Prestige Consumer Healthcare Inc. (PBH) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q2 2013 Prestige Brands Holdings, Inc. Earnings Conference Call. My name is Shanay, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to your host for today, Mr. Dean Siegal, Director of Investor Relations. Please proceed, sir.

Good morning, and thanks for joining us. As a reminder, there is a presentation that accompanies this call, which can be accessed on the company's website, which is prestigebrands.com. Click on Investor Relations on the left, and then Webcasts & Presentations on the right and will be the first presentation. During this call, statements may be made by management of their beliefs and expectations as to the company's future operating results. Statements of management's expectations of what might occur with respect to future operating results are what is known as forward-looking statements. All forward-looking statements involve risks and uncertainties which, in many cases, are beyond the control of the company and may cause actual results to differ materially from management's expectation. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of this date. A complete Safe Harbor disclosure appears on Page 2 of the presentation that accompanies this call. Additional information concerning the factors that might cause actual results to differ from management's expectations is contained in the company's annual and quarterly reports that it files with the U.S. Securities and Exchange Commission. And now I'd like to introduce Matt Mannelly, CEO; and Ronald Lombardi, CFO.

Thank you, Dean, and thank you, everyone, for joining us during this difficult week. For any of you or your families that have been caused hardship by Sandy, we wish you with speedy and successful recovery. So thank you, again, for joining us this morning. If you would please turn to Slide 3, the agenda for today. I'll talk a little bit about the highlights of the quarter. Ron will then take you through a quarterly -- a review of the financials. And then I'll talk a little bit about -- I'll summarize and talk about where we're going as a company. So with that, if you'd turn to Slide 4. So what I'd like to do is just really reinforce our strategy that we believe has been instrumental in our results over the last 2-plus years. And it really is a three-pronged approach. First is driving core OTC growth. And as we've said, and as you'll see here again in this quarter, it's about increasing our A&P and the effectiveness of that A&P to drive the growth of our core OTC brand. Our second strategy, which the company has employed for quite some time is all about strong free cash flow that allows us to reduce our debt significantly and rapidly. And we have a very high conversion of EBITDA to free cash flow, as you know. And all of that free cash flow is really used for debt reduction. In addition to that, many of you are very aware that we have a significant tax shield that also is incremental to our free cash flow. And then finally, the third strategy that we've deployed over the last 3 years has been around M&A and specifically OTC-focused. And as that relates to this quarter, it really is about the integration of those acquisitions and our latest acquisition of the GSK North America brands. So with that, if you would turn to Slide 5. And before Ron takes you through the financials, I thought I'd share some of the highlights of the quarter. I think, as you can see from the press release this morning, we really had excellent financial performance for the quarter. Starting -- it all starts with revenue and record second quarter revenue of $161.8 million, which is up 53.4%. That led to our adjusted EPS, which Ron will talk about, of $0.42, which is up over 60% versus the prior year's corresponding quarter, and our adjusted cash flow from operations of over $30 million for the quarter. That also resulted in our leverage ratio being reduced from a 5.25, down to a 4.6 at the end of this quarter. So again, we are getting rapid reduction of our debt based on our tremendous free cash flow. I think the most important point about the results is we're continuing to build the brands, and we're showing strength in our brands. And we are delivering consistent organic growth of our core OTC brands, which is our main strategy for the company. We are pleased and proud of the fact that our core OTC organic revenue growth was over 11% for the quarter in these difficult times. I think as important as our shipments, you can see -- and you'll see a little bit later, our consumption, meaning the consumer takeaway from the shelf is exceeding category growth significantly. So again, for our brands in the categories in which we compete, our consumption was up over 10% in the latest 12 weeks compared to category growth of only 1.5%. This has resulted in the ninth consecutive quarter of organic revenue growth in our core OTC brands for the company, which we are quite pleased with and quite proud of. I think another key highlight for us for the quarter has to be in terms of the integration of the GSK brands. And I've talked about this the last quarter, but it continues to be a focus of the organization, and I'd say on 2 fronts. From a demand standpoint, we are actively executing against these brands and developing new product opportunities. And from a supply standpoint, we continue to seamlessly integrate these brands into our company supply chain. All that has resulted in the fact that we are going to raise our full year guidance. And again, as you recall, historically, we don't give guidance. This year we did because of the major acquisition. We said we would be at $1.22 to $1.32. At the end of the first quarter, we said we felt comfortable with the high end of that guidance. Given the strong fourth quarter and the position of the brands, we are taking that guidance up to $1.37 to $1.42 for the year. And that's a raise of about $0.10 at the top end of the guidance for the year. So we're pleased with the results. I am pleased with what that means. We're hopeful for the remainder of the year. Slide 6, if you'll turn to, you can see that we're particularly pleased with our revenue growth across the board. And you can see here total Prestige, all right, legacy brands, up 4.7% for the quarter, and the total business up 53.4%. Our OTC business was up 9.3% for the quarter. And our OTC, including GSK, was up 74%. And you can see our core OTC was up, as I said, 11.3% for the quarter and, including GSK is up over 66% for the quarter. So we're quite pleased with all of those numbers. If