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spk04: Good day, everyone. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Revlon Third Quarter 2020 Earnings Conference Call. All participant lines have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press the star and 1 on your telephone keypad. If you should need operator assistance, please press the star and 0. Thank you. And I will now turn the call over to Carrie Robinson, Executive Vice President and General Counsel. Please go ahead.
spk03: Thank you, Operator. Good afternoon, everyone, and thank you for joining the call. Earlier today, the company released its financial results for the quarter ended September 30, 2020. If you have not already received a copy of the earnings release, a copy can be obtained on the company's website at RevlonInc.com. On the call this afternoon are Debbie Pearlman, our President and Chief Executive Officer, Sergio Pedrero, our Chief Operating Officer, and Victoria Dolan, our Chief Financial Officer. The discussion today might include forward-looking statements that are based on current expectations and are provided pursuant to the Private Security Litigation Reform Act of 1995. Information on factors that could affect actual results and cause them to differ materially from such forward-looking statements is set forth in the company's SEC filings, including its Q3 2020 Form 10-Q. The company undertakes no obligation to publicly update any forward-looking statements except for the company's obligations under the U.S. federal securities laws. Remarks today will include a discussion of certain GAAP and non-GAAP results. Consistent with past reporting practices, non-GAAP results exclude certain non-operating items that are not directly attributable to the company's underlying operating performance. These adjusted measures are defined in the earnings release and are also reconciled in the financial tables at the end of the release. Please also note that certain amounts provided throughout this call have been rounded. The call today should not be copied or recorded. And with that, we will turn the call over to Debbie.
spk00: Thank you, Carrie. Good afternoon, everyone, and thank you for joining us. As the coronavirus remains a serious health concern in many places around the world, I hope everyone listening to today's call is staying safe and healthy. In the third quarter of 2020, our as reported net sales were $477 million, a decline of $120 million, or 20%, compared to the third quarter of 2019. We estimate that COVID-19 contributed approximately $119 million to the net sales decline, with all segments and regions negatively impacted. Therefore, excluding this COVID-19 impact, our third quarter 2020 net sales were essentially flat compared to third quarter 2019. Our adjusted EBITDA on the third quarter of 2020 was $55 million, a decline of $14 million versus prior year period. This decline of approximately 20% is in line with our net sales decline, and our adjusted EBITDA margin has remained steady at approximately 11.4%. While COVID-19 continues to have a significant impact on both the broader beauty industry and on our business, I am pleased that our profitability remains steady and that our third quarter 2020 net sales decline of 20% reflects a sequential improvement in our top line as compared to the second quarter 2020 net sales decline that was just short of 40%. Victoria will provide additional details as she reviews our third quarter financial performance. In the third quarter, the company continued to adapt strategies and tactics to align with our consumers' changing behaviors resulting from COVID-19. Most notable is the continued shift to e-commerce. As mentioned in previous earnings calls, e-commerce has been a key strategic pillar for the company, and we continue to see the dramatic acceleration of this channel. Building on our momentum from the second quarter, we continue to invest behind our e-commerce business, resulting in a 13% growth globally during the third quarter. This growth is slightly lower than we have seen in previous quarters due to one-time events in the Asia mass channel in third quarter 2019, including the e-commerce launch of Revlon Color Cosmetics into China. Excluding our mass brands in Asia, our total e-commerce net sales would have grown just under 40% relative to the prior year quarter. Our e-commerce channel now represents approximately 12% of our total net sales. an increase from approximately 9% in the third quarter of 2019. Year-to-date 2020, e-commerce represents approximately 14% of our net sales, already exceeding our expectations for the year. In the third quarter, e-commerce grew across our own sites, our PurePlay partners, as well as our retail.com accounts. Our North America region continues to show strength with triple-digit growth in the third quarter versus prior year. Our ElizabethArden.com site continues to perform well, with growth in this third quarter of approximately 60%, driven by continued strength of our skin care and especially our hyaluronic acid capsules, the latest launch in our Ceramide franchise. Our other key e-commerce regions continue to grow double digits, including in EMEA and in Asia with our prestige brands. Additionally, we continue to see consumers shifting towards personal care brands and products. We are well positioned to capture the shift in behavior given the breadth of our brand and product portfolio. We saw strong growth in our key personal care brands during the third quarter. Notably, our multicultural brands led by Cream of Nature grew strong double digits, and we also experienced growth in our Revlon Beauty Tools, Q-Tex, and Mitchum brands. Revlon also continues to maximize our hand cleansing and sanitizing products across our Q-Tex, and Revlon professional brands. Additionally, in the third quarter, we expanded our hygienics brand in EMEA to launch Hygienderma, a collection of hand and body washes that offers moisturizing and care benefits, as well as protection from bacteria, which is especially relevant today. I know many of you have been closely following the Senior Notes debt exchange offer and have likely seen the news that we intend to successfully close this exchange tomorrow. I am very pleased with this outcome, which provides us with the additional runway needed to enter 2021 fully focused on executing on our business plans and strategies. We will continue to invest in the brands and markets where we have scale to drive our e-commerce business, as well as continue to work to optimize our capital structure. Of course, the hard work is not over and there is still uncertainty ahead due to COVID-19, but I am confident that with the successful exchange offer essentially behind us, our strategic plan well underway, and our portfolio of iconic brands, there remains a bright future ahead for Revlon. And now I will turn it over to Victoria to walk you through the details of the third quarter 2020 results.
