Business Context and Reporting Period
The filing is The Beauty Health Company’s Form 10-Q for the three months ended March 31, 2021, filed under its former name, Vesper Healthcare Acquisition Corp. The supplied metadata identifies “Skinhealth Systems Inc.,” but the filing identifies the registrant as The Beauty Health Company.
Through March 31, 2021, the Company was a special purpose acquisition company and had not commenced operating activities or generated revenue. The May 4, 2021 business combination with HydraFacial closed after the reporting period, and the registrant subsequently changed its name to The Beauty Health Company.
Key Financial Metrics
| Metric | March 31, 2021 / Q1 2021 | December 31, 2020 |
|---|---|---|
| Cash outside Trust Account | $2.8 million | $3.3 million |
| Marketable securities in Trust Account | $460.2 million | $460.1 million |
| Total assets | $463.5 million | $464.0 million |
| Total liabilities | $68.4 million | $82.5 million |
| Warrant liability | $51.5 million | $65.6 million |
| Class A stock subject to possible redemption | $460.0 million | $460.0 million, as revised |
| Stockholders’ equity | $(64.9) million | $(78.5) million, as revised |
There was no operating revenue. Formation and operating costs were $602,319. Net income was $13.6 million, consisting primarily of a $14.2 million non-cash gain from the change in fair value of warrant liabilities, plus $85,152 of interest income and a $1,036 unrealized gain on Trust Account securities, less operating costs. Basic and diluted net income per non-redeemable common share was $1.18.
Net cash used in operating activities was $511,921. No long-term debt, capital lease obligations, operating lease obligations or other long-term liabilities were reported, other than the deferred underwriting payable and customary administrative-support arrangement. The Company had $813,471 of current liabilities at March 31, 2021.
Material Changes and Transactions
- The Company completed its business combination with HydraFacial on May 4, 2021 and acquired 100% of HydraFacial and its subsidiaries.
- Aggregate merger consideration was approximately $975 million, less HydraFacial net indebtedness and subject to transaction-related and working-capital adjustments. The consideration included approximately $368 million of cash and 35,501,743 newly issued Class A shares.
- The Company completed a $350 million PIPE investment for 35 million Class A shares at $10 per share. Public holders redeemed 2,672,690 shares for approximately $26.7 million.
- Approximately $224 million was used to repay HydraFacial debt and approximately $94 million was used for transaction expenses. The Trust Account was substantially used to fund the transaction.
- The Company later acquired four international HydraFacial distributors for approximately $28 million in cash and 590,099 Class A shares. Up to 7.5 million additional shares may be issued under the merger earn-out provision.
- Previously issued financial statements were restated because public and private warrants should have been classified as derivative liabilities measured at fair value rather than equity. The resulting Q1 gain was materially affected by the $14.2 million warrant remeasurement.
- The Company also revised its December 31, 2020 presentation, reclassifying 8,351,205 Class A shares and $83.5 million from permanent equity to temporary equity subject to possible redemption.
Outlook, Risks, Contingencies and Unusual Items
The filing provides no formal revenue, earnings or operating guidance. Management’s Q1 discussion relates primarily to completing the business combination rather than operating performance. Results for the quarter are not indicative of the post-combination company because HydraFacial was not consolidated in the Q1 financial statements.
- Management stated that COVID-19 could adversely affect the Company’s financial position, results, or acquisition activities, although the specific impact was not determinable.
- The Company reported a material weakness in disclosure controls and procedures as of March 31, 2021, attributable to the warrant-accounting restatement and related accounting errors. Remediation initiatives were planned, but management could not assure their effectiveness.
- Four shareholder lawsuits related to the business combination were voluntarily dismissed or discontinued between April 19 and May 17, 2021. The filing also describes shareholder demand letters and states that the Company believes the allegations are without merit.
- Warrant liabilities totaled $51.5 million at March 31, 2021 and are subject to recurring fair-value changes that may cause significant volatility in reported earnings.
- The Company was an emerging growth company and elected to use the extended transition period for adopting new accounting standards.
Important Facts for Investors to Verify
- Confirm the post-merger consolidated operating results, including HydraFacial revenue, profitability, cash flow and margins, because the Q1 statements contain no operating results for HydraFacial.
- Review the final purchase-price allocation, merger accounting, debt repayment, transaction expenses and any subsequent adjustments.
- Assess the effect of warrant liabilities, potential warrant exercises and future fair-value changes on earnings and dilution.
- Verify the number of shares issued after the merger, PIPE financing, redemptions, distributor acquisitions and potential earn-out shares.
- Review remediation of the material weakness and the reliability of subsequently filed financial statements.
- Evaluate remaining litigation, COVID-19 effects, acquisition integration risks and the risks disclosed in the Company’s Form 10-K/A.