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What changed in e.l.f. Beauty, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of e.l.f. Beauty, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+355 added−334 removedSource: 10-K (2023-05-25) vs 10-K (2022-05-26)

Top changes in e.l.f. Beauty, Inc.'s 2023 10-K

355 paragraphs added · 334 removed · 271 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

62 edited+22 added−7 removed34 unchanged
Biggest changeIn May 2021, Keys Soulcare launched three product offerings in the body care category, adding to the brand's dermatologist-developed, clean and cruelty free skincare offerings. 3 • Collaborations & Collections . We utilize collaborations and collections to build brand awareness and showcase our brands’ abilities to connect with, surprise and delight consumers while creating buzz-generating moments.
Biggest changeWe utilize collaborations and collections to build brand awareness and showcase our brands’ abilities to connect with, surprise and delight consumers while creating buzz-generating moments. For example, in March 2023, we launched a collaboration with American Eagle called "e.l.f. x American Eagle" which featured a collection of denim-inspired makeup and skincare products.
We build brand equity and drive traffic to our national retailer partners and to our own e-commerce websites and mobile applications primarily through digital and social media, as compared to legacy beauty brands that often seek to engage consumers through traditional media such as magazines, newspapers and television.
We build brand equity and drive traffic to our national retailer partners and to our own e-commerce websites and mobile applications primarily through digital and social media, as compared to legacy beauty brands that often seek to engage consumers primarily through traditional media such as magazines, newspapers and television.
The higher net sales in our third and fourth fiscal quarters are largely attributable to the increased levels of purchasing by retailers for the holiday season and customer shelf reset activity, respectively. Lower holiday purchases or shifts in customer shelf reset activity could have a disproportionate effect on our results of operations for the entire fiscal year.
The higher net sales in our third and fourth fiscal quarters are largely attributable to the increased levels of purchasing by retailers for the holiday season and customer shelf reset activity, respectively. Lower holiday season purchases or shifts in customer shelf reset activity could have a disproportionate effect on our results of operations for the entire fiscal year.
However, FDA’s draft guidance on cosmetic GMPs, most recently updated in June 2013, provides recommendations related to process documentation, recordkeeping, building and facility design, equipment maintenance and personnel, and compliance with these recommendations can reduce the risk that FDA finds such products have been rendered adulterated or misbranded in violation of applicable law.
However, the FDA’s draft guidance on cosmetic GMPs, most recently updated in June 2013, provides recommendations related to process documentation, recordkeeping, building and facility design, equipment maintenance and personnel, and compliance with these recommendations can reduce the risk that FDA finds such products have been rendered adulterated or misbranded in violation of applicable law.
The overarching requirement is that a cosmetic product made available on the E.U. market must be safe for human health when used under normal or reasonably foreseeable conditions of use, taking account, in particular, of the following: (a) presentation including conformity with Directive 87/357/EEC regarding health and safety of consumers; (b) labelling; (c) instructions for use and disposal; (d) any other indication or information provided by the responsible person.
The overarching requirement is that a cosmetic product made available on the E.U. market must be safe for human health when used under normal or reasonably foreseeable conditions of use, taking account, in particular, of the following: (a) presentation including conformity with Directive 87/357/EEC regarding health and safety of consumers; (b) labelling; (c) instructions for use and disposal; and (d) any other indication or information provided by the responsible person.
FDA also recommends that manufacturers maintain product complaint and recall files and voluntarily report adverse events to the agency. The FDA monitors compliance of cosmetic products through market surveillance and inspection of cosmetic manufacturers and distributors to ensure that the products are not manufactured under unsanitary conditions, or labeled in a false or misleading manner.
The FDA also recommends that manufacturers maintain product complaint and recall files and voluntarily report adverse events to the FDA. The FDA monitors compliance of cosmetic products through market surveillance and inspection of cosmetic manufacturers and distributors to ensure that the products are not manufactured under unsanitary conditions, or labeled in a false or misleading manner.
Moreover, cosmetics may not be marketed or labeled for their use in treating, preventing, mitigating, or curing disease or other conditions or in affecting the structure or function of the body, as such claims would render the products to be a drug and subject to regulation as a drug.
Moreover, cosmetics may not be marketed or labeled for their use in treating, preventing, mitigating, or curing disease or other conditions or in affecting the structure or function of the body, as such claims would render the products to be a drug and subject to regulation as a 8 drug.
We rely on expert consultants for our E.U. product registrations and review of our labelling for compliance with E.U. regulation. The E.U. Cosmetics Regulation requires the manufacture of cosmetic products to comply with GMPs, which is presumed where the manufacture is in accordance with the relevant harmonized standards.
We rely on expert consultants for our E.U. product registrations and review of our labelling for compliance with E.U. regulation. 9 The E.U. Cosmetics Regulation requires the manufacture of cosmetic products to comply with GMPs, which is presumed where the manufacture is in accordance with the relevant harmonized standards.
Additionally, we regularly host education events for our employees to lean into cultural moments, such as Black History Month; International Women’s Month; Asian American and Pacific Islander (AAPI) Heritage Month; Lesbian, Gay, Bisexual, Transgender and Queer (LGBTQ) Pride Month; and LatinX Heritage Month.
We regularly host education events for our employees to lean into cultural moments, such as Black History Month; International Women’s Month; Asian American and Pacific Islander (AAPI) Heritage Month; Lesbian, Gay, Bisexual, Transgender and Queer (LGBTQ) Pride Month; and LatinX Heritage Month.
What constitutes a reasonable basis can vary depending on the strength or type of claim made, or the market in which the claim is made, but objective evidence substantiating the claim is generally required. 8 In the E.U., the sale of cosmetic products is regulated under the E.U.
What constitutes a reasonable basis can vary depending on the strength or type of claim made, or the market in which the claim is made, but objective evidence substantiating the claim is generally required. In the E.U., the sale of cosmetic products is regulated under the E.U.
No other individual customer accounted for 10% or more of our net sales in the year ended March 31, 2022. We expect that Walmart, Target and Ulta Beauty along with small number of other customers will, in the aggregate, continue to account for a large portion of our net sales in the future.
No other individual customer accounted for 10% or more of our net sales in the year ended March 31, 2023. We expect that Target, Walmart and Ulta Beauty along with small number of other customers will, in the aggregate, continue to account for a large portion of our net sales in the future.
“Exhibits, financial statement schedules” under the heading “Segment reporting.” For information regarding the risks related to our non-U.S. operations, see Part I, Item 1A “Risk factors.” Corporate Information e.l.f. Beauty was formed as a Delaware corporation on December 20, 2013 under the name J.A. Cosmetics Holdings, Inc. and we changed our name to e.l.f. Beauty, Inc. in April 2016.
“Exhibits, financial statement schedules” under the heading “Segment reporting.” For information regarding the risks related to our non-US operations, see Part I, Item 1A “Risk factors.” Corporate Information e.l.f. Beauty was formed as a Delaware corporation on December 20, 2013 under the name J.A. Cosmetics Holdings, Inc. and we changed our name to e.l.f. Beauty, Inc. in April 2016.
In the Unites States, the Federal Food, Drug and Cosmetic Act (“FDCA”), defines cosmetics as articles or components of articles intended for application to the human body to cleanse, beautify, promote attractiveness, or alter the appearance, with the exception of soap.
In the United States, the Federal Food, Drug and Cosmetic Act (the “FDCA”), defines cosmetics as articles or components of articles intended for application to the human body to cleanse, beautify, promote attractiveness, or alter the appearance, with the exception of soap.
Our Brands Our family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare. Our brands are available online and across leading beauty, mass-market and clean-beauty specialty retailers. We have strong relationships with our retail partners such as Walmart, Target, Ulta Beauty and other leading retailers that have enabled us to expand distribution both domestically and internationally.
Our Brands Our family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare. Our brands are available online and across leading beauty, mass-market and specialty retailers. We have strong relationships with our retail customers such as Target, Walmart, Ulta Beauty and other leading retailers that have enabled us to expand distribution both domestically and internationally.
(2) Includes our employees in the United States, United Kingdom and Canada, where over 70% of our workforce is located. We believe that to drive change there must be continuous education, learning and sharing.
(2) Includes our employees in the United States, United Kingdom and Canada, where over 75% of our workforce is located. We believe that to drive change there must be continuous education, learning and sharing.
We have invested capital in picking, packaging, scanning, and conveying technology to more fully automate our processes. Our Ontario and Columbus distribution centers are both operated by a leading third-party logistics provider. For our international operations, we utilize third-party logistics providers in Canada and the United Kingdom to distribute to certain international customers and distributors.
We have invested capital in picking, packaging, scanning, and conveying technology to more fully automate our processes. Our Ontario and Columbus distribution centers are both operated by a leading third-party logistics provider. For our international operations, we utilize third-party logistics providers in Canada and the UK to distribute to certain international customers and distributors.
The beauty industry is relatively concentrated, with a significant portion of retail sales in the United States generated by brands owned by a few large multinational companies, such as L’Oreal, Estee Lauder, Coty, Revlon, Shiseido, Johnson & Johnson, and Procter & Gamble. These large multinational companies typically own multiple brands.
The beauty industry is relatively concentrated, with a significant portion of retail sales in the United States generated by brands owned by a few large multinational companies, such as L’Oréal, Estee Lauder, Coty, Revlon, Shiseido, Johnson & Johnson and Procter & Gamble. These large multinational companies typically own multiple brands.
Inspections also may arise from consumer or competitor complaints filed with the FDA. In the event the FDA identifies unsanitary conditions, false or misleading labeling, or any other violation of FDA regulation, FDA may request or a manufacturer may independently d ecide to conduct a recall or market withdrawal of products.
Inspections also may arise from consumer or competitor complaints filed with the FDA. In the event the FDA identifies unsanitary conditions, false or misleading labeling, or any other violation of FDA regulation, FDA may request or a manufacturer may independently decide to conduct a recall or market withdrawal of products.
Each of our brands is certified by People for the Ethical Treatment of Animals (PETA) as “Global Animal Test-Free”, a credential given to companies and brands who have verified that their own facilities and their suppliers do not conduct, commission, pay for, or allow any tests on animals for their ingredients, formulations, or finished products.
Each of our brands is certified by People for the Ethical Treatment of Animals (PETA) as “Global Animal Test-Free,” a credential given to companies and brands who have verified that their own facilities and their suppliers do not conduct, commission, pay for, or allow any tests on animals for their ingredients or finished products.
In the United States, where over 70% of our workforce is located, the benefits for our full-time employees include, among other things: • Financial benefits, including competitive compensation as well as retirement savings plans and commuter benefits; • Healthcare benefits including flexible spending accounts, disability and life insurance; • Family support and flexibility benefits including up to 20 weeks of parental leave for the birth or adoption of a child as well as the placement of a foster child, as well as fertility and adoption support; • Wellness and time off programs including an employee assistance program, access to wellness coaches and paid time off; • Community impact programs including volunteer time off and donation matching programs; • Education and career development programs including tuition reimbursement, high performance teamwork coaching, as well as ongoing learning and training opportunities; and 6 • Other benefits, such as “Pawternity Leave” for the adoption of a shelter animal.
In the United States, where over 70% of our workforce is located, the benefits for our full-time employees include, among other things: • Financial benefits, including competitive compensation as well as retirement savings plans and commuter benefits; • Healthcare benefits including flexible spending accounts, disability and life insurance - all of which begin on day 1 of employment; • Family support and flexibility benefits including up to 20 weeks of parental leave for the birth or adoption of a child or the placement of a foster child, as well as fertility and adoption support; • Wellness and time off programs including an employee assistance program, access to wellness coaches and flexible time off; • Community impact programs including employee donation matching programs and paid time off for volunteering; 6 • Education and career development programs including tuition reimbursement, high performance teamwork coaching, as well as ongoing learning and training opportunities; and • Other benefits, such as “Pawternity Leave” for the adoption of a shelter animal.
We are proud of our workforce demographics and are committed to ensuring that appropriate levels of diversity – including but not limited to gender, race, sexual orientation, national origin, ability, and age – are represented across our entire team.
We are committed to ensuring that appropriate levels of diversity – including but not limited to gender, race, sexual orientation, national origin, ability and age – are represented across our entire team.
Additionally, Well People's product-line includes 40 EWG VERIFIED™ products, a leading standard of “clean and healthy” in the beauty space. Marketing & Digital We deploy a consumer-centric marketing model.
Additionally, Well People's product-line includes over 100 EWG VERIFIED™ products, a leading standard of “clean and healthy” in the beauty space. Marketing & Digital We deploy a consumer-centric marketing model.
We are not overly dependent on any single raw material. The raw materials used in our products are broadly available and have regular quality testing for ingredient integrity. We operate two main distribution centers: one in Ontario, California, which mainly serves our national retail customers, and one in Columbus, Ohio, which mainly services our e-commerce consumers.
The raw materials used in our products are broadly available and have regular quality testing for ingredient integrity. We operate two main distribution centers: one in Ontario, California, which mainly serves our national retail customers, and one in Columbus, Ohio, which mainly services our e-commerce consumers.
Customers Along with our direct e-commerce channels, we have strong relationships with our retail partners such as Walmart, Target, Ulta Beauty and other leading retailers that have enabled us to expand distribution both domestically and internationally. Walmart, Target and Ulta Beauty accounted for 26%, 23% and 12%, respectively, of our net sales in the year ended March 31, 2022.
Customers Along with our direct e-commerce channels, we have strong relationships with our retail customers such as Target, Walmart, Ulta Beauty and other leading retailers that have enabled us to expand distribution both domestically and internationally. Target, Walmart and Ulta Beauty accounted for 25%, 20% and 15%, respectively, of our net sales in the year ended March 31, 2023.
Item 1. Business. Overview e.l.f. Beauty, Inc. (“e.l.f. Beauty” and together with our subsidiaries, the “Company,” or “we”) is a multi-brand beauty company that offers inclusive, accessible, clean and cruelty-free cosmetics and skincare products. • WHO WE ARE . We are bold disruptors with a kind heart.
Item 1. Business. Overview e.l.f. Beauty, Inc. (“e.l.f. Beauty” and together with our subsidiaries, the “Company,” or “we”) is a multi-brand beauty company that offers inclusive, accessible, clean, vegan and cruelty-free cosmetics and skincare products. • OUR VISION .
In addition to the traditional brands against which we compete, small independent companies continue to enter the market with new brands and customized product offerings. Distribution We employ an o mni-channel distribution strategy and sell our products online through our own direct e-commerce channels, and with national retailers in the United States, as well as internationally.
In addition to the traditional brands against which we compete, small independent companies continue to enter the market with new brands and customized product offerings. Distribution We employ an omni-channel distribution strategy and sell our products with national retailers in the United States, as well as internationally.
Total expenses for marketing and digital in the year ended March 31, 2022 were $63.2 million, approximately 16% of our net sales. Our consumers have been our best advocates through strong word of mouth.
Total expenses for marketing and digital in the year ended March 31, 2023 were $126.0 million, approximately 22% of our net sales. Our consumers have been our best advocates through strong word of mouth.
Employees and Human Capital Management We are led by our purpose—we stand with every eye, lip, face and paw—and our employees are at the core of our business strategy. As of March 31, 2022, we had 303 full-time employees (224 in the United States, United Kingdom and Canada, and 79 in China).
Employees and Human Capital Management We are led by our purpose—we stand with every eye, lip, face and paw—and our employees are at the core of our business strategy. As of March 31, 2023, we had 339 full-time employees (257 in the United States, the UK and Canada, and 82 in China).
Each of our brands is certified by People for the Ethical Treatment of Animals (PETA) as “Global Animal Test-Free”, a credential given to companies and brands who have verified that their own facilities and their suppliers do not conduct, commission, pay for, or allow any tests on animals for their ingredients, formulations, or finished products. e.l.f.
