Waldencast plc — FY2023 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2023. The filing presents Waldencast as the Successor, with consolidated results for Obagi Skincare and Milk Makeup. Comparisons with 2022 are limited because the 2022 Successor period covers only July 28–December 31, 2022, and predecessor periods include only Obagi and use a different accounting basis following the July 2022 Business Combination.
Business Context
Waldencast is a Jersey-incorporated global beauty and wellness platform operating through two reportable segments: professional skincare brand Obagi and clean prestige makeup brand Milk Makeup. Obagi sells through physicians, e-commerce platforms, distributors and retailers in more than 65 countries. Milk sells primarily through Sephora, other retailers and its direct-to-consumer website.
At December 31, 2023, Waldencast had 101,228,857 Class A ordinary shares and 20,847,553 Class B ordinary shares outstanding. The Class B shares are non-economic voting shares exchangeable with corresponding Waldencast LP units into Class A shares.
FY2023 Financial Performance
| Metric | FY2023 | 2022 Successor period |
|---|---|---|
| Net revenue | $218.1 million | $92.4 million |
| Gross profit | $141.6 million | $31.7 million |
| Gross margin | 64.9% | 34.3% |
| Operating loss | $(81.9) million | $(127.7) million |
| Net loss | $(106.0) million | $(120.6) million |
| Net loss attributable to Class A shareholders | $(90.0) million | $(95.6) million |
| Basic and diluted loss per Class A share | $(0.99) | $(1.11) |
| Adjusted EBITDA | $24.4 million | $(16.0) million |
| Adjusted EBITDA margin | 11.2% | (17.4%) |
FY2023 revenue comprised $117.7 million from Obagi Skincare and $100.5 million from Milk Makeup. Obagi generated $76.6 million of gross profit, while Milk generated $65.0 million. Direct sales were $169.7 million, distributor sales were $43.4 million and royalties were $5.0 million.
Cost of goods sold was $76.6 million, or 35.1% of revenue. It included $15.6 million of inventory reserves and write-offs, $11.2 million of amortization of product-related assets and supply agreements, and $1.7 million of inventory fair-value step-up amortization. SG&A was $220.3 million, including $31.1 million of transaction and restatement-related costs, $65.1 million of employee compensation and stock-based compensation, $49.3 million of depreciation and amortization, and $44.6 million of selling, marketing and distribution costs.
Adjusted gross profit was $150.4 million and adjusted gross margin was 69.0%, excluding selected acquisition-related amortization, inventory fair-value adjustments and the amortization of the related-party liability associated with the Obagi China supply agreement.
Cash Flow, Liquidity and Debt
- Cash and cash equivalents were $21.1 million at December 31, 2023; restricted cash was $1.5 million.
- Net cash used in operating activities was $29.8 million, compared with $75.0 million used during the five-month 2022 Successor period.
- Net cash used in investing activities was $2.0 million, primarily capital expenditures.
- Net cash provided by financing activities was $44.3 million, including $70.0 million of 2023 PIPE proceeds and $35.0 million of revolving-credit borrowings, partly offset by debt repayments.
- Debt consisted primarily of $161.9 million of unpaid principal under the term loan, plus a $1.0 million D&O insurance financing note. Total face-value debt under the credit agreement was approximately $162.8 million, with net carrying value of $159.8 million after debt issuance costs.
- The term loan and revolving facility mature in July 2026. The term loan carried a weighted-average interest rate of 8.6% at year-end, and the company recorded $18.9 million of net interest expense in FY2023.
- The company had $28.6 million of derivative warrant liabilities and $273.4 million of total liabilities at year-end.
Material Changes Versus Prior Comparable Information
- FY2023 includes a full year of both Obagi and Milk, whereas the 2022 Successor period includes only five months; therefore, reported year-over-year increases in revenue and expenses are not directly comparable.
- Gross margin improved substantially from 34.3% to 64.9%, primarily because 2022 included substantial acquisition-related inventory fair-value step-up amortization and unusually high costs associated with delayed recognition of certain distributor revenue.
- Adjusted EBITDA improved from a $16.0 million loss in the 2022 Successor period to $24.4 million of positive EBITDA in FY2023, although GAAP net loss remained substantial.
- FY2023 included $31.1 million of transaction and restatement-related SG&A costs, a $2.0 million distributor termination fee, $2.3 million of product discontinuation costs and $3.6 million of lease-impairment charges.
- Waldencast issued 14.0 million Class A shares in the 2023 PIPE at $5.00 per share for $70.0 million of gross proceeds, diluting holders who did not participate.
