ODDITY Tech Aktie

Good morning and welcome to ODDITY's Second Quarter 2026 Earnings Call. Today's call is being recorded and 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. Thank you. You may begin.

Thank you, Operator. I am joined by Oran Holtzman, ODDITY's Co-founder and CEO, and Lindsay Drucker Mann, ODDITY's Global CFO. Niv Price, ODDITY's CTO, will also be available for the question and answer session. 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's business strategy, market opportunity, future financial performance, customer acquisition costs, 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 earlier today and in our most recent annual report on Form 20-F filed with the Securities and Exchange Commission on March 17, 2026. We do not undertake any obligation to provide any information on the form and 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 today. I will now hand the call over to Oran.

Thank you, everyone, for joining our call today. While we continue to work through the ad account dislocation at IL MAKIAGE, I am pleased to report progress in our business that hopefully positions us for recovery in 2027 and beyond. SpoiledChild had a good quarter and a strong year to date, 2026 overall, and it is on track to grow at least 35 percent this year and approach $350 million of net revenue in 2026. METHODIQ is showing great promise after launching only several months ago. We expect the brand to deliver first-year revenue ahead of SpoiledChild's first year and with huge potential for the future. Both SpoiledChild and METHODIQ are building ambitious plans for 2027, and we will update you in coming months. For IL MAKIAGE, we continue to work extremely hard with our main ad partner to solve the algorithm dislocation and remain hopeful that we are on path to normalization. We worked day and night to solve the algorithm dislocation, and we continue to believe, based on data that we see, that it is technical in nature, solvable, and has nothing to do with the brand runway. Big picture, we remain bullish on ODDITY's future despite our recent customer acquisition cost challenges. We are working tirelessly to strengthen our business, move past the dislocation, and return to playing offense in what we see is one of the most attractive markets in the world. Beauty and wellness has long been a large, resilient, and highly profitable growth market. We see the category in an exciting period of transformation today, with consumer demand for channel and product creating major shifts. Putting the current technical problem we face aside, we believe we are positioning our business to win in this moment and lead the next phase of growth. With over 70 million users on our direct consumer platform, we believe we have a clearer view than others on where the demand is and how to best serve the customer. Consumers are smarter than ever before. They have more information ready at their fingertips, and they demand more from their products, more efficacy, more personalization. The appetite for beauty and medicine is converging as a result. Consumers want real solutions to their pain points from the inside out. They are taking control into their own hands. A lot of that is happening online outside of regional channels like store or medical office. ODDITY's portfolio of trusted brands today is built to serve consumers across a full range of needs, spanning categories, and product types. From beauty to wellness to medical grade, from cosmetics to OTC to prescription products, the goal is to reduce friction and deliver unmatched experience, best-in-class products, and precise treatment protocols that truly solve consumer problems and pain points. Let us look at hyperpigmentation as an example of how our integrated platform works and how we are building a moat with vision technology, personalized treatment regimens, and ODDITY Labs. Hyperpigmentation is a big success story for METHODIQ, showing higher customer satisfaction and retention signals, which is the best indicator for us that we are onto something great. Our plans for this market began with ODDITY's user data which showed us how much demand our user had for addressing dark spots and uneven skin tone, and also how unhappy they were with the current solution. With this insight, we made a deliberate push into app implementation and delivered something better. We built one of a kind user experience at METHODIQ, which includes computer vision assessment that identifies dark spots on the skin, the relevant data analysis are then passed to a METHODIQ provider who issues a personalized treatment plan aimed at maximizing efficacy and minimizing side effects. It might be prescription or non-prescription or both and can involve sequencing different products across several months to optimize for the best outcome. The entire experience is designed to mimic and improve upon a high-touch experience at the doctor's office, but with incredible convenience. One of METHODIQ's hyperpigmentation hero products is Mellan-X 509 powered by an ODDITY 1007 ODDITY Labs spotted molecule combination. It targets visible discoloration of the skin with reduced side effects. This is just the beginning of what we think ODDITY Labs can do in hyperpigmentation. We have additional molecules in development, and we are making good progress finding new pathways that we believe will help us tackle hyperpigmentation from multiple angles at once. This is just an example of how ODDITY's integrated platform is meeting unmet demand, and we are just at the beginning. The strong start of METHODIQ has increased our conviction in the medical-grade space. We are acquiring a more determined customer with attractive LTVs and good cross-sector characteristics. Acquisition costs are higher as compared to makeup, but we believe the AOV retention, as a result, expected paybacks justify the cost. Consumers are increasingly comfortable getting medical care online and looking to brands like METHODIQ for innovation and upgrading offerings to meet their needs. We are positioning METHODIQ to be a leader in this backdrop and launching new categories and products across 2027. This will build on our infrastructure of prescription and pharmacy fulfillment to better serve existing customers and also reach new audiences. The opportunity set is large and we are moving quickly. We plan to have more updates on this expansion in the coming months. Turning to SpoiledChild, we launched SpoiledChild around 4.5 years ago as a multi-category wellness brand. It has scaled faster than our expectation and is on track to approach $350 million of net revenue in 2026, which will put it more than a year ahead of the time it took IL MAKIAGE to hit that milestone. SpoiledChild continues to deliver very strong customer service cohorts metrics like AOV and repeated scale. 12 months net revenue repeat rates for the brand are well in excess of 100 percent today. As we said in prior calls, we believe SpoiledChild is being impacted by the algorithm dislocation issues IL MAKIAGE is facing, but to a lesser degree, and this has allowed us to continue scaling the brand. We are hopeful that as we work through the acquisition cost challenges with IL MAKIAGE, we will then be able to deliver efficiencies also for SpoiledChild. The strong consumer metrics we see in SpoiledChild give us confidence in the brand's future potential. We plan to continue to invest in the base direct-to-consumer business while heading new growth levers in 2027. Moving to IL MAKIAGE, where we continue to work on resolving our account dislocation with our largest advertising partner and returning to normalized audience and CPA. We continue to work very closely with this ad partner to fix the problem, and while we are not there yet, every day that passes is helping us get to fixing the issue. We and the ad partner are in intensive testing mode, and those tests are very important for solving the algorithm dislocation. Looking ahead on ODDITY level, we are hopeful the worst is behind us. As our guidance indicates, we have seen sequential improvement in the rate of the year-over-year revenue decline at ODDITY, and we expect third quarter net revenue will decline approximately 5 percent year-over-year. While ODDITY's revenue decline was severely impacted by the algorithm's dislocation, we are seeing relatively stable trends in other parts of the business that are less correlated to the acquisition spend. We continue to work hard on other advertising channels as well. Our goal for 2027 is for IL MAKIAGE to return to growth. We have an amazing pipeline of new products ready to support the brand once acquisition costs recover. We continue to work 24/7 until this technical problem is fixed. We remain hopeful that the amount of resources and time we spend on it will lead to a resolution like any other big problem we faced since I started the business 14 years ago. Full power, non-stop hard work until fixing the problem, no other way. With that, I will hand it over to Lindsay. Thank you.

Thanks, Oran. Let us turn to our second quarter results, which I will refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Net revenue declined 25 percent versus the prior year to $181 million at the favorable end of our guidance for net revenue to decline between 25 percent and 30 percent. The decline was driven by a year-over-year reduction in sales of IL MAKIAGE, which continues to be adversely impacted by a dislocation in its ad account with its largest advertising partner. This dislocation continues to impact IL MAKIAGE's ability to reach the right audience and is driving sharply higher CPA, impacting acquisition revenue, most notably in first orders, but also in the portion of repeat orders that are sensitive to acquisition spend. For example, existing customers that see an ad and are motivated to buy again. We are also now seeing the compounding impact of lost repeat sales that would have naturally flowed through from customers making first order purchases early in the year. Specifically, ODDITY net revenue from first orders declined approximately 40 percent in the second quarter versus the prior year, driven by IL MAKIAGE. Net revenue from repeat orders declined approximately 20 percent in the quarter from the prior year period. AOV declined by approximately 8 percent in the second quarter versus the prior year, largely driven by a decline in IL MAKIAGE AOV. The decline in IL MAKIAGE AOV was driven by the above-mentioned reduction in first orders, which carry higher AOV than repeat. It was additionally impacted by product mix shift away from IL MAKIAGE skin. Gross margin was 68.7 percent in the quarter compared to 72.3 percent in the prior year. Gross margin compressed approximately 360 basis points year over year, driven in part by the decline in AOV. We delivered adjusted EBITDA of $13 million ahead of our outlook for adjusted EBITDA of $8 million to $10 million. The year over year decline versus the prior year was largely driven by the IL MAKIAGE algorithm dislocation, which has two primary impacts on our P&L. First, significantly higher CPA versus the prior year. Second, the decline in revenue and resulting deleverage on our fixed costs. Adjusted EBITDA was also negatively impacted by our decision to ramp acquisition spend for SpoiledChild in support of faster revenue growth, where our upfront investments support attractive 12-month contribution margins. Operating expense as discussed on prior calls, our approach is to balance sustained growth investments with finding cost efficiencies to support the bottom line. This has translated into continued investments in areas like ODDITY Labs and our technology infrastructure, with some greater filtering and prioritization around projects where we see nearer-term payback potential. We remain bullish about the potential for ODDITY Labs to provide real differentiation in product efficacy and experience with many applications in our portfolio, and the hyperpigmentation example from Oran is just one area. We also continue to invest in areas like aging, where our molecules have shown early in vitro promise in increasing collagen synthesis and reducing aging markers. Moving down the P&L, adjusted diluted earnings per share was $0.20 for the quarter. Free cash flow increased by $14 million in the quarter and decreased by $8 million in the first half of the year. Our inventory investments year-to-date include purchase commitments made last year in anticipation of much stronger revenue results for IL MAKIAGE, as well as inventory purchase to support growth in SpoiledChild and METHODIQ. IL MAKIAGE today continues to work through excess inventory, and we plan to be in better balance in 2027. We exited the quarter in a strong liquidity position with $561 million of cash, cash equivalents, and investments on our balance sheet. Our $350 million in credit facilities remain undrawn. During the quarter, we continued to act on what we believe is an attractive price for our shares. We repurchased 5.6 million shares in the period for $80 million. This brings our total year-to-date repurchase amount to 11.7 million shares for $163 million, which reduced our ordinary shares outstanding by approximately 20 percent. Approximately $87 million remains outstanding on our $200 million buyback authorization. Separately, in March, 857,000 shares were removed from our public float to Oran Holtzman's open market purchases. In June, we repurchased $50 million face value of our 0 percent June 2030 exchangeable notes at a discounted price of $35 million. We will continue to be opportunistic in managing our capital structure in order to drive shareholder value. Turning to our outlook, for the third quarter, we expect net revenue to decline approximately 5 percent year-over-year, a meaningful sequential improvement versus the first half as we believe the worst of the acquisition-driven revenue pressure is behind us. We expect adjusted EBITDA to be between $18 million and $20 million. For the full year, we expect net revenue to decline approximately 19 percent year-over-year, driven by the decline in net revenue in first half and we expect adjusted EBITDA will be between $30 million and $32 million. And with that, I will turn the call back to the Operator for questions.

[Operator Instructions] Our first question is from Dara Mohsenian with Morgan Stanley. Please proceed.

Oran, it sounds like you feel comfortable we are moving towards solving the ad dislocation issue here in 2026. Just if we assume the problems are resolved by year end, any thoughts around ability to grow the IL MAKIAGE brand in 2027? Should we anticipate a more normalized environment, typical revenue growth year based on the normalized factors behind the brand, or does some of this issue potentially linger, compound in '27? And then second, just SpoiledChild continues to grow at a strong pace. You mentioned you are ramping up spending for the brand. Can you just touch on international plans for that brand over time, line of sight to making a broader international push in your decision process there now that the brand has scaled so nicely?

Yes, good morning. We believe that once we solve the problem, we plan to continue to go back to growth with IL MAKIAGE. We have amazing products in the pipeline. We are not there yet. We did not solve it yet. But we believe that we are closer than before because from all the data that we see so far in terms of the root cause of what happened, it looks like there is an audience drift from the algorithm, and we are trying to retrain it. Once it is behind us, we are back to growth. As I mentioned, we have an amazing plan that we did not execute because of this problem and they are ready to play. As for SpoiledChild, SpoiledChild showed great demand, and as you can see by the numbers, we continue to expand it internationally. And that is it. We have amazing more than 8 products and categories for next year for SpoiledChild, so we are very bullish.

Our next question is from Brian Tanquilut with Jefferies. Please proceed.

Lindsay, as I think about the EBITDA guidance, how do we think about your assumptions on number one, the seasonality? Because typically I think fourth quarter is up sequentially in revenue versus third quarter. So curious what is driving that. And then when we think about repeat revenue rates versus historical trend, I mean, what is that assumption? Or maybe even versus what we saw in the first half of the year, what is that assumption embedded in the balance sheet?

Thanks. As we think about the sequential dynamic and the seasonality of the business, there is really no broad strokes change to how we think about the business. The first half of the year tends to be stronger for us for acquisition, and then we allow revenue to flow through in the second half. Obviously, this is a unique year because so much of our acquisition activity was, you know, that moment of time was spent towards testing. So the seasonality for this year will be a little bit different, and it is too soon for us to tell you what seasonality will look like on a go-forward basis. As it relates to repeat trends, continue to be very strong as a company level. We remain well in excess of 100 percent net revenue repeat rate over 12 months. And despite some of the challenges with IL MAKIAGE, we do continue to see strong repeat flow through, which is, you know, part of why we are expecting the sequential improvement in the second half of the year relative to the first half of the year. And in addition, we get very strong repeat from SpoiledChild.

Our next question is from Anna Lizzul with Bank of America. Please proceed.

I was wondering if you could elaborate a little bit more on any learnings that you had from this process as you went through the remediation and anything where you have learned about your business model a bit more, about how much more resilient, flexible, anything that might need to change going forward now that you went through this process. Thanks.

Yes, first of all, we learned a lot. The past few months were very intense in terms of media buying world. I must say that we thought that we know a lot, but now after those months, we are very deep in the details and learning every day better how those algorithms work. We increased our efforts both to fix the problem, but to make the business more resilient moving forward, including more distribution and more channels. We have nothing yet to announce, but once we have, we will. We believe that the key of the business is data, and in order to continue to have that ability, we need to remain focused. A big portion of the business must remain D2C. That is our strength, and we need to continue to work with those ad partners. By the way, the way that we work now with the ad partner and their commitment and like it is unbelievable. We are very happy for that, and we trust their team to help us navigate and solve this problem. And that is it. So we continue to work on both fixing the problem and distribution and channels.

I will just add one more thing. You can see the resiliency of our model today in the fact that we have a lot of great things to talk about with respect to SpoiledChild and METHODIQ, even though we do navigate these challenges with IL MAKIAGE. So relative to when we first came public or even started building the business, we have way more brands, categories, and products for the business to rely on than in the past, and that will continue to grow.

Our next question is from Youssef Squali with Truist Securities. Please proceed.

Lindsay, your annual revenue growth guide for negative 19 percent implies fourth quarter growth, I think, of negative 10 percent to 11 percent, which is quite a deterioration from the negative 5 percent you are guiding to for third quarter. So what accounts for that deterioration? Is it just conservatism and lack of visibility, or are you seeing something in third quarter that is not sustainable necessarily? Thank you. And then on the other revenue line, it was up 8 percent. That was a bit of a surprise. I know it is small, but what were the drivers for that and how sustainable is it?

Thanks, Youssef. So on revenue, we are for third quarter guiding to a 20-percentage-point sequential improvement relative to where we were in second quarter in the first half of the year, and that is because we believe the worst of the acquisition-driven dislocation is behind us. We are seeing the benefit of more repeat in our base business in the first half of the year, and also SpoiledChild has been strong. As it relates to the fourth quarter, we want to be conservative since we do not know yet how we want to allocate our spending budget, how much goes towards testing, for example, which is inefficient for revenue generation, so we are leaving some room for the fourth quarter pace to slow, third quarter. I would note this is a real outlook for us. There is a lot of unknowns still, as opposed to a sandbagging story, but that is generally the approach here. Other is Israel, and that market has been volatile, as you know, given some of the dynamics with the war there and our store base there.

Okay. Got it. Thank you.

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

Traditionally, I thought of your business model as IL MAKIAGE funneling in new customers to support growth in SpoiledChild. But clearly, you are seeing a lot of growth without that. Can you talk to us about your marketing strategy here in customer acquisitions? How that is changed since the disruption with SpoiledChild. And then on METHODIQ, could you talk more about the investments needed here and maybe what you are planning on for the 2027 selling season here with these new products you talked about, pigmenting hyperpigmentation, but also clearly going into more acute areas. Maybe talk to us what kind of investments you need and what kind of growth you are targeting. Thanks.

Sure, I will start with SpoiledChild. We see and we saw great demand, despite the fact that we believe that this dislocation is having some impact but less a degree than IL MAKIAGE. Even so, we are still generating nice returns on the spend and have been able to scale materially. As for METHODIQ, we launched it less than 1 year ago. We are very happy from the beginning of the brand, from how it started. We expect the brand to deliver higher revenue than SpoiledChild did in its first year, although SpoiledChild was unbelievably strong in its first year. We launched with 30 products with a great range of products for medical-grade makeup to specialized prescription protocols. One thing that surprised us out of the gate is our ability to drive demand for both personalized prescription and non-prescription products and treatment plans. For example, METHODIQ's hero product is hyperpigmentation with a series of prescription and non-prescription products. And the non-prescription product is ODDITY Labs, which is very encouraging for us. Looking forward, we have a consistent framework for the category expansion, big markets where we see meaningful demand, and where we can see that we can win. One category we are particularly excited about for next year is longevity and metabolic health. As a first step, we plan to deliver legally available prescription injectable and peptide therapies, and we are very bullish about that. That is it. We spent more than 3 years on building that growth engine, and we are very bullish about its potential.

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

Guys. Thanks so much for taking the question. It sounds like you have SpoiledChild and METHODIQ that are both doing well. Can we just step back and think about the progression of the business beyond this near-term marketing hiccup? How do we think about what you guys are doing for Brand Four? And then can you just talk about AI's progress within ODDITY Labs? Understood that is a step function change in terms of molecule development. What are you guys seeing there and how do we think about the benefits of just new technology and the evolution of molecules and how that is related to the business? Thank you.

Brand Four. So we continue to grow both.

The first one was on the evolution of our growth trajectory post, as we go forward, now that SpoiledChild and the --.

