Good morning. Welcome to Oddity Tech Ltd.'s Fourth Quarter and Full Year 2024 earnings conference call. Today's call is being recorded. We have allotted time for prepared remarks and Q&A. At this time, I would like to turn the conference over to Maria Lycouris, Investor Relations for Oddity Tech Ltd. Thank you. You may begin.

Thank you, operator. I'm joined by Oran Holtzman, Oddity Tech Ltd.'s co-founder and CEO, Niv Price, Oddity Tech Ltd.'s CTO, and Lindsay Drucker Mann, Oddity Tech Ltd.'s global CFO. As a reminder, management's remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations, or estimates, including statements about Oddity Tech Ltd.'s business strategy, market opportunity, future financial performance, and potential long-term success. Forward-looking statements involve risks and uncertainties, and actual results could differ materially due to a variety of factors. These factors are described under forward-looking statements in our earnings press release issued yesterday and in our most recent annual report on Form 20-F with the Securities and Exchange Commission. We do not undertake any obligation to update forward-looking statements, which speak only as of today. Finally, during this call, we will discuss certain non-GAAP financial measures, which we believe are useful supplemental measures for understanding our business. Additional information about these non-GAAP financial measures, including their definitions, are included in our earnings press release, which we issued yesterday. I'll now hand the call over to Oran. Thanks, everyone, for joining our call today.

2024 was another strong year for us, both for financial achievements, but even more important for the investments we've made to drive our business in the future. As I tell my teams, our success today is because of the hard work we did two and three years ago. We are proud of it, but it is in the past. We must continue to work hard to invest today to ensure we keep winning. It is for this reason that I'm bullish about 2025 and beyond. Our business is very strong, and we are developing more engines of growth than ever before. This is across Oddity Labs, new brands, and AI. So let's start with our 2024 performance. In 2024, we grew revenue 27% to $647 million and delivered adjusted EBITDA of $150 million at a 23.3% margin, growing adjusted EBITDA 40% year over year. We generated $134 million of free cash flow, converting over 130% of our net income into cash. We then proved the power of online. We beat our earnings guidance every single quarter since going public and continuously raise our outlook on sales and profitability. Every single quarter, seven quarters in a row. Both of our brands did great in 2024, each growing revenue double digits. Il Makiage crossed the $500 million revenue mark in 2024, and Spoiled Child recently crossed the $150 million mark for its third birthday anniversary this month. We maintained strong and consistent momentum across the year, including our fourth quarter where we grew revenue by 27%. This momentum continued into 2025 where we had a great start for the first quarter growing across brands and product categories. And given the importance of our first quarter, it put us in a good position to once again meet our annual target for revenue growth…

Thanks, Oran. Indeed, we believe the Oddity Tech Ltd. platform today is the most advanced AI-based commercial engine in our industry. We continue to push our capabilities to new heights. Our technology moat allows us to deliver a better experience to customers than what is possible in-store. In order to do that, we need great data and the ability to hyper-personalize the user experience. These are problems that machine models are especially well-suited for and why we have from an early stage focused on building these capabilities. Let's start with product matching. The ability to understand each user and deliver them the perfect product match based on her needs. The vast majority of our first purchase revenue comes through one of our AI-based matching algorithms. We're continuously improving this model in order to reduce returns and increase satisfaction and repeat. As one example, our latest version of Il Makiage Power Match, which we recently released, is our best-performing shade matching model ever. It's a multimodal architecture trained on both images and text, and it's reduced returns of our best-selling shades by more than 10%. Turning to our user journey and how we personalize every experience to the individual in order to maximize conversion and LTV. I like to think of these models as a virtual personalized store that is being built around our users as they walk through based on the information we gather about them. One example is a new model we introduced recently for Spoiled Child, targeting post-purchase upsell. Instead of offering a random product after purchase, or one pre-chosen by a human, we use machine models to make the decision. This drove a 30% plus improvement in upsell conversion and a 15% plus improvement in upsell AOV. For brand three, we are taking product matching and hyper-personalization…

