olpx-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

FORM 10-Q

________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 001-40860

________________________

Olaplex Holdings, Inc.

(Exact name of registrant as specified in its charter)

________________________


Delaware						87-1242679
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

Address not applicable1

(Address of principal executive offices and zip code)

(310) 691-0776

(Registrant’s telephone number, including area code)

________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

OLPX

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☐	Accelerated Filer	☐

Non-accelerated Filer	☒	Smaller reporting company	☐

		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2022, registrant had 648,928,202 shares of common stock, par value $0.001 per share, outstanding.

1 Olaplex Holdings, Inc. is a fully remote company. Accordingly, it does not maintain a principal executive office.

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OLAPLEX HOLDINGS, INC.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2022

TABLE OF CONTENTS


		Page
Part I.	FINANCIAL INFORMATION
	Condensed Consolidated Balance Sheets – March 31, 2022 and December 31, 2021	6
	Condensed Consolidated Statements of Operations and Comprehensive Income - Three Months Ended March 31, 2022 and 2021	7
	Condensed Consolidated Statements of Changes in Members’ Equity	8
	Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2022 and 2021	9
	Notes to Condensed Consolidated Financial Statements – March 31, 2022	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 4.	Controls and Procedures	35
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
Signatures		38

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. These statements include, but are not limited to, statements about our strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements contained in or incorporated by reference in this Quarterly Report on Form 10-Q that are not historical facts. When used in this document, words such as “may,” “will,” “could,” “should,” “intend,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “target,” “predict,” “project,” “seek” and similar expressions as they relate to us are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate.

Examples of forward-looking statements include, among others, statements we make regarding: our financial position and operating results; business plans and objectives; including geographic expansion and omni-channel strategy; general economic and industry trends; business prospects; future product development; growth and expansion opportunities; impacts on our supply chain; and expenses, working capital and liquidity. We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place significant reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward- looking statements we make.

The forward-looking statements in this Quarterly Report on Form 10-Q are predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, including such statements taken from third party industry and market reports. You should understand that the following important factors, in addition to those discussed in the section “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements, including the following:

•our ability to execute on our growth strategies and expansion opportunities;

•increased competition causing us to reduce the prices of our products or to increase significantly our marketing efforts in order to avoid losing market share;

•our existing and any future indebtedness, including our ability to comply with affirmative and negative covenants under the 2022 Credit Agreement (as defined herein) to which we will remain subject, until maturity, and our ability to obtain additional financing on favorable terms or at all;

•our dependence on a limited number of customers for a significant portion of our net sales;

•our ability to effectively market and maintain a positive brand image;

•changes in consumer preferences or changes in demand for hair care products or other products we may develop;

•our ability to accurately forecast consumer demand for our products;

•our ability to maintain favorable relationships with suppliers and manage our supply chain, including obtaining and maintaining shipping distribution and raw materials at favorable pricing;

•our relationships with and the performance of distributors and retailers who sell our products to hair care professionals and other customers;

•impacts on our business due to the sensitivity of our business to unfavorable economic and business conditions;

•our ability to develop, manufacture and effectively and profitably market and sell future products;

•failure of markets to accept new product introductions;

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•our ability to attract and retain senior management and other qualified personnel;

•regulatory changes and developments affecting our current and future products;

•our ability to service our existing indebtedness and obtain additional capital to finance operations and our growth opportunities;

•impacts on our business from political, regulatory, economic, trade, and other risks associated with operating internationally including volatility in currency exchange rates, and imposition of tariffs;

•our ability to establish and maintain intellectual property protection for our products, as well as our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others;

•the impact of material cost and other inflation and our ability to pass on such increases to our customers;

•the impact of changes in laws, regulations and administrative policy, including those that limit United States (“U.S.” ) tax benefits or impact trade agreements and tariffs;

•the outcome of litigation and governmental proceedings;

•impacts on our business from the COVID-19 pandemic; and

•the other factors identified in the “Risk Factors” section of the 2021 Form 10-K.

These forward-looking statements involve known and unknown risks, inherent uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Actual results and the timing of certain events may differ materially from those contained in these forward-looking statements.

Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this Quarterly Report on Form 10-Q as anticipated, believed, estimated, expected, intended, planned or projected. We discuss many of these risks in greater detail in the “Risk Factors” section included in the 2021 Form 10-K. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. Unless required by U.S, federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or to changes in our expectations.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OLAPLEX HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except shares)

(Unaudited)


	March 31, 2022		December 31, 2021
Assets
Current Assets:
Cash and cash equivalents	$	143,347	$	186,388
Accounts receivable, net of allowances of $14,662 and $8,231	68,914		40,779
Inventory	117,471		98,399
Other current assets	8,196		9,621
Total current assets	337,928		335,187
Property and equipment, net	740		747
Intangible assets, net	1,031,232		1,043,344
Goodwill	168,300		168,300
Deferred taxes	10,056		8,344
Other assets	6,364		4,500
Total assets	$	1,554,620	$	1,560,422

