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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 September 30, 2022

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,
CA94607
 (Address of principal executive offices)(Zip code)
_______________________________________________________________ 
(510)
778-7787
(Registrant’s telephone number, including area code)
_______________________________________________________________ 
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareELFNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes      No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non- accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes     No
The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of October 28, 2022 was 52,938,112 shares.




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

SUMMARY OF MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
The principal risks and uncertainties affecting our business include the following:
The beauty industry is highly competitive, and if we are unable to compete effectively our results will suffer.

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

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

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

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

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

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

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

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

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

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

Adverse economic conditions in any of the countries in which we conduct significant business could negatively affect our business, financial condition and results of operations.





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

Our success depends on our ability to operate our business without infringing, misappropriating or otherwise violating the trademarks, patents, copyrights and other proprietary rights of third parties.
The summary risk factors described above should be read together with the text of the full risk factors below in the section titled “Risk factors” and the other information set forth in this Quarterly Report, including our unaudited condensed consolidated financial statements and the related notes, as well as in other documents that we file with the U.S. Securities and Exchange Commission (the "SEC"). The risks summarized above or described in the section titled “Risk factors” are not the only risks that we face. Additional risks and uncertainties not precisely known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations, and future growth prospects.




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

4



PART I. FINANCIAL INFORMATION
Item 1. Financial statements (unaudited)
e.l.f. Beauty, Inc. and subsidiaries
Condensed consolidated balance sheets
(unaudited)
(in thousands, except share and per share data)
September 30, 2022March 31, 2022September 30, 2021
Assets
Current assets:
Cash and cash equivalents$85,317 $43,353 $41,694 
Accounts receivable, net53,912 45,567 44,374 
Inventory, net81,288 84,498 76,816 
Prepaid expenses and other current assets26,881 19,611 18,420 
Total current assets247,398 193,029 181,304 
Property and equipment, net8,934 10,577 13,945 
Intangible assets, net82,101 86,163 90,225 
Goodwill171,620 171,620 171,620 
Investments2,875 2,875 2,875 
Other assets29,213 30,368 33,043 
Total assets$542,141 $494,632 $493,012 
Liabilities and stockholders' equity  
Current liabilities:  
Current portion of long-term debt and finance lease obligations$5,801 $5,786 $19,254 
Accounts payable19,279 19,227 19,299 
Accrued expenses and other current liabilities46,868 40,004 32,665 
Total current liabilities71,948 65,017 71,218 
Long-term debt and finance lease obligations88,284 91,080 93,865 
Deferred tax liabilities10,635 9,593 15,114 
Long-term operating lease obligations13,440 15,744 17,919 
Other long-term liabilities874 769 803 
Total liabilities185,181 182,203 198,919 
Commitments and contingencies (Note 7)
Stockholders' equity:  
Common stock, par value of $0.01 per share; 250,000,000 shares authorized as of September 30, 2022, March 31, 2022 and September 30, 2021; 52,896,411, 52,243,764 and 52,035,864 shares issued and outstanding as of September 30, 2022, March 31, 2022 and September 30, 2021, respectively
525 515 511 
Additional paid-in capital813,785 795,443 784,881 
Accumulated deficit(457,350)(483,529)(491,299)
Total stockholders' equity356,960 312,429 294,093 
Total liabilities and stockholders' equity$542,141 $494,632 $493,012 
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 operations and comprehensive income
(unaudited)
(in thousands, except share and per share data)
 Three months ended September 30,Six months ended September 30,
 2022202120222021
Net sales$122,349 $91,855 $244,950 $188,902 
Cost of sales42,789 33,870 82,405 69,011 
Gross profit79,560 57,985 162,545 119,891 
Selling, general and administrative expenses64,183 50,447 125,738 101,196 
Restructuring expense 96  82 
Operating income 15,377 7,442 36,807 18,613 
Other expense, net(1,262)(646)(2,925)(808)
Interest expense, net(786)(597)(1,449)(1,342)
Loss on extinguishment of debt   (460)
Income before provision for income taxes13,329 6,199 32,433 16,003 
Income tax provision(1,619)(475)(6,254)(2,003)
Net income $11,710 $5,724 $26,179 $14,000 
Comprehensive income$11,710 $5,724 $26,179 $14,000 
Net income per share:
Basic$0.22 $0.11 $0.50 $0.28 
Diluted$0.21 $0.11 $0.48 $0.26 
Weighted average shares outstanding:
Basic52,298,905 50,875,618 52,004,661 50,711,000 
Diluted55,037,514 53,541,724 54,437,752 53,475,988 
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 stockholders’ equity
(unaudited)
(in thousands, except share data)


