Greetings. Welcome to Waldencast's Second Quarter and First Half 2024 Earnings 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. Allison, you may begin.

Thank you, and welcome to the Waldencast plc second 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 discuss the company’s performance within the context of the beauty market. Manuel will follow with a review of the second quarter and first half performance and provide our fiscal 2024 outlook. Following this, Michel will share the strategic growth initiatives for our Milk Makeup and Obagi Medical 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 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 statement 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 untitled risk factor in the company’s annual report 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. 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 today and share our strong second quarter performance that saw accelerated comparable growth of 25.7% versus our first quarter increase of 21% and capped a very successful first half of the year. Our performance demonstrates the power of our multi-run platform and the progress we are making to achieve our vision for Waldencast. This vision is to build 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. As you have heard me say before, we are a beauty pure player because beauty is the most beautiful of industries, one that has shown impressively consistent growth, strong profitability and resilience. The U.S. market for Prestige Beauty remains strong, up 8% for the first half. This follows significant growth over the past two years as the category continues to normalize following unprecedented growth. For the first half, Prestige Skincare grew 7% and Prestige Makeup grew 5%. Circana notes that this growth reflects an accelerated bifurcation emerging in the beauty industry, highlighted by the continued growth in Prestige relative to mass and is indicative of the continued premiumization of the beauty category with consumers looking for higher levels of efficacy and performance. Our growth has far exceeded the category as our brands, Milk Makeup and Obagi Medical, are only at the beginning of their ambition to be market-leading brands in their respective categories and are very well-positioned to deliver consistent growth over time. We have two of the most exciting brands in the two biggest beauty categories, Makeup No. 1 and Skincare No. 2 in the U.S. Prestige Beauty market. Our brands play in the fastest-growing sub-segments of these two categories, Prestige Clean makeup and professional…

Thank you, Michel, and good morning everyone. I'm pleased to share our strong second quarter and first half results for 2024 with you today. These results highlight the continued success of our strategic initiatives and our commitment to delivering shareholder value. Today I'll focus on our adjusted financial measures. You can find a reconciliation to GAAP financial measures in our press release from yesterday and in the appendix of this morning's presentation. Let's dive into the highlights of our second quarter performance. We saw a robust 25.7% year-over-year comparable growth, which exceeded the 21% growth we achieved in Q1, aligning with our prior guidance. We continue to see significant year-over-year expansion in our adjusted gross profit margin, and we maintained a double-digit adjusted EBITDA margin, positioning us well to meet our annual profitability goals. A key point to note is that, as we have indicated in the past, while we monitor our business daily, we plan on it on an annual basis. This annual planning approach allows us to navigate quarterly fluctuations without compromising our strategic objectives. We are pleased to achieve this result despite the fact that in both brands we experienced out-of-stocks in some of our key products, particularly some of our key launches, as strong consumer demand outstripped our expectations. Specifically for the second quarter, net revenue was $63.3 million, reflecting 25.7% comparable growth for Q2 2023. Obagi Medical and Milk Makeup achieved 30.9% and 20% growth respectively. Adjusted gross profit came in at $47.5 million, with an adjusted gross margin of 75.0%, a notable 650 basis point increase from Q2 2023. Adjusted EBITDA was $6.3 million, up $2.4 million from Q2 2023. As strong revenue growth and gross margin expansion more than offset important investments to support our team, marketing and sales business drivers. Building on…

Thank you, Manuel. Now, let's look at the performance by brands starting with Milk Makeup. As Manuel shared with you, in the second quarter, Milk Makeup generated a net revenue of $28.7 million, an increase of 20% versus a year ago. Growth was driven by the increased buzz and awareness of the brand, the success of our innovation, and the continued strength in international markets. Unprecedented demand, and in particular the fantastic success of our Cooling Water Jelly Tint launched led to some out-of-stocks, which dampened the growth potential in the early part of the quarter. That said, revenue accelerated toward the end of the quarter across geographies as we increased inventory levels to support the higher level of demand. Adjusted gross profit margin of 69.7% drew an impressive 360 basis points versus Q2 last year, as we continued to deploy our operational efficiency playbook and benefited from increased efficiencies in sources and distribution, as well as better management of our inventory. Adjusted EBITDA rose 48% to $5.7 million, while adjusted EBITDA margin of 19.8% expanded 370 basis points from the second quarter of 2023, as strong revenue and gross margin expansion was mitigated by increased sales and marketing investment in support of key launches that will set us up for acceleration in the second half. Now, for the first half, Milk Makeup generated net revenue of $63.2 million, increasing 20.8% from the first half of 2023. Adjusted gross profit rose 29.2% to $44.6 million, with gross profit margin expansion of 460 basis points to 70.6%. And adjusted EBITDA rose 23.4% to $15.7 million from $12.7 million in the first half of 2023, with adjusted EBITDA margin expanding to 24.9% of net revenue. Milk Makeup is quickly becoming a true global powerhouse, with consumers around the world embracing what we…

