Business Wire | Nov 3, 2021 04:06PM EDT

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

Nov. 03, 2021

OAKLAND, Calif.--(BUSINESS WIRE)--Nov. 03, 2021--e.l.f. Beauty (NYSE: ELF) today announced results for the three and six months ended September 30, 2021.

"I am proud of the e.l.f. Beauty team for delivering our eleventh consecutive quarter of net sales growth," said Tarang Amin, e.l.f. Beauty's Chairman and Chief Executive Officer. "In the second quarter, e.l.f. grew sales 27% versus year ago and was again the only top 5 color cosmetics brand to grow market share above pre-pandemic levels, per Nielsen. Our performance demonstrates that our five strategic imperatives are driving results and we remain confident in the long-term growth potential for our portfolio of brands."

Three Months Ended September 30, 2021 Results

For the three months ended September 30, 2021, compared to the three months ended September 30, 2020:

* Net sales increased 27% to $91.9 million, primarily driven by strength in our national and international retailers. * Gross margin decreased approximately 200 basis points to 63%, primarily driven by unfavorable foreign exchange rates, an increase in freight and shipping costs and an increase in inventory adjustments, partially mitigated by price increases, cost savings and mix. * Selling, general and administrative expenses ("SG&A") increased $5.3 million to $50.4 million or 55% of net sales. Adjusted SG&A (SG&A excluding the items identified in the reconciliation table below) increased $7.9 million to $45.2 million, or 49% of net sales. The increase in SG&A was primarily due to investments in marketing and digital and increased operational costs. * The provision for income taxes was $0.5 million. * Net income was $5.7 million on a GAAP basis. Adjusted net income (net income excluding the items identified in the reconciliation table below) was $11.3 million. * Diluted earnings per share were $0.11 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 $0.21. * Adjusted EBITDA (EBITDA excluding the items identified in the reconciliation table below) was $18.5 million, or 20% of net sales, up 29% year over year.

Six Months Ended September 30, 2021 Results

For the six months ended September 30, 2021, compared to the six months ended September 30, 2020:

* Net sales increased 38% to $188.9 million, primarily driven by strength in our national and international retailers. * Gross margin decreased approximately 260 basis points to 63.5%, primarily driven by unfavorable foreign exchange rates and elevated transportation costs. * SG&A increased $15.7 million to $101.2 million or 53.6% of net sales. Adjusted SG&A increased $20.4 million to $90.7 million, or 48.0% of net sales. The increase in SG&A was primarily due to investments in marketing and digital and increased operational costs. * The provision for income taxes was $2.0 million. * Net income was $14.0 million on a GAAP basis. Adjusted net income was $25.6 million. * Diluted earnings per share were $0.26 on a GAAP basis. Adjusted diluted earnings per share were $0.48. * Adjusted EBITDA was $40.2 million or 21.3% of net sales, up 35% year over year.

Balance Sheet

As of September 30, 2021, the Company had $41.7 million in cash and cash equivalents and $93.9 million in long-term debt and finance lease obligations, as compared to $41.0 million in cash and cash equivalents and $118.6 million of long-term debt and finance lease obligations as of September 30, 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 14-16% increase in net sales, as compared to an expected 12-14% increase previously.

Updated Fiscal 2022 Previous Fiscal 2022 Outlook Outlook

Net sales $364-370 million $357-364 million

Adjusted EBITDA $66.5-68.0 million $66.5-68.0 million

Adjusted effective tax rate 23-24% 24-25%

Adjusted net income $36.0-37.5 million $36.0-37.5 million

Adjusted diluted earnings per $0.65-0.68 $0.65-0.68share

Weighted average diluted shares 55 million 55 millionoutstanding

Webcast Details

The Company will hold a webcast to discuss the results from its second quarter fiscal 2022 today, November 3, 2021, 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 W3LL 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, pre-launch costs to develop the Company's first new brand, Keys Soulcare, acquisition-related costs for W3LL PEOPLE, costs related to the automation of certain warehouse and distribution activities, and amortization related to certain cloud computing costs. 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, pre-launch costs to develop the Company's first new brand, Keys Soulcare, acquisition-related costs for W3LL PEOPLE, 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 first new brand, Keys Soulcare, acquisition-related costs for W3LL 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 five strategic imperatives are driving results and that the Company remains confident regarding the long-term growth potential for its portfolio of brands. 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 Six months ended September September 30, 30,

