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MAV Beauty Brands Reports Third Quarter 2019 Financial Results and Announces Acquisition of The Mane Choice

November 13, 2019
  • Revenue of $28.4 million for the quarter, up 8% over Q3 2018
  • Adjusted EBITDA increased 17% to $8.5 million for the quarter
  • Net income of $2.9 million, compared with $(6.7) million in Q3 2018
  • Free Cash Flow increased to $5.4 million and Net Debt-to-Adjusted EBITDA ratio decreased to 3.7x at quarter end
  • Company provides updated 2019 outlook and withdraws 2020 financial targets
  • Seasoned executive Tom Nestor appointed to newly created Chief Sales Officer role
  • Subsequent to quarter end, MAV Beauty Brands expands and diversifies portfolio with the acquisition of The Mane Choice

VAUGHAN, ON, Nov. 13, 2019 /CNW/ - MAV Beauty Brands Inc. ("MAV Beauty Brands" or the "Company"), a global personal care company, today announced its financial results for the three and nine months ended September 30, 2019 and the acquisition of The Mane Choice, a fast-growing brand serving the natural, textured hair care market. Unless otherwise indicated, all amounts are expressed in U.S. dollars. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures (see "Non-IFRS Measures" below).

Selected Financial Information(1)

(in thousands of US dollars except per share amounts) (unaudited)


Q3 2019

Q3 2018





Revenue


28,368

26,175

Gross profit


14,125

11,598

Net income (loss) and comprehensive


2,939

(6,675)

income (loss) for the period




Earnings per Share (basic)


0.08

(0.19)

EBITDA


7,264

81

Adjusted EBITDA


8,476

7,271

Free Cash Flow


5,373

(3,928)

Adjusted Net Income (Loss)


3,842

(1,318)

Adjusted Earnings per Share (diluted)


0.10

(0.04)



(1)

See "Non-IFRS Measures"

 

"Our third-quarter financial results showed good progress across key financial metrics, highlighted by improved gross margins, Adjusted EBITDA, and most notably free cash flow. In a category growing at less than 1%, our portfolio has double-digit point of sale growth," said Marc Anthony Venere, Founder and Chief Executive Officer. "While there are high points across the business that show our strategy and platform are working, we are facing some challenges that will impact near-term results and moderate our growth rate, causing us to fall short of our previous forecasts. Building on the solid foundation we have established, we are excited to add a growing and authentic consumer-driven brand to the portfolio – The Mane Choice – which is a leading brand in the textured haircare market, a new segment and growth lever for the company."

Q3 2019 Business and Financial Review 

In Q3 2019, MAV Beauty Brands delivered revenue of $28.4 million, an increase of 8% over Q3 2018. The growth was driven by an 8% increase in revenue from North America, which reached $26.0 million in Q3 2019, compared with $24.2 million in Q3 2018, based on the continued growth of the Company's brands. International revenue, which represents approximately 8% of total revenue, increased by 19% over Q3 2018 to $2.3 million.

Q3 2019 gross profit was $14.1 million, an increase of 22% compared with gross profit of $11.6 million in Q3 2018. Gross profit margins increased to 49.8% in Q3 2019, compared to 44.3% in Q3 2018, reflecting productivity and efficiency savings in manufacturing, procurement and distribution.

Q3 2019 Adjusted EBITDA rose to $8.5 million (29.9% of revenue), compared with Adjusted EBITDA of $7.3 million in Q3 2018 (27.8% of revenue) reflecting higher revenue and gross profit (see "Non-IFRS Measures" below).

Adjusted net income increased to $3.8 million in Q3 2019, compared with an Adjusted net loss of $1.3 million in Q3 2018. Adjusted earnings per share (diluted) was $0.10 per share in Q3 2019, compared with $(0.04) per share in Q3 2018, reflecting the factors discussed above (see "Non-IFRS Measures" below). In Q3 2019, the Company generated net income of $2.9 million, compared to net loss of $6.7 million in Q3 2018.

