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Item 1. Financial Statements

2022-11-09 compared with 2022-08-09 · 148 added, 88 removed, 592 unchanged (29% of the section changed)

3 unchanged sentences

(in thousands, except for share amounts)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current assets:

Cash and cash equivalents $ 684,208 $ 901,886

Accounts receivable, net of allowances for doubtful accounts of $ 2,482 and $ 2,681 at June 30, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowances for doubtful accounts of $ 2,894 and $ 2,681 at September 30, 2022 and December 31, 2021, respectively

83,983 46,824

27 unchanged sentences

320,000,000 shares authorized;

150,855,025 and 150,598,047 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively

143,201,041 and 150,598,047 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Preferred Stock, $ 0.0001 par value;

1,000,000 shares authorized;

no shares issued and outstanding at June 30, 2022 and December 31, 2021

no shares issued and outstanding at September 30, 2022 and December 31, 2021

Additional paid-in capital 642,762 722,250

Accumulated other comprehensive income (loss) ( 5,089 ) ( 1,257 )

Accumulated other comprehensive loss ( 6,725 ) ( 1,257 )

Accumulated deficit ( 378,143 ) ( 418,712 )

5 unchanged sentences

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

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

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

2022 2021 2022 2021

14 unchanged sentences

Change in fair value of earn-out shares liability — 10,575 — 47,100

Foreign currency transaction loss (gain), net 2,206 ( 24 ) 1,838 232

Foreign currency transaction (gain) loss, net ( 38 ) 431 1,800 663

Total other (income) expense ( 3,451 ) 210,818 ( 62,954 ) 331,675

1 unchanged sentence

( 690 ) ( 216,274 ) 42,439 ( 361,102 )

Income tax expense (benefit) 76 ( 1,870 ) 2,691 ( 2,176 )

Income tax (benefit) expense ( 821 ) ( 1,129 ) 1,870 ( 3,305 )

Net income (loss)

29 unchanged sentences

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

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

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

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

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

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

Net income (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.

THE BEAUTY HEALTH COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except for share amounts)

Common Stock Additional Paid-in Capital 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

11 unchanged sentences

BALANCE, June 30, 2022 150,855,025 $ 16 $ 735,682 $ ( 5,089 ) $ ( 378,274 ) $ 352,335

Issuance of common stock pursuant to equity compensation plan 64,775 — — — — —

Shares withheld for tax withholdings on vested stock awards ( 26,451 ) — ( 370 ) — — ( 370 )

Repurchase and retirement of common stock ( 7,692,308 ) ( 1 ) ( 79,999 ) ( 80,000 )

Purchase of equity forward contract in connection with accelerated share repurchase — — ( 20,000 ) — — ( 20,000 )

Stock-based compensation — — 7,449 — — 7,449

Net income (loss) — — — — 131 131

Foreign currency translation adjustment — — — ( 1,636 ) — ( 1,636 )

BALANCE, September 30, 2022 143,201,041 $ 15 642,762 $ ( 6,725 ) $ ( 378,143 ) $ 257,909

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

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

Net income (loss) $ 40,569 $ ( 357,797 )

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

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

Depreciation of property and equipment 5,269 2,446

6 unchanged sentences

Stock-based compensation 20,876 8,624

Loss on sale and disposal of assets 988 —

Loss on sale and disposal of long-lived assets 4,697 —

In-kind interest — 4,130

17 unchanged sentences

Cash flows used in investing activities:

Capital expenditures for intangible assets ( 4,690 ) ( 2,229 )

Capital expenditures for property and equipment ( 9,880 ) ( 4,857 )

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

1 unchanged sentence

Repayment of notes receivables from shareholders — 781

Capital expenditures for intangible assets ( 1,252 ) ( 273 )

Capital expenditures for property and equipment ( 5,577 ) ( 4,707 )

Net cash used in investing activities ( 16,045 ) ( 29,201 )

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)

Nine Months Ended September 30,

Cash flows from financing activities:

Repurchase of Class A Common Shares ( 80,000 ) —

Payment for equity forward contract in connection with accelerated share repurchase ( 20,000 ) —

Payment of contingent consideration related to acquisitions ( 2,763 )

Proceeds from issuance of convertible senior notes — 750,000

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

Proceeds from revolving facility — 5,000

Repayment of revolving facility — ( 5,000 )

Proceeds from Business Combination, net of transaction costs (See Note 3) — 358,536

Payment of debt issuance costs — ( 21,341 )

Repayment of term loan — ( 225,486 )

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

Net cash (used in) provided by financing activities ( 102,763 ) 770,825

3 unchanged sentences

Cash and cash equivalents, end of period $ 684,208 $ 718,622

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)

Six Months Ended June 30,

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

1 unchanged sentence

Common stock issued for asset acquisition 500 —

Common stock issued for business acquisitions — 1,557

Cash (received) paid for income taxes ( 2,009 ) 188

Capital expenditures included in accounts payable 1,755 512

Common stock issued for business acquisitions — 1,557

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

29 unchanged sentences

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

Basis of Presentation

The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, they do not include all information and footnotes required by accounting

principles generally accepted in the United States of America (“GAAP”) for complete financial statements.