you turn to Slide 7. As I said, that resulted in our ninth straight quarter of core OTC revenue growth. And I think the fact that we've had 9 straight quarters is really a testament to both the strategy that we've employed for the last 2 years, as well as our people, the 125 people that we have at Prestige, that are really focused on excellent execution. And you can see here that 4 of the last 9 quarters, and again, very difficult times, we've had double-digit consumption growth, which we're very pleased with. If you turn to Slide 8. I think this is another telling slide. You can see our consumption, all right, and you can see, as importantly, our consumption trends. And if you look at total Prestige, total OTC or core OTC, left to right, it starts with 52-week then -- for the first half of the year, and then the third column is the latest quarter. You can see that in all 3 areas, we're growing. And the trend is quite positive, and we're seeing an acceleration in consumption. I think one other thing I would point out on this slide, I think you all are aware of, in terms of this is consumption data historically that has been IRI data, now some other channels and companies have come into the fold, including Walmart, the Dollar Channel et cetera. So it is now a multi-IRI, multi-outlet retail dollars sales, which covers about 87% of the ACV out there. So again, more reporting on public information that everyone else is now reporting in the same information as well. Slide 9. You can see here what this has meant in terms of -- I talked a little bit earlier about 9 straight quarters of growth. And you can see -- or on a consumption standpoint, the fact that we're outgrowing the categories in which we compete by 9 points is quite significant. And you can see at the bottom what that means for our overall portfolio in terms of what we're picking up per share gain. So again for us, we define success as outgrowing the market, outgrowing the categories and gaining share. And if we do that, we believe we will create value for our shareholders long term. And you can see that we've done that consistently over the last 9 quarters. Slide 10. If I move to Slide 10 and 11, I'm going to talk a little bit about a couple of the brands that I think it's interesting to know how we're doing this. And I'm going to start with Compound W. And the reason I'm starting with Compound W, is Compound W just became the #1 brand in wart removal in the United States. So we are quite proud of that, and it's been a long time coming. We've been investing in the brand for a few years and slowly gaining momentum throughout. How have we done it? We've done it in what we've talked about a little bit in past calls in terms of it all starts with our focus on the consumer and starts with investing in research and understanding our consumer and gaining new consumer insights. And with Compound W, we've done some work over the last year or so, and we really have learned more about our consumer and tapped into their emotional needs, as well as the physical needs as it relates to wart care, and as a result, have developed new creative which you see on this page and is on air right now. And the new creative really speaks to confidence. And the confidence that people want and need in terms of more important days such as their wedding day. This has been very effective. And again, you can see the results in the marketplace. We also have been quite successful in terms of digital marketing, word-of-mouth, doing some things along those lines. And we continue to advertise not just with the consumer, but advertise with the professionals, for example, here in Pharmacy Times. So again, you can see, that all has resulted in Compound W becoming the #1 brand in wart care. And you can see here the 52-, 12-, and 4-week trends, again all very favorable, and an acceleration on all fronts. Slide 11 shows a little bit -- I'll talk a little bit about a couple of more brands. Again, the reasons for our success are our people and our brands. And these brands, as I've said, it's all about our consumer insights and delivering something that's innovative and adding value to the consumer. So we introduced Dramamine for kids in the last year, and the insight there was moms were using Dramamine for their kids, but they were cutting it in 1/2 to give them the right dosage. So what we did is we did a product with the correct dosage. We gave them a flavor that they wanted in terms of grape, and we gave it to them in a package that was kid-friendly. And you can see the results in terms of what that's meant for consumption growth for Dramamine. Efferdent Crystals is another good example where there really had been no innovation in that category for a number of years. And we brought Efferdent Crystals, because people wanted something that was easier to use, and they wanted something that worked better. So we brought a new formula and did studies and got acclaims that it cleans 10 times -- it's 10 times more effective. And you can see between that and also putting Efferdent Crystals on the air with advertising, which had -- it had not been in the air in a number of years has resulted in significant growth for that brand in the category. The third example is Beano, which again, we've increased the advertising significantly on that business. We have a product that is discrete, and it doesn't require water. It's a melt away in your mouth. We also, from an innovation standpoint, we have packaging and then delivery that's consistent with what the consumers want. Again, we've increased the advertising. You can see what the impact has been on Beano versus the category over the latest 12 weeks. And the final example I'll talk about is Goody's, which is a brand that we're very excited about, which was one of the brands that we acquired from GSK, along with Beano and a number of others. But this is a brand that has -- we believe, has great potential, and it's all built on speed and efficacy. And the fact that people want headache relief faster. And Goody's delivers that relief in that form. It delivers and speeds into your system faster. Again, we've increased advertising. We're running a campaign right now, and you can see BC and Goody's with our share gain have been on that business and how it's grown versus what's going on in the category. So we wanted to take a few minutes today and talk a little bit about some of the brands and some of the whys behind the tremendous growth that we've had over the last 12 to 24 months. With that, I'll turn it over to Ron, who'll take you through the financial highlights.

