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What changed in OLAPLEX HOLDINGS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of OLAPLEX HOLDINGS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+498 added−548 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-28)

Top changes in OLAPLEX HOLDINGS, INC.'s 2023 10-K

498 paragraphs added · 548 removed · 172 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

57 edited+7 added−21 removed36 unchanged
Biggest changeIn addition, as part of our manufacturing expansion efforts, on July 7, 2022, we entered into a supply agreement with our fourth manufacturer and began manufacturing in October 2022. We utilize third parties with key operational facilities located inside and outside the U.S. to warehouse and distribute our products for sale throughout the world.
Biggest changeWe utilize third parties with key operational facilities located inside and outside the U.S. to warehouse and distribute our products for sale throughout the world. We believe that our manufacturing and distribution network is sufficient to meet anticipated demand.
Professional Channel Rooted in our Hairstylist Community In our professional channel, our products are sold primarily through wholesale beauty supply distributors who then sell those products to professional beauty industry outlets, such as professional beauty supply stores, salons and licensed hairstylists, for use in the salon or for hairstylists to sell to consumers for use at home.
Professional Channel Rooted in our Professional Hairstylist Community In our professional channel, our products are sold primarily through wholesale beauty supply distributors who then sell those products to professional beauty industry outlets, such as professional beauty supply stores, salons and licensed professional hairstylists, for use in the salon or for professional hairstylists to sell to consumers for use at home.
We have a dedicated portal on our website for professional customers to purchase and learn more about our products and have developed a mobile app for our professional community that serves as a resource on our brand and products and offers us the opportunity to more directly engage with hairstylists about our products.
We have a dedicated portal on our website for professional customers to purchase and learn more about our products and have developed a mobile app for our professional community that serves as a resource on our brand and products and offers us the opportunity to more directly engage with professional hairstylists about our products.
Competition Competition in the beauty industry is based on a variety of factors, including innovation, product efficacy, accessible pricing, brand recognition and loyalty, service to the consumer, promotional activities, advertising, special events, new product introductions, e-commerce initiatives and other activities. Our competitors include Estee Lauder, Henkel AG & Co. KGaA, Kao Corporation, L’Oreal S.A. and Unilever.
Competition Competition in the beauty industry is based on a variety of factors, including innovation, product efficacy, accessible pricing, brand recognition and loyalty, service to the consumer, promotional activities, advertising, special events, new product introductions, e-commerce initiatives, sustainability and other activities. Our competitors include Estee Lauder, Henkel AG & Co. KGaA, Kao Corporation, L’Oreal S.A. and Unilever.
Advertising activities, in-store displays and online navigation are designed to attract new consumers, build demand and loyalty and introduce existing consumers to other product offerings. Our marketing efforts also benefit from cooperative advertising programs with some retailers.
Advertising activities, in-store displays and online navigation are designed to attract new consumers, build demand and loyalty and introduce existing consumers to other product offerings. Our marketing efforts also benefit from cooperative advertising programs, loyalty programs, and sampling programs with some retailers.
The team is led by a diverse group of six individual volunteers across different departments. Compensation and Benefits The core objective of our compensation program is to provide a package that will attract, motivate and reward exceptional employees.
The team is led by a diverse group of six individual volunteers across different departments and tenures. Compensation and Benefits The core objective of our compensation program is to provide a package that will attract, motivate and reward exceptional employees.
Diversity, Equity and Inclusion We believe it is important that our employees reflect the diversity of our hairstylist and consumer communities, and our focus on Diversity, Equity and Inclusion remains a key differentiator in both our consumer strategy and internal culture.
Diversity, Equity and Inclusion We believe it is important that our employees reflect the diversity of our professional hairstylist and consumer communities, and our focus on diversity, equity and inclusion remains a key differentiator in both our consumer strategy and internal culture.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, including exhibits, proxy and information statements and amendments to those reports filed or furnished pursuant to Sections 13(a), 14, and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available through the “Investors” portion of our website 16 Table of Contents free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, including exhibits, proxy and information statements and amendments to those reports filed or furnished pursuant to Sections 13(a), 14, and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available through the “Investors” portion of our website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Additionally, eight of the ten members of our board of directors (the “Board of Directors”) identify as female. We know through experience that different ideas, perspectives and backgrounds create a stronger and more creative work environment that can deliver better results.
Additionally, eight of the eleven members of our board of directors (the “Board of Directors”) identify as female. We know through experience that different ideas, perspectives and backgrounds create a stronger and more creative work environment that can deliver better results.
A core tenet of our supply chain strategy is leveraging strong relationships with our manufacturers and logistics partners to create an expansive supply network that is designed to create ample capacity without requiring significant additional capital investment. Our finished products are manufactured in the U.S. and Europe by four manufacturers.
A core tenet of our supply chain strategy is leveraging strong relationships with our manufacturers and logistics partners to create an expansive supply network that is designed to provide ample capacity without requiring significant additional capital investment. Our finished products are manufactured in the U.S. and Europe by five manufacturers.
This assessment, which will also incorporate feedback from several of our stakeholder groups, will be used by us to develop our multi-year Environmental, Social and Governance strategy. • Environmental Sustainability. Our cruelty-free, non-toxic formulas are free of Parabens, Sodium Lauryl Sulfate “SLS”, Sodium Lauryl Ether Sulfate “SLES”, Phthalates and Phosphates.
This assessment, which incorporates feedback from several of our stakeholder groups, will be used by us to develop our multi-year Environmental, Social and Governance strategy. • Environmental Sustainability. Our cruelty-free, non-toxic formulas are free of Parabens, Sodium Lauryl Sulfate “SLS”, Sodium Lauryl Ether Sulfate “SLES”, Phthalates and Phosphates.
Culture We believe our commitment to our heritage in the prestige haircare category and encouragement of our employees to bring their whole self to work has created a culture that is paramount to our success. We are passionate about what we do, how our products impact lives and what our brand means to our community.
Culture We believe our commitment to our heritage in the prestige hair care category and encouragement of our employees to bring their whole self to work has created a culture that is paramount to our success. We are passionate about what we do, how our products impact lives and what our brand means to our community.
If an advertisement features endorsements from people who achieved above average results from using a product, 15 Table of Contents the advertiser must have proof that the endorser’s experience can generally be achieved using the product as described; otherwise, an advertiser must clearly communicate the generally expected results of a product and have a reasonable basis for such representations.
If an advertisement features endorsements from people who achieved above average results from using a product, the advertiser must have proof that the endorser’s experience can generally be achieved using the product as described; otherwise, an advertiser must clearly communicate the generally expected results of a product and have a reasonable basis for such representations.
Moreover, cosmetics may not be marketed or labeled for their use in treating, preventing, mitigating, or curing disease or other conditions or in affecting the structure or function of the body, as such claims would cause the products to be a drug and subject to regulation as a drug.
Moreover, cosmetics may not be marketed or labeled for their use in treating, preventing, mitigating, or curing disease or other conditions or in affecting the structure or function of the body, as such claims would cause the products to be drugs and subject to regulation as drugs.
Our patent claims are broadly drafted and include claims covering applications across adjacent categories in haircare and also other categories such as skin care and nail health.
Our patent claims are broadly drafted and include claims covering applications across adjacent categories in hair care and also other categories such as skin care and nail health.
In 2022, we sold our products through approximately 50 retailers in more than 20 countries throughout the world. Direct to Consumer Channel Leveraging our Digital Capabilities We sell our products directly to consumers through our branded website, Olaplex.com, and third-party e-commerce platforms, including Amazon and pure play beauty and wellness partners.
In 2023, we sold our products through approximately 60 retailers in more than 20 countries throughout the world. Direct to Consumer Channel Leveraging our Digital Capabilities We sell our products directly to consumers through our branded website, Olaplex.com, and third-party e-commerce platforms, including Amazon and pure play beauty and wellness partners.
In January 2021, we established DEI Champions within the Company who reinforce our collective commitment to foster a diverse, equitable and inclusive culture. Their roles are to identify opportunities to further engage our teammates through training 14 Table of Contents and education, encouraging candid conversations and leading by example.
In January 2021, we established DEI Champions within the Company who reinforce our collective commitment to foster a diverse, equitable and inclusive culture. Their roles are to identify opportunities to further engage our teammates through training and education, encouraging candid conversations and leading by example.
Seasonality Our results of operations typically are slightly higher in the second half of the fiscal year due to increased levels of purchasing by consumers for special and holiday events and by retailers for the holiday selling seasons.
Seasonality Our results of operations typically are slightly higher in the second half of the fiscal year due to increased levels of purchasing by consumers for special and holiday events and by retailers for the end of year holiday selling season.
In addition, the application, interpretation and enforcement of these laws and regulations are often uncertain, and they may be interpreted and applied inconsistently by different regulators and inconsistently with our current policies and practices.
In addition, the application, interpretation and enforcement of these laws and 14 Table of Contents regulations are often uncertain, and they may be interpreted and applied inconsistently by different regulators and inconsistently with our current policies and practices.
Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Annual Report on Form 10-K.
Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this Annual Report.
The patents issued in this family have been granted in the U.S., Australia, throughout Europe, Brazil, Canada, Israel, New Zealand and Japan. The patents in this family are generally expected to expire in 2034. Any additional patents that grant from pending applications in this patent family would also be expected to expire in 2034.
The patents issued in these families have been granted in the U.S., Australia, throughout Europe, Brazil, Canada, Israel, New Zealand and Japan. The patents in these families are generally expected to expire in 2034. Any additional patents that grant from pending applications in these patent families would also be expected to expire in 2034.
Intellectual Property We rely on a combination of patent, trademark, copyright, trade secret, and other intellectual property laws, nondisclosure and assignment of inventions agreements and other measures to protect our intellectual property. As of December 31, 2022, we owned over 300 trademark registrations and applications globally. Our flagship trademark is OLAPLEX.
Intellectual Property We rely on a combination of patent, trademark, copyright, trade secret, and other intellectual property laws, nondisclosure and assignment of inventions agreements and other measures to protect our intellectual property. As of December 31, 2023, we owned over 400 trademark registrations and applications globally. Our flagship trademark is OLAPLEX.
However, fluctuations in net sales in any fiscal quarter may be attributable to a number of other factors, including macroeconomic factors, competitive activity and the level and scope of new product introductions by or promotional activities of our retail customers, which may impact their order placement and receipt of goods.
However, fluctuations in net sales in any fiscal quarter may be attributable to a number of other factors, including macroeconomic factors, competitive activity, 11 Table of Contents the level and scope of new product introductions or promotional activities of our customers, which may impact their order placement and receipt of goods.
As our business continues to grow globally, we intend to focus on developing proprietary new technologies, improving existing products and exploring adjacent and other categories. 11 Table of Contents We do not perform, nor do we commission any third parties on our behalf to perform, testing of our products or ingredients on animals.
As our business continues to grow globally, we intend to focus on developing proprietary new technologies, improving existing products and exploring adjacent categories in hair care and other categories. 10 Table of Contents We do not perform, nor do we commission any third parties on our behalf to perform, testing of our products or ingredients on animals.
In 2022, we also began a partnership with a leading sustainability rating provider to assess the sustainability practices of our third party manufacturing and logistics partners. • Charitable donations . In March 2022, we introd uced the Shopping Gives program to our website.
We have also partnered with a leading sustainability rating provider to assess the sustainability practices of our third party manufacturing and logistics partners. • Charitable donations . In March 2022, we introd uced the Shopping Gives program to our website.
In addition, we use professional trade advertising, social media and other digital marketing to communicate to professionals and consumers the quality and performance characteristics of our products.
In addition, we use professional trade advertising, social media and other primarily digital marketing to communicate to professional hairstylists and consumers the quality and performance characteristics of our products.
Our current Olaplex employees include former hairstylists whose unique perspectives and insights have helped us better understand our diverse consumer base and what matters to them. As a result of our efforts, we have created a diverse workplace environment where 76% of our employees identify as female and 45% identify as non-white as of December 31, 2022.
Our current Olaplex employees include former professional hairstylists whose unique perspectives and insights have helped us better understand our diverse consumer base and what matters to them. As a result of our efforts, we have created a diverse workplace environment where 78% of our employees identify as female and 39% identify as non-white as of December 31, 2023.
The FDA monitors compliance of cosmetic products through market surveillance and inspection of cosmetic manufacturers and distributors to ensure that the products are not manufactured under insanitary conditions or labeled in a false or misleading manner. Inspections also may arise from consumer or competitor complaints filed with the FDA.
The FDA monitors compliance of cosmetic products through reports it receives about adverse events, other market surveillance and inspection of cosmetic manufacturers and distributors to ensure that the products are not manufactured under insanitary conditions or labeled in a false or misleading manner. Inspections also may arise from consumer or competitor complaints filed with the FDA.
We seek to register our OLAPLEX mark in all jurisdictions where we do business. In addition, as of December 31, 2022, we owned over 160 issued patents worldwide, including 15 U.S. patents, and over 45 pending patent applications worldwide. During the year ended December 31, 2022, we filed 237 new trademark applications and were granted 61 new trademark registrations.
We seek to register our OLAPLEX mark in all jurisdictions where we do business. In addition, as of December 31, 2023, we owned over 160 issued patents worldwide, including 16 U.S. patents, and over 42 pending patent applications worldwide. During the year ended December 31, 2023, we filed 115 new trademark applications and were granted 69 new trademark registrations.
In 2022, we sold our products through over 115 professional distributors. Our international distributors are generally only permitted to sell our products to professional beauty industry outlets in specific territories, with some having the exclusive right to sell our products in the territory.
In 2023, we sold our products through over 115 professional distributors. Where permitted by law, our international distributors generally may only sell our products to professional beauty industry outlets in specific territories, with some having the exclusive right to sell our products in the territory.
Through our “Healthy Hair ~ Healthy Body ~ Healthy Mind” wellness strategy, we are committed to providing comprehensive benefit options that will allow our employees and their families to live healthier and more secure lives. We leverage both formal and informal programs to identify, foster and retain top talent.
We are committed to providing comprehensive benefit options that will allow our employees and their families to live healthier and more secure lives. We leverage both formal and informal programs to identify, foster and retain top talent.
Certain of these laws also require companies, including us, to obtain prior opt-in consent to the processing of specified sensitive personal information or to provide the opportunity to limit the use or disclosure of such information in certain circumstances.
Certain of these laws also require companies, including us, to obtain prior opt-in consent to the processing of specified sensitive personal information or to provide the opportunity to limit the use or disclosure of such information in certain circumstances. Available Information Our Internet address is www.Olaplex.com.
Professional Products Our current hair health platform is championed by four products that can be purchased and applied only by professional hairstylists, No. 1, No. 2, our 4-in-1 Moisture Mask and our Broad Spectrum Chelating Treatment.
Professional Products Our current professional hair health platform consists of four products that can be purchased and applied only by professional hairstylists: No. 1 Bond Multiplier ® , No. 2 Bond Perfector ® , Olaplex ® 4-in-1 Moisture Mask and Olaplex ® Broad Spectrum Chelating Treatment.
Shopping Gives is a charitable initiative whereby we donate $1 for every order that a retail or professional customer places, at no additional cost to the customer. Customers can choose from a list of causes to benefit from their purchase. • Supporting Small Businesses. We are invested in the success of our hairstylist community as their businesses grow alongside ours.
Shopping Gives is a charitable initiative whereby we donate $1 for every order that a retail or professional customer places, at no additional cost to the customer. Customers can choose from a list of causes to benefit from their purchase. • Supporting Small Businesses.
We continue to evaluate the impact we have on our environment and communities in an effort to further integrate sustainability and social impact into our strategy and business operations. In 2022 we began a partnership with a sustainability strategy firm to perform a double materiality assessment of various Environmental, Social and Governance factors relevant to the Company.