We are double certified as "cruelty-free" across our brands. 7 Each of our brands is certified by People for the Ethical Treatment of Animals ("PETA") as “Global Animal Test-Free,” a credential given to companies and brands who have verified that their own facilities and their suppliers do not conduct, commission, pay for, or allow any tests on animals for their ingredients or finished products.
The following table provides certain statistics of our team as of April 2022: 5 Board of Directors Senior Leadership (1) All Employees (2) Gender Female 56% 43% 81% Male 44% 57% 19% Age Gen Z and Millennial —% —% 65% All Other 100% 100% 35% Race / Ethnicity Black or African American 22% 14% 6% Hispanic or LatinX —% —% 13% Asian 11% 29% 18% Native American —% —% —% Two or More Races —% —% 6% White 67% 57% 57% (1) Senior Leadership includes our Executive Officers and the Vice President, General Manager of our China operations.
The following table provides certain statistics of our team as of March 2023: 5 Board of Directors Senior Leadership (1) All Employees (2) Gender Female 67% 56% 79% Male 33% 44% 21% Age Gen Z and Millennial —% —% 71% All Other 100% 100% 29% Race / Ethnicity Black or African American 11% 14% 4% Hispanic or LatinX —% —% 15% Asian 22% 29% 18% Native American —% —% —% Two or More Races —% —% 5% White 67% 57% 58% (1) Senior Leadership includes our Executive Officers and the Vice President, General Manager of our China operations.
Substantially all of our products are sourced and manufactured in China through close collaboration with a network of third-party manufacturers. We have ample manufacturing capacity as well as redundant capabilities in the event that one or more suppliers cannot meet our needs.
Substantially all of our products are sourced and manufactured in China through close collaboration with a network of third-party manufacturers. We have ample manufacturing capacity as well as redundant capabilities in the event that one or more suppliers cannot meet our needs. Our broad supply base gives us the ability to fulfill our product requirements and remain cost competitive.
Our telephone number is (510) 778-7787 and our investor relations website can be found at www.elfbeauty.com. e.l.f Beauty operates through its principal 9 subsidiaries, e.l.f. Cosmetics, Inc., which conducts business under the name "e.l.f. Cosmetics" or "e.l.f.", "Keys Soulcare", and Well People, Inc., which conducts business under the name “Well People”.
Our telephone number is (510) 778-7787 and our investor relations website can be found at www.elfbeauty.com. e.l.f Beauty operates through its principal subsidiaries, e.l.f. Cosmetics, Inc., which conducts business under the names "e.l.f. Cosmetics” or "e.l.f.,” “e.l.f.
In the U.S., the FDA has not promulgated regulations establishing Good Manufacturing Practices (“GMPs”) for cosmetics.
In the United States, the FDA has not promulgated regulations establishing mandatory Good Manufacturing Practices (“GMPs”) for cosmetics.
For more information regarding customer concentration, see Part II, Item 7 “Management’s discussion and analysis of financial condition and results of operations” of this report under the heading “Overview.” Supply Chain We have developed a scalable, asset-light supply chain centered on speed to market and high-quality at low cost.
As is customary in the industry, none of our customers is under any obligation to continue purchasing products from us in the future. 4 For more information regarding customer concentration, see Part II, Item 7 “Management’s discussion and analysis of financial condition and results of operations” of this report under the heading “Overview.” Supply Chain We have developed a scalable, asset-light supply chain centered on speed to market and high-quality at low cost.
We promote diversity, equity and inclusion at all levels of our workforce, and our senior leadership team owns and is responsible for our diversity, equity and inclusion initiatives and programs. We are committed to increasing the representation of women and minorities in our workforce.
We promote diversity, equity and inclusion at all levels of our workforce, and our senior leadership team owns and is responsible for our diversity, equity and inclusion initiatives and programs.
We believe our ability to deliver 100% cruelty-free, clean, premium-quality products at accessible prices with broad appeal differentiates us in the beauty industry. We believe the combination of our innovation engine, core value proposition, digitally-led strategy, as well as our world-class team’s ability to execute with speed has positioned us well to navigate a rapidly changing landscape in beauty.
We believe our ability to deliver cruelty-free, clean, vegan and premium-quality products at accessible prices with broad appeal differentiates us in the beauty industry. We believe the combination of our value proposition, innovation engine, ability to attract and engage consumers, and our world-class team’s ability to execute with speed, has positioned us well to navigate the competitive beauty market.
Each of our brands is positioned to touch diverse consumer cohorts at different price points. Each brand has accessible pricing relative to its competitive set and furthers our mission of leading with positivity, inclusivity and accessibility. e.l.f. Cosmetics Since 2004, e.l.f.
Each of our brands is positioned to touch diverse consumer cohorts at different price points. Each brand has accessible pricing relative to its competitive set and furthers our mission of making the best of beauty accessible to every eye, lip, face and skin concern. 2 e.l.f. Cosmetics Since 2004, e.l.f.
We do not conduct or tolerate any tests on animals, nor do we use any ingredients that are tested on animals in any of our products.
Our Furry Friends We are proud to be a 100% cruelty-free company. We do not conduct or tolerate any tests on animals, nor do we use any ingredients that are tested on animals in any of our products.
Our trademarks are valuable assets that reinforce the distinctiveness of our brands and our consumers’ perception of our products. In addition to trademark protection, we own U.S. Design Patents covering packaging, make-up tools and brush handle shapes and we own numerous domain names, including the domain names of our e-commerce websites.
In addition to trademark protection, we own US Design Patents covering packaging, make-up tools and brush handle shapes and we own numerous domain names, including the domain names of our e-commerce websites.
Available Information We make available on or through our website certain reports and amendments to those reports that we file with, or furnish to, the SEC in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
SKIN,” and "Keys Soulcare," and Well People, Inc., which conducts business under the name “Well People.” Available Information We make available on or through our website, www.elfbeauty.com, certain reports and amendments to those reports that we file with, or furnish to, the SEC in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Trademarks and Other Intellectual Property We believe that our intellectual property has substantial value and has contributed significantly to the success of our business. Our primary trademarks include “e.l.f.,” “e.l.f. eyes lips face,” “Well People,” and “Keys Soulcare” all of which are registered or have registrations pending with the U.S.
Trademarks and Other Intellectual Property We believe that our intellectual property has substantial value and has contributed significantly to the success of our business. Our primary trademarks include “e.l.f.,” “e.l.f. eyes lips face,” “e.l.f.
With regards to compensation, we take a “one-team” approach. All full-time employees receive a base salary, are bonus eligible under the same bonus plan tied to our financial performance, and receive an equity award.
All full-time employees receive a base salary, are bonus eligible under the same bonus plan tied to our financial performance, and receive an equity award in e.l.f. Beauty stock.
In the year ended March 31, 2022, we celebrated a significant milestone on our sustainability journey – eliminating approximately one million pounds of packaging waste since the inception of "Project Unicorn". Project Unicorn was launched in 2019 to elevate e.l.f. Cosmetics’ product assortment, presentation, and navigation on-shelf, and resulted in a significant streamlining in our product packaging footprint.
Our packaging sustainability strategy is grounded in three principles: • Packaging footprint reduction. We are proud to have eliminated over one million pounds of packaging waste since the inception of "Project Unicorn". Project Unicorn was launched in 2019 to elevate e.l.f. Cosmetics’ product assortment, presentation, and navigation on-shelf, and resulted in a significant streamlining in our product packaging footprint.
Patent and Trademark Office for our goods and services of primary interest. These trademarks are also registered or have registrations pending in various foreign countries in which we operate. We also have other trademark registrations and pending trademark applications for product names and tag lines.
SKIN”, “Well People,” and “Keys Soulcare” all of which are registered or have registrations pending with the US Patent and Trademark Office for our goods and services of primary interest. These trademarks are also registered or have registrations pending in various foreign countries in which we operate.
As such, we treat all employees with respect, regardless of age, gender, ethnicity, religion, abilities or sexual orientation. We also expect our suppliers and partners to observe these principles when providing products and services to us. The Planet We are committed to minimizing our environmental impact while providing our consumers with premium-quality beauty products.
As such, we treat all employees with respect, regardless of age, gender, ethnicity, religion, abilities or sexual orientation. We also expect our suppliers and partners to observe these principles when providing products and services to us. We are proud to be the first company in the beauty industry to have a third-party manufacturing facility Fair Trade Certified™.
We consistently evaluate our core offerings to develop new products or improve quality based on category trends, consumer feedback, and other market intelligence. We launch trend-inspired, core expansion products that augment our assortment and deliver extraordinary value across price points. We also evaluate quality improvement opportunities within our product assortment, such as reformulating existing products with cleaner ingredients. • Adjacencies.
We launch trend-inspired, core expansion products that augment our assortment and deliver extraordinary value across price points. We also evaluate quality improvement opportunities within our product assortment, such as reformulating existing products with better ingredients. • Collaborations & Collections .
Many of our consumers are active in social media, write reviews of our products online and generate content on Instagram, Facebook, Twitter, TikTok, YouTube and other social media platforms. Innovation We believe innovation is key to our success and that we are a leader in the industry in speed and first to mass product introductions.
Many of our consumers are active in social media, write reviews of our products online and generate content on Instagram, Facebook, Twitter, TikTok, YouTube and other social media platforms.
We have built an innovation capability that can progress a new, high-quality product from concept to online launch in as few as 13 weeks and approximately 20 weeks on average. We leverage multiple sources of inspiration to develop our new product ideas, including global trend assessments, supplier and industry research, strategic customer input and consumer feedback and insights.
We have built an innovation capability that can progress a new, high-quality product from concept to online launch in as few as 13 weeks and approximately 20 weeks on average.
Color cosmetics and skincare products are broadly sold through food, drug and mass channels, as well as through department stores and direct and specialty channels.
Markets and Competition We operate across beauty categories including eye, lip and face makeup, beauty tools and accessories, and skincare products. Color cosmetics and skincare products are broadly sold through food, drug and mass channels, as well as through department stores and direct and specialty channels.
We also rely on and use commercially reasonable measures to protect our unpatented proprietary technology, which includes our expertise and product formulations, continuing innovation and other know-how to develop and maintain our competitive position. 7 Government Regulation We and our products are subject to various federal, state and international laws and regulations, including regulation in the United States by the FDA, the Consumer Product Safety Commission (the “CPSC”), the Federal Trade Commission (the “FTC”), and regulations outside of the United States by Health Canada and the European Commission, among others.
Government Regulation We and our products are subject to various federal, state and international laws and regulations, including regulation in the United States by the FDA, the Consumer Product Safety Commission (the "CPSC"), the Federal Trade Commission (the “FTC”), and regulations outside of the United States by Health Canada and the European Commission, among others.
The elimination of packaging waste was achieved by removing secondary cartons, vacuum formed trays and paper insert cards, slimming down secondary packaging, and designing a patented approach to display product on shelf. Our Furry Friends We are proud to be a 100% cruelty-free company.
The elimination of packaging waste was achieved by removing secondary cartons, vacuum formed trays and paper insert cards, slimming down secondary packaging, and designing a patented approach to display product on shelf. • Sustainably sourced packaging. Our initial focus is the use of Forest Stewardship Council ("FSC")-certified paper for our products that use paper cartons.
Our broad supply base gives us the ability to fulfill our product requirements and remain cost competitive. 4 We work closely with our suppliers on new product innovation and quality. Our China-based sourcing, quality and innovation teams work with their U.S.-based counterparts to deliver ongoing product quality, innovation and cost savings.
We work closely with our suppliers on new product innovation and quality. Our China-based sourcing, quality and innovation teams work with their US-based counterparts to deliver ongoing product quality, innovation and cost savings. We are not overly dependent on any single raw material.
Our main channels of distribution are described below. • National retailers . We sell our products in the United States primarily in the mass, drug store, food and specialty retail channels. • e -commerce . Our e-commerce platforms are an important component of our engagement and innovation model.
We sell our products in the United States primarily in the mass, drug store, food and specialty retail channels. • e-commerce. e-commerce is an important component of our engagement and innovation model. Our roots as an e-commerce company and our digital engagement model drive conversion on our e-commerce websites and our mobile applications, where we sell our full product offerings.
We’re disrupting traditional beauty boundaries while leading with empathy, intention and an innate desire to empower people. • OUR MISSION. We build brands that disrupt industry norms, shape culture and connect communities through positivity, inclusivity and accessibility. • OUR PURPOSE. We stand with every eye, lip, face and paw.
To be a different kind of beauty company by building brands that disrupt industry norms, shape culture and connect communities through positivity, inclusivity and accessibility. • OUR MISSION. We make the best of beauty accessible to every eye, lip, face and skin concern. • OUR PURPOSE. We stand with every eye, lip, face and paw.
We are proud to be one of only seven public companies in the U.S. with a Board of Directors that has over 55% women and over 20% Black or African American representation (out of over 4,800 public companies).
We are proud to be one of only four public companies in the United States with a Board of Directors that is at least two-thirds women and at least one-third diverse (out of over 4,200 public companies).
Cosmetics has made the best of beauty accessible to every eye, lip and face. e.l.f. makes high-quality, prestige-inspired cosmetics at an extraordinary value and is proud to be 100% vegan, clean and cruelty-free. e.l.f. SKIN Winning in skin the clean + kind way. Ingredient focused skincare for every eye, lip, face and skin type. e.l.f.
Cosmetics has made the best of beauty accessible to every eye, lip and face. We make clean, premium-quality, prestige-inspired cosmetics at an extraordinary value. We offer a range of products that are vegan and cruelty-free.
Our innovation strategy is underpinned by four key pillars: • Holy Grails . “Holy grails” are beauty products that deliver premium quality at unbelievable prices with broad appeal. As consumers are increasingly savvy and knowledgeable about trends in the prestige market, they look for ways to get the best of beauty at an accessible price.
As consumers are increasingly savvy and knowledgeable about trends in the prestige market, they look for ways to get the best of beauty at an accessible price. Examples of our “holy grails” include the e.l.f. Cosmetics Power Grip Primer at $10 versus a prestige item at $38, the e.l.f.
SKIN makes innovative formulas at an extraordinary value, always 100% vegan, clean and cruelty-free. Well People A clean beauty pioneer with 40 EWG VERIFIED™ products, Well People has raised the standard for high-performing, plant-powered and cruelty-free beauty and skincare since 2008.
Our ambition is to make clean skincare accessible to all with innovative, efficacious formulas at get-real prices. We offer a range of products that are vegan and cruelty-free. Well People Since 2008, Well People has raised the standard for plant-powered, high-performance beauty.
Encourage Self Expression: Promoting a Culture of Diversity, Equity, and Inclusion We are committed to diversity, equity and inclusion and believe it is important that our team reflects the diverse consumers we serve. Our commitment to diversity, equity and inclusion starts at the top with a highly skilled and diverse Board of Directors.
Encourage Self Expression: Promoting a Culture of Diversity, Equity and Inclusion We are deeply committed to diversity, equity and inclusion (DEI) as exemplified by the diversity of both our Board of Directors and our employee base.
With an inclusive point of view, Keys Soulcare brings a new meaning to beauty and honors rituals through its line of dermatologist-developed, clean and cruelty-free offerings. 2 100% cruelty-free: We do not conduct or tolerate any tests on animals, nor do we use any ingredients that are tested on animals in any of our products.
Renée Snyder, our highly-efficacious, premium-quality skincare formulas are also clean and cruelty-free. 100% cruelty-free: We do not conduct or tolerate any tests on animals, nor do we use any ingredients that are tested on animals in any of our products. We are proud to be double certified as "cruelty-free" across our brands.
Our roots as an e-commerce company and our digital engagement model drive conversion on our e-commerce websites and our mobile applications, where we sell our full product offerings. • International. Our products are also sold in a number of international markets, including the United Kingdom, Canada, Australia and Germany.
