Olaplex Holdings Inc (OLPX) 2021 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to OLAPLEX Inc.'s third-quarter earnings conference call. (Operator Instructions). As a reminder, this conference call is being recorded. (Operator Instructions)

I would now like to hand the conference over to Allison Malkin of ICR. Please go ahead.

Thank you, and welcome to the OLAPLEX third-quarter fiscal year 2021 earnings call. With me today are JuE Wong, Chief Executive Officer; and Eric Tiziani, Chief Financial Officer. For today's call, JuE will begin with a review of OLAPLEX's mission and strategy and highlight our third-quarter performance. Then Eric will provide additional details regarding the Company's financial performance and introduce the Company's outlook for 2021. Following these prepared remarks, the operator will open a call to take the questions you have for JuE and Eric today.

Before we start, I would like to remind you that management will make certain statements which are forward-looking, including statements about the outlook of OLAPLEX's business and other matters referenced in the Company's earnings release issued today. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in or implied by such statements.

Additional information regarding these factors appears under the heading Cautionary Note Regarding Forward-looking Statements in the Company's earnings release and in the Company's filings that it makes with the Securities and Exchange Commissions that are available at www.sec.gov and on the Investor Relations section of the Company's website at ir.olaplex.com. The forward-looking statement on this call speak only as of the original date of this call, and we undertake no obligation to update or revise any of these statements.

Also, during this call management will discuss certain non-GAAP financial measures which management believes can be useful in evaluating the Company's performance. The presentation of non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to the most directly comparable GAAP measures in the Company's earnings release. A live broadcast of this call is also available on the Investor Relations section of the company's website at ir.olaplex.com.

I will now turn the call over to JuE Wong.

Thank you, Allison; and good morning, everyone. I am delighted to speak to you today and share our strong third-quarter performance. And the quarter also marked an important milestone for our Company as we completed our initial public offering. Before I discuss our results, for those new to OLAPLEX, let me first highlight who OLAPLEX is; why we believe we have been successful; and why we believe we are positioned to continue to be disruptors in the global hair care and beauty industry.

OLAPLEX is an innovative, science-enabled, technology-driven beauty company with unique competitive advantages. We were founded with a mandate to deliver effective, patent-protected, and proven performance in the categories where we compete. We believe every person deserves to have healthy, beautiful hair, and our commitment is to deliver results that are visible from the very first application.

Studies have shown that 91% of women do something to damage their hair daily. But with consistent and regular use of OLAPLEX products, consumers will have stronger, healthier-looking hair. With our patent-protected technology, our consumers of all diverse hair types will see shine, hydration, less frizz, more body and bounce -- because their hair is repaired, strengthened, and protected from that very first application.

To date we have 11 key products, eight for take-home use and three exclusive for use by professional stylists, which are sold in three channels -- professional, specialty retail, and direct to consumer. We believe we have been successful because our products are able to deliver visible results. We believe consumers who purchase at least one OLAPLEX product on average have purchased over 3.5 other products from our product suite in the last 12 months.

We are focused on innovation with a strong pipeline of products under development. We have over 100 patents in our patent portfolio and patent protection in numerous countries around the world. These patents not only cover what we now sell but also what we expect to sell in the future.

We are supported by a highly engaged community of over 250,000 professional stylists on our private Facebook group. Our Instagram community alone, comprised of our committed trade partners and loyal growing consumer base, with 2.2 million followers -- which we believe makes us the number-one prestige hair care brand on social media.

We have a synergistic omni-channel mix where each channel is mutually reinforcing across professional, retail, and direct to consumer. And all experienced strong growth in the third quarter of 58%, 128%, and 87%, respectively. Our business is global, with more than 40% of sales outside the US in Fiscal Year 2020, and for the nine months ended September 30, 2021.

We operate in a growing category with a large addressable market. Per Euromonitor, the global total addressable market for hair care is $77 billion. And within that TAM, prestige hair care is the fastest-growing segment. In addition to hair, we have patents for applications of our technology in skincare, which has a $140 billion TAM. We believe all of this positions OLAPLEX for consistent strong growth at robust margins that we believe are among the best in our industry.

Now turning to our third-quarter results: net sales rose 81%, driven by broad-based strength for our OLAPLEX regimen across our omnichannel distribution, from professional to specialty retail to direct to consumer. This growth comes on top of already a very strong growth in the third quarter of last year.

