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What changed in Beauty Health Co's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Beauty Health Co's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+489 added−495 removedSource: 10-K (2024-03-12) vs 10-K (2023-03-01)

Top changes in Beauty Health Co's 2023 10-K

489 paragraphs added · 495 removed · 337 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

139 edited+50 added−37 removed124 unchanged
Biggest changeUntil May 25, 2021, medical devices were regulated by Council Directive 93/42/EEC (the “EU Medical Devices Directive) which has been repealed and replaced by Regulation (EU) No 2017/745 (the “EU Medical Devices Regulation”). Our current certificates have been granted under the EU Medical Devices Directive whose regime is described below.
Biggest changeRegulation of Medical Devices in the European Union The European Union, (“EU”), has adopted specific directives and regulations regulating the design, manufacture, clinical investigation, conformity assessment, labeling and adverse event reporting for medical devices. 19 Until May 25, 2021, medical devices were regulated by Council Directive 93/42/EEC (the “EU Medical Devices Directive”) which has been repealed and replaced by Regulation (EU) No 2017/745 (the “EU Medical Devices Regulation”).
Devices deemed by the FDA to pose the greatest risks, such as life sustaining, life supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.
Devices deemed by the FDA to pose the greatest risks, such as life sustaining, life supporting, some implantable devices, or devices that have a new intended use or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.
Until then, FDA’s existing draft guidance on cosmetic GMPs, most recently updated in June 2013 and other guidance such as the FDA’s Good Manufacturing Practice (GMP) Guidelines/Inspection Checklist from February 2022, will continue to provide guidance and recommendations related to process documentation, recordkeeping, building and facility design, and equipment maintenance and personnel.
Until then, the FDA’s existing draft guidance on cosmetic GMPs, most recently updated in June 2013, and other guidance such as the FDA’s Good Manufacturing Practice (GMP) Guidelines/Inspection Checklist from February 2022, will continue to provide guidance and recommendations related to process documentation, recordkeeping, building and facility design, and equipment maintenance and personnel.
In the event the FDA identifies unsanitary conditions, false or misleading labeling, or any other violation of FDA regulation, FDA may request or a manufacturer may independently decide to conduct a recall or market withdrawal of product or to make changes to its manufacturing processes or product formulations or labels.
In the event the FDA identifies unsanitary conditions, false or misleading labeling, or any other violation of FDA regulation, FDA may request or a manufacturer may independently decide to conduct a recall or market withdrawal of a product or to make changes to its manufacturing processes or product formulations or labels.
The new Regulation among other things: • strengthens the rules on placing devices on the market (e.g. reclassification of certain devices and wider scope than the EU Medical Devices Directive) and reinforces surveillance once they are available; • establishes explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market; • establishes explicit provisions on importers’ and distributors’ obligations and responsibilities; • imposes an obligation to identify a responsible person who is ultimately responsible for all aspects of compliance with the requirements of the new regulation; • improves the traceability of medical devices throughout the supply chain to the end-user or patient through the introduction of a unique identification number, to increase the ability of manufacturers and regulatory authorities to trace specific devices through the supply chain and to facilitate the prompt and efficient recall of medical devices that have been found to present a safety risk; • sets up a central database (Eudamed) to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and • strengthens rules for the assessment of certain high-risk devices, such as implants, which may have to undergo a clinical evaluation consultation procedure by experts before they are placed on the market.
The new Regulation among other things: • strengthens the rules on placing devices on the market (e.g. reclassification of certain devices and wider scope than the EU Medical Devices Directive) and reinforces surveillance once they are available; • establishes explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market; • establishes explicit provisions on importers’ and distributors’ obligations and responsibilities; 20 • imposes an obligation to identify a responsible person who is ultimately responsible for all aspects of compliance with the requirements of the new regulation; • improves the traceability of medical devices throughout the supply chain to the end-user or patient through the introduction of a unique identification number, to increase the ability of manufacturers and regulatory authorities to trace specific devices through the supply chain and to facilitate the prompt and efficient recall of medical devices that have been found to present a safety risk; • sets up a central database (Eudamed) to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and • strengthens rules for the assessment of certain high-risk devices, such as implants, which may have to undergo a clinical evaluation consultation procedure by experts before they are placed on the market.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling regulations and FDA prohibitions against the promotion of investigational products, or the promotion of “off-label” uses of cleared or approved products; • requirements related to promotional activities; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a new or different intended use of a cleared device, or approval of certain modifications to PMA-approved devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and 18 • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; 17 • labeling regulations and FDA prohibitions against the promotion of investigational products, or the promotion of “off-label” uses of cleared or approved products; • requirements related to promotional activities; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a new or different intended use of a cleared device, or approval of certain modifications to PMA-approved devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
Obligations of the responsible person further include: • Manufacturing cosmetic products in compliance with GMPs. • Creating and keeping a product information file (“PIF”), for each cosmetic product, including test results that demonstrate the claimed effects for the cosmetic product, and the cosmetic product safety report. • Registering and submitting information on every product through the CPNP. • Complying with Regulation (EU) No. 655/2013 which lists common criteria for the justification of claims used in relation to cosmetic products. 23 • Reporting serious undesirable effects attributable to cosmetics use to national competent authorities and taking corrective measures where required.
Obligations of the responsible person further include: • Manufacturing cosmetic products in compliance with GMPs. • Creating and keeping a product information file (“PIF”), for each cosmetic product, including test results that demonstrate the claimed effects for the cosmetic product, and the cosmetic product safety report. • Registering and submitting information on every product through the CPNP. • Complying with Regulation (EU) No. 655/2013 which lists common criteria for the justification of claims used in relation to cosmetic products. • Reporting serious undesirable effects attributable to cosmetics use to national competent authorities and taking corrective measures where required.
A serious incident is defined as any malfunction or deterioration in the characteristics or performance of a device made available on the market, including use-error due to ergonomic features, as well as any inadequacy in the information supplied by the manufacturer and any undesirable side-effect, which, directly or indirectly, might have led or might lead to the death of a patient or user or of other persons or to a temporary or permanent serious deterioration of a patient's, user's or other person's state of health or a serious public health threat.
A serious incident is defined as any malfunction or deterioration in the characteristics or performance of a device made available on the market, including user-error due to ergonomic features, as well as any inadequacy in the information supplied by the manufacturer and any undesirable side-effect, which, directly or indirectly, might have led or might lead to the death of a patient or user or of other persons or to a temporary or permanent serious deterioration of a patient's, user's or other person's state of health or a serious public health threat.
We qualify alternative suppliers and manufacturers when possible, maintain controls and methods to mitigate risk through buffer maintenance, implement dual and/or co-sourcing, if needed, and develop contingency plans for responding to disruptions, such as maintaining inventory of single source components or leverage alternative freight modes that can have cost implications.
We qualify alternative suppliers and manufacturers when possible, maintain controls and methods to mitigate risk through buffer inventory, implement dual and/or co-sourcing, if needed, and develop contingency plans for responding to disruptions, such as maintaining inventory of single source components or leverage alternative freight modes that can have cost implications.
In addition, the charters for our Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee may be found in the “Investor Relations” section of our website: www.beautyhealth.com under the heading “Governance”, and then “Documents & Charters”. Human Capital Resources Employees We have built a team of industry professionals focused on beauty health.
In addition, the charters for our Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee may be found in the “Investor Relations” section of our website: www.beautyhealth.com under the heading “Governance”, and then “Documents & Charters”. 26 Human Capital Resources Employees We have built a team of industry professionals focused on beauty health.
We believe that the consumer who follows a beauty and wellness regimen with topicals or supplements may someday graduate to medical procedures, while the medical aesthetics patient is almost certainly a loyal consumer of beauty topical products. We don’t believe we have to be an “either/or” company (beauty or health/non-invasive or minimally invasive).
We believe that the consumer who follows a beauty and wellness regimen with topicals or supplements may someday graduate to medical procedures, while the medical aesthetics patient is almost certainly a loyal consumer of beauty topical products. 11 We don’t believe we have to be an “either/or” company (beauty or health/non-invasive or minimally invasive).
Failure to maintain compliance with the QSR requirements could result in adverse inspection or audit reports such as Form 483 Notices of Inspectional Observations; the shut-down of, or restrictions on, manufacturing operations; recall, market withdrawal, or seizure of marketed products; or other enforcement actions by the FDA or other regulatory agencies.
Failure to maintain compliance with the QSR requirements could result in an adverse inspection or audit reports such as Form 483 Notices of Inspectional Observations; the shut-down of, or restrictions on, manufacturing operations; recall, market withdrawal, or seizure of marketed products; or other enforcement actions by the FDA or other regulatory agencies.
These proposals included 16 plans to potentially sunset certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old.
These proposals included plans to potentially sunset certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old.
Many of our providers offer Hydrafacial treatments as a bundle with other procedures, such as injectables or energy-based treatments. 12 Manufacturing; Sourcing and Material We outsource the manufacturing of many of our products to multiple contract manufacturers that are primarily located in North America, Europe, and Asia.
Many of our providers offer Hydrafacial treatments as a bundle with other procedures, such as injectables or energy-based treatments. Manufacturing; Sourcing and Material We outsource the manufacturing of many of our products to multiple contract manufacturers that are primarily located in North America, Europe, and Asia.
Following the end of the Brexit transitional period on January 1, 2021, new regulations require medical devices to be registered with the MHRA (but manufacturers were given a grace period of four to 12 months to comply with the new 22 registration process) before being placed on Great Britain market.
Following the end of the Brexit transitional period on January 1, 2021, new regulations require medical devices to be registered with the MHRA (but manufacturers were given a grace period of four to 12 months to comply with the new registration process) before being placed on Great Britain market.
The FDA has developed and maintains a list device types appropriate for the “safety and performance based” pathway and continues to develop product-specific guidance documents that identify the performance criteria for each such device type, as well as the testing methods recommended in the guidance documents, where feasible.
The FDA has developed and maintains a list of device types appropriate for the “safety and performance based” pathway and continues to develop product-specific guidance documents that identify the performance criteria for each such device type, as well as the testing methods recommended in the guidance documents, where feasible.
By investing in our providers, we believe we are creating a thriving community as they recommend our products and experiences as part of any skincare and wellness routine. In our view, investing our efforts in any part of our community drives utilization amongst consumers, resulting in a potent formula for growth.
By investing in our providers, we believe we are creating a thriving community as they recommend our products and experiences as part of any skincare and wellness routine. In our view, investing our efforts in any part of our community drives utilization amongst consumers, resulting in a potentially potent formula for growth.
As a general rule, demonstration of conformity of medical devices and their manufacturers with the 20 essential requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use.
As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use.
We ensure our partners have the requisite experience to produce our products and accessories and develop relationships with them to maintain access to the resources needed to scale. To have control of supply and component pipelines, we own certain tooling and equipment required to manufacture our products.
We ensure our partners have the requisite experience to produce our products and develop relationships with them to maintain access to the resources needed to scale. To have control of supply and component pipelines, we own certain tooling and equipment required to manufacture our products.
Certain countries also mandate implementation of commercial compliance programs. The aforementioned EU rules are generally applicable in the European Economic Area (“EEA”), which consists of the 27 EU Member States plus Norway, Liechtenstein and Iceland.
Certain countries also mandate implementation of commercial compliance programs. The aforementioned EU rules are generally applicable in the European Economic Area, which consists of the 27 EU Member States plus Norway, Liechtenstein and Iceland.
If the device presents a “significant risk” to human health, as defined by the FDA, the FDA requires the 17 device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials.
If the device presents a “significant risk” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials.
A predicate device is a legally marketed device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device which has been reclassified from Class III to Class II or I, a device which has been found to be substantially equivalent through the 510(k) process, or a device that was granted marketing authorization via the De Novo classification process under section 513(f)(2) of the FDCA and not exempt from premarket notification requirements.
A predicate device is a legally marketed device that was legally marketed prior to May 28, 1976 (pre-amendment device), a device which has been reclassified from Class III to Class II or I, a device which has been found to be substantially equivalent through the 510(k) process, or a device that was granted marketing authorization via the De Novo classification process under Section 513(f)(2) of the FDCA and not exempt from premarket notification requirements.
Principal competitive factors important to us include price, product and service features and offerings, relative price to performance, beauty health trends, marketing and distribution capability, service and support, and corporate reputation.
Principal competitive factors important to us include price, product and service features and offerings, relative price to performance, beauty health trends, marketing and distribution capability, service and support, reliability, and corporate reputation.
The information to be submitted by manufacturers (and authorized representatives) also includes the name, address and contact details of the 21 person or persons responsible for regulatory compliance.
The information to be submitted by manufacturers (and authorized representatives) also includes the name, address and contact details of the person or persons responsible for regulatory compliance.
While they are not our employees or contractors, we believe they provide an important competitive advantage to us, as a well-trained aesthetician can provide consumers with a consistent, memorable, first-class experience no matter where a consumer accesses our products and experiences. We believe that this in turn builds loyalty from the consumer to BeautyHealth.
While they are not our employees or contractors, we believe they provide an important competitive advantage to us, as a well-trained esthetician can provide consumers with a consistent, memorable, first-class experience no matter where a consumer accesses our products and experiences. We believe that this in turn builds loyalty from the consumer to BeautyHealth.
Quality and Regulatory Our quality and regulatory team are responsible for registrations, ensuring product safety, and meeting regulatory compliance for all jurisdictions in which we operate. Competition The beauty and personal care market is fragmented and highly competitive, with several companies specializing in different subsectors, including skincare, haircare, supplements, and medical products and procedures.
Quality and Regulatory Our quality and regulatory team are responsible for registrations, ensuring product safety and reliability, and meeting regulatory compliance for all jurisdictions in which we operate. 12 Competition The beauty and personal care market is fragmented and highly competitive, with several companies specializing in different subsectors, including skincare, haircare, supplements, and medical products and procedures.
Workplace Practices and Policies The Company is an equal opportunity employer committed to inclusion and diversity and to providing a workplace free of harassment or discrimination. 27 Diversity and Inclusion As a beauty health company, we believe that it is important for our workforce to reflect the diversity of our consumers and be representative of the society in which we live.
Workplace Practices and Policies The Company is an equal opportunity employer committed to inclusion and diversity and to providing a workplace free of harassment and discrimination. Diversity and Inclusion As a beauty health company, we believe that it is important for our workforce to reflect the diversity of our consumers and be representative of the society in which we live.
On April 5, 2017, the EU Medical Devices Regulation was adopted with the aim of ensuring better protection of public health and patient safety. The EU Medical Devices Regulation establishes a uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation.
On April 5, 2017, the EU Medical Devices Regulation was adopted with the aim of ensuring better protection of public health and patient safety. The EU Medical Devices Regulation establishes a uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensures a high level of safety and health while supporting innovation.
A notified body would typically audit and examine a product’s technical dossiers and the manufacturers’ quality system (the notified body must presume that quality systems which implement the relevant harmonized standards – which is ISO 13485:2016 for Medical Devices Quality Management Systems – conform to these requirements).
A notified body would typically audit and examine a product’s technical dossiers and the manufacturer’s quality system (the notified body must presume that quality systems which implement the relevant harmonized standards – which is ISO 13485:2016 for Medical Devices Quality Management Systems – conform to these requirements).
Our Board of 26 Directors is responsible for the oversight of risks facing the Company, and our management is responsible for the day-to-day management of risk. Our Board of Directors, as a whole, directly oversees our strategic and business risk, including risks related to financial reporting, compensation practices, ESG, and product developments.
Our Board of Directors is responsible for the oversight of risks facing the Company, and our management is responsible for the day-to-day management of risk. Our Board of Directors, as a whole, oversees our strategic and business risk, including risks related to financial reporting, compensation practices, ESG, and product developments.
The components and raw materials used in our products are sourced from a variety of component and raw material suppliers. To provide products to customers on a timely, cost-effective basis, we review existing contract manufacturers and suppliers and evaluate new partners and suppliers periodically with the objectives of improving quality, increasing innovation, accelerating speed-to-market, maintaining supply sufficiency, and reducing costs.
