Company Quick10K Filing
e.l.f. Beauty
Price18.27 EPS0
Shares51 P/E470
MCap931 P/FCF31
Net Debt85 EBIT2
TEV1,016 TEV/EBIT482
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-06
10-K 2020-03-31 Filed 2020-05-28
10-Q 2019-12-31 Filed 2020-02-06
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-11-06
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-11
10-Q 2017-03-31 Filed 2017-05-12
10-K 2016-12-31 Filed 2017-03-15
10-Q 2016-09-30 Filed 2016-11-14
8-K 2020-08-27 Shareholder Vote, Exhibits
8-K 2020-08-05 Earnings, Regulation FD, Exhibits
8-K 2020-06-30 Enter Agreement, Officers, Regulation FD, Exhibits
8-K 2020-05-28
8-K 2020-05-21
8-K 2020-04-08
8-K 2020-03-30
8-K 2020-02-05
8-K 2019-12-03
8-K 2019-11-06
8-K 2019-08-07
8-K 2019-05-21
8-K 2019-05-08
8-K 2019-04-19
8-K 2019-03-20
8-K 2019-03-13
8-K 2019-02-26
8-K 2019-02-14
8-K 2019-01-10
8-K 2018-12-07
8-K 2018-11-05
8-K 2018-08-08
8-K 2018-06-12
8-K 2018-05-22
8-K 2018-05-09
8-K 2018-03-22
8-K 2018-02-27
8-K 2018-01-08

ELF 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Note 1 - Nature of Operations
Note 2 - Summary of Significant Accounting Policies
Note 3 - Acquisitions
Note 4 - Investment in Equity Securities
Note 5 - Goodwill and Intangible Assets
Note 6 - Accrued Expenses and Other Current Liabilities
Note 7 - Debt
Note 8 - Commitments and Contingencies
Note 9 - Stock - Based Compensation
Note 10 - Restructuring and Other Related Costs
Note 11 - Repurchase of Common Stock
Note 12 - Net Income per Share
Note 13 - Leases
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 q121exhibit311.htm
EX-31.2 q121exhibit312.htm
EX-32.1 q121exhibit321.htm

e.l.f. Beauty Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
0.50.40.30.20.10.02015201620182020
Assets, Equity
0.10.10.0-0.0-0.1-0.12015201620182020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12015201620182020
Ops, Inv, Fin

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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, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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, including 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, 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. (Check one):
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 31, 2020 was 50,721,893 shares.





e.l.f. Beauty, Inc.
Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3




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, 2020
 
March 31, 2020
 
June 30, 2019
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
54,224

 
$
46,167

 
$
60,746

Accounts receivable, net
29,825

 
29,721

 
22,623

Inventory, net
52,752

 
46,209

 
51,020

Prepaid expenses and other current assets
8,714

 
10,263

 
6,795

Total current assets
145,515

 
132,360

 
141,184

Property and equipment, net
16,146

 
17,171

 
16,493

Intangible assets, net
100,379

 
102,410

 
95,333

Goodwill
171,321

 
171,321

 
157,264

Investments
2,875

 
2,875

 
2,875

Other assets
25,832

 
26,967

 
22,832

Total assets
$
462,068

 
$
453,104

 
$
435,981

 
 
 
 
 
 
Liabilities and stockholders' equity
 

 
 

 
 
Current liabilities:
 

 
 

 
 
Current portion of long-term debt and finance lease obligations
$
13,187

 
$
12,568

 
$
10,681

Accounts payable
21,484

 
12,390

 
16,982

Accrued expenses and other current liabilities
22,560

 
26,165

 
18,313

Total current liabilities
57,231

 
51,123

 
45,976

Long-term debt and finance lease obligations
122,701

 
126,088

 
135,511

Deferred tax liabilities
21,478

 
21,892

 
17,839

Long-term operating lease obligations
11,400

 
11,239

 
13,945

Other long-term liabilities
550

 
591

 
702

Total liabilities
213,360

 
210,933

 
213,973

 
 
 
 
 
 
Commitments and contingencies (Note 8)


 


 


 
 
 
 
 
 
Stockholders' equity:
 

 
 

 
 
Common stock, par value of $0.01 per share; 250,000,000 shares authorized as of June 30, 2020, March 31, 2020 and June 30, 2019; 50,708,699, 50,003,531 and 49,865,995 shares issued and outstanding as of June 30, 2020, March 31, 2020 and June 30, 2019, respectively
491

 
489

 
484

Additional paid-in capital
758,236

 
753,213

 
747,233

Accumulated deficit
(510,019
)
 
(511,531
)
 
