The Beauty Health pany(SKIN) - 2024 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the unaudited financial statements, management's analysis of financial performance and liquidity, market risk disclosures, and internal control effectiveness Financial Statements The unaudited Q1 2024 financial statements reflect reduced assets and liabilities, a narrowed net loss, and increased cash usage for financing activities Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2024, shows a decrease in total assets and liabilities, with a slight increase in equity Balance Sheet Summary (as of March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $614,824 | $698,252 | | Cash, cash equivalents, and restricted cash | $444,634 | $523,025 | | Inventories | $95,721 | $91,321 | | Total Assets | $844,741 | $929,113 | | Total Current Liabilities | $93,568 | $115,008 | | Convertible senior notes, net | $665,486 | $738,372 | | Total Liabilities | $781,446 | $869,723 | | Total Stockholders' Equity | $63,295 | $59,390 | Condensed Consolidated Statements of Comprehensive Income (Loss) Q1 2024 saw a 5.7% decline in net sales, but net loss significantly narrowed due to a gain on debt repurchase Q1 2024 vs. Q1 2023 Income Statement Highlights | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Net sales | $81,403 | $86,278 | -5.7% | | Gross profit | $48,361 | $54,104 | -10.6% | | Loss from operations | $(16,991) | $(17,310) | +1.8% | | Other income, net | $(16,087) | $(418) | N/A | | Net loss | $(679) | $(20,259) | +96.6% | | Diluted net loss per share | $(0.10) | $(0.15) | +33.3% | Condensed Consolidated Statements of Cash Flows Q1 2024 cash flows show increased usage in operations and financing, while investing activities saw a sharp decrease Q1 2024 vs. Q1 2023 Cash Flow Summary | Activity | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Net cash used for operating activities | $(16,854) | $(13,010) | | Net cash used for investing activities | $(1,802) | $(21,680) | | Net cash used for financing activities | $(58,618) | $(2,190) | | Net change in cash | $(77,274) | $(36,880) | Notes to Condensed Consolidated Financial Statements Notes detail revenue decline, ongoing legal challenges, the Syndeo Program's financial impact, and debt repurchase gains Revenue Breakdown by Product and Region (Q1 2024 vs. Q1 2023) | Category | Q1 2024 (in thousands) | Q1 2023 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | By Product | | | | | Delivery Systems | $35,783 | $45,353 | -21.1% | | Consumables | $45,620 | $40,925 | +11.5% | | Total Net Sales | $81,403 | $86,278 | -5.7% | | By Region | | | | | Americas | $50,326 | $52,978 | -5.0% | | Asia-Pacific (APAC) | $11,972 | $13,620 | -12.1% | | EMEA | $19,105 | $19,680 | -2.9% | - In January 2024, the company repurchased $75.0 million of its Convertible Senior Notes for $57.8 million, recognizing a net gain of $16.1 million. Additional repurchases were made in April and May 2024[47][48] - The company is facing a putative securities class action lawsuit, two derivative actions, and an SEC subpoena related to alleged false and misleading statements about the Syndeo devices. The company believes the claims lack merit[66][69][73] - The Syndeo Program, established to upgrade or replace older Syndeo devices, had a remaining liability of $8.3 million as of March 31, 2024, down from $21.0 million at the end of 2023[86][87][88] Management's Discussion and Analysis (MD&A) MD&A details a net sales decline driven by Delivery Systems, a contracted gross margin, and the company's sufficient liquidity position Results of Operations Q1 2024 results show a net sales decrease driven by Delivery Systems, a lower gross profit, and reduced selling and marketing expenses Net Sales Performance (Q1 2024 vs. Q1 2023) | Product Line | Q1 2024 (in millions) | Q1 2023 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Delivery Systems | $35.8 | $45.4 | (21.1)% | | Consumables | $45.6 | $40.9 | 11.5% | | Total net sales | $81.4 | $86.3 | (5.7)% | - Gross margin decreased to 59.4% in Q1 2024 from 62.7% in Q1 2023, impacted by higher indirect product costs and inventory related charges[106] - Selling and marketing expenses decreased by 13.0% to $33.7 million, primarily due to lower personnel-related expenses, including sales commissions, and reduced marketing spend[107] Liquidity and Capital Resources The company maintains strong liquidity with a substantial cash balance and undrawn credit, sufficient for future operations and debt management - As of March 31, 2024, the company had cash, cash equivalents, and restricted cash of approximately $444.6 million and an undrawn $50 million revolving credit facility[113] - In January 2024, the company repurchased $75.0 million principal amount of its Notes for $57.8 million. Further repurchases totaling $117.3 million in principal were made in April and May 2024[122] - Management believes that existing capital is sufficient to satisfy working capital requirements for ongoing operations and obligations for at least the next 12 months[116] Quantitative and Qualitative Disclosures About Market Risk No material changes to market risks, including interest rates, foreign currency, and inflation, were reported since the 2023 Form 10-K - There were no material changes to the company's market risks related to interest rates, foreign currency, and inflation as disclosed in the 2023 Annual Report on Form 10-K[138] Controls and Procedures Disclosure controls and procedures were deemed ineffective due to a material weakness in inventory processes, with remediation efforts underway - The company's principal executive and financial officers concluded that disclosure controls and procedures were not effective as of March 31, 2024[139] - The ineffectiveness is due to a material weakness in internal control over financial reporting related to the company's inventory process, as described in the 2023 Form 10-K[139] - A remediation plan is underway, focusing on hiring experienced personnel and enhancing controls over physical inventory, obsolescence identification, and purchasing authorization[140] PART II—OTHER INFORMATION This section provides updates on legal proceedings, confirms no material changes to risk factors, and reports on equity security sales Legal Proceedings Material pending legal proceedings are detailed in Note 10 of the condensed consolidated financial statements - For a description of material pending legal proceedings, refer to Note 10, Commitments and Contingencies, in Part I, Item 1 of this report[144] Risk Factors No material updates or changes to the risk factors previously disclosed in the 2023 Annual Report on Form 10-K - As of the filing date, there have been no material updates or changes to the risk factors disclosed in the company's 2023 Annual Report on Form 10-K[145] Unregistered Sales of Equity Securities and Use of Proceeds The company did not issue or repurchase any unregistered equity securities during the first quarter of 2024 - The company did not issue any unregistered shares of Class A Common Stock or other equity securities during the three months ended March 31, 2024[146] - No purchases of the company's equity securities were made by the issuer or its affiliates during the three months ended March 31, 2024[147]