OLAPLEX Reports Third Quarter 2021 Results

Delivers strong third quarter results
Completed Initial Public Offering
Company Introduces Fiscal 2021 Outlook

SANTA BARBARA, Calif., Nov. 10, 2021 (GLOBE NEWSWIRE) -- Olaplex Holdings, Inc. (NASDAQ: OLPX) (“OLAPLEX” or the “Company”), an innovative, science-enabled, technology-driven beauty company, focused on delivering its patent-protected premium hair care products to professional hair salons, retailers, and everyday consumers, today announced financial results for the third quarter and nine months ended September 30, 2021.

JuE Wong, OLAPLEX’s President and Chief Executive Officer, commented: “We delivered an outstanding third quarter highlighted by significant growth across our key financial metrics, reflecting the power of our disruptive business model focused on improving hair health with great products backed by science.   Our third quarter net sales increase of 81% year-over-year was fueled by broad-based strength for our OLAPLEX regimen across our omnichannel distribution globally and a favorable response to our new product introductions.   During the quarter, we also marked a milestone for our company as we completed our initial public offering.   I want to thank our entire team and partners for their hard work and dedication toward this significant event.   As we look ahead, we believe OLAPLEX is well positioned for long term growth.   I am extremely proud of our passionate and devoted team that continues to contribute to our performance this quarter and look forward to continuing our successful growth as a public company for the benefit of all OLAPLEX stakeholders.”

For the third quarter of 2021, compared to the third quarter of 2020:

  • Net sales increased 81% to $161.6 million reflecting strong growth across all channels of distribution driven by increased velocity of existing products, the launch of new products, and the addition of new customers, both in the U.S. and Internationally.
    By channel:
    • Professional increased 57.6% to $75.0 million, or 46.4% of net sales
    • Specialty Retail grew 128.1% to $46.3 million, or 28.7% of net sales
    • Direct-To-Consumer (DTC) rose 86.9% to $40.3 million, or 24.9% of net sales;
  • Gross profit increased 103% to $127.5 million and gross margin increased 870 basis points to 78.9%;
  • Adjusted gross profit increased 78% to $129.2 million, or an adjusted gross margin of 79.9%.   This compares to adjusted gross profit of $72.6 million, or an adjusted gross margin of 81.2%, in the third quarter of 2020.  
  • Net income increased 99.9% to $56.6 million, or $0.08 per diluted share compared to $0.04 per diluted share in the third quarter of 2020;
  • Adjusted net income was $74.4 million, or $0.11 per diluted share, compared to Adjusted net income of $45.8 million, or $0.07 per diluted share in the 2020 third quarter; and
  • Adjusted EBITDA increased 63.3% to $106.8 million, or 66.1% of net sales, compared to $65.4 million, or 73.1% in the third quarter of 2020. Adjusted EBITDA in the third quarter this year was negatively impacted by $4.3 million, or 265 basis points, expressed as a percentage of sales, due to incremental costs related to accelerated vesting of cash-settled unit awards and the re-valuation of non-vested cash-settled unit awards for non-executive employees due to the valuation of the Company at the time of the initial public offering.

Adjusted gross profit, adjusted gross margin, adjusted net income, adjusted diluted EPS and adjusted EBITDA are measures that are not calculated or presented in accordance with generally accepted accounting principles in the United States (“GAAP”). For more information about how we use these non-GAAP financial measures in our business, the limitations of these measures, and a reconciliation of these measures to the most directly comparable GAAP measures, please see "Disclosure Regarding Non-GAAP Measures" and the reconciliation tables that accompany this release.


