Q3 2022 Olaplex Holdings Inc Earnings Call

Good morning, and welcome to all of Plex, Inc's third quarter 2022 financial results conference call.

All participants are in a listen only mode. After the speaker's presentation, we will conduct a question and answer session to ask a question you will need to press star one on your telephone keypad to withdraw your question. Please press star one again.

As a reminder, this conference call is being recorded.

I'd now like to turn the call over to Allison Malkin of ICR.

Please go ahead Ms Malkin.

Thank you before we start I would like to remind you that management will make certain statements today, which are forward looking including statements about the outlook on Olympics as business and other matters referenced in the company's earnings release issued today.

Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in or implied by such statements. Additional information regarding these factors appears under the heading cautionary note regarding forward looking statements.

In the company's earnings release and in the filings the company makes with the Securities and Exchange Commission that are available at Www Dot SEC Gov and on the Investor Relations section of the company's website at IR <unk> com.

The forward looking statements on this call speak only as of the original date of this call and we undertake no obligation to update or revise any of these statements.

Also during this call management will discuss certain non-GAAP financial measures, which management believes can be useful in evaluating the company's performance.

Patients of non-GAAP financial measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP you will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP financial.

Measures to the most directly comparable GAAP measures in the company's earnings release.

Live broadcast of this call is also available on the Investor Relations section of the company's website at IR Dot <unk> Dot Com I will now turn the call over to Julie wrong.

Thank you Allison and good morning, everyone.

Before we get into the details of Q3 and the balance of 2022 I'd like to take a step back for a moment to provide some perspective on our business.

Since our founding and over the course of the last year as a public company. We have built a business that is truly differentiated in the beauty category.

Specifically in prestige hair care.

We created the bond building hedge is subtle and launching a new category that has changed the way consumers treat protect and maintain healthy here.

We have been innovative focusing on site data.

Hudson protected technology and building an incredibly powerful Brad.

The quality of our products has contributed to our strong consumer loyalty and retention, which has translated into strong sales growth and industry leading margins.

Today I will detail the steps we are taking the intended to ensure that we have been pleased the processes and tools necessary to better drive and forecasts consumer and customer demand and ultimately we establish our authoritative standing in the market.

We'll then share some details behind our longer term plan that gives us confidence in our growth trajectory. Ultimately, we believe that the fundamental competitive advantages of our business remain intact and importantly, we are responding thoughtfully a quick.

Please.

Issue to have developed recently.

I'll quickly provide some detail on the quarter and then discuss the actions we are taking in an effort to strengthen the business in the short term.

I'll, then turn the call over to Eric to discuss third quarter results in greater detail and we'll wrap up the call with some details of our long range plans for the business.

For the third quarter. Our results were in line with what we provided on our business update call on October the 18th net sales were $176 $5 million up nine 2% versus a year ago.

Adjusted EBITDA of 102 million declined four 5% year over year versus.

63% last year with an adjusted EBITDA margin of 57, 8% for the third quarter. This year compared to an adjusted EBITDA margin of 66, 1% for the third quarter of 2021.

Now, let's discuss the actions we are taking to address some of the short term issues we are experiencing.

We are primarily focused on two key areas.

Our first priority is to accelerate due Matt secondly.

Secondly, we are taking actions that are designed to enhance our forecasting capability.

I'll start with the actions, we're taking to drive demand let.

Let me start with our professional channel.

Constitutes 43% of our business and consist of pick home retail products. So in the salon and products used in the back bar, including treatments.

We continue to have the number one selling SKU sold through salons in the U S. In each category shampoo conditioner and styling a slow decline through the second quarter of 2022.

We have increased investments for the fourth quarter in building awareness across the stylist community in the key markets of the U S.

K, Australia and for Us we.

We have also partnered with new trains and key opinion leaders the laws in the U S and Canada to further drive awareness PR and sales.

We have proactively taken steps to rebalance inventory at one of our key U S distributors to improve overall inventory mix and provide a more stable foundation for 2023.

As we mentioned on our business update call, while we can't control the macro environment, we are taking steps to support our pro stylist community. During this challenging time.

