e.l.f. Beauty, Inc.

Just be an honest.

I'm Elfing Famous. Eyes, lips, famous. You're gonna know what my name is. Eyes with the glam lips on tan. Face looking fierce, give it a spin. My look's amazing. I'm Eyes, Lips, Famous. Eyes, lips, famous. I'm Elfing Famous. Eyes, lips, famous. You're gonna know what my name is.

Good afternoon, and welcome to the ELF Beauty third quarter fiscal 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. This is not an ad. This is really a movie.

You went with me with a chance to be in a holiday movie. After a talking mascara. What, you never seen one before?

And I'm Power Grip Driver. Oh my God, what are you doing in here?

We're not out until next week.

Thank you for joining us to discuss Elf Beauty's third quarter fiscal 2022 results. I'm Melinda Freed, head of corporate communications. With me are Tarang Amin, chairman and chief executive officer, and Mandy Fields, senior vice president and chief financial officer. We encourage you to tune into our webcast presentation for the best viewing experience, which you can access on our website at investor.elfbeauty.com. Since many of our remarks contain forward-looking statements, please refer to our earnings release and reports filed with the SEC, where you'll find factors that could cause actual results to differ materially from these forward-looking statements. In addition, the company's presentation today includes information presented on the non-GAAP basis. Our earnings release contains reconciliations of the differences between the non-GAAP presentation and the most directly comparable GAAP measure. With that, let me turn the webcast over to Terang.

Thank you, Melinda, and good afternoon, everyone. Today, we will discuss the drivers of our Q3 results and our raised fiscal 2022 guidance. I am proud of the Elf Beauty team for achieving our 12th consecutive quarter of net sales growth. We delivered Q3 net sales of $98 million, up 11% versus a year ago, and 20% on a two-year stack basis. Adjusted EBITDA of $22 million was up 18% versus prior year. We delivered these results with a significantly smaller holiday program. As a reminder, we proactively scale back our holiday program to prioritize container capacity for our core products, which continue to be in high demand. With our continued momentum, we are raising our full year guidance, which Mandy will discuss. Our innovation, digitally led strategy, core value proposition, and ability to adapt at ELF speed continue to fuel our performance. In Q3, e.l.f. had 5.7% market share, up 86 basis points on a two-year stack. For calendar year 2021, we were the only top five color cosmetics brand to grow share above pre-pandemic levels by a wide margin. Our relentless focus on our five strategic imperatives is driving results across our brand portfolio. Let me provide a few highlights from the quarter. Our first strategic imperative is to drive brand demand. We continue to find innovative ways to engage and entertain our community, moving beyond traditional beauty boundaries. This approach has driven strong ROI and business momentum. This quarter, we created our first ever TikTok native movie to celebrate the holiday season. Big Mood, Big Elfing City, recaps some of the biggest TikTok trends of the year with an innovative twist. The movie garnered 400 million press impressions, over 32 million campaign views, and built upon our many firsts on the platform. We also joined forces with Enthusiast Gaming to find the next gaming superstar. The competition, called Rising Stars, seeks up-and-coming creators from colleges across North America, and ELF is the first brand to co-create the series. This builds upon our track record of firsts while also supporting our mission of empowering others to reach for the stars. Our brand building efforts continue to gain recognition. TikTok recently named ELF to their culture drivers list for 2021 for our Gamers Got Talent campaign. We are among 14 other brands that TikTok highlights as doing the best, most engaging, and entertaining work on the platform. Building upon our entertainment chops, we recently teamed up with TikTok and American Idol creator Simon Fuller to find the next big music group. Together, we launched a search culminating in the creation of a first-of-its-kind pop group called The Future X. We're working side-by-side with TikTok's vibrant creator universe via hashtag challenge to search for makeup artists to work with the group. This collaboration represents another moment where ELF is leading to bring together two things our community loves, beauty and music. Key Soul Care, our groundbreaking lifestyle beauty brand with Alicia Keys, garnered 7 billion global press impressions this quarter. In November, Alicia dropped her much-anticipated eighth album, Keys. Key Soul Care product offerings were prominently featured as Alicia promoted the album and held special one-night-only concert events. We also celebrated the album by having it available to download on keysoulcare.com. The buzz was timely as we recently celebrated the one-year anniversary of Keysoulcare.com. We're incredibly proud of what we're building with this brand, which has been recognized across the industry with over 20 awards this past year. Our second strategic imperative is a major step up in digital. Our digitally-led strategy continues to serve us well, with our digital consumption trends up triple digits on a two-year stack. We continue to see a channel shift between digital and brick and mortar in Q3, in line with our expectations. Digital channels drove 14% of our business in Q3, as compared to 16% a year ago and 10% two years ago. Our follower base across social and digital platforms is now over 12 million, helping to fuel our growth. On elfcosmetics.com, approximately 50% of our shoppers in Q3 were new consumers. Our Beauty Squad loyalty program now has over 2.7 million members, up over 20% year-over-year. Beauty Squad is an integral source of first-party data and will continue to look for ways to enhance the consumer experience. Our Key Soul Care loyalty program, called Soul Care Rewards, continues to grow. Loyalty members made up 45% of sales this quarter on keysoulcare.com. We also developed a new First in Beauty digital gifting experience on the site for the holidays. Gift givers were able to create and send a personalized video to their loved ones while gifting them key soul care offerings.

Nanita, we're all safe, but we miss you so much because we had so much fun. We can't wait to see you again. In the meanwhile, we want to send you this so you can revel in your queendom. Love you so much.

Our superpowers, centered on our ability to deliver 100% cruelty-free, premium quality beauty products at accessible price points with broad appeal, continue to resonate with consumers. Elf Cosmetics saw ongoing success in our core segments, brushes, primers, concealers, brows, and sponges. which make up approximately half our sales. We have the number one or two position in all five segments and continue to drive sales growth in each. We are proud of our newest holy grail innovations, which launched online at the end of Q3 and will be hitting retail shelves in the coming weeks. Our PowerGrip primer builds upon our strength in the primer category. Its jaw-dropping value of $10 versus the prestige equivalent at $34 already propelled it to become the number one selling product on elfcosmetics.com and a viral sensation across social media.

Is the new Elf Power Grip Primer actually better than the award-winning Milk Hydra Grip? I'm going to let you know. $10 compared to the whopping $34 for this bad boy, and this already has five-star rating.