Third Quarter Highlights

(Dollars in $000’s)   Q3 2021   Q3 2020   % Change
Net Sales   $ 161,624     $ 89,447     80.7 %
Gross Profit   $ 127,482     $ 62,776     103.1 %
Adjusted Gross Profit   $ 129,162     $ 72,622     77.9 %
Net Income   $ 56,591     $ 28,315     99.9 %
Adjusted Net Income   $ 74,434     $ 45,780     62.6 %
Adjusted EBITDA   $ 106,842     $ 65,421     63.3 %
Diluted EPS   $ 0.08     $ 0.04     100.0 %
Adjusted Diluted EPS   $ 0.11     $ 0.07     57.1 %
Weighted average Diluted Shares Outstanding   690,711,782     653,036,893      

See “Disclosure Regarding Non-GAAP Financial Measures” and the reconciliation tables that accompany this release for a discussion and reconciliation of certain non-GAAP financial measures included in this release.


Nine Month Highlights

(Dollars in $000’s)   9M YTD 2021   9M YTD 2020   % Change
Net Sales   $ 431,867     $ 189,055     128.4 %
Gross Profit   $ 341,609     $ 105,252     224.6 %
Adjusted Gross Profit   $ 348,008     $ 154,338     125.5 %
Net Income   $ 151,473     $ 5,890     NM  
Adjusted Net Income   $ 204,257     $ 85,108     140.0 %
Adjusted EBITDA   $ 298,106     $ 133,452     123.4 %
Diluted EPS   $ 0.22     $ 0.01     NM  
Adjusted Diluted EPS   $ 0.30     $ 0.13     130.8 %
Weighted average Diluted Shares Outstanding   689,108,272     632,877,840      

See “Disclosure Regarding Non-GAAP Financial Measures” and the reconciliation tables that accompany this release for a discussion and reconciliation of certain non-GAAP financial measures included in this release.


Balance Sheet

As of September 30, 2021, the Company had $121.5 million of cash and cash equivalents, compared to $121.6 million as of September 30, 2020. Inventory at quarter end was $69.1 million, compared to $21.3 million at the end of the fiscal 2020 third quarter.   The Company is pleased with the level and composition of its inventory at quarter end and believes it is positioned to meet demand.   Long-term debt, net of current portion, was $742.4 million compared to $448.9 million as of the end of the prior year period.  

Initial Public Offering and Basis of Presentation

On October 4, 2021, the Company completed an initial public offering of 73,700,000 shares of its common stock (the “IPO”). All shares sold in the IPO were sold by certain existing stockholders of the Company at a public offering price of $21 per share.    The selling stockholders received net proceeds of approximately $1.466 million, after deducting underwriting discounts and commissions. Th Company’s shares began trading on the Nasdaq Global Select Market on September 30, 2021 under the ticker symbol “OLPX”.   On October 8, 2021, the selling stockholders sold 11,055,000 additional shares of common stock pursuant to the full exercise by the underwriters of their option to purchase additional shares at the initial public offering price of $21 per share.   The selling shareholders received net proceeds of approximately $220 million, after deducting underwriting discounts and commissions, for the sale of these additional shares. OLAPLEX did not receive any proceeds from the sales of the shares by the selling stockholders.  

The financial statements for prior periods give effect to the Reorganization, discussed in final prospectus dated September 29, 2021 related to the IPO, filed with the Securities and Exchange Commission (the “SEC”) on October 1, 2021 (the “Prospectus”), including the exchange of all 960,184 units of Penelope Group Holdings, L.P. for an aggregate of 648,124,642 shares of common stock of Olaplex Holdings, Inc., which is equivalent to an overall exchange ratio of one-for-675. All share and earnings per share amounts presented herein have been retroactively adjusted to give effect to the Reorganization as if they occurred in all prior periods presented.

Partial Early Release of IPO Lock-Up Agreements

Pursuant to the terms of the lock-up agreements entered into by OLAPLEX’s equity holders, executive officers and directors with the underwriters of OLAPLEX’s initial public offering, the lock-up restrictions will end with respect to 15% of the shares (including shares underlying vested stock options) subject to each lockup agreement if certain share price and other conditions are met. The conditions for early release have now been satisfied. Accordingly, OLAPLEX expects that approximately 85.4 million shares (including certain shares underlying vested stock options) will become eligible for sale in the public market at the open of trading on November 15, 2021, subject to applicable restrictions under the Securities Act of 1933, as amended. OLAPLEX estimates that of the approximately 85.4 million shares that will become eligible for sale, approximately 79.6 million will be held by affiliates.

