– Delivers 6% net sales growth over Q2 2017
–
– Revises 2018 outlook –
e.l.f. Beauty (NYSE: ELF) today announced results for the three-
and six-month periods ended June 30, 2018.
“Our second quarter saw healthy sales growth, operating profit
and cash flows. This was on top of 27% net sales growth in the
prior year period,” stated Tarang Amin, Chairman and Chief
Executive Officer. “We are working to improve trends at select
national retailer partners and are confident in our long-term
potential. Our brand continues to resonate with consumers, as
demonstrated by our expansion within leading retailers. We believe
there is significant whitespace for the e.l.f. brand and seek to
deliver shareholder value through the capabilities of our broader
platform.”
Three months ended June 30, 2018 results
Net sales increased 6%, or $3.2 million from the second
quarter of 2017, to $59.1 million, primarily driven by growth in
leading national retailers, largely attributable to new customer
expansion and additional retailer store locations. Gross margin
decreased from 64% to 62% in the second quarter of 2018, primarily
as a result of unfavorable movements in foreign exchange rates,
partially offset by margin accretive innovation.
Selling, general and administrative expenses (“SG&A”) were
$33.8 million, or 57% of net sales, compared to
$32.7 million, or 59% of net sales in the second quarter of
2017. SG&A includes $4.9 million of expenses that are
non-cash or that management does not believe are reflective of the
Company’s ongoing operations. Adjusted SG&A, excluding these
expenses, was $28.9 million, or 49% of net sales, compared to
$29.1 million, or 52% of net sales in the same period in
fiscal 2017.
The provision for income taxes was $0.1 million in the
second quarter of 2018, as compared to a tax benefit of
$3.4 million in the second quarter of 2017. The change was
primarily driven by excess tax benefits from stock option exercises
and vesting of restricted stock, which decreased to $0.3 million in
the second quarter of 2018 from $3.7 million in the second quarter
of 2017. The increase in income tax expense was partially offset by
a reduction in our U.S. federal statutory rate from 35% to 21% as a
result of the tax reform laws effective as of the beginning of
2018.
On a GAAP basis, net income was $1.2 million, or $0.03 per
diluted share, based on a weighted-average share count of
49.4 million shares. This compares to net income of
$4.0 million, or $0.08 per diluted share, based on a
weighted-average share count of 49.5 million shares in the second
quarter of 2017.
Adjusted EBITDA (EBITDA excluding the items identified in the
reconciliation table below) increased 29% to $13.0 million
from $10.0 million in the second quarter of 2017.
Adjusted net income (net income excluding the items identified
in the reconciliation table below) decreased to $6.5 million,
or $0.13 per diluted share, based on a weighted-average diluted
share count of 49.4 million in the second quarter of 2018.
This compares to adjusted net income of $7.3 million, or $0.15
per diluted share, based on a weighted-average diluted share count
of 49.5 million in the same quarter of 2017. Beginning in the
first quarter of 2018, the Company excluded the impact of
amortization of acquired intangible assets, net of the related tax
effect, from both current and prior period adjusted net income.
Six months ended June 30, 2018 results
Net sales increased 7%, or $8.5 million from the first half
of 2017, to $125.0 million, primarily driven by growth in
leading national retailers, largely attributable to new customer
expansion, the benefit of shelf space acquired in 2017, and
additional retailer store locations. Gross margin decreased from
64% to 61% in the first half of 2018, primarily as a result of
unfavorable movements in foreign exchange rates, customer mix and
freight, partially offset by margin accretive innovation.
SG&A were $70.0 million, or 56% of net sales, compared
to $65.7 million, or 56% of net sales in the first half of
2017. SG&A includes $9.4 million of expenses that are
non-cash or that management does not believe are reflective of the
Company’s ongoing operations. Adjusted SG&A, excluding these
expenses, was $60.6 million, or 48% of net sales, compared to
$58.5 million, or 50% of net sales in the same period in
fiscal 2017.
The provision for income taxes was $0.6 million in the
first half of 2018, as compared to a tax benefit of
$3.3 million in the first half of 2017. The change was
primarily driven by excess tax benefits from stock option exercises
and vesting of restricted stock, which decreased to $0.2 million
during the first half of 2018 from $4.4 million in the first half
of 2017. The increase in income tax expense was partially offset by
a reduction in our U.S. federal statutory rate from 35% to 21% as a
result of the tax reform laws effective as of the beginning of
2018.
On a GAAP basis, net income was $1.9 million, or $0.04 per
diluted share, based on a weighted-average share count of
49.4 million shares. This compares to net income of
$6.1 million, or $0.12 per diluted share, based on a
weighted-average share count of 49.5 million shares in the first
half of 2017.