SpoiledChild and METHODIQ. SpoiledChild, as I mentioned, has an amazing pipeline ready to launch for next year in new categories. And Brand Four, we plan to launch in 2027, also next year. As for ODDITY Labs, we continue to have great progress there. It is also an area that we invested a lot in the past 3 years. And as you mentioned, as you think about AI, of course, we can leverage it materially. It can speed up our processes and our molecule discovery there. We have a team that this is what they do in labs, and we are very bullish about the potential and the speed that it can bring to the business.

Our next question is from Ryan MacDonald with Needham and Company. Please proceed.

Oran, I think in the past, if I recall correctly, when you went from year 1 to year 2 on SpoiledChild, there was quite the large revenue jump in the business. And I think you talked about that it was a little bit faster of a pace than what you wanted initially when you were thinking about the scaling of that. And we are getting in towards the end of year 1 with METHODIQ here and heading into year 2. I guess, what did you learn from SpoiledChild's ramping and how is that informing your view for METHODIQ and the strategy there? And I guess, is it too early to see how you see trends in repeat rates for METHODIQ and, or what are you seeing there and how is that kind of building into informing that view for year 2? Thanks.

For us, always the first few months is testing and trying to find the right audience and then fixing unit economics and then scaling. That is what we did with SpoiledChild, and that is what we are planning to do with METHODIQ. Basically, there are less constraints from a growth angle in the first 2 years. Let me remind you that in SpoiledChild in year 3, we decided to spend less and to have constraint on revenue. We are not planning to have constraint for METHODIQ in next year. But keep in mind that the first few years of any brand, there is a cost, and we need to take it into consideration while we are building a budget, and that is what we are planning to do.

Our next question is from Georgia Anderson with Evercore ISI. Please proceed.

Thanks for the question. I guess thinking about the business model of Try Before You Buy, I think you shifted kind of around 40 percent of acquisition revenue out of Try Before You Buy in first quarter. Wondering kind of where that mix is today. And if the kind of gross margin compression we saw in second quarter, you know, is that kind of a structural or recoverable, yes, so any clarity that would be great.

Sure. As you know, a focus area for us has been remediating some of the signal distortion. And as part of that, we have shifted part of our acquisition away from Try and towards Buy. And we were able to do this without any notable impact on our unit economics. We believe in our current state we can move 50 percent or more of our acquisition to Buy from Try at a minimum. That said, we love the model. We have no plans to eliminate it. We think it offers a great value to consumers. So our focus is really on remediation and rebalancing as needed. On the gross margin question, we have always talked about our long-term gross margin expectations to be in sort of the high 60s. With all gross margin being a real target KPI for us. The target KPI for us is DC margin, contribution margin, gross margin after media spend. But just based on the range of products and brands, high 60s is kind of how we have pointed everyone to. That said, this year we did get a lot of deleverage based on the lower AOV, and we do not see that as structural. Once we have improvement in our in-app acquisition dislocation, we will be able to go back to optimizing for AOV, remember, we have removed all of those efforts and so we will be able to optimize better for AOV which supports our gross margin on a like-for-like basis.

We have optimized METHODIQ's gross margin since it is early, so we expect to have meaningful improvement also there.

Thank you. This will now conclude our question and answer session. I would like to turn the floor back over to Mr. Holtzman for closing remarks.

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

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

This live transcript is auto-generated without human intervention or review.

Good morning, and welcome to ODDITY's First Quarter 2026 Earnings Conference Call. Today's call is being recorded, and we have allocated time for prepared remarks and Q&A.

At this time, I'd like to turn the call over to Maria Lycouris, Investor Relations for ODDITY. Thank you. You may begin.

Thank you, operator. I'm joined by Oran Holtzman, ODDITY's Co-Founder and CEO; and Lindsay Drucker Mann, ODDITY's Global CFO. Niv Price, ODDITY's CTO, will also be available for the question-and-answer session.

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 made about ODDITY's business strategy, market opportunity, future financial performance, customer acquisition costs 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 earlier today and in our most recent annual report on Form 20-F filed with the Securities and Exchange Commission on March 17, 2026. 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 today. I'll now hand the call over to Oran.

Thanks, everyone, for joining our call today. While we continue to navigate account dislocation with our largest advertising partner, we remain hopeful that we will return to normalization in the second half of this year as we communicated in Q4 earnings. We saw a meaningful improvement in IL MAKIAGE CPA this May, which declined an estimated 28% from April, breaking a negative trend of multiple months of CPA increases with this advertising partner. And while we cannot guarantee that this positive trend will continue, it is a good indication after months of a negative trend. We plan to continue to aggressively implement improvements until the problem is completely solved.

We have been working closely with this advertising partner, including top product and engineering team to fix the issue. We have heard from them directly that they estimate that we can recover 40% to 60% of CPA based on their system alone without considering macro or other factors. If we get there, it would signal that the business is healthy and positioned to go back to growth and profitability as it was for many years. And if we had planned for that level of CPA in 2026, we believe we would have guided to a normal earnings year of 20% revenue growth and 20% adjusted EBITDA margin.

We want to share more data and context for the anomaly we experienced. We provide detail on historic IL MAKIAGE index CPA levels with this advertising partner based on our internal attribution system in our press release, which I will refer to now. For many years, our CPA was very stable. As you can see in the table provided steady and consistent mid-teen CPA increases every year with gradual yearly increases correlated with our industry. While we did not build our business on favorable user acquisition cost, rather on strong over 100% 12-month repeat rate, in 2026, we saw levels of CPA that, in some cases, were 2x higher than what we were expecting and what we see in other competitors.

At this level, the unit economics get much difficult as expected for off-market costs. The data indicates, in our view, how the issue is technical and not brand or saturation issue. One, the change was sudden, indicating a dramatic break, not steady deterioration over time, but clear and definitive months of collapse. Two, a breakdown occurred in different IL MAKIAGE accounts, different markets with the same pattern simultaneously, U.S., Canada, U.K., Australia and Israel, which suggests it has nothing to do with the brand. There is nothing that can happen in our offering or business that can explain it at the same time in multiple geographies.

Three, we believe a significant driver of the break comes from spiking bounce rates. In our view, it suggests the issue is with lower quality audiences being served with our ads by this algorithm. Furthermore, our fundamental brand health is confirmed by behavior we see among existing customers. Net revenue repeat on a 12-month basis cohorts are strong, which support our 12-month contribution margins. A focus area for us in the last few months has been successful remediation in our Try Before You Buy model. As a reminder, Try Before You Buy is a pro-consumer model that allows to replicate the online experience of physical stores like Sephora, where consumers can try products in real life and materially reduce the risk of purchase.

This model is rare in beauty due to the complex execution, which we believe makes it an edge case and nonobvious interaction with the platform new dynamics. Towards the end of Q1, we already successfully shifted 40% of our acquisition revenue out of Try Before You Buy into standard Buy model, reducing our exposure to this model with no impact on our unit economics, which is very encouraging.

Unfortunately, because it takes time for algorithms to recalibrate, as expected, this dislocation will have meaningful negative impact on our 2026 financial results, especially in H1. As forecasted in our Q4 earnings, it had material impact to Q1. Sales declined 26% versus the prior year, slightly better than our outlook for sales decline of approximately 30%. I noted the strong improvement in May from April. This is our first month of sequential recovery since Q4 '25, and we believe it's a positive sign.

It's also supported by our deliberate decision to maintain a reduced level of acquisition spend as we work towards recovery. All things taken together, we remain hopeful that we will achieve normalization as planned in the second half of this year as we continue to implement recovery initiatives to recalibrate the algorithm.

Moving to our other brands and growth drivers. Similar to IL MAKIAGE, SpoiledChild is navigating higher CPA costs, but with less severity. We plan to implement similar remediation steps in SpoiledChild once we finish identifying the technical initiatives that will resolve the algorithms and CPA problems in IL MAKIAGE.

Moving on to METHODIQ, which is off to a strong start following its launch late last year. We expect it to deliver $25 million in revenue this year, in line with SpoiledChild's strong success in year 1. As a reminder, METHODIQ is a medical telehealth platform designed to deliver high efficacy treatments at scale. Our goal is to help transform a broader medical care system starting in dermatology using our best treatments and the highest standards of care available to everyone.

We are proud of METHODIQ product line, which spans 28 prescriptions and nonprescription products, including oral topical supplements and medical grade makeup, all designed to maximize efficacy, minimize side effects, and give an unparalleled experience. We believe it's a game-changing innovation for the benefit of large, underserved customer base. We are also seeing good signs from our progress tracking app where users are delivered continuous care throughout the combination of our vision technology and care team engagement. App download rates, weekly check-in rates and care team engagement are strong signals of demand and our ability to use this technology to drive compliance satisfaction and success.

ODDITY Labs continue to push the frontier of ingredient innovation in beauty and wellness, focusing on pain points with large commercial opportunities like hyperpigmentation and aging. We added 2 additional products made with Labs molecule in our METHODIQ product lineup this quarter. First, Neurexa, a topical eczema treatment formulated with our proprietary ODDL1669 molecule and other inactives engineered with the goal of achieving superior efficacy to traditional eczema treatment with minimal side effects. Second is Zeralaq, a first of its kind acne scalp prevention treatment powered by our ODDL103 molecule, which reduces inflammation and promotes the healing of active breakouts.

Looking ahead, we are working on several novel molecules targeting different indications. One, in our anti-aging program, our novel molecule have demonstrated robust in vitro efficacy in increasing collagen synthesis and reducing aging markers. We are now conducting human-focused group testing to ensure clinical translation. Two, to optimize hypopigmentation treatment, we are targeting novel pathways designed to work with our existing ODDL1007 molecule.

Focus groups are currently underway to evaluate the enhanced therapeutic efficacy and performance of this combined treatment. Three, in our acne prevention pipeline, we are developing novel topical approach designed to prevent acne breakout by reducing sebum production and preventing clogged pores. Our leading candidate molecule is currently in final laboratory validation phase.

Before I hand it over to Lindsay, I want to reiterate our view on this moment in time. We continue to be bullish on the structural dynamics in our industry. Beauty is a large category with attractive secular characteristics. Consumers continue to migrate online and towards the high-efficacy products. We believe incumbents are a disadvantage to meet this demand while we are set up for well gained share. We are working tirelessly to get back to our historical strong position. As a company, we have navigated algorithmic adjustments by our ad partners in the past with success. We are hopeful based on the improvements we see today that we will resolve this dislocation and get back to our long track record of consistent strong growth and attractive profitability. We have seen no reason that we couldn't solve what we believe is a technical problem as we have in the past.

With that, I will turn it over to Lindsay.

Thanks, Oran. Let's turn to our Q1 results, which I will refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Net revenue declined 26%, slightly less negative than our expectation of an approximate 30% decline. The decline was driven largely by first orders, which declined by around 50%, driven by the significant reduction in our acquisition efficiency due to the abnormal higher CPA. Repeat orders declined by around 15%, mainly attributed to a decline in Q1 first orders and a decline in the proportion of our repeat that is more sensitive to acquisition spend.

Repeat sales represented approximately 2/3 of our net revenue this quarter versus approximately 56% in Q1 '25. AOV declined low single digits driven by higher mix of SpoiledChild versus IL MAKIAGE and product mix. Gross margin was 69.7%, compressing approximately 520 basis points year-over-year. The compression was driven in part by product mix and lower AOV. Our remediation activity during the quarter created some temporary noise in the P&L. We ran many tests to try and isolate the technical problem, and this included turning off different tech products, funnel offerings and testing different TBYB return policies.

These changes had a temporary negative impact on our Q1 margins. We delivered adjusted EBITDA of negative $7 million. The year-over-year decline reflects the abnormal CPA levels and our decision to continue spending in order to accelerate a recalibration of the algorithm. Margins were also impacted by operating deleverage from lower revenue and our continued planned investments in core growth initiatives. We are managing costs across the business to offset some of the EBITDA pressure while protecting these forward investments.

Adjusted diluted EPS was negative $0.17. Q1 free cash flow was negative $21 million, driven by the net loss. We exited the quarter with a slightly elevated inventory position due to the revenue shortfall relative to our purchase plans late last year, and we plan to work through this inventory going forward. We exited the quarter with $667 million of cash, cash equivalents and investments on our balance sheet. Our $350 million of amended credit facilities secured in January of 2026 remain undrawn.

Turning to capital return. In March of 2026, ODDITY's Board of Directors approved a new share buyback program authorizing the repurchase of up to $200 million of the company's Class A ordinary shares, which replaced and superseded the previously announced $150 million share buyback plan. ODDITY repurchased approximately 6 million ordinary shares during the quarter for approximately $82 million, reducing ordinary shares outstanding by around 10%. We exited the quarter with approximately $167 million remaining on our authorization.

Turning to our outlook. Media uncertainty continues to make visibility to full year financials challenging, although we're hopeful we're moving in the right direction. We expect adjusted EBITDA for the full year will be positive. We hope to deliver a clearer picture of other key P&L items in coming months. For the second quarter, we expect net revenue to decline between 25% and 30% year-over-year, and we expect adjusted EBITDA will be between $8 million and $10 million, impacted by higher CPA and deleverage on our reduced revenue. A few things to keep in mind for your models. We continue to spend acquisition dollars despite higher CPA in order to feed the algorithm signals they need to reset and normalize. In addition, the reduced user acquisition activity in the first half will continue to weigh on repeat sales for the remainder of the year even as CPAs normalize.

With that, I'll hand it back to the operator for questions.

[Operator Instructions] Our first question comes from the line of Brian Tanquilut with Jefferies.

Lindsay, maybe just on the earnings trajectory, you stated positive EBITDA for the year and $8 million to $10 million positive EBITDA in Q2. If you don't mind just talking about the cadence of EBITDA margins that you expect throughout the year? And do you still plan to have most of the acquired customer reps to come in the first half? Or is there a shift happening to the back half?

Thanks, Brian. So unfortunately, based on the technical issue we had, first orders were down, as I mentioned in my script, around 50%. And it will be very, very difficult for us to make this up in the back half just based on seasonality. That being said, the leading indicator we look for is the improvement in CPA, which should allow us to drive some improvement at least in the sequential trend of declines across the year. And once we get first orders going, that's when we can start to drive the repeat and that's where the profitability flows through.

We didn't give EBITDA guidance by quarter for the back half by design. We just don't have enough visibility right now, but we do have confidence that we will be profitable for the full year based on everything that we see today, the exact specifics of it, we just don't have enough visibility to yet.

Totally understand. And a follow-up, can you go back just to the comments about maintaining a reduced level of acquisition spend. So we're thinking how much have you reduced your run rate by compared to last year? And then was this evenly spread across Q1? Or was there something you did in May, which helped bring CPAs down?

Yes. So we are still spending. And so media spend for the quarter was down a little bit relative to the prior year. It's just that our efficiency on that media is a lot worse. So we talked about you can see in the table that we provided the 80-plus percent increase year-over-year in the first half. And that rate of increase did get worse Jan, Feb, March to April, and May was our first month of sequential improvement. So we are still spending. We want to...

And the reason that we're still spending is to fix the problem. Without spending, we will not be able to identify the problem, and we will not be able to test all the things that we have done in the past quarter. And without that, we will not see any recovery. So we need to continue to spend, but we do it in -- we obviously cannot increase spend because the efficiency of that spend, but we are hopeful after what we saw in May.

Our next question comes from the line of Youssef Squali with Truist Securities.

Excellent. Maybe a quick question for Oran, one for Lindsay. So Oran, can you delve a little deeper into the drivers of the decline in the CPA for IL MAKIAGE? I think you talked about the 28% sequential between April and May. And just like practically, what has been working and how much of that is like sustainable and can actually compound on itself over time?

And Lindsay, just as I look at that improvement in CPA and I look at the guide you're providing for Q2, there seems to be a bit of a disconnect because if you look at the overall revenue growth, you're still talking about negative 25% to 30%. You put up 26% negative in Q1. Maybe just talk to us about the assumptions that are baked into that revenue decline maybe from a CPA trend and anything else you want to share on that guide?

Youssef, so needless to say that we do many, many tests in order to fix it. On the other side, it's an algorithm and those things are most of the time very hard to move the needle and exit those type of spirals. By the way, we navigated, as I mentioned, many algorithm changes in the past, and we always -- we're able to solve it. The fixes that we are doing are primarily structural and technical auditing signals, adjusting our infrastructure, shifting audience strategies and, of course, campaign setup, but that's only on our end. Of course, in parallel, our ad partner is doing analysis on their end, and we work with them closely for the past few months.

We have also made some budget allocation, reducing the overall spend for IL MAKIAGE given the elevated spend, but continue to spend just to make sure that we can continue to have tests running. And again, for many months, we saw only a negative trend, like almost every month was worse than the previous months other than May. May, we had lower spend, but still, we had also very low spend in other months and the trend was opposite. That's for that question, Lindsay?

Sure. Youssef, so our guidance for the second quarter is for revenue to be down between 25% and 30%. The challenge for us in part is that acquisition is still very difficult. We talked about the sequential improvement in May versus April, but remember that Feb was worse than Jan, March was worse than Feb and April was worse than March. So on balance, the overall CPA in May versus Q1 is not materially different yet, but we noted the encouraging thing for us is the positive inflection that we saw in May overall.

We did lose a lot of first orders in the first quarter that would have translated into repeat orders in the second quarter. And so that's a continued overhang for us. So again, like we're -- we hope to see more sequential improvement is in the second half of the year. And like I said and what we said in our outlook, we do expect for full year adjusted EBITDA to be profitable.

Our next question comes from the line of Andrew Boone with Citizens.

You guys have historically run your marketing in-house. Can you guys talk about the changes that have either taken place within that organization or maybe the thought about using third parties? Basically, what's changed in terms of the marketing strategy given this speed bump?

Yes. Historically, we've done everything in-house very successfully for many, many years. For the first time, we shared with the market how stable our results are. And despite the fact that we were growing massively. But that just for acquisition, of course, our repeat and other metrics and compounding repeat continue to grow. That's why despite the small change every year, we were able to continue to present such strong results.

What we have now is something that we never saw before. We are evaluating it with the ad partner. And we also brought in another team recently to take a look. But again, we don't believe that the problem sits on our end, but we continue to do everything in our power to exit this spiral as soon as possible.

I would just add on to that, Andrew, that it was -- it's been very encouraging as we worked very closely with this advertising partner to hear their view that all other things equal, and as we said in our prepared remarks, not related to other things like market dynamics, just in their systems alone, they estimate that we can recover 40% to 60% of CPA. And if we get to those levels, we'll be back in a position to resume healthy profitable growth.

Our next question comes from the line of Ryan MacDonald with Needham & Company.

