Waldencast plc

Thank you, and welcome to the WaldenCast PLC third quarter fiscal 2022 earnings call. With me today are Michelle Brissette, founder and chief executive officer, and Philippe Bautier, chief financial officer and chief operating officer. For today's call, Michelle will begin with a market update on the beauty market, followed by a review of our third quarter financial performance and details on our growth strategy and highlights of our ESG accomplishments. After the prepared remarks, the operator will open the call to take questions. Before we start, I would like to remind you that management will make certain statements today, which are forward-looking, including statements about the guidance on future earnings, WaldenCast strategic initiatives, plans to expand both internationally and domestically, and other matters referenced in the company's earnings release issue 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 risks and uncertainties appears under the heading Cautionary Note Regarding Forward-Looking Statements in the company's earnings release and in the company's filings that it 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.waldencast.com. The forward-looking statements on this call speak 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 it believes can be useful in evaluating the company's performance. The presentation of non-GAAP 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 nine GAAP financial measures and a reconciliation of these nine GAAPs to the most directly comparable GAAP measures in the company's earnings relief. A live broadcast of this call is also available on the investor relations section of the company's website at ir.waldencast.com. A replay of the webcast will be available approximately two hours following the live call and remain on the investor relations website for 90 days. We have provided adjusted results, which allow for a comparable presentation of our performance versus the prior year, reflecting the timing of the business combination, which occurred inter-quarter. As such, our Q3 gap financials include a predecessor period, prior to the closing date of the business combination, and a successor period, all periods on and after the acquisition date. While our first half performance was provided on a performer basis, as the entire period was prior to the consummation of the business combination with Obagi Global Holdings Limited. In addition, our segment data includes an allocation for WaldenCast Central costs, reflecting the corporate expenses that are not allocated to our Obagi skincare and milk makeup brands, and on a gap basis, non-recurring transaction costs related to the business combination. In addition, our income statement includes the metric comparable net sales, which excludes the Obagi China business, which was distributed to Cedar Walk, the sole shareholder of Obagi skincare prior to the business combination. The presentation of comparable net sales removes non-recurring sales from both the current year and prior year periods. You will also see an adjustment to adjusted gross profit in our Obagi skincare financials given the sales of our distributor in China for adding non-material margins. Finally, adjusted EBITDA excludes non-operating transaction costs. you will find a table that reconciles our adjusted results to GAP in our press release and in this presentation, as well as in our FCC filing on Form 6K that was issued earlier this morning. I will now turn the call over to Michel Brissette.

Thank you, Alison, and good morning, everyone. I am pleased to speak to you today and share a strong third quarter performance from all the staff. Before I discuss our results, I would like to start by stating our ambition at Wildicus. Our aim is to build over time a global best-in-class beauty and wellness platform that creates, acquires, accelerates, and scales the next generation of high-growth, highly profitable, purpose-driven brands. We are a beauty and wellness pure player, an operating platform built for both speed and agility. reimagining the beauty company of the future as the home of the brands of tomorrow that connect with consumers' needs and their values. We are a beauty player because it is not only an industry we know extremely well, but also because it is the most beautiful of businesses. It has a strong growth and resilience as demonstrated by the market evolution today, despite a broader, more challenging macro environment. It has very attractive structural economics. and it's a business where focused expertise matters to build long-term, profitable, and relevant brands. The market today continues in a strong growth trajectory, despite some punctual challenging areas. In the U.S., which is our main market as of today, premium beauty year today through the end of September is growing strongly at 16.4% in value and in units at 13.7%. Q3 trend remains in line with a strong growth with value at plus 15% and units at plus 12.7%, reflective of both an increased consumption, more units, and premiumization. Makeup year-to-date is growing even faster than the broader beauty category at 18.3%. This ongoing acceleration is driven by consumers going back to their pre-COVID habits, going back to the office, seeing friends, and socializing. with one quarter of the women indicating that they are actually wearing more products versus a year ago, a trend led by Gen C with 48% of them stating that they are using more products. Skincare is not only growing but has accelerated in Q3 with year-to-date growth at 13% in value and accelerating Q3 to 15.5% in value. A key driver of skincare growth over the last year has been driven by the raised price of science-led, high-performance skincare, as evidenced by social media conversations for science and dermatology-led skincare, growing 57% versus year-over. The first two brands in our portfolio, Obagi Skincare and Milk Makeup, play in the most attractive segments of those high-growth categories, science-led skincare and clean makeup. Obagi Skincare is a crown jewel of the physician-dispensed market, It is perceived as the number one brand in the skin health space by practitioners in the most attractive, fast-growing sub-segment of premium skincare. With its breakthrough patented technologies and transformative clinically proven results, it unlocks high loyalty from both consumers and physicians that is perfectly positioned to answer the growing consumer need for high-performance, effective skincare. It also paves the way for our expansion into other categories, not just for the Obagi brand, but also a wider portfolio through its deep understanding of skin biology, which is a great springboard for innovation in other beauty categories. Milk Makeup is a cult Gen Z brand with a large and engaged organic following through a diverse and inclusive community known for its cultural relevance and iconic products. It is a leading clean makeup brand, today the number two clean makeup brand at Sephora U.S., and with a full intention to close the gap to number one. It brings a connecting, relevant promise of cool, clean makeup that works for the attractive Gen Z demographic and increasingly beyond. Now, with that as an initial frame, I would like to turn the call over to Philippe Gauthier, who is the CFO and COO who will lead us through the financials.

