Q2 2026 ODDITY Tech Ltd Earnings Call

September 9, 2026

Speaker #1: Good morning, and welcome to Oddity's second quarter 2026 earnings conference call. Today's call is being recorded, and we have allowed plenty of time for prepared remarks and Q&A.

Operator: Good morning, and welcome to ODDITY's Q2 2026 earnings conference call. Today's call is being recorded, and we have allotted time for prepared remarks and Q&A. At this time, I would like to turn the conference over to Maria Lycouris, Investor Relations for ODDITY. Thank you. You may begin.

Speaker #1: At this time, I would like to turn the conference over to me, Maria Lycouris, Investor Relations for Odyssey. Thank you. You may begin.

Speaker #2: Thank you, operator. I'm joined by Oran Holtzman, Oddity's co-founder and CEO, and Lindsay Drucker-Mann, Oddity's global CFO. Niv Price, Oddity's CTO, will also be available for the question-and-answer session.

Maria Lycouris: Thank you, operator. I am joined by Oran Holtzman, Oddity's Co-Founder and CEO, and Lindsay Drucker Mann, Oddity's Global CFO. Niv Price, Oddity's CTO, will also be available for the question and answer session. As a reminder, management's remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations, or estimates, including statements about Oddity's business strategy, market opportunity, future financial performance, customer acquisition costs, and potential long-term success. Forward-looking statements involve risks and uncertainties, and actual results could differ materially due to a variety of factors. These factors are described under forward-looking statements in our earnings press release issued earlier today and in our most recent annual report on Form 20-F filed with the Securities and Exchange Commission on 17 March 2026. We do not undertake any obligation to update forward-looking statements, which speak only as of today.

Maria Lycouris: Thank you, operator. I am joined by Oran Holtzman, ODDITY's Co-Founder and CEO, and Lindsay Drucker Mann, ODDITY's Global CFO. Niv Price, ODDITY's CTO, will also be available for the question and answer session. As a reminder, management's remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations, or estimates, including statements about ODDITY's business strategy, market opportunity, future financial performance, customer acquisition costs, and potential long-term success. Forward-looking statements involve risks and uncertainties, and actual results could differ materially due to a variety of factors. These factors are described under forward-looking statements in our earnings press release issued earlier today and in our most recent annual report on Form 20-F filed with the Securities and Exchange Commission on 17 March 2026. We do not undertake any obligation to update forward-looking statements, which speak only as of today.

Speaker #2: As a reminder, management's remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations, or estimates, including statements about Oddity's business strategy, market opportunity, future financial performance, customer acquisition costs, and potential long-term success.

Speaker #2: Forward-looking statements involve risks and uncertainties and actual results could differ materially due to a variety of factors. These factors are described under forward-looking statements in our earnings press release issued earlier today and in our most recent annual report on Form 20F filed with the Securities and Exchange Commission on March 17, 2026.

Speaker #2: 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.

Maria Lycouris: 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 press release, which we issued today. I will now hand the call over to Oran.

Speaker #2: Additional information about these non-GAAP financial measures, including their definitions, is included in our earnings press release, which we issued today. I'll now hand the call over to Oran.

Speaker #3: Thank you, everyone, for joining our call today. While we continue to walk through the head account dislocation at Ilma Triage, I'm pleased to report progress in our business that hopefully positions us for recovery in 2027 and beyond.

Oran Holtzman: Thank you everyone for joining our call today. While we continue to work through the ad account dislocation at IL MAKIAGE, I am pleased to report progress in our business that hopefully position us for recovery in 2027 and beyond. SpoiledChild had a good quarter and strong year-to-date 2026 overall, and it is on track to grow at least 35% this year and approach $350 million of net revenue in 2026. METHODIQ is showing great promise after launching only several months ago. We expect the brand to deliver first-year revenue ahead of SpoiledChild's first year and with huge potential for the future. Both SpoiledChild and METHODIQ are building ambitious plans for 2027, and we will update you in coming months. For IL MAKIAGE, we continue to work extremely hard with our main ad partner to solve the algorithm dislocation and remain hopeful that we are on path to normalization.

Speaker #3: Spoilchild had a good quarter and strong year to date 2026 overall, and it's on track to grow at least 35% this year and approach 350 million of net revenue in 2026.

Speaker #3: Metodic is showing great promise after launching only several months ago. We expect the brand to deliver first-year revenue ahead of Spoilchild's first year, and with huge potential for the future.

Speaker #3: Both Spoilchild and Metodic are building ambitious plans for 2027, and we will update you in the coming months. For Ilma Triage, we continue to work extremely hard with our main eight partners to solve the algorithm dislocation and remain hopeful that we are on the path to normalization.

Speaker #3: We work day and night to solve the algorithm dislocation, and we continue to believe, based on data that we see, that it's technical in nature, solvable, and has nothing to do with the brand runway.

Oran Holtzman: We work day and night to solve the algorithm dislocation, and we continue to believe, based on data that we see, that it is technical in nature, solvable, and has nothing to do with the brand runway. Big picture, we remain bullish on Oddity's future despite our recent customer acquisition cost challenges. We are working tirelessly to strengthen our business, move past the dislocation, and return to playing offense in what we see is one of the most attractive markets in the world. Beauty and wellness has long been a large, resilient, and highly profitable growth market. We see the category in an exciting period of transformation today, with consumer demand for channel and product creating major shifts. Putting the current technical problem we face aside, we believe we are positioning our business to win in this moment and lead the next phase of growth.

Oran Holtzman: We work day and night to solve the algorithm dislocation, and we continue to believe, based on data that we see, that it is technical in nature, solvable, and has nothing to do with the brand runway. Big picture, we remain bullish on ODDITY's future despite our recent customer acquisition cost challenges. We are working tirelessly to strengthen our business, move past the dislocation, and return to playing offense in what we see is one of the most attractive markets in the world. Beauty and wellness has long been a large, resilient, and highly profitable growth market. We see the category in an exciting period of transformation today, with consumer demand for channel and product creating major shifts. Putting the current technical problem we face aside, we believe we are positioning our business to win in this moment and lead the next phase of growth.

Speaker #3: Big picture, we remain bullish on Oddity's future despite our recent customer acquisition cost challenges. We are working tirelessly to strengthen our business, move past the dislocation, and return to playing offense in what we see as one of the most attractive markets in the world.

Speaker #3: Beauty and wellness has long been a large, resilient, and highly profitable growth market. We see the category in exciting period of transformation today, with consumer demand for channel and product creating major shifts.

Speaker #3: Putting the current technical problem we face aside, we believe we are positioning our business to win in this moment and lead the next phase of growth.

Speaker #3: With over 70 million users on our direct consumer platform, we believe we have clearer view than others on where demand is and how to best serve the customer.

