Q1 2024 Oddity Tech Ltd Earnings Call
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Good morning, and welcome to all of these first quarter 2024 earnings Conference call. Today's call is being recorded and we have allocated time for prepared remarks and Q&A at this time I'd like to turn the conference over to Maria and of course Investor Relations for oddity. Thank you you may begin.
Operator: Good morning, and welcome to ODDITY's first quarter 2024 earnings conference call. Today's call is being recorded, and we have allocated time for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Maria Lycouris, Investor Relations, for ODDITY. Thank you, you may begin.
Speaker Change: Uh huh.
Maria Lycouris: Thank you, operator. I'm joined by Oran Holtzman, ODDITY's co-founder and CEO, Lindsey Drucker-Mann, ODDITY's global CFO, and Dr. Evan Zhao, ODDITY's chief science officer. As a reminder, management's remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations, or estimates, including statements about ODDITY's 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.
Maria: Thank you operator, I'm joined by Ron Holtzman, Oddities co founder and CEO Lindsay Drucker Mann Oddities Global CFO and Doctor Evans, Our Chief Science Officer.
Maria: As a reminder, management's remarks on this call, but you're not concerned past events are forward looking statements. These may include predictions expectations or estimates.
Maria: Leading statements about <unk> business strategy market opportunity future financial performance and potential long term success.
Maria: Forward looking statements involve risks and uncertainties and actual results could differ materially due to a variety of factors.
Maria Lycouris: These factors are described in forward-looking statements in our earnings press release issued yesterday and in our annual report on Form 20-F filed with the Securities and Exchange Commission on March 6, 2024. 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. Additional information about these non-GAAP financial measures, including their definitions, is included in our earnings press release, which we issued yesterday. I will now hand the call over to Oran.
Maria: These factors are described under forward looking statements in our earnings press release issued yesterday and our annual report on form 20-F filed with the screens and Exchange Commission on March six 2024.
Maria: We do not undertake any obligation to update forward looking statements, which speak only as of today.
Maria: During this call, we'll discuss certain non-GAAP financial measures, which we believe are useful supplemental measures for understanding our business.
Maria: Additional information about these non-GAAP financial measures, including their definitions are included in our earnings press release, which we issued yesterday.
Maria: I'll now hand, the call over to Iran.
Iran: Thanks, everyone for joining us today.
Oran Holtzman: Thanks, everyone, for joining us today. The first quarter was once again another record-breaking quarter for us. We achieved massive scale online, growing revenue 28% to $212 million, and we did it very profitably with a 23% adjusted EBITDA margin, generating $79 million of free cash flow, a massive record case generation quarter. We continue to deliver above our plan, beating our guidance for the first quarter on every matter. This is what we have done every single quarter since we went public and every single quarter, even before that, as a private company.
Iran: The first quarter was once again another record breaking quarter for world. We achieved massive scale of line growing revenue, 28% to $212 million and we did it very profitably.
Iran: 23% adjusted EBITDA margin generating $79 million free cash flow.
Iran: And that's two record cash generation quarter, we continued to deliver above our plan and beating our guidance for the first quarter on every metric. This is what we have done every single quarter. Since we went public in every single quarter, even before that as a private company.
Oran Holtzman: During our IPO last summer, many investors told us that they had concerns that we would not be able to match our enormous revenue performance in Q1 2023, where we grew more than 80%. And we try to explain why we had full confidence in our ability to continue to grow on top of it. Now, we are here today after growing 28% against that quarter, and we achieved it with a record profit margin. It is another proof that the demand online for beauty is very high and that our platform allows us to capture this demand and enable profitable growth.
Iran: During our IPO last summer my name's vessels told us that they had concerns that we would not be able to lap our enormous revenue performance in Q1, 2023, where we grew more than 80%.
Iran: And we tried to explain why we had confidence in our ability to continue to grow on top of it.
Iran: No. We are here today after growing 28% against that quarter, and we achieved record profit margin.
Iran: It is another proof that the demand on line for beauty is very high and that our platform allow us to capture demand and enable profitable growth.
Oran Holtzman: I will provide a few data points that show the demand and the strength of our platform. Q1 2024 revenue is more than double our revenue for the first quarter three years ago. In Q1 2024, with $212 million in revenue, we delivered almost the same amount of revenue that we delivered for the full year of 2021. And Q1 2024 is more than double our revenue for Q4 2023, just a quarter before it. We have shown once again that we can power our business up and down on a dime, a huge advantage for us and something almost no other business can do. We are in full control of our growth space.
Iran: I will provide a few data points that show that the demand and the strength of both logical.
Iran: Q1, 2024 revenue is more than double our revenue for the first quarter two years ago.
Iran: Q1, 'twenty 'twenty four with $212 million revenue, we delivered almost the same amount of revenue that we deliver for the full year 2021.
Iran: And Q1, 'twenty 'twenty four more than double our revenue for Q4, 'twenty Green Jug.
Iran: Water before it.
Iran: We have shown once again, but we can follow up and down on a dime a huge advantage for us and something almost no. Other big that's going to do we are in full control of forward growth space.
Oran Holtzman: This efficiency is what makes our model so attractive and profitable. And even with this growth, we don't see a ceiling. In my view, we haven't even come close to reaching our limit.
Iran: This efficiency is what makes them a modest sort Brexit even profitable and even with this growth we don't see a ceiling.
Iran: In my view, we didn't even come close to reaching a limit and it is our strategy to ensure very strong profitable cash flow growth for many years to come.
Oran Holtzman: And this is our strategy to ensure very strong, profitable cash flow growth for many years to come. With the huge success of Q1 and the great results we have already seen in Q2 so far, we are even more confident in our outlook for the full year and raising our guidance on revenue, profit, and earnings per share for 2025. I would like to take a moment to touch on our industry. Over the last couple of months, we have heard some of our competitors talk about their business slowing.
Iran: With a huge success with Q1 and the great results, we have already seen in Q2. So far we are even more confident in our outlook for the full year and raising guidance on revenue profit and earnings per share what 'twenty 'twenty four.
Iran: I would like to take a moment to touch on other industry.
Iran: But the last couple of months, we have had some about the talk about that'd be the slowing I want to be clear, we don't see any signs of slowing down in our platform.
Oran Holtzman: I want to be clear, we don't see any signs of slowing down in our platform, not in new users and not in existing user behavior. What we do see is that the industry is transforming, moving online and moving to science-backed products. This is a transformation that ODDITY is leading and investing a lot behind it. To win in both, we believe our investment will allow us to continue winning for the long term.
Iran: The new users and not an existing user behavior.
Iran: What we do see is that the industry is transforming moving online and moving to science backed product.
Iran: This is a transformation that told us they need and investing a lot behind it.
Iran: Winning boat, we believe our investments will allow us to continue winning for the long term.
Iran: All the data and massive investment in our future gives us high confidence in our long term financial targets of more than 20% revenue growth and 20% adjusted EBITDA margin.
Oran Holtzman: Our data and massive investments in our future give us high confidence in our long-term financial targets of more than 20% revenue growth and 20% adjusted EBITDA margin. Our results in 2024 will be even stronger than this, and Lindsay will explain.
Iran: Our results in 'twenty 'twenty, four will be even stronger than this and Lindsay will explain to them.
Iran: This makes the ODT a real outlier in our industry right three to four times faster than our main competitors, which means we are taking market share and strengthening our competitive advantage everything.
Oran Holtzman: This makes ODDITY a real outlier in our industry, growing three to four times faster than our main competitors, which means we are taking market share and strengthening our competitive advantage every day. Our Rule of 40 Growth Algorithm is among the best that exist in consumer and tech businesses, and it's a function of three powerful drivers. First, we are competing on a massive global scale with great Nordic economies that work online while still being dominated by offline companies.
Iran: Our rule of 40 growth algorithm is among the best that the existing consumer and tech businesses and it's a function of street probably flew drivers.
Iran: But we are competing in a massive global them with great unit economics that work online, while still being dominated by offering something.
Oran Holtzman: Second, our huge technological advantage over incumbents who are behind the curve allows us to win in the online arena, which we believe is the most important channel of the future and will make up at least 50% of the world. Third, we have proven again and again that our platform is a scaling machine. It's the power of our more than 50 million users and over 2 billion data points that we have already acquired in the past five years.
Iran: Second, although a huge technology advantage over incumbent well behind the curve allow us to win in the online arena, which we believe is the most important channel over the future and will make up at least 50% of the market.
Iran: We have proven again and again, but our platform is a scaling machine.
Iran: The bowl falling more than 50 million users and over 2 billion data points that we've already acquired and the best five years discover.
Oran Holtzman: This combination of data, technology, and categories with high online demand has enabled us to consistently win across the board. It only took us a few years to scale Il Makiash to be what we believe is the largest online beauty brand in North America. We scaled our second brand, Spoiled Child, to be the most successful D2C brand launch of all time, grossing $100 million in revenue profitably in less than two years. Also, in just two years, we scaled Ilmak Yaskin to be 20% of the brand revenue in 2023, and we expect it to scale further to be 25% of the brand revenue in 2024. It is 25% of a massive base due to our existing color base.