We continue to build upon the success of our camo franchise. We recently launched a camo powder foundation in 30 shades, packaged in a sleek compact with a mirror and sponge, and priced at $11 versus its prestige equivalent at $38. The powder foundation is on its way to become a top-selling holy grail.

So this is the packaging, very sleek, and it comes with a sponge on the back. All right, so we're going to use the same sponge

Building upon our strength in brows and tools, we recently launched Brow Lift and an accompanying Brow Lift applicator. Priced at $6 versus the prestige equivalent at $23, the Brow Lift features an extreme hold, clear wax formula that lifts and sculpts brows for a feathered effect. This item quickly sold out online and over 15,000 Elf fans signed up for Notify Me, anxiously awaiting its return.

So some of you have noticed that I changed my brows up and let me tell you, this product is a literal game changer and this is not sponsored. I truly love this product. e.l.f. sent this product to me a few days ago. I've used it once, once and I am obsessed. It is the e.l.f. Brow Lift Gel. and it is only six dollars six dollars okay enough talking i'm going to review this for you guys so they also came out with brow lift applicator to go along with it and i'm going to be using this as well i feel like it's a dupe for the anastasia brow gel and it's just a lot cheaper

Our newest lip products are attracting consumers looking for a color moment. Our new glossy lip stains are there to meet the call. Priced at just $6 versus the prestige equivalent at $38, they feature a unique glossy to stained finish that is long wearing and won't transfer.

Finding my business at Target when I see ELF just launched their glossy lip stains. They're cute and affordable. Let's go home and try these.

ELF is just slaying the game, baby. They have their new lip filler liner. Could have came out with that before I got the lip filler, but whatever. And then the new glossy lip stains. Let's do it.

We remain bullish on the color category. These four holy grail launches are generating incredible buzz across social platforms, even before being widely available at our retailers. Skincare remains a major focus across our brand portfolio. In Q3, elf skin consumption was up 29% compared to a category that was up 9%, propelling elf skin into the top 20 for the first time ever. Our recently launched Pure Skin line is a three-part regimen designed to meet our consumers' daily needs. Dermatologist-developed, clean, vegan, and cruelty-free, Pure Skin nurtures the skin with ingredients like oat milk and niacinamide. The Pure Skin line initially sold out on elfcosmetics.com. We also launched our Well People Skincare Collection online this quarter. Skincare is the largest category in clean beauty, and we're excited to start with five plant-powered, derm-developed, clean skincare products. The line will also be available in Ulta Beauty and Target stores this spring. We're proud of the progress we're making with Well People in Color as well, with our top-selling products now available in more inclusive shade ranges. Our biotint moisturizers and biostick foundations both extended to 14 shades, and our bioconcealer is available in 20 shades. We plan to further extend the Well People shade ranges to bring plant-powered, high-performance clean products to a wider audience. Turning to Key Soul Care, we innovated further in the body category with three new offerings to praise your body. A melting body balm, mind-clearing body polish, and energizing dry body brush. Our core body care products continue to be named to coveted beauty award lists. This quarter, we were recognized by PopSugar and Refinery29. Awards included Best in Celebrity Beauty for our rich, nourishing body cream and Beauty Innovator Award for our sacred body oil. Our fourth strategic imperative is driving productivity and space expansion with our retail partners. Productivity was strong this quarter, with consumption ahead of our expectations. Consumers bought more of our core products during the holiday season, in lieu of our traditional holiday kits. We're also quite pleased with our spring resets, which will be rolling out in the coming weeks. We believe our innovation is strong and our visual merchandising is more impactful than ever. we continue to see shelf space opportunities as previously reported we're pleased with the space expansion we secured with cvs in fall of 2021 and walmart in spring 2022 in a subset of their doors internationally we're expanding our shelf space with boots and super drug in the uk this spring international represents major white space at just 11 of our business today our performance in the uk gives us confidence on further geographic expansion The latest Nielsen data ranks E.L.F. at number 8, up from number 12 last year, and continues to be the only top 10 brand to post growth. We continue to drive differentiation with our retail partners. Inspired by the success of last year's Mint Melt collection, and after polling our community for what they wanted next, we launched Cookies and Dreams. This is an indulgent, limited-edition, 13-piece collection featuring cosmetics and skincare products. Cookies and Dreams will be available exclusively at Walmart in the U.S., at Superdrug in the U.K., and in select Douglas markets in Europe. Key Soul Care is elevating and accelerating our global retail strategy. We've launched a brand in 10 countries to date with four major retail partners. In the U.S. with Ulta Beauty, in the U.K. with Cult Beauty and Age Beauty, and in eight countries across Western Europe with Duglas. We're excited to announce our newest retail partner, Sephora, will be launching key soul care in Sephora Canada online and in stores this spring. This marks E.L.F. Beauty's first brand entry into Sephora. We're also pleased that Well People will gain its first in-line placement in a subset of Ulta Beauty stores in spring 2022. Our fifth strategic imperative is delivering cost savings to help fuel brand investments. As we spoke about in recent quarters, and like many other companies, we're facing a global container imbalance and poor congestion, which are slowing shipments and increasing our transportation costs. I'm proud of the Elf Beauty team for how we've navigated these challenges. Our operations team is executed with excellence, managing SKUs at the store level to sustain in stock rates around 95%. Given the uncertainty around how long these supply chain challenges will persist and the inflationary environment, we made the decision to increase prices on the majority of our portfolio effective mid-March. These price increases will impact approximately two-thirds of the Elf Cosmetics SKUs, as well as certain items within Key Soul Care and Well People. We balanced our approach between offsetting elevated costs and maintaining our value proposition with consumers. While this round of pricing is broader than previous rounds, our opening price points on ELF remain unchanged, enabling us to continue to deliver high-quality products at an extraordinary value. Before I turn the call over to Mandy, I want to give an update on our clean and sustainability efforts. Both Well People and Key Soul Care were launched as clean and sustainably minded brands. Over the past several months, our team reformulated over 350 SKUs on the ELF brand. There are now over 1,650 ingredients on our Do Not Use list. While it will take a number of months for these new formulations to roll out, we're excited to add clean to our existing superpowers. With ELF, consumers can have premium quality beauty products at accessible price points that are clean, vegan, and cruelty-free. On the sustainability front, we reached another milestone this quarter with Project Unicorn, eliminating more than 1 million pounds of packaging materials since launch. Project Unicorn has streamlined packaging for 500 SKUs across multiple categories. We are evolving Project Unicorn to Project Green Unicorn with a focus to eliminate even more packaging, adopt friendlier environmental practices, and explore sustainable materials. Project Green Unicorn is a long-term initiative. Our clean and sustainable practices will continue to rise in importance, and I'm glad that we're positioning Elf Beauty to excel in this area. I'll now turn the call over to Mandy.

