e.l.f. Beauty, Inc.

Thank you for joining us today to discuss Elf Beauty's second 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'll discuss the drivers of our second quarter results and our raised outlook for fiscal 25. I want to start by recognizing the Elf Beauty team. Q2 marked yet another quarter of consistent category-leading growth. In Q2, we grew net sales 40%, delivered $69 million in adjusted EBITDA, and increased our U.S. market share by 195 basis points. Q2 marked our 23rd consecutive quarter of both net sales growth and market share gains, putting Elf Beauty in a rarefied group of high-growth companies. We are one of only six public consumer companies out of 546 that has grown for 23 straight quarters and average at least 20% sales growth per quarter. e.l.f. is the only brand of the nearly 1,000 cosmetics brands tracked by Nielsen to gain share for 23 consecutive quarters. Our net sales growth of 40% in Q2 came in above our outlook, with stronger-than-expected growth across international retailers and digital commerce helping to offset U.S.-tracked channel trends that were slightly below our expectations. Our international net sales grew 91% in Q2, fueled by growth in our existing markets as well as expansion into new markets. International drove 21% of our net sales in Q2, up from 16% a year ago. We continue to see significant runway for growth in our largest existing markets. ELF outpaced category growth by more than 20 times in Canada and more than 7 times in the UK, fueling share gains in each. As we look to new international markets, we've seen success with our engagement model across social platforms, driving consumer demand well before we enter a country. We saw this play out in Q2 with the launch of e.l.f. in 1,600 Rossmann stores in Germany, our biggest international launch to date. e.l.f. quickly ascended to Rossmann's number one cosmetics brand in the stores we entered. Our expansion in Rossmann continues into November. We're also pleased to maintain our number one brand rankings since the launch in both Atos in the Netherlands and Douglas in Italy. Turning to digital, Q2 digital consumption trends were up nearly 40% year over year, on top of more than 75% growth in Q2 of last year. Digital channels drove 20% of our consumption in Q2, as compared to 17% a year ago. The momentum we're seeing is supported by enhancements to our loyalty program within our app and on our digital and social platforms. Our Beauty Squad loyalty program now has 5.3 million members, with enrollment consistently growing about 30% year over year. Our Beauty Squad loyalists are a key part of our digital ecosystem, with higher average order values, higher purchase frequency, stronger retention rates, and are a rich source of first-party data. We're continuing to fuel new member enrollments with exclusive early access to new product launches and unique integrations with our digital partners. Turning to the U.S., looking at Nielsen track channel trends, which represent about half our business, our consumption trends in Q2 were softer than expected, coming in at plus 16% versus our plus 20% expectation. We attribute this to two factors. First, we've seen a larger than expected moderation in the overall color cosmetics category trends to minus 5% in Q2 as compared to minus 1% in Q1. We believe consumers are being more choiceful with their spending. It's evident in our significant outperformance in market share gains that those more choiceful consumers are choosing e.l.f. In Q2, we gained 195 basis points of market share on top of 330 basis points in Q2 last year. For context, e.l.f. is the number one U.S. color cosmetics brand in unit share. number two brand in dollar share, and is driving the category as the fastest growing brand in both units and dollars among the top 20 brands across both mass and prestige. Secondly, from a product perspective, we're cycling significant strength in our Halo, Glow, and PowerGrip franchises last year that was driven by product newness and substantial marketing support. This fall, we didn't have the same level of franchise support. Looking ahead, we see an opportunity to better balance reanimating our core franchises and supporting our innovation. At the same time, we're pleased that our 2024 innovation is exceptional. e.l.f. holds six of the top 10 new product launches this year in mass cosmetics and holds three of the top 10 SKUs across both mass and prestige. Looking ahead, we remain confident in our ability to continue to gain share and deliver category-driving growth, as reflected in our raised FY25 guidance at 28% to 30% net sales growth. I'd like to put the strength of our results in the context of the broader beauty industry. While beauty has comparatively low barriers to entry, very few brands have been able to scale. Of the over 1,900 cosmetics and skincare brands tracked by Nielsen, few have surpassed $25 million in annual retail sales. Even fewer have surpassed $100 million. And Elf Cosmetics is one of only four brands to achieve over $850 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 grant equity to every employee every year. This aligns our employees' interests with that of our shareholders and provides wealth creation opportunities across the entire team. Excluding our executive officers, we've granted more than $180 million in equity in a stock that's gone up more than six-fold. Our unique compensation model and high-performance team culture has led to exceptionally high employee engagement of 90 percent, 18 points above the consumer industry benchmark. And 97 percent of our employees recommend ELF as a great place to work. This high level of engagement fuels our ability to move at ELF speed. I'm proud that we continue to lead with purpose as we strive to create a different kind of beauty company, one that is purpose-led and results-driven. Our third annual impact report launched in October demonstrates how these go hand in hand. It shows how acting with purpose to further our positive impact drives more successful business outcomes. We are now the only U.S. publicly traded company out of approximately 4,100 with a board of directors at 78% women and 44% diverse. With our Change the Board Game initiative, we aim to champion diversifying boardroom representation with a goal to double the annual growth rate of women and diverse candidates added to corporate boards. Our second area of advantage is our value proposition. Our mission is to make the best of beauty accessible to every eye, lip, and face. 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. Switching to just four of e.l.f.' 's holy grails from prestige brands can save consumers over $120. Importantly, with e.l.f., our consumers don't have to compromise. We continue to hear from consumers that we deliver quality that's 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 Q2. We complement our accessible price points with a retail distribution strategy to offer ELF wherever consumers shop for beauty. To that end, we're pleased to announce we'll be expanding ELF to a subset of Dollar General stores in November. Dollar General has a stated strategy of serving the underserved, with 80% of its stores serving markets of 20,000 people or less. With this launch, we hold true to our mission to democratize access for consumers who otherwise wouldn't have the best of beauty, particularly in rural areas which have traditionally been served by only the major legacy brands. Our third area of advantage is our powerhouse innovation. We have a unique ability to deliver a steady stream of holy grails, taking inspiration from our community and the best products in prestige, adding our elf twist and bringing them to market at an extraordinary value. Our holy grail innovation approach has built category leadership over time. 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. Our innovation is working and driving further share gains in some of the largest and leading segments. In face makeup, for example, our largest segment, we now hold 22% share, maintaining our number one rank and gaining 180 basis points of share in Q2. Our innovation is also driving share gains in some of the industry's top segments where we under-index in share. Our focused innovation drove 700 basis points of share gains in LIP and 170 basis points of share gains in I. Today, we have a 10% share and number four ranking in LIP and an 8% share and number four ranking in I. We have significant white space in these large segments and the innovation engine to conquest them. Our fourth area of advantage is our disruptive marketing engine. We believe our marketing engine is best in class in creating culturally relevant output, finding unique ways to entertain and engage our community through disruptive brand partnerships, sports, music, and movies. Skincare continues to be a key white space area for us. Studies show that Gen Z uses more skincare than any other generation. 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. In Q2, we launched our biggest elf skin awareness campaign to date, Divine Skintervention. Fueled by insights, we transformed our community's real-life skin care confessions into a 360-degree campaign across social media, television, and out of home.

You're so tired. Sorry I'm here. I should have asked. Who are you? Uh, I'm this influencer, girly. The splotch queen. The duchess of dirt. The princess of dryness. I'm the one that tempts you to commit skin sins like washing with whatever. Yes, that's it, you dirty guy that likes the dirty soap.