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e.l.f. Beauty Announces Third Quarter Fiscal 2023 Results

– Delivered 49% Net Sales Growth –

– Gained 150 Basis Points of Market Share –

– Raises Fiscal 2023 Outlook –

e.l.f. Beauty (NYSE: ELF) today announced results for the three and nine months ended December 31, 2022.

"We delivered a terrific third quarter - growing our net sales by 49% and expanding our market share by 150 basis points, according to Nielsen.” said Tarang Amin, e.l.f. Beauty's Chairman and Chief Executive Officer. “This quarter marked our 16th consecutive quarter of net sales growth, reflecting the continued strong execution by the e.l.f. Beauty team. As we look ahead, we're excited about the potential we see as we continue to make the best of beauty accessible to every eye, lip, face and skin concern."

Three Months Ended December 31, 2022 Results

For the three months ended December 31, 2022, compared to the three months ended December 31, 2021:

  • Net sales increased 49% to $146.5 million, primarily driven by strength in both our retailer and e-commerce channels.
  • Gross margin increased approximately 180 basis points to 67%, primarily driven by price increases, cost savings and product mix, partially offset by inventory adjustments and costs related to space gains and Spring shelf resets.
  • Selling, general and administrative expenses ("SG&A") increased $20.1 million to $75.4 million, or 51% of net sales. Adjusted SG&A (SG&A excluding the items identified in the reconciliation table below) increased $19.6 million to $68.2 million, or 47% of net sales. The increase was primarily due to an increase in marketing and digital spend, compensation and benefits, operations costs, retail fixturing and visual merchandising costs.
  • The provision for income taxes was $4.3 million.
  • Net income was $19.1 million on a GAAP basis. Adjusted net income (net income excluding the items identified in the reconciliation table below) was $26.8 million.
  • Diluted earnings per share were $0.34 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 $0.48.
  • Adjusted EBITDA (EBITDA excluding the items identified in the reconciliation table below) was $36.6 million, or 25% of net sales, up 69% year over year.

Nine Months Ended December 31, 2022 Results

For the nine months ended December 31, 2022, compared to the nine months ended December 31, 2021:

  • Net sales increased 36% to $391.5 million, primarily driven by strength in both our retailer and e-commerce channels.
  • Gross margin increased approximately 255 basis points to 67%, primarily driven by price increases, cost savings, and product mix, partially offset by inventory adjustments and higher transportation costs.
  • SG&A increased $44.6 million to $201.2 million, or 51% of net sales. Adjusted SG&A increased $40.0 million to $179.4 million, or 46% of net sales. The increase was primarily due to an increase in marketing and digital spend, compensation and benefits, operations costs, retail fixturing and visual merchandising costs.
  • The provision for income taxes was $10.5 million.
  • Net income was $45.3 million on a GAAP basis. Adjusted net income was $68.0 million.
  • Diluted earnings per share were $0.82 on a GAAP basis. Adjusted diluted earnings per share were $1.24.
  • Adjusted EBITDA was $95.5 million, or 24% of net sales, up 54% year over year.

Balance Sheet

As of December 31, 2022, the Company had $87.0 million in cash and cash equivalents and $62.2 million in long-term debt and finance lease obligations, as compared to $32.9 million in cash and cash equivalents and $92.5 million of long-term debt and finance lease obligations as of December 31, 2021.

Updated Fiscal 2023 Outlook

The Company is providing the following updated outlook for fiscal 2023. The updated outlook for fiscal 2023 reflects an expected 38-39% year-over-year increase in net sales, as compared to an expected 22-24% year-over-year increase previously.

