Prestige Consumer Healthcare Inc. (PBH) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Q1 2015 Prestige Brands Holdings, Inc. Earnings Conference Call. My name is Marie, and I will be your operator for today. [Operator Instructions] As a reminder, this conference call is being recorded. But now, I would like to hand the call over to Dean Siegal, Director of Investor Relations. Please proceed.

Good morning, and welcome. As a reminder, there's a slide presentation, which accompanies this call. It can be accessed by visiting prestigebrands.com, clicking on the Investor Relations link, and then on the Q1 link. I am required to remind you that during this call, management may make forward-looking statements regarding their beliefs and expectations as to the company's future business prospects and results. 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 expectations You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the day of this conference call. A complete Safe Harbor disclosure appears on Page 2 of the presentation accompanying 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, which it files with the U.S. Securities and Exchange Commission. Now I'd like to introduce Matt Mannelly, CEO; and Ron Lombardi, CFO.

Good morning. Thank you, Dean, and thank you, everyone, for joining us today this morning. We appreciate it. As Dean said, we have a investor presentation that we typically follow. So I'll try and tell you when to turn pages. This morning, similar to past calls, I'll start off and I'll talk a little bit about the highlights of the quarter. Ron will then give you a financial overview, and I'm going to make a couple of comments regarding M&A in terms of the market, as well as our outlook for the remainder of the year. So with that, if you would please turn to Page 5 of the presentation. I'd say in general, for us, we're quite pleased; a very solid start to the fiscal year. Our Q1 net revenue of $145.7 million was up 2.2% versus prior year, and our adjusted EPS up 2.5%. Cash flow of $29.2 million was up 36.1% versus prior year. And I think one of the things that I'm most pleased about is our core OTC consumption growth of 2.5%, excluding pediatrics and GI, is back growing again and we're quite pleased with that. From a brand building standpoint, we continue to invest in new product introductions, and Fresh Guard and Beano Dairy Defense were introductions that came through in the first quarter. We have several new advertising campaigns that broke, including Fresh Guard, Beano, as well as Clear Eyes. A new Clear Eyes campaign with our spokesperson, Vanessa Williams. And finally, very recent and very exciting news in terms of some "speedy," as I said, brand exposure through our sports marketing association with Daytona and recent Pocono champion, Dale Earnhardt Jr. And that's been a relationship that we have fostered the last couple of years, and we've gotten significant brand awareness for BC and Goody's as a result of that. In addition, as you are probably aware, we closed our acquisition of Hydralyte at the end of the month of April, and that integration is well underway and running quite smoothly right now. And in addition, more importantly, we have a pending acquisition of Insight Pharmaceuticals that, as of right now, is on track to close by the end of September, and that really is going to be transformational and a game changer for us with our first $100 million brand. So we're quite excited about that. I'd say, in summary, for the performance, very strong first quarter. We're on track to continue to deliver strong financial performance for 2015. We feel very good after Q1, especially in this environment in terms of the results and we still believe we're going to deliver 15% to 18% sales growth, adjusted EPS of $1.75 to $1.85, with that all important free cash flow of approximately $150 million for the year. So with that, if you'll turn to Page 6. And as I said on the previous page, one of the things I'm most pleased about is our improved consumption performance in the first quarter. You can see here, again, total consumption and then consumption, if you exclude pediatrics and GI, which we've broken out the last couple of quarters, and you can see the improvement in Q1 versus all of FY '14. So we're quite pleased, at the end of the day, that consumers are picking up our product more often off-the-shelf than over the previous year. Page 7. And again, I caution this, and I said this in the past over the last few years, this is really directional because it doesn't cover all the channels, it doesn't cover all the accounts, so we don't look at it specifically. But that said, our consumption has outgrown our shipments, has exceeded our shipments for 3 straight quarters. So as I said, that's directional. It's not meant to be absolute. But the fact that it's 3 straight quarters is a good sign for us that our consumption is exceeding our net shipments. With that, if you'll turn to Page 8, and what that's led to is, again, if you exclude -- this is not only exclude this year, but exclude in previous years as well to make sure it's apples-to-apples: pediatrics and GI, you can see that the consumption gains are leading to market share gains. And record market shares at 10.6% and excellent market share gains across the majority of the portfolio. So at the end of the day, we're quite pleased with the consumption gains, which are leading to excellent market share gains as well. A couple of examples from a brand standpoint. If you turn to Page 9. Some examples of brand building include--Luden's is a great one. So I think many of you probably can relate to, in the lower left corner, the white Luden's box that's been around for a number of years. And