Olaplex Holdings, Inc.

Greetings and welcome to the Olaplex Holdings Second Quarter 2024 Earnings Results 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 is Amanda Baldwin, Chief Executive 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 referenced in 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 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.oaplex.com. The forward-looking statements on this call only as 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 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.olaplex.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 or other publicly available information. Furthermore, this information about assumptions and limitations and your cautions not to give undue weight to the estimate. With that, I will now turn the call over to Amanda.

Thank you, Patrick. Good morning, everyone, and thank you for joining us. Today, we reported second quarter results in line with our expectations and reiterated our full-year outlook as we achieved continued progress on our transformation plan. As shared on recent earnings calls, we are on a journey to build a world-class brand and a business that is well-positioned for long-term success. We are investing in and prioritizing the brand and product innovation strategies that are designed to deliver sustainable, consistent growth while also taking actions to align our global distribution and infrastructure with the goals we have for this business. All this work is supported by the strong foundation of Olaplex, truly differentiated science that delivers superior results, a powerful R&D platform that drives impactful innovation, a passionate community of stylists and consumers who love our products, a unique global footprint with proven performance across geographies and channels, and a talented team that is eager and prepared to execute on our mission to improve the hair health of millions of consumers around the world. While we know that this journey will take some time and that the path to creating a global and enduring brand is not always linear, we remain on track with the expectations we've set, delivering on our goals for the first half of the year. and now shifting our focus in the back half of 2024 to executing on our product launches and key holiday period, along with continued planning for 2025 and beyond. We recognize that there is more work ahead to bring Olaplex to its true potential, but I am incredibly proud of how our team has come together, confident in the direction we are taking, and enthusiastic about what the future can be. Turning to the highlights for the second quarter, Net sales were 103.9 million, representing sequential improvement from Q1. Encouragingly, the aggregated sell-through trend at our key accounts at an absolute dollar basis in Q2 was largely consistent with the sell-through trend that we experienced in Q1, demonstrating continued progress towards stabilization in the business. Adjusted EBITDA was 32 million, reflecting incremental investment in trade and marketing spend as we began to introduce new marketing activation, yielding top-tier industry profitability for an adjusted EBITDA margin of 30.8%. Importantly, we believe we are retaining our strong standing in the industry throughout this transformation. According to our external brand tracker, during the quarter, Olaplex continued to rank number one or number two for 17 of the top 18 premium hair care equities among prestige hair care consumers. including ranking number one in brand I'm excited to talk about and makes hair healthier, and with notable strength in I trust Olaplex to do what is right. We remain a category leader as we consistently rank as a top brand in the key accounts across our three distribution channels and continue to be among the most followed prestige hair care brands on social media with 2.5 million Instagram followers. In addition, Olaplex had four of the five best-selling prestige hair products in the first half of 2024, per Cercana's retail tracking data of the US hair market. As we build upon our strong foundation, our three key initiatives for this year have been, first, maximizing the impact of our sales, marketing, and education investments to generate demand. Second, strengthening our capabilities and culture to support the future. And third, developing the long-term roadmap and future vision for Olaplex. I'll now walk you through the progress we have made on these priorities during the second quarter. Beginning with our efforts to maximize the impact of our sales, marketing, and education investments to generate demand, we're focused on evolving critical capabilities and supporting improved marketing execution to drive sell-through. After slowing certain of our sales and marketing initiatives in the first quarter, In order to carefully assess our strategy, adjust creative assets, and plan for the rest of the year, we invested more heavily behind the brand during the second quarter. We increased our investment in non- payroll-related marketing and advertising expenses by approximately 33% quarter over quarter to $16 million in Q2, bringing the year-to-date total to approximately $28 million. With this renewed strategy, we're focused on building a stronger go-to-market engine which includes elevated content creation and a creator-led approach, focused investments on our core products, deeper coordination with our stylists and retail partners, and more efficient ROI-driven media spend. This is just the beginning of our marketing evolution, and we have already seen some early wins with this approach. First, there's been an increase in our talent and influencer community social posts