Iran: This combination of data technology and category, we would tie online do band, it's enabled us to consistently win across the board.
Iran: It took us a few years scaling like yes to be what we believe is the largest online beauty brand in North America, we scaled our second brand spoilage try to be the most successful brand launch of all time crossing 100 million dogs in revenue.
Iran: And let them to yours.
Iran: Also in just two years, we scale you know, Mike you're asking to be 20% of the brand revenue in 'twenty, three and three and we expect it to scale further to be 25% of the brand revenue in 'twenty four it is 25% and Matthew Utah.
Iran: Utah existing calibrate that.
Oran Holtzman: Our powerhouse brands, Il Makiage and Spoiled Child, both had very strong results in the first quarter, and both are on track to my goal, which is $1 billion for each brand. We will scale new brands and new categories in our future. Brands 3 and 4 are being built in two large categories in beauty and wellness. We believe the opportunity is massive for each of them, and we are spending a lot of time and focus to make sure we'll capture this massive opportunity.
Iran: Our powerhouse brands you know Maquillage, it's boiled child, both had very strong results in the first quarter and bolt on trucks, who might go which is $1 billion for each brand.
Iran: We're at scale in your brand and your categories didn't know if mature brands three and four are being built in two large category building. What we believe the opportunity is massive for each of them and we are spending a lot of time and focus to make sure. We will capture this massive opportunity.
Oran Holtzman: After addressing the current trends in beauty, I want to touch on a point that many people are worried about, which is the viability of the D2C model. As we all have seen, for most D2C businesses, the more they scale, the harder and more expensive it is for them to grow. But for us, it's the opposite. The more we scale, the easier growth becomes for us. This is for two main reasons. One, because we are going with so much repetition, and that repetition compounds.
Iran: After a cresting the corn trends in beauty I want to touch on a point that many people are worried about which is the viability of the D to C model.
Iran: As we all have seen but most people see it the.
Iran: The modest scale, they're harder and more expensive it is for them to grow but for us he's dealt with it the more we scale the easier growth becomes for US. This is for two main reasons, one because we are going with so much repeat and repeat compounds repeat all the hospital are still best year and it will be even a greater portion.
Oran Holtzman: Repeat was over half of ourselves last year, and it will be an even greater portion of ourselves this year. Two, because we know so much about our users, we are able to build brands and products that we know they want and build the machine learning models to put those new brands and products in front of those users. Higher skills mean more data, which means better conversion, and greater show quality. Let me give you one example of this with Il Makiage.
Iran: So this year.
Iran: Cool because we know so much about other users to be able to build brands and products that we know what they want and built the machine learning model to put those new brands and products in front of those users.
Iran: Scale means more data means better conversion and greater scale.
Iran: Let me give you. One example of people getting back yes.
Oran Holtzman: Our customers will start with us in color, but then they try skin, shop more than twice as frequently, and spend more than twice as much with us over the next 12 months. This is the magic of offering multiple products to the same user base while leveraging data and a clear example of how our platform allows us to gain share of quality. This is why we deliver one of the best margin profiles across all D2C, even as we continue to scale and invest in future growth. So, while many other D2C businesses rely on external capital to grow, we do the opposite. We have a cash balance of $252 million, of which we generated zero debt.
Iran: <unk>, who started with us any color, but then they try it can show up more than twice as frequently and spend more than twice as much over the next 12 months. This is the magic offering multiple products into the same user base, while leveraging the data and the clearest example will follow a platform allow us to gain shelf wallets.
Iran: This is why we didn't leave it one of the best margin profiles across all D to C. Even as we continue to scale and invest in future growth.
Iran: So while many other little businesses rely on external capital to grow we do the opposite we have a cash balance of $252 million, which regenerate that zero debt.
Oran Holtzman: We did 23% of EBITDA margin and generated almost $80 million of free cash flow in Q1 alone. So to summarize, we are very pleased with how we delivered in Q1 and have total confidence in achieving our plans for the full year. But, as I've said many times previously, what is most important is our future. We do not rest and enjoy the massive margin of profit and high growth. We are executing a long-term plan with huge investments across current and new brands, technology, vision, and, of course, ODDITY Lab, where we are growing the teams massively as we speak, and other domains to ensure we continue to win and build a large-scale company. With that, I will hand it to Linda. Thanks, Oran.
Iran: We did 23% of EBITDA margin that generated almost $88 million of free cash flow in Q1 alone.
Iran: So to summarize we are very pleased with how we delivered in Q1 and its total confidence in achieving our plans well definitely do.
Iran: But as I've said many times previously what is most important future.
Iran: We do not dressed and enjoy domestic margin and high growth. We are executing a long term plan with huge investments across current and new brand technology vision and of course, what is the lab will be a grind. It seems the message there as we speak and other domains to ensure we continue to win and build a large cap company with that I will hand it to it.
Lindsay Drucker Mann: Thanks, Oran. Let's turn to our Q124 result, which I will refer to on an adjusted basis. You can find the full reconciliation to GAP in our press release. ODDITY delivered a record-breaking first quarter across the board. We grew net revenue by 28%, to $212 million. This strength was driven by both ill maquillage and spoiled children across a wide range of product categories.
Speaker Change: Thanks, Ron let's turn to our Q1, 'twenty four result, which I'll refer to on an adjusted basis you can find a full reconciliation to GAAP in our press release.
Speaker Change: Does he delivered a record breaking first quarter across the board. We grew net revenue by 28% to $212 million. This strength was driven by both Yamaki eyes, and spoiled child across a wide range of product categories.
Lindsay Drucker Mann: Last year, we talked at length about the huge preparations our teams were making to ensure we have many ways to grow in 2024, many different levers to pull, and everything tested and ready to go. And we immediately saw the benefit of this preparation as we entered the year. We quickly began to deliver results ahead of our plan. This very strong start to the quarter allowed us to once again slow the business down with full control in order to pace our growth.
Speaker Change: Last year, we talked at length about the huge preparations our teams were making to ensure we have many ways to grow in 2020 for many different levers to pull everything tested and ready to go and we immediately saw the benefit from this preparation as we entered the year. We quickly began to deliver results ahead of our plan. This is a very strong start to the quarter allowed us to.
Speaker Change: Once again slow the business down with full control in order to pace our growth.
Lindsay Drucker Mann: As is always the case for us, there were no single drivers of our strength but a combination of so many improvements across our entire business. Just a few examples from the first quarter include getting even better at acquisition and retention, using data and our tech to segment customers, deliver personalized marketing campaigns, and curated experiences to drive a number of our KPIs. Our expanded product portfolio, which Oran mentioned, allowed us to do an even better job meeting user demand at very attractive contribution margins, and Continued Integration of Computer Vision into Product Matching and Recommendation Models. These are just to name a few examples.
Speaker Change: As is always the case for US there were no single drivers of our strength, but a combination of so many improvements across our entire business. Just a few examples from the first quarter include getting even better and our acquisition and retention using data in our Tac to segment customers deliver personalized marketing campaigns and curated experiences to dry.
Speaker Change: A number of our Kpis.
Speaker Change: Our expanded product portfolio, which Ron mentioned it allowed us to do an even better job meeting user demand at very attractive contribution margin and.
Speaker Change: And continued integration of computer vision into product matching and recommendation models. These are just to name a few examples.
Lindsay Drucker Mann: Moving down, the P&L gross margin of 73.8% expanded by 284 basis points in the quarter. The gross margin beat versus our guidance was driven by specific supply chain and logistics efficiency initiatives at both brands. We delivered adjusted EBITDA of $48 million for the quarter. Adjusted EBITDA margin of 22.7%, expanded 559 basis points from the prior year, driven by gross margin expansion and a higher mix of repeats, offset by increased investment in future growth drivers.
Speaker Change: Moving down the P&L gross margin of 73, 8% expanded 284 basis points in the quarter.
Speaker Change: Margin beat versus our guidance was driven by specific supply chain and logistics efficiency initiatives at both brands.
Speaker Change: We delivered adjusted EBITDA of $48 million for the quarter adjusted EBITDA margin of 22, 7% expanded 559 basis points from the prior year driven by gross margin expansion and a higher mix of repeat offset by increased investment in future growth drivers.
Lindsay Drucker Mann: Adjusted diluted earnings per share was $0.61 and reported diluted earnings per share was $0.53 in the period. We delivered very strong free cash generation of $79 million in the quarter, powered by our AssetLight model and very strong returns on capital. And we exited the quarter with $252 million of cash equivalents and investments on our balance sheet and zero debt.
Speaker Change: Adjusted diluted earnings per share was 61 cents and reported diluted earnings per share was 53 cents in the period.
Speaker Change: We delivered very strong free cash generation of $79 million in the quarter powered by our asset light model and very strong returns on capital and we exited the quarter with $252 million of cash equivalents and investments on our balance sheet and zero debt.
