WALD - NASDAQ

Greetings, welcome to the Waldencast Fourth Quarter and Fiscal Year 2024 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session, will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. At this time, it's now my pleasure to introduce Allison Malkin with Investor Relations. Thank you, Allison. You may now begin.

Thank you, and welcome to the Waldencast plc fourth quarter and fiscal year 2024 earnings call. Here with me today are Michel Brousset, Founder and Chief Executive Officer; and Manuel Manfredi, Chief Financial Officer. For today's call, Michel will begin with an update on our business and vision and discuss the company's performance within the context of the beauty market. Manuel will follow with a review of the fourth quarter and full year performance and provide our fiscal 2025 outlook. Following this, Michel will share the strategic growth initiatives for our Milk Makeup and Obagi Medical brands. After the prepared remarks, the operator will open the call to take questions. I would like to remind you that management will make certain statements today, which are forward looking in nature, including statements regarding the outlook of Waldencast business and other matters referenced in the company's earnings release that was issued yesterday. 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 statements 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 and should be read in conjunction with the section entitled Risk Factors in the company's annual report for 2023 on Form 20-F filed with the Securities and Exchange Commission on April 30, 2024. 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 management 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 the definition of these non-GAAP financial measures and a reconciliation of these non-GAAP to the most directly comparable GAAP measures in the company's earnings release. With that, let me now turn the call over to Michel Brousset.

Thank you, Allison and good morning, everyone. It is a pleasure to be here today and share our fiscal year 2024 financial performance. This has been a year of transformation for our group, one where we've strengthened our capabilities and celebrated many successes across our brands. Before we start, let's have a look at the health of the beauty market. In the context of an uneven consumer market, beauty remains resilient and has shown consistent growth over the years, with expectations of this trend continuing in the future. In 2024, Prestige Beauty grew 7%. While this rate of growth has normalized post the effects of COVID, the increase in 2024 is still ahead of historical levels, and supported by the same historical trend of premiumization. In the categories where we're present, Prestige Makeup grew 5%, while Professional Skincare showed a strong growth of 8%, well ahead of Prestige Skincare at 2%. Once again the beauty consumer has shown incredible resilience, despite external uncertainties and our industry continues to thrive, launching brands and products that increasingly meet consumer needs and desires. We are building 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. Simply put, we're capitalizing on the increasing strength of our operating platform, the power of our brands and our proven executional capability, to deliver consistently strong growth at increasing rates of profitability. We expect this to continue to pay dividends as we further drive our operational efficiency, and invest in selling and marketing drivers, to sustain and accelerate our top line momentum. Today, we have two of the most exciting brands that are substantially outperforming the market in the two biggest beauty categories, Makeup number one and Skincare number two in the U.S. Prestige Beauty. Our brands participate in the most attractive sub-segments of these two categories, Prestige Makeup and professional science-led skincare. Their superpower is high consumer affinity and strong brand equity in their respective markets, amplified by our strong innovation capability, and superior returns on business driver investments. Milk Makeup is a Cult-favorite Gen