Thank you, Michel. It is a pleasure to speak to all of you today on my first starting scroll as WeldonCast PLC's Chief Financial Officer and Chief Operating Officer. While I'm new to WeldonCast, I've been leading the finance and operations of a number of prestigious global consumer brands for more than 30 years, and I am extremely excited to support WeldonCast and our ambition. to create a global best-in-class beauty and wellness operating platform. Our third quarter results continue our strong trend with double-digit growth in net sales, comparable net sales, and significant expansion in adjusted gross margin and adjusted EBITDA as compared to the third quarter of 2021. We are pleased to deliver this strong performance, which reflects the growing loyalty to our OBG skincare and makeup brands, even the efficacy of our products, the power of our innovation and the successful execution of our growth strategies. This led to total net sales rising 10.3% and an increase of 18.2% on a comparable basis. excluding the Obagi China business that was distributor to its sole shareholder, Centerwalk Skincare Limited, prior to the business combination, as well as the related party cells to the distributor post-combination. Therefore, on a like-for-like basis, which better reflects the ongoing operating business and how we manage the current business, comparable net sales grew plus 18.2%. Comparable net sales are also the indicator which is consistent with the way net sales were communicated in the previous quarters, as all pro forma figures have been prepared, excluding Obagi China. Adjusted gross margin expanded 155 basis points as the business benefits from our growing scale, efficiency in sourcing, pricing, and gross to net efficiencies. Keep in mind again that our adjusted gross margin removes Obagi's former China business and the impact of the inventory fair value step-up driven by the acquisition of Obagi Skincare and Milk Make. Strong sales growth. An expansion in gross margin more than offset investment in corporate and mounting expenses, which include wild and gas central expenses post-combination, fueling a strong 126.3% increase in adjusted EBITDA to 15.3 million, representing 19.4% of net sales. Turning now to the driver of sales growths. At Obagi, sales were led by continued growth in our core U.S. physician dispense business, along with strong international growth. We also invested in enhancing our digital capabilities to accelerate our D2C expansion. At Milk, growth was impressive, far outpacing the industry given by the strengths, the brand's hero products, and the team's ongoing ability to delight consumers with must-have innovation. One of our objectives was to improve gross margin and milk, and we were very pleased to see the initial benefits of our work focused on increasing efficiencies in sourcing and distribution. We're investing a portion of this savings in brand marketing, which is paying dividends, with the increased investment driving customer engagement, trial, and sales. We also believe milk has all the makings of a strong global brand and are beginning to capitalize on its international market opportunities. We're excited by this quarter's results, but it is very important to highlight, as Michel did in the previous earnings call, that we manage the company's performance on an annual basis, and quarterly results should not be extrapolated to full year results. Also, Importantly, that we are still working through the full technical accounting implication of the combination of the