e.l.f.(ELF) - 2026 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial statements (unaudited) Net sales rose 9% to $353.7 million, but net income decreased to $33.3 million due to higher taxes, with total assets at $1.31 billion and a subsequent $800 million rhode acquisition Condensed consolidated balance sheets Balance Sheet Summary (in thousands) | Account | June 30, 2025 | June 30, 2024 | Change (YoY) | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $170,029 | $109,034 | +55.9% | | Total current assets | $602,526 | $530,460 | +13.6% | | Total assets | $1,314,896 | $1,204,832 | +9.1% | | Liabilities & Equity | | | | | Total current liabilities | $184,739 | $299,805 | -38.4% | | Total liabilities | $510,044 | $501,242 | +1.8% | | Total stockholders' equity | $804,852 | $703,590 | +14.4% | Condensed consolidated statements of operations Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 FY2026 (ended Jun 30, 2025) | Q1 FY2025 (ended Jun 30, 2024) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net sales | $353,739 | $324,477 | +9.0% | | Gross profit | $244,541 | $231,283 | +5.7% | | Operating income | $48,709 | $50,708 | -3.9% | | Net income | $33,311 | $47,555 | -30.0% | | Diluted EPS | $0.58 | $0.81 | -28.4% | - The decrease in net income was primarily driven by an income tax provision of $17.8 million in Q1 FY2026, compared to an income tax benefit of $0.3 million in the prior-year period[17][106] Condensed consolidated statements of cash flows Cash Flow Summary (in thousands) | Activity | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $27,233 | $1,281 | | Net cash used in investing activities | ($7,559) | ($879) | | Net cash provided by financing activities | $121 | $408 | - Cash from operating activities increased significantly to $27.2 million, mainly due to higher net income adjusted for non-cash items, despite an increase in working capital[23][113] Notes to condensed consolidated financial statements (unaudited) - The company operates as a multi-brand beauty company (e.l.f. Cosmetics, e.l.f. SKIN, Naturium, Well People, Keys Soulcare) with one reportable segment[25][27][35] - On August 5, 2025, the company acquired HRBeauty LLC ("rhode") for $800.0 million, consisting of $600.0 million in cash and $200.0 million in stock, with a potential earnout of up to $200.0 million, representing a significant event after the reporting period[87] - To finance the rhode acquisition, the company entered into a Fifth Amendment to its credit agreement on August 5, 2025, establishing a new term loan facility of $600.0 million[88] - The company is involved in securities class action and stockholder derivative lawsuits filed in March and April 2025, which it intends to vigorously defend[69][71] - As of June 30, 2025, $450.0 million remains available for future share repurchases under the $500.0 million program authorized in August 2024, with no shares repurchased during the quarter[81] Item 2. Management's discussion and analysis of financial condition and results of operations Management reported a 9% net sales increase driven by retailer and e-commerce growth, though gross margin declined due to tariffs, while highlighting the rhode acquisition and sufficient liquidity for the next twelve months Results of operations Key Performance Indicators (Q1 FY26 vs Q1 FY25) | Metric | Q1 FY2026 (ended Jun 30, 2025) | Q1 FY2025 (ended Jun 30, 2024) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Sales | $353.7M | $324.5M | +9% | | Gross Profit | $244.5M | $231.3M | +6% | | Gross Margin | 69% | 71% | -215 bps | | SG&A Expenses | $195.8M | $180.6M | +8% | - The 9% increase in net sales was driven by higher sales volume, with retailer channels growing 8% and e-commerce channels growing 17%[101] - Gross margin decreased by approximately 215 basis points, primarily due to tariffs, which was partially offset by favorable foreign exchange rates and cost savings[102] - The increase in SG&A expenses was mainly due to higher professional fees ($5.7M), retail fixturing costs ($4.7M), and marketing spend ($4.5M)[103] Financial condition, liquidity and capital resources - As of June 30, 2025, the company had $170.0 million in cash and cash equivalents and an additional $243.3 million available under its Amended Revolving Credit Facility[107] - The company believes its operating cash flow, existing cash, and available financing will be adequate to meet its needs for the next twelve months[110] - On March 3, 2025, the company entered into the Fourth Amendment to its credit agreement, establishing a new $500 million revolving credit facility with a maturity date of March 3, 2030[64][123] - To mitigate risks from tariffs on products sourced from China, the company raised prices globally for all products sold as of August 1, 2025[94] Item 3. Quantitative and qualitative disclosures about market risk No material changes to the company's primary risk exposures or market risk management have occurred since the last Annual Report - There have been no material changes to the company's primary risk exposures or management