ODDITY Tech Ltd.

Good day and welcome to the Audity Tech Earnings Call. Today's call is being recorded and we have an allocated time for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Maria Licuri, Investor Relations for Audity. Thank you. You may begin.

Thank you, Operator. I'm joined by Iran Holtzman, Audity co-founder and CEO of Lindsay Druckerman, Oddity's Global CFO. 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, future financial performance, and potential long-term success. Forward-looking statements involve risks and uncertainties, and actual results can differ materially due to a variety of factors. These factors are described under forward-looking statements in our earnings press release issued yesterday and in our prospectus filed with the Securities and Exchange Commission on July 18, 2023. We do not undertake any obligation 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 definition, are included in our earnings press release which we issued yesterday. I will now hand the call over to Iran.

Thank you everyone for joining us today. We are glad to report our third quarter results today which beat our guidance issued back in August on every metric and also exceeded the preliminary results we recently communicated in October. Revenue is going faster, gross margins are higher, and adjusted EBITDA is better than we expected. This is despite our real effort to pace our growth and slow down, as we historically have done in H2. With this record-breaking quarter, we will deliver net revenue growth of 60% and adjusted EBITDA of $91 million for the first nine months of this year. We are scaling at a speed that beats legacy incumbents, but also the majority of internet consumer companies, and with profit margins and cash flows that are rare in other growth companies. This outstanding financial performance reflects the strength of our platform, the health of our brand, our strong disciplined teams, and the massive runway we have in front of us. Our large investment in technology and data capabilities over the past five years are enabling us to continue to grow fast without damaging our high margins and profitability. Our tech team is still the largest team in the company, represents approximately 40% of total headcount. At the center of our success is our powerful financial model, which from the beginning we designed to deliver a rare combination of scale, growth, and profitability. On scale, we expect to break new records again in 2023, growing revenue more than 50% and with over 50% coming from repeat customers, which is very rare in our industry. We believe we are already the largest D2C platform in our industry, and have a massive user base with over 40 million users who are our design partners for future products, categories, and brand launches. On growth, we expect to deliver more than 50% growth this year after having delivered around 50% last year and 100% the year before that. But although our high growth, we could have done way more. We believe we have massive runway ahead and have built so many engines to allow us to continue to grow. We believe both Antiage and Spoiled Child will be $1 billion plus brands, and we are building our future brands to have meaningful additions to our company. On profitability, we continue to deliver margins and cash flows well ahead of other growth businesses. We expect to deliver over $100 million of adjusted EBITDA this year alone, which is a 21% margin. Before diving into the quarter, I want to discuss our industry and why I'm so bullish about the opportunity ahead of us. First, we operate in what we believe is one of the most lucrative times in the world. The global beauty and wellness market is over $600 billion in size and dominated by offline legacy incumbents. There are a huge number of beauty and wellness subcategories for us to go after, which are large in size and are waiting for proper online access. Second, consumers are shifting online and this is our strength. Today, online is around 25% of the industry's sales and we believe it will reach 50% in the next years. But in order to win online, you need to deliver experience that is even better than a store and therefore data and technology capabilities are critical. With all due respect to my competitors, we are simply playing different games. And as it relates to technology, to data, not to mention talent and operating structure, we believe we are simply years ahead, but still running like a startup to ensure we preserve our lead. Third, we build amazing brands and amazing products, and we have proved that ODT is a brand-scaling machine. Our track record speaks for itself. Il Makiage is the largest online beauty brand in the U.S., and either number one or number two in almost every international market it has launched. PoilChart is expected to achieve $100 million net revenue this year after only just launching in 2022. Multiple categories, hair and skin, and success across a very wide demographic. All of this with very high customer satisfaction, best-in-class repeat rates, and consistent and healthy growing cohorts. Brand 3 and Brand 4 are already in the making with dozens of talented folks dedicated to develop it. Both brands will be launched in 2025 and are responsible for at least 40% of my time and focus as CEO. The next stage of our evolution is with Audity Labs, an unleashing biotech for our industry to create the next generation of high-efficacy products. Consumers today are smarter than ever. They start to demand real, high-efficacy science-backed products to solve their pain points. High-performing products are not new to us. They are already central to our model and a huge part of why we are so profitable. No quality means no repeat. No repeat means no profitability. And based on my knowledge, we have the best repeat rates in the industry. We operate a world-class of in-house product development engine that I believe beats most of the brands in the industry. That's because we launch products based on data. We are not like other brands that launch based on what head stylist says or based on what Sephora or supplier says. Data drives us, no exceptions, no compromises. But as entrepreneurs who luckily found themselves in beauty, we never stop and we're never satisfied. Audity labs take us to the next level in terms of physical products and innovation. It was always my dream to use technology to develop higher efficacy products with stronger new ingredients. I was hunting for this opportunity for years, and with Revella, we found the perfect match. Since closing the acquisition in May, We have made so much progress in building Audity Labs to be the AI-based ingredient development platform of our industry, attracting amazing talent and moving fast across EU governments. Audity Labs will be one of our main growth engines for all brands. We are truly building something that was never done before. You don't see its contribution in our current earnings today. It's just expensive, but I'm more bullish than ever. It is the same feeling that I had when we started to build our R&D center in Tel Aviv. Before I hand the call over to Lindsay, let me touch on Israel, where we have our R&D center, but most importantly, where my heart and thoughts are in those sad days. First, the unwavering support I get daily from teammates, entrepreneurs, CEOs, and friends is unbelievable, and I deeply appreciate it. Seeing so many people stand with Israel and with its right to defend itself makes it a bit more bearable in this insane situation. We at ODT are doing everything we can to support our people and the country at this time. This is our duty and we will continue to do so. As for the business, there have been no meaningful disruption. Of course, we are monitoring the situation very closely and we don't expect any material impact on Q4 or on 2024 results. Our teams in Tel Aviv are operating remotely since the beginning of the war, and we have had a limited number of employees call for results. And now I'll hand over to Lindsay.