In the U S. We have relaunched our pro affiliate program, providing stylists with.

Ability to receive a commission on net sales when their customers buy all the plants using an affiliate code at <unk> Dot com.

In our specialty retail channel, we are enhancing exposure with several of our key retail partners and introducing programs that are designed to drive trial and customer acquisition.

N at Sephora beginning in the first quarter of next year, we will participate in sampling for the buy online pick up in store program.

<unk> upward to 500000 samples of our number three have cofactor.

In past trials.

Conversion to purchase with samples was extremely high.

Believe that this strategy will be highly effective for all the plex at Sephora.

And also we will be tapping into a 360 retail Salon cross shop strategy starting in January .

<unk> a number three sample with any old opex the long service.

We tested this at another retailer with a salon presence, we saw nearly 100% conversion to full size and hope to also see positive results at Ulta.

In the specialty retail channel, we are piloting a program to bring a third party field sales team of educators trained by all Opex into top 75, Sephora and ultra retail stores in the fourth quarter of 2022.

This has been one of the most requested actions by our retail partners.

We are expecting a meaningful sales lift during the program in this stores during the pilot program.

And we will assess puzzle roll out potential in 2023.

Next let's talk about visibility into demand trends, given the rapidly evolving macro and competitive dynamics.

It's a very high growth trends that we have been lapping.

Recognize that we need to evolve our business forecasting processes and are currently implementing demand planning improvements.

This will help us better track underlying consumer and customer sentiment and behavior, which we believe will provide more insight into our channels.

This includes new tools that are designed to allow our team better visibility and customer sell through and inventory levels, but that data is available.

In an effort to better predict future demand.

Before I pass it over to Eric I want to share an organizational update regarding our investor relations function. We are pleased to welcome Patrik clarity to all of US who has joined US as vice President of Investor Relations.

Patrick comes to <unk> with more than a decade of experience in investor relations across several industries and deep knowledge of the beauty category after serving on the Investor Relations team at Ulta beauty.

The appointment of Patrick we look forward to continuing on our commitment to providing high quality service to the investment community.

At this point I'll turn the call. It will go to Eric to cover third quarter results and then will return to share our longer range plan Eric.

Thank you Julie and good morning, everyone.

As we discussed with you on our business update call, we had a challenging third quarter.

As Julie just discussed we are taking immediate action to address the issues, we encountered and we are confident in our long term growth trajectory.

First we want to recap our results from our business update call on October 18th and share our finalized numbers.

In the third quarter of 2022, net sales increased nine 2% to $176 $5 million.

$161 $6 million last year.

By channel.

Specialty retail sales increased 60% to $74 $2 million on top of a robust 128% gain in the prior year period.

We saw continued growth from our highly successful launch into Ulta beauty and higher selling to support the holiday season, this year, including growth from selling in more holiday kits versus last year.

Professional channel sales declined 16% to $63 million.

Versus a 58% increase last year as our U S distributor partners reduced purchases to adjust inventory levels, given softer demand from stylists, which we believe is partially driven by macroeconomic concerns.

And our direct to consumer channel sales were down two 6% to $39 3 million. Following an 87% increase last year due to slower sell through related to weakening market growth and increased competitive activity, including discounted.

In the third quarter. We also saw a key U S DTC customer reduce orders to meet lower targeted levels of inventory on hand.

By geography International led our growth with a 27, 8% increase driven by strong contributions from the U K, Italy, France, Germany, Canada, and our emerging cross border E Commerce business in China.

The U S declined four 3% driven by the aforementioned pressures in the professional and DTC channels.

Moving down the income statement.

Adjusted gross profit margin was 75, 1% declining 480 basis points from 79, 9% in Q3 2021.

Ultimately 210 basis points of this contraction reflects deleverage and inflation in our warehousing and distribution costs.

150 basis points from inflation on product costs.

160 basis points of unfavorable mix from the higher sales of holiday kits.

With the balance related to unfavorable product and customer mix that is offset by the benefit of the price increase we took from July one 2022.

