Q4 2024 Oddity Tech Ltd Earnings Call
Good morning, welcome to oddities fourth quarter and full year 2024 earnings Conference call. Today's call is being recorded we have a lot of Kate it's time for prepared remarks and Q&A at this time I would like to turn the conference over to Maria the chorus investor.
Relation strategy. Thank you.
Again.
Speaker Change: Thank you operator, I'm joined by Ron Holtzman, Oddities, cofounder and CEO, Nick price at a D. C T O and Lindsay Drucker Mann Oddities Global CFO as a reminder, management's remarks on this call that do not concern past events are forward looking statements. These include predictions expectations or estimates, including statements about oddities.
Speaker Change: And our strategy and market opportunity future financial performance and potential long term success forward looking statements involve risks and uncertainties and actual results could differ materially due to a variety of factors. These factors are described in our forward looking statements in our earnings press release issued yesterday and in our most recent annual report on form 20-F filed with the securities.
Speaker Change: Exchange Commission, 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 are included in our earnings.
Speaker Change: Press release, which we issued yesterday I'll now hand, the call over to Iraq.
Iraq: Thanks, everyone for joining our call today.
Iraq: We need 24 was another strong year for both the full financial statements, but even more importantly for the investments we've made to drive our business in the future.
Iraq: Until my teams almost exist today, because the hub will could do two and three years ago.
Iraq: I'm proud of it but it is in the past we must continue to work hard to invest today to ensure we keep winning.
Iraq: It is for this reason that I'm bullish about 2025 and beyond our business is very strong and we are developing more engines of growth than ever before.
Brent: And just across the ODT labs, you Brent in AI.
Iraq: So let's start with over 2020 full performance.
Iraq: 24, we grew revenue, 27% to six totaling $47 million and delivered adjusted EBITDA of $160 million at the 23, 3% margin growing adjusted EBITDA, 40% year over year, we generated $134 million.
Iraq: Free cash flow converting over 130% of our net income into cash.
Iraq: We again proved the poll online we'd beat our earnings guidance every single quarter since going public and continuously raised our outlook on sales and profitability every single quarters seven quarters in a row.
Iraq: Both of our brands did great in 'twenty 'twenty four each growing revenue double digits in Mckee has crossed the 500 million revenue Mark in 2024 Boy child recently crossed the 150 million Bucks for it stood that's anniversary this month.
Iraq: We maintained strong and consistent momentum across the year, including all the fourth quarter, we grew revenue by 27%.
Iraq: This momentum continued into 2025, well, we had a great start for the first quarter growing across brands and product categories.
Iraq: And given the importance of our first quarter put us in a good position to once again meet the annual targets for revenue growth of 20% and adjusted EBITDA margin of 20%, which we're committed to doing every year.
Iraq: One of the most important focus metric for us is rupee.
Iraq: Repeat is the best indicator, we have of customer happiness, and satisfaction and of our ability to sell new products into existing customers and of course, we'd be revenue is high margin for us and drives our strong profitability.
Iraq: We are therefore pleased to have further strengthened although we'd be tilting 'twenty 'twenty, four and increasing as a percentage of you'll probably be disappearing from the tree.
Iraq: This was driven by a strong 12 month rubbing the repeat rate of over 100% level that we believe is best in class growth.
Iraq: We are clearly an outlier other beauty companies that have reported weak demand and excess inventory.
Iraq: I want to explain why we are all performing today and why we believe we will continue to do so in the future.
Iraq: But we have deliberately focused on the most attractive growth areas of the market. These include the shift to online and the increasing consumer demand for high performance product.
Iraq: And all of you the move in recent quarters to online appears to be having more meaningful impact than in the past there's too much product into many physical points of distribution, while online is growing at a strong pace off a larger base.
Iraq: The global beauty industry is one of the most attractive markets in the world in our view using size and highly profitable with so many areas to innovate and grow.
Speaker Change: I believe they can commit under invested in technology and they've been slow to adapt to a changing consumer we can see how it is hurting their business today and creates an opportunity for us as we continue to invest and strengthened our moat on those fronts.
Speaker Change: The second reason for our outperformance is a direct to consumer model, which has so many advantages over both the brands.
Speaker Change: And in a tough industry backdrop doesn't benches really shine.
Speaker Change: We have a direct dialogue with consumers without interfering we understand the performance of every product by platform by Ed by geography by formal every hour of the day, we double down on what is working and continuously optimize to make sure. We never hit the wall did all the D to C model, we have a very accurate read.
Speaker Change: Long planning, we have full control of our inventory avoiding excess inventory to talk the brands are facing today.
Speaker Change: Clothing, all the discounting that comes along with it.
Speaker Change: Turning now to physical product one of the greatest strength is our ability to develop high performing product lounge or into our user base and create more of your refrigerated from the very beginning we built a culture OTT to truly believes in product what are the soldier pinpoint and does it better than others.
Speaker Change: With that she loved and wanted to come back to and these strengths really shows in our numbers today.
Speaker Change: With the original product portfolio, we launched back in 2018, which continues to grow double digits based on industry data. We believe in a monkey eyes is the number one foundation the number one prime now and the number two could slow in the U S prestige dollar sales.
Speaker Change: Our product innovation are growing even faster are good examples of Invacare scheme, which we launched in 2022 and as of 'twenty 'twenty four represented around 30% of the brand revenue and it should continue to grow.
Speaker Change: Boy Child is another example launch in 2022 and now make up almost 25% before did you revenue today and growing double digits.
