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What changed in e.l.f. Beauty, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of e.l.f. Beauty, Inc.'s 2023 and 2024 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 2024 report.

+339 added−301 removedSource: 10-K (2024-05-23) vs 10-K (2023-05-25)

Top changes in e.l.f. Beauty, Inc.'s 2024 10-K

339 paragraphs added · 301 removed · 246 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

53 edited+18 added−18 removed47 unchanged
Biggest changeThe 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.
Biggest changeWe promote DEI at all levels of our workforce, and our senior leadership team owns and is responsible for our DEI initiatives and programs. 5 Table of C ontents The following table provides certain statistics of our team as of March 31, 2024: Board of Directors Executive Team (1) Directors and Above (2) All Employees (2) Gender Female 67% 57% 72% 75% Male 33% 43% 28% 25% Age Gen Z and Millennial —% —% 44% 67% All Other 100% 100% 56% 33% Race / Ethnicity Black or African American 11% 14% 1% 4% Hispanic or LatinX —% —% 11% 16% Asian 22% 29% 16% 17% Native American —% —% 1% —% Two or More Races —% —% 4% 5% White 67% 57% 67% 57% (1) Executive Team includes our Executive Officers and the Vice President, General Manager of our China operations.
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.
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 retailers in the United States, as well as internationally.
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.
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.
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.
In addition, each of the aforementioned 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.
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.
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, “clean” and planet minded products. Keys Soulcare Inspired by Alicia Keys' personal skin care 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.
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.
No other individual customer accounted for 10% or more of our net sales in the fiscal year ended March 31, 2024. We expect that Target, Walmart and Ulta Beauty, along with a small number of other customers will, in the aggregate, continue to account for a large portion of our net sales in the future.
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.
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.
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.
We’re also proud that our employee base, which is 75% women, over 40% diverse and over 65% millennial and Gen Z, is representative of the young, diverse communities we serve.
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 .
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 skin care products. • Our Vision .
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 .
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. • Domestic retailers .
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.
Each of these 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.
FSC certification is a globally recognized standard that ensures that products come from responsibly managed forests that provide environmental, social and economic benefits.
FSC certification is a globally recognized standard that promotes products that come from responsibly managed forests that provide environmental, social and economic benefits.
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.
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, Unilever, LVMH, Shiseido, Beiersdorf and Procter & Gamble. These large multinational companies typically own multiple brands.
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.
SKIN,” “Well People,” “Naturium” 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.
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.
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. 9 Table of C ontents Generally, there is no requirement for pre-market approval of cosmetic products in the E.U.
We are committed to: • Encourage Self Expression . We celebrate diversity and make the best of beauty accessible. • Empower Others . We provide equal opportunities for growth and success. • Embody Our Ethics . We strive to do the right thing for all people, the planet and our furry friends.
We celebrate diversity and make the best of beauty accessible. • Empower Others . We provide equal opportunities for growth and success. • Embody Our Ethics . We strive to do the right thing for all people, the planet and our furry friends.
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”).
SKIN,” and “Keys Soulcare,” Well People, Inc., which conducts business under the name “Well People,” and Naturium LLC, which conducts business under the name “Naturium.” 10 Table of C ontents 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”).
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.
We are committed to enabling the appropriate levels of diversity – including but not limited to gender, race, sexual orientation, national origin, ability and age – to be represented across our entire team.
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.
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 gender-neutral parental leave, as well as fertility and adoption support; 6 Table of C ontents • 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; and • Education and career development programs, including tuition reimbursement, High Performance Teamwork (“HPT”) coaching, as well as ongoing learning and training opportunities.
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 US Food and Drug Administration (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.
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.
We believe innovation is key to our success and we were 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. Our flagship e.l.f.
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.
Customers 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. Our largest three customers, Target, Walmart and Ulta Beauty, accounted for 25%, 17% and 16%, respectively, of our net sales in the fiscal year ended March 31, 2024.
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.
We are proud to have eliminated over 2.5 million pounds of excess packaging 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.
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.
For our international operations, we utilize third-party logistics providers in the UK, Germany and Canada 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.
We completed the initial public offering of our common stock in September 2016. Our common stock is currently listed on the New York Stock Exchange (“NYSE”) under the symbol “ELF." Our principal executive offices are located at 570 10th Street, Oakland, California 94607.
We completed the initial public offering of our common stock in September 2016. Our common stock is currently listed on the New York Stock Exchange (“NYSE”) under the symbol “ELF." Our principal executive offices are located at 570 10th Street, Oakland, California 94607. Our telephone number is (510) 778-7787 and our investor relations website can be found at www.elfbeauty.com. e.l.f.
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.
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.” 4 Table of C ontents Supply Chain We have developed a scalable, asset-light supply chain centered on the combination of speed to market, high-quality and low costs.
Cosmetics are not subject to pre-market approval by the FDA; however, certain ingredients, such as color additives, must be pre-approved for the specific intended use of the product and are subject to certain restrictions on their use.
The labeling of cosmetic products is subject to the requirements of the FDCA, the Fair Packaging and Labeling Act, the Poison Prevention Packaging Act and other FDA regulations. 8 Table of C ontents Cosmetics are not subject to pre-market approval by the FDA; however, certain ingredients, such as color additives, must be pre-approved for the specific intended use of the product and are subject to certain restrictions on their use.
We have set a goal for our paper cartons to be 100% FSC-certified across all of our brands by the end of the year ending March 31, 2025, as compared to 23% of our paper cartons being FSC-certified in the year ended March 31, 2022. • Recyclable and reusable packaging.
We have set a goal for 100% of our paper cartons and 100% of our wood brush handles to be FSC-certified across all of our brands by the end of our fiscal year ending March 31, 2025. • Recyclability and recycled content.
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.
Each of our brands 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. As an example, e.l.f.
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.
Cosmetics brand is known for its “holy grail” innovation: beauty products that deliver premium quality at extraordinary 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. Examples of our “holy grails” include the e.l.f.
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. Our distribution centers are operated by leading third-party logistics providers. Our distribution center in California mainly serves our national retail customers, while our distribution centers in Utah, Ohio and Georgia serve our e-commerce consumers.
Beauty makes a contribution to the facility workers who made the product for use in improving their communities. The Planet We are committed to minimizing our environmental impact while providing our consumers with premium-quality beauty products. Product packaging represents a meaningful portion of our environmental footprint, driving our continued focus to further reduce this impact.
The Planet We are focused on reducing our environmental impact while providing our consumers with premium-quality beauty products. Product packaging represents a meaningful portion of our environmental footprint, driving our continued focus to further reduce this impact. Our packaging sustainability strategy is grounded in three principles: • Packaging footprint reduction.
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.
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.
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.
This 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 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.
Our products are also available at other e-commerce sites, such as Amazon, making our products widely accessible to our consumers. • International retailers. Our products are also sold in international markets, primarily in the United Kingdom (the “UK”) and Canada. In the fiscal year ended March 31, 2024, national and international retailers comprised 84% of our net sales.
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.
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.
Empower Others: Supporting the Full Potential of Our Employees Our talented employees are at the core of our business strategy. We place a high priority on attracting, recruiting, developing and retaining diverse global talent. Our benefits and programs are designed to support the total well-being and promote the full potential of our employees.
Empower Others: Supporting the Full Potential of Our Employees Our talented employees are at the core of our business strategy. We place a high priority on attracting, recruiting, developing and retaining diverse global talent. 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.
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.
Our Brands Our family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Naturium, Well People and Keys Soulcare. Our brands are available online and across leading beauty, mass-market and specialty retailers.
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.
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 double certified as “cruelty free” across our e.l.f. Cosmetics, e.l.f. SKIN, Well People and Keys Soulcare brands.
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.
We believe the combination of our value proposition, powerhouse innovation, disruptive marketing engine and our world-class team’s ability to execute with quality and speed has positioned us well to navigate the competitive beauty market. Our strategy is underpinned by four key pillars: • Value Proposition .
