Ladies and gentlemen, thank you for standing by and welcome to the Q3 2021 Prestige Consumer Healthcare, Inc Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Phil Terpolilli, Head of Investor Relations. Please go ahead, sir.

Thanks, Operator, and thank you, everyone, who is joined today. On the call with me are Ron Lombardi, our Chairman, President and CEO; and Chris Sacco, our CFO. On today's call we'll cover results of our third quarter and fiscal year-to-date, provide an outlook update and then take questions from analysts. We have a slide presentation that 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.

Thanks, Phil. Good morning, everyone. And let's start on Slide 5. Our proven business model continues to set us up for long-term success and the strong earnings performance and a stable topline year-to-date results is continued evidence of this as we have raised our full year revenue and earnings targets. The business strategy we have in place is a highly adaptable one, which positions us to create value during the pandemic. Our strategy of offering consumers a wide range of easily-accessible brands they know and trust continues to work. The ongoing objective is to grow categories while connecting with consumers over the long term. We'll share one example of this long-term strategy, Compound W on the next slide. Despite the long-term nature of these investments, we are also quick to target near-term opportunities. This important nuance allows us to adjust our brand-building strategy in real time finding additional ways to deliver brand growth. For example, as discussed, the last two quarters, we have focused on prioritization on where consumers are shopping. A result of this is that we are winning big in ecommerce where we've seen triple-digit growth and many of our brands actually have a higher share in the channel compared to brick and mortar. Meanwhile, our nimble business continuity efforts continue to do well during COVID-19. We continue to work strategically with our manufacturing partners to ensure consistent service levels in this dynamic supply environment. Finally, our consistent operating model and disciplined capital strategy continue to reward shareholders. We anticipate solid earnings and free cash flow growth for the full fiscal year, which continues to increase our capital allocation optionality. So, to recap, our business positioning remains solid and our strategy of delivering consistent results as we close out our fiscal year.

Thanks, Ron, good morning, everyone. Let's turn to Slide 8 and review our third 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. Q3 revenue of $238.8 million declined 1.6% on an organic basis versus the prior year, which excludes the effects of foreign currency. By segment, North American revenues were down 2%. Several segment categories grew with the largest increases in Women's Health and Oral Care. As expected, however, these gains were offset by lower Cough and Cold as well as motion sickness and head lice as these categories faced declines in incidence levels and usage rates related to changes in consumer behavior due to COVID-19. Our international segment increased approximately 2% after excluding the effects of foreign currency. The increase was primarily attributable to higher sales of Hydralyte in Australia as certain shelter at home restrictions were lifted related to COVID-19. As a reminder, due to its distributor model, the timing of international segment orders can be difficult to predict as can the uncertainty around pandemic-related restriction.

Thanks, Chris. Let's turn to Slide 12 to update our guidance and offer some initial thoughts on the upcoming year. With less than two months to go, in our fiscal year, we are confident with our business performance and objectives and are increasing our outlook for both sales and EPS. For the full year Fiscal 2021, we now anticipate revenues of approximately $935 million. For Q4, we anticipate consistent trends to what we have realized over the past few quarters. However, the period will face a unique comparison to the prior year as we experienced a significant lift in March of 2020 as consumers stocked up on items as a result of COVID-19. We now anticipate adjusted EPS of approximately $3.22 for Fiscal 2021. Disciplined cost management and the benefit of our capital allocation strategy and debt reduction continue to drive a solid earnings growth. These attributes to translate into free cash flow as well and we continue to anticipate free cash flow of $207 million or more, which is at or above the prior year's level. We continue to prioritize debt reduction while balancing other disciplined capital allocation efforts to drive shareholder value. Looking ahead, we continue to have confidence that our business is well-positioned heading into Fiscal 2022. We will begin to lap the effects of COVID-19 that began in the spring of last year, while our long-term brand building strategy continues to set us up for long-term success. We continue to target 2% to 3% long-term organic sales growth, which translates into mid to high single-digit earnings growth driven by our stable and solid financial profile and disciplined capital allocation strategy. It's a proven strategy and we remain confident in its ability to drive value for stakeholders. With that, I'll open it up for questions. Operator?

Thank you. Our first question comes from John Andersen with William Blair. You may proceed with your question.

Good morning, everybody.

Good morning, John.

I guess maybe I'll start with the last comment that you made, Ron, on the long-term sales growth target of 2% to 3%. It's been a while since you've consistently kind of achieved 2% to 3% organic sales growth. Talk a little bit about, if you will, about your efforts to get to 2% to 3% organic sales growth. What gives you confidence that over the long term, you can kind of get back there on a sustainable basis and how long it might be in your opinion, given kind of the dynamics in the marketplace, COVID, some of the changes to your customer base, et cetera, to get back to that kind of a long-term target?