The components and raw materials used in our products are sourced from a variety of component and raw material suppliers. To provide products to customers in a timely, cost-effective manner, we review existing contract manufacturers and suppliers and evaluate new partners and suppliers periodically with the objectives of improving quality, increasing innovation, accelerating speed-to-market, maintaining supply sufficiency, and reducing costs.
Cosmetics are not subject to pre-market approval by the FDA; however, certain ingredients, such as color additives, must be pre-approved for the specific intended use of the product and are subject to certain restrictions on their use.
Cosmetics are not subject to pre-market approval by the FDA; however, certain ingredients, such as some types of color additives, must be pre-approved for the specific intended use of the product and are subject to certain restrictions on their use.
We believe driving increased consumer traffic to our network of providers, retailers, and brand 7 partners will increase the utilization of our products and experiences, further cementing the compelling value proposition we offer to our partners and thereby driving increased purchases from them.
We believe driving increased consumer traffic to our network of providers, retailers, and brand partners will increase the utilization of our products and experiences, further cementing the value proposition we offer to our partners and thereby driving increased purchases from them.
Our robust benefit programs, which vary by country, include basic and supplemental health and insurance benefits, health savings and flexible spending accounts, access to a personal health advocate, family leave, life and disability insurance, employee assistance programs, physical, mental and financial wellbeing programs, a U.S. employee stock purchase plan, retirement savings plans, and pet insurance, to name a few.
Our robust benefit programs, which vary by country, include basic and supplemental health and insurance benefits, health savings and flexible spending accounts, access to a personal health advocate, family leave, life and disability insurance, employee assistance programs, physical, mental and financial well-being programs, a U.S. employee stock purchase plan, retirement savings plans, and pet insurance, to name a few.
Aestheticians are one part of our community that we recognize as powerful. We continue to focus on our other providers, including physicians, nurses, and other partners to build consumer awareness for our brands.
Estheticians are one part of our community that we recognize as powerful. We continue to focus on our other providers, including physicians, nurses, and other partners to build consumer awareness for our brands.
An advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation.
As mentioned above, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation.
Our website includes our privacy policy, which describes how we use and disclose the data we collect, and provides options for controlling personal data, including opting-out, accessing, updating, or deleting it.
Our website includes our privacy policy, which describes how we use and disclose the data we collect, and provides information for controlling personal data, including opting-out, accessing, updating, or deleting it.
We recognized the opportunity to empower the aesthetician and created programs to elevate their skills, knowledge, and confidence through a continued relationship so they feel supported. As a result, we have open dialogue with our aesthetician providers and receive valuable information on consumer preferences and behaviors they see in their practices.
We recognized the opportunity to empower estheticians and created programs to elevate their skills, knowledge, and confidence through a continued relationship so they feel supported. As a result, we have open dialogue with our esthetician providers and receive valuable information on consumer preferences and behaviors they see in their practices.
Expand our footprint by selling innovative products and connected experiences to providers and consumers 2. Invest in our providers, especially the trusted aesthetician, to help turn them into brand evangelists and advocates providing first-class experiences 3. Nurture direct relationships with our consumers, building brand awareness and driving them to our trusted community 4.
Expand our footprint by selling innovative products and connected experiences to providers and consumers 2. Invest in our providers, especially the trusted esthetician, to help turn them into brand evangelists and advocates providing first-class experiences 3. Nurture direct relationships with our consumers, building brand awareness and driving them to our trusted community of providers 4.
We intend to utilize our sales force to sell our offering, inviting providers and partners to become a part of our community. We believe that each placement of our offering will grow the platform and increase consumers’ awareness of us, ultimately building a recognizable and aspirational brand drawing in consumers.
We intend to utilize our sales force to sell our offering by inviting providers and partners to become a part of our community. We believe that each placement of our offering will grow the platform and increase consumers’ awareness of our Company, ultimately building a recognizable and aspirational brand drawing in consumers.
Regulation of Cosmetics The FDCA defines cosmetics as articles or components of articles intended for application to the human body to cleanse, beautify, promote attractiveness, or alter the appearance. The labeling of cosmetic products is subject to the requirements of the FDCA, the Fair Packaging and Labeling Act, the Poison Prevention Packaging Act and other FDA regulations.
Regulation of Cosmetics The FDCA defines cosmetics as articles or components of articles intended for application to the human body to cleanse, beautify, promote attractiveness, or alter the appearance. The labeling of cosmetic products is subject to the requirements of the FDCA, the Fair Packaging and Labeling Act, the Poison Prevention Packaging Act and various regulations.
Furthermore, we utilize different methods to customize the consumer experience, including using artificial intelligence-powered tools to provide personalized advice on selecting and using products. 14 Customers The majority of our customers are providers within the professional medical industry (dermatologists, plastic surgeons, and medical spas), aesthetician, and beauty retail industry (spas, hotels, and other retailers).
Furthermore, we utilize different methods to customize the consumer experience, including using artificial intelligence-powered tools to help provide personalized advice on selecting and using products. Customers The majority of our customers are providers within the professional medical industry (dermatologists, plastic surgeons, and medical spas), esthetician, and beauty retail industry (spas, hotels, and other retailers).
The MHRA only registers devices where the manufacturer or their United Kingdom (“UK”) Responsible Person has a registered place of business in the UK. Manufacturers based outside the UK need to appoint a UK Responsible Person that has a registered place of business in the UK to register devices with the MHRA in line with the grace periods.
The MHRA only registers devices where the manufacturer or their UK Responsible Person has a registered place of business in the UK. Manufacturers based outside the UK need to appoint a UK Responsible Person that has a registered place of business in the UK to register devices with the MHRA in line with the grace periods.
These aestheticians have since become our most influential ambassadors, driving awareness, recommending our products, and becoming a point of education for our consumers.
These estheticians have since become our most influential ambassadors, driving awareness, recommending our products, and becoming a point of education for our consumers.
Our ability to compete successfully depends heavily on ensuring the continuing and timely introduction of new products and services, as well as staying relevant within the market and conforming to beauty and health trends.
Our ability to compete successfully depends heavily on ensuring the continued and timely introduction of new and reliable products and services, as well as staying relevant within the market and conforming to beauty and health trends.
(“Merger Sub I”), Hydrate Merger Sub II, LLC (“Merger Sub II”), LCP Edge Intermediate, Inc., the indirect parent of Edge Systems LLC d/b/a The Hydrafacial Company (“Hydrafacial”), and LCP Edge Holdco, LLC (“LCP,” or “Former Parent,” and, in its capacity as the stockholders’ representative, the “Stockholders’ Representative”) (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”).
Edge Systems LLC) (“Hydrafacial”), and LCP Edge Holdco, LLC (“LCP,” or “Former Parent,” and, in its capacity as the stockholders’ representative, the “Stockholders’ Representative”) (the “Merger Agreement”), which provided for: (a) the merger of Merger Sub I with and into Hydrafacial, with Hydrafacial continuing as the surviving corporation (the “First Merger”), and (b) immediately following the First Merger and as part of the same overall transaction as the First Merger, the merger of Hydrafacial with and into Merger Sub II, with Merger Sub II continuing as the surviving entity (the “Second Merger” and, together with the First Merger, the “Mergers” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”).
In addition, a responsible person will be required to report any serious adverse events that result from the use of a cosmetic product manufactured, packaged, or distributed by the person, and the records relating to each adverse event report will be required to be kept for six years.
In addition, a responsible person, as defined under FDA regulations, will be required to report any serious adverse events that result from the use of a cosmetic product manufactured, packaged, or distributed by the person, and the records relating to each adverse event report will be required to be kept for six years.
UK Regulation of Medical Devices following Brexit Since January 1, 2021, the Medicines and Healthcare Products Regulatory Agency (“MHRA”), has become the sovereign regulatory authority responsible for Great Britain (i.e.
United Kingdom (“UK”) Regulation of Medical Devices following Brexit Since January 1, 2021, the Medicines and Healthcare Products Regulatory Agency (“MHRA”), has become the sovereign regulatory authority responsible for Great Britain (i.e.
Some pre-amendment devices are unclassified, but are subject to FDA’s premarket notification and clearance process in order to be commercially distributed. 510(k) Clearance Marketing Pathway To obtain 510(k) clearance, the sponsor must submit to the FDA a premarket notification submission demonstrating that the proposed device is “substantially equivalent” to, including that it is as safe and as effective as, a legally marketed predicate device.
Some pre-amendment devices, which are devices legally marketed prior to May 28, 1976, are unclassified but are subject to FDA’s premarket notification and clearance process in order to be commercially distributed. 510(k) Clearance Marketing Pathway To obtain 510(k) clearance, the sponsor must submit to the FDA a premarket notification submission demonstrating that the proposed device is as safe and effective as, or “substantially equivalent” to, a legally marketed predicate device.
Each member state appoints a competent authority to enforce the EU Cosmetics Regulation in its territory and to cooperate with the other member state authorities and the European Commission. The European Commission is responsible for driving consistency in the way the Cosmetics Regulation is enforced across the EU. The aforementioned EU rules are generally applicable in the EEA.
Each member state appoints a competent authority to enforce the EU Cosmetics Regulation in its territory and to cooperate with the other member state authorities and the European Commission. The European Commission is responsible for driving consistency in the way the Cosmetics Regulation is enforced across the EU.
In addition, the FDA requires that cosmetic labeling and claims be truthful and not misleading, and cosmetics may not be marketed or labeled for use in treating, preventing, mitigating, or curing disease or other conditions or in affecting the structure or function of the body because such claims would render the products to be a drug and subject to regulation as a drug.
FDA regulations also prohibit or otherwise restrict the use of certain types of ingredients in cosmetic products. 18 In addition, the FDA requires that cosmetic labeling and claims be truthful and not misleading, and cosmetics may not be marketed or labeled for use in treating, preventing, mitigating, or curing disease or other conditions or in affecting the structure or function of the body because such claims would render the products to be a drug and subject to regulation as a drug.
Our strategy over the next few years includes continuing to build a strong and secure technology infrastructure to adapt to evolving business dynamics, which includes the expansion of our omnichannel capabilities, modernizing and upgrading our existing facilities to be powered by technology, and the utilization of data-driven analytics to optimize our supply and demand planning.
Our strategy over the next few years includes continuing to build a strong and secure technology infrastructure to adapt to evolving business dynamics, which includes the expansion of our omnichannel capabilities, upgrading our existing hardware and software to be more streamlined, and the utilization of data-driven analytics to optimize our supply and demand planning.
In this process, we will particularly focus on the trusted aesthetician. Historically, companies in the medical aesthetics industry focused on physicians, nurses, front-office staff, and business owners. Notably absent from their focus was the aesthetician, a highly influential provider who serves as a source of skincare information and recommendations for their clients and patients.
In this process, we will particularly focus on the trusted esthetician. Historically, companies in the medical aesthetics industry focused on physicians, nurses, front-office staff, and business owners. Notably absent from their focus were the estheticians, highly influential providers who serve as a source of skincare information and recommendations for their clients and patients.
In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR. PMA applications are also subject to the payment of user fees, which for fiscal year 2023 includes a standard application fee of $441,547.
In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR. PMA applications are also subject to the payment of user fees, which for fiscal year 2024 includes a standard application fee of $483,560 or a small business fee of $120,890.
Available Information Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available on our website free of charge at http://beautyhealth.com under “Financials—SEC Filings,” as soon as reasonably practicable after we electronically file such reports with, or furnish those reports to, the Securities and Exchange Commission.
At our investor relations website, www.investors.beautyhealth.com, we make available free of charge a variety of information for investors, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such reports with, or furnish those reports to, the Securities and Exchange Commission at www.sec.gov.
Delivery Systems are purchased by providers to offer Hydrafacial to their clients and patients. In conjunction with the sale of Delivery Systems, we also sell our serum solutions and consumables (collectively “Consumables”). The Consumables are akin to the razor blades, consisting of single-use tips, solutions, and serums used during a Hydrafacial treatment.
Delivery Systems are purchased by providers to offer Hydrafacial treatments to their clients and patients. In conjunction with the sale of Delivery Systems, we also sell our Consumables. The Consumables are akin to the razor blades, consisting of single-use tips, solutions, and serums used during a Hydrafacial treatment. Delivery Systems and Consumables can be bought together or separately.
For fiscal year 2023, the standard user fee for a 510(k) premarket notification submission is $19,125, with the fee being $4,781 for small businesses. If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device.
For fiscal year 2024, the standard user fee for a 510(k) premarket notification submission is $21,760, with the fee being $5,440 for small businesses. If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device.
The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k) or a PMA application in the first instance, but the FDA may review such decision and may disagree with a manufacturer’s determination.
The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k) or a PMA application before the modified device may be marketed, but the FDA may review such decision and may disagree with a manufacturer’s determination.
In addition, the Trade Deal between the UK and the EU generally provides for cooperation and exchange of information between the parties in the areas of product safety and compliance, including market surveillance, enforcement activities and measures, standardization-related activities, exchanges of officials, and coordinated product recalls. As such, processes for compliance and reporting should reflect requirements from regulatory authorities.
In addition, the Trade Deal between the UK and the EU generally provides for cooperation and exchange of information between the parties in the areas of product safety and compliance, including market surveillance, enforcement activities and measures, standardization-related activities, exchanges of officials, and coordinated product recalls.
We currently sell approximately 66% of our Delivery Systems and Consumables into the professional medical channel. No individual customer accounted for 10% or more of our net sales in fiscal 2022. We expect that trend to continue on a global scale. In 2022, revenue derived from markets outside the United States and Canada comprised approximately 34% of total revenue.
We currently sell approximately 68% of our Delivery Systems and Consumables into the professional medical channel in the United States and Canada. No individual customer accounted for 10% or more of our net sales in fiscal 2023. We expect that trend to continue on a global scale.
Over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products.
Over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products by limiting the number of devices available for use to demonstrate equivalence as a predicate device.
Officers 33% 67% 44% 56% __________ (1) In the United States, 55% of employees identified as Black or African American, Hispanic or Latino, American Indian, Alaska Native, Asian American, Native Hawaiian, or other Pacific Islander.
Officers 36% 59% 45% 55% __________ (1) In the United States, 52% of employees identified as Black or African American, Hispanic or Latino, American Indian, Alaska Native, Asian American, Native Hawaiian, or other Pacific Islander.
While government authorities have the primary responsibility for protecting human rights, we believe we have a duty to respect the human, cultural, and legal rights of individuals and communities, and to avoid adverse human rights impacts through our own activities.
We also seek to apply relevant sections of the UN Guiding Principles on Business and Human Rights. While government authorities have the primary responsibility for protecting human rights, we believe we have a duty to respect the human, cultural, and legal rights of individuals and communities, and to avoid adverse human rights impacts through our own activities.
We intend to continue our marketing activation efforts by using digital and location-based engagement. Digital Marketing We are also continuously innovating to increase our sales by elevating our digital presence, social media presence, and influencer marketing efforts all designed to build brand equity and consumer engagement.
Digital Marketing We are also continuously innovating in order to help increase our sales by elevating our digital presence, social media presence, and influencer marketing efforts all designed to help build brand equity and consumer engagement.
Offering includes proprietary boosters co-developed via collaborations with various skincare brands. 1-2 treatments per serum vial Product Development Pipeline Boosters A key differentiating factor of the Hydrafacial treatment is how we partner with leading skincare brands to co-develop boosters, an optional add-on serum that tailors a Hydrafacial treatment based on a consumer’s skincare concerns.
Product Development Pipeline Boosters A key differentiating factor of the Hydrafacial treatment is how we partner with leading skincare brands to co-develop boosters, an optional add-on serum that tailors a Hydrafacial treatment based on a consumer’s skincare concerns.
