The Beauty Health Company Form 10-K for the Year Ended December 31, 2024

Vesper’s Financial Performance: Navigating Challenges and Charting a Path Forward

Vesper, a leading provider of innovative medical and aesthetic devices, has recently released its financial report for the year ended December 31, 2024. The report paints a mixed picture, with the company facing both challenges and opportunities as it navigates the evolving market landscape.

Transitioning the China Market One of the key highlights of the report is Vesper’s decision to transition its sales in the China market to a distributor partner during the second quarter of 2025. This strategic move is expected to be accretive to the company’s long-term profitability, as it will reduce operating expenses, although it will also result in a reduction in revenue.

The Syndeo Program: Protecting the Brand In October 2023, Vesper made the decision to market and sell only the Syndeo 3.0 devices, discontinuing the older Syndeo 1.0 and 2.0 models. This decision was driven by the company’s commitment to its customers and the protection of its brand reputation. As a result, Vesper provided customers with the option to either upgrade their existing Syndeo devices to the 3.0 standard or receive a replacement Syndeo 3.0 device, at no cost to the customer. This program, known as the Syndeo Program, resulted in significant charges and inventory write-downs during the year ended December 31, 2023, totaling $44.2 million.

Financial Performance Highlights Vesper’s total net sales for the year ended December 31, 2024, decreased by $63.7 million, or 16.0%, compared to the previous year. This decline was primarily driven by a 39.3% decrease in Delivery Systems net sales, which was partially offset by a 9.2% increase in Consumables net sales.

The decrease in Delivery Systems net sales reflects a challenging year-over-year comparison due to the prior year’s international launch of Syndeo, which included net sales from the trade-in program. Delivery Systems net sales were also negatively impacted globally by unfavorable macroeconomic and credit conditions, as the company worked to strengthen customer confidence in Syndeo.

On a positive note, Consumables net sales increased by $17.5 million, or 9.2%, compared to the previous year. This increase was primarily attributable to increased placements of Delivery Systems and the adjoining consumption of Consumables during the year ended December 31, 2024.

Cost of Sales and Gross Margin Cost of sales for the year ended December 31, 2024, decreased by $90.9 million, or 37.4%, compared to the previous year. This decrease was primarily due to the absence of charges and inventory write-downs associated with the Syndeo Program, which totaled $65.2 million in the prior year. However, the current year’s cost of sales included $28.0 million in charges for discontinued, excess, or obsolete inventory, including the write-down of Delivery System inventory to its net realizable value and the write-off of excess raw materials.

Gross margin increased from 39.0% in the previous year to 54.5% in the year ended December 31, 2024, primarily due to the absence of the prior year’s Syndeo Program charges and inventory write-downs, partially offset by the higher inventory-related charges and manufacturing optimization costs incurred in 2024.

Operating Expenses Vesper’s operating expenses decreased across all categories compared to the previous year. Selling and marketing expenses decreased by $26.2 million, or 18.1%, primarily driven by lower personnel-related expenses, including sales commission expense and lower marketing-related spending.

Research and development expenses decreased by $3.8 million, or 37.7%, due to lower personnel-related expenses, including share-based compensation expense.

General and administrative expenses decreased by $6.0 million, or 4.5%, primarily driven by lower losses on the sale of assets and software expenses.

Other Income and Expenses Vesper’s interest income decreased by $6.5 million, or 28.2%, compared to the previous year, primarily due to lower average invested balances during the year ended December 31, 2024.

The company recognized income of $3.1 million related to the change in the fair value of the warrant liabilities, a decrease of $8.9 million compared to the previous year, driven primarily by the fluctuation of the price of the Class A Common Stock underlying the Private Placement Warrants.

During the year ended December 31, 2024, Vesper recognized other income, net of $33.6 million, which includes a net gain of $33.4 million related to the repurchase of the company’s Notes.

Liquidity and Capital Resources As of December 31, 2024, Vesper had cash, cash equivalents, and restricted cash of $370.1 million. The company’s primary sources of capital have been cash flow from operating activities, net proceeds from the Business Combination, the issuance of Notes, and the exercise of public and Private Placement Warrants.

Vesper’s operating cash flows result primarily from cash received from sales of Delivery Systems and Consumables, offset by cash payments for products, services, employee compensation, payment processing, and interest payments on the Notes.

During the year ended December 31, 2024, Vesper repurchased $192.3 million principal amount of the Notes for $156.1 million, reflecting the company’s ongoing efforts to manage its debt obligations.

Outlook and Challenges Vesper faces several known trends and uncertainties that may impact its future performance. The majority of the company’s customers operate within the medical, esthetician, and beauty retail industries, which have experienced some consolidation during economic downturns. While this has not had a significant negative effect on Vesper’s total net sales to date, further consolidation and downsizing in these industries could adversely impact the company’s revenues and earnings going forward.

Additionally, Vesper continues to face macroeconomic challenges, such as the possibility of a recession or financial market instability, and the impact of governmental actions on the economy, such as tariffs and trade restrictions. These factors may adversely impact consumer and business spending, as well as the ability of Vesper’s customers to pay for its products and services on an ongoing basis.

If economic and social conditions or the degree of uncertainty or volatility worsen, or the adverse conditions are further prolonged, Vesper’s revenues could be adversely affected. The company is closely monitoring these risks and is prepared to respond appropriately to protect its business.

Conclusion Vesper’s financial report for the year ended December 31, 2024, highlights both the challenges and opportunities the company is facing. The decision to transition the China market to a distributor partner and the successful implementation of the Syndeo Program demonstrate Vesper’s strategic agility and commitment to its customers and brand.

While the company experienced a decline in total net sales, the increase in Consumables net sales and the improvement in gross margin are positive signs. Vesper’s focus on cost management and operational efficiency has also contributed to the reduction in operating expenses.

Looking ahead, Vesper will need to navigate the evolving market landscape, address macroeconomic uncertainties, and continue to innovate and meet the needs of its customers. With its strong liquidity position and ongoing efforts to manage its debt obligations, Vesper appears well-positioned to weather the current challenges and capitalize on future growth opportunities.