Thanks, Niv. Let's turn to our Q4 results, which I will refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Oddity Tech Ltd. delivered another record-breaking quarter to cap off a record-breaking year. We grew net revenue by 27% in the quarter to $97 million. The strength was driven by both Il Makiage and Spoiled Child across a range of product categories. Net revenue growth was driven primarily by an increase in orders, while average order value increased 12% year over year. Average order value growth continues to be driven by mix, in particular the increased proportion of Il Makiage Skin, as well as higher items per order. The 27% revenue growth we delivered this quarter beat our 22-24% guidance. The upside stands in contrast to the concerns we hear from investors about weakening sales trends in other beauty businesses, including both wholesalers and retailers. As Oran said, our results are a testament to the strength and resilience of our direct-to-consumer model and how we've positioned our business to win in the most important vectors of industry growth. Moving down the P&L, gross margin of 72.7% expanded 330 basis points year over year and exceeded our guidance of 68%. The delta versus our outlook was driven in part by product mix. We delivered adjusted EBITDA of $15 million in the quarter, and adjusted EBITDA margin of 12.3%, above our guidance in absolute dollars and in margin percentage terms. Adjusted EBITDA margin compressed by 453 basis points as we incurred planned incremental expenses in the quarter to drive future growth initiatives, including brand three, brand four, and Oddity Labs. We delivered adjusted diluted earnings per share of $0.20 compared to our guidance of between $0.11 and $0.13. Our adjusted EBITDA and EPS…

Thank you. We will now be conducting a question and answer session. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before asking your question. One moment while we poll for questions. Our first question is from Corey Carpenter with JPMorgan. Please proceed.

Good morning. Thanks for the questions. I had two. Maybe one on international, Oran. I think you mentioned in the prepared remarks starting to push more in Q1. Could you just go a little deeper on your strategy, kind of what you're doing on the international side and why now? And, Lindsay, I think for you, just on Q1, I understand that's your highest customer acquisition quarter. So could you just talk about what you've seen in the first few months on the customer acquisition side and ROAS and payback on that? Thank you.

Hi. Good morning, Corey. As for international, the teams are working hard to accelerate international for many years, as you know, and what I wanted to achieve now is to showcase that it is our decision when and how much we want to grow there. I also decided it's important to spread the growth across small markets and instructed the teams already back.

In terms of your growth relative to peers, are you seeing any weakness or trade down across your consumer base from ongoing macro concerns? It looks like consumer confidence, at least in the US, continues to deteriorate. Do you think this business continues to perform well regardless of how the macro does over, say, the next twelve to eighteen months? And then, Lindsay, on TikTok, was TikTok impacted at all as a marketing channel for you guys by the brief shutdown in January? And if the platform does go away, what's the best substitute with comparable ROAS for you guys? Is it Instagram? Is it something else? We'd love to just see if there is a substitute.

Good morning, Joseph. I would take both. Let's start with the easy one. If TikTok is being shut down tomorrow, nothing happens to the business. It didn't, like, we already saw it in one day, and we are the fact that we do everything internally without agencies allows us to move very fast and to shift spend to other platforms. And therefore, no impact. For the market, look, we said it before, the customer is moving online. We've said it multiple times. I believe this is the case. I believe it will be more than fifty percent. We know the challenges some of our competitors have, and it's really not surprising us when you consider how much the consumer is moving online and how much their focus is going into brick and mortar with over one thousand new points of distribution in just the last couple of years. We did see a lot of promotions from other brands in Q4, which was probably to drive demand. This isn't an issue for us. Thankfully, because we don't run the business this way. We are not participating in holiday sales. But for other brands, it can be very damaging as part of their consumers are conditioned to shop only during certain promotions. And so it makes it very tricky for Q1 for them. Overall, it's like what we see now is a big opportunity for us because we believe this transformation is still in early days. Online penetration can double from where we are today, and that's what keeps us very bullish about the future.