European Union Regulation of Cosmetic Products In the EU, the sale of cosmetic products is regulated under the EU Cosmetics Regulation (EC) No 1223/2009, (the “EU Cosmetics Regulation”) setting out the general regulatory framework for finished cosmetic products and their ingredients.
As such, processes for compliance and reporting should reflect requirements from regulatory authorities. 22 European Union Regulation of Cosmetic Products In the EU, the sale of cosmetic products is regulated under the EU Cosmetics Regulation (EC) No 1223/2009, (the “EU Cosmetics Regulation”) setting out the general regulatory framework for finished cosmetic products and their ingredients.
More recently, in September 2019, the FDA issued revised final guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process.
These proposals have not yet been finalized or adopted, although the FDA may work with Congress to implement such proposals through legislation. 15 In September 2019, the FDA issued revised final guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process.
Furthermore, as our business outside of the United States grows, seasonal fluctuations may smooth out. As a result, results for any interim period are not necessarily indicative of the results that may be achieved for the full fiscal year.
Net sales can also be affected when consumers and distributors anticipate a product introduction. Furthermore, as our business outside of the United States grows, seasonal fluctuations may smooth out. As a result, results for any interim period are not necessarily indicative of the results that may be achieved for the full fiscal year.
Governance Business Ethics We have placed the highest emphasis on conducting our business with honesty and integrity. The highest ethical standards are expected of management and employees alike, and we continuously strive to create a corporate culture of honesty, integrity, and trust.
Our facilities provide for recycling, and our electronic waste is sent to locally approved e-waste recycling centers. Governance Business Ethics We have placed the highest emphasis on conducting our business with honesty and integrity. The highest ethical standards are expected of management and employees alike, and we continuously strive to create a corporate culture of honesty, integrity, and trust.
On May 4, 2021, we 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.
About Us The Beauty Health Company (f.k.a. Vesper Healthcare Acquisition Corp.) was incorporated in the State of Delaware on July 8, 2020. On May 4, 2021, we 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.
UK Regulation of Cosmetic Products following Brexit The UK formally left the EU on January 31, 2020, commonly referred to as “Brexit”.
The aforementioned EU rules are generally applicable in the EEA. 23 UK Regulation of Cosmetic Products following Brexit The UK formally left the EU on January 31, 2020, commonly referred to as “Brexit”.
Seasonality and Quarterly Results Our business is subject to moderate seasonal fluctuations. We typically experience the highest revenues and operating income in the fiscal fourth quarter and lowest revenues and operating income in the first fiscal quarter. New product and service introductions can also impact net sales, cost of sales, and operating expenses.
We typically experience the highest revenues and operating income in the fiscal fourth quarter and lowest revenues and operating income in the first fiscal quarter. New product and service introductions can also impact net sales, cost of sales, and operating expenses.
However, as of May 26, 2021, some of the EU Medical Devices Regulation requirements apply in place of the corresponding requirements of the EU Medical Devices Directive with regard to registration of economic operators and of devices, post-market surveillance and vigilance requirements.
Our current certificates have been granted under the EU Medical Devices Directive whose regime is described below. However, as of May 26, 2021, some of the EU Medical Devices Regulation requirements apply in place of the corresponding requirements of the EU Medical Devices Directive with regard to registration of economic operators and of devices, post-market surveillance and vigilance requirements.
If the FDA accepts the application for review, it has 180 days under the FDCA to complete its review of a PMA, although in practice, the FDA’s review often takes significantly longer, and can take up to several years.
If the FDA accepts the application for review, it has 180 days under the FDCA to complete its review of a PMA, although in practice, the FDA’s review often takes significantly longer, and can take up to several years. Various actions can result in the pause or reset of the 180-day timeframe, resulting in an extended and lengthy approval process.
Regulation of Medical Devices The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA. 15 FDA Premarket Clearance and Approval Requirements Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a premarket notification submitted under Section 510(k) of the FDCA, or approval of a premarket approval application (“PMA”).
Regulation of Medical Devices The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance and/or approval, adverse event reporting, advertising, promotion, marketing, distribution, and import and export of medical devices to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA.
As of December 31, 2022, a breakdown of our workforce is as follows: Employee Population Race/Ethnicity Gender % Minority (1) % White % Female % Male U.S. Workforce 57% 43% 67% 33% U.S. Managers & Above 46% 54% 56% 44% U.S.
As of December 31, 2023, a breakdown of our workforce is as follows: Employee Population Race/Ethnicity Gender % Minority (1) % White % Female % Male U.S. Workforce 54% 45% 67% 33% U.S. Managers & Above 48% 49% 71% 29% U.S.
Item 1. Business. Company Overview The Beauty Health Company is a global category-creating company focused on delivering beauty health experiences that help consumers reinvent their relationship with their skin, bodies and self-confidence.
Item 1. Business. Company Overview The Beauty Health Company (the “Company” or “we”) is a global category-creating company focused on delivering skin health experiences that help consumers reinvent their relationship with their skin, bodies, and self-confidence. The Company and its subsidiaries design, develop, manufacture, market, and sell esthetic technologies and products.
We firmly believe an inclusive work environment is essential for a successful and thriving business and enables us to better understand our consumers, drive innovation, and stimulate creativity. We recognize the importance of all types of diversity at leadership levels and throughout our organization.
We firmly believe an inclusive work environment is essential for a successful and thriving business and enables us to better understand our consumers, drive innovation, and stimulate creativity.
In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.
In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients.
Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement.
Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval. 16 Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSeeking such approvals, clearances or certifications may delay our ability to replace the recalled products in a timely manner. Moreover, if we do not adequately address problems associated with our products, we may face additional regulatory enforcement action, including FDA or foreign regulatory authorities warning letters, product seizure, injunctions, administrative penalties or civil or criminal fines.
Biggest changeMoreover, if we do not adequately address problems associated with our products, we may face additional regulatory enforcement action, including warning letters or untitled letters; fines, injunctions or civil penalties; suspension or withdrawal of approvals or clearances; seizures or recalls of products; total or partial suspension of production or distribution; administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or approvals for products; clinical holds; refusal to permit the import or export of products; and criminal prosecution.
Physicians, a/estheticians, and others may also misuse our products or use improper techniques if they are not adequately trained in the particular use, potentially leading to injury and an increased risk of product liability. Product liability claims are expensive to defend and could divert management’s attention from the primary business and result in substantial damage awards against us.
Physicians, a/estheticians, and others may also misuse our products or use improper techniques if they are not adequately trained in the particular use, potentially leading to injury and an increased risk of product liability claims. Product liability claims are expensive to defend and could divert management’s attention from the primary business and result in substantial damage awards against us.
The timing of the obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events of which we become aware within the prescribed timeframe.
The timing of the obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report within the prescribed timeframe adverse events of which we become aware.
We and our service providers may not be able to prevent third parties, including criminals, competitors or others, from breaking into or altering our systems, disrupting our business operations or communications infrastructure through denial-of- 42 service attacks, attempting to gain access to our systems, information or monetary funds through phishing or social engineering campaigns, installing viruses or malicious software on our e-commerce websites or devices used by our employees or contractors, or carrying out other activity intended to disrupt our systems or gain access to confidential or sensitive information in our or our service providers’ systems.
We and our service providers may not be able to prevent third parties, including criminals, competitors or others, from breaking into or altering our systems, disrupting our business operations or communications infrastructure through denial-of-service attacks, attempting to gain access to our systems, information or monetary funds through phishing or social engineering campaigns, installing viruses or malicious software on our e-commerce websites or devices used by our employees or contractors, or carrying out other activity intended to disrupt our systems or gain access to confidential or sensitive information in our or our service providers’ systems.
As supervisory authorities issue further 52 guidance on personal data export mechanisms, including circumstances where the SCCs cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the SCCs cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
Any failure by us to take satisfactory corrective action in response to an adverse inspection could result in enforcement actions against us, including warning letters or untitled letters; fines, injunctions or civil penalties; suspension or withdrawal of approvals or clearances; seizures or recalls of products; total or partial suspension of production or distribution; administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or approvals for products; clinical holds; refusal to permit the import or export of products; and criminal prosecution.
Any failure by us to take satisfactory corrective action in response to an adverse inspection could result in enforcement actions against us, including warning letters or untitled letters; fines, injunctions 52 or civil penalties; suspension or withdrawal of approvals or clearances; seizures or recalls of products; total or partial suspension of production or distribution; administrative or judicially imposed sanctions; the FDA’s refusal to grant pending or future clearances or approvals for products; clinical holds; refusal to permit the import or export of products; and criminal prosecution.
Our future growth, profitability and cash flows depend upon our ability to successfully implement our business strategy, which, in turn, is dependent upon a number of key initiatives, including our ability to: • drive demand in the brand; • invest in digital capabilities; • improve productivity in our retailers, U.S. medical spa facilities and U.S. spa facilities; • implement the necessary cost savings to help fund our marketing and digital investments; and • pursue strategic extensions that can leverage our strengths and bring new capabilities.
Our future growth, profitability and cash flows depend upon our ability to successfully implement our business strategy, which, in turn, is dependent upon a number of key initiatives, including our ability to: • drive demand in the brand; • invest in our providers and digital capabilities; • improve productivity in our retailers, U.S. medical spa facilities and U.S. spa facilities; • implement the necessary cost savings to help fund our marketing and digital investments; and • pursue strategic extensions that can leverage our strengths and bring new capabilities.
Transactions on our e-commerce websites are card-not-present transactions, so they present a greater risk of fraud. Criminals are using increasingly sophisticated methods to engage in illegal activities such as unauthorized use of credit or debit cards and 43 bank account information. Requirements relating to consumer authentication and fraud detection with respect to online sales are complex.
Transactions on our e-commerce websites are card-not-present transactions, so they present a greater risk of fraud. Criminals are using increasingly sophisticated methods to engage in illegal activities such as unauthorized use of credit or debit cards and bank account information. Requirements relating to consumer authentication and fraud detection with respect to online sales are complex.
With respect to our medical device products, we are required to demonstrate and maintain compliance with the FDA’s current Good Manufacturing Practices, referred to as the Quality System Regulation (“QSR”). The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of medical device products.
With respect to our medical device products, we are required to demonstrate and maintain compliance with the FDA’s current Good Manufacturing Practices, referred to as the Quality System Regulation. The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage, and shipping of medical device products.
Many of the requirements will become applicable on December 29, 2023, although some of the requirements, such as those relating to labeling, will become applicable in 2024 and 2025. Moreover, depending on how we market the products, they could also be regulated as both drugs and cosmetics simultaneously, as the categories are not mutually exclusive.
Some of the requirements became applicable on December 29, 2023, although many of the requirements, such as those relating to labeling, will become applicable in 2024 and 2025. Moreover, depending on how we market the products, they could also be regulated as both drugs and cosmetics simultaneously, as the categories are not mutually exclusive.
Changes to the terms of these social 58 networking services to limit promotional communications, any restrictions that would limit our ability or our consumers’ ability to send communications through their services, disruptions or downtime experienced by these social networking services or decline in the use of or engagement with social networking services by consumers could materially and adversely affect our business, financial condition and results of operations.
Changes to the terms of these social networking services to limit promotional communications, any restrictions that would limit our ability or our consumers’ ability to send communications through their services, disruptions or downtime experienced by these social networking services or decline in the use of or engagement with social networking services by consumers could materially and adversely affect our business, financial condition and results of operations.
Foreign Corrupt Practices Act (“FCPA”) and the UK Bribery Act 2010 (the “UKBA”), in spite of Hydrafacial’s policies and procedures designed to promote compliance with these laws; • the impact of government-led initiatives to encourage the purchase or support of domestic vendors, which can affect the willingness of customers to purchase products from, or collaborate to promote interoperability of products with, companies whose headquarters or primary operations are not domestic; • an inability to obtain or maintain adequate intellectual property protection for Hydrafacial’s brand and products; • longer payment cycles and greater difficulty in accounts receivable collection; • a legal system subject to undue influence or corruption; • a business culture in which illegal sales practices may be prevalent; and • potential adverse tax consequences.
Foreign Corrupt Practices Act (“FCPA”) and the UK Bribery Act 2010 (the “UKBA”), in spite of our policies and procedures designed to promote compliance with these laws; • the impact of government-led initiatives to encourage the purchase or support of domestic vendors, which can affect the willingness of customers to purchase products from, or collaborate to promote interoperability of products with, companies whose headquarters or primary operations are not domestic; • an inability to obtain or maintain adequate intellectual property protection for our brand and products; • longer payment cycles and greater difficulty in accounts receivable collection; • a legal system subject to undue influence or corruption; • a business culture in which illegal sales practices may be prevalent; and • potential adverse tax consequences.
There can be no assurance that any contemplated or future acquisition will occur. Our operating results have fluctuated in the past and we expect our future quarterly and annual operating results to fluctuate for a variety of reasons, particularly as we focus on increasing provider and consumer demand for our products.
There can be no assurance that any contemplated or future acquisition will occur. 34 Our operating results have fluctuated in the past and we expect our future quarterly and annual operating results to fluctuate for a variety of reasons, particularly as we focus on increasing provider and consumer demand for our products.
There can be no assurances that our practices have complied, comply or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in 54 damage to our reputation, a loss in business or proceedings or actions against us by governmental entities or others.
There can be no assurances that our practices have complied, comply or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business or proceedings or actions against us by governmental entities or others.
If freight costs materially increase and we are unable to pass that increase along to our customers for any reason or otherwise offset such increases in costs, our gross margin and financial results could be adversely affected. If we fail to manage our inventory effectively, our results of operations, financial condition and liquidity may be materially and adversely affected.
If freight costs materially increase and we are unable to pass that increase along to our customers for any reason or otherwise offset such increases in costs, our gross margin and financial results could be adversely affected. 38 If we fail to manage our inventory effectively, our results of operations, financial condition and liquidity may be materially and adversely affected.
Any inquiry into the regulatory status of our products and any related interruption in the marketing and sale of these products by any regulatory agencies, such as the FDA, could damage our reputation and image in the marketplace. In recent years, the FDA has issued warning letters to several cosmetic companies alleging improper claims regarding their cosmetic products.
Any inquiry into the regulatory status of our products and any related interruption in the marketing and sale of these products by any regulatory agencies, such as the FDA, could damage our reputation and image in the marketplace. 49 In recent years, the FDA has issued warning letters to several cosmetic companies alleging improper claims regarding their cosmetic products.
Due to these and other factors, we believe that quarter-to-quarter comparisons of our operating results may not be meaningful. You should not rely on our results for any one quarter as an indication of future performance. We have a history of operating losses and may experience future losses. We have yet to establish any history of profitable operations.
Due to these and other factors, we believe that quarter-to-quarter comparisons of our operating results may not be meaningful. You should not rely on our results for any one quarter as an indication of future performance. 35 We have a history of operating losses and may experience future losses. We have yet to establish any history of profitable operations.
Any of these outcomes could result in a material adverse effect on our business, financial condition and results of operations. Our reputation and brand may be negatively affected if our customers do not use our Delivery System as intended. We use a razor/razor blade business model.
Any of these outcomes could result in a material adverse effect on our business, financial condition and results of operations. 31 Our reputation and brand may be negatively affected if our customers do not use our Delivery System as intended. We use a razor/razor blade business model.
Even if we are successful in defending against such claims, litigation could result in substantial costs and distraction of our management and other employees from our business. 56 We currently hold various Internet domain names related to our brand and business, including beautyhealth.com, among others.
Even if we are successful in defending against such claims, litigation could result in substantial costs and distraction of our management and other employees from our business. We currently hold various Internet domain names related to our brand and business, including beautyhealth.com, among others.
As a result, either our net revenues or our ability to maintain market share could be materially harmed if: we are unable to retain our direct sales personnel or quickly replace them with individuals of equivalent technical expertise and qualifications; we are unable to successfully instill technical expertise in new and existing sales representatives; we fail to establish and maintain strong relationships with our customers; or if our efforts at specializing our selling techniques do not prove to be successful and cost-effective. 38 Our providers generally are not under any obligation to purchase product, and business challenges at one or more of these providers could adversely affect our results of operations.
