ODDITY Tech Stock

Good morning and welcome to ODDITY's Second Quarter 2026 Earnings Call. Today's call is being recorded and we have allotted time for prepared remarks and Q&A. At this time, I would like to turn the conference over to Maria Lycouris, Investor Relations for ODDITY. Thank you. You may begin.

Thank you, Operator. I am joined by Oran Holtzman, ODDITY's Co-founder and CEO, and Lindsay Drucker Mann, 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 ODDITY's business strategy, market opportunity, 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 20-F filed with the Securities and Exchange Commission on March 17, 2026. We do not undertake any obligation to provide any information on the form and 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. I will now hand the call over to Oran.

Thank you, everyone, for joining our call today. While we continue to work through the ad account dislocation at IL MAKIAGE, I am pleased to report progress in our business that hopefully positions us for recovery in 2027 and beyond. SpoiledChild had a good quarter and a strong year to date, 2026 overall, and it is on track to grow at least 35 percent this year and approach $350 million of net revenue in 2026. METHODIQ is showing great promise after launching only several months ago. We expect the brand to deliver first-year revenue ahead of SpoiledChild's first year and with huge potential for the future. Both SpoiledChild and METHODIQ are building ambitious plans for 2027, and we will update you in coming months. For IL MAKIAGE, we continue to work extremely hard with our main ad partner to solve the algorithm dislocation and remain hopeful that we are on path to normalization. We worked day and night to solve the algorithm dislocation, and we continue to believe, based on data that we see, that it is technical in nature, solvable, and has nothing to do with the brand runway. Big picture, we remain bullish on ODDITY's future despite our recent customer acquisition cost challenges. We are working tirelessly to strengthen our business, move past the dislocation, and return to playing offense in what we see is one of the most attractive markets in the world. Beauty and wellness has long been a large, resilient, and highly profitable growth market. We see the category in an exciting period of transformation today, with consumer demand for channel and product creating major shifts. Putting the current technical problem we face aside, we believe we are positioning our business to win in this moment and lead the next phase of growth. With over 70 million users on our direct consumer platform, we believe we have a clearer view than others on where the demand is and how to best serve the customer. Consumers are smarter than ever before. They have more information ready at their fingertips, and they demand more from their products, more efficacy, more personalization. The appetite for beauty and medicine is converging as a result. Consumers want real solutions to their pain points from the inside out. They are taking control into their own hands. A lot of that is happening online outside of regional channels like store or medical office. ODDITY's portfolio of trusted brands today is built to serve consumers across a full range of needs, spanning categories, and product types. From beauty to wellness to medical grade, from cosmetics to OTC to prescription products, the goal is to reduce friction and deliver unmatched experience, best-in-class products, and precise treatment protocols that truly solve consumer problems and pain points. Let us look at hyperpigmentation as an example of how our integrated platform works and how we are building a moat with vision technology, personalized treatment regimens, and ODDITY Labs. Hyperpigmentation is a big success story for METHODIQ, showing higher customer satisfaction and retention signals, which is the best indicator for us that we are onto something great. Our plans for this market began with ODDITY's user data which showed us how much demand our user had for addressing dark spots and uneven skin tone, and also how unhappy they were with the current solution. With this insight, we made a deliberate push into app implementation and delivered something better. We built one of a kind user experience at METHODIQ, which includes computer vision assessment that identifies dark spots on the skin, the relevant data analysis are then passed to a METHODIQ provider who issues a personalized treatment plan aimed at maximizing efficacy and minimizing side effects. It might be prescription or non-prescription or both and can involve sequencing different products across several months to optimize for the best outcome. The entire experience is designed to mimic and improve upon a high-touch experience at the doctor's office, but with incredible convenience. One of METHODIQ's hyperpigmentation hero products is Mellan-X 509 powered by an ODDITY 1007 ODDITY Labs spotted molecule combination. It targets visible discoloration of the skin with reduced side effects. This is just the beginning of what we think ODDITY Labs can do in hyperpigmentation. We have additional molecules in development, and we are making good progress finding new pathways that we believe will help us tackle hyperpigmentation from multiple angles at once. This is just an example of how ODDITY's integrated platform is meeting unmet demand, and we are just at the beginning. The strong start of METHODIQ has increased our conviction in the medical-grade space. We are acquiring a more determined customer with attractive LTVs and good cross-sector characteristics. Acquisition costs are higher as compared to makeup, but we believe the AOV retention, as a result, expected paybacks justify the cost. Consumers are increasingly comfortable getting medical care online and looking to brands like METHODIQ for innovation and upgrading offerings to meet their needs. We are positioning METHODIQ to be a leader in this backdrop and launching new categories and products across 2027. This will build on our infrastructure of prescription and pharmacy fulfillment to better serve existing customers and also reach new audiences. The opportunity set is large and we are moving quickly. We plan to have more updates on this expansion in the coming months. Turning to SpoiledChild, we launched SpoiledChild around 4.5 years ago as a multi-category wellness brand. It has scaled faster than our expectation and is on track to approach $350 million of net revenue in 2026, which will put it more than a year ahead of the time it took IL MAKIAGE to hit that milestone. SpoiledChild continues to deliver very strong customer service cohorts metrics like AOV and repeated scale. 12 months net revenue repeat rates for the brand are well in excess of 100 percent today. As we said in prior calls, we believe SpoiledChild is being impacted by the algorithm dislocation issues IL MAKIAGE is facing, but to a lesser degree, and this has allowed us to continue scaling the brand. We are hopeful that as we work through the acquisition cost challenges with IL MAKIAGE, we will then be able to deliver efficiencies also for SpoiledChild. The strong consumer metrics we see in SpoiledChild give us confidence in the brand's future potential. We plan to continue to invest in the base direct-to-consumer business while heading new growth levers in 2027. Moving to IL MAKIAGE, where we continue to work on resolving our account dislocation with our largest advertising partner and returning to normalized audience and CPA. We continue to work very closely with this ad partner to fix the problem, and while we are not there yet, every day that passes is helping us get to fixing the issue. We and the ad partner are in intensive testing mode, and those tests are very important for solving the algorithm dislocation. Looking ahead on ODDITY level, we are hopeful the worst is behind us. As our guidance indicates, we have seen sequential improvement in the rate of the year-over-year revenue decline at ODDITY, and we expect third quarter net revenue will decline approximately 5 percent year-over-year. While ODDITY's revenue decline was severely impacted by the algorithm's dislocation, we are seeing relatively stable trends in other parts of the business that are less correlated to the acquisition spend. We continue to work hard on other advertising channels as well. Our goal for 2027 is for IL MAKIAGE to return to growth. We have an amazing pipeline of new products ready to support the brand once acquisition costs recover. We continue to work 24/7 until this technical problem is fixed. We remain hopeful that the amount of resources and time we spend on it will lead to a resolution like any other big problem we faced since I started the business 14 years ago. Full power, non-stop hard work until fixing the problem, no other way. With that, I will hand it over to Lindsay. Thank you.

Thanks, Oran. Let us turn to our second quarter results, which I will refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Net revenue declined 25 percent versus the prior year to $181 million at the favorable end of our guidance for net revenue to decline between 25 percent and 30 percent. The decline was driven by a year-over-year reduction in sales of IL MAKIAGE, which continues to be adversely impacted by a dislocation in its ad account with its largest advertising partner. This dislocation continues to impact IL MAKIAGE's ability to reach the right audience and is driving sharply higher CPA, impacting acquisition revenue, most notably in first orders, but also in the portion of repeat orders that are sensitive to acquisition spend. For example, existing customers that see an ad and are motivated to buy again. We are also now seeing the compounding impact of lost repeat sales that would have naturally flowed through from customers making first order purchases early in the year. Specifically, ODDITY net revenue from first orders declined approximately 40 percent in the second quarter versus the prior year, driven by IL MAKIAGE. Net revenue from repeat orders declined approximately 20 percent in the quarter from the prior year period. AOV declined by approximately 8 percent in the second quarter versus the prior year, largely driven by a decline in IL MAKIAGE AOV. The decline in IL MAKIAGE AOV was driven by the above-mentioned reduction in first orders, which carry higher AOV than repeat. It was additionally impacted by product mix shift away from IL MAKIAGE skin. Gross margin was 68.7 percent in the quarter compared to 72.3 percent in the prior year. Gross margin compressed approximately 360 basis points year over year, driven in part by the decline in AOV. We delivered adjusted EBITDA of $13 million ahead of our outlook for adjusted EBITDA of $8 million to $10 million. The year over year decline versus the prior year was largely driven by the IL MAKIAGE algorithm dislocation, which has two primary impacts on our P&L. First, significantly higher CPA versus the prior year. Second, the decline in revenue and resulting deleverage on our fixed costs. Adjusted EBITDA was also negatively impacted by our decision to ramp acquisition spend for SpoiledChild in support of faster revenue growth, where our upfront investments support attractive 12-month contribution margins. Operating expense as discussed on prior calls, our approach is to balance sustained growth investments with finding cost efficiencies to support the bottom line. This has translated into continued investments in areas like ODDITY Labs and our technology infrastructure, with some greater filtering and prioritization around projects where we see nearer-term payback potential. We remain bullish about the potential for ODDITY Labs to provide real differentiation in product efficacy and experience with many applications in our portfolio, and the hyperpigmentation example from Oran is just one area. We also continue to invest in areas like aging, where our molecules have shown early in vitro promise in increasing collagen synthesis and reducing aging markers. Moving down the P&L, adjusted diluted earnings per share was $0.20 for the quarter. Free cash flow increased by $14 million in the quarter and decreased by $8 million in the first half of the year. Our inventory investments year-to-date include purchase commitments made last year in anticipation of much stronger revenue results for IL MAKIAGE, as well as inventory purchase to support growth in SpoiledChild and METHODIQ. IL MAKIAGE today continues to work through excess inventory, and we plan to be in better balance in 2027. 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 remain undrawn. During the quarter, we continued to act on what we believe is an attractive price for our shares. We repurchased 5.6 million shares in the period for $80 million. This brings our total year-to-date repurchase amount to 11.7 million shares for $163 million, which reduced our ordinary shares outstanding by approximately 20 percent. Approximately $87 million remains outstanding on our $200 million buyback authorization. Separately, in March, 857,000 shares were removed from our public float to Oran Holtzman's open market purchases. In June, we repurchased $50 million face value of our 0 percent June 2030 exchangeable notes at a discounted price of $35 million. We will continue to be opportunistic in managing our capital structure in order to drive shareholder value. Turning to our outlook, for the third quarter, we expect net revenue to decline approximately 5 percent year-over-year, a meaningful sequential improvement versus the first half as we believe the worst of the acquisition-driven revenue pressure is behind us. We expect adjusted EBITDA to be between $18 million and $20 million. For the full year, we expect net revenue to decline approximately 19 percent year-over-year, driven by the decline in net revenue in first half and we expect adjusted EBITDA will be between $30 million and $32 million. And with that, I will turn the call back to the Operator for questions.

[Operator Instructions] Our first question is from Dara Mohsenian with Morgan Stanley. Please proceed.

Oran, it sounds like you feel comfortable we are moving towards solving the ad dislocation issue here in 2026. Just if we assume the problems are resolved by year end, any thoughts around ability to grow the IL MAKIAGE brand in 2027? Should we anticipate a more normalized environment, typical revenue growth year based on the normalized factors behind the brand, or does some of this issue potentially linger, compound in '27? And then second, just SpoiledChild continues to grow at a strong pace. You mentioned you are ramping up spending for the brand. Can you just touch on international plans for that brand over time, line of sight to making a broader international push in your decision process there now that the brand has scaled so nicely?

Yes, good morning. We believe that once we solve the problem, we plan to continue to go back to growth with IL MAKIAGE. We have amazing products in the pipeline. We are not there yet. We did not solve it yet. But we believe that we are closer than before because from all the data that we see so far in terms of the root cause of what happened, it looks like there is an audience drift from the algorithm, and we are trying to retrain it. Once it is behind us, we are back to growth. As I mentioned, we have an amazing plan that we did not execute because of this problem and they are ready to play. As for SpoiledChild, SpoiledChild showed great demand, and as you can see by the numbers, we continue to expand it internationally. And that is it. We have amazing more than 8 products and categories for next year for SpoiledChild, so we are very bullish.

