All right, thanks so much for joining us today. I have the pleasure of hosting Manuel Manfredi, CFO of Waldencast. Just a quick introduction of Manuel before we kick off. Manuel has a proven track record of performance, having led financial organizations in the beauty and consumer product industry for nearly 25 years. Most recently, he served as CFO of L'Oréal, Spain and Portugal, a role he has occupied since 2022. So just to kick off, you recently joined Waldencast from L'Oréal. What made you join Waldencast?
So hello, Jonna. Thank you for the invitation. Hello, everybody. So I joined Waldencast impressed with the platform that has been built to nurture, to grow, to accelerate beauty brands. So for those of you who don't know Waldencast, we are a beauty pure player. So, you know, beauty is a very resilient market, very profitable market, and we believe it's important to be a pure player here. So we are a platform designed to acquire brands and to grow them, and we, as we say, we like to combine the best of both worlds. So of the strategic players in terms of professional management, scalability, and also the best of independent brands, because our brands are very entrepreneur.
Their incentive system is purely based on the brand, so it's not based on the group performance. So we like them to be fairly independent, and we build this house of brands, right? And yeah, I joined the Waldencast two months ago.
Mm-hmm.
So as you said, from L'Oréal, I spent a long time in Europe and North America, different roles. And you know, I'm very excited of what I'm seeing, the business results, the engagement of the teams, and the growth prospect ahead of us.
Yeah. What has been most surprising to you since joining Waldencast?
I've seen the strength of our brands and the quality of the products.
Yeah.
You know, when you look at our consumers, but we have two brands. We have Milk, which is a makeup brand, mostly Millennial and Gen Z, with a big, big community, but still a relatively small brands. Last year, we hit the $100 million threshold, but super, super strong community. And then on the other hand, we have Obagi, which is a skincare brand, physician dispense. It is the number one recommended physician dispense brand on some key areas of concerns for users. So the strength of the brand, the quality of the products, and the consumer base were things that I was really impressed when I joined Waldencast.
Yeah. You recently reported first quarter results, and it came way better than overall category. Just could you explain the key drivers that led to outperformance versus the category, and what was surprising during the quarter versus your expectations?
Absolutely. So we did deliver solid results. We grew our comparable net sales by 21%, and that was very balanced between both brands, Obagi and Milk. We did improve substantially our gross margin. We are north of 76% now in terms of gross margin across the business, and we deliver 16.6% of Adjusted EBITDA.
Mm.
So we're quite satisfied with the results. The drivers of the results, on one hand, the innovation on both brands. We have very successful launches, both in Milk and Obagi. We launched in Milk, one of, you know, it's one of... You don't see a lot of launches like this, and we were discussing-
Yeah
... about it right before. Unfortunately, it's not easy to get hold of it. It's our jelly lipstick. So it's a stick for your face and for your lips with a jelly texture.
Yeah
... that sold out super quick in Sephora. In Obagi, we launched our Daily Hydro- Drops Eye Creams, also sold out super fast because it was a really, a very, very successful launch. So that was a quite good driver of the acceleration of the growth. We also had a expansion on our B2C commerce-
Mm
... e-commerce that grow a lot across the business. And you know, what we see is that the investment we're doing in marketing and the transformation we're doing, especially in Obagi, is helping a lot to drive that growth and to drive this performance. We also worked a lot in terms of gross margin.
Mm.
It's super important in our model to have a very healthy gross margin. In terms of Milk, we have done a lot of work working with our CMOs, with our supply chain teams in terms of inventory forecast and, you know, designing of the products, so that's helping. In terms of Obagi, it's more driven by channel mix, but it's also helping in our gross margin acceleration.
Mm.
You know, this increase of net sales is what's ultimately is driving the increase in EBITDA-
Mm
... of the 16.6%.
And on that point, you know, we have seen some normalization in the category.
Mm-hmm.
Looks like Prestige is really still pretty robust, growing 9% in the first quarter. What are you observing in terms of the overall beauty trends, and are you seeing continued momentum in the cosmetics and skincare that give you confidence about?
Mm
... you know, what's coming ahead?
So indeed, prestige grew 9% on Q1. You know, we're relatively small, young, and small brands-
Mm
... so the market for us is a point of reference. We have a lot of room to grow. We grew Obagi twice the speed of the market. Milk grew, like, four times the speed of the market. Just to give you some data, Obagi and Milk, sorry, Sephora is our main customer, our main partner. 3% of the Sephora consumers are buying Milk-
Right.