We continue to evaluate the impact we have on our environment and communities in an effort to further integrate sustainability and social impact into our strategy and business operations. In 2023 we completed our initial double materiality assessment of various Environmental, Social and Governance factors relevant to the Company.
We do not have any employees governed by a union. We utilize professional employer organizations (“PEO”), who are the employer of record of our U.S. and U.K. employees and administer our human resources, payroll and employee benefits functions.
We do not have any employees governed by a union. We utilize professional employer organizations (“PEOs”), who serve as the employer of record of our U.S. employees and, depending on the jurisdiction, administer certain of our human resources, payroll and employee benefits functions.
We estimate that between 2015 to 2022 we avoided the use of approximately 6.9 million pounds of paper packaging, which we estimate prevented approximately 56 million pounds of greenhouse gas from being emitted into the environment, conserved approximately 91 million gallons of water and saved approximately 70,000 trees from deforestation.
We estimate that between 2015 to 2023 we avoided the use of approximately 8.5 million pounds of paper packaging, which we estimate prevented approximately 68 million pounds of greenhouse gas from being emitted into the environment, conserved approximately 111 million gallons of water and saved approximately 85,000 trees from deforestation.
In our DTC channel, our digital first approach to performance marketing is designed to offer best-in-class customer experience on Olaplex.com, from load times, site navigation to a more intuitive check-out experience, all of which is designed to increase brand awareness, site traffic and conversion. In addition, top celebrity hairstylists and colorists from around the world serve as Olaplex brand ambassadors.
In our DTC channel, our digital first approach to performance marketing is designed to offer best-in-class customer experience on Olaplex.com, from improving load times and site navigation to enhancing digital brand assets and improving the check-out experience, all of which is designed to increase brand awareness, site traffic and conversion.
Recently enacted U.S. state privacy laws require many companies that process personal information, including us, to make disclosures to consumers about their data collection, use and sharing practices.
Comprehensive U.S. state privacy laws are also in operation or going into operation in several U.S. states and require many companies that process personal information, including us, to make disclosures to consumers about their data collection, use and sharing practices.
We believe that our manufacturing and distribution network is sufficient to meet anticipated 12 Table of Contents demand. In addition, we have disaster recovery programs in place under some of our agreements with suppliers that allow for shifting of manufacturing capacity if necessary to account for disruptions due to natural disasters and other events outside of our or their control.
In addition, we have disaster recovery programs in place with certain of our key suppliers that allow for shifting of manufacturing capacity if necessary to account for disruptions due to natural disasters and other events outside of our or their control.
During the years ended December 31, 2022, 2021, and 2020, respectively, the Company’s customers with net sales exceeding 10% of total net sales consisted of one customer which represented 16%, two customers which represented 25% in aggregate, and three customers which represented 32% in aggregate of total net sales.
During the year ended December 31, 2022, one customer represented 16% of the Company’s total net sales. During the year ended December 31, 2021, two of the Company’s customers represented 25% of the Company’s total net sales in aggregate.
These products often serve as an introduction to our brand and a gateway to the remainder of our products that can be used both at home and in the salon. 9 Table of Contents Retail Products 10 Table of Contents Our Channels We believe that a key differentiator of OLAPLEX is our synergistic omnichannel strategy.
These products often serve as an introduction to our brand and a gateway to the remainder of our products that can be used both at home and in the salon.
For example, the FTC’s “Green Guides” regulate how “free-of,” “non-toxic” and similar claims must be framed and substantiated. In addition, the FTC regulates the use of endorsements and testimonials in advertising as well as relationships between advertisers and social media influencers pursuant to the FTC’s Endorsement Guides.
In addition, the FTC regulates the use of endorsements and testimonials in advertising as well as relationships between advertisers and social media influencers pursuant to the FTC’s Endorsement Guides.
ITEM 1. BUSINESS Company Overview OLAPLEX is an innovative, science-enabled, technology-driven beauty company. Since our inception in 2014, we have focused on delivering effective, patent-protected and proven performance in the prestige haircare category. Our mission is to blaze new paths to well-being that ignite confidence from the inside out.
ITEM 1. BUSINESS Company Overview OLAPLEX is an innovative, science-enabled, technology-driven beauty company. Since our inception in 2014, we have focused on delivering effective, patent-protected and proven performance in the prestige hair care category. We offer science-backed solutions that are designed to improve hair health and are trusted by stylists and consumers.
Two of these manufacturers are located in the U.S., one is located in Europe, and one maintains facilities in the U.S. and Europe. Cosway Company Inc. (“Cosway”) manufactures products that accounted for more than 77% of our net sales in 2022, and we continue to rely upon Cosway to manufacture a majority of our current product offerings.
Three of these manufacturers are located in the U.S., one is located in Europe, and one maintains facilities in the U.S. and Europe. Cosway Company Inc. (“Cosway”) manufactures products that accounted for more tha n 61% of our net sales and 32% of our inventory product purchases in 2023 .
We offer science-backed solutions that are designed to improve hair health and are trusted by stylists and consumers. We identify our consumers’ most relevant haircare concerns in collaboration with our passionate and highly engaged community of professional hairstylists and consumers and strive to address them through our proprietary technology and innovation capabilities.
We identify our consumers’ most relevant hair care concerns in collaboration with our passionate and highly engaged community of professional hairstylists and consumers and strive to address them through our proprietary technology and innovation capabilities. Our Products OLAPLEX disrupted and revolutionized the prestige hair care category by creating the bond-building space in 2014.
These insights, combined with the efforts of our in-house research and development team, independent third party laboratory testing, and real-world salon testing, create a virtuous feedback loop. We develop our products in our laboratory and in partnership with national co-manufacturers, universities, and biotech companies to remain on the cutting edge of beauty technology.
We develop our products in our laboratory and in partnership with national co-manufacturers, universities, and biotech companies to remain on the cutting edge of beauty technology.
In 2022, approximately 56% of our net sales were generated in the U.S. and approximately 44% of our net sales were international, based upon the geographic location of customers who purchase our products. However, the majority of net sales are transacted in U.S. Dollars, our functional and reporting currency.
In 2023, approxima tely 45% of our net sales were generated in the U.S. and approximately 55% of our net sales were international, based on the shipping address on record for the customer purchasing our products. However, the majority of net sales are transacted in U.S. Dollars, our functional and reporting currency.
We also filed three new patent applications and were issued seven new patents. Our patent portfolio includes a family of patents that includes approximately 100 granted patents with claims that cover Olaplex’s commercial formulations Nos. 0-9, as well as their uses, and patents with claims that cover other haircare, nail and skincare products and/or their uses.
We also filed six new patent applications and were issued ten new patents. Our patent portfolio includes families of patents that include approximately 100 granted patents with claims that cover Olaplex's product line and their use and claims that cover other hair care, nail and skincare products and/or their uses that utilize similar mechanisms to Olaplex's proprietary technology.
We conduct research in our OLAPLEX laboratory and employ a dedicated in-house research and development team, which includes scientists, product and packaging innovation specialists, and regulatory and compliance experts. We also incorporate feedback from our community of professional hairstylists and consumers to better understand their respective needs.
Innovation We believe that one of the key differentiators of our business is a powerful innovation platform. We conduct research in our OLAPLEX laboratory and employ a dedicated in-house research and development team, which includes scientists, product and packaging innovation specialists, and regulatory and compliance experts.
Any additional patents that grant from pending applications in this patent family would also be expected to expire in 2035. For more information, see “Risk Factors— Risks Related to Intellectual Property Matters.” Information Technology Information technology supports all aspects of our business, including operations, marketing, sales, order processing, production and distribution networks, customer experience, finance, business intelligence, and product development.
Any additional patents that grant from pending applications in this patent family would also be expected to expire in 2035. For more information, see “Risk Factors— Risks Related to Intellectual Property Matters.” Commitment to Social and Environmental Consciousness We believe our responsibility extends beyond our products that contribute to healthier hair.
MoCRA also grants the FDA authority to issue mandatory recalls of cosmetic products that pose a risk of serious adverse health consequences. The FTC also regulates and can bring enforcement action against cosmetic companies for deceptive advertising and lack of adequate scientific substantiation for claims. The FTC has specialized requirements for certain types of claims.
MoCRA also grants the FDA authority to issue mandatory recalls of cosmetic products that pose a risk of serious adverse health consequences.
MoCRA will require, among other things, that manufacturers of cosmetics products register their facilities and list their cosmetic products with the FDA, maintain for FDA review records demonstrating adequate substantiation of cosmetic product safety, comply with GMP regulations for cosmetic products and report serious adverse events associated with their cosmetic products to the FDA.
It will further require such manufacturers to register their facilities and list their cosmetic products with the FDA, maintain for FDA review records demonstrating adequate substantiation of cosmetic product safety, and comply with Good Manufacturing Practice (“GMP”) regulations for cosmetic products, although the FDA is still developing and promulgating rules and regulations to implement these requirements.
Our current product portfolio is comprised of fifteen unique and complementary products specifically developed to provide a holistic regimen for hair health. Our proprietary, patent-protected i ngredient, Bis-aminopropyl diglycol dimaleate (“Bis-amino”), serves as a key differenti ator in our ability to create trusted, high-quality products.
Our proprietary, patent-protected ingredient, Bis-aminopropyl diglycol dimaleate (“Bis-amino”), serves as a key differentiator in our ability to create trusted, high-quality products. Underpinning our product range is a portfolio of more than 160 worldwide patents which protects our proprietary technology.
We are especially focused on providing support to the small business community and minority hairstylists. Currently, 98% of our salon community is made up of small businesses and a meaningful percentage of our hairstylists identify as racial or ethnic minorities.
We are invested in the success of our professional hairstylist community as their businesses grow alongside ours. We are especially focused on providing support to the small business community and minority professional hairstylists.
The Modernization of Cosmetics Regulation Act (“MoCRA”), signed into law on December 29, 2022, will expand the FDA’s regulatory oversight of cosmetics when it becomes effective on December 29, 2023.
The Modernization of Cosmetics Regulation Act (“MoCRA”), signed into law on December 29, 2022, will expand the FDA’s regulatory oversight of cosmetics as its provisions become effective. MoCRA requires, among other things, that manufacturers of 13 Table of Contents cosmetics products report serious adverse events associated with their cosmetic products to the FDA.
Our products are sold in more than 100 countries across the world.
Our products are sold in more than 100 countries across the world. A small amount of the Company’s customers have net sales exceeding 10% of total net sales. During the year ended December 31, 2023, two of the Company’s customers represented 21% of the Company’s total net sales, in aggregate.
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Our Products OLAPLEX disrupted and revolutionized the prestige haircare category by creating the bond-building space in 2014.
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Our current product portfolio is comprised of seventeen unique and complementary products specifically developed to provide a holistic regimen for hair health. Additionally, we recently expanded into our first hair care adjacent market with LASHBOND ® Building Serum, our eyelash enhancing serum formulated to promote the appearance of thicker, longer, stronger, full volume lashes.
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Underpinning our product range is a portfolio of more than 160 worldwide patents which protects our proprietary technology and we believe creates both barriers to entry and a foundation for us to enter adjacent and other categories over time.
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Retail Products Our current retail hair health platform consists of fourteen products that can be purchased by consumers, through their professional stylist, retail partners or directly through Olaplex.com. for at home use, or by professional hairstylists for use in the salon.
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We have dedicated resources to implement creative, coordinated, brand-building strategies across our online activities to increase our direct access to consumer insights, which we believe has led to higher engagement and conversion, and can further enhance our innovation and branding performance. Innovation We believe that one of the key differentiators of our business is a powerful innovation platform.
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These include: No. 0 Intensive Bond Building™ Hair Treatment, No. 3 Hair Perfector ® , No. 4 Bond Maintenance ® Shampoo, No. 4P Blonde Enhancer™ Toning Shampoo, No. 4C Bond Maintenance ® Clarifying Shampoo, No. 4D Clean Volume Detox Dry Shampoo, No. 5 Bond Maintenance ® Conditioner, No. 5P Blonde Enhancer™ Toning Conditioner, No. 6 Bond Smoother ® , No. 7 Bonding Oil™, No. 8 Bond Intense™ Moisture Mask, No. 9 Bond Protector™ Nourishing Hair Serum, Olaplex ® Volumizing Blow Dry Mist and our first hair adjacency product LASHBOND ® Building Serum. 9 Table of Contents Our Channels We believe that a key differentiator of OLAPLEX is our synergistic omnichannel strategy.
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These brand ambassadors help market our brand through educational events, social media and other publicity. We also are investing in new analytical capabilities to promote a more predictive and personalized experience across our sales channels.
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We also incorporate feedback from our community of professional hairstylists and consumers to better understand their respective needs. These insights, combined with the efforts of our in-house research and development team, independent third party laboratory testing, and real-world salon testing, create a virtuous feedback loop.
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For example, we developed an online hair diagnostic quiz that allows consumers to discover our products by identifying their personal hair health needs, which are used to provide customized product recommendations. Our Customers Our strategy is to build and maintain strong customer relationships globally, and we have over 215 customers across our omnichannel sales platform.
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In addition, top celebrity professional hairstylists and colorists from around the world serve as Olaplex brand ambassadors. These brand ambassadors help market our brand through educational events, social media and other publicity. Our Customers Our strategy is to build and maintain strong customer relationships globally, and we have over 225 customers across our omnichannel sales platform.
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The a ccounts receivable balance for these customers as a percentage of total accounts receivable was immaterial as of December 31, 2022 and 11% at December 31, 2021. The Company has not experienced material bad debt losses due to this concentration.
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Currently, the majority of our salon community is made up of small businesses and a meaningful percentage of our professional hairstylists identify as racial or ethnic minorities. 12 Table of Contents Employees and Human Capital Resources Employees As of December 31, 2023, Olaplex employed 233 employees and leveraged contractors to supplement work in areas such as technology, operations and accounting.
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We are currently negotiating a new agreement with Cosway. In order to allow sufficient time to facilitate these negotiations, we have amended our current agreement with Cosway to expire on June 30, 2023. In support of our efforts to expand our manufacturing network, this amendment also removes the requirement that we exclusively purchase certain finished products from Cosway.
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The FTC also regulates and can bring enforcement action against cosmetic companies for deceptive advertising and lack of adequate scientific substantiation for claims. The FTC has specialized requirements for certain types of claims. For example, the FTC’s “Green Guides” regulate how “free-of,” “non-toxic” and similar claims must be framed and substantiated.
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We expect to be able to complete such negotiations prior to the expiration date of the current Cosway agreement (or be able to extend the expiration date as necessary until such time as we are able to enter into a new agreement with Cosway).
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In 2022, we transitioned our primary U.S. warehouse and logistics center to a new provider and launched a new business to consumer third party warehouse and logistics center in Canada.
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We continue to maintain and enhance our information technology systems and customer experiences in alignment with our long-term strategy. An increasing portion of our global information technology infrastructure is cloud-based and in partnership with industry-leading service providers.
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We believe this approach enables a high performance platform to support current and future requirements and enhances our scale and flexibility to respond to the demands of the business by leveraging advanced and leading-edge technologies. We recognize that technology presents opportunities to build a competitive advantage, and we continue to invest in new capabilities across various aspects of our business.
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During 2022, we continued to improve our business-to-business and business-to-consumer integration, cybersecurity and technology infrastructure, supply chain network and integrations, business resilience capabilities, and analytics.
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In addition, in 2022 we improved our e-commerce experience, launched DTC sites in France and 13 Table of Contents Canada, continued our investment in business intelligence to drive deeper consumer insight and built a multi-language certification and education platform for our professional hairstylist and consumer communities.
