Oddity Tech Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 9 speakers on the call.

Operator

Auditee Second Quarter 2024 Earnings Conference Call. Today's conference is being recorded, and we have allocated time for prepared remarks as well as Q and A. At this time, I'd like to turn the conference over to Maria Lykouris, Investor Relations for Audity. Thank you. You may begin.

Speaker 1

Thank you, operator. I'm joined by Ron Holtzman, Audity Co Founder and CEO and Lindsay Druckerman, Audity's Global CFO. 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 Audity'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.

Speaker 1

These factors are described under forward looking statements in our earnings press release issued yesterday and in our annual report on Form 20 F filed with the Securities and Exchange Commission on March 6, 2024. 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'll now hand the call over to Eran.

Speaker 2

Thanks everyone for joining us today. The second quarter and the first half of the year were another set of record breakers for us. We grew first half revenue 28 percent to $404,000,000 delivered $110,000,000 of adjusted EBITDA and generated $104,000,000 of free cash flow. Our business is firing on all cylinders with no signs of slowing. The $110,000,000 of adjusted EBITDA we delivered in just the first half of twenty twenty four is more EBITDA than we delivered in the full year of 2023.

Speaker 2

Growing 28% in the first half, more than 3x faster than legacy incumbents and with 27% EBITDA margins proved again that our platform is very strong and enabled scale, growth and very high profitability consistently. Our investment in technology in the past 6 years continue to pay great dividends and our record margins allow us to keep doubling down on investments in technology, science and building new brands. I will reiterate what I said multiple times before, the opportunities that I see ahead for our business are massive. The building and wellness industry is huge, profitable and growing, and it is dominated by offline incumbents that are behind the curve. We can see today how some of them are paying the price as they struggle to adapt.

Speaker 2

This sets up a massive opportunity for Auditing. We are still only a tiny fraction of the global market and therefore the opportunity is so big for us. I strongly believe that we have what is needed to continue winning and leading in the most important areas of the categories growth. With our capabilities and DNA as a company, we are in the best industry in the world for our type of company. In my view, we are unlocking 2 areas that are changing the industry.

Speaker 2

1st, we are unlocking online, where we are already dominating as the largest direct to consumer platform. This is the future of category. We see it clearly with massive demand on our websites. We expect online to grow to 50% of the market in the upcoming years and Audity is leading this transformation. The second area of category growth is towards science backed high efficacy products.

Speaker 2

Audity Labs can be a game changer here, turbocharging, increasing innovation to solve consumer pain points, and we are spending time and resources to build it. Drilling into online, the opportunity for us to continue unlocking beauty in this channel is huge, and our competitive advantage grows daily. We have 3 core areas for unlocking online that we invest in to fuel our long term growth. Starting with our platform model, we have more than 50,000,000 unique users who are ready audience for us to launch products, categories and brands into. We have shown this ability again and again starting with IlmaQiYaj in color cosmetics, spoilage in skin and hair and now IlmaQiYaj in skin, which is on track to be around 25% of FilmaQuayage brand revenue in 2024.

Speaker 2

2nd is our in house technology. Our machine models and algorithms allow us to understand what consumers want to match them to the right product and show them how to use it. In addition to our machine learning models, in the past 3 years, we invested a lot of time and money behind our vision technology. These investments gave us a new way to gather data and to get answers to questions that even our users don't necessarily know. We have made major strides in building our vision tools and 2024 in particular has been a breakout year.

Speaker 2

We incorporated Vision into our latest shade matching models, which is driving improvement in matching accuracy, reducing return rates on like to like products and driving better LTV. And I believe it will continue to get even better over time. We have also made progress in vision machines for Brand 3, where we now can identify acne lesions, track them and model progress over time. To the best of my knowledge, no one in our industry has something that is even close to what we are building here technology wise, and it will be the core technology for Brand 3. The 3rd core investment area is our brand building machine.

Speaker 2

At Audity, we are building brands from scratch based on first party data we have from our users. Our brands have distinct points of view, but are all anchored in quality and high performing product formulations. This is by design, any product that we launch must be the top performing formulation in the market based on data from consumer trials and based on ton of data we collect from real users. We don't have head of makeup artist or head of stylist that get to pick which products we launch, only data decides it. Our approach to product development is unlike anything else in the industry in my view, and it is based solely on large data sets.