2021 2020 2021 2020

Net sales $ 91,855 $ 72,350 $ 188,902 $ 136,877

Cost of sales 33,870 25,212 69,011 46,398

Gross profit 57,985 47,138 119,891 90,479

Selling, generaland administrative 50,447 45,170 101,196 85,502 expenses

Restructuring 96 - 82 - expense

Operating income 7,442 1,968 18,613 4,977

Other expense, net (646 ) (859 ) (808 ) (889 )

Interest expense, (597 ) (905 ) (1,342 ) (2,373 )net

Loss onextinguishment of - - (460 ) - debt

Income beforeprovision for 6,199 204 16,003 1,715 income taxes

Income tax (475 ) 243 (2,003 ) 244 (provision) benefit

Net income $ 5,724 $ 447 $ 14,000 $ 1,959

Comprehensive $ 5,724 $ 447 $ 14,000 $ 1,959 income



Net income per share:

Basic $ 0.11 $ 0.01 $ 0.28 $ 0.04

Diluted $ 0.11 $ 0.01 $ 0.26 $ 0.04

Weighted average shares outstanding:

Basic 50,875,618 49,147,366 50,711,000 49,036,519

Diluted 53,541,724 51,748,437 53,475,988 51,344,797

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

Condensed consolidated balance sheets

(unaudited)

(in thousands, except share and per share data)

September 30, 2021

March 31, 2021

September 30, 2020

Assets

Current assets:

Cash and cash equivalents

$

41,694

$

57,768

$

41,041

Accounts receivable, net

44,374

40,185

33,844

Inventory, net

76,816

56,810

64,486

Prepaid expenses and other current assets

18,420

15,381

12,389

Total current assets

181,304

170,144

151,760

Property and equipment, net

13,945

13,770

16,270

Intangible assets, net

90,225

94,286

98,348

Goodwill

171,620

171,620

171,620

Investments

2,875

2,875

2,875

Other assets

33,043

34,698

32,551

Total assets

$

493,012

$

487,393

$

473,424

Liabilities and stockholders' equity

Current liabilities:

Current portion of long-term debt and capital lease obligations

$

19,254

$

16,281

$

14,219

Accounts payable

19,299

15,699

20,544

Accrued expenses and other current liabilities

32,665

41,351

26,264

Total current liabilities

71,218

73,331

61,027

Long-term debt and finance lease obligations

93,865

110,255

118,577

Deferred tax liabilities

15,114

13,479

19,466

Long-term operating lease obligations

17,919

20,084

19,185

Other long-term liabilities

803

598

516

Total liabilities

198,919

217,747

218,771

Commitments and contingencies

Stockholders' equity:

Common stock, par value of $0.01 per share; 250,000,000 shares authorized as of September 30, 2021, March 31, 2021 and September 30, 2020; 52,035,864, 51,590,830 and 50,972,425 shares issued and outstanding as of September 30, 2021, March 31, 2021 and September 30, 2020, respectively

511

504

494

Additional paid-in capital

784,881

774,441

763,731

Accumulated deficit

(491,299

)

(505,299

)

(509,572

)

Total stockholders' equity

294,093

269,646

254,653

Total liabilities and stockholders' equity

$

493,012

$

487,393

$

473,424

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

Condensed consolidated balance sheets

(unaudited)

(in thousands, except share and per share data)

September March 31, September 30, 2021 2021 30, 2020

Assets

Current assets:

Cash and cash equivalents $ 41,694 $ 57,768 $ 41,041

Accounts receivable, net 44,374 40,185 33,844

Inventory, net 76,816 56,810 64,486

Prepaid expenses and other current 18,420 15,381 12,389 assets

Total current assets 181,304 170,144 151,760

Property and equipment, net 13,945 13,770 16,270

Intangible assets, net 90,225 94,286 98,348

Goodwill 171,620 171,620 171,620

Investments 2,875 2,875 2,875

Other assets 33,043 34,698 32,551

Total assets $ 493,012 $ 487,393 $ 473,424



Liabilities and stockholders' equity

Current liabilities:

Current portion of long-term debt and $ 19,254 $ 16,281 $ 14,219 capital lease obligations

Accounts payable 19,299 15,699 20,544

Accrued expenses and other current 32,665 41,351 26,264 liabilities

Total current liabilities 71,218 73,331 61,027

Long-term debt and finance lease 93,865 110,255 118,577 obligations

Deferred tax liabilities 15,114 13,479 19,466

Long-term operating lease obligations 17,919 20,084 19,185

Other long-term liabilities 803 598 516

Total liabilities 198,919 217,747 218,771



Commitments and contingencies



Stockholders' equity:

