Good day and thank you for standing by. Welcome to the Q4 2021 Prestige Consumer Healthcare Inc. Earnings Conference Call. I would now like to hand the conference over to your speaker today, Philip Terpolilli, Vice President of Investor Relations and Treasury. Please go ahead..

Thank you, operator and thank you to everyone who has joined today. On the call with me are Ron Lombardi, our Chairman, President, and CEO and Christine Sacco, our CFO. On today’s call, we will review the results of the fourth quarter and full year fiscal ‘21, provide a fiscal 2022 outlook and then take questions from analysts.

We have a slide presentation, which accompanies today’s call. It can be accessed by visiting prestigeconsumerhealthcare.com, clicking on the Investor’s link and then on today’s Webcast and Presentation. Remember, some of the information contained in the presentation today include non-GAAP financial measures.

Reconciliations between the nearest GAAP financial measures are included in today’s earnings release and slide presentation..

Thanks, Phil. Let’s begin on Slide 5. A year ago, we began our fiscal year with a backdrop of tremendous uncertainty stemming from the COVID-19 pandemic. This uncertainty created widespread volatility across the categories we participate in, with rapid changes in consumer preferences and needs.

To start all of this, we focused on executing a proven long-term business strategy, which resulted in a very successful fiscal ‘21 that exceeded our guidance. Several aspects of our business proved to be particularly beneficial during the quickly changing environment of the last year.

A brand building approach of growing categories and connecting with consumers paid off in a big way, especially as consumer shopping habits and needs shifted. Having a diversified portfolio of leading brands helped us connect with consumers as they turned to their time tested and trusted brands for self-care during the pandemic.

Our widely distributed brands and robust e-commerce presence also paid off as consumers showed up online in greater numbers. Meanwhile, our company’s agility allowed us to reposition our marketing to best connect with consumers in this environment.

The net results of these factors is, we continued to win market share in difficult backdrop and generated very strong cash flow due to our consistent operating model. Let’s turn to Page 6 to review some of the resulting fiscal ‘21 financial performance metrics.

Even during this unique time, our proven strategy delivered solid results, generating record adjusted earnings and free cash flow. For fiscal ‘21, our net sales were approximately $943 million, down about 2% from the prior year. We were pleased with our consumption trends for the year with impressive performance in the vast majority of our brands.

This included continued market share gains consistent with our long-term objectives. Our net sales and consumption declined slightly owing entirely to a few categories impacted by COVID, such as cough, cold, which I will discuss later..

Thanks, Ron. Let’s turn to Slide 12 and review our fourth quarter financial results. As a reminder, the information in today’s presentation includes adjusted results that are reconciled to the closest GAAP measure in our earnings release.

Q4 revenue of $237.8 million declined 5.4% and 6.6% on an organic basis versus the prior year, which excludes the effects of foreign currency. As a reminder, Q4 faced a particularly unique comparison in the year prior, when we experienced a significant lift in March of 2020 as consumers stocked up on items as a result of COVID-19.

By segment, North America revenues were down approximately 4%. Several segment categories grew with the largest increases in women’s health and analgesics. However, these gains were offset by cough and cold as well as GI category performances, both resulting from changes in consumer behavior due to COVID-19 that Ron discussed earlier.

International OTC declined approximately 24% in Q4 after excluding the effects of foreign currency.

The decline was primarily attributable to lower sales in Australia as a result of the comparison to prior year as consumers stocked up on items as a result of COVID-19 in March of 2020 as well as COVID-19’s impact of lowering both general consumer illness and activities such as athletics, impacting Hydralyte.

As expected, adjusted EBITDA declined in Q4 owing to the unusual year ago comparison while EBITDA margin remained consistent with our long-term expectations in the mid-30s.

EPS for the third quarter was $0.79 per share, down $0.03 versus the prior year as lower interest expense from debt pay down and lower share count only partially offset the decline in revenues versus year ago. Let’s turn to Slide 13 for more detail around consolidated results for the full year.