 

Updated Fiscal 2023 Outlook

 

Previous Fiscal 2023 Outlook

Net sales

$541-545 million

 

$478-486 million

Adjusted EBITDA

$110.5-112 million

 

$93.5-95 million

Adjusted effective tax rate

19%

 

22-23%

Adjusted net income

$75.5-77 million

 

$59-60.5 million

Adjusted diluted earnings per share

$1.37-1.40

 

$1.07-1.10

Fiscal year ending diluted shares outstanding

56 million

 

56 million

Webcast Details

The Company will hold a webcast to discuss the results from its third quarter fiscal 2023 today, February 1, 2023, 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, Inc. builds brands designed to disrupt industry norms, shape culture and connect communities through positivity, inclusivity and accessibility. Our deep commitment to clean, cruelty free beauty at an incredible value has fueled the success of our flagship brand e.l.f. Cosmetics since 2004 and driven our portfolio expansion. Today, our multi-brand portfolio includes e.l.f. Cosmetics, e.l.f. SKIN, pioneering clean beauty brand Well People and Keys Soulcare, a groundbreaking lifestyle beauty brand created with Alicia Keys. Our family of brands is available online and across leading beauty, mass market and clean beauty specialty retailers in the U.S., and has a growing international presence.

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 expense or income related to restructuring of operations, stock-based compensation, loss on extinguishment of debt and other non-cash and non-recurring items. Such other non-cash or non-recurring items historically include legal settlements, pre-launch costs to develop the Company’s brand, Keys Soulcare, third-party costs related to M&A due diligence, and amortization of internal-use software costs related to cloud applications. Adjusted SG&A excludes expense related to stock-based compensation and other non-cash and non-recurring items. Such other non-cash or non-recurring items historically include legal settlements, pre-launch costs to develop the Company’s brand, Keys Soulcare and third-party costs related to M&A due diligence. Adjusted effective tax rate is the tax rate when excluding the pre-tax impact of expense or income related to restructuring of operations, 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 restructuring of operations, stock-based compensation, other non-cash and non-recurring items, loss on extinguishment of debt, amortization of acquired intangible assets and the tax impact of the foregoing adjustments. Such other non-cash or non-recurring items, which historically include legal settlements, pre-launch costs to develop the Company’s brand, Keys Soulcare, and third-party costs related to M&A due diligence.

With respect to the Company’s expectations under “Updated Fiscal 2023 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 2023 under “Updated Fiscal 2023 Outlook” above and those statements regarding our ability to continue to make the best of beauty accessible to every eye, lip, face and skin concern. 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; 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 December 31,

 

Nine months ended December 31,

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net sales

 

$

146,537

 

 

$

98,118

 

 

$

391,487

 

 

$

287,020

 

Cost of sales

 

 

47,812

 

 

 

33,777

 

 

 

130,217

 

 

 

102,788

 

Gross profit

 

 

98,725

 

 

 

64,341

 

 

 

261,270

 

 

 

184,232

 

Selling, general and administrative expenses

 

 

75,434

 

 

 

55,384

 

 

 

201,172

 

 

 

156,580

 

Restructuring (income) expense

 

 

 

 

 

(14

)

 

 

 

 

 

68

 

Operating income

 

 

23,291

 

 

 

8,971

 

 

 

60,098

 

 

 

27,584

 

Other income and expenses, net

 

 

730

 

 

 

(146

)

 

 

(2,195

)

 

 

(954

)

Interest expense, net

 

 

(463

)

 

 

(570

)

 

 

(1,912

)

 

 

(1,912

)

Loss on extinguishment of debt

 

 

(176

)

 

 

 

 

 

(176

)

 

 

(460

)

Income before provision for income taxes

 

 

23,382

 

 

 

8,255

 

 

 

55,815

 

 

 

24,258

 

Income tax provision

 

 

(4,277

)

 

 

(2,041

)

 

 

(10,531

)

 

 

(4,044

)

Net income

 

$

19,105

 

 

$

6,214

 

 

$

45,284

 

 

$

20,214

 

Comprehensive income

 

$

19,105

 

 

$

6,214

 

 

$

45,284

 

 

$

20,214

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.36

 

 

$

0.12

 

 

$

0.87

 

 

$

0.40

 

Diluted

 

$

0.34

 

 

$

0.12

 

 

$

0.82

 

 

$

0.38

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

52,707,406

 

 

 

51,072,639

 

 

 

52,239,761

 

 

 

50,831,985

 

Diluted

 

 

55,840,137

 

 

 

53,891,438

 

 

 

54,906,065

 

 

 

53,614,910

 

 

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

Condensed consolidated balance sheets

(unaudited)

(in thousands, except share and per share data)

 

 

 

December 31, 2022

 

