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spk09: in the second half of 2025. As a reminder, BrainTree is a medical grade skin and body brand that will address a range of issues including acne, eczema, hyperpigmentation, and other large consumer pain points. So to summarize, data, technology, and our Intel and new brand development machine are fueling and will continue to fuel our online growth and profitability. This is the core of Audity. Moving to science-backed products via Audity Labs. For years, it was my dream to use science to create better products for our consumers, to solve their pain points, and to carve out another source of competitive edge for us. For years, I was amazed by the lack of scientific innovation in our industry. It just didn't make sense to me, given the size of the industry and the progress in science and biotech in the last two decades. The acquisition of Prevail in 2023 gave us the foundation for building Audity Labs in Boston as our science-backed new product engine. As a reminder, at Audity Labs, we are using digital biology to discover, launch, and own the next generation of science-backed products that our consumer is so eager for. Last quarter, I spoke about the important steps we have been taking to build labs, to grow the teams, and to develop infrastructures and systems to ensure we are building a platform that works at high scale. As part of that, we are excited to announce that Dr. Ido Bachelet is joining us as the chief science officer to lead our science at Audity Labs. Bringing Ido on board is a great milestone for us. I spent time speaking with many scientists, and Ido was by far the strongest fit. He's a highly accomplished world-class scientist with deep experience building and scaling multiple high-impact biotech labs. He's super creative and shares our culture of disruption and building. After years in therapeutics, he decided that instead of developing another drug, he wants to join us in changing an entire industry through science. Dr. Evan Zao, the co-founder of Revela, has decided to depart Audity to pursue other interests. Evan is a very talented entrepreneur who builds Revela into a disruptive consumer biotech. Thanks to the acquisition of Revela, Audity now has the foundation to be at the forefront of science-based transformation in our industry, and we are grateful for that. I want to personally thank Evan and wish him the best in his future undertakings. As I've said before, Audity Labs is a new master we are building and a complicated one. Very similar to our early days building our technology backbone, it takes time and iterations to build something meaningful. Therefore, as I said before, we are not counting on growth coming from Audity Labs in the near term. We don't need it to achieve our financial target. We have ton of growth ahead from ill-makeup agents for each other alone, and even more growth on top of that coming from new brands in the pipeline. At Labs, we are literally building another large platform from scratch, but if we get it right, we can differentiate Audity even more from our competitors in the long run. It is hard and it takes time, but I fully believe in it, and I'm confident we'll make it. Looking ahead, as we told you last quarter, 2024 for us is essentially in the rear view. We have full confidence in achieving our financial targets, and we are once again raising our full outlook today. Our teams are now almost entirely focused on preparing 2025 and beyond, and we are feeling confident in our execution next year. First, because we are leaving growth on the table in 2024 and staying disciplined about pacing ourselves. This is something we have always done, so we deliver on our commitments, which we have achieved not just every quarter as a public company, but every quarter as a private company as well. Second is because of all the growth levels our team is preparing for next year. The teams are now head down with planning, testing, and iterating on winners on many fronts, new marketing campaigns, new products, new models, and new geographies. Based on what I see today, we are in a strong position for 2025. But before I hand it to Lindsay, I want to take a moment to reflect on our first year as a public company. We decided to take the company public because we wanted to build something huge. Because I felt then, as I do now, bullish on our ability to disrupt this enormous global market with our platform and create massive value for our shareholders. To be candid, it's not easy to be public company, but we have made a great accomplishment in this past year since our IPO. We are very proud of our financial results. We delivered on our promises to the shareholders. We beat revenue and profit and earn extra share every quarter since going public. At the same time, we didn't change the DNA for our company, a DNA of building, innovation, and investing behind big and hard rims. And this is something I'm very proud of. We have kept our hungry, outsider startup culture despite our growth. This is the most important thing for our future success. We've also began returning cash to our shareholders with buybacks. We believe our stock offers an incredible value and we'll use our strong balance sheet to take advantage of that. With that, I will turn it over to Lindsay.
