Olaplex (OLPX) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information This section provides the basic filing information for the Quarterly Report on Form 10-Q for Olaplex Holdings, Inc Filing Details This section provides the basic filing information for the Quarterly Report on Form 10-Q for Olaplex Holdings, Inc., covering the period ended June 30, 2025. It confirms the registrant's compliance with SEC filing requirements and its classification as an Accelerated Filer - The report is a Quarterly Report on Form 10-Q for the period ended June 30, 2025[2] - Olaplex Holdings, Inc. is an Accelerated Filer and has filed all required reports during the preceding 12 months[3][4] - As of August 1, 2025, the registrant had 667,081,086 shares of common stock outstanding[4] Table of Contents This section outlines the Form 10-Q's structure, dividing it into Financial Information and Other Information Report Structure This section outlines the organizational structure of the Form 10-Q, dividing it into two main parts: Financial Information and Other Information, along with specific items and their corresponding page numbers - The report is structured into Part I (Financial Information) and Part II (Other Information)[6] - Part I includes Condensed Consolidated Financial Statements, Management's Discussion and Analysis, Market Risk disclosures, and Controls and Procedures[6] - Part II covers Legal Proceedings, Risk Factors, Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, Mine Safety Disclosures, Other Information, and Exhibits[6] Glossary This section defines key terms used in the Form 10-Q, ensuring clarity and consistent understanding Defined Terms This section provides definitions for key terms used throughout the Quarterly Report on Form 10-Q, ensuring clarity and consistent understanding of company-specific and financial terminology - Key terms such as '2022 Credit Agreement', 'IPO', 'Penelope', 'Pre-IPO Stockholders', 'Pre-IPO Tax Assets', 'Reorganization Transactions', and 'Tax Receivable Agreement' are defined[8][9] - The '2022 Credit Agreement' includes a $675 million seven-year senior-secured term loan facility and a $150 million five-year senior-secured revolving credit facility[9] - The 'Tax Receivable Agreement' mandates the Company to pay Pre-IPO Stockholders 85% of realized U.S. federal, state, or local tax cash savings following the IPO[9] Special Note Regarding Forward-Looking Statements This section provides a cautionary statement regarding forward-looking statements, noting inherent risks and uncertainties Forward-Looking Statements Disclaimer This section provides a cautionary statement regarding forward-looking statements within the report, highlighting that such statements are based on current expectations and projections, but involve known and unknown risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements based on management's beliefs and current information, covering strategies, plans, objectives, expectations, and financial trends[11][12] - These statements are not guarantees of future performance and involve known and unknown risks, inherent uncertainties, and other difficult-to-predict factors[12][13] - Key risks include dependence on business transformation, competition, brand image maintenance, ability to respond to market trends, supply chain management, international operations, and legal proceedings[13][15] Part I. Financial Information This part presents the Company's unaudited financial statements, management's discussion, market risk, and controls Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, along with their accompanying notes Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets and liabilities from December 31, 2024, to June 30, 2025, primarily driven by a significant reduction in cash and cash equivalents and long-term debt Balance Sheet Summary | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------- | :----------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $289,339 | $585,967 | $(296,628) | -50.6% | | Total current assets | $462,669 | $689,713 | $(227,044) | -32.9% | | Total assets | $1,516,923 | $1,767,723 | $(250,800) | -14.2% | | Total current liabilities | $119,945 | $64,654 | $55,291 | 85.5% | | Long-term debt | $351,902 | $643,712 | $(291,810) | -45.3% | | Total liabilities | $642,752 | $893,321 | $(250,569) | -28.0% | | Total stockholders' equity | $874,171 | $874,402 | $(231) | -0.03% | - The significant decrease in cash and cash equivalents and long-term debt is largely due to a voluntary repayment of $300.0 million on the 2022 Term Loan Facility[17][53][114] - Accrued expenses and other current liabilities increased significantly from $35.6 million to $82.9 million, primarily due to a $47.5 million accrual for the Lilien legal settlement[17][48] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported a net loss for both the three and six months ended June 30, 2025, a significant shift from net income in the prior year periods. This was primarily driven by increased selling, general, and