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Oddity Tech (ODD) Q3 2023 Earnings Call Transcript

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Oddity Tech (ODD 5.31%)
Q3 2023 Earnings Call
Oct 03, 2023, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to ODDITY’s preliminary third quarter 2023 results 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 call over to Maria [Inaudible] investor relations for ODDITY. Thank you.

You may begin.

Unknown speaker

Thank you, operator. I’m joined by Oran Holtzman, ODDITY co-founder and CEO; and Lindsay Drucker Mann, ODDITY’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 ODDITY’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. These factors are described under forward-looking statements in our preliminary earnings press release issued yesterday and in our prospectus filed with the Securities and Exchange Commission on July 18, 2023. 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.

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Additional information about these non-GAAP financial measures, including their definitions, are included in our preliminary earnings press release, which we issued yesterday. I will now hand the call over to Oran.

Oran HoltzmanCo-Founder and Chief Executive Officer

Thank you, everyone, for joining us today. We are excited to share certain preliminary third quarter results today, which we expect to beat our guidance issued in August on net revenues and gross margin and beat the midpoint of our guidance on adjusted EBITDA margin. Based on these preliminary estimates, revenue is growing faster, gross margins are higher, and adjusted EBITDA is better than we expected. This is despite our real effort to pace our growth and slow down, as we historically have done in H2.

With this record-breaking quarter, we expect to deliver net revenue growth of at least 58% and adjusted EBITDA of $89 million for the first nine months of the year. We are scaling at a speed that beats legacy incumbents, but also the majority of internet and consumer companies, and with profit margins and cash flows that we have not seen in other direct-to-consumer companies. Our expected outstanding financial performance reflects the strength of our model, the power of our technology-based platform, the health of our brands, and the massive runway we have ahead of us. Our business continues to fire on all cylinders.

Our large investments in technology and data capabilities over the past five years are enabling us to continue to grow fast without damaging our high margins and our profitability. At my company, we don’t just sit and hope that growth will happen. We make it happen. And we do it every single day with strong planning, strict discipline, hard work, innovation, and by taking big swings to enable long-term growth, which we are fully committed to.

This mindset and discipline have led to our record-breaking success so far, and it is what we believe position us for compounding success in 2024 and beyond. As we speak, our teams are hard at work building the growth engines that we expect will power us for many years to come, driving our current brands, IL MAKIAGE and SpoiledChild, both with what we think are enormous runways ahead of them. Both are still very young, with a ton of growth potential to unlock. But we also spend our time on building our future brands.

We believe our business is very well positioned for future growth, with multiple powerful drivers. First, we operate in a massive and growing global TAM, with a wide range of product categories and pain points for us to go after. We focus on areas that our over 40 million users crave and where our data shows huge potential demand, where there is a consumer pain point that we believe is not solved today by other brands, and within the economics that can work online. Second, we are the market leader in the online channel, which is still super underdeveloped relative to its potential.

Online today represents around 25% of the total market, but we expect it to be 50% in the next coming years. We don’t need to convince anyone on this call that internet and online is the future of our industry. But if some of you want a similar proof point, take a look at China, where online is already huge. But although it is crystal clear for me that this is where we go as an industry, I believe that my competitors are still behind and underinvested in technology.

In my view, we are five to 10 years ahead of them, with a wide open playing field to press our advantage and continue to lead the market. Third, the ODDITY platform is a proven brand scaling machine, and we believe there is a massive runway ahead. Our platform capabilities have allowed us to grow faster and more profitably than other direct-to-consumer businesses. It’s why SpoiledChild is, to the best of our knowledge, the most successful B2C brand launch in its combined scale and profitability.

We proved with SpoiledChild that we have the ability to do it again. And it’s a matter of time until we have more brands in our portfolio and platform. We have the user base of over 40 million users, the data of over 1 billion data points. We have the technology, algorithms, and tech team that truly drive the future.

And we have the unmatched product development engine with our biotech lab in Boston. It is easier for us today than it was three years ago. I want to spend a few minutes talking about our technology muscle. We have invested early and aggressively in technology since our inception.

Our tech team represents over 40% of our talent, and we expect it to remain 40% for the foreseeable future as we continue to invest in new capabilities to drive us forward. It’s important to remember that although [Inaudible] technology was never the goal. It was the means to win in an underpenetrated category, to give the best online experience to our user while we hypergrowth a healthy business with strong profitability. When we say technology internally, we refer to three primary areas: artificial intelligence, computer vision, and biotech.

