elf-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_______________________________________________________________

FORM 10-Q

_______________________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ______ to ______

Commission File Number: 001-37873

_______________________________________________________________

e.l.f. Beauty, Inc.

(Exact name of registrant as specified in its charter)

_______________________________________________________________


Delaware						46-4464131
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


570 10th Street
Oakland,	CA	94607

(Address of principal executive offices)(Zip code)

_______________________________________________________________


(510)			778-7787

(Registrant’s telephone number, including area code)

_______________________________________________________________


Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ELF	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non- accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of July 27, 2023 was 54,457,319 shares.

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this "Quarterly Report") contains forward-looking statements within the meaning of the federal securities laws concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” ”believe,” “contemplate,” “continue,” "could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements are based on management's current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, our actual results and the timing of selected events may differ materially. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk factors” in Part II, Item 1A of this Quarterly Report and elsewhere in this Quarterly Report. 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 of this Quarterly Report. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

SUMMARY OF MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS

The principal risks and uncertainties affecting our business include the following:

•The beauty industry is highly competitive, and if we are unable to compete effectively our results will suffer.

•Our new product introductions may not be as successful as we anticipate.

•Any damage to our reputation or brands may materially and adversely affect our business, financial condition and results of operations.

•Our success depends, in part, on the quality, performance and safety of our products.

•We may not be able to successfully implement our growth strategy.

•Our growth and profitability are dependent on a number of factors, and our historical growth may not be indicative of our future growth.

•We may be unable to grow our business effectively or efficiently, which would harm our business, financial condition and results of operations.

•A disruption in our operations, including a disruption in the supply chain for our products, could materially and adversely affect our business.

•We rely on a number of third-party suppliers, manufacturers, distributors and other vendors, and they may not continue to produce products or provide services that are consistent with our standards or applicable regulatory requirements, which could harm our brands, cause consumer dissatisfaction, and require us to find alternative suppliers of our products or services.

•Adverse economic conditions in the United States ("US") or any of the other countries in which we conduct significant business could negatively affect our business, financial condition and results of operations.

•We depend on a limited number of retailers for a large portion of our net sales, and the loss of one or more of these retailers, or business challenges at one or more of these retailers, could adversely affect our results of operations.

•We have significant operations in China, which exposes us to risks inherent in doing business in that country.

•We are subject to international business uncertainties.

•If we are unable to protect our intellectual property, the value of our brands and other intangible assets may be diminished, and our business may be adversely affected.

•Our success depends on our ability to operate our business without infringing, misappropriating or otherwise violating the trademarks, patents, copyrights and other proprietary rights of third parties.

The summary risk factors described above should be read together with the text of the full risk factors below in the section titled “Risk factors” and the other information set forth in this Quarterly Report, including our unaudited condensed consolidated financial statements and the related notes, as well as in other documents that we file with the U.S. Securities and Exchange Commission (the "SEC"). The risks summarized above or described in the section titled “Risk factors” are not the only risks that we face. Additional risks and uncertainties not precisely known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations, and future growth prospects.

e.l.f. Beauty, Inc.

Table of Contents


PART I. FINANCIAL INFORMATION			5
Item 1. Financial statements (unaudited)			5
Condensed consolidated balance sheets			5
Condensed consolidated statements of operations and comprehensive income			6

Condensed consolidated statements of stockholders’ equity			7
Condensed consolidated statements of cash flows			8
Notes to condensed consolidated financial statements (unaudited)			9

Item 2. Management’s discussion and analysis of financial condition and results of operations			17

Item 3. Quantitative and qualitative disclosures about market risk			22

Item 4. Controls and procedures			22

PART II. OTHER INFORMATION			23

Item 1. Legal proceedings			23

Item 1A. Risk factors			23

Item 2. Unregistered sales of equity securities and use of proceeds			49

Item 3. Defaults upon senior securities			49

Item 4. Mine safety disclosures			49

Item 5. Other information			50

Item 6. Exhibits			51

SIGNATURES			52

PART I. FINANCIAL INFORMATION

Item 1. Financial statements (unaudited)