three entities and the carve-out of the Obagi China business distribution. Our earnings release provides some detailed reconciliation between our unaudited GAAP financials and non-GAAP measures. When reading our financial statements, And in the appendix of this presentation, you should note there is a clear division between the predecessor period that includes financials up to the acquisition date and successor period that includes the acquisition date and all periods thereafter. The predecessor and successor results shown are not comparable. The successor period includes the completed financial statements of Waldencast, Obagi, and Milk. whereas the predecessor period includes only Obagi's financial statements. Let's take now a closer look at our combined financial profile. As I mentioned, net sales were 78.9 million, of which comparable net sales were 74.5 million, an increase of 18.2% versus last year. Breaking this down further, Obagi skincare sales were 60.4 million, of which comparable net sales were 55.9 million, increasing 12.1%, with the difference between the two related to the cutout of the Chinese distribution business. Mills makeup net sales was 41.7% to 18.5 million, both on the net sales and comparable net sales basis. Therefore, total comparable sales, the better measure of the ongoing operating company grew 18.2% for Q3. Group adjusted gross margin for Q3 was 53.5 million or 71.9%, an increase of 155 basis points versus a year ago. Breaking this down further, Budget skincare standalone adjusted gross margin was 41.9 million or 75% at 20 basis point versus one year ago. Nailed makeup adjusted gross margin was 11.6 million or 62.5% of dead cells up a strong 930 basis point from one year ago. Adjusted DBA for the group rose 126 to $15.3 million from $6.8 million last year. There's a strong expansion to 19.4% from 9.5% margin in the third quarter of 2021. Again, both brands saw impressive growth with Obagi Skincare seeing an increase of 109% to $16.3 million for an adjusted year of 27%. And milk makeup generating improvement measures the DBDA of $1.9 million to a profit of $4.9 million from a loss of $1 million in the third quarter of 2021. The wild and cast central expenses represents ongoing corporate costs and public company costs that are not allocated to our brand. This is shown here on an adjusted data basis and does not include transaction charges and non-recurring items. The following slide, we provide our capitalization table as of September 30, 2020. We had total financing line available of $225 million, composed of $180 million gross debt and net debt of $149 million. It's worth mentioning that we have put in place post-quarter end interest hedging of some of our debt. This hedge mitigates our interest rate exposure to the extent we have floating rate debt in a rising interest rate environment. Importantly, our shareholder base is solid and provides a strong alignment and stability for the company with OBG and milk shareholder Owning as of September 30, 2022, approximately 45.9%, and Wild and Cats founders and sponsors approximately 22.8%. We have total diluted shares outstanding of approximately 114 million shares, as well as approximately 29.5 million warrants. Most of the sellers, founders, and management pairs have a one-year lockup from the day of the business combination, with a small portion of seller shares with a six-month lockup. This diluted share count excludes approximately 3.9 million shares for management equity performance-based awards not yet allocated.