Maybe one for Oran and one for Lindsay. Oran, I'm curious to think about -- as you're thinking about product development and I understand, obviously, I think probably the algo change is taking most of your time. But as we think about product development throughout the remainder of this year, we're obviously getting some updates or should get some updates in July from the FDA around peptides and potentially some moving from certain peptides from Category 2 to Category 1 with applications in skincare like GHK-Cu, copper peptides, BPC 157. Just curious what sort of opportunity and maybe what research or investments you're doing in this area and what sort of opportunity this could open up for your brands over time?

And then, Lindsay, for you, just on the guidance, if we think about the adjusted EBITDA guidance of $8 million to $10 million, are you assuming -- is that based on assumptions that the improvements in CPA you saw in May continue? Or do they revert back to April levels, first quarter levels?

Yes. On your first question, needless to say that the majority -- the vast majority of our time is handling the problem that we currently have with media for both me and Shiran, that's what we do 24/7. I will say that despite what we have in media, we continue to heavily invest in product across IL MAKIAGE, SpoiledChild, and METHODIQ, but more importantly, ODDITY Labs, we continue to see massive opportunity there. And once we have more to inform regarding the peptides and the new changes, we'll update the market.

And as it relates to our assumptions, we -- our assumptions assume that CPA remains similarly difficult.

Our next question comes from the line of Dara Mohsenian with Morgan Stanley.

So first, just a clarification. You highlighted CPA move back down sequentially versus recently. You remain hopeful you're on track for normalization in the second half of the year. Is that normalization more around CPA itself? Or is there some hope perhaps you could get back to revenue growth at some point by the end of the calendar year?

And just any thoughts on how much of this 2026 revenue pressure might extend longer term as you look out to 2027. I understand 2026 is still a moving target this year. But just looking for your conceptual thoughts on what this means for the business longer term, the issues around CPA here in 2026.

Yes. I'll start just once we fix this problem, of course, like the most important part of our end is to fix it, but then to go back to growth. So my plan as soon as we fix it is to go full power back to growth. As for the implications of '26, obviously, we lost a big chunk of new users that we were not able to acquire in '26, which will impact '27. But again, all depends when we fix it, if we are able to fix it -- as soon as we are able to fix it, we'll go back to growth to compensate some of these new users loss. Lindsay?

Yes. The leading indicator for us is the CPA. We have this overhang on revenue that will continue across the year, but the sequencing is better CPA allows us to drive first orders. We do see that our repeat rates remain very strong.

And so when you pull those pieces together, once the CPA is at an improved level, we can drive first orders, which will drive repeat and healthy profitability, and that's kind of the sequencing of how you'll see the business improve.

Our next question comes from the line of Scott Schoenhaus with KeyBanc Capital Markets.

I wanted to focus on METHODIQ. You said it's performing in line with expectations. Do you see any ability to drive that revenue growth algorithm faster by investing more in the business? Are you pulling resources away from the other 2 brands, especially IL MAKIAGE in order to divert more attention to METHODIQ? And then on the hiring front, the biotech environment has strengthened here over the last 12 months. Are you seeing any issues with retention or hiring in that department?

First of all, we don't see an issue with them hiring in Boston ODDITY Labs. Second question, as we believe the problem with IL MAKIAGE is technical, and we believe we'll be able to solve it. We continue to invest in IL MAKIAGE and we are not shifting or allocating resources from that brand to other brands. Lastly, for METHODIQ, very excited and bullish about what it can be, seeing strong initial demand and still early days, but we believe that it will be a great brand. We spent many years on building it.

As for your question to accelerate it, it's a new brand, many things that you want to test, you don't want to accelerate it before you optimize the exact funnels and products. And therefore, it's already extremely substantial for a new brand, and we think that's the right pace.

Our next question comes from the line of Lauren Lieberman with Barclays.

Two questions. First was just around -- you've emphasized a couple of times, this is an issue with one particular advertising partner. I was just curious about efforts or thoughts around diversifying your partners, right? There's more than one platform out there. So I wanted to just get some understanding of how you're thinking about the range of opportunities on other platforms and other ad partners.

And then secondly was just to clarify whether or not SpoiledChild is sort of undisturbed. We've been very focused on IL MAKIAGE, and it may just be my memory, but I wasn't sure if SpoiledChild was seeing the same issues or not. And if it's not, why not? And is there anything you can do or are doing to future-proof it to avoid the same kind of signal breakage that's happened with IL MAKIAGE?

Sure. As to other platforms, of course, we advertise also on other platforms. But based on the data that we have, just in 2025, our largest ad partner was by far the largest ad partner in beauty in the U.S., way more than 50% of the market. So there is a limit of how much we can revenue or acquisition we can drive in the other platform. This platform is by far the biggest one and more the majority of the spend in beauty in the U.S. for new user acquisition.

Second question about SpoiledChild. SpoiledChild, we see also increasing CPA less severe than IL MAKIAGE. The main difference SpoiledChild continues to grow. And despite the fact that it continued to grow, the CPA is way less severe than what we've seen in IL MAKIAGE. So it's a good indication, but we are still like, once we identify the right solution for IL MAKIAGE, we'll implement the same in SpoiledChild, we believe that we will have like a tailwind for that brand also.

Our next question comes from the line of Mark Mahaney with Evercore ISI.

I want to get back to the question on somebody asked earlier about METHODIQ. And it looks like this product is ramping reasonably well in line with what SpoiledChild did earlier on. That sounds promising. Talk about the customers that you've gotten for the product so far. Are these customers that are brand new to ODDITY as a whole?

Are they customers that have come from other areas? Something that -- can you give us some sense about the sustainability of growth of those customers and whether they -- how much they expand your market? Or is it largely just a resell to existing customers? Anything on that and the type of customers coming in for METHODIQ would be helpful.

Yes. I'll start and maybe Lindsay will continue. With any new brand that we launch, we try to see the strength and the potential by itself, meaning it starts by its own with less marketing to our other -- to our existing user base. Otherwise, we will never see or understand the potential of that brand. So to your question, it's an addition to our customer base in IL MAKIAGE.

Of course, when those brands operate by themselves, some of the customer base is going after the same audiences just because IL MAKIAGE and SpoiledChild customer base is huge. But it's completely separate brand with its own efforts to acquire new users just to understand the scale and the potential and to optimize the funnels in the hard way and not with quick wins just due to our major customer base of IL MAKIAGE and SpoiledChild.

Our next question comes from the line of Cory Carpenter with JPMorgan.

I had 2 questions. Building on an earlier question, could you talk about the CPA trends that you are seeing at your other advertisers? That's the first question. And second question, last time we talked, I think you were hopeful that you could maintain the Try Before You Buy program. I think on this call, you said about 40% has shifted away from that. Maybe just could you give us your latest thoughts on the role that you think Try Before You Buy can play based on your learnings with the technical changes thus far?

Yes. Try Before You Buy remains part of our model. We have no plan to eliminate it as we strongly believe it's great for consumer, and it's the closest way of bringing physical store experience to the online world. Toward the end of Q1, we successfully shifted 40% of our acquisition revenue from Try Before You Buy to standard Buy. This process was expensive in terms of margin as it required many, many tests until we successfully landed on a solution with no impact on unit economics, which is very encouraging.

At least in my view. there is no -- Try Before You Buy today based on the last numbers that I saw, we tend to be a tiny number -- tiny percentage out of our total revenue or total orders, but we intend to continue to use this program as we really believe it's right for consumers, but more balanced with standard Buy.

Question was on CPA at other platforms.

Yes. Other platforms, obviously, the CPA of other platforms is taking the overall CPA of IL MAKIAGE materially down. But since this is our largest platform, we work really hard to solve it so we can go back to growth and go back to full power spend also with the largest platform in the U.S.

Our final question comes from the line of Anna Lizzul with Bank of America.

I wanted to follow up on Lauren's question here. Now that we've heard from several beauty companies and watch the trends over the past few months, I guess we haven't really heard of the algorithm adjustment as much impacting other beauty companies. They are less exposed to the channels, but they say maybe sees 20% of sales on e-commerce channels.

So I was wondering if this will make you reconsider in a broader way your marketing and user acquisition, just given the impact to what seems to be to your brand specifically? And then how do you ensure this doesn't happen with any other platforms in the future?

I can't refer to other brands, but I don't know anyone that is on our scale and most of them are omnichannel and are less sensitive to algorithm changes. By the way, as I mentioned, we had many of them in the past years. The most notable one is iOS 14. And I think that also then it was harder for us than others just due to the fact that we are 100% D2C. And If we think about diversifying our channels, yes, we think about it. And when we have what to tell the market, we will.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Holtzman for final comments.

Thank you very much, guys, for joining. We'll see you next quarter.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Good morning, and welcome to ODDITY's Fourth Quarter 2025 Earnings Conference Call. Today's call is being recorded, and we have allocated time for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Maria Lycouris, Investor Relations for ODDITY. Thank you. You may begin.

Thank you, operator. I'm joined by Oran Holtzman, ODDITY's Co-Founder and CEO; and Lindsay Drucker Mann, ODDITY's Global CFO. Niv Price, ODDITY's CTO, will also be available for the question-and-answer session.

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 made about ODDITY's business strategy, market opportunity, future financial performance, customer acquisition costs 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 earlier today and in our most recent annual report on Form 20-F filed with the Securities and Exchange Commission on February 25th, 2025.

We do not undertake any obligation to update forward-looking statements, which speaks 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 today. I'll now hand the call over to Oran.

Thanks, everyone, for joining our call today. 2025 was a strong year for ODDITY. We delivered record financial results with revenue, adjusted EBITDA and adjusted EPS all ahead of our plan. Revenue increased 25% to a record $810 million. We delivered record adjusted EBITDA of $163 million, representing 20.2% adjusted EBITDA margin.

Across the year, we were able to once again raise our financial outlook every quarter on revenue and profit, and this is despite experiencing challenging user acquisition costs in H2 that drove an increase in advertising spend.

Our strong and profitable repeat rates allowed us to once again deliver results ahead of our plans. And we accomplished all of this while investing heavily in our future. Notably, this year, we successfully launched our third brand, METHODIQ, which expands our reach into the medical grade space where we see enormous potential.

In addition, we continued our ongoing investments in ODDITY LABS in our tech infrastructure as well as new products and new brands. We believe that our powerful platform, brand and technology, combined with our growth investments, create long runway for us to grow in a big, attractive and profitable category, where we are well positioned to outrun our competition.

We finished the year with strong balance sheet position with $776 million in cash and cash equivalents. Even as we work tirelessly to address what we believe is a near-term dislocation in our user acquisition cost, there is no change to our long-term vision, strategy or our commitment to growth.

First, the consumer immigration online where our brands maintain leading positions. One of the best indicators of our business health is our very strong repeat sales. In 2025, approximately 70% of ODDITY's revenue came from repeat sales.

Customer cohorts repeat behavior remains very strong and continues to increase. 12-month net revenue repeat rates for our 2024 cohort of first purchases increased from the 2023 cohort and remained over 100%. We believe these are outstanding repeat metrics compared with other direct-to-consumer companies and reflect the health of our brands, the quality of our products and the high satisfaction from our customers.

Moving to our brands. IL MAKIAGE grew revenue low double digits in 2025 to approximately $560 million. IL MAKIAGE Skin was a highlight as planned and finished the year at approximately 40% of IL MAKIAGE brand revenue, expanding from around 30% of brand revenue in 2024.

The rapid success of IL MAKIAGE Skin since its launch in 2022 demonstrates the power of our platform and our ability to leverage our user base and technology to quickly scale new products and categories.

International markets were also a key driver for IL MAKIAGE. ODDITY International revenue, the majority of which is from IL MAKIAGE grew 42% for the year. International markets represents 17.5% of overall ODDITY net revenue for 2025 compared with many of our competitors that generate more than 65% of net sales from international markets.

SpoiledChild also had a strong year, increasing revenue double digits to approximately $250 million. This is an incredible accomplishment for an online-only brand that just launched 4 years ago and once again shows the power of our platform and ability to scale.

We remain excited about SpoiledChild's long-term potential, including new product expansion in beauty and wellness. The launch of METHODIQ, our third brand, was a highlight accomplishment in 2025. METHODIQ is a medical telehealth platform that aims to deliver high-efficacy treatment at scale, starting in dermatology, addressing concerns like acne, hypopigmentation and eczema.

It is off to a great start, and we are very pleased to see its initial success. Our early focus on acne hyperpigmentation and color products is showing good traction, and we believe this will be big categories for us.

We are seeing good metrics and continuous improvement in our KPIs even as our customer cohorts increase in size. What we see in METHODIQ's app engagement reinforces our view that METHODIQ can uniquely deliver high standard of care for a broad audience and do it with great convenience.

When we look at the app down rates, onboard completion, weekly check-in rates and care team engagement, we can see the demand, and we are bullish about how our app technology will drive user compliance satisfaction and success.

Moving on to the second focus area of our long-term growth strategy, the consumer adoption of high-performance products that better address their pain points. Our product development pipeline for all 3 brands are focused on bringing the market top performers that we believe beat the competition on efficacy.

ODDITY LABS continue to push the frontier of ingredient innovation in beauty and wellness. Over the past 18 months, we have made major strides in our capabilities and infrastructure to improve our work with the goal of shrinking our time lines and improving the probability of success in identifying game-changing molecules. Our efforts in process and infrastructure have driven significant improvements in our productivity, increasing the number of targets we can tackle and allowing us to push projects along faster with greater accuracy.

One highlight area is our work in traditional biology, which expands on our strong in silico and in vitro foundations. This work helps us to get stronger reach on the most relevant biomarkers for our products, increases our predictive power of success and does it in a way that is scalable, representative and [ retrigerous ] science.

Another highlight is our ability to identify biological targets that can influence a desired effect. We are focused on pain points with large commercial opportunities, including acne hyperpigmentation and aging. And our target list include pathways like reducing melanin production and boosting collagen and elastin.

We are leveraging AI agent to map targets and structures and also applying our work in traditional biology to identify novel targets. We recently expanded our capabilities into peptides to add to our small molecule foundations and are working on peptide solutions in areas like acne and aging.

This expansion into peptides gives us the flexibility to identify the right modality to address an individual biological target. At the same time, we are working in parallel to improve topical delivery of different activities to ensure they reach the relevant areas in skin and maximize the biological effect.

We expect to have 8 products in market in 2026 made with ODDITY LABS molecules. The innovation for METHODIQ is especially exciting, including molecules that cover key categories, including acne, eczema and hypopigmentation and more to come in the future that we are bullish about.

Turning to our acquisition costs. We experienced an unprecedented dislocation in our account with our largest advertising partner, which we believe is due to recent changes in their algorithms that slightly diverted us to less desirable auctions and traffic at abnormally high costs. These changes resulted in significant abnormal increases in our new user acquisition cost for ODDITY that are not correlated with the market or our historical experience.

We have never seen anything close to those acquisition costs, not in ODDITY and also not in other beauty advertisers. This elevated acquisition cost is severely hurting our ability to acquire new users efficiently at high scale as we normally do in the first half of each year and have done consistently for the past 8 years very successfully.

Both IL MAKIAGE and SpoiledChild appear to be impacted by these algorithm changes, although the impact on IL MAKIAGE was more severe probably due to its higher scale. After identifying the root cause in late January, we quickly moved to implement strong remediation actions, primarily around the modern infrastructure that we hope will get us back to the right options and ultimately drive improvement in our new user acquisition with significant progress in Q2 and normalization in Q3 or Q4. These types of algorithm updates are not new and have been ongoing through the years, and we've historically adapted to them. In this case, it was harder than before to identify how these updates were impacting our business, and therefore, it was harder to identify the root cause.

We believe we got hit by the algorithm change due to our user acquisition strategy that includes a Try-Before-You-Buy offering, which is a rare in beauty and therefore, may be an [ edge ] case within the new algorithm changes.

We believe the algorithm updates impacts on how this platform interprets and weighs the signals associated with Try-Before-You-Buy model, primarily due to its inherent higher return rates and diverted us to lower quality auctions at abnormally high cost disconnected from the market.

For more context about the model, Try-Before-You-Buy is designed for the benefit of the consumer by reducing the risk of trying our products online.

It is a pro-consumer model that allow us to replicate online the experience of physical stores like Sephora, where consumers can try products in real life and materially reduce the risk of purchase. This model is growing due to its complex execution. We believe it's an edge case and a nonobvious interaction within the platform's new auction dynamics.

After assessing the driver of what we believe is hitting us, we quickly moved to fix it. Our remediation actions are designed to reduce Try-Before-You-Buy, down-weighting while preserving the ability for new customers to purchase products on a trial basis with minimal risk.

Important to note, Try-Before-You-Buy isn't a dependency for us. We offer it as a better alternative for consumer, but our agile model allow us to rebalance towards the standard buy offering if we see it is needed. Unfortunately, because we only recently identified the root cause and despite working tirelessly to fix it, we have not had much time to take action, and it takes time to recover. Therefore, we expect negative impact on our 2026 financial results with the most significant impact expected in H1. But I want to be very clear, despite the dislocation in our new user acquisition we are currently facing, we are not changing our model, our strategy or our long-term focus on growth.

The main objective of the company right now is correcting this issue and being in a position to immediately pivot back to growth. I want to close with some perspective on this moment in time. Over the past 8 years, we grew from $25 million of revenue to $800 million of revenue despite multiple changes on ad tech side, a prominent one with iOS 14.

We have navigated algorithm adjustments by our ad partners in the past, and we believe we will be able to also address the [ chronic ] dislocation. Most importantly, we believe we understand the problem and in a world of complex online auctions, understanding the problem is always the hardest part.

We don't see this as a structural issue or a secular disruption as you are seeing in other sectors or a negative macro trend for our category. It is a technical issue. And from here, we believe it is a matter of time and execution to deliver the strong outcomes we have constantly delivered over the past 8 years. And as I said, we believe we have a strong plan in place, and I hope to see normalization in H2. With that, I will turn it over to Lindsay.

Thanks, Oran, let's turn to our Q4 results, which I'll refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. ODDITY delivered an outstanding quarter to cap off a record-breaking year. We grew net revenue by 24% in the quarter to $153 million.

Growth was driven primarily by an increase in orders, while average order value declined slightly year-over-year. The 24% revenue growth we delivered this quarter exceeded our guidance for growth of 21% to 23%. Gross margin of 70.5% compressed 220 basis points year-over-year and exceeded our guidance for gross margins of 69%. The delta versus our outlook was driven in part by product mix.

We delivered adjusted EBITDA of $13 million in the quarter and adjusted EBITDA margin of 8.2%, above our guidance for adjusted EBITDA of $10 million to $12 million. Adjusted EBITDA margin compressed by 410 basis points year-over-year due to planned investments for future growth, including the METHODIQ brand launch, ODDITY LABS and Brand 4 as well as higher media costs.