Adjusted EBITDA increased 15% to $24.9 million from
$21.7 million in the first half of 2017.
Adjusted net income decreased to $11.9 million, or $0.24
per diluted share, based on a weighted-average diluted share count
of 49.4 million in the first half of 2018. This compares to
adjusted net income of $12.8 million, or $0.26 per diluted
share, based on a weighted-average diluted share count of
49.5 million in the first half of 2017. Beginning in the first
quarter of 2018, the Company excluded the impact of amortization of
acquired intangible assets, net of the related tax effect, from
both current and prior period adjusted net income.
CEO stock purchase
Today Tarang Amin, Chairman and Chief Executive Officer,
announced that he intends to purchase up to $500,000 of the
Company's common stock. The timing and amount of any purchases by
Mr. Amin will be determined based on market conditions, share price
and other factors. Mr. Amin is not required to purchase any
specific number of shares of the Company's common stock, and he may
modify, suspend or terminate his purchases at any time without
notice.
Balance sheet
At June 30, 2018, the Company had $17.4 million in cash, as
compared to $3.4 million as of June 30, 2017. Inventory at
June 30, 2018 totaled $59.9 million, compared to
$72.3 million on June 30, 2017. At June 30, 2018,
long-term debt totaled $143.7 million, as compared to $152.2
million as of June 30, 2017.
Company outlook
Accounting for current trends within select national retailer
partners, the Company is revising its outlook for 2018.
New Fiscal 2018 Outlook
Original Fiscal2018 Outlook
Fiscal 2017 Actual
Net sales growth Low single digits 6-8%
18%
Adjusted EBITDA $ 58-62 million $ 65-66.5 million $ 62 million
Adjusted net income $ 28-31 million $ 30-31 million $ 32 million
(a) Adjusted diluted EPS $ 0.56-0.61 $ 0.59-0.61 $ 0.64 (a) Fully
diluted shares outstanding 50.4 million 51.4 million 49.4 million
(a) The Company's 2018 adjusted net income and adjusted
diluted EPS guidance excludes amortization of acquired intangible
assets. The Company began excluding these items from its adjusted
net income and adjusted diluted EPS metrics beginning with the
first quarter of fiscal 2018. Fiscal 2017 adjusted net income
includes $4.4 million in amortization of acquired intangible assets
(net of the related tax effect).
Second quarter 2018 conference call
The Company will hold a conference call today, August 8,
2018, at 4:30 p.m. ET to discuss the Company’s second quarter 2018
results. Investors and analysts interested in participating in the
call are invited to dial approximately ten minutes prior to the
start of the call. The U.S. toll free dial-in for the
conference call is (877) 407-3982 and the international dial-in
number is (201) 493-6780. The conference call will also be webcast
live at: http://investor.elfcosmetics.com/news-and-events/events
and remain available for 90 days. A telephone replay of this call
will be available at 7:30 p.m. ET on August 8, 2018, until
11:59 p.m. ET on August 15, 2018, and can be accessed by dialing
the U.S. toll free dial-in, (844) 512-2921 or the
international dial-in, (412) 317-6671, and entering replay pin
number 13681796.
About e.l.f. Beauty
e.l.f. makes luxurious beauty accessible for all. Established in
2004 as an e-commerce business (www.elfcosmetics.com), e.l.f. has
become a true multi-channel brand through its e.l.f. stores and
national distribution at Target, Walmart, Ulta Beauty and other
leading retailers. By engaging young, diverse beauty enthusiasts
with high-quality, prestige-inspired cosmetic and skin care
products at extraordinary value, e.l.f. has become one of the
fastest growing beauty companies in the United States.
For more information about e.l.f. Beauty, visit the Company’s
website at http://www.elfcosmetics.com.
Note regarding non-GAAP financial measures
This press release includes references to non-GAAP measures,
including adjusted SG&A, adjusted gross profit, EBITDA,
adjusted EBITDA, adjusted net income and adjusted diluted EPS. The
Company presents these non-GAAP measures because its management
uses them as supplemental measures in assessing its operating
performance, and believes they are helpful to investors, securities
analysts and other interested parties in evaluating the Company’s
performance. The non-GAAP measures included in this press release
are not measurements of financial performance under GAAP and they
should not be considered as alternatives to measures of performance
derived in accordance with GAAP. In addition, these non-GAAP
measures should not be construed as an inference that the Company’s
future results will be unaffected by unusual or non-recurring
items. These non-GAAP measures have limitations as analytical
tools, and you should not consider such measures either in
isolation or as substitutes for analyzing the Company’s results as
reported under GAAP. The Company’s definitions and calculations of
these non-GAAP measures are not necessarily comparable to other
similarly titled measures used by other companies due to different
methods of calculation. Adjusted gross profit excludes costs
related to a fixturing and packaging transformation initiative.
