The Beauty Health pany(SKIN) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls evaluation Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining various components and accounting policies for the periods ended June 30, 2025 and December 31, 2024 Condensed Consolidated Balance Sheets (Unaudited) This table presents the unaudited condensed consolidated balance sheets, detailing assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Assets | | | | Cash, cash equivalents, and restricted cash | $212,000 | $370,063 | | Total current assets | $306,107 | $477,124 | | TOTAL ASSETS | $507,565 | $685,683 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $59,441 | $68,152 | | Convertible senior notes, net | $363,096 | $552,198 | | Total liabilities | $433,562 | $633,880 | | Total stockholders' equity | $74,003 | $51,803 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $507,565 | $685,683 | Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) This section provides the unaudited condensed consolidated statements of comprehensive income (loss) for the three and six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $78,187 | $90,594 | $147,767 | $171,997 | | Gross profit | $49,112 | $40,940 | $97,692 | $89,301 | | Loss from operations | $(2,700) | $(22,111) | $(14,723) | $(39,102) | | Net income (loss) | $19,712 | $202 | $9,616 | $(477) | | Basic Net income (loss) per share | $0.16 | $0.00 | $0.08 | $0.00 | | Diluted Net income (loss) per share | $0.03 | $(0.10) | $(0.02) | $(0.20) | Condensed Consolidated Statements of Stockholders' Equity (Unaudited) This section details changes in stockholders' equity for the periods ended June 30, 2025, and December 31, 2024, highlighting key drivers of equity fluctuations Changes in Total Stockholders' Equity (in thousands) | Period | Total Stockholders' Equity | | :----------------------- | :------------------------- | | BALANCE, December 31, 2023 | $59,390 | | BALANCE, June 30, 2024 | $69,189 | | BALANCE, December 31, 2024 | $51,803 | | BALANCE, June 30, 2025 | $74,003 | - Total stockholders' equity increased from $51,803 thousand at December 31, 2024, to $74,003 thousand at June 30, 2025, primarily driven by net income of $19,712 thousand and share-based compensation of $5,308 thousand during the three months ended June 30, 2025, and foreign currency translation adjustments[13] Condensed Consolidated Statements of Cash Flows (Unaudited) This section presents the unaudited condensed consolidated statements of cash flows, categorizing cash activities for the six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by (used for) operating activities | $12,642 | $(10,653) | | Net cash used for investing activities | $(2,697) | $(3,840) | | Net cash used for financing activities | $(173,611) | $(157,367) | | Net change in cash, cash equivalents, and restricted cash | $(163,666) | $(171,860) | | Cash, cash equivalents, and restricted cash end of period | $212,000 | $349,544 | Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed notes explaining the components, accounting policies, and significant transactions underlying the unaudited condensed consolidated financial statements Note 1 — Description of Business This note describes the Company's core business as a medtech-meets-beauty company, its key brands, and its incorporation and acquisition history - The Beauty Health Company is a medtech-meets-beauty company that designs, develops, manufactures, markets, and sells esthetic technologies and products[18] - Key brands include Hydrafacial (hydradermabrasion), SkinStylus (nanoneedling and microneedling), and Keravive (scalp health)[18] - The Company was incorporated on July 8, 2020, and consummated a business combination on May 4, 2021, acquiring 100% of Hydrafacial[19] Note 2 — Balance Sheet Components This note provides detailed breakdowns of various balance sheet components, including inventories, accrued payroll-related expenses, other accrued expenses, warranty reserves, and restricted cash Inventories (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :------------------ | | Raw materials | $22,958 | $26,019 | | Finished goods | $36,229 | $43,094 | | Total inventories | $59,187 | $69,113 | Accrued Payroll-Related Expenses (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Accrued compensation and payroll taxes | $9,542 | $10,708 | | Accrued sales commissions | $3,349 | $4,784 | | Accrued benefits | $2,090 | $2,144 | | Total accrued payroll-related expenses | $14,981 | $17,636 | Other Accrued Expenses (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :------------------ | | Sales and VAT tax payables | $3,322 | $5,244 | | Accrued interest | $2,321 | $1,743 | | Royalty liabilities | $1,517 | $1,897 | | Deferred revenue | $172 | $2,375 | | Other | $6,311 | $8,743 | | Total other accrued expenses | $13,643 | $20,002 | - Total warranty reserve was approximately $2 million at June 30, 2025, down from $4 million at December 31, 2024[22] - Restricted cash held as collateral for credit cards was approximately $2 million at both June 30, 2025, and December 31, 2024[23] Note 3 — Property and Equipment, net This note details the composition and net carrying value of property and equipment, including gross amounts and accumulated depreciation and amortization Property and Equipment, Net (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Total property and equipment (gross) | $30,318 | $31,478 | | Less: accumulated depreciation and amortization | $(26,614) | $(25,500) | | Property and equipment, net | $3,704 | $5,978 | Note 4 — Goodwill and Intangible Assets, net This note provides the carrying values of goodwill and a detailed breakdown of intangible assets, net of accumulated amortization, as of the reporting dates Goodwill Carrying Value (in thousands) | Date | Amount | | :---------------- | :------- | | December 31, 2024 | $123,499 | | Foreign currency translation impact | $2,774 | | June 30, 2025 | $126,273 | Intangible Assets, Net (in thousands) | Category | June 30, 2025 Net Carrying Value | December 31, 2024 Net Carrying Value | | :-------------------- | :------------------------------- | :------------------------------- | | Developed technology | $15,045 | $16,974 | | Capitalized software | $14,316 | $14,956 | | Customer relationships | $2,900 | $3,873 | | Trademarks | $5,084 | $5,485 | | Non-compete agreement | $2,703 | $3,209 | | Patents | $3,441 | $3,015 | | Total intangible assets | $43,489 | $47,512 | Note 5 — Long-Term Debt This note details the Company's long-term debt, including repurchases and exchanges of convertible senior notes, and the terms of the newly issued 2028 Notes - During the three and six months ended June 30, 2025, the Company repurchased an additional $20.0 million principal amount of its 2026 Notes for $18.4 million, recognizing a net gain of $1.5 million[29] - On May 21, 2025, the Company exchanged and repurchased approximately $413.2 million aggregate principal amount of 2026 Notes. This included exchanging $263.2 million principal for $250.0 million principal of new 7.95% Convertible Senior Secured Notes due November 15, 2028 (2028 Notes), and repurchasing $150.1 million principal for $142.6 million[30] - The exchange and repurchase of 2026 Notes resulted in a net gain of $16.6 million[30] - The 2028 Notes are senior, secured obligations, guaranteed by subsidiaries, accrue interest at 7.95% per annum, and mature on November 15, 2028. The initial conversion rate is 349.6503 shares of Class A Common Stock per $1,000 principal amount[32] Convertible Senior Notes, Net (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | 2026 Notes | $124,485 | $557,700 | | 2028 Notes | $250,000 | — | | Unamortized debt issuance costs | $(11,389) | $(5,502) | | Convertible senior notes, net | $363,096 | $552,198 | Note 6 — Commitments and Contingencies This note outlines the Company's involvement in various legal proceedings, including class actions, derivative actions, and an SEC investigation, and other commitments - The Company is involved in various lawsuits, claims, and legal proceedings in the ordinary course of business, including commercial disputes, product liability, and employment matters[39] - A Securities Class Action was filed on November 16, 2023, alleging misleading statements regarding Syndeo 1.0 and 2.0 devices. The Company filed a motion to dismiss the amended complaint on July 11, 2025, with a hearing scheduled for September 17, 2025[43][44] - A Consumer Class Action was filed on October 24, 2024, alleging defective Syndeo machines and misrepresentations. An amended complaint was filed on June 2, 2025, and defendants moved to dismiss various claims on June 23, 2025[46][47] - A Consolidated Derivative Action was filed on February 8, 2024, alleging breach of fiduciary duty and gross mismanagement related to Syndeo devices. Oral argument on the motion to dismiss is scheduled for October 8, 2025[49][50][51] - The SEC Division of Enforcement has issued three subpoenas for documents and information in connection with a formal investigation, which the Company is cooperating with[53] Note 7 — Related-Party Transactions This note describes agreements with related parties, including