Starting with AI, we use machine learning models across a wide range of use cases that support the user. This model is integrated into everything, from our marketing engines to our product recommendation engines that give the user a precise match to the user experience itself with hundreds of online funnels. AI was our breakthrough in B2C for beauty. Instead of forcing the customer to decide on a product, our machine learning models decide for the consumer.

Instead of relying on rule-based algorithms to determine the user experience, we use machine learning models to deliver an optimal outcome that we have achieved with high conversion and high satisfaction. We have machine learning models in almost every part of the user journey. Those machines are responsible for high user satisfaction, which leads to high repeat rates that drive our strong profitability and high growth. Without it, we would never be able to print these results.

Without it, we are just in another unprofitable B2C company. Moving on to our computer vision technology, a capability we established with the acquisition of Voyage 81 in 2021. Our vision team includes some of the world’s most talented vision scientists, mostly coming from the Israel Defense Forces, including the Voyage 81 team, the joint audit team, to build out our vision capabilities. When we originally developed our product matching technology, we decided to start with basing our algorithms on data we collect from users, massive data.

And after basing our AI on over a ton of data points, we then added computer vision technology to provide another dimension of information, which allow us to rapidly expand our capabilities with lower amount of data needed for our machine learning models. We believe we are just scratching the surface of how vision can drive our business forward, with an expansive road map plan for the next three years. For the past 18 months, we invested a lot in using our vision technology for our third brand, which is a medical-grade skin and body brand plan to be launched in 2025. That technology area is around science-backed products using AI and biotech to simply develop better physical products.

It has always been my dream to leverage the power of technology to really deliver a proprietary and science-backed product for our users. I have been hunting it for years. And with the Revela acquisition, their team, and their technology, we are finally unleashing this power. Revela’s founding team pioneered advanced biotechnology methods, including artificial intelligence-based molecule discovery, to develop ingredients that can transform the beauty and wellness market.

The team is taking this same technique that are widely used today in the pharma industry and unleashing them in our category to deliver groundbreaking ingredients to solve real consumer pain points. We plan to launch 10 products under IL MAKIAGE and SpoiledChild brands in 2024 with ODDITY LABS molecules. And we believe ODDITY LABS molecule will account for at least 30% of our business in five years. The Revela integration and expansion of ODDITY LABS is progressing even faster than with what I expected.

We are attracting an incredible level of talents, scientists, and entrepreneurs as we are moving to transform the industry. ODDITY LABS will be one of our main growth engines for all brands. We firmly believe the road map and pipeline is strong, and we are truly building something that has never done before. You don’t see its contribution in our current earnings today, just expenses, but I’m more bullish than ever about its future.

It’s the same feeling I had when we started develop the early technology team in Tel Aviv. So, this is a quick overview of the technology. Moving to the brand. Our commitment to building brand equity powerhouses that consumer love is core to our business.

Technology is not enough. At the end of the day, we ship product with brand stories. And the numbers don’t lie. The success and scale of both IL MAKIAGE and SpoiledChild in such a short period of time, we believe, is unprecedented and reflects the brands’ strength.

Let’s start from IL MAKIAGE, a brand that grew online from zero to over $200 million in revenue in less than five years, and we are building it to be a $1 billion-plus brand within the next five years. IL MAKIAGE is already, based to our knowledge, is the fastest-growing online beauty brand in the U.S., yet we haven’t grown anywhere near as much as we think we could have. We believe the $1 billion mark is very achievable for the brand, and I’ll share why. First, in our color cosmetic business, we are very small fraction of the overall market size, with a significant runway to take further share.

We continue to have done this since we launched five years ago and think there is much more room to run, especially as the consumer continues to shift online. Second is category extension for IL MAKIAGE. We already started with skin and proved we can do it. We spent the last two years building a solid base for IL MAKIAGE Skin to scale quietly in market testing skin in response to the strong demand from our users and product.

And we have built a profitable winners across products, including moisturizers, serums, and exfoliator. IL MAKIAGE Skin is already bigger than 80% or 90% of online B2C skin brands in the U.S. in terms of revenue. And we have just started.