Adjusted EBITDA excludes costs related to “restructuring” of
operations, stock-based compensation, retail store pre-opening
costs and other non-cash and non-recurring costs. Adjusted net
income excludes costs related to “restructuring” of operations,
stock-based compensation, retail store pre-opening costs, other
non-cash and non-recurring costs, amortization of acquired
intangible assets and the tax impact of the foregoing adjustments.
With respect to the Company’s expectations under “Company Outlook”
above, the Company is not able to provide a quantitative
reconciliation of the adjusted EBITDA, adjusted net income, and
adjusted diluted EPS guidance non-GAAP measures to the
corresponding net income and diluted EPS GAAP measures without
unreasonable efforts. The Company cannot provide meaningful
estimates of the non-recurring charges and credits excluded from
these non-GAAP measures due to the forward-looking nature of these
estimates and their inherent variability and uncertainty. For the
same reasons, the Company is unable to address the probable
significance of the unavailable information.
Forward-looking statements
This press release contains forward-looking statements within
the meaning of the federal securities laws, including those
statements relating to, the Company’s outlook for 2018 under
“Company Outlook” above and those statements relating to among
other things: the Company’s ability to improve trends at select
national retail partners; the Company’s confidence in its long-term
potential; the Company’s belief regarding the whitespace for the
e.l.f. brand; the Company's ability to deliver shareholder value
through the capabilities of its broader platform; and Mr. Amin's
announcement of his intention to purchase the Company's common
stock. These forward-looking statements are based on management's
current expectations, estimates, forecasts, projections, beliefs
and assumptions and are not guarantees of future performance.
Although the Company believes that the expectations reflected in
the forward-looking statements are reasonable, actual results and
the timing of selected events may differ materially from those
expectations. Factors that could cause actual results to differ
materially from those in the forward-looking statements include,
among other things, the risks and uncertainties that are described
in the Company's most recent Annual Report on Form 10-K, as updated
from time to time in the Company's SEC filings, as well as the
Company’s ability to grow net sales and adjusted EBITDA as
anticipated; the Company’s ability to effectively compete with
other beauty companies; the Company’s ability to successfully
introduce new products; the Company’s ability to attract new retail
customers and/or expand business with its existing retail
customers; the Company’s ability to optimize shelf space at its key
retail customers; the loss of any of the Company’s key retail
customers or if the general business performance of its key retail
customers declines; and the Company’s ability to effectively manage
its SG&A and other company expenses. Potential investors are
urged to consider these factors carefully in evaluating the
forward-looking statements. These forward-looking statements speak
only as of the date hereof. Except as required by law, the Company
assumes no obligation to update or revise these forward-looking
statements for any reason, even if new information becomes
available in the future.
e.l.f. Beauty, Inc.
and subsidiaries Condensed consolidated statements of
operations and comprehensive income (unaudited)
(in thousands, except share and per share
data)
Three months ended June 30, Six months ended June
30, 2018 2017 2018
2017 Net sales $ 59,055 $ 55,856
$ 124,975 $ 116,430 Cost of sales 22,410 19,966
48,122 42,311 Gross profit 36,645 35,890 76,853
74,119 Selling, general and administrative expenses 33,791
32,705 70,025 65,710 Operating income 2,854
3,185 6,828 8,409 Other income (expense), net 509 (244 ) (379 )
(1,044 ) Interest expense, net (1,989 ) (2,387 ) (3,952 ) (4,543 )
Income before provision for income taxes 1,374 554 2,497 2,822