Adjusted SG&A increased 27, 9% to $28 4 million from $22 2 million in Q3 2021.

$6 2 million increase in adjusted SG&A from prior year.

Flex investments made to support the long term growth of our business.

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$4 $3 million increase in sales and marketing expense.

$2 $5 million increase in public company costs and other related expenses.

$2 $2 million increase in work force expansion.

And a $2 1 million increase related to professional fees.

Adjusted EBITDA declined four 5% to $102 million versus $106 8 million in the third quarter of 2021.

Adjusted EBITDA margin was 57, 8% compared to 66, 1% a year ago.

Adjusted net income decreased one 6% year over year to $73 3 million or 11 cents per diluted share.

$74 4 million or <unk> 11 per diluted share in the 2021 third quarter.

Adjusted net income benefited from lower interest expense year over year, resulting from our first quarter debt pay down and refinance.

Now turning to the balance sheet.

Inventory at the end of the third quarter was $151 3 million compared to $143 million.

End of the second quarter and $98 4 million at the end of 2021.

As mentioned on our October call. This is higher than originally planned due to our lower sales delivery in the quarter, we've already altered our sourcing plans and slowed procurement to match the new sales forecast overtime. This will lower our inventory to target levels and the timing of this will depend on sell through trends.

Turning to cash flow.

Once again generated strong cash flow with 181 $8 million in cash from operations for the end of the third quarter.

Up from $130 3 million for the same period last year.

We ended the quarter with $249 4 million in cash and equivalents.

Long term debt net of current portion of deferred fees was $655 7 million.

Now turning to our outlook.

We are reiterating our fiscal year 2022 guidance that we provided on our business update call on October 18th.

We plan net sales in the range of $704 million to $711 million, an increase of 18% at the midpoint.

Adjusted EBITDA in the range of $425 million to $431 million, an increase of 5% at the midpoint.

And adjusted net income in the range of $303 million to $307 million, an increase of 11%.

The midpoint.

Similarly at the midpoint of our fiscal 2022 sales guidance or implied expectation for net sales growth by channel and geography remains consistent with what we shared on our October business update call.

As it relates to the fourth quarter, while we have actions in place to accelerate growth. We are still planning for an increasingly difficult macroeconomic operating environments and for further inventory rebalancing by several key customers related to our slower sales momentum.

On today's macro environment and our current forecast we expect this inventory rebalancing to normalize by the end of the first quarter 2023, and our professional and specialty retail channels.

As a reminder, our guidance for Q4 also reflects that we will not be able to lap the robust sales lift that we experienced during the fourth quarter holiday period last year. When we grew 78% benefiting from significant replenishment orders across our specialty retail and DTC channels at a time when we believe.

Consumer demand was stronger and some of our competitors struggled with consistent supply.

In summary, our recently revised guidance for the second half of 2022 sales represents a pause from the exceptionally strong performance that we've seen through the first half of 2022.

We are confident that with our proven strategy.

<unk> track record of execution and leadership and a resilient high growth category, we have significant opportunities ahead.

And now I will turn the call back over to Julie to conclude with commentary on our long term strategy.

Thank you, Eric and turning to our long term strategic initiatives. We are focused on four key pillars that we believe will help us succeed in the years to come they include.

<unk> our global brands.

It's roughly with innovation amplifying channel coverage and charting new geographies. We believe that this pillars taken together with our foundation in category defining technology and meaningful connection with our consumer and stylist community.

<unk> position us nicely for continued growth.

Let's start with igniting our global brands.

We have built one of the most powerful brands in the industry. We have successfully expanded awareness within our key segments and have seen our aided brand awareness increased 700 basis points from the beginning of the year based on our internal brand tracker.

We know however that we cannot rest on our laurels, especially given the attractiveness of the market opportunity as we have consistently set in the past we plan to continue to increase our marketing investments to grow awareness and build equity for our brand our marketing model.

So we'll continue to focus on the high ROI activities that have proven to be so effective for us to date community engagement with our stylists and consumers.

Simply performance marketing and visual merchandising.