Our products are also available at other e-commerce sites, making our products widely accessible to our consumers. • International. Our products are also sold in a number of international markets, including the United Kingdom (the "UK") and Canada.
Cosmetics is also certified by PETA as “Global Animal Test-Free and Vegan”, which recognizes companies and brands that not only ban animal tests but also refuse to use any animal-derived ingredients, such as honey, beeswax, or carmine in products. Clean ingredients: Our products are formulated with ingredients that have the health and safety of our consumers in mind.
Clean ingredients: Our products are formulated with ingredients that have the health and safety of our consumers in mind.
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Founded on the principles of being derm-developed, super-clean, and planet minded, Well People is committed to inspiring wellness and mindful living. Keys Soulcare Created by Alicia Keys and inspired by her own skincare journey and love of ancient beauty rituals, Keys Soulcare goes beyond skincare to truly care for the whole self - body, mind, and spirit.
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As one of the first digital disruptors, e.l.f. continues to attract a highly engaged audience, leveraging social and digital platforms to connect with our community. e.l.f. SKIN Win in skin the clean + kind way with e.l.f. SKIN. We create targeted, ingredient-focused, dermatologist-developed formulas for every eye, lip, face and skin concern.
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Examples of our “holy grails” include the e.l.f. Cosmetics Poreless Putty Primer at $10 versus a comparable prestige primer at $52, the e.l.f. Cosmetics 16HR Camo Concealer at $7 versus a comparable prestige concealer at $30, and the Well People Expressionist Pro Mascara at $20 versus a comparable clean prestige mascara at $28. • Core Improvement .
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A clean beauty pioneer with approximately 100 EWG VERIFIED™ products, Well People was founded so that all people can be well people with dermatologist-developed, super-clean and planet minded products. Keys Soulcare Inspired by Alicia Keys' personal skincare and self-discovery journey, Keys Soulcare combines skin-nourishing offerings with soul-nurturing rituals to care for the whole self. Developed by board-certified dermatologist Dr.
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We believe that we can reapply our model to continue to launch products into adjacent product categories outside of cosmetics. For example, in October 2021, Well People launched its first product collection in the skincare category, featuring five products with dermatologist-developed formulas that support skin health and are infused with plant-powered ingredients.
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In addition, each of our brands is certified by the Leaping Bunny Program. Companies with this credential certify that no animal testing was conducted on materials or formulations at any stages of product development, in addition to recommitting to the program annually and being open to third-party audits.
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For example, in March 2022, e.l.f. Cosmetics launched a collaboration with Dunkin' on a limited edition makeup collection. We also utilize exclusive collections with our national retailers. For example, in January 2022, e.l.f.
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Innovation We believe innovation is key to our success and are proud to be named to Fast Company's list of "The World's Most Innovative Companies of 2023." We believe we are a leader in the beauty industry in speed and first-to-mass product introductions.
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Cosmetics launched a limited edition Cookies ‘N’ Dreams collection exclusively at Walmart in the United States, at Superdrug in the United Kingdom, and at Douglas in Italy and the Netherlands. Markets and Competition We operate across beauty categories including face makeup, eye makeup, lip products, nail products, cosmetics sets/kits, beauty tools and accessories, facial skincare, and eye skincare products.
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We leverage multiple sources of inspiration to develop our new product ideas, including global trend assessments, supplier and industry research, strategic customer input and consumer feedback and insights. 3 Our innovation strategy is underpinned by three key pillars: • Holy Grails . “Holy grails” are beauty products that deliver premium quality at unbelievable prices with broad appeal.
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As is customary in the industry, none of our customers is under any obligation to continue purchasing products from us in the future.
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Cosmetics Halo Glow Liquid Filter at $14 versus a prestige item at $49, and the e.l.f. SKIN Holy Hydration! Makeup Melting Cleansing Balm at $11 versus a prestige item at $38. • Core Improvement . We consistently evaluate our core offerings to develop new products or improve quality based on category trends, consumer feedback, and other market intelligence.
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We offer Unconscious Bias Training and a Behaviors of Inclusion Course to all of our employees, so that our employees learn the psychology of unconscious bias and its impact at work and practice behaviors of inclusion. We host open forums with our senior leadership to share and encourage uncomfortable conversations.
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We also sell our products online through our own direct e-commerce channels, as well as through other e-commerce websites. Our main channels of distribution are described below. • National retailers .
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We’re also proud that our employee base, which is over 75% women, over 40% diverse and over 70% millennial and Gen Z, is representative of the young, diverse communities we serve.
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Our continued investments in our people and culture have positioned us as an employer of choice both in the beauty industry and our local communities. In our fiscal year ended March 31, 2023 ("FY 2023"), we were recognized on Newsweek's list of "America's 100 Most Loved Workplaces for 2022." With regards to compensation, we take a “one-team” approach.
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A Fair Trade Certified™ seal on a product signifies that it was made according to rigorous fair trade standards that promote sustainable livelihoods and safe working conditions for factory employees, protection of the environment and transparent supply chains.
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Our first third-party manufacturing facility in China was Fair Trade Certified™ in August 2022, and we have achieved certification for three other facilities since then. We are also currently seeking certification for additional facilities.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRussia’s recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military action against Ukraine have led to an unprecedented expansion of sanction programs imposed by the United States, the European Union, the United Kingdom, Canada, Switzerland, Japan and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic and the so-called Luhansk People’s Republic, including, among others: • blocking sanctions against some of the largest state-owned and private Russian financial institutions (and their subsequent removal from the Society for Worldwide Interbank Financial Telecommunication SWIFT payment system) and certain Russian businesses, some of which have significant financial and trade ties to the European Union; • blocking sanctions against Russian and Belarusian individuals, including the Russian President, other politicians and those with government connections or involved in Russian military activities; and • blocking of Russia’s foreign currency reserves as well as expansion of sectoral sanctions and export and trade restrictions, limitations on investments and access to capital markets and bans on various Russian imports.
Biggest changeRussia’s recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military action against Ukraine have led to an unprecedented expansion of sanction programs imposed by the United States, the EU, the UK, Canada, Switzerland, Japan and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic and the so-called Luhansk People’s Republic.
Fluctuations in currency exchange rates may negatively affect our financial condition and results of operations. Exchange rate fluctuations may affect the costs that we incur in our operations. The main currencies to which we are exposed are Euro, British pound, Chinese Renminbi (RMB) and Canadian dollar.
Fluctuations in currency exchange rates may negatively affect our financial condition and results of operations. Exchange rate fluctuations may affect the costs that we incur in our operations. The main currencies to which we are exposed are the Euro, British pound, Chinese Renminbi ("RMB"), and Canadian dollar.
We are not aware of any breach or compromise of the personal data of consumers, but we have been subject to attacks (e.g. phishing, denial of service) in the past and cannot guarantee that our security measures will be sufficient to prevent a material breach or compromise in the future.
We are not aware of any material breach or compromise of the personal data of consumers, but we have been subject to attacks (e.g. phishing, denial of service) in the past and cannot guarantee that our security measures will be sufficient to prevent a material breach or compromise in the future.
The process of integrating an acquired business, product or technology can create unforeseen operating difficulties, expenditures and other challenges such as: • potentially increased regulatory and compliance requirements; • implementation or remediation of controls, procedures and policies at the acquired business; • diversion of management time and focus from operation of our then-existing business to acquisition integration challenges; • coordination of product, sales, marketing and program and systems management functions; • transition of the users and customers of the acquired business, product, or technology onto our system; • retention of employees from the acquired business; • integration of employees from the acquired business into our organization; 13 • integration of the acquired business’ accounting, information management, human resources and other administrative systems and operations into our systems and operations; • liability for activities of the acquired business, product or technology prior to the acquisition, including violations of law, commercial disputes and tax and other known and unknown liabilities; and • litigation or other claims in connection with the acquired business, product or technology, including claims brought by terminated employees, customers, former stockholders or other third parties.
The process of integrating an acquired business, product or technology can create unforeseen operating difficulties, expenditures and other challenges such as: • potentially increased regulatory and compliance requirements; • implementation or remediation of controls, procedures and policies at the acquired business; • diversion of management time and focus from operation of our then-existing business to acquisition integration challenges; • coordination of product, sales, marketing and program and systems management functions; • transition of the users and customers of the acquired business, product, or technology onto our system; • retention of employees from the acquired business; • integration of employees from the acquired business into our organization; • integration of the acquired business’ accounting, information management, human resources and other administrative systems and operations into our systems and operations; • liability for activities of the acquired business, product or technology prior to the acquisition, including violations of law, commercial disputes and tax and other known and unknown liabilities; and • litigation or other claims in connection with the acquired business, product or technology, including claims brought by terminated employees, customers, former stockholders or other third parties.
Further, our third-party manufacturers, suppliers and distributors may: • have economic or business interests or goals that are inconsistent with ours; • take actions contrary to our instructions, requests, policies or objectives; • be unable or unwilling to fulfill their obligations under relevant purchase orders, including obligations to meet our production deadlines, quality standards, pricing guidelines and product specifications, or to comply with applicable regulations, including those regarding the safety and quality of products and ingredients and good manufacturing practices; • have financial difficulties; • encounter raw material or labor shortages; 15 • encounter increases in raw material or labor costs which may affect our procurement costs; • disclose our confidential information or intellectual property to competitors or third parties; • engage in activities or employment practices that may harm our reputation; and • work with, be acquired by, or come under control of, our competitors.
Further, our third-party manufacturers, suppliers and distributors may: • have economic or business interests or goals that are inconsistent with ours; • take actions contrary to our instructions, requests, policies or objectives; • be unable or unwilling to fulfill their obligations under relevant purchase orders, including obligations to meet our production deadlines, quality standards, pricing guidelines and product specifications, or to comply with applicable regulations, including those regarding the safety and quality of products and ingredients and good manufacturing practices; • have financial difficulties; • encounter raw material or labor shortages; • encounter increases in raw material or labor costs which may affect our procurement costs; • disclose our confidential information or intellectual property to competitors or third parties; • engage in activities or employment practices that may harm our reputation; and • work with, be acquired by, or come under control of, our competitors.
Among other things: • although we do not have a stockholder rights plan, these provisions allow us to authorize the issuance of undesignated preferred stock in connection with a stockholder rights plan or otherwise, the terms of which may be 33 established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend or other rights or preferences superior to the rights of the holders of common stock; • these provisions provide for a classified board of directors with staggered three-year terms; • these provisions require advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings; • these provisions prohibit stockholder action by written consent; • these provisions provide for the removal of directors only for cause and only upon affirmative vote of holders of at least 75% of the shares of common stock entitled to vote generally in the election of directors; and • these provisions require the amendment of certain provisions only by the affirmative vote of at least 75% of the shares of common stock entitled to vote generally in the election of directors.
Among other things: • although we do not have a stockholder rights plan, these provisions allow us to authorize the issuance of undesignated preferred stock in connection with a stockholder rights plan or otherwise, the terms of which may be established and the shares of which may be issued without stockholder approval, and which may include super voting, special approval, dividend or other rights or preferences superior to the rights of the holders of common stock; • these provisions provide for a classified board of directors with staggered three-year terms; • these provisions require advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings; • these provisions prohibit stockholder action by written consent; • these provisions provide for the removal of directors only for cause and only upon affirmative vote of holders of at least 75% of the shares of common stock entitled to vote generally in the election of directors; and • these provisions require the amendment of certain provisions only by the affirmative vote of at least 75% of the shares of common stock entitled to vote generally in the election of directors.
We also may incur significant losses in the future for a number of reasons, including the following risks and the other risks described in this report, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors: • we may lose one or more significant retail customers, or sales of our products through these retail customers may decrease; • the ability of our third-party suppliers and manufacturers to produce our products and of our distributors to distribute our products could be disrupted; • because substantially all of our products are sourced and manufactured in China, our operations are susceptible to risks inherent in doing business there; 12 • our products may be the subject of regulatory actions, including but not limited to actions by the FDA, the FTC and the CPSC in the United States; • we may be unable to introduce new products that appeal to consumers or otherwise successfully compete with our competitors in the beauty industry; • we may be unsuccessful in enhancing the recognition and reputation of our brands, and our brands may be damaged as a result of, among other reasons, our failure, or alleged failure, to comply with applicable ethical, social, product, labor or environmental standards; • we may experience service interruptions, data corruption, cyber-based attacks or network security breaches which result in the disruption of our operating systems or the loss of confidential information of our consumers; • we may be unable to retain key members of our senior management team or attract and retain other qualified personnel; and • we may be affected by any adverse economic conditions in the United States or internationally.
We also may incur significant losses in the future for a number of reasons, including the following risks and the other risks described in this report, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors: • we may lose one or more significant retail customers, or sales of our products through these retail customers may decrease; • the ability of our third-party suppliers and manufacturers to produce our products and of our distributors to distribute our products could be disrupted; • because substantially all of our products are sourced and manufactured in China, our operations are susceptible to risks inherent in doing business there; • our products may be the subject of regulatory actions, including, but not limited to, actions by the FDA, the FTC and the CPSC in the United States; • we may be unable to introduce new products that appeal to consumers or otherwise successfully compete with our competitors in the beauty industry; • we may be unsuccessful in enhancing the recognition and reputation of our brands, and our brands may be damaged as a result of, among other reasons, our failure, or alleged failure, to comply with applicable ethical, social, product, labor or environmental standards; • we may experience service interruptions, data corruption, cyber-based attacks or network security breaches which result in the disruption of our operating systems or the loss of confidential information of our consumers; 13 • we may be unable to retain key members of our senior management team or attract and retain other qualified personnel; and • we may be affected by any adverse economic conditions in the United States or internationally.
These factors may include: • any reduction in consumer traffic and demand at our retail customers as a result of economic downturns, pandemics or other health crises, changes in consumer preferences or reputational damage as a result of, among other developments, data privacy breaches, regulatory investigations or employee misconduct; • any credit risks associated with the financial condition of our retail customers; • the effect of consolidation or weakness in the retail industry or at certain retail customers, including store closures and the resulting uncertainty; and • inventory reduction initiatives and other factors affecting retail customer buying patterns, including any reduction in retail space committed to beauty products and retailer practices used to control inventory shrinkage.
These factors may include: • any reduction in consumer traffic and demand at our retail customers as a result of economic downturns, pandemics or other health crises, changes in consumer preferences or reputational damage as a result of, among other developments, data privacy breaches, regulatory investigations or employee misconduct; • any credit risks associated with the financial condition of our retail customers; 20 • the effect of consolidation or weakness in the retail industry or at certain retail customers, including store closures and the resulting uncertainty; and • inventory reduction initiatives and other factors affecting retail customer buying patterns, including any reduction in retail space committed to beauty products and retailer practices used to control inventory shrinkage.
If we, or our employees or agents acting on our behalf, are found to have engaged in practices that violate these laws and regulations, we could suffer severe fines and penalties, profit 28 disgorgement, injunctions on future conduct, securities litigation, bans on transacting government business, delisting from securities exchanges and other consequences that may have a material adverse effect on our business, financial condition and results of operations.
If we, or our employees or agents acting on our behalf, are found to have engaged in practices that violate these laws and regulations, we could suffer severe fines and penalties, profit disgorgement, injunctions on future conduct, securities litigation, bans on transacting government business, delisting from securities exchanges and other consequences that may have a material adverse effect on our business, financial condition and results of operations.
We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, and diversion of internal resources. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or 29 damages liabilities, as well as associated costs, and diversion of internal resources. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
While we value open dialogue and input from our stockholders, activist stockholders could take actions that could be costly and time-consuming to us, disrupt our operations, and divert the attention of our board of directors, management, and employees, such as public proposals and requests for potential nominations of candidates for election to our board of directors, requests to pursue a strategic combination or other transaction, or other special requests.
