Q3 2022 Waldencast PLC Earnings Call

November 10, 2022

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Yeah.

begin with a market update on the beauty market followed by a review of our third quarter financial performance and details on our growth strategy and highlights of our ESG accomplishments.

Operator: After their prepared remarks, the operator will open the call to take questions. Before we start, I would like to remind you that management will make certain statements today which are forward-looking, including statements about the guidance on future earnings. Waldencast's strategic initiatives plans to expand both internationally and domestically and other matters referenced in the company's earnings release issued today.

matters referenced in the company's earnings release issued today.

Operator: 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 risks and uncertainties appears under the heading "Cautionary Note Regarding Forward-Looking Statements" in the company's earnings release and in the company's filings that it makes with the Securities and Exchange Commission that are available at www.sec.gov and on the Investor Relations section of the Company's website at ir.waldencast.com.

in the company's filings that it makes with the Securities and Exchange Commission that are available at www.sec.gov and on the Investor Relations section of the Company's website at ir.waldencast.com.

Operator: 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 it believes can be useful in evaluating the company's performance. The presentation of non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Operator: Also, during this call management will discuss certain non-GAAP financial measures, which it believes can be useful in evaluating the company's performance. The presentation of non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Operator: You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to the most directly comparable GAAP measures in the company's earnings release. A live broadcast of this call is also available on the Investor Relations section of the company's website at ir.waldencast.com. A replay of the webcast will be available approximately two hours following the live call and remain on the Investor Relations website for 90 days.

A live broadcast of this call is also available on the Investor Relations section of the company's website at ir.waldencast.com.

Operator: A replay of the webcast will be available approximately two hours following the live call and remain on the Investor Relations website for 90 days.

Operator: We have provided adjusted results, which allow for a comparable presentation of our performance versus the prior year, reflecting the timing of the business combination, which occurred intra-quarter. As such, our Q3 GAAP financials include a predecessor period prior to the closing date of the business combination and a successor period for all periods on and after the acquisition date while our first half performance was provided on a pro-forma basis as the entire period was prior to the consummation of the business combination with Obagi Global Holdings Limited.

and a successor period for all periods on and after the acquisition date.

while our first half performance, was provided on a pro-forma basis as the entire period was prior to the consummation of the business combination with Obagi Global Holdings Limited.

Operator: In addition, our segment data includes an allocation for Waldencast central costs, reflecting the corporate expenses that are not allocated to our Obagi Skincare and Milk Makeup brands and on a GAAP basis, non-recurring transaction costs related to the business combination. In addition, our income statement includes symmetric comparable net sell which excludes the Obagi China business, which was distributed to Cedarwalk, the sole shareholder of Obagi Skincare prior to the business combination.

In addition, our income statement includes symmetric comparable net sell which excludes the Obagi China business, which was distributed to Cedarwalk, the sole shareholder of Obagi Skincare prior to the business combination.

Operator: The presentation of comparable net sales removes non-recurring cells from both the current year and prior year periods. You will also see an adjustment to adjusted gross profit in our Obagi Skincare financials, given the sale of our distributor in China, we're adding non-material margin. Finally, adjusted EBITDA excludes non-operating transaction cost. You will find a table that reconciles our adjusted results to GAAP in our press release and in this presentation, as well as in our SEC filings on form 6K that was issued earlier this morning. I will now turn the call over to Michel Brousset.

non-operating transaction cost. You will find a table that reconciles our adjusted results to GAAP in our press release and in this presentation, as well as in our SEC filings on form 6K that was issued earlier this morning. I will now turn the call over to Michel Brousset.

Yeah.

Michel Brousset: Thank you, Allison, and good morning, everyone. I am pleased to speak to you today to share a strong third quarter performance for Waldencast. Before I discuss our results, I would like to start by stating our ambition at Waldencast.

I am pleased to speak to you today to share a strong third quarter performance for Waldencast.

Before I discuss our results, I would like to start by stating our ambition at Waldencast.

Okay.

Michel Brousset: Our aim is to build overtime, a global best-in-class beauty and wellness platform that creates, acquires, accelerates and scales the next generation of high growth, highly profitable, purpose-driven brand. We are a Beauty and Wellness Pure Player, an operating platform built for both speed and agility, reimagining the beauty company of the future, or the home of brands for tomorrow that connect with consumers each under brands.

We are a beauty and wellness pure player, an operating platform built for both speed and agility, reimagining the beauty company of the future, or the home of brands for tomorrow that connect with consumers each under brands.

the beauty company of the future, or the home of brands for tomorrow that connect with consumers each under brands.

connect with consumers each under brands.

Michel Brousset: We are a Beauty Pure Player because it is not only an industry we know extremely well, but also because it is the most beautiful businesses. We have a strong growth and resilience that's demonstrated by the market evolution today despite a broader and more challenging macroenvironment. It is very attractive and structural economics. And it's a business where focused expertise matters to get long-term profitable [indiscernible].

We have a strong growth and resilience that's demonstrated by the market evolution today despite a broader and more challenging macroenvironment.

broader and more challenging macroenvironment.

It is very attractive and structural economics. And it's a business where focused expertise matters to get long-term profitable [indiscernible].

And it's a business where focused expertise matters to get long-term profitable [indiscernible].

Michel Brousset: The market today is continuous in strong growth projector despite some punctual challenging areas. In the U.S. which is our main market as of today, premium beauty here today through the end of September is growing strongly up 16.4% in value and in units up 13.7%.

punctual challenging areas.

In the U.S. which is our main market as of today, premium beauty here today through the end of September is growing strongly up 16.4% in value and in units up 13.7%.

premium beauty here today through the end of September is growing strongly up 16.4% in value and in units up 13.7%.

Michel Brousset: Q3 trend remains in line with our strong growth with value up plus 15% and unit at last 12.7% reflective of both an increased consumption, more units and premiumization. Makeup here today is growing even faster than the broader beauty category at 18.3%. This ongoing acceleration is driven by consumers going back to the pre-COVID habits, going back to the office, seeing friends and socializing, with one quarter of the women indicating that they are actually ordering more products versus a year ago. A trend led by Gen Z with 48% of them stating that they are using more product.

and unit at last 12.7% reflective of both an increased consumption, more units and premiumization. Makeup here today is growing even faster than the broader beauty category at 18.3%.

premiumization. Makeup here today is growing even faster than the broader beauty category at 18.3%.

Makeup here today is growing even faster than the broader beauty category at 18.3%.

This ongoing acceleration is driven by consumers going back to the pre-COVID habits, going back to the office, seeing friends and socializing, with one quarter of the women indicating that they are actually ordering more products versus a year ago. A trend led by Gen Z with 48% of them stating that they are using more product.

going back to the office, seeing friends and socializing, with one quarter of the women indicating that they are actually ordering more products versus a year ago. A trend led by Gen Z with 48% of them stating that they are using more product.

A trend led by Gen Z with 48% of them stating that they are using more product.

with 48% of them stating that they are using more product.

More pulp.

Michel Brousset: Skincare is not only growing but have accelerated in Q3, with year to date growth of 13% in value and accelerating in Q3 to 15.5% in value. A key driver of skincare growth over the last year has been driven by the right price for Science-led high performance of skincare. evidenced by social media conversations or sign on dermatology-led skincare growing 57% versus a year ago.

Okay.

A key driver of skincare growth over the last year has been driven by the right price for Science-led high performance of skincare.

driven by the right price for Science-led high performance of skincare.

evidenced by social media conversations or sign on dermatology-led skincare growing 57% versus a year ago.

Michel Brousset: The first two brands in our portfolio, Obagi skincare and Milk makeup, play in the most attractive segments of those high growth categories. science-led skincare and clean makeup. Obagi Skincare is a crown jewel of Physician Dispensed market. It is perceived as the number one brand in the skin health space by practitioners in the most attractive, fast-growing sub-segment of premium skincare. With its breakthrough patented technologies and transformative clinically proven results, it unlocks high loyalty from both consumers and physicians and it's perfectly positioned to answer the growing consumer need for high performance of this skincare.

science-led skincare and beauty makeup.

Obagi Skincare is a crown jewel of Physician Dispensed market. It is perceived as the number one brand in the skin health space by practitioners in the most attractive, fast-growing sub-segment of premium skincare. With its breakthrough patented technologies and transformative clinically proven results, it unlocks high loyalty from both consumers and physicians and it's perfectly positioned to answer the growing consumer need for high performance of this skincare.

<unk> number one Brian .

brand in the skin health space by practitioners in the most attractive, fast-growing sub-segment of premium skincare. With its breakthrough patented technologies and transformative clinically proven results, it unlocks high loyalty from both consumers and physicians and it's perfectly positioned to answer the growing consumer need for high performance of this skincare.

sub-segment of premium skincare. With its breakthrough patented technologies and transformative clinically proven results, it unlocks high loyalty from both consumers and physicians and it's perfectly positioned to answer the growing consumer need for high performance of this skincare.

technologies and transformative clinically proven results, it unlocks high loyalty from both consumers and physicians and it's perfectly positioned to answer the growing consumer need for high performance of this skincare.

high loyalty from both consumers and physicians and it's perfectly positioned to answer the growing consumer need for high performance of this skincare.

to answer the growing consumer need for high performance of this skincare.

Michel Brousset: It also paves the way for our expansion to other categories, not just for the Obagi brand, but also a wider product portfolio, whose deep understanding of skin biology, which is a great springboard for innovation in other beauty categories.