Thanks, Matt, and good morning, everyone. An overview of the second quarter highlights appears on Slide 13. As a reminder, unless otherwise noted, the financial information we are discussing today excludes certain TSA integration and other costs. A reconciliation between reported results and the adjusted results can be found in schedules included in today's earnings release. As Matt mentioned, we are extremely pleased with our excellent financial performance in the quarter that included strong gains in sales, earnings and cash flow. Our solid revenue and earnings growth were driven by our continued strong growth in share gains in our core OTC brands, which is driven by our effective A&P investments, revenue from the GSK brands that was in line with our expectations and strong growth in EBITDA, EPS and cash flow from operations that was consistent with revenue gains. I'll give you more details on each of these in the next few slides. Turning to Slide 14, we have our Q2 results. Our excellent Q2 results continue to reflect our transformed financial profile. Our year-to-date sales were at a run rate in excess of $600 million annually. Our gross margin increased approximately 6 points over the prior year, and our A&P level was about 14% of sales. Our net revenues increased approximately 53% over the prior year to approximately $162 million during the quarter. Our 9 core legacy OTC brands grew 13 -- excuse me 11.3%, marking our ninth consecutive quarter of growth, as well as our ninth quarter of consumption share gains. Our legacy business realized 4.7% total organic growth during the quarter. And the acquired GSK brands performed well in the quarter and were generally in line with our expectation, adding approximately $51 million of revenue during the quarter. Our Q2 gross margins increased significantly over the prior year to 57% due to our increase in OTC sales to approximately 85% of total sales, as well as from an increase in our legacy OTC gross margins over the prior year's level. Consistent with our strategy to drive core OTC growth, we increased A&P spending almost 80% over the prior year's level during the quarter. The increase was due to the addition of the acquired brands, as well as increased support behind our legacy core OTC brands during the quarter. These investments are effectively driving increased sales, consumption gains and driving value creation through increased earnings. G&A, as a percent of sales, declined almost 2 full points to 6.7% of sales, reflecting a leverage of higher sales during the quarter. Our adjusted EBITDA, net income and EPS all increased significantly during the quarter and all grew above our sales growth. Revenue increases and EBITDA margin gains resulted in an increase of $8.4 million in adjusted net income to $21.3 million, an increase of approximately 65% over the prior year and adjusted earnings per share grew to $0.42 during the quarter, an increase of approximately 62% and $0.16 over the prior year's level of $0.26. Turning to Slide 15, we have our year-to-date results. Our year-to-date net revenues increased 54% over the prior year to approximately $309 million. Our 9 core legacy OTC brands have increased almost 8%, which is well ahead of category growth. Our legacy business has realized total organic growth of 2.5% on a year-to-date basis. And the acquired GSK brands have added $103 million of revenue year-to-date. Gross margins at 57% are well ahead of prior year's level and continue to be consistent with expectations. A&P spending and investments has increased 2.6 points and approximately 88% over last year to 14.2% [ph] of sales, as we continue to invest behind our 15 core OTC brands to drive both top and bottom line growth and value creation. Our adjusted EBITDA, net income and EPS have all increased significantly due to the increases in sales and gross margin. EBITDA outpaced sales growth and has increased approximately 76% to $110 million. Net income increased $14.5 million and 58.3% to $39 million, and we are very pleased that our EPS increased $0.28 to $0.77, which is well above last year's level of $0.49. Moving on to Slide 16. We have a reconciliation of reported net income and EPS to our adjusted results. As a reminder, our earnings release contains a full set of disclosures about our non-GAAP financials. The reported results for Q2 and the year-to-date include GSK transition and integration costs, as well as $600,000 of legal costs reported in Q1. The reported EPS was reduced by $0.04 in the quarter and $0.11 on a year-to-date basis. The company still anticipates full year adjustments of $0.14, with the remaining $0.03 likely to occur in Q3. Turning to Slide 16. We have a summary of cash flow for the quarter and year-to-date. Prestige's enhanced financial profile of high EBITDA margins and significant tax attributes allowed it to generate meaningful and consistent cash flow from operations during the quarter. Excuse me, on Slide 17. Excluding the impact of the TSA and the timing of accounts receivable, which shifted approximately $14 million of cash flow from Q1 into Q2, the business generated approximately $32 million of cash flow from operations during the quarter, which was an increase of approximately $13 million above the prior year's levels and slightly above Q1's adjusted level of approximately $28 million. On a year-to-date basis, we have generated over $60 million of cash flow from operations, which is an increase of over 75% and $26 million over the prior year's level. September's net debt balance was approximately $1,061,000,000, with a debt to covenant defined EBITDA ratio of 4.6x. Our strong cash flow has allowed us to continue to delever quickly and has reduced our leverage ratio by 0.65x since we've closed the GSK brands acquisition approximately 8 months ago. We continue to expect approximately $110 million of cash flow from operations for the full year, including capital additions of approximately $10 million related to our new headquarters and ERP upgraded schedule for this year. Moving on to Slide 18. We have our updated -- we have updated our information on our ability to rapidly to delever as a result of our strong Q2 results. The table on the left shows the company's guidance provided at the time of the GSK acquisition announcement, along with our actual results at the end of fiscal '12 and at the end of Q2. As you can see, the company is tracking favorably to the guidance provided and is already well above the level that was expected for our fiscal 2013 year end. In addition to the progress we have made to date, our continuing debt reduction will be further enhanced by the sale of Phazyme, which we closed on yesterday. The sale will generate approximately $20 million in cash that will be used to pay down debt in the third quarter. This rapid delevering, along with our continued strong financial performance, continues to create expanded acquisition capacity. Sources of capital continue to be widely available, and leverage is not a constraint for continued M&A activity in the near term. So at this point, I'd like to turn the discussion back over to Matt.