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

Condensed consolidated balance sheets

(unaudited)

(in thousands, except share and per share data)


	June 30, 2023		March 31, 2023		June 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	142,549	$	120,778	$	72,248
Accounts receivable, net	90,531		67,928		52,281
Inventory, net	98,053		81,323		70,339
Prepaid expenses and other current assets	39,276		33,296		21,772
Total current assets	370,409		303,325		216,640
Property and equipment, net	7,581		7,874		9,339
Intangible assets, net	76,013		78,041		84,132
Goodwill	171,620		171,620		171,620
Investments	1,155		2,875		2,875
Other assets	31,103		31,866		29,251
Total assets	$	657,881	$	595,601	$	513,857

Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt and finance lease obligations	$	5,431	$	5,575	$	5,793
Accounts payable	53,237		31,427		16,023
Accrued expenses and other current liabilities	51,037		70,974		39,916
Total current liabilities	109,705		107,976		61,732
Long-term debt and finance lease obligations	59,612		60,881		89,684
Deferred tax liabilities	5,855		3,742		13,538
Long-term operating lease obligations	10,137		11,201		14,637
Other long-term liabilities	870		784		817
Total liabilities	186,179		184,584		180,408

Commitments and contingencies (Note 7)

Stockholders' equity:
Common stock, par value of $0.01 per share; 250,000,000 shares authorized as of June 30, 2023, March 31, 2023 and June 30, 2022; 54,417,579, 53,770,482 and 52,424,445 shares issued and outstanding as of June 30, 2023, March 31, 2023 and June 30, 2022, respectively	543		535		517
Additional paid-in capital	840,181		832,481		801,992
Accumulated deficit	(369,022)		(421,999)		(469,060)

Total stockholders' equity	471,702		411,017		333,449
Total liabilities and stockholders' equity	$	657,881	$	595,601	$	513,857

The accompanying notes are an integral part of these condensed consolidated financial statements.

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 June 30,
		2023		2022
Net sales		$	216,339	$	122,601
Cost of sales		63,767		39,616
Gross profit		152,572		82,985
Selling, general and administrative expenses		91,939		61,555

Operating income		60,633		21,430
Other income (expense), net		399		(1,663)
Impairment of equity investment		(1,720)		—
Interest income (expense), net		341		(663)

Income before provision for income taxes		59,653		19,104
Income tax provision		(6,676)		(4,635)
Net income		$	52,977	$	14,469
Comprehensive income		$	52,977	$	14,469

Net income per share:
Basic		$	0.98	$	0.28
Diluted		$	0.93	$	0.27
Weighted average shares outstanding:
Basic		53,938,136		51,707,160
Diluted		57,175,870		53,834,732

The accompanying notes are an integral part of these condensed consolidated financial statements.

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

Condensed consolidated statements of stockholders’ equity

(unaudited)

(in thousands, except share data)


	Common stock					Additional paid-in capital	Accumulated deficit				Total stockholders' equity
		Shares			Amount
Balance as of March 31, 2023		53,571,577	$	535			$	832,481	$	(421,999)		$	411,017
Net income		—	—				—		52,977			52,977
Stock-based compensation		—	—				7,223		—			7,223
Exercise of stock options and vesting of restricted stock		754,953	8				477		—			485

Balance as of June 30, 2023		54,326,530	$	543			$	840,181	$	(369,022)		$	471,702


	Common stock					Additional paid-in capital	Accumulated deficit				Total stockholders' equity
		Shares			Amount
Balance as of March 31, 2022		51,524,307	$	515			$	795,443	$	(483,529)		$	312,429
Net income		—	—				—		14,469			14,469
Stock-based compensation		—	—				6,549		—			6,549
Exercise of stock options and vesting of restricted stock		558,336	2				—		—			2

Balance as of June 30, 2022		52,082,643	$	517			$	801,992	$	(469,060)		$	333,449

The accompanying notes are an integral part of these condensed consolidated financial statements.

