Good day, and thank you for standing by. Welcome to the Q2 2026 Prestige Consumer Healthcare, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Phil Terpolilli, Vice President of Investor Relations and Treasury. Please go ahead.

Thanks, operator, and thank you to everyone who has joined today. On the call with me are Ron Lombardi, our Chairman, President and CEO; and Christine Sacco, our CFO and COO. On today's call, we'll review our second quarter fiscal 2026 results, discuss our full year outlook and then take questions from analysts. A slide presentation accompanies today's call 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 our earnings release and slide presentation. On today's call, management will make forward-looking statements around risks and uncertainties, which are detailed in a complete safe harbor disclosure on Page 2 of the slide presentation that accompanies the call. These are important to review and contemplate. Business environment uncertainty remains heightened due to supply chain constraints, high inflation and geopolitical events, each of which have numerous potential impacts. This means results could change at any time, and the forecasted impact of risk considerations is the best estimate based on the information available as of today's date. Further information concerning risk factors and cautionary statements are available in our most recent SEC filings and most recent company 10-K. I'll now turn it over to our CEO, Ron Lombardi. Ron?

Thanks, Phil. Let's begin on Slide 5. Our Q2 results exceeded the expectations we communicated back in August, thanks to certain timing factors. Sales of $274 million declined versus the prior year, but were better than forecast due to the timing of Clear Eyes supply and accelerated e-commerce shipments late in the quarter that outpaced consumption. We expect these timing factors to come out of Q3 and still expect a second half improvement in eye care supply previously discussed that underpins our full year forecast. I'll review our Q3 and full year outlook in detail later. Aside from these timing factors, our base business continues to perform well, benefiting from diversity of our portfolio and channels. We continue to experience double-digit e-commerce consumption growth, thanks to the long-term investments previously discussed. Moving down the P&L. Gross margin was largely as anticipated. Adjusted EPS of $1.07 was similar to the prior year, but ahead of expectations due to the sales beat. Lastly, our financial profile continues to generate strong free cash flow, which was $134 million for the first half, up 10% versus the prior year. This valuable cash flow and our favorable leverage ratio enables multiple ways to create value for our business. For example, in Q2, we maintained our leverage ratio of 2.4x while repurchasing over 1.1 million shares. And we continue to see additional opportunities for capital deployment that can enhance shareholder value. Now let's turn to Page 6 for a review of our DenTek brand and how we are expanding the brand's reach in the dental care market. DenTek participates in the niche peg sections of a much larger oral care category. Our product offerings are diverse and include dental guards, floss picks, interdental brushes and numerous dental accessories such as temporary tooth fillings. The wide-ranging portfolio…

Thanks, Ron. Good morning, everyone. Let's turn to Slide 8 and review our second quarter fiscal '26 financial results. As a reminder, the information in today's presentation includes certain non-GAAP information that is reconciled to the closest GAAP measure in our earnings release. Q2 revenue of $274.1 million declined 3.4% from $283.8 million in the prior year. The revenue decline was mainly attributable to lower eye and ear care category sales, owing largely to Clear Eyes supply constraints, along with lower cough and cold category sales, which we expected. EBITDA margin remained in the low 30s. Adjusted EPS of $1.07 was down slightly versus $1.09 in the prior year with lower sales primarily offset by the favorable timing of A&M as well as improvements in interest expense and share count, thanks to the benefits of our capital allocation strategy. Now let's turn to Slide 9 for detail around consolidated results for the first half. For the first 6 months of fiscal '26, revenues decreased 4.8% organically versus the prior year. By segment, excluding FX, North America segment revenues decreased 6.1% and International segment revenues increased 2.7% versus the prior year. The first 6 months sales declines were due largely to anticipated impacts of the Clear Eyes supply chain constraints and were also impacted by the expected order timing of a certain e-commerce customer that benefited Q4 of the prior year. We have continued to see variability in this customer's order patterns, and Ron will touch on this when reviewing our updated outlook. In spite of this variability, we experienced impressive double-digit year-over-year consumption growth in the e-commerce business, continuing the long-term trend of higher online purchases. Our ongoing investments have paid off on a consistent basis, including during important large-scale e-commerce sales day events. Elsewhere, our International OTC segment business…

