10-Q: Quarterly report [Sections 13 or 15(d)]
Published on May 8, 2025
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
________________________
FORM 10-Q
________________________
(Mark One)
For the quarterly period ended March 31, 2025
or
For the transition period from __________ to __________
Commission File Number
001-40860
________________________
(Exact name of registrant as specified in its charter)
________________________
|
|
|||||||
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
(Address of principal executive offices and zip code)
(
310 ) 691-0776
(Registrant’s telephone number, including area code)
________________________
Securities
registered pursuant to Section 12(b) of the Act:
Title
of Each Class
|
Trading
Symbol(s)
|
Name
of each exchange on which registered
|
||||||||||||
|
|
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit such files).
Yes
☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large Accelerated Filer | ☐ |
|
☒ | ||||||||
Non-accelerated Filer | ☐ | Smaller reporting company |
|
||||||||
Emerging growth company |
|
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange
Act). Yes ☐ No
☒
As
of May 2, 2025, registrant had
665,922,884 shares of common stock, par value $0.001 per share, outstanding.
OLAPLEX HOLDINGS, INC.
TABLE OF CONTENTS
Page | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
1
GLOSSARY
As
used in this Quarterly Report on Form 10-Q (“Quarterly Report”), the terms identified below have the
meanings specified below unless otherwise noted or the context indicates otherwise. Except where the context
otherwise requires or where otherwise indicated, the terms “OLAPLEX”
“we,” “us,” “our,” “the Company,” and “our business” refer to Olaplex
Holdings, Inc.
and its consolidated subsidiaries.
•“2022
Credit Agreement”
refers to the Credit Agreement, dated as of February 23, 2022, by and among Olaplex, Inc., Penelope
Intermediate Corp., Goldman Sachs Bank USA, as administrative agent, collateral agent and swingline lender,
and each lender and issuing bank from time to time party thereto. The 2022 Credit Agreement includes, among
other things, a $675 million seven-year senior-secured term loan facility (the “2022 Term Loan Facility”)
and a $150 million five-year senior-secured revolving credit facility (the “2022 Revolver”).
•“IPO”
refers to the initial public offering of shares of common stock of Olaplex Holdings, Inc., completed on
October 4, 2021.
•“Penelope”
refers to Penelope Holdings Corp., which is an indirect parent of Olaplex, Inc., the Company’s primary
operating subsidiary.
•“Penelope
Group Holdings”
refers to Penelope Group Holdings L.P., which prior to the IPO was the direct parent of Penelope.
•“Pre-IPO
Stockholders”
refers to, collectively, (i) the former limited partners of Penelope Group Holdings prior to the
Reorganization Transactions and (ii) holders of options to purchase shares of common stock of Penelope that
were vested as of the consummation of the Reorganization Transactions.
•“Pre-IPO
Tax Assets”
refers to, collectively, certain tax attributes existing prior to the IPO, including tax basis in intangible
assets and capitalized transaction costs relating to taxable years ending on or before the date of the IPO
(calculated by assuming the taxable year of the relevant entity closes on the date of the IPO), that are
amortizable over a fixed period of time (including in tax periods beginning after the IPO) and which are
available to us and our wholly-owned subsidiaries.
•“Reorganization
Transactions”
refers to the internal reorganization completed in connection with our IPO, pursuant to which Olaplex
Holdings, Inc. became an indirect parent of Olaplex, Inc. For further information, see “Reorganization
Transactions” in “Note 1 - Nature of Operations and Basis of Presentation” to our Consolidated Financial
Statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31,
2024.
•“Tax
Receivable Agreement”
refers to the income tax receivable agreement entered into by the Company in connection with the
Reorganization Transactions under which the Company is required to pay the Pre-IPO Stockholders 85% of the
cash savings, if any, in United States (“U.S.”) federal, state or local tax that the Company actually
realizes on its taxable income following the IPO, as specified in the Tax Receivable Agreement.
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Quarterly Report contains certain forward-looking statements and information relating to us that are based
on the beliefs of our management as well as assumptions made by, and information currently available to, us.
These statements include, but are not limited to, statements about our strategies, plans, objectives,
expectations, intentions, expenditures and assumptions and other statements contained in or incorporated by
reference in this Quarterly Report that are not historical or current facts. When used in this document,
words such as “may,” “will,” “could,” “should,” “intend,” “potential,” “continue,” “anticipate,” “believe,”
“estimate,” “expect,” “plan,” “target,” “predict,” “project,” “forecast,” “seek” and similar expressions as
they relate to us are intended to identify forward-looking statements.
The
forward-looking statements in this Quarterly Report reflect our current expectations and projections about
future events and financial trends that we believe may affect our business, financial condition and results
of operation. Examples of forward-looking statements include, among others, statements we make regarding:
our financial position, liquidity, capital structure, sales and operating results; our business plans,
strategies, investments and objectives; demand for our products; general economic and industry trends,
including tariffs; our business prospects; our marketing and brand strategies; innovation and new product
introduction; our international operations; legal proceedings and related costs; changes in laws and
regulations; future payments under our Tax Receivable Agreement; our supply chain and global distribution
network; interest rate derivatives; and our evaluation of goodwill. Forward-looking statements are
predictions based upon assumptions that may not prove to be accurate, and they are not guarantees of future
performance. As such, you should not place significant reliance on our forward-looking statements. Neither
we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking
statements, including any such statements taken from third party industry and market reports.
Forward-looking
statements involve known and unknown risks, inherent uncertainties and other factors that are difficult to
predict which may cause our actual results, performance, time frames or achievements to be materially
different from any future results, performance, time frames or achievements expressed or implied by the
forward-looking statements, including, without limitation, the following:
•our
dependence on the success of our business transformation plan;
•competition
in the beauty industry;
•our
ability to effectively maintain and promote a positive brand image, expand our brand awareness and maintain
consumer confidence in the quality, safety and efficacy of our products;
•our
ability to anticipate and respond to market trends and changes in consumer preferences and execute on our
growth strategies and expansion opportunities, including with respect to new product introductions;
•our
ability to accurately forecast customer and consumer demand for our products;
•our
ability to limit the illegal distribution and sale by third parties of counterfeit versions of our products
or the unauthorized diversion by third parties of our products;
•our
dependence on a limited number of customers for a large portion of our net sales;
•our
ability to develop, manufacture and effectively and profitably market and sell future products;
•our
ability to attract new customers and consumers and encourage consumer spending across our product
portfolio;
•our
ability to successfully implement new or additional marketing efforts;
•our
relationships with and the performance of our suppliers, manufacturers, distributors and retailers and our
ability to manage our supply chain;
•impacts
on our business from political, regulatory, economic, trade and other risks associated with operating
internationally;
•our
ability to manage our executive leadership changes and to attract and retain senior management and other
qualified personnel;
•our
reliance on our and our third-party service providers’ information technology;
•our
ability to maintain the security of confidential information;
•our
ability to establish and maintain intellectual property protection for our products, as well as our ability
to operate our business without infringing, misappropriating or otherwise violating the intellectual
property rights of others;
•the
outcome of litigation and regulatory proceedings;
3
•the
impact of changes in federal, state and international laws, regulations and administrative policy, including
tariffs and other trade policies;
•our
existing and any future indebtedness, including our ability to comply with affirmative and negative
covenants under the 2022 Credit Agreement;
•our
ability to service our existing indebtedness and obtain additional capital to finance operations and our
growth opportunities;
•volatility
of our stock price;
•our
“controlled company” status and the influence of investment funds affiliated with Advent International, L.P.
over us;
•the
impact of general economic conditions, disruptions in business conditions, and the financial strength of our
consumers and customers on our business;
•fluctuations
in our quarterly results of operations;
•changes
in our tax rates and our exposure to tax liability; and
•the
other factors identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended
December 31, 2024 (the “2024 Form 10-K”) and in other documents that we file with the U.S. Securities and
Exchange Commission from time to time.
Many
of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual
results, performance or achievements may vary materially from those described in this Quarterly Report as
anticipated, believed, estimated, expected, intended, planned or projected. We discuss many of these risks
in greater detail in the “Risk Factors” section of our 2024 Form 10-K. The forward-looking statements
included in this Quarterly Report are made only as of the date hereof. Unless required by law, we neither
intend nor assume any obligation to update these forward-looking statements for any reason after the date of
this Quarterly Report to conform these statements to actual results or to changes in our expectations or
otherwise.