Oran Holtzman: With over 70 million users on our direct consumer platform, we believe we have clearer view than others on where demand is and how to best serve the customer. Consumers are smarter than ever before. They have more information ready at their fingertips, and they demand more from their products, more efficacy, more personalization. The appetite for beauty and medicine is converging as a result. Consumers want real solution to their pain points from the inside out. They are taking control into their own hands. A lot of that is happening online, outside of traditional channels like store or medical office. Oddity's portfolio of trusted brands today is built to serve consumer across full range of needs, spanning categories and product types, from beauty to wellness to medical grade, from cosmetics to OTC to prescription products.

Oran Holtzman: With over 70 million users on our direct consumer platform, we believe we have clearer view than others on where demand is and how to best serve the customer. Consumers are smarter than ever before. They have more information ready at their fingertips, and they demand more from their products, more efficacy, more personalization. The appetite for beauty and medicine is converging as a result. Consumers want real solution to their pain points from the inside out. They are taking control into their own hands. A lot of that is happening online, outside of traditional channels like store or medical office. ODDITY's portfolio of trusted brands today is built to serve consumer across full range of needs, spanning categories and product types, from beauty to wellness to medical grade, from cosmetics to OTC to prescription products.

Speaker #3: Consumers are smarter than ever before. They have more information ready at their fingertips, and they demand more from their products, more efficacy, more personalization.

Speaker #3: The appetite for beauty and medicine is converging as a result. Consumers want real solutions to their pain points from the inside out. They are taking control into their own hands.

Speaker #3: A lot of that is happening online, outside of traditional channels like store or medical office. Oddity's portfolio of trusted brands today is built to serve consumers across a full range of needs, spanning categories and product types.

Speaker #3: From beauty to wellness to medical-grade, from cosmetic to OTC to prescription products, the goal is to reduce friction and deliver unmatched experience, best-in-class products, and precise treatment protocols that truly solve consumer pain points.

Oran Holtzman: The goal is to reduce friction and deliver unmatched experience, best-in-class product, and precise treatment protocols that truly solve consumer pain points. Let us look at hyperpigmentation as an example of how our integrated platform works and how we are building a moat with vision technology, personalized treatment regimens, and ODDITY LABS. Hyperpigmentation is a big success story for METHODIQ, showing higher customer satisfaction and retention signals, which is the best indicator for us that we are onto something great. Our plans for this market began with Oddity's user data, which showed us how much demand our user had for addressing dark spots and uneven skin tone, and also how unhappy they were with the current solution. With this insight, we made deliberate push into hyperpigmentation and deliver something better. We built one of a kind user experience at METHODIQ, includes computer vision assessment that identifies dark spots on the skin.

Oran Holtzman: The goal is to reduce friction and deliver unmatched experience, best-in-class product, and precise treatment protocols that truly solve consumer pain points. Let us look at hyperpigmentation as an example of how our integrated platform works and how we are building a moat with vision technology, personalized treatment regimens, and ODDITY LABS. Hyperpigmentation is a big success story for METHODIQ, showing higher customer satisfaction and retention signals, which is the best indicator for us that we are onto something great. Our plans for this market began with ODDITY's user data, which showed us how much demand our user had for addressing dark spots and uneven skin tone, and also how unhappy they were with the current solution. With this insight, we made deliberate push into hyperpigmentation and deliver something better. We built one of a kind user experience at METHODIQ, includes computer vision assessment that identifies dark spots on the skin.

Speaker #3: Let's look at hyperpigmentation as an example of how our integrated platform works, and how we are building a moat with vision technology, personalized treatment regimens, and Oddity Labs.

Speaker #3: Hyperpigmentation is a big success story for Metodic, showing higher customer satisfaction and retention signals, which is the best indicator for us that we are onto something great.

Speaker #3: Our plans for this market began with Oddity's user data, which showed us how much demand our users had for addressing dark spots and uneven skin tone, and also how unhappy they were with the current solution.

Speaker #3: With this insight, we made deliberate push into hyperpigmentation and delivered something better. We built one-of-a-kind user experience at Metodic, which includes computer vision assessment that identifies dark spots on the skin, the relevant data analysts are then passed to Metodic provider, who issues personalized treatment plan aimed at maximizing efficacy and minimizing side effects.

Oran Holtzman: The relevant data analysis are then passed to METHODIQ provider, who issues a personalized treatment plan aimed at maximizing efficacy and minimizing side effects. It might be prescription or non-prescription or both, and can involve sequencing different products across several months to optimize for the best outcome. The entire experience is designed to mimic and improve upon a high-touch experience at a doctor office, but with incredible convenience. One of METHODIQ's hyperpigmentation hero products is Melanex 509, powered by ODDL1007, ODDITY LABS' patented molecule combination. It targets visible discoloration of the skin with reduced side effects. This is just the beginning of what we think ODDITY LABS can do in hyperpigmentation. We have additional molecules in development, and we are making good progress finding new pathways that we believe will help us tackle hyperpigmentation from multiple angles at once.

Speaker #3: It might be prescription or non-prescription or both and can involve sequencing different products across several months to optimize for the best outcome. The entire experience is designed to mimic and improve upon a high-touch experience at the doctor's office, but with incredible convenience.

Speaker #3: One of Metodic's hyperpigmentation hero products is Melanex 509, powered by Oddity 1007 Oddity Labs patent molecule combination. It targets visible discoloration of the skin with reduced side effects.

Speaker #3: This is just the beginning of what we think Oddity Labs can do in hyperpigmentation. We have additional molecules in development, and we are making good progress finding new pathways that we believe will help us tackle hyperpigmentation for multiple angles at once.

Speaker #3: This is just an example of how Oddity's integrated platform is meeting unmet demand, and we are just at the beginning. The strong start of Metodic has increased our conviction in the medical-grade space.

Oran Holtzman: This is just an example of how Oddity's integrated platform is meeting unmet demand, and we are just at the beginning. The strong start of METHODIQ has increased our conviction in the medical-grade space. We are acquiring more determined customers with attractive LTVs and good cross-sell characteristics. Acquisition costs are higher as compared to makeup, but we believe the AOV retention as a result expected paybacks justify the cost. Consumers are increasingly comfortable getting medical care online and looking to brands like METHODIQ for innovation and upgrading offering to meet their needs. We are positioning METHODIQ to be a leader in this backdrop and launching new categories and products across 2027. This will build on our infrastructure of prescription and pharmacy fulfillment to better serve existing customers and also reach new audiences. The opportunity set is large, and we are moving quickly.

Oran Holtzman: This is just an example of how ODDITY's integrated platform is meeting unmet demand, and we are just at the beginning. The strong start of METHODIQ has increased our conviction in the medical-grade space. We are acquiring more determined customers with attractive LTVs and good cross-sell characteristics. Acquisition costs are higher as compared to makeup, but we believe the AOV retention as a result expected paybacks justify the cost. Consumers are increasingly comfortable getting medical care online and looking to brands like METHODIQ for innovation and upgrading offering to meet their needs. We are positioning METHODIQ to be a leader in this backdrop and launching new categories and products across 2027. This will build on our infrastructure of prescription and pharmacy fulfillment to better serve existing customers and also reach new audiences. The opportunity set is large, and we are moving quickly.

