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News Release

Prestige Brands Holdings, Inc. Reports Fiscal 2018 Second Quarter Results; Reaffirms Fiscal 2018 Outlook
  • Revenue Increased 20.0% to $258.0 Million in Q2 Fiscal 2018; First Half Revenues up 21.2% to $514.6 Million
  • Q2 Consumption Trends Consistent with Expectations; Results Impacted by Timing of Customer Deliveries at Quarter-end
  • Cash Flow From Operations Increased to $54.4 Million in Q2; Debt Pay Down of $105 Million Year to Date
  • Outlook Reaffirmed for Full Year FY’18 Revenue, Adjusted Free Cash Flow and Adjusted EPS

TARRYTOWN, N.Y., Nov. 02, 2017 (GLOBE NEWSWIRE) --  Prestige Brands Holdings, Inc. (NYSE:PBH) today reported financial results for its second quarter ended September 30, 2017.

“We are pleased with our continued solid consumption trends of approximately 3% in our fiscal second quarter, along with market share gains across our portfolio.  Although our second quarter financial performance was impacted at quarter-end by the timing of customer deliveries, with average shipping times in September more than doubling versus the first half of the calendar year, we continue to anticipate full-year sales growth and adjusted earnings per share to be consistent with our fiscal 2018 outlook,” said Ron Lombardi, Chief Executive Officer of Prestige Brands.

Second Quarter Fiscal 2018 Ended September 30, 2017

Reported revenues in the second quarter of fiscal 2018 increased 20.0% to $258.0 million, compared to $215.1 million in the second quarter of fiscal 2017. Revenues for the quarter were driven by continued solid consumption levels across the Company’s core brands and $51.7 million from the recently acquired brands from the Fleet acquisition, which was partially offset by the divestitures of certain non-core brands during fiscal 2017 and the timing impact of customer deliveries.  The Company estimates the impact of increased in-transit customer orders was approximately $8 million at quarter-end, due to an increase in average shipping times in September, which more than doubled versus the first two quarters of calendar 2018.

Reported gross profit margin in the second quarter fiscal 2018 was 55.8%, with adjusted gross profit margin of 56.3% excluding adjustments related to the Fleet transition and integration, compared to 57.6% for the second quarter of fiscal 2017.  As expected, the gross profit margin year-over-year change was primarily due to product mix with the addition of the high growth Fleet portfolio.

Advertising & promotion expense for the second quarter 2018 was $39.2 million, or 15.2% of sales, compared to $28.6 million or 13.3% of sales in the prior year.  As expected, higher advertising and promotion expense as a percentage of sales was attributable to ongoing investments behind the Company’s long-term brand building strategy.

Reported net income for the second quarter of fiscal 2018 totaled $30.7 million versus the prior year comparable quarter’s net income of $32.2 million. Diluted earnings per share of $0.57 for the second quarter of fiscal 2018 compared to $0.60 per share in the prior year comparable period. Non-GAAP adjusted net income for the second quarter of fiscal 2018 was $32.5 million, a decrease of 3.9% from the prior year period’s adjusted net income of $33.8 million. Non-GAAP adjusted earnings per share were $0.61 per share for the second quarter of fiscal 2018 compared to $0.63 per share in the prior year comparable period.

Adjustments to net income in the second quarter of both fiscal 2018 and fiscal 2017 include integration, transition, purchase accounting, legal and various other costs associated with acquisitions and divestitures and the related income tax effects of the adjustments.  Adjustments to the second quarter of fiscal 2017 also include accelerated amortization of debt origination costs.

First Half of Fiscal 2018 Ended September 30, 2017

Reported revenues for the first six months of fiscal 2018 increased 21.2% to $514.6 million compared to $424.6 million in the first six months of fiscal 2017. Revenues for the first six months of fiscal 2018 were driven by continued strong consumption levels across the Company’s legacy brands and $106.5 million of incremental revenue from the Fleet acquisition, which was partially offset by the divestitures of certain non-core brands during fiscal 2017 and the approximate $8 million impact from the timing of customer deliveries in the second quarter fiscal 2018.

Reported gross profit margin in the first six months of fiscal 2018 was 55.9%, with adjusted gross profit margin of 56.6% excluding adjustments related to the Fleet transition and integration, compared to 57.8% for the first six months of fiscal 2017.  The gross profit margin year-over-year change was primarily due to the addition of the high growth Fleet portfolio.

