UNITED STATES

FORM 10-Q

(Address of principal executive offices and zip code)

(Registrant’s telephone number, including area code)

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

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.

As of October 31, 2022,May 5, 2023, registrant had 649,181,334654,276,766 shares of common stock, par value $0.001 per share, outstanding.

The forward-looking statements in this Quarterly Report on Form 10-Q are predictions. We have based these forward-looking statements largely onreflect 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, neitheroperation. Examples of forward-looking statements include, among others, statements we make regarding: our financial position and operating results; our business plans, strategies and objectives, including sales and marketing investments; general economic and industry trends; our business prospects; our reputation and brand; our product technology; future product development and introduction, including entry into adjacent and other categories; growth and expansion opportunities, including expansion in existing markets and into new markets; our sales channels and omnichannel strategy; legal proceedings; future payments under our Tax Receivable Agreement; our customer base; our supply chain and global distribution network; our information technology; our employees and culture; our operational capabilities; and our expenses, working capital and liquidity. Forward-looking statements are predictions based upon assumptions that may not prove to be accurate, and they are not guarantees of future performance. As such, you should not place significant reliance on our forward-looking statements. Neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, including any such statements taken from third party industry and market reports. You should understand

Forward-looking statements involve known and unknown risks, inherent uncertainties and other factors that the following important factors, in additionare difficult 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 affectpredict which may cause our actual results, performance, time frames or achievements to be materially different from any future results, and could cause those resultsperformance, time frames or other outcomes to differ materially from thoseachievements expressed or implied in ourby the forward-looking statements, including, without limitation, the following:

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 2021of our 2022 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,law, 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.expectations or otherwise.

Olaplex Holdings, Inc. (“Olaplex Holdings” and, together with its subsidiaries, the “Company” or “we”) is a Delaware corporation that was incorporated on June 8, 2021 for the purpose of facilitating an initial public offering and to enter into the other related Reorganization Transactions, as described below, in order to carry on the business of Penelope Holdings Corp. (“Penelope”), together with its subsidiaries.2021. Olaplex Holdings is organized as a holding company and operates indirectly through its wholly owned subsidiaries, Penelope and Olaplex, Inc., which conducts business under the name “Olaplex”. Olaplex is an innovative, science-enabled, technology-driven beauty company that is focused on delivering its patent-protected premiumprestige hair care products to professional hair salons, retailers and everyday consumers. Olaplex develops, manufactures and distributes a suiteline of hair care products strategically developed to address three key uses: treatment, maintenance and protection.

The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim Condensed Consolidated Financial Statements furnished reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. The unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying footnotes included in the Company’s 20212022 Annual Report on Form 10-K.

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 and refunds; loss contingencies; the fair value of share-based options and stock settled rights;stock appreciation rights (“SARs”); the fair value of and/or potential impairment of goodwill and intangible assets for ourthe Company’s reporting unit; the fair value of ourthe Company’s interest rate cap; useful lives of ourthe Company’s tangible and intangible assets; allowance for promotions; estimated income tax and tax receivable payments; the net realizable value of, and demand for ourthe Company’s inventory. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties.

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:

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 Condensed Consolidated Balance Sheets, which may differ from fair value. The Company’s interest rate cap is recorded at its Level 3 fair value in the Condensed Consolidated Balance Sheets.

There have been no material changes in significant accounting does not apply orpolicies as described in the Company otherwise elects not to apply hedge accounting.

When the Company's common stock is retired or purchased for constructive retirement for net share settlement of stock options, any excess purchase price over par value is allocated between additional paid-in-capital, to the extent that previous net gains from sales or retirements are included therein, and the remainder to retained earnings.

