Coty(COTY) - 2023 Q1 - Quarterly Report

Part I: FINANCIAL INFORMATION This section presents Coty Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents Coty Inc.'s unaudited condensed consolidated financial statements and related notes for the quarter ended September 30, 2022 Condensed Consolidated Statements of Operations This section provides the company's condensed consolidated statements of operations for the three months ended September 30 Condensed Consolidated Statements of Operations (Three Months Ended September 30) | Metric | Three Months Ended Sep 30, 2022 (Millions USD) | Three Months Ended Sep 30, 2021 (Millions USD) | | :---------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net revenues | 1,390.0 | 1,371.0 | | Gross profit | 888.7 | 866.0 | | Operating income | 171.9 | 17.0 | | Net income attributable to Coty Inc. | 128.6 | 226.0 | | Earnings per common share - diluted | 0.15 | 0.10 | Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the condensed consolidated statements of comprehensive income and loss Condensed Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended September 30) | Metric | Three Months Ended Sep 30, 2022 (Millions USD) | Three Months Ended Sep 30, 2021 (Millions USD) | | :---------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income | 134.5 | 228.9 | | Other comprehensive loss | (266.4) | (138.2) | | Comprehensive income (loss) | (131.9) | 90.7 | | Comprehensive income (loss) attributable to Coty Inc. | (137.6) | 88.0 | Condensed Consolidated Balance Sheets This section details the condensed consolidated balance sheets as of September 30, 2022, and June 30, 2022 Condensed Consolidated Balance Sheets (As of September 30, 2022 and June 30, 2022) | Metric | Sep 30, 2022 (Millions USD) | Jun 30, 2022 (Millions USD) | | :---------------------------------------- | :-------------------------- | :-------------------------- | | Total current assets | 1,830.0 | 1,681.9 | | Total assets | 11,947.9 | 12,116.1 | | Total current liabilities | 2,610.6 | 2,565.6 | | Total liabilities | 8,493.1 | 8,558.1 | | Total Coty Inc. stockholders' equity | 3,051.8 | 3,154.5 | Condensed Consolidated Statements of Equity This section outlines changes in Coty Inc.'s consolidated equity for the three months ended September 30 Condensed Consolidated Statements of Equity (Three Months Ended September 30) | Metric | Three Months Ended Sep 30, 2022 (Millions USD) | Three Months Ended Sep 30, 2021 (Millions USD) | | :---------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Balance—July 1, 2022/2021 (Total Coty Inc. Stockholders' Equity) | 3,154.5 | 2,860.7 | | Net (loss) income | 128.6 | 226.0 | | Other comprehensive loss | (266.2) | (138.0) | | Balance—September 30, 2022/2021 (Total Coty Inc. Stockholders' Equity) | 3,051.8 | 3,243.4 | Condensed Consolidated Statements of Cash Flows This section presents the condensed consolidated statements of cash flows for the three months ended September 30 Condensed Consolidated Statements of Cash Flows (Three Months Ended September 30) | Metric | Three Months Ended Sep 30, 2022 (Millions USD) | Three Months Ended Sep 30, 2021 (Millions USD) | | :---------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by operating activities | 163.2 | 285.7 | | Net cash used in investing activities | (75.0) | (45.0) | | Net cash used in financing activities | (87.8) | (122.7) | | Net (decrease) increase in cash, cash equivalents and restricted cash | (12.7) | 112.0 | | Cash, cash equivalents and restricted cash—End of period | 251.1 | 422.4 | Notes to Condensed Consolidated Financial Statements This section provides detailed notes supporting the condensed consolidated financial statements 1. Description of Business This note describes Coty Inc.'s global beauty business and seasonal sales patterns - Coty Inc. is a global beauty company specializing in fragrances, color cosmetics, and skin & body products[23] - Sales generally increase during the second fiscal quarter due to the winter holiday season[23] 2. Summary of Significant Accounting Policies This note outlines key accounting policies and management estimates used in interim financial statements - Interim financial statements are prepared under GAAP, with management estimates impacting key areas like revenue recognition, inventory, equity investments, and asset impairment[24][27][29] - The company elected the fair value option for its investment in Wella to align with its strategy, with changes recorded in Other income, net[26] - The effective income tax rate for the three months ended September 30, 2022, was 34.1%, up from 33.4% in 2021, primarily due to larger fair value gains related to the Wella investment in the prior period[30] 3. Segment Reporting This note provides financial data for the Prestige and Consumer Beauty operating segments - Coty's operating segments are Prestige and Consumer Beauty, with the CEO designated as the Chief Operating Decision Maker (CODM)[33][34] Segment Data (Three Months Ended