Prestige Consumer Healthcare Inc (PBH) 2022 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Prestige Consumer Healthcare, Inc. Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker host today, Phil Terpolilli, Vice President of Investor Relations and Treasurer. Please go ahead, sir.

Thanks, operator, and thank you to everyone joining today. On the call with me are Ron Lombardi, our Chairman, President and CEO; and Christine Sacco, our CFO.

On today's call, we'll review the fiscal 2022 results, review the business attributes of Prestige that continue to enable our success, offer a full year 2023 outlook and then take questions from analysts. There's a slide presentation which accompanies today's call can be accessed by visiting prestigeconsumerhealthcare.com, clicking on the Investors link and then on today's webcast and presentation.

Remember, some of the information contained in this presentation today includes non-GAAP financial measures. Reconciliations to the nearest GAAP financial measures are included in our earnings release and slide presentation.

On today's call, management will make forward-looking statements around risks and uncertainties, which are detailed in a complete safe harbor disclosure on Page 2 of the slide presentation that accompanies the call. These are important to review and contemplate. Business environment uncertainty remained heightened due to COVID-19 and various geopolitical factors which have numerous potential impacts. This means results could change at any time and the forecasted impact of risk considerations is a best estimate based on the information available as of today's date. Additional information concerning risk factors and cautionary statements are available in our most recent SEC filings and most recent company 10-K.

I'll now hand it over to our CEO, Ron Lombardi. Ron?

Thanks, Phil. Let's begin on Slide 5. We are very pleased with our fiscal '22 results that exceeded our expectations, as we found continuous opportunities even with the backdrop of a challenging macro environment. Revenue of $1.087 billion for the full year grew 15% versus the prior year, and Q4 was another quarter that experienced double-digit sales growth. Our base business trends were impressive across the majority of our portfolio, aided by strong consumer demand and our long-term brand building.

For the year, our International segment experienced robust demand for its Hydralyte brand, while Dramamine and Clear Eyes led broad-based segment growth in North America. Our revenues translated into strong profitability. For the full year, we generated EPS of over $4 and free cash flow of over $250 million, both up double digits versus the prior year.

Lastly, during fiscal '22, as always, we were disciplined capital allocators of the strong cash flow. On July 1st, we acquired Akorn Consumer Health and TheraTears brand, which we view as a great strategic use of capital with the brands now fully integrated and contributing to our portfolio. And even with this acquisition, we continue to reduce leverage.

Now let's turn to Slide 6. Our record fiscal '22 performance and success executing our strategy is enabled by the long-term evolution of our business. First, we've continually enhanced our stable of leading brands. In the last several years, we've acquired well-positioned brands such as Summer's Eve and TheraTears, while divesting non-strategic employee-positioned brands such as our household cleaning business. We've successfully balanced this efficient deployment of capital with operating a gradually lower degrees of leverage. In fact, we finished fiscal '22 at 3.8x, our lowest level of leverage since the acquisition of certain GSK brands back in 2012.

We often get asked how are you different. And our ability to brand build continues to stand out. By using numerous strategies to drive growth across our categories, we've enabled long-term share wins and growth for our retail partners. I'll lay out some examples of marketing strategies later on. So in summary, these efforts have laid ground for consistent long-term growth. Our success and portfolio evolution leave us with a business underpinned by strong financial attributes and an impressive portfolio of leading and well-positioned brands. This positioning has momentum and gives us a conviction in our ability to execute the strategy shown on Slide 7.

Our success this fiscal year is just the most recent example of our proven ability to execute our 3-pillar value creation strategy shown on the page. When we meet with investors, they often note hearing a consistent message from us over time, and we pride ourselves on executing this disciplined strategy that has resulted in a resilient business that continues to deliver value. First, we use our proven marketing strategies to support our leading portfolio of brands. We'll spend some time digging into examples of this later. Second, the asset-light model we operate leverages our leading financial profile to enable robust free cash flow. And third, the model is repeatable as we've grown. This is thanks to the prior 2 points and our ability to use cash flows effectively and efficiently through disciplined capital deployment.

The result of this execution is clear in our financial performance. We've had a successful multiyear compound annual growth rate over the last 3 years. This includes organic growth in excess of our long-term target of 2% to 3% as well as double-digit earnings growth. The performance is despite the backdrop of resurgences of COVID-19 variants, supply chain challenges, and inflation. By executing these strategic pillars, we continued to enhance our business for long-term success and value creation.

So with that, let's turn to the next section and discuss investing for growth in more detail.