4
PART I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
(unaudited)
OLAPLEX HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts
in thousands, except per share and share data)
(Unaudited)
March
31, 2025 |
December 31, 2024 | ||||||||||
Assets | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ |
|
$ |
|
|||||||
Accounts
receivable, net of allowances of $
|
|
|
|||||||||
Inventory |
|
|
|||||||||
Prepaid expenses and other current assets |
|
|
|||||||||
Total current assets |
|
|
|||||||||
Property and equipment, net |
|
|
|||||||||
Intangible assets, net |
|
|
|||||||||
Goodwill |
|
|
|||||||||
Other assets |
|
|
|||||||||
Total assets | $ |
|
$ |
|
|||||||
Liabilities and stockholders’ equity | |||||||||||
Current Liabilities: | |||||||||||
Accounts payable | $ |
|
$ |
|
|||||||
Accrued expenses and other current liabilities |
|
|
|||||||||
Current portion of long-term debt |
|
|
|||||||||
Current
portion of Related Party payable pursuant to Tax Receivable Agreement
|
|
|
|||||||||
Total current liabilities |
|
|
|||||||||
Long-term debt |
|
|
|||||||||
Deferred tax liabilities |
|
|
|||||||||
Related Party payable pursuant to Tax Receivable Agreement |
|
|
|||||||||
Other liabilities |
|
|
|||||||||
Total liabilities |
|
|
|||||||||
Commitments
and contingencies (Note 12)
|
|
|
|||||||||
Stockholders’
equity (Notes 1 and 10):
|
|||||||||||
Common
stock, $
|
|
|
|||||||||
Preferred
stock, $
|
|
|
|||||||||
Additional
paid-in capital
|
|
|
|||||||||
Accumulated
other comprehensive loss
|
(
|
(
|
|||||||||
Retained
earnings
|
|
|
|||||||||
Total stockholders’ equity |
|
|
|||||||||
Total liabilities and stockholders’ equity | $ |
|
$ |
|
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements
5
OLAPLEX HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME
(amounts
in thousands, except per share and share data)
(Unaudited)
Three
Months Ended March 31, |
|||||||||||
2025 | 2024 | ||||||||||
Net sales | $ |
|
$ |
|
|||||||
Cost of sales: | |||||||||||
Cost of product (excluding amortization) |
|
|
|||||||||
Amortization of patented formulations |
|
|
|||||||||
Total cost of sales |
|
|
|||||||||
Gross profit |
|
|
|||||||||
Operating expenses: | |||||||||||
Selling, general, and administrative |
|
|
|||||||||
Amortization of other intangible assets |
|
|
|||||||||
Total operating expenses |
|
|
|||||||||
Operating income |
|
|
|||||||||
Interest expense |
|
|
|||||||||
Interest income |
(
|
(
|
|||||||||
Other
(income) expense, net
|
(
|
|
|||||||||
Income
before provision for income taxes
|
|
|
|||||||||
Income tax provision |
|
|
|||||||||
Net
income
|
$ |
|
$ |
|
|||||||
Net
income per share:
|
|||||||||||
Basic | $ |
|
$ |
|
|||||||
Diluted | $ |
|
$ |
|
|||||||
Weighted average common shares outstanding: | |||||||||||
Basic |
|
|
|||||||||
Diluted |
|
|
|||||||||
Other
comprehensive income (loss):
|
|||||||||||
Unrealized gain (loss) on derivatives, net of income tax effect | $ |
|
$ | (
|
|||||||
Total
other comprehensive income (loss)
|
|
(
|
|||||||||
Comprehensive income | $ |
|
$ |
|
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements
6
OLAPLEX HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(amounts
in thousands, except number of shares)
(Unaudited)
Common
Stock
|
|||||||||||||||||||||||||||||||||||
Shares
|
Amount |
Additional
Paid in Capital |
Accumulated
Other Comprehensive Loss
|
Retained
Earnings |
Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
Balance - December 31, 2024 |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||||||||||||||||||
Net income | — | — | — | — |
|
|
|||||||||||||||||||||||||||||
Issuance
of shares upon exercise of stock options and vesting of restricted stock units
|
|
|
|
— | — |
|
|||||||||||||||||||||||||||||
Share-based compensation expense | — | — |
|
— | — |
|
|||||||||||||||||||||||||||||
Unrealized
gain on derivatives, net of tax expense of $
|
— | — | — |
|
— |
|
|||||||||||||||||||||||||||||
Balance
– March 31, 2025
|
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
Common
Stock
|
|||||||||||||||||||||||||||||||||||
Shares
|
Amount |
Additional
Paid in Capital |
Accumulated Other Comprehensive Income |
Retained Earnings |
Total Stockholders’ Equity | ||||||||||||||||||||||||||||||
Balance - December 31, 2023 |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||
Net income | — | — | — | — |
|
|
|||||||||||||||||||||||||||||
Issuance of shares upon exercise of stock options and vesting of restricted stock units |
|
|
|
— | — |
|
|||||||||||||||||||||||||||||
Share-based compensation expense | — | — |
|
— | — |
|
|||||||||||||||||||||||||||||
Unrealized
loss on derivatives, net of tax benefit of $
|
— | — | — |
(
|
— |
(
|
|||||||||||||||||||||||||||||
Balance – March 31, 2024 |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements
7
OLAPLEX HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts
in thousands)
(Unaudited)
Three
Months Ended March 31, |
|||||||||||
2025 | 2024 | ||||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ |
|
$ |
|
|||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
Amortization
of patent formulations
|
|
|
|||||||||
Amortization
of other intangibles
|
|
|
|||||||||
Inventory
write-off and disposal
|
|
|
|||||||||
Depreciation of fixed assets |
|
|
|||||||||
Amortization of debt issuance costs |
|
|
|||||||||
Deferred taxes |
(
|
(
|
|||||||||
Share-based compensation expense |
|
|
|||||||||
Other |
|
|
|||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts
receivable, net
|
(
|
|
|||||||||
Inventory
|
(
|
|
|||||||||
Prepaid
expenses and other current assets
|
(
|
|
|||||||||
Accounts
payable
|
|
|
|||||||||
Accrued
expenses and other current liabilities
|
(
|
(
|
|||||||||
Other assets and liabilities |
(
|
(
|
|||||||||
Net cash (used in) provided by operating activities |
(
|
|
|||||||||
Cash flows from investing activities: | |||||||||||
Purchase
of property and equipment
|
(
|
(
|
|||||||||
Purchase
and development of software
|
(
|
(
|
|||||||||
Net cash used in investing activities |
(
|
(
|
|||||||||
Cash flows from financing activities: | |||||||||||
Proceeds from exercise of stock options |
|
|
|||||||||
Principal
payments of 2022 Term Loan Facility
|
(
|
(
|
|||||||||
Net cash used in financing activities |
(
|
(
|
|||||||||
Net (decrease) increase in cash and cash equivalents |
(
|
|
|||||||||
Cash and cash equivalents - beginning of period |
|
|
|||||||||
Cash and cash equivalents - end of period | $ |
|
$ |
|
|||||||
Supplemental disclosure of cash flow information: | |||||||||||
Cash
paid for income taxes
|
$ |
|
$ |
|
|||||||
Cash
paid for interest
|
$ |
|
$ |
|
|||||||
Supplemental disclosure of noncash activities: | |||||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ |
|
$ |
|
|||||||
Purchases of software not yet paid | $ |
|
$ |
|
|||||||
Purchases of property and equipment not yet paid | $ |
|
$ |
|
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements
8
OLAPLEX HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts, percentages and as otherwise indicated)
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Olaplex
Holdings, Inc. (“Olaplex Holdings” and, together with its subsidiaries, the “Company”) is a Delaware
corporation that was incorporated on June 8, 2021. Olaplex Holdings is organized as a holding company
and operates indirectly through Olaplex, Inc., its wholly owned indirect subsidiary, which conducts
business under the name “Olaplex”. Olaplex is a foundational health and beauty company powered by
breakthrough innovation that starts with and is inspired by the professional hairstylist. Olaplex’s
products are designed to enable professional hairstylists and their clients to achieve their best
results and to provide consumers with a holistic hair regimen that starts by establishing a foundation
for healthy hair.
Basis of Presentation
The
accompanying unaudited, interim Condensed Consolidated Financial Statements have been prepared in
conformity with accounting principles generally accepted in the United States of America (“GAAP” or
“U.S. GAAP”) with all intercompany balances and transactions eliminated, for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by
the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP for complete financial statements. The unaudited,
interim Condensed Consolidated Financial Statements furnished reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the interim periods
presented. The results of operations of any interim period are not necessarily indicative of the
results of operations to be expected for the full fiscal year. The unaudited, interim Condensed
Consolidated Financial Statements should be read in conjunction with the Consolidated Financial
Statements and accompanying footnotes included in the Company’s 2024 Form 10-K, as filed with the
SEC on March 4, 2025.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates and Assumptions
Preparing
financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions
include: for revenue recognition, determining the nature and timing of satisfaction of performance
obligations, variable consideration, and other obligations such as product returns, allowance for
promotions, and refunds; loss contingencies; the fair value of share-based options; the fair value
of and/or potential impairment of goodwill and intangible assets for the Company’s reporting unit;
the fair value of the Company’s 2024 Interest Rate Cap (as defined in “Note 5 - Fair Value
Measurement”); useful lives of the Company’s tangible and intangible assets; estimated income tax
expense and tax payments; future payment obligations under the Tax Receivable Agreement; and the net
realizable value of, and demand for the Company’s inventory. Actual results and outcomes may differ
from management’s estimates and assumptions due to risks and uncertainties.
Fair Value of Financial Instruments
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The
authoritative guidance for fair value measurements established a framework for measuring fair value
and established a three-level valuation hierarchy for disclosure of fair value measurements as
follows:
Level 1—Observable
inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active
markets. The Company’s Level 1 assets consist of its marketable securities.
Level 2—Observable
quoted prices for similar assets or liabilities in active markets and observable quoted prices for
identical assets or liabilities in markets that are not active.
Level 3—Unobservable
inputs that are not corroborated by market data.
9
Cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses are reflected at
carrying value, which approximates fair value due to the short-term maturity. The Company’s
long-term debt is recorded at its carrying value in the Condensed Consolidated Balance Sheets, which
may differ from fair value. The Company’s 2024 Interest Rate Cap is recorded at its Level 2 fair
value in the Condensed Consolidated Balance Sheets.
