Conference Transcript - PBH 2026-08-12

Susan Anderson, Analyst — Canaccord

Okay. Good morning, everyone, and thank you for attending our conference. I'm Susan Anderson, one of Canaccord's analysts in the consumer space, and we're very excited to have here with us Prestige Consumer Healthcare, and in particular, CFO and COO Chris Sacco, MVP, IR, and Treasury Phil Terperlily. Chris, maybe if you could just start off by giving us a brief overview of Prestige for those in the room that are not that familiar with the business, the brands, and the long-term strategy. Sure.

Speaker 3

Thank you.

Speaker 2

Good morning, everybody.

Speaker 3

So Prestige has been executing a three-pillar strategy for some time. Phil and I have been with the company about 10 years, and the strategies remain the same. Of course, we've been through a lot of volatility, all of us, right, macro environment. So the tactics have changed, but the strategy has not, right? We're going to invest in the brands we have. We're a marketing brand-building company. It's what we show up to do every day. We have a superior financial profile, right? These are neat state products that people incidence-based. They go to the store. They're not really looking to save a dollar. Not a lot of sold-on promotion, as an example, in our category. So strong margins, which enable us to then deploy the capital. That's the third pillar, effectively. A lot of time that comes through deleveraging, which through M&A, we kind of have gotten ourselves, you know, bring on some new brands, get into some new categories, deleverage back down, and then kind of start the model all over again. So that's been the strategy. It's been consistent over time and continues to be the strategy today.

Susan Anderson, Analyst — Canaccord

Great. And then you've had a lot of activity lately, two acquisitions after Pillar 5 as well. But maybe if you could just give us a brief overview of those two acquisitions, Breathe Right and Le Corium. Tell us about the main Breathe Right brand and then maybe some of the smaller brands in the portfolio. And then same thing with Le Corium. Tell us about the size and kind of the opportunity there as well.

Speaker 3

Great. Yeah. So middle of June, we closed on the Breathe Right acquisition. Breathe Right's about two-thirds of the portfolio that came with that acquisition. Better Breathing is the positioning for Breathe Right, right? It's a brand that defines the category, similar to Dramamine, with over 90% consumer awareness. The key there is really just 3% household penetration. So in North America, we see a lot of runway for growth. As we brand build, we innovate kind of our normal wheelhouse. And then internationally as well, as we expand into new markets, Breathe Right is in about 20 countries. We'll look to expand that over time. You have strong margins, feel good about the portfolio. It's exactly what we're looking for, right? A leading brand in a niche category. That's where, that's kind of the secret sauce to prestige. And we have a number of leading brands that are holding meaningful positions in their categories as a result of staying disciplined in that strategy. The Le Corium transaction, about 75% of those sales are in Australia. This is therapeutic skincare anchored in the dermal therapy brand. And again, niche categories, think cold sores, eczema, not beauty, not general skincare. And so brand's been doing very well. The portfolio has been growing double digits for many years now. So we're excited about what that will be, largely international and different markets. Again, 75% sold in Australia. We'll look to expand that into other international markets as we move forward. So with international, about 15% of sales. Our long-term growth target for our international segment is 5-plus percent growth, top line. The entire prestige portfolio is 2% to 3% growth, so international a little bit outsized growth. And we think these two acquisitions will help firm that up. And, you know, as we look over time, we would expect internationals to become about 20% of the portfolio as a result of the higher growth coming from these brands.

Susan Anderson, Analyst — Canaccord

Okay, great. And then, of course, we can't have a conversation without mentioning iCare. But, you know, it has become a very small portion of the portfolio, low single digits, you know, even smaller now with the two acquisitions. But maybe just give everyone a quick update on where you're at with the eye care business and getting it back on track with the new acquisition and the high speed line.

