e.l.f. Beauty, Inc.

Thank you for joining us today to discuss Elf Beauty's first quarter fiscal 25 results. I'm Casey Katton, Vice President of Corporate Development and Investor Relations. With me today 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 today 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 a 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, Casey, and good afternoon, everyone. Today, we will discuss the drivers of our first quarter results and our raised outlook for Fiscal 25. I want to start by recognizing the Elf Beauty team. We're off to a strong start this fiscal year, delivering Q1 results ahead of our expectations. In Q1, we grew net sales 50%, increased gross margin by approximately 80 basis points, and delivered $77 million in adjusted EBITDA. Q1 marked our 22nd consecutive quarter of both net sales growth and market share gains, putting HealthBeauty in a rarefied group of high-growth companies. We are one of only five public consumer companies out of 274 that has grown for 22 straight quarters and averaged at least 20% sales growth per quarter. We've continued to prioritize three areas with significant runway for growth. Color cosmetics, skin care, and international. Let me update you on our progress in Q1. In color cosmetics, we continue to significantly outperform the category. In Q1, e.l.f. Cosmetics drew 26% in tracked channels as compared to a category that was down 1%, increasing our market share by 260 basis points. Nationally, e.l.f. is the number two mass brand on a dollar basis with approximately 12% share, more than double the level we had three years ago. As great as this share growth has been, we see an opportunity to double our market share over the next few years. In Target, our longest-standing national retail customer, we've been the number one brand for six consecutive quarters, with our share increasing from nearly 13% to over 20% today. We're focused on replicating our success at Target across other key retailers and believe we're making great progress towards that ambition. In skincare, we also continue to meaningfully outperform the category. In Q1, Elfskin grew 45% track channels, 32 times category growth of 1.4%. We grew our share 60 basis points, driving Elfskin to be a top 10 brand for the first time. We achieved the number 9 rank as compared to the number 13 rank a year ago. Elfskin today holds about a 2% share and has significant runway with the number 1 brand holding a 14% share. With the acquisition of Notorium last October, we now have two of the fastest-growing mass skincare brands that are complementary in their price points, positioning, and audiences. Notorium contributed approximately 16 points to our net sales growth in Q1. Turning to international, our net sales grew 91% in Q1, fueled by growth in our existing markets as well as our expansion into new markets. Our international expansion strategy is anchored in partnering with leading beauty retailers to bring our brands to life in each country we pursue. We continue to see significant runway to grow our footprint in our largest existing markets. The UK, where we are now the number four brand as compared to the number eight a year ago, and in Canada, where we are now the number four brand as compared to number six a year ago. As we look to new markets, we've seen success with our engagement model across social platforms, driving consumer demand well before we enter a particular country. We're pleased that we've maintained our number one brand ranking since launch with both Etos in the Netherlands and Douglas in Italy. International drove 16% of our total sales in Q1, up from 13% a year ago, and with significant runway to grow as compared to our global peers at over 70% on average. Let me put the strength of our results in the context of the broader beauty industry. While beauty has comparatively low barriers of entry, very few brands have been able to scale. Of the over 1,900 cosmetics and skincare brands tracked by Nielsen, only 61 have surpassed $25 million in annual retail sales. Only 26 have surpassed $100 million retail sales. And e.l.f. is one of only five brands to achieve over $700 million in retail sales. Elf has been one of the few brands able to scale through our five unique areas of advantage that form our competitive moat. Let me take a moment to walk you through each. Our first area of advantage is our passionate team of owners and high performance team culture. We have just over 500 employees and have intentionally sought out people with diverse experiences who are humble and hungry and thrive at Elf speed. We believe we are the only public consumer company that grants every employee equity every year. This aligns our employees' interests with that of our shareholders and provides wealth creation opportunities across the entire team. Since our IPO, excluding our executive officers, we've granted approximately $180 million in equity in a stock that has gone up more than tenfold. Our unique one team, one dream compensation model and high performance team culture has led to exceptionally high employee engagement of 90%, 18 points above the consumer industry benchmark. The strength, curiosity, and resilience of our team has allowed us to execute at an exceptionally high level over the last five plus years. The second area of advantage is our value proposition. The average price point for e.l.f. is about $6.50 today, as compared to nearly $9.50 for legacy mass cosmetics brands and over $20 for prestige brands. While there are other brands with low price points, our real advantage is the ability to deliver prestige quality at those price points. We have a unique asset-light supply chain model that delivers the best combination of quality, cost, and speed in our industry. Our quality scores have gone up every year over the past five years. We have a closed feedback loop that allows us to make ongoing improvements across our portfolio. We're hearing from consumers that we're not only delivering an incredible price point, but also deliver quality that is often better than prestige. Our value proposition is evidenced in our strong unit growth. e.l.f. was again the only top five cosmetics brand to grow units in Q1. Our third area of advantage is our powerhouse innovation. Our innovation approach is focused on building franchises behind our holy grails, taking inspiration from our community and the best products in prestige, adding our e.l.f. twist, and bringing them to market at an extraordinary value. This holy grail innovation approach has built category leadership over time. Five years ago, e.l.f. had the number one or two position across eight segments of the color cosmetics category. Today, e.l.f. has a number one or two position across 18 segments, which collectively make up over 80% of e.l.f. cosmetic sales. We continue to deliver strong sales growth and share gains across these segments. We're also innovating in the industry's top segments where we under-index on share, like foundation. For context, as compared to the 12% share we have across cosmetics, we have less than 2% share in foundation, a $675 million category in the U.S. In Q1, we launched our Soft Glam Satin Foundation, priced at an incredible value of $8 compared to a prestige item at $39.

When was the last time we saw a good foundation under $10? In this economy where everybody's raising prices, I feel like it's been ages since I've seen a foundation under $10. This is the new e.l.f. Soft Glam Satin Foundation. I feel like it's all everybody's been talking about and just saying that they absolutely love it. I just put it on and I already love it.