Olaplex Holdings, Inc.

Greetings and welcome to the Olaplex Holdings first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patrick Flaherty, Vice President of Investor Relations. Thank you, Patrick. You may begin.

Thank you and good morning. Joining me today are Dewey Wong, President and Chief Executive Officer, and Eric Tiziani, Chief Financial Officer. Before we start, I'd like to remind you that management will make certain statements today which are forward-looking, including statements about the outlook of Olaplex's business and other matters referencing the company's earnings release issued today. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in or implied by such statements. Additional information regarding these factors appears under the heading Cautionary Note Regarding Forward-Looking Statements in the company's earnings release and in the filings the company makes with the Securities and Exchange Commission that are available at www.sec.gov and on the Investor Relations section of the company's website at ir.oilplex.com. The forward-looking statements on this call speak only of the original date of this call and we undertake no obligation to update or revise any of these statements. Also during this call, management will discuss certain non-GAAP financial measures, which management believes can be useful in evaluating the company's performance. The presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in the company's earnings release. A live broadcast of this call is also available on the investor relations section of the company's website at ir.olplex.com. Additionally, during this call, management will refer to certain data points, estimates, and forecasts that are based on industry publications or other publicly available information, as well as our internal sources. The company has not independently verified the accuracy or completeness of the data contained in these industry publications and other publicly available information. Furthermore, this information involves assumptions and limitations, and you are cautioned not to give undue weight to these estimates. With that, I will turn the call over to Jiuyi Wang.