The lock-up restrictions will continue to apply with respect to all remaining securities subject to the lock-up agreements.


Outlook

The Company is introducing its outlook for Fiscal Year 2021.

For Fiscal 2021:      
(Dollars in millions) 2021 2020 Actual % change
(based on mid-point)

Net Sales $580 - $588   $282 +107 %
Adjusted Net Income* $263 - $268   $131 +103 %
Adjusted EBITDA* $392 - $398   $199 +98 %

*Adjusted Net Income and Adjusted EBITDA are non-GAAP measures. See “Disclosure Regarding Non-GAAP Financial Measures” and the reconciliation tables that accompany this release for a discussion and reconciliation of certain non-GAAP financial measures included in this release.


Webcast and Conference Call Information

Olaplex Holdings, Inc. will host a conference call to discuss third quarter fiscal 2021 results today, November 10, 2021, at 9:00am ET. Those interested in participating in the conference call are invited to dial (833) 711-4979 (participant passcode 6771429). International callers may dial (213) 660-0866. The live webcast of the conference call will be available online at https://ir.olaplex.com/. A replay of the webcast will remain available on the website for 90 days.

About OLAPLEX

OLAPLEX is an innovative, science-enabled, technology-driven beauty company with a mission to improve the hair health of its consumers. A revolutionary brand, OLAPLEX paved the way for a new category of hair care called “bond-building,” the process of protecting, strengthening and rebuilding broken bonds in the hair during and after hair services. The brand’s products have an active, patent-protected ingredient that works on a molecular level to protect and repair hair from damage. OLAPLEX’s award-winning products are sold through a global omni-channel platform serving the professional, specialty retail, and direct-to-consumer channels.

Cautionary Note Regarding Forward-Looking Statements

This press release includes forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by, and information currently available to, the Company.   These forward-looking statements generally can be identified by the use of words such as “may,” “will,” “could,” “should,” “intend,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “target,” “predict,” “project,” “seek” and similar expressions as they relate to us.   These forward-looking statements address various matters including: our financial position and operating results; business plans and objectives; growth and expansion opportunities; and expenses, working capital and liquidity. These statements reflect management’s current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Each forward-looking statement contained in this press release is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement.   Applicable risks and uncertainties include, among others: the Company’s ability to execute on its growth strategies and expansion opportunities; increased competition causing the Company to reduce the prices of its products or to increase significantly its marketing efforts in order to avoid losing market share; the Company’s existing and any future indebtedness, including the Company’s ability to comply with affirmative and negative covenants under its credit agreement to which it will remain subject to until maturity, and the Company’s ability to obtain additional financing on favorable terms or at all; the Company’s dependence on a limited number of customers for a significant portion of its net sales; the Company’s ability to effectively market and maintain a positive brand image; changes in consumer preferences or changes in demand for haircare products or other products the Company may develop; the Company’s ability to accurately forecast consumer demand for its products; the Company's ability to maintain favorable relationships with suppliers and manage our supply chain, including obtaining and maintaining shipping distribution and raw materials at favorable pricing; the Company’s relationships with and the performance of distributors and retailers who sell its products to haircare professionals and other customers; impacts on the Company’s business due to the sensitivity of its business to unfavorable economic and business conditions; the Company’s ability to develop, manufacture and effectively and profitably market and sell future products; failure of markets to accept new product introductions; the Company's ability to attract and retain senior management and other qualified personnel; regulatory changes and developments affecting the Company's current and future products; the Company’s ability to service its existing indebtedness and obtain additional capital to finance operations and its growth opportunities; impacts on the Company’s business from political, regulatory, economic, trade, and other risks associated with operating internationally including volatility in currency exchange rates, and imposition of tariffs; the Company’s ability to establish and maintain intellectual property protection for its products, as well as the Company’s ability to operate its business without infringing, misappropriating or otherwise violating the intellectual property rights of others; the impact of material cost and other inflation and our ability to pass on such increases to customers; the impact of changes in laws, regulations and administrative policy, including those that limit U.S. tax benefits or impact trade agreements and tariffs; the outcome of litigation and governmental proceedings; impacts on the Company’s business from the COVID-19 pandemic; and the other risks identified under the heading “Risk Factors” in the Prospectus, as well as the other information we file with the SEC.   The Company cautions investors not to place considerable reliance on the forward-looking statements contained in this press release.   You are encouraged to read the Company’s filings with the SEC, available at www.sec.gov, for a discussion of these and other risks and uncertainties. The forward-looking statements in this press release speak only as of the date hereof, and the Company undertakes no obligation to update or revise any of these statements.   The Company’s business is subject to substantial risks and uncertainties, including those referenced above.   Investors, potential investors, and others should give careful consideration to these risks and uncertainties.

