Q2 2023 ODDITY Tech Ltd Earnings Call

August 9, 2023

You may begin.

Thank you operator.

I'm joined by Iran, Haltzman, oddity, cofounder, and CEO and Lindsay Drucker Mann Oddities Global CFO as a reminder, due to the timing of this earnings call, which is within the 25 day quiet period. Following the company's IPO, we will not be taking questions on today's call.

Management's remarks on this call that do not concern past events are forward looking statements. These.

These include predictions expectations or estimates, including statements about <unk> business strategy market opportunity future financial performance and potential long term success.

Forward looking statements involve risks and uncertainties and actual results could differ materially due to a variety of factors. These factors are described under forward looking statements in our earnings press release and in our prospectus filed with the Securities and Exchange Commission on July 18 2023.

We do not undertake any obligation to update forward looking statements, which speak only as of today.

Finally during this call we will discuss certain non-GAAP financial measures, which we believe are useful supplemental measures for understanding our business.

Definitions and reconciliations of these non-GAAP financial measures to their most comparable GAAP measures are included in our earnings press release, we issued today I.

I will now hand, the call over to Iran.

Thank you everyone for joining us today, we are very excited to show second quarter results.

The public company.

And it's only three things that we could go.

So as a public company, we can also in the quarter of financial performance.

<unk> us to raise our 2023 outlook for revenue and profit above our plan.

We generated $161 million with net revenue of 55% increase from last year and $42 million of adjusted EBITDA.

In the second quarter, representing 27, 6% of adjusted EBITDA margin.

These results are above the estimates we issued in our IPO across every metric, including adjusted EBITDA and net income.

We are making very strong progress in our mission.

<unk> to transform the global beauty and wellness markets with technology, and entrepreneurial DNA and we're here to build something huge.

Our technology powered platform unlocking online formats, you've been Super directed thumb by leveraging data science artificial intelligence computer vision, and now biotech to deliver superior products and experiences to our more than 40 million users.

Our model has rapidly scale to what we believe is the largest and most profitable online direct to consumer platform in the industry with our existing powerhouse brands in the market.

Oil child today, and Brent three and four in development to launch in the future.

In order to perform successfully online only we're investing heavily in data science and technology early on and build our ticketing to be the largest assuming the company technology.

Technology continues to be the primary investments loyalty for us today, Although we believe we are already way ahead of our competitors.

We achieved many important milestones during the second quarter that we believe set up for a long runway of top and bottom line growth.

First we made significant progress in the quarter, which include driving revenue growth and market share gains.

Wholesale brands.

Expanding our existing brands into new categories, and continuing to develop new brain tailored for use as a base, which will be connected to the ODP DTC platform.

Second the acquisition of approval and launch of what it was a game changing with shipments for us. During this quarter, we moved aggressively to use pharma grade AI technology to boost the development and expansion of proprietary science backed molecules and product formulation.

We believe ulti labs will change the industry and will be a massive driver for all of you as a company.

And finally with the successful completion of our IPO, we recruited best in class and best partners to join US building, a truly transformational business that compounds long term volume.

Moving on to our business performance net revenue increased 65% in the second quarter driven by growth across brands product categories and markets.

The unprecedented success in school and charges a compelling proof point of the follow up our model and tech platform.

I will try to get to $50 million of order billings in the first 12 months, which we believe makes it the most successful direct to consumer brand launched across any vertical.

The brand became profitable only one year after launch and it will be a nice contributor to EBITDA this year.

<unk> Charles continues to look better than the market in all metrics. Although <unk> is one of the strongest DTC brands in history in terms of scale growth and profitability, yet sportswear looks even stronger.

Drilling into physical product new launches with solid driver of results in the quarter and it's a compelling engine for us into 'twenty three and beyond.

We have an exciting product roadmap across color skin and hair for the rest of 2324.

Our data driven approach and direct to consumer model gives us a powerful advantage.

<unk> product in market and gathering data before officially launching to increase our chances of success.

We're truly launch product for our user base. Unlike other DTC companies launch product and then search for an audience for it.