(525,709
)
Total stockholders' equity
248,708

 
242,171

 
222,008

Total liabilities and stockholders' equity
$
462,068

 
$
453,104

 
$
435,981

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

4


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,
 
2020
 
2019
Net sales
$
64,527

 
$
59,764

Cost of sales
21,186

 
22,573

Gross profit
43,341

 
37,191

Selling, general and administrative expenses
40,332

 
32,055

Restructuring income

 
(1,792
)
Operating income
3,009

 
6,928

Other (expense) income, net
(30
)
 
351

Interest expense, net
(1,468
)
 
(1,717
)
Income before provision for income taxes
1,511

 
5,562

Income tax (provision) benefit
1

 
(1,856
)
Net income
$
1,512

 
$
3,706

Comprehensive income
$
1,512

 
$
3,706

Net income per share:
 
 
 
Basic
$
0.03

 
$
0.08

Diluted
$
0.03

 
$
0.07

Weighted average shares outstanding:
 
 
 
Basic
48,924,454

 
48,345,942

Diluted
50,939,938

 
50,317,088

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

5


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, 2020
 
48,874,742

 
$
489

 
$
753,213

 
$
(511,531
)
 
$
242,171

Net income
 

 

 

 
1,512

 
1,512

Stock-based compensation
 

 

 
4,627

 

 
4,627

Exercise of stock options and vesting of restricted stock
 
175,561

 
2

 
396

 

 
398

Balance as of June 30, 2020
 
49,050,303

 
$
491


$
758,236


$
(510,019
)

$
248,708


 
 
Common stock
 
Additional
paid-in
capital
 
Accumulated deficit
 
Total
stockholders'
equity
 
 
Shares
 
Amount
 
 
 
Balance as of March 31, 2019
 
48,288,720

 
$
483


$
744,147


$
(529,415
)

$
215,215

Net income
 

 

 

 
3,706

 
3,706

Stock-based compensation
 

 

 
3,926

 

 
3,926

Exercise of stock options and vesting of restricted stock
 
179,225

 
2

 
238

 

 
240

Repurchase of common stock
 
(89,610
)
 
(1
)
 
(1,078
)
 

 
(1,079
)
Balance as of June 30, 2019
 
48,378,335

 
$
484

 
$
747,233

 
$
(525,709
)
 
$
222,008

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



6


e.l.f. Beauty, Inc. and subsidiaries
Condensed consolidated statements of cash flows
(unaudited)
(in thousands)
 
Three months ended June 30,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net income
$
1,512

 
$
3,706

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 

Depreciation and amortization
6,429

 
5,192

Restructuring income

 
(1,792
)
Stock-based compensation expense
4,627

 
3,926

Amortization of debt issuance costs and discount on debt
214

 
190

Deferred income taxes
(414
)
 
1,086

Other, net
72

 
16

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
(174
)
 
9,641

Inventories
(6,543
)
 
(7,241
)
Prepaid expenses and other assets
1,065

 
725

Accounts payable and accrued expenses
5,891

 
2,190

Other liabilities
(856
)
 
(4,774
)
Net cash provided by operating activities
11,823

 
12,865

 
 
 
 
Cash flows from investing activities:
 

 
 

Purchase of property and equipment
(1,155
)
 
(2,904
)
Net cash used in investing activities
(1,155
)
 
(2,904
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Proceeds from revolving line of credit
20,000

 

Repayment of revolving line of credit
(20,000
)
 

Repayment of long-term debt
(2,475
)
 
(2,063
)
Debt issuance costs paid
(334
)
 

Repurchase of common stock

 
(1,079
)
Cash received from issuance of common stock
398

 
240

Other, net
(200
)
 
(187
)
Net cash used in financing activities
(2,611
)
 
(3,089
)
 
 
 
 
Net increase in cash and cash equivalents
8,057

 
6,872

Cash and cash equivalents - beginning of period
46,167

 
53,874

Cash and cash equivalents - end of period
$
54,224

 
$
60,746

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

7

e.l.f. Beauty, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited)


Note 1—Nature of operations
e.l.f. Beauty, Inc. (“e.l.f. Beauty” and together with its subsidiaries, the “Company” or “we”) was formed as a Delaware corporation on December 20, 2013. e.l.f. Beauty is organized as a holding company and operates through its subsidiaries, e.l.f. Cosmetics, Inc., which conducts business under the name “e.l.f. Cosmetics” or “e.l.f.” and W3LL People, Inc., which conducts business under the name “W3LL PEOPLE”. e.l.f. Cosmetics makes the best of beauty accessible to every eye, lip and face by offering high-quality cosmetics and skin care products at an extraordinary value, all formulated 100% vegan and cruelty-free. W3LL PEOPLE is a pioneer in clean beauty that offers accessible clean beauty products that work.
Note 2—Summary of significant accounting policies
Basis of presentation
This report reflects the Company's first quarter of the fiscal year ending March 31, 2021, covering the period from April 1, 2020 to June 30, 2020.
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 (the “SEC”). In the opinion of the Company, these interim financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of June 30, 2020, March 31, 2020 and June 30, 2019, and its results of operations, stockholders' equity and cash flows for the three months ended June 30, 2020 and June 30, 2019. 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 year ended March 31, 2020 (the “Annual Report”). Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. Certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform to the current year presentation.
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
Business Combinations
The purchase price of a business acquisition is allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the business combination date. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires the Company to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Unanticipated events or circumstances may occur that could affect the accuracy of the Company's fair value estimates, and under different assumptions, the resulting valuations could be materially different.
Costs that are incurred to complete the business combination, such as legal and other professional fees, are not considered as a part of consideration transferred and are charged to selling, general and administrative expense as they are incurred.