Our margins remained strong in this third quarter of 2021, including gross profit margin of 78.9%; adjusted gross profit margin of 79.9%; and adjusted net income rose 62.6% to $74.4 million, with adjusted EBITDA increasing 63.3% to deliver an adjusted EBITDA margin of 66.1%. Our adjusted EBITDA margin in this year's third quarter includes investments to support future growth, which Eric will review in more detail shortly.

In addition, the quarter included progress against our growth initiatives, with increased sales productivity, new product innovation, and growth from new distribution and international expansion. Sales growth was led by increased productivity in existing distribution across our professional, specialty retail, and direct-to-consumer channels.

We have launched three new highly incremental products this year: two for take-home use and one exclusive to the professional channel. In the third quarter we launched 4P, our first toning shampoo. We are very excited about this product. This uses our exclusive multi-patented technology to hydrate, strengthen, soften, and neutralize brassiness for brighter blondes, highlights, grays, and platinum strands.

Third-quarter sales also benefited from first-half introductions of the 4-in-1 Intense Moisture Mask PRO-Rx treatment, a new professional back-bar reparative treatment designed to moisturize and smooth hair while adding shine and body in just 10 minutes; and No.8, our first bond intense moisture hair mask. We expanded our distribution, adding shelf space in Sephora, with an increase in OLAPLEX's 6 linear square feet from 3 in the majority of their US locations as of the end of the quarter. And OLAPLEX was part of Sephora's rollout into Kohl's, with 200 locations through October. In October we entered Ulta Salons with our professional offering as their exclusive bond builder in-salon services.

Overall I am extremely proud of our passionate and dedicated team that contributed to our strong performance this quarter and believe we are well positioned to continue our success for the benefit of all OLAPLEX stakeholders. As we look ahead, we remain excited about our business prospects and expect our positive momentum to continue in the near and long term.

We believe we can expand our loyal base of OLAPLEX users globally and continue to launch incremental non-cannibalizing new products, supported by a robust innovation pipeline that is focused on solving real consumer problems. And now I would like to turn the call over to Eric to review our financial results and guidance in more detail.

Thanks, JuE; and good morning, everyone. I'm excited to speak with you all today. I'll begin with an overview of our business, then move to our third-quarter results. And finally, I will introduce our outlook for full year 2021.

Let me start by saying I am thrilled to be a part of telling the OLAPLEX story on behalf of our passionate team. OLAPLEX has an outstanding financial profile with top-tier profitability metrics, deep competitive advantages, and a disruptive business model. We believe that our strategy provides us with a sustainable platform from which to deliver long-term sales and earnings growth. We see substantial white space to grow OLAPLEX within our core category of hair care across channels and geographies.

Now, turning to our results, pertaining to any remarks on adjusted results, you can find reconciliation tables to the most comparable GAAP figures in our earnings release, which was also furnished on Form 8-K with the SEC today. Net sales for the third quarter increased 81% to $161.6 million from $89.4 million during the third quarter of last year.

As JuE mentioned, sales were strong across channels, including a 58% increase in professional to $75 million; a 128% increase in specialty retail to $46.3 million; and an 87% increase in direct to consumer to $40.3 million. This growth was driven by increased velocity of existing products, successful product launches, and the addition of new customers.

We were also happy with the resilience of our supply chain in the quarter, which enabled us to deliver this growth and build the appropriate inventory to support forward-looking demand. Gross profit rose 103.1% to $127.5 million from $62.8 million in the 2020 third quarter. Gross profit margin expanded 870 basis points to 78.9%. The margin increase was primarily due to lapping the one-time fair value inventory adjustment in the prior-year period related to the business acquisition of OLAPLEX in January 2020.

Adjusted gross profit increased 77.9% to $129.2 million from $72.6 million in the 2020 third quarter. Adjusted gross profit margin was 79.9% versus 81.2% in the 2020 third quarter. The 127 basis point decline was primarily due to higher input costs, particularly for inbound distribution in the current environment and some product mix.

Our operating expenses consist primarily of SG&A and amortization of other intangible assets. SG&A in the third quarter of 2021 was $30.3 million compared to $8.2 million in the 2020 third quarter. This increase was driven by $6.1 million of non-capitalizable IPO and strategic transition costs and $1.4 million of stock comp expense, which are add-backs for our adjusted EBITDA and adjusted net income.

The increase was further driven by $4.3 million in cash settled unit compensation expense, $3.4 million in sales and marketing expense, $2.6 million in payroll for expansion of our workforce, $1.6 million in distribution and fulfillment costs related to the increase in sales volume, and $2.6 million in other expenses relating to general business growth. Strong increases in sales and gross profit more than offset higher expenses, leading to a third-quarter adjusted net income improvement to $74.4 million or $0.11 per diluted share, which gives effect to the corporate reorganization affected in connection with the IPO. This compared to $45.8 million or $0.07 per diluted share in the 2020 third quarter.

