Welcome to the Prestige Brands Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Philip (sic) [Phil] (00:25) Terpolilli, Director of Investor Relations. Sir, you may begin.

Thank you, operator, and good morning to everyone on the phone. Joining me on the call today are Ron Lombardi, our President, Chief Executive Officer and Chairman of the Board; and Christine Sacco, our Chief Financial Officer. On today's call, we'll cover highlights of our fiscal 2018 second quarter, review the financial results, and provide an update to our full year outlook. At the end, as the operator mentioned, we will open up the call to questions. Please remember, some of the information contained in the presentation today includes non-GAAP financial measures. The reconciliations between adjusted and reported financial measures are included in today's earnings release and slide presentation. The slide presentation, which accompanies this call, can be accessed by visiting prestigebrands.com, clicking on the Investor link, and then on today's webcast and presentation. 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 risk and uncertainties, which in many cases are beyond the control of the company and may cause actual results to differ materially from those in the forward-looking statements. We have a complete Safe Harbor disclosure on page 2 of the slide presentation accompanying the call. Additional information concerning the factors that could cause actual results to differ materially from those in the forward-looking statements are contained under the heading, Risk Factors, in the company's annual report on Form 10-K, filed for the fiscal year ended March 31, 2017 with the SEC. With that, please turn to our earnings presentation, where I'll hand it over to our CEO, Ron Lombardi, to walk through the highlights of our fiscal second quarter performance. Ron?

Thanks, Phil, and good morning, everyone. Let's begin on page 5 of our presentation. In the second quarter, our results were underpinned by strong consumption trends, consistent with our expectations. Solid consumption growth and market share gains in both Q2 and first half of fiscal 2018 are continued evidence that our long-term strategy is working. Although Q2 financial results were impacted by the timing of quarter end shipments, which we will discuss today, the underlying execution of our strategy, and most importantly, brand building efforts are unchanged. We generated approximately $55 million of free cash flow, enabling us to increase our M&A capacity during the quarter. Consumer takeaway remains strong and we continue to win market share with our portfolio of leading brands. As a result, we continue to feel good about our fiscal 2018 outlook that we set back in May. Let's turn to slide 6 and walk through a more detailed review of our Q2 results. Details for the quarter include a net sales increase of 20% to $258 million in the second quarter. Pro forma revenue was down slightly at negative 0.3%, which includes an approximate $8 million impact from the timing of customer deliveries. We'll go into a more comprehensive discussion of this later in our presentation, but we believe the factors impacting increased shipment times are temporary and see this as a timing shift in deliveries. Our total company consumption was just under 3% in Q2. We were pleased with this performance, particularly in a challenging retail and consumer environment and view the result as evidence that our long-term brand building strategy continues to drive results. We reported adjusted EPS of $0.61 during the quarter compared to $0.63 in the prior year. This EPS performance was clearly affected by the timing of revenue in the…

Thanks, Ron. Good morning, everyone. I'll walk through our second quarter results in greater detail and provide an updated context around our expectations for fiscal 2018 by line item. On slide 12, we have our high level second quarter performance. Total revenue growth was 20% for the second quarter fiscal 2018, while adjusted EPS decreased approximately 3% in the second quarter versus the prior year. These items were impacted by the previously mentioned $8 million top line impact related to the timing of customer deliveries and resulting profit implications. Adjusting for this, our results were in line with our Q2 outlook for pro forma revenue growth and EPS. Moving on to slide 13. We have our abbreviated P&L for the fiscal second quarter ended September 30, 2017. As a reminder, the information in today's presentation includes adjusted results that are reconciled in our earnings release. As I mentioned on the prior slide, our revenues increased 20% in Q2. Fleet contributed $51.7 million of incremental revenue in Q2 growing 3.7% year-over-year or approximately 7.5% adjusted for customer delivery timing. Strategic divestitures executed last year totaled approximately $6 million. Pro forma with Fleet, second quarter revenue declined 0.3%, which reflects the $8 million impact related to timing of customer delivery. We adjust for this delivery timing, pro forma revenue growth would have approximated 3%. We anticipate the customer delivery impact to normalize in our results over the next few months, and therefore, we expect a higher pro forma revenue growth rate in the second half versus first half fiscal 2018. Moving down the P&L, adjusted gross margin was in line with our fiscal full year expectations at 56.3% for the second quarter versus 57.6% in the prior year period primarily reflecting the addition of Fleet. In terms of A&P, we came in…

