MAV Beauty Brands Reports First Quarter 2020 Financial Results

• Revenue increases 30% year-over-year to $31.4 million
• Adjusted EBITDA grows 34% to $8.3 million
• Net Income of $1.2 million and Adjusted Net Income of $3.6 million, a 35% increase over Q1 2019

VAUGHAN, ON, June 5, 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 months ended March 31, 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).

"We thank our dedicated team and extended partners for their efforts in recent months. It has been a difficult period, but we have and will continue to do our best to serve our consumers and retail partners," said Tim Bunch, President & CEO of MAV Beauty Brands. "Our first-quarter sales and Adjusted EBITDA showed strong year-over-year increases from healthy organic growth and the addition of The Mane Choice. First-quarter sales reflect the positive impact of 2020 shelf gains, and we believe also benefited from consumers stocking up on essential items as the majority of our North American food, drug, and mass retailers have remained open during lockdowns. These positive drivers, combined with higher e-commerce sales, offset headwinds we experienced in the quarter, including the initial impact of store closures in specialty beauty and softness in our international business."

"While we operate in a resilient category, we expect that industry-wide haircare sales will be affected in the near term from reduced retail traffic and other factors. As we navigate this period, we will continue to take appropriate steps to mitigate the impacts to our operations and financial results."

Selected Financial Highlights⁽¹⁾⁽²⁾  

(in thousands of US dollars except per share amounts) (unaudited)		Q1 2020	Q1 2019
Revenue		31,382	24,104
Gross profit		14,394	11,959
Net income (loss) for the period		1,235	1,105
Earnings per Share (basic)		0.03	0.03
Adjusted EBITDA		8,314	6,209
Free Cash Flow		(2,925)	337
Adjusted Net Income		3,619	2,687
Adjusted Earnings per Share (basic)		0.10	0.07

(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.

Q1 2020 Financial Review 

Revenue for Q1 2020 increased by 30% over the prior year to $31.4 million, driven by the continued organic growth of the Company's brands within existing North American retailer partners, led by Marc Anthony True Professional, and the addition of The Mane Choice (acquired in November 2019) . These factors offset lower international sales and the initial impact of COVID-19 on certain of our retail partners, among other factors.

Revenue from North America was $30.2 million in Q1 2020, up 34% from $22.5 million in Q1 2019. The Company continues to leverage its operating platform and innovation engine to support the success of its brands. Recent highlights include: Cake Beauty's expanded distribution at its flagship U.S. drug retailer with a second shelf and its launch in a U.S. specialty beauty retailer; The Mane Choice launched in a key mass retailer in Canada and a U.S. specialty beauty retailer; and Renpure broadened its distribution footprint in Canada.

Revenue from international markets was $1.2 million, down from $1.6 million in the prior period due primarily to the impact of COVID-19 in March, which immediately delayed product shipments.

Q1 2020 gross profit, as reported, was $14.4 million, compared with $12.0 million last year, and gross profit margins were 45.9% in Q1 2020. Excluding the purchase accounting adjustments for The Mane Choice acquisition, gross profit margin was 51.1% for Q1 2020, compared to 49.6% in the prior period.

Q1 2020 Adjusted EBITDA increased by 34% to $8.3 million (26.5% of revenue), from Adjusted EBITDA of $6.2 million in Q1 2019 (25.8% of revenue), reflecting higher revenue and gross profit (see "Non-IFRS Measures" below).

In Q1 2020, the Company reported net income of $1.2 million, compared to net income of $1.1 million in Q1 2019. Adjusted net income increased by 35% to $3.6 million, compared with Adjusted net income of $2.7 million in Q1 2019, in line with the growth of Adjusted EBITDA. Adjusted earnings per share (basic) was $0.10 per share in Q1 2020, compared with $0.07 per share in Q1 2019, reflecting the factors discussed above (see "Non-IFRS Measures" below).

Free Cash Flow was ($2.9) million in Q1 2020, compared with $0.3 million in Q1 2019 (see "Non-IFRS Measures" below). Free cash flow for Q1 2020 reflects increased working capital requirements in the period, principally higher receivables as a result of year-over-year revenue growth and temporary delays in customer invoicing following the implementation of a new ERP system at the start of 2020. Management believes this is a one-time issue related to the ERP implementation. This has been addressed and the Company is seeing improvements in the second quarter. In addition, the Company took proactive steps to ensure healthy inventory levels across the portfolio to avoid potential supply shortages due to COVID-19. On a Pro Forma basis, including the results of The Mane Choice for the trailing 12 months, the Company's Net Debt-to-Adjusted EBITDA ratio was approximately 4.0 times at quarter end.

