Greetings, and welcome to the Olaplex Holdings, Inc. Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Patrick Flaherty, Vice President of Investor Relations. Thank you. You may begin.

Thank you, and good morning. Joining me today are Amanda Baldwin, Chief Executive Officer; and Catherine Dunleavy, Chief Operating Officer and Chief Financial Officer. Before we start, I would like to remind you that management will make certain statements today, which are forward-looking, including statements about the outlook of Olaplex's business and other matters referenced in the company's earnings release issued today. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in or implied by such statements. Additional information regarding these factors appears under the heading Cautionary Note Regarding Forward-Looking Statements in the company's earnings release and in the filings the company makes with the Securities and Exchange Commission that are available at www.sec.gov, and on the Investor Relations section of the company's website at ir.olaplex.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 management believes can be useful in evaluating the company's performance. The presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in the company's earnings release. A live broadcast of this call is also available on the Investor Relations section of the company's website at ir.olaplex.com. Additionally, during this call, management will refer to certain data points, estimates and forecasts that are based on industry publications or other publicly available information as well as our internal sources. The company has not independently verified the accuracy or completeness of the data contained in these industry publications and other publicly available information. Furthermore, this information involves assumptions and limitations, and you are cautioned not to give undue weight to these estimates. With that, I will now turn the call over to Amanda.

Thank you, Patrick. Good morning, everyone, and thank you for joining us. This morning, we reported third quarter net sales of $119.1 million, which declined 3.6% compared to a year ago. While this represented sequential improvement from Q2, we did underperform our expectations, primarily due to weaker-than-expected results in our international business as we continue in our efforts to build the right foundation for the future. Adjusted EBITDA was $44.6 million for an adjusted EBITDA margin of 37.5%. Coupling our third quarter results with our updated learnings, we are revising our guidance for fiscal year 2024 and now expect net sales in the range of $405 million to $415 million and an adjusted EBITDA margin in the range of 29.9% to 30.6%. As we have shared on past earnings calls, we plan for 2024 as a year to begin our transformation, taking a long-term view and prioritizing the strategies and initiatives aimed at building a healthier business. While we now believe it will take longer than originally expected to achieve our goal, we are making great progress and taking the steps we believe are necessary for the long-term health of the business. Much of this work has been happening behind the scenes, while at the same time this quarter, we announced 3 new innovative products: our No. 5 Leave-In Conditioner, Bond Shaper Curl Rebuilding salon treatment and No. 10 Bond Shaper Curl Defining Gel. Although we are disappointed with this revised outlook for the remainder of the year, I remain confident that we have the right strategy and are implementing the right actions to achieve a solid foundation for long-term growth. Olaplex at its core is an innovative, science-enabled and pro-inspired beauty company with demonstrated global appeal. As a top brand in the prestige hair care category, Olaplex had 4…

Thank you, Amanda, and good morning, everyone. I am pleased to speak with you today on my first earnings call as the Chief Operating Officer and Chief Financial Officer of Olaplex. Since I've not met or spoken with many of you since I joined the company, I thought it would be helpful to provide you with a short summary of my background and what I've been focused on during the first 12 weeks of my time at Olaplex. For the past 2 decades, I have held senior leadership roles at leading global consumer and media companies, including Away, Nike, Comcast, NBCUniversal and GE. During this time, I led and executed strategic operational and financial initiatives that help drive profitable growth. The decision to join Olaplex was an easy one. As an everyday user, I am a loyal fan of Olaplex and have admired how the company disrupted the hair care category with its patented technology. I also thrive in fast-paced environments and see significant opportunity to take part in driving the strategy and elevating the company's financial foundation to provide the framework to maximize the power of our brand. Olaplex is an innovative company and one of my strengths is managing core functions with discipline, execution and rigor while also leaving room for flexibility to enable creativity. Having been in the role for almost 90 days, I am very enthusiastic about the potential ahead. Olaplex possesses a strong community of people, partners, stylists and consumers, and I am proud to be in a position to help shape our future. I recognize there are many opportunities to bring operational best practices to life at Olaplex and I look forward to helping the company to continue to build out an infrastructure that will support future growth for this business. Now let me…

Thank you, Catherine. Olaplex remains an incredibly powerful brand, a leader in the attractive high-growth prestige hair care category and an important strategic partner for our customers who are supportive of and excited about the direction we are taking the business. The trajectory of our transformation may have shifted, we are progressing and making the tough decisions that we believe are necessary to create a healthy business set up for long-term success. Ultimately, we believe we are still in the early stages of the history of this company and that Olaplex can perform at a higher level. I remain optimistic as ever about the future. This concludes our prepared remarks. We will now turn the call back over to the operator for questions. Operator?