Advertising & promotion expense for the first six months of fiscal 2018 was $76.1 million, or 14.8% of sales, compared to $56.2 million or 13.2% of sales in the prior year.  As expected, higher advertising and promotion expense as a percentage of sales was attributable to ongoing investments behind the Company’s long-term brand building strategy.

Reported net income for the first six months of fiscal 2018 totaled $64.5 million versus the prior year comparable period net income of $26.7 million which included a non-cash pre-tax charge of $55.0 million related to the divestiture of three non-core brands. Diluted earnings per share were $1.20 for the first six months of fiscal 2018 compared to $0.50 per share in the prior year comparable period. Non-GAAP adjusted net income for the first six months of fiscal 2018 was $68.0 million, an increase over the prior year period’s adjusted net income of $65.2 million. Non-GAAP adjusted earnings per share were $1.27 per share for the first six months of fiscal 2018 compared to $1.22 per share in the first six months of fiscal 2017.

Adjustments to net income in the first six months of fiscal 2018 and fiscal 2017 include integration, transition, purchase accounting, legal and various other costs associated with acquisitions and divestitures and the related income tax effects of the adjustments.  Adjustments to the first six months of fiscal 2017 also include accelerated amortization of debt origination costs in addition to the non-cash costs related to divestiture of certain non-core brands.

Free Cash Flow and Balance Sheet

The Company's net cash provided by operating activities for the second fiscal quarter of 2018 increased to $54.4 million from $49.8 million during the same period a year earlier due to continued strong cash conversion in the legacy business and incremental cash flow related to the Fleet acquisition, partially offset by the loss of cash flow from divested brands. Non-GAAP adjusted free cash flow for the second fiscal quarter of 2018 was $54.8 million, up from $49.6 million in the prior year comparable quarter.

The Company's net debt position as of September 30, 2017 was approximately $2.1 billion, reflecting debt repayments of $55.0 million during the second quarter of fiscal 2018 and $105.0 million fiscal year to date.  At September 30, 2017 the Company's covenant-defined leverage ratio was 5.5x.

Segment Review

North American OTC Healthcare: Segment revenues totaled $215.3 million for the second quarter of fiscal 2018, 24.9% higher than the prior year comparable quarter's revenues of $172.4 million. The second quarter fiscal 2018 increase was principally driven by revenues from the acquisition of Fleet, partially offset by divestitures of non-core OTC brands and the timing of customer deliveries at quarter-end.

For the first six months of the current fiscal year, reported revenues for the North American OTC segment were $431.1 million, an increase of 25.1% compared to $344.5 million in the prior year comparable period.

International OTC Healthcare: Segment fiscal Q2 2018 revenues totaled $21.0 million, 11.4% higher than the $18.8 million reported in the prior year comparable period. Second quarter revenues included incremental revenues from the Fleet transaction.

For the first six months of the current fiscal year, reported revenues for the International OTC Healthcare segment were $41.9 million, an increase of 20.9% over the prior year comparable period’s revenues of $34.6 million. Revenues for the International OTC Healthcare segment were impacted by favorable consumption levels as well as revenues from the Fleet acquisition.

Household Cleaning: Segment revenues totaled $21.8 million for the second quarter of fiscal 2018 compared with second quarter fiscal 2017 revenues of $23.8 million, a decrease of 8.5%.

For the first six months of the current fiscal year, reported revenues for the Household Cleaning segment were $41.6 million, a decrease of 8.5% over the prior year comparable six month period’s revenues of $45.5 million.

Commentary and Outlook for Fiscal 2018

Ron Lombardi, CEO, stated, “Year-to-date consumer consumption, a key measure for our long-term success, grew consistent with our expectations for the second quarter and first six months of fiscal 2018.  This strong performance was across a wide range of channels and brands and is a testament to our long-term brand building efforts.  Additionally, we were pleased to generate over $110 million of free cash flow in the first half fiscal 2018 via our industry leading financial profile which was used to pay down debt and build M&A capacity.”