While we value open dialogue and input from our stockholders, activist stockholders could take actions that could be costly and time-consuming to us, disrupt our operations, and divert the attention of our board of directors, management, and employees, such as public proposals and requests for potential nominations of candidates for election to our board of 34 directors, requests to pursue a strategic combination or other transaction, or other special requests.
If any financial institution party to our credit facilities or other 34 financing arrangements were to declare bankruptcy or become insolvent, they may be unable to perform under their agreements with us. This could leave us with reduced borrowing capacity, which could have a material adverse effect on our business, financial condition and results of operations.
If any financial institution party to our credit facilities or other financing arrangements were to declare bankruptcy or become insolvent, they may be unable to perform under their agreements with us. This could leave us with reduced borrowing capacity, which could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to continue to compete effectively, it could have a material adverse effect on our business, financial condition and results of operations. 10 Our new product introductions may not be as successful as we anticipate. The beauty industry is driven in part by fashion and beauty trends, which may shift quickly.
If we are unable to continue to compete effectively, it could have a material adverse effect on our business, financial condition and results of operations. Our new product introductions may not be as successful as we anticipate. The beauty industry is driven in part by fashion and beauty trends, which may shift quickly.
We accept payments from our consumers using a variety of methods, including online payments with credit cards and debit cards issued by major banks, payments made with gift cards processed by third-party providers and payment through third-party online payment platforms such as PayPal, Afterpay and Apple Pay. We also rely on third parties to provide payment processing services.
We accept payments from our consumers using a variety of methods, including online payments with credit cards and debit cards issued by major banks, payments made with gift cards processed by third-party providers and payment through third- 23 party online payment platforms such as PayPal, Afterpay, and Apple Pay. We also rely on third parties to provide payment processing services.
Furthermore, the third parties we rely on in China may disclose our confidential information or intellectual property to competitors or third parties, which could result in the illegal distribution and sale of counterfeit versions of our products. If 22 any of these events occur, our business, financial condition and results of operations could be materially and adversely affected.
Furthermore, the third parties we rely on in China may disclose our confidential information or intellectual property to competitors or third parties, which could result in the illegal distribution and sale of counterfeit versions of our products. If any of these events occur, our business, financial condition and results of operations could be materially and adversely affected.
These provisions could also discourage proxy contests and make it more difficult for other stockholders to elect directors of their choosing and to cause us to take other corporate actions they may desire. Our board of directors is authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.
These provisions could also 35 discourage proxy contests and make it more difficult for other stockholders to elect directors of their choosing and to cause us to take other corporate actions they may desire. Our board of directors is authorized to issue and designate shares of our preferred stock in additional series without stockholder approval.
Acquisitions or investments could also result in dilutive issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expenses, increased interest expenses or impairment charges against goodwill on our consolidated balance sheet, any of which could have a material adverse effect on our business, financial condition and results of operations.
Acquisitions or investments could also result in dilutive issuances of our equity securities or 14 the incurrence of debt, contingent liabilities, amortization expenses, increased interest expenses or impairment charges against goodwill on our consolidated balance sheet, any of which could have a material adverse effect on our business, financial condition and results of operations.
In addition, third-party manufacturer’s facilities for manufacturing OTC drug products must comply with the FDA’s current good manufacturing practices (“cGMP”) requirements for drug products that require us and our manufacturers to maintain, among other things, good manufacturing processes, including stringent vendor qualifications, ingredient identification, manufacturing controls and record keeping.
In addition, third-party manufacturer’s facilities for manufacturing OTC drug products must comply with the FDA’s current good manufacturing 27 practices (“cGMP”) requirements for drug products that require us and our manufacturers to maintain, among other things, good manufacturing processes, including stringent vendor qualifications, ingredient identification, manufacturing controls and record keeping.
Our commercial success depends in part on our ability to operate without infringing, misappropriating or otherwise violating the trademarks, patents, copyrights, trade secrets and other proprietary rights of others. We cannot be certain that the 30 conduct of our business does not and will not infringe, misappropriate or otherwise violate such rights.
Our commercial success depends in part on our ability to operate without infringing, misappropriating or otherwise violating the trademarks, patents, copyrights, trade secrets and other proprietary rights of others. We cannot be certain that the conduct of our business does not and will not infringe, misappropriate or otherwise violate such rights.
We intend to file one or more registration statements on Form S-8 to cover additional shares of our common stock or securities convertible into or exchangeable for shares of our common stock pursuant to automatic increases in the number 35 of shares reserved under our 2016 Equity Incentive Award Plan and our 2016 Employee Stock Purchase Plan.
We intend to file one or more registration statements on Form S-8 to cover additional shares of our common stock or securities convertible into or exchangeable for shares of our common stock pursuant to automatic increases in the number of shares reserved under our 2016 Equity Incentive Award Plan and our 2016 Employee Stock Purchase Plan.
If this trend continues, we may find it necessary to alter some 24 of the ways we have traditionally manufactured and marketed our products in order to stay in compliance with a changing regulatory landscape, and this could add to the costs of our operations and have an adverse impact on our business.
If this trend continues, we may find it necessary to alter some of the ways we have traditionally manufactured and marketed our products in order to stay in compliance with a changing regulatory landscape, and this could add to the costs of our operations and have an adverse impact on our business.
We may need to devote significant resources to protect against security breaches or to address problems caused by breaches, diverting resources from the growth and expansion of our business. 21 Payment methods used on our e-commerce websites subject us to third-party payment processing-related risks.
We may need to devote significant resources to protect against security breaches or to address problems caused by breaches, diverting resources from the growth and expansion of our business. Payment methods used on our e-commerce websites subject us to third-party payment processing-related risks.
Furthermore, we are subject to diverse laws and regulations in the United States, the European Union, and other international jurisdictions that require notification to affected individuals in the event of a breach involving personal information. These required notifications can be time-consuming and costly.
Furthermore, we are subject to diverse laws and regulations in the United States, the European Union (the "EU"), and other international jurisdictions that require notification to affected individuals in the event of a breach involving personal information. These required notifications can be time-consuming and costly.
If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline. Item 1B. Unresolved staff comments. None.
If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline. Item 1B. Unresolved staff comments. None. 37
We sell a number of products as over-the-counter (“OTC”) drug products, which are subject to the FDA OTC drug regulatory requirements because they are intended to be used as sunscreen or to treat acne. The FDA regulates the formulation, manufacturing, packaging and labeling of OTC drug products.
We also sell a number of products as over-the-counter (“OTC”) drug products, which are subject to the FDA OTC drug regulatory requirements because they are intended to be used as sunscreen or to treat acne. The FDA regulates the formulation, manufacturing, packaging and labeling of OTC drug products.
These risks should be read in conjunction with the other information in this Annual Report, including our consolidated financial statements and related notes thereto and Part II, Item 7 “Management’s discussion and analysis of financial condition and results of operations”.
These risks should be read in conjunction with the other information in this Annual Report, 10 including our consolidated financial statements and related notes thereto and “Management’s discussion and analysis of financial condition and results of operations” in Part II, Item 7 of this Annual Report.
In addition, such problems may require us to find new third-party suppliers, manufacturers or distributors, and there can be no assurance that we would be successful in finding third-party suppliers, manufacturers or distributors meeting our standards of innovation and quality.
In addition, such problems may require us to find new third-party suppliers, 16 manufacturers or distributors, and there can be no assurance that we would be successful in finding third-party suppliers, manufacturers or distributors meeting our standards of innovation and quality.
We face vigorous competition from companies throughout the world, including large multinational consumer products companies that have many beauty brands under ownership and independent beauty brands, including those that may target the latest trends or specific distribution channels.
We face vigorous competition from companies throughout the world, including large multinational consumer products companies that have many beauty brands under ownership and independent beauty and skincare brands, including those that may target the latest trends or specific distribution channels.
The relationship between the UK and the EEA in relation to certain aspects of data protection law remains unclear, and it is unclear how UK data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the UK will be regulated in the long term.
Furthermore, the relationship between the UK and the EEA in relation to certain aspects of data protection law remains unclear, and it is unclear how UK data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the UK will be regulated in the long term.
Although we have existing and pending trademark registrations for our brands in the United States and in many of the foreign countries in which we operate, we may not be successful in asserting trademark or trade name protection in all jurisdictions.
Although we have 31 existing and pending trademark registrations for our brands in the United States and in many of the foreign countries in which we operate, we may not be successful in asserting trademark or trade name protection in all jurisdictions.
These potential claims include, but are not limited to, personal injury claims, class action lawsuits, intellectual property claims, employment litigation and regulatory investigations and causes of action relating to the advertising and promotional claims about our products.
These potential claims include, but are not limited to, personal injury claims, class action lawsuits, intellectual property claims, privacy claims, employment litigation and regulatory investigations and causes of action relating to the advertising and promotional claims about our products.
While the Communications Decency Act ("CDA") and Digital Millennium Copyright Act ("DMCA") generally protect online service providers from claims of copyright infringement or other legal liability for the self-directed activities of its users, if it were determined that we did not meet the relevant safe harbor requirements under either law, we could be exposed to claims related to advertising practices, defamation, intellectual property rights, rights of publicity and privacy, and personal injury torts.
While the Communications Decency Act and Digital Millennium Copyright Act generally protect online service providers from claims of copyright infringement or other legal liability for the self-directed activities of its users, if it were determined that we did not meet the relevant safe harbor requirements under either law, we could be exposed to claims related to advertising practices, defamation, intellectual property rights, rights of publicity and privacy, and personal injury torts.
We may also experience a decrease in sales of certain existing products as a result of newly-launched products, the impact of which could be exacerbated by shelf space limitations or any shelf space loss.
We may also experience a decrease in sales of certain existing products as a result of newly-launched 11 products, the impact of which could be exacerbated by shelf space limitations or any shelf space loss.
Any changes to our remote work policy could also cause us to have difficulty retaining current employees and recruiting new employees, both of which could adversely affect our business, financial condition and results of operations.
Any changes to our remote work policy could cause us to have difficulty retaining current employees and recruiting new employees, both of which could adversely affect our business, financial condition and results of operations.
Our credit facilities may restrict our ability to take these actions, and we may not be able to affect any such alternative measures on commercially reasonable terms, or at all.
Our credit facilities may restrict our ability to take these actions, and we may not be able to affect any such 19 alternative measures on commercially reasonable terms, or at all.
We may not have sufficient resources to conduct any required clinical trials or to ensure compliance with the manufacturing requirements applicable to drugs.
We may not have sufficient resources to 26 conduct any required clinical trials or to ensure compliance with the manufacturing requirements applicable to drugs.
Risk factors related to our financial condition Our substantial indebtedness may have a material adverse effect on our business, financial condition and results of operations.
Risk factors related to our financial condition Our indebtedness may have a material adverse effect on our business, financial condition and results of operations.
Compliance with existing, not yet effective, and proposed privacy and data protection laws and regulations can be costly and can delay or impede our ability to market and sell our products, impede our ability to conduct business through websites and mobile applications we and our partners may operate, require us to modify or amend our information practices and policies, change and limit the way we use consumer information in operating our business, cause us to have difficulty maintaining a single operating model, result in negative publicity, increase our operating costs, require significant management time and attention, or subject us to inquiries or investigations, claims or other remedies, including significant fines and penalties, or demands that we modify or cease existing business practices.
Compliance with existing, forthcoming, and proposed privacy and data protection laws and regulations can be costly and can delay or impede our ability to market and sell our products, impede our ability to conduct business through websites and mobile applications we and our partners may operate, require us to modify or amend our information practices and policies, change and limit the way we use consumer information in operating our business, cause us to have difficulty maintaining a single operating model, result in negative publicity, increase our operating costs, require significant management time and attention, or subject us to inquiries or investigations, claims or other remedies, including significant fines and penalties, or demands that we modify or cease existing business practices.
Our e-commerce operations are important to our business. Our e-commerce websites and mobile applications serve as an extension of our marketing strategies by introducing potential new consumers to our brand, product offerings and enhanced content. Due to the importance of our e-commerce operations, we are vulnerable to website downtime and other technical failures.
Our e-commerce websites and mobile applications serve as an extension of our marketing strategies by introducing potential new consumers to our brand, product offerings and enhanced content. Due to the importance of our e-commerce operations, we are vulnerable to website downtime and other technical failures.
We have relatively low brand awareness among consumers when compared to other beauty brands and maintaining and enhancing the recognition and reputation of our brands is critical to our business and future growth. Many factors, some of which are beyond our control, are important to maintaining our reputation and brands.
We have relatively low brand awareness among consumers when compared to legacy beauty brands, and maintaining and enhancing the recognition and reputation of our brands is critical to our business and future growth. Many factors, some of which are beyond our control, are important to maintaining our reputation and brands.
Regulation of cookies and similar technologies may lead to broader restrictions on our marketing and personalization activities and may negatively impact our efforts to understand users’ Internet usage, online shopping and other relevant online behaviors, as well as the effectiveness of our marketing and our business generally.
Regulation of cookies and similar technologies may lead to broader restrictions on our marketing and personalization activities and may negatively impact our efforts to understand consumers’ Internet usage, online shopping and other relevant online behaviors, as well as the effectiveness of our marketing and our business generally.
International sales and increased international operations may be subject to risks such as: • difficulties in staffing and managing foreign operations; • burdens of complying with a wide variety of laws and regulations, including more stringent regulations relating to data privacy and security, particularly in the United Kingdom and the European Union; • adverse tax effects and foreign exchange controls making it difficult to repatriate earnings and cash; • political and economic instability; • terrorist activities and natural disasters; • trade restrictions; • disruptions or delays in shipments whether due to port congestion, container shortages, labor disputes, product regulations and/or inspections or other factors, natural disasters or health pandemics, or other transportation disruptions; • differing employment practices and laws and labor disruptions; • the imposition of government controls; • an inability to use or to obtain adequate intellectual property protection for our key brands and products; • tariffs and customs duties and the classifications of our goods by applicable governmental bodies; • a legal system subject to undue influence or corruption; • a business culture in which illegal sales practices may be prevalent; • logistics and sourcing; and 23 • military conflicts.
International sales and increased international operations may be subject to risks such as: • difficulties in staffing and managing foreign operations; • burdens of complying with a wide variety of laws and regulations, including more stringent regulations relating to data privacy and security, particularly in the UK and the EU; • adverse tax effects and foreign exchange controls making it difficult to repatriate earnings and cash; • political and economic instability; • terrorist activities and natural disasters; • trade restrictions; • disruptions or delays in shipments whether due to port congestion, container shortages, labor disputes, product regulations and/or inspections or other factors, natural disasters or health pandemics, or other transportation disruptions; • differing employment practices and laws and labor disruptions; • the imposition of government controls; • an inability to use or to obtain adequate intellectual property protection for our key brands and products; • tariffs and customs duties and the classifications of our goods by applicable governmental bodies; • a legal system subject to undue influence or corruption; • a business culture in which illegal sales practices may be prevalent; • logistics and sourcing; and • military conflicts.
We may not be successful in executing our growth strategy, and even if we achieve our strategic plan, we may not be able to sustain profitability. In future periods, our revenue could decline, or grow more slowly than we expect.
We may not be successful in executing our growth strategy, and even if we achieve our strategic imperatives, we may not be able to sustain profitability. In future periods, our revenue could decline, or grow more slowly than we expect.
To the extent that we are required to pay for goods or services in foreign currencies, the appreciation of such currencies against the U.S. dollar will tend to negatively affect our business. There can be no assurance that foreign currency fluctuations will not have a material adverse effect on our business, financial condition and results of operations.
To the extent that we are required to pay for goods or services in foreign currencies, the appreciation of such currencies against the US dollar will tend to negatively affect our business. There can be no assurance that foreign currency fluctuations will not have a material adverse effect on our business, financial condition and results of operations.