registration rights for certain stockholders and director designation rights for LCP - The Registration Rights Agreement grants certain stockholders (Sponsor and Hydrafacial Stockholders) registration rights for their Class A Common Stock, with the Company bearing associated expenses[55][56] - The Investor Rights Agreement grants LCP the right to designate directors to the Company's Board, with the number of designees dependent on LCP's ownership percentage of outstanding Class A Common Stock[58] Note 8 — Stockholders' Equity This note provides details on the Company's common stock and authorized preferred stock, including shares issued and outstanding as of the reporting dates - As of June 30, 2025, there were 126,764,562 shares of Class A Common Stock issued and outstanding, compared to 124,924,185 shares at December 31, 2024[59] - The Company is authorized to issue 1,000,000 shares of preferred stock, but no shares were issued or outstanding as of June 30, 2025, and December 31, 2024[60] Note 9 — Fair Value Measurements This note presents fair value measurements for financial instruments, including money market funds and warrant liabilities, and the valuation methodologies used Fair Value Measurements (in thousands) | Category | June 30, 2025 (Total) | December 31, 2024 (Total) | | :-------------------------------- | :-------------------- | :------------------------ | | Money market funds (Level 1) | $88,531 | $284,462 | | Warrant liability — Private Placement Warrants (Level 3) | $349 | $488 | - The fair value of Private Placement Warrants is determined using a Monte Carlo simulation[64] Note 10 — Revenue This note disaggregates net sales by major product line and geographic region for the three and six months ended June 30, 2025 and 2024 Net Sales by Major Product Line (in thousands) | Product Line | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Delivery Systems | $22,357 | $35,209 | $42,575 | $70,992 | | Consumables | $55,830 | $55,385 | $105,192 | $101,005 | | Total net sales | $78,187 | $90,594 | $147,767 | $171,997 | Net Sales by Geographic Region (in thousands) | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Americas | $52,048 | $57,731 | $98,305 | $108,057 | | Europe, the Middle East and Africa | $18,422 | $19,228 | $33,409 | $38,333 | | Asia-Pacific | $7,717 | $13,635 | $16,053 | $25,607 | | Total net sales | $78,187 | $90,594 | $147,767 | $171,997 | Note 11 — Share-Based Compensation This note details share-based compensation expense by category and provides activity summaries for RSUs, PSUs, and stock options Share-Based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of sales | $124 | $130 | $274 | $(274) | | Selling and marketing | $1,127 | $2,204 | $1,344 | $4,628 | | Research and development | $149 | $(628) | $292 | $48 | | General and administrative | $3,908 | $4,792 | $6,874 | $8,732 | | Total share-based compensation | $5,308 | $6,498 | $8,784 | $13,134 | - Total unrecognized compensation expense related to unvested share-based compensation was $30.9 million as of June 30, 2025, to be recognized over a weighted-average period of 2.1 years[69] RSU and PSU Activity (Shares) | Metric | RSU Shares (June 30, 2025) | PSU Shares (June 30, 2025) | | :------------------------ | :------------------------- | :------------------------- | | Outstanding - January 1, 2025 | 7,254,391 | 1,237,822 | | Granted | 10,247,990 | 1,676,134 | | Vested | (2,574,422) | — | | Forfeited | (957,822) | (68,339) | | Outstanding - June 30, 2025 | 13,970,137 | 2,845,617 | Stock Option Activity (Shares) | Metric | Shares (June 30, 2025) | | :-------------------------------- | :--------------------- | | Outstanding - January 1, 2025 | 3,483,070 | | Forfeited | (71,500) | | Expired | (480,750) | | Outstanding - June 30, 2025 | 2,930,820 | | Vested and Exercisable - June 30, 2025 | 2,915,490 | Note 12 — Income Taxes This note discusses income tax benefits, the estimated annual effective tax rate, valuation allowances against deferred tax assets, and unrecognized tax benefits - The Company recorded an income tax benefit of $1.0 million for the three months ended June 30, 2025, and $0.1 million for the six months ended June 30, 2025[72] - The estimated annual effective tax rate (AETR) differed from the U.S. federal statutory rate of 21% primarily due to a full valuation allowance against U.S. deferred tax assets, income in foreign jurisdictions, and the tax impact of executive and share-based compensation[73] - The Company has a valuation allowance against its U.S. deferred tax assets due to uncertainty of realization[75] - Gross