Thanks, Chris. Let's turn to Slide 12 to wrap up. Halfway through the year, we are reiterating the outlook offered in August and feel good about the performance of our business in the current dynamic retail environment. This confidence stems from our proven business strategy and well-diversified portfolio that is set up for long-term growth and success. For fiscal '26, we continue to anticipate revenues of $1.1 billion to $1.115 billion, with organic growth down approximately 1.5% to 3% versus the prior year. Most importantly, we are on track to improve Clear Eyes supply in the second half. For Q3, we're expecting revenue of approximately $282 million, down versus the prior year. The lower revenue versus the prior year is attributable to 2 factors. First, the receipt of Clear Eyes inventory late in Q2 reduces our expected Q3 revenue by an estimated $5 million. Second, we anticipate an e-commerce retailer order adjustment in Q3 due to their September order patterns above our stable consumption levels. We realized a similar trend in March and April earlier this year, where we saw sales shift into Q4 from Q1. For EPS, we now anticipate adjusted EPS of $4.54 to $4.58 for the full year, which is the higher end of our prior range, thanks to our share repurchase efforts. For Q3, we'd anticipate EPS of $1.14. Lastly, we continue to anticipate free cash flow of $245 million or more. We have ample capital deployment optionality that has a history of maximizing value for our shareholders. With that, I'll open it up for questions. Operator?

[Operator Instructions] Our first question comes from the line of Susan Anderson with Canaccord Genuity Corp.

Nice job on the quarter. I guess maybe just a follow-up on the Clear Eyes. So it looks like you guys are on track to return to shipments. I mean maybe if you could just give some color on how we should expect that to flow through, I guess, in the rest of the year? And then also just curious while you guys kind of were out of supply, if you lost any shelf space at any other retailers? And then also just the lower distributor orders in the year internationally, I assume has nothing to do with that, but just checking on that. And then I have a follow-up after that.

Susan, it's Chris. I'll start and maybe Ron can chime in also. Just a reminder, right, back in August, we laid out the 3 elements of our long-term efforts that we're focused on best positioning our supply chain to support Clear Eyes growth. And first phase of this was to bring on 2 new suppliers to supplement our requirements. The first of these suppliers came up towards the end of Q1 and the second came up late in Q2 as we had planned. Pillar5, third continues to make progress with the new high-speed line we've talked about. We continue to expect some benefit in Q3 with more in Q4 when they're producing for the entire quarter. So while it takes some time to ramp a new line to full capacity, Pillar5 has already produced some commercial products that we expect to ship later in the quarter. So we continue to expect sequential improvement in Q3 over Q2 and then Q4 over Q3. And then maybe just -- I'll just take the third part of your question, and Ron can take. So yes, to your point, your question on international eye care, Pillar5 does produce some eye care products for our International segment. And so they are also feeling the effects of our constraints.

So Susan, to your question around lost share in shelf space, we certainly have seen a pretty significant reduction in share as we haven't been able to keep up with prior year's levels of product. And as we communicated to our retail partners what we would be able to supply, they made appropriate adjustments at shelf. So if you go to shelf and look, you'll see our base redness and max redness pretty much the main available product, which is what we have focused on because it was the most significant element of the product sales. So as we get the 2 new suppliers into full production, steady production in Pillar5, new high-speed lineup, we'll begin to look at recovering that shelf space and those SKU offerings.

Okay. Great. And then maybe if you could just talk a little bit about the cold/cough season. I know you guys are not as exposed as some others. It's been pretty weak to start here and then over in Europe as well. It looks like your international, which is probably primarily Asia and Australia, though, was -- performed pretty well. And then if you could just talk about what you're expecting for the rest of the season here domestically.

