Phil Terpolilli - Prestige Brands Holdings, Inc. Ronald M. Lombardi - Prestige Brands Holdings, Inc. Christine Sacco - Prestige Brands Holdings, Inc..

Joseph Nicholas Altobello - Raymond James & Associates, Inc. Jason M. Gere - KeyBanc Capital Markets, Inc. Jon R. Andersen - William Blair & Co. LLC Linda B. Weiser - D.A. Davidson Frank Camma - Sidoti & Company, LLC.

Good day, ladies and gentlemen, and welcome to the Prestige Brands Holdings Q4 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to Phil Terpolilli, Director of Investor Relations. Please go ahead..

Thank you, operator, good morning to everyone on the phone. Joining on the call today are Ron Lombardi, our CEO; and Chris Sacco, our CFO. As a reminder, we have a slide presentation, which accompanies this call. It can be accessed by visiting prestigebrands.com, clicking on the Investor link and then on today's webcast and presentation.

Remember today that some of the information contained in this presentation includes adjusted non-GAAP financial measures. Reconciliations between adjusted and recorded financial measures are included in today's earnings release.

During this call, management may make forward-looking statements regarding their beliefs and expectations as to the company's future business prospects and results.

All forward-looking statements involve risk and uncertainties, which, in many cases, are beyond the control of the company and may cause actual results to differ materially from those in the forward-looking statements. We have a complete Safe Harbor disclosure, which appears on page two of the slide presentation accompanying the call.

Additional information concerning the factors that cause actual results to differ materially from those in forward-looking statements are contained in the company's annual and quarterly reports filed with the SEC. I'd now like to turn the call over to Ron Lombardi, President and CEO..

Thanks, Phil, and good morning, everyone. On today's call, we'll cover the highlights of our fourth quarter and full-year performance, review the financial results, and finish with our fiscal 2018 outlook. At the end, as the operator mentioned, we'll open up the call for questions. With that, let's begin on page five of our earnings presentation.

In total, we are very pleased with our solid Q4 and full-year results, which included the successful closure of the Fleet acquisition in late January and rapid integration of the business along with our solid financial results.

Highlights for the quarter include a net sales increase of nearly 16% to approximately $241 million in the fourth quarter, driven by growth across our portfolio. Results included organic revenue growth of 1.1% versus a difficult comparison a year earlier, while our Invest for Growth portion of the portfolio grew nearly 2% versus last year.

We also experienced strong consumption gains in our Care portfolio resulting in sales growth of 11.5% versus the prior year. In addition to organic growth, Fleet contributed $38.7 million to total revenues and impacted adjusted EPS with $0.01 loss during the quarter, which was largely in line with expectation for the transitional period.

Gross margins for the legacy business were largely in line with recent trends with total company adjusted gross margin of approximately 55.5%, reflecting the impact of Fleet on results during the quarter. We reported adjusted EPS of $0.54 during the quarter and $0.55, excluding the impact of Fleet.

We reported adjusted free cash flow of nearly $47 million in Q4. Our adjusted free cash flow continues to benefit from our industry-leading EBITDA margin, minimal capital spending and low cash tax rate. Lastly, the Fleet integration is well underway and on track to deliver the expected cost savings. We will touch on this later in our presentation.

Turing to slide seven, overview of our full-year results. Full-year fiscal 2017 performance begins to show the impact of the transformation of our portfolio over the last several years. We generated revenue growth of over 9% versus the prior year, organic growth of 1% and 2.8% organic growth for our Invest for Growth portfolio.

Our international business also continues to perform favorably with organic sales growth at Care Pharma in the high-single-digits this year. We reported full-year adjusted EPS of $2.37, up 9.2% versus the prior year, as well as nearly 7% growth in our free cash flow to approximately $196 million for the year.

Including the divestiture of non-core brands, we generated just over $300 million in gross cash flow available for debt paydown during the year. Now let's turn to slide eight. Our fiscal 2017 transition is a result of our continued execution of our long-term strategy. Over the last six years, we've delivered on many factors.

We have improved our portfolio mix and transformed the portfolio to support our long-term growth targets. We have continued brand-building effort and investments and generated strong and consistent free cash flow that is underpinned our M&A strategy.