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 earnings per share excludes approximately $8 million of share-based compensation. Turning to some highlights for the full year of 2025.

We grew net revenue by 25% to $810 million with double-digit growth from both IL MAKIAGE and SpoiledChild. This 25% growth is ahead of our long-term algorithm target for 20% sustained top line growth. Net revenue growth was primarily driven by an increase in orders, while average order value increased slightly year-over-year. Gross margin of 72.7% expanded 30 basis points year-over-year, driven by cost efficiencies.

We delivered adjusted EBITDA of $163 million. Adjusted EBITDA margin of 20.2% is consistent with our 20% long-term earnings algorithm target. And that's despite our planned investments in future growth initiatives, including METHODIQ brand launch and ODDITY LABS and despite increased advertising costs.

Advertising costs increased approximately 50% year-over-year, reflecting growth investments in international markets and METHODIQ as well as higher acquisition costs for IL MAKIAGE and SpoiledChild. We delivered adjusted diluted earnings per share of $2.21.

We exited the year in a strong liquidity position, including $776 million of cash, cash equivalents and investments on our balance sheet. The buildup in reserves in 2025 was driven by our successful exchangeable note offering and free cash generation of $84 million for the year. Free cash flow in the fourth quarter was negatively impacted by approximately $19 million of increased inventory due in part to new inventory investments in METHODIQ on top of our seasonal inventory build ahead of the Q1 selling period.

We amended our credit facilities in January of 2026 to expand our borrowing capacity to $350 million. These facilities remain undrawn. As for potential uses of cash, we believe repurchasing our stock is attractive at recent share prices and intend to opportunistically return cash to shareholders through buybacks.

There's $103 million remaining on our previously announced repurchase authorization. As Oran discussed, we experienced a significant increase in our new user acquisition spend Q1 to date. The timing of normalization is uncertain, although we're working hard to have this behind us.

Our remediation actions have started but are still in early stages, so we're not going to make any predictions on their success. Due to the uncertain timing of recovery, we're not issuing full year '26 guidance at this time, but we'll provide updates to our progress and outlook as we get more visibility.

A few things to keep in mind for your models. We expect Q1 sales will decline approximately 30% due to reduced acquisition revenue. We're still spending acquisition dollars today despite much higher CPA, and this is so that we can continue feeding the algorithms the signals needed to reset and normalize.

At current CPAs, we are not profitable at first order, and that has material negative impact on our near-term EBITDA. We are, however, still profitable on a 12-month direct contribution margin basis because of the strong repeat we generate from acquisition sales.

Based on the expected timing of CPA normalization, Q2 sales are also likely to decline, but it's too soon to determine the magnitude. Q1 and Q2 are historically our largest periods of user acquisition. And from that acquisition, we typically generate significant repeat revenue over the balance of the year. The reduced user acquisition activity today will therefore result in lower repeat sales later in the year, even if acquisition costs normalize.

We're managing costs through this period to offset EBITDA pressure but continue to carve out investments in growth initiatives like ODDITY LABS, new brands, product development and our tech infrastructure, and we believe this is the right strategy to set us up for sustained growth if CPA normalizes.

With that, I'll hand it back to the operator for questions.

[Operator Instructions] The first question is from Youssef Squali from Truist Securities.

Maybe dig a little deeper into the algo change. I'm assuming this is related to Google's Andromeda. When did the issue actually start -- when did you start seeing it? Has it -- is it continuing to -- is the trend continuing to worsen? Or has it kind of stabilized?

And lastly, Oran, when you talk about the issue being related to Try-Before-You-Buy, does that mean that you guys are going to deemphasize that? Or is there work around it such that you can continue to differentiate yourself through that offering and still maybe rank higher?

Thanks, Youssef. We didn't specifically name the advertising partner, but the issue is we first observed that something was different in the second half of 2025, and we did call it out on our November earnings call, but it did get much worse as we entered 2026 and really began to scale our business. And I think at the time, when we've spoken to you, we had started to see some improvement, but it's always difficult for us to get a read on CPA as you go in the holiday quarter because it's just not a typical market. There's a lot of noise. And so as we moved into Q1 and we started to scale, that's when we saw the dislocation.

[ H4 ] moving from Try-Before-You-Buy, look, we believe that we can still solve it. We try, as I mentioned, we believe it's pro consumer. We believe it's the right thing to do. But I also mentioned that we can -- that we know how to move to buy like the rest of the industry. I want to say that more than 95% are selling via [ buy so ].

It's not something new, and we know how to do. As for what we do, there are a range of things that we need to identify the issue and working on fixing it. We Try-Before-You-Buy, including Deep Signals Audit, Final UI/UX adjustment, a lot of work on the infrastructure side, building new prediction models, offering adjustments and different audience strategies. We wouldn't sit here today if we didn't think that we can solve it, we try. We would say that we are moving to buy, but the fact that we believe that it's solvable with the current business model.

The next question is from Anna Lizzul from Bank of America.

I just wanted to ask on the change or the lack of guide here, I guess, and what you can recover for the remainder of the year, it does seem like an uphill battle. Is it possible to shift this user acquisition really from Q1 or H1 into Q2 or H2? Or will there be more of a delay? And does this change your thinking at all on distribution, just given you are vastly sold on direct-to-consumer, would this make you think at all about going into retail?

As mentioned, no change in our strategy. Thank God, this is our strategy. Online is our strategy. Online continue to grow, and there is no change in our plans or no plans to move into retail at this point. We are confident we can go back to growth.

We believe it's something that it's a temporary change that happened that we need to adjust to. So no change in distribution strategy. Lindsay, do you want to answer about the second half of the year?

Yes. Thanks Oran. So, we're navigating a situation today where CPA is significantly higher than last year, in some cases, 2-plus x higher in some cases. And as a result, we've dialed back on our acquisition to manage it. Remember that, as I mentioned in my prepared remarks, at current CPAs, we are not profitable at first order. And so that has a material negative impact on our near-term EBITDA. We are still profitable on a 12-month contribution margin basis. But in the near term, as we spend, you have pressure. And since Q1 and Q2 are our largest periods of acquisition, we'll have -- as I mentioned in my remarks, we'll have that carryover effect into the back half of the year as we lose the repeat.

And so in the short term, we view this as a pothole that we'll have to recover from. But as the business in CPA normalizes as we hope it will in the back half of the year, we'll be on a track to normalize our financial model as well.

By the way, I would just add that Lindsay mentioned even more than 2x. If we saw something gradually increasing in terms of CPA, we wouldn't think that something is completely off. We know that the current numbers that we see in user acquisition are completely off market, and we know it's -- and therefore, we believe it's something technical, and we work really hard to go back to -- by the way, we never built the business on marketing margin, on making profit from better acquisition strategy or execution. We build the business on repeat. that can protect us from regular increase in media spend. By the way, we see it every year. But this is something completely off, very unusual. We never saw anything like it. And based on my understanding, like it doesn't exist elsewhere.

The next question is from Brian Tanquilut from Jefferies.

Maybe, Lindsay, just as I think about the model, right, I mean one of the things that we've always loved about your business is how you can flex the advertising spend. And obviously, as you said, CPA is up more than 2x in some cases. So when we think about how you would strategize around this, I mean, once things normalize, I mean, should we expect kind of like a steep pullback on advertising expense? Or just curious how you're thinking about strategizing around this once we get that normalization point? And then can you just give us any color on retention rates or reorder rates that you're seeing in the market?

I'll start and maybe you take it. Even when media is abnormal as now, you don't want to stop the train. You still need to feed the algorithm and continue to spend so that you are giving it signals, it needs to go back on track. We have balance between not overspending at this crazy CPA that doesn't make sense while keep them -- and the signals going. And that's our plan to keep balance that way until we fix it.

As far as what normalization looks like for us, it would be something in line with what the rest of the industry CPA is. That's typically how our business has operated. It's a very, very big auction. It's a lot of competitors in there, and we typically are around where we would see our competition in terms of CPA.

Right now, we're completely dislocated and off market based on this dislocation and this malfunction of sorts. And as we address it, as Oran said, we should be getting back to track. I don't know if I remember your second question.

Just on the reorder rate that you're seeing anything there as well.

Repeat rates remain very strong. This is one of the reasons why we know we don't have a brand issue. We don't have a saturation issue. We continue to see very good performance out of our repeat. Repeat revenue is for 2025, around 70% of our sales.

And as we look at our 12-month net revenue repeat rates, those increased again. So the 2024 cohort that repeated in 2025, that number increased relative to the prior year. So that's well nicely over 100%. And even as we look at our more recent cohorts within who started in 2025, those net revenue repeat rates on a 6-month or so basis are better than they were in the prior year. That trend remains very strong.

The next question is from Andrew Boone from Citizens Bank.

Can you guys help us understand just what exactly is changing within your guys' funnel? Is this higher CPMs? Is this lower click-through rates? Is this worse on-site conversion, meaning it's a lower quality user that you're targeting? Help us understand that dynamic.

And then one of the things that we've also always appreciated about the business is just your ability to be able to pull different levers to be able to sustain that 20% growth. And so can you just help us understand the size of this channel and your inability to be able to allocate spend elsewhere and help us understand just why this is an overly large impact versus what we would have thought was a more diversified ad platform?

Yes. When we refer to our ability to grow through multiple -- in multiple areas, one thing that is important to note because this change is for ODDITY is global and across brands, it makes it harder, and that's why we came to the market with 30% decrease target in Q1. It's very hard to continue to grow without overspending. And obviously, this is something that we don't want to do in those CPA levels. Lindsay, do you want to continue?

Yes. As it relates to mix, what I can tell you is that for our largest ad partner, if you just look at pure platform orders, -- so that's any order that can be attributed directly to an ad from this specific partner. Those revenues make up just under 1/4 of our revenue, and that's based on our internal attribution system.

But keep in mind, this is just pure acquisition dollars. And on top of acquisition, you also get repeat, you have direct revenue. So there's additional impact. We have relationships with many different ad partners. I want to say almost -- I don't want to say all of them, but many, many different ad partners, but your ability to scale is only so much with each individual, and so this is impacting us.

The next question is from Georgia Anderson from Evercore ISI.

You mentioned that you've made kind of significant actions to fix this. Can you maybe clarify if these are more structural, I guess, technical fixes to your internal, I guess, data feedback loops, maybe retraining your AI to find intent users, kind of things like that? Or is the rebound expected to come from like a strategic shift in budget allocation? Maybe just talk us through the fixes that you're making.

Yes, it's both infrastructure side, offering adjustments and signal adjustments. We do all. The good thing about us is those points of time, like when you need to make multiple changes, we do everything in-house. We are not dependent on third parties, data scientists, developers, media buyers, so we can run dozens of variants at the same time. And that's what we did in the past few weeks. And therefore, we believe that we are more prepared than most companies to address it.

The next question is from Scott Schoenhaus from KeyBanc Capital Markets.

Lindsay, is there areas that you're currently seeing strength that you could possibly offset this weakness strategically? I want to focus here on international opportunities and then the Brand 3 rollout, which you mentioned was -- has seen nice success.

Yes. I'll start with the good news. We launched Brand 3 METHODIQ. It's growing more than what we saw in IL MAKIAGE when we launched IL MAKIAGE, it's facing SpoiledChild. So we are very pleased to see the demand and success of METHODIQ by the way, as we thought.

As for international and other areas, you still need user acquisition, and we still don't want to overspend just to meet the revenue goals. I never run the business like that before. And that's why the business is profitable for many, many years and last year, 20%. So -- we first need to fix it and then we go back to growth.

The next question is from Ryan MacDonald from Needham & Company.

As we think about balancing sort of the near-term priority of sort of fixing the problem here versus sort of balancing with longer-term investments to sort of continue the growth sort of growth trajectory once these problems are solved.

Can you talk about sort of what that balance looks like internally right now? And then what are some of the priorities, whether it's continuing down the path of product development with ODDITY LABS growing METHODIQ brand? Also, is there a risk here that we see a delay or a push out in sort of the Brand 4 launch plans as well?

Since we identify -- since we believe we identified the problem, we are not changing our investments in growth. We believe it's the right thing to do. We continue to invest in labs. We continue to build Brand 4, and we continue to work tightly on new products in NPD for IL MAKIAGE, SpoiledChild and METHODIQ. And that's for the first question. The second one, what was it, Lindsay?

What was the second question, Ryan?

Yes. So it was just any concerns about a delay in Brand 4? And then as we kind of come out of this, whether you lean into investment more aggressive for growth as we work back towards the balance of 2020 or sort of work more towards margin expansion?

The current focus of my leadership is fixing the problem. That's the first priority. Most of the teams are working on that. At the same time, we continue to invest in ODDITY LABS, we continue to grow it, and we continue to build Brand 4.

The next question is from Kate Grafstein from Barclays.

I was just wondering how does this dislocation impact the launch of METHODIQ? I know you had planned to step up spending in the first half of the year with this launch, and that was expected to have an impact on your EBITDA margins in the first half.

Yes. The fact that METHODIQ is relatively small, we can -- it means that we can continue to grow it without the negative effect that we see. It doesn't mean that the [ core ] problem doesn't affect METHODIQ. But since it's running at low scale compared to IL MAKIAGE, SpoiledChild, we can continue to grow and meet our targets for this brand for this year.

This concludes the question-and-answer session. I would like to turn the floor back over to Oran Holtzman for closing comments.

Thank you guys for joining. See you next quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good morning. Welcome to ODDITY's Third Quarter 2025 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.

Thank you. You may begin. Thank you, operator. I'm joined by Oran Holtzman, ODDITY's Co-Founder and CEO; and Lindsay Drucker Mann, ODDITY's Global CFO. Niv Price ODDITY's CTO, will also be available for the question-and-answer session.

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 including statements about ODDITY'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 our most recent annual report on Form 20-F filed with the Securities and Exchange Commission on February 25, 2025. 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 will now hand the call over to Oran.

Thanks, everyone, for joining us today. We delivered an outstanding third quarter with strong financial performance while achieving major milestones in our growth initiatives, including new brands, new markets, ODDITY Labs and tech innovation. Even in a challenging impact drop, Aditi continues to deliver on its near-term financial commitments while building our future growth in engines. Our financial performance once again exceeds our targets as we have done every quarter for the last 10 quarters as a public company. across revenue, profit and earnings, including 24% revenue growth and 24% growth in adjusted diluted earnings per share year-over-year despite category challenges.

We are also once again raising our full year guidance. We achieved a huge milestone this week with the official launch of Methodic the third brand in the ODDITY platform. Methodic is our most ambitious endeavor. Our long-term goal for Methodic is not just to launch another great brand and a telehealth platform, but to transform a broken medical care system using the best treatment and the high standards of care available to everyone. Our objective is to address medical issues with customized high-efficacy treatment without the need of going to a doctor's office or getting lost in a drugstore.

Achieving our planned time on for Methodic is a great accomplishment and speaks to what makes ODDITY and our culture is so strong. This is 4 years of heavy R&D in the making, supported by 2 acquisitions, including Voyage AD1 and Revel develop with what we believe is an unprecedented scale of over 20,000 real user trials for our product line. methodic is starting in dermatology, but our long-term goal is to expand into new medical domains in the future, and these are in development as we speak.

Our launch into dermatology takes on a massive problem. Industry data shows that nearly 50 million Americans suffer from acne, nearly 30 million from [indiscernible] and more than 30 million from eczema, and many of them are unsatisfied with the current offices on the market. drugstore products lack efficacy and personalization going to a dermatologist is a high friction and the standard of care for these conditions has declined.

At the same time, dermatologists will tell you that issues like acne are curable, we only need to ensure that the person has the right products and that they stay compliant. To tackle this big challenge, we built an ambitious and complex brand. Metodi is expected to feature a huge line of 28 prescription and nonprescription products, which combined for more than 100 unique treatment combination or precision personalization. We have aimed to optimize these products to balance between maximizing efficacy and minimizing side effects at the same time to provide the best-in-class beauty experience using the same standards for things like texture and scent that we have in [indiscernible] and spoil child while bidding top bento competitors in their category based on internal data.

Our large portfolio spends oral topical supplements and medical-grade makeup that consil white hills. Within the first 6 months of launch, we'll be live in the market with 4 methodic products formulated with ODDITY Labs molecules that are proprietary to us. addressing a range of skin conditions that includes dark sports, agitating, eczema and skin firming. Methodic sets of vision tools was developed alongside our team of dermatologists to analyze visible skin features like breakout and pigmentation to help our doctors networks understand its user condition. These vision models were built growing on more than 1 million images of real individual with no facial skin condition, which we believe is the largest image data set of its kind and was rated from over 13 million facial images in ODDITY's database.

Users are delivered continuous [indiscernible] certifies kind tracking up for weekly check-ins, where our vision technology quantifies progress and gives upset to clinicians, ensuring compliance and success. We soft launched methodic in Q3 and went live with our formal launch earlier this week, exactly as planned. This launching drew the major media campaigns casing Metodi distinctive brand voice and inspire consumers to commit to the care. We are run a large-scale out-of-home takeover in New York City and a massive activation partnering with the biggest medical and skin influencers to create brand awareness and to build trust. This is the biggest ticktock activation in ODDITY's history.

And as we have said, the maturity is just the beginning, we are working on additional medical domain for expansion, and we expect to have more to announce phermatodics in the future.

Turning to IL MAKIAGE. Q3 were once again strong. IL MAKIAGE revenue grew double-digit online. The brand remains on track to achieve our target of $1 billion revenue by 2028. We continue to show healthy expansion in international. At the royalty level, international revenue increased around 40% year-over-year in the first 9 months of 2025. We have successfully scaled in existing markets like U.K. and Australia while conducting larger scale tests in new markets like France, Italy and Spain. We see a huge opportunity in international markets and plan to further scale those across the board in 2026.

It still remains a standard growth area, and it's on track to be around 40% of [indiscernible] brand revenue this year. successful product innovation has been a key driver of skin, and we expect this will continue in 2026 with our solid lineup of new product launches.

Turning to SpoiledChild, which is having a strong year we now expect demand to cross $225 million of revenue in 2025. We are excited about our innovation lineup for 2026, including new product test. Moving to ODDITY Labs, where our very hard work over the last 2 years is starting to bear fruit. We have made significant improvement over the last year to our systems, infrastructure and teams, which we believe will translate into strong commercial discoveries.

The near-term commercial impact for ODDITY Labs is increasing. We plan to have at least 8 products with Labs molecule on the market in 2026 for our existing brands, including 4 products for Methodic and 4 for [indiscernible] SpoiledChildl. Beyond this -- we have additional products planned for our brand 4 launch.

