ODDITY Tech Ltd.

Good morning and welcome to Audity's first quarter 2025 earnings conference call. Today's call is being recorded and we have allocated time for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Maria Lycoris, Investor Relations for Audity. Thank you. You may begin.

Thank you, Operator. I'm joined by Ron Holtzman, Audity's co-founder and CEO, and Lindsay Druckerman, Audity's global CFO. Hello. Niv Price, Audity'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 Audity's business strategy, market opportunity, future financial performance, and potential 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 yesterday and in our most recent annual report on Form 20-F, filed with the Securities and Exchange Commission on February 25, 2025. 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 definitions, are included in our earnings press release, which we issued yesterday. I'll now hand the call over to Iran.

Thanks, everyone, for joining our call today. Our Q1 results exceeded our expectations across all metrics and allow us to raise our full-year outlook. Once again, in Q125, we beat revenue and EBITDA like we did every single quarter since going public eight quarters in a row. Revenue grew 27% to $268 million, with $52 million of adjusted EBITDA representing a 19.5% of adjusted EBITDA margin and free cash flow of $87 million. Q1 is our biggest quarter of the year in terms of new user acquisition, an important quarter to set the stage for the rest of the year, and we've proved we can deliver also in the current environment. Exiting Q1, business momentum continued across April and gives us confidence in delivering a strong Q2. The beauty industry is transforming, just like we said it would more than five years ago. And ODT is a winner in this transformation. We have positioned our business to play and lead in the most important vectors of the industry's growth. Number one is the consumer shift to online, where we're already a dominant D2C platform. And number two is the shift towards high-efficacy products where we are accelerating our capabilities at Audity Labs while continuing to invest in all areas of product development. I have no doubt that these two vectors are by far the most important drivers of the future of the industry. Therefore, we continue to invest massively in technology, data-driven user customization, and science-backed products. Our goal is to build one of the biggest beauty companies in the world, Full Stop. We intend to do it by delivering consumers the best product based on what they need, when they need it, while doing all of this at high scale. Thanks to the fact that beauty and health are major industries, there are so many areas for us to expand our business into, and we are planning to continue doing so with full power. Our Q1 results were another step in achieving this goal. We delivered outstanding financials, once again beating our guidance in revenue and profitability. We hear other companies talking about consumer weakness and difficult environment, but as you can see today, we continue to grow fast. Audity will do approximately $800 million in revenue in 2025, growing from around $300 million in 2022 and around $500 million in 2023. All those years with very healthy profitability and cash generation. The first quarter is the biggest revenue quarter for us in the year and was the highest base for 2024 to grow from. It's where we turn our user acquisition muscle on, adding new users to our platform. We entered 2025 with a lot of strength, with preparation work from 2024 that gave us confidence in our ability to meet our goals. This allowed us to deliver a massive acceleration to our business and Q1 sales that were once again more than double the sales we delivered in Q4 as planned. We have full control of our business and we proved it once again in Q1. The advantages of our D2C model are on full display in the current environment. While brick-and-mortar brands navigate weak store performance against volatile demand, our business is benefiting from a powerful shift online, a highly agile and asset-like model with full visibility and inventory control. Turning to our 2025 strategic priorities and outlook. First, continue to drive existing brands. starting with Il Makiage, which remains on track to meet our $1 billion revenue goal by 2028. Il Makiage Skin continues to be a standout success, and it's on track to approach 40% of the brand revenue this year. Skin is a huge goal driver with multiple attractive product categories with big thumbs, IAOVs, and great replenishment cycles for Il Makiage to expand in. As we discussed in our Q4 call, we decided back in 2024 to accelerate our international expansion in 2025. We are putting more strategic focus on international, growing our business in existing markets while continuing to conduct tests in new markets. We are very pleased with the results of Q1 and plan to continue our international scaling. We remain bullish about our international business, which shows greater in economics. Just to put in perspective, for our largest competitors, less than 30% of their business is in the U.S. For us, the U.S. is currently around 80%. This ability to get scale internationally is a massive engine for Auditly. If in the past we said this is a great option for us to grow, in Q1 we have started to prove it. Products, new categories, new brands, new markets, new users versus existing users, all of those muscles are, as I call it, growth drivers on demand. We optimize all of them to preserve our high profitability. At every moment, we decide where it makes more sense to scale, which makes the business so strong and profitable, enabling us to continue to deliver the skills combination