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

Condensed consolidated statements of cash flows

(unaudited)

(in thousands)


	Three months ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	52,977	$	14,469
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,637		5,724

Stock-based compensation expense	7,200		6,542
Amortization of debt issuance costs and discount on debt	75		91
Deferred income taxes	2,113		3,945
Impairment of equity investment	1,720		—


Other, net	71		21
Changes in operating assets and liabilities:
Accounts receivable	(22,615)		(6,727)
Inventory	(16,729)		14,158
Prepaid expenses and other assets	(8,094)		(3,258)
Accounts payable and accrued expenses	2,014		(3,442)
Other liabilities	(1,015)		(945)
Net cash provided by operating activities	23,354		30,578

Cash flows from investing activities:

Purchase of property and equipment	(616)		(241)


Net cash used in investing activities	(616)		(241)

Cash flows from financing activities:



Repayment of long-term debt	(1,250)		(1,250)


Cash received from issuance of common stock	485		2



Other, net	(202)		(194)
Net cash used in financing activities	(967)		(1,442)

Net increase in cash and cash equivalents	21,771		28,895
Cash and cash equivalents - beginning of period	120,778		43,353
Cash and cash equivalents - end of period	$	142,549	$	72,248

The accompanying notes are an integral part of these condensed consolidated financial statements.

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

Notes to condensed consolidated financial statements (unaudited)

Note 1—Nature of operations

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. The Company's mission is to make the best of beauty accessible to every eye, lip, face and skin concern.

The Company believes its ability to deliver cruelty-free, clean, vegan and premium-quality products at accessible prices with broad appeal differentiates it in the beauty industry. The Company believes the combination of its value proposition, innovation engine, ability to attract and engage consumers, and its world-class team’s ability to execute with speed, has positioned the Company well to navigate the competitive beauty market.

The Company's family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare. The Company's brands are available online and across leading beauty, mass-market and specialty retailers. The Company has strong relationships with its retail customers such as Target, Walmart, Ulta Beauty and other leading retailers that have enabled the Company to expand distribution both domestically and internationally.

Note 2—Summary of significant accounting policies

Basis of presentation

The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, these interim financial statements contain all adjustments, including normal recurring adjustments, necessary for a fair statement of its financial position as of June 30, 2023, March 31, 2023 and June 30, 2022, and its results of operations and stockholders' equity for the three months ended June 30, 2023 and June 30, 2022 and its cash flows for the three months ended June 30, 2023 and June 30, 2022. All intercompany balances and transactions have been eliminated in consolidation.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023 (the “Annual Report”). Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Segment reporting

Operating segments are components of an enterprise for which separate financial information is available that is evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Utilizing these criteria, the Company manages its business on the basis of one operating segment and one reportable segment. It is impracticable for the Company to provide revenue by product line.

Significant accounting policies

The Company made no material changes in the application of its significant accounting policies that were disclosed in Note 2, “Summary of significant accounting policies,” to the audited consolidated financial statements as of and for the fiscal year ended March 31, 2023 included in the Annual Report.

Revenue recognition

The Company distributes products both through national and international retailers, as well as direct-to-consumers through its e-commerce channel. The marketing and consumer engagement benefits that the direct-to-consumer channel provides is integral to the Company’s brand and product development strategy and drives sales across channels. As such, the Company views its two primary distribution channels as components of one integrated business, as opposed to discrete revenue streams.

The Company sells a variety of beauty products but does not consider them to be meaningfully different revenue streams given similarities in the nature of the products, the target consumer and the innovation and distribution processes.

The following table provides disaggregated revenue from contracts with customers by geographical market, as the nature, amount, timing and uncertainty of revenue and cash flows can differ between domestic and international customers (in thousands).


	Three months ended June 30,
Net sales by geographic region:		2023		2022
United States		$	188,595	$	107,139
International		27,744		15,462
Total net sales		$	216,339	$	122,601

As of June 30, 2023, other than accounts receivable, the Company had no material contract assets, contract liabilities or deferred contract costs recorded on its unaudited condensed consolidated balance sheet.