We already have live in markets that we launched during Q2 for 2024 launches with very encouraging initial funds. We are also making rapid progress on product development based on our proprietary and budget and spending quality less volatile, which I will elaborate shortly.

On technology products, we continue to build and optimize our AI and machine learning model to enable profitable growth and support the user journey.

We made continued progress on our various models that improve repeat rates, we continue to rollout new Virgin walnuts and spoiled brain to enhance bullet commendation.

Introducing improved post purchase models that drive higher IOP improve your economics for first purchase and lifetime revenue.

We continue to build our generated AI capabilities index images video and audio with test across a range of use cases, including customer acquisition and retention.

We continue to make their rapid and meaningful progress in computer vision of a strong team of computer vision scientists and buzzard and vision technology as massive potential for the future. We continue to prioritize focused on two fronts first enhancing our existing technology products and second building new vision to deliver growth.

<unk> diagnostic capabilities in the second quarter, we delivered progress in both of those fronts. We continued integration of vision technology into our existing AAM matching engine.

We made significant progress in the quarter in our new vision tools to both identify and categorize individuals can issue.

These are center capabilities, we are building to support the rollout of brand number three with additional cases for the future.

On the marketing front, we continued to achieve very strong efficiency on marketing spend supporting our attractive revenue growth and strong profitability. We continue to optimize our performance marketing distribution model and we continue to optimize our AD and conversion funded based on high quality data.

We Additionally continue to invest in our brands to drive awareness.

<unk>, our close partnership with the Arsenal Football club was recognized as one of the most successful women's sports partnership in the U K.

As a small child will launch our first TV campaign with switched over 50 million household delivered over 260 million impressions, which help increase brand awareness.

Moving to OLED labs, we closed the acquisition of prevailing April to bring true biotech capabilities and farmers AI based vertical discovery to drive game changing physical product innovation to other categories.

From day, one we want to harness these capabilities to drive the next generation of physical product innovation.

We stood up quality labs opening our research lab in Kendall square, Boston and expanding our team of the highest caliber biogenetic chemists and Phd funded.

<unk> fully operating today with our scientists working hard on our future.

The law is being overseen by myself by Dr. Evans, though and by Dr. Debbie has done well.

<unk> deepened awards on over 10, new molecules to address pressing the pinpoint and unlocks new and massive tons of Oregon.

Finally, we made a very strong progress on our future brand launches drilling brand number three in brand number four which are planned to go longer in 2025.

<unk> the current stages, mainly around <unk>.

<unk> export of developing our computer vision technology that will be the core of the brand.

In addition, we made progress in product development.

My sister and I are spending at least 20% of our time on building brand number three.

Number four we picked the category for the brand.

And we have started building strong teams and begin working on brand positioning within the category.

Let me hand, it to Lindsay Drucker Mann our CFO .

To review, our financial performance and outlook.

Thanks, Ron.

We're pleased with our very strong financial performance in the second quarter, which supports our improved outlook for the third quarter and full year and allows us to raise our fiscal 2023 outlook above plan.

Also pleased that similar to previous years, we were able to deliver at the bulk of our full year objectives in the first half allowance by aggressively fueling profitable growth in the first and second quarters, and thereby enabling us to invest resources and future initiatives in the second half of the year.

Our business continues to deliver at a rare combination of scale growth and profitability in the second quarter delivered on all fronts.

Revenue increased 55% for the quarter to $151 $3 million.

This result is 8% above the midpoint of the $135 million to $145 million preliminary estimates communicated in connection with our IPO.

Revenue growth in the period with a very high quality driven by growth across brands categories and markets.

Our revenue continues to be driven largely by increased orders with nice incremental contribution year over year from spoiled child, which is rapidly scale since its launch in the first quarter of last year.

First half of the year, we increased net revenue by 69% $317 million.

Gross profit increased 60% to $106 $8 million in the quarter and gross margin improved to 76% and 68, 2% in the prior year the.

244 basis point improvement was driven by gross margin improvement Cross brand offer.

Set by negative mix shift from higher contribution a spoiled child to fail.

Year to date, we generated 78% gross margin of 328 basis point improvement from the prior year.

Reported net income was $30 million compared to $16 6 million in the prior year.

