XML 30 R10.htm IDEA: XBRL DOCUMENT
v3.25.0.1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
--- | ---
Dec. 31, 2024
Accounting Policies [Abstract] |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Combination The 2024, 2023 and 2022 Consolidated Financial Statements cover Olaplex, Inc. and its wholly owned subsidiary, Olaplex UK Limited, a private limited company incorporated in England and Wales. The accompanying 2024, 2023 and 2022 Consolidated Financial Statements reflect the financial position, results of operations and comprehensive income, and cash flows of Olaplex Holdings, Inc. and its wholly owned subsidiaries on a consolidated basis. All intercompany account balances and transactions have been eliminated. Estimates and Assumptions Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Examples of estimates and assumptions include: for revenue recognition, determining the nature and timing of satisfaction of performance obligations, variable consideration, and other obligations such as product returns, allowance for promotions, and refunds; loss contingencies; the fair value of share-based options and stock settled stock appreciation rights (“SARs”); the fair value of and/or potential impairment of goodwill and intangible assets for the Company’s reporting unit; the fair value of the Company’s Interest Rate Cap transactions; useful lives of the Company’s tangible and intangible assets; estimated income tax expense and tax payments; future payment obligations under the Tax Receivable Agreement; the net realizable value of, and demand for the Company’s inventory. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Company maintains cash balances at several high credit quality financial institutions. Accounts at these institutions are secured by the Federal Deposit Insurance Corporation (the “FDIC”). At times, such cash balances may be in excess of the $250 thousand FDIC insurance limit. As of December 31, 2024 and December 31, 2023, the Company had cash equivalents of $586.0 million and $466.4 million, respectively. The Com pany has not experienced any losses in s uch accounts. Accounts Receivable – net Accounts receivable are recorded at net realizable value. The Company has recorded reserves for reductions to prices for agreed-upon deductions, including allowances for advertising, damages, promotions, and returns, as well as an allowance for credit losses. As of December 31, 2024, these reserves were $21.2 million in the aggregate, of which $15.9 million was recorded as a reduction to accounts receivable and $5.3 million was recorded as an accrued liability. As of December 31, 2023, the reserves were $21.5 million in the aggregate, which was recorded as a reduction to accounts receivable. The following table summarizes the accounts receivable reserves activity for the years ended December 31, 2024 and 2023:
| December 31, 2024 |  | December 31, 2023
Balance at beginning of year | $ | 21,465 |  |  | $ | 19,198 |
Provision (adjustment) to increase reserves | 62,635 |  |  | 61,975 |
Deductions, write-offs, net and other | (62,860) |  |  | (59,708) |
Balance at end of year | $ | 21,240 |  |  | $ | 21,465 |
As of December 31, 2024 and December 31, 2023, our reserve for reductions to prices for agreed-upon deductions, excluding the allowance for credit losses was $19.6 million and $21.5 million, respectively. Inventory Inventory includes product that is salable or usable in future periods and is stated at the lower of cost or net realizable value using the average cost method. Cost components include raw materials and finished goods. The finished goods are produced at third-party contract manufacturers. The Company allocates the amortized cost of its patented formulation to finished goods inventory. Management estimates an allowance for excess and obsolete inventory based on a calculation of excess on hand quantities of slow-moving inventory. As of December 31, 2024 and December 31, 2023, the Company’s allowance for excess and obsolete inventory was $15.7 million and $16.1 million, respectively. Goodwill Goodwill is calculated as the excess of the purchase consideration paid in the acquisition of a business over the fair value of the identifiable assets acquired and liabilities assumed. Goodwill is reviewed annually at the beginning of the fourth quarter for impairment, at the reporting unit level, or when there is evidence that events or changes in circumstances indicate that the Company’s carrying amount may not be recovered. A reporting unit is an operating segment or a component of an operating segment. When testing goodwill for impairment, the Company first assesses qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. If factors indicate that the fair value of the asset is less than its carrying amount, the Company will perform a quantitative test by determining the fair value of the reporting unit. The estimated fair value of the reporting unit is determined using a weighted average of fair value derived from both an income approach and a market approach. The fair value measurements are based on significant inputs that are unobservable in the market, with key assumptions including, but not limited to, forecasted future net sales and expenses, terminal growth rates, and a discount rate. If the carrying value of the reporting unit exceeds the fair value, then an impairment loss is recognized for the difference. The Company manages its business on the basis of three sales channels that are part of a single operating segment and, therefore, a single reportable segment. The reportable segment is used for the purposes of impairment testing. Intangible Assets Definite-lived intangible assets are amortized over their estimated useful lives, which represent the period over which the Company expects to realize economic value from the acquired assets, using the economic consumption method if anticipated future net sales can be reasonably estimated. The straight-line method is used when future net sales cannot be reasonably estimated. The following provides a summary of the estimated useful lives by category of asset.