it really is a terrific brand with great brand equity, but when we bought it, it had not had much in terms of investment over the last several years and we've really changed that. And you can see on the right hand side, a 3-year CAGR of plus 8%, which is twice as high as the category rate over that time period. And in fact, our Luden's Wild Cherry 30-count is the #1 selling throat drop in the category, so we're quite pleased with what we've been able to do with that brand. If you turn to the next page, in terms of brand building in action, I'll just call out, we're really excited about the new flavors that we're introducing. And those new flavors, I think, for us, we're saying here: new flavors for a new generation and broader consumer appeal. New Watermelon and Blue Raspberry, as well as a new Sugar Free Black Cherry flavor. So we're excited about what those can bring to the franchise. Moving on to Page 11. This is something I have briefly touched on in the past, and I thought I would reference it today because it's becoming more and more important to us, and that is digital and social media and our investment in that area. And as you may recall, when I came 5 years ago, we were spending $0 in that area. And I think over the last 3 to 4 years, you can see here, we've done a lot of learning in terms of our investment focus, starting with the basics and moving on from there. And you could also see that we're increasing our investment. As we're getting that learning, we're increasing our spend in terms of digital marketing over time. 5% back in '12, and this year it's going to be approximately 15% of our marketing spend. I think, if you think about that and turn to Page 12, some examples of what we're doing in digital marketing to drive -- to build brand equity and drive revenue, a couple of examples. For Dramamine specifically, we're doing very targeted digital media in terms of travel-oriented shoppers on certain websites, and we believe that's helped drive our consumption and our latest 12-week consumption growth is up over 9%. Luden's, I referenced earlier our 3 new flavors. I think this is an interesting example of how we came about those flavors. We utilized crowdsourcing in terms of feedback from consumers to get their thoughts on what should be the best new flavors, and that helped us in deciding to launch those 3 flavors that I referenced earlier. And then Goody's and BC, we've spent a significant amount of time in terms of social media, identifying brand influencers and having one-on-one dialogue. And our metrics there have increased significantly over time. If you turn to Page 13, I think, really what's exciting is where this is going. And if you think about it, real-time mobile marketing, and if you think about your smartphone, where it's going is, eventually -- and some of the things that we're looking at is, your smartphone eventually is going to be able to proactively tell you that there's a red alert in terms of FAN flu says that cough/cold incidences are up x percent in your region of the country, and they know where you live. It's also going to be able to tell you, we know you have 2 kids under 5 as a result of your Facebook page. And therefore, since we know you're by a CVS or a Walgreens or a Walmart, here's a coupon to go in to that store to buy some product to help you in terms of fighting the cough/cold season. So that type of marketing is not too far off. Those are some of the things that we're looking at, and it's actually very exciting in terms of where it's going with digital marketing and we're learning and trying to be a part of that moving forward. Turning to Page 14, I referenced at the beginning that our Hydralyte integration is proceeding on schedule. I think what I would think about Hydralyte and what this page tries to point out is, we just closed -- really at the end of April, May 1, it's only been a few months. We have clearly identified, not only are we integrating it, we have identified the priorities and are working against tangible initiatives within the first 3 months to make a difference on the business. First of all, we're transitioning the sales of Hydralyte to our sales force, which will take effect September 1, and we're training them right now towards that. So that's very exciting that we're taking control of the sales with our own direct sales force in that region of the country when it's been run by brokers. Second of all, we've introduced 3 new products in terms of Hydralyte already. We have a new ad campaign. We're optimizing our marketing spend. We're putting more money in the season behind Hydralyte. We are also getting ready in this fall to expand Hydralyte to New Zealand. And then finally, which Ron's referenced in the past, we don't talk about quite a bit, but we're also looking at some cost improvements in the supply chain that we believe can make a significant difference moving forward. Moving onto Page 15. I also referenced that we are on track to close by the end of this quarter for Insight Pharmaceuticals. And I'm pleased to report that we, as of today, we are on track. And I think as I've said, this is transformational. This is really a game changer. You can see it in the numbers in terms of our revenue. On a pro forma basis, it goes from $600 million to $800 million. Our EBITDA goes from $200 million to $300 million. Our gross margin is accretive with this. And our pro forma EBITDA margin moves above 35%. So you can really see, once we close on Insight Pharmaceuticals, the magnitude of the impact that business will have on the company. So with that, let me turn it over to Ron, who will take you through the details of the financials, and I'll come back to make a couple of comments at the end.

