MAV Beauty Brands reports second quarter 2019 financial results

• Revenue of $25.2 million for the quarter, up 10.3% over Q2 2018
• Adjusted EBITDA of $6.3 million for the quarter, versus $6.7 million in Q2 2018, reflecting additional public company costs
• Gross Profit Margin of 49.0% for the quarter, compared with 42.9% in Q2 2018
• Net Income of $1.2 million ($0.03 per share), up from a net loss of $3.0 million ($0.21 loss per share) in Q2 2018
• Free cash flow increases to $0.8 million for the quarter, up $4.6 million over Q2 2018

VAUGHAN, ON, Aug. 7, 2019 /CNW/ - MAV Beauty Brands Inc. ("MAV Beauty Brands" or the "Company"), a high-growth global personal care company, today announced its financial results for the three and six months ended June 30, 2019. 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).

"Our brands continue to demonstrate growth well in excess of the category average, driven by robust consumer demand for independent masstige brands, as well as our success in expanding shelf space through innovation and cross-selling," said Marc Anthony Venere, Founder and Chief Executive Officer of MAV Beauty Brands. "We are at the early stages of a long-term growth plan and see significant room for continued organic growth, both in haircare and adjacent beauty categories."  

Tim Bunch, President and Chief Revenue Officer, added: "With 13% sales growth in the quarter, our North American business continues to perform well and is positioned for accelerating growth in the second half of the year. Cake Beauty has been a standout, and the brand's rapid expansion clearly demonstrates the power of our global operating platform. From one retailer a year ago, the brand is now in nine markets and 19 retailers, highlighted by the recent entry into the UK."

Selected Financial Information⁽¹⁾

(in thousands of US dollars except per share amounts)	Q2 2019	Q2 2018
(unaudited)
Revenue	25,236	22,873
Gross profit	12,356	9,809
Net income (loss) and comprehensive	1,217	(2,963)
income (loss) for the period
Earnings per Share (basic)	0.03	(0.21)
EBITDA	4,515	1,168
Adjusted EBITDA	6,301	6,679
Adjusted Net Income	2,548	1,143
Adjusted Earnings per Share (diluted)	0.06	0.04

(1)	See "Non-IFRS Measures"

Q2 2019 Business and Financial Review 

Delivering on its primary growth strategy, MAV Beauty Brands used winning innovation to further expand shelf and door presence for all three brands in the first half of 2019. Sales continued to accelerate in Q2 2019 through increased consumer engagement and marketing activity.

MAV Beauty Brands' 2019 Innovation is Expanding Distribution Footprint and Building Sales. Highlights include: 

• Marc Anthony True Professional showed strong growth in Q2 2019 with the new collection of Dream Big Volume masstige hair products. This collection has launched in more than 20,000 retail locations globally.
• Renpure's new "Plant Based Beauty" collection was launched with new packaging, formulations and a global-reaching social media, influencer and PR campaign. With a differentiated positioning of products with plant-based ingredients that perform and are sold at a fair price, Renpure's new collections can be found across major North American retailers including premium natural retailers that set the standard for natural products. 

MAV Beauty Brands continues to make meaningful progress with its second core strategy to cross-sell its brands to existing retailer partners. Cake Beauty launched nationally with two U.S. retailers in the second half of 2018 – resulting in an approximately 15-fold increase in the brand's distribution – and early results from these launches have been encouraging. In addition, we are leveraging our strong relationships and go-to-market capabilities to bring the brand global. Since acquiring the brand, we have expanded sales to Mexico, Colombia, South Africa, Turkey and, in Q2 2019, Cake shipped to Russia, Chile and a whitespace territory of UK at Boots.

MAV Beauty Brands sees a significant opportunity to continue to extend its reach into additional
international geographies. Over the past 12 months, MAV Beauty Brands entered 8 new markets – bringing the total international reach to 32 countries at the end of Q2 2019 – and the Company has invested in a new global sales structure. In Q2 2019, MAV Beauty Brands expanded its global footprint as it entered Poland and the UK and the Company continued to experience strong results from its new e-commerce business in China. While these developments have established a strong platform for future growth, sales have taken longer than expected to ramp based on the timing of shipments into new markets and economic volatility in select markets. As a result, international revenue declined year-over-year in Q2 2019.  