Brand name | 25 years
Customer relationships | 20 years
Patented formulations | 15 years
Software | 3-15 years
Impairment of Long-Lived Assets The Company reviews long-lived tangible and intangible assets with definite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Examples of such events include a significant disposal of a portion of such assets, an adverse change in the market involving the business employing the related asset, a significant decrease in the benefits realized from an acquired business, difficulties or delays in integrating the business, and a significant change in the operations of an acquired business. Recoverability of these assets is measured by comparison of their carrying amount to the future undiscounted cash flows the assets are expected to generate. Assets are grouped and evaluated at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of impairment. If the carrying amount of the asset exceeds expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value, generally measured by discounting expected future cash flows at the rate it utilizes to evaluate potential investments. No long-lived asset impairment was recorded for the fiscal years ended December 31, 2024 and December 31, 2023. Fair value measurements are based on significant inputs that are not observable in the market and therefore represent a Level 3 measurement. Significant changes in the underlying assumptions used to value long-lived assets could significantly increase or decrease the fair value estimates used for impairment assessments. Debt Issuance Costs Original issue discount costs and third-party issue costs incurred in connection with the issuance of long-term debt are deferred and amortized over the life of the associated debt instrument on a straight-line basis, in a manner that approximates the effective interest method. To the extent that the debt is outstanding, these amounts are reflected in the Consolidated Balance Sheets as direct deductions from the long-term debt or, alternatively, to the extent these fees were allocated to the 2022 Revolver, are included within other assets if the Company has no borrowings drawn on the 2022 Revolver at the applicable balance sheet date. As of December 31, 2024 and December 31, 2023, the Company had $6.8 million and $8.6 million, respectively, of unamortized debt issuance costs in connection with its borrowings. Property and Equipment Property and equipment are stated at historical cost net of accumulated depreciation. The cost of assets sold or retired, and the related accumulated depreciation, are removed from the accounts at the time of disposition, and any resulting gain or loss is reflected in operating results for the period. Estimated useful lives of the Company’s assets are as follows:
Molds | 3-5 years
Equipment | 5-10 years
Furniture and fixtures | 3-7 years
Deferred Revenue Amounts received from customers in the form of cash pre-payments to purchase goods are recorded as deferred revenue for contract liabilities until the goods are shipped. The Company’s deferred revenue balance was $0.9 million and $1.1 million as of December 31, 2024 and December 31, 2023, respectively. See “Note 8 - Accrued Expenses and Other Current Liabilities” to the Company’s Consolidated Financial Statements of this Annual Report. Deferred revenue is included as accrued expenses and other current liabilities on the accompanying Consolidated Balance Sheets. Foreign Currency Transactions Assets and liabilities denominated in foreign currencies are converted to the functional currency at the applicable current rates, including assets and liabilities of the Company’s subsidiary, Olaplex UK Limited, whose functional currency is in US dollars. All revenues and expenses associated with foreign currencies are converted at the rates of exchange prevailing when such transactions occur. The resulting exchange loss or gain is reflected in foreign currency exchange loss or gain recorded in other expense (income), net in the accompanying Statements of Operations and Comprehensive Income. Foreign exchange losses were $1.8 million, $0.1 million and $2.0 million for the years ended December 31, 2024, 2023 and 2022, respectively. Activity for comprehensive income related to foreign currency activity is not applicable for periods presented. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements established a framework for measuring fair value and established a three-level valuation hierarchy for disclosure of fair value measurements as follows: Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. The Company’s Level 1 assets consist of its marketable securities. Level 2—Observable quoted prices for similar assets or liabilities in active markets and observable quoted prices for identical assets or liabilities in markets that are not active. Level 3—Unobservable inputs that are not corroborated by market data. Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reflected at carrying value, which approximates fair value due to the short-term maturity. The Company’s long-term debt is recorded at its carrying value in the Consolidated Balance Sheets, which may differ from fair value. The Company’s Interest Rate Caps (as defined in “Note 6 - Fair Value Measurement” to the Company’s Consolidated Financial Statements of this Annual Report) are recorded at their Level 2 fair value in the Consolidated Balance Sheets. Segment Reporting Operating segments are components of an enterprise for which separate financial information is available that is evaluated by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Utilizing this criteria, the Company manages its business on the basis of three sales channels that are part of a single operating segment and, therefore, a single reportable segment. The Company’s CODM is its Chief Executive Officer. Revenue Recognition The Company derives its revenue through the sale of its prestige haircare products. The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which provides a five-step model for recognizing revenue from contracts with customers as follows: •Identify the contract with a customer •Identify the performance obligations in the contract •Determine the transaction price •Allocate the transaction price to the performance obligations in the contract •Recognize revenue when or as performance obligations are satisfied The Company recognizes revenue in the amount that reflects the consideration that the Company expects that it will be entitled to in exchange for transferring goods to its customers. Net sales are comprised of the transaction price from sales of products less expected allowances, including allowances for advertising, damages, promotions, discounts, and return rights. These allowances are estimated based on agreed-upon terms and the Company’s historical experience and are recorded as a reduction to sales and accounts receivable in the same period the related sales are recorded. Net sales were reduced for estimated and actual returns by $6.7 million, $9.2 million and $10.0 million during the years ended December 31, 2024, 2023 and 2022, respectively. Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the customers based on the terms of sale. The transfer of control typically occurs at a point in time based on consideration of when the customer has an obligation to pay for the goods, and physical possession of, legal title to, and the risks and rewards of ownership of the goods has been transferred to the customer. Generally, revenue from sales of merchandise to customers is recognized at a point in time, based on customer agreements, and is recorded in the period the product is shipped or delivered in accordance with the shipping terms. For the Company’s Olaplex.com website transactions, revenue is recognized upon delivery to customers. The Company’s professional and retail distributors consist of local and international customers. Payments from certain international customers are due in advance. The Company records deferred revenue for contract liabilities from contracts with customers in which the customer prepays for the order. Other international and U.S.-based customer billings are invoiced and typically due within a contractually specified term. During 2024, 2023 and 2022, the Company did not have significant financing terms with its customers. The Company has elected to account for shipping and handling as fulfillment activities and not as a separate performance obligation. Shipping and fulfillment costs charged to customers are included as revenue in total net sales. Shipping costs incurred by the Company to ship between third-party manufacturers and warehouses are capitalized to inventory and included in cost of sales when shipped to the end customer. Shipping and fulfillment costs incurred by the Company to ship to customers are included in selling, general, and administrative expenses. Sales and value added taxes, when applicable, that are collected in connection with revenue transactions are withheld and remitted to the respective taxing authorities. The Company elected to record revenue net of sales and excise taxes collected by customers, all of which the Company has the primary responsibility to pay and remit to taxing authorities. Taxes are excluded from the transaction price. As of December 31, 2024 and December 31, 2023, other than accounts receivable, the Company had no material contract assets. The Company had contract liabilities of $0.9 million and $1.1 million as of December 31, 2024 and 2023, respectively. Opening contract liability balances of $1.1 million, as of January 1, 2024, and $2.0 million, as of January 1, 2023, were recognized as net sales during the years ended December 31, 2024 and 2023, respectively. Cost of Sales Cost of sales includes the aggregate costs to procure the Company’s products, including the amounts invoiced by third-party contract manufacturers and suppliers for finished goods, as well as costs related to transportation to distribution centers, and amortization of the patented formulations. Selling, General and Administrative Expenses Selling, general, and administrative (“SG&A”) expenses primarily consist of personnel-related