UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
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For the quarter ended March 31, 2021
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For the transition period from to
Commission file number: 001-39565
The Beauty Health Company
(Exact Name
| Delaware | 85-1908962 | |||||||
| (State or other jurisdiction of
| (I.R.S. Employer Identification No.) | |||||||
2165 Spring Street
Long Beach, CA 90806
(Address of principal executive offices)
(800) 603-4996
(Issuer’s telephone number)
2165 Spring Street Long Beach, CA 90806 | (800) 603-4996 | |||||||
| (Address of principal executive offices, including zip code) | Registrant's telephone number, including area code | |||||||
Title of each class | Trading | Name of each exchange | ||||||||||||
| Class A Common Stock, par value $0.0001 per share | SKIN | The Nasdaq | ||||||||||||
Check
☐
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||
| Emerging growth company | ☐ | |||||||||||||||
i
EXPLANATORY NOTE
| March 31, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 859,237 | $ | 901,886 | |||||||
| 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 and other current assets | 13,554 | 12,322 | |||||||||
| Income tax receivable | 1,801 | 4,599 | |||||||||
| Inventories | 47,033 | 35,261 | |||||||||
| Total current assets | 982,394 | 1,000,892 | |||||||||
| 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 income tax assets, net | 330 | 330 | |||||||||
| Other assets | 8,026 | 6,705 | |||||||||
| TOTAL ASSETS | $ | 1,199,178 | $ | 1,218,806 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 26,962 | $ | 29,049 | |||||||
| Accrued payroll-related expenses | 21,383 | 28,662 | |||||||||
| Other accrued expenses | 12,419 | 14,722 | |||||||||
| Lease liabilities, current | 3,969 | 3,712 | |||||||||
| Income tax payable | 4,197 | 292 | |||||||||
| Total current liabilities | 68,930 | 76,437 | |||||||||
| Other long-term liabilities | 11 | — | |||||||||
| Lease liabilities, non-current | 12,032 | 12,781 | |||||||||
| Deferred income tax liabilities, net | 3,761 | 3,561 | |||||||||
| Warrant liabilities | 41,765 | 93,816 | |||||||||
| Convertible senior notes, net | 730,971 | 729,914 | |||||||||
| TOTAL LIABILITIES | 857,470 | 916,509 | |||||||||
| Commitments (Note 13) | 0 | 0 | |||||||||
| Stockholders’ equity: | |||||||||||
| Class A Common Stock, $0.0001 par value; 320,000,000 shares authorized; 150,603,231 and 150,598,047 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | 16 | 16 | |||||||||
| Preferred Stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding at March 31, 2022 and December 31, 2021 | — | — | |||||||||
| Additional paid-in capital | 729,299 | 722,250 | |||||||||
| Accumulated other comprehensive loss | (1,402) | (1,257) | |||||||||
| Accumulated deficit | (386,205) | (418,712) | |||||||||
| Total stockholders’ equity | 341,708 | 302,297 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,199,178 | $ | 1,218,806 | |||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||
| Net sales | $ | 75,415 | $ | 47,542 | |||||||||||||||||||||||||
| Cost of sales | 23,478 | 15,802 | |||||||||||||||||||||||||||
| Gross profit | 51,937 | 31,740 | |||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Selling and marketing | 36,407 | 17,095 | |||||||||||||||||||||||||||
| Research and development | 2,230 | 1,452 | |||||||||||||||||||||||||||
| General and administrative | 26,261 | 10,811 | |||||||||||||||||||||||||||
| Total operating expenses | 64,898 | 29,358 | |||||||||||||||||||||||||||
| (Loss) income from operations | (12,961) | 2,382 | |||||||||||||||||||||||||||
| Other (income) expense: | |||||||||||||||||||||||||||||
| Interest expense, net | 3,400 | 5,699 | |||||||||||||||||||||||||||
| Other expense, net | 937 | 7 | |||||||||||||||||||||||||||
| Change in fair value of warrant liabilities | (52,052) | — | |||||||||||||||||||||||||||
| 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 expense (benefit) | 2,615 | (306) | |||||||||||||||||||||||||||
| Net income (loss) | $ | 32,507 | $ | (3,274) | |||||||||||||||||||||||||
| Comprehensive income (loss), net of tax: | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (145) | (5) | |||||||||||||||||||||||||||
| Comprehensive income (loss) | $ | 32,362 | $ | (3,279) | |||||||||||||||||||||||||
| Net income (loss) per share | |||||||||||||||||||||||||||||
| Basic | $ | 0.22 | $ | (0.09) | |||||||||||||||||||||||||
| Diluted | $ | (0.13) | $ | (0.09) | |||||||||||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||||||||
| Basic | 150,598,105 | 35,501,743 | |||||||||||||||||||||||||||
| Diluted | 152,711,698 | 35,501,743 | |||||||||||||||||||||||||||
| Legacy Common Stock | Legacy Preferred Stock | Common Stock | Additional Paid-in Capital | Note Receivable from Stockholder | Accumulated other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2020 | 54,358 | $ | — | 931 | $ | — | — | $ | — | $ | 13,956 | $ | (554) | $ | 242 | $ | (43,604) | $ | (29,960) | ||||||||||||||||||||||||||||||||||||||||||||||
| Retroactive application of recapitalization | (54,358) | — | (931) | — | 35,501,743 | 4 | (4) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted balance, beginning of period | — | — | — | — | 35,501,743 | 4 | 13,952 | (554) | 242 | (43,604) | (29,960) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | 34 | — | — | — | 34 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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) | ||||||||||||||||||||||||||||||||||||||||||||||
| 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 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 | ||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| 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 | |||||||||||||||
| Amortization of capitalized software | 404 | — | |||||||||||||||
| Provision for doubtful accounts | 229 | 19 | |||||||||||||||
| Amortization of right-of-use assets | 1,055 | — | |||||||||||||||
| Amortization of intangible assets | 3,174 | 2,921 | |||||||||||||||
| Amortization of other assets | 135 | 33 | |||||||||||||||
| Amortization of deferred financing costs | — | 394 | |||||||||||||||
| Stock-based compensation | 7,049 | 34 | |||||||||||||||
| 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 receivable | (14,152) | (8,457) | |||||||||||||||
| Prepaid expense and other current assets | (2,052) | (975) | |||||||||||||||
| Income taxes receivable | 3,342 | 217 | |||||||||||||||
| Inventory | (11,875) | 1,411 | |||||||||||||||
| Other assets | (1,587) | (1,182) | |||||||||||||||
| Accounts payable | (2,664) | 3,067 | |||||||||||||||
| Accrued payroll and other expenses | (8,252) | 5,018 | |||||||||||||||
| Other long-term liabilities | 11 | (81) | |||||||||||||||
| Lease liabilities | (954) | — | |||||||||||||||
| Income taxes payable | 3,909 | 86 | |||||||||||||||
| Net cash (used in) provided by operating activities | (38,471) | 1,261 | |||||||||||||||
| Cash flows used in investing activities: | |||||||||||||||||
| Capital expenditures for intangible assets | (276) | (170) | |||||||||||||||
| Capital expenditures for property and equipment | (3,149) | (818) | |||||||||||||||
| Net cash used in investing activities | (3,425) | (988) | |||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Payment of contingent consideration from acquisition of business | (783) | — | |||||||||||||||
| Proceeds from revolving facility | — | 5,000 | |||||||||||||||
| Repayment of term loan | — | (443) | |||||||||||||||
| 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) | |||||||||||||||
| Cash and cash equivalents, beginning of period | 901,886 | 9,486 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 859,237 | $ | 14,115 | |||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Supplemental disclosures of cash flow information and non-cash investing and financing activities: | |||||||||||||||||
| Cash paid for interest | $ | 5,130 | $ | 3,123 | |||||||||||||
| Cash received for income taxes | 3,645 | — | |||||||||||||||
| Capital expenditures included in accounts payable | 647 | 863 | |||||||||||||||
| Deferred unpaid offering costs | — | 2,203 | |||||||||||||||
The Company noted an error in its application of guidance associated with “ASC 480: Distinguishing Liabilities from Equity” which needed References to be modified“Vesper” refer to appropriately present the impact on the accounting treatment of the temporary equity as a result of the private investment in public equity transaction that is subject of the Subscription Agreements entered into by the Company with certain investors on December 8, 2021 (the “PIPE Investment”) in connection with the Company’s business combination with LCP Edge Intermediate, Inc., a Delaware corporation and indirect parent of Edge Systems LLC d/b/a The HydraFacial Company, and LCP Edge Holdco, LLC, as previously disclosed in the Company’s Form 10-K/A filed on May 27, 2021. This modification to the accounting treatment of equity required the Company’s common stock to be reclassified from permanent equity to temporary equity in the form of common stock subject to possible redemption. The Audit Committee, in consultation with the Company’s management, concluded that all Class A ordinary shares that were sold to the public in our IPO are to be classified as temporary equity, thereby correcting an error of classification within the Condensed Balance Sheet. In the financial statements filed in the Company’s Form 10-K/A, the Company incorrectly classified 8,351,205 Class A ordinary shares as permanent equity as of December 31, 2020, whereas no Class A ordinary shares should have been so classified. The 8,351,205 Class A ordinary shares that were originally incorrectly classified as permanent equity have been reclassified as temporary equity in this Form 10-Q, thereby yielding a total of 46,000,000 Class A ordinary shares (the shares sold to the public in our IPO, which are subject to redemption) as temporary equity. Further detail on the impact of the revision can be found in Note 10 of the Interim Financial Statements.