Thank you, Michel. Good morning, everyone. So I'm pleased to share our fourth quarter and fiscal year 2024 results with you today. Our performance continues to reflect the successful execution of our strategy that provides a powerful framework, to maximize the inherent strength of our brand Milk Makeup and Obagi Medical. As we have demonstrated this year, our strategy continues to deliver ongoing revenue and profit growth, and further our commitment to deliver value for our shareholders. Today, I will focus on our adjusted financial measures. You can find a reconciliation to U.S. GAAP financial measures in our press release issued yesterday and also in the appendix to this morning's presentation. So now let's delve into the highlights of our fourth quarter performance. Net revenue reached $72.1 million, and represented a robust 29.4% increase in comparable growth, with balanced performance across our brands. Milk Makeup grew 31.9% in the quarter, reflecting channel expansion including initial shipments in support of our recent launch into 600 Ulta Beauty locations and on ulta.com Obaji Medical delivered 27.7% comparable net revenue growth, fueled by accelerated performance in the U.S. physician dispense and e-commerce channel. Adjusted gross profit rose 30.7% to $52.6 million from $40.3 million in the fourth quarter of 2023, and adjusted gross profit margin remained stable at 73% with little change from 73.1%, reported in prior year's fourth quarter. Adjusted EBITDA doubled to $11.2 million, from the fourth quarter of 2023, with adjusted EBITDA margin expansion, of 530 basis points year-over-year, to reach 15.5%. This notable improvement reflects strong revenue momentum, and improved operational leverage, which effectively offsets strategic increased investment in marketing and international capabilities, to support future sustainable growth. So our standard fourth quarter result, based on the strong momentum we saw throughout the year, leading to an exceptional fiscal year 2024 performance. To this end, let me dive into the highlights of the year. First, net revenue that achieved $273.9 million, a robust 27.5% increase in comparable growth. Next, adjusted gross profit that jumped to $203.6 million up 35.3% from 2023, and adjusted gross profit margin of 74.3%, 530 basis point improvement year-over-year. And finally, our adjusted EBITDA delivered a stellar growth up 65.1% to $40.3 million. This adjusted EBITDA, was driven by strong sales and improved gross margin, which more than offset our increased investment in support of our growth. This growth adjusted EBITDA margin to 14.7%, marking a 350 basis point increase from 11.2% in 2023. These results demonstrate the power of our strategy, our brands and our teams. Now, one of the strengths of our business, is our ability to efficiently convert our adjusted EBITDA into cash. This is largely due to our asset light business model, combined with disciplined approach to operations. In 2024, we saw a robust adjusted EBITDA to cash conversion ratio of 78.8%. This was achieved through effective working capital management. The fact that our business model, requires relatively low capital expenditures. Let me illustrate this point. Our year on inventory was down 4.7% versus prior year, and while accounts receivable grew 19.7% that growth, is well below our revenue increase. Now it's important, to note that currently a significant portion of our cash, is being used to cover non-recurring expenses that are associated, with the ongoing regulatory investigation that we have previously disclosed. We expect that once this matter concludes, we will see an increase in our cash generation, which will allow us to further strengthen our financial position, and improve our overall capital structure. Now, let's take a look at our financial position. At the end of 2024, our cash position was $14.8 million, and we had an additional $30 million available on our revolving credit facility. Our net debt total $154.2 million and for an update on the share count as of February 28, 2025, we had 122.7 million shares outstanding. We're also excited to announce that we have secured a new $205 million five-year credit facility. This facility replaces our current one, and includes $175 million term loan and a $30 million revolving credit facility. We have secured this financing significantly in advance of the July 2026 expiration, of our prior facility, and this proactive move provides us with greater financial flexibility, and extends our debt maturity profile through 2030. We are pleased with the performance of our brand and business, and we believe that our ongoing growth strategy coupled with further enhancement to our internal capabilities, position us well to maintain this positive momentum throughout 2025. With this in mind, we anticipate strong performance for the full year 2025, and we expect to deliver net revenue growth in the mid-teens. Additionally, we expect adjusted EBITDA margin to further expand into the mid to high teens. Now, I would like to share some perspective on the quarterly phasing of revenue. For the first quarter, we expect our net revenue to be relatively flat, due to a diversity of the highly successful Milk Makeup [Jellies] launch from Q1, 2024 as well as inventory adjustment in some of our retail partners. Following the first quarter, net revenue growth, is expected to accelerate progressively, driven by our strong innovation pipeline, and the continued expansion of our distribution footprint in the U.S. and internationally, including the launch of Milk Makeup at Ulta Beauty in March 2025. And with this, let me now turn the call over to Michel, to cover our brand performance and strategic growth driver.