Free Cash Flow increased to $5.4 million in Q3 2019, compared with $(3.9) million in Q3 2018 (see "Non-IFRS Measures" below). As a result of the increased Free Cash Flow, the Company's Net Debt-to-Adjusted EBITDA ratio was reduced to 3.7 times at quarter end, compared with 4.0 times at the end of Q2 2019.

Outlook

With its Q3 2019 results, the Company provided an update on its outlook for Fiscal 2019 and Fiscal 2020. Due to several factors discussed below, the Company currently anticipates Q4 2019 revenue, excluding revenue from The Mane Choice acquisition, will be modestly below the prior year period and Adjusted EBITDA will be in line with the prior year period. As a result, the Company does not expect its full-year 2019 revenue and Adjusted EBITDA results to be within its previously stated guidance range.

Three main factors are expected to impact the Q4 2019 results. During the fourth quarter, major Drug and Mass retailers in the U.S. reset planograms for the following year. While planograms have not been finalized at all retailers, management is expecting decreased distribution for certain new, more premium-priced Renpure SKUs in the Mass channel. These products, which had higher price points, have underperformed the core Renpure collections. Q4 2019 results will also be affected by the Company's decision to forego certain promotional programs with a retail partner, when terms on the programs fell below the Company's margin targets. In addition, Q4 2019 results will reflect lower-than-expected growth in International revenue.

"The loss of distribution on the newer, premium-priced Renpure products is disappointing but, based on our experience, is not a permanent decision," said Tim Bunch, President and Chief Revenue Officer of MAV Beauty Brands. "We are addressing the feedback and taking steps to regain this shelf space, focusing on delivering products with the right value equation for these consumers. Importantly, the brand and its core collections maintain a strong position in U.S. Mass and continue to offer our retailers attractive margins and timely innovation. With the investments we have made – to build out our infrastructure, senior management team, systems and processes – we are better positioned to consistently deliver on our growth strategies."

Mr. Venere added: "We believe these are near-term impacts and we remain confident in the fundamentals of the business and the health of our brands. Our portfolio delivered point of sale growth of approximately 11% in the third quarter, compared with the category average of less than 1%. Renpure has a three-year gross revenue CAGR of approximately 29%, and we expect the brand will continue to deliver results well above the revenue levels it achieved prior to our acquisition. Moreover, we continue to demonstrate our ability to grow brands by leveraging our operating platform and innovation engine. Cake Beauty has grown exponentially as part of the MAV Beauty Brands portfolio and The Marc Anthony True Professional brand continues to expand distribution. Based on current planogram resets, we are anticipating strong gains across the portfolio in the North American Drug channel for 2020, including major shelf expansions with several key customers."

As a result of the Company's moderated growth in 2019 and the anticipated Renpure distribution for 2020 discussed above, the Company does not expect to achieve and is withdrawing its previous Fiscal 2020 financial targets. At this time, the Company is not providing further outlook for Fiscal 2020.

Tom Nestor Appointed Chief Sales Officer

MAV Beauty Brands also announced today the appointment of Tom Nestor, a highly experienced consumer goods executive, to the new position of Chief Sales Officer, effective December 2, 2019. He will oversee all global sales activities, leveraging his deep experience in personal care to expand distribution of the MAV Beauty Brands portfolio. Most recently, Tom was Chief Revenue Officer & Chief Customer Officer for Sundial Brands, which was acquired by Unilever in 2017. Previously, he served as Executive Vice President of Vogue International and as Chief Executive Officer of Sun & Skin Care Research. Tom also spent eight years as Vice President of Sales at Alberto Culver Company. 