Our next question is from Brian Tanquilut with Jefferies. Please proceed.

Lindsay, as I think about the EBITDA guidance, how do we think about your assumptions on number one, the seasonality? Because typically I think fourth quarter is up sequentially in revenue versus third quarter. So curious what is driving that. And then when we think about repeat revenue rates versus historical trend, I mean, what is that assumption? Or maybe even versus what we saw in the first half of the year, what is that assumption embedded in the balance sheet?

Thanks. As we think about the sequential dynamic and the seasonality of the business, there is really no broad strokes change to how we think about the business. The first half of the year tends to be stronger for us for acquisition, and then we allow revenue to flow through in the second half. Obviously, this is a unique year because so much of our acquisition activity was, you know, that moment of time was spent towards testing. So the seasonality for this year will be a little bit different, and it is too soon for us to tell you what seasonality will look like on a go-forward basis. As it relates to repeat trends, continue to be very strong as a company level. We remain well in excess of 100 percent net revenue repeat rate over 12 months. And despite some of the challenges with IL MAKIAGE, we do continue to see strong repeat flow through, which is, you know, part of why we are expecting the sequential improvement in the second half of the year relative to the first half of the year. And in addition, we get very strong repeat from SpoiledChild.

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

I was wondering if you could elaborate a little bit more on any learnings that you had from this process as you went through the remediation and anything where you have learned about your business model a bit more, about how much more resilient, flexible, anything that might need to change going forward now that you went through this process. Thanks.

Yes, first of all, we learned a lot. The past few months were very intense in terms of media buying world. I must say that we thought that we know a lot, but now after those months, we are very deep in the details and learning every day better how those algorithms work. We increased our efforts both to fix the problem, but to make the business more resilient moving forward, including more distribution and more channels. We have nothing yet to announce, but once we have, we will. We believe that the key of the business is data, and in order to continue to have that ability, we need to remain focused. A big portion of the business must remain D2C. That is our strength, and we need to continue to work with those ad partners. By the way, the way that we work now with the ad partner and their commitment and like it is unbelievable. We are very happy for that, and we trust their team to help us navigate and solve this problem. And that is it. So we continue to work on both fixing the problem and distribution and channels.

I will just add one more thing. You can see the resiliency of our model today in the fact that we have a lot of great things to talk about with respect to SpoiledChild and METHODIQ, even though we do navigate these challenges with IL MAKIAGE. So relative to when we first came public or even started building the business, we have way more brands, categories, and products for the business to rely on than in the past, and that will continue to grow.

Our next question is from Youssef Squali with Truist Securities. Please proceed.

Lindsay, your annual revenue growth guide for negative 19 percent implies fourth quarter growth, I think, of negative 10 percent to 11 percent, which is quite a deterioration from the negative 5 percent you are guiding to for third quarter. So what accounts for that deterioration? Is it just conservatism and lack of visibility, or are you seeing something in third quarter that is not sustainable necessarily? Thank you. And then on the other revenue line, it was up 8 percent. That was a bit of a surprise. I know it is small, but what were the drivers for that and how sustainable is it?

Thanks, Youssef. So on revenue, we are for third quarter guiding to a 20-percentage-point sequential improvement relative to where we were in second quarter in the first half of the year, and that is because we believe the worst of the acquisition-driven dislocation is behind us. We are seeing the benefit of more repeat in our base business in the first half of the year, and also SpoiledChild has been strong. As it relates to the fourth quarter, we want to be conservative since we do not know yet how we want to allocate our spending budget, how much goes towards testing, for example, which is inefficient for revenue generation, so we are leaving some room for the fourth quarter pace to slow, third quarter. I would note this is a real outlook for us. There is a lot of unknowns still, as opposed to a sandbagging story, but that is generally the approach here. Other is Israel, and that market has been volatile, as you know, given some of the dynamics with the war there and our store base there.

Okay. Got it. Thank you.

Our next question is from Scott Schoenhaus with KeyBank Capital Markets. Please proceed.

Traditionally, I thought of your business model as IL MAKIAGE funneling in new customers to support growth in SpoiledChild. But clearly, you are seeing a lot of growth without that. Can you talk to us about your marketing strategy here in customer acquisitions? How that is changed since the disruption with SpoiledChild. And then on METHODIQ, could you talk more about the investments needed here and maybe what you are planning on for the 2027 selling season here with these new products you talked about, pigmenting hyperpigmentation, but also clearly going into more acute areas. Maybe talk to us what kind of investments you need and what kind of growth you are targeting. Thanks.

Sure, I will start with SpoiledChild. We see and we saw great demand, despite the fact that we believe that this dislocation is having some impact but less a degree than IL MAKIAGE. Even so, we are still generating nice returns on the spend and have been able to scale materially. As for METHODIQ, we launched it less than 1 year ago. We are very happy from the beginning of the brand, from how it started. We expect the brand to deliver higher revenue than SpoiledChild did in its first year, although SpoiledChild was unbelievably strong in its first year. We launched with 30 products with a great range of products for medical-grade makeup to specialized prescription protocols. One thing that surprised us out of the gate is our ability to drive demand for both personalized prescription and non-prescription products and treatment plans. For example, METHODIQ's hero product is hyperpigmentation with a series of prescription and non-prescription products. And the non-prescription product is ODDITY Labs, which is very encouraging for us. Looking forward, we have a consistent framework for the category expansion, big markets where we see meaningful demand, and where we can see that we can win. One category we are particularly excited about for next year is longevity and metabolic health. As a first step, we plan to deliver legally available prescription injectable and peptide therapies, and we are very bullish about that. That is it. We spent more than 3 years on building that growth engine, and we are very bullish about its potential.

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

Guys. Thanks so much for taking the question. It sounds like you have SpoiledChild and METHODIQ that are both doing well. Can we just step back and think about the progression of the business beyond this near-term marketing hiccup? How do we think about what you guys are doing for Brand Four? And then can you just talk about AI's progress within ODDITY Labs? Understood that is a step function change in terms of molecule development. What are you guys seeing there and how do we think about the benefits of just new technology and the evolution of molecules and how that is related to the business? Thank you.

Brand Four. So we continue to grow both.

The first one was on the evolution of our growth trajectory post, as we go forward, now that SpoiledChild and the --.

SpoiledChild and METHODIQ. SpoiledChild, as I mentioned, has an amazing pipeline ready to launch for next year in new categories. And Brand Four, we plan to launch in 2027, also next year. As for ODDITY Labs, we continue to have great progress there. It is also an area that we invested a lot in the past 3 years. And as you mentioned, as you think about AI, of course, we can leverage it materially. It can speed up our processes and our molecule discovery there. We have a team that this is what they do in labs, and we are very bullish about the potential and the speed that it can bring to the business.

Our next question is from Ryan MacDonald with Needham and Company. Please proceed.

Oran, I think in the past, if I recall correctly, when you went from year 1 to year 2 on SpoiledChild, there was quite the large revenue jump in the business. And I think you talked about that it was a little bit faster of a pace than what you wanted initially when you were thinking about the scaling of that. And we are getting in towards the end of year 1 with METHODIQ here and heading into year 2. I guess, what did you learn from SpoiledChild's ramping and how is that informing your view for METHODIQ and the strategy there? And I guess, is it too early to see how you see trends in repeat rates for METHODIQ and, or what are you seeing there and how is that kind of building into informing that view for year 2? Thanks.

For us, always the first few months is testing and trying to find the right audience and then fixing unit economics and then scaling. That is what we did with SpoiledChild, and that is what we are planning to do with METHODIQ. Basically, there are less constraints from a growth angle in the first 2 years. Let me remind you that in SpoiledChild in year 3, we decided to spend less and to have constraint on revenue. We are not planning to have constraint for METHODIQ in next year. But keep in mind that the first few years of any brand, there is a cost, and we need to take it into consideration while we are building a budget, and that is what we are planning to do.

Our next question is from Georgia Anderson with Evercore ISI. Please proceed.

Thanks for the question. I guess thinking about the business model of Try Before You Buy, I think you shifted kind of around 40 percent of acquisition revenue out of Try Before You Buy in first quarter. Wondering kind of where that mix is today. And if the kind of gross margin compression we saw in second quarter, you know, is that kind of a structural or recoverable, yes, so any clarity that would be great.

Sure. As you know, a focus area for us has been remediating some of the signal distortion. And as part of that, we have shifted part of our acquisition away from Try and towards Buy. And we were able to do this without any notable impact on our unit economics. We believe in our current state we can move 50 percent or more of our acquisition to Buy from Try at a minimum. That said, we love the model. We have no plans to eliminate it. We think it offers a great value to consumers. So our focus is really on remediation and rebalancing as needed. On the gross margin question, we have always talked about our long-term gross margin expectations to be in sort of the high 60s. With all gross margin being a real target KPI for us. The target KPI for us is DC margin, contribution margin, gross margin after media spend. But just based on the range of products and brands, high 60s is kind of how we have pointed everyone to. That said, this year we did get a lot of deleverage based on the lower AOV, and we do not see that as structural. Once we have improvement in our in-app acquisition dislocation, we will be able to go back to optimizing for AOV, remember, we have removed all of those efforts and so we will be able to optimize better for AOV which supports our gross margin on a like-for-like basis.

We have optimized METHODIQ's gross margin since it is early, so we expect to have meaningful improvement also there.

Thank you. This will now conclude our question and answer session. I would like to turn the floor back over to Mr. Holtzman for closing remarks.

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

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.

This live transcript is auto-generated without human intervention or review.

Good morning, and welcome to ODDITY's First 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 call over to Maria Lycouris, Investor Relations for ODDITY. Thank you. You may begin.

Thank you, operator. I'm joined by Oran Holtzman, ODDITY's Co-Founder and CEO; and Lindsay Drucker Mann, 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 made about ODDITY's business strategy, market opportunity, 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 20-F 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. I'll now hand the call over to Oran.

Thanks, everyone, for joining our call today. While we continue to navigate account dislocation with our largest advertising partner, we remain hopeful that we will return to normalization in the second half of this year as we communicated in Q4 earnings. We saw a meaningful improvement in IL MAKIAGE CPA this May, which declined an estimated 28% from April, breaking a negative trend of multiple months of CPA increases with this advertising partner. And while we cannot guarantee that this positive trend will continue, it is a good indication after months of a negative trend. We plan to continue to aggressively implement improvements until the problem is completely solved.

We have been working closely with this advertising partner, including top product and engineering team to fix the issue. We have heard from them directly that they estimate that we can recover 40% to 60% of CPA based on their system alone without considering macro or other factors. If we get there, it would signal that the business is healthy and positioned to go back to growth and profitability as it was for many years. And if we had planned for that level of CPA in 2026, we believe we would have guided to a normal earnings year of 20% revenue growth and 20% adjusted EBITDA margin.

We want to share more data and context for the anomaly we experienced. We provide detail on historic IL MAKIAGE index CPA levels with this advertising partner based on our internal attribution system in our press release, which I will refer to now. For many years, our CPA was very stable. As you can see in the table provided steady and consistent mid-teen CPA increases every year with gradual yearly increases correlated with our industry. While we did not build our business on favorable user acquisition cost, rather on strong over 100% 12-month repeat rate, in 2026, we saw levels of CPA that, in some cases, were 2x higher than what we were expecting and what we see in other competitors.

At this level, the unit economics get much difficult as expected for off-market costs. The data indicates, in our view, how the issue is technical and not brand or saturation issue. One, the change was sudden, indicating a dramatic break, not steady deterioration over time, but clear and definitive months of collapse. Two, a breakdown occurred in different IL MAKIAGE accounts, different markets with the same pattern simultaneously, U.S., Canada, U.K., Australia and Israel, which suggests it has nothing to do with the brand. There is nothing that can happen in our offering or business that can explain it at the same time in multiple geographies.