As part of the IPO, wethe Company entered into the Tax Receivable Agreement under which generally wethe Company will be required to pay to the former limited partners of Penelope Group Holdings, L.P. and the holders of options to purchase shares of common stock of Penelope that were vested prior to the Reorganization Transactions (collectively, the “Pre-IPO Stockholders”),Pre-IPO Stockholders 85% of the cash savings, if any, in U.S. federal, state or local tax cash savings that wethe Company actually realizerealizes on ourits taxable income following the IPO, (or are deemed to realize in certain circumstances) as a result of certain existing tax attributes, including tax basis inthe amortization of intangible assets and capitalized transaction costs relating to taxable years ending on or beforethat existed as of 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, and interest accrued at a rate equal to LIBOR (“London Interbank Offered Rate”) (or if LIBOR ceases to be published, a replacement rate with similar characteristics) plus 3% from the date the applicable tax return is due (without extension) until paid.IPO. Under the Tax Receivable Agreement, generally wethe Company will retain the benefit of the remaining 15% of the applicable tax savings.

The Company distributes products in the U.S. and internationally through professional distributors in the salon channel, directly to retailers for sale in their physical stores and e-commerce sites, and direct-to-consumer (“DTC”) through sales to pure-playthird-party e-commerce customers and through its own Olaplex.com websites.website. As such, the Company’s three business channels consist of professional, specialty retail and DTC as follows:

Revenue by major geographic region is based upon the geographic location of customers who purchase our products, however the Company’s products. The majority of net sales are transacted in U.S. Dollars, the Company’s functional and reporting currency. During the three and nine months ended September 30,March 31, 2023 and March 31, 2022, and September 30, 2021, ourthe Company’s net sales to consumers in the United States and International regions were as follows:

United Kingdom (“U.K.”) net sales for the three and nine months ended September 30,March 31, 2023 and March 31, 2022 were 13% and9% of total net sales. No international country exceeded 10% of total net sales respectively, and net sales for the three and nine months ended September 30, 2021 were 15% of total net sales. No other International country exceeds 10% of total net sales.March 31, 2023 and March 31, 2022.

The amortization of the Company’s brand name, customer relationships and software is recorded to Amortization of other intangible assets in the Condensed Consolidated Statements of Operations and Comprehensive Income. A portion of Amortization of patented formulations is capitalized to Inventory in the Condensed Consolidated Balance Sheets, and the remainder is recorded to Amortization of patented formulations in the Condensed Consolidated Statements of Operations

Interest expense, net, inclusive of debt amortization, was $10,499 and $30,653 for the three and nine months ended September 30,March 31, 2023 and March 31, 2022 respectively,was $10,543 and $14,987 and $46,052 for the three and nine months ended September 30, 2021,$11,460 respectively.

The fair value of the Company’s long-term debt is based on the market value of ourits long-term debt instrument. Based on the inputs used to value the long-term debt, the Company’s long-term debt is categorized within Level 2 in the fair value hierarchy. As of September 30,March 31, 2023, the carrying amount of the Company’s long-term debt under the 2022 Credit Agreement was $659.8 million, and the fair value of the Company’s long-term debt was $593.1 million. As of December 31, 2022, the carrying amount of the Company’s long-term debt under the 2022 Credit Agreement was $662.4$662.8 million, and the fair value of the Company’s long-term debt was $646.4$624.6 million. As

The 2022 Credit Agreement includes, among other things, customary negative and affirmative covenants (including reporting, financial and maintenance covenants) and events of default (including a change of control) for facilities of this type. In addition, the 2022 Credit Agreement includes a springing first lien leverage ratio financial covenant, which is applicable only to the lenders under the 2022 Revolver. The Company was in compliance with its financial covenants on March 31, 2023 and December 31, 2021,2022. The 2022 Term Loan Facility and the carrying amount2022 Revolver are secured by substantially all of the Company’s long-term debt underassets of Olaplex, Inc. and the 2020 Credit Agreement approximated its fair value, as the stated rate approximated market rates for loans with similar terms.

The Company’s results are subject to risk from interest rate fluctuations on borrowings under the 2022 Credit Agreement, including the 2022 Term Loan Facility. The Company may, from time to time, utilize interest rate derivatives in an effort to add stability to interest expense and to manage its exposure to interest rate movements. 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, with a notional amount of $400 million. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate applicable to the transaction, in exchange for an up-front premium paid by the Company. The Company has designated the interest rate cap as a cash-flow hedge for accounting purposes.

