Audity (ODD) Q1 2025: Gross Margin Expands 116bps as D2C Model Powers 27% Growth
Audity’s Q1 was defined by gross margin expansion and continued double-digit revenue growth, as the company’s direct-to-consumer (D2C, selling directly to end customers online) model outperformed legacy beauty peers facing offline headwinds. With repeat revenue now exceeding 60% of sales and new user acquisition at a high, Audity’s platform and technology investments are driving both scale and profitability. Management’s raised outlook and aggressive brand pipeline signal a business intent on capturing the digital beauty tailwind, even as tariffs and regulatory shifts loom in the background.
Summary
- Margin Structure Strengthens: Gross margin widened on product mix and operational execution, reinforcing Audity’s D2C leverage.
- Brand and Category Expansion: Multiple new brands and tech-driven platforms are building diversification and future growth optionality.
- International Acceleration: Early-stage global scaling is showing promise, with meaningful upside as international remains underpenetrated.
Performance Analysis
Audity delivered 27% revenue growth to $268 million in Q1, with both core brands—Il Makiage and Spoiled Child—contributing to the topline beat. The company’s D2C platform enabled high visibility into demand and inventory, supporting a repeat revenue contribution above 60% and a 4% increase in average order value (AOV, the average dollar amount spent per order). Skin care, a higher-margin category, now approaches 40% of Il Makiage’s brand revenue, further lifting profitability.
Gross margin expanded 116 basis points year-over-year to 74.9%, driven by cost efficiencies and a favorable product mix. This margin strength flowed through to adjusted EBITDA of $52 million (19.5% margin) and free cash flow of $87 million, reinforcing the asset-light model’s cash conversion. International markets, though still under 20% of revenue, posted double-digit growth and are now a strategic focus for further expansion. Management highlighted that both U.S. and international segments grew at double-digit rates, with the U.S. still accounting for around 80% of business.
- Repeat Revenue Engine: Over 60% of revenue now comes from repeat customers, supporting predictability and cash flow.
- Product Mix Shift: Skin care’s rise within Il Makiage is driving higher AOV and gross margin, offsetting lower AOV in early-stage international markets.
- Cash and Liquidity: $257 million in cash and investments, plus a $200 million undrawn credit line, provide ample firepower for organic and inorganic growth.
This quarter’s results underscore Audity’s ability to compound growth and profitability, even as peers cite macro and retail channel pressure.
Executive Commentary
"The advantages of our D2C model are on full display in the current environment. While brick-and-mortar brands navigate weak store performance against volatile demand, our business is benefiting from a powerful shift online, a highly agile and asset-like model with full visibility and inventory control."
Ron Holtzman, Co-founder and CEO
"Our Q1 results stand in contrast to concerns we hear about softness in other beauty businesses, including both retailers and wholesalers. This is directly related to our unique model, our exposure to online, which is the most attractive growth channel for the beauty category today, and our very high repeat rates as our customers continue to come back with high satisfaction to our products and brands."
Lindsay Druckerman, Global CFO
Strategic Positioning
1. D2C Model as Structural Advantage
Audity’s D2C infrastructure enables rapid product launches, deep customer insights, and agile inventory management. This model, asset-light (minimal physical retail or owned manufacturing), insulates the company from brick-and-mortar volatility and supports high repeat rates through personalized digital engagement. The company’s focus on contribution margin (gross margin after media spend) over pure gross margin allows for flexibility in pursuing high-lifetime-value (LTV) customers, even if product-level margins fluctuate.
2. Brand and Category Diversification
With Spoiled Child scaling toward $200 million and Il Makiage’s skin category nearing 40% of brand revenue, Audity is no longer a single-brand, single-category company. The upcoming launch of Brand 3—a telehealth platform targeting medical-grade skin and body issues—will further expand the addressable market, leveraging proprietary computer vision and AI (artificial intelligence) for personalized care. Brand 4, planned for 2026, continues this diversification, reducing reliance on any one product or geography.
3. International Expansion in Early Stages
International revenue remains below 20% but is now a core priority, with substantial scaling in Europe and early tests in new markets. Management emphasized that competitors derive over 70% of revenue internationally, highlighting the upside as Audity localizes its D2C experience and unlocks new geographies. Spoiled Child’s global ramp is just beginning, adding further optionality.