Lindsay Drucker Mann: Turning to our outlook, we remain committed to our targets of 20% plus revenue growth at a 20% adjusted EBITDA margin over the long term. In 2024, specifically, with our very strong start to the year, we expect to do even better than these long-term targets. We expect net revenue growth between $626 and $635 million, which represents 23-25% year-over-year growth. We expect to deliver a 71% gross margin for the full year. And we expect to deliver adjusted EBITDA between $139 and $143 million, including a significant step up in growth investments, such as labs and our new brand.
Speaker Change: Turning to our outlook, we remain committed to our target of 20% plus revenue growth at a 20% adjusted EBITDA margin over the long term.
Speaker Change: In 2024, specifically with our very strong start to the year, we expect to do even better than these long term targets.
Speaker Change: We expect net revenue growth between 626 and $635 million.
Speaker Change: Presents 23% to 25% year over year grass.
Speaker Change: We expect to deliver 71% gross margin for the full year and we expect to deliver adjusted EBITDA between 139, and $143 million, including a significant step up in growth investments such as labs, and our new brands.
Lindsay Drucker Mann: We now expect the timing of these growth investments to have a greater negative impact on EBITDA margin in the back half of the year versus the second quarter, when EBITDA margin is expected to expand. We expect full-year adjusted diluted earnings per share will be between $1.57 and $1.62.
Speaker Change: We now expect the timing of these growth investments to have a greater negative impact on EBITDA margin in the back half of the year versus the second quarter, where EBITDA margin is expected to expand.
Speaker Change: We expect full year adjusted diluted earnings per share will be between $1 57, and $1 62.
Lindsay Drucker Mann: Turning to the second quarter, the strong business results we saw in the first quarter continued into April and so far in May. We are very pleased with the rate of our growth across both brands, multiple categories, and with first orders in return. We continue to be very disciplined in managing our rate of growth and are proactively slowing our business down so that we do not over-deliver on our revenue and profit objectives.
Speaker Change: Turning to the second quarter the strong business results. We saw in the first quarter continued into April and so far in May we're very pleased with the complexion of our growth across both brands multiple categories and with first orders and repeat we continue to be very disciplined in managing our rate of growth and are proactively slowing our business down so that we do.
Speaker Change: Not over deliver on our revenue and profit objectives gives.
Lindsay Drucker Mann: Given the very strong start, we expect Q2 net sales to be between $185 and $189 million, or 22 to 25% revenue growth. You can find more details on our second quarter outlook in the press. And with that, Operator, we're ready to take questions. We also have Dr. Evan Zhao on the line to answer questions about labs.
Speaker Change: Given the very strong start we expect Q2 net sales will be between 185 at $189 million or 22% to 25% revenue growth you can find more details on our second quarter outlook in our press release.
Speaker Change: And with that operator, we're ready to take questions. We also have Dr. Evans out on the line to answer questions on labs.
Speaker Change: Thank you.
Operator: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue, please press star 2. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is from Dara Mohsenian with Morgan Stanley.
Speaker Change: At this time, we will be conducting a question and answer session. He would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Information tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue. Please press star two.
Speaker Change: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question is from Durham months, excuse me Darren on <unk> with Morgan Stanley.
Darren: Hi, guys.
Dara Mohsenian: Thanks guys. Can you give us an update on the lab side and molecule development and what you're expecting in terms of commercialization for the rest of this year and then looking out to next year? And then also, just a couple months later after the last earnings call, can you give us an update on any... Plans for Brands 3 and 4 and any more insight you can give us there. Has anything changed on that front? And then I'll come back with one more question.
Darren: Can you give us an update on the lab side and molecule development and what Youre expecting in terms of commercialization in the rest of this year and then looking out to next year.
Darren: And then also just a couple of months later after the last earnings call can you give us an update on any.
Darren: Plans for brands, three and four and any more insight you can give us there has anything changed on that front and then I'll come back with one more question if that's okay.
Darren: Sure.
Oran Holtzman: Hi Dara, Oran Holtzman. Thanks for the question. For those who don't remember, OIT labs use the same technology being deployed in pharma to develop higher efficacy molecules. I view the opportunity as endless. This is why we spend so much time around it. We are building systems, growing teams, investing a lot in the infrastructure. It takes more time than I initially projected.
Dara: Hi, Dara almost one.
Dara: Thanks for the question and for those who don't remember Boise labs use the same technology being deployed in pharma to develop iOS because the molecules.
Dara: I view the opportunity is endless and this is why we spent so much time around it.
Speaker Change: Well building system, we go to the teams we invest a lot in the infrastructure. It takes more time to time initially projected it is really hard but you know also building for decades with that six years ago. It was really tough for us and but.
Oran Holtzman: It is really hard, but also building the tech in Israel six years ago was really tough for us, but we made it. It will continue to be an investment for the next three years, and we will never launch a single product from the lab without being 100% sure about its efficacy and safety. In terms of product range, range of categories, including skin, especially for brand three, color, and hair, and many other things that we are working on now, we are working with a team to ensure we have the capacity to support our pipeline and to ensure we are delivering the highest efficacy product.
Speaker Change: But we made it it was.
Speaker Change: It continues to be an investment in the next three years and we will never launching single product from lab without being 100% sure about its efficacy and safety in terms of product range and range of categories, including skin, especially goes Brent green colored in head and and and and and many other things that field work you'll know.
Speaker Change: We are working with the team to ensure we have the capacity to support our pipeline and to ensure we are delivering the highest efficacy product. It means that we need them.
Speaker Change: To transition from their research loved the factory output model and this is what we do as we speak.
Oran Holtzman: It means we need to transition from a research lab to a factory output model, and this is what we are doing as we speak. To achieve this goal, we are focusing on two things. Number one is massive recruitment, and number two is building a full operating system with process and control. In terms of recruitment, bioengineering and chemistry teams are where we spend most of our recruitment focus. Those are the teams that are doing the research and running the actual lab work as an in vitro molecule screening to develop the molecules.
Speaker Change: To achieve this goal we are focusing on two things number one is messy recruitment and number two is building a full operating system with processing control and in terms of recruitment being value engineering and chemistry team, Oh, where we spend most of our recruitment focus those other teams that are doing the research and running the actual live work ethic.
Speaker Change: In vitro molecule screening to develop the molecule.
Oran Holtzman: We plan to grow the team to 75 to 100 people, mostly PhDs, in the next 12 months. The second area where we focus a lot is building methodology and sanitization, a complete system to ensure we maintain the highest standards and quality as we scale. We are adding protocols.
Speaker Change: We plan to grow that team 275 to 100 people most of them.
Speaker Change: 12 months second area, where we focused a lot is building, but not only that methodology and third position.
Speaker Change: The complete system to ensure and we remain the highest standards and quality as we scale.
Speaker Change: Well it didn't go up because we are building something again very deep there to make sure that we can get it up and but at the same time, we're not lettings M M quality and be a secondary and we are.
Oran Holtzman: We are building something very deep to make sure we can scale it up, but at the same time, we are not letting quality be secondary. We are adding a lot of systems. My sister and I do it almost every month.
Speaker Change: Adding a lot of systems, my sister and I do almost every month.
Oran Holtzman: It's not easy. I fully believe in it, but it requires a lot of work and building it properly. We never tried to do something that was easy. We never followed any playbook.
Speaker Change: And it's not easy I fully believe in it but it was quite a lot of work and tablet properly.
Oran Holtzman: But.
Speaker Change: You know like we never try to do something that's easy whenever full of any any playbook and when we started to build and detect them in and the data usage in Tel Aviv, and we didn't have any playbook, there and we started from scratch at the beginning of cool stuff. It's the same here.
Oran Holtzman: When we started to build the tech team and data usage in Tel Aviv, we didn't have a playbook there. We started from scratch. In the beginning, it was tough.
Oran Holtzman: It's the same here, but we already have products that are ready to go. Since we don't need growth in this quarter, we are improving them again and again and using them as use cases to shape the system and to build something that actually works at scale. I'm very pleased with where we are today. Again, it takes more time.
Oran Holtzman: But we already have products that are ready to go and since we don't need the growth in like in this quarter, we are improving again, and again and using them as use cases and to shape the system and to build something that actually work.
Oran Holtzman: Scale and so I'm very pleased with where we are today again it takes more time I feel very calm.
Oran Holtzman: I feel very confident that we'll make it, but thank God, as I said in the previous calls, it will be our number one focus, but we don't need it for near-term growth. The second question is about brands three and four. Brand three, as a reminder, is a medical-grade skin and body brand. Issues like acne, eczema, and other skin issues are huge pain points for our users, and the majority of them tell us they are unsatisfied with the current solution. In my view, the user experience out there is really bad.
Oran Holtzman: He then that will make it yeah, but then you've got as I said in the previous calls like it will be our number one focus but it's what we don't need it and pull that Neil and growth.
Oran Holtzman: The second question is Brent Brent Brent floor.
Oran Holtzman: Brian three.
Oran Holtzman: As a reminder, if somebody goes great skin and body brand issues like acne eczema and other skin issues are huge grain ports of all the users and the majority of them tell us they're unsatisfied with of course solution and in my view the user experience outdoor is really bad with Brent worry. We are building an end to end solution that position us.