unrecognized tax benefits were $1.5 million at June 30, 2025, up from $1.2 million at December 31, 2024[76] - The Company is assessing the impact of the recently enacted One Big Beautiful Bill Act (OBBBA) on its consolidated financial statements[77] Note 13 — Net Income (Loss) Attributable to Common Stockholders) This note presents basic and diluted net income (loss) per share and weighted-average common stock outstanding for the reported periods Net Income (Loss) Per Share (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) available to common stockholders - basic | $19,712 | $202 | $9,616 | $(477) | | Net income (loss) available to common stockholders - diluted | $4,166 | $(14,449) | $(3,401) | $(28,199) | | Basic net income per share | $0.16 | $0.00 | $0.08 | $0.00 | | Dilutive net income (loss) per share | $0.03 | $(0.10) | $(0.02) | $(0.20) | Weighted Average Common Stock Outstanding (Shares) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | 126,072,603 | 123,718,797 | 125,578,780 | 123,417,353 | | Diluted | 140,294,291 | 141,927,750 | 140,589,807 | 143,200,221 | - Shares related to 2028 Notes, RSUs, Stock Options, and PSUs were excluded from diluted EPS calculation for being anti-dilutive in certain periods[79] Note 14 — Segment Information This note clarifies that the Company operates as a single reportable segment and provides a breakdown of total operating expenses - The Company manages its business as one operating segment and one reportable segment, with performance assessed based on consolidated net income (loss) and income (loss) from operations[80] Total Operating Expenses (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Personnel-related expenses | $27,439 | $33,430 | $56,258 | $68,305 | | Other segment expenses | $24,373 | $29,621 | $56,157 | $60,098 | | Total operating expenses | $51,812 | $63,051 | $112,415 | $128,403 | Note 15 — New Accounting Pronouncements This note outlines recently issued accounting standards updates and the Company's ongoing evaluation of their potential impact on financial statements - ASU 2023-09 (Income Taxes) is effective for annual periods beginning January 1, 2025, expanding income tax disclosure requirements[84] - ASU 2024-03 (Disaggregation of Income Statement Expenses) is effective for annual periods beginning after December 15, 2026, expanding expense disclosure requirements[85] - ASU 2024-04 (Debt with Conversion and Other Options) is effective for annual periods beginning after December 15, 2025, clarifying accounting for induced conversions of convertible debt[86] - The Company is currently evaluating the potential effects of these new accounting standards on its financial statements and disclosures[84][85][86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three and six months ended June 30, 2025, compared to the prior year, discussing key financial metrics, business developments, liquidity, and known trends Cautionary Note Regarding Forward-Looking Statements This section advises that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements, which are not guarantees of future performance and involve known and unknown risks and uncertainties[88] - Important factors affecting actual results include the inability to recognize business combination benefits, debt service, managing growth, executing business plans, potential litigation, regulatory changes, and economic factors[89] Company Overview This section provides a brief overview of The Beauty Health Company, its focus on skin health, and its core esthetic technologies and product brands - The Beauty Health Company is a medtech-meets-beauty company focused on skin health experiences[92] - The Company designs, develops, manufactures, markets, and sells esthetic technologies and products under brands like Hydrafacial, SkinStylus, and Keravive[92] Business and Macroeconomic Conditions This section discusses the Company's strategic expansion and the impact of global macroeconomic conditions, including inflation, interest rates, and supply chain disruptions, on its business - The Company continues to expand its footprint by selling hydradermabrasion delivery systems, driving consumables, investing in its community, enhancing brand awareness, and optimizing global infrastructure[93] - Business is impacted by global economic conditions including inflation, recession, foreign currency exchange rates, higher interest rates, tariffs, trade restrictions, supply chain disruptions, and issues related to older Syndeo device models[93][94][96] China Market This section details the Company's transition to a