Slide 9 shows the distinct advantages of Prestige's portfolio and the benefits of the evolution just discussed. First, on the left side of the page is the diversity of the portfolio and the successful development of multiple-scaled category platforms such as women's health, eye care and GI. With a diverse portfolio of brands across many categories, we are nimble in identifying opportunities and able to mute the impact of any short-term category changes, like we saw at the start of COVID-19. Second, the right of the page shows many of our leading brands, which are sub-segments within these platforms. With 2/3 of our sales coming from #1 brands, we are able to think about brand building from a position of leadership focused on utilizing consumer insights and as a byproduct growth categories for retailers.

Turning to Slide 10, you see the various marketing strategies facilitated by the strong portfolio starting point. Our numerous brand-building strategies focus around driving long-term category growth, each are executed based on opportunities identified from consumer insights that are specific to each brand. The end goal of each of these actions is long-term success across channels and growth of the categories to which we are stewards.

Let's turn to Slide 11 to begin walking through each of these efforts in more detail. It all starts with consumer insights. On the page are examples of big thematic consumer insights that enable to our leading brands, Hydralyte and Dramamine. Even with majority shares of their categories, they've been able to further expand their sales in the categories they compete in.

For Hydralyte, we learned from consumers that they think about oral rehydration broadly and Hydralyte as a solution for more than just rehydration following sickness. We've leveraged this by providing additional consumer solutions that solve for these expanded usage occasions, like exercise and investing in messaging to raise awareness. The result is gradually expanding household penetration, up nearly 2 points since fiscal '19. For Dramamine, we've learned from consumers over time that they want to avoid motion sickness and nausea, but they also don't want to become drowsy. We've provided a consumer solution to this by introducing non-drowsy offerings. This has led to its expanded share in motion sickness and successful expansion into the nausea category. These are just 2 examples we're leveraging consumer insights helped drive long-term growth.

Now, let's turn to Slide 12. Another factor in our brand-building success is being nimble. We continuously execute an agile marketing strategy that adjusts for consumer needs in real time. This strategy is particularly noticeable during this fluid environment related to COVID-19 and other macro changes. One example is Summer's Eve, where we've had numerous new product launches and marketing designed to meet consumer needs as they think about hygiene. During COVID-19, this included focusing marketing efforts around Summer's Eve active products for home workouts. More recently, this included Summer's Eve Amber Nights, Sensitive and fragrance-free products that connect with consumers' needs as they evolve their daily behaviors.

A second example is Compound W, where we've focused on the message of treating warts rapidly at home during the height of COVID-19. As consumers look for alternatives to a doctor's office visit, we invested in our Touch of Science campaign in fiscal '22, which helps remind consumers of the benefits of treating at home with Compound W. In summary, our company's agility around brand-building is a strength that allows each of our brands to succeed in various environments.

With that, let's turn to Slide 13. Another element to our marketing success is the ability to align our investments and product offerings with channels that are important to consumers. As various channels have grown in prominence over time, we've been there with early investments driving sales growth and effective management, enabling a consistent profit profile across channels.

The most recent example is e-commerce. The channel continues to expand even off a higher base following COVID-19 and is quickly approaching 15% of our sales. Multiyear investments have driven solid performance where we've invested in user experience and digital campaigns to highlight our leading brands for consumers across channels. The result is our market share often being higher than in brick-and-mortar. So in summary, we remain well distributed across channels. We are investing where consumers are shopping. And we are confident in the stability of our margin profile as consumers evolve their channel shopping habits over time.

Now, let's turn to Slide 14 to discuss innovation. Innovation continues to be a key part of Prestige's brand building. We operate with a multiyear pipeline of product development concepts to ensure we continue to match the needs of consumers. We do this in multiple ways. Innovation can be through technology, bringing efficacious products that substitute a doctor's visit. Compound W NitroFreeze is an example with freezing technology not found in other OTC treatments. Innovation can also be solving an unmet consumer need, like Goody's Hangover, where its goal is to solve on-the-go pain relief in powder form with great taste. Innovation can also be focused on a superior and elevated consumer experience. An example is DenTek Ultimate Guard with its comfortable design that superior to competing nighttime dental guards.

So we have a long history of innovation, and we have another great year introductions planned for fiscal '23. 3 products. Summer's Eve Spa, Dramamine nausea chewables, and Clear Eyes Allergy, help expand our brands into adjacent categories. for Summer's Eve, the spa line expands the brand into luxurious self-care that consumers seek. For Dramamine, the new chewable nausea product helps consumers treat nausea without getting drowsy in a great-tasting ginger format. Clear Eyes Allergy is a prescription-strength, once-a-day drop designed for relief from indoor and outdoor allergies. We also have a number of additional launches in eye care shown on the page that we're excited about for both Clear Eyes and TheraTears. In summary, our marketing strategies, consumer insights, agile marketing, channel investments, and innovation, each play a valuable role in our success.

