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Good day, and thank you for standing by. Welcome to the Q1 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, Investor Relations and Treasury. Please go ahead.

Thanks, operator, and thank you to everyone who's 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 first quarter fiscal 2026 results, discuss our 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. 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 the supply chain constraints, high inflation and geopolitical events, which have numerous potential impacts. This means results could change at any time, and the forecasted impact of risks is a best estimate based on the information available as of today's date. Additional information concerning risk factors and cautionary statements are available in our most recent SEC filings and most recent company 10-Q that was released this morning. I'll now hand it over to our CEO, Ron Lombardi. Ron?

Thanks, Phil. Let's begin on Slide 5. Q1 sales were approximately $250 million. We were disappointed by the start to the year, which did not meet the $258 million to $260 million revenue forecast we communicated back in May. At the time, we had forecasted a year- over-year decline in Q1, largely based on the timing of sales orders between Q4 last year and Q1 this year as well as modestly lower sales in eye care. Unfortunately, a planned production shutdown in eye care scheduled for early May stretched longer than anticipated, resulting in a significant shortfall for Clear Eyes in Q1. We'll discuss the action steps we are taking to address this, including the announcement to acquire Pillar5 on the next page. Elsewhere, our business performed largely in line with our expectations, including strong International segment growth and healthy long-term consumption trends for many of our key U.S. brands such as Dramamine and Fleet as well as the continued recovery of Summer's Eve. In addition to this, we experienced gross margin expansion of 150 basis points to 56.2%, thanks to ongoing cost savings efforts, resulting in a gross margin similar to our forecast. For EPS, we delivered $0.95, which was below our expectations due to the sales miss, but still up approximately 6% versus the adjusted prior year, thanks to the gross margin expansion, marketing expense timing and lower interest expense. Free cash flow of $78 million was a quarterly record and continues to enable capital deployment used to enhance shareholder value. In Q1, we repurchased over 400,000 shares and maintained our leverage ratio of approximately 2.4x. Now let's turn to Page 6 to discuss our eye care supply. Given the challenges faced in our eye care supply over the past year, we wanted to give a detailed update on our actions to address the issue. Over the past year, we began accelerating our long-term efforts focused on how to best position our supply chain to support Clear Eyes sales growth. The first phase of this was to bring on 2 new suppliers to supplement our long- term supply requirements and better align to our business needs. This phase has made significant progress with the first of these suppliers providing product deliveries in late Q1. The second supplier is on track to begin supply in early Q3. The second phase was to further invest in our North American-based partner to expand their capacity. Over the past year, we have made progress with them, but at the same time, have been significantly impacted by shortfalls in production. As we evaluated our options to address this, we decided the best course for us was direct ownership of the facility to help secure and expand long-term supply, resulting in today's announcement of the agreement to acquire Pillar5. This direct ownership will allow us to accelerate the expansion of capacity, including the start-up of a new high-speed line that we expect production from in Q3 as well as future capacity additions to fully support our expected growth in eye care demand. As a result of these actions, we believe we will see some improvements in supply late in Q2, but a more meaningful recovery in the second half of fiscal '26 and into fiscal '27. With that, I'll pass it to Chris to walk through the financials.