Michel Brousset: Milk makeup is a cold Gen Z brand, with a large and engaged organic following through a diverse and inclusive community known for its cultural relevance and organic products. It is a leading clean makeup brand, today the number two clean makeup brand support at Sephora's warehouse and with the full intention to close the gap to number one. It brings a connecting relevant format of cool clean makeup that works for the attractive Gen Z demographic and increasing the deal.

through a diverse and inclusive community known for its cultural relevance and organic products. It is a leading clean makeup brand, today the number two clean makeup brand support at Sephora's warehouse and with the full intention to close the gap to number one.

It is a leading clean makeup brand, today the number two clean makeup brand support at Sephora's warehouse and with the full intention to close the gap to number one.

today the number two clean makeup brand support at Sephora's warehouse and with the full intention to close the gap to number one.

It brings a connecting relevant format of cool clean makeup that works for the attractive Gen Z demographic and increasing the deal.

Michel Brousset: Now with that as an initial frame, I would like to turn the call over to Philippe Gautier, Waldencast's CFO and COO, who will lead us through the financials.

Philippe Gautier: Thank you, Michele. It is a pleasure to speak to all of you today on my first earnings call as Waldencast PLC's Chief Financial Officer and Chief Operating Officer.

It is a pleasure to speak to all of you today on my first earnings call as Waldencast PLC's Chief Financial Officer and Chief Operating Officer.

Chief Financial Officer and Chief Operating Officer.

Philippe Gautier: While I'm new to Waldencast, I've been leading the finance and operations of a number of prestigious global consumer brands for more than 30 years. And I am extremely excited to sit on Waldencast's ambition to create a global best in class beauty and wellness bridging platform.

for more than 30 years. And I am extremely excited to sit on Waldencast's ambition to create a global best in class beauty and wellness bridging platform.

And I am extremely excited to sit on Waldencast's ambition to create a global best in class beauty and wellness bridging platform.

double-digit growth in net sales, comparable net sales and significant expansion in Adjusted gross margin and Adjusted EBITDA, as compared to the third quarter of 2021.

comparable net sales and significant expansion in Adjusted gross margin and Adjusted EBITDA, as compared to the third quarter of 2021.

EBITDA.

as compared to the third quarter of 2021.

We are pleased to deliver this strong performance which reflects the growing loyalty.

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Operator: One moment, please. We are experiencing technical difficulties. One moment please. We'll resume the presentation. One moment please.

We'll resume the presentation. One moment please.

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Operator: Thank you and welcome to the Waldencast PLC third quarter fiscal 2022 Earnings Call. With me today are Michel Brousset, Founder and Chief Executive Officer, and Philippe Gautier, Chief Financial Officer and Chief Operating Officer. For today's call, Michel will begin with a market update on the beauty market, followed by a review of our third quarter financial performance and details on our growth strategy and highlights of our ESG accomplishments. After their prepared remarks, the operator will open the call to take questions. Before we start, I would like to remind you that management will make certain statements today which are forward-looking, including statements about the guidance on future earnings. Waldencast's strategic initiatives plans to expand both internationally and domestically and other matters referenced in the company's earnings release issued today.

After their prepared remarks, the operator will open the call to take questions. Before we start, I would like to remind you that management will make certain statements today which are forward-looking, including statements about the guidance on future earnings. Waldencast's strategic initiatives plans to expand both internationally and domestically and other matters referenced in the company's earnings release issued today.

About the guidance on future earnings fallen Cas strategic initiatives planned to expand both internationally and domestically and other matters referenced in the company's earnings release issued today.

In the Companys filings that it makes with the Securities and Exchange Commission.

Are available at Www Dot SEC Gov and on the Investor Relations section of the company's web site at IR Dot <unk> Dot com.

Also during this call management will discuss certain non-GAAP financial measures.

<unk> believes can be useful in evaluating the company's performance. The presentation of non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Live broadcast of this call is also available on the Investor Relations section of the company's website at IR Dot <unk> Dot com.

A replay of the webcast will be available approximately two hours after the live call and remain on the Investor Relations website for 90 days.

And a successor period all periods on and after the acquisition date.

While our first half performance with provided on a pro forma basis as the entire period with prior to the consummation of the business combination with <unk> Global Holdings limited.

In addition, our income statement includes the metric comparable net sales, which excludes the <unk>, China business, which was distributed to sito walk the sole shareholder of.

Bacci skincare prior to the business combination.

Non operating transaction cost you will find a table that reconciles our adjusted results to GAAP in our press release and in this presentation as well as in our SEC filings on form 6K that was issued earlier. This morning, I will now turn the call over to Michelle <unk>.

Okay.

I am pleased to speak to you today I'll share our strong third quarter performance for mobile.

Before I discuss our results I would like to start by stating our ambition of Walter cash.

We are a beauty and wellness pure payment on operating platform built for both speed and agility.

Imagining the beauty company in the future of the home of the brands for Tomorrow that connect with consumers speaks under our bodies.

Okay.

You had a strong growth on resilience of demonstrated by the market evolution today, despite a broader more challenging macro environment.

Very attractive structural economics.

And as a business, we're focused expertise matters to get long term profitable and relevant brands.

Despite some controlled challenging areas.

The U S, which is our main market as of today premium beauty year to date through the end of September is growing strongly up 16, 4% and volume adding units at 13, 7%.

Premium retention.

Make up year to date is growing even faster than the broader beauty category at 18, 3%.

These ongoing acceleration is driven by consumers going back to a pre COVID-19 habits.

Going back to the office in France on social.

With one quarter of our women, indicating where they are actually wearing more products versus a year ago, a trend led by Jen with 48% of them.

Or using more products.

A key driver of skincare growth over the last year has been driven by the raised price for science led with high performance of skincare as evidenced by social media conversations or sign on dermatology skincare growing 57% versus year ago.

Stinker of the Crown jewel of insufficient response market.

East of it number one Brian on the skin health space by practitioners in the most attractive fast growing subsegment premium skin care.

With its breakthrough patented technologies and transformative clinical equivalent results.

Hi, loyalty from both consumers and physicians.

Perfectly positioned to answer the growing consumer need for high performance effective skincare.

As a leading clean makeup around.

The number two kingmaker branded supply U S and with a full intention to close the gap to number one.

He brings a connecting relevant promise of clean makeup that works quite attractive jensen demographic and increasingly beyond that.

Michel Brousset: Now with that as an initial frame, I would like to turn the call over to Philippe Gautier, Waldencast's CFO and COO, who will lead us through the financials.

Philippe Gautier: Thank you, Michele. It is a pleasure to speak to all of you today on my first earnings call as Waldencast PLC's Chief Financial Officer and Chief Operating Officer.

More than 30 years.

Im extremely excited simple rather than cash ambition.

Greater global guys, Congrats beauty and wellness grading platform.

Philippe Gautier: Our third quarter results continue our strong trend with double-digit growth in net sales, comparable net sales and significant expansion in Adjusted gross margin and Adjusted EBITDA, as compared to the third quarter of 2021. We are pleased to deliver this strong performance which reflects the growing loyalty to our Obagi skincare and Milk makeup brands, given the efficacy of our products, the power of our innovation and the successful execution of our growth strategies.

Double digit growth in net sales comparable net sales and significant expansion in adjusted gross margin and adjusted EBITDA.

Converge to the third quarter of 2021.

We are pleased to deliver these strong performance, which reflects the growing loyalty to our <unk> skincare makeup brands brands given the efficacy of our products the power of our innovation and the successful execution of our growth strategies.

Philippe Gautier: This led to total net sales rising 10.3% and an increase of 18.2% on a comparable basis, excluding the Obagi China business that was distributor to its sole shareholder, Cedarwalk Skincare Limited prior to the business combination, as well as the related [indiscernible] to the distributor post termination. Therefore on a like for like basis, which better reflects the ongoing operating business and how we manage the current business, comparable net sales grew by 13.2%.

and an increase of 18.2% on a comparable basis, excluding the Obagi China business that was distributor to its sole shareholder, Cedarwalk Skincare Limited prior to the business combination, as well as the related [indiscernible] to the distributor post termination.

excluding the Obagi China business that was distributor to its sole shareholder, Cedarwalk Skincare Limited prior to the business combination, as well as the related [indiscernible] to the distributor post termination.

prior to the business combination, as well as the related [indiscernible] to the distributor post termination.

well as the related [indiscernible] to the distributor post termination.

Therefore on a like for like basis, which better reflects the ongoing operating business and how we manage the current business, comparable net sales grew by 13.2%.

and how we manage the current business, comparable net sales grew by 13.2%.

by 13.2%.

Philippe Gautier: Comparable net sales are also the indicator which is consistent with the weighted sales we have communicated in the previous quarters and all pro forma figures have been prepared excluding Obagi China. Adjusted gross margin expanded 155 basis points as the business benefits from our growing scale efficiencies and sourcing, pricing and gross to net efficiencies.

pro forma figures have been prepared excluding Obagi China.

Okay.

Adjusted gross margin expanded 155 basis points as the business benefits from our growing scale efficiencies and sourcing, pricing and gross to net efficiencies.

Philippe Gautier: Keep in mind again, that our Adjusted gross margin removes Obagi's former China business and the impact of the inventory fair value step up driven by the acquisition of Obagi Skincare and Milk makeup.

driven by the acquisition of Obagi Skincare and Milk makeup.

