Waldencast plc Q1 FY2024 earnings call

Vision: Waldencast aims to build a global best-in-class beauty and wellness platform by creating, acquiring, accelerating, and scaling high-growth, purpose-driven brands. ### Brand Performances: - Milk Makeup: Had strong growth in fiscal 2023 with net sales over $100 million. Q1 2024 saw 21.5% growth in net revenue. Focuses on innovation, community, and product pillars, with recent launches like Pore Eclipse Matte Blur and viral Odyssey Lip Gloss. - Obagi Skincare: Fiscal 2023 comparable net revenue was $112 million. Q1 2024 had 20.6% growth in comparable net revenue. Focuses on strengthening dermatological skincare brand, accelerating science-backed innovation, and growing brand awareness domestically and internationally. Introduced new brand visual ID and packaging redesign, and partnered with Dr. Suzan Obagi as Chief Medical Director. ### Financial Highlights: Fiscal 2023 comparable net revenue was $212.5 million, up 15.3%. Q1 2024 comparable net revenue was $67.9 million, up 21% from Q1 2023. Adjusted gross profit in Q1 2024 was $52.1 million, up 32.9% from prior year, and adjusted EBITDA was $11.4 million, up 12.9% from Q1 2023.

For Waldencast, the key segments are Milk Makeup and Obagi Skincare. In fiscal 2023, Milk Makeup achieved net sales of $100.5 million, representing a 38.6% increase from 2022. For the first quarter of 2024, Milk Makeup generated net revenue of $34.5 million, a 21.5% increase from Q1 2023. Its adjusted gross margin was 71.3% and adjusted EBITDA was $10 million. Obagi Skincare had comparable net revenue of $112 million in fiscal 2023, a slight 0.2% increase from fiscal 2022. In Q1 2024, Obagi Skincare's comparable net revenue was $33.4 million, a 20.6% increase from Q1 2023. Its adjusted gross margin was 81.4% and adjusted EBITDA was $6.7 million.

Fiscal 2024 Outlook: - Expect comparable net revenue growth to accelerate from the 21% increase in Q1 2024, with strong contributions from both Obagi Skincare and Milk Makeup. - Adjusted gross margin is expected to expand for both brands. - Targeting a mid-teens adjusted EBITDA margin for the year, ahead of the 11.2% margin in fiscal 2023. - Obagi Skincare growth driven by U.S. physician dispensed market development, innovation plan, and international expansion. - Milk Makeup growth driven by innovation, brand collaborations, and brand awareness expansion.

• Southeast Asia restructuring: Still in the ramp-up period, currently below pre-restructuring sales levels, but expected to become more robust and profitable over time. - Market competition: Fierce competition in the beauty industry which could impact market share and growth. - Operational challenges: Ensuring successful integration of acquisitions and managing operational efficiencies across brands.

Q: Recent Milk Jelly Tints launch and Gen Alpha appeal A: Talks about the broad appeal of the Jelly Tints, with Gen Alpha being attracted to the new texture, compelling buildable color payoff, and the TikTokification of beauty which brings younger consumers into the category.

Q: Growth drivers and marketing spend ROI A: Differentiated by brand. For Milk, growth driven by innovation, international expansion, and marketing spend with strong ROI from in-store support, social, and influencer. For Obagi, growth from U.S. physician dispense channel, omnichannel performance, and international expansion outside Southeast Asia. ROI measurement is core, with different allocations by brand.

Q: Gross margin by distribution channel A: Obagi's gross margin progression is influenced by channel mix, including e-commerce growth. Milk's gross margin expansion is from operational improvements like better inventory management and sourcing. Outlook is for strong gross margin progression year-over-year.

Q: Obagi Southeast Asia distributor recovery time A: Expecting Southeast Asia business to be bigger and more profitable over time. It's a journey, with relaunch in Vietnam starting in November. Expected to take 18-24 months to get back to pre-restructuring sales levels but in a more robust and profitable manner.