Okay. Thanks, Oran.

Our next question is from Javier Escalante with Evercore ISI. Please proceed.

Hello, Oran and Lindsay. Nice talking to you. My question has to do more on the consumer side. If you can expand on repeat purchases, which I understand you define more as conversion within the same cohort. And perhaps if you have visibility on that, whether you can discuss Il Makiage in terms of which areas you see the strongest repeat within existing products, I believe should be foundation, about this is my guess. And how much of the Il Makiage growth is coming right now from consumer trial of the skincare extensions. Thank you.

Good morning. I'll start with repeat. Unlike most D2C companies, we generate most of our revenue from repeat. And this is although we grew over 25% so far this year. So this is why the business is so profitable. Repeat in 2024 grew to more than 60% of the business revenue, way higher than 2023. Again, this is although we grew over 25%, actually 27% in revenue. This is an important metric for us because it really shows how strong this satisfaction and happiness is. And if I dive deeper, our twelve-month net revenue repeat rate is more than 100%, which we believe is among the best there is in D2C. And this metric was less than 50% compared to more than 100% just a few years ago. We drive repeat by three main ways. One is more repeat from the same product and foundation, concealer, hair. Number two is expanding wallet share with new products. If I sold a foundation or concealer before, now we are offering her skin products, which is a repeat. And number three, we are getting cross-selling from Il Makiage to Spoiled Child and in the future for new brands. So this is the way that we view it. And repeat is very strong. Like, the core that we see, we don't see any softness.

Alright. If I can squeeze a second one, if you don't mind. Yes.

The, you know, the strong growth in Q1 is certainly a stark contrast with most traditional beauty companies. Could you talk about customer acquisition kind of like in growth rates? Say, Q1 2024, I have this many millions of users and, you know, as of now in Q1, I have this many more in a growth rate. If you can tell us how much of the 20% 2023, I believe, growth would be the midpoint of your guidance come from new users versus existing users buying again. Thank you.

Sure. Our biggest push in user acquisition is H1. Like, every year. Q1 is the biggest, then Q2, then we slow down because we don't want to grow more than that, and we enjoy the repeat. But it doesn't mean that we don't have the strong repeat in Q1. If I had it, I wouldn't, like, if I didn't have it, I wouldn't be able to land on those same EBITDA margins, though, because as you know, acquisition is not super profitable. So we are pushing and we are acquiring new users, but at the same time, we are landing on a very healthy EBITDA margin, which is a testament to the strong repeat rate as part of revenue, although we grow. And the new user and the new user by acquisition, as Lindsay said, continue to generate attractive returns on our marketing spending. And, again, you can see it by our strong margins that we forecast for Q1 and for the full year of 2025. Q1 media is getting more expensive, but as expected, due to the super healthy repeat, as I mentioned before, it's being offset, and we can see healthy margins.

Thank you very much.

Our next question is from Andrew Boone with Citizens. Please proceed.

Thanks so much for taking my questions. I'd love to understand the key product milestones as we think about brand three coming to market later this year. What do you guys need to accomplish and kind of knock down to set brand three up for growth and for it to scale into 2025 and 2026? And then, Lindsay, just stepping back from a bigger picture perspective, we do think about the P&L, you guys are making significant investments across multiple growth factors that really aren't contributing in 2025 materially. How do we think about sizing those growth investments to better understand your inherent underlying profitability? Thanks so much.