Thank you. [Operator Instructions] Our first questions come from the line of Ashley Helgans with Jefferies. Please proceed with your questions.

Hi. This is Sydney [ph] on for Ashley. I was just wondering if you can talk a little bit about the promotional environment and kind of what you've seen and are expecting going forward and then also just any color you can share on the innovation pipeline in 2H. Thanks.

Hi Sydney, thank you. Thank you for the call. I’ll break the question in two parts. Our brands are relatively unexposed to promotional fluctuations in the case of physician expense, Obagi Medical, if we run, and the market runs relatively standardized promotions, is relatively price inflexible. And in the case of Milk, the segment of the market has been relatively flat in terms of promotion. We don't see any significant or substantial amount of increase of promotion or net price erosion as a consequence of that. From an innovation sample, which is what is driving our brands. We are, as you saw, we have an incredible half one of innovation on both brands, and frankly, we are super excited what is coming in half two. So we continue to accelerate the innovation on both brands. It's a key part of our strategy, and I think innovation so far has been delivering very well.

Thank you. Our next questions come from the line of Olivia Tong with Raymond James. Please proceed with your questions.

[Indiscernible] helpful to understand what you view as sort of a revenue growth, and also how you think about the EBITDA margin expansion opportunity, recognizing, of course, the expectations for an improved second half on both those lineups.

Olivia, sorry, you're breaking up. Could you please repeat your question?

Sorry. Sure. I'll be a little louder, too. I was hoping you could talk a little bit about what you think of as a steady state revenue growth and how you think about the EBITDA margin expansion opportunity from here. Recognizing, of course, that you talked about second half doing better than Q2 or second half doing better than first half. When it comes to EBITDA, particularly given the volatility in the past, it would be helpful to do that. So that's the first question. Second question is around, just a competition in your categories. We've obviously seen some deceleration in the category after a very strong period of growth. So if you could just talk about competitive environment, both for Milk and also for Obagi in the derm skin care area. And then lastly, just what your, the outer stocks that you've been, that you've been dealing with. Thank you.

Yes. Thank you, Olivia. So on the first part of your question, kind of steady state revenue growth as you can. We provided guidance for the year. We've not provided guidance beyond that. But I think what we are seeing is an acceleration, as we communicate an acceleration on the back half from the Q2 number. I think we expect an algorithm of a company that is high growth and certainly well ahead of market growth and EBITDA, as you saw, we continue to build EBITDA to what our destination and structural economics. So we expect, and I communicated this in the past, we expect on a long-term basis, on a steady state basis. We already have structural economics in the company that are comparable and in many cases superior to best-in-class beauty from a gross margin perspective, which is only going to help us build our EBITDA. As we continue to grow our brands. Ours, very simply is a growth story. We continue to grow the brands, as you can see, at a very accelerated pace, which what is already the engine of the company, which is the gross margin level that is very, very attractive. So as we grow the company, we will continue to execute what is our virtuous cycle, which is revenue growth, translated to very strong gross margin growth, reinvested into business drivers of marketing and sales that further drive growth and dilute G&A to deliver increases in EBITDA. In terms of competition on the category, I mean, beauty has always been a very competitive market. It is a market of competition. But frankly, as I said before, we do not think too much about competition. We're such a small company in the whole scheme of things in the beauty market that our limitation to…

Thank you. [Operator Instructions] Our next question has come from the line of Linda Bolton Weiser with DA Davidson. Please proceed with your question.

Yes, hi. Congratulations on the great growth. So I was curious, I didn't catch if you were kind of talking about the advertising and promo ratios in each of the brands. Maybe you don't want to disclose those, but maybe you can give us a sense for if you feel the spending levels as a ratio are kind of where you want it to be for each of the two brands, or do you envision even further increase in A&P kind of in the future years?

