Waldencast plc Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Beauty Market Context: Beauty remains resilient with Prestige Beauty growing 7% in 2024, Prestige Makeup up 5%, and Professional Skincare up 8%.
• Waldencast Flywheel Effect: Focus on strong brands in high-growth subcategories, driving operational efficiency, reinvesting in sales/marketing, and achieving an adjusted gross margin 430 basis points above the industry average and an adjusted EBITDA margin of 14.7% in FY2024.
• Brand Performances:
  • Milk Makeup: Cult-favorite Gen Z brand with 2.8M Instagram followers, growing five times faster than the market. Launched Jelly skincare and Skin Tint, expanding distribution to Ulta.
  • Obagi Medical: Number one U.S. physician-recommended medical grade skincare brand, fastest growing top 10 professional skincare brand in the U.S. Launched new products, refreshed brand identity, and expanded physician and consumer reach.

Segment Performance

• Milk Makeup: Fourth quarter net revenue was $29.9 million, a 31.9% increase; fiscal year net revenue was $124.6 million, a 24% increase. Adjusted gross profit margin was 64.9% in the fourth quarter and 68.2% for the fiscal year. Adjusted EBITDA was $4.8 million in the fourth quarter and $29.1 million for the fiscal year.
• Obagi Medical: Fourth quarter net revenue was $42.2 million, a 27.7% increase; fiscal year net revenue was $149.3 million, a 30.7% increase. Adjusted gross profit was $33.2 million in the fourth quarter and $118.6 million for the fiscal year. Adjusted EBITDA was $9.8 million in the fourth quarter and $30.5 million for the fiscal year.

Guidance

• FY2025 Outlook: Expect net revenue growth in the mid-teens and adjusted EBITDA margin to expand into the mid to high teens.
• Quarterly Phasing: Q1 net revenue is expected to be flat due to the Jelly anniversary and retail inventory adjustments; acceleration is expected in subsequent quarters with launches like Skin Tint and Ulta expansion.

Risks

• Regulatory Investigation: A significant portion of cash is being used to cover non-recurring expenses related to an ongoing regulatory investigation; once concluded, cash generation is expected to increase.

Question and Answer

• Q: Guide for the year, cadence of innovation and confidence in acceleration? A: Q1 is flat due to the Jelly anniversary and retail inventory adjustments; acceleration is expected with the Skin Tint launch and Ulta expansion.
• Q: Quantify Jelly boost in Q1 and Ulta benefit in Q4? A: Specific numbers not disclosed, but the Jelly anniversary and Ulta pipe contribute to performance.
• Q: Marketing allocation and physician dispense channel? A: Increased marketing for Milk (Ulta launch, broader campaigns) and Obagi (direct consumer ads, physician focus). The physician dispense channel is normalizing but strong with premiumization and wellness trends.
• Q: Macro environment and Milk in Ulta? A: The beauty consumer remains resilient; Milk in Ulta is performing well with strong demand, and the Skin Tint launch enters the large complexion market.
• Q: Milk skincare and Skin Tint launch, Ulta expansion potential? A: Skincare and Skin Tint launches are on the same fixtures; there is potential for more Ulta doors if successful, but not in Ulta at Target.
• Q: Q1 outlook, growth dynamics, and Ulta sell-in? A: Q1 is flat due to the Jelly anniversary and retail; growth prospects are independent of the market; part of the Ulta sell-in occurred in Q4 and Q1.