I will start with the second question. Of course, Lindsay, you can elaborate. We are, I want to say, more than doubling our investments in Q1 versus Q1 last year around labs, brand three, and brand four. When you think about the magnitude, it just continues to grow, and although it continues to grow, we still land on our margins that we are committed to. Brand three is a telehealth platform with medical-grade products. We are starting with skin and body issues like acne, eczema, and other pigmentation, and then we'll add additional health domains already in 2026 next year. I can't elaborate more for competitive reasons. But for where we are today, we start with body and skin. We see these issues as huge pain points that impact a big portion of our user base. Satisfaction with current solutions is terrible, either inconvenient visits to the doctor's office or picking an ineffective treatment blindly at the drugstore. This is a huge opportunity for Oddity Tech Ltd. We would never launch it this year unless I had a very good read that we know how to win around those areas. We tested a lot. We are building this brand for more than two years, and we are in a good position to launch it. We are developing what is the most personalized and most comprehensive line of products comprised of OTC and Rx products, all to be sold online under our own brand. Most products are formulated with existing ingredients on the market, and some OTC products will include exclusive ingredients from Oddity Labs. Two is we are building a first-of-a-kind, as I mentioned in the call, mobile app experience to increase compliance and drive high repeat compared to the market today. And three is leveraging the best thing of all, which is our platform, our user base, marketing to them, and developing products to address their needs. As I mentioned in the call, soft launch Q3, official launch Q4. We are actively scaling the teams, which is a significant investment for Oddity Tech Ltd. We completed developing the product line and branding, and we set up the telehealth infrastructure to streamline user experience and support the delivery of our personalized treatments. And as we've discussed, major breakthrough for us around vision. The numbers that I saw are very compelling in terms of diagnosis and matching, and I'm very excited to launch this brand.

Andrew, just to give you a little bit more perspective maybe on the amount of spend, I'll highlight two things for you. Number one, if you look at our profitability, the first half of 2024, which was essentially just Il Makiage, Spoiled Child, and then just beginning to ramp on our investments. We did have Oddity Labs, of course, in the base, but there's a small there's some investments there, but not as much as you saw for the full year in the back half of the year as we ramp in and of what we're guiding to in 2025, you can get a sense, look at the first half of 2024 at how profitable the underlying business is. And remember, 2024 is our highest dollar level of marketing spend, and it's so we're at our largest scale. It's our lowest portion of repeat. So this is, you know, that profitable despite the fact that it's kind of in the, you know, it's a period where we actually are doing a lot of investment inherent in the D2C business. So I think that's one factor. And the second thing that I would mention in terms of cost is we have had a very material increase in investments in these growth initiatives. We talked about Spoiled Child being a brand that we spent $20 million upfront to launch. So, you know, brand three is more involved for us than what Spoiled Child was, but it gives you a bit of a sense of kind of what the upfront investment is that we've, of course, layered over a couple of years.

I would just say, like, tens of millions in terms of investment this year. So we can elaborate more, but being in person for us across brand three and brand four.

That's very helpful. Thank you so much, guys.

Our next question is from Dara Mohsenian with Morgan Stanley. Please proceed.

Hey. Good morning. So maybe we can stick to brand three. I was just hoping to get a bit more specifics on the consumer need states you're targeting with brand three, the total addressable market that you see, and maybe just a bit of an update to the extent you'd like to share on sort of the effectiveness of the product so far in brand three and your testing for those consumer need states versus the existing competing products that are out there?

Yeah. Sure. I think that I said, but I will say it again. We start with acne, eczema, hyperpigmentation, and body issues. It's for trial. I want to say that we did close to a hundred groups of trials, like, for the personalization and customization, we see numbers that are better than anything other that we saw so far. In terms of matching and satisfaction. Truly, like, more than two years in the works just stepped out. So we wouldn't launch it unless we were very confident that we have a strong offering.

And just to understand the magnitude, we're launching like, dozens of new products for brand three after testing and it's a huge lift for us. But thank God the majority of the work is behind us, and we are gearing up for launch.