Adjusted EBITDA grew 63.3% to $106.8 million from adjusted EBITDA of $65.4 million in the 2020 third quarter. Our adjusted EBITDA margin was 66.1% compared to an adjusted EBITDA margin of 73.1% last year for the third quarter, which reflects increased investment in SG&A to support our higher sales.

This included a year-over-year increase of 170 basis points, expressed as a percentage of sales in sales and marketing expense; and a 141 basis point increase in payroll and other G&A, excluding the IPO-related and strategic transition costs. In addition, adjusted EBITDA in the third quarter this year was negatively impacted by 265 basis points, expressed as a percentage of sales, due to the incremental cash settled units compensation expense. The majority of this is a one-time pull-forward of vesting from an approximately four-year period into Q3 for one particular tranche of awards for nonexecutive employees, which was triggered by the upsizing in pricing of the IPO.

Turning to the balance sheet, as of September 30, 2021, we had cash and cash equivalents of $121.5 million; and our long-term debt balance stood at $742.4 million. Inventory at the end of the quarter was $69.1 million compared to $21.2 million at the end of the fiscal 2020 third quarter. We are pleased with the composition of our inventory at quarter-end, which is well positioned to meet demand.

Regarding the cash flow statement, we had net cash provided by operating activities of $130.3 million for the nine months ended September 30, 2021, compared to $84.5 million for the nine months ended September 30, 2020. This was primarily driven by net income and the amortization add-back, partially offset by investments in working capital. Additionally, our purchase of property and equipment, primarily for internal-use software, for the period was slightly under $1 million, reflecting our asset-light business model.

Now to our outlook. For fiscal year 2021 we expect net sales in the range of $580 million to $588 million. Based on the midpoint of this range, this is a 107% growth versus full year 2020. Adjusted net income in the range of $263 million to $268 million, based on the midpoint, plus 103% growth versus full year 2020; and finally, adjusted EBITDA in the range of $392 million to $398 million -- or based on the midpoint, plus 98% growth versus full year 2020.

Our full year 2021 outlook reflects our plans for growth both with existing and with new distribution opportunities. Keep in mind we are not able to provide without unreasonable effort a reconciliation of the guidance for adjusted EBITDA and adjusted net income to the most directly comparable GAAP measure, because the Company does not currently have sufficient data to accurately estimate the variables and individual adjustments included in the most directly comparable GAAP measure that would be necessary for such reconciliations.

In summary, we are very pleased with our third-quarter results and the positive momentum of our business, which is reflected in our full-year 2021 outlook. We believe that our disruptive business model is working and that our deep competitive advantages have us poised to continue delivering strong results.

We look forward to reporting our progress in the quarters and the years to come. This concludes our prepared remarks, and we will now turn the call back over to the operator for questions. Operator?

(Operator Instructions). Erinn Murphy, Piper Sandler.

Great. Thank you. Good morning, and congratulations on your first quarter out of the gate. My first question is just for JuE on the launch of the 4P product. It seems incredible, at least from our channel checks. Would love if you could share a little bit more detail of how that's compared to some of your former product launches over the history of the Company. And then I do have a follow-up for Eric.

Yes, thank you, Erinn, for the question. Yes, as we have said, the 4P, our blonde toning shampoo, which is our first toning shampoo, has been very well received because most proper shampoo tends to be drying and only brightens the hair. In our case, with our technology, with the patents that we have, we not only are able to repair with the bis-amino, but we're also able to hydrate with a lot of the moisturizing ingredients that we have that, and to highlight any kind of brassiness in blondes as far as people who are getting their hair to a natural gray situation.

So as a comparison, I would just say that it is very successful. It is definitely a product that is very professionally honed in, and a lot of the customers are very much about looking for something of this nature that does not exist currently in the retail market. So we have been very happy with this performance.

Great to hear. And then I guess my follow-up is for Eric. On the fourth quarter implied guidance, I think it would imply about $152 million in sales at the midpoint. And I guess I'm curious -- why is it implied down versus the third quarter's kind of $162 million quarter, just given everything with 4P that JuE just talked about; holiday? Is there anything else on the sequential deceleration that you are implying at the midpoint for the fourth quarter? Thanks so much.

Yes, thank you, Erin. So while we don't have a lot of material seasonality to our business, there is some. And so one thing that we do see is in the third quarter, we tend to sell in the kits that are sold through in end-of-the-year holiday. And so that's one of the reasons we traditionally see Q3 sales in absolute terms a bit higher than Q4.

