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Edited Transcript of REV earnings conference call or presentation 10-Mar-20 12:30pm GMT

Q4 2019 Revlon Inc Earnings Call

NEW YORK Mar 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Revlon Inc earnings conference call or presentation Tuesday, March 10, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Debra G. Perelman

Revlon, Inc. - President, CEO & Director

* Eric Warren

Revlon, Inc. - VP, Treasurer & Head-IR

* Sergio Pedreiro

Revlon, Inc. - COO

* Victoria L. Dolan

Revlon, Inc. - CFO

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Conference Call Participants

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* Hale Holden

Barclays Bank PLC, Research Division - MD

* Jenna Loren Giannelli

Goldman Sachs Group Inc., Research Division - Fixed Income Analyst

* Mary Ross Gilbert

Imperial Capital, LLC, Research Division - MD of Institutional Research Group

* Sarah Clark

JP Morgan Chase & Co, Research Division - High Yield Credit Research Analyst

* Stephanie Marie Schiller Wissink

Jefferies LLC, Research Division - Equity Analyst and MD

* William Michael Reuter

BofA Merrill Lynch, Research Division - MD

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Presentation

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Operator [1]

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Hello, and welcome to the Revlon Fourth Quarter 2019 Earnings Call. My name is Mahan, and I'll be your coordinator for today's event. (Operator Instructions)

I will now hand you over to your host, Eric Warren, to begin today's conference. Thank you.

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Eric Warren, Revlon, Inc. - VP, Treasurer & Head-IR [2]

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Thank you, Mahan. Good morning, everyone, and thank you for joining the call. Yesterday, the company announced 3 important business updates, which we will be discussing on this call: first, we announced the new Revlon 2020 restructuring program designed to streamline our organization and generate significant cost reductions; second, we secured a commitment to refinance our 2021 senior notes for 2019 term loan as well as provide additional funding to the company; third, we announced our preliminary unaudited fourth quarter and full year 2019 financial results. If you've not already received a copy of the media release, a copy can be obtained on the company's website at revloninc.com.

On the call this morning are Debbie Perelman, our President and Chief Executive Officer; Sergio Pedreiro, our Chief Operating officer; and Victoria Dolan, our Chief Financial Officer.

The discussion today might include forward-looking statements that are based on current expectations and are provided pursuant to the Private Securities Litigation Reform Act of 1995. Information on factors that could affect actual results be causing to differ materially from such forward-looking statements is set forth in the company's SEC filings, including its 2019 Form 10-K, which the company expects to file with the SEC no later than March 12, 2020. The company undertakes no obligation to publicly update any forward-looking statements, except for the company's obligations under the U.S. federal securities laws.

Remarks today will include a discussion of certain GAAP and non-GAAP results. Consistent with past reporting practices, non-GAAP results excludes certain nonoperating items that are not directly attributable to the company's underlying operating performance. These adjusted measures are defined in the release and are also reconciled in the financial tables at the end of the release. Please also note that certain amounts provided throughout this call have been rounded. The call today should not be copied or recorded.

And with that, we'll turn the call over to Debbie.

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [3]

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Thank you, Eric, and good morning to everyone on the call.

Let me begin by saying that 2020 will continue to be a year of significant transformation for Revlon. Yesterday, we announced 2 important steps forward in strengthening our business and foundation for growth. First, we announced the new Revlon 2020 Restructuring Program building on the successful 2018 optimization program by which we were able to take out $95 million of costs in 2019. The goals of our new 2020 program includes building a stronger global business operations, enhancing our cost efficiency and improving our operating margin to continue accelerating the growth in our operating income and adjusted EBITDA that we saw in 2019. We expect this will deliver between $200 million and $230 million in annualized cost reductions by the end of 2022. Earlier this year, we hired Sergio Pedreiro as our new COO to lead this effort. We have hit the ground running, taking a 360-degree view of our operations.

Second, we also executed an agreement with Jefferies that will enable us to refinance all $500 million of our 2021 senior notes and all of our $200 million 2019 term loan which will address the company's near-term maturities, strengthen our capital structure and provide additional funding for the business. Both Victoria and Sergio will speak more about these 2 items later in the call. Yesterday, we also released our preliminary fourth quarter and 2019 full year results.