As a result, either our net revenues or our ability to maintain market share could be materially harmed if: we are unable to retain our direct sales personnel or quickly replace them with individuals of equivalent technical expertise and qualifications; we are unable to successfully instill technical expertise in new and existing sales representatives; we fail to establish and maintain strong relationships with our customers; or if our efforts at specializing our selling techniques do not prove to be successful and cost-effective. 39 Our providers generally are not under any obligation to purchase product, and business challenges at one or more of these providers could adversely affect our results of operations.
The likelihood of any such changes being enacted or implemented is unclear and we are currently unable to predict whether any such changes will occur and, if so, the ultimate impact on our business. 40 Our effective tax rate may vary significantly from period to period.
The likelihood of any such changes being enacted or implemented is unclear and we are currently unable to predict whether any such changes will occur and, if so, the ultimate impact on our business. Our effective tax rate may vary significantly from period to period.
In addition, we have limited control or influence over the security policies or measures adopted by third-party providers of online payment services through which some of our consumers may elect to make payment for purchases at our e-commerce websites.
In addition, we have limited control or influence over the security policies or measures adopted by third-party providers of online payment services through which some of our 44 consumers may elect to make payment for purchases at our e-commerce websites.
Moreover, 34 expense levels are based, in part, on our expectations regarding future revenue levels. As a result, if our net revenues for a particular period fall below expectations, we may be unable to adjust spending quickly enough to offset any shortfall in net revenues.
Moreover, expense levels are based, in part, on our expectations regarding future revenue levels. As a result, if our net revenues for a particular period fall below expectations, we may be unable to adjust spending quickly enough to offset any shortfall in net revenues.
In a rising fuel cost environment, our freight costs will increase. In addition, we earn an increasingly larger portion of our total revenues from international sales. International sales carry higher 37 shipping costs which could negatively impact our gross margin and results of operations.
In a rising fuel cost environment, our freight costs will increase. In addition, we earn an increasingly larger portion of our total revenues from international sales. International sales carry higher shipping costs which could negatively impact our gross margin and results of operations.
Many of the risks associated with the use of third‑party products cannot be eliminated, and these risks could negatively affect our business. 57 Risks related to marketing activities Use of social media may materially and adversely affect our reputation or subject us to fines or other penalties.
Many of the risks associated with the use of third‑party products cannot be eliminated, and these risks could negatively affect our business. Risks related to marketing activities Use of social media may materially and adversely affect our reputation or subject us to fines or other penalties.
The following discussion should be read in conjunction with the financial statements and notes to the financial statements included herein. Risks related to the beauty health industry The beauty health industry is highly competitive, and if we are unable to compete effectively our results will suffer.
The following discussion should be read in conjunction with the financial statements and notes to the financial statements included herein. 29 Risks related to the beauty health industry The beauty health industry is highly competitive, and if we are unable to compete effectively, our results will suffer.
Competition in the beauty and skincare industry is based on the introduction of new products, pricing of products, quality of products and packaging, brand awareness, perceived value and quality, innovation, in-store presence and visibility, promotional activities, advertising, editorials, e-commerce and mobile- 29 commerce initiatives and other activities.
Competition in the beauty and skincare industry is based on the introduction of new products, pricing of products, quality of products and packaging, brand awareness, perceived value and quality, innovation, in-store presence and visibility, promotional activities, advertising, editorials, e-commerce and mobile-commerce initiatives and other activities.
Any of these occurrences could delay or impede our ability to achieve our sales objectives, which could have a material adverse effect on our business, financial condition and results of operations. Any damage to our reputation or brand may materially and adversely affect our business, financial condition and results of operations.
Any of these occurrences could delay or impede our ability to achieve our sales objectives, which could have a material adverse effect on our business, financial condition and results of operations. 30 Any damage to our reputation or brand may materially and adversely affect our business, financial condition and results of operations.
If we do not make the necessary overhead expenditures to accommodate our future growth, we may be unsuccessful in executing our growth strategy and our results of operations could suffer. Acquisitions or investments could disrupt our business and harm our financial condition.
If we do not make the necessary overhead 33 expenditures to accommodate our future growth, we may be unsuccessful in executing our growth strategy and our results of operations could suffer. Acquisitions or investments could disrupt our business and harm our financial condition.
Disruptions at the FDA, other agencies and notified bodies may also slow the time necessary for new 51 medical devices or modifications to be cleared or approved or certified medical devices to be reviewed and/or cleared, approved or certified by necessary government agencies or notified bodies, which would adversely affect our business.
Disruptions at the FDA, other agencies and notified bodies may also slow the time necessary for new medical devices or modifications to be cleared or approved or certified medical devices to be reviewed and/or cleared, approved or certified by necessary government agencies or notified bodies, which would adversely affect our business.
Furthermore, if we cannot make scheduled payments on our debt, the lenders under our credit agreement may terminate their commitments to loan money to us under our revolving credit facility, and our lenders under our credit agreement can declare all outstanding principal and interest to be due and payable and foreclose against the assets securing their borrowings, and we could be forced into bankruptcy or liquidation. 39 The terms of our credit agreement and senior notes require us to meet certain operating and financial covenants and place restrictions on our operating and financial flexibility.
Furthermore, if we cannot make scheduled payments on our debt, the lenders under our credit agreement may terminate their commitments to loan money to us under our revolving credit facility, and our lenders under our credit agreement can declare all outstanding principal and interest to be due and payable and foreclose against the assets securing their borrowings, and we could be forced into bankruptcy or liquidation. 40 The terms of our credit agreement and senior notes require us to meet certain operating and financial covenants and place restrictions on our operating and financial flexibility.
If our 32 acquisitions do not achieve their intended benefits, or do not achieve their intended benefits on our projected timelines, our business, financial condition, and results of operations could be materially and adversely affected.
If our acquisitions do not achieve their intended benefits, or do not achieve their intended benefits on our projected timelines, our business, financial condition, and results of operations could be materially and adversely affected.
If a prolonged government shutdown occurs, or if new or existing global health concerns continue to hinder or prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
If a prolonged government shutdown occurs, or if new or 54 existing global health concerns hinder or prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
If we do not take action, climate change could result in increased costs, reduced profit and reduced growth. 46 Increased scrutiny from investors and others regarding our environmental, social, governance, or sustainability, responsibilities could result in additional costs or risks and adversely impact our reputation, employee retention, and willingness of customers and suppliers to do business with us.
If we do not take action, climate change could result in increased costs, reduced profit and reduced growth. 48 Increased scrutiny from investors and others regarding our environmental, social, governance, or sustainability, responsibilities could result in additional costs or risks and adversely impact our reputation, employee retention, and willingness of customers and suppliers to do business with us.
Acquisitions or investments could also result in dilutive issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expenses, increased interest expenses or impairment charges against goodwill on our consolidated balance sheet, any of which could have a material adverse effect on our business, financial condition and results of operations.
Acquisitions or investments could also result in dilutive issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expenses, increased interest expenses or impairment charges against goodwill on our Consolidated Balance Sheets, any of which could have a material adverse effect on our business, financial condition and results of operations.
The currently marketed medical devices are marketed pursuant to 510(k) clearances we have obtained or are exempt from the requirement to obtain such clearance or other form of marketing authorization. Medical devices may be marketed only for the indications for which they are approved or cleared, or for which they are classified as exempt from such clearance.
The currently marketed medical devices are marketed pursuant to 510(k) clearances we have obtained or are exempt from the requirement to obtain such clearance or other form of marketing authorization. Medical devices may be marketed only for the indications for which they are approved or cleared, or for which they are classified as exempt from such premarket requirements.
Our e-commerce websites serve as effective extensions of our marketing strategies by introducing potential new consumers to our brand, product offerings, providers and enhanced content. Due to the importance of our e-commerce operations, we are vulnerable to website downtime and other technical failures.
Our e-commerce operations are important to our business. Our e-commerce websites serve as effective extensions of our marketing strategies by introducing potential new consumers to our brand, product offerings, providers and enhanced content. Due to the importance of our e-commerce operations, we are vulnerable to website downtime and other technical failures.
In addition, a responsible person will be required to report any serious adverse events that result from the use of a cosmetic product manufactured, packaged, or distributed by the person, and the records relating to each adverse event report will be required to be kept for six years.
In addition, a responsible person will be required to report any serious adverse events that result from the use of a cosmetic product manufactured, packaged, or distributed by the associated entity, and the records relating to each adverse event report will be required to be kept for six years.
Any of these factors could depress economic activity and restrict our access to capital, which could materially and adversely affect our business, financial condition and results of operations. 45 We have growing operations in China, which exposes us to risks inherent in doing business in that country.
Any of these factors could depress economic activity and restrict our access to capital, which could materially and adversely affect our business, financial condition and results of operations. 47 We have growing operations in China, which exposes us to risks inherent in doing business in that country.
The FDA enforces the QSR through periodic announced or unannounced inspections. We are subject to such inspections.
The FDA enforces the QSR through periodic announced or unannounced inspections. Because we are subject to the QSR, we are subject to such inspections.
Moreover, our international operations expose us to other risks and uncertainties that are customarily encountered in non-U.S. operations and that may have a material effect on our results of operations and business as a whole, including: • local political and economic instability; • increased expense of developing, testing and making localized versions of Hydrafacial’s products; • difficulties in hiring and retaining employees; • differing employment practices and laws and labor disruptions; • pandemics, such as the COVID-19 pandemic, and natural disasters; • difficulties in managing international operations, including any travel restrictions imposed on Hydrafacial or Hydrafacial’s customers, such as those imposed in response to the COVID-19 pandemic; • fluctuations in currency exchange rates; • foreign exchange controls that could make it difficult to repatriate earnings and cash; • increased or more stringent import and export controls, license requirements and restrictions; • difficulties in controlling production volume and quality of the manufacturing process; • acts of terrorism and acts of war; 44 • general geopolitical instability and the responses to it, such as the possibility of economic sanctions, trade restrictions and changes in tariffs, such as the recent economic sanctions implemented by the United States against China and Russia and tariffs imposed by the United States and China; • interruptions and limitations in telecommunication services; • product or material transportation delays or disruption, including as a result of customs clearance, violence, protests, police and military actions, or natural disasters; • risks of non-compliance by Hydrafacial’s employees, contractors, or partners or agents with, and burdens of complying with, a wide variety of extraterritorial, regional and local laws, including competition laws and anti-bribery laws such as the U.S.
Moreover, our international operations expose us to other risks and uncertainties that are customarily encountered in non-U.S. operations and that may have a material effect on our results of operations and business as a whole, including: • local political and economic instability; • increased expense of developing, testing and making localized versions of our products; • difficulties in hiring and retaining employees; • differing employment practices and laws and labor disruptions; • pandemics, such as the COVID-19 pandemic, and natural disasters; • difficulties in managing international operations, including any travel restrictions imposed on us or our customers, such as those imposed in response to the COVID-19 pandemic; • fluctuations in currency exchange rates; • foreign exchange controls that could make it difficult to repatriate earnings and cash; • increased or more stringent import and export controls, license requirements and restrictions; • difficulties in controlling production volume and quality of the manufacturing process; • acts of terrorism and acts of war, including the current conflicts between Russia and Ukraine and between Israel and Hamas; • general geopolitical instability and the responses to it, such as the possibility of economic sanctions, trade restrictions and changes in tariffs, such as the recent economic sanctions implemented by the United States against China and Russia and tariffs imposed by the United States and China; • interruptions and limitations in telecommunication services; • product or material transportation delays or disruption, including as a result of customs clearance, violence, protests, police and military actions, or natural disasters; 46 • risks of non-compliance by our employees, contractors, or partners or agents with, and burdens of complying with, a wide variety of extraterritorial, regional and local laws, including competition laws and anti-bribery laws such as the U.S.
From January 1, 2021, companies have had to comply with the GDPR and also the United Kingdom GDPR (“UK GDPR”), which, together with the amended United Kingdom Data Protection Act 2018, retains the GDPR in UK national law.
From January 1, 2021, companies have had to comply with the GDPR and also the UK GDPR, which, together with the amended United Kingdom Data Protection Act 2018, retains the GDPR in UK national law.
Additionally, in response to the COVID-19 pandemic or any resurgence of COVID-19, as a result of a new variant or otherwise, we may find the need to discount the prices of our products to facilitate sales in uncertain times. Were any of the foregoing to occur, our net revenues, gross profit, gross margin and net income may be reduced.
Additionally, in response to a pandemic or any resurgence of such pandemic, as a result of a new variant or otherwise, we may find the need to discount the prices of our products to facilitate sales in uncertain times. Were any of the foregoing to occur, our net revenues, gross profit, gross margin and net income may be reduced.
Weakness in the global economy results in a challenging environment for selling aesthetic technologies and doctors or aestheticians may postpone investments in capital equipment, such as our delivery systems.
Weakness in the global economy results in a challenging environment for selling aesthetic technologies and doctors or estheticians may postpone investments in capital equipment, such as our delivery systems.
In addition, if our privacy or data security measures fail to comply with applicable current or future laws and regulations, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data or our marketing practices, fines or other liabilities, all of which could affect our business, results of operations, and financial condition.
In addition, if our privacy or data security measures fail to comply with applicable current or future laws and regulations, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data or our marketing practices, fines or other liabilities, all of which could affect our business, results of operations, and financial condition. 56 Failure to comply with the U.S.
In the United States, medical device products are subject to extensive regulation by the FDA for developing, testing, manufacturing, labeling, sale, marketing, advertising, promotion, distribution, import, export, shipping, establishment registration and device listing, inspections and audits, record keeping, recalls and field safety corrective actions and post-market surveillance, including reporting of certain events.
In the United States, medical device products are subject to extensive regulation by the FDA and include requirements related to developing, testing, establishment registration and device listing, manufacturing, labeling, sale, marketing, advertising, promotion, distribution, import, export, shipping, inspections and audits, record keeping, recalls and field safety corrective actions and post-market surveillance, including reporting of certain events.
Companies may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations.
Companies may also choose to voluntarily recall a product if any material deficiency or regulatory violation is discovered. A government-mandated or voluntary recall could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations.
For example, over the last several years, the United States government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. Separately, in response to the COVID-19 pandemic, the FDA had significantly curtailed and limited its inspection of both foreign and domestic facilities.
For example, over the past decade, the United States government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical and non-critical activities. Separately, in response to the COVID-19 pandemic, the FDA had significantly curtailed and limited its inspection of both foreign and domestic facilities.
Fluctuations in currency exchange rates may negatively affect our financial condition and results of operations. Exchange rate fluctuations may affect the costs we incur in our operations. The main currencies to which we are exposed are the British pound, the Canadian dollar and the EU euro.
Fluctuations in currency exchange rates may negatively affect our financial condition and results of operations. Exchange rate fluctuations may affect the costs we incur in our operations. The main currencies to which we are exposed are the British pound, the EU euro, and the Chinese Renminbi.
Such policy or regulatory changes could impose additional requirements that could delay our ability to obtain new clearances, increase the costs of compliance or restrict our ability to maintain our current clearances. 49 Additionally regulatory clearances, approvals or certifications to market a product can contain limitations on the indicated uses for such product.
Such policy or regulatory changes could impose additional requirements that could delay our ability to obtain new clearances, increase the costs of compliance or restrict our ability to maintain our current clearances. Additionally, regulatory clearances, approvals, or certifications to market a product can contain limitations on the indications for use of such product.
If our information technology systems suffer damage, disruption or shutdown, we may incur substantial cost in repairing or replacing these systems, and if we do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results. 41 Our e-commerce operations are important to our business.
If our information technology systems suffer damage, disruption or shutdown, we may incur substantial cost in repairing or replacing these systems, and if we do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.
We reported a loss from operations of $24.3 million during the fiscal year ended December 31, 2022. We expect to incur additional operating losses for the foreseeable future. Furthermore, our strategic plan will require a significant investment in product development, sales, marketing and administrative programs, which may not result in the accelerated revenue growth that we anticipate.