Thank you, Terang. I'm pleased to share the highlights of our strong third quarter results and raised fiscal 2022 guidance. We delivered Q3 net sales of $98 million, up 11% versus prior year and up 20% on a two-year stack, driven by strength in our national and international retailers. Consumption was strong this quarter as well, up 17% year-over-year and up 15% on a two-year stack basis. This exceeded our expectations and is an encouraging trend as we head into the fourth quarter. Gross margin of 66% was up approximately 100 basis points compared to prior year. We saw gross margin benefits from cost savings and margin accretive mix, specifically from consumers switching away from holiday kits into higher margin core products. We also benefited from the price increases we implemented on a subset of our SKUs in May. These gross margin benefits were partially offset by FX and elevated transportation costs, which flowed through the P&L at a lesser rate than previously expected. Given the rate of flow-through on these freight costs, an overall favorable mix, we now expect gross margin for the back half to come in flat to last year. On an adjusted basis, SG&A as a percentage of sales was 50%, up approximately 70 basis points versus prior year. The increase was mainly driven by investments in marketing and digital. Marketing and digital investment for the quarter was approximately 15% of net sales, slightly ahead of Q3 last year. we continue to expect marketing and digital to come in at 15% to 17% of net sales for the year. Q3 adjusted EBITDA was $22 million, and adjusted EBITDA margin was approximately 22% of net sales. Adjusted net income was $13 million, or $0.24 per diluted share, compared to $12 million, or $0.22 per diluted share, a year ago. Our liquidity remains strong, with a combination of our cash balance and access to our revolving credit facility sitting at approximately $130 million. We ended the quarter with $33 million in cash on hand, compared to a cash balance of $35 million a year ago. Our current cash balance reflects a complete pay down of our revolving credit facility, reducing our overall debt by $13 million in the quarter. Our ending inventory balance was $85 million, in line with our expectations, as compared to $69 million a year ago. As a reminder, last quarter we spoke about carrying higher inventory levels due to the combination of longer lead times, higher transportation costs, the addition of key soil care and well people, and our continued business momentum. We expect our cash priorities to remain on investing behind our five strategic imperatives and supporting strategic extensions. Now let's turn to our fiscal 2022 guidance. We now expect net sales growth of approximately 17 to 19% versus fiscal 2021, up from 14 to 16% previously. We expect adjusted EBITDA between 70 and $72 million, adjusted net income between 40 and $42 million, and adjusted EPS of 73 to 76 cents per diluted share. We still expect a fully diluted share count of approximately 55 million shares and our fiscal 2022 adjusted tax rate to be approximately 22 to 23%. Our raised top-line guidance largely reflects our outperformance in Q3 relative to our expectations and an improved outlook for Q4. As Terang mentioned, our business momentum remains strong throughout Q3, up 20% on a two-year stack basis, despite not having most of our holiday program. We expect Q4 to look similar to Q3 on a two-year stack basis at approximately 23% growth. As a reminder, in Q4 and into Q1 of next fiscal year, we will be lapping the largest round of stimulus-related spending we've seen to date. This has implications on our net sales, as I just noted, as well as what you'll see in the Nielsen data. In the four weeks ending March and April of 2021, we posted 40% and 52% growth, respectively, in tracked channels. And we expect cycling these numbers to cause volatility in Nielsen data during those periods. Therefore, we're anchoring on a two-year stat comparison to better capture trends. We remain mindful of the industry-wide container imbalance and the continued elevation in costs as a result. We're proud of how our team has navigated these logistics to date, and it remains a dynamic environment, That said, given our sales momentum, we are raising our adjusted EBITDA expectations to $70 to $72 million, up 15 to 18% year-over-year. As we discussed earlier in the call, we're taking pricing actions next month to mitigate the impact of elevated shipping costs and inflationary pressures on our financial performance, which we believe will help us as we enter fiscal 2023. We plan to provide more color on the expected impact of these pricing actions when we provide our fiscal 2023 guidance in May. This should allow time for us to better assess consumer response as it will take a few weeks for our retailers to reflect pricing in the market. Overall, we're very pleased with our Q3 results and are excited about the opportunities ahead in fiscal 2023. Our performance over the last 12 quarters, both on an absolute basis and relative to the category, demonstrates how our five strategic imperatives are driving results, and we remain confident in the long-term growth potential for our portfolio of brands. With that, operator, you may open the call to questions.

Begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Andrea Teixeira with JP Morgan. Please go ahead.

Thank you, and good afternoon, and congrats on your quarter, both on innovation and distribution. I have a question to Tarang and another one to Mandy. First to Tarang, on the Kiesel Care entrance in Sephora, Canada, again, congrats on that. Is that a plan to expand into the U.S. and Europe, given, obviously, Alicia's strong international following? And then for Mandy, it's obviously great to see you raise guidance there. for the top line, but it doesn't flow into EBITDA and EPS. And, of course, we all appreciate what's happening in the cost pressures and labor and distribution. Is this a function of these costs or a timing of marketing or just being more conservative given the moving pieces ahead of you? Thank you.

Good afternoon, Andrea. On your question on key sole care, we're really pleased with the progress on the brand, including entering Sephora Canada. We have high hopes for our launch in Sephora Canada, and we definitely see Sephora U.S. as a potential future partner. We're still, as a reminder, we're still in the exclusivity period with Ulta Beauty in the U.S., so we're starting with Sephora Canada, and I think the prospects of additional distribution on keys are quite bright, particularly given the level of engagement we're seeing with that brand.

Yep, and then to answer your question, Andrea, oh. Did you have a follow-up there, Andrea, on teeth?

No, no, no. I was just saying that I would just follow up, if I may. Thank you, Wendy. On Entrank, the well people entrance on Ulta, is that a separate shelf from Elf? I'm assuming it is because it's mostly skin, and it's going to be the side-by-side to Elf itself, or it's going to be a separate display? Okay.

