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

Thank you, everybody. Good morning, good afternoon. I'm Olivia Tong. I lead the coverage of Beauty, Beauty Retail, and Consumer Staples products for Raymond James. And very excited to be hosting this chat today with e.l.f. and talk about ESG to hear more about their initiatives and see how ESG has contributed to the strong performance of the company. I also want to mention that e.l.f. is 1 of our ESG analysts' Top Picks and is on the Raymond James ESG focus list. So have a look at that report if you have a chance. Hopefully, you also saw e.l.f.'s impact report for fiscal '23, which was released not too long ago. A few stats there, they are first in the Beauty industry to achieve Fair Trade USA Certification for manufacturing facility. Their products are cruelty-free, and the company has committed to removal of any forever chemicals, those are PFAs. And they have set a packaging goal of 100% of e.l.f. Beauty -- e.l.f. Beauty paper carton to the Forest Stewardship Council. Well, it's a mouthful, certified by fiscal '25 versus 23% in fiscal '22. So we're delighted to have with us today to discuss this and many other initiatives, Scott Milsten, he's the Senior Vice President, General Counsel and Chief People Officer for e.l.f. He's in charge internally at e.l.f. with all things related to ESG. He's been with e.l.f. for 10 years, so fun fact, he's been with e.l.f. the same number of days as Tarang. Ellen Leung, VP of Sustainability. This is a new role for e.l.f., but she's been with the company for 7 years. And then, of course, KC Katten, VP, Corporate Development and Investor Relations, who helps all of us, sell side and buy side with the strategic initiatives for the company, including how ESG factors into everything. So thank you, guys, for joining us. We really appreciate it.

Thank you.

Maybe let's start a little bit, given that the report just came out on the impact of Parker fiscal '23. Maybe can you share some of the key initiatives there, accomplishments and overall where you stand relative to your goals?

Yes, I can take that one. So thanks, Olivia, first and the Raymond James team for hosting us. It's an exciting time for us. As you said, we released our second inaugural report just last week and as timing set itself up, we actually took the entire e.l.f. team, it's about 300 people on Zoom yesterday through the Impact report to make sure that the team understood and saturated all the great materials. So now we're going to move outward-facing, so timing is perfect. So we really appreciate the opportunity to chat it because we are really excited about the progress we've made in some of the areas that we're targeting. So I'll start on a couple in terms of accomplishments and maybe some that are closer to me, and Ellen can talk about some that are more passion areas of her. So for me, in my people role, of course, our sort of leadership in diversity and inclusion has always been a hallmark of e.l.f. So I know our Board stat is pretty well known, but I'll say it again because it's one we're super proud of, 1 of 4 public companies with 2/3 women, 1/3 minority representation and the denominator on that is 4,200. So we feel that's a pretty good barometer. And what we're doing is rippling through that, and it always has rippled through, I should say, the entire organization, right? We're 70% women, 40% diverse community, and our commitments on that one, in particular, is we want to make sure that permeates all levels of the organization. So we have the same commitment to have our leadership level reflect that representation. And our Impact Report shows where we are tracking to that. I think we're at 68% on women representation. So we're within a stone's throw of the 70%. Other areas that I think we've made a lot of progress in is, as that you said, the sort of sustainability element. And that's 1 that is extremely important to us, even just starting with the consumer, right? Our consumers, this is a passionate area for them. If you look at sort of Millennial or teen surveys in terms of what is important to our consumers. So there's a beautiful dovetailing there about what our consumer wants and what we're going to be going after. And so the Fair Trade-certified, we can probably talk about that one a little more in depth later because that was a big lift and a first mover for us. But also, the Forest-certified, getting that up to 100%, we also have some work going on with brush handles. So overall, the architecture is the same as our first report. But what I would say is an important addition is the transparency on goals, and that's a new addition this year where we have a list of probably 20 goals where we stand and where we're going and love both the transparency and accountability that brings to our organization and the focus. So that's, I would say, just even an architecturally a new addition that we're proud to do and it gets us on the path.

That's very helpful. Thank you for that overview. Perhaps we can turn over to ROI, because that's obviously very important to investors. And we'd love your view in terms of how to measure the returns of social impact initiatives. Do you think of this as a cost or a cost saver? And what do you think your peers do this as?

