e.l.f. Beauty, Inc. (ELF) Earnings Call Transcript & Summary

Good afternoon. Thanks for coming today. My name is Anna Lizzul. I am the lead analyst at Bank of America on e.l.f. And I am pleased to be joined by Chairman and CEO, Tarang Amin; SVP and CFO, Mandy Fields; and Head of IR, KC Katten. Tarang has been CEO of e.l.f. since 2014 and has over 25 years of consumer products experience through building brands, leading innovation, assembling high-performance teams. Mandy joined e.l.f. Beauty in 2019 with over 16 years of finance experience and was previously the CFO of BevMo!. Tarang, Mandy and KC, thank you so much for being here today.

Thank you for inviting us.

Thank you, Anna.

Tarang, I wanted to remark on the amazing success the company has seen in the last year. The stock has doubled since we initiated coverage in September 2022 despite a more challenging macro environment and high inflation. The company has now seen an impressive 16 consecutive quarters of net sales growth. Can you talk a bit about what has fueled e.l.f.'s success over the last year?

Sure. Well, thanks for having us for most. Let me turn off my phone. So I would say the key drivers of our success, really are the 3 fundamental drivers. First and foremost is our value position. We make the best of beauty accessible to every eye, lip and face. Second is our powerhouse innovation, our unique ability to bring things that are previously were in the prestige marketplace to make them accessible at these great price points. And the third is our marketing engine. We know how to engage consumers. We're the #1 brand amongst Gen Z. We're increasing the number of consumers we get in millennials, Gen X as well. And we have a unique engagement model that delivers very high ROI that in turn are fueling a lot of our sales growth.

And Al's engagement with consumers is really a key driver to your success with innovation. e.l.f. has its holy grail products, which are priced at a significant discount to competing products from prestige beauty brands. You've stated in the past, plans to have 1 to 2 new holy grail products each season. Some of these products have resonated very well with consumers, which includes your Power Grip Primer. Can you talk a bit about your innovation pipeline and how you are balancing innovation in cosmetics versus skincare?

Sure. So I'd say our innovation approach on these holy grails, these products that got inspiration from prestige or community, our ability to bring out these great price points. I think the other big thing about our innovation is it's not a one-hit wonder model where we launch one thing and the next year, you have to go figure out how to anniversary. We're building these franchises for the long term. So I'll give you an example. Back in 2019, we launched our -- what was Putty Primer. It's an incredible primer product that compared -- at $10 compared to a prestige item that was $56. That was an incredible hit. We continued to expand on the Putty franchise. We did Putty blushes, Putty bronzers, really created a new category there. Same with our camo concealers. We did our camo concealers, our hydrating camo concealers, camo CC cream. So we tend to build these franchises over time. Power Grip is our latest example. We launched Power Grip more than a year ago, we recently followed that up with our Power Grip Primer with Niacinamide, which has proven to be almost 100% incremental. So it's not only being able to uniquely get these products at these incredible values, but follow them up with additional innovation, which in turn has kind of driven our over business as we look forward.

Yes. And I would just add to that. I have looked over time to Tarang's point, Poreless Putty Primer launched in 2019. Well, as I look at the different classes of innovation, the 2019 launch class, 2020 launch class, 2021, each of those classes have continued to grow over time. And so to reiterate, Tarang's point of not just having a one-hit wonder, it's not about just a one item. It's about how do we build these franchises to have sustained growth over time.

That's great. And e.l.f. operates as a mass cosmetics company providing prestige quality products to our customers. Who do you now see as your main competitors in the space? Are these primarily other mass cosmetics companies, prestige brands or emerging brands and beauty?

Yes. So if you look at it just from a pure market share standpoint and how we measure that, you have the top 3 competitors ahead of us. Certainly, our -- people that we're watching that we admire a great deal but also see as competition. And our innovation continues to set us apart. And -- our value proposition, our innovation, and our ability to engage our consumers in a very authentic way. I think that our Super Bowl ad was a great example of that. We had Jennifer Coolidge ad -- really use our Power Grip Primer and got into sticky situations. That is something that e.l.f. can uniquely own. And our community had been raving about Power Grip Primer and how sticky it is. And so we thought what a great moment to bring in this sticky primer with the stickiest celebrity out there right now. I mean, Jennifer Coolidge is everywhere. And we were able to pull that together and have that ad ready to go in less than 3 weeks. I think that's another super power of e.l.f.'s that keeps us kind of separated from competition is our ability to move with speed, not just speed on the innovation side because we can produce items and have it out to market in as little as 26 weeks, but also in our ability to make decisions quickly. A great example of that is TikTok. Like, our ability to test and learn on TikTok very early on, this is in 2019 when Cory [indiscernible], our CMO, came and talked to Tarang and myself about TikTok, she's like we got to go, we got to go do something on TikTok. And Tarang and I said, "Well, what's TikTok?" Well, now 4 years later, we know what TikTok is, 4x TikTok billionaires. And so -- it's not just one vehicle. It's not just one item, but it's all of those things working together that really have driven our success.