Item 1. Interim Financial Statements.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
| March 31, 2021 | December 31, 2020 | |||||||
| (Unaudited) | (As Revised) | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 2,753,154 | $ | 3,265,075 | ||||
Prepaid expenses | 595,589 | 638,013 | ||||||
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Total Current Assets | 3,348,743 | 3,903,088 | ||||||
Marketable securities held in Trust Account | 460,184,400 | 460,098,212 | ||||||
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TOTAL ASSETS | $ | 463,533,143 | $ | 464,001,300 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Accrued expenses | $ | 801,521 | $ | 753,547 | ||||
Accrued offering costs | 11,950 | 11,950 | ||||||
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Total Current Liabilities | 813,471 | 765,497 | ||||||
Warrant liability | 51,493,331 | 65,646,664 | ||||||
Deferred underwriting payable | 16,100,000 | 16,100,000 | ||||||
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Total Liabilities | 68,406,802 | 82,512,161 | ||||||
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Commitments | ||||||||
Class A common stock subject to possible redemption, 46,000,000 shares at redemption value as of March 31, 2021 and December 31, 2020, | 460,037,629 | 460,001,441 | ||||||
Stockholders’ Equity | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Class A common stock, $0.0001 par value; 200,000,000 shares authorized; none issued and outstanding (excluding 46,000,000 shares subject to possible redemption) as of March 31, 2021 and December 31, 2020 | — | — | ||||||
Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 11,500,000 shares issued and outstanding as of March 31, 2021 and December 31, 2020 | 1,150 | 1,150 | ||||||
Additional paid-in capital | 3,103,850 | 3,103,850 | ||||||
Accumulated deficit | (68,016,288 | ) | (81,617,302 | ) | ||||
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Total Stockholders’ Equity | (64,911,288 | ) | (78,512,302 | ) | ||||
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Total Liabilities and Stockholders’ Equity | $ | 463,533,143 | $ | 464,001,300 | ||||
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The accompanying notes are an integral part of the unaudited condensed financial statements.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2021
(UNAUDITED)
Formation and operating costs | $ | 602,319 | ||
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Loss from operations | (602,319 | ) | ||
Other income: | ||||
Interest earned on marketable securities held in Trust Account | 85,152 | |||
Unrealized gain on marketable securities held in Trust Account | 1,036 | |||
Change in fair value of warrants | 14,153,333 | |||
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Other income | 14,239,521 | |||
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Income before benefit from income taxes | 13,637,202 | |||
Benefit from income taxes | — | |||
Net income | $ | 13,637,202 | ||
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Basic and diluted weighted average shares outstanding, Common stock subject to possible redemption | 46,000,000 | |||
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Basic and diluted net income per share, Common stock subject to possible redemption | $ | 0.00 | ||
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Weighted average shares outstanding, basic and diluted | 11,500,000 | |||
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Basic and diluted net loss per common share | $ | 1.18 | ||
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The accompanying notes are an integral part of the unaudited condensed financial statements.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDER’S EQUITY
THREE MONTHS ENDED MARCH 31, 2021
(UNAUDITED)
| Class B Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||
| Shares | Amount | |||||||||||||||||||
Balance – January 1, 2021 | 11,500,000 | $ | 1,150 | $ | 3,103,850 | $ | (81,617,302 | ) | $ | (78,512,302 | ) | |||||||||
Change in value of Class A common stock subject to possible redemption | — | — | — | (36,188 | ) | (36,188 | ) | |||||||||||||
Net income | — | — | — | 13,637,202 | 13,637,202 | |||||||||||||||
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Balance – March 31, 2021 | 11,500,000 | $ | 1,150 | $ | 3,103,850 | $ | (68,016,288 | ) | $ | (64,911,288 | ) | |||||||||
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The accompanying notes are an integral part of the unaudited condensed financial statements.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2021
(UNAUDITED)
Net income | $ | 13,637,202 | ||
Adjustments to reconcile net income to net cash used in operating activities: | ||||
Change in fair value of warrant liability | (14,153,333 | ) | ||
Interest earned on marketable securities held in Trust Account | (85,152 | ) | ||
Unrealized gain on marketable securities held in Trust Account | (1,036 | ) | ||
Changes in operating assets and liabilities: | ||||
Prepaid expenses | 42,424 | |||
Accrued expenses | 47,974 | |||
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Net cash used in operating activities | (511,921 | ) | ||
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Net Change in Cash | (511,921 | ) | ||
Cash – Beginning of period | 3,265,075 | |||
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Cash – End of period | $ | 2,753,154 | ||
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Non-Cash investing and financing activities: | ||||
Change in value of Class A common stock subject to possible redemption | $ | 36,188 | ||
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The accompanying notes are an integral part of the unaudited condensed financial statements.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
The Beauty Health Company (formerly known as Vesper Healthcare Acquisition Corp.) (the “Company”) was incorporated in Delaware on July 8, 2020. The Company was formed for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
Merger and PIPE Investment
On May 4, 2021 (the “Closing Date”), the registrant consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated December 8, 2020, by and among Vesper Healthcare Acquisition Corp. (“Vesper Healthcare”), Hydrate Merger Sub I, Inc. (“Merger Sub I”), Hydrate Merger Sub II, LLC (“Merger Sub II”), LCP Edge Intermediate, Inc.,prior to the indirect parent of Edge Systems LLC d/b/a The HydraFacial Company (“HydraFacial”), and LCP Edge Holdco, LLC (“LCP,” and, in its capacity as the stockholders’ representative, the “Stockholders’ Representative”) (the “Merger Agreement”), which provided for: (a) the merger of Merger Sub I with and into HydraFacial, with HydraFacial continuing as the surviving corporation (the “First Merger”), and (b) immediately following the First Merger and as part of the same overall transaction as the First Merger, the merger of HydraFacial with and into Merger Sub II, with Merger Sub II continuing as the surviving entity (the “Second Merger” and, together with the First Merger, the “Mergers” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). As a result of the First Merger, the registrant owns 100% of the outstanding common stock of HydraFacial and each share of common stock and preferred stock of HydraFacial has been cancelled and converted into the right to receive a portion of the consideration payable in connection with the Mergers. As a result of the Second Merger, the registrant owns 100% of the outstanding interests in Merger Sub II. In connection with the closingconsummation of the Business Combination (the “Closing”), the registrant owns, directly or indirectly, 100% of the stock of HydraFacialCombination.
Pursuantvirus and institute restrictions on commercial operations, while simultaneously implementing policies designed to the terms of the Merger Agreementreopen certain markets, we are working to ensure our compliance and customary adjustments set forth therein, the aggregate merger consideration paid to the HydraFacial Stockholders in connection with the Business Combination was approximately $975,000,000 less HydraFacial’s net indebtedness as of the Closing Date, and subject to further adjustmentsmaintain business continuity for transaction expenses, and net working capital relative to a target.essential operations. The merger consideration included both cash consideration and consideration in the form of newly issued Class A Stock. The aggregate cash consideration paid to the HydraFacial Stockholders at the Closing was approximately $368 million, consisting of the Company’s cash and cash equivalents as of the Closing (including proceeds of $350 million from the Company’s private placement of an aggregate of 35,000,000 shares of Class A Stock (the “Private Placement”) with a limited number of accredited investors (as defined by Rule 501 of Regulation D) without any form of general solicitation or general advertising pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and approximately $433 million of cash available to the Company from the trust account that held the proceeds from the Company’s initial public offering (the “Trust Account”) after giving effect to income and franchise taxes payable in respect of interest income earned in the Trust Account and redemptions that were elected by the Company’s public stockholders, minus approximately $224 million used to repay HydraFacial’s outstanding indebtedness at the Closing, minus approximately $94 million of transaction expenses of HydraFacial and the Company, minus $100 million. The remainder of the consideration paid to the HydraFacial Stockholders consisted of 35,501,743 newly issued shares of Class A Stock (the “Stock Consideration”).
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The foregoing consideration paid to the HydraFacial Stockholders may be further increased by up to $75.0 million payable as earn-out shares of Class A Stock upon the completion of certain acquisitions within one year of Closing pursuant to the terms of the Merger Agreement.
All outstanding shares of Class B Stock were automatically converted into shares of Class A 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 Class B Stock.
In connection with the Merger Agreement, certain accredited investors (the “PIPE Investors”) entered into subscription agreements (the “PIPE Subscription Agreements”) pursuantextent to which the PIPE Investors agreed to purchase 35,000,000 shares (the “PIPE Shares”)COVID-19 pandemic impacts our business going forward will depend on numerous factors we cannot reliably predict, including the duration and scope of The Beauty Health Company Class A Common Stock at a purchase price per share of $10.00the pandemic; businesses and an aggregate purchase price of $350,000,000 (the “PIPE Investment”). The PIPE Investment was consummated substantially concurrently with the Closing.
