BeautyHealth Reports Second Quarter 2023 Financial Results

Delivers double-digit net sales growth on demand for Hydrafacial

Confirms 2023 net sales and 2025 financial guidance, refines 2023 adjusted EBITDA margin guidance

The Beauty Health Company (NASDAQ: SKIN), home to flagship brand Hydrafacial, today announced financial results for the second quarter ended June 30, 2023. For the quarter, net sales of $117.5 million increased +13% year-over-year, or +32% excluding trade-ups, continuing a trend of double-digit quarterly growth. Net income was $3.4 million, and adjusted EBITDA margin was 15.1% for the quarter. On the momentum, the Company re-affirms its 2023 net sales and long-term 2025 financial guidance, and refines its 2023 adjusted EBITDA margin to a more precise 18%-19% range.

“In the second quarter, we recommitted to our core and, in doing so, delivered consistent double-digit top-line performance and profitability in line with expectations,” said BeautyHealth President and CEO Andrew Stanleick. “At the same time, we are readying the organization for the next phase of growth, with a fortified executive team, robust innovation pipeline and disciplined approach to harnessing the enormous global market opportunity in front of us.”

Consumables net sales growth was +34% year-over-year, driven by strong volumes as demand for Hydrafacial treatments continues.

Delivery system net sales growth for the quarter was +1% year-over-year as the Company lapped $23.3 million in trade-up demand in the second quarter of last year associated with Syndeo's U.S. launch. Excluding trade-up demand, delivery systems net sales growth for the quarter was +30%.

Of note, the mix of delivery systems sold shifted towards lower-margin refurbished devices amidst a tightening credit environment and as U.S. providers awaited Syndeo enhancements in the third quarter of 2023 to improve the user experience. This unfavorably impacted gross margin for the quarter.

Net sales in the APAC region grew +143% year-over-year, or +92% when excluding trade-ups. Of note, China's net sales growth returned to pre-pandemic levels, growing +265% or +167% when excluding trade-ups. EMEA showed momentum, reporting net sales growth of +61%, or +37% when excluding trade-ups. In the Americas region, the change in net sales was (16)%, or +18% when excluding trade-ups.

• Strategic and Pipeline Highlights
• Partnered with LaserAway, one of the largest aesthetic chains in the U.S., to supply Hydrafacial Syndeo devices to its more than 125 locations and any new practice sites to be opened through 2025.
• Continued expansion of Hydrafacial's Sephora presence now to three continents with new doors in Australia and Malaysia anticipated in the second half of the year.
• Received FDA clearance for a new facial acne scarring indication for SkinStylus, making it the only microneedling device FDA-cleared for treatment on both the face and abdomen.
• Collaborating with Amazon Web Services, Inc. (AWS) Generative AI Innovation Center to expand the functionalities of the BeautyHealth data platform and to design new generative AI products and processes.
• Unveiled a custom Dior by Hydrafacial Syndeo delivery system at Dior Spa Cruise 2023 for exclusive use at select Dior spas worldwide.
• Launched a re-imagined GLOWvolution campaign in New York and Los Angeles, generating more than 1,200% growth in earned media value compared to last year's program.

Key Operational and Business Metrics

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Financial Highlights

• Net sales were $117.5 million for the second quarter of 2023, an increase of 13% compared to the prior year period, driven by strong demand for Hydrafacial from providers and by strength in consumables.
• Gross margin was 57.8% in Q2 2023 compared to 67.6% in Q2 2022. Adjusted gross margin was 64.8% in Q2 2023 compared to 71.0% in Q2 2022. Gross margin was impacted by an increase in sales of lower margin refurbished systems, particularly in the U.S., and the sell-through of higher cost inventory.
• Net income was $3.4 million in Q2 2023 compared to net income of $6.3 million in Q2 2022. The decrease compared to the prior year was due primarily to a benefit from the change in the fair value of warrant liabilities.
• Adjusted EBITDA was $17.8 million in Q2 2023 compared to adjusted EBITDA of $14.6 million in Q2 2022, primarily due to a year-over-year reduction in selling and marketing expenses that was partially offset by gross margin headwinds.