Thanks, Chris. Let me wrap up with some closing remarks and reaffirm our 2018 outlook beginning on slide 16. Our business outlook for the full year is unchanged. In the first half, we experienced continued solid consumption growth for our business. Our diverse needs-based portfolio is winning share in the marketplace and is well positioned to continue growth in fiscal 2018. Although we remain cautious regarding the challenging retail and consumer environment that we have seen over the past few years, our portfolio of category-leading brands and our focus on winning with the consumer leaves us uniquely positioned for long-term growth. For fiscal 2018 revenues, we continue to expect 2% to 2.5% pro forma revenue growth, driven by our Invest for Growth portfolio. Based on the first half performance, this implies second half growth above first half at approximately 2.8% to 3.8%, attributable to the normalization of delivery timing and ongoing consumption growth. Adjusting for the $8 million delivery timing impact, our first half growth would have been plus 2.8%, implying second half growth of plus 1.2% to 2.2% to our guidance range. Keep in mind that because of strong prior year performance, Q3 will be our most difficult comparison in fiscal 2018, and therefore, would expect Q3 growth to be below Q4 pro forma growth. For EPS, we are affirming our adjusted EPS outlook of plus 9% to plus 13% versus prior year or $2.58 to $2.68 per share. For free cash flow, we continue to anticipate $205 million or more, equating to $3.83 or more on a per share basis. Both the long-term and short-term progress has been driven by our three-part strategy that focuses on winning with consumers, growing our market share and delevering to reduce interest expense and provide resources to invest behind brand building and M&A. We've made progress on each of these three pillars in the past year, growing our base business, consistently paying down debt with our steady cash flow, and acquiring the Fleet business back in January. We will continue to execute against these proven pillars as we move forward in fiscal 2018 and beyond to create value for our stakeholders. With that, let me turn the call over to the operator who will open the lines for questions. Thank you.

Our first question comes from the line of Steph Wissink with Jefferies. Your line is open.

Good morning, everyone. We have three really quick questions. Chris, just the first one for you. I think you quantified the shipping shift as $0.05 to the quarter, head back into that, it looks like it was a relatively high margin rate on that shipment. Can you just talk a little bit about how we see kind of back in to what the operating income impact would be and what that implies for the margin on that shift and what we'll see in the next quarter. And then secondly, Ron, a question for you on the A&P step-up. I know you talked about this as part of your program plan, but what areas are you investing most heavily in, what brands? What should we be looking for as we're walking through retail in terms of some of that incremental A&P. And then just last one for either of you, the free cash flow pace kind of year-to-date is running a bit ahead of that $205 million at the midpoint, so I'm just curious if you can talk a little bit about where you're seeing some incremental benefits in your free cash flow conversion relative to the total year plan. Thank you.

Good morning, Steph. Why don't I start with your A&P question, then I'll let Chris comment on the EPS and the free cash flow run rate. So our A&P efforts are largely concentrated around our biggest brands. We've got five brands that make up about 60% of our revenues. So our efforts are largely concentrated there. And depending on the brand, our investment can be around new products and innovation as well as connecting to the consumer through TV, digital or through other vehicles. So we have a broad-based approach at investing behind the brands for long-term growth and really depends on the individual brand over time. And again, in terms of the first half, our A&P as a percent of sales was just about 15%, which is pretty close to the full year outlook of just under 15%.

Great. And Steph, just to address your first question on the timing of shipment deliveries, the $8 million across the portfolio is broad-based. So in terms of gross margin impact, it was really largely margin neutral. So, as you think about levering the other items of the P&L, you can get yourself down to a size approximate $0.05 hit related to the shipments. In terms of the free cash flow pace, first half was strong. We're pleased with it. There's always variability from quarter-to-quarter, primarily around working capital. So we continue to feel good about the $205 million or more that we've guided to for the year.

Thank you.

Thank you. And our next question comes from the line of Jason Gere with KeyBanc Capital. Your line is open.

Hey, thanks. Good morning and thanks guys for going through all the explanation of the shipping delay. I guess the first question I have on that is, what gives you the confidence that it's going – I mean, I know you've seen, I think in October you said you saw some of the delay come in but that you can actually make up over the next couple of quarters as opposed to that it could – some of that could be just lost in an environment where there's destocking going on and retailers are just holding inventory. And I know your consumption trends have been good so far. So what, I guess, gives you the confidence that you will be able to kind of stick to that pro forma revenue guidance despite this $8 million shortfall in the quarter?