These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented.

These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in, or presented as exhibits to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Note 2 – Summary of Significant Accounting Policies

18 unchanged sentences

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

The net cash received from the Business Combination was subject to a working capital adjustment of $ 0.9 million.

The net cash received from the Business Combination was

subject to a working capital adjustment of $ 0.9 million.

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

64 unchanged sentences

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

The operating results of the distributor acquisitions from the dates of acquisitions through June 30, 2022 are included in the Condensed Consolidated Statements of Comprehensive Income (Loss).

The operating results of the distributor acquisitions from the dates of acquisitions through September 30, 2022 are included in the Condensed Consolidated Statements of Comprehensive Income (Loss).

The operating results are not material to the consolidated financial statements, and, therefore, the Company has not presented pro forma results of operations for the distributor acquisitions.

3 unchanged sentences

Depending on the achievement of certain revenue milestones, the former Mxt shareholders are entitled to receive up to $ 30 million of earnout payments.

The estimated fair value of the earnout was not material as of the acquisition date.

The estimated fair value of the earnout was not material as of the acquisition date and as of September 30, 2022.

The Company accounted for this transaction as an asset acquisition based on an evaluation of the U.S.

15 unchanged sentences

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

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

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

(in thousands) 2022 2021 2022 2021

6 unchanged sentences

Inventories consist of the following as of the periods indicated:

(in thousands) June 30, 2022 December 31, 2021

(in thousands) September 30, 2022 December 31, 2021

Raw materials $ 26,015 $ 12,024

2 unchanged sentences

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

(in thousands) June 30, 2022 December 31, 2021

(in thousands) September 30, 2022 December 31, 2021

Accrued compensation $ 3,733 $ 15,262

4 unchanged sentences

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

(in thousands) June 30, 2022 December 31, 2021

(in thousands) September 30, 2022 December 31, 2021

Sales and VAT tax payables $ 5,116 $ 5,817

9 unchanged sentences

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 expenses, and other long-term liabilities of the Condensed Consolidated Balance Sheets.

During the three months ended June 30, 2022 the Company entered into leases for a new experience center in Paris for a right-of-use asset and lease liability of $ 1.1 million and an office in Frankfurt for a right-of-use asset and lease liability of $ 1.6 million.

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

During the nine months ended September 30, 2022 the Company entered into leases for a new experience center in Paris for a right-of-use asset and lease liability of $ 1.1 million as of lease inception commencement date and an office in Frankfurt for a right-of-use asset and liability of $ 1.6 million as of lease inception commencement date.

Note 7 — Fair Value Measurements

8 unchanged sentences

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 June 30, 2022, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.

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, 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 June 30, 2022, the value of the Private Placement Warrants was determined using their redemption value because these Private Placement Warrants are subject to redemption if the reference value of the common stock, as defined, is between $ 10.00 and $ 18.00 per share.

As of September 30, 2022, the value of the Private Placement Warrants was determined using their redemption value because these Private Placement 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 2 financial instrument.

There were no Public Warrants outstanding as of June 30, 2022.

There were no valuation level transfers during the six months ended June 30, 2022.

There were no Public Warrants outstanding as of September 30, 2022.

Fair Value Measurements on a Recurring Basis

7 unchanged sentences

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

As of June 30, 2022 , the Company’s U.S.

As of September 30, 2022 , the Company’s U.S.

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

2 unchanged sentences

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 Income (Loss) .

At June 30, 2022 , the outstanding Private Placement Warrants was determined using their redemption value 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 2 financial instruments as of June 30, 2022 .

There were no Public Warrants outstanding as of June 30, 2022.

At September 30, 2022 , the outstanding Private Placement Warrants was determined using their redemption value 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 2 financial instruments as of September 30, 2022 .

There were no Public Warrants outstanding as of September 30, 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.

5 unchanged sentences

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

As of June 30, 2022, the Company had approximately 7 million Private Placement Warrants outstanding.

As of September 30, 2022, the Company had approximately 7 million Private Placement Warrants outstanding.