Generally, there is no requirement for pre-market approval of cosmetic products in the E.U. However, centralized notification of all cosmetic products placed on the E.U. market is required. Manufacturers are required to notify their products via the E.U. cosmetic products notification portal.
However, centralized notification of all cosmetic products placed on the E.U. market is required. Manufacturers are required to notify their products via the E.U. cosmetic products notification portal. Manufacturers are responsible for safety of their marketed finished cosmetic products, and must ensure that they undergo an appropriate scientific safety assessment before cosmetic products are sold.
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.
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. Our ambition is to make skin care accessible to all with innovative, efficacious formulas at get-real prices.
We have projects underway to increase the percentage of our packaging that is recyclable, refillable, reusable or made from recycled materials. We are committed to monitoring our overall environmental impact, including measuring greenhouse gas emissions.
We have projects underway to increase the percentage of our packaging that is recyclable, refillable, reusable or made from recycled materials. We are also working to reduce our carbon footprint. In our fiscal year ended March 31, 2022, we publicly disclosed our greenhouse gas (GHG) emissions of our offices, distribution centers and value chain.
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.
Cosmetics Power Grip Primer at $10 versus a prestige item at $38, the e.l.f. 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. • Disruptive Marketing Engine .
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.
Color cosmetics and skin care products are broadly sold through food, drug and mass channels, as well as through department stores, online and in specialty channels.
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.
We seek to attract and engage consumers primarily through digital and social media, as compared to legacy beauty brands that engage consumers primarily through traditional media such as magazines, newspapers and television. We attract and engage existing and new consumers through buzz-worthy activations, unexpected creativity and unique collaborations.
To achieve certification, facilities are required to pass thorough audits and demonstrate adherence to over 100 compliance criteria that cover social responsibility, environmental responsibility, empowerment and economic development. Facilities must pass a re-certification annually, which includes plans for continuous improvement. Each time a consumer buys one of our Fair Trade Certified™ products, e.l.f.
Facilities must pass a re-certification annually, which includes plans for continuous improvement. Each time a consumer buys one of our Fair Trade Certified™ products, e.l.f. Beauty makes a contribution to the facility workers who made the product for use in improving their communities.
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.
Total expenses for marketing and digital in the fiscal year ended March 31, 2024 were $256.0 million, approximately 25% of our net sales. • Unique One-Team Culture . Our talented employees are at the core of our business strategy.
Manufacturers are responsible for safety of their marketed finished cosmetic products, and must ensure that they undergo an appropriate scientific safety assessment before cosmetic products are sold. A special database with information on cosmetic substances and ingredients, known as CosIng, enables easy access to data on cosmetic ingredients, including legal requirements and restrictions.
A special database with information on cosmetic substances and ingredients, known as CosIng, enables easy access to data on cosmetic ingredients, including legal requirements and restrictions. 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 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.
We make premium-quality, prestige-inspired cosmetics at an extraordinary value. We offer a range of products that are clean, vegan, cruelty free and manufactured in a Fair Trade Certified TM facility. 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.
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.
Our first third-party manufacturing facility in China was Fair Trade Certified™ in August 2022, and we have since expanded this program to certify additional facilities. To achieve certification, facilities are required to pass thorough audits and demonstrate adherence to over 100 compliance criteria that cover social responsibility, environmental responsibility, empowerment and economic development.
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.
Naturium unlocks the benefits of natural botanicals and powerful actives with innovative technology by formulating skin care formulas that work. Well People Since 2008, Well People has raised the standard for plant-powered, high-performance beauty.
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).
Employees and Human Capital Management As of March 31, 2024, we had 475 full-time employees (377 in the United States, the UK and Canada, and 98 in China). Social Impact and Commitments Our Impact Report sets out our social and environmental goals and strategy across three pillars - Encourage Self Expression, Empower Others and Embody Our Ethics.
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Clean ingredients: Our products are formulated with ingredients that have the health and safety of our consumers in mind.
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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 Table of C ontents e.l.f. Cosmetics Since 2004, e.l.f. Cosmetics has made the best of beauty accessible to every eye, lip and face.
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All products are formulated to comply with Food and Drug Administration (the "FDA") and European Union Cosmetic Regulation restrictions covering over 1,600 ingredients including parabens, phthalates, sulfates, formaldehyde, nonylphenol ethoxylates, triclosan, triclocarban, toluene, coal tar, lead, mercury, acrylamide and hydroquinone as well as other substances.
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We offer a range of products that are clean, vegan, cruelty free and manufactured in a Fair Trade Certified TM facility. Naturium Driven by the belief that skin care should be and can be high performance, skin compatible and affordable, Naturium was born.
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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.
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Renée Snyder, our premium-quality skin care formulas are also clean, cruelty free and manufactured in a Fair Trade Certified TM facility. Our Products and Strategy 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.
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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.
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Cosmetics’ average product price point is approximately $6, as compared to other leading mass cosmetics brands which have average product price points over $9 and prestige cosmetics brands which have average product price points over $20, according to Nielsen. • Powerhouse Innovation .
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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.
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We believe that our brand awareness is relatively low in comparison to legacy mass beauty brands. This represents an opportunity for us, and we have a multi-faceted strategy to build brand awareness, affinity and loyalty.
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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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Our commitment to our people and our High Performance Team (“HPT”) culture is evident in our 91% employee engagement score and recognition by U.S. News & World Report on its annual list of the “2023-2024 Best Companies to Work For.” 3 Table of C ontents With regards to compensation, we take a unique “one-team” approach.
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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 .
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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. We believe we are one of the few public consumer companies that grants equity on an annual basis to every employee—strongly aligning our team with the long-term interests of our stockholders.
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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. 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.
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We believe this approach, which applies across all employee levels and geographies, is unique in the beauty industry and contributes to our success in hiring and retaining top talent and driving business results. Markets and Competition We operate across beauty categories including eye, lip and face makeup, beauty tools and accessories, and skin care products.
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Culture and Commitments By standing with every eye, lip, face and paw, we are committed to creating a culture internally—and in the world around us—where all individuals are encouraged to express their truest selves, are empowered to succeed, and where we strive to do the right thing for people, the planet and our furry friends.
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The remaining 16% came from e-commerce channels. The United States accounted for 85% of our net sales in the fiscal year ended March 31, 2024. The remaining 15% was attributable to international markets.
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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.
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As is customary in the industry, none of our customers are under any obligation to continue purchasing products from us in the future.
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(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.
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Details can be found in our Impact Report on our website (https://www.elfbeauty.com/social-impact/). The information on, or that can be accessed through, our website, including our Impact Report and related materials, is not incorporated by reference into this Annual Report or any other filings we make with the SEC. We are committed to: • Encourage Self Expression .
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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.
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(2) Employee demographic figures based on our full-time employees as of March 31, 2024. Race/ethnicity percentages exclude our employees outside of the United States. Note: We are an equal opportunity employer and do not use race, ethnicity, gender or any other protected criteria as a factor in any employment decisions, such as hiring, promotions or compensation.
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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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In FY 2024, we were recognized on U.S. News & World Report’s annual list of the “2023-2024 Best Companies to Work For.” We are keenly interested in our employees’ well-being, development and overall satisfaction. Engagement is a key factor we look to because it measures our team’s connection and commitment to both e.l.f. Beauty and our vision, mission and values.
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In the year ended March 31, 2023, for the first time we publicly disclosed our greenhouse gas (GHG) emissions of our offices, distribution centers and value chain. With this baseline data established for Scope 1, 2, and 3 emissions, we plan to develop our carbon reduction strategy and establish corresponding targets.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn addition to fines, a violation of the UK GDPR or the GDPR may result in regulatory investigations, reputational damage, orders to cease/change data processing activities, enforcement notices, assessment notices (for a compulsory audit) and/or civil claims (including class actions).