Sure. Thanks for the question, John. So, first of all, we always start thinking about the opportunity for our business around consumption growth. And if you look back over the last few years, our organic consumption growth has been in the 2% to 3% range. Now we had some disconnects between that as certain retailers adjusted inventory and addressed their business needs. And then this year with the disruption of COVID, if you exclude the COVID-impacted categories, again our consumption levels continue to be in that 2% to 3% range. So that's why we feel good about the long-term ability to grow the business, 2% to 3%.

Okay. And two of the things that you cited in there: one is, some of the inventory efforts that retailers have made to reduce pipeline inventories, where do we stand with respect to that? What are you seeing right now? What do you expect to see over the next 12 months; and then the second part of the question would be on the COVID-impacted categories. Is this just a matter to get those back? Is it a matter of just kind of lapping the difficult March comps? Is there additional work that needs to be done there to get those back to a kind of a growth trajectory?

Sure. So, two questions there. First about retailer inventory levels. And I think we talked about this at the last quarterly earnings call. We actually feel that this is kind of in the rearview mirror at this point, John. It's not something that we're hearing, our customers talk a lot about or focus on at this point. So, we don't really see that as a headwind going forward. And then in terms of the COVID-impacted categories, the brands that we have like Dramamine and mix in some of the cough cold businesses, they had an impact that began, call it April of last year and we've been at a steady level in terms of the impact on our business. So, we haven't really seen it get worse. So, the first part of it is that once we start lapping that base levels and then as consumers begin to return to normal levels of activity and COVID restrictions lift, we would expect to see a recovery in those businesses over time. The brands there continue to be well-positioned. We've held our grown share actually during this disruptive period. So, as you pointed out, it really is just getting back to a point where we're lapping the disrupted period.

That's helpful. On the ecommerce portion of your business, which you mentioned has been extremely strong. You commented that you saw triple-digit growth there in the quarter. Where does that put you now in terms of ecommerce's portion of your overall sales and again, I know you've talked about this before but just to help us understand again why you're so well-positioned online, it sounds like your brands in aggregate may have higher share online than offline. And I think you said also that that the profitability is comparable online and offline. So, you're really kind of agnostic from that standpoint, but how big is ecommerce now as a percent of your business? Do you expect it to stay there even post-COVID and how are your brands represented?

Sure. So, first of all, our ability to be successful during this really dramatic change in channels, it goes back to a simple strategy that we've been executing again for a long time, which is we want our products available wherever consumers choose to buy them. And you can go back 20 years ago or more when there was dramatic growth in mass, dramatic growth in the dollar channel as examples. Our business has grown as those channels have grown and then being in a position to actively manage the margins such that there isn't any penalty to having a consumer shopping shift. That strategy has been in place a long time and we simply applied it to the opportunity around ecommerce and the likelihood that consumers were going to move there in increasing numbers. So, we executed that strategy, we were ahead of the curve and we were well-positioned, so that when that ecommerce business from us more than doubled in one single quarter, we were ready. Our product was available, our content was available online at the right cost structure so that our margins would hold. So, it really is just about execution and having a plan to support whatever consumers choose to shop. I think you also had a question in there as what's our current percent. I think all-in, if you total up all of the ecommerce sales across all of our customers, I think we're approaching 12% or so now, and will it stay there? I don't know. We'll see over time where the consumers continue to keep shopping there or whether they go back to their old habits of going into stores. In either case, it really doesn't matter to us as our products are widely available.

Great. One last one and I'll get back in the queue. Chris, you mentioned the potential for bond refinancing in the fourth quarter. Can you just talk a little bit about the details of that? I'm not sure which the bond, the maturity date, the kind of the rate you're paying now, what the opportunity might be for the bond refi? Thanks.

Sure. Hi, John. We are anticipating refinancing the 2024 notes. There are currently $600 million with 6.38% and we are going to look to continue to take advantage of the favorable market conditions similar to the refinancing we did around this time last year on the now 2028 senior notes. So obviously, it's too early to discuss specifics. We haven't even launched the deal yet, but we'll certainly share any finalization of the potential outcome in May if not sooner. Just as a reminder, we are anticipating closing around March 1. So, any impact to Q4 would really be limited to one month from this action.

Great, thanks so much. Good luck.

Thank you. Our next question comes from Rupesh Parikh with Oppenheimer. You may proceed with your question.

