Oddity Tech Ltd (ODD) 2024 Q4 法說會逐字稿

Good morning. Welcome to Oddity 4th quarter and full year 2024 earning conference call.

(Operator instruction).

At this time, I would like to turn the conference over to Maria Lycouris, Investor Relations for Oddity.

Thank you, operator. I'm joined by Oran Holtzman, Oddity's Co-founder & CEO and Niv Price, Oddity's Chief Technology Officer (CTO), and Lindsay Drucker Mann, Oddity's Global CFO.

As a reminder, management's remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations, or estimates, including statements about Oddity's business strategy. Market opportunity, future financial performance, and potential long term success. Forward-looking statements involve risks and uncertainties, and actual results could differ materially due to a variety of factors. These factors are described under forward-looking statements in our earnings press release issued yesterday and in our most recent annual report on Form 20 filed with the Securities and 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 press release which we issued yesterday. I'll now hand the call over to Oran.

Thanks everyone for joining our call today.

2024 was another strong year for us, both for financial achievements, but even more importantly for the investments we've made to drive our business in the future.

As I tell my teams, our success today is because of the hard work we did 2 and 3 years ago. We are proud of it, but it is in the past. We must continue to work hard to invest today to ensure we keep winning.

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. Engines across Oddity labs, new brands, and AI.

So let's start with our 2024 performance.

In 2024, we grew revenue 27% to $647 million and delivered adjusted EBITDA of $150 million at a 23.3% margin, growing adjusted EBITDA 40% year over year. We generated $134 million of free cash flow, converting over 130% of our net income into cash.

We again proved the power of online. We beat our earnings guidance every single quarter since going public and continuously raised our outlook on sales and profitability. Every single quarters, 7 quarters in a row.

Both our brands did great in 2024. Each growing revenue double digits. In Makiya crossed the 500 million revenue mark in 2024, and [spoilt child] recently crossed the 150 million marks for its third birthday anniversary this month.

We maintained strong and consistent momentum across the year, including our fourth quarter where we grew revenue by 27%.

This momentum continued into 2025 where we had a great start for the first quarter growing across brands and product categories.

And given the importance of our first quarter, it put us in a good position to once again meet our annual targets for revenue growth of 20% and adjusted margin of 20%, which we are committed to doing every year.

One of the most important focus metrics for us is repeat sales. 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, repeat revenue is high margin for us and drives our strong.

We are therefore pleased to have further strengthened our repeat sales in 2024 and increase it as a percentage of our business for 2023.

This was driven by a strong 12 month revenue re repeat rate of over 100%, a level that we believe is best in class across the.

We are clearly an outlier versus other beauty companies that have reported with demand and access inventories.

I want to explain why we are outperforming today and why we believe we will continue to do so in the future.

First, we are deliberately focused on the most attractive growth areas of the market. This includes the shift to online and increasing consumer demand for high performance products.

In our view, the move in recent quarters to online appears to be having more meaningful impact than in the past. There is too much product in too many physical points of distribution while online is growing at a strong pace of a larger base.

The global beauty industry is one of the most attractive markets in the world, in our view, huge in size and highly profitable, with so many areas to innovate and grow.

I believe that in coms have underinvested in technology and have been slow to adapt to a changing consumer. We can see how it is hurting their business today and creating an opportunity for us as we continue to invest and strengthen our mold on those fronts.

The second reason for our performance is our direct to consumer model, which has so many advantages over the wholesale brands.

And in a tough industry backdrop, those badges really shine.

We have a direct dialogue with consumers without greater interference. We understand the performance of every product by platform, by ad, by geography, by funnel, every hour of the day. We double down on what is working and continuously optimize to make sure we never hit the wall. Due to our B2C model, we have a very accurate read and strong planning. We have full control of our inventory, avoiding the access inventory that all the brands are facing today. Including all the discounting that comes along with it.

Turning now to physical products, one of the greatest strengths at Oddity is our ability to develop high performing products, launch them into our user base, and create new hero franchises. From the very beginning, we built a culture at Oddity that truly believes in product that solves the pain points and does it better than others, that she loves and wants to come back to. And this trend really shows in our numbers today. Starting with the original product portfolio we launched back in 2018, which continued to grow double digits. Based on industry data, we believe [Ilma Kiyaha] is the number one foundation, the number one primer, and the number two concealer in the US prestige dollar sales.