8




The Company made no other 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, 2020 included in the Annual Report.
Revenue recognition
The Company distributes product 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:
2020
 
2019
United States
$
57,897

 
$
53,780

International
6,630

 
5,984

Total net sales
$
64,527

 
$
59,764


As of June 30, 2020, other than accounts receivable, the Company had no material contract assets, contract liabilities or deferred contract costs recorded on its condensed consolidated balance sheet.

9




Recent accounting pronouncements
The following table provides a brief description of recent accounting pronouncements that could have a material effect on the Company’s financial statements:
Recently adopted accounting standards
Standard
Description
Date of adoption
Effect on the financial statements or other significant matters
ASU 2018-15, Intangibles-Goodwill and Other- Internal-Use Software (Subtopic 350-40)
The standard requires customers in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Certain implementation costs incurred during the application development stage would be deferred and capitalized (e.g., costs of integration with on-premises software, coding, configuration, customization). Other costs incurred during the preliminary project and post-implementation stages would be expensed (e.g., planning the project, training, maintenance after implementation, data conversion). The amendments in the ASU can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.
April 1, 2020
The Company adopted ASU 2018-15 prospectively, and the adoption of the standard did not have a material impact on the Company’s consolidated financial statements.


Note 3 —Acquisitions
On February 24, 2020, the Company, through its wholly owned subsidiary, e.l.f. Cosmetics, Inc., completed its acquisition of W3LL People, a Santa Fe, New Mexico-based privately held, clean beauty company with a mission to create premium quality clean products that help people be well, look well, and do well. The purchase price of $25.9 million was in all cash and the total consideration in connection with the acquisition is subject to adjustment based on (i) purchase price adjustment provisions and (ii) indemnification obligations of W3LL People’s stockholders after the closing of the acquisition.
The acquisition has been accounted for as a business combination under the acquisition method and, accordingly, the total purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their respective fair values on the acquisition date. The final purchase price allocation is pending the finalization of deferred tax calculations and residual goodwill. W3LL People's results of operations have been included in the Company's consolidated financial statements from the date of acquisition.


10




The following table presents the purchase price allocation recorded in the Company's consolidated balance sheets on the acquisition date (in thousands):
 
 
March 31, 2020
Net tangible assets
 
$
2,239

Goodwill (1)
 
14,057

Intangible assets
 
12,340

Net deferred tax liability
 
(2,713
)
Total purchase price consideration
 
$
25,923

 
 
(1) 
The goodwill represents the excess value over both tangible and intangible assets acquired and liabilities assumed. The goodwill recognized in this transaction is primarily attributable to expected operational synergies. None of the goodwill is expected to be deductible for tax purposes.
Intangible Assets
 
 
March 31, 2020
 
 
Fair Value
 
Estimated Useful Life
 
 
(in thousands)
 
(in years)
Customer relationships - retailers
 
$
8,800

 
10
Customer relationships - e-commerce
 
40

 
3
Trademarks
 
3,500

 
10
Total identified intangible assets
 
$
12,340

 
 

Note 4—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 condensed consolidated balance sheets. The Company has elected the measurement alternative for equity investments that do not have readily determinable fair values. The Company did not record an impairment charge on its investment during the three months ended June 30, 2020 or 2019, as any identified events or changes in circumstances did not result in an indicator for impairment. Further, there were no observable price changes in orderly transactions for the identical or a similar investment of the same issuer during the three months ended June 30, 2020.
Note 5—Goodwill and intangible assets
Information regarding the Company’s goodwill and intangible assets as of June 30, 2020 is as follows (in thousands):
 
Estimated useful life
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
Customer relationships – retailers
10 years
 
$
77,600

 
$
(44,440
)
 
$
33,160

Customer relationships – e-commerce
3 years
 
3,940

 
(3,904
)
 
36

Trademarks
10 years
 
$
3,500

 
$
(117
)
 
$
3,383

Total finite-lived intangibles
 
 
85,040

 
(48,461
)
 
36,579

Trademarks
Indefinite
 
63,800

 

 
63,800

Goodwill
 
 
171,321

 

 
171,321

Total goodwill and other intangibles
 
 
$
320,161

 
$
(48,461
)
 