Good morning. This is actually Erica Eiler, on for Rupesh. Thanks for taking our question. I guess first I just wanted to touch on international. So, it was encouraging to see that improvement in the international category this quarter and I can appreciate that that business can be lumpy as you've talked about. But maybe can you talk about your latest outlook and thoughts surrounding the international segment and maybe just a little bit more at what you started to see during the quarter with Hydralyte. Maybe elsewhere to drive that improvement?

Sure. Why don't I, Erica, I take the what do we see in the quarter ended December and then Chris can comment about what's in our outlook for the remainder of the year. We continue to be in an environment that can change quickly and it's somewhat difficult to predict. What we saw in Australia was a sequential improvement in demand and consumption. That was largely the driver behind the outperformance ahead of our expectations during the quarter. Australia lifted some of their COVID restrictions and that combined with the beginning of summer there really propelled an increase in sequential consumption levels for the business. So that was really the big driver in what we really did predict to happen during the quarter for us. So with that, I'll let Chris comment on what's in our Q4 outlook.

Sure. So, regarding our Q4 guide versus the prior year as Ron noted earlier, obviously we have some significant impacts on comps related to the March orders around COVID. So, if we think sequentially in terms of absolute dollars, we think the U.S. will be pretty stable in its trends from Q3, but we're actually expecting internationally to be down for the reasons Ron noted that helped us in Q3 kind of swing in the other way in Q4 in terms of timing of distributor order patterns and we have seen some of the states in Australia return to shelter at home restrictions obviously difficult to predict. But right now, we would anticipate international to be down somewhat sequentially in Q4.

Okay, that's helpful. Actually you can comment at this point, but as you look towards next year, your Fiscal 2022, given you're going to lap easy COVID comparisons and you're seeing stable consumption in some of your categories, at this juncture, could we expect to see a return to positive sales growth in FY 2022? Just any puts and takes you might be able to provide us as we think about the top line for next year?

Yes. As I commented on in the prepared remarks today, as we get into our Fiscal 2022 that starts April 1, we enter into an environment where we have easier comps. That's the best way to describe it. Unlike calendar reporting companies, we don't have the quarter ended March peak, but that's going to be in the comps next year. So that's going to be helpful in terms of year-over-year growth. But beyond that, it's really tough to predict to what level we might expect growth for next year. It really goes all back to when are we going to see consumers start to return to normal activities? When is the impact of COVID in certain restrictions going to start getting eased? And at this point, it's still really hard to predict when that may happen. So, we'll give an updated outlook on what to expect for Fiscal 2022 on our May call. But everything else being equal, we feel good about the state of our business, our consumption trends excluding the COVID-impacted categories has been strong this year. We continue to grow share. As I commented earlier, we were very well-positioned to be successful in ecommerce and our financial profile continues to deliver solid earnings and free cash flow. So, with all of that. We continue to feel good about our positioning for next year.

Okay, great. Thank you so much.

Thank you, Erica.

Thank you. Our next question comes from Stephanie Wissink with Jefferies. You may proceed with your question.

Hi, this is Seb Barbero, in for Steph Wissink. Thanks for taking my question. I was wondering in your presentation today, you outlined growing market share in a few categories during the pandemic environment. Could you give us a bit more color, which brands or which categories are performing relative to your peers?

Sure. We're seeing particularly strong growth in Compound W which I called out today. We continue to have success growing share in launching in a bit differentiated innovation that's helping us to grow share there. Monistat is having a particularly good year this year as many women look to treat at home and avoid a doctor's office visit, is one example. DenTek is in the same kind of boat where consumers have maybe not gone to see the dentists. So, they're looking to take care of their teeth in their oral health and they're reaching for DenTek's products as a couple of examples.

Thanks. And as it relates to M&A, any change in your views in the landscape over the past few months? And then specifically if we look in the next 12 to 24 more months, are there any specific category or categories that you're looking at that would strengthen your portfolio?

Why don't I let Chris comment on that?

Sure. So similar environment to what we've consistently seen in our space, highly fragmented opportunities and they continue to be available and we'll continue to apply our disciplined screening, if you will, for M&A opportunities. So, no real changes to what we're seeing in the marketplace around that. From a category perspective, I would say, nothing that we're lacking where we feel like we need to get into another category or expand within the category, we really look at it from a brand perspective within the category the brand is positioning as you see with many of our core brands where we're looking to grow categories. So, no change to our strategy around M&A or our screening process and I would say the market has continued to remain fairly stable for the kinds of things that we look at.

Thank you.

Thank you. Our next question comes from Mitch Pinhero with Sturdivant & Company. You may proceed with your question.