Our product innovations are growing even faster. A good example is I skin, which we launched in 2022, and is of 2024 represented around 30% of the brand revenue, and it should continue to grow.

Child is another example launched in 2022 and now makes up almost 25% of auditory revenue today and growing digit.

Part of our product innovation machine is our direct connection with the consumer that enables us to learn what she needs. Another is our strict development protocols that require any product we launch to bid competitors in large scale consumer trials. If it isn't perfect, we won't launch it, even if it means we don't launch new products.

What was recently added to our existing products first strategy is Oddity Labs. Our biotech 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 our old industry completely. As I said before, I believe this will take time, but it can be a true game changer for us.

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.

Starting with a core business where we have incredible strength in both [Ilma Kiyaha] and [spoiled child], both at the great 2024 and are off to a strong start in 2025.

Ima Kiage is already one of the largest prestige beauty brands by revenue in the United States after only six years in the market based on industry data.

And it is on track to reaching $1 billion of revenue by 2028. The color business continues to grow with great repeat. Skin is a massive opportunity, as I mentioned, it reached 30% of Makiage brand sales in 2024 and will continue to get even larger. Remember that for most of our largest competitors, skin business is twice the size of color.

International is another major opportunity that we have slowed play throughout the years. We began slowly accelerating our growth outside of the US in the first quarter of 2025, both by increasing scale in existing markets like the UK, Germany, and Australia, as well as large scale testing in new markets. So far it looks good, and we continue to believe international will grow to big numbers.

Spoiled child, we are also billing to be a billion dollars dollar brand. It is scaled at a healthy rate, passing the $150 million LTM revenue mark and doing it with strong repeat rates and AOV.

It shows how much unmet demand there is for the brand. We have testing international markets for spoil in 2025 with good indications and see big potential there.

Another reason that makes us bullish about our future is our new brands. With every brand, we push ourselves even more to not only disrupt the market, but disrupt ourselves again and again.

Brenttree is a telehealth platform for consumers that will start with medical grade skin and body issues like acne, eczema, and other pigmentation, and then we'll expand to other health domains.

Our offering includes a comprehensive and innovative product range and access to prescription and OTC treatments, enabling full personalization to user profiles, types, and severities.

Individual treatment plans can be updated and adjusted to minimize side effects and increase efficacy.

With Bradtree, we are building a user experience and product portfolio that we believe can change the game. We have built new capabilities for it, including specialized visual technology for assessment and a mobile app with a treatment life cycle coaching engine to encourage compliance with the treatment routine.

Braintree is on track to launch as scheduled in the second half of this year. We plan to soft launch in Q3 and then roll out official lounge in Q4.

Therefore is also a big opportunity that we're very excited about. More details on that phone to come.

Moving to the labs where we are using pharma grade technologies and AI-based molecule discovery to develop high efficacy sign back products for our industry.

Our mission at OddityLabs is to bring real science to our industry at high scale for the first time and turbocharge distribution through Oddity online platform.

We continue to grow our team with new talent across bioengineering, computation, chemistry, and delivery teams. Our scientists are actively developing both short and long term innovation in skin, color, hair, and body with a singular goal of exceeding the efficacy of existing products.

To achieve this, we are working on multiple parallel R&D strategies across each of our programs to increase the chances of success.

In the short term, we are working on preparing to launch new molecules for brain 3 and 4. Separate teams are working on longer term developments, ensuring we focus on both delivering short term impact while investing in the future. These longer term developments include our next generation of molecule delivery systems, new modalities, and new biological pathways to improve efficacy.

Beyond our internal R&D, we are doubling our power by partnering with leading platforms to accelerate target and heat discovery using cutting edge technology, including training in advanced human organoid models to identify new targets and predict molecular efficacy.

AA-based platform that identifies new targets and generates predictions that modulate a given target based on genetic data and RNA sequencing.

