Oddity Tech Ltd (ODD) Q3 2026 Earnings Call Transcript

Welcome to Oddity's third 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 conference over to Maria LaCouris, Investor Relations for Oddity. Thank you. You may begin.

Thank you, Operator. I'm joined by Aron Holtzman, Oddity's co-founder and CEO, and Lindsay Druckerman, 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 Audity's business strategy, market opportunity, new product, branding category launches, and related regulatory developments, 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 20F, 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. Unless otherwise stated, references to revenue refer to net revenue. I will now hand the call over to Aron.

Thanks, everyone, for joining our call today. We need to continue to make progress stabilizing our business and positioning for growth in 2027. Third quarter financial results exceeded the top end of our guidance on revenue and adjusted EBITDA. Revenue pressure improved significantly from the first half. We are raising our revenue and adjusted EBITDA outlook for 2026. Polchard had an excellent Q3 and is on track to grow at least 35% for the year, approaching $350 million of revenue, a huge milestone for a brand that launched less than five years ago, and we believe it has a lot of runway ahead. Methodik is off to a strong start and is on track to beat Spoilschart's first-year revenue. We have exciting expansion plans for 2027, including new products and categories that we believe can be meaningful growth drivers. And we made progress at Ilmakiyaj, and we remain hopeful that we are on path to normalization. Taking a step back, our long-term ambitions for ODT have not changed. Our goal is to build one of the biggest beauty and wellness companies in the world. We have a strong foundation for it, starting with our direct relationship with 70 million users, which allows us to identify big demand opportunities and scale into them fast. We have continued investing in growth drivers like Oddity Labs, new brands, and technology, and we built out new muscles to expand our scope. In the past five years, we transformed from a single brand into three brands and soon four, and from the beauty category, we added skincare, healthcare, and dermatology. Next year, we plan to add longevity, metabolic health, and more we have not yet announced. Turning to our third quarter results, starting with Spoilchild, which grew strong double digits in the third quarter and continued the trend into the fourth quarter. As I said, it is on track to grow at least 35% for the year. The success of Spoilchild is a proof point of the ODT platform. Countless other beauty companies tried and failed to add new brands organically or scale into new categories without M&A. We did with Spoilchild in less than five years, leveraging our user base, our technology, and our brand scaling machine. It's a repeatable playbook that we believe gets better with time, and we are running it again with Methodic, with Brand 4, and beyond. More to come for spoilers, with strong momentum exiting in 2026, excellent repeat rates, and an exciting product lineup for 2027. Moving on to Methodic, which is off to a strong start in its first year since launch. Our success so far, including high customer satisfaction and retention rates, combined with powerful secular trends in the medical grade space, makes us bullish on Methodic's potential. Our plan is to expand into more medical grade products and categories across 2027, where we see large reversible markets with meaningful demand. As the first step into longevity and metabolic health, we plan to offer prescription injectable therapies, including NAB+, semoralin, and others, prescribed by licensed providers and fulfilled through our U.S.-based licensed pharmacy partners. From there, we plan to launch six additional peptide therapies covered by the Enforcement Discretion Policy published by HHS last month. We've been preparing for this opportunity for a long time. We spent the last several years building out our infrastructure online clinical intake, transparent national pharmacy fulfillment, and licensed provider networks, and are now in a strong position to expand from here. We believe the market potential for peptides and therapies across longevity, metabolic health, recovery, and cognition function is highly attractive, and Methodik is well positioned to win. With Audit's platform and financial muscle, Methodic's success in Dermatology RX and the provider networks, pharmacy infrastructure and supply chain already in place, we believe we can be the leading offering. This is just the beginning of Methodic, more categories and products to come. Moving to E-Makiyaj, we continue to work extremely hard with our largest advertising partner to solve the algorithm dislocation. And while we are not there yet, we remain very hopeful that due to the substantial resource this ad partner is allocating to fix it, combined with our 24-7 efforts, we will be successful. Turning to Oddity Labs. Three years ago, we founded our Frontier Biotech Club in Boston to bring capabilities like artificial intelligence and digital biology, the same tools that pharma uses for drug discovery, into the beauty and wellness, and do it at high scale. With hard work and investment, we've built a strong machine and a pipeline of proprietary molecules that we believe can deliver groundbreaking solutions for consumers. In anti-aging, we are working on molecules that increase collagen, elastin, and NAD+, in the skin. We believe the early reads from in vitro and ex vivo testing and for focus groups are really promising. We also have projects in air growth, and we continue to build on our success in hyperpigmentation, acne, and eczema. Looking for the future, our focus is returning audited to growth in 2027, including growth for ill-maquillage. The industry backdrop remains attractive, with large, profitable, and sexually growing markets that we believe are ripe for this option. And we continue to be bullish on our strategic focus areas, including the consumer shift online and the demand for high-efficacy products. The success for both Spoil Child and Methodic shows the power of our platform, with three distinct brands today, each with the potential to achieve billion-dollar revenue. On the product side, our slate of launches plans for 2027 across all brands is the most exciting we have ever had. Brand 4 is planned to be ready for launch in 2027 with more details of timing as we get closer. Lastly, we are continuing to explore new distribution where it makes sense. I'll share more when it's relevant. With that, I will hand it over to Lindsay.