Net income margin was 19, 8% adjusted.

Adjusted EBITDA increased 76% to $41 $8 million in the quarter. This is 22% above the midpoint of the $32 million to $37 million preliminary estimates, we communicated in connection with our IPO.

Adjusted EBITDA margin expanded to 27, 6% of sales.

328 basis point improvement versus the prior year.

Adjusted EBITDA growth was largely driven by strong topline growth expanding gross margins and a higher contribution of repeat business to revenue versus the prior year.

We generated $72 million of adjusted EBITDA in the first half of 2023 compared to 35 nine in the prior year period.

Adjusted net income increased 76% to $32 $3 million in the quarter.

Adjusted net income improvement was largely driven by increase in EBITDA.

Weighted average diluted shares were $57 five nine in the quarter and we delivered adjusted diluted earnings per share of 56%.

Our reported diluted earnings per share of 52 facts.

The adjustments to GAAP metrics include $2 $6 million of pretax stock based compensation expense and $300000 of lot of pretax nonrecurring items.

Moving onto the cash flow statement and balance sheet year to date, we generated $76 million of cash from operations and free cash flow of $75 million after capex of $1 million.

244 basis point improvement was driven by gross margin improvement cross brands offset by negative mix shift from higher contribution a spoiled child sale.

Did the quarter with $107 million of cash on our balance sheet and no debt.

Year to date, we generated 78% gross margin a 328 basis point improvement from the prior year.

Turning to our financial outlook on the back of a very strong Q2 results, we're raising our full year 2023 guidance across sales and key profit metrics.

Reported net income was $30 million compared to $16 6 million in the prior year and net income margin was 19, 8% adjust.

This improvement is driven by flowing a portion of the Q2 beat across the full year, while reinvesting some portion of this upside back against the business in the back half for.

Adjusted EBITDA increased 76% to $41 $8 million in the quarter. This is 22% above the midpoint of the $32 million to $37 million preliminary estimates, we communicated in connection with our IPO.

For the full year, we expect net revenue between 475 and $480 million, representing 46% to 48% growth year over year, an improvement from our prior plan for 40% year over year growth.

Adjusted EBITDA margin expanded to 27, 6% of sales.

328 basis point improvement versus the prior year.

Adjusted EBITDA growth was largely driven by strong topline growth expanded gross margins and the higher contribution of repeat business to revenue versus the prior year.

We expect gross margins of around 69, 5%, which is better than the 67, 9% we had built into our prior plan we expect adjusted.

Adjusted EBITDA between 96, and $101 million, representing EBITDA margins between 20, and 21% better than the $91 million, we had expected prior and.

We generated $72 million of adjusted EBITDA in the first half of 2023 compared to $30 5 million in the prior year period.

Adjusted net income increased 76% to $32 $3 million in the quarter.

And adjusted EPS between $1 11, and $1 17, which include the tax rate of around 25% for the full year and diluted shares of around $59 7 million.

Adjusted net income improvement was largely driven by the increase in EBITDA.

Weighted average diluted shares were $57 5 million in the quarter and we delivered adjusted diluted earnings per share of 56% and reported diluted earnings per share of 52.

One note about stock based compensation, we expect to book expense of around $14 million in the third quarter, which is above our run rate expectation for stock based comp going forward and this is due to one time expense associated with accelerated vesting in connection with our IPO.

The adjustments to GAAP metrics include $2 $6 million of pretax stock based compensation expense and $300000 of other pretax nonrecurring items.

Stock based compensation expense is expected to decline in the fourth quarter to approximately $8 million.

Moving on to the cash flow statement and balance sheet year to date, we generated $76 million of cash from operations and free cash flow of $75 million after capex of $1 million we.

We're also introducing guidance for the third quarter of 2023, and you can find details of this guidance in our press release.

With that I'll turn it back to Iran.

We exited the quarter with $107 million of cash on our balance sheet and no debt.

Thanks, Lindsay and thanks, everyone for joining us today, our strong second quarter results demonstrate the powerful model and our growth engine leaves us well positioned to deliver strong financial performance in the future.

Turning to our financial outlook on the back of our very strong Q2 results, we're raising our full year 2023 guidance across sales and key profit metrics.