And we also see, particularly in the professional channel, stylists buying up inventory in Q3 to get ready for the holidays, get ready for Q4. And that's a seasonality we've seen over the years between Q3 and Q4. All of that said, we feel confident -- you know, good about the momentum we have reflected in our Q4 guidance, and we think it is a strong quarter.

Dara Mohsenian, Morgan Stanley.

Hey, good morning, guys. So much better revenues results than we expected on the professional side here in the quarter. Can you just discuss some of the key underlying drivers there as you look on a year-over-year basis? Obviously pretty strong growth year-over-year. How much of that was driven by a more normalized environment here from a COVID perspective versus other factors that maybe are more sustainable?

And while we're on the subject, can you talk about longer-term the biggest revenue opportunities as you look at growth over the next few years in the professional channel? Is it increasing the number of salons, customers within salons, etc., however you want to break it out, just also looking out from a longer-term perspective over the next few years.

Eric, if you want, I will take the question on the outlook; and I'll let Eric cover some of the more specific numbers. If you look at what's happening with us, in the United States, the number of stylists in salons for OLAPLEX are now above pre-COVID levels. We have seen significant growth in our professional channel with both new and repeat customers.

And outside of the US, all of the professional markets are open. While there are are still some limitations in their ability to conduct business with vaccine mandates, but -- as well as social distancing, we still believe that at the end of it, because of our runway and opportunities, we are still going to continue to experience growth in the professional channel.

So hopefully that answers your questions on where we see ourselves on the professional side. I'll turn this over to Eric on the revenue -- you know, our expansion.

Thanks, JuE. Hi, Dara. Yes, so professional had a strong quarter in the third quarter. We think all of our channels did.

And I must say it is broad-based -- so broad-based across channels, but also within professional. It is really momentum in our core portfolio as awareness is building. It was momentum in the new products that we've launched. 4-in-1, which was our professional exclusive launch in the second quarter, continued to do well in the third quarter; as well as the launch of 4P; and also the support for the holiday programming that is being sold in across all three channels. We really just saw it broad-based across the portfolio and across geographies.

Great. That's helpful. And just one follow-up in specialty retail. Obviously, very strong growth also in the quarter. So far your retail partner footprint is fairly limited, obviously, particularly in the US. Can you talk a little bit about the potential to expand to additional partners in the US over the next couple years here, the longer-term door opportunity versus where you stand today on the specialty retail side? Thanks.

As you can see, we are very focused on our current distribution. If you look at our footprint even at Sephora from our publicly resourced documentation, you would see our penetration still has a lot of runway. While we are a very successful stand-alone brand at Sephora, you also have seen that we have recently expanded into 200 doors with Kohl's through October. And in October, we entered into the Ulta Salons with our stand-alone treatment as well as our professional offering.

So we are going to continue to focus in our core distribution in a couple of those new distribution opportunities that I have just articulated for you. And we believe that if we continue to monitor how we perform in those areas, we will continue to deliver the performance that we believe we can deliver. Ultimately, I think what is exciting for us is our core footprint has still a lot of runway and opportunity for ourselves to grow.

Jason English, Goldman Sachs.

Congrats on a successful IPO and a strong quarter out of the gates. I wanted to put a slightly finer point on Dara's question there on distribution.

You mentioned that you've gone into the salons, the back bar at Ulta. Can you give us an update on how that is going so far? And can you describe maybe some of the criteria or milestones that need to be met for you to start to sell your products on the front end of the store there?

Thanks, Jason, for that question. So let me take your first part of your question. We are going to continue to monitor how our professional products are doing at Ulta, because we know that the opportunity to grow our service offering as well as other (inaudible) at Ulta is tremendously high, because more women actually visit the Ulta Salon.

And how we are going to track it is we're going to track a number of customers that get color services and how many of them actually choose to add OLAPLEX to their service as a key metric for success. As to what else are we going to go in terms of expansion of distribution in specialty retail? As I've mentioned, we just have so much with our core accounts that we really want to be the number-one hair care brand of the top five beauty brands in their offering so that we become an anchor brand for them.

And when we are an anchor brand for any of our partners, we then are able to really partner up on marketing, brand building, as well as growth. So these are key growth considerations for us in our partnership with our existing players.

