e.l.f. Beauty Announces Third Quarter 2018 Results
Nov 05 2018
– Raises low end of earnings guidance range –
“Our third quarter results reaffirm our confidence in our 2018 guidance,” stated Tarang Amin, Chairman and CEO. “We delivered growth in the specialty channel and demonstrated disciplined expense and balance sheet management. We are aggressively pursuing three strategic initiatives to improve business trends in tracked channels: thoughtfully increasing investment in the e.l.f. brand, focusing on key items, and optimizing 2019 shelf sets.”
Three months ended September 30, 2018 results
Net sales decreased 11%, or
Gross margin increased from 60% to 61% in the third quarter of 2018, primarily as a result of changes in customer mix and margin accretive innovation, partially offset by unfavorable movements in foreign exchange rates.
Selling, general and administrative expenses (“SG&A”) were
The provision for income taxes was
On a GAAP basis, net income was
Adjusted EBITDA (EBITDA excluding the items identified in the
reconciliation table below) decreased 13% to
Adjusted net income (net income excluding the items identified in the
reconciliation table below) decreased to
Nine months ended September 30, 2018 results
Net sales increased
Gross margin decreased from 62% to 61% in the first nine months of 2018, primarily as a result of unfavorable movements in foreign exchange rates, partially offset by changes in customer mix and margin accretive innovation.
SG&A was
The provision for income taxes was
On a GAAP basis, net income was
Adjusted EBITDA increased 3% to
Adjusted net income decreased to
Balance sheet
As of September 30, 2018, the Company had
Company outlook
Based on operating performance through the first nine months of the year, the Company raised the low end of its fiscal 2018 outlook for adjusted EBITDA, adjusted net income and adjusted diluted EPS. The Company also reaffirmed its fiscal 2018 outlook for net sales growth.
New Fiscal | Prior Fiscal | |||||||||||
2018 Outlook | 2018 Outlook | |||||||||||
Net sales growth | Low single digits | Low single digits | ||||||||||
Adjusted EBITDA | $ | 60-62 million | $ | 58-62 million | ||||||||
Adjusted net income | $ | 30-31 million | $ | 28-31 million | ||||||||
Adjusted diluted EPS | $ | 0.59-0.61 | $ | 0.56-0.61 | ||||||||
Fully diluted shares outstanding | 49.6 million | 50.4 million | ||||||||||
Third quarter 2018 conference call
The Company will hold a conference call today, November 5, 2018, at 4:30
p.m. ET to discuss the Company’s third 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
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. As one of the most innovative beauty companies in
Learn more about e.l.f. at www.elfcosmetics.com or follow us on Instagram (@elfcosmetics) or Twitter (@elfcosmetics).
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 our confidence in our 2018 outlook; our ability to improve business trends in tracked channels; our ability to thoughtfully increase investment in our brand; our ability to focus on key items; and our ability to optimize 2019 shelf sets. 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 September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||
Net sales | $ | 63,889 | $ | 71,865 | $ | 188,864 | $ | 188,295 | ||||||||||||||||||
Cost of sales | 24,920 | 28,952 | 73,042 | 71,264 | ||||||||||||||||||||||
Gross profit | 38,969 | 42,913 | 115,822 | 117,031 | ||||||||||||||||||||||
Selling, general and administrative expenses | 32,656 | 33,133 | 102,681 | 98,843 | ||||||||||||||||||||||
Operating income | 6,313 | 9,780 | 13,141 | 18,188 | ||||||||||||||||||||||
Other income (expense), net | 360 | (379 | ) | (19 | ) | (1,422 | ) | |||||||||||||||||||
Interest expense, net | (1,901 | ) | (2,262 | ) | (5,853 | ) | (6,805 | ) | ||||||||||||||||||
Income before provision for income taxes | 4,772 | 7,139 | 7,269 | 9,961 | ||||||||||||||||||||||
Income tax benefit (provision) | (857 | ) | (1,274 | ) | (1,416 | ) | 2,034 | |||||||||||||||||||
Net income | $ | 3,915 | $ | 5,865 | $ | 5,853 | $ | 11,995 | ||||||||||||||||||
Comprehensive income | $ | 3,915 | $ | 5,865 | $ | 5,853 | $ | 11,995 | ||||||||||||||||||
Net income per share: | ||||||||||||||||||||||||||
Basic | $ | 0.08 | $ | 0.13 | $ | 0.13 | $ | 0.27 | ||||||||||||||||||