COVID-19 Response

MAV Beauty Brands operates in what has historically been a recession-resilient category, and our objective remains to deliver above-category growth and increased market share over time from our portfolio of four brands. While we are facing an extraordinary and uncertain business environment as a result of COVID-19, we are actively taking steps to mitigate potential impacts to our business:

• To ensure the health and safety of our employees, we have moved to a virtual working environment. Team productivity and morale remain strong even through these difficult times.
• Our products are manufactured in North America through a diverse set of third-party suppliers, many of which continue to be deemed essential workplaces. Our operations team has taken steps to minimize potential supply chain disruptions, including identifying and readying additional suppliers, increasing the inventory of finished goods and components, and temporarily increasing finished goods inventory on core SKUs. We have experienced some delays in the availability of packaging and components for Cake Beauty; however, there were no material effects in the first quarter. We continue to monitor the supply chain closely to mitigate potential risks to our business.
• In light of the near-term sales impact from COVID-19, at the end of the first quarter, we swiftly reduced operating expenses, particularly discretionary expenses, which will be evident beginning in Q2 2020. In addition, our capital expenditures are expected to be significantly lower in 2020.
• While e-commerce represents a small part of our business today, the current crisis has led to a strong acceleration in e-commerce sales. We have invested in our capabilities in recent years and will continue to add resources and investments as required to support profitable sales growth. For Q1 2020, e-commerce sales more than doubled over the prior year. 

Q1 2020 Financial Statements and Management's Discussion and Analysis

The Company's unaudited consolidated interim financial statements for the three-month period ended March 31, 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.

Conference Call & Webcast

MAV Beauty Brands will host a conference call to discuss its Fiscal 2020 first quarter financial results at 8:30 a.m. EDT on June 5, 2020. The call will be hosted by Tim Bunch, President & CEO, and Judy Adam, CFO. To participate in the call, dial [phone] or [phone] (using the conference ID 82365746). 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 "Q1 2020 Compared to Q1 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 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 COVID-19 public health crisis on the Company's operations and ability to serve its consumers and retail partners, the impact to industry-wide haircare sales, the impact of COVID-19 on e-commerce sales, the expected impact on the supply of the Company's products to its retail partners. 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.

Q1 2020 Compared to Q1 2019

(in thousands of US dollars) (unaudited)	Q1 2020		Q1 2019		$ Change		% Change
Consolidated statements of operations:
Revenue		31,382		24,104		7,278		30.2%
Cost of sales		16,988		12,145		4,843		39.9%
Gross profit		14,394		11,959		2,435		20.4%
Expenses
Selling and administrative		8,291		6,899		1,392		20.2%
Amortization and depreciation		1,029		847		182		21.5%
Interest and accretion		2,042		1,902		140		7.4%
Foreign exchange gain		(471)		(83)		(388)		nmf
Integration, restructuring, and other		1,460		1,058		402		38.0%
		12,351		10,623		1,728		16.3%
Income before income taxes		2,043		1,336		707		52.9%
Income tax expense
Current		84		—		84		nmf
Deferred		724		231		493		213.4%
		808		231		577		249.8%
Net income for the period		1,235		1,105		130		11.8%
EBITDA ^(1)		5,114		4,085		1,029		25.2%
Adjusted EBITDA ^(1)		8,314		6,209		2,105		33.9%
Adjusted Net Income ^(1)		3,619		2,687		932		34.7%

(1)	See "Non-IFRS Measures".

(in thousands of US dollars) (unaudited)		Q1 2020			Q1 2019
Consolidated net income:				1,235			1,105
Income tax expense				808			231
Interest and accretion				2,042			1,902
Amortization and deprecation				1,029			847
EBITDA				5,114			4,085
Integration, restructuring, and other	(1)			1,460			1,058
Purchase accounting adjustments	(2)			1,657			—
Share-based compensation	(3)			629			1,093
Unrealized foreign exchange gain				(546)			(27)
Adjusted EBITDA				8,314			6,209

(in thousands of US dollars) (unaudited)		Q1 2020			Q1 2019
Consolidated net income:				1,235			1,105
Integration, restructuring, and other	(1)			1,460			1,058
Purchase accounting adjustments	(2)			1,657			—
Share-based compensation	(3)			629			1,093
Unrealized foreign exchange gain				(546)			(27)
Tax impact of the above adjustments				(816)			(542)
Adjusted Net Income				3,619			2,687

(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)	Q1 2020		Q1 2019		$ Change		% Change
Cash, beginning of period		5,672		5,841		(169)		-2.89%
Cash flows (used in)
Operating activities		(2,647)		850		(3,497)		nmf
Investing activities		(1,814)		(1,289)		(525)		40.73%
Financing activities		3,000		(1,085)		4,085		nmf
Cash, end of period		4,211		4,317		(106)		-2.46%
Free cash flow and Adjusted free cash flow^(1)		(2,925)		337		(3,262)		nmf

(1)	See "Non-IFRS Measures".

SOURCE MAV Beauty Brands Inc.

Craig Armitage, Investor Relations, [email protected], [phone]