While we continue to see momentum in our strategic growth areas, 2019 was a challenging year for our company and our industry, particularly in North America. Reported fourth quarter net sales declined 6% or 5% on a constant currency basis driven primarily by declines in the Fragrances and Revlon segments, partially offset by net sales growth in the Elizabeth Arden segment.

Reported net sales include the impact of an ongoing issue of excessive coupon redemptions, which is currently estimated at $13 million and remains in dispute with a single U.S. mass retailer. Excluding this impact, net sales on a constant currency basis declined 3%. Despite a decline in net sales, our fourth quarter net income improved approximately $96 million driven by strong operating income growth and improvement in our effective tax rate.

For full year 2019, our operating income improved $146 million and adjusted EBITDA increased $28 million or 12% versus 2018, primarily as a result of improved business operations and the cost reductions delivered by our 2018 optimization program. We have been relentlessly focused on running our business smarter and driving cost reductions and greater efficiency throughout the organization. As I said earlier, these efforts will only accelerate this year with the launch of the Revlon 2020 Restructuring Program and a strength in capital structure as a result of the refinancing commitment.

Let's turn to some of our recent business highlights for full year 2019. In the U.S. mass channel, Revlon and Almay color cosmetics consumption, both outpaced the broader category as did Revlon hair color, demonstrating that our brands continue to resonate with our consumers. Revlon remains the leader in the lip category, the leader in Llongueras color cosmetics and Revlon ColorSilk, for me, is the #1 hair color product. Our leading position in lip is in large part due to our Revlon Super Lustrous and Ultra HD franchises. The 2019 relaunch of Revlon's Super Lustrous lip gloss catapulted Revlon to grab the leading position in the lip gloss subcategory.

In 2019, we launched 2 products within the Ultra HD franchise, lip mousse and vinyl lip polish, both of which have been very successful. Revlon also gained share in the brow and eyeshadow categories in 2019, in large part due to our Brow Creator and Looks Book eye palette launches.

We see the strength of the Revlon brand outside the U.S. as well. In 2019, Revlon color cosmetics grew constant currency adjusted net sales in the key regions of Australia, Argentina, Mexico, New Zealand, Spain, South Africa as well as in global Travel Retail.

Elizabeth Arden remains one of our strongest growth drivers and has experienced net sales growth in each quarter since we acquired the brand in 2016. Skin care continues to be a successful category for the Elizabeth Arden brands led by our franchises of Prevage and Ceramide, which both grew double digits in 2019 over the prior year. The Elizabeth Arden Ceramide franchise is the leader in the monodose category with growth driven by our classic Ceramide Advanced Capsule, our award-winning retinal capsule and our newest product, Vitamin C, which launched in 2019.

Fragrances is also an important category under Elizabeth Arden. And in 2019, we focused on growing our key pillars, including our classic Green Tea franchise as well as White Tea, both of which posted strong growth in 2019.

Few highlights within our portfolio segment. I would like to address, our American Crew and Mitchum. American Crew continues to be the leading men's grooming brand in the global professional channel. Globally, American Crew net sales grew 4% on a constant currency basis in 2019, driven in part by our iconic styling costs and our Matte Clay costs, the latest introduction to the collection.

Turning to Mitchum. This brand continues to perform extremely well in its key international regions of the U.K. and South Africa, where Mitchum is the #4 player in antiperspirant deodorant. And 2019 retail sales outpaced the broader category. In the women APDO category in the U.K., Mitchum moved up 1 ranking to capture the #3 position in 2019. We continued driving our digital transformation with e-commerce penetration approaching 10% of net sales and year-over-year growth just short of 50%.

In the fourth quarter of 2019, our e-commerce penetration was approximately 14% of net sales versus approximately 9% in the fourth quarter of 2018. Globally, our elizabetharden.com business grew 37% in 2019, and we continue to expand our international presence with this business.