Philippe Gautier: Strong sales growth, an expansion in gross margin more than offset investment in corporate and marketing expenses which include well and gas central expenses post combination, fueling a strong 126.3% increase in Adjusted EBITDA to $15.3 million, representing 19.4% of net sales.

an expansion in gross margin more than offset investment in corporate and marketing expenses which include well and gas central expenses post combination, fueling a strong 126.3% increase in Adjusted EBITDA to $15.3 million, representing 19.4% of net sales.

which include well and gas central expenses post combination, fueling a strong 126.3% increase in Adjusted EBITDA to $15.3 million, representing 19.4% of net sales.

fueling a strong 126.3% increase in Adjusted EBITDA to $15.3 million, representing 19.4% of net sales.

representing 19.4% of net sales.

Philippe Gautier: Turning now to the driver of sales growth. Our Obagi sales were led by continued growth in our core U.S. position dispense business, along with strong international growth. We also invested in enhancing our digital capabilities to accelerate our B2C expansion.

Our Obagi sales were led by continued growth in our core U.S. position dispense business, along with strong international growth. We also invested in enhancing our digital capabilities to accelerate our B2C expansion.

We also invested in enhancing our digital capabilities to accelerate our B2C expansion.

Philippe Gautier: And Milk growth was impressive far outpacing the industry given by the strength, the brands of our products and teams ongoing ability to delight consumers with must-have innovation. One of our objective was to improve gross margin of Milk and we were very pleased to see the initial benefits of our work focus on increasing efficiencies in sourcing and distribution. We're investing a portion of these savings in brand marketing, which is paying dividends with increased investment driving customer engagement, trial and sales.

Rose was impressive far outpacing the industry given by.

the strength, the brands of our products and teams ongoing ability to delight consumers with must-have innovation. One of our objective was to improve gross margin of Milk and we were very pleased to see the initial benefits of our work focus on increasing efficiencies in sourcing and distribution. We're investing a portion of these savings in brand marketing, which is paying dividends with increased investment driving customer engagement, trial and sales.

<unk> ongoing ability to delight consumers with must have innovation.

One of our objective was to improve gross margin of Milk and we were very pleased to see the initial benefits of our work focus on increasing efficiencies in sourcing and distribution. We're investing a portion of these savings in brand marketing, which is paying dividends with increased investment driving customer engagement, trial and sales.

Was to improve gross margin of milk and we were very pleased to see the initial benefits of our <unk> focus on increasing efficiencies and sourcing and distribution.

We're investing a portion of these savings in brand marketing, which is paying dividends with increased investment driving customer engagement, trial and sales.

Philippe Gautier: We also believe Milk has all the makings of a strong global brand and are beginning to capitalize on its international market of bookings. We're excited by this quarter's result, but it is very important to highlight as Michele did in the previous earnings call that we manage the company performance on an annual basis and quarterly results should not be extrapolated to full year results.

are beginning to capitalize on its international market of bookings.

We're excited by this quarter's result, but it is very important to highlight as Michele did in the previous earnings call that we manage the company performance on an annual basis and quarterly results should not be extrapolated to full year results.

results should not be extrapolated to full year results.

Philippe Gautier: Also, importantly is that we are still working through the full technical enhancing implication of the combination of the three entities and the call out of the Obagi China business distribution. Our earnings release provides some detailed reconciliation between our unaudited GAAP financial and non-GAAP measures.

Importantly.

Is that who are still working through the full technical the Trump team implication.

The combination of those three entities and <unk>, China business distribution.

Philippe Gautier: Our earnings release provides some detailed reconciliation between our unaudited GAAP financial and non-GAAP measures.

non-GAAP measures.

Philippe Gautier: When reading our financial statements and in the appendix of this presentation, you should note there is a clear division between the predecessor period that includes financials at the acquisition date, and successor period that includes the acquisition date and all periods thereafter. Predecessor and successor results shown are not comparable since the successor period includes the completed financial statements of Waldencast, Obagi and Milk, whereas the predecessor period includes only Obagi's financial statements.

In the appendix of this presentation and you should note there is a deviation between the predecessor period includes financials at the acquisition date.

successor period that includes the acquisition date and all periods thereafter. Predecessor and successor results shown are not comparable since the successor period includes the completed financial statements of Waldencast, Obagi and Milk, whereas the predecessor period includes only Obagi's financial statements.

Predecessor and successor results shown are not comparable since the successor period includes the completed financial statements of Waldencast, Obagi and Milk, whereas the predecessor period includes only Obagi's financial statements.

successor period includes the completed financial statements of Waldencast, Obagi and Milk, whereas the predecessor period includes only Obagi's financial statements.

the predecessor period includes only Obagi's financial statements.

Philippe Gautier: Let's take now a closer look at our combined financials qualified. As I mentioned, net sales were $78.9 million of which comparable net sales were $74.5 million, an increase of 18.2% versus last year.

As I mentioned, net sales were $78.9 million of which comparable net sales were $74.5 million, an increase of 18.2% versus last year.

increase of 18.2% versus last year.

Philippe Gautier: Breaking this down further, Obagi Skincare sales were $50.4 million of which convertible net sales were up $55.9 million increasing 12.1% but the difference between the two related to the job out of the Chinese distribution business.

Philippe Gautier: Obagi Skincare sales were $50.4 million of which convertible net sales were up $55.9 million increasing 12.1% but the difference between the two related to the job out of the Chinese distribution business.

but the difference between the two related to the job out of the Chinese distribution business.

Philippe Gautier: Milk makeup net sales rose 41.7% to $18.5 million, both on our net sales and comparable net sales base. Therefore, total comparable sales a better measure of the ongoing operating company grew 18.2% for Q3.

both on our net sales and comparable net sales base. Therefore, total comparable sales a better measure of the ongoing operating company grew 18.2% for Q3.

Therefore, total comparable sales a better measure of the ongoing operating company grew 18.2% for Q3.

a better measure of the ongoing operating company grew 18.2% for Q3.

Philippe Gautier: Group adjusted gross margin for Q3 was $53.5 million or 71.9%, an increase of 155 basis points versus a year ago.

or 71.9%, an increase of 155 basis points versus a year ago.

an increase of 155 basis points versus a year ago.

Philippe Gautier: Breaking this down further, Obagi Skincare standalone adjusted gross margin was $41.9 million or 17.5%. That's 20 basis points versus one year ago. Milk makeup adjusted gross margin was $11.6 million or 62.5% of net sales at a strong 930 basis points from one year ago.

<unk> skincare Standalone adjusted gross margin was $41 9 million or 17 device person.

20 basis points versus one year ago makeup adjusted gross margin was 11 6 million or 62 growing client person of dead cells.

strong 930 basis points from one year ago.

Cherokee bases points from one year ago.

Philippe Gautier: Adjusted EBITDA for this group rose 126%to $15.3 million from $6.8 million last year. It is a strong expansion to 19.4% from 9.5% margin in the third quarter of 2021. Again, both brands show impressive growth with Obagi Skincare seeing an increase of 109% to $16.3 million for an adjusted EBITDA of 27% and Milk makeup generating improvement in Adjusted EBITDA of $1.9 million to a proceed of $2.9 million from a loss of $1 million in the first quarter of 2021.

It is a strong expansion to 19.4% from 9.5% margin in the third quarter of 2021.

From nine 5% margin.

in the third quarter of 2021.

Again, both brands show impressive growth with Obagi Skincare seeing an increase of 109% to $16.3 million for an adjusted EBITDA of 27% and Milk makeup generating improvement in Adjusted EBITDA of $1.9 million to a proceed of $2.9 million from a loss of $1 million in the first quarter of 2021.

to $16.3 million for an adjusted EBITDA of 27% and Milk makeup generating improvement in Adjusted EBITDA of $1.9 million to a proceed of $2.9 million from a loss of $1 million in the first quarter of 2021.

Milk makeup generating improvement in Adjusted EBITDA of $1.9 million to a proceed of $2.9 million from a loss of $1 million in the first quarter of 2021.

$2.9 million from a loss of $1 million in the first quarter of 2021.

from a loss of $1 million in the first quarter of 2021.

Philippe Gautier: Waldencast central expenses represent ongoing corporate costs and public company costs that are not allocated to our brand. This is shown here on an Adjusted EBITDA basis and does not include transaction charges and nonrecurring items.

This is shown here on an Adjusted EBITDA basis and does not include transaction charges and nonrecurring items.

Okay.

Philippe Gautier: The following slides, we provide our capitalization table as of September 30, 2022. We had total financing line at the level of $225 million composed of $180 million gross debt and net debt of $149 million. It's worth mentioning that we have put in place post quarter end in gross hedging of some of our debt. This hedge integrates our interest rate exposure the extent we have floating rate debt in a rising trans rate environment.

We provide.

Our capitalization table as of September <unk>.

We had total financing line at the level of $225 million composed of $180 million gross debt and net debt of $149 million.

$149 million.

Philippe Gautier: It's worth mentioning that we have put in place post quarter end in gross hedging of some of our debt. This hedge integrates our interest rate exposure the extent we have floating rate debt in a rising trans rate environment.

This hedge integrates our interest rate exposure the extent we have floating rate debt in a rising trans rate environment.

the extent we have floating rate debt in a rising trans rate environment.

a rising trans rate environment.