Speaker #3: We are acquiring more determined customers with attractive LTVs and good cross-sector characteristics. Acquisition costs are higher as compared to makeup, but we believe the AOV, retention as a result, expected paybacks justify the cost.

Speaker #3: Consumers are increasingly comfortable getting medical care online, and looking to brands like Metodic for innovation and upgrading offerings to meet their needs. We are positioning Metodic to be a leader in this backdrop and launching new categories and products across 2027.

Speaker #3: This will build on our infrastructure of prescription and pharmacy fulfillment to better serve existing customers and also reach new audiences. The opportunity set is large, and we are moving quickly.

Speaker #3: We plan to have more updates on this expansion in the coming months. Turning to Spoilchild, we launched Spoilchild around four and a half years ago, as a multi-category wellness brand.

Oran Holtzman: We plan to have more updates on this expansion in the coming months. Turning to SpoiledChild. We launched SpoiledChild around 4 and a half years ago as a multi-category wellness brand. It has scaled faster than our expectation and on track to approach $350 million of net revenue in 2026, which will put it more than a year ahead of the time it took IL MAKIAGE to hit that milestone. SpoiledChild continued to deliver very strong customer cohorts metric like AOV and repeated scale. 12 months net revenue repeat rates for the brand are well in excess of 100% today. As we said in prior calls, we believe SpoiledChild is being impacted by the algorithm dislocation issues IL MAKIAGE is facing, but to a lesser degree, and this has allowed us to continue scaling the brand.

Speaker #3: It has scaled faster than our expectations, and on track to approach 350 million dollars of net revenue in 2026, which will put it more than a year ahead of the time it took Ilma Triage to hit that milestone.

Speaker #3: Spoilchild continues to deliver very strong customer cohort metrics like AOV and repeat scale. Twelve-month net revenue repeat rates for the brand are well in excess of 100% today.

Speaker #3: As we said in pre-occurs, we believe Spoilchild is being impacted by the algorithm dislocation issues Ilma Triage is facing, but to a lesser degree, and this has allowed us to continue scaling the brand.

Speaker #3: We are hopeful that as we work through the acquisition cost challenges with Ilma Triage, we will then be able to deliver efficiencies also for Spoilchild.

Oran Holtzman: We are hopeful that as we work through the acquisition cost challenges with IL MAKIAGE, we will then be able to deliver efficiencies also for SpoiledChild. The strong consumer metrics we see in SpoiledChild give us confidence in the brand's future potential. We plan to continue to invest in the base direct-to-consumer business while adding new growth levers in 2027. Moving to IL MAKIAGE, where we continue to work on resolving our account dislocation with our largest advertising partner and returning to normalized audience and CPA. We continue to work very closely with this ad partner to fix the problem, and while we are not there yet, every day that passes is helping us get to fixing the issue. We and the ad partner are in intensive testing mode, and those tests are very important for solving the algorithm dislocation.

Speaker #3: The strong consumer metrics we see in Spoilchild give us confidence in the brand's future potential. We plan to continue to invest in the base direct-to-consumer business, while adding new growth levers in 2027.

Speaker #3: Moving to Ilma Triage, where we continue to work on resolving our account dislocation with our largest advertising partner and returning to normalized audience and CPA.

Speaker #3: We continue to work very closely with this ad partner to fix the problem, and while we are not there yet, every day that passes is helping us get closer to fixing the issue.

Speaker #3: We and the ad partner are in intensive testing mode, and those tests are very important for solving the algorithm dislocation. Looking ahead, on the ODDITY level, we are hopeful the worst is behind us.

Oran Holtzman: Looking ahead on Oddity level, we are hopeful the worst is behind us. As our guidance indicates, we have seen sequential improvement in the rate of the year-over-year revenue decline at Oddity, and we expect Q3 net revenue will decline approximately 5% year-over-year. While Oddity's revenue decline was severely impacted by the algorithm's dislocation, we are seeing relatively stable trends in other parts of the business that are less correlated to the acquisition spend. We continue to work hard on other advertising channels as well. Our goal for 2027 is for IL MAKIAGE to return to growth. We have amazing pipeline of new products ready to support the brand once acquisition costs recover. We will continue to work 24/7 until this technical problem is fixed.

Oran Holtzman: Looking ahead on ODDITY level, we are hopeful the worst is behind us. As our guidance indicates, we have seen sequential improvement in the rate of the year-over-year revenue decline at ODDITY, and we expect Q3 net revenue will decline approximately 5% year-over-year. While ODDITY's revenue decline was severely impacted by the algorithm's dislocation, we are seeing relatively stable trends in other parts of the business that are less correlated to the acquisition spend. We continue to work hard on other advertising channels as well. Our goal for 2027 is for IL MAKIAGE to return to growth. We have amazing pipeline of new products ready to support the brand once acquisition costs recover. We will continue to work 24/7 until this technical problem is fixed.

Speaker #3: As our guidance indicates, we have seen sequentially improvement in the rate of the year-over-year revenue decline at Oddity, and we expect Q3 net revenue will decline approximately 5% year over year.

Speaker #3: While Oddity's revenue decline was severely impacted by the algorithm's dislocation, we are seeing relatively stable trends in other parts of the business that are less correlated to the acquisition spend.

Speaker #3: We continue to work hard on other advertising channels as well. Our goal for 2027 is for Ilma Triage to return to growth. We have amazing pipeline of new products ready to support the brand once acquisition costs recover.

Speaker #3: We'll continue to work 24/7 until this technical problem is fixed. We remain hopeful that the amount of resources and time we spend on it will lead to resolution like any other big problem we face since I started the business 14 years ago.

Oran Holtzman: We remain hopeful that the amount of resources and time we spend on it will lead to resolution like any other big problem we faced since I started the business 14 years ago. Full power, non-stop hard work until fixing the problem, no other way. With that, I will hand it over to Lindsay. Thank you.

Speaker #3: Full power, non-stop hard work until fixing the problem no other way. With that, I will hand it over to Lindsay. Thank you.

Speaker #1: Thanks, Oran. Let's turn to our Q2 results, which I'll refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release.

Lindsay Drucker Mann: Thanks, Oran. Let's turn to our Q2 results, which I will refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Net revenue declined 25% versus the prior year to $181 million, at the favorable end of our guidance for net revenue to decline between 25% and 30%. The decline was driven by a year-over-year reduction in sales at IL MAKIAGE, which continues to be adversely impacted by a dislocation in its ad account with its largest advertising partner. This dislocation continues to impact IL MAKIAGE's ability to reach the right audience and is driving sharply higher CPA. It is impacting acquisition revenue, most notably in first orders, but also in the portion of repeat orders that are sensitive to acquisition spend. For example, existing customers that see an ad and are motivated to buy again.