administrative expenses, despite a slight increase in net sales Statements of Operations Summary | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | % Change | | :------------------------------------ | :------------------------------- | :------------------------------- | :----- | :------- | | Net sales | $106,284 | $103,943 | $2,341 | 2.3% | | Gross profit | $75,635 | $72,437 | $3,198 | 4.4% | | Operating (loss) income | $(1,204) | $16,278 | $(17,482)| -107.4% | | Net (loss) income | $(7,742) | $5,779 | $(13,521)| -234.0% | | Basic Net (loss) income per share | $(0.01) | $0.01 | $(0.02) | -200.0% | | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | % Change | | :------------------------------------ | :------------------------------- | :------------------------------- | :----- | :------- | | Net sales | $203,262 | $202,849 | $413 | 0.2% | | Gross profit | $142,991 | $143,780 | $(789) | -0.5% | | Operating income | $7,272 | $35,895 | $(28,623)| -79.7% | | Net (loss) income | $(7,277) | $13,525 | $(20,802)| -153.8% | | Basic Net (loss) income per share | $(0.01) | $0.02 | $(0.03) | -150.0% | - Selling, general, and administrative expenses increased significantly by 45.1% ($20.5 million) for the three months and 32.7% ($28.0 million) for the six months ended June 30, 2025, primarily due to increased advertising and marketing, legal and professional fees, and payroll costs[19][93][103] - Interest expense decreased due to a voluntary $300 million debt repayment and lower interest rates, partially offset by a $2.6 million write-off of deferred debt issuance costs[19][94][105] Condensed Consolidated Statements of Changes in Stockholders' Equity This statement details the changes in stockholders' equity, reflecting the impact of net loss, share-based compensation, and share issuances from stock option exercises and RSU vesting for the periods ended June 30, 2025 and 2024 - Total stockholders' equity slightly decreased from $874,402 thousand at December 31, 2024, to $874,171 thousand at June 30, 2025[17][21] - The company reported a net loss of $7,742 thousand for the three months ended June 30, 2025, contributing to the decrease in retained earnings[19][21] - Share-based compensation expense for the six months ended June 30, 2025, was $6,381 thousand, and 1,863,812 shares of common stock were issued from stock option exercises and RSU vesting[21][61] Condensed Consolidated Statements of Cash Flows Cash flows from operating activities significantly decreased, while cash used in financing activities dramatically increased due to a large principal payment on the term loan, resulting in a net decrease in cash and cash equivalents for the six months ended June 30, 2025 Cash Flow Summary | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | % Change | | :-------------------------------- | :------------------------------- | :------------------------------- | :----- | :------- | | Net cash provided by operating activities | $17,987 | $59,949 | $(41,962)| -70.0% | | Net cash used in investing activities | $(1,325) | $(2,178) | $853 | -39.2% | | Net cash used in financing activities | $(313,290) | $(16,246) | $(297,044)| 1828.4% | | Net (decrease) increase in cash and cash equivalents | $(296,628) | $41,525 | $(338,153)| -814.3% | | Cash and cash equivalents - end of period | $289,339 | $507,925 | $(218,586)| -43.0% | - The substantial increase in cash used in financing activities was primarily due to a $301.7 million principal payment on the 2022 Term Loan Facility[23][120] - Net cash provided by operating activities decreased by 70.0% to $18.0 million, reflecting the net loss and changes in operating working capital[23][117] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, specific financial line items, and significant events or transactions Note 1 – Nature of Operations and Basis of Presentation Olaplex Holdings, Inc. operates as a holding company through its indirect subsidiary, Olaplex, Inc., focusing on foundational health and beauty products inspired by professional hairstylists. The interim financial statements are prepared in conformity with U.S. GAAP and SEC rules, with no material changes in accounting policies - Olaplex Holdings, Inc. is a Delaware corporation operating indirectly through Olaplex, Inc., a foundational health and beauty company[24] - The unaudited interim Condensed Consolidated Financial Statements are prepared in conformity with U.S. GAAP and SEC rules, reflecting management's necessary adjustments for fair statement[25] Note 2 – Summary of Significant Accounting Policies This note outlines significant accounting policies, including estimates, fair value measurements, and the Tax Receivable Agreement, along with recent accounting pronouncements - Financial statements require management estimates for revenue recognition, loss contingencies, fair value of assets, and tax obligations[26] - The Tax Receivable Agreement requires the Company to pay Pre-IPO Stockholders 85% of realized tax cash savings, with future payments expected to aggregate