Accounting Policies
There
have been no material changes in significant accounting policies as described in the Company’s
Consolidated Financial Statements for the year ended December 31, 2024.
Tax Receivable Agreement
In
connection with the Reorganization Transactions, the Company entered into the Tax Receivable
Agreement under which the Company will be required to pay to the Pre-IPO Stockholders
85 % of the federal, state or local tax cash savings that the Company actually
realizes on its taxable income following the IPO, as a result of the amortization of intangible
assets and capitalized transaction costs that existed as of the date of the IPO. Under the Tax
Receivable Agreement, generally the Company will retain the benefit of the remaining 15
% of the applicable tax savings.
The
Tax Receivable Agreement liability is calculated based on current tax laws and the assumption that
the Company and its subsidiaries will earn sufficient taxable income to realize the full tax
benefits subject to the Tax Receivable Agreement. Updates to the Company’s blended state tax rate,
allocation of U.S. versus foreign sourced income may impact the established liability and changes to
that established liability would be recorded to other expense (income) in the period the Company
made the determination regarding the applicable change. The Company
expects that future payments under the Tax Receivable Agreement relating to the Pre-IPO Tax Assets
could aggregate to $
189.3 million,
with payments expected to continue through 2041. Payments under the Tax Receivable Agreement, which
began
in the year ended December 31, 2022, are not conditioned upon the parties’ continued ownership of
equity in the Company.
Recent Accounting Pronouncements Not Yet Adopted
In
December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income
Tax Disclosures”, which modifies the rules on income tax disclosures to require entities to disclose
(1) specific categories in the rate reconciliation, (2) the income or loss from continuing
operations before income tax expense or benefit (separated between domestic and foreign) and (3)
income tax expense or benefit from continuing operations (separated by federal, state and foreign).
This update also requires entities to disclose their income tax payments to international, federal,
state and local jurisdictions, among other changes. The new guidance is effective for annual periods
beginning after December 15, 2024. The Company expects this update to impact its disclosures in the
notes to its financial statements but does not anticipate any effect on its Consolidated Results of
Operations, Cash Flows or financial condition.
In
March 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and
Standardization of Climate-Related Disclosures for Investors. This rule will require registrants to
disclose certain climate-related information in annual reports. On April 4, 2024, the SEC determined
to voluntarily stay the final rule pending completion of a judicial review of certain legal
challenges. In March 2025, the SEC voted to end its defense of the final rule. The Company is
currently monitoring the legal challenges and evaluating the potential impact of the final rule to
determine its impact on the Company's disclosures.
In
November 2024, the FASB issued ASU No. 2024-03, “Income Statement—Reporting Comprehensive
Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement
Expenses” which is intended to improve the disclosures about a public business entity’s expenses by
requiring disaggregated disclosure of certain income statement expense captions into specified
categories in the notes to the financial statements. The new guidance is effective for fiscal years
beginning after December 15, 2026, and interim periods within fiscal years beginning after December
15, 2027. The Company is currently evaluating the potential impact of adopting this new guidance on
its Consolidated Financial Statements and related disclosures.
NOTE 3 –
NET SALES
The
Company distributes products in the U.S. and internationally through professional distributors in salons
(“professional”), directly to retailers for sale in their physical stores and on their e-commerce sites
(“specialty retail”), and direct-to-consumer (“DTC”) through sales to third-party e-commerce customers
and through its own Olaplex.com website.
10
During
the three months ended March 31, 2025 and March 31, 2024, the Company’s net sales by its
three
sales channels, professional, specialty retail and DTC, were as follows:
Three
Months Ended
March
31,
|
|||||||||||
2025 | 2024 | ||||||||||
Net sales by Channel: | |||||||||||
Professional | $ |
|
$ |
|
|||||||
Specialty retail |
|
|
|||||||||
DTC |
|
|
|||||||||
Total net sales | $ |
|
$ |
|
Net
sales by major geographic region are based on the shipping address on record for the customer purchasing
the Company’s products. During the three months
ended March 31, 2025 and March 31, 2024, the Company’s net sales to consumers in the
United States and International regions were as follows:
Three
Months Ended
March
31,
|
|||||||||||
2025 | 2024 | ||||||||||
Net sales by Geography: | |||||||||||
United States | $ |
|
$ |
|
|||||||
International |
|
|
|||||||||
Total net sales | $ |
|
$ |
|
No
international country exceeded 10% of total net sales for the three months ended March 31, 2025 and
March 31, 2024. Despite our customers’ geographic location, the majority of net sales are
transacted in U.S. Dollars, the Company’s functional and reporting currency.
NOTE 4 – INVENTORY
Inventory
as of March 31, 2025 and December 31, 2024 consisted of the following:
March
31, 2025 |
December
31, 2024 |
||||||||||
Raw materials | $ |
|
$ |
|
|||||||
Finished goods |
|
|
|||||||||
Inventory | $ |
|
$ |
|
As
of March 31,
2025 and
December 31,
2024,
the Company’s allowance for excess and obsolete inventory was $
15.9 million
and $
15.7 million,
respectively. During the three months ended March 31, 2025 and March 31, 2024, the Company
recorded inventory write-offs of $
1.1 million and $
0.9 million, respectively,
due
to reserves for product obsolescence.
NOTE 5 – FAIR VALUE
MEASUREMENT
Fair
value measurements are established utilizing a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs that
reflect quoted prices (unadjusted) for identical assets or liabilities in active markets; Level 2,
defined as observable quoted prices for similar assets or liabilities in active markets and observable
quoted prices for identical assets or liabilities in markets that are not active; and Level 3, defined
as unobservable inputs that are not corroborated by market data. The Company’s Level 1 assets consist of
its marketable securities. Financial assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement.
On
August 11, 2022, the Company entered into an interest rate cap transaction (the “2022 Interest Rate
Cap”) in connection with the 2022 Term Loan Facility, with a notional amount of $400.0 million at a strike
rate of 4.00 %. The 2022
Interest Rate Cap expired on July 31, 2024.
11
In
advance of the expiration of the 2022 Interest Rate Cap, on May 7, 2024, the Company entered into a
second interest rate cap transaction (the “2024 Interest Rate Cap” and, together with the 2022 Interest
Rate Cap, the “Interest Rate Caps”) in connection with the 2022 Term Loan Facility, with a notional
amount of $400.0
million, amortizing to $200.0 million on July 31, 2025, at a strike rate of 5.00 %. The 2024 Interest Rate Cap expires on July 31, 2026.
The
2024 Interest Rate Cap is measured at fair value on a recurring basis by a third-party specialist using
widely accepted valuation techniques. The fair value of the 2024 Interest Rate Cap is determined using a
modification of the Black’s model, known as the shifted lognormal model. The variable interest rates
used in the calculation are based on future interest rates derived from observable market interest rate
curves and volatilities. The specialist incorporates credit valuation adjustments to appropriately
reflect the respective counterparty’s nonperformance risk in the fair value measurements. Although the
Company has determined that the majority of the inputs used to value the 2024 Interest Rate Cap fall
within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the 2024
Interest Rate Cap utilize Level 3 inputs. The Company has determined that the impact of the credit
valuation adjustments made to the 2024 Interest Rate Cap were not significant to the overall valuation.
As a result, the 2024 Interest Rate Cap as of March 31, 2025 and as of December 31, 2024 was
classified as Level 2 of the fair value hierarchy.
The
Company’s assets measured at fair value on a recurring basis and subject to fair value disclosure
requirements at March 31, 2025 were as follows:
Total |
Level
1
|
Level
2
|
Level
3
|
|||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||||||||||
U.S. Treasury | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
Money market funds | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
Other
assets:
|
||||||||||||||||||||||||||
|
$ |
|
$ |
|
$ |
|
$ |
|
The
Company’s assets measured at fair value on a recurring basis and subject to fair value disclosure
requirements at December 31, 2024 were as follows:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||||||||||
U.S. Treasury | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
Money market funds | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
Other
assets:
|
||||||||||||||||||||||||||
|
$ |
|
$ |
|
$ |
|
$ |
|
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
Goodwill
and intangible assets as of March 31, 2025 and December 31, 2024 were comprised of the
following:
March 31, 2025 | |||||||||||||||||||||||
Estimated Useful Life |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying
Amount
|
||||||||||||||||||||
Brand name |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||
Product formulations |
|
|
(
|
|
|||||||||||||||||||
Customer relationships |
|
|
(
|
|
|||||||||||||||||||
Software |
|
|
(
|
|
|||||||||||||||||||
Total
finite-lived intangibles
|
|
(
|
|
||||||||||||||||||||
Goodwill | Indefinite |
|
— |
|
|||||||||||||||||||
Total
goodwill and other intangibles
|
$ |
|
$ |
(
|
$ |
|
12
December 31, 2024 | |||||||||||||||||||||||
Estimated Useful Life |
Gross
Carrying Amount
|
Accumulated
Amortization |
Net
Carrying
Amount
|
||||||||||||||||||||
Brand name |
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||
Product formulations |
|
|
(
|
|
|||||||||||||||||||
Customer relationships |
|
|
(
|
|
|||||||||||||||||||
Software |
|
|
(
|
|
|||||||||||||||||||
Total
finite-lived intangibles
|
|
(
|
|
||||||||||||||||||||
Goodwill | Indefinite |
|
— |
|
|||||||||||||||||||
Total
goodwill and other intangibles
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||||
The
amortization of the Company’s brand name, customer relationships and software is recorded to
Amortization of other intangible assets in the Condensed Consolidated Statements of Operations and
Comprehensive Income. A portion of Amortization of patented formulations is capitalized to Inventory in
the Condensed Consolidated Balance Sheets, and the remainder is recorded to Amortization of patented
formulations in the Condensed Consolidated Statements of Operations and Comprehensive Income.