$
271,700


11




Information regarding the Company’s goodwill and intangible assets as of March 31, 2020 is as follows (in thousands):
 
Estimated useful life
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
Customer relationships – retailers
10 years
 
$
77,600

 
$
(42,500
)
 
$
35,100

Customer relationships – e-commerce
3 years
 
3,940

 
(3,901
)
 
39

Trademarks
10 years
 
$
3,500

 
$
(29
)
 
$
3,471

Total finite-lived intangibles
 
 
85,040

 
(46,430
)
 
38,610

Trademarks
Indefinite
 
63,800

 

 
63,800

Goodwill
 
 
171,321

 

 
171,321

Total goodwill and other intangibles
 
 
$
320,161

 
$
(46,430
)
 
$
273,731

Information regarding the Company’s goodwill and intangible assets as of June 30, 2019 is as follows (in thousands):
 
Estimated useful life
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
Customer relationships – retailers
10 years
 
$
68,800

 
$
(37,267
)
 
$
31,533

Customer relationships – e-commerce
3 years
 
3,900

 
(3,900
)
 

Total finite-lived intangibles
 
 
72,700

 
(41,167
)
 
31,533

Trademarks
Indefinite
 
63,800

 

 
63,800

Goodwill
 
 
157,264

 

 
157,264

Total goodwill and other intangibles
 
 
$
293,764

 
$
(41,167
)
 
$
252,597


Amortization expense on finite-lived intangible assets was $2.0 million and $1.7 million in the three months ended June 30, 2020 and June 30, 2019, 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 months ended June 30, 2020 and June 30, 2019.
The estimated future amortization expense related to finite-lived intangible assets, assuming no impairment as of June 30, 2020 is as follows (in thousands):
Remainder of 2021
$
6,093

2022
8,123

2023
8,122

2024
6,963

2025
1,230

Thereafter
6,048

Total
$
36,579




12




Note 6—Accrued expenses and other current liabilities
Accrued expenses and other current liabilities as of June 30, 2020, March 31, 2020 and June 30, 2019 consisted of the following (in thousands):
 
June 30, 2020
 
March 31, 2020
 
June 30, 2019
Accrued expenses
$
14,138

 
$
12,518

 
$
10,297

Current portion of operating lease liabilities
3,200

 
3,083

 
3,342

Accrued compensation
3,404

 
9,542

 
2,810

Other current liabilities
1,818

 
1,022

 
1,864

Accrued expenses and other current liabilities
$
22,560

 
$
26,165

 
$
18,313


Note 7—Debt
The Company’s outstanding debt as of June 30, 2020, March 31, 2020 and June 30, 2019 consisted of the following (in thousands):
 
June 30, 2020
 
March 31, 2020
 
June 30, 2019
Term loan(1)
$
133,505

 
$
135,853

 
$
142,883

Finance lease obligations
2,812

 
3,012

 
3,593

Total debt(2)
136,317

 
138,865

 
146,476

Less: debt issuance costs
(429
)
 
(209
)
 
(284
)
Total debt, net of issuance costs
135,888

 
138,656

 
146,192

Less: current portion
(13,187
)
 
(12,568
)
 
(10,681
)
Long-term portion of debt
$
122,701

 
$
126,088

 
$
135,511

(1) See Note 10, “Debt,” to the consolidated financial statements included in the Annual Report for details regarding the Senior Secured Credit Agreement (as defined below under the heading “Description of indebtedness”). As of June 30, 2020, the Company was in compliance with all applicable financial covenants.
(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.
April 2020 Credit Agreement Amendment
On April 8, 2020, the Company entered into a Third Amendment to Credit Agreement (the "Amendment"), amending its Senior Secured Credit Agreement (the "Credit Agreement") to modify the Company’s quarterly maintenance covenants, and to add interest rates with respect to borrowings associated with the added increased maximum permitted total net leverage ratios.
Pursuant to the Amendment, borrowings under both the Revolving Credit Facility and the Term Loan Facility bear interest, at the Company's option, at either a rate per annum equal to (i) a rate per annum equal to an adjusted LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the applicable interest period (subject to a minimum floor of 0%) plus an applicable margin ranging from 1.50% to 3.25% based on our consolidated total net leverage ratio or (ii) a floating base rate plus an applicable margin ranging from 0.50% to 2.25% based on our consolidated total net leverage ratio. The interest rate as of June 30, 2020 for the Term Loan was approximately 2.1%.
All amounts under the Revolving Credit Facility are available for draw until the maturity date on August 25, 2022. The Revolving Credit Facility is collateralized by substantially all of our assets and requires payment of an unused fee ranging from 0.35% to 0.25% (based on our consolidated total net leverage ratio) times the average daily amount of unutilized commitments under the Revolving Credit Facility. The Revolving Credit Facility also provides for sub-facilities in the form of a