Turning to slide nine, we can dive into these factors in a bit more detail to better understand what's behind the growth of our business model. On slides nine and 10, you'll see the effects of M&A on our portfolio mix. On slide nine, you can see the progress we have made evolving our portfolio make-up.

Several years ago, our portfolio was not positioned to support our long-term growth target of 2% to 3%. Today, we sit with a pro-forma portfolio of approximately 85% in Invest for Growth brands, which is capable of generating long-term share gains in category growth.

Furthermore, three-quarters of our portfolio sales now come from brands with leading number one or number two positions in the category. Some of these brands have been in our portfolio for many years, benefiting from our sales and marketing execution.

Turning to slide 10, we have our most recent efforts, which include the acquisitions of DenTek and Fleet, and the strategic divestiture of multiple non-core brands, which did not fit into our long-term strategy. Let's turn to slide 11 and see the results of those efforts.

Over the last six years, the average size of our top-five brands has increased significantly. Today, our top six brands make up well over half of our business at retail. They are well-positioned in their categories, and are the fastest growing portion of our portfolio.

Even more impressive is that the power core brands have outpaced their category growth meaningfully and grown share consistently over time. In addition to our strong power core growth, we have also exhibited share gains in many other brands in our core portfolio. Next, for example, is a brand which has grown over 20% at retail in the last year.

Compound W has also managed to outgrow the category by a substantial percentage also through innovative technology. In total, we're taking share in the OTC marketplace on a multi-year basis, which is a testament to our sales and marketing investments and our long-term approach and focus to brand-building.

Turning to slide 12, let's look at one of the keys to this share gain success, new product development. Brand-building is at the heart of what we do as a sales and marketing company. One of the critical components to our long-term brand-building efforts is innovation.

We have a dedicated team devoted solely to new product development which, following the Fleet acquisition, now includes an in-house R&D lab at our Lynchburg, Virginia, manufacturing site.

Our new product team is composed of people with a wide range of innovative backgrounds, focused on creating a pipeline of three to five meaningful new product introductions each year.

When we speak about innovation, we are looking to create meaningful line extensions of existing core brands that match each brand's unique positioning in the marketplace and to meet consumer needs. On slide 13 are some examples of successful product introductions over the last 24 months.

The overriding theme of all of these launches is to bring to market products that can drive long-term brand enhancement by offering a unique proposition that can grow an entire category, which is a true win for us, the retailer and the consumer.

One example of an introduction that drives category growth through increased awareness or usage occasion is Dramamine Non-Drowsy Naturals, which addresses the drowsiness that can come with the use of motion sickness remedies.

Another example would be flavor extensions like the introduction of Goody's Mixed Fruit Blast, which increased usage occasions by addressing taste. A third example would be technological advances like the introduction of Nix Ultra, which is effective against super lice. New product launches could also share all of these attributes.

An example of this is an introduction of Clear Eyes Pure Relief preservative-free eye drops. Clear Eyes Pure Relief is the first preservative-free eye drop that utilizes proprietary technology to address dry eye relief. These advances help differentiate our brands in the marketplace and also help grow the category.

As we look forward, our team remains hard at work identifying and maintaining robust pipeline of ongoing new products for fiscal 2018 and the future. Turning to slide 14, I'd like to spend some time updating you on Fleet, which we closed on just over 100 days ago.

Although Fleet is the largest transaction in the company's history, our integration playbook is consistent with prior acquisitions. We expected to quickly integrate sales and distribution, take advantage of our marketing and brand-building approach and execute on G&A consolidation efforts.

I am pleased to report we are on track to achieve these expected synergies with several milestone markers met both before and after the end of the fourth quarter. Although multiple milestones are offered on this page, I'd like to highlight a few particularly important points.

First, immediately upon closing the transaction, our team set to work capturing G&A savings by consolidating the New Jersey executive office into the PBH business structure.

Second, we have worked towards rapidly folding Fleet logistical footprint into our own taking advantage of increased purchasing leverage and the distinct advantage of operating our own manufacturing facility in Lynchburg, Virginia.

And third, on May 1, we achieved our critical internal milestone of order-to-cash, which is consolidating order placement, invoicing, and collections from customers on one integrated platform. The speed of reaching these achievements offers a clear example of why integrating and growing acquisitions is a core competency of our company.