Business is firing on all cylinders and I've never been more bullish about the future. We are here to change a huge industry, which is operating in the same model for a century.

This improvement is driven by flowing a portion of the <unk> beat across the full year, while reinvesting some portion of this upside back against the business in the back half for.

I'll now hand, it back to the operator.

For the full year, we expect net revenue between 475 and $480 million, representing 46, 48% growth year over year, an improvement from our prior plan for 40% year over year growth.

Thank you for your participation today.

As a reminder, due to the timing of this earnings call, which is within the 25 day quiet period. Following the Companys IPO, we will not be taking questions on today's call.

We expect gross margins of around 69, 5%, which is better than the 67, 9% we built into our prior plan we expect.

And with that this concludes today's teleconference. You may now disconnect your lines at this time.

Adjusted EBITDA between 96, and $101 million, representing EBITDA margins between 20 and 21%.

Better than the $91 million, we had expected prior and adjusted EPS between $1 11, and $1 17, which includes a tax rate of around 25% for the full year and diluted shares of around $59 7 million.

Stock based compensation expense is expected to decline in the fourth quarter to approximately $8 million.

We're also introducing guidance for the third quarter of 2023, and you can find details of this guidance in our press release.

And with that I'll turn it back to Iran.

Thanks, Lindsay and thanks, everyone for joining us today, our strong second quarter results demonstrate the powerful model another growth engine leaves us well positioned to deliver strong financial performance in the future.

Before we get all cylinders and I've never been more bullish about the future. We will have to change the huge industry, which is operating in the same motive for century.

I'll now hand, it back to the old original.

Thank you for your participation today as a reminder, due to the timing of this earnings call, which is within the 25 day quiet period. Following the Companys IPO, we will not be taking questions on today's call.

And with that this concludes today's teleconference. You may now disconnect your lines at this time.

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Good afternoon, and welcome to Oddities second quarter 2023 earnings Conference call.

At this time I'd like to turn the conference over to Maria Lee porous.

Investor Relations for oddity.

You you may begin.

Thank you operator, I'm joined by Iran, Haltzman Oddity, co founder and CEO and Lindsay Drucker Mann Oddities Global CFO as a reminder, due to the timing of this earnings call, which is within the 25 day quiet period. Following the company's IPO, we will not be taking questions on today's call management's remarks on this.

Call that do not concern past events are forward looking statements. These.

These may include predictions expectations or estimates, including statements about our business strategy market opportunity future financial performance and potential long term success.

We do not undertake any obligation to update forward looking statements, which speak only as of today.

Finally during this call we will discuss certain non-GAAP financial measures, which we believe are useful supplemental measures for understanding our business.

Definitions and reconciliations of these non-GAAP financial measures to their most comparable GAAP measures are included in our earnings press release, we issued today.

I will now hand, the call over to Iran.

Thank you everyone for joining us today, we are very excited to show second quarter results in August .

On the call as a public company.

And it's only fitting that we kick off our life as a public company with an outstanding quarter of financial performance the positioned us to raise our 2023 outlook for revenue and profit above our plan.

We generated $151 million with net revenue of 55% increase from last year and $42 million of adjusted EBITDA in the second quarter, representing 27, 6% of adjusted EBITDA margin.

These results are above the estimates we issued in our IPO across every metric, including adjusted EBITDA and net income.

We are making very strong progress in our mission to transform the global beauty and wellness market with technology and entrepreneurial DNA and we're here to build something huge.

Our technology powered platform unlocking online format, we've been constructed by.

By leveraging data science artificial intelligence computer vision, and now biotech to deliver superior products and experiences to our more than 40 million users.

Our model has rapidly scale to what we believe is the largest and most profitable online direct to consumer platform Thats great.

The existing powerhouse brands like you guys had spoiled child today, and Brent three and four in development to launch in the future.

In order to perform successfully online only we're investing heavily in data science and technology and built our ticketing to be the largest do you mean the company <unk>.

Technology continues to be the primary investment priority for us today, Although we believe we are already way ahead of our competitors.

We achieved many important milestones during the second quarter that we believe set up for a long runway, both top and bottom line growth.

