Waldencast plc — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022; filed January 16, 2024. The 2022 consolidated results are split between the Successor Period (July 28–December 31, 2022), after the acquisition of Obagi and Milk, and the Predecessor Period (January 1–July 27, 2022), which includes only Obagi. These periods are not directly comparable because of the acquisition-date accounting basis, different business composition and a five-month versus seven-month reporting period.
Waldencast is a Jersey-incorporated beauty and wellness platform with two reportable segments: Obagi Skincare and Milk Makeup. The Business Combination closed July 27, 2022, with cash consideration of approximately $467.0 million and equity consideration of approximately $477.9 million. Waldencast uses U.S. GAAP and operates as an Up-C structure.
Key Financial Metrics
| Metric | 2022 Successor Period | 2022 Predecessor Period | 2021 Predecessor Period, Restated |
|---|---|---|---|
| Net revenue | $92.4 million | $73.8 million | $142.5 million |
| Gross profit | $31.7 million | $42.9 million | $87.4 million |
| Gross margin | 34.3% | 58.2% | 61.4% |
| Operating loss | $(127.7) million | $(15.3) million | $(1.6) million |
| Net loss | $(120.6) million | $(21.1) million | $(19.6) million |
| Net loss attributable to Class A shareholders | $(95.6) million | $(21.1) million | $(19.6) million |
| Basic and diluted loss per Class A share | $(1.11) | $(2.63) | $(2.45) |
| Adjusted EBITDA | $(16.0) million | $0.1 million | $20.6 million |
The Successor Period included approximately $61.1 million of Obagi revenue and $31.3 million of Milk revenue. Milk reported a $13.8 million net loss during the period. Revenue concentration was significant: three customers represented 29%, 18% and 16% of Successor-period revenue.
Margins and Unusual Items
- Successor-period cost of goods sold was $60.7 million, or 65.7% of revenue, including $10.0 million of acquisition-related inventory fair-value step-up amortization, $8.1 million of inventory reserves and write-offs, and $12.2 million of amortization of a related-party liability associated with the Obagi China supply agreement.
- SG&A was $88.9 million, or 96.3% of revenue, including $9.4 million of Business Combination transaction costs, $7.7 million of stock-based compensation and $22.2 million of depreciation and amortization.
- Waldencast recorded a $68.7 million non-cash goodwill impairment charge in the Obagi Skincare segment. Obagi goodwill ended the period at $199.5 million, with the reporting unit’s fair value approximately equal to its carrying value.
- A $6.8 million non-cash gain resulted from the change in fair value of derivative warrant liabilities.
Cash Flow, Liquidity and Debt
| Metric | December 31, 2022 / Successor Period |
|---|---|
| Cash and cash equivalents | $8.7 million |
| Restricted cash | $1.5 million |
| Net cash used in operating activities | $75.0 million |
| Net cash used in investing activities | $544.4 million |
| Net cash provided by financing activities | $629.5 million |
| Gross debt principal | $184.8 million |
| Net debt carrying amount | $179.3 million |
| Derivative warrant liabilities | $18.3 million |
- Operating cash use reflected the $120.6 million net loss, $35.1 million of operating asset and liability outflows, transaction-expense settlements and increased working capital needs.
- Investing cash use primarily reflected $587.7 million of cash consideration for the Obagi and Milk acquisitions, net of cash acquired, partially offset by $44.9 million released from the SPAC trust account.
- Financing inflows included $451.0 million from forward-purchase and PIPE investments and $189.1 million of term-loan and revolver proceeds.
- The 2022 Credit Agreement included a $175.0 million term loan and a revolving facility with up to $50.0 million of capacity. Outstanding principal at year-end was $170.7 million on the term loan and $14.1 million on the revolver. The weighted-average interest rate was 6.6%; borrowings were variable-rate and the term loan rate was 7.9% at year-end.
- The credit facilities mature in July 2026 and are secured by substantially all relevant assets. The company entered into an interest-rate collar covering a $160.0 million notional amount through October 2024.
Material Changes Versus Prior Comparable Periods
- The Business Combination added Milk Makeup and created the Successor reporting structure, making direct comparisons with historical Obagi results unreliable.