So we still have a huge space to grow into the consumers. And in Obagi, same thing. We, we, you know, we have a consumer base which is very loyal, that we are growing. We see, we see good space to recruit younger consumer. So, you know, our consumers are very loyal to our brands, and we still see momentum to grow.
Maybe going into each brand a little bit, you know, you mentioned Milk is more Gen Z focused, Obagi is a little bit older. How are you thinking about the key growth drivers in both?
Yeah
... brands going forward, and do you plan to expand distribution or anything like that will be helpful?
Sure.
Yeah.
So our key growth driver, you know, on one hand, is innovation, and I mentioned that. In Milk, you know, we've had a lot of success with our first half innovation. We're launching new products now in June. We have another pipeline very strong coming for the second half of the year. That has driven a lot of the, a lot of the, a lot of the growth. The same in Obagi, and I did mention some of the launches we had. That's the first thing. The second thing that we're growing is international distribution in different parts of the world. Milk is more concentrated now, expanding distribution in Europe and Latin America very successfully. Obagi, you know, we launched a new go-to-market model in Southeast Asia that is starting to generate results.
That's gonna take some time to build, but, you know, we're making an investment over there, and that is the two things. Then the other thing that we are investing a lot is on marketing, right?
Mm-hmm.
So we have increased a lot the marketing spending in both brands. Brand awareness is still relatively low for Milk and Obagi, so we believe there is a significant opportunity to expand that. If you look at Obagi, for a very long time, the brand, you know, the marketing investment on the brand was probably not sufficient, so we're growing, we're investing not only in marketing, you know, and our D2C results is a good testament to what we're doing. But we're also renovating the visual identity of the brands, making it more scientific, more appealing, more professional. We're changing the packaging, so we have now consistent packaging across the brand with very strong brand identity. So we have all these things that are helping us to continue the momentum.
Yeah. And speaking of marketing, what is the right level of spending as a percentage of sales? What are they now, and where are you planning to go? Other brands spend a lot more-
Yeah
... on marketing, and how are you measuring success of your marketing dollars? And, you kind of mentioned a little bit, but in terms of channels, are there specific channels that you're going more into in terms of marketing?
Absolutely. So as I mentioned, we. Our model is we grow, and we grow our gross margin, right? We improve our gross margin. We reinvest a lot of that in marketing, and that is fueling our net sales. That's a bit our model. You know, this increase of top line is diluting expenses, and it's helping us to increase our EBITDA. What we're doing in terms of marketing, we're doing a lot of digital. I mean, we're increasing a lot the marketing spend of the brands, you know. I cannot provide the figures, but we are expanding a lot digital marketing, social media. We're putting a lot of resources over there.
For example, if you look at earned media value, which is a very significant and very important component of the marketing mix, Milk was the number nine brand on Q1 in the United States. You know, it peaked at number six in February.
Mm.
So that's a testament of the efforts that the teams are doing behind the brands. In Obagi, again, we're investing a lot in brand because the awareness of the brand is still relatively small.
Mm.
We want to bring new consumers, younger consumers into the Obagi brand, and that is part of the effort we're doing. The other part is what I was mentioning before in terms of a new brand identity, new visuals, new packaging.
Yeah. And we touched on this a little bit, but you... How are you seeing different trends globally? Any notable trends that you're seeing for Obagi and, and Milk, and you mentioned international expansion, but maybe talk about your, your strategy for both brands.
Yeah. Absolutely. So first of all, before the expansion, we believe we still have a big, like, new customers, we have opportunities to increase within the current distribution, right? I mean, as I mentioned before, awareness is still relatively low. You know, consumer base, we need to, we need to increase, and we have opportunity to increase, and we are doing that.
Mm.
Now, international distribution, which is another aspect of the strategy we have to grow the brands, we have different approaches in terms of Milk. So, we're having new launches, especially in Europe. So, for example, we launched LYKO in the Scandinavian countries. We have very, very good results. You know, we have stories of people queuing up-
Right
... under the rain, and you might have seen that in media. We're launching new partners in Europe, so we have launched Sephora U.K., we have launched Boots, we have launched Space NK in the U.K., and we're launching in other partners in Europe. In Latin America, we recently launched with Blush-Bar-
Mm
... which is a cosmetics chains. We also had very, very good results, you know, in Mexico-
Mm
... Colombia, and other countries. So that's on the Milk side. On Obagi, the main area we're focusing now is Southeast Asia. So we used to have a distributor model over there.