For the full year fiscal ‘21, revenues declined 2.4% versus the prior year in constant currency. Our diverse portfolio enabled the stable revenue performance, which strengthened many brands in our portfolio, helping to offset COVID-19 impacted categories.

Channel diversity continues to help drive revenue performance as we experienced strong triple digit consumption growth in the e-commerce channel for the full year as consumers continued to shift to online purchasing. Total company gross margin of 58% was approximately flat to last year’s adjusted gross margin of 58.3%.

This was in line with our expectations and we continue to anticipate a gross margin of about 58% for fiscal ‘22. Advertising and marketing came in at 14.9% for the fiscal year. Following an unusual Q1 related to COVID-19, A&M returned to normalized levels of spend of approximately 14% to 16%.

For the upcoming year, we would anticipate an approximate 15% rate with a higher rate of A&M spend in Q1. G&A expenses were just over 9% of sales in fiscal ‘21 versus the prior year, owed largely to disciplined cost management. For the upcoming year, we anticipate G&A expenses to approximate just over 9% of sales.

Lastly, record adjusted EPS of $3.24 grew a strong 9.5% over the prior year. Lower operating costs, lower interest expense, and lower share count were all factors to the growth..

Thanks, Chris. Let’s turn to Slide 16 to wrap up with some closing thoughts and our outlook for fiscal ‘22. Using our time-tested strategy, we delivered a very strong fiscal ‘21, including market share wins and record financial returns despite certain category headwinds related to the pandemic.

This approach remains intact and our best business is well-positioned to further these gains in the upcoming year. For the full year fiscal ‘22, we anticipate revenues of approximately $957 million to $962 million, including organic revenue growth of 1.5% to 2%.

This revenue outlook assumes our portfolio continues to generate approximately 2.5% long-term organic revenue growth, partially offset by certain categories like cough cold, which we expect to remain flat to fiscal ‘21. We anticipate EPS of $3.58 or more for fiscal ‘22.

Disciplined cost management and the benefits of our free cash flow are expected to drive solid double digit earnings growth. For Q1, EPS is expected to be flat to the prior year as a normalized level of advertising and marketing spend is expected to offset revenue growth and interest savings.

These attributes translate into strong free cash flow as well. We anticipate free cash flow of $225 million or more. The recently completed debt refinancing further enables our disciplined capital allocation efforts that drives shareholder value..

Thank you. And our first question comes from Rupesh Parikh with Oppenheimer. Your line is now open..

Good morning. This is actually Erica Eiler on for Rupesh. Thanks for taking our question. So first wanted to touch on organic sales growth, as you look at your organic sales growth guidance for this year, I mean, it seems to us, it could prove conservative, especially with easier comparison and if you guys continue to gain share.

So, just curious as to what you see as the potential drivers for any upside that we could see play out during the year?.

Sure. Good morning, Erica, so first of all, I guess I’ll start with your comment around easy comparisons in ‘22, fiscal ‘22 to ‘21. If you go back to Slide 9 in today’s deck and you’ll see that 80% of our portfolio grew over 3%, which is above our long-term outlook.

But certainly for the COVID impacted part of our business, we’re expecting ‘22 to be flat. There is still a lot of COVID impact to get out of consumers’ habits these days. So if you look at our 2%, we expect about 80% of the portfolio to grow around 2% and then the balance to be flat year over year..

Okay. No, that’s helpful. And then, Chris, I think you mentioned gross margins around 38% for the year.

Could you maybe just talk about some of the key puts and takes we should be thinking about on the gross margin line this year?.

Yes, so, hi, Erica. Gross margin of about 58% for fiscal year ‘22..

Sorry, 58%..

Yes, no worries. So, largely consistent coming in essentially flat to fiscal ‘21. So of course, while there is puts and takes, reminder, we start with the benefit on the top line of a diverse brand portfolio.

It also helps to diversify our cost components, So again, we are expecting our guide to incorporate some inflationary pressure, but we think we’re able to offset largely with a combination of cost-saving initiatives and some pricing activity. So we felt good going into next year that we can hold our gross margin pretty consistent with fiscal ‘21..

