e.l.f. Beauty [ELF] Conference call transcript for 2021 q4
2022-02-02 21:44:05
Fiscal: 2022 q3
Melinda Fried: Thank you for joining us to discuss e.l.f. Beauty's Third Quarter Fiscal 2022 Results. I'm Melinda Fried, Head of Corporate Communications. With me are Tarang Amin, Chairman and Chief Executive Officer, and Mandy Fields, Senior Vice President and Chief Financial Officer. We encourage you to tune into our webcast presentation for the best viewing experience which you can access on our website at investor.elfbeauty.com. Since many of our remarks contain forward-looking statements. Please refer to our earnings release and reports filed with the SEC where you'll find factors that could cause actual results to differ materially from these forward-looking statements. In addition, the company's presentation today includes information presented on a non-GAAP basis. Our earnings release contains reconciliations of the differences between the non - GAAP presentation and the most directly comparable GAAP measure. With that, let me turn the webcast over to Tarang.
Tarang Amin: Thank you, Melinda. And good afternoon everyone. Today, we will discuss the drivers of our Q3 results and our raised fiscal 2022 guidance. I am proud of the e.l.f. Beauty team for achieving our 12th consecutive quarter of net sales growth. We delivered Q3 net sales of $98 million, up 11% versus a year ago, and 20% on a two-year stock basis. Adjusted EBITDA of $22 million was up 18% versus prior year. We delivered these results with a significantly smaller holiday program. As a reminder, we proactively scaled back our holiday program to prioritize container capacity for our core products, which continue to be in high demand. With our continued momentum, we're raising our full-year guidance, which Mandy will discuss. Our innovation, digitally led strategy, core value proposition, and ability to adapt at ELF speed, continue to fuel our performance. In Q3 ELF at 5.7% market share up 86 basis points on a 2-year stack. For calendar year 2021, we were the only top-5 color cosmetics brand to grow share above pre -pandemic levels by a wide margin. Our relentless focus on our five strategic imperatives is driving results across our brand portfolio. Let me provide a few highlights from the quarter. Our first strategic imperative is to drive brand demand. We continue to find innovative ways to engage and entertain our community moving beyond traditional beauty boundaries. This approach has driven strong ROI and business momentum. This quarter, we created our first-ever TikTok native movie to celebrate the holiday season. Big mood bige.l.f.ingcity recaps some of the biggest TikTok trends of the year with an innovative twist. The movie garnered 400 million press impressions, over 32 million campaign views, and built upon our on the platform. We also joined forces with Enthusiast Gaming to find the next gaming superstar. The competition called Rising Stars seeks up and coming creators from colleges across North America, and ELF is the first brand to co-create the series. This builds upon our track record at first while also supporting our mission of empowering others to reach for the stars. Our brand building efforts continue to gain recognition. TikTok recently named ELF to their culture driver's list for 2021 for our Gamers Got Talent campaign. We're among 14 other brands that TikTok highlights is doing the best, most engaging, and entertaining work on the platform. Building upon our entertainment chops, we recently teamed up with TikTok and American Idol creator Simon Fuller to find the next big music group. Together, we launched a search culminating in the creation of a first of its kind pop group called The Future X. We're working side-by-side with TikTok's vibrant creator universe via a hashtag challenge in search for makeup artists who'll work with the group. This collaboration represents another moment where e.l.f. is leading to bring together two things our community loves, beauty and music. Keys Soulcare, our groundbreaking lifestyle beauty brand with Alicia Keys, garnered 7 billion global press impressions this quarter. In November, Alicia dropped her much anticipated 8th album Keys. Keys Soulcare product offerings were prominently featured as Alicia promoted the album and held special one-night-only concert events. We also celebrated the album by having it available to download on keyssoulcare.com. The buzz was timely as we recently celebrated the one-year anniversary of keyssoulcare.com. We're incredibly proud of what we're building with this brand, which has been recognized across the industry with over 20 Awards this past year. Our second strategic imperative is a major step up in digital. Our digitally led strategy continues to serve us well with our digital consumption trends up triple digits on a two-year stack. We continue to see a channel shift between digital and brick-and-mortar in Q3 in line with our expectations, digital channels drove 14% of our business in Q3 as compared to 16% a year ago, and 10% 2 years ago. Our follower base across social and digital platforms is now over $12 million, helping to fuel our growth. On elfcosmetics.com, approximately 50% of our shoppers in Q3 were new consumers. Our Beauty Squad Loyalty Program now has over 2.7 million members, up over 20% year-over-year. Beauty Squad as an integral source of first party data, and we'll continue to look for ways to enhance the consumer experience. Our Keys Soulcare loyalty program called Soulcare rewards continues to grow. The loyalty members made up 45% of sales this quarter on KeysSoulcare.com. We also developed a new first and beauty digital gifting experience on the site for the holidays. Gift givers were able to create and send a personalized video to their loved ones while gifting them Keys Soulcare offerings. Our third strategic imperative is to lead innovation. Our superpowers centered on our ability to deliver 100% cruelty free, premium quality beauty products at accessible price points with broad appeal continue to resonate with consumers. e.l.f. Cosmetics are ongoing success in our core segments: brushes, primers, concealers, brows, and sponges, which make up approximately half our sales. We have the number one or two position in all five segments and continue to drive sales growth in each. We're proud of our newest holy grail innovations which launched online at the end of Q3 and will be hitting retailer shelves in the coming weeks. Our Power Grip primer builds upon our strength in the primer category. Its jaw-dropping value of $10 versus the prestige equivalent at $34 already propelled it to become the number one selling product on elfcosmetics.com and a viral sensation across social media. We continue to build upon the success of our Camo franchise. We recently launched the Camo powder foundation in 30 shades, packaged in and sleek compact with a mirror and sponge, and price at $11 versus a prestige equivalent, $38. The powder foundation is on its way to become a top selling holy