And GAI algorithms that develop new highly effective complexes composed of natural ingredients. Biology is just one part of the equation. Effective delivery is essential to translating scientific breakthroughs into real world performance. We are investing in delivery systems, building internal capabilities, and partnering with third parties to optimize how different compounds reach their targets. It is still early to know what will work as we are doing it for the first time, but I can assure you we push out 24/7 on multiple areas to increase the chances of success. As I already said in previous calls, we don't need OT labs to meet our financial targets, but what we are building in labs is a total disruption. If we do it right, OT labs will change our company and our industry forever. I truly believe it.

Finally, a few words on our investment in tech before I hand it to our city on price. Our big and early investments in tech are paying huge dividends for us today, allowing us to be ahead of our competitors in winning online. This is why we continue to double down on our investments in tech talent and capabilities. This year, with the acquisition of ionics IP, we brought in-house an elite AI research team. With the experience from Israeli intelligence units. This team will focus on solving high impact missions, enhance our current models, and help us preserve our lead. I will now hand it to Niv to talk through what we are building in tech in more detail.

Thanks, Oran.

Indeed, we believe the oddity platform today is the most advanced AI-based commercial engine in our industry, and we continue to push our capabilities to new heights.

Our technology mode allows us to deliver a better experience to customers than what is possible in the store.

In order to do that, we need great data and the ability to hyper personalize the user experience. These are problems that machine models are especially well suited for and why we have from an early stage, focused on building these capabilities.

Let's start with product matching, the ability to understand each user and deliver them the perfect product match based on her needs.

The vast majority of our revenue comes through one of our AI-based matching algorithms. We're continuously improving these models in order to reduce returns and increase satisfaction and repeat.

As one example, our latest version of Il Makiya's Power Match, which were recently released, is our best performing shade matching model ever.

It's a multi-model architecture, training on both images and text, and it's reduced returns of our best selling shades by more than 10%.

Turning to our user journey and how we personalize every experience to the individual in order to maximize conversion and LTV.

I like to think of these models as a virtual personalized store that is being built around our users as they walk through based on the information we gather about them.

One example is a new model we introduced recently for spoiled child, targeting post-ur upsell.

Instead of offering a random product after purchase or one pre-chosen by a human, we use machine models to make the decision.

This droves a 30% plus improvement in Ail conversion and a 15% plus improvement in AOV.

For brand 3, we're taking product matching and hyper personalization to a new level with a full suite of AI models.

These include severity assessments for different skin conditions, as well as lesion classification and predictive view, where we combine generative AI models with our unique data and algorithms in order to predict and show users at day one how they should expect to look like across their treatment journey all the way to clarity.

These capabilities are critical to aligning expectations with their users, increasing their satisfaction and compliance, and reducing churn.

Working closely with top dermatologists, we were able to show that our acne models have reached this year a level of accuracy that matches or beats that of a single dermatologist.

Breakthrough foundation models from OpenAI, Meta, Google, and others have been a huge win for us.

We can take these models, combine them with our unique data and algorithms, and build new tools faster and way more efficiently than what was possible before.

I'll give you an example in the Ane domain. We start with a foundation model that knows how to identify circles, colors, and texture. We then teach the foundation model if you see a circular red bump, that's a lesion, and teaching it means showing it many ground truth examples using our proprietary data of more than 10 million unique images from our users, which we believe is one of the largest data sets of this nature in the world.

Then we do another final step of additional training with our data and boom, you have a domain expert.

This approach has two important advantages. One, speed. Since the starting point was that of a foundation model that knows the world quite well, turning it into an expert is faster than if you had to teach it from scratch.

2, quality. The results are usually better than if you started from scratch.

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, save on costs, and get more accurate results.

Turning to the platform, it's important to emphasize, especially as we're rolling out more and more brands. We're building oddity technology with the modular and extensible design which makes it usable across all brands and makes it plug and place for all new launches. This allows us to be super efficient in terms of time, resources, and capital.

These modular Oddity core libraries span across every aspect of our platform from user facing interactions like our funnels and checkout to video on demand with Kenza to our computer vision diagnostics and tracking core capabilities, product recommendations, tons and tons of applications which would be expensive to build separately. But on our platform, we leverage these core libraries to drive speed, results, and efficiency for each brand.

With that, I will turn it over to our Global CFO Lindsay.

Thanks Niv. Let's turn to our Q4 results which I will refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release.