Oran Holtzman: With brand three, we are building an end-to-end solution that positions us to win, in my view. This includes a platform that uses data, machine learning, and computer vision to deliver diagnosis, and precise treatment and coaching to ensure compliance and success. As with where we are today, the team is being built. We have a strong CEO for brand three, Tom Amsterdam, who already has a large team. We completed a brand three branding process with a defined identity and brand name that is already on track.
Oran Holtzman: To win in my view. This includes plus one that uses data machine learning and computer vision to deliver a diagnosis.
Oran Holtzman: Precise treatment and coaching to ensure compliance and success as well we are today. The team is being built we have a strong CEO for Brent Dream Donut. Saddam was already has a large team we completed three blending process and.
Oran Holtzman: Defined identity and brand name not like that is already on truck and physical product flying development of wide range of products across OTC.
Oran Holtzman: The product is in place in terms of vision technology for the diagnosis and treatment tracking we are working.
Oran Holtzman: Physical products; development of a wide range of products across OTC and prescription products is in place. In terms of vision technology for diagnosis and treatment tracking, we have been working on that front for the past two years and building machine learning vision capabilities for accident diagnosis, including severity, localization, and classification. We have already built an algorithm that can classify severity with 86 percent accuracy, and we are improving localization accuracy from 77 percent to 90 percent. Again, this is another domain that doesn't exist in the market. We are building something from scratch. When we started two years ago, working on machine learning, it was really tough.
Oran Holtzman: On that front for the past two years and building a machine learning vision capabilities for our Canadian adult cystic length severity and localization of electrification. We have already built algorithms that can classified severity with 86% accuracy and we're currently bobbing blessing on localization and viewership up 77% to 90% again.
Oran Holtzman: Other demand that doesn't exist in the market. We are building something from scratch. When we started two years ago like working on those machine learning like it was really tough because it's very hard to get and like likes to get a read them, but we already have machines in place ready to go with very high accuracy. So those things take time, but we believe that.
Oran Holtzman: It was very hard to get a read, but we already have machines in place, ready to go with very high accuracy. Those things take time, but we believe that brand three will be massive. As for the timeline, no change. We still plan to launch it.
Oran Holtzman: We will be massive that's what timeline no change still the plan.
Oran Holtzman: To launch it next year.
Oran Holtzman: Okay.
Speaker Change: Right. That's helpful. And then Lindsey can you just give us a little more insight on the revenue upside in the quarter, where did you come in better than expected at the brand level in terms of your backyard versus spoiled child or skin versus color or however, you break it out.
Lindsay Drucker Mann: Great, that's helpful. And then, Lindsay, could you just give us a little more insight on the revenue upside in the quarter? Where did you come in better than expected at the brand level in terms of ill-makage versus spoiled child or skin versus color, however you break it out? And was the upside more existing customer or new customers? Just basically looking for a bit more insight under the hood there and then implications in terms of the way you think about the business, to that Q1 upside for a wrap. Thanks, Dara.
Lindsay Drucker Mann: And what's the upside more existing customer upside or new customers, just basically looking for a bit more insight under the hood. There and then implications in terms of the way you think about the business and balance of the year after that Q1 upside from a revenue perspective. Thanks.
Lindsay Drucker Mann: As Oran talked about in his prepared remarks, and I mentioned as well, we're running the business well below its actual potential based on the demand we see and the strong returns we're able to get on our spending. And as a result, we're delivering very, very strong revenue growth, but we could be growing more than that. And we actually saw that very visibly when we started the year. So we basically went from no investment in new user acquisition in January, and the team came out swinging really strong.
Speaker Change: Great. Thanks, Sarah so [laughter] and around talking about in the prepared remarks.
Lindsay Drucker Mann: And as well.
Lindsay Drucker Mann: We're running the business well below its actual potential based on the demand we see in the strong returns we're able to get on our on our spending and as a result, you know we're delivering very strong revenue growth, but we could be growing more than that and we actually saw that very visibly when we started the year. So we basically went from.
Lindsay Drucker Mann: No investments in new user acquisition in January the team came out swinging really strong we very quickly started to see our revenue pace.
Lindsay Drucker Mann: We very quickly started to see our revenue pace increase relative to the 4Q run rate, and then we also very quickly started tracking ahead of our plan. And after that, we started to slow the business down again, and you guys are used to us doing that by now.
Lindsay Drucker Mann: Increase relative to what your run rate and then we also very quickly started tracking ahead of our plan.
Lindsay Drucker Mann: And after that we started to slow the business down again, and you guys are used to us doing that by now.
Lindsay Drucker Mann: But you know, we we always want to make sure we're delivering guidance objective that we know are.
Lindsay Drucker Mann: But we always want to make sure we're delivering guidance objectives that we know are things that we feel with very high conviction that we'll be able to achieve and that feel bulletproof to us. And so we felt strong confidence we'd be able to hit the targets of 23 to 25%. We came in a touch above. We talked about last quarter that our plan was to really land the plane on what we were delivering versus our guidance, so you would not see big beats, huge beats, outside beats the way we delivered last year. We want to really, really land the plane.
Lindsay Drucker Mann: I think that we feel with very high conviction that we'll be able to achieve on and that feel bulletproof to us.
Lindsay Drucker Mann: And so you know we felt strong confidence would be able to hit the targets of the 23% to 25%. We came in a touch above our we talked about last quarter that our plan was to really land the plane on what we're delivering versus our guidance. He would not see big beat huge beats outsized beats. The way we delivered last year, we want to really really land the plane.
Lindsay Drucker Mann: And so we're thrilled with the outcome in the first quarter, and based on how 2Q has already started, and we're through a lot of it already, 2Q is going to be another great quarter for us. In terms of where the strength was, both brands did great. Il Makiage had an awesome quarter. His color and skin were very strong. Spoiled Child also had a really strong quarter, across a number of product categories. New Acquisition was great. Repeat, again, very strong, or repeated on track to be even higher as a percentage of our sales this year versus last year. So just an all around very strong outcome.
Lindsay Drucker Mann: So we're thrilled with the outcome in the first quarter and based on how to teach he was already started and we're through a lot of it already since he was going to be another great outcome for us in terms of where the strength was both brands had great marquee has had an awesome quarter color and skin, we're very strong a spoiled child also.
Lindsay Drucker Mann: I had a really strong quarter. It was across a number of product categories. New acquisition was great Ah repeat again very strong I repeat is on track to be even higher as a percentage of our sales.
Lindsay Drucker Mann: This year versus last year again, so just all around very strong outcome.
Speaker Change: Great. Thank you.
Lindsay Drucker Mann: Our next question is from Andrew Boone with JMP Securities.
Andrew M. Boone: Our next question is from Andrew Boone with J&P Security.
Speaker Change: Good morning, and thanks, so much for taking my questions one for one thing and one for a long ways.
Lindsay Drucker Mann: Good morning, and thanks so much for taking the questions. One for Lindsay and one for Oran, please. Lindsey, guidance suggests an expansion in 2QE to margins and then an investment in the back half of 24. Can you talk about where you're spending those dollars in the back half of the year and how we should think about that? And then, Oran, you talked earlier about a greater penetration of repeat rates for 2024. Can you help us understand the drivers of that comment and then what you're seeing, maybe at a cohort level, in terms of repeat rates? Thanks so much.
Andrew M. Boone: Lindsey guidance. It suggests an expansion and <unk> margins and then our investment in the back half of 'twenty. Four can you talk about where you're spending those dollars in the back half of the year and how we should think about that.
Lindsay Drucker Mann: And then Ron you talked earlier about a greater penetration of repeat rates for 2024 can you help us understand the drivers of that comment and then what youre seeing maybe at a cohort level in terms of repeat rates. Thanks. So much.
Speaker Change: Yeah, I'll start with the first one.
Lindsay Drucker Mann: I'll start with the first one. So, yeah, we had some really nice EBITDA margin expansion in the first quarter. And we will have it again in the second quarter.
Speaker Change: Yeah, we have some really nice EBITDA margin expansion, we had in the first quarter I will have it again in the second quarter.
Lindsay Drucker Mann: And as we talked about before, Andrew, the underlying profitability of the business is much higher than what we are printing because we want to reinvest a lot of that profitability upside into all the future growth opportunities that Oran talked about. In terms of the second quarter, in particular, and the first quarter, we have so much increase in repeat, which is a very profitable business for us. So that's really the primary driver of the EBITDA margin expansion. We're also getting great gross margin behavior on top of that as well.
Lindsay Drucker Mann: And as we talked about before and the underlying profitability of the businesses is much higher than what we are printing because we want to reinvest a lot of that profitability upside into all the future growth opportunities that Ron talked about them in terms of the second quarter in particular and the first in the first quarter.
Lindsay Drucker Mann: We have so much increasing repeat which is very profitable business for us. So that's really the primary driver of the EBITDA margin expansion. We're also getting a great gross margin behavior on top of that as well.
