Q1 2024 Waldencast PLC Earnings Call
Speaker Change: [music].
Operator: Greetings. Welcome to Waldencast's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Allison Matkin of ICR. Thank you. You may begin.
Greetings and welcome to <unk> first quarter 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero and your telephone.
Speaker Change: Pat please.
Speaker Change: Please note. This conference is being recorded I will now turn the conference over to Allison Malkin of ICR. Thank you you may begin.
Allison Matkin: Thank you, and welcome to the Waldencast PLC first quarter fiscal 2024 earnings call. With me today are Michelle Brissette, Founder and Chief Executive Officer, and Manuel Manfredi, Chief Financial Officer.
Speaker Change: Thank you and welcome to the Walton Cask plc first quarter fiscal 2024 earnings call with me today are Michelle Michelle founder and Chief Executive Officer, and then well then Freddie Chief Financial Officer for today's call Michelle will begin with an update on our business.
Allison Matkin: For today's call, Michelle will begin with an update on our business and vision and our performance within the context of the beauty market. Manuel will then provide a review of our fiscal year 2023 and first quarter performance, as well as our outlook for the remainder of 2024. Then, Michelle will share our strategic growth initiatives for our Milk Makeup and Obagi skincare brands.
Michelle Michelle: And our performance within the context of the beauty market.
Well: Well will follow with a review of our fiscal year, 'twenty 23, and first quarter performance as well as our outlook for the remainder of 2024.
And Michelle will share our strategic growth initiatives.
Speaker Change: Our milk makeup and nobody skincare brand.
Allison Matkin: After the prepared remarks, the operator will open the call to take questions. Before we start, I would like to remind you that management will make certain statements today that are forward-looking, including statements about the outlook for the Waldencast business and other matters referenced in the company's earnings release issued today. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in or implied by such statement.
Speaker Change: After the prepared remarks, the operator will open the call picky question.
Allison Matkin: Additional information regarding these factors appears under the heading, Cautionary Note Regarding Forward-Looking Statements, in the company's earnings release and in the company's filing that it makes with the Securities and Exchange Commission, which is available at www.sec.gov and on the investor relations section of the company's website at ir.waldencast.com. The forward-looking statements on this call speak only as of the original date of this call, and we undertake no obligation to update or revise any of these statements.
Speaker Change: Before we start I would like to remind you that management will make certain statements today, which are forward looking including statements about the outlook of Walden Cas business and.
Speaker Change: Other matters referenced in the company's earnings release issued today.
Speaker Change: Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected.
Speaker Change: Or implied by such statements.
Speaker Change: Additional information regarding these factors appears under the heading cautionary note regarding forward looking statements in the company's earnings release.
Speaker Change: The company's filings that it makes with the Securities and Exchange Commission that are available at Www Dot S. E C Dot Gov and on the Investor Relations section of the company's website at IR Dot Wildcats dotcom.
Speaker Change: Forward looking statements on this call speak only as of the original date of this call and we undertake no obligation to update or revise any of these statements.
Allison Matkin: Also, during this call, management will discuss certain non-GAAP financial measures that management believes can be useful in evaluating the company's performance. However, the presentation of non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. You will find additional information regarding the definition of these non-GAAP financial measures and a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the company
Speaker Change: Also during this call management will discuss certain non-GAAP financial measures, which management believes can be useful in evaluating the company's performance.
Speaker Change: Presentation of non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP you will find additional information regarding the definitions of these non-GAAP financial measures.
Speaker Change: A reconciliation of these non-GAAP to the most directly comparable GAAP measures in the company's earnings release.
Speaker Change: A live broadcast of this call is also available on the Investor Relations section of the company's website at IR Dot Walden cast dotcom, which will remain available until the company's next earnings call I will now turn the call over to Michelle for SAP.
Allison Matkin: A live broadcast of this call is also available on the investor relations section of the company's website at ir.waldencast.com, which will remain available until the company's next earnings call. I will now turn the call over to Michelle Brissett.
Michelle Brissette: Thank you, Alison, and good morning everyone. I am pleased to speak to you all today and share a strong first quarter of 2020 for results and resume our historical practice of holding earnings goals each quarter having completed our historical annual filings for fiscal years 2022 and 2021. I will start by anchoring us in our vision for Waldencast, which is to build over time a global best-in-class beauty and wellness platform that creates, acquires, accelerates, and scales the next generation of high-growth, highly profitable, purpose-driven products.
Thank you Alessandro and good morning, everyone.
Michelle Michelle: I'm pleased to speak to you all today and ensure a strong first quarter of 'twenty 'twenty four we sold.
Michelle Michelle: Our historical practice of holding earnings call each quarter, having completed our historical filings for fiscal years 2022 and 2023.
Speaker Change: I will start by anchoring off and our vision for Walden, Gus just to build overtime, a global best in class wellness platform.
Speaker Change: It creates acquires accelerates and scale. The next generational high growth highly profitable purpose driven brands we have.
Michelle Brissette: We are a beauty and wellness pure player, an operating platform built for both speed and agility, reimagining the beauty company of the future as the home of the brands of tomorrow that connect with consumers' needs and their values. We are a beauty peer player because beauty is the most beautiful of industries, one that has shown impressively consistent growth, profitability, and resilience, and because it's an expertise-led industry that we're experts in. Prestige Beauty closed 2023 at plus 14%, more than double mass beauty.
Speaker Change: Our beauty and wellness pure player on operating platform built for both speed and agility.
Speaker Change: Imagine the beauty company of the future of the home of the Bronx of tomorrow, but connect with consumers needs.
Speaker Change: Bob.
Speaker Change: We are a beauty peer play here because beauty is the most beautiful industry Wanda has shown impressive ecosystem grow.
On receivables.
Speaker Change: Because he's an expert and industry expertise.
Speaker Change: Prestige beauty post 2023 at plus 14% more than double mass beauty momentum continue, albeit with a moderating trend in Q1 with premium beauty growing plus 9%, but it's still ahead or the historical growth of the market well.
Michelle Brissette: Momentum that continued outbidding with a moderating trend in Q1, with premium beauty growing plus 9%, but it's still ahead of the historical growth of. Wills Prestige Skincare remains expanding at double-digit growth at plus 10 percent as consumers are increasingly looking for performance-led transformative products. Makeup, previously the fastest growing category within beauty, registered a growth of plus 4% in Q1 as a category normalized after the post-COVID review. The rate of growth is expected to accelerate, driven by the rising popularity and sophistication of makeup among younger consumers.
Speaker Change: Prestige skincare remains expanding and double digit growth at plus 10% as consumers are increasingly looking for performance led transformer products make up previously the fastest growing category in beauty.
Speaker Change: Sort of a growth of plus 4% in Q1 as a category normalize after the post COVID-19.
Speaker Change: The rate of growth is expected to accelerate driven by the rising popularity all sorts of institutions makeup amongst younger costumers.
Michelle Brissette: In particular, we see millennials and Gen Z purchasing makeup at significantly higher rates versus pre-pandemic levels as socializing resumes, as well as the acceleration of innovation in the market of a pandemic law and the continued growth of brands like Milk makeup that are inclusive, high performance, and aligned with their desire for clean, vegan, and cruelty-free products. This trend is expanding to Generation Alpha thanks to the tick-topification of beauty by bringing consumers even earlier into the category.
Speaker Change: In particular, we see millennials and Gen C. Purchasing makeup at significantly higher rates versus pre pandemic levels.
Speaker Change: Our social life and resume as well as the acceleration of innovation in the market are up on Atlantic law and the continued growth of brands like milk makeup that are inclusive high performance and align with our desire for clean vegan and cruelty free product.
Speaker Change: This trend is expanding to generation alpha thanks to it ticked off expectation of beauty by bringing consumers even earlier into that category.