Philippe Gautier: Importantly, our shareholder base is solid and provides a strong alignment and stability for the company, with Obagi and Milk shareholder owning as of September 30, 2022 approximately 45.9%, and Waldencast's founders and sponsor approximately 22.8%. We have total diluted shares outstanding of approximately 114 million shares as well as approximately 29.5 million warrants. Most of the sellers, founders and management shares at one year from the day of the business combination, with a small portion of seller shares with a six month logic. Diluted share count exclude approximately 3.9 million shares for management equity performance based awards, not yet allocated.

and stability for the company, with Obagi and Milk shareholder owning as of September 30, 2022 approximately 45.9%, and Waldencast's founders and sponsor approximately 22.8%.

owning as of September 30, 2022 approximately 45.9%, and Waldencast's founders and sponsor approximately 22.8%.

and Waldencast's founders and sponsor approximately 22.8%.

Philippe Gautier: We have total diluted shares outstanding of approximately 114 million shares as well as approximately 29.5 million warrants. Most of the sellers, founders and management shares at one year from the day of the business combination, with a small portion of seller shares with a six month logic.

Most of the sellers, founders and management shares at one year from the day of the business combination, with a small portion of seller shares with a six month logic.

a small portion of seller shares with a six month logic.

Philippe Gautier: Diluted share count exclude approximately 3.9 million shares for management equity performance based awards, not yet allocated.

awards, not yet allocated.

Michel Brousset: Thank you, Philippe. I will now focus on the development of each of our brands starting with Obagi.

Operator: Ladies and gentlemen, I do apologize. We are having some technical difficulties. One moment please, until we do resume.

Sure.

One moment please until we do resume.

Until we do resume.

Okay. Okay.

Okay.

Operator: Alright, I do apologize for technical difficulties. We will now resume our presentation.

Okay.

Michel Brousset: Thank you, Andy.

Okay.

Michel Brousset: Thanks, Philippe. I was now focus on the development at each of our brands, starting with Obagi.

Michel Brousset: As discussed earlier, Q3 has been a strong quarter for Obagi, with $60.4 million net sales growing at 12.1% on a comparable net sales basis. These, with a healthy gross margin of 75% on an adjusted EBITDA of 27%, which is a very significant improvement versus year ago. Obagi will build in this profitable structural economics to capture sizable growth opportunities.

These, with a healthy gross margin of 75% on an adjusted EBITDA of 27%, which is a very significant improvement versus year ago.

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Michel Brousset: Obagi will build in this profitable structural economics to capture sizable growth opportunities.

Michel Brousset: Our strategy is to use -- these are very clear. First, continue to expand our U.S. efficient channel penetration to maximize our anchoring in our channel core to the brand DNA.

Michel Brousset: Second, continue to expand our core portfolio breadth and depth, more of our core product and existing accounts, as well as new incremental product launches.

Michel Brousset: And then lastly, accelerate the expansion of our U.S. and international footprint by replicating our winning U.S. efficient led formula in the right channels and geographies. In Q3, our core strategic business in the U.S. efficient channel accelerated to now achieve net sales growth of 21% year to date.

Okay.

In Q3, our core strategic business in the U.S. efficient channel accelerated to now achieve net sales growth of 21% year to date.

Michel Brousset: The channel was a top growth driver this quarter for the brand through new, more proactive accounts, a wider [indiscernible] and our new product launches. A key strategy to drive these results have been to ensure our top selling strategic range is present deeper in more doors, so consumers have easier access to it.

a wider [indiscernible] and our new product launches.

Michel Brousset: A key strategy to drive these results have been to ensure our top selling strategic range is present deeper in more doors, so consumers have easier access to it.

Michel Brousset: We introduced a top 20 core SKU strategy that lineup incentives and activation, with a selection of hero products that have high consumer demand and are core brand builders. Importantly, these products have very attractive gross margins. The top 20 core represent 65% of our sufficient dispense channel business and it's still deepening their footprint in the U.S. by increasing their penetration at about four plus full points versus last year.

Michel Brousset: The top 20 core represent 65% of our sufficient dispense channel business and it's still deepening their footprint in the U.S. by increasing their penetration at about four plus full points versus last year.

at about four plus full points versus last year.

Michel Brousset: Now let me illustrate this strategy with a couple of examples. First, Obagi Nu-Derm. This product line is a number one selling franchise in our physician spend channel and available in about 74% of our Obagi accounts. And it's a still expanding penetration growing six points.

This product line is a number one selling franchise in our physician spend channel and available in about 74% of our Obagi accounts. And it's a still expanding penetration growing six points.

And it's a still expanding penetration growing six points.

Michel Brousset: Similarly, Obagi's award winning professional fee franchise has increased penetration by six points to reach 60%.

Michel Brousset: Now, beyond expanding and strengthening the foothold of our top 20 core products, we are delivering against our second strategy, which is to expand the breadth of our core portfolio to cover incremental consumer scheme.

Michel Brousset: In May 2022, we launched ELASTIderm Neck and Decollete, an exciting addition to the ELASTIderm franchise. This product targets area specific signs of skin aging on the delicate skin of the neck and upper chest, to support skin elasticity and basically improve neck lines, fine lines and sagging. In Q3, the number of accounts carrying the new product grew 13.7%. But importantly, this new launch helped build a total ELASTIderm franchise by 34%.

Michel Brousset: This product targets area specific signs of skin aging on the delicate skin of the neck and upper chest, to support skin elasticity and basically improve neck lines, fine lines and sagging.

In Q3, the number of accounts carrying the new product grew 13.7%. But importantly, this new launch helped build a total ELASTIderm franchise by 34%.

But importantly, this new launch helped build a total ELASTIderm franchise by 34%.

Michel Brousset: Now we're also expanding the breadth of our core portfolio through innovation into adjacent categories like lash and brows. Our expertise in skin biology and transformative formulas led to the launch of Obagi NU-CIL lash. This is a lash growth serum that we launched last year. Now more recently in Q3, we continue our innovation by launching Obagi NU-CIL Eyebrow Booster Serum. In just a few months, this new brow serum became the number one selling OTC product and also positively halo the existing NU-CIL franchise, which grew at 27% of the same time period.

Michel Brousset: Our expertise in skin biology and transformative formulas led to the launch of Obagi NU-CIL lash. This is a lash growth serum that we launched last year. Now more recently in Q3, we continue our innovation by launching Obagi NU-CIL Eyebrow Booster Serum. In just a few months, this new brow serum became the number one selling OTC product and also positively halo the existing NU-CIL franchise, which grew at 27% of the same time period.

This is a lash growth serum that we launched last year. Now more recently in Q3, we continue our innovation by launching Obagi NU-CIL Eyebrow Booster Serum. In just a few months, this new brow serum became the number one selling OTC product and also positively halo the existing NU-CIL franchise, which grew at 27% of the same time period.

Now more recently in Q3, we continue our innovation by launching Obagi NU-CIL Eyebrow Booster Serum. In just a few months, this new brow serum became the number one selling OTC product and also positively halo the existing NU-CIL franchise, which grew at 27% of the same time period.

In just a few months, this new brow serum became the number one selling OTC product and also positively halo the existing NU-CIL franchise, which grew at 27% of the same time period.

franchise, which grew at 27% of the same time period.

Michel Brousset: And what's interesting about this product is that Obagi NU-CIL, the Obagi NU-CIL launch was incremental to Obagi skincare core portfolio and also our Hero product when we launched the e-comm footprint of the brand.

Michel Brousset: The Brow and Lash serums are respectively the number one and number four best sellers on Obagi website, contributing to fuel the growth of NU body, yet booming channel for the brand, which grew 81% in Q3 and expands our footprint in the U.S. to be where consumers expect us, either directly or as a tool to help our partner physicians serve their patients directly.

as a tool to help our partner physicians serve their patients directly.

Okay.

Michel Brousset: We have continued expanding our international footprint taking year to date, the international business of growing 28%. This growth is driven by Obagi clinical, an entry price point offering introduced by the brand in emerging markets. Internationalization as we know is a key opportunity and growth driver that we will have more to share in 2023.

the international business of growing 28%.

This growth is driven by Obagi clinical, an entry price point offering introduced by the brand in emerging markets.

Internationalization as we know is a key opportunity and growth driver that we will have more to share in 2023.

Michel Brousset: Now lets go from science led transformative results to cool, clean makeup that works with the Gen Z cold brand Milk makeup. Milk, plus a very strong Q3 at $18.5 million in net sales, a growth of 41.7% versus last year and delivering a much improved gross margin at 62.5% on adjusted EBITDA at 5%. I mentioned earlier that the makeup category has been -- has seen a strong rebound growing ahead of beauty year to date and in Q3.

Michel Brousset: Milk, plus a very strong Q3 at $18.5 million in net sales, a growth of 41.7% versus last year and delivering a much improved gross margin at 62.5% on adjusted EBITDA at 5%. I mentioned earlier that the makeup category has been -- has seen a strong rebound growing ahead of beauty year to date and in Q3.

and delivering a much improved gross margin at 62.5% on adjusted EBITDA at 5%. I mentioned earlier that the makeup category has been -- has seen a strong rebound growing ahead of beauty year to date and in Q3.

I mentioned earlier that the makeup category has been -- has seen a strong rebound growing ahead of beauty year to date and in Q3.