- Obagi acquired a majority interest in its Vietnam business, replaced the prior local management and distribution structure, obtained product registrations in June 2023 and expanded direct distribution capabilities. Obagi also terminated its U.S. online marketplace distributor in the fourth quarter and began selling directly on Amazon.
- Obagi discontinued the Obagi Clinical product range and refocused Southeast Asian operations on the Obagi Medical brand.
Guidance, Outlook and Management Commentary
The filing does not provide formal numerical revenue, earnings or cash-flow guidance. Management expects to invest in international expansion, e-commerce, distribution infrastructure, product development, marketing, personnel and internal controls. Key initiatives include expanding Obagi’s direct distribution in Southeast Asia, broadening both brands’ channels and geographies, growing Milk’s direct-to-consumer business, increasing Milk’s product assortment and improving gross margins through pricing, sourcing and product-mix initiatives.
Management stated that operating cash flow, existing cash and access to credit facilities are expected to fund current operations for the foreseeable future, but acknowledged that additional capital may be required for acquisitions, regulatory matters, litigation, working capital or further expansion.
Risks, Contingencies and Unusual Items
- Accounting and controls: The company restated certain predecessor-period financial statements after identifying revenue-recognition and other accounting issues. Management concluded that material weaknesses in internal control over financial reporting remained unresolved at December 31, 2023, including insufficient segregation of duties, inadequate GAAP expertise, and deficient policies, procedures and monitoring.
- SEC investigation: The SEC issued a document subpoena in September 2023 in connection with the accounting review. The investigation remains ongoing, and potential penalties, remedial measures, litigation and advisory costs cannot be predicted.
- Debt and liquidity: The company previously required multiple waivers and amendments to its credit agreement for delayed filings, historical financial-statement inaccuracies and covenant breaches. The April 2024 Third Amendment waived certain historical breaches, reduced the minimum liquidity covenant to $10.0 million and extended covenant relief through the earlier of December 31, 2024 or an earlier election to resume prior covenant testing.
- Customer concentration: Two customers represented 28% and 20% of FY2023 revenue. Sephora accounted for a large majority of Milk’s U.S. revenue, while Obagi relies heavily on its U.S. Physician Channel Provider.
- Regulatory exposure: Obagi markets prescription-only hydroquinone products without FDA premarket approval. The FDA could require approval, suspend sales or pursue enforcement. The Skintrinsiq device could also be deemed a regulated medical device.
- Product and cosmetics regulation: The Modernization of Cosmetics Regulation Act creates additional registration, product listing, adverse-event, safety substantiation, labeling and cGMP obligations, potentially increasing compliance costs or causing product restrictions.
- Impairment risk: Goodwill was $334.6 million at year-end, including $199.5 million for Obagi and $135.1 million for Milk. Obagi’s fair value exceeded carrying value by only approximately 5% at the October 2023 impairment test, creating sensitivity to weaker revenue, profitability or market conditions.
- Other unusual items: The company recorded a $68.7 million non-cash Obagi goodwill impairment charge in the 2022 Successor period, while FY2023 included a $10.3 million non-cash loss from changes in warrant fair value.
- Listing status: Nasdaq filing-compliance issues were cured after subsequent filings, but Nasdaq imposed a one-year mandatory panel-monitor period beginning March 21, 2024. Failure to timely satisfy filing requirements during that period could result in a delisting determination.
Most Important Facts for Investors to Verify
- Reconcile FY2023 operating trends using segment-level results because the 2022 Successor comparison covers only five months and is not fully comparable.
- Review the revenue-recognition judgments for the Physician Channel Provider, international distributors and customers with extended or delayed payment terms.
- Assess whether the company can generate positive operating cash flow while servicing approximately $162.8 million of variable-rate debt and meeting minimum-liquidity and financial covenants.
- Monitor the SEC investigation, any additional restatements, related legal costs, penalties or remediation requirements.
- Evaluate progress in remediating material weaknesses and whether future filings are timely and reliable.
- Assess customer concentration, especially Sephora, the Physician Channel Provider and major international distributors.
- Evaluate the regulatory status and revenue dependence of hydroquinone-containing Obagi products and the company’s compliance with MoCRA.
- Review goodwill and intangible-asset sensitivity, particularly the narrow excess fair value cushion for Obagi.
- Consider dilution from the 2023 PIPE, equity awards, Class B unit exchanges and approximately 29.5 million outstanding warrants exercisable at $11.50 per share.