Oddity 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 Il Makiage and spoiled child across a range of product categories. Net revenue growth was driven primarily by an increase in orders, while average order value increased 12% year over year.

Average order value growth continues to be driven by mix, in particular the increased proportion of Il Makiage skin, as well as higher items per order.

The 27% revenue growth we delivered this quarter beat our 22 to 24% guidance.

The upside stands in contrast to the concerns we hear from investors about weakening sales trends in other beauty businesses, including both wholesalers and retailers. As Oron said, our results are a testament to the strength and resilience of our direct to consumer model and how we've positioned our business to win in the most important vectors of industry growth.

Moving down the P&L gross margin of 72.7% expanded 330 basis points year over year and exceeded our guidance of 68%. The Delta versus our Outlook was driven in part by product mix. We delivered adjusted EBITA of $15 million in the quarter and adjusted EBITDA margin of 12.3% above our guidance in absolute dollars and in margin percentage terms.

Adjusted EBITDA margin compressed by 453 basis points as we incurred planned incremental expenses in the quarter to drive future growth initiatives including Brand 3, Brand 4, and oddity labs.

We delivered adjusted diluted earnings per share of $0.20 compared to our guidance of between $11.13.

Our adjusted EPS excludes approximately $8 million of share-based compensation.

We continue 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 is just one more indicator of our models advantages relative to our competitors.

We continue to put that cash to work and create value for our shareholders. During the full year 2024, we were purchased 3.6 million shares of our stock for approximately $147 million. This includes 2.4 million shares we purchased in the fourth quarter via direct buyback of a portion of Cadderton's shares for approximately $100 million. We have $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. We exited the year with $169 million of cash equivalents and investments on our balance sheets and zero debt.

Turning to our outlook for 2025, Q1 is off to a strong start with good momentum in January and February.

The size of the corridor 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 e margins.

Some specific drivers impacting our full year P&L include during 2025 we plan to incur incremental expenses associated with growth investments in Brand 34, and oddity labs. This is principally to cover costs associated with people, tech infrastructure, and product development. Even with these investments, we're firmly committed to delivering a 20% adjusted EBITDA margin for the full year and beyond. Brand 3 launch as Oron said, we're on track for the second half of this year and continue to expect no material revenue contribution in 2025. Brand four will be ready for launch this year, but we've decided to move it to early 206 to give more focus to Brand 3. Leadership focus and more capital allocation to one brand versus splitting it in the same year for two brands. This has no material impact on our 2025 outlook as we are still incurring significant pre-launch expenses and have not contemplated any revenue contribution from Brand 4 in a year.

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 higher cost of goods expenses this year for Brand 3, which will operate at a lower gross margin at launch than the company average. As we said before, we continue to see minimal impact on our business from changes in tariff policy. Sticking with the topic of policy uncertainty, let me address TikTok. TikTok is one of many platforms that we use for acquisition, and we have no over-reliance on it. The expected impact to our business if TikTok ceases operating in the US is not material.

Moving down the P&L, we expect adjusted EBITDA margin of 20% in line with our long-term algorithms. We continue to plan to reinvest any EBITDA dollar upside back into the business. Adjusted EPS of $1.94 to $1.98 assumes a blended tax rate of 20% and does not incorporate the potential benefit from additional share buybacks.

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 and our press release, and with that, I'll turn the call back to the operator for questions.

Thank you. We will now be conducting a question-and-answer session.

(Operator instruction).

Corey Carpenter, JP Morgan.

Good morning. Thanks for the questions. I had two, maybe, one international or on, I think you mentioned in the prepared remarks you're starting to push more in one queue. So could you just go a little deeper on your strategy and kind of what you're doing on the international side and why now? And Lindsay, I think for you, just one, understand that's your highest customer acquisition quarter. So could you just talk about what you've seen the first few months on the customer acquisition side, in loss and payback on that.