That's helpful, thank you. And you also -- just talking about expansion, but shifting from distribution to portfolio, you mentioned in your prepared remarks that you have got patents covering not only what you sell today but what you could sell in the future; and then you went on to specifically call out skincare. I think most listeners are going to interpret that as you foreshadowing a launch into skincare. So two questions, or a two-part question. A, is that a reasonable interpretation; and B, if so, what and when would it look like?

Again, thank you, Jason, for the question. I think what we were doing is we were just reiterating what we have previously shared. We have patent applications for skincare. We did a study through our transformation team with an independent agency to really kind of see -- do we have permission to play in adjacencies such as skincare? And we saw the data as being very promising.

82% of people familiar with OLAPLEX actually said, look, we want to see a skincare from you, OLAPLEX. And 51% of them basically say, I would switch my skincare to an OLAPLEX product, sight unseen, because you guys lead with science and technology. So we know we have the permission to play. We have the permission to win.

As to when we would get in there, at this time it's all about exploring and giving ourselves options. I would not be able to give you anything definitive at this time.

Got it. Great stats, though. Thanks for sharing those. I'll pass it on.

Andrea Teixeira, JPMorgan.

Thank you. Good morning, and congrats again. My question first is on innovation and if the success of 4P -- or the 4P launch would allow you to potentially launch hair dye infused with bis-amino? I think that probably paves the way for you to do that, and I was curious to see if you're looking at that more closely.

And then just a clarification on the Ulta Salon back bar availability and, JuE, your comments on waiting for that performance. Is there any timetable for that decision? And you have any potential exclusivity with other retailers, including Sephora, that needs to be lapped in order for you to go into Ulta, or anything that prevents you to go right away?

Again, thank you so much for the question, because it will help us clarify. So first and foremost, we have a clear line of sight in our product development platform of launching an average of two to three products a year all the way through 2024.

And the way our R&D works is we are working on a long haul, meaning that when we look at opportunities for ourselves, we look at data-driven studies as well as trend analytics. And that's how we will continue to really serve up what our consumers want and need, because consumer insights really guide us in delivering what is the most appropriate products for the market.

Secondly, in terms of Ulta, we are in early innings with Ulta. If you -- you've seen we just entered the salon offering with them in October. We will continue to monitor our strength. Early indications is we are doing very, very well from our sales team, lead by Tiffany Walden, who is our COO. And she has been really keeping very close to the pulse of it.

As to exclusivity, you have seen we are in Sephora. We are in Blue Mercury; we are now in Ulta Salons. So we will continue to really double down on being the number-one hair care brand, the top-ten beauty brand with all of these retailers so that we can continue to be an anchor partner with them.

Olivia Tong, Raymond James.

Congrats on the IPO and the quarter. First question is around further increasing brand recognition, because obviously it sounds like your consumers are incredibly satisfied with the product.

We have obviously seen the holiday program at Sephora, which looks like a great trial builder. Can you talk about other things that you are doing, either through the holiday season or beyond, that helps build the brand recognition and potentially the consumer base? Thank you.

I think what is important to note is: we are very focused on what really builds long-term growth, and studies have shown us that the three sources of truth when it comes to brand building and marketing awareness, first and foremost is -- especially for hair -- is where they want to take recommendations from their professional hairstylists. So building that community will continue to be our focus.

So with that said, the number-two area, the number-two source of truth, is product reviews; and word of mouth, which is the third one, which means that we are already in that space through our social media engagement, connection, and conversion with our performance marketing. Whether it is via digital media or search engine optimization, we will continue all of these interactive tools to connect, engage, and convert our our customers.

If we continue to do that, the marketing, branding, and the awareness built will just be a lot more organic as well as strategic, because this is in partnerships not only with what we are doing, but driving traffic to both online and offline retailers that we partner with.

Great. That's helpful. And then hopefully I'm not getting too ahead of myself here, but clearly as we sort of cycle into Q4, into next year, the first-half comps are quite impressive.

Just if you could give a little bit of color in terms of thinking about the comps, maybe as you lap those quarters next year. Was there pent-up demand, anything else in the base that we have to be concerned about; whether stimulus had an impact or anything like that? Just trying to think through as you start to comp some pretty big growth, even bigger growth numbers heading into next year. Thank you.

Eric, do you want to take that?

Yes, I'll take that one. So we provided and introduced our full-year 2021 guidance, which takes us through Q4. We would anticipate providing full year 2022 guidance when we come together for Q4 results.

So I can't say much there other than we are happy with the guidance and outlook we provided for 2021, and we're going to aim to grow at our ambition on top of that new hire base. But I'm not going to get into the quarters, which -- there's always going to be some noise in the quarters. We're going to focus on delivering over longer periods of time. But thank you.