Net Sales by Region

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• Net sales in the Americas region decreased (16)% to $63.6 million in Q2 2023 compared to Q2 2022, driven by lower trade-up volume. When excluding the impact of trade-ups, Americas total net sales grew by +18%.
• Net sales in the APAC region increased +143% to $25.2 million in Q2 2023 compared to Q2 2022, returning to pre-pandemic growth on the heels of China's recovery. When excluding the impact of trade-ups, APAC total net sales grew by +92%.
• Net sales in the EMEA region increased +61% to $28.6 million in Q2 2023 compared to Q2 2022, driven by strong demand for systems and consumables. When excluding the impact of trade-ups, EMEA total net sales grew by +37%.

Operating Expenses

• Selling and marketing expenses were $43.0 million in Q2 2023 compared to $44.9 million in Q2 2022, primarily driven by lower sales commission expense. As a percentage of net sales, selling and marketing expenses, as reported and as adjusted, decreased 670 and 820 basis points, respectively, year-over-year.
• General and administrative expenses were $35.1 million in Q2 2023 compared to $27.6 million in Q2 2022, primarily due to higher personnel related compensation, including higher share-based compensation and severance and restructuring expenses, partially offset by lower recruiting related expenses.

Balance Sheet and Cash Flow Highlights

• Cash and cash equivalents were approximately $549.7 million as of June 30, 2023 compared to approximately $568.2 million as of December 31, 2022. Cash and cash equivalents decreased during the year primarily due to strategic acquisitions made during Q1 2023.
• The Company had approximately 7.0 million private placement warrants and approximately 132.9 million shares of Class A common stock outstanding as of June 30, 2023. In April 2023, the Company completed its second $100.0 million accelerated share repurchase transaction. With the two $100.0 million accelerated share repurchase programs, the Company retired an aggregate of approximately 18.8 million shares at an average price of $10.78 per share.

Financial Guidance

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• The Company re-affirmed its fiscal year 2023 net sales due to continued demand for Hydrafacial, strong trends in China and ability to drive operating leverage, and refined its fiscal year 2023 adjusted EBITDA guidance to a range of 18-19% from 18-20% previously.
• The Company retracted its 2023 fiscal year 2023 adjusted gross margin guidance due to Q2 margin headwinds carrying into the back half of 2023.
• The Company re-affirmed its fiscal year 2025 long-range outlook, due to continued strong business fundamentals, fortified leadership team and its expected pipeline of innovation.

Financial guidance reflects the following external environment assumptions:

• Assumes no material deterioration in general market conditions or other unforeseen circumstances beyond the Company's control.
• Excludes any unannounced acquisitions, dispositions or financings during 2023.
• Assumes a largely re-opened global market, which would be negatively impacted if closures related to COVID-19 or other restrictive measures are reimplemented.
• Assumes no material deterioration in foreign currency exchange rates.

Conference Call

BeautyHealth will host a conference call on Wednesday, August 9, 2023, at 8:30 a.m. ET to review its second quarter 2023 financial results. The call may be accessed via live webcast through the Events & Presentations page on our Investor Relations website at https://investors.beautyhealth.com. A replay of the conference call will be available approximately three hours after the conclusion of the call and can be accessed online at https://investors.beautyhealth.com.

Non-GAAP Financial Measures

In addition to results determined in accordance with accounting principles generally accepted in the United States of America ("GAAP"), management utilizes certain non-GAAP financial measures such as adjusted gross profit, adjusted selling and marketing expense, adjusted research and development expense, adjusted general and administrative expense and adjusted EBITDA for purposes of evaluating ongoing operations and for internal planning and forecasting purposes.

Management believes that these non-GAAP financial measures, when reviewed collectively with the Company’s GAAP financial information, provide useful supplemental information to investors in assessing the Company's operating performance. These non-GAAP financial measures should not be considered as an alternative to GAAP financial information or as an indication of operating performance or any other measure of performance derived in accordance with GAAP, and may not provide information that is directly comparable to that provided by other companies in its industry, as these other companies may calculate non-GAAP financial measures differently, particularly related to unusual items.