“Our second quarter was impacted by the timing of approximately $8 million of September in-transit customer orders which were delivered after quarter end due to increased average shipping times.  We expect our delivery patterns to normalize over the next few months, and we continue to expect solid sales growth for the full year. Based on our continued solid consumption trends, first half performance, and the expectation around shipment normalization we are reiterating our full-year outlook for revenue, pro-forma revenue growth, adjusted earnings per share, and free cash flow.  We remain well positioned for another year of strong top- and bottom-line growth driven by our diversified portfolio of leading OTC brands,” 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


Fiscal Q2 Conference Call, Accompanying Slide Presentation and Replay

The Company will host a conference call to review its second quarter results today, November 2, 2017 at 8:30 a.m. ET. The toll-free dial-in numbers are 844-233-9440 within North America and 574-990-1016 outside of North America. The conference ID number is 96239590. The Company provides 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 96239590.

Non-GAAP and Other 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.

Any reference to total company consumption is based on domestic IRI multi-outlet + C-Store retail dollar sales for the twelve month period ending October 8, 2017 and net revenues as a proxy for consumption for certain untracked channels, and international consumption which includes Canadian consumption for leading retailers, Australia consumption for leading brands, and other international net revenues as a proxy for consumption.

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, 2017, Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, 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, Fleet® enemas and glycerin suppositories, 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.


Prestige Brands Holdings, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)

    Three Months Ended
September 30,
  Six Months Ended
September 30,
(In thousands, except per share data)   2017   2016   2017   2016
Revenues                
Net sales   $ 257,930     $ 215,017     $ 514,417     $ 423,787  
Other revenues   96     35     182     840  
Total revenues   258,026     215,052     514,599     424,627  
                 
Cost of Sales                
Cost of sales excluding depreciation   112,580     91,087     224,337     179,071  
Cost of sales depreciation   1,348         2,688      
Cost of sales   113,928     91,087     227,025     179,071  
Gross profit   144,098     123,965     287,574     245,556  
                 
Operating Expenses                
Advertising and promotion   39,188     28,592     76,132     56,227  
General and administrative   21,567     18,795     41,903     38,252  
Depreciation and amortization   7,186     6,016     14,353     12,848  
(Gain) loss on divestitures       (496 )       54,957  
Total operating expenses   67,941     52,907     132,388     162,284  
Operating income   76,157     71,058     155,186     83,272  
                 
Other (income) expense                
Interest income   (85 )   (46 )   (154 )   (103 )
Interest expense   26,921     20,876     53,331     42,060  
Total other expense   26,836     20,830     53,177     41,957  
Income before income taxes   49,321     50,228     102,009     41,315  
Provision for income taxes   18,616     18,033     37,545     14,651  
Net income   $ 30,705     $ 32,195     $ 64,464     $ 26,664  
                 
Earnings per share:                
Basic   $ 0.58     $ 0.61     $ 1.21     $ 0.50  
Diluted   $ 0.57     $ 0.60     $ 1.20     $ 0.50  
                 
Weighted average shares outstanding:                
Basic   53,098     52,993     53,068     52,941  
Diluted   53,539     53,345     53,524     53,329  
                 
Comprehensive income (loss), net of tax:                
Currency translation adjustments   2,716     2,703     3,835     (3,121 )
Unrecognized net gain on pension plans           1      
Total other comprehensive income (loss)   2,716     2,703     3,836     (3,121 )
Comprehensive income   $ 33,421     $ 34,898     $ 68,300     $ 23,543  


Prestige Brands Holdings, Inc.
Condensed Consolidated Balance Sheets

(In thousands) September 30,
 2017
  March 31,
 2017
  (Unaudited)    
Assets      
Current assets      
Cash and cash equivalents $ 42,977     $ 41,855  
Accounts receivable, net of allowance of $14,393 and $13,010, respectively 145,422     136,742  
Inventories 119,484     115,609  
Prepaid expenses and other current assets 23,189     40,228  
Total current assets 331,072     334,434  
       
Property, plant and equipment, net 49,570     50,595  
Goodwill 620,388     615,252  
Intangible assets, net 2,894,140     2,903,613  
Other long-term assets 7,023     7,454  
Total Assets $ 3,902,193     $ 3,911,348  
       
Liabilities and Stockholders' Equity      
Current liabilities      
Accounts payable $ 79,258     $ 70,218  
Accrued interest payable 8,333     8,130  
Other accrued liabilities 73,131     83,661  
Total current liabilities 160,722     162,009  
       