Yes. Hey, good morning. Most of my questions has been answered. Just, were there any - you talked about Compound W, Monistat being positive in terms of share performance. What were the lost share over the last 12 months? Anything in particular?

I think if you look across our portfolio, the cough cold brands, again, it's a unique situation and an environment would be the one area that I would identify, Mitch, but beyond that, the brands that we focus on, the site power core in the dozen or so core brands have generally held up very well, and in aggregate, our share is actually increased year-to-date versus where we were a year ago.

Okay. And then when we're looking at the bank refinancing. I was just curious, you guys generate attractive EBITDA margins, EBIT margins, attractive obviously free cash flow generation and you look at the 2024 notes and there at 6.38% . It's quite high. Even the 2019 notes at five and change. To me, I would think that these rates should be half of what you're paying. Is it just a function of having, 4x leverage? And is that simply that? I would think that your interest expense should come down meaningfully, just given what given your fundamentals. Can you talk about that a little bit?

Mitch, will you be available to help with the refinancing pitch now? I guess I would say we don't think our leverage profile has ever constrained us from our ability to get it disciplined and advantage pricing in the marketplace. I think you've seen that when we compare our leverage levels with some peer companies and some other companies. I think we have consistently been able to get attractive rates. So, I don't think it's impeding our ability to go out and execute successfully. So that said, I think you may be a little aggressive on going all the way to half of the current interest rate, but yes, we would expect in this refinancing in current market rates to see a significant improvement in our interest expense as a result on the 6.38% 2024 notes.

Okay, thank you. I guess is there a function - just curious - what would be the, in terms of as banks look at your business. What's the one thing that I guess they're looking at that's keeping the rate maybe higher than what I think it is? It can't be the leverage. What would it be? Is it just…

To some extent, it's the leverage, but not the current leverage. It's the anticipation of future M&A and our ability to flex the leverage, I would say.

Okay, got it. All right, that's all I have. Thank you.

Thanks, Mitch.

Thank you. Our next question comes from Linda Bolton-Weiser with D.A. Davidson. You may proceed with your question. Linda Bolton-Weiser: Hi. I didn't catch - I don't have the slides right in front of me, but did you say what your consumption growth or decline was in the quarter? And according to IRI data, it looked like your consumption got a little bit worse sequentially through the month of the quarter, October, and then November was a little worse and then December was a little worse. And then actually the numbers ended January 10 were a little worse. Is that the same pattern that you see in the numbers and why would there be some worsening of performance in terms of consumption through the months? Thanks.

Yes, so first of all, Linda, I think I say this every quarterly call. Those IRI reports, or Nielsen, whatever the genetic reports you're getting have always been fairly disconnected from what actually goes on with our business and it's never been more true than the current environment where the biggest growth for our business has come from unchecked, untracked channels for ecommerce and then certainly the international business. So, that's the first comment; and the second is in terms of the general consumption. Our consumption continues to be steady across the business, which is why we've been talking about our business on a sequential basis, quarter-to-quarter and talking about our run rate, because we're in an environment where comps to the prior year are funky. It's the way to describe it. And they're about to get even more disconnected as we enter the period ended March, which was really impacted by COVID activity last year where we saw a significant spike in the activity. And then for the quarter ended June, you're going to see a pretty big dip in trough. So, we continue to encourage people to think about our business and its sequential run rate basis, given the abnormalities we'll see in the comps of the prior year. Linda Bolton-Weiser: So, what was your consumption in the quarter? So, let Chris answer that one for you.

Sure. So, consumption was down in the low single-digits, and I think Ron might have noted on his prepared remarks or in the Q&A. When you adjust for the COVID-impacted brand in-line with our long-term target as Ron said and has been consistently sequentially over the past couple of quarters and actually couple of years. Linda Bolton-Weiser: Okay, thank you very much.

Okay, thank you, Linda.

Thank you. Our next question comes from Joe Altobello with Raymond James. You may proceed with your question.

Thanks. Hey guys, good morning. I apologize I jumped on late, so I may have missed some of this, but just in response to Linda's last question, I was curious, it sounds like if you look at the impact from COVID on consumption was about 3 points, call it again, last quarter, does that gap narrow in the June quarter? Or do you see some improvement in the March quarter?

For the quarter ended June, we would expect the impact to be largely gone from the COVID-impacted businesses, Joe.

Okay.

Because that was more or less than full effect for that quarter last year and for the quarter ended March, clearly, the comps are going to be meaningfully impacted because of the spike in the business last year.

Right. Okay. And I guess somewhat related to that, could we see a situation where you're COVID-impacted categories and channels start to improve, but consumer focus on things like health and hygiene remained fairly elevated? So, could you get the best of both worlds to some degree in fiscal 2022?

