Equity-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

The Beauty Health Company 2021 Incentive Award Plan (the “2021 Plan”) became effective upon the consummation of the Business Combination. Pursuant to the 2021 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, other stock or cash based awards to eligible service providers. The aggregate number of shares of the Company’s Class A Common Stock that may be issued pursuant to awards granted under the 2021 Plan is the sum of (i) 14,839,640 and (ii) an annual increase on January 1 of each calendar year (commencing with January 1, 2022 and ending on and including January 1, 2031) equal to a number of shares equal to 4% of the aggregate shares outstanding as of December 31 of the immediately preceding calendar year (or such lesser number of shares as is determined by the Company’s Board of Directors), subject to adjustment by the plan administrator in the event of certain changes in our corporate structure. The annual increase on January 1, 2022 amounted to 6.0 million shares of the Company’s Class A Common Stock. The maximum number of shares that may be granted with respect to incentive stock options (“ISOs”) under the 2021 Plan is 7,500,000. At December 31, 2022, an aggregate 9.9 million shares of the Company’s Class A Common Stock were reserved for the issuance of awards under the 2021 Plan.

ESPP

The Company maintains the Employee Stock Purchase Plan (the “ESPP”) for employees located in the United States, which became effective upon the consummation of the Business Combination. The aggregate number of shares of the Company’s Class A Common Stock initially reserved for issuance pursuant to rights granted under the ESPP was 2,000,000. In addition, on the first day of each calendar year beginning on January 1, 2022 and ending on (and including) January 1, 2031, the number of shares available for issuance under the ESPP will be increased by a number of shares equal to the lesser of (1) one percent (1%) of the shares outstanding on the final day of the immediately preceding calendar year, and (2) such smaller number of shares as determined by the Company’s Board of Directors.

Under the ESPP, eligible employees can have up to 10% of their earnings withheld, up to certain maximums, to be used to purchase shares of the Company’s Class A Common Stock at certain purchase dates. The price of the Company’s Class A Common Stock purchased under the ESPP for the offering periods is equal to 85% of the lesser of the fair market value of a share of Class A Common Stock of the Company on the beginning or the end of the offering period.

As of December 31, 2022, there were 206,112 shares of the Company’s Class A Common Stock that were purchased under the ESPP. The Company is currently going through its third offering period which ends May 19, 2023. The Company recognized an immaterial amount of compensation expense related to the ESPP for the year ended December 31, 2022.

As of December 31, 2021, there were no shares of the Company’s Class A Common Stock that were purchased under the ESPP. The Company recognized an immaterial amount of compensation expense related to the ESPP for the year ended December 31, 2021.

Stock Options

The following table summarizes the Company’s stock option activity for the year ended December 31, 2022:


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding - January 1, 2022	6,785,020	$	15.64	9.45	$	59,482
Granted	10,500	22.68

Forfeited	(1,144,700)	18.60
Expired	(49,050)	15.77
Outstanding - December 31, 2022	5,601,770	15.21		8.34	—
Vested and Exercisable - December 31, 2022	1,446,117	15.31		8.06	—
Options vested and expected to vest - December 31, 2022	5,601,770	$	15.21	8.34	$	—

The weighted-average grant date fair value of the stock options granted during the year ended December 31, 2022 and 2021 was $12.23 and $7.84, respectively. At December 31, 2022, aggregate unrecognized compensation cost for unvested stock options was $27.1 million recognized over a weighted average period of 2.46 years. At December 31, 2021, aggregate unrecognized compensation cost for unvested stock options was $49.0 million recognized over a weighted average period of 3.48 years. The stock options granted generally vest over a four year period.

Restricted Stock Units (“RSUs”) and Performance-based Restricted Stock Units (“PSUs”)

The Company reserves the right to grant RSUs to certain employees, executives and directors. The RSUs granted are eligible to vest over the service period, which is generally over three to four years, subject to the recipient’s continued employment through each vesting date.

PSUs are awarded to select executive officers pursuant to the 2021 Plan and vest based on either (i) the performance of the Company’s Class A Common Stock (“Top-hat”) or (ii) the total shareholder return of the Company’s Class A Common Stock relative to a defined peer group (“TSR”).

Top-hat PSUs are earned over a four-year performance period, based on the performance of the Company’s Class A Common Stock, and subject to the recipient’s continued employment through the end of the performance period. The actual number of shares of the Company’s Class A Common Stock to be issued, ranging from 0% to 100% of the number of PSUs granted, will be determined based on the greater of (i) the Company’s average stock price during the 90-day period ending on the third anniversary of the vesting commencement date and (ii) the Company’s average stock price during the 90-day period ending on the fourth anniversary of the vesting commencement date.

TSR PSUs are earned over a three-year performance period, based on the attainment of pre-determined goals related to the Company’s total shareholder return relative to a defined peer group, and subject to the recipient’s continued employment through the end of the performance period. The actual number of shares of the Company’s Class A Common Stock to be issued will range from 0% to 200% of the number of PSUs granted.

The fair value of PSU awards is recognized on a straight-line basis over their measurement period as compensation expense, and is not subject to reversal even if the market condition is not achieved. The fair value of PSUs was determined using a Monte Carlo simulation subject to the performance conditions of the underlying PSUs with the following assumptions:


Input	2022 Grants	2021 Grants
Risk-free interest rate	1.52% - 4.23%	0.50% - 0.65%
Expected volatility of the Company’s Class A Common Stock	57.7% - 66.0%	55.0%

The following table summarizes the Company’s equity award activity for the year ended December 31, 2022:


			Weighted Average Grant Date Fair Value
	RSUs	PSUs	RSUs		PSUs
Outstanding - January 1, 2022	380,775	975,000	$	25.88	$	11.39
Granted	2,936,252	1,734,864	13.47		8.79
Vested	(207,164)	—	20.12		—
Forfeited	(529,711)	(209,738)	14.95		14.30
Outstanding - December 31, 2022	2,580,152	2,500,126	14.47		9.34

The fair value of equity awards that vested, determined based on their respective fair values at vesting date, was $2.7 million for the fiscal year ended December 31, 2022, and $0.7 million for the fiscal year ended December 31, 2021. All of the outstanding equity awards are expected to vest.

At December 31, 2022, the aggregate unrecognized compensation cost for unvested RSUs and PSUs was $28.6 million and $16.4 million, respectively, recognized over a weighted average period of 2.42 years and 2.00 years, respectively.

Compensation expense attributable to net stock-based compensation was as follows for the periods indicated:


	Year Ended December 31,
(in thousands)		2022		2021		2020
Cost of sales		839		405		67
Selling and marketing		9,363		3,547		58
Research and development		602		195		—
General and administrative		17,691		8,271		238
Stock-based compensation expense		$	28,495	$	12,418	$	363