Good day, everyone and welcome to this Oddity Tech Second Quarter 2024 Earnings Conference Call. Today’s conference is being recorded and we have allocated time for prepared remarks as well as Q&A. At this time, I’d like to turn the conference over to Maria Lycouris, Investor Relations for Oddity. Thank you. You may begin.

Thank you, operator. I’m joined by Oran Holtzman, Oddity’s Co-Founder and CEO 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 variety of factors. These factors are described under forward-looking statements in our earnings press release issued yesterday and in our Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 6, 2024. 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 will now hand the call over to Oran.

Thanks everyone for joining us today. The second quarter and the first half of the year were another set of record breakers for us. We grew first half revenue 28% to $404 million, delivered $110 million of adjusted EBITDA and generated $104 million of free cash flow. Our business is firing on all cylinders, with no signs of slowing. The $110 million of adjusted EBITDA we delivered in just the first of 2024 is more EBITDA than we delivered in the full year of 2023 growing 28% in the first half, more than 3x faster than legacy incumbents, and with 27% EBITDA margins proved again that our platform is very strong and enables scale, growth and very high profitability consistently Our investment in technology in the past 6 years continued to pay great dividends and our record margins allow us to keep doubling down on investment in technology, science and building new brands. I will reiterate what I said multiple times before. The opportunities that I see ahead for our business are massive. The beauty and wellness industry is huge, profitable and growing, and it is dominated by offline incumbents that are behind the curve. We can see today how some of them are paying the price as they struggle to adapt. This sets up a massive opportunity for Oddity. We are still only a tiny fraction of the global market and therefore the opportunity is so big for us. I strongly believe that we have what is needed to continue winning and leading in the most important areas of the categories growth. With our capabilities and DNA as a company, we are in the best industry in the world for our type of company. In my view, we are unlocking two areas that are changing the industry. First, we…

Thanks, Oran. Let’s turn to our Q2 results, which I’ll refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Oddity delivered a record-breaking second quarter and first half across the board. We grew net revenue by 27% in the quarter to $193 million. The strength was driven by both IL MAKIAGE and SpoiledChild across a range of product categories. Net revenue growth was driven primarily by an increase in orders, while average order value increased 6% year-over-year. Average order value growth was driven both by an increase in items per order and positive mix shift to higher-priced products like skin partially offset by a mix shift to repeat sales, which carry lower AOP. The proportion of our sales from repeat customers increased on a year-over-year basis this quarter and is on track to be a higher percentage of our sales in the full year 2024 as compared to 2023. Drilling into revenue composition for the quarter, 94% of our net revenue came from sales on our own website, directly to consumers. The remaining 6% of net revenue in the quarter came from sales in Israel and to marketing affiliates. As a reminder, we do not sell any products to Amazon, eBay or other third party marketplaces. Nor do we generate any direct revenue from products sold on these sites. Any product resold on those sites is unauthorized and done without our consent. Moving down the P&L. Gross margin of 72.2% expanded 150 basis points year-over-year. The gross margin improvement was driven by specific supply chain and logistics efficiencies at both brands. We delivered adjusted EBITDA of $62 million in the quarter. Adjusted EBITDA margin of 32.3% expanded 470 basis points from the prior year, driven partly by gross margin expansion and…

Thank you very much. [Operator Instructions] We will hear first today from Dara Mohsenian at Morgan Stanley.

Hey, good morning, guys. So the metrics you gave on the year-over-year performance were helpful. Can you also spend some time talking about where revenue upside came from in the quarter, both in terms of metrics, repeat, average order size, etcetera, but also at the brand level, in terms of SpoiledChild versus IL MAKIAGE. And how you think about the sequential pace of SpoiledChild going forward after a very successful launch over the last couple of years, and how that brand is developing versus your expectations?