Hi, good morning, Corey. As for international, the teams are working hard to accelerate international for many years, as you know. And what I wanted to achieve now is to showcase that it is our decision when and how much we want to grow there. I also decided it's important to spread the growth across small markets and instructed the teams already back in 2024 to allow for more growth internationally in 2025. So we began slowly accelerating the growth outside of the US in the first quarter of this year, both by increasing scaling existing markets like UK, Germany, and Australia, as well as larger scale testing in new markets. So far it looks very good as expected, and we continue to believe international will grow to huge numbers for us. As it's a massive opportunity. Our competitors internationally, I think like 2/3 of their business. And we are building like truly localized experience for each international market we enter, which gives us strong performance from day one when we launch those new international markets. And this is like one of our biggest levers, and we can use it whenever we want. Like, the reason that we pushed internationally is not because softness in the in the US. I instructed the teams last year that I want to push more in in 2025, and that's what we did as planned. And it's our decision how quickly we want to pace the growth in those new markets and to prioritize it. I hope it answered that question.

Lindsay?

Yeah. So, Q1 is off to a great start as we mentioned in our prepared remarks. As Q1 is a really important quarter for us. It's when we turn the engines back on for, our acquisition and we exited the 4th quarter with really good momentum. Nice performance across both brands and multiple products, product categories you heard or on Talk about skin. Now for 2024 reaching 30% of Il Makiage brand revenue. That's been a big highlight for us even as the color business continues to grow. Double digits and spoiled child with good momentum. So all of those things really carried forward for us in the first quarter in terms of row as the media gets more expensive every year consistently we're able to offset it with all the very strong repeat rates that we have and that kind, of course, Oran mentioned it for 2024, but it continued into the first quarter as well that we're repeated a larger portion of our business which allows us to get a nice overall return on our ads spent.

[Yusuf Patel], Truist Securities.

All right, thank you very much. Good morning, guys. So, Oran, 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 trade down across your consumer base from ongoing macro concerns? Looks like consumer confidence, at least in the US continues to deteriorate. Do you think this business?

Continues to perform well regardless of what how the macro does over say the next 12 months, 12 to 18 months, and then Lindsay on TikTok was TikTok impacted at all as a marketing channel for you guys by the brief shut down in January and if the platform does go away, what's the best substitute with comparable row as for you guys? Is it Instagram? Is it, we would love to just see if there is a.

Good morning. I will take both. Let's start with the easy one. TikTok is TikTok, is being shut down tomorrow, nothing happened to the business.

It didn't 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 impact. And it's for the market. Look, we said it before. The consumer is moving online. I said it multiple times, I believe this is the case. I believe it will be more than 50%.

And we know the challenges some of our competitors have, and it's really not surprising us when you consider how much the consumer is moving online and how much their focus is going into brick and mortar with over 1,000 new points of distribution in just a couple of last year. And we did see a lot of promotions from other brands in Q4, which was probably to drive demand.

This isn't an issue for us, thankfully because we don't run the business this way. We are not participating in holiday sales, but for other brands it can be very damaging as part of their consumers are conditioned to shop only during sales and promotion and so it makes it very tricky for Q1 for them. And overall, it's like what we see out now it's a big opportunity for us because we believe this transformation is still in early days. Online penetration can double from where we are today and that's what keeps us very bullish about the future.

Javier Escalante with Evercore.

Oran, Lindsay, nice talking to you. My question has to do more on the consumer side, if you can expand on repeat purchases. Which I understand you define it more as conversion within the same cohort and perhaps if you have visibility on that with whether you can discuss Al Maquiash in terms of which areas you see the strongest repeats within existing products, I believe should be foundation, but this is my guess. And how much of the El Maash growth is coming right now from consumer trial of the skin care extensions.

Thank you.

Good morning. I'll start with [repeat]. Unlike most D2C companies, we 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 so profitable and repeating 24 grew to more than 60% of the business revenue, way higher than 2023. Again, this is although we grow over 25%, actually 27% in revenue. And this is an important metric for us because it really shows how strong the satisfaction and happiness is. And if I dive deeper, our 12-month net revenue (inaudible) rate is more than 100%, which we believe is among the best there is indeed to see. And this metric was less than 50%, compared to more than 100 just a few years ago. We drive repeat by three main ways. One is more repeat from the same product, foundation, concealer, hair, skin. Number 2 is expanding wallet share with new products. If I sold her a foundation of course before, now we are offering her skin product, which is a repeat. And number 3, we are getting cross-selling from Makiage to spoil the child in the future for new brands. So, this is the way that we view it and repeat is very strong, like the cords that we see, we don't see, any softness.