Yes. So when we talk about the cold and flu category, we always like to remind everybody, as you stated, it's not a significant category with high single digits for us and we're primarily in the cold -- excuse me, in the cough segment. Our international business, right, which is in the Southern Equator, did have a good season. So that was good for us. But we're primarily in the saline nasal care segment there. But we just reported results through September, right? So 2 quarters, we haven't even gotten into the cough/cold season yet. We'll see how illness levels play out during the important Thanksgiving to New Year's time frame. So we'll see where it goes, Susan. Too early to predict, I guess, is my final comment on it.

Our next question comes from the line of Rupesh Parikh with Oppenheimer & Co.

So I guess just starting off with retailer inventories. So I know you went through the e-commerce volatility there. But just curious, outside of that, I guess, the e-commerce channel, how would you characterize the health of retailer inventories in the U.S.?

Yes. So I'll comment on our space within the store, which is what we focus on in general. Outside of the e-comm order patterns that we talked about, the rest of our inventory at retail has been steady or predictable is the way I would describe it. So there really hasn't been any significant impact on our performance in those channels. You are hearing other companies talk about it more broadly in CPG, like even in our space. But it seems to be more concentrated in the big categories where there's multiple brands or competitors fighting for shelf space or it's lots and lots of SKUs and big shelf space where retailers may look to reduce inventories in those spaces. So think about the cold and flu section of the store. Think about the analgesic section, right? Lots and lots of space where there's an opportunity to find ways to take cash out of the system. So for us, it continues to be steady with the exception of the e-com, as we've talked about.

Great. And then maybe my one follow-up question. So women's health, you've had momentum in recent quarters. It looks like it was down this quarter in North America. So just curious what's happening there? I don't know if it's comparisons or -- just some additional color there.

Yes. So there's kind of a lot going on to take a look at 1 quarter's comp. So over the last 3 quarters or so, we've had a lot of noise in the order patterns, not only in women's health, but across that portfolio. In women's health, in particular, we had some funny comps going on last year as the Monistat VAF category changed from vertical product offering to horizontal. So it impacted retailer order patterns and inventory levels last year as they were getting rid of the old and bringing in the new. So if you go look at it over the 3 quarters ended September or the 4 quarters ended September versus the same comps, you'll actually see that women's health is up. So I always like to go back to we continue to feel good about the work that we've done to continue to position those 2 brands for long-term growth.

Our next question comes from the line of Keith Devas with Jefferies.

I'm curious if you guys can actually just comment what you're seeing on the macro environment. It's been volatile for some time, and we're seeing consumption across a lot of consumer health categories kind of slow into the end of the year. So any color on how that's playing out in your business? And then as it pertains to the guidance, particularly on top line, is a lot of the difference between the high and low end of the range mostly related to eye care recovery? And how are you factoring the rest of the underlying performance into that?

Keith, let me make a few comments on the macro environment, and I'll let Chris comment on the sales outlook. So first of all, you don't have to look very hard to hear and see lots of news on slowing consumer trends and concerns about momentum in the consumer environment. So if you think about a retail store, right, the stores in general are under some pressure. For our part of the store, right, we sell needs-based products, right? You wake up, someone in your household is ill, you're going to reach for that trusted brand. So we have a certain moat around our categories that have us a little bit disconnected from the general macro environments that are going on. For us, we have broad offerings that are available in broad channels with many brands having multiple price points with either different kinds of technology or innovation or different pack sizes. So we're well positioned to catch the consumer with our trusted brand as they think about maybe shopping differently or looking for different price points. So for now, we haven't seen any meaningful impact on how we would think about the outlook for the business for the rest of the year.

And Keith, this is Chris. So your question regarding the low and the high end of the range, yes, you're correct. Eye care is the primary driver behind those 2 numbers. As Ron mentioned, rest of the business, largely as expected back in August, no real change from those comments where we talked about an international step-up just for normal seasonality in the back half versus the first half and really just updating today for the timing of the early shipments on Clear Eyes and the retailer order patterns from Q2 to Q3.

Great. That's very helpful. If I could squeeze in a follow-up. Just on capital allocation and the deal environment. We saw a large consumer health player kind of taken off the board earlier this week. Curious how that plus maybe the potential for future consolidation changes, how you think about the deal environment and in terms of where to allocate capital between reinvestment, share repos and potential M&A, if any of the activity recently kind of changes how -- what your order of preference is?