Speaker Change: But product innovation machine is all a direct connection with the consumer that they enable us to learn what she needs. Another is that we're still developing protocols that require any product. We launched two big competitors in large scale consumer draws if it isn't perfect. We won't launch it even if it means we don't launch a product.
Speaker Change: What was recently added to our existing products. So strategy is already loves of about the club in Boston that is a major investment for us over 60 scientists full time working on discovering and developing new molecules that have the potential to disrupt the old industry completely.
Speaker Change: You said before I believe this will take time, but it can be a true game changer for us.
Speaker Change: I want to close with some thoughts on why we are bullish on 2025 and discuss some of the investments we are making for the future.
Speaker Change: I'll begin with the coal business, where we have incredible strength in both in your backyard and spoiled child, both as a great 2024 and are off to a strong starting 'twenty or 'twenty five.
Speaker Change: Yes, it's already one of the largest prestige beauty brands by revenue and you're doing that it states. After only six years in the market based on industry data.
Speaker Change: And it is on truck to reaching 1 billion below if revenue by 2028.
The color business continued to grow with breakthrough pit scheme is a massive opportunity as I mentioned reached 30% of framework, Yes brand sells at 'twenty 'twenty four and we'll continue to get even larger remember that for most of our largest competitors scheme that business is twice the size of color.
Speaker Change: International is another major opportunity that we have slowed play throughout the years, we began slowly accelerating our growth outside of the U S. In the first quarter of clinic 25, both by increasing scale in existing markets like UK, Germany, and Australia as well as large scale testing in your markets. So far it looks good and we continue to believe it.
Speaker Change: The National would go with the big numbers.
Charles: Charles we are also willing to be a billion dollar brand.
Charles: This scale at a healthy rate burst into $150 million LTM revenue marked and doing it with strong repeat rates and a yoga.
Charles: It shows how much unmet demand there is for the brand we have begun testing international multiples Bullshitting 25, with good indications and potential there.
Charles: Another reason that makes us bullish about the future is that when your brands with every brand we push ourselves even more to not only to solve the market, but it's up to us again and again.
Charles: Rent freeze the telehealth platform for consumers that we start with the medical grade skin and body issues like acne eczema and other pigmentation and then we'll expand to other health domains.
Charles: Our offering includes a comprehensive and innovative product range and access to prescription and OTC Richmond, enabling full personalization to user profiles types and severities.
Charles: Individual treatment plans can be updated and adjusted to minimize side effects and increase the efficacy.
Charles: With <unk>, we are building a user experience and product portfolio that we believe can change the game with real time capabilities for it including specialized video technology for assessment and the mobile app with a treatment lifecycle country engine to encourage compliance with their treatment routine.
Charles: Grand Prix is on track to launch as scheduled in the second half of this year, we plan to soft launch in Q3, and then the rollout of official launch in Q4.
Charles: Brent four is also a big opportunity that we're very excited about more details on that front to come.
Speaker Change: Moving toward what we are using saw him a great technologies and AI based wanted to discovery to develop high efficacy signed back product for all the industry.
Speaker Change: Our mission at what did he loves to bring real size below industry at high scale for the first time and turbocharged distribution through <unk> online platform.
Speaker Change: We could then grow over time with your talent across bioengineering computation chemistry and delivery teams I was sorry to start actively developing both short and long term innovation in skin color, yeah, and Bobby with a singular goal of exceeding the efficacy of existing products.
Speaker Change: To achieve this we are working on multiple parallel R&D strategies across each of our programs to increase the chances of success.
Speaker Change: In the short term we are working on preparing to launch new molecules will blend Korean brand for them.
Speaker Change: Our it teams are working on longer term development, ensuring we focused on both delivering short term impact while investing in the future. This longer term developments include our next generation molecule delivery system, new modalities, and you'll biological pathways to improve because it beyond internal R&D.
Speaker Change: Followed by partnering with leading platforms to accelerate target then he discovery using cutting edge technology, including Greening and advanced human Organoid models to identify new targets and predict musicals efficacy.
Speaker Change: Hey, based platform that identifies new targets and generate predictions that modulate given targets based on the genetic data and RNA sequencing.
Speaker Change: And Jenny I algorithms to develop new highly effective complex is composed of natural ingredients.
Speaker Change: Energy is just one part of the equation effective deliveries essential to cross dating say different breakthroughs into real World performance. We are investing in delivery systems building internal capabilities and partnering with those parties to optimize different compounds, which drove dougherty it.
Speaker Change: It is still early to know what will work its way of doing it for the first time, but I can assure you we push out 24 seven on multiple areas to increase the chances of success is that already said in previous calls we don't need only to allow us to meet our financial targets, but what we are billing and loves it for total disruption if we do it right or is he loves will change our company.
Speaker Change: And our industry forever I fully believe it.
Speaker Change: Finally, a few words on our investment in tech before I hand, it to all sit deal and if price all the big investments that are paying huge dividends for us today, allowing us to be ahead of our competitors and winning online. This is why we could turn to double down on our investments in tech talent and capabilities. This year with the acquisition of Photonics.
Speaker Change: B, we brought in house and elite AI research team with experience from Israeli intelligence units. This team will focus on solving all it is high input missions and Huntsville, because models and help us preserve our lead.
Move: I'll now hand, it to move to talk through what we are billing in tech in more detail.
Move: Thanks Ryan.
Ryan: Indeed, we believe the oddity bathroom today is the most advanced AI based commercial engine and our industry.
Speaker Change: We continue to push our capabilities to new height.
Speaker Change: Our technology allows us to deliver a better experience to customers and what is possible in the door.