Biggest changeIn addition to fines, a violation of the UK GDPR or the GDPR may result in regulatory investigations, reputational damage, orders to cease/change data processing activities, enforcement notices, assessment notices (for a compulsory audit) and/or civil claims (including class actions). 30 Table of C ontents We are also subject, under the GDPR, to restrictions on cross-border transfers of personal data out of the European Economic Area (the “EEA”) where recent legal developments have created complexity and uncertainty regarding transfers of personal data outside the EEA and the UK, including to the United States.
Adverse economic conditions in the United States, Canada, the UK, China or any of the other countries in which we conduct significant business, such as the current inflationary economic environment, rising interest rates, financial distress caused by recent or potential bank failures and the associated banking crisis, an economic recession, depression or downturn, a tightening of the credit markets, high energy prices or higher unemployment levels, may lead to decreased consumer spending, reduced credit availability and a decline in consumer confidence and demand, each of which poses a risk to our business.
Adverse economic conditions in the United States, the UK, Canada, China or any of the other countries in which we conduct significant business, such as the current inflationary economic environment, rising interest rates, financial distress caused by recent or potential bank failures and the associated banking crisis, an economic recession, depression or downturn, a tightening of the credit markets, high energy prices or higher unemployment levels, may lead to decreased consumer spending, reduced credit availability and a decline in consumer confidence and demand, each of which poses a risk to our business.
We may require additional cash resources due to changed business conditions or other future developments, including any marketing initiatives, investments or acquisitions we may decide to pursue. To the extent we are unable to generate sufficient cash flow, we may be forced to cancel, reduce or delay these activities.
We may require additional cash resources due to changed business conditions or other future developments, including any marketing initiatives, investments or additional acquisitions we may decide to pursue. To the extent we are unable to generate sufficient cash flow, we may be forced to cancel, reduce or delay these activities.
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.
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.
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.
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.
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.
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.
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.
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; 13 Table of C ontents • 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; • 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 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.
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.
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.
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.
We are increasingly dependent on a variety of information systems to effectively process retail customer orders and fulfill consumer orders from our e-commerce business. We depend on our information technology infrastructure for digital marketing activities and for electronic communications among our personnel, retail customers, consumers, manufacturers and suppliers around the world.
We are increasingly dependent on a variety of secure information systems to effectively process retail customer orders and fulfill consumer orders from our e-commerce business. We depend on our information technology infrastructure for digital marketing activities and for electronic communications among our personnel, retail customers, consumers, manufacturers and suppliers around the world.
As part of our ongoing business strategy, we expect we will need to continue to introduce new products in the color cosmetics and skincare categories, while also expanding our product launches into adjacent categories in which we may have little to no operating experience.
As part of our ongoing business strategy, we expect that we will need to continue to introduce new products in the color cosmetics and skincare categories, while also expanding our product launches into adjacent categories in which we may have little to no operating experience.
If a natural disaster, power outage, connectivity issue, or other event occurs that impacts our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time.
Additionally, if a natural disaster, power outage, connectivity issue, or other event occurs that impacts our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time.
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.
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 countries outside of the United States, including through distributors.
Purchases under the Share Repurchase Program may be made from time to time in the open market, in privately negotiated transactions or otherwise. 36 The timing and amount of any repurchases pursuant to the Share Repurchase Program will be determined based on market conditions, share price and other factors.
Purchases under the Share Repurchase Program may be made from time to time in the open market, in privately negotiated transactions or otherwise. The timing and amount of any repurchases pursuant to the Share Repurchase Program will be determined based on market conditions, share price and other factors.
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.
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 “Management’s discussion and analysis of financial condition and results of operations” in Part II, Item 7 of this Annual Report.
We are a small company that relies on a few key employees, any one of whom would be difficult to replace, and because we are a small company, we believe that the loss of key employees may be more disruptive to us than it would be to a larger company.
We are a relatively small company that relies on a few key employees, any one of whom would be difficult to replace, and because we are a small company, we believe that the loss of key employees may be more disruptive to us than it would be to a larger company.
We rely on trademark, copyright, trade secret, patent and other laws protecting proprietary rights, nondisclosure and confidentiality agreements and other practices, to protect our brands and proprietary information, technologies and processes. Our primary trademarks include “e.l.f.,” "e.l.f.
We rely on trademark, copyright, trade secret, patent and other laws protecting proprietary rights, nondisclosure and confidentiality agreements and other practices, to protect our brands and proprietary information, technologies and processes. Our primary trademarks include “e.l.f.,” “e.l.f.
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.
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.
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.
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.
The failure of other banks and financial institutions and measures 18 taken, or not taken, by governments, businesses, and other organizations in response to these events could adversely impact our business, financial condition, and results of operations.
The failure of other banks and financial institutions and measures taken, or not taken, by governments, businesses and other organizations in response to these events could adversely impact our business, financial condition and results of operations.
The implementation of new information technology systems, such as our SAP implementation, or any modification of our key information systems may not result in productivity improvements at a level that outweighs the costs of implementation, or at all.
The implementation of new information technology systems, such as our implementation of SAP software, or any modification of our key information systems may not result in productivity improvements at a level that outweighs the costs of implementation, 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.
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.
We provide emails and “push” communications to inform consumers of new products, shipping specials and other promotions. We believe these messages are an important part of our consumer experience.
We provide emails, text messages and “push” communications to inform consumers of new products, shipping specials and other promotions. We believe these messages are an important part of our consumer experience.
Our products are also subject to state laws and regulations, such as the California Safe Drinking Water and Toxic Enforcement Act, also known as “Prop 65,” and failure to comply with such laws may also result in lawsuits and regulatory enforcement that could have a material adverse effect on our business, financial condition and results of operations.
Our products are also subject to state laws and regulations, such as the California Safe Drinking Water and Toxic Enforcement Act, also known as “Prop 65,” and various state PFAS regulations, and failure to comply with such laws may also result in lawsuits and regulatory enforcement that could have a material adverse effect on our business, financial condition and results of operations.
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.
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; 14 Table of C ontents • 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.
We may not be able to effectively manage this expansion in any one or more of these areas, and any failure to do so could significantly harm our business, financial condition and results of operations. Growing our business may make it difficult for us to adequately predict the expenditures we will need to make in the future.
We may not be able to continue to effectively manage our expansion in any one or more of these areas, and any failure to do so could significantly harm our business, financial condition and results of operations. Growing our business may make it difficult for us to adequately predict the expenditures we will need to make in the future.
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.
Acquisitions or investments can 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.
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.
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; 37 Table of C ontents • 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 may not have sufficient resources to 26 conduct any required clinical trials or to ensure compliance with the manufacturing requirements applicable to drugs.
We may not have sufficient resources to conduct any required clinical trials or to ensure compliance with the manufacturing requirements applicable to drugs.
In addition, in May 2019, we announced that our board of directors authorized a share repurchase program allowing us to repurchase up to $25.0 million of our outstanding shares of common stock (“Share Repurchase Program”), of which approximately $17.1 million remains available for future share repurchases as of March 31, 2023.
In addition, in May 2019, we announced that our board of directors authorized a share repurchase program allowing us to repurchase up to $25.0 million of our outstanding shares of common stock (“Share Repurchase Program”), of which approximately $17.1 million remains available for future share repurchases as of March 31, 2024.
Negative commentary or false statements regarding us or our products may be posted on our e-commerce websites, mobile applications, or social media platforms and may be adverse to our reputation or business. Our target consumers often value readily available information and often act on such information without further investigation and without regard to its accuracy.
Negative commentary or false statements regarding us or our products may be posted on our e-commerce websites, mobile applications, or social media platforms and may be harmful to our reputation or business. Our target consumers often value readily available information and may act on such information without further investigation and without regard to its accuracy.
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.
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 the financial institutions with which we do business enter receivership or become insolvent in the future, there is no guarantee that the Department of the Treasury, the Federal Reserve, and the FDIC will intercede to provide us and other depositors with access to balances in excess of the $250,000 FDIC insurance limit or that we would be able to: (i) access our existing cash, cash equivalents, and investments; (ii) maintain any required letters of credit or other credit support arrangements; or (iii) adequately fund our business for a prolonged period of time or at all.
