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News Release

Prestige Brands Holdings, Inc. Reports Fiscal 2017 Fourth Quarter and Full Year Results; Provides Fiscal 2018 Outlook
  • Reported revenue increased 15.8% to $240.7 million and 9.4% to $882.1 million in Q4 and fiscal 2017, respectively.
  • Generated $147.8 million in fiscal 2017 GAAP net cash provided by operating activities and adjusted non-GAAP free cash flow of $196.0 million.
  • Anticipate 18% to 20% revenue growth in fiscal 2018.
  • Fiscal 2018 GAAP EPS guidance of $2.50 to $2.60; Non-GAAP Adjusted EPS outlook of $2.58 to 2.68.
  • C.B. Fleet acquisition successfully closed January 26th; integration and cost savings efforts tracking as anticipated.

TARRYTOWN, N.Y.--(BUSINESS WIRE)--May 11, 2017-- Prestige Brands Holdings, Inc. (NYSE:PBH) today reported financial results for its fourth quarter and fiscal year ended March 31, 2017.

“Our solid overall fourth quarter performance was broad-based, benefiting from our diverse product offering, ongoing brand-building investments, and the strategic evolution of our portfolio throughout the fiscal year. Equally important, we closed the acquisition of C.B. Fleet in late January and are on schedule with integrating this well-positioned portfolio of brands into our existing business. This strong momentum positions our business well as we enter into fiscal 2018,” said Ron Lombardi, Chief Executive Officer of Prestige Brands.

Fiscal Fourth Quarter Ended March 31, 2017

Reported revenues in the fourth quarter of fiscal 2017 increased 15.8% to $240.7 million, compared to $207.9 million in the fourth quarter of fiscal 2016. Revenues for the quarter were driven by continued strong consumption levels across the Company’s core over-the-counter healthcare (OTC) and international brands, and incremental revenue from the DenTek® and C.B. Fleet (Fleet) acquisitions, partially offset by the divestitures of multiple non-core brands made earlier in the fiscal year. The Fleet transaction, which closed January 26th, contributed $38.7 million in revenues to fourth quarter performance. Excluding the impact of these acquisitions and divestitures, fourth quarter fiscal 2017 non-GAAP organic revenue growth increased 1.1% versus the prior year comparable quarter.

Reported net income for the fourth quarter of fiscal 2017 totaled $11.1 million, a decrease of 20.4% over the prior year comparable quarter’s net income of $13.9 million. Diluted earnings per share of $0.21 for the fourth quarter of fiscal 2017 compared to $0.26 in the prior year comparable period. Non-GAAP adjusted net income for the fourth quarter of fiscal 2017 was $28.8 million, an increase of 3.2% over the prior year period’s adjusted net income of $27.9 million. Non-GAAP adjusted earnings per share were $0.54 per share for the fourth quarter of fiscal 2017, compared to $0.52 per share in the prior year comparable period.

Adjustments to net income in the fourth quarter of fiscal 2017 and fiscal 2016 include integration, transition, purchase accounting, legal and various other costs associated with acquisitions and divestitures, loss on extinguishment of debt, and the related income tax effects of the adjustments.

Fiscal Year Ended March 31, 2017

Reported revenues for the fiscal year ended March 31, 2017 totaled $882.1 million, an increase of 9.4%, compared to revenues of $806.2 million for the fiscal year ended March 31, 2016. After adjusting for acquisitions and divestitures, organic revenues (a non-GAAP measure) for the fiscal year ended March 31, 2017 increased 1.0%.

Reported net income for fiscal year 2017 totaled $69.4 million, or $1.30 in earnings per diluted share, compared to $99.9 million, or $1.88 per diluted share, for fiscal year 2016. On a non-GAAP basis, adjusted net income for fiscal year 2017 totaled $126.6 million, or $2.37 per diluted share, an increase of 9.6% compared to adjusted net income of $115.5 million, or $2.17 per diluted share, for fiscal 2016.

Adjustments to net income in fiscal 2017 include integration, transition, purchase accounting, legal and various other costs associated with acquisitions and divestitures, a loss on extinguishment of debt, a net loss related to the divestiture of certain non-core brands and the related income tax effects of the adjustments. Adjustments to net income in the fiscal year 2016 included integration, transition, purchase accounting, legal and various other costs associated with acquisitions and divestitures, as well as costs associated with CEO transition.

Free Cash Flow and Balance Sheet

The Company's GAAP reported net cash provided by operating activities for the fourth fiscal quarter decreased to $7.4 million from $37.9 million a year earlier, owing primarily to various expenses related to the Fleet acquisition as well as income tax payments resulting from divestitures. Non-GAAP adjusted free cash flow for the fourth fiscal quarter was $46.8 million, down from $48.7 million in the prior year comparable quarter.

For the full-year fiscal 2017, GAAP net cash provided by operating activities was $147.8 million compared to $174.4 million in the prior year comparable period, while non-GAAP adjusted free cash flow of $196.0 increased versus $183.4 million in the prior year's period.

As expected, the Company's net debt position as of March 31, 2017 was approximately $2.2 billion, which increased versus the prior year driven by the acquisition of Fleet. At the end of fiscal 2017, the Company's covenant-defined leverage ratio was approximately 5.7x, supported by the Company’s consistent and industry-leading free cash flow. The company expects to reach an approximate 5.0x covenant-defined leverage ratio by the end of fiscal 2018.

Segment Review

North American OTC Healthcare: Segment revenues totaled $199.0 million for the fourth quarter of fiscal 2017, 16.4% higher than the prior year comparable quarter's revenues of $171.0 million. For fiscal 2017, reported revenues for the North American OTC Healthcare segment were $720.8 million, an increase of 9.6% compared to $657.9 million in the prior year comparable period. Results for both fiscal 2017 periods were favorably impacted by increased consumption among the majority of core OTC brands as well as revenues from the acquisitions of DenTek and Fleet, partially offset by divestitures of non-core OTC brands.

International OTC Healthcare: Segment fiscal Q4 2017 revenues totaled $20.2 million, 40.0% higher than the $14.5 million reported in the prior year comparable period. For the fiscal year 2017, reported revenues for the International OTC Healthcare segment were $73.3 million, an increase of 27.0% over the prior year comparable period’s revenues of $57.7 million. Fourth quarter and full-year revenues included an incremental benefit associated with revenues from DenTek and Fleet transactions.

Household Cleaning: Segment revenues totaled $21.4 million for the fourth quarter of fiscal 2017, compared with fourth quarter fiscal 2016 revenues of $22.4 million, a decrease of 4.3%. Reported revenues for fiscal year 2017 totaled $87.9 million, a 3.0% decrease over fiscal year 2016 revenues of $90.7 million.

Commentary and Outlook for Fiscal 2018

Ron Lombardi, President and CEO, stated, “In fiscal 2018, we expect continued organic growth in our existing business and incremental revenues from the acquisition of Fleet to drive growth. Embedded in our fiscal year 2018 revenue growth assumption is a pro-forma organic growth rate of 2.0% to 2.5%. We expect fiscal 2018 adjusted earnings per share in the range of $2.58 to $2.68, and adjusted non-GAAP projected free cash flow of $205 million or more. As has been our practice, we plan to continue using our industry-leading free cash flow to pay down debt and build M&A capacity,” he stated.

“Our fiscal 2018 organic growth forecast reflects our strong, diversified portfolio and brand-building efforts, which position us well in the current challenging consumer and retail environment. We look forward to fiscal 2018 and the prospects surrounding both our legacy portfolio and the recent acquisition of Fleet,” Mr. Lombardi concluded.

   

 

Fiscal 2018 Full-Year Outlook

Revenue Growth 18% to 20%
Adjusted E.P.S.* $2.58 to $2.68
Adjusted Free Cash Flow* $205 million or more
 

Board of Directors Chairman Appointment

The Company’s Board of Directors elected Ron Lombardi as Chairman of the Board. Gary E. Costley will remain the Company’s Lead Independent Director.

“Prestige Brands has achieved many operational and financial goals during Ron Lombardi’s tenure as CEO and I am pleased to announce the Board of Directors have elected Ron Chairman of the Board," stated Gary E. Costley. "Ron is a decisive and energetic leader who is well prepared to become Chairman of our Board. He has successfully guided Prestige to record results, is respected inside and outside the Company, consistently builds exceptional teams, and sets high standards of performance throughout our organization. The Board is confident he will provide outstanding leadership as Chairman, President and CEO in the coming years."

Q4 and Fiscal Year Conference Call, Accompanying Slide Presentation and Replay

The Company will host a conference call to review its fourth quarter and full year results on May 11, 2017 at 8:30 a.m. ET. The toll-free dial-in numbers are 877-233-9440 within North America and 574-990-1016 outside of North America. The conference ID number is 6720925. 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 the Company's website at www.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 855-859-2056 within North America and at 404-537-3406 from outside North America. The conference ID is 6720925.

Non-GAAP Financial Information

In addition to financial results reported in accordance with generally accepted accounting principles (GAAP), we have provided certain non-GAAP financial information in this release 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.

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," “strategy,” "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 Company's expectations regarding future operating results including revenues, adjusted earnings per share and adjusted free cash flow, the Company’s ability to meet organic growth targets, the Company’s use of free cash flow to pay down debt and build M&A capacity, and the success of the Company’s acquisition of Fleet and its brand building efforts. 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, including the impact of the Company’s advertising and promotional and new product development initiatives, customer inventory management initiatives, the failure to successfully integrate the Fleet brands, general economic and business conditions, fluctuating foreign exchange rates, consumer trends, competitive pressures, and the ability of the Company’s third party manufacturers and suppliers to meet demand for its products. A discussion of other factors that could cause results to vary is included in the Company's Annual Report on Form 10-K for the year ended March 31, 2016, Quarterly Report on Form 10-Q for the quarter ended December 31, 2016, and other periodic reports filed with the Securities and Exchange Commission.

About Prestige Brands Holdings, Inc.

The Company markets and distributes brand name over-the-counter and household cleaning products throughout the U.S. and Canada, Australia, and in certain other international markets. The Company's brands include Monistat® and Summer’s Eve® women's health products, BC® and Goody's® pain relievers, Clear Eyes® eye care products, DenTek® specialty oral care products, Dramamine® motion sickness treatments, Chloraseptic® sore throat treatments, Compound W® wart treatments, Little Remedies® pediatric over-the-counter products, The Doctor's® NightGuard® dental protector, Efferdent® denture care products, Luden's® throat drops, Beano® gas prevention, Debrox® earwax remover, Gaviscon® antacid in Canada, and Hydralyte® rehydration products and the Fess® line of nasal and sinus care products in Australia. Visit the Company's website at www.prestigebrands.com.

* See the “About Non-GAAP Financial Measures” section of this report for further presentation information. Beginning April 1, 2017, organic revenue growth definition includes pro forma sales associated with the Fleet transaction as if the combination occurred April 1, 2016.

       

Prestige Brands Holdings, Inc.

Consolidated Statement of Income and Comprehensive Income

(Unaudited)

 
Three Months Ended March 31,

Year Ended

March 31,

(In thousands, except per share data)

2017   2016 2017   2016
Revenues
Net sales $ 240,594 $ 207,054 $ 881,113 $ 803,088
Other revenues 76   801   947   3,159  
Total revenues 240,670 207,855 882,060 806,247
Cost of Sales
Cost of sales 110,487   89,604   381,774   339,036  
Gross profit 130,183   118,251   500,286   467,211  
Operating Expenses
Advertising and promotion 41,450 26,552 128,359 110,802
General and administrative 28,760 20,232 89,143 72,418
Depreciation and amortization 6,651 6,198 25,351 23,676
Loss on divestitures 268     51,820    
Total operating expenses 77,129   52,982   294,673   206,896  
Operating income 53,054   65,269   205,613   260,315  
Other (income) expense
Interest income (54 ) (71 ) (203 ) (162 )
Interest expense 32,886 23,218 93,546 85,322
Loss on extinguishment of debt 1,420   17,519   1,420   17,970  
Total other expense 34,252   40,666   94,763   103,130  
Income before income taxes 18,802 24,603 110,850 157,185
Provision for income taxes 7,712   10,667   41,455   57,278  
Net income $ 11,090   $ 13,936   $ 69,395   $ 99,907  
Earnings per share:
Basic $ 0.21   $ 0.26   $ 1.31   $ 1.89  
Diluted $ 0.21   $ 0.26   $ 1.30   $ 1.88  
Weighted average shares outstanding:
Basic 53,009   52,833   52,976   52,754  
Diluted 53,419   53,252   53,362   53,143  
 
Comprehensive income, net of tax:
Currency translation adjustments 9,282 6,449 (2,575 ) (113 )
Pension liability (252 )   (252 )  
Total other comprehensive income (loss) 9,030   6,449   (2,827 ) (113 )
Comprehensive income $ 20,120   $ 20,385   $ 66,568   $ 99,794  
 
   

Prestige Brands Holdings, Inc.

Consolidated Balance Sheet

(Unaudited)

 

(In thousands)

March 31,
Assets 2017   2016
Current assets
Cash and cash equivalents $ 41,855 $ 27,230
Accounts receivable, net 136,742 95,247
Inventories 115,609 91,263
Deferred income tax assets 10,108
Prepaid expenses and other current assets 40,228   25,165  
Total current assets 334,434 249,013
 
Property, plant and equipment, net 50,595 15,540
Goodwill 615,252 360,191
Intangible assets, net 2,903,613 2,322,723
Other long-term assets 7,454   1,324  
Total Assets $ 3,911,348   $ 2,948,791  
 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 70,218 $ 38,296
Accrued interest payable 8,130 8,664
Other accrued liabilities 83,661   59,724  
Total current liabilities 162,009   106,684  
Long-term debt
Principal amount 2,222,000 1,652,500
Less unamortized debt costs (28,268 ) (27,191 )
Long-term debt, net 2,193,732   1,625,309  
 
Deferred income tax liabilities 715,086 469,622
Other long-term liabilities 17,972   2,840  
Total Liabilities 3,088,799   2,204,455  
 
Stockholders' Equity
Preferred stock - $0.01 par value
Authorized - 5,000 shares
Issued and outstanding - None
Common stock - $0.01 par value
Authorized - 250,000 shares
Issued – 53,287 shares at March 31, 2017 and 53,066 shares at March 31, 2016 533 530
Additional paid-in capital 458,255 445,182
Treasury stock, at cost – 332 shares at March 31, 2017 and 306 at March 31, 2016 (6,594 ) (5,163 )
Accumulated other comprehensive loss, net of tax (26,352 ) (23,525 )
Retained earnings 396,707   327,312  
Total Stockholders' Equity 822,549   744,336  
 
Total Liabilities and Stockholders' Equity $ 3,911,348   $ 2,948,791  
 
   

Prestige Brands Holdings, Inc.

Consolidated Statement of Cash Flows

(Unaudited)

 
Year Ended March 31,

(In thousands)

2017   2016
Operating Activities
Net income $ 69,395 $ 99,907
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 25,792 23,676
Loss on divestitures and sales of property and equipment 51,820
Deferred income taxes (5,778 ) 46,152
Long term income taxes payable 581 (332 )
Amortization of debt origination costs 8,633 8,994
Stock-based compensation costs 8,148 9,954
Loss on extinguishment of debt 1,420 17,970
Premium payment on 2012 Senior Notes (10,158 )
Lease termination costs 524
Loss (gain) on sale or disposal of property and equipment 573 (35 )
Changes in operating assets and liabilities, net of effects from acquisitions
Accounts receivable (18,938 ) 1,824
Inventories (10,262 ) (3,005 )
Prepaid expenses and other assets (1,996 ) (7,921 )
Accounts payable 21,447 (11,348 )
Accrued liabilities 2,497 (1,328 )
Noncurrent assets and liabilities (6,084 )  
Net cash provided by operating activities 147,772   174,350  
 
Investing Activities
Purchases of property and equipment (2,977 ) (3,568 )
Proceeds from divestitures 110,717
Proceeds from the sale of property and equipment 85 344
Proceeds from Insight Pharmaceuticals working capital arbitration settlement 7,237
Proceeds from DenTek working capital arbitration settlement 1,419
Acquisition of DenTek, less cash acquired (226,984 )
Acquisition of C.B. Fleet, less cash acquired (803,839 )  
Net cash used in investing activities (694,595 ) (222,971 )
 
Financing Activities
Proceeds from issuance of 2016 Senior Notes 350,000
Repayment of 2012 Senior Notes (250,000 )
Borrowings under Bridge term loans 80,000
Repayments under Bridge term loans (80,000 )
Proceeds from issuance of Term Loan 1,427,000
Term Loan repayments resulting from refinancing (687,000 )
Term Loan repayments (175,500 ) (60,000 )
Borrowings under revolving credit agreement 110,000 115,000
Repayments under revolving credit agreement (105,000 ) (96,100 )
Payments of debt origination costs (11,140 ) (11,828 )
Proceeds from exercise of stock options 4,028 6,689
Proceeds from restricted stock exercises 544
Excess tax benefits from share-based awards 900 1,960
Fair value of shares surrendered as payment of tax withholding (1,431 ) (2,229 )
Net cash provided by financing activities 561,857   54,036  
Effects of exchange rate changes on cash and cash equivalents (409 ) 497
Increase in cash and cash equivalents 14,625 5,912
Cash and cash equivalents - beginning of year 27,230   21,318  
Cash and cash equivalents - end of year $ 41,855   $ 27,230  
 
Interest paid $ 85,209   $ 79,132  
Income taxes paid $ 47,999   $ 15,352  
 
   

Prestige Brands Holdings, Inc.

Consolidated Statement of Income

Business Segments

(Unaudited)

 
Three Months Ended March 31, 2017

(In thousands)

North American
OTC Healthcare

 

International
OTC Healthcare

  Household

Cleaning

  Consolidated
Gross segment revenues $ 201,003 $ 20,226 $ 21,377 $ 242,606
Elimination of intersegment revenues (2,012 )     (2,012 )
Third-party segment revenues 198,991 20,226 21,377 240,594
Other revenues 33   11   32   76  
Total segment revenues 199,024 20,237 21,409 240,670
Cost of sales 84,736   9,067   16,684   110,487  
Gross profit 114,288 11,170 4,725 130,183
Advertising and promotion 35,814   4,564   1,072   41,450  
Contribution margin $ 78,474   $ 6,606   $ 3,653   $ 88,733
Other operating expenses 35,679  
Operating income 53,054
Other expense 34,252  
Income before income taxes 18,802
Provision for income taxes 7,712  
Net income $ 11,090  
 
   
Year Ended March 31, 2017

(In thousands)

North American
OTC Healthcare

 

International
OTC Healthcare

  Household
Cleaning
  Consolidated
Gross segment revenues $ 724,991 $ 73,287 $ 87,035 $ 885,313
Elimination of intersegment revenues (4,200 )     (4,200 )
Third-party segment revenues 720,791 73,287 87,035 881,113
Other revenues 33   17   897   947  
Total segment revenues 720,824 73,304 87,932 882,060
Cost of sales 282,750   30,789   68,235   381,774  
Gross profit 438,074 42,515 19,697 500,286
Advertising and promotion 112,465   13,434   2,460   128,359  
Contribution margin $ 325,609   $ 29,081   $ 17,237   $ 371,927
Other operating expenses* 166,314  
Operating income 205,613
Other expense 94,763  
Income before income taxes 110,850
Provision for income taxes 41,455  
Net income $ 69,395  
 

*Other operating expenses for the twelve months ended March 31, 2017 includes a pre-tax net loss of $51.8 million related to divestitures. These divestitures include Pediacare, New Skin, Fiber Choice, e.p.t, Dermoplast, and license rights in certain geographic areas pertaining to Comet. The assets and corresponding contribution margin associated with the pre-tax net loss on divestitures related to Pediacare, New Skin, Fiber Choice, e.p.t and Dermoplast are included within the North American OTC Healthcare segment, while the pre-tax gain on sale of license rights related to Comet are included in the Household Cleaning segment.

   
Three Months Ended March 31, 2016

(In thousands)

North American
OTC Healthcare

 

International
OTC Healthcare

  Household

Cleaning

  Consolidated
Gross segment revenues $ 171,253 $ 14,457 $ 21,577 $ 207,287
Elimination of intersegment revenues (233 )     (233 )
Third-party segment revenues 171,020 14,457 21,577 207,054
Other revenues (1 ) 3   799   801  
Total segment revenues 171,019 14,460 22,376 207,855
Cost of sales 67,739   5,329   16,536   89,604  
Gross profit 103,280 9,131 5,840 118,251
Advertising and promotion 23,286   2,776   490   26,552  
Contribution margin $ 79,994   $ 6,355   $ 5,350   $ 91,699
Other operating expenses 26,430  
Operating income 65,269
Other expense 40,666  
Income before income taxes 24,603
Provision for income taxes 10,667  
Net income $ 13,936  
 
   
Year Ended March 31, 2016

(In thousands)

North American
OTC Healthcare

 

International
OTC Healthcare

 

Household Cleaning

  Consolidated
Gross segment revenues $ 660,518 $ 57,670 $ 87,561 $ 805,749
Elimination of intersegment revenues (2,661 )     (2,661 )
Third-party segment revenues 657,857 57,670 87,561 803,088
Other revenues 14   43   3,102   3,159  
Total segment revenues 657,871 57,713 90,663 806,247
Cost of sales 250,018   21,676   67,342   339,036  
Gross profit 407,853 36,037 23,321 467,211
Advertising and promotion 97,393   11,114   2,295   110,802  
Contribution margin $ 310,460   $ 24,923   $ 21,026   $ 356,409
Other operating expenses 96,094  
Operating income 260,315
Other expense 103,130  
Income before income taxes 157,185
Provision for income taxes 57,278  
Net income $ 99,907  
 

About Non-GAAP Financial Measures

We have pursued various strategic initiatives and completed a number of acquisitions in recent years that have resulted in revenues that would not have otherwise been recognized. The frequency and the amount of such revenues vary significantly based on the size, timing and complexity of the transaction. In addition to financial results reported in accordance with GAAP, we disclose certain Non-GAAP financial measures ("NGFMs"), including, but not limited to, Non-GAAP Organic Revenues, Non-GAAP Adjusted Gross Margin, Non-GAAP Adjusted Gross Margin Percentage, Non-GAAP Adjusted Advertising and Promotion Expense, Non-GAAP Adjusted Advertising and Promotion Expense Percentage Non-GAAP Adjusted General and Administrative Expense, Non-GAAP Adjusted General and Administrative Expense Percentage, Non-GAAP EBITDA, Non-GAAP Adjusted EBITDA, Non-GAAP Adjusted EBITDA Margin, Non-GAAP Adjusted Net Income, Non-GAAP Adjusted EPS, Non-GAAP Free Cash Flow, and Non-GAAP Adjusted Free Cash Flow. We use these NGFMs internally, along with GAAP information, in evaluating our operating performance and in making financial and operational decisions. We believe that the presentation of these NGFMs provides investors with greater transparency, and provides a more complete understanding of our business than could be obtained absent these disclosures, because the supplemental data relating to our financial condition and results of operations provides additional ways to view our operation when considered with both our GAAP results and the reconciliations below. In addition, we believe that the presentation of each of these NGFMs is useful to investors for period-to-period comparisons of results in assessing shareholder value, and we use these NGFMs internally to evaluate the performance of our personnel and also to evaluate our operating performance and compare our performance to that of our competitors.

These NGFMs are not in accordance with GAAP, should not be considered as a measure of profitability or liquidity, and may not be directly comparable to similarly titled NGFMs reported by other companies. These NGFMs have limitations and they should not be considered in isolation from or as an alternative to their most closely related GAAP measures reconciled below. Investors should not rely on any single financial measure when evaluating our business. We recommend investors review the GAAP financial measures included in this earnings release. When viewed in conjunction with our GAAP results and the reconciliations below, we believe these NGFMs provide greater transparency and a more complete understanding of factors affecting our business than GAAP measures alone.

NGFMs Defined

We define our NGFMs presented herein as follows:

  • Non-GAAP Organic Revenues: GAAP Total Revenues excluding revenues associated with products acquired or divested in the periods presented.
  • Non-GAAP Adjusted Gross Margin: GAAP Gross Profit minus inventory set-up charges and certain integration, transition and other acquisition related costs.
  • Non-GAAP Adjusted Gross Margin Percentage: Calculated as Non-GAAP Adjusted Gross Margin divided by GAAP Total Revenues.
  • Non-GAAP Adjusted Advertising and Promotion Expense: GAAP Advertising and Promotion expenses minus certain integration, transition and other acquisition related costs.
  • Non-GAAP Adjusted Advertising and Promotion Expense Percentage: Calculated as Non-GAAP Adjusted Advertising and Promotion expense divided by GAAP Total Revenues.
  • Non-GAAP Adjusted General and Administrative Expense: GAAP General and Administrative expenses minus certain other legal and professional fees, integration, transition and other acquisition related costs, divestiture costs, and costs associated with our CEO transition.
  • Non-GAAP Adjusted General and Administrative Expense Percentage: Calculated as Non-GAAP Adjusted General and Administrative expense divided by GAAP Total Revenues.
  • Non-GAAP EBITDA: GAAP Net Income less interest expense (income), income taxes, and depreciation and amortization.
  • Non-GAAP EBITDA Margin: Calculated as Non-GAAP EBITDA divided by GAAP Total Revenues.
  • Non-GAAP Adjusted EBITDA: Non-GAAP EBITDA less inventory set-up charges, certain other legal and professional fees, integration, transition and other acquisition related costs, divestiture costs, costs associated with our CEO transition, loss on extinguishment of debt, and gain/loss on divestitures.
  • Non-GAAP Adjusted EBITDA Margin: Calculated as Non-GAAP Adjusted EBITDA divided by GAAP Total Revenues.
  • Non-GAAP Adjusted Net Income: GAAP Net Income before certain other legal and professional fees, integration, transition and other acquisition related costs, divestiture costs, costs associated with our CEO transition, accelerated amortization of debt origination costs due to sale of assets, additional interest expense on debt refinancing, loss on extinguishment of debt, gain/loss on divestitures, applicable tax impacts associated with these items, income tax related to adjustments and other non-deductible items.
  • Non-GAAP Adjusted EPS: Calculated as Non-GAAP Adjusted Net Income, divided by the weighted average number of common and potential common shares outstanding during the period.
  • Non-GAAP Free Cash Flow: GAAP Net cash provided by operating activities less cash paid for capital expenditures.
  • Non-GAAP Adjusted Free Cash Flow: Non-GAAP Free Cash Flow plus cash payments made for integration, transition, and other costs associated with acquisitions and divestitures, premium payment on extinguishment of Senior Notes, additional interest expense on debt refinancing, pension obligation funding and additional income tax payments associated with divestitures.

The following tables set forth the reconciliations of each of our NGFMs to their most directly comparable financial measures presented in accordance with GAAP.

Reconciliation of GAAP Total Revenues to Non-GAAP Organic Revenues and related growth percentages:

       
Three Months Ended March 31, Year Ended

March 31,

2017   2016 2017   2016
(In thousands)
GAAP Total Revenues $ 240,670   $ 207,855   $ 882,060   $ 806,247  
Revenue Growth 15.8 % 9.4 %

Adjustments:

Revenues associated with acquisitions (1) (43,125 ) (94,293 )
Revenues associated with divested brands (2)   (12,460 )   (26,002 )
Total adjustments (43,125 ) (12,460 ) (94,293 ) (26,002 )
Non-GAAP Organic Revenues $ 197,545   $ 195,395   $ 787,767   $ 780,245  
Organic Revenue Growth 1.1 % 1.0 %
 

(1) Revenues of our acquisitions, Fleet and DenTek, are excluded for purposes of calculating Non-GAAP organic revenues. These revenue adjustments relate to our North American and International OTC Healthcare segments.
(2) Revenues of our divested brands have been excluded from the current year and the prior year for purposes of calculating Non-GAAP organic revenues. These revenue adjustments relate to our North American OTC Healthcare segment and our Household Cleaning segment.

Reconciliation of GAAP Gross Profit to Non-GAAP Adjusted Gross Margin and related Adjusted Gross Margin percentage:

       
Three Months Ended March 31, Year Ended
March 31,
2017   2016 2017   2016

(In thousands)

GAAP Total Revenues $ 240,670   $ 207,855   $ 882,060   $ 806,247  
 
GAAP Gross Profit $ 130,183   $ 118,251   $ 500,286   $ 467,211  

Adjustments:

Inventory step-up charges and other costs associated with acquisitions (1) 1,664 1,387 1,664 1,387
Integration, transition and other costs associated with acquisitions 1,367     1,367    
Total adjustments 3,031   1,387   3,031   1,387  
Non-GAAP Adjusted Gross Margin $ 133,214   $ 119,638   $ 503,317   $ 468,598  
Non-GAAP Adjusted Gross Margin % 55.4 % 57.6 % 57.1 % 58.1 %
 

(1) Inventory step-up charges relate to our North American and International OTC Healthcare segments.

Reconciliation of GAAP Advertising and Promotion Expense and related GAAP Advertising and Promotion Expense percentage to Non-GAAP Adjusted Advertising and Promotion Expense and related Non-GAAP Adjusted Advertising and Promotion Expense percentage:

       
Three Months Ended March 31,

Year Ended March 31,

2017   2016 2017   2016
(In thousands)
GAAP Advertising and Promotion Expense $ 41,450   $ 26,552   $ 128,359   $ 110,802  
GAAP Advertising and Promotion Expense as a Percentage of GAAP Total Revenue 17.2 % 12.8 % 14.6 % 13.7 %
Adjustments:
Integration, transition and other costs associated with acquisitions (1) 2,242     2,242    
Total adjustments 2,242     2,242    
Non-GAAP Adjusted Advertising and Promotion Expense $ 39,208   $ 26,552   $ 126,117   $ 110,802  
Non-GAAP Adjusted Advertising and Promotion Expense as a Percentage of GAAP Total Revenues 16.3 % 12.8 % 14.3 % 13.7 %
 

(1) Acquisition related items represent costs related to integrating the advertising agencies of the recently acquired businesses.

Reconciliation of GAAP General and Administrative Expense and related GAAP General and Administrative Expense percentage to Non-GAAP Adjusted General and Administrative Expense and related Non-GAAP Adjusted General and Administrative Expense percentage:

       
Three Months Ended March 31, Year Ended
March 31,
2017   2016 2017   2016
(In thousands)
GAAP General and Administrative Expense $ 28,760   $ 20,232   $ 89,143   $ 72,418  
GAAP General and Administrative Expense as a Percentage of GAAP Total Revenue 11.9 % 9.7 % 10.1 % 9.0 %
Adjustments:
Costs associated with CEO transition (1) 1,406
Legal and professional fees associated with acquisitions and divestitures (2) 3,431 1,096 6,560 2,112
Integration, transition and other costs associated with acquisitions and divestitures (2) 5,756   289   9,455   289  
Total adjustments 9,187   1,385   16,015   3,807  
Non-GAAP Adjusted General and Administrative Expense $ 19,573   $ 18,847   $ 73,128   $ 68,611  
Non-GAAP Adjusted General and Administrative Expense as a Percentage of GAAP Total Revenues 8.1 % 9.1 % 8.3 % 8.5 %
 

(1) Costs relate to search fees associated with CEO and CFO transition and certain accelerated stock compensation costs related to our former CEO.
(2) Acquisition related items represent costs related to integrating recently acquired businesses, including (but not limited to) costs to exit or convert contractual obligations, severance, information system conversion and consulting costs, and certain costs related to the consummation of the acquisition process such as insurance costs, legal and other acquisition related professional fees.

Reconciliation of GAAP Net Income to Non-GAAP EBITDA and related Non-GAAP EBITDA Margin, Non-GAAP Adjusted EBITDA and related Non-GAAP Adjusted EBITDA Margin:

       
Three Months Ended March 31,

Year Ended March 31,

2017   2016 2017   2016

(In thousands)

GAAP Net Income $ 11,090 $ 13,936 $ 69,395 $ 99,907
Interest expense, net 32,832 23,147 93,343 85,160
Provision for income taxes 7,712 10,667 41,455 57,278
Depreciation and amortization 7,092   6,198   25,792   23,676  
Non-GAAP EBITDA 58,726   53,948   229,985   266,021  

Non-GAAP EBITDA Margin

24.4 % 26.0 % 26.1 % 33.0 %

Adjustments:

Inventory step-up charges and other costs associated with acquisitions(1) 1,664 1,387 1,664 1,387
Integration, transition and other costs associated with acquisitions and divestitures in Cost of Goods Sold (3) 1,367 1,367
Integration, transition and other costs associated with acquisitions and divestitures in Advertising and Promotion Expense(3) 2,242 2,242
Integration, transition and other costs associated with acquisitions and divestitures in General and Administrative Expense(3) 5,756 289 9,455 289
Costs associated with CEO transition (2) 1,406
Legal and professional fees associated with acquisitions and divestitures (3) 3,431 1,096 6,560 2,112
Loss on extinguishment of debt 1,420 17,519 1,420 17,970
(Gain) loss on divestitures 268     51,820    
Total adjustments 16,148   20,291   74,528   23,164  
Non-GAAP Adjusted EBITDA $ 74,874   $ 74,239   $ 304,513   $ 289,185  
Non-GAAP Adjusted EBITDA Margin 31.1 % 35.7 % 34.5 % 35.9 %
 

(1) Inventory step-up charges relate to our North American and International OTC Healthcare segments.
(2) Costs relate to search fees associated with CEO and CFO transition and certain accelerated stock compensation costs related to our former CEO.
(3) Acquisition related items represent costs related to integrating recently acquired businesses, including (but not limited to) costs to exit or convert contractual obligations, severance, information system conversion and consulting costs, and certain costs related to the consummation of the acquisition process such as insurance costs, legal and other acquisition related professional fees.

Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income and related Adjusted Earnings Per Share:

     
Three Months Ended March 31, Year Ended March 31,
2017   2017 Adjusted EPS   2016   2016 Adjusted EPS 2017   2017 Adjusted EPS   2016   2016 Adjusted EPS

(In thousands)

       
GAAP Net Income $ 11,090     $ 0.21   $ 13,936     $ 0.26   $ 69,395     $ 1.30   $ 99,907     $ 1.88  

Adjustments:

Inventory step-up charges and other costs associated with acquisitions (1) 1,664 0.03 1,387 0.03 1,664 0.03 1,387 0.03
Integration, transition and other costs associated with acquisitions and divestitures in Cost of Goods Sold (2) 1,367 0.03 1,367 0.03
Integration, transition and other costs associated with acquisitions and divestitures in Advertising and Promotion Expense(2) 2,242 0.04 2,242 0.04
Integration, transition and other costs associated with acquisitions and divestitures in General and Administrative Expense (2) 5,756 0.11 289 0.01 9,455 0.18 289 0.01
Costs associated with CEO transition (3) 1,406 0.02
Legal and professional fees associated with acquisitions and divestitures (2) 3,431 0.06 1,096 0.02 6,560 0.12 2,112 0.04
Accelerated amortization of debt origination costs (4) 575 0.01 1,706 0.03
Additional interest expense as a result of Term Loan debt refinancing (5) 9,184 0.17 9,184 0.17
Loss on extinguishment of debt 1,420 0.03 17,519 0.33 1,420 0.03 17,970 0.34
(Gain) loss on divestitures 268 0.01 51,820 0.97
Tax impact of adjustments (6) (9,438 ) (0.18 ) (6,294 ) (0.13 ) (28,024 ) (0.53 ) (7,608 ) (0.15 )
Income tax related to adjustments (7) 1,278     0.02         (199 )          
Total adjustments 17,747     0.33   13,997     0.26   57,195     1.07   15,556     0.29  
Non-GAAP Adjusted Net Income and Adjusted EPS $ 28,837     $ 0.54   $ 27,933     $ 0.52   $ 126,590     $ 2.37   $ 115,463     $ 2.17  
 

(1) Inventory set-up charges relate to our North American and International OTC Healthcare segments.
(2) Acquisition related items represent costs related to integrating recently acquired businesses, including (but not limited to) costs to exit or convert contractual obligations, severance, information system conversion and consulting costs, and certain costs related to the consummation of the acquisition process such as legal and other acquisition related professional fees.
(3) Costs relate to search fees associated with CEO and CFO transition and certain accelerated stock compensation costs related to our former CEO.
(4) Higher amortization of debt origination costs resulting from debt payments on our term loan from the proceeds from divestitures.
(5) Primarily bank commitment fees related to the recently acquired Fleet business.
(6) The income tax adjustments are determined using applicable rates in the taxing jurisdictions in which the above adjustments relate and includes both current and deferred income tax expense (benefit) based on the specific nature of the specific Non-GAAP performance measure.
(7) Income tax adjustments relate primarily to the expiration of certain statute of limitations associated with certain tax reserves and a normalized tax rate of 35.5%.

Reconciliation of GAAP Net Income to Non-GAAP Free Cash Flow and Non-GAAP Adjusted Free Cash Flow:

       
Three Months Ended March 31,

Year Ended March 31,

2017   2016 2017   2016

(In thousands)

GAAP Net Income $ 11,090   $ 13,936   $ 69,395   $ 99,907  
Adjustments:
Adjustments to reconcile net income to net cash provided by operating activities as shown in the Statement of Cash Flows 21,347 34,206 91,713 96,221
Changes in operating assets and liabilities, net of effects from acquisitions as shown in the Statement of Cash Flows (25,013 ) (10,243 ) (13,336 ) (21,778 )
Total adjustments (3,666 ) 23,963   78,377   74,443  
GAAP Net cash provided by operating activities 7,424 37,899 147,772 174,350
Purchases of property and equipment (1,042 ) (1,028 ) (2,977 ) (3,568 )
Non-GAAP Free Cash Flow 6,382 36,871 144,795 170,782
Premium payment on extinguishment of 2012 Senior Notes 10,158 10,158
Integration, transition and other payments associated with acquisitions and divestitures (1) 8,304 1,665 10,448 2,461
Additional interest on Term Loan refinance (2) 9,184 9,184
Pension contribution 6,000 6,000
Additional income tax payments associated with divestitures (3) 16,956     25,545    
Non-GAAP Adjusted Free Cash Flow $ 46,826   $ 48,694   $ 195,972   $ 183,401  
 

(1) Acquisition related items represent payments related to integrating recently acquired businesses, including (but not limited to) costs to exit or convert contractual obligations, severance, information system conversion and consulting costs, and certain costs related to the consummation of the acquisition process such as legal and other acquisition related professional fees.
(2) Primarily bank commitment fees related to the recently acquired Fleet business.
(3) Additional income tax payments resulting from divestitures.

Outlook for Fiscal Year 2018:

Reconciliation of Projected GAAP EPS to Projected Non-GAAP Adjusted EPS:

   
2018 Projected EPS
Low   High
Projected FY'18 GAAP EPS $ 2.50     $ 2.60
Adjustments:  
Costs associated with Fleet integration (1) 0.08     0.08
Total adjustments 0.08     0.08
Projected Non-GAAP Adjusted EPS $ 2.58     $ 2.68
 

(1) Acquisition related items represent costs related to integrating recently acquired businesses, including (but not limited to) warehouse consolidation, costs to exit or convert contractual obligations, severance, information system conversion and consulting costs, and certain costs related to the consummation of the acquisition process such as legal and other acquisition related professional fees.

Reconciliation of Projected GAAP Net cash provided by operating activities to Projected Non-GAAP Adjusted Free Cash Flow:

   
2018 Projected Free Cash Flow

(In millions)

Projected FY'18 GAAP Net cash provided by operating activities $ 210
Additions to property and equipment for cash (10 )
Projected Non-GAAP Free Cash Flow 200
Payments associated with acquisitions (1) 8
Tax effect of payments associated with acquisitions (3 )
Projected Non-GAAP Adjusted Free Cash Flow $ 205  
 

(1) Acquisition related items represent costs related to integrating recently acquired businesses, including (but not limited to) warehouse consolidation, costs to exit or convert contractual obligations, severance, information system conversion and consulting costs, and certain costs related to the consummation of the acquisition process such as legal and other acquisition related professional fees.

Source: Prestige Brands Holdings, Inc.

Prestige Brands Holdings, Inc.
Phil Terpolilli, 914-524-6819
pterpolilli@prestigebrands.com