Speaker #1: Net revenue declined 25% versus the prior year, to $181 million, at the favorable end of our guidance for net revenue to decline between 25% and 30%.

Speaker #1: The decline was driven by a year-over-year reduction in sales of Ilma Triage, which continues to be adversely impacted by a dislocation in its ad account with its largest advertising partner.

Speaker #1: This dislocation continues to impact Ilma Triage's ability to reach the right audience and is driving sharply higher CPA. It is impacting acquisition revenue most notably in first orders but also in the portion of repeat orders that are sensitive to acquisition spend, for example, existing customers that see an ad and are motivated to buy again.

Speaker #1: We're also now seeing the compounding impact of lost repeat sales that would have naturally flowed through from customers making first-order purchases early in the year.

Lindsay Drucker Mann: We are also now seeing the compounding impact of lost repeat sales that would have naturally flowed through from customers making first order purchases early in the year. Specifically, Oddity net revenue from first orders declined approximately 40% in the second quarter versus the prior year, driven by IL MAKIAGE. Net revenue from repeat orders declined approximately 20% in the quarter from the prior year period. AOV declined by approximately 8% in the second quarter versus the prior year, largely driven by a decline in IL MAKIAGE AOV. The decline in IL MAKIAGE AOV was driven by the above-mentioned reduction in first orders, which carry higher AOV than repeat. It was additionally impacted by product mix shift away from IL MAKIAGE skin. Gross margin was 68.7% in the quarter, compared to 72.3% in the prior year.

Lindsay Drucker Mann: We are also now seeing the compounding impact of lost repeat sales that would have naturally flowed through from customers making first order purchases early in the year. Specifically, ODDITY net revenue from first orders declined approximately 40% in the second quarter versus the prior year, driven by IL MAKIAGE. Net revenue from repeat orders declined approximately 20% in the quarter from the prior year period. AOV declined by approximately 8% in the second quarter versus the prior year, largely driven by a decline in IL MAKIAGE AOV. The decline in IL MAKIAGE AOV was driven by the above-mentioned reduction in first orders, which carry higher AOV than repeat. It was additionally impacted by product mix shift away from IL MAKIAGE skin. Gross margin was 68.7% in the quarter, compared to 72.3% in the prior year.

Speaker #1: Specifically, ODDITY net revenue from first orders declined approximately 40% in the second quarter versus the prior year, driven by Il Makiage Triage. Net revenue from repeat orders declined approximately 20% in the quarter, as AOV declined by approximately 8% in the second quarter versus the prior year, largely driven by a decline in Il Makiage Triage AOV.

Speaker #1: The decline in Ilma Triage AOV was driven by the above-mentioned reduction in first orders, which carry higher AOV than repeat. It was additionally impacted by product mix shift away from Ilma Triage skin.

Speaker #1: Gross margin was 68.7% in the quarter compared to 72.3% in the prior year. Gross margin compressed approximately 360 basis points year over year driven in part by the decline in AOV.

Lindsay Drucker Mann: Gross margin compressed approximately 360 basis points year-over-year, driven in part by the decline in AOV. We delivered adjusted EBITDA of $13 million ahead of our outlook for adjusted EBITDA of $8 to $10 million. The year-over-year decline versus the prior year was largely driven by the IL MAKIAGE algorithm dislocation, which has two primary impacts on our P&L. First, significantly higher CPA versus the prior year. Second, the decline in revenue and resulting deleverage on our fixed costs. EBITDA was also negatively impacted by our decision to ramp acquisition spend for SpoiledChild in support of faster revenue growth, where our upfront investments support attractive 12-month contribution margins. On operating expense, as discussed on prior calls, our approach is to balance sustained growth investments with finding cost efficiencies to support the bottom line.

Speaker #1: We delivered adjusted EBITDA of 13 million dollars ahead of our outlook for adjusted EBITDA of 8 to 10 million dollars. The year-over-year decline versus the prior year was largely driven by the Ilma Triage algorithm dislocation, which has two primary impacts on our P&L.

Speaker #1: First, significantly higher CPA versus the prior year. Second, the decline in revenue and resulting deleverage on our fixed costs. EBITDA was also negatively impacted by our decision to ramp acquisition spend for Spoilchild, in support of faster revenue growth, where our upfront investments support attractive 12-month contribution margins.

Speaker #1: On operating expense as discussed on prior calls, our approach is to balance sustained growth investments with finding cost efficiencies to support the bottom line.

Speaker #1: This has translated into continued investments in areas like Oddity Labs and our technology infrastructure, with some greater filtering and prioritization around projects where we see nearer-term payback potential.

Lindsay Drucker Mann: This has translated into continued investments in areas like ODDITY LABS and our technology infrastructure, with some greater filtering and prioritization around projects where we see nearer term payback potential. We remain bullish about the potential for ODDITY LABS to provide real differentiation in product efficacy and experience with many applications in our portfolio, and the hyperpigmentation example from Oran is just one area. We also continue to invest in areas like aging, where our molecules have shown early in vitro promise in increasing collagen synthesis and reducing aging markers. Moving down the P&L, adjusted diluted earnings per share was $0.20 for the quarter. Free cash flow increased by $14 million in the quarter and decreased by $8 million in the H1 of the year.

Speaker #1: We remain bullish about the potential for Oddity Labs to provide real differentiation in product efficacy and experience with many applications in our portfolio. And the hyperpigmentation example from Oran is just one area.

Speaker #1: We also continue to invest in areas like aging, where our molecules have shown early in vitro promise in increasing collagen synthesis and reducing aging markers.

Speaker #1: Moving down the P&L, adjusted diluted earnings per share was 20 cents for the quarter. Free cash flow increased by 14 million dollars in the quarter, and decreased by 8 million dollars in the first half of the year.

Speaker #1: Our inventory investments year to date include purchase commitments made last year in anticipation of much stronger revenue results for Il Makiage Triage, as well as inventory purchased to support growth in SpoiledChild and Methodic.

Lindsay Drucker Mann: Our inventory investments year to date include purchase commitments made last year in anticipation of much stronger revenue results for IL MAKIAGE, as well as inventory purchase to support growth in SpoiledChild and METHODIQ. IL MAKIAGE today continues to work through excess inventory, and we plan to be in better balance in 2027. We exited the quarter in a strong liquidity position with $561 million of cash equivalents, and investments on our balance sheet. Our $350 million in credit facilities remain undrawn. During the quarter, we continued to act on what we believe is an attractive price for our shares. We repurchased 5.6 million shares in the period for $80 million. This brings our total year-to-date repurchase amount to 11.7 million shares for $163 million, which reduced our ordinary shares outstanding by approximately 20%. Approximately $87 million remains outstanding on our $200 million buyback authorization.