Yes. And I would add, I mean, on the topic of superpowers, I think what really sets us apart from the competition. I mean, as we talked about with innovation, we're really known for this prestige quality at incredible prices. But what we think sets us apart from the innovation is what we call our superpowers of with e.l.f., we really think you're the only consumer -- it's the only brand that consumers can get that prestige quality at incredible prices but products that are also clean, Free, cruelty, vegan. And now we're the only beauty brand, to be fair trade certified. So I think we've seen over time, different companies can try and launch lower cost -- lower price point products, they can't do it our level of quality. Or they'll launch clean products, they can't do it, get the fair trade certified, and so we really think it's kind of the confluence of those factors that really sets our competitive moat. And our consumers tell us -- it's important because our consumers value that. They want brands that are clean. They want brands that are vegan. They want brands that are cruelty-free. And so it's really the importance to consumers of those factors that drive those super powers as well.

You also have white space opportunities in new categories such as mascara, lip color and skin care. Can you talk about the market opportunities in each of these categories? And how are you balancing your new shelf space gains with e.l.f. Cosmetics and e.l.f. SKIN?

Yes. So each of those categories, the categories that you named, mascara, lip, foundation, we have less than 1 point of share across those categories. And so they do illustrate a huge opportunity for us. And we're -- we call them conquesting categories, categories where we don't have that kind of top share like we do in primers or concealers, but categories that are important to our consumer, and we need to innovate in. And so we have our Lash and Roll mascara that we just launched this season, doing very well for us. We had a big move last season. So we're seeing share growth in these categories, but they're so large and really dominated by a few players that -- it will take time. But just as in skin care, it's a great opportunity for us over the long term. So you will continue to see us innovate in those categories. In fact, we just launched our O-FACE lipstick. I have it on today in the color no regrets. And it's a fantastic line of lipstick, and I think that we're going to see a lot of success there as well.

And in terms of your balance, I think what gives us the ability to conquest is we have such strength in our core segments. So if you think about our mark, we have the #1 or 2 position across 12 key segments, very high share positions. And we continue to innovate on those. So it gives us the ability to go to some of these other categories where we're not quite as developed. And that's all really net new for us. So it's a good balance between kind of the core, which makes up more than 50% of our business, as well as the ability -- not only mascara, foundation, but also skin care. Skin care is a huge opportunity that we just entered a few years ago, and we're seeing really great momentum.

Great. I also wanted to touch on pricing. You were able to raise prices a year ago in March 2022, and you were very transparent with consumers on this price increase. You maintained your entry-level price points while raising prices on other products. Despite these price increases, you continue to gain share in the color cosmetics category. Can you talk a bit about how e.l.f. balances pricing versus market share growth? And do you think there is more room to take pricing in this environment?

Absolutely, yes. I mean I think we've proven over time that we are a brand that has pricing power. To your question, I think we've taken 2 major price increases in the history of the company. The first within 2019 really in response to tariffs and then more recently in March of last year in response to some of the elevated transportation cost headwinds that we've seen. I think both the executions on those went better than we expected. I think in this environment, one thing that's notable is that in the most recent price increase we did, while we took price up on 2/3 of our SKUs, we left 1/3 of the SKUs unchanged. And where we left unchanged was really this opening level of price points, those $2 to $3 items that are really great entry points for the e.l.f. brand. And even the price increase that we've taken, I think what served us well is the -- really surgical kind of SKU by SKU approach of looking at -- our poreless study primer is a great example. I think when we originally launched it, there was $8. We've taken it from $8 to $9 to -- from $9 to $10. It compares to an iconic prestige primer that's $52. So still, even with the price increases, a really significant gap relative to that prestige inspiration. So I think we've proven with pricing power. It's not a lever we pull lightly, though. I think one thing that's driven our success is really our value proposition. And so we always want to ensure that we're maintaining that incredible value for consumers and that there is a price point in an entry level for e.l.f. to go to.