Net sales excluding trade-ups is calculated as net sales excluding the effect of net sales associated with delivery systems sold under a trade-up program.

Adjusted gross profit is gross profit excluding the effects of depreciation expense, amortization expense, stock-based compensation expense and other items such as write-off of discontinued and obsolete product, Syndeo product optimization logistics & service costs and accrual for annual cash incentives.

Adjusted selling and marketing expense is calculated as selling and marketing expense excluding the effects of depreciation expense, amortization expense, stock-based compensation expense and other items such as the accrual for annual cash incentives and severance, restructuring and other. Adjusted research and development expense is calculated as research and development expense excluding the effects of stock-based compensation expense and other items such as the accrual for annual cash incentives and severance, restructuring and other. Adjusted general and administrative expense is calculated as general and administrative expense excluding the effects of depreciation expense, amortization expense, stock-based compensation expense, loss on disposal of assets, transaction related costs, litigation related costs, accrual for annual cash incentives and severance, restructuring and other.

Adjusted EBITDA is calculated as net income (loss) excluding the effects of (benefit) expense for income taxes, depreciation expense, amortization expense, stock-based compensation expense, interest expense, interest income, other (income) expense, change in fair value of warrant liability, foreign currency (gain) loss, net, loss on disposal of assets, transaction related costs, write-off of discontinued and obsolete product, litigation related costs, Syndeo product optimization logistics & service costs, accrual for annual cash incentives and severance, restructuring and other.

The Company does not provide a reconciliation of its fiscal 2023 adjusted EBITDA margin guidance to net income (loss), the most directly comparable forward looking GAAP financial measures, due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, which cannot be done without unreasonable efforts, including adjustments that could be made for changes in fair value of warrant liabilities, integration and acquisition-related expenses, amortization expenses, non-cash stock-based compensation, gains/losses on foreign currency, and other charges reflected in our reconciliation of historic numbers, the amount of which, based on historical experience, could be significant. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. The Company's fiscal 2023 adjusted gross margin and adjusted EBITDA margin guidance is merely an outlook and is not a guarantee of future performance. Stockholders should not rely or place an undue reliance on such forward-looking statements. See “Forward-Looking Statements” for additional information.

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About The Beauty Health Company

The Beauty Health Company (NASDAQ: SKIN) is a global category-creating company delivering millions of skin health experiences every year that help consumers reinvent their relationship with their skin, bodies and self-confidence. Our brands are pioneers: Hydrafacial™ in hydradermabrasion, SkinStylus™ in microneedling, and Keravive™ in scalp health. Together, with our powerful community of estheticians, partners and consumers, we are personalizing skin health for all ages, genders, skin tones, and skin types in more than 90 countries. We are committed to being ever more mindful in how we conduct our business to positively impact our communities and the planet. Find a local provider at https://hydrafacial.com/find-a-provider/, and learn more at beautyhealth.com or LinkedIn.

Forward-Looking Statements

Certain statements made in this release are “forward looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995, including statements regarding The Beauty Health Company’s strategy, plans, objectives, initiatives and financial outlook. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements.

These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside The Beauty Health Company’s control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. As such, readers are cautioned not to place undue reliance on any forward-looking statements.

Important factors that may affect actual results or outcomes include, among others: The Beauty Health Company’s ability to manage growth; The Beauty Health Company’s ability to execute its business plan; potential litigation involving The Beauty Health Company; changes in applicable laws or regulations; the possibility that The Beauty Health Company may be adversely affected by other economic, business, and/or competitive factors; the impact of the continuing COVID-19 pandemic on the Company’s business; and other risks and uncertainties set forth in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (the “SEC”) and in the Company’s subsequent filings with the SEC. There may be additional risks that the Company does not presently know of or that the Company currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. The Beauty Health Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

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