So, Jason, the $8 million was really as simple as deliveries on the road that didn't make it to the retailer distribution centers by the end of September as a result of having to use different trucking companies than we had – we would normally use. So there was no impact on customer order rates or destocking or any other factors. As matter of fact, our consumption continues to be solid and we saw fairly normal order patterns from the retailers during the quarter. So it's as simple as the stuff was in transit, just didn't get there by the end of September as it normally would have. And as I mentioned during my remarks, we actually saw the beginnings of an improvement and heading back to a normal delivery time in October.

Okay. No, that's good. That's kind of what I was hoping to hear. Two other questions, I guess. One, if you could just talk maybe a little bit about international, saw a little bit more of a slowdown in the core business there and I think the comparison is a little bit easier. Just wondering if there's anything – if it was just a stronger first quarter and you were expecting the second quarter to be a little bit softer because I know overall you're saying the – ex the shipment delay, sales would have come in line. But I was just wondering if you could talk about the international market and then I have one small question afterwards.

Yeah, Jason, this is Chris. So international continued to see strong consumption, led by our Care Pharma business in Australia. As we've noted, we can see variability between quarters and retailer order patterns, but consumption remained solid and we have since seen our order patterns normalize there.

Okay. Great. And then the last quarter question. Ron, did you say what Fleet's sales growth was year-over-year on a pro forma basis as compared to last quarter. And I was just wondering if you could talk about the sales growth you saw relative to the step-up in advertising that you've put behind the business and how that's performed relative to your expectations. Thank you very much.

Sure. It was 3.7% without normalizing for the in-transit increase and 7.5% with it. And consumption was fairly close to that. So the business continues to perform well during the quarter. We continued to support the Summer's Eve Simply launch, which has largely been incremental to the category for the retailers and for ourselves. So we continue to be very pleased with the progress that the brand has made under the last eight or nine months of our ownership.

Okay. Great. Thank you very much

Thanks, Jason.

Our next question comes from the line of Linda Weiser with Davidson. Your line is open. Linda Bolton Weiser - D.A. Davidson & Co.: Yes, hi. So there's been quite a bit of movement in drug stores' stocks recently, reaction to Amazon's potential entry into the Rx drug area. If drug stores were to be impacted in some way by that, just in terms of the foot traffic in the retail stores and the drug stores, how would that affect you? I mean even though the Rx area is not one that you're in, would that have some kind of tertiary effect on the front of the store performance possibly.

Linda, our focus is to win with the consumer, continue to reinforce our brand heritage with consumers, right. We've got a broad portfolio of brands that have long connections and heritage and trust with the consumers. And evolving – a change in where consumers go to buy those products, right, needs based. Customers go to look for these products because they have something they want to treat. Really, we don't think is going to impact us. Our strategy is to make sure that we've got those products available wherever they may show up, whether it's drug, mass, grocery and online. We've made an investment in focusing on making sure our brands are available online. And we've seen nice growth in that, although starting off with a very small base. So we don't think that it's going to impact us over the long term, provided we continue to make progress and having our products available where consumers show up to buy them. Linda Bolton Weiser - D.A. Davidson & Co.: Okay. And just so I'm clear on the next quarter and what you're talking about. You emphasized that you have a difficult comparison, so we should be careful in our pro forma sales growth projection. But on top of that, are you suggesting we just, whatever our estimate would have been, that we just add $8 million of revenue to the third quarter projection that we otherwise would have had?

Yes. And I also made the comment that year-over-year growth in Q4 will be stronger than Q3 because of the stronger comparison point last year. Linda Bolton Weiser - D.A. Davidson & Co.: So it'll be stronger even with including the additional $8 million in the third quarter?

For year-over-year, yes. And again as a reminder, last year in Q3, we saw kind of a shift in orders from – excuse me, from Q2 into Q3 because of retailer destockings. So we had a little bit of an abnormal quarter last year to comp against. Linda Bolton Weiser - D.A. Davidson & Co.: Okay. Got you. And then finally, in terms of just your attitude toward capital structure, I mean we've seen you operate with this high financial leverage and then delever with your strong cash flows. Is there anything in the macro environment that you could see that would make you be more reluctant to carry high leverage? So, if we were to fall into a recession, even though you're kind of recession resistant, would that effect the way lenders would think about lending to you? Is there anything that you could think about that would really make you kind of change your attitude toward that?