expenses, including salaries, bonuses, fringe benefits and share-based compensation expense, marketing and digital expenses, warehousing, fulfillment, and distribution costs, costs related to merchandising, product development costs, and depreciation of property and equipment. Income Taxes The Company uses the asset and liability approach for financial accounting and reporting for income taxes. The provision for income taxes includes federal, state and foreign income taxes currently payable or receivable and those deferred because of temporary differences between the financial statement and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The Company recognizes deferred tax assets to the extent it believes the assets are more likely than not to be realized. Valuation allowances are established when necessary, to reduce deferred tax assets to the amount expected to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and the results of recent operations. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties, if any, associated with tax matters as part of the income tax provision and includes accrued interest and penalties with the related tax liability in the Company’s Consolidated Balance Sheets. Concentrations of Risk Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents. Although the Company deposits its cash with creditworthy financial institutions, its deposits, at times, may exceed federally insured limits. To date, the Company has not experienced any losses on it cash deposits. The Company extends credit to customers in certain industries which may be affected by changes in economic or other external conditions. Certain of our customers accounted for more than 10% of our net sales. During the year ended December 31, 2024, three customers represented 39% of the Company’s total net sales, in aggregate. During the year ended December 31, 2023, two customers represented 21% of the Company’s total net sales, in aggregate. During the year ended December 31, 2022, one customer represented 16% of the Company’s total net sales. Certain of our customers have balances due in excess of 10% of the Company’s total accounts receivable. As of December 31, 2024, three customers represented 53% of total accounts receivable, in aggregate. As of December 31, 2023, three customers represented 45% of total accounts receivable, in aggregate. The Company has not experienced material bad debt losses due to this concentration. The Company purchases its inventories for certain product categories from a small number of vendors. The Company’s largest vendor represented 48%, 32% and 49% of the Company’s inventory product purchases for the years ended December 31, 2024, 2023 and 2022, respectively. One vendor manufactured products that accounted for 61% of the Company’s net sales for the years ended December 31, 2024 and 2023, respectively, and 77% of the Company’s net sales for the year ended December 31, 2022. The Company’s products are also primarily manufactured and fulfilled by companies located in Southern California. M arketing and Advertising The Company expenses marketing and advertising costs in the period the related promotional event occurs. Selling, general, and administrative expenses include non-employee marketing and advertising expenses of $70.3 million, $60.5 million, and $24.9 million for the years ended December 31, 2024, 2023 and 2022, respectively, in the accompanying Consolidated Statements of Operations and Comprehensive Income. Shipping and Fulfillment Shipping and fulfillment costs incurred by the Company to ship to customers are expensed as incurred and are included in selling, general, and administrative expenses. Shipping and fulfillment costs were $14.2 million, $10.7 million, and $13.8 million for the years ended December 31, 2024, 2023, and 2022, respectively, in the accompanying Consolidated Statements of Operations and Comprehensive income. Share-Based Compensation Share-based compensation options, restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) granted to employees, non-employees and directors are measured at fair value at the respective grant dates and recognized as share-based compensation expense. Share-based compensation expense equal to the fair value of time-based service options that are expected to vest is estimated using the Black-Scholes model and recorded over the period the grants are earned, which is the requisite service period. The fair value of RSUs is based on the market price per share of the Company’s stock on the grant date, and expense is recognized straight line over the vesting period. The fair value of SARs is estimated using the Black-Scholes model, and expense is recognized straight line over the requisite service period. Shares issued for option exercises and RSU and SARs vesting are newly issued shares. The Company recognizes forfeitures as they occur. Investment in Nonconsolidated Entity The Company has elected to use the measurement alternative to account for its equity investment for which the Company does not have the ability to exercise significant