Speaker 3

Yeah, so clear eyes, about 3% of sales as we sit here today. So a number of things have happened in the past six months, right? We acquired our sterile eye care facility up in Canada back in December. So we're about two quarters in. We feel good about the progress we're making, right? We have made investments in infrastructure. We've made investments in equipment. And most importantly, probably, we have changed out some leadership positions there, the most recent of which started on Monday of this week. So we're excited about that, including making the general manager of that facility a long-term employee there who was back in the Pfizer days in that facility. So feeling good about the moves that we've made. What we've talked about is, you know, the improvements that we're making are going to cause some near-term variability. We saw that in Q1. We expect to continue to see it in the second quarter with more consistent supply expected in the back half. So we've talked about expecting sequential improvement in each quarter of this year building off of that Q1 base. So, again, continue to feel like it was the right decision to bring that facility in-house, take control of our destiny, right? Quality is number one in everything that we do, and will continue to be our focus. And we'll continue to make investments in the facility and look for more consistent output. The ClearEye story is a supply story, not a demand story. So over time, we think about it in a couple of steps, right? We've got to get consistent supply on the shelf of the retailers. We've been focusing on base red and max red, our kind of core anchor skews with ClearEye. As we do that, we'll then look to fill the retailer's DCs. We'll then look to rebuild safety stock, right? It's been some time we've been having some supply chain issues around the brand. So we're kind of feeling every bump in the road, if you will, right now. When we're carrying three to four months of inventory or one week, the line down for a week, you won't feel it. But right now we're feeling it. So over time, we'll look to bring that back on. Then we will be able to introduce new SKUs, some of the SKUs that we've kind of put on the back burner right now, dry and itchy and things like that and then we can turn the marketing on so it's gonna take a couple of years to get back to where we were but I think that the retailers understand the importance of trust in this category there's been a number of recall major recalls at other folks there's been news obviously a few years ago around the space that was pretty alarming and concerning and so focusing on quality bringing you know bringing the facility in-house and taking control of it I think was was the right move and over time we think ClearEyes will continue you know we've seen the category decline as ClearEyes has come out. That's pretty powerful to take back to the retailers and show them how important a brand like ClearEyes that has the trust of the consumer is really important, and now so more than ever. So it's going to take some time, but again, as we work through fiscal 27, we feel good about getting more consistency in supply as we exit the year.

Susan Anderson, Analyst — Canaccord

And that was going to be my next question, just the confidence level and gaining back that share once you are able to stock the shelves.

Speaker 3

It sounds like just given, obviously, consumer's desire for a brand within the category and you guys being one of the leading you're not you're pretty confident yeah brands that consumers trust um you know at its peak uh clear eyes was clearly by far the unit leader it's why we needed to purchase the facility there's not an abundance of global sterile eye care supply out there for the kinds of demand that clear eyes can dictate uh but again opening price point with red red relief important to the consumer and important to the retailer okay great and then maybe let's just um switch to the financials a little bit You guys have leading EBITDA margins in the mid-30% range, so you generate a lot of free cash flow.

Susan Anderson, Analyst — Canaccord

You are levering up to buy these two acquisitions. So maybe talk about the time frame of delevering and where you guys expect to be in a couple years.

Speaker 2

Sure. So from a very high level, you're exactly right, Susan. We operate with a very strong financial profile that has very strong free cash flow conversion. And that's consistent over time as well. If you look back across economic environments, we have a financial free cash flow profile that's stable to growing over time. So there's a lot of benefits to that and the ability for us to sort of manage, leverage, and fuel our capital allocation priorities. So to your point, we spent our capital structure at the end of June that we just came out of, the Q1 results that we reported last week, got about $2 billion in net debt, and we're just a little bit over four times. What we've talked about is at fiscal year end, we'd expect to be a little bit under four times and working our way quickly back to the long-term target of being less than three times as the long-term target for the business from a leverage perspective in fiscal 28 and beyond. And that really fuels other capital allocation priorities as well when we think about optionality. So as we reduce leverage over time, it really gives us the ability to invest in all those priorities. And the structure is really unchanged to what we've talked about historically. It always starts with investing in the brands and the portfolio that we have today. So making sure that we're fueling our brands with marketing investments, innovation, et cetera. Then it's working from a disciplined manner to reduce our debt profile, to open up optionality for other things. And that can include share repurchases. So we don't expect to do that for the balance of fiscal 27, but we do have $90 million or so authorization remaining to continue to do that in the future, as well as future M&A. Clearly, we're going to be busy in the near term, as Chris laid out, both with Lecorium and with Breathe Right, integrating those acquisitions, working to grow them. But as we look out into the future fiscal years, we want to have that optionality to go out and continue to acquire brands in what we see as a fragmented consumer health care landscape. So strong financial profile. We're working to rapidly de-lever, and we see a lot of benefits to the priority structure that we have.