Including systems, processes, and control, we are constantly partnering with other platforms to help us accelerate target and hit discovery. In addition, we are working on biology delivery systems to help optimize how different compounds can reach their target. And as I mentioned, short-term focus, brand three, brand four. Long-term is way broader than that. And, again, for competitive reasons, we are not sharing what exactly we'll work on there. Lastly, we are constantly exploring M&A opportunities to strengthen Oddity Labs' capabilities, looking for strong teams with advanced technologies or new discoveries that are aligned with our target space. I hope it'll put things in perspective.

Thanks. Our next question is from Scott Schoenhaus with KeyBanc Capital Markets. Please proceed.

Thanks, team, for taking my questions. My first one is on brand three launch and the telehealth platform. Lindsay, I think you mentioned that gross margins would be a little bit compressed versus your legacy brands here. Is that related to sort of the healthcare providers, the dermatologists that you have access to that will weigh on the gross margins? Just kind of wanted to drill into the workflows of this telehealth platform. And in dermatology, obviously, there's a shortage of dermatologists, and there's long wait times. So there's a huge opportunity, I'd imagine, in this market segment for telehealth as well as diagnosis. And I kind of want to work through the workflow platform with the telehealth versus the vision technology. Thanks.

Hey, Scott. Thanks. The gross margin comment is really specific to, as we've talked about for brand three, users will have access to both over-the-counter and prescription. The callout is really on the prescription side where there's higher cost of goods associated with doctor networks, compounding pharmacies, and that kind of thing. That being said, even with a lower gross margin profile, this is a business where we expect to have great frequency and repeat. And so as for all of our brands, we demand a threshold of contribution margin, EBITDA margin, and we're really, really, really excited about the unit economic profile and financial model for brand three.

I would just add that we need the infrastructure for doctors just for the Rx part, which is going to be less than fifty percent of our offering, and everything is in place to meet our deadline for launch.

Thanks, Oran. And my follow-up, you just actually talked about Oddity Labs, and you talked about M&A. So interesting perspective here or question. How do you balance expanding your team at Oddity Labs organically versus M&A? I think you also mentioned you're partnering for target optimization as well. Can you just dive into that more?

Yeah. Sure. There is a limitation of what we can do internally in terms of capacity and resources. And in order to make sure that we can double our power, we could get help from others. And if we see something that is very promising for pharma, we reach out to them and we check if they can help us develop something with us for certain areas that we don't have expertise in. And this is one example. As for M&A, we acquired Revela for the same reason, and we're constantly looking for strong teams mostly in pharma because there isn't, like, in our industry, it's not that common. And if we see a strong team, we will not hesitate to acquire.

Thank you. Our next question is from Lorraine Hutchinson with Bank of America. Please proceed.

Thanks. Good morning. Can you talk about the product you've launched in Q1 at each of the brands, what you're excited about, and then what's in the pipeline for the next several months?

Hi, Lorraine. Sure. So Oran talked about this a bit in his prepared remarks about how important product innovation has been for us as a way to continue to drive revenue, repeat, and convert our users who had never found what they were looking for into customers. So it's important in order to drive that conversion from users to customers, and then to convert customers into repeat customers. And we can see the benefit of that based on, number one, just how much contribution we're getting to the business today from new product innovation. So skin is a great example. There was no skin in Spoiled Child till 2022, and you can see how large those businesses have become. And then you can also see with our AOV up 12% in the quarter, and it was up nicely all year. You know, we are getting, in that instance, a nice benefit from both the higher price points of those products, but also the fact that people are adding more items to order. More items to order because they're finding more of what they want. It allows us to do a better job of upsells, bundles, and other things like that, which ultimately drives revenue. We do have some nice products in the pipeline that we tested. We always before we launch anything, we do a lot of testing to make sure that we feel really good about the product's ability to work. Of course, we're always testing our products themselves. But even before the product efficacy, just understanding ad sets and funnels and that kind of stuff. And so we've had some nice products that were tested in 2024. We have one product I'll highlight, which is our neck cream that's going in Q1 2025. You know, maybe I find that they target me often on my social platforms, so maybe that's a hint for me personally on what I need. But, you know, also, we have liquid magnesium, some eye creams, and other items. So it's about five for each brand this year for the full year. Across the year that will be and that's not even counting the really robust product set that we'll be launching with brand three.