Speaker #1: Ilma Triage today continues to work through excess inventory and we plan to be in better balance in 2027. We exited the quarter in a strong liquidity position with 561 million dollars of cash, cash equivalents, and investments on our balance sheet.

Speaker #1: Our $350 million in credit facilities remain undrawn. During the quarter, we continued to act on what we believe is an attractive price for our shares.

Speaker #1: We were purchased 5.6 million shares in the period for 80 million dollars. This brings our total year-to-date repurchase amount to 11.7 million shares for 163 million dollars, which reduced our ordinary shares outstanding by approximately 20%.

Speaker #1: Approximately 87 million dollars remains outstanding on our 200 million dollar buyback authorization. Separately, in March, 857,000 shares were removed from our public float to Oran Holtzman's open market purchases.

Lindsay Drucker Mann: Separately, in March, 857,000 shares were removed from our public float to Oran Holtzman's open market purchases. In June, we repurchased $50 million face value of our zero coupon June 2030 exchangeable notes at a discounted price of $35 million. We will continue to be opportunistic in managing our capital structure in order to drive shareholder value. Turning to our outlook. For the Q3, we expect net revenue to decline approximately 5% year over year, a meaningful sequential improvement versus the H1, as we believe the worst of the acquisition-driven revenue pressure is behind us. We expect adjusted EBITDA to be between $18 and $20 million. For the full year, we expect net revenue to decline approximately 19% year over year, driven by the decline in net revenue in the H1, and we expect adjusted EBITDA will be between $30 and $32 million.

Speaker #1: In June, we were purchased 50 million dollars face value of our zero coupon June 2030 exchangeable notes at a discounted price of 35 million dollars.

Speaker #1: We will continue to be opportunistic in managing our capital structure in order to drive shareholder value. Turning to our outlook for the third quarter, we expect net revenue to decline approximately 5% year over year, a meaningful sequential improvement versus the first half as we believe the worst of the acquisition-driven revenue pressure is behind us.

Speaker #1: We expect adjusted EBITDA to be between 18 and 20 million dollars. For the full year, we expect net revenue to decline approximately 19% year over year, driven by the decline in net revenue in the first half.

Speaker #1: And we expect adjusted EBITDA will be between 30 and 32 million dollars. And with that, I'll turn the call back to the operator for questions.

Lindsay Drucker Mann: And with that, I will turn the call back to the operator for questions.

Speaker #2: Thank you. If you 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.

Operator: Thank you. If you 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. You may press star two if you would like to remove your question from the queue. For a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question. Our first question is from Dara Mohsenian with Morgan Stanley. Please proceed.

Speaker #2: You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker #2: We ask that you please limit your questions to one. Our first question is from Dara Moseian with Morgan Stanley. Please proceed.

Operator: Our first question is from Dara Mohsenian with Morgan Stanley. Please proceed.

Speaker #3: Hi, good morning. So Oran, it sounds like you feel comfortable. We're moving towards solving the ad dislocation issue here in 2026. Just if we assume the problems are resolved by year-end, any thoughts around ability to grow the Ilma Triage brand in 2027?

Dara Mohsenian: Hi. Good morning. Oran, it sounds like you feel comfortable we are moving towards solving the ad dislocation issue here in 2026. If we assume the problems are resolved by year end, any thoughts around ability to grow the IL MAKIAGE brand in 2027? Should we anticipate a more typical revenue growth year based on the normalized factors behind the brand, or does some of this issue potentially linger or compound in 2027? Second, SpoiledChild continues to grow at a strong pace. You mentioned you are ramping up spending for the brand. Can you just touch on international plans for that brand over time, line of sight to making a broader international push, and your decision process there now that the brand has scaled so nicely? Thanks.

Speaker #3: Should we anticipate a more typical revenue growth year based on the normalized factors behind the brand, or could some of these issues potentially linger or compound in 2027?

Speaker #3: And then, second, just Spoilchild continues to grow at a strong pace. You mentioned you're ramping up spending for the brand. Can you just touch on international plans for that brand over time?

Speaker #3: Line of sight to making a broader international push in your decision process there now that the brand has scaled so nicely. Thanks.

Speaker #4: Yes, good morning. We believe that once we solve the problem, we plan to continue to go back to growth with Il Makiage Triage. We have amazing products in the pipeline.

Oran Holtzman: Yes, good morning. We believe that once we solve the problem, we plan to continue to go back to growth with IL MAKIAGE. We have amazing products in the pipeline. We are not there yet. We did not solve it yet, but we believe that we are closer than before, because from all the data that we see so far in terms of the root cause or what happened, it looks like there is an audience drift from the algorithm, and we are trying to retrain it. Once it is behind us, we are back to growth. As I mentioned, we have amazing plan that we did not execute because of this problem, and they are ready to play. As for SpoiledChild shows great demand, as you can see by the numbers. We will continue to expand it internationally. That is it.

Speaker #4: We are not there yet. We didn't solve it yet, but we believe that we are closer than before because from all the data that we see so far in terms of the root cause or what happened, it looks like there is an audience drift for from the algorithm and we are trying to retrain it.

Speaker #4: Once it's behind us, we are back to growth. As I mentioned, like we have amazing plan that we didn't execute because of this problem and they are ready to play.

Speaker #4: As for Spoilchild, Spoilchild showed great demand and as you can see by the numbers, we'll continue to expand it internationally. And that's it. We have amazing more than eight products and categories for next year for Spoilchild.

Oran Holtzman: We have more than eight products and categories for next year for SpoiledChild, so we are very bullish.

Speaker #4: So we are very bullish.

Speaker #2: Our next question is from Brian Tranquilet with Jefferies. Please proceed.

Operator: Our next question is from Brian Tanquilut with Jefferies. Please proceed.

Speaker #5: Hey, good morning, guys. And congrats on the inflection here in the business. So, maybe Lindsay, as I think about the EBITDA guidance and even revenue guidance, how do we think about your assumptions on, number one, the seasonality?

Brian Tanquilut: Hey, good morning, guys, and congrats on the inflection here in the business. Maybe Lindsay, as I think about the EBITDA guidance and new revenue effect, how do we think about your assumptions on, number one, the seasonality? Because typically, I think Q4 is up sequentially in revenue, versus Q3. So curious what's driving that. When we think about repeat revenue rates versus historical trend, what is that assumption? Or maybe even versus what we saw in the H1 of the year, what's that assumption embedded in the H2 guidance? Thanks.

Speaker #5: Because typically I think Q4 is up sequentially in revenue. So versus Q3. So curious what's driving that. And then when we think about repeat revenue rates versus historical trend, I mean, what is that assumption or maybe even versus what we saw in the first half of the year?

Speaker #5: What's that assumption embedded in the back half guidance? Thanks.

