e.l.f. Beauty, Inc. (ELF) FY 2025 MD&A

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. Beauty” and together with its subsidiaries, the “Company”), is a multi-brand beauty company that offers inclusive, accessible, clean, vegan and cruelty free cosmetics and skin care products. The Company's mission is to make the best of beauty accessible to every eye, lip and face.

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. Additionally, we believe the combination of our passionate team of owners, value proposition, powerhouse innovation, disruptive marketing engine and productivity model have positioned us well to navigate the competitive beauty market.

The Company's family of brands includes e.l.f. Cosmetics, e.l.f. SKIN, Naturium, Well People and Keys Soulcare. The Company's brands are available online and across leading beauty, mass-market and specialty retailers. The Company has strong relationships with its retail customers such as Target, Walmart, Ulta Beauty, Amazon and other leading retailers that have enabled the Company to expand distribution both domestically and internationally.

For additional information regarding our business, see Part I, Item 1, “Business.”

Potential Impact of Tariffs

Starting in July 2018, the US government announced a series of lists covering thousands of categories of Chinese origin products subject to US tariffs in addition to the tariffs that have historically applied to such products. The majority of our products are sourced and manufactured in China and have been subject to a US 25% tariff since May 2019. Furthermore, in March and April 2025, the Trump administration announced a series of additional tariffs on products from countries worldwide, some of which have been temporarily paused or reduced.

The US tariff policies are continuing to evolve. As a result, our risks and mitigation plans will also continue to evolve as further developments arise. Any alteration of trade agreements and terms between China and the United States, including limiting trade with China, imposing additional tariffs on imports from China and potentially imposing other restrictions on imports from China to the United States may result in further or higher tariffs or retaliatory trade measures by China. We are in the process of determining our incremental tariff cost exposure in light of continuing changes to tariff policies, and the full extent of our potential mitigation plans, as well as the associated timing to implement such plans. To mitigate our risk of ongoing exposure to tariffs, the Company will raise prices globally for all products sold. The Company may also seek to shift production outside of China into regions where we expect tariffs to be lower and to source the same products in more than one region, to the extent it is possible and not cost-prohibitive.

See the risk factor titled “Additional US tariffs or other restrictions placed on imports, retaliatory trade measures taken by other countries and resulting trade wars may have a material adverse impact on the Company’s financial condition and results of operations” included as part of Item 1A. Risk Factors of this Annual Report on Form 10-K for additional information regarding risk related to tariffs.

Entered Definitive Agreement to Acquire rhode

On May 28, 2025, the Company entered into a definitive agreement to acquire rhode, a fast-growing, multi-category lifestyle beauty brand founded by Hailey Bieber and known for its collection of high-performance, skin-focused products. The deal is comprised of $800.0 million at closing, subject to customary adjustments, in a combination of $600.0 million of cash and $200.0 million of stock, and potential earnout consideration of up to $200.0 million based on the future growth of the brand over a three-year timeframe. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the second quarter of Fiscal 2026. The transaction will be accounted for as a business combination using the acquisition method of accounting, which requires certain assets acquired and liabilities assumed to be recognized at fair

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value as of the acquisition date. As of the date of this filing, the Company is currently evaluating the preliminary allocation of the purchase price to the net assets acquired and liabilities that will be assumed in the transaction.

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. 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 3, “Acquisition,” in our consolidated financial statements for further details.

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.

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. Within our existing retailer accounts, we are able to drive growth by increasing sales per linear foot supported by marketing investments and continued innovation, as well as through expanding space and door penetration. We seek to continue to grow through improved sales per linear foot in our existing space, expanded space allocation with our current retail accounts, as well as adding new retail customers.

Our business faces challenges and uncertainties, including our ability to introduce new products that will appeal to a broad consumer base, our ability to service demand, the ability of our major retail customers to drive traffic and keep products in stock, our ability to continue to grow our customer base and competitive threats from other beauty companies.

Our largest customers, Target, Walmart, Ulta Beauty and Amazon, accounted for 23%, 16%, 12%, and 12% respectively, of our net sales in the fiscal year ended March 31, 2025. No other individual customer accounted for 10% or more of our net sales in the fiscal year ended March 31, 2025. National and international retailers comprised 83% of our net sales. The remaining 17% came from e-commerce channels in the fiscal year ended March 31, 2025.

