What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-12 · 226 added, 421 removed, 371 unchanged (64% of the section changed)

3 unchanged sentences

(in thousands, except for share amounts)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Current assets:

Cash and cash equivalents $ 859,237 $ 901,886

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

Accounts receivable, net of allowances for doubtful accounts of $ 2,536 and $ 2,681 at March 31, 2022 and December 31, 2021, respectively

60,769 46,824

Prepaid expenses 7,745 3,220

Prepaid expenses and other current assets 13,554 12,322

Income tax receivable 1,801 4,599

2 unchanged sentences

Property and equipment, net 17,859 16,183

Right-of-use assets, net 14,251 14,992

Intangible assets, net 52,544 56,010

Goodwill 123,774 123,694

Deferred tax assets, net 1,028 270

Deferred income tax assets, net 330 330

Other assets 8,026 6,705

TOTAL ASSETS $ 1,199,178 $ 1,218,806

Liabilities and Shareholders’ Equity (Deficit)

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

2 unchanged sentences

Other accrued expenses 12,419 14,722

Lease liabilities, current 3,969 3,712

Income tax payable 4,197 292

Current portion of long-term debt due to related parties — 512

Total current liabilities 68,930 76,437

Other long-term liabilities 11 —

Long-term debt due to related parties, net of current portion — 216,024

Deferred tax liabilities, net 2,676 3,987

Lease liabilities, non-current 12,032 12,781

Deferred income tax liabilities, net 3,761 3,561

Warrant liabilities 41,765 93,816

2 unchanged sentences

Commitments (Note 13)

Stockholders’ equity (deficit)

Stockholders’ equity:

Class A Common Stock, $ 0.0001 par value;

320,000,000 shares authorized;

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

150,603,231 and 150,598,047 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Preferred Stock, $ 0.0001 par value;

1,000,000 shares authorized;

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

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

Additional paid-in capital 729,299 722,250

Note receivable from stockholder — ( 554 )

Accumulated other comprehensive (loss) income ( 1,576 ) 242

Accumulated other comprehensive loss ( 1,402 ) ( 1,257 )

Accumulated deficit ( 386,205 ) ( 418,712 )

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

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

Total stockholders’ equity 341,708 302,297

LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,199,178 $ 1,218,806

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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Net sales $ 75,415 $ 47,542

10 unchanged sentences

Interest expense, net 3,400 5,699

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

Other expense, net 937 7

Change in fair value of warrant liabilities ( 52,052 ) —

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

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

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

Loss before provision for income taxes

Foreign currency transaction (gain) loss, net ( 368 ) 256

Total other (income) expense ( 48,083 ) 5,962

Income (loss) before provision for income taxes

35,122 ( 3,580 )

Income tax benefit ( 1,129 ) ( 593 ) ( 3,305 ) ( 6,260 )

Income tax expense (benefit) 2,615 ( 306 )

Net income (loss)

$ 32,507 $ ( 3,274 )

Comprehensive loss, net of tax:

Comprehensive income (loss), net of tax:

Foreign currency translation adjustments ( 145 ) ( 5 )

Comprehensive loss

Comprehensive income (loss)

$ 32,362 $ ( 3,279 )

Net loss per share - basic and diluted $ ( 1.63 ) $ ( 0.06 ) $ ( 4.10 ) $ ( 0.64 )

Weighted average common shares outstanding - basic and diluted 132,306,346 35,392,316 87,219,681 33,870,903

Net income (loss) per share

$ 0.22 $ ( 0.09 )

Diluted $ ( 0.13 ) $ ( 0.09 )

Weighted average common shares outstanding

150,598,105 35,501,743

Diluted 152,711,698 35,501,743

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

8 unchanged sentences

Stock-based compensation — — — — — — 34 — — — 34

Net loss — — — — — — — — — ( 9,070 ) ( 9,070 )

Net income (loss) — — — — — — — — — ( 3,274 ) ( 3,274 )

Foreign currency translation adjustment — — — — — — — — ( 5 ) — ( 5 )

BALANCE, March 31, 2021 — $ — — $ — 35,501,743 $ 4 $ 13,986 $ ( 554 ) $ 237 $ ( 46,878 ) $ ( 33,205 )

Stock-based compensation — — — — — — 224 — — — 224

Net loss — — — — — — — — — ( 10,397 ) ( 10,397 )

Foreign currency translation adjustment — — — — — — — — ( 16 ) — ( 16 )