Third, international is an enormous opportunity where we already have a lot of success in geographic expansion. As you know, our competitors generate two-third of the — or more of the business outside of the U.S. For us, in IL MAKIAGE, international is less than 30%. We have already proven our model work well overseas.

We believe we are No. 1 or No. 2 largest online beauty brands in many countries we have launched in, including the U.K., Germany, Canada, and Australia, with growing and profitable business in each of these markets that we believe have a lot of room to continue growing. In the medium term, based on our extensive testing and infrastructure build-out, we think we have a good line of sight to expand profitably into new markets.

Our second brand, SpoiledChild, has been an amazing success. We believe it’s the most successful B2C brand launch across any vertical of all time in revenue, and it’s already profitable this year in year two. We built SpoiledChild to address the strong demand from our users for next-generation wellness brand that truly solves their pain points. SpoiledChild is scaling even faster than IL MAKIAGE did, beating, again and again, all my internal projections, with success in both hair and skin, huge categories.

We are building engines we believe will drive SpoiledChild toward $1 billion of revenue and beyond, and I’ll explain how. One, similar to IL MAKIAGE, we have thoughtfully held back growth in this brand, which you can see based on more than 50% of its sales coming from repeat, despite being only a year-old brand with hypergrowth. New categories are in development. We are already winning in both skin and hair, which set us up well for additional extensions.

And lastly, international for SpoiledChild is zero. We are still 100% U.S. And although my team is begging me to expand to other countries, we didn’t. There is still so much growth available for us for SpoiledChild in the U.S.

before even considering moving forward to new geographies. Again, discipline is everything for me. I recently hired a CEO for the brand. I was waiting to get to $100 million gross revenue run rate.

And once we hit it, we felt confident to hand it to strong hands. Gil Efrati is one of the most talented leaders out there for online businesses, and it’s already building new capabilities to add to SpoiledChild’s strong base. In both brands, we invest heavily in product development, in marketing, and in consumer experience to drive strong affinity and repeat. And it shows, more than half of our revenue come from repeat customers.

And this is true for both IL MAKIAGE and SpoiledChild. There is nothing that better reflects product efficacy and brand love than repeat rate. The rest is dire presentations and baseless data. Beyond reflecting brand affinity, the large repeat rate is an outcome of us holding our growth back.

In any given year, we could have grown 50% to 100% more than what we did. But we are disciplined about growth. We leave a lot of growth on the table for the future, and we are building a machine that we believe will compound sustainably and durably over the long term. In all my years as CEO of the company, I didn’t have one month that I felt that we saw our limits.

Not even close. My strategy is to always have the ability to double and never push our limits. In this way, I feel good sitting with my teams and investors and telling them the future is bright with zero concerns. Some people say I’m crazy.

Grow as much as you can, Oran. But this is my way to be able to sleep a few hours at night. Looking to the future, we will continue to add brands to our platform where we see large TAM, huge pain points coming from our user base, and where economics can support strong profitability and returns on capital. We have two future brands already in development that we plan to launch in 2025, and we are incredibly bullish on their opportunity.

I touched briefly earlier on Brand 3, a medical-grade skin and body brand that will include a mix of OTC and prescription products. I believe Brand 3 will transform the dermatology and skin market with revolutionary skin diagnostic powered by computer vision tools with a UI that drives a far superior experience than what is possible in a doctor’s office or any physical store environment and with high-performing science-backed products launch out of ODDITY LABS that solve a wide range of skin and body concerns. As for Brand 4, stay tuned. We’ll have more to say in the future, but it’s heavily under development.

Now, let me hand it over to Lindsay.

Lindsay Drucker MannGlobal Chief Financial Officer

Thanks, Oran. We’re thrilled with the strong business performance in the third quarter, which is expected to exceed the guidance we provided back in August on net revenues and gross margin and is expected to deliver at the top end of adjusted EBITDA margin guidance. We’re entering the fourth quarter with great momentum and are poised to deliver a strong finish to the year. We now expect third quarter net revenue to grow between 29% and 31% year over year, ahead of the 18% to 23% initial guidance.

The upside is driven by better growth across both brands and importantly came with good quality and profitability. Ultimately, it proved harder to slow the business down than we originally modeled based on strong repeat revenue. We expect third quarter gross margin to be 68.5%, which is approximately 100 basis points better than the 67.5% initial guidance we gave for the quarter. The gross margin upside was driven by better cost efficiency at both brands, which have benefited from specific cost optimization efforts relative to the prior year.