Speaker 2

This is why ImageJ and SpoilChild are launching winners and delivering such high repeat rates and therefore are generating unparalleled profit margins for Audity. I believe that both of our existing brands Ilmatyaj and Spoil Child are on track to be $1,000,000,000 brands. For Ilma Kia we expect together in the next 4 years. In addition to Ilma Kia and Spoil Child, we continue to work out developing new brands to serve our user base and we are making great progress. Brand 3 and Brand 4 are on track to be launched in the second half of twenty twenty five.

Speaker 2

As a reminder, Brand 3 is a medical grade skin and body brand that will address range of issues including acne, eczema, hyperpigmentation and other large consumer pain points. So to summarize, data, technology and our IntelliNew brand development machine are fueling and will continue to fuel our online growth and profitability. This is the core of Audity. Moving to science backed products via Audity Labs. For years, it was my dream to use science to create better product for our consumers to solve their pain points and to carve out another source of competitive edge for us.

Speaker 2

For years, I was amazed by the lack of scientific innovation in our industry. It just didn't make sense to me given the size of the industry and the progress in science and biotech in the last 2 decades. The acquisition of Prevella in 2023 gave us the foundation for building OZY Labs in Boston as our science backed new product engine. As a reminder, at Holiday Labs, we are using digital biology to discover, launch and own the next generation of science backed product that our consumer is so eager for. Last quarter, I spoke about the important steps we have been taking to build labs, to grow the teams and to develop structures and systems to ensure we are building a platform that works at high scale.

Speaker 2

As part of that, we are excited to announce that Doctor. Ido Batchelet is joining us as the Chief Science Officer to lead our Science and Policy Labs. Bringing Ido on board is a great milestone for us. I spent time meeting with many scientists and Ido was by far the strongest fit. He's highly accomplished world class scientist with deep experience building and scaling multiple high impact biotech labs.

Speaker 2

He is super creative and shares our culture of disruption and building. After years in therapeutics, he decided that instead of developing another drug, he wants to join us in changing an entire industry through science. Doctor. Evan Zau, the co founder of Trevella has decided to depart to pursue other interests. Evan is a very talented entrepreneur who built Frevella into disruptive consumer biopsy.

Speaker 2

Thanks to the acquisition of Prevella, Audity now has the foundation to be at the forefront of science backed transformation in our industry, and we are grateful for that. I want to personally thank Evan and wish him the best in his future undertakings. As I've said before, OT Labs is a new master rail building and a complicated one. Very similar to our early days building our technology backbone, it takes time and iterations to build something meaningful. Therefore, as I said before, we are not counting on growth coming from OTT Labs in the near term.

Speaker 2

We don't need it to achieve our financial targets. We have ton of growth ahead from Irma Kiala and spoil child alone and even more growth on top of that coming from new brands in the pipeline. At Labs, we are literally building another large platform from scratch. But if we get it right, we can differentiate audit even more from our competitors in the long run. It is hard and it takes time, but I fully believe in it and I'm confident we'll make it.

Speaker 2

Looking ahead, as we told you last quarter, 2024 for us is essentially in the review. We have full confidence in achieving our financial targets, and we are once again raising our full year outlook today. Our teams are now almost entirely focused on preparing 2025 and beyond, and we are feeling confident in our execution next year. 1st, because we are leaving growth on the table in 2024 and staying disciplined about pacing our sales. This is something we have always done, so we deliver on our commitments, which we have achieved not just every quarter as a public company, but every quarter as a private company as well.

Speaker 2

2nd is because of all the growth levers our team is preparing for next year. The teams are now head down with planning, testing and iterating on winners on many fronts, new marketing campaigns, new products, new models and new geographies. Based on what I see today, we are in a strong position for 2025. But before I hand it to Lindsay, I want to take a moment to reflect on our 1st year as a public company. We decided to take the company public because we wanted to build something huge, because I felt then, as I do now, bullish on our ability to disrupt this enormous global market with our platform and create massive value for our shareholders.