Common stock, par value of $0.01 pershare; 250,000,000 shares authorizedas of September 30, 2021, March 31,2021 and September 30, 2020; 511 504 494 52,035,864, 51,590,830 and 50,972,425shares issued and outstanding as ofSeptember 30, 2021, March 31, 2021and September 30, 2020, respectively

Additional paid-in capital 784,881 774,441 763,731

Accumulated deficit (491,299 ) (505,299 ) (509,572 )

Total stockholders' equity 294,093 269,646 254,653

Total liabilities and stockholders' $ 493,012 $ 487,393 $ 473,424 equity

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

Condensed consolidated statements of cash flows

(unaudited)

(in thousands)

Six months ended September 30,

2021

2020

Cash flows from operating activities:

Net income

$

14,000

$

1,959

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

Depreciation and amortization

13,349

12,597

Restructuring expense

82

-

Stock-based compensation expense

9,387

10,012

Amortization of debt issuance costs and discount on debt

211

428

Deferred income taxes

1,635

(2,465

)

Loss on extinguishment of debt

460

-

Other, net

257

(26

)

Changes in operating assets and liabilities:

Accounts receivable

(4,374

)

(4,123

)

Inventories

(19,958

)

(18,270

)

Prepaid expenses and other assets

(6,379

)

(3,008

)

Accounts payable and accrued expenses

(5,878

)

7,962

Other liabilities

(2,018

)

(1,653

)

Net cash provided by operating activities

774

3,413

Cash flows from investing activities:

Purchase of property and equipment

(3,649

)

(2,746

)

Net cash used in investing activities

(3,649

)

(2,746

)

Cash flows from financing activities:

Proceeds from revolving line of credit

26,480

20,000

Repayment of revolving line of credit

(13,000

)

(20,000

)

Proceeds from long term debt

25,581

-

Repayment of long-term debt

(52,025

)

(5,569

)

Debt issuance costs paid

(1,064

)

(334

)

Cash received from issuance of common stock

1,224

511

Other, net

(395

)

(401

)

Net cash used in financing activities

(13,199

)

(5,793

)

Net decrease in cash and cash equivalents

(16,074

)

(5,126

)

Cash and cash equivalents - beginning of period

57,768

46,167

Cash and cash equivalents - end of period

$

41,694

$

41,041

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

Condensed consolidated statements of cash flows

(unaudited)

(in thousands)

Six months ended September 30,

2021 2020

Cash flows from operating activities:

Net income $ 14,000 $ 1,959

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

Depreciation and amortization 13,349 12,597

Restructuring expense 82 -

Stock-based compensation expense 9,387 10,012

Amortization of debt issuance costs and discount on 211 428 debt

Deferred income taxes 1,635 (2,465 )

Loss on extinguishment of debt 460 -

Other, net 257 (26 )

Changes in operating assets and liabilities:

Accounts receivable (4,374 ) (4,123 )

Inventories (19,958 ) (18,270 )

Prepaid expenses and other assets (6,379 ) (3,008 )

Accounts payable and accrued expenses (5,878 ) 7,962

Other liabilities (2,018 ) (1,653 )

Net cash provided by operating activities 774 3,413



Cash flows from investing activities:

Purchase of property and equipment (3,649 ) (2,746 )

Net cash used in investing activities (3,649 ) (2,746 )



Cash flows from financing activities:

Proceeds from revolving line of credit 26,480 20,000

Repayment of revolving line of credit (13,000 ) (20,000 )

Proceeds from long term debt 25,581 -

Repayment of long-term debt (52,025 ) (5,569 )

Debt issuance costs paid (1,064 ) (334 )

Cash received from issuance of common stock 1,224 511

Other, net (395 ) (401 )

Net cash used in financing activities (13,199 ) (5,793 )



Net decrease in cash and cash equivalents (16,074 ) (5,126 )

Cash and cash equivalents - beginning of period 57,768 46,167

Cash and cash equivalents - end of period $ 41,694 $ 41,041

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,

2021

2020

2021

2020

Net income

$

5,724

$

447

$

14,000

$

1,959

Interest expense, net

597

905

1,342

2,373

Income tax provision (benefit)

475

(243

)

2,003

(244

)