This model has been highly effective at generating additional earned media value.

We will continue to expand our global community reach with a focus on engagement across our pro influenza and Sun communities, ensuring that we have more diverse audiences in mind, we intend to introduce a new seeding program to ensure we are fueling our robust.

User generated content library and powerful real people reviews.

We're re enforce our pros as our opinion leaders and give them a platform to showcase their work.

Next we believe we can continue to grow our business through disruptive innovation and ground breaking new products we are in.

In a science based beauty company, we have over 100 patents across the globe and a dedicated R&D team with an in house innovation lab.

In 2022, we launched number nine has zero number foresee clarifying shampoo and our broad spectrum collating professional treatments.

As we look ahead, we have an aggressive plan to launch non cannibalizing pro and retail products over the next five years.

With only 14 product offerings today product expansion into attractive new segments remains.

<unk> opportunity.

We're planning to launch two to three retail Skus and one probe backbar treatments product annually.

In addition, we expect to launch into non hair care Adjacencies.

We continue to have ample room for growth and increasing penetration with consumers in our existing points of distribution globally as well as participating in new door growth with existing and new partners in professional we will only in 15% of U S launch in 2021.

Paul Klein this leaves us with a major opportunity historically, we have outperformed in moderate and value oriented salons.

There are tremendous opportunities to introduce our products in premium and prestige for lots, which is the foundation for our pro plan in 2023 and beyond.

In the specialty retail channel, we have significant white space in penetration in Sephora U S. We believe approximately 12% of total so for our shoppers purchase polo clients, while our best in class brand across categories is closer to 22.

25%.

We have significant room to grow.

Furthermore, as Sephora continues to expand into Kohl's, the new doors that will continue to have a six shelf linear dedicated space to all opex.

Ultra beauty, we are still in the early inning of penetration with all opex in less than 5% of Altice Shopper's basket.

We believe penetration could increase significantly given the OTA is a destination for hair care.

Accounts for 20% of their total business.

We also have an opportunity to secure multi facing in store space and expand reach within altice alone with only 25% of Salon services used <unk>.

Nick.

Let's discuss how we are growing geographically.

Our priority international regions in the next several years.

Asia and Europe .

We have specific plans in place for new market entries and expansions.

We believe that we have a very significant opportunity across Asia, and we know from our ceding effort that all Opex brand is resonating well with the consumer in those markets we.

We have recently launched a new master distributors in southeast Asia, and in South Korea, and in China, We continue to build significant momentum through the cross border.

E Commerce channel across Europe , we are complementing our strong professional business with additional partners in specialty retail and DTC before.

For Euro and two Clos remains two good examples of where we see both penetration and door growth opportunities in.

In addition, we believe that we can enter approximately 2000, new premium specialty doors in the EU and additional opportunities to grow in pharmacies, many of which focus on beauty products.

Travel retail also represents a big opportunity for us in the medium term.

As previously mentioned, we intend to start by entry into travel retail in Europe , beginning in Q4 of 2022.

This is a channel that will further expand our visibility while generating sales.

To close it is important that I discuss why I remain so excited about this business.

Long term prospects.

From a broader perspective, the retail beauty market, while not immune to macro factors has proven to be resilient.

Premium hair care is still in its early stages of adoption and is outperforming the rest of the prestige beauty market.

NPD prestige hair grew 23% in Q3 versus last year with all opex growing 35% versus last year.

Opex as the category leader in bond building with an incredibly powerful brand in the market base.

Based on our consolidation of third party data sources, we believe our market share in U S retail plus front of Salon sales in the first half of 2000 22000.

15%, which would make us the market leader.

We have Hudson that consumer.

Our internal brand tracker of U S premium hair care consumers. All Opex is the number one or number two leader in all 15 positive.

Attribute categories.

We believe helps us to drive consumer loyalty and allow us to sustain best in class conversion to purchase rates we.

Believe that we have the science based technology to successfully expand into adjacent segments.

In hair care subcategories, any new categories.