Turning to Page 15, we can see what the result is for our brands, leading #1 positions that allow us to be focused on category and market share growth. As you can see on the right of Page 15, nearly all of our largest brands hold a #1 market share, and many of them lead by a wide margin. Over half of these brands have a greater than 50% share. This is not a coincidence. Consumers continued to seek their trusted health care brands as they prioritize their health, and we continue to emphasize brand building, which grows categories and extends our brands. If there's one takeaway from learning about our marketing today, it's the benefits of having a portfolio of leading brands. We are proud of our portfolio of successes and look forward to continuing a focus on long-term brand building.

With that, I'll turn it over to Chris to walk through the financial aspects of our business model in more detail.

Thanks, Ron. Good morning, everyone. I'll start by reviewing our fourth quarter and fiscal '22 financial results, then talk about our business attributes that drive our financial profile and resulting capital allocation optionality.

Let's turn to Slide 17 to begin with fourth quarter results. Q4 fiscal '22 revenue of $266.9 million increased 12.3% and 5.9% on an organic basis versus the prior year. By segment, North America revenues were up approximately 10%. The largest growth categories organically were in GI, dermatological, and especially cough and cold, where we experienced favorable sales trends versus the prior year for both Luden's and Chloraseptic.

The International segment increased approximately 35% in Q4, after excluding the effects of foreign currency. This segment's record performance benefited from favorable consumer trends in many of our categories previously impacted by COVID-19 and particularly strong sales for the Hydralyte brand. Adjusted EBITDA increased in Q4 approximately 8%, and EBITDA margins remained consistent with our long-term expectations in the mid-30%s. Adjusted diluted earnings per share for the quarter was $0.91, up 15% versus the prior year with higher sales being the largest driver.

Let's turn to Slide 18 for more detail around consolidated results for the full year. Revenues for the full year fiscal '22 increased 15.2% versus the prior year and 10.1% on an organic basis. Our broad and diverse portfolio enabled this result, along with an accelerated performance in certain COVID-impacted categories such as travel. We continued our long-term trend of double-digit consumption growth in the e-commerce channel for the year, further building upon the sharply higher online purchasing shift that occurred throughout fiscal '21. Total company adjusted gross margin of 57.3% for the year was consistent with our expectations, down slightly from 58% in the prior year as we experienced heightened inflationary pressures as the year progressed.

Looking at fiscal '23, supply challenges and cost pressures that we and others are experiencing are likely to persist. We have and continue to institute pricing actions across our portfolio to offset the dollar amount of these inflationary headwinds. Although dynamic and changing frequently, we currently anticipate a gross margin of over 56% for the full year fiscal '23, with Q1 estimated to be just under 58%, stronger than the full year average due to the phasing of expected cost increases.

Advertising and marketing came in at 14.5% for the full fiscal year as expected, with leverage of higher dollar sales. For fiscal '23, we'd anticipate an A&M rate of just over 14% of sales. Adjusted G&A expenses were 9.5% of sales in fiscal '22. For fiscal '23, we anticipate G&A dollars to approximate prior year at around 9% of sales.

Adjusted diluted earnings per share for the full year of $4.06 grew over 25% versus the prior year. Higher sales and lower interest expense drove this growth. Below the line for fiscal '23, we'd anticipate a similar effective tax rate of around 24%, and interest expense approximately similar to the current year as debt reduction is expected to be offset by higher interest expense associated with variable rate debt.

Now let's turn to Slide 19 to discuss cash flow. In Q4, we generated $60 million in free cash flow, which resulted in a full year record adjusted free cash flow of $253.7 million. We continue to be disciplined around capital allocation, and I'll review our priorities in a moment. Heading into fiscal '23, our prior actions have positioned us well to navigate the current volatile environment. It's important to note we have roughly 2/3 of our debt at attractive fixed rates, with a variable remainder available for prepayment with our strong free cash flow generation. Across our debts, we've extended each tranche opportunistically in recent years and have no maturities until 2028.

And last, we reduced our leverage ratio to 3.8x with current debt outstanding of $1.5 billion. We anticipate being slightly below 3.5x leverage at year-end fiscal '23. More broadly, we anticipate operating at gradually lower levels of leverage over time as our cash flow continues to expand. That said, we do have ample capacity to be flexible in pursuing strategic acquisitions, like the acquisition of Akorn, while still maintaining financial flexibility within our leverage objectives.

Now let's turn to Slide 20. Here you can see many of the leading attributes that enable our financial profile and the resulting free cash flow performance I just discussed. Our asset-light model for the vast majority of revenue is externally manufactured results in low capital expenditures of 1% to 2% of sales annually. Our products have strong margins, driven by the characteristics of the categories we participate in, their importance to consumers self-care and the highly regulated nature of OTC that creates high barriers to entry.