Yes, it's an interesting one because I know sort of you hear cost or cost saver. So I'm going to maybe take a little different spin, and then maybe Ellen can help us on the cost savings part because I have it. But I really -- I just sort of view it as an absolute business driver. It's helping fuel our results. And so I almost view it more as like a top line sort of enhancer, as a start. That starts, as I said, with the consumer, right? These are consumers -- we are a purpose-led company that wants to bring exceptional business results. Our consumers want sustainability, as I said, climate impact. I mean, I can just think about the teams I know who are living in my home, shall we say? My daughters -- this stuff matters to the generation that's buying our products. And so we want to be very much in tune with what's important to them. And I think that some of the initiatives we're taking here are absolutely just spot on for that demographic. Internally, too -- and I would just say that, again, as I think about a business driver, what is -- how are these initiatives helping drive business results? I see it at the employee level, too. Attracting and retaining top talent. If you can -- so our employee base is passionate about these projects, and any time you can have passion in your organization about anything, it's great. It's infectious. It actually gets people going and charged up and fired up to get after something. And so I see that just in my role as Head of People, really being sort of a crystallizing thing around the organization. In terms of attracting talent too, and it's just -- it's anecdotal, but it's happened too many times to be not. More times than not when I'm interviewing folks or talking with folks about e.l.f., it's the Impact Report that we end up talking about that they've seen. "Oh, I was looking through the Impact Report. This caught my eye. Boy, am I passionate about this. I can't believe what you're doing here." So in terms of like in attracting and retaining top talent, I just see that these initiatives fueling our results both with the consumer and with our employees. Now on the sort of cost savings, hey, you have to make some investments. Ellen's probably -- I know she and I have talked about that, where some of the initiatives we take dovetailed beautifully with like, oh, it's "better and cost less." That's -- I mean, those are great examples. I don't know, Ellen, if you have any of those that you might share?

Sure. Yes. No. And I think also just to echo what Scott said in terms of the people piece, I can't say how many times meeting a new person, and they're just like, oh, Impact Report, that's what really brought me to e.l.f. in terms of just the work that we're doing across all of these different areas, just being like that extra piece of incentive to really be part of -- part of the company. I think in terms of costs, we probably see -- it depends on what we're looking at here. But I'd say, overall, I don't -- we don't see a sort of direct connection between must invest with like a costs impact and being able to drive on these initiatives. So there's examples of where we might make a -- where we're going to invest in certain things, like FSC is typically a little bit more expensive than non-FSC paper, it makes sense. There's certifications behind it, et cetera. But there's tons of other examples of places that we're working where we're getting sort of both things. We're getting enhancements around sustainability, and we're actually being able to find cost savings, too. And I think a great example of that maybe looking back historically as a company, Project Unicorn, the packaging initiative that we launched in 2019 and kind of have since evolved into much more robust strategy around sustainable packaging. That started with a focus on really driving productivity. There was a piece around cost savings and -- and it really came with all of those things and also a sustainability benefit. So that's a great example of an initiative where you get all these different pieces working together to serve everybody's benefit. So I think that's kind of how we're looking at cost. It's not necessarily one or the other.

Got it. That makes sense. Perhaps maybe thinking about benchmarking against your competition, right? Who do you look at as leaders in the areas that you're hoping to achieve more?

Sure. And I'd say, in that area, we typically look at our public beauty peers as well as other consumer companies that are of a similar size. We think that's sort of a good pulse point, both in terms of the industry in specific and also the broader consumer segment and what's important in that sort of bigger use of the pie. I think as a company, when we think about diversity -- and Scott has certainly sort of talked through this piece -- we really think that we're a leader in that diversity space. So you mentioned the stat around 1 of just 4 public companies in the U.S. with the Board of Directors that's at least 2/3 women and 1/3 diverse. We have public beauty peers aiming for gender parity in their Board and leadership teams by 2025. With our Board competition and the leadership team at 68% women, we're already there. And so our hope is really that as we look to our peer set in the industry, in general, that it's going to be more than 4 companies to get to those levels of diversity and Board level. And really looking for that continued progress around gender parity at leadership levels across industry. I think where we're continuing to make progress on is in our environmental initiatives. So as Scott alluded to, we're really proud with this year's Impact Report to lay out very clearly, I think, what our specific commitments are and what are the goals that are associated with those. So just to highlight a couple of the new areas, the first is around reducing our packaging intensity by 20% by 2030. And so I talked about Project Unicorn previously, that's a project that's really delivered great results in terms of packaging reduction. So I think 2.5 million pounds to date of excess packaging sort of eliminated from our packaging footprint. And this goal is really a great way to solidify and quantify that going forward. And really provide focus for what we're going after. Secondly, we've expanded our commitment around the use of Forest Stewardship Council, and I'll just say FSC from now on, certified packaging materials. Last year, we had gone out and set a goal to be 100% FSC-certified for paper product partners. And we've made really great progress against that. I think we're at 75% at this point, again, marching towards that 100% goal for 2025. And what we've done this year is added on an additional goal under FSC, which is to have all of our wood brush handles be made of 100% FSC-certified wood also within that same time period. And we think that's particularly meaningful particularly because of our leading position in mass cosmetic expressions. So we're taking a stand on this, and we think it's really important, so wanting to extend that to wherever it makes sense in our business. And then lastly, in terms of greenhouse gas emissions, obviously, a super important topic. This year, we set and met science-based targets for our Scope 1 and 2 emissions. And really, our focus now is going to be on -- on Scope 3, obviously, the bulk of our emissions sit within bulk Scope 3 as many companies in our sector. And so that's really our focus. A lot of the other initiatives that we'll be talking about, obviously, ladder it into and support those goals. But that's really a key area of focus for us.