Sure. Hi Dara, hi guys, and again, as mentioned, very strong start, both IL MAKIAGE and SpoiledChild both grew double digit, very strong, according to the plan and across range of products and categories. Growth in revenue was also driven by skin penetrating massively in IL MAKIAGE, we grew from nothing in Q1 and it’s going to be now like 25% in 2024 and just when I think about it like $100 million, which is a lot for a brand that, like 2 years ago, we had nothing in skin. The teams did a very good job in penetration. And it like it was ton of job, but like in the end of the day, and we did perfectly. Increasing revenue was driven by more orders and higher [indiscernible]. It’s a positive makes shift towards high priced products, and unlike most direct to consumer companies that generate most of our revenue from repeat. And it’s although we grew 28% in Q1 this is viability so profitable, and we continue to see the repeat percentage of revenue increase consistently. There is nothing more impactful and meaningful to the business strength than this. We enter to the second quarter with great momentum from the first quarter, and we began reducing our acquisition spend in order to slow growth down to line closer to our algorithm of 20% growth. And as a result, our repeat business was the majority of our revenue in this quarter, and that’s why the profitability is so huge, 32% of them of adjusted EBITDA margin. And we have shown once again that we have – we can power the business, and we have full control. This is a huge advantage for us, and in terms of efficiency, we are – we spend in the first half, more than double than what we spent 2 years ago, in terms of spending media and efficiency is even stronger now. So the business in full control.

Our next question will come from Youssef Squali at Truist Securities. I believe we may have lost. Mr. Squali, I invite you to re signal, sir. Next we will hear from Andrew Boone at JMP Securities. We may have lost that line as well. Again, I do invite you to re signal with star and one will it try to go to Lauren Lieberman at Barclays. Are you able to speak? Your line is open.

Can you hear me?

Yes. Ma’am.

Right. Cool. Exciting. Hi, my phone works. Cool. So I am going to loop two questions into one. So first around, I thought it was helpful, the sort of discussion you shared on labs and the time it takes to build what you’re hoping to but I was curious, as we think about new product launches, inclusive of Brands 3 and 4 for next year, whether there are sort of unique and discrete molecules that will be included in those. I think, my recollection Is that was the hope that LABS would be contributing in 2025 to some of the new products you’d be bringing to market. So I wanted to just get a status check on that. And then the second piece was the step up in SG&A spending in the second half. And I know you guys have a habit of investing ahead and planning ahead for growth, but given that Brands 3 and 4 aren’t launching into the second half of ‘25 it seems like a lot of spending closer in. So I was curious if that’s where it’s directed, or if it’s more towards continuing to scale LABS. Thanks.

Yes, hi, Lauren, and look in terms of LABS, as I mentioned, we are working a lot on building the platform there properly. And when we discussed last quarter, I said that we are going to see the majority like the first fruit from LABS in Brand 3 and Brand 4. It’s still the plan. We will have a few launches before that that will go into SpoiledChild and IL MAKIAGE. But overall, in the next year or 2 it’s mainly expenses. And we are doing it. We are happy to do it. And we believe that, like we are in the beginning of massive transformation where brand – with brand is not enough, when people will ask for more than that. And we believe that side back product is the future of the industry, and we see it as a race, and therefore we are investing a lot in building this capability. I believe that Oddity has the ability to do something that no one has can because of our ability to build something from scratch. And we are building another platform. If I wanted, I could already have product in the market from labs. But first of all, I don’t need because we are growing more than what I want without it. And second, because I want to build something that we can be proud of, and the products are not best in class, are way more than that compared to the competitors. And so hope it helps. It answer your question. So yes, Brand 3 and Brand 4. And in addition to that, we will see some products within IL MAKIAGE and SpoiledChild in the next 6 to 12 months. Lindsay?

I’ll take the SG&A piece of that. So as you know, we started the year off with very ambitious investment and spending plans across 2020 – ‘24 in support of our all of our initiatives in 2025 including the two new brands, plus ODDITY LABS. As the year progressed, the timing of some of that spending got pushed. We had delivered upside, of course, to our numbers, and you saw that in the fact that our full year guidance, we’ve continued to raise, but to the degree we’ve had really remarkable profitability in the first half of the year. We didn’t expect to be as profitable in the first half just because of the spending. But you can you get a sense of how profitable the underlying businesses. Even though, with what we delivered in the first half of ‘24 we still, that’s still with some additional growth spending layered on. So if we were to pull all of that investment off, you have an even more profitable business. And that’s a function of, as Oran said, just how incredible the repeat is. We also continued to be very efficient on our acquisition spend, which, as you know, the first half of the year, that’s where the bulk of our acquisition activity happens. So you’re seeing right now this kind of perfect flywheel of B2C model that is super profitable because of strong repeat and continues to acquire in a very efficient way, and is then able to redeploy that excess return into future investments, which we believe will drive us for many years in the future, the types of expenses, I’d say it’s a bunch of things, product development, brand development, people, we have a whole lot going on, and we’ve front loaded those costs as much as possible. We’ll have more, of course, in 2025 and that underpins the guidance that the preliminary guidance that we gave you on 2025 today.

