Oddity Tech Ltd. (ODD) Earnings Call Transcript

Good morning and welcome to ODDITY's third quarter 2026 earnings conference call. Today's call is being recorded and we've allocated time for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Maria Lycouris, Investor Relations for ODDITY. Thank you. You may begin.

Thank you, Operator. I'm joined by Oran Holtzman, ODDITY's co-founder and CEO, and Lindsay Drucker Mann, ODDITY's Global CFO. Niv Price, ODDITY's CTO, will also be available for the question and answer session. As a reminder, management's remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations, or estimates, including statements about ODDITY's business strategy, market opportunity, new product, brand and category launches, and related regulatory developments, future financial performance, customer acquisition costs, and long-term success. Forward-looking statements involve risks and uncertainties, and actual results could differ materially due to a variety of factors. These factors are described under forward-looking statements in our earnings press release issued earlier today and in our most recent annual report on Form 20-F filed with the Securities and Exchange Commission on March 17, 2026. We do not undertake any obligations to update forward-looking statements, which speak only as of today. Finally, during this call, we will discuss certain non-GAAP financial measures, which we believe are useful supplemental measures for understanding our business. Additional information about these non-GAAP financial measures, including their definitions, are included in our earnings press release which we issued today. Unless otherwise stated, references to revenue refer to net revenue. I will now hand the call over to Oran.

Thanks everyone for joining our call today. ODDITY continues to make progress stabilizing our business and positioning for growth in 2027. Third quarter financial results exceeded the top end of our guidance on revenue and adjusted EBITDA. Revenue pressure improved significantly from the first half. We are raising our revenue and adjusted EBITDA outlook for 2026. SpoiledChild had an excellent Q3 and is on track to grow at least 35% for the year, approaching $350 million of revenue, a huge milestone for a brand that launched less than 5 years ago, and we believe it has a lot of runway ahead. ODDITY is off to a strong start and is on track to beat SpoiledChild's first-year revenue. We have exciting expansion plans for 2027, including new products and categories that we believe can be meaningful growth drivers. And we made progress at IL MAKIAGE, and we remain hopeful that we are on path to normalization. Taking a step back, our long-term ambitions for ODDITY have not changed. Our goal is to build one of the biggest beauty and wellness companies in the world. We have a strong foundation for it, starting with our direct relationship with 70 million users, which allows us to identify big demand opportunities and scale into them fast. We have continued investing in growth drivers like ODDITY Labs, new brands, and technology, and we built out new muscles to expand our scope. In the past 5 years, we transformed from a single brand into 3 brands and soon 4, and from the beauty category, we added skincare, healthcare, and dermatology. Next year, we plan to add longevity, metabolic health, and more we have not yet announced. Turning to our third quarter results, starting with SpoiledChild, which grew strong double digits in the third quarter and continued the trend into the fourth quarter. As I said, it is on track to grow at least 35% for the year. The success of SpoiledChild is a proof point of the ODDITY platform. Countless other beauty companies tried and failed to add new brands organically or scale into new categories without M&A. We did it with SpoiledChild in less than 5 years, leveraging our user base, our technology, and our brand scaling machine. It's a repeatable playbook that we believe gets better with time, and we are running it again with METHODIQ, with Brand 4, and beyond. More to come for SpoiledChild with strong momentum exiting 2026, excellent repeat rates, and an exciting product lineup for 2027. Moving on to METHODIQ, which is off to a strong start in its first year since launch. Our success so far, including high customer satisfaction and retention rates, combined with powerful secular trends in the medical-grade space, makes us bullish on METHODIQ's potential. Our plan is to expand into more medical-grade products and categories across 2027, where we see large reversible markets with meaningful demand. As the first step into longevity and metabolic health, we plan to offer prescription injectable therapies, including NAD+, sermorelin, and others, prescribed by licensed providers and fulfilled through our U.S.-based licensed pharmacy partners. From there, we plan to launch 6 additional peptide therapies covered by the enforcement discretion policy published by HHS last month. We have been preparing for this opportunity for a long time. We spent the last several years building out our infrastructure online clinical intake, transparent national pharmacy fulfillment, and licensed provider networks, and are now in a strong position to expand from here. I believe the market potential for peptides and therapies across longevity, metabolic health, recovery, and cognitive function is highly attractive, and METHODIQ is well positioned to win. With ODDITY's platform and financial muscle, METHODIQ's success in dermatology Rx, and the provider networks, pharmacy infrastructure, and supply chain already in place, we believe we can be the leading offering. This is just the beginning of METHODIQ. More categories and products to come. Moving to IL MAKIAGE, we continue to work extremely hard with our largest advertising partner to solve the algorithm dislocation. And while we are not there yet, we remain very hopeful that due to the substantial resource this ad partner is allocating to fix it, combined with our 24/7 efforts, we will be successful. Turning to ODDITY Labs. 3 years ago, we founded our frontier biotech lab in Boston to bring capabilities like artificial intelligence and digital biology, the same tools that pharma uses for drug discovery, into beauty and wellness, and do it at high scale. With hard work and investment, we've built a strong machine and a pipeline of proprietary molecules that we believe can deliver groundbreaking solutions for consumers. In anti-aging, we are working on molecules that increase collagen, elastin, and NAD+ in the skin. We believe the early reads from in vitro and ex vivo testing and from focus groups are really promising. We also have projects in hair growth and we continue to build on our success in hyperpigmentation, acne, and eczema. Looking to the future, our focus is returning ODDITY to growth in 2027, including growth for IL MAKIAGE. The industry backdrop remains attractive, with large profitable and secularly growing markets that we believe are ripe for disruption. And we continue to be bullish on our strategic focus areas, including the consumer shift online and the demand for high-efficacy products. The success for both SpoiledChild and METHODIQ shows the power of our platform with 3 distinct brands today, each with the potential to achieve billion-dollar revenue. On the product side, our slate of launches planned for 2027 across all brands is the most exciting we have ever had. Brand 4 is planned to be ready for launch in 2027 with more details on timing as we get closer. Lastly, we are continuing to explore new distribution where it makes sense. I'll share more when it's relevant. With that, I will hand it over to Lindsay.