Amortization
of the Company’s definite-lived intangible assets for the three months ended March 31, 2025 and
2024 was as follows:
Three
Months Ended
March
31,
|
|||||||||||
2025 | 2024 | ||||||||||
Amortization expense, patented formulations | $ |
|
$ |
|
|||||||
Amortization expense, brand name and customer relationships |
|
|
|||||||||
Amortization expense, software |
|
|
|||||||||
Amortization
expense of other intangible assets
|
|
|
|||||||||
Amortization expense, patented formulations capitalized to inventory | $ |
(
|
$ |
|
NOTE 7 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses as of March 31, 2025 and December 31, 2024 consisted of the following:
March
31, 2025 |
December
31, 2024 |
||||||||||
Sales tax payable | $ |
|
$ |
|
|||||||
Accrued professional fees |
|
|
|||||||||
Payroll liabilities |
|
|
|||||||||
Accrued freight |
|
|
|||||||||
Accrued advertising |
|
|
|||||||||
Deferred revenue |
|
|
|||||||||
Income tax payable |
|
|
|||||||||
Accrued promotional allowance |
|
|
|||||||||
Other accrued expenses and current liabilities |
|
|
|||||||||
Accrued expenses and other current liabilities | $ |
|
$ |
|
13
NOTE 8 – LONG-TERM DEBT
The
Company’s Long-Term Debt as of March 31, 2025 and December 31, 2024 consisted of the
following:
March
31, 2025 |
December
31, 2024 |
||||||||||
Long-term debt | |||||||||||
Credit Agreement, dated as of February 23, 2022 (the “2022 Credit Agreement”) | |||||||||||
$
|
$ |
|
$ |
|
|||||||
$
|
|
|
|||||||||
Debt issuance costs |
(
|
(
|
|||||||||
Total
term loan debt
|
|
|
|||||||||
Less: Current portion |
(
|
(
|
|||||||||
Long-term
debt, net of debt issuance costs and current portion
|
$ |
|
$ |
|
(1)
As
of March 31, 2025 and December 31, 2024, the Company did not have any outstanding amounts
drawn on the 2022 Revolver, including letters of credit and swingline loan sub-facilities. As of
March 31, 2025, the Company had $150 million of available borrowing capacity under the
2022 Revolver.
The
2022 Credit Agreement contains a number of covenants that, among other things, restrict Olaplex, Inc.’s
ability to (subject to certain exceptions) (i) pay dividends and distributions or repurchase its capital
stock, (ii) prepay, redeem, or repurchase certain indebtedness, (iii) incur additional indebtedness and
guarantee indebtedness, (iv) create or incur liens, (v) engage in mergers, consolidations, liquidations
or dissolutions, (vi) sell, transfer or otherwise dispose of assets, (vii) make investments,
acquisitions, loans or advances and (viii) enter into certain transactions with affiliates. The 2022
Credit Agreement also includes, among other things, customary affirmative covenants (including reporting
covenants) and events of default (including a change of control) for facilities of this type, subject to
certain exceptions and thresholds set forth in the 2022 Credit Agreement. In addition, the 2022 Credit
Agreement includes a springing first lien leverage ratio financial covenant, which is applicable only to
the lenders under the 2022 Revolver. The Company
was in compliance with these affirmative and negative covenants as of March 31, 2025. The 2022 Term
Loan Facility and the 2022 Revolver are secured by substantially all of the assets of Olaplex, Inc. and
the other guarantors, subject to certain exceptions and thresholds.
The
interest rate on outstanding debt under the 2022 Term Loan Facility was 7.9 % per annum as of March 31, 2025. The interest rates
for all facilities under the 2022 Credit Agreement are calculated based upon the Company’s election
among (a) adjusted term secured overnight financing rate (“SOFR”) (subject to a 0.50
% floor with respect to the 2022 Term Loan Facility, and a 0 % floor with respect to the 2022 Revolver) plus an additional interest
rate spread, (b) with respect to a borrowing in Euros under the 2022 Revolver, a euro interbank offered
rate (subject to a 0 %
floor) plus an additional interest rate spread, or (c) an “Alternate Base Rate” (as defined in the 2022
Credit Agreement) (subject to a 1.50
% floor with respect to the 2022 Term Loan Facility, and a 1.00 % floor with respect to the 2022 Revolver) plus an
additional interest rate spread.
Interest
expense, inclusive of debt amortization, for the three months ended March 31, 2025 and
March 31, 2024 was $
13.7 million
and $
14.5 million,
respectively.
The
fair value of the Company’s long-term debt is based on the market value of its long-term debt
instrument. Based on the inputs used to value the long-term debt, the Company’s long-term debt is
categorized within Level 2 in the fair value hierarchy. As of March 31, 2025, the carrying amount,
excluding debt issuance costs, and estimated fair value of the Company’s long-term debt was $
654.8 million and $572.9
million, respectively. As of December 31, 2024, the carrying amount, excluding
debt issuance costs, and estimated fair value of the Company’s long-term debt was $656.4 million and $
620.3 million,
respectively.
On
May 1, 2025, the Company voluntarily repaid $300.0 million of outstanding principal on the 2022 Term Loan
Facility. The repayment was funded using available cash on hand and did not result in prepayment
penalties or fees.
14
Interest Rate Cap Transactions
The
Company’s results are subject to risk from interest rate fluctuations on borrowings under the 2022
Credit Agreement, including the 2022 Term Loan Facility. The Company may, from time to time, utilize
interest rate derivatives in an effort to add stability to interest expense and to manage its exposure
to interest rate fluctuations. See further discussion in “Note 5 - Fair Value Measurement.”
During
the three months ended March 31, 2025, the Company’s 2024 Interest Rate Cap generated an
immaterial unrecognized pre-tax gain, recorded in Accumulated other comprehensive
income on the Company’s Condensed Consolidated Balance Sheets. During the same period, the Company also
recognized $0.2
million of interest expense related to amortization of the interest rate cap
premium paid by the Company in connection with the 2024 Interest Rate Cap.
During
the three months ended March 31, 2024, the Company’s 2022 Interest Rate Cap generated an
unrecognized pre-tax loss of $0.5
million, recorded in Accumulated other comprehensive income on the Company’s
Condensed Consolidated Balance Sheets. During the same period, the Company also recognized a $
1.4 million reduction in interest expense related the Company’s
receipt of funds as a result of the interest rate cap settlements with the Company’s counterparty,
partially offset by $0.3
million of interest expense related to amortization of the interest rate cap
premium paid by the Company in connection with the 2022 Interest Rate Cap.
The
Company performed an initial effectiveness assessment on the Interest Rate Caps and determined them each
to be an effective hedge of the cash flows related to the interest rate payments on the 2022 Term Loan
Facility. The hedge is evaluated qualitatively on a quarterly basis for effectiveness. For derivatives
designated, and that qualify, as cash flow hedges of interest rate risk, the gain or loss on the
derivative is recorded in Accumulated other comprehensive income and subsequently reclassified into
Interest expense in the same period(s) during which the hedged transaction affects earnings, as
documented at hedge inception in accordance with the Company’s accounting policy election. Payments of
the up-front premium of the Interest Rate Caps are included within prepaid expenses and other current
assets and other assets and liabilities within the cash flows from operating activities on the Company’s
Condensed Consolidated Statements of Cash Flows.
The
Company does not hold or issue derivative financial instruments for trading purposes, nor does it hold
or issue leveraged derivative instruments. By using derivative financial instruments to hedge exposures
to interest rate fluctuations, the Company exposes itself to counterparty credit risk. The Company
manages exposure to counterparty credit risk by entering into derivative financial instruments with
highly rated institutions that can be expected to fully perform under the terms of the applicable
contracts.
NOTE 9 – INCOME TAXES
The
Company’s effective tax rate was 47.2
% for the three months ended March 31, 2025, as compared to 25.3
% for the three months ended March 31, 2024.
The
effective tax rate for the three months ended March 31, 2025 was higher than the statutory rate of
21% primarily due to discrete tax expenses for a change in prior year estimates, write-off of deferred
tax assets associated with net shortfalls upon vesting of restricted stock units, forfeitures of
non-qualified stock options and restricted stock units and the impact of those items on the lower book
income for the three months ended March 31, 2025.
The
effective tax rate for the three months ended March 31, 2024 differs from the statutory rate of 21%
primarily due to a discrete tax expense for interest associated with income taxes, the effect of state
income taxes and a discrete tax expense from restricted stock units vested during that period, partially
offset by the foreign derived intangible income deduction, which results in income from the Company’s
sales to foreign customers being taxed at a lower effective tax rate.
NOTE 10 –
EQUITY
During
the three months ended March 31, 2025, the Company issued 1,485,913
shares
of its common stock, of which 692,681 shares were issued as a result of stock options
exercised and 793,232 shares were issued upon vesting of restricted stock
units.
During
the three months ended March 31, 2024, the Company issued 551,742 shares of its common
stock, of which 225,566 shares were issued as a result of stock options
exercised and 326,176 shares were issued upon vesting of restricted stock
units.