Michelle Brissette: While the market is a data point to inform our business plan, we believe that given our relatively small size in this very large beauty industry and the opportunities we have in terms of innovation, distribution, and geographical expansion, our ability to grow is only limited by our own ability to execute well against our strategies and continue to develop relevant, unique, and seductive consumer products. Waldencast has two of the most exciting brands in the two biggest beauty categories. Makeup No 1 and Skincare No. 2 in U.S. Prestige Beauty
Speaker Change: Well the market is a data point to inform our business, but we believe that given our relatively small size is very large group of industry and the opportunities. We have in terms of innovation distribution and geographical expansion.
Speaker Change: Our ability to grow is only limited by our own ability to execute well against our strategies and continue to develop.
Speaker Change: <unk> unique and seductive consumer propositions.
Speaker Change: Yeah.
Speaker Change: Holding cost plus two of the most exciting brands in your two biggest beauty categories make them number one skin care number two when you, especially prestige beauty.
Michelle Brissette: Importantly, these categories are not only big but also high growth, resilient, and structurally attractive. Furthermore, our brands play in the fastest-growing subsegments of these two categories, physical make-up, and professional science-led O'Reilly Skin Care is the crown jewel of the U.S. physician dispensary. It is perceived as the number one physician-recommended medical skincare brand for top patients' needs, living in the most attractive, fast-growing subsegment of premium skin. With its breakthrough patented technology and transformative clinical skin results, it unlocks high loyalty from both consumers and physicians, and it is perfectly positioned to answer the growing consumer need for high-performance, effective skin care while also paving the way for expansion into other categories.
Speaker Change: Importantly, these categories are not only big but also high growth resilient on a structurally attractive.
Speaker Change: Furthermore, our brown, playing the fastest growing subsegment of these two categories.
Speaker Change: Prestige makeup and professional science led skincare.
Speaker Change: Well, while you're skincare is the crown jewel of the U S. This is shall dispense market. It is perceived as a number once you teach them recommended medical skincare Bronco and adult patients needs.
Speaker Change: Leading in the most attractive fast growing sub segment of premium skincare.
Speaker Change: With this breakthrough patented technology and transformative clinical scheme, we sold it unlocks a high loyalty from both consumers and physicians.
Speaker Change: It is perfectly positioned to answer the growing consumer need for high performance effective stinker well.
Speaker Change: While also paving the way for expansion into other categories.
Michelle Brissette: Milk Makeup is a cult Gen Z brand with an incredible organic following through a diverse and inclusive community known for its cultural relevance and iconic products. It is a leading clean makeup brand, the number two clean brand at Sephora US, and one of the busiest brands in the US, coming from number 19 in 2022 to number 9 in Q1 2024, according to Create Right. Milk Makeup has accomplished this by bringing a relevant format of cool Our ambition and destination is to build, over time, a best-in-class multi-brand portfolio.
Jesse: And it would make up its a cold Jesse brought in kind of incredible organic following.
Speaker Change: As a nurse and inclusive community law enforced culturally relevant I like like products is.
Speaker Change: A leading clean make our Bronx. The number two came down at Sephora U S. One of the bus. She has brought to the U S coming from number 19 in 'twenty to 'twenty two to number nine in Q1 2024, according to create like you.
Speaker Change: No.
Speaker Change: Krishna they'll bring a relevant problem is a cool clean makeup that works.
Speaker Change: Our ambition on destination is to build overtime.
Speaker Change: Our best in class multi brand portfolio with no makeup an old barge and we start getting prestige skin and color.
Michelle Brissette: With Milkmaid Camarobagi, we started in prestigious skin and color with a core business in the U.S. across attractive growing channels, a growing international presence, and the ambition to expand over time into further geographies, categories, and channels through category expansion of our existing brands, but most importantly, acquisition. And we will do that through our laser focus on building scale and speed, leveraging our unique Pure Play Beauty ecosystem, ensuring we diversify our portfolio across categories, channels, geography, and price points to benefit from the resiliency of the category, focus on opportunities in targeted acquisitions for accelerated long-term growth, and a focus on sustained and disciplined growth and profitability. All this is led by a world-class team of beauty operators across the Waldencastle. And now, with this, I will hand over to Manuel to lead us through our financial results.
Speaker Change: Our core business in the U S alcohol tractive growing channel a growing international presence and ambition to expand overtime into further geographies categories and channels, some category financial hardships and brands.
Speaker Change: Importantly acquisitions.
Speaker Change: And when we do that through our laser focus on building scale.
Speaker Change: Leveraging our unique pure play beauty ecosystem.
Speaker Change: Turing, we diversify our portfolio across categories channels, geography, and price points to benefit from the Racine is the other category.
Speaker Change: Focus on opportunities in targeted acquisitions for accelerated long term growth and a focus on sustained and disciplined growth and profitability.
Speaker Change: All these led by a world class team of beauty operators across it won't link of exist.
Speaker Change: And now with this I will hand over to one win to lead us through our financial results. Thank you Mitchell.
Manuel Manfredi: Thank you, Mitchell. It is a pleasure to speak to you today on my first early call to the CFO of Waldencast. As many of you are not familiar with me, let me start by sharing my background. For the past 25 years, I have led financial organizations in the beauty and consumer products industry in Europe and North America, most recently as CFO of L'Oreal Spain and Portugal. Among other things, during my time at L'Oreal, I played a key role in the acquisition and integration of a new cosmetics brand, executed numerous transformational projects across the organization, and helped unlock value and identify growth opportunities for the company. I am now eager to leverage my expertise to help Waldencast achieve its ambition to be a best-in-class beauty and wellness multi-brand platform.
Speaker Change: It is a pressure to speak to you today on my first earnings call as CFO, who will take that.
As many of you on the funding yet with me, let me start by sharing my background.
Speaker Change: For the past 25 years I have let financials organizations seem to get the consumer brokerage industry Europe North America.
Speaker Change: Most recently as CFO of L'oreal and important to us.
Speaker Change: Among all their feet during my time at myriad I played a key role in the acquisition and integration of how new cosmetics brands executed numerous transformation project across the organization and help unlock value.
Speaker Change: I'm, an empty high growth opportunities for the company.
I have no ego didn't finish my expertise to help one thing passed away. She if its ambition to be a best in class beauty and wellness and won't be broken platform.
Manuel Manfredi: It has been six weeks since I joined the company, and I am already impressed with the strength of our brand, the innovation and differentiation we provide, the highly talented and motivated teams we have in place, and, importantly, the significant growth opportunities that lie ahead of us. Now, turning to our review of our performance. While our U.S. GAAP revenue is outlined in the earnings release, my comment today will focus on comparable net revenue, which we believe is a relevant metric to follow, as it reflects the operating sales of our business, removing revenue related to the former Obagi Skincare China business, which was not acquired by Waldencast at the time of the business combination.
Speaker Change: Because the six weeks since I joined the company and I'm already impressed with the strength of our brands innovation and differentiation we provide.
Speaker Change: Highly talented and motivated teams we have in place.
Speaker Change: Importantly, the significant growth opportunities that lie ahead of us.
Speaker Change: Now turning to a review of our first four months.
Speaker Change: While our U S got great menu I outlined in the earnings release My comments today will focus on comparable.
Speaker Change: Menu, which we believe is a relevant metric to follow I see would reflect the three pieces of our business removing rumanian related format by U S China business.
Speaker Change: Wasn't nook acquired by all the guys at the time of that business combination.
Manuel Manfredi: With that, let me share highlights of our fiscal 2023 performance, which were previously communicated, and then cover our first quarter 2024 results and updates for fiscal 2023. Comparable net revenue was $212.5 million, an increase of 15.3%. Mid-May Cap led our performance and exceeded the $100 million revenue milestone, delivering net revenue growth of 38.6%. Obagi skin care generated strong growth in the U.S. and internationally, excluding Southeast Asia, which was impacted by restructuring activities.
