Why Milk Makeup’s Parent Company Is Facing a Nasdaq Delisting
When Waldencast went public, its founders shrugged off mounting fears that a recession was on the horizon, stressing that they were confident that the company would become a global best-in-class beauty and wellness player.
What they perhaps didn’t take into account was how much of a stickler Nasdaq execs are about filing company reports on time.
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Earlier this week, Waldencast, which has just two brands on its roster — Milk Makeup and Obagi Skincare — revealed that it was in danger of being delisted from the Nasdaq, after joining in summer 2022 through a special purpose acquisition company (often referred to as a SPAC).
The company received a written notice from Nasdaq indicating that it was subject to delisting due to it not having filed its annual report with the Securities and Exchange Commission.
Waldencast, founded by former L’Oréal executives Michel Brousset and Hind Sebti, alongside Felipe Dutra, said it plans to request a hearing with Nasdaq over the matter.
According to a slew of regulatory filings, the issue appears to stem from Obagi Skincare, which Waldencast purchased from Haitong International Zhonghua Finance Acquisition Fund in 2021. Prior to that, the brand of medical grade skin care products was owned by Valeant Pharmaceuticals International Inc.
The last time Waldencast released quarterly earnings was Nov. 10, 2022, only to 15 days later issue a correction. It had said the company had a net loss of $16.8 million, but it was actually $14 million, the company said.
During that quarter, Obagi recorded net sales of $60.4 million, an increase of 3.2 percent from the same period in the prior year. Milk Makeup recorded net sales of $18.5 million, up 41.7 percent.
The company was due to report fourth-quarter earnings and an annual report on March 15, but on April 25, it said it was delaying filing because of an ongoing review of its year-end 2022 financial statements and related issues, namely with Obagi.
“The company is conducting an analysis pertaining to, among other things, certain accounting issues in connection with the sale of certain Obagi products for the Vietnam market,” it said in a release at the time. “The company’s audit committee is conducting an independent review, with the assistance of outside counsel, of the circumstances surrounding these issues to determine, among other things, whether certain accounting adjustments are necessary.”
It further explained that the review arose from “concerns regarding the lapse in renewing the importation licenses in Vietnam, which are still pending, and related effects, triggering, among other things, the need for further analysis.”
A separate filing detailed that as of April 25, Waldencast was still awaiting a payment related to its acquisition of a 60 percent stake in its Southeast Asia distributor.
The company did not respond to a request to comment further on the issue. Earlier this week it said: “We are working diligently with our advisers to present our plan of compliance to Nasdaq and look forward to presenting it to the Nasdaq listing board. The receipt of the notice does not affect the company’s business or operations and we continue to be excited about the prospects of our brands.”
What this means for buzzy Gen Z brand Milk Makeup, whose founders include Mazdack Rassi and Zanna Roberts Rassi, remains to be seen.
At the time of the merger with Waldencast, Milk Makeup’s CEO lauded going public as an opportunity to accelerate Milk’s reach and impact.
Regulatory filings when Waldencast went public showed that Milk’s net revenue was around $47 million in 2021, up from $40 million in 2020. Waldencast had said it was likely to come in at around $66 million in 2022, while the hope for 2023 is that net sales will top $100 million.
But without that fourth-quarter report, it’s hard to tell.
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