March 31, 2022

 

December 31, 2021

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

87,021

 

 

$

43,353

 

 

$

32,889

 

Accounts receivable, net

 

 

66,237

 

 

 

45,567

 

 

 

47,180

 

Inventory, net

 

 

81,250

 

 

 

84,498

 

 

 

85,248

 

Prepaid expenses and other current assets

 

 

28,382

 

 

 

19,611

 

 

 

19,808

 

Total current assets

 

 

262,890

 

 

 

193,029

 

 

 

185,125

 

Property and equipment, net

 

 

8,726

 

 

 

10,577

 

 

 

12,231

 

Intangible assets, net

 

 

80,071

 

 

 

86,163

 

 

 

88,194

 

Goodwill

 

 

171,620

 

 

 

171,620

 

 

 

171,620

 

Investments

 

 

2,875

 

 

 

2,875

 

 

 

2,875

 

Other assets

 

 

29,743

 

 

 

30,368

 

 

 

30,905

 

Total assets

 

$

555,925

 

 

$

494,632

 

 

$

490,950

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt and capital lease obligations

 

$

5,690

 

 

$

5,786

 

 

$

5,780

 

Accounts payable

 

 

32,049

 

 

 

19,227

 

 

 

22,756

 

Accrued expenses and other current liabilities

 

 

49,798

 

 

 

40,004

 

 

 

33,977

 

Total current liabilities

 

 

87,537

 

 

 

65,017

 

 

 

62,513

 

Long-term debt and finance lease obligations

 

 

62,177

 

 

 

91,080

 

 

 

92,474

 

Deferred tax liabilities

 

 

7,783

 

 

 

9,593

 

 

 

13,078

 

Long-term operating lease obligations

 

 

12,329

 

 

 

15,744

 

 

 

16,659

 

Other long-term liabilities

 

 

795

 

 

 

769

 

 

 

758

 

Total liabilities

 

 

170,621

 

 

 

182,203

 

 

 

185,482

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, par value of $0.01 per share; 250,000,000 shares authorized as of December 31, 2022, March 31, 2022 and December 31, 2021; 53,165,462, 52,243,764 and 52,120,683 shares issued and outstanding as of December 31, 2022, March 31, 2022 and December 31, 2021, respectively

 

 

528

 

 

 

515

 

 

 

512

 

Additional paid-in capital

 

 

823,021

 

 

 

795,443

 

 

 

790,041

 

Accumulated deficit

 

 

(438,245

)

 

 

(483,529

)

 

 

(485,085

)

Total stockholders' equity

 

 

385,304

 

 

 

312,429

 

 

 

305,468

 

Total liabilities and stockholders' equity

 

$

555,925

 

 

$

494,632

 

 

$

490,950

 

 

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

Condensed consolidated statements of cash flows

(unaudited)

(in thousands)

 

 

 

 

 

Nine months ended December 31,

 

 

 

2022

 

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

Net income

 

$

45,284

 

 

$

20,214

 

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

 

 

 

 

Depreciation and amortization

 

 

16,496

 

 

 

20,317

 

Restructuring expense

 

 

 

 

 

68

 

Stock-based compensation expense

 

 

21,833

 

 

 

14,598

 

Amortization of debt issuance costs and discount on debt

 

 

271

 

 

 

304

 

Deferred income taxes

 

 

(1,819

)

 

 

(401

)

Loss on extinguishment of debt

 

 

176

 

 

 

460

 

Other, net

 

 

(1

)

 

 

457

 

Changes in operating assets and liabilities:

 

 

 

 

Accounts receivable

 

 

(20,620

)

 

 

(7,211

)

Inventory

 

 

3,248

 

 

 

(28,390

)

Prepaid expenses and other assets

 

 

(15,223

)

 

 

(8,585

)

Accounts payable and accrued expenses

 

 

22,610

 

 

 

(691

)

Other liabilities

 

 

(3,254

)

 

 

(3,314

)

Net cash provided by operating activities

 

 

69,001

 

 

 

7,826

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Purchase of property and equipment

 

 

(1,647

)

 

 

(4,596

)

Net cash used in investing activities

 

 

(1,647

)

 

 

