Good day, ladies and gentlemen, and welcome to the Prestige Consumer Healthcare Q1 2020 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 be given at that time. [Operator Instructions] And as a reminder, today's conference call is being recorded.I'd now like to turn the conference over to Phil Terpolilli, Director of Investor Relations. Please go ahead.

Thank you, operator, and good morning to everyone joining us today. On the call with me are Ron Lombardi, our Chairman, President and CEO; and Christine Sacco, our CFO.On today's call, we will cover the highlights and review the results of our fiscal 2020 first quarter, review our fiscal 2020 outlook, and then take questions from analysts. We have a slide presentation which accompanies today's call that can be accessed by visiting prestigeconsumerhealthcare.com, clicking on the Investors' link and then on today's webcast and presentation.Please remember some of the information contained in the presentation today includes non-GAAP financial measures. Reconciliations between adjusted and reported financial measures are included in today's earnings release and slide presentation.During today's call, management will make forward-looking statements around risks and uncertainties, which we detail in a complete Safe Harbor disclosure on Page 2 of the slide presentation accompanying the call. Additional information concerning risk factors and cautionary statements are available on our most recent SEC filings and most recent company 10-K.I'll now hand it over to our CEO, Ron Lombardi to walk through the highlights of our first quarter performance. Ron?

Thanks, Phil, and good morning, everyone. Let's begin on slide 5. We are pleased with our solid start to the year and are on pace to achieve our fiscal year guidance. Q1 highlights include revenue of just over $232 million which was approximately flat to the prior year on an organic basis in the quarter, slightly ahead of our expectations offered back in May.Importantly, the consumption trends for our leading portfolio remain positive and we continue to expect approximately 2% consumption growth for the full year. EPS of $0.65 in Q1 was as anticipated given the divestiture of the Household Cleaning segment last July which we have now fully lapped.Finally, we generated approximately $51 million of free cash flow in the quarter which allowed us to repurchase shares opportunistically as well as reduce debt. Our capital allocation strategy continues to be enabled by our strong financial profile and consistent cash generation.Turning to Slide 6, we have further details around Q1 results. As I've just mentioned, our net sales were $232.2 million, essentially flat versus the prior year on an organic basis. Sales were positively impacted by strong topline results in our International segment with growth of over 15% after adjusting for FX. The performance was driven by both strong consumption trends in Australia and the timing of distributor orders in other countries.Domestic sales were positively impacted by a number of categories including strength in cough/cold and ear/eye care, but offset by retailer inventory reductions and changes at shelf in the oral care category.Women's Health performance continues to experience positive consumption trends, but sales also declined in Q1 affected by the timing of orders as compared to the prior year.Total company gross margin in Q1 came in at 57.7% slightly improved sequentially versus fourth quarter's 57.4% gross margin. Free cash flow…

Thank you, Ron. Good morning, everyone. I'll walk through our first quarter financial results in greater detail and offer some updated context around our expectations for fiscal 2020 by line item. As a reminder, the information in today's presentation includes adjusted results for the prior year that are reconciled in our earnings release.On slide 10, you can see our high level first quarter results, which include flat organic revenue of approximately $232 million and a slight EPS decline of $0.03 per share versus the prior year impacted by $0.04 per share of Household Cleaning that was included in the prior year.Adjusted EBITDA also declined versus prior year due to the divestiture of Household. As Ron noted earlier, we will fully lap the comparison impacts of Household Cleaning beginning in Q2.Now let's turn to slide 11, where I'll discuss consolidated first quarter results. For the first quarter fiscal 2020, our net revenues decreased 8.6% to $232.2 million, but were flat after excluding the effects of the Household divestiture and FX. Our top line was also impacted by retailer inventory reductions as assumed in our full year outlook.Gross margin was 57.7% for the first quarter, up 30 basis points sequentially. Looking ahead, we still expect full year fiscal 2020 gross margin of approximately 57.5%. In terms of A&P, we came in at 15% of revenue in Q1. As a reminder, we expect A&P spend to approximate 14.5% of sales for the full year with higher A&P spend in the first half versus second half.Our G&A spending was about 9% of total revenues in the first quarter, but was down slightly in dollars versus prior year, reflecting modest deleveraging as a result of the divestiture of Household.We reported earnings per share in Q1 of $0.65, representing a slight decline versus the prior year…