We believe that our patents and strong relationship with our channel partners provide a formidable competitive moat, we have a strong balance sheet industry, leading margins and strong cash flow generation, which provides the financial means to execute our vision and capture.

A significant portion of this large and growing market.

And we have a talented dedicated team with deep experience navigating through difficult market conditions.

This concludes my prepared remarks, we will now turn the call back over to the operator for questions.

Operator.

Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad in the interest of time, we ask that you. Please limit yourself to one question and one follow up. Thank you. Our first question comes from John Kim from Cowen. Please go ahead. Your line is open.

Thank you for taking my question. This you've done really well in terms of marketing spend keeping it very low in the low single digit range as you think about increasing brand awareness both in the professional channel and among consumers.

We need to spend more in terms of marketing and as you think about marketing strategy what are some of the higher ROI.

Channels that you can further invest and thank you so much.

Thanks, John This is Joey I will take that question.

First of all what we have always believed in is that our model really works when it comes to <unk>.

High performance marketing looking at our return on investment and we have we said we will invest ahead of growth and this includes our people.

R&D in terms of innovation and in sales and marketing activities initiatives and strategies and if you have seen.

Continue to be the best in class, whether it's in our rankings across all channels professional retail DTC.

We wanted to double click on what works, which is engaging our customers on social media being at where.

Where they shop and in this case you have just heard us that we are going to be putting people into stores.

That not only are trained by us potentially educate consumers educate in store beauty advisers to help with those retailers and more importantly help us sell through.

All of this activations.

Both near term, but will also established a foundation for us as we move into 2023 and beyond.

Got it and just one follow up given the competitive dynamics and you touched on this a little bit or how do you think about your innovation pipeline and could you just touch on I know your customers are likely to purchase new products. When you launch and even the adjacent categories, but just any color would be.

Full on how youre thinking about that thank you.

Yes.

It is important to note consumers are always going to be looking for newness, but study has also shown that consumers really also gravitate and go back to what.

And in this case, although opex is the creator of the bump building category and why why I talk about that.

Youll have both neat is the foundational.

If you do not take care of your hair bonds no matter. What you do you are not going to address that first and foremost foundation too if you had the opportunity to stay healthy.

With that said, we hold those patents, we deliver on repairing have bonds in the first application.

And our leadership position will continue to drive interest in this category.

Really believe it's a good thing because as more consumers know about it theyre going to want to test products.

And I just wanted to conclude by just saying that we truly deliver what works is it's not just marketing speak and we don't meet with patent pending promise, we actually already have patents well over 100 patents to really deliver on the on the promise that we say which is repairing strengthening.

And protecting Youll have bought.

Thank you.

Our next thank you.

Our next question comes from Olivia Tong from Raymond James. Please go ahead. Your line is open.

Great. Thank you.

I wanted to start with you mentioned, a couple of new channels, particularly in European specialty doors travel retail entering this quarter.

My understanding is that these are lower margin channels. So can you give us just a sense of the margin impact from some of the plant expansion and then just generally your view on longer term margins you talked a lot about.

Our investments to support growth just thinking through other potential areas, whether you intend to.

Backfill the CFO role or add any additional personnel entering catastrophes, whether demand forecasting retail relationships marketing those kinds of things. Thank you.

Eric why don't you take the questions on the margins and I'll come back in on the C O O Roe.

Of course, thanks, Joey Hi, Olivia.

The first question about entering into some new customers and channels. We've consistently said that the way we evaluate these growth opportunities is.

Through the primary lens of increments, we think that those customers and those new channels are going to be highly incremental to the business and even with a slight margin dilution that's going to be a positive thing for creating value for the business.

And how that pertains and builds on your question around long term margins are.

Our message here is very consistent with what we've said in the past.

We will continue to.

To invest in marketing R&D and the organization ahead of growth.

And because of the disruptive model that we have we believe that even after those investments we're going to have industry, leading profit margins in the medium term.

Alright, Thank you alright, and Olivia let me follow up to an answer on yards. So the CIO role.

We are excited about this opportunity to sort of create this new rule because all sales channel will report to this person. So in doing this decrease really an opportunity to build on our already strong sales team and hence connections across all our channels.