Michel Brousset: Milk makeup has significantly outperformed the market with plus 47.3% growth year to date and sellout versus the U.S. selective market of approximately 18%.

Michel Brousset: Now Milk's performance and roadmap for growth is based on three strategic planks. First, grower awareness on our community, which despite being a large following in a large community, this brand remains a relatively under marketed brand. It's a very much organic-driven brand.

Michel Brousset: First, grower awareness on our community, which despite being a large following in a large community, this brand remains a relatively under marketed brand. It's a very much organic-driven brand.

Michel Brousset: Second, continue to deliver breakthrough innovation to expand our footprint and lastly, expand our distribution both domestically and internationally.

To drive our brand awareness, we focus first on our proven strength, organic content across our bestselling icons in the most relevant social media touch points. This is an area that remains strong strength for the brand.

Michel Brousset: The growing awareness show a significant increase. Our reach on Tiktok with more than 275 million impressions on Milk makeup which translated into very strong growth on our core range which represent 50.8% of our business, all growing with high double and triple digits from an already high base. Just remember that many of these products already top 3 products in the category at Sephora U.S. which is serving building some of our brand makeup.

which represent 50.8% of our business, all growing with high double and triple digits from an already high base. Just remember that many of these products already top 3 products in the category at Sephora U.S. which is serving building some of our brand makeup.

Michel Brousset: growing with high double and triple digits from an already high base. Just remember that many of these products already top 3 products in the category at Sephora U.S. which is serving building some of our brand makeup.

Michel Brousset: Now building on the success of organic awareness, we're also starting to further accelerate it via top talent collaborations that resonate with our target audience. This is not something we were doing before. Our very first was with mega Influencer, Hailey Bieber. Focusing on both our core products, our latest innovations and deliver some very strong first result. We look forward to sharing more of these on our next call.

Focusing on both our core products, our latest innovations and deliver some very strong first result. We look forward to sharing more of these on our next call.

We look forward to sharing more of these on our next call.

Michel Brousset: Milk makeup's second pillar of growth is innovation. Innovation is the lifeblood of makeup, and Milk has and it is still consistently delivering blockbusters, which have become best sellers. This year innovation is delivering year to date, 40% stronger net sales in our launches year ago, much stronger vintage of launches and we're following a very clear strategy.

Innovation is the lifeblood of makeup, and Milk has and it is still consistently delivering blockbusters, which have become best sellers. This year innovation is delivering year to date, 40% stronger net sales in our launches year ago, much stronger vintage of launches and we're following a very clear strategy.

This year innovation is delivering year to date, 40% stronger net sales in our launches year ago, much stronger vintage of launches and we're following a very clear strategy.

Michel Brousset: First, reinforcing Milk Makeup's footprint in the big and competitive category of mascara, adding RISE mascara to already our best selling KUSH mascara.

adding RISE mascara to already our best selling KUSH mascara.

Michel Brousset: All primers, a key strength of our brand and lastly, a strategically expanding into our face category with concealers. Primer is a core must-win category for Milk Makeup. We have our Hydro Grip Primer, an award winning hydrating, long-wear primer and the number one best selling primer at Sephora.

Primer is a core must-win category for Milk Makeup. We have our Hydro Grip Primer, an award winning hydrating, long-wear primer and the number one best selling primer at Sephora.

Core must win category from the makeup.

Michel Brousset: We have our Hydro Grip Primer, an award winning hydrating, long-wear primer and the number one best selling primer at Sephora.

Michel Brousset: On top of that, we launched a second primer for Eclipse, a mattyfing and blurring primer that addresses an unmet and incremental consumer need. I am extremely excited to report that Pore Eclipse has become now one of the top three primers at Sephora, incrementally to Hydro Grip, which maintains its leadership position and further grew 62%.

I am extremely excited to report that Pore Eclipse has become now one of the top three primers at Sephora, incrementally to Hydro Grip, which maintains its leadership position and further grew 62%.

Michel Brousset: Beyond these strong hope, Milk Makeup is ready to unlock further product opportunities, both makeup and other categories. Our first focus is to unlock the very large $3.8 billion foundation on face market and thus playing a bigger category and expanding a bigger way into high loyalty, high replenishment, stickier areas of the market.

Makeup is ready to unlock further political opportunities. Both makeup in all the categories.

Michel Brousset: Our first focus is to unlock the very large $3.8 billion foundation on face market and thus playing a bigger category and expanding a bigger way into high loyalty, high replenishment, stickier areas of the market.

Michel Brousset: In September, we entered the category with the launch of Future Fluid, a multi-use medium to full coverage concealer that covers, sculpts and hydrates from a lightweight crease-proof natural finish. Just beautiful.

Michel Brousset: Now recently launched, Future Fluid is showing some very very positive first step with a very strong 4.6 star rating, high recommendation rate of 90% and super strong support in PR and in the community.

Michel Brousset: Looking at Milk distribution, the brand is just getting started. We have very desirable brand asset. Milk is having tremendous white space opportunity to increase penetration and deepen our partnership with Sephora, as well as expand distribution in the U.S. and internationally.

We have very desirable brand asset. Milk is having tremendous white space opportunity to increase penetration and deepen our partnership with Sephora, as well as expand distribution in the U.S. and internationally.

having tremendous white space opportunity to increase penetration and deepen our partnership with Sephora, as well as expand distribution in the U.S. and internationally.

to increase penetration and deepen our partnership with Sephora, as well as expand distribution in the U.S. and internationally.

Michel Brousset: Let's look at international a bit more. Milk makeup is operating in all Sephora U.S. and Sephora Collection on Amazon. Milk Makeup is gearing up its strategy to launch in the UK, the fourth biggest makeup market in the world, with face skincare over Q4 of this year and Q3, Q1 of 2023, as well as being part of the Sephora portfolio that is entering the UK. So lots of very exciting development in the UK.

Michel Brousset: Milk makeup is operating in all Sephora U.S. and Sephora Collection on Amazon. Milk Makeup is gearing up its strategy to launch in the UK, the fourth biggest makeup market in the world, with face skincare over Q4 of this year and Q3, Q1 of 2023, as well as being part of the Sephora portfolio that is entering the UK. So lots of very exciting development in the UK.

Milk Makeup is gearing up its strategy to launch in the UK, the fourth biggest makeup market in the world, with face skincare over Q4 of this year and Q3, Q1 of 2023, as well as being part of the Sephora portfolio that is entering the UK. So lots of very exciting development in the UK.

biggest makeup market in the world, with face skincare over Q4 of this year and Q3, Q1 of 2023, as well as being part of the Sephora portfolio that is entering the UK. So lots of very exciting development in the UK.

part of the Sephora portfolio that is entering the UK. So lots of very exciting development in the UK.

Okay.

Michel Brousset: Now at Waldencast, we not only perform on our business KPIs, but we're also very proud of our ESG achievements for a very young company.

Michel Brousset: First, our focus on the environment; We're constantly developing ways to reduce our footprint all along the supply chain by removing waste from chunking our recycled and recyclable materials.

We're constantly developing ways to reduce our footprint all along the supply chain by removing waste from chunking our recycled and recyclable materials.

Michel Brousset: Second, Waldencast, we are proud of our diversity across all levels of the organization. Milk Makeup and Obagi are built on inclusivity. Milk social philanthropy focus on self expression and equality for under represented LGBTAIQ plus and PLC groups and the skin inclusion initiative between Obagi's commitment as leaders in the skincare space to elevate the global dialogue about diversity and inclusion.

Milk Makeup and Obagi are built on inclusivity. Milk social philanthropy focus on self expression and equality for under represented LGBTAIQ plus and PLC groups.

plus and PLC groups.

Michel Brousset: and the skin inclusion initiative between Obagi's commitment as leaders in the skincare space to elevate the global dialogue about diversity and inclusion.

Michel Brousset: Obagi is proud to be providing effective science based skincare products for all skin types and they were the first professional skincare company to clinically test from the performance across all Fitzpatrick skin types.

Michel Brousset: Lastly, despite this young age, Waldencast has equipped itself with a best in class governance with its board of directors and processes. And of course, in October we welcomed Philippe Gautier, the company's CFO and COO.

And of course, in October we welcomed Philippe Gautier, the company's CFO and COO.

Michel Brousset: Now to recap, Waldencast brings the operational excellence of our multi plan platform built for growth and profitability. We are a household brand built for speed and scale. Our balanced portfolio plays in structurally attractive segments that favors our growth foundations and mitigate the risk linked to single category fluctuations. We have with Obagi skincare and Milk makeup, the leading brands in high growth, attractive and resilient categories.

brings the operational excellence of our multi plan platform built for growth and profitability. We are a household brand built for speed and scale. Our balanced portfolio plays in structurally attractive segments that favors our growth foundations and mitigate the risk linked to single category fluctuations.

Our balanced portfolio plays in structurally attractive segments that favors our growth foundations and mitigate the risk linked to single category fluctuations.

We have with Obagi skincare and Milk makeup, the leading brands in high growth, attractive and resilient categories.

Michel Brousset: We have the expertise in managing and scaling beauty brands and businesses globally, which we intend to do once keeping an asset light structure and agility to remain the market responsiveness and speed of our entrepreneurial skin brands.

Michel Brousset: Lastly, our management teams have a strong alignment of incentives to drive long-term value creation through operational and capital allocation actions. We're very pleased with our performance in Q through and we're very -- Q3, and we're very confident and we believe that we're well positioned to achieve the guidance to headline with many of you when we announced our business combination in November 2021.