Thanks, Oran. Let's turn to our Q3 results, which I'll refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Net revenue declined 2% versus the prior year to $145 million. This is better than our outlook for net revenue to decline approximately 5% and a substantial sequential improvement from the 25% net revenue decline we reported in the second quarter. The sequential improvement was driven in part by improved trend in repeat orders, which stabilized in the third quarter versus the prior year. More than 80% of ODDITY net revenue in the third quarter was from repeat sales, representing a large majority of our revenue base in the period. First-order net revenue declined by approximately high teens year-over-year. IL MAKIAGE first-order revenue declined sharply due to the ongoing impact of the ad account dislocation with its largest advertising partner, partially offset by increased first-order revenue at SpoiledChild and at METHODIQ. AOV declined approximately mid-single digits during the quarter. The AOV reduction was driven in part by mix. SpoiledChild revenue increased strong double digits during the quarter versus the prior year. METHODIQ revenue continues to build sequentially. The brand is on track to beat SpoiledChild's first-year revenue performance. Gross margin was 67.4% in the quarter compared to 71.6% in the prior year. Compression versus the prior year was driven in part by the decline in AOV. We delivered adjusted EBITDA of $22 million ahead of our outlook for adjusted EBITDA of $18 million to $20 million. The decline versus the prior year was driven in part by the IL MAKIAGE account dislocation. We continue to be disciplined on operating expenses while maintaining investment in critical growth areas like ODDITY Labs, METHODIQ, Brand 4, and our tech infrastructure. We believe these growth investments will be drivers of value creation for us in the future. Moving down the P&L, adjusted diluted earnings per share was $0.37 for the quarter compared to $0.40 in the prior year on a diluted share count approximately 23% lower year-over-year following our share repurchases. Free cash flow was $10 million in the quarter, bringing free cash flow for the first 9 months of the year to approximately $3 million. Inventory ended the quarter at $158 million. As we discussed last quarter, IL MAKIAGE continues to work through excess inventory from purchase commitments made in anticipation of stronger revenue, and we plan to be in better inventory balance in 2027. We also continue to invest in inventory to support growth at SpoiledChild and at METHODIQ. We exited the quarter in a strong liquidity position with $561 million of cash, cash equivalents, and investments on our balance sheet. $350 million in credit facilities remains undrawn. Turning to capital return, in the first 9 months of the year, we repurchased 11.7 million shares for $163 million, which reduced our ordinary shares outstanding by approximately 20% year-to-date. Approximately $86 million remains outstanding on our $200 million buyback authorization. Approximately $550 million of our zero-coupon 2030 exchangeable notes remain outstanding following the $50 million of face value we repurchased in June. We will continue to be opportunistic in managing our capital structure in order to drive shareholder value going forward. Turning to our full-year outlook, we're raising our guidance for full-year net revenue and now expect a decline of approximately 18.5%. And we're raising our guidance for full-year adjusted EBITDA to be between $32 million and $34 million. And with that, I'll turn the call back to the operator for questions.