Thank you, Ron. Slide 19. Just a few thoughts and a few slides to wrap it up, before we open it up to any Q&A. If you turn to Slide 20. I think for us, the 3 most important things that we think that really set us apart that have really contributed to our success, and we think will really ensure future value creation are first of all, our brands, all right? We have great brands in the categories in which we compete with great equity, and we're demonstrating that we can build the equity in those brands. Second of all, as Ron has pointed out a number of times, is our powerful financial profile and how it's really been transformed over the last year or so. And the free cash flow, the significant and consistent free cash flow that we generate really allows us a lot of flexibility and opens up a lot of opportunities moving forward. And then the final thing we think that really sets us apart most importantly is we're a company of 125 people, and we think our people, all 125 -- 125 of our people are leaders, so we talk about leadership a lot. And in a company, this size that makes a difference, and we think that's contributing significantly to our success. If you go to Slide 21, I thought I would just share just some organic revenue growth numbers versus some of our peers. And I think the point I'd just made here is if you look at the bottom, it's based on 52 weeks. If you look at the second row up is half year, and the third is on the quarter. And we show here both core OTC and total company. I think the point that I would like to make and taken away is 2 things: Our growth is accelerating, and our growth is really at the upper end of all our peers. So that's something that we're proud, and we work hard at, and we'll continue to work hard at, because we think that is the foundation in terms of creating value for our shareholders. Slide 22. Second to the last slide. Just a few thoughts as we embark on the second half of the year. As I said, we're revising our guidance up in terms of our adjusted EPS to $1.37 to $1.42, which is up approximately $0.10. We have very clear goals for FY '13 that will help us continue to build on the success and the momentum. And it starts with integration of the brands we purchased last year. That job is not done, as we have said a number of times. We need to continue to focus, to execute in terms of the integration both on the supply and the demand side. We also will continue to invest in and drive our core OTC brands, because we think that really is at the heart of our success. And as a result, we've said this before, typically, our A&P spending is more in the second half and it will be, and we will continue to increase our A&P percentage, because it's yielding results. We're also going to focus on the development of a long-term potential of some of the recently acquired brands, including the GSK North America brands. We're going to invest in those brands, and we're going to invest in new product development. And that's really going to lead to FY '14. When you buy a business, you spend a lot of time setting up and we're doing a lot of things in '13 that we think we're going to be able to invest wisely and start building the brand in the long term for FY '14. And then finally, as Ron has pointed out a number of times, we're going to continue to deliver an extremely strong free cash flow. And we're going to use that free cash flow to delever -- rapidly delever, our balance sheet, and that will provide us flexibility for things that we can do moving forward. As we look at the third quarter, we've had very strong cough/cold incidents to open the year. So as a result, we had very strong purchases to open the year. Now we're going to see how the cough/cold season plays out on incidences. And as I said from an A&P standpoint, we typically have a seasonal increase in the second half, and we also will increase our percentage of A&P to sales, as we've been doing every quarter for the last couple of years. And then the final thing is for us, it's a marathon, not a sprint. This transformation process, we're pleased with where we are 3 years into it. We're pleased with the results but I think more importantly, we know that we've got a long ways to go and there's a lot of work to be done. So with that, I think the last thing on Slide 23, I opened with talking about our 3 strategies. I'd like to close with talking about them and really talk about the results again of those strategies in the last quarter, and how those strategies -- how we've achieved those strategies. In terms of driving core OTC growth, we pointed out that our core OTC net revenue growth is 11.3%. Our core OTC consumption growth is up 10.5% for the quarter versus a category of 1.5%, and we're increasing our spending on a core OTC at almost 17% of sales, and it's yielding dividends. From the second strategy of strong free cash flow, excellent cash flow from operations of almost $32 million. As Ron said, we're on track, we believe to deliver $110 million in free cash flow this year and that's after the investment in the new office as a result of the acquisition. And finally, we're rapidly deleveraging. From the time of the acquisition of where we were at 5.25 just a short ago, we're already down to 4.6. And with our free cash flow, we'll continue to bring that down. And then finally, as it relates to our M&A focus, one is focused on integration of those GSK brands and continuing to focus on integration in the second half. The second one is not on here, but we said our M&A focus is also going to cause us to look at the portfolio, and you can see this quarter that we sold Phazyme for $20-plus million that Ron talked about, that's going to help further delever our balance sheet. So with that, I'd like to open it up to questions that anyone has with regards to the quarter.