Great. Thank you so much..

Thank you. Our next question comes from Stephanie Wissink with Jefferies. Your line is open..

Hi, this is Seb Barbero for Steph. Thanks for taking my questions.

The first one is I’m wondering if you can talk about the consumption growth in fiscal Q4 and also talk about consumption trends year to date given that share gains relative to private label appeared to have accelerated recently?.

Sure. So, let me start, I guess, with what the overall consumption trends, I think again, if you step back and take a look at performance for the full year, you’ll see that we actually performed quite well.

Again, Slide 7 that showed the report card that we’ve been reporting on at the end of the last few fiscal years to see that we had a lot of momentum, even in the brands that were disrupted by COVID, in particular Dramamine and mix, we were able to continue to grow our share.

So we continue with this long-term trend of not only outgrowing the categories, but growing share compared to competitors, including private label..

Got it. Okay.

And then talking about restocking, are you still that you – this is more like forgone headwind and hence your ability to return to that low single digit organic growth and also if you can talk about where are we in the restocking cycle?.

Sure. So and I think we’ve touched on retailer inventory changes the last couple of quarters. And again, it’s something at this point that we see is behind us and not something that we anticipate meaningfully impacting us in fiscal ‘22. Still tough to predict what the retailer activity patterns will be in fiscal ‘22.

But again, we think that’s largely behind us at this point.

And can you remind me of the second part of your question there, Seb?.

Yes, just on the restocking. I think you mentioned on today’s release, we benefited throughout this year as retailers restock their shelves.

So is that fully done? Is that benefit already realized, or is this an opportunity as well in fiscal ‘22?.

Yes. That was really a Q1 fiscal ‘21 impact. In quarters two, three, and four, we really didn’t see any meaningful impact of shipments into the retailers ahead of consumption..

Okay, thank you..

Sure..

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

Hi, good morning. So I was wondering if – I know you are a very, a pretty high margin business so commodity and input costs are not usually an issue, but we’re seeing so many inflationary cost pressures kind of going on.

Are you experiencing any kind of inflationary cost pressures in any of your inputs? Are you seeing any shortages of any particular materials? So can you just talk about kind of the cost input profile? Thanks..

Sure. For starters, we deal with inflationary pressures every year. Most people get a wage increase every year and benefit costs go up. So it’s something that’s in our system in terms of being able to deal with.

Certainly, as we get into fiscal ‘22, we’re anticipating more headwinds from inflation than past years and it’s something that we’ve been planning and dealing around for quite a while ahead of fiscal ‘22.

So although we anticipate additional inflationary pressures versus past year, I think as Chris already commented on it, we’ve got actions in place to mitigate it for fiscal ‘22. In terms of shortages and other supply chain impacts, we’ve been dealing with a challenge supply chain environment over the last year.

COVID has impacted a lot of different aspects of the supply chain and it’s something that we’ve been able to manage through and we’ve got good inventory at retail and we continue to feel we’re in good shape as we head into fiscal ‘22 on that..

Great. And then just curious on the M&A front, if you’ve been seeing a lot of potential deals or not, and some of the companies have mentioned that there is just so much competition out there because of all the specs and everything. Is that something that you feel has been impacting your ability to maybe do a deal? Thanks..

Yes. So the M&A pipeline has been pretty active over the last year or so and there is been lots of transactions out in the press. We continue to be pretty well-positioned so that if something comes up that meets our M&A criteria that we think we would continue to be pretty competitive and that the landscape hasn’t changed for us.

Our scale business and the ability to absorb brands into the business that we have has us, I think well-positioned against the kinds of bidders that we would face. So the environment really hasn’t changed much for us, Linda..

Okay, great. That’s all for me. Thank you..

Thank you, Linda..

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

Okay. I’d like to thank everybody for joining us today, and we look forward to updating you on our business on the next quarterly call. Thank you and have a good day..

This concludes today’s conference call. Thank you for participating. You may now disconnect..