Mm.
We changed that to a direct model. The reason for that is that there is a big brand awareness in Southeast Asia, so we believe it's a huge potential for growth, and we really want to, you know, to make sure we put the right investment behind the brands, behind the marketing, and help us grow and deliver the results over there.
... Is Obagi China a big market for Obagi, or you're still in early innings there?
No. So when we acquired Obagi, China was carved out of the acquisition.
Yeah.
Obagi China is an independent company.
Yeah.
It's not part of Waldencast.
Yeah. Got it. And just touch on innovation. You know, innovation is a very important component of both brands, and Milk saw that nice Jelly Tint launch. How should we think about the cadence of innovation, and how long does it usually take for new products to launch on the Milk side? And also compare that to Obagi-
Mm
... which probably has longer sort of-
Yeah
... innovation pipeline time, yeah.
Yeah, it's a good question. So on Milk, we have a... So first of all, on makeup, you have the rate of launches is much higher, right?
Mm-hmm.
So makeup, you have on average 25% of the sales of any brand are probably launches on any given year. So you have a very fast-paced innovation that we partner together with our CMOs. We, you know, we don't have factories. We work with CMOs that help us in terms of agility and the time to market, and in Milk, we have two things. On one hand, I mean, we have our pillars, you know, our primers, our ethos, which have been there since the beginning of the brand, and they're very a stronghold for us. Then we have the opportunity to enter into new categories, you know, eye, lips, complexion. For example, liquid foundation, which is the biggest category in makeup-
Mm
... we're not present. So we have a big opportunity to expand into these categories. And then the third part of our product strategy in Milk is like this viral innovation.
Right.
We had the jellies early this year. We launched also the Kush, which is a successful franchise we have on mascara. Now we're launching in lip. We have the Kush Lip Oil. We had the Cloud Glow Priming Foam, which is a primer with the texture of a foam. That is a first to market, so that's in terms of Milk. Now, in Obagi, the development cycle is different. So in a skincare brand, the rate of launches is smaller, it's around 10%-12%.
Mm-hmm.
In our development cycle, we partner with physicians. So we signed Dr. Suzan Obagi, which is our Chief Medical Director, and we have created a physician council, so they are a key part of our development cycles for new products.
Mm-hmm.
So, you know, so it all starts by the needs of the consumers that are identified by physicians, and that's how our development starts.
Mm-hmm.
Okay? That was, for example, how we developed our Daily Hydro-Drops launch.
Yeah
... of this year.
Yeah, and when you launch innovations and think about innovation, how do you structure that in terms of margins? Do you think about, you know, structuring a lot higher than your average margin? Just any dynamics that you think about as you roll out new products.
Yeah, sure. We are... I mean, Milk and Obagi are prestige brands.
Yeah
... right? So, so we, you know, we position it according to the market.
Mm.
Of course, we, you know, our objective is always to improve the gross margin, and, you know, we improved over 1,100 basis points, the gross margin in Q1 versus 2023, and we have improved consistently in both brands since 2022, since we founded Waldencast. So gross margin and launches is a component of the gross margin, but not only launches. You know, we're working also in terms of our CMOs, improving existing products. So there is a lot of factors that we're working in improving gross margin, not beyond the launches.
Right. In terms of a core consumer, you talked about how Milk is a younger consumer and Obagi is older. What trends do you see in terms of retention, acquisition?
Yeah.
Anything you can share in terms of the customer characteristics there?
Sure. So in Milk, so our consumer is Millennial and Gen Z, right? So these consumers, they increased significantly their spending in makeup after the pandemic, you know, with the resuming of socialization, and they are attracted to the brand. You know, it has the attributes they look for. It's a clean brand. It's the number two clean brand at Sephora, vegan, cruelty-free, and, you know, very innovative products.
Mm-hmm.
Now what we see also is a bit the TikTok-ification of beauty that is bringing, like, Gen Alpha consumers into the market, you know, as in terms of makeup. If we look at Obagi, so average consumer is 42 years old plus in Obagi, so we see and they're very loyal to the brands, right? The products are the efficacy of the product is super good. The formulas are super good, so they are very loyal to the brand. Now, we see an opportunity, in addition, to bring younger consumers. You know, we're expanding in D2C, and that's bringing new consumer to the brand. For the most part, younger consumers find the brand either through their physician, because it's recommended to them, or through the e-commerce.