[Operator Instructions] Your first question comes from the line of Joe Altobello with Oppenheimer.

First question, I guess, in terms of your categories and consumption growth, looks like consumption growth ticked up a little bit this quarter, which continues a bit of a trend we've seen the last couple of quarters. What do you think is driving the increased consumption across your categories, at least in the core OTC side?

Well, Joe, it's a good question. I think what we're seeing is we're seeing consumption growth across all the brands in that core portfolio. Now, clearly, we've talked about we benefited with PediaCare and Little Remedies with the competitive situation. But I'd also point out that we had strong double-digit consumption growth in Efferdent this quarter -- with Efferdent Crystals and the fact that we put advertising on air, which advertising hasn't been on air for Efferdent in years. We also increased significantly the Beano advertising when we purchased the brand, and we're seeing double-digit growth in terms of consumption growth on that business. So Chloraseptic, we're seeing strong consumption growth as a result of incidences being up in the first part of the season. So the reason we're seeing this is we're seeing across really all the brands across the core. It's not just a couple of brands that are carrying it.

I'm actually thinking more of the overall category, Matt.

In terms of why the category is up?

; Yes, yes.

Well, the category, I mean, again, we're seeing -- categories up, I think 1.5, right? The categories in which we compete, right Joe?

Right.

So, again, strong cough/cold incidences to open the season, I think, is carrying it up a little bit. But again, whether it's up 1.5%, up 0.8%, down 1.2% the last, for -- it's -- I think it's pretty consistent with historicals in terms of flat to up 2%. And I think with the strong cough/cold to open, it's kind of trending up a little bit. Does that answer your question, Joe?

It does, it does. And secondly, in terms of the acquired GSK brands, you've talked about new products and geographic expansion. It sounds like you're relatively fully integrated on those brands right now. So when should we start to see some of the benefits from the increased geographic expansion, for example, and the new product introductions?

Well, I think Joe, I think that's still to come, all right? As you know, for OTC products, to get things to the marketplace, whether it's new products, right, for some of the things we do. This is a marathon not a sprint. We're using FY '13 to set ourselves up, and really FY '14 is going to be the year that we're going to start doing some of those things and making those investments, all right? So we're still laying the groundwork as we speak for that.

Your next question comes from the line of John San Marco with Janney Capital Markets.

Why was the timing of cold flu ordering different this year? And can you share your thoughts on how much of a revenue impact that might have had on 2Q?

Well, John, I think it's a question. I am -- again, why it was different maybe a little bit is, again, we get the Fan Flu data, so do all of our retailers. And Fan Flu data is incidences are up solid-single digits, 6% to 8%, to start off the year. So as a result of that, I think that caused the retailers to say okay, incidences are up for openers, looks like we may have a solid year, we better take product in a little bit sooner rather than new later. How much that has impacted the second half? I can't tell you, because it really depends on how those incidences play out in the next 3 to 5 months. Because if incidences continue to go strongly, we'll get reorders for that. If incidences wane at all, not buying in previous quarter, well, there won't be as much repeat business in the third and fourth quarter. So it really is dependent on how incidences play out in the next 5 months.