Lindsay Drucker Mann: You know, in terms of where we're investing, there are three big buckets for us. First of all, there's new brand development. So we're doing a lot to invest behind both Brand 3 and Brand 4. We already have teams in place, product development, you know, trials with consumers to make sure we have the product absolutely right, and we're pre-funding as much of the launch as we possibly can in a way that's really thoughtful where we know we'll get a strong return. On the second, Oran talked a bit about Audity Labs.
Lindsay Drucker Mann: You know in terms of where we're investing there's three big buckets for US first of all there's new brand development they'll work doing a lot to invest behind both brands three and brands for we already have teams in place our product development, you know trials with consumers to make sure we have the product absolutely.
Lindsay Drucker Mann: Pre funding as much as the launches as it possibly can in a way that's really thoughtful where we know we will get a strong return on.
Lindsay Drucker Mann: The second Oh, Ron talked a bit about oddity labs, that's a huge focus of investment for us.
Lindsay Drucker Mann: That's a huge focus of investment for us. The teams, the infrastructure, it's a huge focus for Oran and Sharon. And right now, all that you're seeing is truly the expense portion of it impacting our P&L, but we believe the profit upside will be huge for us. And this is, again, another massive competitive moat that we're building today alongside what we did with technology. So we think that's a great use of our capital.
Lindsay Drucker Mann: <unk> the infrastructure, it's a huge focus for Iranian Sharon and right now all that you're seeing is truly the expense portion of it.
Lindsay Drucker Mann: Impacting our P&L, but we believe that profit upside will be huge for us and this is again another massive competitive moat that we're building today alongside what we did with technology. So do you think that's a great use of our capital and then the last as technology continues to be the largest team and accompany them we have to make sure we preserve our competitive.
Lindsay Drucker Mann: And then last but not least, technology. It continues to be the largest team in the company. We have to make sure we preserve our competitive advantage and develop new products that will increase all of our KPIs, our conversion, our satisfaction, and allow more categories to work online. So those are really the three primary areas of investment.
Lindsay Drucker Mann: <unk> and develop new products that will increase all of our kpis, our conversion our satisfaction and allow more categories to work online. So those are really the three primary areas of investment.
Lindsay Drucker Mann: Okay.
Lindsay Drucker Mann: Hey, it's threep it as Ive mentioned before like mostly to see companies, we generate most of our revenue from repeat and this is although we grew 28% in Q1 'twenty 'twenty four comparing to 80% growth last year in Q1, and this is why the busy so profitable and we continue to see.
Oran Holtzman: Hey, as for Repit, as I mentioned before, like most B2C companies, we generate most of our revenue from Repit, and this is although we grew 28% in Q1 2024, comparing to 80% growth last year in Q1, and this is why the business is so profitable, and we continue to see the Repit percentage of revenue grow consistently, and there is nothing more impactful and meaningful to the business strength than this, and by the way, this is why you will see Q2 guidance for EBITDA margins so strong, because we enjoy a lot of Repit coming from new users for Q1, and currently 12 months net revenue Repit rate is around 100%, and this compares to less than 50% two years ago, and still getting better every cohort, what are driving it is like three main things, number one, more Repit for the same product, number two, expanding wallet share with new products, and number three, now that we are getting cross-selling from Ilmakyash to Spoiled Child, and the future new brands, and where it will go, again, 100% today is already the best that I've seen in any G2C, and this is why we are profitable, but I didn't see any ceiling for that, we continue to improve the cohorts, and more products and more brands that people love means higher Repit, and as we use the same user base and same customer base, and basically we are taking more share from others under the same user base. That's it.
Oran Holtzman: The.
Oran Holtzman: Percentage of revenue grow consistently.
Oran Holtzman: There is nothing more impactful and meaningful to the business strengthen this and by the way. This is why you will see Q2 guidance for EBITDA margins. So strong because we enjoy luxury beat coming from new users from Q1.
Oran Holtzman: Currently 12 months net revenue repeat rate is around 100%. This compares to less than 50% two years ago and still getting better every cohort what I'm driving at is like three main things number one more repeat that's for the same products number two expanding wallet share with new products and number three.
Oran Holtzman: Now that we are getting cross selling from sports.
Oran Holtzman: Sports spoiled child in the future new brands and where it will go again, 100% of days already the best that I've seen in any of you to see and this is why we are profitable, but I didn't see any feeling for that we continue to improve the cohorts.
Oran Holtzman: And more products and more brands that people love means higher repeat them and as we use the same user based on the same customer base and basically we are taking moshe and from others under the same user base.
Oran Holtzman:
Oran Holtzman: Lastly, I would say about repeat business, again, very hard to grow against that quarter last year, with still more than 50% coming from repeat. And that's what we saw. And that's why we could grow again this quarter with such strong profitability.
Speaker Change: That's it.
Oran Holtzman: Lastly, I would say about repeat again very hard to grow and against that quarter last year with having still more than 50% coming from repeat and this is what we saw and that's why we could.
Oran Holtzman: Grow and again this quarter with such strong profitability.
Speaker Change: Thank you.
Oran Holtzman: Our next question comes from Youssef Squali with Jewish Securities.
Youssef Houssaini Squali: Our next question comes from Youssef Squali with Jewish Security.
Youssef Houssaini Squali: All right, thank you. Good morning.
Speaker Change: Alright, Thank you and good morning, two questions here. Please can you. Please talk about return rates in the quarter and kind of what's the what how do you see those kind of progressing them.
Youssef Houssaini Squali: Two questions here, please. Lindsay, can you please talk about return rates in the quarter and kind of what, how do you see those kind of progressing in Q2? And then Oran, maybe going back to the ODDITY labs topic. So, trying to get a sense of when will we get, when will we start seeing new products coming out of that? Should we be thinking that brand number three will be kind of the official launch of the new pipeline coming out of ODDITY Labs? Or have you already started, you know, kind of infusing existing products within the two brands with some of the ODDITY Labs innovation so far?
Youssef Houssaini Squali: In Q2.
Speaker Change: Then on maybe going back to the auditing lapse topic.
Youssef Houssaini Squali: No.
Youssef Houssaini Squali: Just trying to get a sense of when do we get when do we start seeing new products coming out of that should we be thinking that brand number three will be kind of the whole kind of launch.
Youssef Houssaini Squali: The new pipeline coming out of oddity lapse or have you already started you know kind of infuse an existing.
Youssef Houssaini Squali: Products within the two grant with some some of the R&D labs innovation, so far and if so what are you doing candidate in color sitting here. Thanks.
Lindsay Drucker Mann: And if so, is it in the skin? Is it in the color? Is it in the hair?
Lindsay: Sure I'll start on the repeat rate. So we we don't disclose repeat raised specifically by quarter, we were really turning up with the right return rate. We were hit the return rate that we saw in Q1 as you know last year in fiscal 'twenty three return rates were lower on a year over year basis, and we'd actually expect them to be a touch lower.
Lindsay Drucker Mann: Charles, starting the repeat rate. So we don't disclose repeat rates specifically by quarter. We were really pleased with the return rate. We were very pleased with the return rate that we saw in Q1. As you know, last year in fiscal 23, return rates were lower on a year-over-year basis, and we'd actually expect them to be a touch lower again this year.
Lindsay Drucker Mann: Then this year. However, we have no <unk> in our model. We don't we don't project a return rates to continue to decline as a percentage of gross revenue, mostly because we think that's a really important investment that we had the acquisition investment we have a way to push new products and expand into new cat.
Lindsay Drucker Mann: However, we have no, in our model, we don't project return rates to continue to decline as a percentage of gross revenue, mostly because we think that's a really important investment that we have, an acquisition investment that we have, a way to push new products and expand into new categories where you'll just naturally have some threshold level of return rate. But for us, we're managing towards a contribution margin, which is most important. I will say, and I talked about in the prepared remarks how we're incorporating vision more into our matching engines.
Lindsay Drucker Mann: [noise] worries, where you'll just naturally have some threshold level of return rate, but for us we're managing towards a contribution margin, which is not the most important I will say and I talked about in the prepared remarks how.
Lindsay Drucker Mann: We are incorporating vision are more into our matching engines and we actually are seeing on a like for like basis with vision.
Lindsay Drucker Mann: And we actually are seeing, on a like-for-like basis with vision, improvement in return rates for the same products. And we're still in the very early days here, but for example, for the first time, we can use multimodal data sets for our machine models that include vision reviews, data around purchase rates, et cetera, and putting all those things together, we can lead to an improved training set, which is now driving better models. We can also use vision during the matching process itself for the first time. Again, it's still very early days, but these things are allowing us to improve our return rates.
Lindsay Drucker Mann: An improvement in return rates for the same products and there's you know we're still very early days here, but for example for the first time, we can use multimodal datasets for machine models.
Lindsay Drucker Mann: <unk>, you know vision reviews, our data around purchase rates et cetera, and putting all those things together, we can lead to an improved training fat, which is now driving better models. We can also use vision during the matching process itself for the first time again, it's still it's still very early days, but these things are allowing.
Lindsay Drucker Mann: To improve on our return rates.