The most important thing to note is that with <unk>.

With something of that nature, one person looks at all the channels, we have been able to share best practices as well as leveraging data to help us make better decisions.

Whether it's in sales where it is in collaboration with marketing and then ultimately really driving healthy sell through.

Our next question comes from Rob <unk> from Evercore. Please go ahead. Your line is open great. Thank you very much.

Sure.

Standing back it sounds like September .

Really slowed down a lot I think you'd mentioned before MPD sales were up 50% July and August and then for the whole quarter. Just 35, so a pretty bad September can.

Can you give us actually you know what kind of what happened in September and October .

In terms of e-commerce, and retail and what extent do you think.

If any your price increase had.

To the slowdown in sales and as you stand back and think about it.

How do you assess the execution on the price increase and the timing of it. Thank you.

Eric you. Thanks first of all Robert for the question, Eric do you want to take that back half of your question and I'll I'll call I'll.

Talk about the first half of Roberts question, because that is an overall.

Absolutely Jerry Hi, Robert So I'll say two things and then of course you build on that.

Let me, let me start by actually answering your question about about September and October .

Clearly, we did see a slowdown in September that's what we covered on our October 18.

Update call.

Alright and.

Just speaking to October as well that is very much about the fact that we don't believe we're going to be able to lap. This exceptionally strong period that we had in the prior year holiday periods.

N.

Replenishment orders were very high.

Consumer demand, we believe was stronger and even some of our competitors we believe.

We are struggling to keep keep in stock. So that's what's being reflected in that NPD data what I'll build on that though is because of the actions. We're taking the marketing activations were putting in place. We are pleased and we are seeing positive early signals from the activities that we're putting in place.

And on pricing, we have no evidence to date.

It's from consumer feedback or stylus feedback that the pricing action that we took in July of this year.

Is having a negative impact on our business. So we don't believe that's a primary driver.

Yeah.

Just I get the tough lap with the prior year and that that makes a lot of sense can you give us any details in terms of sequential actual sales.

Yeah, I mean sequential actual sales youll see it in NPD as well.

Her time are building their building because sales gets stronger as the holiday season progresses, and maybe that's one more comments what we've seen so far is.

The holiday season is consistent with our revised expectations and that includes the fact that we think consumers are shopping a little bit later in the holiday than last year, where I think we can all remember because of the global macro supply chain concerns and worries about.

Products being out of stock.

One was driving for holiday.

Even earlier, even in September last year, where we're not seeing that trend. This year, but we are seeing things pick up especially.

Based on our own marketing Activations for holiday.

Well just just in terms of September what did the September actual like MPD sales on an absolute basis.

Look like compared to July and August so forget the year over year just sequentially.

Did they increase in September or decrease and what kind of order of magnitude.

Yes, Robert.

I'll answer that question and provide some clarity.

We have always said that.

Prestige beauty is resilient, but it is not immune to macro conditions and so if you look at what NPD tracks of the 14 consumer groups prestige beauty is still the strongest in terms of growth and we participated in a category that is truly resilience.

And we are leading in terms of the prestige category. So we feel confident that despite some of the consumer.

Cement and the macroeconomic slowdown and we are not immune to it but we have activations and activities that will help with sell through that partners with our retail professional and DTC partners and you heard Eric set.

The near term Activations that we have put in well it's early days, but I can share with you.

Pilot program that we implemented by putting in educators and salespeople into the stores is already showing very promising results. We have seen week over week that has more than doubled our week over week sales and this is a pilot program in limited stores. So we feel confident activations like this.

We'll continue to help set us up for success, both the near term as well as for the future.

Great and then and so and just to circle back. So the price increase that you took you don't believe really had any impact on on the slowdown.

No we don't believe that.

Okay. Thank you very much.

Thanks Robert.

Our next question comes from Jason English from Goldman Sachs. Please go ahead. Your line is open.

Hey, good morning folks.

A couple of questions first on that last point great to hear.

The response Youre seeing so far from the educators, you're putting in these pilot stores.