September 30) | Segment | Net Revenues (3M Ended Sep 30, 2022) | Net Revenues (3M Ended Sep 30, 2021) | Operating Income (3M Ended Sep 30, 2022) | Operating Income (3M Ended Sep 30, 2021) | | :---------------- | :----------------------------------- | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Prestige | $863.4 | $870.7 | $170.3 | $132.1 | | Consumer Beauty | $526.6 | $501.0 | $32.0 | $11.4 | | Corporate | N/A | N/A | $(30.4) | $(126.3) | | Total | $1,390.0 | $1,371.7 | $171.9 | $17.2 | Product Category Revenue Percentage (Three Months Ended September 30) | Product Category | % of Revenues (3M Ended Sep 30, 2022) | % of Revenues (3M Ended Sep 30, 2021) | | :--------------- | :------------------------------------ | :------------------------------------ | | Fragrance | 59.3% | 59.7% | | Color Cosmetics | 27.7% | 28.4% | | Body Care & Other| 7.7% | 6.6% | | Skincare | 5.3% | 5.3% | 4. Acquisition- and Divestiture-Related Costs This note details costs associated with acquisition and divestiture activities - No acquisition-related costs were recognized in Q1 Fiscal 2023 or Q1 Fiscal 2022[36] - Divestiture-related costs decreased to $0.0M in Q1 Fiscal 2023 from $4.0M in Q1 Fiscal 2022, with the prior year's costs mainly from the Wella Business sale[36] 5. Restructuring Costs This note outlines restructuring costs incurred and expected future charges Restructuring Costs (Three Months Ended September 30) | Metric | Three Months Ended Sep 30, 2022 (Millions USD) | Three Months Ended Sep 30, 2021 (Millions USD) | | :------------------ | :--------------------------------------------- | :--------------------------------------------- | | Transformation Plan | (1.2) | 12.4 | | Total | (1.2) | 12.4 | - The company expects to incur approximately $8.0M of additional restructuring charges, primarily for employee termination benefits, over the next fiscal year[39] - Cumulative restructuring charges related to approved initiatives through September 30, 2022, totaled $222.1M[39][40] 6. Inventories This note provides a breakdown of inventory balances as of September 30, 2022, and June 30, 2022 Inventories (As of September 30, 2022 and June 30, 2022) | Inventory Type | Sep 30, 2022 (Millions USD) | Jun 30, 2022 (Millions USD) | | :---------------- | :-------------------------- | :-------------------------- | | Raw materials | 180.9 | 171.5 | | Work-in-process | 14.2 | 13.2 | | Finished goods | 481.3 | 476.8 | | Total inventories | 676.4 | 661.5 | 7. Equity Investments This note details the company's equity investments, including its stake in Wella Equity Investments (As of September 30, 2022 and June 30, 2022) | Investment Type | Sep 30, 2022 (Millions USD) | Jun 30, 2022 (Millions USD) | | :------------------------ | :-------------------------- | :-------------------------- | | Equity method investments | 11.7 | 12.6 | | Wella (at fair value) | 965.0 | 830.0 | | Total equity investments | 976.7 | 842.6 | - Coty's stake in Wella was 25.9% as of September 30, 2022[45] - The fair value of equity investments increased by $135.0M during the period ended September 30, 2022[49] 8. Goodwill and Other Intangible Assets, Net This note presents goodwill and other intangible assets, net, and related amortization expense Goodwill and Other Intangible Assets, Net (As of September 30, 2022 and June 30, 2022) | Asset Type | Sep 30, 2022 (Millions USD) | Jun 30, 2022 (Millions USD) | | :------------------------ | :-------------------------- | :-------------------------- | | Goodwill | 3,796.4 | 3,914.7 | | Other intangible assets, net | 3,714.6 | 3,902.8 | - Foreign currency translation negatively impacted goodwill by $118.3M during the period ended September 30, 2022[52] - Amortization expense for the three months ended September 30, 2022, was $47.3M, down from $57.0M in 2021[55] 9. Leases This note provides information on operating lease costs and weighted-average lease terms Lease Cost Metrics (Three Months Ended September 30) | Lease Cost Metric | Three Months Ended Sep 30, 2022 (Millions USD) | Three Months Ended Sep 30, 2021 (Millions USD) | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | | Operating lease cost | 19.2 | 20.9 | | Sublease income | (3.8) | (5.3) | | Net lease cost | 24.2 | 24.8 | - Weighted-average remaining lease term for real estate was 7.6 years as of September 30, 2022, with a weighted-average discount rate of 4.02%[57] 10. Debt This note details the company's debt structure, including senior secured and unsecured notes Total Debt (As of September 30, 2022 and June 30, 2022) | Debt Type | Sep 30, 2022 (Millions USD) | Jun 30, 2022 (Millions USD) | | :------------------------ | :-------------------------- | :-------------------------- | | Senior Secured Notes | 2,086.4 | 2,131.8 | | 2018 Coty Credit Agreement| 1,483.2 | 1,512.8 | | Senior Unsecured Notes | 795.1 | 811.4 | | Total debt | 4,407.1 | 4,498.5 | - The company was in compliance with all covenants under the 2018 Coty Credit Agreement as of September 30, 