Oran Holtzman: I will touch on one thing regarding the return rate. Look, I never view it as an improvement because don't forget how we work.
Lindsay Drucker Mann: I will touch one thing we're going to return rates look I never viewed as improvement because don't forget how we work when they want to launch a new product or new category I start to trend of machine learning in order to train a machine learning I need to see like I need to be wrong I need to send the wrong product with the wrong person and then and that's the way that we train the machine so.
Oran Holtzman: When I want to launch a new product or a new category, I start to train the machine learning. In order to train the machine learning, I need to feel like I need to be wrong. I need to send the wrong product to the wrong person, and that's the way that we train the machine.
Oran Holtzman: So if I decide to invest now in building more machine learning for new products, it means that I will have a higher return rate. But we are prepared for it, and this is not an outcome; it's like it was our decision. So that's why, just let me.
Oran Holtzman: If I decide to invest in building more machine learning for new products that have higher return rate, but like that like we are prepared for rates and this is not an outcome. That's like it was our decision.
Oran Holtzman: So that's why like just like.
Oran Holtzman: Pay attention to the return rate; it doesn't represent anything about the business. As for ODDITY Labs, for sure, you will see it in brand three. We will start to do things even before that, when we need to. Just to be clear, if we wanted or needed products out there in the market, they would have been ready. V1 in some projects and even V2 already, but we are already, you know, pacing the growth without it, so I didn't need to do it.
Oran Holtzman: At Penn station to their return rate doesn't represent anything about a business. That's what what is your labs well show you with inventory.
Oran Holtzman: We will start to do things, even before that and when we need it just to be clear, if we wanted or needed product out during the market. They would have been ready.
Oran Holtzman: It'd be one M M in some projects and even the two already and.
Oran Holtzman: But we are already you know and pacing the growth without it. So I did I did I didn't need to do it and.
Oran Holtzman: You know, for new products, I don't need 50 or 100 PhDs in Boston, and I don't need to spend my time there or Sharan's time there. We build labs to build something that has never existed before. We build labs to take the business 5 or 10x. And therefore, another year or another quarter, if I don't need it, like I'm not putting pressure on myself, I do put a lot of pressure around way higher efficacy in terms of products and very high-safety protocols. So if we need it before we launch it, probably we'll start launching products to see the reaction, but a meaningful wave should come with brand three.
Oran Holtzman: You know I don't for new products that don't need 50, or 100, Phds in Boston and I don't need to spend my time, Bill and Sean times, though we build labs to be something that never existed before we'd love to take the business five or 10 X.
Oran Holtzman: And therefore, another year another quarter, if I don't need it like I'm, not putting pressure I'm I do put a little pressure around and way.
Oran Holtzman: Way higher efficacy in terms of product.
Oran Holtzman: And and and and very high Stakes protocols. So if we need before we launch it probably will start and and logic products.
Oran Holtzman: See the reaction, but meaningful EM wave should come with frankly.
Speaker Change: Alright. Thank you. Thank you both.
Oran Holtzman: Our next question is from Lauren Lieberman with Barclays.
Lauren Rae Lieberman: Our next question is from Lauren Lieberman with Barclays. Ms. Febrin. Ms. Lieberman, your line is live in conference. Our next question is from Lorraine Hutchinson with Bank of America. Hi, this is Melanie on behalf of Lorraine. Thanks for taking our question. I wanted to talk about marketing.
Youssef Houssaini Squali: All right. Thank you. Thank you both. Our next question is from Lauren Lieberman with Barker.
Oran Holtzman: [noise] newspaper in.
Speaker Change: His favorite many your line is live in the conference.
Youssef Houssaini Squali: Okay.
Youssef Houssaini Squali: Our next question.
Melanie: Is from Lorraine Hutchinson with Bank of America.
Youssef Houssaini Squali: Hi, This is Melanie on for Lorraine. Thanks for taking our question I wanted to talk about the marketing strategy that you guys are implemented Q1and just how that looked versus prior years and that it drove such a strong start to the quarter that you ended up pulling back a bit you know just any context on that strategy. Thanks.
Oran Holtzman: Same strategy, we put a lot of attention in Q1 on new user acquisition, that's how we did historically. The acquisition environment was very favorable for us, and you can see that in the strong margins that we just printed. Again, we grew with new users without damaging or improving them, and the EBITDA margin went from 17% to 23% from Q1 to Q1. We have a very different approach from other companies, which makes us more efficient; we use a lot of data, we're acquiring users, we're not acquiring customers, and therefore, when we hear a lot of problems around acquisition from other companies, we still continue to acquire at a very high scale new users at very strong margins.
Youssef Houssaini Squali: Same strategy, we flipped a little but then a lot of them attention in Q1 and for new user acquisition and that's how we did historically.
Oran Holtzman: The acquisition environment was very very favorable for us and you can see that in the strong margins that we that we have and that we just printed again, we grew with new users and without damaging improving that and the EBITDA margin went from 17% to 23% from Q1 to Q1.
Oran Holtzman: We are we have very different approach from other companies, which make us more efficient we used a little data acquiring users, we're not acquiring customers and therefore, when we hear a lot of them like <unk>.
Oran Holtzman: Problems around acquisition with other companies, we still and continue.
Oran Holtzman: Continue to quote, it's very high scale and new users.
Oran Holtzman: It's very strong metrics.
Speaker Change: Next question please.
Javier Escalante: Our next question comes from Javier Escalante with Evercore. Hi, good morning.
Oran Holtzman: Our next question comes from Javier Escalante with Evercore.
Speaker Change: Hi, good morning, everyone or N. Lindsay how are you I'm kind of news so we'd like to explore your business model a little bit better is proving its quite idiosyncratic is proving that vintage.
Javier Escalante: Hi, good morning, everyone. Oran, Lindsey, how are you?
Lindsay Drucker Mann: I'm kind of new, so I would like to explore your business model a little bit better. It's proving, it's quite idiosyncratic, it's proving an advantage. In our neck of the world, $200 million per quarter is quite a scale, and you did it very rapidly. So, two parts for me. I guess, Lindsey, if you could give us some more color on the repeats, if you have it. Was it particularly in Machiaj, was it led by new product launches or repurchase of so-called hero products or your best sellers?
Lindsay Drucker Mann: In our neck of the world a $200 million per quarter is quite a scale and you need to very rapidly.
Lindsay Drucker Mann: So two part for me I guess lean and see if you could give us some more color on the repeat if you have it worse it particularly in Maquillage, whether he was led by new product launches or report choose a so called hero products or your best source.
Lindsay Drucker Mann: And then I have a follow-up to Oran.
Lindsay Drucker Mann: And then I have a follow up to ordering.
Lindsay Drucker Mann: Sure.
Lindsay Drucker Mann: Some repeat rates continue to be very strong. Last year, we talked about how it was more than 50% of our revenue, and in 2024, it'll be even higher. In terms of 12-month net revenue repeat rate, we talked about this 100%, you know, so in other words... For a year ago, all of our first customers spent $100. Over the next 12 months, they spent an additional $100.
Lindsay Drucker Mann: Rates continue to be very strong.
Lindsay Drucker Mann: We talked about last year, it was more than 50% of our revenue and in 2024, it'll be even higher.
Lindsay Drucker Mann: In terms of 12 month net revenue repeat rate we've talked about this 100% you know so in other words.
Lindsay Drucker Mann: Or a year ago all of our first customer spent 100 bucks over the next 12 months. They spent an additional 100 bucks.
Lindsay Drucker Mann: And as far as we know, this is by far the highest repeat rate, 12-month net revenue repeat rate, of any DDC that we've seen. We have no specific plans to increase that rate higher because it's a huge rate, but we haven't yet found a ceiling.
Lindsay Drucker Mann: And as far as we know this is by far the highest repeat rate.
Lindsay Drucker Mann: Net revenue repeat rate and then you need to see certainly that we've seen.
Lindsay Drucker Mann: We have no specific plans to increase that higher because it's a huge rate, but we haven't yet found the ceiling and of course as we continue to add new brands and new products to the mix and were getting more share of wallet from the same user base that will grow.
Lindsay Drucker Mann: And of course, as we continue to add new brands and new products to the mix, and we're getting more share of wallets from the same user base, that will grow. Oran had a really important data point that we disclosed for the first time on this call, which is what happens when we add skin to ill maquillage. So, as you know, we had no skin business a couple of years ago, and now it's 20% of our revenue as of 2023.
Lindsay Drucker Mann: <unk> had a really important data point that we disclosed for the first time on this call, which is what happens when we add skin maquillage, though as you know we had no skin business couple of years ago, and now it's 20% of our revenue as of 2023 and it's on track to be 25% for 'twenty 'twenty, four and Javier I know based on.
Lindsay Drucker Mann: And it's on track to be 25% for 2024. And Javier, based on the industry you cover, I know you understand how hard it is for a beauty brand to actually expand into skin care. And when we started, everyone told us it wasn't possible.
Lindsay Drucker Mann: On the industry you cover that you understand how hard it is for a beauty brand to actually expand into skin and when we started everyone told us it wasn't possible and yet here, we are with a huge color business and now skin on track to be 25%.