68.5% gross margin represents a 40-basis-point improvement from the third quarter of the prior year, driven by gross margin expansion at both IL MAKIAGE and SpoiledChild, offset by negative margin mix from higher SpoiledChild contributions to sales. While SpoiledChild has made good progress in narrowing the gross margin gap relative to IL MAKIAGE, we will see some negative gross margin shift as it becomes a larger proportion of overall sales. We expect third quarter adjusted EBITDA margin will be in a range of 21% to 21.5%, at the top end of the initial 20% to 21.5% guidance we gave for the quarter. The EBITDA margin upside was driven by our stronger gross margin performance, and we continue to deliver great efficiency on our marketing and other opex spending.

This preliminary range represents around 1,200-basis-point improvement year over year for the quarter despite a higher contribution from SpoiledChild, which carries a lower EBITDA margin than IL MAKIAGE today. This year-over-year improvement is driven largely by better efficiency in our marketing spending as we throttled back acquisition spend and benefited from very strong repeat sales. This was offset by increased investment to drive future brands and products, as well as investment in ODDITY LABS. We exited the quarter with approximately 160 million of cash and zero debt.

Our balance sheet strength is a function of our robust profitability and excellent returns on capital, which yield attractive cash flows at high cash conversion. We’re not providing any updated guidance on the fourth quarter or full year at this time, but we do plan to update our outlook in November when we formally report our third quarter results. Turning to the macro backdrop, as it relates to the consumer broadly, there is no indication in our business of a shift or a softening, whether as a result of constrained credit, higher energy prices, or other factors. We’re just not seeing it.

We also believe our model is relatively insulated from the macro because of our idiosyncratic growth drivers and the inherent agility in our go-to-market, as well as our attractive category exposure and broad demographic appeal. Although we are, of course, watching closely. One note about the complexion of our P&L. We believe we are delivering growth and profitability at a level that outstrips the majority of internet and B2C businesses out there.

And we are delivering this even as we’re actively restraining our growth, which, as Oran said, is the right discipline to ensure sustained durability and compounding in our model for many years. Not only are we actively holding back on the top line, but we’re also restraining profitability. And we’re doing this by investing today’s margin upside against the business opportunities you see for tomorrow. Our base business wants to be more profitable than we’re letting it, a function of our high repeat rates, IL MAKIAGE’s excellent margin profile, and SpoiledChild’s fast ramp up the profitability curve in only its second year post-launch.

But with the size of our TAM and the sheer scope of opportunity in front of us, we believe these investments in new brands, products, and capabilities create a virtuous cycle of profitable growth at high returns that will compound value for us for many years to come. With that said, looking to the future, we remain committed to our long-term plan to sustain revenue growth of at least 20% and EBITDA margins of at least 20%. This is an algorithm we have strong confidence in our ability to consistently achieve and one that we will strive to exceed. With that, I’ll hand the call back to Oran.

Oran HoltzmanCo-Founder and Chief Executive Officer

Operator, we are now ready to take your questions.

Questions & Answers:

Operator

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator instructions] Our first question comes from the line of Andrew Boone with JMP Securities. Please proceed with your question.

Andrew BooneJMP Securities — Analyst

Good morning and thanks so much for taking my questions. Oran, I wanted to start with a big-picture question that we frequently get from investors, but just help us understand the operational benefits of slowing down the business. I understood the improved revenue visibility, but what do you guys gain from an operating standpoint by slowing down the business? And then for my second question, Lindsay, it sounded like you guys are choosing to invest more back into the business. Can you guys talk about whether there’s any acceleration that we should expect from Brand 3 and Brand 4 or ODDITY LABS as you guys are choosing to reinvest back in the business versus the 2025 timetable? Thanks so much.

Oran HoltzmanCo-Founder and Chief Executive Officer

Thank you, Andrew. Look, guys, I know you’re not used to this from other companies, but the same that I strongly did also in ’23, I was pacing ODDITY’s revenue growth in H2. This is the right thing to do to create a healthy long-term business. And having said that, no one can tell me that growing 58% in the first nine months of this year is slow, especially while we are generating over 20% of adjusted EBITDA margin.