Thanks, Aran. Let's turn to our Q3 results, which I'll refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Net revenue declined 2% versus the prior year to $145 million. This is better than our outlook for net revenue to decline approximately 5% and a substantial sequential improvement for the 25% net revenue decline we reported in the second quarter. The sequential improvement was driven in part by improved trend in repeat orders, which stabilized in the third quarter versus the prior year. More than 80% of oddity net revenue in the third quarter was from repeat sales, representing a large majority of our revenue base in the period. First-order net revenue declined by approximately high teens year over year. Il Maquillage first-order revenue declined sharply due to the ongoing impact of the ad account dislocation with its largest advertising partner. This was partially offset by increased first-order revenue at Spoiled Child and at Methodic. AOV declined approximately mid-single digits during the quarter. The AOV reduction was driven in part by mix. Spoiled Child revenue increased strong double digits during the quarter versus the prior year. Methodic revenue continues to build sequentially. The brand is on track to beat Spoiled Child's first-year revenue performance. Gross margin was 67.4% in the quarter compared to 71.6% in the prior year. The compression versus the prior year was driven in part by the decline in AOV. We delivered adjusted EBITDA of $22 million ahead of our outlook for adjusted EBITDA of $18 to $20 million. The decline versus the prior year was driven in part by the Il Makiage account dislocation. We continue to be disciplined on operating expenses while maintaining investment in critical growth areas like Oddity Labs, Methodic, Brand 4, and our tech infrastructure. We believe these growth investments will be drivers of value creation for us in the future. Moving down the P&L, adjusted diluted earnings per share was $0.37 for the quarter compared to $0.40 in the prior year, on a diluted share count approximately 23% lower year-over-year following our share repurchases. Free cash flow was $10 million in the quarter, bringing free cash flow for the first nine months of the year to approximately $3 million. Inventory ended the quarter at $158 million. As we discussed last quarter, Il Makiage continues to work through excess inventory from purchase commitments made in anticipation of stronger revenue, and we plan to be in better inventory balance in 2027. We also continue to invest in inventory to support growth at Spoiled Child and at Methodic. 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 remains undrawn. Turning to capital return, in the first nine months of the year, we repurchased 11.7 million shares for $163 million, which reduced our ordinary shares outstanding by approximately 20% year-to-date. Approximately $86 million remains outstanding on our $200 million buyback authorization. Approximately $550 million of our zero-coupon 2030 exchangeable notes remain outstanding following the $50 million of face value we repurchased in June. We will continue to be opportunistic in managing our capital structure in order to drive shareholder value going forward. Turning to our full-year outlook, we're raising our guidance for full-year net revenue and now expect a decline of approximately 18.5%. And we're raising our guidance for full-year adjusted EBITDA to be between $32 and $34 million. And with that, I'll turn the call back to the operator for questions.