by nearly 20% year-to-date compared to the same period in 2023. driving a 30% increase in engagement rate since the same period last year. Next, we have grown our pro-influencer community by close to 10% this year through improved engagement and outreach strategies, leading to noteworthy lift in pro-social impressions. And thirdly, our enhanced marketing efforts have resulted in new full-funnel content creation processes, higher-quality creative content, and improved brand consistency and visual identity across channels in the U.S. We will continue to develop this brand vision and our marketing abilities and translate them across the globe as we build a brand for the long run. A critical pillar within our first priority is returning to our stylist roots and recreating meaningful connections with the pros. One of the key opportunities I saw when joining Olaplex was to rebuild our strong connection with the pro community, which has been at the center of our brand since our inception. Professional stylists hold a special relationship to consumers and are strong sources of education and inspiration, so they are priority audience and partner for us. We've been amplifying our supportive pros this year because they are the heart of Olaplex, from expanding coverage of our internal field sales team to launching new educational tools, increasing our participation in virtual and in-person events, and developing our new Bond Shaper Curl Rebuilding Treatment. In honor of our 10th anniversary as a brand, we dedicated the entire month of June to celebrating the stylist community and all that they do for us, their customers, and the industry overall. These pro-focused activations included the introduction of a new content series for our social channels that highlighted stories about the unique human connections that Olaplex stylists form with their clients. We hosted events in key global markets, which I personally attended, inviting hair professionals, brand ambassadors, and other local members of the beauty community to come together for special celebrations. We also launched the Olaplex Pro Collective, which is a dedicated group of top performing stylists and colorists who have a strong social media presence and industry influence around the world, will serve as Olaplex brand representatives. The Pro Collective aims to enhance our presence within the hairstylist community by sharing Olaplex content on their social media channels. attending industry shows, and hosting master class educational events and training. Another noteworthy activation this quarter was our new marketing campaign featuring Olaplex No. 4 Bond Maintenance Shampoo and No. 5 Bond Maintenance Conditioner. Designed to enhance the positioning of No. 4 and No. 5 within the prestige hair daily care category, the full final campaign showcased the transformative benefits of a complete Olaplex routine and included refreshed creative assets and messaging for pro and consumer audiences, influencer testimonials, trade support, in-store visual merchandising updates, and organic social and paid media. The campaign launched towards the end of the second quarter, and we were pleased with the initial results and performance to date, with strong impressions and increased engagement rates, which are the first step in building brand affinity and ultimately sales conversions. Altogether, we believe our investments and strategies are driving deeper engagement with our core audiences and have recently seen positive indications that our new marketing activations are resonating with pros and consumers. On our last earnings call, we highlighted the marketing campaign of our best-selling number seven bonding oil, which launched during Q1. Since the launch of the campaign, we have observed increased engagement rates of social content related to the campaign, And relative to our total assortment, number seven has experienced outperformance in sell-through at our key accounts, posting year-over-year growth in the second quarter. Also, according to data tracked by Crater IQ, we regained the position in the second quarter as the number two U.S. hair care brand by earned media value. And also in Q2, Olaplex was among the strongest performers in year-over-year growth rate by EMV among U.S. hair care brands. Moving to our second priority to strengthen our capabilities and culture to support our future. This work is designed to improve the foundational infrastructure across our organization and has included ongoing implementation of our enhanced integrated business planning processes designed to improve forecasting and overall business performance management. Additionally, we created a strategic internal centralized workstream overseeing marketing investments across channels to facilitate more strategic spending and optimization. In addition, we are also continuing to enhance our new product development process to maximize our R&D capabilities and fuel future innovation. With the support of our new innovation team, which was formed to lead the creation of our new product pipeline and our enhanced commercialization strategies, we are beginning to roll out improved go-to-market processes for our new product launches this year, including the upcoming launch of a brand new patented technology, Olaplex Bond Shaping Technology. Marking our next wave of scientific innovation, Olplex Bond Shaping Technology was created to support curly hair of all types and textures or pairs the internal hair structure to strengthen and reshape curl-forming bonds, locking them into place to rebuild natural curl patterns. Curl care is a large and growing category, as curly-haired consumers report spending the