In summary, in just over 100 days since close, we put nearly all of the heavy lifting surrounding the integration of Fleet behind us. We anticipate the business will be largely integrated by the end of the first quarter of fiscal 2018.

With integration largely complete, we will look forward to continuing the long-term objective of executing marketing plans and leveraging its manufacturing facility. With that, let's turn to slide 15. Since fiscal 2011, we've delivered impressive top line and bottom line performance.

We've grown at a compounded annual growth rate of high teens on the top line and EBITDA growth in excess of 20%. These multi-year charts highlight the results of successfully executing our three pillar strategy. Importantly, these results have also driven significant growth of our free cash flow as shown on slide 16.

Our portfolio stability and history of cash generation allows us to maintain a debt to EBITDA ratio that is ranged from 3.2 times to the current level of approximately 5.7 times. The current level is similar to where we were at the closing of the Insight acquisition back in 2014.

As you can see, we have a proven history of cash generation in resulting deleveraging. For fiscal 2018, we expect at least $205 million in resulting free cash flow, reducing our leverage ratio to approximately 5 times by the end of fiscal 2018.

This cash flow and subsequent deleveraging following the Fleet acquisition is the most recent cycle of our proven strategy of deleveraging to reload our M&A capacity on a consistent basis. At this point, let me turn the call over to Chris who'll walk us through the financial overview for the quarter..

Thank you, Ron, and good morning, everyone. As Ron reviewed in brief earlier, I'd like to walk through our fourth quarter and fiscal year results in greater detail and offer some context around our expectations for fiscal 2018 by line items.

On slide 18, you can see our high-level fourth quarter and full-year results, which include total revenue growth for the quarter of approximately 16% and adjusted EPS growth of approximately 4% to $0.54 per share versus the prior year.

Adjusted EBITDA and EPS growth for the quarter were impacted as expected by the integration of the Fleet business as well as the strategic divestitures that took place earlier in the fiscal year.

As Ron mentioned, the inclusion of a partial quarter of Fleet results during this transition period unfavorably impacted the Q4 results as the business was dilutive by a $0.01 per share. Moving on to slide 19, we report our consolidated fiscal fourth quarter and fiscal year ended March 31, 2017.

As a reminder, the information in today's presentation includes adjusted results that are reconciled in our earnings release. Our net revenues increased 15.8% in Q4 and 9.4% for the full-year 2017, resulting in full-year net sales of approximately $882 million.

These results were driven by continued strong consumption trends in our core OTC and international businesses, as Ron mentioned, and includes incremental revenue from DenTek of $55.6 million and Fleet of $38.7 million partially offset by strategic divestitures executed earlier in the fiscal year. Currency impacts to fiscal 2017 was negligible.

Gross margin came in at 55.4% for the fourth quarter and 57.1% for the full year, reflecting expected pressure from the DenTek and Fleet sales mix, which have a lower gross margin than the overall portfolio. Looking ahead, we expect fiscal 2018 gross margin of approximately 56.5%, owing to this mix effect.

As a reminder, Fleet's gross margin is below the Prestige average, but EBITDA margins for Fleet are more closely aligned with the company average on a fully integrated and synergized basis. Regarding A&P, we came in at approximately 16% of revenue in Q4 and just over 14% of revenue for fiscal 2017.

Total advertising and promotional expense grew in both dollars and as a percentage of sales versus the prior year attributable to a shifting mix of business towards more investible core brands including Summer's Eve.

For fiscal 2018, we expect A&P expense of just under 15%, up from fiscal 2017 spends as we actively seek opportunities for long-term brand building and top line growth. Our adjusted G&A spending came in about 8% of total revenues for Q4 and 8.3% for the full fiscal year.

G&A for fiscal 2018 should increase in dollars as we continue to invest in infrastructure, but will be down on a percentage basis as we leverage the Fleet transaction, resulting in an expected adjusted G&A as a percentage of total revenues approximating 8.1%. Finally, our adjusted EPS grew about 4% for Q4 and 9% for the full year.