Anna, I would say as much as we do have pricing power and are reluctant to take prices up unless there's an external view. We successfully taken up our average unit retails over time. 9 years ago, if you looked at e.l.f., our regime of retails were about $2 on color cosmetics. We're now closer to $6. And we've done it the right way, through innovation mix. So products like our [indiscernible] liquid filter, while higher at a price point for e.l.f. at $14, the only thing it compares to that's anything like it is a prestige item at $44. So we have this price umbrella on this business because how we compare to prestige allows us to mix up the brand over time without risking kind of the overall value proposition, particularly the entry points that consumers often come to us with.

Great. e.l.f. also has several avenues of growth ahead. First, you have significant white space opportunities and expanding shelf space with retailers like Target, Walmart and the drugstore channel. How are you balancing some of these shelf space gains? And how are your conversations with traditional retailers going as your company continues to grow?

Yes. So -- we're very excited about some of the shelf space gains we picked up. We talked about for this spring, particularly in Target and Walmart, gaining shelf space. It was the first time in almost 4 years that we've gained space in Target. And so it was really great to see that. And I think our consistent performance over these last 4 years has really led to that in addition to being the most productive cosmetics brand carried at Target and Walmart. So when I say most productive, that's dollars per linear foot, e.l.f. is the most productive brand within those retailers. And so that also helps spur those conversations and further the case for why e.l.f. should have more shelf space. But I think the more important point is that we're focused on driving productivity at shelf. If you think about Target as an example, last year, we grew 20% at target, and we had no shelf space gains. It was purely driven by productivity. Being able to put the surround sound around our innovation through our marketing efforts and really drive that consumer into the stores. And so that's what you're going to hear us really talk more about really be focused on because when we look at shelf space expansion, it's really been a steady contributor from a net sales growth standpoint. Year after year, we're picking up shelf space with a subset -- in a subset of doors with our retailers, and it's been pretty consistent, I would say, over these last 4 years. We like to see that. There's a little bit of an annuity value to that. You don't have to worry about, oh my gosh, from cycling this big peak or -- now you got to worry about the valley. It's been very consistent, so I like that. The better thing that I like to focus on is how are we going to continue to invest our marketing dollars in the right way, continue to see those ROIs and make sure consumers know about the fantastic innovation that we're launching every year.

Right. You're also looking to further penetrate international markets such as the U.K. and Canada. Are you balancing your growth domestically while also looking to expand further abroad? And where do you see the greatest opportunities for e.l.f. internationally?

Internationally, I think we're still in early days. It's only about 12% of our business today. If you look at some of the leading beauty players, that's not uncommon for them to have more international sales than they do in the U.S. So I think there's really a significant runway of opportunity. Our international sales today are really primarily in the U.K. and Canada, and we've seen incredible results there. We're a #7 brand in Canada and #8 in the U.K. in mass cosmetics as compared to our #4 position the U.S. So we know that we're a brand that resonates, we really have international opportunity. As we look to white space internationally, I'd say Western Europe from a retail perspective is still wide open. I think there's countries that we now through [indiscernible], we have a relationship with [indiscernible]. And so I think there's a lot of area of opportunity in Western Europe. And then I'd say from a digital standpoint, I think we're also seeing incredible results internationally. Our business in India is a great example with Nykaa, a very small piece of our business, but we're seeing incredible results. India's top 20 e-commerce market. I think there's a English speaking country, it was really strong value focus. e.l.f. is a brand that resonates and was a very requested brand by Nykaa. So I think we're excited about the results that we're seeing there. So also challenging our international team to think about, are there other [indiscernible] in the world, are there countries that we can penetrate and through digital. I'd add, though, I think what served us really well internationally is really taking a disciplined and methodical approach. I don't think you're going to hear us launch 30 countries over the course of the year. I think, kind of seeding demand, Canada and the U.K. are a great example, where we really have business with 2 retailers in each of those countries. So that methodical kind of sequenced approach has really served us well. And then I'd say more recently, we're excited, we hired a new brand GM of International. She has over 30 years of experience in the beauty space. So I think particularly excited about just kind of the new level of focus and discipline that she can continue to bring to the business to really tackle that waste space opportunity that we see.

