Good morning. Welcome to Oddity's First Quarter 2025 Earnings Conference Call. Today's call is being recorded and we have allocated time for prepared remarks and 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; Niv Price, Oddity's CTO will also be available for the question-and-answer session. As a reminder, management's remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations or estimates, including statements about Oddity's business strategy, market opportunity, future financial performance 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-F filed with the Securities and Exchange Commission on February 25, 2025. 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. Our Q1 results exceeded our expectations across all metrics and allow us to raise our full year outlook. Once again in Q1 2025, we beat revenue in EBITDA like we did every single quarter since going public eight quarters in a row. Revenue grew 27% to $268 million with $52 million of adjusted EBITDA, representing a 19.5% of adjusted EBITDA margin and free cash flow of $87 million. Q1 is our biggest quarter of the year in terms of new user acquisition, an important quarter to set the stage for the rest of the year, and we proved we can deliver also in the current environment. Exiting Q1, business momentum continued across April and gives us confidence in delivering a strong Q2. The beauty industry is transforming, just like we said it would more than five years ago. And Oddity is a winner in this transformation. We have positioned our business to play and lead in the most important vectors of the industry’s growth. Number one is the consumer shift to online where we are already a dominant DTC platform. And number two is the shift towards high efficacy products where we are accelerating our capabilities at Oddity Labs, while continuing to invest in all areas of product development. I have no doubt that these two vectors are by far the most important drivers of the future of this industry. Therefore, we continue to invest massively in technology, data driven user customization, and science backed products. Our goal is to build one of the biggest beauty companies in the world, full stop. We intend do it by delivering consumers the best products based on what they need, when they need it, while doing all of this at high scale. Thanks to the fact…

Thanks, Oran. Turning to our Q1 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 result for our most important quarter of the year. Recall that in Q1, we set the tone for the full year by ramping up our acquisition spend, which leads to a high visibility backlog of repeat that drives our full year financial results. We came into Q1 this year off a large base from our strong performance in 2024, and delivered an outstanding result on top of it. Net revenue grew 27% to $268 million, exceeding the high end of our guidance for 24% growth to $262 million. The strength was driven by both IL MAKIAGE and SpoiledChild. Net revenue growth was driven primarily by increased orders, while average order value increased 4% year over year. Average order value was driven in part by a mix into higher priced products like SKIN. It was offset in part by faster growth in international markets, which today tend to be lower AOV due to their earlier development stage. We continue to expect order growth will be the primary driver of our revenue growth going forward. Our Q1 results stand in contrast to concerns we hear about softness in other beauty businesses including both retailers and wholesalers. This is directly related to our unique model, our exposure to online which is the most attractive growth channel for the beauty category today, and our very high repeat rates as our customers continue to come back with high satisfaction to our products and brands. Repeat revenue is the largest part of our business, exceeding 60% of total revenue in 2024, and increasing as a percent of our business again so far in…

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Youssef Squali with Truist Securities. Please go ahead.

Thank you very much, and good morning, all. So congrats on a very solid quarter, especially considering the macro guys. I have two quick questions. One, on international, Oran, I think just as a follow-up to your comments, how much of a lift did international contribute into the quarter? Because it was really only on the last earnings call that you guys started talking about maybe accelerating international. Is SpoiledChild now starting to be expanded into international markets? And secondarily, the FCC recently passed the click-to-cancel rule. I was wondering how you guys are thinking about that as potentially impacting the business or not? Thank you very much.

Good morning, Youssef. Thank you very much for joining. Look, last year, we made a strategic decision to push international harder in 2025, which meant scaling markets we are already in. And while we are also pushing larger-scale tests in new markets. We talked about in Q4. That's the good thing about our business, like everything is prepared. And once we want to pull that trigger, everything is ready. International has been a core part of our plan especially for taking IL Makiage to $1 billion revenue target by 2028 so we need it, and it did great in Q1. It only proves to us and to me how big these markets will be for us and we expect that they will deliver great growth for us in the future. And to your question, both US and international grew double-digits in Q1. International is still less than 20% of the business. So by definition, we needed high growth in the US, but we are very bullish and we'll continue to push it.

Thanks Youssef. On click to cancel this piece of regulation has been out for a while. Our teams have already done a lot of work on it. Ultimately, we don't see much impact at all. Obviously, we don't know what the final implementation will look like but we're already in very good shape in terms of how we approach subscriptions and cancellations. Everything for us is opt-in rather than opt-out, which is different than many direct to consumer businesses including the likes of Amazon, for example. Cancellation is fully self-serve online and straightforward. We have a great team of customer service reps that support out thousands and thousands and millions of orders across the year and of all the changes we've tested a number of different changes depending on your interpretation of the ruling and none of them have a major impact on our business. So we expect this to be a non-sue for us.

Okay. That's super helpful. Thank you, and congrats again. Thank you, guys.

Thank you. The next question comes from Mark Mahaney with Evercore ISI. Please go ahead.