Thanks, Chris. Let's wrap up on slide 14. We are off to a solid start to fiscal year, driven by the continued success of our strategy. For net sales, we continue to expect fiscal 2020 to be in the range of approximately $951 million to $961 million. We continue to anticipate organic revenues to be approximately flat versus the prior year with Q2 revenues down modestly year-over-year.We continue to expect fiscal 2020 adjusted EPS in the range of $2.76 to $2.83, although we now anticipate being at the higher end of our outlook given our recent opportunistic share repurchase. EPS is still expected to be weighted more heavily in the second half due to the timing of A&P and G&A spend, compared to the first half of fiscal 2020. Regarding cash flow, we still expect full year adjusted free cash flow of $200 million or more for the year.So, in summary, one quarter into the year, we feel good about our guidance and growth prospects. First, our top-line results experienced solid consumption trends, market share wins and strong international growth.Second, our financial profile was stable in Q1 with consistent and strong cash flows and margins.Finally, we continued to effectively allocate capital both reducing debt and repurchasing stock in the quarter. These recent developments and our long-term success are underpinned by our proven three-pillared strategy.The company has a strong record of providing long-term growth through brand heritage, product innovation and channel development and we will continue in these efforts to drive similar results for the balance of fiscal 2020 and beyond.With that, I'd like to turn it over to the operator for questions.

Thank you. [Operator Instructions] And our first question comes from Joe Altobello from Raymond James. Your line is now open.

Hey guys, good morning. This is Adam [ph] on for Joe. I just wanted to ask with inventories up 9% and sales down 9% we'd just appreciate a little more clarity in reconciling this and then perhaps a bit more color on the destocking trends the headwind for the rest of the fiscal year.

So let me let Chris take the inventory question, and then I'll comment on the destocking. Chris?

Yeah. Hey, Adam. So, really two factors impacting the inventory; one we're starting to prepare for the warehouse move that we mentioned on the call today. So we'll start to see that ramp up and then it will come back down as we work through the transition. And we also built a little bit of inventory ahead of an SAP go-live at our Lynchburg facility during the quarter. So that will come back during the rest of the year as well.

So in terms of destocking Adam, we continued to destocking largely concentrated in the drug channel during the quarter. Continues to be in line with what we expected, not only in the first quarter, but what we expect for the full year as well.

Thanks, Ron and Chris. I appreciate that. And then if I could ask one more follow-up here. I was looking at the OTC gross margin having declining for three years now, down again in the June quarter. If you guys could provide a little more color there that would be helpful. And I was also looking at International gross margin being down rather significantly. So I know that that could, obviously. be volatile from quarter-to-quarter and you are lapping a tough comp but just wanted -- just was curious what was going on there?

Yeah Adam. So if I start with North America, remember if you're looking over time, we have certain stranded costs from Household that have remained now with the business. And we've also talked about the BC & Goody's packaging transition, which has impacted our margins in the North American business.On the International front, if you look back over time the prior year Q1 was really a bit more of an anomaly than this quarter. As you mentioned that business can be a bit lumpy given the distribution nature of it and so product and channel mix can really impact it. So I would say the current quarter was more indicative of the International gross margins.

Great. Thanks, Chris. Thanks guys, I’ll get back in the queue.

Sure.

Thank you. And our next question comes from Jon Andersen from William Blair. Your line is now open.

Good morning, everybody.

Good morning, Jon.

Going back to the inventory destocking for a minute, are you kind of a quarter in here I guess to the fiscal year, Ron is the destocking that you're seeing, is it really just isolated to the drug retail channel, or is there still work being done more broadly across channels?And then what kind of visibility do you have? Is this just really kind of a hold-your-breath-every-quarter kind of situation with respect to inventory destocking? Or is there a certain amount of visibility based on your assessment of where inventory levels are with a given -- in a channel and conversations with a given retailer?

So the first part of that question is in terms of where are we seeing the destocking as anticipated it's largely concentrated in the drug channel, although, there is some impact as expected as we see some regional retailers close or meaningfully scale back. But that's as expected.So at this point it continues to be in line with what we thought we would see going into the year at this point. And in terms of insight, again, the retailers really don't share with us advance plans of what they expect. So, it really is a little bit of hold our breath each quarter. And we've talked about this over the past years, where it kind of comes out of nowhere in a given quarter. So, we don't get a lot of insight into it.

Okay. Can you talk a little bit about pricing and private label? How has price trended across your portfolio? I know it may vary quite a bit by brand, but pricing in aggregate if you could comment on, and then your core brand performance versus say private label in aggregate across your portfolio any changes.

Sure. You know our portfolio being based on leading brands really puts us in a good position in terms of managing price over the long-term. And we've actually started to take some price increases over the last couple of quarters. But it really is managed strategically over time.In terms of our positioning versus private label, we continue to take share and grow the market categories with our retailer partners. So that trend continues as it has over the long-term.

