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MAV Beauty Brands Reports Second Quarter 2020 Financial Results

August 14, 2020
  • Total revenue increased 17% year-over-year to $29.6 million and revenue from North America grew 24% to $28.1 million
  • Adjusted EBITDA rose 28% to $8.1 million
  • Free Cash Flow increased to $7.1 million in Q2 2020
  • Net Income of $1.6 million; Adjusted Net Income of $4.0 million, a 59% increase over Q2 2019

VAUGHAN, ON, Aug. 14, 2020 /CNW/ - MAV Beauty Brands Inc. ("MAV Beauty Brands" or the "Company") (TSX: MAV), a global personal care company, today announced its financial results for the three and six months ended June 30, 2020. 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).

"In an extraordinary business environment, MAV reported solid second quarter financial results, highlighted by 28% growth in Adjusted EBITDA, steadily increasing gross margins, and improved free cash flow," said Tim Bunch, President & CEO of MAV Beauty Brands. "Our platform consists of a diversified portfolio of brands in durable categories, selling through essential channels. We believe these attributes provide our business with considerable resilience, and this was evident in the second quarter. We experienced some impact from the general slowdown in retailer traffic as well as store closures in specialty beauty. However, this was mitigated by the fact that the majority of our North American food drug, and mass retailers remained open during the COVID-19 emergency measures. We also experienced an accelerating shift online, and the investments we have made in this area over the prior year served us well, with sales from e-commerce channels more than doubling year over year."

"We believe MAV is well prepared to navigate an uncertain business environment in the months ahead and outperform the category over time. We continue to prioritize the well-being of our employees, meeting the needs of our retailers and consumers, and ensuring our portfolio of brands emerge from this period well positioned for continued growth." 

Selected Financial Highlights(1)(2)  

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

Q2 2020

Q2 2019

YTD 2020

YTD 2019






Revenue

29,638

25,236

61,020

49,340

Gross profit

14,526

12,356

28,920

24,315

Net income (loss) for the period

1,604

1,217

2,839

2,322

Earnings per Share (basic)

0.04

0.03

0.08

0.06

Adjusted EBITDA

8,059

6,301

16,373

12,510

Free Cash Flow and Adjusted Free Cash Flow

7,146

778

4,221

1,115

Adjusted Net Income 

4,039

2,548

7,658

5,235

Adjusted Earnings per Share (basic)

0.11

0.07

0.21

0.14



(1)

See "Non-IFRS Measures"

(2)

Basic Earnings per Share and Adjusted Earnings per Share calculations do not include the impact of 2,463,963 shares issuable upon the exchange of the units issued as part of The Mane Choice acquisition

Q2 2020 Financial Review

Q2 2020 revenue increased by 17% over the comparable period last year to $29.6 million. The primary driver of year-over-year growth was the acquisition of The Mane Choice in late 2019; however, the Company also had solid results from the other brands in its portfolio. The majority of our North American food, drug, and mass retailers remained open during the COVID-19 emergency measures, which mitigated the impact of temporary store closures in specialty beauty, reduced retailer traffic overall, and softness in our international business.

Revenue from North America was $28.1 million in Q2 2020, up 24% from $22.6 million in Q2 2019. In addition to the growth from the acquisition of The Mane Choice, the Company continues to leverage its operating platform and innovation engine to support the success of each of its brands. Recent highlights include: E-commerce sales continued to grow strongly across the portfolio, more than doubling over the prior year; Cake Beauty expanded distribution at its flagship U.S. drug retailer with a second shelf and  launched in a U.S. specialty beauty retailer; and Renpure broadened its distribution footprint in Canada. Revenue from international markets was $1.6 million, down from $2.6 million in the prior period, due primarily to the impacts of COVID-19, including store closures and logistics challenges that have delayed product shipments.   

Q2 2020 gross profit, as reported, increased 18% to $14.5 million, compared with $12.4 million last year. Excluding the purchase accounting adjustments for The Mane Choice acquisition, gross profit margin improved to 51.3% for Q2 2020, compared with 49.0% in the prior period, reflecting product cost savings and the addition of The Mane Choice to the portfolio.

Q2 2020 Adjusted EBITDA increased by 28% to $8.1 million (27.2% of revenue), from Adjusted EBITDA of $6.3 million in Q2 2019 (25.0% of revenue), as a result of higher revenue and gross profit (see "Non-IFRS Measures" below).

In Q2 2020, the Company reported net income of $1.6 million, compared to $1.2 million in Q2 2019. Adjusted net income increased by 59% to $4.0 million, compared with Adjusted net income of $2.5 million in Q2 2019, in line with the growth of Adjusted EBITDA. Adjusted earnings per share (basic) was $0.11 per share in Q2 2020, up from $0.07 per share in Q2 2019, reflecting the factors discussed above (see "Non-IFRS Measures" below).

Free Cash Flow was $7.1 million in Q2 2020, compared with $0.8 million in Q2 2019 (see "Non-IFRS Measures" below). In addition to Adjusted EBITDA growth, higher free cash flow in the current period largely reflects a significant reduction in receivables following temporary delays in customer invoicing resulting from the implementation of a new ERP system at the start of 2020, which was previously discussed with the Company's Q1 2020 results. During Q2 2020, the Company paid $4.0 million for the 2019 earnout included in The Mane Choice acquisition.

On a Pro Forma basis, including the results of The Mane Choice for the trailing 12 months, the Net Debt-to-Adjusted EBITDA ratio was also approximately 4.0 times at quarter end. The Company intends to use Free Cash Flow to reduce debt and lower its leverage ratio over time (see "Non-IFRS Measures" below). 