Lindsay Drucker Mann: And yet, here we are with a huge color business, and now skin on track to be 25%. What Oran talked about was our customers who came to us through color; they were previously color purchasers, but then they tried skin. Over the next 12 months, they're shopping with twice as much frequency, and they're spending twice as much as our other customers. And it just goes to show you the power of the ability to know who our user is, use that data to create products that she wants, and have the machine models based on that data to put them in front of her to drive transactions and drive frequency.
Lindsay Drucker Mann: Ron talked about was for our customers who came into steel color. They were previously color purchasers, but then they try skin over the next 12 months, they're shopping with twice as much frequency and their spending twice as much as our other customers and it just goes to show you the power of the.
Lindsay Drucker Mann: <unk>, who know who our user is use that data to create products that she wants to have the machine models based on that data to put them in front of her to drive transaction fast frequency, obviously with the REIT, we get a lot of profitability at very high incremental margins. So we certainly saw great trends against Oh, My gosh and for <unk>.
Lindsay Drucker Mann: Obviously, with repeat, we get a lot of profitability at very high incremental margins. So we certainly saw great trends again for ill maquillage. And for Spoiled Child, that portfolio is set up to be a great repeat business. And so on a standalone basis, we're seeing very strong repeat behavior at Spoiled Child again. And then at the oddity level, it all compounds together to lead to overall better repeat.
Lindsay Drucker Mann: Loyal child.
Lindsay Drucker Mann: And that portfolio is set up to be a great repeat business.
Lindsay Drucker Mann: So on a standalone basis, we're seeing very strong repeat behavior. It spoiled child again, and then at the oddity level. It all compounds together to lead to overall better repeat because it's the same user name. He was the same customer we started with offering them cause a few product in California, and we added more call it broader than we added skin Denver, that's funny Chas.
Oran Holtzman: Because it's the same user, same user, same customer, we started with offering them color, a few products in color for their maquillage, then we added more color products, then we added skin, then we added Spoiled Childs, building this brand for her. So that's why it's compounded, that's why it continues to grow. By the way, it grows both for the ODDITY level but also for the ill maquillage and for Spoiled Child's standalone.
Oran Holtzman: Building. These brands fall. So that's why it's called a bunch, that's why I spoke to you to grow by the way of growth both in particular, but also for MTR samples.
Oran Holtzman: Yes.
Javier Escalante: Now, this is all very impressive, and I like the fact that you kind of link it back to the business model that is so unique, but Oran, more strategically and in the context of your business model and your solid repeat and new users at a time when traditional companies speak of a market deceleration. So going forward, there's gonna be changes in digital marketing. So do you expect your business model to prove an advantage or even more advantage relative to your beauty peers if and when programmatic advertising or cookies go away as a people? There is this rumor. Thank you.
Speaker Change: Yes. This is all very impressive and I like the fact that you kind of like link it back to the business model that is so unique but or in more strategically and in the context of what your business model George solid repeat and new users at a time when tradition.
Javier Escalante: The company says spoke of a market deceleration.
Javier Escalante: So going forward, there's going to be changes in digital marketing. So do you expect your business model to cruise.
Javier Escalante: I said vintage or even more of a vintage relative to the euro beauty peers, even gwen programmatic advertising or cookies go away.
Speaker Change: David just real Mark Thank you.
Oran Holtzman: Thank you, Javier, and welcome. I cannot answer that question. The only thing that I can say is that when iOS 14 took place, most of my competitors had really bad quarters trying to navigate, and we didn't see any problem. I think the main reason is because we use data, and the second main reason is that we are not acquiring customers. Actually, I'm not acquiring revenue, okay? I'm acquiring users, then I'm enriching the data, then I'm building products, and I'm converting them based on what I believe is the best thing for them.
Speaker Change: Thank you Javier and welcome them look.
Javier Escalante: I cannot answer is the only thing that I can say that when I was 14 took place.
Oran Holtzman: Most of my competitors had really like bad quarters trying to navigate and we didn't see any problem I think the main reason is because we just did and the main reason and the second one reason is because we are not acquiring customers actually I'm not acquiring revenue, okay, I'm, a growing users than them enriching the data that I'm building product in converting the base.
Oran Holtzman: On what I believe is the best thing for them.
Oran Holtzman: And the biggest question is whether people will continue to use social media and search. And I believe it's going to grow. Every year we have more people on those platforms. So as long as they are there, I don't see any problem.
Oran Holtzman: And and the biggest question if people continue to use it like social media and search and I believe it's going to grow every year, we have more people on those platforms. So as long as they are there I don't see any problem.
Javier Escalante: So conceptually you are basically persona lysine beauty products to your existing user base, that's kind of like the secret sauce, if you will.
Oran Holtzman: So conceptually, you are basically personalizing beauty products for your existing user base. That's kind of like the secret sauce, if you will.
Oran Holtzman: I'm learning a lot about them trying to understand what is missing in there with ping an.
Oran Holtzman: Learning a lot about them, trying to understand what is missing in their routine, building machine learning models that actually can work to send the right product for them, and then matching it with the right physical product to send them. Because at the end of the day, you can have all the technology in the world, but if you don't have very strong beauty products that match them and they're happy with, then they will return, and the repeat will not be high. So we will continue to increase our machine learning capabilities but, at the same time, continue to add more and more products for those users who did not convert three or four years ago.
Oran Holtzman: Building machine learning models that actually can work them to send the right product for them and then message with the right physical product.
Oran Holtzman: Defend it because the end of the day you can have all of that goes into war, but you don't have very strong beauty products that matches them and they are happy with and then they wouldn't have done it the right between that'd be high so continues to increase and our M. M. A C lending capabilities, but the same time continue to add more and more products.
Oran Holtzman: For those users who did not convert three or four years ago. That's why the betas continue to be so strong because we have such a strong and large user base from that we built and the best probably six years, one last thing that I would say building a business like this so there would be a way holiday because everyday market is getting more expensive.
Oran Holtzman: That's why the business continues to be so strong because we have such a strong and large user base that we built in the past five, six years. One last thing that I would say, building a business like this today would be way harder, because everyday marketing is getting more expensive, and to acquire 50 million users today would cost a fortune. Again, this is an advantage that we had as a first mover.
Oran Holtzman: And to acquire 50 million users per day with costs Fortune and great Lakes.
Oran Holtzman: Again this isn't a budget that we had as a first mover.
Javier Escalante: Good stuff. Thank you so much. Thanks a lot, Javier.
Speaker Change: Good stuff. Thank you so much thanks a lot.
Oran Holtzman: Yeah.
Lauren Rae Lieberman: Our next question is from Lauren Lieberman with Barclays.
Oran Holtzman: Our next question is from Lauren Lieberman with Barclays.
Lauren Rae Lieberman: Hey, thanks, sorry about that before my phone was on mute. Oran, notwithstanding what you said earlier about return rates in certain respects as part of the process, I was just curious if you're seeing any tick up in return activity as we're kind of in a, you know, tougher consumer environment, an environment where consumers are reallocating their spending and making different decisions. So any uptick in that type of, if you will, return rate? And then also, any change in the mix in terms of the demographics of your consumers? That was my first section of questions.
Javier Escalante: Hey, Thanks, sorry about that before my phone was that was I mean alright.
Lauren Rae Lieberman: Notwithstanding what you said earlier about return rates and in certain respects part of the process I was just curious.
Lauren Rae Lieberman: If you're seeing any pickup in recurrent activity as we're kind of in a you know a.
Lauren Rae Lieberman: Tougher consumer environment, or an environment, where consumers are reallocating their spending and making different decisions.
Lauren Rae Lieberman: So any uptick in that type of if you will return rates and then also any change in the mix in terms of demographics of your of your consumers that was my my first section of questions.
Oran Holtzman: Sure. Hi Lorraine.
Oran Holtzman: Sure Hi, Ryan look I, almost think that people wanted me to say that we see a softness but the answer is no looked like we were trying to get as much data as we can internally lending to corporates letting them and then return it behavior with learning that the repeat and we didn't see.
Oran Holtzman: Look, I almost think that people want me to say that we see softness, but the answer is no. Look, we were trying to get as much data as we could internally, learning the core, learning the return of behavior, learning the repeat, and we didn't see softness. We see the same metrics. In terms of acquisition, we didn't see any problem acquiring new users at a high scale this year again, although the consumer is a bit more challenging based on what we hear from others. So no, the answer is no. So far, so good.
Oran Holtzman: Softness.
Oran Holtzman: We see the same metric and acquisition and doesn't acquisition, we didn't see any problem acquiring new users at high scale. This euro again, although the consumer is a bit more challenging based on what we hear from others.
Oran Holtzman: So no the answer is no so far so good okay.
Lindsay Drucker Mann: Let me just add to that, Lauren. So, I think it's really important to remember that, first of all, we are tiny in a huge market, and number two, our demo is expansive. Okay?
Speaker Change: Can you just add onto that one so I think it's really important to remember that first of all we are tiny in a huge market and number two our demo is is expansive. Okay. So if you look at them you know on a CPC.