Disclosure Regarding Non-GAAP Financial Measures

In addition to the financial measures presented in this release in accordance GAAP, the Company has included certain non-GAAP financial measures in this release, including adjusted EBITDA, adjusted net income, adjusted gross profit, adjusted gross profit margin, and Adjusted diluted EPS. Management believes these non-GAAP financial measures, when taken together with the Company’s financial results presented in accordance with GAAP, provide meaningful supplemental information regarding the Company’s operating performance and facilitates internal comparisons of its historical operating performance on a more consistent basis by excluding certain items that may not be indicative of its business, results of operations or outlook. In particular, management believes that the use of these non-GAAP measures is helpful to investors as they are measures used by management in assessing the health of the Company’s business, determining incentive compensation and evaluating its operating performance, as well as for internal planning and forecasting purposes.

The Company defines adjusted EBITDA as net income before interest, taxes, depreciation and amortization, adjusted for the impact of certain additional non-cash and other items that management does not consider in its evaluation of ongoing performance of the Company’s core operations. These items include IPO and strategic transition costs, non-cash equity-based compensation expense, tax receivable agreement liability adjustments and other one-time expenses. The Company defines adjusted net income as net income adjusted for the impact of certain additional non-cash and other items that management does not consider in its evaluation of ongoing performance of the Company’s core operations. These items include amortization of intangible assets, IPO and strategic transition costs, non-cash equity-based compensation expense, tax receivable agreement liability adjustments and other one-time expenses.   The Company defines adjusted diluted EPS as adjusted net income divided by fully diluted shares outstanding. We calculate adjusted gross profit as gross profit, adjusted to exclude: (1) fair value inventory step-up adjustment amortization and (2) amortization of patented formulations, pertaining to the Acquisition. We calculate adjusted gross profit margin by dividing adjusted gross profit by net sales.

Please refer to “Reconciliation of Non-GAAP Financial Measures to GAAP Equivalents” located in the financial supplement in this release for a reconciliation of these non-GAAP metrics to their most directly comparable financial measure stated in accordance with GAAP.

This release includes forward-looking guidance for adjusted EBITDA and adjusted net income.   The Company is not able to provide, without unreasonable effort, a reconciliation of the guidance for adjusted EBITDA and adjusted net income to the most directly comparable GAAP measure because the Company does not currently have sufficient data to accurately estimate the variables and individual adjustments included in the most directly comparable GAAP measure that would be necessary for such reconciliations, including (a) income tax related accruals given currently proposed legislative changes and other one-time items, (b) impacts to our Tax Receivable Agreement liability that would arise from proposed legislative changes (c) certain professional fees, and (c) other expenses that we do not believe are indicative of our ongoing operations. These adjustments are inherently variable and uncertain and depend on various factors that are beyond our control and as a result we are also unable to predict their probable significance. Therefore, because management cannot estimate on a forward-looking basis without unreasonable effort the impact these variables and individual adjustments will have on its reported results in accordance with GAAP, it is unable to provide a reconciliation of the non-GAAP measures included in its 2021 guidance.


CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
(Unaudited)

  September 30,
2021
  December 31,
2020
Assets      
Current Assets:      
Cash and cash equivalents $ 121,479     $ 10,964  
Accounts receivable, net of allowance of $6,867 and $1,362 59,283     14,377  
Inventory 69,088     33,596  
Other current assets 8,182     2,422  
Total current assets 258,032     61,359  
Property and equipment, net 806     34  
Intangible assets, net 1,054,962     1,092,310  
Goodwill 168,300     168,300  
Deferred taxes 6,978     10,830  
Investment in nonconsolidated entity 4,500      
Total assets $ 1,493,578     $ 1,332,833  
       
Liabilities and stockholders’ equity      
Current Liabilities:      
Accounts payable $ 14,303     $ 16,815  
Accrued expenses and other current liabilities 30,894     9,862  
Current portion of long-term debt 20,112     20,112  
Total current liabilities 65,309     46,789  
Related Party payable pursuant to Tax Receivable Agreement 232,893      
Long-term debt 742,371     755,371  
Total liabilities 1,040,573     802,160  
       
Contingencies (Note 14)      
       
Stockholders’ equity (Notes 1 and 12):      
Common stock, $— par value per share; 2,000,000,000 shares authorized, 648,124,642 and 647,888,387 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 648     648  
Preferred stock, $0.001 par value per share; 25,000,000 shares authorized and no shares issued and outstanding      
Additional paid-in capital 300,884     530,025  
Retained earnings 151,473      
Total stockholders’ equity 453,005     530,673  
Total liabilities and stockholders’equity $ 1,493,578     $ 1,332,833  
 
 



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(amounts in thousands, except per share and share data)
(Unaudited)

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2021   2020   2021   2020
Net sales $ 161,624       $ 89,447       $ 431,867       $ 189,055  
Cost of sales:              
Cost of product (excluding amortization) 32,462       24,569       83,859       79,236  
Amortization of patented formulations 1,680       2,102       6,399       4,567  
Total cost of sales 34,142       26,671       90,258       83,803  
Gross profit 127,482       62,776       341,609       105,252  
Operating expenses:              
Selling, general, and administrative 30,257       8,215       75,323       23,291  
Amortization of other intangible assets 10,182       10,182       30,547       29,643  
Acquisition costs       488             16,499  
Total operating expenses 40,439       18,885       105,870       69,433  
Operating income 87,043       43,891       235,739       35,819  
Interest (expense) (14,987 )     (9,794 )     (46,052 )     (28,577 )
Other (expense) income, net (213 )     (29 )     (417 )     (155 )
Income before provision for income taxes 71,843       34,068       189,270       7,087  
Income tax provision 15,252       5,753       37,797       1,197  
Net income $ 56,591       $ 28,315       $ 151,473       $ 5,890  
Comprehensive income $ 56,591       $ 28,315       $ 151,473       $ 5,890  
Net income per share:              
Basic $ 0.09       $ 0.04       $ 0.23       $ 0.01  
Diluted $ 0.08       $ 0.04       $ 0.22       $ 0.01  
Weighted average common shares outstanding:              
Basic 648,124,642       647,888,387       648,082,081       631,143,589  
Diluted 690,711,782       653,036,893       689,108,272       632,877,840  
                             
                             



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(Unaudited)

  Nine Months Ended
September 30,
  2021   2020
Cash flows from operating activities      
Net income $ 151,473       $ 5,890  
Adjustments to reconcile net income to net cash provided by operating activities: (21,148 )     78,619  
Net cash provided by operating activities 130,325       84,509  
Net cash used in investing activities (5,359 )     (1,381,640 )
Net cash (used in) provided by financing activities (14,451 )     1,418,716  
Net increase in cash and cash equivalents 110,515       121,585  
Cash and cash equivalents - beginning of period 10,964        
Cash and cash equivalents - end of period $ 121,479       $ 121,585  

The following tables present a reconciliation of net income and gross profit, as the most directly comparable financial measure stated in accordance with U.S. GAAP, to adjusted EBITDA, adjusted EBITDA margin, adjusted gross profit, adjusted gross profit margin, adjusted net income and adjusted net income per share for each of the periods presented.



