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e.l.f. Beauty Announces Third Quarter Fiscal 2022 Results

– Delivered 11% Net Sales Growth –

– Raises Fiscal 2022 Guidance –

e.l.f. Beauty (NYSE: ELF) today announced results for the three and nine months ended December 31, 2021.

“I am proud of the e.l.f. Beauty team for achieving our twelfth consecutive quarter of net sales growth,” said Tarang Amin, e.l.f. Beauty's Chairman and Chief Executive Officer. “e.l.f. remains the only Top 5 color cosmetics brand with sales growth and market share above pre-pandemic levels. Our innovation, digitally led strategy, core value proposition and ability to adapt at e.l.f. speed continue to fuel our performance. Given our momentum, we are raising our Fiscal 2022 guidance.”

Three Months Ended December 31, 2021 Results

For the three months ended December 31, 2021, compared to the three months ended December 31, 2020:

  • Net sales increased 11% to $98.1 million, primarily driven by strength in our national and international retailers.
  • Gross margin increased approximately 110 basis points to 66%, primarily driven by product mix, pricing and cost savings, partially offset by unfavorable foreign exchange rates and increased transportation costs.
  • Selling, general and administrative expenses ("SG&A") increased $4.6 million to $55.4 million or 56% of net sales. Adjusted SG&A (SG&A excluding the items identified in the reconciliation table below) increased $5.3 million to $48.6 million, or 50% of net sales. The increase was primarily due to an increase in marketing and digital spend, software subscription costs and professional fees.
  • The provision for income taxes was $2.0 million.
  • Net income was $6.2 million on a GAAP basis. Adjusted net income (net income excluding the items identified in the reconciliation table below) was $12.7 million.
  • Diluted earnings per share were $0.12 on a GAAP basis. Adjusted diluted earnings per share (diluted earnings per share calculated with adjusted net income excluding the items identified in the reconciliation table below) were $0.24.
  • Adjusted EBITDA (EBITDA excluding the items identified in the reconciliation table below) was $21.7 million, or 22% of net sales, up 18% year over year.

Nine Months Ended December 31, 2021 Results

For the nine months ended December 31, 2021, compared to the nine months ended December 31, 2020:

  • Net sales increased 27% to $287.0 million, primarily driven by strength in our national and international retailers.
  • Gross margin decreased approximately 130 basis points to 64%, primarily driven by unfavorable foreign exchange rates and elevated transportation costs, partially offset by price increases, cost savings and changes in product mix.
  • SG&A increased $20.2 million to $156.6 million or 55% of net sales. Adjusted SG&A increased $25.7 million to $139.4 million, or 49% of net sales. The increase was primarily due to investments in marketing and digital, an increase in software subscription costs and higher operations costs.
  • The provision for income taxes was $4.0 million.
  • Net income was $20.2 million on a GAAP basis. Adjusted net income was $38.3 million.
  • Diluted earnings per share were $0.38 on a GAAP basis. Adjusted diluted earnings per share were $0.71.
  • Adjusted EBITDA was $61.9 million, or 22% of net sales, up 28% year over year.

Balance Sheet

As of December 31, 2021, the Company had $32.9 million in cash and cash equivalents and $92.5 million in long-term debt and finance lease obligations, as compared to $35.4 million in cash and cash equivalents and $114.4 million of long-term debt and finance lease obligations as of December 31, 2020.

Fiscal 2022 Outlook

The Company is providing the following updated outlook for fiscal 2022. When compared to the previous outlook, the updated outlook for fiscal 2022 reflects an expected 17-19% increase in net sales, as compared to an expected 14-16% increase previously and Adjusted EBITDA of $70-$72 million, as compared to $66.5-$68 million previously.

 

Updated Fiscal 2022 Outlook

Previous Fiscal 2022 Outlook

Net sales

$372-379 million

$364-370 million

Adjusted EBITDA

$70-72 million

$66.5-68.0 million

Adjusted effective tax rate

22-23%

23-24%

Adjusted net income

$40-42 million

$36-37.5 million

Adjusted diluted earnings per share

$0.73-0.76

$0.65-0.68

Weighted average diluted shares outstanding

55 million

55 million

Webcast Details

The Company will hold a webcast to discuss the results from its third quarter fiscal 2022 today, February 2, 2022, at 4:30 p.m. Eastern Time. The webcast will be broadcast live at https://investor.elfbeauty.com/news-and-events/events. For those unable to listen to the live broadcast, an archived version will be available at the same location.