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In 2022 we expanded our data privacy program and our vendor risk program to protect our customers and our business and to align with the privacy regulations of countries in which we do business. We have enhanced and will continue to enhance our cybersecurity posture to align with industry standard cybersecurity frameworks.
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We review and assess our cybersecurity profile on an ongoing basis, and our policies and procedures establish processes for risk assessment, risk management, risk oversight, data protection, incident management, operations security, end user training, third-party reviews and implementation of general cybersecurity best practices.
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We have assessed, and will continue to assess, the adequacy of our policies, procedures, and internal controls for ensuring we meet defined cybersecurity standards. Commitment to Social and Environmental Consciousness We believe our responsibility extends beyond our products that build better hair.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe have made significant investments in marketing, enhancing our brand, attracting new customers and consumers and interacting with our hairstylist and consumer communities, and we expect to continue to make significant investments to promote our products. Such campaigns can be expensive and may not result in new customers or consumers or increased sales of our products.
Biggest changeWe have made significant investments in sales and marketing, including investments designed to enhance our educational efforts, increase our interactions with our professional hairstylist and consumer communities, and attract new customers and consumers, and we expect to continue to make significant investments to promote our brand and our products.
Competition in the beauty industry is based on a variety of factors, including innovation, product efficacy, accessible pricing, brand recognition and loyalty, service to the consumer, promotional activities, advertising, special events, new product introductions, e-commerce initiatives and other activities. It is difficult for us to predict the timing and scale of our competitors’ actions in these areas.
Competition in the beauty industry is based on a variety of factors, including innovation, product efficacy, accessible pricing, brand recognition and loyalty, service to the consumer, promotional activities, advertising, special events, new product introductions, e-commerce initiatives, sustainability and other activities. It is difficult for us to predict the timing and scale of our competitors’ actions in these areas.
Our ambassadors or advocates could engage in behavior or use their platforms in a manner that reflects poorly on our brand or is in violation of applicable platform terms of service, laws or regulations, including with respect to product or marketing claims.
In addition, our ambassadors or advocates could engage in behavior or use their platforms in a manner that reflects poorly on our brand or is in violation of applicable platform terms of service, laws or regulations, including with respect to product or marketing claims.
We must continually work to maintain and enhance the recognition of our brand, develop, manufacture and market new products, maintain and adapt to existing and emerging distribution channels, successfully manage our inventories and modernize and refine our approach as to how and where we market and sell our products.
We must continually work to maintain and enhance the recognition and reputation of our brand, develop, manufacture and market new products, maintain and adapt to existing and emerging distribution channels, successfully manage our inventories and modernize and refine our approach as to how and where we market and sell our products.
Even if we are successful in anticipating consumer needs and preferences, our ability to timely and adequately address those needs and preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products and maintain our distinctive brand identity as we expand the range of products we offer.
Even if we are successful in anticipating consumer needs and preferences, our ability to timely and adequately respond to those needs and preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products and maintain our distinctive brand identity as we expand the range of products we offer.
ITEM 1A. RISK FACTORS An investment in our common stock involves risks. You should carefully consider the following information about these risks, together with the other information contained in this Annual Report. The risks described below are those that we believe are the material risks that we face.
ITEM 1A. RISK FACTORS An investment in our common stock involves risks. Investors should carefully consider the following information about these risks, together with the other information contained in this Annual Report. The risks described below are those that we believe are the material risks that we face.
The rising popularity of social media and other consumer-oriented technologies has increased the speed and reach of information dissemination, and our target consumers often act on such information without further investigation into its accuracy.
Social media and other consumer-oriented technologies has increased the speed and reach of information dissemination, and our target consumers often act on such information without further investigation into its accuracy.
The beauty industry is highly competitive, and if we are unable to compete effectively, our business, financial condition and results of operations could be adversely affected. We face competition in the beauty industry from companies throughout the world, including multinational consumer product companies and new independent beauty brands.
Risks Related to Our Business The beauty industry is highly competitive, and if we are unable to compete effectively, our business, financial condition and results of operations could be adversely affected. We face increased competition in the beauty industry from companies throughout the world, including multinational consumer product companies and new independent beauty brands.
In addition, certain of our competitors have ownership interests in third parties that are customers of ours, and, as a result, such customers may have an interest in promoting theses competing brands over our products. Our inability to continue to compete effectively could have an adverse effect on our business, financial condition and results of operations.
In addition, certain of our competitors have ownership interests in third parties that are customers of ours, and, as 15 Table of Contents a result, such customers may have an interest in promoting theses competing brands over our products. Our inability to continue to compete effectively would have an adverse effect on our business, financial condition and results of operations.
On February 9, 2023, 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, was filed against us.
For example, in February 2023, 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, was filed against us.
Our ability to maintain relationships with our existing ambassadors and advocates and to identify new ambassadors and advocates is critical to expanding and maintaining our customer and consumer base. As our market becomes increasingly competitive and as we expand internationally, recruiting and maintaining new ambassadors and advocates may become increasingly difficult.
Our ability to maintain relationships with our existing ambassadors and advocates and to identify new ambassadors and advocates is critical to expanding and maintaining awareness of our brand and our customer and consumer base. As our market becomes increasingly competitive and as we expand internationally, recruiting and maintaining new ambassadors and advocates may become increasingly difficult and costly.
Some of our competitors have greater resources than we do and may be able to respond to changing business and economic conditions more quickly than we can, and some are competing in distribution channels or territories where we are less represented.
Some of our competitors have greater resources than we do and may be able to better respond to changing business and economic conditions and compete in distribution channels or territories where we are less represented.
The acceptance of new product launches and other product innovations may not be as high as we anticipate due to lack of acceptance of the products themselves, the price of the products, the strengths of our competitors or the limited effectiveness of our marketing strategies.
The acceptance of new product launches and other product innovations may not be as high as we anticipate due to factors including lack of acceptance of the products themselves, the price of the products or the strengths of our competitors.
Our continued success depends on our ability to anticipate, gauge and react in a timely, effective manner to changes in consumer tastes for haircare and other beauty products, attitudes toward our industry and brand and where and how consumers shop.
Our continued success depends on our ability to anticipate, gauge and react in a timely, effective manner to changes in consumer tastes for hair care and other beauty products and attitudes toward our industry and brand.
These risks have been and may continue to be exacerbated by the current macroeconomic environment. Consumer spending habits and confidence have shifted and may continue to change in light of inflationary pressures and other risks described elsewhere in this “Risk Factors” section.
These risks have been and may continue to be exacerbated by the current macroeconomic environment. Consumer spending habits and confidence have shifted and may continue to change in light of inflationary pressures and other risks described elsewhere in this “Risk Factors” section. Our success depends, in part, on the quality, efficacy and safety of our products.
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 alleged that certain ingredients used in some Company products had purportedly caused irritation or posed a hazard to consumers, and that the Company engaged in misrepresentation with respect to those products. For more information, see “
If we are unable to cost-effectively develop and continuously improve our consumer-facing presence on existing, evolving or new social media platforms, our ability to acquire new and retain existing customers and consumers may suffer, and we may not be able to provide a convenient and consistent experience to our professional hairstylists and consumers, regardless of the sales channel.
If we are unable to cost-effectively develop and continuously improve our consumer-facing presence on existing, evolving or new digital and social media platforms, including adapting to changing algorithms or other developments in such platforms that are outside of our control, our ability to acquire new and retain existing customers and consumers may suffer, and we may not be able to provide a convenient and consistent experience to our professional hairstylists and consumers across sales channels.
In addition, as we expand into adjacent or other categories, we have faced, and will continue to face, different and, in some cases, more formidable competition. 18 Table of Contents Our ability to compete depends on a number of factors, including the continued strength of our brand and quality of our products, our ability to attract and retain key personnel, the success of our marketing and innovation strategies, our ability to execute our strategic plan, the successful management of new product introductions and innovations, the influence of our brand ambassadors and brand advocates, the efficiency of our third-party manufacturing facilities and distribution network, our relationships with our key customers and our ability to maintain and protect our intellectual property and other rights used in our business.
Our ability to compete depends on a number of factors, including the continued strength of our brand and quality of our products, our ability to attract and retain key personnel, the success of our marketing and innovation strategies, our ability to execute our strategic plan, the successful management of new product introductions and innovations, the influence of our brand ambassadors and brand advocates, the efficiency of our third-party manufacturing facilities and distribution network, our relationships with our key customers and professional hairstylists, and our ability to maintain and protect our intellectual property and other rights used in our business.
Our brand is critical to our success, and the value of our brand may be adversely impacted by negative publicity through traditional or social media channels. If we fail to maintain the value of our brand or our marketing efforts are not successful, our business, financial condition and results of operations could be adversely affected.
Our brand is critical to our success. If we fail to maintain the value of our brand or our marketing efforts are not successful, our business, financial condition and results of operations would be adversely affected.
In addition, new product innovation may place a strain on our employees and our financial resources, including incurring expenses in connection with product innovation, development and marketing that are not subsequently supported by a sufficient level of sales. As part of our ongoing business strategy, we may expand our product launches into adjacent and other categories.
Further, new product innovation may place a strain on our employees and our financial resources, including incurring expenses in connection with product innovation, development and marketing that are not subsequently supported by a sufficient level of sales.
We also partner with brand ambassadors and brand advocates who promote and market our products, participate in product launches, engage with our professional hairstylist and consumer communities and educate them about our products.
We frequently use third-party digital and social media platforms to raise awareness of our brand and engage with our professional hairstylist and consumer communities. We also partner with brand ambassadors and brand advocates who promote and market our products, participate in product launches, engage with our professional hairstylist and consumer communities and educate them about our products.
The harm resulting from the dissemination of such negative commentary and false statements may be immediate and could have an adverse effect on our brand, business, financial condition and results of operations.
The harm to our brand and reputation resulting from the dissemination of negative commentary and false statements may be immediate and has had, and may in the future have, an adverse effect on our ability to attract and engage customers and consumers and on our business, financial condition and results of operations.
Maintaining, promoting and positioning our brand depends largely on the success of our marketing and merchandising efforts and our ability to provide consistent, high-quality products. Our brand could be adversely affected if we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity through traditional or social media channels.
Maintaining, promoting and positioning our brand depends largely on the success of our marketing and merchandising efforts and our ability to provide consistent, high-quality products. Our brand and reputation are adversely affected by negative publicity, and a failure to deliver innovative and high-quality products would also tarnish our public image.
However, regardless of their merit, these or future complaints could have a negative impact on the reputation of our products and our brand, cause us to recall or stop selling our products, or lead to increased scrutiny or enforcement action from regulatory authorities, which could adversely affect our business and financial results.
Such allegations, even if untrue, could also lead to increased scrutiny or enforcement action from regulatory authorities or cause us to stop selling or recall our products, which could adversely affect our business and financial results.
Any harm to our brand or reputation could adversely affect our ability to attract and engage customers and consumers and expand our business and could negatively impact our business, financial condition and results of operations.
If we are unable to preserve our brand reputation, enhance our brand recognition or increase positive awareness of our products, we may not attract or engage customers and consumers or be able to expand our business, which would negatively impact our business, financial condition and results of operations.
Sustained increases in these costs or other inflationary pressures in the future may have an adverse effect on our ability to maintain current levels of operating margin. The occurrence of any such events could have an adverse effect on our business, financial condition and results of operations.
Any of these occurrences could delay or impede our ability to achieve our sales objectives, which could have a material adverse effect on our business, financial condition and results of operations.
These actions may be attributed to us or could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties. In addition, the importance of our brand may increase as we continue to experience increased competition, which could require additional expenditures for our brand marketing activities.
These actions may be attributed to us or could subject us to regulatory investigations, class action lawsuits, liability, fines or other penalties. If we are unable to anticipate and respond to market trends and changes in consumer preferences and successfully introduce new, innovative and high-quality products, our financial results could be adversely affected.
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Risks Related to Our Business Our inability to anticipate and respond to market trends and changes in consumer preferences could adversely affect our financial results.
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In addition, as we expand into adjacent or other categories, we have faced, and will continue to face, different and, in some cases, more formidable competition.
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Our historical rapid growth may not be indicative of future growth, and we expect our growth rate to ultimately slow over time. If we are unable to manage our growth effectively, our business, financial condition and results of operations could be adversely affected.
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In addition, our brand and reputation could be adversely affected if we engage in discounting or promotional activities that negatively impact consumers’ perceptions of the prestige nature of our products.
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While we have experienced significant and rapid growth, our historical rate of growth may not be indicative of our future rate of growth, and our net sales could decline or grow more slowly than we expect.
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However, our brand development strategies and investments may not increase the recognition of our brand or increase revenues.
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We believe that continued growth in net sales, as well as our ability to improve or maintain margins and profitability, will depend upon, among other factors, our ability to address the challenges, risks and difficulties described elsewhere in this “Risk Factors” section.
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In addition, our ability to launch new products would be limited by delays or 16 Table of Contents difficulties affecting the ability of our suppliers or manufacturers to timely manufacture, distribute and ship new products or displays for new products.
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We cannot provide assurance that we will be able to successfully manage any such challenges or risks to our future growth. Any of these factors could cause our net sales growth to slow or decline and may adversely affect our margins and profitability.
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Sales of new products would be affected by our ability to execute our marketing strategies, inventory management by our retail customers, and by product shortages or limitations in retail display space by our retail customers.
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Even if our net sales increase, our growth rate may slow for a number of other reasons, including a decrease in demand for our products, increased competition, an increase in 17 Table of Contents sales of lower margin products such as holiday kits, a decrease in the growth or reduction in the size of our overall market or if we cannot capitalize on growth opportunities.
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We may also experience a decrease in sales of certain existing products as a result of newly launched products, the impact of which could be exacerbated by shelf space limitations or any shelf space loss.
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In addition, from time to time, sales growth or profitability may be concentrated in a relatively small number of our products or countries. Failure to continue to grow our net sales or improve or maintain margins would adversely affect our business, financial condition and results of operations.
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As part of our ongoing business strategy, we may continue to expand our product launches into adjacent categories in hair care and other categories.
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You should not rely on our historical rate of growth as an indication of our future performance. Our growth has in the past, and may in the future, strain our ability to effectively manage our operations, as it requires us to expand our management team, sales and marketing, product development and logistics and distribution functions.
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Any loss of confidence on the part of our customers or consumers in the safety or quality of our products, including the ingredients used in our products, whether actual or perceived, or inclusion of ingredients that are regulated in certain jurisdictions, could harm our brand image and reputation and could cause consumers to choose other products.
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Growth may require us to further upgrade our management information systems, internal processes and procedures and technology. It also requires us to obtain sufficient raw materials and manufacturing capacity and additional operational capabilities and facilities to warehouse and distribute our products, particularly as we continue to expand internationally.
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Regardless of their merit, allegations of adverse effects on product safety or suitability for use by particular consumers have harmed our brand and our reputation and had an adverse impact on our sales.
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Ineffective execution to support growth could result in, among other things, product delays or shortages, operating errors, outages, inadequate customer service, inappropriate claims or promotions by our marketing team or brand ambassadors and governmental inquires and investigations, all of which could harm our revenue and ability to generate sustained growth and result in unanticipated expenses.
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Expansion into new international markets may create operating difficulties in managing our business across numerous jurisdictions and ultimately may not be successful, which could result in slower revenue growth, higher operating costs and lower margins than anticipated and could impair our ability to enter into additional new markets.
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In addition, we need to continue to attract and develop qualified management personnel to sustain growth. If we are not able to successfully retain and develop existing personnel and identify, hire and integrate new personnel, our business, financial condition and results of operations would be adversely affected.