Great. And since e.l.f. is a digitally native brand, would you expect internationally to launch first on e-commerce and then move into brick-and-mortar eventually?

I think it depends on the market. So I think Canada is a great example of us launching first from a retailer standpoint. We were in target when they had stores Canada and then moved over to Walmart when those stores closed and then more recently launched in Shoppers Drug Mart, which has really worked well for us. But then the follow-on to that was to launch e-commerce in Canada, versus what we did in the U.K., we had a U.K. [indiscernible] first, and then we launched our relationships with Superdrug and Boots. So I really think it depends on the market. Ultimately, we would have both. We would have our e-commerce presence and a strong retailer partnership in those countries.

Great. And gross margin has expanded nicely so far this year. As you further expanded to higher priced and higher margin products, especially with e.l.f. SKIN, how do you see gross margin evolving from here?

Yes. So there is opportunity in gross margin we've talked about. We talked about carrying this 1,000 basis points of headwinds in our gross margin. Half of that roughly half of that is tariffs. And we know that because we source from China, we're subject to tariffs on about 80% of our product at the 25% level. And so unless there's some resolution there, those are kind of with us until they're not. But on the other side of that, the other half of that is really driven by transportation costs, increases that we've seen that we've seen. And so some of that will resolve over time. And we've already started to see some of the transportation costs improve. FX continues to bounce around a little bit, but we are hopeful that, that also will be a bit of a tailwind in the coming years. And it's not just in gross margin that I think we have opportunity. If I think just more broadly about EBITDA margins, in our non-marketing SG&A spend, I think there's an opportunity for us to continue to be disciplined to grow those expenses at a slower rate than we're seeing as our sales growth and yield additional leverage from an SG&A standpoint as well.

Great. And now let's talk about e.l.f.'s marketing strategy. e.l.f. has been spending more each year on marketing at just 7% of sales in fiscal 2019 of sales in fiscal '22? And do you expect to spend between 17% and 19% of sales on marketing in fiscal '23. Mandy, you had a very entertaining Super Bowl ad last month, featuring Jennifer Coolidge, which you mentioned earlier today, and your Power Grip Primer. And e.l.f. has been very effective with its social media marketing on TikTok and Instagram. How are you planning to balance your traditional versus digital media investments to reach your core younger consumers while also bringing in new demographics?

Yes. Okay. I will answer that question. Yes, we did have a fun ad with Jennifer Coolidge, and it was a lot of fun to see it come to life. But as we think about our marketing investments, I like to think about this as a flywheel. Right now, we have strong sales growth. It's been -- we've been able to invest behind marketing and digital. We said we're going to be at the higher end of that range this year just given the sales momentum we're seeing. And then seeing EBITDA growth our outlook for EBITDA, our latest guidance is 50% growth on EBITDA at the top end. So if we can continue that flywheel, I would say that ROI that we're seeing are very strong. It would tell us that we should continue to invest behind our marketing and digital. And so we will continue to do that as long as we can keep that balance up investing, but also making sure that we're expanding our EBITDA margins. And really, we're seeing success across the board. So it's not just -- like I said earlier, not just one vehicle, but we're seeing success or high ROIs, but it's across social, PR, our influencers, all of the vehicles that we leverage, we're seeing strong ROIs with.

And I'd add to, I think, in addition to the strong ROIs we're seeing. I think the other thing that's given us confidence to take that marketing range up over time is really just looking ahead of the massive awareness opportunity we see. We haven't given a native awareness levels some time, but there's still a double-digit gap in our awareness levels relative to the legacy color cosmetics brand. So Anna, to your point, I think we've galvanized this incredible following among younger Gen Z consumers, but I think there's still a big opportunity for us to reach more Gen Z consumers as well as reach more millennials, Gen X, even start targeting kind of even younger generation, Generation Alpha. So there's still just such a big opportunity we have to bring new consumers to the e.l.f. brand.

And you have such incredible interactions with some of your consumers on social media with TikTok and Instagram. Do you pay any of these influencers to promote your product?

No. It's a very small, small percentage, if any, that we pay to these influencers. What you will see is some collaborations, right? So last year, we did Makela, who was a major beauty influencer and Dunkin' Donuts. That was a partnership collaboration that we did. But a lot of what you see on social is organic. Those influencers want to seem like experts to their audiences. And what better way to appear to be an expert by telling them, "Hey, don't waste your money on a prestige item. You can get e.l.f. and it's just as good, if not better, for a fraction of the cost." And so that really gives them authority in the beauty space, really encourages their followers. And so we get a lot of growth that way.