Michel Brousset: We're very pleased with our performance in Q through and we're very -- Q3, and we're very confident and we believe that we're well positioned to achieve the guidance to headline with many of you when we announced our business combination in November 2021.

Michel Brousset: With that, I would like now to open the call to take your questions. Thank you.

Operator: The floor is now open for your questions. To ask a question at this time, please press star one on your telephone keypad. If at any point, you would like to withdraw from the queue, please press star one again. You will be provided the opportunity to ask one question and one further follow up question. We will take a moment to render our roster.

a moment to render our roster.

Operator: Our first question comes from the line of Darla Whitlock from Telsey Advisory Group. Your line is open.

Darla Whitlock: Hi, great. Thank you for taking my questions and congratulations on a nice quarter. My first question would be on Obagi. Are the physicians seeing any effects of the macro environment like the patients are purchasing less take home product, they're not visiting the dermatologists or physicians as frequently. Is that impacting their ordering and their outlook?

My first question would be on Obagi. Our disposition seen any effects of the macro environment like the patients are purchasing less take home product, they're not visiting the dermatologists or physicians as frequently. Is that impacting their ordering and their outlook?

Our disposition seen any effects of the macro environment like the patients are purchasing less take home product, they're not visiting the dermatologists or physicians as frequently. Is that impacting their ordering and their outlook?

the patients are purchasing less take home product, they're not visiting the dermatologists or physicians as frequently. Is that impacting their ordering and their outlook?

Michel Brousset: Hi, there. Thank you. Thank you so much for your question. Before I answer your question, I have to apologize to everyone for our technical difficulties. I guess we are so proud of our brand and our results that we wanted you to hear it twice. Now answering your questions. We are not seeing any slowdown in consumer demand in the physician channel in the U.S. We had a little bit of bliss during [indiscernible] southeast because many of the practices in that region were closed for some time and that is a quite important region for the brand, but it was not material to our delivery of results in Q3 and Q4. So generally, the short answer to your question is, it might remain strong. We are not seeing yet any impacts of consumption and I think its reflecting of the broader beauty market strength, that often we see and that we always talk about.

I guess we are so proud of our brand and our results that we wanted you to hear it twice.

Now answering your questions.

We are not seeing any slowdown in consumer demand in the physician channel in the U.S.

consumer demand in the physician channel in the U.S.

Michel Brousset: We had a little bit of bliss during [indiscernible] southeast because many of the practices in that region were closed for some time and that is a quite important region for the brand, but it was not material to our delivery of results in Q3 and Q4. So generally, the short answer to your question is, it might remain strong. We are not seeing yet any impacts of consumption and I think its reflecting of the broader beauty market strength, that often we see and that we always talk about.

The blip.

We're eating chicken and put together southeast because any of the.

The practices in the region our closed for some time and that is a quite important region for the Bronx, Mighty was not material to our delivery of results in Q3.

Q4.

So generally, the short answer to your question is, it might remain strong. We are not seeing yet any impacts of consumption and I think its reflecting of the broader beauty market strength, that often we see and that we always talk about.

The short answer to your question is am I.

it might remain strong. We are not seeing yet any impacts of consumption and I think its reflecting of the broader beauty market strength, that often we see and that we always talk about.

any impacts of consumption and I think its reflecting of the broader beauty market strength, that often we see and that we always talk about.

Okay.

Darla Whitlock: Great. Thank you. And then, I guess my follow up will be for Milk. Are you seeing any changes in the retailer partner's purchasing trends or thoughts on their inventory? We're hearing some comments from some other players.

And then, I guess my follow up will be for Milk. Are you seeing any changes in the retailer partner's purchasing trends or thoughts on their inventory? We're hearing some comments from some other players.

Are you seeing any changes in the retailer partner's purchasing trends or thoughts on their inventory? We're hearing some comments from some other players.

retailer partner's purchasing trends or thoughts on their inventory? We're hearing some comments from some other players.

Michel Brousset: Yes, generally a spot -- I mean the consumption remains strong. So we are very much a consumption-led business. In the case of Sephora in the U.S., we are seeing a little bit of pattern changes, particularly on calls at Sephora, there's a bit of realignment of inventory that we're seeing on the side of retailers, but overall from a sale in for some pulling has not impacted us significantly. And sellout remains, as you saw from the presentation, very strong.

changes, particularly on calls at Sephora, there's a bit of realignment of inventory that we're seeing on the side of retailers, but overall from a sale in for some pulling has not impacted us significantly. And sellout remains, as you saw from the presentation, very strong.

there's a bit of realignment of inventory that we're seeing on the side of retailers, but overall from a sale in for some pulling has not impacted us significantly. And sellout remains, as you saw from the presentation, very strong.

And sellout remains, as you saw from the presentation, very strong.

Darla Whitlock: Great. Thank you so much.

Operator: Your next question comes from the line of Linda Bolton Weiser from D. A. Davidson. Your line is open.

Your line is open.

Okay.

Linda Bolton Weiser: Hi, congratulations on a strong quarter. So I was curious if you're seeing or you think there is any trading down going on in the color cosmetics from Prestige to Mac? Can you comment on whether you think any of that is happening?

So I was curious if you're seeing or you think there is any trading down going on in the color cosmetics from Prestige to Mac? Can you comment on whether you think any of that is happening?

or you think there is any trading down going on in the color cosmetics from Prestige to Mac? Can you comment on whether you think any of that is happening?

any trading down going on in the color cosmetics from Prestige to Mac? Can you comment on whether you think any of that is happening?

Linda Bolton Weiser: Can you comment on whether you think any of that is happening?

Michel Brousset: Hey, Linda. How are you? Thank you. We are not seeing a trade down. Keep in mind that we have already a partial view of the market in a sense that we compete in the selective side of the market and our distribution is primarily there. But based on the market data that we're seeing as well as other reports of retailers are compete across luxury and mass, we're not seeing significant trade down into luxury into mass.

We are not seeing a trade down. Keep in mind that we have already a partial view of the market in a sense that we compete in the selective side of the market and our distribution is primarily there. But based on the market data that we're seeing as well as other reports of retailers are compete across luxury and mass, we're not seeing significant trade down into luxury into mass.

Trade I'll now keep in mind that we have obviously a partial view of the market would be the things that we compete in the selective.

of the market and our distribution is primarily there. But based on the market data that we're seeing as well as other reports of retailers are compete across luxury and mass, we're not seeing significant trade down into luxury into mass.

we're not seeing significant trade down into luxury into mass.

Linda Bolton Weiser: Okay. And then in terms of your primers in Milk and how much that's a focus for you, I know it's a popular things for online. They talk about dupes, you know, where there is kind of a copycat mass product that copies a prestige product and ELF beauty has come out with a, I guess a dupe of your Hydro Grip primer, how do you kind of prevent share loss when there are these cheaper versions that come out of your prestige product?

Ooh dose.

In terms of your ear primers in milk and how much that's a focus for you I know it can popular things for.

online. They talk about dupes, you know, where there is kind of a copycat mass product that copies a prestige product and ELF beauty has come out with a, I guess a dupe of your Hydro Grip primer, how do you kind of prevent share loss when there are these cheaper versions that come out of your prestige product?

ELF beauty has come out with a, I guess a dupe of your Hydro Grip primer, how do you kind of prevent share loss when there are these cheaper versions that come out of your prestige product?

how do you kind of prevent share loss when there are these cheaper versions that come out of your prestige product?

share loss when there are these cheaper versions that come out of your prestige product?

Michel Brousset: Thank you. Thank you, Linda. I think

copying is the best form of flattery. I think what is important is,

this has been happening in the beauty industry

Michel Brousset: for decades. Ultimately, beauty is a business of brands and brand identification. That is why for example, in the beauty category private label or off label or stuff like that remain a relatively small portion of the business. We are not concerned with that, because I think not only Hydro Grip is a superior performance product, but also there is a strong affinity of consumers to a brand. It goes beyond the function into the emotional connection and values that the brand represents so we're not seeing it in a particular detention.

We are not concerned with that, because I think not only Hydro Grip is a superior performance product, but also there is a strong affinity of consumers to a brand. It goes beyond the function into the emotional connection and values that the brand represents so we're not seeing it in a particular detention.

the function into the emotional connection and values that the brand represents so we're not seeing it in a particular detention.

Linda Bolton Weiser: Okay. And then, on the Milk expansion into Sephora UK in the fourth quarter, can you tell us, is that all of Sephora stores in the UK or just a subset? And how many is that? How many stores and what percentage of their stores in the UK?

And then.

On the milk expansion into Sephora in UK in the fourth quarter can you tell us is that all of the four stores in the U K or just a subset and how many is that how many stores and what percentage of their stores in the U K.

Michel Brousset: Yes, no it is. We are expanding in the UK across all Sephora. Very exciting, it just deepens our partnership with fantastic retailer Sephora and we have a great collaboration. We will be across all of them. I cannot share at the moment the number of Sephora stores that will be in the UK. I think that's for Sephora to share, but we expect to be in all of them.

We are expanding.

across all Sephora. Very exciting, it just deepens our partnership with fantastic retailer Sephora and we have a great collaboration. We will be across all of them. I cannot share at the moment the number of Sephora stores that will be in the UK. I think that's for Sephora to share, but we expect to be in all of them.

fantastic retailer Sephora and we have a great collaboration. We will be across all of them. I cannot share at the moment the number of Sephora stores that will be in the UK. I think that's for Sephora to share, but we expect to be in all of them.