In Q2 2019, MAV Beauty Brands delivered revenue of $25.2 million, an increase of 10.3% over Q2 2018. The growth was driven by a 12.9% increase in revenue from North America, which reached $22.6 million in Q2 2019, compared with $20.0 million in Q2 2018. International revenue, which represents approximately 10% of total revenue, decreased by $300,000 versus the same period last year.

Q2 2019 gross profit was $12.4 million, an increase of 26.0% compared with gross profit of $9.8 million in Q2 2018. Gross profit margins increased to 49.0% in Q2 2019, compared to 46.3% in Q4 2018. Management continues to take steps to improve gross margins through cost efficiencies in manufacturing, procurement and distribution and bringing to market innovation with improved cost structure.

Adjusted EBITDA was $6.3 million in Q2 2019 (25.0% of revenue), compared with Adjusted EBITDA of $6.7 million in Q2 2018 (29.2% of revenue). The year-over-year change is primarily due to planned increases in operating expenses to support the public listing and growth plans and growing organization. The Company anticipates accelerating growth in Adjusted EBITDA in the second half of 2019 and expects to benefit from operating leverage over time (see "Non-IFRS Measures" below).

Adjusted net income increased to $2.5 million in Q2 2019, compared with Adjusted net income of $1.1 million in Q2 2018. Adjusted earnings per share (diluted) was $0.06 per share in Q2 2019, compared with $0.04 per share in Q2 2018 (see "Non-IFRS Measures" below). During Q2 2019 and up until August 6, 2019, the Company purchased and cancelled 729,448 shares under its Normal Course Issuer Bid ("NCIB").

Free cash flow increased to $0.8 million in Q2 2019, compared to $(3.9) million in Q2 2018. The year-over-year growth reflects increased cash from operating activities of $6.3 million, offset by additional capital expenditures resulting from one-time investments in the construction of new corporate offices and a new, appropriately scaled ERP system (see "Non-IFRS Measures" below).

Outlook

Based on the year-to-date performance, MAV Beauty Brands is expecting to deliver results at the lower end of the stated guidance range for 2019. In the second half of fiscal 2019, the Company expects continued strong organic sales growth well in excess of the category average for consumer personal care companies. In addition, the Company expects increasing Adjusted EBITDA, driven by higher revenues, improvements in cost of goods sold, and SG&A expense remaining near current levels. Free cash flow in the second half of 2019 will also benefit from reduced capital expenditures. The primary use of free cash flow is to accelerate debt repayment. See "Forward-Looking Statements".  

Q2 2019 Financial Statements and Management's Discussion and Analysis

The Company's unaudited condensed consolidated interim financial statements for the three- and six-month periods ended June 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 second quarter financial results at 8:30 a.m. EDT on August 7, 2019. 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 [phone] or [phone] using the conference ID  22043116. The audio webcast can be accessed at investors.mavbeautybrands.com https://bit.ly/2mutHer. Listeners should access the webcast or call 10-15 minutes before the start time to ensure they are connected.

About MAV Beauty Brands

MAV Beauty Brands is a high-growth 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 and Cake Beauty. 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 "Q2 2019 Compared to Q2 2018".

Implicit in forward-looking statements in respect of the Company's outlook for Fiscal 2019, are certain current assumptions, including, among others, continued growth rates for retail sales in the global personal care industry and hair and body care categories in line with the past three years; continued introduction of new products and product extensions that appeal to consumers and our retail and distribution partners; overall shelf space growth of each of our brands continuing in line with historical growth rates for these brands; overall sales velocity of our products remaining in line with historical sales velocity for our products; the Company's sales mix shifting to lower margin Renpure products, retail partners maintaining sales growth and foot traffic in line with their sales growth and foot traffic for the past three years; maintaining our existing retailer and international distribution partners and growing sales to these partners as a result of our cross selling initiatives; interest and inflation rates consistent with historical levels; maintaining selling & administrative expenses as a percentage of revenue in the range of 19% and 21%; maintaining our asset light business model with minimal annual capital expenditures as a percentage of annual revenue. 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.