Thanks, Ron. Good morning, everyone. Let's turn to Slide 8 and review our first 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. Q1 revenue of $249.5 million declined 6.6% from $267.1 million in the prior year and 6.4% excluding the effects of foreign currency. EBITDA was approximately flat in Q1, and diluted EPS increased approximately 6% versus the prior year as the revenue decline was offset primarily by improved gross margin, the timing of marketing spend and lower interest expense versus the prior year. Let's turn to Slide 9 for detail around these consolidated results. As I just highlighted, our Q1 fiscal '26 revenues decreased 6.4% organically versus the prior year. By segment, excluding FX, North America segment revenues decreased 8.4% and International segment revenues increased 7.1% versus the prior year. As Ron noted earlier, our Q1 sales declined due to our inability to move supply-constrained eye care product to customers to meet demand as well as the expected order timing of a certain e-commerce customer that benefited Q4 of the prior year. Excluding these factors, we experienced organic growth. Positively, our International segment experienced organic sales growth of 7%, thanks to broad-based sales growth. We also experienced impressive double-digit year-over-year consumption growth in the e-commerce channel, continuing the long-term trend of higher online purchasing. Total company gross margin of 56.2% in the first quarter was largely as anticipated and up 150 basis points versus the prior year. Looking forward, we still expect a 56.5% gross margin for the year with a Q2 gross margin of 55.5%. For tariffs, we now anticipate a full year potential cost of approximately $5 million as of today. This is the estimated cost prior to any strategic actions, which we'd expect can fully offset the current tariff outlook. As a reminder, we have a predominantly domestic supplier base and have a diverse and only modest exposure to high-tariff countries as well as certain products that are currently exempt from tariffs under USMCA. Advertising and marketing came in at approximately $35 million or 14% of sales in Q1, down versus prior year due to the timing of marketing programs. For fiscal '26, we now anticipate an A&M rate of just over 14% of sales and up in dollars versus prior year. G&A expenses were 11.4% of sales in Q1 due to the timing of certain expenses. For the full year, we now anticipate G&A of approximately 10% as a percent of sales. Diluted EPS of $0.95 increased versus an adjusted diluted EPS of $0.90 in the prior year as lower revenue was offset by improved gross margin, the timing of A&M and lower interest expense. For full year fiscal '26, we now expect adjusted EPS of approximately flat to 1% growth due to the latest revenue forecast. We still expect EBITDA margin in the low to mid-30s, consistent with long-term trends. Finally, looking below the line, interest expense of approximately $10 million benefited from the effects of our continued debt reduction efforts. Our Q1 tax rate was approximately 23.2%, and we anticipate a normalized tax rate of approximately 24% for the remaining quarters of fiscal '26. Now let's turn to Slide 10 and discuss cash flow and capital allocation. In Q1, we generated $78 million in free cash flow, driven largely by the timing of working capital, along with disciplined debt reduction efforts. We continue to maintain industry-leading free cash flow and are maintaining our outlook for the full year of $245 million or more. At June 30, our net debt was approximately $900 million, consisting of attractive rate fixed debt, and we maintained our covenant-defined leverage ratio of 2.4x. In the quarter, we repurchased approximately 400,000 shares for $35 million, and we'll continue to evaluate further repurchase opportunities in the remainder of fiscal '26. Now let's discuss some details around the announced acquisition of our primary Clear Eyes supplier, Pillar5 Pharma that Ron mentioned earlier. Based in Ontario, Canada, Pillar5 is a well-established pharma manufacturing site who we have partnered with since 2016. With over 200 employees, the site's core capability is multi-dose sterile OTC ophthalmic products. In terms of financial impact, we anticipate the estimated purchase price of approximately $100 million to be funded from cash on hand. We expect the transaction to have a minimal impact to our P&L and to be approximately neutral to EPS on a normalized basis. As a reminder, this would exclude any onetime costs associated with the acquisition. Given the size, we also anticipate the acquisition to be leverage neutral. In terms of CapEx, we anticipate modest ongoing CapEx requirements, bringing our total company CapEx outlook to 1% to 3% of sales annually versus 1% to 2% previously. We would expect to close in fiscal Q3 based on fulfillment of certain closing conditions. With that, I'll turn it back to Ron.