distributor partner for sales in the China market, discontinuing direct sales to customers - During Q2 2025, the Company transitioned sales in the China market to a distributor partner[95] - As a result of this transition, the Company has discontinued direct sales to customers in China[95] Comparison of Three Months Ended June 30, 2025 to Three Months Ended June 30, 2024 This section analyzes the Company's financial performance for the three months ended June 30, 2025, compared to the prior year, focusing on net sales, gross profit, operating expenses, and net income Net Sales (in millions) | Product Line | 2025 | 2024 | Change Amount | Change % | | :--------------- | :--- | :--- | :------------ | :------- | | Delivery Systems | $22.4 | $35.2 | $(12.9) | (36.5)% | | Consumables | $55.8 | $55.4 | $0.4 | 0.8% | | Total net sales | $78.2 | $90.6 | $(12.4) | (13.7)% | - Delivery Systems net sales decreased by 36.5% due to unfavorable macroeconomic and credit conditions globally[99] - Consumables net sales slightly increased by 0.8% due to increased placements of Delivery Systems and adjoining consumption[100] Gross Profit and Margin (in millions) | Metric | 2025 | 2024 | Change Amount | Change % | | :----------- | :--- | :--- | :------------ | :------- | | Cost of sales | $29.1 | $49.7 | $(20.6) | (41.4)% | | Gross profit | $49.1 | $40.9 | $8.2 | 20.0% | | Gross margin | 62.8% | 45.2% | | | - Gross margin increased to 62.8% from 45.2%, primarily due to lower inventory-related charges and a favorable mix shift towards consumable net sales[101] Operating Expenses (in millions) | Expense Category | 2025 | 2024 | Change Amount | Change % | | :--------------------- | :--- | :--- | :------------ | :------- | | Selling and marketing | $23.1 | $30.5 | $(7.4) | (24.2)% | | Research and development | $1.3 | $1.2 | $0.1 | 7.9% | | General and administrative | $27.5 | $31.4 | $(4.0) | (12.6)% | - Net income increased significantly to $19.7 million in 2025 from $0.2 million in 2024, driven by lower operating expenses and a net gain from convertible senior notes exchange/repurchases[98][107] Comparison of Six Months Ended June 30, 2025 to Six Months Ended June 30, 2024 This section analyzes the Company's financial performance for the six months ended June 30, 2025, compared to the prior year, focusing on net sales, gross profit, operating expenses, and net income Net Sales (in millions) | Product Line | 2025 | 2024 | Change Amount | Change % | | :--------------- | :--- | :--- | :------------ | :------- | | Delivery Systems | $42.6 | $71.0 | $(28.4) | (40.0)% | | Consumables | $105.2 | $101.0 | $4.2 | 4.1% | | Total net sales | $147.8 | $172.0 | $(24.2) | (14.1)% | - Delivery Systems net sales decreased by 40.0% across all regions due to unfavorable macroeconomic and credit conditions[111] - Consumables net sales increased by 4.1% due to increased placements of Delivery Systems and adjoining consumption[112] Gross Profit and Margin (in millions) | Metric | 2025 | 2024 | Change Amount | Change % | | :----------- | :--- | :--- | :------------ | :------- | | Cost of sales | $50.1 | $82.7 | $(32.6) | (39.4)% | | Gross profit | $97.7 | $89.3 | $8.4 | 9.4% | | Gross margin | 66.1% | 51.9% | | | - Gross margin increased to 66.1% from 51.9%, primarily due to lower inventory-related charges and a favorable mix shift towards consumable net sales[113] Operating Expenses (in millions) | Expense Category | 2025 | 2024 | Change Amount | Change % | | :--------------------- | :--- | :--- | :------------ | :------- | | Selling and marketing | $49.1 | $64.2 | $(15.0) | (23.4)% | | Research and development | $2.2 | $4.0 | $(1.7) | (43.3)% | | General and administrative | $61.0 | $60.3 | $0.7 | 1.2% | - Net income was $9.6 million in 2025, compared to a net loss of $(0.5) million in 2024, driven by improved gross profit and lower operating expenses, partially offset by lower other income[110][121] Liquidity and Capital Resources This section discusses the Company's sources of capital, current liquidity position, and management's assessment of its ability to meet future working capital requirements - Primary capital sources include cash flow from operating activities, net proceeds from the Business Combination, 2026 Notes, and warrant exercises[122] - As of June 30, 2025, cash, cash equivalents, and restricted cash totaled $212.0 million[122] - Management believes the Company has sufficient liquidity for anticipated working capital requirements for at least the next 12 months[125] - The Company may seek additional equity or debt financing for capital expenditure