Note 8 – Property and Equipment, net

1 unchanged sentence

(in thousands) Useful life

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Furniture and fixtures 2 - 7

10 unchanged sentences

Property and equipment, net $ 18,099 $ 16,183

During the three and nine months ended September 30, 2022, the Company recorded a loss on the disposal of property and equipment, net of $ 1.8 million.

The loss on disposal of property and equipment, net was recorded in the condensed consolidated statements of comprehensive income (loss) primarily in general and administrative expense.

Depreciation expense was as follows for the periods indicated:

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

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

(in thousands) 2022 2021 2022 2021

4 unchanged sentences

Note 9 – Goodwill and Intangible Assets, net

The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of June 30, 2022 were as follows:

The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of September 30, 2022 were as follows:

(in thousands) Gross

9 unchanged sentences

Total intangible assets $ 110,815 $ ( 64,190 ) $ 46,625

During the three and nine months ended September 30, 2022, the Company recorded a loss on the disposal of intangible assets of $ 2.9 million.

The loss on disposal of intangible assets was recorded in the condensed consolidated statements of comprehensive income (loss) primarily in general and administrative expense.

The gross carrying amount and accumulated amortization of the Company’s intangible assets, net, as of December 31, 2021 were as follows:

11 unchanged sentences

Amortization expense was as follows for the periods indicated:

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

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

(in thousands) 2022 2021 2022 2021

4 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2022 2021

4 unchanged sentences

The measurement period adjustments include a $ 0.2 million increase due to adjustment of acquisition date tax liability for Ecomedic and a $ 1.98 million increase due to contingent consideration paid to former owner of Sidermica during the six months ended June 30, 2022 .

The Company finalized the valuation of assets acquired and liabilities assumed for the Ecomedic acquisition and all other distributor acquisitions as of June 30, 2022

Note 10 – Long-term Debt

3 unchanged sentences

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 June 30, 2022 the Credit Agreement remains undrawn and there is no outstanding balance under the revolving credit facility.

As of September 30, 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.

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.

As of June 30, 2022 the Company was in compliance with all restricted and financial covenants.

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.

As of September 30, 2022 the Company was in compliance with all restricted and financial covenants.

The leverage ratio also determines pricing under the Credit Agreement.

3 unchanged sentences

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 June 30, 2022 the Company’s unused commitment rate was 0.25 %.

As of September 30, 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.

18 unchanged sentences

In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

The conversion price as of September 30, 2022 was $ 31.76 per share of common stock.

The Notes are redeemable, in whole or in part (subject to certain limitations described below), at the Company’s option at any time, and from time to time, on or after October 6, 2024, and on or before the 40 th scheduled trading day immediately before the maturity date, but only if certain liquidity conditions are satisfied and the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice;

and (ii) the trading day immediately before the date the Company sends such notice.

However, the Company may not redeem less than all of the outstanding notes unless at least $ 100.0 million aggregate principal amount of notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice.

However, the Company may not redeem less than all of the outstanding notes unless at least $ 100.0 million aggregate

principal amount of notes are outstanding and not called for redemption as of the time the Company sends the related redemption notice.

The redemption price will be a cash amount equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

16 unchanged sentences

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 six months ended June 30, 2022, the Company recognized $ 1.1 million and $ 2.1 million in interest expense related to the amortization of the debt issuance costs related to the Notes, respectively.

There was no such expense related to the Notes in the three and six months ended June 30, 2021.

The following is a summary of the Company’s Notes as of June 30, 2022:

During the three and nine months ended September 30, 2022, the Company recognized $ 1.1 million and $ 3.2 million in interest expense related to the amortization of the debt issuance costs related to the Notes, respectively.

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.

The following is a summary of the Company’s Notes as of September 30, 2022:

(in thousands) Principal Amount Unamortized Issuance Costs Net Carrying

2 unchanged sentences

$ 750,000 $ 16,914 $ 733,086 $ 603,750 Level 2

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

As of June 30, 2022, the estimated fair value of the Notes was approximately $ 602 million.

The estimated fair value of the Notes was determined based on the actual bid price of the Notes on June 30, 2022.

As of June 30, 2022, the remaining life of the Notes is approximately 4.3 years.

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, 2022, the estimated fair value of the Notes was approximately $ 604 million.

The estimated fair value of the Notes was determined based on the actual bid price of the Notes on September 30, 2022.

As of September 30, 2022, the remaining life of the Notes is approximately 4.0 years.

Capped Call Transactions

11 unchanged sentences

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

Defer red financing costs expense prior to the Closing of the Business Combination for the three and six months ended June 30, 2021 amounted to $ 0.1 million and $ 0.5 million and is included in Interest expense, net on the Company’s Consolidated Statements of Comprehensive Income (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 Closing of the Business Combination while issuance costs for the Notes amounted to $ 0.2 million.