Steph Wissink, Jefferies.

Thank you. Good morning, everyone. We had a follow-up question on costing. I think, Eric, in your prepared remarks you mentioned some inbound distribution costs, higher input costs. Just want to make sure we are thinking accurately about the fourth quarter, what's implied in the guidance for gross margin.

And then if you could just remind us how your inventory mechanism works. Is it first-in/first-out, last-in/first-out? How should be thinking about more recent costs versus what is on the balance sheet? And any considerations for gross margins going forward? Thank you.

Absolutely. Thanks, Stephanie. So yes, when we talk about Q3 gross margin performance and adjusted gross margin performance, we noted that there was some pressure there, particularly from inbound freight costs. The freight costs between warehouses, into our warehouses -- that falls into our cost of goods really in the current environment, and that's in the current macroenvironment that we are all aware of. And we do project that forward into 2022, and we've assumed that, and we have reflected that and taken it into consideration in the guidance that we provided for full year 2021.

There's one other element in Q3 that we mentioned, which was some product mix. And that really relates to -- we do sell more kits in Q3 as we sell in in Q3 for end-of-year holiday programming. Those come at a slightly lower gross margin. And that's something, for example, that we don't project forward into Q4. So it was more of a Q3 thing, which is per usual, per normal, per our normal annual programming there.

And then in terms of -- yes, go ahead.

I'm sorry, go ahead. Go ahead, Eric. My apologies.

I was just going to say in terms of our inventory build, it does mean that we believe, based on our inventory accounting and cost accounting, that we do have good line of sight to the finished goods costs and the input costs that we've assumed in our Q4 gross margin outlook.

Lauren Lieberman, Barclays.

Great, thanks. Good morning. I want to talk a little bit about DTC, and I was curious if you could comment on how much of your growth qualitatively or quantitatively is coming from your own DTC website versus Amazon or other third parties. And then also anything you can share on investments you're making to improve the DTC experience beyond the kind of initial, rudimentary diagnostic tool that exists today? Thanks.

Eric, do you want to take the first part, and I'll take the second part on what we are going to build out on the DTC?

Yes, absolutely. Hi, Lauren. I just took a look specifically at that, and it's a pretty easy answer. The growth we are seeing between our own dotcom and pure-play e-com -- so when we report direct to consumer, just to clarify for everyone, it's the combination of both of those things: our own olaplex.com and pure-play e-com. They are very similar growth rates. So we are seeing similar trends across both.

In terms of our own olaplex.com, one of the things that we have also highlighted is we are expanding our bespoke olaplex.com to key markets. And this includes markets outside of the US, like Canada, the UK, Australia -- some of those markets that we have already shared earlier on.

What is important to note is that our high diagnostic program is also going to go through a 2.0 version. So we believe that as consumers continue to be so engaged in wanting to know what -- about their hair, we are also going to expand on that opportunity for them to answer more questions, to provide more data about themselves, so that we can serve up better recommendations and regimen programs for them.

So those are all in the works. And we are excited, and hopefully we will be able to share with you at the appropriate time.

JuE, is any of that -- is that in pilot today? Because I think you've talked a bit about your ability to collect data, also. So I was wondering if that data collection that's already serving you so well is primarily from the existing diagnostic results, so some of the -- if there is a pilot of this 2.0, or it's still premature?

So our transformation team has been working on a tear to make sure that the 2.0 is up to speed together with our e-com team. But what's important to note is consumer insights have been gathered, not necessarily just on dotcom, but also from our own sales team.

And as you know, we updated our own dotcom in April 2020. So there is a lot of data that we are able to glean from and be a lot more disciplined and structured in analyzing those data to help us make better decisions.

Okay, great. And then I had one follow-up on the professional conversation from earlier, which was -- I was just curious if there's any news there on your strategy for penetrating the professional network outside the US, and just same kind of question asked on DTC. Anything you can share on the positive surprise in professional this quarter being US or international?

Yes. So in terms of expansion we will continue, again, the plan that we have. Like I say, we are here for the long game. And as we have successfully introduced in the US that plan, that program that we have, we will continue to use that and introduce that into the international space, which -- we are already doing parts of it, meaning that we will have multiple distributors serving each segment of the salon market, while we will then layer in specialty retail to really drive brand awareness, partnering with premium retailers in those respective countries.

And then DTC -- as you have correctly pointed out, it is really getting ourselves the ability to gain more consumer insight, to serve up what our consumers want and need from us, while at the same time providing 24/7 convenience for them to buy from us. So our international playbook and our domestic playbook is very similar, but obviously we will look at the nuances that is in each region or in each market.