Thanks, Chris. Let's turn to Slide 12 to wrap up. We continue to have confidence in our diverse and leading consumer healthcare portfolio and its long-term growth opportunities. Although the strong fundamentals of our business remain unchanged, we are disappointed in our start to the year. But the actions we've outlined today give us confidence for an improvement in Clear Eyes supply. For fiscal '26, we now anticipate revenues of $1.1 billion to $1.115 billion, with organic revenue down approximately 1.5% to 3% versus last year, with this change in revenue outlook largely in the first half of fiscal '26. This update to guidance is primarily driven by the anticipated eye care first half supply constraints with an additional headwind related to the current retail environment. For Q2, we're expecting revenues of approximately $256 million to $259 million, down year-over- year, largely to Clear Eyes supply chain timing as well as lower retail order patterns experienced in July that are not consistent to our stable consumption rates outside of eye care. Beginning in second half, as discussed earlier, we anticipate significant improvement of Clear Eyes shipments into retailers to support in-stock levels. For diluted EPS, we now anticipate adjusted EPS of $4.50 to $4.58 for the full year. And for Q2, we'd anticipate EPS of approximately $0.97. Lastly, we continue to anticipate free cash flow of $245 million or more, and 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 Rupesh Parikh with Oppenheimer & Co.

So I guess just on the -- I guess, the change in retail order patterns, the inventory destocking. Just curious if that's broad-based across retailers and then how to think about the magnitude of that impact for Q2, whether you expect that to continue beyond Q2?

Rupesh, it's Chris. So we talked about the impacts to the full year outlook. The first, of course, being our expectations around eye care supply. The second aspect that we talked about relates to the current retail environment. We're hearing what you're hearing from other CPG companies concerning the environment, and we have seen increased order volatility from retailers in July, one in particular, where we've seen big swings week-to-week in orders that are disconnected from consistent consumption levels. So there's a degree of expectation that what we've seen thus far will significantly impact Q2, but we are expecting to return to more normalized retail order trends in the second half.

Okay. And no specifics on the impact of that headwind for Q2?

If I think about the call down for the year, we talked about the majority being eye care. Think of it as a 60-40 split really, 60 being eye care.

Okay. That's helpful. And then just going to Clear Eyes. I just would love to hear your confidence in being able to supply -- sorry, confidence in supply normalizing in the back half of the year? And then would you expect to recover some of these lost sales in FY '27 and beyond?

Rupesh, so let me start maybe by stepping back a little bit on our decision and announcement on Pillar5 and touch on some of the topics we've talked about in the past, right? So the sterile eye care sourcing strategy that we've been talking about and announced the Pillar5 acquisition on today really has been in the development for a long time. We've been scouring the globe for years to understand sterile eye care capacity and the options available to us. And that led to what we started to describe about a year ago, actually over a year ago, where we talked about adding new suppliers and focusing on investing in our current suppliers to expand their capacity. So we started to see the beginnings of deliveries from one of those new suppliers at the very end of June. We anticipate the second will come on early in our third quarter. And then as we evaluated the 2 long-term suppliers that we've been working with over the years, it became obvious to us that Pillar5 was meaningfully ahead of the other supplier in terms of being able to expand their capacity. And we've talked about the expectation that a new high-speed line will come online later in Q3. So with those 3 elements, right, the 2 new suppliers working with direct oversight on Pillar5 once we close in the addition of this high-speed line is going to provide a significant level of stability in sterile eye care that we've forecasted will add meaningfully to the sales level in the second half of the year. So a bit more detail than maybe you asked in your question, but I just thought it would be good to step back and pull all the pieces together, Rupesh.

Okay. So you feel good about getting back to normalized supply at this point for the back half of the year?

We do, right? So -- and again, that was our expectation that we talked about back in May. We thought it would be slower in the first half, not to this extent, but expected that the new suppliers and the additional high-speed line at Pillar would be in place for the second half.

Okay. And then my final question, just on Clear Eyes as well, just from a market share, out-of-stock perspective, what's happening from that perspective?

Yes. Over the past year, up through May, we had fairly steady supply concentrated around our biggest SKUs. So despite the fact that we saw volatility in shipments into retail, we still had decent supply and availability at shelf. That all changed in late May as a result of the disruption at Pillar5. And we saw a significant decrease in late May and June and into July in our share. And we expect to see that recover as shipments get back in. As a reminder, Clear Eyes was by far the #1 volume leader in redness relief, talking about nearly 50 million units a year sold at retail, and that's a big presence. So we would anticipate that we'd be able to begin to recover that share over time. We have seen some lost distribution for the SKUs that were around the big movers. So like cooling comfort and complete care and some of the other SKUs that we have. So that will take a bit more time, but we would expect to see the recovery over time of our leading position in redness.

Our next question comes from the line of Susan Anderson with Canaccord Genuity.

Quick question on the eye care manufacturing. I guess, bringing that in-house, does that change the margins at all for the segment, that segment of the business? And then also, did you say what percent now of your eye care business will be internally manufactured?

Susan, it's Chris. So we're not expecting any meaningful movement in our gross margin or actually any of our financial metrics. As a result, we talked about expecting it to be largely neutral to the P&L. So no on that. We didn't disclose the percent. Obviously, the benefit of having more than 1 -- more than 2 suppliers at this point allows us the flexibility to flex back and forth. So that will be determined over time, but -- and we'll evolve it as we go.

Okay. Great. And then I guess just looking at the model, maybe if you could talk about the puts and takes of gross margin for the year. It looks like you're going to still maintain the gross margin guide despite the pressure from the eye care business. So I guess, what do you expect to be driving that performance for the rest of the year?

Yes. So from a gross margin perspective, it's kind of the same steady as she goes, right? Largely a variable cost model. Most of our channels and our brands are -- have a similar margin. So not a lot of outliers there. We may see some shift in mix, and that's the movement you'll see, I think, as we go through the quarters, but nothing meaningful there. We talked today, we updated the tariff number. It used to be $15 million. We brought it down to about $5 million. And again, we would expect pricing and cost-saving actions to mitigate that, but that could have some impact on the mix -- excuse me, on the margin. But all in all, when you put it together, it's really no change as a result of eye care. And we are expecting to recoup a significant portion of the sales in the back half.

Okay. Great. And then I guess just looking out to the back half now and the cough/cold season, I guess what are you expecting out of the season this year? I assume you're planning it to be normal, which I assume would be up over last year with kind of a weaker season.

Yes. So no change to the initial guide on cough/cold. We were forecasting a modest decline in the category. A little bit too early to tell at this point. So we're maintaining that at this point.

Okay. Great. And then one more, I guess, just if you could talk about just how you feel about the inventory within your segments in the channels. Do you feel like there's any areas that are still over inventoried, which you would expect some destocking going forward? Or do you feel that within your categories, the inventory is pretty clean?

Yes. So we do review our largest customers, and we do not see any meaningful ramp-up of inventory. As we talk about the current retail environment and the kind of big swings that we're seeing in order patterns, it's really disconnected from consumption, and it's not starting from a place of inflated inventory. So no, we are not seeing any meaningful opportunities for folks to take significant amounts of inventory out at this point.

Yes. That's interesting. I guess one last one just on the women's health business. You talked about Summer's Eve continuing to recover. I guess, are you expecting that business to be positive the rest of the year?

Susan, it's Ron here. Yes. So we continue to feel good about the Summer's Eve momentum and trends. If you take a look at performance for the different categories during the quarter, it's tough to get a handle on them because of that shift between the fourth quarter and the first quarter. But even with that shift, our women's health category had growth in the quarter ended June. So it gives you a little insight into the strong trends there versus where we were a year ago when we hit bottom for the Summer's Eve brand. So yes, we continue to feel good about it for the remainder of the year.

Our next question comes from the line of Glenn West with William Blair.

Glenn West on for Jon Andersen. Some of what I wanted to hit was kind of asked, but maybe piggybacking back on to the Clear Eyes situation. Can you elaborate kind of on the cadence of that improvement in the second half? I know there's a new supplier coming on during Q3 and then the new high-speed line will be coming on in Q3 as well. Does that mean full supply recovery isn't really going to be until Q4? Or maybe just a little more color on that back half recovery?

Glenn, so yes, we are anticipating the third quarter and the fourth quarter to significantly step up from the first half. So it's not all fourth quarter loaded. It is also an increase in the third quarter.