While we have implemented policies, internal controls and other measures reasonably designed to promote compliance with applicable anti-corruption and anti-bribery laws and regulations, and certain safeguards designed to ensure compliance with U.S. trade control laws, our employees or agents may engage in improper conduct for which we might be held responsible.
While we have implemented policies, internal controls and other measures reasonably designed to promote compliance with applicable anti-corruption and anti-bribery laws and regulations, and certain safeguards designed to ensure compliance with US trade control laws, our employees or agents may engage in improper conduct for which we might be held responsible.
Any regulatory action or penalty could lead to private party actions, or private parties could seek to challenge our claims even in the absence of formal regulatory actions which could harm our business, financial condition and results of operations. Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy and data protection.
Any regulatory action or penalty could lead to private party actions, or private parties could seek to challenge our claims even in the absence of formal regulatory actions which could harm our business, financial condition and results of operations. Our business is subject to complex and evolving US and foreign laws and regulations regarding privacy and data protection.
It is difficult for us to predict the timing and scale of our competitors’ activities in these areas or whether new competitors will emerge in the beauty industry. In recent years, numerous online, “indie”, celebrity and influencer-backed beauty companies have emerged and garnered significant followings.
It is difficult for us to predict the timing and scale of our competitors’ activities in these areas or whether new competitors will emerge in the beauty industry. In recent years, numerous online, “indie,” celebrity and influencer-backed beauty companies have emerged and garnered significant followings.
If we fail to manage our inventory effectively, our results of operations, financial condition and liquidity may be materially and adversely affected. Our business requires us to manage a large volume of inventory effectively. We depend on our forecasts of demand for, and popularity of, various products to make purchase decisions and to manage our inventory of stock-keeping units.
If we fail to manage our inventory effectively, our results of operations, financial condition and liquidity may be materially and adversely affected. Our business requires us to manage a large volume of inventory effectively. We depend on our forecasts to estimate demand for and popularity of various products to make purchasing decisions and to manage our inventory of stock-keeping units.
Our primary trademarks include “e.l.f.,” “e.l.f. eyes lips face,” “Well People,” and “Keys Soulcare” all of which are registered or have registrations pending in the United States and in many other countries or registries. Our trademarks are valuable assets that support our brands and consumers’ perception of our products.
SKIN," “e.l.f. eyes lips face,” “Well People,” and “Keys Soulcare” all of which are registered or have registrations pending in the United States and in many other countries or registries. Our trademarks are valuable assets that support our brands and consumers’ perception of our products.
Failure to comply with the U.S. Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable trade control laws could subject us to penalties and other adverse consequences.
Failure to comply with the US Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable trade control laws could subject us to penalties and other adverse consequences.
Any material disruption of our systems, or the systems of our 19 third-party service providers, could disrupt our ability to track, record and analyze the products that we sell and could negatively impact our operations, shipment of goods, ability to process financial information and transactions and our ability to receive and process retail customer and e-commerce orders or engage in normal business activities.
Any material disruption of our systems, or the systems of our third-party service providers, could disrupt our ability to track, record and analyze the products that we sell and could negatively impact our operations, shipment of goods, ability to process financial information and transactions and our ability to receive and process retail customer and e-commerce orders or engage in normal business activities. 21 Our e-commerce operations are important to our business.
Risk factors related to our business operations A disruption in our operations, including a disruption in the supply chains for our products, could materially and adversely affect our business.
Risk factors related to our business operations and macroeconomic conditions A disruption in our operations, including a disruption in the supply chains for our products, could materially and adversely affect our business.
In addition, we are subject to United States and other applicable trade control regulations that restrict with whom we may transact business, including the trade sanctions enforced by the U.S. Treasury, Office of Foreign Assets Control.
In addition, we are subject to United States and other applicable trade control regulations that restrict with whom we may transact business, including the trade sanctions enforced by the US Treasury, Office of Foreign Assets Control.
Risks factors related to the beauty industry The beauty industry is highly competitive, and if we are unable to compete effectively our results will suffer.
Risk factors related to the beauty industry The beauty industry is highly competitive, and if we are unable to compete effectively our results will suffer.
A depreciation of these currencies against the U.S. dollar will decrease the U.S. dollar equivalent of the amounts derived from foreign operations reported in our consolidated financial statements, and an appreciation of these currencies will result in a corresponding increase in such amounts.
A depreciation of these currencies against the US dollar will decrease the US dollar equivalent of the amounts derived from foreign operations reported in our consolidated financial statements, and an appreciation of these currencies will result in a corresponding increase in such amounts.
We are actively monitoring the situation in Ukraine and assessing its impact on our business, including our business partners and customers. We do not sell our products in Russia and to date we have not experienced any material interruptions in our infrastructure, supplies, technology systems or networks needed to support our operations.
We continue to monitor the situation in Ukraine and are assessing its impact on our business, including our business partners and customers. We do not sell our products in Russia and, to date, we have not experienced any material interruptions in our infrastructure, supplies, technology systems or networks needed to support our operations.
We have identified the need to significantly expand and improve our information technology systems and personnel to support expected future growth.
We have identified the need to continually expand and improve our information technology systems and personnel to support expected future growth.
Our ability to operate in China may be adversely affected by changes in the United States and Chinese laws and regulations such as those related to, among other things, taxation, import and export tariffs, environmental regulations, land use rights, intellectual property, currency controls, network security, employee benefits, hygiene supervision and other matters. For example, the U.S.
Our ability to operate in China may be adversely affected by changes in the United States and Chinese laws and regulations such as those related to, among other things, taxation, import and export tariffs, environmental regulations, land use rights, intellectual property, currency controls, network security, employee benefits, privacy, hygiene supervision and other matters.
As of March 31, 2022, we had a total of $97.7 million of indebtedness, consisting of amounts outstanding under our credit facilities and finance lease obligations, and a total availability of $100.0 million under our Amended Revolving Credit Facility (as defined in Part II, Item 7 “Management’s discussion and analysis of financial condition and results of operations” under the heading “Description of indebtedness”).
As of March 31, 2023, we had a total of $66.9 million of indebtedness, consisting of amounts outstanding under our credit facilities and finance lease obligations, and a total availability of $100.0 million under our Amended Revolving Credit Facility (as defined in Part II, Item 7 “Management’s discussion and analysis of financial condition and results of operations” under the heading “Description of indebtedness”).
The cost of certain items, such as raw materials, manufacturing, employee salaries and transportation and freight, required by our operations may be affected by changes in the value of the relevant currencies.
The cost of certain items, such as raw materials, manufacturing, employee compensation and benefits and transportation and freight, required by our operations may be affected by changes in the value of the relevant currencies.
An active trading market for our common stock may not be sustained, and the market price of shares of our common stock may be volatile, which could cause the value of your investment to decline.
General risk factors An active trading market for our common stock may not be sustained, and the market price of shares of our common stock may be volatile, which could cause the value of your investment to decline.
For example, electronic marketing and privacy requirements in the European Union and the United Kingdom are highly restrictive and differ greatly from those in the United States, which could cause fewer of individuals in the European Union or the United Kingdom to subscribe to our marketing messages and drive up our costs and risk of regulatory oversight and fines if we are found to be non-compliant.
For example, electronic marketing and privacy requirements in the EU and the UK are highly restrictive and differ greatly from those in the United States, which could cause fewer of individuals in the EU or the UK to subscribe to our marketing messages and drive up our costs and risk of regulatory oversight and fines if we are found to be non-compliant.
These economic conditions could cause some of our retail customers or suppliers to experience cash flow or credit problems and impair their financial condition, which could disrupt our business and adversely affect product orders, payment patterns and default rates and increase our bad debt expense. We are subject to international business uncertainties.
These economic conditions could cause some of our retail customers or suppliers to experience cash flow or credit problems and impair their financial condition, which could disrupt our business and adversely affect product orders, payment patterns and default rates and increase our bad debt expense.
If it is determined that our third-party suppliers and manufacturers mine, produce or manufacture our products wholly or in part from the XUAR, then we could be prohibited from importing such products into the U.S.
If it is determined that our third-party suppliers and manufacturers mine, produce or manufacture our products wholly or in part from the XUAR, then we could be prohibited from importing such products into the United States.
As such, we are in process of implementing, and will continue to invest in and implement, significant modifications and upgrades to our information technology systems and procedures, including replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality, hiring employees with information technology expertise and building new policies, procedures, training programs and monitoring tools.
As such, we will continue to invest in and implement modifications and upgrades to our information technology systems and procedures, including replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality, hiring employees with information technology expertise and building new policies, procedures, training programs and monitoring tools.
We rely on information technology networks and systems to market and sell our products, to process electronic and financial information, to manage a variety of business processes and activities and to comply with regulatory, legal and tax requirements.
We rely on information technology networks and systems to market and sell our products, to process electronic and financial information, to assist with sales tracking and reporting, to manage a variety of business processes and activities and to comply with regulatory, legal and tax requirements.
The situation is rapidly evolving as a result of the conflict in Ukraine, and the United States, the European Union, the United Kingdom and other countries may implement additional sanctions, export controls or other measures against Russia, Belarus and other countries, regions, officials, individuals or industries in the respective territories.
The situation is rapidly evolving as a result of the conflict in Ukraine, and the United States, the EU, the UK and other countries may implement additional sanctions, export controls or other measures against Russia, Belarus and other countries, regions, officials, individuals or industries in the respective territories.
The effects of the CPRA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply, and increase our potential exposure to regulatory enforcement and/or litigation.
The effects of the CPRA, the VCDPA, the CPA, the CTDPA and the UCPA are potentially significant 28 and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply, and increase our potential exposure to regulatory enforcement and/or litigation.
The exchange rates between these currencies and the U.S. dollar in recent years have fluctuated significantly and may continue to do so in the future.
The exchange rates between these currencies and the US dollar in recent years have fluctuated significantly and may continue to do so in the future.
In the United States, with the exception of color additives, the FDA does not currently require pre-market approval for products intended to be sold as cosmetics. However, the FDA may in the future require pre-market approval, clearance or registration/notification of cosmetic products, establishments or manufacturing facilities.
In the United States, with the exception of color additives, the FDA does not currently require pre-market approval for products intended to be sold as cosmetics. However, the FDA may in the future require pre-market authorization for certain cosmetic products, establishments or manufacturing facilities.
We currently source and manufacture a substantial number of our products from third-party suppliers and manufacturers located outside of the United States, and we have an office in China from which we manage our international supply chain. We sell our products in several countries outside of the United States, including through distributors. Our operations are subject to the U.S.
We currently source and manufacture a substantial number of our products from third-party suppliers and manufacturers located outside of the United States, and we have an office in China from which we manage our international supply chain. We sell our products in several countries outside of the United States, including through distributors.
These regulatory authorities typically require a reasonable basis to support any marketing claims. What constitutes a reasonable basis for substantiation can vary widely from market to market, and there is no assurance that the efforts that we undertake to support our claims will be deemed adequate for any particular product or claim.
What constitutes a reasonable basis for substantiation can vary widely from market to market, and there is no assurance that the efforts that we undertake to support our claims will be deemed adequate for any particular product or claim.
Risk factors related to conducting business internationally We have significant operations in China, which exposes us to risks inherent in doing business in that country. We currently source and manufacture a substantial number of our products from third-party suppliers and manufacturers in China. As of March 31, 2022, we had 79 emplo yees in China.
Risk factors related to conducting business internationally We have significant operations in China, which exposes us to risks inherent in doing business in that country. We currently source and manufacture a substantial number of our products from third-party suppliers and manufacturers in China. As of March 31, 2023, we had 82 employees in China.
Our indebtedness could have significant consequences, including: • requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of funding growth, working capital, capital expenditures, investments or other cash requirements; • reducing our flexibility to adjust to changing business conditions or obtain additional financing; • exposing us to the risk of increased interest rates as our borrowings are at variable rates; • making it more difficult for us to make payments on our indebtedness; • subjecting us to restrictive covenants that may limit our flexibility in operating our business, including our ability to take certain actions with respect to indebtedness, liens, sales of assets, consolidations and mergers, affiliate transactions, dividends and other distributions and changes of control; • subjecting us to maintenance covenants which require us to maintain specific financial ratios; and • limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements and general corporate or other purposes. 17 If our cash from operations is not sufficient to meet our current or future operating needs, expenditures and debt service obligations, our business, financial condition and results of operations may be materially and adversely affected.
Our indebtedness could have significant consequences, including: • requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of funding growth, working capital, capital expenditures, investments or other cash requirements; • reducing our flexibility to adjust to changing business conditions or obtain additional financing; • exposing us to the risk of increased interest rates as our borrowings are at variable rates; • making it more difficult for us to make payments on our indebtedness; • subjecting us to restrictive covenants that may limit our flexibility in operating our business, including our ability to take certain actions with respect to indebtedness, liens, sales of assets, consolidations and mergers, affiliate transactions, dividends and other distributions and changes of control; • subjecting us to maintenance covenants which require us to maintain specific financial ratios; and • limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements and general corporate or other purposes.
Each of these risks could have an adverse effect on our business, results of operations and financial condition. Risk factors related to marketing activities Use of social media may materially and adversely affect our reputation or subject us to fines or other penalties.
Each of these risks could have an adverse effect on our business, results of operations and financial condition. 32 Risk factors related to marketing activities Use of social media may materially and adversely affect our reputation or subject us to fines or other penalties, and any failure in our marketing efforts through our social media presence could materially and adversely affect our business, financial condition and results of operations.
Further, our brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products, our failure to maintain the quality of our products, product contamination, the failure of our products to deliver consistently positive consumer experiences, or the products becoming unavailable to consumers. 11 Our success depends, in part, on the quality, performance and safety of our products.
Further, our brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products, our failure to maintain the quality of our products, product contamination, the failure of our products to deliver consistently positive consumer experiences, or the products becoming unavailable to consumers.
As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we operate our business and could harm our business, financial condition and results of operations.
As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.
These information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components, power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events.
These information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components, power outages, hardware failures, computer viruses, telecommunication failures, user errors, catastrophic events and data security and privacy threats, cyber and otherwise.
Adverse economic conditions in the United States, Europe or China or any of the other countries in which we may conduct business could negatively affect our business, financial condition and results of operations. Consumer spending on beauty products is influenced by general economic conditions and the availability of discretionary income.
Adverse economic conditions in the United States or any of the other countries in which we conduct significant business could negatively affect our business, financial condition and results of operations. Many of our products may be considered discretionary items for consumers. Consumer spending on beauty products is influenced by general economic conditions and the availability of discretionary income.
If we discover that any of our products are causing adverse reactions, we could suffer adverse publicity or regulatory/government sanctions. 29 Potential product liability risks may arise from the testing, manufacture and sale of our products, including that the products fail to meet quality or manufacturing specifications, contain contaminants, include inadequate instructions as to their proper use, include inadequate warnings concerning side effects and interactions with other substances or for persons with health conditions or allergies, or cause adverse reactions or side effects.
Potential product liability risks may arise from the testing, manufacture and sale of our products, including that the products fail to meet quality or manufacturing specifications, contain contaminants, include inadequate instructions as to their proper use, include inadequate warnings concerning side effects and interactions with other substances or for persons with health conditions or allergies, or cause adverse reactions or side effects.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLocation/Facility Leased/Owned Use Oakland, California Leased Corporate headquarters New York, New York Leased Corporate offices Los Angeles, California Leased Corporate offices Fairfield, New Jersey Leased Corporate offices Shanghai, China Leased Corporate offices Ontario, California Leased Distribution Rancho Cucamonga, California Leased Manufacturing (1) (1) The Company closed its manufacturing plant during the fourth quarter of the year ended March 31, 2021.
