Greetings. Welcome to Waldencast's First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Allison Malkin of ICR. Thank you. You may begin.

Thank you, and welcome to the Waldencast plc first quarter fiscal 2024 earnings call. 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 our performance within the context of the beauty market. Manuel will follow with a review of our fiscal year 2023 and first quarter performance as well as our outlook for the remainder of 2024. Then, Michel will share our strategic growth initiatives for our Milk Makeup and Obagi Skincare brand. 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 outlook of Waldencast'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 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 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. A live broadcast of this call is also available on the Investor Relations section of the company's website at ir.waldencast.com, which will remain available until the company's next earnings call. I will now turn the call over to Michel Brousset.

Thank you, Allison, and good morning, everyone. I am pleased to speak to you all today and share our strong first quarter of 2024 results and resume our historical practice of holding earnings calls each quarter having completed our historical annual filings for the fiscal years 2022 and 2023. I will start by anchoring us in our vision for Waldencast, which 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 a home of the brands of tomorrow that connect with consumers' needs and their values. We are a beauty pure player because beauty is the most beautiful of industries, one that has shown impressively consistent growth, profitability, and resilience, and because it's an expertise-led industry that we're expect in. Prestige Beauty closed 2023 at plus 14%, more than double Mass Beauty, momentum that continued albeit with a moderating trend in Q1, with Premium Beauty growing plus 9%, but still ahead of its historical growth of the market. While Prestige Skincare remains expanding in double-digit growth at plus 10% as consumers are increasingly looking for performance-led transformative products, Make Up, previously the fastest-growing category within beauty, registered a growth of plus 4% in Q1 as the category normalized after the post-COVID rebound. The rate of growth is expected to accelerate, driven by the rising popularity and sophistication of makeup among younger consumers. In particular, we see millennials and GenZ, purchasing makeup at significantly higher rates versus pre-pandemic levels as socializing resumed as well as the acceleration of innovation in the market after a pandemic low and the continued growth…

Thank you, Michel. It is a pleasure to speak to you today on my first earnings call as CFO of Waldencast. As many of you are not familiar with me, let me start by sharing my background. For the past 25 years, I have led financial organizations in the beauty and consumer products industry in Europe and North America, most recently as CFO of L'Oreal in Spain and Portugal. Among other things, during my time at L'Oreal, I played a key role in the acquisition and integration of a new cosmetics brand, executed numerous transformational projects across the organization, and helped unlock value and identify growth opportunities for the company. I am now eager to leverage my expertise to help Waldencast to achieve its ambition to build a best-in-class beauty and wellness multi-brand platform. It has been six weeks since I joined the company, and I am already impressed with the strength of our brands, the innovation and differentiation we provide, the highly talented and motivated teams we have in place, and importantly, the significant growth opportunities that lie ahead of us. Now, turning to our review of our performance. While our U.S. GAAP revenue are outlined in the earnings release, my comments today will focus on comparable net revenue, which we believe is a relevant metric to follow as it reflects the operating sales of our business, removing revenue related to the former Obagi Skincare China business, which was not acquired by Waldencast at the time of the business combination. With that, let me share highlights of our fiscal 2023 performance, which were previously communicated, and then cover our first quarter 2024 results and outlook. For fiscal 2023, comparable net revenue was $212.5 million, an increase of 15.3%. In Milk Makeup led our performance and exceeded $100 million revenue…

Thank you, Manuel. Now, let's take a look at our results and our plans by brand. And let's start with Milk. Milk Makeup completed an excellent year of growth in fiscal 2023. As we noted, we expect to build upon the success in 2024. Net sales were $100.5 million, increasing 38.6% from 2022. Our adjusted gross profit was $66.7 million or 66.4% of net revenue, and adjusted EBITDA of $18.4 million or 18.3% of net revenue. For the first quarter, Milk generated net revenue of $34.5 million, an increase of 21.5% from the first quarter of fiscal 2023. Milk's excellent quarter was led by growth of North America and through a strong e-commerce growth with continued traction from our international expansion. Adjusted gross margin grew an impressive 540 basis points to 71.3% of net revenue as we benefited from our efforts to lower costs and increase efficiencies in sourcing and distribution and better management of our inventory, driving to lower obsolete inventories. Adjusted EBITDA rose 12.4% to $10 million, with adjusted EBITDA margin of 29.1% as a strong revenue and gross margin expansion was mitigated by increased investment to drive sales. Now Milk Makeup's ambition is to be the #1 global beauty brand of the next generation. This is a brand that has been built in its DNA to be that brand, uniquely connecting with our needs, values, and passion points. Milk Makeup, beyond a brand, is a movement. It is rooted in its community inspired by the energy, vibrancy and diversity of New York City, and powered by high-performance clean products. Milk Makeup is anchoring three core pillars: brand, community, and product. On brand, our priority is to double down on our DNA, what makes our brand unique, desirable, and relevant, and accelerate our awareness, whilst broadening our brand…

Thank you. [Operator Instructions] Our first question is from Ashley Helgans with Jefferies. Please proceed.

Hi. This is [Sidney] (ph) on for Ashley. I know the recent Milk Jelly Tints launch was very successful with Gen Alpha. Can you talk a bit more about what you're seeing with that consumer and kind of what you think attracts tweens to the brand?

