disclosures.

On March 11, 2021 the United States enacted the American Rescue Plan Act of 2021 (“American Rescue Plan”).

The American Rescue Plan includes various income and payroll tax measures.

The Company does not expect a material impact of the American Rescue Plan on its Condensed Consolidated Financial Statements and related disclosures.

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

These suspensions were considered in preparation of the year ended December 31, 2020 and three months ended June 30, 2021 of its Condensed Consolidated Financial Statements.

The Company does not expect a material impact of the American Rescue Plan on the Company’s Condensed Consolidated Financial Statements and related disclosures.

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

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

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

These suspensions were considered in preparation of the year ended December 31, 2020 and three months ended September 30, 2021 of the Company’s Condensed Consolidated Financial Statements.

Note 11 – Equity-Based Compensation

Stock-based Compensation Expense

Compensation expense attributable to net stock-based compensation was $ 5.1 million and $ 8.6 million for the three and nine months ended September 30, 2021, respectively.

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

Cost of sales 70 — 222 —

Selling and marketing 1,064 51 1,413 116

Research and development 70 — 103 —

General and administrative 3,878 25 6,886 210

Stock-based compensation expense $ 5,082 $ 76 $ 8,624 $ 326

Equity Incentive Award Plans

In December 2016, HydraFacial established its 2016 Plan, the purpose of which was to provide incentives to selected officers and employees, to secure and retain their services, and to strengthen their commitment to HydraFacial.

In December 2016, HydraFacial established its 2016 Equity Incentive Award Plan (the “2016 Plan”), the purpose of which was to provide incentives to selected officers and employees, to secure and retain their services, and to strengthen their commitment to HydraFacial.

The 2016 Plan provided for grants of time vesting (“Time Vesting Options”) and performance-based equity awards (“Performance Vesting Options”) to Company employees (together the “Options”).

The vesting of these Options varies based on whether they are Time Vesting Options or Performance Vesting Options as described in the grant agreements.

During May 2020, HydraFacial canceled 1,295 of the time vested stock options and 4,440 of the performance based stock options outstanding under the 2016 Plan and replaced these awards with 1,295 of new time vested incentive units and 4,440 of performance based incentive units for certain members of management .

The vesting of these Options varies based on whether such Time Vesting Options or Performance Vesting Options as described in the grant agreements.

During May 2020, HydraFacial canceled 1,295 of the Time Vesting Options and 4,440 of the Performance Vesting Options outstanding under the 2016 Plan and replaced these awards with 1,295 of new time vested incentive units and 4,440 of performance based incentive units for certain members of management .

All of the time vesting units and performance vesting units immediately vested upon the consummation of the Business Combination.

As a result of the accelerated vesting on options and performance units from the consummation of the Business Combination, the Company recognized $ 1.4 million in stock compensation expense.

At the Company’s special meeting of stockholders held on April 29, 2021, the stockholders approved The Beauty Health Company 2021 Incentive Award Plan (the “2021 Plan”) and The Beauty Health Company 2021 Employee Stock Purchase Plan (the “ESPP”), which become effective upon the consummation of the Business Combination.

At the Company’s special meeting of stockholders held on April 29, 2021, the stockholders approved The Beauty Health Company 2021 Incentive Award Plan (the “2021 Plan”), which became effective upon the consummation of the Business Combination.

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 will be 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, as described below.

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

Employee Stock Purchase Plan

At the Company’s special meeting of stockholders held on April 29, 2021, the stockholders approved T he Beauty Health Company 2021 Employee Stock Purchase Plan (the “ESPP”), which became effective upon the consummation of the Business Combination.

The aggregate number of shares of the Company’s Class A Common Stock that may be issued pursuant to rights granted under the ESPP will be 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 an as-converted basis) on the final day of the immediately preceding calendar year, and (2) such smaller number of shares as determined by the Company’s Board of Directors.

Under the current 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 plan-defined 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 common stock of the Company on the beginning or the end of the offering period.

As of September 30, 2021, there were no shares of the Company’s Class A Common Stock that were purchased under the current ESPP.

The Company is currently going through its first offering period which ends May 19, 2022.

The Company recognized an immaterial amount of compensation expense related to the ESPP for the three and nine months ended September 30, 2021.