Thank you, Manuel. Let's now look at the performance by brand starting with Milk Makeup. In the fourth quarter, Milk Makeup generated net revenue of $29.9 million, an increase of 31.9%, versus the fourth quarter of 2023. This growth reflected initial shipments to Ulta Beauty, in support of the brand's spring 2025 launch. This compensated for a normalization of the market, combined with retailer inventory adjustments, resulting in lower growth in consumption than anticipated. Adjusted gross profit margin of 64.9% increased 180 basis points from the last year, driven by the positive impact of channel and product mix, as well as margin accretive innovation. Adjusted EBITDA was $4.8 million, representing growth of $3.4 million from adjusted EBITDA of $1.4 million in Q4, 2023, demonstrating the success of our Waldencast of flywheel. Adjusted EBITDA margin expanded 1,000 basis points to 16.1% from 6.1% in the fourth quarter of 2023. For the fiscal year, Milk Makeup generated net revenue of $124.6 million, increasing 24% from 2023. Adjusted gross profit rose 27.4% to $85 million, with gross profit margin expansion of 180 basis points to 68.2%. Adjusted EBITDA rose 58% to $29.1 million from $18.4 million in 2023, with adjusted EBITDA margin expanding 500 basis points, to 23.3% of net revenue from 18.3% in 2023. Our vision for Milk Makeup, is for the brand to be the number one beauty choice of the next generation. It is already a cult beauty brand among Gen

Thank you. [Operator Instructions] Thank you. The question today comes. First question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your questions.

Hi, good morning. Alec Legg on for Susan. Just a question on the guide for the year. So I know first quarter was guided flattish, but then that accelerates to the year. Can you kind of give us some details on the cadence of innovation and what gives you the confidence that you can get sales to accelerate through the year? Thank you.

Yes, of course. Alec, how are you? Thank you for joining us. We are, I mean our guidance is fairly clear. We're very confident on the growth on both fronts in a very clear acceleration. Q1 is particularly in the case of Milk, there's an effect of two things. Number one, the anniversary of jellies, which was a really blockbuster launch last year, that it's on the base. And the second thing, as we have mentioned during the call, a bit of adjustment of retail inventory adjustment by retailers, and just a general market that, as you know, has been normalizing and getting softer. So retailers have adjusted inventory a bit. The vast majority of effect in Q1 is really the anniversary of jellies. As we look forward, in the case of milk, we only just at the beginning of the year, Skin Tint, which is our innovation is just hitting, I mean our big innovation. And the rest of it's not just the Skin Tint, but the rest of our innovation is hitting only now as well as the Ulta launch is hitting only now. So we expect a strong acceleration throughout the year, on a sequential basis in the case of Milk. In the case of Obagi, I mean Obagi is pretty strong growth overall coming, and we expect substantial growth coming our physician dispense business, as well as our digital channels and international. So we are very confident in the acceleration, the sequential acceleration through the year. We have a very specific issue of, in Q1 of a base being very strong with the launch of jellies and some adjustments of inventory due to consumption in Q1.

Thanks, Michel. And just a quick follow-up, if you're able to answer. Are you able to quantify the boost that jellies gave in first quarter? And then also, it sounds like fourth quarter had the pipe into Ulta. Are you able to provide some color on how much that benefited Milk in fourth quarter? Thank you.

Yes, we don't disclose specific numbers of - behind them, as you can imagine, for competitive reasons. But I think you're right, we have a bit of an effect also. We launched - we filled the pipe of Ulta, the end of the year of last year in preparation for launches this year. So when you pipe into a customer, you're piping a number of months into customers. As a consequence, as we just started the consumption in Q1, you don't really get a substantial amount of repetition orders. We're only a few weeks in, but we're very, very pleased with the launch at Ulta. And in the case of jellies, as I said, it accounts for the majority of the difference between the Q1 versus Q1 index from one to the other. So it's a - jellies was a quite substantial launch.

Thanks. It looks really good at Ulta. I'll turn it back. Thank you.

The next questions are from the line of Jonna Kim with TD Cowen. Please proceed with your questions.

Thank you for taking my question. This first one is on marketing, as you continue to invest this year, across both brands what might be different from last year or the same? And just any details around, how you're thinking about allocating the spend as you ramp up your marketing campaigns. And then a follow-up, just curious on the physician dispense channel, if you're seeing any sort of softness in consumer, or are you still seeing the resilience of consumer in that channel? Thank you so much.