Thanks, Matt, and good morning, everyone. And I'll be starting on Slide 17. So as Matt has described so far, we are very pleased with our results during the quarter, given the challenging retail and competitive environment. Our 3-pronged strategy of focusing on core OTC growth, using our strong and consistent free cash flow to rapidly delever and to actively and aggressively participate in M&A continues to deliver results as evidenced in our first quarter results. Highlights for the quarter include: net revenue growth of 2.2% from our increasingly diversified portfolio and gross margins of 56.3%, which are positioned to increase to approximately 60% after we complete the Insight acquisition. We also reported adjusted EPS of $0.41 and free cash flow of approximately $29 million, which was 36% above the prior year's level. With a solid start to fiscal '15, we continue to believe we are well positioned to achieve our full year outlook for sales growth, adjusted EPS and free cash flow. Moving to Slide 18. We also announced today that we expect to launch financing for the Insight acquisition this afternoon. We expect to finance the acquisition principally through an add-on to our existing term loan and we expect to complete the acquisition by September 30, pending regulatory approval. We also anticipate that we will divest a small GI brand as part of the Insight portfolio in order to obtain regulatory approval. Our flexible capital structure and credit facility continues to provide us the ability to complete M&A transactions efficiently, as evidenced by the Care Pharma, Hydralyte and the soon-to-be-completed Insight transaction. In addition, our current capital structure and industry-leading financial profile continues to allow us to employ our aggressive and disciplined M&A strategy in both the short and long-term. Turning to Slide 19. We have our Q1 results. As a reminder, the information included in today's presentation includes adjusted results that excludes acquisition-related and other items. A reconciliation between these adjusted results and reported results are also included in today's earnings release. Our net revenue increased 2.2% to $146 million during the quarter. This increase was due to improved consumption trends in our core OTC brands and from the addition of Care and Hydralyte, which added $7.3 million to revenues during the quarter. Organic net revenue declined approximately 3% during the quarter, which was a meaningful improvement over the last 2 quarters of fiscal 2014. In addition, the revenue increase of 2.2% in the quarter has us well positioned to meet our sales outlook of flat to down percent [ph] for the first half of the year. Our Q1 gross margin was in line with expectations in prior quarters and decreased 2 points compared to last year's level due to household and OTC mix shift, as well as changes to promotional activity in response to the retail and competitive environment. We expect our Q2 gross margins to be in the same range and then increase closer to 60% in the second half of the year, with the addition and integration of the Insight portfolio. A&P spending increased 2.2% over the prior year to approximately $19 million during the quarter as the company continues to invest behind its core OTC brands. This strategy continues to yield results as highlighted by our record level of market share and core consumption gains that Matt described earlier. G&A, as a percent of revenue, increased slightly over the prior year's level to 8.1% due to the Care and Hydralyte acquisitions. Adjusted net income and adjusted EPS increased approximately 2.5% during the quarter, with adjusted EPS of $0.41. Turning to Slide 20. We have a summary of our free cash flow for the quarter. Prestige's consistent and significant cash flow trends continued during the quarter. The business generated approximately $29 million of free cash flow during the quarter. We had approximately $16 million of cash on-hand at the end of the quarter, with a net debt balance of approximately $957 million. Our debt-to-covenant defined EBITDA ratio was approximately 4.6x, which was an increase of approximately 4/10 of a point from March's level due to the closing of the Hydralyte acquisition during the quarter. We continue to expect full year cash flow of approximately $150 million to rapidly delever after the Insight acquisition is completed and to have a meaningful increase in M&A capacity by year end. At this point, I'd like to turn the discussion back over to Matt.