That makes sense. What about your suppliers? I mean, part of what helps you on profitability is, your manufacturing is all done by third parties. But how do ensure that your suppliers are also on board with all the sustainability initiatives and goals that you have?

Sure. And I think with respect to suppliers, I think we feel quite fortunate. So we choose and proactively work with suppliers that we believe align with our principles and values. So sort of at that level. And we feel that we have a really strong alignment with them on our sustainability initiatives. And I'll just give a couple of examples to give a little bit of color to that. So Scott had talked about the Fair Trade certification that we've done first in beauty to have a third-party manufacturing facility, Fair Trade-certified. That's something that we were able to do last year. We've added additional suppliers to that program. And we're now up to 75% of our product volume being produced at Fair Trade-certified facilities. So that's huge and substantial. It's a big lift. I don't think it's something that we could have done without obviously engagement with the fair trade in e.l.f., but also the partnership of our suppliers. That requires sort of ongoing work with them. Every year, there's a recertification over 100 compliance criteria across social, environmental, economic factors. And so really, that doesn't happen on this without those relationships and that strong support with your supplier network. Secondly, we're working with our suppliers on -- we have completed EcoVadis supplier assessment. So that's a globally recognized certification process that looks at social, environmental, other factors related to supplier sustainability. And we've had great success. 95% of our direct spend with our suppliers is under this assessment. We're really proud that our suppliers are at 17 percentage points above the EcoVadis global average. And we've seen year-on-year improvements in their scores. Thirdly, we feel that we have really good engagement with our suppliers on the sustainability topic. So we have a semiannual supplier summit. This is a key topic. We've set up roundtables, where some of our suppliers can share best practices. And we do feel like this is a point of attention with them. I think 1 example where we've seen some movement and just I think an example of where they are. 4 of our key suppliers are investing in solar energy infrastructure and new manufacturing sites, so as they're building new facilities, that's really part of the remit around how we're -- they're setting up those new facilities. So we're really excited to see that, and I think that gives us confidence in the path forward. So overall, really pleased with the engagement that we're getting from our suppliers on these topics.

Got it. Now in terms of the brands, right? So obviously, ESG is a huge focus for you. How does it -- how does ESG impact, social responsibility fit into the broader brand ethos?

Yes. So I think there are a couple of ways if I think about sort of how we think of ourselves, articulate our place in the community. It's sort of we're that bold disruptor with a kind heart, right? And so I think both of those elements really come through in our ESG work, right? So the bold disruptor I mean, Fair Trade-certified. Ellen gave it a snapshot, but that was a huge lift. I mean, just a huge, huge lift, right? Before this project embarked for us, I have to confess, I was like, sort of like, I know it in coffee. Like that's sort of, well, [indiscernible] Fair Trade-certified. But oh, let's -- so that's an idea of like where e.l.f. takes something in another vertical or industry and then brings it into beauty. So that's a -- that was a pretty disruptive initiative, and it's 1 that, again, we're not -- we would be elated for everyone to sort of follow that. It's not -- we don't want to be the first and only mover there. Right? And just for the benefit of the broader group, that means we're making monetary contributions to those factories and the workers and the communities, right, to enhance sort of livelihoods of those factory workers. So that's not necessarily, you go, "Okay, well, that sounds like the kind heart part of it." Absolutely right. So another one says like, "We'll say that's the community that starts way up in the supply chain." And maybe on the other end, what you see in this year is our first publicly stated commitment on just contributions to organizations that align with our sort of values and purpose, right? And so we've set an external goal in this year's Impact Report of 2% of the prior year's net profits. Number of companies do 1%. I don't know that we're going to quibble over 1 versus 2, but the fact is that last year, we actually did 3%. And some initiatives that really do resonate with both our employees and our consumers. Big contribution behind a -- for sort of mental health awareness for a collaboration we did with Anastasia Pagonis, blind Paralympic swimmer, that was her favorite charity. We've done some work with charities that are near and dear to our good friend, Jennifer Coolidge, who we had a big launch with yesterday. But these sort of things are sort of that kind heart part of it is important. And we take that all the way down to the employee level. e.l.f. is a -- we have a sort of somewhat interesting match program that each year, employees get to have donation up to $500 that's matched both by the company and by Tarang and his wife personally. And so we get sort of a 3x match. And not only is it sort of the monetary contribution, but you get to pick the charity that's important to you. And it actually sort of reinforces and lets us see, hey, what's important to our employees? It might be a camp that they went to when they were younger. It might be something on reproductive health. So again, that kind heart always showing through in what we do is critical to our sort of company DNA.

