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Welcome to the Q1 2025 Prestige Consumer Healthcare Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [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, 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. On today's call, we'll review our first quarter fiscal 2025 results, discuss the full-year outlook, and then take questions from analysts. A slide presentation 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. Please 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, which accompanies the call. These are important to review and contemplate. Business environment uncertainty remains heightened due to supply chain constraints and high inflation, which have numerous potential impacts. This means results can 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. Now I'll hand it over to our CEO, Ron Lombardi. Ron?

Thanks, Phil. Let's begin on Slide 5. We are encouraged with our start to the year. Q1 exceeded our sales and earnings expectations set back in May. Our diverse portfolio continues to experience solid consumption trends thanks to our proven brand-building strategy and investments. Sales of $267 million declined versus the prior year, largely due to supply chain challenges and clear eyes that were expected. However, the impact was better than forecast, thanks to improving production trends and our ability to expedite shipments to retailers that aligned with our focus on service. Meanwhile, the quarter also benefited from continued strong international growth that was broad-based and led by our Hydralyte brand. The additional shipments were executed largely with temporary air freight that resulted in a slightly lower gross margin than forecasted. In total, adjusted EPS of $0.90 declined less than anticipated thanks to the sales upside. Free cash flow of $54 million grew versus the prior year and continues to enable capital deployment that is used to enhance shareholder value. In Q1, we reduced debt by $35 million while still repurchasing about $25 million in shares and maintaining a leverage ratio of 2.8 times. Now, let's turn to Page 6 for an update on Summers Eve. As discussed last quarter, we are making progress in our women's health franchise, which is represented by two distinct number one market share brands, Monistat and Summers Eve. Our action steps have led to largely stabilized Monistat sales trends, allowing us to further focus our efforts on returning Summers Eve to growth. Summers Eve begins with a long heritage and connection with consumers. It offers one of the most comprehensive product offerings in the feminine hygiene category, made up of washes, wipes, sprays, and other products designed for feminine hygiene needs. Within this wide assortment are two separate trends for our brand. Certain on-the-go offerings, such as sprays and mists shown on the pie at left, continue to face pressure from consumer behavioral shifts away from on-the-go sprays due to numerous factors. On the other hand, cloths and especially washes, which make up about 65% of brand sales, are performing comparatively well and are set up for long-term growth. We believe new marketing and new innovation will help each of these form factors drive a return to sales growth. For Summers Eve, our latest media campaign highlights its key consumer benefits of odor protection and gets back to communicating and connecting with consumers based on the brand's heritage around freshness and confidence. The recent launch of Summers Eve Ultimate Odor Protection, which emphasizes this attribute and utilizes a patented odor-reducing formula, is one of our best-performing new product launches of the last several years. This leaves us with conviction that the brand-building campaign we've put in place is the right one and should build momentum as the year progresses. Now, let's turn to slide seven for an update on Hydrolyte. A reminder for our U.S. investors that are not familiar with Hydrolyte, it is a great-tasting and efficacious oral hydration product that defines the category in Australia. With a 20-plus year history in the market, the majority of Australians recognize the brand immediately and continue to turn to it for numerous usage occasions like sickness, sport and exercise, and excessive heat. The brand remains a large portion of our international business and represents a majority of our sales in Australia. Leveraging its clear number one market share position, Hydrolyte focuses its efforts on finding ways to grow the category with consumers using proven brand-building tactics. Most recently, Hydrolyte continues to emphasize the reason to hydrate with more than just water through both retail and digital touchpoints. These robust efforts continue to yield results. Compared to five years ago, the Hydrolyte brand has grown at a mid-teens category, thanks to improving both usage rates as well as expanding household penetration within its core Australian market. We see a runway for further growth with these tactics along with long-term geographic opportunities beyond Australia and New