We are very focused on continuing our momentum in many territories and channels, including Asia. Of course, we are monitoring the increasingly broad reach of coronavirus, both on our business and with regards to the health and safety of our employees. We continue to work to mitigate the impact on our business, and we'll have more to say during our first quarter 2020 earnings call.

We also continue to work with Goldman Sachs on the strategic alternatives process, which remains focused on exploring potential options for our portfolio and regional brands.

Now I'd like to turn the call over to Sergio to discuss our new Revlon 2020 Restructuring Program.

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Sergio Pedreiro, Revlon, Inc. - COO [4]

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Thank you, Debbie. I was thrilled to join the Revlon team earlier this year. In my short time here so far, I have seen firsthand the incredible work Revlon does every day to deliver the best products and services in the industry. The foundation of the business is strong. And with the transformative changes we are embarking on as part of the Revlon 2020 Restructuring Program, I am very confident in our future.

In developing our restructuring program, we took a step back and look at the business as it stands today, how we serve our customers across the supply chain and how we work internally in order to streamline our business. We found significant areas where we can align and streamline teams as well as reporting structures. As a result of the restructuring, we expect to deliver in the range of approximately $200 million to $230 million of annualized cost reductions by the end of 2022.

During 2020, we expect to realize approximately $105 million to $115 million of in-year cost reduction. In implementing this Revlon 2020 Restructuring Program, the company expects to recognize, during 2020, approximately $55 million to $65 million of total pretax restructuring and related charges, consisting primarily of employee-related costs, such as severance, retention and other contractual termination benefits. In addition, the company expects restructuring charges in the range of $65 million to $75 million to be charged and paid in the period of 2021 to 2022. The company expects that substantially all of these restructuring charges will be paid in cash, with approximately $55 million to $65 million of the total charges expected to be paid in 2020, approximately $40 million to $45 million expected to be paid in 2021, with the balance expected to be paid in 2022.

The Revlon 2020 Restructuring Program is designed to reduce our selling, general and administrative expenses, cost of goods as well as improved gross profit and adjusted EBITDA and maximize productivity, cash flow and liquidity. The program includes rightsizing the organization and operating it's more efficient workflows and processes. We estimate that approximately 60% of the $200 million to $230 million of annualized cost reductions to be realized from headcount reductions occurring in 2020.

Now I will turn the call to Victoria, who will discuss our refinancing commitment and preliminary fourth quarter results.

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Victoria L. Dolan, Revlon, Inc. - CFO [5]

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Thank you, Sergio, and good morning to everyone on the call. The refinancing agreement reached with Jefferies will provide up to $850 million in new financing that will be used to repay all of the 5.75% senior notes maturing in 2021, $500 million outstanding; repay the 2019 term loan, $200 million outstanding; and provide additional funding for the company. The company plans to close the refinancing transaction in the second quarter of 2020. And additional details can be found in the Form 8-K filed with the SEC yesterday.

Turning now to our fourth quarter 2019 results. Fourth quarter net sales were $699 million compared to $742 million during the prior year period, a decline of 6%. On a constant currency basis, net sales decreased 5% driven primarily by net sales declines in the Fragrances and Revlon segments, partially offset by the net sales growth in the Elizabeth Arden segment.

Fourth quarter operating income improved to $77 million compared to $32 million during the prior year period. The higher operating income was driven primarily by $30 million in lower selling, general and administrative expenses due to the 2018 optimization program and the benefit from nonrecurring prior year accelerated amortization related to Pure Ice brand intangible assets, a $27 million gain on the divestiture of 2 regional brands as well as a benefit from a prior year nonrecurring $18 million goodwill impairment charge partially offset by lower gross profit margins.

Fourth quarter net income improved to $26 million versus a $70 million net loss in the prior year period, driven primarily by the $45 million improvement in operating income described previously, a $42 million improvement in the benefit from income taxes and a $16 million favorable foreign currency impact versus the prior year period partially offset by higher interest expense.

Finally, adjusted EBITDA was $112 million in the fourth quarter of 2019 compared to $125 million during the prior year period. Excluding the impact of tariffs and foreign exchange, adjusted EBITDA decreased approximately 5% versus prior year period.