Lastly on techtainnovation, which is the backbone of our business and an area of continuous investment. Artificial intelligence has been a centerpiece of our tech platform since we first launched in 2018. Advances in large language models and generative AI together with our large and growing proprietary data sets, allow us to push the frontier of how we can use machine learning to drive direct-to-consumer -- we have arranged initiatives in development on this front, including commerce agents that drive conversion and substation, integrating this state-of-the-art models into our advertising creative and other customer-facing initiatives.

With that, I will hand it over to Lindsay.

Thanks, Oran. Turning to our third quarter financial results, which I'll refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Q3 was another good quarter for us, setting us up for a record-breaking full year results in 2025. Out of these strong financial results continue to stand out relative to our competitors. This outperformance has been driven by the strength of our direct-to-consumer model and exposure to what we see as the key durable growth vectors in the industry, which are the consumer shift online and the migration towards high-efficacy products.

We grew revenue by 24% in the third quarter to $148 million, exceeding our guidance for revenue growth of between 21% and 23%. The strength was driven by double-digit online growth at both IL MAKIAGE and SpoiledChild. Net revenue was driven by an increase in orders, while average order value declined around 1%. Average order volume was impacted by mix, including faster growth in international markets, which carry lower AOV. Repeat increased as a percentage of sales year-over-year, and our 12-month net revenue repeat cohort trends remain strong at north of 100%. Gross margins of [ 21.6% ] expanded 170 basis points versus the prior year and exceeded our guidance of 68%. We did experience some gross margin impact from the flow-through of higher tariffs during the period but this was offset in part by cost efficiencies and favorable mix relative to our plan.

We continue to expect tariff headwinds will remain manageable for the balance of 2025 and into 2026. And while we have the flexibility to take pricing as needed, we have no specific price increases planned to offset tariff-related inflation. We delivered adjusted EBITDA of $29 million in the quarter, above our guidance of $26 million to $28 million. We continue to invest in our long-term growth engines, including our methodic brand launch and other future brands. ODDITY Labs and our tech platform.

We had higher than planned media costs in the quarter and have seen the media backdrop improve as we progress into the fourth quarter. We delivered adjusted diluted earnings per share of $0.40 and compared to our guidance of $0.33 to $0.36. Adjusted diluted earnings per share exclude approximately $9 million of share-based compensation expense.

We delivered strong free cash flow of $90 million for the first 9 months of the year. This included around $16 million of outflows related to inventory as we built inventory from methodic and modified our inventory shipment timing for tariff lining purposes. We ended the quarter with $793 million of cash, cash equivalents and investments on our balance sheet with an additional $200 million available on our undrawn credit facility.

Turning to our outlook for 2025. After a strong first 9 months, we're on track for another record-breaking fiscal year and are once again raising full year guidance. We now expect full year 2025 net revenue will be between $806 million and $809 million, representing between 24% and 25% year-over-year growth. We expect gross margin will be approximately 72.5%. We expect adjusted EBITDA will be between $161 million and $163 million, and we expect adjusted diluted earnings per share will be between $2.10 and $2.12, assuming no share buybacks in 2025.

This full year outlook includes our expectation that revenue in the fourth quarter will increase between 21% and 23% year-over-year. You can find more details on our Q4 outlook in our press release.

With that, I'll turn the call back to the operator for questions.

[Operator Instructions] Our first question is from Dara Mohsenian with Morgan Stanley.

So Oran on the base business, can you just help us unpack the 40% year-to-date growth? You mentioned in international markets Obviously, that's been a greater focus for you guys year-to-date. What have been the key geographic drivers of growth there from a country standpoint. And then just as you look out to 2026, you mentioned further scaling the international business. Is that around further country penetration? Is it SpoiledChild expansion, just the key expansion or white space opportunities as you look going forward?

Sure. So the first 9 months, just to put things in perspective, still 83% of revenue came from the U.S. So although international grew 40%, is it still tiny comparing to the U.S. while for others, as you know, international is approximately 2/3 of their business. For us, it's still 17%. Our task to continue to responsibly grow across the board in international markets, but as we said in our remarks, it's a huge revenue and profit opportunity for us, and we see that it's strategically important for us. We scale international when we think it makes sense. We don't run spend in acquisition just because you want to grow international or because you see softness in the U.S. the opposite, where we see opportunity. This is where we push and we get more revenue.

This year, we grew 40%. But like the objective is not just to grow the international market. And in terms of countries today, existing countries, Zanata, U.K., Germany and Australia, Israel and France, new geographies, Italy, Spain, Netherlands, Hiland and Sweden and Denmark. Markets that we are adding is testing our Japan, Mexico, Korea, Belgium and a few others. But this year, only 2% of revenue came from new countries and the 15% came from existing countries. So basically, the majority of the growth came from countries that we already reacted in.

That's very helpful. And then just 1 on method IQ, just high level, any thoughts after you've done some testing there on how much ability the platform has to bring in new customers to the Audit franchise and perhaps over time, indirectly drive beauty sales and cross-sell. And just as you see initial interest in the platform, how much of that is coming from your existing consumer base versus a new consumer base?

Every new country is completely new because you don't have users there. So that's why it's -- in terms of cost, it costs more because like we don't have any existing users.

Oran, his question is on methodic. The question is on the methodic, right Dara?.

Sorry, I couldn't hear it. Yes, sorry. In terms of methodic, yes, of course, like spoil child and when we started the majority of revenue came from IL MAKIAGE and we expect that a decent percentage will come from Imagina for methodic. Of course, we are also doing user acquisition because we want to expand our user base. So it will be mixed. Over time, of course, when the brand grows, then we will have more acquisition, but then we are doing both.

Our next question is from Anna Lizzul with Bank of America.

Thank you so much for the question. on methodic, just wondering in terms of how we should be thinking about this brand for '26. Just wondering if you can continue to elaborate on how you're thinking about new customer acquisition for methodic. Just how can we think about it incrementally versus Spoiled Child and IL MAKIAGE? And just in terms of the investments that you're making, we previously expected, I guess, a larger headwind on the second half in SG&A and the guidance for Q4 implies that this might not be as bad as we previously expected. So just wondering if you can comment on this also for the beginning of '26 in the context of the new brand launch.

I will start with high level. Our expectation from [indiscernible] is to scale faster than Spoiled Child, which was 1 of the best to see launches of full time. And our expectation here is to see even bigger numbers in terms of contribution due to the fact that it's like relatively small at like Spoiled Child 25 million on -- and even if we do a bit more still comparing to our next year revenue goal is still tiny. So Lindsay, if you want to touch regarding contribution for both top line and bottom line and emetic.

Yes. No, that's right. We haven't given -- we're not ready to give any specific plans for 2026 for methodic. But of course, as we look long term, we're extremely bullish about the brand. This is a telehealth platform that is really reimagine what medical care would look like if it was built entirely around the customer. Oran talked about the world-class treatments we've put together, highest standards truly personalize the individual and broadly available to everyone available online. We're starting in dermatology. That's a focus for us right now, a market that we understand really well because we've got around half of our IL MAKIAGE and SpoiledChild users on ODDITY platform that [indiscernible] issues like acne and dark spots and eczema. So it's a nice place for us to begin, as we said with the earlier question.

And there's truly nothing like it on the market. So we're very, very bullish. But we are in very early stages. We had our soft launch on time in the third quarter. We just launched formally this week. -- a lot of very strong early signals, but still lots of work for us to do before we figure out our plans and the timing of scaling, et cetera, but we're really excited.

As far as the SG&A implied guidance for Q4 versus prior, I guess what I would say is historically, we like to guide to revenue. And then from a gross margin perspective, we always give the team a lot of flexibility. So we try to guide conservatively that allow them to kind of chase whatever products from a DC margin perspective, that's on gross margin after media spend. That's how we evaluate the business. We want them to have lots of flexibility to go after the right DC margin or other products that from a strategy perspective we're focused on. So gross margin is not an internal focus metric.

And as a result of our guidance, we try to walk you guys to a place where we feel really comfortable we can deliver, and we've historically delivered a bit better, but we're always managing towards that revenue and EBITDA figures. So I wouldn't read too much into that. We still have some nice investment plan for all of our growth initiatives, including methodic in the fourth quarter, and we talked about the growth investments in the first half of 2026 on our prior calls.

Our next question is from Youssef Squali with Truist Securities.

SP-6 I have 2, maybe just starting with 1 on -- we've seen a pretty mixed bag of earnings from various consumer-oriented companies this earnings season, I think you alluded to that a little bit in your prepared remarks. Can you maybe speak to your views about the health of the U.S. consumer right now -- and some of the things that you guys are doing in particular, just to help audit that trend? And then I have another question.

Sure. Yes, look, we see what you guys see regarding softness from life on the outside. But internally, as you can see based on our results, revenue is still like according to plan, even better. Margin was strong. This is despite the fact that we see like higher acquisition cost. And the main reason that we can offset it is just like the massive repeat that we have. And when I try to think about a way to like to think or to answer regarding softness, the first thing that I look at is obviously acquisition, but the second part is repeat. So yes, position is higher, but repeat is getting way higher every quarter. And therefore, we are not impacted.

Okay. Okay. That's great to hear. And then Lindsay, I know you're not guiding quite yet to 2026. But is the growth although for 2026, any different from what we've expected or what we've heard from you guys up until this point, which is committing to basically 20% top line, about 20% adjusted EBITDA margins. And maybe within that, maybe just talk about the marketing efficiency in the business that you're seeing.

Yes. We're not ready to give 2026 specific guidance. We'll give that when we issue our Q4 earnings results, but there's no change to our algorithm of 20% revenue growth and 20% adjusted EBITDA margin, and you heard Oran reiterate in his remarks earlier that the other sort of medium-term guidance that we've given for age to deliver $1 billion by 2028, there's no change to that either. So business continues to be on a very healthy footing.

As far as media efficiency goes, you heard Oran comments, we did have some higher acquisition costs. In my remarks, I mentioned the environment has actually improved for us. as we've gotten into the fourth quarter. Overall SG&A in the third quarter was up around 30%, and that's including some of the increased spending initiatives that we have, for example, for methodic oddity labs, et cetera. So it's been very manageable for us, and we're feeling really good as we head into Q4.

Our next question is from Andrew Boone with Citizens.

Lindsay, as we think about methodic being added to the model, is there anything that we should keep in mind in terms of the different financial profile, whether that be different AOVs, whether that be different margin profiles? Is there anything we should be considering as we think about the next 3 years and layering in that brand?

And then on ODDITY Labs, it's great to see molecules start to contribute to the portfolio in 2026. Can you guys just help us understand what the expectation is of proprietary molecules. It feels like a step function change in terms of what you guys can bring to market. How do we think about that -- and then what's the path beyond those 8 initial products? How do we think beyond this first step?

Oran, do you want me to start?

Yes, please.

So in terms of financial profile for methodic, over the long term, we see this brand in a very similar framework that we think about with IL MAKIAGE and Spoiled Child and those are brands that will support long-term compounding 20% revenue growth and 20% adjusted EBITDA margin. So very healthy unit economics. -- that we see for the category in general and that we think methodic will deliver, especially as it relates to repeat and other KPIs that build into LTV.

I think for the prescription product, in particular, we will have lower gross margins, especially at first will be we're always quite inefficient on the gross margin side when we launch a business. But in the case of prescription for methodic because you have the third-party physician network and also the compounding pharmacies. Those are extra cost for us. The business we expect will be mostly not prescription, but you do have some of the prescription cost input that will impact on the gross margin side. However, we think you're going to have a really nice repeat business there that drives healthy DC margin.

Probably too early to say much else, but we look forward to sharing a bit more as we progress post launch in 2026. As it relates to ODDITY Labs, maybe I'll start, and Oran, if you want to add additionally -- as you guys know, in 2024, we made a strategic pivot with labs where we decided to extend our development time lines in order to focus on delivering molecules that had much higher efficacy and far superior performance characteristics than what was on the market today. And so we knew that would delay some of the timing of certain launches, but we thought it was a really smart trade-off to make because we believe that we could produce things that were way better. And now you're starting to see the fruits of that labor.

So as we said, we expect in '26 that just for our existing brands, we'll have 8 products on the market, including for methodic I would describe the methodic brands products as some of them extremely innovative, addressing very important needs for the consumer. So we're really, really excited about that. And we have even additional -- we have a lot in the pipeline, including some molecules that we expect to be delivered with brand 4 and more beyond. So I would just say super happy to see how the level of improvement that we got out of the work that we put into ODDITY Labs.

I would just add that when we started labs, we built it -- we started then we build it again. It was hard because the first time that we've done something like it. And the fact that you're seeing so many products and so many molecules coming to market this year just shows like that what we've done was the right thing, and there is a real progress in labs. So we expect to see the same pace and even higher in the next few years. the fact that both methodic and our IL MAKIAGE brands are going to get molecules this year is very encouraging. And again, just it shows that like the strength and the progress that we've done, which is significant in the past 1.5 years.

Our next question is from Cory Carpenter with JPMorgan.

I have 2, Lindsay, probably both for you. Just hoping you could expand on the comments around the media environment and the higher acquisition costs now going a little lower. And anything in particular to call out on the search channel. And then capital allocation, you have a healthy cash balance. You have not purchased shares since the convert earlier this year. So maybe if you could just refresh us on your capital allocation priorities.

Sure. On the media side, media costs, as we've said before, they tend to get more expensive every year, but we are able to offset them really effectively with higher repeat and also other unlocks across our KPIs, including conversion and other things that focus on. So this has allowed us to deliver a very healthy, sustained profitable business. And repeats running at around, call it, 2/3 of our overall business. And we were really -- are really pleased to see that -- the -- I discussed the net revenue repeat cohorts like the 12-month cohorts and the cohorts that we examine are all continue to be really, really strong. So we think you're still seeing a healthy consumer environment and a solid environment for us to continue to deliver.

As far as our cash position goes, we're in a very strong position, almost $800 million of cash equivalents and investments on our balance sheet today. We post the convertible earlier this year. We view this as really efficient patient capital for us. that we have flexibility to do what we want with. So we, of course, have the opportunity to deploy it for buybacks. We have the opportunity to deploy it for M&A. And we feel like we're in a really strong position where we can be patient and selective about what we use it for.

Our next question is from Ryan MacDonald with Needham & Company.

As you look at the international success and into the test market, can you talk about how replicable like the data model in terms of targeting subscribers and new users and then sort of identifying maybe more local or geographic differences in terms of what their needs product-wise might be just as you continue to scale that international efforts? And then is your intent to immediately go international with methodic right away? Or are you going to take sort of a more measured sort of region-by-region approach like you've done with other brands in the past?

Sure. So first of all, regarding methodic, we stopped only U.S., it's complex enough without international. So by the way, SpoiledChild was the same for the past -- for the first almost 3 years within even Test International. So we plan to do the same with methodic. I'm not sure it is going to be 3 years, but I don't think it's going to be way less than that. Regarding international and what we -- exactly what you said, that's the reason why we do tests. And when I said that like we open market with a localized website and starting to put -- to spend mini against new users in those countries and to ship products. Based on that, we see a distraction, we see repeat. We see you in economics, then we decided this market is suitable for us or not. And that's how we -- that's what we have done for the past 2.5 years.

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

On Methodic here, Lindsay, you mentioned the majority of revenues were going to be volumes are really coming from the nonprescription side versus prescription. -- are the molecules -- those 4 molecules also going to be for nonprescription versus prescription? And then as a follow-up on the prescription side, the physician network that you've built -- there's clearly a storage of dermatologists. And so this is an asset, how are you thinking about deploying technology to leverage more dermatologists on your network for patients

Thanks, Scott. So the 4 products are not prescriptions. They're a combination of OTC and cosmetic and again, we're really excited to have them out there, but those are not prescription products. And in fact, for ODDITY Labs we're not for the most part, -- and certainly, in the near to medium term, you won't see anything that's prescription coming from ODDITY Labs that will all be either OTC or cosmetic.

In terms of our physician network, we are currently plugged into third parties to help us with that. We have not brought that in-house, but we have the opportunity to do so for cost efficiency reasons down the road if we decide to do it. We -- the networks we're using now, we're using all physicians at the moment, not all dermatologists, but all 4 certified physicians -- and we can, of course, scale that to NPEs and other medical care practitioners down the road. There's the opportunity for that, but we're starting with all physicians as we build that and learn.

And I think from a technology standpoint, it's really us building capabilities that allow the network of clinicians to get the strongest signal as possible to help inform treatment decisions based on the inputs that we take, basically, when you're going through the methodic intake and onboarding funnel, we're picking up on the contextual real pathways and real signals that the same thing that you would look for if you were in an office, right? So you're looking at questions about demographics, hormonality, history and that kind of stuff, meanwhile, the vision tools are picking up signals like number of lesions, intensity and those kinds of signals that are really helpful for a clinician when making a decision about treatment outcomes.

So that's a really important part of our technology and then also just integrating our records directly with the provider systems that help the -- operate the clinician interface and help them to integrate with our tools.

And then I think finally, like within the methodic app, the ability to get feedback, progress tracking and to chat directly with your clinician to help drive things like confidence and most importantly, compliance and success, those are enormous ways we're using technology to drive the outcomes that we want.

Our next question is from Bonnie Herzog with Goldman Sachs.

I just have a question on IL MAKIAGE and SpoiledChild. Growth in the U.S. remains strong double digits for these brands, but it has moderated year-to-date versus last year. So could you talk about what this. And at the low 20% growth in the U.S. for these 2 brands is doable over the next few years? Or should we expect continued slowdown? I guess I'm asking, especially for IL MAKIAGE, could you touch on repeat rates for the brands and if these rates are also moderating?

I'll start by -- yes. I would just start by saying that -- and as I mentioned before, we manage growth across brands, and geographies. So like I don't wake up to more and say today, I need to see 25% in IL MAKIAGE in the U.S. and we look more broader, and we maximize the potential based on what we see in real time. So if Germany is working better at a specific day, this is where we push more and vice versa with them with Spoiled Child.

Lindsay, do you want to touch repeat?

Yes. I mean, just to add on that, like we're driving growth at the oddity level and our growth targets we're managing growth towards 20%. We don't want to grow faster than that. And so ever since our IPO, we have been very clear and explicit about our plans to sustain a 20% compounded durable growth. And that's exactly what we've been delivering on and we're managing it at the ODDITY level and we'll pull different levers within the different brands, specific to IL MAKIAGE, our target is to get to $1 billion by 2028. And we've always talked about international being an important piece of that. And so you're seeing us flex on the international part now.

At the same time, we want to make sure we're feeding Spoiled Child and now we have a third baby to give oxygen to. So we're managing it as a portfolio in order to deliver an overall ODDITY level growth.