4. Audity Labs and Technology as Growth Engines
Audity Labs (in-house R&D for proprietary molecules and product innovation) and a growing tech team underpin the company’s push for high-efficacy, science-backed products. The vision algorithms powering Brand 3’s telehealth offering demonstrate the company’s intent to lead in digital health and personalized beauty, with over 60 scientists now in labs and significant investment in AI-driven diagnostics and user experience.
5. Capital Allocation and M&A Discipline
Management is openly seeking M&A opportunities, particularly in biotech, AI, and differentiated brands that would take years to build organically. With a strong balance sheet and high internal hurdle rates, acquisitions are viewed as a lever to accelerate tech and category leadership, not as a substitute for organic growth.
Key Considerations
Audity’s Q1 demonstrates the compounding effects of a platform business in beauty, but the company’s next phase hinges on successful execution across new brands, categories, and geographies.
Key Considerations:
- Repeat Revenue Scaling: High repeat rates drive predictability, but continued user satisfaction and retention are necessary as the platform matures and customer cohorts evolve.
- International Ramp: Unlocking international scale is critical to approaching peer revenue mix and sustaining elevated growth rates.
- Brand Launch Risk: Brand 3’s telehealth model introduces regulatory, operational, and medical complexity, but also offers a step change in TAM (total addressable market) if executed well.
- Tariff and Regulatory Management: Tariff headwinds are currently manageable, but persistent vigilance is required as policy evolves, especially given global supply chain exposure.
- Investment Discipline: Management is committed to reinvesting above 20% EBITDA margin, prioritizing long-term value creation over short-term margin maximization.
Risks
Tariff volatility and regulatory shifts, such as the FTC’s click-to-cancel rule, pose ongoing operational risks, though management believes these are manageable due to Audity’s business model and proactive compliance. Brand launch execution, especially in regulated telehealth, introduces new operational and reputational risk. International expansion may dilute margins initially and requires careful localization to replicate U.S. success.
Forward Outlook
For Q2, Audity guided to:
- Continued strong momentum, with April tracking above plan
- High visibility from Q1 user acquisition and repeat cohorts
For full-year 2025, management raised guidance:
- Revenue of $790–798 million (22–23% growth)
- Gross margin outlook increased to 71%
- Adjusted EBITDA of $157–161 million
- Adjusted EPS of $1.99–2.04
Management highlighted several factors that support confidence:
- Repeat revenue predictability and growing international contribution
- Resilience of the beauty category in economic downturns
Takeaways
Audity’s execution in Q1 confirms the power of its D2C model, with gross margin and repeat revenue trends outpacing industry norms. Investors should monitor the pace of international scaling and the success of Brand 3’s telehealth launch as key forward indicators.
- Margin Expansion: Product mix and operational leverage are supporting margin gains, but management is clear that contribution margin and EBITDA are the focus, not gross margin maximization.
- Brand and Platform Optionality: The company’s ability to spin up new brands and categories, leveraging shared tech and data, is a strategic differentiator in a fragmented industry.
- Execution Watchpoint: The complexity of telehealth and international expansion raises the bar for operational discipline—investors should track early Brand 3 metrics and international AOV trends closely.
Conclusion
Audity’s Q1 results reinforce its position as a digital-first disruptor in the beauty sector, with strong fundamentals, a robust pipeline, and a platform model that is scaling efficiently. The next chapters—international scale and telehealth—will test the company’s ability to extend its playbook beyond core markets and categories.
Industry Read-Through
Audity’s results signal that D2C beauty platforms with high repeat revenue and digital engagement can outperform traditional retail and wholesale peers, especially in a volatile macro environment. The company’s rapid margin expansion and product innovation highlight the value of asset-light models and tech-driven personalization in consumer health and beauty. Legacy brands struggling with offline channel weakness may need to accelerate digital transformation or risk further share loss. The emergence of telehealth as a beauty and wellness channel could reshape adjacent categories, with implications for both consumer health and e-commerce platforms.