 Common stockAdditional
paid-in
capital
Accumulated deficitTotal
stockholders'
equity
 SharesAmount
Balance as of March 31, 202251,524,307 $515 $795,443 $(483,529)$312,429 
Net income— — — 14,469 14,469 
Stock-based compensation— — 6,549 — 6,549 
Exercise of stock options and vesting of restricted stock558,336 2 — — 2 
Balance as of June 30, 202252,082,643 $517 $801,992 $(469,060)$333,449 
Net income— — — 11,710 11,710 
Stock-based compensation— — 8,022 — 8,022 
Exercise of stock options and vesting of restricted stock471,966 8 3,771 — 3,779 
Balance as of September 30, 202252,554,609 $525 $813,785 $(457,350)$356,960 


 Common stockAdditional
paid-in
capital
Accumulated deficitTotal
stockholders'
equity
 SharesAmount
Balance as of March 31, 202150,400,510 $504 $774,441 $(505,299)$269,646 
Net income— — — 8,276 8,276 
Stock-based compensation— — 4,190 — 4,190 
Exercise of stock options and vesting of restricted stock358,575 4 506 — 510 
Balance as of June 30, 202150,759,085 $508 $779,137 $(497,023)$282,622 
Net income— — — 5,724 5,724 
Stock-based compensation— — 5,033 — 5,033 
Exercise of stock options and vesting of restricted stock290,418 3 711 — 714 
Balance as of September 30, 202151,049,503 $511 $784,881 $(491,299)$294,093 

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

7


e.l.f. Beauty, Inc. and subsidiaries
Condensed consolidated statements of cash flows
(unaudited)
(in thousands)
 Six months ended September 30,
 20222021
Cash flows from operating activities:  
Net income $26,179 $14,000 
Adjustments to reconcile net income to net cash provided by operating activities:
 
Depreciation and amortization11,075 13,349 
Restructuring expense 82 
Stock-based compensation expense14,576 9,387 
Amortization of debt issuance costs and discount on debt181 211 
Deferred income taxes1,042 1,635 
Loss on extinguishment of debt 460 
Other, net(24)257 
Changes in operating assets and liabilities:  
Accounts receivable(8,301)(4,374)
Inventories3,210 (19,958)
Prepaid expenses and other assets(9,555)(6,379)
Accounts payable and accrued expenses6,798 (5,878)
Other liabilities(2,135)(2,018)
Net cash provided by operating activities43,046 774 
Cash flows from investing activities:  
Purchase of property and equipment(694)(3,649)
Net cash used in investing activities(694)(3,649)
Cash flows from financing activities:  
Proceeds from revolving line of credit 26,480 
Repayment of revolving line of credit (13,000)
Proceeds from long-term debt 25,581 
Repayment of long-term debt(2,500)(52,025)
Debt issuance costs paid (1,064)
Cash received from issuance of common stock2,503 1,224 
Other, net(391)(395)
Net cash used in financing activities(388)(13,199)
Net increase in cash and cash equivalents41,964 (16,074)
Cash and cash equivalents - beginning of period43,353 57,768 
Cash and cash equivalents - end of period$85,317 $41,694 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

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

Note 1—Nature of operations
e.l.f. Beauty, Inc., a Delaware corporation, (“e.l.f. Beauty” and together with its subsidiaries, the “Company,” or “we”) is a multi-brand beauty company that offers inclusive, accessible, clean and cruelty-free cosmetics and skincare products. Our mission is to make the best of beauty accessible to every eye, lip and face.
We believe our ability to deliver 100% cruelty-free, clean, premium-quality products at accessible prices with broad appeal differentiates us in the beauty industry. We believe the combination of our innovation engine, core value proposition, digitally-led strategy, as well as our world-class team’s ability to execute with speed has positioned us well to navigate a rapidly changing landscape in beauty.