We expect EPS to grow faster than revenues going forward, as Ron will highlight it later. For fiscal 2018, we estimate our depreciation and amortization expense will be approximately $35 million and interest expense of $103 million, with each increase versus the prior year principally related to the Fleet acquisition.

We estimate our effective income tax rate to approximate 36% for fiscal 2018, consistent with the prior year. Turning to slide 20, we have the details for our cash flow for the fourth quarter and full year.

In Q4, we generated approximately $47 million of adjusted free cash flow, down slightly versus prior year, owing to the transitory impact of the integration of the Fleet business and a strategic divestiture that took place earlier in the fiscal year.

As previously mentioned, we delivered $196 million of free cash flow in fiscal 2017, and as expected, finished with net debt of approximately $2.2 billion. Our leverage ratio was 5.7 times at year end, after closing the Fleet transaction on January 26.

For fiscal 2018, adjusted free cash flow is expected to be $205 million or more, which is consistent with our stated strategy will be put towards debt paydown. Given our continued robust cash flow generation, we estimate a pro forma covenant-defined leverage ratio of approximately 5 times at fiscal 2018 year end.

I'd now like to turn it back to Ron for a discussion surrounding our fiscal 2018 outlook..

Thanks, Chris. Let's continue on slide 22, with our 2018 outlook and some closing remarks. Our results over the last few years and especially in fiscal 2017 continue to highlight the success of our strategy and how our business is positioned for long-term success. However, from a high level, we continue to see a dynamic retail and consumer environment.

Retail is in general continued to reduce inventory levels, which we expect to continue going forward and the consumer in much of the country continues to remain challenged putting further pressure on retailers.

That said, we will continue to focus on what we control, which is continuing the momentum on our long-term brand building, rapidly integrating and growing Fleet, and seeking incremental opportunistic M&A over time. Despite this backdrop, our portfolio evolution has allowed us to align our fiscal 2018 outlook with our long-term financial targets.

For net sales, we anticipate fiscal 2018 revenue growth of approximately plus 18% to plus 20%, or $1.40 billion to a $1.60 billion in sales. This total net sales number incorporates $23 million related to the fiscal 2017 divested brands and approximately $4 million in negative currency headwind.

Organic growth, which will be pro forma to include Fleet in the prior year's base is expected to grow plus 2% to plus 2.5% for the year. This is in line with our long-term 2% to 3% growth objective that was tied to our portfolio mix of 85% Invest for Growth brands.

For profitability, we anticipate adjusted EPS to be in the range of $2.58 to $2.68, or plus 9% to plus- 13% year-over-year growth. As a reminder, embedded in this guidance is an incremental year-to-year accretion from the Fleet acquisition, offset partially by the divestitures completed in fiscal 2017.

Finally, we expect adjusted free cash flow of $205 million or more for the full year. In closing, I'd like to review our strategy and briefly talk about long-term growth outlook. Our strategy is made up of three pillars designed to drive shareholder value over the long-term. It begins with growing the business we have through brand building efforts.

The second pillar is to use our industry-leading cash flow to invest in long-term brand building and to pay down debt, and finally, to seek opportunistic M&A, when appropriate, to reinforce and expand our portfolio. It's an effective, proven and repeatable model that's helped to drive the results over the last six years.

Finally, on slide 23, we'll wrap things up. Over the long term, we will continue to focus on brand building and look to grow our diverse portfolio in a variety of ways, targeting long-term growth of 2% to 3%. This has been at the center of our strategy for the last six years and it will continue to be going forward.

We believe, over time, the resulting leverage of this growth results in high-single-digit long-term EPS growth, along with highly generative cash returns based on our business model. These returns offer us the flexibility to continue to delever and will be our primary objective in fiscal 2018.

And we will continue to seek opportunistic M&A over the long term. So to wrap up, our legacy business continues to gain share, the integration of Fleet is on track and we are excited about the growth prospects and we are confident in our ability to generate strong total company cash flow heading into fiscal 2018 and beyond.

With that, let's open up the lines for questions..

Thank you. And our first question comes from Joe Altobello of Raymond James. Your line is now open..

Thanks, guys. Good morning..

Good morning, Joe..

So, first, Ron, congratulations, by the way, on having the Chairman role, very nice. So I guess, my first question you mentioned, so sort of a housekeeping item, but you mentioned that Fleet was $0.01 dilutive.