And now we will go to Youssef Squali at Truist Securities.

Alright, can you guys hear me?

Yes. How are you, Youssef?

Excellent. Thank you, beautiful. Thanks a lot. Sorry about that. No, it happened. So, two questions, maybe can you just unpack a little more the investments that you guys have in store for Brand #3, Brand #4 versus the investment in ODDITY LABS. It seems that you guys are looking at the two somewhat differently. ODDITY LABS is more of a long-term kind of investment with an ROI. That’s still not very clear to us, although it seems to be very clear to you. But number three, investment in Brand #3 and then Brand #4 seem to be kind of more specific. So, anything you can – any kind of clarity you can shed on that would be really helpful. And then maybe as somewhat of a related question, Oran, maybe talk a little bit about the change in leadership at labs, any change in direction, any impacts on, maybe the cadence of output of either products or molecules, however, you want to define it, out of that labs now that you have a new kind of leadership there? Thank you.

Sure. Thank you. So, I will start with the second question. Then I will move to the first one. There is no change, because I am still here, fortunately or unfortunately. And like the piece we are trying to solve here, we are building a platform, and it’s a combination between building something new and grid scaling, because I believe, again, as I mentioned before, that we are in a race and to get it right. I believe that the rest of the industry will go there, and we need to move fast. And this is part of the reasons for the change and I want to hire more. I want to build more. I want to have more oversight. And I have done it before with the tech team, and I want to do the same in science in Boston. And therefore, we are making some changes there in leadership. In terms of direction, same direction, I am very involved, my sister is involved. And now we are going to bring more people that are sharing our philosophy of how to move as faster towards this direction. And I think that Ido is the best candidate for that. I met so many people, and I think that his creativity and his ability to go from zero to one is something that we need there, and it fits perfectly to our view. And so the same, as I have said on the call before and we are building, we are doing both and hiring a lot, at the same time, oversight and structure and protocols to make sure that we are not just spending money to make sure that we are building something that is sustainable for long-term. And to your first question, the difference between building brands and building…

Andrew Boone at JMP Securities. Please go ahead with your question. Your line is open.

Thanks so much for taking my question. Oran, you said earlier that media spend had doubled in the first half of this year versus 2 years ago. Revenue is up more than that. Can you just talk about the efficiencies that you guys are being able to generate on media spend and the confidence that continues, what has worked, what hasn’t worked. And were you guys finding pockets of strength? And then Lindsay, as I think about the formulation for revenue growth this quarter, I think you said AOP was up 6%, that kind of implies that orders are right at that 20% level, is that the right framework that we should think about growth going forward. Is that, hey, maybe AOP is mid single digits and order growth is kind of 20% you guys are solving for that 20% or is there any way that we should think about the breakdown of kind of P times Q equals R? Thanks so much.

Hey Andrew. Thanks for the question. Although all the noises of the acquisition environment is still favorable for us, and you can see it like with our strong margins. If I spend more, I wouldn’t print 32% of EBITDA margin and 27% on H1, was did improve versus last year. And we spent in H1 ‘24, almost double amount on media than what we spend in H1 2022, while keeping our overall marketing efficiency well. And this is unusual and shows the efficiency of our platform. And we are bullish about our media efficiency. Q2 ‘24 was our highest scale of Q2 ever. And despite that, we were able to achieve the highest EBITDA margin. And as I mentioned before, but remember that we have very different approach from other companies, which makes it easier for us. We are not acquiring customers, we are acquiring users, and over time, converging them, and it helps us a lot like delivering those results. Lindsay?