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, 2021 — $ — — $ — 150,598,047 $ 16 $ 722,250 $ — $ ( 1,257 ) $ ( 418,712 ) $ 302,297

Issuance of common stock for vesting of restricted stock units — — — — 5,184 — — — — — —

Stock-based compensation — — — — — — 7,049 — — — 7,049

Net loss — — — — — ( 3,274 ) ( 3,274 )

Net income (loss) — — — — — — — — — 32,507 32,507

Foreign currency translation adjustment — — — — — — — — ( 145 ) — ( 145 )

BALANCE, March 31, 2022 — $ — — $ — 150,603,231 $ 16 $ 729,299 $ — $ ( 1,402 ) $ ( 386,205 ) $ 341,708

Reverse recapitalization transaction, net 89,827,310 9 183,301 554 — — 183,864

Issuance of Class A Common Stock in connection with business acquisition 110,726 — 1,557 — — — 1,557

Stock-based compensation — — 3,508 — — — 3,508

Net loss — — — — — ( 139,378 ) ( 139,378 )

Foreign currency translation adjustment — — — — ( 276 ) — ( 276 )

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.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

Nine Months Ended September 30,

(in thousands)

Three Months Ended March 31,

Cash flows from operating activities:

Net loss $ ( 357,797 ) $ ( 21,682 )

Adjustments to reconcile net loss to net cash from operating

Net income (loss) $ 32,507 $ ( 3,274 )

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

Depreciation of property and equipment 1,416 690

1 unchanged sentence

Provision for doubtful accounts 229 19

Amortization of right-of-use assets 1,055 —

Amortization of intangible assets 3,174 2,921

2 unchanged sentences

Stock-based compensation 7,049 34

Amortization of unfavorable lease terms — ( 36 )

Write-off of unfavorable lease — ( 384 )

(Gain) Loss on sale and disposal of assets — ( 23 )

In-kind interest that compounds into debt 4,130 3,938

Deferred income taxes ( 5,330 ) ( 952 )

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

Fair value adjustment of Warrant liabilities 271,333 —

Debt prepayment expense 2,014 —

Loss on sale and disposal of assets 829 —

In-kind interest — 2,182

Deferred income tax benefit — ( 842 )

Change in fair value adjustment of warrant liabilities ( 52,052 ) —

Amortization of debt issuance costs 1,057 —

Changes in operating assets and liabilities:

Accounts receivables ( 17,290 ) 4,055

Accounts receivable ( 14,152 ) ( 8,457 )

Prepaid expense and other current assets ( 2,052 ) ( 975 )

5 unchanged sentences

Other long-term liabilities 11 ( 81 )

Lease liabilities ( 954 ) —

Income taxes payable 3,909 86

Net cash used in operating activities ( 31,640 ) ( 12,025 )

Net cash (used in) provided by operating activities ( 38,471 ) 1,261

Cash flows used in investing activities:

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

Repayment of notes receivables from shareholders 781 —

Capital expenditures for intangible assets ( 276 ) ( 170 )

2 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 ) —

Payment of contingent consideration from acquisition of business ( 783 ) —

Proceeds from revolving facility — 5,000

Repayment of revolving facility ( 5,000 ) ( 15,000 )

Proceeds from term loan — 30,000

Payment of debt issuance costs ( 21,341 ) ( 77 )

Repayment of term loan — ( 443 )

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

Net increase in cash and cash equivalents 709,984 4,471

Payments for transaction costs — ( 180 )

Net cash (used in) provided by financing activities ( 783 ) 4,377

Net (decrease) increase in cash and cash equivalents ( 42,679 ) 4,650

Effect of foreign currency translation on cash 30 ( 21 )

1 unchanged sentence

Cash and cash equivalents, end of period $ 859,237 $ 14,115

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

THE BEAUTY HEALTH COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

Three Months Ended March 31,

Supplemental disclosures of cash flow information and non-cash investing and financing activities:

Cash paid for interest $ 5,130 $ 3,123

Cash paid for income taxes 188 2,399

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 —

Cash received for income taxes 3,645 —

Capital expenditures included in accounts payable 647 863

Deferred unpaid offering costs — 2,203

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

THE BEAUTY HEALTH COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Description of Business

3 unchanged sentences

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.