Speaker Change: With that let me share highlights of our fiscal 2024 months, which was previously communicated and then go over our first quarter 10 different before result.
Speaker Change: No.
Speaker Change: Yeah.
Speaker Change: For fiscal 2023.
Speaker Change: Comparable net revenue was $225 million.
Speaker Change: The increase of 15 43 per cent mill.
Speaker Change: <unk> got net outperformed months and exceeded the $100 million revenue milestone they.
Speaker Change: Delivering net revenue growth of 58, 6%.
Speaker Change: Well by GSK and generate good strong growth in the U S I need to necessarily exclude in southeast Asia, which was impacted by restructuring activities.
Manuel Manfredi: Adjusted gross profit was $150.4 million, with an adjusted gross margin of 69%; adjusted EBITDA totaled $24.4 million, an increase of $33.2 million from 2022, with 2023 EBITDA margin totaling 11.2%. This reflects strong revenue growth and an expansion in adjusted gross margin, as well as the increased investment in marketing and central costs to support our growth as a public company. Net loss was $106 million.
Speaker Change: Adjusted gross profit was $154 million.
Speaker Change: Adjusted gross margin of 69%.
Speaker Change: Adjusted EBITDA totaled $24 $4 million, an increase of $33 2 million from 'twenty to 'twenty two.
Speaker Change: We couldn't be twenty-three EBITDA margin to 11, 2%.
Speaker Change: This reflects strong revenue growth and expansion in adjusted gross margin as well.
Speaker Change: I think Christine placement and marketing and central costs to support our growth as a public company.
Speaker Change: Net loss was 106.
Speaker Change: $6 million.
Manuel Manfredi: Turning to 2024, we are very pleased with our first quarter performance, which included robust growth across our key performance metrics, including comparable net revenue, adjusted gross margin, and adjusted data margin versus the first quarter of 2020. Each of these metrics delivers accelerated growth from fiscal year 2020, descent for this first quarter. Comparable net revenue was $67.9 million, increasing 21% from Q1 2023, with balanced growth across our brands. Obagi Skincare and Milk Makeup delivered comparable net revenue growth of 20.6% and 21.5%, respectively, from Q1'23.
Speaker Change: Turning to 2024, we are very pleased with our first quarter performance, which included robust growth across our key performance metrics, including comparable net revenue adjusted gross margin and adjusted EBITDA margin versus the first quarter of 2023.
Speaker Change: Each of these metrics deliver accelerated growth from fiscal year 'twenty to 'twenty three.
Speaker Change: Descent, Twenty's first quarter comps.
Manuel Manfredi: Adjusted gross profit was $52.1 million, increasing 32.9% from prior years, while adjusted gross margin of 76.3% expanded by a strong 1,100 basis points from Q1, 2023, with both brands contributing to this increase in margin. Adjusted EBITDA totaled $11.4 million, increasing 12.9% from $10.1 million in the 2023 first quarter, as strong revenue growth and gross margin expansion more than offset important investments in our team and in our marketing and sales business. As a result, we delivered a healthier adjusted data margin of 16.6%.
Speaker Change: Comparable net revenue was 67 9 million, increasing 21% from Q1 2023.
Speaker Change: Balanced growth across our brands.
Speaker Change: But I just can't get makeup delivered comparable net revenue growth of 26% and 21, 5% respectively from Q1 'twenty three.
Speaker Change: Adjusted gross profit was $52 1 million, increasing 32, 9% from prior years freshwater.
Speaker Change: While adjusted gross margin of $76 three per cent expanded extra 1100 basis points from Q1 2023.
Speaker Change: Brands contributing to this increase in margin rate.
Speaker Change: Adjusted EBITDA totaled $11 $4 million, increasing 49% from $10 1 million in the first quarter as it's turned revenue world.
Speaker Change: Gross margin expansion more than offset important investment team and the marketing and sales and business drivers.
Speaker Change: As a result, we delivered a healthy adjusted EBITDA margin of 16, 6%.
Manuel Manfredi: The net loss was $3.9 million, an improvement of $9.3 million from a net loss of $13.2 million in Q1 2023. Turning to our Outlook for the remainder of 2024, we are providing an annual outlook, which we believe provides a greater level of insight into our business, and while we focus on every aspect of our business daily, we plan the business annually.
Speaker Change: Net loss was $3 $9 million.
Speaker Change: Also $9 3 million from a net loss of $13 2 million in quarter one 2023.
Speaker Change: Turning to our outlook for the remainder of 'twenty 'twenty four.
Speaker Change: We are providing an outlook, which we believe provides a greater level of insight into our business and why we focus on every aspect of our business daily we blended business annually.
Manuel Manfredi: With that said, we're very pleased with the performance of our grant and believe our strategy has poised us to deliver increasing rates of revenue growth as we move through the year and adjusted EBITDA margin expansion in fiscal 2020. In total, for fiscal 2024, we expect comparable net revenue growth to accelerate from the 21% increase achieved in the first quarter, with a strong contribution from both our Obagi skincare and base makeup.
Speaker Change: We're very pleased with the performance of our brand and believe our strategy has voiced task to deliver increasing very tough revenue growth as we move through the year and adjusted EBITDA margin expansion, if he's got anything before.
Speaker Change: In tough times for fiscal 'twenty, four we expect comparable net revenue growth to accelerate from the 21% increase actually from the first quarter with a strong contribution from both of our ore body skincare makeup.
Manuel Manfredi: Breaking this down further, at Ubagi, we expect growth to be driven by the continued development of our U.S. fish and dispense market as we strengthen our dermatological credentials, strong innovation plan, and the continued expansion of our e-commerce and international presence. At Mid Makeup, growth is expected to be driven by the introduction of compelling, relevant innovation and brand collaboration and expansion in brand awareness.
Speaker Change: Breaking this down further.
Speaker Change: Boggy, we expect growth to be driven by the continued development of our U S research and defense market.
Speaker Change: Strengthened our doesn't matter how you cut credentials.
Speaker Change: Innovation plan and they continue with expansion to our E Commerce and international presence.
Speaker Change: I can make up grocery is expected to be driven by the introduction of a compelling relevant innovation and brand collaborations.
Speaker Change: Spansion in brand awareness.
Manuel Manfredi: From an Adjusted Gross Margin perspective, we expect fiscal year 2024 to be another positive story as we forecast Adjusted Gross Margin to expand for both algae and milk versus the rates achieved in 2026. Keep in mind that while we expect this full-year gross margin expansion on Avagi versus the prior year, Q1 2024 saw particularly strong gross margin expansion due to one-off effects in the Q1 2023 base, positively impacting the quarter. We expect selling and marketing business drivers to increase while achieving operational leverage at the brand level by eliminating fixed costs despite the increased investments in our teams to support the growth. At the central cost level, we have invested to support our growth as a public company but have not yet captured the future savings we expect at the brand level through the development of our central structure.
Speaker Change: From an adjusted gross margin perspective, we expect fiscal year 'twenty to 'twenty four to be again, another positive story as we forecast adjusted gross margin to expand for bulk buys you a mic.
Speaker Change: It's actually the rates actually if in 2023.
Speaker Change: Keep in mind that while we expect these full year growth my goodness friendship.
Speaker Change: Right, Yeah, Q1, 'twenty 'twenty four so, particularly strong gross margin expansion due to one off effects in the Q1 2023 base positively impacting the quarter.
Speaker Change: We expect selling and marketing business drivers to increase while achieving operation.
Speaker Change: I did run a little bit.
Speaker Change: Fixed costs, despite the increased investment.
Speaker Change: To support their growth.