We reported a loss from operations of $130.9 million during the year ended December 31, 2023. We expect to incur additional operating losses for the foreseeable future. Furthermore, our strategic plan will require a significant investment in product development, sales, marketing and administrative programs, which may not result in the accelerated revenue growth that we anticipate.
As a company engaged in distribution on a global scale, our operations, including those of our third-party suppliers, brokers and delivery service providers, are subject to the risks inherent in such activities, including industrial accidents, supply chain disruptions, macroeconomic issues, environmental events, strikes and other labor disputes, disruptions in information systems, product quality control, safety, licensing requirements and other regulatory issues, changes in laws and regulatory requirements, as well as natural disasters, pandemics (such as the COVID-19 pandemic), border disputes, acts of terrorism and other external factors over which we and our third-party suppliers, brokers and delivery service providers may have no control.
As a company engaged in distribution on a global scale, our operations, including those of our third-party suppliers, brokers and delivery service providers, are subject to the risks inherent in such activities, including industrial accidents, supply chain disruptions, macroeconomic issues, environmental events, strikes and other labor disputes, disruptions in information systems, product quality control, safety, licensing requirements and other regulatory issues, changes in laws and regulatory requirements, as well as natural disasters, pandemics (such as the COVID-19 pandemic), border disputes, political crises, such as acts of terrorism, war and other political instability, including the current conflicts between Russia and Ukraine and between Israel and Hamas, and other external factors over which we and our third-party suppliers, brokers and delivery service providers may have no control.
These factors may include: • any reduction in consumer traffic and demand at our providers as a result of economic downturns, pandemics or other health crises, changes in consumer preferences or reputational damage as a result of, among other developments, data privacy and security breaches, regulatory investigations or employee misconduct; • any credit risks associated with the financial condition of our providers; and • the effect of consolidation or weakness in the retail industry or at certain providers, including store and spa closures and the resulting uncertainty.
These factors may include: • any reduction in consumer traffic and demand at our providers as a result of economic downturns, pandemics or other health crises, changes in consumer preferences or reputational damage as a result of, among other developments, data privacy and security breaches, regulatory investigations or employee misconduct; • any credit risks associated with the financial condition of our providers; • the effect of consolidation or weakness in the retail industry or at certain providers, including store and spa closures and the resulting uncertainty; and • changes in federal, state, local, or foreign regulations that affect the scope of practice of our providers.
Failure to comply with the U.S. FCPA, other applicable anti-corruption and anti-bribery laws, and applicable trade control laws could subject us to penalties and other adverse consequences. We sell our products in several countries outside of the United States, primarily through distributors.
FCPA, other applicable anti-corruption and anti-bribery laws, and applicable trade control laws could subject us to penalties and other adverse consequences. We sell our products in several countries outside of the United States, primarily through distributors.
To the extent federal, state, local or foreign regulatory changes regarding licensing, distribution, consumer protection, or the ingredients, claims or safety of our products occurs in the future, they could require us to obtain additional licenses and registrations, reformulate or discontinue certain of our products, revise the product packaging or labeling, or adjust operations and systems, any of which could result in, among other things, increased costs, delays in product launches, product returns or recalls and lower net sales, and therefore could have a material adverse effect on our business, financial condition and results of operations.
To the extent federal, state, local or foreign regulatory changes regarding the scope of practice of estheticians, licensing, distribution, consumer protection, or the ingredients, claims or safety of our products occurs in the future, they could require us to obtain additional licenses and registrations, reformulate or discontinue certain of our products, revise the product packaging or labeling, adjust operations and systems, or affect our ability to sell our products to certain customer groups in particular states and/or territories, any of which could result in, among other things, increased costs, delays in product launches, product returns or recalls and lower net sales, and therefore could have a material adverse effect on our business, financial condition and results of operations.
Stanleick has held a number of senior management positions and has extensive multi-channel marketing, branding, and deep digital experience, he had not served as the chief executive officer of a U.S. publicly traded company before joining the Company in that role. Our future performance will depend, in part, on the successful performance of Mr. Stanleick as our chief executive officer.
Beck has held a number of senior management positions and directorships and has extensive multi-channel marketing, branding, and deep digital experience, she had not served as the chief executive officer of a U.S. publicly traded company before joining our Company in that role. Our future performance will depend, in part, on the successful performance of Ms.
If the FDA determines that we have disseminated inappropriate drug claims for our products intended to be sold as cosmetics, we could receive a warning or untitled letter, be required to modify our product claims or take other actions to satisfy the FDA, including product recalls.
If the FDA determines that we have disseminated inappropriate drug claims for our products intended to be sold as cosmetics, we could receive a warning or untitled letter or other FDA enforcement action, be required to modify our product claims, or take other actions to satisfy the FDA, which may include product recalls.
These regulatory authorities typically require a reasonable basis to support any marketing claims. What constitutes a reasonable basis for substantiation can vary widely from market to market, and there is no assurance that the efforts that we undertake to support our claims will be deemed adequate for any particular product or claim.
What constitutes a reasonable basis for substantiation can vary widely from market to market, and there is no assurance that the efforts that we undertake to support our claims will be deemed adequate for any particular product or claim.
These potential claims include, but are not limited to, personal injury claims, class action lawsuits, intellectual property claims, employment litigation and regulatory investigations and causes of action relating to the advertising and promotional claims about our products.
These potential claims include, but are not limited to, personal injury claims, class action lawsuits, intellectual property claims, employment litigation, securities litigation, and regulatory investigations and causes of action relating to our financial reporting, claims about our business and operations, and/or the advertising and promotional claims about our products.
In addition, there may be increased risk of injury if we or our sales force markets or physicians, a/estheticians, or others attempt to use our products off-label.
In addition, there may be increased risk of regulatory enforcement if we or our sales force markets our products for off-label use, or physicians, estheticians, or others attempt to use our products off-label.
Notwithstanding this fact, we are aware of incidents where providers, who initially purchased authentic bottles of solutions and serums from us to be used with our Delivery System, have then subsequently refilled such bottles once they became depleted with unauthentic, and often times, less expensive solutions and serums from other companies.
Notwithstanding this fact, we are aware of incidents where providers, who initially purchased authentic bottles of solutions and serums from us to be used with our Delivery System, have then subsequently refilled such bottles once they became depleted with unauthentic, and often times, less expensive solutions and serums from other companies, the quality and safety of which has not been evaluated by us.
The enactment of such laws could have potentially conflicting requirements that would make compliance challenging. The FTC and many state Attorneys General continue to enforce federal and state consumer protection laws against companies for online collection, use, dissemination and security practices that appear to be unfair or deceptive.
The enactment of such laws could have potentially conflicting requirements that would make compliance challenging and may impose significant costs that are likely to increase over time. The FTC and many state Attorneys General continue to enforce federal and state consumer protection laws against companies for online collection, use, dissemination and security practices that appear to be unfair or deceptive.
We cannot assure you that these third-party licenses, or support for such licensed products and technologies, will continue to be available to us on commercially reasonable terms, if at all.
We anticipate that we will continue to rely on such third-party products, technologies and intellectual property in the future. We cannot assure you that these third-party licenses, or support for such licensed products and technologies, will continue to be available to us on commercially reasonable terms, if at all.
The process of integrating an acquired business, product or technology can create unforeseen operating difficulties, liabilities, expenditures and other challenges such as: • potentially increased regulatory and compliance requirements; • loss of customer and other business relationships; • competitive responses; • implementation or remediation of controls, procedures and policies at the acquired company; • differences between legal and regulatory requirements between different geographical territories; • diversion of management time and focus from operation of our then-existing business to acquisition integration challenges; • coordination of product, sales, marketing and program and systems management functions; • transition of the acquired company’s users and providers onto our systems; • retention of employees from the acquired company; • integration of employees from the acquired company into our organization; • integration of the acquired company’s accounting, information management, human resources and other administrative systems and operations into our systems and operations; • liability for activities of the acquired company prior to the acquisition, including violations of law, commercial disputes and tax and other known and unknown liabilities; and • litigation or other claims in connection with the acquired company, including claims brought by terminated employees, providers, former stockholders or other third parties. 33 If we are unable to address these difficulties and challenges or other problems encountered in connection with any acquisition or investment, we might not realize the anticipated benefits of that acquisition or investment and we might incur unanticipated liabilities or otherwise suffer harm to our business generally.
The process of integrating an acquired business, product or technology can create unforeseen operating difficulties, liabilities, expenditures and other challenges such as: • potentially increased regulatory and compliance requirements; • loss of customer and other business relationships; • competitive responses; • implementation or remediation of controls, procedures and policies at the acquired company; • differences in legal and regulatory requirements among different geographical territories; • diversion of management time and focus from operation of our then-existing business to acquisition integration challenges; • coordination of product, sales, marketing and program and systems management functions; • transition of the acquired company’s users and providers onto our systems; • retention of employees from the acquired company; • integration of employees from the acquired company into our organization; • integration of the acquired company’s accounting, information management, human resources and other administrative systems and operations into our systems and operations; • liability for activities of the acquired company prior to the acquisition, including violations of law, commercial disputes and tax and other known and unknown liabilities; and • litigation or other claims in connection with the acquired company, including claims brought by terminated employees, providers, former stockholders or other third parties.
In addition, in the EU, notified bodies must be officially designated to certify products and services in accordance with the Medical Devices Regulation (EU) No 2017/745 (the “EU Medical Devices Regulation”).
In addition, in the EU, notified bodies must be officially designated to certify products and services in accordance with the EU Medical Devices Regulation.
We are subject to payment card association operating rules, certification requirements, including the Payment Card Industry Data Security Standard (“PCI DSS”), including the new standards required under PCI DSS 4.0, and various rules, regulations and requirements governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply.
Overall, we may have little recourse if we process a criminally fraudulent transaction. 45 We are subject to payment card association operating rules, certification requirements, including the Payment Card Industry Data Security Standard (“PCI DSS”), including the new standards required under PCI DSS 4.0, and various rules, regulations and requirements governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply.
Our trademarks are valuable assets that support our brand and consumers’ perception of our products. Although we have existing and pending trademark registrations for our brand in the United States and in many of the foreign countries in which we operate, we may be unsuccessful in asserting trademark or trade name protection in all jurisdictions. Further, the U.S.
Although we have existing and pending trademark registrations for our brand in the United States and in many of the foreign countries in which we operate, we may be unsuccessful in asserting trademark or trade name protection in all jurisdictions. Further, the U.S.
Potential product liability risks may arise from the testing, manufacture and sale of our products, including that the products fail to meet quality or manufacturing specifications, contain contaminants, include inadequate instructions as to their proper use, include inadequate warnings concerning side effects and interactions with other substances or for persons with health conditions or allergies, or cause adverse reactions or side effects.
If we discover that any of our products are causing adverse reactions, we could suffer adverse publicity or regulatory or government sanctions. 58 Potential product liability risks may arise from the testing, manufacture and sale of our products, including that the products fail to meet quality or manufacturing specifications, contain contaminants, include inadequate instructions as to their proper use, include inadequate warnings concerning side effects and interactions with other substances or for persons with health conditions or allergies, or cause adverse reactions or side effects.
We provide volume-based discount programs to customers and may offer additional products purchased at a discounted price. In addition, we sell a number of products at different list prices that also differ based on regions and or country.
We may experience declines in average selling prices of our products which may decrease our net revenues. We provide volume-based discount programs to customers and may offer additional products purchased at a discounted price. In addition, we sell a number of products at different list prices that also differ based on regions and or country.
We also rely on providers and estheticians to promote our treatments, but they are not under any contractual obligations to do so or continue to do so. 36 Further, our third-party suppliers and distributors may: • be subject to potentially increased regulatory and compliance requirements; • have economic or business interests or goals that are inconsistent with ours; • take actions contrary to our instructions, requests, policies or objectives; • be unable or unwilling to fulfill their obligations under relevant purchase orders, including obligations to meet our production deadlines, quality standards, pricing guidelines and product specifications, or to comply with applicable regulations, including those regarding the safety and quality of products and ingredients and good manufacturing practices; • have financial difficulties; • encounter raw material or labor shortages; • encounter increases in raw material or labor costs that may affect our procurement costs; • disclose our confidential information or intellectual property to competitors or third parties; • engage in activities or employ practices that may harm our reputation; or • work with, be acquired by, or come under control of, our competitors.
Further, our third-party suppliers and distributors may: • be subject to potentially increased regulatory and compliance requirements; • have economic or business interests or goals that are inconsistent with ours; • take actions contrary to our instructions, requests, policies or objectives; • be unable or unwilling to fulfill their obligations under relevant purchase orders, including obligations to meet our production deadlines, quality standards, pricing guidelines and product specifications, or to comply with applicable regulations, including those regarding the safety and quality of products and ingredients and good manufacturing practices; • have financial difficulties; • encounter raw material or labor shortages; • encounter increases in raw material or labor costs that may affect our procurement costs; • disclose our confidential information or intellectual property to competitors or third parties; • engage in activities or employ practices that may harm our reputation; or • work with, be acquired by, or come under control of, our competitors. 37 The occurrence of any of these events, alone or together, could have a material adverse effect on our business, financial condition or results of operations.
We manufacture and assemble the majority of our delivery systems at one site in California and if that site were to become compromised or damaged, our ability to continue to manufacture and assemble our products would be negatively affected. One of our sites in California manufactures and assembles the vast majority of our delivery systems.
We manufacture and assemble our delivery systems in both California and China, and if these sites were to become compromised or damaged, our ability to continue to manufacture and assemble our products would be negatively affected. One of our sites in California manufactures and assembles our delivery systems.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who does conceive or develop intellectual property that we regard as our own.
These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. 60 In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who does conceive or develop intellectual property that we regard as our own.
Increased market acceptance of all of our products and treatments will depend in part upon the recommendations of medical and aesthetics professionals, as well as other factors including effectiveness, safety, ease of use, reliability, aesthetics and price compared to competing products and treatment methods. 31 We may experience declines in average selling prices of our products which may decrease our net revenues.
Increased market acceptance of all of our products and treatments will depend in part upon the recommendations of medical and aesthetics professionals, as well as other factors including effectiveness, safety, ease of use, reliability, aesthetics and price compared to competing products and treatment methods.
Our products may cause or contribute to adverse medical events or other undesirable side effects that we are required to report to the FDA or foreign regulatory authorities, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and results of operations.
Any regulatory action or penalty could lead to private party actions, or private parties could seek to challenge our claims even in the absence of formal regulatory actions, which could harm our business, financial condition, and results of operations. 53 Our products may cause or contribute to adverse medical events or other undesirable side effects that we are required to report to the FDA or foreign regulatory authorities, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and results of operations.
Our competitors are continually innovating and introducing new products to increase their consumer base and enhance user experience. As a result, in order to attract and retain consumers and compete against our competitors, we must continue to invest resources to enhance our information technology and improve our existing products and services for our consumers.
As a result, in order to attract and retain consumers and compete against our competitors, we must continue to invest resources to enhance our information technology and improve our existing products and services for our consumers.
The process of obtaining premarket approval is much more costly and uncertain than the 510(k) clearance process and it generally takes from one to three years, or even longer, from the time the application is submitted to the FDA.
The process of obtaining premarket approval is much more costly and uncertain than the 510(k) clearance process and it generally takes from one to three years, or even longer, from the time the application is submitted to the FDA. The De Novo classification pathway, when available, has a 150 day timeline for review.
Government regulations and private party actions relating to the marketing and advertising of our products and services may restrict, inhibit or delay our ability to sell our products and harm our business, financial condition and results of operations. 50 Government authorities regulate advertising and product claims regarding the performance and benefits of our products.
Any of these events could harm our business, results of operations and financial condition. Government regulations and private party actions relating to the marketing and advertising of our products and services may restrict, inhibit, or delay our ability to sell our products and harm our business, financial condition and results of operations.