Speaker Change: In order to do that we need great data and the ability to hyper personalize the user experience.
Speaker Change: These are problems that machine models are especially well suited for and why do we have from an early stage in building these capabilities.
Speaker Change: Starts with product matching.
Speaker Change: The ability to understand each user and deliver them the perfect match based on her needs.
Speaker Change: The vast majority of our first purchase revenue come through one of our AI based matching algorithm. We're continuously improving these models in order to reduce return and increased satisfaction and repeat.
Speaker Change: As one example, our latest version of it.
Speaker Change: Apartment, which were recently released.
Speaker Change: Best performing shade matching model ever.
Speaker Change: The multimodal architecture, depending on both images amtech.
Speaker Change: It reduced return of our best selling shape.
Speaker Change: 10%.
Speaker Change: Turning to our user journey and how we personalize every experience to their individual in order to maximize conversion in LTV.
Speaker Change: I like to think of this model is a virtual personalized store their cars being built around our users as they walked through based on the information we gather about them.
Speaker Change: One example is the new model, we introduced recently.
Speaker Change: While targeting both Britain up too.
Speaker Change: Instead of offering a random project after purchase or one three chosen by a human we use machine models to make the decision.
Speaker Change: This drove a 30% plus improvement in absolute conversion and at 15% plus improvement absolutely.
Speaker Change: For brand three we're taking private matching and hyper personalization to a new level with a full suite of AI model.
Speaker Change: Include converted this meant for different skin condition, whereas leaving classification and predictive view, where we combine generative AI model with our unique data and algorithm in order to predict and show you. The day one they should expect it looked like rock their treatment journey, all the way through clarity.
Speaker Change: These capabilities are critical to aligning expectations with the increasing dissatisfaction in compliance and reducing churn.
Speaker Change: Working closely with top dermatologist, we were able to show that their models have reached this year a level of accuracy that match it or be that single dermatologists.
Speaker Change: Breakthrough Foundation models from opening I met a Google and others have been a huge win for us.
Speaker Change: We can take these models combine them with our unique data and algorithms and build new too faster and way more efficiently and with possible before.
I'll give you an example in the Acme domain, we stuck with it foundation model that knows how to identify zirkle color and texture.
Speaker Change: We then teach the foundation model, if you see a circular rent bump that elysian and teaching it means showing its many ground truth example, using our proprietary data of more than 10 million unique images from our users, which we believe is one of the largest dataset of this nature in the world.
Speaker Change: We do another final step of additional training with our data and boom you have a domain expert.
Speaker Change: This approach has two important advantages one speed.
Speaker Change: Since the starting point would that cause the foundation model that knows the world quite well trying to get into an expert is faster than if you had to teach it from scratch.
Speaker Change: To quantity.
Speaker Change: Are usually better than if you started from scratch.
Speaker Change: But the precondition for this is you must have the data so for us having the unique proprietary data we can now move much faster than car and get more accurate results.
Speaker Change: Turning to the platform. It is important to emphasize especially as we're rolling out more and more brands.
Speaker Change: We're building odyssey's technology with the modular and extensible design, which makes it usable across all brands and makes it plug and play for all new launches.
Speaker Change: This allows us to be super efficient in terms of time resources and capital.
Speaker Change: These modular oddity core library span across every aspect of our platform.
Speaker Change: User facing interactions like our funnels and check out the video on demand with cancer.
Speaker Change: Computer vision, the agnostic and tracking core capabilities product recommendation tons and tons of application, which would be expensive to build separately, but on our platform. We leverage these core library to drive speed resulted in efficiency for each brand.
Speaker Change: With that I will turn it over to our global CFO Lindsay.
Lindsay: Thanks, Dan, Let's turn to our Q4 results, which I will refer to on an adjusted basis you can find a full reconciliation to GAAP in our press release.
Lindsay: We delivered another record breaking quarter to cap off a record breaking year. We grew net revenue by 27% in the quarter to $97 million. The strength was driven by both Yamaki eyes, and spoiled child across a range of product categories.
Lindsay: Revenue growth was driven primarily by an increase in orders, while average order value increased 12% year over year.
Lindsay: Average order value growth continues to be driven by mix in particular, the increased proportion of Oh, my gosh skin as well as higher items per order.
Lindsay: 27% revenue growth, we delivered this quarter beat R, 22% to 24%.
Lindsay: The upsides stands in contrast to the concerns we hear from investors about weakening sales trends and other beauty businesses, including both wholesalers and retailers as Ron said our results are a testament to the strength and resilience of our direct to consumer model and how we positioned our business to win in the most important factors of industry growth.
Lindsay: Moving down the P&L gross margin of 72.7% expanded 330 basis points year over year and exceeded our guidance of 68%.
Lindsay: Delta versus our outlook was driven in part by product mix.
Lindsay: We delivered adjusted EBITDA of $15 million in the quarter and adjusted EBITA margin of 12, 3% above our guidance in absolute dollars and in margin percentage terms.
Lindsay: Adjusted EBITDA margin compressed by 453 basis points as we incurred planned incremental expenses in the quarter to drive future growth initiatives, including brand three brand for an oddity labs.
Lindsay: We delivered adjusted diluted earnings per share of <unk> 20.
Lindsay: Compared to our guidance between 11 and 13.
Lindsay: Our adjusted EBITDA, and EPS excludes approximately $8 million of share based compensation.
Lindsay: We continued to deliver very strong free cash flow and free cash conversion, a clear reflection of the strength and quality of our business model, we generated $134 million of free cash flow in 2024, an increase from the $85 million we generated in 2023.