Thank you, Andy. Thanks, Philippe. I will now focus on the development of each of our brands, starting with Obagi. As discussed earlier, Q3 has been a strong quarter for Obagi, with $60.4 million net sales growing at 12.1% on a comparable net sales basis. This is with a healthy gross margin of 75% and an adjusted EBITDA at 27%, which is a very significant improvement versus year-over. Obagi will build on this profitable structural economics to capture sizable growth opportunities. Our strategies to do this are very clear. First, Continue to expand our U.S. physician channel penetration to maximize our anchoring in a channel core to the brand DNA. Second, continue to expand our portfolio breadth and depth, more of our core product in existing accounts, as well as new incremental product launches. And then lastly, accelerate the expansion of our U.S. and international footprint by replicating our winning U.S. physician-led formula in the right channels and keywords. In Q3, our core strategic business in the U.S. CCH channel accelerated to now achieve net sales growth of 21% year-to-date. The channel was a top growth driver this quarter for the brand through new, more productive accounts, a wider breadth of portfolio, and our new product launches. A key strategy to drive these results has been to ensure our top-selling strategic range is present deeper in more doors so consumers have easier access to it. We introduced a top 20 core SKU strategy that line up incentives and activation with kind of selection of hero products that have high consumer demand and are core brand builders. Importantly, these products have very attractive gross margins. The top 20 core represents 65% of our physician dispensed channel business, and it is still deepening their footprint in the U.S. by increasing their penetration at about plus four points versus last year. Now, let me illustrate the strategy with a couple of examples. First, Obagi Neuter. This product line is the number one selling franchise in our physician dispense channel and available in about 74% of our Obagi accounts. And it's still expanding penetration, growing six points. Similarly, Obagi's award-winning Professional C franchise has increased its penetration by six points to reach 60%. Now, beyond expanding and strengthening the foothold of our top 20 core products, we are delivering against our second strategy, which is to expand the breadth of our portfolio to cover incremental consumer skin needs. In May 2022, we launched Elastiderm Neck and Deck, an exciting addition to the Elastiderm franchise. This product targets area-specific signs of skin aging on the delicate skin of the neck and upper chest. to support skin elasticity and visibly improved necklines, fine lines, and sagging. In Q3, the number of accounts carrying the new product grew 13.7%, but importantly, this new launch helped grow the total ElastiDerm franchise by 34%. Now, we're also expanding the breadth of our portfolio through innovation into adjacent categories like Lash and Brow. Our expertise in skin biology and transformative formulas led to the launch of Obagi Newseal Lash. This is a lash growth serum that we launched last year. Now, more recently, in Q3, we continue our innovation by launching Obagi Newseal Eyebrow Boosting Serum. In just a few months, this new brow serum became the number one selling OTC product and also positively hailed the existing Newseal franchise, which grew at 27% over the same time period. Now, what is interesting about this product is that Obagi New Cell, the Obagi New Cell launch has an incremental to Obagi skincare portfolio and also a hero product to unlock the e-com footprint of the brand. The brow and lash serums are respectively the number one and number four bestsellers on Obagi.com, contributing to fuel the growth of this body, yet booming channel for the brand, which grew 81% in Q3 and expands our footprint in the U.S. to be where consumers expected. either directly or as a tool to help our partner physicians serve their patients directly. We have continued expanding our international footprint, taking year-to-date the international business at growing 28%. This growth is driven by Obagi Clinica, an enterprise-born offering introduced by the brand in emerging markets. Internationalization, as we know, is a key opportunity and growth driver that we will have more to share in 2020-2023. Now let's go from science-led transformative results to clean, cool makeup that works with the Gen C cold brand milk makeup. Milk closed a very strong Q3 at $18.5 million in net sales, a growth of 41.7% versus last year, and delivering a much improved gross margin at 62.5% and adjusted EBITDA at 5%. I mentioned earlier that the makeup category has seen a strong rebound growing ahead of beauty year-to-date and in Q3. Milk makeup has significantly outperformed the market with plus 43% growth year-to-date in sellout versus the U.S. selective market at approximately 18%. Now, Milk's performance and roadmap for growth is based on three strategic plans. First, grower awareness and our community. which despite being a large following in a large community, this brand remains a relatively under-marketed brand. It's very much an organic-driven brand. Second, continue to deliver breakthrough innovation to expand our footprint. And lastly, expand our distribution both domestically and internationally. To drive our brand awareness, we focus first on our proven strength, organic content across our best-selling icons in the most relevant social media attachments. This is an area that remains a strong strength for the brand. The growing awareness saw a significant increase in reach on