Good day ladies and gentlemen, thank you for standing by. And welcome to the Prestige Consumer Healthcare, Inc. Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker host, Phil Terpolilli, Vice President of Investor Relations and Treasurer. Please go ahead sir.

Thanks operator and thank you to everyone for joining today. On the call with me are Ron Lombardi, our Chairman, President, and CEO; and Christine Sacco, our CFO. On today's call, we'll review the fiscal 2022 results, review the business attributes of Prestige that continue to enable our success, offer full year 2023 outlook, and then take questions from analysts. There's a slide presentation which accompanies today's call, it can be accessed by visiting prestigeconsumerhealthcare.com, clicking on the Investors link and then on today's webcast and presentation. Remember, some of the information contained in the presentation today includes non-GAAP financial measures. Reconciliations to the nearest GAAP financial measures are included in today's earnings release and slide presentation. On today's call, management will make forward-looking statements around risks and uncertainties, which are detailed in the complete Safe Harbor disclosure on page two of the slide presentation accompanies the call. These are important to review and contemplate -- business environment uncertainty remains heightened due to COVID-19 and various geopolitical factors which have numerous potential impacts. This means the results could change at any time and the forecasted impact of risk consideration to the best estimate based on the information available as of today's date. 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. Ron?

Thanks Phil. Let's begin on slide five. We are very pleased with our fiscal 22 results that exceeded our expectations as we found continuous opportunities, even with the backdrop of a challenging macro environment. Revenue of $1.087 billion for the full year, grew 15% versus the prior year and Q4 was another quarter that experienced double-digit sales growth. Our base business trends were impressive across the majority of our portfolio, aided by strong consumer demand and our long-term brand building. For the year, our international segment experienced robust demand for its Hydralyte brand, while Dramamine and Clear Eyes led broad based segment growth in North America. Our revenues translated into strong profitability. For the full year, we generated EPS of over $4 and free cash flow of over $250 million, both up double-digits versus the prior year. Lastly, during fiscal 2022, as always, we were disciplined capital allocators of this strong cash flow. On July 1st, we acquired Akorn Consumer Health and TheraTears brand, which we view as a great strategic use of capital, with the brands now fully integrated in contributing to our portfolio. And even with this acquisition, we continue to reduce leverage. Now, let's turn to slide six. Our record fiscal 2022 performance and success executing our strategy is enabled by the long-term evolution of our business. First, we've continually enhanced our stable of leading brands. In the last several years, we've acquired well-positioned brands, such as Summer's Eve and TheraTears, while divesting non-strategic and poorly positioned brands, such as our household cleaning business. We've successfully balanced this efficient deployment of capital with operating at gradually lower degrees of leverage. In fact, we finished fiscal 2022 at 3.8 times, our lowest level of leverage since the acquisition of certain GFK brands back in 2012. We often get…

Thanks Ron. Good morning everyone. I'll start by reviewing our fourth quarter and fiscal 2022 financial results, then talk about our business attributes that drive our financial profile and resulting capital allocation optionality. Let's turn to slide 17 to begin with fourth quarter results. Q4 fiscal 2022 revenue of $266.9 million increased 12.3% and 5.9% on organic basis versus the prior year. By segment, North America revenues were up approximately 10%. The largest growth categories organically were in GI, dermatological, and especially, cough and cold, where we experienced favorable sales trends versus the prior year for both Luden and Chloraseptic. The International segment increased approximately 35% in Q4, after excluding the effects of foreign currency. The segment's record performance benefited from favorable consumer trends in many of our categories previously impacted by COVID-19, and particularly strong sales for the Hydralyte brand. Adjusted EBITDA increased in Q4 approximately 8% and EBITDA margins remained consistent with our long-term expectations in the mid-30%s. Adjusted diluted earnings per share for the quarter was $0.91, up 15% versus the prior year, with higher sales being the largest driver. Let's turn to slide 18 for more detail around consolidated results for the full year. Revenues for the full year fiscal 2022 increased 15.2% versus the prior year and 10.1% on an organic basis. Our broad and diverse portfolio enabled this result, along with an accelerated performance in certain COVID-impacted categories such as travel. We continued our long-term trend of double-digit consumption growth in the e-commerce channel for the year, further building upon the sharply higher online purchasing shift that occurred throughout fiscal 2021. Total company adjusted gross margin of 57.3% for the year was consistent with our expectations, down slightly from 58% in the prior year, as we experienced heightened inflationary pressures as the year progressed.…