In fact, our free cash as a percentage of revenue was 21% in 2024 and 17% in 2023 leading among other beauty companies based on reported results. We believe the strength in our cash flows and it's just one more indicator of our model's advantages relative to our competitors.
Lindsay: We continue to put that cash to work and create value for our shareholders. During the full year 2024, we repurchased three 6 million shares of our stock for approximately $147 million. This includes two 4 million shares repurchased in the fourth quarter would be a directed buyback of a portion of catterson shares for approximately 100 million.
Lindsay: $103 million remaining on our buyback authorization, we will stay opportunistic on share buybacks going forward based on our strong cash flows ample cash reserves and attractive share price.
Lindsay: We exited the year with $169 million of cash equivalents and investments on our balance sheet and zero debt.
Lindsay: Turning to our outlook for 2025 Q1 is off to a strong start with good momentum in January and February.
Lindsay: The size of the quarter combined with the high predictability of cohort repeat gives us good visibility to meet our long term algorithm of 20% revenue growth and 20% adjusted EBITDA margins.
Lindsay: Some specific drivers impacting our full year P&L include during 2025, we plan to incur incremental expenses associated with growth investments and brand three four and the oddity lab. This is principally to cover costs associated with people tech infrastructure and product development.
Lindsay: Even with these investments we're firmly committed to delivering a 20% adjusted EBITDA margin for the full year and beyond.
Lindsay: Brands relaunch as Ron said, we're on track for the second half of this year and continue to expect no material revenue contribution in 2025 brand for it will be ready for launch this year, but we've decided to move into early 'twenty six to give more focus to brand three more leadership focus and more capital allocation to one brand person splitting.
Lindsay: And the same year for Q brand. This has no material impact on our 25 outlook.
Lindsay: We're still incurring significant prelaunch expenses and have not contemplated any revenue contribution from branch four in a year.
Lindsay: Gross margin for the year is expected to be around 70% as our product mix normalizes, which we discussed in our last earnings call as well. We will also incur a higher cost of goods expense. This year for brand three which will operate at a lower gross margin at launch than the company average.
Lindsay: <unk> said before we continue to see minimal impact on our business or changes in tariff policy sticking with the topic of policy uncertainty, let me address Ticktock ticktock as one of many platforms that we use for acquisition and we have no overreliance on it.
Lindsay: That could impact our business is tictoc ceases operating in the U S is not material.
Lindsay: Moving down the P&L, we expect adjusted EBITDA margin of 20% in line with our long term algorithm, but continue to plan to reinvest any EBITDA dollar upside back into the business adjusted EPS of $1 94 to $1 98 assumed the blended tax rate of 20% and does not incorporate the potential benefit from additional share buyback.
Lindsay: Yeah.
Lindsay: Turning to the first quarter outlook, we're off to an excellent start and are pleased with the composition of our growth across both brands and categories as well as our cohort repeat rates, we expect year over year net revenue growth in the quarter to be between 22, and 24% you can find more details on our Q1 outlook in our press release and with that I'll turn the call back to the operator for questions.
Yeah.
Lindsay: Thank you we will now be conducting a question and answer session.
Lindsay: Like to ask a question. Please press star one on your telephone keypad.
Lindsay: For me should tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
Lindsay: And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star. He is yes that you. Please limit to one question and one follow up question one moment, while we poll for questions.
Speaker Change: Our first question is from Cory Carpenter with Jpmorgan. Please proceed.
Cory Carpenter: Oh good morning, Thanks for the questions I had two maybe one international Ron I think you mentioned in the prepared remarks, you're starting to push more in <unk>. So could you just go a little deeper on your strategy and kind of what Youre doing on the international side, and why now and and Lindsay I think for you just once you understand.
Cory Carpenter: And that's your highest customer acquisition quarter. So could you just talk about what you've seen in the first few months on the customer acquisition side in Rwanda and payback on that spend thank you.
Cory Carpenter: Hi, good morning Corey.
Cory Carpenter: It's all international and the teams are working hard to accelerate international for many years as you know and what they wanted to achieve nose to show cause that it is our decision when and how much we want to grow there I also restarted its important to spread the growth across small markets and instructed the team's OLED back in 'twenty 'twenty four to allow for more.
Cory Carpenter: Growth internationally in 2025.
Cory Carpenter: So we began slowly accelerating the growth outside of the U S. In the first quarter of this year, both by increasing scale in existing markets like U K, Germany, and Australia as well as larger scale testing in your market.
So far it looks very good as expected and we continue to believe international will grow to a huge number for us.
Cory Carpenter: As you know it is a massive opportunity.
Cory Carpenter: Competitors internationally, I think like two thirds of their business.
Cory Carpenter: And we are building like truly localized experience for each international market, which gives us strong performance from day, one when we launched those new international markets and this is like one of the biggest levers and.
Cory Carpenter: And we can do this whenever we want.
Cory Carpenter: Like.
Cory Carpenter: The reason that we pushed internationally because softness in the U S and the U S. I instructed the team last year that they want to push more in in 2025, and that's what we did a slim and our decision how quickly we want to pace the growth.
Cory Carpenter: In those new markets and to prioritize it.
Lindsay: I hope it answers the question Lindsay Yeah.
Cory Carpenter: Yeah.
Corey Carpenter: Thanks, Corey So Q1 is off to a great start as we as we mentioned in our prepared remarks and as you know Q1 is a really important quarter for us. Its one we currently engines back on for our acquisition and we exited the fourth quarter with really good momentum and now.