[Operator Instructions] Our first question is from Scott Schoenhaus with KeyBank Capital Markets. Please proceed with your question.

Thanks for taking my question. Oran, it sounds like you have a lot of opportunity and optimism around the new product launches that you mentioned in '27. Maybe help us understand why you chose these products, where you see the opportunity, how you defined it within your current population. Usually you see traction or test things with the current population or at least have a leading indicator of how they're thinking about new products. And just walk us through how you decided on these opportunities for product launches? Thank you.

Sure. So when we refer to product launches with all three brands, we have around 8 new products, very promising for SpoiledChild, at least 5 to 6 products for IL MAKIAGE that we worked for the past 3 years to build. And of course, we have METHODIQ, we launched METHODIQ with 30 products, and now we have very promising rollout for 2027 for METHODIQ, including peptides for the first time. The category itself is in early stage with a lot of growth potential based on what we believe. And we think we can emerge as one of the main winners there. Thanks to number one, all the advantages that the ODDITY platform has like the user base, the data, the tech, and our track record of unlocking categories for online. This is a new category, and we were waiting for a long time, and we believe we can be very successful. Number two is in this category, consumer confidence is very important for selling and conversion, and we've seen it clearly in our internal studies that there is demand. METHODIQ is in very well position here already with proven track record in dermatology Rx with brand identity and highest quality partners. And number three, because we already have the infrastructure to do it, if you remember back then I told you that we built METHODIQ not just for skin, and we had lots of ambitions to expand it to other Rx domains. Peptides is one of them, and with the recent HHS approval, it makes it very easy for us to expand toward that direction, and we are very pleased for that.

Okay, Oran, and then my follow-up is, IL MAKIAGE is improving here sequentially, and yet you still haven't fully resolved the issue with your advertising partner. Maybe walk us through how you're able to improve these trends, what you're doing outside of this fix on the advertising side that allows you to see the sequential improvement.

Thank you. So we work really hard on fixing the problem and those things require lots of tests and iterations. We work extremely close to our advertising partner and I'm doing it personally every day, many hours every day and those things are never easy to solve and especially because it's algorithm learning stuff, but we do a lot there. In addition, we work on other channels, and we work extremely hard to launch new product that may help us and redirect the algorithm to the right place. Again, it's at least 40% to 60% of my day and my days alone.

Our next question is from Dara Mohsenian with Morgan Stanley. Please proceed with your question.

Good morning. So first, I just had a clarity question. You clearly beat Q3 guidance. You'd actually reported fairly late in calendar Q3, the actual Q2 results. So I'm guessing the end of the quarter was pretty solidly above what you expected. But Q4, the implied guidance today looked relatively in line with what you implied previously. So I just wanted to better understand where the business came in better than expected in Q3, what that sort of implies for Q4 and beyond as we look forward. Maybe there's some conservatism baked in for Q4, but just try and understand that. And then second, clearly you're not guiding to '27 today, but just conceptually, Lindsay, given the volatility we've seen this year, can you just touch on some of the key puts and takes you'd be thinking about ahead of time for '27? And maybe within that, given the growth has been so strong on SpoiledChild this year, maybe you can give us a bit of a review on what's driving the strength there and the plans for '27. Thanks.

I would just start by saying that we are not providing guidance for 2027, but our goal is to return to growth, and we hope to deliver that growth with all our brands, including IL MAKIAGE. We work extremely hard to get there. We still have time, and that's what we do. Regarding the first question, maybe, Lindsay, you can reply.