15
NOTE 11 – RELATED PARTY TRANSACTIONS
In
August 2023, the Company entered into an agreement with Pacvue Corporation, an e-commerce advertising
and software company, in which certain investment funds affiliated with Advent International, L.P.
(“Advent”), the holder of a majority of the Company’s common stock (collectively the “Advent Funds”),
hold a greater than 10% equity interest. During the three months ended March 31, 2025 and
2024,
payments to Pacvue Corporation were de minimis and $0.2
million, respectively, for digital media services, which were negotiated on an arm’s
length basis and on market terms.
Tax
Receivable Agreement
In
connection with the Reorganization
Transactions, the Company entered into the Tax Receivable Agreement with the Pre-IPO Stockholders. See
further discussion in “Note 2 – Summary of Significant Accounting Policies – Tax Receivable Agreement.”
The Company did
not
make any payments pursuant to the terms of the Tax Receivable Agreement during either
the three
months ended March 31,
2025 or
2024.
NOTE 12 –
COMMITMENTS AND CONTINGENCIES
Commitments
Purchase
commitments are comprised of the Company’s commitments for contracted goods and services arising in the
ordinary course of business. These commitments are generally short-term in nature and are recorded as
liabilities when the related goods are received or services rendered.
Contingencies
From
time to time, the Company is subject to various legal actions arising in the ordinary course of
business. The Company cannot predict with reasonable assurance the outcome of these legal actions
brought against the Company as they are subject to uncertainties. Accordingly, any settlement or
resolution in these legal actions may occur and affect the Company’s net income in such period as the
settlement or resolution.
Pending Legal Proceedings
On
November 17, 2022, a putative securities class action was filed against the Company and certain of its
current and former officers and directors in the United States District Court for the Central District
of California, captioned Lilien
v. Olaplex Holdings, Inc. et al.,
No. 2:22-cv-08395. A consolidated complaint was filed on April 28, 2023, which names as additional
defendants the underwriters for the Company’s IPO and various stockholders that sold shares of common
stock of the Company in the IPO. The action is brought on behalf of a putative class of purchasers of
the Company’s common stock in or traceable to the Company’s IPO and asserts claims under Sections 11,
12, and 15 of the Securities Act of 1933. The action seeks certification of the putative class,
compensatory damages, attorneys’ fees and costs, and any other relief that the court determines is
appropriate. The defendants moved to dismiss the consolidated complaint on July 19, 2023. The court held
hearings on the defendants’ motions to dismiss on October 16, 2023 and July 1, 2024. On August 23, 2024,
the court issued an order staying the action pending the United States Supreme Court’s resolution of the
appeal in Facebook,
Inc., et al. v. Amalgamated Bank, et al.,
No. 23-980. On November 22, 2024, the Supreme Court dismissed the appeal as improvidently granted,
leading to the stay of the Lilien
action being lifted. On February 7, 2025, the court issued a decision on the defendants’ motions to
dismiss, granting the motions in part and denying them in part. Specifically, the court granted the
motions filed by the underwriter and stockholder defendants but denied the motion to dismiss filed by
the Company and the director and officer defendants. On April 3, 2025, the court set a hearing on class
certification for July 21, 2025, a pretrial conference for September 29, 2025 and a trial start date for
October 14, 2025. The underwriter defendants previously notified the Company of their intent to seek
indemnification from the Company pursuant to the IPO underwriting agreement regarding the claims
asserted in this action. The Company intends to vigorously defend the pending lawsuit.
On
November 15, 2023, a purported derivative action was filed against the Company, Advent International
Corporation, and certain of the Company’s current and former officers and directors in the United States
District Court for the Central District of California, captioned Ciuffo
v. Dagousset, et al.,
No. 2:23-cv-09712-SVW-SK. This action is premised on allegations similar to those asserted in the
Lilien
federal securities litigation. Plaintiffs seek declaratory and injunctive relief, as well as an award of
monetary damages and attorneys’ fees. On February 1, 2024, the parties filed a joint stipulation to stay
the purported derivative action pending a decision on the motions to dismiss filed in the Lilien
federal
securities action.
16
On
March 22, 2024, a second purported derivative action was filed against the Company, Advent International
Corporation, and certain of the Company’s current and former officers and directors in the United States
District Court for the Central District of California, captioned Hutchinson
v. Advent International Corporation, et al.,
No. 2:24-cv-02364. This action is premised on allegations similar to those asserted in the Lilien
federal securities litigation and in the Ciuffo
federal derivative action and seeks similar relief to that sought in Ciuffo.
On April 19, 2024, the parties in both purported derivative actions filed a joint stipulation to
consolidate the
two derivative actions into the first filed docket (No. 2:23 cv-09712-SVW-SK), and
to stay proceedings in the consolidated case, which the court granted on June 26, 2024. On March 17,
2025, the court held a status conference with the parties, during which the court ordered that the stay
in the action shall remain in effect pending resolution of the Lilien
action.
On
February 9, 2023,
twenty-eight plaintiffs filed Albahae,
et al. v. Olaplex Holdings, Inc., et al.,
No. 2:23-cv-00982, a complaint alleging personal and economic injury and asserting claims for breach of
warranty, negligence/gross negligence, products liability, unjust enrichment, and violations of
California False Advertising Law and Unfair Competition Law, against the Company and Cosway Company,
Inc., the Company’s primary contract manufacturer, in the United States District Court for the Central
District of California. On March 2, 2023, the plaintiffs amended the complaint to include
seventy-three additional plaintiffs. The plaintiffs allege that certain ingredients
used in some Company products have purportedly caused irritation or posed a hazard to consumers, and
that the Company engaged in misrepresentation with respect to those products. The plaintiffs seek actual
and consequential damages, punitive damages, restitution in the form of disgorgement of profits,
attorneys’ fees and costs, and any other relief that the court determines is appropriate. On April 17,
2023, the Company moved to dismiss and to sever the plaintiffs’ claims. On July 11, 2023, the Court
granted the Company’s motion to sever and dismissed all but the first named plaintiff. The Court also
dismissed the operative complaint with leave to re-file on the grounds that it now contained allegations
that were not relevant to the claims of the one , remaining plaintiff. On July 24, 2023, the remaining
plaintiff filed a notice, voluntarily dismissing her claims without prejudice. As of the date of
issuance of these unaudited, interim Condensed Consolidated Financial Statements, none of the plaintiffs
have re-filed their claims.
Any
potential loss associated with these pending legal proceedings
is not probable or reasonably estimable at this time.
As
of March 31, 2025 and December 31, 2024, the Company was not subject to any other currently
pending legal matters or claims that could have a material adverse effect on its financial position,
results of operations, or cash flows should such litigation be resolved unfavorably.
NOTE 13 – NET INCOME PER
SHARE
The
following is a reconciliation of the numerator and denominator in the basic and diluted net income
per common share computations:
Three
Months Ended
March
31,
|
|||||||||||
2025 | 2024 | ||||||||||
Numerator: | |||||||||||
Net income | $ |
|
$ |
|
|||||||
Denominator: | |||||||||||
Weighted
average common shares outstanding – basic
|
|
|
|||||||||
Dilutive common equivalent shares from equity options and awards |
|
|
|||||||||
Weighted
average common shares outstanding – diluted
|
|
|
|||||||||
Net income per share: | |||||||||||
Basic | $ |
|
$ |
|
|||||||
Diluted | $ |
|
$ |
|
17
The
shares of the Company’s common stock underlying stock options, restricted stock units (“RSUs”) and
stock settled stock appreciation rights (“SARs”) that were excluded in the computation of diluted
net income per common share because their inclusion would have been anti-dilutive were as
follows:
Three
Months Ended
March
31,
|
|||||||||||
2025 | 2024 | ||||||||||
Stock
options
|
|
|
|||||||||
RSUs
|
|
|
|||||||||
SARs
|
|
|
NOTE 14 –
SEGMENT REPORTING
The
Company sells haircare products through
three sales channels: professional, specialty retail and DTC. The Company does not
have intersegment revenues. See further discussion in “Note 3 - Net Sales” for more information. The
Company manages its business on the basis of its three sales channels that are part of a single
operating segment and, therefore, a single reportable segment.
The
Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer. The CODM assesses the
Company’s performance based on net income that is also reported on the Condensed Consolidated Statement
of Operations and Comprehensive Income.
The
CODM uses net income to evaluate income generated from segment assets in deciding how to reinvest
profits into the Company as well as in assessing performance of the segment.
Three
Months Ended
March
31,
|
||||||||||||||
2025 | 2024 | |||||||||||||
Net sales | $ |
|
$ |
|
||||||||||
Less:
(1)
|
||||||||||||||
Cost of product (excluding amortization) |
|
|
||||||||||||
Marketing expenses |
|
|
||||||||||||
Adjusted
selling, general, and administrative (2)
|
|
|
||||||||||||
Depreciation and amortization |
|
|
||||||||||||
Interest expense |
|
|
||||||||||||
Interest income |
(
|
(
|
||||||||||||
Income tax provision |
|
|
||||||||||||
Share-based compensation expense |
|
|
||||||||||||
Other
segment items (3)
|
|
|
||||||||||||
Net income | $ |
|
$ |
|
(1)
The
significant expense categories and amounts align with the segment-level information that is
regularly provided to the CODM.