We will be across all of them. I cannot share at the moment the number of Sephora stores that will be in the UK. I think that's for Sephora to share, but we expect to be in all of them.

the number of Sephora stores that will be in the UK. I think that's for Sephora to share, but we expect to be in all of them.

Sephora to share, but we expect to be in all of them.

to share, but we expect to be in all of them.

Actually all of them.

Operator: Again, as a reminder, the floor is now open for your questions. To ask a question at this time, please press star one on your telephone keypad.

Operator: Your next question comes from the line of Andrea Teixeira from JP Morgan. Your line is open.

Andrea Teixeira: Thank you operator, and good morning everyone. I hope all is well. And I wanted to just go back a bit from your outlook, and then think about pricing and distribution. Is there room for, as you look at the price points and obviously you are doing well in some of the key retailers. How should we be thinking of that and then not only for Milk, but also for Obagi? Is there any room for there to -- in particular, Milk of course, because of the cost pressures and then profitability being lower. Is that a path to improve profitability through pricing in the near future? And then as we think about the distribution in the stores in particular, right. In the innovation that you're bringing in, is there anything to highlight that is about to come with the [indiscernible] in the spring or anything to highlight there?

And I wanted to just go back a bit from your outlook, and then think about pricing and distribution.

Is there room for, as you look at the price points and obviously you are doing well in some of the key retailers. How should we be thinking of that and then not only for Milk, but also for Obagi?

How should we be thinking of that and then not only for Milk, but also for Obagi?

Is there any room for there to -- in particular, Milk of course, because of the cost pressures and then profitability being lower. Is that a path to improve profitability through pricing in the near future? And then as we think about the distribution in the stores in particular, right. In the innovation that you're bringing in, is there anything to highlight that is about to come with the [indiscernible] in the spring or anything to highlight there?

In particular <unk> of course, because of the pressure cost pressures and then profitability being lower is that a path to improve profitability through pricing in the near future.

And then as we think about the distribution in the stores in particular, right. In the innovation that you're bringing in, is there anything to highlight that is about to come with the [indiscernible] in the spring or anything to highlight there?

in particular, right. In the innovation that you're bringing in, is there anything to highlight that is about to come with the [indiscernible] in the spring or anything to highlight there?

about to come with the [indiscernible] in the spring or anything to highlight there?

anything to highlight there?

Yes, I'll take that.

Michel Brousset: Yes, thanks Andrea. On pricing, first of all, we have taken and we will continue to take pricing as we see the consumer opportunities there. You have to keep in mind that we are in the whole or scheme of things, a relatively small player where we follow the pricing more so of larger players. We have already seen, as you can see from the gross margin result, a significant improvement in gross margin. On Milk, a lot of that gross margin, nearly half of that margin increase, each comes from a combination of pricing and gross to net management, which ultimately is on a net price basis. are ways in which we move across gross margin ahead. So from a pricing standpoint, we think that there is still a room in the brand to continue to strengthen that, both in terms of absolute lease prices, as well as gross term expansion. Our innovation on a go forward basis as I mentioned, we are very excited about the launch of Future Fluids, which is another big, big space category. It is a business that is very sticky, high loyalty, very excited and we'll be happy to report how that comes over the next few months.

first of all, we have taken and we will continue to take pricing as we see the consumer opportunities there. You have to keep in mind that we are in the whole or scheme of things, a relatively small player where we follow the pricing more so of larger players. We have already seen, as you can see from the gross margin result, a significant improvement in gross margin. On Milk, a lot of that gross margin, nearly half of that margin increase, each comes from a combination of pricing and gross to net management, which ultimately is on a net price basis. are ways in which we move across gross margin ahead.

we have taken and we will continue to take pricing as we see the consumer opportunities there. You have to keep in mind that we are in the whole or scheme of things, a relatively small player where we follow the pricing more so of larger players. We have already seen, as you can see from the gross margin result, a significant improvement in gross margin. On Milk, a lot of that gross margin, nearly half of that margin increase, each comes from a combination of pricing and gross to net management, which ultimately is on a net price basis. are ways in which we move across gross margin ahead.

more so of larger players. We have already seen, as you can see from the gross margin result, a significant improvement in gross margin. On Milk, a lot of that gross margin, nearly half of that margin increase, each comes from a combination of pricing and gross to net management, which ultimately is on a net price basis. are ways in which we move across gross margin ahead.

a lot of that gross margin, nearly half of that margin increase, each comes from a combination of pricing and gross to net management, which ultimately is on a net price basis. are ways in which we move across gross margin ahead.

nearly half of that margin increase, each comes from a combination of pricing and gross to net management, which ultimately is on a net price basis. are ways in which we move across gross margin ahead.

are ways in which we move across gross margin ahead.

Looking at gross margin I hope so.

So from a pricing standpoint, we think that there is still a room in the brand to continue to strengthen that, both in terms of absolute lease prices, as well as gross term expansion.

room in the brand to continue to strengthen that, both in terms of absolute lease prices, as well as gross term expansion.

Michel Brousset: Our innovation on a go forward basis as I mentioned, we are very excited about the launch of Future Fluids, which is another big, big space category. It is a business that is very sticky, high loyalty, very excited and we'll be happy to report how that comes over the next few months.

another big, big space category.

It is a business that is very sticky, high loyalty, very excited and we'll be happy to report how that comes over the next few months.

over the next few months.

Andrea Teixeira: And that's a full distribution, Michel? It's a full distribution into Sephora?

And to let us before.

Michel Brousset: Yes, that is correct. Future Fluid is in full distribution also with Sephora.

Andrea Teixeira: Great. Thank you. Appreciate it. Congrats.

Michel Brousset: Thank you.

Operator: Your next question comes from the line of Darla Whitlock from Telsey Advisory Group. Your line is open.

Darla Whitlock: Hi, great. Sorry, sorry for jumping on again. But I just wanted to follow up and see if you can provide any details on Obagi.com, how that's performing, any changes as it relates to trend at physicians' offices and are these consumers new or are they existing customers that have already purchased the brand, maybe through physicians' offices? Thank you.

But I just wanted to follow up and see if you can provide any details on Obagi.com, how that's performing, any changes as it relates to trend at physicians' offices and are these consumers new or are they existing customers that have already purchased the brand, maybe through physicians' offices? Thank you.

or are they existing customers that have already purchased the brand, maybe through physicians' offices? Thank you.

maybe through physicians' offices? Thank you.

Michel Brousset: Of course, thank you. So Obagi.com is a still a relatively small percentage of the business. It was only launched last year. That said, we are very encouraged by its performance here today with more than double the business. And what is very interesting and exciting on this channel is that we're seeing a different consumer profile. It tends to be younger, it tends to be looking for different products than what we're seeing the physicians dispense channel.

So Obagi.com is a still a relatively small percentage of the business. It was only launched last year. That said, we are very encouraged by its performance here today with more than double the business. And what is very interesting and exciting on this channel is that we're seeing a different consumer profile. It tends to be younger, it tends to be looking for different products than what we're seeing the physicians dispense channel.

Michel Brousset: percentage of the business. It was only launched last year. That said, we are very encouraged by its performance here today with more than double the business. And what is very interesting and exciting on this channel is that we're seeing a different consumer profile. It tends to be younger, it tends to be looking for different products than what we're seeing the physicians dispense channel.

the business. And what is very interesting and exciting on this channel is that we're seeing a different consumer profile. It tends to be younger, it tends to be looking for different products than what we're seeing the physicians dispense channel.

And what is very interesting and exciting on this channel is that we're seeing a different consumer profile. It tends to be younger, it tends to be looking for different products than what we're seeing the physicians dispense channel.

It tends to be younger, it tends to be looking for different products than what we're seeing the physicians dispense channel.

Yes. Channel so.

Channel so.

Michel Brousset: So we did a plus 81% in Q3 and as I said, more than double the business this year, and as I said consumer profile was a little bit different. The NU-CIL launch of Lash Serum as I've mentioned in the call has really been instrumental in attracting consumers and it's being served in a way that is a little bit different than through Physician dispenser.

business this year, and as I said consumer profile was a little bit different. The NU-CIL launch of Lash Serum as I've mentioned in the call has really been instrumental in attracting consumers and it's being served in a way that is a little bit different than through Physician dispenser.

in a way that is a little bit different than through Physician dispenser.

a little bit different than through Physician dispenser.

Darla Whitlock: That's great. Thank you.

Okay.

Operator: Your final question comes from the line of Olivia Tong from Raymond James. Your line is open.

Olivia Tong: Great. Thanks, good morning. Apologies, I got on late but hopefully my questions haven't been asked but I wanted to ask you a little bit about how dynamic and how much the environment has changed in the last couple of months and how that impacts your thoughts about your strategy, particularly with respect to M&A and any future acquisition, particularly given the change in rate and what have you? And then on top of that, thinking about the size of acquisition relative, buckets in terms of funding, you can add a little bit there. That'd be helpful. Thank you so much.

Apologies, I got on late but hopefully my questions haven't been asked but I wanted to ask you a little bit about how dynamic and how much the environment has changed in the last couple of months and how that impacts your thoughts about your strategy, particularly with respect to M&A and any future acquisition, particularly given the change in rate and what have you?

and any future acquisition, particularly given the change in rate and what have you?

particularly given the change in rate and what have you?

change in rate and what have you?

