Olaplex (OLPX) - 2023 Q1 - Quarterly Report

GLOSSARY This section defines key terms and agreements relevant to the financial report, including the '2022 Credit Agreement' and the 'Tax Receivable Agreement' - The '2022 Credit Agreement' refers to the Credit Agreement, dated February 23, 2022, which refinanced the 2020 Credit Agreement and includes a $675 million seven-year senior-secured term loan facility and a $150 million five-year senior-secured revolving credit facility[10] - The 'Tax Receivable Agreement' mandates the Company to pay Pre-IPO Stockholders 85% of the cash savings in U.S. federal, state, or local tax realized from the amortization of pre-IPO intangible assets and capitalized transaction costs[10] SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This section outlines the nature of forward-looking statements, associated risks, and the company's policy on updating such information - Forward-looking statements in this report reflect current expectations and projections about future events and financial trends, including financial position, operating results, business plans, strategies, and objectives[13] - Key risks that could cause actual results to differ materially include the company's ability to anticipate and respond to market trends, competition in the beauty industry, dependence on a limited number of customers, and impacts from political, regulatory, economic, and trade risks[14] - The company does not intend or assume any obligation to update these forward-looking statements for any reason after the report date, unless required by law[16] Part I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Olaplex Holdings, Inc.'s unaudited condensed consolidated financial statements for the quarter ended March 31, 2023, including balance sheets, statements of operations and comprehensive income, changes in equity, and cash flows, along with detailed notes explaining significant accounting policies, financial performance, and key balance sheet items Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $369,340 | $322,808 | | Total current assets | $563,535 | $522,224 | | Inventory | $132,014 | $144,425 | | Total assets | $1,725,827 | $1,697,675 | | Total current liabilities | $58,228 | $55,088 | | Long-term debt | $653,006 | $654,333 | | Total liabilities | $919,210 | $916,718 | | Total stockholders' equity | $806,617 | $780,957 | Condensed Consolidated Statements of Operations and Comprehensive Income This section presents the company's financial performance, including net sales, gross profit, operating income, and net income for the three months ended March 31, 2023 and 2022 Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (in thousands) | % Change | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | :------- | | Net sales | $113,787 | $186,196 | $(72,409) | (38.9)% | | Gross profit | $80,810 | $141,205 | $(60,395) | (42.8)% | | Operating income | $35,563 | $108,625 | $(73,062) | (67.3)% | | Net income | $20,964 | $61,961 | $(40,997) | (66.2)% | | Basic Net income per share | $0.03 | $0.10 | $(0.07) | (70.0)% | | Diluted Net income per share | $0.03 | $0.09 | $(0.06) | (66.7)% | Condensed Consolidated Statements of Changes in Equity This section details the changes in the company's total equity, including net income and capital adjustments, for the period ended March 31, 2023 Condensed Consolidated Statements of Changes in Equity Highlights (in thousands) | Metric | December 31, 2022 | March 31, 2023 | | :-------------------------- | :---------------- | :------------- | | Total Equity | $780,957 | $806,617 | | Net income | — | $20,964 | | Additional Paid-in Capital | $312,875 | $318,124 | | Retained Earnings | $464,856 | $485,820 | - Total equity increased by $25,660 thousand, driven by net income of $20,964 thousand and increases in additional paid-in capital from stock option exercises ($3,299 thousand) and share-based compensation expense ($2,018 thousand)[25] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023 and 2022 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (in thousands) | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | | Net cash provided by operating activities | $48,089 | $71,969 | $(23,880) | | Net cash used in investing activities | $(631) | $(489) | $(142) | | Net cash used in financing activities | $(926) | $(114,521) | $113,595 | | Net increase (decrease) in cash | $46,532 | $(43,041) | $89,573 | | Cash and cash equivalents - end of period | $369,340 | $143,347 | $225,993 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the significant accounting policies, financial performance, and key balance sheet items presented in the condensed consolidated financial statements NOTE 1- NATURE OF OPERATIONS AND BASIS OF PRESENTATION This note describes Olaplex Holdings, Inc.'s business as a science-enabled beauty company and the basis for preparing its unaudited interim financial statements - Olaplex Holdings, Inc. operates as an innovative, science-enabled, technology-driven beauty company, focusing on patent-protected prestige hair care products distributed through professional salons, retailers, and direct-to-consumer