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

(“Merger Sub I”), Hydrate Merger Sub II, LLC (“Merger Sub II”), LCP Edge Intermediate, Inc., the indirect parent of Edge Systems LLC d/b/a The HydraFacial Company (“HydraFacial”), and LCP Edge Holdco, LLC (“LCP,” or “Former Parent,” and, in its capacity as the stockholders’ representative, the “Stockholders’ Representative”), which provided for:

3 unchanged sentences

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.

In connection with the Closing, the Company changed its name from “Vesper Healthcare Acquisition Corp.” to “The Beauty Health Company.” Following the Closing, on May 6, 2021, the Company’s Class A Common Stock and publicly traded warrants were listed on the Nasdaq Capital Market (“Nasdaq”) under the symbols, “SKIN” and “SKINW”, respectively.

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

Unless the context otherwise requires, in this 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.

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

and its subsidiaries prior to the Closing.

References to “Vesper” refer to Vesper Healthcare Acquisition Corp.

prior to the consummation of the Business Combination.

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

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

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

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

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

The COVID-19 pandemic has had, and may continue to have adverse impacts on our business.

As government authorities around the world continue to implement significant measures intended to control the spread of the virus and institute restrictions on commercial operations, while simultaneously implementing policies designed to reopen certain markets, we are working to ensure our compliance and maintain business continuity for essential operations.

The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous factors we cannot reliably predict, including the duration and scope of the pandemic;

businesses and individuals’ actions in response to the pandemic;

and the impact on economic activity including the possibility of recession or financial market instability.

Note 2 – Summary of Significant Accounting Policies

Basis of presentation and consolidation

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

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

This determination was primarily based on the following:

• 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;

• senior management of HydraFacial comprises the senior management of the post-combination company;

• 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 contemplated by the Merger Agreement.

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.

However, based on the aforementioned factors of management, board representation, largest minority shareholder as noted above, and the continuation of the HydraFacial business as well as its size, it was determined that accounting for the Business Combination as a reverse recapitalization was appropriate.

Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of HydraFacial with the acquisition being treated as the equivalent of HydraFacial issuing stock for the net assets of the Company, accompanied by a recapitalization.

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 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 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, 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 this report on Form 10-Q.

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

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

In preparing its consolidated financial statements in conformity with GAAP, the Company makes assumptions, estimates, and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of net sales and expenses during the reported periods.

On an ongoing basis, the Company evaluates its estimates, including, among others, those related to revenue related reserves, allowance for doubtful accounts, the realizability of inventory, fair value measurements including common stock, warrant liabilities and earn-out shares liability valuations, useful lives of property and equipment, goodwill and finite-lived intangible assets, accounting for income taxes, stock-based compensation expense and commitments and contingencies.

The Company’s estimates are based on historical experience and on its future expectations that are believed to be reasonable.

The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from its current estimates and those differences may be material.

Emerging Growth Company

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.

The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

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 Exchange Act.

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 annual report on 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 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 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 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 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 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

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

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

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

These tiers include:

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

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

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

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

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

Recently Adopted Accounting Pronouncements

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):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”).

The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

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

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 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.

Information regarding the Company’s significant accounting policies is contained in Note 2, “Summary of Significant Accounting Policies”, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2022.

New Accounting Pronouncements Not Yet Adopted

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2021-08, Business Combinations (Topic 805), which primarily relates to the accounting for contract assets and contract liabilities from contracts with customers in a business combination.

The standard will be effective for annual reporting periods beginning after December 31, 2022, including interim reporting periods within those periods, with early adoption permitted.

We are currently evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

Note 3 – Business Combinations

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In connection with the Business Combination:

• 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”).

• 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 for an aggregate purchase price of $ 350.0 million (the “PIPE Investment”).

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

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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.

• 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 $ 26.7 million, 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.

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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

Cash in, trust net of redemptions $ 433,382

Cash - PIPE 350,000

Cash paid out to Former Parent ( 367,870 )

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

Number of Shares

Class A common stock outstanding prior to Business Combination 46,000,000

Redemption of Vesper Class A Common Stock ( 2,672,690 )

Class A common stock of Vesper 43,327,310

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

PIPE Shares 35,000,000

Business Combination and PIPE shares 89,827,310

Legacy HydraFacial shares (1)

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 .

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.

Germany and Mexico, respectively.

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

Cash paid for the four distributors totaled $ 23.7 million.