2023 is our best year ever, beating 2022 in all parameters. In terms of revenue, we grew 58% in the first nine months, compared to 52% in the first nine months of 2022. And we are trending to grow by more than 50% in 2023, compared to 46% growth in 2022, with much higher revenue base. Just to put in perspective, in the first nine months of 2023, Estee Lauder expect to decline 6% and L’Oreal expect to grow only 9%.

Second is the repeat rate. 2023 net repeat rate revenue is tracking to be our highest ever. And we didn’t have any like expectation to have such strong numbers in this year. New user acquisition efficiency is trending to be our best ever in 2023, beating 2022, while we are growing like crazy this year.

Again, 58%. And as for profitability, adjusted EBITDA margin, 20%-plus, almost doubling 2022 EBITDA margin of 12%. So, yes, we are growing. We slow down in H2, like we always did.

I just said it on the call. Like, for me, I want to feel in every moment that we have the runway. I want to feel in every moment that I can double. That’s my way to sit with you now and to sit investors and feel very confident about what we are building.

If I grow 20% or 15%, I could say that it’s low, but 58%, it’s a very good — it’s a very strong growth rate with a very strong runway. If we could — could we have done 100%? Probably, yes. But why?

Lindsay Drucker MannGlobal Chief Financial Officer

Great. And, Andrew, on your second question, so there’s a couple — so as we talked about, we exceeded our revenue forecast for the quarter. The upside was really high quality. It was across both brands.

It was a function of the better repeat performance in part. As you know, ultimately, we got stronger repeat than we expected. And as a result, that has attractive flowthrough to profitability. This has a couple of benefits for us and supports our ability to drive long-term growth.

Number one, it gives us the opportunity to, as you mentioned, redeploy that revenue upside against the many initiatives we see that will allow us to drive growth for the long term. So, we have tons of areas that we can invest given the large TAM and expansive opportunity we — that we see in the future. So, that’s new products, new brands, new capabilities, again, to allow us to support long-term growth. In terms of acceleration, Brand 3 is still on track for 2025.

Brand 4 is still on track for 2025. But we have the benefit of incremental investment to ensure our success. And as Oran said, as we’ve been slowing the business down at this part of the year, the teams have been very hard at work stacking a number of growth engines for 2024, 2025, and beyond, and that includes things that we’re working on for our new brands.

Andrew BooneJMP Securities — Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Youssef Squali with Truist Securities. Please proceed with your question.

Youssef SqualiTruist Securities — Analyst

Great. Thank you very much. And congrats, guys, on a strong quarter out of the gate. So, can you talk a little bit about the momentum in the business as you exited Q3 and entering Q4? Obviously, you’re tracking at a higher kind of cadence than we had expected and that you had expected.

How sustainable is that cadence going into year-end considering that Q4 is typically your slowest? And then, Lindsay, maybe can you talk about the cost efficiencies and just how much more can you take out just as you kind of ramp up the revenues and maybe how much higher could gross margins get over time? Thank you.

Lindsay Drucker MannGlobal Chief Financial Officer

Great. Thanks, Youssef. So, yeah, exiting the third quarter of our business and entering the fourth quarter, we’re very pleased by what we’re seeing in our business really across the board, across brands, across product categories, across markets. We weren’t initially planning when we spoke with you guys in mid-August and we gave our update following the second quarter.

Obviously, since then, we’ve exceeded our guidance. So, we’re pleased to see the tone of the business. As we mentioned, we’re not updating 4Q or full year guidance at this time, but we’ll talk to you in about a month, and we’ll give you an update then. And then in terms of cost efficiency, look, we’re always — as an organization and, in particular, as it relates to new product initiatives, new brand initiatives, we really don’t focus on the cost side at first, on the cost of goods side at first.

We want to make sure we’ve got the right products, the right consumer proposition, the right acquisition engines, the right price points. All of those things have lined up appropriately. And then from there, we can back-solve and deliver more cost efficiencies. In the case of SpoiledChild, in its first year last year, we were not efficient at all on the cost side.

We were, for example, air freighting a ton of product to make sure that we had the right inventory, and we were really getting our legs underneath us. This year, we made some progress shipping away to improve the cost efficiency of that brand more than we had expected, candidly, when we delivered our initial outlook. And I would say for IL MAKIAGE, also, we haven’t been extraordinarily focused on cost of goods efficiency there. That’s something, over time, that we believe we can get better at.