I think in terms of repeat, no, repeats continue to be very, very strong.

Our next question is from Georgia Anderson with Evercore ISI.

I was wondering if you could talk a little bit about the TAM for methodic. Are you guys kind of defining this as all chronic skin sufferers in the U.S. or global or is it a narrow cohort, acne or eczema patients are willing to pay out of pocket. And then just kind of in terms of measuring success of the brand, do you have any milestones or KPIs that would give you confidence that methodic is scaling towards full TAM.

Lee, I'll start with the KPIs, and you'll talk about them. So like we soft launched in September, official launch this week. So of course, very early, but -- and based on what we see earlier the demand is there, the KPI that we look at now is acquisition, repeat, up downloads, open rates and weekly check-ins -- and like when we see those KPIs as we envision they are, then we will start scaling.

In terms of the TAM, the right way we think to look at this is number of people rather than dollar size. And the reason for that is because it's such a high friction market and 1 that hasn't been run well that we think if you actually can unleash some technology that leads to better outcomes and easier outcomes for people to access, you're going to see the overall market grow. And for these chronic skin conditions like acne and hyperpigmentation and eczema, I mean, your solutions are, number one, go to a dermatologist, Oran talked about 2/3 of U.S. counties don't even have a dermatologist. Your average wait times are over a month. People spend hours commuting to from plus sitting in the waiting room and waiting for a doctor's office.

So it's a real pain in the neck. And it's not a great experience. So it's something people avoid. And then your alternative of going through the drugstore, bouncing around with low efficacy products that don't really work overall stifled the total potential size of the market. We think that by really opening up this much better user experience, highest standards of care, world-class treatments made available easily to everybody online, you're actually going to see the overall market size growing, that's why we're unleashing. We think it's like probably the biggest wave of innovation to dermatology in decades and made ever. So we're really excited about it.

And then if you look at just the number -- the people, which is what we think is the right way to look at it in America, you've got million Americans, around 50 million with acne around 30 million with dark spots hyperpigmentation around 30 million with eczema. And just on our platform alone, we see the deep prevalence of these issues, a lot of people are buying foundation from IL MAKIAGE to cover them up. So it's a natural place now that we have new tools and an effective way to address it for us to expand into.

Our next question is from Lauren Lieberman with Barclays.

I was just curious to talk a little bit about launch plans for methodic and sort of learnings maybe from Spoiled because you did -- I recall that you did billboards for Spoiled, I see that you're doing it from methodic. You talked about it being sort of the biggest , I think you the biggest tiktok activation. So just curious about how you made decisions around the non-online portions of the launch and for how long you expect to have these kind of big TikTok activations going out because it's something where you get lots of attention to say, but how should we think about that ongoing TikTok activation to get the brand's awareness up?

Sure. So it's a third brand that we are launching, and we've done the same more or less with all off-line activation out of the gate for IL MAKIAGE, Spoiled Child and now in New York, we have the same with methodic. Regarding TikTok the biggest companies on so far. And we started now and we plan to continue until end of Q1.

Our next question is from Brian Tim Killa with Jefferies.

Maybe I'll follow up on Bonnie's question from earlier. As I think through the makeup of the growth rate for the quarter, very strong growth, obviously. How should we be thinking about volume versus pricing versus mix in that growth rate for the term product lines?

The biggest driver of the vast majority of our revenue is driven just purely by orders. AOV was down around 1%, so essentially flat and order growth historically and in the future will be the dominant driver of our revenue growth.

Understand. And if I may ask a follow-up, my follow-up question would just be, as we think about methodic -- is this going to be primarily a compounded drug product offering? Or is there a compounded version here? And how should we be thinking about like margin differentials between the 2, if that was the case?

So the business today is a combination of nonprescription and prescription, like we said, we think the prescription will be the smaller part of the business. And within the prescription, we're contemplating compounded products today with potential in the future, of course, to evolve, but that's the business model now.

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 for joining us today. See you next quarter. Bye-bye.

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

Hello, everyone. I'm Bonnie Herzog, Goldman Sachs beverage, nicotine and household product analyst. And joining us today is ODDITY's CFO, Lindsay Drucker Mann, and she served the company as the company's CFO since September of 2021. Now ODDI has made significant strides towards evolving the beauty industry through the use of AI and other technology to improve the user experience, all while maintaining a strong growth and profitability profile. It's been incredibly impressive. So it's really my pleasure to welcome you, Lindsay, to our retail conference. So thank you for joining today.

Thanks for having us.

I guess I'd like to kick things off just with a high-level overview of your company, the beauty industry at large. It's really seen an increase in online penetration over the last few years. So could you talk us through your time as CFO and what you've done really to be able to operate in the beauty DTC industry in a way that really others haven't.

Yes. Thanks for having me. ODDITY today is, we believe, the largest direct-to-consumer beauty platform in the world. For the 95-plus percent of our business that runs off of our tech platform, it's all direct-to-consumer, all online off of our website, no sales to retailers, third parties, marketplaces. And as you roll forward our earnings algorithm for next year, we'll actually be approaching $1 billion of revenue. So a very, very sizable business. We have 2 brands today going on 3. Our first brand, IL MAKIAGE, which we launched in the U.S. in 2018, crossed $500 million of revenue last year. It makes it one of the largest beauty brands in the United States. and it's also growing rapidly all over the world.

We have our second brand SpoiledChild, which we launched 3 years ago. And this year, it will cross $200 million of revenue with nice profitability. So you have 2 brands consecutively really proving out the power of our platform. And then it's really exciting that we're in the midst of launching our third brand. We're already in soft launch mode now, and we have a formal launch for Q4. That's our first foray into telehealth, starting in dermatology in areas like acne, eczema, hyperpigmentation, where we know our customer actually has challenges with these pain points and then expanding into other domains over time. So this is what the platform looks like. When we started in 2018, the view was the consensus view was beauty does not work online. You probably remember those days. Other consumer categories have really exploded online and beauty had not. And the view is the customer wants to be in store. And as our founders launched in the U.S., they thought like how is it possible? Beauty was #2, #3 top category on Insta, on YouTube.

The customer was very online, but the view is she starts her journey there, but then she has to finish it in store. And the best way that I can describe what they realize, the insight of what goes wrong and why it wasn't working is to take you to a Sephora, right? Imagine that you walk in, you have so many products, brands, ingredients, beauty routines, tones, undertones. It's an overwhelming experience. But the amazing thing about a Sephora is that somebody comes up to you and they do 3 things. Number one, they ask you what you need. Number two, they match you to the right product.

And number 3, they show you how to use it. We're at the retail conference. This is like retail one-on-one, right? So you compare that to the experience that beauty companies were giving consumers on their website. So you'll go to brand.com. Here's 100, maybe 1,000 SKUs, you figure it out, right? And the customer doesn't know and so she leaves or maybe even worse, she takes a guess and she guess is wrong, right, and everybody has a bad experience.

So the insight from our founders was actually, we think that you can replace those store associates. And instead of a person asking you what you need and matching you to the right product, we have machine models that do it. We have video on-demand that shows you how to use it. And that was the initial unlock. It's how do you use technology and data to replicate and improve upon the store experience, and it requires an entirely different way of thinking. Culturally, we are a very unique kind of business, very focused on maintaining our start-up culture, moving fast, failing fast, taking big swings. But importantly, there is not a single convention or part of the status quo that we're afraid to challenge and transform, and we're always doing that and it's created a very, very different model.

I'll say just one more thing in terms of what has driven our success is not just understanding the demand dynamics of the industry where the consumer wants to shop online, we have to provide the tools that enable it, but also how the unit economics work for online. And unlike most -- the vast majority of other direct-to-consumer companies, we have been very profitable for a long time. We talked about that. And this is really instilled in the fabric of the company. In order to make unit economics work for online, you have to have, among other things, great replenishment cycles. And that has meant for us that the products that we create have to be products that she loves. We don't launch any product unless in our blind studies. We are the top performer relative to the best performer on the market. And this makes us prestige, always focused on high efficacy, high performance and in product categories that naturally have great replenishment cycles that she'll continue to come back to again and again.

What I'd say has like changed in the last 4 years is, #1, we've scaled IL MAKIAGE in ways nobody thought was possible. So the business, around 40% of revenue will be in skin care this year for IL MAKIAGE brand. That was a color brand. And everyone says, you cannot transition a color brand into skin. We did it. We only launched skin in '22. Also in '22, we launched our second brand, SpoiledChild, which was a resounding success. It's catch lightning in a bottle once it's left, do it twice, and you can show the power of the platform. And then the third thing would be, in addition, we talked a bit about Brand 3, obviously, like we're very excited about what those capabilities bring, but I would highlight that we have embarked on kind of the second phase of our industry transformation journey, which was we acquired a biotech. And whereas we started the first part of our journey transforming how users shop online in terms of the types of ingredients we use, everybody in the industry is using the same ingredients, the same molecules, right? -- remixing, reformulating.

We're very proud of the products we create. We always focus on high performance. But if you can actually discover proprietary novel molecules, novel ingredients and delivery systems that actually perform not just incrementally better, but head and shoulders better than what the rest of the industry can do, you will create -- you can create winner-take-all products, and that's our plan with ODDITY LABS.

Yes. It's been incredibly impressive. And because of that, it's been about 9 consecutive quarters of consistently beat and raise and that's essentially the IPO. So everything you just described is, I assume, giving you the conviction that this is sustainable and this growth will continue. But I'm curious as you mentioned something of how the consumer really enjoys and likes your brands, and they keep coming back. Your repeat purchase is quite high. Do you foresee that continuing to drive a lot of this? Or how much is going to come from new user acquisition?

Repeat is an important part of our business. Last year, it was over 60% of our revenue came from repeat sales. Again, in direct-to-consumer, acquisition costs a lot of money. Repeat, you don't need much OpEx to generate that repeat sales. So if we have around a 70% gross margin, you can imagine the waterfall of incrementality from every repeat purchase. And that's something that we're very, very focused on. And that's why metrics like customer satisfaction matter to us so much because if you have a satisfied customer, then you know that you're in a good position to generate that repeat sale. The reason why we feel confident, though, back to your question on our ability to sustain, you're right, we have in 9 consecutive quarters, consistently beat and raised. We have an algorithm that we're committed to of delivering 20% revenue growth every single year at a 20% adjusted EBITDA margin every single year.

And the reason why we feel so confident in it is because we've never stretched to hit that 20%. In fact, we're always dialing back. So we entered the year with an arsenal of growth drivers, constantly building future growth drivers. In fact, at this point in the year, '25 is mostly behind us because we were successful in our effort of acquisition in the first half of the year, and now we have this kind of like backlog of repeat that will sustain us through the end of the year. And so the teams have pivoted their focus from '25 to 2026. And of course, there's many members of the team that are focused on '27 and '28. But 2026 is now like what all the teams are working on, and we have a lineup of growth initiatives in store for 2026 that is the strongest in the company's history. We can talk about what some of those things are.

We have 2 new brands in '26 with our new geographies. We have tech product innovation that we've tested. It's really exciting. We have physical products that we'll be launching that also we're really excited about. So we always go in with many growth drivers to support us. We know we've never used even close to all of -- we always leave a lot more on the table that we can come back to in the following year. And the underlying profitability of the business today is much higher than the 20% that we'll print because we're investing so much in future growth. So we have a lot of ways to achieve those targets even as we continuously invest in the future.

And that kind of brings me to my next question. You've touched on this is Brand 3 and then ultimately Brand 4. It sounds like you're still on track for Q4 on Brand 3, and you mentioned the soft launch. So love to hear if you can share what you're seeing in the early days on that soft launch of Brand 3. And just maybe a little bit more color on how you can scale those brands. And is this something where you're going to leverage the relationships you have with the consumers that are purchasing IL MAKIAGE and SpoiledChild? Or is it kind of going out and seeking new consumers?

Yes. And I just want to add one more thing to my previous answer that I missed that I just want to make sure I got out, which is -- the other reason we're so confident in growth is that the market is enormous and the pent-up demand is so strong, right? So you've got a $600 billion global TAM. We think half of it moves online, right? And we are so dominant in direct-to-consumer. I mean like as you think about how the -- every beauty company that you'll talk to at the conference today or yesterday, like that we've heard from, they will all say online is a super important channel to us. And it's a very different time than when we launched back in 2018, where it wasn't a focus, now it's refocus, right? So it's an enormous channel. It's growing in an enormous market, and there's so much to do, and we believe that our competitors are just do not have the right talent, tools or mindset to achieve what we are achieving.

So I think having this super attractive, profitable and lucrative TAM that's so large and growing, where online is so important, and there's many, many different categories for us to innovate in is another reason why we feel so optimistic, which is a segue into many other areas to innovate in. So Brand 3. Brand 3 is a telehealth platform starting in the dermatology place -- space. So we talked about areas like acne and hyperpigmentation. It's a natural place for us to start. We have a big color business. We sell a lot of foundation. We're the #1 prestige foundation brand in the United States, #2 in concealer, #1 in primers. So we have a lot of these customers who are coming to us for products to conceal their pain points. And some of those pain points are things like acne and hyperpigmentation. In fact, in our user base of over 60 million individuals, around half of them have some combination where they suffer from acne, eczema, hyperpigmentation. We know these are real problems.

And when I say suffer, these are areas where people struggle with self-confidence and it matters a lot. So it's a natural starting point for us because we already have the user. We've just never -- in the past, we've been able to help her obscure her issues. We've never been able to give her the tools to actually get rid of them. And so now with our entrance into medical grade and prescription space, we can finally do it. After dermatology, though, our ambitions are to expand into other medical domains, and we already have those projects in the works. And this is, again, like another enormous TAM where things that we look for big TAMs, where satisfaction is low, and this is true, where satisfaction is low and where our technology can solve a real problem, where there's been market failure and we actually have a solution to fix it.

There's not -- we'll have more to say on Brand 3. As you said, we're on track. Q3 is we're in soft launch mode now. We'll have a formal launch in Q4. And then Brand 4 is on track for 2026.

And there's still not too much color on Brand 4, correct? I haven't missed anything. You still haven't alluded to what that might be.

We'll tell you more as we go.

And then sticking with Brand 3, like you touched on this, it's prescriptions also. Maybe talk to us about how you're going to be working with these medical providers that are going to be supplying the prescriptions and how you're going to facilitate that, how that's kind of sharing revenue, profitability, et cetera.

Yes. So the -- so Brand 3 will give our customers access to both prescription products and nonprescription products. We expect that nonprescription will be a bigger part of the business, but the prescription piece could be 30%, 40-ish percent of -- obviously, we have a lot to learn, but in general, that's how we're thinking about the composition. The users can go through the experience without ever having to speak to a provider. It can be fully asynchronous. We have providers that are available if they want to speak to them.

But actually, it's a very seamless experience where from start to finish, you're interfacing with our website in order to do and support assessment for something like acne, for example, you'll have vision tools that we're introducing for acne grading, lesion counts, lesion analysis, obviously, similar things for things like hyperpigmentation, hyperpigmentation detection, what types of hyperpigmentation, whether it's sunspots or melasma, all of that stuff is enabled by a new suite of vision tools that we've -- that we're introducing. We'll have other tools, something we call predictive view, which is, for example, in something like acne, the journey can be several weeks. Oftentimes, the problem can get worse before it gets better. Part of the challenge that others have had in this category is that the consumer can get frustrated in churn.

And so we've developed tools to help them understand, here's what your journey will be like to appropriately set your expectations. So if you're not cleared up, for example, by 4 weeks, you're not saying this doesn't work. We have to have this interaction to help them understand it. That's also where our coaching post-purchase app comes into play. Think something like Duolingo, where it's a high-frequency interaction that really helps hold your hand all the way to an outcome, not a paid for service. It just comes with the product purchase, but that type of interaction where you're supporting somebody in objective all the way in our case through to clarity.

So those are some of the unique tools that we're building in addition to the product portfolio itself, which I'm super excited for everybody to see, we're putting a level of innovation and a suite of innovation in dermatology that I'm not sure that the category has seen in years, decades, maybe if ever. And part of what comes along with that is a very big focus on customization. There's different types of acne. There's hormonal acne. There's other types of acne that are nonhormonal. You have people who are very sensitive, not sensitive, just different parameters as we did our deep work, again, starting from first principles on the category and the customer. You have a lot of ways where personalization and customization of a treatment regimen can make a huge difference in things like satisfaction. And so that's another big focus for us.

Okay. As I'm listening to and thinking about this because it sounds fascinating. But in bold, it seems like there's more handholding. So I'm thinking about that from the perspective of your other 2 brands and the margin profile we can ultimately expect from Brand 3. Will it be comparable at scale? Or will it be dilutive by chance if there's expense -- more expense associated back end to help facilitate that or given that it's skin care, et cetera, the margins are going to be more...

So all of our brands are built to support the company-wide 20% adjusted EBITDA margin. There's a hard line under that. In the beginning, we will have a lot of investment for Brand 3, and we talked about that on our last earnings call, where we expect to see around 700 basis points of EBITDA margin compression in the first half of the year, in part as we get Brand 3 up and running. The brand will be loss-making up first, which is the case for all direct-to-consumer brands was the case for IL MAKIAGE took us about 1.5 years to get to breakeven, which was an amazing outcome at the time. SpoiledChild, it took us about a year. So there will be some period of time where the brand is loss-making until you have sufficient repeat. Remember, the repeat customers are what really drive the profitability. And we believe that based on the differentiation that our entire suite of products offers the customer and its efficacy in solving their problems that we'll be able to generate a really nice repeat business here.

Okay. And then thinking about your algo and going back to IL MAKIAGE and SpoiledChild. Should we also expect to see further innovation on those brands? Is that what you're sort of alluding to as well for next year? Because I guess I'm thinking about the runway for both of those brands. And how do we think about the growth for those brands, U.S. versus international? I know international is still relatively small, but growing rapidly. Is that going to be a huge driver of growth for the brand?

Yes. International is one of -- in particular for IL MAKIAGE. SpoiledChild is still in test mode in international. But IL MAKIAGE, we already have markets where we're officially launched Germany, Canada, U.K., Australia. And then we have other markets around the world, but in particular, in Western Europe, where we have done a lot of good work, and we're conducting larger scale tests there now, and we think that there are exciting markets for us to actually open. We talked on our earnings call about how international for the first half of the year was around $85 million of revenue, all right, up over 40% year-over-year. And of that $85 million, only $10 million was from some of these new test markets, right? So the $75 million is from markets that we've officially launched in and the balance is from markets where we are barely getting started, but we know based on the information we're gathering that there will be exciting markets for us for the future.