Yes, of course. Sidney, how are you? Well, Jelly goes far beyond Gen Alpha in fact. We've seen a relatively broad appeal. But of course, the key drivers of that in terms of Gen Alpha is being, number one, very interesting new texture as well as a very compelling, buildable color payoff. And of course, executed beautifully by the team across different touchpoints with really breakthrough interest in creative. What we're seeing in Generation Alpha, I mentioned is the TikTokification of beauty. We're seeing younger and younger consumers interested in beauty and participating in beauty, and as a consequence, more and more of them look for these breakthrough new forms, new innovations that become, in many ways, expandable and viral in some cases, in the case of our Jelly's launch. So, it's at the same -- I think the Generation Alpha looks for the same thing that most consumers look, which is great products, great performance, and interesting, seductive textures, and creative.

Great. Thank you.

Our next question is from Jonna Kim with TD Cowen. Please proceed.

Hi. Thank you for taking my question. Just curious if you can dissect a little bit more into the growth drivers behind accelerating trends for the rest of the year versus first quarter? And also, it seems like you're accelerating marketing spend. Could you talk about where you're allocating your spend and how you're sort of measuring ROI for your spend? Thank you so much.

Hey, Jonna, thank you so much. Yeah, I mean our growth drivers are a little bit different by brand, but they rely kind of on the same fundamentals. In the case of Milk, we are increasing now for -- since we acquired the company quite substantially, the marketing spend with a great ROI in return. And we would see incremental marketing spend quarter-over-quarter as our business progresses. We hold a very tight measure of ROI behind it, and we're seeing great results from it. The second is innovation. We have a incredible -- we saw Q1 vintage of innovation with three great products. We have very important products coming up as part of the launches. And number three is the strong growth we're seeing internationally. I think what is important to note on Milk is at the end of the day, a lot of this growth is really built on productivity. We have not expanded substantially distribution other than on those places we highlighted, the U.K. where we expanded into -- well, first with Sephora and then Space NK and Boots and I guess Lyko in Scandinavia. The majority of the growth -- the vast majority of the growth is coming from increases in the productivity of the consumers, become more aware of a brand or innovation performs strongly. In the case of Obagi, our U.S. physician dispense channel continues to be the bedrock of our brand. It's growing strongly. We're building from strength to strength, recommitting to the brand DNA and recommitting to the core, but also omnichannel performance has been an important part of the growth, both obagi.com as well as other online retailers. International is starting to add to our growth quite substantially outside of Southeast Asia. It's important to note that, as we mentioned in the presentation, for Southeast Asia, we are still below the level of sales that we had under the previous distributor model, but we're building a strong into what I think is going to be, where we are convinced it's going to be a much more robust larger and more profitable business in the region. So, a little bit different by brand, as you can see. In terms of measuring ROI, that's a very core part of what we do. Allocation is different by brand. We have in Milk, quite a strong allocation against in-store support as well as social and influencer. In the case of Obagi, a very single-mindedly focused against our physicians, physicians dispense and getting consumers to recognize Obagi and go to their doctors or dermatologists or physicians to ask for the brand.

Got it. Thank you so much.

Our next question is from Dana Telsey with Telsey Advisory Group. Please proceed.

Hi. Good morning. Can you talk a little bit about the gross margin side, distribution channels, what you're seeing in terms of product margin by distribution channel and brand, and the outlook going forward? Thank you.

Hi, Dana. Yes, of course. Again, a little bit different, by brand. Obagi, -- a lot of the strong progression that you see on Obagi is a combination of channel mix as our omnichannel e-com business grows strongly with -- but at the same time, also a [indiscernible] innovation. All of our new innovation comes [indiscernible] gross margin. It's not only very compelling and very effective, but also you have a strong accretion in terms of gross margin. In the case of Milk, the gross margin expansion has been very much driven by operational improvements as we scale, with improved forecasting, inventory management, more efficiently sourced products as we developed scale, it also allows us to get a little bit of benefit of that scale when it comes to the cost of goods. So, we're seeing very strong positive contribution in our efforts. Now we expect a strong gross margin progression year-over-year. I think in the case of Obagi, Q1 gross margin is particularly strong. We think that it's still going to be ahead what Q1 gross margin value was, particularly strong. So, net is, Obagi, we are benefiting from a bit of the channel growth of e-com. Milk is really a strong operational progression with not a lot of impact by channel into that mix.

Thank you.

[Operator Instructions] Our next question is from Linda Bolton Weiser with D.A. Davidson. Please proceed.

Yes, hi. I was wondering if -- on the Obagi side in terms of the Southeast Asian distributor in terms of getting that back to the size it was before, is that a one to two-year endeavor or a multi-year? Or what do you think the time frame will be to get that back to a bigger size? And do you think it can get to be as big as it was before? Thanks.

Thanks, Linda. Yeah, I think we believe that our Southeast Asia business over time is going to be substantially bigger than what it was under the prior distribution agreement, not only bigger but more profitable as we internalize a lot of that margin. It is going to be a journey. We relaunched the brand in Vietnam initially in November. So, we are still in the very early stages of that process. We are launching into other countries, mainly Thailand, Singapore, India, and Malaysia in the coming -- in the near future. So, it is building rapidly and it's building rapidly at a profitable rate. That said, I think it's going to be, in the case -- specifically in the case of Vietnam, where the prior distributor had a particular strength is going to take us I would say, another 18 months to 24 months to get back to the level of where we were before. But again, in a way that it's much more profitable earlier on and much more robust.

Okay. Thank you.

Thank you.

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

Well, thank you, everyone, for joining us in what it is, again, a coming back to normality, I would say, quarterly filing in our business. We're very excited about this quarter and our prospects, and look forward to continue to sharing with you the progress we made as we build the next global best-in-class beauty and wellness company. Thank you.

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