The primary market for our products is in the United States, which accounted for 81% of our net sales in the fiscal year ended March 31, 2025. The remaining 19% was attributable to international markets, primarily the UK and Canada.

Gross profit

Gross profit is our net sales less cost of sales. Cost of sales includes the aggregate costs to procure our products, including the amounts invoiced by our third-party contract manufacturers for finished goods as well as costs related to transportation to our distribution center, customs and duties. Cost of sales also includes the effect of changes in the balance of reserves for excess and obsolete inventory. Gross margin measures our gross profit as a percentage of net sales.

We have an extensive network of third-party manufacturers from whom we purchase substantially all of our finished goods. We have worked to evolve our supply chain to increase capacity and technical capabilities while maintaining or reducing overall costs as a percentage of sales.

Historically, we have improved our gross margin largely through changes in our product mix, pricing, and cost reductions in our supply chain. Other drivers of changes in gross margin, include fluctuations in foreign exchange rates, tariffs, 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.

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Selling, general and administrative expenses

Our selling, general and administrative (“SG&A”) expenses primarily consist of marketing and digital expenses, personnel-related costs, including salaries, bonuses, benefits and stock-based compensation, warehousing and distribution costs, costs related to merchandising, depreciation of property and equipment, amortization of retail product displays and amortization related to intangible assets and cloud computing costs. See “Critical accounting policies and estimates — stock-based compensation” below for more detail regarding stock-based compensation.

Interest expense, net

Interest expense primarily consists of cash interest and fees on our outstanding indebtedness. See “Financial condition, liquidity and capital resources” below and a description of our indebtedness in Note 8 to the Notes to consolidated financial statements in Part IV, Item 15 “Exhibits, financial statement schedules.”

Other income (expense), net

We are exposed to periodic currency fluctuations given our purchasing and selling activities in various countries. 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. Our effective tax rate will change from period to period based on recurring and nonrecurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation, state and local income taxes, tax audit settlements, the interaction of various tax strategies and the impact of permanent tax adjustments, such as those related to stock-based compensation and executive compensation deduction limitations.

Net income

Our net income for future periods will be affected by the various factors described above.

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.

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Comparison of the fiscal year ended March 31, 2025 to the fiscal year ended March 31, 2024

Net sales

Net sales increased $289.6 million, or 28%, to $1,313.5 million in the fiscal year ended March 31, 2025, from $1,023.9 million in the fiscal year ended March 31, 2024. The increase was driven by strength across our retailer and e-commerce channels. Net sales increased $221.6 million, or 26%, in our retailer channels and $68.0 million, or 42%, in our e-commerce channels. From a price and volume perspective, a higher volume of units sold drove $246.1 million of the increase in net sales. A higher average item price and mix within retailer and e-commerce orders drove the remaining $43.5 million increase in net sales as compared to the fiscal year ended March 31, 2024.

Gross profit

Gross profit increased $211.6 million, or 29%, to $935.7 million in the fiscal year ended March 31, 2025, compared to $724.1 million in the fiscal year ended March 31, 2024. Higher unit volume drove $174.0 million of the increase in gross profit, with the remaining increase of $37.6 million driven by higher average item price and mix. Gross margin was 71.2% in the fiscal year ended March 31, 2025 an increase of approximately 50 basis points as compared to 70.7% gross margin in the fiscal year ended March 31, 2024. The increase in gross margin rate was primarily driven by favorable foreign exchange impacts on goods purchased from China and cost savings, partially offset by mix.

Selling, general and administrative expenses

SG&A expenses were $777.7 million in the fiscal year ended March 31, 2025, an increase of $203.2 million, or 35%, from $574.4 million in the fiscal year ended March 31, 2024. SG&A expenses as a percentage of net sales was 59% for the fiscal years ended March 31, 2025 and 56% for the fiscal year ended March 31, 2024. 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 $60.3 million, increased operations costs of $23.2 million, increased retail fixturing and visual merchandising costs of $23.1 million, increased general and administrative costs of $18.9 million and increased depreciation and amortization of $13.9 million.

Other income (expense), net

Other income, net was $1.3 million in the fiscal year ended March 31, 2025, as compared to other income, net of $1.2 million in the fiscal year ended March 31, 2024, relatively flat year-over-year.