If the financial institutions with which we do business enter receivership or become insolvent in the future, there is no guarantee that the Department of the Treasury, the Federal Reserve and the FDIC will intercede to provide us and other 19 Table of C ontents depositors with access to balances in excess of the $250,000 FDIC insurance limit or that we would be able to: (i) access our existing cash, cash equivalents and investments; (ii) maintain any required letters of credit or other credit support arrangements; or (iii) adequately fund our business for a prolonged period of time or at all.
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.
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.
The full extent of the impact of the COVID-19 pandemic, or another pandemic, epidemic or infectious disease outbreak, on our business, financial condition and results of operations will depend on future developments that are highly uncertain and unpredictable, including the timing, acceptance and efficacy of vaccinations and possible achievement of herd immunity in various locations, the occurrence of virus mutations and variants, infection rates increasing or returning in various geographic areas, actions by government authorities to contain outbreaks or treat their impact, and any related impact on capital and financial markets and consumer behavior, including the impacts of any recession or inflationary pressures, all of which may vary across regions.
The full extent of the impact of a pandemic, such as the COVID-19 pandemic, an epidemic or an infectious disease outbreak on our business, financial condition and results of operations will depend on future developments that are highly uncertain and unpredictable, including the timing, acceptance and efficacy of vaccinations and possible achievement of herd immunity in various locations, the occurrence of virus mutations and variants, infection rates increasing or returning in various geographic areas, actions by government authorities to contain outbreaks or treat their impact, and any related impact on capital and financial markets and consumer behavior, including the impacts of any recession or inflationary pressures, all of which may vary across regions.
Furthermore, climate change and other ESG-related legislation and regulation is being implemented across the world, including in the United States, and any such legislation or regulation may impose additional compliance burdens on us and on third parties in our value chain, which could potentially result in increased administrative costs, decreased demand in the marketplace for our products, and/or increased costs for our supplies and products.
Furthermore, ESG-related legislation and regulation is being implemented across the world, including in the United States, and any such legislation or regulation may impose additional compliance burdens on us and on third parties in our value chain, which could potentially result in increased administrative costs, decreased demand in the marketplace for our products, and/or increased costs for our supplies and products.
For example, in December 2021, the US Congress enacted the Uyghur Forced Labor Prevention Act in an effort to prevent what it views as forced labor and human rights abuses in the Xinjiang Uyghur Autonomous Region ("XUAR").
For example, in December 2021, the US Congress enacted the Uyghur Forced Labor Prevention Act in an effort to prevent what it views as forced labor and human rights abuses in the Xinjiang Uyghur Autonomous Region (“XUAR”).
As a company engaged in distribution on a global scale, our operations, including those of our third-party manufacturers, suppliers, brokers and delivery service providers, are subject to the risks inherent in such activities, including industrial accidents, environmental events, strikes and other labor disputes, disruptions or delays in shipments, disruptions in information systems, product quality control, safety, licensing requirements and other regulatory issues, as well as natural disasters, pandemics (such as the coronavirus pandemic), border disputes, international conflict, acts of terrorism and other external factors over which we and our third-party manufacturers, suppliers, brokers and delivery service providers have no control.
As a company engaged in distribution on a global scale, our operations, including those of our third-party manufacturers, suppliers, brokers and delivery service providers, are subject to the risks inherent in such activities, including industrial accidents, environmental events, strikes and other labor disputes, disruptions or delays in shipments, disruptions in information systems, product quality control, safety, licensing requirements and other regulatory issues, as well as natural disasters, pandemics (such as the coronavirus pandemic), border disputes, international conflict (such as the ongoing military conflict in Ukraine and the Middle East), acts of terrorism and other external factors over which we and our third-party manufacturers, suppliers, brokers and delivery service providers have no control.
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.
In addition, third-party manufacturer’s facilities for manufacturing OTC drug products must comply with the FDA’s current GMP (“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.
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.
SKIN,” “Naturium,” “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.
The further spread of COVID-19 or the emergence of another pandemic, epidemic or infectious disease outbreak, and any required or voluntary actions to help limit the spread of illness, could impact our ability to carry out our business and may materially adversely impact global economic conditions, our business, financial condition and results of operations.
The emergence of another pandemic, epidemic or infectious disease outbreak, and any required or voluntary actions to help limit the spread of illness, could impact our ability to carry out our business and may materially adversely impact global economic conditions, our business, financial condition and results of operations.
The loss of key personnel or the failure to attract and retain qualified personnel may have a material adverse effect on our business, financial condition and results of operations. 15 We rely on a number of third-party suppliers, manufacturers, distributors and other vendors, and they may not continue to produce products or provide services that are consistent with our standards or applicable regulatory requirements, which could harm our brands, cause consumer dissatisfaction, and require us to find alternative suppliers of our products or services.
The loss of key personnel or the failure to attract and retain qualified personnel may have a material adverse effect on our business, financial condition and results of operations. 16 Table of C ontents We rely on a number of third-party suppliers, manufacturers, distributors and other vendors, and they may not continue to produce products or provide services that are consistent with our standards or applicable regulatory requirements, which could harm our brands, cause consumer dissatisfaction, and require us to find alternative suppliers of our products or services.
A portion of our personnel based in the United States is currently working under our hybrid model of three days in the office and two days remote, while others work remote entirely. It is possible with this model that the execution of our business plans and operations could be negatively impacted.
A portion of our personnel is currently working under our hybrid model of three days in the office and two days remote, while others work remote entirely. It is possible with this model that the execution of our business plans and operations could be negatively impacted.
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.
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. 11 Table of C ontents 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.
Our ability to generate cash to meet our operating needs, expenditures and debt service obligations will depend on our future performance and financial condition, which will be affected by financial, business, economic, legislative, regulatory and other factors, including potential changes in costs, pricing, the success of product innovation and marketing, competitive pressure and consumer preferences.
Our ability to generate cash to meet our operating needs, expenditures and debt service obligations will depend on our future performance and financial condition, which will be affected by financial, business, economic, legislative, regulatory and other 20 Table of C ontents factors, including potential changes in costs, pricing, the success of product innovation and marketing, competitive pressure and consumer preferences.
However, advances in technology, the pernicious ingenuity of criminals, new exposures via cryptography, acts or omissions by our employees, contractors or service providers or other events or developments could result in a compromise or breach in the security of confidential or personal data.
However, despite these efforts, advances in technology, the pernicious ingenuity of criminals, new exposures via cryptography, acts or omissions by our employees, contractors or service providers or other events or developments could result in a compromise or breach in the security of confidential or personal data.
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.
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, our reputation, 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.
If our information technology systems suffer damage, disruption or shutdown, we may incur substantial cost in repairing or replacing these systems, and if we do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.
If our information technology systems suffer damage, disruption or shutdown, we may incur substantial cost in repairing or replacing these systems, and if we do not effectively resolve the issues in a timely manner, our business, financial condition 22 Table of C ontents and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.
In the event that our trademarks are successfully challenged, we could be forced to rebrand our products in some parts of the world, which could result in the loss of brand recognition and could require us to devote resources to advertising and marketing new brands. We have limited patent protection, which limits our ability to protect our products from competition.
In the event that our trademarks are successfully challenged, we could be forced to rebrand our products in some parts of the world, which could result in the loss of brand recognition and could require us to devote resources to advertising and marketing new brands. 33 Table of C ontents We have limited patent protection, which limits our ability to protect our products from competition.
We are subject to international business uncertainties. 24 We sell some of our products to customers located outside the United States. In addition, substantially all of our third-party suppliers and manufacturers are located in China and certain other foreign countries.
We are subject to international business uncertainties. We sell many of our products to customers located outside the United States. In addition, substantially all of our third-party suppliers and manufacturers are located in China and certain other foreign countries.