Thanks Chris. Let's continue on slide 24. ESG and its various components continue to be both an important and evolving topic where we get a rock wide range of investor questions. We take pride in the many things we already do and a few of these are shown here. First, we are a key enabler of consumer self-care treatment that saves consumers real money versus a visit to a hospital or clinic. Second, high standards. We hold not only our own organization to a higher standard through our code of conduct, but our suppliers as well, ensuring that they are aligned with our own missions and values. Third, getting back. We encourage employees to remain engaged in the communities and all of our sites have local Days of Giving that encourage community support throughout the year. Fourth, environmental support. Even with highly regulated OTC drugs, which can be more challenging than some consumer products to modify, we continue to think about ways to reduce our environmental impact throughout the supply chain. Fortunately for us, being mindful of each of the ESG factors is something we take pride in as a company, and we look forward to updating our stakeholders in the future. Now, let's turn to slide 25. As we look ahead, we recognize investors have questions around shifting consumer behaviors, supply chain challenges, and inflation, each of which put pressure on input costs and visibility around consumer demand. Looking across these major themes, we believe our business attributes help our ability to navigate each successfully as we have over the past two years. Our brands are trusted and diverse, which gives us the ability to limit impact from any individual categories slowdown. We source over 80% of our products from manufacturers based in the U.S. and Canada, which gives…

Thank you. And our first question coming from the line of Rupesh Parikh with Oppenheimer. Your line is open.

Good morning. Thanks for taking my questions and congrats on another strong quarter. So, I guess just starting out with the organic sales growth guidance, I may have missed this, but did you guys give a specific number for Q1? And then as you look at the full year, is there any way to just think about the potential drivers you see on the upside and then at the same time, if you see any potential risk and achieving that two to 3% number?

Hey, Rupesh, excuse me morning. This is Chris, I'll start out. The specific guide for Q1 sales was $267 million to $270 million. You can think of Akorn at about $15 million for the first quarter.

Okay, great. And then just as we look at the full year organic sales growth guidance, the 2% to 3%, where do you see, I guess, upside potential and at the same time where you see risks to that delivery?

Yes, Rupesh, this is Chris. So, from an upside perspective, really depending on retailer order patterns, what they're ordering, could be a stronger cough/cold than maybe we were anticipating. But as a reminder, that's just under 10% of our sales. From a risk perspective, I would probably say around supply chain, potentially right, the mix of what retailers are ordering and the magnitude of their order patterns in this environment and whether or not our supply chain can keep up with that mix, specifically.

Good morning Rupesh, Ron here. Just to add a couple of things to that. First, in terms of the first quarter, just as a reminder to everybody on the call here today is we've got an odd comp in the first quarter. Last year, the first quarter certainly saw a concentration of the COVID recovery as people leave from their homes out to restaurants and traveling. So, that was -- created an odd comp in the first quarter of last year. If you take our outlook for the first quarter of 2023 and compare it to the first quarter of fiscal 2020, right before COVID started to impact things, our business is up over $20 million quarter-to-quarter or 10%. So, as we head into fiscal 2023, we continue to feel good about the momentum of the business. The success we've had navigating the challenging environment, including the supply chain, headwinds, and inflation. So, lots of unknowns as we head into the year, but we think the business is well-positioned as we head into it.

Okay, great. Maybe just on the pricing front, can you maybe talk about the magnitude of price increase that you are you are taking, or maybe if you don't want to talk on your business, just the level of price increases you're seeing in the category? Is there anything else you can share just in terms of elasticities at this point, there's anything that has differed versus your expectations?

Yes, Rupesh, maybe I'll start. We expect pricing to add about two-thirds to our growth of our -- contribute two-thirds of our growth for next year and volume in the other third. It was worth about a point to this quarter and two, four the full year fiscal 2022 as well.