channels[29] - The unaudited interim Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP for interim financial information and SEC instructions, and should be read in conjunction with the 2022 Annual Report on Form 10-K[30] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the critical accounting policies and estimates used in preparing the financial statements, including revenue recognition and the Tax Receivable Agreement - Financial statements require management to make estimates and assumptions regarding revenue recognition, loss contingencies, fair value of share-based options, impairment of goodwill and intangible assets, and inventory valuation[31] - The Tax Receivable Agreement obligates the Company to pay Pre-IPO Stockholders 85% of the federal, state, or local tax cash savings realized from the amortization of pre-IPO intangible assets and capitalized transaction costs[37] - Future payments under the Tax Receivable Agreement are expected to aggregate to $222.1 million over the remaining 13-year period[38] NOTE 3 – NET SALES This note provides a breakdown of net sales by channel and geography, highlighting the significant decline in total net sales for the first quarter of 2023 Net Sales by Channel (in thousands) | Net Sales by Channel | March 31, 2023 | March 31, 2022 | | :------------------- | :------------- | :------------- | | Professional | $48,397 | $77,059 | | Specialty retail | $34,859 | $64,272 | | DTC | $30,531 | $44,865 | | Total net sales | $113,787 | $186,196 | Net Sales by Geography (in thousands) | Net Sales by Geography | March 31, 2023 | March 31, 2022 | | :--------------------- | :------------- | :------------- | | United States | $47,662 | $120,110 | | International | $66,125 | $66,086 | - Total net sales declined 38.9% in Q1 2023 compared to Q1 2022, with significant decreases across all channels and primarily in the United States and United Kingdom[40][41] NOTE 4 - INVENTORY This note details the composition of inventory, including raw materials and finished goods, and explains the decrease in total inventory during the period Inventory Composition (in thousands) | Inventory Category | March 31, 2023 | December 31, 2022 | | :----------------- | :------------- | :---------------- | | Raw materials and packaging components | $40,224 | $36,194 | | Finished goods | $91,790 | $108,231 | | Total Inventory | $132,014 | $144,425 | - Total inventory decreased by $12,411 thousand from December 31, 2022, to March 31, 2023, primarily due to a reduction in finished goods[42] NOTE 5 – GOODWILL AND INTANGIBLE ASSETS This note presents the net carrying amounts of goodwill and other intangible assets, explaining the decrease primarily due to amortization of finite-lived assets Goodwill and Intangible Assets (Net Carrying Amount in thousands) | Asset Category | March 31, 2023 | December 31, 2022 | | :--------------- | :------------- | :---------------- | | Brand name | $829,086 | $838,606 | | Product formulations | $106,735 | $109,002 | | Customer relationships | $44,446 | $45,108 | | Software | $2,695 | $2,312 | | Goodwill | $168,300 | $168,300 | | Total goodwill and other intangibles | $1,151,262 | $1,163,328 | - Total goodwill and other intangibles decreased by $12,066 thousand from December 31, 2022, to March 31, 2023, primarily due to the amortization of finite-lived intangible assets[43][44] NOTE 6 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES This note details the components of accrued expenses and other current liabilities, highlighting the increase primarily due to a legal settlement accrual Accrued Expenses and Other Current Liabilities (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Accrued professional fees | $3,911 | $3,187 | | Accrued legal settlement | $3,900 | — | | Payroll liabilities | $2,792 | $4,092 | | Total accrued expenses and other current liabilities | $19,919 | $17,107 | - Accrued expenses and other current liabilities increased by $2,812 thousand, primarily due to a $3.9 million accrual for a pending copyright settlement, which the Company expects to recover under its general liability insurance policy[45] NOTE 7 - LONG-TERM DEBT This note provides details on the company's long-term debt, including the 2022 Term Loan Facility, interest rates, and hedging activities Long-Term Debt (in thousands) | Debt Component | March 31, 2023 | December 31, 2022 | | :--------------- | :------------- | :---------------- | | 2022 Term Loan Facility | $668,250 | $671,625 | | Debt issuance costs | $(8,494) | $(8,854) | | Current portion | $(6,750) | $(8,438) | | Long-term debt, net | $653,006 | $654,333 | - The interest rate on the 2022 Term Loan Facility was 8.4% per annum as of March 31, 2023, and the Company had $150 million of available borrowing capacity under the 2022 Revolver[46] - The Company entered into an interest rate cap transaction with a notional amount of $400 million on August 11, 2022, designated as a cash-flow hedge, to manage exposure to interest rate movements[50] NOTE 8 - EQUITY This note describes changes in the company's equity, including common stock issuances from stock option exercises and share repurchases for tax payments - During Q1 2023, the Company issued 109,620 shares of common stock upon vesting and settlement of net stock-settled SARs and 3,659,267 shares from stock option exercises[56] - The Company repurchased 83,501 shares for tax payments related to SARs in Q1 2023[56] - In Q1 2022, 886,950 cash-settled units were converted into SARs, resulting in a $1,632 thousand reclassification from accrued expenses to additional paid-in capital[57] NOTE 9 - RELATED PARTY TRANSACTIONS This note discloses transactions with related parties, including payments to an affiliated IT company and the Tax Receivable Agreement with Pre-IPO Stockholders - The Company paid CI&T, an IT company affiliated with Advent International Corporation (a majority stockholder), $6 thousand in Q1 2023 and $5 thousand in Q1 2022 for digital marketing and application development services, negotiated on arm's length terms[58] - The Tax Receivable Agreement, entered into with Pre-IPO Stockholders, is also considered a related party transaction[59] NOTE 10 - CONTINGENCIES This note outlines pending legal proceedings, including a securities class action and product liability complaints, and assesses the potential financial impact - A putative securities class action was filed on November 17, 2022, alleging claims under Sections 11, 12, and 15 of the Securities Act of 1933, with a consolidated complaint filed on April 28, 2023[61] - A product liability complaint was filed on February 9, 2023, alleging personal and economic injury and misrepresentation regarding certain product ingredients, with 73 additional plaintiffs added on March 2, 2023[62] - Any potential loss associated with these pending legal proceedings is not probable or reasonably estimable at this time[63] NOTE 11 – NET INCOME PER SHARE This note presents basic and diluted net income per share, reflecting the significant decrease in profitability for the first quarter of 2023 Net Income Per Share | Net Income Per Share | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------- | :-------------------------------- | :-------------------------------- | | Basic | $0.03 | $0.10 | | Diluted | $0.03 | $0.09 | - Basic net income per share decreased from $0.10 in Q1 2022 to $0.03 in Q1 2023, and diluted net income per share decreased from $0.09 to $0.03, reflecting the significant drop in net income[64] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Olaplex's financial condition and results of operations for the three months ended March 31, 2023, discussing the company's strategic pillars, the business environment, and detailed financial performance, including significant declines in net sales and profitability, and an overview of liquidity and capital resources Company Overview This section introduces Olaplex as an innovative, science-enabled beauty company that pioneered the bond-building hair care category - Olaplex is an innovative, science-enabled, technology-driven beauty company that disrupted the prestige hair care category by creating the bond-building space in 2014[67][68] - The company offers a portfolio of sixteen patent-protected bond-building products across professional, specialty retail, and direct-to-consumer (DTC) channels, leveraging a synergistic omnichannel model[68][69] Four Strategic Pillars This section outlines the company's four key strategic pillars for long-term growth, focusing on brand, innovation, channel, and geographic expansion - The company is focused on four key strategic pillars for long-term growth: igniting its global brand, disrupting with innovation, amplifying channel coverage, and charting new geographies[70] - Innovation efforts include a strong pipeline of disruptive products leveraging science-based technology, with plans to launch 2-4 products annually, and entry into hair care adjacent categories like LASHBOND™[72] - Channel amplification involves strengthening professional relationships, enhancing visual merchandising in specialty retail, and evolving digital experiences for the DTC business, while global expansion prioritizes Europe and Asia[73][74] Business Environment & Trends This section discusses global macroeconomic factors and intense competition impacting the beauty industry, which the company actively monitors - The company is monitoring global macro-economic factors such as lower customer demand, recession risk, increasing inflationary pressures, competitive product discounting, currency volatility, and rising interest rates[76] - Competition in the beauty industry is intense, with increased discounting in the prestige hair care category; however, Olaplex believes its brand recognition, product efficacy, and innovation position it to compete effectively[77] Overview of first quarter 2023 financial results This section provides a high-level summary of the company's Q1 2023 financial performance, noting significant declines in net sales, gross profit, and net income - Net sales decreased 38.9% to $113.8 million in Q1 2023 compared to Q1 2022, with declines across all channels: Professional (37.2%), Specialty retail (45.8%), and DTC (31.9%)[79] - Gross profit margin decreased from 75.8% to 71.0%, primarily due