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.
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, 2024, we had 98 employees in China.
Any of such eents could have a material adverse effect on our current or projected business operations and results of operations and financial condition.
Any of such events could have a material adverse effect on our current or projected business operations and results of operations and financial condition.
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.
We 25 Table of C ontents 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.
Our products intended for use as cosmetics or skincare are not generally subject to pre-market approval or registration processes, so we cannot rely upon a government safety panel to qualify or approve our products for use.
Our products intended for use as cosmetics or skin care are not generally subject to pre-market approval or registration processes, so we cannot rely upon a government safety panel to qualify or approve our products for use.
In general, claims made by or against us in disputes and other legal or regulatory proceedings can be expensive and time consuming to bring or defend against, requiring us to expend significant resources and divert the efforts and attention of our management and other personnel from our business operations.
In general, claims made by or against us in disputes and other legal or regulatory proceedings can be expensive and time consuming to bring or defend against, requiring us to expend significant resources and divert the efforts and attention of our management and other 32 Table of C ontents personnel from our business operations.
However, in light of investors’ increased focus on ESG matters, and in light of increased and evolving legislation and regulation regarding ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet our customers’ or society’s expectations as to our proper role.
However, in light of investors’ increased focus on ESG 36 Table of C ontents matters, and in light of increased and evolving legislation and regulation regarding ESG matters, there can be no certainty that we will manage such issues successfully, or that we will successfully meet our customers’ or society’s expectations as to our proper role.
If we do not make the necessary overhead expenditures to accommodate our future growth, we may not be successful in executing our growth strategy, and our results of operations would suffer. Acquisitions or investments could disrupt our business and harm our financial condition.
If we do not make the necessary overhead expenditures to accommodate our future growth, we may not be successful in executing our growth strategy, and our results of operations would suffer. Acquisitions or investments, such as our acquisition of Naturium, could disrupt our business and harm our financial condition.
Although the FDA has yet to establish or implement regulations for such GMP requirements, third-party manufacturers of our cosmetic products may be slow or unable to adapt to these forthcoming regulations, which may require us to find alternative suppliers for our products.
Although the FDA has yet to establish or implement regulations for such GMP requirements, third-party manufacturers of our cosmetic products may be slow or unable to adapt to these forthcoming regulations, which may require us to find alternative suppliers 29 Table of C ontents for our products.
For example, we maintain Snapchat, Facebook, TikTok, Twitter, Pinterest, Instagram and YouTube accounts. As e-commerce and social media platforms continue to rapidly evolve, we must continue to maintain a presence on these platforms and establish presences on new or emerging popular social media platforms.
For example, we maintain Snapchat, Facebook, TikTok, X (formerly Twitter), Roblox, Twitch, Pinterest, Instagram and YouTube accounts. As e-commerce and social media platforms continue to rapidly evolve, we must continue to maintain a presence on these platforms and establish presences on new or emerging popular social media platforms.
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.
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, malicious uses of AI and other data security and privacy threats.
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.
As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the SCCs cannot be used, and/or continue to take 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.
Although the Company did not have any cash or cash equivalent balances on deposit with SVB, Signature Bank or First Republic Bank, we are unable to predict the extent or nature of the impacts of the failures of these banks and related circumstances at this time.
Although the Company did not have any cash or cash equivalent balances on deposit with SVB, Signature Bank or First Republic Bank and, therefore, did not experience any direct risk of loss, we are unable to predict the extent or nature of the impacts of the failures of these banks and related circumstances at this time.
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.
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 23 Table of C ontents tools.
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
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. 39 Table of C ontents Item 1B. Unresolved staff comments. None.
If we lose a significant retail customer or if sales of our products to a significant retailer materially decrease, it could have a material adverse effect on our business, financial condition and results of operations.
If we lose a significant retail customer or if sales of our 21 Table of C ontents products to a significant retailer materially decrease, it could have a material adverse effect on our business, financial condition and results of operations.
For example, we may receive third-party complaints that the comments or other content posted by users on our platforms infringe third-party intellectual property rights or otherwise infringe the legal rights of others.
For example, we 34 Table of C ontents may receive third-party complaints that the comments or other content posted by users on our platforms infringe third-party intellectual property rights or otherwise infringe the legal rights of others.
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.
In addition, such problems may require us to find new third-party suppliers, 17 Table of C ontents 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.
Further, we recently opened an office in the UK and hired a team of employees to support our international expansion, and we may establish additional relationships in other countries to grow our operations.
Further, we recently opened an office in the UK and hired a team of employees to support our international expansion, and we are establishing additional relationships in other countries to grow our operations.
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.
Our historical growth may not be indicative of our future performance as 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.
We also employ third-party service providers that collect, store, process and transmit personal data, and confidential, proprietary and financial information on our behalf. We have in place technical and organizational measures to maintain the security and safety of critical proprietary, personal, employee, customer and financial data which we continue to maintain and upgrade to industry standards.
We also employ third-party service providers that collect, store, process and transmit personal data, and confidential, proprietary and financial information on our behalf. We have in place technical and organizational measures designed to maintain the security and safety of critical proprietary, personal, employee, customer and financial data.
This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our common stock in spite of our operating performance.
This market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our common 38 Table of C ontents stock in spite of our operating performance.
Data security and privacy threats are becoming increasingly difficult to detect and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” personnel (such as through theft or misuse), organized criminal threat actors, sophisticated nation states, and nation-state supported actors.
Data security and privacy threats are accelerating in frequency and magnitude, are becoming increasingly difficult to detect, and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” personnel (such as through malfeasance, human error, theft or misuse), organized criminal threat actors, sophisticated nation states and nation-state supported actors.
In addition, we may not obtain or retain the requisite legal permits to continue to operate in China, and costs or operational limitations may be imposed in connection with obtaining and complying with such permits.
In addition, we may not obtain or retain the requisite legal permits to continue to operate in 26 Table of C ontents China, and costs or operational limitations may be imposed in connection with obtaining and complying with such permits.
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”).
As of March 31, 2024, we had a total of $262.9 million of indebtedness, consisting of amounts outstanding under our credit facilities and finance lease obligations, and a total availability of $10.5 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”).
Furthermore, these newer advertising channels often change rapidly and can be subject to disruptions for reasons beyond our control. For example, in recent months, lawmakers in the US, Europe and Canada have escalated efforts to restrict access to TikTok.
Furthermore, these newer advertising channels often change rapidly and can be subject to disruptions for reasons beyond our control. For example, lawmakers in the United States, Europe and Canada have recently escalated efforts to restrict access to TikTok.
In the United States, a number of privacy-related proposals (including proposed comprehensive privacy legislation) are pending before federal and state legislative and regulatory bodies and additional laws and regulations have been passed but are not yet effective, all of which could significantly affect our business.
Data privacy continues to remain a matter of interest to lawmakers and regulators. In the United States, a number of privacy-related proposals (including proposed comprehensive privacy legislation) are pending before federal and state legislative and regulatory bodies and additional laws and regulations have been passed but are not yet effective, all of which could significantly affect our business.
Our operations are subject to the US Foreign Corrupt Practices Act (the “FCPA”), as well as the anti-corruption and anti-bribery laws in the countries where we do business.
Our operations are subject to the US Foreign Corrupt Practices Act (the “FCPA”), as well as the anti-corruption and anti-bribery laws in the countries where 31 Table of C ontents we do business.
See also “— Our quarterly results of operations fluctuate due to seasonality, order patterns from key retail customers and other factors, and we may not have sufficient liquidity to meet our seasonal working capital requirements .” Public health crises, such as the COVID-19 global pandemic, could adversely affect our business, financial condition and results of operations.
See also “ Risk factors related to our retail customers, consumers and the seasonality of our business — Our quarterly results of operations fluctuate due to seasonality, order patterns from key retail customers and other factors, and we may not have sufficient liquidity to meet our seasonal working capital requirements .” Public health crises could adversely affect our business, financial condition and results of operations.