Okay. And you made a comment during the prepared remarks that the Women's Health business, I think consumption was up, but sales were down due to timing. I think there are two big brands in that platform for you with Monistat and Summer's Eve. Could you talk a little bit about how those both from a consumption standpoint and maybe just timing issue, how those brands are performing and how you think about those brands in terms of their growth potential moving forward?

Sure. Both Summer's Eve and Monistat had solid consumption trends during the quarter and we continue to feel good about their ability to grow for the full year. During the quarter, it was really timing versus activity last year. So for Summer's Eve, we had more new product launches during the quarter last year than this year, so it was really a comp issue.And then this year it was really the result -- excuse me, for Monistat this year was a change in SKU offering that we made that impact the timing of some retailer orders. So in both cases it really was just the cadence of orders versus the prior year with both realizing solid consumption trends during the quarter.

Okay. And just some rationale on the logistics, some more rationale on the logistics provider changes. It seems like a big deal. I think you've been working with the same provider now for a decade or more out of St. Louis, a St. Louis facility. Can you talk about what you're really hoping to achieve through this move? Thank you.

Sure. So the St. Louis location really is a legacy location driven by the Household business. St. Louis was local to both the supplier of Spic and Span and Comet. And you're shipping truckloads of bottles of water and cans of crushed rock so inbound and outbound freight was very meaningful for that part of the business.So with the divestiture of the Household business, it gave us the opportunity to step back and evaluate where was the best location for the consumer healthcare business. So, that was the primary driver; was all around where to be -- where's the best location for service for our retailers.In addition to that, we will get some modest cost savings over time that we'll reinvest back into higher levels of A&P and other growth initiatives over time, which would be consistent with our strategy.

Great. Thanks so much. Good luck.

Thank you. And our next question comes from Steph Wissink from Jefferies. Your line is now open.

Thanks. Good morning everyone. Most of our questions have been asked already, but Chris I think this is for you maybe on the guidance. One of the points of confusion this morning is just on the underlying guidance versus the inclusion of the logistics change. Just want to make absolutely clear that the underlying guidance is not changing, is that correct for either EPS or for the cash flow? You're just adding back the adjustment for this logistics change in the full year numbers now.

That's correct.

Okay. So then the follow-up question would be just with respect to destocking. I know we keep coming back to this theme. But, are you seeing any sort of thinning out in the amount of destocking that's happening broadly across the space or seeing any relief regarding the degree of pressure? Or has it been pretty consistent throughout the cycle of destocking?

I would say, Steph it's been fairly consistent in that it was kind of the slow drip during the first quarter where overall order patterns in the drug channel were below consumption trends. As a matter of fact, we actually saw good consumption trends in the drug channel which was a bit of a reverse in trends for us. So we're hoping that that will help relieve some of the pressure as we see an increase in consumption trends in that channel. But overall really no change from what we've been realizing over the last six to eight quarters in that channel.

Okay. And just a final one is as you're talking with your buyers in that channel and they're looking at their average weeks of supply and starting to try to think about what the appropriate level of weeks of supply is any sense that we're getting towards the end of this phase of destocking or getting close to the end? How should we think about average weeks of supply in the marketplace relative to consumption trends and weekly sales?

Yeah. I guess first comment is generally the inventory levels are managed outside of the buyers at the retailers for – in most cases. So that's the first part. The second is that, I think the big retailers are on a long journey in terms of slowly reducing their inventory over time. So once it really normalizes and gets in the base of our business we won't see a change from year to year as we go forward.

Okay. That's very helpful. Thanks for all the detail.

Thank you. And our next question comes from Linda Bolton Weiser from D. A. Davidson. Your line is now open,

Hi. Again, I don't mean to focus overly on the destocking but just another question on that. Have you done any benchmarking or looking at competitors who also compete in the OTC space to see if they're experiencing and to what extent the same thing so like a day and day, or a Perrigo or a Church & Dwight? And then secondly, is it maybe because you carry mostly niche products whereas those other guys are carrying bigger higher-velocity items? And is that why maybe you're more affected by the destocking than some of the other competitors? Or can you just comment on what you think you are experiencing versus competitors in the same space?

Yes. In general, based on the publicly available information, it seems that the competitive set is largely feeling the same headwinds that we are although to a lesser extent. We're more concentrated in the drug channel than most of the other competitors, especially the larger competitors, who may have a business that is more balanced on the international side of things for example. So you don't necessarily hear them talk about it as much because it has a smaller impact on their business than it does us.So our information that we're getting back from the retail partners and what we're hearing is that we're all in the same boat and niche categories, or large categories are all being treated the same where the retailers are trying to be more effective with the inventory that they have in their stores and in their warehouses in a declining front-of-store sales environment.