Speaker Change: At the center of course, we have invested to support our growth as a public company, but have not captured yet the future savings, we expect that the brand level by the development of our centralized structure.
Manuel Manfredi: The combination of strong comparable net revenue growth along with gross margin expansion is expected to more than offset the HG&N's until... to deliver a mid-piece adjusted data margin for the year, nicely ahead of the 11.2% adjusted data margin achieved in fiscal 2023. Turning to our balance sheet and cash flow, we end the fiscal 2023 year with a solid balance sheet with no near-term activities and ample liquidity to fund our asset-light business model.
Speaker Change: The combination of a strong comparable net revenue rose along with the rest of margin expansion is expected to more than offset a G N answering telcos to deliver and meet these figures because it would be done for the year nicely ahead of the 11, 2% adjusted EBITDA margin actually used if he sent that to some degree.
Speaker Change: Yeah.
Speaker Change: Turning to our balance sheet and cash flow. We ended fiscal 2023 year with a solid balance sheet with no near term maturities and ample liquidity to fund our asset light business model.
Manuel Manfredi: As of December 31, 2023, net debt totaled $141.8 million, and cash and cash equivalents were $21.1 million. At the end of the first quarter 2024, net debt totaled $150.6 million, and cash and cash equivalents were $26.8 million. We had positive cash flow from operations that was offset by non-retiring expenses related to the accounting restatement and SEC investigation. The outstanding share count was little changed at 122.1 million shares at the end of year 2023 and 122.2 million as of April 15, 2020.
Speaker Change: As of December 31st when do you tend to see net debt fell by 141 $8 million.
Speaker Change: Cash and cash equivalents were $21 1 million.
Speaker Change: I'd be in our first quarter 2024, net debt to 156 million in cash and cash equivalents were $26 eight.
Speaker Change: We had positive cash flow from operations was offset by nonrecurring expenses related to the accounting restatement and FCC investigation.
Speaker Change: Outstanding share count you can change that $122 1 million shares I'd be an up year in 2023.
Speaker Change: $122 2 million as of April 15th 2024.
Michelle Brissette: With that, I will turn the call back over to Michelle. Thank you, Manuel.
Speaker Change: With that I will turn the call back over to Chad.
Thank you Manuel.
Michelle Brissette: Now, let's take a look at our results and our plans by brand, and let's start with milk. Milk make-up completed an excellent year of growth in fiscal 2023. As we noted, we expect to build upon this success in 2026. Net sales were $100.5 million, increasing 38.6% from 2022. Our adjusted gross profit was $66.7 million, or 66.4% of net revenue, and adjusted EBITDA was $18.4 million, or 18.3%.
Speaker Change: Now, let's take a look at our results on our plants by Brown.
Speaker Change: Let's just start with milk.
Speaker Change: No makeup completed an excellent year of growth in fiscal 2023, as we noted we expect to build upon the success in 2024.
Speaker Change: Net sales were 105 million, increasing 38, 6% from 2022, our adjusted gross profit was $66 7 million or 66, 4% of that revenue.
Speaker Change: Adjusted EBITDA of $18 4 million or 18 point can be prevented.
Speaker Change: Yes.
Michelle Brissette: In the first quarter, Milk generated net revenue of $34.5 million, an increase of 21.5% from the first quarter of fiscal 2023. Neil's excellent quarter was led by growth in North America and through strong e-commerce growth with continued traction from our international... The adjusted gross margin grew an impressive 540 basis points to 71.3% of net revenue as we benefited from our efforts to lower costs and increase efficiencies in sourcing and distribution and better management of our inventory, driving lower obsolescence. Adjusted EBITDA rose 12.4% to $10 million, with an adjusted EBITDA margin of 29.1%, as a strong revenue and gross margin expansion was mitigated by increased investment to drive sales.
Speaker Change: With the first quarter Nov generated net revenue of $34 5 million an increase of 21, 5% from the first quarter of fiscal 'twenty to 'twenty three.
Speaker Change: Excellent quarter was led by growth in North America. After a strong e-commerce growth with continued traction from our international expansion.
Speaker Change: Adjusted gross margin grew an impressive 540 basis points to 71 point, 30% of that revenue as we benefited from our efforts to lower costs and increase efficiencies in our sourcing and distribution.
Speaker Change: And better management of our inventory and driving to lower obsolete inventory.
Speaker Change: Adjusted EBITDA Rose 12, 4% to 10 million with adjusted EBITDA margin of 21% a strong revenue and gross margin expansion was mitigated by increased investment to drive sales.
Michelle Brissette: Now, MiLK's mix of ambition is to be the number one global beauty brand of the next generation. This is a brand that has been built in its DNA to be that brand, uniquely connecting with our needs, values, and passions. Makeup beyond a bronze is a movie.
Speaker Change: Now this makes us ambition was to be the number one global beauty, Brian over the next generation.
Speaker Change: As a barometer hasnt been buildings DNA to be that brought unique connecting with her and values and passion points.
Speaker Change: The makeup be on our Bronx ease of movement. It is rooted in its community inspired by the energy by focusing on diversity of New York City and powered by high performance gaming products.
Michelle Brissette: It is rooted in its community, inspired by the energy, vibrancy, and diversity of New York City, and powered by high-performance clean energy. Milk makeup is anchoring three core pillars: brand, community, and product. On brand, our priority is to double down on our DNA, what makes our brand unique, desirable, and relevant, and accelerate our awareness whilst broadening our brand love and beauty credentials. Community is, remains, and will always be at the heart of what we do, and it will nurture our deep connection with our core audience as well as welcome new groups.
Speaker Change: No makeup you're cycling three core pillars Brown community and Paul.
Michelle Brissette: Last but not least, on product, we will keep nurturing category-leading heroes, innovation-leading launches, and always delighting our consumers with high-performance clean utilities. Our mission is to help our community lift their look, an invitation to self-expression and live their dream. Our model begins and ends with the community, to inspire their inspiration and creativity is a product that we love. Partner with them and amplify their voice, and they do the rest, sharing the love and passion for the brand and products further building and inspiring our wider community.
Michelle Brissette: Our milk make-up team is not only among the best in the industry but very embedded in the culture of consumers today. They are our special power, highly committed to our values, super passionate about our vision, and very reflective of the diversity of our community.
Speaker Change: On Brown, our priority is to double down on our DNA, what makes our brand unique these favorable and relevant and accelerate our awareness was broadening our brown loss on beauty credentials.
Speaker Change: Community.
Speaker Change: <unk> remains I would always be the heart of what we do nurture our deep connection with our core audience. That's the way it is.
Speaker Change: Welcome to <unk> groups.
Speaker Change: Last but not least from product, we keep nurturing category, leading heroes innovation, leading launches and what's the likelihood of consumers with high performance can you T D.
Speaker Change: Our mission.
Speaker Change: Is to help our community lift there Luke and invitation for self expression I live in there too.
Speaker Change: Our model <unk> financials community.
Part of the inspiration and creativity for all the thing we love, we partner with them and amplify their voices on.
Speaker Change: And they do the rest of the north and passion for the brand and products further building an inspiring their wider community.
Speaker Change: Our mills makeup teams not only among the best of the industry, but very embedded into our culture of consumers today. They are our special power.
Speaker Change: Highly committed to our run volumes super passionate about rotation and they reflect the diversity of our community.
Michelle Brissette: This passion is contagious, and in Q1, we received almost 20,000 qualified job applications for our brands. In terms of our innovation, relevant, unique, seductive innovation is a proven engine behind our success. Our market-leading innovation brings the DNA of our brand to our community through cleanbeautyproducts.org. Breakthrough products that deliver on performance and allow self-expression while being good for you. Clean, vegan, and cruelty-free.