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If we are unable to accurately forecast customer and consumer demand, manage our inventory and plan for future expenses, our results of operations could be adversely affected. We base our current and future inventory needs and expense levels on our operating forecasts and estimates of future demand.
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To ensure adequate inventory supply, we must be able to forecast inventory needs and expenses and place orders sufficiently in advance with our manufacturers and suppliers based on our estimates of future demand for particular products.
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Failure to accurately forecast demand for new or existing products has resulted in, and may in the future result in, inefficient inventory supply or increased costs. For example, we experienced a slowdown in sales momentum during the second half of 2022, in part, due to inventory rebalancing across certain of our customers.
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Inventory levels in excess of customer demand may result in inventory write-downs or write-offs or the sale of excess inventory at discounted prices, which would cause our gross margins to suffer and could impair the strength and premium nature of our brand.
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Further, lower than forecasted demand could result in excess manufacturing capacity or reduced manufacturing efficiencies, which could result in lower margins.
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Conversely, if we underestimate customer demand, including as a result of unanticipated growth and the launch of new products, our manufacturers and suppliers may not be able to deliver products to meet our requirements, and we may incur higher costs in order to secure the necessary production capacity or additional or expedited shipping.
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An inability to meet customer demand and delays in the delivery of our products to our customers could result in reputational harm and damaged customer relationships and have an adverse effect on our business, prospects, results of operations, financial condition and cash flows.
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While we devote significant attention to forecasting efforts, the volume, timing, value and type of the orders we receive are inherently uncertain. Historical growth rates, trends and other key performance metrics may not predict future growth.
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Our business and our ability to forecast demand is affected by general economic and business conditions in the U.S. and customer confidence in future economic conditions, and our ability to forecast demand will be increasingly affected by conditions in international markets as we continue to expand internationally.
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A portion of our expenses are fixed, and as a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in net revenues. Any failure to accurately predict demand for our products or expenses could cause our operating results to be lower than expected, which could adversely affect our financial condition.
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We cannot guarantee that our brand development strategies will increase the recognition of our brand or increase revenues. We frequently use third-party social media platforms to raise awareness of our brand and engage with our hairstylist and consumer communities.
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If we are not able to develop and maintain strong relationships with our ambassador and advocate network, our ability to promote and maintain consumer awareness of our brand may be adversely affected. Further, if we incur excessive expenses in this effort, our business, financial condition and results of operations may be adversely affected.
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Maintaining and enhancing our brand image may also require us to make additional investments in areas such as merchandising, marketing and online operations. These investments may be substantial and may not be successful. Moreover, if we are unsuccessful in protecting our intellectual property rights in our brand, the value of our brand may be harmed.
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We depend on a limited number of customers for a large portion of our net sales, and the loss of one or more of these customers could reduce our net sales and have an adverse effect on our business, financial condition and cash flows.
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We expect that certain of our largest customers in 2022 will continue to account for a substantial portion of our net sales for the foreseeable future.
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The loss of a significant customer, a shift in the level of support for our brand by any of these customers, or any significant decrease in sales to these customers, including as a result of the restructuring or bankruptcy of one of our customers, consolidation among such customers, retail store closures, decrease in consumer demand or other factors, could reduce 19 Table of Contents our net sales and operating income, lead to a decrease in customer confidence in our brand and cause a loss of other customers, and therefore could have an adverse effect on our business, financial condition and cash flows.
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If we fail to attract new customers and consumers, retain existing customers and consumers, or fail to maintain or increase sales to those customers and consumers, our business, prospects, results of operations, financial condition, cash flows and growth prospects could be harmed. Our success depends in large part upon widespread adoption of our products by consumers.
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In order to attract new consumers and continue to expand our customer and consumer base, we must appeal to and attract hairstylists and consumers who identify with our products.
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If we fail to deliver a high-quality consumer experience or if hairstylists or our current or potential customers or consumers are not convinced that our products are of high-quality or superior to alternatives, then our ability to retain existing customers and consumers, acquire new customers and consumers and grow our business may be harmed.
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Further, as our brand becomes more widely known, we may not attract new consumers or increase our net sales at the same rates as we have in the past.
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If we are unable to acquire new customers and consumers who purchase products in numbers sufficient to grow our business, we may not be able to generate the scale necessary to drive efficiencies with our suppliers, our net revenues may decrease, and our business, financial condition and operating results may be adversely affected.
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In addition, our future success depends in part on our ability to increase sales to our existing customers over time.
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We may not be successful in maintaining or increasing sales to, or maintaining strong relationships with, our existing customers as we expand our customer base, introduce new products and grow our own e-commerce business, which competes with our professional and specialty retail customers for consumer sales.
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We also have been, and may in the future be, affected by changes in the policies and demands of our professional and specialty retail customers relating to inventory management, changes in pricing, marketing, advertising and/or promotional strategies by such customers, space allocations by our customers or any significant decrease in our display space or online prominence.
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We may be affected by changes in consumer shopping preferences, shifts in distribution channels and changes in the salon and retail environments, and such changes could have an adverse impact on the demand for our products and on our business, financial condition and results of operations. We cannot ensure that there will always be a demand for salon treatments.
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We may be affected by changes to the salon environment, and our professional customers may limit their product supply if demand for salon treatments decreases.
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For example, in the second half of 2022, we believe that shifting consumer spending habits due to macroeconomic factors, including inflationary pressures, resulted in a decline in the demand for professional salon treatments and take-home products purchased from salons. Further, there may be consolidation of the salon market.
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If consolidation leads to customers gaining purchasing power, we may need to reduce the cost of our products, which will have an impact on our earnings. Consolidation among our customers may also increase the risk of customer concentration. In addition, consumer preferences have and may continue to shift with respect to retail traffic in brick and mortar stores.
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For example, in the first half of 2022, traffic in the brick and mortar stores in our specialty retail channel increased following a slowdown in traffic in those stores during the COVID-19 pandemic.
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Further, any consolidation or liquidation in the retail trade may result in us becoming increasingly dependent on key retailers and could result in an increased risk related to the concentration of our customers. A severe, adverse impact on the business operations of our customers could have a corresponding material adverse effect on us.
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We rely on single source manufacturers and suppliers for the majority of our products. The loss of manufacturers or suppliers or shortages in the supply of raw materials or finished products could harm our business, prospects, results of operations, financial condition and cash flows. Our products generally rely on a single or a limited number of manufacturers and suppliers.
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We acquire raw materials, components and packaging from third-party suppliers and our finished products are manufactured by four third-party manufacturers. One company, Cosway, manufactures products that accounted for more than 77% of our net sales in 2022, and we continue to rely on Cosway to manufacture a majority of our current product offerings.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES We do not own any real property or have a physical headquarters. We lease one facility of approximately 5,000 square feet in New York that we use for research and development activities. The lease term for this facility ends on August 31, 2027. Our employees work remotely, from home or at shared co-working office spaces.
Biggest changeITEM 2. PROPERTIES We do not own any real property. We lease one facility of approximately 11,000 square feet in New York that we use for research and development activities. The lease term for this facility ends on September 30, 2030. Our employees work remotely, from home or at shared co-working office spaces.
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We believe these arrangements support our current needs.
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As of January 2024, we also lease one office space of approximately 10,000 square feet in New York, which will provide meeting space and office space for employees who choose to collaborate in person from time to time. The lease term for this office space ends on June 14, 2026. We believe these arrangements support our current needs. ITEM 3.
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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.
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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.
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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.
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For detail on certain legal proceedings, see “Note 14 - Contingencies - Pending Legal Proceedings” included in the Notes to the Consolidated Financial Statements included in Part II, Item 8. Financial Statements of this Annual Report. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 34 Table of Contents PART II

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn 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.
Biggest changeThird parties have alleged, and in the future may allege, that our products infringe, misappropriate or otherwise violate their intellectual property rights, and we may become involved in litigation or other disputes relating to intellectual property used in our business.
The action is brought on behalf of a putative class of purchasers of the Company’s common stock in or traceable to our IPO and asserts claims under Sections 11 and 15 of the Securities Act of 1933.
The action is being brought on behalf of a putative class of purchasers of our common stock in or traceable to our IPO and asserts claims under Sections 11, 12 and 15 of the Securities Act of 1933, as amended (the “Securities Act”).
ITEM 3. 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.
Risks Related to Legal and Regulatory Matters Disputes and other legal or regulatory proceedings could adversely affect our financial results. From time to time, we may become involved in litigation, other disputes or regulatory proceedings in connection with or incidental to our business, including litigation related to intellectual property, regulatory matters, contract, advertising, product-related and other consumer claims.
The action seeks certification of the putative class, compensatory damages, attorneys’ fees and costs, and any other relief that the court determines is appropriate. We intend to vigorously defend the pending lawsuit.
The action seeks certification of the putative class, compensatory damages, attorneys’ fees and costs, and any other relief that the court determines is appropriate. For more information, see “ Item 3.
Regardless of outcome, litigation (including the litigation noted 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.
Regardless of the final resolution, such proceedings may have an adverse effect on our reputation, brand, financial condition and business, including by utilizing our resources and potentially diverting the attention of our management from the operation of our business. See “Item 3.
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In the opinion of our management, reasonably possible losses in addition to the amounts accrued for any such litigation and legal proceedings are not material to our consolidated financial statements.
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Item 3. Legal Proceedings .” While the plaintiff’s claims were dismissed without prejudice in July 2023, we may be subject to additional claims in the future, whether from those plaintiffs or other consumers.
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On November 17, 2022, a putative securities class action was filed against the Company and certain of our 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.
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Such claimants may assert that our products fail to meet quality or manufacturing specifications and standards, violate applicable laws or regulations, contain contaminants, include inadequate instructions as to their proper use, include inadequate warnings concerning side effects and interactions with other substances or for persons with health conditions or allergies, or cause adverse reactions or side effects, or that our product claims, instructions or marketing are false and misleading.
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On February 9, 2023, 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, was filed against the Company and Cosway Company, Inc., our primary contract manufacturer, in the United States District Court for the Central District of California.
Added
Product-related claims or class action lawsuits increase our costs and could divert the attention of our management, which could adversely affect our business and financial results. As we continue to offer an increasing number of new products, our product-related claims risk may increase.
Removed
The case, which was filed by twenty eight plaintiff consumers on February 9, 2023, is captioned Albahae, et al. v. Olaplex Holdings, Inc., et al., No. 2:23-cv-00982. 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.
Added
Our insurance policies may not cover any or all of the resulting financial losses or broader damage to our reputation.
Removed
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. We intend to vigorously defend the pending lawsuit. 37 Table of Contents ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 38 Table of Contents PART II
Added
If our products are found or believed to be defective or unsafe, our product claims are found to be deceptive, or our products otherwise fail to meet our consumers’ expectations, our relationships with customers or consumers could suffer, the appeal of our brand could be diminished, and we could lose sales and become subject to liability or claims, any of which could result in a material adverse effect on our business.
Added
Our success depends, in part, on our ability to execute our long-term strategic plan. Our future growth and revenue depend upon our ability to successfully implement our long-term strategic plan. Achieving our long-term strategic plan will require investment in new capabilities, products, technologies and emerging markets, as well as in efforts to increase recognition of our brand and market penetration.
Added
These investments may not be successful, and may also result in short-term costs without associated current sales and, therefore, may be dilutive to our earnings.
Added
Our growth has in the past, and may in the future, strain our ability to effectively manage our operations, as it requires us to expand our management team, sales and marketing, product development and logistics and distribution functions.
Added
Growth may require us to further upgrade our management information systems, internal processes and procedures and technology, including with respect to use of new or advancing technologies such as artificial intelligence (“AI”).
Added
It also requires us to obtain sufficient 17 Table of Contents raw materials and manufacturing capacity and additional operational capabilities and facilities to warehouse and distribute our products, particularly as we continue to expand internationally.
Added
Ineffective execution to support growth could result in, among other things, product delays or shortages, operating errors, outages, inadequate customer service, inappropriate claims or promotions by our marketing team or brand ambassadors and governmental inquires and investigations, all of which could harm our revenue and ability to generate sustained growth and result in unanticipated expenses.
Added
Expansion into new international markets may create operating difficulties in managing our business across numerous jurisdictions and ultimately may not be successful, which could result in slower revenue growth, higher operating costs and lower margins than anticipated and could impair our ability to enter into additional new markets.
Added
In addition, we need to continue to attract and develop qualified management personnel to sustain growth. If we are not able to successfully retain and develop existing personnel and identify, hire and integrate new personnel, our business, financial condition and results of operations would be adversely affected. We have expanded our operations rapidly since our inception in 2014.
Added
Our historical growth should not be considered as indicative of our future performance. If we are unable to accurately forecast customer and consumer demand, manage our inventory and plan for future expenses, our results of operations could be adversely affected.
Added
We base our current and future inventory needs and expense levels on our operating forecasts, forecasts of expected future purchasing activity from certain of our customers and our own estimates of future demand.
Added
To ensure adequate inventory supply, we must be able to forecast inventory needs and expenses and place orders sufficiently in advance with our manufacturers and suppliers based on our estimates of future demand for particular products.
Added
Failure to accurately forecast demand for new or existing products has resulted in, and may in the future result in, inefficient or excess inventory supply or increased costs. For example, we experienced a slowdown in sales momentum during the second half of 2022 and fiscal year 2023, in part, due to inventory rebalancing across certain of our customers.
Added
Inventory levels in excess of customer demand has resulted in inventory write-downs or write-offs and may result in the sale of excess inventory at discounted prices, which would cause our gross margins to suffer and could impair the strength and prestige nature of our brand.
Added
Further, lower than forecasted demand may result in excess manufacturing capacity, increased inventory storage expenses and reduced manufacturing efficiencies, which would result in lower margins.
Added
Conversely, if we underestimate customer demand, including as a result of unanticipated growth and the launch of new products, our manufacturers and suppliers may not be able to deliver products to meet our requirements, and we may incur higher costs in order to secure the necessary production capacity or additional or expedited shipping.
Added
An inability to meet customer demand and delays in the delivery of our products to our customers could result in reputational harm and damaged customer relationships and have an adverse effect on our business, prospects, results of operations, financial condition and cash flows.
Added
While we devote significant attention to forecasting efforts, the volume, timing, value and type of the orders we receive are inherently uncertain. Historical growth rates, trends and other key performance metrics may not predict future growth.
Added
Our business and our ability to forecast demand is affected by general economic and business conditions in the U.S. and customer confidence in future economic conditions, and our ability to forecast demand will be increasingly affected by conditions in international markets as we continue to expand internationally.
Added
A portion of our expenses are fixed, and as a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in net revenues. Any failure to accurately predict demand for our products or expenses could cause our operating results to be lower than expected, which could adversely affect our financial condition.
Added
The illegal distribution and sale by third parties of counterfeit versions of our products or the unauthorized diversion by third parties of our products could have an adverse effect on our net sales and a negative impact on our reputation and business. Third parties illegally distribute and sell counterfeit versions of our products.
Added
We believe these counterfeit products are inferior to our authentic products and could pose safety risks that our authentic products would not otherwise present to consumers. Consumers could confuse counterfeit products with our authentic products, which could damage or diminish the image, reputation and value of our brand and cause consumers to refrain from purchasing our products in the future.
Added
Products sold to professional salon distributors are meant to be sold to and used exclusively by salons and salon professionals or sold exclusively to the retail consumers of these salons. Our products have been and may continue to be sold to sales outlets other than the intended salons and salon professionals, such as to general merchandise retailers or unapproved outlets.
Added
Diverted products sold in such unapproved outlets may impact consumers’ perceptions of the prestige nature of our products. Further, in some instances, these diverted products may be old, damaged or otherwise adulterated.