Recent accounting pronouncements

No new accounting pronouncements issued but not yet adopted are expected to have a material impact on the Company's unaudited condensed consolidated financial statements.

Note 3—Investment in equity securities

On April 14, 2017, the Company invested $2.9 million in a social media analytics company, which is included in investments on its unaudited condensed consolidated balance sheets. The Company has elected the measurement alternative for equity investments that do not have readily determinable fair values. The Company recorded an impairment charge of $1.7 million as a separate line under other income (expense) on its investment during the three months ended June 30, 2023, as an identified event or change in circumstances resulted in an indicator for impairment.

Note 4—Goodwill and intangible assets

Information regarding the Company’s goodwill and intangible assets as of June 30, 2023 is as follows (in thousands):


	Estimated useful life	Gross carrying amount		Accumulated amortization		Net carrying amount
Customer relationships – retailers	10 years	$	77,600	$	(67,720)	$	9,880
Customer relationships – e-commerce	3 years	3,940		(3,940)		—
Trademarks	10 years	3,500		(1,167)		2,333
Total finite-lived intangibles		85,040		(72,827)		12,213
Trademarks	Indefinite	63,800		—		63,800
Goodwill		171,620		—		171,620
Total goodwill and other intangibles		$	320,460	$	(72,827)	$	247,633

Information regarding the Company’s goodwill and intangible assets as of March 31, 2023 is as follows (in thousands):


	Estimated useful life	Gross carrying amount		Accumulated amortization		Net carrying amount
Customer relationships – retailers	10 years	$	77,600	$	(65,780)	$	11,820
Customer relationships – e-commerce	3 years	3,940		(3,940)		—
Trademarks	10 years	3,500		(1,079)		2,421
Total finite-lived intangibles		85,040		(70,799)		14,241
Trademarks	Indefinite	63,800		—		63,800
Goodwill		171,620		—		171,620
Total goodwill and other intangibles		$	320,460	$	(70,799)	$	249,661

Information regarding the Company’s goodwill and intangible assets as of June 30, 2022 is as follows (in thousands):


	Estimated useful life	Gross carrying amount		Accumulated amortization		Net carrying amount
Customer relationships – retailers	10 years	$	77,600	$	(59,960)	$	17,640
Customer relationships – e-commerce	3 years	3,940		(3,931)		9
Trademarks	10 years	3,500		(817)		2,683
Total finite-lived intangibles		85,040		(64,708)		20,332
Trademarks	Indefinite	63,800		—		63,800
Goodwill		171,620		—		171,620
Total goodwill and other intangibles		$	320,460	$	(64,708)	$	255,752

Amortization expenses on finite-lived intangible assets was $2.0 million in both the three months ended June 30, 2023 and June 30, 2022. Certain trademark assets have been classified as indefinite-lived intangible assets and accordingly, are not subject to amortization. There were no impairments of goodwill or intangible assets recorded in the three months ended June 30, 2023 and June 30, 2022.

The estimated future amortization expense related to finite-lived intangible assets, assuming no impairment as of June 30, 2023 is as follows (in thousands):



Remainder of fiscal 2024	$	4,935
2025	1,230
2026	1,230
2027	1,230
2028	1,230
Thereafter	2,358
Total	$	12,213

Note 5—Accrued expenses and other current liabilities

Accrued expenses and other current liabilities as of June 30, 2023, March 31, 2023 and June 30, 2022 consisted of the following (in thousands):


	June 30, 2023		March 31, 2023		June 30, 2022
Accrued expenses	$	35,309	$	47,817	$	25,798
Current portion of operating lease liabilities	4,474		4,510		4,508
Accrued compensation	5,165		13,098		4,640
Taxes payable	3,594		2,851		3,232
Other current liabilities	2,495		2,698		1,738
Accrued expenses and other current liabilities	$	51,037	$	70,974	$	39,916

Note 6—Debt

The Company’s outstanding debt as of June 30, 2023, March 31, 2023 and June 30, 2022 consisted of the following (in thousands):


