ODDITY Third Quarter 2026 Earnings Call - ODDITY TECH LTD

Explicit Guidance:

• FY2026 Net Revenue: Raised guidance to a decline of approximately 18.5% (previously expected ~25% decline in H1, beat Q3 guidance of ~5% decline).
• FY2026 Adjusted EBITDA: Raised guidance to $32–$34 million (previously $18–$20 million); beat Q3 guidance of $22 million.
• FY2027 Outlook: No specific quantitative guidance provided; company goal is to return to growth for all brands (including Il Makiage, Spoiled Child, and Methodic).
• Capital Return: Approximately $86 million remaining on the $200 million share repurchase authorization (11.7 million shares purchased for $163 million in first nine months); $550 million of zero-coupon 2030 exchangeable notes remain outstanding.
• Inventory: Plan to achieve better inventory balance by 2027, specifically clearing excess inventory from Il Makiage purchase commitments.

Business-Segment Outlook:

• Spoiled Child: On track for ≥35% revenue growth in FY2026, approaching $350 million in revenue; strong double-digit growth in Q3 and Q4; excellent repeat rates and new product lineup for 2027 (including 5–6 new products).
• Methodic: Off to a strong start, on track to beat Spoiled Child's first-year revenue; plans to expand into medical grade products and categories in 2027; will launch prescription injectable therapies (NAD+, Semaglutide, and others) via licensed providers and pharmacy partners; plans to launch six additional peptide therapies following recent HHS Enforcement Discretion Policy; expects high AOV and initial higher CAC but attractive paybacks.
• Il Makiage: Working to resolve ad algorithm dislocation with largest partner; Q3 saw sequential improvement in repeat orders (80%+ of revenue); Q4 tracking as planned; 2027 goal is return to growth; currently 100% D2C with no immediate plans for Amazon or broader distribution expansion.
• Brand 4: Planned to be ready for launch in 2027; details on timing to be announced closer to launch.
• Audity Labs: Pipeline of proprietary molecules for anti-aging (collagen, L-Stain, NAD+), hair growth, hyperpigmentation, acne, and eczema; early in vitro/ex vivo and focus group reads described as promising.

Market and Competitive Outlook:

• Beauty & Wellness: Industry backdrop viewed as "large, profitable, and sexually growing" (sic, likely "secularly growing" or "sexually" refers to demographics/mood, context implies secular growth); bullish on consumer shift online and demand for high-efficacy products.
• Longevity & Metabolic Health: Sees this as a highly attractive, large, reversible market; anticipates early-stage category growth with high potential for new entrants; expects competition to increase in early 2027 as the market opens via HHS policy.
• Platform Advantage: Believes the "repeatable playbook" (user base, tech, brand scaling) gives advantage over competitors attempting organic growth or M&A; aims to build one of the world's biggest beauty and wellness companies.
• Competitive Positioning: Confident Methodic can emerge as a "main winner" in peptides/Rx due to existing infrastructure, brand identity, and provider networks.

Macro / Industry Outlook:

• GLP-1 Tailwind: Views growth of GLP-1 treatments as a tailwind for the wellness category, benefiting brands like Spoiled Child.
• Regulatory: Recently benefited from HHS Enforcement Discretion Policy regarding peptide therapies; prepared for this opportunity for years.
• Advertising Ecosystem: Ad account dislocation with major partner is a technical problem, not brand damage; algorithm changes are causing volatility but expected to resolve; partner allocated substantial resources to fix; expects CPA to normalize as solution is implemented.
• FX/Supply/Inflation: No specific commentary on FX, interest rates, or inflation impacts in this transcript.

Strategic Initiatives:

• 2027 Product Slate: Described as the "most exciting" ever; includes new products across all three brands (8+ for Spoiled Child, 5–6 for Il Makiage, expansion of Methodic to peptides).
• Category Expansion (Methodic): Transitioning from dermatology Rx into longevity and metabolic health via prescription injectables and peptides; infrastructure (clinical intake, national pharmacy fulfillment, provider networks) already built.
• Geographic Expansion: International growth for Spoiled Child considered an upside; focus remains on fixing North America for Il Makiage first before expanding international.
• Distribution: No changes to 100% D2C model for Il Makiage currently; open to exploring new distribution where it makes sense for other brands (unspecified).
• Tech & R&D: Continued investment in Audity Labs (AI/digital biology), tech infrastructure, and data capabilities to drive acquisition and LTV.

Risks and Headwinds to Outlook:

• Ad Algorithm Volatility: Ongoing uncertainty and volatility in Return on Ad Spend (ROAS) and acquisition costs due to the technical fix required with the primary advertising partner; daily testing and iteration required.
• Execution Risk: Challenge of rolling out innovation (new products, categories) while simultaneously attempting to return Il Makiage to growth; potential for "test and fail" cycles.
• Inventory Balance: Il Makiage currently carries excess inventory from prior purchase commitments; risk of margin pressure if not cleared efficiently.
• AOV Pressure: Average Order Value (AOV) declined mid-single digits in Q3; expected to improve in 2027 as first-order acquisition stabilizes and growth returns, but no specific timeline provided.
• Competition: Influx of e-commerce and telehealth vendors entering the peptide space in early 2027.
• Forward-Looking Statement Caveats: Actual results may differ materially due to factors described in the company's Form 20F and earnings press release (March 17, 2026).

Management Tone on the Future:

• Confidence Level: Bullish on long-term ambitions and platform capability; expresses strong optimism regarding the long-term potential of Methodic in peptides and the runway of Spoiled Child.
• Hedges: Deliberately cautious on specific 2027 guidance; emphasizes that returning to growth will require investment in first-order acquisition and that early 2027 may see "volatility" regarding ad spend and returns.
• Focus: Shift from "defense" (fixing ad algorithm) to "offense" (growth, innovation, expansion) in 2027; management tone suggests a belief that the current challenges are temporary and solvable with their unique platform.

Miscellaneous:

• Financial Health: Strong liquidity position with $561 million in cash/cash equivalents and investments; $350 million credit facility undrawn.
• Share Count: Diluted share count approximately 23% lower year-over-year due to repurchases; AOV decline driven partly by mix (fewer high-AOV first orders vs. lower AOV repeat orders).
• Free Cash Flow: $10 million in Q3; $3 million for the first nine months of 2026.
• Gross Margins: 67.4% in Q3 (vs. 71.6% prior year); compression driven by AOV decline; expected to improve in 2027 as first-order declines subside.