- Reported Successor revenue benefited from five months of Milk revenue, while Obagi revenue was affected by challenges involving the Southeast Asia Distributor and delayed collections.
- Successor profitability deteriorated substantially because of acquisition-related costs, higher amortization and depreciation, inventory step-up and reserves, stock compensation, goodwill impairment and higher corporate expenses.
- Restated 2021 net revenue declined from previously reported $206.1 million to $142.5 million. The principal adjustments related to distributor service fees, Southeast Asia Distributor revenue, Physician Channel Provider revenue, and U.S. Online Marketplace Distributor payment terms.
- Restated December 31, 2021 accounts receivable declined by $44.6 million to $18.7 million, while accumulated deficit increased by approximately $50.1 million at December 31, 2021.
- 2021 predecessor operating performance was also affected by a $6.8 million PPP-loan forgiveness gain, a $2.3 million debt-extinguishment loss and a $2.6 million loan-receivable write-off.
Outlook, Commentary, Risks and Contingencies
The filing does not provide quantified revenue, earnings or margin guidance. Management’s strategy is to expand Obagi through broader channels and international distribution, develop direct-to-consumer capabilities, grow Milk’s Sephora and e-commerce presence, launch products and improve margins through scale, pricing, supply-chain optimization and a more favorable channel mix.
- Restatement and controls: Management identified material weaknesses involving segregation of duties, review procedures, GAAP expertise, policies and procedures, risk assessment and monitoring. Disclosure controls were ineffective as of December 31, 2022. Remediation efforts include additional personnel, consultants, technical accounting support and enhanced controls.
- SEC investigation: The company self-reported the accounting review and received an SEC document subpoena in September 2023. The outcome, timing and potential financial impact are not predictable.
- Nasdaq listing: The company received notices of non-compliance for late filings and faced potential delisting. Trading was stayed pending a Nasdaq Hearings Panel decision, with an additional notice related to delayed interim financial statements.
- Debt covenant risk: Subsequent waivers and a September 2023 amendment waived specified defaults, modified covenant tests, imposed additional restrictions and established a $15.0 million minimum liquidity covenant during the relief period. Failure to deliver required information or comply with covenants could trigger default and acceleration.
- Customer concentration: Obagi relies heavily on a U.S. Physician Channel Provider and historically significant Southeast Asia Distributor relationships. Milk relies heavily on Sephora, whose agreements contain no minimum purchase commitments and may be terminable on notice.
- Regulatory exposure: Obagi’s prescription-only hydroquinone products have not received required FDA premarket approval, and the FDA could require approval, suspension or withdrawal. MoCRA introduces additional cosmetic compliance requirements beginning in 2024 and beyond.
- Supply chain and inventory: Products are manufactured by third-party contract manufacturers, with certain single-source dependencies. Inventory totaled $54.4 million at year-end, and the company recorded substantial excess-inventory reserves and write-offs.
- PPP loan review: The SBA requested additional documentation regarding the previously forgiven $6.8 million PPP loan. The filing does not provide a final outcome.
- Subsequent financing: In September and November 2023, the company completed a $70.0 million PIPE issuance of 14.0 million Class A shares at $5.00 per share, causing dilution to non-participating holders.
Most Important Facts for Investors to Verify
- Whether the restated historical revenue and receivable balances adequately reflect the company’s revenue-recognition and collection risks.
- Whether internal-control remediation has been completed and independently validated, and whether further restatements or accounting issues could arise.
- The status and potential cost of the SEC investigation, related litigation, penalties or regulatory remedies.
- Current liquidity after the $75.0 million Successor-period operating cash burn, including compliance with the $15.0 million minimum liquidity covenant.
- Debt amortization, variable-rate exposure, covenant headroom and refinancing requirements before the July 2026 maturity.
- Whether Obagi’s goodwill and other acquired intangible assets require additional impairment charges.
- Obagi’s exposure to unapproved hydroquinone products, MoCRA compliance costs and other FDA or international regulatory actions.
- Dependence on the Physician Channel Provider, Sephora, major distributors and third-party manufacturers.
- The impact of the PIPE financing, warrants, options, Class B exchange rights and potential future dilution.
- The outcome of Nasdaq’s listing proceedings and the availability of timely SEC filings.