Thank you, Ron. If you turn to Page 21. I thought before I get into really the outlook for the remainder of FY '15, you may recall last quarter, if you look at the investment presentation, I shared some thoughts regarding the M&A environment. I think things have happened -- much has happened since that time, so I wanted to briefly to kind of communicate our perspective regarding what's happening with this important pillar for Prestige. And as Ron has pointed out, it's 1 of our 3 key strategies in terms of delivering shareholder value, along with driving core OTC growth and exceptional free cash flow. So if you turn to Page 22. I think, if you step back and look at it, what's going on in the marketplace, there's potentially a significant pool of M&A opportunities that have resulted from a number of actions taken by the large pharma companies. If you look here, you can see everything from a joint venture with GSK and Novartis. And when you look at the combined portfolio, I think there are opportunities there for potential rationalization. Those companies have done that in the past. And in fact, Prestige has a history with GSK in terms of portfolio rationalization and buying some of their brands. The second one is Bayer's acquisition of Merck, which is a $14 billion acquisition. And again, when you combine that portfolio, there's potentially some opportunities for rationalization. And it's primarily North America-focused. And then finally, and the reason I bring this up, this topic, is really what P&G announced last week, on Friday I believe, in terms of their divestiture and their plan to focus on 80 brands and really divest 90 to 100 smaller brands, and most of those under $100 million. And they participate in the OTC market, and they have some brands, brand or brands, that are in our sweet spot. So when you step back and, again, the reason I'm bringing it up is with P&G's recent announcement, when you step back and look at this in aggregate, it says that there's a real sea change going on right now. If you turn to Page 23, this is really meant to be just an illustrative example, nothing more, all right? And it's meant to show that we review portfolios of our competitors on a regular basis as part of our M&A focus. You can see here -- again, as an illustrative example, just a few thoughts, all right? And that is, if you look at the top, at the categories: oral health, cough/cold, analgesics, et cetera, skin care, GI. You can see the value of those categories are about $14.5 billion, all right, across those categories. And you can see, there's significant overlap in terms of those categories and their brands, and where Prestige already participates in terms of categories in which we play in. I think the second thing that's interesting is, of that $14 billion, there's $4 billion of under-$100 million brands, very significant. So this is really just meant to give you some insight as to how we look at companies, categories and brands and how we monitor it and some of the work we do on a continuous basis in terms of M&A. And point out that, when you step back and look at it across all of these portfolios, there are clearly opportunity for Prestige, and it makes sense. And if you move on to Page 24, I think what I would say, and the question I get asked a lot is the state of the M&A market. I think, right now, the market's the most prolific it has been in the last 5 years that I've been here, all right. And I would think, based on the previous pages that I just talked about, there's likely, as been stated by some companies, to be portfolio rationalizations from some of the existing transactions in the next 12 to 24 months. I think an example is GSK, when they announced a couple of years ago that they were going to divest the bottom 10%, as well as P&G's recent announcement last week. May, just may set the stage for other similar announcements from other large players as well, and we've seen that happen in the past. And it's not just the big pharma companies. There are also opportunities in terms of family-owned and private equity as well, as we've seen the private equity market has heated quite a bit in the last 12 to 24 months. And when you think about it, and the reason we point it out is a couple of reasons. Number one, we're a very logical player for some of these acquisitions and a logical choice since we're the #1 independent OTC company in the United States. And we've said it in the past, we're ready and able to capitalize on new market opportunities. We have been, and will continue to be, very aggressive and disciplined in terms of M&A. We have a well-established criteria of what we look for. We have demonstrated and proven that we can create value with these acquisitions. And as I said, the reason we talk about it is this is a, not the only, but a key strategy for us in terms of building shareholder value. So with that, if we can turn to Page 26, talk a little bit about FY 2015, our outlook for the remainder of the year. I'd start by saying, the business, the state of the business and the environment in which we're operating in terms of what I just talked about, positions us very well to continue to create shareholder value, all right? From a near-term outlook, I'd say we're cautiously optimistic. And the reason I say that is a couple of fold. First of all, I'm quite pleased as I've said, and Ron said here, with our improved consumption trends and our market share gains. And the state of our business and the momentum of our business right now seems to be picking up. That said, everything you read and see says it's a very challenging retail environment that provides some uncertainty. And foot traffic continues to be a challenge with retail and all the channels in which we compete in general. We have a very positive momentum heading into the second quarter. However, as you look at our numbers, and we said in the past, and these are in our numbers, our year-over-year comps for the second quarter are the strongest comps of the whole year. And as is traditional for the second quarter every year, our cough/cold order patterns and the levels that the retailers take in the second quarter varies year-to-year in terms of Q2 and Q3, and we can't predict that with 100% of certainty. So we call this out every year in Q2 and Q3 and it's changed in terms of our order patterns year-to-year. So there's always that risk in the second quarter. Ron pointed out that in the first quarter, we gave outlook of plus 15% to 18% for the year. And we also gave outlook of flat to minus 3 for the first half. I would say, based on the first quarter results, which we're quite pleased with, I'd expect us to be closer to the top end of that range in terms of the flat to minus 3. So, again, that's why we're cautiously optimistic. We're going to continue to invest and build our brands. We're going to continue to focus on new products. We're going to continue to focus on our brand communication and new vehicles like the digital marketing that I talked about. I think it's interesting to note that in tough economic times and tough retail times, we've not pulled back our spending. We've continued to invest in the brands. And candidly, I think part of that investment last year has led to some of the momentum in the first quarter this year. So I think it's proven to be the right thing to do long-term. In terms of M&A, I've already talked about it. That first of all, we're going to continue to be aggressive and disciplined. We're going to focus on integrating the current Hydralyte acquisition. And when we close on the game changer acquisition of Insight, we're going to focus on integrating that in. I think one of the core competencies of this company is execution and integration of acquisitions, and that we've proven that we can do that and create value through it. And then, finally, from an M&A, we're going to capitalize on that consolidation if and when it occurs. So I think in summary, I talked already about we're confident and we're reaffirming the outlook for the year. I think if you look at the numbers of revenue of plus 15% to 18%, EPS of $1.75 to $1.85 and $150 million in free cash flow, this will be significant improvement over the prior year and a major accomplishment. And we clearly believe that the team at Prestige is up for the challenge to deliver this in the fiscal year. So with that, I'll turn it over to any questions.