spk03: Thanks, Aron. Let's turn to our Q2 results, which I'll refer to on an adjusted basis. You can find the full reconciliation to GAP in our press release. Audley delivered a record-breaking second quarter and first half across the board. We grew net revenue by 27% in the quarter to $193 million. The strength was driven by both ill-maquillage and spoiled child across a range of product categories. Net revenue growth was driven primarily by an increase in orders, while average order value increased 6% year over year. Average order value growth was driven both by an increase in items per order and positive mix shift to higher-priced products like skin, partially offset by a mix shift to repeat sales, which carry lower AOV. The proportion of our sales from repeat customers increased on a year over year basis this quarter and is on track to be a higher percentage of our sales in the full year 2024 as compared to 2023. Drilling into revenue composition for the quarter. 94% of our net revenue came from sales on our owned website directly to consumers. The remaining 6% of net revenue in the quarter came from sales in Israel and to marketing affiliates. As a reminder, we do not sell any products to Amazon, eBay or other third-party marketplaces, nor do we generate any direct revenue from products sold on these sites. Any product resold on those sites is unauthorized and done without our consent. Moving down the P&L, gross margin of .2% expanded 150 basis points year over year. The gross margin improvement was driven by specific supply chain and logistics efficiencies at both brands. We delivered adjusted EBITDA of $62 million in the quarter. Adjusted EBITDA margin of .3% expanded 470 basis points from the prior year, driven partly by gross margin expansion and a higher mix of repeat. 2Q EBITDA exceeded our original guidance of 53 to $56 million and that was driven in part by the timing of investments into new brands and out of the labs. The timing of these investments is delayed into the back half of the year. We delivered adjusted diluted earnings per share of 82 cents. Our adjusted EBITDA and EPS exclude approximately $7 million of share-based compensation. Our free cash conversion remains excellent. We've delivered $104 million of free cash flow year to date. This free cash generation is a clear reflection of the strength and quality of our business model. In June, our board authorized $150 million three-year buyback. We were purchased 250,000 shares for $10 million in the second quarter and have $140 million remaining in our authorization. We exited the quarter with $268 million of cash, equivalents and investments on our balance sheet and zero debt. Turning to our outlook, we're raising our 2024 full-year guidance based on the better than expected second quarter results and our high visibility to repeat sales for the remainder of the year. We now expect net revenue between $633 million and $640 million, representing 24 to 26% -over-year growth. We expect to deliver 71% growth margin for the full year and we expect to deliver adjusted EBITDA between $142 and $146 million, which includes a step up in growth investments for Audity Labs and our new brands. We expect full-year adjusted diluted earnings per share will be between $1.71 and $1.76. Turning to the third quarter outlook, we're off to an excellent start and are pleased with the composition of our growth across both brands and categories, as well as our cohort repeat rates. We expect -over-year net revenue growth in the quarter to be between 22 and 24%. You can find more details on our Q3 outlook in our press release. Lastly, I'll provide some early thoughts on 2025. We expect to deliver net revenue growth of 20% and adjusted EBITDA margin of 20%, consistent with our long-term algorithm. We plan to incur significant investments in brand three, brand four, and Audity Labs, and we do not expect to benefit from any material revenue contribution from these initiatives in 2025. On the topic of supply chain and tariffs, while the ultimate policy outcomes are still to be determined, we're confident in our ability to manage through with limited financial impact based on the proposals currently in discussion. Our growth margin is high, as is our pricing power, and our financial exposure to tariffs and duties is very small. As a reminder, we sourced the majority of our products from Europe, and we purchased some components and packaging out of Asia, including China. In 2023, total costs related to tariffs and duties, including from product sourced out of China, amounted to less than 1% of sales. With that, I'll turn it back to the operator for questions.
spk08: Thank you very much. And to our audience joining today at this time, if you would like to ask a question, simply press star and one on your telephone keypad. Pressing star and one will place your line into a queue and will take your questions one at a time. Also, we ask today that you please limit yourselves to a single question. A friendly reminder that if you're joining on a speakerphone today, please return to your handset to be certain that your signal does reach our equipment. That is star and one for questions, ladies and gentlemen. We'll hear first today from Dara Mosenian at Morgan Stanley.
spk05: Hey, good morning, guys. So the metrics you gave on the year over year performance were helpful. Can you also spend some time talking about where revenue upside came from in the quarter, both in terms of metrics, you know, repeat, average order size, et cetera, but also at the brand level in terms of spoiled child versus ill-mockage and how you think about the sequential pace of spoiled child going forward after a very successful launch over the last couple of years and how that brand is developing versus your expectations? Sure,
spk09: hi, Dara. Hi, guys. Again, as mentioned, very strong start to the year, both ill-mockage and spoiled child, both grew double digit, very strong according to the plan and across range of products and categories. Growth in revenue was also driven by skin penetrating massively in ill-mockage. We grew from nothing in Q1 and it's gonna be now like 25% in 2024. And just when I think about it, it's like $100 million, which is a lot for a brand that like two years ago, we had nothing in skin. The team did a very good job in penetration and like it was ton of job, but like in the end of the day, and we did perfectly. Increasing revenue was driven by more orders and higher IOV. It's a positive makeshift towards higher price products. And unlike most direct to consumer companies, we generated most of our revenue from repeat. And although we grew 28% in Q1, this is why the business is so profitable. And we continue to see the repeat percentage of revenue increase consistently. There is nothing more impactful and meaningful to the business strength than this. We entered to the second quarter with great momentum from the first quarter. And we began reducing our position spending in order to slow growth down, to lend closer to our algorithm of 20% growth. And as a result, our repeat business was the majority of our revenue in this quarter. And that's why the profitability is so huge, 32% of adjusted EB margin. We have shown once again that we can power the business and we have full control. This is a huge advantage for us. And in terms of efficiency, we spend in the first half more than double than what we spent two years ago in terms of spending, media and efficiencies even stronger now. So the business is in full control.
