Restructuring Charges

9 Months Ended

Sep. 30, 2023

Restructuring and Related Activities [Abstract]

Syndeo Program

The Company launched Syndeo in March 2022, the first new Hydrafacial delivery system model in five years. Subsequent to launch, many customers with Syndeo 1.0 and Syndeo 2.0 builds began to experience frequent treatment interruptions and unacceptable device conditions. In addition to issues such as distractive noise and difficult bottle insertion, a significant issue was low flow and clogs in the system, due to recommended maintenance requiring overly rigorous levels to prevent serum build-up inside the system’s fluidics manifold. Throughout 2022 and the first half of 2023, the Company made several enhancements to each version of the Syndeo in an effort to address and remediate these issues, but despite these efforts, performance interruptions that negatively impacted customer productivity and satisfaction continued to persist.

In July 2023 the Company developed Syndeo 3.0 and has noted a significant improvement in user experience and a substantial decline in initial return rates, primarily due to hardware and software enhancements that automate and force effective rinse cycles and manifold cleaning with an air blast procedure that reduce build-up and clogging as well as improvements in the connector to the handpiece to facilitate user cleaning. During the third quarter of 2023, the Company announced its Syndeo Enhancement Program to upgrade devices to Syndeo 3.0 build standards via field service.

To stand behind its commitment to its customers and protect the Company’s brand reputation, during October 2023, the Company’s management decided that, with respect to Syndeo devices, the Company will only market and sell Syndeo 3.0 devices. The Company will provide, at no cost to the customer, the option of (i) a technician upgrade to their Syndeo 1.0 or 2.0 devices to 3.0 standards in the field; or (ii) a replacement Syndeo 3.0 device for their existing device. Additionally, the Company will extend the customer’s warranty by one year for each system from the date it was either brought to the 3.0 standards or the customer received a Syndeo 3.0 device. The Company anticipates that the vast majority of its customers will elect to request a replacement Syndeo 3.0 device.

With respect to Syndeo devices, as a result of the decision to market and sell Syndeo 3.0 devices exclusively, the Company has designated all Syndeo 1.0 and 2.0 builds on-hand as obsolete, resulting in an inventory write-down in cost of sales of $18.8 million during the three months ended September 30, 2023.

The following table summarizes the Syndeo Program charges and usage for the three months ended September 30, 2023:


	Syndeo Program
	(in thousands)
Program charges for the three months ended September 30, 2023	$	44,306
Program usage for the three months ended September 30, 2023	(12,254)
Reserves as of September 30, 2023	$	32,052

Syndeo inventory write-down and program charges were recognized in cost of sales for the three months ended September 30, 2023.

Business Transformation Program

On September 12, 2023, the Company announced a business transformation restructuring program to drive profitable growth by reducing operating costs and streamlining operations. The business transformation plan is expected to be completed in two phases, with the first phase (“Phase 1”) expected to be substantially completed by March 31, 2024.

The Company expects to incur expenses associated with Phase 1 of the transformation program, primarily resulting from planned reductions in workforce and consulting fees. We anticipate the total restructuring costs for Phase 1 of the transformation program to be in the range of $9 million to $11 million. The Company has recognized restructuring charges of $0.6 million primarily related to consulting and other miscellaneous expenses for the three months ended September 30, 2023.

In the second phase (“Phase 2”), the Company expects cost savings to be primarily driven by optimizing manufacturing operations. As of the date of the issuance of these financial statements, Phase 2 of the restructuring program is not finalized and we are unable to forecast the magnitude of the total estimated amount for each major type of cost.