Corey Carpenter: Performance across both brands and multiple products product category, you heard Ron talk about skin now for 2020 for reaching 30% Maquillage brand revenue that's been a big highlight for us even as the color business continues to grow double digits and and spoiled child has good momentum. So all of those things really carried forward for us.
Corey Carpenter: In the first quarter in terms of ROE as the media gets more expensive every year consistently we're able to offset it with all of the very strong repeat rates that we have in that can of course, Ron mentioned it twice before but it continued into the first quarter as well that were repeated as a larger portion of our business, which allows us to get.
Corey Carpenter: A nice overall return on our AD spend.
Corey Carpenter: Okay.
Corey Carpenter: Thank you Beth.
Speaker Change: Our next question is from Youssef Squali with truly Securities. Please proceed.
Youssef Squali: Alright. Thank you very much good morning, guys. So on <unk> I know you talked a little bit about this in your prepared remarks, but at a high level in terms of your growth relative to peers are you seeing any weakness or trades down across your consumer base [noise] from ongoing macro concerns and it looks like consumer confidence.
At least in the U S continues to deteriorate do you think this business.
Youssef Squali: <unk> continues to perform well regardless of what how the macro does over say the next 12 months 12 to 18 months.
Youssef Squali: Then at Lindsay on tick Tock was with Pitcock impact that at all as a marketing channel for you guys by degree shut down in January and it's the platform does go away, what's the best substitute with comparable rollout for you guys is it Instagram as it.
Speaker Change: We'd love to just see if there is a substitute.
Speaker Change: Good morning.
Speaker Change: I would think both let's start with easy one pick stocks that took.
Speaker Change: He is being shutdown tomorrow nothing up into the business.
Speaker Change: You did like we already saw it in one day and we are the fact that we do everything internally without agencies allow us to move very fast and to shift spend to other platforms and therefore no.
Speaker Change: No impact.
Speaker Change: For the markets look we started before the consumer is moving online I said multiple times I believe this is the case I believe it will be more than 50% and we know the challenges and some of our competitors have and it's really not surprising when you consider how much.
Speaker Change: The consumer is moving online and how much their focus and he's going into brick and mortar with over 1000, new points of distribution in just the couple of last.
Speaker Change: Yes.
Speaker Change: We did see a lot of promotions from other brands in Q4, which was public drive demand. This is isn't an issue for us thankfully because we don't run the business. This way, we're not participating in OLED film and but for other brands. It can be very damaging as part of their consumers are conditioned to show only.
Speaker Change: During sales and promotion and so it makes it very tricky for Q1 for them.
Speaker Change: Overall, it's like what we see I wouldn't know who is the big opportunity for us because we believe this transformation is still in early days online penetration can double from where we are today.
Speaker Change: And that's what keeps us very bullish about the future.
Speaker Change: Okay. Thanks, a lot.
Speaker Change: Yeah.
Speaker Change: Our next question is from Javier Escalante with Evercore ISI. Please proceed.
Speaker Change: Or I'm Lindsay nice talking to you. My question has to do more on the consumer side. If you can expand on repeat purchases.
Speaker Change: Which I understand you define it more as conversion within the same cohort I'm, perhaps if you have visibility on that with whether you can discuss Oh my gosh in terms of which areas do you see the strongest repeats we didn't exist in <unk>.
Speaker Change: Alex I believe should be foundation.
Speaker Change: But this is my guess on how much of the L. Maquillage grows is coming right now from consumer trial. After skincare extinctions. Thank you.
Speaker Change: Okay.
Speaker Change: Good morning.
Speaker Change: I'll start with repeat unlike most companies would generate most of our revenue from repeat and this is although we grew over 25%. So far this year. So this is why the business is still profitable.
Speaker Change: Repeat in 'twenty four grew them too modest.
Speaker Change: Modest 60% of the business revenue.
Speaker Change: Way higher than 2023 again this is Aldo we grew over 25% actually 27% in revenue.
Speaker Change: This is an important metric for us because it really shows how strong. This inspection happiness is M and if I dive deeper our 12 month net revenue repeat rate is more than 100%, which we believe is among the best there is indeed to see and this metric was less than 50% complete to more than 100.
Speaker Change: A few years ago.
Speaker Change: We drive repeat by three main ways. One is more repeat from the same product foundation concealer hair skin and number two is expanding wallet share with new products and if it's older foundational casino before now we are I'm offering her skin.
Speaker Change: We treat our repeat and number three we are getting cross selling from El Maquillage to spoil the child and the future for new brands.
Speaker Change: So this is the way that we view it and repeat it's very strong.
Speaker Change: The court that we see we don't see them and its openness.
Speaker Change: Or and if I can squeeze a second one if you don't mind.
Speaker Change: Hum the you know the strong growth in Q1, you started on the Stark contrast, with most traditional beauty companies.
Speaker Change: Could you talk about costumer acquisition kind of like in growth rates say Q.
Speaker Change: Q1, 'twenty 'twenty four I have these many millions of users.
Speaker Change: And you know as of now in Q1 I have decent anymore in the growth rate. If you can tell us how much of the 20% 23 I believe grows we would be the midpoint of your guidance come from new users versus existing users buying again. Thank you.
Speaker Change: Sure.
Speaker Change: Our biggest push in user acquisition and age one like every year Q1 is the biggest in Q2, then we slowed down because we don't want to grow more than that and we enjoyed the repeat them, but it doesn't mean that we don't have very strong grip and in Q1 and if.