Long-term debt      
Principal amount 2,117,000     2,222,000  
Less unamortized debt costs (24,912 )   (28,268 )
Long-term debt, net 2,092,088     2,193,732  
       
Deferred income tax liabilities 731,684     715,086  
Other long-term liabilities 21,733     17,972  
Total Liabilities 3,006,227     3,088,799  
       
       
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 - 53,392 shares at September 30, 2017 and 53,287 shares at March 31, 2017 534     533  
Additional paid-in capital 464,446     458,255  
Treasury stock, at cost - 353 shares at September 30, 2017 and 332 shares at March 31, 2017 (7,669 )   (6,594 )
Accumulated other comprehensive loss, net of tax (22,516 )   (26,352 )
Retained earnings 461,171     396,707  
Total Stockholders' Equity 895,966     822,549  
Total Liabilities and Stockholders' Equity $ 3,902,193     $ 3,911,348  


Prestige Brands Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

  Six Months Ended September 30,
(In thousands) 2017   2016
Operating Activities      
Net income $ 64,464     $ 26,664  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 17,041     12,848  
Loss on divestitures     54,957  
Loss on disposals of property and equipment 1,461     155  
Deferred income taxes 16,321     (10,602 )
Amortization of debt origination costs 3,494     5,097  
Excess tax benefits from share-based awards 470     800  
Stock-based compensation costs 4,726     3,933  
Changes in operating assets and liabilities, net of effects from acquisitions:      
    Accounts receivable (9,345 )   356  
    Inventories (3,409 )   (10,663 )
    Prepaid expenses and other current assets 17,123     10,112  
    Accounts payable 8,008     820  
    Accrued liabilities (11,869 )   6,605  
    Noncurrent assets and liabilities 55      
Net cash provided by operating activities 108,540     101,082  
       
Investing Activities      
Purchases of property, plant and equipment (4,785 )   (1,404 )
Acquisition of Fleet escrow payment 970      
Proceeds from the sales of property, plant and equipment     75  
Proceeds from sales of intangible assets     52,353  
Net cash (used in) provided by investing activities (3,815 )   51,024  
       
Financing Activities      
Term loan repayments (105,000 )   (130,500 )
Borrowings under revolving credit agreement     20,000  
Repayments under revolving credit agreement     (40,000 )
Payments of debt origination costs     (9 )
Proceeds from exercise of stock options 1,466     3,423  
Fair value of shares surrendered as payment of tax withholding (1,075 )   (1,395 )
Net cash used in financing activities (104,609 )   (148,481 )
       
Effects of exchange rate changes on cash and cash equivalents 1,006     (397 )
Increase in cash and cash equivalents 1,122     3,228  
Cash and cash equivalents - beginning of period 41,855     27,230  
Cash and cash equivalents - end of period $ 42,977     $ 30,458  
       
Interest paid $ 49,404     $ 37,259  
Income taxes paid $ 9,037     $ 6,743  


Prestige Brands Holdings, Inc.
Condensed Consolidated Statements of Income
Business Segments
(Unaudited)

  Three Months Ended September 30, 2017
(In thousands) North American
OTC Healthcare
  International
OTC Healthcare
  Household
Cleaning
  Consolidated
Total segment revenues* $ 215,302     $ 20,957     $ 21,767     $ 258,026  
Cost of sales 87,184     9,296     17,448     113,928  
Gross profit 128,118     11,661     4,319     144,098  
Advertising and promotion 35,064     3,593     531     39,188  
Contribution margin $ 93,054     $ 8,068     $ 3,788     104,910  
Other operating expenses             28,753  
Operating income             76,157  
Other expense             26,836  
Income before income taxes             49,321  
Provision for income taxes             18,616  
Net income             $ 30,705  

*Intersegment revenues of $2.3 million were eliminated from the North American OTC Healthcare segment.

  Six Months Ended September 30, 2017
(In thousands) North American
OTC Healthcare
  International
OTC Healthcare
  Household
Cleaning
  Consolidated
Total segment revenues* $ 431,117     $ 41,855     $ 41,627     $ 514,599  
Cost of sales 173,685     19,246     34,094     227,025  
Gross profit 257,432     22,609     7,533     287,574  
Advertising and promotion 67,872     7,283     977     76,132  
Contribution margin $ 189,560     $ 15,326     $ 6,556     211,442  
Other operating expenses             56,256  
Operating income             155,186  
Other expense             53,177  
Income before income taxes             102,009  
Provision for income taxes             37,545  
Net income             $ 64,464  

*Intersegment revenues of $3.7 million were eliminated from the North American OTC Healthcare segment.