Yeah, the Ulta distribution on Well People is incremental to ELF and in a different part of their store. Well People has been part of the Conscious Beauty program within Ulta, a separate kind of dedicated merchandising vehicle. This is our first in-line placement within a subset of the Ulta doors. And again, we're quite excited about that as well, given the momentum that we have on Well People after our rebranding as well as the innovation program we have on that brand.

Perfect. Thank you.

And then your question on the RAISE guidance and the flow through on EBITDA and EPS. So essentially we've taken our guidance up from 14 to 16 percent on the top line up to 17 to 19 percent. And that's roughly $9 million incremental on the top line. And on EBITDA, we've raised our guidance from 66.5 to 68 up to 70 to 72, so $4 million on the top end on EBITDA as well. Q3 beat by roughly 4.5, 5 million, and so we are flowing through most of that to the full year. So we feel really great about our EBITDA guidance. Actually, it translates to 15% to 18% growth on the year, even with the cost headwinds that we're seeing. So really proud of that EBITDA expectation.

And then the ALTA exclusive, when it runs out, do you, just sorry for going back to that, is that an exclusivity that may run out anytime?

It will run out at a certain point. Obviously, we continue to discuss key sole care with ALTA. They've been a terrific partner and supporter as we launch the brand in the U.S. with Ulta Beauty. And so I think that will be an ongoing conversation. But at some point, that exclusivity will run out, and we'll evaluate whether we extend it or whether we continue to expand distribution on Key Soul Care.

Okay, that's perfect. Thank you both. I'll pass it on.

The next question is from Steph Wissink with Jefferies. Please go ahead.

Thank you. Good afternoon, everyone. We had two follow-up questions as well. The first may be trying as best for you. This is on pricing. Just curious your comments on price gaps to prestige kind of being maintained even with your plan mid-March price update. Can you share a little bit about how you're thinking about that gap to prestige pricing? And then also on space gains, I'm wondering if you can quantify, help us think through the gains in the domestic market with CVS and Walmart and internationally any quantification around how much those might benefit 2022 calendar year. Thank you. Sure.

Hi, Seth. So on the pricing actions, we're using a very similar approach that we used in 2019, which proved quite successful, where we've really gone SKU by SKU and really taken a look at the SKUs that we have the most pricing power on. And when you take a look at a lot of our range, the comparable product is a prestige product. So I'll give you an example, a couple of examples of things we just launched. Our power grip primer, which I talked on the call, He's already our top-selling new item, or actually top-selling item, period, on elfcosmetics.com. That's priced at $10. The comparable prestige item is $34. There's still quite a big gap there, as are many of our other color holy grails. So our approach is taking many of those products up $1 each in price. equally important, we are not taking pricing up on many of our opening price point items. So the ones that we have the most extraordinary value on, many of our $2, $3, $4 items remain at that price point. So we feel that strategy is much better than, I'd call it the peanut butter approaching to a general price increase. It allows us to really focus on where we feel we have pricing power while maintaining that strong value equation. And we saw great things after our 2019 pricing, even the more limited pricing we took, back in 2021 in the U.S. with broader pricing and international also did quite well aiding our gross margins. So, you know, we always are cautious with pricing given the extraordinary value we have, but feel we're well positioned for the pricing we're going to take in mid-March. And then on your second one on the space gains, you know, we're not quantifying the percent space gains, but what I will tell you to give you a little bit more color On their CVS space gain that we had in a subset of their doors, we went from a three foot end cap gondola to six and 10 foot of inline space, a pretty sizable increase in space. And we've been really pleased with the productivity of that space gain. So I think it bodes well for future gains within CVS. Walmart is currently being set right now in a subset of their doors as part of their spring resets. And again, many of those sets went to eight feet of space within Walmart. And then Superdrug and Boots, both have had a pretty good continual increase in space. And so I think beyond kind of building out full chain, we're also seeing pretty sizable space gains there as well. So we haven't quantified the percent of our sales. We'll perhaps give more color on that when we give FY23 guidance in May. What I'll tell you, our first focus is always going to be on our productivity, the space that we currently have, making that work harder. And we've got a really good track record with Project Now Green Unicorn being able to aid that. I'm particularly excited about our spring sets that are being set right now.

Thank you. Very helpful.

The next question is from Dara Mosenian from Morgan Stanley. Please go ahead.

Hey, guys. Good afternoon.

Good afternoon.

Can you spend some time discussing cosmetics category growth trends in calendar Q4 and then perhaps just a bit of update on category growth so far this fiscal year? Any thoughts around if there's any risk to category growth from weaker consumer spending perhaps as that fiscal support and stimulus benefits fade? And also beyond the category, maybe potential impact on ELF if we do see weaker consumer spending here.

Yeah.

So, Dar, I remain very bullish on the category. I'd say in Q4, we saw mixed results on the category. We had, you know, six weeks where the category was above pre-pandemic levels, six weeks where it was below pre-demic levels. But the overall trajectory in terms of the category is definitely more positive. And we've seen that in consumer behavior, even when you look at the subcategory level. LIP is having a moment right now as consumers seek more color For ELF specifically, we're seeing strength across all of our core segments. So I talked about the five segments where we have the number one or two position. We're growing sales and share in all five of those segments, as well as within skin care. As I mentioned, our skin care consumption for ELF skin for the quarter was up 29% versus a category that was plus nine. So I like what I'm seeing from a category standpoint. In terms of the relationship of consumer spending, particularly kind of the inflationary environment, I feel we're well positioned within that. I mean, I think we've proven that over the last three years, growing 12 consecutive quarters, regardless where the category was. And I'm feeling really quite bullish on our business, even relative to the category, particularly given I think we have a much richer portfolio now with not only e.l.f., e.l.f. Skin, Well People, Key Soul Care, and then even better presence between color cosmetics and skin care, which continues to be a major white space opportunity for us.

Great. And then on supply chain, can you give us a bit of update there if you were able to fully service demand in the quarter and where you stand and any forward thoughts if you continue to see strong consumer demand going forward in terms of your ability to supply that demand?