Susan Anderson, Analyst — Canaccord

Okay, great. And then maybe just looking at the portfolio, you guys operate, like you mentioned, in a very niche brand. So, you know, the way I see it, usually less susceptible to trade down from private label because the private label brands typically play more in the mass categories. Maybe just talk about kind of what you've seen there from the consumer, if you are seeing any kind of value-seeking behavior or trade-down type of behavior. And then also just inventory at retail, if you've seen any change there. But once again, I think because you guys play in such much smaller categories, you're less susceptible.

Speaker 3

Yeah, that's exactly right. So over time, and we've gone back, folks, we saw it during COVID. at least we were here for COVID. People asked us about the financial crisis. We went back and looked. And in our categories for our brands, we really don't feel consumers shifting to private label. What we have seen is a channel shift, where they're shopping, right? They're shopping where they perceive value to be, which is mass and e-commerce. I'm sure you're not surprised by that, but we've seen that over the past several years has largely, you can see it in our filings, become an e-com. When Phil and I joined the company in fiscal 17, e-com was 1% of sales. We used to think, hey, we're an OTC company. Folks are doing their research, but then they want the immediacy in need of the product. They're going to the store. Then we were 2%. Then we were three. Each year, we gained one, and we were at about five when COVID hit. In three weeks, five went to 10. What's been really interesting is just that it's held, and now it's getting closer to 15% as a percent of sale. So we're investing behind it. We have now, since we've joined the company, it's been 10 years of consistent increased investment in the e-commerce platform. We've brought folks in-house, functions in-house. So continue to see that. Again, so from a private label perspective, there hasn't been any meaningful change in our categories over multiple different kinds of, a lot of things happened in fiscal 26 in terms of macro things that happened to all of us.

Speaker 2

We didn't feel that shift, and we continue to.

Speaker 3

We always say, if the only thing we compete on is price, we're not doing our job. We need to bring innovation, bring new users into the category. We are the category leader in many instances. Why are you not in the category? Let us address it. Why are you only in the category once a year? Let us address it. Sorry, the second part of your question was around?

Susan Anderson, Analyst — Canaccord

So just the de-stocking. Yes, the de-stocking.

Speaker 3

So we don't believe that we have a bunch of inventory out there. We've talked about one e-commerce supplier whose order patterns have been a bit different uh don't have a lot of visibility into that what we do control right is our consumption we see consistent consumption and growing consumption in that channel um so it's been a little lumpy we've talked about it in some quarters in the first quarter a week ago we talked about getting some benefit at the end of the quarter that we think will correct itself in the second quarter but when we look to the first half uh you know we think we'll have uh organic growth at the lower end of our one to three percent that we put out there for the year. And we've always talked about expecting the back half to be a higher growth period for the base business organically, even before acquisition, seasonality of our international business, and then the clear eyes, you know, improve supply that we talked about before.

Susan Anderson, Analyst — Canaccord

Right. And then you mentioned your brand building playbook, which has been, I think, a big driver of your strategy and expanding brands into maybe tangential areas or new use cases. maybe talk about how you use that and you know potentially an example like Dramamine or Hydrolyte.