grail. Building upon our strength in brows and tools, we recently launched brow lift and an accompanying brow lift applicator priced at $6 versus a procedure equivalent at $23. The brow lift features and extreme hold, clear lax formula that listened sculpt Sprouts for a feathered effect. This item quickly sold out online and over 15,000 ELF fans signed up for Notify me anxiously awaiting its return. Our newest lip products are attracting consumers looking for a color moment. Our new glossy lip stains are there to meet the call, priced to just $6, versus the prestige equivalent at $38. They feature a unique glossy stain finish that is long wearing and won't transfer. We remain bullish on the color category. These four holy grail launches are generating incredible buzz across social platforms even before being widely available at our retailers. Skincare remains a major focus across our brand portfolio. In Q3, e.l.f. Skin consumption was up 29% compared to a category that was up 9%, propelling e.l.f. Skin into the top 20 for the first time ever. Our recently launched Pure Skin line is a three-part regimen designed to meet our consumers ' daily needs. Dermatologist developed, clean, vegan, and cruelty free. Pure Skin nurtures the skin with ingredients like oat milk and niacinamide. The Pure Skin line initially sold out on elfcosmetics.com. We also launched our W3LL PEOPLE skincare collection online. This quarter. Skincare is the largest category in Clean Beauty. And we're excited to start with five plant-powered, derm-developed Clean skincare products. The line will also be available in Ulta Beauty and Target stores this spring. We're proud of the progress we're making with W3LL PEOPLE in color as well. With our top-selling products now available in more inclusive shade ranges. Our Bio Tint moisturizers and Bios Stick Foundations both extended to 14 shades. And our Bio Concealers available in 20 shades. We plan to further extend the W3LL PEOPLE shade ranges to bring plant-powered, high performance, clean products to a wider audience. Turning to Keys Soulcare, we innovated further in the body category three new offerings to praise your Body: Melting Body Balm, Mind Clearing Body Polish, and Energizing Dry Body Brush. Our core body care products continue to be named to coveted beauty award lists. This quarter we were recognized by Pop Sugar and Refinery 29. Awards included Best in Celebrity Beauty for our Rich Nourishing Body Cream and Beauty Innovator award for our Sacred Body Oil. Our fourth strategic imperative is driving productivity and space expansion with our retail partners. Productivity was strong this quarter with consumption ahead of our expectations. Consumers bought more of our core products during the holiday season in lieu of our traditional holiday kits. We're also quite pleased with our spring resets, which we're rolling out in the coming weeks. We believe our innovation is strong and our visual merchandising is more impactful than ever. We continue to see shelf space opportunities. As previously reported, we're pleased with the space expansion we've secured with CVS, in fall of 2021, and Walmart in spring 2022 in a subset of their doors. Internationally, we're expanding our shelf space with Boots and Superdrug in the U.K. this spring. International represents major whitespace at just 11% of our business today. Our performance in the U.K. gives us confidence on further geographic expansion. The latest Nielsen data ranks e.l.f. at number 8, up from number 12 last year, and continues to be the only top 10 brand to post growth. We continue to drive differentiation with our retail partners inspired by the success of last year's Mint Melt collection. And after polling our community for what they wanted next, we launched Cookies and Dreams. This is an indulgent, limited edition 13-piece collection featuring cosmetics and skincare products. Cookies and Dreams will be available exclusively at Walmart in the U.S., at Superdrug in the UK, and in selective markets in Europe. Keys Soulcare's elevating and accelerating our global retail strategy. We've launched the brand in 10 countries to date with four major retail partners; in the U.S. with Ulta Beauty, in the UK with Cult Beauty and H Beauty, and in 8 countries across Western Europe with the gloss. We're excited to announce our newest retail partner, Sephora. We'll be launching Keys Soulcare and Sephora Canada online and in stores this spring, this marks ELF Beauty's first brand entry into Sephora. We're also pleased that W3LL PEOPLE will gain its first in line placement in a subset of Ulta Beauty stores in spring 2022. Our fifth strategic imperative is delivering cost savings to help fuel brand investments. As we spoke about in recent quarters, and like many other companies, we're facing a global container imbalance and port congestion, which is slowing shipments and increasing our transportation costs. I'm proud of the e.l.f. Beauty team for how we've navigated these challenges. Our operations team has executed with excellence, managing SKUs at the store level to sustain in-stock rates around 95%. Given the uncertainty around how long the supply chain challenges will persist and the inflationary environment, we made the decision to increase prices on the majority of our portfolio, effective mid-March. These price increase will impact approximately two-thirds of the e.l.f. Cosmetics SKUs, as well as certain items within Keys Soulcare and W3LL PEOPLE. We balanced our approach between offsetting elevated costs and maintaining our value proposition with consumers. While this round of pricing is broader than previous rounds, our opening price points on e.l.f remain unchanged, enabling us to continue to deliver high-quality products at an extraordinary value. Before I turn the call over to Mandy, I want to give an update on our clean and sustainability efforts. Both W3LL PEOPLE and Keys Soulcare are launched as clean and sustainably-minded brands. Over the past several months, our team reformulated over 350 SKUs on the ELF brand. There are now over 1,650 ingredients on our do not use list. While it will take a number of months for these new formulations to roll out, we're excited to add clean to our existing superpowers. With ELF, consumers can have premium quality beauty products at accessible price points that are clean, vegan, and cruelty free. On the sustainability front, we reached another milestone this quarter with Project Unicorn, eliminating more than 1 million pounds of packaging materials since launch. Project Unicorn is streamlined packaging for 500 SKUs across multiple categories. We're evolving Project Unicorn to Project Green Unicorn with a focus to eliminate even more packaging, adopt friendlier environmental practices, and explore sustainable materials. Project green in the corner is a long-term initiative. Our clean and sustainable practices will continue to rise in importance, and I'm glad that we're positioning e.l.f. Beauty to excel in this area. I will now turn the call over to Mandy.