Next, I would like to turn to our segment results. Revlon segment net sales in the fourth quarter of 2019 were $243 million, representing a 6% decrease on a constant currency basis. Excluding the impact of the ongoing issue of excessive coupon redemptions, which is currently estimated at $13 million, segment net sales on a constant currency basis declined 1%. The decrease in as-reported net sales was driven primarily by lower net sales of Revlon color cosmetics due to increased promotionality primarily in North America, lower net sales of Revlon ColorSilk hair care due to planned efforts to manage trade inventory levels as well as overall category declines.

Revlon segment profit decreased to $43 million, driven by the segment's lower net sales and lower gross profit margins.

Elizabeth Arden net sales were $168 million, representing a 9% increase on a constant currency basis. This improvement was mainly driven by higher net sales of Elizabeth Arden skin care products, including Ceramide and Prevage, principally in our international territories. Elizabeth Arden segment profit was $21 million, a decrease of $2 million versus the prior year period, primarily due to the segment's higher brand support which increased versus the prior year, both in absolute dollars and as a percentage of net sales, partially offset by a higher net sales.

Net sales for our portfolio segment were $134 million in the fourth quarter of 2019, a decrease of 6% on a constant currency basis. This decrease was primarily driven by lower net sales of Mitchum branded products due to cycling against the prior year refilling of retailer inventories after the ERP-related decline in customer service levels, partially offset by a higher net sales of American Crew and Creme of Nature products.

Portfolio segment profit was $20 million, an increase of $6 million versus the prior year period, driven by lower brand support and distribution expenses, partially offset by the segment's lower net sales.

Finally, net sales of our Fragrances segment were $155 million in the fourth quarter of 2019, representing a 13% decrease on a constant currency basis. This decline was driven primarily by the overall softness in the U.S. mass fragrance category as well as the segment's lower net sales of Juicy Couture and Elizabeth Taylor branded fragrances due in part to door closures and timing of innovation, partially offset by higher net sales of Christina Aguilera branded fragrances.

Fragrances segment profit in the fourth quarter of 2019 was $29 million, a $6 million decrease compared to the prior year period, primarily as a result of lower segment net sales and lower gross profit margins, partially offset by lower brand support and distribution costs.

Turning to liquidity. Cash used in operating activities during 2019 was $68 million or an improvement of $103 million versus the prior year period, primarily attributed to the lower net loss and favorable working capital changes as well as the onetime costs occurred in the 2018 period related to the remediation of the ERP implementation.

Free cash flow used in 2019 was $97 million compared to $228 million used in the prior year period. The improvement in free cash flow usage was primarily driven by decreased use of cash and operating activities and lower capital expenditures. During 2019, we spent $29 million in capital expenditures and $46 million on permanent displays.

And finally, as of December 31, the company had approximately $279 million of available liquidity, consisting of $104 million of unrestricted cash and cash equivalents, $158 million in available borrowing capacity under the revolving credit facility, $30 million in available borrowing capacity under the 2019 senior line of credit, less float of $13 million.

I'll now hand the call over to Debbie for closing comments.

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [6]

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Thank you, Sergio and Victoria. With the new financing commitment to improve our capital structure and extend debt maturities as well as our efforts to build a more efficient and streamlined business, I am confident in our ability to continue to strengthen the relevance of our brands around the world and significantly improve our margins and drive increases in our cash generation and profitability.

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Questions and Answers

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Operator [1]

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(Operator Instructions) So our first question comes from the line of Carla Casella from JPMorgan.

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Sarah Clark, JP Morgan Chase & Co, Research Division - High Yield Credit Research Analyst [2]

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This is Sarah on for Carla. Can you tell us more about which brands are included in the specified brands for the senior-term loan? And if you can give any pricing details on the term loan? And then I have a follow-up.