  Three Months Ended September 30, 2016
(In thousands) North American
OTC Healthcare
  International
OTC Healthcare
  Household
Cleaning
  Consolidated
Total segment revenues* $ 172,447     $ 18,804     $ 23,801     $ 215,052  
Cost of sales 65,402     7,096     18,589     91,087  
Gross profit 107,045     11,708     5,212     123,965  
Advertising and promotion 24,811     3,244     537     28,592  
Contribution margin $ 82,234     $ 8,464     $ 4,675     95,373  
Other operating expenses**             24,315  
Operating income             71,058  
Other expense             20,830  
Income before income taxes             50,228  
Provision for income taxes             18,033  
Net income             $ 32,195  

* Intersegment revenues of $0.1 million were eliminated from the North American OTC Healthcare segment.

**Other operating expenses for the three months ended September 30, 2016 includes a pre-tax loss on sale of assets of $0.7 million related to Pediacare, New Skin, and Fiber Choice and a pre-tax gain on sale of assets of $1.2 million associated with the sale of license rights in certain geographic areas pertaining to Comet.  The assets and corresponding contribution margin associated with the pre-tax loss on sale of assets related to Pediacare, New Skin, and Fiber Choice 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.

  Six Months Ended September 30, 2016
(In thousands) North American
OTC Healthcare
  International
OTC Healthcare
  Household
Cleaning
  Consolidated
Total segment revenues* $ 344,527     $ 34,608     $ 45,492     $ 424,627  
Cost of sales 129,636     14,044     35,391     179,071  
Gross profit 214,891     20,564     10,101     245,556  
Advertising and promotion 49,851     5,368     1,008     56,227  
Contribution margin $ 165,040     $ 15,196     $ 9,093     189,329  
Other operating expenses**             106,057  
Operating income             83,272  
Other expense             41,957  
Income before income taxes             41,315  
Provision for income taxes             14,651  
Net income             $ 26,664  

* Intersegment revenues of $1.4 million were eliminated from the North American OTC Healthcare segment.

**Other operating expenses for the six months ended September 30, 2016 includes a pre-tax loss on sale of assets of $56.2 million related to Pediacare, New Skin, and Fiber Choice and a pre-tax gain on sale of assets of $1.2 million associated with the sale of license rights in certain geographic areas pertaining to Comet.  The assets and corresponding contribution margin associated with the pre-tax loss on sale of assets related to Pediacare, New Skin, and Fiber Choice 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.


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 on a constant currency basis, Constant Currency Non-GAAP Organic Revenue Growth Percentage, Non-GAAP Proforma Revenues on a constant currency basis, Constant Currency Non-GAAP Proforma Revenue Growth Percentage, 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 EBITDA Margin, Non-GAAP Adjusted EBITDA, Non-GAAP Adjusted EBITDA Margin, Non-GAAP Adjusted Net Income, Non-GAAP Adjusted EPS, Non-GAAP Free Cash Flow, Non-GAAP Adjusted Free Cash Flow and Net Debt.  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 Organic Revenue Growth Percentage: Calculated as the change in Non-GAAP Organic Revenues from prior year divided by prior year Non-GAAP Organic Revenues.
  • Non-GAAP Proforma Revenues: Non-GAAP Organic Revenues plus revenues associated with acquisitions.
  • Non-GAAP Proforma Revenue Growth Percentage: Calculated as the change in Non-GAAP Proforma Revenues from prior year divided by prior year Non-GAAP Proforma Revenues.
  • Non-GAAP Adjusted Gross Margin: GAAP Gross Profit minus 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 and divestiture costs.
  • 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 (Loss) less interest expense (income), income taxes provision (benefit), 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 certain other legal and professional fees, integration, transition and other acquisition related costs, divestiture costs, 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 (Loss) before certain other legal and professional fees, integration, transition and other acquisition related costs, divestiture costs, gain/loss on divestitures, accelerated amortization of debt origination costs due to sale of assets, applicable tax impact associated with these items and normalized tax rate adjustment.
  • 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.
  • Net Debt: Calculated as total principal amount of debt outstanding of ($2,117,000 at September 30, 2017) less cash and cash equivalents ($42,977 at September 30, 2017).  Amounts in thousands.