About e.l.f. Beauty

e.l.f. Beauty stands with every eye, lip, face and paw. This deep commitment to inclusive, accessible, cruelty-free beauty has fueled the success of our namesake e.l.f. Cosmetics brand since 2004. With the addition of pioneering clean-beauty brand Well People and launch of the lifestyle beauty brand Keys Soulcare created with Alicia Keys, we continue to strategically expand our portfolio with brands that support our purpose and values. Our family of brands is available online, and across leading beauty, mass-market, and clean beauty specialty retailers.

Learn more by visiting investor.elfbeauty.com.

Note Regarding non-GAAP Financial Measures

This press release includes references to non-GAAP measures, including, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share. The Company presents these non-GAAP measures because its management uses them as supplemental measures in assessing its operating performance, and believes they are helpful to investors, securities analysts and other interested parties in evaluating the Company’s performance. The non-GAAP measures included in this press release are not measurements of financial performance under GAAP and they should not be considered as alternatives to measures of performance derived in accordance with GAAP. In addition, these non-GAAP measures should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-recurring items. These non-GAAP measures have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing the Company’s results as reported under GAAP. The Company’s definitions and calculations of these non-GAAP measures are not necessarily comparable to other similarly titled measures used by other companies due to different methods of calculation.

Adjusted EBITDA excludes costs or gains related to restructuring of operations, stock-based compensation, loss on extinguishment of debt and other non-cash and non-recurring costs. Such other non-cash or non-recurring costs include proxy contest expenses and other legal settlements, pre-launch costs to develop the Company’s brand, Keys Soulcare, acquisition-related costs for Well People, third-party costs related to M&A due diligence, costs related to the automation of certain warehouse and distribution activities, and amortization of internal-use software costs related to cloud applications. Adjusted SG&A excludes costs related to stock-based compensation and other non-cash and non-recurring costs. Such other non-cash or non-recurring costs include proxy contest expenses and other legal settlements, pre-launch costs to develop the Company’s brand, Keys Soulcare, acquisition-related costs for Well People, third-party costs related to M&A due diligence, and costs related to the automation of certain warehouse and distribution activities. Adjusted effective tax rate is the tax rate when excluding the pre-tax impact of costs or gains related to restructuring of operations, stock-based compensation, other non-cash and non-recurring costs, amortization of acquired intangible assets, as well as the related tax impact for these items, calculated utilizing the statutory rate for where the impact was incurred. Adjusted net income excludes costs or gains related to restructuring of operations, stock-based compensation, loss on extinguishment of debt, other non-cash and non-recurring costs, amortization of acquired intangible assets and the tax impact of the foregoing adjustments. Such other non-cash or non-recurring costs include proxy contest expenses, pre-launch costs to develop the Company’s brand, Keys Soulcare, acquisition-related costs for Well People, and costs related to the automation of certain warehouse and distribution activities.

With respect to the Company’s expectations under “Fiscal 2022 Outlook” above, the Company is not able to provide a quantitative reconciliation of the adjusted EBITDA, adjusted net income and adjusted diluted earnings per share guidance non-GAAP measures to the corresponding net income and diluted earnings per share GAAP measures without unreasonable efforts. The Company cannot provide meaningful estimates of the non-recurring charges and credits excluded from these non-GAAP measures due to the forward-looking nature of these estimates and their inherent variability and uncertainty. For the same reasons, the Company is unable to address the probable significance of the unavailable information.

Forward-looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws, including those statements relating to the Company's outlook for fiscal 2022 under “Fiscal 2022 Outlook” above and those statements that the Company’s innovation, digitally led strategy, core value proposition and ability to adapt at e.l.f. speed continue to fuel its performance. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, actual results and the timing of selected events may differ materially from those expectations. Factors that could cause actual results to differ materially from those in the forward looking statements include, among other things, the risks and uncertainties that are described in the Company's most recent Annual Report on Form 10-K, as updated from time to time in the Company's SEC filings, as well as the Company’s ability to effectively compete with other beauty companies; the Company’s ability to successfully introduce new products; the Company’s ability to attract new retail customers and/or expand business with its existing retail customers; the Company’s ability to optimize shelf space at its key retail customers; the loss of any of the Company’s key retail customers or if the general business performance of its key retail customers declines; the Company’s ability to effectively manage its SG&A and other expenses; and the uncertainty regarding the impact of the COVID-19 pandemic. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date hereof. Except as required by law, the Company assumes no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

e.l.f. Beauty, Inc. and subsidiaries

Condensed consolidated statements of operations and comprehensive income

(unaudited)