In connection with the Closing, holders of 2,672,690 shares of Class A Stock exercised their rights to redeem those shares for cash at an approximate price of $10.00 per share, for an aggregate of approximately $26,737,737, which was paid to such holders at Closing.
Immediately after giving effectindividuals’ actions in response to the Mergerpandemic; and the PIPE Investment, there were 125,329,053 sharesimpact on economic activity including the possibility of The Beauty Health Company Class A Common Stock.
In connection with the Closing, the registrant changed its name from “Vesper Healthcare Acquisition Corp.” to “The Beauty Health Company”.
Business Prior to the Business Combination
Prior to the Business Combination, the Company had two subsidiaries, Hydrate Merger Sub I, Inc., a wholly owned subsidiaryrecession or financial market instability.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
Transaction costs amounted to $25,777,859 consisting of $9,200,000 of underwriting fees, $16,100,000 of deferred underwriting fees and $477,859 of other offering costs.
Liquidity
As of March 31, 2021, the Company had $2,753,154 in its operating bank accounts, $460,184,400 in securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem its ordinary shares in connection therewith and current liabilities of $813,471.
Until the consummation of a Business Combination, the Company used the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring, negotiating and consummating the Business Combination.
As noted above (Merger and PIPE Investment), on May 4, 2021, the Company consummated the Merger and the PIPE investment.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BasisPresentationThe accompanying unaudited condensedSignificant Accounting Policieshave been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K/A as10-K filed with the SEC on May 27, 2021. The interim results forMarch 1, 2022. three months ended March 31, 2021 are not necessarily indicative of the results to be expected for period ended December 31, 2021 or for any future periods.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The 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.
Use of Estimates
The preparation of the condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of March 31, 2021 and December 31, 2020.
Marketable Securities Held in Trust Account
At March 31, 2021 and December 31, 2020, substantially all of the assets held in the Trust Account were held in U.S. Treasury Bills. The Company accounts for its securities held in the trust account in accordance with
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
the guidance in Accounting Standards Codification (“ASC”) Topic 320 “Debt and Equity Securities.” These securities are classified as trading securities with unrealized gains/losses recognized through income.
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s consolidated balance sheets.
Warrant Liability
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) issued Accounting Standards CodificationUpdate (“ASC”ASU”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexedASU 2021-08, Business Combinations (Topic 805), which primarily relates to the Company’s own common sharesaccounting for contract assets and whether the warrant holders could potentially require “net cash settlement”contract liabilities from contracts with customers in a circumstance outside of the Company’s control, among other conditionsbusiness combination. The standard will be effective for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair value of the warrants issued in the IPO has been estimated using a Monte Carlo simulation methodology as of the date of the IPO and such warrants’ quoted market price as ofannual reporting periods beginning after December 31, 2020 and March 31, 2021. The private placement warrants were valued using a Monte Carlo simulation methodology.
Income Taxes
The Company follows2022, including interim reporting periods within those periods, with early adoption permitted. We are currently evaluating the asset and liability methodimpact of adopting this new accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Net Income Per Common Share
Net income (loss) per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. The Company has not considered the effect of the warrants sold in the Public Offering and Private Placement to purchase an aggregate of 24,666,666 shares in the calculation of diluted loss per share, since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
The Company’s statement of operations includes a presentation of income (loss) per share for common shares subject to possible redemption in a manner similar to the two-class method of income (loss) per share. Net income (loss) per common share, basic and diluted, for Common stock subject to possible redemption is calculated by dividing the proportionate share of income or lossguidance on marketable securities held by the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Common stock subject to possible redemption outstanding since original issuance.
Net loss per share, basic and diluted, for non-redeemable common stock is calculated by dividing the net income (loss), adjusted for income or loss on marketable securities attributable to Class A common stock subject to possible redemption, by the weighted average number of non-redeemable common stock outstanding for the period.
Non-redeemable common stock includes Founder Shares and non-redeemable Class A shares as these shares do not have any redemption features. Non-redeemable common stock participates in the income or loss on marketable securities based on Class A non-redeemable share’s proportionate interest.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, except per share amounts):
| For the Three Months ended March 31, 2021 | ||||
Common stock subject to possible redemption | ||||
Numerator: Earnings allocable to Common stock subject to possible redemption | ||||
Interest earned on marketable securities held in Trust Account | $ | 72,209 | ||
Unrealized gain on marketable securities held in Trust Account | 878 | |||
Less: Company’s portion available to pay taxes | (42,400 | ) | ||
|
| |||
Net Income allocable to shares subject to redemption | $ | 30,687 | ||
|
| |||
Denominator: Weighted Average Class A common stock subject to possible redemption | ||||
Basic and diluted weighted average shares outstanding | 46,000,000 | |||
|
| |||
Basic and diluted net income per share | $ | 0.00 | ||
|
| |||
Non-Redeemable Common Stock | ||||
Numerator: Net income minus Net Earnings | ||||
Net income | $ | 13,637,202 | ||
Less: Net income allocable to Class A common stock subject to possible redemption | (30,687 | ) | ||
|
| |||
Non-Redeemable Net Income | $ | 13,606,515 | ||
|
| |||
Denominator: Weighted Average Non-Redeemable Common Stock | ||||
Basic and diluted weighted average shares outstanding | 11,500,000 | |||
|
| |||
Basic and diluted net income per share | $ | 1.18 | ||
|
| |||
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the condensed 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
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
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; and
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.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensedour consolidated financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 46,000,000 Units, which includes the full exercise by the underwriters of their option to purchase an additional 6,000,000 Units, at a purchase price of $10.00 per Unit. Each Unit consists of one share of Class A common stock and one-third of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (see
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 9,333,333 Private Placement Warrants at a price of $1.50 per private Placement Warrant, for an aggregate purchase price of $14,000,000. Each Private Placement Warrant is exercisable to purchase one share of Class A common stock at a price of $11.50 per share. The proceeds from the Private Placement Warrants were added to the proceeds from the Initial Public Offering held in the Trust Account.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On August 5, 2020, the Company issued an aggregate of 11,500,000 shares of Class B common stock (the “Founder Shares”) to the Sponsor for an aggregate purchase price of $25,000 in cash. The Founder Shares included an aggregate of up to 1,500,000 shares of Class B common stock subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment option was not exercised in full or in part, so that the Sponsor would own, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering). As a result of the underwriter’s election to fully exercise its over-allotment option, 1,500,000 Founder Shares are no longer subject to forfeiture.
The Sponsor has agreed that, subject to certain limited exceptions, the Founder Shares will not be transferred, assigned, sold or released from escrow until the earlier of (A) one year after the completion of a
Due from Sponsor
At the closing of the Initial Public Offering on October 2, 2020, a portion of the proceeds from the sale of the Private Placement Warrants in the amount of $4,800,000 was due to the Company to be held outside of the Trust Account for working capital purposes. Such amount was paid by the Sponsor to the Company on October 6, 2020.
Advances from Related Party
The Sponsor paid for certain offering costs on behalf of the Company in connection with the Initial Public Offering. The outstanding balance of $229,886 under these advances was repaid subsequent to the closing of the Initial Public Offering, on October 6, 2020.
Promissory Note — Related Party
On July 23, 2020, the Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to which the Company could borrow up to an aggregate principal amount of $300,000. Reverse Recapitalization
Administrative Support Agreement
The Company entered into an agreement, commencing on September 30, 2020 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay an affiliate of the Company’s
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
Chief Executive Officer, a total of up to $10,000 per month for office space and administrative support services. For the three months ended March 31, 2021, the Company incurred and paid $30,000 in fees for these services.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s directors and officers may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into warrants of the post-Business Combination entity at a price of $1.50 per warrant. The warrants would be identical to the Private Placement Warrants.
NOTE 6. COMMITMENTS
Registration and Stockholder Rights Agreement
Pursuant to a registration and stockholder rights agreement entered into on September 29, 2020, the holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants issued upon conversion of the Working Capital Loans) are entitled to registration rights. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to consummation of a Business Combination. However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lockup period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $16,100,000 in the aggregate. Subject to the terms of the underwriting agreement, (i) the deferred fee will be placed in the Trust Account and released to the underwriters only upon the completion of a Business Combination and (ii) the deferred fee will be waived by the underwriters in the event that the Company does not complete a Business Combination. The deferred fee was paid upon completion of the Business Combination described in Note 1.
Merger Agreement
On May 4, 2021 (the “Closing Date”), the registrant consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated December 8, 2020, by and among
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
Vesper Healthcare Acquisition Corp. (“Vesper Healthcare”), Hydrate Merger Sub I, Inc. (“Merger Sub I”), Hydrate Merger Sub II, LLC (“Merger Sub II”), LCP Edge Intermediate, Inc., the indirect parent of Edge Systems LLC d/b/a The HydraFacial Company (“HydraFacial”), and LCP Edge Holdco, LLC (“LCP,” and, in its capacity as the stockholders’ representative, the “Stockholders’ Representative”) (the “Merger Agreement”), which provided for: (a) the merger of Merger Sub I with and into HydraFacial, with HydraFacial continuing as the surviving corporation (the “First Merger”), and (b) immediately following the First Merger and as part of the same overall transaction as the First Merger, the merger of HydraFacial with and into Merger Sub II, with Merger Sub II continuing as the surviving entity (the “Second Merger” and, together with the First Merger, the “Mergers” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). As a result of the First Merger, the registrant owns 100% of the outstanding common stock of HydraFacial and each share of common stock and preferred stock of HydraFacial has been cancelled and converted into the right to receive a portion of the consideration payable in connection with the Mergers. As a result of the Second Merger, the registrant owns 100% of the outstanding interests in Merger Sub II. In connection with the closing of the Business Combination (the “Closing”), the registrant 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 Class A Common Stock, par value $0.0001 per share, of the registrant (the “Class A Stock”).