Thank you. We will now be conducting a question and answer session. We ask that you please limit yourself to one question. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Scott Schoenhaus with KeyBank Capital Markets. Please proceed with your question.

Hi, team. Thanks for taking my question. Aran, it sounds like you have a lot of opportunity and optimism around the new product launches that you mentioned in 27. Maybe help us understand why you chose these products, where you see the opportunity, how you defined it within your current population. Usually you see traction or are able to test things with the current population or at least have a leading indicator of where they're, of how they're thinking about new products. And just walk us through how you decided on these opportunities for 27 for product launches. Thanks.

Sure. So when we defer to product launches, it's with all three brands. We have around eight new products, very promising for Spoiled Child, at least five, six products for ill-maquillage that we worked for the past three years to build. And of course, we have Methodic. We launched Methodic with 30 products, and now we have a very promising roadmap for 2027 for Methodic, including peptides for the first time. The category itself is in early stage with a lot of growth potential based on what we believe, and we think we can emerge as one of the main winners there. Thanks to, number one, all the advantages that auditory platform has, like the user base, the data, the tech, and our track record of unlocking categories for online. This is a new category, and we're waiting for a long time, and we believe we can be very successful. Number two is in this category, consumer confidence is very important for selling and conversion, and we've seen clearly in our internal studies that there is demand. Methodic is in very well position here already with proven track record in dermatology Rx, with brand identity and highest quality partners. And number three, because we already have the infrastructure to do it, if you remember back then, I told you that we built Methodic not just for skin, and we had lots of ambitions there to expand it to other Rx domains. Peptides is one of them, and with the recent HHS approval, it made it very easy for us to expand and toward that direction, and we are very pleased for that.

Okay, Aron, and then my follow-up is, you know, il-maquillage is improving here sequentially, and yet you still haven't fully resolved the issue with your advertising partner. Maybe walk us through how you're able to improve these trends, what you're doing outside of this fix on the advertising side that allows you to see the sequential improvement in il-maquillage. Thank you.

So we work really hard on fixing the problem, and those things require lots of tests and iterations. We work extremely close to our advertising partner. I'm doing it personally every day, many hours every day. Those things are never easy to solve, especially because it's algorithm learning stuff. But we do a lot there. In addition, we work on other channels. We work extremely hard to launch new products that may help us redirect the algorithm to the right place.

Again, it's at least 60-70% of my day, and my days are long.

Our next question is from Dara Musanian with Morgan Stanley. Please proceed with your question.

Hey, good morning. So, first, I just had a clarity question. You clearly beat Q3 guidance. You'd actually reported fairly late in calendar Q3, the actual Q2 results. So I'm guessing the end of the quarter was pretty solidly above what you expected. But Q4, the implied guidance today looks relatively in line with what you implied previously. So I just wanted to better understand where the business came in better than expected in Q3, what that sort of implies for Q4 and beyond as we look forward. You know, maybe there's some conservatism baked in for Q4, but just trying to understand that. And then just second, clearly you're not guiding to 27 today. But just conceptually, Lindsay, given the volatility we've seen this year, can you just touch on some of the key puts and takes you'd be thinking about ahead of time for 27? And maybe within that, given the growth that's been so strong on Spoiled Child this year, maybe you can give us a bit of a review on what's driving the strength there and the plans for 27. Thanks.

I would just start by saying that we are not providing guidance for 2027, but our goal is to return to growth, and we hope to deliver that growth with all our brands, including in Makiage. We work extremely hard together, still have time, and that's what we do. Regarding the first question, maybe, Lindsay, you can reply.

