e.l.f. Beauty, Inc.

Greetings and welcome to the Elf Beauty, Inc. Second Quarter Fiscal 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Willa McMahonman, VP of Investor Relations and Corporate Communications. Thank you. You may begin.

Good afternoon, everyone. Thank you for joining us today to discuss ElfBeauty's second quarter fiscal 2020 earnings results. My name is Willa McMahonman, and I'm Vice President of Investor Relations and Corporate Communications at Elf. For the past year, I was part of Elf's outside IR firm, Ellipsis. In September, I joined Elf in-house. I've been heading up IR and communications at companies like Trimble and Cisco Jasper for 20 years, and I'm thrilled to be a part of the Elf team and mission. As a reminder, this call contains forward-looking statements that are based on management's assumptions, expectations, estimates, and projections. These statements, including those relating to the company's fiscal 2020 outlook, are subject to known and unknown risks and uncertainties, and therefore, actual results may differ materially. Important factors that may cause actual results to differ from those expressed or implied by such forward-looking statements are detailed in today's press release and the company's SEC filings. In addition, the company's presentation today includes information presented on a non-GAAP basis. We refer you to today's press release for a reconciliation of the differences between the non-GAAP presentation and the most directly comparable GAAP measures. With me for management today are Tarang Amin, Chairman and Chief Executive Officer, and Mandy Fields, Senior Vice President and Chief Financial Officer. With that, I'll turn the call over to Tarang.

Thank you, Willa. It's great to have you on the team. Good afternoon, everyone, and thank you for joining us today. We're pleased with our second quarter results with net sales of $68 million and adjusted EBITDA of $15 million. Excluding elf stores, net sales were up 11% versus a year ago. We're also taking market share. According to Nielsen, in the 12 weeks ended October 5th, 2019, our dollar share of the color cosmetics category was 4.7%, up 70 basis points versus a year ago. Given this momentum, we are again raising our fiscal year guidance, which Mandy will outline shortly. We entered fiscal year 2020 laser-focused on five strategic imperatives to drive top-line and market share improvements. Let me provide a brief update on each of these. Our first strategic imperative is to drive demand in our brand. We have a compelling mission to make the best of beauty accessible for every eye, lip, and face, and it's our job to make sure we're communicating our unique value propositions. We are pleased with the initial results behind our Elfing Amazing campaign, which delivered 175 different versions of playable ads to pique consumer interest based on their affinities. Examples include Elf Control, which shows a consumer filling up her shopping basket with Elf products to celebrate our premium quality and extraordinary value, and Elf Respect, which underscores the fact that we are cruelty-free and vegan. A YouTube brand list study that we commissioned found that digital ads had video completion rates of around 50%, and ad recall around 60%, both far above benchmarks. Based on our initial success, we chose to take up our marketing plus e-commerce spend to 14% of net sales for the quarter, and we expect spend to land in the 12% to 14% range for fiscal 2020. Our second strategic imperative is a major step up in digital. e.l.f. was the first digitally native mass beauty brand, and we've always focused on authentic engagement with our consumers. we continue to expand our digital presence and test new platforms. Last month, we sponsored the hashtag EyesLipsFace challenge on TikTok, a video and music platform with hundreds of millions of users and a huge following among Gen Z. The Elf Challenge encouraged people to record their own 15-second video to an original song, EyesLipsFace, which we commissioned from a Grammy award-winning songwriter. The campaign resulted in a number of firsts, including most views upon launch, first paid ad to hold the number one trending hashtag on TikTok, and first branded hashtag challenge to feature an original song. The response has been incredible. Over one and a half million videos have been created, the record for any TikTok brand challenge, generating a staggering 3.2 billion views. Our major step up in digital has resulted in increased elf presence across digital platforms. We recently reached 5 million followers on Instagram. Our Beauty Squad loyalty program now has over 1.5 million members. And most importantly, elfcosmetics.com and our retailer.com sites continue to show strong growth. Our third strategic imperative is providing first-to-mass, prestige-quality products at an extraordinary value. We know how to make products people want at elf speed. Our newest Holy Grail products like Poreless Putty Primer and 16-Hour Camo Concealer continue to perform well, supporting our leadership in the primer category and adding to market share gains in the concealer category. In the fall resets, we've also seen strong performance behind our $2 Wow Brow, 18-piece eyeshadow palettes, and our Total Face Sponge. We're also seeing strong success in skincare. According to Nielsen, for the 12 weeks ended October 5th, 2019, e.l.f. skincare sell-through was up 39%. Our recent innovations build on a foundation of e.l.f. products that have seen multi-year success and are still driving sales to make e.l.f. the number one mass brand for primers, eyebrow pencils, and brushes. We also continue to expand our reach through new product collaborations with key influencers. Last month, we introduced a collection with Nabella Noor, a Bangladeshi-American beauty influencer whose 1.2 million followers embraced her platform of self-love and inclusivity no matter your age, size, or skin color. The launch resulted in over 140 million impressions from leading beauty media outlets, including Allure.com, Refinery29.com, and TheZoeReport.com, as well as another 81 million reach through influencers. These results show the power of product collaborations to amplify the e.l.f. brand. Our fourth strategic imperative is to improve national retailer productivity through Project Unicorn. our multi-phase, multi-year package and self-initiative. As of the second quarter, the first two phases of Unicorn, which include most of our retail SKUs, are complete. We're pleased that Unicorn, alongside our marketing activation, has resulted in a meaningful step up in productivity. We remain the most productive brand on a dollar per foot basis at both Walmart and Target, our two largest customers. We're also growing productivity at Ulta Beauty, our third largest customer. Phase 3 of Unicorn is expected to roll out during spring resets and is designed to bring better visual merchandising to our key innovations. In addition to our national retail partners, we also saw productivity gains across our other channels with double-digit growth on our retailers.com sites and on elfcosmetics.com, where we're enhancing the elf consumer experience with capabilities such as machine learning and personalization. We also saw growth in our international business, especially in the UK, driven by Boots and Superdrug. Our fifth strategic imperative is to generate cost savings to help fuel brand investments. Our most important cost savings initiative was closing our 22 ELF branded stores in February. This was a difficult decision as it impacted half our employee base, but we moved boldly and with ELF values to do the right thing for our employees. I'm happy to report that we successfully exited our 22 store leases for well below what we expected at the onset of this transition. Redeploying the $13.7 million in annual spend that we use to invest in stores is driving greater momentum in our national retailer and elfcosmetics.com businesses. We're also making good progress on our automation and new plan initiatives in Southern California and hope to be operational by the end of this fiscal year. Another important productivity and cost initiative in the second quarter was executing price increases to help mitigate tariffs. Recall, we increased prices on approximately a third of our SKUs. This pricing action was the most significant in our almost 16-year history, as we've primarily used innovation mix to drive average unit retails. I'm happy to report that all our national retail partners have implemented the price changes and that our initial unit declines are lower than what we modeled. Pricing delivered approximately 200 basis points of the 11% net sales growth for the quarter. we will closely monitor the long-term impact as we move forward. The progress in our five strategic imperatives is encouraging. What gives me the greatest confidence in our future is the quality and dedication of our team. Over the past five years, we've hired 190 of our approximately 200 employees. Our team comes from blue-chip beauty and consumer backgrounds, and they love moving at alpha speed. I'm proud that our employee base is 75% female, 60% millennial and 40% diverse, reflecting the consumers that we serve. I'm also proud that of all the companies listed on U.S. exchanges, Elf is one of 37 companies with more than 50% women on the board. I have confidence in this team's ability to continue to recharge and grow the brand. It's an exciting time at Elf Beauty. We're pleased with the progress executing our strategic imperatives. These are long-term initiatives that we believe will build shareholder value. With that, I'll turn the call over to Mandy to discuss our financial results and guidance.