Pursuant to the terms of the Merger Agreement and customary adjustments set forth therein, the aggregate merger consideration paid to the HydraFacial Stockholders inoccurred on May 4, 2021. In connection with the Business Combination was approximately $975,000,000 less HydraFacial’s net indebtedness as of the Closing Date, and subject to further adjustments for transaction expenses, and net working capital relative to a target. The merger consideration included both cash consideration and consideration in the form of newly issued Class A Stock. The aggregate cash consideration paid to the HydraFacial Stockholders at the Closing was approximately $368 million, consisting of the Company’s cash and cash equivalents as of the Closing (including proceeds of $350 million from the Company’s private placement of an aggregate of 35,000,000 shares of Class A Stock (the “Private Placement”) with a limited number of accredited investors (as defined by Rule 501 of Regulation D) without any form of general solicitation or general advertising pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and approximately $433 million of cash available to the Company from the trust account that held the proceeds from the Company’s initial public offering (the “Trust Account”) after giving effect to income and franchise taxes payable in respect of interest income earned in the Trust Account and redemptions that were elected by the Company’s public stockholders, minus approximately $224 million used to repay HydraFacial’s outstanding indebtedness at the Closing, minus approximately $94 million of transaction expenses of HydraFacial and the Company, minus $100 million. The remainder of the consideration paid to the HydraFacial Stockholders consisted of 35,501,743 newly issued shares of Class A Stock (the “Stock Consideration”).
The foregoing consideration paid to the HydraFacial Stockholders may be further increased by up to $75.0 million payable as earn-out shares of Class A Stock upon the completion of certain acquisitions within one year of Closing pursuant to the terms of the Merger Agreement.
All outstanding shares of Class B Stock were automatically converted into shares of Class A 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 Class B Stock.
In connection with the Merger Agreement, certainCombination:
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
purchase 35,000,000 shares (the “PIPE Shares”) of The Beauty Health Companythe Company’s Class A Common Stock at a purchase price per share of $10.00 andfor an aggregate purchase price of $350,000,000$350.0 million (the “PIPE Investment”). The PIPE Investment was consummated substantially concurrently with the Closing.
Closing of the Business Combination.
In connection with the Closing, the registrant changed its name from “Vesper Healthcare Acquisition Corp.” to “The Beauty Health Company”.
NOTE 7. STOCKHOLDER’S EQUITY
Preferred Stock—The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At March 31, 2021 and December 31, 2020, there were no shares of preferred stock issued or outstanding.
Class A Common Stock—The Company is authorized to issue 200,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of Class A common stock are entitled to one vote for each share. At March 31, 2021 and December 31, 2020, there were no shares of Class A common stock issued or outstanding, excluding 46,000,000 shares of Class A common stock subject to possible redemption.
Class B Common Stock—The Company is authorized to issue 20,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of Class B common stock are entitled to one vote for each share. At March 31, 2021 and December 31, 2020, there were 11,500,000 shares of Class B common stock issued and outstanding.
Holders of Class B common stock will have the right to elect all of the Company’s directors prior to a Business Combination. Holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders except as required by law.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
NOTE 8. WARRANT LIABILITY
Warrants—Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercisedistributor of the Public Warrants. 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,
The Company will not be obligated to deliver any Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. No warrant will be exercisable and the Company will not be obligated to issue a share of Class A common stock upon exercise of a warrant unless the share of Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities lawsbusiness reputation of the state of residence ofacquired company in the registered holder of the warrants.
marketplace and its assembled workforce. The Company has agreed that as soon as practicable, but in no event later than twenty business days after the closing of a Business Combination, the Company will use its commercially reasonable efforts to file with the SEC a registration statementgoodwill is not deductible for income tax purposes. The transaction costs for the registration, under the Securities Act, of the Class A common stock issuable upon exercise of the warrants. acquisitions totaled $0.8 million.
Redemption of warrants when the price per share of Class A common stock equals or exceeds $18.00. Once the Public Warrants become exercisable, the Company may redeem the Public Warrants (except with respect to the Private Placement Warrants):
in whole and not in part;
at a price of $0.01 per warrant;
upon not less than 30 days’ prior written notice of redemption to each warrant holder; and
if, and only if, the reported last reported sale price of the Class A common stock for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders (the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like).
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if the Company are unable to register or qualify the underlying securities for sale under all applicable state securities laws. However, in this case, the Company will not redeem the warrants unless an effective registration statement under the Securities Act covering the Class A common stock issuable upon exercise of the warrants is effective and a current prospectus relating to those shares of our Class A common stock is available throughout the 30-day redemption period.
Redemption of warrants when the price per share of Class A common stock equals or exceeds $10.00. Once the Public Warrants become exercisable, the Company may redeem the Public Warrants:
in whole and not in part;
at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption; provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the fair market value of the Class A common stock;
if, and only if, the Reference Value equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like); and
if the Reference Value is less than $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above.
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, except as described below, the warrants will not be adjusted for issuance of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Periodacquisition and the Company liquidatescontinues to evaluate the funds heldunderlying 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 Trust Account, holdersprocess of warrants will not receive anyfinalizing the preliminary fair value allocations, and expects this to be completed during the second quarter of such funds2022.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securitiesperiods indicated:
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||||||||||||||
| Net Sales | |||||||||||||||||||||||||||||
| Delivery Systems | $ | 41,647 | $ | 25,672 | |||||||||||||||||||||||||
| Consumables | 33,768 | 21,870 | |||||||||||||||||||||||||||
| Total net sales | $ | 75,415 | $ | 47,542�� | |||||||||||||||||||||||||
| (in thousands) | March 31, 2022 | December 31, 2021 | |||||||||
| Raw materials | $ | 14,723 | $ | 12,024 | |||||||
| Finished goods | 32,310 | 23,237 | |||||||||
| Total inventories | $ | 47,033 | $ | 35,261 | |||||||
| (in thousands) | March 31, 2022 | December 31, 2021 | |||||||||
| Accrued compensation | $ | 7,482 | $ | 15,262 | |||||||
| Accrued payroll taxes | 1,805 | 922 | |||||||||
| Accrued benefits | 4,573 | 3,022 | |||||||||
| Accrued sales commissions | 7,523 | 9,456 | |||||||||
| Total accrued payroll-related expenses | $ | 21,383 | $ | 28,662 | |||||||
| (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 | |||||||
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
and the $10.00 and $18.00 per share redemption trigger prices will be adjusted (to the nearest cent) to be equal to 100% and 180% of the higher of the Market Value and the Newly Issued Price, respectively.
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants and the Class A common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
NOTE 9. FAIR VALUE MEASUREMENTS
|
|
|
Description | Level | March 31, 2021 | December 31, 2020 | |||||||||
Assets: | ||||||||||||
Marketable securities held in Trust Account | 1 | 460,184,400 | 460,098,212 | |||||||||
Liabilities: | ||||||||||||
Warrant Liability – Public Warrants | 1 | 31,893,332 | 40,633,332 | |||||||||
Warrant Liability – Private Placement Warrants | 3 | 19,599,999 | 25,013,332 | |||||||||
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCHvalue. 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, 2021
(Unaudited)
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 | ||||||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||||||||
| Money market funds | $ | 810,310 | $ | — | $ | — | $ | 810,310 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Warrant liability — Private Placement Warrants | — | — | 41,765 | 41,765 | ||||||||||||||||||||||
The Company establishedComprehensive Loss
Subsequently, the Warrants are measured at fair value on a recurring basis. The subsequent measurementgenerated from exercises of the Public Warrants as of December 31, 2020 is classified as Level 1 due to the use of an observable market quote in an active market.
