e.l.f. Beauty Announces Second Quarter Fiscal 2021 Results

– Delivered 7% Net Sales Growth and 100 Basis Points Gross Margin Expansion –

– Gained 100 Basis Points of Market Share in Nielsen U.S. Color Cosmetics –

– Provides Fiscal 2021 Guidance –

e.l.f. Beauty ELF today announced results for the three and six months ended September 30, 2020.

"Our deep commitment to inclusive, accessible, and cruelty-free beauty continues to resonate with consumers," said Tarang Amin, e.l.f. Beauty's Chairman and Chief Executive Officer. "This is our seventh consecutive quarter of net sales growth. Of the top five color cosmetics brands in the U.S., e.l.f. was the only brand to post growth in the quarter, and the only brand to grow share, according to Nielsen. We also took important next steps in our transformation to a multi-brand portfolio with the unveiling of Keys Soulcare and the launch of our recharged W3LL PEOPLE brand."

"We believe the focused work behind our strategic imperatives has set the foundation for long-term growth and provided a platform for our strategic extensions. While we expect the near-term operating environment to remain dynamic, I am confident in our ability to continue to execute our strategy and emerge with an even stronger, more diversified brand portfolio."

Three Months Ended September 30, 2020 Results

Net sales increased 7%, or $4.7 million, to $72.4 million, as compared to $67.6 million in the three months ended September 30, 2019. The increase was primarily driven by strength in digital, as well as growth internationally and within Nielsen tracked channel customers.

Gross margin increased 100 basis points to 65%, as compared to 64% in the three months ended September 30, 2019. The increase was primarily driven by a combination of margin accretive product mix and cost savings, a favorable foreign exchange impact, and a shift in sales mix to elfcosmetics.com, partially offset by the impact of tariffs on goods imported from China and certain costs associated with space expansion and customer reset activity.

Selling, general and administrative expenses ("SG&A") were $45.2 million, or 62% of net sales, as compared to $38.4 million, or 57% of net sales in the three months ended September 30, 2019. The increase was primarily due to increased employee compensation costs related to annualizing headcount from building out the Company's marketing, digital and innovation capabilities, investments in marketing and digital, operations costs driven by the increase in e-commerce sales, and certain costs to support merchandising and retailer reset activity. Adjusted SG&A (SG&A excluding the items identified in the reconciliation table below) was $37.3 million, or 51% of net sales, as compared to $34.3 million, or 51% of net sales in the three months ended September 30, 2019.

The benefit for income taxes was $0.2 million, as compared to a provision of $1.5 million in the three months ended September 30, 2019. The change was primarily driven by a decrease in income before taxes of $7.8 million, while discrete tax benefits, primarily related to stock-based compensation, were consistent in both periods.

Net income was $0.4 million, or $0.01 per diluted share, as compared to net income of $6.5 million, or $0.13 per diluted share in the three months ended September 30, 2019.

Adjusted EBITDA (EBITDA excluding the items identified in the reconciliation table below) decreased 4% to $14.3 million from $15.0 million in the three months ended September 30, 2019.

Adjusted net income (net income excluding the items identified in the reconciliation table below) was $8.1 million, or $0.16 per diluted share, as compared to adjusted net income of $7.7 million, or $0.15 per diluted share in the three months ended September 30, 2019.

Six Months Ended September 30, 2020 Results

Net sales increased 7%, or $9.5 million, to $136.9 million, as compared to $127.4 million in the six months ended September 30, 2019. The increase was primarily driven by strength in digital, as well as growth internationally and within Nielsen tracked channel customers.

Gross margin increased 300 basis points to 66%, as compared to 63% in the six months ended September 30, 2019. This increase was primarily driven by a combination of margin accretive product mix and cost savings, price increases implemented last summer, a favorable foreign exchange impact, and a shift in sales mix to elfcosmetics.com, partially offset by the impact of tariffs on goods imported from China.

SG&A was $85.5 million, or 62% of net sales, as compared to $70.5 million, or 55% of net sales in the six months ended September 30, 2019. The increase was primarily due to increased employee compensation costs related to annualizing headcount from building out our marketing, digital and innovation capabilities, proxy contest costs, investments in marketing and digital, operations costs driven by the increase in e-commerce sales, and certain costs to support merchandising and retailer reset activity. Adjusted SG&A was $70.4 million, or 51% of net sales, as compared to $62.1 million, or 49% of net sales in the six months ended September 30, 2019.