Just taking a step back, though, yes, there is a lot of innovation and growth investment in both IL MAKIAGE and SpoiledChild. So IL MAKIAGE, we've committed to $1 billion of revenue by 2028. In order to do that, #1, we're continuing to grow our core business, which is the markets where we're already in, mostly in the U.S. and the product portfolio we have. With the large adoption of online, we just -- we have runway in our existing markets to continue to grow. Number two, skin is a really important driver for us. We only launched it in '22. This year, it will be around 40% of IL MAKIAGE brand revenue, and there's more to go. And then the third piece is international. For us, at the ODDITY level, international is around 15% of revenue in 2024. For our big competitors, it's like 70%. So there's just very big runway there. We can see in the international markets that we operate that the consumer -- that the demand drivers are similar. The consumer wants to shop online. You probably know this better than others as a consumer staples analyst.

There are some product categories that really work well as global brands and others less so. And beauty is among the top of the list in the types of product categories that can cross borders. So there's this natural tailwind that we have already in terms of market structure and doing it. And it's not just theoretical, what we've actually seen in the markets where we operate already in places like the U.K., Australia, all of the existing markets we're in, we believe we're the #1 or #2 largest online business there, and that's without us putting a huge part of effort into doing it. The other benefit for us in online is that it's very asset-light. We don't need to open an office, have boots on the ground, put a lot of CapEx in place in order to launch a new market. A lot of it is done via software. It's done via our website, and we've built the infrastructure that allows us to be very, very agile and nimble in terms of how we set those markets up. And so nice accretive source of growth for us.

So speaking of that, there's really nothing then that prevents you from accelerating growth internationally other than what you and I have just talked about more of this disciplined growth philosophy that you have. Maybe talk to us a little bit about.

I'm glad you asked it because we first launched in the U.K. in 2020. And here we are in '25. And between then and now, we've done a ton of like infrastructure building in international markets and testing to put us in a position that when we were ready, we could actually accelerate our growth there. We had decided up to that point to slow play. We like to always have different levers to drive growth. And then depending on our strategic priorities in any given year, we'll focus on some specific ones and others will be for the future. And international is a great example of something we have known for years is going to be a big market, a big opportunity, revenue and profit opportunity for us that we were just held off on -- we were in preparation mode. We were not -- we didn't want to commercialize it at that point in time. In '24, we made the strategic decision that in '25, we would have more focus on international, great outcome for us for the first part of the year, really proved to us things that we believe through our testing was the case.

It's always nice to see it actually come to reality. And as we -- and again, as you described, like we have the ability to pivot resource allocation to turn these things on and off, which we're always doing. But as we look into '26 and beyond, we think international will continue to be a nice driver for us.

Have you -- I don't recall it, any -- do you have a target of how big international will be as a percentage of your sales in the next 3 years? I mean if it continues -- it's up to you -- if you turn it on faster.

We don't have a 3-year target. I mean, again, it's only 15% today. So we don't have a target, but could -- for IL MAKIAGE, for example, international business could easily be as big as the U.S. business.

Yes. Okay. I want to pivot a little bit because we haven't talked too much yet about ODDITY LABS and the role it plays as it relates to innovation. You touched on the molecule, the discovery, and that seems like a huge competitive advantage and core capabilities. So maybe talk a little bit further about how you're leveraging that? You've built out ODDITY LABS, how much more investment is going to be required to kind of fully funded at this point and now you're just going to benefit from some of the findings?

ODDITY LABS is an absolute game changer for us. It's the biggest use of time for both our CEO, Oran and our Head of -- our Chief Product Officer, Shiran. We really believe in it. And I think I mentioned earlier, whereas like up to this point, we have been far superior in our approach to online and the distribution side versus others. We have been great in terms of product based on our focus, but you can only be so much better if everyone is working with the same ingredients and with the same OEMs, which is how the industry is set up today. And to the degree we can identify proprietary molecules and delivery systems to create products that are head and shoulders better than what's on the market. These are, again, winner-take-all scenarios and game changers. We can see -- we know the technology works for pharma, pharma is grabbing this new innovation, things like digital biology and using artificial intelligence for molecule discovery, really grabbing it with both hands.

And in our industry, first of all, pharma isn't focused on the beauty and wellness customer. And second, for whatever reason, your incumbents have not been focused on the side of R&D. And in fact, a lot of the R&D lives in third parties and sort of leaching out of the industry. And to the degree there is R&D focus, it's been mostly about new formulations for existing ingredients. We think we can do a lot better. We know that the science is there. And as distinct from others, like culturally and operationally, we are determined to figure it out. Last year, so we acquired Revela 2 years ago. Last year, we made some changes in the operating structure there. The goal really to transition the business from what was more or less an academic research lab to a highly commercial factory output machine. So that has entailed a couple of different things. Number one, scaling the teams. So we're at around 70 scientists today, building to 100, multiple teams working on similar problems, same problems.

And in addition, so more shots on goal for us operationally. And then #2, implementing processes and procedures and protocols very similar to how we think about things on the tech side. The systems and controls that ensure we're moving in the right direction and you don't wake up in a couple of years and the molecule doesn't work. We feel like we're in a great place today relative to where we were even a year ago in terms of operational capabilities. And the pipeline, the development pipeline is really excited. So we think about things sort of in 2 buckets. There's molecules for nearer-term delivery. So we have a couple of molecules that will be coming out with Brand 3 and a couple of others for Brand 4. So those are for nearer-term commercialization. And then we also have things with longer timelines for further out. We don't expect most of these will fail. You need like a 10%, 20% hit rate to really change the world, and that's our plan.

Yes. And listening to you, it sounds like there's a lot of change, excitement, complexity also has increased. So how do you think about managing all of that to kind of minimize execution risk? And then in the context of all this innovation, how do you continue to push forward on new innovation with Brand 3, 4, et cetera, but also making sure you have enough innovation on existing IL MAKIAGE, SpoiledChild to sort of prevent any fatigue there for the consumer, balancing all of that and prioritizing innovation.

We're constantly innovating across the board. I think it's a cultural thing within the organization where we're always looking to the future, we're never resting on our past success. We had -- 2024 was an unbelievable year. Our view is that the success of '24 was based on things we did 2 years ago. So there's this innovation and growth mindset that is instilled across the organization. Yes, there's complexity, but we have a lot of structure in place to support it. And we're very focused on teams and culture. We have to recruit amazing people. I think as you know, we don't recruit anybody from industry, don't hire folks from who worked at other big beauty companies because we believe if you really want to change an industry, you can't have people who believe they know how it works. Yes. And so very much culture and operational driven.

Okay. I want to go back to something you mentioned and you've touched on your call, the investments, the first half expectation. How do we get comfortable with because of whether it's Brand 4, then that's going to come out later, will that investment spending levels will it remain even in the second half of next year? Or is that kind of kicked out? How do we think about the phasing of the investments required for?

So what we've said about '26 is that it will be an algorithm year in terms of 20% revenue growth and 20% adjusted EBITDA margin. And the only thing that -- what we did call out was a shift in timing of spend where it's more front-loaded. But we'll make up for that in the back half of the year. And on a year-over-year basis, EBITDA margins will be flattish because we'll deliver around 20% EBITDA margin this year and around 20% next year. And that's true. That's how we're thinking about -- as you think about your models, that's '27, '28, you should be thinking about 20% type revenue growth and 20% adjusted EBITDA margins.

Okay. So that's kind of front-end loaded, managed that way and then with continued drivers on the top line actually.

Yes. And I think that for '26 Brand 4 prelaunch expenses and launch expenses are already embedded in that view. So that's not changing.

And that's more in the first half of '26, the expenses and considered.

It's part of the EBITDA margin behavior we described the 700 basis points of compression. Part of that is Brand 4 expense.

Okay. So the ramp is going to continue. And the whole point of this is, again, going forward, 20% plus top line, 20% adjusted EBITDA margin consistently, and this is how you're managing it.

Yes. Yes.

Okay. I want to ask, sorry about tariffs, obviously topical. Maybe update us on the situation, which has been incredibly fluid. Maybe walk us through the exposure you have, imports to the U.S. and I know your manufacturing footprint. Maybe just update us on the risks there.

So first of all, our gross margin structure is such that we just the math, we don't have -- it's not a big impact as a percentage of revenue because these costs are small as a percentage of revenue. We have a 70% gross margin, okay? About half of that would be roughly, a little less than that, would be the cost of products sort of landed at the DC gate, all right? So before we do outbound shipping, before we have fulfillment costs, all that kind of stuff. And so if you're talking about 10%, 15% of net revenue would be the cost of including tariffs, including incoming ocean freight and including the raw material, all of that is lumped in. It's just small. The second thing is that our biggest exposure is Europe because we buy our raw material from Europe. And to the degree we have exposure in China, and you can tell me what you think the Chinese tariff will ultimately be. But to the degree we have exposure in China, it's smaller piece of business, for example, in parts of packaging. So it is not that big.

Yes, it's not that big. Okay. And just to...

So we've said less than 100 basis points impact this year and similarly manageable for next year, and that's before going through a lot of the work that we're doing to offset even that type of inflation.

Okay. And pricing as far as any of the products, is there any consideration of need for price increases?

Not -- no, we are not focused on price increases to offset tariff or other inflation. We have a very dynamic approach to pricing anyway. We're very surgical about it. And we're constantly evaluating pricing all the time. But in general, we are not taking pricing to offset inflation.

Okay. Maybe one final question. I want to ask about capital deployment going forward in light of your recent convertible note issuance. So maybe touch on that. And then specifically as it relates to M&A. You have made a couple of acquisitions in the past, primarily focused on tech capabilities. But as you look forward, like how big of a role will M&A play for your company? And then will it be more focused on tech -- or will you also consider potential acquisitions of brands?

So first, in terms of capital priorities, our first priority is reinvesting in the business, and that's a great dollar spent for us because our return on capital is very, very strong. Our cash conversion is very strong. So I love the fact that we have so many areas that we can redeploy within the business. And a great example is SpoiledChild, less than $30 million of upfront investment to deliver a brand 3 years hence, which is going to cross $200 million of revenue and nicely profitable. So we get great IRRs on that type of internal investment.

The second priority would be M&A. And as you mentioned, we have a great track record of acquiring capabilities. Revela is a great example in biotech, Voyage81 in computer vision. We had an acqui-hire earlier this year with Fionics. There's more opportunities like that in biotech land and in tech land, and we'll go after those opportunistically. We would love to find a brand to buy. The platform is set up really well to plug a brand in. We've productized our tech capabilities to support our unique organically built brands. So it's easy to do. And we are looking for opportunities, but there's really nothing out there that interests us right now, very, very high hurdle for us to do something.

And then the third priority is returning cash to shareholders. We have historically bought shares back last year. We have about $100 million left on our buyback authorization. So that's still there. I describe that as opportunistic rather than programmatic. The convert itself was an opportunity for us to access really efficient capital. So 0 coupon, no dilution until the stock price doubles. I should actually say around $140 relative to the strike and cost us roughly the cap call around 2% a year tax deductible. So we're effectively getting paid to sit and be patient.

All right. All sounds good. Well, thank you. I think that's all we have time for. I really appreciate that.

Great.

Enjoyed the conversation. Thanks, Lynn.

Thank you.

Thanks, everyone.

Okay. We're going to get started. We've got Lindsay Drucker Mann, ODDITY's Chief Financial Officer, with us today. So Lindsay, thanks for joining us. Thanks for having [indiscernible].

So ODDITY is a unique company that prides itself on doing things differently. Since some of our audience may not be as familiar with the company, could you just give us an overview of ODDITY and what makes it different than traditional DT or tech companies?

Yes. Thanks for having me. So I think there's so many things that make ODDITY different. But the first thing I would call out is truly culture of innovation, moving fast, failing fast, taking big swings, winning. And it's this idea of challenging all conventions. There's no single sacred convention that we don't want to challenge or disrupt, creating a new playbook and running from first principles.

That's really the basis for our culture, and it's one of the most important things for us to preserve, especially as we continue to grow and scale. Maybe taking a step back on what is ODDITY. So we believe we're the largest direct-to-consumer business in beauty globally. The majority of the business, 95% plus is our -- comes from our technology platform, which is fully online, fully direct-to-consumer, no sales to third-party marketplaces, retailers or wholesalers.

And we have 2 brands now, going on to 3 on our platform. The first is IL MAKIAGE. That's the first business that we launched in the U.S. in 2018. Last year, crossed $500 million of revenue. It's one of the largest beauty brands in the United States and growing quickly globally. Both beauty products and skin now, which is, this year, around 40% of the business for IL MAKIAGE will be in skin. Our second brand is SpoiledChild, which we launched 3 years ago. That's a holistic wellness brand. This year, it will cross $200 million of revenue. And brand 3 -- our third brand is actually in soft launch mode now. We'll formally launch in Q4, fully on our plan.

That's our first foray into telehealth. Starting in dermatology, focusing on areas like acne and hyperpigmentation, eczema, but then expanding into new medical domains over time. Very bullish about the opportunity there, and I know we'll talk probably a bit more about brand 3. So that platform model itself and our direct-to-consumer online model is very different from industry status quo.

In addition, 2 years ago, we moved into biotech with the acquisition of Revela and the launch of ODDITY LABS as a way to truly discover new molecules, new ingredients, new delivery systems to drive and catalyze a level of product innovation in beauty and wellness that we don't think the industry has truly ever seen. And all of that together just makes us a pretty unique model.

Okay. Great. Somewhat related to my first question, we've heard a lot from companies this week because you and I were just talking about the weak consumer environment, particularly in the U.S. Majority of sales in the U.S., but it seems like you guys are immune. And again, we were just talking about it, but it's been clear on your calls and in your results. Is there something about your demographic base, your price points? Have you seen any change in purchasing patterns? What is it that's making ODDITY not seem to be exposed to the broader weakness in the consumer environment?

Yes. We haven't seen any consumer weakness. We obviously hear about it from our competitors and other industry participants. This is -- we just reported our second quarter. It's our ninth quarter as a public company. Every single quarter since we've gone public, as you know, we've exceeded on our targets and been able to raise our full year results, even as for a number of others in the beauty space, they've had some fits and starts in terms of their business performance. So you're right, the model has been very strong. I wouldn't even say resilient, I would say, very strong. And as we talked about on our 2Q call into Q3, business continues to be strong.

We're feeling great about Q3 and balance of year performance and really have our sights set on 2026, where we have an unbelievable slate of growth innovation in our back pocket ready to deploy, the most in the company's history, like I know we'll talk a bit more about it, but 2 new brands that will be in the market, new geographies, new improvements in our technology products, our physical innovation product lineup, just like a tremendous amount of growth drivers ready to go that leaves us very bullish about 2026.

And there's nothing in the consumer macro environment that we see that leaves us concerned. Our repeat rates continue to be very strong. Cohorts continue to perform very well. As far as to why that's the case for us as distinct from other businesses, it's probably a number of factors. Number one, we are still a very small market share in a very big category.

And our business is focused on what we believe are the 2 most powerful and disruptive growth drivers within the category. That's number one, the move online. Today, online is roughly 25% of our category. We think it will double to around 50%. And so we're still in early to middle innings of that big transformation. Number two, the consumer focus on high-efficacy products that really solve their pain points. And that's been from the beginning. We're an organization that really believes in products, and we only put products out there that are very high performers that beat top performers in our other categories.

So we are positioned correctly, small idiosyncratic growing in a big market. Also, maybe to what you were asking before, from a demographic perspective, we are very broad. We span age ranges. Even if you look at the population of the United States, like we're split in a way that matches even almost on a state-by-state level, the population of the United States. That was very much by design. We didn't want to target specific populations. We've built the business to be very, very broad. We have 60 million -- over 60 million users on our platform today.

So you're just talking about very, very large numbers. The other thing I would highlight is that the model is very agile naturally. And it allows us because, for example, with our acquisition, using algorithms and large pools to find acquisition, we fish with a fish or biting. It's not like we have a retail store and you can say, well, the A malls are performing, but the C malls aren't with stranded inventory. Like for us, we are very, very close to the consumer, really as close as you can be.

And as a result, we can pivot very easily to where the pockets of demand are and we can find them and go after them. And then the final thing I'd say is notwithstanding some of the challenges that we heard earlier from some beauty companies, which seem to be improving for them, but the category has historically been very resilient. We're just in a great category, lots of areas of demand, very resilient economically, high loyalty customers, lots of replenishment, lots of repeat, great unit economics. So I think all those things together have created a really strong backdrop for us.

Okay. Great. And you talked about multiple growth pillars, namely scaling 2 brands, the 2 new brands coming you just mentioned, multiple categories, now multiple geographies. Can we talk a little bit about resource allocation, how decisions are made on where to push hardest to achieve that 20% annual sales growth goal?

Yes. So we do have -- just to set the stage, our commitment to our long-term earnings algorithm is sustained 20% revenue growth and 20% adjusted EBITDA margins. And we set the business up to be able to consistently deliver on those objectives. We have very purposely paced our growth, right? We could be growing much faster than the 20%, and we've purposely dialed back our growth levers so that we -- you and I can sit on the stage next year, and I can talk to you about our high conviction in achieving 20% margin.

So this is a purposeful decision, and it allows us to grow in a higher quality way. Meanwhile, we're growing significantly faster than our competitors, and we're gaining share. And we're also carving out the ability to reinvest in our business so that we can find and unlock new growth drivers for the future. The way that we -- so we're always going into any year or any -- thinking about '26 and '27 and even in '28 and beyond, trying to stack as many high-quality growth drivers as we can, not using them all at once, keeping many in the drawer.

I know we'll talk a bit more about international, but that's a great example of something we had at our disclosure to you that we waited until we wanted to shift our strategic focus on it. But stacking many drivers that we can use, not using them all at once, but putting ourselves in a position where we know we can sustain our growth rate. The decision to -- on how we allocate resources is based on, number one, top down what's strategically important.

And so, for example, international, we talked about -- we made the decision in 2024 that '25 would be a year where we took it to the next level. We had been building infrastructure in international and doing a lot more of what I would call like early-stage foundation building and testing, now taking it to the next level and scaling more in the existing markets where we are while adding bigger tests in other new markets where we believe we can ultimately launch and scale. So that was a strategic decision.

But we also are looking bottoms up at where we're generating strongest returns on our spend. And it's a combination of those inputs that drive the allocation. I just want to say one more thing, which is it's something where we get a lot of questions from investors because it's so unusual to be so agile. But remember, we don't have stores. We don't have stranded inventory to move around. Our acquisition engine is something that can be turned on and off, so to speak, depending on how we're pulsing our marketing spend.