Oran, if I can squeeze a second one if you don't mind, the strong growth in Q1 is certainly a stark contrast with most traditional beauty companies. Could you talk about customer acquisition kind of like in growth rates?

Say, Q1 2024 I have these many millions of users, and you know as of now in Q1 I have this many more in the in the growth rate. If you can tell us how much of the 20%, 23% I believe growth would be the midpoint of your guidance come from new users versus existing users buying again. Thank you.

Sure, then our biggest push in user acquisition is H1, like every year, Q1 is the biggest, then Q2, then we slow down because we don't want to grow more than that and we enjoy the repeat. But it doesn't mean that we don't have very strong repeat in Q1. And if I had it, I wouldn't like if I didn't have it, I wouldn't be able to to land on those Ebi the margins because, as acquisition is not super profitable. And so we are pushing and we are acquiring new users, but at the same time we are landing on a very healthy margin, which is a testament of the strong repeat rate as part of revenue, although we grow and the new user and the new user by acquisition. As for media, as you said, in, we continue to generate attractive returns on our marketing spending, and again, you can see it by our strong margin that we forecast for Q1 and for 2025 full year. Q1 media is getting more expensive, but as expected, but due to the super healthy repeat as I mentioned before, it's being offset, and we can see healthy margins.

Thank you very much.

Andrew Boon, Citizens.

Thanks so much for taking my questions. I'd love to understand the key product milestones as we think about Brand 3 coming to market later this year. What do you guys need to accomplish and kind of knock down to set Brand 3 up for growth and for it to scale into 25 and 26?

And then Lindsey, just stepping back from a bigger picture perspective. As we do think about the P&L, you guys are making significant investments across multiple growth factors that really aren't contributing in 25 materially. How do we think about sizing those growth investments to better understand your inherent underlying profitability? Thanks so much.

I will start with the second question, of course, Lindsay, you can elaborate. We are, I would say more than doubling our investment in Q1 versus Q1 last year, around labs, brand and brand 4. So when you think about the magnitude, just like continue to grow, and although it continues to grow, we still land on our margins that we are committed to. Brenttree is a telehealth platform with medical grade products. We are starting with skin and body issues like acne, eczema and othermentation, and then we'll add additional health domains already in 2026 next year. I can't elaborate more for competitive reasons. But for where we are, today, we start with body and skin. We see these issues as huge pain points that impact a big portion of our user base and satisfaction with current solution is terrible, either inconvenient visits to the doctor's office or picking an ineffective treatment blindly at a drugstore. And this is a huge opportunity for audit. We would never launch it this year unless I had a very good read that we know how to win around those areas. We tested a lot. We are building this brand for more than 3 years and we are in a good position to launch it.

We are developing Oud most personalized and most comprehensive line of product comprised of OTC and A products all to be sold online our own brand. Most products formulated with existing ingredients on the market and some OTC products will include exclusive ingredients from Oud Labs. Is, we are building a first of a kind, as I mentioned, the call mobile app experience to increase, compliance and drive higher repeat comparing to the market today. And 3 is leveraging, the best thing of all which is our platform, our user base, and marketing to them and developing products to address their needs.

As I mentioned, the goal soft launch Q3, official on Q4, we are actively scaling the teams, which is a significant investment for Oddity. We completed developing the product line and branding and we set up. The telehealth infrastructure to streamline user experience and support the delivery of our personalized treatments.

And as we've discussed, major breakthrough for us around vision, and the numbers that I saw are very compelling in terms of diagnosis and matching, and I'm very excited to launch this brand.

Andrew, I'll just to give you a little bit more, perspective maybe on the amount of spend, I, I'll highlight two things for you. Number one, if you look at our profitability, first half of 2024, which was essentially just I Makiage spoiled child, and then just beginning to ramp on our investments, we did have Oddity 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 rented and what we're going to in 2025, you can get a sense looking at first half of 24 at 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, that profitable despite the fact that it's kind of in the, it's a period where we actually are doing a lot of investment inherent in the D2C business. So I think that's that's one factor. And the second thing that I would, mention in terms of cost is 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. To launch, so Brand 3 is more involved for us than what Spoiled Child was, but it gives you a bit of a sense of kind of what the upfront investment is that we've of course layered, over a couple of years.