In addition, our brand and reputation, our sales activities or our stock price could be adversely affected if we become the subject of any negative publicity related to actual or potential violations of anti-corruption, anti-bribery or trade control laws and regulations. 53 As compliance with healthcare regulations becomes more costly and difficult for us or our customers, we may be unable to grow our business.
In addition, our brand and reputation, our sales activities or our stock price could be adversely affected if we become the subject of any negative publicity related to actual or potential violations of anti-corruption, anti-bribery or trade control laws and regulations.
U.S. federal, state, and local governments, countries in the European Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, are considering or proposing changes to existing tax laws that, if enacted, could increase our tax obligations in jurisdictions where we do business.
Congress passed the Inflation Reduction Act of 2022, which contained provisions effective January 1, 2023, including a 1% excise tax on stock repurchases that could increase our future tax liability. 41 U.S. federal, state, and local governments, countries in the European Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, are considering or proposing changes to existing tax laws that, if enacted, could increase our tax obligations in jurisdictions where we do business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe lease a 105,000 square foot warehouse that serves as our distribution center, manufacturing facility, and production facility in Long Beach, California, under a lease that expires in December 2024. We lease small customer education and training centers in New York, New York, Chicago, Illinois, and Dallas, Texas, on a short-term basis.
Biggest changeWe lease a 105,000 square foot warehouse that serves as our distribution center, manufacturing facility, and production facility in Long Beach, California, under a lease that expires in November 2024. In February 2024, the Company entered into a two-year lease extension for its Long Beach facility.
Item 2. Properties. Our principal executive offices are located in Long Beach, California, where we lease approximately 23,000 square feet of office space. We also occupy corporate offices, warehouses and experience centers across the United States, Europe, Asia, Latin America and Australia.
Item 2. Properties. Our principal executive offices are located in Long Beach, California, where we lease approximately 23,000 square feet of office space. We also occupy corporate offices, warehouses and/or experience centers across the United States, Europe, Asia, Latin America and Australia.
Outside of the United States, we also lease several small office spaces in Singapore, China, Australia, Japan, Spain, France, the United Kingdom, and Mexico for sales and marketing employees in those markets. We believe our present facilities are suitable and adequate for our current operating needs. We do not own any real property.
Outside of the United States, we also lease several small office spaces in China, Australia, Japan, Spain, France, Germany, the United Kingdom, and Mexico for sales and marketing employees in those markets. We believe our present facilities are suitable and adequate for our current operating needs. We do not own any real property.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. For a description of our material pending legal proceedings, see Note 14 , Commitments and Contingencies, to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K . 60 Item 4. Mine Safety Disclosures. Not Applicable. 61 PART II
Biggest changeItem 3. Legal Proceedings. For a description of our material pending legal proceedings, see Note 14, Commitments and Contingencies, to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K . Item 4. Mine Safety Disclosures. Not Applicable. 66 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table provides information relating to the repurchase of our Class A Common Stock during the referenced periods: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) September 2022 9,280,570 $10.78 9,280,570 $ 100,000,000 October 2022 — $— $— — $ — November 2022 9,478,673 $8.44 9,478,673 $ — 18,759,243 18,759,243 __________ (1) The Company was authorized by the Board of Directors to repurchase up to $200 million of its outstanding shares of Class A Common Stock under a common stock repurchase program announced on September 27, 2022.
Biggest changeThe following table presents information related to our purchases of the Company's Class A Common Stock during the quarter ended December 31, 2023: Period Total Number of Shares Repurchased Average Price Paid per Share Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program (1) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Plan or Program (1) October 1, 2023 through October 31, 2023 1,311,315 $ 5.83 1,311,315 $ 89,974,044 November 1, 2023 through November 30, 2023 6,704,261 $ 2.22 6,704,261 $ 75,094,120 December 1, 2023 through December 31, 2023 1,915,931 $ 2.74 1,915,931 $ 69,844,738 9,931,507 $ 2.80 9,931,507 $ 69,844,738 (1) On September 12, 2023, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $100.0 million of the Company’s Class A Common Stock.
Market Information Our Class A Common Stock is traded on the Nasdaq Capital Market under the symbol “SKIN.” Prior to May 4, 2021 and before the completion of the Business Combination by and among Vesper Healthcare Acquisition Corp., Hydrate Merger Sub I, Inc., Hydrate Merger Sub II, LLC, LCP Edge Intermediate, Inc., the indirect parent of Edge Systems LLC d/b/a The Hydrafacial Company, and LCP Edge Holdco, LLC, the Class A Common Stock of Vesper Healthcare Acquisition Corp. traded on Nasdaq under the ticker symbol “VSPR.” Holders As of February 24, 2023, there were 59 holders of record of our Class A Common Stock.
Market Information Our Class A Common Stock is traded on the Nasdaq Capital Market under the symbol “SKIN.” Prior to May 4, 2021 and before the completion of the Business Combination by and among Vesper Healthcare Acquisition Corp., Hydrate Merger Sub I, Inc., Hydrate Merger Sub II, LLC, LCP Edge Intermediate, Inc., the indirect parent of Edge Systems LLC d/b/a The Hydrafacial Company, and LCP Edge Holdco, LLC, the Class A Common Stock of Vesper Healthcare Acquisition Corp. traded on Nasdaq under the ticker symbol “VSPR.” Holders As of March 9, 2024 , there were 51 holders of record of our Class A Common Stock.
Under the accelerated repurchase program, the Company is expected to receive a final settlement in shares in June 2023. 62 Performance Graph The graph above shows the total stockholder return of an investment of $100 cash on November 20, 2020 (the date our Class A Common Stock began trading on Nasdaq) through December 31, 2022 for (1) our Class A Common Stock, (2) Standard & Poor’s (“S&P”) 500 Index, and (3) the S&P Consumer Discretionary Select Sector Index.
However, subject to applicable rules and regulations, the extent to which the Company repurchases shares, and the timing of such repurchases, will depend upon a variety of factors as determined by the Company’s management. 67 Performance Graph The graph above shows the total stockholder return of an investment of $100 cash on November 20, 2020 (the date our Class A Common Stock began trading on Nasdaq) through December 31, 2023 for (1) our Class A Common Stock, (2) Standard & Poor’s (“S&P”) 500 Index, and (3) the S&P Consumer Discretionary Select Sector Index.
Removed
The Company subsequently entered into accelerated share repurchase programs with a financial institution. As of December 31, 2022, the Company paid $200 million and took delivery of 18.8 million shares of Class A Common Stock.
Added
During the quarter ended December 31, 2023, the Company repurchased approximately 9.9 million shares for $27.8 million, excluding taxes. The share repurchase program does not obligate the Company to repurchase any specific number of shares, and may be suspended or discontinued at any time.
Added
Under the share repurchase plan, shares may be repurchased through a variety of methods including, but not limited to, open market transactions, privately negotiated transactions, transactions structured through investment banking institutions, or otherwise in compliance with Rule 10b5-1, and, to the extent applicable, Rule 10b-18 under the Exchange Act.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeComparison of Year Ended December 31, 2022 to Year Ended December 31, 2021 Year Ended December 31, (Dollars in millions) 2022 % of Net Sales 2021 % of Net Sales Net sales $ 365.9 100.0 % $ 260.1 100.0 % Cost of sales 115.5 31.6 78.3 30.1 Gross profit 250.3 68.4 181.8 69.9 Operating expenses Selling and marketing 160.1 43.8 111.6 42.9 Research and development 8.4 2.3 8.2 3.2 General and administrative 106.1 29.0 98.7 37.9 Total operating expenses 274.6 75.1 218.5 84.0 Loss from operations (24.3) (6.6) (36.6) (14.1) Other (income) expense, net (69.3) (18.9) 340.7 131.0 Income (loss) before provision for income tax 45.0 12.3 (377.4) (145.1) Income tax expense (benefit) 0.6 0.2 (2.2) (0.9) Net income (loss) $ 44.4 12.1 % $ (375.1) (144.2) % Net Sales Year Ended December 31, Change (Dollars in millions) 2022 2021 Amount % Net sales Delivery Systems $ 206.2 $ 139.5 $ 66.7 47.9% Consumables 159.6 120.6 39.0 32.3% Total net sales $ 365.9 $ 260.1 $ 105.8 40.7% Percentage of net sales Delivery Systems 56.4% 53.6% Consumables 43.6% 46.4% Total 100.0% 100.0% Total net sales for the year ended December 31, 2022 increased $105.8 million, or 40.7%, compared to the year ended December 31, 2021.
Biggest changeAmounts and percentages may not foot due to rounding. 71 Comparison of Year Ended December 31, 2023 to Year Ended December 31, 2022 Year Ended December 31, (Dollars in millions) 2023 % of Net Sales 2022 % of Net Sales Net sales $ 398.0 100.0 % $ 365.9 100.0 % Cost of sales 242.9 61.0 117.1 32.0 Gross profit 155.1 39.0 248.8 68.0 Operating expenses Selling and marketing 144.5 36.3 160.1 43.8 Research and development 10.1 2.5 8.4 2.3 General and administrative 131.4 33.0 106.1 29.0 Total operating expenses 286.0 71.9 274.6 75.1 Loss from operations (130.9) (32.9) (25.8) (7.1) Interest expense 13.6 3.4 13.4 3.7 Interest income (23.2) (5.8) (9.2) (2.5) Other (income) expense, net (5.2) (1.3) 1.7 0.5 Change in fair value of warrant liabilities (11.9) (3.0) (78.3) (21.4) Foreign currency transaction (gain) loss, net (2.4) (0.6) 1.3 0.4 (Loss) income before provision for income taxes (101.9) (25.6) 45.3 12.4 Income tax (benefit) expense (1.8) (0.4) 1.1 0.3 Net (loss) income $ (100.1) (25.2) % $ 44.2 12.1 % Net Sales Year Ended December 31, Change (Dollars in millions) 2023 2022 Amount % Net sales Delivery Systems $ 206.6 $ 206.2 $ 0.4 0.2% Consumables 191.4 159.6 31.7 19.9% Total net sales $ 398.0 $ 365.9 $ 32.1 8.8% Percentage of net sales Delivery Systems 51.9% 56.4% Consumables 48.1% 43.6% Total 100.0% 100.0% Total net sales for the year ended December 31, 2023 increased $32.1 million, or 8.8%, compared to the year ended December 31, 2022.
Capped Call Transactions Capped call transactions cover the aggregate number of shares of our Class A Common Stock that will initially underlie the Notes, and generally reduce potential dilution to our outstanding Class A Common Stock upon any conversion of Notes and/or 72 offset any cash payments we may make in excess of the principal amount of the converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the capped call transactions.
Capped Call Transactions Capped call transactions cover the aggregate number of shares of our Class A Common Stock that will initially underlie the Notes, and generally reduce potential dilution to our outstanding Class A Common Stock upon any conversion of Notes and/or offset any cash payments we may make in excess of the principal amount of the converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on the cap price of the capped call transactions.
Impact if Actual Results Differ from Estimates and Judgements : Changes in qualitative factors assessed, changes to assumptions used in the impairment test, selection and weighting of the various fair value techniques, and downturns in economic or business conditions, could have a significant adverse impact on the carrying value of intangible assets and could result in impairment losses which could have a material impact on our financial condition and earnings.
Impact if Actual Results Differ from Estimates and Judgements : Changes in qualitative factors assessed, changes to assumptions used in the impairment test, selection and weighting of the various fair value techniques, and downturns in economic or business conditions, could have a significant adverse impact on the carrying value of goodwill and intangible assets and could result in impairment losses which could have a material impact on our financial condition and earnings.
Impact if Actual Results Differ from Estimates and Judgements : If the assumptions around future demand for our inventory are more optimistic than actual future results, the net realizable value calculated using these assumptions may be overstated, resulting in an overstatement of the inventory balance. Income Taxes Management’s Policy : We use the asset-and-liability method for income taxes.
Impact if Actual Results Differ from Estimates and Judgements : If the assumptions around future demand for our inventory are more optimistic than actual future results, the net realizable value calculated using these assumptions may be overstated, resulting in an overstatement of the inventory balance. 79 Income Taxes Management’s Policy : We use the asset-and-liability method for income taxes.
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 – Long-term Debt , to the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information.
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 9 – Long-term Debt , to the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information.
Subjective Estimates and Judgements : We assess the impairment of intangible assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If necessary, we will use an industry accepted valuation model to estimate the fair value of the intangible assets.
Subjective Estimates and Judgements : We assess the impairment of intangible assets and goodwill whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If necessary, we will use an industry accepted valuation model to estimate the fair value.
Impact if Actual Results Differ from Estimates and Judgments : Although management believes that the judgments and estimates used are reasonable, should actual factors and conditions differ materially from those considered by management, the actual realization of the net deferred tax asset and tax positions taken could differ materially from the amounts recorded in the 76 financial statements.
Impact if Actual Results Differ from Estimates and Judgments : Although management believes that the judgments and estimates used are reasonable, should actual factors and conditions differ materially from those considered by management, the actual realization of the net deferred tax asset and tax positions taken could differ materially from the amounts recorded in the financial statements.
Interest expense as a percentage of revenue will fluctuate period to period along with fluctuations in interest rates, which is not related to normal business operations. Interest Income Interest income consists of interest earned from investments in money market funds that the Company classifies as cash equivalents.
Interest Income Interest income consists of interest earned from investments in money market funds that the Company classifies as cash equivalents. Interest income as a percentage of revenue will fluctuate period to period along with fluctuations in interest rates, which is not related to normal business operations.
If we are not able to realize all or part of our net deferred tax asset in the future or if a tax position is overturned by a taxing authority, an adjustment to the deferred tax asset valuation allowance would be charged to income tax expense in the period such determination was made which could have a material impact on our earnings.
If we are not able to realize all or part of our net deferred tax asset in the future or if a tax position is overturned by a taxing authority, an adjustment to the deferred tax asset valuation allowance would be charged to income tax expense in the period the determination is made which could have a material impact on our earnings.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 are not included in this Annual Report on Form 10-K, and can be found in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed on March 1, 2022 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Company Overview The Beauty Health Company is a global category-creating company focused on delivering beauty health experiences that help consumers reinvent their relationship with their skin, bodies and self-confidence.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Annual Report on Form 10-K, and can be found in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed on March 1, 2023 under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Company Overview The Beauty Health Company is a global category-creating company delivering skin health experiences that help consumers reinvent their relationship with their skin, bodies and self-confidence.
Significant judgement is required to determine if a valuation allowance is needed. As of December 31, 2022, we incurred cumulative pre-tax losses, and as a result, we do not rely on our projections as a source of income that would give us the ability to realize our deferred tax assets.
Significant judgement is required to determine if a valuation allowance is needed. As of December 31, 2023, we incurred cumulative pre-tax losses, and as a result, we do not rely on our projections as a source of income that would give us the ability to realize our deferred tax assets.
The Warrant liabilities were initially recorded at fair value on the date of the Business Combination and at each reporting date thereafter. There were no Public Warrants outstanding as of December 31, 2022. The value of the Private Placement Warrants was determined at year end using the Monte Carlo simulation model.
The Warrant liabilities were initially recorded at fair value on the date of the Business Combination and at each reporting date thereafter. There were no Public Warrants outstanding as of December 31, 2023. The value of the Private Placement Warrants was determined at year end using the Monte Carlo simulation model.
As a result, if economic and social conditions or the degree of uncertainty or volatility worsen, or the adverse conditions previously described are further prolonged, our growth rate could be affected by increased consolidation and downsizing in the medical, aesthetician, and beauty retail industry.
As a result, if economic and social conditions or the degree of uncertainty or volatility worsen, or the adverse conditions previously described are further prolonged, our growth rate could be affected by consolidation and downsizing in the medical, esthetician, and beauty retail industry.
This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
In accordance with ASU 2014-09, we determine the amount of revenue to be recognized through application of the following steps: • Identify the customer contract; • Identify the performance obligations in the contract; • Determine the transaction price; • Allocate the transaction price to the performance obligations in the contract; and • Recognize revenue as the performance obligations are satisfied.