Speaker 2

To be candid, it's not easy to be a public company, but we have made a great accomplishment in this past year since our IPO. We are very proud of our financial results. We delivered on our promises to the shareholders. We beat revenue and profit and earnings per share every quarter since going public. At the same time, we didn't change the DNA of our company, a DNA of building, innovation and investing behind big and hard dreams.

Speaker 2

And this is something I'm very proud of. We have kept our hungry, outsider start up culture despite our growth. This is the most important thing for our future success. We have also began returning cash to our shareholders with buybacks. We believe our stock offers an incredible value and we'll use our strong balance sheet to take advantage of that.

Speaker 2

With that, I will turn it over to Lindsay.

Speaker 3

Thanks, Aran. Let's turn to our Q2 results, which I'll refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Omni delivered a record breaking second quarter and first half across the board. We grew net revenue by 27% in the quarter to $193,000,000 The strength was driven by both Il Makiage and Spoiled Child across a range of product categories.

Speaker 3

Net revenue growth was driven primarily by an increase in orders, while average order value increased 6% year over year. Average order value growth was driven both by an increase in items per order and positive mix shift to higher priced products like skin, partially offset by mix shift to repeat sales, which carry lower AOV. The proportion of our sales from repeat customers increased on a year over year basis this quarter and is on track to be a higher percentage of our sales in the full year 2024 as compared to 2023. Drilling into revenue composition for the quarter. 94% of our net revenue came from sales on our owned website directly to consumers.

Speaker 3

The remaining 6% of net revenue in the quarter came from sales in Israel and to marketing affiliates. As a reminder, we do not sell any products to Amazon, eBay or other third party marketplaces, nor do we generate any direct revenue from products sold on these sites. Any product resold on those sites is unauthorized and done without our consent. Moving down the P and L, gross margin of 72.2% We

Speaker 4

delivered

Speaker 3

adjusted EBITDA of $62,000,000 in the quarter. We delivered adjusted EBITDA of $62,000,000 in the quarter. Adjusted EBITDA margin of 32.3 percent expanded 4 70 basis from the prior year, driven partly by gross margin expansion and a higher mix of repeat. 2Q EBITDA exceeded our original guidance of $53,000,000 to 50 $6,000,000 and that was driven in part by the timing of investments into new brands and Audible Labs. The timing of these investments is delayed into the back half of the year.

Speaker 3

We delivered adjusted diluted earnings per share of $0.82 Our adjusted EBITDA and EPS exclude approximately $7,000,000 of share based compensation. Our free cash conversion remains excellent. We delivered $104,000,000 of free cash flow year to date. This free cash generation is a clear reflection of the strength and quality of our business model. In June, our Board authorized $150,000,000 3 year buyback.

Speaker 3

We repurchased 250,000 shares for $10,000,000 in the 2nd quarter and have $140,000,000 remaining in our authorization. We exited the quarter with $268,000,000 of cash, equivalents and investments on our balance sheet and 0 debt. Turning to our outlook. We're raising our 2024 full year guidance based on a better than expected second quarter results and our high visibility to repeat sales for the remainder of the year. We now expect net revenue between $633,000,000 $640,000,000 representing 24% to 26% year over year growth.

Speaker 3

We expect to deliver 71% gross margin for the full year and we expect to deliver adjusted EBITDA between $142,000,000 140 $6,000,000 which includes a step up in growth investments for Oddity Labs and our new brands. We expect full year adjusted diluted earnings per share will be between $1.71 $1.76 Turning to the Q3 outlook. We're off to an excellent start and are pleased with the composition of our growth across both brands and categories as well as our cohort repeat rates. We expect year over year net revenue growth in the quarter to be between 22% 24%. You can find more details on our Q3 outlook and our press release.

Speaker 3

Lastly, I'll provide some early thoughts on 2025. We expect to deliver net revenue growth of 20% and adjusted EBITDA margin of 20% consistent with our long term algorithm. We plan to incur significant investments in Brand 3, Brand 4 and Audity Labs and we do not expect to benefit from any material revenue contribution from these initiatives in 2025. On the topic of supply chain and tariffs, while the ultimate policy outcomes are still to be determined, we're confident in our ability to manage through with limited financial impact based on the proposals currently in discussion. Our gross margin is high as is our pricing power and our financial exposure to tariffs and duties is very small.