of scale, growth, and profitability. Foil Child, our second baby, continues its strong growth in its third year since launch. It remains in its early stages, and we believe it has a huge runway in front of it. It is on track to cross the $200 million revenue mark this year, with very healthy margins, again, for a three-year-old brand. Our teams have been focused on optimization of unit economics while we drive scale. We continued our brand investment in Q1 with a second drop of spoiled child's collaboration with fashion designer Jeremy Scott. Second is our new brand launches. We are very bullish on the opportunity for both brand three and four. In addition to growth, building new brands allow us to maintain a startup DNA, which is extremely crucial in my view. Brandtree is on schedule to soft launch in Q3 with formal launch in Q4. As with every muscle we build, I want to believe we are getting better with time. And for Brandtree, I can tell you that based on the level of complexity, both technology and product offering, our preparation and our testing, I am more excited than ever before to see it live. And we'll do whatever it takes to win Brandtree's categories. As a reminder, Brandtree is a telehealth platform starting with medical-grade skin and body issues that will expand into new medical domains over time. Almost a third of the global population experience skin conditions and diseases, including acne, eczema, rosacea, and others. Additionally, many individuals report that their skin conditions significantly affect their emotional well-being, which made this mission even more important to Audity as a company. We see it also in our user base. Skin and body concerns are a broad pain point for our users. Around half of them are suffering from at least one of these issues. Similar to ill-makeup and spoiled child, Brandtree is fully D2C. Our product offering is very compelling in our view. It includes access to prescription and OTC treatments, enabling full personalization to user profiles, types, and severities. Computer vision is a key component of REN3. Our Israeli R&D teams are working on developing it for the past three, four years with very large investment. One example is our acne grading algorithms trained with dermatologist input that delivers 94% agreement with expert dermatologists tagging in internal validation studies. Another is our acne lesion localization and classification models that allow us to identify, map, measure, and classify lesions with 93% recall, meaning the model correctly identifies 93% of true acne lesions. We've also developed a hyperpigmentation detection model that segments and classifies discoloration with 84% matching accuracy based on dermatologist-labeled data. We have introduced a predictive view algorithm trained on user data and powered by GenAI to visualize expected skin improvements, boosting motivation and trust through personalization progress previews. Our vision tools are crucial to win this category. It allows us to assess user progress on a high-frequency basis, supporting their progress when used combined with a professional medical evaluation. We believe that we have the ability to change this category with our new offering. As for telehealth infrastructure, the infrastructure we are building to support prescription and compounding for brand 3 today is a jumping-off point for us to expand into additional medical domains beyond skin and body post-launch. Brand4 continues to be on track for 2026, a big opportunity for us with more updates to come. Third is Audity Labs, where we continue to increase our investment, growing our team, expanding our internal R&D, as well as outside partnerships to accelerate discovery at high scale. Our mission at Labs is to drive massive innovation by bringing real science at high scale to our industry and turbocharging distribution through Audity's online platform. Our scientists and teams are actively developing both short- and long-term innovation in skin, color, hair, and body to beat the efficacy of existing products in those spaces. We are developing proprietary molecules for both brands 3 and 4 in the short term, while also working on longer-term developments with huge market potential. As we said before, lab takes time, and we don't need it to meet our financial targets. But if we do it right, it's a complete game changer for us that can take the company to a different level and almost unlimited size. I believe we are in a race for high-efficacy science-backed products, and we do all we can to win this race. Lastly is our tech capabilities, where we continue to invest in order to deliver the best experience for our customers online and to enable profitability at high scale. We are deploying both dollars and focus on developing new tech products and improving existing ones to provide meaningful improvement in our business. We have a very focused roadmap, and we work at high pace to meet our goals. Before I hand it over to Lindsay, I want to close with some thoughts about the current environment. We see this moment as a massive opportunity for auditing. Our DNA and business model allow us to play full offense in times like today, and this is exactly what we do. We operate in a huge and attractive global town, which has proven time and time again to be resilient in economic downturns. The structural changes in the industry, including the growth of online, are only strengthening auditing. And as you can see in our Q1 results and Q2 outlook, our business performance remains very strong. From where we stand today, our advantage can only grow in times like this. Moments like this are when category leaders are built, and this is our intention. With that, I will turn it over to Lindsay.