The benefit for income taxes was $0.2 million, as compared to a provision of $3.4 million in the six months ended September 30, 2019. The change was primarily driven by a decrease in income before taxes of $11.9 million and an increase in discrete tax benefit of $0.7 million, primarily related to stock-based compensation.

Net income was $2.0 million, or $0.04 per diluted share, as compared to net income of $10.2 million, or $0.20 per diluted share, in the six months ended September 30, 2019.

Adjusted EBITDA increased 1% to $29.8 million from $29.5 million in the six months ended September 30, 2019.

Adjusted net income was $16.7 million, or $0.33 per diluted share, as compared to adjusted net income of $14.6 million, or $0.29 per diluted share, in the six months ended September 30, 2019.

Balance Sheet

As of September 30, 2020, the Company had $41.0 million in cash and cash equivalents, as compared to $58.7 million as of September 30, 2019. As of September 30, 2020, long-term debt totaled $118.6 million, as compared to $132.4 million as of September 30, 2019.

Fiscal 2021 Outlook

Although uncertainty remains related to the duration and potential impact of the COVID-19 pandemic as well as the overall economic environment, the Company believes it has better visibility for the balance of its fiscal year and is issuing guidance for fiscal 2021. The Company's guidance assumes no significant disruption to its consumers, customers or supply chain for the remainder of fiscal 2021.

"While we expect consumer behavior to be impacted by COVID-19 through the rest of our fiscal year, we remain optimistic about our ability to continue to gain share," said Mandy Fields, e.l.f. Beauty's Chief Financial Officer. "We believe that our digital strength, core value proposition and continued execution of our strategic imperatives will fuel our performance."

The Company is providing the following outlook for fiscal 2021. When compared to net sales in fiscal 2020, the outlook for fiscal 2021 reflects an expected 5-7% increase in net sales.

Long Term Economic Model

"We believe our financial performance over the last seven quarters demonstrates strong underlying business fundamentals and sets the stage for long-term growth," said Mr. Amin. "With contributions from e.l.f. Cosmetics, Keys Soulcare and W3LL PEOPLE, we expect to deliver a combination of both net sales and Adjusted EBITDA growth over the next three fiscal years."

With fiscal 2021 as the base, the Company believes it can achieve compounded annual top line growth in the mid- to high-single digits over its next three fiscal years from the combination of e.l.f. Cosmetics growth and shelf space gains, along with contributions from strategic extensions like Keys Soulcare and W3LL PEOPLE. The Company anticipates Adjusted EBITDA leverage will be achieved through a mix of top-line growth and leverage on cost of goods sold and/or SG&A over that three-year horizon.

Webcast Details

The Company will hold a webcast to discuss the results from its second quarter fiscal 2021 today, November 4, 2020, at 4:30 p.m. Eastern Time. Those interested in participating are invited to register prior to the start of the webcast at https://investor.elfbeauty.com/news-and-events/events. Following the presentation, anyone who would like to ask a question should do so through a separate dial-in line at (866) 807-9684 or (412) 317-5415 internationally. Those not asking questions will be able to hear the question and answer session through the same webcast link. A replay of the webcast will be available at the link above for twelve-months.

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 acquisition of the pioneering clean-beauty brand W3LL PEOPLE in February 2020, and a new lifestyle beauty brand Keys Soulcare created with Alicia Keys, and expected to launch in 2021, 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 EPS. 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 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 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 net income excludes costs or gains related to restructuring of operations, stock-based compensation, 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 2021 Outlook" above, the Company is not able to provide a quantitative reconciliation of the adjusted EBITDA, adjusted net income and adjusted diluted EPS guidance non-GAAP measures to the corresponding net income and diluted EPS 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 year 2021 as well as its expectations regarding the duration and potential impact of the COVID-19 pandemic as well as the overall economic environment under "Fiscal 2021 Outlook" above; the Company's long term economic model and its expectations regarding net sales and Adjusted EBITDA growth (and the reasons for such growth) over the next three fiscal years under "Long Term Economic Model" above; the Company's belief the focused work behind its strategic imperatives has set the foundation for long-term growth and provided a platform for its strategic extensions; the Company's expectation that the near-term operating environment will remain dynamic; the Company's confidence in its ability to continue to execute its strategy and emerge with an even stronger, more diversified brand portfolio; the Company's optimism about its ability to continue to gain share; and the Company's belief that its digital strength, core value proposition and continued execution of its strategic imperatives will 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201104005598/en/