(2)
Amounts
exclude depreciation and amortization expense and research and development costs.
(3)
For
the three months ended March 31, 2025 and March 31, 2024, other segment items included
research and development costs and other (income) expense, net.
18
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our unaudited, interim Condensed Consolidated Financial Statements and related notes
included elsewhere in this Quarterly Report and with our audited Consolidated Financial Statements included
in the 2024 Form 10-K.
Some
of the information contained in this discussion and analysis, including information with respect to our
plans and strategy for our business, includes forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from management’s expectations as a result of
various factors. Factors that could cause or contribute to these differences include, but are not limited
to, those identified below and those discussed in the section “Special Note Regarding Forward-Looking
Statements” in this Quarterly Report and in “Item 1A. - Risk Factors” in the 2024 Form 10-K.
Company Overview
OLAPLEX
is a foundational health and beauty company powered by breakthrough innovation that starts with and is
inspired by the professional stylist (“Pro”). Our products are designed to enable Pros and their clients to
achieve their best results, and to provide consumers with a holistic hair regimen that starts by
establishing a foundation for healthy hair.
In
2014, OLAPLEX revolutionized the haircare category through the introduction of our patent-protected
bond-building technology, Bis-aminopropyl diglycol dimaleate (“Bis-amino”), in our No. 1 Bond Multiplier®
and No. 2 Bond Perfector® products. This new two-part salon treatment allowed Pros around the world to
repair disulfide bonds deep inside the hair that are broken during chemical services (such as coloring,
perming and straightening). Later in 2014, OLAPLEX launched an at-home version of this signature
bond-building treatment, No. 3 Hair Perfector®, allowing consumers to achieve the benefits of OLAPLEX beyond
the salon. By the end of 2015, OLAPLEX products were sold globally, demonstrating the relevance of the
product and brand proposition around the world. From our original three bond-building products, we expanded
to a range of products suitable across hair types for use in the salon and at home.
Since
our inception, we have focused on delivering patent-protected technology and proven performance in the
prestige haircare category. From our origins of creating the bond-building space, our product portfolio has
expanded to 25 products that support the hair health needs of our Pro and consumer communities.
We
have a synergistic omnichannel model that leverages the strength of each of our channels and our strong
digital capabilities, which we apply across all of our sales platforms. Our professional channel serves as
the foundation for our brand. Through this channel, Pros introduce consumers to our products and, we
believe, influence consumer purchasing decisions. Our specialty retail channel allows us to build
our brand by reinforcing our relationship with current consumers and accessing new consumers.
Our direct-to-consumer (“DTC”) channel, comprised of Olaplex.com and sales through third-party e-commerce
platforms, further broadens our access to consumers, while allowing us to directly engage with and educate
consumers through our owned platforms.
Our Strategy
In
2025, we are focused on the following three strategic priorities.
Generate Brand Demand
Our
marketing strategy seeks to celebrate the passion and creativity of our Pros, as well as our breakthrough
scientific innovations and technologies. We are focused on elevating our visual brand identity and
communicating the unique benefits of Olaplex products to Pros and consumers. We seek to implement a
360-degree full funnel marketing approach to generate consumer demand, leveraging a creator-led point of
view and product messaging that focuses on healthy hair from root to tip. We aim to execute on our Pro-first
strategy by improving education, enhancing our presence among the Pro community, and elevating our Pro brand
ambassadors and influencers.
19
Harness Innovation
We
seek to build a future pipeline of innovation that is grounded in foundational hair health. We are focused
on continuing to innovate beyond damage repair to unlock what we believe are key signs of healthy hair:
strength and elasticity, shine and sheen, smoothness and frizz control, softness and moisturization, and
shape retention and integrity. We seek to continue to introduce breakthrough science while expanding our
product portfolio and reinvigorating our signature products to drive overall brand demand.
Execute with Excellence
We
will continue to evolve and refine our operational and strategic processes, realign our international
partnerships and seek efficiencies across our organization in support of growth. We have evolved our
integrated business planning process and strategic planning procedure. We are currently in the process of
realigning our international distribution network, and we are focused on enhancing our ongoing international
partnerships and introducing and executing regional specific strategies to service our customers. We will
increasingly use data, insights and a results-oriented mindset as we look to grow our brand and business in
the future.
Business Environment & Trends
We
continue to monitor the effects of the increasingly unpredictable global macro-economic environment,
including the risk of recession, inflationary pressures, competitive products and discounting, currency
volatility, high interest rates, social and political issues, geopolitical tensions, regulatory matters and
changes to tariffs and trade policies of the United States and other countries. Based on policies in place
as of the date of filing of this Quarterly Report, we expect the most recent changes in tariffs and trade
policies will have a relatively modest impact on our business since the vast majority of our products sold
in the U.S. are sourced and manufactured domestically. However, related uncertainties could impact consumer
discretionary spending, demand for our products and inventory at our customers. We also are mindful of
inflationary pressures on our consumers amidst an increasingly competitive industry, and we are monitoring
the impact that consumer confidence may have on consumer spending at our customers.
Competition
in the beauty industry is based on a variety of factors, including innovation, product efficacy, pricing,
brand recognition and loyalty, service to the consumer, promotional activities, advertising, special events,
new product introductions, e-commerce initiatives, sustainability and other activities. We have seen
increased competitive activity including discounting in the prestige haircare category. We believe we have a
well-recognized and strong reputation within the beauty industry, from our customers to the end-consumer,
and that the quality and performance of our products, our emphasis on science-based innovation, our
asset-light operating model, and our engagement with our Pro and consumer communities position us to compete
effectively.
20
Results of operations
Comparison of the Three Months Ended March 31, 2025 to the Three
Months Ended March 31, 2024
The
following table sets forth our consolidated results for each of the periods presented:
Three Months Ended March 31, | |||||||||||||||||||||||
2025 | 2024 | ||||||||||||||||||||||
(in thousands) | % of net sales | (in thousands) | % of net sales | ||||||||||||||||||||
Net sales | $ | 96,978 | 100.0 | % | $ | 98,906 | 100.0 | % | |||||||||||||||
Cost of sales: | |||||||||||||||||||||||
Cost of product (excluding amortization) | 27,230 | 28.1 | 25,376 | 25.7 | |||||||||||||||||||
Amortization of patented formulations | 2,392 | 2.5 | 2,187 | 2.2 | |||||||||||||||||||
Total cost of sales | 29,622 | 30.5 | 27,563 | 27.9 | |||||||||||||||||||
Gross profit | 67,356 | 69.5 | 71,343 | 72.1 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Selling, general, and administrative | 47,987 | 49.5 | 40,437 | 40.9 | |||||||||||||||||||
Amortization of other intangible assets | 10,893 | 11.2 | 11,289 | 11.4 | |||||||||||||||||||
Total operating expenses | 58,880 | 60.7 | 51,726 | 52.3 | |||||||||||||||||||
Operating income | 8,476 | 8.7 | 19,617 | 19.8 | |||||||||||||||||||
Interest expense | 13,725 | 14.2 | 14,504 | 14.7 | |||||||||||||||||||
Interest income | (5,952) | (6.1) | (6,203) | (6.3) | |||||||||||||||||||
Other
(income) expense, net
|
(178) | (0.2) | 947 | 1.0 | |||||||||||||||||||
Income
before provision for income taxes
|
881 | 0.9 | 10,369 | 10.5 | |||||||||||||||||||
Income tax provision | 416 | 0.4 | 2,623 | 2.7 | |||||||||||||||||||
Net income | $ | 465 | 0.5 | $ | 7,746 | 7.8 | |||||||||||||||||
Net
Sales
We
distribute products in the U.S. and internationally through professional distributors in salons, directly to
retailers for sale in their physical stores and on their e-commerce sites, and DTC through sales to third
party e-commerce customers and through our Olaplex.com websites. As such, net sales by our three sales
channels consisting of professional, specialty retail and DTC were as follows:
(in thousands) |
Three
Months Ended
March
31,
|
||||||||||||||||||||||
2025 | 2024 |
$
Change
|
%
Change
|
||||||||||||||||||||
Net sales by Channel: | |||||||||||||||||||||||
Professional | $ | 34,538 | $ | 38,746 | $ | (4,208) | (10.9) | % | |||||||||||||||
Specialty retail | 38,553 | 34,432 | 4,121 | 12.0 | % | ||||||||||||||||||
DTC | 23,887 | 25,728 | (1,841) | (7.2) | % | ||||||||||||||||||
Total Net sales | $ | 96,978 | $ | 98,906 | $ | (1,928) | (1.9) | % |
Total
net sales
decreased 1.9% for the three months ended March 31, 2025, compared to the same period in 2024, primarily
attributed to a lower level of consumer demand. This decline was partially offset by the impact of product
launches since the three months ended March 31, 2024, as well as the impact of new customers within each
channel. Net sales declined in certain international markets, partially offset by an increase in the United
States.
21
Cost
of Sales and Gross Profit
(in thousands) |
Three
Months Ended
March
31,
|
$ Change | % Change | ||||||||||||||||||||
2025 | 2024 | ||||||||||||||||||||||
Cost of sales | $ | 29,622 | $ | 27,563 |
|
$ | 2,059 |
|
7.5 | % | |||||||||||||
Gross profit | $ | 67,356 | $ | 71,343 |
|
$ | (3,987) |
|
(5.6) | % |
Our
cost
of sales increased
primarily due to product mix in the three months ended March 31, 2025 as compared to the same period in the
previous year. In addition, we recorded $1.1 million
in inventory write-offs for product obsolescence during the three months ended March 31, 2025, as compared
to $0.9 million recorded during the three months ended March 31, 2024.