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 Non-GAAP Proforma Revenues and related growth percentages:

  Three Months Ended
September 30,
  Six Months Ended
September 30,
  2017   2016   2017   2016
(In thousands)              
GAAP Total Revenues $ 258,026     $ 215,052     $ 514,599     $ 424,627  
Revenue Growth 20.0 %       21.2 %    
Adjustments:              
Revenues associated with acquisitions (1) (51,662 )       (106,549 )    
Revenues associated with divested brands(2)     (5,945 )       (16,984 )
Non-GAAP Organic Revenues $ 206,364     $ 209,107     $ 408,050     $ 407,643  
Non-GAAP Organic Revenue Growth (1.3 )%       0.1 %    
               
Non-GAAP Organic Revenues $ 206,364     $ 209,107     $ 408,050     $ 407,643  
Revenues associated with acquisitions (3) 51,662     49,798     106,549     100,999  
Non-GAAP Proforma Revenues $ 258,026     $ 258,905     $ 514,599     $ 508,642  
Non-GAAP Proforma Revenue Growth (0.3 )%       1.2 %    

(1) Revenues of our Fleet acquisition 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.
(3) Revenues of our Fleet acquisition are included for purposes of calculating Non-GAAP proforma revenues.  These revenue adjustments relate to our North American and International OTC Healthcare segments.

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

  Three Months Ended
September 30,
  Six Months Ended
September 30,
  2017   2016   2017   2016
(In thousands)              
GAAP Total Revenues $ 258,026     $ 215,052     $ 514,599     $ 424,627  
               
GAAP Gross Profit $ 144,098     $ 123,965     $ 287,574     $ 245,556  
Adjustments:              
Integration, transition and other costs associated with acquisitions (1) 1,143         3,719      
Total adjustments 1,143         3,719      
Non-GAAP Adjusted Gross Margin $ 145,241     $ 123,965     $ 291,293     $ 245,556  
Non-GAAP Adjusted Gross Margin as a Percentage of GAAP Total Revenues 56.3 %   57.6 %   56.6 %   57.8 %

(1) 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 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
September 30,
  Six Months Ended
September 30,
  2017   2016   2017   2016
(In thousands)              
GAAP Advertising and Promotion Expense $ 39,188     $ 28,592     $ 76,132     $ 56,227  
GAAP Advertising and Promotion Expense as a Percentage of GAAP Total Revenue 15.2 %   13.3 %   14.8 %   13.2 %
Adjustments:              
Integration, transition and other costs associated with acquisitions(1) (231 )       (192 )    
Total adjustments (231 )       (192 )    
Non-GAAP Adjusted Advertising and Promotion Expense $ 39,419     $ 28,592     $ 76,324     $ 56,227  
Non-GAAP Adjusted Advertising and Promotion Expense as a Percentage of GAAP Total Revenues 15.3 %   13.3 %   14.8 %   13.2 %

(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
September 30,
  Six Months Ended
September 30,
  2017   2016   2017   2016
(In thousands)              
GAAP General and Administrative Expense $ 21,567     $ 18,795     $ 41,903     $ 38,252  
GAAP General and Administrative Expense as a Percentage of GAAP Total Revenue 8.4 %   8.7 %   8.1 %   9.0 %
               
Adjustments:              
Integration, transition and other costs associated with acquisitions and divestitures (1) 888     1,521     1,472     3,646  
Total adjustments 888     1,521     1,472     3,646  
Non-GAAP Adjusted General and Administrative Expense $ 20,679     $ 17,274     $ 40,431     $ 34,606  
Non-GAAP Adjusted General and Administrative Expense Percentage as a Percentage of GAAP Total Revenues 8.0 %   8.0 %   7.9 %   8.1 %