Revenue Recognition Management’s Policy : In accordance with ASU 2014-09, we determine the amount of revenue to be recognized through application of the following steps: • Identify the customer contract; • Identify the performance obligations in the contract; 78 • Determine the transaction price; • Allocate the transaction price to the performance obligations in the contract; and • Recognize revenue as the performance obligations are satisfied.
Impact if Actual Results Differ from Estimates and Judgements : If the actual selling price of the refurbished Delivery Systems are lower or higher than the estimated reselling price, the difference would result in an increase or decrease of net sales in the periods the refurbished Delivery Systems are sold.
Impact if Actual Results Differ from Estimates and Judgements : If the actual selling price of the refurbished Delivery Systems are lower or higher than the estimated reselling price, the difference would result in an increase or decrease in gross profit in the periods the refurbished Delivery Systems are sold.
The Company, Hydrafacial, the other loan parties thereto, the lenders party thereto, and the Administrative Agent agreed to amend and restate the Original Credit Agreement in order to (i) extend the maturity date with respect to the existing revolving credit facility under the Original Credit Agreement to November 14, 2027, (ii) re-evidence the “Obligations” under, and as defined in, the Original Credit Agreement, which shall be repayable in accordance with the terms of the Credit Agreement, (iii) set forth the terms and conditions under which the lenders will, from time to time, make loans and extend other financial accommodations to or for the benefit of the Company (iv) transition from LIBOR to the secured overnight financing rate (SOFR), (vi) provide that the Company shall assume all of the rights and “Obligations” of Hydrafacial under, and as each such term is defined in, the Original Credit Agreement, and (vii) provide that Hydrafacial shall be released and discharged solely 71 from the obligations of the “Borrower” under, and as defined in, the Original Credit Agreement, and shall be a subsidiary guarantor and a loan party thereunder.
The Initial Borrower and the Administrative Agent were party to that certain Credit Agreement, dated as of December 30, 2021 (the “Original Credit Agreement”). 74 The Company, Hydrafacial, the other loan parties thereto, the lenders party thereto, and the Administrative Agent agreed to amend and restate the Original Credit Agreement in order to (i) extend the maturity date with respect to the existing revolving credit facility under the Original Credit Agreement to November 14, 2027, (ii) re-evidence the “Obligations” under, and as defined in, the Original Credit Agreement, which shall be repayable in accordance with the terms of the Credit Agreement, (iii) set forth the terms and conditions under which the lenders will, from time to time, make loans and extend other financial accommodations to or for the benefit of the Company (iv) transition from LIBOR to the secured overnight financing rate (SOFR), (vi) provide that the Company shall assume all of the rights and “Obligations” of Hydrafacial under, and as each such term is defined in, the Original Credit Agreement, and (vii) provide that Hydrafacial shall be released and discharged solely from the obligations of the “Borrower” under, and as defined in, the Original Credit Agreement, and shall be a subsidiary guarantor and a loan party thereunder.
Inventories Management’s Policy : Inventories are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Subjective Estimates and Judgements : Obsolete inventory or inventory in excess of management’s estimated usage is written-down to its estimated net realizable value.
Inventories Management’s Policy : Inventories are stated at the lower of cost (determined using the average cost method which approximates the first-in, first-out method) or net realizable value. Subjective Estimates and Judgements : Obsolete inventory or inventory in excess of management’s estimated usage is written-down to its estimated net realizable value.
As of December 31, 2022 , we had cash and cash equivalents of approximately $568.2 million. A revolving credit facility of $50 million is also available to us as a source of capital. As of December 31, 2022, the revolving credit facility remains undrawn and there is no outstanding balance thereunder.
As of December 31, 2023 , we had cash and cash equivalents of approximately $523.0 million. A revolving credit facility of $50 million is also available to us as a source of capital. As of December 31, 2023 , the revolving credit facility remains undrawn and there is no outstanding balance thereunder.
See Note 2 – Summary of Significant Accounting Policies, to the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information. Known Trends or Uncertainties The majority of our customers are providers within the medical industry (dermatologists, plastic surgeons, and medical spas), aesthetician, and beauty retail industry (spas, hotels, and other retailers).
See Note 2 – Summary of Significant Accounting Policies, to the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information. Known Tren ds or Uncertainties The majority of our customers operate within the medical industry (dermatologists and plastic surgeons), esthetician, and beauty retail industry.
In addition, as part of our business strategy, we occasionally evaluate potential acquisitions of businesses and products and technologies. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products, services, or businesses. Such potential transactions may require substantial capital resources, which may require us to seek additional debt or equity financing.
Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products, services, or businesses. Such potential transactions may require substantial capital resources, which may require us to seek additional debt or equity financing.
Interest Expense, Net Interest expense consists of interest accrued on the Company’s Convertible Senior Notes and amortization of debt issuance costs relating to the Notes. The Notes mature on October 1, 2026 and accrue interest at a rate of 1.25% per annum. Debt issuance costs are being amortized over the term of the Notes using the effective interest method.
The Notes mature on October 1, 2026 and accrue interest at a rate of 1.25% per annum. Debt issuance costs are being amortized over the term of the Notes using the effective interest method.
Hydrafacial generates revenue through manufacturing and selling its Delivery Systems. In conjunction with the sale of Delivery Systems, Hydrafacial also sells its serum solutions and consumables (collectively “ Consumables ”). Original Consumables are sold solely and exclusively by Hydrafacial (and from authorized retailers) and are available for purchase separately from the purchase of Delivery Systems.
In conjunction with the sale of Delivery Systems, the Company also sells its Consumables. Original Consumables are sold solely and exclusively by the Company (and from authorized retailers) and are available for purchase separately from the purchase of Delivery Systems.
Payments Due by Fiscal Period (Dollars in millions) Total Less Than 1 Year 1-3 years 3-5 Years More than 5 Years Notes and interest on the Notes (1) $ 787.6 $ 9.4 $ 18.8 $ 759.4 $ — Operating leases 19.3 5.4 6.3 2.5 5.1 Total contractual obligations $ 806.9 $ 14.8 $ 25.1 $ 761.9 $ 5.1 (1) The Notes will mature on October 1, 2026 and are due either in cash or shares of the Company’s Class A Common Stock.
Payments Due by Fiscal Period (Dollars in millions) Total Less Than 1 Year 1-3 years 3-5 Years More than 5 Years Notes (1) $ 750.0 $ — $ 750.0 $ — $ — Interest on Notes (1) 28.1 9.4 18.8 — — Operating leases 15.1 4.8 3.9 2.3 4.2 Purchase of inventory, service, and other 73.7 73.3 0.4 — — Total contractual obligations $ 866.9 $ 87.5 $ 773.1 $ 2.3 $ 4.2 (1) The Notes will mature on October 1, 2026 and are due either in cash or shares of the Company’s Class A Common Stock.
These consolidations have not had a negative effect on our total sales; however, should consolidations and downsizing in the industry continue to occur, or occur at an increased rate, those events could adversely impact our revenues and earnings going forward.
Although we have not seen any significant reduction in revenues to date due to consolidations, we have seen some consolidation in our industry during economic downturns. These consolidations have not had a negative effect on our total sales; however, should consolidations and downsizing in the industry continue to occur, those events could adversely impact our revenues and earnings going forward.
The following table discloses our material cash requirements as of December 31, 2022. In regards to future capital expenditures, we intend to use cash-on-hand and cash from operations to help satisfy future requirements.
In regards to future capital expenditures, we intend to use cash-on-hand and cash from operations to help satisfy future requirements.
We continue to explore and implement risk mitigation strategies in the face of these unfolding conditions and remain agile in adopting to changing circumstances. Such conditions have or may have global implications which may impact the future performance of our business in unpredictable ways.
Factors Affecting Our Performance We remain attentive to economic and geopolitical conditions that may materially impact our business. We continue to explore and implement risk mitigation strategies in the face of these unfolding conditions and remain agile in adopting to changing circumstances.
For all customers, each invoice is considered a separate contract for accounting purposes. Cost of Sales Hydrafacial’s cost of sales consists of Delivery Systems and Consumables product costs, including the cost of materials, labor costs, overhead, depreciation and amortization of developed technology, shipping and handling costs, and the costs associated with excess and obsolete inventory.
Cost of Sales Hydrafacial’s cost of sales consists of product costs, including the cost of materials, labor costs, overhead, depreciation and amortization of developed technology, shipping and handling costs, and the costs associated with excess and obsolete inventory.
Following initial recognition, intangible assets are carried at cost less accumulated amortization and impairment 75 losses, if any, and are amortized on a straight-line basis over the estimated useful life of the asset. If the assets have an indefinite life, these assets are assessed for impairment annually.
At initial recognition, intangible assets acquired in a business combination are recognized at their fair value as of the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and impairment losses, if any, and are amortized on a straight-line basis over the estimated useful life of the asset.
The results of operations data for the year ended December 31, 2022 and December 31, 2021 have been derived from the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Amounts and percentages may not foot due to rounding.
The period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future. The results of operations data for the years ended December 31, 2023 and December 31, 2022 have been derived from the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Research and Development Year Ended December 31, Change (Dollars in millions) 2022 2021 Amount % Research and development $ 8.4 $ 8.2 $ 0.2 3.0 % As a percentage of net sales 2.3 % 3.2 % Research and development expense for the year ended December 31, 2022 increased $0.2 million, or 3.0%, compared to the year ended December 31, 2021 primarily due to an increase in salaries and stock-based compensation expense attributable to research and development personnel of $3.0 million and $0.4 million, respectively.
Research and Development Year Ended December 31, Change (Dollars in millions) 2023 2022 Amount % Research and development $ 10.1 $ 8.4 $ 1.7 19.6 % As a percentage of net sales 2.5 % 2.3 % Research and development expense for the year ended December 31, 2023 increased $1.7 million, or 19.6%, compared to the year ended December 31, 2022.
Based on our sources of capital (including the cash consideration received from the consummation of the Business Combination and the cash received from the issuance of the Notes), management believes that we have sufficient liquidity to satisfy our anticipated working capital requirements for our ongoing operations and obligations for at least the next 12 months.
Capital expenditures for the year ending December 31, 2023 were $3.8 million. Based on our sources of capital, management believes that we have sufficient liquidity to satisfy our anticipated working capital requirements for our ongoing operations and obligations for at least the next 12 months.
If the Notes are repurchased, redeemed, or converted prior to the maturity date, the interest on the Notes would no longer be accrued and the amortization of debt issuance costs would be accelerated. The Company expects interest expense to increase in absolute dollars as the Company grows internationally and obtains more financing to support such growth.
If the Notes are repurchased, redeemed, or converted prior to the maturity date, the interest on the Notes would no longer be accrued and the amortization of debt issuance costs would be accelerated for the portion of the Notes which are repurchased, redeemed, or converted.
For both Delivery Systems and Consumables, revenue is recognized upon transfer of control to the customer, which generally takes place at the point of shipment. Hydrafacial distributes products to customers both through national and international retailers as well as direct-to-consumers through its e-commerce and store channels.
For both Delivery Systems and Consumables, revenue is recognized upon transfer of control to the customer, which generally takes place at the point of shipment.
General and Administrative Year Ended December 31, Change (Dollars in millions) 2022 2021 Amount % General and administrative $ 106.1 $ 98.7 $ 7.4 7.5 % General and administrative expense for the year ended December 31, 2022 increased $7.4 million, or 7.5%, compared to the year ended December 31, 2021.
General and Administrative Year Ended December 31, Change (Dollars in millions) 2023 2022 Amount % General and administrative $ 131.4 $ 106.1 $ 25.3 23.9 % As a percentage of net sales 33.0 % 29.0 % General and administrative expense for the year ended December 31, 2023 increased $25.3 million, or 23.9%, compared to the year ended December 31, 2022.
Selling and Marketing Year Ended December 31, Change (Dollars in millions) 2022 2021 Amount % Selling and marketing $ 160.1 $ 111.6 $ 48.5 43.5 % As a percentage of net sales 43.8 % 42.9 % Selling and marketing expense for the year ended December 31, 2022 increased $48.5 million, or 43.5%, compared to the year ended December 31, 2021 primarily due to an increase in salaries and commissions of $27.5 million as we scale globally, and an increase of stock-based compensation expense of $6.9 million.
Operating Expenses Selling and Marketing Year Ended December 31, Change (Dollars in millions) 2023 2022 Amount % Selling and marketing $ 144.5 $ 160.1 $ (15.6) (9.7) % As a percentage of net sales 36.3 % 43.8 % Selling and marketing expense for the year ended December 31, 2023 decreased $15.6 million, or 9.7%, compared to the year ended December 31, 2022.
Change in Fair Value of Warrant Liabilities In accordance with ASC 815-40 – Contracts in Entity's Own Equity , the Company’s Public and Private Placement Warrants are accounted for as liabilities in the Consolidated Balance Sheets and measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the Company’s Consolidated Statements of Comprehensive Income (Loss).
Change in Fair Value of Warrant Liabilities The Company’s Public and Private Placement Warrants are accounted for as liabilities in the Consolidated Balance Sheets and measured at fair value at inception and on a recurring basis. The value of the Private Placement Warrants was determined using a Monte Carlo simulation model.
These factors may adversely impact consumer, business, and government spending as well as customers’ ability to pay for our products and services on an ongoing basis.
In addition, we continue to face macro-economic challenges such as the possibility of recession or financial market instability, and the impact of any governmental actions on the economy. These factors may adversely impact consumer, business, and government spending as well as customers' ability to pay for our products and services on an ongoing basis.
Our sources of liquidity and cash flows are used to fund ongoing operations, research and development projects for new products, services, and technologies, and provide ongoing support services for our providers and customers. Over the next year, we anticipate that we will use our liquidity and cash flows from our operations to fund our growth.
Our sources of liquidity and cash flows are used to fund ongoing operations, research and development projects for new products, services, and technologies, and provide ongoing support services for our providers and customers, including liabilities associated with the Syndeo Program . As part of our business strategy, we occasionally evaluate potential acquisitions of businesses and products and technologies.
Delivery Systems sales for the year ended December 31, 2022 increased $66.7 million, or 47.9%, compared to the year ended December 31, 2021. Net sales for the year ended December 31, 2022 increased primarily due to strength in Delivery Systems sales around the globe including the new product launch of Syndeo.
The prior year net sales of Delivery Systems in the Americas included the impact of the launch of Syndeo, which included trade-up net sales. Consumables sales for the year ended December 31, 2023 increased $31.7 million, or 19.9%, compared to the year ended December 31, 2022.
Research and Development Research and development expense primarily consists of personnel-related expenses, tooling and prototype materials, technology investments, and other expenses incurred in connection with the development of new products and internal technologies.
Research and Development Research and development expense primarily consists of personnel-related expenses, tooling and prototype materials, technology investments, and other expenses incurred in connection with the development of new products and internal technologies. 70 General and Administrative General and administrative expenses include personnel-related expenses, professional fees, credit card and wire fees and facilities-related costs primarily for our executive, corporate affairs, finance, accounting, legal, human resources, and information technology (“IT”) functions.
Further, outstanding principal and accrued and unpaid interest thereon automatically accelerate upon the entry of an order for relief with respect to any loan party under any bankruptcy, insolvency or other similar law.
Further, outstanding principal and accrued and unpaid interest thereon automatically accelerate upon the entry of an order for relief with respect to any loan party under any bankruptcy, insolvency or other similar law. 75 Convertible Senior Notes On September 14, 2021, we issued $750 million aggregate principal amount of 1.25% Convertible Senior Notes due 2026 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
General and administrative expense also includes fees for professional services principally comprising legal, audit, tax and accounting services and insurance.
General and administrative expense also includes fees for professional services principally comprising legal, audit, tax and accounting services and insurance. Interest Expense Interest expense primarily consists of interest accrued on the Company’s Convertible Senior Notes and amortization of debt issuance costs relating to the Notes.
