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e.l.f. Beauty Announces Second Quarter Fiscal 2024 Results

– Delivered 76% Net Sales Growth –

– Gained 330 Basis Points of Color Cosmetics Category Share –

– Raises Fiscal 2024 Outlook –

e.l.f. Beauty (NYSE: ELF) today announced results for the three and six months ended September 30, 2023.

“We continue to deliver exceptional, consistent, category-leading sales growth,” said Tarang Amin, e.l.f. Beauty's Chairman and Chief Executive Officer. “In Q2, we grew net sales by 76% and category share by 330 basis points, marking our 19th consecutive quarter of growth in each. As we look ahead, the significant whitespace we see across color cosmetics, skin care and international gives us confidence that we are in the early innings of unlocking the full potential we see for e.l.f. Beauty.”

Three Months Ended September 30, 2023 Results

For the three months ended September 30, 2023, compared to the three months ended September 30, 2022:

  • Net sales increased 76% to $215.5 million, primarily driven by strength in both retailer and e-commerce channels.
  • Gross margin increased approximately 570 basis points to 71%, primarily driven by lower inventory adjustments, cost savings and mix, improved transportation costs and favorable foreign exchange impacts, partially offset by costs associated with retailer activity and space expansion.
  • Selling, general and administrative (“SG&A”) expenses increased $48.0 million to $112.2 million, or 52% of net sales. Adjusted SG&A (SG&A excluding the items identified in the reconciliation table below) increased $41.6 million to $97.8 million, or 45% of net sales. The increase in SG&A dollars was primarily due to an increase in marketing and digital spend, compensation and benefits, professional fees, retail fixturing and visual merchandising costs and operations costs.
  • Net income was $33.3 million on a GAAP basis. Adjusted net income (net income excluding the items identified in the reconciliation table below) was $47.1 million.
  • Diluted earnings per share were $0.58 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 $0.82.
  • Adjusted EBITDA (EBITDA excluding the items identified in the reconciliation table below) was $60.4 million, or 28% of net sales, up 122% year over year.

Six Months Ended September 30, 2023 Results

For the six months ended September 30, 2023, compared to the six months ended September 30, 2022:

  • Net sales increased 76% to $431.8 million, primarily driven by strength in both retailer and e-commerce channels.
  • Gross margin increased approximately 425 basis points to 71%, primarily driven by cost savings and mix, lower inventory adjustments, favorable foreign exchange impacts and improved transportation costs, partially offset by costs associated with retailer activity and space expansion.
  • SG&A increased $78.4 million to $204.1 million, or 47% of net sales. Adjusted SG&A increased $71.0 million to $182.2 million, or 42% of net sales. The increase in SG&A dollars was primarily due to an increase in marketing and digital spend, compensation and benefits, operations costs, retail fixturing and visual merchandising costs and professional fees.
  • Net income was $86.2 million on a GAAP basis. Adjusted net income was $110.0 million.
  • Diluted earnings per share were $1.50 on a GAAP basis. Adjusted diluted earnings per share were $1.92.
  • Adjusted EBITDA was $134.7 million, or 31% of net sales, up 129% year over year.

Balance Sheet

As of September 30, 2023, the Company had $167.8 million in cash and cash equivalents and $57.7 million of long-term debt and finance lease obligations, as compared to $85.3 million in cash and cash equivalents and $88.3 million of long-term debt and finance lease obligations as of September 30, 2022.

Naturium Acquisition

On October 4, 2023, the Company closed on the acquisition of Naturium, a fast-growing, high performance skin care brand, for $355 million in a combination of cash and Company stock, furthering its mission to make the best of beauty accessible to every eye, lip, face and skin concern.

Updated Fiscal 2024 Outlook

The Company is providing the following updated outlook for fiscal 2024. The updated outlook for fiscal 2024 reflects an expected 55-57% year-over-year increase in net sales, as compared to an expected 37-39% increase previously.

The Company notes this outlook now includes the addition of Naturium. e.l.f. Beauty continues to expect Naturium to contribute approximately $48 million in net sales, approximately $9 million in adjusted EBITDA and approximately $0.04 in adjusted EPS on a fully diluted basis in fiscal 2024. This reflects Naturium’s contribution for approximately half of e.l.f. Beauty’s fiscal year, based on the transaction closing date of October 4, 2023.