Mandy Fields: Thank you, Tarang. I'm pleased to share the highlights of our strong third quarter results and raised fiscal 2022 guidance. We delivered Q3 net sales of $98 million, up 11% versus prior year, and up 20% on a two years stack, driven by strength in our national and international retailers. Consumption was strong this quarter as well, up 17% year-over-year and up 15% on a 2-year stack basis. This exceeded our expectations and is an encouraging trend as we head into the fourth quarter. Gross margin of 66% was up approximately 100 basis points compared to prior year. We saw gross margin benefits from cost savings and margin accretive mix, specifically from consumers switching away from holiday kits into higher margin core products. We also benefited from the price increases we implemented on a subset of our skews in May. These gross margin benefits were partially offset by FX and elevated transportation costs, which flow through the P&L at a lesser rate than previously expected. Given the rate of flow-through on these freight costs and overall favorable mix, we now expect gross margin for the back half to come in flat to last year. On an adjusted basis, SG&A as a percentage of sales was 50%, up approximately 70 basis points versus prior year. The increase was mainly driven by investments in marketing and digital. Marketing and digital investment for the quarter was approximately 15% of net sales, slightly ahead of Q3 last year. We continue to expect marketing and digital to come in at 15% to 17% of net sales for the year. Q3 adjusted EBITDA was $22 million, and adjusted EBITDA margin was approximately 22% of net sales. Adjusted net income was $13 million or $0.24 per diluted share compared to $12 million or $0.22 per diluted share a year ago. Our liquidity remains strong with the combination of our cash balance and access to our revolving credit facility, sitting at approximately $130 million. We ended the quarter with $33 million in cash on hand compared to a cash balance of $35 million a year ago. Our current cash balance reflects a complete pay down of our revolving credit facility, reducing our overall debt by $13 million in the quarter. Our ending inventory balance was $85 million in line with our expectations as compared to $69 million a year ago. As a reminder, last quarter, we spoke about carrying higher inventory levels due to the combination of longer lead times, higher transportation costs, the addition of Keys Soulcare and W3LL PEOPLE, and our continued business momentum. We expect our cash priorities to remain on investing behind our five strategic imperatives and supporting strategic extensions. Now let's turn to our fiscal 2022 guidance. We now expect net sales growth of approximately 17% to 19% versus fiscal 2021, up from 14% to 16% previously. We expect adjusted EBITDA between $70 million and $72 million, adjusted net income between $40 million and $42 million and adjusted EPF of $0.73 to $0.76 per diluted share. We still expect a fully diluted share count of approximately $55 million shares. And our fiscal 2022 adjusted tax rate to be approximately 22% to 23%. Our raised top-line guidance largely reflects our outperformance in Q3 relative to our expectations and an improved outlook for Q4. As Tarang mentioned, our business momentum remained strong throughout Q3, up 20% on a 2-year stack basis. Despite not having most of our holiday program, we expect Q4 to look similar to Q3 on a 2-year stack basis at approximately 23% growth. As a reminder, in Q4 and into Q1 of next fiscal year, we will be lapping the largest round of stimulus related spending we've seen to date. This has implications on our net sales, as I just noted, as well as what you'll see in the Nielsen data. In the four weeks ending March and April of 2021, we posted 40% and 52% growth respectively in tracked channels, and we expect cycling these numbers to cause volatility in Nielsen data during those periods. Therefore, we're anchoring on a 2-year stack comparison to better capture trends. We remain mindful of the industry-wide container imbalance and the continued elevation in cost as a result. We're proud of how our team has navigated these logistics to date, and it remains a dynamic environment. That said, given our sales momentum, we are raising our adjusted EBITDA expectations to $70 million to $72 million, up 15% to 18% year-over-year. As we discussed earlier in the call, we're taking pricing actions next month to mitigate the impact of elevated shipping costs and inflationary pressures on our financial performance, which we believe will help us as we enter fiscal 2023. We plan to provide more color on the expected impact of these pricing actions when we provide our fiscal 2023 guidance in May. This should allow time for us to better assess consumer response as it will take a few weeks for our retailers to reflect pricing in the market. Overall, we're very pleased with our Q3 results and are excited about the opportunities ahead in fiscal 2023. Our performance over the last 12 quarters, both on an absolute basis and relative to the category, demonstrates how our five strategic imperatives are driving results, and we remain confident in the long-term growth potential for our portfolio of brands. With that Operator, you may open the call to questions.
Operator: Begin the question-and-answer session. . At this time, we will pause momentarily to assemble our roster. Our first question is from Andrea Teixeira with JPMorgan. Please, go ahead.
Andrea Teixeira: Thank you. Good afternoon and congrats on your quarter both on innovation and distribution. I have a question to Tarang and another one to Mandy. First to Tarang, on the Keys Soulcare entrants in Sephora, Canada, again, congrats on that. Is there a plan to expand into the U.S. and Europe, given obviously, Alicia's strong international following? And then for Mandy, it's obviously great to see you've raised guidance for the top line, but it doesn't flow inside the done EPS. And of course we all appreciate what's happening in the cost pressures and labor and distribution. Is this a function of these costs, or a timing of marketing, or just being more conservative given the moving pieces ahead of you? Thank you.
Tarang Amin: Good afternoon, Andrea. On your question on Keys Soulcare, we're really pleased with the progress on the brand, including entering Sephora Canada. We've high hopes for our launch in Sephora Canada, and we definitely see Sephora U.S. as a potential future partner. As a reminder, we are still in the exclusivity period with Ulta Beauty in the U.S., so we're starting with Sephora Canada. And I think, the prospects of additional distribution on Keys are quite bright, particularly given the level of engagement we're seeing with that brand.
Mandy Fields: And then to answer your question, Andrea -- oh, did you have a follow-up there Andrea on Keys?
Andrea Teixeira: No. I was just saying that -- I will just follow up if I may. Thank you, Mandy. On in-trend, the W3LL PEOPLE entrance on Ulta, Is that a separate shelf from e.l.f.? I'm assuming it's because it's mostly skin and it's going to be side-by-side to e.l.f. itself or it's going to be a separate display.
Tarang Amin: Yeah, no, the Ulta distribution on W3LL PEOPLE is incremental to e.l.f. and in a different part of their store. e.l.f. -- W3LL PEOPLE have been part of the Conscious Beauty program within Ulta as a separate dedicated merchandising vehicle. This is our first in line placement within a subset of the Ulta Doors. And again, we're quite excited about that as well, given the momentum that we have on W3LL PEOPLE after our brand -- our re-branding as well as the innovation program we have on that brand.
Andrea Teixeira: Perfect. Thank you.
Mandy Fields: And then your question on the raised guidance and the flow-through on EBITDA and EPS. So essentially, we've taken our guidance up from 14% to 16% on the top line up to 17% to 19%. And that's roughly $9 million incremental on the top line. And on EBITDA we've raised our guidance from $66.5 million to $68 million, up to $70 million to $72 million, so $4 million on the top end on EBITDA as well. Q3 beat by roughly $4.55 million, and so we are flowing through most of that to the full year. So we feel really great about our EBITDA guidance. Actually, it translates to 15% to 18% growth on the year, even with the cost headwinds that we're seeing, so I'm really proud of that EBITDA expectations.
Andrea Teixeira: And then the ultra exclusive, when it runs out, do you -- just sorry for going back to that. Is that an exclusivity that may run out some -- anytime?