Yes. So Keith, let me start, and I'll let Chris add at the end here. So for capital allocation, our priorities continue to be consistent. We would like to do M&A. We're sitting on historically low levels of leverage and M&A capacity. Again, over the next 4 years, we expect to generate $1 billion or more of cash flow that we'll be looking to do something with. And I think the quarter ended September is a great example of that. We were out in the market opportunistically buying back our shares. We bought back over 1 million shares, which is a great way to add value to the existing shareholders, right? That was about 2% of our float during the quarter. So we've got backups to do while we wait for those right M&A opportunities. In terms of the pipeline or the kind of opportunities that might pop up, we don't think this week's announcement really changes that. They're going to continue to look at their portfolio and make decisions about what they keep based on where they see opportunities and what fits their investment criteria. So really nothing changed there or with any of the other big spin-outs that happened -- that have recently happened or expected to happen. And again, over time, we bought from families. We bought from private equity. We bought from big pharma and/or big consumer companies. So we expect that we'll see more opportunities. And the important thing for us is we're going to continue to be disciplined and make M&A investments where it presents long-term growth and value creation opportunities.

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

Sorry, I jumped on a little bit late, so I may have a duplicate question. I apologize in advance. Really just 2 things. I was wondering if you could comment on taking kind of Clear Eyes out of the equation, the kind of consumption trends in North America that you saw across the balance of the portfolio, kind of where you came in? And then any particular strengths and/or weaknesses by brand and category would be helpful. And then I just -- back to Clear Eyes, I just kind of wondering what you're assuming around your kind of ability or visibility to reclaiming maybe some of the shelf space that you've lost during this supply constraint period and how that -- what kind of assumptions you're making around reclaiming that over what kind of time period?

Yes. So let me take those questions in reverse order, Jon. So for Clear Eyes, in terms of recovering our share, recovering shelf space, it will take a little bit of time as the retailers, quite frankly, get comfortable with our ability to sustain service levels. So we'll see how that plays out over the next 2 resets. But certainly, there will be a recovery as we get the retailers' inventories filled and the shelf filled. But the important thing to remember there is Clear Eyes in a lot of ways defined that segment of eye care. And if you go look at the categories, the categories have actually declined -- the eye redness section, the categories actually declined as Clear Eyes supply and share has declined. So that's where we're going to start with our discussions with the retailer about the importance of getting our SKUs back online because there's consumers out there waiting to buy the product, right, and looking to get back into the category. So you just don't get it. We're going to have to invest in marketing and get that flywheel going again. But we feel good about the historic positioning and brand recognition with consumers for that. Now back to your comment about the total company's performance. And as I commented a little while ago on women's health, over the last 3 quarters or so, there's been a lot of noise, right? Clear Eyes supply has had a big impact on company performance. And we've had these order patterns of roller coasters way up 1 quarter, way down the next, way back up again. So one of the things we're looking at here is kind of TTM performance. So if you take a look at the total company's TTM performance through September, take out Clear Eyes and adjust for FX, total company sales up about 2.5%, in line with our long-term organic expectations of 2% to 3%. The international business is up about 5%, which is what we would have expected for the international business. And then North America has been up 1-ish percent or so. Again, a little bit -- North America is a little bit below the long-term algo. But it's all pretty consistent with what we would expect over the long term. Callouts for areas that we've seen very strong performance, GI, not just Dramamine, but Fleet as well as Gaviscon up in Canada, in particular, has done well for us. But women's health has grown over that TTM period as well as we've continued to position those brands for long-term growth and consistency in the International business, but the list could go on and on. But I'll end my comment on this question that we continue to feel good about the position of the company and the brands as we manage through this environment, right? Lots of turmoil, lots of fluidity out there in the environment.

Yes, makes sense. Maybe one follow-up. Given the gross margin rate in the first half of the year, I guess, was a bit depressed because of some of the mix dynamics. But the guide for the year implies a pretty meaningful step-up in sequentially second half to first half. What are the building blocks there? And how much -- how confident or what kind of visibility do you have in that happening? Or is it dependent on some of these ranges you've given around Clear Eyes outcomes?