Depreciation and amortization

5,908

5,263

11,029

10,623

EBITDA

$

12,704

$

6,372

$

28,374

$

14,711

Restructuring expense (a)

96

-

82

-

Stock-based compensation

5,107

5,385

9,387

10,012

Loss on extinguishment of debt (b)

-

-

460

-

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

588

2,535

1,890

5,112

Adjusted EBITDA

$

18,495

$

14,292

$

40,193

$

29,835

(a) Restructuring expense during the three and six months ended September 30, 2021 relates to the closure of the Company's manufacturing plant, including impairment of plant assets, the disposal of excess inventory on hand at the plant, the termination of manufacturing plant 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, pre-launch costs to develop the Company's first new brand, Keys Soulcare, acquisition-related costs for W3LL PEOPLE, costs related to the automation of certain warehouse and distribution activities, and amortization related to certain cloud computing costs.

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

Reconciliation of GAAP net income to non-GAAP adjusted EBITDA

(unaudited)

(in thousands)

Three months ended Six months ended September 30, September 30,

2021 2020 2021 2020

Net income $ 5,724 $ 447 $ 14,000 $ 1,959

Interest expense, net 597 905 1,342 2,373

Income tax provision 475 (243 ) 2,003 (244 )(benefit)

Depreciation and 5,908 5,263 11,029 10,623 amortization

EBITDA $ 12,704 $ 6,372 $ 28,374 $ 14,711

Restructuring expense (a) 96 - 82 -

Stock-based compensation 5,107 5,385 9,387 10,012

Loss on extinguishment of - - 460 - debt (b)

Other non-cash and 588 2,535 1,890 5,112 non-recurring costs (c)

Adjusted EBITDA $ 18,495 $ 14,292 $ 40,193 $ 29,835

(a) Restructuring expense during the three and six months ended September 30, 2021 relates to the closure of the Company's manufacturing plant, including impairment of plant assets, the disposal of excess inventory on hand at the plant, the termination of manufacturing plant 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, pre-launch costs to develop the Company's first new brand, Keys Soulcare, acquisition-related costs for W3LL PEOPLE, costs related to the automation of certain warehouse and distribution activities, and amortization related to certain cloud computing 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 Six months ended September 30, September 30,

2021 2020 2021 2020

Selling, general, and $ 50,447 $ 45,170 $ 101,196 $ 85,502 administrative expenses

Stock-based compensation (5,033 ) (5,385 ) (9,223 ) (10,012 )

Other non-cash and (240 ) (2,535 ) (1,237 ) (5,112 )non-recurring costs (a)

Adjusted selling, general, $ 45,174 $ 37,250 $ 90,736 $ 70,378 and administrative expenses

(a) Represents various non-cash or non-recurring costs, including proxy contest expenses, pre-launch costs to develop the Company's first new brand, Keys Soulcare, acquisition-related costs for W3LL PEOPLE, 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 Six months ended September September 30, 30,

2021 2020 2021 2020

Net income $ 5,724 $ 447 $ 14,000 $ 1,959

Restructuring 96 - 82 - expense (a)

Stock-based 5,107 5,385 9,387 10,012 compensation

Other non-cash andnon-recurring costs 240 2,535 1,237 5,112 (b)

Loss onextinguishment of - - 460 - debt (c)

Amortization ofacquired intangible 2,031 2,031 4,062 4,062 assets (d)

Tax Impact (e) (1,931 ) (2,309 ) (3,676 ) (4,439 )

Adjusted net income $ 11,267 $ 8,089 $ 25,552 $ 16,706



Weighted averagenumber of shares 53,541,724 51,748,437 53,475,988 51,344,797 outstanding -diluted

Adjusted diluted $ 0.21 $ 0.16 $ 0.48 $ 0.33 earnings per share

(a) Restructuring expense during the three and six months ended September 30, 2021 relates to the closure of the Company's manufacturing plant, including impairment of plant assets, the disposal of excess inventory on hand at the plant, the termination of manufacturing plant employees and sub lease income. (b) Represents various non-cash or non-recurring costs, including proxy contest expenses, pre-launch costs to develop the Company's first new brand, Keys Soulcare, acquisition-related costs for W3LL PEOPLE, 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211103006173/en/

CONTACT: Investors: Melinda Fried Head of Corporate Communications mfried@elfbeauty.com

CONTACT: Media: Brittany Fraser ICR, Inc. elfpr@icrinc.com