Speaker Change: If I had it I wouldnt like if I didn't have it wouldn't be able to to lend on those EBITDA margins, though because as you know acquisitions don't super profitable and so we could we are pushing and we are acquiring new users, but the same time, we are lending on a very healthy EBITDA margin, which is a testament of the strong repeat rate the spot revenue.
Speaker Change: Although we grew and the new user and the new user by acquisition.
Speaker Change: And it's called media as you said.
Speaker Change: In <unk>, we continue to generate attractive returns on our marketing spending and again you can see by by our strong margin that we forecast for Q1 and for 2025 full year and Q1 media is getting more expensive, but as expected, but due to the super healthy repeaters.
Speaker Change: I mentioned before and it's being offset and and we can see healthy margins.
Speaker Change: Thank you very much.
Speaker Change: Okay.
Speaker Change: Our next question is from Andrew Boone with citizens. Please proceed.
Andrew Boone: Thanks, So much for taking my questions I'd love to understand the key product milestones as we think about brands for you coming to market. Later this year, what do you guys need to accomplish and kind of knocked down to set brand three up for growth and for it to scale in the 'twenty five 'twenty six.
Andrew Boone: And then what is he just stepping back from a bigger picture perspective, as we do think about the P&L and you guys are making significant investments across multiple growth factors that really aren't contributing and twenty-five materially how do we think about sizing those growth investments to better understand your inherent underlying profitability. Thanks, so much.
Speaker Change: I will start with your second question of course, Lindsey, who can elaborate and we all Doug.
Speaker Change: I want to say more than doubling our investment in Q1 versus Q1 last year around labs, Brent when Brent floor. So when you think about the magnitude just like you could do to grow them.
Speaker Change: And although it will do to grow is to lend on.
Speaker Change: On our margins.
Speaker Change: We are committed to.
Speaker Change: Brand tree M is the telehealth platform with medical grade products, we are starting with skin and budget issues like am I going to XOMA implementation and then we'll add additional health domains already in 2026th in steel I can't elaborate more for competitive reasons.
Speaker Change: But where we are today, we start with Buddy in skin, we see these issues a huge pain points that but big portion of our user base has to be structured with corn solution instead of bill either inconvenient to the doctor office, or peaking and ineffective treatment blindly mm mm.
The drugstore and this is a huge opportunity for what it didn't we would never launching this year unless they had a very good read that we know how to win around those M. M. M. M area. We tested a lot we are willing to spend for more than three years and we are in a good position to launch it in.
Speaker Change: We are developing what is most personalized most comprehensive lineup product comprised of OTC and Rx products all had to build sold online other than our own brand most product formulated with existing ingredients on the market and some OTC products will include exclusive ingredients on quality lab.
Speaker Change: And we are building a special but kind of as I mentioned the call mobile app experience to increase compliance and drive higher repeat comparing to the market today and <unk> leveraging the best Eagle Ford, which is our platform, our user base and marketing to them and developing products to address their needs.
Speaker Change: Jim.
Speaker Change: As I mentioned, Nicole soft launched Ukraine official on Q4.
Speaker Change: We are actively scaling the teams, which is a significant investment for OTT, we completed and developing the probes and branding and we set up.
Speaker Change: L. A has been infrastructure to streamline user experience that support the delivery of forward and personalize treatment.
Speaker Change: And as Dave discussed a major.
Speaker Change: A major breakthrough for us around vision.
Speaker Change: The number that I saw all very compelling in terms of them, getting nauseous, and and and and and and matching and I'm very excited to launch this brand.
Andrew Boone: Andrew I'll, just just to give you a little bit more.
Speaker Change: Perspective, maybe on the the amount of spend.
Speaker Change: I'll highlight two things for you number one if you look at our profitability.
Speaker Change: First half of 'twenty 'twenty, four which was essentially just you know maquillage spoiled child, and then just beginning to ramp on our investments. We did have Audi labs of course in the base, but there's a small there's some investments there, but not as much as you saw for the full year in the back half of the year as we ramped in and what we're guiding to 25, you can get a sense looking at first half.
Speaker Change: The 24, how profitable the underlying businesses and remember 24 is our highest dollar level of marketing spend and it's so we're at our largest scale and it's our lowest portion of repeat. So this is you know that profitable. Despite the fact that it's kind of in the you know it's a period, where we actually are are.
Speaker Change: Arguing a lot of investment inherent in a and the D to C business I think that's that's one factor and the second thing that I would mention in terms of cost as we we have had very material increase in investments in these growth initiatives, we talked about spoiled child being a brand that we spent 20 million bucks upfront.
Speaker Change: The launch so brand story as it is more involved for us somewhat spoiled child, well I think it gives you a bit of a sense of kind of what are the upfront investments that we've of course layered them over a over a couple of years.
Speaker Change: I'd just say like.
Speaker Change: Tens of millions in terms of investment this year. So we cannot elaborate more but big investment for us across labs, Brent when Grenfell.
Speaker Change: That's very helpful. Thank you so much guys.
Speaker Change: Our next question is from Darren.
Speaker Change: With Morgan Stanley. Please proceed.
Speaker Change: Okay.
Speaker Change: Hey, good morning.
Speaker Change: So maybe we can look to brand three I was just hoping to get a bit more specifics on the consumer need states you're targeting.
Speaker Change: With brand three the total addressable market that you see.
Speaker Change: And.
Speaker Change: Maybe just a bit of an update to the extent you'd like to share on sort of effectiveness of the product so far and brand tree and you're testing for those consumer need states versus the existing competing products that are out there.
Speaker Change: Yeah, sure I think that they I feel but I will say it again and we start with eczema hyperpigmentation.