Impairment of equity investment

We recorded an impairment charge on one of our investments of $2.9 million during the fiscal year ended March 31, 2024, as an identified event or change in circumstances resulted in an indicator of impairment. We did not record an impairment charge on our investment during the fiscal year ended March 31, 2025 as any identified events or changes in circumstances did not result in an indicator of impairment during that period.

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Interest expense, net

Interest expense increased $6.8 million, or 97%, to $13.8 million in the fiscal year ended March 31, 2025, as compared to $7.0 million in the fiscal year ended March 31, 2024. The increase was primarily due to additional borrowings as well as higher interest costs and lower interest earned on our cash balances. See Note 8, “Debt,” in our consolidated financial statements for further details on our debt.

Income tax provision

The income tax provision was $33.4 million, or an effective rate of 23% for the twelve months ended March 31, 2025, as compared to a provision of $13.3 million, or an effective rate of 9% for the twelve months ended March 31, 2024. The change in the income tax provision was primarily driven by a decrease in discrete tax benefits of $14.3 million, primarily related to limitations on executive compensation deductions for certain stock-based compensation, partially offset by the tax effects of an increase in income before taxes of $4.5 million, resulting in a higher provision.

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 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. 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.

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. 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. 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.

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. 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.

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 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. We elected the measurement alternative for equity investments that do not have readily determinable fair values. We recorded an impairment charge on one of our investments of $2.9 million during the fiscal year ended March 31, 2024, as an identified event or change in circumstances resulted in an indicator of impairment. We did not record an impairment charge on our investment during the fiscal year ended March 31, 2023 as any identified events or changes in circumstances did not result in an indicator of impairment during that period.

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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. 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 8, “Debt,” in our consolidated financial statements for further details on our debt.

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. 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.

Financial condition, liquidity and capital resources

Overview

As of March 31, 2025, we had $148.7 million of cash and cash equivalents. In addition, as of March 31, 2025, we had borrowing capacity of $243.3 million under the Amended Revolving Credit Facility.

Our primary cash needs are for working capital, fixturing, retail product displays and digital investment. Cash needs typically vary depending on strategic initiatives selected for the fiscal year, including investments in infrastructure, digital capabilities and expansion within or to additional retailer store locations. We expect to fund ongoing cash needs from existing cash and cash equivalents, cash generated from operations and, if necessary, draws on our Amended Revolving Credit Facility.

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. As of March 31, 2025, we had working capital, excluding cash, of $214.8 million, compared to $69.8 million as of March 31, 2024. Working capital, excluding cash and debt, was $214.8 million and $170.1 million as of March 31, 2025 and March 31, 2024, respectively.

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, 2025 was $243.3 million. If necessary, we can borrow funds under the Amended Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all.

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”. 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.

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Cash flows

Cash provided by operating activities

For the fiscal year ended March 31, 2025, net cash provided by operating activities was $133.8 million. This included net income, before deducting depreciation, amortization and other non-cash items of $238.9 million, partially offset by an increase in net working capital of $105.0 million. The increase in net working capital was primarily driven by a $2.7 million increase in accounts receivable, a $75.9 million increase in prepaid and other assets, a $7.9 million decrease in other liabilities, and a $23.4 million decrease of accounts payable and accrued expenses, partially offset by a $4.9 million decrease in inventory

For the fiscal year ended March 31, 2024, net cash provided by operating activities was $71.2 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. 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. 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. This included net income, before deducting depreciation, amortization and other non-cash items, of $107.1 million and an increase in net working capital of $5.2 million. The change in net working capital was driven by a $22.4 million increase in accounts receivable, a $24.6 million increase in prepaid and other assets, and a $4.4 million decrease of other liabilities partially offset by a $43.0 million increase of accounts payable and accrued expenses, and a $3.2 million decrease in inventory.

Cash used in investing activities

For the fiscal year ended March 31, 2025, net cash used in investing activities was $19.1 million. This includes capital expenditures related to fixturing, equipment and software of $18.5 million, and contributions to other investment of $0.6 million.

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.

For the fiscal year ended March 31, 2023, net cash used in investing activities was $1.7 million, which was primarily driven by capital expenditures related to fixturing, equipment and software.