I haven't heard that stat about Tarang and his own personal...

Yes, he does. So probably for the last 3 years and -- he has said, we have to find a better way to automate this, because his check-writing hand is -- is getting taxed. But really gives them insights too, like, "Oh, why don't you contribute to -- oh, I see you're into social justice, oh." So it's really -- it's again, some of those personal elements that you see in these initiatives that then enhance connectivity of the team and that's what we're trying to accomplish.

I'm sure that has a huge impact on the culture as well.

Absolutely, absolutely.

I'm just going stop there for a second and just let the audience know that if you do have any questions, feel free to put it in the chat or e-mail me at [email protected]. I'm also on Microsoft Teams, Bloomberg, what have you. So if you have any questions, please feel free to enter that into the chat. I just want to continue on that culture portion as we let some questions queue up. But you do have a culture of clearly fearlessness, thoughtfulness, proactivity on ESG initiatives. How does that factor into your impact strategies as well?

Yes. So I think -- look, I think it's areas that we will be bold and try and take a stand in. And so we gave the Fair Trade-certified example, right? That was a -- really a knock on the door of Fair Trade. Hey, have you ever done this with Beauty? No? Would you like to -- would you like to think about doing with Beauty? Okay. And so I think that was a 2-year journey in terms of actually all the work that went behind establishing, right? Because at that point, we're establishing with Fair Trade and supply chain in China. So you can already see the sort of multiheaded dynamics here of what that checklist is going to look like in order for Fair Trade to put that stamp of approval in terms of working conditions, things like that. So that 1 is probably, I would just say, the centerpiece of like where we would just take an idea and move it entirely into Beauty. Look, I think our diversity initiatives, we've been quite vocal about, I want to continue to be vocal about those as that's a pretty fearless -- and I would say, either, call it fearless or intentional. We're quite intentional about having a company that mirrors the consumers that we serve, top to bottom. And so those are 2 areas that I think are going to be hallmarks for me. I don't know if Ellen, if you have any others that you want to touch on?

I think -- yes, and maybe this steps into sort of the topic around marketing, but just sort of like how we bring these points forward in our marketing campaigns, I think it's also just sort of a reflection of -- it's doing the work, but also how do we connect with our communities on these points. And so I think on that matter, it really all ties back to our vision, a different kind of beauty company, building brands that disrupt norms, shape culture, connect communities through positivity, inclusivity and accessibility. And really, like each of those words is very intentional and thoughtful, and that's what kind of comes forward and how we engage. So I think Scott gave the example of Anastasia Pagonis. That's part of a new series that we've launched called Show Yourself. And it's really focused on sort of these inspirational role models overcoming adversity and sort of providing that touch point with our community on those types of challenges and sort of where people are breaking through. So obviously, we have vigorous models, creators, community members. So I think that's all really sort of part of how we bring -- how we bring these initiatives and efforts sort of to life with our community. I think on a different vector, but very related when it comes to environmental impact, we're starting to engage with our community on these topics as well. So 1 that I'm excited about is we're starting to roll out how to recycle labeling for e.l.f. skin products. So going to be showing up on pack, on product description pages. And so we feel that's to get opportunity to talk with our consumers about recycling. What does the label mean? What does it mean, when it should be recycled and when it shouldn't. And together, we can kind of work on making sure that we're increasing recycling rates, reducing contamination and recycling streams. And so I think both of those are really great examples of how we're looking to partner with our community not to speak to them, but just kind of have this conversation around these areas that we all think are important.

Makes sense. I'm just going to ask 1 of the questions that's in the chat since we were talking about suppliers. Do you have long-term relationships with suppliers with long-term contracted volumes? And to the extent that these are mostly short-term negotiated arrangements, how do you incentivize suppliers to undertake ESG initiatives?

Well, I would characterize the majority of our relationships as relatively long term. I think many of the suppliers that we're working with today, we've been with them for a number of years going back. And so it's kind of a -- sort of a continuous build together on the partnership around sustainability initiatives. It's not like we're swapping in and out of different ones over time. We're working with them and building with them and we're planning forward into the future.

Yes, I'll just echo that and this is a little bit just more insight perhaps into the supply chain versus the ESG nature of it. But as we started off saying, I've been here for a decade now. And these are multiyear suppliers. So this -- just for broad-based, this is not sort of a drop a PO and shift to the next person. So a lot of us have been at our Supplier Summits in Shanghai over the years. The top suppliers and the top volume has generally been the same for 5 years, 6 years, 7 years, 8 years-plus. With a pretty thorough calling, China is very direct about scoring and showing scoring. And so bottom performers fall out, top performers rewarded more business, and so these are long term. And again, it goes back to -- if you think about e.l.f., about our volume, right? We're a high volume -- I mean, these are massive unit numbers for suppliers. So they're highly incented to stay engaged with us, given our business performance and the unit volume that e.l.f. achieves.

