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. Jon R. Andersen - William Blair & Co. LLC Stephanie Wissink - Jefferies LLC Linda Bolton Weiser - D.A. Davidson & Co. Frank Camma - Sidoti & Co. LLC.

Ladies and gentlemen, and welcome to the Fourth Quarter 2018 Prestige Brands 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, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Phil Terpolilli, Director of Investor Relations. Sir, you may begin..

Thank you, operator, and good morning to everyone on the phone. Joining me on the call today are Ron Lombardi, our Chairman, President and CEO; and Christine Sacco, our CFO.

On today's call, we will cover the highlights of our fiscal 2018 fourth quarter, and full year, review the financial results, provide our initial fiscal 2019 outlook and then take questions from analysts. We have a slide presentation which accompanies today's call.

You can access it by visiting prestigebrands.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.

The reconciliations between adjusted and reported financial measures are included in today's earnings release and slide presentation. During today's call, management will make forward-looking statements around risks and uncertainties, which we detailed on a complete Safe Harbor disclosure on page 2 of the slide presentation accompanying the call.

Additional information concerning risk factors and cautionary statements are available on our most recent SEC filings and the most recent Prestige Brands' 10-K. I'll hand it over to our CEO, Ron Lombardi, to walk through the highlights of our fiscal fourth quarter performance..

Thanks, Phil and good morning, everyone. Let's flip to page 5 of our earnings presentation, which contains an overview of Q4 results. In summary, our fourth quarter results were largely in line with our expectation. Highlights for the quarter include a net sales increase of 6.4% to $256 million driven by growth across our core portfolio.

Pro forma for Fleet revenue growth was a solid 2.4%. Also our international business continued to experience strong gains, especially in our Care Pharma portfolio resulting in sales growth of over 10% versus the prior year. Gross margin in Q4 was 55.2% improving on a sequential basis versus Q3.

We're making solid progress against the higher freight and warehouse costs discussed last quarter. And I'll provide additional detail later on.

We reported adjusted EPS up 15% to $0.62 during the quarter, while adjusted free cash flow came in at $52 million in the fourth quarter and it continues to benefit from our industry-leading EBITDA margins, low-capital spending, and low cash tax rate.

The strong cash generation enables us to rapidly de-lever along with creating capital allocation opportunities such as today's announcement of a $50 million stock buyback program. Turning to slide 6, we have an overview of our full year results.

In fiscal 2018, performance reflected progress against our long-term strategies and positive momentum in many key areas of our business. We generated revenue growth of 18% versus the prior year with pro forma growth at about 2% trailing consumption trends by over a percentage point due to continued retailer destocking.

Most importantly, we continued to win market share with consumers, which we'll talk about in coming slides. We delivered full year adjusted EPS of $2.58, up approximately 9% versus the prior year. We generated adjusted free cash flow of $208 million in the year.

This strong cash generation was used to rapidly de-lever our balance sheet in fiscal 2018 and to successfully improve our debt terms and profile during March's refinancing. Now let's turn to slide 8 for a more in-depth review.

We continue to position our company to be successful in a challenging environment by focusing on growing categories and building brands in our core OTC categories. 2018 is another excellent example of execution against the strategy. In 2018, our diversified leading brand portfolio grew consumption at the high-end of our long-term target.

We worked with retailers to grow categories and the result was increased market share for our consumer healthcare portfolio. We invested meaningfully to support long-term growth of our core branded franchises.

This included investments around the Fleet transactions, Summer's Eve brand, as well as ongoing investments in our legacy OTC brands such as BC and Goody's. This brand success and our financial profile continue to translate into strong and consistent cash generation.

These 2018 bright spots offset some temporary challenges we faced from lingering retailer destocking efforts as well as higher freight and warehousing costs in the second half of the year. Let's discuss each of these in more detail beginning on slide 9. Slide 9 gives us a big picture view of our brand building efforts and success.

In fiscal 2018, our domestic portfolio grew well ahead of both category and private label growth. The chart in the left hand side of the presentation shows that our overall company achieved growth of 2.1%, which was almost double category growth.

On the right side of the slide, you see that our core brands grew 3.4%, which is almost a one-third better than category growth. It's also worth noting that private label growth trailed both category growth and growth of our core brands over the last year, 12 weeks, and four-week periods.