What was the impact of the divestitures on EPS in the quarter?.

Yeah, Joe, this is Chris. The impact to Q4 from the divestitures was approximately $0.05 of the $0.08 that we've noted for the entire year..

Okay. Perfect. Thank you.

And then, secondly, if you could do a of EPS walk this year to next year, what you're assuming in terms of the accretion from Fleet less the dilution from the divestitures to try to get a base business growth rate?.

Yeah. Joe, this is Chris. So, as you think about our outlook for next year from a net sales perspective, you can walk in, it's really three components, is how we think about it. We've got brands growing at solid mid-single digits, primarily the acquisitions of Fleet and DenTek, that's about 25% of the business going forward.

We've got our non-core portfolio – portion of the portfolio, which is about 15%, as we've noted, declining in very high single digits. And then the balance of the portfolio about 60% of the total growing at about 3%. So, generally speaking, that's the walk to next year's top line outlook..

Okay.

But in terms of the EPS, Chris, I was thinking the EPS walk from – the accretion from Fleet?.

Yeah. So if I started at the $2.37 we wrapped up 2017 with, right, I take out $0.08 for the divestitures, base business growing at about 4% next year, and as we've noted previously, Fleet at about $0.25 will get you the midpoint of our range..

Perfect. And just one last one.

If you could talk about the cadence in the quarter maybe in terms of your growth as well as category growth, did you guys see any improvement later in the quarter, call it, March or even April?.

So, I think your question, Joe, is did we see kind of an acceleration of trends in the quarter?.

Correct..

The answer to that is yes. We've seen remarks from other companies who saw the same thing during the quarter where the quarter ended March 31 got off to a little bit of a slow start and then picked up momentum as time went on..

Okay. Great. Thank you, guys..

Thank you, Joe..

Thank you. And our next question comes from Jason Gere of KeyBanc. Your line is now open..

Okay. Good morning and also echo the congratulations, Ron, on the appointment. I guess, the first question I have is with Fleet and the organic sales. And now you guys are talking about a pro forma organic growth, so I guess, Fleet is in the base year. So you're talking 2% to 2.5%. And, Chris, I appreciate you going through some of the composition there.

But when we look at the 1% that you guys did in fiscal 2017, which, I guess, stripped out acquisitions. Now, we're – I just want to make it apples-to-apples, that 1% should accelerate with the guidance of 2% and 2.5%. I guess that 1% should accelerate if you were looking at it as if Fleet was an acquisition as opposed to looking at it pro forma.

Just wondering if you could just put into that context the 2% to 2.5% in the same kind of way that's how we look at last year about 1% organic sales? That's the first question..

Yeah. So let me try to answer that, Jason. So our legacy base business grew about 1% this year.

We expect because of the impact of the divestitures for that to increase slightly and then, in addition to that, bridging us from that low 1% to 1.5% growth, we've got higher growth in DenTek and the Fleet portfolio, largely Summer's Eve, bringing the balance of the organic growth from that level to 2% to 2.5% for next year.

And again, as I mentioned in my comments earlier, we also expect a bit of some headwinds for both FX, which is netted into those numbers as well as a bit of a challenging retail environment, where we continue to expect inventory reductions..

Okay. So two questions, I guess, just follow-up on that.

The non-core down high-single-digits, is there any change in that from last year to this year as you look into 2018? And then maybe if you could talk about where you're seeing some of the inventory reductions out there, shelf space as the planograms (29:16) are set for this year?.

Yeah. So the non-core managed for cash portion of our portfolio has been in the high-single-digit declines for quite a while now. So there's really no change in our expectations for that portion of the business. And again, it's made up of about half household and half non-core OTC brands.

So we expect that to be fairly consistent with trends realized over the last few years.

The second part of your question about retailer inventory reduction, it's not driven by reductions in SKUs on the shelf, but rather the level of inventories that they carry in their systems, whether it's in the store, the amount of items on the shelf, or in their distribution network, Jason..

Okay. And then, the last question and I'll hop out. As we think about the 2% to 2.5%, Chris, is there any type of guidance you can provide us on the quarterly cadence, just so as we look year-over-year, stronger second half versus first half, anything and any type of, I guess, modeling kind of expertise you can provide us will be helpful. Thanks..