As
a result of the activity described above regarding net sales and cost of sales, our gross profit margin
decreased
from 72.1% in the three months ended March 31, 2024 to 69.5%
in the three months ended March 31, 2025.
Operating
Expenses
(in thousands) |
Three
Months Ended
March
31,
|
||||||||||||||||||||||
2025 | 2024 |
$
Change
|
%
Change
|
||||||||||||||||||||
Selling, general, and administrative expenses | $ | 47,987 | $ | 40,437 |
|
$ | 7,550 |
|
18.7 | % | |||||||||||||
Amortization of other intangible assets | 10,893 | 11,289 |
|
(396) |
|
(3.5) | % | ||||||||||||||||
Total operating expenses | $ | 58,880 |
|
$ | 51,726 |
|
$ | 7,154 | 13.8 | % |
The
increase in selling, general and administrative expenses during the three
months ended March 31, 2025, compared to the same period in 2024,
was primarily driven by an increase of $4.8 million in non-payroll advertising and marketing expenses and
$2.2 million in legal and professional fees, partially offset by a decrease of $1.0 million in
distribution and fulfillment costs.
Interest
Expense, Net
(in thousands) |
Three
Months Ended
March
31,
|
|
|
||||||||||||||||||||
2025 | 2024 |
$
Change
|
%
Change
|
||||||||||||||||||||
Interest expense | $ | 13,725 | $ | 14,504 | $ | (779) |
|
(5.4) | % | ||||||||||||||
Interest income | (5,952) | (6,203) | 251 |
|
(4.0) | % | |||||||||||||||||
Interest expense, net | $ | 7,773 | $ | 8,301 | $ | (528) |
|
(6.4) | % |
Interest
expense and interest income for the three months ended March 31, 2025 decreased
as compared to the same period in the previous year due to lower interest rates during the three
months ended March 31, 2025
as compared to the three months ended March 31, 2024. See
“Note 8
- Long-Term
Debt” to our unaudited, interim Condensed Consolidated Financial Statements included in Item 1. Financial
Statements of this Quarterly Report for additional
information.
Other
(Income) Expense, Net
(in thousands) |
Three
Months Ended
March
31,
|
|
|
||||||||||||||||||||
2025 | 2024 |
$
Change
|
%
Change
|
||||||||||||||||||||
Other
(income) expense, net
|
$ | (178) | $ | 947 |
|
$ | (1,125) | 118.8 | % |
Other
(income) expense, net increased primarily due to foreign currency transaction gains driven by the
performance of the U.S. dollar.
22
Income
Tax Provision
(in thousands) |
Three
Months Ended
March
31,
|
|
|
||||||||||||||||||||
2025 | 2024 |
$
Change
|
%
Change
|
||||||||||||||||||||
Income tax provision | $ | 416 | $ | 2,623 | $ | (2,207) | (84.1) | % |
Our
effective tax
rate
was 47.2%
for the three months ended March 31, 2025, as compared to 25.3% for the three months ended March 31, 2024.
Our
effective tax rate for the three months ended March 31, 2025 was higher
than the statutory rate of 21% primarily due
to discrete tax expenses for a change in prior year estimates, write-off of deferred tax assets associated
with net shortfalls upon vesting of restricted stock units, forfeitures of non-qualified stock options and
restricted stock units and the impact of those items on the lower book income for the three months ended
March 31, 2025.
For
the three months ended March 31, 2024, the effective tax rate was higher than the statutory tax rate of 21%
primarily due to a discrete tax expense for interest associated with income taxes, the effect of state
income taxes and a discrete tax expense from restricted stock units vested during that period, partially
offset by the foreign derived intangible income deduction, which results in income from our sales to foreign
customers being taxed at a lower effective tax rate.
Financial Condition, Liquidity and Capital Resources
Overview
Our
primary recurring source of cash is the collection of proceeds from the sale of our products to our
customers, including cash periodically collected in advance of delivery or performance.
Our
primary use of cash is for working capital and payment of our operating costs, which consist primarily of
employee-related expenses as well as general operating expenses for marketing, fulfillment costs of customer
orders, overhead costs, innovation, capital expenditures and debt servicing. We also utilize cash for
strategic investments. Fluctuations in working capital are primarily caused by customer demand for our
products, timing of when a retailer rearranges or restocks our products, timing of inventory purchases, and
the amount and timing of our payables and expenses, including to implement our business transformation plan.
We expect to generate less cash from operations in the current year, as compared to the prior year, as we
fund working capital needs required to grow our business. Capital expenditures typically vary and are
currently limited, and future capital expenditure requirements depend on strategic initiatives selected for
the fiscal year, including investments in infrastructure and expansion of our customer base. We also expect
that our legal costs associated with the Lilien
federal securities class action litigation will increase as we prepare for a trial start date scheduled in
October 2025. See further discussion in “Note 12 – Commitments and Contingencies – Pending Legal
Proceedings” in the Notes to the unaudited, interim Condensed Consolidated Financial Statements included in
Item 1. Financial Statements of this Quarterly Report.
Although
international markets represented 49% of our net sales during the three months ended March 31, 2025, the
majority of our bank deposits are held within the U.S.
As
of March 31, 2025, we had $580.9 million of cash and cash equivalents. In addition, as of
March 31, 2025, we had borrowing capacity of $150.0 million under the 2022 Revolver, providing us with
a liquidity position of $730.9 million plus $57.4 million of working capital excluding cash and cash
equivalents for a combined $788.3 million total liquidity position.
On
May 1, 2025, we voluntarily repaid $300.0 million of outstanding principal on the 2022 Term Loan
Facility. The repayment was funded using available cash on hand and did not result in prepayment penalties
or fees. We continually evaluate our capital structure to maintain financial flexibility.
23
Cash Flows
The
following table summarizes our cash flows for the periods presented:
Three Months Ended March 31, | |||||||||||
(in thousands) | 2025 | 2024 | |||||||||
Net cash provided by (used in): | |||||||||||
Operating activities | $ | (2,917) | $ | 43,707 | |||||||
Investing activities | (996) | (1,084) | |||||||||
Financing activities | (1,161) | (1,517) | |||||||||
Net (decrease) increase in cash and cash equivalents | $ | (5,074) | $ | 41,106 |
Operating Activities
Net
cash used in operating activities
was
$2.9 million for
the three months ended March 31,
2025, primarily reflecting our net income of
$0.5
million,
net of non-cash cost items and changes in operating working capital. Non-cash adjustments were primarily
driven by amortization of other intangibles of $10.9
million, share-based compensation expense of $2.9 million and amortization of patent formulations of $2.4
million. Changes in operating assets and liabilities decreased cash provided by operating activities by
$21.4 million.
Net
cash provided by operating activities
was $43.7 million for the three months ended March 31, 2024,
primarily reflecting our net income of $7.7
million, net of non-cash cost items and changes in operating working capital. Non-cash adjustments were
primarily driven by amortization of other intangibles of $11.3 million, share-based compensation expense of
$3.2 million, and amortization of patent formulations of $2.2 million.
Changes in operating assets and liabilities increased cash provided by operating activities by $17.8
million.
Investing Activities
Net
cash used in investing activities was $1.0 million for the three months ended March 31,
2025,
primarily reflecting investments of $0.9 million related to the purchase and development of software.
Net
cash used in investing activities was $1.1 million for the three months ended March 31, 2024,
reflecting investments of $0.6 million related to the purchase and development of software and purchases of
property and equipment of $0.5 million.
Financing Activities
Net
cash used in financing activities was
$1.2 million for
the three months ended March 31,
2025, consisting of $1.7
million of
principal
payments for the 2022 Term Loan Facility, partially offset by proceeds of $0.5 million from stock option
exercises.
Net
cash used in financing
activities was $1.5
million for
the three months ended March 31, 2024, consisting of $1.7
million of
principal
payments for the 2022 Term Loan Facility, partially offset by proceeds of $0.2 million from stock option
exercises.
Liquidity and Capital Resources
Based
on past performance and current expectations, we believe that our cash, cash equivalents and cash generated
from operations will be sufficient to meet anticipated operating costs, required payments of principal and
interest, working capital needs, ordinary course capital expenditures, and other commitments
over both the short term (the next twelve months) and long term.
24
If
necessary, we may borrow funds under our 2022 Revolver to finance our liquidity requirements, subject to
customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity
needs as we continue to execute our business strategy, we anticipate that they will be obtained through the
incurrence of additional indebtedness, equity financings or a combination of these potential sources of
funds; however, such financing may not be available on favorable terms, or at all. Our ability to meet our
operating, investing and financing needs depends, to a significant extent, on our future financial
performance, which will be subject in part to general economic, competitive, financial, regulatory and other
factors that are beyond our control, including those
described in “Item 1A. - Risk Factors” in our 2024
Form
10-K. In addition to these general economic and industry factors, the principal factors in determining
whether our cash flows will be sufficient to meet our liquidity requirements will be consumer demand for our
products and our ability to continue providing innovative products to our customers and manage production
and our supply chain.
2022 Credit Facility
As
of March 31, 2025, we had outstanding indebtedness under the 2022 Credit Agreement of $654.8
million,
of which
$6.8 million was classified as current. As of March 31, 2025, we had $150.0 million of available
borrowing capacity under
the 2022
Revolver.