We had some initiatives that we put into place this year around really blocking and tackling type of stuff that we’re just doing better from a supply chain, from a logistics standpoint. And so, those things came into play to benefit us. I think we’re not looking for any material gross margin improvement as we think about what’s in store for us next year. In fact, you know, SpoiledChild still operates at a lower gross margin versus IL MAKIAGE, so that becomes a bigger portion of our mix.

That’s a — that’s something that we’ll need to offset, but we feel very good about the level of our gross margins today and how that translates. Ultimately, most importantly, we really think about this on a total unit economics perspective. So, we’re working toward EBITDA margins, and we’re feeling really great about how both IL MAKIAGE and SpoiledChild are set up for that for the long term.

Youssef SqualiTruist Securities — Analyst

Great. Thanks, Lindsay.

Operator

Thank you. Our next question comes from the line of Scott Schoenhaus with KeyBanc Capital Markets. Please proceed with your question.

Steve DechertKeyBanc Capital Markets — Analyst

Hi. This is Steve Dechert on for Scott. How should we think about the product and technology stack you mentioned in your release to drive growth in the next year and in — sorry, and beyond?

Oran HoltzmanCo-Founder and Chief Executive Officer

Can you repeat the question, please? Sorry.

Steve DechertKeyBanc Capital Markets — Analyst

How should we think about the product and technology stack you mentioned in your release to drive growth into next year and beyond?

Oran HoltzmanCo-Founder and Chief Executive Officer

Yes. So, look, we are — as for — first of all, we start with ODDITY LABS. We are thrilled with the integration of Revela and the progress at ODDITY LABS, which is coming together even faster than I hope. It is not easy integration.

It’s not easy to add so many scientists to a consumer company, but we did it in a very short period of time. ODDITY LABS is a core part of ODDITY in the future, and the progress is outperforming our expectations based on three things: number one, the molecule road map itself is bigger and stronger than what we believe can be done; number two, the speed at which the team is progressing is even faster; and number three, the talent that we are able to attract is unprecedented to our industry, very strong talent, already close to 20 people in our lab in Boston mostly. Ph.D.s coming from best labs. As it relates to the road map itself, like the areas that we are hunting, have — like the following criteria, always huge, big pain points we see coming from our users.

And where science — like that we see the science allow the success. For example, in Brand 3, we are working on new and proprietary ingredients that solve a number of skin issues and body issues for a population that is currently underserved. This is just one example. Other than that, we have — in the physical product side, we have two very strong departments in IL MAKIAGE and SpoiledChild.

If in the past we were working on first developing product and then trying to find the audience, today we work vice versa. We have the user base, we are listening to them, we are building segments on those user base, then we go back to the teams, they develop the products, and then we launch it back to the user. That’s why it’s so efficient and that’s why — and with the B2C model, it allows us to test and test before launching with high success rate. Tech product side, again, that’s what we do.

We need to make sure that we — like the technology can allow us, first of all, to match new products and new categories that we are launching. So, machine learning is a big part of that. In addition, in every like part of the journey, we are trying to improve the product, the tech products, and that’s why it’s the largest team in the company. Overall, both tech and science product, that’s like — that’s the core of the business and that’s the core of them — like that should be the main driver for the future in terms of growth with very decent margins.

Steve DechertKeyBanc Capital Markets — Analyst

That’s great. Thank you.

Operator

Thank you. [Operator instructions] Our next question comes from the line of Lauren Lieberman with Barclays. Please proceed with your question.

Lauren LiebermanBarclays — Analyst

Thanks. Good morning. First thing I wanted to ask about was just as you’ve walked through plans to launch 10 new products — or 10 products in 2024 with the new molecules from ODDITY LABS, anything you can share with us on how you are planning on marketing these products? Any kind of new or different approach. Something that might go broader than your typical targeting online.

Because I think it’s a very interesting inflection point where the quality, dare I say it, but, you know, the differentiation of the product set seems like it’s about to change. I was curious if your marketing approach will change at all along with that. Thanks.

Oran HoltzmanCo-Founder and Chief Executive Officer

Yeah. Thank you, Lauren. Look, you know, it was always my dream before, like, before — acquiring the Revela before, launching ODDITY LABS. We are working like the rest of the industry.