As we've discussed in the past, our brand building method are wide ranging to drive this growth. Let's turn to slide 10 and discuss the timely example of BC and Goody's. Our BC and Goody's Headache Powders are truly iconic brands with over a 100-year history in the Southeastern United States.

They essentially represent the entire powdered analgesic category. BC and Goody's are great examples of achieving success through our proven brand building playbook. Since our acquisition of these brands back in 2012, we've strategically expanded distribution to better reach loyal customers.

We've enhanced the connection with consumers and retailers by leveraging strategic partnerships such as our partnerships with Richard Petty, Dale Earnhardt Jr. and Minor League Baseball in the region.

We have also launched numerous new product innovations including BC Cold and Sinus, new flavors and other extensions with a focus on growing category and meeting consumer preferences. In over six years of ownership, we've driven meaningful growth. We've grown the combined brands over 25% since ownership, well ahead of analgesic category growth.

In fiscal 2019, this brand building strategy will continue. After extensive consumer marketing test and feedback, we have created a new way to reach a larger audience. We are in the process of launching a new refreshed packaging format that moves from a wrapper to a simple-to-use stick pack.

It's the same product that consumers know and trust in an easier-to-use package. The packaging change will take an iconic brand and make it even better and help set the stage for future growth. This rollout will take place over the next year and Chris will comment on some additional details. Now, let's turn to slide 11 to discuss Fleet.

Acquired in January 2017, we have now completed over one full year of Fleet ownership. It was the largest transaction in our history and one that positions us well for long-term growth. In our first year, we applied our brand building formula to its largest brand, Summer's Eve.

As a reminder, Summer's Eve is a perfect fit with our targeted brand positioning. It's a leading brand with a number one market share, representing over half of the feminine hygiene category and has the ability to benefit from long-term brand building investments. In fiscal 2018, our formula was successful.

We grew the category for retailers and grew market share through a wide range of brand building efforts including a number of new Summer's Eve products. We also quickly executed integration efforts with the vast majority of supply chain integration completed by the early spring.

In summary, we had a successful first year of ownership and are excited about continued brand building and investment opportunities going forward. Now let's turn to slide 12.

It's important to remember the unique characteristics of our portfolio and how it has us well-positioned against a challenging retail environment and resulting retailer destocking efforts. Our portfolio is advantaged in many ways.

We are a market leader in a wide range of categories with approximately 60% of sales coming from number one market share brands. These brands often represent the branded category and we therefore spend our efforts on working to grow categories rather than taking competitive share.

We build off this idea through consumer insights where we look to engage consumers and understand opportunities to enhance our brand efficacy and consumer experiences. Our (00:10:23) OTC portfolio also helps drive traffic for retailers, ultimately adding basket ring and increasing our long-term value with our customers.

So, in summary, we have leading brands that get to focus on growing categories and are a valuable traffic driver for retailers. This is evident in our fiscal 2018 results. We experienced companywide consumption growth of nearly 3%.

Although consumption rates remain partially disconnected from revenue growth in the year, our portfolio remains well positioned to win with the consumers over the long-term. With that, let's turn to slide 13. Higher freight and warehouse costs were a headwind we faced during the second half of fiscal 2018.

Beginning in Q3, we had two distinct incremental cost to our business. First, there was high turnover levels at our third-party warehouse that resulted in the use of an experienced, but higher cost third-party workforce.

Second, we incurred higher freight costs beginning in the third quarter as we expanded our pool of freight carriers to maintain our service levels with customers. This was a strategic decision following the tight freight market we began to experience back in September of 2017.

Although these costs persisted in Q4, we are making substantial progress against these temporary impacts. We are taking steps to improve our cost structure with the intent to return to a long-term normalized level for these costs.

On warehousing costs, the third-party site has fully transitioned away from the high cost temporary workforce as of April 1. We are pleased with the hiring of an incremental local workforce and expect over the next couple of quarters for this staff to increase efficiencies. On freight, we've taken a number of positive steps.

First, subsequent to Q3, we began to improve pricing as we negotiated carrier rates. Fiscal 2019, we'll continue to execute freight cost improvement programs including a shift away from higher cost broker usage. For fiscal 2019, we expect to see continued improvement around both of these factors. Now let's turn to slide 14.

This slide is a reminder of the proven history of cash flow growth that we have achieved in the resulting de-levering. Our brand building and resulting sales growth continues to be a significant driver to the consistent cash flow trends shown on the slide.