[Operator Instructions] Our first question comes from Jonna Kim with TD Cowen.

Just curious on the overall consumer health, what you're seeing at the salon and as well as your DTC and on the retail side overall? You've mentioned higher promotions. Do you think it's more because the consumers are cautious? I would love any color there. And I would love to dig a little bit deeper into what you saw in terms of your international business. What are your key assessment there? And how you're thinking about the opportunity going forward and what it could be as a percentage of the mix over time?

Thank you for the question, and thank you, everyone, for being here today. First, I'll take the first half of that, which is with respect to kind of what we're seeing around the consumer, and I believe you're asking about both within the salon channel as well as retail and the consumer more broadly. Within the salon channel, I think we've been talking about earlier on throughout the year about overall trends within the salon category where there certainly over time has been less frequent visits into the salon. That hasn't changed in either direction in particular. I think it is sort of the way that people are thinking about their salon. And certainly, part of our focus and our strategy in supporting the stylist and rooted behind the launch of something like Bond Shaper Curl Rebonding Treatment is really supporting the stylists and making sure there's more reasons to come back to the salon. So we're excited to really support our stylist in that way. With respect to the consumer overall, yes, we did make a very conscious decision as we were thinking about going into this quarter and watching what we're seeing out in the marketplace and expecting overall a more promotional environment, making sure we're doing that, both some typical promotions, which we do use from a strategic point of view around key tentpole moments, but also in trade marketing and overall support for our retailer partners, both on the pro side as well as to the consumer. So that is something that we're watching carefully. And I think we'll see a lot of the things that many others have been talking about as we go into this key holiday season. With respect to international, I have spent a lot of time very recently on this topic.…

The next question comes from Ashley Helgans with Jefferies.

So I know you kind of talked about not yet seeing the marketing efforts provide any sort of lift. Just any more color on when you expect to start to see a lift? And any changes you think you need to make to the strategy?

Yes. Thanks for the question. I want to make sure that we really pull apart what we are seeing within our new launches and what we want to see across the entire portfolio and to draw a distinction between those 2. So, if we recall, in marketing and sales education, I really believe that brand is the thing that will -- along with innovation, will drive this business going forward. We've spent a lot of time, as we talked about, getting the brand vision right, getting the future product pipeline right. And what we had this fall was the opportunity to have 2 new launches and to start the process of really building a marketing muscle in this organization. We've seen a lot of really good things happen out of that. One of the things that we highlighted in the call was our No. 5 Leave-In Conditioner. I think that's really the first time that this brand has had, what I'll call, a full 360 approach, a tight partnership with Sephora, the ability to launch an exclusive SKU with them to really put the right experiential marketing, the right influencer marketing, the right kind of assets, the right kind of language. I mean we've been talking about this really since the beginning about, it's not just the money we spend, but it's how we spend it. And that launch is outperforming our expectations. So that's really exciting to see. What we need to see going forward and the thing that is sort of driving our guidance today is we need to make sure that we have that across the entire portfolio. And that's really going to be Phase 2 of this. And as we think about going forward and how we have a brand new CMO, Katie Gohman, who joined us in July, and she's fantastic and I think really helping us take this to the next level. So these things are work in progress, but I do feel like we're on the right track that we have, again, a brand vision that I alluded to, and I look forward to sharing more about that, as that becomes out in the world, and we have a great product pipeline. And so we're going to get better and better at this.

The next question comes from Susan Anderson with Canaccord.

Alec Legg on for Susan. On the fourth quarter sales really does take a big step down with the updated guide. How much of that is from the international realignment and expectations for how the U.S. will perform?

Thanks for the question. Yes, international is the primary driver of what is driving our fourth quarter guidance down. While all 3 are very important, it really is mainly the international and the impacts of other 2 on international.

And then just a follow-up. I guess, with international being reset and realigned, what is the expectation for sales to start stabilizing? How long do you think it will take to kind of recreate the brand that you're trying to work with the distributors over in Europe?

Well, we're still working through our plans for 2025 and beyond, and we're not really providing guidance today. But I can tell you a couple of things. One, as Amanda and I mentioned earlier, in our home market, on a week in and week out basis, our selling are relatively consistent. So we started in the U.S. and put in place our actions, and that is starting to work. So then we just have to take that playbook and put it in international. And as Amanda described, she spent a lot of time market by market, creating a very detailed strategic plan for how we're going to go to market. So this is a transformation. It will take some time, but we're confident we've identified the right actions to drive future success. And I'll just add that we are very fortunate to have a strong balance sheet and healthy cash flow that allows us to make the tough decisions and continue to invest for long-term future profitability.