Cash provided by (used in) financing activities

For the fiscal year ended March 31, 2025, net cash used in financing activities was $74.4 million and was primarily driven by the repayment of previous Revolving Credit line of $89.5 million, repurchases of our common stock of $67.1 million, repayments on the Amended Term Loan Facility of $173.4 million and payment of debt issuance costs of $2.1 million associated with the new Revolving Credit Facility. This was offset by proceeds from long term debt of $256.7 million and cash received from the exercise of stock options of $1.0 million.

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

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million and cash received from the exercise of stock options of $5.6 million. 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.

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.

Description of indebtedness

Amended Credit Agreement

On April 30, 2021, the Company amended and restated its prior credit agreement (such amended and restated 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 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. The Amended Revolving Credit Facility was collateralized by substantially all of the Company’s assets and requires payment of an unused fee ranging from 0.10% to 0.30% (based on Company’s consolidated total net leverage ratio (as defined in the Amended Credit Agreement)) times the average daily amount of unutilized commitments under the Amended Revolving Credit Facility. The Amended Revolving Credit Facility also provided for sub-facilities in the form of a $7 million letter of credit and a $5 million swing line loan.

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 United States (“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 (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. On March 29, 2023, the Company 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. The annual interest rate for SOFR borrowings will be equal to term SOFR plus 0.10% subject to a floor of 0%, plus a margin ranging from 1.25% to 2.125%.

Second Amended Credit Agreement

On August 28, 2023, the Company entered into the Second Amendment to the Amended and Restated Credit Agreement (the “Second Amendment”). Pursuant to the Second Amendment, the Company borrowed incremental term loans in a principal amount equal to $115.0 million under the Amended Credit Agreement (the “Incremental Term Loan”). The Incremental Term Loan bore interest at a rate per annum equal to, at the Company’s election, adjusted term SOFR or an alternate base rate as set forth in the Second Amendment, plus an interest rate margin, based on consolidated total net leverage ratio levels, ranging from, (i) in the case of SOFR loans, 1.50% to 2.375%; provided that if SOFR is less than 0.00%, such rate shall be deemed to be 0.00%, and (ii) in the case of alternate base rate loans, 0.50% to 1.375%; provided that if the alternate base rate is less than 1.00%, such rate shall be deemed to be 1.00%. The Incremental Term Loan amortized at 5.00% per annum payable in equal quarterly installments of 1.25% per annum, commencing with the fiscal quarter ended on December 31, 2023. The Company used the Incremental Term Loan together with cash from its balance sheet and additional borrowings under our Amended Revolving Credit Facility to consummate the Acquisition (as defined in Note 3 hereto) and to pay related fees and expenses in connection with the Acquisition and Second Amendment.

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. 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.

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Third Amendment to Amended Credit Agreement

On August 26, 2024, the Company entered into the Third Amendment to Amended and Restated Credit Agreement (the “Third Amendment”). Pursuant to the Third Amendment, the Company increased our capacity to make restricted payments, provided that after giving effect to any such payment, the Company complies with a certain consolidated total net leverage ratio.

Fourth Amendment to Amended Credit Agreement

On March 3, 2025, the Company entered into the Fourth Amendment to Amended and Restated Credit Agreement and First Amendment to Pledge and Security Agreement (the “Fourth Amendment”). The Fourth Amendment, among other things, established a revolving credit facility in an aggregate principal amount of $500 million (the “New Revolving Facility”), refinanced the existing indebtedness under the Existing Credit Agreement and reduced the interest rate margin for loans. Additionally, certain baskets under the Amended Credit Agreement were increased as part of the Fourth Amendment. The proceeds of the New Revolving Facility are available to e.l.f Cosmetics and certain our other subsidiaries of the Company for working capital, capital expenditures and other general corporate purposes, including to finance acquisitions and investments permitted under the Amended Credit Agreement and other permitted distributions on account of our equity interests of the Company and its subsidiaries. In addition, up to $35 million of the New Revolving Facility is available for issuing letters of credit. The maturity date of the New Revolving Facility is March 3, 2030. The unused balance of the New Revolving Credit Facility as of March 31, 2025 was $243.3 million.