Three, we believe a significant driver of the break comes from spiking bounce rates. In our view, it suggests the issue is with lower quality audiences being served with our ads by this algorithm. Furthermore, our fundamental brand health is confirmed by behavior we see among existing customers. Net revenue repeat on a 12-month basis cohorts are strong, which support our 12-month contribution margins. A focus area for us in the last few months has been successful remediation in our Try Before You Buy model. As a reminder, Try Before You Buy is a pro-consumer model that allows to replicate the online experience of physical stores like Sephora, where consumers can try products in real life and materially reduce the risk of purchase.

This model is rare in beauty due to the complex execution, which we believe makes it an edge case and nonobvious interaction with the platform new dynamics. Towards the end of Q1, we already successfully shifted 40% of our acquisition revenue out of Try Before You Buy into standard Buy model, reducing our exposure to this model with no impact on our unit economics, which is very encouraging.

Unfortunately, because it takes time for algorithms to recalibrate, as expected, this dislocation will have meaningful negative impact on our 2026 financial results, especially in H1. As forecasted in our Q4 earnings, it had material impact to Q1. Sales declined 26% versus the prior year, slightly better than our outlook for sales decline of approximately 30%. I noted the strong improvement in May from April. This is our first month of sequential recovery since Q4 '25, and we believe it's a positive sign.

It's also supported by our deliberate decision to maintain a reduced level of acquisition spend as we work towards recovery. All things taken together, we remain hopeful that we will achieve normalization as planned in the second half of this year as we continue to implement recovery initiatives to recalibrate the algorithm.

Moving to our other brands and growth drivers. Similar to IL MAKIAGE, SpoiledChild is navigating higher CPA costs, but with less severity. We plan to implement similar remediation steps in SpoiledChild once we finish identifying the technical initiatives that will resolve the algorithms and CPA problems in IL MAKIAGE.

Moving on to METHODIQ, which is off to a strong start following its launch late last year. We expect it to deliver $25 million in revenue this year, in line with SpoiledChild's strong success in year 1. As a reminder, METHODIQ is a medical telehealth platform designed to deliver high efficacy treatments at scale. Our goal is to help transform a broader medical care system starting in dermatology using our best treatments and the highest standards of care available to everyone.

We are proud of METHODIQ product line, which spans 28 prescriptions and nonprescription products, including oral topical supplements and medical grade makeup, all designed to maximize efficacy, minimize side effects, and give an unparalleled experience. We believe it's a game-changing innovation for the benefit of large, underserved customer base. We are also seeing good signs from our progress tracking app where users are delivered continuous care throughout the combination of our vision technology and care team engagement. App download rates, weekly check-in rates and care team engagement are strong signals of demand and our ability to use this technology to drive compliance satisfaction and success.

ODDITY Labs continue to push the frontier of ingredient innovation in beauty and wellness, focusing on pain points with large commercial opportunities like hyperpigmentation and aging. We added 2 additional products made with Labs molecule in our METHODIQ product lineup this quarter. First, Neurexa, a topical eczema treatment formulated with our proprietary ODDL1669 molecule and other inactives engineered with the goal of achieving superior efficacy to traditional eczema treatment with minimal side effects. Second is Zeralaq, a first of its kind acne scalp prevention treatment powered by our ODDL103 molecule, which reduces inflammation and promotes the healing of active breakouts.

Looking ahead, we are working on several novel molecules targeting different indications. One, in our anti-aging program, our novel molecule have demonstrated robust in vitro efficacy in increasing collagen synthesis and reducing aging markers. We are now conducting human-focused group testing to ensure clinical translation. Two, to optimize hypopigmentation treatment, we are targeting novel pathways designed to work with our existing ODDL1007 molecule.

Focus groups are currently underway to evaluate the enhanced therapeutic efficacy and performance of this combined treatment. Three, in our acne prevention pipeline, we are developing novel topical approach designed to prevent acne breakout by reducing sebum production and preventing clogged pores. Our leading candidate molecule is currently in final laboratory validation phase.

Before I hand it over to Lindsay, I want to reiterate our view on this moment in time. We continue to be bullish on the structural dynamics in our industry. Beauty is a large category with attractive secular characteristics. Consumers continue to migrate online and towards the high-efficacy products. We believe incumbents are a disadvantage to meet this demand while we are set up for well gained share. We are working tirelessly to get back to our historical strong position. As a company, we have navigated algorithmic adjustments by our ad partners in the past with success. We are hopeful based on the improvements we see today that we will resolve this dislocation and get back to our long track record of consistent strong growth and attractive profitability. We have seen no reason that we couldn't solve what we believe is a technical problem as we have in the past.

With that, I will turn it over to Lindsay.

Thanks, Oran. Let's turn to our Q1 results, which I will refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Net revenue declined 26%, slightly less negative than our expectation of an approximate 30% decline. The decline was driven largely by first orders, which declined by around 50%, driven by the significant reduction in our acquisition efficiency due to the abnormal higher CPA. Repeat orders declined by around 15%, mainly attributed to a decline in Q1 first orders and a decline in the proportion of our repeat that is more sensitive to acquisition spend.

Repeat sales represented approximately 2/3 of our net revenue this quarter versus approximately 56% in Q1 '25. AOV declined low single digits driven by higher mix of SpoiledChild versus IL MAKIAGE and product mix. Gross margin was 69.7%, compressing approximately 520 basis points year-over-year. The compression was driven in part by product mix and lower AOV. Our remediation activity during the quarter created some temporary noise in the P&L. We ran many tests to try and isolate the technical problem, and this included turning off different tech products, funnel offerings and testing different TBYB return policies.

These changes had a temporary negative impact on our Q1 margins. We delivered adjusted EBITDA of negative $7 million. The year-over-year decline reflects the abnormal CPA levels and our decision to continue spending in order to accelerate a recalibration of the algorithm. Margins were also impacted by operating deleverage from lower revenue and our continued planned investments in core growth initiatives. We are managing costs across the business to offset some of the EBITDA pressure while protecting these forward investments.

Adjusted diluted EPS was negative $0.17. Q1 free cash flow was negative $21 million, driven by the net loss. We exited the quarter with a slightly elevated inventory position due to the revenue shortfall relative to our purchase plans late last year, and we plan to work through this inventory going forward. We exited the quarter with $667 million of cash, cash equivalents and investments on our balance sheet. Our $350 million of amended credit facilities secured in January of 2026 remain undrawn.

Turning to capital return. In March of 2026, ODDITY's Board of Directors approved a new share buyback program authorizing the repurchase of up to $200 million of the company's Class A ordinary shares, which replaced and superseded the previously announced $150 million share buyback plan. ODDITY repurchased approximately 6 million ordinary shares during the quarter for approximately $82 million, reducing ordinary shares outstanding by around 10%. We exited the quarter with approximately $167 million remaining on our authorization.

Turning to our outlook. Media uncertainty continues to make visibility to full year financials challenging, although we're hopeful we're moving in the right direction. We expect adjusted EBITDA for the full year will be positive. We hope to deliver a clearer picture of other key P&L items in coming months. For the second quarter, we expect net revenue to decline between 25% and 30% year-over-year, and we expect adjusted EBITDA will be between $8 million and $10 million, impacted by higher CPA and deleverage on our reduced revenue. A few things to keep in mind for your models. We continue to spend acquisition dollars despite higher CPA in order to feed the algorithm signals they need to reset and normalize. In addition, the reduced user acquisition activity in the first half will continue to weigh on repeat sales for the remainder of the year even as CPAs normalize.

With that, I'll hand it back to the operator for questions.

[Operator Instructions] Our first question comes from the line of Brian Tanquilut with Jefferies.

Lindsay, maybe just on the earnings trajectory, you stated positive EBITDA for the year and $8 million to $10 million positive EBITDA in Q2. If you don't mind just talking about the cadence of EBITDA margins that you expect throughout the year? And do you still plan to have most of the acquired customer reps to come in the first half? Or is there a shift happening to the back half?

Thanks, Brian. So unfortunately, based on the technical issue we had, first orders were down, as I mentioned in my script, around 50%. And it will be very, very difficult for us to make this up in the back half just based on seasonality. That being said, the leading indicator we look for is the improvement in CPA, which should allow us to drive some improvement at least in the sequential trend of declines across the year. And once we get first orders going, that's when we can start to drive the repeat and that's where the profitability flows through.

We didn't give EBITDA guidance by quarter for the back half by design. We just don't have enough visibility right now, but we do have confidence that we will be profitable for the full year based on everything that we see today, the exact specifics of it, we just don't have enough visibility to yet.

Totally understand. And a follow-up, can you go back just to the comments about maintaining a reduced level of acquisition spend. So we're thinking how much have you reduced your run rate by compared to last year? And then was this evenly spread across Q1? Or was there something you did in May, which helped bring CPAs down?

Yes. So we are still spending. And so media spend for the quarter was down a little bit relative to the prior year. It's just that our efficiency on that media is a lot worse. So we talked about you can see in the table that we provided the 80-plus percent increase year-over-year in the first half. And that rate of increase did get worse Jan, Feb, March to April, and May was our first month of sequential improvement. So we are still spending. We want to...

And the reason that we're still spending is to fix the problem. Without spending, we will not be able to identify the problem, and we will not be able to test all the things that we have done in the past quarter. And without that, we will not see any recovery. So we need to continue to spend, but we do it in -- we obviously cannot increase spend because the efficiency of that spend, but we are hopeful after what we saw in May.

Our next question comes from the line of Youssef Squali with Truist Securities.

Excellent. Maybe a quick question for Oran, one for Lindsay. So Oran, can you delve a little deeper into the drivers of the decline in the CPA for IL MAKIAGE? I think you talked about the 28% sequential between April and May. And just like practically, what has been working and how much of that is like sustainable and can actually compound on itself over time?

And Lindsay, just as I look at that improvement in CPA and I look at the guide you're providing for Q2, there seems to be a bit of a disconnect because if you look at the overall revenue growth, you're still talking about negative 25% to 30%. You put up 26% negative in Q1. Maybe just talk to us about the assumptions that are baked into that revenue decline maybe from a CPA trend and anything else you want to share on that guide?

Youssef, so needless to say that we do many, many tests in order to fix it. On the other side, it's an algorithm and those things are most of the time very hard to move the needle and exit those type of spirals. By the way, we navigated, as I mentioned, many algorithm changes in the past, and we always -- we're able to solve it. The fixes that we are doing are primarily structural and technical auditing signals, adjusting our infrastructure, shifting audience strategies and, of course, campaign setup, but that's only on our end. Of course, in parallel, our ad partner is doing analysis on their end, and we work with them closely for the past few months.

We have also made some budget allocation, reducing the overall spend for IL MAKIAGE given the elevated spend, but continue to spend just to make sure that we can continue to have tests running. And again, for many months, we saw only a negative trend, like almost every month was worse than the previous months other than May. May, we had lower spend, but still, we had also very low spend in other months and the trend was opposite. That's for that question, Lindsay?

Sure. Youssef, so our guidance for the second quarter is for revenue to be down between 25% and 30%. The challenge for us in part is that acquisition is still very difficult. We talked about the sequential improvement in May versus April, but remember that Feb was worse than Jan, March was worse than Feb and April was worse than March. So on balance, the overall CPA in May versus Q1 is not materially different yet, but we noted the encouraging thing for us is the positive inflection that we saw in May overall.

We did lose a lot of first orders in the first quarter that would have translated into repeat orders in the second quarter. And so that's a continued overhang for us. So again, like we're -- we hope to see more sequential improvement is in the second half of the year. And like I said and what we said in our outlook, we do expect for full year adjusted EBITDA to be profitable.

Our next question comes from the line of Andrew Boone with Citizens.

You guys have historically run your marketing in-house. Can you guys talk about the changes that have either taken place within that organization or maybe the thought about using third parties? Basically, what's changed in terms of the marketing strategy given this speed bump?

Yes. Historically, we've done everything in-house very successfully for many, many years. For the first time, we shared with the market how stable our results are. And despite the fact that we were growing massively. But that just for acquisition, of course, our repeat and other metrics and compounding repeat continue to grow. That's why despite the small change every year, we were able to continue to present such strong results.

What we have now is something that we never saw before. We are evaluating it with the ad partner. And we also brought in another team recently to take a look. But again, we don't believe that the problem sits on our end, but we continue to do everything in our power to exit this spiral as soon as possible.