I would just say like tens of millions in terms of investment this year, so we can elaborate more, but big investment for us across labs 3 and 4.

That's very helpful. Thank you so much, guys.

Dara Mohsenian, Morgan Stanley.

Hey, good morning, so maybe we can stick to brand 3. I was just hoping to get a bit more specifics on the consumer need states you're targeting, with brand 3, the total addressable market that you see and.

Maybe just a bit of an update to the extent you'd like to share on sort of effectiveness of the product so far in brand 3 and you're testing for those consumer needs states versus the existing competing products that are out there.

Yeah, sure. I think that I say, but I will say it again, we start with acne eczema, hyperpigmentation. And body issues. As for trial, I won't say that we did close to 100 groups, of trials like for the personalization, customization we see numbers that are better than, anything other that we saw so far, in terms of matching and satisfaction. Truly like more than 2 years in the world just that far. So, we wouldn't launch it unless we were very confident that we have a strong offering, and.

Just as in the magnitude, we're launching like dozens of new products for entry after testing and it's it's a huge lift for us, but thank God the majority of the work is behind us and and we are gearing up for lunch.

Great, that's helpful. And then on the oddity 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 and molecule discovery obviously brand three maybe a piece of that, but how you see that developing in terms of new products going forward and commercializing some of that molecule discovery in in 2025.

Yeah. Like it's still early, with labs, not because we are not confident, just because we are building something really meaningful in terms of infrastructure and processes. The good news is that. You will see new products coming from labs for Brand 3 and Brand 4, which is very short term. And in addition, we work, very hard to build and around, I want to say more than 10 programs to launch, more products from labs, that will take a bit more time, because we want to ensure that we are not, just launching for the sake of launching to make sure that we are launching for way higher figures than what exists in the market. We are scaling the teams. We now have around 60 scientists there, building to 100. We've built a lot of infrastructure needed to make it high scale commercial engine for us, including systems, processes and controls. And we are constantly partnering with other platforms to help us accelerate target and heat discovery.

In addition, we were working on biology and delivery systems to optimize how different compounds can reach their target.

And as I mentioned, short term focus brand 3, ran 4 long term is way broader than that and and again for competitive reasons we are not sharing what exactly we work on there. Lastly, we are constantly exploring M&A opportunities to strengthen OT lab's capabilities, and looking for strong teams with advanced technologies or new discoveries that are aligned with our, target space. I hope it's helpful.

Thanks.

Scott Schoenhaus, KeyBanc Capital Markets.

Thanks for taking my questions. My first one, is on brand re 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, healthcare providers, the dermatologists that you have access to that will weigh on the gross margins just kind of wanted to drill into. The workflows of this telehealth platform and in dermatology, obviously there's a shortage of dermatologists and there's a long wait time. So there's a huge opportunity, I feel like in this market segment for for the telehealth as well as diagnosis, and kind of want to work through, the workflow platform with the telehealth versus the the vision technology.

Thanks.

Hey Scott, thanks. The gross margin comment is really specific to, as we've talked about for Brand 3, users will have access to both over the counter and prescription.

The call out is really on the prescription side where there's higher cost of goods associated with doctor networks, compounding 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 brands, we demand a threshold of contribution margin, EBITDA margin, and we're really excited about the unit economic profile and financial model for Brand 3.

I would just add that we need the infrastructure for doctors just for the our export, which is going to be less than 50% of our offering, and everything is in place to meet our, deadline for lunch.

Thanks, Oran in my follow up, you just actually talked about Oddity labs. You talked about M&A, so interesting, perspective here question how do you balance, expanding, your team at Oddity labs organically versus M&A? I said I think you also mentioned your partnering for target optimization as well. Can you just dive into that more, Oren, thanks.

Yeah, sure, there is a like a 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 of of of of of capacity and resources and in order to make sure that that we can double our power, we TRY to get help from others and if we see something that is And very promising for farmer. We reach out to them, and we check if we can, they can help us developing something with us for certain areas that we don't have expertise in. And this is one example. As for M&A, we acquired rebella for the same reason, and we're constantly looking for strong teams, mostly in farmer because there is like in our industry it's not that common, and if we see a strong team, we will not hesitate to acquire them.