From and after April 1, 2026, noteholders may convert their Notes into shares of Class A Common Stock until the close of business on the second scheduled trading day immediately before the maturity date. 73 Cash Flows The following table summarizes the activities from our statements of cash flows. Amounts may not foot due to rounding.
From and after April 1, 2026, noteholders may convert their Notes into shares of Class A Common Stock until the close of business on the second scheduled trading day immediately before the maturity date. In January 2024, the Company redeemed $75.0 million principal amount of our Notes at a weighted-average redemption price equal to 77% for $57.8 million.
Year Ended December 31, (Dollars in millions) 2022 2021 Cash and cash equivalents at beginning of period $ 901.9 $ 9.5 Operating activities: Net income (loss) 44.4 (375.1) Non-cash adjustments (10.7) 365.4 Changes in working capital (140.3) (18.7) Net cash flows (used in) provided by operating activities (106.6) (28.4) Net cash flows (used in) provided by investing activities (18.9) (37.7) Net cash flows (used in) provided by financing activities (205.2) 959.0 Net change in cash and cash equivalents (330.7) 892.9 Effect of foreign currency translation (3.0) (0.5) Cash and cash equivalents at end of period $ 568.2 $ 901.9 Operating Activities Net cash used in operating activities of $106.6 million for the year ended December 31, 2022 was primarily due to investment in inventory in relation to the global launch of Syndeo, the current generation Delivery System, combined with a corresponding shift in the average collection period of receivables related to increased payment plan participation on Delivery Systems globally, as well as continued investments globally in people and systems to fuel future growth.
Year Ended December 31, (Dollars in millions) 2023 2022 Cash and cash equivalents at beginning of period $ 568.2 $ 901.9 Operating activities: Net (loss) income (100.1) 44.2 Non-cash adjustments 98.5 (5.6) Changes in working capital 23.4 (145.3) Net cash provided by (used for) operating activities 21.8 (106.6) Net cash used for investing activities (31.5) (18.9) Net cash used for financing activities (37.4) (205.2) Net change in cash and cash equivalents (47.2) (330.7) Effect of foreign currency translation 2.0 (3.0) Cash and cash equivalents at end of period $ 523.0 $ 568.2 Operating Activities Net cash provided by operating activities were $21.8 million in 2023, as compared to net cash used for operating activities of $106.6 million in 2022.
Foreign currency gains and losses as a percentage of revenue will fluctuate period to period along with fluctuations in exchange rates, which is not related to normal business operations. 67 Income Tax Provision (Benefit) The provision for income taxes consists primarily of income taxes related to federal, state and foreign jurisdictions in which we conduct business.
Foreign Currency Transaction (Gain) Loss, Net Foreign currency transaction gains and losses are generated by intercompany balances and transactions denominated in other currencies other than the functional currency of the entity. Foreign currency gains and losses as a percentage of revenue will fluctuate period to period along with fluctuations in exchange rates, which is not related to normal business operations.
Results of Operations The following tables set forth our consolidated results of operations in dollars and as a percentage of net sales for the periods presented. The period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future.
Income Tax (Benefit) Provision The provision for income taxes consists primarily of income taxes related to federal, state and foreign jurisdictions in which we conduct business. Results of Operations The following tables set forth our consolidated results of operations in dollars and as a percentage of net sales for the periods presented.
Income Tax Provision Year Ended December 31, Change (Dollars in millions) 2022 2021 Amount % Income tax expense (benefit) $ 0.6 $ (2.2) $ 2.8 (128.9) % Income tax expense increased primarily due to an increase in valuation allowance and various non-deductible expenses, which include the revaluation of the warrants and contingent considerations from the business acquisitions increasing the effective tax rate of the expense from 0.6% for the year ended December 31, 2021 to 1.5% for the year ended December 31, 2022. 70 Liquidity and Capital Resources Our primary sources of capital have been (i) cash flow from operating activities, (ii) net proceeds received from the consummation of the Business Combination, (iii) net proceeds received from the Notes (as defined below), and (iv) net proceeds received from the exercise of Public and Private Placement Warrants.
Liquidity and Capital Resources Our primary sources of capital have been (i) cash flow from operating activities, (ii) net proceeds received from the consummation of the Business Combination, (iii) net proceeds received from the Notes (as defined below), and (iv) net proceeds received from the exercise of Public and Private Placement Warrants.
Change in fair value of warrant liabilities Year Ended December 31, Change (Dollars in millions) 2022 2021 Amount % Change in fair value of warrant liabilities $ (78.3) $ 277.3 $ (355.6) (128.3) % During the year ended December 31, 2022, the Company recognized income of $78.3 million due to the change in the fair value of the warrant liabilities versus a $277.3 million expense for year ended December 31, 2021 primarily driven by the fluctuation of the Company’s stock price.
Interest Income, Change in Fair Value of Warrant Liabilities, and Other (Income) Expense, Net Year Ended December 31, Change (Dollars in millions) 2023 2022 Amount % Interest income $ (23.2) $ (9.2) $ (14.0) 152.6 % Change in fair value of warrant liabilities $ (11.9) $ (78.3) $ 66.4 N/M Other (income) expense, net $ (5.2) $ 1.7 $ (6.9) N/M Interest income for the year ended December 31, 2023 increased $14.0 million compared to the year ended December 31, 2022 due to higher interest earned on our investment in money market funds and $0.5 million received for the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act. 73 During the year ended December 31, 2023, the Company recognized income of $11.9 million related to the change in the fair value of the warrant liabilities, a decrease of $66.4 million, as compared to income of $78.3 million during the year ended December 31, 2022, driven by the fluctuation of the Company’s stock price.
We are continuing to monitor these and other risks that may affect our business so that we can respond appropriately. Contractual Obligations and Other Commercial Commitments As of December 31, 2022, our material contractual obligations were approximately $37.5 million in interest-only payments related to the Notes of $750 million, the Notes of $750 million, and $17.6 million in lease obligations.
We are continuing to monitor these and other risks that may affect our business so that we can respond appropriately.
The proceeds were offset by the payoff of long-term debt of $225.5 million and costs from our issuance of convertible senior notes. 74 Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
The change in cash was primarily related to higher share repurchases in the prior year. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“ GAAP”).
The increase in Consumables sales was primarily attributable to increased placements of Delivery Systems and the adjoining consumption of Consumables during the year ended December 31, 2022. 68 Cost of Sales, Gross Profit, and Gross Margin Year Ended December 31, Change (Dollars in millions) 2022 2021 Amount % Cost of sales $ 115.5 $ 78.3 $ 37.2 47.6% Gross profit $ 250.3 $ 181.8 $ 68.5 37.7% Gross margin 68.4 % 69.9 % Cost of sales increased by 47.6% driven by increased sales volume and increased product mix weighting toward Hydrafacial Delivery Systems.
The increase in Consumables sales was primarily attributable to increased placements of Delivery Systems and the adjoining consumption of Consumables during the year ended December 31, 2023.
If these assumptions differ materially from future results, we may record impairment charges in the future.
Certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in actual and expected consumer consumption and demands, could result in changes to these assumptions and judgments. If these assumptions differ materially from future results, we may record impairment charges in the future.
Removed
Our flagship brand, Hydrafacial, created the category of hydradermabrasion by using a patented Vortex-Fusion Delivery System to cleanse, extract, and hydrate the skin with proprietary solutions and serums. Hydrafacial provides a non-invasive and approachable skincare experience.
Added
The Company and its subsidiaries design, develop, manufacture, market, and sell esthetic technologies and products. The Company’s brands are pioneers: Hydrafacial in hydradermabrasion; SkinStylus in microneedling; and Keravive in scalp health. Together, with its powerful community of estheticians, partners and consumers, the Company is personalizing skin health for all ages, genders, skin tones, and skin types.
Removed
Together, with our powerful community of aestheticians, consumers and partners, we are personalizing skin care solutions for all ages, genders, skin tones, and skin types . Factors Affecting Our Performance We remain attentive to economic and geopolitical conditions that may materially impact our business.
Added
Such conditions have or may have global implications which may impact the future performance of our business in unpredictable ways.
Removed
Updates on Impact of the COVID-19 Pandemic The COVID-19 pandemic continues to disrupt business for us, our providers, and other companies with which we do business.
Added
Business and Macroeconomic Conditions We continued to execute against our plan to expand our footprint by selling and placing Delivery Systems worldwide, drive Consumables, invest in our community of providers, partners, and consumers, drive brand awareness, and optimize our global infrastructure. Consumables include serums, solutions, tips, and other consumables.
Removed
Although many markets have recently shown encouraging signs of emergence from the pandemic, other markets and regions where we conduct business, particularly in China, have enacted sporadic and/or zero-tolerance COVID-19 policies during certain periods in 2022, leading to prolonged store closures and travel restrictions within those markets and regions.
Added
Although we believe we can be successful in our current operating environment, various factors may impact our business in unpredictable ways such as: • Disruptions in transportation and other supply chain related constraints, such as labor strife in the transportation industry; • Global economic conditions, including inflation, recession, changes in foreign currency exchange rates, higher interest rates, and other changes in economic conditions; and • Issues related to older models of Syndeo and our actions to remediate such issues We may be able to offset cost pressures through increasing the selling prices of some of our products, increasing value engineering efforts to optimize product costs, increasing the diversification of our suppliers and supplier contracts, increasing natural foreign currency hedging, as applicable, and reducing discretionary spending.
Removed
Although we had strong performance during windows of re-opening, these COVID-related restrictions continued to negatively impact consumer traffic for our providers. We anticipate that COVID-19 will continue to cause supply chain challenges and intermittent store closures in certain parts of the world.
Added
However, our pricing actions could have an adverse impact on demand, and may in turn, cause our providers to halt or decrease Delivery Systems and/or Consumables spending, and our actions may not be sufficient to cover unexpected increased costs that we may experience.
Removed
We are mindful that these trends may continue to impact the pace of recovery, and that such recovery may be non-linear until COVID-19 containment measures are discontinued across all regions and normal consumer traffic resumes on a consistent basis.
Added
Business and macroeconomic factors may also negatively impact, in the short-term or long-term, the global economy, the beauty health industry, our providers and their budgets with us, our business, the Company’s brand reputation, financial condition, and results of operations.
Removed
We currently expect that in the short term, any easing of containment measures and recovery of the impacted sectors of the economy will be gradual and uneven, as regions face resurgence of COVID-19 and related uncertainties.
Added
We remain attentive to these business and macroeconomic conditions that may materially impact our business, and we continue to explore and implement reporting and quality management systems and risk mitigation strategies in the face of these unfolding conditions to remain agile in adopting to changing circumstances.
Removed
As a result, we anticipate that consumer spending habits and consumer confidence will continue to shift, causing future sales and volume trends to be non-linear.
Added
Syndeo Program To stand behind its commitment to its customers and protect the Company’s brand reputation, during October 2023, the Company’s management decided that, with respect to Syndeo devices, the Company will only market and sell Syndeo 3.0 devices.
Removed
Furthermore, the extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous factors we cannot reliably predict, including but not limited to the duration and scope of the pandemic; businesses and individuals’ actions in response to the pandemic; government actions to certain pandemic impacts; and the impact on economic activity including the possibility of further financial market instability Inflation During the year ended December 31, 2022, we experienced the impact of inflation primarily as an increase to our costs for raw materials, shipping costs, and labor costs.
Added
The Company will provide, at no cost to the customer, the option of (i) a technician upgrade to their Syndeo 1.0 or 2.0 devices to 3.0 standards in the field; or (ii) a replacement Syndeo 3.0 device for their existing device (the “Syndeo Program”).
Removed
We currently anticipate the impact of inflation to continue into the first quarter of 2023. To offset these trends, we plan to implement a range of mitigation strategies which could include price increases on our Delivery Systems and consumables, and/or accepting revenue in either U.S. dollar and/or local currency, as applicable.
Added
Additionally, the Company will extend the customer’s warranty by one year for each system from the date it was either brought to the 3.0 standards or the customer received a Syndeo 3.0 device.
Removed
However, such measures may not fully offset the impact to our operating performance.
Added
The Company anticipates that the vast majority of its customers will elect to request a replacement Syndeo 3.0 device. 69 As a result of the decision to market and sell Syndeo 3.0 devices exclusively, the Company has designated all Syndeo 1.0 and 2.0 builds on-hand as obsolete, resulting in an inventory write-down of $19.6 million during the year ended December 31, 2023.
Removed
After the resumption of more typical business conditions, the economics of developing, producing, launching, supporting and discontinuing products will continue to impact the timing of our sales and operating performance in each period. 64 Foreign Exchange Rates Our operations outside of the United States account for a portion of our revenues and expenses.
Added
The Company incurred costs of $24.6 million during the year ended December 31, 2023, associated with the cost to upgrade or replace Syndeo 1.0 or 2.0 devices during the year.
Removed
As a result, a portion of our total revenue and expenses are denominated in currencies other than the U.S. dollar. During the second half of 2022, exchange rates between these currencies and the U.S. dollar have fluctuated significantly and may continue to do so in the future.
Added
As of December 31, 2023, the Company accrued additional costs of $21.0 million, primarily for the estimated cost to remediate, upgrade or exchange the remaining Syndeo 1.0 and 2.0 builds, which is expected to be completed during the first half of 2024. Any returning devices with a Syndeo 1.0 or 2.0 device build are expected to be responsibly destroyed.
Removed
Fluctuations in foreign exchange rates may have a significant impact on our operating results.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+0 added−1 removed12 unchanged
Biggest changeWhile we are not currently contractually obligated to pay increased costs due to changes in exchange rates, to the extent that exchange rates move unfavorably for our suppliers, they may seek to pass these additional costs on to us, which could have a material impact on our gross margins.
Biggest changeWe have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future. 81 While we are not currently contractually obligated to pay increased costs due to changes in exchange rates, to the extent that exchange rates move unfavorably for our suppliers, they may seek to pass these additional costs on to us, which could have a material impact on our gross margins.
Increases in the relative value of the U.S. dollar to other currencies (e.g., unfavorable movement in the exchange rate between the U.S. dollar and the currencies in which we conduct sales in foreign countries) will 79 negatively affect our revenue and net operating results as expressed in U.S. dollars.
Increases in the relative value of the U.S. dollar to other currencies (e.g., unfavorable movement in the exchange rate between the U.S. dollar and the currencies in which we conduct sales in foreign countries) will negatively affect our revenue and net operating results as expressed in U.S. dollars.
Foreign Currency Risk Our reporting currency is the U.S. dollar. Due to our international operations, we have foreign currency risks related to revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the China Renminbi, British pound, EU Euro, and Australian dollar.
Foreign Currency Risk Our reporting currency is the U.S. dollar. Due to our international operations, we have foreign currency risks related to revenue and operating expenses denominated in currencies other than the U.S. dollar, primarily the China Renminbi, British pound sterling, Euro, and Australian dollar.
Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost of inflation is incurred. 80
Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost of inflation is incurred. 82
Based on investment positions as of December 31, 2022, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $5.1 million increase in the fair market value of the portfolio. Our debt obligations related to the Notes are long-term in nature with fixed interest rates.
Based on investment positions as of December 31, 2023, a hypothetical 100 basis point increase in interest rates across all maturities would result in approximately $5 million increase in the fair market value of the portfolio. Our debt obligations related to the Notes are long-term in nature with fixed interest rates.
If an adverse 10% foreign currency exchange rate change was applied to total monetary assets, liabilities, and commitments denominated in currencies other than the functional currencies at the balance sheet date, it would have resulted in an adverse effect on income before income taxes of approximately $3.5 million and $0.1 million as of December 31, 2022 and 2021, respectively.
If an adverse 10% foreign currency exchange rate change was applied to total monetary assets, liabilities, and commitments denominated in currencies other than the functional currencies at the balance sheet date, it would have resulted in an adverse effect on income before income taxes of approximately $8 million as of December 31, 2023.
Removed
We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future.

Other SKIN 10-K year-over-year comparisons