How broad based is it.

In the fourth quarter is it I guess it must be fully reflected in the guidance, which you reiterated.

As we look at these type of margin profile for the fourth quarter that you are projecting is this what we should anchor too as we contemplate like the amount of money you're going to have to spend going forward, whether it be in store educators.

Plus up another marketing.

Asia <unk> Kols everything you've talked about is that a good thing for point as we think about 'twenty three and beyond.

I'll take the second part of the question and then Julie I think you want to answer on the nature of the pilot that we're doing so well, Jason I would say no we're not suggesting that the fourth quarter in isolation is the right.

Extrapolation 0.4.

Looking at 2023 or beyond.

<unk>, we're going to keep investing in marketing.

And into the organization.

And we believe we're going to be able to maintain industry leading margins.

But Q4, and the Q4 margin profile isn't what I would project forward.

Okay. Thanks, Jason I'll take.

So sorry go ahead Jason.

Yes.

Is it really a two part question. It was just a one part question so I got it.

I think Erik covered it I do have another question, though.

As we try to wrap our head around what's happened with the business clearly, we all got a little too enthusiastic and excited about the sales trajectory for the business.

I think a lot of it because we didn't appreciate that there was a cohort of consumers we probably came in.

Really have the problems that your products solve that came in because the rate hikes behind it I think it was it was the shiny new toy and now there are other new shiny new toys that are out there I've got no doubt that your product does solve a very real problem for a large cohort of consumers.

We appear to be honest washout phase of the others who've come in have you had any success kind of sizing those cohorts.

I understand how much of that revenue that you're generating last year, maybe came from the Stifel consumer who is now moving on to the next new thing.

So can you share what you've learned and also share how you got to that answer.

Great no. Thanks, a lot Jason for this question and it is important to note that.

Yes.

Create a category we created a lot of excitement, but ultimately was not a brand that rests on marketing.

Brent It talks about the fact that you know.

Oh, you may need this product it is scientifically proven and clinically supported so when we say that consumers.

Do understand and Thats why youre seeing the prestige had category being tracked by NPD. Starting in 2015, what is important to note is that it is still in its early stages consumers are going to try different things, but they consistently look for value. So all transformation team on a monthly basis threat.

What are the important attributes that consumers are looking for they are looking for products that work. They are looking for products that consistently delivers on that promise. They are looking for brands that they can trust not just on marketing hype our promises that they cannot deliver we do all of that and in fact.

In those top 15 attribute we ranked number one number two against our competitive cohorts. So when do you see that kind of result, and you see what has happened in terms of.

Our updated business update it is definitely not us because the brands still resonate if we did not resonate than consumers, we will not be able to retain that we are still.

Best in class when it comes to our consumer retention.

I know your question is a very big question, hopefully I have kind of distill the answer for you in such a way to Houston see the fundamentals are strong.

Tracking attributes that captures that strong brand fundamentals.

Yes, that's helpful. Thank you I'll pass it on.

Thanks, Jason.

Our next question comes from Jonathan <unk> from Bank of America. Please go ahead. Your line is open.

Hi, good morning, everybody. Thanks for the question.

I guess tacking onto Jason's question I, just wanted to get a sense of.

From a competitive standpoint.

Instead of from the user standpoint.

If you could kind of help us understand where that pressure that you cited is coming from is it is it mainly from.

The large international players with with.

Yes.

Well supported portfolios.

Or is it.

Small startup brands is it is it brands that have their own scientific backing is just brands that kind of basically I just wanted to get an idea of is the competition youre seeing coming from a brand that is maybe.

Less useful in hair, but it's marketed better or is it coming from brands, where the technology is also selling point.

Thanks, Jonathan Let me take that question I just wanted to very at the very top still confirm that we are still guiding to a midpoint of plus 18% growth.

I mean, if you think about it we will at plus 87% growth last year.

Despite all of the macro headwinds despite all of the <unk>.

Conditions that we have shared with you.

We are still on an upward trajectory we are still generating.

Cash and.