Speaker #1: Thanks for that question, Brian. As we think about the sequential dynamic and the seasonality of the business, there's really no broad strokes change to how we think about the business.

Lindsay Drucker Mann: Thanks for that question, Brian. As we think about the sequential dynamic and the seasonality of the business, there's really no broad strokes change to how we think about the business. The H1 of the year tends to be stronger for us for acquisition, and then we allow repeat to flow through in the H2. Obviously, this is a unique year because so much of our acquisition activity, that moment of time was spent towards testing. So the seasonality for this year will be a little bit different, and it's too soon for us to tell you what seasonality will look like on a go-forward basis. As it relates to repeat trends, continue to be very strong. At the company level, we remain well in excess of 100% net revenue repeat rate over 12 months.

Speaker #1: The first half of the year tends to be stronger for us for acquisition. And then we allow repeat to flow through in the second half.

Speaker #1: Obviously, this is a unique year because so much of our acquisition activity was that moment of time was spent towards testing. So the seasonality for this year will be a little bit different.

Speaker #1: And it's too soon for us to tell you what seasonality will look like on a go-forward basis. As it relates to repeat trends, continue to be very strong as a company level.

Speaker #1: We remain well in excess of 100% net revenue repeat rate over 12 months. And despite some of the challenges with Ilma Triage, we do continue to see strong repeat flow through, which is part of why we're expecting the sequential improvement in the second half of the year relative to the first half of the year.

Lindsay Drucker Mann: Despite some of the challenges with IL MAKIAGE, we do continue to see strong repeat flow through, which is part of why we are expecting the sequential improvement in the H2 of the year relative to the H1 of the year. In addition, we get very strong repeat from SpoiledChild.

Speaker #1: And in addition, we get very strong repeat from SpoiledChild.

Speaker #2: Our next question is from Anna Lazul with Bank of America. Please proceed.

Operator: Our next question is from Anna Lizzul with Bank of America. Please proceed.

Speaker #6: Hi, good morning. Thank you so much for the question. I was wondering if you could elaborate a little bit more on any learnings that you had from this process as you went through the remediation and anything where you've learned about your business model a bit more about what's more resilient, flexible, anything that might need to change going forward now that you went through this process.

Anna Lizzul: Hi. Good morning. Thank you so much for the question. I was wondering if you could elaborate a little bit more on any learnings that you had from this process as you went through the remediation and anything where you have learned about your business model a bit more, about much more resilient, flexible, anything that might need to change going forward now that you went through this process. Thanks.

Speaker #6: Thanks.

Speaker #4: Yes. First of all, we learned a lot. The past few months was very intense in terms of media buying world. I must say that we thought that we know a lot, but now after those months, we are very deep in the details and learning every day better how those algorithms work.

Oran Holtzman: Yes. First of all, we learned a lot. The past few months was very intense in terms of media buying world. I must say that we thought that we know a lot, but now after those months, we are very deep in the details and learning every day better how those algorithms work. We increase our efforts both to fix the problem, but to make the business more resilient moving forward. It is including more distribution and more channels. We have nothing yet to announce, but once we have, we will. We believe that the key of the business is data, and in order to continue to have that ability, we need to remain, a big portion of the business must remain D2C. That is our strength, and we need to continue to work with those ad partners.

Speaker #4: We increase our efforts both to fix the problem but to make it the business more resilient moving forward. It's including more distribution and more channels.

Speaker #4: We have nothing yet to announce, but once we have, we will. We believe that the key of the business is data and in order to continue to have that ability, we need to remain a big portion of the business must remain D2C.

Speaker #4: That's our strength, and we need to continue to work with those ad partners. By the way, the way that we work now with the ad partner and their commitment—it's unbelievable.

Oran Holtzman: By the way, the way that we work now with the ad partner and their commitment, it is unbelievable. We are very happy for that, and we trust their team to help us and navigate and solve this problem. That is it. We continue to work on both fixing the problem and expanding our distribution and channels.

Speaker #4: We are very happy for help us and navigate and solve this problem. And that's it. So we continue to work on both fixing the problem and expanding our distribution and channels.

Speaker #1: I just had one more thing. Like you can see the resiliency of our model today and the fact that we have a lot of great things to talk about with respect to Spoilchild and Methodic even though we do navigate these challenges with Ilma Triage.

Lindsay Drucker Mann: I just add one more thing, you can see the resiliency of our model today, and the fact that we have a lot of great things to talk about with respect to SpoiledChild and METHODIQ, even though we do navigate these challenges with IL MAKIAGE. So relative to when we first came public or even started building the business, we have way more brands, categories, and products for the business to rely on than in the past, and that will continue to grow.

Speaker #1: So relative to when we first came public or even started building the business, we have way more brands categories and products for the business to rely on than in the past.

Speaker #1: And that will continue to grow.

Speaker #2: Our next question is from Youssef Squalli with Truist Securities. Please proceed.

Operator: Our next question is from Youssef Squali with Truist Securities. Please proceed.

Speaker #7: Great. Thank you. Good morning. Lindsay, your annual revenue growth guide for negative 19% implies Q4 growth. I think of negative 10 to 11%, which is quite a deterioration from the negative five you're guiding to for Q3.

Youssef Squali: Great. Thank you. Good morning. Lindsay, your annual revenue growth guide for -19% implies Q4 growth, I think of -10% to -11%, which is quite a deterioration from the -5% you are guiding to for Q3. What accounts for that deterioration? Is it just conservatism and lack of visibility, or are you seeing something in Q3 that is not sustainable necessarily in Q4? On the other revenue line, it was up 8%, that was a bit of a surprise. I know it is small, but what were the drivers for that and how sustainable is it?

Speaker #7: So what accounts for that deterioration? Is it just conservatism and lack of visibility or are you seeing something in Q3 that's not sustainable necessarily in Q4?

Speaker #7: And then on the other revenue line, it was up 8%. That was a bit of a surprise. I know it's small, but what were the drivers for that and how sustainable is it?

Speaker #1: Thanks, Youssef. So, on revenue, we are, for Q3, guiding to a 20-point sequential improvement relative to where we were in Q2 in the first half of the year.

Lindsay Drucker Mann: Thanks, Youssef. On revenue, we are for Q3 guiding to a 20 point sequential improvement, relative to where we were in Q2 in the H1 of the year. That is because we believe the worst of the acquisition driven dislocation is behind us. We are seeing the benefit of more repeat in our base business than in the H1 of the year. Also SpoiledChild has been strong. As it relates to the Q4, we want to be conservative since we do not know yet how we want to allocate our spending budget, how much goes towards testing, for example, which is inefficient for revenue generation. We are leaving some room for the Q4 pace to slow to Q3. I would note this is a real outlook for us.

Speaker #1: And that's because we believe the worst of the acquisition-driven dislocation is behind us. And we are seeing the benefit of more repeat in our base business and in the first half of the year and also Spoilchild has been strong.