TikTok with more than 275 million impressions of makeup, which translated into very strong growth on our core range, which represents 50.8% of our business. All growing in high double and triple digits from an already high base. Just remember that many of these products are already top three products for the category in Sephora U.S. This is furthering building some of our brand icons. Now, building on the success of organic awareness, we're also starting to further accelerate it via top talent collaborations that resonate with our target audience. This is not something we were doing before. Our very first was with mega-influencer Hailey Bieber, focusing on both our core products and our latest innovations and delivered some very strong first results. And we look forward to sharing more of these on our next call. Milk makeup's second pillar of growth is innovation. Innovation is a lifeblood of makeup, and Milk has and is still consistently delivering blockbusters which have become bestsellers. This year, innovation is delivering, year-to-date, 40% stronger net sales than our launches a year ago, so much stronger vintage of launches. And we're following a very clear strategy. First, reinforcing Milk Makeup's footprint in the big and competitive category of mascara, adding Rice Mascara to already our best-selling Kush Mascara. Home primers, a key strength of our brand. And lastly, strategically expanding into a face category with conceders. Primer is a core must-win category from Milk Makeup. We have our HydroGrip Primer and award-winning hydrating long-wear primer, and the number one best-selling primer at Sephora. On top of that, we launched a second primer, Pore Eclipse, a mattifying and blurring primer that addresses an unmet and incremental consumer need. I am extremely excited to report that Pore Eclipse has become now one of the top three primers at Sephora, incrementally to HydroGrip, which maintains its leadership position and further grew 62%. Beyond this stronghold, Guilt Makeup is ready to unlock further product opportunities both in makeup and other categories. Our first focus is to unlock the very large $3.8 billion foundation on face market and thus play in a bigger category and expanding a bigger way into high loyalty, high replenishment, stickier areas of the market. In September, we enter the category with the launch of Future Fluid, a multi-use medium to full coverage concealer that covers, sculpts, and hydrates for a lightweight, crease-proof natural finish. Just beautiful. Now, recently launched, Future Fluid is showing some very, very positive first steps with a very strong 4.6 star rating, high recommendation rates of 90%, and super strong support in PR and in the community. Looking at the distribution, the brand is just getting started. With a very desirable brand asset, Milk is having tremendous white space opportunity to increase penetration and deepen our partnership with Sephora, as well as expand distribution in the US and international. Let's look at international a bit more. Milk Makeup is operating in all Sephora US on Sephora calls and on Amazon. Milk Makeup is gearing up to strategy launch in the UK, the fourth biggest makeup market in the world with Space NK or Q4 this year, and Q1 of 2023, as well as being as part of the Sephora portfolio that is entering in the UK. So lots of very exciting development in the UK. Now, at Walden Gas, we not only perform on our business KPIs, but we're also very proud of our ESG achievements for a very young company. First, our focus on the environment with constantly developing ways to reduce our footprint all along the supply chain by removing waste and jumping in recycled and recyclable materials. Second, we are proud of our diversity across all levels of the organization. Milk Makeup and Obagi are built on inclusivity. Milk Social Philanthropy focuses on self-expression and equality for underrepresented LGBTIQ and POC groups, and the Skin Inclusion Initiative between Obagi's commitment as leaders in the skincare space to elevate the global dialogue about diversity and inclusion. Obagi is proud to be providing effective, science-based skincare products for all skin tones, and they were the first professional skincare company to clinically test product performance across all Fitzpatrick skin tones. Lastly, despite his young age, Waldencast has equipped itself with a best-in-class governance with his board of directors and processes. And of course, in October, we welcome Philippe Gauthier as the company's CFO and COO. Now, to recap, Waldencast brings the operational excellence of a multi-plan platform built for growth and profitability. We are a house of brands built for speed and scale. Our balanced portfolio plays in a structurally attractive segment that favors our growth ambitions and mitigates risk linked to single category fluctuations. We have, with Obagi Skincare and Milk Makeup, the leading brands in high growth, attractive, and resilient categories. We have the expertise in managing and scaling beauty brands and businesses globally, which we intend to do while keeping an asset-like structure and agility to remain the market responsiveness and speed of our entrepreneurial indie brands. Lastly, our management teams have a strong alignment of incentives to drive long-term value creation through operational and capital allocation excellence. We're very pleased with our performance in Q3, and we're very confident, and we believe that we're well-positioned to achieve the guidance we outlined with many of you when we announced our business combination in November 2021. With that, I would like now to open the call to the questions. Thank you.