But we've made significant progress in the quarter, which include driving revenue growth and market share gains.

Wholesale brand.

Then you've got the existing brands into new categories, and continuing to develop new brands tailored for the user base, which will be connected to the ODP DTC plausible.

Second the acquisition of rebel launch what it was a game changing with shipments for us during this quarter, we moved aggressively to use pharma grade AI technology to boost the development and expansion of proprietary science backed molecules and product formulation.

We believe OTT labs would've changed the industry and will be a massive driver for all of you as a company.

And finally with the successful completion of our IPO, we recruited best in class Investor partner to join US building, a truly transformational business that compounds long term volume.

Moving on to our business performance net revenue increased 55% in the second quarter driven by growth across brands product categories and markets.

The unprecedented success one charges a compelling proof point of the power of our model and tech platform.

I'll try to get to $50 million of order billings in the first 12 months, which we believe makes it the most successful direct to consumer brand loved across any vertical.

The brand became profitable only one year after launch and it will be a nice contributor to EBITDA this year.

Charles continues to look better than <unk> in all.

<unk>.

He is one of the strongest DTC brands in history in terms of scale growth and profitability, yet sportswear looks even stronger.

Drilling into physical product new launches were fully driver of results in the quarter and it's a compelling engine for us into 'twenty three and beyond.

We have an exciting product roadmap, both color and here for the rest of 2024.

Our data driven approach and direct to consumer model gives us a powerful advantage testing product and market them gathering data before officially launching to increase our chances of success.

We are truly launch product for our yogurt base. Unlike other beauty companies launch product and then search for an audience.

We already have live in markets that we launched during the fall of 2024 launches with very encouraging initial thought.

We are also making rapid progress on product development based on now both during and budgets and spending quality less volatile, which I will elaborate shortly.

On technology products, we continue to build and optimize our AI and machine learning model to enable profitable growth and support the journey.

We made continued progress on our various models that improve repeat rates, we continue to rollout new Virgin wrong, that's been spoiled brain to enhanced product implementation.

Producing improved post purchase models that drive higher IOP improve your uneconomic, well first purchase and lifetime revenue.

Turning to build.

Generation of AI capabilities index images video and audio with test across a range of use cases, including customer acquisition and retention.

We continue to make their rapid and meaningful progress in computer vision of a strong team of computer vision scientists and Butler Division technology has massive potential for the future. We continue to prioritize focused on two fronts first.

Enhancing our existing technology product and second building new vision to deliver groundbreaking diagnostic capabilities in the second quarter, we delivered progress in both of those fronts. We continued integration of vision technology into our existing a matching engine we.

We made significant progress in the quarter and our new vision tool to both identify and categorize individuals can issue. These are central capabilities. We are building to support the rollout of brand number three with additional cases for the future.

On the marketing front, we continued to achieve very strong efficiency on marketing spend supporting our attractive revenue growth and strong book to Bill if.

We could do to optimize our performance marketing distribution model and we continue to optimize our Ed and convergent bundles based on high quality data.

We Additionally continued to invest in our brands to drive awareness.

Our close partnership with the goodwill.

Football club was recognized as one of the most successful women's sports partnership in the U K.

It's a small charge we launch our TV campaign, which reached over 50 million household delivered over 260 million impressions, which help increase brand awareness.

Moving to OLED labs, we closed the acquisition of prevailing April to bring true biotech capabilities and AI based vertical discovery to drive game changing physical product innovation to other categories.

From day, one we want to harness these capabilities to drive the next generation of physical product innovation.

We stood up quality lab opening our research in Kendall square, Boston and expanding over time over the highest caliber of Biogen.

And Phd scientists.

The lobby fully operating today with our scientists working hard on our future.

The loss is being overseen by myself by Doctor, even though and by Doctor Debbie done.

We are deeply in the worst on over 10, new molecule to address pressing the pinpoint and unlocks yield and massive dumps fluidity.

Finally, we made very strong progress on our future brand launches growing brand number three in brand number four which are planned to go lock in 2025.

<unk> the current stages, mainly around continued asphalt will developing our computer vision technology that will be the core of the brand.