needs, including potential acquisitions, if operating cash flow is insufficient[124][127] Convertible Senior Notes, Net This section details the Company's recent transactions involving its convertible senior notes, including repurchases and the issuance of new 2028 Notes with associated covenants - The Company repurchased $20.0 million principal amount of 2026 Notes for $18.4 million during the three and six months ended June 30, 2025, resulting in a $1.5 million net gain[130] - On May 21, 2025, the Company exchanged $263.2 million principal of 2026 Notes for $250.0 million principal of new 7.95% Convertible Senior Secured Notes due November 15, 2028 (2028 Notes), and repurchased an additional $150.1 million principal of 2026 Notes for $142.6 million[131] - The 2028 Notes are senior, secured obligations, guaranteed by subsidiaries, and contain restrictive covenants on indebtedness, liens, investments, and restricted payments[133] Known Trends or Uncertainties This section identifies potential impacts from industry consolidations, ongoing macroeconomic challenges, and the risk of goodwill impairment due to financial performance trends - The Company faces potential impacts from industry consolidations within the medical, esthetician, and beauty retail sectors[135] - Macroeconomic challenges, such as recession, financial market instability, and governmental actions (e.g., tariffs), continue to negatively impact revenues in 2025[136][137] - Negative trends in financial performance could lead to a sustained decline in stock price, potentially triggering a goodwill impairment assessment[137] Cash Flows This section summarizes the Company's cash flow activities for operating, investing, and financing, highlighting changes and their primary drivers for the six months ended June 30, 2025 and 2024 Cash Flow Summary (in millions) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by (used for) operating activities | $12.6 | $(10.7) | | Net cash used for investing activities | $(2.7) | $(3.8) | | Net cash used for financing activities | $(173.6) | $(157.4) | | Net change in cash, cash equivalents, and restricted cash | $(163.7) | $(171.9) | | Cash, cash equivalents, and restricted cash at end of period | $212.0 | $349.5 | - Net cash provided by operating activities improved to $12.6 million in 2025 from a usage of $10.7 million in 2024, primarily due to lower working capital usage and changes in net income and non-cash adjustments[140] - Net cash used for financing activities increased to $173.6 million in 2025, mainly due to the exchange and repurchases of the 2026 Notes[142] Critical Accounting Policies and Estimates This section confirms the preparation of financial statements under GAAP and notes no changes to critical accounting policies since the last annual report - The consolidated financial statements are prepared in accordance with GAAP, involving estimates and judgments that affect reported amounts[143] - There have been no changes to the Company's critical accounting policies since the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[144] Recent Accounting Pronouncements This section refers to Note 15 for details on new accounting pronouncements and their potential impact on the Company's financial statements - Refer to Note 15 to the Consolidated Financial Statements for details on new accounting pronouncements[145] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily from changes in interest rates, foreign currency, and inflation, noting no material changes since the last annual report - Market risks primarily stem from changes in interest rates, foreign currency, and inflation[146] - There were no material changes to the Company's market risks disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024[146] Item 4. Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures, identifies a material weakness in the inventory process, and outlines the remediation plan and changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section reports the ineffectiveness of disclosure controls and procedures due to a material weakness in the inventory process as of June 30, 2025 - The Company's disclosure controls and procedures were not effective as of June 30, 2025[147] - This ineffectiveness is due to a material weakness in the Company's internal control over financial reporting related to the inventory process[147] Remediation Plan for Material Weakness This section outlines the Company's plan to remediate the material weakness in inventory controls through new appointments, enhanced training, and improved control implementation - Remediation activities include appointing new individuals in key supply chain and operations roles[150] - Enhanced training and operational guidelines led to the successful completion of annual physical inventory counts[150] - Controls regarding excess and obsolete inventory and inventory pricing/purchase arrangements have been designed and implemented[150] - Remediation activities are anticipated to be completed during fiscal year 2025[148] Changes in Internal Control Over Financial Reporting This section states that no material changes in internal control over financial reporting occurred during the three months ended June 30, 2025 - There have been no changes in internal control over financial reporting during the three months ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[149] PART II—OTHER INFORMATION This section provides updates on legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and a list of exhibits Item 1. Legal Proceedings This section provides an update on various legal proceedings the Company is involved in, including patent and trademark infringement cases, securities class actions, consumer class actions, derivative actions, and an SEC investigation - The Company is a party to various lawsuits, claims, and other legal proceedings, including commercial disputes, product liability, and employment matters[152] - Ongoing patent infringement cases include actions against Cartessa Aesthetics, LLC (including ITC matters), Medicreations LLC, Sinclair Pharma US, Inc. (including ITC matters), Aesthetic Management Partners Inc., Luvo Medical Technologies Inc. (including ITC matters), eMIRAmed USA, LLC, Candela Corp., and BQ Aesthetix & Co., LLC[155][157][158][159][160][161][162][163][165][166][167][169][170] - Trademark infringement cases include actions against Medical Purchasing Resource, LLC (settled for $105,000) and Med Spa Essentials, LLC (settled with business shutdown)[164][168] - A Securities Class Action (Abduladhim A. Alghazwi) and a Consumer Class Action (Jason Davalos, Sonia Davalos, Sol Tan Tanning & Spa LLC) are ongoing, both alleging issues with Syndeo devices and misrepresentations[171][174] - A Consolidated Derivative Action (Margie Elstein, Richard Montague) is ongoing, alleging breach of fiduciary duty and gross mismanagement by former officers and current directors[177][178][179] - The SEC Division of Enforcement has issued three subpoenas in connection with a formal investigation, and the Company is cooperating[181] Item 1A. Risk Factors This section refers to the risk factors discussed in the Company's Annual Report on Form 10-K and highlights new restrictive covenants associated with the 2028 Convertible Senior Secured Notes - The Company's business, financial condition, or future results could be materially affected by risks discussed in the Annual Report on Form 10-K[182] - New restrictive covenants in the 2028 Notes may limit the Company's ability to incur additional debt, engage in certain transactions, and make restricted payments, potentially affecting current and future operations[183] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the unregistered issuance of the 2028 Convertible Senior Secured Notes in exchange for existing 2026 Notes, relying on a private offering exemption - The Company exchanged $263.2 million principal amount of 2026 Notes for $250.0 million principal amount of new 2028 Notes[184] - The 2028 Notes were issued on May 27, 2025, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933[185] - The initial conversion rate for the 2028 Notes is 349.6503 shares of Class A Common Stock per $1,000 principal amount, representing an initial conversion price of approximately $2.86 per share[185] Item 3. Defaults Upon Senior Securities This section states that there have been no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[188] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[189] Item 5. Other Information This section reports that no directors or officers adopted, modified, or terminated Rule 10b5-1 trading plans during the quarter - No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[190] Item 6. Exhibits This section provides a comprehensive list of exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q - The report includes an exhibit index listing various agreements, certificates, and certifications[193] - New exhibits filed herewith include the Indenture for the 7.95% Convertible Senior Secured Notes due 2028 and related form of note, along with certifications from the Principal Executive Officer and Principal Financial Officer[193][195]