Income tax benefit (provision) (126 ) 3,416 (559 ) 3,308
Net income $ 1,248 $ 3,970 $ 1,938 $
6,130 Comprehensive income $ 1,248 $ 3,970 $
1,938 $ 6,130 Net income per share: Basic $ 0.03 $
0.09 $ 0.04 $ 0.14 Diluted $ 0.03 $ 0.08 $ 0.04 $ 0.12 Weighted
average shares outstanding: Basic 46,625,915 45,465,723 46,531,264
44,786,305 Diluted 49,425,927 49,509,940 49,364,875 49,524,447
e.l.f. Beauty, Inc. and subsidiaries Condensed
consolidated balance sheets (unaudited)
(in thousands, except share and per share
data)
June 30, 2018
December 31, 2017
June 30, 2017
Assets Current assets: Cash $ 17,445 $ 10,059 $ 3,354
Accounts receivable, net 27,639 44,634 26,143 Inventories 59,861
62,679 72,274 Prepaid expenses and other current assets 10,385
6,272 5,724 Total current assets 115,330
123,644 107,495 Property and equipment, net 18,813 18,037 16,080
Intangible assets, net 102,375 105,882 109,390 Goodwill 157,264
157,264 157,264 Investments 2,875 2,875 2,875 Other assets 9,655
9,542 2,720
Total assets $
406,312 $ 417,244 $
395,824 Liabilities and stockholders'
equity Current liabilities: Current portion of long-term debt
and capital lease obligations $ 8,660 $ 8,646 $ 22,765 Accounts
payable 13,760 26,776 15,653 Accrued expenses and other current
liabilities 9,815 15,939 12,053 Total current
liabilities 32,235 51,361 50,471 Long-term debt and capital lease
obligations 143,708 147,702 152,201 Deferred tax liabilities 22,732
21,341 31,740 Other long-term liabilities 3,123 2,977
3,259 Total liabilities 201,798 223,381 237,671
Commitments and contingencies Stockholders' equity:
Common stock, par value of $0.01 per
share; 250,000,000shares authorized as of June 30, 2018, December
31, 2017 andJune 30, 2017; 47,581,682, 46,617,830 and 46,082,501
sharesissued and outstanding as of June 30, 2018, December 31,
2017and June 30, 2017, respectively
467 463 458 Additional paid-in capital 729,135 720,372 712,012
Accumulated deficit (525,088 ) (526,972 ) (554,317 ) Total
stockholders' equity 204,514 193,863 158,153
Total liabilities and stockholders' equity $
406,312 $ 417,244 $
395,824 e.l.f. Beauty,
Inc. and subsidiaries Condensed consolidated statements of
cash flows (unaudited)
(in thousands)
Six months ended June 30, 2018
2017 Cash flows from operating activities: Net
income $ 1,938 $ 6,130 Adjustments to reconcile net income to net
cash provided by(used in) operating activities: Depreciation and
amortization 8,712 7,147 Stock-based compensation expense 8,271
5,933 Amortization of debt issuance costs and discount on debt 398
403 Deferred income taxes 1,409 (2,682 ) Other, net 175 364 Changes
in operating assets and liabilities: Accounts receivable 16,912
11,486 Inventories 2,818 (2,861 ) Prepaid expenses and other assets
(5,464 ) (3,507 ) Accounts payable and accrued expenses (18,942 )
(40,328 ) Other liabilities 144 52 Net cash provided
by (used in) operating activities 16,371 (17,863 )
Cash
flows from investing activities: Purchase of property and
equipment (5,162 ) (2,149 ) Investment in equity securities —
(2,875 ) Net cash used in investing activities (5,162 )
(5,024 )
Cash flows from financing activities:
Proceeds from revolving line of credit 2,000 20,600 Repayment of
revolving line of credit (2,000 ) (6,500 ) Repayment of long term
debt (4,125 ) (4,125 ) Cash received from issuance of common stock
497 1,153 Other, net (195 ) (182 ) Net cash provided by (used in)
financing activities (3,823 ) 10,946 Net increase
(decrease) in cash 7,386 (11,941 ) Cash - beginning of period
10,059 15,295 Cash - end of period $ 17,445 $
3,354
e.l.f. Beauty, Inc. and subsidiaries Reconciliation of
GAAP gross profit to non-GAAP adjusted gross profit
(unaudited)
(in thousands, except percentages)
Three months ended June 30, Six months ended June
30, 2018 2017 2018
2017 Gross profit $ 36,645 $ 35,890 $
76,853 $ 74,119 Costs related to Project Unicorn (a) 305 —
305
—
Adjusted gross profit $ 36,950
$ 35,890 $ 77,158
$ 74,119 Gross margin 62 % 64 % 61 % 64
% Adjusted gross margin 63 % 64 % 62 % 64 % (a)
Represents costs associated with Project Unicorn, a fixturing and
packaging transformation initiative.