Tarang Amin: It will run out at a certain point. Obviously, we continue to discuss Keys Soulcare with Ulta. They've been a terrific partner and supporter as we launched the brand in the U.S. with Ulta Beauty. And so, I think there will be an ongoing conversation. But at some point, that exclusivity will run out and we'll evaluate whether we extended or whether we continue to expand distribution on Keys Soulcare.
Andrea Teixeira: Okay. That's perfect. Thank you, both. I'll pass around.
Operator: The next question is from Steph Wissink with Jefferies. Please go ahead.
Steph Wissink: Thank you. Good afternoon, everyone. We had two follow-up questions as well. The first -- maybe Tarang, it's best for you. This is on pricing. Just curious your comments on price gaps to prestige being maintained even with your planned mid-March price update. Can you share a little bit about how you're thinking about that gap to prestige pricing? And then also on space gains. I'm wondering if you can quantify, help us think through the gains in the domestic market with CVS and Walmart and internationally. Any quantification around how much those might benefit 2022 calendar year. Thank you.
Tarang Amin: Sure. Hi, Steph. So on the pricing actions, we're using a very similar approach that we used in 2019, which proved quite successful, where we've really gotten SKU by SKU and really taken a look at the SKUs that we have, the most pricing power on. And when you take a look at a lot of our range, the comparable product is a prestige product, so I will give you a couple of examples of things we just launched. Our power grip primer, which I talked on the call, is already our top selling new item or actually top-selling item period on elfcosmetics.com. That's priced at $10, the comparable prestige item is $34. There's still quite a big gap there, as are many of our other core holy grail. So our approach is taking many of those products up $1 each in price. Equally important, we're not taking pricing up on many of our opening price point items. So the ones that we have the most extraordinary value on, many of our $2, $3, $4 items remain at that price point. So we feel that strategy is much better than I'd call it the peanut butter approach into a general price increase. It allows us to really focus on where we feel we have pricing power, while maintaining that strong value equation. And we saw great things after our 2019 pricing, even the more limited pricing we took back in 2021 in the U.S. with broader pricing. International also did quite well aiding our gross margins. So we always are cautious with pricing, given the extraordinary value we have, but feel we're well-positioned for the pricing we're going to take in mid-March. And then on your second one on the space gains. We're not quantifying the percent space gains, but I will tell you to give you a little bit more color on the CVS space gain that we had in a subset of their doors. We went from a 3-foot end cap gondola to 6 and 10 foot of it space, a pretty sizable increase in space, and we've been really pleased with the productivity of that space gains. I think it bodes well for future gains within CVS. Walmart is currently being set right now in a subset of their doors as part of their spring resets. And again, many of those sets went to 8 feet of space within Walmart. And then Superdrug and Boots both have had a pretty good continual increase in space. And so, I think, beyond kind of building up for chain, we're also seeing pretty sizable space gains there as well. So we haven't quantified that percent of our sales will perhaps give more color on that when we give FY '23 guidance in May. What I'll tell you, our first focus is always going to be on our productivity, the space that we currently have making that work harder, and we've got really good track record with Project, now, Green Unicorn being able to aid that and I'm particularly excited about our spring sets that are being set right now.
Steph Wissink: Thank you. Very helpful.
Operator: The next question is from Dara Mohsenian from Morgan Stanley. Please go ahead.
Dara Mohsenian: Hey, guys. Good afternoon.
Tarang Amin: Good afternoon.
Dara Mohsenian: So, Tarang, can you spend some time discussing cosmetics category growth trends in calendar Q4? And then, perhaps, just a bit of update on category growth so far this fiscal year. Any thoughts around if there's any risk to category growth from weaker consumer spending. Perhaps, as that fiscal support and stimulus benefits fade. And also, beyond the category, maybe potential impact on e.l.f if we do see weaker consumer spending here?
Tarang Amin: Yeah. So Dara, I remain very bullish on the category. I'd say in Q4, we saw mixed results on the category. We had six weeks where the category was above pre -pandemic levels, six weeks where it was below pre -demand levels. But the overall trajectory in terms of the category is definitely more positive. And we're seeing that in consumer behavior. Even when you look at the sub category level, Lip is having a moment right now, its consumers seek more color. For e.l.f. specifically, we're seeing strength across all of our core segments. So I talked about the five segments where we have the number one or two position. We're growing sales and share in all five of those segments, as well as within skincare. As I mentioned our skincare consumption for e.l.f. Skin for the quarter was up 29% versus a category that was plus nine. So I like what I'm seeing from a category standpoint. In terms of the relationship of consumer spending, particularly kind of the inflationary environment, I feel we are well-positioned within that. I think we've proven that over the last 3 years, growing 12 consecutive quarters, regardless where the category was. And I'm feeling really quite bullish on our business, even relative to the category. Particularly given I think we have a much richer portfolio now, with not only e.l.f. Skin, W3LL PEOPLE, Keys Soulcare, and then even better presence between color cosmetics and skincare, which continues to be a major whitespace opportunity for us.
Dara Mohsenian: Great. And then on supply chain, can you give us a bit of update there if you were able to fully service demand in the quarter and where you stand and any forward thoughts if you continue to see strong consumer demand going forward in terms of your ability to supply that demand?
Tarang Amin: I feel great about what we're able to do in the quarter. And as we look forward, we were able to maintain 95% in stocks. And lot of that has to do with the proactive decisions we made earlier in the year, kind of foregoing a lot of our holiday kits for our core items proved to be a very good decision. We saw a migration from kits to our core products, which also aided gross margins. We've talked before, taking up our inventory levels, which really gave us that installation on the longer lead times that we're seeing. So I feel better about our supply situation now than I have at any time during our fiscal year. And I feel we continue to get better. Now we're still seeing longer lead times and normal volatility that, I think, others are experiencing right now. But a great deal of confidence of our ability continue to meet the demand that we have which has been quite strong.
Dara Mohsenian: Great. Thanks.
Operator: The next question is from Olivia Tong with Raymond James, please go ahead.
Olivia Tong: Great. Thank you. First question is just around helping us understand if you can give a finer point on what drove the revenue upside this quarter and the sustainability of that over the next few quarters. Maybe give us a range of an idea on the range of price increases you're planning to take. And if you've seen any impact from Omicron by January sales or to cost and your ability to drive efficiencies. Thanks.