Speaker 3

As a reminder, we source the majority of our products from Europe and we purchased some components and packaging out of Asia, including China. In 2023, total costs related to tariffs and duties, including from products sourced out of China, amounted to less than 1% of sales. With that, I'll turn it back to the operator for questions.

Operator

Thank you very much. We'll hear first today from Dara Mohsenian at Morgan Stanley.

Speaker 4

Hey, good morning guys. So the

Speaker 5

metrics you gave on the year over year performance were helpful. Can you also spend some time talking about where revenue upside came from in the quarter, both in terms of metrics, repeat, average order size, etcetera, but also at the brand level in terms of spoiled child versus Il Makiage And how you think about the sequential pace of Spoiled Child going forward after a very successful launch over the last couple of years? And how that brand is developing versus your expectations?

Speaker 2

Sure. Hi, Dara. Hi, guys. Again, as mentioned, very strong start to the year, both in the market and spoiled child, both grew double digit, very strong according to the plan and across range of products and categories. Growth in revenue was also driven by skin penetrating, massively in earmatillage.

Speaker 2

We grew from nothing in Q1 and it's going to be now like 25% in 2024. And just when I think about it, it's like $100,000,000 which is a lot for a brand that like 2 years ago, we had nothing in skin. The teams did a very good job in penetration and it like it was ton of job, but like in the end of the day and we did perfectly. Increasing revenue was driven by more orders and higher AOB. It's a positive mix shift towards higher priced products.

Speaker 2

And unlike most direct to consumer companies, we generate most of our revenue from repeat. And although we grew 28% in Q1, this is why the business is so profitable. And we continue to see the repeat percentage of revenue increase consistently. There is nothing more impactful and meaningful to the business strength than this. We entered to the Q2 with great momentum from the Q1, and we began reducing our acquisition spend in order to slow growth down to land closer to our algorithm of 20% growth.

Speaker 2

And as a result, our repeat business was the majority of our revenue in this quarter. And that's why the profitability is so huge, 32% of them of adjusted EBITDA margin. We have shown once again that we have we can power the business and we have full control. This is a huge advantage for us. And in terms of efficiency, we spend in the first half more than doubled than what we spent 2 years ago in terms of spend in media and the efficiency is even stronger now.

Speaker 2

So the business is in full control.

Operator

Our next question will come from Youssef Squali at Truist Securities. I believe we may have lost Mr. Squali. I invite you to re signal, sir. Next, we'll hear from Andrew Boone at JMP Securities.

Operator

We may have lost that line as well. Again, I do invite you to resignal with star and 1. We'll try to go to Lauren Lieberman at Barclays. Are you able to speak? Your line is open.

Speaker 6

I mean, can you hear me?

Speaker 2

Yes. Yes, ma'am. Hi, Lauren.

Speaker 6

Okay, cool. Exciting. Hi. My phone works. Cool.

Speaker 6

So I'm going to loop 2 questions into 1. So first, Eran, I thought it was helpful the sort of discussion you shared on labs and the time it takes to build what you're hoping to. But I was curious as we think about new product launches, inclusive of brand 34 for next year, whether there are sort of unique and discrete molecules that will be included in those. So I think my recollection is that was the hope that labs would be contributing in 2025 to some of the new products you'd be bringing to market. So I wanted to just get a status check on that.

Speaker 6

And then the second piece was the step up in SG and A spending in the second half and I know you guys have a habit of investing ahead and planning ahead for growth. But given the brands 34 aren't launching into the second half of twenty twenty five, it seems like a lot of spending closer in. So I was curious if that's where it's directed or if it's more towards continuing to scale labs? Thanks.

Speaker 2

Yes. Hi, Lauren. Look, in terms of labs, as I mentioned, we are working a lot on building the platform there properly. And when we discussed last quarter, I said that we are going to see the majority like the first fruit from labs in Brand 3 and Brand 4. It's still the plan.