e.l.f. Beauty, Inc. and subsidiaries
Reconciliation of GAAP net income to non-GAAP adjusted
EBITDA (unaudited)
(in thousands)
Three months ended June 30, Six months ended June
30, 2018 2017 2018
2017 Net income $ 1,248 $ 3,970 $ 1,938
$ 6,130 Interest expense, net 1,989 2,387 3,952 4,543 Income tax
(benefit) provision 126 (3,416
)
559 (3,308 ) Depreciation and amortization 4,424 3,488
8,712 7,147 EBITDA $ 7,787 $ 6,429 $ 15,161 $ 14,512 Costs
related to "restructuring" of operations (a) — — —
6
Stock-based compensation 4,631 3,529 8,271 5,933 Pre-opening costs
(b) 7 29 42 70 Other non-cash and non-recurring costs (c) 540 35
1,434 1,152
Adjusted EBITDA $
12,965 $ 10,022 $ 24,908
$ 21,673 (a) Represents costs
associated with the restructuring of the Company’s operations,
including the transition of the Company’s New Jersey warehouse and
distribution center in 2016. (b) Represents costs associated with
e.l.f. stores incurred prior to the store opening, including
legal-related costs, rent and occupancy expenses, marketing and
other store operating supply expenses. (c) Represents various
non-cash or non-recurring costs including costs related to
secondary offering of common stock, costs related to certain
transformational information technology projects, third-party costs
related to M&A due diligence, and Project Unicorn.
e.l.f. Beauty, Inc.
and subsidiaries Reconciliation of GAAP SG&A to non-GAAP
adjusted SG&A (unaudited)
(in thousands)
Three months ended June 30, Six months ended June
30, 2018 2017 2018
2017 Selling, general, and
administrative expenses $ 33,791 $ 32,705 $ 70,025 $ 65,710 Costs
related to "restructuring" of operations (a) — — — (6 ) Stock-based
compensation (4,631 ) (3,529 ) (8,271 ) (5,933 ) Pre-opening costs
(b) (7 ) (29 ) (42 ) (70 ) Other non-cash and non-recurring costs
(c) (235 ) (35 ) (1,129 ) (1,152 )
Adjusted selling, general,
and administrative expenses $ 28,918
$ 29,112 $ 60,583
$ 58,549 (a) Represents costs
associated with the restructuring of the Company’s operations,
including the transition of the Company’s New Jersey warehouse and
distribution center in 2016. (b) Represents costs associated with
e.l.f. stores incurred prior to the store opening, including
legal-related costs, rent and occupancy expenses, marketing and
other store operating supply expenses. (c) Represents various
non-cash or non-recurring costs including costs related to
secondary offering of common stock, costs related to certain
transformational information technology projects, and third-party
costs related to M&A due diligence.
e.l.f. Beauty, Inc. and subsidiaries
Reconciliation of GAAP net income to non-GAAP adjusted net
income (unaudited)
(in thousands, except share and per share
data)
Three months ended June 30, Six months ended June
30, 2018 2017 2018
2017 Net income $ 1,248 $ 3,970 $ 1,938
$ 6,130 Costs related to "restructuring" of operations (a) — — — 6
Stock-based compensation 4,631 3,529 8,271 5,933 Pre-opening costs
(b) 7 29 42 70 Other non-cash and non-recurring costs (c) 540 35
1,434 1,152 Amortization of acquired intangible assets (d) 1,754
1,754 3,508 3,613 Tax Impact (e) (1,726 ) (2,061 ) (3,288 ) (4,154
)
Adjusted net income (f) $ 6,454
$ 7,256 $ 11,905 $
12,750 Weighted average number of shares
outstanding - diluted 49,425,927 49,509,940 49,364,875 49,524,447
Adjusted diluted earnings per share $ 0.13 $ 0.15 $ 0.24 $ 0.26
(a) Represents costs associated with the
restructuring of the Company’s operations, including the transition
of the Company’s New Jersey warehouse and distribution center in
2016. (b) Represents costs associated with e.l.f. stores incurred
prior to the store opening, including legal-related costs, rent and
occupancy expenses, marketing and other store operating supply
expenses. (c) Represents various non-cash or non-recurring costs
including costs related to a secondary offering of common stock,
costs related to certain transformational information technology
projects, third-party costs related to M&A due diligence, and
Project Unicorn. (d) Represents amortization expense of acquired
intangible assets consisting of customer relationships and
favorable leases. (e) Represents the tax impact of the above
adjustments. (f) Adjusted net income for the three and six months
ended June 30, 2017, as previously reported, was $6.2 million and
$10.5 million, respectively. The difference of approximately $1.1
million and $2.2 million relates to amortization of acquired
intangible assets, net of tax. The Company's 2018 adjusted net
income and adjusted diluted EPS guidance excludes amortization of
acquired intangible assets. As such, prior year results have been
adjusted to reflect a similar basis of presentation.
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Investor RelationsInvestors:ICR, Inc.Allison Malkin,
(203) 682-8200orMedia:ICR, Inc.Alecia Pulman, (203) 682-8200
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