Waldencast plc Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Michel Brousset highlighted the strong second quarter and first half performance, emphasizing the vision to build a global best-in-class beauty and wellness platform. He discussed how Milk Makeup and Obagi Medical are well-positioned in their respective categories, with Milk Makeup growing three times faster than the U.S. Prestige makeup market in H1 and Obagi Medical outperforming the U.S. Prestige skincare market.
• Manuel Manfredi reviewed financial results, noting robust comparable growth, increased adjusted gross profit and EBITDA, and provided the full-year 2024 outlook. He mentioned that adjusted EBITDA margin is expected to be in the mid-teens and second-half adjusted EBITDA would exceed first-half results.
• Details on Milk Makeup included its community engagement, with new followers up 254% year-over-year, strong social and editorial coverage, and focus on innovation with products like the Cooling Water Jelly Tint. For Obagi Medical, the focus was on its science-driven approach, clinical testing, and market expansion, with a strategy to strengthen its professional dermatological brand, accelerate innovation, and grow brand awareness globally.

Segment Performance

• Milk Makeup: Q2 2024 net revenue was $28.7 million, a 20% year-over-year increase. Adjusted gross profit margin was 69.7% in Q2, with adjusted EBITDA at $5.7 million. For the first half of 2024, net revenue was $63.2 million, a 20.8% increase year-over-year. Adjusted gross profit margin was 70.6%, and adjusted EBITDA was $15.7 million.
• Obagi Medical: Q2 2024 net revenue was $34.6 million, a 30.9% year-over-year increase. Adjusted gross profit margin was 79.3% in Q2, with adjusted EBITDA at $6.5 million. For the first half of 2024, net revenue was $68.4 million, a 25.4% increase year-over-year. Adjusted gross profit margin was 80.3%, and adjusted EBITDA was $13.2 million.

Guidance

• Full-year 2024 comparable revenue growth is expected to accelerate beyond the 25.7% seen in Q2. Adjusted EBITDA margin is expected to land in the mid-teens, substantially higher than 2023's 11.2%. Second-half adjusted EBITDA is expected to exceed first-half results both in absolute terms and as a percentage of revenue.

Risks

• Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from projections. Past out-of-stocks on key products impacted growth, though most issues are behind, with some minor effects still expected in Q3.

Question and Answer

Q: Can you talk about the promotional environment and innovation pipeline in the second half?

A: Brands are relatively unexposed to promotional fluctuations. There is a strong innovation pipeline in the second half, with continued acceleration in innovation on both brands.

Q: Talk about revenue growth, EBITDA margin expansion, competition, and out-of-stocks.

A: Steady state revenue growth is expected with EBITDA margin expansion via operational efficiency. The market is competitive, but focus is on innovation. Out-of-stocks were a headwind but mostly behind, with minor effects in Q3.

Q: Discuss advertising and promo ratios, and Obagi's international distribution.

A: Continue to invest in marketing with a focus on ROI. Obagi uses distributors internationally with strict monitoring of sell-in, sell-through, and sell-out; no concerns about excessive inventory in distributor channels.

Q: What's driving gross margin expansion and future growth?

A: Gross margin expansion is driven by channel mix and operational efficiency. For Milk, it's operational efficiency and mix; for Obagi, it's channel mix and operational efficiency. International growth is expected with Milk expanding distribution and Obagi rebuilding its business in Southeast Asia