So that's the two levers that we are using to increase our consumer base in Obagi.
Yeah. And on the Milk side, you're currently in Sephora.
Yeah.
How are you thinking about distribution channel, and what are additional opportunities you may have with Sephora currently?
Yeah. So 3% of Sephora users buy our brand.
Yeah
... right? So we have 97% that don't buy our brand, so we have a lot of opportunities to increase our consumption in Sephora. You know, it's a very good partner, and we're very happy with that, so we're working with Sephora to increase our consumption-
Mm
... in their stores. Then, internationally, you know, we're also going into new chains.
Mm.
In the U.K., we have Sephora. We have LYKO in the Nordics that I mentioned before, Blush-Bar in Latin America. But, you know, Sephora specifically, we believe we still have a lot of opportunities to grow our consumption within Sephora.
Mm-hmm. And just looking at long-term targets and margin outlook, what is the right level of margins for both brands? They're a little different, but just where you can see some white space, key puts and takes there-
Mm
... that we can think about?
Sure. So we are a top-line company, so our vision is to increase our top, our growth, right? To increase the revenue. You know, Milk for the first time delivered $100 million last year. Obagi was $112 million, so we still have a lot of opportunity to grow. So how we do that is, you know, we have a big, big focus on gross margin. This increase in gross margin help us fund the marketing investment to deliver the top-line growth, okay? And this is what will help us dilute the expenses and improve the margin. For this year, we grew 21% on the first quarter, and we provided guidance to the market that we're gonna accelerate that in net sales growth in the upcoming quarters.
We also deliver a guidance in terms of EBITDA that will grow from 11% the last year, and our expectation is to be on the mid-teens on the year, okay? So that is what we're doing in terms of growth for the year.
Mm-hmm. And, Waldencast is a platform of brands. How are you thinking about future acquisitions, and what are some criteria that you do look at when you evaluate brands?
Absolutely. So first of all, the acquisitions are... I mean, our guidance does not contemplate any acquisitions.
Mm-hmm.
So the guidance, as I mentioned before, of accelerating from the 21% growth on Q1 and then adjusted the EBITDA on the mid-teens doesn't contemplate acquisitions. So we are a platform built for scalability, right?
Mm-hmm.
And we can provide the brands, you know, on one hand, the capabilities of a strategic player in the sector in terms of professional management, relationship with CMOs, and all these things. And on the other hand, the advantages of being independent brand-
Mm-hmm
... within Waldencast, right, in terms of entrepreneurship, so on and so forth. Now, we do look at acquisitions. It's part of our strategy. In the beauty market, as you know, there are more sellers than buyers, so there is a lot of opportunities. So for us, what is super- is very important is what is the, how complementary is the brand to our existing portfolio, and, you know, what we can add to the brand in terms of, capabilities to accelerate the growth and the profitability.
Mm-hmm. Just touching on your guidance a little bit, the guide for the year indicates accelerating growth for the remainder of the year versus the first quarter, also margin expansion in the mid-teens. What gives you confidence on those guidance, and what could potentially drive upside or downside to your guide?
Yeah. So first of all, the robustness of the robust situation of the brands. So Milk, again, in media value, number nine brand in the U.S. in Q1. We added almost 400,000 people to our social accounts. The buzz of the brand is incredible, you know, thanks to the launches and to all the marketing investment we're doing. So we're confident that we can expand our consumer base in the case of Milk. Then we have all the innovations. You know, we saw the successful innovation we had in Q1. You know, we have been out of stock in some of our products, and we're getting back into stock, so all that will help accelerate the revenue in the second half, and finally, the international distribution. In the case of Obagi, we have...
You know, we're focusing a lot on the Physician Dispense channel. You know, we're having new CRM tools to drive sales on the channel. We're investing a lot in the teams and the go-to-market strategy on the Physician Dispense-
Mm-hmm
... which is core to the brand. That is helping to recruit new consumers that are finding the brands, and then they can continue buying it together with the existing consumer that are very loyal to the brand, right? And then in the case of Obagi, the other component super important is the acceleration of a marketing initiative. You know, the new visual identity, the new packaging, you know, the creation of the medical council to drive innovation. So with all these initiatives in place, we're confident that our strategy will help us accelerate the top line and deliver our guidance for the rest of the year.