Speaker Change: And by the issuers.
Speaker Change: As for trial I want to say that we did.
Speaker Change: Close to 100 groups of draws like before the personalization customization with the numbers that are better than anything.
Speaker Change: And I think also that we sold so far in terms of matching its infection.
Speaker Change: Truly like more than two years into war just bought so we wouldnt launch it unless you are very confident that we have a strong offering.
Speaker Change: And.
Speaker Change: Just thoughts on the magnitude, we're launching dozens of new products for brand tree after testing and and and it's a huge lift for us, but then got the majority of the work is behind US and we are gearing up for launch.
Speaker Change: Great. That's helpful and then on the out of the Labs front can you just give us an update on commercialization of products. There in 2025, both on existing Skus, some more upgrading existing products, but also in terms of new products and molecule discovery, obviously brand three.
Speaker Change: <unk> may be a piece of that but.
Speaker Change: How do you see that developing in terms of new products going forward and commercializing some of that molecule discovery in 2025.
Speaker Change: Yeah.
Speaker Change: You know like still early with labs and not because we are not confident just because we are building something really meaningful does in terms of the infrastructure and processes. The good news is that you'll see new products coming from that the Brent Ti and Brent for which is very short.
Speaker Change: Hmm mm and in addition, we work very hard to build.
Speaker Change: I want to say more than 10 programs to launch them and more products from labs.
Speaker Change: That will take both time and because we want to ensure that we're not just launching for the sake of launching to make sure that we're launching ethical way.
Speaker Change: Wei hydro because you've been putting to the market.
Speaker Change: We are scaling the teams, we now have around and fix it sounded a building to 100, we've built a lot of infrastructure needed to make it high skilled commercial engine for us including systems processes and controls.
Speaker Change: We are constantly partnering with other platform to help us accelerate target than he'd discovery.
Speaker Change: In addition, we.
Speaker Change: We were walking on biology, and delivery systems to help optimize them how different compounds can reach the target.
Speaker Change: And as I mentioned short term focus brand tree brand for long term is way broader than that and again for competitive reasons, we're not sharing what exactly will work on the <unk>.
Speaker Change: Lastly, we are constantly exploring M&A opportunities to strengthen or she loves capabilities I'm looking for strong teams with advanced technologies, all new discovery that are aligned with our target space.
Speaker Change: I hope that's helpful.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: Our next question is from Scott showing house with Keybanc capital markets. Please proceed.
Speaker Change: Thanks team for taking my questions. My first one is on brand three launch in the Telehealth platform. Lindsay I think you mentioned that gross margins would be a little bit compressed versus your legacy brands. Here is that are you is that related to sort of the you know.
Speaker Change: Health care providers. The dermatologists that you have access to that will weigh on the gross margins just kind of wanted to drill into the.
Speaker Change: The workflows of this telehealth platform and in dermatology, obviously, there's a shortage of dermatologists and there's a long wait times. So there's a huge opportunity I feel like in this market segment for a for a pillow teletherapy telehealth.
Speaker Change: As well as diagnosis.
Speaker Change: And kind of wanted to work through you know the workflow platform with the telehealth versus the the vision technology. Thanks.
Speaker Change: Hey, Scott. Thanks, the gross margin comment is really specific to as we've talked about for brand three users will have access to those over the counter and prescription. The callout is really on the prescription side, where there's higher cost of goods associated with Doctor network.
Speaker Change: Pounding pharmacies and that kind of thing that being said, even with a lower gross margin profile. This is a business, where we expect to have great frequency and repeat and so as for all of our how all of our brands and we demand a threshold of contribution margin EBITDA margin and we're really really really.
Speaker Change: At about <unk>.
Speaker Change: The unit economic profile of the financial model for brand tree.
Speaker Change: I would just add that we need the infrastructure product or just for the Rx boat, which is going to be less than 50% of our offering and.
Speaker Change: Everything is in place to do it.
Speaker Change: M M deadline for lunch.
Speaker Change: Thanks, Oren and my follow up I'm, just actually talked about oddity lapse and you talked about M&A, So interesting perspective.
Speaker Change: Prospective here a question how do you how do you balance you know expanding your team at Aussie lapse organically versus M&A, you said you'd be I think you also mentioned you're partnering.
Speaker Change: For target optimization as well can you just dive into that more oren. Thanks.
Speaker Change: Sure.
Speaker Change: The limitation of what we can do internally in terms of like I believe it's a race and we need to move really fast and there is a limitation.
Speaker Change: Capacity and resources and and in order to make sure that.
Speaker Change: Can double Alibaba, we tried to get help from others and if we see something that is very promising for former reach out to them and we check if we can they can help us developing something with us.
Speaker Change: Oh, Yeah that we don't have an expertise in and this is one example, as for M&A, we acquired with the available. The same reason and we're constantly looking for strong teams and mostly in pharma because there is like in our industry is not that common and with this long term, we will not hesitate to acquire them.
Speaker Change: Thank you.
Speaker Change: Our next question is from Lorraine Hutchinson with Bank of America. Please proceed.
Lorraine Hutchinson: Thanks, Good morning can you.
Talking about the products you've launched Q1and each of the brands what you're excited about and then whats in the pipeline for the next several months.
Lorraine Hutchinson:
Lorraine Hutchinson: Hi, Lorraine sure so.
Speaker Change: New Ron talked about this a bit in his in his prepared remarks about how important product innovation has been for us.
Speaker Change: As a way to continue to drive revenue repeat and convert our users.