We depend heavily on ocean container delivery to receive shipments of our products from our third-party manufacturers located in China and contracted third-party delivery service providers to deliver our products to our distribution facilities and logistics providers, and from there to our retail customers.
We depend heavily on ocean container delivery, as well as fast boats, rail and air freight, to receive shipments of our products from our third-party manufacturers located in China and contracted third-party delivery service providers to deliver our products to our distribution facilities and logistics providers, and from there to our retail customers.
Our growth and profitability are dependent on a number of factors, and our historical growth may not be indicative of our future growth. Our historical growth should not be considered as indicative of our future performance.
Our growth and profitability are dependent on a number of factors, and our historical growth may not be indicative of our future growth.

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Item 2. Properties

Properties — owned and leased real estate

2 edited+1 added−1 removed1 unchanged
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.
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 London, UK Leased Corporate offices Shanghai, China Leased Corporate offices Ontario, California Leased Distribution Our properties total an aggregate of approximately 57,018 square feet of commercial space and approximately 465,219 square feet of commercial space for our distribution centers.
We consider our properties to be generally in good condition and believe that our existing facilities are adequate to support our existing operations.
All of our properties are leased. The leases expire at various times through 2033, subject to renewal options. We consider our properties to be generally in good condition and believe that our existing facilities are adequate to support our existing operations.
Removed
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.
Added
We also use distribution centers that are operated by third-parties and located in West Chester Township, Ohio, West Jordan, Utah, Fairburn, Georgia, Vernon, California, Fairfield, New Jersey, Gosport Hants, England, Rodgau, Germany and Ontario, Canada.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

0 edited+1 added−0 removed1 unchanged
Added
Not applicable. 41 Table of C ontents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+2 added−2 removed4 unchanged
Biggest change(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.
Biggest change(ELF) $100.00 $133.02 $165.19 $152.17 $92.83 $179.91 $173.30 S&P 500 Index (GSPC) $100.00 $103.79 $105.02 $113.98 $91.19 $109.38 $118.65 S&P 500 Consumer Discretionary Index (S5COND) $100.00 $105.28 $105.82 $110.55 $89.23 $118.54 $136.40 $100 investment in stock or index 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 3/31/22 6/30/22 e.l.f. Beauty, Inc.
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 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. On April 30, 2021, the Company amended and restated its prior credit agreement.
We intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. In addition, the Amended Credit Agreement limits our ability to pay dividends to our stockholders.
We intend to retain all available funds and future earnings, if any, to fund expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. In addition, the Amended Credit Agreement limits our ability to pay dividends to our stockholders.
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.
The graph assumes an investment of $100 made at the closing of trading on March 31, 2019 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.
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.
Dividends There were no dividends declared or paid during the fiscal year ended March 31, 2024. Since our initial public offering on September 22, 2016, we have never declared or paid cash dividends on our capital stock.
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.
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, 2019, through March 31, 2024.
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.
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 fiscal year ended March 31, 2024, including pursuant to the Share Repurchase Program.
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 performance shown on the graph below is not intended to forecast or be indicative of possible future performance of our common stock. 42 Table of C ontents $100 investment in stock or index 3/31/19 6/30/19 9/30/19 12/31/19 3/31/20 6/30/20 9/30/20 e.l.f. Beauty, Inc.
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.
On May 16, 2024, the closing price for our common stock as reported by the NYSE was $162.26. Holders of record As of May 16, 2024, the approximate number of common stockholders of record was 25. This number does not include beneficial owners whose shares are held by nominees in street name.
A total of $17.1 million remains available for purchase under the Share Repurchase Program as of March 31, 2023. Item 6. [Reserved] 41
A total of $17.1 million remains available for purchase under the Share Repurchase Program as of March 31, 2024. Item 6. [Reserved] 44 Table of C ontents
Removed
(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) $237.64 $253.11 $256.04 $274.06 $313.30 $243.68 $289.43 S&P 500 Index (GSPC) $132.52 $140.17 $151.62 $151.97 $168.15 $159.84 $133.55 S&P 500 Consumer Discretionary Index (S5COND) $147.37 $151.95 $162.50 $162.51 $183.37 $166.82 $123.18 $100 investment in stock or index 9/30/22 12/31/22 3/31/23 6/30/23 9/30/23 12/31/23 3/31/24 e.l.f. Beauty, Inc.
Removed
(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.
Added
(ELF) $354.91 $521.70 $776.89 $1,077.64 $1,036.13 $1,361.70 $1,849.34 S&P 500 Index (GSPC) $126.50 $135.46 $144.98 $157.01 $151.29 $168.28 $185.38 S&P 500 Consumer Discretionary Index (S5COND) $128.55 $115.47 $134.09 $153.64 $146.26 $164.43 $172.62 43 Table of C ontents Recent sales of unregistered securities None.

Item 7. Management's Discussion & Analysis

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

59 edited+19 added−8 removed32 unchanged
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.
Biggest changeFiscal year ended March 31, 2024 2023 2022 Net sales $ 1,023,932 $ 578,844 $ 392,155 Cost of sales 299,836 188,448 140,423 Gross profit 724,096 390,396 251,732 Selling, general and administrative expenses 574,418 322,253 221,912 Restructuring expense — — 50 Operating income 149,678 68,143 29,770 Other income (expense), net 1,210 (1,875) (1,438) Impairment of equity investment (2,875) — — Interest expense, net (7,023) (2,018) (2,441) Loss on extinguishment of debt — (176) (460) Income before provision for income taxes 140,990 64,074 25,431 Income tax provision (13,327) (2,544) (3,661) Net income $ 127,663 $ 61,530 $ 21,770 Fiscal year ended March 31, (percentage of net sales) 2024 2023 2022 Net sales 100 % 100 % 100 % Cost of sales 29 % 33 % 36 % Gross profit 71 % 67 % 64 % Selling, general and administrative expenses 56 % 56 % 57 % Operating income 15 % 12 % 8 % Other income (expense), net — % — % — % Impairment of equity investment — % — % — % Interest expense, net (1) % — % (1) % Loss on extinguishment of debt — % — % — % Income before provision for income taxes 14 % 11 % 6 % Income tax provision (1) % — % (1) % Net income 12 % 11 % 6 % Comparison of the fiscal year ended March 31, 2024 to the fiscal year ended March 31, 2023 Net sales Net sales increased $445.1 million, or 77%, to $1,023.9 million in the fiscal year ended March 31, 2024, from $578.8 million in the fiscal year ended March 31, 2023.
The Amended Credit Agreement contains a number of covenants that, among other things, restrict our ability to (subject to certain exceptions) pay dividends and distributions or repurchase our capital stock, incur additional indebtedness, create liens on assets, engage in mergers or consolidations and sell or otherwise dispose of assets.
The Amended Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability to pay dividends and distributions or repurchase our capital stock, incur additional indebtedness, create liens on assets, engage in mergers or consolidations and sell or otherwise dispose of assets.
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.
Our family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Naturium, 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.
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.
Interest expense, net Interest expense decreased $0.4 million, or 17%, to $2.0 million in the fiscal year ended March 31, 2023, as compared to $2.4 million in the fiscal 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.
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.
Other drivers of changes in gross margin, which could have a positive or negative impact, include fluctuations in foreign 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.
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.
For the fiscal 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.
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.
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.
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.
For the fiscal 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 Credit Facility and the Amended Term Loan Facility.
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.
Other income (expense), net is primarily related to foreign exchange rate movements. Income tax provision 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.
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.
The increase on a dollar basis was primarily related to increased marketing and digital spend of $62.8 million, increased compensation and benefits expense of $19.4 million, increased operations costs of $9.6 million, and increased retail fixturing and visual merchandising costs of $5.6 million.
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.
Income tax provision 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.
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
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.
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.
SG&A expenses as a percentage of net sales decreased to 56% for the fiscal year ended March 31, 2023 from 57% in the fiscal year ended March 31, 2022.