(4,596

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Proceeds from revolving line of credit

 

 

 

 

 

26,480

 

Repayment of revolving line of credit

 

 

 

 

 

(26,480

)

Proceeds from long-term debt

 

 

 

 

 

25,581

 

Repayment of long-term debt

 

 

(28,750

)

 

 

(53,275

)

Debt issuance costs paid

 

 

 

 

 

(1,064

)

Cash received from issuance of common stock

 

 

5,652

 

 

 

1,236

 

Other, net

 

 

(588

)

 

 

(587

)

Net cash used in financing activities

 

 

(23,686

)

 

 

(28,109

)

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

43,668

 

 

 

(24,879

)

Cash and cash equivalents - beginning of period

 

 

43,353

 

 

 

57,768

 

Cash and cash equivalents - end of period

 

$

87,021

 

 

$

32,889

 

 

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,

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

Net income

 

$

19,105

 

$

6,214

 

 

$

45,284

 

$

20,214

Interest expense, net

 

 

463

 

 

570

 

 

 

1,912

 

 

1,912

Income tax provision

 

 

4,277

 

 

2,041

 

 

 

10,531

 

 

4,044

Depreciation and amortization

 

 

4,386

 

 

5,680

 

 

 

13,399

 

 

16,709

EBITDA

 

$

28,231

 

$

14,505

 

 

$

71,126

 

$

42,879

Restructuring (income) expense (a)

 

 

 

 

(14

)

 

 

 

 

68

Stock-based compensation

 

 

7,257

 

 

5,211

 

 

 

21,833

 

 

14,598

Loss on extinguishment of debt (b)

 

 

176

 

 

 

 

 

176

 

 

460

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

 

 

938

 

 

1,980

 

 

 

2,403

 

 

3,870

Adjusted EBITDA

 

$

36,602

 

$

21,682

 

 

$

95,538

 

$

61,875

(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 other non-cash or non-recurring items, which historically include legal settlements, pre-launch costs to develop the Company’s brand, Keys Soulcare, third-party costs related to M&A due diligence, 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,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Selling, general and administrative expenses

$

75,434

 

 

$

55,384

 

 

$

201,172

 

 

$

156,580

 

Stock-based compensation

 

(7,239

)

 

 

(5,149

)

 

 

(21,810

)

 

 

(14,372

)

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

 

 

 

 

(1,611

)

 

 

 

 

 

(2,848

)

Adjusted selling, general and administrative expenses

$

68,195

 

 

$

48,624

 

 

$

179,362

 

 

$

139,360

 

(a) Represents various other non-cash or non-recurring items, which historically include legal settlements, pre-launch costs to develop the Company’s brand, Keys Soulcare, and third-party costs related to M&A due diligence.

 

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,

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net income

 

$

19,105

 

 

$

6,214

 

 

$

45,284

 

 

$

20,214

 

Restructuring (income) expense (a)

 

 

 

 

 

(14

)

 

 

 

 

 

68

 

Stock-based compensation

 

 

7,257

 

 

 

5,211

 

 

 

21,833

 

 

 

14,598

 

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

 

 

 

 

 

1,611

 

 

 

 

 

 

2,848

 

Loss on extinguishment of debt (c)

 

 

176

 

 

 

 

 

 

176

 

 

 

460

 

Amortization of acquired intangible assets (d)

 

 

2,031

 

 

 

2,031

 

 

 

6,093

 

 

 

6,093

 

Tax Impact (e)

 

 

(1,767

)

 

 

(2,316

)

 

 

(5,402

)

 

 

(5,992

)

Adjusted net income

 

$

26,802

 

 

$

12,737

 

 

$

67,984

 

 

$

38,289

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding – diluted

 

 

55,840,137

 

 

 

53,891,438

 

 

 

54,906,065

 

 

 

53,614,910

 

Adjusted diluted earnings per share

 

$

0.48

 

 

$

0.24

 

 

$

1.24

 

 

$

0.71

 

(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 other non-cash or non-recurring items, which historically include legal settlements, pre-launch costs to develop the Company’s brand, Keys Soulcare, and third-party costs related to M&A due diligence.

(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 and trademarks.

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

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