Stock Options

Following the closing of the Business Combination, the Company granted stock options to certain employees.

During the three month and six month period ended June 30, 2021, the Company granted 7,793,600 options with a weighted-average exercise price of $ 13.41 .

There were no exercises or forfeitures of stock options during the three and six month period ended June 30, 2021.

During the nine month period ended September 30, 2021, the Company granted 9,399,200 options with a weighted average exercise price of $ 13.90 .

There were no exercises and 149,000 forfeitures of stock options during the nine month period ended September 30, 2021.

Restricted Stock Units

On September 10, 2021, the Company granted 409,743 restricted stock units (“RSUs”) to certain employees.

The RSUs granted to our employees are eligible to vest over four years , subject to continued employment on each vesting date.

The grants had a fair value of $ 26.16 on the grant date.

Performance-based restricted stock units (“PSUs”)

1 unchanged sentence

The PSUs are subject to both a service condition and market condition.

0 % to 100 % of the number of PSUs granted, to be determined based upon the performance of the Company's Class A Common Stock over a three-year period.

During the three and six month period ended June 30, 2021, the Company granted 210,000 PSUs with a weighted-average grant date fair value of $ 6.10 per unit.

There were no exercises and forfeitures during the three and six month period ended June 30, 2021.

As of June 30, 2021, all 210,000 units were outstanding.

Following the end of the four-year service period for the PSUs, the recipients of PSUs who remain employed will vest in, and be issued a number of shares of the Company's Class A Common Stock, ranging from 0 % to 375 % of the number of PSUs granted, to be determined based upon the performance of the Company's Class A Common Stock over a three-year period.

During the nine month period ended September 30, 2021, the Company granted 310,000 PSUs with a weighted-average grant date fair value of $ 8.25 per unit.

There were no exercises and forfeitures during the nine month period ended September 30, 2021.

As of September 30, 2021, all 310,000 units were outstanding.

The fair value of PSU awards 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 with the following assumptions:

Input 2021 Grants

Risk-free interest rate 0.50 % - 0.65 %

Expected volatility of the Company’s Class A Common Stock 55.0 %

Stock-based Compensation Expense

Compensation expense attributable to net stock-based compensation was $ 3.5 million for both the three and six months ended June 30, 2021, respectively.

Note 12 – Commitments and Contingencies

From time to time the Company is involved in claims, legal actions and governmental proceedings that arise from its business operations.

As of June 30, 2021 and December 31, 2020, the Company was not party to any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, it believes would have a material adverse effect on its business, financial condition or results of operations.

As a result of the consummation of the Business Combination, the former stockholders of HydraFacial were, as of June 30, 2021, entitled to receive earn-out consideration consisting of 7.5 million shares of Class A Common Stock from the Company (the “Earn-out Shares”) as a result of the Company’s completion in June and July 2021 of the acquisition of certain target businesses identified by HydraFacial as contemplated by the Merger Agreement.

Subsequent to June 30, 2021, the 7.5 million Earn-out Shares were issued on July 15, 2021.

See Note 15 - Fair Value Measurements.

From time to time the Company may be involved in claims, legal actions and governmental proceedings that arise from its business operations.

As of September 30, 2021 and December 31, 2020, the Company was not a party to any legal proceedings or threatened legal proceedings, the adverse outcome of which, individually or in the aggregate, that it believes would have a material adverse effect on its business, financial condition or results of operations.

Note 13 – Concentrations

As of June 30, 2021, the Company had no customers that accounted for 10% or more of the Accounts receivable balance.

As of September 30, 2021, the Company had no customers that accounted for 10% or more of the Accounts receivable balance.

As of December 31, 2020, the Company had one customer that accounted for 10% or more of the Accounts receivable balance.

This customer accounted for 10.5 %, or $ 1.9 million, of the Accounts receivable balance.

No single customer accounted for 10% or more of consolidated Net sales during the three and six months ended June 30, 2021 and December 31, 2020.

No single customer accounted for 10% or more of consolidated Net sales during the three and nine months ended September 30, 2021 and December 31, 2020.

Note 14 – 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 (the “Sponsor”) and the HydraFacial Stockholders.