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.
Other income (expense), net Other income (expense), net was $1.9 million of expense in the fiscal year ended March 31, 2023, as compared to $1.4 million of expense in the fiscal 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.
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.
Prior to the Second 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 US 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.
Our primary working capital requirements are for product and product-related costs, payroll, rent, distribution costs and advertising and marketing. Fluctuations in working capital are primarily driven by the timing of when a retailer rearranges or restocks its products, expansion of space within our existing retailer base and the general seasonality of our business.
Our primary working capital requirements are for product and product-related costs, payroll, rent, distribution costs and marketing. Fluctuations in working capital are primarily driven by the timing of when a retailer rearranges or restocks its products, expansion of space within our existing retailer base, expansion to new retailers, and the general seasonality of our business.
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.
The increase in gross margin rate was primarily driven by pricing, cost savings and product mix, partially offset by inventory adjustments. 48 Table of C ontents Selling, general and administrative expenses SG&A expenses were $322.3 million in the fiscal year ended March 31, 2023, an increase of $100.4 million, or 45%, from $221.9 million in the fiscal year ended March 31, 2022.
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.
Description of indebtedness Amended Credit Agreement On April 30, 2021, we amended and restated our 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 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.
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, 2024 was $10.5 million.
Our ability to meet our operating, investing and financing needs depends to a significant extent on our future financial performance, which will be subject in part to general economic, competitive, financial, regulatory and other factors that are beyond our control, including those described elsewhere in Part I, Item 1A “Risk factors”.
Our ability to meet our operating, investing and financing needs depends to a significant extent on our future financial performance, which will be subject in part to general economic, competitive, financial, regulatory and other factors that are 49 Table of C ontents beyond our control, including those described elsewhere in Part I, Item 1A “Risk factors”.
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.
Net income Our net income for future periods will be affected by the various factors described above. 46 Table of C ontents 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.
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.
See “Financial condition, liquidity and capital resources” below and a description of our indebtedness in Note 9 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.
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.
The Amended Credit Agreement 51 Table of C ontents 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, 2024, we were in compliance with all financial covenants under the Amended Credit Agreement.
The indefinite-lived intangible asset impairment test consists of a comparison of the fair value of each asset with its carrying value, with any excess of carrying value over fair value being recognized as an impairment loss.
The indefinite-lived intangible asset impairment test consists of a comparison of the fair value of each asset with its carrying value, with any 52 Table of C ontents excess of carrying value over fair value being recognized as an impairment loss.
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 Amended Credit Agreement has a five year term and consists of a revolving credit facility (the “Amended Revolving Credit Facility”) and a 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.
We account for stock based compensation under ASC 718, "Compensation-Stock Compensation." We recognize expense over the requisite service period of the award, net of an estimate for the impact of award forfeitures. We have no current plans to pay a regular dividend.
“Exhibits, financial statement schedules.” We account for stock based compensation under ASC 718, “Compensation-Stock Compensation.” We recognize expense over the requisite service period of the award, net of an estimate for the impact of award forfeitures. We have no current plans to pay a regular dividend.
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.
Our largest three customers, Target, Walmart and Ulta Beauty, accounted for 25%, 17% and 16%, respectively, of our net sales in the fiscal year ended March 31, 2024. No other individual customer accounted for 10% or more of our net sales in the fiscal year ended March 31, 2024. National and international retailers comprised 84% of our net sales.
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.
The remaining 16% came from e-commerce channels in the fiscal year ended March 31, 2024. The primary market for our products is in the United States, which accounted for 85% of our net sales in the fiscal year ended March 31, 2024.
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.
This was partially offset by repayment on the Amended Term Loan Facility of $7.9 million and payment of debt issuance costs of $0.7 million associated with the Second Amendment. 50 Table of C ontents For the fiscal 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.
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.
The remaining 15% was attributable to international markets, primarily the UK and Canada. 45 Table of C ontents Gross profit Gross profit is our net sales less cost of sales.
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.
No impairment of goodwill or our indefinite-lived intangible asset was recorded during the fiscal years ended March 31, 2024, March 31, 2023 or March 31, 2022. Stock based compensation We have several stock award plans, which are described in detail in Note 13 to consolidated financial statements in Part IV, Item 15.
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.
For the fiscal years ended March 31, 2023 and March 31, 2022, net cash used in investing activities was $1.7 million and $4.8 million, respectively, which was primarily driven by capital expenditures related to fixturing, equipment and software.
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.
Gross profit Gross profit increased $138.7 million, or 55%, to $390.4 million in the fiscal year ended March 31, 2023, compared to $251.7 million in the fiscal year ended March 31, 2022. 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.
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.
As of March 31, 2024, we had working capital, excluding cash, of $69.8 million, compared to $74.6 million as of March 31, 2023. Working capital, excluding cash and debt, was $170.1 million and $80.1 million as of March 31, 2024 and March 31, 2023, respectively.
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.
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.
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.
Financial condition, liquidity and capital resources Overview As of March 31, 2024, we had $108.2 million of cash and cash equivalents. In addition, as of March 31, 2024, we had borrowing capacity of $10.5 million under the Amended Revolving Credit Facility. Our primary cash needs are for working capital, fixturing, retail product displays and digital investment.
Item 7. Management’s discussion and analysis of financial condition and results of operations. You should read the following discussion and analysis of our financial condition and results of operations and our consolidated financial statements and related notes thereto included elsewhere in this Annual Report.
Item 7. Management’s discussion and analysis of financial condition and results of operations. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Annual Report. Overview and Business Trends e.l.f. Beauty, Inc., a Delaware corporation (“e.l.f.
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.
Beauty” and together with its subsidiaries, the “Company,” or “we”), is a multi-brand beauty company that offers inclusive, accessible, clean, vegan and cruelty free cosmetics and skin care products. Our mission is to make the best of beauty accessible to every eye, lip, face and skin concern.
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”).
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”). In connection with the First Amendment, all outstanding LIBOR loans were converted to SOFR loans.
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.
A higher average item price and mix within retailer and e-commerce orders drove the remaining $88.9 million increase in net sales as compared to the fiscal year ended March 31, 2022.
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.
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.
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.
A higher average item price and mix within retailer and e-commerce orders drove the remaining $124.7 million increase in net sales as compared to the fiscal year ended March 31, 2023. 47 Table of C ontents Gross profit Gross profit increased $333.7 million, or 85%, to $724.1 million in the fiscal year ended March 31, 2024, compared to $390.4 million in the fiscal year ended March 31, 2023.
We evaluate our indefinite-lived intangible asset to determine whether current events and circumstances continue to support an indefinite useful life. In addition, our indefinite-lived intangible asset is tested for impairment annually.
There were no impairment charges recorded on long-lived assets during the fiscal years ended March 31, 2024, March 31, 2023 or March 31, 2022. We evaluate our indefinite-lived intangible asset to determine whether current events and circumstances continue to support an indefinite useful life. In addition, our indefinite-lived intangible asset is tested for impairment annually.
We believe that our operating cash flow, cash on hand and available financing under the Amended Revolving Credit Facility will be adequate to meet our planned operating, investing and financing needs for the next twelve months. If necessary, we can borrow funds under the Amended Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions.
We believe that our operating cash flow, cash on hand and available financing under the Amended Revolving Credit Facility will be adequate to meet our planned operating, investing and financing needs for the next twelve months. The unused balance of the Amended Revolving Credit Facility as of March 31, 2024 was $10.5 million.
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.
Net sales increased $158.0 million, or 45%, in our retailer channels and $28.6 million, or 71%, in our e-commerce channels. From a price and volume perspective, a higher volume of units sold drove $97.7 million of the increase in net sales.
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.
Comparison of the fiscal year ended March 31, 2023 to the fiscal year ended March 31, 2022 Net sales Net sales increased $186.6 million, or 48%, to $578.8 million in the fiscal year ended March 31, 2023, from $392.2 million in the fiscal year ended March 31, 2022. The increase was driven by strength across our retailer and e-commerce channels.