Got it. And then on BC/Goody's, are you doing any thing differently yet versus how GSK was managing the business and spending marketing dollars, et cetera?

I think we're looking -- we're doing some things -- our focus on it -- I think one of the things, John, that you've seen is GSK is a terrific company that does a great job with its brands. But like us, they focus on their high priority brands, and these were tail brands for them. We're giving them a little bit more attention now internally and with the retailers, so I think we're seeing some benefits on that. I'll also tell you some of the things we're doing, as I said to Joe, we're setting ourselves up for future growth with some of the work -- positioning work, creative work, and some of the other programs that we're currently developing that we expect invest in FY '14. So there's more to come on that.

Got it. And maybe if you could just clarify what you mean, you're getting more attention. Does that mean senior management, you're getting involved in the sales processes? Or is there any specifics you can offer on what more attention entails?

Sure, I can tell you, for example, that Tim Connors, our Executive Vice President of Sales and myself were down at Walmart last month on a call with regards to those brands. That's the kind of attention that was getting.

Very helpful. And then lastly, and I think you sort of touched on this talking about second half investments, but I'd like your thoughts anyway. The guidance implies lower second half EPS than first half. I'm just wondering if that is there conservatively? Or if that reflects A&P investments will be abnormally back half-loaded this year?

Well, I think, if you look at the last couple of years, our A&P, we spend more in the second half than the first half. And then the second thing I've said, Joe -- John, I'm sorry, is we also will increase our A&P spending a little bit in the second half as well.

So perhaps more than you typically have historically?

Yes, yes.

[Operator Instructions] Your question comes from the line of Reza Vahabzadeh with Barclays.

This is Jamie Robins on for Reza. Could you provide some additional color on how you plan to use free cash flow generated over the next 6 to 9 months?

Jamie, Ron Lombardi here. We will use our cash flow exclusively to pay down debt, absent any M&A opportunity that may come up.

Okay. And then, I guess, following in that line, what do you see the opportunities for M&A looking like over the next 6 to 12 months?

I think we've said, Jamie, that the M&A market, as you can see, as a result -- there were some announcements this week, continues to be active. We continue to be aggressive and disciplined in our M&A approach and active in the marketplace.

Your next question comes from the line of Jon Andersen with William Blair.

I guess my first question was just kind of referring back to Slide 7 from the presentation. In the last -- I guess, over the last 8 quarters -- you had 4 quarters of double-digit organic growth in the core OTC business and then a number of quarters with kind of low- to mid-single digit organic growth. I'm just trying to get a better handle on the variability from quarter-to-quarter over the last couple of years. Is that just kind of a normal course of doing business? Is it amplified by new product introductions? I'm just trying to get a better sense for why such volatility.