The next question comes from Korinne Wolfmeyer with Piper Sandler.

I'd like to touch a little bit on the cost structure and how we should be thinking about that for Q4 and heading into 2025. I believe the SG&A guidance implies still a meaningful step-up in Q4, even though you're pulling back on some of the marketing and ad spend. So can you touch on what's driving that number? And then as we head into 2025, how should we be thinking about your marketing and advertising budget relative to the rest of the SG&A expense?

So, thanks for the question. I think that as Catherine alluded to, we think it's important to continue to invest behind this brand in the fourth quarter. And so we'll continue to make sure that we're building for the future. We aren't providing guidance for 2025 at this time, but we certainly are learning a lot as we -- as I talked about before, we're learning a lot from our marketing efforts that will help drive our planning for next year. We're spending a lot of time on this international business, so we really understand what it's going to take to set that up for success as well as really spending a lot of time on the road now with the future brand vision and really working with our partners to plan for next year.

The next question comes from Andrea Teixeira with J.P. Morgan.

This is Shovana Chowdhury on for Andrea. Can you give us a little bit more insight on the international competitive landscape and your confidence level in bringing about fruitful results by realigning distribution network and updating the marketing strategy outside the U.S. And additionally, if I can tack another one, understand that the guidance was lower mainly due to the international space. But in quarter 3, the U.S. market top line also declined by 3.3%. So if you could just tell us a little bit more like what is causing -- understand that it has to do with not seeing the lift in demand, but your new launches were doing pretty well as per the commentary.

I can take that first one as we think about the international competitive landscape. I think what you see is similar to a lot of different brands and different categories in beauty. You'll see some global players who will be very similar across the globe. And then you obviously see some more local players. And that's when I was speaking earlier about kind of really getting on the ground, understanding the dynamics, understanding the different channels, being in salons, being in the stores, watching what's happening online, really understanding what the consumer is seeing and what they're -- as well as the stylists and what they're looking for in their respective markets. What I would say is it's more similar than it is different. There are certainly, like anything else, some global nuances to this to be mindful of. And we do have a business that has incredible reach. And I think, again, I think there's a lot of appeal for this brand and the fundamental nature of hair health, of hair repair is something that is very consistent. But how you might approach the market. And that's actually a big advantage to having a distributor network, is that they are on the ground that they do really understand the nuances of their individual markets. So we -- again, this is about a closer partnership about having much more involvement in how we're going to market in these places and making sure that we're kind of taking advantage of both of our sets of expertise, ours of our own brand and what it can do, that we're translating our marketing, our sales and our education across the globe and that we're leveraging those partnerships to be closer to the consumer, to be closer to the stylists and really have our hands -- arms, legs, ears, eyes on the ground for us. So that's really how we're thinking about that part of the business.

And then I'll try to address your Q3 question. In Q3, our professional sales were down 12.6% and our retail sales were only down about 1.3% and our DTC was up. And then I think your question was specifically in the retail channel, what were we seeing there? And it was down 1.3%. We did see some timing with some of our major customers with the sell-in of holiday kits. And so that might be some of the variance that you're seeing.

The next question comes from Lauren Lieberman with Barclays.

Amanda, I missed the beginning of the call, so apologies if you've kind of directly answered this already. But I know you talked about it's taking longer to see the lift on new product launches and the new campaigns, but also spoke about the success of the Leave-In Conditioner. So I just wanted to see if you could talk a little bit about almost like a postmortem on the -- what's not worked so far and why as contrasted to what has gone well with that Leave-In Conditioner product. And I know you talked about the 360 on the Leave-In, so maybe it's more about the what wasn't working on the earlier pieces?