	June 30, 2023		March 31, 2023		June 30, 2022

Term loan(1)	$	65,000	$	66,250	$	95,000
Finance lease obligations	431		633		1,226
Total debt(2)	65,431		66,883		96,226
Less: debt issuance costs	(388)		(427)		(749)
Total debt, net of issuance costs	65,043		66,456		95,477
Less: current portion	(5,431)		(5,575)		(5,793)
Long-term portion of debt	$	59,612	$	60,881	$	89,684

(1) See Note 8, “Debt,” to the consolidated financial statements included in the Annual Report for details regarding the Amended Credit Agreement. As of June 30, 2023, the Company was in compliance with all applicable financial covenants under the Amended Credit Agreement.

(2) The gross carrying amounts of the Company’s long-term debt, before reduction of the debt issuance costs, and finance lease obligations approximate their fair values, based on Level 2 inputs (quoted prices for similar assets and liabilities in active markets or inputs that are observable), as the stated rates approximate market rates for loans with similar terms. The Company did not transfer any liabilities measured at fair value on a recurring basis to or from Level 2 for any of the periods presented.

Amended credit agreement

On April 30, 2021, the Company amended and restated its 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 (i) a $100 million revolving credit facility (the “Amended Revolving Credit Facility”) and (ii) a $100 million term loan facility (the “Amended Term Loan Facility”).

All amounts under the Amended Revolving Credit Facility are available for draw until the maturity date on April 30, 2026. The Amended Revolving Credit Facility is collateralized by substantially all of our assets and requires payment of an unused fee ranging from 0.10% to 0.30% (based on our consolidated total net leverage ratio (as defined in the Amended Credit Agreement)) times the average daily amount of unutilized commitments under the Amended Revolving Credit Facility. The Amended Revolving Credit Facility also provides for sub-facilities in the form of a $7 million letter of credit and a $5 million swing line loan; however, all amounts drawn under the Amended Revolving Credit Facility cannot exceed $100 million. The unused balance of the Amended Revolving Credit Facility as of June 30, 2023 was $100.0 million.

Prior to the First Amendment (as defined below), both the Amended Revolving Credit Facility and the Amended Term Loan Facility bore interest, at the borrowers’ option, at either (i) a rate per annum equal to an adjusted LIBOR rate determined by reference to the cost of funds for the United States dollar deposits for the applicable interest period (subject to a minimum

floor of 0%) plus an applicable margin ranging from 1.25% to 2.125% based on our consolidated total net leverage ratio or (ii) a floating base rate plus an applicable margin ranging from 0.25% to 1.125% based on our consolidated total net leverage ratio. On March 29, 2023, the Company amended the Amended Credit Agreement to transition the benchmark from LIBOR to an adjusted Secured Overnight Financing Rate (“SOFR”) (which is equal to the applicable SOFR plus 0.10%) (such transaction, the “First Amendment”). In connection with the First Amendment, all outstanding LIBOR loans were converted to SOFR loans. The annual interest rate for SOFR borrowings will be equal to term SOFR, subject to a floor of 0%, plus a margin ranging from 1.25% to 2.125%. The all-in interest rate as of June 30, 2023 for the Amended Term Loan Facility was approximately 6.6%.

The Amended Credit Agreement contains a number of covenants that, among other things, restrict our ability to (subject to certain exceptions) 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.

Note 7—Commitments and contingencies

Legal contingencies

The Company is from time to time subject to, and is currently involved in legal proceedings, claims and litigation arising in the ordinary course of business. The Company is not currently a party to any matters that management expects will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Note 8—Stock-based compensation

Stock based compensation expense is recognized on a straight-line basis over the requisite service period. Total stock-based compensation is shown in the table below (in thousands):


	Three months ended June 30,
	2023		2022
Service-based vesting options	$	46	$	88
Restricted stock and RSUs	7,154		6,454
Total stock compensation expense	$	7,200	$	6,542

As of June 30, 2023, there was $0.2 million and $85.1 million of total unrecognized stock-based compensation cost related to unvested service-based stock options and shares subject to RSAs and RSUs, respectively. The unrecognized stock-based compensation is expected to be recognized over the remaining weighted-average period of 1.8 years for service-based stock options and 2.3 years for shares subject to RSAs and RSUs, respectively.