Speaker 3

So Dramamine is a great example right so using consumer insights why are you not in the category? Back in the day for Dramamine it was well this is making me tired and I'm driving the car or I'm on a cruise I don't want to go to sleep right so we launched less drowsy then we launched non drowsy right we always we always joke and say it's not rocket science but it didn't exist prior to that right so using consumer insights and then in launching innovation to address the issue. A few years ago, we launched Dramamine. Folks were describing their symptoms. You know, I'm nauseous, I don't want to, everything is I don't want to throw up, I'm doing something and I don't feel well. They were describing the same symptoms, but if you told them they had motion sickness, they would say, that's not, you know, that's for my kids in the back of the car. So we launched Dramamine Nausea, went into an adjacent space. It's been really well received. It's been highly incremental. It's brought new folks into the category. We are now the leader in nausea. And it's that kind of thing where, you know, understanding where the consumer will give you permission to play. You know, we bought TheraTears, dry eye relief brand, a few years ago because we tried to go into dry eye with clear eyes. And it was very evident that the consumer was like, no, no, no, clear eyes is for redness relief or, you know, irritation and things like that. So the consumer will tell you where you have permission to play. But again, it's using it's starting with consumer insights. And you know, we always say we're gonna hit a bunch of singles and doubles and address consumer needs right BC and goodies Fast-acting pain relief medicine folks told us that they didn't like the taste of it tasted like medicine Which by the way some people love So we launched flavors and we were able to bring new folks into the category So it's things like that that we show up to do every day and again being a category leader We can focus on growing the category as opposed to swapping share with the next biggest player And that makes us pretty valuable to retailers when we have those discussions.

Susan Anderson, Analyst — Canaccord

And then just looking at the international business, historically, it's been majority Hydrolite, which has been a great brand for you guys, and you've done a really good job driving the growth there. So maybe talk about that brand and, you know, what's next in terms of the growth legs for the brand, and then also just the international business in general.

Speaker 2

So we've, to your point, Susan, we've had a lot of success over a very long time horizon with Hydrolite. and, frankly, our care pharmaceutical banner. So our team is based in an office just outside of Sydney, Australia, and they not only have a strong presence for Hydrolite in Australia, but also with our products throughout sort of Southeast Asia, Middle East, et cetera. And the story with Hydrolite is very similar to what Chris just described with Dramamine. We've taken the brand, we've looked at Consumer Insights and said, Why aren't consumers using the brand or the category, and how do we sort of expand that scope or that TAM over time? And it's gone from, I'll call it 10 years ago, really I have vomiting, I have severe sickness, and I take Hydrolyte for rehydration to an everyday sort of lifestyle product from I went out drinking last night to I'm out working in fields and construction work, and I'm dehydrated in use cases like that that are maybe perhaps more everyday occasions into categories like sports. So by expanding into those adjacencies, we've grown the total pie and the total per capita consumption in Australia, as well as household penetration. So when we started the journey owning Hydrolite, the brand represented low single digits on a household penetration basis. Today, that's 10% or so, and we think there's runway to continue to grow that. On top of that, there's geographic expansion. I mentioned earlier that presence throughout Southeast Asia and the Middle East. We continue to look for opportunities to expand the brand and, frankly, all the brands in that portfolio in Australia into those international markets. So we see that as an opportunity over time as well. So all those factors when we look at our international segment are reasons that give us confidence in the 5% plus organic growth target that we have for that segment over time. and those are some of the examples. Certainly we talked earlier about Lecorium as well. We see that as reinforcing to that algorithm where we see a lot of similarities to the Hydrolyte brand in terms of dermal therapy's ability to potentially expand over time and grow that franchise. So we think there's a lot of opportunity ahead.

Susan Anderson, Analyst — Canaccord

Okay, great. And then maybe if we could talk about the women's health business a little bit.