of market risks since the last Annual Report[131] Item 4. Controls and procedures Management concluded disclosure controls were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[133] - No changes occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[134] PART II. OTHER INFORMATION Item 1. Legal proceedings The company is involved in various legal proceedings, including securities class action lawsuits, but believes these will not materially affect its financial condition - The company is currently involved in litigation but believes that no pending lawsuits or claims will have a material adverse effect on its business or financial condition[136] - Specific legal proceedings are detailed in Note 7 of the financial statements, which describes ongoing securities class action and stockholder derivative matters[69][136] Item 1A. Risk factors The company faces extensive risks including intense competition, reliance on Chinese manufacturing and tariffs, acquisition integration challenges, supply chain disruptions, cybersecurity threats, and evolving data privacy regulations Risks related to the beauty industry and growth - The beauty industry is highly competitive, with pressure from large multinational companies and emerging 'indie' brands, where competition is based on new product introductions, pricing, and brand awareness[138][140] - Future growth depends on the successful implementation of key initiatives, including building brand demand, leading innovation, driving productivity with retailers, and pursuing strategic extensions[152][154] - The acquisition of rhode and other potential investments present risks, including unforeseen operating difficulties, integration challenges, and potential financial harm if anticipated benefits are not realized[159][163] Risks related to our acquisition of rhode - The success of the rhode acquisition depends on retaining key personnel, specifically founder Hailey Bieber, who is essential to the brand's marketing and performance[166] - The company faces risks that its assumptions about the rhode acquisition, such as revenue growth and integration costs, may prove inaccurate[164] - rhode may have unknown or contingent liabilities that were not discovered during due diligence, which could adversely affect the company's financial condition[165] Risks related to business operations and macroeconomic conditions - The majority of products are sourced from China and subject to a 25% US tariff, with additional tariffs announced by the Trump administration in 2025 posing a significant risk that could materially impact financial results[170][171] - The company relies heavily on third-party suppliers and manufacturers, primarily in China, exposing it to risks of supply chain disruption, quality control problems, and geopolitical instability[173][178] - Adverse economic conditions, such as inflation, rising interest rates, and potential recessions, could decrease consumer discretionary spending and negatively impact business[184] - In connection with the acquisition of rhode, the company borrowed an incremental $600.0 million term loan, increasing its total indebtedness and associated financial risks[198] Risks related to IT, Cybersecurity, and Privacy - The company is increasingly dependent on IT systems and is vulnerable to service interruptions, data corruption, and cyber-attacks, with risks heightened by remote work and sophisticated threat actors[215][216][222] - The implementation of AI solutions introduces risks related to inaccuracies, biases, cybersecurity, and evolving legal frameworks like the EU AI Act, which could impose substantial compliance costs[228][230][232] - The business is subject to complex and evolving US and foreign data privacy laws (e.g., CCPA, GDPR), which could result in claims, increased costs, and changes to business practices[262][265][266] Item 2. Unregistered sales of equity securities and use of proceeds No shares were repurchased during the quarter, with $450.0 million remaining available under the $500.0 million share repurchase program - The company did not repurchase any of its common stock during the three months ended June 30, 2025[326] - As of June 30, 2025, $450.0 million remains available for future repurchases under the 2024 Share Repurchase Program[326] Item 5. Other information Several executive officers, including the CEO and CFO, adopted Rule 10b5-1 trading plans during the quarter Adoption of Rule 10b5-1 Trading Plans (Q1 FY2026) | Officer/Director | Title | Action | Date | | :--- | :--- | :--- | :--- | | Tarang Amin | Chairman, CEO, and President | Adopt | 6/13/2025 | | Mandy Fields | SVP and CFO | Adopt | 6/09/2025 | | Jennie Laar | SVP and CCO | Adopt | 6/12/2025 | | Scott Milsten | SVP, General Counsel and CPO | Adopt | 6/11/2025 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the rhode merger agreement, credit agreement amendments, and CEO/CFO certifications - Key exhibits filed include the Agreement and Plan of Merger for the rhode acquisition and the Fifth Amendment to the Amended and Restated Credit Agreement[335]