spk08: Our next question will come from Yusuf Squali at Truist Securities.
spk04: I believe we may
spk08: have lost Mr. Squali. I invite you to re-signal sir. Next we'll hear from Andrew Boone at JMP Securities.
spk04: We may have lost that line as well.
spk08: Again, I do invite you to re-signal with star and one. Will try to go to Lauren Lieberman at Barclays. Are you able to speak? Your line is open. I mean,
spk02: can you hear me?
spk08: Yes. Yes, we can.
spk02: Hi, Lauren. Okay, cool. Exciting, hi. My phone works. Cool, so I'm gonna loop two questions into one. So first, Aram, I thought it was helpful the sort of discussion you shared on labs and the time it takes to build what you're hoping to. But I was curious as we think about new product launches inclusive of brand three and four for next year, whether there are sort of unique and discrete molecules that will be included in those. I think my recollection is that was the hope that labs would be contributing in 2025 to some of the new products you'd be bringing to market. So I wanted to just get a status check on that. And then the second piece was the step up in SG&A spending in the second half. And I know you guys have a habit of investing ahead and planning ahead for growth. But given the brands three and four aren't launching into the second half of 25, it seems like a lot of spending closer in. So I was curious if that's where it's directed or if it's more towards continuing to scale labs. Thanks.
spk09: Yeah, hi, Lauren. Look, in terms of labs, as I mentioned, we are working a lot on building the platform there properly. And when we discussed last quarter, I said that we are going to see the majority, like the first fruit from labs in brand three and brand four. It's still the plan. We will have a few launches before that that will go into spoil child in makeup. But overall, in the next year or two, it's mainly expenses and we are doing it. We are happy to do it. We believe that like we are in the beginning of massive transformation where brand is not enough, when people will ask for more than that. And we believe that science is the future of the industry. And we see it as a race and therefore we are investing a lot in building this capability. I believe that ODT has the ability to do something that no one has can because of our ability to build something from scratch. And we are building another platform. If I wanted, I could already have product in the market from labs, but first of all, I don't need because we are growing more than what I want without it. And second, because I want to build something that we can be proud of and the products are not best in class, are way more than that comparing to the competitors. So hope it answers your question. So yes, brand three and brand four. And in addition to that, we will see some products within InMaterial and Spoiled Child in the next six to 12 months.
spk03: Lindsay? I'll take the SG&A piece of that. So as you know, we started the year off with very ambitious investment and spending plans across 2024 in support of all of our initiatives in 2025, including the two new brands plus ODDV Labs. As the year progressed, the timing of some of that spending got pushed. We have delivered upside, of course, to our numbers. And you saw that in the fact that our full year guidance, we've continued to raise. But to the degree we've had really remarkable profitability in the first half of the year, we didn't expect to be as profitable in the first half just because of the spending, but you get a sense of how profitable the underlying business is, even though with what we delivered in the first half of 2024, we still, you know, we're still with some additional growth spending layered on. So if we were to pull all of that investment off, you have an even more profitable business. And that's a function of, as Aron said, just how incredible the repeat is. We also continue to be very efficient on our acquisition spend, which as you know, the first half of the year, that's where the bulk of our acquisition activity happens. So you're seeing right now this kind of perfect flywheel of a C2C model that is super profitable because of strong repeat and continues to acquire in a very efficient way and is then able to redeploy that excess return into future investments, which we believe will drive us for many years in the future. The types of expenses, I'd say it's a bunch of things. Product development, you know, brand development, people, and we have a whole lot going on, and we've front-loaded those costs as much as possible. We'll have more, of course, in 2025, and that underpins the preliminary guidance that we gave you on 2025 today.
spk08: And now we will go to Youssef Squalley at Truist Securities.
spk06: All right, can you guys hear me?
spk09: Yes, how you doing?