Note 11 – Income Taxes

The income tax expense for the three months and six months ended June 30, 2022 is $ 0.1 million and $ 2.7 million, respectively

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

The effective tax rate for the three and six months ended June 30, 2022 is 0.95 % and 6.24 %, which is lower than the federal statutory rate of 21.0% primarily due to the exclusion of book income from the revaluation of warrant liabilities and adjustments for various non-deductible expenses for officer’s compensation and meals and entertainment.

The effective tax rate for the three and six months ended June 30, 2021 is 1.32 % and 1.50 %, which is lower than the federal statutory rate of 21.0% primarily due to the increase in valuation allowance 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.

The income tax (benefit) expense for the three months and nine months ended September 30, 2022 is $( 0.8 ) million and $ 1.9 million, respectively

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

The effective tax rate for the three and nine months ended September 30, 2022 is 119.12 % and ( 4.41 %), compared to the federal statutory rate of 21.0%, is primarily due to the exclusion from taxable income of book income from the revaluation of warrant liabilities and adjustments for various non-deductible expenses for officer’s compensation and meals and entertainment.

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

The Company has established a valuation allowance in the U.S.

and Singapore against a portion of its deferred income 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 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 $ 0.2 million and $ 0.1 million for the six months ended June 30, 2022 and June 30, 2021, respectively.

The Company has gross unrecognized tax benefits of $ 0.1 million and $ 0.2 million as of September 30, 2022 and December 31, 2021, respectively.

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

1 unchanged sentence

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

The Inflation Reduction Act, signed into law on August 16, 2022, provides tax incentives for certain industries and imposes a 15% minimum tax on the book income of certain large corporations and a 1% excise tax on stock buybacks.

The Company may be subject to the new excise tax on certain stock buybacks that occur after December 31, 2022.

The Company does not anticipate a material impact from the Inflation Reduction Act on the Company's condensed consolidated financial statements.

Note 12 – Equity-Based Compensation

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

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

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

(in thousands) 2022 2021 2022 2021

5 unchanged sentences

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

The following table summarizes the Company’s equity award activity for the six months ended June 30, 2022:

The following table summarizes the Company’s equity award activity for the nine months ended September 30, 2022:

Weighted Average Grant Date Fair Value

5 unchanged sentences

Forfeited ( 388,691 ) ( 209,738 ) 15.31 14.30

Outstanding - June 30, 2022

Outstanding - September 30, 2022

2,529,208 2,394,657 14.74 9.58

The following table summarizes the Company’s stock option activity for the six months ended June 30, 2022:

The following table summarizes the Company’s stock option activity for the nine months ended September 30, 2022:

Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value

3 unchanged sentences

Granted 10,500 22.68

Exercised — —

Unvested Forfeited ( 951,500 ) 18.43

Outstanding - June 30, 2022

Vested Expired ( 39,050 ) 14.53

Outstanding - September 30, 2022

5,804,970 $ 15.20 8.67 $ —

Options Exercisable 1,293,800 $ 13.79 8.58 $ —

Options vested and expected to vest - June 30, 2022 5,981,670 $ 15.36 8.89 $ ( 14,967 )

Options vested and expected to vest - September 30, 2022 5,804,970 $ 15.20 8.67 $ —

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 June 30, 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.

As of September 30, 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 June 30, 2022, the Company had no customers that accounted for 10% or more of the Accounts receivable balance.

As of September 30, 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 and six months ended June 30, 2022 and June 30, 2021.

No single customer accounted for 10% or more of consolidated Net sales during the three and nine months ended September 30, 2022 and September 30, 2021.

Note 15 – Related-Party Transactions

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Pursuant to the Registration Rights Agreement, the Sponsor agreed to restrictions on the transfer of their securities issued in the Company’s initial public offering, which (i) in the case of the Founder Shares is one year after the completion of the Business Combination unless (A) the closing price of the common stock equals or exceeds $ 12.00 per share for 20 days out of any 30 -trading-day period commencing at least 150 days following the Closing of the Business Combination or (B) the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property, and (ii) in the case of the Private Placement Warrants and the respective Class A Common Stock underlying the Private Placement Warrants is 30 days after the completion of the Business Combination.

The Sponsor and its permitted transferees will also be required, subject to the terms and conditions in the Registration Rights Agreement, not to transfer their Private Placement Warrants (as defined in the Registration Rights Agreement) or shares of common stock issuable upon the exercise thereof for 30 days following the Closing.

