elf Beauty Inc

Previous 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.

Current wording

Net sales increased $85.6 million, or 40%, to $301.1 million for the three months ended September 30, 2024, compared to $215.5 million for the three months ended September 30, 2023. The increase was driven primarily by strength in both our retailer and e-commerce channels. Net sales increased $57.7 million, or 30%, in our retailer channels and $27.8 million, or 112%, in our e-commerce channels. From a price and volume perspective, a higher volume of units sold drove $61.5 million of the increase in net sales. A higher average item price and mix within retailer and e-commerce orders drove the remaining $24.1 million increase in net sales as compared to the three months ended September 30, 2023.

Previous 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.

Current wording

Gross profit increased $61.7 million, or 40%, to $214.1 million for the three months ended September 30, 2024, compared to $152.4 million for the three months ended September 30, 2023. Higher unit volume drove $43.5 million of the increase in gross profit, with the remaining increase of $18.2 million driven by higher average item price and mix. Gross margin increased approximately 40 basis points to 71% when compared to the three months ended September 30, 2023. The increase in gross margin was primarily driven by cost savings, favorable foreign exchange impacts, and price increases in our international markets, partially offset by mix and higher transportation costs.

Previous 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.

Current wording

SG&A expenses were $186.1 million for the three months ended September 30, 2024, an increase of $74.0 million, or 66%, from $112.2 million for the three months ended September 30, 2023. SG&A expenses as a percentage of net sales increased to 62% for the three months ended September 30, 2024 from 52% for the three months ended September 30, 2023. The $74.0 million increase was primarily related to an increase in marketing and digital spend of $26.9 million, increased compensation and benefits expense of $18.7 million partly attributed to $5.7 million incremental stock-based compensation expense recognized related to a new policy on retirement eligible awards granted to eligible employees beginning June 2024 which have a shorter requisite service period as the policy provides acceleration of vesting at retirement, increased operations costs of $8.5 million, increased retail fixturing and visual merchandising costs of $6.4 million, increased depreciation and amortization of $4.7 million and increased professional fees of $2.2 million.

Previous 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.

Current wording

Other income, net totaled $3.8 million for the three months ended September 30, 2024, as compared to other expense, net of $1.1 million for the three months ended September 30, 2023. The year-over-year variance is primarily due to an increase in foreign currency exchange gain in the period attributable to foreign currency rate fluctuation.

Previous 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.

Current wording

Interest expense, net was $3.8 million for the three months ended September 30, 2024, as compared to interest income, net of $0.6 million for the three months ended September 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

Impairment of equity investment was $1.7 million for the three months ended June 30, 2023. We elected the measurement alternative for equity investments that do not have readily determinable fair values. We recorded an impairment charge on one of our investments of $1.7 million during the three months ended June 30, 2023, as an identified event or change in circumstances resulted in an indicator of impairment. We did not record an impairment charge on our investment during the three months ended June 30, 2024 as any identified events or changes in circumstances did not result in an indicator of impairment during that period.

Current wording

Impairment of equity investment was $1.7 million for the six months ended September 30, 2023. We elected the measurement alternative for equity investments that do not have readily determinable fair values. We recorded an impairment charge on one of our investments of $1.7 million during the six months ended September 30, 2023, as an identified event or change in circumstances resulted in an indicator of impairment. We did not record an impairment charge on our investment during the six months ended September 30, 2024 as any identified events or changes in circumstances did not result in an indicator of impairment during that period.

Previous 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.

Current wording

The income tax provision was $8.6 million, or an effective rate of 11.4%, for the six months ended September 30, 2024, as compared to a provision of $13.1 million, or an effective rate of 13.2%, for the six months ended September 30, 2023. The change in the income tax provision was primarily driven by a decrease in income before taxes of $24.2 million, partly offset by a decrease in discrete tax benefits of $1.2 million, primarily related to stock-based compensation.

Previous 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.

Current wording

As of September 30, 2024, we had $96.8 million of cash and cash equivalents. In addition, as of September 30, 2024, we had borrowing capacity of $10.5 million under our Amended Revolving Credit Facility.

Previous 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.

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 September 30, 2024, we had working capital, excluding cash and cash equivalents, of $146.4 million, compared to $69.8 million as of March 31, 2024. Working capital, excluding cash and cash equivalents and debt, was $246.6 million and $170.1 million as of September 30, 2024 and March 31, 2024, respectively.

Previous 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.

Current wording

For the six months ended September 30, 2024, net cash provided by operating activities was $12.4 million. This included net income as adjusted for depreciation, amortization and other non-cash items of $126.6 million, partially offset by an increase in working capital of $114.2 million. The increase in working capital was primarily driven by a $48.9 million increase in prepaid expense and other assets, a $45.1 million increase in inventory, a $21.2 million increase in accounts receivable, and a $4.2 million decrease related to other liabilities, partially offset by a $5.2 million increase in accounts payable and accrued expenses.

Previous 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.

Current wording

For the six months ended September 30, 2023, net cash provided by operating activities was $51.3 million. This included net income as adjusted for depreciation, amortization and other non-cash items of $120.2 million, partially offset by an increase in working capital of $68.9 million. The increase in working capital was primarily driven by a $65.9 million increase in inventory. The increase was reflective of building inventory to support net sales growth, as well as $36.9 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 working capital include a $27.1 million increase in prepaid expense and other assets, an $18.8 million increase in accounts receivable, and a $2.3 million decrease related to other liabilities, partially offset by a $45.1 million increase in accounts payable and accrued expenses.

Previous 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.

Current wording

For the six months ended September 30, 2024, net cash used in investing activities was $2.5 million primarily consisting of capital expenditures related to fixturing, equipment and software.

Previous 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.

Current wording

For the six months ended September 30, 2023, net cash used in investing activities was $1.5 million consisting of capital expenditures related to fixturing, equipment and software.

Previous 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.

Current wording

For the six months ended September 30, 2024, net cash used in financing activities was $22.0 million and was primarily driven by repurchases of our common stock of $17.1 million and repayment on the Amended Term Loan Facility of $5.4 million, partially offset by cash received from the exercise of stock options.

Previous wording

The interest rate as of June 30, 2024 for the Amended Revolving Credit Facility and the Amended Term Loan Facility was approximately 6.7%.

Current wording

The interest rate as of September 30, 2024 for the Amended Revolving Credit Facility and the Amended Term Loan Facility was approximately 6.0%.

Previous wording

The interest rate as of June 30, 2024 for the Incremental Term Loan was approximately 6.9%.

Current wording

The interest rate as of September 30, 2024 for the Incremental Term Loan was approximately 6.2%.

Previous wording

The Amended Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability to pay dividends and distributions or repurchase our capital stock, incur additional indebtedness, create liens on assets, engage in mergers or consolidations and sell or otherwise dispose of assets. The Amended Credit Agreement also includes reporting, financial and maintenance covenants that require us to, among other things, comply with certain consolidated total net leverage ratios and consolidated fixed charge coverage ratios. As of June 30, 2024, we were in compliance with all financial covenants under the Amended Credit Agreement.

Current wording

The Amended Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability to pay dividends and distributions or repurchase our capital stock, incur additional indebtedness, create liens on assets, engage in mergers or consolidations and sell or otherwise dispose of assets. The Amended Credit Agreement also includes reporting, financial and maintenance covenants that require us to, among other things, comply with certain consolidated total net leverage ratios and consolidated fixed charge coverage ratios.