Pursuant to the terms of the Registration Rights Agreement, (i) any outstanding share of Class A Common Stock or any other equity security (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 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 Founder Shares that were owned by the Sponsor and converted to shares of Class A Common Stock prior 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 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 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 Securities and Exchange Commission on July 26, 2021.

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 Common Stock held by these parties.

2 unchanged sentences

The Company and the Restricted Stockholders agree in the Registration Rights Agreement to provide customary indemnification in connection with any offerings of 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 their securities issued in the Company’s IPO, 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 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 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 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.

Pursuant to the Registration Rights Agreement, the Sponsor agreed to restrictions on the transfer of their 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 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 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 Common Stock issuable upon the exercise thereof for 30 days following the Closing.

2 unchanged sentences

Investor Rights Agreement

In connection with the consummation of the Business Combination, on May 4, 2021, the Company and LCP Edge Holdco, LLC (“LCP”) entered into that certain Investor Rights Agreement (the “Investor Rights Agreement”).

Pursuant to the Investor Rights Agreement, LCP will have the right to designate a number of directors for appointment or election to the Company’s board of directors as follows:

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.

2 unchanged sentences

HydraFacial entered into a Management Services Agreement, dated December 1, 2016 with Linden Capital Partners III LP (“Linden Capital Partners III”) and DW Management Services, L.L.C.

(“DW Management Services”) pursuant to which the parties receive quarterly monitoring fees of the greater of (a) $ 125,000 and (b) 1.25 % of Last Twelve Months EBITDA multiplied by the quotient of (x) the aggregate capital invested by the DWHP Investors into LCP and/or its subsidiaries as of such date, divided by (y) the sum of (i) the aggregate capital invested by the DWHP Investors into LCP and/or its subsidiaries, plus (ii) the aggregate capital invested by the Linden Capital Partners III into LCP and/or its subsidiaries as of the date of payment.

(“DWHP Investors”) into LCP and/or its subsidiaries as of such date, divided by (y) the sum of (i) the aggregate capital invested by the DWHP Investors into LCP and/or its subsidiaries, plus (ii) the aggregate capital invested by Linden Capital Partners III into LCP and/or its subsidiaries as of the date of payment.

In addition, the management services agreement provides for other fees in relation to services that may be provided in connection with equity and/or debt financing, acquisition of any other business, company, product line or enterprise, or divestiture of any division, business, and product or material assets.

1 unchanged sentence

Linden Capital Partners III also received a transaction fee upon the consummation of the Business Combination.

In connection with the consummation of the Business Combination, HydraFacial and Linden Capital Partners III

amended the Management Services Agreement such that Linden Capital Partners III will continue to provide advisory services to HydraFacial related to mergers and acquisitions.

In connection with the consummation of the Business Combination, HydraFacial and Linden Capital Partners III amended the Management Services Agreement such that Linden Capital Partners III will continue to provide advisory services to HydraFacial related to mergers and acquisitions.

As consideration for such services, HydraFacial will pay a fee, equal to 1 % of enterprise value of the target acquired, to Linden Capital Partners III upon the consummation of any such transaction.

The Company has also agreed to reimburse Linden Capital Partners III for certain expenses in connection with such advisory services.

In connection with the consummation of the Business Combination, on May 4, 2021, the Company, its subsidiary, Edge Systems LLC, and the Linden Manager (as defined below) entered into an Amended and Restated Management Services Agreement pursuant to which the Linden Manager may continue to provide advisory services at the request of the Company related to mergers and acquisitions.

In connection with the consummation of the Business Combination, on May 4, 2021, the Company, its subsidiary, Edge Systems LLC, and Linden Capital III LLC, the general partner of Linden Manager III LP (the “Linden Manager”) entered into an Amended and Restated Management Services Agreement pursuant to which the Linden Manager may continue to provide advisory services at the request of the Company related to mergers and acquisitions.

As consideration for such services, the Company will pay a fee, equal to 1 % of enterprise value of the target acquired, to the Linden Manager upon the consummation of any such transaction.

The Company has also agreed to reimburse Linden Manager for certain expenses in connection with such advisory services.