Glenn, it's Ron here. And again, in terms of recovery, it's going to take more than a couple of quarters of improved output at our suppliers to catch up. We've been shipping in well behind potential demand for the brand for a good year now. So we would expect that full recovery to continue into '27.

Okay. And then on capital allocation, you guys said that the deal would be paid for entirely in cash. I think you said $100 million, but still said you'll look to opportunistically maybe repurchase shares. Looking forward, I guess, how are you thinking about the capital allocation since you're using a large chunk of cash here? Is there maybe opportunity to pursue purchasing more suppliers in the future? Or what are you guys thinking there?

Yes, Glenn, it's Phil. So the waterfall of our capital allocation priorities really hasn't changed. With the leverage ratio we've achieved over the last few years as we paid down debt and the approximate $1 billion in free cash flow we'd expect over the next 4 years, we think we have a lot of firepower to create value in multiple buckets. So we're continuing to pursue M&A and staying disciplined around that, looking for opportunities. From there, the second pillar is repurchases. You saw the 400,000 shares in Q1 to offset dilution. Beyond that, we look for incremental opportunistic repurchases over time and then still thinking about net debt reduction and cash build as sort of the fourth element to enable those other pillars. So no change to that waterfall that we've laid out in the past. And the acquisition of Pillar5 is one of many of those deployment priorities.

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

So first one here is on the Pillar5. So I know you said it's going to be earnings neutral to EPS this year. Now how should we think about fiscal '27 as you have a full year impact of that? If you could just give us some maybe directional guidance on that, that would be great.

Yes, Anthony, it's Chris. So again, we're talking about expecting it to be largely neutral to the P&L. And I think I mentioned we're thinking tens of basis points, not hundreds here. Given the investment that Pillar5 made in the facility and maybe the different objectives the financial sponsor might have in running a facility like this. There's also an element of cost avoidance here as we would expect Pillar5 as well as other options we explore to be looking for significant capital investments from us as well as significant price increases in the years to come. So obviously, that doesn't affect my current gross margin or my margin structure. But again, just a reminder, think about this acquisition differently than a brand acquisition, right? We did this transaction to better secure supply for one of our largest brands as well as to ensure the ability to increase capacity in a space that we believe will provide nice growth as we move forward. So that's how we're thinking about it at this point.

Just a couple of other comments on it, Anthony. To put it in perspective, right, Clear Eyes is a high single digit of our sales. So that in and of itself isn't going to have a major impact on the total company's financial profile. You put the high margins in there and you end up with a small relative level of purchase costs in the P&L. The second is, right, our sole focus as we sit here today is about recovering supply at this point. So it doesn't mean that we won't have a sharp pencil and a focus on making this as accretive as possible and finding ways for that facility to be more effective from a cost standpoint going forward. But for now, it's all about stability of supply going forward, and then we'll get an eye on the ability to be more cost effective over time.

Got it. Okay. That definitely helps. And just thinking of Clear Eyes, so we've had a few quarters of supply chain issues for Clear Eyes. Just wondering what steps are you taking to ensure that the brand remains in a strong position and top of mind for consumers as some -- because of not having adequate supply at retail, maybe some consumers have shifted to other brands. So how are you guys thinking about just the ability to maintain your strong position for Clear Eyes?

Yes. So first, as I think I commented earlier, our focus has been trying to maximize availability of our top SKUs. So our base redness and our max redness have been primary focus for what we produce is the first thing. And then the second part of it is to maintain the right level of connections with consumers for the brand. The last thing we want to do is drive them to the shelf with an expectation that the product is available in the channel that they're happen to looking to buy at it and be disappointed when they get to the shelf. So that's the first part of it. The second part of it is, so where are we seeing the shift in our share go to? The first is the entire redness category from a unit standpoint is down. So we're #1 by far from a unit basis, and we're impacting the entire category. So we're seeing the category decline. And then second, where we do see a shift in share, it's kind of spread across a broad number of players who are in that redness category. So there isn't any one big winner here. It's kind of spread out. And as I just mentioned, we're seeing the category shrink.

Got it. Okay. And then my last question here. So as far as the International segment, so obviously, nice performance there. How do you guys think about your ability and confidence to be able to sustain that growth internationally?

Yes, Anthony, it's Chris. So in the quarter, we had solid international consumption just ahead of our long-term forecast. It was pretty broad-based growth by brand and by geography. So for the full year, we're expecting a little bit of a softer trend versus the 7% you saw in the first quarter, some of which is timing, but still in line with our longer-term algorithm of 5-plus percent for the segment. And I think the -- we've talked in the past about opportunities as we expanded our Hydralyte rights, as we look to expand other brands geographically and then just executing the same kind of brand-building playbook in the other regions that we have done here in North America. So we feel pretty confident in our ability to keep that long-term algorithm going for the years to come.

[Operator Instructions] Our next question comes from the line of Doug Lane with Water Tower Research.

I'm relatively new to Prestige Brands, but I have followed OTC pharmaceutical companies in the past, and I don't remember talking about supply constraints in this category. So what is it about eye care that has caused so much consternation as far as supply is concerned?

Doug, good to speak with you. So I think I touched on this a little bit earlier. We've been evaluating sterile eye care supply options for over a decade as we looked for the ability to support Clear Eyes growth over the long term. And what you find is, generally, the bigger players have their own in-house manufacturing. And as a result of that, there isn't a lot of available high-volume sterile eye care capacity that's out there because the brands that are out there generally don't have that 50 million unit annual volume requirements that Clear Eyes has. So it isn't out there to tap into. So when we look to add to our supply base, it begins with having to make meaningful investments in suppliers to get them to acquire and install high-capacity unique fillers that match our unique Clear Eyes bottle, right? So we're not in a Boston round. We've got that great iconic flattish style bottle out there. So the simple answer is there isn't the kind of capacity out there available that wouldn't require years, 3, 4, 5 from start to finish and meaningful investments. So as we've gotten to the inflection point of setting ourselves up for long-term success here, it became obvious that we needed to bring this in-house to be in the best position long term.

Is this going to require an accelerated capital spending for maybe next year, if not this year to get that capacity and be comfortable that you have what you need for the next several years?

As I said earlier, it's -- we thought Pillar5 had a significant head start to our other options. So they've got HVAC infrastructure ready to go. They've got this new high-speed line that we should be seeing production set up for. So they're far ahead of the other options that we had, including the amount of capital. So I think in Chris' prepared remarks today, she gave an update that we'd be expecting our capital to move from 1% to 2% of revenues to 1% to 3% over the long term. So that's another $10 million on $1.1 billion. So the short answer is we're not expecting any meaningful step-up either in the short term or the longer term for capital even with the ownership. And I'll compare it to our Lynchburg facility, which will be producing 2x the sales value of output versus Pillar5, still only requires single-digit millions of capital spending each year to support that level.

Okay. That's helpful. And just you said in your -- on your slides, your double-digit consumption growth in e-commerce, which is -- continues to be strong, but that doesn't sound like it was shipments from you guys. Is that where some inventories were worked off in the quarter?

Yes, Doug, this is Chris. So yes, that is an area where we saw a meaningful disconnect from consumption levels, which have been very consistent over time.

And some of that was expected. When we gave our outlook for the quarter ended June, we had called the $7 million or $8 million shift from the fourth quarter into the first quarter. So we anticipated that for the first quarter.

Yes, I remember that. And so that inventory build, if you will, that you called out last quarter has been pretty much worked off at this point?

It has. The guidance that we're calling for the adjustment is largely in Q2 for what we've experienced in July. And as I mentioned in the Q&A session, inventory levels were not at inflated levels. So meaningful disconnect there so far.

This does conclude our question-and-answer session. I would now like to turn it back to Ron Lombardi, CEO, for closing remarks.

Thank you, operator. And I want to thank everybody for joining us today, and we look forward to providing an update for Q2. Have a great day.