That's excellent. I'd like to turn also to the digital side of the business. e.l.f. is a digitally native brand with a strong sense of engagement from consumers. You do a great job of rewarding consumers with your Beauty Squad loyalty program, which has about 3.5 million members. I think it's important to note that about 70% of e.l.f.'s .com sales come from Beauty Squad loyalty members. Can you talk a bit about Beauty Squad, the benefits for your members and the data that you receive from Beauty Squad that helps aid your decision-making at e.l.f.?

Yes. So we've had real success not only with international retailer business, but on our digital business. I think in the quarter, Q3, our digital channels were up 75% from a growth standpoint. So what we're doing is definitely working. First and foremost is our core site, elfcosmetics.com. It will always be the hub regardless of what overall penetration we have on digital. It's how we attract consumers, how we draw them the best vehicle we have for our elfcosmetics.com site is our Beauty Squad loyalty member. As you said, they drove over 70% of our sales. higher AOV, they've shopped more frequently. But the other thing they provide us is they're also a rich source of first-party data. And that first-party data we're able to use in a few different ways. First and foremost, in our media decisions. So as we talked about the high ROIs we're seeing overall in our marketing investments. Beauty Squad has been a key enabler, both everything from local like targeting to other sources of inspiration describe numbers go beyond just helping us with media though. They often get first exposure to our new items. They're a important feedback loop in terms of making sure we're getting the innovation that they're looking for, the ideas that they're looking for. And the level of engagement that they have with the brand is off the chart. I'm happy to say Beauty Squad grew over 20% last year, and our aspirations continue to grow that to fuel our overall digital business, not only elfcosmetics.com, but also, we're seeing really great success on Amazon some of the other e-tailer sites that KC mentioned here. So it's going to continue. I mean, obviously, being a digitally native company that's always going to be first and foremost in terms of importance, even though we have expanded quite a bit with national retailers.

That's great. And is Beauty Squad available to all your customers, both domestic and abroad?

It's right now available in the U.S., but soon will be available more broadly within U.K. and Canada, and then really any market that we go to. And then related to that, we have had pretty good effort on our e.l.f. app as well. I think we just passed over 1 million downloads. I think it was recently awarded the top 50 apps on the App Store. But it's a good digital hub for us, everything -- the entire consumer experience. to life on that app, including virtual try-ons. A lot of our tools to help consumers, find the right product for them, but all to be able to engage, including you can scan receipts and get your Beauty Squad loyalty points for even purchases you make at Target, Walmart, Ulta Beauty and other retailers. So over time, that will continue to build, particularly as we leverage that data for even greater personalization.

That's great. It's certainly very unique compared to a lot of your peers in the space. One of the things I appreciate most about e.l.f.'s business is its asset-light business model and it's very scalable supply chain. This also brings together cost, quality and speed. Can you talk a bit about your third-party manufacturing in China and how this provides an operational advantage for the company as it continues to grow?

Yes. So we have a unique supply chain. It's something we've honed for the last 19 years. We're different than many of our competitors in -- usually the economy you have between either your own manufacturing, where if you're a vertical in a particular area, you can have some advantages, certainly on quality or outsourcing completely where a lot of times, well, you can get good cost particularly if someone specializes in a particular area, there isn't any real incentive for that manufacturer to invest in quality systems because they're not -- they don't know if they're getting another PO for me or not. The way we've configured our supply chain is we have a team in China in Shanghai. It's not a sourcing operation, but 88 employees with full multifunctional capability. So our GM in China built up Mary Kay's export operations from the ground up, a longtime J&J vet, our head of quality ramping [indiscernible], a quality for oral care for all of Asia, our Head of Sourcing, Six Sigma Black Belt from GE. We have an incredible world-class team there that works very closely with like-minded suppliers. Many of these suppliers have been with us from the very being. And so while we don't -- while it's asset light in that we don't own those assets, we have a high degree of control over them where it's our quality people of those facilities. It's our workshops, only manufacturing that they follow. And so it's created this real advantage we have on this best combination of cost, quality and speed. And not only in that combination, but it's also highly resilient. We went through the pandemic supply interrupt, container imbalances, lockdowns, being able to supply our customers at a 95% customer and stock level. So it's a pretty robust system and really connects quite closely with our innovation model. Our labs are co-located in our main headquarters in China, our ability to get prototypes in as fast as a week to 2 weeks is really driven by our ability to do our own development and then partner with the right suppliers in a way that is able to attain the quality and cost that you see.