Acquisition of The Mane Choice

On November 13, 2019, MAV Beauty Brands completed the acquisition of The Mane Choice, a fast-growing brand serving the natural, textured haircare market. The transaction is expected to be immediately accretive to MAV Beauty Brands' earnings per share and Free Cash Flow per share. Founded in 2013 by Courtney Adeleye, The Mane Choice's broad portfolio includes more than 100 SKUs consisting of shampoos, conditioners, hair growth vitamins, and other innovative treatments. The Mane Choice has established a national footprint through top-tier retail and distribution partners. Today, The Mane Choice is a leading brand in the U.S. textured hair market, with broad distribution in leading drug, mass and specialty beauty retailers. For the 12-month period ended September 30, 2019, The Mane Choice had net sales of approximately $24.4 million and Adjusted EBITDA of $6.4 million.

"MAV Beauty Brands has a founder-led, entrepreneurial mindset, a deep focus on innovation and an emphasis on partnering with retailers, which all align very well with our strengths and make them an ideal partner for our business," said Courtney Adeleye, Founder of The Mane Choice. "Their global operating platform will better position us to scale, create supply chain efficiencies, and expand our reach both domestically and internationally, while maintaining the foundation and vision of the brand. In short, we can put more into doing what we do best: make great products so our consumers can achieve beautiful, healthy hair."

"We are expanding and diversifying our portfolio with the acquisition of The Mane Choice, propelling MAV Beauty Brands into the position of the seventh largest haircare company in the U.S. market," said Mr. Venere. "The Mane Choice has highly attractive characteristics: a fast-growing, founder-led brand, a robust margin profile, and an asset-light business model. This acquisition is financially attractive and adds a complementary brand in the fast-growing natural, textured hair market. We plan to support the founder in her efforts to bring these highly customized products to more consumers by leveraging our global operating platform."

Strategic Rationale

The transaction is directly aligned with MAV Beauty Brands' growth strategy and provides several compelling strategic benefits, including:

  • The Mane Choice is one of the most exciting and leading brands in the fast-growing, natural textured hair care market segment.
  • Adds a complementary founder-led brand with exceptional growth, strong margins and high free cash flow profile. There is minimal overlap with MAV Beauty Brands' current portfolio and consumer base.
  • Provides access to new, high growth end markets.
  • Significantly increases the Company's scale, particularly in North America, and further diversifies its brand portfolio.
  • Strong and ongoing alignment of founder Courtney Adeleye, who will join the MAV Beauty Brands team and continue to lead the growth of The Mane Choice.
  • Expected to be immediately accretive to MAV Beauty Brands' earnings per share and Free Cash Flow per share.

Transaction Terms

The acquisition agreement includes upfront cash consideration of $29.0 million (subject to customary adjustments) and equity consideration of $9.0 million, as well as post-closing cash earnout payments of an aggregate of up to $52.5 million over a three-year period based on the achievement of certain performance-based milestones.

The upfront cash consideration is being funded using debt from an expanded credit facility with the Company's existing lenders. The equity consideration is payable in the equivalent of approximately 2.5 million MAV common shares (the "Consideration Shares") valued at US$3.65 per share based on the trailing 30-day volume weighed average price of MAV shares on the Toronto Stock Exchange, and will be subject to lock-up restrictions until June 30, 2022. Thereafter, the restrictions will expire at the rate of 20% per quarter. The Consideration Shares have been structured for tax reasons as equity shares of a U.S. subsidiary that are exchangeable into MAV common shares, subject to certain terms and conditions.

The purchase price represents a multiple of 6.6 times The Mane Choice's Adjusted EBITDA for the 12-month period ended September 30, 2019, including the upfront cash and equity consideration, and assuming the full payout of the first earnout of $4.0 million in the second quarter of 2020. The two subsequent earnouts, payable in 2021 and 2022, are based on the achievement of exceptional revenue growth targets over the 2020 and 2021 calendar years, respectively.

Pro forma for the acquisition of The Mane Choice, the Company's Net Debt-to-Adjusted EBITDA ratio as at September 30, 2019 is 4.0 times.

Q3 2019 Financial Statements and Management's Discussion and Analysis

The Company's unaudited condensed consolidated interim financial statements for the three- and nine-month periods ended September 30, 2019 and Management's Discussion and Analysis are available under the Company's profile on SEDAR at www.sedar.com and on MAV Beauty Brands' investor relations website at investors.mavbeautybrands.com.  