The key inputs into the Monte Carlo simulation model for thewere $185.4 million. In addition, 0.3 million Private Placement Warrants atwere exercised in 2021 for total cash proceeds of $3.0 million.
| (in thousands) | Useful life (years) | March 31, 2022 | December 31, 2021 | ||||||||||||||
| Furniture and fixtures | 2-7 | $ | 4,327 | $ | 4,074 | ||||||||||||
| Computers and equipment | 3-5 | 4,839 | 4,010 | ||||||||||||||
| Machinery and equipment | 2-5 | 4,108 | 3,669 | ||||||||||||||
| Autos and trucks | 5 | 1,157 | 1,163 | ||||||||||||||
| Tooling | 5 | 1,708 | 1,389 | ||||||||||||||
| Leasehold improvements | Shorter of remaining lease term or estimated useful life | 8,096 | 5,086 | ||||||||||||||
| Total property and equipment | 24,235 | 19,391 | |||||||||||||||
| Less: accumulated depreciation and amortization | (9,803) | (8,561) | |||||||||||||||
| Construction in progress | 3,427 | 5,353 | |||||||||||||||
| Property and equipment, net | $ | 17,859 | $ | 16,183 | |||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||||||||||||||
| Cost of sales | $ | 414 | $ | 305 | |||||||||||||||||||||||||
| General and administrative | 479 | 385 | |||||||||||||||||||||||||||
| Selling and marketing | 523 | — | |||||||||||||||||||||||||||
| Total depreciation expense | $ | 1,416 | $ | 690 | |||||||||||||||||||||||||
| (in thousands) | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Estimated Useful Life (Years) | |||||||||||||||||||
| Trademarks | $ | 10,072 | $ | (3,611) | $ | 6,461 | 15 | ||||||||||||||||
| Non-compete agreement | 805 | (356) | 449 | 3 | |||||||||||||||||||
| Customer relationships | 18,629 | (5,095) | 13,534 | 5-10 | |||||||||||||||||||
| Developed technology | 70,900 | (47,267) | 23,633 | 8 | |||||||||||||||||||
| Patents | 2,146 | (320) | 1,826 | 3-19 | |||||||||||||||||||
| Capitalized software | 10,016 | (3,375) | 6,641 | 3-5 | |||||||||||||||||||
| Total intangible assets | $ | 112,568 | $ | (60,024) | $ | 52,544 | |||||||||||||||||
| Input | March 31, 2021 | |||
Risk-free interest rate | 0.92 | % | ||
Expected term (years) | 5.08 | |||
Expected volatility | 14.9 | % | ||
Exercise price | $ | 11.50 | ||
Fair value of Units | $ | 10.03 | ||
| (in thousands) | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Estimated Useful Life (Years) | |||||||||||||||||||
| 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 | |||||||||||||||||||
| Developed technology | 70,900 | (45,051) | 25,849 | 8 | |||||||||||||||||||
| Patents | 2,050 | (295) | 1,755 | 3-19 | |||||||||||||||||||
| Capitalized software | 9,867 | (2,971) | 6,896 | 3-5 | |||||||||||||||||||
| Total intangible assets | $ | 112,299 | $ | (56,289) | $ | 56,010 | |||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||||||||||||||
| Cost of sales | $ | 2,241 | $ | 2,231 | |||||||||||||||||||||||||
| General and administrative | 298 | 502 | |||||||||||||||||||||||||||
| Selling and marketing | 635 | 188 | |||||||||||||||||||||||||||
| Total amortization expense | $ | 3,174 | $ | 2,921 | |||||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||
| Beginning balance | $ | 123,694 | $ | 98,531 | |||||||||||||
| Measurement period adjustments - Ecomedic | 174 | — | |||||||||||||||
| Foreign currency translation impact | (94) | 4 | |||||||||||||||
| Ending balance | $ | 123,774 | $ | 98,535 | |||||||||||||
| Fair Value | |||||||||||||||||||||||||||||
| (in thousands) | Principal Amount | Unamortized Issuance Costs | Net Carrying Value | Amount | Level | ||||||||||||||||||||||||
| 1.25% Convertible Notes due 2026 | $ | 750,000 | $ | 19,029 | $ | 730,971 | $ | 680,400 | Level 2 | ||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||||||||||||||
| Cost of sales | 226 | 2 | |||||||||||||||||||||||||||
| Selling and marketing | 2,814 | 6 | |||||||||||||||||||||||||||
| Research and development | 110 | — | |||||||||||||||||||||||||||
| General and administrative | 3,899 | 26 | |||||||||||||||||||||||||||
| Stock-based compensation expense | $ | 7,049 | $ | 34 | |||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||
| Private Placement | Level | Public | Level | Warrant Liabilities | ||||||||||||||||
Fair value as of December 31, 2020 | $ | 25,013,332 | $ | 40,633,332 | $ | 65,646,664 | ||||||||||||||
Change in valuation inputs or other assumptions | (5,413,333 | ) | 3 | (8,740,000 | ) | 1 | (14,153,333 | ) | ||||||||||||
|
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| |||||||||||||||
Fair value as of March 31, 2021 | $ | 19,599,999 | $ | 31,893,332 | $ | 51,493,331 | ||||||||||||||
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Level 3 financial liabilities consistoperations.
NOTE 10. PRIOR PERIODS’ FINANCIAL STATEMENT REVISION
The Company noted an error in its applicationshares of guidance associated with “ASC 480: Distinguishing Liabilities from Equity.” Which needed to be modified to approximately present he impact oncommon stock issuable upon the accounting
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
treatment ofexercise thereof for 30 days following the temporary equity as a result of the private investment in public equity transaction that is subject of the subscription Agreements entered into by the Company with certain investors on December 8, 2021 (the “ PIPE Investment”) inClosing.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The following tables present the effectconsummation of the correction of the misstatement that impacted the year ended December 31, 2020, as described in Note 1, and the related adjustments to reflect the revisionBusiness Combination, on the Condensed Balance Sheet.
| As Previously Reported | Adjustments | As Revised | ||||||||||
Balance sheet as of December 31, 2020 (audited) | ||||||||||||
Commitments | ||||||||||||
Number of Class A common shares at redemption value | 37,648,795 | 8,351,205 | 46,000,000 | |||||||||
Class A common stock subject to possible redemption | $ | 376,489,130 | $ | 83,512,311 | $ | 460,001,441 | ||||||
Stockholders’ Equity | ||||||||||||
Number of Class A common shares issued and outstanding | 8,351,205 | (8,351,205 | ) | — | ||||||||
Class A common shares | $ | 835 | $ | (835 | ) | $ | — | |||||
Additional paid-in capital | 43,911,821 | (40,807,971 | ) | 3,103,850 | ||||||||
Accumulated deficit | (38,913,797 | ) | (42,703,505 | ) | (81,617,302 | ) | ||||||
Total stockholders’ equity | 5,000,009 | (83,512,311 | ) | (78,512,302 | ) | |||||||
Statement of operations for the period from July 8, 2020 (inception) through December 31, 2020 (as Restated) | ||||||||||||
Basic and diluted weighted average shares outstanding, Common stock subject to possible redemption | 41,438,497 | 1,165,717 | 42,604,214 | |||||||||
Weighted average shares outstanding, basic and diluted | 13,388,418 | (651,643 | ) | 12,736,775 | ||||||||
Basic and diluted net loss per common share | $ | (2.91 | ) | $ | (0.15 | ) | $ | (3.06 | ) | |||
Statement of changes in stockholders’ equity for the period from July 8, 2020 (inception) through December 31, 2020 | ||||||||||||
Class A common stock | ||||||||||||
Shares of Class A common stock subject to possible redemption | (37,648,795 | ) | (8,351,205 | ) | (46,000,000 | ) | ||||||
Class A common stock subject to possible redemption | $ | (3,765 | ) | $ | (835 | ) | $ | (4,600 | ) | |||
Additional paid-in capital | ||||||||||||
Class A common stock subject to possible redemption | (376,485,365 | ) | (40,807,971 | ) | (417,293,336 | ) | ||||||
Accumulated deficit | ||||||||||||
Net loss | (38,913,797 | ) | (42,703,505 | ) | (81,617,302 | ) | ||||||
Total stockholders’ equity | ||||||||||||
Class A common stock subject to possible redemption | (376,489,130 | ) | (40,808,806 | ) | (417,297,936 | ) | ||||||
Net loss | (38,913,797 | ) | (42,703,505 | ) | (81,617,302 | ) | ||||||
NOTE 11. SUBSEQUENT EVENTS
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the consolidated financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements.
THE BEAUTY HEALTH COMPANY
(FORMERLY KNOWN AS VESPER HEALTHCARE ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
On April 19, 2021, Elstein v. Saunders et al., No. 21-3028CA01 (Fla. 11th Cir. Ct.) was voluntarily dismissed. On April 26, 2021, Purvance v. Vesper Healthcare Acquisition Corp., et al., Index No. 650365/2021 (N.Y. Sup. Ct.) was voluntarily discontinued. On May 12, 2021, Watkins v. Vesper Healthcare Acquisition Corp., et al., No. 1:21-cv-00713 (S.D.N.Y.) was voluntarily dismissed. On May 17, 2021, Ciccotelli v. Vesper Healthcare Acquisition Corp., et al., Index No. 650346/2021 (N.Y. Sup. Ct.) was voluntarily discontinued.
On May 4, 2021, the Company, completedits 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. 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.
General and administrative expenses on the Company’s Consolidated Statements of Comprehensive Loss.