Speaker 2

We will have a few launches before that that will go into spoil child in Ilmakiage. But overall, in the next year or 2, it's mainly expenses and we are doing it. We are happy to do it. We believe that like we are in the beginning of massive transformation where brand is not enough and people will ask for more than that, and we believe that side by product is the future of the industry. And we see it as a race, and therefore, we are investing a lot in building this capability.

Speaker 2

I believe that Audity has the ability to do something that no one else can because of our ability to build something from scratch. And we are building another platform. If I wanted, I could already have product in the market from Labs. But first of all, I don't need because we are growing more than what I want without it. And second, because I want to build something that we can be proud of and the products are not best in class, are way more than that comparing to the competitors.

Speaker 2

So hope it answers your question. So yes, brand 3 and brand 4. And in addition to that, we will see some products within Imogenes spoil child in the next 6 to 12 months. Lindsay?

Speaker 3

I'll take the SG and A piece of that. So as you know, we started the year off with very ambitious investment and spending plans across 2024 in support of our all of our initiatives in 2025, progressed, the timing of some of that spending got pushed. We have delivered upside, of course, to our numbers and you saw that in the fact that our full year guidance we've continued to raise. But to the degree we've had really remarkable profitability in the first half of the year, We didn't expect to be as profitable in the first half just because of the spending, but you can you get a sense of how profitable the underlying business is, even though with what we delivered in the first half of twenty twenty four, we still that's still with some additional growth spending layered on. So if we were to pull all of that investment off, you have an even more profitable business.

Speaker 3

And that's a function of, as Arun said, just how incredible the repeat is. We also continue to be very efficient on our acquisition spend, which as you know, the first half of the year, that's where the bulk of our acquisition activity happens. So you're seeing right now this kind of perfect flywheel of a B2C model that is super profitable because of strong repeat and continues to acquire in a very efficient way and is then able to redeploy that excess return into future investments, which we believe will drive us for many years in the future. The types of expenses, I'd say it's a bunch of things, product development, brand development, people, we have a whole lot going on and we've front loaded those costs as much as possible. We'll have more of course in 2025 and that underpins the guidance that the preliminary guidance that we gave you on 2025 today.

Operator

And now we will go to Youssef Squali at Truist Securities.

Speaker 4

All right. Can you guys hear me?

Speaker 2

Yes. Hi, Josef. How are you, Owen?

Speaker 4

Excellent. Thank you. Beautiful. Thanks a lot. Sorry about that.

Speaker 4

No, no, no, no, it happened. So two questions. Maybe can you just unpack a little more the investments that you guys have in store for brand number 3, brand number 4 versus brand versus the investment in Reality Labs. It seems that you guys are looking at the 2 somewhat differently. Reality Labs is more of a a long term kind of investment with an ROI that's still not very clear to us, although it seems to be very clear to you.

Speaker 4

But number 3 investment in brand number 3 and number in brand number 4 seem to be kind of more specific. So anything you can any kind of clarity you can shed on that would be really helpful. And then maybe, as a somewhat of a related question, Oran, maybe talk a little bit about the change in leadership at Labs. Any change in direction, any impact on maybe the cadence of output of either products or molecules, however you want to define it out of the out of that labs now that the you have new kind of leadership there? Thank you.

Speaker 2

Sure. Thanks, Jud. So I'll start with the second question, and then I'll move to the first one. There is no change because I'm still here. Fortunately or unfortunately, like the piece we are trying to solve here, we are building a platform and it's combination between building something new and blitzscaling because I believe, again, as I mentioned before, that we are in a race to get it right.

Speaker 2

I believe that the rest of the industry will go there and we need to move fast. And this is part of the reason for the change. I want to hire more. I want to build more. I want to have more oversight.

Speaker 2

I've done it before with the tech team, and I want to do the same in science in Boston. And therefore, we are making some changes there in leadership. In terms of direction, same direction, I'm very involved. My sister is involved. And now we are going to bring more people that are sharing our philosophy of how to move faster toward this direction.

Speaker 2

And I think that Ido is the best candidate for that. I met so many people. And I think that his creativity and his ability to go from 0 to 1 is something that we need there, and it fits perfectly to our view. And so the same as I said on the calls before, we are building both hiring a lot, but at the same time, oversight and structure and protocols to make sure that we are not just spending money, but to make sure that we are building something that is sustainable for long term. And to your first question, the difference between building breadth and building labs.