to higher input costs, a reserve for product obsolescence, and product/channel mix[79] - Operating income decreased from $108.6 million to $35.6 million, and net income decreased from $62.0 million to $21.0 million[79] Results of operations This section provides a detailed analysis of the company's financial performance, including net sales, cost of sales, operating expenses, and income tax provision Net Sales This section analyzes the 38.9% decline in total net sales, attributing it to lower demand, inventory rebalancing, and prior-year pipeline sales Net Sales by Channel (in thousands) | Net Sales by Channel | March 31, 2023 | March 31, 2022 | $ Change | % Change | | :------------------- | :------------- | :------------- | :------- | :------- | | Professional | $48,397 | $77,059 | $(28,662) | (37.2)% | | Specialty retail | $34,859 | $64,272 | $(29,413) | (45.8)% | | DTC | $30,531 | $44,865 | $(14,334) | (31.9)% | | Total net sales | $113,787 | $186,196 | $(72,409) | (38.9)% | - The 38.9% decline in total net sales was primarily attributed to lower baseline demand, a $21 million impact from inventory rebalancing at customers, and lapping a $10 million inventory pipeline sale in Q1 2022[80] Cost of Sales and Gross Profit This section examines the decrease in gross profit margin, primarily due to higher input costs and a reserve for product obsolescence Cost of Sales and Gross Profit (in thousands) | Metric | March 31, 2023 | March 31, 2022 | $ Change | % Change | | :----- | :------------- | :------------- | :------- | :------- | | Cost of sales | $32,977 | $44,991 | $(12,014) | (26.7)% | | Gross profit | $80,810 | $141,205 | $(60,395) | (42.8)% | | Gross profit margin | 71.0% | 75.8% | -4.8 pp | | - The decrease in gross profit margin was primarily due to higher input costs for raw materials and warehousing, and a $2.6 million reserve for product obsolescence recorded in Q1 2023, partially offset by a $4.3 million inventory write-off in Q1 2022 not recurring[81][82] Operating Expenses This section details the increase in operating expenses, driven by higher selling, general, and administrative costs due to increased marketing and payroll Operating Expenses (in thousands) | Operating Expenses | March 31, 2023 | March 31, 2022 | $ Change | % Change | | :----------------- | :------------- | :------------- | :------- | :------- | | Selling, general, and administrative | $34,924 | $22,314 | $12,610 | 56.5% | | Amortization of other intangible assets | $10,323 | $10,266 | $57 | 0.6% | | Total operating expenses | $45,247 | $32,580 | $12,667 | 38.9% | - Selling, general, and administrative expenses increased primarily due to increased investments in sales and marketing ($8.6 million) and higher payroll ($3.6 million) from workforce expansion, partially offset by a $1.9 million decrease in distribution and fulfillment costs[83] Interest Expense, Net This section explains the decrease in net interest expense, primarily due to debt refinancing and increased interest income from investments Interest Expense, Net (in thousands) | Metric | March 31, 2023 | March 31, 2022 | $ Change | % Change | | :----- | :------------- | :------------- | :------- | :------- | | Interest expense, net | $(10,543) | $(11,460) | $917 | (8.0)% | - The decrease in net interest expense was due to the refinancing of the 2020 Credit Agreement with the 2022 Credit Agreement in February 2022, which reduced outstanding debt and lowered the interest rate, and a benefit of $3.4 million in interest income from highly liquid investments[84] Other Income (Expense), Net This section highlights the significant improvement in other income (expense), net, due to the absence of a prior-year debt extinguishment loss Other Income (Expense), Net (in thousands) | Metric | March 31, 2023 | March 31, 2022 | $ Change | % Change | | :------------------------------ | :------------- | :------------- | :------- | :------- | | Loss on extinguishment of debt | $— | $(18,803) | $18,803 | —% | | Other income (expense), net | $242 | $(377) | $619 | (164.2)% | | Total other income (expense), net | $242 | $(19,180) | $19,422 | (101.3)% | - The significant improvement in other income (expense), net, was primarily due to the absence of an $18.8 million loss on extinguishment of debt recorded in Q1 2022 and an increase in foreign currency transaction gains in Q1 2023[85] Income Tax Provision This section analyzes the decrease in income tax provision and effective tax rate, attributed to discrete tax benefits and foreign derived intangible income deduction Income Tax Provision (in thousands) | Metric | March 31, 2023 | March 31, 2022 | $ Change | % Change | | :----- | :------------- | :------------- | :------- | :------- | | Income tax provision | $4,298 | $16,024 | $(11,726) | (73.2)% | | Effective tax rate | 17.0% | 20.5% | -3.5 pp | | - The decrease in the effective tax rate was primarily due to a discrete tax benefit from stock option exercises and the benefit associated with the foreign derived intangible income deduction (FDII)[86] Financial Condition, Liquidity and Capital Resources This section assesses the company's financial health, liquidity, and