That's great. And do you have different relationships depending on the type of products that you're producing?

We do an important part for us is also having multiple sources for each product. So we do have our main suppliers have capability in certain areas of specialty that we partner with them on with our team. And again, it's really not only been able to advance the overall model that we have, but continues to evolve and grow as we enter new segments, namely skin care, where we've had run on additional expertise, both internally and with our supply base as we conquest that category.

And I think it's important to know, I think, KC, you mentioned earlier as well that you're now fair trade certified. Is that right?

That's right. We're the first beauty company that's been fair trade certified. And a lot of -- KC talked about our superpowers, but they come directly from our consumers. One of the reasons why we're #1 amongst Gen Z is we meet the values they care about. So we were one of the first mass brands back in the day that was 100% vegan and cruelty free. That's a very important set of values for our consumers. As we look to the future, there are a few things that are of increasing importance to consumers. Being clean, we're 100% clean in terms of our formulations; sustainable; and then fair trade certified. People want to feel good about the products that they're buying, not only for the quality and the price, but also the values that, that company stands for. And so for us, we've always believed in doing right by our community and empowering our community but also making sure we're doing right by the workers who make our products.

And as a leader in the beauty space for fair trade certification, how did you have the motivation to get that certification for e.l.f.?

Well, I mean, I think it goes back, first and foremost, to our consumers and the values that they hold dear and what our employees hold dear. And we want to make sure we're making the right impact. I mean, I think we've made tremendous progress on the ESG front. I think -- KC remind me, I think we're like #7 out of 80 consumer good companies by Sustainalytics. So we're well known within that regard. So this follows kind of within some of those practices. But in addition, I think one of the things we've always had is we always disrupt and led within beauty. And we think there's a huge opportunity with that certification means over time, not only the consumers but the communities we serve.

Great. And e.l.f. also has a strong liquidity profile with potential for additional small-scale acquisitions. You've moved from being a single brand company to a multi-brand house, with the acquisition of W3LL PEOPLE in February 2020. And you also have partnered with Alicia Keys later that year to create a lifestyle beauty brand now known as Keys Soulcare. What are your aspirations for W3LL PEOPLE and for Keys Soulcare? And do you see any other opportunities for e.l.f. to acquire small brands or expand with partnerships similar to the one with Alicia Keys?

Sure. So I'll take the first part, and then I'll pass it over to KC, as she leads our corporate development team, to talk more on the M&A side. But W3LL PEOPLE, I'll start with. W3LL PEOPLE we acquired back in February and W3LL PEOPLE is plant-powered beauty. So the cleanest of clean, just like top tier from a clean standpoint, EWG-certified SKUs. And acquiring W3LL PEOPLE really talks a whole lot about clean. What it took to have a clean beauty brand. And to Tarang's earlier point, e.l.f. is now 100% clean because of what we learned from W3LL PEOPLE. We were able to take those W3LL PEOPLE formulations, put them into our supply chain and then apply those learnings over to the e.l.f. brand as well. And so we have gained a lot of capability on that acquisition. For Alicia Keys and the Keys Soulcare brand, that brand is still in early days. So about 2 years old now, we're really focused on building awareness behind that brand. It really hits a sweet spot in the beauty space, really focused on wellness, taking care of oneself, the soul. And so I think there is a market for a space for it. It's just really about bringing consumers in and building that awareness behind that brand.

Yes. I mean -- and with regards to additional acquisitions, I mean, I'd say our first and foremost focus is on really investing behind our own brands and the opportunity we see. I mean, we still see so much white space than just our core cosmetics category, looking at skin care, looking at international. So I'd say that's where our first and foremost focus is. But outside of that, I mean, we do have appetite to add additional brands to the portfolio over time. I think we have this vision of really being a different kind of beauty company, though. So I'd say it's -- we're really looking for brands that align with our values, our culture. And I'd say, well, we're still probably seeing a little bit of a disconnect and valuations on the private market side, where I think there's still a scarcity of assets that have kind of the combination of strong top line growth and also strong and just given where we are on our public journey, I'd say there's still a scarcity of assets. But I do think that we remain interested in the potential to have additional brands that can maybe expand our capabilities into other categories of beauty or complement our retailer relationships or I think there's a number of different ways that we can kind of look to acquisitions as a tool over time. But endangering will speak to those -- I think our first and foremost focus is really on kind of building out the opportunity that we see behind the e.l.f. brand.