I don't know about expertise, Jason. But what I think about 2018 flow, this – we would expect the first half to be stronger than the second half, primarily due to the comps from the prior year..

Okay. Great. Thank you..

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

Good morning, everybody, and congrats, Ron..

Good morning, Jon..

I wanted to start on gross margin and also tied into pricing. I understand there is a mix effect on your gross margin rate as a result of the inclusion of DenTek and more recently Fleet.

Does that represent the totality of the gross margin impact that you're calling for in fiscal 2018? And then on the pricing front, are you seeing any different tone or tenor from your retail customers in terms of pricing discussions and is that an influence on gross margin as well?.

Sure. First, in terms of gross margin, our fourth quarter at about 55.5% was impacted by essentially the transitional nature of the Fleet, timing and acquisition, and then, certainly, the mix impact of having Fleet in the quarter.

The legacy business was fairly consistent from a gross margin standpoint during the quarter from what we've been realizing. And then for 2018, Jon, if you compare our outlook of 56.5% for next year versus the full year 2017 level of 57.1%, I think, that's a better indication of the mix impact that Fleet and DenTek has on the business.

So about a half-a-point impact..

Thanks. That's helpful. Could you remind me what the targeted Fleet run rate synergies are and how those break down into SG&A versus cost of goods and the timing of how you see those run rate synergies rolling into the P&L? Thanks..

Yeah, Jon, so we called out $19 million of synergies, $16 million of which will flow through SG&A, $3 million of which will flow through COGS.

As we talked about, we expect a majority of the SG&A synergies to be – the actions to be completed by the first quarter of fiscal 2018, that will start to flow through as we work through the year and the $3 million in cost of goods a little bit longer term in nature, mostly distribution and then, also, as you know, from an ops perspective, takes a little bit longer to realize some of the synergies..

Okay. Helpful.

On the comments on retailer inventory levels, I'm just wondering, is this kind of more of the same in terms of retailers looking to get more efficient in terms of the inventory they're holding or is there a sense that activity is stepping up and they have a larger impact over the next 12 months than the prior 12 months?.

I think, Jon, it's really more of the same, right. We've seen this consistent headwinds for a few years now, and we expect it to continue because retailers are challenged in getting the kind of core store comp growth that they're looking for.

I think if you take a look at some of the announcements for the most recent quarter, many retailers continue to announce challenging growth numbers. For example, all three drug retailers announced pretty tough results for front of store activity.

So we expect because of that they'll continue to look to take inventory out of the systems to help their bottom line..

Okay.

Last one for me is, just in terms of where you sit with the leverage ratio today, balance sheet capacity, the progress on the integration, how are you thinking about M&A activity at this point? Is it the next 12 months dedicated to fully integrating Fleet and getting the most out of that, or will you continue to be opportunistic as you move forward from that standpoint?.

Yeah. When we think about M&A, Jon, we always start with is the business ready to address an M&A opportunity. And clearly, since we're a 103 days post the Fleet closing, you know what, we're focused on integrating that business, getting those things completed and focusing on brand building. So that's where we'll be focused this year.

But clearly, if something really compelling came up, we have to step back and think about it, but we're going to be focused on being successful with Fleet and the business we have..

Thanks very much..

Thank you, Jon..

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

Hi, thank you. Yes, congratulations, Ron.

So in terms of your organic sales growth target long term of 2% to 3%, I'm just wondering what does it take to envision that 3% number? Not that you would hit it every single quarter, but just to see that come up, is it that you need get the portfolio to 90% in core brands, or is it a change in the retail environment, or can you just discuss longer term how you're thinking about that possible 3% terminology? Thanks..

Sure, Linda. So the 2% to 3% long-term organic growth was always tied to the 85/15 portfolio makeup, which is where the Fleet transaction got us to. And really, being at the high end of that would, I think, largely be driven by a healthier retail and consumer environment, Linda..

Okay. And then just on your slide there where you talked about your innovations and expansions, it was interesting to see, I think you noted that Little Remedies have been launched into the e-commerce channel. And I was curious about that because, I guess, that's kind of an episodic (37:11) the products.