Yes. I mean, I think the places were -- and as you can imagine, we certainly have done a lot of our own internal reflections. And we have, like I said, a brand-new CMO who joins us with an extraordinary background. She's really dug in on this with her team, and it is something that we really think is very important as we go forward to make sure we understand what works and what doesn't and kind of continue to improve over time. That's certainly something I believe strongly in. Again, I think what we really are seeing is that the brand resonates, right? I think that's a very important thing to talk about that as we improve our marketing muscle that the pro responds, that the client response, right, like that was really what we needed to understand this year, so that we have that information as we go into a future brand vision as we bring on this team as we build the muscle. I think we feel, again, that there's some very important signs of success. One of the things that we talked about very early on when I joined was this concept of creator-led marketing. The concept -- and that is something that is certainly at the helm of a lot of how beauty industry operates and it is something that we really believe that we can do very successfully. It was also the first time with the Leave-In Conditioner that we had an experiential event, so a physical pop-up that we did for Fashion Week here in New York. And certainly, I had the fun of getting to go to that and lines around the block. But I think that what was so interesting and exciting about that was that people really -- again, they wanted to see the brand, they wanted to experience the brand, but they were also really curious about our science. And that is something that we're seeing across the board is that people really do see the power of this product. They are interested in how it works. They're interested in how to use it. They want to know about that, and we are getting better and better at explaining that. I think that was also something that I called out very early on is that we have this unbelievable technical foundation. We need to get much better at explaining it and explaining it, whether it's to a stylist, to a consumer and social media and influencers, leveraging the power of that technology and translating it into language that really makes sense for the broader universe is something that I think I look at it as a really exciting proof point for what we're seeing today. But I'll always be of the mindset we can do better. We can -- and that's certainly something that Catie and I share, and we'll continue to evolve our processes and the marketing that we put up.

The next question comes from Olivia Tong with Raymond James.

With respect to international, do you have a sense on how much has to come out of it and how long it will take? And what the business looks like after you have rightsized it? And more importantly, why do you think now is the right time to make the international changes you're planning? Obviously, you've got quite a bit on your to-do list already. So where is the incremental manpower coming from to drive more of a cleanup in international markets right now?

I think, yes, we have the good fortune of being able to make the hard choices, right, and to make sure that we're building for the future. And so I really believe -- and we've talked about that the power of marketing, sales, education and innovation, those are the things that are going to drive this business forward. We believe that we need to realign that international business in order to take advantage of that. So I do think it's important. Like I said, however, there is a lot of enthusiasm for this brand, so we're going to do this in the right way. So at this point, I'm not going to be able to give a time line. But we'll do the same thing that we've done with everything else in this business is that we're going to operate with a sense of urgency that's important in a transformation, but we're also going to take the time to make sure we do the right analysis that we pick the right partners, that we do this in the right way. And those will obviously be in balance, and we'll certainly keep people posted as we work through this.

The last question will be from Rob Ottenstein with Evercore.

You kind of touched on this a couple of times, but I just maybe want to give it another shot and drill down a little bit. I think all of us who have been involved were incredibly impressed with the product, the technology, the efficacy, right? And then something happened and there were social media issues. And I think you're largely behind that. Correct me if I'm wrong. But I think what may have also happened is increased competition that may have confused the consumer, with various different kind of bonding products or trying to play off your claims, but in different ways. And so I guess the question is, is consumer confusion part of the problem? And then to the extent that is, and I know you talked about better communication, but can you be maybe even more specific about how to deal with that confusion and how you can actually get across that you're unique in terms of the science and the efficacy? And again, I know you touched on it, but it's so important. I was just wondering if you can kind of address it a little bit more.

Yes, absolutely. And I think it's a great question. I think what I was saying before a little bit about the importance of our ability to explain our science, that is the crux of it, right? How do you take something that is truly world-class patented technology, it's complicated stuff, right? And how do you take that and how do you translate that to the consumer. This is the place that we're really focused. And again, I think we're seeing some early signs of success. We've made some very material changes in how we're approaching social media, how we're creating content. Certainly, if you were to go on our Instagram page and you look at it 12 months ago and you look at it now, it's going to look different. That, I think, is a good indicator of how we're approaching science in a different way and how are we thinking how we communicate because I think you are right that we need to make sure that people are clear on what sets us apart just because we know that we are, doesn't mean that the consumer knows that and that the stylist knows that. And those are related, but not 100% the same thing, right? There's overlap in how they consume information, but there's also unique channels about it. So that's something that we're thinking a lot about as we continue to build our marketing muscle. And then I think it's also the importance of innovation and the importance of introducing new SKUs that allow us to continue to push the boundaries of innovation. And I would say that I really believe that this brand is certainly harnessing the power of bond building technology, but this is way more than a bond brand. This is a prestige hair care brand. I really believe that, that's the category that we compete in that is very important to establish the brand in that way and to communicate that way because that will, I really believe, increase our ability to really be a part of people's daily hair care routines.

Thank you. At this time, I would like to turn the floor back to Amanda Baldwin for closing remarks.

Well, I'll just say thank you for everyone who joined this morning, and please do reach out with any further questions.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.