Yeah, thanks. Hi, Dara. So when we guided Q3, I would say the quarter came generally as we planned. As you mentioned, we spoke to you guys in early September, so we had a few weeks left. Spoiled Child has been a really nice positive driver so that, you know, it has been coming in better than we planned and Methodic also scaling really nicely. So those were positives. When we set our guidance, just given the current dynamic where so much of our effort and dollar spend and focus is on resetting the algorithm for ill maquillage, there is naturally some volatility that comes into, you know, the return on ad spend and the ad spend itself. You know, it's not like a normal year for us. And that's why, you know, we wanted to embed enough room. I would call it conservatism, but more I would call it room for us to move and do the right thing for the reset. And that's also what you're seeing in the fourth quarter. As you mentioned, this is as we planned based on the last time we spoke to you. And again, allows us to focus on fixing the business, you know, for the long term, but causes the near term volatility. So what I would add to Oran in terms of 27, absolutely. Like he mentioned, our plan to bring the business back to growth for all our brands. I would just make sure it's clear that that will require investment from us in order to drive the first orders, which will drive the repeat and get our flywheel going again. So too early for us to talk specifically about 2027, but those are the two key drivers.

Our next question is from Brian Tanquillet with Jefferies. Please proceed with your question.

Hey, good morning. Maybe just to double-click on Il Makiage, how did CPA change quarter over quarter, year over year in Q3? Anything you can talk about your progress with your ad partner as we think about how much of that expected 40% to 60% recovery you've said in the past with CPA increase for the partner's This side has already been realized. Thank you.

Sure. Listen, it's very volatile because we are in a mode of testing and iterations on a daily basis. For example, September was the best CPA that we had since 2025, but it's very volatile, so October wasn't that good. We are here to fix the problem and not just to improve it slightly. So we are making big changes on a daily basis on our ad accounts. Everything is in full collaboration with our ad partner. We are not doing any change on the ad account without their sign-off.

And that's it.

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

Hi. Good morning. Thank you so much for the question. I was wondering if you could talk a little bit more about how Q4 is tracking so far with ill maquillage, and if you see any uplift typically from the holiday season, or is this less impactful to ill maquillage and your other brands as well? And then I know you're not commenting fully on 2027, but if you could just give us a little bit more color on how you're expecting sequential improvement post-Q4, especially on ill maquillage in light of the algorithm changes that you've been adjusting to. Thank you.

Yeah, and I would just say, again, Q4 is tracking as planned, and our primary focus right now is on doing everything that needs to be done to remedy the account dislocation. So, normal selling activity is not something that we're focused on right now. It's truly on fixing the algorithm and putting us in a position to return to growth next year.

Our next question is from Javier Escalante from Evercore ISI. Please proceed with your question.

Good morning, everyone. Good reconnecting with you both. I have kind of like a more, you know, long horizon question. So how do you see a maquillage role within ODT's portfolio and evolution of the different business models? Full chart is coming better than you planned, which is great, but wellness and beauty have different competitive sets, consumer and retail dynamics. So is it el maquillage, vertical, needed for a scale, learning, some kind of like boot camp given the category? Related to that, how do you see whether to keep a maquillage primarily D2C or broaden distribution, say, through Amazon, where I believe the brand already sells, and where you can advertise and converge within the same environment? Thank you.

Hi, Javier. How are you, man?

Thanks for the question. And so...

The answer is we work extremely hard to make sure that Il Makiage is back to growth. We believe the problem that we have now is a technical problem with algorithm. We don't think it has nothing to do with softness in color or with anything related to our brand. Yes, Ilma Kiyaj is down, but we knew it from the beginning of the year, and we worked extremely hard to fix it. Ilma Kiyaj has a very strong brand equity, high customer satisfaction from millions of customers based on very high product quality. We don't see anything that signals that we have any brand damage or anything regarding the category itself. So, yes, 4HR is growing better than expected. We are very pleased. Methodic is doing great. But Ilma Kiyaj needs to go back to growth, and that's what I do day and night. Regarding Amazon, we are still 100% D2C, and when we have something to announce on that front, we will.

Our next question is from Brian Smilak with J.P. Morgan. Please proceed with your question.

Great. Thanks for taking the questions. I'm just curious, as we look into Q&A to 2027, can you just help me think about the go-to-market strategy across advertising more broadly? Totally appreciate continuing to work with the current ad partner, but do you see other services and channels more broadly where you can spend to get greater returns overall from an LTV to CAC perspective? And then, you know, I would say as well, too, from a peptides perspective, can you just help me understand the potential investments needed there from a sales and marketing side to build brand awareness?