Yeah, no, I feel great about what we were able to do in the quarter. And as we look forward, I mean, we were able to maintain 95% in stocks and a lot of that had to do with the proactive decisions we made earlier in the year, kind of foregoing a lot of our holiday kits for our core items proved to be a very good decision. We saw migration from kits to our core products, which also aided gross margins. We've talked before taking up our inventory levels, which really gave us that insulation on the longer lead times that we're seeing. So I feel better about our supply situation now than I have at any time during our fiscal year, and I feel it will continue to get better. Now, we're still seeing longer lead times and normal volatility that I think others are experiencing right now, but a great deal of confidence of our ability to continue to meet the demand that we have, which has been quite strong.

Great. Thanks.

The next question is from Olivia Tong with Raymond James. Please go ahead.

Great. Thank you. first question is just around helping us understand if you could give a finer point on what drove the revenue upside this quarter and the sustainability of that over the next few quarters. Maybe if you could give us an idea on the range of price increases you're planning to take and if you've seen any impact from Omicron, whether to January sales or to costs and your ability to drive efficiencies. Thanks.

So I'll start, Olivia. So on the revenue upside in the quarter, as we talked, Really, Q3 exceeded our expectations on the consumption side of the equation and really saw consumers shifting from our holiday kits, which we had a very scaled back program this year, into our core product. That core business momentum has really improved our expectations for Q4 as well. So implied in the guidance is a better outlook on Q4 as well. And still, both quarters, you know, second half is going to be very strong for us. We expect from a two-year stack basis as well. So we do think that trend is sustainable, evidenced by taking our guidance up to 19% on the top end for the year. In terms of the price increases, so this round of price increases that we're taking in March, it covers about two-thirds of our portfolio. And it also includes a portion of keys and well people in that as well. So it's a pretty broad price increase, but as Terang mentioned earlier, really balanced that with wanting to maintain the value proposition for our consumers. So we're not touching our opening price points and really want to make sure that we say, you know, continue to deliver that value proposition for our consumers. In terms of Omicron, I would say that's hard to parse out from the data, given all the moving parts. I think we saw more of an impact from Delta earlier on versus what we're seeing now with Omicron.

Yeah. And then, you know, I would say one of the other things that gives us a lot of confidence in the business is the strength of our spring innovation. It bodes well for what you're going to continue to see from a consumption trend standpoint. I mentioned the power grip primer, particularly excited about our building on our camo franchise with our camo foundations. Even as Lip is having a moment right now, our glossy lip stains, all of them are phenomenal values relative to their prestige equivalent. as well as our pure skin line. And so we've seen really good results on our own website and are really hopeful as they hit spring sets. Now, you will see some volatility in the Nielsen data, as we said. The stimulus-driven kind of consumption that we saw in March and April was quite high. So there might be some noise in the Nielsen data, but overall consumption trends are actually stronger than what we expected for Q3 and I think bode well for the rest of our fiscal year.

Thanks. That's helpful. And then, quite frankly, given how strong the December quarter was, does this in any way change your view longer term on how to run holiday in future years, how to run promotions, the magnitude or extent that you have to do or that you want to do kits and other promotion type products just on a longer term basis?

Yes, I'd say longer term, we're really pleased with what we saw in Q3 this year, and I think we'll carry forward those learnings into future holiday programs. And the nature of that is we will still have some holiday kits. They definitely have a role, and there is consumer excitement, particularly as we're able to engage them online and with some of our key retailers, but a much bigger focus on our core products. Those products come at a better gross margin. We see consumers really gravitated toward them. And so I think that will be our, at least for the time being, our plan for the future is much more focused on our core with some limited holiday kids to drive excitement.

Great. Thank you.

The next question is from Bill Chappelle with Truist Securities. Please go ahead.

Thanks. Good afternoon.

Good afternoon.

Hi, Bill. Perfect. First question on maybe a little bit more on we people. I guess we're two years into that deal and just trying to understand, you know, what you've learned, what's expanded from here, and, you know, how it looks in terms of future M&A. Would you continue to look for stuff that size, or would you like a bigger platform? Just kind of learning 24 months in. I think that's right.

Yeah, well, thanks, Bill. We're really pleased with our acquisition of Well People. We acquired the brand, really the thesis there was it was a real pioneer in plant-powered clean beauty. And we felt we could add a lot of value to that brand, both with the innovation platform we have, certainly our distribution footprint, and our ability from a marketing standpoint. And we very much have kind of executed against that plan. We did a rebranding of Well People. It's almost a completely new brand from a consumer presentation standpoint. We really energized the innovation program, getting Well People into skin care, and we're seeing really good momentum. And in addition, what Well People brought to us was real capability in clean beauty. Well People came, one of the co-founders of Well People was Dr. Renee Snyder, a board-certified dermatologist. She was instrumental with our innovation team to launch Kiesel Care as a clean brand. Re-platforming Well People gave us a lot of knowledge where, you know, in the last six months, we reformulated over 350 SKUs on the ELF brand, where all of ELF formulations are now clean. So they'll take a few months to roll out, but we feel great because of the progress we got, both in terms of what we could do for Well People and the knowledge we learned. In terms of future M&A, I'd say we continue to be interested in other brands that we can bring onto the platform under a similar construct of being able to bring capabilities into the company that we don't have, as well as leverage the incredible platform we've created here. In terms of scale, I would say Well People was intentionally small when we did it as our first acquisition. We're highly disciplined. We wanted to make sure we could do the integration and get the plan going. I'd say future acquisitions, we would look for them to be a bit larger, but we're highly disciplined. I mean, you'll see in the notes as you take a look at some of the adjustments, there were some M&A costs in Q3. It was a target we looked at, but we did not submit a final bid. So we remain highly disciplined in terms of what we look at. And I'd say the things that appeal to us are other high-growth brands, not only on the top line, but also on the bottom line. We have a great profile as a company in terms of being able to deliver both top and bottom line. And so any potential acquisition target would have that. And then, again, something that would complement our existing portfolio. We feel great about our portfolio. That's our first priority. but either in an adjacent category or something that would bring a different capability to the company. I'd say we remain open to that, but we'll remain disciplined in taking a look at potential targets.

No, thanks for that, Keller. And then just back on supply chain, I mean, now that we're through the holidays and seeing that you get shipped most from Asia, do you feel like most of the supply chain risk is, I guess, behind you in terms of getting containers, getting supplies, and moving forward? Or is there still some bumpiness over the next few months that you just kind of, not cross your fingers, but that you just still worry about?