Management currently believes that the achievement of the Company's Fiscal 2019 financial guidance can be reasonably estimated and is based on underlying assumptions that management believes are reasonable in the circumstances, given the time period for such guidance. However, there can be no assurance that we will be able to increase our penetration with existing retailers, either by increasing the number of products that we sell in their stores or by selling our products in more of their stores, or that we will be able to successfully cross sell our products or extend our reach into new international markets at levels underlying our financial guidance. Furthermore, actual results or performance in the future may vary from our assumptions referred to above.

"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.

Forward-Looking Information

Certain information in this press release, including statements relating to expansion in the international market, continued improvement in gross margins and accelerating free cash flow during 2019, expected organic sales growth and increasing Adjusted EBITDA in the second half of 2019 and delivering results within the stated guidance range for 2019, 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.

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 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 2019 Compared to Q2 2018

(in thousands of US dollars) (unaudited)	Q2 2019		Q2 2018		$ Change		% Change
Consolidated statements of operations and
comprehensive income (loss):
Revenue	25,236		22,873		2,363		10.3	%
Cost of sales	12,880		13,064		(184)		-1.4	%
Gross profit	12,356		9,809		2,547		26.0	%
Expenses
Selling and administrative	7,119		5,281		1,838		34.8	%
Amortization and depreciation	961		777		184		23.7	%
Interest and accretion	1,793		5,106		(3,313)		-64.9	%
Foreign exchange (gain) loss	(11)		169		(180)		nmf
Integration, restructuring, and other	733		3,191		(2,458)		-77.0	%
	10,595		14,524		(3,929)		-27.1	%
Income (loss) before income taxes	1,761		(4,715)		6,476		nmf
Income tax expense (recovery)
Deferred	544		(1,752)		2,296		nmf
	544		(1,752)		2,296		nmf
Net income (loss) and comprehensive	1,217		(2,963)		4,180		nmf
income (loss) for the period
EBITDA ^(1)	4,515		1,168		3,347		286.6	%
Adjusted EBITDA ^(1)	6,301		6,679		(378)		-5.7	%
Adjusted Net Income ^(1)	2,548		1,143		1,405		122.9	%

(1)	See "Non-IFRS Measures"

(in thousands of US dollars) (unaudited)		Q2 2019				Q2 2018				YTD Q2 2019				YTD Q2 2018
Consolidated statements of operations and
comprehensive income (loss):			1,217				(2,963)				2,322				(4,836)
Income (recovery) tax expense			544				(1,752)				775				(1,700)
Interest and accretion			1,793				5,106				3,695				8,010
Amortization and deprecation			961				777				1,808				1,437
EBITDA			4,515				1,168				8,600				2,911
Integration, restructuring, and other	(1)		733				3,248				1,791				5,869
Purchase accounting adjustments	(2)		—				1,946				—				2,430
Share-based compensation	(3)		1,078				132				2,171				211
Unrealized foreign exchange gain			(25)				185				(52)				143
Adjusted EBITDA			6,301				6,679				12,510				11,564
(in thousands of US dollars) (unaudited)		Q2 2019				Q2 2018				YTD Q2 2019				YTD Q2 2018
Consolidated statements of operations and
comprehensive income (loss):			1,217				(2,963)				2,322				(4,836)
Integration, restructuring, and other	(1)		733				3,248				1,791				5,869
Purchase accounting adjustments	(2)		—				1,946				—				2,430
Share-based compensation	(3)		1,078				132				2,171				211
Unrealized foreign exchange gain			(25)				185				(52)				143
Tax impact of the above adjustments			(455)				(1,405)				(997)				(2,206)
Adjusted Net Income			2,548				1,143				5,235				1,611

(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.

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