The demand drivers from consumers in, for example, global markets or the U.S. are similar. So it allows us to be very fungible with inventory, very fungible with resources and spend. And as opposed to being a wholesaler where if you have a product stock on the shelf of Sephora, but you would like to remove those this year and bring them back next year, like that's a disastrous type of decision. We have a lot more flexibility with what we -- we have a lot of flexibility with how we run the model, and we use that to our advantage.

Okay. The decision process in some of this resource allocation, does that happen in the -- I guess you just that it's flexible and fungible. But is it something that happens sort of in the beginning of the year and then second half is mostly because we talk about this repeat business?

Yes.

But again, on that like sort of strategic decision on resource allocation or is there a lot more dynamic describing?

I mean, so right now, for example, we are past our big acquisition season, right? The second half of the year, as you mentioned, is the big majority of the business is repeat. And so what we're focused on today is 2026 and beyond, but the teams are -- effectively 2025 is in the rearview and now we've pivoted our focus to 2026.

And many of those strategic decisions are happening now. Just as I mentioned for international, that was -- 2024 was when we took the decision to put more focus on it, and that allowed for our execution in 2025. Now we're focusing on 2026. A lot of those decisions are being made. And then we have the benefit of when we're in market in Q1 and Q2 that we can pivot to dig into areas that we believe in. And once we've turned the business back on and we're learning, we can always pivot our focus depending on what we're seeing in the market.

Okay. As repeat business comes in much stronger than expected -- like in theory, couldn't growth be above 20% in any given quarter, like separate from your decision to dial back, right, can you talk about it. But if repeat is stronger, right, then couldn't sales come in higher than 20%? That's one piece I kind of...

We really haven't seen that because repeat is very predictable. So because we have -- and now you're talking about millions and millions of orders where we've been able to map cohorts, and we understand the behavior. And you already have early repeat business that happens in Q1 and Q2 and you see how it's -- you can model how it's going to map into Q3, Q4. So we have a lot of control and a lot of visibility. So it has not really been an issue for us.

Okay. Okay. Let's switch more pointedly to international. So a year ago, the language used was slow playing it because there was just so much opportunity. So can you just walk us through the decision to go -- to really go after international in '25? Why was this the time and particularly when you have so many other things going on with brands 3 and 4 -- well, I guess, 3 this year, but -- and the U.S. is still so strong. So why was 2025 the time?

I can tell you, international has always been an enormous opportunity that we've built infrastructure and capability around with the plan to go after it full force. As you know, in '24, international was 15% of our business, and it's around 70% for our competitors. So we know it's just such a huge opportunity. Our first real international push was, we launched the U.K. in 2020.

And since then, we have been building capabilities, not going after the full monetization opportunity, but building capabilities in advance of going after the full monetization opportunity. We've always talked about -- again, international being a huge priority for us on our road map and in fact, to deliver IL MAKIAGE, the $1 billion target we see for 2028. International is always a big part of that story.

So there was this time like the business was ready. It was the right time to put the strategic focus. That was the decision that was made from the top down. And because we have set up a model that is, again, so agile we can turn on these markets in a way that is not asset intensive, that doesn't require a big investment. We don't have to have boots on the ground and an office set up in Europe to grow a really big European business. It's about resource allocation internally.

And that means, for example, putting more focus on things like funnels and [indiscernible] putting inventory in position and having teams actually spend time to focus, and it also means the actual acquisition dollars to be pivoted there to acquire that new user in an international market. And so we put those things in place. I think that for 2025, what was great to see, and as you know, international markets have been a very -- we're super pleased with the level of growth.

And we talked about taking it to the next level. It's an important milestone for us to see that not only did we believe it would work and that our test showed us that it would be a good outcome, but to actually deliver on it is just sort of another level of proving to ourselves like this really is the big opportunity that we believe. And in addition to all of the infrastructure building over the years, there's a dozen-plus markets where we've conducted full-scale tests thousands of orders, local website, local content, like local distribution and seeing that the consumer responds similarly to what we know in our home market.

We know that the backdrop is there. At a consumer staples conference, like I don't have to tell you that there are some consumer categories that travel well globally and some that don't, and beauty is among one of the best, right? We know these are global brands. So everything we saw leading up to this gave us a lot of conviction. This year proved to point out even more so, and it will continue to be a nice driver for us.

Okay. Great. And when you launch into new markets, you mentioned full monetization. Do you start with a full product lineup or, for example, IL MAKIAGE, is it like emphasize color and then layer and skin over time?

Yes. I think, listen, it's a market-by-market decision. But in general, when we start, we have a more streamlined -- a simpler, more streamlined approach so that we can understand better how the consumer end markets work with a lot of -- without extra noise, just get good at the things that are important, and then we can layer products on top of that. U.S. for us has been and as far as I can tell, will be for the foreseeable future, the market where we launch our new product and innovation into first and then expand into additional markets from there, and that continues to be the case.

Okay. Let's switch to Brands 3 and 4. So lots to talk about, right? You're, I guess, weeks away from now a formal launch of Brand 3. So let's discuss a little more about what that's all about.

Yes.

And maybe -- and I can just layer on it and make it a 2-parter. Just how much of the product offering is OTC versus prescription because I think that's something that maybe I could use a little bit of paragon and how much of the -- or the degree which the ingredients are [indiscernible].

Yes. Okay. Great. So Brand 3 is our first entrance into medical-grade products, prescription product, telehealth as broadly defined. It's really taking that same insight of how the consumer has changed and how satisfaction with the status quo is so low that we understood in beauty and now pointing that same muscle and capability at medical grade area. It's the same -- we know it's a similar consumer like we talk about how around half of our users suffer from one or some combination of acne, eczema or hyperpigmentation. There are enormous groups.

And a lot of people come to IL MAKIAGE because they have acne or hyperpigmentation they want to cover up. Up to this point, we have only offered them solutions to manage the surface issue. And now we're offering solutions to actually address the problem itself. Very powerful. We're very uniquely positioned to do it. The beginning of Brand 3 will focus on dermatology, as I mentioned, but that's just the beginning.

There are other medical domains, now that we have the infrastructure, the ability to ship a prescription. Now that we have that ability in place, we can expand into other areas, and we think there's lots of other areas for -- that we're spending time on, areas to expand and grow dermatology is obviously a natural place for us to start at, but it's just the beginning. The type of innovation we are bringing to dermatology is something I don't think the industry has seen in years.

If you think about when you were growing up, your parents were growing up, how you would address acne, like not much has changed, right? Even the product set and topical retinols and that kind of thing to address it, the frustrating user experience, all of the friction, all of the pain to go through -- acne is a tough category. Often the problem gets worse before it gets better. People get frustrated and they churn.

And so our approach has really, again, been very first principle. So first of all, we've built an entirely new set of vision tools to serve as an assessment of your ace grading, your degree of inflammation, scoring what your lesions are like and really helping the user understand what their condition is and then supporting our providers in determining the right course of action. So that's entirely new.

We've set up a post-purchase coaching and tracking app, which we believe will solve some of the challenges in churn and frustration and level of handholding that consumers need to get all the way through to clarity. And that's obviously very important for satisfaction. It's important for LTV, those things are very new. But even the product line itself, like I'm just so excited for the -- all of you guys and especially our customers to see the type of product innovation we're bringing in these areas.

It's just a category that has not been innovated well. And so we think that -- and as we've done our focus groups and testing, like our products are really amazing. So I think that's really important as well. And this is a category -- it fits really well into the type of areas that we focus on in terms of being a very big TAM and you have something like 50 million Americans suffer from acne.

And when I say suffer, I mean it like really affects their self-confidence. Similarly, hyperpigmentation, these are very big categories. And we know from consumers that their satisfaction here is very, very low and that our technology can solve the problem. So a great starting point for us.

Okay. Maybe we can talk a little about ODDITY LABS -- sort of what's...

I mean, I can see it as a prescription type of question -- sorry. So the customers will have access to both prescription and over-the-counter nonprescription products. Most of the business we expect will be not prescription, but prescription will play an important role. And as far as ODDITY LABS goes, we will have a couple of novel molecules that we'll be introducing within the brand through portfolio. Most of our products will be with existing ingredients, but you'll see some ODDITY LABS molecules in there, too, which we're really excited about.

Okay. And then also, you definitely tease out going beyond dermatology. So -- also then beyond beauty or beauty adjacent, right? So think of dermatology as beauty adjacent.

Yes, other medical domain.

Medical domain. Okay.

Yes. Still would satisfy wellness concerns. I mean these are all integrated. It's just -- our system is set up this way where if you have -- you can go to a drug store or you can go to a doctor for certain solutions, right? You going to a drugstore for acne is a great example. But oftentimes -- we believe we can create a platform that actually will be better to both options.

Okay. Sticking with ODDITY LABS, just a little bit maybe on how this is different from just being internal R&D, right? What is it that is ODDITY LABS. I guess, you've changed leadership there also. So if you could talk a bit about the change in leadership. I think it's been about a year now-ish. And so have you seen the pace of change? Has it accelerated? And Iran sometimes speaks to -- we don't have to -- like we don't have to move faster, money, but at the same time, he says it's a race. How do I put those 2 together?

Yes. So, ODDITY LABS is looking to address a real problem in our industry, which is major underinvestment in molecule discovery and ingredient innovation. Again, going back, like the most commonly used ingredients today, whether it's like retinol or Rogaine, like those are things my parents used when they were young. And it's the exact opposite. If you look in other areas of drug discovery and therapeutics, like we're in the golden age of biology. We can engineer solutions that were never possible before.

And pharma is running after that in their world. But the thing that's different about pharma is the customer is really not you and me, the customer is the insurance payer. For our category, insurance is not interested in my stretch marks. You know what I mean, and so they're not putting any money at it. It's not acute, it's not going to kill me.

And so pharma has not -- like to be contrary, pharma has actually been shedding their consumer assets. We've seen that with Kenvue and Haleon and others. It's not a focus for them. And for better or worse, within our industry, incumbents have actually not been focused on the type of R&D we think that the markets really warrant and much of that R&D has been outsourced to other areas. So today, people are all kind of using the same ingredients.

And our goal with ODDITY LABS, what we believe is truly possible is taking this amazing science, the same things that have been using -- that are being used to develop unbelievable solutions in pharma and point that muscle at beauty and wellness to create solutions for, again, enormous TAMs in ways that were never done before and not just molecules and ingredients, but also delivery systems to just create much, much better products and catalyze a wave of innovation and products that, again, we don't think the industry has ever seen.

So that's our focus. We believe we're really singular in what we're trying to do. But we believe it's the future, it's a race. We think others will ultimately come to understand that this is important. Their ability to execute, I think, is questionable just because it's so challenging and requires a different kind of mindset, but we are way ahead of where we see others are and give us a big advantage.

In terms of where the team is, when we acquired Revela 2 years ago, we brought an unbelievable entrance into Boston biotech, understanding the science. The team there has built a great, what I would describe as more of an academic research lab. And what we wanted to pivot to was a super commercial output engine, which requires building the teams and creating processes and infrastructure that -- so you don't wake up in 2 years and the molecule doesn't work.

And actually, a lot of the best practices -- operating best practices that we use in our tech team, we've applied now in ODDITY LABS. We're in a much stronger position today than we were a year ago, and we think that will continue.

Okay. Let's also talk a bit about competitive edge from a technology standpoint. So other companies are now making big investments in AI and machine learning. We've heard about it in every single presentation, flavored by who's talking. Do you see anyone out there that's trying to replicate or build something similar to the ODDITY model? Like how difficult would it be -- at this point, with you guys out there now public just like a template, how difficult would it be for someone to replicate the approach that you guys are taking?

We don't. And in fact, we see the opposite. We see instead of -- I think the everybody knows today that online is a very important and rapidly growing channel. Rather than moving to DTC, you see more companies in our world relying on Amazon to achieve that objective. It's really the opposite. And I think that while you have a lot of talk about AI, actual execution and implementation and track record of success in tech is pretty spotty at best among this group.

AI is going to be everywhere. There will be an explosion. We're going to see it. But I think -- you might think about it a bit like online. There's not a single company at this conference that doesn't have a website, but how much of a commercial engine they can really use depends on their data and their tech. And as a wholesale business, without that true customer data, very difficult to commercialize.

And the way that we are able to commercialize it, we've got, again, 60 million-plus users on our platform to acquire all of those users today will be at an enormous cost, not to mention the lack of know-how, how to do it. So I think we don't see anyone very difficult to do. And I think the problem that you're seeing with incumbents in adapting to this kind of new world and where the consumer is going will -- and the conflict between sort of retailers having all the data and having the control versus their position probably only gets more challenging.

Okay. So no one out there who you're actually impressed by that you're seeing -- even small companies that you're seeing doing cool stuff?

Small companies can build a $50 million, $100 million, maybe $200 million business with a Shopify site and then it's very difficult for them to continue to profitably scale. But there are many of them. And that sort of -- I think that's sort of eating at the sort of bigger incumbents, but one of the challenges perhaps they're facing, but to actually scale the way we have, we haven't seen anything.

Okay. Let's talk about capital allocation because you are the CFO. So you've built up a lot of cash on your balance sheet. So maybe if you could just remind me of priorities of uses for cash?

Number one is reinvesting in the business, a great use of cash for us because we generate excellent returns on capital. And all you have to do is look at an example like SpoiledChild, less than $30 million upfront for us to launch it. And now it's -- we'll cross $200 million of revenue this year with nice profitability. So great IRR on the way that we invest internally. And there's lots of areas for us to invest.

Second priority would be M&A. I'm sure you have a lot of questions about how we think about that. But we have been successful historically at M&A, in particular, building -- bringing capabilities in-house. So Voyage81 was an acquisition we did to build our vision capabilities. Revela, an acquisition for us to acquire biotech capabilities. We had an -- acquired earlier this year with Fionic1. There continued to be opportunities like that, that we're looking for. Those are -- I wouldn't describe those as transformational M&A, but really capability building.

And then the opportunity to bring a brand and plug into our platform, that's something we would love to do. That being said, we don't see anything out there right now that makes sense for us. We have a lot of discipline around what we would bring in-house, but primary focus is product, like we have to have outstanding product that would be something that drives a lot of LTE and satisfaction.

And in general, the criteria is something that would either meaningfully accelerate our time line, it would be very difficult for us to build in-house. So again, we'd love to do it, but there's nothing that we see right now. And there's no urgency. We did a convert, as we mentioned earlier this year, super efficient capital for us, zero coupon and not dilutive until at the time the stock price doubles, that's $140-ish per share.

And so we're effectively getting paid to sit and wait. So we're very, very patient. It's not burning a hole in our pocket, but we have it at our disposal to use if we want to. And then I'd say the third priority is cash return to shareholders. We have bought back stock in the past. We have $100 million remaining on our buyback authorization. It's opportunistic rather than programmatic, but we have it to use.

Okay. And I realized we didn't even talk about Brand 4, right? I was looking at my list of questions, I thought I would ask about 5 and 6, but I didn't ask you about 4 yet.

Yes. So Brand 4 on track for next year. Very exciting for us, big opportunity for us. We'll tell you more as we get there.

Okay. That's a 2026.

Yes.

Okay. Are you working on 5 and 6? Or do you...

Yes, future brands are in the pipeline in development and exciting opportunities.

Okay. And when you think about acquiring potentially a brand, it was interesting because you brought up product. And so one thing that -- questions we've had in conversations that's so different about ODDITY is you don't talk a lot about brands. You don't talk about brand marketing, brand advertising because it's product and it's acquisitions through the tech engine.

So is one of the things that may be different about the way you look about M&A to what a more traditional beauty company would do is, the brand is almost not important. It's the technology and the product because you believe you can generate the demand with your engine, the brand doesn't have to have a story?

Yes. I mean, I would -- I might say it a bit differently. We care a lot about brands. And as you can see in our portfolio, our brands have very distinctive voice and strong point of view. SpoiledChild, IL MAKIAGE, very clear brand proposition, and we believe that a brand should stand for something. Otherwise, it doesn't stand for anything. That being said, the conventional approach to brand building, we think, is an old playbook.

And our approach to brand building is, first of all, we're meeting customers and users where they are, where -- there's not a beauty company or retailer you would speak to that wouldn't tell you that the beauty customer starts their journey online. But historically, they thought they finished it in store. For us, if you are online, we're capturing you where you're focused on it, and we're actually driving the purchase and repeat and that's all happening there, you never have to leave.

So I think that, number one, where we're meeting the customer; and, number two, the way we drive brand love is through delivering a product and experience that is an unbelievable surprise and delight. And as a result, when you look at satisfaction -- we study satisfaction religiously. In fact, I know one of the things we're talking about is how do you know that Brand 3 is working and what you look for? One of the first things is satisfaction and the second will be unit economics, but satisfaction is unbelievably important. We deliver satisfaction in a way that allows us to build brand.

Okay. I have like 7 more pages of questions, sorry. And I have a minute. So I'm just going to wrap up by turning it to you actually and asking what do you think is most misunderstood by the investment community today. I mean we've had a big move in the stock finally, great, but when we're sitting here, hopefully, a year from now together, kind of what do you think investors will care most about and what will have changed?

I think one of the things we confronted post IPO was a lot of like pattern matching and muscle memory around investors who've seen a lot of consumer companies, companies that talk about tech that doesn't mean anything. And you've never seen a company like ours. And any time you're doing something different, you're naturally going to be met with a bit of this inertia and skepticism.

One of the common refrains we heard in the beginning, and we still hear to some degree is, well, a brand -- beauty brands normally give $200 million, $300 million, $500 million, that's where you cap, right? And then every single year, we push those boundaries. I think people like might -- are not motivated to do the work in some regard and understand like it's not the right parallel because our distribution channel is totally different. We are unique as a direct scale direct-to-consumer business in the most important channel in the category in our view.

So that has actually improved a lot, as you mentioned, in the last 2 years, as people have gotten to know us have seen our very consistent performance and delivery where that skepticism is fading, and there's a lot more people who are starting to understand. And I see it even just at this conference and the kinds of investors we're speaking to, the fact that the folks who came in our IPO, I would describe that as an A+ shareholder list.

Those guys have increased their investment in us in general, and we are seeing new investors come in and become shareholders, start positions and more people doing work. So it's great to see that that's improving. As I think about what we would talk about next year, I suspect it will be a lot of the same. But in general, that investors are more focused and more confident on their 5-year models and how unique ODDITY is in your ability to underwrite 20% compounded growth over the next 5 years, very strong cash generation, returns on capital and very strong profitability relative to others.

Okay. Great. We have to end there. But, thank you so much. Thanks for being here, Lindsay. Please join me in thanking Lindsay for being on stage.

Thanks.