Okay. And then just since you highlighted DenTek today the IRI data – and I know it's not completely representative – but some of your stuff looks fine. But DenTek actually looks more negative than some of the other products. Is that just the comparison of the loss of space versus last year? Or why does the data look so poor the consumption data? And then, can you talk about – you mentioned there could be some Dental Guard distribution opportunity. It seemed that you might be saying that. Can you give us some idea of how many doors that carry the picks and other products also carry the Dental Guard? Thank you.

Yeah. So a number of questions in there. First of all, we gave an update on DenTek today so that we could bring you up to speed on our ongoing focus of continuing to get DenTek back on a long-term growth trajectory. Our outlook for sales this year are still above what the trailing sales were for the business at the time of the acquisition. So we've been able to grow the business modestly, since we've acquired it. And we continue to have plans to invest and get it back on a growth trajectory. So that was the intent of today's update.In terms of distribution, we've got high levels of ACV for both dental guards and the rest of the DenTek offering so it's out there in all the major retailers on a national basis. So there's no difference there for the brand. And the final comment is that, we did realize declining sales during the first quarter in totality and again we're focused on it and looking to get that brand over the long term back to a growth trajectory.

Okay. Thanks very much.

Thank you, Linda.

Thank you. And the next question comes from Frank Camma from Sidoti. Your line is now open.

Hey, good morning, guys. Thanks for taking the questions. First, I promise not to ask a question about destocking. That's my first thing. My big thing and I'm surprised nobody's asked it is I felt other than destocking, the biggest reason your stock has pulled back is leverage. And fast forward six months ago, seven months ago, the world was coming to an end with interest rates going up three, four times whatever it was. Now, we think it's going to go down two to three times. So, can you talk about how that's affected your view on guidance and how we should think about that? Because I would think since your stock was hit because of its leverage it should therefore benefit the other way which it has maybe a little bit, but not so far reflected in the stock.

Okay. I guess, let me start with a couple of comments and I'll let Chris add on at the end in terms of our outlook. Even though it looks like there may be some delay in rising interest rates, I think over time though they're going to go back up at some point. So our strategy of getting our leverage level…

It's hard to go down from zero, so.

Yes. Well I mean it's not quite at zero yet right?

Correct.

It's somewhere between 2% and 1/4% so. But it is up from zero.

Sure.

So let's not forget that. But we still think that moving our targeted leverage rate down from 4.5 to sub-6 to 3.5 to five or so is still the right thing to do long term to provide flexibility in growth opportunities for the business. So, the recent change in Fed activity doesn't have us rethink that focus. Chris, do you have to…

But do you think you -- okay I'm sorry but did it make you think sort of the timing your stock buyback? Because I guess you did it last year at the beginning of the year, but was there some thought in that given we saw maybe a different outlook for when rates would change? Or was that really so nominal that you didn't think about it that way?

We really didn't think about it that way Frank. Remember, we're only utilizing a quarter of our free cash flow for the share repurchase, so…

Okay. The other question is just on timing of the A&P spend. Could you just remind me? I know the second quarter is always typically your high A&P spend, but why is that now given where your portfolio is a little more or less seasonal than it has been if you go back years ago? So why is Q2 sort of slanted that way as a percent of revenue?

It really is just a function of the timing of our A&P initiative during the year, Frank rather than a decision to concentrate spending at any given time of the year. It really is based on what's best to support new product launches or other initiatives or opportunities in the marketplace.

Okay. But it has nothing to really do with the seasonality of the revenue is what I was getting at.

No it doesn't.

Okay. Great. Thanks guys.

Okay. Thank you, Frank.

Thank you. [Operator Instructions] And our next question is from Jon Andersen from William Blair. Your line is now open.

Thanks for the quick follow-up. I just wanted to come back to an earlier question on guidance. You've expressed earlier I think greater confidence in the high end of your EPS guidance range. Is that number one accurate? And what has changed to the extent that anything has changed that gives you greater confidence that the high end's more likely than say the midpoint. I know we're not talking about a lot -- a big range here, but just any thoughts there would be terrific. And I just wanted to confirm again that you pointed to the high end this time around as opposed to last time. Thanks.

Hey Jon, this is Chris. So confirming that yes, this time we are pointing to the high end of the range. And the primary driver of that really is the share repurchase.

Okay. Thanks a lot.

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Ron Lombardi for closing remarks.

Thank you, operator, and thank you to everyone for taking time to join us today. We're encouraged by our Q1 results and look forward to executing our disciplined three-pillar strategy in coming quarters and talking with everyone again in Q2. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.