(in thousands, except share and per share data)

 

 

Three months ended December 31,

 

Nine months ended December 31,

 

 

2021

 

2020

 

2021

 

2020

Net sales

 

$

98,118

 

 

$

88,562

 

 

$

287,020

 

 

$

225,439

 

Cost of sales

 

 

33,777

 

 

 

31,443

 

 

 

102,788

 

 

 

77,841

 

Gross profit

 

 

64,341

 

 

 

57,119

 

 

 

184,232

 

 

 

147,598

 

Selling, general and administrative expenses

 

 

55,384

 

 

 

50,828

 

 

 

156,580

 

 

 

136,330

 

Restructuring (income) expense

 

 

(14

)

 

 

 

 

 

68

 

 

 

 

Operating income

 

 

8,971

 

 

 

6,291

 

 

 

27,584

 

 

 

11,268

 

Other expense, net

 

 

(146

)

 

 

(677

)

 

 

(954

)

 

 

(1,566

)

Interest expense, net

 

 

(570

)

 

 

(855

)

 

 

(1,912

)

 

 

(3,228

)

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

(460

)

 

 

 

Income before provision for income taxes

 

 

8,255

 

 

 

4,759

 

 

 

24,258

 

 

 

6,474

 

Income tax provision

 

 

(2,041

)

 

 

(462

)

 

 

(4,044

)

 

 

(218

)

Net income

 

$

6,214

 

 

$

4,297

 

 

$

20,214

 

 

$

6,256

 

Comprehensive income

 

$

6,214

 

 

$

4,297

 

 

$

20,214

 

 

$

6,256

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.12

 

 

$

0.09

 

 

$

0.40

 

 

$

0.13

 

Diluted

 

$

0.12

 

 

$

0.08

 

 

$

0.38

 

 

$

0.12

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

51,072,639

 

 

 

49,459,837

 

 

 

50,831,985

 

 

 

49,178,138

 

Diluted

 

 

53,891,438

 

 

 

52,335,821

 

 

 

53,614,910

 

 

 

51,675,651

 

e.l.f. Beauty, Inc. and subsidiaries

Condensed consolidated balance sheets

(unaudited)

(in thousands, except share and per share data)

 

 

December 31, 2021

 

March 31, 2021

 

December 31, 2020

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,889

 

 

$

57,768

 

 

$

35,439

 

Accounts receivable, net

 

 

47,180

 

 

 

40,185

 

 

 

44,555

 

Inventory, net

 

 

85,248

 

 

 

56,810

 

 

 

68,567

 

Prepaid expenses and other current assets

 

 

19,808

 

 

 

15,381

 

 

 

11,728

 

Total current assets

 

 

185,125

 

 

 

170,144

 

 

 

160,289

 

Property and equipment, net

 

 

12,231

 

 

 

13,770

 

 

 

16,790

 

Intangible assets, net

 

 

88,194

 

 

 

94,286

 

 

 

96,317

 

Goodwill

 

 

171,620

 

 

 

171,620

 

 

 

171,620

 

Investments

 

 

2,875

 

 

 

2,875

 

 

 

2,875

 

Other assets

 

 

30,905

 

 

 

34,698

 

 

 

33,014

 

Total assets

 

$

490,950

 

 

$

487,393

 

 

$

480,905

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt and capital lease obligations

 

$

5,780

 

 

$

16,281

 

 

$

15,250

 

Accounts payable

 

 

22,756

 

 

 

15,699

 

 

 

20,108

 

Accrued expenses and other current liabilities

 

 

33,977

 

 

 

41,351

 

 

 

31,322

 

Total current liabilities

 

 

62,513

 

 

 

73,331

 

 

 

66,680

 

Long-term debt and finance lease obligations

 

 

92,474

 

 

 

110,255

 

 

 

114,421

 

Deferred tax liabilities

 

 

13,078

 

 

 

13,479

 

 

 

16,247

 

Long-term operating lease obligations

 

 

16,659

 

 

 

20,084

 

 

 

18,370

 

Other long-term liabilities

 

 

758

 

 

 

598

 

 

 

585

 