to $177.2 million through 2041[32][33] - Recent accounting pronouncements (ASU 2023-09, SEC Release No. 33-11275, ASU 2024-03) are being evaluated for their potential impact on disclosures, with no anticipated effect on consolidated results of operations or financial condition[34][35][36] Note 3 – Net Sales Net sales for the three and six months ended June 30, 2025, showed modest growth, with DTC and Professional channels increasing, while Specialty Retail experienced a decline. Sales were nearly evenly split between the United States and International regions Net Sales by Channel | Channel | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :---------------- | :-------------------------------- | :-------------------------------- | :-------------------- | :------- | | Professional | $37,448 | $33,416 | $4,032 | 12.1% | | Specialty retail | $30,354 | $36,424 | $(6,070) | -16.7% | | DTC | $38,482 | $34,103 | $4,379 | 12.8% | | Total net sales | $106,284 | $103,943 | $2,341 | 2.3% | | Channel | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :---------------- | :-------------------------------- | :-------------------------------- | :-------------------- | :------- | | Professional | $71,986 | $72,162 | $(176) | -0.2% | | Specialty retail | $68,907 | $70,856 | $(1,949) | -2.8% | | DTC | $62,369 | $59,831 | $2,538 | 4.2% | | Total net sales | $203,262 | $202,849 | $413 | 0.2% | - For the three months ended June 30, 2025, DTC and Professional channels saw increases of 12.8% and 12.1% respectively, while Specialty Retail declined by 16.7%[38][90] - U.S. and international net sales each represented approximately half of total net sales for both the three and six months ended June 30, 2025 and 2024[38][90][100] Note 4 – Inventory Inventory levels increased slightly from December 31, 2024, to June 30, 2025, primarily in finished goods, with consistent inventory write-offs due to product obsolescence in both periods Inventory Breakdown | Inventory Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------- | :--------------------------- | :----------------------------- | :-------------------- | :------- | | Raw materials | $17,793 | $20,440 | $(2,647) | -12.9% | | Finished goods | $60,530 | $54,725 | $5,805 | 10.6% | | Total Inventory | $78,323 | $75,165 | $3,158 | 4.2% | - The allowance for excess and obsolete inventory decreased from $15.7 million at December 31, 2024, to $14.0 million at June 30, 2025[39] - Inventory write-offs due to product obsolescence were $2.8 million for the six months ended June 30, 2025, compared to $2.5 million for the same period in 2024[40] Note 5 – Fair Value Measurement This note details the Company's fair value measurements, primarily for its 2024 Interest Rate Cap, which is classified as Level 2 in the fair value hierarchy due to observable market inputs, despite minor Level 3 credit valuation adjustments - The Company uses a three-tier fair value hierarchy (Level 1, 2, 3) for financial instruments[41] - The 2024 Interest Rate Cap, with a notional amount of $400.0 million (amortizing to $200.0 million), is classified as Level 2 due to valuation using observable market interest rate curves and volatilities[43][44] Fair Value of Financial Instruments | Asset Category | June 30, 2025 (Total in thousands) | December 31, 2024 (Total in thousands) | | :--------------- | :--------------------------------- | :----------------------------------- | | U.S. Treasury | $9,909 | $64,742 | | Money market funds | $11,694 | $277,901 | | 2024 Interest Rate Cap | $14 | $217 | Note 6 – Goodwill and Intangible Assets This note provides a breakdown of the Company's goodwill and intangible assets, highlighting the amortization of definite-lived assets and their impact on the statements of operations Goodwill and Intangible Assets Carrying Amounts | Asset Category | June 30, 2025 (Net Carrying Amount in thousands) | December 31, 2024 (Net Carrying Amount in thousands) | | :--------------- | :--------------------------------------------- | :----------------------------------------------- | | Brand name | $743,406 | $762,444 | | Product formulations | $86,768 | $91,318 | | Customer relationships | $38,482 | $39,809 | | Software | $5,184 | $5,978 | | Total finite-lived intangibles | $873,840 | $899,549 | | Goodwill | $168,300 | $168,300 | | Total goodwill and other intangibles | $1,042,140 | $1,067,849 | - Amortization expense for patented formulations was $4,576 thousand for the six months ended June 30, 2025, and amortization of other intangible assets (brand name, customer relationships, software) was $21,823 thousand[47] Note 7 – Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities significantly increased, primarily due to a substantial accrual for a pending legal settlement related to the Lilien matter, which the Company expects to largely recover through insurance Accrued Expenses and Other Current Liabilities Breakdown | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :--------------------------- | :----------------------------- | | Sales tax