[Operator Instructions] And we have our first question and it comes from the line of Joe Altobello from Oppenheimer. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: First question, in terms of the M&A environment, Matt, you sound very upbeat on it this morning. Once Insight closes, I guess you guys will be about 5.8x levered pro forma. So on October 1, assuming it closes on the 30th of September, how big of a deal do you think you could do? And what leverage ratio are you willing to go up to?

Joe, let me start, and then I'll turn it over to Matt. So the first question really is, are we ready to address another M&A opportunity? Clearly, we've got to get Insight integrated and behind us. But really the answer to what level of leverage we'll be comfortable with depends on the profile of the target. So there's no one answer. Clearly, with how well Insight fits, we're comfortable at 5.7x.

Joe, I -- let me add to that a little bit. I think to kind of build on what Ron said. Our criteria is strategic, executional and financial. If a brand or brands in those portfolios or others were to be available in terms of -- to us and it was strategically correct, we clearly would pursue it and could pursue something of significance, and I'll talk about that in a minute. Because the other thing is, as Ron said, it's execution as well and our organization in terms of the way we built the organization, we're prepared to execute these type of acquisitions. From a financial standpoint, all right, for us, there are a number of different ways to fund acquisitions, all right? And I think, I'll just go back to, as an example, when we did the GSK North America brands, the acquisition was larger than our market cap at that time. So I think that took some people by surprise saying, "How could Prestige do something that big?" And I would say the same thing right now, our -- when we close, I think will be at a 5.7x, right, Ron?

That's correct.

We'll be at a 5.7x. I think people would say, "Well, clearly, they don't have that much capacity." Number one, we do have debt capacity. Number two, the type of acquisitions we do, and if it's within our criteria and everything, it frees up -- it allows us to do things, to acquire additional debt. And there are other things that we can do. There are other resources available to us to fund acquisitions. And if it proves to be financially viable that we could create shareholder value, we've said in the past and we continue to say that we'd consider those alternatives in terms of financing. Does that answer your question, Joe? Joseph Altobello - Oppenheimer & Co. Inc., Research Division: It does, it does, and that's helpful. And then secondly, just shifting gears a little bit in terms of the retail inventory environment. Your shipments, as you pointed out this morning, are still well below consumption for, now, 3 quarters. Where does inventory levels -- or where do inventory levels stand at retail? And are you starting to see the light at the end of the tunnel when it comes to destocking?

