e.l.f. Beauty, Inc. (ELF) FY 2026 MD&A

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.

Comparison of the fiscal year ended March 31, 2026 to the fiscal year ended March 31, 2025

Net sales

Net sales increased $323.0 million, or 25%, to $1,636.5 million in the fiscal year ended March 31, 2026, from $1,313.5 million in the fiscal year ended March 31, 2025. The rhode Acquisition contributed $293.5 million to our growth in the fiscal year ended March 31, 2026, with the remaining $29.5 million contributed from our existing business. The $323.0 million increase was driven by both our retailer and e-commerce channels. Net sales increased $178.3 million, or 16%, in our retailer channels and $144.7 million, or 63%, in our e-commerce channels. From a price and volume perspective, a higher average item price and mix drove $333.5 million increase in net sales as compared to the fiscal year ended March 31, 2025. This was partially offset by lower volume impacting sales by $10.5 million.

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Gross profit

Gross profit increased $221.7 million, or 24%, to $1,157.3 million in the fiscal year ended March 31, 2026, compared to $935.7 million in the fiscal year ended March 31, 2025. Higher average item price and mix drove an increase of $229.2 million, offset by lower volume impacting gross profit by $7.5 million. Gross margin was 70.7% in the fiscal year ended March 31, 2026, a decrease of approximately 50 basis points as compared to 71.2% gross margin in the fiscal year ended March 31, 2025. The decrease in gross margin rate was primarily driven by tariffs, partially offset by pricing.

Selling, general and administrative expenses

SG&A expenses were $1,026.1 million in the fiscal year ended March 31, 2026, an increase of $248.4 million, or 32%, from $777.7 million in the fiscal year ended March 31, 2025. SG&A expenses as a percentage of net sales was 63% for the fiscal year ended March 31, 2026 and 59% for the fiscal year ended March 31, 2025. The increase on a dollar basis was primarily related to increased marketing, merchandising and distribution costs of $129.1 million, compensation and benefits expense of $55.1 million, increased depreciation and amortization of $35.0 million, increased professional fees of $20.6 million, and increased regulatory fees of $8.6 million.

Change in fair value of contingent consideration

In connection with the rhode Acquisition, the Company recorded a fair value adjustment of $57.6 million for the fiscal year ended March 31, 2026, driven by the outperformance of rhode's revenue results relative to the earnout thresholds set forth in the merger agreement entered into in connection with the rhode Acquisition.

Other income, net

Other income, net was $2.8 million in the fiscal year ended March 31, 2026, as compared to other income, net of $1.3 million in the fiscal year ended March 31, 2025. The year-over-year variance is primarily due to an increase in income from insurance recovery, and a decrease in foreign currency exchange loss for the period primarily attributable to foreign currency rate fluctuations between the US dollar and both the euro and British pound.

Interest expense, net

Interest expense increased $21.5 million, to $35.3 million in the fiscal year ended March 31, 2026, as compared to $13.8 million in the fiscal year ended March 31, 2025. The year-over-year variance was primarily due to the Fifth Amendment which established the Term Facility and increased debt. See Note 8, “Debt,” in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details on our debt.

Income tax provision

The income tax provision was $14.1 million, or an effective rate of 35%, for the twelve months ended March 31, 2026, as compared to a provision of $33.4 million, or an effective rate of 23%, for the twelve months ended March 31, 2025. The change in the income tax provision was primarily driven by a decrease in income before the provision for income taxes of $105.0 million.

Financial condition, liquidity and capital resources

Overview

As of March 31, 2026, we had $289.7 million of cash and cash equivalents. In addition, as of March 31, 2026, 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, 2026, we had working capital, excluding cash, of $163.5 million, compared to $214.8 million as of

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March 31, 2025. Working capital, excluding cash and debt, was $193.5 million and $214.8 million as of March 31, 2026 and March 31, 2025, 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, 2026 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.

Cash flows

Cash provided by operating activities

For the fiscal year ended March 31, 2026, net cash provided by operating activities was $212.5 million. This included net income, before deducting depreciation, amortization and other non-cash items of $262.0 million, partially offset by acquisition-related seller expenses of $47.1 million in connection with the rhode Acquisition, and an increase in working capital of $2.3 million. The increase in net working capital was primarily driven by a $67.4 million increase in prepaid and other assets and $17.5 million increase in accounts receivable, partially offset by a $75.3 million increase of accounts payable and accrued expenses and a $7.3 million decrease in inventory.

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 Naturium 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 US 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.

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Cash used in investing activities

For the fiscal year ended March 31, 2026, net cash used in investing activities was $605.2 million primarily related to the rhode Acquisition and capital expenditures related to leasehold improvements and equipment.

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 Naturium 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.