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Victoria L. Dolan, Revlon, Inc. - CFO [3]

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So thank you for the question on the term loan. And before I answer the question, I do you want to take a step back and reiterate what Debbie said. We think that this $850 million commitment is a really great deal for us and an important step forward for the business. We think it shows signs of confidence in the business. And we're looking forward to closing the transaction over the next couple of months. And we want to remind you that it does enhance our capital structure by addressing the near-term maturities, by extending our maturities and providing us additional liquidity. In terms of specifics on the transaction, at this point, I would refer you to the 8-K. That's as far as we're going to go at this point given that it has not closed, and we do expect that it will close in the second quarter.

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Sarah Clark, JP Morgan Chase & Co, Research Division - High Yield Credit Research Analyst [4]

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Okay. Are you able to help us think about the $249 million of direct contribution from the specified brands? And if that includes Elizabeth Arden or American Crew?

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Victoria L. Dolan, Revlon, Inc. - CFO [5]

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I just think that I would refer you back to the 8-K, and that's the information that we're comfortable disclosing at this point in time.

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Operator [6]

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The next question comes from the line of William Reuter from Bank of America.

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William Michael Reuter, BofA Merrill Lynch, Research Division - MD [7]

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On the new 2020 restructuring program, when you think about those $200 million to $230 million of savings, how much of that do you expect to flow through to the bottom line and how much will be reinvested in other activities?

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Sergio Pedreiro, Revlon, Inc. - COO [8]

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William, thank you for the question. Let me just give you a little bit of background on the 2020 restructuring program before I answer the question. So really, this program, when we started, Debbie set a very clear target of setting up the company for success, redesigning the organization. It should be leaner, operate with more efficiency and serving better our clients and driving growth. So to do that, what we -- the exercise was to bottoms-up look at the organization, looking for redundancies, overlaps, opportunities to reduce the cost structure, the layer and, therefore, drive efficiency. The number that we have identified, and this is to be captured over the period of 2020, 2022, is in the range of $200 million to $230 million. And it is, in fact, a net cost reduction, which means when you look at the base of 2019, this is additive to that base. And it is net, meaning that we have taken into account all the benefit of the 2018 optimization program, all the cost reductions that were implemented during the course of 2019 that will have a 12-month benefit in 2020, additional cost reductions that the part of the program, net of adverse effects like inflation, a onetime benefit we had in '19 and you get to this range of $200 million to $230 million that will be additive, yes.

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William Michael Reuter, BofA Merrill Lynch, Research Division - MD [9]

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Great. So I think that the takeaway, it sounds like is that you did this in order to improve the efficiency of the organization. And as part of that, you're just going to achieve the savings, but there's no expectation that necessarily you'll start advertising more and use those dollars in that way. Is that fair?

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Sergio Pedreiro, Revlon, Inc. - COO [10]

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Not necessarily use those dollars in that way, but this will improve liquidity, this will improve cash flow, and we will improve the capacity to support the business for sure. And as a result, you also will see, and that's what Debbie asked us to do, that we target margins in the range of 60% in terms of gross margin, and 20% in terms of EBITDA over the course of implementation, which, as I said, will take us to 2022. So that's how the program was built.

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William Michael Reuter, BofA Merrill Lynch, Research Division - MD [11]

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Okay. That's helpful. And then last year, you guys were helpful about -- talking about the impacts of tariffs. I don't think the Chinese supply chain is overwhelmingly important for you guys, but I think it is part of it. Can you talk about if there are any products that you source in China that you're seeing manufacturing challenges due to plant closures or reductions in capacity there?

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [12]

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So William, are you referring to plant closures due to coronavirus?

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William Michael Reuter, BofA Merrill Lynch, Research Division - MD [13]

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Yes, I am.

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [14]

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Yes. Okay. Thank you very much for the clarification. So obviously, first and foremost, we are monitoring the situation to understand the impact to our business as well as, frankly, the health and safety of our employees. When you think about coronavirus today in our fourth quarter 2019 earnings, it did not have an impact. We do anticipate that it will have an impact in first quarter 2020, which we'll speak about more during that earnings call. But we all are anticipating seeing impact in specific regions, such as Asia as well as our EMEA region. With regards to the impact on the supply chain, we monitor that very closely. There are factories up and running, though, a bit slower, and we are working with our partners in China to understand delays and mitigate those risks.