spk01: Thank you, Debbie, and good afternoon to everyone on the call. Let me first detail our third quarter 2020 results. Third quarter, as reported, net sales were $477 million compared to $597 million during the prior year period, a decline of 20%. As reported, net sales includes approximately $119 million of estimated negative impacts associated with the COVID-19 pandemic. Excluding the COVID-19 impacts, net sales were essentially flat to the prior year period. Third quarter operating loss was $10 million, compared to a $17 million of operating income during the prior year period. The operating loss was driven primarily by the lower net sales described previously and lower gross profit margin, driven in part by the adverse effects of the COVID-19 pandemic, including the negative impact from sales mix and higher manufacturing overhead absorption costs. These negative impacts were partially offset by $55 million in lower selling, general, and administrative expenses, driven in part by cost reductions associated with the company's restructuring programs and additional actions specifically implemented to mitigate the adverse impact of COVID-19 on the company's operating results. Third quarter, as reported, net loss of $45 million was essentially unchanged versus prior year period. driven by a $31 million gain on the early extinguishment of the 5.75% senior notes as a result of the company's repurchase and cancellation of approximately $44 million in principal face amount of the 5.75% senior notes during the quarter, as well as a $17 million favorable foreign currency impact versus the prior year period. These impacts were offset by the higher operating loss in the quarter, and a $19 million higher interest expense. Finally, adjusted EBITDA was $55 million in the third quarter of 2020, compared to $68 million during the prior year period, driven primarily by lower net sales and lower adjusted growth profit margin attributed to the COVID-19 pandemic and product mix, partially offset by lower SG&A expenses. Next, I would like to turn to our segment results. Revlon segment net sales in the third quarter of 2020 were $166 million, representing a 24% decrease on a constant currency basis. The segment's lower net sales were driven primarily by Revlon color cosmetics, as well as lower international net sales of Revlon-branded professional products, due primarily to the ongoing effects of the COVID-19 pandemic on the mass retail channel and on salon activity. This decrease was partially offset by higher net sales of Revlon branded beauty tools and hair color products in North America. Revlon segment profit increased to $14 million from $7 million in the prior year period, driven primarily by the segment's lower brand support, partially offset by lower net sales and lower gross profit margin. Elizabeth Arden net sales were $106 million in the third quarter, representing a 15% decrease on a constant currency basis. The decline was mainly driven by certain Elizabeth Arden-branded skincare and fragrances products due in part to the continuing effects of COVID-19 driving lower foot traffic at department stores and travel retail outlets. Partially offset by higher net sales of ceramide skincare products in North America, as well as growth in the e-commerce channel. Elizabeth Arden's segment profit was $3 million compared to $13 million in the prior year period, primarily due to the segment's lower net sales and lower gross profit margin, partially offset by lower brand support. Net sales for our portfolio segment were $100 million in the third quarter of 2020, a decrease of 16% on a constant currency basis, driven primarily by lower net sales of Almay Color Cosmetics, D&D nail products, and American Cruise men grooming products, primarily in North America, due in part to the continuing effects of COVID-19 on the mass retail channel and salons, partially offset by higher net sales of cream of nature hair care products and Mitchum antiperspirant deodorants, primarily in North America. Portfolio segment profit was $12 million, a decrease of $2 million versus the prior year period, driven by the segment's lower net sales and lower gross profit margin, partially offset by lower SG&A and brand support expenses. Finally, our fragrances segment net sales were $105 million in the third quarter of 2020, representing a 24% decrease on a constant currency basis. The segment's lower net sales were driven primarily by the continuing impacts from COVID-19, especially in the prestige channel, resulting in decreased foot traffic. Fragrance's segment profit in the third quarter of 2020 was $25 million, a $9 million decrease compared to the prior year period, driven by the segment's lower net sales and lower gross profit margin partially offset by lower SG&A and brand support expenses. Turning to liquidity, net cash used in operating activities during the first nine months of 2020 was $257 million compared to $167 million used in the prior year period. The increase in cash usage was driven primarily by the COVID-19 related lower net sales as well as cash expenses associated with our 2020 restructuring program. Free cash flows used in the first nine months of 2020 was $264 million compared to $187 million used in the prior year period. The