Our family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare. Our brands are available online and across leading beauty, mass-market and clean-beauty specialty retailers. 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 domestically and internationally.

Note 2—Summary of significant accounting policies
Basis of presentation
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, these interim financial statements contain all adjustments, including normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 2022, March 31, 2022 and September 30, 2021, and its results of operations and stockholders' equity for the three and six months ended September 30, 2022 and September 30, 2021 and its cash flows for the six months ended September 30, 2022 and September 30, 2021. All intercompany balances and transactions have been eliminated in consolidation.
These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022 (the “Annual Report”). Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Segment reporting
Operating segments are components of an enterprise for which separate financial information is available that is evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Utilizing these criteria, the Company manages its business on the basis of one operating segment and one reportable segment. It is impracticable for the Company to provide revenue by product line.
Significant accounting policies
The Company made no material changes in the application of its significant accounting policies that were disclosed in Note 2, “Summary of significant accounting policies,” to the audited consolidated financial statements as of and for the fiscal year ended March 31, 2022 included in the Annual Report.
9


Revenue recognition
The Company distributes products both through national and international retailers, as well as direct-to-consumers through its e-commerce channel. The marketing and consumer engagement benefits that the direct-to-consumer channel provides is integral to the Company’s brand and product development strategy and drives sales across channels. As such, the Company views its two primary distribution channels as components of one integrated business, as opposed to discrete revenue streams.
The Company sells a variety of beauty products but does not consider them to be meaningfully different revenue streams given similarities in the nature of the products, the target consumer and the innovation and distribution processes.
The following table provides disaggregated revenue from contracts with customers by geographical market, as the nature, amount, timing and uncertainty of revenue and cash flows can differ between domestic and international customers (in thousands).
 Three months ended September 30,Six months ended September 30,
Net sales by geographic region:2022202120222021
United States$109,273 $81,354 $216,412 $167,325 
International13,076 10,501 28,538 21,577 
Total net sales$122,349 $91,855 $244,950 $188,902 
As of September 30, 2022, other than accounts receivable, the Company had no material contract assets, contract liabilities or deferred contract costs recorded on its unaudited condensed consolidated balance sheet.
Recent accounting pronouncements
No new accounting pronouncements issued but not yet adopted are expected to have a material impact on the Company's unaudited condensed consolidated financial statements.
Note 3—Investment in equity securities
On April 14, 2017, the Company invested $2.9 million in a social media analytics company, which is included in investments on its unaudited condensed consolidated balance sheets. The Company has elected the measurement alternative for equity investments that do not have readily determinable fair values. The Company did not record an impairment charge on its investment during the three and six months ended September 30, 2022 and September 30, 2021, 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 and six months ended September 30, 2022.
Note 4—Goodwill and intangible assets
Information regarding the Company’s goodwill and intangible assets as of September 30, 2022 is as follows (in thousands):
 Estimated useful lifeGross carrying amountAccumulated amortizationNet carrying amount
Customer relationships – retailers10 years$77,600 $(61,900)$15,700 
Customer relationships – e-commerce3 years3,940 (3,935)5 
Trademarks10 years3,500 (904)2,596 
Total finite-lived intangibles85,040 (66,739)18,301 
TrademarksIndefinite63,800 — 63,800 
Goodwill171,620  171,620 
Total goodwill and other intangibles$320,460 $(66,739)$253,721 
10