Olivia Tong: And then on top of that, thinking about the size of acquisition relative, buckets in terms of funding, you can add a little bit there. That'd be helpful. Thank you so much.

the size of acquisition relative, buckets in terms of funding, you can add a little bit there. That'd be helpful. Thank you so much.

buckets in terms of funding, you can add a little bit there. That'd be helpful. Thank you so much.

add a little bit there. That'd be helpful. Thank you so much.

Michel Brousset: Olivia, great to hear from you. In terms of the environment as I mentioned, the market remains dynamic, very, very dynamic. Now, it's important to understand that given our size of the business and the growth opportunities we have ahead, yes, we look at the market for it's a point of information on how we held -- the market is performing and the consumers' evolving, but at the end of the day on a business of our size and the growth opportunity we have, really our growth is more in our hands. An ability to grow awareness, expand distribution, launch exciting products et cetera, et cetera, and the market is what informs of course, our decisions. We think that our growth, given our size and the growth opportunities ahead, we are less impacted whether the market moves up or down on a few number of points. No, that's it. The market remains dynamic.

In terms of the environment as I mentioned, the market remains dynamic, very, very dynamic. Now, it's important to understand that given our size of the business and the growth opportunities we have ahead, yes, we look at the market for it's a point of information on how we held -- the market is performing and the consumers' evolving, but at the end of the day on a business of our size and the growth opportunity we have, really our growth is more in our hands. An ability to grow awareness, expand distribution, launch exciting products et cetera, et cetera, and the market is what informs of course, our decisions. We think that our growth, given our size and the growth opportunities ahead, we are less impacted whether the market moves up or down on a few number of points. No, that's it. The market remains dynamic.

Now, it's important to understand that given our size of the business and the growth opportunities we have ahead, yes, we look at the market for it's a point of information on how we held -- the market is performing and the consumers' evolving, but at the end of the day on a business of our size and the growth opportunity we have, really our growth is more in our hands. An ability to grow awareness, expand distribution, launch exciting products et cetera, et cetera, and the market is what informs of course, our decisions. We think that our growth, given our size and the growth opportunities ahead, we are less impacted whether the market moves up or down on a few number of points. No, that's it. The market remains dynamic.

Important to understand that given our size of the business on the growth opportunities opportunities. We have ahead.

yes, we look at the market for it's a point of information on how we held -- the market is performing and the consumers' evolving, but at the end of the day on a business of our size and the growth opportunity we have, really our growth is more in our hands. An ability to grow awareness, expand distribution, launch exciting products et cetera, et cetera, and the market is what informs of course, our decisions. We think that our growth, given our size and the growth opportunities ahead, we are less impacted whether the market moves up or down on a few number of points. No, that's it. The market remains dynamic.

market is performing and the consumers' evolving, but at the end of the day on a business of our size and the growth opportunity we have, really our growth is more in our hands. An ability to grow awareness, expand distribution, launch exciting products et cetera, et cetera, and the market is what informs of course, our decisions. We think that our growth, given our size and the growth opportunities ahead, we are less impacted whether the market moves up or down on a few number of points. No, that's it. The market remains dynamic.

grow awareness, expand distribution, launch exciting products et cetera, et cetera, and the market is what informs of course, our decisions. We think that our growth, given our size and the growth opportunities ahead, we are less impacted whether the market moves up or down on a few number of points. No, that's it. The market remains dynamic.

the market is what informs of course, our decisions. We think that our growth, given our size and the growth opportunities ahead, we are less impacted whether the market moves up or down on a few number of points. No, that's it. The market remains dynamic.

impacted whether the market moves up or down on a few number of points. No, that's it. The market remains dynamic.

The market remains dynamic.

Michel Brousset: From an M&A standpoint, well we just started. We are a company that officially is about 3.5 months old. We are very focused on making sure that we are delivering against our commitment integration, et cetera. But we're always looking at M&A opportunities. What the great thing about this was, and we have a constant flow of potential opportunity, is that there are more -- there is a significant number of very attractive targets that could be part of the Waldencast platform.

3.5 months old. We are very focused on making sure that we are delivering against our commitment integration, et cetera. But we're always looking at M&A opportunities. What the great thing about this was, and we have a constant flow of potential opportunity, is that there are more -- there is a significant number of very attractive targets that could be part of the Waldencast platform.

We are very focused on making sure that we are delivering against our commitment integration, et cetera. But we're always looking at M&A opportunities. What the great thing about this was, and we have a constant flow of potential opportunity, is that there are more -- there is a significant number of very attractive targets that could be part of the Waldencast platform.

making sure that we are delivering against our commitment integration, et cetera. But we're always looking at M&A opportunities. What the great thing about this was, and we have a constant flow of potential opportunity, is that there are more -- there is a significant number of very attractive targets that could be part of the Waldencast platform.

But we're always looking at M&A opportunities. What the great thing about this was, and we have a constant flow of potential opportunity, is that there are more -- there is a significant number of very attractive targets that could be part of the Waldencast platform.

there is a significant number of very attractive targets that could be part of the Waldencast platform.

Michel Brousset: In terms of the playbook for often M&A, I would say Obagi and Milk are very representative of that playbook. What we want is number one brands. We'll say it's not -- there's a lot of brands that are collections of products that must carry themselves with brands or performance marketing engines that masquerade themselves with brands. We want brands with an emotional tentage meaningful connections with community. In terms of size, we think that there's a range. Again, the table is thirty brands as low as probably around $20 million to $25 million to $200 million. These are brands that already is a proof of concept. They are already coming to a point, especially in beauty where they are about to be or are already profitable and cash generating. And importantly brands that they can -- we can use our platform to grow and expand and drive this profit, so a playbook is very similar. How fast can we jumped into the next one? I don't know. We're looking at great opportunities. There's tons of them out there and we'll pull the trigger when we find the absolute great opportunity to go forward.

The playbook for often M&A I would say <unk> got a very representative default glad to that place where we want this number one brands.

We'll say it's not -- there's a lot of brands that are collections of products that must carry themselves with brands or performance marketing engines that masquerade themselves with brands. We want brands with an emotional tentage meaningful connections with community. In terms of size, we think that there's a range. Again, the table is thirty brands as low as

not -- there's a lot of brands that are collections of products that must carry themselves with brands or performance marketing engines that masquerade themselves with brands. We want brands with an emotional tentage meaningful connections with community. In terms of size, we think that there's a range. Again, the table is thirty brands as low as

collections of products that must carry themselves with brands or performance marketing engines that masquerade themselves with brands. We want brands with an emotional tentage meaningful connections with community. In terms of size, we think that there's a range. Again, the table is thirty brands as low as

In terms of size, we think that there's a range. Again, the table is thirty brands as low as

we think that there's a range. Again, the table is thirty brands as low as

there's a range. Again, the table is thirty brands as low as

brands as low as

probably around $20 million to $25 million to $200 million. These are brands that already is a proof of concept. They are already coming to a point, especially in beauty where they are about to be or are already profitable and cash generating. And importantly brands that they can -- we can use our platform to grow and expand and drive this profit, so a playbook is very similar.

about to be or are already profitable and cash generating. And importantly brands that they can -- we can use our platform to grow and expand and drive this profit, so a playbook is very similar.

use our platform to grow and expand and drive this profit, so a playbook is very similar.

How fast can we jumped into the next one? I don't know. We're looking at great opportunities. There's tons of them out there and we'll pull the trigger when we find the absolute great opportunity to go forward.

pull the trigger when we find the absolute great opportunity to go forward.

to go forward.

Olivia Tong: Great. Thank you.

Yes.

Operator: That does conclude today's questions. I would now like to turn the call over to Michel Brousset for closing remarks.

Michel Brousset: Thank you very much. Well, thank you very much for being with us today. I hope we're very pleased with our Q3 results. As Philippe said and I always said in the previous remarks, we do not manage the business on a quarterly basis. We manage them on an annual basis, but it's important that we view the results in that context. We are very excited about what we're building. We're more excited than ever about the brands, the teams, the prospects that we had and the more we are operating the business is the more opportunities we see for great value creation. We have two leading brands that are uniquely positioned and anchored in the most attractive parts of beauty. And we are building a platform that have that expertise and scale to grow the brands more profitable. So thank you for being with us and appreciate your questions.

I hope we're very pleased with our Q3 results. As Philippe said and I always said in the previous remarks, we do not manage the business on a quarterly basis. We manage them on an annual basis, but it's important that we view the results in that context.

we view the results in that context.

We are very excited about what we're building. We're more excited than ever about the brands, the teams, the prospects that we had and the more we are operating the business is the more opportunities we see for great value creation. We have two leading brands that are uniquely positioned and anchored in the most attractive parts of beauty.

We have two leading brands that are uniquely positioned and anchored in the most attractive parts of beauty.

in the most attractive parts of beauty.

Beauty.

And we are building a platform that have that expertise and scale to grow the brands more profitable. So thank you for being with us and appreciate your questions.

We are building a platform that have that expertise.

and scale to grow the brands more profitable. So thank you for being with us and appreciate your questions.

and appreciate your questions.

Questions.

Operator: Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.

Okay.

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Okay.

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Q3 2022 Waldencast PLC Earnings Call

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