13




$7.0 million letter of credit and a $5.0 million swing line loan; however, all amounts under the Revolving Credit Facility cannot exceed $50.0 million. The unused balance of the Revolving Credit Facility as of June 30, 2020 was $49.8 million.
Note 8—Commitments and Contingencies
Legal contingencies
From time to time, the Company is 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 9—Stock-based compensation
Service-based vesting stock options
The following table summarizes the activity for options that vest solely based upon the satisfaction of a service condition for the three months ended June 30, 2020:
 
Options
outstanding
 
Weighted-average exercise price
 
Weighted-average remaining
contractual life
(in years)
 
Aggregate intrinsic
values
(in thousands)
Balance as of March 31, 2020
1,999,553

 
$
13.17

 
 
 
 

Exercised
(98,970
)
 
3.45

 
 
 
 

Canceled or forfeited
(5,083
)
 
21.61

 
 
 
 

Balance as of June 30, 2020
1,895,500

 
$
13.66

 
6.6
 
$
10,801

 
 
 
 
 
 
 
 
Exercisable, June 30, 2020
1,215,922

 
$
12.77

 
6.0
 
$
8,077


The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company's closing stock price of $19.07, as reported on the New York Stock Exchange on June 30, 2020.
The Company recognized stock-based compensation cost related to service-based vesting options of $0.6 million in both the three months ended June 30, 2020 and June 30, 2019. As of June 30, 2020, there was $2.7 million of total unrecognized stock-based compensation cost related to unvested service-based stock options, which is expected to be recognized over the remaining weighted-average period of 1.9 years. All stock-based compensation cost is recorded in selling, general and administrative expenses.
Performance-based and market-based vesting stock options
The following table summarizes the activity for stock options that vest based upon the satisfaction of performance or market conditions for the three months ended June 30, 2020:
 
Options
outstanding
 
Weighted-average exercise price
 
Weighted-average remaining
contractual life
(in years)
 
Aggregate intrinsic
values
(in thousands)
Balance as of March 31, 2020
1,252,932

 
$
7.97

 
 
 
 
Exercised
(27,600
)
 
1.84

 
 
 
 
Balance as of June 30, 2020
1,225,332

 
$
8.07

 
4.7
 
$
15,807

 
 
 
 
 
 
 
 
Exercisable, June 30, 2020
925,332

 
$
1.99

 
4.1
 
$
15,807


The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company's closing stock price of $19.07, as reported on the New York Stock Exchange on June 30, 2020.

14




As of June 30, 2020 and June 30, 2019, there was no unrecognized compensation cost related to performance-based and market-based vesting stock options.

Restricted stock
The following table summarizes the activities for restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) for the three months ended June 30, 2020:
 
Shares of restricted stock outstanding
 
Weighted-average grant date fair value
Balance as of March 31, 2020
2,311,768

 
12.86

Granted
995,650

 
16.75

Vested
(48,991
)
 
14.08

Canceled or forfeited
(56,104
)
 
14.59

Balance as of June 30, 2020
3,202,323

 
14.02


As of June 30, 2020, there were 1,658,396 unvested shares subject to RSAs outstanding.
The Company recognized stock-based compensation cost related to RSAs and RSUs of $4.1 million and $3.3 million in the three months ended June 30, 2020 and June 30, 2019, respectively. As of June 30, 2020, there was $36.8 million of total unrecognized stock-based compensation cost related to unvested RSAs and RSUs, which is expected to be recognized over a weighted-average period of 2.5 years.

15


Note 10—Restructuring and other related costs
In February 2019, the Company closed all 22 e.l.f. retail stores and implemented a workforce reduction of employees that operated and managed the e.l.f. retail stores (the “Restructuring Plan”).
In connection with the Restructuring Plan, the following table presents the restructuring (income) expenses incurred for the three months ended June 30, 2020 and June 30, 2019, respectively (in thousands):
 
Three months ended
June 30, 2020
 
Three months ended June 30, 2019
Gain from extinguishment of lease liabilities
$

 
$
(2,637
)
Other costs, including other asset write-offs

 
845

Total
$

 
$
(1,792
)

The gain from extinguishment of lease liabilities represents the difference between the aggregate operating lease liability and the aggregate cash payment incurred to extinguish such liability. The majority of the other costs incurred during the three months ended June 30, 2019 are legal fees related to these extinguishments. As of March 31, 2020, the Company had settled all outstanding lease liabilities related to its e.l.f. retail store closures and does not expect to incur additional costs associated with the Restructuring Plan. Therefore, there were no restructuring expenses incurred during the three months ended June 30, 2020.
Liabilities related to the Restructuring Plan are reported within accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets. There were no costs incurred or cash disbursements made during the three months ended June 30, 2020. The following table presents a roll-forward of the Company's restructuring liability for the three months ended June 30, 2019 (in thousands):
 
 
Employee severance and related expenses
 
Other costs
 
Total
March 31, 2019
 
$
96

 
$
675

 
$
771

    Costs incurred
 
(22
)
 
867

 
845

    Cash disbursements
 
(74
)
 
(1,093
)
 
(1,167
)
    Other adjustments
 

 
(131
)
 
(131
)
June 30, 2019
 
$

 
$
318

 
$
318


Outstanding lease liabilities are not included in the table above, as those liabilities were established upon adoption of ASC 842, not in connection with the Restructuring Plan.