Thank you, Jonna. So the marketing is, as we've discussed before, we expect to continue to accelerate our marketing investment into the business, both in absolute value as well as a percent spend. Our model as we indicated, is one that where we drive operational efficiency, and gross margin and reinvest that into business. So we expect to continue to do that on both brands. In terms of what is different, I think in the case specifically of Milk to start with, we are getting to a scale on that brand, especially in the context of the launch of Ulta in the U.S., where you should expect to see, and you are probably starting to see already a broadening of the type of marketing we do. If you think about Milk, how it's a - the marketing of Milk has evolved over the years, it came from a very organic following, just people naturally discovering the brand, talking to their friends about it, and organically building the brand side-by-side with the regional exclusivity of Sephora, then shifting to a more influencer-based and boosting user generated influencer-based marketing. And what we will do into that is more of that. But now enhancing and complementing that with some broader, more paid brand campaign that will allow us to reach more and more consumers with that. It's a natural evolution of kind of a growing brand, and one that is getting to a size that is starting to be significant, particularly in the context of new launch at Ulta. In the case of Obagi, you've seen already this year, I think of what we've been doing, to drive the brand. We are very proud that Obagi is the fastest growing professional brand - out of the top 10 brands in the market. This is a brand that we've demonstrated that with innovation. It's a great brand with great products, with innovation and the marketing support we are giving it, can accelerate very efficiently. And what we've done in '24, which we'll do more this year, is taking the brand from a marketing standpoint outside of the doctor's office, and advertising to consumers directly. And presenting the benefits of Obagi, and asking them to come discuss with their physician about the different options that they have, for great transformative skincare results. So you will see more of that in the year. In the case of the DTP channel, the DTP channels as we saw, as you saw in the presentation, continues to perform very strongly albeit it’s normalizing a bit from kind of low double-digits call it 11%, 12% growth in prior years, to the latest data we have around plus 8% on the channel. So there's a little bit of normalization on that channel, but the channel remains very strong. And what is important in the channel is that we're seeing two effects that are substantial, that play very well to our business. One is a premiumization of the channel, continued desire for more and more levels of performance, and that are supported by the launches we are doing. And second, a very important trend that goes beyond the channel, but it brings people into a channel, which is the confluence of beauty, aesthetics and wellness. So when we bought Obagi and focused on Obagi, this was one of the trends we identified as something that would propel us through the years, which is this confluence of these science-based skincare, but not only skincare, this confluence of beauty, aesthetics and wellness in, which more and more procedures and different procedures are being supported by skincare, and many of our products within Obagi support post procedure treatment.

Thank you very much, for the color.

Our next questions are from the line of Ashley Helgans with Jefferies. Please proceed with your questions.

Hi, thanks for taking our questions. So curious, if you could talk a little bit about the macro environment and consumer health you have embedded for the guide for the year. And then, any other initial takeaways you can share on Milk as it's now officially in Ulta? Thanks.

Yes, I mean as we all know, the macro environment is changing and it's interesting, and exciting every week seems like. That said, as we highlighted the beauty consumer, the beauty industry remains there receive it with consumers, continue to increase their dollars spent year-over-year, albeit with a level of normalization. Now the drivers of that consumption remain frankly the same that, they have been for frankly decades. Which is the premiumization of consumers, people's desire for higher and higher levels of performance. And that's why premium beauty, generally speaking is performing ahead of mass. This desire for [continuous premiumization] higher levels of performance, higher levels of quality for, which our brands are very well positioned. As well as the reality of beauty, being an expandable consumption category in, which is as much a need category as it's a want category. And that allows consumers importantly these small luxuries, or small splurges at times that feed consumption. So overall, in the context of a changing macro environment, the beauty consumer remains very, very resilient albeit with some normalization. It's important to know that for us, relative to other companies in the space, larger companies in the space, we're relatively less exposed to variations in geographic, geographic ups and downs as in China and other places. So at least the markets in, which we compete from a beauty standpoint remain very resilient. And actually just go back to your question. You wanted some comments on Milk specifically. In what regard?