Hey Andrew. It’s Lindsay. So, as far as the revenue composition goes, this quarter, you are right, AOP was up around 6%. Most of our revenue growth was driven by orders. Return rate was a little bit better on a year-over-year basis as well. And we don’t plan our business for AOP versus order, and so it’s not possible for me to give you kind of the equation going forward. We focus really on revenue versus our acquisition dollars. It’s really more of a roll out metric. There are different factors that can affect our AOP and as a result, really not solving for it. So, for example, the types of new products, or the types of products overall, which may have lower price points, but makes sense from a contribution margin perspective. For example, they might have better repeat. Repeat, itself is a lower AOP, and is a lower AOP category for us, so that can be a drag overall. But what we have seen over the last few years is that we are seeing higher AOP in both first order and repeat. And it’s been in a large part of function of people just adding more items to their basket, more items to their order. And we are able to do that, number one, just as our models get better, recommending doing a better job in things like up-sells and bundles. But also because we have a broader product portfolio, now today, there is more things for her to find, and we know how to show them to her and to drive that conversion. So, that’s been a really important driver for us on both first order and repeat. And then of course, the positive mix of skin is also a nice driver, but we are not committed to continuous improvement on AOP as an ongoing driver of revenue, it’s just not how we run the business.

Thank you. We will hear a question now from Mark Mahaney at Evercore. Your line is open, sir.

Thanks. Two questions, please. You just talked about, what are the biggest governors or factors that will determine the launch times for brands three and four? Is it a product readiness? Is it go-to-market plan readiness, like, what determines for you that it’s why they are launched in the second half of ‘25 versus the first half of ‘25? And in just your current business, could you talk about any regions, geographical regions of strength or weakness, embedded in that question, any signs of consumer discretionary spend softness? Thank you very much.

Sure. So, I will take the first question and Lindsay, you can talk about the second one. Look, in terms of Brand 3 and Brand 4, first of all, of course, the teams are building those brands. It takes time, especially Brand 3, its product development, it’s the app, it’s technology, it’s vision technology. It’s so many things that we need to – like to build in order to be ready. And therefore, we committed to H2, not to H1. That was the plan from the get go. We didn’t change it. And but as I mentioned multiple times, like, even if I had now Brand 3 or 4 ready, I wouldn’t launch it, because I don’t need the growth. We are committed to our model. We want to build the business at the right pace, 20% growth is already like 3x, and then my incumbent. And there is no reason to go faster than that. We want to make sure that our customers are happy, that we are doing things properly. And so now the plan, we will be ready for both brands in H2 next year and we will launch it when we think it’s the right moment.

Mark, can you repeat that second question?

With apologies, ma’am, he has been returned to the conference. Mr. Mahaney, would you please re-queue, sir.

Oran, did you catch it? I didn’t hear it.

Yes, I think he was asking regarding, like weakness in specific geographies or in general, in the U.S., any softness that we see in our platform?

Sorry, Mark, if you want to queue back and re-ask it, but I will answer that question, so...

Mr. Mahaney, I apologize, your line is open, sir.

No, Oran, you got my question right? Any regions of strength or weakness to call out and any signs of consumer softness? Thank you.

We are not seeing it. I know a lot of other, of our competitors in the category, and of course, other pockets of consumers are seeing this kind of weakness, but we simply are not. In fact, we are seeing a lot of broad based strength in both of our brands and different product categories. So, Oran talked about the strength in skin, which again is a higher price point item. But also our color business continues to be very strong for IL MAKIAGE and SpoiledChild is growing very, very well. We also – we have a very broad demographic, so we have an older customer and a younger customer, and we have a suburban customer and a city customer. And we are really geographically across the U.S. very, very well represented. I think we are the wrong place to hunt, candidly, just because we are so small in a very, very large market. And we are an idiosyncratic growth story, as we are gaining a whole lot of market share, because we are operating in a wide open channel, which is we think the most important channel for the consumer for the future. So, no, we haven’t seen any evidence, any indication of it at this at this time.

And that was the final question from our audience today, Mr. Holtzman, I am happy to turn it back to you, sir, for any additional or closing remarks.

No. Thank you very much guys for joining us. See you next quarter. Have a good day.

Ladies and gentlemen, this does conclude today’s teleconference, and we thank you all for your participation. You may now disconnect your lines.