influence and the fair value is not readily determinable. Under this alternative, the investment is measured at cost, less any impairment, and adjusted for changes resulting from observable price changes in orderly transactions for identical or similar investments in the same entity. There have been no observable price changes or impairments recorded to date. Tax Receivable Agreement In connection with the Reorganization Transactions, the Company entered into the Tax Receivable Agreement under which the Company will be required to pay to the Pre-IPO Stockholders 85% of the federal, state or local tax cash savings that the Company actually realizes on its taxable income following the IPO, as a result of the amortization of intangible assets and capitalized transaction costs that existed as of the date of the IPO. Under the Tax Receivable Agreement, generally the Company will retain the benefit of the remaining 15% of the applicable tax savings. The Tax Receivable Agreement liability is calculated based on current tax laws and the assumption that the Company and its subsidiaries will earn sufficient taxable income to realize the full tax benefits subject to the Tax Receivable Agreement. Updates to the Company’s blended state tax rate allocation of U.S. versus foreign sourced income may impact the established liability and changes to that established liability would be recorded to other expense (income) in the period the Company made the determination regarding the applicable change. The Company expects that future payments under the Tax Receivable Agreement relating to the Pre-IPO Tax Assets could aggregate to $189.3 million, with payments expected to continue through 2041. Payments under the Tax Receivable Agreement, which began in the year ended December 31, 2022, are not conditioned upon the parties’ continued ownership of equity in the Company. Reclassifications Certain amounts presented have been reclassified within the Consolidated Balance Sheets as of December 31, 2024 to conform with the current period presentation, including a prior year reclassification from Sales and income taxes payable to Accrued expenses and other current liabilities. There was no change to the Statements of Operations and Comprehensive Income and Statement of Cash Flows from the reclassification. Certain amounts presented have been reclassified within “Note 8 - Accrued Expenses and Other Current Liabilities” as of December 31, 2024 to conform with the current period presentation, including a prior year reclassification from Accrued interest to Other accrued expenses and current liabilities. There was no change to the Consolidated Balance Sheets, Statements of Operations and Comprehensive Income, and Statement of Cash Flows from the reclassification. Recently Adopted Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, requiring disclosures of significant reportable segment expenses that are regularly provided to the CODM and included within each reported measure of a segment's profit or loss. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. The Company adopted ASU 2023-07 during the year ended December 31, 2024. See “Note 16 - Segment Reporting” to the Company’s Consolidated Financial Statements of this Annual Report for further detail. Recent Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). This update also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The new guidance is effective for annual periods beginning after December 15, 2024. The Company expects this update to impact its disclosures in the notes to its financial statements but does not anticipate any effect on its Consolidated Results of Operations, Cash Flows or financial condition. In March 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule will require registrants to disclose certain climate-related information in annual reports. On April 4, 2024, the SEC determined to voluntarily stay the final rules pending completion of a judicial review of certain legal challenges. The Company is currently evaluating the final rule to determine its impact on the Company's disclosures. In November 2024, the FASB issued ASU No. 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” which is intended to improve the disclosures about a public business entity’s expenses by requiring disaggregated disclosure of certain income statement expense captions into specified categories in the notes to the financial statements. The new guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the potential impact of adopting this new guidance on its Consolidated Financial Statements and related disclosures.

X
- References No definition available. + Details
Name: | us-gaap_AccountingPoliciesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 235 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Publisher FASB -URI https://asc.fasb.org/1943274/2147483426/235-10-50-1 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 235 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/235/tableOfContent + Details
Name: | us-gaap_SignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration