Prestige Brands Holdings, Inc. Reports Record Revenue Increase Of 54% For First Quarter Fiscal 2013

Prestige Brands Holdings, Inc. today announced results for the first fiscal quarter ended June 30, 2012, including record first quarter revenues of $147.0 million, an increase of 54.2% over the prior year comparable period's revenues of $95.3 million. This growth is driven by the Company's core over-the-counter (OTC) healthcare brands, which experienced 4% organic growth, as well as by additional revenue from the Company's acquisition of 17 brands from GlaxoSmithKline (GSK) during the fourth quarter of fiscal 2012.

In addition to financial results reported in accordance with generally accepted accounting principles (GAAP), we have provided certain non-GAAP financial information to aid investors in understanding the company's performance. Each non-GAAP financial measure is defined and reconciled to its most closely related GAAP financial measure in the "About non-GAAP Financial Measures" section at the end of this earnings release.

Reported net income for the first fiscal quarter was $14.7 million, or $0.29 per diluted share, which was even with the prior year period's net income of $14.8 million, or $0.29 per diluted share. On a comparable basis, adjusted earnings per diluted share increased 52.2% to $0.35 for the first quarter of the current fiscal year compared to $0.23 in the prior year's first quarter. The current year period's reported net income included expenses related to a Transition Services Agreement (TSA), integration costs, and other costs totaling $3.3 million net of taxes, or $0.06 per diluted share. The prior year period's reported net income included $2.9 million, or $0.06 per diluted share, of adjustments related to a one-time net gain associated with a legal settlement, partially offset by other one-time costs.

Gross profit for the first fiscal quarter was $83.6 million, an increase of $33.7 million, or 67.7%, over the prior year comparable quarter of $49.9 million. Gross margin was 56.9% in the current quarter. In the prior year comparable quarter, gross margin was 52.3%. The year-over-year improvement of 460 bps in gross margin is primarily a result of a greater proportion of revenue generated from the higher gross margin OTC segment.

Operating income for the first fiscal quarter was $43.8 million, 60.9% higher than the prior year comparable period's results of $27.2 million. The increase includes the impact of the acquired GSK brands. Operating income for the first fiscal quarter of 2013 was impacted by $5.4 million of costs primarily associated with the TSA and integration costs. Adjusted operating income was $49.2 million, an increase of 75.7% over the prior year's first quarter adjusted operating income of $28.0 million, excluding acquisition-related costs in that period of $0.8 million.

Revenues for the OTC healthcare segment were $126.2 million, or 77.2% higher than the prior year's first quarter results of $71.2 million. The revenue increases in the OTC segment were fueled by continued increases in marketing support as well as the impact of the GSK acquisition. Strong sales gains were posted for Clear Eyes®, PediaCare®, Little Remedies® and Dramamine®. Revenues for the Company's nine legacy core OTC products increased approximately 4.0%, representing the eighth consecutive quarter of organic revenue increases for the legacy core OTC brands. The OTC healthcare segment represents approximately 86% of corporate revenues and 96% of brand contribution. Revenues for the Household Cleaning segment, which represents approximately 14% of corporate revenues and 4% of brand contribution, were $20.8 million for the first fiscal quarter, 13.6% lower than the prior year comparable period revenues of $24.1 million. These results reflect changes in the timing of promotional programs as well as the challenging retail environment in the household cleaning products category.

Commentary & Outlook

“The Company's #1 priority in the first quarter was the integration of the 17 acquired brands into our business and organization,” said Matthew M. Mannelly, President and CEO. “We are particularly pleased with our strong financial results during this important transition period. The TSA with GSK was successfully completed at the end of June, and our integration of the brands is on track and proceeding according to plan. Following this transformative acquisition, Prestige Brands is now the largest independent OTC products company in the U.S.”

“Our strong first quarter results in this challenging economic environment reflect both the increased level of marketing support and its effective execution in driving growth of our core OTC brands,” he said. “Our strategic emphasis on OTC continues to enhance our financial profile. In addition, our consistent free cash flow enables us to rapidly deliver. We are pleased with our progress and look forward to realizing the full effect of the GSK acquisition moving forward. I believe this strategy in action places our company in an excellent position to continue to deliver superior value to our stockholders. We remain confident in achieving our previously announced earnings guidance of $1.22-$1.32 per share for the fiscal year.”

Free Cash Flow and Debt Reduction

Free cash flow is a "non-GAAP financial measure" and is presented here because management believes it is a commonly used measure of liquidity, indicative of cash available for debt repayment and acquisitions. Non-GAAP Free Cash Flow is defined and reconciled to GAAP Net Cash Provided by Operating Activities in the section entitled, "About Non-GAAP Financial Measures" below. The Company's free cash flow for the first fiscal quarter ended June 30, 2012 was $13.5 million, a decrease of $1.9 million over the prior year comparable period's free cash flow of $15.4 million. The decrease in free cash flow is primarily due to the expected impact on accounts receivable timing associated with the TSA. The Company continues to expect free cash flow of $110 million for fiscal 2013, in line with what was previously stated.

Total indebtedness at June 30, 2012 was $1,107 million, reflecting recent net debt repayments of $28.0 million. Cash on the balance sheet totaled $4.4 million at June 30, 2012. The Company's bank-defined leverage ratio was approximately 4.75, down from approximately 5.25 at the time of the closing on the acquisition of the GSK brands.

Conference Call and Accompanying Slide Presentation

The Company will host a conference call to review its first quarter results on August 7, 2012 at 8:30 am EDT. The toll-free dial-in numbers are 800-901-5218 within North America and 617-786-4511 outside of North America. The conference pass code is "prestige". The Company will provide a live internet webcast, a slide presentation to accompany the call, as well as an archived replay, all of which can be accessed from the Investor Relations page of http://prestigebrands.com. The slide presentation can be accessed just before the call from the Investor Relations page of the website by clicking on Webcasts and Presentations. Telephonic replays will be available for two weeks following the completion of the call and can be accessed at 888-286-8010 within North America and at 617-801-6888 from outside North America. The pass code is 48717915.

About Prestige Brands Holdings, Inc.

The Company markets and distributes brand name over-the-counter and household cleaning products throughout the U.S., Canada, and certain international markets. Core brands include Chloraseptic® sore throat treatments, Clear Eyes® eye care products, Compound W® wart treatments, The Doctor's® NightGuard® dental protector, the Little Remedies® and PediaCare® lines of pediatric over-the-counter products, Efferdent® denture care products, Luden's® throat drops, Dramamine® motion sickness treatment, BC® and Goody's® pain relievers, Beano® gas prevention, Debrox® earwax remover, and Gaviscon® antacid.

Note Regarding Forward-Looking Statements

This news release contains "forward-looking statements" within the meaning of the federal securities laws that are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. "Forward-looking statements" generally can be identified by the use of forward-looking terminology such as "assumptions," "target," "guidance," "outlook," "plans," "projection," "may," "will," "would," "expect," "intend," "estimate," "anticipate," "believe”, "potential," or "continue" (or the negative or other derivatives of each of these terms) or similar terminology. The "forward-looking statements" include, without limitation, statements regarding the progress of the GSK integration, the growth of our portfolio and sales volume, our intentions regarding development of the brands we acquired from GSK, our outlook and expected financial results, including free cash flow and our plans to deliver superior value to our stockholders. These statements are based on management's estimates and assumptions with respect to future events and financial performance and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results could differ materially from those expected as a result of a variety of factors. A discussion of factors that could cause results to vary is included in the Company's Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission.

Prestige Brands Holdings, Inc.

Consolidated Statements of Income and Comprehensive Income

(Unaudited)
 
Three Months Ended June 30,
(In thousands, except per share data) 2012   2011
Revenues
Net sales $ 145,920 $ 94,307
Other revenues 1,077   988  
Total revenues 146,997 95,295
 
Cost of Sales
Cost of sales (exclusive of depreciation shown below) 63,393   45,427  
Gross profit 83,604

 
49,868
 
Operating Expenses
Advertising and promotion 20,325 10,233
General and administrative 16,151 9,850
Depreciation and amortization 3,295   2,550  
Total operating expenses 39,771   22,633  
Operating income 43,833 27,235
 
Other (income) expense
Interest income (2 ) (2 )
Interest expense 19,850 8,580
Gain on settlement   (5,063 )
Total other expense 19,848   3,515  
Income before income taxes 23,985 23,720
Provision for income taxes 9,330   8,952  
Net income $ 14,655   $ 14,768  
 
Earnings per share:
Basic $ 0.29   $ 0.29  
Diluted $ 0.29   $ 0.29  
 
Weighted average shares outstanding:
Basic 50,342   50,183  
Diluted 51,106   50,646  
 
Comprehensive income, net of tax:
Currency translation adjustments (42 ) (10 )
Total other comprehensive loss (42 ) (10 )
Comprehensive income $ 14,613   $ 14,758  
 

Prestige Brands Holdings, Inc.

Consolidated Balance Sheets

(Unaudited)
 
(In thousands)

Assets
June 30, 2012 March 31, 2012
Current assets
Cash and cash equivalents $ 4,404 $ 19,015
Accounts receivable, net 69,418 60,228
Inventories 53,848 51,113
Deferred income tax assets 5,309 5,283
Prepaid expenses and other current assets 11,390   11,396  
Total current assets 144,369 147,035
 
Property and equipment, net 2,279 1,304
Goodwill 173,928 173,702
Intangible assets, net 1,397,414 1,400,522
Other long-term assets 34,665   35,713  
Total Assets $ 1,752,655   $ 1,758,276  
 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 26,854 $ 26,726
Accrued interest payable 13,853 13,889
Other accrued liabilities 22,483   23,308  
Total current liabilities 63,190   63,923  
 
Long-term debt
Principal amount 1,107,000 1,135,000
Less unamortized discount (10,688 ) (11,092 )
Long-term debt, net of unamortized discount 1,096,312   1,123,908  
 
Deferred income tax liabilities 174,819   167,717  
Total Liabilities 1,334,321   1,355,548  
 
 
Stockholders' Equity
Preferred stock - $0.01 par value
Authorized - 5,000 shares
Issued and outstanding - None
Preferred share rights 283 283
Common stock - $0.01 par value
Authorized - 250,000 shares
Issued - 50,473 shares at June 30, 2012 and 50,466 shares at March 31, 2012 505 505
Additional paid-in capital 392,891 391,898
Treasury stock, at cost - 181 shares at June 30, 2012 and March 31, 2012 (687 ) (687 )
Accumulated other comprehensive loss, net of tax (55 ) (13 )
Retained earnings (accumulated deficit) 25,397   10,742  
Total Stockholders' Equity 418,334   402,728  
Total Liabilities and Stockholders' Equity $ 1,752,655   $ 1,758,276  
 

Prestige Brands Holdings, Inc.

Consolidated Statements of Cash Flows

(Unaudited)
 
Three Months Ended June 30,
(In thousands) 2012   2011
Operating Activities
Net income $ 14,655 $ 14,768
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,295 2,550
Deferred income taxes 7,076 3,186
Amortization of deferred financing costs 1,048 283
Stock-based compensation costs 913 861
Amortization of debt discount 404 229
Loss on disposal of equipment 21
Changes in operating assets and liabilities, net of effects of acquisitions
Accounts receivable (9,214 ) 585
Inventories (2,748 ) (3,966 )
Prepaid expenses and other current assets 6 1,356
Accounts payable 135 2,562
Accrued liabilities (849 ) (6,971 )
Net cash provided by operating activities 14,742   15,443  
 
Investing Activities
Purchases of property and equipment (1,198 ) (76 )
Proceeds from sale of property and equipment 15
Acquisition of brands from GSK purchase price adjustments (226 )  
Net cash used in investing activities (1,409 ) (76 )
 
Financing Activities
Repayments of long-term debt (45,000 ) (23,000 )
Repayments under revolving credit agreement (8,000 )
Borrowings under revolving credit agreement 25,000
Proceeds from exercise of stock options 80 563
Shares surrendered as payment of tax withholding   (271 )
Net cash used in financing activities (27,920 ) (22,708 )
 
Effects of exchange rate changes on cash and cash equivalents (24 ) (2 )
Decrease in cash and cash equivalents (14,611 ) (7,343 )
Cash and cash equivalents - beginning of year 19,015   13,334  
Cash and cash equivalents - end of year $ 4,404   $ 5,991  
 
Interest paid $ 18,391   $ 13,201  
Income taxes paid $ 407   $ 209  
 

Prestige Brands Holdings, Inc.

Consolidated Statements of Income

Business Segments

(Unaudited)
   
Three Months Ended June 30, 2012
OTC

Healthcare
  Household

Cleaning
  Consolidated
(In thousands)
Net sales $ 126,004 $ 19,916 $ 145,920
Other revenues 181   896   1,077
Total revenues 126,185 20,812 146,997
Cost of sales 47,399   15,994   63,393
Gross profit 78,786 4,818 83,604
Advertising and promotion 17,853   2,472   20,325
Contribution margin $ 60,933   $ 2,346   63,279
Other operating expenses 19,446
Operating income 43,833
Other expense 19,848
Income before income taxes 23,985
Provision for income taxes 9,330
Net loss $ 14,655
 
    Three Months Ended June 30, 2011
OTC

Healthcare
  Household

Cleaning
  Consolidated
(In thousands)
Net sales $ 71,003 $ 23,304 $ 94,307
Other revenues 199   789   988
Total revenues 71,202 24,093 95,295
Cost of sales 28,784   16,643   45,427
Gross profit 42,418 7,450 49,868
Advertising and promotion 8,421   1,812   10,233
Contribution margin $ 33,997   $ 5,638   39,635
Other operating expenses 12,400
Operating income 27,235
Other expense 3,515
Income before income taxes 23,720
Provision for income taxes 8,952
Net income $ 14,768
 

About Non-GAAP Financial Measures

We define Non-GAAP EBITDA as earnings before interest expense (income), income taxes, depreciation and amortization, income or loss from discontinued operations or the sale thereof and Non-GAAP Adjusted EBITDA as earnings before interest expense (income), income taxes, depreciation and amortization, income or loss from discontinued operations and the sale thereof, gain on settlement, loss on extinguishment of debt, certain other legal and professional fees and acquisition-related costs. We define Non-GAAP Adjusted Operating Income as Operating Income before certain other legal and professional fees, acquisition and integration-related costs. We define Non-GAAP Adjusted Net Income as Net Income before gain on settlement, loss on extinguishment of debt, certain other legal and professional fees, acquisition and integration-related costs, income or loss from discontinued operations and the sale thereof, the applicable tax impacts associated with these items and the tax impacts of state tax rate adjustments and other non-deductible items. Non-GAAP Adjusted EPS is calculated based on Non-GAAP Adjusted Net Income and the weighted average number of common and potential common shares outstanding during the period. We define Non-GAAP Free Cash Flow as net cash provided by operating activities less cash paid for capital expenditures. Non-GAAP EBITDA, Non-GAAP Adjusted EBITDA, Non-GAAP Adjusted Operating Income, Non-GAAP Adjusted Net Income, Non-GAAP Adjusted EPS and Non-GAAP Free Cash Flow may not be comparable to similarly titled measures reported by other companies.

We are presenting Non-GAAP EBITDA, Non-GAAP Adjusted EBITDA, Non-GAAP Operating Income, Non-GAAP Adjusted Net Income, Non-GAAP Adjusted EPS and Non-GAAP Free Cash Flow because they provide additional ways to view our operations, when considered with both our GAAP results and the reconciliation to net income and net cash provided by operating activities, respectively, which we believe provide a more complete understanding of our business than could be obtained absent this disclosure. Each of Non-GAAP EBITDA, Non-GAAP Adjusted EBITDA, Non-GAAP Adjusted Operating Income, Non-GAAP Adjusted Net Income, Non-GAAP Adjusted EPS and Non-GAAP Free Cash Flow is presented solely as a supplemental disclosure because: (i) we believe it is a useful tool for investors to assess the operating performance of the business without the effect of these items; (ii) we believe that investors will find this data useful in assessing our ability to pursue acquisitions or to service or incur indebtedness; and (iii) we use Non-GAAP EBITDA, Non-GAAP Adjusted EBITDA, Non-GAAP Adjusted Operating Income, Non-GAAP Adjusted Net Income and Non-GAAP Adjusted EPS internally to evaluate the performance of our personnel and also as a benchmark to evaluate our operating performance or compare our performance to that of our competitors. The use of Non-GAAP EBITDA, Non-GAAP Adjusted EBITDA, Non-GAAP Adjusted Operating Income, Non-GAAP Adjusted Net Income, Non-GAAP Adjusted EPS and Non-GAAP Free Cash Flow has limitations and you should not consider these measures in isolation from or as an alternative to GAAP measures such as operating income, net income, and net cash flow provided by operating activities, or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity.

The following tables set forth the reconciliation of Non-GAAP EBITDA, Non-GAAP Adjusted EBITDA, Non-GAAP Adjusted Operating Income, Non-GAAP Adjusted Net Income, Non-GAAP Adjusted EPS and Non-GAAP Free Cash Flow, all of which are non-GAAP financial measures, to GAAP Operating Income, GAAP Net Income, GAAP Diluted EPS and GAAP Net cash provided by operating activities, our most directly comparable financial measures presented in accordance with GAAP.
   

Reconciliation of GAAP Operating Income to Non-GAAP Adjusted Operating Income:
 
Three Months Ended June 30,
2012       2011
(In thousands)
GAAP Operating Income $ 43,833   $ 27,235

Adjustments:
Inventory step-up charge associated with acquisitions 23
Legal and professional fees associated with acquisitions 59 775
Unsolicited proposal costs 534
Transition and integration costs associated with GSK 4,127
Additional promotional and product testing costs associated with GSK 631  
Total adjustments 5,374   775
Non-GAAP Adjusted Operating Income $ 49,207   $ 28,010
 

Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA:
   
Three Months Ended June 30,
2012       2011
(In thousands)
GAAP Net Income $ 14,655 $ 14,768
Interest expense, net 19,848 8,578
Income tax provision 9,330 8,952
Depreciation and amortization 3,295   2,550  
Non-GAAP EBITDA: 47,128   34,848  

Adjustments:
Gain on settlement (5,063 )
Inventory step-up charge associated with acquisitions 23
Legal and professional fees associated with acquisitions 59 775
Unsolicited proposal costs 534
Transition and integration costs associated with GSK 4,127
Additional promotional and product testing costs associated with GSK 631    
Total adjustments 5,374   (4,288 )
Non-GAAP Adjusted EBITDA $ 52,502   $ 30,560  
 

Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income and related Adjusted Earnings Per Share:
 
Three Months Ended June 30,
2012

2012

Adjusted

EPS
  2011

2011

Adjusted

EPS
(In thousands)
GAAP Net Income $ 14,655   $ 0.29   $ 14,768   $ 0.29  

Adjustments:
Gain on settlement (5,063 ) (0.10 )
Inventory step-up charge associated with acquisitions 23
Legal and professional fees associated with acquisitions 59 775 0.02
Unsolicited proposal costs 534 0.01
Transition and integration costs associated with GSK 4,127 0.08
Additional promotional and product testing costs associated with GSK 631 0.01
Tax impact of adjustments (2,107 ) (0.04 ) 1,617 0.03
Tax impact of state rate adjustments and other non-deductible items     (237 ) (0.01 )
Total adjustments 3,267   0.06   (2,908 ) (0.06 )
Non-GAAP Adjusted Net Income and Adjusted EPS $ 17,922   $ 0.35   $ 11,860   $ 0.23  
 

Reconciliation of GAAP Net Cash Provided by Operating Activities to Non-GAAP Free Cash Flow:
   
Three Months Ended June 30,
2012       2011
(In thousands)  
GAAP Net cash provided by operating activities $ 14,742 $ 15,443
Additions to property and equipment for cash (1,198 ) (76 )
Non-GAAP Free Cash Flow $ 13,544   $ 15,367  

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