Note 9—Repurchase of common stock

On May 8, 2019, the Company announced that its board of directors authorized a share repurchase program to acquire up to $25.0 million of the Company’s common stock (the “Share Repurchase Program”). Purchases under the Share Repurchase Program may be made from time to time through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, or by any combination of such methods. The timing and amount of any repurchases pursuant to the Share Repurchase Program will be determined based on market conditions, share price and other factors. The Share Repurchase Program does not require the Company to repurchase any specific number of shares of its common stock, and may be modified, suspended or terminated at any time without notice. There is no guarantee that any additional shares will be purchased under the Share Repurchase Program and such shares are intended to be retired after purchase.

The covenants in the Amended Credit Agreement require the Company to be in compliance with certain leverage ratios to make repurchases under the Share Repurchase Program.

The Company did not repurchase any shares during the three months ended June 30, 2023. A total of $17.1 million remains available for future share repurchases under the Share Repurchase Program as of June 30, 2023.

Note 10—Net income per share

The Company computes basic net income per share using the weighted-average number of shares of common stock outstanding. Diluted net income per share amounts are calculated using the treasury stock method for equity-based compensation awards. The following is a reconciliation of the numerator and denominator in the basic and diluted net income per common share computations (in thousands, except share and per share data):


	Three months ended June 30,
		2023		2022
Numerator:




Net income		$	52,977	$	14,469

Denominator:
Weighted-average common shares outstanding – basic		53,938,136		51,707,160



Dilutive common equivalent shares from equity awards		3,237,734		2,127,572
Weighted-average common shares outstanding – diluted		57,175,870		53,834,732

Net income per share:
Basic		$	0.98	$	0.28
Diluted		$	0.93	$	0.27





Weighted-average anti-dilutive shares from outstanding equity awards excluded from diluted earnings per share		141,407		741,016

Note 11—Leases

The Company leases warehouses, distribution centers, office space and equipment. The majority of the Company's leases include one or more options to renew, with renewal terms that can extend the lease term for up to five years. The exercise of lease renewal options is at the Company's sole discretion and such renewal options are included in the lease term if they are reasonably certain to be exercised. Certain leases also include options to purchase the leased asset. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. Most of the Company's equipment leases are finance leases of assets used to operate its distribution centers in Ontario, California and Columbus, Ohio.

Significant judgment is required to determine whether commercial contracts contain a lease for purposes of ASC 842. The Company uses its incremental borrowing rate to determine the present value of lease payments.

A reconciliation of the balance sheet line items that were impacted or created as a result of the Company's adoption of ASC 842 as of June 30, 2023, March 31, 2023 and June 30, 2022 were as follows (in thousands):


	Classification	June 30, 2023		March 31, 2023		June 30, 2022
Assets
Operating lease assets	Other assets	$	13,020	$	14,071	$	17,188
Finance lease assets (a)	Other assets	140		245		560
Total leased assets		$	13,160	$	14,316	$	17,748
Liabilities
Current
Operating	Accrued expenses and other current liabilities	$	4,474	$	4,510	$	4,508
Finance	Current portion of long-term debt and finance lease obligations	431		575		793
Noncurrent
Operating	Long-term operating lease obligations	10,137		11,201		14,637
Finance	Long-term debt and finance lease obligations	—		58		433
Total lease liabilities		$	15,042	$	16,344	$	20,371

_____________________

(a) Finance leases are recorded net of accumulated amortization of $3.5 million, $3.4 million and $3.1 million as of June 30, 2023, March 31, 2023 and June 30, 2022, respectively.