Added
Diversion may result in lower net sales of our products if consumers purchase diverted products or choose to purchase products manufactured or sold by our competitors because of any perceived damage or diminishment to the image, reputation or value of our brand resulting from such diversion.
Added
We depend on a limited number of customers for a large portion of our net sales. We expect that certain of our largest customers in 2023 will continue to account for a substantial portion of our net sales for the foreseeable future.
Added
The loss of a significant customer, a shift in the level of support for our brand by any of these customers, or 18 Table of Contents any significant decrease in sales to these customers, including as a result of the restructuring or bankruptcy of one of our customers, consolidation among such customers, retail store closures, decrease in consumer demand or other factors, could reduce our net sales and operating income, lead to a decrease in customer confidence in our brand and cause a loss of other customers, and therefore could have an adverse effect on our business, financial condition and cash flows.
Added
We may be affected by changes in consumer shopping preferences, shifts in distribution channels and changes in the salon and retail environments. Our omnichannel sales platform consists of our Professional, Specialty Retail and Direct-To-Consumer channels.
Added
From time to time, our financial performance in certain of these channels may fluctuate relative to others, and our international expansion strategy may prioritize certain of these channels based on the market dynamics in a particular jurisdiction.
Added
If such a situation persists or one or more channels fails to perform as expected, there could be an adverse effect on our business. Our Professional channel depends on our engagement with professional hairstylists and our reputation and brand image within the professional hairstylist community.
Added
Negative perceptions of our brand by the professional hairstylist community have had an adverse effect on our Professional channel. In addition, our Professional channel is impacted by consumer demand for salon treatments and changes to the salon environment, and our professional hairstylist customers have limited their product supply when demand for salon treatments decreases.
Added
Further, there may be consolidation of the salon market. If consolidation leads to customers gaining purchasing power, we may need to reduce the cost of our products, which would have an impact on our earnings. Consolidation among our customers may also increase the risk of customer concentration.
Added
In addition, consumer preferences have and may continue to shift with respect to retail traffic in brick and mortar stores. Further, any consolidation or liquidation in the retail trade may result in us becoming increasingly dependent on key retailers and could result in an increased risk related to the concentration of our customers.
Added
A severe, adverse impact on the business operations of our customers could have a corresponding material adverse effect on us. Our products generally rely on a single or a limited number of manufacturers.
Added
The loss of manufacturers or shortages in the supply of raw materials or finished products could harm our business, prospects, results of operations, financial condition and cash flows. Our products generally rely on a single or a limited number of manufacturers.
Added
We acquire raw materials, components and packaging from third-party suppliers, and our finished products are manufactured by five third-party manufacturers. One company, Cosway, manufactures products that accounted for more than 61% of our net sales and 32% of our inventory product purchases in 2023.
Added
While we have engaged and expect to continue to engage additional third-party manufacturers, engaging a new manufacturer involves risks and costs, including additional due diligence, investment and oversight, and may not ultimately be successful. Any new manufacturer may not have the same capacity to provide us finished product as our current manufacturers provide us.
Added
The failure to secure sufficient manufacturing capabilities from third parties could have a material adverse effect on our business, financial condition and results of operations. A principal raw material for our products is our patented ingredient, Bis-amino. The other primary raw materials used in our products include essential oils and specialty ingredients.
Added
In the past, we have been able to obtain an adequate supply of our essential raw materials, and we currently believe we have an adequate supply for virtually all components of our products, including Bis-amino.
Added
However, we have encountered and may in the future encounter supply issues with raw materials due to increases in global demand and limited supply capacity, or other supply disruptions, as well as fluctuations in the cost of raw materials.
Added
Sustained increases in raw material costs or other inflationary pressures in the future may have an adverse effect on our ability to maintain current operating margins.
Added
Further, while we attempt to reduce our exposure to fluctuations in the price of raw materials through contractual arrangements with our suppliers, we may not accurately forecast prices and therefore may at times pay more than prevailing market rates.
Added
If any of our third-party suppliers cease to perform their obligations under our current contractual arrangements or terminate such arrangements, we may need to find alternative sources of supply, and these new manufacturers or suppliers may have to be qualified under applicable industry, governmental and Company-mandated vendor standards, which can require additional investment and be time-consuming.
Added
In addition, if we experience supply shortages, price increases, quality control concerns, disruption in transportation, warehousing or other necessary services, or regulatory impediments with respect to raw materials, ingredients, components or packaging we use for our products, we may need to seek alternative supplies or suppliers.
Added
We cannot guarantee that we would be able to establish alternative relationships on similar terms, without delay or at all, or that any alternative supplier would be of comparable quality.
Added
We also may be required to reformulate or substitute ingredients in our products, including due to shortages of specific raw materials in order to meet demand, and these reformulated products may be more expensive to procure or less effective than current formulations and could harm our brand and reputation.
Added
If we are unable to successfully respond to such issues, our business, financial condition and results of operations would be adversely affected. 19 Table of Contents A disruption in our operations could adversely affect our business, financial condition and results of operations. Our finished products are manufactured in the U.S. and Europe, with a substantial portion manufactured in California.
Added
Any interruptions in operations at these locations could result in our inability to satisfy demand. A number of factors could damage or destroy the manufacturing equipment or our inventory of components, supplies or finished goods, cause substantial delays in manufacturing, supply and distribution of our products, result in the loss of key information and cause us to incur additional expenses.
Added
These factors include industrial accidents, natural disasters, strikes and other labor disputes, availability of natural resources, political crises, such as terrorist attacks, war and other geopolitical instability, capacity constraints, equipment or technology malfunctions or failures, disruptions in ingredient, material or packaging supply, disruptions in supply chain or information technology, loss or impairment of key manufacturing sites or suppliers, product quality control, safety, increase in commodity prices and energy costs, inflationary pressures, licensing requirements and other regulatory issues, pandemic related shut downs and other external factors over which we have no control.
Added
We have experienced increased input costs for warehousing, transportation and raw materials as a result of global supply chain disruption and inflationary pressures, as well as increased wage rates. Sustained increases in these costs or other inflationary pressures in the future may have an adverse effect on our ability to maintain current levels of operating margin.
Added
The occurrence of any such events could have an adverse effect on our business, financial condition and results of operations. Our business interruption insurance may not cover losses in any particular case, and insurance may not be available on commercially reasonable terms to cover certain of these catastrophic events or interruptions.
Added
In addition, regardless of the level of insurance coverage, any disruption that impedes our ability to manufacture our products in a timely manner could adversely affect our business, financial condition and results of operations. We rely on third-party global service providers to deliver our products to customers, including directly to consumers.
Added
Our ability to receive inbound inventory efficiently and ship products to customers may be negatively affected by factors beyond our and these providers’ control, including pandemic, weather, fire, flood, power loss, earthquakes, acts of war or terrorism or other events specifically impacting our service providers, such as labor disputes, cyberattacks, financial difficulties and system failures.
Added
We are also subject to risks of damage or loss during delivery by our shipping providers. We have in the past experienced, and may in the future experience, shipping delays for reasons outside of our control.
Added
If we are not able to negotiate acceptable pricing and other terms with our third-party shipping, warehousing and distribution providers, or if these providers experience performance problems or other difficulties in processing our orders or timely delivering our products to customers, our customers could become dissatisfied and cease buying products from us, which could negatively impact our results of operations.
Added
We are subject to risks related to the global scope of our operations. Our products are sold in more than 100 countries around the world, with approximately 55% of our net sales in 2023 generated outside the U.S.
Added
In addition, certain of our products are manufactured in Europe, and we have key third party operational facilities located outside the U.S. that warehouse and/or distribute goods for sale throughout the world.
Added
Our global operations are subject to many risks and uncertainties, including: • fluctuations in foreign currency exchange rates and the relative costs of operating in international jurisdictions; • local civil unrest, political instability or changes in diplomatic or trade relationships, such as geopolitical tensions between the U.S. and the People’s Republic of China; • foreign or U.S. laws, regulations and policies, including restrictions on trade, immigration and travel, operations, and investments; disputes with third parties arising from such laws, regulations or policies; currency exchange controls; restrictions on imports and exports, including license requirements; tariffs; sanctions; and taxes; • inflation and other macroeconomic factors in certain of our international markets; • lack of well-established or reliable legal and administrative systems in certain of our international markets; and • social, economic and geopolitical conditions, such as a pandemic, terrorist attack, war or other military action, including the current conflicts between Russia and Ukraine and in the Middle East.
Added
These risks could have an adverse effect on our business, including our ability to capitalize on growth in new international markets and to maintain the current level of operations in our existing international markets. Our success depends, in part, on our key personnel.
Added
Our success depends, in part, on our ability to retain our key personnel, including our executive officers and senior management team. Transitions in our senior management or the unexpected loss of one or more of our key employees could adversely affect our business.
Added
Our success also depends, in part, on our continuing ability to identify, hire, train and retain other highly qualified personnel. To support our continued growth, we must effectively integrate, develop, motivate and manage new employees in our 20 Table of Contents fully remote working environment.
Added
To attract top talent, we may need to increase our employee compensation levels to remain competitive in attracting and retaining talented employees. Competition for these employees can be intense. We may not be able to attract, integrate or retain qualified personnel in the future, and our failure to do so could have an adverse effect on our business.
Added
Our business has historically been influenced by seasonal trends common to traditional retail selling periods, and the results of our operations typically are slightly higher in the second half of the fiscal year due to increased levels of purchasing by consumers for special and holiday events and by our customers for the end of year holiday selling season.
Added
Higher sales during the third and fourth quarters may cause our working capital needs to be greater during the second and third quarters of the fiscal year. However, fluctuations in net sales in any fiscal quarter may be attributable to a number of other factors.
Added
Adverse events that occur during the second half of the fiscal year may negatively impact our net sales during such period and have had and may in the future have a disproportionate effect on our operating results for the entire fiscal year.
Added
Furthermore, our limited operating history and rapid growth in recent years may obscure the extent to which seasonality trends have affected and may continue to affect our business.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed6 unchanged
Biggest changeThis graph and table (i) cover the fifteen-month period from September 30, 2021 (the date of the initial listing of our common stock on the Nasdaq Global Select Market) to December 31, 2022 on a quarterly basis, (ii) assume a $100 investment on September 30, 2021, and (iii) assume reinvestment of dividends, if any. 39 Table of Contents Company/Index 09/30/2021 12/31/2021 03/31/2022 06/30/2022 09/30/2022 12/31/2022 Olaplex Holdings, Inc. $ 100.00 $ 118.90 $ 63.80 $ 57.51 $ 38.98 $ 21.27 NASDAQ Composite $ 100.00 $ 108.45 $ 98.42 $ 76.33 $ 73.19 $ 72.44 S&P Consumer Staples $ 100.00 $ 112.86 $ 110.76 $ 104.96 $ 97.37 $ 109.03
Biggest changeThis graph and table (i) cover the period from September 30, 2021 (the date of the initial listing of our common stock on the Nasdaq Global Select Market) to December 31, 2023 on a quarterly basis, (ii) assume a $100 investment on September 30, 2021, and (iii) assume reinvestment of dividends, if any. 35 Table of Contents Company/Index 09/30/2021 12/31/2021 03/31/2022 06/30/2022 09/30/2022 12/31/2022 03/31/2023 06/30/2023 09/30/2023 12/31/2023 Olaplex Holdings, Inc. $ 100.00 $ 118.90 $ 63.80 $ 57.51 $ 38.98 $ 21.27 $ 17.43 $ 15.18 $ 7.96 $ 10.37 NASDAQ Composite $ 100.00 $ 108.45 $ 98.42 $ 76.33 $ 73.19 $ 72.44 $ 84.59 $ 95.43 $ 91.49 $ 103.89 S&P Consumer Staples $ 100.00 $ 112.86 $ 110.76 $ 104.96 $ 97.37 $ 109.03 $ 109.21 $ 108.99 $ 101.79 $ 106.68
The following graph and accompanying table compare the cumulative fifteen-month total stockholder return on the Company’s common stock with the cumulative total return of the Nasdaq Composite and the S&P Consumer Staples Index.
The following graph and accompanying table compare the total stockholder return on the Company’s common stock with the cumulative total return of the Nasdaq Composite and the S&P Consumer Staples Index.
Holders As of February 21, 2023 , there were 27 registered holders of our common stock.
Holders As of February 23, 2024 , there were 24 registered holders of our common stock.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

71 edited+16 added−16 removed48 unchanged
Biggest changeDuring the same period, Net sales increased 15.4% in the United States and increased 20.9% internationally. • Gross profit margin decreased to 73.8% for the year ended December 31, 2022 from 79.2% for the year ended December 31, 2021, primarily as a result of higher input costs for raw materials, warehousing, and transportation, product and channel mix, inventory and labeling stock write-off and disposal costs, and distribution start up costs. • Operating expenses for the year ended December 31, 2022 increased by 11.1%, as compared to the year ended December 31, 2021, primarily as a result of increased sales and marketing expense, higher payroll due to workforce expansion, public company compliance costs, increased professional fees expenses, non-recurring executive reorganization costs, and increased share-based compensation expense and distribution and fulfillment expenses, partially offset by non-recurring litigation costs during the year ended December 31, 2021, one-time initial public offering costs, and cash settled unit compensation costs incurred in the year ended December 31, 2021. • Operating income increased to $364.4 million for the year ended December 31, 2022 from $334.2 million for the year ended December 31, 2021. • Net income increased to $244.1 million for the year ended December 31, 2022 from $220.8 million for the year ended December 31, 2021 . 42 Table of Contents Results of operations for the years ended December 31, 2022, 2021 and 2020 Set forth below is the Company’s results of operations for its fiscal year ended December 31, 2022 (“fiscal year 2022”) versus its fiscal year ended December 31, 2021 (“fiscal year 2021”).
Biggest changeFor the year ended December 31, 2023, net sales in our professional channel decreased 40.1%, our specialty retail channel decreased 42.6%, and our DTC channel decreased 15.0%, in each case as compared to the year ended December 31, 2022. • Gross profit margin decreased to 69.5% for the year ended December 31, 2023 from 73.8% for the year ended December 31, 2022, primarily as a result of increased promotional allowance, an increased reserve for product obsolescence, and higher input costs for raw materials. • Operating expenses for the year ended December 31, 2023 increased by 35.6%, as compared to the year ended December 31, 2022, primarily as a result of increased sales and marketing expense, higher payroll due to workforce expansion, and higher professional fees, partially offset by lower distribution and fulfillment costs for the year ended December 31, 2023. • Operating income decreased to $108.2 million for the year ended December 31, 2023 from $364.4 million for the year ended December 31, 2022. • Net income decreased to $61.6 million for the year ended December 31, 2023 from $244.1 million for the year ended December 31, 2022. 38 Table of Contents Results of operations for the years ended December 31, 2023, 2022 and 2021 Set forth below are our results of operations for our fiscal year ended December 31, 2023 (“fiscal year 2023”) versus our fiscal year ended December 31, 2022 (“fiscal year 2022”).
Assumptions and approach used: The tax liability is based on current tax laws and the assumption that the Company and its subsidiaries earn sufficient taxable income to realize the full tax benefits subject to the Tax Receivable Agreement.
Assumptions and approach used: The Tax Receivable Agreement liability is based on current tax laws and the assumption that the Company and its subsidiaries earn sufficient taxable income to realize the full tax benefits subject to the Tax Receivable Agreement.
See “Note 10. Income Taxes” to our Consolidated Financial Statements included in Item 8. Financial Statements of this Annual Report for additional information. The tax liability is 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.
See “Note 10. Income Taxes” to our Consolidated Financial Statements included in Item 8. Financial Statements of this Annual Report for additional information. The tax 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.