most on salon services among all hair types, and curl services are among the top 10 fastest-growing services in the U.S. Curly hair has more disulfide bonds and can be more susceptible to damage, and pros often request more information on how to address the unique and important needs of this consumer. As an innovative category leader, we believe that Olaplex is uniquely positioned to offer a new solution, and we saw an opportunity to expand into this segment, led by our two core beliefs, scientific innovation and a pro-first point of view. Our new Olaplex bond shaping technology contains a unique peptide composed of 23 amino acids and allows for cortex deep penetration to help reconnect and strengthen multiple points of a disulfide bond within curly hair. This launch demonstrates our continued desire to provide pros with the tools they need to run successful growing salon businesses and showcases our commitment to broadening our innovation portfolio with new technologies that support all consumers. We are launching two new products in the BondShaper product offering, one being a pro-service in-salon treatment and the second a complimentary take-home formula. These two innovations exemplify how our products build off of one another and showcase the cycle between in-salon treatment and home care for ongoing maintenance. First, the BondShaper curl rebuilding treatment is a three-step professional curl treatment to repair, redefine, and lock in shape of natural waves, curls, and coils. And second, the number 10 Bond Shaper Curl Defining Gel is an at-home reparative curl-defining styling gel that revives natural curl patterns. With the launch of our Bond Shaper product offerings, we are bringing Olaplex back to the forefront of product innovation, elevating our product development capabilities, delivering on our pro-first promise, and enhancing processes and coordination among our sales, marketing, and education teams to enable successful launches. Central to any transformation is cultivating a strong, passionate team and culture, as building a business is all about execution and the talent that drives it. With this in mind, we are excited to strengthen our senior leadership with two new talented additions. First, Catherine Dunleavy will join Olaplex as Chief Operating Officer and Chief Financial Officer, effective August 13th. Most recently, Catherine served as President and prior to that as Chief Financial Officer at Away. following tenures at Nike, Comcast, NBCUniversal, and GE. She has a strong track record of executing high-impact strategic, operational, and financial initiatives at scale, and her mix of experiences at large public companies and a smaller, high-growth organization makes her a great fit for Olaplex. Second, Katie Gohmann joined the company as Chief Marketing Officer on July 15th. Katie most recently served as the Chief Marketing Officer of Marc Jacobs, overseeing the strategic and creative vision for the brand, and spent the first half of her career at L'Oreal, where she held senior marketing roles for various company brands, including Lancôme and Kiehl's. Katie brings significant experience nurturing, growing, and successfully shaping marketing strategies and creative visions for prestige retail and beauty brands. Catherine and Katie will be located in our New York office, and I look forward to working with both of them as we develop and execute on our future visions. Our third priority is developing the long-term roadmap and future vision for Olaplex. Since day one of joining this organization, I've been focused on amplifying our current execution alongside planning and preparing for the future, as both are critical to our success. As I have stated before, designing the future path requires understanding what made Olaplex so revolutionary from day one, and then harnessing that insight for our transformation. I've been continuously struck by the level of passion and commitment from stylists and consumers for Olaplex, as I have engaged with so many directly. And I also wanted to ensure that our future strategy was grounded in concrete research on the needs and beliefs of these critical partners to our brand. As such, we undertook a perception study that will influence the direction and evolution of Olaplex. The insights of the study show there's considerable enthusiasm for and openness to our brand, with strong interest in what Olaplex is today and the innovation we can bring to market in the future. We believe that the Olaplex brand is still very strong with positive associations to build upon, including innovative, reparative, healthy, and effective. That does not mean, however, that there are not key opportunities to broaden our reach, upgrade our messaging, improve our education and usage clarity, and foster deeper emotional connections with our audiences. Much more to come on this important initiative as we develop and share our new brand strategy. To that end, during the quarter, we have made meaningful progress towards establishing a long-range strategic plan and financial framework for the future. We look forward to sharing our long-term roadmap and future vision for Olaplex and expect to provide details in early 2025. In summary, we are pleased with our progress year to date. Olaplex remains an industry-leading brand with professionals, consumers, and all of our partners as we deliver on our unique promise and capability to improve hair health. We're executing on our plan with intense focus and discipline. I believe our strategies have us on track to return OLPEC to achieving sustained long-term growth at top-tier profitability. And with that, I will now pass it over to Patrick.