No, I would say we're feeling good about the supply chain from a risk standpoint. I'd say over the last few months, we've been able to get all the containers we wanted. Now, they are coming at an elevated cost. It was one of the impetuses for us to decide to take pricing. is we expect some of those elevated costs will be with us for some time, so that's one of the reasons we price. But in terms of overall availability, our capacity, our ability to get product, we're highly confident of our ability to do that and meet the demand that we're seeing. Great.

Thanks so much.

The next question is from Linda Bolton-Weiser with D.A. Davidson. Please go ahead.

Yes, hi. So I was just wanting a little bit more detail or quantification on the gross margin, because it was really a spectacular performance, even accounting for the holiday mix issue that you talked about. Is there any way of explaining or quantifying what came out so much better than you expected that drove the gross margin? Because you had expected it to be down sequentially. And it was up, and it was up very strongly. And is this new level kind of something going forward, or is that still going to fluctuate? But you're taking more price, so it seems to me that that gross margin has even higher to go. Thank you.

Hi, Linda. I'll take that question. So, gross margin, as we talked in the quarter, I think what came in better than we expected are two things. One, I would say the shift into our core product from not having that holiday mix. The holiday product is at a lower margin. So people shifting into our core product actually drove a benefit for us on a year-over-year basis. So that was great to see. The other part is I think generally we're mixing out a little bit better. Even with the higher freight costs, we're not seeing that impact the P&L in the way that we expected. And so that's why for the second half, I've now called out that we expect gross margin to be flat to last year. So that implies coming down a little bit versus last year in Q4. So not because we won't have that holiday benefit in those numbers, but I think that our outlook has improved from that standpoint just based on what we're seeing from a mixed perspective. In terms of pricing and how that's going to impact gross margin, I think we'll have more color to give on that once we give our fiscal 23 guidance in May. We really want to allow time for our retailers to reflect the pricing in the market and get a real feel for how consumers are responding before we go any further on giving color there.

Great. And can I just ask about the top line performance? According to the guidance, you're still kind of guiding to down a little bit year over year in the fourth quarter against a kind of hard comparison. But that prior year comp gets even harder in the first half of FY23. So just in a very qualitative way, how should we think about that? Because that comparison is going to get harder, even though you've got a lot of drivers maybe expanding key sole care and other things going on. So how should we just generally think about that in terms of the growth in the first half of fiscal 23?

Yeah, so let me start with Q4 because that's what we've given guidance for. So Q4, we're really anchoring on a two-year stack number. So to your point, even the guidance implies a little bit negative for Q4, but on a two-year stack basis, still very strong, up 23% is what's implied. And then when I look at the full year of fiscal 22, 19% on the top end is still north of 30% on a two-year stack basis. So a very strong overall performance. In terms of what to expect when we get into the first half of next year, Again, we're just going to have to wait until we give guidance for fiscal 23. But what I can say, and to Terang's earlier points, we do feel very confident on our spring innovation. The signals that we're seeing is that that will continue to be strong even before it's in broad distribution. You know, our power grip primer is the number one item on our elfcosmetics.com. So really seeing some positive signals there. And, you know, things may be volatile, as we talked about. March and April are Very strong consumption results in Nielsen data, and so we expect some volatility there. But I don't think that's reflective at all of our core business momentum. We really feel that that still remains very strong. Okay.

Thank you very much.

Thanks, Linda.

The next question is from Oliver Chen with Cowan. Please go ahead. Hi.

Thank you for taking our question. This is Joan Allen for Oliver. Just curious, it looks like ELF skincare is really gaining a lot of momentum. And how do you balance the shelf space between skincare and cosmetics at different retailers? And another question is, I know you're expecting 15% to 70% range for marketing spend with Key Soul Care, you know, starting this year. But going forward, do you think that's sort of the right level to think about, especially as you're sort of lapping Key Soul Care launch? Thank you so much.

Thanks. I'll take the first part of that question. In terms of skincare, we are seeing great momentum. So I mentioned our consumption trends for the quarter. It was also the first quarter that e.l.f. Skin became a top 20 skincare brand. So that was a pretty good milestone for us. In terms of how we manage shelf space, I'd say we are dramatically underspaced at pretty much every retailer we do business with. So the way we manage it is basically seek greater shelf space and get more of our skincare assortment in. And that varies customer by customer. I'd say our most developed skincare business is probably at Target, where we've been the longest and we have the biggest footprint. We're able to shelf skin within our existing sets. And it's Target, over time, has given us more space. It's given us greater opportunity to get more skincare in, as well as many of our other products. At Ulta Beauty, they've given us incremental space for skincare in their skincare sets. And so, you know, we'll be taking a look there depending on what happens with space over time, whether we integrate it in within our existing ELF set or we do keep it in a separate spot. So I think we're going to continue to learn our way there. But the unifying theme is we, as we pick up more space, it gives us even more opportunity to get more skin and more of our other innovation into retailers. And that's what our real focus is.

And then on your question on marketing spend, we feel great about that 15% to 17% range. We have a number of high ROI activations that really support that level of investment. And I think what you'll see from this is continuing to balance investing in marketing and digital with our desire to grow EBITDA, just as you've seen us do this year. And so that 15% to 17% feels right to us right now.

Got it. Thank you.

The next question is from John Anderson with William Blair. Please go ahead.

Thanks. Hi, Terang. Hi, Mandy. Congrats on the quarter. My first question is about the elfcosmetics.com business. You mentioned your beauty squad membership is up, I think, 20% year over year. You're approaching 3 million members. And Terang, you talked to the importance of the first-party data that provides. How are you using that first-party data to kind of support or enhance your targeting and conversion efforts, just in a kind of a big-picture way, trying to understand what that's helping you do maybe better, faster than you've done in the past. Thanks.

Hi, John. Well, Beauty Squad is a critical program for us. We're proud of the 2.7 million members. We have the 20% growth year over year but also the experience that program is generating for our core users. These are the consumers that make up 70% of our sales on elfcosmetics.com. They also are the source of core insight and inspiration for all of our various activities. We've often talked about many of our unique collaborations that we do, whether it be the Elf Chipotle collaboration or one I'm particularly excited about right now is the partnering that we've done with Simon Fuller and finding the next big pop group on TikTok, the future X, our latest hashtag challenge there, hashtag Elf It Up, in a week after placing that hashtag challenge, I think it's up to 7 billion views. A lot of the inspiration for the things we do come from that beauty squad loyalty program and what we're hearing our core user base wanting. So it's not just the behavior that we're seeing them from a shopping standpoint, but we also engage them. Part of how they earn points is their level of engagement with the brand including insights on our new products, including some of the things that they're most interested in. So you'll continue to see us nurture that program, build in additional functionality in it, and enhance the data set that we get because it really drives well beyond elfcosmetics.com. It really drives all of our activities, including with our national retailers.