Okay thanks. I think, Lindsay, you talked a little bit about the gross margins. Could you just double click on that a little bit more? And the biggest factors that are causing gross margins to rise, where do you think they can go? Is it has something changed in how you think about where your gross margins can go over the next three to five years, just what efficiencies you've been able to ring out or is it just scale that's allowed those gross margins to rise? Thank you.

Thanks Mark. So gross margin was a nice highlight for us in the quarter but as we said before and I just want to reiterate, gross margin is not a metric or KPI that the teams are benchmarked to rather than gross margin we focus on DC margin or contribution margin, which is basically gross margin after media spend and it's important because there are some products that might have a lower gross margin profile but better frequencies. And if they deliver a superior DC margin, we're happy to make that trade, and we never want to constrain our teams in going after the right opportunities as it relates to LTV and DC margin in favor of a gross margin outcome. Obviously, it's a metric that that my team looks at a lot and obviously, as it relates to cost efficiencies, it's something the team has been very focused on. And so over the last few years, as you've seen us over-deliver on gross margin, some portion of that has been really great execution from our teams across a number of areas. I mean truly blocking and tackling and parts of supply chain, logistics, fulfillment, et cetera. So that was a support for us in the quarter. But also when we issue our gross margin guidance, we like to give the teams a lot of latitude to chase after the types of products that make sense again from a DC perspective and so that we're not disappointing street expectations. So it's been a line that we've historically guided conservative. That being said, as we look longer term, we've talked about the right kind of run rate for our gross margins to be more in the high-60s kind of range. So you should not expect and we are not committed to maintaining the 71% gross margin profile that we're achieving this year. However, we are very committed to maintaining adjusted EBITDA margins, which is the right metric for you guys to focus on of 20% or more.

One last thing that I will add. When we decide to push Skin, Skin has high AOA and therefore, high gross margin and again, those things can change based on our decision of what product we want to push into the market.

Thank you very much.

Thank you. The next question comes from Cory Carpenter with JPMorgan. Please go ahead.

Thank you. Good morning. I had two -- excuse me, on Brand 3 or on you mentioned you're more excited than ever to see it live. Could you just expand on what you're seeing? I think last quarter you said you had 100 test groups that were in action. And then secondly, Lindsay on tariffs, thank you for the gross margin quantification. Could you just talk about the levels of tariffs, maybe specifically that you're assuming that's embedded in that guidance? Thank you.

Just to make sure, Brand 3, right?

Yes. Brand 3.

Cool. Look we are working on Brand 3 more than or close to four years so when I say that I'm excited it means that I have the reasons to be excited. And we tested a lot. The most important part was to be able to build the dual technology and we are in a better shape than what I hope to be for launch. I don't need to justify that this category is huge. We already know that more than one-third of them of the US consumer is suffering from one of the areas that we are about to tackle with this brand launch. So I have no doubt that demand is there and I also know that. The reason why we developed this brand is because we saw very poor options out there for the consumer. So if we have the right product and we have the right technology and the market is there and I have no doubt that we can that we can win. One important part that was also very complex for us that now because we are closer to launch I can see it is the product range is the widest product range that we ever launched both Oddity and prescription. And we built infrastructure and it's multi-category and everything was tested at high scale to make sure that we have this like both the matching works well and also a very strong product. So that's why I'm saying that we are in good shape because we saw some tests and things look great.

Cory on the tariff question as we talked about in my prepared remarks, in 2025 we expect there to be something like a 50 basis point to 100 basis point impact on our gross margin from the flow through of tariffs in 2025. We described this as manageable and actually we hope that we can bring that overall impact lower and then looking into 2026 while we're not giving explicit guidance. We also see the level of pressure as manageable and nothing that would get in the way of us delivering on our long-term algorithm of 20% revenue growth at adjusted EBITDA margins. The current contemplated in our guidance is the current level of tariffs that have been announced. Obviously, this is a moving target but in our assumptions it's a fully loaded amount for China plus the 10% on Europe. However, a range of 50 basis points to 100 basis points would still be correct even if you saw a doubling of European tariffs after the 90 day pause. And I just want to reiterate to everybody what we're truly in. A fortunate position because our exposure is just not that big. We have very high gross margins as a starting point 71% for this year and that just means from a numbers basis even in a higher tariff scenario, it's just a smaller proportion of the cost-based smaller proportion of the revenue base and of course our exposure to the most challenging areas in particular China is limited because most of our costs come out of Europe.

Helpful. Thank you.

Thank you. The next question comes from Dara Mohsenian with Morgan Stanley. Please go ahead.

Hey, good morning. So first just one clarification on the increased international emphasis would you say is that more related to scaling existing markets or is entering new markets a big piece of that either in 2025 or longer term as we think about that increased emphasis? And maybe specifically how spoiled child fits into that? And then just obviously your balance sheets in great shape. Can you just update us on how big a priority acquisitions might be and when you think about acquisitions what's the strategic lens you're most focused on? Is it more technology? Is it more brands? What areas are you are you most focused on when you think about M&A going forward and potentially areas that they could add value?