Information regarding the Company’s goodwill and intangible assets as of March 31, 2022 is as follows (in thousands):
 Estimated useful lifeGross carrying amountAccumulated amortizationNet carrying amount
Customer relationships – retailers10 years$77,600 $(58,020)$19,580 
Customer relationships – e-commerce3 years3,940 (3,928)12 
Trademarks10 years3,500 (729)2,771 
Total finite-lived intangibles85,040 (62,677)22,363 
TrademarksIndefinite63,800 — 63,800 
Goodwill171,620  171,620 
Total goodwill and other intangibles$320,460 $(62,677)$257,783 
Information regarding the Company’s goodwill and intangible assets as of September 30, 2021 is as follows (in thousands):
 Estimated useful lifeGross carrying amountAccumulated amortizationNet carrying amount
Customer relationships – retailers10 years$77,600 $(54,140)$23,460 
Customer relationships – e-commerce3 years3,940 (3,921)19 
Trademarks10 years3,500 (554)2,946 
Total finite-lived intangibles85,040 (58,615)26,425 
TrademarksIndefinite63,800 — 63,800 
Goodwill171,620  171,620 
Total goodwill and other intangibles$320,460 $(58,615)$261,845 
Amortization expenses on finite-lived intangible assets was $2.0 million and $4.1 million in the three and six months ended September 30, 2022 and September 30, 2021, respectively. Certain trademark assets have been classified as indefinite-lived intangible assets and accordingly, are not subject to amortization. There were no impairments of goodwill or intangible assets recorded in the three and six months ended September 30, 2022 and September 30, 2021.
The estimated future amortization expense related to finite-lived intangible assets, assuming no impairment as of September 30, 2022 is as follows (in thousands):
Remainder of fiscal 2023$4,061 
20246,963 
20251,230 
20261,230 
20271,230 
Thereafter3,587 
Total$18,301 