Conference Call & Webcast

MAV Beauty Brands will host a conference call to discuss its Fiscal 2019 third quarter financial results and The Mane Choice acquisition at 8:30 a.m. EDT on November 13, 2019. The conference call will include presentation slides. The call will be hosted by Marc Anthony Venere, Founder & CEO, Tim Bunch, President & Chief Revenue Officer, and Judy Adam, Chief Financial Officer. To participate in the call, dial (416) 764-8688 or (888) 390-0546 using the conference ID 75014651. The audio webcast can be accessed at investors.mavbeautybrands.com. Listeners should access the webcast or call 10-15 minutes before the start time to ensure they are connected.

Presentation slides for the conference call will be made available on the Company's website located at www.mavbeautybrands.com.

About MAV Beauty Brands

MAV Beauty Brands is a global personal care company dedicated to providing consumers with premium quality, authentic and differentiated products. Our innovation-focused, next generation platform consists of complementary and rapidly growing personal care brands: Marc Anthony True Professional, Renpure, Cake Beauty and The Mane Choice. Our products include a wide variety of hair care, body care and beauty products such as shampoo, conditioner, hair styling products, treatments, body wash, and body and hand lotion across multiple collections that each serve a different and personalized consumer need. Our products are sold in over 35 countries around the world, in over 100 major retailers and through over 60,000 doors.

Non‑IFRS Measures 

This press release makes reference to certain non‑IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non‑IFRS measures including "Adjusted EBITDA", "Adjusted Net Income" and "Free Cash Flow". These non‑IFRS measures are used to provide investors with supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures. We also believe that securities analysts, investors and other interested parties frequently use non‑IFRS measures in the evaluation of issuers. Our management also uses non‑IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and to determine components of management compensation. Definitions and reconciliations of non-IFRS measures to the relevant reported measures can be found in our MD&A. Such reconciliations can also be found in this press release under the headings "Q3 2019 Compared to Q3 2018".

"Adjusted EBITDA" represents, for the applicable period, EBITDA as adjusted to add back or deduct, as applicable, certain expenses, costs, charges or benefits incurred in such period which in management's view are not indicative of continuing operations, including: (i) integration, restructuring, and other costs; (ii) shareholder fees and related costs; (iii) purchase accounting adjustments; (iv) share‑based compensation; and (v) unrealized foreign exchange (gain) loss.

"Adjusted Net Income" represents, for the applicable period, net income (loss) and comprehensive income (loss) as adjusted to add back or deduct, as applicable, certain expenses, costs, charges or benefits incurred in such period which in management's view are not indicative of continuing operations, including: (i) integration, restructuring, and other costs; (ii) shareholder fees and related costs; (iii) purchase accounting adjustments; (iv) share‑based compensation; (v) unrealized foreign exchange (gain) loss; and (vi) tax impacts of the aforementioned adjustments (based on annual effective tax rate).

''Free Cash Flow'' represents, for the applicable period, cash provided by operating activities less cash used to purchase property and equipment. Free cash flow is a key metric that measures the Company's ability to repay debt, finance strategic business acquisitions and investments, pay dividends and repurchase shares.

"EBITDA" represents net income (loss) and comprehensive net income (loss) for the period before: (i) income tax (recovery) expense; (ii) interest; and (iii) amortization and depreciation.

Gross revenue refers to revenue before trade expenditures, promotions and discounts.

In addition, financial information regarding The Mane Choice set forth in this news release has not been audited, and the related pro forma information should not be considered to be what the actual financial position or other results of operations of the Company would have necessarily been had The Mane Choice acquisition been completed, as, at, or for the periods stated.