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 Consolidated Statements of Comprehensive Loss.| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||||||||||||||
| Americas | $ | 44,606 | $ | 31,280 | |||||||||||||||||||||||||
| Asia-Pacific | 12,901 | 8,791 | |||||||||||||||||||||||||||
| Europe, the Middle East and Africa | 17,908 | 7,471 | |||||||||||||||||||||||||||
| Total net sales | $ | 75,415 | $ | 47,542 | |||||||||||||||||||||||||
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| (in thousands, except share and per share amounts) | 2022 | 2021 | |||||||||||||||||||||||||||
| Net income (loss) available to common shareholders - basic | $ | 32,507 | $ | (3,274) | |||||||||||||||||||||||||
| Plus: 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 | |||||||||||||||||||||||||||
| 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) | |||||||||||||||||||||||||
| 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 | ||||||||||||||||||
OperationsReferences in this report (the “Quarterly Report”) toOperations.“registrant,” “we,” “us,” “our” ormeaning of the “Company” refer to The Beauty Health Company (formerly known as Vesper Healthcare Acquisition Corp.). Unless“safe harbor” provisions of the context otherwise requires,United States Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report, on Form 10-Q,the “registrant”words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the “Company” refernegative versions of such words or expressions) are intended to Vesper Healthcare Acquisition Corp. prior to the Closing 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. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to BLS Investor Group LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includesidentify forward-looking statements.that involve risks and uncertainties.Special Note Regarding Forward-Looking StatementsThis Quarterly Report includes “forward-looking statements” that are not historical factsguarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and uncertaintiesother important factors, many of which are outside The Beauty Health Company’s control, that could cause actual results or outcomes to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factorsFactors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled Risk Factors of this filing.differ materially from thoserecognize the anticipated inbenefits of the forward-looking statements, please referBusiness Combination; costs related to the Risk Factors sectionBusiness Combination; the inability to maintain the listing of The Beauty Health Company’s shares on Nasdaq; The Beauty Health Company’s availability of cash for debt service and exposure to risk of default under debt obligations; The Beauty Health Company’s ability to manage growth; The Beauty Health Company’s ability to execute its business plan; potential litigation involving The Beauty Health Company; changes in applicable laws or regulations; the possibility that The Beauty Health Company may be adversely affected by other economic, business, and/or competitive factors; and the impact of the Annual Reportcontinuing COVID-19 pandemic on Form 10-K/A filed with the SEC.our business. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, theBeauty Health Company disclaimsdoes not undertake any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.OverviewWe are a blank check company formed under the lawsotherwise, except as required by law.the Stateour financial condition and results of Delawareoperations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on July 8, 2020,Form 10-Q and also with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combinationfiscal year ended December 31, 2021 filed with one or more businesses.Recent DevelopmentsOn May 4, 2021 (the “Closing Date”)the U.S. Securities and Exchange Commission (SEC) on March 1, 2021.the registrant consummated the previously announced business combination pursuant to that certain Agreement and Plan of Merger, dated December 8, 2020, by and among Vesper Healthcare Acquisition Corp. (“Vesper Healthcare”)“we”, 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”)“us”, and LCP Edge Holdco, LLC (“LCP,“our” in this section are intended to mean the business and in its capacity as the stockholders’ representative, the “Stockholders’ Representative”) (the “Merger Agreement”), which provided for: (a) the merger of Merger Sub I with and into HydraFacial, with HydraFacial continuing as the surviving corporation (the “First Merger”), and (b) immediately following the First Merger and as part of the same overall transaction as the First Merger, the merger of HydraFacial with and into Merger Sub II, with Merger Sub II continuing as the surviving entity (the “Second Merger” and, together with the First Merger, the “Mergers” and, together with the other transactions contemplated by the Merger Agreement, the “Business
Combination”). As a result of the First Merger, the registrant owns 100% of the outstanding common stock of HydraFacial and each share of common stock and preferred stock of HydraFacial has been cancelled and converted into the right to receive a portion of the consideration payable in connection with the Mergers. As a result of the Second Merger, the registrant owns 100% of the outstanding interests in Merger Sub II. In connection with the closing of the Business Combination (the “Closing”), the registrant 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 Class A Common Stock, par value $0.0001 per share, of the registrant (the “Class A Stock”).
In connection with the Merger Agreement, 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”)operations of The Beauty Health Company Class A Common Stock atand its consolidated subsidiaries.
Total Addressable Market (TAM) compared to peers and the mix of male customers is growing at two times the rate of female customers. HydraFacial customers are young; approximately 50% of HydraFacial customers are Millennials, and approximately 30% of HydraFacial’s beauty retail customers are under the age of 24. As the Millennial and Gen Z consumers age, they appear to be taking skincare more seriously and willing to invest in premium treatments, such as those offered by HydraFacial.
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| (dollars in millions) | 2022 | 2021 | |||||||||||||||||||||||||||
| Delivery Systems net sales | $ | 41.6 | $ | 25.7 | |||||||||||||||||||||||||
| Consumables net sales | 33.8 | 21.9 | |||||||||||||||||||||||||||
| Total net sales | $ | 75.4 | $ | 47.5 | |||||||||||||||||||||||||
| Gross profit | $ | 51.9 | $ | 31.7 | |||||||||||||||||||||||||
| Gross margin | 68.9% | 66.8% | |||||||||||||||||||||||||||
| Net income (loss) | $ | 32.5 | $ | (3.3) | |||||||||||||||||||||||||
| Adjusted net income (loss) | $ | (8.5) | $ | (0.1) | |||||||||||||||||||||||||
| Adjusted EBITDA | $ | 2.2 | $ | 7.0 | |||||||||||||||||||||||||
| Adjusted EBITDA margin | 2.9% | 14.8% | |||||||||||||||||||||||||||
| Adjusted gross profit | $ | 54.8 | $ | 34.3 | |||||||||||||||||||||||||
| Adjusted gross margin | 72.7% | 72.2% | |||||||||||||||||||||||||||
In connection withour historical results are not necessarily indicative of the Closing,results that may be expected in the registrant changed its name from “Vesper Healthcare Acquisition Corp.” to “The Beauty Health Company”.
Resultsfuture. The results of Operations
Throughoperations data for the three months ended March 31, 2022 and March 31, 2021 we had neither engagedhave been derived from the condensed consolidated financial statements included elsewhere in any operations nor generated any revenues. Our only activities throughthis Form 10-Q. Amounts and percentages may not foot due to rounding.
| Three Months Ended March 31, | |||||||||||||||||||||||
| (in millions) | 2022 | % of Net Sales | 2021 | % of Net Sales | |||||||||||||||||||
| Net sales | $ | 75.4 | 100.0 | % | $ | 47.5 | 100.0 | % | |||||||||||||||
| Cost of sales | 23.5 | 31.1 | % | 15.8 | 33.2 | ||||||||||||||||||
| Gross profit | 51.9 | 68.9 | % | 31.7 | 66.8 | ||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Selling and marketing | 36.4 | 48.3 | 17.1 | 36.0 | |||||||||||||||||||
| Research and development | 2.2 | 3.0 | 1.5 | 3.1 | |||||||||||||||||||
| General and administrative | 26.3 | 34.8 | 10.8 | 22.7 | |||||||||||||||||||
| Total operating expenses | 64.9 | 86.1 | 29.4 | 61.8 | |||||||||||||||||||
| Income (loss) from operations | (13.0) | (17.2) | 2.4 | 5.0 | |||||||||||||||||||
| Other (income) expense, net | (48.1) | (63.8) | 6.0 | 12.5 | |||||||||||||||||||
| Income (loss) before provision for income tax | 35.1 | 46.6 | (3.6) | (7.5) | |||||||||||||||||||
| Income tax expense (benefit) | 2.6 | 3.5 | (0.3) | (0.6) | |||||||||||||||||||
| Net income (loss) | $ | 32.5 | 43.1 | % | $ | (3.3) | (6.9) | % | |||||||||||||||
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| Net sales | |||||||||||||||||||||||
| Delivery Systems | $ | 41.6 | $ | 25.7 | $ | 15.9 | 62.2% | ||||||||||||||||
| Consumables | 33.8 | 21.9 | 11.9 | 54.4% | |||||||||||||||||||
| Total net sales | $ | 75.4 | $ | 47.5 | $ | 27.9 | 58.6% | ||||||||||||||||
| Percentage of net sales | |||||||||||||||||||||||
| Delivery Systems | 55.2% | 54.0% | |||||||||||||||||||||
| Consumables | 44.8% | 46.0% | |||||||||||||||||||||
| Total | 100.0% | 100.0% | |||||||||||||||||||||
For the three months ended March 31, 2021 we hadprimarily due to strong trends in the Americas, Europe and Asia as markets remained open as well as the launch of Syndeo Delivery Systems.
Liquidity and Capital Resources
On October 2, 2020, we consummated the Initial Public Offering of 46,000,000 Units, which includes the full exercise by the underwriters of the over-allotment option of 6,000,000 Units, at $10.00 per unit, generating gross proceeds of $460,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 9,333,333 Private Placement Warrantsthree months ended March 31, 2022 increased $11.9 million, or 54.4%, compared to the Sponsor at a pricethree months ended March 31, 2021. The increase in Consumables sales was primarily attributable to increased placements of $1.50 per warrant, generating gross proceeds of $14,000,000.
Following the Initial Public Offering, the exercise of the over-allotment optiondelivery systems and the saleadjoining consumption of consumables during the Private Placement Warrants, a totalthree months ended March 31, 2022.
