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

Share:

– Delivered 10% Net Sales Growth –

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

– Raises Fiscal 2021 Guidance –

e.l.f. Beauty (NYSE:ELF) today announced results for the three and nine months ended December 31, 2020.

"Our core value proposition and product innovation continue to resonate with consumers," said Tarang Amin, e.l.f. Beauty's Chairman and Chief Executive Officer. "Of the top five color cosmetics brands in the U.S., e.l.f. grew the most share in the quarter. We also advanced our transformation to a multi-brand portfolio with the launch of our Keys Soulcare skincare collection."

"I'm proud of the e.l.f. Beauty team for delivering eight consecutive quarters of net sales growth. Our brand building efforts and digital focus fueled our growth before and during the pandemic, and we believe position us well for the future," added Amin.

Three Months Ended December 31, 2020 Results

Net sales increased 10%, or $7.8 million, to $88.6 million, as compared to $80.8 million in the three months ended December 31, 2019. The increase was driven by strength in e-commerce, international, and our national retailers.

Gross margin decreased 50 basis points to 64%, as compared to 65% in the three months ended December 31, 2019. Gross margin benefited from margin accretive product mix and cost savings, a mix shift to elfcosmetics.com, and to a lesser degree, a favorable foreign exchange rate impact. Offsetting these benefits were certain costs related to retailer activity and space expansion.

Selling, general and administrative expenses ("SG&A") were $50.8 million, or 57% of net sales, as compared to $39.6 million, or 49% of net sales in the three months ended December 31, 2019. Adjusted SG&A (SG&A excluding the items identified in the reconciliation table below) was $43.3 million, or 49% of net sales, as compared to $35.8 million, or 44% of net sales in the three months ended December 31, 2019. The increase was primarily due to investments in marketing and digital, headcount costs from building out the Company's marketing, digital and innovation capabilities, and increased operational costs driven by the increase in e-commerce sales.

The provision for income taxes was $0.5 million, as compared to a provision of $3.0 million in the three months ended December 31, 2019. The change was primarily driven by a decrease in income before taxes of $6.2 million and an increase in discrete tax benefit of $1.1 million, primarily related to stock-based compensation.

Net income was $4.3 million, or $0.08 per diluted share, as compared to net income of $8.0 million, or $0.16 per diluted share in the three months ended December 31, 2019.

Adjusted net income (net income excluding the items identified in the reconciliation table below) was $11.6 million, or $0.22 per diluted share, as compared to adjusted net income of $12.2 million, or $0.24 per diluted share in the three months ended December 31, 2019.

Adjusted EBITDA (EBITDA excluding the items identified in the reconciliation table below) decreased 14% to $18.3 million from $21.4 million in the three months ended December 31, 2019.

Nine Months Ended December 31, 2020 Results

Net sales increased 8%, or $17.3 million, to $225.4 million, as compared to $208.1 million in the nine months ended December 31, 2019. The increase was driven by strength in e-commerce, international, and our national retailers.

Gross margin increased 150 basis points to 65%, as compared to 64% in the nine months ended December 31, 2019. This increase was primarily driven by a combination of margin accretive product mix and cost savings, price increases implemented in Summer 2019, 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 related to retailer reset activity and space expansion.

SG&A was $136.3 million, or 60% of net sales, as compared to $110.1 million, or 53% of net sales in the nine months ended December 31, 2019. Adjusted SG&A was $113.7 million, or 50% of net sales, as compared to $97.8 million, or 47% of net sales in the nine months ended December 31, 2019. The increase was primarily due to increased headcount costs from building out the Company's marketing, digital and innovation capabilities, investments in marketing and digital, proxy contest costs, and increased operational costs driven by the increase in e-commerce sales.

The provision for income taxes was $0.2 million, as compared to a provision of $6.4 million in the nine months ended December 31, 2019. The change was primarily driven by a decrease in income before taxes of $18.1 million and an increase in discrete tax benefit of $1.8 million, primarily related to stock-based compensation.

Net income was $6.3 million, or $0.12 per diluted share, as compared to net income of $18.2 million, or $0.36 per diluted share, in the nine months ended December 31, 2019.

Adjusted net income was $28.3 million, or $0.55 per diluted share, as compared to adjusted net income of $26.8 million, or $0.53 per diluted share, in the nine months ended December 31, 2019.

Adjusted EBITDA decreased 5% to $48.2 million from $50.9 million in the nine months ended December 31, 2019.

Balance Sheet

As of December 31, 2020, the Company had $35.4 million in cash and cash equivalents, as compared to $74.7 million as of December 31, 2019. As of December 31, 2020, long-term debt and finance lease obligations totaled $114.4 million, as compared to $129.2 million as of December 31, 2019.

Fiscal 2021 Outlook

The Company is providing the following updated outlook for fiscal 2021. When compared to net sales in fiscal 2020, the updated outlook reflects an expected 7-9% increase in net sales in fiscal 2021, as compared to 5-7% previously.