Total liabilities

 

 

185,482

 

 

 

217,747

 

 

 

216,303

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, par value of $0.01 per share; 250,000,000 shares authorized as of December 31, 2021, March 31, 2021 and December 31, 2020; 52,120,683, 51,590,830 and 51,240,997 shares issued and outstanding as of December 31, 2021, March 31, 2021 and December 31, 2020, respectively

 

 

512

 

 

 

504

 

 

 

497

 

Additional paid-in capital

 

 

790,041

 

 

 

774,441

 

 

 

769,380

 

Accumulated deficit

 

 

(485,085

)

 

 

(505,299

)

 

 

(505,275

)

Total stockholders' equity

 

 

305,468

 

 

 

269,646

 

 

 

264,602

 

Total liabilities and stockholders' equity

 

$

490,950

 

 

$

487,393

 

 

$

480,905

 

e.l.f. Beauty, Inc. and subsidiaries

Condensed consolidated statements of cash flows

(unaudited)

(in thousands)

 

 

Nine months ended December 31,

 

 

2021

 

2020

Cash flows from operating activities:

 

 

 

 

Net income

 

$

20,214

 

 

$

6,256

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization

 

 

20,317

 

 

 

18,808

 

Restructuring expense

 

 

68

 

 

 

 

Stock-based compensation expense

 

 

14,598

 

 

 

15,040

 

Amortization of debt issuance costs and discount on debt

 

 

304

 

 

 

641

 

Deferred income taxes

 

 

(401

)

 

 

(5,684

)

Loss on extinguishment of debt

 

 

460

 

 

 

 

Other, net

 

 

457

 

 

 

54

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

 

(7,211

)

 

 

(14,870

)

Inventories

 

 

(28,390

)

 

 

(22,351

)

Prepaid expenses and other assets

 

 

(8,585

)

 

 

(5,013

)

Accounts payable and accrued expenses

 

 

(691

)

 

 

11,421

 

Other liabilities

 

 

(3,314

)

 

 

(2,352

)

Net cash provided by operating activities

 

 

7,826

 

 

 

1,950

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchase of property and equipment

 

 

(4,596

)

 

 

(3,958

)

Net cash used in investing activities

 

 

(4,596

)

 

 

(3,958

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Proceeds from revolving line of credit

 

 

26,480

 

 

 

20,000

 

Repayment of revolving line of credit

 

 

(26,480

)

 

 

(20,000

)

Proceeds from long term debt

 

 

25,581

 

 

 

 

Repayment of long-term debt

 

 

(53,275

)

 

 

(8,663

)

Debt issuance costs paid

 

 

(1,064

)

 

 

(334

)

Cash received from issuance of common stock

 

 

1,236

 

 

 

882

 

Other, net

 

 

(587

)

 

 

(605

)

Net cash used in financing activities

 

 

(28,109

)

 

 

(8,720

)

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(24,879

)

 

 

(10,728

)

Cash and cash equivalents - beginning of period

 

 

57,768

 

 

 

46,167

 

Cash and cash equivalents - end of period

 

$

32,889

 

 

$

35,439

 

e.l.f. Beauty, Inc. and subsidiaries

Reconciliation of GAAP net income to non-GAAP adjusted EBITDA

(unaudited)

(in thousands)

 

 

Three months ended December 31,

 

Nine months ended December 31,

 

 

2021

 

2020

 

2021

 

2020

Net income

 

$

6,214

 

 

$

4,297

 

$

20,214

 

$

6,256

Interest expense, net

 

 

570

 

 

 

855

 

 

 

1,912

 

 

 

3,228

 

Income tax provision

 

 

2,041

 

 

 

462

 

 

 

4,044

 

 

 

218

 

Depreciation and amortization

 

 

5,680

 

 

 

5,179

 

 

 

16,709

 

 

 

15,802

 

EBITDA

 

$

14,505

 

 

$

10,793

 

 

$

42,879

 

 

$

25,504

 

Restructuring (income) expense (a)

 

 

(14

)

 

 

 

 

 

68

 

 

 

 

Stock-based compensation

 

 

5,211

 

 

 

5,028

 

 

 

14,598

 

 

 

15,040

 

Loss on extinguishment of debt (b)

 

 

 

 

 

 

 

 

460

 

 

 

 

Other non-cash and non-recurring costs (c)

 

 

1,980

 

 

 

2,519

 

 

 

3,870

 

 

 

7,631

 

Adjusted EBITDA

 

$

21,682

 

 

$

18,340

 

 

$

61,875

 

 

$

48,175

 

(a) Restructuring (income) expense during the three and nine months ended December 31, 2021 relates to the closure of the Company’s manufacturing plant, including impairment of assets, the disposal of excess inventory on hand at the plant, the termination of manufacturing employees and sub lease income.