HydraFacial recorded approximately $ 0.2 million and $ 1.0 million of charges related to management services fees for th e six months ended June 30, 2021 and 2020, respectively.

These amounts are included in General and administrative expenses on the Consolidated Statements of Comprehensive Loss.

There were immaterial amounts due to these related parties at June 30, 2021 and December 31, 2020.

HydraFacial recorded approximately $ 0.2 million and $ 1.0 million of charges related to management services fees for th e nine months ended September 30, 2021 and 2020, respectively.

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

There were immaterial amounts due to these related parties at September 30, 2021 and September 30, 2020.

In relation to the consummation of the Business Combination, $ 21.0 million in transaction fees was paid to the Former Parent.

These amounts are included in General and administrative expenses on the Condensed Consolidated Statements of Comprehensive Loss.

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

Former Related Party Note Receivable

1 unchanged sentence

Interest on the note accrues at a rate of 8 % and matures in December 2022.

Interest receivable is presented as a component of other assets on the Condensed Consolidated Balance Sheets.

Interest receivable is presented as a component of other assets on the Company’s Condensed Consolidated Balance Sheets.

As there was no intent for the issuer to pay the note within a reasonably short period of time, HydraFacial has presented the note as a deduction of stockholders’ deficit.

During the three months ended June 30, 2021, in connection with the consummation of the Business Combination, the outstanding note receivable amount was settled .

In connection with the consummation of the Business Combination, the outstanding note receivable amount was settled .

Former Long-term Debt Due to Related Parties

1 unchanged sentence

Additionally, the Company is required to pay an early prepayment fee of 2.00 % of the amount prepaid or repaid on the Term Loan prior to April 10, 2021, and 1.00 % if prepaid between April 11, 2021 and April 10, 2022 .

During the three months ended June 30, 2021, in connection with the consummation of the Business Combination, all outstanding debt was paid.

As of June 30, 2021 , there was no amount due to related parties in connection with the Term Loan and Revolver .

On April 10, 2020, HydraFacial also entered into a second credit facility with a related party to provide for borrowings of $ 30.0 million under the Term A Loan.

During the three months ended June 30, 2021, in connection with the consummation of the Business Combination, all outstanding debt was paid.

As of June 30, 2021 , there was no amount due to a related parties in connection with the Term A Loan and related PIK Interest.

Related Party Lease

During the three months ended September 30, 2021, in connection with the consummation of the Business Combination, all outstanding debt was paid.

As of September 30, 2021 , there was no amount due to related parties in connection with the Term Loan and Revolver .

On April 10, 2020, HydraFacial also entered into a second credit facility with a related party to provide for borrowings of $ 30.0 million (the “Term A Loan”).

In connection with the consummation of the Business Combination, all outstanding debt was paid.

As of September 30, 2021 , there was no amount due to a related parties in connection with the Term A Loan and related PIK Interest.

Related Party Leases

Signal Hill Office

HydraFacial leases its office in Signal Hill, California, from an entity owned by former minority stockholders of HydraFacial who are no longer active employees.

Lease expense under this lease was $ 103 thousand and $ 315 thousand for the six months ended June 30, 2021 and 2020, respectively.

Lease expense under this lease was $ 0.2 million and $ 0.3 million for the nine months ended September 30, 2021 and 2020, respectively.

Miami Beach Office

The Company maintains an office in Miami Beach, Florida, whereby the Company, on a monthly basis, reimburses an entity owned by the Company’s Executive Chairman that makes such office available to the Company for its employees and affiliates.

Sales to Related Parties

1 unchanged sentence

Sales for this related party and the outstanding accounts receivable balance are as follows for the periods indicated:

Three Months Ended Six Months Ended

(in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

Sales to related party $ 149 $ 90 $ 396 $ 193

(in thousands) June 30, 2021 December 31, 2020

(in thousands) September 30, 2021 December 31, 2020

Accounts receivable due from related party $ 395 $ 250

Note 15 - Stockholders’ Deficit

The Company is authorized to issue 320,000,000 shares of Class A Common Stock with par value of $ 0.0001 per share.

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 June 30, 2021 and December 31, 2020, there were 125,439,779 and 35,501,743 , respectively, of Class A Common Stock issued and outstanding.