2022[82] - Aggregate long-term debt maturities include $1,444.2M in fiscal 2025 and $2,381.5M in fiscal 2026[79] 11. Interest Expense, Net This note presents the breakdown of interest expense, net, for the reporting period Interest Expense, Net (Three Months Ended September 30) | Metric | Three Months Ended Sep 30, 2022 (Millions USD) | Three Months Ended Sep 30, 2021 (Millions USD) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Interest expense | 57.6 | 62.8 | | Foreign exchange losses (gains), net of derivative contracts | 11.9 | (2.3) | | Interest income | (3.6) | (0.7) | | Total interest expense, net | 65.9 | 59.8 | 12. Employee Benefit Plans This note outlines the net periodic benefit cost related to employee benefit plans Net Periodic Benefit Cost (Credit) (Three Months Ended September 30) | Metric | Three Months Ended Sep 30, 2022 (Millions USD) | Three Months Ended Sep 30, 2021 (Millions USD) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net periodic benefit cost (credit) | 2.3 | 4.1 | 13. Derivative Instruments This note describes the company's use of derivative instruments for hedging foreign exchange and interest rate risks - The company uses foreign currency forward contracts and cross-currency swaps to hedge foreign exchange risk, with $2,645.5M in notional amounts for non-designated contracts as of September 30, 2022[86] - Interest rate swap contracts with a notional amount of $800.0M were designated as effective cash flow hedges as of September 30, 2022[87] - The company entered into forward repurchase contracts in June 2022 to hedge a potential $200.0M share buyback program in 2024[90][98] 14. Equity and Convertible Preferred Stock This note provides details on outstanding common stock, preferred stock, and share repurchase programs - As of September 30, 2022, 849.3 million shares of Class A Common Stock were outstanding, with Cottage Holdco B.V. owning approximately 53%[93] - Convertible Series B Preferred Stock dividends declared decreased to $3.3M in Q1 Fiscal 2023 from $22.7M in Q1 Fiscal 2022[97] - KKR Aggregator fully redeemed/exchanged all of its Series B Preferred Stock by December 31, 2021[97] - The company had $396.8M remaining authority under its Incremental Repurchase Program as of September 30, 2022[98] 15. Share-Based Compensation Plans This note details the share-based compensation expense recognized for employee equity plans Share-Based Compensation Expense (Three Months Ended September 30) | Metric | Three Months Ended Sep 30, 2022 (Millions USD) | Three Months Ended Sep 30, 2021 (Millions USD) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Equity plan expense | 31.4 | 107.8 | | Liability plan (income) expense | (0.3) | 0.4 | | Total share-based compensation expense| 31.1 | 108.3 | - The decrease in share-based compensation is primarily due to a reduction in expense recognized from a prior year's grant to the CEO[105] 16. Net Income Attributable to Coty Inc. Per Common Share This note presents the calculation of net income attributable to Coty Inc. per common share Net Income Attributable to Coty Inc. Per Common Share (Three Months Ended September 30) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :---------------------------------------- | :------------------------------ | :------------------------------ | | Net income from continuing operations attributable to common stockholders | $125.3 | $103.0 | | Earnings from continuing operations per common share - basic | $0.15 | $0.13 | | Earnings from continuing operations per common share - diluted | $0.15 | $0.13 | | Weighted-average common shares outstanding - diluted | 882.2 | 787.7 | 17. Mandatorily Redeemable Financial Interests and Redeemable Noncontrolling Interests This note discusses mandatorily redeemable financial interests and redeemable noncontrolling interests - The company purchased the remaining 25% noncontrolling interest of a UAE subsidiary for $7.1M in July 2021[113] - Redeemable noncontrolling interests (RNCI) for the Middle East subsidiary was $69.3M as of September 30, 2022[114] 18. Commitments and Contingencies This note outlines the company's commitments, contingencies, and legal proceedings - Management believes current legal proceedings will not materially affect the company's financial condition[115] - Brazilian subsidiaries face tax assessments totaling approximately $253.8M (R$1,370.0M), for which the company believes it has meritorious defenses[118][121] 19. Related Party Transactions This note details transactions with related parties, including KKR Aggregator and Wella - KKR Aggregator fully redeemed/exchanged its Series B Preferred Stock by December 31, 2021, and no longer has the right to designate directors[123] - The company recognized $13.9M in gains from contingent proceeds related to the Wella Business sale in Q1 Fiscal 2023[123] - TSA fees and other fees earned from Wella decreased significantly to $0.8M and $2.1M, respectively, for Q1 Fiscal 2023, from $33.2M and $1.5M in Q1 Fiscal 