Oddity Tech Ltd. Q4 FY2025 earnings call

• 2025 was a strong year with record revenue, adjusted EBITDA, and adjusted EPS. - Raised financial outlook each quarter despite challenging user acquisition costs in H2. - Launched third brand METHODIQ into medical grade space. - Continued investments in ODDITY LABS, tech infrastructure, new products, and brands. - Strong repeat sales with ~70% of revenue from repeat sales in 2025, and 12 - month net revenue repeat rates for 2024 cohorts over 100%. - ODDITY LABS made strides in ingredient innovation, focusing on areas like reducing melanin production and boosting collagen and elastin, with 8 products expected in market in 2026 made with ODDITY LABS molecules.

In 2025, ODDITY had record financial results with revenue reaching $810 million, an increase of 25%. Adjusted EBITDA was $163 million with a 20.2% margin. IL MAKIAGE grew revenue in low double digits to ~$560 million, with IL MAKIAGE Skin at ~40% of its brand revenue. ODDITY International revenue, mostly from IL MAKIAGE, grew 42% and represented 17.5% of overall net revenue. SpoiledChild increased revenue double digits to ~$250 million. METHODIQ, the third brand, launched and is off to a great start with good traction in dermatology areas like acne, hypopigmentation, and eczema.

• Expect Q1 sales to decline ~30% due to reduced acquisition revenue. - Due to uncertain timing of recovery in user acquisition costs, full - year 2026 guidance not issued at this time. - Q2 sales also likely to decline but timing too soon to determine magnitude. - Remediation actions started but in early stages, no predictions on their success yet. - Intend to opportunistically return cash to shareholders through stock buybacks with $103 million remaining on repurchase authorization.

• Significant increase in new user acquisition spend with abnormally high costs due to algorithm changes in the advertising partner's platform. - Uncertainty in the timing of normalization of user acquisition costs, which is impacting near - term EBITDA. - Impact of algorithm changes is global and across brands, making it hard to continue growth without overspending in current CPA levels.

Q: Maybe dig a little deeper into the algo change. I'm assuming this is related to Google's Andromeda. When did the issue actually start -- when did you start seeing it? Has it -- is it continuing to -- is the trend continuing to worsen? Or has it kind of stabilized? And lastly, Oran, when you talk about the issue being related to Try - Before - You - Buy, does that mean that you guys are going to deemphasize that? Or is there work around it such that you can continue to differentiate yourself through that offering and still maybe rank higher?

A: Lindsay Mann said they first observed something different in the second half of 2025 and it got worse as they entered 2026 and started to scale. Oran Holtzman said they believe they can solve the issue, with a range of things like Deep Signals Audit, Final UI/UX adjustment, infrastructure work, building new prediction models, offering adjustments and different audience strategies, and that they believe the Try - Before - You - Buy model can be fixed within the current business model.

Q: I just wanted to ask on the change or the lack of guide here, I guess, and what you can recover for the remainder of the year, it does seem like an uphill battle. Is it possible to shift this user acquisition really from Q1 or H1 into Q2 or H2? Or will there be more of a delay? And does this change your thinking at all on distribution, just given you are vastly sold on direct - to - consumer, would this make you think at all about going into retail?

A: Oran Holtzman said no change in strategy, online is still the strategy and no plans to move into retail at this point. Lindsay Mann said they're navigating a situation where CPA is significantly higher, dialed back on acquisition to manage, and view the current situation as a temporary pothole they'll recover from once CPA normalizes.

Q: Maybe, Lindsay, just as I think about the model, right, I mean one of the things that we've always loved about your business is how you can flex the advertising spend. And obviously, as you said, CPA is up more than 2x in some cases. So when we think about how you would strategize around this, I mean, once things normalize, I mean, should we expect kind of like a steep pullback on advertising expense? Or just curious how you're thinking about strategizing around this once we get that normalization point? And then can you just give us any color on retention rates or reorder rates that you're seeing in the market?

A: Oran Holtzman said they need to balance not overspending at crazy CPA while feeding signals to the algorithm. Lindsay Mann said normalization would be in line with industry CPA, repeat rates remain very strong with ~70% of sales from repeat in 2025 and 12 - month net revenue repeat rates for 2024 cohorts over 100% and recent cohorts showing good performance.

Q: Can you guys help us understand just what exactly is changing within your guys' funnel? Is this higher CPMs? Is this lower click - through rates? Is this worse on - site conversion, meaning it's a lower quality user that you're targeting? Help us understand that dynamic. And then one of the things that we've also always appreciated about the business is just your ability to be able to pull different levers to be able to sustain that 20% growth. And so can you just help us understand the size of this channel and your inability to be able to allocate spend elsewhere and help us understand just why this is an overly large impact versus what we would have thought was a more diversified ad platform?

A: Oran Holtzman said the change is global and across brands making it hard to grow without overspending, leading to a ~30% decrease target in Q1. Lindsay Mann said for their largest ad partner, pure platform orders (revenue directly attributed to ads from this partner) make up just under 1/4 of revenue, but they have relationships with many ad partners and scaling with each individual is limited.

Q: You mentioned that you've made kind of significant actions to fix this. Can you maybe clarify if these are more structural, I guess, technical fixes to your internal, I guess, data feedback loops, maybe retraining your AI to find intent users, kind of things like that? Or is the rebound expected to come from like a strategic shift in budget allocation? Maybe just talk us through the fixes that you're making.

A: Oran Holtzman said it's both infrastructure side, offering adjustments and signal adjustments, and they can run dozens of variants in - house, being more prepared than most companies to address the issue.

Q: Lindsay, is there areas that you're currently seeing strength that you could possibly offset this weakness strategically? I want to focus here on international opportunities and then the Brand 3 rollout, which you mentioned was -- has seen nice success.

A: Oran Holtzman said METHODIQ is growing more than IL MAKIAGE did when it launched, but still need user acquisition and don't want to overspend just to meet revenue goals; first need to fix the issue then go back to growth.

Q: As we think about balancing sort of the near - term priority of sort of fixing the problem here versus sort of balancing with longer - term investments to sort of continue the growth sort of growth trajectory once these problems are solved. Can you talk about sort of what that balance looks like internally right now? And then what are some of the priorities, whether it's continuing down the path of product development with ODDITY LABS growing METHODIQ brand? Also, is there a risk here that we see a delay or a push out in sort of the Brand 4 launch plans as well?

A: Oran Holtzman said current focus is on fixing the problem, but they continue to invest in ODDITY LABS, build Brand 4, and work on new products for IL MAKIAGE, SpoiledChild, and METHODIQ; no delay in Brand 4 launch plans as they continue to invest in growth while fixing the current issue.

Q: I was just wondering how does this dislocation impact the launch of METHODIQ? I know you had planned to step up spending in the first half of the year with this launch, and that was expected to have an impact on your EBITDA margins in the first half.

A: Oran Holtzman said since METHODIQ is relatively small, they can continue to grow it without the negative effect seen with IL MAKIAGE and SpoiledChild due to its low scale compared to the larger brands, and can still meet targets for this brand this year