Financial Statements of this Annual Report for additional information. (4) Purchase obligations are commitments for contracted services and include non-cancelable payments. (5) Does not reflect any borrowings under the 2022 Revolver. As of December 31, 2022, we had no outstanding borrowings under the 2022 Revolver.
Financial Statements of this Annual Report for additional information. (4) Purchase obligations are commitments for contracted services and include non-cancelable payments. (5) Does not reflect any borrowings under the 2022 Revolver. As of December 31, 2023, we had no outstanding borrowings under the 2022 Revolver.
Competition in the beauty industry is based on a variety of factors, including innovation, product efficacy, accessible pricing, brand recognition and loyalty, service to the consumer, promotional activities, advertising, special events, new product introductions, e-commerce initiatives and other activities.
Competition in the beauty industry is based on a variety of factors, including innovation, product efficacy, accessible pricing, brand recognition and loyalty, service to the consumer, promotional activities, advertising, special events, new product introductions, e-commerce initiatives, sustainability and other activities.
On August 11, 2022, the Company entered into an interest rate cap transaction in connection with the 2022 Term Loan Facility, with a notional amount of $400 million, in order to limit its exposure to potential increases in future interest rates related to the 2022 Term Loan Facility.
On August 11, 2022, the Company entered into an interest rate cap transaction in connection with the 2022 Term Loan Facility, with a notional amount of $400.0 million, in order to limit its exposure to potential increases in future interest rates related to the 2022 Term Loan Facility.
Payments under the Tax Receivable Agreement , which began in fiscal year 2022, are not conditioned upon the Pre-IPO Stockholders maintaining a continued ownership of the Company.
Payments under the Tax Receivable Agreement, which began in fiscal year 2022, are not conditioned upon the Pre-IPO Stockholders maintaining a continued ownership of equity in the Company.
Although the actual amount and timing of any payments under the Tax Receivable Agreement will vary depending upon a number of factors including the amount, character and timing of the Company’s and its subsidiaries’ taxable income in the future and the tax rates then applicable to us and our subsidiaries, we expect the payments that will be required to be made under the Tax Receivable Agreement will be substantial and to be funded out of working capital.
Although the actual amount and timing of any payments under the Tax Receivable Agreement will vary depending upon a number of factors including the amount, character and timing of our and our subsidiaries’ taxable income in the future and the tax rates then applicable to us and our subsidiaries, we expect the payments that will be required to be made under the Tax Receivable Agreement will be substantial and to be funded out of working capital.
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 elsewhere in “Risk Factors” in the Annual Report.
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 elsewhere in “Risk Factors” in this Annual Report.
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 our ability to continue providing innovative products to our customers and consumers and manage production and our supply chain. 2022 Credit Facility On February 23 , 2022, Olaplex, Inc., an indirect wholly owned subsidiary of Olaplex Holdings, Inc., together with Penelope Intermediate Corp. acting as the parent guarantor, entered into a Credit Agreement, dated as of February 23, 2022 (the “2022 Credit Agreement”), by and among Olaplex, Inc., Penelope Intermediate Corp, Goldman Sachs Bank USA (“Goldman Sachs”), as administrative agent (the “Administrative Agent”), collateral agent and swingline lender, and each lender and issuing bank from time to time party thereto (the “Lenders”) .
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 our ability to continue providing innovative products to our customers and consumers and manage production and our supply chain. 2022 Credit Facility On February 23, 2022, Olaplex, Inc., an indirect wholly owned subsidiary of Olaplex Holdings, Inc., together with Penelope Intermediate Corp. acting as the parent guarantor, entered into the 2022 Credit Agreement, by and among Olaplex, Inc., Penelope Intermediate Corp, Goldman Sachs Bank USA (“Goldman Sachs”), as administrative agent (the “Administrative Agent”), collateral agent and swingline lender, and each lender and issuing bank from time to time party thereto (the “Lenders”).
Our patent-protected bond-building technology relinks disulfide bonds in human hair that are destroyed via chemical, thermal, mechanical, environmental and aging processes. Our current product portfolio comprises fifteen unique, complementary products specifically developed to provide a holistic regimen for hair health.
Our patent-protected bond-building technology relinks disulfide bonds in human hair that are destroyed via chemical, thermal, mechanical, environmental and aging processes. Our current product portfolio comprises seventeen unique, complementary products, specifically developed to provide a holistic regimen for hair health.
These efforts extend across our organization, including focusing on cultivating top talent and building a strong corporate culture, evolving our operational capabilities as we scale, creating a strong financial foundation for growth, and ensuring that we have the technology and data to support our growth.
These efforts extend across our organization, including focusing on cultivating top talent and building a strong corporate culture, evolving our operational capabilities as we scale, creating a strong financial foundation for growth, and ensuring that we have financial structure, technology and data to support our growth.
On Olaplex.com, we expect to continue to invest in site enhancements and more advanced personalization efforts. Charting New Geographies We believe there is substantial opportunity to grow globally. Our priority international regions are currently Europe and Asia.
On Olaplex.com, we expect to continue to invest in site enhancements and more advanced personalization efforts. Charting New Geographies We believe there is substantial opportunity to grow globally. Our priority international regions are currently key markets in Europe and Asia.
The Pre-IPO Stockholders (or their transferees or assignees) will not reimburse us for any payments previously made under the Tax Receivable Agreement if such tax benefits are subsequently disallowed, although future payments would be adjusted to the extent possible to reflect the result of such disallowance and any excess payments made to any Pre-IPO Stockholder (or such Pre-IPO Stockholder’s transferees or assignees) will be netted against future payments that would otherwise be made under the Tax Receivable 49 Table of Contents Agreement, if any, after our determination of such excess.
The Pre-IPO Stockholders (or their transferees or assignees) will not reimburse us for any payments previously made under the Tax Receivable Agreement if such tax benefits are subsequently disallowed, although future payments would be adjusted to the extent possible to reflect the result of such disallowance and any excess payments made to any Pre-IPO Stockholder (or such Pre-IPO Stockholder’s transferees or assignees) will be netted against future payments that would otherwise be made under the Tax Receivable Agreement, if any, after our determination of such excess.
Supporting our Four Strategic Pillars To enable these four key growth pillars, we intend to continue to build our capabilities and infrastructure.
Supporting our Strategic Pillars To enable these key growth pillars, we intend to continue to build our capabilities and infrastructure.
As of December 31, 2022 , the Company had $150.0 million of available borrowing capacity under the 2022 Revolver.
As of December 31, 2023, the Company had $150.0 million of available borrowing capacity under the 2022 Revolver .
Liquidity and Capital Resources Requirements B ased 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 for at least the next 12 months.
Liquidity and Capital Resources Requirements 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 for at least the next 12 months.
As a result, changes in tax law, and in particular the federal and state tax rates applicable to U.S. corporations, the tax rules on the amortization and depreciation of assets, and our split of U.S. to foreign income may materially impact the timing and amounts of payments by us to the Pre-IPO Stockholders pursuant to the Tax Receivable Agreement.
As a result, changes in tax law, and in particular the federal and state tax rates applicable to U.S. corporations, the tax rules on the amortization and depreciation of assets, and our split of U.S. to foreign income may materially impact the timing and amounts of payments by us to the Pre-IPO 44 Table of Contents Stockholders pursuant to the Tax Receivable Agreement.
In connection with the Reorganization Transactions, on September 30, 2021, w e recognized a liability of $232.9 million for the payments to be made under the Tax Receivable Agreement, which is accounted for as a reduction of additional paid-in capital on our consolidated balance sheet.
In connection with the Reorganization Transactions, on September 30, 2021, we recognized a liability of $232.9 million for the payments to be made under the Tax Receivable Agreement, which is accounted for as a reduction of additional paid-in capital on our consolidated balance sheet.
Different timing rules apply to payments under the Tax Receivable Agreement to be made to holders that, prior to the completion of the IPO, held stock option (collectively, the “Award Holders”).
Different timing rules apply to payments under the Tax Receivable Agreement to be made to holders that, prior to the completion of the IPO, held stock options (collectively, the “Award Holders”).
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 December 31, 2022. Substantially all the assets of the Company constitute collateral under the 2022 Credit Agreement.
The 2022 Credit Agreement also includes 43 Table of Contents 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 December 31, 2023. Substantially all the assets of the Company constitute collateral under the 2022 Credit Agreement.
Our primary use of cash is for working capital and payment of our operating costs, which consist primarily of employee-related expenses, such as compensation and benefits, as well as general operating expenses for marketing, fulfillment costs of customer orders, overhead costs, capital expenditures and debt servicing. We also utilize cash for strategic investments.
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.
(2) The 2022 Term Loan Facility is subject to variable interest rates. The interest rate on borrowings under the 2022 Term Loan Facility was 7.9% as of December 31, 2022 . Assumes annual interest rate of 7.9% on the 2022 Term Loan Facility over the remaining term of the loan.
(2) The 2022 Term Loan Facility is subject to variable interest rates. The interest rate on borrowings under the 2022 Term Loan Facility was 9.0% as of December 31, 2023. Assumes annual interest rate of 9.0% on the 2022 Term Loan Facility over the remaining term of the loan.
ITEM 6. RESERVED 40 Table of Contents ITEM 7 - 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 consolidated financial statements and related notes included elsewhere in this Annual Report (“Annual Report”).
ITEM 6. RESERVED 36 Table of Contents ITEM 7 - 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 consolidated financial statements and related notes included elsewhere in this Annual Report.
Amplifying Channel Coverage In our professional channel, we have undertaken efforts to support strong relationships with the hairstylist community and maintain brand awareness by increasing our field support efforts, deepening partnerships with distributors and customers, and refreshing educational content. We also intend to pursue opportunities to further penetrate premium and prestige salons.
Amplifying Channel Coverage In our professional channel, we have undertaken efforts to support and reassert strong relationships with the professional hairstylist community and maintain brand awareness by increasing our field support efforts, deepening partnerships with distributors and customers, and refreshing educational content. We are also pursuing opportunities to further penetrate premium and prestige salons.
Business Environment & Trends We continue to monitor the effects of the global macro-economic environment, including the risk of recession, increasing inflationary pressures, competitive product discounting, currency volatility, rising interest rates, social and political issues, geopolitical tensions and regulatory matters.
Business Environment & Trends We continue to monitor the effects of the 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 and regulatory matters.
The maturity date of the 2022 Term Loan Facility is February 23, 2029. The maturity date of the 2022 Revolver is February 23, 2027. As of December 31, 2022 , the Company had outstanding indebtedness under the 2022 Credit Agreement of $671.6 million, of which $8.4 million was classified as current.
The maturity date of the 2022 Term Loan Facility is February 23, 2029. The maturity date of the 2022 Revolver is February 23, 2027. As of December 31, 2023, the Company had outstanding indebtedness under the 2022 Credit Agreement of $663.2 million, of which $6.8 million was classified as current.
We expect that future payments under the Tax Receivable Agreement relating to the Pre-IPO Tax Assets could aggregate to $222.1 million over the 13 -year remaining period under the Tax Receivable Agreement. Payments under the Tax Receivable Agreement, which began in fiscal year 2022, are not conditioned upon the parties’ continued ownership of equity in the company.
We expect that future payments under the Tax Receivable Agreement relating to the Pre-IPO Tax Assets could aggregate to $198.2 million over the 12-year remaining period under the Tax Receivable Agreement. Payments under the Tax Receivable Agreement, which began in fiscal year 2022, are not conditioned upon the parties’ continued ownership of equity in the Company.
If necessary, we may borrow funds under our 2022 Revolver (as defined below) to finance our liquidity requirements, subject to customary borrowing conditions.
If necessary, we may borrow funds under our 2022 Revolver to finance our liquidity requirements, subject to customary borrowing conditions.
Updates to our blended state tax rate and allocation of U.S. versus foreign sourced income may impact the established liability and changes would be recorded to other (expense) income in the period we made the determination.
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.
Updates to our blended state tax rate and allocation of U.S. versus foreign sourced income may impact the established liability and changes would be recorded to other (expense) income in the period we made the determination.
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.
During the fourth quarters of 2022 and 2021, the Company recognized other income of $3.1 million and $3.6 million, respectively, for a reduction to the liability for the Tax Receivable Agreement resulting primarily from an update to the blended state income tax rate used to measure the obligation.
During the fourth quarters of 2023, 2022 and 2021, the Company recognized other income of $7.4 million, $3.1 million and $3.6 million, respectively, for a reduction to the liability for the Tax Receivable Agreement resulting primarily from an update to the blended state income tax rate and a decrease in the effective federal tax rate used to measure the obligation.
We expect that future payments under the Tax Receivable Agreement relating to the Pre-IPO Tax Assets could aggregate to $222.1 million over the 13-year remaining period under the Tax Receivable Agreement. Payments under the Tax Receivable Agreement are not conditioned upon the Pre-IPO Stockholders’ continued ownership of the Company.
We expect that future payments under the Tax Receivable Agreement relating to the Pre-IPO Tax Assets could aggregate to $198.2 million over the 12-year remaining period under the Tax Receivable Agreement. Payments under the Tax Receivable Agreement are not conditioned upon the Pre-IPO Stockholders’ continued ownership of equity in the Company.
During the year ended December 31, 2022, the Company made a payment to the Pre-IPO Stockholders of $4.2 million as required pursuant to the terms of the Tax Receivable Agreement.
During the year ended December 31, 2023, the Company made a payment to the Pre-IPO Stockholders of $16.6 million as required pursuant to the terms of the Tax Receivable Agreement.
In recent years, we have seen increased competitive activity including discounting in the prestige haircare category, which may continue in a heightened inflationary environment.
We have seen increased competitive activity including discounting in the prestige hair care category, which may continue in a heightened inflationary environment.
We expect that future payments under the Tax Receivable Agreement relating to the Pre-IPO tax assets could aggregate to $222.1 million over the 13 -year remaining period under the Tax Receivable Agreement.
We expect that future payments under the Tax Receivable Agreement relating to the Pre-IPO tax assets could aggregate to $198.2 million over the 12-year remaining period under the Tax Receivable Agreement.
We believe we have a well-recognized and strong reputation in our core markets and that the quality and performance of our products, our emphasis on innovation, and our engagement with our professional and consumer communities position us to compete effectively. 2022 Financial Highlights • Net sales increased 17.7% to $704.3 million for the year ended December 31, 2022 from $598.4 million for the year ended December 31, 2021.
We believe we have a well-recognized and strong reputation in our core markets and that the quality and performance of our products, our emphasis on innovation, and our engagement with our professional and consumer communities position us to compete effectively. 2023 Financial Summary • Net sales decreased 34.9% to $458.3 million for the year ended December 31, 2023 from $704.3 million for the year ended December 31, 2022.
Financing Activities The Company’s financing activities for the year ended December 31, 2022 primarily consisted of cash outflows for payments on our long-term debt and debt issuance costs, partially offset by proceeds from the issuance of debt pursuant to the 2022 Credit Agreement, p ayments of debt issuance costs, and p ayments for shares withheld and retired for taxes and exercise price for SARs, partially offset by cash received by the Company from stock option exercises, For the year ended December 31, 2021, the Company’s financing activities primarily consisted of cash outflows for payments of principal and interest on our long-term debt, partially offset by cash received by the Company from stock option exercises and issuance of common stock.
For the year ended December 31, 2022, our financing activities primarily consisted of cash outflows for payments on our long-term debt and debt issuance costs, partially offset by proceeds from the issuance of debt pursuant to the 2022 Credit Agreement, payments of debt issuance costs, and payments related to shares withheld and retired to cover the tax withholding obligation for SARs, partially offset by cash received by the Company from stock option exercises.
