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.
• Milk Makeup: A cult Gen Z brand with a core focus on brand, community, and product. It has a diverse community, innovative products like Pore Eclipse Matte Blur, Odyssey Lip Gloss, etc., and has seen global growth in regions like Scandinavia, the U.K., and Latin America.
• Obagi Skincare: The #1 U.S. physician-recommended medical skincare brand, with strategies including strengthening dermatological skincare brand and physician-dispensed DNA, accelerating science-backed innovation, and growing brand awareness. It has a new brand visual ID, partnered with Dr. Suzan Obagi, and had successful product launches like Obagi Daily Hydro-Drops Rejuvenating Eye Cream.

For fiscal 2023, Milk Makeup had net sales of $100.5 million, increasing 38.6% from 2022, with adjusted gross profit of $66.7 million or 66.4% of net revenue and adjusted EBITDA of $18.4 million or 18.3% of net revenue. Obagi Skincare finished fiscal 2023 with comparable net revenue of $112 million, increasing slightly up 0.2% from fiscal year 2022. For the first quarter of 2024, Milk Makeup generated net revenue of $34.5 million, an increase of 21.5% from Q1 2023, with adjusted gross margin growing to 71.3% of net revenue and adjusted EBITDA rising to $10 million with an adjusted EBITDA margin of 29.1%. Obagi Skincare recorded $33.4 million in comparable net revenue in Q1 2024, an increase of 20.6% from Q1 2023, with adjusted gross margin expanding to 81.4% and adjusted EBITDA of $6.7 million.

• For fiscal 2024, comparable net revenue is expected to accelerate growth, with strong contributions from Obagi Skincare and Milk Makeup. Obagi's growth driven by U.S. physician dispense market development, innovation, and e-commerce/international expansion. Milk Makeup's growth driven by innovation, brand collaborations, and brand awareness expansion.
• Adjusted gross margin is forecasted to expand for both brands versus 2023. Adjusted EBITDA margin is expected to be in the mid-teens for the year, nicely ahead of the 11.2% achieved in fiscal 2023.

• Southeast Asia business is still in the ramp-up period of the newly restructured business and is not yet at the level of sales achieved under the prior distribution model.

Q: Can you talk a bit more about what you're seeing with Milk Jelly Tints attracting Gen Alpha and what attracts tweens to the brand?

A: Jelly has relatively broad appeal. For Gen Alpha, key drivers are interesting new texture and compelling, buildable color payoff. Generation Alpha looks for great products, great performance, and interesting, seductive textures and creative, similar to most consumers.

Q: Could you talk about where you're allocating your spend and how you're sort of measuring ROI for your spend?

A: Allocation is different by brand. In Milk, strong allocation against in-store support as well as social and influencer. In Obagi, very focused against physicians, physician dispense and getting consumers to recognize Obagi and go to their doctors or dermatologists or physicians to ask for the brand. We hold a tight measure of ROI behind marketing spend and see great results from it.

Q: On the Obagi side in terms of the Southeast Asian distributor in terms of getting that back to the size it was before, is that a one to two-year endeavor or a multi-year? Or what do you think the time frame will be to get that back to a bigger size? And do you think it can get to be as big as it was before?

A: We believe our Southeast Asia business over time is going to be substantially bigger than what it was under the prior distribution agreement. It is a journey. We relaunched the brand in Vietnam initially in November and are launching into other countries. In the case of Vietnam, it will take another 18 months to 24 months to get back to the level of where we were before, but it will be much more profitable earlier on and much more robust.