ODDITY Third Quarter 2026 Earnings Call - ODDITY TECH LTD

Financial Performance:

• Net revenue for Q3 2026 was $145 million, a 2% year-over-year decline, significantly better than the ~5% decline previously guided and a substantial sequential improvement from the 25% drop in Q2.
• Adjusted EBITDA was $22 million, exceeding the guided range of $18–$20 million.
• Gross margin compressed to 67.4% from 71.6% in the prior year, driven by a ~mid-single-digit decline in Average Order Value (AOV) and mix shifts.
• First-order revenue declined in the high teens, primarily due to iMakiage's ad account issues, while repeat order revenue stabilized.
• Free cash flow for the quarter was $10 million, totaling ~$3 million for the first nine months of the year.
• Inventory stood at $158 million, with excess stock at iMakiage planned to be normalized in 2027.
• Balance sheet remained strong with $561 million in cash, cash equivalents, and investments; $350 million in credit facilities remained undrawn.
• Diluted adjusted EPS was $0.37 vs. $0.40 prior year, reflecting a 23% reduction in share count due to share repurchases ($163 million spent in H1).

Guidance and Future Outlook:

• Full-year 2026 net revenue guidance raised to a decline of ~18.5% (previously ~25% implied by prior quarters).
• Full-year 2026 adjusted EBITDA guidance raised to $32–$34 million.
• Management aims to return to organic growth across all brands in 2027, specifically targeting a recovery for iMakiage.
• Long-term goal remains building one of the world's largest beauty and wellness companies, leveraging a user base of 70 million.
• 2027 product slate is described as the most exciting to date, with a heavy focus on expansion into longevity, metabolic health, and peptide therapies.
• "Brand 4" is scheduled for launch in 2027, with timing to be announced later.

Business Segments and Product Lines:

• Spilled Child: Grew in strong double digits in Q3; on track for ≥35% full-year growth approaching $350M revenue. Success attributed to the Audity platform's ability to scale new brands organically.
• Methodic: Launched successfully with strong start; on track to surpass Spilled Child's first-year revenue. Plans to expand into medical-grade peptides (NAD+, Semaglutide) and other therapies in 2027, supported by existing pharmacy and telehealth infrastructure.
• iMakiage: Revenue declined due to a major algorithmic dislocation with its primary advertising partner. Management is actively working to resolve this and sees early signs of sequential improvement.
• Audity Labs: Frontier Biotech Lab developing proprietary molecules for anti-aging (collagen, NAD+) and other skin conditions; early testing data described as promising.
• Infrastructure: Methodic has established a U.S. licensed pharmacy network, clinical intake, and supply chain ready to support expanded Rx offerings.

Market and Competitive Landscape:

• Beauty and wellness markets are described as large, profitable, and growing, with secular tailwinds in consumer shift to online and demand for high-efficacy products.
• Peptide and longevity markets are in early stages with "highly attractive" potential; competition is expected to increase as more vendors enter, but Methodic claims a first-mover advantage via existing infrastructure.
• iMakiage faces intense competition and reliance on a single major advertising partner that controls >50% of the category's D2C traffic.
• Management emphasizes a repeatable playbook for brand scaling that differentiates them from competitors attempting M&A or organic growth without a unified platform.

Risks and Challenges:

• Advertising Dislocation: Continued volatility in iMakiage's CPA and ROAS due to unresolved algorithmic issues with its largest ad partner; this remains the primary headwind.
• Inventory Management: iMakiage holds excess inventory from prior purchase commitments, though management notes low obsolescence risk due to product categories.
• Growth Investment Costs: 2027 growth plans for iMakiage and Methodic require significant upfront customer acquisition spend to re-stimulate the flywheel.
• Regulatory Dependencies: Methodic's peptide expansion relies on HHS Enforcement Discretion policies and licensed provider networks.
• Execution Risk: Challenges in rolling out new product lines and managing multiple brands simultaneously while stabilizing a legacy brand.

Management Commentary and Tone:

• Tone was cautious yet confident regarding long-term strategy, expressing optimism about the platform's scalability and the potential of new categories.
• CEO Aron Heltzman emphasized personal, daily involvement in resolving iMakiage's ad issues and maintaining a "test and fail fast" culture.
• CFO Lindsay Druckerman highlighted discipline in operating expenses while maintaining investment in key growth drivers (Labs, Methodic, Brand 4).
• Management reiterated that capital allocation decisions are strictly tied to 12-month profitability and unit economics, refusing to spend on non-profitable cohorts.

Analyst Questions and Answers:

• Product Strategy: Management confirmed ~8 new products for Spilled Child and ~6 for iMakiage in 2027, alongside a peptide roadmap for Methodic, leveraging the 70M user base for testing and demand validation.
• iMakiage Recovery: Despite sequential improvement, the ad account issue remains unresolved; CEO noted significant daily testing with the ad partner but stated the fix is not yet complete. Q4 is tracking as planned with a focus on fixing the business rather than seasonal selling.
• Peptide Economics: While acquisition costs and AOV may be higher for peptides initially, management expects attractive paybacks and repeat rates; they will not scale without proven cohort performance.
• Distribution: iMakiage remains 100% D2C; no plans to broaden to Amazon announced at this time.
• International: Focus remains on fixing the North American market for iMakiage first; international expansion for Spilled Child is a future upside.
• Margin Outlook: Gross margin pressure is expected to ease in 2027 as first-order declines stabilize and revenue rebounds, though specific guidance was not provided.
• Innovation: Innovation is prioritized based on market size, pain points, and unit economics; new products will be phased throughout 2027.

Other Key Points:

• Share Repurchases: ~11.7 million shares purchased in H1 2026 for $163 million; $86 million remains under the $200M authorization.
• Debt: ~$550M of zero-coupon 2030 exchangeable notes remain outstanding after a $50M face value repurchase in June.
• Strategic Expansion: Audity is transitioning from a single beauty brand to a multi-category ecosystem including skincare, healthcare, dermatology, and now longevity/metabolic health.
• Data Advantage: Management highlighted the proprietary data from 70 million users as a key competitive moat for identifying and scaling new product opportunities.