HydraFacial parent's stock cut in half after 'many mistakes' leads to ugly quarter

By Tomi Kilgore

Beauty Health's stock suffering record selloff toward record low, after earnings miss, CEO departure and delayed 10-Q

Shares of HydraFacial parent Beauty Health Co. lost more than half their value, after the skin treatment company reported a large surprise third-quarter loss and said its CEO was leaving, citing "many mistakes" made with regard to its Syndeo delivery system.

The company also disclosed that it was unable to file its audited quarterly results with the U.S. Securities and Exchange Commission on time, but expects to file the 10-Q within the five-day extension period.

The stock (SKIN) plummeted 60% in morning trading, to put it on track to close below the current Nov. 10 record closing low of $3.60. It was also headed for a percentage loss that was nearly triple the previous record decline of 21.1% on Nov. 9, 2022.

"While we can all acknowledge that many mistakes were made with regard to Syndeo, we always put our customers first," said interim Chief Executive Marla Beck on a conference call with analysts, according to an AlphaSense transcript. "As a result, we are taking some tough actions this quarter to do the right thing."

The company reported late Monday net losses that widened to $74.9 million, or 56 cents a share, from $1.7 million, to 3 cents a share, in the same period a year ago. The FactSet consensus was for a profit of 7 cents a share.

Sales rose 9.7% to $97.4 million, but was well below the FactSet consensus of $116.2 million. Sales in the Americas region dropped 11% to $51.7 million, while Asia-Pacific sales jumped 63% to $24.7 million and Europe, Middle East and Africa sales climbed 37% to $21.1 million.

Delivery systems sold increased 15.1% to 2,140, but the average selling price dropped 7.9% to $23,900.

"The quarter was overshadowed by lower-than-expected U.S. revenue and $63.1 million in restructuring charges related to device upgrades of early generation Syndeo devices," the company said in a statement. (Some of the issues with Syndeo are described below.)

For 2023, the company cut its guidance range for net sales to $385 million to $400 million from $460 million to $480 million.

Separately, the company said current CEO Andrew Stanleick will leave the company and give up his seat on the board of directors, effective Nov. 19. Current board member Beck, who was founder and former CEO of beauty retailer Bluemercury, will serve as interim CEO while the company searches for a permanent CEO.

Stanleick will be an advisor to the company through the end of the year.

Of the 13 analysts surveyed by FactSet who cover Beauty Health, no less than six cut their ratings on the stock, with three of them now recommending investors sell.

One of the new bears, Raymond James analyst Olivia Tong, downgraded the stock to underperform from market perform. While Tong already had a "tepid" view on the stock, with financial forecasts pre-results that were already below consensus expectations, "the extent of the challenges impacting the company is more severe than we had anticipated."

Even with the stock down more than 50%, "we struggle to find a near-term catalyst," Tong wrote in a note to clients, especially given sales weakness seen by Beauty Health's peers.

The stock has now plummeted 82.9% year to date, while the S&P 500 index SPX has rallied 16.9%.

Rough times for Syndeo

Some time after Syndeo 1.0 was launched in March 2022, CFO Monahan said some providers experienced "frequent treatment interruptions and issues," including distractive noises and difficulties in bottle insertion. There was an issue with low flow and clogs in the system.

For the rest of 2022 and for the first half of 2023, several enhancements were made to address the issues, including the release of Syndeo 2.0, but the issues persisted.

"After rigorous testing and development, including simulating over 10 years of heavy in-office use, we believe we have addressed the Syndeo issues with our current Syndeo 3.0 standard implemented in July of this year," Monahan said.

The company took an impairment charge of $18.8 million as the 4,300 Syndeo 1.0 and 2.0 devices were designated at "obsolete." The company also incurred costs of $12.3 million to enhance or replace 1.0 and 2.0 devices.

And finally, the company accumulated $32.1 million in costs to enhance or replace that roughly 4,500 Syndeo 1.0 and 2.0 devices that have not yet been addressed.

"This decision was made after concluding it was too costly to diagnose, repair and resell returned Syndeo 1.0 or 2.0 devices in inventory," Monahan said. "In addition, by replacing the systems or enhancing currently functioning systems in the field, we are ensuring provider satisfaction and safeguarding our brand equity."

-Tomi Kilgore

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11-14-23 1029ET

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