That's helpful. With respect to the digital shift, you mentioned earlier that the digital shift portion of the business has come down a little bit, I think to 14% in the current quarter versus 16 a year ago. Not unexpected, I guess, given the kind of consumer behavior changes. But does that have, remind me, what are the margin implications or are there margin implications in that channel mix shift as that kind of plays out?

Yeah, so we've talked before about a shift in digital it really is a benefit from a gross margin standpoint. But by the time you add in, you know, marketing and some of the warehousing and things like that, it's a pretty neutral impact to operating margins. So it would be a benefit as we shift more into digital on the gross margin line is how I think about that.

Great. That's helpful. Last one for me is on portfolio management and, you know, you're, Mandy, you pointed out the strength of the balance sheet, the strong liquidity position you're in. How do you think about using capital for supporting the extensions, adding brands, versus reinvestment in the five strategic initiatives around the three brands you own? What should we do? Is it purely kind of opportunistic on the M&A side? Are there some very targeted things you're looking to fill within the portfolio? Just trying to get a sense for how that liquidity or capital may be applied going forward.

Thanks. Yeah. So you're absolutely right, John. We'll be focused on our strategic imperatives and continuing to support those, and then also on the strategic extension side. And so as Teran gave a little bit of color around You know, we have looked at targets more recently and will continue to do so. I think that anything that expands, you know, a capability or brings us new capability, like we picked up with the well people, or allows us to go into different category adjacencies would be interesting to us. I think the great thing is that we have such strong organic growth across our current portfolio of brands. we're not in a rush to add to our portfolio. We will be very choiceful and very disciplined for whatever brand we decide to go after. And so I think that you'll continue to see that from us. We're going to be looking at things, but only where it makes sense. Cultural fit and things of that nature are super important to us. And we don't want to move too quickly on something and take a look back and not love it. So we are very disciplined in this area. And You know, as Terang mentioned, Well People was intentionally small. As we look forward, we may look at things that are a little bit bigger than that, something with more scale, and really looking to kind of expand our top line and bottom line with any other acquisition that we kind of bring into the portfolio.

Yeah, well said. The strength of the core business affords you the ability to be patient. So thank you very much. Appreciate it. Congrats again.

Thanks, John.

The next question is from Wendy Nicholson with Citi. Please go ahead.

Hi. I just wanted to follow up on that sort of line of questioning on the M&A front. I mean, I think discipline is great, but just for me, can you talk about sort of the managerial bandwidth, if you will? I mean, the acquisitions you're making, it's not like you're bringing in brands that then you just incubate and they operate independently. I mean, Terang and Mandy, it feels like you've got your fingers in tentacles in each of these brands. And I think Well People has taken a little while to really ramp up. So just in terms of, you know, how important it is to you, because I don't think of you as a serial acquirer. Is that a bigger part of the story going forward? I think it would be helpful to just clarify how much of a priority that is or is not. Because I think there's a risk, obviously, that you get too broad and you expand yourself too far afield and you get too much going on and you lose focus on the core, if you will. So can you just clarify kind of how important M&A is to you right now.

Yeah, Wendy, so I'll take this one. I would say, look, our predominant focus is on our core business, and e.l.f. pays all the bills. e.l.f. is the thing that we have a tremendous amount of white space on. Both e.l.f. Cosmetics is e.l.f. Skin. So I'd say the vast majority of our company managerial attention is on those. In terms of our strategic extensions, the way we manage them is very similar to other consumer environments I've been in. Most of us have multi-brand experience, a portfolio of brands, and we make sure that the consumer-facing part of those brands we've resourced for. They have distinct kind of brand managers, distinct kind of innovation talent associated with it, but then leveraging the rest of the chassis that we have. We have an incredible operations chassis, same with kind of our innovation platforms. where we feel we could take on a few more brands without any serious issues from a managerial standpoint. But from a focus standpoint, you obviously see the momentum over the last three years on the ELF brand, and that becomes our biggest area of focus. But we like what we've seen in terms of the strategic extensions we've done. We've been able to manage them well, be able to leverage the chassis where it makes sense, and then let them live on their own, on the other hand, in terms of how they go to market and what we're able to do.

Fair enough. Fair enough. That's reasonable, certainly. But the other question I had, just in terms of that statement, you know, ELF pays the bills, just a question on the pricing. I mean, I remember the days, I think, once upon a time, you guys, you know, priced everything out of the ELF brand at $3. You know, obviously the brand has just exploded in terms of consumer awareness and relevance, and you've done a phenomenal job on the innovation side. You know, in contemplating the pricing that you're taking on the ELF brand specifically, How much flexibility do you have? I know that it's cost-driven, but how much flexibility do you have to pull back on pricing or step up promotion? What's your visibility that, gosh, if you're raising the prices just a little bit too much and you start to see some market share erosion, how quickly can you react or are you willing to cede some share to protect margins?

Yeah. Well, like everything at Elf, we move at Elf speed, so we can react quite fast. And I'll take you back to our 2019 price increase, which I mentioned was quite successful. This is a brand that definitely has pricing power. In that price increase, we had some items we had taken up $2 and quickly concluded that was too big a price increase, and we quickly rolled those back down. And we did not actually lose market share in that process. We gained market share throughout that. And so if we found that we overextended ourselves on certain items it's very easy for us to adjust those items back to where they need to be. And we're not afraid to kind of say based on what the consumer experience is. Now, our hope is the way we've approached this, which is really looking item by item relative to its key competitor, where we can go a dollar up on each of these. We'll see how they do. But if we found that there was a segment of our portfolio we went too far on, it's easy enough for us to roll it back. But our intention is to continue to gain market share. We've been able to prove that even in a bad market, we're going to want to do that in a good market as a category improves. And so we feel done right, pricing can be a good tool in that.

Terrific. Thank you so much.

The next question is from Mark Astorchan with Stiefel. Please go ahead.