Thanks.

So I think, number one, what we've said before is that this advertising partner is the main place where, for our categories, you see direct-to-consumer activity happening. So while we have been able to diversify somewhat and we continue to look for other ways to diversify, this is…

This is more than 50%. This ad partner is responsible for more than 50% of our category. I would say way more. So we need to fix the issue with that ad partner.

Yeah. And our go-to-market with peptides is similar to what we're doing now with, I would say, very similar to what we're doing now already with Methodic and with Spoiled Child. And as we have said before, the upfront investment and acquisition is a bit higher versus what our current-based business looks like, but the paybacks are really attractive. And so we'll be very thoughtful in understanding what those cohorts look like as we put acquisition dollars to work there. But as everyone said, like very attractive category for us, not just peptides, but many other things that we are looking to do in Methodic, which follow our typical, when we look for areas of expansion, very big markets where there's a real pain point to solve, and the unit economics work well for online. So that's our filter.

I would just add that we're not spending any dollar against any product or any category that is not highly profitable on a 12-month basis. So even if the investment is higher, for example, for pipeline in the beginning, if the payback will not be materially better than other categories, we will not spend money against it.

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

Thanks so much for taking the questions. I wanted to go to gross profit margins. Lindsay, with inventory elevated, can you unpack the gross profit margin that was in 3Q26 and then any expectations as you guys may have declared inventory looking forward? And then going back Back to the peptide question. As we think about inventory, sorry, infrastructure that you guys have built out to be able to support that business, what's done today? And then what are the key steps that you guys need to do as we think about that business ramping in 2027? And how should we think about the timing of those steps being completed? Thank you.

Okay, I'll start on gross margin. So, we've had gross margin pressure all year, which is... In large part, been driven by AOV. As I mentioned, AOV was down around mid-single digits, and the AOV decline is driven in part by the fact that we've got a big reduction in our first orders, and first order AOV is higher than repeat order AOV. And so you're seeing that impact gross margin. As we get to next year, we expect that these headwinds will be behind – we hope that these headwinds will be behind us, at least the worst of the first order declines. And so you should see better behavior out of gross margin, but it's too early for us to give any real guidance. But in terms of that dynamic, we expect that will be behind us. We feel comfortable with the inventory dynamics now. As I mentioned, maquillage is a bit heavy, but thankfully we have low obsolescence for our inventory based on the categories that we operate in, and we think that we can work through a lot of that as revenue picks up.

As for peptides and the new categories for Methodic, as I mentioned, we already set the infrastructure in place, and we are ready to play, including compounding pharmacies and telehealth providers. We built it for SkinRx, and we are ready to

go with the rest of the categories.

Our next question is from Ryan McDonald with Needham & Co. Please proceed with your question.

Thanks for taking my questions. Maybe on peptides, maybe twofold. So first, the peptide opportunity with the six sort of approved peptides from HHS and the PCAT committee is creating sort of a unique market dynamic in that the category is essentially opening up all at once for the entire industry. And so I guess from an investment perspective in marketing and go-to-market, you have to maybe break your traditional mold of marketing approach and invest heavier on sales and marketing up front, given there are so many e-commerce and telehealth vendors going after the same opportunity pretty quickly in early 27. And then as we think about peptides growing as a mix of the revenue stream next year, I would imagine this is a positive impact on AOVs, but how are you thinking about sort of the movement into peptides on the impact of balance between sort of volume growth versus AOV growth as we think about next year? Thanks.

Sure. So I view it differently. I think that the fact that it's new, it's easier for us to compete. Yes, the market is being open now, but the fact that we are already ready to go, I don't like, yes, few players are also in the same position as us, but we believe that the potential is huge, and we believe we can be very competitive there. As for, yes, higher AOV and higher CAC, but as I mentioned before, if it doesn't look very compelling in terms of repeat and cohorts, we are not going to spend money against it. It's still very early to know because we didn't start. It was just approved, but in very few months, we will have a read, but overall, we are very optimistic.