Forward-Looking Information

Certain information in this press release, including statements relating to expected Q4 2019 revenue, excluding The Mane Choice, being modestly below the prior year period and Adjusted EBITDA results being in line with the prior year period, our expectation that we will not achieve our previous revenue, Adjusted EBITDA and Adjusted Net Income financial targets for Fiscal 2020, anticipated decreased distribution for certain new, more premium-priced Renpure SKUs in the U.S. Mass channel, lower than expected growth in International revenue, anticipated scaling and achievement of supply chain efficiencies with The Mane Choice and the expansion of our reach both domestically and internationally, the expected accretion to earnings per share and Free Cash Flow per share following the acquisition of The Mane Choice constitutes forward-looking information. In some cases, but not necessarily in all cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "is positioned", "estimates", "intends", "assumes", "anticipates" or "does not anticipate" or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will" or "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events.

Implicit in forward-looking statements in respect of the Company's expectations for Q4 2019 revenue, excluding revenue from The Mane Choice acquisition, will be modestly below the prior year period and Adjusted EBITDA will be in line with the prior year period are certain current assumptions, including, among others, overall sales velocity of our products; continued achievement of cross-selling opportunities; anticipated total distribution gains despite certain deletions primarily related to certain Renpure SKUs related to retail planogram resets for Fiscal 2020; retail partners maintaining consistent levels of inventory and replenishment orders; fulfillment of confirmed orders in Q4 2020; gross margin achievement consistent with recent trends; stable conditions in economies in major international markets; consistent selling & administrative expenses; anticipated low levels of capital investments in Q4 2020. Specifically, we have assumed that (i) the U.S. dollar to Canadian dollar exchange rate of 1:1.32; (ii) taxation rates consistent with current and currently anticipated levels.

Although the Company believes that the forward-looking statements in this press release are based on information and assumptions that are current, reasonable and complete, these statements are by their nature subject to a number of factors that could cause actual results to differ materially from management's expectations and plans as set forth in such forward-looking statements, including, without limitation, the following factors, many of which are beyond the Company's control and the effects of which can be difficult to predict: (a) the risk that Fiscal 2020 retail planogram resets are not finalized as anticipated; (b) the risk that retail partners reduce inventory levels or replenishment orders;  (c) the possibility that the anticipated benefits from the proposed The Mane Choice acquisition cannot be realized in a timely manner or otherwise; (d) risks and uncertainties around the growth of the natural, textured hair care market and the personal care market generally; (e) risks and uncertainties relating to integration of The Mane Choice, including with respect to sales, marketing, supply chain and distribution; (f) risks relating to the retention of key personnel at, and retail partners of, The Mane Choice; (g) others risks relating to the business of The Mane Choice which are similar to risks generally relating to the business of the Company; and (h) other risks inherent to the Company's and The Mane Choice's businesses and/or factors beyond its control which could have a material adverse effect on the Company.

Forward-looking information is necessarily based on a number of opinions, assumptions and estimates that, while considered reasonable by MAV Beauty Brands as of the date of this press release, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to the factors described in greater detail in the "Risk Factors" section of the Company's Annual Information Form dated March 28, 2019 for the year ended December 31, 2018 and the Company's other periodic filings available at www.sedar.com. These factors are not intended to represent a complete list of the factors that could affect MAV Beauty Brands; however, these factors should be considered carefully. There can be no assurance that such estimates and assumptions will prove to be correct. The forward-looking statements contained in this press release are made as of the date of this press release, and MAV Beauty Brands expressly disclaims any obligation to update or alter statements containing any forward-looking information, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by law.

Q3 2019 Compared to Q3 2018

(in thousands of US dollars) (unaudited)


Q3 2019


Q3 2018


$ Change


% Change

Consolidated statements of operations and














comprehensive income (loss):














Revenue



28,368



26,175



2,193



8.4

%

Cost of sales



14,243



14,577



(334)



-2.3

%

Gross profit



14,125



11,598



2,527



21.8

%















Expenses














Selling and administrative



6,276



5,901



375



6.4

%

Amortization and depreciation



884



783



101



12.9

%

Interest and accretion



1,787



7,736



(5,949)