Maybe let's get back to customers, which you touched on, Ellen. How have customers responded to the social environmental initiatives around your products? Do you see a willingness from customers to pay up for more socially, environmentally conscious brands?

Yes. So as I was talking about a little bit before, I think we enjoy this dialogue with our community. So super transparent through the Impact Report, social media campaigns really around our diversity, our sustainability initiatives and -- and really just having that conversation with them. And I think we get the example of how to recycle, Fair Trade. So all of these, like it's sort of this constant communication of what we're working on. And also, I think, really importantly, what's important to them. So I think a great example of that is feedback around our e-commerce business. So -- in the last year, we really kind of upgraded, improved our e-commerce delivery model for our consumers, and it really hits on 2 things. One, it hits on the consumer experience; and two, it hits on sustainability. So in general, we had 1 distribution location for the U.S. We saw an opportunity to move closer to the consumer for faster speed. And as well, with that move, we were able to switch from -- we used to have this large shipping box that was a little bit unwieldy, to say the least. Got a lot of feedback on that, and we're able to switch into this much lighter weight shipping envelope. 84% less material, so just substantially smaller environmental footprint. We got the faster delivery times, less distance travel, less carbon emissions. So it was kind of a win all around, and it really kind of -- it really came out of that conversation with the consumer around their e-com experience and looking for opportunities to improve that. So that's kind of speaking to the consumer customer. And I'd also stay on the retailer customer side of it. We're really starting to see some meaningful engagement there as well on sustainability topics. So whether it requests for CDP disclosure, pushes on science-based targets or conversations around sustainable packaging, we're really starting to hear these retailers asking for brands to disclose, commit and act. And it's important, I think, quite for us additional data points around what they're seeing with consumers in stores and online. And I just -- I think it's all sort of this continuous build around these topics, which I think for me personally is I think it's encouraging, inspiring all of that just because you hear it. You hear sort of the clamor for this work all around, and I think that just kind of fuels us all. So I think that's super exciting.

Got it. Perhaps, can you talk about -- back about your people and talk about the intentionality in your people strategy? Because you really put a focus on D&I for many years. I mean, you feature your stats front and center on your -- on the landing page on your website. How does it come to life every day at e.l.f.?

Yes. So I would say, look, you're absolutely right. It was an intentional -- intentional from early days, I would say. The anecdote is when we were thinking of -- I mean, way, way back when Tarang and I and some others, when we were thinking about having that vision of perhaps going public and thinking about what that -- the bell-ringing ceremony would look like and who should be up there and could you usually see up there, what those and what are those demographics are like, "Yes, we have a view of what that should look like." . For a young beauty company, and it should be looked like the consumers we serve. So we got after that early, early, early in terms of the Board and leadership positions. And so we love that focus. And so that has been part of our DNA through and through. As we think about it -- today, look, we're very proud of the 70% stats, probably even getting closer -- well above 70% women and 40% diverse. And so we will always take -- we take best talent. I mean that is our approach for sure. But as we found is that as you sort of think about the diverse views that we get and the business drivers and how we get different views from people, it's something we continue to focus on as we sort of build the company and build it out. And I would say that's why we put the focus on making sure that the stats hold true at the leadership team level, right? A lot of people could give stats that sort of are bottom weighted, if you will. We want to make sure we're 70% women at the leadership level of the company. And as Ellen mentioned before, we're right about there instead of 68%. So always going to continue to focus on that. And just look, I think for a company of our size, the different views, the way that this team works together, the chemistry that we have with this sort of mix has just -- it served us exceptionally well. It served us exceptionally, exceptionally well. And so it's something that we're going to continue to think about, focus on and be a leader again. Another one of those where we would say like, "Please join us in that." Let's say there's 1 of 10, 1 of 14, 1 of 57, all the better, right?

Makes sense. Perhaps, following up on the employees, the shares. Shares have been on quite a run since mid-'22. They're up over 100% year-to-date. And employee stock ownership is very high in the company. How does that influence your workforce? And how important is that to the management team?