2022, as contracted services ended January 31, 2022[124] 20. Subsequent Events This note reports on events occurring after the balance sheet date that require disclosure - No subsequent events requiring recognition or disclosure occurred after September 30, 2022[125] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of Coty Inc.'s financial condition and results of operations for the three months ended September 30, 2022 Overview This section provides a high-level overview of Coty's business, strategic priorities, and key market challenges - Coty is one of the world's largest beauty companies, with a portfolio across fragrance, color cosmetics, and skin and body care[137] - Strategic priorities include stabilizing Consumer Beauty, accelerating Prestige fragrance, expanding into Prestige cosmetics and skincare, enhancing e-commerce, and growing in China[137] - Net revenue for fiscal year 2023 is expected to grow in the mid-to-high single digits, excluding foreign exchange and Russia exit impacts[138] - Global supply chain challenges, including component shortages and transportation delays, continue to negatively impact order fill rates, particularly for Prestige fragrances and Consumer Beauty color cosmetics[139] - Inflationary trends are impacting material, logistical, and other costs, which the company is offsetting through premiumization, cost savings, and pricing actions[140] - The company is winding down Russian operations, anticipating up to $9.0M in additional costs and $30.0M-$35.0M in future net cash costs[141] Non-GAAP Financial Measures This section defines and explains the use of non-GAAP financial measures for performance evaluation - Non-GAAP measures (Adjusted operating income, Adjusted EBITDA, Adjusted net income) are used to evaluate performance, prepare budgets, and benchmark against competitors[142] - These non-GAAP measures exclude restructuring costs, amortization, acquisition- and divestiture-related costs, stock-based compensation, and asset impairment charges, among others, to reflect core operating performance[144] Constant Currency This section explains the use of constant currency to assess underlying business performance - Constant currency presentation is used to assess underlying business performance by excluding foreign currency exchange translation impacts[148] Basis of Presentation of Acquisitions, Divestitures and Terminations This section describes how financial results are adjusted for acquisitions, divestitures, and terminations - Financial results of acquired, divested, or early-terminated brands are adjusted to ensure comparability between periods[149] - No acquisitions, divestitures, or early license terminations impacted comparability in the current reporting period[149] Results of Operations (Three Months Ended September 30, 2022 vs 2021) This section analyzes the company's financial performance for the three months ended September 30, 2022, compared to the prior year Net Revenues This section details the changes in net revenues, including impacts from pricing, volume, and foreign currency Net Revenues (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :---------- | :----------------------------------- | :----------------------------------- | :------- | | Net revenues| 1,390.0 | 1,371.7 | 1% | - Net revenues increased 1% YoY, driven by positive price/mix (6%) and unit volume (2%), but offset by negative foreign currency impact (7%)[150] - Growth in Consumer Beauty was due to body care, skincare, and color cosmetics. Prestige was flat, impacted by China lockdowns and Russia exit, but benefited from strong fragrance brands like Gucci and Burberry[150] Prestige Net Revenues This section analyzes net revenues for the Prestige segment, highlighting key drivers and impacts Prestige Net Revenues (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :----------------- | :----------------------------------- | :----------------------------------- | :------- | | Prestige Net Revenues | 863.4 | 870.7 | (1)% | - Prestige net revenues decreased 1% YoY, impacted by 8% negative foreign currency and 3% unit volume decrease[151] - Decreases were driven by Tiffany (less innovation, China lockdowns, Russia exit), Lacoste (Russia exit), and prestige makeup (China lockdowns), partially offset by strong fragrance growth (Gucci Flora, Burberry, Chloe) and positive pricing[153] Consumer Beauty Net Revenues This section analyzes net revenues for the Consumer Beauty segment, detailing growth drivers and challenges Consumer Beauty Net Revenues (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :--------------------- | :----------------------------------- | :----------------------------------- | :------- | | Consumer Beauty Net Revenues | 526.6 | 501.0 | 5% | - Consumer Beauty net revenues increased 5% YoY, driven by 9% positive price/mix and 3% unit volume growth, offset by 7% negative foreign currency[153] - Growth was led by body care (Adidas, Monange re-launches) and color cosmetics (CoverGirl, Max