Speaker Change: These passion is contagious and we had just in Q1, almost 20000 qualified job applications for our brands positions intensify innovation rarely one unique deducted from our reinsurance that proven engine behind our success our.
Speaker Change: Our market, leading innovation brings the DNA of our brand to our community clean beauty products that work well.
I can personally deliver on performance and allow self expression, while it's being good for Ya clean vegan and cruelty free volumes, that's highly clinic with our community.
Michelle Brissette: Values that highly connect with our product strategy has three pillars. Over the years, we have built strong cult icons in Prime and Zed and our award-winning multi-stick franchise. We will continue to strengthen the stronghold through always-on-core activations and product extensions such as the recently-launched and super-exciting ProEclipse Matte Blur, a complementary addition to our ProEclipse Prime and Ted Funds. Our second priority is also to surprise and delight our community across new segments, such as eye, lip, and complexion.
Speaker Change: Our product strategy has three pillars over the years, we built strong cold, calling from prime onset and our award winning multi stick franchises.
Speaker Change: We will continue fueling the stronghold for always on core Activations and product extensions I've, just recently launched a super exciting for it keeps my blur.
Speaker Change: Implement the addition to our product keeps trying on Sept punches are.
Speaker Change: Our second priority is all sorts of price and delight our community across your segments I need a complexion.
Speaker Change: That tells me the viral all these unit plus launching tobacco Twenty-twenty C, which continues to build momentum this year.
Michelle Brissette: And a highlight has been the viral Odyssey lip gloss launched in the back of 2023, which continues to build momentum this year. And most importantly, we want to remain the most exciting and innovative make-up brand for the new generation, just in Q1 2024 with Turbocharger Innovation on March 3, category-leading products. First, our Cloud Foaming Primer, an industry-first texture for primers with a striking glow finish. Cush Lip Oils, building on our successful Cush Francus, are a sheer, non-sticky, hydrating lip oil that deliciously delivers an intense shade of hydration and shine.
Speaker Change: And most importantly, we want to remain the most exciting I didn't know they didn't make a bronco the new generation.
Speaker Change: Just in Q1 2024 with two more chartering innovation three category leading.
Speaker Change: First our cloud phone primer and even just your first statue for primers with a striking grilled fish.
Speaker Change: Cautiously oils building on our successful push frankly, I saw a sheer non sticky hydrating lip oil that delicious unilever's defecate, a hydration and shot.
Michelle Brissette: And last but not least, our viral cooling water jelly tin. A long-lasting lip and cheek stain with a super unique hydrating bouncy jelly texture for a buildable burst of color. I personally have not seen many launches like this one in my career. The strength of this innovation and the power of our brand and community propelled Milk Makeup to become the number nine EMV brand makeup brand in the U.S. in Q1 2024, peaking at number six in February with 1.2 billion impressions, 58 million views, and further growing our community by 372,000 followers and count, and not only a huge buzz with our community and our social but also solidifying our credibility and our authority with already 11 top peer awards year to date and the year is only at the beginning.
Speaker Change: And last but not least a viral cooling water July 10th.
Speaker Change: Long lasting leap and she's staying with a super unique hydrating Ballsy Guinea texture for a build a little burst of color.
Speaker Change: I personally nothing many launches like these ones in my career.
Speaker Change: The strength of innovation on the power of our brand and community propel nail makeup to become the number nine E. M. D. Brown makeup brand in the U S. In Q1 2024.
Speaker Change: That number six in February with one 2 billion threshold 58 million views on further growing our community, but you haven't done so in 2000 followers and counting.
Speaker Change: And not only a huge buzz with our convenience our social but also solidifying our credibility and authority with already 11 talk Peter Awards year to date on the year's only at the beginning.
Michelle Brissette: Now, this community loss is not limited to the United States, but it spans globally, starting with our launch in Scandinavia with Lico, where consumers and parents queued for hours in anticipation for the much-awaited milk-makeup launch at the retailers. We are now the number three make-up brand in the entire store and the number one and number two open make-up brands in Norway and Finland, respectively. And by the way, all of us at Waldenkern and Milk want to specially thank Roy, who drove eight hours so that her daughter, Jessica, could be able to be there for the launch of Milk & Liquor.
Speaker Change: Well these community law is not limited to United States, but its spots globally, starting with the launching of Scandinavia, with legal where consumers I'm, Paris queued for hours and anticipation for the much awaited makeup launch at the retailer.
Speaker Change: We are now the number three making Brian in the entire store number one number two old when you make a brown, Norway and Finland, respectively.
Speaker Change: By the way all of us at Walden kind of milk once especially thank Roy.
Speaker Change: Who drove eight hours. So that's a daughter Jessica could be able to be there for the launch of middle of legal. This is just an example of that community love and passion for our brands.
Michelle Brissette: This is just an example of that community love and passion for the brand. Now the brand love and friendship has also reached the UK, with the launch of Milk Makeup at Boots in Q1, and this comes on top of our successful performance at Sephora UK and Space Inc, and further confirming its global appeal, the brand Frenzy expands to Latin America with Melt Makeup becoming the number one makeup brand in Mexico, Colombia and Chile at our retail partner Blush Bar and making it to a top position at number five and number three overall beauty brand respectively at that.
Now the Brown law from friends, who has also reached the U K with a launch of milk makeup at boots in Q1, and these thoughts on top of our successful performance of Sephora U K on spacing.
Speaker Change: And further confirming its global appeal, the Brown frenzy expands to Latin America with milk makeup become the number one make a brand in Mexico, Colombia, and Chile at a retail partner blush bar and make it into a top position and number five and number three overall beauty brand respective you got that David.
Michelle Brissette: And as we close a great Q1, we're looking forward to even more exciting innovations with the recently launched Poricius Butler, as well as the much-anticipated new mascara launches in our Cush Colt franchise, with KUSH High Roller Mascara and Brow Geek. Now, from clean, cool makeup that works, let's move to the world of fine-ssed transformative skin. As discussed earlier, Obagi finished fiscal 2023 with $112 million in comparable net revenue, increasing slightly at 0.2% from fiscal year 2020.
Speaker Change: Are we close to a great Q1, we're looking forward to even more exciting innovations because I recently launched toric and spud blur, that's where that's much anticipated and you almost got a launch in our Kush coal franchise.
Speaker Change: With Kush high roller mascara umbrella gels.
Speaker Change: Now from King who make up that works that's most of the World Science led tough formative skincare.
Speaker Change: Discussed earlier, while you're finished fiscal 2023 with $112 million.
Speaker Change: Favorable net revenue, increasing a slightly fewer 0.2% from fiscal year 2022.
Michelle Brissette: Revenues reflected strong growth in the U.S. and internationally outside of Southeast Asia, where with a new direct go-to-market model, we did not capture yet the revenue related to a former Southeast Asian distributor. With our new market model in place, we have begun to rebuild our presence in Southeast Asia, with a region expected to contribute strongly to Obadiah's growth in the future. The adjusted gross profit totaled $83.7 million with a gross margin rate of 71.2%, and adjusted it without $20.8 million led to a healthy margin of 17.7% despite the restructuring costs of our Southeast Asian economy.
Speaker Change: Revenues reflect a strong growth in the U S and internationally outside of Southeast Asia, where with a new direct go to market more and we do not capture yet the revenue related to a former South East Asia.
Speaker Change: With our new market model in place, we have you gone to rebuild our presence in southeast Asia the region expected to contribute strongly to our largest growth in the future.
Speaker Change: Adjusted gross profit totaled $83 7 million with a gross margin rate of 71, 2%.
Speaker Change: And adjusted EBITDA of 28 million led to a healthy margin of 17, 7%. Despite the restructuring costs are south essentially.