Mandy Fields: I'll start, Olivia. On the revenue upside in the quarter, as we talked, really, Q3 exceeded our expectations on the consumption side of the equation, and really foiled consumers shifting from our holiday kits, which we had a very scaled back program this year into our core product. That core business momentum has really improved our expectations for Q4 as well. So, in flagging, the guidance is a better outlook on Q4 as well. And still both quarters, second half is going to be very strong for us, we expect from a two-year stack basis as well. We do think that those -- that trend is sustainable evidenced by taking our guidance up to 19% on the top end for the year. In terms of the price increases, this round of price increases that we're taking in March, it covers about two-thirds of our portfolio, and it also includes a portion of Keys and W3LL PEOPLE in that as well. So it's a pretty broad price increase. But as Tarang mentioned earlier, really balanced that with wanting to maintain the value proposition for our consumers. So, we're not touching our opening price points and really want to make sure that we stay -- continue to deliver that value proposition for our consumers. In terms of Omicron, I would say that's hard to parse out from the data, given other moving parts. I think we saw more of an impact from Delta earlier on versus what we're seeing now with Omicron.
Tarang Amin: And then I would say one of the other things that gives us a lot of confidence in the business is the strength of our spring innovation. It bodes well for what you're going to continue to see from a consumption trend standpoint. I mentioned the Power Grip Primer, particularly excited about building on our Camo Franchise with our Camo foundations. Even as Lip is having a moment right now, our glossy lip stains. All of them are phenomenal values relative to prestige equivalent, as well as our Pure Skin line. And so we've seen really good results on our own website and are really hopeful as they hit Spring sets. Now you will see some volatility in the Nielsen data, as we said. The stimulus driven consumption that we saw in March and April was quite high. So there might be some noise in the Nielsen data, but overall consumption trends are actually stronger than what we expected for Q3 and I think bode well for the rest of our fiscal year.
Olivia Tong: Thanks. That's helpful. And then quite frankly, given how strong the December quarter was, does this in any way change your view longer term on how to run holiday in future years, how to run promotions, the magnitude or extent that you have to do or that you want to do kits and other promotion type products just on a longer-term basis?
Tarang Amin: Yes. I'd say longer-term, we're really pleased with what we saw in Q3 this year. And I think we will carry forward those learnings into future holiday programs. And the nature of that is, we will still have some holiday kits. They definitely have a role, and there's consumer excitement, particularly as we're able to engage them online and with some of our key retailers. But a much bigger focus on our core products. Those products come at a better gross margin. We see consumers really gravitated towards them. And so I think that will be our -- at least for the time being, our plan for the future. It is much more focused on our core, with some limited holiday kits to drive excitement.
Olivia Tong: Great. Thank you.
Operator: The next question is from Bill Chapell, with Truist Securities. Please go ahead.
Bill Chapell: Thanks. Good afternoon.
Tarang Amin: Good afternoon.
Mandy Fields: Hi, Bill.
Bill Chapell: First question on maybe a little bit more on I guess we're two years into that deal. I'm just trying to understand what you've learned, what has expanded from here? And how it looks in terms of future M&A. Will you continue to look for stuff that size or would you like a bigger platform? Just kind of learning this 24-months end, I think that's right.
Tarang Amin: Yeah. Well, thanks, Bill. We're really pleased with our acquisition of well people. We acquired the brand really the thesis there, it was a real pioneer in plant powered, clean beauty. And we felt we could add a lot of value to that brand, both with the innovation platform. We have certainly our distribution footprint and our ability from a marketing standpoint. We very much, kind of executed against that plan. We did a re-branding of W3LL PEOPLE, almost a complete renew brand from a consumer presentation standpoint, we really energized the innovation program, getting W3LL PEOPLE into skincare, and we're seeing really good momentum. And in addition, what W3LL PEOPLE brought to us is real capability and clean beauty. W3LL PEOPLE -- came one of the co-founders of W3LL PEOPLE was Dr. Renee Snyder, a board-certified dermatologist. She was instrumental with our innovation team to launch Keys Soulcare as a clean brand, re-platforming W3LL PEOPLE gave us a lot of knowledge where, in the last six months we reformulated over 350 SKUs on the e.l.f brand, where its all avail formulations are now clean. They'll take a few months to roll out, but we feel great the progress we've got both in terms of what we could do for W3LL PEOPLE, and the knowledge we learned. In terms of future M&A, I'd say we continue to be interested in other brands that we can bring onto the platform, under a similar construct as being able to bring capabilities into the company that we don't have as well as leveraged incredible platform we've created here. In terms of scale, I would say, W3LL PEOPLE was intentionally small when we did it as our first acquisition, we're highly disciplined. We want to make sure we can do the integration and get the plan going. As for future acquisitions, we would look to -- for them to be a bit larger, but we're highly disciplined. I mean, you'll see in the notes as you take a look at some of the adjustments. There were some M&A costs in Q3. It was a target we looked at, but we did not submit a final a bit. So we remain highly disciplined in terms of what we look at. And I'd say, the things that appeal to us or other high-growth brands, not only on the top line, but also on the bottom line. We have a great profile as a company in terms of being able to deliver both top and bottom line. And so any potential acquisition target would have that. And then again, something that would complement our existing portfolio. We feel great about our portfolio. That's our first priority. But either in an adjacent category or something that would bring a different capability to the company, I'd say we remain open to that, but we'll remain disciplined in taking a look at potential targets.
Bill Chapell: Thanks for that color. And then just back on supply chain. Now that we're through the holidays and seeing that you get shipped most from Asia, do you feel like most of the supply chain risk is behind you in terms of getting containers, getting supplies, and moving forward or is there still some bumpiness over the next few months that you still worry about?
Tarang Amin: No, I would say we're feeling good about the supply chain from a risk standpoint. I'd say over the last few months, we've been able to get all the containers we wanted. Now they are coming in at an elevated cost. It was one of the impedances for us to decide to take pricing is we expect some of those elevated costs will be with us for some time, so that's one of the reasons we priced. But in terms of overall availability, our capacity, our ability to get product, we're highly confident of our ability to do that and meet demand that we're seeing.
Bill Chapell: Great. Thanks so much.
Operator: The next question is from Linda Bolton-Weiser with D.A. Davidson, please go ahead.