spk06: Oh, excellent, thank you, beautiful. Thanks a lot, sorry about that, I don't know what happened. So two questions. Maybe, can you just unpack a little more the investments that you guys have in store for brand number three, brand number four versus brand, versus the investment in Reality Labs? It seems that you guys are looking at the two somewhat differently. Reality Labs is more of a long-term kind of investment with an ROI that's still not very clear to us, although it seems to be very clear to you, that number three investment in brand number three and then brand number four seem to be kind of more specific. So anything you can, any kind of clarity you can shed on that would be really helpful. And then maybe as somewhat of a related question, Oron, maybe talk a little bit about the change in leadership at Labs, any change in direction, any impacts on maybe the cadence of output of either products or molecules, however you want to define it out of that, you know, Labs now that you have new kind of leadership there, thank you.
spk09: Sure, thanks, so I'll start with the second question then I'll move to the first one. There is no change because I'm still here, fortunately or unfortunately. Like the piece we are trying to solve here, we are building a platform and it's a combination between building something new and blitz scaling because I believe again, as I mentioned before, that we are in a race to get it right. I believe that the rest of the industry will go there and we need to move fast. And this is part of the reason for the change. I want to hire more, I want to build more, I want to have more oversight. I've done it before with the tech team and I want to do the same in science in Boston. And therefore, we are making some changes there in leadership in terms of direction, same direction. I'm very involved, my sister is involved. And now we are going to bring more people that are sharing our philosophy of how to move faster toward this direction. And I think that Ido is the best candidate for that. I met so many people and I think that his creativity and his ability to go from zero to one is something that we need there and it fits perfectly to our view. The same as I said on the calls before, we are building, we are doing both, hiring a lot, but at the same time, oversight and structure and protocols to make sure that we are not just spending money, to make sure that we are building something that is sustainable for long term. To your first question, the difference between building breadth and building labs. So building labs is more like building a platform, more like building the technology team in Israel. It takes time, it takes iterations. We are spending a lot on learning and it's a long term game. By the way, when I say long term, I'm referring to 10 years from now. Some products I believe that are going to be ready for brand three and brand four and going to be great, but we are building something that is with way more power to serve more than just two brands or two products or five products. We are building a platform there. So it requires way more in terms of focus and investment. And thank God I'm in a position that, you know, you saw my adjusted EBITDA margin. I don't want to be in 32% EBITDA margin. I don't think it's like what we need as a company. And my commitment is to continue to invest, to build something meaningful and while using our strong profitability. The difference between that and brand three and brand four. Brand three and brand four we've done before. We built in Mackey, we built spoiled child. We know how to do it. It's more labor, it's more planning and strategy and branding and NPD we've done before. The main difference between brand three and brand four with brand three again, we are building more than just a brand. We are building a telehealth platform and we start with medical grade skin and body issues like acne, eczema and eye pop limitation. It's a huge pain point and impacts messy part of our users. The reason that we do it, that we saw that the satisfaction with current solution is terrible, either inconvenient visits to doctor's office or picking ineffective treatments and drug stores. And that's a huge opportunity for us developing line of OTC and RX products that cover multiple face and body as a start. Then building first of the kind mobile app is something that we know how to do. The vision technology is core. We are building it for the past two years and I think that's going to differentiate us and almost like make or break. And based on the numbers that I saw from our vision models lately, it's make, not break. And number three, leveraging the platform and the users that we have to serve and to drive revenue very efficiently. And again, we've done it before, so different types of expenses and investments.
spk08: Andrew Boone at JMP Securities, please go ahead with your question. Your line is open.
spk07: Thanks so much for taking my question. Ron, you said earlier that media spend had doubled in the first half of this year versus two years ago. Revenue is up more than that. Can you just talk about the efficiencies that you guys are being able to generate on media spend and the confidence that continues? What has worked, what hasn't worked and were you guys finding pockets of strength? And then Lindsay, as I think about the formulation for revenue growth this quarter, I think you said AOV was up 6%. That kind of implies that orders are right at that 20% level. Is that the right framework that we should think about growth going forward? Is that, hey, maybe AOV is mid-single digits and order growth is kind of 20% and you guys are solving for that 20? Or is there any way that we should think about the breakdown of kind of P times Q equals R? Thanks so much.