payable | $2,141 | $6,273 | | Accrued professional fees | $10,360 | $3,649 | | Payroll liabilities | $5,362 | $6,405 | | Accrued advertising | $7,684 | $5,267 | | Accrued Lilien legal settlement | $47,500 | $0 | | Total accrued expenses and other current liabilities | $82,944 | $35,639 | - The $47.5 million accrual for the Lilien legal settlement is a new significant item, with an expected $46.6 million insurance receivable recorded[48] Note 8 – Long-Term Debt The Company significantly reduced its long-term debt through a voluntary $300.0 million principal repayment on the 2022 Term Loan Facility, leading to decreased interest expense. The Company remains in compliance with its debt covenants and utilizes interest rate caps to manage interest rate risk Long-Term Debt Summary | Debt Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :--------------------------- | :----------------------------- | | 2022 Term Loan Facility | $354,750 | $656,438 | | Debt issuance costs | $(2,848) | $(5,976) | | Long-term debt, net | $351,902 | $643,712 | - On May 1, 2025, the Company voluntarily repaid $300.0 million of outstanding principal on the 2022 Term Loan Facility, funded by available cash on hand[53] - Interest expense decreased by 15.2% for the three months and 10.3% for the six months ended June 30, 2025, primarily due to the debt repayment and lower interest rates, partially offset by a $2.6 million write-off of deferred debt issuance costs[51][94][105] - The Company was in compliance with all affirmative and negative covenants under the 2022 Credit Agreement as of June 30, 2025[49] Note 9 – Income Taxes The Company's effective tax rate decreased significantly for both the three and six months ended June 30, 2025, primarily due to a discrete tax benefit from litigation-related expenses, partially offset by deferred tax asset write-offs Effective Tax Rates | Period | Effective Tax Rate (2025) | Effective Tax Rate (2024) | | :----- | :------------------------ | :------------------------ | | 3 months | 14.6% | 24.7% | | 6 months | 11.1% | 25.1% | - The lower effective tax rate in 2025 was primarily due to a discrete tax benefit for certain litigation-related expenses[58][59] - The One Big Beautiful Bill Act (OBBBA), enacted after June 30, 2025, is being evaluated for its potential impact on the Company's estimated annual effective tax rate and cash tax position[60] Note 10 – Equity This note details the issuance of common stock during the six months ended June 30, 2025 and 2024, resulting from the exercise of stock options and the vesting of restricted stock units - During the six months ended June 30, 2025, the Company issued 1,863,812 shares of common stock (692,681 from stock options, 1,171,131 from RSUs)[61] - During the six months ended June 30, 2024, 1,098,285 shares were issued (297,945 from stock options, 800,340 from RSUs)[61] Note 11 – Related Party Transactions This note discloses related party transactions, including de minimis payments to Pacvue Corporation and payments made under the Tax Receivable Agreement to Pre-IPO Stockholders - Payments to Pacvue Corporation, an entity affiliated with Advent, were de minimis for the three and six months ended June 30, 2025[62] - The Company made payments of $12.1 million and $12.6 million under the Tax Receivable Agreement for the three and six months ended June 30, 2025 and 2024, respectively[63] Note 12 – Commitments and Contingencies The Company is involved in several legal proceedings, including a securities class action (Lilien) that has reached a settlement agreement in principle, and two purported derivative actions (Ciuffo and Hutchinson) that remain stayed. Other claims, including product liability, have been resolved or dismissed - A putative securities class action, Lilien v. Olaplex Holdings, Inc. et al., has reached an agreement in principle to settle on a class-wide basis, with a motion for preliminary approval filed on August 1, 2025[66] - Two purported derivative actions, Ciuffo v. Dagousset, et al. and Hutchinson v. Advent International Corporation, et al., remain stayed pending resolution of the Lilien action[67][68][69] - Claims alleging personal and economic injury in Albahae, et al. v. Olaplex Holdings, Inc., et al. have been resolved or dismissed, with no re-filing of claims[70] Note 13 – Net (Loss) Income Per Share The Company reported a basic and diluted net loss per share of $(0.01) for both the three and six months ended June 30, 2025, a decline from positive EPS in the prior year, with potentially dilutive securities excluded due to anti-dilutive effects Net (Loss) Income Per Share Summary | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net (loss) income | $(7,742) | $5,779 | | Basic Net (loss) income per share | $(0.01) | $0.01 | | Diluted Net (loss) income per share | $(0.01) | $0.01 | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net (loss) income | $(7,277) | $13,525 | | Basic Net (loss) income per share | $(0.01) | $0.02 | | Diluted Net (loss) income per share | $(0.01) | $0.02 | - In periods of net losses, potentially dilutive securities (stock options, RSUs, SARs) are excluded from diluted EPS calculations as their inclusion would be anti-dilutive[73] Note 14 – Segment Reporting The Company operates and manages its business as a single reportable segment, with its Chief Executive Officer serving as the chief operating decision maker (CODM) who assesses performance based on net income across its three sales channels - The Company manages its business as a single operating segment, despite distributing products through three sales channels: professional, specialty retail, and DTC[74] - The Chief Executive Officer (CODM) evaluates the Company's performance based on net income, which aligns with the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss)[75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, discussing key performance drivers, strategic priorities, market trends, and liquidity Company Overview Olaplex is a foundational health and beauty company known for its patent-protected bond-building technology, which revolutionized haircare. It operates an omnichannel model across professional, specialty retail, and direct-to-consumer channels, offering a diverse product portfolio - Olaplex is a foundational health and beauty company, leveraging patent-protected bond-building technology (Bis-aminopropyl diglycol dimaleate) introduced in 2014[79][80] - The product portfolio has expanded to over 25 products, supporting hair health needs for professional stylists and consumers[81] - The Company employs a synergistic omnichannel model, integrating professional, specialty retail, and direct-to-consumer (DTC) channels to reach and engage consumers[82] Our Strategy Olaplex's 2025 strategy focuses on three key priorities: generating brand demand through comprehensive marketing, harnessing innovation to expand its product portfolio beyond damage repair, and executing with excellence by refining operational processes and international partnerships - The 2025 strategic priorities are to Generate Brand Demand, Harness Innovation, and Execute with Excellence[83] - Generating brand demand involves elevating visual brand identity, communicating unique product benefits, and implementing a 360-degree marketing approach with a Pro-first strategy[84] - Harnessing innovation focuses on building a future pipeline grounded in foundational hair health, expanding beyond damage repair to address strength, shine, smoothness, and moisturization[85] - Executing with excellence includes evolving operational processes, realigning international distribution, enhancing partnerships, and using data-driven insights for growth[86] Business Environment & Trends The Company monitors the unpredictable global macro-economic environment, including inflation, interest rates, and geopolitical tensions, which could impact consumer spending. Despite increased competition and discounting in the prestige haircare category, Olaplex believes its brand reputation, product quality, and innovation position it to compete effectively - The Company monitors global macro-economic factors such as recession risk, inflation, competitive discounting, currency volatility, and high interest rates[87] - Competition in the beauty industry is based on innovation, product efficacy, pricing, brand recognition, and sustainability[88] - Olaplex believes its strong brand reputation, quality products, science-based innovation, and asset-light model enable effective competition despite increased competitive activity and discounting[88] Results of Operations The Company's results of operations for the three and six months ended June 30, 2025, show a shift to net losses, primarily driven by significantly increased selling, general, and administrative expenses, despite modest net sales growth Comparison of the Three Months Ended June 30, 2025 to the Three Months Ended June 30, 2024 For the three months ended June 30, 2025, net sales increased slightly, but a substantial rise in SG&A expenses led to an operating loss and net loss, contrasting with prior year profitability Three Months Ended June 30 Comparison | Metric (in thousands) | June 30, 2025 | June 30, 2024 | $ Change | % Change | | :------------------------------------ | :------------ | :------------ | :------- | :------- | | Net sales | $106,284 | $103,943 | $2,341 | 2.3% | | Gross profit | $75,635 | $72,437 | $3,198 | 4.4% | | Gross profit margin | 71.2% | 69.7% | 1.5 pp | | | Selling, general, and administrative | $65,909 | $45,423 | $20,486 | 45.1% | | Operating (loss) income | $(1,204) | $16,278 | $(17,482)| -107.4% | | Net (loss) income | $(7,742) | $5,779 | $(13,521)| -234.0% | | Income tax provision | $(1,323) | $1,900 | $(3,223) | -169.6% | - Net sales growth was driven by DTC (+12.8%) and Professional (+12.1%) channels, while Specialty Retail declined (-16.7%)[90] - The increase in SG&A expenses was primarily due to a $9.8 million increase in advertising and marketing, $9.0 million in legal and professional fees, and $1.3 million in payroll