Linda Bolton-Weiser: Hi. I'm just wanting a little bit more detail or quantification on the gross margin because it was really a spectacular performance, even accounting for the holiday mix issue that you talked about. Is there any way of explaining or quantifying what came out so much better than you expected that drove the gross margin because you had expected it to be down sequentially? And it was up and it was up very strongly. And is this new level something going forward or is it still going to fluctuate? But you're taking more price, so it seems to me that that gross margin has even higher to go. Thank you.
Mandy Fields: Hi, Linda. I'll take that question. Gross margin as we talked in the quarter, I think, what came in better than we expected at two things. One, I would say the shift into our core product from not having that holiday mixed. The holiday product is at a lower margin, so people shifting into our core product actually drove a benefit for us on a year-over-year basis. So that was great to see. The other part is, I think, generally, we're mixing out a little bit better even with the higher freight costs, we're not seeing that impact the P&L in the way we expected. And so, that's why for the second half, I've now called out that we expect gross margin to be flat to last year. So that implies coming down a little bit versus last year in Q4. So not -- because we won't have that holiday benefit in those numbers, but I think that our outlook has improved from that standpoint just based on what we're seeing from a mixed perspective. In terms of pricing and how that's going to impact gross margin, I think we'll have more color to give on that once we give our fiscal 23 guidance in May. We really want to allow time for our retailers to reflect the pricing in the market and get a real feel for how consumers are responding before we go any further on given color there.
Linda Bolton-Weiser: Great. And can I ask about the top-line performance? According to the guidance, you are still guiding to down a little bit year-over-year in the fourth quarter against a hard comparison. But that prior year comp gets even harder for the first half of FY '23. So in a very qualitative way, how should we think about that? Because that comparison is going to get harder, even though you've got a lot of drivers, maybe expanding Keys Soulcare and other things going on, so how should we generally think about that in terms of the growth in the first half of fiscal '23?
Mandy Fields: Yes. So let me start with Q4 because that's what we've given guidance for. So Q4 or really anchoring on a two-year stack number. So to your point, even the guidance implies a little bit negative for Q4, but on a two-year stack basis, it's still very strong, up 23% it's what is implied. And then when I look at the full year of fiscal '22, 19% on the top end, it's still north of 30% on a 2-year stack basis. So a very strong overall performance. In terms of what to expect when we get into the first half of next year, again, we're just going to have to wait until we give guidance for fiscal '23. But what I can say into Tarang's earlier points, we do feel very confident on our spring innovation. The signals that we're seeing is that, that will continue to be strong even before it's in broad distribution. Our power grip primer is the number one item on our elfcosmetics.com. So really seeing some positive signals there, and things may be volatile as we talked about, in March and April, very strong consumption results in Nielsen data, and so we expect some volatility there. But I don't think that's reflective at all of our core business momentum. We really feel that that -- it still remains very strong.
Linda Bolton-Weiser: Okay. Thank you very much.
Mandy Fields: Thanks, Linda.
Operator: The next question is from Oliver Chen with Cowen. Please go ahead.
Joanne Manno: Hi. Thank you for taking our questions. This is Joanne on for Oliver. Just curious, it looks like e.l.f Skin care is really gaining a lot of momentum. And how do you balance the shelf space between skin care and cosmetics at different retailers? And another question is, I know you're expecting 15% to 70% range for marketing spend with Keys Soulcare starting this year? But going forward, do you think that's the right level to think about, especially as you're lapping Keys Soulcare launch. Thank you so much.
Tarang Amin: Thanks. I'll take the first part of that question. In terms of skincare, we are seeing great momentum. I mentioned our consumption trends for the quarter, it was also the first quarter that e.l.f. Skin became a top 20 skincare brands. That was a pretty good milestone for us. In terms of how we manage shelf space, I'd say we are dramatically under space in pretty much every retailer we do business with. The way we manage it is basically, seek greater shelf space and get more of our skincare assortment in. And that varies customer by customer. I would say our most developed skincare business is probably at Target, where we've been the longest and we have the biggest footprint. We're able to shelf e.l.f. Skin within our existing sets and as Target over time has given us more space, has given us greater opportunity to get more skincare in as well as many of our other products. At Ulta Beauty, they've given us incremental space for skincare in their skincare set. And so we'll be taking a look there depending on what happens with space over time, whether we integrate it in within our existing e.l.f. set, where we do keep it in a separate spot. So I think we're going to continue to learn our way there, but the unifying theme is as we pick up more space, it gives us even more opportunity to get more Skin and more of our other innovation into retailers, and that's what our real focus is.
Mandy Fields: And then on your question on marketing spend, we feel great about that 15% to 17% range. We have a number of high ROI activations that really support that level of investment. And I think what you'll see from us is continuing to balance investing in marketing and digital with our desire to grow EBITDA, just as you've seen us do this year. And so, that 15% to 17% feels right to us right now.
Joanne Manno: Got it. Thank you.
Operator: The next question is from Jon Andersen with William Blair. Please go ahead.
Jon Andersen: Thanks. Hi, Tarang. Hi, Mandy. Congrats on the quarter. My first question is about the elfcosmetics.com business. You mentioned, your Beauty Squad membership is up, I think 20% year-over-year. You're approaching 3 million members. And Tarang, you talked to the importance of the first-party data that provides. How are you using that first-party data to kind of support or enhance your targeting and conversion efforts? Just in a kind of a big picture way, trying to understand what that's helping you do maybe better or faster than you've done in the past. Thanks.
Tarang Amin: Hi, John. Well, Beauty Squad is a critical program for us. We're proud of the 2.7 million members we have, the 20% growth year-over-year, but also the experience that program is generating for our core users. These are the consumers that make up 70% of our sales on elfcosmetics.com. They also are the source of core insight and inspiration for all of our various activities. We've often talked about many of our unique collaborations that we do, whether it be the e.l.f./ Chipotle collaboration or one I'm particularly excited about right now is the partnering that we've done with Simon Fuller and finding the next big pop group on TikTok, the future our latest hashtag challenge there, #elfitup. In a week after placing that hashtag challenge, I think it's up to 7 billion views. A lot of the inspiration for the things we do come from that Beauty Squad Loyalty Program, and what we're hearing our core user base wanting. So it's not just the behavior that we're seeing them from shopping standpoint, but we also engage them. Part of how they earn points is the level of engagement with the brand, including insights on our new products, including some of the things that they are most interested in. So you'll continue to see us nurture that program, build in additional functionality in it, and enhance the dataset that we got. Because it really drives well beyond elfcosmetics.com. It really drives all of our activities, including with international retailers.