Michelle Brissette: With the first quarter, Obagi resumed strong revenue growth, recording $33.4 million in comparable net revenue, an increase of 20.6% from Q1 2020. Revenue was driven by the strength of our innovation, robust growth across key channels, including U.S. physician dispensed and e-commerce channels, further supported by the expansion of our international, Adjusted Gross Profit totaled $27.5 million with Adjusted Gross Margin expanding to 81.4% from 64.8% in the first quarter of fiscal 2020, and strong sales growth, combined with significant expansion in adjusted gross margin, more than offset increased investment, leading to adjusted EBITDA of $6.7 billion, and adjusted EBITDA margin expanded 260 basis points to 20% from 17.4% in this first quarter.
Speaker Change: With the first quarter provide you with some strong revenue growth recording $33.4 million in comparable net revenue an increase of 26% from Q1 2023.
Revenue was driven by the strength of our innovation.
Speaker Change: Robert robust growth across key channel into a U S physician dispensed and e-commerce channels further supported by the expansion of our international distributors.
Speaker Change: Adjusted gross profit totaled $27 5 million with adjusted gross margin expanding to 81, 4% from 64, 8% in the first quarter of fiscal 2023.
Speaker Change: And strong sales growth combined with significant expansion in adjusted gross margin more than offset increased investments leading to adjusted EBITDA was $6 7 million.
Speaker Change: And adjusted EBITDA margin expanded 260 basis points to 20% from 17, 4% in the first quarter of 'twenty to 'twenty three.
Michelle Brissette: And when we double-click by region, we see that the growth of our budget has been both domestically and internationally, respectively at 43.5% and plus 22%. This international growth figure excludes Southeast Asia, but we're still in the ramp-up period of our newly restructured Southeast Asia business, which is not yet at the level of sales we achieved under the prior restriction.
Speaker Change: And when we double click by region, we see that the girl, so a whole bunch of buses or even both domestically and international perspective, he at 43, 5% plus 22%.
Speaker Change: It's international drove figure excludes southeast Asia, where we are still in their ramp up period of our newly restructured southeast Asia business, which is not yet at the level of sales we achieved under the private institutional.
Michelle Brissette: For Obagi, our vision is to be, over time, the number one physician-dispensed dermatological brand in the world, providing targeted solutions to professionals and consumers to deliver transformative, visible results. Today we're the number one U.S. physician recommended brand in the U.S. on key skin concerns, pigmentation, fine lines, and wrinkles, as well as sagging skin, which represents two-thirds of skincare sales in the channel. To become the number one physician dispenser dermatological brand in the world, we have three core strategies. Number one, strengthening of the dermatological skin to brown and physician-dispensed DNA. 2.
Speaker Change: For a boggy our vision is to be over time. The number one decision we spend several months illogical, Brian in the world, providing targeted solutions to professionals and consumers cause it to lever some form of these recent well results.
Speaker Change: Today, we're the number one U S decision recommended brand in the U S on top key skin concerns pigmentation fine lines and wrinkles.
Speaker Change: Signaled scheme, which represent two thirds of skin care sales in the channel.
To become the number one sufficiently spent their muscle as you know Brian in the World We have three core strategies.
Michelle Brissette: Accelerate cutting-edge science-packed innovation that delivers transformative results. And three, grow brand awareness and footprint to reach more consumers domestically and internationally. My focus on Obagi since we acquired the brand has been to build on the very rich and deep heritage in physician dispense while modernizing the brand to bring a more effective, compelling, and relevant proposition to professionals and patients. So we are introducing a new brand visual ID that showcases the brand's credentials and, if you will, an identity that lives across multiple professional and consumer touch points that showcases our science credentials, clinical results, ingredients, as well, And it culminates in the much-anticipated packaging redesign, which we built with clear objectives.
Speaker Change: One strengthening or the dermatological skincare brown on physicians and stuff.
Speaker Change: To.
Speaker Change: Accelerate cutting edge science backed innovation to deliver transformative results on three grow brand awareness and footprint to reach more consumers domestically and internationally.
Speaker Change: I keep focus on our bodies since we acquired the Bronx.
Speaker Change: Has been to build on the very rich and deep heritage and physicians spend while modernizing the bronx to bring them more effective compelling and relevant proposition to professionals and patients.
Speaker Change: So we are introducing our new brand visual I D that showcases the Bronx credentials and results.
Speaker Change: And you wish identity, the lease across multiple professional and consumer touch points.
Speaker Change: Show cases, our science credentials clinical result ingredients as well of course transformative results.
Speaker Change: And they coordinate the much anticipated packaging redesign, which we built with clear objectives, firstly to build a relevant uncle. He she brand proposition that is reflective of our dermatology called credentials as well as improve its navigation to help professional recommendation any practices play.
Michelle Brissette: Firstly, to build a relevant and cohesive brand proposition that is reflective of our dermatological credentials, as well as improve its navigation to help professional recommendation and in-practice use. The design has been tested with both professionals and consumers on fast, overwhelmingly strong positive feedback, and the results speak for themselves; testing showed that the panel found the brand much more appealing 89% versus 77%, more distinctly 73% versus 64%, and much more recognized, 68 from 38, and most importantly, a purchasing intent that went from 70% to 80%.
Speaker Change: Did he sign husky tested with both professionals and consumers.
Speaker Change: Overwhelmingly strong positive feedback and the results speak for themselves.
Speaker Change: Testing showed that the final founder Brian much more a P, 89% versus 77% more distinctive 73 versus 61%.
Speaker Change: I'm much more recognized 68 from 38 or so.
Most importantly, our purchasing things like Russell, 70% to 83%.
Michelle Brissette: As we refresh the brand to make it more relevant, distinctive, and appealing, hence strengthening our medical credentials to existing and new audiences, we have also further deepened our dermatological roots by partnering with Dr. Susan Obagi, as Obagi's first chief medical director. Dr. Obagi's credentials speak for themselves as she is a world-renowned dermatologist and cosmetic surgeon and will play a pivotal role in shaping our innovation, research, and educational projects. Physicians are the heart of our brains, and Dr. Obagi, our Obagi Physician Council, as well as all of our physician partners, bring unique insights into our product development cycle that feed research, innovation, clinicals, and education to make sure we design products and protocols that over-deliver for the patient.
Speaker Change: To refresh the Bronx, and make it more relevant distinctive unappealing, hence strengthening or medical credentials to existing and New Orleans.
Speaker Change: We have also further deepen our dermatologist or who's like partnering with doctors Susana bacci.
Speaker Change: Your first chief medical you back.
Speaker Change: So I'll throw bodies credentials decline itself and she is a world renowned dermatologists uncles make surgery and will pay a pivotal role in shaping our innovation research education approaches.
Physicians are the heart of our bra and doctoral Bodgie, our fifth largest position counsel as well.
Speaker Change: All of our physician partners brings unique insights into our product development cycle that feeds research and innovation Canadian call Center location to make sure we design products and protocols that overly on their patients.
Michelle Brissette: This innovation strategy has led to industry-recognized innovation, the latest one being the Obagi Daily Hydro Drop Rejuvenating Eye Cream that sold out in 72 hours across China. We have more cutting-edge science-led innovation coming in the second half. New formats, new technologies, and always the same, medical-grade efficacy and transformation, innovation that is also key to drive consumer awareness inside and outside of the television channel and expand our audience reach, and a focus on recruiting new incremental consumers, younger consumers who are currently not aware of Opage, and they are not yet in our Heartland physician channel, which on average has an age of 42-plus years, to introduce into OVAGI and the physician-displaced ecosystem to further grow the category and fuel our brand growth flywheel.
Speaker Change: Do you think innovation strategy has led to industry recognized renovation the latest one being your boggy daily Hydrogel rejuvenated item that's sold out in 72 hours across channels.
Speaker Change: I'm more cutting edge science led innovation coming in the second half and we're four months New technologies I know with the same medical great efficacy anthro home with yourselves.