We expect fiscal 2019 to continue this proven algorithm of cash generation and de-leverage, and expect to reach approximately 4.7 times net debt-to-EBITDA by the end of fiscal 2019. The cash generation also enables our ability to do such things as today's announced stock buyback, while simultaneously de-levering.

Let's turn to slide 15 to sum this section up. Over the last six-plus years, we've delivered impressive top and bottom line results. Our three-pillar strategy has driven results and we've successfully allocated capital in a variety of ways as we've transformed our portfolio through M&A, reduced leverage, and invested behind brand building.

Now, let's turn it over to Chris who will walk us through the Q4 financials in detail..

Thank you, Ron, and good morning everyone. As Ron reviewed and briefed earlier, I'll walk through our fourth quarter and fiscal year results in greater detail and offer some context around our expectations for fiscal 2019 by line item.

On slide 17, you can see our high level fourth quarter and full year results, which include total revenue growth for the quarter of 6.4% and adjusted EPS growth of approximately 15% to $0.62 per share versus the prior year.

Q4 included pro forma revenue growth of 2.4%, which benefited from continued consumption growth for the company's core OTC portfolio as well as strong performance across the Fleet portfolio.

A&P was 13.8% of sales, which was in line with our expectation, but declined versus Q4 of fiscal 2017 as the prior year was affected by the transition period of a partial quarter of Fleet results. Now let's turn to slide 18 where I'll discuss consolidated fiscal year results and provide some incremental context to our fiscal 2019 outlook.

As a reminder, the information in today's presentation includes adjusted results that are reconciled in our earnings release. For the full year 2018, our net revenues increased 18% to approximately $1.040 billion.

These results were driven by continued strong consumption trends in our core North American and International OTC businesses as Ron mentioned. Pro forma with Fleet, our full year 2018 revenue growth was 1.7%.

Adjusted gross margin came in at 55.7% for the full year, reflecting the expected impact of the Fleet sales mix, which has a lower gross margin than the overall portfolio and heightened freight and warehousing costs in the second half of the year, which Ron discussed earlier.

Looking ahead, we expect full year fiscal 2019 gross margin to approximate fiscal 2018.

For modeling purposes, we would anticipate a first half 2019 gross margin similar to that of Q4 2018 with gradual improvement surrounding freight and warehousing costs to be partially offset by transitionary costs related to our BC and Goody's packaging update, which are expected to impact both net sales and gross margin as the newly launched SKUs replace the legacy products.

In terms of adjusted A&P, we came in at just over 14% of revenue for fiscal 2018, which was similar on a percent basis to prior year, but grew in dollars as we continued to invest behind our core brands. For fiscal 2019, we expect A&P to be just over 14% of sales.

A&P is expected to grow in dollars versus fiscal 2018 as we actively seek opportunities for long-term brand building and top line growth. We also expect cost savings in our non-working dollars in fiscal 2019, which will be reinvested in higher levels of working A&P spend.

In terms of cadence, we would expect the first half A&P spend meaningfully above second half due to the timing of marketing initiatives. Our adjusted G&A spending came in at about 88% (sic) [82.3%] (17:13) of total revenues for the full fiscal year and we expect similar G&A on a percent of sales basis for fiscal 2019.

For fiscal 2019, we estimate our depreciation and amortization expense, not included in cost of goods sold, will be approximately $30 million. Now let's discuss below the line item. As discussed last quarter, the enacted Tax Cuts and Jobs Act meaningfully lowered our ongoing tax rate and will generate incremental cash flow in 2019.

We continue to estimate an effective tax rate of approximately 26% in fiscal 2019, down approximately 10 percentage points versus fiscal 2018. We are anticipating approximately $106 million in interest expense. Finally, our adjusted EPS grew about 9% for the full year.

Let's turn to slide 19 and slide 20 to discuss our fiscal 2018 cash flow and a review of our capital allocation priorities. Starting on slide 19, you'll see we generated $52 million in Q4 adjusted free cash flow and over $208 million for the full year fiscal 2018.

We continued to reduce net debt, finishing the year with just under $2 billion and a leverage ratio of 5.2 times at yearend. As Ron highlighted earlier, we executed debt transactions in March to help mitigate the impact of rising interest rates.

Our term loan rate is now LIBOR plus 200 basis points, while our debt is approximately 50-50 fixed-to-floating with the add-on of $250 million of unsecured debt to our 2024 bonds. The refinancing enabled us to increase our ratio of fixed debt with no material incremental cost to fiscal 2019.