Speaker Change: I had never found that they were looking for into customers. So important in order to drive that conversion from users to customers and then to convert customers into repeat customers and we can see the benefit of that based on number one just how much contribution we're getting to the business today from new product innovation. So skin is a great example, there was no skin.
Speaker Change: Spoiled child, there was no skin or spoiled child up till 2022 and you can see how large those businesses has become and then you can also see with our a O V up 12% in the quarter and it was up nicely. All year. You know we are getting in that instance, a nice benefit from both the higher price points of those products.
But also the fact that people are adding more items to order them.
Speaker Change: More adding to the order because they're finding more but they want it allows us to do a better job of Upsells bundles and other things like that which ultimately drives which ultimately drive revenue and we do have some nice products in our pipeline and for that we tested we always before we like anything we do a lot of testing to make sure that we are.
Speaker Change: Really good about the product's ability to work of course, we're always testing our products themselves, but even before the product efficacy just understanding ADCETRIS tunnels and that kind of stuff.
Speaker Change: And so we've had some nice products that were tested in 2024, we have one product I'll highlight maquillage, which is our net claim that's going it's in in Q1 25, you know maybe I find that they target me often oh my social platforms and then maybe that's a hint for me personally and what I need them, but.
So we have liquid magnesium, we have some eye creams and and other items. So it's about five for each brand.
Speaker Change: For the full year across the year that will be and that's not even counting the he really robust product set that will be launching with brand three.
Speaker Change: Like any other year, Ralph outgrowth of each brand.
Speaker Change: It will have been launched.
Speaker Change: Thank you.
Speaker Change: Our next question is from Lauren Lieberman with Barclays. Please proceed.
Lauren Lieberman: Great. Thanks, Good morning, guys and I was curious to talk a little bit about the consumer environment. So obviously I understand that you don't have any exposure to traditional retail and some of that inventory destocking dynamics that are going on.
Lauren Lieberman: But you know you talk about how your consumer base is very broad across.
Lauren Lieberman: Age cohorts demographic cohort socio economic cohort.
Lauren Lieberman: I was just curious if there's anything you are seeing them from the consumer environment, because we hear a lot about the you know kind of cautious consumer and things not getting worse, but certainly not getting better strength at the high end, but kind of everyone lets call. It below 100000 of income household income kind of struggling so it's amazing how resilient.
Lauren Lieberman: Your business has been and so I was just curious if you could comment again on anything you're seeing or not seeing from a consumer environment and if you're not seeing it why why do you think that is.
Speaker Change: Thanks, Loren I guess I'll take it I mean listen we hear what other companies talk about we certainly follow what our competitors are saying you know you've been covering this industry for a long time that beauty is a really resilient category and are in and out of our economic cycles I suppose what's different about beauty. This cycle is just.
Speaker Change: The secular channels first and I know for many of those all of the companies that I listen to you even if their businesses are challenge. They every single one of them called out online as a bright spot.
Speaker Change: You can see from our business how strong the performance is and of course, it feels like Amazon has hit a bit of a critical mass or our crews are where theyre getting more great brands on their platform and and you're seeing that benefit. So I'm I think it's you know you rightly pointed out that we have a very broad demo brought across age.
Speaker Change: It is.
Speaker Change: Brought across them.
Speaker Change: Income as far as we can see just based on the wide range of brands that people trade interest from so from prestige beauty Penates Tonight Theres, a lot of different customers that trade in to listen to us. It's a reflection of the value that we deliver them what is it they say prices what you pay value is what you got a consumer as well.
Speaker Change: Turning to pay significantly more for the same type of product because the products, great and because we're delivering them something that they just cannot get outside of the oddity platform. So I think we're not necessarily the right place to look we have a broad demo we're really tiny in the midst of a very very large industry and we're right at the center of all this sort of <unk>.
Speaker Change: <unk> secular growth without anybody really doing anything close to what we are and and I would just add one more thing like what would you have three or four years ago with the verification offering now.
Speaker Change: Have color scheme.
Speaker Change: Well, Scott, we are explaining to them of pharma with them with them and with their brand pre and I think it helps it looked like and meeting our goals.
Speaker Change: Area, He's doctor, but needless to say as we mentioned that.
Speaker Change: So far we see a very strong Q1.
Speaker Change: Okay.
Speaker Change: Great and if I can just sneak in one more.
Speaker Change: Small I was just curious cross selling between spoiled child and he'll Nokia hours do you have any way of kind of quantifying that or what the crossover on the customer bases at this point.
Speaker Change: Yeah. It at the beginning of a new brand often you see a lot more cross selling them crossover I should say of users from marquee is that we then convert into customers are spoiled child by the way that was true for skin also initially for El Maquillage skin, we started off most of the west.
Speaker Change: Color on customers, who then ultimately.
Speaker Change: Would convert into skin, but now as the brand scale.
Speaker Change: Well tayo his skills and his as Mackie skin is another example of scale they stand on their own more I think in general we talked about something like half a spoiled child revenues.
Speaker Change: Kane from marquee is users not necessarily customers, but users the folks that had come through our El Macchiato platform.
Speaker Change: <unk> given us a bunch of information taken a quiz we've learned about them didn't find that they were looking for but then converted over into spoiled child. In addition to your own lucky as customers, who actually crossed over the two brands.
Speaker Change: Yep, Okay awesome. Thank you so much.
Speaker Change: We have reached the end of our question and answer session I would like to turn the conference back over to Ron for closing remarks. Thank you very much guys see you next quarter.
Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Speaker Change: [music].
Speaker Change: Okay.
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Speaker Change: Uh huh.