We have meaningful tax benefits from past acquisitions that result in a cash tax rate in the high teens. And we also remain focused on profitability as a company with continuous cost-saving efforts that help us maintain our industry-leading mid-30s EBITDA margin. The result of this model is clear. We generate best-in-class free cash flow. Our record free cash flow in fiscal '22 resulted in a conversion of approximately 120%.

Turning to Slide 21, let's discuss our capital deployment priorities. We continue to concentrate our efforts around the first 2 priorities, investing in the business we have and delevering. We also seek opportunistic M&A that adds shareholder value. We pursue brands that have long-term growth prospects, fit strategically operationally and are financially attractive with ROIC in excess of our cost of capital. We also can enhance value through share repurchases, like the $50 million authorization we announced yesterday. We see this as an incremental way to add shareholder value by offsetting share dilution using a small portion of our annual estimated free cash flow without inhibiting our long-term ability to invest in brand building, delever, or pursue future M&A.

Now let's turn to Slide 22. Looking at our long-term financial performance, we've delivered solid revenue, earnings and cash flow growth. Starting off from an approximate $400 million revenue base, we've been able to generate over 9% revenue growth and mid-teens earnings and free cash flow growth annually through execution of our strategy and transformation to a pure-play consumer healthcare company. More recently, even with the larger revenue base, we've been able to deliver approximate 4% revenue growth and strong EPS and cash flow growth. Our proven model has enabled this growth while efficient use of our balance sheet has helped deliver value over this time period.

Now, I'll turn it back to Ron.

Thanks, Chris. Let's continue on Slide 24. ESG and its various components continue to be both an important and evolving topic where we get a wide range of investor questions. We take pride in the many things we already do, and a few of these are shown here.

First, we are a key enabler of consumers' self-care treatment that saves consumers real money versus a visit to a hospital or clinic. Second, high standards. We hold not only our own organization to a higher standard through our code of conduct but our suppliers as well, ensuring that they are aligned with our own missions and values. Third, giving back. We encourage employees to remain engaged in the communities and all of our sites have local days of giving that encourage community support throughout the year. Fourth, environmental support. Even with highly regulated OTC drugs, which can be more challenging than some consumer products to modify, we continue to think about ways to reduce our environmental impact throughout the supply chain. Fortunately, for us, being mindful of each of the ESG factors is something we take pride in as a company, and we look forward to updating our stakeholders in the future.

Now let's turn to Slide 25. As we look ahead, we recognize investors have questions around shifting consumer behaviors, supply chain challenges and inflation, each of which put pressure on input costs and visibility around consumer demand. Looking across these major themes, we believe our business attributes help our ability to navigate each successfully, as we have over the past 2 years.

Our brands are trusted and diverse, which gives us the ability to limit impact from any individual category slowdown. We source over 80% of our products from manufacturers based in the U.S. and Canada, which gives us the ability to avoid the magnitude of the costly and bottlenecked logistics of international supply that's impacting others. We are also dual sourced on key products in many instances, further enhancing our supply chain in a tight supply environment. Last, our leading market shares gives us the ability to execute pricing successfully at retail, helping to offset the broad inflationary trends we currently see. With this positioning, we are confident in our ability to continue to grow even with the challenges shown here.

Let's turn to Slide 26 to now discuss the financial outlook for fiscal '23. For fiscal '23, we anticipate revenue growth of approximately 3% to 4%, including organic revenue growth of 2% to 3%, consistent with our long-term target. Q1 revenues are anticipated to be $267 million to $270 million, which faces an unusual prior year comparison to retailer reorder timing in certain COVID-impacted categories.

Regarding profits, our outlook for fiscal '23 reflects the fast-changing inflation headwinds and includes the recent rise in oil-related costs. We still anticipate operating and EBITDA profit dollars to grow similar to the rate of sales, thanks to our disciplined P&L management that includes additional selling price increases and cost reduction activities. We anticipate EPS of between $4.18 to $4.23 for fiscal '23. Our disciplined cost management and the benefits of our free cash flow are expected to help drive earnings growth but will be partially offset by the expected higher interest rates. For Q1, EPS is expected to be between $1.03 and $1.05. Lastly, we anticipate another great year of cash generation. Free cash flow is anticipated to be $260 million or more and will continue to be disciplined around its deployment, as Chris outlined earlier.

With that, let's turn to Slide 27 to discuss our long-term value creation. Today, we've walked through our business attributes that we believe underpin long-term success. First, as a pure-play consumer health care business, our diverse platforms and brands provide a great starting point. Second, this enables us to leverage our proven brand-building strategy across categories and as a byproduct, our brands. Third, we have a superior financial profile that's generated consistent and increasing cash flow over the long-term. And finally, the model continues to be scalable. We have the right resources to continue our playbook, and we are efficient at deploying capital that reinforces our existing business and its attributes. It's a model that is driving superior value creation that we have confidence in.

So let's turn to Slide 28 and wrap up with what these drivers mean financially. We believe our portfolio supports long-term organic growth of 2% to 3% on the top line and are anticipating that again in fiscal '23. We expect our industry-leading cash flow to continue, which enables us to pay down debt, reduce our cash interest expense and will help drive profit as well. Adding this on to organic revenue growth, we expect to generate long-term EPS growth of 6% to 8%. This is the baseline. But of course, there is the upside incremental optionality as we identify capital deployment opportunities that enhance this algorithm. And we've certainly demonstrated this over the last 10 years.

With that, we'll open it up for questions. Operator?

(Operator Instructions) And our first question coming from the line of Rupesh Parikh with Oppenheimer.

Congrats on another strong quarter. So I guess, just starting out with the organic sales growth guidance, I may have missed this, but did you guys give a specific number for Q1? And then, as you look at the full year, is there any way to just think about the potential drivers you see on the upside, and then at the same time, if you see any potential risk in achieving that 2% to 3% number?

This is Chris. I'll start out. And the specific guide for Q1 sales was $267 million to $270 million. You can think of Akorn at about $15 million for the first quarter.

And then, just as we look at the full-year organic sales growth guidance, the 2% to 3%, where do you see, I guess, upside potential? And at the same time, where you see risks to that delivery?

Yes, Rupesh, this is Chris. So from an upside perspective, really depending on retailer order patterns, what they're ordering could be a stronger cough-cold than maybe we were anticipating. But as a reminder, that's just under 10% of our sales. From a risk perspective, I would probably say around supply chain potentially, right, the mix of what retailers are ordering and the magnitude of their order patterns in this environment, and whether or not our supply chain can keep up with that mix specifically.

Rupesh, Ron here. Just to add a couple of things to that. First, in terms of the first quarter, just as a reminder to everybody on the call here today is, we've got an odd comp in the first quarter, right? Last year, the first quarter certainly saw a concentration of the COVID recovery as people raised from their homes out to restaurants and traveling. So that was created an odd comp in the first quarter of last year. If you take our outlook for the first quarter of '23 and compare it to the first quarter of fiscal '20, right, before COVID started to impact things, our business is up over $20 million quarter-to-quarter or 10%. So as we head into fiscal '23, we continue to feel good about the momentum of the business, the success we've had navigating the challenging environment, including the supply chain headwinds and inflation. So lots of unknowns as we head into the year, but we think the business is well-positioned as we head into it.

Okay. Great. And then, maybe just on the pricing front. Can you maybe talk about the magnitude of price increase that you are taking? Or if you -- maybe if you don't want to talk on your business, just the level of price increases you're seeing in the category, is there anything else you can share just in terms of elasticities at this point if there's anything that has differed versus your expectations?

Yes, Rupesh, maybe I'll start. We expect pricing to add about 2/3 to our -- contribute 2/3 of our growth for next year and volume, the other 1/3, which worth about 1 point to this quarter in Q4 and the full year of fiscal '22 as well.

In terms of elasticities and what's going on in the market, so far, we haven't seen -- expect any inflationary impact to impact consumers' preferences when they're looking for their health care products, like we've seen historically. It doesn't tend to be a place where people look to save money when you're taking care of your family's health.

Our next question coming from the line of Stephanie Wissink with Jefferies.

Just a follow-up to Rupesh's line of questioning. I'm wondering if you can give us an update on trade inventory and if there is anything we need to be mindful of as you're kind of digesting through some of still lingering effects of the COVID rebuild?

Yes. So in total, I would say, everybody involved in the supply chain would like our inventory. Our suppliers would like more inventory. We'd like more inventory. And I think in general, the retailers would like more. Again, consumer shopping trends and demand have been tough to predict. So in general, I think there could be a help, back to Rupesh's questions of one of the things that could be positive next year, that that could be it.

Okay. That's helpful. And then, my second question is on innovation. And I don't know if you want to use one of the examples from your deck, I guess, Summer's Eve Spa. But I'm curious as you think about driving innovation on the backside of kind of the pandemic logic. Are you finding consumers are more exploratory, more discovery-rich that your brands have permission to go into maybe some bigger adjacent categories if you're thinking of self-care, wellness for a brand like Summer's Eve? Maybe just talk a little bit about how you're thinking about innovation leading into bigger TAM.

Yes. So there's kind of 2 trends. One is a continuation of the long-term, which is consumers start with looking for their trusted brands when they're thinking about taking care of themselves. So we talked about Dramamine's expansion into nausea. It's going to -- Dramamine has a long heritage of treating motion sickness and consumers think about motion sickness as if it was nausea. So as we expand into those adjacencies, another example with Clear Eyes with allergies today, that trusted brand heritage really gives us a leg up as we expand into adjacencies. And then, the second more recent and evolving trend is, from the beginning of COVID, consumers have a heightened and expanding ways of thinking about health and hygiene and how they think about taking care of themselves. So that's a newer trend. But again, it steps off of trusted brands and their view around new products and innovation into the marketplace. So we're going to continue to invest in those areas to continue to connect with consumers.

Our next question coming from the line of Jon Andersen with William Blair.

I guess I had one on the guidance as well, the organic growth rate guidance for 2023. Could you provide any more detail around maybe which categories and brands you see contributing the most to the 2% to 3% organic growth rate? And Chris, you might have addressed this, but how much on average throughout the year you expect price to contribute to that growth?

So let me start with addressing kind of which brands really have a momentum as we head into '23, and really it's the brands that we saw in '22. Clear Eyes and TheraTears, both had good fiscal '22s, Clear Eyes in particular. And I talked about allergies and some other new products that are being launched in fiscal '23 for both Clear Eyes and TheraTears. Our GI platform continues to do well with Dramamine -- with Dramamine and Gaviscon up in Canada. In our skin group as well, we have Compound W and Boudreaux's Butt Paste have done well.

And then, for Summer's Eve, which did have some supply chain challenges, so when the K gets reported, you'll see that, that category was flat for the year, largely due to some supply chain challenges during the year, but the launch of Spa and the other products that I mentioned. And of course, the continued long-term success we had in our international business, and particularly with Care in Australia and Hydralyte. So more of the same themes are expected for '23, which is the vast majority of our portfolio is doing well, winning with consumers, and we feel really good as we head into '23.

And then, Jon, just to follow up on your pricing question. We talked about pricing contributing about 2/3 to the growth for fiscal '23. So at the midpoint, just over $15 million, $16 million for next year.

Okay, great. And I guess, Ron, since you mentioned it, Hydralyte have been noticed in particularly this quarter, but just in general, over the past few years, the international business has been such a strong grower, strong contributor. And you have, I think, line extend Hydralyte to meet a bunch of new need states as you had kind of described on the slide in the deck. Where are you do you think with respect to expanding that brand to target these additional need states distribution wise? I mean, do you see a lot more running room left for that brand? Because I think that's been carrying most of the weight internationally. Or are you, you think, in the later stages of the major developments there?

No, we're just getting going, tapping into the long-term potential for Hydralyte. It just celebrated, I think, its 20th anniversary. And its root in it's beginning started in hydration after vomiting and diarrhea. And it's slowly expanded as consumers have thought about hydration beyond just recovery from illness and thinking about it as part of their everyday health regimen. So our household penetration, I think, is still under 10% we had on the slide today. So lots of opportunity there. A couple of years ago, we began our expansion into the adjacent region outside of Australia with the acquisition of the rights there. COVID got us off to a little bit of a slower start there, but we're getting going on that. So lots of running room there.

Great. And then, this question was kind of asked, I guess I wanted to make it a little bit more pointed. With price increases going in and kind of reflecting the inflationary environment, any signs at all of any trade down to private label in any of your categories? Or is that just not an issue that you're seeing or concerned about at this point?

Yes. Over the long-term, again, we haven't seen a lot of consumers trade down in this space, whether it's inflationary driven or economic environment driven, right? Those are 2 of many factors that could have consumers give pause to the price value proposition across all of their shopping decisions. So that's the first part of it, right? Again, it's not an area where consumers are willing to try something new to save a little bit of money. That's the first part of it. And the second part I'll go back to is, we're a brand-building and marketing company. And every day, we come to work to make sure that our products offer a different proposition and better proposition to the consumer. That's what we're here to do. So we talked about the importance of new product and innovation today, and that plays a role today and tomorrow to make sure that we offer better differentiated, more efficacious products to further connect with consumers and drive that point home.

And sorry, I've actually got a couple more if I can take the time. On e-commerce, I think Chris said you had another year of double-digit growth for e-commerce. But have you seen the growth rate moderate as maybe consumers go back in shop stores? To what extent has it moderated? And I guess, longer term, as you kind of plan for that part of your business, how high do you see that going in terms of a percent of the company's sales? It seems like you're well-positioned there, but trying to get a sense for what's happening here and now in terms of some of the shifting channel dynamics given we're exiting COVID hopefully, and what your longer-term expectations are for that channel?

So let me start with a couple of comments, and I'll let Chris wrap it up. First of all, our percent growth may have come down each year, but only because the number has gone to nearly 15% of our total sales from a starting point of less than 5%. So it's just a growth off of a big number situation here. But we continue to do very well in e-commerce. Consumers are continuing to show that the convenience and the broad offering available on any e-commerce site that they go to is something that they're looking to do.