Yes, Joe, I think that's a really relevant question for right now. And what I would say is, I think, as of now -- I think, if you go back to the third quarter of last year, and you've heard this from a lot of companies, not just us, that's when inventory reduction really started. And it was a huge hit for a lot of people at that time in our third quarter, which is fourth quarter for a lot of other people. From what we said, and others I'm sure said too, that it's not a long-term strategy. They can't keep doing that. There's going to be out of stocks. So I think you're seeing that some companies, that pendulum has swung back a little bit, and I think inventory right now, to your point, not having inventory is quite reasonable and probably, actually, in our favor to a certain extent, right? And -- so we don't expect significant inventory reductions at this point. That said, when I say cautiously optimistic, retailers have proven that at the end of a quarter, or if they're not getting revenue, there are 2 places they go, inventory and in-store personnel. So I wouldn't rule out in the next year if foot traffic doesn't improve or it gets worse, that at times, they try and pinch inventory or in-store personnel to try and improve performance. So that's why I'm cautiously optimistic. But in general, inventory is in good shape right now. Does that answer your question? Joseph Altobello - Oppenheimer & Co. Inc., Research Division: It does. It does.

And our next question comes from the line of Frank Camma from Sidoti. Frank A. Camma - Sidoti & Company, LLC: Just wondering on Insight. Obviously, you're just really getting through Hydralyte here and still integrating that. But what can you do ahead of time to kind of get the jump on that as far as integration and such? And what are your plans there as far as combining everything?

I'll give you a couple of tangible examples, Frank, because this is what I mean by "it's a core competency for us," all right? We have already -- we don't own the business, let's be clear, right? Frank A. Camma - Sidoti & Company, LLC: Right.

We don't own the business today, so we don't make any decisions on Insight, et cetera. But for our own people internally, we have already met with our entire sales force and taking them through a deep dive of Insight in terms of the business, the brands, what we expect to do, et cetera, well in advance of us closing to educate our sales force because they're going out there trying to get the revenue. We have already announced personnel decisions internally in terms of we have someone who's heading up the entire Insight business, as well as a Director of Marketing to take over for Insight that we've already announced. And those people are in place full-time before us even closing. And the other thing that's important is, very similar to GSK, which was also a major acquisition for us, we have formed a working group and a steering committee that right now meets biweekly to go through the issues, actions, decisions, thoughts, et cetera, on what we need to be doing on Insight for us to prepare for the -- so the day we close, we hit the ground running. So we have plans, functional plans by every area right now that we're reviewing biweekly. And once we close, those meetings will move to weekly. Does that give you a flavor? Frank A. Camma - Sidoti & Company, LLC: Absolutely, absolutely. And the other question is, when you do close this, obviously, you become pretty, significantly more relevant to U.S. retailers at least. I mean is that going to help move the needle, you think, as far as -- I mean, we hear about certain -- I know you just answered this question a little bit, but I hear about certain retailers, at least in certain categories, going back to stocking the shelves? Do you think that will help open up the -- your shelf space a little bit?

I think where it helps, Frank, candidly for us is it helps more within the portfolio as opposed to across the portfolio, right? Frank A. Camma - Sidoti & Company, LLC: Correct.

So when we do these acquisitions, if we acquire more brands in cough/cold or analgesics, or in this case, we're building a fem hy platform, we have more clout with the cough/cold or fem hy buyers. And that's where we gain traction in terms of being able to participate in more of their programs, have greater shelf space, et cetera. So that's where we see the potential for us in terms of working with retailers.

[Operator Instructions] But our next question comes from the line of Linda Bolton from BED [ph].

Can I ask you about just the gross margin? I guess it was a little bit lower than I would've expected in the quarter. And in reading your presentation, you say gross margin reflects current retail and competitive environment. So do you mean, it's sort of a more protracted effort to do more trade promo given the environment, or is there particular initiatives that you had in the quarter? And I guess you already said the gross margin will be similar in the second quarter. But I'm just trying to gauge if this is like a permanent change kind of in the business because of competition or something else going on?

