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Management attributes the 26% revenue decline primarily to a technical 'break' in the algorithm of their largest advertising partner, which caused IL MAKIAGE CPAs to spike up to 2x historical levels.

The issue is characterized as technical rather than brand-related, evidenced by simultaneous performance collapses across multiple global markets and spiking bounce rates suggesting lower quality audience targeting.

Management successfully shifted 40% of acquisition revenue from the 'Try Before You Buy' model to a standard 'Buy' model to reduce exposure to complex platform interactions without impacting unit economics.

Fundamental brand health remains intact as evidenced by strong 12-month repeat rates and stable behavior among existing customer cohorts despite the acquisition headwinds.

The company is deliberately maintaining a reduced level of acquisition spend to provide the algorithm with necessary signals for recalibration while protecting margins.

METHODIQ, the company's new medical telehealth platform, is performing in line with expectations and is projected to deliver $25 million in revenue in its first year.

ODDITY Labs continues to advance its molecule pipeline, with new products for eczema and acne scalp prevention recently added to the METHODIQ lineup.

Management remains hopeful for a return to normalization in the second half of 2026, supported by a 28% sequential improvement in IL MAKIAGE CPA observed in May.

The advertising partner estimates a potential 40% to 60% recovery in CPA based on internal system adjustments, which management believes would restore the business to 20% growth and 20% EBITDA margins.

Full-year 2026 guidance assumes positive adjusted EBITDA, though visibility remains limited regarding the exact timing of revenue recovery.

Q2 2026 outlook projects a revenue decline of 25% to 30% and adjusted EBITDA between $8 million and $10 million, reflecting continued CPA pressure and operating deleverage.

The reduction in first-half user acquisition is expected to weigh on repeat sales for the remainder of the year even if CPAs normalize as planned.

Gross margin compressed by 520 basis points due to product mix, lower AOV, and temporary noise from remediation testing such as adjusting return policies.

The company executed a significant capital return, repurchasing approximately 6 million shares for $82 million, reducing shares outstanding by around 10%.

Inventory levels exited Q1 slightly elevated due to the revenue shortfall relative to previous purchase plans; management intends to work through this over time.

While IL MAKIAGE is the primary focus of remediation, SpoiledChild is also experiencing higher CPAs, though with less severity and continued growth.

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Management noted that while May showed a 28% sequential improvement, overall CPAs remain difficult compared to Q1 averages due to the negative trend from January through April.

The Q2 revenue guide reflects the loss of first orders from Q1 that would have typically converted to repeat orders in the current period.

Management maintains that the problem is external and technical rather than a failure of their in-house team, though they have brought in an outside team to audit the situation.

They emphasized that their largest ad partner represents over 50% of the U.S. beauty market, limiting the ability to fully diversify away from the platform.

METHODIQ is currently being scaled as a standalone brand to test its true potential rather than relying on cross-selling to the existing IL MAKIAGE database.

Management is not diverting resources away from IL MAKIAGE to METHODIQ, as they believe the former's issues are solvable technical hurdles.

Management remains committed to TBYB as a core consumer benefit but intends to maintain a more balanced mix with standard 'Buy' models going forward.

The shift of 40% of revenue away from TBYB was expensive to implement due to testing requirements but has now reached unit economic parity with the previous model.