Well, I don't -- I think, John, as you can see, it's not happening in any one quarter. You can see Q3 '11, Q1 '12, Q4 and then Q2. So it's happening in different quarters. I think the way I look at it candidly is look at category growth over those last 9 quarters. Category growth is -- I'm going to say, if I did it in aggregate, it's for sure, 0% to 2%. So every one of our quarters, we're outgrowing the category. So candidly, just so I'm clear, I look at 3.7% last quarter, and I'm thrilled with that, in terms of core OTC organic growth. It's just so happens, as I said to Joe, that a number of our brands really, really dialed it in from a consumption standpoint for different reasons this last quarter. Do I think we can sustain ongoing double-digit core OTC growth? I don't think that's possible in this category. Do we think we can sustain solid single-digit growth and outgrow the category for the foreseeable future? Yes, we do and that's what we're trying to do.

Okay, that's helpful. Just sticking with that for a minute. So over the last 9 quarters, so you're -- you've kind of taken your view kind of the aggregate performance. It's clear that you're outperforming the categories, and you're taking market share. Have you seen any kind of competitive response to your share gains? Or is there anything that you see competitors doing in terms of dialing up their response, because you've dialed up your performance as well?

John, I'd say a couple of things. Number one, we have the ultimate respect for all of our competitors, and so we don't take them lightly. We have respect for what they do. There isn't anything we've seen specifically with one of our core brands where people are doing things markedly different to come after us. And so we're trying to focus on our brands and what we do with the consumer and how we connect to make a difference with those consumers. And we haven't really seen market changes from any of our key competitors.

Okay, terrific. Last -- just one more, guys. The gross margin rate in the quarter was terrific. I guess around 57%. Ron, I think you mentioned that the increase on a unit year-over-year basis was twofold, part -- driven in part by the GSK acquisition and then also improvement in, I think, you said improvement in the gross margins in the legacy business. Is there any -- can you kind of get a little bit more granular on that in terms of the relative contribution of those 2 factors? And what's driving the gross margin improvement in the legacy business at this point?

So John , the first question, what's the relative proportion of the increase in gross margin between the impact of the GSK acquisition and the gain in the legacy business. The vast majority of the gain is coming from the impact of the GSK mix. So the higher gross margin on the GSK. In addition to that though, we have seen an increase in our legacy OTC gross margins do both to mix. We've had some increases in sales in our higher gross margin categories and brands, in addition to realizing some ongoing cost-reduction improvement programs that we've had in place.

Your next question comes from the line of Frank Camma with Sidoti.

Just couple of quick questions. One is on your G&A expense. After adjusting it for the adjustments you called out, basically essentially flat from prior quarter, is that something we should expect? Or should we expect that to tick up as you -- I know you've obviously moved into a new headquarter, so we should have some expense there, but is there much that we should expect from additional G&A that you took on from GSK?

Frank, Ron here. In general, our G&A expense should be fairly consistent quarter-to-quarter. We may have some small variability from time to time, but in general, we should be in the $22 million to $23 million ballpark each quarter. Excuse me -- for about $11 million to about $11.5 million, excuse me.

Right, right, right. Okay, good. And I noticed -- it's not a big part of the story anymore, but I notice that the Household Cleaning sequentially went up pretty nicely, the revenue at least. And I was wondering, is that a result of the new stainless steel cleaner? Is there something in particular that is driving that revenue -- improved revenue?

I think the revenue from Q1 to Q2 is up slightly, Frank; versus previous year's quarter, it's down. We're seeing -- where we are seeing the benefit in household is the new -- the introduction really of Comet 2X, with twice the bleach, which is driving incremental sales.

And how is the -- is the competitive landscape still the same in that business, a lot of discounting and such?

Yes, the category -- I mean, category remains very, very price-value-oriented and overall, category trends continue to be negative.

I would now like to turn the call over to Mr. Matt Mannelly, CEO, for closing remarks.

Okay, again, just in closing, I think most importantly, we'd like to thank everyone for joining us on the call today. I know it's been a very difficult week for those who live in New York and New Jersey and Connecticut. And we really appreciate you making the extra effort. And, as I said at the beginning, most importantly, if you or anyone has been affected, we wish you a very successful and speedy recovery. So thank you very much, and have a good day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.