Liabilities and stockholders’ equity
Current Liabilities:
Accounts payable	$	29,005	$	19,167
Accrued expenses and other current liabilities	11,361		17,332
Accrued sales and income taxes	30,895		12,144
Current portion of long-term debt	6,750		20,112
Current portion of Related Party payable pursuant to Tax Receivable Agreement	4,157		4,157
Total current liabilities	82,168		72,912
Related Party payable pursuant to Tax Receivable Agreement	225,122		225,122
Long-term debt	658,315		738,090
Total liabilities	965,605		1,036,124

Contingencies (Note 12)

Stockholders’ equity (Notes 1 and 10):
Common stock, $0.001 par value per share; 2,000,000,000 shares authorized, 648,855,977 and 648,794,041 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	648		648
Preferred stock, $0.001 par value per share; 25,000,000 shares authorized and no shares issued and outstanding	—		—
Additional paid-in capital	305,622		302,866
Retained earnings	282,745		220,784
Total stockholders’ equity	589,015		524,298
Total liabilities and stockholders’ equity	$	1,554,620	$	1,560,422

The accompanying notes are an integral part of these condensed consolidated financial statements

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OLAPLEX HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(amounts in thousands, except per share and share data)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Net sales	$	186,196	$	118,119
Cost of sales:
Cost of product (excluding amortization)	43,222		22,073
Amortization of patented formulations	1,769		2,451
Total cost of sales	44,991		24,524
Gross profit	141,205		93,595
Operating expenses:
Selling, general, and administrative	22,314		11,280
Amortization of other intangible assets	10,266		10,182

Total operating expenses	32,580		21,462
Operating income	108,625		72,133
Interest expense	(11,460)		(15,502)
Other expense, net
Loss on extinguishment of debt	(18,803)		—
Other expense, net	(377)		(47)
Total other expense, net	(19,180)		(47)
Income before provision for income taxes	77,985		56,584
Income tax provision	16,024		11,053
Net income	$	61,961	$	45,531
Comprehensive income	$	61,961	$	45,531
Net income per share:
Basic	$	0.10	$	0.07
Diluted	$	0.09	$	0.07
Weighted average common shares outstanding:
Basic	648,813,998		647,994,569
Diluted	693,021,097		656,268,316

The accompanying notes are an integral part of these condensed consolidated financial statements

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OLAPLEX HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(amounts in thousands, except number of shares)

(Unaudited)


	Shares (Note 1)	Amount		Additional Paid in Capital		Retained Earnings		Total Equity
Balance - December 31, 2021	648,794,041	$	648	$	302,866	$	220,784	$	524,298
Net income	—	—		—		61,961		61,961
Conversion of cash-settled units to stock-settled stock appreciation rights	—	—		1,632		—		1,632
Exercise of stock-settled stock appreciation rights	117,180	—		348		—		348
Shares withheld and retired on exercise of stock-settled appreciation rights	(55,244)	—		(920)		—		(920)
Share-based compensation expense	—	—		1,696		—		1,696
Balance – March 31, 2022	648,855,977	$	648	$	305,622	$	282,745	$	589,015


	Shares (Note 1)	Amount		Additional Paid in Capital		Retained Earnings		Total Equity
Balance - December 31, 2020	647,888,387	$	648	$	530,025	$	—	$	530,673
Issuance of common stock	236,255	—		633		—		633
Net income	—	—		—		45,531		45,531
Share-based compensation expense	—	—		627		—		627
Balance – March 31, 2021	648,124,642	$	648	$	531,285	$	45,531	$	577,464

The accompanying notes are an integral part of these condensed consolidated financial statements

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OLAPLEX HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	61,961	$	45,531
Adjustments to reconcile net income to net cash from operations provided by operating activities:
Amortization of patent formulations	1,769		2,451
Amortization of other intangibles	10,266		10,182
Inventory write-off and disposal	4,324		—
Depreciation of fixed assets	75		—

Amortization of debt issuance costs	146		690
Deferred taxes	(1,712)		1,937
Share-based compensation expense	1,696		627
Loss on extinguishment of debt	18,803		—
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable, net	(28,135)		(20,394)
Inventory	(22,899)		(8,865)
Other current assets	1,425		(2,633)
Accounts payable	9,838		(5,422)
Accrued expenses and other current liabilities	14,412		17,186
Net cash provided by operating activities	71,969		41,290

Cash flows from investing activities:
Purchase of property and equipment	(68)		—
Purchase of software	(421)		—


Net cash used in investing activities	(489)		—

Cash flows from financing activities:
Proceeds from the issuance of stock	—		633

Payments for taxes on net settlement of exercise of stock settled appreciation rights	(572)		—
Principal payments and prepayment fees for the 2020 Term Loan Facility	(777,005)		(5,028)

Proceeds from the issuance of 2022 Term Loan Facility	675,000		—
Payments of debt issuance costs	(11,944)		—
Net cash used in financing activities	(114,521)		(4,395)

Net (decrease) increase in cash and cash equivalents	(43,041)		36,895
Cash and cash equivalents - beginning of period	186,388		10,964
Cash and cash equivalents - end of period	$	143,347	$	47,859

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$

SEC Form 10-Q filed by Olaplex Holdings Inc.