  For the Three Months Ended
September 30,
  For the Nine Months Ended
September 30,
(in thousands) 2021   2020   2021   2020
Reconciliation of Net Income to Adjusted EBITDA              
Net income $ 56,591     $ 28,315     $ 151,473     $ 5,890  
Interest expense 14,987     9,794     46,052     28,577  
Income tax provision 15,252     5,753     37,797     1,197  
Depreciation and amortization of intangible assets 11,949     12,284     37,033     34,210  
Acquisition transaction costs and financing fees (1)     1,015         18,122  
Costs incurred for LIQWD Matters (2)         14,250      
Inventory fair value adjustment (3)     7,744         44,519  
Share-based compensation 1,945     516     3,119     937  
Non-capitalizable IPO and strategic transition costs (4) 6,118         8,382      
Adjusted EBITDA $ 106,842     $ 65,421     $ 298,106     $ 133,452  
Adjusted EBITDA margin 66.1 %   73.1 %   69.0 %   70.6 %
                       




  For the Three Months Ended
September 30,
  For the Nine Months Ended
September 30,
(in thousands) 2021   2020   2021   2020
Reconciliation of Gross Profit to Adjusted Gross Profit              
Gross profit $ 127,482     $ 62,776     $ 341,609     $ 105,252  
Inventory fair value adjustment (3)     7,744         44,519  
Amortization of patented formulations 1,680     2,102     6,399     4,567  
Adjusted gross profit $ 129,162     $ 72,622     $ 348,008     $ 154,338  
Adjusted gross profit margin 79.9 %   81.2 %   80.6 %   81.6 %




  For the Three Months
Ended September 30,
  For the Nine Months
Ended September 30,
(in thousands) 2021   2020   2021   2020
Reconciliation of Net Income to Adjusted Net Income              
Net income $ 56,591       $ 28,315       $ 151,473       $ 5,890  
Amortization of intangible assets 11,862       12,284       36,946       34,210  
Acquisition transaction costs and financing fees (1)       1,015             18,122  
Costs incurred for LIQWD Matters (2)             14,250        
Inventory fair value adjustment (3)       7,744             44,519  
Share-based compensation 1,945       516       3,119       937  
Non-capitalizable IPO and strategic transition costs (4) 6,118             8,382        
Tax effect of adjustments (5) (2,082 )     (4,094 )     (9,913 )     (18,570 )
Adjusted net income $ 74,434       $ 45,780       $ 204,257       $ 85,108  
Adjusted net income per share:              
Basic $ 0.11       $ 0.07       $ 0.32       $ 0.13  
Diluted $ 0.11       $ 0.07       $ 0.30       $ 0.13  


(1) Includes acquisition costs related to the Acquisition of the Olaplex business and dividend financing costs.
(2) Includes costs incurred related to the resolution of the LIQWD Matters of $14.3 million as discussed in Note 13 to the unaudited condensed consolidated interim financial statements included elsewhere in the Prospectus.
(3) Includes the non-cash, non-recurring fair value inventory step-up adjustment amortization as part of the purchase accounting on the Acquisition Date, utilizing the comparative sales method in accordance with ASC 820-10-55-21.
(4) Represents non-capitalizable professional fees and executive severance incurred in connection with the IPO and the Company’s public company transition.
(5) The tax effect of non-GAAP adjustments is calculated by applying the applicable statutory tax rate by jurisdiction to the non-GAAP adjustments listed above, taking into consideration the estimated total tax impact of the adjustments.
   

Contacts:

ICR, Inc.

For Investors:
Allison Malkin
Annie Erner

For Media:
Alecia Pulman
Brittany Fraser

Olaplex@icrinc.com
203.682.8220

 


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Source: Olaplex Holdings, Inc.