Loans under the New Revolving Facility will bear interest at a rate per annum equal to, at e.l.f Cosmetics’ election: SOFR or an alternate base rate as set forth in the Fourth Amendment, plus an interest rate margin, to be based on consolidated total net leverage ratio levels, ranging from, (i) in the case of SOFR loans, 1.125% to 1.875%; provided that if SOFR is less than 0.00%, such rate shall be deemed to be 0.00%, and (ii) in the case of alternate base rate loans, 0.125% to 0.875%; provided that if the alternate base rate is less than 1.00%, such rate shall be deemed to be 1.00%.

The Fourth Amendment also replaced the fixed charge coverage ratio financial covenant with a minimum interest coverage ratio of at least 3.50 to 1.00, to be tested as of the last day of each fiscal quarter. The minimum interest coverage ratio is based on the ratio of trailing twelve month EBITDA for the four fiscal quarter period most recently ended to cash interest expense for such period.

The interest rate as of March 31, 2025 for the Amended Credit Agreement was approximately 5.4%

The Fourth Amendment also amended the Pledge and Security Agreement, dated as of December 23, 2016 among the Company, certain subsidiaries of the Company, and the Agent pursuant to which certain covenants and thresholds set forth therein were amended, amongst other changes.

Aggregate future minimum principal payments are $256.7 million due March 31, 2030.

Off-balance sheet arrangements

We are not party to any off-balance sheet arrangements.

Critical accounting policies and estimates

Our consolidated financial statements included elsewhere in this Annual Report have been prepared in accordance with US generally accepted accounting principles. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in the Note 2 to consolidated financial statements in Part IV, Item 15. “Exhibits, financial statement schedules,” we believe that the following accounting policies and estimates are critical to our business operations and understanding of our financial results.

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Revenue recognition

We recognize revenue when control of promised goods or services is transferred to a customer in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. Control of the substantial majority of the products that we sell is transferred at a point in time. 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. Delivery is typically considered to have occurred at the time the title and risk of loss passes to the customer.

In the normal course of business, we offer various incentives to customers such as sales discounts, markdown support and other incentives and allowances, which give rise to variable consideration. The amount of variable consideration is estimated at the time of sale based on either the expected value method or the most likely amount, depending on the nature of the variability. We regularly review and revise, when deemed necessary, our estimates of variable consideration based on both customer-specific expectations as well as historical rates of realization. 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. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires us to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Unanticipated events or circumstances may occur that could affect the accuracy of our fair value estimates, and under different assumptions, the resulting valuations could be materially different, which could impact the operating results we report.

Impairment of long-lived assets, including goodwill and intangible assets

We assess potential impairments to our long-lived assets, which include property and equipment, retail product displays, and amortizable intangible assets, whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of an asset is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows expected to be generated by the asset. 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 fiscal years ended March 31, 2025, March 31, 2024 or 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. 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. We are also permitted to make a qualitative assessment of whether it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying value prior to applying the quantitative assessment. If based on our qualitative assessment it is more likely than not that the carrying value of the asset is less than its fair value, then a quantitative assessment may be required.

The goodwill impairment test consists of a comparison of each reporting unit’s fair value to its carrying value. The fair value of a reporting unit is an estimate of the amount for which the unit as a whole could be sold in a current transaction between willing parties. If the carrying value of a reporting unit exceeds its fair value, goodwill is written down to its implied fair value. We are also permitted to make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying value prior to applying the quantitative assessment. If based on our qualitative assessment it is more likely than not that the carrying value of the reporting unit is less than its fair value, then a quantitative assessment may be required. We have identified a single reporting unit for purposes of impairment testing.

We have selected October 1 as the date on which to perform our annual impairment tests. We also test for impairment whenever events or circumstances indicate that the fair value of goodwill or indefinite-lived intangible assets has been impaired. No impairment of goodwill or our indefinite-lived intangible asset was recorded during the fiscal years ended March 31, 2025, March 31, 2024 or March 31, 2023.

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Stock based compensation

We have several stock award plans, which are described in detail in Note 12 to consolidated financial statements in Part IV, Item 15. “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.

New accounting pronouncements

See Note 2, Summary of significant accounting policies to the Notes to consolidated financial statements in Part IV, Item 15. “Exhibits, Financial Statement Schedules” for information regarding new accounting pronouncements.

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.