Q2 2020 Financial Statements and Management's Discussion and Analysis

The Company's unaudited consolidated interim financial statements for the three- and six-month periods ended June 30, 2020 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.

Annual General Meeting

This year, to mitigate risks to the health and safety of our communities, shareholders, employees and other stakeholders resulting from the COVID-19, the Company intends to hold its annual general meeting of shareholders in a virtual-only format in November, 2020.

Conference Call & Webcast

MAV Beauty Brands will host a conference call to discuss its Fiscal 2020 second quarter financial results at 8:30 a.m. EDT on August 14, 2020. The call will be hosted by Tim Bunch, President & CEO, and Judy Adam, CFO. To participate in the call, dial (416) 764-8659 or (888) 664-6392 (using the conference ID 08451593). 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.

About MAV Beauty Brands (TSX:MAV)

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 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 30 countries around the world and in more than 100 major retailers.

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", "Free Cash Flow" and "Net debt-to-Adjusted EBITDA". 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 "Q2 2020 Compared to Q2 2019" and "YTD 2020 Compared to YTD 2019".

"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 Free Cash Flow" is calculated as free cash flow adjusted to add back acquisition related costs which are included in cash provided by operating activities. We believe Adjusted free cash flow is a useful measure to assess the Company's ability to repay debt, finance strategic business acquisitions and investments, pay dividends and repurchase shares. It also facilitates period-to-period comparisons.  

"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).

"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.

''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.

"Net debt and Net debt-to-Adjusted EBITDA" net debt is calculated as long-term debt before unamortized deferred financing costs less cash as reported in the consolidated statements of financial position. Net debt-to-Adjusted EBITDA is calculated as net debt divided by Adjusted EBITDA for the four trailing quarters. Net debt is an important measure as it reflects the principal amount of debt owing by the Company as at a particular date. Net debt-to-Adjusted EBITDA is an important measure of the Company's liquidity. References to such calculation on a pro forma basis gives effect to the acquisition of The Mane Choice as if it occurred on January 1, 2019.

In addition, pro forma information regarding The Mane Choice 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 the expected impact of the Company's ability to navigate the business environment during the COVID-19 pandemic and outperform the category over time, COVID-19 public health crisis on the Company's operations and ability to serve its consumers and retail partners, the impact of COVID-19 on e-commerce sales, the expected impact on the supply of the Company's products to its retail partners and the intended use of the Company's Free Cash Flow. 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.

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 on or about March 30, 2020 for the year ended December 31, 2019 and the Company's other periodic filings made 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. 

Q2 2020 Compared to Q2 2019

(in thousands of US dollars) (unaudited)

Q2 2020

Q2 2019

$ Change

% Change

Consolidated statements of operations:





Revenue

29,638

25,236

4,402

17.4%

Cost of sales

15,112

12,880

2,232

17.3%

Gross profit

14,526

12,356

2,170

17.6%






Expenses





Selling and administrative

7,780

7,119

661

9.3%

Amortization and depreciation

1,039

961

78

8.1%

Interest and accretion

1,776

1,793

(17)

-0.9%

Foreign exchange loss (gain)

240

(11)

251

nmf

Integration, restructuring, and other

1,715

733

982

134.0%


12,550

10,595

1,955

18.5%

Income before income taxes

1,976

1,761

215

12.2%

Income tax expense (recovery)





Current

(40)

(40)

nmf

Deferred

412

544

(132)

-24.3%


372

544

(172)

-31.6%

Net income for the period

1,604

1,217

387

31.8%

EBITDA (1)

4,791

4,515

276

6.1%

Adjusted EBITDA (1)

8,059

6,301

1,758

27.9%

Adjusted Net Income (1)

4,039

2,548

1,491

58.5%


(1) See "Non-IFRS Measures"

 

(in thousands of US dollars) (unaudited)


Q2 2020

Q2 2019

YTD Q2 2020

YTD Q2 2019

Consolidated net income:


1,604

1,217

2,839

2,322

Income tax expense


372

544

1,180

775

Interest and accretion


1,776

1,793

3,818

3,695

Amortization and deprecation


1,039

961

2,068

1,808

EBITDA


4,791

4,515

9,905

8,600

Integration, restructuring, and other

(1)

1,715

733

3,175

1,791

Purchase accounting adjustments

(2)

664

2,321

Share-based compensation

(3)

646

1,078

1,275

2,171

Unrealized foreign exchange loss (gain)


243

(25)

(303)

(52)

Adjusted EBITDA


8,059

6,301

16,373

12,510

 

(in thousands of US dollars) (unaudited)


Q2 2020

Q2 2019

YTD Q2 2020

YTD Q2 2019

Consolidated net income:


1,604

1,217

2,839

2,322

Integration, restructuring, and other

(1)

1,715

733

3,175

1,791

Purchase accounting adjustments

(2)

664

2,321

Share-based compensation

(3)

646

1,078

1,275

2,171

Unrealized foreign exchange loss (gain)


243

(25)

(303)

(52)

Tax impact of the above adjustments


(833)

(455)

(1,649)

(997)

Adjusted Net Income


4,039

2,548

7,658

5,235



(1)

Refer to Note 9 to the unaudited condensed consolidated interim financial statements for further details.

(2)

In conjunction with the 2019 Acquisition, 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.

 

(in thousands of US dollars) (unaudited)

Q2 2020

Q2 2019

YTD Q2 2020

YTD Q2 2019

Cash provided by (used in) operating activities

7,687

2,347

5,040

3,197

Less: purchase of property and equipment

(541)

(1,569)

(819)

(2,082)

Free cash flow and Adjusted free cash flow

7,146

778

4,221

1,115


(1) See "Non-IFRS Measures"

 

SOURCE MAV Beauty Brands Inc.

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