Factor, Bourjois), with price increases. Sally Hansen declined due to reduced at-home nail care demand[153] Cost of Sales This section examines changes in cost of sales and their impact on gross margin Cost of Sales (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :-------------- | :----------------------------------- | :----------------------------------- | :------- | | Cost of sales | 501.3 | 504.8 | (1)% | | % of Net Revenues | 36.1% | 36.8% | (0.7)% | - Gross margin increased by 70 basis points, driven by positive price impact (100 bps), lower returns/markdowns (60 bps), manufacturing efficiencies (50 bps), and favorable designer license fees (20 bps)[154] - Offsets included product mix (60 bps), freight (50 bps), and increased excess/obsolescence (50 bps). Inflation had a negative impact of 180 basis points[154] Selling, General and Administrative Expenses This section analyzes trends in selling, general, and administrative expenses Selling, General and Administrative Expenses (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :---------------------------------------- | :----------------------------------- | :----------------------------------- | :------- | | Selling, general and administrative expenses | 670.7 | 776.3 | (14)% | | % of Net Revenues | 48.3% | 56.6% | (8.3)% | - SG&A as a percentage of net revenues decreased by 830 basis points, primarily due to lower stock-based compensation (570 bps, CEO grant), reduced advertising/promotional costs (140 bps), and lower bad debt, logistics, and administrative costs[156] Operating Income (Loss) This section discusses the drivers behind changes in operating income and margin Operating Income (Loss) (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :-------------- | :----------------------------------- | :----------------------------------- | :------- | | Operating income| 171.9 | 17.2 | >100% | | % of Net Revenues | 12.4% | 1.3% | 11.1% | - Operating margin increased by 11.1 percentage points, primarily due to lower stock-based compensation, reduced advertising/promotional costs, lower restructuring and amortization expenses, and improved cost of sales[157] Prestige Operating Income This section analyzes the operating income and margin for the Prestige segment Prestige Operating Income (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :---------------------- | :----------------------------------- | :----------------------------------- | :------- | | Prestige Operating income | 170.3 | 132.1 | 29% | | Prestige Operating margin | 19.7% | 15.2% | 4.5% | - Prestige operating margin increased by 4.5 percentage points, driven by lower cost of goods sold, reduced advertising/promotional costs, and lower amortization expense[159] Consumer Beauty Operating Income This section analyzes the operating income and margin for the Consumer Beauty segment Consumer Beauty Operating Income (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :-------------------------- | :----------------------------------- | :----------------------------------- | :------- | | Consumer Beauty Operating income | 32.0 | 11.4 | >100% | | Consumer Beauty Operating margin | 6.1% | 2.3% | 3.8% | - Consumer Beauty operating margin increased by 3.8 percentage points, driven by lower advertising/promotional costs and reduced fixed costs, partially offset by higher cost of goods sold[160] Corporate Operating Loss This section details the factors contributing to the corporate operating loss Corporate Operating Loss (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :------------------ | :----------------------------------- | :----------------------------------- | :------- | | Corporate Operating loss | (30.4) | (126.3) | 76% | - The decrease in Corporate operating loss was primarily driven by lower share-based compensation, restructuring costs, and acquisition/divestiture-related costs[163] Adjusted Operating Income and Adjusted EBITDA for Continuing Operations This section presents adjusted operating income and EBITDA, highlighting core performance Adjusted Operating Income and Adjusted EBITDA (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :-------------------------- | :----------------------------------- | :----------------------------------- | :------- | | Adjusted operating income | 249.6 | 200.5 | 24% | | Adjusted operating margin | 18.0% | 14.6% | 3.4% | | Adjusted EBITDA | 307.9 | 278.5 | 11% | | Adjusted EBITDA margin | 22.2% | 20.3% | 1.9% | - Adjusted operating income increased 24% and Adjusted EBITDA increased 11%, driven by lower advertising/promotional costs and improved cost of sales[165] Amortization Expense This section discusses the amortization expense and its drivers Amortization Expense (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :------------------ | :----------------------------------- | :----------------------------------- | :------- | | Amortization expense| 47.3 | 57.0 | (17)% | - The decrease in amortization expense was primarily due to certain