I would just add on to that, Andrew, that it was -- it's been very encouraging as we worked very closely with this advertising partner to hear their view that all other things equal, and as we said in our prepared remarks, not related to other things like market dynamics, just in their systems alone, they estimate that we can recover 40% to 60% of CPA. And if we get to those levels, we'll be back in a position to resume healthy profitable growth.

Our next question comes from the line of Ryan MacDonald with Needham & Company.

Maybe one for Oran and one for Lindsay. Oran, I'm curious to think about -- as you're thinking about product development and I understand, obviously, I think probably the algo change is taking most of your time. But as we think about product development throughout the remainder of this year, we're obviously getting some updates or should get some updates in July from the FDA around peptides and potentially some moving from certain peptides from Category 2 to Category 1 with applications in skincare like GHK-Cu, copper peptides, BPC 157. Just curious what sort of opportunity and maybe what research or investments you're doing in this area and what sort of opportunity this could open up for your brands over time?

And then, Lindsay, for you, just on the guidance, if we think about the adjusted EBITDA guidance of $8 million to $10 million, are you assuming -- is that based on assumptions that the improvements in CPA you saw in May continue? Or do they revert back to April levels, first quarter levels?

Yes. On your first question, needless to say that the majority -- the vast majority of our time is handling the problem that we currently have with media for both me and Shiran, that's what we do 24/7. I will say that despite what we have in media, we continue to heavily invest in product across IL MAKIAGE, SpoiledChild, and METHODIQ, but more importantly, ODDITY Labs, we continue to see massive opportunity there. And once we have more to inform regarding the peptides and the new changes, we'll update the market.

And as it relates to our assumptions, we -- our assumptions assume that CPA remains similarly difficult.

Our next question comes from the line of Dara Mohsenian with Morgan Stanley.

So first, just a clarification. You highlighted CPA move back down sequentially versus recently. You remain hopeful you're on track for normalization in the second half of the year. Is that normalization more around CPA itself? Or is there some hope perhaps you could get back to revenue growth at some point by the end of the calendar year?

And just any thoughts on how much of this 2026 revenue pressure might extend longer term as you look out to 2027. I understand 2026 is still a moving target this year. But just looking for your conceptual thoughts on what this means for the business longer term, the issues around CPA here in 2026.

Yes. I'll start just once we fix this problem, of course, like the most important part of our end is to fix it, but then to go back to growth. So my plan as soon as we fix it is to go full power back to growth. As for the implications of '26, obviously, we lost a big chunk of new users that we were not able to acquire in '26, which will impact '27. But again, all depends when we fix it, if we are able to fix it -- as soon as we are able to fix it, we'll go back to growth to compensate some of these new users loss. Lindsay?

Yes. The leading indicator for us is the CPA. We have this overhang on revenue that will continue across the year, but the sequencing is better CPA allows us to drive first orders. We do see that our repeat rates remain very strong.

And so when you pull those pieces together, once the CPA is at an improved level, we can drive first orders, which will drive repeat and healthy profitability, and that's kind of the sequencing of how you'll see the business improve.

Our next question comes from the line of Scott Schoenhaus with KeyBanc Capital Markets.

I wanted to focus on METHODIQ. You said it's performing in line with expectations. Do you see any ability to drive that revenue growth algorithm faster by investing more in the business? Are you pulling resources away from the other 2 brands, especially IL MAKIAGE in order to divert more attention to METHODIQ? And then on the hiring front, the biotech environment has strengthened here over the last 12 months. Are you seeing any issues with retention or hiring in that department?

First of all, we don't see an issue with them hiring in Boston ODDITY Labs. Second question, as we believe the problem with IL MAKIAGE is technical, and we believe we'll be able to solve it. We continue to invest in IL MAKIAGE and we are not shifting or allocating resources from that brand to other brands. Lastly, for METHODIQ, very excited and bullish about what it can be, seeing strong initial demand and still early days, but we believe that it will be a great brand. We spent many years on building it.

As for your question to accelerate it, it's a new brand, many things that you want to test, you don't want to accelerate it before you optimize the exact funnels and products. And therefore, it's already extremely substantial for a new brand, and we think that's the right pace.

Our next question comes from the line of Lauren Lieberman with Barclays.

Two questions. First was just around -- you've emphasized a couple of times, this is an issue with one particular advertising partner. I was just curious about efforts or thoughts around diversifying your partners, right? There's more than one platform out there. So I wanted to just get some understanding of how you're thinking about the range of opportunities on other platforms and other ad partners.

And then secondly was just to clarify whether or not SpoiledChild is sort of undisturbed. We've been very focused on IL MAKIAGE, and it may just be my memory, but I wasn't sure if SpoiledChild was seeing the same issues or not. And if it's not, why not? And is there anything you can do or are doing to future-proof it to avoid the same kind of signal breakage that's happened with IL MAKIAGE?

Sure. As to other platforms, of course, we advertise also on other platforms. But based on the data that we have, just in 2025, our largest ad partner was by far the largest ad partner in beauty in the U.S., way more than 50% of the market. So there is a limit of how much we can revenue or acquisition we can drive in the other platform. This platform is by far the biggest one and more the majority of the spend in beauty in the U.S. for new user acquisition.

Second question about SpoiledChild. SpoiledChild, we see also increasing CPA less severe than IL MAKIAGE. The main difference SpoiledChild continues to grow. And despite the fact that it continued to grow, the CPA is way less severe than what we've seen in IL MAKIAGE. So it's a good indication, but we are still like, once we identify the right solution for IL MAKIAGE, we'll implement the same in SpoiledChild, we believe that we will have like a tailwind for that brand also.

Our next question comes from the line of Mark Mahaney with Evercore ISI.

I want to get back to the question on somebody asked earlier about METHODIQ. And it looks like this product is ramping reasonably well in line with what SpoiledChild did earlier on. That sounds promising. Talk about the customers that you've gotten for the product so far. Are these customers that are brand new to ODDITY as a whole?

Are they customers that have come from other areas? Something that -- can you give us some sense about the sustainability of growth of those customers and whether they -- how much they expand your market? Or is it largely just a resell to existing customers? Anything on that and the type of customers coming in for METHODIQ would be helpful.

Yes. I'll start and maybe Lindsay will continue. With any new brand that we launch, we try to see the strength and the potential by itself, meaning it starts by its own with less marketing to our other -- to our existing user base. Otherwise, we will never see or understand the potential of that brand. So to your question, it's an addition to our customer base in IL MAKIAGE.

Of course, when those brands operate by themselves, some of the customer base is going after the same audiences just because IL MAKIAGE and SpoiledChild customer base is huge. But it's completely separate brand with its own efforts to acquire new users just to understand the scale and the potential and to optimize the funnels in the hard way and not with quick wins just due to our major customer base of IL MAKIAGE and SpoiledChild.

Our next question comes from the line of Cory Carpenter with JPMorgan.

I had 2 questions. Building on an earlier question, could you talk about the CPA trends that you are seeing at your other advertisers? That's the first question. And second question, last time we talked, I think you were hopeful that you could maintain the Try Before You Buy program. I think on this call, you said about 40% has shifted away from that. Maybe just could you give us your latest thoughts on the role that you think Try Before You Buy can play based on your learnings with the technical changes thus far?

Yes. Try Before You Buy remains part of our model. We have no plan to eliminate it as we strongly believe it's great for consumer, and it's the closest way of bringing physical store experience to the online world. Toward the end of Q1, we successfully shifted 40% of our acquisition revenue from Try Before You Buy to standard Buy. This process was expensive in terms of margin as it required many, many tests until we successfully landed on a solution with no impact on unit economics, which is very encouraging.

At least in my view. there is no -- Try Before You Buy today based on the last numbers that I saw, we tend to be a tiny number -- tiny percentage out of our total revenue or total orders, but we intend to continue to use this program as we really believe it's right for consumers, but more balanced with standard Buy.

Question was on CPA at other platforms.

Yes. Other platforms, obviously, the CPA of other platforms is taking the overall CPA of IL MAKIAGE materially down. But since this is our largest platform, we work really hard to solve it so we can go back to growth and go back to full power spend also with the largest platform in the U.S.

Our final question comes from the line of Anna Lizzul with Bank of America.

I wanted to follow up on Lauren's question here. Now that we've heard from several beauty companies and watch the trends over the past few months, I guess we haven't really heard of the algorithm adjustment as much impacting other beauty companies. They are less exposed to the channels, but they say maybe sees 20% of sales on e-commerce channels.

So I was wondering if this will make you reconsider in a broader way your marketing and user acquisition, just given the impact to what seems to be to your brand specifically? And then how do you ensure this doesn't happen with any other platforms in the future?

I can't refer to other brands, but I don't know anyone that is on our scale and most of them are omnichannel and are less sensitive to algorithm changes. By the way, as I mentioned, we had many of them in the past years. The most notable one is iOS 14. And I think that also then it was harder for us than others just due to the fact that we are 100% D2C. And If we think about diversifying our channels, yes, we think about it. And when we have what to tell the market, we will.

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

Thank you very much, guys, for joining. We'll see you next quarter.

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

Good morning, and welcome to ODDITY's Fourth Quarter 2025 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 Lycouris, Investor Relations for ODDITY. Thank you. You may begin.

Thank you, operator. I'm joined by Oran Holtzman, ODDITY's Co-Founder and CEO; and Lindsay Drucker Mann, 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 made about ODDITY's business strategy, market opportunity, 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 20-F filed with the Securities and Exchange Commission on February 25th, 2025.

We do not undertake any obligation to update forward-looking statements, which speaks 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. I'll now hand the call over to Oran.

Thanks, everyone, for joining our call today. 2025 was a strong year for ODDITY. We delivered record financial results with revenue, adjusted EBITDA and adjusted EPS all ahead of our plan. Revenue increased 25% to a record $810 million. We delivered record adjusted EBITDA of $163 million, representing 20.2% adjusted EBITDA margin.

Across the year, we were able to once again raise our financial outlook every quarter on revenue and profit, and this is despite experiencing challenging user acquisition costs in H2 that drove an increase in advertising spend.

Our strong and profitable repeat rates allowed us to once again deliver results ahead of our plans. And we accomplished all of this while investing heavily in our future. Notably, this year, we successfully launched our third brand, METHODIQ, which expands our reach into the medical grade space where we see enormous potential.

In addition, we continued our ongoing investments in ODDITY LABS in our tech infrastructure as well as new products and new brands. We believe that our powerful platform, brand and technology, combined with our growth investments, create long runway for us to grow in a big, attractive and profitable category, where we are well positioned to outrun our competition.

We finished the year with strong balance sheet position with $776 million in cash and cash equivalents. Even as we work tirelessly to address what we believe is a near-term dislocation in our user acquisition cost, there is no change to our long-term vision, strategy or our commitment to growth.

First, the consumer immigration online where our brands maintain leading positions. One of the best indicators of our business health is our very strong repeat sales. In 2025, approximately 70% of ODDITY's revenue came from repeat sales.

Customer cohorts repeat behavior remains very strong and continues to increase. 12-month net revenue repeat rates for our 2024 cohort of first purchases increased from the 2023 cohort and remained over 100%. We believe these are outstanding repeat metrics compared with other direct-to-consumer companies and reflect the health of our brands, the quality of our products and the high satisfaction from our customers.

Moving to our brands. IL MAKIAGE grew revenue low double digits in 2025 to approximately $560 million. IL MAKIAGE Skin was a highlight as planned and finished the year at approximately 40% of IL MAKIAGE brand revenue, expanding from around 30% of brand revenue in 2024.

The rapid success of IL MAKIAGE Skin since its launch in 2022 demonstrates the power of our platform and our ability to leverage our user base and technology to quickly scale new products and categories.

International markets were also a key driver for IL MAKIAGE. ODDITY International revenue, the majority of which is from IL MAKIAGE grew 42% for the year. International markets represents 17.5% of overall ODDITY net revenue for 2025 compared with many of our competitors that generate more than 65% of net sales from international markets.

SpoiledChild also had a strong year, increasing revenue double digits to approximately $250 million. This is an incredible accomplishment for an online-only brand that just launched 4 years ago and once again shows the power of our platform and ability to scale.