11


Note 5—Accrued expenses and other current liabilities
Accrued expenses and other current liabilities as of September 30, 2022, March 31, 2022 and September 30, 2021 consisted of the following (in thousands):
 September 30, 2022March 31, 2022September 30, 2021
Accrued expenses$30,277 $19,938 $20,777 
Current portion of operating lease liabilities4,458 4,391 4,233 
Accrued compensation7,216 11,532 4,315 
Taxes payable2,646 2,128 1,410 
Other current liabilities2,271 2,015 1,930 
Accrued expenses and other current liabilities$46,868 $40,004 $32,665 
Note 6—Debt
The Company’s outstanding debt as of September 30, 2022, March 31, 2022 and September 30, 2021 consisted of the following (in thousands):
 September 30, 2022March 31, 2022September 30, 2021
Revolving credit facility(1)
$ $ $13,480 
Term loan(1)
93,750 96,250 98,750 
Finance lease obligations1,030 1,419 1,803 
Total debt(2)
94,780 97,669 114,033 
Less: debt issuance costs(695)(803)(914)
Total debt, net of issuance costs94,085 96,866 113,119 
Less: current portion(5,801)(5,786)(19,254)
Long-term portion of debt$88,284 $91,080 $93,865 
(1) See Note 8, “Debt,” to the consolidated financial statements included in the Annual Report for details regarding the Senior Secured Credit Agreement. As of September 30, 2022, the Company was in compliance with all applicable financial covenants under the Amended Credit Agreement.
(2) The gross carrying amounts of the Company’s long-term debt, before reduction of the debt issuance costs, and finance lease obligations approximate their fair values, based on Level 2 inputs (quoted prices for similar assets and liabilities in active markets or inputs that are observable), as the stated rates approximate market rates for loans with similar terms. The Company did not transfer any liabilities measured at fair value on a recurring basis to or from Level 2 for any of the periods presented.
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Amended credit agreement
On April 30, 2021, the Company amended and restated its prior credit agreement (the “Amended Credit Agreement”), amended and restated the prior term loan facility and the prior revolving credit facility, and refinanced all loans under the prior credit agreement.
The Amended Credit Agreement has a five year term and consists of (i) a $100 million revolving credit facility (the “Amended Revolving Credit Facility”) and (ii) a $100 million term loan facility (the “Amended Term Loan Facility”). The Company's prior credit agreement consisted of a $165 million term loan and a $50 million revolving credit facility.
All amounts under the Amended Revolving Credit Facility are available for draw until the maturity date on April 30, 2026. The Amended Revolving Credit Facility is collateralized by substantially all of our assets and requires payment of an unused fee ranging from 0.10% to 0.30% (based on our consolidated total net leverage ratio (as defined in the Amended Credit Agreement)) times the average daily amount of unutilized commitments under the Amended Revolving Credit Facility. The Amended Revolving Credit Facility also provides for sub-facilities in the form of a $7 million letter of credit and a $5 million swing line loan; however, all amounts under the Amended Revolving Credit Facility cannot exceed $100 million. The unused balance of the Amended Revolving Credit Facility as of September 30, 2022 was $100.0 million.
Both the Amended Revolving Credit Facility and the Amended Term Loan Facility bear interest, at borrowers’ option, at either (i) a rate per annum equal to an adjusted LIBOR rate determined by reference to the cost of funds for the United States dollar deposits for the applicable interest period (subject to a minimum floor of 0%) plus an applicable margin ranging from 1.25% to 2.125% based on our consolidated total net leverage ratio or (ii) a floating base rate plus an applicable margin ranging from 0.25% to 1.125% based on our consolidated total net leverage ratio. The interest rate as of September 30, 2022 for the Amended Term Loan Facility was approximately 4.9%.
The Amended Credit Agreement contains a number of covenants that, among other things, restrict our ability to (subject to certain exceptions) pay dividends and distributions or repurchase our capital stock, incur additional indebtedness, create liens on assets, engage in mergers or consolidations and sell or otherwise dispose of assets. The Amended Credit Agreement also includes reporting, financial and maintenance covenants that require us to, among other things, comply with certain consolidated total net leverage ratios and consolidated fixed charge coverage ratios.
In accordance with ASC 470, Debt, the amendment to the Company’s prior credit agreement was accounted for as both a debt modification and partial debt extinguishment, which resulted in the recognition of a loss on extinguishment of debt of $0.5 million for the year ended March 31, 2022. The Company incurred and capitalized $1.1 million of new debt issuance costs related to the amendment.
Note 7—Commitments and contingencies
Legal contingencies
The Company is from time to time subject to, and is currently involved in legal proceedings, claims and litigation arising in the ordinary course of business. The Company is not currently a party to any matters that management expects will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
13


Note 8—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 six months ended September 30, 2022:
 Shares subject to options
outstanding
Weighted-average exercise priceWeighted-average remaining
contractual life
(in years)
Aggregate intrinsic
values
(in thousands)
Balance as of March 31, 20221,543,499 $15.05   
Exercised(279,684)11.46   
Balance as of September 30, 20221,263,815 $15.84 4.7$27,526 
Exercisable, September 30, 20221,148,700 $16.12 4.4$24,698 
The aggregate intrinsic value is calculated as the difference between the exercise price of the options and the Company's closing stock price of $37.62, as reported on the New York Stock Exchange on September 30, 2022.
The Company recognized stock-based compensation cost related to service-based vesting options of $0.1 million and $0.2 million in the three and six months ended September 30, 2022, respectively, and $0.2 million and $0.5 million in the three and six months ended September 30, 2021, respectively. As of September 30, 2022, there was $0.4 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 1.5 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-based vesting conditions for the six months ended September 30, 2022:
 
Shares subject to options
outstanding
Weighted-average exercise priceWeighted-average remaining
contractual life
(in years)
Aggregate intrinsic
values
(in thousands)
Balance as of March 31, 20221,004,327 $9.40   
Exercised(88,300)6.49   
Canceled or forfeited(25,800)26.84 
Balance as of September 30, 2022890,227 $9.18 2.5$25,320 
Exercisable, September 30, 2022890,227 $9.18 2.5$25,320 
The aggregate intrinsic value is calculated as the difference between the exercise price of the options and the Company's closing stock price of $37.62, as reported on the New York Stock Exchange on September 30, 2022.
As of September 30, 2022 and September 30, 2021, there was no unrecognized compensation cost related to stock options with performance-based and market-based vesting conditions.