license agreements and product formulations being fully amortized in the prior year[166] Restructuring and Other Business Realignment Costs This section details restructuring and other business realignment costs Restructuring and Other Business Realignment Costs (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :---------------------------------------- | :----------------------------------- | :----------------------------------- | :------- | | Restructuring and other business realignment costs | (0.8) | 15.1 | <(100%) | - The credit in restructuring costs was primarily related to changes in estimates for the Transformation Plan[167] Stock-Based Compensation This section analyzes the stock-based compensation expense Stock-Based Compensation (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :------------------------ | :----------------------------------- | :----------------------------------- | :------- | | Stock-based compensation | 31.1 | 108.2 | (71)% | - The decrease was primarily related to a reduction in expense recognized from a prior year's grant to the CEO[169] Acquisition and Divestiture Activities This section reports on costs related to acquisition and divestiture activities Costs Related to Acquisition and Divestiture Activities (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :---------------------------------------- | :----------------------------------- | :----------------------------------- | :------- | | Costs related to acquisition and divestiture activities | — | 4.0 | (100)% | - No acquisition/divestiture costs in Q1 Fiscal 2023, down from $4.0M in Q1 Fiscal 2022 (Wella Transaction related)[169] Adjusted Depreciation Expense This section presents the adjusted depreciation expense Adjusted Depreciation Expense (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :------------------------ | :----------------------------------- | :----------------------------------- | :------- | | Adjusted depreciation | 58.3 | 78.0 | (25)% | Interest Expense, Net This section discusses the net interest expense and its contributing factors Net Interest Expense (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :-------------------------- | :----------------------------------- | :----------------------------------- | :------- | | Net interest expense | 65.9 | 59.8 | 10% | - Increase primarily due to higher average interest rate despite lower debt balances[170] Other Income This section details other income, net, including fair value adjustments Other Income, Net (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :-------------- | :----------------------------------- | :----------------------------------- | :------- | | Other income, net | (98.2) | (386.1) | 75% | - Decrease primarily due to a less favorable fair value adjustment for the Wella investment and unfavorable changes in fair value adjustments for forward repurchase contracts[170] Income Taxes This section analyzes the effective income tax rates and their drivers Effective Tax Rates (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 | 3M Ended Sep 30, 2021 | | :-------------------------- | :-------------------- | :-------------------- | | Effective income tax rate | 34.1% | 33.4% | | Adjusted effective tax rate | 29.6% | 29.1% | - The increase in effective tax rate was primarily due to larger fair value gains related to the Wella investment in the prior period[171] Net Income Attributable to Coty Inc. This section discusses the net income attributable to Coty Inc. and its adjustments Net Income Attributable to Coty Inc. (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | Change % | | :---------------------------------------- | :----------------------------------- | :----------------------------------- | :------- | | Net income attributable to Coty Inc. | 128.6 | 226.0 | (43)% | | Adjusted net income attributable to Coty Inc. | 92.7 | 63.1 | 47% | - The decrease in reported net income was primarily due to a lower unrealized gain in the Wella investment, partially offset by higher operating income and lower tax provision[176] Financial Condition This section assesses the company's financial position, liquidity, and capital resources Liquidity and Capital Resources Overview This section provides an overview of the company's funding sources and uses of cash - Primary funding sources are operations, debt issuance, and credit lines[179] - Cash flows are seasonal, with demands in Q1 and strong generation in Q2 due to the holiday season[179] - Principal uses of cash include operating/capital expenditures, debt payments, and dividends[179] - The company anticipates $30.0M-$35.0M in future net cash costs for winding down Russian operations[181] Debt This section refers to detailed information on the company's debt arrangements - Refer to Note 10 for detailed information on debt arrangements[181] Factoring of Receivables This section details the company's use of factoring facilities for receivables - Net amount utilized under factoring facilities