We remain excited about SpoiledChild's long-term potential, including new product expansion in beauty and wellness. The launch of METHODIQ, our third brand, was a highlight accomplishment in 2025. METHODIQ is a medical telehealth platform that aims to deliver high-efficacy treatment at scale, starting in dermatology, addressing concerns like acne, hypopigmentation and eczema.

It is off to a great start, and we are very pleased to see its initial success. Our early focus on acne hyperpigmentation and color products is showing good traction, and we believe this will be big categories for us.

We are seeing good metrics and continuous improvement in our KPIs even as our customer cohorts increase in size. What we see in METHODIQ's app engagement reinforces our view that METHODIQ can uniquely deliver high standard of care for a broad audience and do it with great convenience.

When we look at the app down rates, onboard completion, weekly check-in rates and care team engagement, we can see the demand, and we are bullish about how our app technology will drive user compliance satisfaction and success.

Moving on to the second focus area of our long-term growth strategy, the consumer adoption of high-performance products that better address their pain points. Our product development pipeline for all 3 brands are focused on bringing the market top performers that we believe beat the competition on efficacy.

ODDITY LABS continue to push the frontier of ingredient innovation in beauty and wellness. Over the past 18 months, we have made major strides in our capabilities and infrastructure to improve our work with the goal of shrinking our time lines and improving the probability of success in identifying game-changing molecules. Our efforts in process and infrastructure have driven significant improvements in our productivity, increasing the number of targets we can tackle and allowing us to push projects along faster with greater accuracy.

One highlight area is our work in traditional biology, which expands on our strong in silico and in vitro foundations. This work helps us to get stronger reach on the most relevant biomarkers for our products, increases our predictive power of success and does it in a way that is scalable, representative and [ retrigerous ] science.

Another highlight is our ability to identify biological targets that can influence a desired effect. We are focused on pain points with large commercial opportunities, including acne hyperpigmentation and aging. And our target list include pathways like reducing melanin production and boosting collagen and elastin.

We are leveraging AI agent to map targets and structures and also applying our work in traditional biology to identify novel targets. We recently expanded our capabilities into peptides to add to our small molecule foundations and are working on peptide solutions in areas like acne and aging.

This expansion into peptides gives us the flexibility to identify the right modality to address an individual biological target. At the same time, we are working in parallel to improve topical delivery of different activities to ensure they reach the relevant areas in skin and maximize the biological effect.

We expect to have 8 products in market in 2026 made with ODDITY LABS molecules. The innovation for METHODIQ is especially exciting, including molecules that cover key categories, including acne, eczema and hypopigmentation and more to come in the future that we are bullish about.

Turning to our acquisition costs. We experienced an unprecedented dislocation in our account with our largest advertising partner, which we believe is due to recent changes in their algorithms that slightly diverted us to less desirable auctions and traffic at abnormally high costs. These changes resulted in significant abnormal increases in our new user acquisition cost for ODDITY that are not correlated with the market or our historical experience.

We have never seen anything close to those acquisition costs, not in ODDITY and also not in other beauty advertisers. This elevated acquisition cost is severely hurting our ability to acquire new users efficiently at high scale as we normally do in the first half of each year and have done consistently for the past 8 years very successfully.

Both IL MAKIAGE and SpoiledChild appear to be impacted by these algorithm changes, although the impact on IL MAKIAGE was more severe probably due to its higher scale. After identifying the root cause in late January, we quickly moved to implement strong remediation actions, primarily around the modern infrastructure that we hope will get us back to the right options and ultimately drive improvement in our new user acquisition with significant progress in Q2 and normalization in Q3 or Q4. These types of algorithm updates are not new and have been ongoing through the years, and we've historically adapted to them. In this case, it was harder than before to identify how these updates were impacting our business, and therefore, it was harder to identify the root cause.

We believe we got hit by the algorithm change due to our user acquisition strategy that includes a Try-Before-You-Buy offering, which is a rare in beauty and therefore, may be an [ edge ] case within the new algorithm changes.

We believe the algorithm updates impacts on how this platform interprets and weighs the signals associated with Try-Before-You-Buy model, primarily due to its inherent higher return rates and diverted us to lower quality auctions at abnormally high cost disconnected from the market.

For more context about the model, Try-Before-You-Buy is designed for the benefit of the consumer by reducing the risk of trying our products online.

It is a pro-consumer model that allow us to replicate online the experience of physical stores like Sephora, where consumers can try products in real life and materially reduce the risk of purchase. This model is growing due to its complex execution. We believe it's an edge case and a nonobvious interaction within the platform's new auction dynamics.

After assessing the driver of what we believe is hitting us, we quickly moved to fix it. Our remediation actions are designed to reduce Try-Before-You-Buy, down-weighting while preserving the ability for new customers to purchase products on a trial basis with minimal risk.

Important to note, Try-Before-You-Buy isn't a dependency for us. We offer it as a better alternative for consumer, but our agile model allow us to rebalance towards the standard buy offering if we see it is needed. Unfortunately, because we only recently identified the root cause and despite working tirelessly to fix it, we have not had much time to take action, and it takes time to recover. Therefore, we expect negative impact on our 2026 financial results with the most significant impact expected in H1. But I want to be very clear, despite the dislocation in our new user acquisition we are currently facing, we are not changing our model, our strategy or our long-term focus on growth.

The main objective of the company right now is correcting this issue and being in a position to immediately pivot back to growth. I want to close with some perspective on this moment in time. Over the past 8 years, we grew from $25 million of revenue to $800 million of revenue despite multiple changes on ad tech side, a prominent one with iOS 14.

We have navigated algorithm adjustments by our ad partners in the past, and we believe we will be able to also address the [ chronic ] dislocation. Most importantly, we believe we understand the problem and in a world of complex online auctions, understanding the problem is always the hardest part.

We don't see this as a structural issue or a secular disruption as you are seeing in other sectors or a negative macro trend for our category. It is a technical issue. And from here, we believe it is a matter of time and execution to deliver the strong outcomes we have constantly delivered over the past 8 years. And as I said, we believe we have a strong plan in place, and I hope to see normalization in H2. With that, I will turn it over to Lindsay.

Thanks, Oran, let's turn to our Q4 results, which I'll refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. ODDITY delivered an outstanding quarter to cap off a record-breaking year. We grew net revenue by 24% in the quarter to $153 million.

Growth was driven primarily by an increase in orders, while average order value declined slightly year-over-year. The 24% revenue growth we delivered this quarter exceeded our guidance for growth of 21% to 23%. Gross margin of 70.5% compressed 220 basis points year-over-year and exceeded our guidance for gross margins of 69%. The delta versus our outlook was driven in part by product mix.

We delivered adjusted EBITDA of $13 million in the quarter and adjusted EBITDA margin of 8.2%, above our guidance for adjusted EBITDA of $10 million to $12 million. Adjusted EBITDA margin compressed by 410 basis points year-over-year due to planned investments for future growth, including the METHODIQ brand launch, ODDITY LABS and Brand 4 as well as higher media costs.

We delivered adjusted diluted earnings per share of $0.20 compared to our guidance of between $0.11 and $0.13. Our adjusted EBITDA and earnings per share excludes approximately $8 million of share-based compensation. Turning to some highlights for the full year of 2025.

We grew net revenue by 25% to $810 million with double-digit growth from both IL MAKIAGE and SpoiledChild. This 25% growth is ahead of our long-term algorithm target for 20% sustained top line growth. Net revenue growth was primarily driven by an increase in orders, while average order value increased slightly year-over-year. Gross margin of 72.7% expanded 30 basis points year-over-year, driven by cost efficiencies.

We delivered adjusted EBITDA of $163 million. Adjusted EBITDA margin of 20.2% is consistent with our 20% long-term earnings algorithm target. And that's despite our planned investments in future growth initiatives, including METHODIQ brand launch and ODDITY LABS and despite increased advertising costs.

Advertising costs increased approximately 50% year-over-year, reflecting growth investments in international markets and METHODIQ as well as higher acquisition costs for IL MAKIAGE and SpoiledChild. We delivered adjusted diluted earnings per share of $2.21.

We exited the year in a strong liquidity position, including $776 million of cash, cash equivalents and investments on our balance sheet. The buildup in reserves in 2025 was driven by our successful exchangeable note offering and free cash generation of $84 million for the year. Free cash flow in the fourth quarter was negatively impacted by approximately $19 million of increased inventory due in part to new inventory investments in METHODIQ on top of our seasonal inventory build ahead of the Q1 selling period.

We amended our credit facilities in January of 2026 to expand our borrowing capacity to $350 million. These facilities remain undrawn. As for potential uses of cash, we believe repurchasing our stock is attractive at recent share prices and intend to opportunistically return cash to shareholders through buybacks.

There's $103 million remaining on our previously announced repurchase authorization. As Oran discussed, we experienced a significant increase in our new user acquisition spend Q1 to date. The timing of normalization is uncertain, although we're working hard to have this behind us.

Our remediation actions have started but are still in early stages, so we're not going to make any predictions on their success. Due to the uncertain timing of recovery, we're not issuing full year '26 guidance at this time, but we'll provide updates to our progress and outlook as we get more visibility.

A few things to keep in mind for your models. We expect Q1 sales will decline approximately 30% due to reduced acquisition revenue. We're still spending acquisition dollars today despite much higher CPA, and this is so that we can continue feeding the algorithms the signals needed to reset and normalize.

At current CPAs, we are not profitable at first order, and that has material negative impact on our near-term EBITDA. We are, however, still profitable on a 12-month direct contribution margin basis because of the strong repeat we generate from acquisition sales.

Based on the expected timing of CPA normalization, Q2 sales are also likely to decline, but it's too soon to determine the magnitude. Q1 and Q2 are historically our largest periods of user acquisition. And from that acquisition, we typically generate significant repeat revenue over the balance of the year. The reduced user acquisition activity today will therefore result in lower repeat sales later in the year, even if acquisition costs normalize.

We're managing costs through this period to offset EBITDA pressure but continue to carve out investments in growth initiatives like ODDITY LABS, new brands, product development and our tech infrastructure, and we believe this is the right strategy to set us up for sustained growth if CPA normalizes.

With that, I'll hand it back to the operator for questions.

[Operator Instructions] The first question is from Youssef Squali from Truist Securities.

Maybe dig a little deeper into the algo change. I'm assuming this is related to Google's Andromeda. When did the issue actually start -- when did you start seeing it? Has it -- is it continuing to -- is the trend continuing to worsen? Or has it kind of stabilized?

And lastly, Oran, when you talk about the issue being related to Try-Before-You-Buy, does that mean that you guys are going to deemphasize that? Or is there work around it such that you can continue to differentiate yourself through that offering and still maybe rank higher?

Thanks, Youssef. We didn't specifically name the advertising partner, but the issue is we first observed that something was different in the second half of 2025, and we did call it out on our November earnings call, but it did get much worse as we entered 2026 and really began to scale our business. And I think at the time, when we've spoken to you, we had started to see some improvement, but it's always difficult for us to get a read on CPA as you go in the holiday quarter because it's just not a typical market. There's a lot of noise. And so as we moved into Q1 and we started to scale, that's when we saw the dislocation.

[ H4 ] moving from Try-Before-You-Buy, look, we believe that we can still solve it. We try, as I mentioned, we believe it's pro consumer. We believe it's the right thing to do. But I also mentioned that we can -- that we know how to move to buy like the rest of the industry. I want to say that more than 95% are selling via [ buy so ].

It's not something new, and we know how to do. As for what we do, there are a range of things that we need to identify the issue and working on fixing it. We Try-Before-You-Buy, including Deep Signals Audit, Final UI/UX adjustment, a lot of work on the infrastructure side, building new prediction models, offering adjustments and different audience strategies. We wouldn't sit here today if we didn't think that we can solve it, we try. We would say that we are moving to buy, but the fact that we believe that it's solvable with the current business model.

The next question is from Anna Lizzul from Bank of America.

I just wanted to ask on the change or the lack of guide here, I guess, and what you can recover for the remainder of the year, it does seem like an uphill battle. Is it possible to shift this user acquisition really from Q1 or H1 into Q2 or H2? Or will there be more of a delay? And does this change your thinking at all on distribution, just given you are vastly sold on direct-to-consumer, would this make you think at all about going into retail?