I want to just expand on the question you had around US versus international in the third quarter. It was strong in both, but I will say it was particularly strong in the US, which is great to see, as we have our channel flywheel that we've talked about really humming.

Jon Keypour, Bank of America.

Congrats on a very strong quarter. So a bunch of good questions got asked. I kind of wanted to tag one onto Stephanie's question around the inflation environment and all that.

I understand you guys have good line of sight on how to manage it. I was just wondering, near or long term, what is your willingness to move away from that $28 price tag that has sort of become associated with the brand? I just wonder how hesitant you guys might be to move away from that price point. And if so, can you guys drive margin support from, like, pack size architecture, or mix, or something like that? Just wanted to get a sense of the potential for margin support.

Absolutely, Jonathan. Thanks for the question.

Let me start by saying as we see cost inflation pressures that, first and foremost, we're going to be focused on efficiencies we can drive in purchasing and efficiencies we can drive in our supply chain. Particularly as we are growing at the rate that we are growing, there are efficiencies that come from the higher volume. So that is an offset, to some extent, both this year and what we assume moving forward.

We're not going to comment on any intentions we have on pricing, but you asked a great follow-up question there, which is: we're always looking at net revenue management opportunities -- pack price architecture -- as we go into new markets, as we launch new products. And those are absolutely levers that we will pull over time and that we look at constantly.

I just close it by saying: we believe the equity of our brand is very strong. And so we'll have options in the future, but we're not going to talk about our intentions there.

Yes. Fair enough. And then I guess lastly, I was just wondering about the innovation timeline in 2022. I think we all understand that you guys have a long runway of products lined up for the next few years.

I was just wondering about timing. Quarterly, when should we expect those to land? Will you guys be consistent year-over-year in when new products do land?

And then I guess sort of as a follow-up, I was just wondering -- and this is sort of a long shot, but the bis-amino technology has done well to expand the product offering to 11 different products. I was just wondering, when -- should we expect a new technology or a new chemical near term, or is that something that's slated for beyond 2025?

Thank you very much for that question. I will take your last question first, because that's a very exciting one for us. As we have mentioned prior, before -- you know, as we were getting ourselves ready for an IPO, it was very clear to us that R&D -- we are a science-enabled, technology-driven beauty company. So for us the technology piece is very important, and we are not going to rest on one -- you know, on our laurels.

And we already -- our R&D team has already started before even the IPO process on looking and partnering with research institutes as well as universities with our grants that will look at opportunities -- as well as biotech companies -- where we can really partner up and really leapfrog the technology space and be able to use delivery systems that are unique, not only for what we call results that are visible on the first application, that is what we stand for, but also in terms of a long run rate in helping us to be defined in that space in science.

So our R&D team, managed by our Chief Scientist that has at least -- close to 30 years of experience, is going to help lead that charge for us. So hopefully that answers your question on our R&D and our dependency on one or two technologies.

The other question you asked about is launch timing. We have -- as you have seen in 2021, we have launched three products. We are going to keep to that cadence of two to three products a year. And when the time comes, we will make the announcement, because being able to make a launch announcement is critical to a marketing campaign. So you will hear about it in good time. And we are very excited about what we have in 2022.

Jonna Kim, Cowen.

I'm just curious; I know it's early on, Sephora and Kohl's -- how did those stores perform out of the gate versus the regular Sephora stores as you monitored the progress? And another follow-up is -- obviously you have an impressively lean organization currently. And as you scale the business across channels and geographies, do you expect to invest higher on the headcount and just building up your organizations? Thank you so much.

So let me take the Sephora and Kohl's. It is very early innings and very early days. They have just really launched through October, that 200 doors with us.

But early indications is just very promising. We are one of the few sort of -- they have 125 brands, that's [fair to say], and we are one of the 125 in a slate of 300-plus brands that Sephora has in their proper stand-alone Sephora doors. So to be part of that 125, you will know that our performance will continue to be strong and that we have delivered for them prior.

In terms of our organization, we are growing our organization. And this is the reason why you've heard from Eric where some of our expenses have been going in really managing for -- plan for investment that is ahead of growth. And we will continue to do that, primarily because we expect ourselves to continue to deliver, and we need the people to really support us. And we will continue to invest behind them.

Got it. Thank you. And just one follow-up is -- I know China is still small, but did you see any notable performance there? And what initiatives do you have in place to drive higher awareness in the country? Thank you so much.