Great. And in terms of W3LL PEOPLE, since you acquired that brand in February 2020, have you taken that brand so far and in the past 3 years, where have you expanded distribution? Has W3LL PEOPLE also helped e.l.f. expand distribution on the e.l.f. Cosmetics and on e.l.f. SKIN side? And where do you see W3LL PEOPLE and Keys Soulcare going from here?

Yes. So when we acquired W3LL PEOPLE, they were in a subset of Target doors. We were able to expand its presence within Target, a pretty big expansion this past spring. In addition, we were able to get W3LL PEOPLE into Ulta Beauty in a subset of their doors. We're also taking W3LL PEOPLE to key retailers that are making us stand on clean beauty. So [indiscernible], regional grocer in Texas. A number of others that really are leaning into the clean. So we've been able to successfully expand the brand not only from a distribution standpoint, but also from a product assortment standpoint. We took -- W3LL PEOPLE was previously only in color cosmetics. We were able to take it into skin care as well and kind of expand the brand. as well as relaunch. Just by -- one of the big advantages we have in our operating platform, it's just replatform and W3LL PEOPLE onto the e.l.f. platform. I think we saved about 50% in COGS that we're able to reinvest back in the brand and be able to continue to grow it. Keys Soulcare, I'd say, distribution partners for cell care the U.S., Ulta Beauty is our lead partner. In Canada, Sephora Canada was our first entry into in any of the Sephora banners with Keys Soulcare. And in Western Europe, [indiscernible] throughout a number of countries in Europe. As Mandy said, we're still building awareness, but we feel, again, we're building this company for the long term. And as we look at the long term, we see increasing consumer interest in wellness and soulfulness. Couldn't have a better partner in Alicia Keys in terms of what she stands for and what that means. So we committed to that brand long term. But I think you'll continue as much progress as we're making on W3LL PEOPLE and Keys Soulcare. A lot of our earnings calls, you'll continue to hear us mainly talk e.l.f. SKIN and e.l.f. Color as so those are the bigger drivers of our business, at least in the medium term. And -- but we still have a tremendous amount of white space.

Great. We've talked a lot about growth at e.l.f., especially over the recent past. And how does that tie into your compensation for employees?

Yes. We're quite unique in our compensation approach. We put it on our banner of One Team, One Dream, which really connects our entire employee base and drives a great deal of engagement. So short term, we believe being competitive on base salaries, but we'll never be one of the higher payers on base. We're a very performance-driven company. So short term, every single employee in our company is bonus eligible. And that bonus will go -- target can go from 0 to 200%, but we all get paid out the same percent in terms of your target. Short term, that's based on the adjusted EBITDA target the Board provides each year. If we do well, we can often do up to the 200% short-term bonus. If we don't hit it, we can get 0. So a very much performance orientation towards making sure we're hitting those short-term targets. The other thing that we're unique in our space in is we grab every single employee equity in the company. it's a real big belief of ours if we want our employees well aligned to the long-term interest of our shareholders, so we make each of them as a shareholder. And for perspective, we have about 350 employees. Over the last 5 years, we've granted about $80 million of equity in a stock that I think is tripled or quadrupled in value. So a real wealth creation opportunity for our employees, who leads to a high degree of engagement, both in terms of our short-term results, making sure we're all aligned on the overall adjusted EBITDA of the company. But more importantly, in terms of the long term, what company are we building for the long term and what value are you driving. And it's kind of a really important part of our -- not only compensation, but how we're -- we tie together that One Team, One Dream approach. And then the last thing I'd say is back to high performance. We do a lot on high-performance teamwork. Every single person in terms of building passionate relationships, encouraging healthy conflict and mutual accountability, have a high-performance team coach on retainer. We do a lot of training on how to give feedback, and that propels this culture where people can do well. is also an expectation of continuing to perform, continue to learn, continue to grow. And I think it's been a key part of revenue. often don't talk about it, but it's a key part of our overall formula for success.

Great. And on that note, we are just about out of time. But Tarang, Mandy, KC, thank you so much for being here today.

Thank you so much, Anna.

Thank you for having us.

Thanks, Anna.