Sure. That's very likely, Joe. One, I think consumers focus on health and hygiene is going to continue for a while. This is a pretty significant event that we've been living through. So, I would imagine that's going to continue. So, we may get the positive impact of both that continued focus and certainly the comp against the reduced level last year.

Got it. And just one last one for me. Have you experienced any major supply chain issues? I know in the past, you've noted some tightness in packaging and commodities. Has it become more acute or led to increase in stock outs?

So, it's really been pretty steady for us during this timeframe, Joe. We haven't seen really any meaningful change in the supply environment for us. It's challenging, but we continue to work with our partners for steady supply and we continue to be in a good position at shelf at retails.

Okay, perfect. Thank you, guys.

Sure. Thank you, Joe.

Thank you. Our next question comes from Anthony Lebiedzinski with Sidoti & Co. You may proceed with your question.

Yes, good morning. Thanks for taking the questions. So I'm just wondering, longer term, how should we think about the A&M spending and I'm also looking at your book for earnings growth of mid to high single digit. Are you already factoring in the benefit of debt refinancing or could the debt refinancing benefit actually lead to better earnings over term?

Sure. Chris, wants to take this.

Sure. So we have not factored in the debt refi for this year's results, as I noted in response to John's question. We would anticipate the refi closing in the beginning of March. So, the impact to this fiscal year in this quarter would be limited to one month. So, just a heads up on that front. And I apologize, can you repeat the first part of your question, please?

Yes. The first part of the question was about A&M spending, kind of how should we go about that longer-term? Obviously, you made some adjustments to that when COVID hit. Longer term, how should we think about that? That'll be great. Thanks.

Sure. So yes, as you pointed out, and we showed this quarter as well, the timing of A&M spend can fluctuate from quarter-to-quarter based on individual initiatives that we roll out. I think what you've seen historically and continue to expect is A&M spend in the range of 14% to 16% of sales. That's something we've delivered pretty consistently.

Got it. All right, thanks.

Thank you, Anthony.

Thank you. Our next question comes from John Andersen with William Blair. You may proceed with your question.

I'm back. I just wanted to ask a couple more. Transportation costs, we've been hearing about obviously increases in spot rates. That was an issue two or three years ago, I guess, for you. Just give us an update there and how you're positioned today versus in prior years and how you're thinking about that.

Yes. First of all, John, our warehouse move and change in third-party provider there continues to have us better position than where we were. To manage through this is the first part of it. The second part of it is, freight costs as a percent of revenue for us is fairly small versus other companies, other CPG companies who may be shipping heavier product or different profile products. So, although it's something that we're actively managing, we're in I think a little bit of a different position than many other companies in terms of being able to manage through this.

Okay. And then it seems like when you come up with a kind of a novel-technology, or approach, or add a certain degree of functionality to one of your product, your brands, product lines like with Compound W and the Rapid Freeze, that really sets the stage for kind of a multi-year - it helps drive the category, helps drive brand share. So, I'm just curious like as you sit here today, how would you kind of characterize the innovation pipeline overall for Fiscal 2022, that is. What do you say, better than average? Average? Or typical, or kind of year of innovation? Also, when did the majority of the resets happen in your business? Are they kind of spaced out through the year? Do most of them are half at one point of the year? That would be helpful.

Sure. So first of all - I think I commented on this in the prepared remarks today - is that we look to have a three-year new product and innovation pipeline developed for all of our big brands. So, our new product and innovation launches tend to be pretty steady from year-to-year. So, there isn't necessarily peaks and valleys. Some are more successful than others or adjust bigger market opportunities and other. But in terms of kind of the number of new products and innovations that we launch each year, it's fairly steady. And then in terms of reset timing, it tends to happen between spring and into summer for the majority of our categories, John.

Okay. You've talked about and I think you were asked about M&A earlier. I'm just kind of curious, I know there's been a lot of portfolio optimization work done over the last five, six, seven years. Do you still have a part of your portfolio that you would consider divesting? In under what kind of conditions would you consider doing that?

Yes. Right now, the tails function in the portfolio is to generate earnings and cash flow that we can invest behind our power core and core brands. That's the role that it has in the portfolio. And really, it comes down to math. We hear from people who are interested in tail brands all the time and we evaluate the benefits and the inherent value of those brands versus what somebody might be willing to pay for. So, it comes down to that evaluation.

Great. Thank you. Thanks a lot.

Sure. Thank you, John.

Thank you. 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 further remarks.

Thanks, Operator. I'd like to thank everybody for joining us this morning and I look forward to updating you again in May. Have a great day.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.