16




Note 11—Repurchase of common stock
On May 8, 2019, the Company's 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 shares will be purchased under the Share Repurchase Program and such shares are intended to be retired after purchase.
The Company did not repurchase any shares during the three months ended June 30, 2020. A total of $17.1 million remains available for purchase under the Share Repurchase Program as of June 30, 2020.
Note 12—Net income per share
The Company computes basic net income per share using the weighted average number of common shares 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,
 
2020
 
2019
Numerator:
 

 
 

Net income
$
1,512

 
$
3,706

 
 
 
 
Denominator:
 

 
 

Weighted average common shares outstanding - basic
48,924,454

 
48,345,942

Dilutive common equivalent shares from equity awards
2,015,484

 
1,971,146

Weighted average common shares outstanding - diluted
50,939,938

 
50,317,088

 
 
 
 
Net income per share:
 

 
 

Basic
$
0.03

 
$
0.08

Diluted
$
0.03

 
$
0.07

 
 
 
 
Weighted average anti-dilutive shares from outstanding equity awards excluded from diluted earnings per share
2,567,951

 
2,891,303


Note 13—Leases
The Company leases warehouses, distribution centers, office space, retail space and equipment. Prior to the Restructuring Plan, the Company also leased 22 e.l.f. retail store locations. 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 discount rate used in measuring lease liabilities is generally based on the interest rate on the Company’s revolving line of credit, assuming sufficient unused capacity exists at the time the lease liability is measured.

17


For the three months ended June 30, 2020 and June 30, 2019, the components of operating and finance lease costs were as follows (in thousands):
 
 
Classification
 
June 30, 2020
 
June 30, 2019
Assets
 
 
 
 
 
 
Operating lease assets (a)
 
Other assets
 
$
13,695

 
7,446

Finance lease assets (b)
 
Other assets
 
1,846

 
2,839

Total leased assets
 
 
 
$
15,541

 
10,285

Liabilities
 
 
 
 
 
 
Current
 
 
 
 
 
 
Operating (a)
 
Accrued expenses and other current liabilities
 
$
3,200

 
3,342

Finance
 
Current portion of long-term debt and finance lease obligations
 
812

 
781

Noncurrent
 
 
 
 
 
 
Operating (a)
 
Long-term operating lease obligations
 
11,400

 
13,945

Finance
 
Long-term debt and finance lease obligations
 
2,000

 
2,812

Total lease liabilities
 
 
 
$
17,412

 
20,880

_____________________
(a) In accordance with ASC 842, $15.7 million of ROU assets related to operating leases were derecognized in the three months ended March 31, 2019 in connection with the Restructuring Plan. Pursuant to ASC 842, each related lease liability is derecognized only after the Company is released from that liability. See Note 10, “Restructuring and other related costs” for further details on the Restructuring Plan and the gain recorded on lease liabilities derecognized in the three months ended June 30, 2019.
(b) Finance leases are recorded net of accumulated amortization of $3.2 million and $2.2 million as of June 30, 2020 and June 30, 2019, respectively.
For the three months ended June 30, 2020 and June 30, 2019, the components of operating and finance lease costs were as follows (in thousands):
 
 
Classification
 
June 30, 2020
 
June 30, 2019
Operating lease cost
 
Selling, general and administrative (“SG&A”) expenses
 
$
1,080

 
$
629

Gain from extinguishment of lease liabilities
 
Restructuring income
 

 
(2,637
)
Finance lease cost
 
 
 
 
 
 
Amortization of leased assets
 
SG&A expenses
 
248

 
250

Interest on lease liabilities
 
Interest expense, net
 
38

 
48

Total lease cost (gain)
 
 
 
$
1,366

 
$
(1,710
)


18


As of June 30, 2020, 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 2021
 
$
2,756

 
$
712

 
$
3,468

2022
 
2,542

 
908

 
3,450

2023
 
2,164

 
1,208

 
3,372

2024
 
2,210

 
234

 
2,444

2025
 
1,802

 

 
1,802

Thereafter
 
4,766

 

 
4,766

Total lease payments
 
16,240

 
3,062

 
$
19,302

Less: Interest
 
1,640

 
250

 


Present value of lease liabilities
 
$
14,600

 
$
2,812

 



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.
For the three months ended June 30, 2020 and June 30, 2019, the weighted average remaining lease term (in years) and discount rate were as follows:
 
 
June 30, 2020
 
June 30, 2019
Weighted-average remaining lease term
 
 
 
 
Operating leases
 
6.7 years

 
5.5 years

Finance leases
 
3.0 years

 
4.0 years

Weighted-average discount rate
 
 
 

Operating leases
 
3.6
%
 
4.7
%
Finance leases
 
5.2
%
 
5.2
%

Operating cash outflows from operating leases for the three months ended June 30, 2020 and June 30, 2019 were $0.9 million and $4.0 million, respectively.