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

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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:

Cash, net of cash acquired $ 4,920 $ 1,757 $ 11,338 $ 4,881

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

Accounts receivable $ 1,110 $ 2,079 $ 15 $ 1,657

Non-compete agreement 100 72 588 100

Customer relationships 2,696 3,312 5,487 2,700

Inventory and other assets 354 341 1,262 454

Accounts payable ( 45 ) ( 456 ) ( 772 ) —

Deferred tax liabilities, net ( 675 ) ( 842 ) ( 1,834 ) —

Accrued and other liabilities ( 802 ) ( 317 ) ( 340 ) —

Total identifiable net assets 2,738 4,189 4,406 4,911

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

{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 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.

The estimated fair values and preliminary purchase price allocation were based on information available at the time of acquisition and the Company continues to evaluate the underlying inputs and assumptions.

Accordingly, these preliminary estimates are subject to retrospective adjustments during the measurement period, not to exceed one year, based upon new information obtained about facts and circumstances that existed as of the date of acquisition.

The Company is currently in the process of finalizing the preliminary fair value allocations, and expects this to be completed during the second quarter of 2022.

Note 4 – Revenue Recognition

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Disaggregated Revenue

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 generates revenue through manufacturing and selling HydraFacial Delivery Systems (“ Delivery Systems ”).

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

Consumables are sold solely and exclusively by HydraFacial and are available for purchase separately from the purchase of Delivery Systems.

For both Delivery Systems and Consumables, revenue is recognized upon transfer of control to the customer, which generally takes place at the point of shipment.

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

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

Three Months Ended March 31,

(in thousands) 2022 2021

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Inventories consist of the following as of the periods indicated:

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

(in thousands) March 31, 2022 December 31, 2021

Raw materials $ 14,723 $ 12,024

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

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

(in thousands) March 31, 2022 December 31, 2021

Accrued compensation $ 7,482 $ 15,262

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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 —

(in thousands) March 31, 2022 December 31, 2021

Sales and VAT tax payables $ 4,356 $ 5,817

Accrued interest — 2,786

Contingent consideration — 783

Note payable due seller 2,124 2,153

Royalty liabilities 840 1,074

Other 5,099 2,109

Total other accrued expenses $ 12,419 $ 14,722

Note 6 — Leases

The Company does not own any real estate.

The majority of the Company’s lease liability consists of the Company’s international office spaces and warehouses, all of which are classified as operating leases.

The Company’s finance leases relate to leased equipment such as office and warehouse equipment.

The finance lease balances are not material but are included in property and equipment, other accrued liabilities, and other long-term liabilities of the Condensed Consolidated Balance Sheets.

There were no material changes to the Company’s lease portfolio subsequent to December 31, 2021.

Note 7 — Fair Value Measurements

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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.

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

determine such fair value.

As of the Business Combination date, the Private Placement Warrants were valued using the Public Warrant Price, and was considered to be a Level 2 financial instrument as of that date.

As of March 31, 2022, the value of the Private Placement Warrants was determined using a Monte Carlo simulation, and as such, were classified as a Level 3 financial instrument.

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

There were no valuation level transfers during the three months ended March 31, 2022.

Fair Value Measurements on a Recurring Basis

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Money market funds $ 810,310 $ — $ — $ 810,310

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

Warrant liability — Private Placement Warrants — — 41,765 41,765

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

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

As of March 31, 2022 , the Company’s U.S.

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

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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.

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

At March 31, 2022 , the outstanding Private Placement Warrants were valued using a Monte Carlo simulation because these Warrants are subject to redemption if the reference value of the common stock, as defined, is between $ 10.00 and $ 18.00 per share.

The Private Placement Warrants are classified as a Level 3 financial instruments as of March 31, 2022 .

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

On October 4, 2021, the Company issued a press release stating that it would redeem all of the Public Warrants that remained outstanding following 5:00 p.m.

New York City time on November 3, 2021, for a redemption price of $ 0.10 per Public Warrant.

All 16.2 million outstanding Public Warrants were either exercised for cash or on a cashless basis or were redeemed.

These outstanding Public Warrants that were exercised comprised 15.3 million Public Warrants issued in connection with the Vesper initial public offering and an additional 0.9 million warrants that became Public Warrants due to the sale of Private Placement Warrants.