Thank you, Linda. Thank you for the question. So we think that since we started this journey two years ago, as you know, Linda, we've accelerated quite substantially the level of marketing investment as we build our brands. We certainly expect half to continue to invest even further than we invested in half one, which was already a substantial increase versus last year. But what we follow is a very strong ROI mindset behind that marketing expense. In a long-term basis, are we at the level of marketing investment long-term? No, we believe that I think there is still substantial room to grow and support both in terms of a percent of sales as well as absolute value as we continue to build a business. But that is part of our kind of virtual circle. And what we do is we invest, we drive operational efficiency, which we invest in business drivers to drive the top line growth and dilute our G&A. So in both cases, in both brands, we expect to continue to increase our marketing support and sales support on both brands. That with resulting, as I said, in increases in our EBITDA contribution.

Okay. And just one follow-up. In terms of Obagi, maybe you could remind us just is Obagi using distributors pretty much in all of its international markets or just some of them? And can you just explain to us, like, do we need to worry about like too much inventory in the distributor channel? Or how should we think about just how you execute there internationally on Obagi? Thanks.

Thanks. So our international structure today is relatively simple. As you know, we internalize the distribution of Obagi in Southeast Asia. So in Southeast Asia, what we use is our own subsidiary now, moving from an old distributor model that we have in Southeast Asia for all the challenges and trials and tribulations we had with that distributor in 2022 that is now fully behind us. And now we have our own subsidiary in Southeast Asia. In every other international market, we use distributors. And what we do is we have a very strict monitoring in those distributors from a sell-in, sell-through, and sell-out basis. For most distributors, we don't have sell-out for all distributors in terms of all the major distributors. We have a very strong monitoring sell-in, sell-through, and sell-out in places where we can have sell-out. So we do not have any concerns about too much inventory on distributors at an international level. The international footprint, just to finalize, is we're on a journey on that, on the older distributors, the outside of Southeast Asia distributors. And just frankly, we have some excellent distributor partners, and there are some distributors where we need to execute a bit of a change on go-to-market structure, which we'll be doing over the next couple of years or so as we transition that into a more efficient distributor model. But overall, we have no concerns about the inventory bill whatsoever on international distribution.

Okay. Thanks a lot.

Thank you, Linda.

Thank you. Our next questions come from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your questions. Dana, could you check if you're self-muted, please?

Yes. Hi. Good morning, everyone. As you think about the drivers of the strong gross margin expansion that you had in the international expansion that Milk and Obagi are seeing, what's driving that? How do you think about the growth going forward and what it could mean for the business? Thank you.

Thank you, Dana. On gross margin, the story remains the same, and it's a little bit different by brand, but the story remains the same. In the case of Obagi, it's fundamentally driven by two things. One is a very strong and favorable channel mix as we develop our digital channels on Obagi, and the second one is operational efficiency that we continue to build on those businesses. As you know, we are already at a very high gross margin level. I think we are about at the destination level of Obagi in terms of gross margin. I think any future efficiency, whether it's a still-to-half as part of that operational efficiency, we plan to reinvest it into product and formulation and acquire quality offering to our customers. So, we expect Obagi to be roughly at its destination. Milk, as you saw, is a business that was gross margin in the 40s when we bought it, and now it's approximating where we want it in terms of destination. It's driven primarily through operational efficiency. So, we continue to build that operational efficiency, a bit of mix, all the kind of detail of how you build a great operating margin. Thanks for highlighting the point of gross margin because that, at the end of the day, is the engine of the company. As we grow the business at that very attractive level of gross margin, it allows us a substantial amount of fuel to reinvest in building our brands and deliver profitability over time. In the case of international, a little bit different, again, by brand because the models are different. We have some substantial growth coming on Milk, as you saw from the results. Most of it is really productivity-driven. It's productivity out of our own businesses, but we have…

Thank you. We have reached the end of our question-and-answer session. I would now like to hand the call back over to Michel Brousset for any closing comments.

Thank you very much. Well, thank you, everybody, for joining us today. We're very excited about the Q2 results and the closing of half 1, and as we communicated on the earnings release, we're very, very confident about our outlook for the year. And thank you very much for being here and for your support. Have a good day.

Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time.