Very strong product teams in both IL MAKIAGE and SpoiledChild. Massive testing before launching. But in the end of the day, we use the same ingredients like the rest of the industry. My dream was to add technology around physical products.

I think that we met dozens of start-ups in Tel Aviv and in Boston before closing the deal with Revela. And like the idea was that, you know, today, we have so much data around users and about their pain points and what works and doesn’t work. But, you know, at the end of the day, when you use the same molecules and the same ingredients, it makes it very tough to create something better. So, what we are doing with them now, you know, all three founders came from drug discovery and cancer and decided to use their background and knowledge of an AI-based molecule discovery in beauty.

And it was my missing part of the puzzle. We built a machine that has the ability to collect the data from millions of users. We build a technology that makes beauty work online. We just needed a strong engine for science-based product based on data we collect.

And this is ODDITY LABS. In terms of how we market it, that’s — like that’s the magic. Like since it’s coming from user base with the data, we just need to go back to the segments and marketing the product. That’s what makes this model so strong.

It just — we just need to add more scientists and extend ODDITY LABS like we already do today. And that’s why like — that’s why I believe it’s a massive part of our future. As for next year, 10 new molecules coming from ODDITY LABS, again, after so much testing. You know, when you work with scientists, they want to test in lab.

We want to test also with consumer. And we are running very extensive testing, and it looks very promising.

Lauren LiebermanBarclays — Analyst

I mean, I guess the root of the question is that while, for sure, you are not in need of growth, to say the least, right? We’ve talked several times how you intentionally slow down the business. But I think what’s interesting also is to think about expanding the user base or expanding your reach when the product quality changes as it’s set to. So, that’s kind of what I’m getting at or maybe that’s something you don’t need to think about for a long time. But it feels like there’s an even bigger market out there when the product quality steps up as it’s about to.

Oran HoltzmanCo-Founder and Chief Executive Officer

Yeah. It’s a great question. Like, you have two ways to expand and to grow. Number one is to extend your user base.

And number two is to just to offer and to extend your product line to the same user base. We are doing both. In H2, by the way, we acquire — like acquire less users than I think that we ever had before because we didn’t need more growth, but it doesn’t mean that I don’t want to use the user base to launch more products for them, just because it doesn’t — like there is no cost for that, just the cost of development. So, we do both.

If we need to grow more, we’ll continue to acquire more users specifically and primarily for those pain points. But if not, we continue to work hard just launching new products to the same user base. Like two ways to grow, basically.

Lauren LiebermanBarclays — Analyst

Yeah. OK. And do you think about at what point you start adding more infrastructure, whether it’s, you know, probably people, you know, but be able to — you’re already managing the growth very well that you have obviously. But yeah, I mean, get to a point where let’s say word of mouth on these products is stronger than you anticipate, do you need to add resources internally to manage that even higher level of sales growth, right? Rather than you controlling, if you will, the level of sales growth that it kind of accelerates beyond intention, do you have the infrastructure you need to handle that?

Oran HoltzmanCo-Founder and Chief Executive Officer

So, first of all, it’s a good problem to have. And I hope that we will have this problem for a long time. Look, the way that we run the business, each brand has its own CEO, its own leadership team. By the way, Brand 3 already has its own CEO that work with Revela team, for example, on new molecules for Brand 3.

So, we try like to run it very independently in terms of brands just to ensure that we have a strong infrastructure for growth for each and every brand. As for ODDITY LABS, like I’m overseeing personally with our chief science officer, the founder of Revela. I talk to them almost every day. I’m very involved in what they do.

And we built it to allow like high scale, and like I think that we know how to do it.

Lindsay Drucker MannGlobal Chief Financial Officer

Lauren, I’ll just jump in. The model, I think, is what you’re alluding to has built in a lot of leverage. And number one, that’s one of the beauties about being a technology-based company, is that it gives us the opportunity to scale without a lot of incremental cost per se. One of the ways that you can see that actually play out is in SpoiledChild itself, right? It achieved profitability in about a year.

It’s going to be a nice profit contributor to us this year. And I think as you look across like typically to see any new brand launch that has scaled this materially and this profitably, it doesn’t exist. And as you look at some of the large sort of legacy analog CPG platforms, every time you launch a new brand, well, first of all, they struggle to launch or grow anything organically, but you have to spend the same amount to reacquire the same customer every single time versus us. We have this user base of over 40 million where we’re just going deeper and deeper with low incremental costs, which delivers high margin.