As mentioned, no change in our strategy. Thank God, this is our strategy. Online is our strategy. Online continue to grow, and there is no change in our plans or no plans to move into retail at this point. We are confident we can go back to growth.

We believe it's something that it's a temporary change that happened that we need to adjust to. So no change in distribution strategy. Lindsay, do you want to answer about the second half of the year?

Yes. Thanks Oran. So, we're navigating a situation today where CPA is significantly higher than last year, in some cases, 2-plus x higher in some cases. And as a result, we've dialed back on our acquisition to manage it. Remember that, as I mentioned in my prepared remarks, at current CPAs, we are not profitable at first order. And so that has a material negative impact on our near-term EBITDA. We are still profitable on a 12-month contribution margin basis. But in the near term, as we spend, you have pressure. And since Q1 and Q2 are our largest periods of acquisition, we'll have -- as I mentioned in my remarks, we'll have that carryover effect into the back half of the year as we lose the repeat.

And so in the short term, we view this as a pothole that we'll have to recover from. But as the business in CPA normalizes as we hope it will in the back half of the year, we'll be on a track to normalize our financial model as well.

By the way, I would just add that Lindsay mentioned even more than 2x. If we saw something gradually increasing in terms of CPA, we wouldn't think that something is completely off. We know that the current numbers that we see in user acquisition are completely off market, and we know it's -- and therefore, we believe it's something technical, and we work really hard to go back to -- by the way, we never built the business on marketing margin, on making profit from better acquisition strategy or execution. We build the business on repeat. that can protect us from regular increase in media spend. By the way, we see it every year. But this is something completely off, very unusual. We never saw anything like it. And based on my understanding, like it doesn't exist elsewhere.

The next question is from Brian Tanquilut from Jefferies.

Maybe, Lindsay, just as I think about the model, right, I mean one of the things that we've always loved about your business is how you can flex the advertising spend. And obviously, as you said, CPA is up more than 2x in some cases. So when we think about how you would strategize around this, I mean, once things normalize, I mean, should we expect kind of like a steep pullback on advertising expense? Or just curious how you're thinking about strategizing around this once we get that normalization point? And then can you just give us any color on retention rates or reorder rates that you're seeing in the market?

I'll start and maybe you take it. Even when media is abnormal as now, you don't want to stop the train. You still need to feed the algorithm and continue to spend so that you are giving it signals, it needs to go back on track. We have balance between not overspending at this crazy CPA that doesn't make sense while keep them -- and the signals going. And that's our plan to keep balance that way until we fix it.

As far as what normalization looks like for us, it would be something in line with what the rest of the industry CPA is. That's typically how our business has operated. It's a very, very big auction. It's a lot of competitors in there, and we typically are around where we would see our competition in terms of CPA.

Right now, we're completely dislocated and off market based on this dislocation and this malfunction of sorts. And as we address it, as Oran said, we should be getting back to track. I don't know if I remember your second question.

Just on the reorder rate that you're seeing anything there as well.

Repeat rates remain very strong. This is one of the reasons why we know we don't have a brand issue. We don't have a saturation issue. We continue to see very good performance out of our repeat. Repeat revenue is for 2025, around 70% of our sales.

And as we look at our 12-month net revenue repeat rates, those increased again. So the 2024 cohort that repeated in 2025, that number increased relative to the prior year. So that's well nicely over 100%. And even as we look at our more recent cohorts within who started in 2025, those net revenue repeat rates on a 6-month or so basis are better than they were in the prior year. That trend remains very strong.

The next question is from Andrew Boone from Citizens Bank.

Can you guys help us understand just what exactly is changing within your guys' funnel? Is this higher CPMs? Is this lower click-through rates? Is this worse on-site conversion, meaning it's a lower quality user that you're targeting? Help us understand that dynamic.

And then one of the things that we've also always appreciated about the business is just your ability to be able to pull different levers to be able to sustain that 20% growth. And so can you just help us understand the size of this channel and your inability to be able to allocate spend elsewhere and help us understand just why this is an overly large impact versus what we would have thought was a more diversified ad platform?

Yes. When we refer to our ability to grow through multiple -- in multiple areas, one thing that is important to note because this change is for ODDITY is global and across brands, it makes it harder, and that's why we came to the market with 30% decrease target in Q1. It's very hard to continue to grow without overspending. And obviously, this is something that we don't want to do in those CPA levels. Lindsay, do you want to continue?

Yes. As it relates to mix, what I can tell you is that for our largest ad partner, if you just look at pure platform orders, -- so that's any order that can be attributed directly to an ad from this specific partner. Those revenues make up just under 1/4 of our revenue, and that's based on our internal attribution system.

But keep in mind, this is just pure acquisition dollars. And on top of acquisition, you also get repeat, you have direct revenue. So there's additional impact. We have relationships with many different ad partners. I want to say almost -- I don't want to say all of them, but many, many different ad partners, but your ability to scale is only so much with each individual, and so this is impacting us.

The next question is from Georgia Anderson from Evercore ISI.

You mentioned that you've made kind of significant actions to fix this. Can you maybe clarify if these are more structural, I guess, technical fixes to your internal, I guess, data feedback loops, maybe retraining your AI to find intent users, kind of things like that? Or is the rebound expected to come from like a strategic shift in budget allocation? Maybe just talk us through the fixes that you're making.

Yes, it's both infrastructure side, offering adjustments and signal adjustments. We do all. The good thing about us is those points of time, like when you need to make multiple changes, we do everything in-house. We are not dependent on third parties, data scientists, developers, media buyers, so we can run dozens of variants at the same time. And that's what we did in the past few weeks. And therefore, we believe that we are more prepared than most companies to address it.

The next question is from Scott Schoenhaus from KeyBanc Capital Markets.

Lindsay, is there areas that you're currently seeing strength that you could possibly offset this weakness strategically? I want to focus here on international opportunities and then the Brand 3 rollout, which you mentioned was -- has seen nice success.

Yes. I'll start with the good news. We launched Brand 3 METHODIQ. It's growing more than what we saw in IL MAKIAGE when we launched IL MAKIAGE, it's facing SpoiledChild. So we are very pleased to see the demand and success of METHODIQ by the way, as we thought.

As for international and other areas, you still need user acquisition, and we still don't want to overspend just to meet the revenue goals. I never run the business like that before. And that's why the business is profitable for many, many years and last year, 20%. So -- we first need to fix it and then we go back to growth.

The next question is from Ryan MacDonald from Needham & Company.

As we think about balancing sort of the near-term priority of sort of fixing the problem here versus sort of balancing with longer-term investments to sort of continue the growth sort of growth trajectory once these problems are solved.

Can you talk about sort of what that balance looks like internally right now? And then what are some of the priorities, whether it's continuing down the path of product development with ODDITY LABS growing METHODIQ brand? Also, is there a risk here that we see a delay or a push out in sort of the Brand 4 launch plans as well?

Since we identify -- since we believe we identified the problem, we are not changing our investments in growth. We believe it's the right thing to do. We continue to invest in labs. We continue to build Brand 4, and we continue to work tightly on new products in NPD for IL MAKIAGE, SpoiledChild and METHODIQ. And that's for the first question. The second one, what was it, Lindsay?

What was the second question, Ryan?

Yes. So it was just any concerns about a delay in Brand 4? And then as we kind of come out of this, whether you lean into investment more aggressive for growth as we work back towards the balance of 2020 or sort of work more towards margin expansion?

The current focus of my leadership is fixing the problem. That's the first priority. Most of the teams are working on that. At the same time, we continue to invest in ODDITY LABS, we continue to grow it, and we continue to build Brand 4.

The next question is from Kate Grafstein from Barclays.

I was just wondering how does this dislocation impact the launch of METHODIQ? I know you had planned to step up spending in the first half of the year with this launch, and that was expected to have an impact on your EBITDA margins in the first half.

Yes. The fact that METHODIQ is relatively small, we can -- it means that we can continue to grow it without the negative effect that we see. It doesn't mean that the [ core ] problem doesn't affect METHODIQ. But since it's running at low scale compared to IL MAKIAGE, SpoiledChild, we can continue to grow and meet our targets for this brand for this year.

This concludes the question-and-answer session. I would like to turn the floor back over to Oran Holtzman for closing comments.

Thank you guys for joining. See you next quarter.

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

Good morning. Welcome to ODDITY's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. We have allotted time for prepared remarks and Q&A. At this time, I would like to turn the conference over to Maria Lycouris, Investor Relations for ODDITY.

Thank you. You may begin. Thank you, operator. I'm joined by Oran Holtzman, ODDITY's Co-Founder and CEO; and Lindsay Drucker Mann, 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 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 earnings press release issued yesterday and our most recent annual report on Form 20-F filed with the Securities and Exchange Commission on February 25, 2025. 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 will now hand the call over to Oran.

Thanks, everyone, for joining us today. We delivered an outstanding third quarter with strong financial performance while achieving major milestones in our growth initiatives, including new brands, new markets, ODDITY Labs and tech innovation. Even in a challenging impact drop, Aditi continues to deliver on its near-term financial commitments while building our future growth in engines. Our financial performance once again exceeds our targets as we have done every quarter for the last 10 quarters as a public company. across revenue, profit and earnings, including 24% revenue growth and 24% growth in adjusted diluted earnings per share year-over-year despite category challenges.

We are also once again raising our full year guidance. We achieved a huge milestone this week with the official launch of Methodic the third brand in the ODDITY platform. Methodic is our most ambitious endeavor. Our long-term goal for Methodic is not just to launch another great brand and a telehealth platform, but to transform a broken medical care system using the best treatment and the high standards of care available to everyone. Our objective is to address medical issues with customized high-efficacy treatment without the need of going to a doctor's office or getting lost in a drugstore.

Achieving our planned time on for Methodic is a great accomplishment and speaks to what makes ODDITY and our culture is so strong. This is 4 years of heavy R&D in the making, supported by 2 acquisitions, including Voyage AD1 and Revel develop with what we believe is an unprecedented scale of over 20,000 real user trials for our product line. methodic is starting in dermatology, but our long-term goal is to expand into new medical domains in the future, and these are in development as we speak.

Our launch into dermatology takes on a massive problem. Industry data shows that nearly 50 million Americans suffer from acne, nearly 30 million from [indiscernible] and more than 30 million from eczema, and many of them are unsatisfied with the current offices on the market. drugstore products lack efficacy and personalization going to a dermatologist is a high friction and the standard of care for these conditions has declined.

At the same time, dermatologists will tell you that issues like acne are curable, we only need to ensure that the person has the right products and that they stay compliant. To tackle this big challenge, we built an ambitious and complex brand. Metodi is expected to feature a huge line of 28 prescription and nonprescription products, which combined for more than 100 unique treatment combination or precision personalization. We have aimed to optimize these products to balance between maximizing efficacy and minimizing side effects at the same time to provide the best-in-class beauty experience using the same standards for things like texture and scent that we have in [indiscernible] and spoil child while bidding top bento competitors in their category based on internal data.

Our large portfolio spends oral topical supplements and medical-grade makeup that consil white hills. Within the first 6 months of launch, we'll be live in the market with 4 methodic products formulated with ODDITY Labs molecules that are proprietary to us. addressing a range of skin conditions that includes dark sports, agitating, eczema and skin firming. Methodic sets of vision tools was developed alongside our team of dermatologists to analyze visible skin features like breakout and pigmentation to help our doctors networks understand its user condition. These vision models were built growing on more than 1 million images of real individual with no facial skin condition, which we believe is the largest image data set of its kind and was rated from over 13 million facial images in ODDITY's database.

Users are delivered continuous [indiscernible] certifies kind tracking up for weekly check-ins, where our vision technology quantifies progress and gives upset to clinicians, ensuring compliance and success. We soft launched methodic in Q3 and went live with our formal launch earlier this week, exactly as planned. This launching drew the major media campaigns casing Metodi distinctive brand voice and inspire consumers to commit to the care. We are run a large-scale out-of-home takeover in New York City and a massive activation partnering with the biggest medical and skin influencers to create brand awareness and to build trust. This is the biggest ticktock activation in ODDITY's history.