Speaker 2

So building labs is more like building a platform, more like building the technology team in Israel. It takes time. It takes iterations. We are spending a lot on learning, and it's a long term game. By the way, when I say long term, I'm not referring to 10 years from now.

Speaker 2

And some products I believe that are going to be ready for brand 3 and brand 4 and going to be great, but we are building something that is with way more power to sell more than just 2 brands or 2 products or 5 products. We are building a platform there. So it requires way more in terms of focus and investments. And thank God, I'm in a position that you saw my adjusted EBITDA margin. I don't want to be in 32% EBITDA margin.

Speaker 2

I don't think it's like what we need as a company. And we have and my commitment is to continue to invest to build something meaningful while using our strong profitability. The difference between that and Brandtory and Brandtory, Brandtory and Brandtory we've done before. We built Imacchayag, we built Spoiled Child, we know how to do it. It's more labor, it's more planning and strategy and branding and NPD, we've done before.

Speaker 2

The main difference between Brand 3 and Brand 4, with Brand 3 again, are building more than just a brand. We are building a telehealth platform and we start with medical grade skin and body issues like acne, eczema, hypoglymutation. It's a huge pain point and impacts massive part of our users. The reason that we do it that we saw that the satisfaction with Corning Solution is terrible, either inconvenient visits to doctor's office or picking ineffective treatments at drugstores. And that's a huge opportunity for us and developing line of OTC and Rx products and discover multiple face and body as a start.

Speaker 2

Then building 1st of a kind mobile app is something that we know how to do. We are the vision technology is core. We are building it for the past 2 years. And I think that's going to differentiate us and almost like make or break. And based on the numbers that I saw our vision models, lately, it's make not break.

Speaker 2

And number 3, leveraging the platform and the users that we have to serve and to drive revenue very efficiently. And again, we've done it before, so different type of expenses and investments.

Operator

Andrew Boone at JMP Securities, please go ahead with your question. Your line is open.

Speaker 7

Thanks so much for taking my question. Ron, you said earlier that media spend had doubled in the first half of this year versus 2 years ago. Revenue was up more than that. Can you just talk about the efficiencies that you guys are being able to generate on media spend and the confidence that continues? What has worked?

Speaker 7

What hasn't worked? And were you guys finding pockets of strength? And then Lindsay, as I think about the formulation for revenue growth this quarter, I think you said AOV was up 6 percent. That kind of implies that orders are right at that 20% level. Is that the right framework that we should think about growth going forward?

Speaker 7

Is that, hey, maybe AOV is mid single digits and order growth is kind of 20% you guys are solving for that 20% or is there any way that we should think about the breakdown of kind of P times Q equals R? Thanks so much.

Speaker 2

Hey, Andrew. Thanks for the question. Although all the noises out acquisition environment is still favorable for us and you can see it like with our strong margins, if I spend more I wouldn't bring 32% of EBITDA margin 27% on H1. ROAS did improve versus last year. And we spent in H1 2024 almost double the amount on media than what we spent in H1 twenty twenty two while keeping our overall market efficiency raw.

Speaker 2

This is unusual and shows the efficiency of our platform. We are bullish about our major efficiency. Q2 2024 was our highest scale of Q2 ever. And despite that, we were able to achieve the highest EBITDA margin, as I mentioned before. But remember that we have very different approach from other companies, which makes it easier for us.

Speaker 2

We are not acquiring customers. We are acquiring users and over time converting them and that it helps us a lot like delivering those results. Lindsay?

Speaker 3

Hey, Andrew. It's Lindsay. So as far as the revenue composition goes, this quarter, you're right, AOV was up around 6%. Most of our revenue growth was driven by orders. Return rate was a little bit better on a year over year basis as well.

Speaker 3

We don't plan our business for AOV versus order. And so it's not possible for me to give you kind of the equation going forward. We focus really on revenue versus our acquisition dollars. It's really more of a ROAS metric. There are different factors that can affect our AOV and as a result, we're really not solving for it.