Sure, Linda. There's a number of different factors we would contemplate in terms of deciding what level of leverage is right for the company. It first starts with the profile of the targeted opportunity; that plays a big factor, what's the risk profile. The second is the increasing cost of debt; the Fed is in a stated long-term path to meaningfully increase interest rates. That's going to affect the level of leverage that we would consider over the long term. And then, of course, the operating environment and the sales environment that we're in. So these factors have been considered all along the last seven years as we've decided what the right level of leverage would be for the company at any given time. Linda Bolton Weiser - D.A. Davidson & Co.: Okay. Thank you very much

Thank you, Linda.

Your next question is from the line of Jon Anderson with William Blair. Your line is open. Jon R. Andersen - William Blair & Co. LLC: Good morning, everybody. Thanks for the questions.

Good morning, Jon. Jon R. Andersen - William Blair & Co. LLC: I apologize if I missed this. Could you talk a little bit, Ron, about where you are in terms of the blocking and tackling aspects of the Fleet integration, what's been accomplished, what's left to be done, and the kind of the synergy realization around that? And then can you talk about the ability to leverage some of the assets that you acquired with Fleet, principally the manufacturing facility in Lynchburg, some of the plans going forward?

Sure, Jon. So, first, the Fleet business is largely integrated into the company. That's one of the things that is a core competency for us, is to really quickly integrate the acquired businesses into our infrastructure. So that's largely behind us. One of the big milestones was back in the end of our first quarter when we had converted the order-to-cash cycle and got the warehouses consolidated. So that's largely behind us. In terms of the synergies, I think we had a target of approximately $18 million or $19 million. The actions behind those dollars again are behind us, so those synergies have been realized and we'll see them in the go-forward results of the business. And then finally, we've got the longer-term fill-the-factory project; any change in an OTC supply chain takes two to three years, and in some cases longer. So we'll be looking at different opportunities to move product into that Fleet factory over the midterm Jon R. Andersen - William Blair & Co. LLC: Okay. Is your mindset today with – even with the heavy lifting around the integration done, is your mindset today that you've got another six to 12 months of work to really optimize the performance of that business or kind of carry it forward on your platform before looking or considering other strategic actions, other kind of M&A scenarios. I'm trying to get a sense for not – you can't get specific around this, but overall organizational kind of readiness, financial capacity in your mind as you kind of sit here today and look at the business?

Sure. When we think about M&A, we always start with the question of, is the organization ready to successfully deal with an opportunity. And with the Fleet integration pretty much behind us, we're at the beginning stages of being able to answer yes to that question. Clearly, additional time would be better to continue to make progress with the Fleet business. However, we don't manage the timing of opportunities when they show up. So we have to be obviously proactive and reactive in terms of the opportunities that show up. In terms of financial resources, we leveraged at the end of September 5.5 times. Although our capacity is building, we don't have a big pot of M&A capacity readily available. But each quarter we meaningfully add to it. So, if the right opportunity showed up, we'd have to figure out how to get it done. But in the meantime, we will stick to our knitting and focus on moving our business forward. Jon R. Andersen - William Blair & Co. LLC: Excellent. Two quick kind of channel questions that are related. Any trend change in your retail customers' emphasis on inventory levels and/or pricing in your categories? And then on the e-com side of your business, I think it's a very low single-digit part of your business, but as you think about that growing more rapidly over time, are there margin implications that need to be considered as well? Are those more kind of at parity with your brick-and-mortar business? Thanks.

Sure. We didn't see any meaningful inventory level reductions by the retailers in the past quarter. Although over the last few years, it's been a steady slight headwind for us and we continue to expect it to continue going forward. Pricing has been fairly consistent for us. We haven't seen any meaningful changes or pushback from our retail partners around pricing. So, for us, in our needs-based categories which are important drivers for the retailers have been pretty steady. And then in terms of e-commerce, right, we started off with about 1% of our sales in that space. It's been fast growing. We're looking to double that level of sales, although from a very, very small base this year. But the pricing and margins on that have been fairly consistent and okay for us. So we're not at any disadvantage by growing in that category. Jon R. Andersen - William Blair & Co. LLC: Thanks so much.

Thank you, Jon.

Our next question comes from the line of Joe Altobello with Raymond James. Your line is open.

Hi, good morning. This is Christina (36:16) on for Joe. Most of my questions have been answered. But I guess, are you seeing any changes to private label market share within your categories?

Yeah, good morning, Christina (36:28). No, private label penetration has been steady in the categories that we compete in, so we haven't seen any change in that over the last few quarters.

Great. Thank you so much.

And I'm not showing any further questions. So I'll now turn the call back to management for closing remarks.

Okay. Thank you. Thanks everyone for joining us this morning. Have a good day.

Ladies and gentlemen, this does conclude the program. You may now disconnect.