Biggest changeLocation/Facility Leased/Owned Use Oakland, California Leased Corporate headquarters New York, New York Leased Corporate offices Los Angeles, California Leased Corporate offices Fairfield, New Jersey Leased Corporate offices Shanghai, China Leased Corporate offices Ontario, California Leased Distribution London, UK Leased Corporate offices We also use a distribution center located in Columbus, Ohio that is operated by a third-party.
Item 2. Properties. Our principal executive offices are located in Oakland, California. We also occupy offices and distribution centers in the United States and abroad, as indicated blow.
Item 2. Properties. Our principal executive offices are located in Oakland, California. We also occupy offices and distribution centers in the United States and abroad, as indicated below.
Our properties total an aggregate of approximately 39,894 square feet of commercial space, approximately 25,350 square feet for manufacturing and approximately 257,515 square feet of commercial space for our distribution center. All of our properties are leased. The leases expire at various times through 2030, subject to renewal options.
Our properties total an aggregate of approximately 42,612 square feet of commercial space and approximately 257,515 square feet of commercial space for our distribution center. All of our properties are leased. The leases expire at various times through 2030, subject to renewal options.
Removed
See Note 15 Restructuring and other related costs to consolidated financial statements in Part IV, Item 13. “Exhibits, financial statement schedules” under the heading “2021 Restructuring Plan.” We also use a distribution center located in Columbus, Ohio that is operated by a third-party.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change(ELF) $ 65.03 $ 89.17 $ 94.97 $ 96.07 $ 102.83 $ 117.56 $ 91.43 S&P 500 Index (GSPC) $ 142.57 $ 159.23 $ 168.43 $ 182.19 $ 182.61 $ 202.06 $ 192.06 S&P 500 Consumer Discretionary Index (S5COND) $ 181.25 $ 195.83 $ 201.91 $ 215.94 $ 215.95 $ 243.67 $ 221.67 Recent sales of unregistered securities None Purchases of equity securities by the issuer and affiliated purchasers In May 2019, we announced that our board of directors authorized the Share Repurchase Program, which authorizes us to repurchase up to $25 million of our outstanding shares of common stock.
Biggest changePurchases of equity securities by the issuer and affiliated purchasers In May 2019, we announced that our board of directors authorized the Share Repurchase Program, which authorizes us to repurchase up to $25.0 million of our outstanding shares of common stock.
The graph assumes an investment of $100 made at the closing of trading on March 31, 2017 in (i) our common stock, (ii) the stocks comprising the S&P 500 Index and (iii) the stocks comprising the S&P 500 Consumer Discretionary Index. All values assume reinvestment of the full amount of all dividends.
The graph assumes an investment of $100 made at the closing of trading on March 31, 2018 in (i) our common stock, (ii) the stocks comprising the S&P 500 Index and (iii) the stocks comprising the S&P 500 Consumer Discretionary Index. All values assume reinvestment of the full amount of all dividends.
Subject to certain exceptions, the covenants in the Amended Credit Agreement require the Company to be in compliance with certain leverage ratios to make repurchases under the Share Repurchase Program. 38 We did not repurchase any shares during the three months ended March 31, 2022, including pursuant to the Share Repurchase Program.
Subject to certain exceptions, the covenants in the Amended Credit Agreement require the Company to be in compliance with certain leverage ratios to make repurchases under the Share Repurchase Program. We did not repurchase any shares during the three months ended March 31, 2023, including pursuant to the Share Repurchase Program.
The Share Repurchase Plan remains in effect through the earlier of (i) the date that $25 million of our outstanding common stock has been purchased under the Share Repurchase Plan or (ii) the date that our board of directors cancels the Share Repurchase Plan. On April 30, 2021, the Company amended and restated its prior credit agreement.
The Share Repurchase Program remains in effect through the earlier of (i) the date that $25.0 million of our outstanding common stock has been purchased under the Share Repurchase Program or (ii) the date that our board of directors cancels the Share Repurchase Program. 40 On April 30, 2021, the Company amended and restated its prior credit agreement.
The performance shown on the graph below is not intended to forecast or be indicative of possible future performance of our common stock. 37 $100 investment in stock or index 3/31/17 6/30/17 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 e.l.f. Beauty, Inc.
The performance shown on the graph below is not intended to forecast or be indicative of possible future performance of our common stock. 39 $100 investment in stock or index 3/31/18 6/30/18 9/30/18 12/31/18 3/31/19 6/30/19 9/30/19 e.l.f. Beauty, Inc.
The following graph compares the total cumulative stockholder return on our common stock with the S&P 500 Stock Index and the S&P Consumer Discretionary Index for the 5-year period covering March 31, 2017, through March 31, 2022.
The following graph compares the total cumulative stockholder return on our common stock with the S&P 500 Stock Index and the S&P Consumer Discretionary Index for the 5-year period covering March 31, 2018, through March 31, 2023.
Dividends There were no dividends declared or paid during the year ended March 31, 2022. Since our initial public offering on September 21, 2016, we have never declared or paid cash dividends on our capital stock.
Dividends There were no dividends declared or paid during the year ended March 31, 2023. Since our initial public offering on September 22, 2016, we have never declared or paid cash dividends on our capital stock.
A total of $17.1 million remains available for purchase under the Share Repurchase Program as of March 31, 2022. Item 6. [Reserved] 39
A total of $17.1 million remains available for purchase under the Share Repurchase Program as of March 31, 2023. Item 6. [Reserved] 41
On May 18, 2022, the closing price for our common stock as reported by the NYSE was $21.62. Holders of record As of May 18, 2022, the approximate number of common stockholders of record was 15. This number does not include beneficial owners whose shares are held by nominees in street name.
On May 18, 2023, the closing price for our common stock as reported by the NYSE was $90.61. Holders of record As of May 18, 2023, the approximate number of common stockholders of record was 17. This number does not include beneficial owners whose shares are held by nominees in street name.
(ELF) $ 100.00 $ 96.32 $ 79.82 $ 78.97 $ 68.57 $ 53.95 $ 45.06 S&P 500 Index (GSPC) $ 100.00 $ 102.74 $ 106.81 $ 113.34 $ 111.96 $ 115.24 $ 123.53 S&P 500 Consumer Discretionary Index (S5COND) $ 100.00 $ 102.78 $ 103.65 $ 113.88 $ 117.40 $ 126.99 $ 137.38 $100 investment in stock or index 12/31/18 3/31/19 6/30/19 9/30/19 12/31/19 3/31/20 6/30/20 e.l.f.
(ELF) $ 100.00 $ 79.13 $ 66.10 $ 44.96 $ 55.04 $ 73.21 $ 90.91 S&P 500 Index (GSPC) $ 100.00 $ 105.29 $ 112.86 $ 97.09 $ 109.78 $ 113.94 $ 115.29 S&P 500 Consumer Discretionary Index (S5COND) $ 100.00 $ 111.32 $ 120.43 $ 100.66 $ 116.49 $ 122.64 $ 123.27 $100 investment in stock or index 12/31/19 3/31/20 6/30/20 9/30/20 12/31/20 3/31/21 6/30/21 e.l.f.
(ELF) $ 30.65 $ 37.52 $ 49.91 $ 61.98 $ 57.10 $ 34.83 $ 67.50 S&P 500 Index (GSPC) $ 106.27 $ 120.16 $ 124.71 $ 126.20 $ 136.96 $ 109.57 $ 131.43 S&P 500 Consumer Discretionary Index (S5COND) $ 114.83 $ 132.88 $ 139.90 $ 140.62 $ 146.91 $ 118.57 $ 157.52 $100 investment in stock or index 9/30/20 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 3/31/22 e.l.f.
(ELF) $ 83.75 $ 51.09 $ 99.01 $ 95.38 $ 130.79 $ 139.30 $ 140.91 S&P 500 Index (GSPC) $ 125.13 $ 100.10 $ 120.08 $ 130.25 $ 145.48 $ 153.88 $ 166.45 S&P 500 Consumer Discretionary Index (S5COND) $ 128.78 $ 103.94 $ 138.08 $ 158.88 $ 171.66 $ 176.99 $ 189.29 $100 investment in stock or index 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 12/31/22 3/31/23 e.l.f.
Added
(ELF) $ 150.83 $ 172.43 $ 134.11 $ 159.29 $ 195.33 $ 287.12 $ 427.57 S&P 500 Index (GSPC) $ 166.84 $ 184.60 $ 175.47 $ 146.61 $ 138.88 $ 148.71 $ 159.16 S&P 500 Consumer Discretionary Index (S5COND) $ 189.30 $ 213.60 $ 194.32 $ 143.49 $ 149.75 $ 134.50 $ 156.20 Recent sales of unregistered securities None.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

58 edited+12 added−20 removed29 unchanged
Biggest changeYear ended March 31, 2022 2021 2020 Net sales $ 392,155 $ 318,110 $ 282,851 Cost of sales 140,423 111,912 101,728 Gross profit 251,732 206,198 181,123 Selling, general and administrative expenses 221,912 194,157 157,155 Restructuring expense (income) 50 2,641 (5,982) Operating income 29,770 9,400 29,950 Other (expense) income, net (1,438) (1,620) 426 Interest expense, net (2,441) (4,090) (6,307) Loss on extinguishment of debt (460) — — Income before provision for income taxes 25,431 3,690 24,069 Income tax (provision) benefit (3,661) 2,542 (6,185) Net income $ 21,770 $ 6,232 $ 17,884 Comprehensive income $ 21,770 $ 6,232 $ 17,884 Year ended March 31, (percentage of net sales) 2022 2021 2020 Net sales 100 % 100 % 100 % Cost of sales 36 % 35 % 36 % Gross profit 64 % 65 % 64 % Selling, general and administrative expenses 57 % 61 % 56 % Restructuring expense (income) — % 1 % (2) % Operating income 8 % 3 % 11 % Other (expense) income, net — % (1) % — % Interest expense, net (1) % (1) % (2) % Loss on extinguishment of debt — % — % — % Income before provision for income taxes 6 % 1 % 9 % Income tax (provision) benefit (1) % 1 % (2) % Net income 6 % 2 % 6 % Comprehensive income 6 % 2 % 6 % Comparison of the year ended March 31, 2022 to the year ended March 31, 2021 Net sales Net sales increased $74.0 million, or 23%, to $392.2 million in the year ended March 31, 2022, from $318.1 million in the year ended March 31, 2021.
Biggest changeYear ended March 31, 2023 2022 2021 Net sales $ 578,844 $ 392,155 $ 318,110 Cost of sales 188,448 140,423 111,912 Gross profit 390,396 251,732 206,198 Selling, general and administrative expenses 322,253 221,912 194,157 Restructuring expense — 50 2,641 Operating income 68,143 29,770 9,400 Other expense, net (1,875) (1,438) (1,620) Interest expense, net (2,018) (2,441) (4,090) Loss on extinguishment of debt (176) (460) — Income before provision for income taxes 64,074 25,431 3,690 Income tax (provision) benefit (2,544) (3,661) 2,542 Net income $ 61,530 $ 21,770 $ 6,232 Comprehensive income $ 61,530 $ 21,770 $ 6,232 Year ended March 31, (percentage of net sales) 2023 2022 2021 Net sales 100 % 100 % 100 % Cost of sales 33 % 36 % 35 % Gross profit 67 % 64 % 65 % Selling, general and administrative expenses 56 % 57 % 61 % Restructuring expense — % — % 1 % Operating income 12 % 8 % 3 % Other expense, net — % — % (1) % Interest expense, net — % (1) % (1) % Loss on extinguishment of debt — % — % — % Income before provision for income taxes 11 % 6 % 1 % Income tax (provision) benefit — % (1) % 1 % Net income 11 % 6 % 2 % Comprehensive income 11 % 6 % 2 % Comparison of the year ended March 31, 2023 to the year ended March 31, 2022 Net sales Net sales increased $186.6 million, or 48%, to $578.8 million in the year ended March 31, 2023, from $392.2 million in the year ended March 31, 2022.
Other income (expense), net is primarily related to foreign exchange rate movements. Income tax (provision) benefit The provision for income taxes represents federal, foreign, state and local income taxes. The effective rate differs from statutory rates due to the effect of state and local income taxes and certain permanent tax adjustments.
Other expense, net is primarily related to foreign exchange rate movements. Income tax (provision) benefit The provision for income taxes represents federal, foreign, state and local income taxes. The effective rate differs from statutory rates due to the effect of state and local income taxes and certain permanent tax adjustments.
For the year ended March 31, 2021, net cash used in financing activities was $11.4 million, driven by $11.8 million in mandatory principal payments under the prior term loan facility. This was partially offset by $1.5 million of proceeds from the exercise of options to purchase common stock.
For the year ended March 31, 2021, net cash used in financing activities was $11.4 million, driven by $11.8 million in mandatory principal payments under the prior term loan facility. This was partially offset by $1.5 million of proceeds from the exercise of stock options to purchase common stock.
See “Financial condition, liquidity and capital resources” below and a description of our indebtedness in Note 8 to the Notes to consolidated financial statements in Part IV, Item 15. “Exhibits, financial statement schedules”. Other income (expense), net We are exposed to periodic currency fluctuations given our purchasing and selling activities in various countries.
See “Financial condition, liquidity and capital resources” below and a description of our indebtedness in Note 8 to the Notes to consolidated financial statements in Part IV, Item 15. “Exhibits, financial statement schedules”. Other expense, net We are exposed to periodic currency fluctuations given our purchasing and selling activities in various countries.
The amount of variable consideration is estimated at the time of sale based on either the expected value method or the most likely amount, depending on the nature of the 46 variability. We regularly review and revise, when deemed necessary, our estimates of variable consideration based on both customer-specific expectations as well as historical rates of realization.
The amount of variable consideration is estimated at the time of sale based on either the expected value method or the most likely amount, depending on the nature of the variability. We regularly review and revise, when deemed necessary, our estimates of variable consideration based on both customer-specific expectations as well as historical rates of realization.
Factors that determine the specific point in time a customer obtains control and a performance obligation is satisfied are when we have a present right to payment for the goods, whether the customer has physical possession and title to the goods, and whether significant risks and rewards of ownership have transferred.
Factors that determine the specific point in time a customer obtains 48 control and a performance obligation is satisfied are when we have a present right to payment for the goods, whether the customer has physical possession and title to the goods, and whether significant risks and rewards of ownership have transferred.
Cash used in financing activities For the year ended March 31, 2022, net cash used in financing activities was $29.1 million, driven by $54.5 million of repayment of the revolving line of credit and the term loan facility, and $25.6 million of cash received from net of proceeds from the amended revolving line of credit and the Amended term loan facility.
For the year ended March 31, 2022, net cash used in financing activities was $29.1 million, driven by $54.5 million of repayment of the revolving line of credit and the term loan facility, offset by $25.6 million of cash received from net of proceeds from the amended revolving line of credit and the Amended term loan facility.
The Amended Credit Agreement has a five year term and consists of (i) a $100 million revolving credit facility (the “Amended Revolving Credit Facility”) and (ii) a $100 million term loan facility (the "Amended Term Loan Facility"). All amounts under the Amended Revolving Credit Facility are available for draw until the maturity date on April 30, 2026.
The 47 Amended Credit Agreement has a five year term and consists of (i) a $100 million revolving credit facility (the “Amended Revolving Credit Facility”) and (ii) a $100 million term loan facility (the "Amended Term Loan Facility"). All amounts under the Amended Revolving Credit Facility are available for draw until the maturity date on April 30, 2026.
The increase in net working capital was driven by a $5.6 million increase in accounts receivable, a $27.7 million increase in inventory, a $10.6 million increase in prepaid and other assets and a $1.5 million increase of accounts payable and accrued expenses, partially offset by a $4.4 million decrease of other liabilities.