Turning to slide 20, let's review our capital allocation priorities. As we've discussed in the past, our company has a consistent and repeatable three-pillar strategy. The third pillar of this strategy is capital allocation, which is being disciplined capital allocators of the free cash flow we generate to maximize shareholder value over time.

Our strong cash flow generation provides us multiple avenues to allocate capital to create value. We concentrate our efforts on the first two chart points.

It is paramount to our success to continually reinvest in our portfolio of brands to drive long term connection with consumers and we'll continually de-lever our balance sheet to build capacity to provide further allocation options.

Although M&A has been a key allocation over the last six years as we've transformed our portfolio, we continually assess our use of capital and how to maximize value for shareholders.

As we look to fiscal 2019, we believe there is a unique opportunity to deliver value to our stakeholders beyond M&A by returning capital to shareholders through the announced $50 million share repurchase.

We see this as an incremental way to add shareholder value without inhibiting our long-term ability to invest in brand building, de-lever and pursue future M&A opportunities. I'd like to now turn it back to Ron for a discussion surrounding our fiscal 2019 outlook and some closing remarks..

Thanks, Chris. Let's continue on slide 22. Our multi-year results continue to highlight the success of our strategy and how our business is well positioned for long-term value creation. Our strong needs-based brands continue to be well positioned in a dynamic, retail and consumer environment.

Retailers in general continue to reduce inventory level, which we expect to continue going forward driven by retailer consolidation and shifting consumer channel shopping trends. This expectation is incorporated into our fiscal 2019 organic sales growth assumption.

For net sales, we anticipate fiscal 2019 organic revenue growth of approximately plus 0.5 point to plus 1.5 points or a $1.046 billion in sales to a $1.056 billion. This net sales number incorporates destocking as well as an impact from the launch of BC and Goody's new packaging.

We expect revenue growth will be stronger in the second-half of 2019 versus the first-half owing primarily to BC and Goody's restage (21:40) packaging that Chris described earlier and a change in accounting policies around revenue recognition.

For profitability, we anticipate EPS to be in the range of $2.96 to $3.04 or plus 15% to plus 18% year-over-year. We expect EPS growth to be largely concentrated in the second half of fiscal 2019 as we invest behind our brand efforts, including the upcoming BC and Goody's packaging transition.

Regarding cash flow, for the full year, we expect free cash flow of $215 million or more for the full year. Although, we always focus on the full year, we'd like to note we anticipate a slight organic revenue decline and flat year-over-year EPS in Q1.

The revenue forecast is driven by our most difficult revenue comparison of the year, a change in accounting policies for revenue recognition, and BC and Goody's quarterly variability as we launch our new stick pack.

EPS is impacted by this revenue projection along with still elevated freight and warehousing costs versus prior year as well as the timing of A&P investments in the first two quarters. In closing, I'd like to leave a few reminders for investors, which are summarized on slide 23.

Our long-term performance continues to be driven by a three-pronged strategy that starts with a focus on growing our business by winning with consumers. From there, we take our financial profiles, strong cash generation to reinvest behind brand building and use the remainder for strategic capital allocation.

It's an effective, proven and repeatable model that's helped drive the results of the last six-plus years. 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 long-term approach to brand building.

We look forward to delivering against this strategy again in fiscal 2019. With that, let's open up the lines for questions..

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

Thanks. Hey, guys. Good morning. So, I guess first question in terms of the outlook for revenue growth this year, you mentioned, Ron, that you do expect additional destocking.

I mean is it fair to say that we should just assume in our models destocking is going to be about a 1 point to 1.5 point headwind at least for the foreseeable future going forward?.

Yeah, I think that's a reasonable estimate, Joe. We saw about 1 point in fiscal 2018, which was up over what we realized in fiscal 2017, but we continue to feel that we'll be impacted by these trends at least in fiscal 2019..

Okay, great. And in terms of pricing, you mentioned earlier you're not really seeing much in the way of private label encroachment, in fact private label it sounds like is losing share in your categories.

But are you feeling any pricing pressure in your categories from retailers looking to drive traffic at all?.

Not necessarily, Joe. And again, it's really a function of the fact that we have leading brands in categories, so we're not facing the same kind of pricing headwinds that you hear many other CPG companies talk about. So, we're not necessarily realizing that..