As of September 30, 2021 and December 31, 2020, there were 133,490,012 and 35,501,743 , respectively, of Class A Common Stock issued and outstanding.

The Class A Common Stock is entitled t o one vote pe r share and all shares are outstanding.

The Company has not declared or paid any dividends with respect to its Common Stock .

In connection with the Business Combination May 4, 2021, the Company issued 35,000,000 shares of Class A Common Stock to certain qualified institutional buyers and accredited investors that agreed to purchase such shares in connection with the Business Combination for aggregate consideration of $ 350 million.

The Company has not declared or paid any dividends with respect to its Class A Common Stock .

In connection with the Business Combination on May 4, 2021, the Company issued 35,000,000 shares of Class A Common Stock to certain qualified institutional buyers and accredited investors that agreed to purchase such shares in connection with the Business Combination for aggregate consideration of $ 350 million.

The Company also issued 35,501,743 shares of Class A Common Stock as partial compensation to the HydraFacial Stockholders for the Business Combination.

1 unchanged sentence

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 June 30, 2021 and December 31, 2020, there were no shares of preferred stock issued or outstanding.

Note 15 - Fair Value Measurements

The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Quoted prices in active markets for identical assets or liabilities.

An active market for an asset or liability is a

market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing

information on an ongoing basis.

Observable inputs other than Level 1 inputs.

Examples of Level 2 inputs include quoted prices in active

markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Unobservable inputs based on our assessment of the assumptions that market participants would use in

pricing the asset or liability.

As HydraFacial was the accounting acquirer the Company did no t have Warrant liabilities at December 31, 2020.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.

Fair Value Measurements on a Recurring Basis

(in thousands) Level 1 Level 2 Level 3 Total

Warrant Liability - Public Warrants $ 59,733 $ — $ — $ 59,733

Warrant Liability - Private Placement Warrants — 98,133 — 98,133

Earn-out shares liability 126,000 — — 126,000

Warrant Liabilities

The Public Warrants and Private Placement Warrants (the “Warrants”) were accounted for as liabilities in accordance with ASC 815-40 and are presented within Warrant liabilities on the Company’s Condensed Consolidated Balance Sheets.

The Warrants are measured at fair value at inception and on a recurring basis, with changes in fair value presented within Change in fair value of warrants in the Condensed Consolidated Statements of Comprehensive Loss .

The Public Warrant Liability associated with the Public Warrants as of June 30, 2021 is classified as a Level 1 fair value measurement due to the use of an observable market quote in an active market.

The Private Placement Warrant Liability associated with the Private Warrants as of June 30, 2021 is classified as a Level 2 fair value measurement.

Because the transfer of the Private Warrants to anyone outside of the Sponsor of Vesper Healthcare Acquisition Corp.

would result in the Private Warrants having substantially the same terms as the Public Warrants, management determined that the fair value of each Private Warrant is the same as that of a Public Warrant, with an insignificant adjustment for short-term marketability restrictions.

Accordingly, the Private Warrants are classified as Level 2 financial instruments..

Earn-out Shares Liability

The earn-out shares liability is measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of earn-out share liability in the Condensed Consolidated Statements of Comprehensive Loss.

The fair value of the earn-out shares liability was measured using quoted market prices of the Company’s Class A Common Stock and was based on the probability of the completion of certain acquisition targets.

The maximum earn-out amount as of June 30, 2021 was considered to be reasonably certain.

The liability was settled with 7.5 million shares of Class A Common Stock issued on July 15, 2021.

At September 30, 2021 and December 31, 2020, there were no shares of preferred stock issued or outstanding.

Note 16 - Segment Reporting

1 unchanged sentence

As a result, the chief operating decision maker, who is the Chief Executive Officer, decides how to allocate resources and assess performance, reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocates resources and evaluates financial performance.

Net sales by geographic region were as follows for the periods indicated (in thousands):

Three Months Ended Six Months Ended

(in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2021 2020 2021 2020

Americas $ 45,046 $ 21,181 $ 118,986 $ 54,563

Asia-Pacific 10,490 5,301 31,721 9,619

EMEA 11,408 2,064 18,879 8,952

Europe, the Middle East and Africa 12,611 8,078 31,490 17,030

Total net sales $ 68,147 $ 34,560 $ 182,197 $ 81,212

As of June 30, 2021 and December 31, 2020, substantially all of HydraFacial’s property, plant and equipment was held in the United States.