Yes, this is one I could go on for a long time now because it is -- I'm deeply passionate about this one. So let's start with the framing. We give equity to every employee. And so that is unique in the beauty space. We may be 1 of 1. It's hard to tell exactly because you can't sort of parse through every company, but like elite company in terms of that. And what -- the benefits of that approach have really been massive at our company. And so what -- the way we think about compensation is what we call a 1 Team 1 Dream approach, right? And so what I love about the system at e.l.f. is everybody has some sameness that I find very unifying. Base salary, a bonus target that is based on the same metric, it's our adjusted EBITDA metric, publicly reported, everyone is on that, and we all have equity. So those components are across the board. So what does that do? That means that when we're talking comp or business success or share price or bonus achievement, there's only one meeting. Right? There's only one meeting. It's not the leadership team is over here for the juiced-up leadership team, special spiff and over here. So the fact that everyone has sort of rises, falls and hopefully rises, as you said, some nice rising recently. This year and last year, absolutely. It's been an incredibly unifying thing, right, principal? And for me, just look on a personal level in terms of like, "Hey, what do you -- what excites you about e.l.f. and what keeps you going day-to-day?" Our stock has done terrifically well. If you've been here for a long time and had a new hire grant, we give a new hire grant to everyone and an annual refresh grant. So this is not just to come in the door. So everyone, new hire grant and annual refresh grant. You've now built substantial equity, and you've built substantial wealth. And so personally satisfying to me is when someone says, I'm starting a new backyard project. I'm paying off student debt. I'm going on a vacation. That is unbelievably motivating for our employees. I mean, just absolutely. And so I love to hear it personally. And I just think that one Team one Dream principle has served us well. And I should say if I didn't say before that we -- like everybody means everybody, I know what you said, everybody, our employees in China, very new to them, right? A U.S. company giving everyone in China like they -- even some of them have worked for multinationals before, that was not part of the program. You're abroad, you don't get that. But so I go to China, we do the same thing. How do RSUs work, how do they appreciate and value what might you think about? So love, love, love that part of our culture and our account philosophy.

Great. Perhaps 1 question that's come in on over e-mail is on the social side of ESG. Does e.l.f. map out any risks for people either working in supply chain or on direct operations, whether -- with respect to safety or wages?

Sorry, do we map out risks with respect to sort of safety or wages?

Do you map out any risk for people either working in supply chain or on direct operations? So thinking about how -- how you manage risk for your employees, I think, is the underlying crux of the question.

Yes. So certainly, I can take -- I mean, look, we operate facilities -- I mean, so I sort of think about it maybe in 2 ways. Certainly, we operate a number of facilities ourselves. We are not the manufacturer, but we have massive distribution centers spread throughout the States here, I mean one in Ontario. And as Ellen just said, we moved to a sort of a multi-node thing. So yes, we certainly take and measure safety at all of those facilities in terms of just -- I think you're talking about -- I think if we're talking about pure workplace safety. Yes, we have an ops team that is deeply steeped in safety issues. We have a lot of people from, as it turns out, beauty, yes, we also have a lot of the crew that was food, which is a huge safety sort of focused area. And so just in our hiring, we've got -- we do have a team that is quite focused on sort of just, I'll call it, employee safety, and we certainly think about it here. We think about it here in terms of moving to hybrid work and what does that mean and how is all this and working. And at the supplier and supply chain level, look, what I would say is our -- we are a little different than some that maybe just use, we'll say, China as sort of an outsourced model. Remember, we have a team of 90 people in China. And so that -- so we are in our factories with our suppliers. This is not just, as I said, a PO across the fax machine. This is on-site with regularity. So I think that enhances our sort of safety and risk profile by having a presence at our main suppliers in China. And again, back to what Ellen was saying, these are like-minded suppliers. We are not looking -- we are a value brand, but we are not looking for -- but we want top-tier suppliers in terms of safety, quality, speed, business practices, that's the only people invited in that ecosystem. And so our team in China helps to ensure that.

That's great. Another question that's come in about employees and exec compensation. Is any part of the exec compensation tied to ESG initiatives? And if not, is there any discussion around that?

Great question. So the answer is at the moment, no. Discussion, yes. So we are -- so maybe I'll just sort of refresh on how we are compensated now. So we do have, in terms of like progressive and best practices. Where are we? We have base salaries that have remained the same for the entire executive team from day of hire. So you start off by saying, I started 10 years ago, my base salary is the same as it was 10 years ago, has not moved a bit. So fixed cash with a much different emphasis on upside on the equity. So fixed cash portion, we have all had the same base salary from when we started. The equity component, we have moved towards what I would call a best practice approach, which is a combination of time-based but also performance-based equity. And so those performance-based units have a 3-year sort of cliff. And so you're talking about business performance over a 3-year period. So that usually aligns very well with shareholders who say, "Hey, I don't want it all time-based. I don't want this. I want something metric." And so a 3-year cliff for the executive team on performance share units is where we've gone. It also has a market share component. And so that's something actually we got a lot of investor feedback for. They like that component. We introduced it once and, "Hey, like maybe you're still hitting your metrics, but what if you're losing share, what if you're getting clobbered out there?" Market share is a nice one to do because you sort of -- it works in the ups and it works in the downs. If you're taking share, you're taking share. So we also have that component. So now we've got sort of performance, and we've got market share. So now the what's next, and the what's next may very well be ESG. It is a discussion topic for the group's broader benefit. We have a bunch of Board members certainly interested in this, but a pretty leading investor, Lori Keith, is an ESG expert who's on our Board and is always keen to share with us some best practices. And so that's a discussion we're having with her on what might be the right time, what is she seeing out there, what's resonating, what's working, what's not working. So yes, I would say, not immediate, but in the discussions at present.