Okay, great. Just one last one if I could. The target leverage ratio, I think you mentioned today, you want to get down to about 4.7 times by the end of fiscal 2019.

Does that assume any share repurchases and what's sort of the long-term target there given the fact that we're in a rising rate environment at this point?.

Yeah, Joe, this is Chris, good morning. Yes, the 4.7 does contemplate a $50 million share repurchase. And I think, longer-term as we've discussed in the past, in this interest rate environment, we're certainly conscious of operating and likely to operate at lower leverage levels than we have historically.

Our number one priority for our free cash flow is to de-lever. And so, while we don't sit here and set a target leverage because we wouldn't want to pass on an opportunity if it positioned us well for long-term brand building, certainly we're going to be conscientious of that as we move forward..

Okay, great. Thank you..

Thank you, Joe..

Thank you. And our next question comes from Jon Andersen with William Blair. Your line is now open..

Good morning everybody..

Good morning, Jon..

Thanks for sharing the consumption data, the 52-week data for the categories that you compete in and your own brands. I'm wondering if you could talk at all about what you've seen maybe closer in.

I know a lot of things can move around in a short-term basis, but maybe if you could talk a little bit about six months to-date or the last three months if there's been any kind of change to your own consumption trends, private label performance or share within your target categories or if it's kind of steady as she goes..

Yeah. So a couple of questions here, and I guess first in terms of consumption trends for the business. If you go back and look over a long period of time, you'll notice that we do get variability from quarter-to-quarter, from year-to-year in consumption trends across our portfolio. We do have a number of brands that are incident driven.

For example, Monistat a few years ago, we did see a decline in incident level that impacted consumption because it was fewer people suffering from the affliction. So, we do get variability. Our long-term trends continue to be above the categories that we compete in and we continue to grow share. So, it really is pointed up over the long-term for us.

The next question you had in there was around private label trends, again in the categories that we compete in, we have been meaningfully outpacing private label performance for quite a while, not only growing our share, but just as importantly like we emphasize growing the categories in which we compete in..

Thanks. And then on the inventory destocking, there's a theory out there, I guess, one theory that you're experiencing some destocking because you may be losing shelf space. I think the industry destock issue is an industry-wide phenomenon and Procter commented I think even this quarter of about (29:06) 100 basis points of inventory destock.

Is what you're experiencing from a destocking perspective in your opinion, a function of kind of broader retailer efforts to become more efficient across the chain, or is there anything company-specific to it or category specific to it with respect to your brands and your business?.

Yeah. So for starters – again, number of topics in there. We have a detailed way to go in and track consumption versus our shipments into the retailer, so it's not an opinion-based position on destocking impacting our business, it's factual. So, that's the first part of it.

The second is, you made mention to a concern out there about the loss of a SKU at one of the drug retailers. Those kind of things happen all the time where retailers look to make a change that might be in line with their strategic focus of what they're trying to accomplish. It happens all the time and they come and go.

The net of them for us continues to be positive where we're adding SKUs over time and increasing our presence at shelf. So that's the first part of it..

And coming back to Joe's question, on pricing because it's such a important topic and one that you also focused on, when you think about your individual brands on kind of a like-for-like price basis, you're not tend to like, you're not experiencing pressure on your own list prices at this point in time.

Given the nature of the categories and the strength of your brands within them, is that a fair point?.

Yeah, that's a correct statement..

Okay. Last one for me.

The A&P spending at 14% of sales this year, any thought in a tough retail environment to step that up to even higher levels or what's the thought process behind that kind of a debt level of A&P ratio, and is there any thoughts to even stepping it up higher to try and drive strong organic growth in what is a tough kind of retail backdrop? Thank you..

Sure. So first of all our dollars are up next year in terms of what our outlook is and the dollars are up more than it would appear as we've had a number of cost savings opportunities again largely linked to the Fleet integration that we're plowing back into A&P spending. So we're actually taking our dollar spending up more than it would appear.

And second is we've built our marketing and A&P plan brand-by-brand detail up. So we look at the opportunities that are out there available to us and how we can execute against them. So we're continuing to look at opportunities where increased spending maybe beneficial in terms of top line gain..

Thank you. And our next question comes from Steph Wissink with Jefferies. Your line is now open..

Thanks. Good morning everyone. I'd like to dig into the BC and Goody's rebranding or repackaging. Can you just share with us a little bit of how that works at retail, is there a period or a lull where the retailer down stocks existing packaged goods.