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| Cost of sales | $ | 23.5 | $ | 15.8 | $ | 7.7 | 48.6% | ||||||||||||||||
| Gross profit | $ | 51.9 | $ | 31.7 | $ | 20.2 | 63.6% | ||||||||||||||||
| Gross margin | 68.9 | % | 66.8 | % | |||||||||||||||||||
Forconsumables. Gross margin increased from 66.8% during the three months ended March 31, 2021 cash used in operating activities was $511,921. Net income of $13,637,202 wasto 68.9% during the three months ended March 31, 2022 primarily due to fixed cost leverage from higher sales volumes coupled with cost saving initiatives and margin accretion from distributor acquisitions, partially offset by interest incomehigher supply chain and logistics costs. The Company expects continued headwinds from global supply chain challenges and inflationary pressures to weigh on marketable securities heldgross margin through 2022, specifically higher shipping costs, offset by margin accretion related to the acquired distributor inventory and pricing initiatives.
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| Selling and marketing | $ | 36.4 | $ | 17.1 | $ | 19.3 | 113.0 | % | |||||||||||||||
| As a percentage of net sales | 48.3 | % | 36.0 | % | |||||||||||||||||||
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| Research and development | $ | 2.2 | $ | 1.5 | $ | 0.7 | 53.6 | % | |||||||||||||||
| As a percentage of net sales | 3.0 | % | 3.1 | % | |||||||||||||||||||
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| General and administrative | $ | 26.3 | $ | 10.8 | $ | 15.5 | 142.9 | % | |||||||||||||||
| As a percentage of net sales | 34.8 | % | 22.7 | % | |||||||||||||||||||
| Three Months Ended March 31, | Change | ||||||||||||||||||||||
| (in millions) | 2022 | 2021 | Amount | % | |||||||||||||||||||
| Other (income) expense, net | $ | (48.1) | $ | 6.0 | $ | (54.1) | (906.5) | % | |||||||||||||||
| Income tax expense (benefit) | $ | 2.6 | $ | (0.3) | $ | 2.9 | (954.6) | % | |||||||||||||||
the sale of the Notes to fund the cost of entering into capped call transactions. The net proceeds from the issuance of the Notes were approximately $638.7 million, net of capped call transaction costs of $90.2 million and debt issuance costs totaling $21.3 million. See Note
10 - Debt, to the Notes to the Condensed Consolidated Financial Statements included elsewhere in this report.| Three Months Ended March 31, | |||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||
| Cash and cash equivalents at beginning of period | $ | 901.9 | $ | 9.5 | |||||||||||||
| Operating activities: | |||||||||||||||||
| Net income (loss) | 32.5 | (3.3) | |||||||||||||||
| Non-cash adjustments | (36.7) | 5.4 | |||||||||||||||
| Changes in working capital | (34.3) | (0.9) | |||||||||||||||
| Net cash flows (used in) provided by operating activities | (38.5) | 1.3 | |||||||||||||||
| Net cash flows (used in) provided by investing activities | (3.4) | (1.0) | |||||||||||||||
| Net cash flows (used in) provided by financing activities | (0.8) | 4.4 | |||||||||||||||
| Net change in cash and cash equivalents | (42.7) | 4.7 | |||||||||||||||
| Effect of foreign currency translation | — | — | |||||||||||||||
| Cash and cash equivalents at end of period | $ | 859.2 | $ | 14.1 | |||||||||||||
Asexpenses of $8.3 million.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor or an affiliatefiscal year ended December 31, 2021.
We used substantially all of the funds heldCondensed Consolidated Financial Statements in the Trust Accountsection titled “—Recently Issued Accounting Pronouncements” in our Note
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2021.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay affiliate of the our Chief Executive Officer a monthly fee of $10,000 for office space, administrative and support services. We began incurring these fees on September 30, 2020 and continued to incur these fees monthly until the completion of the Business Combination.
The underwriters were entitled to a deferred fee of $0.35 per Unit, or $16,100,000 in the aggregate, which was paid upon completion of the Business Combination.
Critical Accounting Policies
The preparation of condensedconsolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted and related disclosuresnot yet adopted.
Warrant Liability
We account for the warrants issued in connectionthese non-GAAP operating measures, when reviewed collectively with our InitialGAAP financial information, provide useful supplemental information to investors in assessing our operating performance.
| Three Months Ended March 31, | |||||||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | |||||||||||||||||||||||||||
| Net income (loss) | $ | 32,507 | $ | (3,274) | |||||||||||||||||||||||||
| Adjusted to exclude the following: | |||||||||||||||||||||||||||||
| Change in fair value of warrant liability | (52,052) | — | |||||||||||||||||||||||||||
| Amortization expense | 3,713 | 2,954 | |||||||||||||||||||||||||||
| Stock-based compensation expense | 7,049 | 34 | |||||||||||||||||||||||||||
| Other expense (income) | 937 | 7 | |||||||||||||||||||||||||||
Management fees (1) | — | 127 | |||||||||||||||||||||||||||
Transaction related costs (2) | 1,045 | 746 | |||||||||||||||||||||||||||
Other non-recurring and one-time fees (3) | 1,955 | 87 | |||||||||||||||||||||||||||
| Aggregate adjustment for income taxes | (3,626) | (763) | |||||||||||||||||||||||||||
| Adjusted net income (loss) | $ | (8,472) | $ | (82) | |||||||||||||||||||||||||
| Depreciation expense | 1,416 | 690 | |||||||||||||||||||||||||||
| Interest expense | 3,400 | 5,699 | |||||||||||||||||||||||||||
| Foreign currency (gain) loss, net | (368) | 256 | |||||||||||||||||||||||||||
| Remaining benefit for income taxes | 6,241 | 457 | |||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 2,217 | $ | 7,020 | |||||||||||||||||||||||||
| Adjusted EBITDA margin | 2.9% | 14.8 | % | ||||||||||||||||||||||||||
Class A Common Stock Subjectdepreciation and stock-based compensation expense, which are non-cash expenses that may fluctuate for reasons unrelated to Possible Redemption
We account for our shares of Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption is classified as a liability instrumentoverall continuing operating performance. Adjusted gross margin has been and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rights that are consideredwill continue to be outsideaffected by a variety of factors, including the product mix, geographic mix, direct vs. indirect mix, the average selling price on Delivery Systems, and new product launches. We expect our control and subjectadjusted gross margin to occurrence of uncertain future events. Accordingly,fluctuate over time depending on the Class A common stock subjectfactors described above.
Net Income (Loss) per Common Share
The Company’s statement of operations includes a presentation of income (loss) per share for common shares subject to possible redemption in a manner similar to the two-class method of income (loss) per share. Net income (loss) per common share, basic and diluted, for Common stock subject to possible redemption is calculated by dividing the proportionate share of income or loss on marketable securities held by the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Common stock subject to possible redemption outstanding since original issuance.
Net loss per share, basic and diluted, for non-redeemable common stock is calculated by dividing the net income (loss), adjusted for income or loss on marketable securities attributable to Class A common stock subject to possible redemption, by the weighted average number of non-redeemable common stock outstandinggross profit for the period.
Non-redeemable common stock includes Founder Sharesperiods indicated.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
| Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| Net sales | $ | 75.4 | $ | 47.5 | ||||||||||||||||||||||||||||||||||
| Cost of sales | 23.5 | 15.8 | ||||||||||||||||||||||||||||||||||||
| Gross profit | $ | 51.9 | $ | 31.7 | ||||||||||||||||||||||||||||||||||
| Gross margin | 68.9% | 66.8% | ||||||||||||||||||||||||||||||||||||
| Adjusted to exclude the following: | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense included in cost of sales | $ | 0.2 | $ | — | ||||||||||||||||||||||||||||||||||
| Depreciation and amortization expense included in cost of sales | 2.7 | 2.6 | ||||||||||||||||||||||||||||||||||||
| Adjusted gross profit | $ | 54.8 | $ | 34.3 | ||||||||||||||||||||||||||||||||||
| Adjusted gross margin | 72.7% | 72.2% | ||||||||||||||||||||||||||||||||||||
2021, we were2022, the effect of a hypothetical 10% change in foreign currency exchange rates would not have had a material impact to our consolidated results of operations.any marketsignificant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or interest rate risk. Following the consummation offailure to do so could harm our Initial Public Offering, the net proceeds of our Initial Public Offering, including amounts in the Trust Account, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 185 days or less or in certain money market funds that invest solely in U.S. treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.business, financial condition, and operating results.