The change in net working capital was driven by a $5.6 million increase in accounts receivable, a $27.7 million increase in inventory, a $10.6 million increase in prepaid and other assets and a $4.4 million decrease of other liabilities, partially offset by a $1.5 million increase of accounts payable and accrued expenses.
We comply with any new or revised accounting standards on the relevant dates on which adoption of such standards is required for publicly traded companies that are not emerging growth companies.
We comply with any new or revised accounting standards on the relevant dates on which adoption of such standards is required for publicly traded companies that are not emerging growth companies. 49
If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no impairment charges recorded on long-lived assets during the years ended March 31, 2022 or March 31, 2021.
If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no impairment charges recorded on long-lived assets during the years ended March 31, 2023 or March 31, 2022.
The Amended Credit Agreement also includes reporting, financial and maintenance covenants that require us to, among other things, comply with certain consolidated total net leverage ratios and consolidated fixed charge coverage ratios. As of March 31, 2022, we were in compliance with all financial covenants under the Amended Credit Agreement.
The Amended Credit Agreement also includes reporting, financial and maintenance covenants that require us to, among other things, comply with certain consolidated total net leverage ratios and consolidated fixed charge coverage ratios. As of March 31, 2023, we were in compliance with all financial covenants under the Amended Credit Agreement.
Net income Our net income for future periods will be affected by the various factors described above. 41 Results of operations The following table sets forth our consolidated statements of operations data in dollars and as a percentage of net sales for the periods presented.
Net income Our net income for future periods will be affected by the various factors described above. 43 Results of operations The following table sets forth our consolidated statements of operations data in dollars and as a percentage of net sales for the periods presented.
Gross margin measures our gross profit as a percentage of net sales. We have an extensive network of third-party manufacturers (primarily in China) from whom we purchase substantially all of our finished goods. We have worked to evolve our supply chain to increase capacity and technical capabilities while maintaining or reducing overall costs as a percentage of sales.
Gross margin measures our gross profit as a percentage of net sales. We have an extensive network of third-party manufacturers from whom we purchase substantially all of our finished goods. We have worked to evolve our supply chain to increase capacity and technical capabilities while maintaining or reducing overall costs as a percentage of sales.
Selling, general and administrative Our selling, general and administrative (“SG&A”) expenses primarily consist of personnel-related expenses, including salaries, bonuses, fringe benefits and stock based compensation, marketing and digital expenses, warehousing and distribution costs, costs related to merchandising, depreciation of property and equipment, amortization of retail product displays and amortization of intangible assets.
Selling, general and administrative expenses Our selling, general and administrative (“SG&A”) expenses primarily consist of marketing and digital expenses, personnel-related costs, including salaries, bonuses, benefits and stock based compensation, warehousing and distribution costs, costs related to merchandising, depreciation of property and equipment, amortization of retail product displays and amortization related to intangible assets and cloud computing costs.
The Amended Revolving Credit Facility also provides for sub-facilities in the form of a $7 million letter of credit and a $5 million swing line loan; however, all amounts under the Amended Revolving Credit Facility cannot exceed $100 million. The unused balance of the Amended Revolving Credit Facility as of March 31, 2022 was $100.0 million.
The Amended Revolving Credit Facility also provides for sub-facilities in the form of a $7 million letter of credit and a $5 million swing line loan; however, all amounts drawn under the Amended Revolving Credit Facility cannot exceed $100 million. The unused balance of the Amended Revolving Credit Facility as of March 31, 2023 was $100.0 million.
While our significant accounting policies are more fully described in the Note 2 to consolidated financial statements in Part IV, Item 15. “Exhibits, financial statement schedules”, we believe that the following accounting policies and estimates are critical to our business operations and understanding of our financial results.
While our significant accounting policies are more fully described in the Note 2 to consolidated financial statements in Part IV, Item 15. “Exhibits, financial statement schedules,” we believe that the following accounting policies and estimates are critical to our business operations and understanding of our financial results.
Off-balance sheet arrangements We are not party to any off-balance sheet arrangements. Critical accounting policies and estimates Our consolidated financial statements included elsewhere in this Annual Report have been prepared in accordance with U.S. generally accepted accounting principles.
Off-balance sheet arrangements We are not party to any off-balance sheet arrangements. Critical accounting policies and estimates Our consolidated financial statements included elsewhere in this Annual Report have been prepared in accordance with US generally accepted accounting principles.
Historically, we have improved our gross margin largely through changes in our product mix, pricing, purchasing efficiencies and cost reductions in our supply chain.
Historically, we have improved our gross margin largely through changes in our product mix, pricing, and cost reductions in our supply chain.
Both the Amended Revolving Credit Facility and the Amended Term Loan Facility bear interest, at borrowers’ option, at either (i) a rate per annum equal to an adjusted LIBOR rate determined by reference to the cost of funds for the United States dollar deposits for the applicable interest period (subject to a minimum floor of 0%) plus an applicable margin ranging from 1.25% to 2.125% based on our consolidated total net leverage ratio or (ii) a floating base rate plus an applicable margin ranging from 0.25% to 1.125% based on our consolidated total net leverage ratio.
Prior to the First Amendment (as defined below), both the Amended Revolving Credit Facility and the Amended Term Loan Facility bore interest, at the borrowers’ option, at either (i) a rate per annum equal to an adjusted LIBOR rate determined by reference to the cost of funds for the United States dollar deposits for the applicable interest period (subject to a minimum floor of 0%) plus an applicable margin ranging from 1.25% to 2.125% based on our consolidated total net leverage ratio (the "Applicable Margin") or (ii) a floating base rate plus an applicable margin ranging from 0.25% to 1.125% based on our consolidated total net leverage ratio.
The increase in net working capital was driven by a $10.5 million increase in accounts receivable, a $10.9 million increase in inventory and a $9.7 million increase in prepaid and other assets, partially offset by a $17.5 million increase of accounts payable and accrued expenses.
The change in net working capital was driven by a $10.5 million increase in accounts receivable, a $10.9 million increase in inventory, a $9.7 million increase in prepaid and other assets and a $3.3 million decrease of other liabilities, partially offset by a $17.5 million increase of accounts payable and accrued expenses.
Capital expenditures typically vary depending on strategic initiatives selected for the fiscal year, including investments in infrastructure, digital capabilities, and expansion within or to additional retailer store locations. We expect to fund ongoing capital expenditures from existing cash on hand, cash generated from operations and, if necessary, draws on the Amended Revolving Credit Facility.
Cash needs typically vary depending on strategic initiatives selected for the fiscal year, including investments in infrastructure, digital capabilities and expansion within or to additional retailer store locations. We expect to fund ongoing cash needs from existing cash and cash equivalents, cash generated from operations and, if necessary, draws on our Amended Revolving Credit Facility.
Interest expense, net Interest expense decreased $2.2 million, or 35%, to $4.1 million in the year ended March 31, 2021, as compared to $6.3 million in the year ended March 31, 2020. This decrease was due to a reduction in our long-term debt as well as a decline in interest rates.
Interest expense, net Interest expense decreased $1.6 million, or 40%, to $2.4 million in the year ended March 31, 2022, as compared to $4.1 million in the year ended March 31, 2021. This decrease was due to a reduction in our long-term debt as well as a decline in interest rates.
Other expense, net Other expense, net was $1.6 million of expense in the year ended March 31, 2021, as compared to $0.4 million of income in the year ended March 31, 2020. The change was primarily related to foreign exchange rate movements.
Other expense, net Other expense, net was $1.4 million of expense in the year ended March 31, 2022, as compared to $1.6 million of expense in the year ended March 31, 2021. The change was primarily related to foreign exchange rate movements.
In addition, as of March 31, 2022, we had borrowing capacity of $100.0 million under the Amended Revolving Credit Facility. Our primary cash needs are for capital expenditures, retail product displays and working capital.
In addition, as of March 31, 2023, we had borrowing capacity of $100.0 million under the Amended Revolving Credit Facility. Our primary cash needs are for working capital, fixturing, retail product displays and digital investment.
The increase on a dollar basis was primarily related to increased marketing and digital spend of $15.1 million along with increased compensation and benefits of $5.7 million and increased software subscription costs of $2.8 million. Restructuring expense Restructuring expenses were $50 thousand in the year ended March 31, 2022.
The increase on a dollar basis was primarily related to increased marketing and digital spend of $15.1 million along with increased compensation and benefits of $5.7 million and increased software subscription costs of $2.8 million. 45 Restructuring expense Restructuring expenses were $50 thousand in the year ended March 31, 2022 in connection with our restructuring plan approved in 2021 to close the our manufacturing plant in Rancho Cucamonga, California.
This included net income, before deducting depreciation, amortization and other non-cash items, of $66.2 million and an increase in net working capital of $46.7 million.
This included net income, before deducting depreciation, amortization and other non-cash items, of $107.1 million and an increase in net working capital of $5.2 million.
From a price and volume perspective, a higher volume of units sold drove $59.4 million of the increase in net sales and a higher average item price within retailer and e-commerce orders drove the remaining $14.6 million increase in net sales as compared to the year ended March 31, 2021. 42 Gross profit Gross profit increased $45.5 million, or 22%, to $251.7 million in the year ended March 31, 2022, compared to $206.2 million in the year ended March 31, 2021.
From a price and volume perspective, a higher volume of units sold drove $59.4 million of the increase in net sales and a higher average item price within retailer and e-commerce orders drove the remaining $14.6 million increase in net sales as compared to the year ended March 31, 2021.
Cash used in investing activities For the year ended March 31, 2022, net cash used in investing activities was $4.8 million, which was primarily driven by capital expenditures related to new customer fixture programs.
Cash used in investing activities For the years ended March 31, 2023, March 31, 2022 and March 31, 2021, net cash used in investing activities was $1.7 million, $4.8 million and $6.5 million, respectively, which was primarily driven by capital expenditures related to new customer fixture programs.
While we have distribution with a number of key retail accounts, we expect to continue to grow through improved sales per linear foot in our existing space, expanded space allocation with our current retail accounts, as well as adding new retail customers.
We seek to continue to grow through improved sales per linear foot in our existing space, expanded space allocation with our current retail accounts, as well as adding new retail customers.
We have no current plans to pay a regular dividend. 47 New accounting pronouncements See Note 2 Summary of significant accounting policies to the Notes to consolidated financial statements in Part IV, Item 15. “Exhibits, Financial Statement Schedules” for information regarding new accounting pronouncements.
New accounting pronouncements See Note 2 Summary of significant accounting policies to the Notes to consolidated financial statements in Part IV, Item 15. “Exhibits, Financial Statement Schedules” for information regarding new accounting pronouncements.
The change in the provision for income taxes was primarily driven by a decrease in income before taxes of $20.4 million and an increase in one-time tax benefits of $3.7 million, primarily related to stock based compensation. Financial condition, liquidity and capital resources Overview As of March 31, 2022, we held $43.4 million of cash and cash equivalents.
The change in the provision for income taxes was primarily driven by an increase in income before taxes of $21.7 million. One-time tax benefits related to stock based compensation were consistent between periods. Financial condition, liquidity and capital resources Overview As of March 31, 2023, we held $120.8 million of cash and cash equivalents.
For the year ended March 31, 2020, net cash provided by operating activities was $44.3 million. This included net income, before deducting depreciation, amortization and other non-cash items, of $54.3 million and an increase in net working capital of $10.0 million.
For the year ended March 31, 2022, net cash provided by operating activities was $19.5 million. This included net income, before deducting depreciation, amortization and other non-cash items, of $66.2 million and an increase in net working capital of $46.7 million.
Our brands are available online and across leading beauty, mass-market, and clean-beauty specialty retailers. We have strong relationships with our retail partners such as Walmart, Target, Ulta Beauty and other leading retailers that have enabled us to expand distribution both domestically and internationally.
Our family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare. Our brands are available online and across leading beauty, mass-market, and specialty retailers. We have strong relationships with our retail customers such as Target, Walmart, Ulta Beauty and other leading retailers that have enabled us to expand distribution both domestically and internationally.
As of March 31, 2022, we had working capital, excluding cash, of $84.7 million, compared to $39.0 million as of March 31, 2021. Working capital, excluding cash and debt, was $90.4 million and $55.3 million as of March 31, 2022 and March 31, 2021, respectively.
As of March 31, 2023, we had working capital, excluding cash, of $74.6 million, compared to $84.7 million as of March 31, 2022. Working capital, excluding cash and debt, was $80.1 million and $90.4 million as of March 31, 2023 and March 31, 2022, respectively.
Our business faces challenges and uncertainties, including our ability to introduce new products that will appeal to a broad consumer base, our ability to service demand, the ability of our major retail customers to drive traffic and keep products in stock, our ability to continue to grow our customer base and competitive threats from other beauty companies. 40 Our largest three customers, Walmart, Target and Ulta Beauty, accounted for 26%, 23% and 12%, respectively, of our net sales in the year ended March 31, 2022.
Our business faces challenges and uncertainties, including our ability to introduce new products that will appeal to a broad consumer base, our ability to service demand, the ability of our major retail customers to drive traffic and keep products in stock, our ability to continue to grow our customer base and competitive threats from other beauty companies.
The increase was driven primarily by strength in our national and international retailers. Net sales increased $76.8 million, or 28%, in our retailer channels, offset by a decrease of $2.8 million, or 6%, in our e-commerce channels.
Net sales increased $76.8 million, or 28%, in our retailer channels, offset by a decrease of $2.8 million, or 6%, in our e-commerce channels.
Comparison of the year ended March 31, 2021 to the year ended March 31, 2020 Net sales Net sales increased $35.3 million, or 12%, to $318.1 million in the year ended March 31, 2021, from $282.9 million in the year ended March 31, 2020. The increase was driven by strength in e-commerce, international, and our national retailers.
Comparison of the year ended March 31, 2022 to the year ended March 31, 2021 Net sales Net sales increased $74.0 million, or 23%, to $392.2 million in the year ended March 31, 2022, from $318.1 million in the year ended March 31, 2021. The increase was driven primarily by strength in our national and international retailers.
Year over year changes in net sales is driven by a number of factors, including color cosmetics and skincare category performance, levels of consumer spending, and our ability to drive awareness of and demand for our products.
Our net sales are derived from sales of these beauty products, net of provisions for sales discounts and allowances, product returns, markdowns and price adjustments. Year over year changes in net sales is driven by a number of factors, including beauty category performance, levels of consumer spending, and our ability to drive awareness of and demand for our products.
The decrease in gross margin rate was primarily driven by unfavorable foreign exchange rates and elevated transportation costs. These items were partially offset by price increases, cost savings and margin accretive mix.
Increased volume accounted for approximately $48.0 million of the increase in gross profit, offset by a $2.5 million decline related to the decrease in gross margin rate. The decrease in gross margin rate was primarily driven by unfavorable foreign exchange rates and elevated transportation costs. These items were partially offset by price increases, cost savings and margin accretive mix.
Overview and Business Trends We are a multi-brand beauty company that offers inclusive, accessible, cruelty-free cosmetics and skincare products. Our mission is to make the best of beauty accessible to every eye, lip and face. We believe our ability to deliver 100% cruelty-free, premium-quality products at accessible prices with broad appeal differentiates us in the beauty industry.
Overview and Business Trends We are a multi-brand beauty company that offers inclusive, accessible, clean, vegan and cruelty-free cosmetics and skincare products. Our mission is to make the best of beauty accessible to every eye, lip, face and skin concern.
The change in the provision for income taxes was primarily driven by an increase in income before taxes of $21.7 million. One-time tax benefits related to stock based compensation were consistent between periods.
The change in the provision was primarily driven by an increase in discrete tax benefit of $12.7 million, primarily related to stock based compensation. The discrete benefit was partially offset by additional income taxes related to the increase in income before taxes of $38.6 million.