costs[93] - Interest expense decreased by 15.2% due to a $300 million debt repayment, partially offset by a $2.6 million write-off of deferred debt issuance costs[94] Comparison of the Six Months Ended June 30, 2025 to the Six Months Ended June 30, 2024 Over the six-month period, total net sales remained relatively flat, but a substantial increase in operating expenses, particularly SG&A, resulted in a significant decrease in operating income and a shift to a net loss compared to the previous year Six Months Ended June 30 Comparison | Metric (in thousands) | June 30, 2025 | June 30, 2024 | $ Change | % Change | | :------------------------------------ | :------------ | :------------ | :------- | :------- | | Net sales | $203,262 | $202,849 | $413 | 0.2% | | Gross profit | $142,991 | $143,780 | $(789) | -0.5% | | Gross profit margin | 70.3% | 70.9% | -0.6 pp | | | Selling, general, and administrative | $113,896 | $85,860 | $28,036 | 32.7% | | Operating income | $7,272 | $35,895 | $(28,623)| -79.7% | | Net (loss) income | $(7,277) | $13,525 | $(20,802)| -153.8% | | Income tax provision | $(907) | $4,523 | $(5,430) | -120.1% | - DTC net sales increased by 4.2%, while Specialty Retail and Professional channels saw slight decreases of 2.8% and 0.2%, respectively[100] - SG&A expenses increased by $28.0 million, driven by $14.6 million in advertising and marketing, $11.6 million in legal and professional fees, and $1.4 million in payroll costs[103] - The effective tax rate for the six months ended June 30, 2025, was 11.1%, lower than the statutory rate due to a discrete tax benefit for litigation expenses[108][109] Financial Condition, Liquidity and Capital Resources The Company's liquidity was impacted by a significant voluntary debt repayment, reducing cash but improving capital structure, with management expecting sufficient cash for future needs Overview The Company's primary cash sources are product sales, with uses for working capital, operating costs, and debt servicing. A voluntary $300.0 million debt repayment significantly reduced cash on hand but improved the overall capital structure - Primary cash sources are proceeds from product sales, while primary uses are working capital, operating costs, and debt servicing[111][112] - On May 1, 2025, the Company voluntarily repaid $300.0 million of outstanding principal on the 2022 Term Loan Facility using available cash[114] - As of June 30, 2025, the Company had $289.3 million in cash and cash equivalents and $150.0 million in available borrowing capacity under the 2022 Revolver, totaling $439.3 million in liquidity[115] Cash Flows Cash provided by operating activities decreased significantly, while cash used in financing activities surged due to the substantial principal payment on the 2022 Term Loan Facility, leading to a net decrease in cash and cash equivalents Cash Flow Activities | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------- | :-------------------------------------------- | :-------------------------------------------- | | Operating activities | $17,987 | $59,949 | | Investing activities | $(1,325) | $(2,178) | | Financing activities | $(313,290) | $(16,246) | | Net (decrease) increase in cash and cash equivalents | $(296,628) | $41,525 | - Net cash provided by operating activities decreased by 70.0% to $18.0 million, primarily reflecting the net loss and changes in operating working capital[117] - Net cash used in financing activities increased dramatically to $313.3 million, mainly due to the $301.7 million principal payment on the 2022 Term Loan Facility[120] Liquidity and Capital Resources The Company anticipates its current cash, cash equivalents, and operating cash flows will be sufficient for short- and long-term liquidity needs. It may seek additional financing through debt or equity if necessary, subject to market conditions - Management believes current cash, cash equivalents, and cash from operations will be sufficient to meet anticipated operating costs, debt payments, working capital, and capital expenditures for both short and long term[122][123] - The Company may borrow under its $150.0 million 2022 Revolver or seek additional indebtedness or equity financings if long-term liquidity needs require it[124] 2022 Credit Facility The Company's outstanding indebtedness under the 2022 Credit Agreement was $354.8 million as of June 30, 2025, following a significant principal repayment. It maintains compliance with covenants and uses interest rate caps to manage interest rate risk - Outstanding indebtedness under the 2022 Credit Agreement was $354.8 million as of June 30, 2025, with $150.0 million available under the 2022 Revolver[125] - The interest rate on the 2022 Term Loan Facility was 7.9% per annum as of June 30, 2025[126] - The Company was in compliance with all covenants of the 2022 Credit Agreement as of June 30, 2025, and utilizes interest rate caps (2024 Interest Rate Cap) to hedge interest rate exposure[127][129] Tax Receivable Agreement Obligations The Company's obligations under