Thank you, Patrick, and good morning, everyone. Thank you for joining us today. This morning, we announced results for the first quarter of 2023 that were ahead of our expectations. And while we made progress, we know we have work to do to return the business to stronger growth. As discussed on our last earnings call, we view 2023 as a reset year during which we are taking actions intended to build a stronger and more resilient solar plant. As I will explain in more detail shortly, during the quarter, we make progress on our priorities for the year, and we believe that we are implementing the appropriate actions for resetting the business. Yet, we also recognize that there is still important work ahead of us. Shifting market dynamics and macro uncertainties continue to reduce our visibility, and we remain in the early stages of this plan, achieving its intended results. That being said, we believe the fundamental strengths of our business and the category remain, and our confidence in our patent-protected technology and the long-term potential for Olaplex are unchanged. Turning to a brief overview of the first quarter, net sales of $113.8 million was slightly better than our guidance. As we previously communicated, our sales decline reflected a lower baseline level of consumer demand, the continued negative impact of customer inventory rebalancing efforts from certain pro and specialty retail customers, and a difficult comparison as we left the sell-in of the successful launch into Alter Beauty a year ago. Overall, all three channels were essentially in line with our outlook. Lower sales coupled with our strategic decision to spend in support of our future growth with important investments in sales and marketing, R&D and workforce and expansion, led to adjusted EBITDA of approximately $50 million in the first quarter for an adjusted EBITDA margin of 44%. Notably, we believe the Olaplex brand remains healthy with consumers and stylists alike, as our third-party external brand tracker showed consistently robust metrics through March. According to respondents of the survey, We continue to lead in premium hair care equity attributes, ranking number one or tied for number one in nine of the top 10, 15 equity statements, while metrics on overall sentiment and trust in the Olaplex brand remained strong. Similarly, as evidence that our brand and technology differentiators continue to resonate with our communities, Our product introductions launched during the first quarter are off to a strong start. In late January, we launched No. 4D Clean Volume Detox Dry Shampoo on oloplex.com, in our Pro channel, and with Sephora. 4D detoxifies the scalp without clogging pores and neutralizes odor-causing pollutants without a trace of white residues. 4D is performing well and has quickly become the number one dry shampoo at Sephora and launches with our other specialty retail and DTC partners in early May. In late March, we entered our first hair care adjacency with the launch of Lash Bond, an eyelash and tensing serum universally formulated to promote the appearance of thicker, longer, stronger, full-volume lashes. Formulated with a next-generation Olaplex peptide complex, LashBond is prostaglandin-free and ophthalmologist-tested. LashBond is our first product to launch simultaneously across channels, and the launch is off to a strong start, with notable performance at Sephora in the U.S., as well as Space NK in the U.K., where Lash Bond has already become a top 10 beauty skill for the retailer. Before I discuss the progress made so far on our priorities, I think it's important to revisit why we are pursuing a reset year and the benefits we expect from the activities and initiatives we are implementing. Following several years of significant growth, we are pursuing this reset as we recognize the need to invest and expand our marketing and educational outreach and ensure we have the necessary tactics, talent, and platform to realize the significant opportunity we see ahead for the Olaplex brand. Ultimately, we expect the benefits will be multifaceted and realized across the organization. At the heart of it all, we think our actions will enable continued growth in brand awareness and identity, and ensure stylists and consumers are properly educated on the superior benefits of our technology. From an operations perspective, we expect the year will see us evolve our capabilities to enhance our agility, recalibrate and right-size our inventory levels, and continue executing against our new product development pipeline. And importantly, we will continue to invest in our people, further building out our team and enhancing our culture. On our last earnings call, we introduced the priorities for our reset year that we believe will position us on a more solid footing. They include accelerating investments in sales and marketing, increasing and evolving our educational assets, reasserting our position with our pro and retail partners, and improving our approach to PR. Let me now walk you through the progress we made on this initiative during the first quarter. Starting with sales and marketing. We continue to expect marketing inclusive of sampling and sales and marketing payroll to increase to $17 million in 2023 from $40 million in 2022. During the first quarter, we spent approximately $17 million. We are implementing a full funnel marketing approach this year with an increase of marketing investment in strategies to generate awareness and support brand health and brand love. We have also allocated investments and deployed resources to convert customers to our brand. To that end, we are launching a new full funnel creative campaign intended to not only amplify our scientific authority and feature the transformative results from using our outstanding products, but also highlight emotional connections with our professional and consumer communities. The campaign kicks off later this month and includes digital, social, and out-of-home activations. We intend to measure the impact of this program as we go in order to optimize mix and spending as we progress through the year. We also continue to execute an enhanced sampling program designed to expand trial, whereby we expect to deliver roughly 10 million samples in 2023. Strategic programs this year include distributing samples via olaplex.com, sampling in Sephora's buy online, pick up in store offering, and providing a number three sample with any olaplex service at Ulta Beauty Salons. Additionally, we intend to implement sampling programs with international partners, including Sephora Europe and Douglas. making our first foray into sampling internationally. We are still in the early stages with this enhanced program, but remain confident in our ability to acquire new users to the brand given how successful sampling has been with conversion in the past. As it relates to education, our refreshed educational assets behind the core of our assortment with a focus around number three are now being deployed and we are pleased with the early feedback on the campaign. As a reminder, the goal of this work is to better educate stylists and consumers about how to use our core products, reinforce the benefits of our products with versatile usage and tips, and introduce new claims and testimonials about the superiority of the results we deliver. Work is also underway to evolve and revamp our core educational curriculum for use across all channels and enhance the education content on our pro website and app. From a leadership perspective, we are excited to announce that John Maroney has joined us as our new Vice President of Global Education and Customer Experience. With over 35 years of experience in the professional stylist industry, John is highly regarded in the stylist community with deep expertise in beauty education, having served in various education roles with Aveda, Sebastian, Vela, and Kyle Salon. Turning to our effort to reassert our standing with our professional and specialty retail partners. For our pro business, we continue to build our team in order to increase our frequency of contact with distributors, their sales teams, and salons. We have accelerated planning with key distributors, creating joint business plans that include new initiatives and programs, and working together to identify and pursue new business development opportunities, and to enhance our partnership with prestige and opinion-leading salons. We have continued to enter new and nurtured existing partnerships through our dedicated program, collaborating on digital and social content, as well as high-profile events such as New York Fashion Week. Within specialty retail, we rolled out a third-party sales sales and education team trained by Olaplex into approximately 400 Sephora and Ulta Beauty retail stores to directly engage with consumers and educate in-store beauty advisors. We are pleased with the program so far, which has shown a meaningful uplift in sales in participating doors and demonstrates the importance and influence Olaplex can have in driving in-person education. Internationally, we are happy with our continued expansion. We recently anniversaried our full fleet rollout with Sephora Europe and have partnered with the team to develop strategic marketing and education campaigns to drive further penetration with shoppers. With Douglas, a specialty retailer in Europe, we are rolling out into approximately 280 additional doors across Germany and the Netherlands. and we have partnered with DoFree to launch our travel retail presence in 12 UK airports and expect to launch in additional countries over time. Our fourth priority this year is building out our PR capabilities. By leveraging our social channels, we have been proactively distributing content focused on correcting misinformation about Olaplex in the market. We launched a section on our website entitled Hair Health, which acts as a hub and a resource for consumers and stylists to access accurate information about the science behind our products, our ingredients, and tips for usage. Similarly, we are creating educational toolkits for our pro and specialty retail channels to supply their employees with the necessary information and details to respond to and correct misperceptions about our brand. And lastly, we are engaging a group of leaders in dermatology to form the Olaplex Scientific Advisory Board, comprised of medical and scientific experts. The Olaplex Scientific Advisory Board, in partnership with our own internal team members will help Olaplex accomplish our mission of improving hair health through products and education for all of our customers. Underpinning our efforts this year is our continued focus on building upon our strong corporate culture with highly talented and passionate team members. To that end, we are excited to announce two new additions to our senior leadership team. John Kapler has been appointed Chief Revenue Officer, leading and overseeing the sales organizations across all three of our channels. Prior to joining Olaplex, John served as the Head of U.S. and Global Sales at several consumer product companies across multiple categories. After several sales roles at the Pillsbury Company, John was the Head of Global Sales for nine years at the consumer healthcare products company, CNS. In addition, Nabanita Choudhury has joined us as Senior Vice President, Global DTC. Nabanita has over 15 years of experience in e-commerce, digital marketing, and loyalty, most recently serving as the head of e-commerce at Nestle and Espresso USA. As I have shared our path forward for this year, it's important to restate our focus on our core mission of making people feel more confident with healthier, more beautiful hair. With our science-based technology and our patented disamino ingredient, we are uniquely positioned to improve the hair health of millions of consumers around the world. We are powered by the trust and passion we have built with communities around us. The professional stylist community has been the foundation of our brand and continues to be our biggest advocates. We are committed to the professional stylist community, supporting them with education and the tools to enable them to grow their business and deepen connections with the clients. In conclusion, although we had a challenging start to the year, our first quarter performance was in line with our expectations and we made progress on the priorities we laid out for our reset year. Encouragingly, Olaplex remains the category leader with proven patented technology, one-of-a-kind engagement with stylists and consumers, and an innovation platform poised to continue disrupting the industry. We are confident that the actions we are taking this year will allow Olaplex to resume consistent and sustained sales growth at continued top-tier profitability in the future. I will now turn the call over to Eric to cover our first quarter results in more detail and provide additional information on our outlook for 2023. Eric?