19




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, 2020, as amended (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 (the “Quarterly Report”), which include additional information about our accounting policies, practices and the transactions underlying our financial results.
Cautionary note regarding forward-looking statements
The MD&A and other parts of 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 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.

20




Overview
e.l.f. Beauty, Inc. is organized as a holding company and operates through its principal subsidiaries, e.l.f. Cosmetics, Inc., which conducts business under the name "e.l.f. Cosmetics" or "e.l.f.", and W3LL People, Inc., which conducts business under the name “W3LL PEOPLE”. e.l.f. Cosmetics makes the best of beauty accessible to every eye, lip and face by offering high-quality cosmetics and skin care products at an extraordinary value, all formulated 100% vegan and cruelty-free. W3LL PEOPLE is a pioneer in clean beauty that offers accessible clean beauty products that work.
National retailers. We sell our products in the United States in the mass, drug store, food and specialty retail channels.
e-commerce. Our e-commerce platforms are an important component of our engagement and innovation model. We have nurtured a loyal, highly active online community for over a decade. Our roots as an e-commerce company and our digital engagement model drive conversion on elfcosmetics.com and w3IIpeople.com, where we sell our full product offerings.
International. Our products are also sold in a number of international markets, including the United Kingdom, Canada, Mexico, China, Germany, Australia and Canada.
We believe our unique ability to combine cost, quality and speed differentiates us in the beauty industry. This combination, along with our innovation capabilities, enables us to deliver prestige quality products at extraordinary prices across color cosmetics and adjacent categories like skin care. In response to a rapidly changing landscape in beauty, we are investing in our digital engagement model to reach consumers through multiple channels, including elfcosmetics.com, our national retail partners online sites and social media. In concert with our digital efforts, we have strong relationships with our retail partners such as Walmart, Target, Ulta Beauty and other leading retailers that have enabled us to expand distribution both within existing retailers and with new retailers, domestically and internationally.
Business trends
Tariffs
Tariffs have impacted the majority of products that we import from China. Despite the signing of a Phase One trade agreement between the United States and China, the majority of our products remain impacted by increased tariffs. To mitigate the financial impact of these tariffs on our results of operations, we selectively increased prices on certain of our products in July 2019. We also implemented various other tariff mitigation initiatives including, but not limited to, negotiating lower prices with our suppliers in China and exploring potential new suppliers outside of China. In addition, favorable movements in foreign exchange rates and shifting product mix toward margin accretive innovation has also partially offset the impact of tariffs on our gross margin. We cannot provide any assurances that these mitigation initiatives will continue to be successful.
COVID-19
We have seen volatility in our sales performance due to the COVID-19 outbreak. We anticipate our sales results will continue to be impacted until consumers return to normal shopping patterns. We continue to focus on the following areas to address the impact of the COVID-19 pandemic on the business: 1) supporting the health and safety of our employees and community; 2) minimizing disruption to the supply chain; and 3) keeping adequate levels of liquidity and flexibility within the our credit agreement.

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 holiday purchases 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

21




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)
2020
 
2019
Net sales
$
64,527

 
$
59,764

Cost of sales
21,186

 
22,573

Gross profit
43,341

 
37,191

Selling, general and administrative expenses
40,332

 
32,055

Restructuring income

 
(1,792
)
Operating income
3,009

 
6,928

Other (expense) income, net
(30
)
 
351

Interest expense, net
(1,468
)
 
