elf-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_______________________________________________________________

FORM 10-Q

_______________________________________________________________

(Mark One)


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

For the Quarterly Period Ended September 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 October 26, 2023 was 55,199,220 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.

•Acquisitions or investments, such as our acquisition of Naturium LLC, could disrupt our business and harm our financial condition.

•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 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			23

Item 4. Controls and procedures			23

PART II. OTHER INFORMATION			24

Item 1. Legal proceedings			24

Item 1A. Risk factors			24

Item 2. Unregistered sales of equity securities and use of proceeds			51

Item 3. Defaults upon senior securities			52

Item 4. Mine safety disclosures			52

Item 5. Other information			52

Item 6. Exhibits			53

SIGNATURES			54

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)


	September 30, 2023		March 31, 2023		September 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	167,763	$	120,778	$	85,317
Accounts receivable, net	86,683		67,928		53,912
Inventory, net	147,228		81,323		81,288
Prepaid expenses and other current assets	33,772		33,296		26,881
Total current assets	435,446		303,325		247,398
Property and equipment, net	7,624		7,874		8,934
Intangible assets, net	73,986		78,041		82,101
Goodwill	171,620		171,620		171,620
Investments	1,155		2,875		2,875
Other assets	57,105		31,866		29,213
Total assets	$	746,936	$	595,601	$	542,141

Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt and finance lease obligations	$	5,228	$	5,575	$	5,801
Accounts payable	63,736		31,427		19,279
Accrued expenses and other current liabilities	83,407		70,974		46,868
Total current liabilities	152,371		107,976		71,948
Long-term debt and finance lease obligations	57,735		60,881		88,284
Deferred tax liabilities	4,901		3,742		10,635
Long-term operating lease obligations	14,559		11,201		13,440
Other long-term liabilities	942		784		874
Total liabilities	230,508		184,584		185,181

Commitments and contingencies (Note 7)

Stockholders' equity:
Common stock, par value of $0.01 per share; 250,000,000 shares authorized as of September 30, 2023, March 31, 2023 and September 30, 2022; 54,621,561, 53,770,482 and 52,896,411 shares issued and outstanding as of September 30, 2023, March 31, 2023 and September 30, 2022, respectively	545		535		525
Additional paid-in capital	851,634		832,481		813,785
Accumulated deficit	(335,751)		(421,999)		(457,350)

Total stockholders' equity	516,428		411,017		356,960
Total liabilities and stockholders' equity	$	746,936	$	595,601	$	542,141

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 September 30,				Six months ended September 30,
	2023		2022		2023		2022
Net sales	$	215,507	$	122,349	$	431,846	$	244,950
Cost of sales	63,142		42,789		126,909		82,405
Gross profit	152,365		79,560		304,937		162,545
Selling, general and administrative expenses	112,186		64,183		204,125		125,738

Operating income	40,179		15,377		100,812		36,807
Other expense, net	(1,062)		(1,262)		(663)		(2,925)
Impairment of equity investment	—		—		(1,720)		—
Interest income (expense), net	623		(786)		964		(1,449)

Income before provision for income taxes	39,740		13,329		99,393		32,433
Income tax provision	(6,469)		(1,619)		(13,145)		(6,254)
Net income	$	33,271	$	11,710	$	86,248	$	26,179
Comprehensive income	$	33,271	$	11,710	$	86,248	$	26,179

Net income per share:
Basic	$	0.61	$	0.22	$	1.59	$	0.50
Diluted	$	0.58	$	0.21	$	1.50	$	0.48
Weighted average shares outstanding:
Basic	54,425,384		52,298,905		54,183,091		52,004,661
Diluted	57,438,152		55,037,514		57,308,342		54,437,752

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
Net income		—	—				—		33,271			33,271
Stock-based compensation		—	—				11,190		—			11,190
Exercise of stock options and vesting of restricted stock		203,982	2				263		—			265

Balance as of September 30, 2023		54,530,512	$	545			$	851,634	$	(335,751)		$	516,428


	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
Net income		—	—				—		11,710			11,710
Stock-based compensation		—	—				8,022		—			8,022
Exercise of stock options and vesting of restricted stock		471,966	8				3,771		—			3,779

Balance as of September 30, 2022		52,554,609	$	525			$	813,785	$	(457,350)		$	356,960