The change was primarily related to foreign exchange rate movements. Interest expense, net Interest expense decreased $1.6 million, or 40%, to $2.4 million in the year ended March 31, 2022, as compared to $4.1 million in the year ended March 31, 2021.
Other expense, net Other expense, net was $1.9 million of expense in the year ended March 31, 2023, as compared to $1.4 million of expense in the year ended March 31, 2022. The change was primarily related to unfavorable foreign exchange rate movements, impacting cash and receivables, driving an unrealized loss in the period.
No other individual customer accounted for 10% or more of our net sales in the year ended March 31, 2022. National and international retailers comprised 90% of our net sales. The remaining 10% came from our direct-to-consumer e-commerce channels in the year ended March 31, 2022.
Our largest three customers, Target, Walmart and Ulta Beauty, accounted for 25%, 20% and 15%, respectively, of our net sales in the year ended March 31, 2023. No other individual customer accounted for 10% or more of our net sales in the year ended March 31, 2023. National and international retailers comprised 88% of our net sales.
Other drivers of changes in gross margin include fluctuations in exchange rates, changes in customer mix, and changes in the balance of reserves for excess and obsolete inventory, among other things, which may offset the benefit of changes in product mix, pricing, purchasing efficiencies and cost reductions.
Other drivers of changes in gross margin, which could have a positive or negative impact, include fluctuations in exchange rates, certain costs related to space expansion and retailer activity, changes in customer mix, and changes in the balance of reserves for excess and obsolete inventory, among other things.
Income tax benefit (provision) The provision for income taxes decreased from an expense of $6.2 million, or an effective tax rate of 26%, for the year ended March 31, 2020, to a benefit of $2.5 million, or an effective tax rate of (69)%, for the year ended March 31, 2021.
Income tax (provision) benefit The provision for income taxes was $2.5 million, or an effective rate of 4% for the twelve months ended March 31, 2023, as compared to a provision of $3.7 million, or an effective rate of 14% for the twelve months ended March 31, 2022.
Net sales increased $18.1 million, or 7% in our retailer channels and $17.0 million, or 64% in our e-commerce channels. From a price and volume perspective, a higher average item price within retailer and e-commerce orders substantially drove the $35.3 million dollar increase in net sales while volume remained flat as compared to the year ended March 31, 2020.
From a price and volume perspective, a higher volume of units sold drove $97.7 million of the increase in net sales and a higher average item price within retailer and e-commerce orders drove the remaining $88.9 million increase in net sales as compared to the year ended March 31, 2022. 44 Gross profit Gross profit increased $138.7 million, or 55%, to $390.4 million in the year ended March 31, 2023, compared to $251.7 million in the year ended March 31, 2022.
The primary market for our products is in the United States, which accounted for 89% of our net sales in the year ended March 31, 2022. The remaining 11% was attributable to international markets, primarily Canada and the United Kingdom. Gross profit Gross profit is our net sales less cost of sales.
The remaining 12% was attributable to international markets, primarily Canada and the UK. 42 Gross profit Gross profit is our net sales less cost of sales.
For the year ended March 31, 2020, net cash used in financing activities was $16.7 million, driven by $9.5 million in mandatory principal payments under the prior term loan facility and repurchase of common stock of $7.9 million.
Cash used in financing activities For the year ended March 31, 2023, net cash used in financing activities was $22.7 million, primarily driven by prepayment on the Amended Term Loan Facility of $25.0 million and quarterly debt payments, partially offset by cash received from the exercise of stock options to purchase common stock.
Gross margin decreased from 65% in the year ended March 31, 2021 to 64% in the year ended March 31, 2022. Increased volume accounted for approximately $48.0 million of the increase in gross profit, offset by a $2.5 million decline related to the decrease in gross margin rate.
Gross profit Gross profit increased $45.5 million, or 22%, to $251.7 million in the year ended March 31, 2022, compared to $206.2 million in the year ended March 31, 2021. Gross margin decreased from 65% in the year ended March 31, 2021 to 64% in the year ended March 31, 2022.
Components of our results of operations and trends affecting our business Net sales We develop, market and sell beauty products under the e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare brands. Our net sales are derived from sales of these beauty products, net of provisions for sales discounts and allowances, product returns, markdowns and price adjustments.
Additionally, delays or further disruption to the global supply chain could cause lost sales due to unavailability of inventory, unfavorably impacting our ability to service consumer demand. Components of our results of operations and trends affecting our business Net sales We develop, market and sell beauty products under the e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare brands.
This was partially offset by $1.5 million of proceeds from the exercise of options to purchase common stock. 45 Description of indebtedness Amended credit agreement On April 30, 2021, we amended and restated the prior credit agreement (the "Amended Credit Agreement"), amended and restated the prior term loan facility and the prior revolving credit facility, and refinanced all loans under the prior credit agreement.
Description of indebtedness Amended Credit Agreement On April 30, 2021, we amended and restated the prior credit agreement (as further amended, supplemented or modified from time to time, the "Amended Credit Agreement") and refinanced all loans under the prior credit agreement.
The increase in net working capital was driven by an $11.5 million decrease in other liabilities primarily related to termination payments on store leases, partially offset by the timing of cash payments related to accounts payable and accrued expenses.
The change in net working capital was driven by a $22.4 million increase in accounts receivable, a $24.6 million increase in prepaid and other assets, and a $4.4 million decrease of other liabilities partially offset by a $43.0 million increase of accounts payable and accrued expenses, and a $3.2 million decrease in inventory.
Cash flows Year ended March 31, (in thousands) 2022 2021 2020 Net cash provided by (used in): Operating activities $ 19,513 $ 29,475 $ 44,313 Investing activities (4,818) (6,474) (35,345) Financing activities (29,110) (11,400) (16,675) Net (decrease) increase in cash: $ (14,415) $ 11,601 $ (7,707) Cash provided by operating activities For the year ended March 31, 2022, net cash provided by operating activities was $19.5 million.
In addition to these general economic and industry factors, the principal factors in determining whether our cash flows will be sufficient to meet our liquidity requirements will rely on our ability to provide innovative products to our consumers, manage production and our supply chain. 46 Cash flows Year ended March 31, (in thousands) 2023 2022 2021 Net cash provided by (used in): Operating activities $ 101,883 $ 19,513 $ 29,475 Investing activities (1,723) (4,818) (6,474) Financing activities (22,735) (29,110) (11,400) Net increase (decrease) in cash: $ 77,425 $ (14,415) $ 11,601 Cash provided by operating activities For the year ended March 31, 2023, net cash provided by operating activities was $101.9 million.
Gross profit Gross profit increased $25.1 million, or 14%, to $206.2 million in the year ended March 31, 2021, compared to $181.1 million in the year ended March 31, 2020. Increased volume accounted for approximately $22.6 million of the increase in gross profit, with the remaining $2.5 million driven by an increase in gross margin rate.
Higher average item price and mix accounted for approximately $75.9 million of the increase to gross profit, with the remaining $62.8 million driven by volume. Gross margin increased from 64% in the year ended March 31, 2022 to 67% in the year ended March 31, 2023.
SG&A expenses as a percentage of net sales increased to 61% for the year ended March 31, 2021 from 56% in the year ended March 31, 2020. The increase was primarily related to marketing and digital, including costs related to advertising, digital, and organizational costs related to building out our marketing, digital and innovation capabilities of $22.0 million.
SG&A expenses as a percentage of net sales decreased to 56% for the year ended March 31, 2023 from 57% in the year ended March 31, 2022.
No impairment of goodwill or our indefinite-lived intangible asset was recorded during the years ended March 31, 2022 or March 31, 2021. Stock based compensation Stock based compensation cost is measured at grant date, based on the fair value of the award, and is recognized on a straight-line basis over the requisite service period for all awards that vest.
No impairment of goodwill or our indefinite-lived intangible asset was recorded during the years ended March 31, 2023 or March 31, 2022. Stock based compensation We have several stock award plans, which are described in detail in Note 12.
Selling, general and administrative expenses 43 SG&A expenses were $194.2 million in the year ended March 31, 2021, an increase of $37.0 million, or 24%, from $157.2 million in the year ended March 31, 2020.
The increase in gross margin rate was primarily driven by pricing, cost savings and product mix, partially offset by inventory adjustments. Selling, general and administrative expenses SG&A expenses were $322.3 million in the year ended March 31, 2023, an increase of $100.4 million, or 45%, from $221.9 million in the year ended March 31, 2022.
Removed
We believe the combination of our fundamental value equation, digitally-led strategy, as well as our world-class team’s ability to execute with speed, has positioned us well to navigate a rapidly changing landscape in beauty. Our family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare.
Added
We believe our ability to deliver cruelty-free, clean, vegan and premium-quality products at accessible prices with broad appeal differentiates us in the beauty industry. We believe the combination of our value proposition, innovation engine, ability to attract and engage consumers, and our world-class team’s ability to execute with speed, has positioned us well to navigate the competitive beauty market.
Removed
For additional information regarding our business, see Part I, Item 1, “Business.” COVID-19 Pandemic The beauty industry and our business were impacted in the years ended March 31, 2022 and March 31, 2021 by the COVID-19 pandemic.
Added
For additional information regarding our business, see Part I, Item 1, “Business.” Global Supply Chain Disruptions Since the start of the COVID-19 pandemic, there has been disruption to the global supply chain, including manufacturing and transportation delays due to port closures and congestion, labor and container shortages, and shipment delays. As a result, we have experienced higher transportation costs.
Removed
There could be continued impact on the industry and our business results until consumers return to normal shopping patterns and quarantine and/or social gathering restrictions are removed.
Added
In response to these higher costs, we increased prices on a portion of our products in March 2022 to help mitigate the impact on our business. Further increases in transportation or other costs could have an unfavorable impact on our results.
Removed
In addition, a current vessel and container shortage globally could delay future inventory receipts and, in turn, could delay deliveries to our retailers and availability of products in our direct-to-consumer e-commerce channel or could increase our shipping costs. Such potential delays and shipping disruptions could negatively impact our results of operations through higher inventory costs and reduced sales.
Added
The remaining 12% came from e-commerce channels in the year ended March 31, 2023. The primary market for our products is in the United States, which accounted for 88% of our net sales in the year ended March 31, 2023.
Removed
Throughout the COVID-19 pandemic we have focused on the following areas to address the impact on our business: supporting the health and safety of our employees and community; minimizing disruption to the supply chain; and keeping adequate levels of liquidity and flexibility within our credit facility.
Added
The increase was driven by strength across our retailer and e-commerce channels. Net sales increased $158.0 million, or 45%, in our retailer channels and $28.6 million, or 71%, in our e-commerce channels.
Removed
Tariffs Tariffs have impacted the majority of products that we import from China to the United States. We have taken various steps to help mitigate the impact of tariffs including price increases, negotiating lower prices with our suppliers in China, and exploring potential new suppliers outside of China.
Added
The increase on a dollar basis was primarily related to increased marketing and digital spend of $62.8 million, increased compensation and benefits of $19.4 million, increased operations costs of $9.6 million, and increased retail fixturing and visual merchandising costs of $5.6 million.
Removed
See Note 13 Restructuring and other related costs to consolidated financial statements in Part IV, Item 15. “Exhibits, financial statement schedules” for further details. Other expense, net Other expense, net was $1.4 million of expense in the year ended March 31, 2022, as compared to $1.6 million of expense in the year ended March 31, 2021.
Added
Interest expense, net Interest expense decreased $0.4 million, or 17%, to $2.0 million in the year ended March 31, 2023, as compared to $2.4 million in the year ended March 31, 2022. This decrease was due to increased interest earned on our cash balances and a lower average loan balance, offsetting higher interest rates.
Removed
This decrease was due to a reduction in our long-term debt as well as a decline in interest rates.
Added
The all-in interest rate as of March 31, 2023 for the Amended Term Loan Facility was approximately 6.2%. On March 29, 2023, we amended the Amended Credit Agreement to transition the benchmark from LIBOR to an adjusted Secured Overnight Financing Rate (“SOFR”) (which is equal to the applicable SOFR plus 0.10%) (such transaction, the “First Amendment”).
Removed
The increase in gross margin rate was driven by benefits from margin accretive innovation, cost savings, a mix shift to elfcosmetics.com, and price increases partially offset by certain costs related to retailer activity and space expansion, an increase in inventory adjustments, and the impact of tariffs on goods imported from China in the year ended March 31, 2021.
Added
In connection with the First Amendment, all outstanding LIBOR loans were converted to SOFR loans. The annual interest rate for SOFR borrowings will be equal to term SOFR, subject to a floor of 0%, plus a margin ranging from 1.25% to 2.125%.
Removed
The net of these drivers resulted in an 80 basis point increase in gross margin, which increased from 64% in the year ended March 31, 2020 to 65% in the year ended March 31, 2021.
Added
In accordance with ASC 470, Debt, the amendment to the prior credit agreement was accounted for as both a debt modification and partial debt extinguishment, which resulted in the recognition of a loss on extinguishment of debt of $0.5 million for the year ended March 31, 2022.
Removed
Additionally, we experienced increased operational costs mainly driven by the increase in e-commerce sales of $6.9 million. Restructuring expense Restructuring expenses were $2.6 million in the year ended March 31, 2021, consisting of charges related to the closure of our manufacturing facility in California.
Added
We incurred and capitalized $1.1 million of new debt issuance costs related to the amendment. In the year ended March 31, 2023, we recognized a loss on extinguishment of debt of $176 thousand, primarily related to the partial prepayment of term loan borrowings in the amount of $25.0 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeForeign currency transaction exposure from a 10% movement of currency exchange rates would have a material impact on our reported cost of sales and net income.
Biggest changeWe also have exposure to the Chinese Renminbi as we source nearly all our products from China. We do not have an active hedging program. Foreign currency transaction exposure from a 10% movement of currency exchange rates would have a material impact on our reported cost of sales and net income.
Interest rate risk We had cash, cash equivalents of $43.4 million and $57.8 million as of March 31, 2022 and March 31, 2021, respectively. Our cash and cash equivalents consist of cash and money market funds, which are highly liquid and, as such, are not sensitive to interest rate risk.
Interest rate risk We had cash, cash equivalents of $120.8 million and $43.4 million as of March 31, 2023 and March 31, 2022, respectively. Our cash and cash equivalents consist of cash and money market funds, which are highly liquid and, as such, are not sensitive to interest rate risk.
A hypothetical 1% increase or decrease of interest rates would result in a decrease or increase, respectively, in interest expense on an annualized basis of approximately $1.0 million as of March 31, 2022. Foreign exchange risk We are exposed to foreign exchange risk as we sell product into Canada, the United Kingdom, Europe and other smaller international markets.
A hypothetical 1% increase or decrease of interest rates would result in a decrease or increase, respectively, in interest expense on an annualized basis of approximately $0.7 million as of March 31, 2023. Foreign exchange risk We are exposed to foreign exchange risk as we sell product into Canada, the UK, Europe and other smaller international markets.
Based on a hypothetical 10% adverse movement in RMB as compared to the US dollar, our cost of sales and net income would be adversely affected by approximately $14.5 million for the year ended March 31, 2022. 48
Based on a hypothetical 10% adverse movement in RMB as compared to the US dollar, our cost of sales and net income would be adversely affected by approximately $12.3 million for the year ended March 31, 2023. 50
Removed
We also have exposure to the Chinese Renminbi as we source nearly all our products from China. We do not have an active hedging program, and all of our legacy exchange rate forward contracts matured in 2016.
Removed
We neither used these foreign currency forward contracts for trading purposes nor did we follow hedge accounting, and therefore the periodic impact of these legacy hedging activities was calculated on a mark-to-market basis.
Removed
Accordingly, the foreign currency forward contracts were carried at their fair value either as an asset or liability on the consolidated balance sheet with changes in fair value being recorded in other income (expense), net in our consolidated statements of operations.

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