spk09: Hey, Andrew, thanks for the question. Although all the noises out the acquisition environment is still favorable for us and you can see it like with our strong margins, if I spend more, I wouldn't bring 32% of the margin and 27% on H1. ROAS did improve versus last year and we spent in H1-24 almost double amount on media than what we spend in H1-2022 while keeping our overall market efficiency ROAS. This is unusual and shows the efficiency of our platform. We are bullish about our media efficiency. Q2-24 was our highest scale of Q2 ever and despite that, we were able to achieve the highest EBITDA margin, as I mentioned before. But remember that we have very different approach from other companies which makes it easier for us. We are not acquiring customers, we are acquiring users and over time, converging them and that, it helps us a lot and delivering those results. Lindsay? Hey,
spk03: Andrew, it's Lindsay. So as far as the revenue composition goes, this quarter you're right, AOV was up around 6%. Most of our revenue growth was driven by orders. Return rate was a little bit better on a year over year basis as well. We don't plan our business for AOV versus order and so it's not possible for me to give you kind of the equation going forward. We focus really on revenue versus our acquisition dollars. It's really more of a ROAS metric. There are different factors that can affect our AOV and as a result, we're really not solving for it. So for example, the types of new products or the types of products overall which may have lower price points but make sense from a contribution margin perspective. For example, they might have better repeat. Repeat itself is a lower AOV category for us. So that can be a drag overall. But what we have seen over the last few years is that we're seeing higher AOV in both first order and repeat and it's been in a large part of function of people just adding more items to their basket, more items to their order and we're able to do that. Number one, just as our models get better at recommending, doing a better job in things like upsells and bundles but also because we have a broader product portfolio now today, there's more things for her to find and we know how to show them to her and to drive that conversion. So that's been a really important driver on both first order and repeat. And then of course, the positive mix of skin is also a nice driver but we're not committed to continuous improvement on AOV as an ongoing driver of revenue. It's just not how we run the business.
spk04: So. Thank
spk08: you. We'll hear a question now from Mark Mahaney at Evercore. Your line is open sir.
spk01: Thanks, two questions please. You just talk about what are the biggest governors or factors that determine the launch times for brands three and four? Is it product readiness? Is it go to market plan readiness? What determines for you why they're launched in the second half of 25 versus the first half of 25? And in just your current business, could you talk about are there any regions, in geographical regions of strength or weakness and embed in that question, any signs of consumer discretionary spend softness? Thank you very much.
spk09: Sure, so I will take the first question and Lindsay you can talk about the second one. Look in terms of brand three and brand four, first of all of course, the teams are building those brands. It takes time, especially brand three. It's product development, it's the app, it's vision technology. It's so many things that we need to build in or to be ready and therefore we committed to H2 and not to H1. That was the plan from the get go, we didn't change it. But as I mentioned multiple times, even if I had now brand three or four ready, I wouldn't launch it because I don't need the growth. We are committed to our model, we want to build the business at the right pace. 20% growth is already like three weeks than my incumbent and there is no reason to go faster than that. We want to make sure that our customers are happy that we are doing things properly. So now the plan, we will be ready for both brands in H2 next year and we will launch it when we think it's the right moment.
spk04: Mark, can you repeat that second question?
spk08: With apologies ma'am, he's been returned to the conference. Mr. Rahaney, would you please re-queue, sir?
spk03: Oh Ron, did you catch it? I didn't hear it.
spk09: Yeah, I think it was asking regarding weakness in specific geographies or in general in the US.
spk03: Okay,
spk09: great and Mark if you... Any softness that we see in our platform.
spk03: Sorry Mark, if you want to queue back and re-ask again, but I'll answer that question. Mr.
spk08: Mahaney, I apologize, your line is open,
spk01: sir. No, Ron, you got my question right. Any regions of strength or weakness to call out and any signs of consumer softness, thank you.
spk03: We're not seeing it. I know a lot of other of our competitors in the category and of course other pockets of consumers are seeing this kind of weakness, but we simply are not. In fact, we're seeing a lot of broad-based strength in both of our brands and different product categories. So Ron talked about the strength in skin, which again is a higher price point item, but also our color business continues to be very strong for Ill-Mackiaz and Spoiled Child is growing very, very well. We also, we have a very broad demographic. So we have an older customer and a younger customer and we have a suburban customer and a city customer and we're really geographically across the US very, very well represented. I think we're the wrong place to hunt candidly just because we're so small in a very, very large market and we're an idiosyncratic growth story as we're gaining a whole lot of market share because we're operating in a wide open channel, which is we think the most important channel for the consumer for the future. So no, we haven't seen any evidence, any indication of it at this time.
spk08: And that was the final question from our audience today. Mr. Holtzman, I'm happy to turn it back to you sir for any additional or closing remarks.
spk09: No, thank you very much guys for joining us and see you next quarter. Have a good day.
spk08: Ladies and gentlemen, this does conclude today's teleconference and we thank you all for your participation. You may now disconnect your lines.
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