Cash provided by (used in) financing activities

For the fiscal year ended March 31, 2026, net cash provided by financing activities was $533.9 million and was primarily driven by proceeds from long term debt of $600.0 million, proceeds from the revolving line of credit of $50.0 million and cash received from the exercise of stock options of $5.8 million. This was offset by the repayment of previous Revolving Credit line of $50.0 million, repurchases of our common stock of $50.0 million, repayments on the Amended Term Loan Facility of $15.0 million and payment of debt issuance costs of $6.9 million associated with the new Revolving Credit Facility.

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 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.

Description of indebtedness

Amended Credit Agreement

On April 30, 2021, we amended and restated our 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 $100.0 million revolving credit facility (the “Amended Revolving Credit Facility”) and a $100.0 million term loan facility.

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 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.

Second Amendment to Amended Credit Agreement

On August 28, 2023, we entered into the Second Amendment to Amended and Restated Credit Agreement (the “Second Amendment”). Pursuant to the Second Amendment, we borrowed incremental term loans in an aggregate original principal amount of $115.0 million under the Amended Credit Agreement (the “Incremental Term Loan”). We used the Incremental Term Loan, together with cash from our balance sheet and additional borrowings under our Amended Revolving Credit Facility, to consummate the acquisition of Naturium (as defined in Note 3, “Acquisitions,” in the Notes to our unaudited condensed consolidated financial statements included elsewhere in this Annual Report on Form 10-K) and to pay related fees and expenses in connection with the acquisition of Naturium and Second Amendment.

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Third Amendment to Amended Credit Agreement

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

Fourth Amendment to Amended Credit Agreement

On March 3, 2025, we 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 $500.0 million (the “Revolving Credit Facility”), refinanced the existing indebtedness under the Amended 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 Revolving Credit Facility are available to e.l.f. Cosmetics and certain of our other subsidiaries 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 and our subsidiaries’ equity interests. In addition, up to $35.0 million of the Revolving Credit Facility is available for issuing letters of credit. The maturity date of the Revolving Credit Facility is March 3, 2030.

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

Fifth Amendment to Amended Credit Agreement

On August 5, 2025, we entered into the Fifth Amendment. The Fifth Amendment, among other things, established the Term Facility, made customary changes in connection with adding a term loan facility, increased the maximum permitted consolidated total net leverage ratio financial covenant, increased the interest rate margin for loans under our existing Revolving Credit Facility and increased the unused line fee under our existing Revolving Credit Facility. The proceeds of the Term Facility were made available to e.l.f. Cosmetics and certain of our other subsidiaries to pay a portion of the consideration for the rhode Acquisition. The maturity date of the Term Facility is March 3, 2030.

Loans under the Amended Credit Agreement will bear interest at a rate per annum equal to, at e.l.f. Cosmetics’ election: SOFR (subject to a 0.00% floor) or an alternate base rate (subject to a 1.00% floor) as set forth in the Fifth Amendment, plus an interest rate margin, to be determined based on consolidated total net leverage ratio levels, ranging from, (i) in the case of SOFR loans, 1.50% to 2.25%, and (ii) in the case of alternate base rate loans, 0.50% to 1.25%.

Unused commitments under our existing Revolving Credit Facility are subject to a fee, to be determined based on consolidated total net leverage ratio levels, ranging from 0.15% to 0.25%.

The interest rate as of March 31, 2026 for the Amended Credit Agreement was approximately 5.4%.

The interest rate as of March 31, 2026 for the Revolving Credit Facility was approximately 5.4%. The unused balance of the Revolving Credit Facility as of March 31, 2026 was $243.3 million.

Off-balance sheet arrangements

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

Critical accounting policies and estimates

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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 Note 2, “Summary of significant accounting policies,” in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies and estimates are critical to our business operations and understanding of our financial results.

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.

Contingent Consideration

In connection with the rhode Acquisition, we recorded a liability at fair value for the contingent consideration potentially payable to the sellers of rhode subject to achievement of certain earnout thresholds, with a maximum payment of $200.0 million. We expect to pay (if due and owing) annually within four months after each measurement period ending September 30, 2026, 2027, and 2028. The fair value of the liability is estimated using discounted future cash flows based on a Monte Carlo simulation methodology using significant level 3 inputs such as forecasts of revenue. We evaluate the fair value of the contingent consideration each reporting period and adjust the carrying value as new information becomes available. See Note 3, “Acquisitions,” and Note 7, “Fair value of financial instruments,” in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

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 material impairment charges recorded on long-lived assets during the fiscal years ended March 31, 2026, March 31, 2025 or March 31, 2024.

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

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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, 2026, March 31, 2025 or March 31, 2024.

Stock-based compensation

We have several stock award plans, which are described in detail in Note 12, “Stock-based compensation,” in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We account for stock-based compensation under Accounting Standards Codification (“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,” in the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K 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.