Diluted | $ | 0.08 | $ | 0.12 | $ | 0.12 | $ | 0.24 | ||||||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||||||||
Basic | 46,765,366 | 45,813,801 | 46,610,155 | 45,132,567 | ||||||||||||||||||||||
Diluted | 49,123,703 | 49,283,247 | 49,285,342 | 49,462,166 | ||||||||||||||||||||||
e.l.f. Beauty, Inc. and subsidiaries | |||||||||||||||||||||
Condensed consolidated balance sheets | |||||||||||||||||||||
(unaudited) | |||||||||||||||||||||
(in thousands, except share and per share data) | |||||||||||||||||||||
September 30, 2018 | December 31, 2017 | September 30, 2017 | |||||||||||||||||||
Assets | |||||||||||||||||||||
Current assets: | |||||||||||||||||||||
Cash | $ | 33,648 | $ | 10,059 | $ | 5,677 | |||||||||||||||
Accounts receivable, net | 31,762 | 44,634 | 35,627 | ||||||||||||||||||
Inventories | 53,365 | 62,679 | 63,571 | ||||||||||||||||||
Prepaid expenses and other current assets | 6,756 | 6,272 | 8,302 | ||||||||||||||||||
Total current assets | 125,531 | 123,644 | 113,177 | ||||||||||||||||||
Property and equipment, net | 18,184 | 18,037 | 16,635 | ||||||||||||||||||
Intangible assets, net | 100,621 | 105,882 | 107,636 | ||||||||||||||||||
Goodwill | 157,264 | 157,264 | 157,264 | ||||||||||||||||||
Investments | 2,875 | 2,875 | 2,875 | ||||||||||||||||||
Other assets | 9,856 | 9,542 | 9,433 | ||||||||||||||||||
Total assets | $ | 414,331 | $ | 417,244 | $ | 407,020 | |||||||||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||
Current portion of long-term debt and capital lease obligations | $ | 9,067 | $ | 8,646 | $ | 18,140 | |||||||||||||||
Accounts payable | 16,072 | 26,776 | 21,007 | ||||||||||||||||||
Accrued expenses and other current liabilities | 10,803 | 15,939 | 12,937 | ||||||||||||||||||
Total current liabilities | 35,942 | 51,361 | 52,084 | ||||||||||||||||||
Long-term debt and capital lease obligations | 141,309 | 147,702 | 149,690 | ||||||||||||||||||
Deferred tax liabilities | 20,409 | 21,341 | 34,408 | ||||||||||||||||||
Other long-term liabilities | 3,050 | 2,977 | 2,878 | ||||||||||||||||||
Total liabilities | 200,710 | 223,381 | 239,060 | ||||||||||||||||||
Commitments and contingencies | |||||||||||||||||||||
Stockholders' equity: | |||||||||||||||||||||
Common stock, par value of | 471 | 463 | 459 | ||||||||||||||||||
Additional paid-in capital | 734,323 | 720,372 | 715,953 | ||||||||||||||||||
Accumulated deficit | (521,173 | ) | (526,972 | ) | (548,452 | ) | |||||||||||||||
Total stockholders' equity | 213,621 | 193,863 | 167,960 | ||||||||||||||||||
Total liabilities and stockholders' equity | $ | 414,331 | $ | 417,244 | $ | 407,020 | |||||||||||||||
e.l.f. Beauty, Inc. and subsidiaries | |||||||||||||
Condensed consolidated statements of cash flows | |||||||||||||
(unaudited) | |||||||||||||
(in thousands) | |||||||||||||
Nine months ended September 30, | |||||||||||||
2018 | 2017 | ||||||||||||
Cash flows from operating activities: | |||||||||||||
Net income | $ | 5,853 | $ | 11,995 | |||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||||
Depreciation and amortization | 12,905 | 10,676 | |||||||||||
Stock-based compensation expense | 12,464 | 9,720 | |||||||||||
Amortization of debt issuance costs and discount on debt | 596 | 605 | |||||||||||
Deferred income taxes | (914 | ) | (1 | ) | |||||||||
Other, net | 192 | 435 | |||||||||||
Changes in operating assets and liabilities: | |||||||||||||
Accounts receivable | 12,795 | 1,993 | |||||||||||
Inventories | 9,314 | 5,837 | |||||||||||
Prepaid expenses and other assets | (2,766 | ) | (13,030 | ) | |||||||||
Accounts payable and accrued expenses | (15,480 | ) | (34,067 | ) | |||||||||
Other liabilities | 72 | (330 | ) | ||||||||||
Net cash provided by (used in) operating activities | 35,031 | (6,167 | ) | ||||||||||
Cash flows from investing activities: | |||||||||||||
Purchase of property and equipment | (6,456 | ) | (4,371 | ) | |||||||||
Investment in equity securities | — | (2,875 | ) | ||||||||||
Net cash used in investing activities | (6,456 | ) | (7,246 | ) | |||||||||
Cash flows from financing activities: | |||||||||||||
Proceeds from revolving line of credit | 2,000 | 24,100 | |||||||||||
Repayment of revolving line of credit | (2,000 | ) | (14,600 | ) | |||||||||
Repayment of long term debt | (6,188 | ) | (6,188 | ) | |||||||||