Approximately 16.1 million Public Warrants were exercised for cash at an exercise price of $ 11.50 per share of Class A Common Stock, 74,104 Public Warrants were exercised on a cashless basis in exchange for an aggregate of 26,732 shares of Class A Common Stock, and 75,016 warrants were redeemed for $ 0.10 per warrant, in each case in accordance with the terms of the Warrant Agreement.

In 2021, total cash proceeds generated from exercises of the Public Warrants were $ 185.4 million.

In addition, 0.3 million Private Placement Warrants were exercised in 2021 for total cash proceeds of $ 3.0 million.

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

Note 8 – Property and Equipment, net

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(in thousands) Useful life

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Furniture and fixtures 2 - 7

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Computers and equipment 3 - 5

Machinery and equipment 2 - 5

Autos and trucks 5 1,157 1,163

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Property and equipment, net $ 17,859 $ 16,183

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,

Depreciation expense was as follows for the periods indicated:

Three Months Ended March 31,

(in thousands) 2022 2021

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General and administrative 479 385

Selling and marketing 523 —

Total depreciation expense $ 1,416 $ 690

Note 9 – Goodwill and Intangible Assets, net

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

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

(in thousands) Gross

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Trademarks $ 10,048 $ ( 3,442 ) $ 6,606 15

Non-compete agreement 809 ( 139 ) 670 3

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

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Total intangible assets $ 112,299 $ ( 56,289 ) $ 56,010

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,

Amortization expense was as follows for the periods indicated:

Three Months Ended March 31,

(in thousands) 2022 2021

Cost of sales $ 2,241 $ 2,231

Selling and marketing 770 — 1,193 —

General and administrative 298 502

Selling and marketing 635 188

Total amortization expense $ 3,174 $ 2,921

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2022 2021

Beginning balance $ 123,694 $ 98,531

Business acquisitions 25,304 —

Measurement period adjustments - Ecomedic 174 —

Foreign currency translation impact ( 94 ) 4

Ending balance $ 123,774 $ 98,535

The goodwill arising from the Ecomedic acquisition was increased by $ 0.2 million due to adjustments of acquisition date tax liability estimates during the three months ended March 31, 2022.

Note 10 – Long-term Debt

Credit Facility

On December 30, 2021, Edge Systems LLC, a California limited liability company (the “Borrower”) and an indirect wholly owned subsidiary of The Beauty Health Company, as borrower, entered into a Credit Agreement (the “Credit Agreement”) with Edge Systems Intermediate LLC, an indirect wholly owned subsidiary of the Company and the direct parent of the Borrower that holds the Company’s foreign and domestic operating entities, and The Hydrafacial Company Mexico Holdings, LLC, a direct wholly owned subsidiary of the Borrower that conducts the Mexican business operations , as guarantors (the “Guarantors” and, together with the Borrower, the “Loan Parties”), and JPMorgan Chase Bank, N.A., as administrative agent.

The Credit Agreement provides for a $ 50 million revolving credit facility with a maturity date of December 30, 2026.

In addition, the Borrower has the ability from time to time to increase the revolving commitments or enter into one or more tranches of term loans up to an additional aggregate amount not to exceed $ 50 million, subject to receipt of lender commitments and certain conditions precedent.

As of March 31, 2022 the Credit Agreement remains undrawn and there is no outstanding balance under the revolving credit facility.

Borrowings under the Credit Agreement are secured by certain collateral of the Loan Parties and are guaranteed by the Guarantors, each of whom will derive substantial benefit from the revolving credit facility.

In specified circumstances, additional guarantors are required to be added.

The Credit Agreement contains various restrictive covenants subject to certain exceptions, including limitations on the Borrower’s ability to incur indebtedness and certain liens, make certain investments, become liable under contingent obligations in certain circumstances, make certain restricted payments, make certain

dispositions within guidelines and limits, engage in certain affiliate transactions, alter its fundamental business or make certain fundamental changes, and requirements to maintain financial covenants, including maintaining a leverage ratio of no greater than 3.00 to 1.00 and maintaining a fixed charge coverage ratio of not less than 1.15 to 1.00.

The leverage ratio also determines pricing under the Credit Agreement.

At the Borrower’s option, borrowings under the revolving credit facility accrue interest at a rate equal to either LIBOR or a specified base rate plus an applicable margin.

The applicable margin is linked to the leverage ratio.

The margins range from 2.00 % to 2.50 % per annum for LIBOR loans and 1.00 % to 1.50 % per annum for base rate loans.