In terms of elasticities and what's going on in the market, so far we haven't seen -- expect any inflationary impact to impact consumers preferences when they're looking for their health care products, like we've seen historically. It doesn't tend to be a place where people look to save money when you're taking care of your family's health.

Okay, great. Thank you. I'll pass it along.

Thank you, Rupesh.

And our next question is coming from the line of Stephanie Wissink with Jefferies. Your line is open.

Hey everyone. Just to follow-up to Rupesh's line of questioning and wondering if you can give us an update on traded inventory. And if there's anything we need to be mindful of as you're kind of digesting through some of the still lingering effects of the COVID be build?

Yes. So, in total, I would say everybody involved in the supply chain would let more inventory. Our suppliers would like more inventory. We'd like more inventory and I think in general the retailers were would like more. Again, consumer shopping trends in demand, have been tough to predict. So, in general, I think there could be a help. Back to Rupesh's questions, one of the things that could be positive next year, that could be it.

Okay, that's helpful. And then my second question is on innovation. And I don't know if you want to use one of the examples from your deck, like a Summer's Eve Spa. But I'm curious as you think about driving innovation on the backside of kind of the pandemic logic, are you finding consumers are more exploratory, more discovery-rich that your brands have permission to go into maybe some bigger adjacent categories? If you're thinking of self-care, wellness, for a brand like Summer's Eve? Can we just talk a little bit about how you're thinking about innovation leading into bigger TAM?

Yes, so there's kind of two trends. One is a continuation of the long-term, which is, consumers start with looking for their trusted brands, when they're thinking about taking care of themselves. So, we talked about Dramamine expansion into nausea. It's got a -- Dramamine has a long heritage of treating motion sickness and consumers think about motion sickness as if it was nausea. So, as we expand into those adjacencies, another example with Clear Eyes with Allergies today, that trusted inherited really gives us a leg up as we expand into adjacencies. And then the second more recent and evolving trend is, from the beginning of COVID, consumers have a heightened and expanding ways of thinking about health and hygiene, and how they think about taking care of themselves. So that's a newer trend. But again, it steps off of trusted brands in their view around new products and innovation into the marketplace. So we're going to continue to invest in those areas to continue to connect with consumers.

All right. Very helpful. Thank you, Ron.

Thank you, Steph.

And our next question coming from the lineup of Jon Anderson with William Blair. Your line is open.

Hey, good morning, everybody. Thanks for the question. I guess, I had one on the guidance as well, the organic growth rate guidance for 2023. Could you provide any more detail around maybe which categories and brands you see contributing the most to the 2% to 3% organic growth rate? And, Christine, you might have addressed this, but how much on average throughout the year, you expect price to contribute to that, that growth?

So let me let me start with addressing kind of which- which brands really have momentum as we head into 2023. And really, it's the brands that that we saw in 2022, Clear Eyes and TheraTears both had good fiscal 2022s. Clear Eyes in particular, and I talked about allergies and some other new products that are being launched in fiscal 2023 for both Clear Eyes and TheraTears. Our GI platform continues to do well with Dramamine, with Dramamine and Gaviscon up in Canada and our skin group as well with Compound W and Boudreaux's Butt Paste have done well. And then for Summer Breeze, which did have some supply chain challenges. So when the K gets reported, you'll see that that category was flat for the year, largely due to some supply chain challenges during the year. But the launch of spa and the other products that I mentioned in, of course, the continued long-term success we had in our international business, and particularly with care in Australia and Hydralyte. So more of the same themes are expected for 2023, which is, the vast majority of our portfolio is doing well winning with consumers. And we feel really good as we head into 2023.

And then, Jon, just to follow-up on your pricing question, we talked about pricing, contributing about two-thirds to the growth for fiscal 2023, so at the midpoint just over $15, $16 million for next year.

Okay, great. And I guess, Ron, since you mentioned it Hydralyte, I've been noticed, particularly this quarter, but just in general, over the past few years in the international businesses has been such a strong grower, strong contributor. And you have, I think, line extended Hydralyte to meet a bunch of new needs states, as you had kind of described on the slide in the deck. Where are you? Do you think with respect to, expanding that brand, to target these additional leads, states distribution lies? I mean, are you see a lot more running room left for that brand? Because I think that's been carrying most of the weight internationally, or are you think in the later stages of the major developments there.