Debt issuance costs paid | — | (519 | ) | ||||||||||
Cash received from issuance of common stock | 1,495 | 1,309 | |||||||||||
Other, net | (293 | ) | (307 | ) | |||||||||
Net cash provided by (used in) financing activities | (4,986 | ) | 3,795 | ||||||||||
Net increase (decrease) in cash | 23,589 | (9,618 | ) | ||||||||||
Cash - beginning of period | 10,059 | 15,295 | |||||||||||
Cash - end of period | $ | 33,648 | $ | 5,677 | |||||||||
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 September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||
Gross profit | $ | 38,969 | $ | 42,913 | $ | 115,822 | $ | 117,031 | ||||||||||||||||||
Costs related to Project Unicorn (a) | — | — | 305 | — | ||||||||||||||||||||||
Adjusted gross profit | $ | 38,969 | $ | 42,913 | $ | 116,127 | $ | 117,031 | ||||||||||||||||||
Gross margin | 61 | % | 60 | % | 61 | % | 62 | % | ||||||||||||||||||
Adjusted gross margin | 61 | % | 60 | % | 61 | % | 62 | % |
(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 September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||
Net income | $ | 3,915 | $ | 5,865 | $ | 5,853 | $ | 11,995 | ||||||||||||||||||
Interest expense, net | 1,901 | 2,262 | 5,853 | 6,805 | ||||||||||||||||||||||
Income tax (benefit) provision | 857 | 1,274 | 1,416 | (2,034 | ) | |||||||||||||||||||||
Depreciation and amortization | 4,193 | 3,528 | 12,905 | 10,676 | ||||||||||||||||||||||
EBITDA | $ | 10,866 | $ | 12,929 | $ | 26,027 | $ | 27,442 | ||||||||||||||||||
Costs related to "restructuring" of operations (a) | — | 17 | — | 22 | ||||||||||||||||||||||
Stock-based compensation | 4,193 | 3,787 | 12,464 | 9,720 | ||||||||||||||||||||||
Pre-opening costs (b) | — | 92 | 42 | 162 | ||||||||||||||||||||||
Other non-cash and non-recurring costs (c) | 28 | 438 | 1,462 | 1,589 | ||||||||||||||||||||||
Adjusted EBITDA | $ | 15,087 | $ | 17,263 | $ | 39,995 | $ | 38,935 |
(a) Represents costs associated with the restructuring of the Company’s
operations.
(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 September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||
Selling, general, and administrative expenses | $ | 32,656 | $ | 33,133 | $ | 102,681 | $ | 98,843 | ||||||||||||||||||
Costs related to "restructuring" of operations (a) | — | (17 | ) | — | (22 | ) | ||||||||||||||||||||
Stock-based compensation | (4,193 | ) | (3,787 | ) | (12,464 | ) | (9,720 | ) | ||||||||||||||||||
Pre-opening costs (b) | — | (92 | ) | (42 | ) | (162 | ) | |||||||||||||||||||
Other non-cash and non-recurring costs (c) | (28 | ) | (438 | ) | (1,157 | ) | (1,589 | ) | ||||||||||||||||||
Adjusted selling, general, and administrative expenses | $ | 28,435 | $ | 28,799 | $ | 89,018 | $ | 87,350 |
(a) Represents costs associated with the restructuring of the Company’s
operations.
(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 September 30, | Nine months ended September 30, | |||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||
Net income | $ | 3,915 | $ | 5,865 | $ | 5,853 | $ | 11,995 | ||||||||||||||||||
Costs related to "restructuring" of operations (a) | — | 17 | — | 22 | ||||||||||||||||||||||
Stock-based compensation | 4,193 | 3,787 | 12,464 | 9,720 | ||||||||||||||||||||||
Pre-opening costs (b) | — | 92 | 42 | 162 | ||||||||||||||||||||||
Other non-cash and non-recurring costs (c) | 28 | 438 | 1,462 | 1,589 | ||||||||||||||||||||||
Amortization of acquired intangible assets (d) | 1,754 | 1,754 | 5,262 | 5,367 | ||||||||||||||||||||||
Tax Impact (e) | (1,485 | ) | (2,329 | ) | (4,773 | ) | (6,483 | ) | ||||||||||||||||||
Adjusted net income (f) | $ | 8,405 | $ | 9,624 | $ | 20,310 | $ | 22,372 | ||||||||||||||||||
Weighted average number of shares outstanding - diluted | 49,123,703 | 49,283,247 | 49,285,342 | 49,462,166 | ||||||||||||||||||||||
Adjusted diluted earnings per share | $ | 0.17 | $ | 0.20 | $ | 0.41 | $ | 0.45 |
(a) Represents costs associated with the restructuring of the Company’s
operations.
(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 nine months ended September 30, 2017, as previously
reported, was
View source version on businesswire.com: https://www.businesswire.com/news/home/20181105005925/en/
Investor Relations:
Investors:
Allison Malkin, ICR, Inc.
(203)
682-8200
or
Media:
Alecia Pulman, ICR, Inc.
(203)
682-8200
Source: e.l.f. Beauty