Yeah. Your brands are more skewed to higher income cohorts.
Mm-hmm.
What are you seeing in terms of the health of the consumer? If you were to rate the health of the consumer on a scale of 1 to 10, what would it be?
Yeah, I don't know if I will be able to put a number there. But, again, we're relatively small brands-
Mm-hmm
... so I think we have a lot of opportunity to grow our consumer base, right? And in the case of Milk and Obagi, what we see is consumers super loyal to the brand, because of the efficacy of the product, you know, in both brands. In Milk, we have this community of users that are very, very, very loyal-
Mm-hmm
... to the brands, that we want to, again, expand and welcome new members to this community. So in respect of our consumers, we are quite confident of the commitment to the brands and how loyal they are.
You know, you reported strong results and but how are you thinking about investor sentiment to what is, like, least appreciated, you think, about your brands currently? Any thoughts on that front?
What is least appreciated?
Yeah, underappreciated, yeah.
You know, we have been. I think the results are solid, right? And, you know, we're focusing on operational excellence.
Mm-hmm.
We're focusing on delivering good results.
Mm-hmm.
I think that will. We think that will, that is what investors are looking for. You know, we deliver a very strong Q1, and we're confident we will deliver a strong Q2, and that's our strategy. That's our main focus. I think Waldencast was a bit silent for a while. We came back strong in terms of reporting.
Mm-hmm.
We're now going to publish quarterly information for all the investors. So, you know, we're going back to a normal reporting cadence, so people will be able to see the performance of-
Mm-hmm
... our brands and the performance of our business model.
Yeah. As you think about the next sort of three-five years, what are you most excited about the brands?
... A lot. So in the case of Milk, you know, is to continue with this innovation-
Mm.
with this, growing this community and, and growing the brand. We think there is a lot of white space. Again, last year was for the first time that we hit the $100 million milestone in terms of, net revenue, so we have a lot of room to grow. You know, Obagi is to continue delivering, you know, medical, innovation, not medical innovation, but medical type of performance innovation, so super strong products and, you know, with the creative council, with the help of, of our development teams. So we're very confident on that and, you know, increasing brand awareness and, and consumer base. That is, that is super important for us.
You know, we believe that if we continue with this strategy, not only we will increase our market position, but more important, we will create a lot of value for our consumers and our shareholders.
Yeah. This is a little bit more philosophical questions, but any thoughts on how AI would change beauty or, or Waldencast?
We are using AI already. You know, we're doing some pilots. So for example, we're using some applications to catch consumer sentiment and to analyze consumer sentiment. You know, what people are telling about the brands-
Mm
... even on videos, you know, reading what they're saying and, trying to get some insight that help us on, you know, our marketing strategy, development of new products. So I mean, there are applications there, and we're already experimenting with those. So-
Yeah
... I mean, we think there's gonna be a lot of opportunities. You know, another area that we will start experimenting is related to, you know, all our forecasting process, supply chain process, so we believe there is a lot of opportunities, and we're already working in some of those.
Yeah. One last question I had before we go to some rapid fire, but the Milk brand has a strong community, right?
Yeah.
Its innovation is sometimes driven by that. How are you communicating with your community, and how does that inform the innovation process and the feedback loop that-
Yeah
... that you have?
So we communicate a lot online-
Mm
... you know, in social media. You know, we have over 4.3 million followers in TikTok, Instagram, et cetera. So we do dialogue with them, and you know, the example I gave you before on AI is part of that.
Mm.
This dialogue is what help us, you know, in the development of new products, the development of new marketing campaigns, you know. I was yesterday at the Milk office here in New York, and, you know, they were shooting the new campaigns for the second half of the year. And, you know, a lot of what they're doing is inspired of what they hear-
Mm
... on the with the users and with the community online.
Yeah. And we're asking this question to everyone: What is your favorite book and a TV show?
My favorite book, and I don't know, it's a book... It's an Italian writer called Umberto Eco.
Mm.
He wrote a book called The Name of the Rose-
Mm
... which is a thriller in the 12th century.
Mm.
There is a movie also-
Oh
... from Sean Connery, so if you haven't seen the movie or the book, it's super nice. And my favorite TV show is Breaking Bad.
Yeah.
I'm a Walter White fan.
Yeah, great, great show. With that, I thank you so much for-
Thanks, Jonna
... joining us today, and thanks for everyone for participating.
Thank you, everybody.