(b) Loss on extinguishment of debt includes the write-off of existing debt issuance costs and certain fees paid related to the amended credit agreement.

(c) Represents various non-cash or non-recurring costs, including proxy contest expenses and other legal settlements, pre-launch costs to develop the Company’s brand, Keys Soulcare, acquisition-related costs for Well People, third-party costs related to M&A due diligence, costs related to the automation of certain warehouse and distribution activities, and amortization of internal-use software costs related to cloud applications.

e.l.f. Beauty, Inc. and subsidiaries

Reconciliation of GAAP SG&A to non-GAAP adjusted SG&A

(unaudited)

(in thousands)

 

Three months ended December 31,

 

Nine months ended December 31,

 

2021

 

2020

 

2021

 

2020

Selling, general and administrative expenses

$

55,384

 

 

$

50,828

 

 

$

156,580

 

 

$

136,330

 

Stock-based compensation

 

(5,149

)

 

 

(5,023

)

 

 

(14,372

)

 

 

(15,035

)

Other non-cash and non-recurring costs (a)

 

(1,611

)

 

 

(2,519

)

 

 

(2,848

)

 

 

(7,631

)

Adjusted selling, general and administrative expenses

$

48,624

 

 

$

43,286

 

 

$

139,360

 

 

$

113,664

 

(a) Represents various non-cash or non-recurring costs, including proxy contest expenses and other legal settlements, pre-launch costs to develop the Company’s brand, Keys Soulcare, acquisition-related costs for Well People, third-party costs related to M&A due diligence, and costs related to the automation of certain warehouse and distribution activities.

e.l.f. Beauty, Inc. and subsidiaries

Reconciliation of GAAP net income to non-GAAP adjusted net income

(unaudited)

(in thousands, except share and per share data)

 

 

Three months ended December 31,

 

Nine months ended December 31,

 

 

2021

 

2020

 

2021

 

2020

Net income

 

$

6,214

 

 

$

4,297

 

 

$

20,214

 

 

$

6,256

 

Restructuring (income) expense (a)

 

 

(14

)

 

 

 

 

 

68

 

 

 

 

Stock-based compensation

 

 

5,211

 

 

 

5,028

 

 

 

14,598

 

 

 

15,040

 

Other non-cash and non-recurring costs (b)

 

 

1,611

 

 

 

2,519

 

 

 

2,848

 

 

 

7,631

 

Loss on extinguishment of debt (c)

 

 

 

 

 

 

 

 

460

 

 

 

 

Amortization of acquired intangible assets (d)

 

 

2,031

 

 

 

2,031

 

 

 

6,093

 

 

 

6,093

 

Tax Impact (e)

 

 

(2,316

)

 

 

(2,233

)

 

 

(5,992

)

 

 

(6,672

)

Adjusted net income

 

$

12,737

 

 

$

11,642

 

 

$

38,289

 

 

$

28,348

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding – diluted

 

 

53,891,438

 

 

 

52,335,821

 

 

 

53,614,910

 

 

 

51,675,651

 

Adjusted diluted earnings per share

 

$

0.24

 

 

$

0.22

 

 

$

0.71

 

 

$

0.55

 

(a) Restructuring (income) expense during the three and nine months ended December 31, 2021 relates to the closure of the Company’s manufacturing plant, including impairment of assets, the disposal of excess inventory on hand at the plant, the termination of manufacturing employees and sub lease income.

(b) Represents various non-cash or non-recurring costs, including proxy contest expenses and other legal settlements, pre-launch costs to develop the Company’s brand, Keys Soulcare, acquisition-related costs for Well People, third-party costs related to M&A due diligence, and costs related to the automation of certain warehouse and distribution activities.

(c) Loss on extinguishment of debt includes the write-off of existing debt issuance costs and certain fees paid related to the amended credit agreement.

(d) Represents amortization expense of acquired intangible assets consisting of customer relationships, trademarks and favorable leases.

(e) Represents the tax impact of the above adjustments.

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