Our strategy around consumer channel choice is pretty simple, and I talked about it in today's prepared remarks is be there where the customer chooses to shop and have a financial profile for us that's consistent across all of those channels, so there's no negative impact to us based on where consumers choose to buy. And you go back 20 years ago, we were in club and dollar and math as those channels grew meaningfully over the long term, and we're online waiting for them as well. So it's something we're going to continue to invest behind because consumers are choosing to go there and will be wherever the consumers switch to in the future.

So Chris, some of the other questions Jon asked?

Yes, I think Ron summed that up nicely. I guess the only thing I would add is that our share in online continues to outpace our brick-and-mortar share. So we're still -- despite having multiyears of double-digit growth, it continues today.

Okay. And then, just the last one, I guess, more a structural question. With so much change going on among the strategics, like in pharma, Unilever's failed bid for GSK's consumer healthcare business, other large pharma looking at divesting or recently having divested, what do you think this means for the prospects of M&A and the kind of M&A that you'd be interested in or available to participate in as we look forward?

Yes. So first of all, let me comment on the first part of your question, which is there is a lot of activity and attention as many of these big pharmas look to spin out their consumer arms and other big CPG companies get excited to try to make investments in this area. And it's really a reminder that there's a lot of interest and there's a lot of attention around the attributes that we've been talking about for 10-plus years here, whether it's the stability and ability to grow long-term, the well-positioned financial profiles of these segments of business.

And in this environment, quite frankly, businesses that can be positioned to do well in a long-term challenging environment, as we've proven over the last handful of years here, right, our 3-year CAGAR, right, so before COVID through fiscal '22 is solid top-line growth of about 5%, and double-digit EPS and cash flow growth. So people are finally taking notice to all of the things that we've been making a lot of noise about for the last few years, and I think is going to draw further attention to the value creation opportunity that we have here and highlight our strong performance.

The second part of your question in terms of how it relates to M&A activity is, for decades now, these big pharma and CPG players have been managing their portfolios and focusing on big or focusing on regions, and it's ultimately created opportunities for us. And we have bought many brands either directly from big pharma or CPG companies or from PE firms that got them from them just one turn before. So we think over the long-term it's going to continue to provide opportunities for us to make smart and disciplined M&A.

Our next question coming from the line of Linda Bolton-Weiser with D.A. Davidson.

I was wondering your -- and thank you for the presentation, it was really good. Your cash flow has really gotten to -- your free cash flow has gotten a really high level. And I'm just curious if -- because you are a growing company, and even though you have an asset-light model with outsourced manufacturing, there still are areas where required investment, like IT for example, distribution, etc. So do you foresee, in the next couple of years, any pop-up in your or any spike-up in your capital spending to bulk up some of these areas? And related to that, I think you just have the one distribution center in St. Louis. Is there any idea that you might need to add more distribution centers here as you grow bigger?

So Linda, this is Chris. Maybe I'll start by just saying, we talk about a CapEx range of 1% to 2% of sales and some years will be a little higher, some will be a little lower, but there are no areas that we are lacking investment. We're making IT investments every year continuously. So there's no big project that we have line of sight to right now that we're looking at that will be outside of that range of the 1% to 2%.

So I guess I would start with that. In terms of when is it time to move from one distribution center to another, we did a move recently in the last few years, right before COVID, as you remember, to a different provider and a different location for our DC, and of course in relation to that, we did a study about whether or not made sense for us, what will really drive that, obviously, as we continue to grow, but really just customer service, right?

If we were able to service customers more efficiently or better, we would have opened a second DC back when we did that analysis. So we're not quite there yet. But again, if we were to step into a new DC facility because of capacity over the next few years, I think it would still be within that 1% to 2% of sales CapEx number that we talk about now.

The other thing, Linda, is we've been investing and planning to make sure that our business model and our platform is scalable. So we've been making investments all along the way, starting way back when we put SAP in place on a global basis for all of our businesses. And as Chris just mentioned, when we moved to the new distribution center, we made sure that it would be able to expand in the future and grow with us. So we don't have any built-up capital needs that may pop up in any year or 2 to disrupt our free cash flow. So we continue to feel good about the model, the 3 factors that Chris outlined in her prepared remarks today about the drivers, right, high EBITDA margins and consistent EBITDA margins, the cash tax benefit and low capital spending. So we think that is repeatable.

Great. And then, I was just wondering about the COVID-impacted categories that then began to grow faster as they recovered. Would you say that those categories are fully recovered at this point? Or are they not quite back to their pre-COVID sizes in terms of the sales levels of those categories?