 

Updated Fiscal 2024 Outlook

 

Previous Fiscal 2024 Outlook

Net sales

$896-906 million

 

$792-802 million

Adjusted EBITDA

$197-200 million

 

$171-174 million

Adjusted effective tax rate

17-18%

 

17-18%

Adjusted net income

$144-146 million

 

$125-127 million

Adjusted diluted earnings per share

$2.47-2.50

 

$2.19-2.22

Fiscal year ending diluted shares outstanding

58 million

 

57 million

Webcast Details

The Company will hold a webcast to discuss the results from its second quarter fiscal 2024 today, November 1, 2023, at 4:30 p.m. Eastern Time. The webcast will be broadcast live at https://investor.elfbeauty.com/news-and-events/events-and-presentations. 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, Inc. builds brands designed to disrupt norms, shape culture and connect communities through positivity, inclusivity and accessibility. A digitally disruptive brand from the start, we launched in 2004 selling premium-quality makeup for $1 online. Today, we have five visionary, purpose-driven brands, all of which make the best of beauty accessible to every eye, lip, face and skin concern. Our brand portfolio includes e.l.f. Cosmetics, e.l.f. SKIN, Naturium, Well People and Keys Soulcare. With a focus on clean, cruelty free and vegan products, we are also the first beauty company with a Fair Trade™ certified manufacturing facility. e.l.f. Beauty brands are sold online and at leading beauty, mass market, and specialty retailers in the U.S. and internationally.

Learn more at https://www.elfbeauty.com/

Note Regarding non-GAAP Financial Measures

This press release includes references to non-GAAP measures, including adjusted EBITDA, adjusted SG&A, 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 or substitutes for 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 expense or income related to stock-based compensation, impairment of equity investment and other non-cash and non-recurring items. Such other non-cash or non-recurring items include amortization of internal-use software costs related to cloud applications, costs related to the acquisition of Naturium, and cloud computing ERP implementation costs.

Adjusted SG&A excludes expense related to stock-based compensation and other non-recurring items. Such other non-recurring items includes other non-recurring cloud computing ERP implementation costs and costs related to the acquisition of Naturium.

Adjusted effective tax rate is the tax rate when excluding the pre-tax impact of expense or income related to stock-based compensation, other non-cash and non-recurring items, 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 expense or income related to stock-based compensation, other non-recurring items, impairment of equity investment, amortization of acquired intangible assets and the tax impact of the foregoing adjustments. Such other non-recurring items, which include other non-recurring cloud computing ERP implementation costs and costs related to the acquisition of Naturium.

With respect to the Company’s expectations under “Updated Fiscal 2024 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 2024 under “Updated Fiscal 2024 Outlook” above and those statements that we are in the early innings of unlocking the full potential we see for e.l.f. Beauty. 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 successfully address any difficulties and challenges encountered in connection with its acquisition of Naturium, including the integration of Naturium's business with the Company's business; 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; and the Company’s ability to effectively manage its SG&A and other expenses. 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 September 30,

 

Six months ended September 30,

 

 

2023

 

2022

 

2023

 

2022

Net sales

 

$

215,507

 

 

$

122,349

 

 

$

431,846

 

 

$

244,950

 

Cost of sales

 

 

63,142

 

 

 

42,789

 

 

 

126,909

 

 

 

82,405

 

Gross profit

 

 

152,365

 

 

 

79,560

 

 

 

304,937

 

 

 

162,545

 

Selling, general and administrative expenses

 

 

112,186

 

 

 

64,183

 

 

 

204,125

 

 

 

125,738

 

Operating income

 

 

40,179

 

 

 

15,377

 

 

 

100,812

 

 

 

36,807

 

Other expense, net

 

 

(1,062

)

 

 

(1,262

)

 

 

(663

)

 

 

(2,925

)

Impairment of equity investment

 

 

 

 

 

 

 

 

(1,720

)

 

 

 

Interest income (expense), net

 

 

623

 

 

 

(786

)

 

 

964

 

 

 

(1,449

)

Income before provision for income taxes

 

 

39,740

 

 

 

13,329

 

 

 

99,393

 

 

 

32,433

 

Income tax provision

 

 

(6,469

)

 

 

(1,619

)

 

 

(13,145

)

 

 

(6,254

)

Net income

 

$

33,271

 

 

$

11,710

 

 

$

86,248

 

 

$

26,179

 

Comprehensive income

 

$

33,271

 

 

$

11,710

 

 

$

86,248

 

 

$

26,179

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.61

 

 

$

0.22

 

 

$

1.59

 

 

$

0.50

 

Diluted

 