Sure. I am international is a big opportunity for us as we said it's only 20% for I and in early testing which is close to nothing for SpoiledChild while for our competitors it's around 70% of their business so the opportunity is huge. And over the last few years we've made investments in preparing those markets mostly in Europe, but also selectively outside of Europe to position us to scale. And for each market we have totally localized experience and we have tested live in market thousands of order and only after we see like those strong metrics then we decide to launch markets we are in now after official launch are US, Canada, UK Germany, Australia and Israel. New market that we already tested at large scale and contributed already revenue of for example France, Italy and Spain but we recently also began testing in some large developing markets and the results are very strong. And therefore we are very bullish. As for M&A, I would just say that, we are looking to find things we don't have. Okay. That's the truth. And we know how to build brands. If we see a brand that has a very strong product or something that we don't have internally or will take us five or 10 years to build then it makes sense. Other than that mostly around biotech and AI, those are the areas that I'm spending time on. And we believe that this is the future of the industry. This is where we need to lean in even further. Lindsay?

I just wanted to add one more thing Dara to your to the first question which is to talk about part of why we feel so bullish about 2025 is, not only just that the category we operate in has historically been quite resilient, but just how diversified our business is today than even before. Multiple product categories and now multiple markets we can grow into and a very agile model that allows us to identify and chase into demand. So if you think about a few years ago, we had one brand with IL MAKIAGE and one category in color and just one market essentially in the US. By the end of this year, we're going to have three brands in four categories and in several different markets. And this just allows us a lot of flexibility on growth and profitability.

All right, thanks guys.

Thank you. The next question comes from Andrew Boone with Citizens JMP. Please go ahead.

Thanks so much for taking my question. Lindsey, I wanted to ask about SG&A. Is there any way that you can pullback the curtain and help us maybe understand the advertising component of SG&A and kind of the growth that you saw maybe year-over-year? Additionally, I would love to understand also the efficiency of the advertising spend. I think at IPO, you guys were targeting kind of a 3X, 12 month payback period. Can you just update us on where you are today on that? That would be helpful. And then Ron, within your prepared comments, it sounded like you talked about the potential optionality within having now a telehealth infrastructure platform. Can you speak about, what else may be possible as you guys do have now a wider kind of infrastructure base for future brands? Thanks so much.

Great. Andrew, I'll start with your first question. So we never talked about a target of 3X so we had said around the time of our IPO was that our 12 month ODDITY tax were around 3X but it's not explicit target for us. Obviously, what we care about what we've talked about the most is maintaining that 20% adjusted EBITDA margin which we've been able to do handily even as we're ramping up investments in a lot of these future growth initiatives to dig into where the investments for the future are when we talk about that. First of all just to reiterate, that we have a lot of we have a big commitment to maintaining these investments in the future. We don't see a reason to deliver higher than a 20% even on margin. Especially because we really believe these investments can be massive on lots for our business performance the TAM is just way too big and the opportunity too large for us not to reinvest. And just as a reminder, we generate very high returns on capital. The best place for an additional $1 for us has been reinvesting in the business and we'll continue to do that. So, it's areas like new brand development, we have a lot already in the base and that will be ramping across the year behind brands 3 and 4. Both brands already have nice sized teams in place, although we'll be adding to them. These are on our payroll and of course part of the numbers you see today, labs which we're continuing to build as a large investment we're building systems teams, a lot of infrastructure, a lot of tech. We already have over 60 scientists in labs in Boston. This is really the best example of our mindset for the next two to three years. This is mostly going to be expensive, but we feel a lot of conviction that will pay off in the future. And then of course, tech it continues to be the largest team in the company, super important for us to continue reinvesting to preserve our competitive advantage, developing new tech products that we will use to drive conversion LTD and satisfaction. That's really the bread and butter of the business. You saw us with an Apple hire earlier this year with Bionic. We're continuing there's just a lot more that we can do with our tech platform that we continue to invest. So I think those are kind of the key buckets of SGA investment, of course in addition to continuing to drive our marketing spend year over year along with our revenue.

I will address the telehealth part. Like, the way that we think about things, we build capabilities and then we expand and we build ad tech and data. It didn't make sense to have just one brand or for one category, so we did spoil child now we're building more brands and to use the same shared mode. And the same way that we view it as for our telehealth platform once you have the infrastructure, once you have the doctors, once you have the ability to ship prescription products, then you're in a very good shape to expand and for competitive reasons obviously I cannot show which areas, but you can imagine that this potential is massive for us. It took us years to build it, but it's something that I wanted to do for a long time.

Thank you.

Thank you. This concludes a question and answer session. I would now like to hand the conference over to Oran Holtzman for closing remarks.

Thank you very much guys for meeting us today and see you next quarter.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.