We are a brand that consumers still believes in because you don't get that kind of ranking I mean, you don't get to be number one in all channels of trade.

By not resonating with your consumers. So when we talk about competition a composition discounting we are not.

The gating step yet important but what we are saying is that this category is getting more attention. It is attractive people are going to come in as Jason mentioned consumers aren't going to chase after some shiny penny, but at the end of the day. It has to work it has to deliver results and we believe we.

Stan.

Best chance to get there because we have a patent that is proven.

A lot of brands to continue to say patent pending.

Patent pending is different from patent patent.

And it's available to the customers, where they can actually checkout and see that our patent and we supported the clinical claims so.

I just wanted to clarify that point and we know that we need to continue to be very mindful of how we speak to the consumer and that is the reason why we have people in store now that we can cut through.

Noise and be right, there where the consumers are.

Great I guess, one small follow up it's related is that approach.

Are there any contractual obligations or mechanisms or anything like that to keep.

To keep your Salon base using old flex for a certain time period is it really is there any kind of.

Aside from the.

The technology and the function and the consumer reaction to old Flex, which is admittedly very positive is there anything I guess keeping.

The Salon basic currently have using the product or or is it a little is it a little more is there less friction.

There.

And thanks for that question, Jonathan I know, what Youre trying to ask here. So I'll just say are they committed to.

Looking with the brand.

We've got a commitment to us and to have constant so we do constant.

Focus group, we do constant check in with the professional community because we have said time and time again. They are the ones, who really gives us the authority. So when we're tracking is that the most important thing that they tell us is we give them the opportunity to elevate the aircrafts, we give them the Apis.

And the team to really know that they can deliver the best for their clients when you aren't able to deliver on those promises.

And our craft the way, we can but they don't have to worry going back to the bowl and wrapping those for us and seen that consumers have break when they don't see that and they know all opex is the reason why we continue to generate a lot of people wanting to use the product for its performance.

I think you've heard us set in our.

Scripted remarks, one of the things that we are going to be doing a lot of in 2023 is to also go out.

And really so the prestige and premium salons and that is important because we have always historically resonated.

A lot of the salons that go into the beauty supply stores that buy their product.

One service at a time, sometimes a couple of services at a time now those premium and perceive salons.

Buyers and when they are more aware of what we can do for them that is a powerful cohorts that we wanted to go after and in that regard.

See us putting assets behind that especially in 2003, which we have already started planning for this year.

Great. Thank you.

Absolutely.

Our last question will come from Ashley Hogan from Jefferies. Please go ahead. Your line is open.

Hey, Thanks for taking our question.

We've noticed the step up in the promotional levels just a BD retailers recently can you just give us an update on your expectations for promo levels during the quarter and the cadence throughout the holiday season. Thanks, so much.

Thanks very much for the question.

I can't speak for everybody and it's difficult for me to kind of give you a quantified number but our transformation team again we.

Try to make decisions on data points and what is very important to note is there is no doubt that.

That has been increased promotions.

Across all consumer products and beauty is no exception.

But all the trucks has chosen very strategically not to participate in those increased promotions and over promote and when we do decide to participate in any kind of promotion activities. It has to do two things for us It has to help us acquire new customers and it has to help our loyal customers.

By deeper into the brand.

And how do we make those decisions because of our relationship with our retailers, both online and offline and our pro community.

You see us working with them on specific Activations and when we do that kind of specific activations, we actually get consumer insights.

We don't want to participate in general promotions.

Especially if all it does is to encourage and.

Encourage consumers to weight, but when we do do it. It is very targeted and is very strategic and just to confirm yes down more promotions out there, but we are not participating.

In more promotions that we did last year.

Okay, great. Thanks, so much.

We're out of time for questions today, I would like to turn the call back over to Julie Walsh for closing remarks.

Well first of all thank you so much for joining us today I'd like to wish everyone, a very happy and healthy holiday season, and I look forward to speaking with all of you at our upcoming conferences. When we report Q4 results. So thank you everyone.

This concludes today's conference call. Thank you for your participation you may now disconnect.

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