Yeah, thanks, afternoon, everyone. Two questions. One is, Could you help us a bit in trying to understand the reported sales in the context of tracked versus untracked growth? I think if you look at the last couple of quarters before the December quarter, your growth was decently in excess of what we saw in the scanner data this quarter. below even taking into account the holiday set. So, you know, could you just kind of talk to, you know, how to think about that, what sort of dynamics drove a bit of relatively slower growth in the overall numbers versus the scanner data versus on track, I guess, is probably a better way to think about it in the December quarter. Thanks.

Yeah. So, the difference this quarter is really a function of what we saw in the base last year for both net sales and consumption. So, In Q3 last year, we posted a positive 10% net sales growth with consumption down 2%. And that's why I anchored on the two-year stack in our prepared remarks. So when you take Q3 on a two-year stack basis, we were up 20% and up 15% in consumption. So sales pacing a bit ahead of consumption, which I think is more in line with what folks expect to see. You know, I think over the long term, shipments and consumption will balance out, but sometimes there are those nuances between quarters.

Got it. And so just following up on that, anything to point out from an international standpoint? I know you called it out in the press release, but is relative growth kind of similar to what you saw last quarter?

Yeah, international growth still remains strong for Q3, and we continue to see growth in those markets and with those customers.

Got it. And one more before the dog barks at me again. Okay. Do you expect any pull forward of sales for the pricing that you just announced? Is that contemplated in the guidance for the next quarter?

You know, we don't typically see anything like that, like a forward buy or anything like that from our customers. So, no, we don't really expect to see anything like that.

Great. Thanks, all.

Yep.

The next question is from Corrine Wolfmeyer with Piper Sandler. Please go ahead.

Hi. Thanks for taking the question, and congrats on the quarter. So I wanted to dig a little bit on pipeline and R&D investments beyond what you have going on this spring. Just where do you think you'll be focusing the bulk of that spending going forward, like which brands, which products, and then how should we be thinking about the cadence of new product introductions going forward?

Yeah, so hi, Corrine. Our innovation program is one of the key strengths of our company, and part of the strength of that innovation beyond being able to have prestige quality, the extraordinary prices, is we innovate pretty broadly. As I mentioned, we innovate across each of our core segments and skin care, well people, and key soul care. So I would say the cadence of that innovation you typically see, it's really continuous throughout the year. The big seasons are our spring season when spring resets happen, but we're launching new products all the time on elfcosmetics.com, keysoulcare.com, wellpeople.com. And that, in turn, gives us the data from which to make a lot of our core assortment decisions for the big resets between the spring and fall. So I would say our innovation program has never been stronger. I take a look at the pipeline across really all four of our brands, and they're quite robust. It gives me a lot of confidence, not only for this innovation we just launched in the spring, but I mentioned on a couple of other brands, Well People, our first entry into skin care with the first five plant-powered products. We have additional products behind that. Key Soul Care continues to do a phenomenal job on an innovation standpoint. We launched more innovation in the body category. There'll be other categories that you'll see come out later this year. And so I feel, you know, it's an area we've really focused on over the years, and I'd say particularly in the last three years. really strengthened the innovation capabilities, not only in skincare, but our ability to have the breadth of innovation that we do have as we go forward.

Got it. Thank you. That's really helpful. And then just one more quick one. With the rebound of color cosmetics, is there any specific products or group of products that have surprised you in terms of bouncing back or seem to have come back sooner than others?

I would say it's along my expectations. We knew LIP would have a moment right now as people took off their masks and could express more color. But at least for our business, we're seeing strength across each of our core segments. And so, you know, the trajectory I talked about earlier of when I take a look at the category beyond just kind of trends relative to pre-pandemic, what is the slope of what we're seeing? And we're seeing pretty good things across the category. Certainly, I think we're well-positioned. We have strength in the face category, particularly with our latest innovation on PowerGrip and our camo foundations. I like what we're doing on eye. Our brow lift is off to an incredible start. And even in lip, our glossy lip stains, I think, again, phenomenal value at $6 versus the prestige equivalent at $38. And you'll continue to see us make sure that we can also jump on any emerging trends that we see out there. You know, we're starting to see some good things on contouring. We have a very good business from our contouring palettes and a number of things there. So we'll stay close to the trends. But overall, I feel great about the portfolio of items we have.

Thank you.

The next question is from Rupesh Parikh with Oppenheimer.

Please go ahead. Good afternoon. Thanks for taking my questions. So I have two questions on the pricing front. So first, in the mass category, have you seen others starting to take pricing? And then secondly, just on the philosophy in terms of, I guess, on the gross margin front and raising prices, is the goal to maintain the gross margin rate and then other initiatives can help to drive expansion? Or could it be similar to last time where you guys took pricing and you ended up having very strong gross margin expansions, other initiatives also help to drive the margin improvement?

Yeah.

So Rupesh, similar to what happened in 2019, we led pricing. And so I don't think that many people followed us in 2019. We've heard more discussions, at least in our retailer discussions of a number of people taking pricing. So I don't have specifics on who else is potentially taking pricing, but we were not the first and nor I believe we will be the last. But But, you know, the way we do our analysis is not really dependent on others having to take pricing. It really is on that relative value that we see in the marketplace, even if no one took their pricing. And then on the second question, I'll turn it over to Mandy.

And on the gross margin point, so as we talked in our prepared remarks, and, you know, I'll take it back actually to 2019. When we take pricing, it is usually in reaction to something, a macro event. So in 2019, when we decided to take pricing, it was in response to tariffs. In May 2021, when we decided to take pricing, that was in response to some of the FX headwinds that we were feeling. So this time around, it has been driven by those elevated freight costs that we're seeing and overall cost inflation that we anticipate will be with us for a little while longer. And so that was the driver behind us taking pricing. So our goal really is to help to offset some of those costs that we're seeing. How that builds an overall gross margin, again, I think we'll have more color on that when we come back in May with our fiscal 23 guidance.

Okay, great. Thank you.

Thanks, Rupesh.

This concludes our question and answer session. I'd like to turn the conference back over to Tarang Amin for any closing remarks.

Well, thank you, everyone, for joining us today. Again, I'm so grateful to the incredible team we have at Elf Beauty for, again, delivering outstanding results. We look forward to seeing some of you at some of the upcoming investor meetings and speaking with you in May when we'll talk our fourth quarter results and fiscal 23 outlook. Thanks, everyone, and be well.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.