Speaker Change: Innovation, but it's also key to drive consumer awareness inside and outside of that channel and expand our audience reach.
Speaker Change: And our focus on recruiting new incremental consumers younger consumers, who are currently not aware of a boggy.
Speaker Change: We are not yet in our heartland fishing channel, which on average have an age of 42 plus years.
Speaker Change: To introduce them to a biogen with physician understands ecosystem to further grow the category and feel like Bronco flywheel.
Michelle Brissette: In conclusion, we are more excited than ever about our business and our growth prospects. We have two powerful, high-growth, compelling brands perfectly positioned in the most attractive segments of the category in the beauty business, the most attractive. We have a team of world-class operators and beauty experts that are passionate about delighting our consumers. We have very engaged communities that inspire us and support our innovation. Overall, we're very confident in our near and long-term business prospects, having strengthened our business platform, improved our business processes, and delivered successfully against our visible growth. We continue to expect their efforts to lead to long-term value creation for Waldencast stakeholders and, over time, build a global best-in-class beauty and wellness multi-version.
Speaker Change: In conclusion, we're more excited than ever of our business on a gross.
Speaker Change: Gross prospects with two powerful high growth companion Bronx, Burford people fishing with the most attractive segments of the category in the beauty business. The most.
Speaker Change: Beautiful.
Speaker Change: We have a team of world class operators on beauty experts are passionate about delighting our consumers, we have very engaged community that inspires and see our innovation.
Speaker Change: Overall, we're very confident anywhere near our long term business prospects.
Speaker Change: Strengthen our business platform.
Speaker Change: Roof their business processes and deliver successfully against RBC will go with the strategy.
Speaker Change: We continue to expect the air force to lead to long term value creation for Walden got to stakeholders I'm overtime build a global best in class beauty and wellness the multi brand platform.
Michelle Brissette: With that, I will turn the call over to the operator to begin the Q&A portion of the call. Thank you. 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
Speaker Change: With that I will turn the call over to the operator to begin the Q&A portion of the call.
Operator: Thank you. 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. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if he would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, while we poll for questions.
Operator: One moment while we pull for questions. Our first question is from Ashley Helens with Jeffries. Please proceed. Hi, this is Sydney on behalf of Ashley.
Speaker Change: Our first question is from Ashley humans with Jefferies. Please proceed.
Stephanie: Hi, This is Stephanie on for Ashley I know the recent note Shelly can launch was very successful with on Alpha can you talk a bit more about what you're seeing with that consumer and kind of what you think attracts you know tweens to the brand.
Stephanie: Yeah.
Michelle Brissette: Yes, of course, Sidney. How are you? Well, Jelly's goes far beyond Gen Alpha, in fact. We've seen a relatively broad appeal. But of course, the key drivers of that, in terms of Gen Alpha, are being, number one, very interesting and new. I mentioned the tick-tock-tification of beauty. We're seeing younger and younger consumers interested in beauty and participating in it. And as a consequence, more and more of them look for these breakthroughs, new forms, new innovation that is, in many ways, expandable and viral in some cases, like the case of our Jellies launch. So it's the same. I think we think Generation Alpha looks for the same things that most consumers look for, which is great products, great performance, interesting, seductive textures, and creativity.
Speaker Change: Yes of course, any how are you a well Jerry's is goes far beyond general flying Fox, we've seen a relatively broad appeal.
Speaker Change: But of course are the key drivers of that inter so general size being number one the interesting new.
Speaker Change: Texture as well as a very compelling buildable.
Speaker Change: Bill or cold or pay off and of course executed beautifully by the team across different touch points with really breakthrough interest in creating what we're seeing in generation outside U S.
Speaker Change: Is the adult defecation of beauty, we're seeing younger and younger consumers interested in beauty and participate in the beauty and as a consequence of more and more of them look for these breakthrough new forms new innovation that becomes a in many ways expandable.
Speaker Change: And and violent things in some cases or the case of our journey as long so instead.
Speaker Change: It's the same thing with a generous and all cause it looks for the same things I think most consumers local she has great products great performance Ah interesting seductive fixtures on trade.
Speaker Change: Great. Thank you.
Operator: Our next question is from Joanna Kim with TD Cowan. Please proceed.
Speaker Change: Our next question is from Joanna Cam with TD Cowen. Please proceed.
Michelle Brissette: Thank you for taking my question. I'm just curious if you can dissect a little bit more into the growth drivers behind accelerating trends for the rest of the year versus the first quarter, and also, it seems like you're accelerating marketing spend, to talk about where you're allocating your spend and how you're measuring ROI for your spend. Thank you so much.
Joanna Cam: Well. Thank you for taking my question just curious if you can dissect.
Joanna Cam: Dissect a little bit more into the big growth driver behind accelerating trends for the rest of the year.
Chris: Chris its fourth quarter, and I'll say, it seems like you're accelerating marketing spend.
Speaker Change: You talk about where you're allocating your spending higher so you're measuring ROI for your spend thank you so much.
Michelle Brissette: Joana, thank you so much. Yeah, I mean, our growth drivers are a little bit different by brand, but they rely on the same fundamentals. In the case of milk, we are increasing now, since we acquired the company, quite substantially the marketing spend with a great ROI in return. And we would see incremental marketing spend quarter over quarter as our business progresses. We hold a very tight measure of ROI behind it, and we're seeing great results from it. Second, is innovation; we have an incredible. We had an incredible Q1 Vintage of Innovation with three great products.
Speaker Change: Got it. Thank you so much yeah, I mean, our growth drivers are a little bit different body by brands, but they rely on.
Speaker Change: On the thing from a mental.
Speaker Change: In the case of milk is we are increasing now for since we acquired the company quite substantially the marketing spend.
Speaker Change: With a great ROI and return and.
Speaker Change: We would see incremental marketing spend.
Speaker Change: Or was there also a business progressed as we hold our very tight national Rois behind it and we're seeing great.
Speaker Change: Soltes Franck secondly, innovation, we have a.
Speaker Change: Incredibly had incredible he sold Q1 vintage I think innovation with three great products, we have very important products coming up that's part of it.
Michelle Brissette: We have very important products coming up as part of the launches. And number three is this strong growth we're seeing internationally. I think what is important to note about milk is that at the end of the day, a lot of this growth is really built on productivity.
Speaker Change: I prefer the launches.
Speaker Change: Three is the strong growth we're seeing internationally I think what is important to note the milk is.
Speaker Change: At the end of the day a lot of these growth is really built on productivity, we've not expanded substantially distribution older than on those basically highlighted the U K, where we expanded into well first with a four on van space, NK and boots, and I guess I'll leave when it's kind of an area the majority of the growth.
Michelle Brissette: We have not expanded substantially distribution other than in those places we highlighted, the UK, where we expanded into, well, first with Sephora and then Space NK and Boots, and I guess with Lyko in Scandinavia. The majority of the growth, the vast majority of the growth, is coming from increases in productivity as consumers become more aware of a brand or innovation performs stronger. In the case of Obagi, our U.S. decision-defense channel continues to be the bedrock of our brand.
Last one do you have like a girl who's coming for increases in productivity on the consumers become more aware of our brand our innovation our performance is strong.
Speaker Change: And it gets a whole body our U S. Sufficiently Fairchild continues to be the bedrock of our of our brand is growing strongly or we're building from strength to strength and recommitting to our brand DNA and recommitting to our core Butler for Omnichannel performer for US you know an important part of our growth both of what you would call them with us.
Michelle Brissette: It's growing strongly. We're building from strength to strength, recommitting to the brand DNA and recommitting to the core, but also our omnichannel performance has been an important part of the growth, both at Obagi.com as well as other online retailers. International is starting to add to our growth, quite substantially outside of Southeast Asia. It's important to note that, as we mentioned in the presentation, for Southeast Asia, we are still below the level of sales that we had under the previous distributor model, but we're building strongly into what I think is going to be, what we are convinced is going to be, a much more robust, larger, more profitable business in the region.