And as we have said, the maturity is just the beginning, we are working on additional medical domain for expansion, and we expect to have more to announce phermatodics in the future.

Turning to IL MAKIAGE. Q3 were once again strong. IL MAKIAGE revenue grew double-digit online. The brand remains on track to achieve our target of $1 billion revenue by 2028. We continue to show healthy expansion in international. At the royalty level, international revenue increased around 40% year-over-year in the first 9 months of 2025. We have successfully scaled in existing markets like U.K. and Australia while conducting larger scale tests in new markets like France, Italy and Spain. We see a huge opportunity in international markets and plan to further scale those across the board in 2026.

It still remains a standard growth area, and it's on track to be around 40% of [indiscernible] brand revenue this year. successful product innovation has been a key driver of skin, and we expect this will continue in 2026 with our solid lineup of new product launches.

Turning to SpoiledChild, which is having a strong year we now expect demand to cross $225 million of revenue in 2025. We are excited about our innovation lineup for 2026, including new product test. Moving to ODDITY Labs, where our very hard work over the last 2 years is starting to bear fruit. We have made significant improvement over the last year to our systems, infrastructure and teams, which we believe will translate into strong commercial discoveries.

The near-term commercial impact for ODDITY Labs is increasing. We plan to have at least 8 products with Labs molecule on the market in 2026 for our existing brands, including 4 products for Methodic and 4 for [indiscernible] SpoiledChildl. Beyond this -- we have additional products planned for our brand 4 launch.

Lastly on techtainnovation, which is the backbone of our business and an area of continuous investment. Artificial intelligence has been a centerpiece of our tech platform since we first launched in 2018. Advances in large language models and generative AI together with our large and growing proprietary data sets, allow us to push the frontier of how we can use machine learning to drive direct-to-consumer -- we have arranged initiatives in development on this front, including commerce agents that drive conversion and substation, integrating this state-of-the-art models into our advertising creative and other customer-facing initiatives.

With that, I will hand it over to Lindsay.

Thanks, Oran. Turning to our third quarter financial results, which I'll refer to on an adjusted basis. You can find the full reconciliation to GAAP in our press release. Q3 was another good quarter for us, setting us up for a record-breaking full year results in 2025. Out of these strong financial results continue to stand out relative to our competitors. This outperformance has been driven by the strength of our direct-to-consumer model and exposure to what we see as the key durable growth vectors in the industry, which are the consumer shift online and the migration towards high-efficacy products.

We grew revenue by 24% in the third quarter to $148 million, exceeding our guidance for revenue growth of between 21% and 23%. The strength was driven by double-digit online growth at both IL MAKIAGE and SpoiledChild. Net revenue was driven by an increase in orders, while average order value declined around 1%. Average order volume was impacted by mix, including faster growth in international markets, which carry lower AOV. Repeat increased as a percentage of sales year-over-year, and our 12-month net revenue repeat cohort trends remain strong at north of 100%. Gross margins of [ 21.6% ] expanded 170 basis points versus the prior year and exceeded our guidance of 68%. We did experience some gross margin impact from the flow-through of higher tariffs during the period but this was offset in part by cost efficiencies and favorable mix relative to our plan.

We continue to expect tariff headwinds will remain manageable for the balance of 2025 and into 2026. And while we have the flexibility to take pricing as needed, we have no specific price increases planned to offset tariff-related inflation. We delivered adjusted EBITDA of $29 million in the quarter, above our guidance of $26 million to $28 million. We continue to invest in our long-term growth engines, including our methodic brand launch and other future brands. ODDITY Labs and our tech platform.

We had higher than planned media costs in the quarter and have seen the media backdrop improve as we progress into the fourth quarter. We delivered adjusted diluted earnings per share of $0.40 and compared to our guidance of $0.33 to $0.36. Adjusted diluted earnings per share exclude approximately $9 million of share-based compensation expense.

We delivered strong free cash flow of $90 million for the first 9 months of the year. This included around $16 million of outflows related to inventory as we built inventory from methodic and modified our inventory shipment timing for tariff lining purposes. We ended the quarter with $793 million of cash, cash equivalents and investments on our balance sheet with an additional $200 million available on our undrawn credit facility.

Turning to our outlook for 2025. After a strong first 9 months, we're on track for another record-breaking fiscal year and are once again raising full year guidance. We now expect full year 2025 net revenue will be between $806 million and $809 million, representing between 24% and 25% year-over-year growth. We expect gross margin will be approximately 72.5%. We expect adjusted EBITDA will be between $161 million and $163 million, and we expect adjusted diluted earnings per share will be between $2.10 and $2.12, assuming no share buybacks in 2025.

This full year outlook includes our expectation that revenue in the fourth quarter will increase between 21% and 23% year-over-year. You can find more details on our Q4 outlook in our press release.

With that, I'll turn the call back to the operator for questions.

[Operator Instructions] Our first question is from Dara Mohsenian with Morgan Stanley.

So Oran on the base business, can you just help us unpack the 40% year-to-date growth? You mentioned in international markets Obviously, that's been a greater focus for you guys year-to-date. What have been the key geographic drivers of growth there from a country standpoint. And then just as you look out to 2026, you mentioned further scaling the international business. Is that around further country penetration? Is it SpoiledChild expansion, just the key expansion or white space opportunities as you look going forward?

Sure. So the first 9 months, just to put things in perspective, still 83% of revenue came from the U.S. So although international grew 40%, is it still tiny comparing to the U.S. while for others, as you know, international is approximately 2/3 of their business. For us, it's still 17%. Our task to continue to responsibly grow across the board in international markets, but as we said in our remarks, it's a huge revenue and profit opportunity for us, and we see that it's strategically important for us. We scale international when we think it makes sense. We don't run spend in acquisition just because you want to grow international or because you see softness in the U.S. the opposite, where we see opportunity. This is where we push and we get more revenue.

This year, we grew 40%. But like the objective is not just to grow the international market. And in terms of countries today, existing countries, Zanata, U.K., Germany and Australia, Israel and France, new geographies, Italy, Spain, Netherlands, Hiland and Sweden and Denmark. Markets that we are adding is testing our Japan, Mexico, Korea, Belgium and a few others. But this year, only 2% of revenue came from new countries and the 15% came from existing countries. So basically, the majority of the growth came from countries that we already reacted in.

That's very helpful. And then just 1 on method IQ, just high level, any thoughts after you've done some testing there on how much ability the platform has to bring in new customers to the Audit franchise and perhaps over time, indirectly drive beauty sales and cross-sell. And just as you see initial interest in the platform, how much of that is coming from your existing consumer base versus a new consumer base?

Every new country is completely new because you don't have users there. So that's why it's -- in terms of cost, it costs more because like we don't have any existing users.

Oran, his question is on methodic. The question is on the methodic, right Dara?.

Sorry, I couldn't hear it. Yes, sorry. In terms of methodic, yes, of course, like spoil child and when we started the majority of revenue came from IL MAKIAGE and we expect that a decent percentage will come from Imagina for methodic. Of course, we are also doing user acquisition because we want to expand our user base. So it will be mixed. Over time, of course, when the brand grows, then we will have more acquisition, but then we are doing both.

Our next question is from Anna Lizzul with Bank of America.

Thank you so much for the question. on methodic, just wondering in terms of how we should be thinking about this brand for '26. Just wondering if you can continue to elaborate on how you're thinking about new customer acquisition for methodic. Just how can we think about it incrementally versus Spoiled Child and IL MAKIAGE? And just in terms of the investments that you're making, we previously expected, I guess, a larger headwind on the second half in SG&A and the guidance for Q4 implies that this might not be as bad as we previously expected. So just wondering if you can comment on this also for the beginning of '26 in the context of the new brand launch.

I will start with high level. Our expectation from [indiscernible] is to scale faster than Spoiled Child, which was 1 of the best to see launches of full time. And our expectation here is to see even bigger numbers in terms of contribution due to the fact that it's like relatively small at like Spoiled Child 25 million on -- and even if we do a bit more still comparing to our next year revenue goal is still tiny. So Lindsay, if you want to touch regarding contribution for both top line and bottom line and emetic.

Yes. No, that's right. We haven't given -- we're not ready to give any specific plans for 2026 for methodic. But of course, as we look long term, we're extremely bullish about the brand. This is a telehealth platform that is really reimagine what medical care would look like if it was built entirely around the customer. Oran talked about the world-class treatments we've put together, highest standards truly personalize the individual and broadly available to everyone available online. We're starting in dermatology. That's a focus for us right now, a market that we understand really well because we've got around half of our IL MAKIAGE and SpoiledChild users on ODDITY platform that [indiscernible] issues like acne and dark spots and eczema. So it's a nice place for us to begin, as we said with the earlier question.

And there's truly nothing like it on the market. So we're very, very bullish. But we are in very early stages. We had our soft launch on time in the third quarter. We just launched formally this week. -- a lot of very strong early signals, but still lots of work for us to do before we figure out our plans and the timing of scaling, et cetera, but we're really excited.

As far as the SG&A implied guidance for Q4 versus prior, I guess what I would say is historically, we like to guide to revenue. And then from a gross margin perspective, we always give the team a lot of flexibility. So we try to guide conservatively that allow them to kind of chase whatever products from a DC margin perspective, that's on gross margin after media spend. That's how we evaluate the business. We want them to have lots of flexibility to go after the right DC margin or other products that from a strategy perspective we're focused on. So gross margin is not an internal focus metric.

And as a result of our guidance, we try to walk you guys to a place where we feel really comfortable we can deliver, and we've historically delivered a bit better, but we're always managing towards that revenue and EBITDA figures. So I wouldn't read too much into that. We still have some nice investment plan for all of our growth initiatives, including methodic in the fourth quarter, and we talked about the growth investments in the first half of 2026 on our prior calls.

Our next question is from Youssef Squali with Truist Securities.

SP-6 I have 2, maybe just starting with 1 on -- we've seen a pretty mixed bag of earnings from various consumer-oriented companies this earnings season, I think you alluded to that a little bit in your prepared remarks. Can you maybe speak to your views about the health of the U.S. consumer right now -- and some of the things that you guys are doing in particular, just to help audit that trend? And then I have another question.

Sure. Yes, look, we see what you guys see regarding softness from life on the outside. But internally, as you can see based on our results, revenue is still like according to plan, even better. Margin was strong. This is despite the fact that we see like higher acquisition cost. And the main reason that we can offset it is just like the massive repeat that we have. And when I try to think about a way to like to think or to answer regarding softness, the first thing that I look at is obviously acquisition, but the second part is repeat. So yes, position is higher, but repeat is getting way higher every quarter. And therefore, we are not impacted.

Okay. Okay. That's great to hear. And then Lindsay, I know you're not guiding quite yet to 2026. But is the growth although for 2026, any different from what we've expected or what we've heard from you guys up until this point, which is committing to basically 20% top line, about 20% adjusted EBITDA margins. And maybe within that, maybe just talk about the marketing efficiency in the business that you're seeing.

Yes. We're not ready to give 2026 specific guidance. We'll give that when we issue our Q4 earnings results, but there's no change to our algorithm of 20% revenue growth and 20% adjusted EBITDA margin, and you heard Oran reiterate in his remarks earlier that the other sort of medium-term guidance that we've given for age to deliver $1 billion by 2028, there's no change to that either. So business continues to be on a very healthy footing.

As far as media efficiency goes, you heard Oran comments, we did have some higher acquisition costs. In my remarks, I mentioned the environment has actually improved for us. as we've gotten into the fourth quarter. Overall SG&A in the third quarter was up around 30%, and that's including some of the increased spending initiatives that we have, for example, for methodic oddity labs, et cetera. So it's been very manageable for us, and we're feeling really good as we head into Q4.

Our next question is from Andrew Boone with Citizens.

Lindsay, as we think about methodic being added to the model, is there anything that we should keep in mind in terms of the different financial profile, whether that be different AOVs, whether that be different margin profiles? Is there anything we should be considering as we think about the next 3 years and layering in that brand?

And then on ODDITY Labs, it's great to see molecules start to contribute to the portfolio in 2026. Can you guys just help us understand what the expectation is of proprietary molecules. It feels like a step function change in terms of what you guys can bring to market. How do we think about that -- and then what's the path beyond those 8 initial products? How do we think beyond this first step?