14


Restricted stock and RSUs
The following table summarizes the activities for restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) for the six months ended September 30, 2022:
 RSUs and shares of restricted stock outstandingWeighted-average grant date fair value
Balance as of March 31, 20222,275,742 $20.85 
Granted 1,122,721 26.96 
Vested(662,230)20.03 
Canceled or forfeited(193,278)21.28 
Balance as of September 30, 20222,542,955 $23.73 
As of September 30, 2022, there were 341,802 unvested shares subject to RSAs outstanding.
The Company recognized stock-based compensation cost related to RSAs and RSUs of $7.9 million and $14.4 million in the three and six months ended September 30, 2022, respectively, and $4.9 million and $8.9 million in the three and six months ended September 30, 2021, respectively. As of September 30, 2022, there was $57.4 million of total unrecognized stock-based compensation cost related to unvested shares subject to RSAs and RSUs, which is expected to be recognized over a weighted-average period of 2.4 years.
As of September 30, 2022, there was $1.3 million of option proceeds not yet received.
Note 9—Repurchase of common stock
On May 8, 2019, the Company announced that its board of directors authorized a share repurchase program to acquire up to $25.0 million of the Company’s common stock (the “Share Repurchase Program”). Purchases under the Share Repurchase Program may be made from time to time through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, or by any combination of such methods. The timing and amount of any repurchases pursuant to the Share Repurchase Program will be determined based on market conditions, share price and other factors. The Share Repurchase Program does not require the Company to repurchase any specific number of shares of its common stock, and may be modified, suspended or terminated at any time without notice. There is no guarantee that any additional shares will be purchased under the Share Repurchase Program and such shares are intended to be retired after purchase.
On April 30, 2021, the Company amended and restated its prior credit agreement. Subject to certain exceptions, the covenants in the Amended Credit Agreement require the Company to be in compliance with certain leverage ratios to make repurchases under the Share Repurchase Program.

The Company did not repurchase any shares during the three and six months ended September 30, 2022. A total of $17.1 million remains available for future share repurchases under the Share Repurchase Program as of September 30, 2022.
15



Note 10—Net income per share
The Company computes basic net income per share using the weighted-average number of shares of common stock outstanding. Diluted net income per share amounts are calculated using the treasury stock method for equity-based compensation awards. The following is a reconciliation of the numerator and denominator in the basic and diluted net income per common share computations (in thousands, except share and per share data):
 Three months ended September 30,Six months ended September 30,
 2022202120222021
Numerator:    
Net income $11,710 $5,724 $26,179 $14,000 
Denominator:    
Weighted-average common shares outstanding – basic52,298,905 50,875,618 52,004,661 50,711,000 
Dilutive common equivalent shares from equity awards2,738,609 2,666,106 2,433,091 2,764,988 
Weighted-average common shares outstanding – diluted55,037,514 53,541,724 54,437,752 53,475,988 
Net income per share:    
Basic$0.22 $0.11 $0.50 $0.28 
Diluted$0.21 $0.11 $0.48 $0.26 
Weighted-average anti-dilutive shares from outstanding equity awards excluded from diluted earnings per share21,646 9,334 381,331 4,667 
Note 11—Leases
The Company leases warehouses, distribution centers, office space and equipment. The majority of the Company's leases include one or more options to renew, with renewal terms that can extend the lease term for up to five years. The exercise of lease renewal options is at the Company's sole discretion and such renewal options are included in the lease term if they are reasonably certain to be exercised. Certain leases also include options to purchase the leased asset. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. Most of the Company's equipment leases are finance leases of assets used to operate its distribution centers in Ontario, California and Columbus, Ohio.
Significant judgment is required to determine whether commercial contracts contain a lease for purposes of ASC 842. The 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.