Oh just kind of any initial takeaways on consumer demand, as it's officially rolled out into Ulta stores?

Well as I mentioned, the brand is on fire, and continues to be on fire. Yes, there is this guide that we've given on Q1, because a very specific annualization of issues on the base, and there is a little bit of retail adjustment, but the overall demand for the brands is extremely strong. As evidence for the early results. Well, first you saw the 2024 results. I mean the brand is growing substantially ahead of the market, gaining more consumers, gaining momentum, growing in EMV, getting more and more awards, becoming one of the, by industry sources, one of the most powerful brands in the industry. But even our early results, now that we are starting to activate behind all-time Skin Tint, we are very, very pleased with the progress - on both those big key launches. And just a word on a Skin Tint, because it's an important launch that I want to make sure everybody fully appreciates. The importance of Skin Tint is not just a simple additional innovation. It allows us to enter the largest category in the U.S. of complexion, many consumers. Even though it's a Skin Tint many consumers and you see reviews are calling it even a foundation, because of its buildable characteristics. So it allows us to participate in massive, massive market that is not only big, but importantly has very high degree of loyalty and very high degree of repeat. So building another franchise in a business that has high repeat, high loyalty is very strategic and very important because it propels, again propels the business not just in terms of growth, but also profitability, because it's the repurchase is quite important. We don't have to trial and recruit consumers every time. So we have very two very important initiatives running Q1 Skin Tint for all the reasons I said, and I mean it's evident in the launch of all this, not just expansion, the footprint, but important is reaching a lot more consumers that, today are not reached by Sephora. They just simply don't shop at Sephora, they don't have a shop at Sephora close by. So we're very, very pleased with the evolution of those two things. And lastly, vis-a-vis the Ulta launch on Sephora, we believe that the launch, as I said, is very incremental, lots of new consumers. But there is obviously a natural level of cannibalization between Ulta and Sephora that, is going to be part of the first quarters, as we ramp up Ulta and we moved the exclusivity out of Sephora into Ulta. So there's a natural cannibalization and a bit less support, when it comes from Sephora to the brand in the short-term. But overall the move is net-net quite incremental. We have the same space at Sephora, we have the same stores, et cetera. But there is just a natural shift towards, for some consumers of cannibalization of Ulta. But net-net is quite incremental, incremental basis.

The next questions are from the line of Linda Bolton Weiser with D.A. Davidson. Please proceed with your question.

Yes, hi. Thank you. So I just want to make sure. I understand, sorry if I missed the details, but on Milk there's a Skin Tint launch, which is for the complexion category and then there's a skincare launch, is that correct? So there's like a separate skincare. And is the skincare okay. And is the skincare product going to be shelved right near the color products like in Sephora and Ulta? Is that, is that the plan?

Yes, Linda, you're right. There's two launches, Skin Tint and a jelly skincare launch. What we've done, and they are, will be shelves on the same fixture in both Ulta and Sephora. The skincare launch, which you may have seen and we announced as part of it we reviewed here, is taking the breakthrough technology of jellies and that form factor that [Galenit], that was highly appreciated, and launching two new skincare products. And those two new skincare products, have that same configuration, but are part of Ulta. There are two different things, Skin Tint and the skincare product that is Andre Jellies, and they're both performing very well. The Skin Tint being the one. The reason I'm highlighting it being the most kind of strategic, if you want, because it allows us to penetrate the foundation category, the complexion category.

Okay. Got you. And then in terms of the Ulta launch, is there the potential to go beyond 600 doors if it's successful? And also are you in any of the Target stores?

So the short answer is the potential. Yes, there is a potential. That said, what is important to us, and has always been important, is to limit distribution of the brand. We are very focused on productivity per store, and when we developed the list in combination with Ulta, we wanted to not go into full distribution from the beginning. It was more our request, to not go into full distribution as we collaborate with Ulta quite closely, to ensure that we have very, very high productivity on a per door basis. Makeup is a productivity game. As I said many times before, the fastest way to ruin the long-term profitability of - Makeup brand in particular is to expand distribution too fast. So yes, there is that potential. And we believe that as we continue to grow the brand and we continue to grow the brand awareness of the brand, we should never have institution running ahead of brand awareness and growth. And as a consequence, we're quite focused on that. And no, we are not in Ulta at Target.