Oran, do you want me to start?

Yes, please.

So in terms of financial profile for methodic, over the long term, we see this brand in a very similar framework that we think about with IL MAKIAGE and Spoiled Child and those are brands that will support long-term compounding 20% revenue growth and 20% adjusted EBITDA margin. So very healthy unit economics. -- that we see for the category in general and that we think methodic will deliver, especially as it relates to repeat and other KPIs that build into LTV.

I think for the prescription product, in particular, we will have lower gross margins, especially at first will be we're always quite inefficient on the gross margin side when we launch a business. But in the case of prescription for methodic because you have the third-party physician network and also the compounding pharmacies. Those are extra cost for us. The business we expect will be mostly not prescription, but you do have some of the prescription cost input that will impact on the gross margin side. However, we think you're going to have a really nice repeat business there that drives healthy DC margin.

Probably too early to say much else, but we look forward to sharing a bit more as we progress post launch in 2026. As it relates to ODDITY Labs, maybe I'll start, and Oran, if you want to add additionally -- as you guys know, in 2024, we made a strategic pivot with labs where we decided to extend our development time lines in order to focus on delivering molecules that had much higher efficacy and far superior performance characteristics than what was on the market today. And so we knew that would delay some of the timing of certain launches, but we thought it was a really smart trade-off to make because we believe that we could produce things that were way better. And now you're starting to see the fruits of that labor.

So as we said, we expect in '26 that just for our existing brands, we'll have 8 products on the market, including for methodic I would describe the methodic brands products as some of them extremely innovative, addressing very important needs for the consumer. So we're really, really excited about that. And we have even additional -- we have a lot in the pipeline, including some molecules that we expect to be delivered with brand 4 and more beyond. So I would just say super happy to see how the level of improvement that we got out of the work that we put into ODDITY Labs.

I would just add that when we started labs, we built it -- we started then we build it again. It was hard because the first time that we've done something like it. And the fact that you're seeing so many products and so many molecules coming to market this year just shows like that what we've done was the right thing, and there is a real progress in labs. So we expect to see the same pace and even higher in the next few years. the fact that both methodic and our IL MAKIAGE brands are going to get molecules this year is very encouraging. And again, just it shows that like the strength and the progress that we've done, which is significant in the past 1.5 years.

Our next question is from Cory Carpenter with JPMorgan.

I have 2, Lindsay, probably both for you. Just hoping you could expand on the comments around the media environment and the higher acquisition costs now going a little lower. And anything in particular to call out on the search channel. And then capital allocation, you have a healthy cash balance. You have not purchased shares since the convert earlier this year. So maybe if you could just refresh us on your capital allocation priorities.

Sure. On the media side, media costs, as we've said before, they tend to get more expensive every year, but we are able to offset them really effectively with higher repeat and also other unlocks across our KPIs, including conversion and other things that focus on. So this has allowed us to deliver a very healthy, sustained profitable business. And repeats running at around, call it, 2/3 of our overall business. And we were really -- are really pleased to see that -- the -- I discussed the net revenue repeat cohorts like the 12-month cohorts and the cohorts that we examine are all continue to be really, really strong. So we think you're still seeing a healthy consumer environment and a solid environment for us to continue to deliver.

As far as our cash position goes, we're in a very strong position, almost $800 million of cash equivalents and investments on our balance sheet today. We post the convertible earlier this year. We view this as really efficient patient capital for us. that we have flexibility to do what we want with. So we, of course, have the opportunity to deploy it for buybacks. We have the opportunity to deploy it for M&A. And we feel like we're in a really strong position where we can be patient and selective about what we use it for.

Our next question is from Ryan MacDonald with Needham & Company.

As you look at the international success and into the test market, can you talk about how replicable like the data model in terms of targeting subscribers and new users and then sort of identifying maybe more local or geographic differences in terms of what their needs product-wise might be just as you continue to scale that international efforts? And then is your intent to immediately go international with methodic right away? Or are you going to take sort of a more measured sort of region-by-region approach like you've done with other brands in the past?

Sure. So first of all, regarding methodic, we stopped only U.S., it's complex enough without international. So by the way, SpoiledChild was the same for the past -- for the first almost 3 years within even Test International. So we plan to do the same with methodic. I'm not sure it is going to be 3 years, but I don't think it's going to be way less than that. Regarding international and what we -- exactly what you said, that's the reason why we do tests. And when I said that like we open market with a localized website and starting to put -- to spend mini against new users in those countries and to ship products. Based on that, we see a distraction, we see repeat. We see you in economics, then we decided this market is suitable for us or not. And that's how we -- that's what we have done for the past 2.5 years.

Our next question is from Scott Schoenhaus with KeyBanc Capital Markets.

On Methodic here, Lindsay, you mentioned the majority of revenues were going to be volumes are really coming from the nonprescription side versus prescription. -- are the molecules -- those 4 molecules also going to be for nonprescription versus prescription? And then as a follow-up on the prescription side, the physician network that you've built -- there's clearly a storage of dermatologists. And so this is an asset, how are you thinking about deploying technology to leverage more dermatologists on your network for patients

Thanks, Scott. So the 4 products are not prescriptions. They're a combination of OTC and cosmetic and again, we're really excited to have them out there, but those are not prescription products. And in fact, for ODDITY Labs we're not for the most part, -- and certainly, in the near to medium term, you won't see anything that's prescription coming from ODDITY Labs that will all be either OTC or cosmetic.

In terms of our physician network, we are currently plugged into third parties to help us with that. We have not brought that in-house, but we have the opportunity to do so for cost efficiency reasons down the road if we decide to do it. We -- the networks we're using now, we're using all physicians at the moment, not all dermatologists, but all 4 certified physicians -- and we can, of course, scale that to NPEs and other medical care practitioners down the road. There's the opportunity for that, but we're starting with all physicians as we build that and learn.

And I think from a technology standpoint, it's really us building capabilities that allow the network of clinicians to get the strongest signal as possible to help inform treatment decisions based on the inputs that we take, basically, when you're going through the methodic intake and onboarding funnel, we're picking up on the contextual real pathways and real signals that the same thing that you would look for if you were in an office, right? So you're looking at questions about demographics, hormonality, history and that kind of stuff, meanwhile, the vision tools are picking up signals like number of lesions, intensity and those kinds of signals that are really helpful for a clinician when making a decision about treatment outcomes.

So that's a really important part of our technology and then also just integrating our records directly with the provider systems that help the -- operate the clinician interface and help them to integrate with our tools.

And then I think finally, like within the methodic app, the ability to get feedback, progress tracking and to chat directly with your clinician to help drive things like confidence and most importantly, compliance and success, those are enormous ways we're using technology to drive the outcomes that we want.

Our next question is from Bonnie Herzog with Goldman Sachs.

I just have a question on IL MAKIAGE and SpoiledChild. Growth in the U.S. remains strong double digits for these brands, but it has moderated year-to-date versus last year. So could you talk about what this. And at the low 20% growth in the U.S. for these 2 brands is doable over the next few years? Or should we expect continued slowdown? I guess I'm asking, especially for IL MAKIAGE, could you touch on repeat rates for the brands and if these rates are also moderating?

I'll start by -- yes. I would just start by saying that -- and as I mentioned before, we manage growth across brands, and geographies. So like I don't wake up to more and say today, I need to see 25% in IL MAKIAGE in the U.S. and we look more broader, and we maximize the potential based on what we see in real time. So if Germany is working better at a specific day, this is where we push more and vice versa with them with Spoiled Child.

Lindsay, do you want to touch repeat?

Yes. I mean, just to add on that, like we're driving growth at the oddity level and our growth targets we're managing growth towards 20%. We don't want to grow faster than that. And so ever since our IPO, we have been very clear and explicit about our plans to sustain a 20% compounded durable growth. And that's exactly what we've been delivering on and we're managing it at the ODDITY level and we'll pull different levers within the different brands, specific to IL MAKIAGE, our target is to get to $1 billion by 2028. And we've always talked about international being an important piece of that. And so you're seeing us flex on the international part now.

At the same time, we want to make sure we're feeding Spoiled Child and now we have a third baby to give oxygen to. So we're managing it as a portfolio in order to deliver an overall ODDITY level growth.

I think in terms of repeat, no, repeats continue to be very, very strong.

Our next question is from Georgia Anderson with Evercore ISI.

I was wondering if you could talk a little bit about the TAM for methodic. Are you guys kind of defining this as all chronic skin sufferers in the U.S. or global or is it a narrow cohort, acne or eczema patients are willing to pay out of pocket. And then just kind of in terms of measuring success of the brand, do you have any milestones or KPIs that would give you confidence that methodic is scaling towards full TAM.

Lee, I'll start with the KPIs, and you'll talk about them. So like we soft launched in September, official launch this week. So of course, very early, but -- and based on what we see earlier the demand is there, the KPI that we look at now is acquisition, repeat, up downloads, open rates and weekly check-ins -- and like when we see those KPIs as we envision they are, then we will start scaling.

In terms of the TAM, the right way we think to look at this is number of people rather than dollar size. And the reason for that is because it's such a high friction market and 1 that hasn't been run well that we think if you actually can unleash some technology that leads to better outcomes and easier outcomes for people to access, you're going to see the overall market grow. And for these chronic skin conditions like acne and hyperpigmentation and eczema, I mean, your solutions are, number one, go to a dermatologist, Oran talked about 2/3 of U.S. counties don't even have a dermatologist. Your average wait times are over a month. People spend hours commuting to from plus sitting in the waiting room and waiting for a doctor's office.

So it's a real pain in the neck. And it's not a great experience. So it's something people avoid. And then your alternative of going through the drugstore, bouncing around with low efficacy products that don't really work overall stifled the total potential size of the market. We think that by really opening up this much better user experience, highest standards of care, world-class treatments made available easily to everybody online, you're actually going to see the overall market size growing, that's why we're unleashing. We think it's like probably the biggest wave of innovation to dermatology in decades and made ever. So we're really excited about it.

And then if you look at just the number -- the people, which is what we think is the right way to look at it in America, you've got million Americans, around 50 million with acne around 30 million with dark spots hyperpigmentation around 30 million with eczema. And just on our platform alone, we see the deep prevalence of these issues, a lot of people are buying foundation from IL MAKIAGE to cover them up. So it's a natural place now that we have new tools and an effective way to address it for us to expand into.

Our next question is from Lauren Lieberman with Barclays.

I was just curious to talk a little bit about launch plans for methodic and sort of learnings maybe from Spoiled because you did -- I recall that you did billboards for Spoiled, I see that you're doing it from methodic. You talked about it being sort of the biggest , I think you the biggest tiktok activation. So just curious about how you made decisions around the non-online portions of the launch and for how long you expect to have these kind of big TikTok activations going out because it's something where you get lots of attention to say, but how should we think about that ongoing TikTok activation to get the brand's awareness up?

Sure. So it's a third brand that we are launching, and we've done the same more or less with all off-line activation out of the gate for IL MAKIAGE, Spoiled Child and now in New York, we have the same with methodic. Regarding TikTok the biggest companies on so far. And we started now and we plan to continue until end of Q1.

Our next question is from Brian Tim Killa with Jefferies.

Maybe I'll follow up on Bonnie's question from earlier. As I think through the makeup of the growth rate for the quarter, very strong growth, obviously. How should we be thinking about volume versus pricing versus mix in that growth rate for the term product lines?

The biggest driver of the vast majority of our revenue is driven just purely by orders. AOV was down around 1%, so essentially flat and order growth historically and in the future will be the dominant driver of our revenue growth.

Understand. And if I may ask a follow-up, my follow-up question would just be, as we think about methodic -- is this going to be primarily a compounded drug product offering? Or is there a compounded version here? And how should we be thinking about like margin differentials between the 2, if that was the case?

So the business today is a combination of nonprescription and prescription, like we said, we think the prescription will be the smaller part of the business. And within the prescription, we're contemplating compounded products today with potential in the future, of course, to evolve, but that's the business model now.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Oran for closing remarks.

Thank you very much for joining us today. See you next quarter. Bye-bye.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.