The Sponsor and its permitted transferees will also be required, subject to the terms and conditions in the Registration Rights Agreement, not to transfer their Private

Placement Warrants (as defined in the Registration Rights Agreement) or shares of common stock issuable upon the exercise thereof for 30 days following the Closing.

Investor Rights Agreement

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

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 approximately $ 0.1 million of charges related to management services fees for th e six months ended June 30, 2021.

There were no management fees during the three and six months ended June 30, 2022.

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

Hydrafacial recorded approximately $ 0.2 million of charges related to management services fees for th e nine months ended September 30, 2021.

There were no management fees during the three and nine months ended September 30, 2022.

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

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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.

Expense for this property was not material for the six months ended June 30, 2022.

No such expenses existed for the six months ended June 30, 2021 .

Note 16 - Stockholders’ Deficit

Expense for this property was not material for the nine months ended September 30, 2022.

No such expenses existed for the nine months ended September 30, 2021 .

Note 16 - Stockholders’ Equity

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

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

As of June 30, 2022 and December 31, 2021, there were 150,855,025 and 150,598,047 , respectively, of Class A Common Stock issued and outstanding.

As of September 30, 2022 and December 31, 2021, there were 143,201,041 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 also issued 35,501,743 shares of Class A Common Stock as partial compensation to the Hydrafacial Stockholders for the Business Combination.

Common Stock Repurchases

On September 26, 2022, the Company’s board of directors approved a common stock repurchase program pursuant to which the Company may repurchase up to $ 200 million of its outstanding shares of Class A Common Stock.

Under the share repurchase program, repurchases can be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions, or accelerated share repurchase programs.

On September 27, 2022, the Company entered into an accelerated share repurchase agreement with a financial institution to repurchase a total of $ 100 million of Class A Common Stock.

The Company made a payment of $ 100 million and in turn, received an initial delivery of approximately 7.7 million shares, which represented 80 % of the payment amount divided by the Company’s closing stock price on September 26, 2022 and were immediately retired.

The total number of shares that will be received under the accelerated share repurchase agreement will be based upon the average daily volume weighted average price of our Class A Common Stock during the repurchase period, less an agreed upon discount.

The final settlement of the accelerated repurchase agreement may occur between November 28, 2022 and February 28, 2023.

The accelerated share repurchase agreement is accounted for as a repurchase and retirement of shares and as an equity forward contract indexed to the Company’s Class A Common Stock.

The equity forward contract is classified as an equity instrument under ASC 815 - 40, Contracts in Entity's Own Equity ("ASC 815 - 40").

The par value of the initial shares received is recorded as a reduction to the Company’s Class A Common Stock and the excess of par value is recognized as a reduction to additional paid in capital.

The equity forward stock purchase contract is classified as an equity instrument and is recognized as a reduction to additional paid in capital.

The initial delivery of approximately 7.7 million shares reduced the number of Class A Common Stock outstanding on the transaction date and, as a result, reduced the weighted average number of Class A Common Stock outstanding used to calculate basic income per share and diluted income per share for the three and nine month periods ended September 30, 2022.

The Company performed analysis of the average of the daily volume-weighted average price of our Class A Common Stock since the transaction date and has determined, as of September 30, 2022, that the final settlement of shares of Class A Common Stock under the accelerated share repurchase agreement is anti-dilutive and therefore excluded from the calculation of diluted earnings per share.

Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $ 0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors.

At June 30, 2022 and December 31, 2021 , there were no shares of preferred stock issued or outstanding.

At September 30, 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 June 30, Six Months Ended June 30,

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

(in thousands) 2022 2021 2022 2021

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Total net sales $ 88,792 $ 68,147 $ 267,743 $ 182,197

As of June 30, 2022 and December 31, 2021 substantially all of the Company’s property, plant and equipment were held in the United States.

As of September 30, 2022 and December 31, 2021 substantially all of the Company’s property and equipment were 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 June 30, Six Months Ended June 30,

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

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

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$ 131 $ ( 215,145 ) $ 40,569 $ ( 357,797 )

Income on Private placement warrants ( 15,185 ) — ( 67,237 ) —

Income (loss) on Private placement warrants ( 4,284 ) — ( 71,521 ) —

Net income (loss) available to common shareholders - diluted $ ( 4,153 ) $ ( 215,145 ) $ ( 30,952 ) $ ( 357,797 )

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Diluted net income (loss) per share $ ( 0.03 ) $ ( 1.63 ) $ ( 0.20 ) $ ( 4.10 )

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

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

The following shares have been excluded from the calculation of the weighted average diluted shares outstanding as the effect would have been anti-dilutive or requisite performance conditions were not met:

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

2022 2021 2022 2021

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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