As of September 30, 2021 and December 31, 2020, substantially all of the Company’s property, plant and equipment was held in the United States.

Note 17 – Net Loss Attributable to Common Shareholders

Net loss attributable to common stockholders is computed by deducting both the dividend distributions declared in the period on preferred stock and the dividends accumulated for the period on cumulative preferred stock from net income (“Basic EPS”).

Diluted net loss per share (“Diluted EPS”) is computed by dividing net loss attributable to common stockholders by the total of the weighted average common stock outstanding shares outstanding during the period.

Diluted EPS for the three and six months ended June 30, 2021 and 2020, respectively exclude the dilutive effect of stock option shares because their inclusion would be anti-dilutive for both periods.

Diluted EPS for the three and nine months ended September 30, 2021 and 2020, exclude the dilutive effect of stock option shares because their inclusion would be anti-dilutive for all periods.

The following table sets forth the calculation of both basic and diluted net loss per share as follows for the periods indicated (in thousands, except share and per share amounts):

Three Months Ended Six Months Ended

(in thousands, except share and per share amounts) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except share and per share amounts) 2021 2020 2021 2020

Basic and diluted loss per share:

6 unchanged sentences

The following potentially dilutive weighted average shares were not included in the calculation of the weighted average diluted shares outstanding as the effect would have been anti-dilutive for the periods indicated:

Three Months Ended Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Stock Options 8,521,900 724 5,557,267 724

PSUs 129,231 — 64,972 —

RSUs and PSUs 1,175,247 — 783,498 —

Public and Private Warrants 24,666,666 — 16,444,444 —

Convertible Note Securities 11,807,213 — 7,871,475 —

Note 18 – Subsequent Events

HydraFacial entered into definitive agreements to acquire three distributors across Mexico, France and Germany to sell and distribute the HydraFacial line of products within their respective regions.

The three acquisitions closed on July 1, 2021.

Cash consideration paid in the aggregate, prior to any working capital adjustments, to acquire the three distributors was $ 23.4 million plus equity consideration consisting of 479,373 shares of the Company’s Class A Common Stock.

The equity consideration for the acquisitions will be issued by August 1, 2021.

Earn-out Shares

In addition to the consideration paid at the closing of the Business Combination, the former stockholders of HydraFacial received contingent consideration from the Company if certain acquisition targets identified by HydraFacial within one year after the closing of the Business Combination were to be completed.

As a result of the Company’s completion of the HTL acquisition during the second quarter ended June 30, 2021 and the completion of the three acquisitions in July 2021, the Company issued 7,500,000 in Class A Common Stock to the former stockholders on July 15, 2021.

Warrant Redemption

On October 4, 2021, the Company delivered a Notice of Redemption (the “Notice of Redemption”) calling for the redemption (the “Redemption”) of all of its outstanding public warrants (“Public Warrants”) to purchase shares of the Company’s Class A Common Stock that were issued under the Warrant Agreement, dated September 29, 2020 (the “Warrant Agreement”), by and between the Company and Continental Stock Transfer & Trust Company (“CST”), as warrant agent (“Warrant Agent”), as part of the units sold in the Company’s initial public offering, and that remain outstanding following 5:00 p.m.

New York City time on November 3, 2021 (“Redemption Date”), for a redemption price of $ 0.10 per public warrant.

On November 8, 2021, the Company announced the results of the completed redemption of all of its outstanding public warrants to purchase shares of the Company’s Class A common stock, par value $ 0.0001 per share, that were issued under the Warrant Agreement.

In connection with the Redemption, 16,123,235 Public Warrants were exercised for cash at an exercise price of $ 11.50 per share of Common Stock, and 74,104 Public Warrants were exercised on a cashless basis in exchange for an aggregate of 26,732 shares of Common Stock, in each case in accordance with the terms of the Warrant Agreement, representing approximately 99.5 % of the outstanding Public Warrants.

Total cash proceeds generated from exercises of the Public Warrants were $ 185.4 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements