e.l.f. Beauty, Inc.

Good day and welcome to the Elf Beauty first quarter fiscal 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Melinda Freed. Please go ahead.

Thank you for joining us today to discuss Elf Beauty's first quarter fiscal 2021 results. I'm Melinda Freed, Head of Corporate Communications for Elf Beauty. As a reminder, This call contains forward-looking statements that are based on management's expectations, including those related to the category, trends, and longer-term outlook, and 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 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. Please note, after the presentation, there is a separate dial-in for the Q&A session, also noted in the press release. With me from management today are Tarang Amin, Chairman and Chief Executive Officer, and Mandy Fields, Senior Vice President and Chief Financial Officer. Let me turn the webcast over to Tarang.

Thank you, Melinda, and good afternoon, everyone. I hope that you're staying safe and well. Today, we will talk about our first quarter fiscal 2021 results, the creation of a new beauty lifestyle brand with Alicia Keys, and the overall strategic framework for the company. I am so proud of the ELF team for delivering strong results and navigating major category headwinds during the COVID-19 pandemic. This is our sixth consecutive quarter of net sales growth, with Q1 net sales of $65 million, up 8% versus a year ago. We also expanded gross margin to 67%, up nearly 500 basis points versus last year, and delivered adjusted EBITDA of $16 million, up 7% versus a year ago. Of the top five color cosmetics brands in the US, we were the only one to grow share in the quarter, with 5.5% of the market, up 100 basis points. We achieved all of this in a volatile category that was down double digits. We continue to excel on our multiple areas of competitive advantage by investing in our brand recharge and executing our five strategic imperatives. Our mission to make the best of beauty accessible to every eye, lip, and face is more important than ever. We believe that our fundamental value equation and digital engagement, as well as our world-class team's ability to move at elf speed, positions us well to continue to gain market share. Today, we are thrilled to announce our partnering with Alicia Keys to create a beauty lifestyle brand codenamed Project Superwoman. I'll describe shortly why we believe this brand will be so special and will enhance the overall strategic framework for our company. But first, let me provide a few highlights on the quarter. Our first strategic imperative is to drive brand demand. We have a number of initiatives that are driving greater brand relevance. We unleashed a bold campaign last year to bring e.l.f.' 's superpowers to the forefront of the beauty conversation. The original superpowers that our consumers can't get enough of are 100% vegan and cruelty-free, and first amass holy grail products that deliver premium quality at unbelievable prices with universal appeal. During these uncertain economic times, we've seen our value messaging has even greater consumer relevance. Our sales growth accelerated once government stimulus checks and supplemental unemployment benefits hit consumers' wallets, with new and existing consumers alike voting for Elf's exceptional value proposition. Search demand for Elf outpaced the category for the quarter, with Google's searches rising 1.5% compared to a decline of 9.5% for the category and double-digit losses for key competitors. Elf's press impressions soared 333% for the quarter versus prior year, and we surpassed 5.5 million Instagram followers, emphasizing our growing audience. We recently conducted a Nielsen marketing mix analysis and saw strong ROI results in the absolute and relative to key benchmarks, giving us further confidence that our marketing and digital initiatives are driving profitable sales. Our record-breaking Eyes, Lips, Face TikTok hashtag challenge, the most viral campaign in TikTok US history, continues to rise, reaching over 6 billion views and over 4.5 million user-generated videos to date. This is an increase of over 1.5 billion views and 1.3 million videos in the past quarter, highlighting the strength of our audience engagement on the platform. While continuing to leverage TikTok, we remain focused on our entire digital ecosystem. We're expanding our existing footprint with deeper engagement on key platforms like YouTube, Snapchat, and Pinterest, while seeking and testing new frontiers. An amazing example of new frontiers is our unique brand collaboration with Chipotle, another brand favored by Gen Z. We worked together on a virtual prom collection that married their beloved food menu with our best-selling products. This limited edition, burrito-inspired makeup collection sold out within four minutes on elfcosmetics.com with 100% of these orders made by new consumers. The campaign had high engagement across all social channels with over 3 million TikTok views and over 350 million impressions across beauty, lifestyle, entertainment, and business press. The strength of our value equation in brand building activities is attracting new consumers to the brand. During the quarter, over 50% of our retail purchases were from new consumers. This was even higher on elfcosmetics.com, with over 65% of those purchasing being new consumers. Furthermore, we're seeing that e.l.f.' 's consumers are highly engaged with beauty and spending nearly 1.5 times more than non-e.l.f. purchasers. Our second strategic imperative is a major step up in digital. True to our digitally native roots, we continue to lead with a digital first strategy that is benefiting both elfcosmetics.com as well as our retailer.coms. During the quarter, we saw a major shift online with our digital channels expanding to 17% of our total business, up from 11% in FY20. Q1 digital consumption grew triple digits versus a year ago. e.l.f.cosmetics.com, the number one mass cosmetics e-commerce site, powers our digital ecosystem. New consumers acquired in the quarter were up over 100% year over year. We also experienced strong gains in traffic, orders, conversion, and AOV. A particular bright spot is our skincare business, which accounted for nearly 25% of our sales on e.l.f.cosmetics.com in Q1 versus 18% last year. Importantly, the AOV with skincare consumers is approximately $10 higher than our cosmetics-only consumers. Our Beauty Squad loyalty program grew to 2 million members, up over 150% year-over-year, and we believe it has even greater potential as a driver of our overall business going forward. App downloads reached over 130,000, with augmented reality continuing to drive conversion. We also launched the ELF app in the U.K., We continue to expand our digital footprint globally. Last month, we launched elfcosmetics.com EU with a localized experience in Germany and the ability to ship to 10 other EU countries. We are pleased with the acceleration of our overall digital commerce and the growth we're seeing on all retailer.coms, especially Amazon. Our third imperative of providing first to mass prestige quality products also delivered strong results. We continued our pace of product launches during COVID-19 and found that consumers embraced our innovation. Our biggest strategic focus is skincare, where we continue to see strong results behind our new Cannabis Sativa and Full Spectrum CBD collections. These collections support our consumers' desire for wellness and self-care at an incredible value. Our Supers collection, powered by the trending super ingredient niacinamide, also has seen a surge in demand. Elf skincare consumption for the quarter was up 19% in track channels versus a category that was down 7%. More recently, track channel consumption was up over 30% and our elfcosmetics.com consumption was up over 100%. We have additional launches slated for the balance of the fiscal year, expected to help propel our skincare momentum. We reinforce our strength in primers, brushes, and brow pencils, maintaining our number one position in all three segments. We also continue to drive share gains in our market-leading poreless putty primer and camo concealer franchises with segment share increases of 15 points and 13 points respectively. The extension of our poreless putty franchise has been particularly successful with all three primers now ranking in the top 10 mass primers. We're also pleased with the results of our purpose-driven product collaborations and limited time collections. We partnered with Jay Kissa for the second year in a row, this time featuring 100% vegan, highly pigmented, 18-piece eyeshadow palette. Jay Kissa reinforces our shared values of cruelty-free and how ELF stands with every eye, lip, face, and paw. The eyeshadow palette and brush set sold out on our website in less than five days. We also introduced our Retro Paradise collection, a tropical-inspired line of products that was created after last year's Beautyscape, an event that gives rising beauty enthusiasts an opportunity to collaborate with e.l.f. and create products. The winning team, the Glam Gals, and e.l.f. have been on an amazing journey together, from the birth of the concept in the Bahamas to the shelves at Target. This collection is proving right now, more than ever, we all need a passport to paradise. Our fourth strategic imperative is driving national retailer productivity and centers around Project Unicorn, our initiative to improve assortment, presentation, and navigation at shelf. We successfully executed phase three of Project Unicorn this past spring with better visual merchandising, particularly for our market-leading primers and camo concealers. We shipped to Target new Unicorn displays and flex towers for Retro Paradise. We continue to see the blurring of the physical and digital realms as excited consumers share their in-store experience through TikTok video creations, including this one, which quickly garnered 130,000 views.