the Tax Receivable Agreement require payments to Pre-IPO Stockholders based on realized tax cash savings. Future payments are estimated at $177.2 million through 2041, and the impact of new tax legislation (OBBBA) is being evaluated - The Company is obligated to pay Pre-IPO Stockholders 85% of federal, state, or local tax cash savings realized from amortization of intangible assets and capitalized transaction costs[131] - Future payments under the Tax Receivable Agreement are expected to aggregate to $177.2 million, continuing through 2041[132] - The Company is evaluating the effects of the One Big Beautiful Bill Act (OBBBA) on its Tax Receivable Agreement liability[132] Contractual Obligations and Commitments There were no material changes to the Company's contractual obligations since the filing of its 2024 Form 10-K, other than the voluntary $300.0 million repayment on the 2022 Term Loan Facility - No material changes to contractual obligations were reported, except for the voluntary repayment of $300.0 million on the 2022 Term Loan Facility[133] Critical Accounting Estimates The Company's critical accounting estimates remain consistent with its 2024 Form 10-K, with a focus on goodwill impairment. A quantitative assessment as of October 1, 2024, showed the reporting unit's fair value exceeded its carrying value by approximately 19%, with no impairment recorded - No material changes to critical accounting estimates were reported for the six months ended June 30, 2025[133] - A quantitative assessment as of October 1, 2024, concluded that the fair value of the reporting unit exceeded its carrying value by approximately 19%, with no goodwill impairment recorded[135] - Goodwill fair value is estimated using income and market approaches, with key assumptions including forecasted cash flows, terminal growth rates (3.0%), and a weighted-average cost of capital (11.0%)[136] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there have been no material changes to the Company's market risk exposures or management of market risk since the disclosures in its 2024 Form 10-K - No material changes to market risk exposures or management of market risk have occurred since the 2024 Form 10-K filing[139] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025, and reported no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[141] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[142] Part II. Other Information This part covers legal proceedings, risk factors, equity sales, defaults, mine safety, and other exhibits Item 1. Legal Proceedings This section reiterates the Company's involvement in various legal actions incidental to its business, including intellectual property, regulatory, and consumer claims, and refers to Note 12 for detailed information on pending legal proceedings - The Company is subject to various legal actions, including those related to intellectual property, regulatory matters, contract, advertising, and consumer claims[145] - Litigation can adversely impact reputation, financial condition, and business by utilizing resources and diverting management attention[145] - Detailed information on pending legal proceedings is provided in Note 12 to the Condensed Consolidated Financial Statements[146] Item 1A. Risk Factors This section directs readers to the Company's 2024 Form 10-K for a detailed discussion of business risks, indicating no new material risk factors have emerged - For a detailed discussion of business risks, readers are referred to 'Item 1A. – Risk Factors' in the 2024 Form 10-K[147] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds occurred during the period[148] Item 3. Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities to report for the period - No defaults upon senior securities were reported[149] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[150] Item 5. Other Information This section reports that no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[151] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, certifications, and XBRL-related documents - Exhibits include the Restated Certificate of Incorporation, Second Amended and Restated Bylaws, and certifications from the Principal Executive and Financial Officers[152] - XBRL (eXtensible Business Reporting Language) documents are also included, such as the Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase[152] Signatures This section contains the official signatures of the Company's Chief Executive Officer and Chief Operating Officer and Chief Financial Officer, certifying the Form 10-Q filing Report Signatures This section contains the official signatures of the Company's Chief Executive Officer and Chief Operating Officer and Chief Financial Officer, certifying the filing of the Quarterly Report on Form 10-Q - The report is signed by Amanda Baldwin, Chief Executive Officer (Principal Executive Officer), and Catherine Dunleavy, Chief Operating Officer and Chief Financial Officer (Principal Financial Officer)[156][157] - The report was signed on August 7, 2025[157]