Speaker Change: That's what I was older online retailers international is just starting to add to our growth.
Speaker Change: Quite substantially outside of South East Asia is important to note that as we mentioned in the presentation for southeast Asia. We are still below the level of sales that we had under the previews dispute with her Mali, but we're building a strong into what I think is going to be where we are convinced it's going to be a much more robust.
Speaker Change: A larger and more profitable business in the region as well.
Michelle Brissette: So a little different by brand, as you can see. In terms of measuring ROI, that's a very core part of what we do. So the allocation is a little different by brand. We have in milk quite a strong allocation against in-store support as well as social and influencer. In the case of Obagi, it's very single-mindedly focused against our physician, physician dispense, and getting consumers to recognize Obagi and go to their doctors or dermatologists or statisticians to ask for them.
Brian: A little bit different by Brian as you can see intestinal Michigan, otherwise that's a very core part of what we do.
Brian: Our allocation to something different.
Speaker Change: By Bronx, we havent milk quite a strong allocation of games in.
Speaker Change: It'll support that's where the social and Influencer in the case of how Boston is very single mindedly focused against our.
Speaker Change: This is self sufficient in Spanish and getting consumers to to recognized full boggy and go to their doctors mythology sourced additions to ask for them.
Operator: Got it. Thank you so much. Our next.
Speaker Change: Got it thank you so much.
Operator: Our next question is from Dana Kelsey with Kelsey Advisory Group. Please proceed. Hi, good morning, good morning. Can you talk a little bit about the gross margin side?
Speaker Change: Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed.
Speaker Change: Hi, Good morning. Good morning can you talk a little bit about on the gross margin side distribution channels, what you're seeing in terms of product marching by distribution channel and brand and the outlook going forward. Thank you.
Michelle Brissette: Hi Dana, yes, of course. Again, it's a little bit different by brand. For example, Obagi, a lot of the strong progression that you see on Obagi is a combination of channel mix, as our opening channel e-com business grows strongly with, but at the same time, also a 3D simulation. All of our new innovation comes out of 3D cross-margin. It's not only very compelling and very effective, but also... you have a strong accretion in terms of gross margin.
Speaker Change: Yes of course and deliver defined by by Brian <unk>.
Speaker Change: A lot of its strong progression that you see in our budget is a combination of channel makes us our omni channel E comm business grow grocery strongly with but at the same time also a treaty simulation all of our new innovation comes in our Treaty gross margin is not only very compelling and very effective but also you have.
Speaker Change: A strong accretional gemstone.
Speaker Change: Oh, gosh module and it gets a milk growth watch the gross margin response that is very much driven by operational improvements as we scale we think.
Michelle Brissette: In the case of milk, the growth margin response is very much driven by operational improvements as we scale. This includes forecasting, inventory management, more efficiently sourced products as we scale, and developing scale that allows us to get a little bit of the benefits of that scale when it comes to cost of goods. So we're seeing very strong positive contribution in our efforts.
Speaker Change: Was forecasting inventory management more efficient use of products from.
Speaker Change: That'll scale. It also allows us to get a little bit of benefits of that scale when it comes to.
Speaker Change: Two cost of goods. So we're seeing a very strong positive contribution.
Michelle Brissette: Now, we expect a strong gross margin progression year over year. I think, in the case of Obagi, Q1 gross margin is particularly strong. We think that is still going to be ahead, but if you want gross margin or margin, it was particularly strong. So, that is Obagi; we are benefiting from a bit of channel growth on Ecom. MILF is really a strong operational progression with not a lot of impact by channel into AdB.
Speaker Change: Now.
Speaker Change: We expect a strong gross margin progression year over year I think in the case of whole body Q1 gross margin was particularly strong.
Speaker Change: Yeah.
Speaker Change: We think that you're still going to be going to be ahead, but Q1 gross margin was.
Ned: Let's stick with every stroke, so Ned if oh Gee, you're benefiting from a bit of.
Ned: China growth or equal <unk> milk is really a strong operation operational progression with not a lot of things like by like channel into other things.
Ned: Yeah.
Speaker Change: Thank you.
Operator: As a reminder, it is star one on your telephone keypad if you would like to ask a question. Our next question is from Linda Boltenweiser with DA Davidson. Please proceed.
Speaker Change: As a reminder, it is star one on your telephone keypad, if he would like to ask a question. Our next question is from Linda Bolton Weiser with D. A Davidson. Please proceed.
Speaker Change: Yeah.
Operator: Yes, hi. I was wondering if on the Obagi side, in terms of the Southeast Asian distributor, in terms of getting that back to the size it was before, is that a one to two-year endeavor or a multi-year one? Or, what do you think the timeframe will be to get it back to a bigger size? And do you think it can get to be as big as it was before? Thanks. Thanks, Linda. Yeah, I think we should
Speaker Change: Yes, Hi, I was wondering if on the ore bodies inside in terms of the South East Asian distributor.
Speaker Change: In terms of getting that back to the size. It was before or is that a one to two year endeavor or multiyear or what do you think the timeframe will be to getting that back to the bigger size and do you think it can get to be as big as it was before.
Speaker Change: <unk>.
Michelle Brissette: Thanks, Linda. Yeah, I think we believe that our Southeast Asia business is going to be substantially bigger than what it was under the prior distribution agreement. Not only bigger, but more profitable if we internalize a lot of that margin. It is going to be a journey.
Linda: Thanks, Linda Yeah, I think we we believe that our southeast Asia business.
Speaker Change: Overtime is going to be substantially bigger than what it was under the priority extrusion and getting a little bigger but more profitable. If we can turn our lives a little of that module is going to be a journey are we relaunched the bra and getting on and he actually in November. So we are.
Michelle Brissette: We relaunched the brand in Vietnam initially in November, so we are still in the very early stages of that process. We are launching into other countries, namely Thailand, Singapore, India, and Malaysia, in the near future. So, it is building rapidly, and it is building rapidly at a profitable rate. That said, I think it is going to be, specifically in the case of Vietnam, where the prior distributor had a particular strength. It is going to take us, I would say, another 18 months to 24 months to get back to the level of where we were before, but again, in a way that it is much more profitable earlier on and much more
Speaker Change: As stated in the very early stages of that.
Speaker Change: Process, we are launching into other countries.
Speaker Change: Namely, Thailand, Singapore, India and Malaysia.
Speaker Change: In the coming in the near future.
Speaker Change: It is building rapidly and is building rapidly at a at a profitable rate that said I think he is going to be the case, its basically because of Vietnam, where.
Speaker Change: The prior distribute excuse though had a particular strength is going to take us.
Speaker Change: And I would say another 18 months to 24 months to get back to the level, where we were where we were before but again in a way that it's a much more profitable earlier on and much more robust.
Speaker Change: Okay. Thank you.
Operator: Thank you. We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing remarks.
Speaker Change: Thank you we have reached the end of our question and answer session I would like to turn the conference back over to management for closing remarks.
Michelle Brissette: Well, thank you everyone for joining us in what it is again, a coming back to normality, I would say quarterly reporting in our business. We're very excited about this quarter and our prospects, and I look forward to continuing to sharing with you the progress we made as we build the next global best-in-class beauty and wellness company. Thank you.
Speaker Change: Well. Thank you everyone for joining us in what it is again, a coming back to normality I would say quarterly filing in our in our business. We're very excited.
Speaker Change: This quarter and our prospects and I look forward to continuing to sharing with you and the progress we've made as we build the next global best in class Beauty and wellness company. Thank you.
Operator: Operator Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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