Thanks, Ron, and good morning, everyone. Let's turn to Slide 9 and review our first quarter fiscal 25 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. Q1 revenue of $267.1 million declined 4.4% from $279.3 million in the prior year and 4.3% excluding the effects of foreign currency. As expected, EBITDA and EPS both declined in Q1 from the prior year with the majority of the change driven by lower revenue and the quarterly timing of certain costs. Let's turn to Slide 10 for detail around these consolidated results. As I just highlighted, our Q1 fiscal ‘25 revenues decreased 4.3% organically versus the prior year. By segment excluding FX, North America segment revenues decreased 5% and international segment revenues increased 5.3% versus the prior year. As Ron noted earlier, we exceeded our Q1 sales forecast owing primarily to our ability to move supply-constrained Clear Eye’s products to customers more rapidly than anticipated to meet demand. This helped eye and ear care category performance exceed our expectations along with strength in our TheraTears, Debrox, and Sty brands. This performance was more than offset by declines in women's health and cough-cold categories where we faced continued pressure in on-the-go Summers Eve offerings, as Ron discussed, as well as the planned impact of retail ordering in the cough-and-cold category. We experienced impressive double-digit year-over-year growth in the e-commerce channel, continuing the long-term trend of higher online purchasing. Total company growth margin of 54.7% in the first quarter was approximately flat sequentially but below the prior year due to continued cost inflation and the use of higher-cost air freight on Clear Eye’s products, which was only partially offset by pricing actions and cost savings efforts. For the full fiscal year, we now anticipate a gross margin of approximately 56% due to the higher air freight costs incurred in Q1. We still expect the increase from the prior year to be driven by pricing actions and cost savings that more than offset inflationary cost headwinds. Q2 gross margin is estimated to be approximately 55.5%. As expected, advertising and marketing was up in dollars and as a percentage of sales, coming in at approximately $39 million, or 14.7% of sales. For fiscal ‘25, we still anticipate an A&M rate of just over 14% of sales and up in dollars versus the prior year. G&A expenses were 10.8% of sales in Q1 due to the timing of certain expenses. We still anticipate full-year G&A of approximately 9.5% as a percent of sales. Adjusted EPS of $0.90 compared to $1.06 in the prior year, down from the impact of lower Q1 revenues, air freight costs, and the timing of A&M and G&A spends. For full-year fiscal ‘25, we expect adjusted EPS growth of approximately 5% to 6% as well as an EBITDA margin in the low to mid-30s consistent with our long-term trends. Finally, looking below the line, interest expense of approximately $13 million benefited from the effects of our continued debt reduction efforts. Our Q1 adjusted tax rate of 22.9% excluded an unusually large discrete tax item we do not anticipate repeating. We anticipate a normalized tax rate of just under 24% for the remaining quarters of fiscal ‘25. Now let's turn to Slide 11 and discuss cash flow. In Q1, we generated $53.6 million in free cash flow, up double-digits versus the prior year. We continue to maintain industry-leading free cash flow and are maintaining our outlook for the full year of $240 million or more. At June 30, our net debt was approximately $1.1 billion, $1 billion of which is fixed, and we maintained a covenant-defined leverage ratio of 2.8 times. In the quarter, we repurchased approximately 400,000 shares for $26 million and will continue to evaluate further repurchases opportunistically for the remainder of fiscal ‘25. With that, I'll turn it back to Ron.

Thanks, Chris. Let's turn to Slide 13 to wrap up. Our business is building momentum, and our fiscal year is off to a good start. We are reaffirming our full-year outlook thanks to our diverse and leading consumer health care portfolio that is helping to offset near-term supply chain headwinds in eye care. For fiscal ‘25, we continue to anticipate revenues of $1.125 billion to $1.140 billion and organic revenue growth of approximately 1% versus fiscal ‘24. We're expecting Q2 revenues of $282 million, down slightly year-over-year, again, due to Clear Eye’s timing. We continue to look for ways to improve Clear Eye’s shipments into retailers to support in-stock levels. However, this doesn't change the full-year outlook but may shift sales from the second half into the first half. For EPS, we continue to anticipate adjusted EPS of $4.40 to $4.46 for the full year. For Q2, we'd anticipate EPS of $1.08. Lastly, we continue to anticipate free cash flow of $240 million or more with the benefit of capital deployment optionality that has a history of maximizing value for our shareholders. With that, I'll open it up for questions. Operator?

Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from Rupesh Parikh with Oppenheimer. Go ahead. Your line is open.

Good morning, and thanks for taking my question. Just going back to the supply chain, it sounds like from your commentary, you guys are on track in resolving the supply chain issue as you guys expected. Just wanted to confirm that. As you look at the eye category, have you seen any shelf or share loss, or is it playing out exactly as you guys would have expected on the consumption basis?

Good morning, Rupesh. In terms of the Clear Eye supply chain, we continue to be in line with what we talked about back in May in terms of production. Q1, we saw the ability to use some air freight to get stuff in a bit sooner at the end of the quarter than what was originally anticipated. And as I just said in the prepared remarks, we're looking to see if we can get a bit more into the first half versus the second half by continuing to use air freight. So Clear Eye supply chain on track at this point. We continue to feel good about it. In terms of share and consumption, Clear Eye is continues to be well-positioned at shelf. So we've been focusing on making sure that we've got products available at shelf. So maybe not all the SKUs, but SKUs that can meet consumer demand at the shelf. So, so far so good in terms of consumption and share.

And then maybe just one follow-up question. Just given some concerns on the Pharmacy Channel, you know, Walgreens closing stores, it looks like CVS is rationalizing their supply chain. Just how do you guys feel about, inventorying the channel within pharmacy and any concerns about inventorying stocking going forward?

Yeah, at this point in total, we haven't seen really any headwinds from retailers reducing inventory in total. Certainly some channels have some activities going on that's being offset by growth in other channels. And then the other thing I'll comment on is what you may be hearing from others in the industry is it's really more cough-cold in other categories that we don't plan in a big way at this point. So we'll see how that plays out. But at this point, we continue to be well-positioned to get through that.

And then just my final question. Just given some concerns out there on the consumer, as you look at your categories and are you seeing any shifts to private labor or any other new consumer dynamics during this past quarter?

Yeah. As we've talked about over the last couple of quarters, what we've seen is consumers shifting where they buy, looking for better value for the brand that they've bought historically, rather than any change in what they buy. So at this point, we continue to believe that taking care of your health or someone in your family is the last place you look to make a change.

Great. Thank you, I’ll pass it on.

Great, thank you.

One moment for our next question. The next question comes from Susan Anderson with Canaccord Genuity. Go ahead. Your line is open.

Hi, good morning. Thanks for taking my questions. I was wondering just in terms of the North America business. Can you give us the idea of how much the decline was due to Clear Eye’s versus the women’s health versus the weaker cold cough season? And I guess should we expect that same trend as we look in into next quarter? Thanks.

So we have a little bit of a hard time hearing you at the beginning. I think Susan you're asking us to give a little detail behind the makeup and what drove sales decline year-over-year?

Yeah, correct. Between those three things. Hi. Thank you.

It's Chris. So as you look to the various categories women's health, I would say as expected and you'll be able to see these categories versus the prior year was down about $5 million. Our cough cold again as expected down similarly to women's health. We're expecting cough cold trends to be flat to down slightly, right? The seasonality -- of and versus the comps of last year is what's going to drive the improvement in the second quarter versus the first quarter. Women's health seeing improvement as Ron mentioned in his prepared remarks, but likely to be a bit challenged and still in the second quarter. Have a little bit of FX headwind in the second quarter that we're planning for but sequential improvement in eye care expected. And remember as we commented in the remarks if you heard the ear and eye care category also saw strong performance from TheraTears the Debrox and Sty. So really all the brands in that portfolio hitting all cylinders.

Okay, great. And then I guess maybe just a follow-up. So on the eye care business, it sounds like the manufacturing plants are not necessarily quite up and running yet. Is that correct? And I guess what do you guys expect them to be and should we expect more air freight to impact with margin in the second quarter? Thanks.

Yeah, so production levels really through the end of July continue to be in line with what we anticipated. We've got two suppliers and they're again both largely as expected and we anticipate that they'll be continuing to ramp up, up the output level as the year continues. And then for the second quarter, I think as we mentioned earlier, we anticipate some additional air freight to continue to focus on service levels. So if we can expedite get it in and get it back out to the retailers to help with in stock at shelf. That's what we're going to be focused on.

And that's obviously included in our guide.

Yeah. Okay, great. Thanks so much. I'll pass it along.

Thank you.

Thank you. One moment while we prepare the next question. The next question is from Linda Bolton-Weiser with D.A. Davidson. Go ahead. Your line is open.

Yes. Hi. So I was wondering in terms of the track channel POS data, which I know doesn't tell the whole picture, but still the data actually look really pretty strong for Clear Eye’s like, oddly strong actually. Can you shed a little light on how the POS does look so strong even though there are some supply issues? Is it just that retailers had enough inventory or just -- can you kind of give a little more color on why it actually does look so good?

Yeah, so consumption is outpacing our shipments into the retailers for Clear Eye. So that's the first part of it. The second is, we've been focused on making sure we've got some products available that we can ship so that there's something at shelf. So when consumers are showing up at the shelf, Linda, there's product there for them, which is what's driving consumption. And really it's the continuation of strong performance for that brand. It's really nothing new for us. We've got some new products out there and some campaigns that we've had going on for a while here that continue to do well in the marketplace.

Okay. And then just on the women's health business, I know you commented that Monistat is largely stabilized. Can you just refresh us on exactly the actions taken and what is kind of stabilizing that business? I mean, given that it's driven by illness incidents among women. So how can that be controlled? So what are the marketing actions that you've taken that have stabilized that?

Yeah, so a couple of things. First, the marketing campaign and the messaging was refined over the last year to better connect with consumers. So our digital and TV messaging is more on point than it was kind of a year, year and a half ago. And then there's really two parts of the Monistat business. We've got Cure, which you're right, Linda, it is linked to incident levels, yeast infection, incident levels. And then there's the care line of products where we've got a number of new products out, the boric acid wash that is really doing well. So it's never one thing that turns a brand around, but it's those elements around Monistat that have repositioned it to really being positioned back for growth. And then to get into Summers Eve, as I mentioned on the prepared remarks, we continue to make good progress on washing wipes with new products and digital messaging that are out there. And we continue to focus on the on the go to get that segment revived, right? We're the market leader with more than 50 share for that segment, and it's really up to us to get that element back to growth and we're focused on it.

Okay, thank you. That's it for me. I'll pass it on. Thanks.

Thank you, Linda.

Thank you. [Operator Instructions] Next question comes from Anthony Lebiedzinski -- sorry, apologize, with Sidoti & Co. Please go ahead. Your line is open.

Yeah, no problem. And good morning all and thank you for taking the questions. So first, can you just give a little bit more details as far as the impact of air freight on your gross margin? And I know there was a partial offset of some pricing action. So if you could be a little bit more specific as to those two things, that'd be great.

Yeah, good morning, Anthony. It's Chris. So air freight was the entire difference delta to our expectations. We had guided to 55.5% for the first quarter and air freight was really the difference there.

Okay. All right, that's very helpful, Chris. Yeah, thanks. And then so I know you guys gave some color as to what you expect for the second quarter. You reaffirmed your full year guidance, obviously. So as we look at the back half of the fiscal year, and we look to update our models for Q3 and Q4, anything there you can call out there as far as how to think about the cadence of sales and earnings? I know, Ron, you had mentioned something that there might be a little bit of a shift from Q -- I guess, from the back half to the second quarter. But anything else you can add as we look to recalibrate our models for the balance of the fiscal year?

Yeah, Anthony, hi. So obviously, we're not giving a specific guide to the back half quarters, but I would just remind you of the comp that we're going to be lapping from the fourth quarter of fiscal ‘24.

Okay, got you. Yes, you'll have an easy comp in the fourth quarter as well. All right. And then lastly for me, as far as the international segment, so that was up again here in the quarter. Anything you can call out as far as your ability or confidence level and your ability to sustain that performance internationally?

Yeah, Anthony. So international, as you mentioned, has had a few years now of really impressive growth. And coming off of those comps, Hydralyte, we highlighted on the call, had nice growth. Sales were up double digits in the period. A few other brands and geographies were up. We have a brand called

All right, well, that's great to hear. Thank you and best of luck.

Thank you.

Standby for our next question. The next question comes from Mitchell Pinheiro with Sturdivant and Co. Go ahead, your line is open.

Hey, good morning. I was curious, I may have missed it, but cough and cold was down significantly second consecutive quarter of double-digit declines. I didn't really quite understand why it's that large. And then also in oral care down in mid-teens. I was curious why the weakness there?

So for cough-cold, I'll start with Mitch. It's really a comp issue here, right? Last year, retailer order patterns were still different than the historic level of the seasonality. So it's really a comp issue for us. We expect more of a seasonal trend for cough-cold stuff. So we'll see the pre-season buys, maybe at the tail end of our Q2, early Q3, we'll see where that goes. And then we'll wait to see how incident levels play out. But as I think Chris mentioned earlier, for the whole year, we anticipate that the cough-cold segment will be flat to down slightly for our shipments into the retailers. And then for oral care, it's really timing for the whole year performance versus the first quarter of last year. So, and again, consumption, just another example where consumption is outpacing our shipments into the retailers. So it's a timing issue.

Okay. And with I mean, obviously you're a needs-based -- have a needs-based portfolio, but are you having conversations with your customers regarding either pricing or promotion or anything? Are they asking for anything more in terms of sort of helping with price to get -- I don't say consumers back in stores or buying branded, but is there any, I don't say pressure, but are they asking for any discounts or promotions more so than normal?

Yeah, really no change in that dynamic, Mitch. We're not like the food aisle where inflation has had a different kind of impact on those, that part of the store. For us, we're needs-based and consumers are looking for those trusted brands with products that have proven to work for them. So at this point, we really haven't seen any changing in that kind of dynamic.

Yeah, Mitch, to highlight that in our original guide, we talked about expecting about half of our growth from price and half from volume. So we're still anticipating volume growth, which we have now for several years. So I think to highlight Ron's point a little different than some other categories you may be hearing about from others.

Thank you. And then, Chris on G&A it's up. What were the discrete costs or items that caused the little bump this quarter?

Yeah, so really just timing and I'd expect that to step down now for the remainder of the year. Just the timing of initiatives, no one thing within G&A.

And then finally, I'd just love to hear your comments. Any change or anything unusual that you could call out in the M&A environment over the last quarter?

Yeah, no. The pipeline continues to be consistent with what we've seen over the years. We continue to look at things and we'll remain disciplined. We have a lot of capital allocation optionality during the quarter. We repurchased some shares, right? We paid down some debt. And we'll continue to keep M&A as kind of our number two priority for cash flow allocation after investing in our brands. But no change to what we've been seeing this year.

Okay, thank you.

[Operator Instructions] Our next question comes from Trevor Sahr with William Blair. Go ahead, your line is open.

Hi, thanks. This is Trevor on for John. Just one question for me. Kind of scanning through the thank you here and looking at some of the categories and the category performance. Would love to hear just a little bit of an overview. Looking at some of these, eye and ear care is up and outperforming. A lot of the other ones are performing quite as well. I think we've walked through a couple of them, but from a high level, what are you seeing broadly across the rest of the portfolio that are leading to some of these declines? If these are long-term impacts or kind of short-term that you're lapping, just kind of any other detail you could provide over some of the segmenting and category information in the quarter.

Good morning, Trevor. So first of all, I think I'll start with, we generally feel good about the overall consumption trends for our brands and our portfolio. We talked about a few of them already this morning. And as you just mentioned, we've got some funny comp stuff going on. Oral care and cough colds for different reasons, but we've got some funny comp things that were the big drivers behind the declines year-over-year for those categories. We do have the supply chain challenges in Clear Eye’s, but it's really being way more than offset by very strong performance in TheraTears, Debrox and Sty, which is the majority of the driver in performance in the ear and eye category to call out. And then as Chris mentioned earlier, the international business at 5% continues to have good performance. So a lot of noise this quarter when you look at the category performance, which is why I would encourage you to continue to listen around our full year guidance of up plus 1% or so with the offset of the Clear Eye’s supply chain. So again, we feel good with what's going on here.

Thanks Ron, that's helpful.

Thank you.

I'm showing no further questions at this time. So I would now like to turn the call back over to CEO Ron Lombardi for closing comments.

Thank you operator. And thanks to everyone for joining us this morning and we look forward to providing another update after Q2. Have a great day.