Sounds great. Hopefully, you do start getting more credit for all the initiatives that you've put into place. It certainly seems like you're getting it from customers and from employees, hopefully, it will continue to expand beyond that. Let's talk a little bit about -- maybe a bit broader focus is you guys have talked a lot about expanding into other categories, expanding into more geographies. As you consider this expansion into new products and new geographies, can you talk about the vision, the market opportunity, how that changes your view in terms of ESG? And then also, how does that potentially impact itself with respect to profitability as well?

Yes. Ellen, do you want to take some of those? Do you want me to kick it off? Whichever -- I'm happy to go either way.

I think in terms of -- just on the ESG piece and expanding into other markets. So obviously, U.S., we've got an international piece as well and obviously looking to grow that. So one of the things that we're sort of keenly aware of is sort of the -- I'd say, just in general, like in Europe, for example, like a high focus on ESG topics. I think we see that in conversations with investors obviously, excited to see the engagement here in the U.S. as well, but that's always kind of been there. You go to Europe, you see signs everywhere of building ratings and [ toxic ] ratings from carbon perspective. So it's just like more of a front-and-center topic in that market. I think as we think about it in terms of our product, I'd like to say that we're sort of building that in as we create our products. So even if we think about maybe just take ingredients as an example. So where we sit in terms of our ingredients is very well aligned and sort of even ahead of the requirements around EU restrictions around ingredients. So we kind of built that in even maybe before we were fully there, right? So we're kind of ahead of, I think, the requirements on those points. And even as we think about more of the requirements around carbon, packaging, et cetera, very closely attuned to what's happening in the European market. And so I think we're not sort of building products that only really work in North America from a requirements perspective. We're looking at that global perspective and taking that in as we build our portfolio, look at the requirements around those and really, obviously, as a company, we don't just seek to hit the requirements, we're always aspiring to reach beyond them. So I would say that's kind of how we're thinking about it from a global perspective.

That's great.

We also have -- just a quick touch points on as we think about supply chain diversification and where our suppliers are. Geography obviously, matters quite a bit as well as sort of their own business practices. So we're pretty thoughtful about what we are going to seek in terms of any supply chain diversification that we look for. Interestingly, in terms of how far do products move, which is a big sort of environmental aspect, our upcoming acquisition of Naturium. They're U.S.-based -- they have a U.S.-based manufacturing network. So that, again, sort of gives us some both diversification and we'll also think about like, okay, now we've got a different mosaic of suppliers. How does that influence our future, how does ESG figure into that? How does shipping time, carbon emissions, et cetera, figure into that? So as we grow, we sort of are mapping out those thoughts as well with the supply chain generally.

Great. And then in terms of environment, we touched on this a little bit, but would love to hear a little bit more about thinking about your customers, right? Lots of Gen-Z customers for you guys. They obviously care a lot about the environment, you've seen in every survey and how much they vote with their dollars, too. So can you talk about some of the initiatives that you have there, the goals there as well and how you communicate that to the world?

Sure. And certainly, recognizing climate change as sort of the challenge of our time and really wanting to be part of the solution there. So focus on carbon footprint is really critical for us. I think just sort of taking us back to maybe where we were a year ago, we first measured our greenhouse gas emissions. So that was kind of our starting point, just really understanding where do we sit. And where are the hotspots. And so that was kind of sort of step 1. Since then, as we sort of referenced earlier in the call, we've set and also met our emissions targets for Scope 1 and 2. And really, the key focus now is on Scope 3. Obviously, that's the vast majority, similar to other companies in our space and in beauty, sitting -- those emissions sitting in the value chain. So all the way basically from cradle to grave, what does that look like? So that's where we're focused. We know there's opportunities around product. There's opportunities around logistics and transportation. Those are probably the big ones. And so really diving in across the company to sort of dig into one of those opportunities. I'd say we're also focused on increasing our transparency and reporting. So this year is the first year that we've disclosed through CDP's Climate Change questionnaire. And then as part of that overall picture around Scope 3, also really looking at our packaging is a key part of that. So we have sort of alluded to the distance that products travel. So kind of the equation is, how much mass, like how much product are you moving? How far is really a key piece of Scope 3. So anything that we can do to reduce that packaging, weight and mass is going to be a key driver of our emissions. So we've talked about some of our commitments there, the 20% reduction in packaging intensity by 2030. We've talked about as far as Stewardship Council-certified materials. Obviously, that has an impact on the forest, et cetera, responsible forest management. So a lot of key pieces coming together for us. And I think we're really most excited about, like we started the journey. There's a lot more work to do. But we feel really good about the new commitments that we've put in place and the plans that we have to action those.