-76.9

%

Foreign exchange (gain) loss



190



4



186



nmf


Integration, restructuring, and other



395



5,612



(5,217)



-93.0

%




9,532



20,036



(10,504)



-52.4

%

Income (loss) before income taxes



4,593



(8,438)



13,031



nmf


Income tax expense (recovery)














Current



627





627



nmf


Deferred



1,027



(1,763)



2,790



nmf





1,654



(1,763)



3,417



nmf


Net income (loss) and comprehensive  














income (loss) for the period



2,939



(6,675)



9,614



nmf


EBITDA (1)



7,264



81



7,183



nmf


Adjusted EBITDA (1)



8,476



7,271



1,205



16.6

%

Adjusted Net Income (1)



3,842



(1,318)



5,160



nmf


 

(in thousands of US dollars) (unaudited)


YTD Q3 2019


YTD Q3 2018


$ Change


% Change

Consolidated statements of operations and














comprehensive income (loss):














Revenue



77,708



65,007



12,701



19.5

%

Cost of sales



39,268



35,641



3,627



10.2

%

Gross profit



38,440



29,366



9,074



30.9

%















Expenses














Selling and administrative



20,294



15,317



4,977



32.5

%

Amortization and depreciation



2,692



2,220



472



21.3

%

Interest and accretion



5,482



15,746



(10,264)



-65.2

%

Foreign exchange gain



96



(147)



243



-165.3

%

Integration, restructuring, and other



2,186



11,204



(9,018)



-80.5

%




30,750



44,340



(13,590)



-30.6

%

Income (loss) before income taxes



7,690



(14,974)



22,664



nmf


Income tax expense (recovery)














Current



627





627



nmf


Deferred



1,802



(3,463)



5,265



nmf





2,429



(3,463)



5,892



nmf


Net income (loss) and comprehensive














income (loss) for the period



5,261



(11,511)



16,772



nmf


EBITDA (1)



15,864



2,992



12,872



430.2

%

Adjusted EBITDA (1)



20,986



18,835



2,151



11.4

%

Adjusted Net Income (1)



9,077



293



8,784



2998.0

%



(1)

  See "Non-IFRS Measures"

 

(in thousands of US dollars) (unaudited)


Q3 2019


Q3 2018


YTD Q3 2019


YTD Q3 2018

Consolidated statements of operations and













comprehensive income (loss):



2,939



(6,675)



5,261



(11,511)

Income (recovery) tax expense



1,654



(1,763)



2,429



(3,463)

Interest and accretion



1,787



7,736



5,482



15,746

Amortization and deprecation



884



783



2,692



2,220

EBITDA



7,264



81



15,864



2,992

Integration, restructuring, and other

(1)


395



5,648



2,186



11,517

Purchase accounting adjustments

(2)




297





2,727

Share-based compensation

(3)


642



974



2,813



1,185

Unrealized foreign exchange (gain) loss



175



271



123



414

Adjusted EBITDA



8,476



7,271



20,986



18,835










(in thousands of US dollars) (unaudited)


Q3 2019


Q3 2018


YTD Q3 2019


YTD Q3 2018

Consolidated statements of operations and













comprehensive income (loss):



2,939



(6,675)



5,261



(11,511)

Integration, restructuring, and other

(1)


395



5,648



2,186



11,517

Purchase accounting adjustments

(2)




297





2,727

Share-based compensation

(3)


642



974



2,813



1,185

Unrealized foreign exchange (gain) loss



175



271



123



414

Tax impact of the above adjustments



(309)



(1,833)



(1,306)



(4,039)

Adjusted Net Income



3,842



(1,318)



9,077



293



(1)

Refer to Note 10 to the unaudited condensed consolidated interim financial statements for further details.



(2)

In conjunction with the 2018 Acquisitions, the fair value adjustment of inventory as part of the initial purchase price allocation was expensed to cost of sales as the inventories were sold.



(3)

Represents recognition of share-based payments, which have been accounted for as selling and administrative expenses.

 

SOURCE MAV Beauty Brands Inc.

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