 

New Fiscal 2021 Outlook

Original Fiscal 2021 Outlook

Net sales

$304-308 million

$297-303 million

Adjusted EBITDA

$59-60 million

$57-60 million

Adjusted net income

$33-34 million

$31-33 million

Adjusted diluted EPS

$0.63-0.64

$0.59-0.63

Webcast Details

The Company will hold a webcast to discuss the results from its third quarter fiscal 2021 today, February 3, 2021, at 4:30 p.m. Eastern Time. The webcast will be broadcasted 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 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 2021 under "Fiscal 2021 Outlook" above and the Company's belief that the Company's brand building efforts and digital focus position the Company well for the future. 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,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Net sales

 

$

88,562

 

 

$

80,760

 

 

$

225,439

 

 

$

208,139

 

Cost of sales

 

31,443

 

 

28,240

 

 

77,841

 

 

75,080

 

Gross profit

 

57,119

 

 

52,520

 

 

147,598

 

 

133,059

 

Selling, general and administrative expenses

 

50,828

 

 

39,632

 

 

136,330

 

 

110,131

 

Restructuring expense (income)

 

 

 

8

 

 

 

 

(5,982

)

Operating income

 

6,291

 

 

12,880

 

 

11,268

 

 

28,910

 

Other (expense) income, net

 

(677

)

 

(335

)

 

(1,566

)

 

602

 

Interest expense, net

 

(855

)

 

(1,560

)

 

(3,228

)

 

(4,920

)

Income before provision for income taxes

 

4,759

 

 

10,985

 

 

6,474

 

 

24,592

 

Income tax provision

 

(462

)

 

(2,983

)

 

(218

)

 

(6,367

)

Net income

 

$

4,297

 

 

$

8,002

 

 

$

6,256

 

 

$

18,225

 

Comprehensive income

 

$

4,297

 

 

$

8,002

 

 

$

6,256

 

 

$

18,225

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

$

0.16

 

 

$

0.13

 

 

$

0.38

 

Diluted

 

$

0.08

 

 

$

0.16

 

 

$

0.12

 

 

$

0.36

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

49,459,837

 

 

 

48,525,904

 

 

 

49,178,138

 

 

 

48,430,871

 

Diluted

 

52,335,821

 

 

50,966,550

 

 

51,675,651

 

 

50,741,492

 

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

Condensed consolidated balance sheets

(unaudited)

(in thousands, except share and per share data)

 

 

 

December 31, 2020

 

March 31, 2020

 

December 31, 2019

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,439

 

 

$

46,167

 

 

$

74,740

 

Accounts receivable, net

 

44,555

 

 

29,721

 

 

35,082

 

Inventory, net

 

68,567

 

 

46,209

 

 

48,382

 

Prepaid expenses and other current assets

 

11,728

 

 

10,263

 

 

8,054

 

Total current assets

 

160,289

 

 

132,360

 

 

166,258

 

Property and equipment, net

 

16,790

 

 

17,171

 

 

16,487

 

Intangible assets, net

 

96,317

 

 

102,410

 

 

91,893

 

Goodwill

 

171,620

 

 

171,321

 

 

157,264

 

Investments

 

2,875

 

 

2,875

 

 

2,875

 

Other assets

 

33,014

 

 

26,967

 

 

21,474

 

Total assets

 

$

480,905

 

 

$

453,104

 

 

$

456,251

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt and capital lease obligations

 

$

15,250

 

 

$

12,568

 

 

$

11,939

 

Accounts payable

 

20,108

 

 

12,390

 

 

19,589

 

Accrued expenses and other current liabilities

 

31,322

 

 

26,165

 

 

29,767

 

Total current liabilities

 

66,680

 

 

51,123

 

 

61,295

 

Long-term debt and finance lease obligations

 

114,421

 

 

126,088

 

 

129,236

 

Deferred tax liabilities

 

16,247

 

 

21,892

 

 

17,633

 

Long-term operating lease obligations

 

18,370

 

 

11,239

 

 

5,084

 

Other long-term liabilities

 

585

 

 

591

 

 

556

 

Total liabilities

 

216,303

 

 

210,933

 

 

213,804

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, par value of $0.01 per share; 250,000,000 shares authorized as of December 31, 2020, March 31, 2020 and December 31, 2019; 51,240,997, 50,003,531 and 49,914,987 shares issued and outstanding as of December 31, 2020, March 31, 2020 and December 31, 2019, respectively

 

497

 

 

489

 

 

486

 

Additional paid-in capital

 

769,380

 

 

753,213

 

 

753,151

 

Accumulated deficit

 

(505,275

)

 

(511,531

)

 

(511,190

)

Total stockholders' equity

 

264,602

 

 

242,171

 

 

242,447

 

Total liabilities and stockholders' equity

 

$

480,905

 

 

$

453,104

 

 

$

456,251

 