Okay. And then just in terms of. I was wondering, sorry if you said this already, I missed part of the call, but do you have an operating cash flow and a capital spending number for 2024?

Yes, we do. You will have it as part of the 20th.

Okay. You can't give us the number.

You will have the - you will have the full financials. I can, I mean, Manuel can comment a little bit on what we share in the presentation in terms of cash flow.

Okay.

So yes, I mean, I work with our CapEx last year, we provided and it is $2.6 million was our CapEx in 2024. $2.9 million sorry, $2.9 million not $2.6 million?

Thank you. The next question is from the line of Olivia Tong with Raymond James. Please proceed with your questions.

Great, thank you. First question is just a clarification. First on - the Milk launch at Ulta. As you expand into Ulta, are you losing any space at Sephora?

No, we're not.

Okay. Easy enough. And then can you help us on Q1? Just delayer that outlook for flat year-over-year. How much of that is a function of the growth deceleration, which we of course are seeing across the industry, versus the retail inventory correction, which eventually normalizes. And then given the changing growth dynamics within the category. Can you just talk about how you're adjusting your strategy given the new growth dynamics? Thank you.

Thank you, Olivia. Just again on Q1, the deceleration is two components. One is not really a. I would say it's not really an absolute value deceleration. What we have is just simply a very, very big launch. In the case of jellies in the base of Q1, that explains the vast majority of the index if you want versus the base. We had a very big launch. I mean I mentioned this in the past. I've been in this industry for over 30 years. Launches at Jelly don't come across very soon. So that was a very, very big launch that we have to anniversary. And the second thing is retail inventory. And just retail inventory is a conscious of two things. The market is being tougher for everybody. And I think retailers as a consequence of these normalization after a very buoyant last few years, have adjusted a bit of inventory. And as a consequence in that adjustment of inventory - in our sales. So that's completed or no,

I got disconnected.

Sorry, Manuel are you…

Yes me.

Sorry, we got Manuel disconnected. So you want to put it on mute?

Yes, I'm back. Sorry it got disconnected.

Sorry about that. We had Manuel disconnected from the call. So sorry. Going back Olivia. So in Q1, the vast majority of the issue is this anniversary of Jelly, which was a very, very launch. There's some retail inventory adjustments, slowdown of the overall market and of course impact to a little bit more on our consumption, which is how we guide on Q1. But we - as I said, we're confident on the acceleration throughout the year. In terms of how are we adjusting, the reality is that the market is a point of information for us, but it's not what guides our strategy. What guides our strategy is, because we're relatively small into this market, our opportunities for growth are only limited to our ability to innovate, to create great compelling business propositions like Jellies, like Skin Tint, expanding our distribution, executing that well like Ulta. So we believe that our growth prospects are a little bit independent, not fully independent, but for the most part independent of the realities of the market. So our growth prospects remain very strong. We have a sequential progression on the year after anniversary in Jellies, as the execution of renovation plans as well as our expansion into Ulta for Milk comes into play.

Got it. And then just one last point of clarification. Was all the sell in for Ulta in the December quarter, or did any of that trickle into the March quarter?

Manuel, can you even use the mention?

Yes. So we - for logistic reasons we split the Ulta. So part was shipping in Q4, and part is being shipped in - has been shipped in Q1 this year.

Got it. Thank you.

You're welcome.

Thank you. At this time, we've reached the end of a question-and-answer session. I'd now turn the floor back over to Michel Brousset, for closing remarks.

Well, thank you very much for joining us. As you can see from the presentation on our sentiment, we are very, very bullish about the prospects of the company's growth, an advancing in profitability. Our flywheel is working, is performing very, very well. And we continue to be very excited about the prospects of both Makeup brand and Obagi, both in the U.S. and international. So thank you very much, and I appreciate you guys being with us today.