ProceduresRestatement BackgroundOn April 12, 2021, the Staff of the U.S. Securities and Exchange Commission (the “SEC”) released the Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “Staff Statement”). The Staff Statement sets forth the conclusion of the SEC’s Office of the Chief Accountant that certain provisions included in the warrant agreements entered into by many SPACs, including the Company’s, require such warrants to be accounted for as liabilities measured at fair value, rather than as equity securities, with changes in fair value during each financial reporting period reported in earnings. The Company has previously classified its private placement warrants and public warrants as equity (for a full description of the Company’s private placement warrants and public warrants (collectively, the “Warrants”), refer to the registration statement on Form S-1 (File No. 333-248717), filed in connection with the Company’s initial public offering, declared effective by the SEC on September 30, 2020. The Company’s management further evaluated the warrants under Accounting Standards Codification (“ASC”) Subtopic 815-40, Contracts in Entity’s Own Equity. ASC Section 815-40-15 addresses equity versus liability treatment and classification of equity-linked financial instruments, including warrants, and states that a warrant may be classified as a component of equity only if, among other things, the warrant is indexed to the issuer’s common stock. Under ASC Section 815-40-15, a warrant is not indexed to the issuer’s common stock if the terms of the warrant require an adjustment to the exercise price upon a specified event and that event is not an input to the standard option pricing model. The Company and the audit committee concluded that the Company’s warrants are not indexed to the Company’s common shares in the manner contemplated by ASC Section 815-40-15 because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares. In addition, based on management’s evaluation, the Company’s audit committee, in consultation with management, concluded the tender offer provision included in the warrant agreement fails the “classified in shareholders’ equity” criteria as contemplated by ASC Section 815-40-25.As a result of the above, the Company should have classified the warrants as derivative liabilities in its previously issued financial statements. Under this accounting treatment, the Company is required to measure the fair value of the warrants at the end of each reporting period and recognize changes in the fair value from the prior period in the Company’s operating results for the current period.On May 9, 2021, we concluded our warrants should be accounted for as liabilities on the balance sheet and measured at fair value at inception and on a recurring basis in accordance with ASC 820, Fair Value Measurement, with changes in fair value recognized in the statement of operations. Therefore, our previously issued financial statements as of December 31, 2020 and for the period from July 8, 2020 (inception) through December 31, 2020 (the “Affected Periods”) should not be relied upon because of a misapplication in the guidance on warrant accounting. Similarly, any previously furnished or filed reports, including the audited balance sheet filed with the SEC on Form 8-K on October 8, 2020, related earnings releases, investor presentations or similar communications of the Company describing the Company’s financial results for the Affected Periods should no longer be relied upon based on the correction of an error as described above and such financial statements were restated.Additionally, the Company noted an error in its application of guidance associated with “ASC 480: Distinguishing Liabilities from Equity,” which needed to be modified to appropriately present the impact on the
accounting treatment of the temporary equity as a result of the private investment in public equity transaction that is subject of the Subscription Agreements entered into by the Company with certain investors on December 8, 2021 (the “ PIPE Investment”) in connection with the Compan y’ s business combination with LCP Edge Intermediate, Inc., a Delaware corporation and indirect parent of Edge Systems LLC d/b/a The HydraFacial Company, and LCP Edge Holdco, LLC, as previously disclosed in the Compan y’ s Form 10-K/A filed on May 27, 2021. This modification to the accounting treatment of equity required the Compan y’ s common stock to be reclassified from permanent equity to temporary equity in the form of common stock subject to possible redemption. The Audit Committee, in consultation with the Compan y’ s management, concluded that all Class A ordinary shares that were sold to the public in our IPO are to be classified as temporary equity, thereby correcting an error of classification within the Condensed Balance Sheet. In the financial statements filed in the Compan y’s Form 10-K/A, the Company incorrectly classified 8,351,205 Class A ordinary shares as permanent equity as of December 31, 2020, whereas no Class A ordinary shares should have been so classified. The 8,351,205 Class A ordinary shares that were originally incorrectly classified as permanent equity have been reclassified as temporary equity in this Form 10-Q, thereby yielding a total of 46,000,000 Class A ordinary shares (the shares sold to the public in our IPO, which are subject to redemption) as temporary equity.
This was accordingly disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, Form 10-K/A for the year ended December 31, 2020 and in our Definitive Proxy Statement filed on April 7, 2021.
There was
ProceedingsA lawsuit was filedProceedings.the Supreme CourtPart I, Item 1 of the State of New Yorkthis Quarterly Report on January 18, 2021, and amended on March 24, 2021, by a purported Company stockholder in connection with the Business Combination: Ciccotelli v. Vesper Healthcare Acquisition Corp., et al., Index No. 650346/2021 (N.Y. Sup. Ct.)Form 10-Q. An additional lawsuit was filed by a different purported Company stockholder on January 19, 2021, and amended on March 22, 2021, in the Supreme Court of the State of New York in connection with the Business Combination: Purvance v. Vesper Healthcare Acquisition Corp., et al., Index No. 650365/2021 (N.Y. Sup. Ct.). On January 26, 2021, a lawsuit was filed in the United States District Court, Southern District of New York by a different purported Company stockholder in connection with the Business Combination: Watkins v. Vesper Healthcare Acquisition Corp., et al., No. 1:21-cv-00713 (S.D.N.Y.). On February 8, 2021, a lawsuit was filed in the Eleventh Judicial Circuit, in and for Miami-Dade County, Florida, by a different purported Company stockholder in connection with the Business Combination: Elstein v. Saunders et al., No. 21-3028CA01 (Fla. 11th Cir. Ct.). The complaints name the Company and some or all of the current members of the Board as defendants. The complaints allege, among other things, breach of fiduciary duty claims against the Board in connection with the Business Combination. The complaints also allege that the Preliminary Proxy Statement is misleading and/or omits material information concerning the Business Combination. The complaints generally seek, among other things, injunctive relief, damages, and an award of attorneys’ fees. On March 2, 2021, counsel for Jordan Rosenblatt, a purported The Beauty Health Company shareholder, sent a demand letter alleging that The Beauty Health Company and its board had breached their fiduciary duties and violated federal securities laws in connection with the Preliminary Proxy Statement. Also on March 2, 2021, counsel for Patrick Plumley, a purported The Beauty Health Company shareholder, sent a demand letter alleging that The Beauty Health Company and its board had breached their fiduciary duties and/or violated federal securities laws in connection with the Preliminary Proxy Statement. Both letters sought additional disclosures.The Company believes these allegations are without merit and intends to defend against them; however, the Company cannot predict with certainty the ultimate resolution of any proceedings that may be brought in connection with these allegations.On April 19, 2021, Elstein v. Saunders et al., No. 21-3028CA01 (Fla. 11th Cir. Ct.) was voluntarily dismissed. On April 26, 2021, Purvance v. Vesper Healthcare Acquisition Corp., et al., Index No. 650365/2021 (N.Y. Sup. Ct.) was voluntarily discontinued. On May 12, 2021, Watkins v. Vesper Healthcare Acquisition Corp., et al., No. 1:21-cv-00713 (S.D.N.Y.) was voluntarily dismissed. On May 17, 2021, Ciccotelli v. Vesper Healthcare Acquisition Corp., et al., Index No. 650346/2021 (N.Y. Sup. Ct.) was voluntarily discontinued.
Factors that could cause our actual results to differ materially from thoseare any ofon Form 10-Q and the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022 (the “Annual Report”), which could materially affect our business, financial condition, or future results. The risks described in our Annual Report, on Form 10-K/A filed with the SEC on May 27, 2021. Any of these factorsas well as other risks and uncertainties, could result in a significant or material adverse effect onmaterially and adversely affect our business, results of operations, orand financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impaircondition, which in turn could materially and adversely affect the trading price of shares of our business or results of operations. As of the date of this Quarterly Report,Class A Common Stock. Except as set forth below, there have been no material updates or changes with respect to the risk factors previously disclosed in our Annual Report; provided, however, additional risks not currently known or currently material to us may also harm our business.10-K/A filed with the SEC on May 27, 2021.10-Q and our Annual Report.
ProceedsOn October 2, 2020, we consummated the Initial Public Offering of 46,000,000 Units, which includes the full exercise by the underwriters of their over-allotment option of 6,000,000 Units. The Units sold in the Initial Public Offering, including pursuant to the over-allotment option, were sold at an offering price of $10.00 per unit, generating total gross proceeds of $460,000,000. Goldman Sachs & Co, LLC and J.P. Morgan Securities
LLC acted at joint book-running of managers the Initial Public Offering. The securities in the offering were registered under the Securities Act on registration statements on Form S-1 (No. 333-248717). The Securities and Exchange Commission declared the registration statements effective on September 29, 2020.
Simultaneous with the consummation of the Initial Public Offering and the exercise of the over-allotment option in full, we consummated the private placement of an aggregate of 9,333,333 Private Placement Warrants to the Sponsor at a price of $1.50 per Private Placement Warrant, generating total proceeds of $14,000,000. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Private Placement Warrants are identical to the warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants are not transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions.
Of the gross proceeds received from the Initial Public Offering including the exercise of the over-allotment option in full and the Private Placement Warrants, $460,000,000 was placed in the Trust Account.
We paid a total of $9,200,000 in underwriting discounts and commissions and $477,859 for other costs and expenses related to the Initial Public Offering. In addition, the underwriters agreed to defer up to $16,100,000 in underwriting discounts and commissions.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.
Securities.Securities
*Filed herewith.**Furnished.
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| THE BEAUTY HEALTH COMPANY | |||||||||||||||
| Date: | May 10, 2022 | By: | /s/ | ||||||||||||
| Name: | |||||||||||||||
| Title: | Chief Executive Officer | ||||||||||||||
| (Principal Executive Officer) | |||||||||||||||
| Date: | May 10, 2022 | By: | /s/ Liyuan Woo | ||||||||||||
| Name: | Liyuan Woo | ||||||||||||||
| Title: | Chief Financial Officer | ||||||||||||||
| (Principal Accounting Officer and Financial Officer) | |||||||||||||||
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