Lindsay Drucker Mann: So, if you look at, you know, on a state-by-state basis across the United States, we are almost evenly, you know, perfectly aligned with that distribution. We have a big portion of our customers that are under 30, a big portion that are over 50, a big portion that are right in the middle. We serve customers with higher, middle, and lower income.
Lindsay Drucker Mann: Basis across the United States, they're almost evenly perfectly aligned with that distribution, we have a big portion of our customers that are under 30, a big portion of that are over 50, a big portion of that are right in the middle We service upper middle and lower income, we see people trading and from from luxury brands into our.
Lindsay Drucker Mann: We see people trading in from luxury brands into our categories. We see them trading from CoverGirl and Maybelline, and it's important to remember, like, we are dominating what we believe is the most important and will be the largest channel in duty, and we're really alone in acquiring customers at scale on this channel. So, you really wouldn't see it here, I guess, is the punchline.
Lindsay Drucker Mann: Categories, we see them trading from covergirl, enabling and it's important to remember like we are dominating what we believe is the most important and we will keep largest channel in beauty and we're really alone.
Lindsay Drucker Mann: Acquiring customers at scale in the channel. So you you really wouldn't see it here I guess is the punch line one less didn't have you want with or Q1, 'twenty four comparing to Q1, 'twenty Cree and return rates was better this year. So again to your question, we don't see it.
Oran Holtzman: One last thing. Q124. Q124, compared to Q123, return rates were better this year. So, again, to your question, we don't see it.
Speaker Change: Okay, Great and then second thing was just on the decision and timing on new launch activity and around her very consistent what you said this quarter is what you said last about timeline for launching products in labs, but one of my questions was this some of these products have such.
Lindsay Drucker Mann: And then the second thing was just on the decision and timing on new launch activity, and Oran heard very consistent with what you said this quarter about the timeline for launching products from labs. But one of my questions was if some of these products have such demonstrable efficacy and improved quality versus anything in the market, let alone versus what you've already got in the market. Why wouldn't you be looking to launch, right, to raise the profile?
Lindsay Drucker Mann: No demonstrable efficacy and improved quality versus anything in the market, let alone versus what you've already got in the market.
Lindsay Drucker Mann: Why wouldn't you be looking at to La tried to raise the profile like Lindsey said, you're tiny you know, but like raised the profile raise the word of mouth that exists around some of your products, if you've got things that work better than anything else.
Lindsay Drucker Mann: Like Lindsay said, you're tiny, you know, but raise the profile, raise the word of mouth that exists around some of your products. If you've got things that, you know, that work better than anything else, why wouldn't you want those in the market sooner rather than later?
Lindsay Drucker Mann: Why wouldn't you want those in the market sooner rather them because.
Oran Holtzman: Because I want to be 100% sure that it's way better than others, okay? That's my honest answer. I want to make sure that we have a system that
Oran Holtzman: Because I want to be sure, 100% that it's way better than others. Okay. That's the that's the man on my honest answer I want to make sure that we have a system that is very strong we built protocols. We make sure that again, we're doing it for the first time I don't want to go to market when they know when they don't need it with something that is better but slightly better I want to go with.
Oran Holtzman: The product itself way better and it takes time.
Lauren Rae Lieberman: Okay, I appreciate that. Thank you so much, guys.
Speaker Change: Okay I appreciate that thank you so much guys.
Speaker Change: Thank you.
Dara Mohsenian: Our next question is a follow-up from Dara Mohsenian with Morgan Stanley.
Oran Holtzman: Our next question is a follow up from Dara <unk> with Morgan Stanley.
Dara Mohsenian: Hey Lindsey, we're more focused on the top line, but gross margins are really notable in Q1, at record levels. It looks like you're expecting a solid Q2, but that implies the back half will decelerate sequentially and on a year-over-year basis. So, just trying to understand that implied guidance for the back half. Perhaps it's just conservatism, but help us understand the pacing of gross margins as we go through the year, and I'm just wondering if that has implications for the future years, the back half, or how we should think about that. Thanks.
Speaker Change: Hey, So Lindsay we're more focused on the topline side, but gross margins are really notable in Q bought at record levels. It looks like you're expecting a solid Q2, but that implies the back half will decelerate sequentially and on a year over year basis. So just trying to understand that implied guidance for the back half.
Dara Mohsenian: Perhaps it's just conservatism but.
Dara Mohsenian: Help us understand the pacing of gross margins as we go through the year and I'm. Just wondering if that has implications for the out years the back half for how we should think about that thanks.
Lindsay Drucker Mann: Sure. Thanks for the question, Dara. So just as a reminder, in terms of how we build our brands and our product launches, we really focus on gross margins last. We're going to make sure, number one, that we have the absolute best-performing product. We're going to make sure that we're building an experience that's going to drive the right kind of customer satisfaction, the right kind of return rate, that we're going to sort of optimize for all our KPIs. And then we're going to see if it scales, if we can scale it.
Lindsey: Sure. Thanks for the question Dara. So just as a reminder, in terms of how we build our brands and our product launches that we really focus on gross margin last them, we're going to make sure number one we have the absolute best performing product, we're going to make sure that we're building them that we're building a a.
Lindsay Drucker Mann: And it's only after we achieve those targets that we go back and solve for gross margins. We know that there's a threshold gross margin that we'll achieve, but in the beginning, we're not at all focused on delivering it. So, for example, with Spoiled Child early on, we were air freighting everything. And now, obviously, we're much, much better at inventory planning, and we're much more scalable, so we're able to extract cost efficiencies. And the same thing goes for Il Makiage.
Lindsay Drucker Mann: Experience, that's going to drive the right kind of customer satisfaction. The right kind of return rate that were going to sort of optimize for all of our kpis, where theyre going to see if its scale. If we can scale it and it's only after we achieve those that would go back to solve for gross margins. We know that there's a threshold gross margin level achieved in the beginning we're not at all focused on.
Lindsay Drucker Mann: Delivering it. So for example, the spoiled child early on we were air Freighting everything and now obviously, we're much much better on inventory planning and we're much more scale, we're able to extract cost efficiencies and the same thing goes for for Oh, My Gosh. The team has done an awesome job going back across the supply chain and you know picking low hanging fruit.
Lindsay Drucker Mann: The team has done an awesome job going back across the supply chain and, you know, picking low-hanging fruit, candidly, that we had in order to, and it's delivered more gross margin improvement than we expected. The truth is, though, that as an organization, we are not focused. Gross margin is not a KPI that we are focused on. We are focused on contribution margin. And so if we're making a tradeoff where gross margins are lower but frequency and repeat are higher, we're very happy to make that tradeoff as long as we're meeting our contribution margin and EBITDA margin targets. We're already several quarters into the kind of cost optimization that you saw that drove us for the last two quarters in terms of gross margin. We start to lap up that benefit.
Lindsay Drucker Mann: Candidly that we had in order to and it's delivered more gross margin improvement than we expected them. The truth is though that as an organization. We are not focused of course margin is not to keep your eye that we're focused on we're focused on contribution margin and so if we're making a trade off where gross margins are lower but frequency and repeat are.
Lindsay Drucker Mann: Higher we're very happy to make that trade off as long as we're meeting our contribution margin and EBITDA margin targets were already several quarters into the kind of cost optimization that you saw that that drove us for for the last few quarters in terms of gross margin are we start to lap that benefit <unk> and <unk>.
Lindsay Drucker Mann: And, again, we always want to make sure we're delivering targets that we're not ever going to miss. We feel very confident in the gross margin targets that we've laid out. Remember, certain products of ours have lower gross margin profiles than others. And if we opt to mix more into those, you're going to see gross margins, you know, the complexion of gross margin change. And so we've laid out targets that we believe are achievable. We feel very confident in them. And we're sort of towards the end of that big, you know, tailwind from cost optimization that you saw earlier.
Lindsay Drucker Mann: Again, we always want to make sure we're delivering targets that we're not ever going to Nick we feel very confident in the gross margin targets that we've laid out remember certain products of ours have lower gross margin profile than others, and if we opt to mix more into those youre going to see gross margins you know the complexion of gross margin change until we've laid out as targets that we believe are achieved.
Dara Mohsenian: Great, that makes sense. Thanks.
Dara Mohsenian: But we feel very confident and then and we're sort of towards the end of that big tailwind from cost optimization you thought earlier.
Dara Mohsenian: Yeah.
Speaker Change: Great that makes sense. Thanks.
Dara Mohsenian: Ladies and gentlemen, we have reached the end of the question and answer session I would like to turn the call back to Iran. Hoffman for closing remarks.
Oran Holtzman: Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Oran Holtzman for closing remarks.
Oran Holtzman: Thank you very much, guys. See you next quarter.
Operator: Have a good day. Thank you. This concludes today's conference. Thank you for your participation.
Oran Holtzman: Thank you very much guys feel next quarter have a good day.
Operator: Thank you. This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.
Oran Holtzman: Thank you. This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.
Operator: BF-WATCH TV 2021
Operator: [music].