Our next question is from Lauren Lieberman with Barclays. Please proceed with your question.

Great. Thanks so much. I wanted to just catch up a little bit on Spoiled Child, so it continued to have super strong growth. But when I take a look at kind of just my best proxy for, like, leading products, looking at reviews on the Spoiled Child website, it still seems to be, like, really, really heavily weighted toward the liquid collagen drink. So just curious, from your own advertising and algorithm perspective, how much you're emphasizing the drink versus looking to diversify sales across the rest of the portfolio? Thanks.

We are spending dollars, again, not only against call again, but also around other products. And we have, as I mentioned, many new products coming in the next two, three months. And in terms of why Ambit is so successful so far, it's intense execution of our playbook, leveraging our data, user-based technology platform to drive acquisition and profitable repeat. That's what we do. We've done before with El Makiage. We're doing it now with Spoiled Child. Yes, it grew faster than we thought, but we believe Spolcher is positioned in a very attractive category in wellness where the demand only grows, especially now with the growth of GLP-1. We view it as a tailwind, and we see it in numbers.

Our next question is from Yusuf Squally with Truist Securities. Please proceed with your question.

Hey, good morning. This is Nick Cronin on for Yusuf. Thanks for taking the question. I just wanted to ask on Methodic's customer base, what proportion of that is NetNude as an Audit platform versus existing IAM or SE customers, and how are you thinking about cross-selling across the three bands, both introducing Methodic to existing customers and bringing Methodic customers into your beauty brands? And then as a follow-up, just how are you thinking about the growth opportunity you had in international? I know that was quite an area focused in the past that maybe took a step back this year. So is that something that we should start focusing on again, maybe in FY27? Thanks.

As for methodic users, the easiest thing for us at the get-go was to squeeze our user base from Ilmaquillage and Spoiled Child, but we deliberately acquire methodic customers on their own merits so we can read the brand's real potential. Cross-sell for Ilmaquillage and Spoiled Child is an upside that we are starting to see, but not the base itself. Second question was international. My focus is to fix North America for ill maquillage and to continue to grow Spoiled Child in the US. It's still very early, so upside for International Spoiled Child exists. As for ill maquillage, we need to fix first the US market and then to continue to grow international.

Our last question is from Bonnie Herzog with Goldman Sachs.

Please proceed with your question. All right. Thank you. Good morning. Oran, you mentioned a number of new things you're working on. So could you share with us how you'll prioritize and time the rollout of innovation, including investments required to roll them out? And then will the innovations be phased throughout, you know, next year or more 1-H weighted? Finally, I guess, how concerned are you about potential execution risk as you roll out or step up innovation while you're still trying to, I guess, return ill maquillage to growth? Thanks.

Hey, Bonnie, I'll take that one. I think as an organization, as a company, number one, we're always focused on planning one, two, and three years forward in terms of what our brands will be doing from a product innovation standpoint, and then also on the tech side, what kinds of new tech products we'll be working on. And because we have a very strong culture of tests and fail fast and bury losers quickly and big swings, it's a nice muscle in terms of, you know, identifying innovation that will work, testing it out first before we actually put significant dollars to work in scaling it. On the product innovation side, we've said before, as an organization, we really do believe in product. And as an online business, that's super important in terms of driving LTV and repeat. And so we're very focused on our product innovation slate to always be bringing products out there that, number one, address big markets with large pain points where the unit economics work for online, but number two, where our innovation itself beats out what else is on the market. and can drive a truly differentiated outcome for the consumer. So we have that as a big muscle in the company, and that's something that we are excited to bring about in 2027. Obviously, this was a more challenging year, specifically for Il Makiage, where some of the things we've been working on were on hold, but we hope that we'll be in a great position to play offense next year.

We have reached the end of the question and answer session. I would like to turn the floor back over to Aron Holtzman for closing comments.

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

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