Waldencast plc Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strong Performance: Waldencast achieved strong net revenue growth, with comparable net revenue up 34.6% in Q3 and 26.9% for the first nine months of 2024. Adjusted EBITDA saw significant increases, with 134% growth in Q3 and 54.9% growth for the first nine months.
• Brand Strategies:
  • Milk Makeup: Focus on community expansion, innovation (e.g., new product launches like Hydro Grip + Glow), and international expansion (e.g., launch in India).
  • Obagi Medical: Emphasis on blockbuster innovation (e.g., ELASTIDERM Lift Up & Sculpt Facial Moisturizer), global distribution growth, and e-commerce channel penetration.
• Operational Leverage: The company is leveraging its multi-brand platform, operational scale, and efficient capital structure to drive growth and profitability, with a focus on reinvesting savings into sales and marketing to sustain top-line momentum.

Segment Performance

• Milk Makeup: In Q3 2024, net revenue was $31.5 million, a 23.5% increase year-over-year. For the first nine months of 2024, net revenue was $94.7 million, up 21.7% from the prior year. Adjusted gross profit margin in Q3 was 66.6%, and for the first nine months, it expanded to 69.2%. Adjusted EBITDA nearly doubled in Q3 to $8.5 million, with the margin expanding 1,040 basis points.
• Obagi Medical: In Q3 2024, net revenue was $38.7 million, a 45.5% increase year-over-year. For the first nine months of 2024, net revenue was $107.1 million, up 32% from the prior year. Adjusted gross margin in Q3 was 78.6%, and for the first nine months, it expanded to 79.7%. Adjusted EBITDA in Q3 was $7.5 million, a 129.7% increase from the prior year.

Guidance

• Reaffirmed full-year 2024 guidance, expecting comparable net revenue growth to accelerate beyond the 25.7% seen in Q2 and adjusted EBITDA margin to land in the mid-teens range.
• Anticipates continuing momentum into the final quarter of 2024, building on strong performance in the first nine months.

Risks

• Inventory Issues: Still dealing with improved but not fully resolved inventory levels, which impacted growth in prior quarters and may continue to be a factor into Q1 2025.
• Tariffs: Potential impact from tariffs, though management does not expect it to be material, with plans to manage through existing gross margin flexibility.
• Regulatory Investigation: Cash allocated to cover non-recurring costs associated with an ongoing regulatory investigation, with expectations to improve capital structure once the matter concludes.

Question and Answer

Q: Gave color on innovation cadence for next year and driving sustained growth versus the market.

A: Strategy remains to drive awareness, innovation, and footprint expansion. Expect less gross margin expansion but ample top-line opportunity with strong innovation plans.

Q: How to manage gross margins in light of potential tariffs.

A: Tariffs not expected to be material; Milk has some cost of goods from China, but ways to shift and manage within gross margin.

Q: Difference in Milk's gross margin trends and outlook.

A: Temporary phasing issues with off-price sales and holiday kits, but no structural issues; gross margin continues to progress towards long-term targets.

Q: Beauty market performance and in-stock levels for Obagi.

A: Beauty market is strong with prestige and makeup segments growing; Obagi has improved in-stock levels from Q2 but expects a few more quarters to fully normalize.

Q: Updated expectations for holiday promotions and retailer inventory caution.

A: Holiday plans consistent with prior years; seeing some retailer caution on inventory management, more so outside North America.

Q: Innovation pipeline for Milk and physician dispense channel performance.

A: Milk has strong innovation plans with upcoming new categories; physician dispense channel is growing, though data quality is less robust.

Q: M&A landscape and Milk brand awareness/distribution.

A: Plenty of M&A opportunities; Milk's community and awareness continue to grow with expanding distribution both in the US and internationally.

Q: Marketing spend outlook and allocation between brands.

A: Will continue to increase marketing spend behind both brands, reinvesting savings from gross margin improvements into sales and marketing to drive top-line growth