capital resources, including cash sources, uses, and debt obligations Overview This section provides an overview of the company's cash sources and uses, along with its combined liquidity position as of March 31, 2023 - The company's primary cash sources are product sales, with primary uses for working capital, operating costs, capital expenditures, and debt servicing[88][89] - As of March 31, 2023, the company had $369.3 million in cash and cash equivalents, $150.0 million in available borrowing capacity under the 2022 Revolver, and $136.0 million of working capital (excluding cash), totaling a combined liquidity position of $655.3 million[90] Cash Flows This section summarizes cash flows from operating, investing, and financing activities, noting a decrease in operating cash due to lower net income Summary of Cash Flows (in thousands) | Cash Flow Activity | March 31, 2023 | March 31, 2022 | | :----------------- | :------------- | :------------- | | Operating activities | $48,089 | $71,969 | | Investing activities | $(631) | $(489) | | Financing activities | $(926) | $(114,521) | - Net cash provided by operating activities decreased by $23.9 million in Q1 2023, primarily due to a $41.0 million decrease in net income, partially offset by non-recurring items in Q1 2022 such as the loss on extinguishment of debt and inventory write-offs[93] Liquidity and Capital Resources Requirements This section discusses the company's ability to meet its short-term and long-term liquidity needs through current cash, operations, and potential future financings - The company believes its current cash, cash equivalents, and cash generated from operations will be sufficient to meet anticipated operating costs, debt payments, working capital needs, and capital expenditures for at least the next 12 months[96] - Additional long-term liquidity needs may be met through further indebtedness, equity financings, or a combination, subject to market conditions[97] 2022 Credit Facility This section details the company's outstanding debt under the 2022 Credit Agreement, available borrowing capacity, and compliance with financial covenants - As of March 31, 2023, outstanding indebtedness under the 2022 Credit Agreement was $668.3 million, with an interest rate of 8.4% per annum on the Term Loan Facility[98][99] - The company had $150.0 million of available borrowing capacity under the 2022 Revolver and was in compliance with all financial covenants[98][100] - An interest rate cap transaction with a notional amount of $400.0 million was entered into to limit exposure to potential increases in future interest rates[101] Tax Receivable Agreement Obligations This section outlines the company's obligation to pay Pre-IPO Stockholders 85% of tax cash savings from intangible asset amortization, totaling $222.1 million over 13 years - The company is obligated to pay Pre-IPO Stockholders 85% of the federal, state, or local tax cash savings realized from the amortization of pre-IPO intangible assets and capitalized transaction costs[103] - Future payments under the Tax Receivable Agreement are expected to aggregate to $222.1 million over the remaining 13-year period, with $16.4 million recorded in current liabilities and $205.7 million in long-term liabilities as of March 31, 2023[87][104] Contractual Obligations and Commitments This section states that there were no material changes to the company's contractual obligations and commitments since the 2022 Form 10-K filing - There were no material changes outside the ordinary course of business to the company's contractual obligations since the filing of its 2022 Form 10-K[105] Critical Accounting Policies and Estimates This section reaffirms the use of estimates and assumptions in financial statements, noting no material changes to critical accounting policies in Q1 2023 - The unaudited interim Condensed Consolidated Financial Statements are prepared using estimates and assumptions, particularly for revenue recognition, inventory, and the Tax Receivable Agreement[106] - No material changes to these critical accounting policies occurred in the three months ended March 31, 2023[106] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details Olaplex's exposure to market risks, including interest rate risk on its variable-rate debt, the impact of inflation on operating results, and foreign exchange risk Interest Rate Risk This section discusses the company's exposure to interest rate fluctuations on its variable-rate debt and the use of an interest rate cap to mitigate this risk - The company is exposed to interest rate fluctuations on its $668.3 million outstanding variable rate loans under the 2022 Term Loan Facility[109] - A hypothetical 1% increase or decrease in the effective interest rate would cause an approximate $6.7 million change in interest cost over the next 12 months[109] - An interest rate cap transaction with a notional amount of $400.0 million is used to add stability to interest expense and manage exposure to interest rate movements[110] Inflation This section explains how inflationary factors, such as increased costs for raw materials and transportation, negatively