increase in free cash flow usage was driven by the higher operating cash flow usage due to the COVID-19 related impacts on the business, partially offset by lower capital expenditures. During the first three quarters of 2020, we spent $7 million in capital expenditures and $17 million on permanent displays. Additionally, we have two trances of our capital structure that mature next year, namely the our 2018 foreign asset-backed term loan maturing in July 2021, and our 2016 U.S. revolving credit facility maturing in September 21. We have already initiated discussions to refinance these facilities, and we are confident that we will complete these refinancings well in advance of their respective maturities. Turning now to our 5.75% senior notes exchange offer. Upon the expiration of the exchange offer, approximately $236 million aggregate principal amount of 5.75% senior notes or approximately 68.8% of the principal amount outstanding have been validly tendered into the exchange offer and not withdrawn. All conditions precedent to the consummation of the exchange offer have been satisfied, including the minimum liquidity requirement of $175 million. and settlement is expected to occur tomorrow, November 13th. I'll now hand the call over to Debbie for closing comments.
spk00: Thank you, Victoria. In closing, in the third quarter, we continue to navigate the uncertainties of the current COVID-19 environment. We remain focused on executing on our business strategies, including our e-commerce acceleration, as well as progress against our 2020 restructuring program objectives. With that, we will now open the call up for questions.
spk04: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing the pound key. We remind you to please unmute your line when introduced, and if possible, pick up the handset for optimal sound quality. Once again, to ask a question, please press the star and 1 keys on your telephone keypad. And we will pause for a moment to allow questions to queue. Once again, it is star and one to ask a question today. And we'll take our first question from with JP Morgan. Please go ahead. Your line is open.
spk02: Hi. I just want to be sure that I understand the exchange transaction. Can you give us what the cash
spk01: impact will be of the exchange and does this mean that the 2021 notes that were not tendered will be paid down at par hey Carla this is Victoria thank you thank you very much yes all of the remaining notes will be will be redeemed and we will pay them at at par so we've looked at the at the total value of what that exchange consideration is and it's approximately including all fees because we have fees that we've paid as well including fees it's about a hundred and somewhere around 185 to 190 million dollars but that does include fees okay great and then when you look at the business um coming kind of in and out and topping this around covid um has the number of retail doors that you're selling through changed dramatically um
spk02: I guess for any of the businesses, even the Revlon or the Elizabeth Arden Domestic International, if you could just talk about your customer doors, any that have closed permanently, that'd be helpful.
spk00: Hi, Carla. It's Debbie Pearlman. Thank you for the question. I hope that you are doing well. So, you know, as you said, you know, COVID-19 has had a significant impact on our business. We mentioned that the impact in the quarter was about $119 million across all segments in all regions. We did see that, you know, with, frankly, the closing, the shutdown of markets and the shutdown of travel retail that did have a big impact on our international markets in the third quarter, frankly, as well as lower foot traffic in prestige doors and in mass doors, frankly, globally. Where we saw less of an impact and, frankly, growth is in the e-commerce channel. But to your question with regards to store closures, what we're really seeing are these temporary shutdowns across all of the segments, so Prestige, Pro, and Mass, with, depending on the market, some reopening faster than others, and then others, frankly, have reopened, like Pro, the professional salons, and then in some areas are shutting down again. So it's really sort of been, you know, watching markets and segments and managing through the openings and closings. With regards to permanent closings, I would say at this point it hasn't had a major impact on our business. Thank you.
spk02: Great. Thank you.
spk04: And there are no further questions on the line at this time. I'll turn the program back to Debbie Pearlman for closing remarks.
spk00: Thank you. Seeing no additional questions, let me say thank you to all who joined the call today and a special note to our team members around the Revlon world who are listening. I truly appreciate all of your significant efforts, especially during the third quarter as the company dealt with the continued impacts of COVID on the business and successfully addressed its near-term debt maturity. Thank you for all the efforts that you make every single day, and stay safe. Thank you.
spk04: This does conclude today's Revlon Third Quarter 2020 Earnings Call. Please disconnect your line at this time and have a wonderful day.
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