16


A reconciliation of the balance sheet line items that were impacted or created as a result of the Company's adoption of ASC 842 as of September 30, 2022, March 31, 2022 and September 30, 2021 were as follows (in thousands):
 ClassificationSeptember 30, 2022March 31, 2022September 30, 2021
Assets
Operating lease assets Other assets$16,156 $18,218 $20,270 
Finance lease assets (a)
Other assets455 664 874 
Total leased assets$16,611 $18,882 $21,144 
Liabilities
Current
Operating Accrued expenses and other current liabilities$4,458 $4,391 $4,233 
FinanceCurrent portion of long-term debt and finance lease obligations801 786 774 
Noncurrent
Operating Long-term operating lease obligations13,440 15,744 17,919 
FinanceLong-term debt and finance lease obligations229 633 1,029 
Total lease liabilities$18,928 $21,554 $23,955 
_____________________
(a) Finance leases are recorded net of accumulated amortization of $3.2 million, $3.0 million and $2.8 million as of September 30, 2022, March 31, 2022 and September 30, 2021, respectively.
For the three and six months ended September 30, 2022 and September 30, 2021, the components of operating and finance lease costs were as follows (in thousands):
Three months ended September 30,Six months ended September 30,
 Classification2022202120222021
Operating lease cost Selling, general and administrative (“SG&A”) expenses$1,152 $1,242 $2,309 $2,312 
Finance lease cost
Amortization of leased assetsSG&A expenses105 105 210 226 
Interest on lease liabilitiesInterest expense, net8 15 18 39 
Total lease cost $1,265 $1,362 $2,537 $2,577 
As of September 30, 2022, the aggregate future minimum lease payments under non-cancellable leases presented in accordance with ASC 842 are as follows (in thousands):
Operating
leases
Finance
leases
Total
Remainder of fiscal 2023$2,409 $408 $2,817 
20244,838 582 5,420 
20254,071 58 4,129 
20263,097  3,097 
20271,441  1,441 
Thereafter3,225  3,225 
Total lease payments19,081 1,048 20,129 
Less: Interest1,183 18 1,201 
Present value of lease liabilities$17,898 $1,030 $18,928 
17


For leases commencing prior to January 1, 2019, minimum lease payments exclude payments to landlords for real estate taxes and common area maintenance. These payments can be either fixed or variable, depending on the lease.
As of September 30, 2022 and September 30, 2021, the weighted-average remaining lease term (in years) and discount rate were as follows:
 September 30, 2022September 30, 2021
Weighted-average remaining lease term
Operating leases4.9 years5.6 years
Finance leases1.4 years2.3 years
Weighted-average discount rate
Operating leases2.6 %2.8 %
Finance leases2.9 %3.0 %
Operating cash outflows from operating leases for the six months ended September 30, 2022 and September 30, 2021 were $2.5 million and $2.5 million, respectively.


18


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, 2022 (the “Annual Report”), and the unaudited condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”), which include additional information about our accounting policies, practices and the transactions underlying our financial results.
Overview and Business Trends

We are a multi-brand beauty company that offers inclusive, accessible, clean and cruelty-free cosmetics and skincare products. Our mission is to make the best of beauty accessible to every eye, lip and face.

We believe our ability to deliver 100% cruelty-free, clean, premium-quality products at accessible prices with broad appeal differentiates us in the beauty industry. We believe the combination of our innovation engine, core value proposition, digitally-led strategy, as well as our world-class team’s ability to execute with speed, has positioned us well to navigate a rapidly changing landscape in beauty.

Our family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare. Our brands are available online and across leading beauty, mass-market, and clean-beauty specialty retailers. 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 domestically and internationally.