Jon, it's Chris. So just note, we have a 60 basis point step-up in the first half gross margin. So really just a continuation of the benefits of cost savings and mix. The implication to your point, is a bigger step-up in Q4 that's similar to last year, largely driven by the timing of cost savings. And when we look at our International segment, gross margin revenues were impacted by mix, but also in the quarter, we were carrying 2 warehouses as we transitioned facilities and the provider for our warehouse in Australia. So maybe a little bit of lingering cost in Q3, but we would expect to see a sequential improvement in that segment as well, which will impact the total company, obviously.

Our next question comes from the line of Mitchell Pinheiro with Sturdivant & Co.

So a couple of questions here. First, I saw inventories were up $5 million sequentially in Q2. And I assume, is that a Clear Eyes -- Is that attributed to Clear Eyes? And I didn't quite understand what's happening in the third quarter with Clear Eyes, if you could just clarify that...

This is Chris, so the inventory step-up during the quarter, no, is not really Clear Eyes. I mean what comes in on Clear Eyes goes right out the door. So when you recall that we had a very large order from our e-commerce retailer in Q4, and we've kind of been correcting on that for several brands. So that's kind of not one particular thing, just across the board. And then for Q3, even with the about $5 million we received very late in Q2 that we kind of took out of Q3, we're still expecting sequential improvement in Q3 as we have longer periods with the 2 -- one in particular, but the 2 new suppliers that came -- have come online already for Clear Eyes and then some commercial product, the very beginning of commercial product coming out of that high-speed lineup pillar.

Okay. And then -- so from the A&M point of view, it's going to be your highest spend in Q3. Any particular initiatives there that you're focused on?

No, not particular, just really driven -- we built it from the brands up. So the timing of new product innovation could be impacting that. And there is some seasonality to some of our brands and our spend associated with that, but nothing in particular or one thing.

And then on the e-commerce order variability, is that just something that you're just going to see going forward? Or is there something unusual happening sort of with your e-commerce customer? Or is it -- is there new buyers, new -- how is -- how should we think about the variability there?

Yes. So Mitch, it's hard to predict. We don't get any insight from our e-com customers around their planned timing of their orders or what they're doing with their inventory. So our focus is on being prepared to have high service levels during these peaks and valleys. So that's the way we think about it. We dig into consumption to understand what's going on with that element of it, managing our investments by brand to find opportunities to continue to do well there. So we always go back to, at the end of the day, we want to win with consumption and grow our share and grow with the customers who are showing up in increasing numbers in our categories and be positioned to just provide the best service we can based on when our customers no matter who they are when they decide to order.

And Mitch, I would also just comment that through our distributor, we don't think this is unique to us, maybe a different size customer to some other larger companies that may not talk about it, but we certainly don't think it's specific to Prestige.

Okay. And then sort of related to that, as you reflect on the Clear Eyes issue and the suppliers, like you have over 100 third-party outside suppliers. And I'm wondering whether -- as you look at this, are there any other areas or candidates that you'd consider bringing in-house to have sort of better control? Is that -- have you thought about that? And then -- and related to that -- and I know maybe this is a one-off incident to Clear Eyes, but is there -- do you have any -- do you think you need more inventory to carry higher levels of inventory going forward? Maybe not a lot, but do you think there should be increased emergency sort of inventories that would be sort of higher than historical levels?

So Mitch, let me start with your comment on the suppliers. Yes, we have well over 100 suppliers. It's really a function of our broad product offering, right? We offer everything from tablets to sterile eye care products and everything in between, we take advantage of our Fleet facility in Lynchburg, and we've brought in a couple of products over the last few years to take advantage of what they do to give us an advantage in the market. And eye care is a unique situation that's evolved, right? Available sterile eye care capacity over the last 10 years has just gotten smaller and smaller each year over the 15, 16 years I've been here, I've seen it just decline. So we got to a point where it made sense given our focus on sterile eye care, right? We added TheraTears. We've had meaningful growth on Clear Eyes. We've got a nice International business around sterile eye care. It made sense for us to invest and bring that technology in-house. But for the rest of our portfolio, there's plenty of external available capacity for the things that we need. So there isn't anything else, no other meaningful shoe to drop that we would expect that would drive a change in bringing stuff in-house. I'll let Chris comment on the inventory and service.

Yes, Mitch, certainly, customer service is our #1 priority. So there may be little pockets, as Ron mentioned, where we'll look to increase safety stock for some of the other brands, but nothing material that you'll likely hear us talking about on a call like this.

Okay. Yes, I have a couple of questions on the dental care enthusiasts, but I'll save that for offline.

Our next question comes from the line of Anthony Lebiedzinski with Sidoti.

So I wanted to follow up. I think, Ron, you said that as it relates to Clear Eyes, once the supply improves, you will need to invest more into marketing. So typically, Prestige has spent roughly 13% to 14% of its revenue on A&M. How should we think about that once we hopefully get into fiscal '27, things are kind of back to normal? Do you think that ratio for A&M will go up? Or how do we think about that going forward?

Yes. So going forward, I didn't mean to imply that we would be spending more as a company, if I did. But we'll get back to looking at reallocating A&M and spending the right amount compared to the opportunity. So spending marketing on Clear Eyes when we can't deliver enough didn't make sense. So it was reallocated to other brands to invest in anything from trying to accelerate NPD or innovation or take advantage of the momentum in the marketplace that's out there. So we'll get back to reevaluating what the right level of A&M versus the expected return on sales going forward. So we'll continue to be disciplined around having the right level of investment.

That's good to hear. And then as it relates to private label competition, are you seeing kind of more of the same? Or has anything changed meaningfully in the products that you guys sell?

Yes. No real change in market share or differences in impact from private label. You may get the private label players making comments that they're seeing share gains in this environment. As a matter of fact, this week, I think there was announcements out on that. But again, they're focused on different spaces than we are, right? Think tablet and analgesics, think about the cold and flu, smoking cessation. So it really isn't impacting us at this point.

Our next question comes from the line of Doug Lane with Water Tower Research.

Did you quantify the amount of that pull forward you think happened with the online retailer into the second quarter from the third quarter?

We talked about -- Doug, this is Chris. We talked about the Clear Eyes timing of about $5 million, and the majority of the rest of the beat was attributable to that retailer order.

Okay. Got it. And then you mentioned in Clear Eyes that third quarter should be better than the second quarter and the fourth quarter should be better than the third quarter. Are we all the way there yet by the end of the year? Are we still going to be catching up in 2027?

By the end of the year, we should be producing at a level where we're kind of already there, right? The timing of how we get that through to retailers and get it #1 on their shelves and then back in their warehouses and then build our safety stock, that will probably flow into fiscal '27 a bit.

To just to add some color to it in a different way. We expect by the end of our fiscal year that all the changes that we've been making in the Clear Eyes supply chain will be implemented and in place. So the 2 new suppliers will be in place and the new high-speed line at Pillar5 will be in place, and we'll have control and ownership of the facility, Pillar5, at that point as well.

Right. Pillar5 closes in Q3. Does anything change? Or are you already acting like you own it? Or you have to do more things that we don't know about once you own it?

Yes. So we've been partnered with Pillar for a number of years, Doug, we're certainly involved at a very deep level in the organization there and been partnering with them even before the ownership change was contemplated. So what we talked about on the last call when we announced the acquisition was essentially just we want to run this for the long term. As Ron said, there's scarcity and availability for sterile eye care out there. And we just think our -- the needs of the business to better align with our long-term focus on the category made sense for us to acquire it.

Okay. That makes sense. And just one last thing. Have you talked about how you're going to finance the $100 million?

Primarily cash on hand.

I am showing no further questions at this time. I would now like to turn it back to Ronald Lombardi for closing remarks.

Thank you, operator, and thank you to everyone for joining us today, and we look forward to providing further updates on our next quarterly call. Have a great morning.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.