Speaker 3

For example, the types of new products or the types of products overall, which may have lower price points, but makes sense from a contribution margin perspective. For example, they might have better repeat. Repeat itself is a lower AOV category for us. So that can be a drag overall. But what we have seen over the last few years is that we're seeing higher AOV in both first order and repeat, and it's been in a large part a function of people just adding more items to their basket, more items to their order.

Speaker 3

And we're able to do that, number 1, just as our models get better at recommending, doing a better job in things like upsells and bundles. But also because we have a broader product portfolio now today, there's more things for her to find and we know how to show them to her and to drive that conversion. So that's been a really important driver for us on both first order and repeat. And then of course, the positive mix of skin is also a nice driver, but we're not committed to continuous improvement on AOV as an ongoing driver of revenue. It's just not how we run the business.

Operator

Thank you. We'll hear a question now from Mark Mahaney at Evercore. Your line is open, sir.

Speaker 8

Two questions, please. Can you just talk about what are the biggest governors or factors that determine the launch times for Brands 34? Is it product readiness? Is it go to market plan readiness? Like what determines for you that it's why they're launched in the second half of twenty twenty five versus the first half of twenty twenty five?

Speaker 8

And then just your current business, could you talk about are there any regions, geographical regions of strength or weakness embedded in that question? Any signs of consumer discretionary spend softness? Thank you very much.

Speaker 2

Sure. So I will take the first question and Lindsay you can talk about the second one. Look, in terms of Brand 3 and Brand 4, first of all, of course, the teams are building those brands. It takes time, especially Brand 3. It's product development.

Speaker 2

It's the app. It's technology, it's vision technology, it's so many things that we need to like to build in order to be ready. And therefore, we committed to H2 and not to H1. 3 or 4 ready, I wouldn't launch it because I don't need the growth. And 3 or 4 ready, I wouldn't launch it because I don't need the growth.

Speaker 2

We are committed to our model. We want to build the business at the right pace. 20% growth is already like 3x than my incumbent, and there is no reason to go faster than that. We want to make sure that our customers are happy that we are doing things properly. So now the plan, we will be ready for both brands in H2 next year and we will launch it when we think it's the right moment.

Speaker 3

Mark, can you repeat that second question?

Operator

With apologies, ma'am, he's been returned to the conference. Mr. Mahaney, would you please re queue, sir?

Speaker 3

Ron, did you catch it? I didn't hear it.

Speaker 2

Yes. I think it was asking regarding like weakness in like in specific geographies or in general in the U. S?

Speaker 6

Okay.

Speaker 2

Great. And any softness that we've seen in our platform?

Speaker 3

Sorry, Mark, if you want to queue back and re ask again, but I'll answer that question. Mr. Mahaney, I apologize. Your line is

Operator

open, sir.

Speaker 8

No, Arun, you got my question right. Any regions of strength or weakness to call out and any signs of consumer softness? Thank you.

Speaker 3

We're not seeing it. I know a lot of other of our competitors in the category and of course other pockets of consumers are seeing this kind of weakness, but we simply are not. In fact, we're seeing a lot of broad based strength in both of our brands and different product categories. So, Eran talked about the strength in skin, which again is a higher price point item, but also our color business continued to be very strong Il Makiage and Spoiled Child is growing very, very well. We also we have a very broad demographic.

Speaker 3

So we have an older customer and a younger customer and we have a suburban customer and a city customer and we're really geographically across the U. S. Very, very well represented. I think we're the wrong place to hunt candidly just because we're so small in a very, very large market and we're an idiosyncratic growth story as we're gaining a whole lot of market share, because we're operating in a wide open channel, which is we think the most important channel for the consumer for the future. So no, we haven't seen any evidence, any indication of it at this time.

Operator

And that was the final question from our audience today. Mr. Holtzman, I'm happy to turn it back to you sir for any additional or closing remarks.

Speaker 2

No. Thank you very much guys for joining us and see you next quarter. Have a good day.

Operator

Ladies and gentlemen, this does conclude today's teleconference We thank you all for your participation. You may now disconnect your lines.

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Earnings Conference Call
Oddity Tech Q2 2024
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