The table below presents the fair value of the Company’s derivative financial instruments, as well as their classificationwhich are classified within Other assets on the Company’s Condensed Consolidated Balance Sheets as of September 30, 2022March 31, 2023 and December 31, 2021.2022.

During the three and nine months ended September 30, 2022,March 31, 2023, the Company’s interest rate cap generated an unrecognized pre-tax gainloss of $2.4$0.7 million, recorded in Accumulated Other Comprehensive Income on the Company’s Condensed Consolidated Balance Sheets. The Company also recognized Interesta $0.6 million reduction in interest expense related the Company’s receipt of $0.1funds as a result of an interest rate cap settlement with the Company’s counterparty, partially offset by $0.3 million related to amortization of the interest rate cap premium paid by the Company in connection with the interest rate cap. The Company did not have an interest rate cap agreement in place during the three and nine months ended September 30, 2021.

The Company performed an initial effectiveness assessment on the interest rate cap and determined it to be an effective hedge of the cash flows related to the interest rate payments on the 2022 Term Loan Facility. The hedge is being evaluated qualitatively on a quarterly basis for effectiveness. Changes in fair value are recorded in Accumulated Other Comprehensive Income and periodic settlements of the interest rate cap will be recorded in interest expense along with the

The Company does not hold or issue derivative financial instruments for trading purposes, nor does it hold or issue leveraged derivative instruments. By using derivative financial instruments to hedge exposures to interest rate fluctuations, the Company exposes itself to counterparty credit risk. The Company manages exposure to counterparty credit risk by entering into derivative financial instruments with highly rated institutions that can be expected to fully perform under the terms of the applicable contracts.

During the ninethree months ended September 30,March 31, 2022, the Company converted 886,950 of cash-settled units into net stock-settled stock appreciation rights (“SARs”),SARs, with a fair value liability of $1,632 reclassified from Accrued expenses and other current liabilities to additionalAdditional paid-in capital. The Company issued 117,180 shares of its common stock upon vesting and settlement of the convertednet stock-settled SARs. The Company repurchased 55,244 of outstanding shares of its common stock for the net settlement of SARs for payment of taxes related to such SARs, thatwhich were accounted for as a share retirement. Additionally, the Company issued 256,846 shares of its common stock as a result of stock options exercised during the nine months ended September 30, 2022.

In July 2020, the Company entered into an agreement with CI&T, an information technology and software company, in which certain investment funds affiliated with Advent International Corporation, (thethe holder of a majority of the Company’s common stock (collectively the “Advent Funds”), hold a greater than 10% equity interest. During the three and nine months ended September 30,March 31, 2023, the Company paid CI&T $6. During the three months ended March 31, 2022, the Company paid CI&T $153 and $179, respectively. During the three and nine months ended September 30, 2021, the$5. The Company paidengaged CI&T $30 and $189 respectively, for services related to the development, maintenance and enhancement of the Olaplex professional application, as well as other digital marketing services, all of which were negotiated on an arm’s length basis and on market terms.

In connection with the Reorganization Transactions, the Company entered into the Tax Receivable Agreement with the Pre-IPO Stockholders. See further discussion in “Note 2 – Summary of Significant Accounting Policies – Tax Receivable Agreement”. During the three and nine months ended September 30, 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.

From time to time, the Company is subject to various legal actions arising in the ordinary course of business. The Company cannot predict with reasonable assurance the outcome of these legal actions brought against us as they are subject to uncertainties. Accordingly, any settlement or resolution in these legal actions may occur and affect ourthe Company’s net income in such period as the settlement or resolution.

As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the Company was not subject to any other currently pending legal matters or claims that could have a material adverse effect on its financial position, results of operations, or cash flows should such litigation be resolved unfavorably.