The floor is now open for your questions. To ask a question at this time, please press star 1 on your telephone keypad. If at any point you'd like to withdraw from the queue, please press star 1 again. You will be provided the opportunity to ask one question and one further follow-up question. We will take a moment to render our roster. Our first question comes from the line of Darla Whitlock from Kelsey Advisory Group. Your line is open.

Hi, great. Thank you for taking my questions, and congratulations on the nice quarter. My first question would be on Obagi. Are the physicians seeing any effects of the macro environment, like the patients are purchasing less take-home products, they're not visiting the dermatologists or physicians as frequently? And is that impacting their ordering and their outlook?

Hi, Darla. Thank you. Thank you so much for your question. Before I answer your question, I have to apologize to everyone for our technical difficulties. I guess we are so proud of our brands and the results that we wanted you to hear twice. Now, answering your question, we are not seeing any slowdown in consumer demand in the physician channel in the U.S. We had a little bit of a blip during Hurricane Ian, particularly the southeast, because many of the practices in that region were closed for some time, and that is a quite important region for the brand, but it was not material to our delivery of results in Q3 and Q4. So generally, the short answer to your question is demand remains strong. We are not seeing yet any impact of consumption, and I think is reflecting of the broader beauty market strength and also resilience that we always talk about.

Great, thank you. And then I guess my follow-up would be for Milk. Are you seeing any changes in your retailer partners' purchasing trends or thoughts on their inventory? We're hearing some comments from some other players.

Yeah, generally, the consumption remains strong. So we are very much a consumption-led business. In the case of Sephora in the U.S., we are seeing a little bit of pattern changes, particularly calls at Sephora. There's a bit of realignment of inventory that we're seeing on the side of retailers. But overall, from a sell-in standpoint, it has not impacted us significantly. And sell-out remains, as you saw from the presentation, very strong.

Great. Thank you so much.

Your next question comes from the line of Linda Bolton-Weiser from D.A. Davidson. Your line is open.

Hi. Congratulations on a strong quarter. So I was curious if If you're seeing or you think there's any trading down going on in the color cosmetics from prestige to mass, can you comment on whether you think any of that is happening?

Hey, Linda, how are you? Thank you. We are not seeing trade-off. Keep in mind that we have obviously a partial view of the market in the sense that we compete in the selectives. out of the market. Our distribution is primarily there. But based on the market data that we're seeing, as well as reports of retailers that compete across luxury and mass, we're not seeing significant trade-down from luxury into mass.

Okay. And then just in terms of your primers in milk and how much that's a focus for you. You know, I know it's a popular thing for online. They talk about dupes, you know, where there's kind of a copycat mass product that copies a prestige product. And, you know, ELF Beauty has come out with a dupe of your HydroGrip primer. How do you kind of prevent share loss when there's these cheaper versions that come out of your prestige product.

Thank you, Linda. I think copying is the best form of flattery. I think what is important, this has been happening in the beauty industry for decades. Ultimately, beauty is a business of brands and brand identification. That is why, for example, in the beauty category, private label or off-label or like that remain a relatively small portion of the business. We are not concerned with that because I think not only HydroGrips is a superior performance product, but also there is a strong affinity of consumers to the brand. It goes beyond the functional into the emotional connection and values of the brand represents. So we're not seeing it and not particularly concerned.

Okay. And then on the milk expansion into Sephora UK in the fourth quarter, can you tell us, is that all of Sephora stores in the UK or just a subset? And how many is that? How many stores and what percentage of their stores in the UK?

Yeah, no, it is, we are expanding into the UK across all Sephora. We're very excited. It just deepens our partnership with, fantastic retailers at Sephora that we have great collaboration. We will be, across all of them, I cannot share at the moment the number of Sephora stores that will be in the UK. I think that's for Sephora to share. But we expect to be in all of them.

Again, as a reminder, the floor is now open for your questions. To ask a question at this time, please press star 1 on your telephone keypad. Your next question comes from the line of Andrea Teixeira from JP Morgan. Your line is open.

Thank you, operator, and good morning, everyone. I hope all is well. And I wanted to just go back a bit from your outlook and then think about pricing and distribution. Is there room for, as you look at the price points, and obviously you are doing well in some of the key retailers, how should we be thinking of that? And then not only for milk, but also for ABAGI, is there any room for that to, in particular milk, of course, because of the cost pressures and then profitability being lower, is that a path to improve profitability through pricing in the near future? And then as we think about the distribution in the steroids, in particular, right, in the innovation that you're bringing in, is there anything to highlight that is about to come with the shelf reset in the spring or anything to highlight there?

Yeah. No, thank you, Andrea. On pricing, first of all, we have taken and we will continue to take pricing as we see the consumer opportunities there. You have to keep in mind that we are, in the whole theme of things, a relatively small player, and what we follow is the pricing moves of larger players. We have already seen, as you can see from the gross margin results, a significant improvement in gross margin on milk. A lot of that gross margin, nearly half of that margin increase, it comes from a combination of pricing and improved gross to net management, which ultimately is on a net price basis, a way in which we move cross-market ahead. So from a pricing standpoint, we think that there is still room in the brand to continue to strengthen that, both in terms of absolute risk price as well as cost-to-net management. Our innovation on a go-forward basis, as I mentioned, we are very excited about the launch of Future Fluid, the big, big phase category with It is a business that is very sticky, high loyalty, very exciting, and we'll be happy to report how that comes over the next few months.