Income tax (provision) benefit The provision for income taxes increased from a benefit of $2.5 million, or an effective tax rate of (69)%, for the year ended March 31, 2021, to an expense of $3.7 million, or an effective tax rate of 14%, for the year ended March 31, 2022.
Income tax provision The provision for income taxes was $13.3 million, or an effective rate of 9% for the twelve months ended March 31, 2024, as compared to a provision of $2.5 million, or an effective rate of 4% for the twelve months ended March 31, 2023.
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%.
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%. The interest rate as of March 31, 2024 for the Amended Revolving Credit Facility and the Amended Term Loan Facility was approximately 6.7%.
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.
Other income (expense), net Other income (expense), net was $1.2 million of income in the fiscal year ended March 31, 2024, as compared to $1.9 million of expense in the fiscal year ended March 31, 2023.
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.
Additional changes in working capital include a $49.6 million increase in accounts receivable, a $55.2 million increase in prepaid and other assets, and a $6.3 million decrease in other liabilities, partially offset by an $81.2 million increase of accounts payable and accrued expenses. For the fiscal year ended March 31, 2023, net cash provided by operating activities was $101.9 million.
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.
Cash provided by (used in) financing activities For the fiscal year ended March 31, 2024, net cash provided by financing activities was $200.9 million and was primarily driven by proceeds from the Amended Term Loan Facility of $115.0 million and Amended Revolving Credit Facility of $89.5 million and cash received from the exercise of stock options of $5.6 million.
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.
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, Naturium, 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.
Selling, general and administrative expenses SG&A expenses were $221.9 million in the year ended March 31, 2022, an increase of $27.8 million, or 14%, from $194.2 million in the year ended March 31, 2021.
Selling, general and administrative expenses SG&A expenses were $574.4 million in the fiscal year ended March 31, 2024, an increase of $252.2 million, or 78%, from $322.3 million in the fiscal year ended March 31, 2023. SG&A expenses as a percentage of net sales was 56% for each of the fiscal years ended March 31, 2024 and March 31, 2023.
For the year ended March 31, 2021, net cash provided by operating activities was $29.5 million. This included net income, before deducting depreciation, amortization and other non-cash items, of $46.4 million and an increase in net working capital of $16.9 million.
This included net income, before deducting depreciation, amortization and other non-cash items of $205.5 million, partially offset by an increase in net working capital of $123.8 million and payment of acquisition-related seller expenses of $10.5 million in connection with the Acquisition. The increase in net working capital was primarily driven by a $93.9 million increase in inventory.
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.
The increase in gross margin rate was primarily driven by favorable foreign exchange impacts, cost savings and mix, improved transportation costs, inventory adjustments, and international price increases, partially offset by costs related to retailer activity.
A provision for unclaimed customer incentives and allowances is included on the consolidated balance sheet, net against accounts receivable.
A provision for customer incentives and allowances is included on the consolidated balance sheet, net against accounts receivable. Business Combinations We allocate the purchase price of a business acquisition to the assets acquired and liabilities assumed based upon their estimated fair values at the business combination date.
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.
Gross margin increased from 64% in the fiscal year ended March 31, 2022 to 67% in the fiscal year ended March 31, 2023.
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.
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.
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.
The change in the provision was primarily driven by an increase in income before taxes of $76.9 million, partially offset by an increase in discrete tax benefits of $14.4 million, primarily related to stock-based compensation.
Removed
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.
Added
For additional information regarding our business, see Part I, Item 1, “Business.” Our Acquisition of Naturium On October 4, 2023, we consummated our acquisition of Naturium LLC, a Delaware limited liability company (“Naturium”), and TCB-N Prelude Blocker Corp., a Delaware corporation (“Blocker”), pursuant to a Securities Purchase Agreement, dated August 28, 2023 (the "Purchase Agreement"), by and among the Company, e.l.f.
Removed
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.
Added
Cosmetics, Inc., Naturium, Blocker and various sellers. Pursuant to the Purchase Agreement, we acquired all rights, title and interest in and to the outstanding equity securities of Naturium and Blocker for a purchase price of $333.0 million paid in cash and shares of our common stock (the "Acquisition"). See Note 4, “Acquisition,” in our consolidated financial statements for further details.
Removed
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.
Added
The increase was driven by strength across our retailer and e-commerce channels. Net sales increased $353.5 million, or 69%, in our retailer channels and $91.6 million, or 132%, in our e-commerce channels. From a price and volume perspective, a higher volume of units sold drove $320.4 million of the increase in net sales.
Removed
SG&A expenses as a percentage of net sales decreased to 57% for the year ended March 31, 2022 from 61% in the year ended March 31, 2021.
Added
Higher unit volume drove $216.1 million of the increase in gross profit, with the remaining increase of $117.6 million driven by higher average item price and mix. Gross margin increased from 67% in the fiscal year ended March 31, 2023 to 71% in the fiscal year ended March 31, 2024.
Removed
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.
Added
The increase on a dollar basis was primarily related to increased marketing and digital spend of $130.0 million, increased compensation and benefits expense of $32.9 million, increased operations costs of $26.4 million, increased retail fixturing and visual merchandising costs of $21.1 million, increased depreciation and amortization of $12.2 million and increased professional fees of $11.5 million.
Removed
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.
Added
The year-over-year variance is primarily due to an increase in unrealized gain in the fiscal year ended March 31, 2024 attributable to favorable foreign currency rate fluctuation. Impairment of equity investment Impairment of equity investment was $2.9 million in the fiscal year ended March 31, 2024. See Note 3, “Investments,” in our consolidated financial statements for further details.
Removed
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.
Added
Interest expense, net Interest expense increased $5.0 million, or 248%, to $7.0 million in the fiscal year ended March 31, 2024, as compared to $2.0 million in the fiscal year ended March 31, 2023.
Removed
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.
Added
The increase was primarily due to additional borrowings for the fiscal year ended March 31, 2024 as well as higher interest costs, partially offset by increased interest earned on our cash balances. See Note 9, “Debt,” in our consolidated financial statements for further details on our debt.
Added
If necessary, we can borrow funds under the Amended Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions.
Added
Cash flows Fiscal year ended March 31, (in thousands) 2024 2023 2022 Net cash provided by (used in): Operating activities $ 71,154 $ 101,883 $ 19,513 Investing activities (284,660) (1,723) (4,818) Financing activities 200,945 (22,735) (29,110) Cash provided by operating activities For the fiscal year ended March 31, 2024, net cash provided by operating activities was $71.2 million.
Added
The increase was reflective of building inventory to support net sales growth, as well as $10.0 million related to Naturium inventory, and $7.8 million related to a change in certain vendor arrangements where we now take ownership of inventory at shipment from China versus when it enters our U.S. distribution center.
Added
Cash used in investing activities For the fiscal year ended March 31, 2024, net cash used in investing activities was $284.7 million. This includes $275.0 million paid for the Acquisition, net of cash acquired, capital expenditures related to fixturing, equipment and software of $8.7 million, and contributions to other investment of $1.0 million.
Added
Second Amended Credit Agreement On August 28, 2023, we entered into the Second Amendment to the Amended Credit Agreement (the “Second Amendment”). Pursuant to the Second Amendment, we may borrow incremental term loans in a principal amount equal to $115.0 million under the Amended Credit Agreement (the “Incremental Term Loan”).

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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 changeBased 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
Biggest changeBased 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 $32.0 million for the fiscal year ended March 31, 2024. 54 Table of C ontents
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. 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.
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. 53 Table of C ontents 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.
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.
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 $2.6 million as of March 31, 2024. Foreign exchange risk We are exposed to foreign exchange risk as we sell product into the UK, Europe, Canada and other smaller international markets.
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.
Interest rate risk We had cash and cash equivalents of $108.2 million and $120.8 million as of March 31, 2024 and March 31, 2023, 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.

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