Like any other year, around five products from each brand have been launched. Thank you.

Our next question is from Lauren Lieberman with Barclays. Please proceed.

Great. Thanks. Good morning, guys. I was curious to talk a little bit about the consumer environment. So obviously, I understand that you don't have any exposure to traditional retail and some of the, you know, inventories. Destocking dynamics that are going on. Like, you know, you talk about how your consumer base is very broad across age cohorts, demographic cohorts, socioeconomic cohorts. And I was just curious if there's anything you are seeing in the consumer environment because we hear a lot about the, you know, kind of cautious consumer, things not getting worse, but certainly not getting better. Strength at the high end, but kind of everyone would call it below a hundred thousand of income. Household income kind of struggling. So it's amazing how resilient your business has been. And so I was just curious if you could comment again on anything you're seeing or not seeing from the consumer environment. And if you're not seeing it, why do you think that is? Thanks.

Thanks, Lauren. I guess I'll take it. I mean, listen. We hear what other companies talk about. We certainly follow what our competitors are saying. You know, as you've been covering this industry for a long time, beauty is a really resilient category. In and out of economic cycles. I suppose what's different about beauty this cycle is just the secular channel shift. And I know for many of those all the companies that I listen to, even if their businesses were challenged, every single one of them called out online as a bright spot. And you can see from our business how strong the performance is and, of course, it feels like Amazon has hit a bit of a critical mass or a groove where they're getting more great brands on their platform and you're seeing that benefit. So I think it's you rightly point out that we have a very broad demo, broad across ages, broad across income as far as we can see just based on the wide range of brands that people trade into us from. So from Prestige Beauty to Mass, to Mass, there's a lot of different customers trading into us. And to us, it's a reflection of the value that we deliver. What is it? They say price is what you pay, value is what you get. A consumer is willing to pay significantly more for the same type of product because the product is great and because we're delivering them something that they just cannot get outside of the Oddity Tech Ltd. platform. So I think we're not necessarily the right place to look. We have a broad demo. We're really tiny in the middle of a very, very large industry, and we're right at the center of all this sort of excellent secular growth without anybody really doing anything close to what we are.

And I would just add one more thing. Like, what we didn't have three or four years ago is the verification of offering. Now we only have color, skin, wellness with Spoiled Child, are expanding to derma pharma with brand three. And I think it helps a lot, like, meeting our goals if some area is softer. But, needless to say, as we mentioned, so far, we see very strong Q1.

Great. And if I can just sneak in one more, really small. I was just curious. Cross-selling between Spoiled Child and Il Makiage. Do you have any way of kind of quantifying that or what the crossover on the customer base is at this point?

Yeah. At the beginning of a new brand, often, you see a lot more cross-selling crossover, I should say, of users from, you know, Il Makiage that we then convert into customers for Spoiled Child. By the way, that was true for Skin also initially for Il Makiage's skin. We started off mostly with color on customers who then ultimately, you know, would convert to skin. But now as the brand scale is well, Spoiled Child is scaled and is as skin is another example of scaled. They stand on their own more. I think in general, we've talked about something like half of Spoiled Child revenues came from Il Makiage users, not necessarily customers. But users. So folks that had come through our Il Makiage platform, you know, given us a bunch of information, taken a quiz. We learned about them, didn't find what they were looking for, but then converted over into Spoiled Child in addition to Il Makiage customers who actually cross over the two brands.

Yep. Okay. Awesome. Thank you so much.

We have reached the end of our question and answer session. I would like to turn the conference back over to Oran for closing remarks.

Thank you very much, guys. See you next quarter.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.