The revolving credit facility is subject to a commitment fee payable on the unused revolving credit facility commitments ranging from 0.25 % to 0.35 %, depending on the Borrower’s leverage ratio.

As of March 31, 2022 the Company’s unused commitment rate was 0.25 %.

The Borrower is also required to pay certain fees to the administrative agent and letter of credit issuers under the revolving credit facility.

During the term of the revolving credit facility, the Borrower may borrow, repay and re-borrow amounts available under the revolving credit facility, subject to voluntary reductions of the swing line, letter of credit and revolving credit commitments.

Convertible Senior Notes

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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.

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.

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The total amount of debt issuance costs of $ 21.3 million was recorded as a reduction to “Convertible senior notes, net” in the Company’s 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:

During the three months ended March 31, 2022, the Company recognized $ 2.3 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 months ended March 31, 2021.

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

(in thousands) Principal Amount Unamortized Issuance Costs Net Carrying

2 unchanged sentences

$ 750,000 $ 19,029 $ 730,971 $ 680,400 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.

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

As of March 31, 2022, the estimated fair value of the Notes was approximately $ 680 million.

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

As of March 31, 2022, the remaining life of the Notes is approximately 4.5 years.

Capped Call Transactions

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

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

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.

T he related write-off of the deferred financing costs totaled $ 2.3 million and prepayment penalties totaled $ 2.0 million in 2021.

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

Defer red financing costs expense prior to the Closing of the Business Combination for the three months ended March 31, 2021 amounted to $ 0.4 million and is included in Interest expense, net on the Company’s Consolidated Statements of Comprehensive Loss.

Note 11 – Income Taxes

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.

The income tax expense/(benefit) for the three months ended March 31, 2022 and March 31, 2021 is $ 2.6 million and $( 0.3 ) million, respectively.

The effective tax rate for the three months ended March 31, 2022 is 7.45 % which is lower than the federal statutory rate of 21.0% primarily due to forecasted loses adjusted by various non-deductible expenses primarily from the revaluation of the warrants, limitation on officer’s compensation, and meals and entertainment.

The effective tax rate for the three months ended March 31, 2021 is 8.55 % which is lower than the federal statutory rate of 21.0% primarily due to the increase in valuation and non-deductible expense related to stock-based compensation and meals and entertainment.

The Company has established a valuation allowance against a portion of its remaining deferred tax assets because it is more likely than not that certain deferred tax assets will not be realized.

In determining whether deferred tax assets are realizable, the Company considered numerous factors including historical profitability, the amount of future taxable income and the existence of taxable temporary differences that can be used to realize deferred tax assets.

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 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.

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

The Company believes it will be able to obtain federal tax refunds by carrying back its net operating loss for the year ended December 31, 2020.

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

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.

Additionally, the Company applies ASC 740, the accounting standard governing 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 and $ 0.1 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

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

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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 12 – 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,

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

Three Months Ended March 31,

(in thousands) 2022 2021

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Stock-based compensation expense $ 7,049 $ 34

Equity Incentive Award Plans

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 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”), 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 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”)

PSUs are granted to certain executives, with respect to shares reserved under the 2021 Plan.

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

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 %

Restricted Stock Units (“RSUs”) and Performance-based restricted stock units (“PSUs”)

The following table summarizes the Company’s unvested equity award activity for the three months ended March 31, 2022:

Weighted Average Grant Date Fair Value

RSUs PSUs RSUs PSUs

Outstanding - January 1, 2022

380,775 975,000 $ 25.88 $ 11.39

Granted 2,122,819 719,613 13.89 12.31

Vested ( 8,895 ) — 13.49 —

Forfeited ( 36,238 ) — 18.38 —

Outstanding - March 31, 2022

2,458,461 1,694,613 15.69 11.79

Note 13 – Commitments and Contingencies

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.

As of March 31, 2022, 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 14 – Concentrations

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 nine months ended September 30, 2021 and December 31, 2020.

As of March 31, 2022, the Company had no customers that accounted for 10% or more of the Accounts receivable balance.

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

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

Note 15 – Related-Party Transactions

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In connection with the consummation of the Business Combination, on May 4, 2021, the Company entered into that certain Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”) with BLS Investor Group LLC and the HydraFacial Stockholders.

Pursuant to the terms of the Registration Rights Agreement, (i) any outstanding 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.

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.