No, we're just getting going tapping into the long-term potential for Hydralyte. It just celebrated I think its 20th anniversary. And, its roots, in its beginning started in hydration, after vomiting and diarrhea. And it's slowly expanded as consumers have thought about hydration beyond just recovery from illness and thinking about it as part of their everyday health regimen. So, our household penetration, I think, is still under 10% we had on the site today. So lots of opportunity there. A couple of years ago, we began our expansion into the adjacent region outside of Australia, with the acquisition of the rights there COVID got us off to a little bit of a slower start there, but we're getting going on that. So lots of running room there.

Great. This question was kind of asked, I guess, I wanted to make it a little bit more pointed, with price increases going in and kind of reflecting the inflationary environment. Any signs at all have any trade down to private label in any of your categories? Is that or is that just not a not an issue that you're seeing or concerned about at this point?

Yes. Over the long-term, again, we haven't seen a lot of consumers trade down in this space, whether it's inflationary, driven, or economic environment driven, right, those are too many factors that could have consumers give pause to the price value proposition in across all of their shopping decisions. So that's the first part of it right. And again, it's not an area where consumers are willing to try something new to save a little bit of money. That's the first part of it. And the second part, I'll go back to is, we're a brand building and marketing company, and every day, we come to work to make sure that our products offer a different proposition in a better proposition to the consumer. That's what we're here to do. So we talked about the importance of new product and innovation today. And that plays a role today, and tomorrow to make sure that we offer better differentiated more efficacious products, to further connect with consumers and drive that point home.

And -- sorry, I've actually got a couple more, if I can take the time. On e-commerce, I think Chris said, yet another year of double digit growth for e-commerce. But have you seen the growth rate moderate, as maybe consumers go back in shop stores? To what extent has it moderated and I guess, longer term as you kind of plan for that part of your business? How high do you see that going in terms of a percent of the company's sales, it seems like you're well positioned there, but trying to get a sense for what's happening here. And now in terms of some of the shifting channel dynamics, given, we're exiting COVID, hopefully, and what your longer term expectations are for that channel?

So let me start with a couple of comments. And I'll let Chris, wrap it up. First of all, our percent growth may have come down each year, but only because the number has gone to, nearly 15% of our total sales from a starting point of less than 5%. So it's just the growth off of a big number situation here. But we continue to do very well in e-commerce, consumers are continuing to show that the convenience and the broad offering available on any e-commerce site that they go to, is something that they're looking to do. Our strategy around consumer channel choice is pretty simple. And I talked about it in today's prepared remarks is be there where the customer chooses to shop, and have a financial profile for us, that's a consistent that's consistent across all of those channels. So there's no negative impact to US based on where consumers choose to buy. And you go back 20 years ago, we were in club and dollar in mass as those channels grew meaningfully over the long-term. And we're on online waiting for them as well. So it's something we're going to continue to invest behind because consumers are choosing to go there and will be wherever the consumers switch to in the future. Chris, some of the other questions.

Yes, I think Ron summed that up nicely. I guess, the only thing I would add is that, our share in online continues to outpace our brick and mortar share. So we're still, despite having multi years of double digit growth, it continues today.

Okay. And then just the last one, I guess, structural question with so much change going on among the strategic like in pharma, Unilever's failed bid for GSK, consumer healthcare business, other large pharma looking at divesting or recently having divested. What do you think this means for the prospects of M&A and the kind of M&A that you'd be interested in? Or available to participate in as we look forward. Thanks.