The
interest rate on outstanding amounts under the 2022 Term Loan Facility was 7.9% per annum as of
March 31, 2025. We have not drawn on the 2022 Revolver as of March 31, 2025. The 2022 Term Loan
Facility is repayable in mandatory quarterly installments equal to $1.7 million, with the balance payable at
maturity. The maturity date of the 2022 Term Loan Facility is February 23, 2029, and the maturity date of
the 2022 Revolver is February 23, 2027.
The
2022 Credit Agreement contains a number of covenants that, among other things, restrict the Company’s
ability to (subject to certain exceptions) pay dividends and distributions or repurchase its capital stock,
incur additional indebtedness, create liens on assets, engage in mergers or consolidations and sell or
otherwise dispose of assets. The 2022 Credit Agreement also includes reporting, financial and maintenance
covenants, including a springing first lien leverage ratio financial covenant. The Company was in compliance
with these affirmative and negative covenants on March 31, 2025 and December 31, 2024.
Substantially all the assets of the Company constitute collateral under the 2022 Credit Agreement.
In
order to limit our exposure to potential increases in future interest rates related to the 2022 Term Loan
Facility, on August 11, 2022, we entered into the 2022 Interest Rate Cap in connection with the 2022 Term
Loan Facility, with a notional amount of $400.0 million at a strike rate of 4.00%. The 2022 Interest Rate
Cap expired on July 31, 2024.
On
May 7, 2024, in advance of the expiration of the 2022 Interest Rate Cap, we entered into the 2024 Interest
Rate Cap in connection with the 2022 Term Loan Facility, with a notional amount of $400.0 million,
amortizing to $200.0 million on July 31, 2025, at a strike rate of 5.00%. The 2024 Interest Rate Cap expires
on July 31, 2026. We have designated the interest rate caps as cash-flow hedges for accounting purposes.
On
May 1, 2025, we voluntarily repaid $300.0 million of outstanding principal on the 2022 Term Loan
Facility. The repayment was funded using available cash on hand and did not result in prepayment penalties
or fees.
See
“Note 8
- Long-Term
Debt” in the Notes to the unaudited, interim Condensed Consolidated Financial Statements included in Item 1.
Financial Statements of this Quarterly Report for additional
information.
Tax Receivable Agreement Obligations
In
connection with the Reorganization Transactions, we entered into the Tax Receivable Agreement under which we
will be required to pay to the Pre-IPO Stockholders 85% of the federal, state or local tax cash savings that
we actually realize on our taxable income following the IPO, as a result of the amortization of intangible
assets and capitalized transaction costs that existed as of the transaction date. Under the Tax Receivable
Agreement, generally we will retain the benefit of the remaining 15% of the applicable tax savings.
The
Tax Receivable Agreement liability is calculated based on current tax laws and the assumption that we and
our subsidiaries earn sufficient taxable income to realize the full tax benefits subject to the Tax
Receivable Agreement. Updates to our blended state tax rate, allocation of U.S. versus foreign sourced
income and changes in tax rules on the amortization and depreciation of assets may significantly impact the
established liability and changes would be recorded to other (expense) income in the period we made the
determination. We expect that future payments under the Tax Receivable Agreement relating to the Pre-IPO tax
assets could aggregate to $189.3 million, with payments expected to continue through 2041. Payments under
the Tax Receivable Agreement, which began in the year ended December 31, 2022, are not conditioned upon the
Pre-IPO Stockholders maintaining a continued ownership of equity in the Company.
25
Contractual Obligations and Commitments
There
were no material changes to our contractual obligations since the filing of our 2024
Form 10-K.
Critical Accounting Estimates
Our
unaudited, interim Condensed Consolidated Financial Statements have been prepared in accordance with U.S.
GAAP. The
preparation of financial statements requires us to make estimates and assumptions about future events that
affect amounts reported in our unaudited, interim Condensed Consolidated Financial Statements and related
notes at the date of the financial statements. We evaluate our accounting estimates and judgments on an
ongoing basis. We base our estimates and judgments on historical experience and various other factors that
are believed to be reasonable under the circumstances. Actual results may differ from these estimates under
different assumptions and conditions.
For additional detail regarding our critical accounting estimates, see our discussion for the year ended
December 31, 2024
in the 2024 Form 10-K.
There have been no material changes to these critical accounting estimates in the three
months ended March 31, 2025, except as noted below.
Goodwill
Goodwill
is evaluated for impairment on an annual basis during the fourth fiscal quarter, or more frequently if
events or changes in circumstances indicate that the asset might be impaired. Our impairment evaluation of
goodwill consists of a qualitative assessment to determine if it is more likely than not that the fair value
of the reporting unit is less than its carrying amount. If this qualitative assessment indicates it is more
likely than not that the estimated fair value of the reporting unit exceeds its carrying value, no further
analysis is required, and goodwill is not impaired. Our qualitative assessment considers factors including
changes in the competitive market, budget-to-actual performance, trends in market capitalization for us and
our peers, turnover in key management personnel and overall changes in the macroeconomic environment.
We
performed a quantitative assessment as of October 1, 2024 and it was concluded that the fair value of the
reporting unit exceeded its carrying value by approximately 19%. No impairment of goodwill was
recorded.
We
estimated the fair value of our reporting unit using a combination of an income approach and a market
approach, which were both weighted equally. The fair value measurements are based on unobservable inputs,
with key assumptions including, but not limited to, our forecasted future operating cash flows, terminal
growth rates, market multiples, and discount rates. To determine the fair value of our reporting unit, we
have used expected growth rates that are in line with expected market growth rates. The terminal value was
calculated assuming a projected growth rate of 3.0%. These rates reflect our estimate of long-term growth
into perpetuity and approximate the long-term gross domestic product growth expected on a global basis. The
estimated weighted-average cost of capital for the reporting unit was determined to be 11.0%. Certain future
events and circumstances, including deterioration of market conditions, decline in our stock price, higher
cost of capital, and a decline in actual and expected consumer consumption and demands, could result in
changes to these assumptions and judgments. A downward revision of these assumptions could cause the fair
values of our single reporting unit to fall below its respective carrying value and we may be required to
record a goodwill impairment charge.
We
believe the assumptions used in calculating the estimated fair value of the reporting units are reasonable
and attainable. However, we may not achieve such results and may need to recognize impairment of goodwill in
the future due to other market conditions or changes in our interest rates. Recognition of impairment of a
significant portion of our goodwill would negatively affect our reported results of our operations.
As
of March 31, 2025, the Company continues to monitor all of the assumptions used in the impairment test
performed in 2024 and has not identified a triggering event. If these assumptions change in the future,
given the global economic uncertainty or other matters, including a continued decline in stock price, the
Company may be required to record a goodwill impairment charge.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
There
have been no material changes to our market risk exposures or management of market risk from those disclosed
in Quantitative and Qualitative Disclosures About Market Risk included under Item 7A in the 2024
Form
10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The
Company maintains a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to
ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the U.S. Securities and
Exchange Commission’s (“SEC”) rules and forms, and to ensure that information required to be disclosed is
accumulated and communicated to management, including, as appropriate, the Chief Executive Officer and the
Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and
evaluating the disclosure controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Our
management has evaluated, under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly
Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures were effective at a reasonable assurance level as of
March 31, 2025.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f)
of the Exchange Act) that occurred during the quarter ended March 31, 2025 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
27
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We
have, and may in the future, from time to time, become involved in litigation or other legal proceedings
incidental to our business, including litigation related to intellectual property, regulatory matters,
contract, advertising and other consumer claims. In addition, we believe that protecting our intellectual
property is essential to our business and we have in the past, and may in the future, become involved in
proceedings to enforce our rights. Regardless of outcome, litigation (including the litigation referenced
below) can have an adverse impact on our reputation, financial condition and business, including by
utilizing our resources and potentially diverting the attention of our management from the operation of our
business.
For
detail on certain legal proceedings, see “Note 12
- Commitments and Contingencies - Pending Legal Proceedings” included in the Notes to the unaudited, interim
Condensed Consolidated Financial Statements included in Part I, Item 1. Financial Statements of this
Quarterly Report.
ITEM 1A. RISK FACTORS
An
investment
in our common stock involves risks. For a detailed discussion of the risks that affect our business please
refer to “Item 1A. – Risk Factors” in the 2024
Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not
applicable.
ITEM 5. OTHER INFORMATION
(c)During
the three months ended March 31,
2025, no director or “officer” (as defined in Rule 16a-1(f) under the Exchange Act) of the Company
adopted
or
terminated
a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term
is defined in Item 408(a) of Regulation S-K.
28
ITEM 6. EXHIBITS
Exhibit Number | Description | |||||||
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
†
This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise
subject to the liability of that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent specifically incorporated by reference into such filing.
29
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
OLAPLEX HOLDINGS, INC. | |||||||||||
By: | /s/ Amanda Baldwin | ||||||||||
May 8, 2025 | Name: | Amanda Baldwin | |||||||||
Title: | Chief Executive Officer | ||||||||||
(Principal Executive Officer) | |||||||||||
By: | /s/ Catherine Dunleavy | ||||||||||
May 8, 2025 | Name: | Catherine Dunleavy | |||||||||
Title: | Chief Operating Officer and Chief Financial Officer | ||||||||||
(Principal
Financial Officer)
|
30