And then as you introduced the new packaging, they ramp back up, is that what we should expect to see over the course of the next few weeks?.

Yeah. That's a good way to start the description of it, Steph, so we're going to be introducing brand new SKUs across the year and the retailers have different timing based on their resets. So it's going to take the whole fiscal year to have this rollout across our retailer customer base.

So the retailers, as they get ready to transition to the new package, will stop ordering the old packaging, and they'll bring their inventories down to a certain level and then they'll start to reorder the new packaging. So that's one part of the impact that will realize on sales from quarter-to-quarter.

The other is that we'll also get some returns from our largest customers, as well as slotting charges and other chargebacks from the retailers as they implement this new packaging.

So that's the other part that will hit not only net sales, it's a gross to net item affecting sales, but it also affects our gross margins, as we have a dollar-to-dollar hit there, as we incur those transitionary costs. This rollout is something we're really excited about.

If you look at the page in the deck on the left side, we have the packaging I think literally from the 1920s from advertising that we found out on the web. This packaging hasn't been changed for literally 100 years kind of thing. So we think this is going to continue to better position the product for continued growth..

And, Ron is there any pricing advantage that comes along with a rebranding or a repackaging, how do you think about the post re-launch pricing structure of those brands?.

Yeah, there's really two parts to that. The first is, the pricing proposition around it, which we will address over a longer period of time, as we roll this out.

And then secondly, we're transitioning to a new manufacturing process, that gives us added capacity as well that over the long-term will help improve our cost position versus the existing packaging..

All right, then our final question is just on the cadence of the year, I think you've said numerous times, second half stronger than the first half, and clearly your Q1 being down a bit.

Can you talk a little bit about what the key drivers are that are loaded into the back half, maybe outside of BC and Goody's, what you see as the ramp in some of your other key brands, and what we should be looking for as good milestones within the consumption data to validate that back half acceleration?.

Steph, this is Chris. Maybe just some broad comments around the cadence as we think about fiscal 2019.

From a top-line perspective, you mentioned obviously BC, Goody's and Ron mentioned expecting that to flow through the entire year, just given the magnitude of each retailer and their percent of sales, if you will, that's contributing to the first half, second half as well.

The second is, we mentioned a change in our accounting policy regarding revenue recognition, that essentially pulls forward certain trade spends into the first half that in fiscal 2018 were recognized in the second half of the year.

And then we mentioned also the third factor just to remember our tougher comps specifically around Q1 which is our toughest comp for the year. And then as I worked down the P&L, we also talked about our gross margin for fiscal 2019, anticipating gradual improvements around freight and warehousing costs.

And then Ron made mention of the transition cost for BC, Goody's that are going to flow through various lines of the P&L. Also the timing of our A&P spend is heavily weighted in the first half..

Steph, one other comment at the end of your questions there, you made the comment of tracking consumption, what I'd like to remind you is, is that these generic monthly consumption reports that come out have a long history of being disconnected from the actual results of the company for a number of reasons.

The first is, it doesn't track all of our business. It doesn't track any of our International business. It doesn't track Canada. It doesn't track all of the channels in the U.S. especially the fastest growing ones which are the online.

Our online business doubled this year from $10 million to $20 million, which added about 1 point of growth that is completely untracked, as well as disconnects as we launch new products, there is often a delay before the reports are accurate, as they flow into the systems in that. So BC and Goody's we expect a disconnect.

And this isn't a new phenomenon, it seems like I've been addressing this question of why is there such a big disconnect for the eight years or so that I've been here every single quarter or often from investors we meet with.

And what I'll remind you is to use it as a data point but don't rely upon it as the-data point in the singular correct piece of information that will provide you insight on how the business is tracking..

Thanks, Ron. I appreciate that.

Can I just ask as a follow-up, maybe visually then at retail, what should we be looking for from, again, some of your key brands outside of BC and Goody's in terms of initiatives?.

Yeah, so continued on-going brand building efforts around TV and digital placements, continued new product rollouts. In fiscal 2018 we had very successful launches around Summer's Eve, Compound W and Nix and BC Sinus and daytime cold, so those will continue to build on momentum in fiscal 2019, we expect them to.

In addition to that we've got a number of other new product developments we anticipate launching this year. And again it's something we don't talk about prior to them being launched at retail for obvious reasons.