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

Condensed consolidated statements of cash flows

(unaudited)

(in thousands)

 

 

 

Nine months ended December 31,

 

 

2020

 

2019

Cash flows from operating activities:

 

 

 

 

Net income

 

$

6,256

 

 

$

18,225

 

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

 

 

 

 

Depreciation and amortization

 

18,808

 

 

16,863

 

Restructuring income

 

 

 

(5,982

)

Stock-based compensation expense

 

15,040

 

 

11,282

 

Amortization of debt issuance costs and discount on debt

 

641

 

 

565

 

Deferred income taxes

 

(5,684

)

 

880

 

Other, net

 

54

 

 

410

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

(14,870

)

 

(3,027

)

Inventories

 

(22,351

)

 

(4,603

)

Prepaid expenses and other assets

 

(5,013

)

 

(3,260

)

Accounts payable and accrued expenses

 

11,421

 

 

17,628

 

Other liabilities

 

(2,352

)

 

(11,181

)

Net cash provided by operating activities

 

1,950

 

 

37,800

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchase of property and equipment

 

(3,958

)

 

(7,073

)

Net cash used in investing activities

 

(3,958

)

 

(7,073

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Proceeds from revolving line of credit

 

20,000

 

 

 

Repayment of revolving line of credit

 

(20,000

)

 

 

Repayment of long-term debt

 

(8,663

)

 

(7,013

)

Debt issuance costs paid

 

(334

)

 

 

Repurchase of common stock

 

 

 

(3,546

)

Cash received from issuance of common stock

 

882

 

 

1,272

 

Other, net

 

(605

)

 

(574

)

Net cash used in financing activities

 

(8,720

)

 

(9,861

)

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(10,728

)

 

20,866

 

Cash and cash equivalents - beginning of period

 

46,167

 

 

53,874

 

Cash and cash equivalents - end of period

 

$

35,439

 

 

$

74,740

 

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,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Net income

 

$

4,297

 

 

$

8,002

 

 

$

6,256

 

 

$

18,225

 

Interest expense, net

 

855

 

 

1,560

 

 

3,228

 

 

4,920

 

Income tax provision

 

462

 

 

2,983

 

 

218

 

 

6,367

 

Depreciation and amortization

 

5,179

 

 

5,009

 

 

15,802

 

 

14,945

 

EBITDA

 

$

10,793

 

 

$

17,554

 

 

$

25,504

 

 

$

44,457

 

Restructuring expense (income) (a)

 

 

 

8

 

 

 

 

(5,982

)

Stock-based compensation

 

5,028

 

 

3,352

 

 

15,040

 

 

11,282

 

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

 

2,519

 

 

516

 

 

7,631

 

 

1,148

 

Adjusted EBITDA

 

$

18,340

 

 

$

21,430

 

 

$

48,175

 

 

$

50,905

 

(a) Represents restructuring income related to the e.l.f. retail store closures. The nine months ended December 31, 2019 included a gain related to settlement of outstanding lease liabilities equal to the difference between the amount of cash disbursed and the outstanding liability at the time of settlement.

(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.

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,

 

2020

 

2019

 

2020

 

2019

Selling, general, and administrative expenses

$

50,828

 

 

$

39,632

 

 

$

136,330

 

 

$

110,131

 

Stock-based compensation

(5,023

)

 

(3,352

)

 

(15,035

)

 

(11,282

)

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

(2,519

)

 

(516

)

 

(7,631

)

 

(1,023

)

Adjusted selling, general, and administrative expenses

$

43,286

 

 

$

35,764

 

 

$

113,664

 

 

$

97,826

 

(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 December 31,

 

Nine months ended December 31,

 

 

2020

 

2019

 

2020

 

2019

Net income

 

$

4,297

 

 

$

8,002

 

 

$

6,256

 

 

$

18,225

 

Restructuring expense (income) (a)

 

 

 

8

 

 

 

 

(5,982

)

Stock-based compensation

 

5,028

 

 

3,352

 

 

15,040

 

 

11,282

 

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

 

2,519

 

 

516

 

 

7,631

 

 

1,148

 

Amortization of acquired intangible assets (c)

 

2,031

 

 

1,720

 

 

6,093

 

 

5,160

 

Tax Impact (d)

 

(2,233

)

 

(1,395

)

 

(6,672

)

 

(2,992

)

Adjusted net income

 

$

11,642

 

 

$

12,203

 

 

$

28,348

 

 

$

26,841

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding – diluted

 

52,335,821

 

 

50,966,550

 

 

51,675,651

 

 

50,741,492

 

Adjusted diluted earnings per share

 

$

0.22

 

 

$

0.24

 

 

$

0.55

 

 

$

0.53

 

(a) Represents restructuring income related to the e.l.f. retail store closures. The nine months ended December 31, 2019 included a gain related to settlement of outstanding lease liabilities equal to the difference between the amount of cash disbursed and the outstanding liability at the time of settlement.

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

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

 

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