impacted gross profit margin - Inflationary factors, such as increased costs for warehousing, transportation, and raw materials, negatively impacted the company's gross profit margin during Q1 2023 and fiscal year 2022[111] - Sustained increases in these costs could adversely affect the ability to maintain current gross profit margins if selling prices do not increase or cost efficiencies are not identified[111] Foreign Exchange Risk This section addresses the company's exposure to foreign currency fluctuations and its current policy of not hedging these transactions - The company's reporting currency is the U.S. dollar, and gains or losses from foreign currency transactions are reflected in Other (expense) income, net[112] - The company has not engaged in hedging foreign currency transactions to date and does not believe a 10% fluctuation in the U.S. dollar's value would materially affect its consolidated financial statements[112] Item 4. Controls and Procedures This section confirms the effectiveness of Olaplex's disclosure controls and procedures as of March 31, 2023, and states that there were no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section confirms that management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of March 31, 2023 - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[114] - These controls are designed to ensure that information required to be disclosed under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported timely[114] Changes in Internal Control Over Financial Reporting This section states that no material changes occurred in the company's internal control over financial reporting during the quarter ended March 31, 2023 - There were no changes in the company's internal control over financial reporting during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[115] Inherent Limitations in Effectiveness of Controls This section acknowledges that control systems provide reasonable, not absolute, assurance and are subject to inherent limitations like human error and circumvention - Management acknowledges that no control system can prevent or detect all errors and fraud, as control systems provide only reasonable, not absolute, assurance[116] - Inherent limitations include resource constraints, faulty judgments, simple errors, circumvention by individuals or collusion, and management override[116] Part II. OTHER INFORMATION Item 1. Legal Proceedings Olaplex is involved in various legal actions, including intellectual property, regulatory, and consumer claims, with potential losses not deemed material to consolidated financial statements - The company is subject to various legal actions, including litigation related to intellectual property, regulatory matters, contract, advertising, and other consumer claims[119] - In management's opinion, reasonably possible losses in addition to amounts accrued for such litigation are not material to the consolidated financial statements[119] - Litigation can have an adverse impact on the company's reputation, financial condition, and business by utilizing resources and diverting management attention[119] Item 1A. Risk Factors This section advises that an investment in Olaplex's common stock involves risks, and directs readers to the detailed discussion of these risks in the company's 2022 Form 10-K - An investment in the company's common stock involves risks[121] - For a detailed discussion of the risks affecting the business, readers should refer to 'Item 1A. – Risk Factors' in the 2022 Form 10-K[121] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports that there were no unregistered sales of equity securities or use of proceeds during the period covered by this report - None to report[122] Item 3. Defaults Upon Senior Securities The company reports that there were no defaults upon senior securities during the period covered by this report - None to report[123] Item 4. Mine Safety Disclosures This item is not applicable to Olaplex Holdings, Inc.'s business operations - Not applicable[124] Item 5. Other Information The company reports that there is no other information to disclose under this item - None to report[125] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report, including corporate governance documents, a letter agreement, a form of restricted stock unit agreement, and various certifications required by the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002 - Exhibits include the Restated Certificate of Incorporation, Second Amended and Restated Bylaws, and a Letter Agreement dated February 22, 2023[127] - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 are included[127] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are provided for interactive data filing[127] Signatures The Quarterly Report on Form 10-Q is duly signed on behalf of Olaplex Holdings, Inc. by its President and Chief Executive Officer, JuE Wong, and its Chief Financial Officer, Eric Tiziani, on May 9, 2023 - The report is signed by JuE Wong, President and Chief Executive Officer, and Eric Tiziani, Chief Financial Officer[132][133] - The signing date for the report is May 9, 2023[132][133]