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Operator [15]

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The next question comes from the line of Mary Gilbert from Imperial Capital.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [16]

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Just following up on the cost cuts that you discussed, I just wanted to make sure I fully understood it. So as we look at the savings that are going to be delivered in 2020, the $105 million to $115 million, it sounds like you're saying that, that's going to be a net benefit, not reinvested necessarily back in the business, such that, hypothetically, if we were to take the consolidated EBITDA this year of $112 million, could we just have that number, either the $105 million to $115 million, is that what you mean by that?

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Sergio Pedreiro, Revlon, Inc. - COO [17]

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Yes, that's correct.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [18]

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Okay, great. That's very helpful. And then with regard to the strategic thoughts that's focused on portfolio and regional brands, does that include brands outside the portfolio brand segment? In other words, could that include select fragrances?

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [19]

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So Mary, where we are focused today, as we have stated is that the process with Goldman Sachs on reviewing our strategic alternatives is ongoing, and we are focused on the portfolio and regional brands.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [20]

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Okay. And then with regard to the Elizabeth Arden segment, why was EBITDA down year-over-year? And could you also talk about shelf space movement year-over-year, if any, with regard to new resets for both Revlon and Almay? And how we should consider innovation in your innovation strategy in 2020 versus 2019?

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [21]

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Okay. So with regards to the margin on Elizabeth Arden, we saw impact to tariffs as well as FX as well as some accounting changes that impacted '18 that didn't impact '19. And if you want more detail, Victoria can jump in, in a minute. With regards to the second part of your question and space changes, we tend to see normal fluctuations in space throughout the year. And this quarter was no different with the exception of some loss in space with Revlon Beauty Tool. And then with regards, could you just clarify the question on the innovation for Almay and other brands?

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [22]

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Yes. I wondered what the level of innovation planned this year? And anything that you can describe or discuss, even sort of qualitatively, with regard to innovation for those 2 brands.

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [23]

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So can you just repeat the brands, Almay and Elizabeth Arden?

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [24]

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Yes.

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [25]

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Okay. Thank you for the question. So with regards to Almay, we continue to lean in on the clean positioning. We launched a very successful biodegradable face makeup removers in the second half of 2019. And going into 2020, we've launched our skin perfecting foundation as well as our new blush and sustainable packaging. So the launches that we have today are performing very well and resonating with the consumers on Almay, and we'll continue to lean in on the clean positioning. With regards to Elizabeth Arden, we've been focused on growing our skin care franchises of Ceramide and Prevage, and we had launches in the second half of '19 on both of those. And we'll continue to look to launch, in 2020, in the Ceramide franchise and continue to build on the success of the launches we had last year within Prevage as well as continue to build on the innovation in the pillars of fragrances on White Tea and Green Tea.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [26]

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And then what about Revlon -- sorry, what about Revlon?

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [27]

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Yes. So Revlon, we had tremendous excitement with regards in the lip categories in second half of '19, with the gloss as well as the vinyl lip polish which we launched. And going into first half of '20, we are also leaning in, again, with lip with our shine, which we launched just now as well as our Super Lustrous Matte. So again, we continue to be very focused on lip as a category where we continue to want to be #1 and win. As well as some launches in ancillary categories such as brow, which we, I'm sure you've seen, have continued to grow share.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [28]

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Excellent. And then 1 last question. How would you describe the fragrance market and the results of the new testers available in select drugstores? And then how is Flesh performing? And are there any plans to expand it in further innovation?

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [29]

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Thank you. Thank you, Mary. So with regards to the fragrance market, it's been a challenging year in U.S. mass fragrance, which I'm sure is, I'm assuming that's, the category that you're referring to. The market did decline 10% in U.S. mass. We declined less than the market, but still not a stellar year for us within fragrance. We continue to work with our retail partners in order to be thought leaders and reinvent the experiences in store. One of those reinventions is right now with a U.S. retailer, and we are seeing positive results from the initiative with the tester bars. And with regards to Flesh, we continue to build out our business on e-commerce specifically. We continue to see it resonate with the Millennials as well as Gen Z, which represent over 60% of the consumers within that brand, and we continue to see good momentum on our direct-to-consumer business for that brand.