(1) 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
September 30,
  Six Months Ended
September 30,
  2017   2016   2017   2016
(In thousands)              
GAAP Net Income $ 30,705     $ 32,195     $ 64,464     $ 26,664  
Interest expense, net 26,836     20,830     53,177     41,957  
Provision for income taxes 18,616     18,033     37,545     14,651  
Depreciation and amortization 8,534     6,016     17,041     12,848  
Non-GAAP EBITDA 84,691     77,074     172,227     96,120  
Non-GAAP EBITDA Margin 32.8 %   35.8 %   33.5 %   22.6 %
Adjustments:              
Integration, transition and other costs associated with acquisitions and divestitures in Cost of Goods Sold(1) 1,143         3,719      
Integration, transition and other costs associated with acquisitions and divestitures in Advertising and Promotion Expense(1) (231 )       (192 )    
Integration, transition and other costs associated with acquisitions and divestitures in General and Administrative Expense(1) 888     1,521     1,472     3,646  
(Gain) loss on divestitures     (496 )       54,957  
Total adjustments 1,800     1,025     4,999     58,603  
Non-GAAP Adjusted EBITDA $ 86,491     $ 78,099     $ 177,226     $ 154,723  
Non-GAAP Adjusted EBITDA Margin 33.5 %   36.3 %   34.4 %   36.4 %

(1) 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 Non-GAAP Adjusted Earnings Per Share:

  Three Months Ended September 30,   Six Months Ended September 30,
  2017 2017 Adjusted EPS   2016 2016 Adjusted EPS   2017 2017 Adjusted EPS   2016 2016 Adjusted EPS
(In thousands, except per share data)                      
GAAP Net Income $ 30,705   $ 0.57     $ 32,195   $ 0.60     $ 64,464   $ 1.20     $ 26,664   $ 0.50  
Adjustments:                      
Integration, transition and other costs associated with acquisitions and divestitures in Cost of Goods Sold(1) 1,143   0.02           3,719   0.07        
Integration, transition and other costs associated with acquisitions and divestitures in Advertising and Promotion Expense(1) (231 )           (192 )        
Integration, transition and other costs associated with acquisitions and divestitures in General and Administrative Expense(1) 888   0.02     1,521   0.03     1,472   0.03     3,646   0.07  
Accelerated amortization of debt origination costs       1,131   0.02           1,131   0.02  
(Gain) loss on divestitures       (496 ) (0.01 )         54,957   1.03  
Tax impact of adjustments (2) (658 ) (0.01 )   (566 ) (0.01 )   (1,825 ) (0.03 )   (21,224 ) (0.40 )
Normalized tax rate adjustment (3) 614   0.01           312          
Total adjustments 1,756   0.04     1,590   0.03     3,486   0.07     38,510   0.72  
Non-GAAP Adjusted Net Income
and Adjusted EPS
$ 32,461   $ 0.61     $ 33,785   $ 0.63     $ 67,950   $ 1.27     $ 65,174   $ 1.22  

(1) 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.
(2) 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.
(3) Income tax adjustment to adjust for discrete income tax items.

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

  Three Months Ended September 30,   Six Months Ended
September 30,
  2017   2016   2017   2016
(In thousands)              
GAAP Net Income $ 30,705     $ 32,195     $ 64,464     $ 26,664  
Adjustments:              
Adjustments to reconcile net income to net cash provided by operating activities as shown in the Statement of Cash Flows 21,530     9,842     43,513     67,188  
Changes in operating assets and liabilities, net of effects from acquisitions as shown in the Statement of Cash Flows 2,184     7,744     563     7,230  
Total adjustments 23,714     17,586     44,076     74,418  
GAAP Net cash provided by operating activities 54,419     49,781     108,540     101,082  
Purchases of property and equipment (2,231 )   (509 )   (4,785 )   (1,404 )
Non-GAAP Free Cash Flow 52,188     49,272     103,755     99,678  
Integration, transition and other payments associated with acquisitions and divestitures(1) 2,654     352     7,602     683  
Non-GAAP Adjusted Free Cash Flow $ 54,842     $ 49,624     $ 111,357     $ 100,361  

(1) 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.

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 $ 2.51     $ 2.61  
Adjustments:      
Costs associated with Fleet integration(1) 0.07     0.07  
Total Adjustments 0.07     0.07  
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), 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, net of taxes.

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), 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.


Contact:

Phil Terpolilli
914-524-6819
pterpolilli@prestigebrands.com

Prestige Brands Holdings Inc