Speaker 3

You have two brands there. maybe talk about those and the opportunity there and then maybe down the road is there potential opportunity even to expand more in women's health with some acquisitions Monistat and Summer's Eve are two of our largest brands just behind now the newly created Breathe Right brand Monistat has been stabilized, had some periods of decline, we have stabilized the brand grew quite a bit of share near all time high in terms of share for Monistat, the number of yeast incidences has really been declining a bit. And so we have curbed that through innovation by coming out, you know, if you call that cure, we have come out with a bunch of care products, you know, prevention and things And so that has helped the brand again to stabilize and really near an all-time high in terms of category share. Summer's Eve, we've talked about that being kind of a multi-year process to kind of unwind the attempt to de-stigmatize the category, if you will. This is an odor incident-driven category. And a couple of years ago, we launched Ultimate Odor Protection. It was very well received. It's growing very nicely. We're looking to expand that. And through innovation, we'll look to bring on new products that address things exactly trying to touch on what Ultimate Odor Protection was able to do. So we feel good about the path we're headed on. We'll take a little bit But as we work through that, we think fiscal 27 is a year of stabilization for Summer's Eve. So acquisitions were not ever locked to a category. Even when you think about women's health, those two brands, Monistat is vaginal antifungal, and Summer's Eve is feminine hygiene. They really have nothing to do with one another. And so that speaks to the diversity of the portfolio. You see that piece of the pie, and you think women's health. It's even more diversified than that. We certainly are always open. we're not limiting ourselves in terms of M&A to any particular category. We're looking for anything where consumers will view that as a way to take better care of your health. And so we look at a lot of things. There were a number of years there before we announced the Breathe Right and Liquorium transactions. We got the question a lot, and we said, look, we're going to stay disciplined to our criteria. Hopefully, folks see it in the Breathe Right and Liquorium acquisitions. It's just a pure coincidence. They came about two weeks after one another in terms of close. Feel good about that, by the way. We get asked a lot about the integration of those acquisitions. We are largely integrated. We signed the Breathe Right transaction, which was obviously the larger billion-dollar transaction back in May.

Speaker 2

March, excuse me.

Speaker 3

So we had a bit of a runway where we were working with their folks to integrate. And last Monday, we kind of turned down the systems and SAP, and their product is in our warehouse now, our product. We're all shipping together. So very largely done with integration from a bleep right perspective, the larger one. On Le Corium, we gave ourselves, they're currently integrating. We knew that we wanted to de-risk the integration plans with the two acquisitions. So Le Corium, we gave ourselves a little bit more runway. We have some more time where we're being helped by the seller in the transition. Brought on 23 of the folks who are with Le Corium, so that helps in terms of continuity. So feel good about our ability to integrate these by the end of the fiscal year likely. and, like Phil said, now just focus on the growth of the brands.

Susan Anderson, Analyst — Canaccord

And then, so I guess maybe with the last minute left we have here, talk about, you know, what do you think? So you did the two acquisitions. Investors were waiting for the acquisitions. It sounds like you guys have quickly moved to integrate them. So what do you think investors are missing? What's misunderstood about the story for Prestige and the stock?

Speaker 3

Yeah, you know, we tried in May to put out a three-year illustrative P&L to show folks because, and fair point on ClearEyes, I understand it and happy to talk about it, but we were spending 90 to 95 percent of our time answering questions about 3 percent of our business now. So we were trying to have folks step back and see, you know, with these expected acquisitions, we think we have some really nice growth opportunities over the next few years. We have reloaded the prepayable debt, about a billion dollars of prepayable debt. With our cash flow generation, that's going to drive bottom line growth ahead of top line growth. And we think the cash flows and we talked about in the next three years expecting a you know up to nine hundred million dollars of free cash flow That's really powerful and how we can unlock value we think for the shareholders So that's kind of the reminder that we wanted folks to kind of step back and look at the big picture And we think maybe we'll be missing that for a little bit great.

Susan Anderson, Analyst — Canaccord

And then also I guess The growth that the new acquisitions will be driving which is above your your historical.

Speaker 3

Absolutely.

Susan Anderson, Analyst — Canaccord

Yeah Thank you so much. Thank you.

Speaker 3

Thank you everybody