Jon Andersen: That's helpful. With respect to the digital shift -- you mentioned earlier that the digital portion of the business has come down a little bit, I think to 14% in the current quarter versus 16% a year ago. Not unexpected, I guess, given the consumer behavior changes. But does that have -- remind me, what are the margin implications? Or are there margin implications in that channel makeshift as that kind of plays out.
Mandy Fields: Yes. We've talked before about a shift in digital. It really is a benefit from a gross margin standpoint. But by the time you add in marketing and some of the warehousing and things like that. It's a pretty neutral impact to operating margin, so it would be a benefit as we shift more into digital on the gross margin line. That's how I think about that.
Jon Andersen: Great. That's helpful. Last one for me is on portfolio management. And Mandy, you pointed out the kind of the balance -- the strength of the balance sheet, the strong liquidity position you're in. How do you think about using capital for supporting your extensions, adding brands versus reinvestment in the five strategic initiatives around the three brands you own? I mean, what should we expect? Is it purely opportunistic on the M&A side? Are there's some very targeted things you're looking to fill within the portfolio? I'm just trying to get a sense for how that liquidity or capital maybe applied going forward. Thanks.
Mandy Fields: Yeah. So you're absolutely right, Jon. We'll be focused on our strategic imperatives, and continuing to support those. And then also on the strategic extension side. And so as Tarang gave a little bit of color around, we have looked at targets more recently, and we'll continue to do so. I think that anything that expands our capability or brings us new capability like we've picked up with the W3LL PEOPLE, or allows us to go into different category adjacencies would be interesting to us. I think the great thing is that we are -- we have such strong organic growth across our current portfolio of brands. We're not in a rush to add to our portfolio. We will be very choiceful and very disciplined for whatever brand we decide to go after. And so, I think, that you will continue to see that from us. We're going to be looking at things, but only where it makes sense, cultural fit, and things of that nature are super important to us, and we don't want to move too quickly on something and take a look back and not love it. So we are very disciplined in this area. And as Tarang mentioned, W3LL PEOPLE was intentionally small. As we look forward, we may look at things that are a little bit bigger than that, something with more scale, and really looking to expand our top line and bottom line with any other acquisition that we bring into the portfolio.
Jon Andersen: Well said. The strength of the core business affords you the ability to be patient. So thank you very much. Appreciate it. Congrats again.
Mandy Fields: Thanks, Jon.
Operator: The next question is from Wendy Nicholson with Citi, please go ahead.
Wendy Nicholson: Hi. I just wanted to follow up on that line of questioning on the M&A front. I think discipline is great. But just for me, can you talk about the managerial bandwidth, if you will? The acquisitions you're making, it's not like you're bringing in brands that then you just incubate and they operate independently. Tarang and Mandy, it feels like you've got your fingers and tentacles in each of these brands, and I think W3LL PEOPLE has taken a little while to really ramp up. So just in terms of how important it is to you -- because I don't think of you as a serial acquirer, is that a bigger part of the story going forward? I think it would be helpful to just clarify how much of a priority that is or is not because I think there's a risk obviously that you get too broad and you expand yourself too far afield and you got too much going on and you lose focus on the core if you will. So can you just clarify how important M&A is to you right now?
Tarang Amin: Yeah, Wendy. I'll take this one. I would say our predominant focus is on our core business and e.l.f. pays all the bills. e.l.f. is the thing that we have a tremendous amount of whitespace on; both e.l.f. cosmetics and e.l.f skin. So I'd say the vast majority of our company managerial attention is on those. In terms of our strategic extensions, the way we manage them is very similar to other consumer environments I've been in. Most of us have multi-brand experience of portfolio of brands, and we make sure that the consumer-facing part of those brands we've resourced for. They have distinct brand managers, distinct kind of innovation talent associated with it. But then leveraging the rest of the chassis that we have. We have an incredible operations chassis, same with our innovation platform, where we feel we could take on a few more brands without any serious issues from a managerial standpoint. But from a focus standpoint, you obviously see the momentum over the last three years on the ELF brand and that becomes our biggest area of focus. But we like what we've seen in terms of the strategic extensions we've done, we've been able to manage them well, be able to leverage the chassis where it makes sense, and then let them live on their own. On the other hand, in terms of how they go-to-market and what we're able to do.
Wendy Nicholson: Fair enough. Fair enough that's reasonable, certainly. But the other question I had just in terms of that statement, e.l.f. pays the belt. Just a question on the pricing. I mean, I remember the days I think, once upon a time, you guys priced everything out of the e.l.f brand at$3. Obviously, the brand has just exploded in terms of consumer awareness and relevance, and you've done a phenomenal job in the innovation side. In contemplating the pricing that you're taking on the e.l.f. brand-specifically, how much flexibility do you have? I know that it's cost-driven, but how much flexibility do you have to pull back on pricing or step-up promotion? What's your visibility that cash if you're raising the prices just a little bit too much, and you start to see some market share erosion? How quickly can you react or are you willing to feed some share to protect margins?
Tarang Amin: Well, like everything at e.l.f., we move at e.l.f. speed so we can react quite fast. And I'll take you back to our 2019 price increase, which I mentioned was quite successful. This is a brand that definitely has pricing power. In that price increase, we had some items we had taken up $2 and quickly concluded that was too big a price increase and we quickly rolled those back down. And we did not actually lose market share in that process, we gained market share throughout that. And so if we found that we overextended ourselves on certain items, it's very easy for us to adjust those items back to where they need to be and we can move. We're not afraid to say what -- based on what the consumer experiences. Now our, our hope is the way we've approached this, which is really looking item by item relative to its key competitor. And where we can go a dollar up on each of these, we'll see, we'll see how they do. But if we found that there is a segment of our portfolio, we went too far on. It's easy enough for us to roll it back. But our intention is to continue to gain market share. We've been able to prove that even in a bad market, we're going to want to do that and a good market as the category improves. And so we feel done right, pricing can be a good tool in the.
Wendy Nicholson: Terrific. Thank you so much.
Operator: The next question is from Mark Astrachan with Stifel. Please go ahead.
Mark Astrachan: Thanks. Afternoon, everyone. Two questions. One is, could you help us a bit in trying to understand the reported sales in the context of track versus un-tracked growth? I think if you look at the last couple quarters before the December quarter, that your growth was decently in excess of what we saw in the scanner data. This quarter, it was below even taking into account the holiday step. So can you talk to how to think about that? What sort of dynamics drove a bit of the relatively slower growth in the overall numbers versus the scanner data versus un-tracked in the December quarter? Thanks.