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Operator [30]

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The next question comes from the line of Hale Holden from Barclays.

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Hale Holden, Barclays Bank PLC, Research Division - MD [31]

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I was wondering if you guys are successful selling brands through the strategic review. My read of the 8-K is use of proceeds probably apply to the Jefferies term loan before would be applied to the 2016 term loan. Is that the correct way to think about?

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Victoria L. Dolan, Revlon, Inc. - CFO [32]

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So just like with any agreement with -- as we look at our commitment up to $850 million that we just signed with Jefferies, there are certain circumstances where it can be reduced and an asset sale would be 1 example. But once we have consummated an asset sale deal, we will determine the best way to adjust our capital structure.

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Hale Holden, Barclays Bank PLC, Research Division - MD [33]

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Okay. And then as a follow-up, I was wondering if the CapEx number you reported for 2019, if there's any reason, I think it would be materially different for 2020, CapEx plus brand display...

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Victoria L. Dolan, Revlon, Inc. - CFO [34]

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So the CapEx number -- okay, CapEx we reported for 2019 of $29 million. I think we -- you will see in the K that for 2020 we're showing a range between $25 million and $35 million.

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Hale Holden, Barclays Bank PLC, Research Division - MD [35]

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Same thought pattern on brand displays, similar to...

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Victoria L. Dolan, Revlon, Inc. - CFO [36]

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From displays, we spent $46 million, and our 2020 range is $40 million to $50 million.

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Operator [37]

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The next question comes from the line of Jenna Giannelli from Goldman Sachs.

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Jenna Loren Giannelli, Goldman Sachs Group Inc., Research Division - Fixed Income Analyst [38]

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I have a couple of follow-ups and some new ones. Just with regard to the China supply chain, would you be willing or have you disclosed before exactly how much you source directly out of China? And then kind of a similar but separate issue, the percent of your sales are roughly how much you derive from just Travel Retail in general would be helpful.

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Victoria L. Dolan, Revlon, Inc. - CFO [39]

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So on the -- we have disclosed in the past when we were talking about tariffs that we source roughly $100 million in components in products from China a year, but we do not disclose net sales for something as specific as Travel Retail.

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Jenna Loren Giannelli, Goldman Sachs Group Inc., Research Division - Fixed Income Analyst [40]

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Okay. That's helpful. And then I just wanted to ask on the new term loan. I guess it maybe a little on the expiration of the commitment. Can you talk about just the nature of the June 30 expiration? Is there a plan B if you do bump up against that expiration? And is there anything in that date may be tied to the expectation of an asset sale? I just want to make sure I understand it all correctly.

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Victoria L. Dolan, Revlon, Inc. - CFO [41]

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So thank you for the question. But the -- this is a firm commitment. And as we stated earlier, we do expect that we are going to close it in the second quarter. So we anticipate closing it before June 30. And as I said -- I think your other question was around the asset sale. And as I said in my previous answer, just like any other transaction, to the extent there was an asset sale, it would be a circumstance where we could reduce the amount outstanding, but we'll have to determine which portion of our capital structure we would adjust based on the proceeds of a sale.

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Jenna Loren Giannelli, Goldman Sachs Group Inc., Research Division - Fixed Income Analyst [42]

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Okay. And then just -- and then 1 more final one, a follow-up to Carla's question. It's more just a housekeeping on the direct contribution. I think it's only mentioned once in the press release, I can't find a definition. Would you guys be willing to just describe or provide a definition of exactly what those numbers mean? What a direct-to-debt contribution is?

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Victoria L. Dolan, Revlon, Inc. - CFO [43]

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I think we can do that...

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Jenna Loren Giannelli, Goldman Sachs Group Inc., Research Division - Fixed Income Analyst [44]

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Is it gross margin or an EBITDA? Maybe I'm just not finding it, but any color would be helpful.