The adjusted liability as of December 31, 2022 is $222.1 million, of which $205.7 million was recorded in long term liabilities and $16.4 million was recorded in current liabilities. 48 Table of Contents For purposes of the Tax Receivable Agreement, the amount of cash savings in U.S. federal, state or local income tax that we or our subsidiaries realize (or are deemed to realize in certain circumstances) as a result of the utilization of the Pre-IPO Tax Assets will be computed by comparing our actual U.S. federal, state and local income tax liability with our hypothetical liability had we not been able to utilize the Pre-IPO Tax Assets, taking into account several assumptions and adjustments.
For purposes of the Tax Receivable Agreement, the amount of cash savings in U.S. federal, state or local income tax that we or our subsidiaries realize (or are deemed to realize in certain circumstances) as a result of the utilization of the Pre-IPO Tax Assets will be computed by comparing our actual U.S. federal, state and local income tax liability with our hypothetical liability had we not been able to utilize the Pre-IPO Tax Assets, taking into account several assumptions and adjustments.
In specialty retail, we are enhancing visual merchandising in stores, deploying targeted communications intended to enable new 41 Table of Contents customer acquisition, and implementing a new program to staff third party Company-trained sales associates in retail stores. For our DTC business, we are evolving the digital experiences on Olaplex.com and third party e-commerce websites.
In specialty retail, we are enhancing visual merchandising in stores, investing in brand store pages online and 37 Table of Contents deploying targeted communications intended to enable new customer acquisition. For our DTC business, we are evolving the digital experiences on Olaplex.com and third party e-commerce websites.
Additionally, d uring the fourth quarter of 2022, the Company recognized other income of $3.1 million for a reduction to the liability in respect of the Tax Receivable Agreement, resulting primarily from an update to the blended state income tax rate used to measure the obligation, compared to $3.6 million in other income recognized during the same period in 2021.
Additionally, during the fourth quarter of 2023, we recognized other income of $7.4 million for a reduction to the liability in respect of the Tax Receivable Agreement, resulting primarily from an update to the blended state income tax rate and a decrease in the effective federal tax rate used to measure the obligation, compared to $3.1 million recognized in the fourth quarter of 2022.
A considerable portion of our operating income is earned outside the U.S.; however, the majority of our bank deposits are held within the U.S. As of December 31, 2022 , we had $322.8 million o f cash and cash equivalents.
A considerable portion of our operating income is related to sales to customers outside of the U.S.; however, the majority of our bank deposits are held within the U.S. As of December 31, 2023, we had $466.4 million of cash and cash equivalents.
The following table sets forth our consolidated statements of operations data for each of the periods presented: 2022 2021 2020 (in thousands) % of Net sales (in thousands) % of Net sales (in thousands) % of Net sales Net sales $ 704,274 100.0 % $ 598,365 100.0 % $ 282,250 100.0 % Cost of sales: Cost of product (excluding amortization) 177,221 25.2 116,554 19.5 96,611 34.2 Amortization of patented formulations 7,500 1.1 7,989 1.3 6,052 2.1 Total cost of sales 184,721 26.2 124,543 20.8 102,663 36.4 Gross profit 519,553 73.8 473,822 79.2 179,587 63.6 Operating expenses: Selling, general, and administrative 113,877 16.2 98,878 16.5 37,170 13.2 Amortization of other intangible assets 41,282 5.9 40,790 6.8 39,825 14.1 Acquisition costs — — — — 16,499 5.8 Total operating expenses 155,159 22.0 139,668 23.3 93,494 33.1 Operating income 364,394 51.7 334,154 55.8 86,093 30.5 Interest expense, net (41,178) (5.8) (61,148) (10.2) (38,645) (13.7) Other (expense) income, net Loss on extinguishment of debt (18,803) (2.7) — — — — Tax receivable agreement liability adjustment 3,084 0.4 3,615 0.6 — — Other expense (2,256) (0.3) (1,012) (0.2) (190) (0.1) Total other (expense) income, net (17,975) (2.6) 2,603 0.4 (190) (0.1) Income before provision for income taxes 305,241 43.3 275,609 46.1 47,258 16.7 Income tax provision 61,169 8.7 54,825 9.2 7,980 2.8 Net income $ 244,072 34.7 $ 220,784 36.9 $ 39,278 13.9 43 Table of Contents Fiscal year 2022 compared to fiscal year 2021: Net Sales We distribute products through professional salon channels, specialty retailers, as well as direct to consumers through Olaplex.com and through third party e-commerce platforms.
The following table sets forth our consolidated statements of operations data for each of the periods presented: 2023 2022 2021 (in thousands) % of Net sales (in thousands) % of Net sales (in thousands) % of Net sales Net sales $ 458,300 100.0 % $ 704,274 100.0 % $ 598,365 100.0 % Cost of sales: Cost of product (excluding amortization) 131,323 28.7 177,221 25.2 116,554 19.5 Amortization of patented formulations 8,345 1.8 7,500 1.1 7,989 1.3 Total cost of sales 139,668 30.5 184,721 26.2 124,543 20.8 Gross profit 318,632 69.5 519,553 73.8 473,822 79.2 Operating expenses: Selling, general, and administrative 168,942 36.9 113,877 16.2 98,878 16.5 Amortization of other intangible assets 41,468 9.0 41,282 5.9 40,790 6.8 Total operating expenses 210,410 45.9 155,159 22.0 139,668 23.3 Operating income 108,222 23.6 364,394 51.7 334,154 55.8 Interest expense (57,954) (12.6) (43,953) (6.2) (61,148) (10.2) Interest income 18,828 4.1 2,775 0.4 — — Other income (expense), net Loss on extinguishment of debt — — (18,803) (2.7) — — Tax receivable agreement liability adjustment 7,404 1.6 3,084 0.4 3,615 0.6 Other income (expense), net 220 — (2,256) (0.3) (1,012) (0.2) Total other income (expense), net 7,624 1.7 (17,975) (2.6) 2,603 0.4 Income before provision for income taxes 76,720 16.7 305,241 43.3 275,609 46.1 Income tax provision 15,133 3.3 61,169 8.7 54,825 9.2 Net income $ 61,587 13.4 $ 244,072 34.7 $ 220,784 36.9 39 Table of Contents Fiscal year 2023 compared to fiscal year 2022: 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 e-commerce sites, and DTC through sales to third party e-commerce customers and through our Olaplex.com websites.
Since our inception in 2014, we have focused on delivering effective, patent-protected and proven performance in the prestige haircare category. Our mission is to blaze new paths to well-being that ignite confidence from the inside out. OLAPLEX disrupted and revolutionized the prestige hair care category by creating the bond-building space in 2014.
Since our inception in 2014, we have focused on delivering effective, patent-protected and proven performance in the prestige hair care category. OLAPLEX disrupted and revolutionized the prestige hair care category by creating the bond-building space in 2014.
The remaining Tax Receivable Agreement payment obligation as of December 31, 2022 is recorded as $222.1 million, of which $205.7 million was recorded in long term liabilities and $16.4 million was recorded in current liabilities .
The remaining Tax Receivable Agreement payment obligation as of December 31, 2023 is recorded as $198.2 million , of which $185.5 million was recorded in long term liabilities and $12.7 million was recorded in current liabilities .
See “Note 10 - Income Taxes” in Item 8 of this Annual Report. New Accounting Pronouncements See “Note 2. Summary of Significant Accounting Policies – Recently Adopted Accounting Pronouncements” to our Consolidated Financial Statements included in Item 8. Financial Statements of this Annual Report for information regarding new accounting pronouncements. 51 Table of Contents
See “Note 10 - Income Taxes” in Item 8 of this Annual Report. New Accounting Pronouncements See “Note 2 - Summary of Significant Accounting Policies” in Item 8 of this Annual Report for information regarding new accounting pronouncements. 47 Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for its fiscal year 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2022.
For discussion of our results of operations for our fiscal year 2022 versus our fiscal year ended December 31, 2021, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for our fiscal year 2022, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2023.
The interest rates for all facilities under the 2022 Credit Agreement are calculated based upon the Company’s election among (a) adjusted term SOFR plus an additional interest rate spread, (b) with respect to a borrowing in Euros under the 2022 Revolver, a euro interbank offered rate plus an additional interest rate spread, or (c) an “Alternate Base Rate” (as defined in the 2022 Credit Agreement) plus an additional interest rate spread. 47 Table of Contents The interest rate on outstanding amounts under the 2022 Term Loan Facility was 7.9% per annum as of December 31, 2022.
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.
Other Income (Expense), Net (in thousands) For the Year Ended December 31, 2022 2021 $ Change % Change Other (expense) income, net Loss on extinguishment of debt $ (18,803) $ — $ (18,803) 100.0 % Tax receivable agreement liability adjustment 3,084 3,615 (531) (14.7) % Other expense (2,256) (1,012) (1,244) 122.9 % Total other (expense) income, net $ (17,975) $ 2,603 $ (20,578) (790.5) % For the year ended December 31, 2022, other (expense) income, net increased $20.6 million compared to the year ended December 31, 2021, primarily due to the $18.8 million loss on extinguishment of debt associated with the Company’s debt refinancing that occurred in February 2022.
Other Income (Expense), Net (in thousands) For the Year Ended December 31, 2023 2022 $ Change % Change Loss on extinguishment of debt $ — $ (18,803) $ 18,803 (100.0) % Tax receivable agreement liability adjustment 7,404 3,084 4,320 140.1 % Other income (expense), net 220 (2,256) 2,476 (109.8) % Total other income (expense) , net $ 7,624 $ (17,975) $ 25,599 (142.4) % For the year ended December 31, 2023, total other income (expense), net increased $25.6 million compared to the year ended December 31, 2022, primarily due to the $18.8 million loss on extinguishment of debt associated with our 2020 Credit Agreement debt refinancing that occurred in 2022.
These include igniting our global brand, disrupting with innovation, amplifying channel coverage and charting new geographies. These key strategic pillars are supported by our efforts to build capabilities and infrastructure that we believe will enable our aspirations. Igniting our Global Brand We believe we have built one of the most powerful brands in the prestige haircare category.
Strategic Pillars We are focused on executing against our key strategic pillars that we believe will support our long-term growth. These include igniting our global brand, disrupting with innovation, amplifying channel coverage and charting new geographies. These key strategic pillars are supported by our efforts to build capabilities and infrastructure that we believe will enable our aspirations.
We remain excited about the opportunity to enter adjacent categories in haircare and also other categories where our Bis-amino patents can serve as a foundation for entry that we believe is supported by consumer trust in our brand.
We recently entered into our first hair care adjacent category and remain excited about the opportunity to further grow where our technology can serve as a foundation for entry that we believe is supported by consumer trust in our brand.
Tax Receivable Agreement In connection with the Reorganization Transactions, we entered into the Tax Receivable Agreement that provides the Pre-IPO Stockholders the right to receive future payments from us equal to 85% of the amount of cash savings, if any, in U.S. federal, state or local income tax that we or our subsidiaries realize (or are deemed to realize in certain circumstances) as a result of the utilization of 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 (collectively, the “Pre-IPO Tax Assets”) and the making of payments under the Tax Receivable Agreement.
Tax Receivable Agreement In connection with the Reorganization Transactions, we entered into the Tax Receivable Agreement that provides the Pre-IPO Stockholders the right to receive future payments from us equal to 85% of the amount of cash savings, if any, in U.S. federal, state or local income tax that we or our subsidiaries realize (or are deemed to realize in certain circumstances) as a result of the utilization of the “Pre-IPO Tax Assets” and the making of payments under the Tax Receivable Agreement.
Revenue from transactions, net of estimated and actual allowances, is generally recognized at a point in time based on the contractual terms with the customer. 50 Table of Contents Assumptions and approach used: Promotional allowance: In the normal course of business, we offer various incentives to customers such as sales discounts and other incentives and allowances, which give rise to variable consideration.
Assumptions and approach used: 46 Table of Contents Promotional allowance: In the normal course of business, we offer various incentives to customers such as sales discounts and other incentives and allowances, which give rise to variable consideration.
The 2022 Credit Agreement refinanced and replaced the 2020 Credit Agreement with a seven-year $675,000 senior-secured term loan facility (the “2022 Term Loan Facility”) and a five-year $150,000 senior-secured revolving credit facility (the “2022 Revolver”), which includes a $25,000 letter of credit sub-facility and a $25,000 swingline loan sub-facility The refinancing of the 2020 Credit Agreement resulted in recognition of loss on extinguishment of debt of $18.8 million which is comprised of $11.0 million in deferred financing fee write off, and $7.8 million of prepayment fees for the 2020 Credit Agreement.
The 2022 Credit Agreement refinanced and replaced the 2020 Credit Agreement with a seven-year $675.0 million senior-secured term loan facility (the “2022 Term Loan Facility”) and a five-year $150.0 million senior-secured revolving credit facility (the “2022 Revolver”), which includes a $25.0 million letter of credit sub-facility and a $25.0 million swingline loan sub-facility.
Our DTC channel, comprised of Olaplex.com and sales through third-party e-commerce platforms, also provides us with the opportunity to engage directly with our consumers to provide powerful feedback that drives decisions we make around new product development. Four Strategic Pillars We are focused on executing against four key strategic pillars that we believe will support our long-term growth.
Our specialty retail channel works to increase awareness of, and education for, our products and expand consumer penetration. Our DTC channel, comprised of Olaplex.com and sales through third-party e-commerce platforms, also provides us with the opportunity to engage directly with our consumers to provide powerful feedback that drives decisions we make around new product development.
We plan to launch two-to-four products annually over the next five years. To support this pipeline, we intend to continue to invest in research and development to strengthen our internal innovation capabilities.
Disrupting with Innovation We believe we have a strong pipeline of disruptive innovation that leverages our science-based technology and patented Bis-amino ingredient. We plan to launch two-to-four products annually over the next three years. To support this pipeline, we intend to continue to invest in research and development to strengthen our internal innovation capabilities.
In addition, as of December 31, 2022 , we had borrowing capacity o f $150 million un der our 2022 Revolver (as defined below), providing us with a liquidity position o f $472.8 million plus $144.3 million of wo rking capital excluding cash and cash equivalents for a combined $617.1 million total liquidity position.
In addition, as of December 31, 2023, we had borrowing capacity of $150.0 million under our 2022 Revolver, providing us with a liquidity position of $616.4 million plus $90.7 million of working capital excluding cash and cash equivalents for a combined $707.1 million total liquidity position.
Cash Flows The following table summarizes our cash flows for the periods presented: For the Year Ended December 31, (in thousands) 2022 2021 Net cash provided by (used in): Operating activities $ 255,324 $ 200,029 Investing activities (2,682) (6,265) Financing activities (116,222) (18,340) Net increase in cash $ 136,420 $ 175,424 46 Table of Contents Operating Activities The increase in net cash provided by operating activities was primarily a result of an increase in net income of $23.3 million, changes in working capital and adjusting items to Operating Cash Flows to reconcile to Net income from operations, partially offset by the loss on extinguishment of debt of $18.8 million related to the refinancing of the 2020 Credit Agreement, inventory and unused labeling write-offs and disposal adjustments of $8.2 million recorded in the year ended December 31, 2022.
Cash Flows The following table summarizes our cash flows for the periods presented: For the Year Ended December 31, (in thousands) 2023 2022 Net cash provided by (used in): Operating activities $ 177,532 $ 255,324 Investing activities (3,614) (2,682) Financing activities (30,326) (116,222) Net increase in cash $ 143,592 $ 136,420 Operating Activities The decrease in net cash provided by operating activities for the year ended December 31, 2023 was primarily a result of a decrease in net income of $182.5 million, changes in working capital and adjusting items to Operating Cash Flows to reconcile to Net income from operations, and increases in inventory obsolescence, write-offs and disposal adjustments of $7.0 million.