And that's a full distribution, Michel? It's a full distribution into Sephora?

Yeah, that is correct. Future Fluid is in full distribution of Sephora.

Great. Thank you. Appreciate it. Congratulations.

Your next question comes from the line of Darla Whitlock from Kelsey Advisory Group. Your line is open.

Hi, great. Sorry, sorry for jumping on again. But I just wanted to follow up and see if you can provide any details on Obagi.com, how that's performing, any changes as it relates to trends at physicians' offices. And are these consumers new to Obagi, or are they existing customers that have already purchased the brand, maybe through position boxes? Thank you.

Of course. Thank you. So Obagi.com is still a relatively small percentage of the business. It was only launched last year. That said, we're very encouraged by its performance here today with more than double the business. And what is very interesting and exciting on this channel is that we're seeing a different consumer profile. It tends to be younger. It tends to be looking for different products than what we're seeing in the physician dispense channel. So we did a plus 81% in Q3, and as I said, more than double the business this year. And as I said, consumer profile is a little bit different. The new seed launch of Lash and Serum, as I mentioned in the call, as really being instrumental in attracting these new consumers and being served in a way that is direct, very different than through the physician dispenser.

Great. Thank you.

Your final question comes from the line of Olivia Tong from Raymond James. Your line is open.

Great, thanks. Good morning. Apologies, I got on late, but so hopefully my questions haven't been asked, but just I wanted to ask you a little bit about, you know, how dynamic and how much the environment has changed in the last couple of months and how that impacts your thoughts about your strategy, particularly with respect to M&A and future acquisitions, particularly given the, you know, the change in rates and what have you. And then on top of that, just, you know, thinking about size of acquisition, relative buckets in terms of funding. If you could add a little bit there, that would be helpful.

Thank you so much. Great to hear from you. In terms of environment, as I mentioned, the market remains dynamic, very, very dynamic. Now, it's important to understand that given our size of the business and the growth opportunities we have ahead, Yes, we look at the market as a point of information on how the market is performing and the consumer is evolving. But at the end of the day, on a business of our size and the growth opportunities we have, really our growth is more in our hands. Our ability to grow awareness, expand distribution, launch exciting products, etc., etc. The market, while it informs, of course, our decisions, we think that our growth, given our size and the growth opportunities ahead, we are less impacted whether the market moves up or down a few number of points. Now, that's it. The market remains dynamic. From an MMA standpoint, well, we just started. We are a company that officially is about three and a half months old. We are very focused on making sure that we are delivering against our commitment, integration, etc. But we're always looking at M&A opportunities. The great thing about this business, and we have a constant flow of potential opportunities, is that there are more, there's a significant number of very attractive targets that could be part of the Waldencast platform. In terms of the playbook for us in M&A, I would say Obagi and Milk are very representative of that playbook. What we want is number one, brands. I always say this and it's not, there's a lot of brands that are collections of products that masquerade themselves as brands or performance marketing engines that masquerade themselves as brands. We want brands with an emotional, authentic, meaningful connection to this community. In terms of size, we think that there's a range. Again, the playbook is probably Brands as low as probably around $20, $25 million to $200 million. These are brands that already, there's a proof of concept. They are already coming to a point, especially in beauty, where they are about to be or are already profitable and cash generating. And importantly, brands that we can use our platform to grow and expand and drive this profitability. So the playbook is very similar. In terms of... How fast will we jump into the next one? I don't know. We're looking at great opportunities. There's tons of them out there, and we'll pull the trigger when we find the absolute great opportunity to go forward.

Great. Thank you.

That does conclude today's questions. I would now like to turn the call over to Michelle Brousseau for closing remarks.

Thank you very much. Well, thank you very much for being with us today. I hope we're very pleased with our Q3 results. As Philippe said, and I always said in previous remarks, we do not manage the business on a quarterly basis. We manage them on an annual basis, but it's important that we view the results in that context. We are very excited about what we're building. We're more excited than ever about the brands, the teams, the prospects, that we had and the more we are operating the businesses, the more opportunities we see for great value creation. We have two leading brands that are uniquely positioned and anchored in the most attractive parts of beauty. And we are building a platform that has that expertise and scale to grow the brands profitable. So thank you for being with us and appreciate your time.

Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.