was $177.8M as of September 30, 2022[181] - Aggregate trade receivable invoices factored were $346.0M in Q1 Fiscal 2023, up from $264.2M in Q1 Fiscal 2022[181] Cash Flows This section analyzes the company's cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Data (Three Months Ended September 30) | Metric | 3M Ended Sep 30, 2022 (Millions USD) | 3M Ended Sep 30, 2021 (Millions USD) | | :---------------------------------------- | :----------------------------------- | :----------------------------------- | | Net cash provided by operating activities | 163.2 | 285.7 | | Net cash used in investing activities | (75.0) | (45.0) | | Net cash used in financing activities | (87.8) | (122.7) | - Operating cash flow decreased by $122.5M due to higher working capital outflows[182] - Investing cash flow increased by $30.0M due to capital expenditure timing[182] - Financing cash flow decreased by $34.9M due to net proceeds from revolving credit facilities and lower prior-year debt issuance cost payments[182] Dividends This section discusses the company's dividend policy and payments - Common stock dividends are suspended, with resumption targeted when Net debt to Adjusted EBITDA reaches 2x[183] - Convertible Series B Preferred Stock dividends declared were $3.3M in Q1 Fiscal 2023, down from $22.7M in Q1 Fiscal 2022[185] Treasury Stock - Share Repurchase Program This section provides information on the company's share repurchase program - No Class A Common Stock shares were repurchased during the fiscal quarter ended September 30, 2022[200] - Refer to Note 14 for details on the share repurchase program[186] Commitments and Contingencies This section refers to information on mandatorily redeemable financial interests and noncontrolling interests - Refer to Note 17 for information on mandatorily redeemable financial interests and redeemable noncontrolling interests[187] Legal Contingencies This section refers to information on litigation and Brazilian tax assessments - Refer to Note 18 for information on litigation and Brazilian tax assessments[188] - Surety bonds of $25.0M were entered for Brazilian tax assessment appeals as of September 30, 2022[188] Off-Balance Sheet Arrangements This section details the company's off-balance sheet arrangements Off-Balance Sheet Arrangements (As of September 30, 2022 and June 30, 2022) | Arrangement | Sep 30, 2022 (Millions USD) | Jun 30, 2022 (Millions USD) | | :------------------------ | :-------------------------- | :-------------------------- | | Undrawn letters of credit | 13.6 | 14.3 | | Bank guarantees | 16.1 | 17.2 | Contractual Obligations This section discusses any material changes in contractual obligations - No material changes in contractual obligations occurred during Q1 Fiscal 2023[190] Critical Accounting Policies This section identifies and discusses the company's critical accounting policies - Critical accounting policies include Revenue Recognition, Equity Investments, Goodwill, Other Intangible Assets and Long-Lived Assets, Business Combinations, Inventory, and Income Taxes[191] - No material changes to critical accounting policies were reported as of September 30, 2022[191] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to Note 13 for updates on market risk management, confirming no material changes from the prior fiscal year - Refer to Note 13 for updates on foreign currency and interest rate risk management[193] - No material changes in market risk from the Fiscal 2022 Form 10-K[193] Item 4. Controls and Procedures The CEO and CFO evaluated disclosure controls as effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated as effective at a reasonable assurance level as of September 30, 2022[194] - No material changes in internal control over financial reporting were identified during Q1 Fiscal 2023[195] Part II: OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section refers to Note 18 for detailed information on the company's legal matters and contingencies - Refer to Note 18 for information on legal matters[198] Item 1A. Risk Factors This section refers to the Fiscal 2022 Form 10-K for comprehensive disclosure on potential business risk factors - Refer to the 'Risk Factors' section in the Fiscal 2022 Form 10-K for information on factors that could adversely affect the business[199] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No Class A Common Stock shares were repurchased during the fiscal quarter ended September 30, 2022 - No Class A Common Stock shares were repurchased during the fiscal quarter ended September 30, 2022[200] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report, including CEO/CFO certifications and Inline XBRL documents - The report includes certifications from the CEO and CFO, and Inline XBRL documents as exhibits[202] Signatures The report is officially signed by the Chief Executive Officer and Chief Financial Officer on November 8, 2022 - The report was signed by CEO Sue Nabi and CFO Laurent Mercier on November 8, 2022[206]