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In connection with the consummation of the Business Combination, on May 4, 2021, the Company, the Sponsor and the HydraFacial Stockholders entered into a Lock-Up Agreement, pursuant to which the HydraFacial Stockholders agreed, subject to certain exceptions, not to sell, transfer to another or otherwise dispose of, in whole or in part, the common stock held by the HydraFacial Stockholders during the period commencing from the closing of the Business Combination and through the earlier of (i) the 180-day anniversary of the date of the closing of the Business Combination and (ii) the date after the closing of the Business Combination on which the Company consummates certain transactions involving a change of control of the Company.

Pursuant to the terms of the Lock-Up Agreement, the restrictions set forth therein expired on October 31, 2021.

Investor Rights Agreement

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(“DW Management Services”) pursuant to which the parties receive quarterly monitoring fees of the greater of (a) $ 125,000 and (b) 1.25 % of Last Twelve Months EBITDA multiplied by the quotient of (x) the aggregate capital invested by the investors of DW Healthcare Partners IV (B), L.P.

(“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.

(“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.

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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.

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 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.

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

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

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

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.

However, pursuant to the Linden Management Services Agreement, the Company’s obligation to pay the 1 % Pursuant to the terms of the agreement, the fee expired twelve months after the consummation of the Business Combination on May 4, 2022.

HydraFacial recorded $ 0 and approximately $ 0.1 million of charges related to management services fees for th e three months ended March 31, 2022 and 2021, 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.

There were no amounts due to these related parties at March 31, 2022 and 2021 .

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 Company’s Condensed Consolidated Statements of Comprehensive Loss.

Former Related Party Note Receivable

HydraFacial issued shares to a key member of management in exchange for a note receivable with a $ 0.6 million face value.

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 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.

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

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

Former Long-term Debt Due to Related Parties

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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 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 .

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

As of March 31, 2022 , 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.

As of March 31, 2022 , there was no amount due to a related parties in connection with the Term A Loan and related PIK Interest.

Related Party Leases

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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 $ 0.2 million and $ 0.3 million for the nine months ended September 30, 2021 and 2020, respectively.

Lease expense under this lease was $ 0.2 million and $ 0.1 million for the three months ended March 31, 2022 and 2021, 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

HydraFacial sells to a customer that is owned directly or indirectly by a key member of management.

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

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) September 30, 2021 December 31, 2020

Accounts receivable due from related party $ 395 $ 250

Expense for this property was not material for the three months ended March 31, 2022.

No such expenses existed for the three months ended March 31, 2021 .

Note 16 - Stockholders’ Deficit

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Holders of Class A Common Stock are entitled to one vote for each share.

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.

As of March 31, 2022 and December 31, 2021, there were 150,603,231 and 150,598,047 , 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.

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

At March 31, 2022 and December 31, 2021 , there were no shares of preferred stock issued or outstanding.

Note 17 - Segment Reporting

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

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

Three Months Ended March 31,

(in thousands) 2022 2021

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Total net sales $ 75,415 $ 47,542

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 loss (“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 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 September 30, Nine Months Ended September 30,

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

Note 18 – Net Income (Loss) Attributable to Common Shareholders

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

Three Months Ended March 31,

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

Basic and diluted loss per share:

$ ( 215,145 ) $ ( 2,214 ) $ ( 357,797 ) $ ( 21,682 )

Shares used in computation:

Weighted average common shares outstanding

Net income (loss) available to common shareholders - basic

$ 32,507 $ ( 3,274 )

Basic and diluted loss per share:

Income on Private placement warrants ( 52,052 ) —

Net income (loss) available to common shareholders - diluted $ ( 19,545 ) $ ( 3,274 )

Weighted average common shares outstanding - basic

150,598,105 35,501,743

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 September 30, Nine Months Ended September 30,

Effect of dilutive shares:

Private placement warrants 2,113,593 —

Weighted average common shares outstanding - diluted 152,711,698 35,501,743

Basic net income (loss) per share:

$ 0.22 $ ( 0.09 )

Diluted net income (loss) per share $ ( 0.13 ) $ ( 0.09 )

The following shares have been excluded from the calculation of the weighted average diluted shares outstanding as the effect would have been anti-dilutive:

March 31, 2022 March 31, 2021

Convertible Notes 23,614,425 —

RSUs 2,458,461 —

PSUs 1,694,613 —

Stock Options 6,582,520 1,509

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 19 – Subsequent Events

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.

Other than as disclosed elsewhere, no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the accompanying notes.

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