Thank you.

Lorraine Hutchinson, Bank of America.

Can you talk about the product you've launched in Q1, at each of the brands, what you're excited about, and then what's in the pipeline for the next several months?

Hi Lorraine, sure. So, new Ron talked about this a bit in his in his prepared remarks about how important product innovation has been for us, as a way to continue to drive revenue repeat and, convert our users who had never found what they were looking for into customers. So it's 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, spoiled child. There was no skin or spoiled child until 2022, and you can see how large those businesses have become. And then you can also see with our AOV up 12% in the quarter and it was up nice.

All year, 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 more items to order because they're finding more of what 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. We do have some nice products in the pipeline. For that we tested, we always before we launch anything we do a lot of testing to make sure that we, feel 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 assets and funnels and that kind of stuff. And so we've had some nice products that were tested in 2024. We have one product I'll highlight in Il Makiage, which is our neck cream that's going, it's in Q125, maybe I find that they target me, often, on my social platforms, so maybe that's a hint for me personally on what I need.

But, also we have liquid magnesium, we have some eye creams, and other items so it's about 5 for each brand this year for the full year across the year that will be and that's not even counting the the really robust product set that we'll be launching with brand 3.

Like any other year, around 5 pros. From each brand every year will be launched.

Lauren Lieberman, Barclays.

Great thanks. Good morning, guys. 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 the, inventory destocking dynamics that are going on. But, you talk about how your consumer base is very broad across age cohorts, demographic cohorts, socioeconomic cohorts. And I was just curious if there's anything you have are seeing from the consumer environment because we hear a lot about the, kind of cautious consumer things not getting worse but certainly not getting better strength at the high end but kind of everyone let's call it below 100,000 of income household income kind of struggling so it's amazing how resilient your business has been and so I was just curious if you could comment again on anything you're seeing or not seeing from the consumer environment. And if you're not seeing it, why do you think that is? Thanks.

Thanks, Lauren. 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've been covering this industry for a long time, that beauty is a really resilient category in and out of economic cycles. I suppose what's different about beauty this cycle is just the secular channel shift, and I know for many of those, all the companies that I listen to, even if their businesses were challenged, they, every single one of them called out online as a bright spot. And 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 groove, where they're getting more great brands on their platform and you're seeing that benefit. So, I think it's, we, you rightly point out that we have a very broad demo brought across ages, brought across, income as far as we can see. Based on the wide range of brands that people trade into us from. So, from Prestige Beauty to masstige to mask, there's a lot of different customers that trade into us and to us it's a reflection of the value that we deliver.

What is it they say price is what you pay, value is what you get. A consumer is willing to pay significantly more for the same type of product because the product's 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 large industry and we're right at the center of all this sort of excellent secular growth without anybody really doing anything close to what we are.

And I would just say one more thing like what we didn't have 3 or 4 years ago is diversification offering. Now we only have color, we have skin.

We have wellness with spoiled child. We are explaining to the farmer with them and with their brand tree, and I think it helps a lot like meeting our goals if some area is softer, but, needless to say, as we mentioned that, so far, we see very strong one.

Great. And if I can just sneak in one more really small, I was just curious, cross selling between spoiled child and Il Makiage, do you have any way of kind of quantifying that or what the crossover on the customer base is at this point?

Yeah, at the beginning of a new brand, often you see a lot more cross selling, crossover, I should say, of users from, Il Makiage that we then convert into customers for spoiled child, by the way, that was true for skin also initially for Il Makiage skin we started off mostly with color on customers who then ultimately, would convert to skin, but now as the brand scale is.

Spoiled child is scaled and is as Imaki's skin as another example has scaled, they stand on their own more. I think in general we've talked about something like half of spoiled child revenues came from Ill Makiage users, not necessarily customers, but users, so folks that had come through our Il Makiage platform. Giving us a bunch of information, taking a quiz, we learned about them, didn't find what they were looking for, but then converted over into spoiled child, in addition to Il Makiage customers who actually crossed over the two brands.

Yeah, okay, awesome thank you so much.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Iran for closing remarks.

Thank you very much, guys. See you next quarter.

Thank you, this will conclude today's conference.

(Operator instruction).