$

0.58

 

 

$

0.21

 

 

$

1.50

 

 

$

0.48

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

54,425,384

 

 

 

52,298,905

 

 

 

54,183,091

 

 

 

52,004,661

 

Diluted

 

 

57,438,152

 

 

 

55,037,514

 

 

 

57,308,342

 

 

 

54,437,752

 

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

Condensed consolidated balance sheets

(unaudited)

(in thousands, except share and per share data)

 

 

 

September 30, 2023

 

March 31, 2023

 

September 30, 2022

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

167,763

 

 

$

120,778

 

 

$

85,317

 

Accounts receivable, net

 

 

86,683

 

 

 

67,928

 

 

 

53,912

 

Inventory, net

 

 

147,228

 

 

 

81,323

 

 

 

81,288

 

Prepaid expenses and other current assets

 

 

33,772

 

 

 

33,296

 

 

 

26,881

 

Total current assets

 

 

435,446

 

 

 

303,325

 

 

 

247,398

 

Property and equipment, net

 

 

7,624

 

 

 

7,874

 

 

 

8,934

 

Intangible assets, net

 

 

73,986

 

 

 

78,041

 

 

 

82,101

 

Goodwill

 

 

171,620

 

 

 

171,620

 

 

 

171,620

 

Investments

 

 

1,155

 

 

 

2,875

 

 

 

2,875

 

Other assets

 

 

57,105

 

 

 

31,866

 

 

 

29,213

 

Total assets

 

$

746,936

 

 

$

595,601

 

 

$

542,141

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt and capital lease obligations

 

$

5,228

 

 

$

5,575

 

 

$

5,801

 

Accounts payable

 

 

63,736

 

 

 

31,427

 

 

 

19,279

 

Accrued expenses and other current liabilities

 

 

83,407

 

 

 

70,974

 

 

 

46,868

 

Total current liabilities

 

 

152,371

 

 

 

107,976

 

 

 

71,948

 

Long-term debt and finance lease obligations

 

 

57,735

 

 

 

60,881

 

 

 

88,284

 

Deferred tax liabilities

 

 

4,901

 

 

 

3,742

 

 

 

10,635

 

Long-term operating lease obligations

 

 

14,559

 

 

 

11,201

 

 

 

13,440

 

Other long-term liabilities

 

 

942

 

 

 

784

 

 

 

874

 

Total liabilities

 

 

230,508

 

 

 

184,584

 

 

 

185,181

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, par value of $0.01 per share; 250,000,000 shares authorized as of September 30, 2023, March 31, 2023 and September 30, 2022; 54,621,561, 53,770,482 and 52,896,411 shares issued and outstanding as of September 30, 2023, March 31, 2023 and September 30, 2022, respectively

 

 

545

 

 

 

535

 

 

 

525

 

Additional paid-in capital

 

 

851,634

 

 

 

832,481

 

 

 

813,785

 

Accumulated deficit

 

 

(335,751

)

 

 

(421,999

)

 

 

(457,350

)

Total stockholders' equity

 

 

516,428

 

 

 

411,017

 

 

 

356,960

 

Total liabilities and stockholders' equity

 

$

746,936

 

 

$

595,601

 

 

$

542,141

 

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

Condensed consolidated statements of cash flows

(unaudited)

(in thousands)

 

 

 

Six months ended September 30,

 

 

2023

 

2022

Cash flows from operating activities:

 

 

 

 

Net income

 

$

86,248

 

 

$

26,179

 

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

 

 

 

 

Depreciation and amortization

 

 

12,311

 

 

 

11,075

 

Stock-based compensation expense

 

 

18,417

 

 

 

14,576

 

Amortization of debt issuance costs and discount on debt

 

 

149

 

 

 

181

 

Deferred income taxes

 

 

1,159

 

 

 

1,042

 

Impairment of equity investment

 

 

1,720

 

 

 

 

Other, net

 

 

221

 

 

 

(24

)

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

 

(18,812

)

 

 

(8,301

)

Inventory

 

 

(65,904

)

 

 

3,210

 

Prepaid expenses and other assets

 

 

(27,090

)

 

 

(9,555

)

Accounts payable and accrued expenses

 

 

45,112

 

 

 

6,798

 

Other liabilities

 

 

(2,261

)

 

 

(2,135

)

Net cash provided by operating activities

 

 

51,270

 

 

 

43,046

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchase of property and equipment

 

 

(1,465

)

 

 

(694

)

Net cash used in investing activities

 