Yes, Linda, again, I think a very fair question, a very relevant question to what's going on in the marketplace right now. I think, I'd say a couple -- I'd try and answer it a couple of different ways. Let me step back and say, we've said in the past, we reiterated here, that with the acquisition and with our cost improvement programs, that we're tracking to move towards approximately a 60% gross margin, once we close and some of those cost initiatives come into play, et cetera. Second of all, our gross margin, if you look at our gross margin in Q1, it's very similar with the last 3 quarters, so we're really in line with that's been going on. To your point, it does reflect the current retail and competitive environment. We have moved some funds up top in terms of couponing and discounts, et cetera, as a result of the retail and competitive environment to help drive foot traffic at the retailers, all right? The other thing that I would say is I wouldn't call it permanent, and the reason I say that is, we track our spending and -- we call it push pull. What's our push spend and what's our pull spend? Meaning, what do we move through the trade and what do we move in terms of consumer spend? And we clearly, if you look at what we've done for brand building over the last 3 to 4 years, we like to keep within certain bandwidths or ratios in terms of push-pull. We're still within this bandwidth. So given our track record of brand building and given the fact that we monitor push-pull on a quarterly basis, I don't see us ever getting that far out of line of what we want do from being a consumer products company and a brand building company and having a certain ratio. So I'm not concerned about it long term because I know what our philosophy is in terms of brand building and what's the bandwidth that we want to be in. Does that help answer what you're looking for?

Yes, very much so. So also, when you talk about the Hydralyte transitioning to your own sales force, is that going to be smooth? Or sometimes, I've seen sales disruption result, but are you pretty confident that's going to be a smooth transition?

I have a lot of confidence that it's not only going to be a smooth transition, but it's going to be beneficial sooner rather than later because by us having our own direct sales force calling on those key accounts in Australia, I think we have more control over it. So -- and we have a high degree of confidence on our sales force in Australia, based on the results they delivered in the first year of the acquisition. So I'm very confident in the transition, and I'm not that worried about any disruption.

Great. And then I would just be interested if you have any view, I don't know how much you can say. But with regard to P&G's announcement on their divestitures of brands. I mean, I would think they would try to do as much in big chunks as possible, that's more efficient for them. So it would be a two-step process, maybe sale to a private equity firm, and then they would break off pieces maybe to resell. Do agree with that view? Or do you think it's going to be truly more of a piecemeal, or do you just have any opinion on that?

Yes, I don't -- well, first of all, whether it's P&G, or GSK-Novartis, or Bayer-Merck, or any -- Pfizer, anyone, that's their decision, it's not ours. And if you look at it, the big companies have typically, when they've gone through, I'll say more wholesale rationalization, they've tried to package things. And again, I think that plays in our favor in terms of we have the ability to buy packages. But as I've said, we don't control the selling side. We just need to be prepared and ready on the buying side. And I think we believe that we can compete in portfolio or packaging or individual process for those $100 million and under brands. So I think that scenario, as I said in here, I think it's going to take 12 to 24 months for a lot of that to kind of sort its way out executionally. But again, the reason we talked about it today was the latest announcement last week isn't just the only sign of that happening, it just happens to bring it to the forefront now. But when you step back and look at it, it's going on in a lot of places. So I think that's our point of view on it right now.

Okay. And then finally, can I just ask about the A&P spending? It's kind of roughly, kind of flattish year-over-year. You had a very high ratio last year in the second quarter. I don't know, Ron, if you can comment on what to expect. I would expect you would try to drive consumption again in the second quarter. But then, should we expect to see bigger increases in the second half once you fold in Monistat and start investing behind that?

The answer is yes, I think you will. And I think that's based on our history, Linda, that we've proven every acquisition that we've done, we've increased the spend behind those brands. And -- well, first, we do the work and once we feel we've got the work done and we've got the right solutions, we start spending immediately. So I would think in the second half, you would see that spend. I think if you look at our track record, you'll see that -- well, just take last year as an example. You'll see that the first quarter, even ex-acquisitions, first quarter is typically a low quarter for us from a spend standpoint, and then we start increasing it from there. So I think you would expect it to be up in the second quarter.

Ladies and gentlemen, that concludes your Q&A session. But now, I'd like to hand back to Matt Mannelly for closing remarks.

Okay. Thank you very much. We appreciate everyone taking time to join us today during this summer season, and we look forward to talking to you on the next call. Thank you.