Global Supply Chain Disruptions

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

Seasonality
Our results of operations are subject to seasonal fluctuations, with net sales in the third and fourth fiscal quarters typically being higher than in the first and second fiscal quarters. The higher net sales in our third and fourth fiscal quarters are largely attributable to the increased levels of purchasing by retailers for the holiday season and customer shelf reset activities, respectively. Lower 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 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.
19


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 September 30,Six months ended September 30,
(in thousands)2022202120222021
Net sales$122,349 $91,855 $244,950 $188,902 
Cost of sales42,789 33,870 82,405 69,011 
Gross profit79,560 57,985 162,545 119,891 
Selling, general and administrative expenses64,183 50,447 125,738 101,196 
Restructuring expense— 96 — 82 
Operating income 15,377 7,442 36,807 18,613 
Other expense, net(1,262)(646)(2,925)(808)
Interest expense, net(786)(597)(1,449)(1,342)
Loss on extinguishment of debt— — — (460)
Income before provision for income taxes13,329 6,199 32,433 16,003 
Income tax provision(1,619)(475)(6,254)(2,003)
Net income $11,710 $5,724 $26,179 $14,000 
Comprehensive income$11,710 $5,724 $26,179 $14,000 

 Three months ended September 30,Six months ended September 30,
(percentage of net sales)2022202120222021
Net sales100 %100 %100 %100 %
Cost of sales35 %37 %34 %37 %
Gross margin65 %63 %66 %63 %
Selling, general and administrative expenses52 %55 %51 %54 %
Restructuring expense— %— %— %— %
Operating income 13 %%15 %10 %
Other expense, net(1)%(1)%(1)%— %
Interest expense, net(1)%(1)%(1)%(1)%
Loss on extinguishment of debt— %— %— %— %
Income before provision for income taxes11 %%13 %%
Income tax provision(1)%(1)%(3)%(1)%
Net income 10 %%11 %%
Comprehensive income10 %%11 %%

Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021
Net sales
Net sales increased 33%, or $30.5 million, to $122.3 million for the three months ended September 30, 2022, from $91.9 million for the three months ended September 30, 2021. The increase was driven by strength across both our retailer and e-commerce channels. Net sales increased $25.6 million, or 31%, in our retailer channels and increased $4.9 million, or 62% in our e-commerce channels. From a price and volume perspective, a higher volume of units sold drove $6.9 million of the increase in net sales and a higher average item price within retailer and e-commerce orders drove the remaining $23.6 million increase in net sales as compared to the three months ended September 30, 2021.

Gross profit
Gross profit increased $21.6 million, or 37%, to $79.6 million for the three months ended September 30, 2022, compared to $58.0 million for the three months ended September 30, 2021. Higher average item price and mix accounted for
20


approximately $17.1 million of the increase to gross profit, with the remaining $4.3 million driven by volume. Gross margin increased to 65% from 63% when compared to the three months ended September 30, 2021. The increase in gross margin rate was primarily driven by price increases, cost savings and product mix, partially offset by inventory adjustments and higher transportation costs in the three months ended September 30, 2022.

Selling, general and administrative expenses
Selling, general and administrative expenses ("SG&A") were $64.2 million for the three months ended September 30, 2022, an increase of $13.7 million, or 27%, from $50.4 million for the three months ended September 30, 2021. SG&A expenses as a percentage of net sales decreased to 52% for the three months ended September 30, 2022 from 55% for the three months ended September 30, 2021. The $13.7 million increase was primarily related to increased compensation and benefits of $6.3 million, an increase in marketing and digital spend of $4.3 million, and increased operations costs of $2.0 million.

Other expense, net
Other expense, net totaled $1.3 million for the three months ended September 30, 2022, as compared to other expense of $0.6 million for the three months ended September 30, 2021. The year-over-year variance was primarily related to unfavorable foreign exchange rate movements, impacting cash and receivables, driving an unrealized loss in the quarter.

Interest expense, net
Interest expense, net increased $0.2 million, or 32%, to $0.8 million for the three months ended September 30, 2022, as compared to $0.6 million for the three months ended September 30, 2021. This increase was mainly due to the increased interest rate on outstanding debt, partially offset by interest earned on our cash balances.

Income tax provision
The provision for income taxes was $1.6 million, or an effective rate of 12.1%, for the thr