For the three months ended June 30, 2023 and June 30, 2022, the components of operating and finance lease costs were as follows (in thousands):


		Three months ended June 30,
	Classification		2023		2022
Operating lease cost	Selling, general and administrative (“SG&A”) expenses		$	1,277	$	1,157


Finance lease cost
Amortization of leased assets	SG&A expenses		105		105
Interest on lease liabilities	Interest expense, net		4		10
Total lease cost			$	1,386	$	1,272

As of June 30, 2023, the aggregate future minimum lease payments under non-cancellable leases presented in accordance with ASC 842 are as follows (in thousands):


	Operating leases		Finance leases		Total
Remainder of fiscal 2024	$	3,655	$	377	$	4,032
2025	4,071		58		4,129
2026	3,097		—		3,097
2027	1,441		—		1,441
2028	846		—		846
Thereafter	2,374		—		2,374
Total lease payments	15,484		435		15,919
Less: Interest	873		4		877
Present value of lease liabilities	$	14,611	$	431	$	15,042

For leases commencing prior to January 1, 2019, minimum lease payments exclude payments to landlords for real estate taxes and common area maintenance. These payments can be either fixed or variable, depending on the lease.

As of June 30, 2023 and June 30, 2022, the weighted-average remaining lease term (in years) and discount rate were as follows:


	June 30, 2023		June 30, 2022
Weighted-average remaining lease term
Operating leases	4.4 years		5.0 years
Finance leases	0.7 years		1.6 years
Weighted-average discount rate
Operating leases	2.6	%	2.7	%
Finance leases	2.4	%	2.9	%

Operating cash outflows from operating leases for the three months ended June 30, 2023 and June 30, 2022 were $1.2 million and $1.1 million, respectively.

Item 2. Management’s discussion and analysis of financial condition and results of operations.

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read together with the MD&A presented in the Annual Report on Form 10-K for the year ended March 31, 2023 (the “Annual Report”) and the unaudited condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”), which include additional information about our accounting policies, practices and the transactions underlying our financial results.

Overview and Business Trends

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.

We believe our ability to deliver cruelty-free, clean, vegan and premium-quality products at accessible prices with broad appeal differentiates us in the beauty industry. We believe the combination of our value proposition, innovation engine, ability to attract and engage consumers, and our world-class team’s ability to execute with speed has positioned us well to navigate the competitive beauty market.

Our family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare. Our brands are available online and across leading beauty, mass-market, and specialty retailers. We have strong relationships with our retail customers such as Target, Walmart, Ulta Beauty and other leading retailers that have enabled us to expand distribution both domestically and internationally.

Global Supply Chain Disruptions

Since the start of the COVID-19 pandemic, there has been disruption to the global supply chain, including manufacturing and transportation delays due to port closures and congestion, labor and container shortages, and shipment delays. As a result, we have experienced higher transportation costs. In response to these higher costs, we increased prices on a portion of our products in March 2022 to help mitigate the impact on our business. Further increases in transportation or other costs could have an unfavorable impact on our results. Additionally, delays or further disruption to the global supply chain could cause lost sales due to unavailability of inventory, unfavorably impacting our ability to service consumer demand.

Seasonality

Our results of operations are subject to seasonal fluctuations, with net sales in the third and fourth fiscal quarters typically being higher than in the first and second fiscal quarters. The higher net sales in our third and fourth fiscal quarters are largely attributable to the increased levels of purchasing by retailers for the holiday season and customer shelf reset activities, respectively. Lower inventory builds from our retailers in preparation for the holiday season or shifts in customer shelf reset activity could have a disproportionate effect on our results of operations for the entire fiscal year. To support anticipated higher sales during the third and fourth fiscal quarters, we make investments in working capital to ensure inventory levels can support demand. Fluctuations throughout the year are also driven by the timing of product restocking or rearrangement by our major retail customers as well as expansion into new retail customers. Because a limited number of our retail customers account for a large percentage of our net sales, a change in the order pattern of one or more of our large retail customers could cause a significant fluctuation of our quarterly results or impact our liquidity.

Results of operations

The following table sets forth our consolidated statements of operations data in dollars and as a percentage of net sales for the periods presented:

Three months ended June 30,

(in thousands)

SEC Form 10-Q filed by e.l.f. Beauty Inc.