That being said, as we’ve talked about, the model that we’ve committed to sustaining over the foreseeable future at this 20%-plus revenue, 20%-plus EBITDA margins, that has embedded in it a lot of reinvestment for the future. But you could see our individual brands operating at a level that’s far more profitable just based on the inherent leverage in the model.

Lauren LiebermanBarclays — Analyst

OK. That’s great. Thank you guys so much. I appreciate it.

Operator

Thank you. Our next question is a follow-up from the line of Youssef Squali with Truist Securities. Please proceed with your question.

Youssef SqualiTruist Securities — Analyst

Oh, thanks. Great. Thanks for taking the follow-on call — question. So, one question we’ve been getting from clients is around billings and some customer reviews, I guess, on certain sites like Better Business Bureau, etc.

There are a number of kind of unhappy customers. But it seems like it has more to do with billings and people may be charged wrongly than, you know, the quality of the product. That’s something that’s clearly very important that we haven’t seen, so — which is great. But can you maybe just address what the issues there are, if there are any issues at scale.

Maybe there aren’t. But if you can just address this topic, it would be really helpful. Thank you.

Oran HoltzmanCo-Founder and Chief Executive Officer

Yeah. Thank you, Youssef. First and foremost, it’s important to understand the magnitude of the claim, and we are talking about a fraction of a percent. We are running online only at a huge scale, millions of orders every month, 100% B2C.

This means millions of customers to whom we are shipping physical products globally. Even if it’s 0.01% of all customers, say 10 out of 100,000 customers have an issue because, you know, of our insane volume, the absolute number like of complain, we can see like it’s very low. Any online company that operates even close to our sales will experience this. Like there will always be a certain percentage who are unhappy and issues with their address shipping or just got confused with for some reason.

But our customers are happy. We track it every day. Like this is my job, to make sure that our customers are happy because if they’re not happy, you don’t have repeat rating. If you don’t have repeat, you don’t have a profitable business.

So, I stand by 100%, we have very strong customer reviews. Not only that, if you look at like other third-party review like Trustpilot or Google Reviews or even DDB itself, you will see tens of thousands of reviews that have average of 4.5 stars. And again, with this scale, it’s very tough. There are two areas where we see a bit more issues.

Obviously, we work hard with technology because everything that we built around auto-replenishment and about payments we built like internally. But specific to auto-replenishment, I’m not aware of any other large online company who is more transparent than us and request like every single customer to actively opt in. Again, unlike most auto-replenishment models out there in both IL MAKIAGE and SpoiledChild, the default is a one-time purchase and not auto-subscription or auto-replenishment, rather opt out during your one-time purchase. This is a huge difference.

And if I cared less about user satisfaction and happiness, I would have changed it and made the business even more profitable — way more profitable. But of course, I’m not planning to do it. And specific to billing, for a small portion of our customers, there can be confusion with pre-authorization on their cards, which is the same thing that you can get when you order Uber. It mostly relates to our Try Before You Buy program, which, again, we do for the better shopping experience, and it costs us in the margins.

But we believe that in some beauty product it is essential. Now, you know, I don’t think that it makes sense to cancel this massive customer benefit because a super small fraction of users who didn’t fully read off like how it works and were confused. We’ll continue to work hard to educate those users, and we have invested a lot in technology around it. And again, we built funnels and we built like machine models to try to — like to better predict who is going to get more confused, and we are trying to change the messages for them.

Again, we work out around it, but I say it and I feel 100% sure about it, our customers are happy. Otherwise, we would never have this repeat rate.

Youssef SqualiTruist Securities — Analyst

Yeah. It makes sense. Thanks a lot, Oran.

Oran HoltzmanCo-Founder and Chief Executive Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I’ll turn the floor back to Mr. Holtzman for any final comments.

Oran HoltzmanCo-Founder and Chief Executive Officer

No. Thank you very much, guys, for joining us today. Looking forward to speak to you soon in our Q3 report.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Unknown speaker

Oran HoltzmanCo-Founder and Chief Executive Officer

Lindsay Drucker MannGlobal Chief Financial Officer

Andrew BooneJMP Securities — Analyst

Youssef SqualiTruist Securities — Analyst

Steve DechertKeyBanc Capital Markets — Analyst

Lauren LiebermanBarclays — Analyst

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