In addition, we made progress in product development.

My sister.

20% of all the time on building brand number three.

That's from Brandon before we picked the category for the brand.

And we have started building strong teams and begin working on brand positioning within the category.

Let me hand, it to Lindsay Drucker Mann our CFO .

To review, our financial performance and outlook.

Thanks, Ron.

Our business continues to deliver at the rare combination of scale growth and profitability in the second quarter delivered on all fronts.

Revenue increased 55% for the quarter to 151 $3 million.

This result is 8% above the midpoint of the $135 million to $145 million preliminary estimates, we communicated in connection with our IPO.

Revenue growth in the period was a very high quality driven by growth across brands categories and markets.

Our revenue continues to be driven largely by increased orders with nice incremental contribution year over year from spoiled child, which is rapidly scale launch in the first quarter of last year for the <unk>.

First half of the year, we increased net revenue by 69% $317 million.

Gross profit increased 60% to $106 $8 million in the quarter and gross margin improved to 76% from 68, 2% in the prior year.

The 244 basis point improvement was driven by gross margin improvement cross brands offset by negative mix shift from higher contribution a spoiled child sales.

Year to date, we generated 78% gross margin is 328 basis point improvement from the prior year.

Reported net income was $30 million compared to $16 6 million in the prior year and net income margin was 19, 8%.

Adjusted EBITDA increased 76% to $41 $8 million in the quarter. This is 22% above the midpoint of the $32 million to $37 million preliminary estimates, we communicated in connection with our IPO.

Adjusted EBITDA margin expanded to 27, 6% of sales.

328 basis point improvement versus the prior year.

Adjusted EBITDA growth was largely driven by strong topline growth expanding gross margins and the higher contribution of repeat business to revenue versus the prior year.

We generated $72 million of adjusted EBITDA in the first half of 2023 compared to $30 five nine in the prior year period.

Adjusted net income increased 76% to $32 $3 million in the quarter.

Adjusted net income improvement was largely driven by increase in EBITDA.

Average diluted shares were $57 five nine in the quarter and we delivered adjusted diluted earnings per share of 56% and reported diluted earnings per share of 52.

The adjustments to GAAP metrics include $2 $6 million of pretax stock based compensation expense and $300000 of other pretax nonrecurring items.

Moving on to the cash flow statement and balance sheet year to date, we generated $76 million of cash from operations and free cash flow of $75 million after capex of $1 million we.

We exited the quarter with $107 million of cash on our balance sheet and no debt.

Turning to our financial outlook on the back of our very strong Q2 results, we're raising our full year 2023 guidance across sales and key profit metrics.

This improvement is driven by flowing a portion of the Q2 beat across the full year, while reinvesting some portion of this upside back against the business in the back half for.

For the full year, we expect net revenues between 475 and $480 million, representing 46, 48% growth year over year, an improvement from our prior plan for 40% year over year growth we.

<unk> gross margins of around 69, 5%, which is better than the 67, 9% we had built into our prior plan.

We expect adjusted EBITDA between 96, and $101 million, representing EBITDA margins between 20 and 21%.

Better than the $91 million, we had expected prior and.

And adjusted EPS between $1 11, and $1 17, which includes the tax rate of around 25% for the full year and diluted shares of around $59 7 million.

Stock based compensation expense is expected to decline in the fourth quarter to approximately $8 million.

We're also introducing guidance for the third quarter of 2023, and you can find details of this guidance in our press release.

With that I'll turn it back to Iran.

Thanks, Lindsay and thanks to everyone for joining us today, our strong second quarter results demonstrate the powerful model and our growth engine leaves us well positioned to deliver strong financial performance in the future.

Business is firing in all cylinders and I've never been more bullish about the future. We are here to change a huge industry, which is operating in the same motives for a century.

I'll now hand, it back to the operator.

Thank you for your participation today.

As a reminder, due to the timing of this earnings call, which is within the 25 day quiet period. Following the Companys IPO, we will not be taking questions on today's call.

And with that this concludes today's teleconference. You may now disconnect your lines at this time.

Q2 2023 ODDITY Tech Ltd Earnings Call

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