elf Beauty Inc

Previous wording

e.l.f. Beauty, Inc., a Delaware corporation (“e.l.f. Beauty” and together with its subsidiaries, the “Company,” or “we”), is a multi-brand beauty company that offers inclusive, accessible, clean, vegan and cruelty-free cosmetics and skincare products. Our mission is to make the best of beauty accessible to every eye, lip, face and skin concern.

Current wording

e.l.f. Beauty, Inc., a Delaware corporation (“e.l.f. Beauty” and together with its subsidiaries, the “Company,” or “we”), is a multi-brand beauty company that offers inclusive, accessible, clean, vegan and cruelty free cosmetics and skin care products. Our mission is to make the best of beauty accessible to every eye, lip, face and skin concern.

Previous wording

Net sales increased $311.3 million, or 80%, to $702.8 million for the nine months ended December 31, 2023, compared to $391.5 million for the nine months ended December 31, 2022. The increase was driven primarily by strength in both our retailer and e-commerce channels. Net sales increased $249.2 million, or 72%, in our retailer channels and $62.1 million, or 142%, in our e-commerce channels. From a price and volume perspective, a higher volume of units sold drove $220.2 million of the increase in net sales and a higher average item price within retailer and e-commerce orders drove the remaining $91.1 million increase in net sales as compared to the nine months ended December 31, 2022.

Current wording

Net sales increased $108.1 million, or 50%, to $324.5 million for the three months ended June 30, 2024, compared to $216.3 million for the three months ended June 30, 2023. The increase was driven primarily by strength in both our retailer and e-commerce channels. Net sales increased $81.0 million, or 43%, in our retailer channels and $27.2 million, or 105%, in our e-commerce channels. From a price and volume perspective, a higher volume of units sold drove $73.2 million of the increase in net sales. A higher average item price and mix within retailer and e-commerce orders drove the remaining $34.9 million increase in net sales as compared to the three months ended June 30, 2023.

Previous wording

Gross profit increased $93.2 million, or 94%, to $192.0 million for the three months ended December 31, 2023, compared to $98.7 million for the three months ended December 31, 2022. Higher unit volume drove $55.2 million of the increase in gross profit, with the remaining increase of $38.0 million driven by higher average item price and mix. Gross margin increased to 71% from 67% when compared to the three months ended December 31, 2022. The increase in gross margin rate was primarily driven by favorable foreign exchange impacts, improved transportation costs, cost savings and mix in the three months ended December 31, 2023.

Current wording

Gross profit increased $78.7 million, or 52%, to $231.3 million for the three months ended June 30, 2024, compared to $152.6 million for the three months ended June 30, 2023. Higher unit volume drove $51.7 million of the increase in gross profit, with the remaining increase of $27.1 million driven by higher average item price and mix. Gross margin increased approximately 80 basis points to 71% when compared to the three months ended June 30, 2023. The increase in gross margin was primarily driven by favorable foreign exchange impacts, lower transportation costs, price increases in our international markets, cost savings and mix, partially offset by inventory adjustments.

Previous wording

Selling, general and administrative (“SG&A”) expenses were $160.1 million for the three months ended December 31, 2023, an increase of $84.7 million, or 112%, from $75.4 million for the three months ended December 31, 2022. SG&A expenses as a percentage of net sales increased to 59% for the three months ended December 31, 2023 from 51% for the three months ended December 31, 2022. The $84.7 million increase was primarily related to an increase in marketing and digital spend of $44.0 million, increased compensation and benefits of $10.5 million, increased operations costs of $8.8 million, increased retail fixturing and visual merchandising costs of $7.4 million, increased depreciation and amortization of $5.9 million and increased professional fees of $2.3 million.

Current wording

SG&A expenses were $180.6 million for the three months ended June 30, 2024, an increase of $88.6 million, or 96%, from $91.9 million for the three months ended June 30, 2023. SG&A expenses as a percentage of net sales increased to 56% for the three months ended June 30, 2024 from 42% for the three months ended June 30, 2023. The $88.6 million increase was primarily related to an increase in marketing and digital spend of $40.1 million, increased compensation and benefits expense of $15.1 million, increased operations costs of $10.7 million, increased retail fixturing and visual merchandising costs of $9.4 million, increased professional fees of $4.9 million and increased depreciation and amortization of $4.5 million.

Previous wording

Other income, net totaled $2.6 million for the three months ended December 31, 2023, as compared to $0.7 million for the three months ended December 31, 2022. The year-over-year variance is primarily due to an increase in unrealized gain in the quarter attributable to favorable foreign currency rate fluctuation.

Current wording

Other income, net totaled $0.2 million for the three months ended June 30, 2024, as compared to $0.4 million for the three months ended June 30, 2023. The year-over-year variance is primarily due to an increase in foreign currency exchange losses in the period attributable to foreign currency rate fluctuation.

Previous wording

Interest expense, net was $3.0 million for the nine months ended December 31, 2023, as compared to $1.9 million for the nine months ended December 31, 2022. The year-over-year variance was primarily due to additional borrowings for the three months ended December 31, 2023 as well as higher interest costs, partially offset by increased interest earned on our cash balances. See Note 8, “Debt,” in our unaudited condensed consolidated financial statements for further details on our debt.

Current wording

Interest expense, net was $3.7 million for the three months ended June 30, 2024, as compared to interest income, net of $0.3 million for the three months ended June 30, 2023. The year-over-year variance was primarily due to additional borrowings as well as higher interest costs and lower interest earned on our cash balances. See Note 6, “Debt,” in our unaudited condensed consolidated financial statements for further details on our debt.

Previous wording

The provision for income taxes was $3.5 million, or an effective rate of 11.6%, for the three months ended December 31, 2023, as compared to a provision of $4.3 million, or an effective rate of 18.3%, for the three months ended December 31, 2022. The change in the provision for income taxes was primarily driven by an increase in discrete tax benefits of $3.7 million, primarily related to stock-based compensation, partially offset by an increase in income before taxes of $7.0 million.

Current wording

The income tax benefit was $0.3 million, or an effective rate of (0.7)%, for the three months ended June 30, 2024, as compared to a provision of $6.7 million, or an effective rate of 11.2%, for the three months ended June 30, 2023. The change in the income tax benefit (provision) was primarily driven by a decrease in income before taxes of $12.4 million and an increase in discrete tax benefits of $3.6 million, primarily related to stock-based compensation.

Previous wording

As of December 31, 2023, we had $72.7 million of cash and cash equivalents and $2.3 million of restricted cash. In addition, as of December 31, 2023, we had borrowing capacity of $10.5 million under our Amended Revolving Credit Facility.

Current wording

As of June 30, 2024, we had $109.0 million of cash and cash equivalents. In addition, as of June 30, 2024, we had borrowing capacity of $10.5 million under our Amended Revolving Credit Facility.

Previous wording

Our primary cash needs are for working capital, fixturing, retail product displays and digital investments. Cash needs typically vary depending on strategic initiatives selected for the fiscal year, including investments in infrastructure, digital capabilities and expansion within or to additional retailer store locations.

Current wording

Our primary cash needs are for working capital, fixturing, retail product displays and digital investments. Cash needs typically vary depending on strategic initiatives selected for the fiscal year, including investments in infrastructure, digital capabilities and expansion within or to additional retailer store locations. We expect to fund ongoing cash needs from existing cash and cash equivalents, cash generated from operations and, if necessary, draws on our Amended Revolving Credit Facility.

Previous wording

Our primary working capital requirements are for product and product-related costs, compensation and benefits, distribution costs, advertising and marketing. Fluctuations in working capital are primarily driven by the timing of when a retailer rearranges or restocks its products, expansion of space within our existing retailer base or to new retailers and the general seasonality of our business. As of December 31, 2023, we had working capital, excluding cash and cash equivalents and restricted cash, of $77.0 million, compared to $74.6 million as of March 31, 2023. Working capital, excluding cash and cash equivalents, restricted cash and debt, was $177.4 million and $80.1 million as of December 31, 2023 and March 31, 2023, respectively.

Current wording

Our primary working capital requirements are for product and product-related costs, compensation and benefits, rent, distribution costs and marketing. Fluctuations in working capital are primarily driven by the timing of when a retailer rearranges or restocks its products, expansion of space within our existing retailer base, expansion to new retailers and the general seasonality of our business. As of June 30, 2024, we had working capital, excluding cash and cash equivalents, of $121.6 million, compared to $69.8 million as of March 31, 2024. Working capital, excluding cash and cash equivalents and debt, was $224.6 million and $170.1 million as of June 30, 2024 and March 31, 2024, respectively.

Previous wording

We believe that our operating cash flow, existing cash and cash equivalents and available financing under the Amended Revolving Credit Facility will be adequate to meet our planned operating, investing and financing needs for the next twelve months. The unused balance of the Amended Revolving Credit Facility as of December 31, 2023 was $10.5 million. If necessary, we can borrow funds under our Amended Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all. Our ability to meet our operating, investing and financing needs depends to a significant extent on our future financial performance, which will be subject in part to general economic, competitive, financial, regulatory and other factors that are beyond our control, including those described elsewhere in Part II, Item 1A “Risk factors.” In addition to these general economic and industry factors, the principal factors in determining whether our cash flows will be sufficient to meet our liquidity requirements will be based on our ability to provide innovative products to our customers, manage production and our supply chain.

Current wording

We believe that our operating cash flow, existing cash and cash equivalents and available financing under the Amended Revolving Credit Facility will be adequate to meet our planned operating, investing and financing needs for the next twelve months. The unused balance of the Amended Revolving Credit Facility as of June 30, 2024 was $10.5 million. If necessary, we can borrow funds under our Amended Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all.

Previous wording

For the nine months ended December 31, 2022, net cash provided by operating activities was $69.0 million. This included net income as adjusted for depreciation, amortization and other non-cash items of $82.2 million and an increase in operating assets and liabilities as shown on the statement of cash flows of $13.2 million. The increase in operating assets and liabilities was primarily driven by a $15.2 million increase of prepaid expense and other assets, a $20.6 million increase in accounts receivable and a $3.3 million decrease related to other liabilities. This was partially offset by a $22.6 million increase in accounts payable and accrued expenses and a $3.2 million decrease in inventory.

Current wording

For the three months ended June 30, 2024, net cash provided by operating activities was $1.3 million. This included net income as adjusted for depreciation, amortization and other non-cash items of $76.8 million, partially offset by an increase in working capital of $75.5 million. The increase in working capital was primarily driven by a $31.8 million increase in accounts receivable, a $30.5 million increase in prepaid expense and other assets, a $8.1 million increase in inventory, a $3.1 million decrease in accounts payable and accrued expenses, and a $2.0 million decrease related to other liabilities.

Previous wording

For the nine months ended December 31, 2023, net cash provided by operating activities was $34.1 million. This included net income as adjusted for depreciation, amortization and other non-cash items of $167.2 million, and payment of acquisition-related seller expenses of $10.5 million in connection with the Acquisition, partially offset by an increase in operating assets and liabilities as shown on the statement of cash flows of $122.5 million. The increase in operating assets and liabilities was primarily driven by a $106.9 million increase in inventory. The increase was reflective of building inventory to support net sales growth, as well as $8.7 million related to Naturium inventory, and $27.7 million related to a change in certain vendor arrangements where we now take ownership of inventory at shipment from China versus when it enters our U.S. distribution center. Additional changes to assets and liabilities include a $50.7 million increase in prepaid expense and other assets, a $45.9 million increase in accounts receivable and a $3.8 million decrease related to other liabilities, partially offset by an $84.7 million increase in accounts payable and accrued expenses.

Current wording

For the three months ended June 30, 2023, net cash provided by operating activities was $23.4 million. This included net income as adjusted for depreciation, amortization and other non-cash items of $69.8 million, partially offset by an increase in working capital of $46.4 million. The increase in working capital was primarily driven by a $22.6 million increase in accounts receivable, a $16.7 million increase in inventory, an $8.1 million increase of prepaid expense and other assets, and a $1.0 million decrease related to other liabilities. This was partially offset by a $2.0 million increase in accounts payable and accrued expenses.

Previous wording

For the nine months ended December 31, 2023, net cash used in investing activities was $281.0 million. This includes $275.0 million paid for the Acquisition, and capital expenditures related to fixturing, equipment and software of $6.0 million.

Current wording

For the three months ended June 30, 2024, net cash used in investing activities was $0.9 million primarily consisting of capital expenditures related to fixturing, equipment and software.

Previous wording

For the nine months ended December 31, 2022, net cash used in investing activities was $1.6 million consisting of capital expenditures related to fixturing, equipment and software.

Current wording

For the three months ended June 30, 2023, net cash used in investing activities was $0.6 million consisting of capital expenditures related to fixturing, equipment and software.

Previous wording

For the nine months ended December 31, 2023, net cash provided by financing activities was $201.1 million and was primarily driven by proceeds from the Amended Term Loan Facility of $115.0 million and Revolving Credit Facility of $89.5 million and cash received from the exercise of stock options of $2.9 million. This was partially offset by repayment on the Amended Term Loan Facility of $5.2 million and payment of debt issuance costs of $0.7 million associated with the Second Amendment.

Current wording

For the three months ended June 30, 2024, net cash provided by financing activities was $0.4 million primarily related to cash received from the exercise of stock options.

Previous wording

For the nine months ended December 31, 2022, net cash used in financing activities was $23.7 million and was primarily driven by repayment on the Amended Term Loan Facility of $28.8 million, partially offset by cash received from the exercise of stock options of $5.7 million.

Current wording

For the three months ended June 30, 2023, net cash used in financing activities was $1.0 million and was primarily driven by repayment on the Amended Term Loan Facility of $1.3 million, partially offset by cash received from the exercise of stock options.

Previous wording

On April 30, 2021, we entered into the Amended Credit Agreement and refinanced all loans under the prior credit agreement. The Amended Credit Agreement has a five year term and consists of the Amended Revolving Credit Facility and the Amended Term Loan Facility.

Current wording

On April 30, 2021, we amended and restated our prior credit agreement (as further amended, supplemented or modified from time to time, the “Amended Credit Agreement”) and refinanced all loans under the prior credit agreement. The Amended Credit Agreement has a five year term and consists of revolving credit facility (the “Amended Revolving Credit Facility” and term loan facility (the “Amended Term Loan Facility”).

Previous wording

On August 28, 2023, we entered into the Second Amendment to the Amended Credit Agreement (the “Second Amendment”). Pursuant to the Second Amendment, we may borrow incremental term loans in a principal amount equal to $115.0 million under the Amended Credit Agreement (the “Incremental Term Loan”). The Incremental Term Loan will bear interest at a rate per annum equal to, at our election, adjusted term SOFR or an alternate base rate as set forth in the Second Amendment, plus an interest rate margin, to be based on consolidated total net leverage ratio levels, ranging from, (i) in the case of SOFR loans, 1.50% to 2.375%; provided that if SOFR is less than 0.00%, such rate shall be deemed to be 0.00%, and (ii) in the case of alternate base rate loans, 0.50% to 1.375%; provided that if the alternate base rate is less than 1.00%, such rate shall be deemed to be 1.00%. The Incremental Term Loan amortizes at 5.00% per annum payable in equal quarterly installments of 1.25% per annum, commencing with the fiscal quarter ending on December 31, 2023. We used the Incremental Term Loan together with cash from our balance sheet and additional borrowings under our Amended Revolving Credit Facility to consummate the Acquisition and to pay related fees and expenses in connection with the Acquisition and Second Amendment.

Current wording

On August 28, 2023, we entered into the Second Amendment to the Amended and Restated Credit Agreement (the “Second Amendment”). Pursuant to the Second Amendment, we may borrow incremental term loans in a principal amount equal to $115.0 million under the Amended Credit Agreement (the “Incremental Term Loan”). The Incremental Term Loan will bear interest at a rate per annum equal to, at our election, adjusted term SOFR or an alternate base rate as set forth in the Second Amendment, plus an interest rate margin, to be based on consolidated total net leverage ratio levels, ranging from, (i) in the case of SOFR loans, 1.50% to 2.375%; provided that if SOFR is less than 0.00%, such rate shall be deemed to be 0.00%, and (ii) in the case of alternate base rate loans, 0.50% to 1.375%; provided that if the alternate base rate is less than 1.00%, such rate shall be deemed to be 1.00%. The Incremental Term Loan amortizes at 5.00% per annum payable in equal quarterly installments of 1.25% per annum, commencing with the fiscal quarter ending on December 31, 2023. We used the Incremental Term Loan together with cash from our balance sheet and additional borrowings under our Amended Revolving Credit Facility to consummate the Acquisition and to pay related fees and expenses in connection with the Naturium acquisition and Second Amendment.