Yes, thanks, Dara. So, when we guided Q3, I would say the quarter came generally as we planned. As you mentioned, we spoke to you guys in early September, so we had a few weeks left. SpoiledChild has been a really nice positive driver so that it has been coming in better than we planned and METHODIQ also scaling really nicely. So those were positives. When we set our guidance, just given the current dynamic where so much of our effort and dollar spend and focus is on resetting the algorithm for IL MAKIAGE, there is naturally some volatility that comes into the return on ad spend and the ad spend itself. It's not like a normal year for us, and that's why we wanted to embed enough room. I would call it conservatism, but more I would call it room for us to move and do the right thing for the reset. And that's also what you're seeing in the fourth quarter. As you mentioned, this is as we planned based on the last time we spoke to you. And again, allows us to focus on fixing the business for the long term, but causes some near-term volatility. What I would add to Oran in terms of '27, absolutely, like he mentioned, our plan to bring the business back to growth for all our brands, I would just make sure it's clear that that will require investment from us in order to drive the first orders, which will drive the repeat and get our flywheel going again. So too early for us to talk specifically about 2027, but those are the two key drivers.

Our next question is from Brian Tanquilut with Jefferies. Please proceed with your question.

Good morning. Maybe just a double click on IL MAKIAGE. How did CPA change quarter-over-quarter and year-over-year in Q3? Anything you can talk about your progress with your ad partner, as we think about how much of that expected recovery has already been realized. Thank you.

Sure. It's very volatile because we are in a mode of testing and iterations on a daily basis. For example, September was the best CPA that we had since earlier this year, but it's very volatile. So October wasn't that good, but we are here to fix the problem and not just to improve it slightly. So we are making big changes on a daily basis on our ad accounts. Everything is in full collaboration with our ad partner. We're not doing any change on the ad account without their sign-off. And that's it.

Our next question is from Anna Lizzul with Bank of America. Please proceed with your question.

Hi, good morning. Thank you so much for the question. I was wondering if you could talk a little bit more about how Q4 is tracking so far with IL MAKIAGE and if you see any uplift typically from the holiday season, or is this less impactful to IL MAKIAGE and your other brands as well? And I know you're not commenting fully on 2027, but if you could just give us a little bit more color on how you're expecting sequential improvement post-Q4, especially on IL MAKIAGE in light of the algorithm changes that you've been adjusting to. Thank you.

And I would just say again, Q4 is tracking as planned and our primary focus right now is on doing everything that needs to be done to remedy the account dislocation, so normal selling activity is not something that we're focused on right now. It's truly on fixing the algorithm and putting us in a position to return to growth next year.

Our next question is from Javier Escalante with Evercore ISI. Please proceed with your question.

Good morning everyone, good reconnecting with you both. I have kind of a more long-horizon question. So how do you see IL MAKIAGE's role within ODDITY's portfolio and evolution of the different business models? SpoiledChild is coming in better than you planned, which is great. But wellness and beauty have different competitive sets, consumer and retail dynamics. So is the IL MAKIAGE vertical needed for scale, learning, some kind of boot camp for the category? And related to that, how do you see whether to keep IL MAKIAGE primarily D2C or broaden distribution, say, through Amazon, where I believe the brand already sells, and where you can advertise and converge within the same environment? Thank you.

Hi Javier, how are you man? Thanks for the question. So the answer is we work extremely hard to make sure that IL MAKIAGE is back to growth. We believe the problem that we have now is a technical problem with the algorithm. We don't think it has anything to do with softness in color or with anything related to our brand. Yes, IL MAKIAGE is down, but we knew it from the beginning of the year, and we work extremely hard to fix it. IL MAKIAGE has a very strong brand equity, high customer satisfaction from millions of customers based on very high product quality. We don't see anything that signals us that we have any brand damage or anything regarding the category itself. So yes, SpoiledChild is growing better than expected. We are very pleased. METHODIQ is doing great, but IL MAKIAGE needs to go back to growth, and that's what I do day and night. Regarding Amazon, we are still 100% D2C and when we have something to announce on that front, we will.

Our next question is from Bryan Smilek with JPMorgan. Please proceed with your question.

Great, thanks for taking the questions. I'm just curious as we look into '27, can you just help me think about the go-to-market strategy across advertising more broadly? I totally appreciate continuing to work with the current ad partner, but do you see other services and channels more broadly where you can spend to get greater returns overall from an LTV to CAC perspective? And then, I would say as well too, from a peptides perspective, can you just help me understand the potential investments needed there from a sales and marketing side to build brand awareness?