Speaker #1: As it relates to the fourth quarter, we want to be conservative since we don't know yet how we want to allocate our spending budget, how much goes towards testing, for example, which is inefficient for revenue generation.

Speaker #1: So we're leaving some room for the Q4 pace to slow to Q3. I would note this is a real outlook for us. There are a lot of unknowns still, as opposed to a sandbagging story, but that's generally the approach here.

Lindsay Drucker Mann: There is a lot of unknowns still, as opposed to a sandbagging story, but that is generally the approach here. Other is Israel, and that market has been volatile, as you know, given some of the dynamics with the war there and our store base there.

Speaker #1: Other is Israel. And that market has been volatile as you know given some of the dynamics with the war there and our store base there.

Speaker #7: Got it. Thank you.

Youssef Squali: Got it. Thank you.

Speaker #2: Our next question is from Scott Schoenhaus with KeyBanc Capital Markets. Please proceed.

Operator: Our next question is from Scott Schoenhaus with KeyBanc Capital Markets. Please proceed.

Speaker #8: Hey guys, thanks for taking my question. Traditionally, I thought of your business model as Ilma Triage funneling a new customer to support growth in Spoilchild.

Scott Schoenhaus: Hey, guys. Thanks for taking my question. Traditionally, I thought of your business model as IL MAKIAGE funneling in new customers to support growth in SpoiledChild. Clearly you are seeing a lot of growth without that. Can you talk to us about your marketing strategy here and customer acquisitions, how that has changed since the disruption with SpoiledChild? On METHODIQ, could you talk more about the investments needed here and maybe what you are planning on for the 2027 selling season here with these new products you talked about, hyperpigmentation, but also clearly going into more acute areas. Maybe talk to us what kind of investments you need and what kind of growth you are targeting. Thanks.

Speaker #8: But clearly, you're seeing a lot of growth without that. Can you talk to us about your marketing strategy here and customer acquisitions? How that's changed since the disruption with Spoilchild?

Speaker #8: And then on Methodic or yeah, Methodic, could you talk more about the investments needed here and the maybe what you're planning on for the 2027 selling season here with these new products you talked about, pigmentation, hyperpigmentation, but also clearly going into more acute areas.

Speaker #8: Maybe talk to us what kind of investments you need and what kind of growth you're targeting. Thanks.

Speaker #4: Sure. I'll start with Spoilchild. We see, and we saw, great demand despite the fact that we believe the dislocation is having some impact, but to a lesser degree than Il Makiage.

Oran Holtzman: Sure. I will start with SpoiledChild. We saw great demand, despite the fact that we believe the dislocation is having some impact, but lesser degree than IL MAKIAGE. Even so, we are still generating nice returns on the spend and have been able to scale materially. As for METHODIQ, we launched it less than a year. We are very happy from the beginning of the brand, from how it started. We expect the brand to deliver higher revenue than SpoiledChild did in its first year, although SpoiledChild was unbelievably strong in its first year. We launched METHODIQ with 30 products, with right range of their product for medical grade makeup to specialized prescription protocols. One thing that surprised us out of the gate is our ability to drive demand for both personalized prescription and non-prescription products, and treatment plans.

Speaker #4: Even so, we are still generating nice returns on the spend and have been able to scale materially. As for Methodic, we launched it less than a year ago.

Speaker #4: We are very happy from the beginning of the brand, from how it started. We expect the brand to deliver higher revenue than Spoilchild. Did in its first year, although Spoilchild was unbelievably strong in its first year.

Speaker #4: We launched Methodic with 30 products with right range of their product for medical grade makeup to specialize prescription protocols. One thing that surprised us out of the gate is our ability to drive demand for both personalized prescription and non-prescription products.

Speaker #4: And treatment plans. For example, Methodic's product is for hyperpigmentation, with a series of prescription and non-prescription products. The non-prescription product is ODT Lab, which is very encouraging for us.

Oran Holtzman: From example, METHODIQ's ER product is a hyperpigmentation with series of prescription and non-prescription products. The non-prescription product is ODDITY LABS, which is very encouraging for us. Looking forward, we have a consistent framework for the category expansion, big markets where we see meaningful demand, and where we can see that we can win. One category we are particularly excited about for next year is longevity and metabolic health. As first step, we plan to deliver legally available prescription injectable and peptides therapies. We are very bullish about that. That is it. We spent more than 3 years on building that growth engine, and we are very bullish about its potential.

Speaker #4: Looking forward, we have a consistent framework for the category expansion, big markets where we see meaningful demand. And where we can see that we can win.

Speaker #4: One category we are particularly excited about for next year is longevity and metabolic health. As first step, we plan to deliver legally available prescription injectable and peptide therapies.

Speaker #4: And we are very bullish about that. That's it. We spent more than three years on building that growth engine and we are very bullish about its potential.

Speaker #2: Our next question is from Andrew Boone with Citizens. Please proceed.

Operator: Our next question is from Andrew Boone with Citizens. Please proceed.

Speaker #9: Hi guys. Thanks so much for taking the like you have Spoilchild and Methodic that are both doing well. Can we just step back and think about the progression of the business beyond this near-term marketing hiccup?

Andrew Boone: Hi, guys. Thanks so much for taking the question. It sounds like you have SpoiledChild and METHODIQ that are both doing well. Can we just step back and think about the progression of the business beyond this near-term marketing hiccup? How do we think about what you guys are doing for Brand 4, and then can you just talk about AI's progress within ODDITY LABS? Understood that is a step function change in terms of molecule development. What are you guys seeing there, and how do we think about the benefits of just new technology and the evolution of molecules and how that's related to the business? Thank you.

Speaker #9: How do we think about what you guys are doing for brand four? And then can you just talk about AI's progress with an oddity lab?

Speaker #9: It's understood that is a step function change in terms of a molecule development. What do you guys seeing there and how do we think about the benefits of just new technology and the evolution of molecules and how that's related to the business?

Speaker #9: Thank you.

Oran Holtzman: What was the question?

Speaker #1: The first one was on the evolution of our growth trajectory post as we go forward now that Spoilchild.

Lindsay Drucker Mann: The first one was on the evolution of our growth trajectory as we go forward now that SpoiledChild is-

Speaker #7: No, brand four. Okay. Yeah, brand four. So we continue to grow both Spoilchild and Methodic. Spoilchild, as I mentioned, is an amazing pipeline ready to launch for next year.

Oran Holtzman: No, Brand 4. Okay.

Lindsay Drucker Mann: Brand4.

Oran Holtzman: Yeah, Brand 4. We continue to grow both SpoiledChild and METHODIQ. SpoiledChild, as I mentioned, has amazing pipeline ready to launch for next year, in new categories. Brand 4, we plan to launch in 2027, also next year. As for ODDITY LABS, we continue to have great progress there. It is also an area that we invested a lot in the past three years. As you mentioned, as you think about AI, of course, we can leverage it materially. It can speed up our processes and our molecule discovery there. We have a team that this is what they do in labs, and we are very bullish about the potential and the speed that it can bring to the business.