Mandy Fields: The difference this quarter is really a function of what we saw in the base last year for both net sales and consumption. So in Q3 last year, we posted a positive 10% net sales growth with consumption down 2%. And that's why I anchored on the two-year stack in our prepared remarks. When you take Q3 on a two-year stack basis, we were up 20% and up 15% in consumption. Sales pacing a bit ahead of consumption, which I think is more in line with what folks expect to see. I think over the long-term shipments and consumption will balance out, but sometimes there are those nuances between quarters.
Mark Astrachan: Got it. And so just following up on that, anything to point out from an international standpoint, I know you called it out in the , but is relative growth similar to what you saw last quarter?
Mandy Fields: Yes. International growth still remained strong for Q3, and we continue to see growth in those markets and with those customers.
Mark Astrachan: In one more record, the dog barks at me again. Do you expect any pull forward of sales for the pricing that you just announced? Is that contemplated in the guidance for the next quarter?
Mandy Fields: We don't typically see anything like that, like a forward buyer or anything like that from our customers. So no, we don't really expect to see anything like that.
Mark Astrachan: Great. Thanks a lot.
Mandy Fields: Yes.
Operator: The next question is from Korinne Wolfmeyer with Piper Sandler. Please go ahead.
Korinne Wolfmeyer: Hi, thanks for taking the question, and congrats on the quarter. So I wanted to dig a little bit on pipeline and R&D investments beyond what you have going on with spring. Just where do you think you'll be focusing the bulk of that spending going forward? Like which brands, which products? And then, how should we be thinking about the cadence of the new product introductions going forward?
Tarang Amin: Yeah. Hi, Korinne. Our innovation is key strengths of our company. And part of the strength of that innovation beyond being able to have for Steve's quality the extraordinary prices is we innovate pretty broadly. As I mentioned, we innovate across each of our core segments and skincare, W3LL PEOPLE and Keys Soulcare. I would say the cadence of that innovation you typically see, it's really continuous throughout the year. The big seasons, our spring season when spring resets happen, but we're launching new products all the time on elfcosmetics.com, keyssoulcare.com, w3llpeople.com. And that in turn gives us the data from which to make a lot of our core assortment decisions for the big resets between the spring and fall. So I would say our innovation program is never been stronger. I take a look at the pipeline across really all four of our brands, and they are quite robust. Gives me a lot of confidence not only for the innovation we just launched in the spring. But I mentioned on a couple of our other brands, W3LL PEOPLE, our first entry into skincare. With the first five plant powered products; we have additional products behind that. Keys Soulcare continues to do a phenomenal job in an innovation standpoint. We launched more innovation in the body category. There'll be other categories that you'll see come out later this year. And so I feel it's an area we've really focused on over the years and I'd say particularly in the last 3 years, really strengthened the innovation capabilities not only in skincare, but our ability to have the breadth of innovation that we do have as we go forward.
Korinne Wolfmeyer: Got it. Thank you. That’s really helpful. And then just one more quick one, with the rebound of color cosmetics, is there any specific products or good products that have surprised you in terms of bouncing back or seem to have come back sooner than others?
Tarang Amin: I would say it's along my expectations. We knew Lip would have a moment right now as people took off their masks and could express more color. But Lip for our business, we're seeing strength across each of our core segments. And so I -- that trajectory I talked about earlier of when I take a look at the category beyond just trends relative to pre -pandemic. What is the slope of what we're seeing? And we're seeing pretty good things across the category. Certainly, I think we're well-positioned. We have strengthened the Face category, particularly with our latest innovation on Power Grip and our Camo foundation. I like what we're doing on Eye, Eye Brow Lift is off to an incredible start. And even in lift, our glossy lift sustains, I think, again, phenomenal value at $6 versus the prestige equivalent at $38. And you'll continue to see us -- make sure that we can also jump on any emerging trends that we see out there. We're starting to see some good things on contouring, we have a very good business from our contouring pallets in a number of things there. So we'll stay close to the trends. But overall, I feel great about the portfolio of items we have.
Korinne Wolfmeyer: Thank you.
Operator: The next question is from Rupesh Parikh with Oppenheimer. Please go ahead.
Rupesh Parikh: Good afternoon and thanks for taking my questions. So I have two questions on the pricing front. So first, in the mass category, have you seen others starting to take pricing? And then secondly, just on the philosophy in terms of, I guess on the gross margin front and raising prices, is it goal to maintain the gross margin rate and then other initiatives can help to drive expansion? Or could it be similar to last time where you guys took pricing and you ended up having very strong gross margin expansions, did other initiatives also helped to drive the margin improvement?
Tarang Amin: Yeah. So Rupesh, similar to what happened in 2019, we led pricing. And so, I don't think that many people followed us in 2019. We've heard more discussions at least in our retailer discussions of a number of people taking pricing side. I don't have specifics on who else is potentially taking pricing, but we were not the first, and nor I believe we will be the last. But the way we do our analysis is not really dependent on others having to take pricing. It really is on that relative value that we see in the marketplace, even if no one took their pricing. And then on the second question, I'll turn it over to Mandy.
Mandy Fields: And on the gross margin point. So, as we talked in our prepared remarks, and I will take it back actually to 2019. When we take pricing, it's usually in reaction to something, a macro event. So in 2019 when we decided to take pricing, it was in response to tariffs. In May 2021 when we decided to take pricing, that was in response to some of the FX headwinds that we were feeling. So this time around, it has been driven by those elevated freight costs that we're seeing. And overall, cost inflation that we anticipate will be with us for a little while longer. And so that was the driver behind us taking pricing. So our goal really is to help to offset some of those costs that we're seeing. How that builds an overall gross margin. Again, I think we'll have more color on that when we come back in May with our fiscal '23 guidance.
Rupesh Parikh: Okay. Great. Thank you.
Mandy Fields: Thanks, Rupesh.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Tarang Amin for any closing remarks.
Tarang Amin: Well, thank you, everyone, for joining us today. I -- again, I'm so grateful to the incredible team we have at e.l.f. Beauty, for again, delivering outstanding results. We look forward to seeing some of you at some of the upcoming investor meetings and speaking with you in May, when we'll talk our fourth-quarter results in fiscal 2023 outlook. Thanks everyone, and be well.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