So we are very excited. As you know, 11/11 is just -- in fact is tonight in China, and we are seeing very strong early indications. As you know, even though it is 11/11, a lot of brands started in mid-October. And we have seen very promising results.

In fact, we believe China Tmall Global online business will be something that will continue to grow. And the reason why that is exciting for us is we are able to still build brand awareness online with the mainland Chinese consumers. And so if and when we are able to get into the mainland Chinese proper, those consumers will already be familiar with our brand.

Dana Telsey, Telsey Advisory Group.

Good morning and congratulations on the results. As you launch new products, you have mentioned in the past about higher margins on the new products. What are you seeing in new products? Is there a difference between the type of product and the margin you'd be achieving? And then I have a follow-up on any update on the Tmall partnership. Thank you.

Hi, Dana. I'll take that first one. So I think what we've said in the past is in our product development process, we will set thresholds and goals for the margins of those new products and really design around that and design it accordingly. And that has worked well for us to either be accretive or neutral to the rest of the portfolio.

It will always depend product by product. As you know, we have some new products that are exclusive to professional, some that are across channels for in-home. So we're not going to talk about specific margins at the product level, but just reassure we have a very robust process that goes into the design and ensuring those are profitable for us.

And you have a follow-up on Tmall global?

Exactly. How did that do? And then, JuE, how are you thinking about skin? And I know that is expanding into other categories. And when do you start investing in a potential skin launch? Thank you.

So on that question, as I've answered -- I think Jason was the one who asked that question as well -- we are going to continue to explore opportunities for ourselves. I will not be able to share with you definitively the timing of this, because ultimately we need to understand the market better, and we will do our due diligence accordingly.

Got it. And then Tmall?

And what is your question on Tmall? Sorry.

How is that partnership progressing? Any update on that partnership expanding or how you are benefiting from it?

Yes, so again, this is our first anniversary in 2021. 11/11 will be where we are. And we have studies that show we are one of the most socially buzzed brand in China. And as you can appreciate, social media is the leading indicator of success in that market.

We will continue to build our brand awareness through our portfolio with our distribution on Tmall Global online. And so because of what we have already done in terms of the social media platform buildout, we will continue to do the connection, the engagement, and the conversion as we have done. And again, I emphasize -- this is a long game for us. We don't go in and out on specific activation. We really drive our activation and really measure it, and then double down on it if it works, and then drop it if it doesn't work and go on to something else. So the discipline is in our marketing disruption.

Rob Ottenstein, Evercore.

Great. Thank you very much, and I also want to offer my congratulations to a terrific start as a public company.

So my first question is a follow-up to, I think, one of the first questions of the Q&A. And that is -- I think you mentioned that your number of stylists is above pre-COVID levels. Can you talk about what is the best way to measure your penetration in the professional segment? Is it by stylists? Is it by salons? And where would you see -- how would you calculate or guesstimate what your penetration is of that segment?

I think first and foremost, if you look at the Professional Beauty Association data, they will let you know that there are 800,000 professional hairstylists registered with them. And we have well over 250,000 that is in constant engagement and connection with us on our Facebook group -- meaning that they are interacting with us; they are engaging with us; they are producing content for us. So we feel very strongly that that continuous community build will continue to serve us very well.

Great. And you have any kind of sense -- of the 800,000, how many buy your products on an annual basis?

I think at this time we would not be able to serve up specific data, but as you can tell from our growth of plus-58% year over year in the professional channel, it will indicate for you that we have a lot of the stylists as part of our ecosystem.

Terrific. And then my real question is we did a lot of survey work on your product, and one of the things that was most surprising is that 70% of all women that we surveyed -- and it was a pretty good group; I think 2,500 -- 70% had not even heard of OLAPLEX. Number one, is that consistent with your data? And number two, what do you think the best ways are going forward to increase awareness in the general public? Thank you.

Thank you for the question. As we have always said, our one way to really do well is brand awareness. And therefore, in building brand awareness is about being disruptive and building our community, as well as using data driven marketing performance to help us really hone in on what works and what does not work.

So we are going to continue with that platform and really building the professional community to be our strongest advocate. And we will not stray from that. But at the same time, through data performance we are going to also look at digital media buy and driving consumers to both brick-and-mortar and online retailers so that that awareness build can be more long-lasting.

There are no further questions. I will now turn the call back to CEO, JuE Wong, for closing remarks.

Thank you so much, Sarah; and thank you, everyone, for joining us today. We wish everyone a happy and healthy holiday season and new year. We look forward to speaking with all of you again at the upcoming investor conferences and when we report our fourth-quarter results in March of next year. So, see everyone soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.