But really it's more of the same stuff in terms of day-in and day-out blocking and tackling around brand building and marketing efforts as well as a focus on continuing to launch new product and bringing innovation to help focus on growing categories..

Okay. Very helpful. Thanks, guys..

Thank you..

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

Hi.

So, first of all, can you give me the actual, like the, unadjusted free cash flow relative to the $208 million in FY 2018, what it was if you included everything like in...?.

So Linda, if you go to our adjusted, you can see a non-GAAP free cash flow number for the year of $197.6 million which is in one of our adjusted free cash flow table in the back of the earnings report..

Okay.

And then in terms of your projection for free cash flow for the next year, will there be a big gap between the GAAP and non-GAAP free cash flow?.

At this point we don't anticipate any adjustments to GAAP free cash flow, if you will, for fiscal 2019..

And again the adjustments in 2018 were largely associated with the integration costs associated with the Fleet acquisition..

Yeah..

Okay. And then Ron, I was just sort of thinking here. I mean, if your organic top line growth is sort of 1%, and then in the past you've always said that your margins are really high already and not to really expect margin expansion over the long-term. So your EBITDA margin is flat at best maybe.

So, really, the algorithm is not for a lot of EBITDA growth here over time and perhaps even declines if you get spikes and cost inflation like we've just seen. So, if you have sort of a declining EBITDA, I mean kind of how do you think about that long-term.

And do you think maybe, there are some opportunities to bring ongoing productivity into the company, and not to just reactively respond to inflation, but to actually look for ongoing productivity that might help you stabilize in EBITDA margin rather than experience some declines of margins going forward?.

Yeah. So first of all in fiscal 2018, right, we realized an EBITDA margin erosion that was largely attributable to the freight and warehouse issues that we've talked about, right, and the reduction in gross margin. So we expect in fiscal 2019 to recover those and get back to a normalized level.

In addition to that in fiscal 2019, as we talked about earlier, we expect an impact from rolling out the new BC and Goody's packaging that would go away for fiscal 2020.

So, if you look out the fiscal 2020, we would expect based on those two factors that we'd be able to recover some of the EBITDA margins going forward after fiscal 2019 is the first part. The second part is, we actually have had for a very long time gross margin and other cost reduction initiative in place.

And historically, the way we've looked at that is trying to improve gross margin as a way to find additional resources to increase A&P over time, and keeping a stable level of EBITDA margins, which were at the high end of the industry.

So, clearly as we react and recover the freight and warehousing costs and deal with the cost associated with the BC and Goody's launch, we would expect that to go away and go up and that we would continue to focus on improving margins over time – the gross margins..

Okay. Thanks..

Okay. Thank you..

Thank you. Our next question comes from Frank Camma with Sidoti. Your line is now open..

Hey, guys. Thanks for taking the call..

Good morning, Frank..

Hey, there is a lot of questions about private label on pricing. And to me it seems like investors really still misunderstand your business model, brands, and even the fact that you sell over-the-counter healthcare products. That's an observation, not a question.

My only question is how much of your debt is floating and I mean actual dollar amount?.

Yeah. Frank, about $1 billion. Since the refinancing we did back in March, we're about 50-50 fixed, floating. And as a reminder we plan to use the majority of our free cash flow absent the repurchase we just announced to rapidly get that number down about half a turn a year as we look forward..

Okay.

And what's that price deck roughly?.

So, the $1 billion of floating, majority is priced at LIBOR plus 200 basis points, came down from LIBOR plus 250 basis points..

Okay.

So about 4.5%, right, roughly?.

Currently standing around 4%, yeah, and we will expect it to increase throughout the year. Yep..

Okay.

So in today's credit market, if you were to buy swaps to fix that, how much would it cost you?.

So, the biggest factor – obviously the pricing and the interest rate environment is factored into the pricing on a swap.

I mean the biggest thing for us as we think about our capital structure is how quickly we can delever and how much free cash flow we generate? So going out and locking in fixed to swap today for say $0.5 billion that's floating, I'm going to pay that down in just under two years.

And so, we're continually looking at our cap structure, we're conscious of our floating debt in this environment. And when opportunities arise as they did in March very rapidly, we take advantage of it, and we'll continue to do that..

Okay. Great. That's all I had. Thanks..

Thank you, Frank..

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Ron Lombardi for any closing remarks..

Great. I'd just like to thank everyone for joining us today and have a good day. Thank you..

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