Fluctuations in working capital are primarily caused by customer demand of our product, timing of when a retailer rearranges or restocks our products, expansion of space within our existing retailer base, expansion into new retail stores and fluctuation in warehouse and distribution costs.
Fluctuations in working capital are primarily caused by customer demand of our product, timing of when a retailer rearranges or restocks our products, timing of inventory purchases, and timing of our payables and expenses.
The Company’s effective tax rate for the year ended December 31, 2022 and 2021 was lower than the statutory tax rate of 21% primarily due to the benefit associated with the foreign derived intangible income deduction (“FDII”), which results in income from the Company’s sales to foreign customers being taxed at a lower effective tax rate, partially offset by the net impact of state income taxes.
The Company’s effective tax rate for the year ended December 31, 2023 was lower than the statutory tax rate of 21% primarily due to the FDII deduction and the non-taxable income associated with the Tax Receivable Agreement, partially offset by the effect of state and local income taxes.
Across Europe and other regions, we aim to implement our business model by first establishing a strong professional channel and then complementing that channel through entry into specialty retail and DTC. In the People’s Republic of China, as currently accessed through our cross-border e-commerce business model, we are pursuing a digital-first strategy.
Across Europe and other regions, we aim to implement our business model by first establishing a strong professional channel and then complementing that channel through entry into specialty retail and DTC. In Asia, we intend to partner with distributors in the region that will support omni-channel distribution and sales for our brand.
We have not drawn on the 2022 Revolver as of December 31, 2022. The 2022 Term Loan Facility is repayable in mandatory quarterly installments equal to $1,688, with the balance payable at maturity. The 2022 Term Loan Facility and 2022 Revolver can each be prepaid at any time without any penalty or premium (subject to any applicable breakage costs).
The 2022 Term Loan Facility and 2022 Revolver can each be prepaid at any time without any penalty or premium (subject to any applicable breakage costs).
Our professional channel serves as the foundation for our brand. Through this channel, professional hairstylists introduce consumers to our products and, we believe, influence consumer purchasing decisions. Our specialty retail channel works to increase awareness of, and education for, our products and expand penetration of our sales.
We have developed a synergistic omnichannel model that leverages the strength of each of our channels and our strong digital capabilities that we apply across our sales platforms. Our professional channel serves as the foundation for our brand. Through this channel, professional hairstylists introduce consumers to our products and, we believe, influence consumer purchasing decisions.
We plan to continue growing awareness of our global brand, in an effort to deepen connections with existing customers as well as reach new audiences. We will also continue to invest in enhancing our brand equity. Our marketing model remains focused on implementing high return on investment, performance marketing activities aimed at fueling growth.
Igniting our Global Brand We believe we have built one of the most powerful brands in the prestige hair care category. We plan to continue growing awareness of our global brand, in an effort to deepen connections with existing customers as well as reach new audiences. We will also continue to invest in enhancing our brand equity.
Delivery is typically considered to have occurred at the time the title and risk of loss passes to the customer.
Delivery is typically considered to have occurred at the time the title and risk of loss passes to the customer. Revenue from transactions, net of estimated and actual allowances, is generally recognized at a point in time based on the contractual terms with the customer.
Key levers of our marketing include organic social media activations, strategic paid media, education and training regarding our brand, community engagement with our professional hairstylists, influencer partnerships, and retailer activations such as sampling and in-store events. Disrupting with Innovation We believe we have a strong pipeline of disruptive innovation that leverages our science-based technology and patented Bis-amino ingredient.
Our marketing model remains focused on implementing high return on investment, performance marketing activities aimed at fueling growth. Key levers of our marketing include organic social media activations, strategic paid media, education and training regarding our brand, community engagement with our professional hairstylists, influencer partnerships, and retailer activations such as sampling and in-store events.
Operating Expenses 44 Table of Contents (in thousands) For the Year Ended December 31, 2022 2021 $ Change % Change Selling, general, and administrative expenses $ 113,877 98,878 $ 14,999 15.2 % Amortization of other intangible assets 41,282 40,790 492 1.2 % Total operating expenses $ 155,159 $ 139,668 $ 15,491 11.1 % The increase in selling, general and administrative expenses was primarily driven by increases of $14.5 million in sales and marketing expense, $8.9 million in payroll driven by workforce expansion, $8.6 million in public company compliance and other selling, general and administrative expenses, $4.9 million in professional fees, $4.0 million of non-recurring executive reorganization costs, $3.3 million in share-based compensation expense, and $1.8 million in distribution and fulfillment costs related to the increase in product sales volume.
Operating Expenses (in thousands) For the Year Ended December 31, 2023 2022 $ Change % Change Selling, general, and administrative expenses $ 168,942 $ 113,877 $ 55,065 48.4 % Amortization of other intangible assets 41,468 41,282 186 0.5 % Total operating expenses $ 210,410 $ 155,159 $ 55,251 35.6 % Selling, general and administrative expenses increased primarily due to an increase of $37.1 million in investments in sales and marketing, $8.7 million related to the combination of a one-time former distributor payment, professional expenses, and legal settlement costs, payroll expenses of $6.1 million driven by workforce expansion, $2.9 million of CEO transition and other organizational realignment costs, and increased employee benefit costs of $2.7 million.
Tax Receivable Agreement The tax liability is based on current tax laws and the assumption that we and our subsidiaries will earn sufficient taxable income to realize the full tax benefits subject to the Tax Receivable Agreement.
For the year ended December 31, 2022 the effective tax rate was lower than the U.S. federal statutory tax rate primarily due to the FDII deduction and excess tax benefits associated with share-based compensation, partially offset by the effect of state and local income taxes. 41 Table of Contents Tax Receivable Agreement The liability under the Tax Receivable Agreement is based on current tax laws and the assumption that we and our subsidiaries will earn sufficient taxable income to realize the full tax benefits subject to the Tax Receivable Agreement.
Other expense, net increased primarily due to an increase in foreign currency transaction losses driven by the strengthening of the U.S. dollar. 45 Table of Contents Income Tax Provision (in thousands) For the Year Ended December 31, 2022 2021 $ Change % Change Income tax provision $ 61,169 $ 54,825 $ 6,344 11.6 % The Company’s effective tax rate was 20.0% for the year ended December 31, 2022, as compared to 19.9% for the year ended December 31, 2021.
Income Tax Provision (in thousands) For the Year Ended December 31, 2023 2022 $ Change % Change Income tax provision $ 15,133 $ 61,169 $ (46,036) (75.3) % The Company’s effective tax rate was 19.7% for the year ended December 31, 2023, as compared to 20.0% for the year ended December 31, 2022.
Contractual Obligations and Commitments The following table summarizes our material cash requirements from known contractual and other obligations as of December 31, 2022 (in thousands): Total Less Than One Year 1-3 Years 3-5 Years More Than Five Years 2022 Term Loan Facility debt (1) $ 671,626 $ 8,438 $ 13,500 $ 13,500 $ 636,188 Interest on 2022 Term Loan Facility debt (2) 322,431 53,615 105,749 103,434 59,633 Related party payable pursuant to the tax receivable agreement (3) 222,055 16,380 32,568 33,976 139,131 Purchase obligations (4) 18,201 4,121 8,242 5,838 — Total contractual obligations (5) $ 1,234,313 $ 82,554 $ 160,059 $ 156,748 $ 834,952 (1) 2022 Term Loan Facility debt payments include scheduled principal payments only.
As a result, in certain circumstances, the payments we are required to make under the Tax Receivable Agreement could exceed the cash tax savings we actually realize. 45 Table of Contents Contractual Obligations and Commitments The following table summarizes our material cash requirements from known contractual and other obligations as of December 31, 2023 (in thousands): Total Less Than One Year 1-3 Years 3-5 Years More Than Five Years 2022 Term Loan Facility debt (1) $ 663,188 $ 6,750 $ 13,500 $ 13,500 $ 629,438 Interest on 2022 Term Loan Facility debt (2) 304,179 60,484 118,140 115,846 9,709 Related party payable pursuant to the Tax Receivable Agreement (3) 198,171 12,675 26,765 30,343 128,388 Purchase obligations (4) 14,080 4,121 8,242 1,717 — Operating lease liabilities 3,157 370 1,173 839 775 Total contractual obligations (5) $ 1,182,775 $ 84,400 $ 167,820 $ 162,245 $ 768,310 (1) 2022 Term Loan Facility debt payments include scheduled principal payments only.
Interest Expense (in thousands) For the Year Ended December 31, 2022 2021 $ Change % Change Interest expense, net $ (41,178) $ (61,148) $ 19,970 (32.7) % Interest expense decreased due to the Company refinancing its 2020 Credit Agreement with the new 2022 Credit Agreement in February 2022, which reduced the Company’s outstanding debt and lowered the interest rate in respect thereof during the year ended December 31, 2022 as compared to during the year ended December 31, 2021, as well as $2.8 million of interest income from highly liquid investments purchased with a maturity of three months or less.
See “Liquidity and Capital Resources Requirements – Credit Facility” for additional information on our outstanding debt. Interest income for the year ended December 31, 2023 increased as compared to the previous year due to increasing interest rates and additional investments in highly liquid investments with a maturity of three months or less.
Removed
The strength of our business model and ability to scale have created a compelling financial profile characterized by revenue growth and very strong profitability. We have developed a mutually reinforcing, synergistic, omnichannel model that leverages the strength of each of our channels and our strong digital capabilities that we apply across our sales platforms.
Added
Additionally, we recently expanded into our first hair care adjacent market with LASHBOND ® Building Serum, our eyelash enhancing serum formulated to promote the appearance of thicker, longer, stronger, full volume lashes. The strength of our business model and ability to scale have created a compelling financial profile.
Removed
For the year ended December 31, 2022, net sales in our professional channel grew 16.0%, our specialty retail channel grew 33.9%, and our DTC channel grew 3.0%, in each case as compared to the year ended December 31, 2021.
Added
As such, our three business channels consist of professional, specialty retail and DTC as follows: (in thousands) For the Year Ended December 31, 2023 2022 $ Change % Change Net sales by Channel: Professional $ 180,084 $ 300,472 $ (120,388) (40.1) % Specialty retail 135,079 235,310 (100,231) (42.6) % DTC 143,137 168,492 (25,355) (15.0) % Total net sales $ 458,300 $ 704,274 $ (245,974) (34.9) % Total net sales declined 34.9% for the year ended December 31, 2023 compared to the same period in 2022, primarily attributed to a lower level of demand and customer inventory rebalancing, particularly within the professional and specialty retail channels.
Removed
For discussion of the Company’s results of operations for its fiscal year 2021 versus its fiscal year ended December 31, 2020, see “Item 7.
Added
During fiscal year 2023, the Company lapped approximately $22 million of net sales impact from the introduction of certain 1-Liter size offerings and approximately $10 million net sales impact of inventory pipeline to a key specialty retail customer, compared to the same period in 2022.
Removed
As such, our three business channels consist of professional, specialty retail and DTC as follows: (in thousands) For the Year Ended December 31, 2022 2021 $ Change % Change Net sales by Channel: Professional $ 300,472 $ 259,009 $ 41,463 16.0 % Specialty retail 235,310 175,799 59,511 33.9 % DTC 168,492 163,557 4,935 3.0 % Total Net sales $ 704,274 $ 598,365 $ 105,909 17.7 % The growth in the professional channel was driven by volume growth from existing distribution customers and the net impact of new products launched since December 31, 2021, which include No. 9 Bond Protector Nourishing Hair Serum, No. 4C Bond Maintenance Clarifying Shampoo, and Broad Spectrum Chelating Treatment, as well as 1-liter sizes in No. 4 Bond Maintenance Shampoo, No. 5 Bond Maintenance Conditioner, and No. 4C Bond Maintenance Clarifying Shampoo.
Added
These impacts were partially offset by our launches of LASHBOND ® Building Serum, No. 4D Clean Volume Detox Dry Shampoo, Olaplex ® Volumizing Blow Dry Mist, No. 5P Blonde Enhancer™ Toning Conditioner, Jumbo No. 4P Blonde Enhancer™ Toning Shampoo and Jumbo No. 5P Blonde Enhancer™ Toning Conditioner, as well as the impact of new customers within each channel.
Removed
The Company experienced the strongest net sales growth in Germany, Italy and the U.S.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+0 added−1 removed3 unchanged
Biggest changeInterest rate changes generally do not affect the market value of our 2022 Term Loan Facility; however, they do affect the amount of our interest payments and, therefore, our future earnings and cash flows. As of December 31, 2022, we had $671.6 million of outstanding variable rate loans under the 2022 Term Loan Facility.
Biggest changeAs of December 31, 2023, we had $663.2 million of outstanding variable rate loans under the 2022 Term Loan Facility.
We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have a material effect on our consolidated financial statements. 52 Table of Contents
We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have a material effect on our consolidated financial statements. 48 Table of Contents
Based on our December 31, 2022 variable rate loan balances, an increase or decrease of 1% in the effective interest rate would have caused an increase or decrease in interest cost related to our 2022 Term Loan Facility of approximately $6.7 million over the next 12 months.
Based on our December 31, 2023 variable rate loan balances, an increase or decrease of 1% in the effective interest rate would have caused an increase or decrease in interest cost related to our 2022 Term Loan Facility of approximately $6.6 million over the next 12 months.
A hypothetical 50 basis point decrease in interest rates would result in a decrease to the fair value of the interest rate cap of approximately $1.7 million. Inflation Inflationary factors such as increases in the cost to produce our products and overhead costs have adversely affected, and may continue to adversely affect our operating results.
A hypothetical 50 basis point decrease in interest rates would result in a decrease to the fair value of the interest rate cap of approximately $0.5 million. Inflation Inflationary factors such as increases in the cost to produce our products and overhead costs have adversely affected, and may continue to adversely affect our operating results.
The fair value of the interest rate cap recorded in other assets at December 31, 2022 was $5.0 million. A hypothetical 50 basis point increase in interest rates would result in an increase to the fair value of the interest rate cap of approximately $2.0 million.
The fair value of the interest rate cap recorded in other assets at December 31, 2023 was $2.4 million. A hypothetical 50 basis point increase in interest rates would result in an increase to the fair value of the interest rate cap of approximately $0.6 million.
The Company uses the interest rate cap to add stability to interest expense and to manage its exposure to interest rate movements. The fair value of the interest rate cap is measured at the end of each reporting period using observable inputs other than quoted prices.
We use the interest rate cap to add stability to interest expense and to manage our exposure to interest rate movements. The fair value of the interest rate cap is measured at the end of each reporting period using observable inputs other than quoted prices.
Interest Rate Cap On August 11, 2022, the Company entered into an interest rate cap transaction (the “interest rate cap”) in connection with the 2022 Term Loan Facility, as more fully described in “Note 9 - Long Term Debt” in the Notes to Consolidated Financial Statements in this Annual Report.
Interest Rate Cap On August 11, 2022, we entered into an interest rate cap transaction (the “interest rate cap”) in connection with the 2022 Term Loan Facility, as more fully described in “Note 9 - Long Term Debt” in the Item 8 of this Annual Report.
Interest Rate Risk Our results are subject to risk from interest rate fluctuations on borrowings under the 2022 Credit Agreement. Our borrowings bear interest at a variable rate; therefore, we are exposed to market risks relating to changes in interest rates.
Interest Rate Risk Our results are subject to risk from interest rate fluctuations on borrowings under the 2022 Credit Agreement. Our borrowings bear interest at a variable rate; therefore, we are exposed to market risks relating to changes in interest rates. Interest rate changes generally affect the amount of our interest payments and, therefore, our future earnings and cash flows.
Removed
During fiscal year 2022, our gross profit margin was negatively impacted by increased input costs for warehousing, transportation and raw materials.

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