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)


	Six months ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	86,248	$	26,179
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	12,311		11,075

Stock-based compensation expense	18,417		14,576
Amortization of debt issuance costs and discount on debt	149		181
Deferred income taxes	1,159		1,042
Impairment of equity investment	1,720		—


Other, net	221		(24)
Changes in operating assets and liabilities:
Accounts receivable	(18,812)		(8,301)
Inventory	(65,904)		3,210
Prepaid expenses and other assets	(27,090)		(9,555)
Accounts payable and accrued expenses	45,112		6,798
Other liabilities	(2,261)		(2,135)
Net cash provided by operating activities	51,270		43,046

Cash flows from investing activities:

Purchase of property and equipment	(1,465)		(694)


Net cash used in investing activities	(1,465)		(694)

Cash flows from financing activities:



Repayment of long-term debt	(2,500)		(2,500)
Debt issuance costs paid	(665)		—

Cash received from issuance of common stock	750		2,503



Other, net	(405)		(391)
Net cash used in financing activities	(2,820)		(388)

Net increase in cash and cash equivalents	46,985		41,964
Cash and cash equivalents - beginning of period	120,778		43,353
Cash and cash equivalents - end of period	$	167,763	$	85,317

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. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. 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 September 30, 2023, March 31, 2023 and September 30, 2022, and its results of operations and stockholders' equity for the three and six months ended September 30, 2023 and September 30, 2022 and its cash flows for the six months ended September 30, 2023 and September 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 are integral to the Company’s brand and product development strategy and drive 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 September 30,				Six months ended September 30,
Net sales by geographic region:	2023		2022		2023		2022
United States	$	181,857	$	109,273	$	370,451	$	216,412
International	33,650		13,076		61,395		28,538
Total net sales	$	215,507	$	122,349	$	431,846	$	244,950

As of September 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. The Company did not record an additional impairment charge on its investment during the three months ended September 30, 2023.

Note 4—Goodwill and intangible assets

Information regarding the Company’s goodwill and intangible assets as of September 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	$	(69,660)	$	7,940
Customer relationships – e-commerce	3 years	3,940		(3,940)		—
Trademarks	10 years	3,500		(1,254)		2,246
Total finite-lived intangibles		85,040		(74,854)		10,186
Trademarks	Indefinite	63,800		—		63,800
Goodwill		171,620		—		171,620
Total goodwill and other intangibles		$	320,460	$	(74,854)	$	245,606

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 September 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	$	(61,900)	$	15,700
Customer relationships – e-commerce	3 years	3,940		(3,935)		5
Trademarks	10 years	3,500		(904)		2,596
Total finite-lived intangibles		85,040		(66,739)		18,301
Trademarks	Indefinite	63,800		—		63,800
Goodwill		171,620		—		171,620
Total goodwill and other intangibles		$	320,460	$	(66,739)	$	253,721

Amortization expenses on finite-lived intangible assets were $2.0 million and $4.1 million in both the three and six months ended September 30, 2023 and September 30, 2022, respectively. 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 and six months ended September 30, 2023 and September 30, 2022.

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



Remainder of fiscal 2024	$	2,908
2025	1,230
2026	1,230
2027	1,230
2028	1,230
Thereafter	2,358
Total	$	10,186

Note 5—Accrued expenses and other current liabilities

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


	September 30, 2023		March 31, 2023		September 30, 2022
Accrued expenses	$	28,249	$	22,726	$	13,584
Accrued inventory	19,247		1,330		12,195
Accrued marketing	17,084		23,761		4,498
Current portion of operating lease liabilities	4,172		4,510		4,458
Accrued compensation	8,199		13,098		7,216
Taxes payable	4,343		2,851		2,646
Other current liabilities	2,113		2,698		2,271
Accrued expenses and other current liabilities	$	83,407	$	70,974	$	46,868

Note 6—Debt

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


	September 30, 2023		March 31, 2023		September 30, 2022

Term loan(1)	$	63,750	$	66,250	$	93,750
Finance lease obligations	228		633		1,030
Total debt(2)	63,978		66,883		94,780
Less: debt issuance costs	(1,015)		(427)		(695)
Total debt, net of issuance costs	62,963		66,456		94,085
Less: current portion	(5,228)		(5,575)		(5,801)
Long-term portio

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