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Victoria L. Dolan, Revlon, Inc. - CFO [45]

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I think we should take that one offline. We can do that as housekeeping separately.

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Operator [46]

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The next question comes from the line of Steph Wissink from Jefferies.

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Stephanie Marie Schiller Wissink, Jefferies LLC, Research Division - Equity Analyst and MD [47]

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Welcome Sergio. I had a follow-up question on the cost restructuring program. I'm wondering if you can help us with the split between cost of goods and SG&A. How should we think about the balance across the P&L?

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Sergio Pedreiro, Revlon, Inc. - COO [48]

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Yes. When you look at the expected cost reduction, it is about 25% to 30% on cost of goods and the balance on SG&A.

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Stephanie Marie Schiller Wissink, Jefferies LLC, Research Division - Equity Analyst and MD [49]

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Okay. Very helpful. And then just a follow-up question on an earlier remark about the shelf space. Can you talk a little bit about what you're seeing in the competitive dynamics within the mass business, particularly in North America and Europe? Are you seeing an intensifying competitive landscape? Or are you finding that you're able to dictate your positioning and command a bit more business at shelf? I mean I know you mentioned some couponing. And if you could just clarify that a bit so that we understand the remediation of efforts around the coupons, that would be helpful.

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [50]

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Yes, sure. So with regards to the industry in and of itself within and I'm assuming you're talking about the mass businesses, whether it's in Europe or whether it's in the U.S., we continue to see it be very competitive. I think that we look to be competitive. We look to continue to bring out innovation that excites our customers as well as our consumers and continue to be very focused on the strategies and activities that we have in market in both of those regions in order to drive the business forward. Victoria, do you want to touch on the coupons?

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Victoria L. Dolan, Revlon, Inc. - CFO [51]

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Yes. I'll talk a little bit about the coupons. So as we said, we're currently working through an issue with one of our retailers where the coupon redemptions in the fourth quarter appeared to have been excessively high relative to sales dollars that we generated in the period. It's something that is an ongoing issue and that we are having ongoing discussions with the retailer on.

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Operator [52]

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The next question comes from the line of Carla Casella from JPMorgan.

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Sarah Clark, JP Morgan Chase & Co, Research Division - High Yield Credit Research Analyst [53]

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This is Sarah Clark on for Carla. You guys gave high-level details on sourcing from China, so thank you for that. But are you able to share how much of Elizabeth Arden sales are from China or Hong Kong? And then I have 1 more follow-up.

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [54]

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So we're not going to quantify our sales with regards to Elizabeth Arden in Hong Kong or in China. I would like to note here is that the majority of the business for Elizabeth Arden in China is e-commerce based. So with regards to risk being in-store in bricks and mortar, we see less of a risk to mitigate there and continue to remain observant in terms of the business on e-commerce.

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Sarah Clark, JP Morgan Chase & Co, Research Division - High Yield Credit Research Analyst [55]

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Great. That's helpful. And then my last question is, your term loan is down about 10 to 15 points this morning and quoted in the mid-50s now. So what do you think the market is missing this morning post numbers and post this financing announcement that is supposed to show confidence in the business? And how do you plan to deal with this term loan in 2 years?

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Victoria L. Dolan, Revlon, Inc. - CFO [56]

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So thank you for the question. But as you know, we can't control where the instruments trade. I can only go back to saying that this is a really important step forward for our business and that we can only continue to operate the business and execute the restructuring plan to create value for all of our stakeholders. And that, again, we believe that this is an important step forward for us and it deals with our near-term maturities, it deals with and extends our maturities, and it provides us additional liquidity for us to be able to add that value.

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Operator [57]

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We have no further questions in the queue, so I hand back over to the host of the call for any closing remarks.

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Debra G. Perelman, Revlon, Inc. - President, CEO & Director [58]

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Thank you. Seeing no additional questions, let me say thank you to all who joined the call today. 2020 will be a year of transformation for our company, but we have a lot of work ahead of us. I am very optimistic about our future. Thank you.

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Operator [59]

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Thank you for joining today's call. You may now disconnect your handsets.