Got it. We're being mindful of time. And as we get sort of close to the end of the hour, I wanted to ask Scott and Ellen, you've been at the company 10 years and 7 years, respectively. How has the world changed over that time? Obviously, a huge amount of change with respect to the environment, with the company, the amount of growth that you guys have achieved. So how has your role changed over that time?

My role, specifically? Yes, yes. So it's a -- Ellen and I are probably pretty interesting e.l.f. cases on this, which sort of says, we may hire you to do one thing, but you're not doing that one thing. So I'll start with me, so I am by training, a public company general counsel. That's what I was hired to do, and this is also the third public company I've been GC for. And lo and behold, here, I am talking about mostly people and mostly ESG. And so for myself, look, the -- the addition of sort of the people element has been a huge role change for me. But -- and so you say, well, okay, that's you, it could have been someone else in the human resource role. But like even the evolution of that has just changed so much over these last years. I mean, obviously, we had -- we collectively all tried to navigate a pandemic. But now sort of -- we're asking ourselves sort of future of work questions, what's it going to look like, and what kind of company do you want to be in terms of that? And so like I think still as we continue to grow, we benefit greatly from our size and sort of tight team connectivity and the things that sort of unify us in terms of that one Team one Dream. Or our high-performance teamwork. So we still have I would say, great connectivity and collaboration amongst the team even as we continue to grow. But that gets more challenging. So I'm just saying that's something that we think about as we sort of future-forward the organization. We're about to have our fifth brand in-house. So like these are real, real differences that we're making sure we have an org design and structure to support the growth, because we've got -- obviously, you mentioned we've got some pretty incredible sort of growth numbers going. And so look, that's what we're trying to build as an org that's been to support that kind of growth. And so that's where I spend quite a bit of my time, I would say, at a personal level, and so that's how my role has changed quite a bit in recent years.

Great. And as I mentioned, I've been at e.l.f. for 7 years now. I really came in with a focus on, I'd say, key strategic initiatives. And that looked different at different points in time, but anything from international expansion to key soul care will people acquisition. And then really, over time, I've mentioned Project Unicorn in 2019, that was sort of like our first, I'd say, step into sort of projects that had a focus with sustainability in them. And then it's kind of just ramped up from there. And as Scott has said, new in this role as head of sustainability. We're also really excited to be committing to sort of building out the team. So we have team members in the U.S. and in China that are focused on this. So that's really what's changing, where it was maybe a project now, now it's sort of embedded in the company and how we're thinking about things and taking action. So I think that's huge. Also, just in terms of I think, connection points across the company. This is a topic. Everything that we've been talking about, really, as Scott said, is -- is really, really important to our employee base, and we see all kinds of activities happening in different pockets of the company. I think one of our sustainability managers was in the New York office the other day having a conversation with the team that does photo production, and they were talking about how they want to deal with the materials that they're using in that process. Like is there a more sustainable way to kind of manage that? So they've kind of partnered. So there's a lot of like organic ideas that are coming out just like popping up everywhere. So I think just -- it's becoming a focus for the company, and just really excited to see where we're taking this.

Fantastic. Fantastic. Well, in our closing minutes, any last thought, anything that -- we covered quite a bit of ground, with respect to all ESNG. So any last thoughts with respect to any of the above?

So look, for me, first, Olivia, thanks for hosting us. We love being able to talk about these things, and we appreciate the acknowledgment as an ESG Top Pick, for sure, it's something we are committed to. And yes, I would just say -- to Ellen's last point at the end, is not a small one by now having a VP of Sustainability and building a team of around Ellen is only going to increase our sort of commitment and focus as we look towards the future. This is a subject that, as I said, it's a vector of like every discussion now. So yes, we have to have that intentionality, whether it's with our consumers who are saying, "Hey, in the e-com, too clumsy, too big a box." Or our customers, as Ellen was talking about, where they're asking for that disclosure. So it's infused almost in every discussion we're having now. And so what we want to do is reflect that commitment and expertise as Ellen builds a full team around her for the future. So we're excited about that.

Well, thank you so much. Really appreciate you taking the time to walk us through your initiatives. And Scott, Ellen, KC, thank you so much again, and best of luck with everything, and thank you, everybody, for joining us. Really appreciate you joining us. Have a great day. Take care.

Thanks, everyone.

Bye.