Yes. So first of all, let me comment on the first part of your question, which is, there's a lot of activity and tension, as many of these big farmers look to spend out there consumer arms and other big CPG, companies get excited to try to make investments in this area, and it's really a reminder that there's a lot of interest. And there's a lot of attention around the attributes that we've been talking about for 10 plus years here, whether it's the stability and ability to grow long-term, well-positioned financial profiles of these segments of business. And in this environment, quite frankly, businesses that can be positioned to do well in a long-term challenging environment, as we've proven over the last handful of years here, right, our three-year CAGR, right. So before COVID through fiscal 2022 is solid top line growth of about 5% and double-digit EPS and cash flow growth. So, people are finally taking notice to all of the things that we've been making a lot of noise about for the last few years, and I think is going to draw further attention to the value creation opportunity that we have here and highlight our strong performance. The second part of your question, in terms of how it relates to M&A activity, is for decades now these big pharma and CPG players have been managing their portfolios and focusing on big or focusing on regions and it's ultimately created opportunities for us. We have bought many brands either directly from big pharma or CPG companies or from PE firms that got them from them just one turn before. So we think over the long-term, it's going to continue to provide opportunities for us to make smart and disciplined M&A.

Okay, really helpful. Thanks so much.

Thank you, John.

And our next question coming from the line of Linda Bolton Weiser with D.A. Davidson. Your line is now open.

Hi. I was wondering your -- and thank you for the presentation, it was really good. Your cash flow has really gotten to -- your free cash flow has gotten to a really high level. And I'm just curious if because you are a growing company. And even though you have an asset-light model, without source manufacturing, there still are areas where required investment like IT, for example, distribution, et cetera. So do you foresee in the next couple of years any pop up in your or any spike up in your capital spending to bulk up some of these areas? And in related to that, I think you just have the one distribution center in St. Louis, is there any idea that you might need to add more distribution centers here as you grow bigger? Thanks.

So, Linda, this is Chris, I'll -- maybe I'll start by just saying, we talk about a CapEx range of 1% to 2% of sales, and some years it'll be a little higher, Some it'll be a little lower. But there are no areas that we are lacking investment. We're making IT investments every year continuously. So there's no big project that we have line of sight to right now that we're looking at, that will be outside of that range of the 1% to 2%. I guess, I would start with that. In terms of when is it a time to move from one distribution center to another? We did move recently in the last few years right before COVID, as you remember, to a different provider and a different location for our DC, and of course, in relation to that, we did a study about whether or not made sense for us. What will really drive that, obviously, as we continue to grow, but really just customer service, right? If we were able to serve as customers more efficiently or better, we would have opened a second DC back when we did that analysis. So we're not quite there yet. But again, if we were to step into a new DC facility, because of capacity over the next few years, I think it would still be within that 1% to 2% of sales CapEx number that we talked about now.

The other thing Linda is, we've been investing in planning to make sure that our business model and our platform is scalable. So we've been making investments all along the way starting way back when we put SAP in place on a global basis for all of our businesses. And as Chris just mentioned, when we moved to the new distribution center, we made sure that it would be able to expand in the future and grow with us. So we don't have any built up capital needs that may pop up in any year or two to disrupt the free cash flow. So we continue to feel good about the model. The three factors that Chris outlined in her prepared remarks today about the drivers, right, high EBITDA margins and consistent EBITDA margins, the cash tax benefit, and low capital spending, so we think that is repeatable.

Great. Thank you. And then I was just wondering about the COVID impacted categories that then began to grow faster as they recovered. Would you say that those categories are fully recovered at this point? Are they not quite back to their pre-COVID sizes in terms of the sales levels of those categories?

Yes. So we had basically four, I guess, areas that were impacted by COVID Dramamine, Hydralyte, cough/cold and Nix, and Dramamine and Hydralyte are fully recovered, and they began to continue to grow at the high levels that they have been for long-term. So as we exited fiscal 2022, those franchises were recovered and back on to winning it like they have over the long-term, the cough/cold and Nix, Nix to head lice business, even though they had strong growth in 2022 versus 2021, they're still not fully recovered to the pre-COVID level. And as we head into 2023, we anticipate some additional moderate levels of recovery. But we're not expecting any huge rebound in those. In particular cough/cold is going to be very tough to continue to predict going forward. It's a small portion of our portfolio like 8% or less of total sales. So we'll be mindful of it and try to maximize whatever opportunity shows up. But we'll keep an eye on that. So I think that addresses your question.

Yes. Thank you. And then finally, you've talked a little bit about private label on the call today, can you just remind us like, what percent of your revenue does have private label competition roughly?

Yes. The vast majority of our brands and products have private label as a competitor. And the percent share ranges vary widely depending on the category very low amounts. In eye care, for example, in powdered analgesics is almost non-existent to very high shares, like in Monistat, where it's just us and private label for the most part. But again, I think the important comments on private label or really any competitive or competitor is that we continue to be well-positioned and continue to be successful growing our share and growing the categories, because of the way we view our long-term stewardship of the categories we compete in.

Okay. Can I just slip in one more question?

Sure.

I'm just curious to understand a little bit better about how your brands are managed? Because you have built up over acquisition over the years. Are they kind of run as siloed businesses? Or do you have a lot of sharing of best practices like across the different brands? And are all the brand managers pretty much sitting in Tarrytown managing the brand kind of from that location?

Yes. So we kind of start at the high level, at the category level, where we have a Director that is thoughtful about a particular category. And then below that would be the brands within that that category. And our brand managers for North America are here in Tarrytown collaborating and working together to share learnings across categories and across brands. Here, one of the things that is, I think, very unique about the culture here at Prestige is the collaboration that takes place. And we've been able to continue it even in a remote environment where everybody has been working from home over the last couple of years. So we take advantage of thinking about categories and individual brands, but also getting together as groups to share consumer insights across them.

Okay, great. Thank you very much.

Thank you, Linda.

And our next question coming from the line of Anthony Lebiedzinski with Sidoti. Your line is open.

Thank you. And good morning and thanks for taking the question. So, just in terms of the new product, the pipeline and innovation, you guys spoke about that more than usual, just wanted to get a better sense as far as the number of new products that are coming on board in fiscal 2023, is that consistent with years past? Or are you accelerating the new product pipeline for this year?

So, for 2023, it's fairly consistent with what we've seen in prior years. And again, it's really all about having a consistent three year pipeline. So that you've got something ready in development for every year that you feel good about. So, 2023, in a lot of ways is consistent with past years. And today, in the prepared remarks, we highlighted it as an important element of our long-term brand building and marketing approach. And it's important connection with consumer insights, Anthony.

Got it. Thanks for that. And then also, in your prepared remarks, you talked about how over the years, you've added brands and you've divested that brand. So, now, as you look at your current brand portfolio, are there any particular brands that you wouldn't look to maybe divest if the right opportunity came along? Or are you happy with the current brand portfolio?

Yes, so first of all, we feel good about the makeup of our portfolio, and the tie in that it that it has with our long-term organic growth outlook of 2% to 3%, that's the important connection there, making sure we feel good about that. In terms of further divestiture, we've got a tail that's less than 10% and if we get inbound calls with valuations, that would make sense, right, it ultimately comes down to a financial evaluation of the value of the cash flow flows of holding those things versus what somebody's willing to pay. And what we would do with the proceeds, if we did sell something, just prior to the fleet acquisition, which was our largest at that time, we sold a small group of non-core OTC brands, as a way to help offset some of the big cheque that we wrote for the fleet business. So, it all depends on valuation. But as we sit here today, we continue to feel good about the makeup of our portfolio.

Got it. Okay. And so in terms of valuation, I've given the recent volatility that we've had in the market, have you seen any sort of drop off in valuations or how would you characterize that?

Yes, so I would say M&A valuations for the things that we would be interested in would be competitive for have been fairly consistent for a long time even with -- or compared to some of the big numbers you hear for some of the consumer businesses that are coming out of big pharma. So, the most recent example is the Akorn consumer brands, which we paid about 10 times Chris?

Yes.

For back in July, so even an environment where you keep hearing these huge multiples, our most recent example is consistent with what we've been paying in the past.

Got you. And then lastly, as far as the EPS guidance for the full year, does that assume any share repurchases or now?

It does not.

All right, thanks for clarifying that. All right. Well, thank you and best of luck.

Thank you, Anthony.

And I am showing no further questions at this time. I would now like to turn the call back over to Mr. Lombardi for any closing remarks.

Thank you, operator and thanks everyone for joining us on the call today. And we look forward to updating you on our business as the year progresses. Thanks everyone and have a great day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.