Yes. So we had basically 4, I guess, areas that were impacted by COVID, Dramamine, Hydralyte, cough-cold and Nix. And Dramamine and Hydralyte are fully recovered and they began to continue to grow at the high levels that they have been for a long term. So as we exited fiscal '22, those franchises were recovered and back on to winning it, like they have over the long term. The cough-cold and Nix, the head lice business, even though they had strong growth in '22 versus '21, they're still not fully recovered to the pre-COVID level. And as we head into '23, we anticipate some additional moderate levels of recovery, but we're not expecting any huge rebound in those. In particular, cough-cold is going to be very tough to continue to predict. Going forward, it's a small portion of our portfolio, like 8% direct to total sales. So we'll be mindful of it and try to maximize whatever opportunity shows up, but we'll keep an eye on that. So I think that addresses your question.

Yes. And then, finally, you've talked a little bit about private label on the call today. Can you just remind us like what percent of your revenue does have private label competition roughly?

Yes. The vast majority of our brands and products have private label as a competitor and the percent share ranges very widely depending on the category, very low amounts in eye care, for example, in powdered analgesic, it's almost non-existent, to very high shares like in Monistat, where it's just us and private label for the most part. But again, I think the important comment on private label or really any competitive -- or competitor is that we continue to be well-positioned and continue to be successful growing our share and growing the categories because of the way we view our long-term stewardship of the categories we compete in.

Okay. Can I just slip in one more question? I'm just curious to understand a little bit better about how your brands are managed, because you have built up over acquisition over the years. Are they kind of run as siloed businesses? Or do you have a lot of sharing of best practices like across the different brands? And are all the brand managers pretty much sitting in Tarrytown, managing the brand kind of from that location?

Yes. So we kind of start at the high level at the category level, where we have a director that is thoughtful about a particular category, and then below that would be the brands within that category. And our brand managers for North America are here in Tarrytown, collaborating and working together to share learnings across categories and across brands. Here one of the things that is, I think, very unique about the culture here at Prestige is the collaboration that takes place. And we've been able to continue it even in a remote environment where everybody has been working from home over the last couple of years. So we take advantage of thinking about categories and individual brands, but also getting together as groups to share consumer insights across them.

Our next question coming from the line of Anthony Lebiedzinski with Sidoti.

So just in terms of the new product pipeline and innovation, you guys spoke about that more than usual. Just wanted to get a better sense. As far as the number of new products that are coming on board in fiscal '23, is that consistent with years past or are you accelerating the new product pipeline for this year?

So for '23, it's fairly consistent with what we've seen in prior years. And again, it's really all about having a consistent 3-year pipeline so that you've got something ready in development for every year that you feel good about. So '23 in a lot of ways is consistent with past years. And today, in the prepared remarks, we highlighted it as an important element of our long-term brand building and marketing approach, and it's important connection with consumer insights, Anthony.

Got it. And then, also in your prepared remarks, you talked about how over the years you've added brands and you've divested the brands. So now as you look at your current brand portfolio, are there any particular brands that you would look to maybe divest if the right opportunity came along or are you happy with the current brand portfolio?

Yes. So first of all, we feel good about the makeup of our portfolio and the tag-in that it has with our long-term organic growth outlook of 2% to 3%, right? That's the important connection there is making sure we feel good about that. In terms of further divestiture, we've got a tail that's less than 10%. And if we get inbound calls with valuations that would make sense, right, it ultimately comes down to a financial evaluation of the value of the cash flows of holding those things versus what somebody is willing to pay. And what we would do with the proceeds if we did sell something, just prior to the Fleet acquisition, which was our largest at the time we sold a small group of non-core OTC brands as a way to help offset some of the big check that we wrote for the Fleet business. So it all depends on valuation. But as we sit here today, we continue to feel good about the makeup of our portfolio.

Got it. Okay. And then -- so in terms of valuation, given the recent volatility that we've had in the market, have you seen any sort of drop-off in valuations? Or how would you characterize that?

Yes. So I'd say, M&A valuations for the things that we would be interested in and would be competitive for have been fairly consistent for a long time, even with or compared to some of the big numbers you hear for some of the consumer businesses that are coming out of big pharma. So the most recent example is the Akorn consumer brands, which we paid about 10x, Chris, for back in July. So even in an environment where you keep hearing these huge multiples, our most recent example is consistent with what we've been paying in the past.

Got you. Okay. And then, lastly as far as the EPS guidance for the full year, does that assume any share repurchases or no?

It does not.

(Operator Instructions) And I'm showing no further questions at this time. I'd now like to turn the call back over to Mr. Lombardi for any closing remarks.

Thank you, operator, and thanks to everyone for joining us on the call today. And we look forward to updating you on our business as the year progresses. Thanks, everyone, and have a great day.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.