So why would that be a product that would be appropriate or strong in the e-commerce distribution channel?.

Yeah. Two primary factors there, Linda. One is, that's where – and it's primarily mom, that's where moms are out shopping and getting information on their new newborns.

The second of it is a number of the GI products that we have in the Little Remedies, offering like colic relief, it's something you keep in your pantry to treat when the tummy problems come up. So I think it's those two primary factors, Linda..

Okay.

And then in terms of the moving additional products into the production plant there in Lynchburg, is that something will start to happen a little bit in FY 2018 or is that something a little further out?.

Yeah. It's going to be longer process, but we may have some news on that in the next quarter or two on some initial progress there. But changes in the OTC supply chain always take a long time, two to three years is what we often talk about. So it's a long or midterm initiative and focus for us, Linda..

Okay. And then, just finally, on the numbers. I guess that your analyst meeting back last year, you had talked about organic EPS growth of 8% to 10% annually. So just to think about FY 2017, I'm not sure I followed if you gave a whole walkthrough or something.

I know you gave some numbers on the dilution from divestitures, but what would you calculate to be the organic EPS growth in FY 2017?.

Yeah. So we talked about that in the walk to be about 4%, Linda, and that's....

Yeah. That's for 2018, though..

Excuse me, that's for 2018, yeah, to the question. And so, as I think about that compared to your question, it's primarily due to higher interest expense related to the Fleet acquisition. We've assumed, we think, prudent rate hikes in this interest environment and so that's baked into that number. ..

Okay. So I was asking more about FY 2017, though..

I think for 2017, Linda, the adjusted EPS growth you're seeing is indicative of that longer-term EPS growth that we might realize. Once we acquire a business like DenTek, which was largely in the 2017 results, it becomes a brand. It's not necessarily a business, it becomes part of what we expect for organic EPS growth..

Okay. All right. Thanks a lot, guys..

Okay, Linda..

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

Good morning, guys..

Good morning, Frank..

On an adjusted basis, EBITDA on adjusted basis, the A&P spending, it's I think the highest level I have ever seen in a quarter. You had a couple of comments.

But can you add to that? Is there anything specifically driving it to that 16% level on an adjusted basis that we should note given that you're projecting only about 15% for the next year?.

Yeah. So there are two things. First, the legacy business, I think our A&P spending was up about $3 million during the quarter versus last year, and that's fairly consistent with what we've seen over time. We get some ebbs and flows quarter-to-quarter where it may be up one quarter and flat or down the next.

So the legacy business had $3 million more in A&P spending versus last year. And then the Fleet business, it was really a transitional quarter and they had a higher level of A&P than we would normally expect to see under our full ownership. So those two factors driving it to 16% during the quarter..

Okay. Okay. So there wasn't any change – and the reason I was asking like if there's any change in accounting that we saw a couple of years ago.

But like as far as the adjustments that you made to A&P for the Fleet acquisition, because – I mean, typically you don't see – I mean, you see like purchase accounting for cost of goods sold, but not A&P could you shed a little more light on that the adjustments that you actually made in the press release before the acquisition?.

Yeah. Sure. There was a number of contracts with consultants who are doing A&P and marketing work as well as the buyout of a duplicative consumption report that we had in there. So we had....

Yeah..

... (42:01) to get out of some contracts that were duplicative, and we didn't want going forward. So you're right, Frank, that was a bit unusual. That's the first time, I think, we've seen it..

Yeah, sure. Okay.

And my last question is just if you can remind us since we're layering the Fleet on, Fleet is really not a seasonal business, right, or is there anything we should look for in that business?.

It's fairly steady, quarter-to-quarter. We may see a little bit of some peaks and valleys, but nothing – no real seasonal peaks..

Okay. Great. Thanks, guys..

Thank you, Frank..

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

Sure. Thank you. Just a couple of final comments. I think, again, as you look at the results for the quarter, you can see that we're really pleased with the solid results.

We ended up slightly exceeding the outlook that we have for fiscal 2017 that we set at the beginning of the year, even with the divestiture of a number of brands, and the integration of Fleet in the last quarter here and we continue to fuel the business is well positioned with good momentum as we head into fiscal 2018.

So with that, I'd like to thank everybody for joining us and have a good day..

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