(1,717
)
Income before provision for income taxes
1,511

 
5,562

Income tax (provision) benefit
1

 
(1,856
)
Net income
$
1,512

 
$
3,706

Comprehensive income
$
1,512

 
$
3,706

 
Three months ended June 30,
(percentage of net sales)
2020
 
2019
Net sales
100
 %
 
100
 %
Cost of sales
33
 %
 
38
 %
Gross margin
67
 %
 
62
 %
Selling, general and administrative expenses
63
 %
 
54
 %
Restructuring income
 %
 
(3
)%
Operating income
5
 %
 
11
 %
Other (expense) income, net
 %
 
1
 %
Interest expense, net
(2
)%
 
(3
)%
Income before provision for income taxes
2
 %
 
9
 %
Income tax (provision) benefit
 %
 
(3
)%
Net income
2
 %
 
6
 %
Comprehensive income
2
 %
 
6
 %
Comparison of the three months ended June 30, 2020 to the three months ended June 30, 2019
Net sales
Net sales increased 8%, or $4.8 million, to $64.5 million for the three months ended June 30, 2020, from $59.8 million for the three months ended June 30, 2019. The increase was primarily driven by strength in digital, partially offset by certain retailer store closures in the U.S. and internationally due to COVID-19.
Gross profit
Gross profit increased $6.2 million, or 17%, to $43.3 million for the three months ended June 30, 2020, compared to $37.2 million for the three months ended June 30, 2019. Gross margin increased to 67% from 62%, when compared to the three months ended June 30, 2019. The improvement was primarily driven by the shift in our sales mix to elfcosmetics.com, price increases implemented last summer, margin accretive innovation, cost savings, and favorable movements in foreign exchange rates, partially offset by the impact of tariffs on goods imported from China.

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Selling, general and administrative expenses
SG&A expenses were $40.3 million for the three months ended June 30, 2020, an increase of $8.3 million, or 26%, from $32.1 million for the three months ended June 30, 2019. SG&A expenses as a percentage of net sales increased to 63% for the three months ended June 30, 2020 from 54% for the three months ended June 30, 2019. The $8.3 million increase was primarily due to increased employee compensation costs related to annualizing headcount from building out our marketing, digital and innovation capabilities, proxy contest costs, operations costs driven by the increase in eCommerce sales, and investments in marketing and digital.
Restructuring income
We incurred no expenses related to the Restructuring Plan for the three months ended June 30, 2020. We recognized restructuring income of $1.8 million for the three months ended June 30, 2019, which included a $2.6 million gain related to operating lease liabilities that were extinguished during the period. We have settled all outstanding lease liabilities related to our e.l.f. retail store closures and we do not expect to incur additional material costs associated with the Restructuring Plan.
Other (expense) income, net
Other (expense) income, net decreased by $0.4 million to $30 thousand for the three months ended June 30, 2020, as compared to $0.4 million for the three months ended June 30, 2019 primarily related to foreign exchange rate movements.
Interest expense, net
Interest expense, net decreased $0.2 million, or 15%, to $1.5 million for the three months ended June 30, 2020, as compared to $1.7 million for the three months ended June 30, 2019. This change was primarily due to the balance outstanding on our Term Loan Facility as well as a decline in interest rates.
Income tax provision
The benefit for income taxes was $1 thousand, or an effective rate of 0%, for the three months ended June 30, 2020, as compared to a provision of $1.9 million, or an effective rate of 33.4%, for the three months ended June 30, 2019. The change was primarily driven by a decrease in income before taxes of $4.1 million and an increase in discrete tax benefit of $0.7 million, primarily related to share-based compensation.
Financial condition, liquidity and capital resources
Overview
As of June 30, 2020, we held $54.2 million of cash and cash equivalents. In addition, as of June 30, 2020, we had borrowing capacity of $49.8 million under our Revolving Credit Facility. In April 2020, we borrowed $20.0 million against the available capacity under our Revolving Credit Facility (as defined below under "Description of indebtedness") in order to increase our cash position given the volatility driven by the COVID-19 pandemic, which was subsequently repaid during the quarter.
Our primary cash needs are for capital expenditures, retail product displays and working capital. Capital expenditures typically vary depending on strategic initiatives selected for the fiscal year, including investments in infrastructure, digital capabilities, and expansion within or to additional retailer store locations. We expect to fund ongoing capital expenditures from existing cash on hand, cash generated from operations and, if necessary, draws on our Revolving Credit Facility.
Our primary working capital requirements are for product and product-related costs, payroll, rent, distribution costs and advertising and marketing. Fluctuations in working capital are primarily driven by the timing of when a retailer rearranges or restocks its products, expansion of space within our existing retailer base and the general seasonality of our business. As of June 30, 2020, we had working capital, excluding cash, of $34.1 million, compared to $35.1 million as of March 31, 2020. Working capital, excluding cash and debt, was $47.2 million and $47.6 million as of June 30, 2020 and March 31, 2020, respectively.
We believe that our operating cash flow, cash on hand and available financing under our Revolving Credit Facility will be adequate to meet our operating, investing and financing needs for the next twelve months. If necessary, we can borrow funds under our Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all.

23




Our ability to meet our operating, investing and financing needs depends to a significant extent on our future financial performance, which will be subject in part to general economic, competitive, financial, regulatory and other factors that are beyond our control, including those described elsewhere in Part II, Item 1A “Risk Factors”. In addition to these general economic and industry factors, the principal factors in determining whether our cash flows will be sufficient to meet our liquidity requirements will be our ability to provide innovative products to our customers and manage production and our supply chain.
Cash flows
 
Three months ended June 30,
(in thousands)
2020
 
2019
Net cash provided by (used in):
 
 
 
Operating activities
$
11,823

 
$
12,865

Investing activities
(1,155
)
 
(2,904
)
Financing activities
(2,611
)