 

(1,465

)

 

 

(694

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Repayment of long-term debt

 

 

(2,500

)

 

 

(2,500

)

Debt issuance costs paid

 

 

(665

)

 

 

 

Cash received from issuance of common stock

 

 

750

 

 

 

2,503

 

Other, net

 

 

(405

)

 

 

(391

)

Net cash used in financing activities

 

 

(2,820

)

 

 

(388

)

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

46,985

 

 

 

41,964

 

Cash and cash equivalents - beginning of period

 

 

120,778

 

 

 

43,353

 

Cash and cash equivalents - end of period

 

$

167,763

 

 

$

85,317

 

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

Reconciliation of GAAP net income to non-GAAP adjusted EBITDA

(unaudited)

(in thousands)

 

 

 

Three months ended September 30,

 

Six months ended September 30,

 

 

2023

 

2022

 

2023

 

2022

Net income

 

$

33,271

 

 

$

11,710

 

 

$

86,248

 

 

$

26,179

 

Interest income (expense), net

 

 

(623

)

 

 

786

 

 

(964

)

 

 

1,449

Income tax provision

 

 

6,469

 

 

 

1,619

 

 

 

13,145

 

 

 

6,254

 

Depreciation and amortization

 

 

5,586

 

 

 

4,320

 

 

 

10,173

 

 

 

9,013

 

EBITDA

 

$

44,703

 

 

$

18,435

 

 

$

108,602

 

 

$

42,895

 

Stock-based compensation

 

 

11,217

 

 

 

8,032

 

 

 

18,417

 

 

 

14,576

 

Impairment of equity investment (a)

 

 

 

 

 

 

 

 

1,720

 

 

 

 

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

 

 

4,498

 

 

 

786

 

 

 

5,979

 

 

 

1,465

 

Adjusted EBITDA

 

$

60,418

 

 

$

27,253

 

 

$

134,718

 

 

$

58,936

 

(a) Represents an impairment of equity investment recorded during the six months ended September 30, 2023.

(b) Represents other non-cash or non-recurring items, which include amortization of internal-use software costs related to cloud applications, costs related to the acquisition of Naturium, and cloud computing ERP implementation costs.

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

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

(unaudited)

(in thousands)

 

 

Three months ended September 30,

 

Six months ended September 30,

 

2023

 

2022

 

2023

 

2022

Selling, general and administrative expenses

$

112,186

 

 

$

64,183

 

 

$

204,125

 

 

$

125,738

 

Stock-based compensation

 

(11,190

)

 

 

(8,022

)

 

 

(18,413

)

 

 

(14,571

)

Other non-recurring items (a)

 

(3,189

)

 

 

 

 

 

(3,541

)

 

 

 

Adjusted selling, general and administrative expenses

$

97,807

 

 

$

56,161

 

 

$

182,171

 

 

$

111,167

 

(a) Represents other non-recurring cloud computing ERP implementation costs and costs related to the acquisition of Naturium.

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 September 30,

 

Six months ended September 30,

 

 

2023

 

2022

 

2023

 

2022

Net income

 

$

33,271

 

 

$

11,710

 

 

$

86,248

 

 

$

26,179

 

Stock-based compensation

 

 

11,217

 

 

 

8,032

 

 

 

18,417

 

 

 

14,576

 

Other non-recurring items (a)

 

 

3,189

 

 

 

 

 

 

3,541

 

 

 

 

Impairment of equity investment (b)

 

 

 

 

 

 

 

 

1,720

 

 

 

 

Amortization of acquired intangible assets (c)

 

 

2,027

 

 

 

2,031

 

 

 

4,055

 

 

 

4,062

 

Tax Impact (d)

 

 

(2,559

)

 

 

(1,718

)

 

 

(3,955

)

 

 

(3,635

)

Adjusted net income

 

$

47,145

 

 

$

20,055

 

 

$

110,026

 

 

$

41,182

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding – diluted

 

 

57,438,152

 

 

 

55,037,514

 

 

 

57,308,342

 

 

 

54,437,752

 

Adjusted diluted earnings per share

 

$

0.82

 

 

$

0.36

 

 

$

1.92

 

 

$

0.76

 

(a) Represents other non-recurring cloud computing ERP implementation costs and costs related to the acquisition of Naturium.

(b) Represents an impairment of equity investment recorded during the six months ended September 30, 2023.

(c) Represents amortization expense of acquired intangible assets consisting of customer relationships and trademarks.

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

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