Speaker #7: In new categories. And brand four, we plan to launch in 2027, also next year. As for ODT Labs, we continue to have great progress there.

Speaker #7: It's also an area that we invested a lot in the past three years. And as you mentioned, as you think about AI, of course, we can leverage it materially.

Speaker #7: It can speed up our processes and our molecule discovery there. We have a team—this is what they do—in labs, and we are very bullish about the potential and the speed that it can bring to the business.

Speaker #2: Our next question is from Ryan McDonald with Needham and Company. Please proceed.

Operator: Our next question is from Ryan MacDonald with Needham & Company. Please proceed.

Speaker #8: Thanks for taking my questions. Oran, I think in the past, if I recall correctly, when you went from year one to year two on Spoilchild, there was quite the large revenue jump in the business.

Ryan MacDonald: Thanks for taking my questions. Oran, I think in the past, if I recall correctly, when you went from year 1 to year 2 on SpoiledChild, there was quite the large revenue jump in the business. I think you talked about that it was a little bit faster of a pace than what you wanted initially when you were thinking about the scaling of that. As we are getting in towards the end of year 1 with METHODIQ here and heading into year 2, I guess, what did you learn from SpoiledChild's ramping? How is that informing your view for METHODIQ and the strategy there? I guess, is it too early to see trends in repeat rates for METHODIQ? What are you seeing there, and how is that building into informing that view for year 2? Thanks.

Speaker #8: And I think you talked about that it was a little bit faster of a pace than what you wanted initially when you were thinking about the scaling of that.

Speaker #8: As we're getting in towards the end of year one with Methodic here, and heading into year two, I guess, what did you learn from Spoilchild's ramping and how has that informing your view for Methodic and the strategy there?

Speaker #8: And I guess, is it too early to see trends in repeat rates for Methodic, or what are you seeing there? And how is that kind of building into informing that view for year two?

Speaker #8: Thanks.

Speaker #7: For us, always the first few months is testing and trying to find the right audience and then fixing unit economics. And then scaling. That's what we did with Spoilchild and that's what we are planning to do with Methodic.

Oran Holtzman: For us, always, the first few months is testing, and trying to find the right audience and then fixing unit economics and then scaling. That is what we did with SpoiledChild, and that is what we are planning to do with METHODIQ. Basically, there are less constraint from growth angle in the first two years. I can remind you that in SpoiledChild, in year 3, we decided to spend less, and to have constraint on revenue. We are not planning to have constraint for METHODIQ in next year. But keep in mind that the first few years of any brand, there is a cost, and we need to take it into consideration while we are building budget, and that is what we are planning to do.

Speaker #7: Basically, there are less constraints from growth angle in the first two years. I can remind you that in Spoilchild, in year three, we decided to spend less and to have constraint on revenue.

Speaker #7: We are not planning to have constraint for Methodic in next year. But keep in mind that the first few years of any brand there is a cost.

Speaker #7: And we need to take it into consideration while we are building budget and that's what we are planning to do.

Speaker #2: Our next question is from Georgia Anderson with Evercore ISI. Please proceed.

Operator: Our next question is from Georgia Anderson with Evercore ISI. Please proceed.

Speaker #10: All right. Thanks for the question. I guess thinking about the business model of Try before you buy, I think you shifted kind of around 40% of acquisition revenue out of Try before you buy in Q1.

Georgia Anderson: All right. Thanks for the question. I guess thinking about the business model of Try Before You Buy, I think you shifted around 40% of acquisition revenue out of Try Before You Buy in Q1. Wondering where that mix is today, and if the gross margin compression we saw in Q2, is that structural or recoverable? Any color there would be great.

Speaker #10: Wondering kind of where that mixes today. And if the kind of gross margin compression we saw in Q2, is that kind of structural or recoverable?

Speaker #10: Yeah. So let me clarify. That would be great.

Speaker #1: Sure. As you know, a focus area for us has been remediating some of the signal distortion from Try before you buy. And as part of that, we have shifted part of our acquisition away from Try and towards buy.

Lindsay Drucker Mann: Sure. As you know, a focus area for us has been remediating some of the signal distortion from Try Before You Buy, and as part of that, we have shifted part of our acquisition away from Try and towards Buy, and we were able to do this without any notable impact on our unit economics. We believe in our current state, we can move 50% or more of our acquisition to Buy from Try, at a minimum. That said, we love the model. We have no plans to eliminate it. We think it offers a great value to consumers, so our focus is really on remediation and rebalancing as needed. On the gross margin question, we have always talked about our long-term gross margin expectations to be in the high 60s, without gross margin being a real target KPI for us.

Speaker #1: And we were able to do this without any notable impact on our unit economics. We believe that, in our current state, we can move 50% or more of our acquisition to buy from Try, at a minimum.

Speaker #1: That said, we love the model. We have no plans to eliminate it. We think it offers a great value to consumers. So our focus is really on remediation and rebalancing as needed.

Speaker #1: On the gross margin question, we've always talked about our long-term gross margin expectations to be in sort of a high 60s. Without gross margin being a real target KPI for us, the target KPI for us is DC margin, contribution margin, gross margin after media spend.

Lindsay Drucker Mann: The target KPI for us is DC margin, contribution margin, gross margin after media spend. But just based on the range of products and brands, high 60s is how we have pointed everyone to. That said, this year, we did get a lot of deleverage based on the lower AOV, and we do not see that as structural. Once we have improvement in our acquisition dislocation, we will be able to go back to optimizing for AOV. Remember, we have removed all of those efforts. So we will be able to optimize better for AOV, which should support our gross margin on a like-for-like basis.

Speaker #1: But just based on the range of products and brands, high 60s is kind of how we've pointed everyone to. That said, this year, we did get a lot of deleverage based on the lower AOV.

Speaker #1: And we do not see that as structural. Once we have improvement in our acquisition dislocation, we'll be able to go back to optimizing for AOV.

Speaker #1: Remember, we've removed all of those efforts, and so we'll be able to optimize better for AOV, which supports our gross margin on a like-for-like basis.

Speaker #7: And we didn't optimize yet Methodic gross margin. Since it's early. So we expect to have meaningful improvement also there.

Oran Holtzman: We did not optimize METHODIQ gross margin, since it is early. We expect to have meaningful improvement also there.

Speaker #2: Thank you. This will now conclude our question and answer session. I would like to turn the floor back over to Mr. Holtzman for closing remarks.

Operator: Thank you. This will now conclude our question and answer session. I would like to turn the floor back over to Mr. Holtzman for closing remarks.

Speaker #7: Thank you very much, guys. See you next quarter.

Oran Holtzman: Thank you very much, guys. See you next quarter.

Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.