Prestige sumer Healthcare (PBH) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the reported periods Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Prestige Consumer Healthcare Inc., including statements of income and comprehensive income, balance sheets, statements of changes in stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's business, accounting policies, acquisitions, and financial instrument details for the periods ended December 31, 2022 and 2021 Condensed Consolidated Statements of Income and Comprehensive Income This section provides the company's condensed consolidated statements of income and comprehensive income for the three and nine months ended December 31, 2022 and 2021 Three Months Ended December 31, 2022 vs 2021 (in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $275,495 | $274,454 | $1,041 | 0.4% | | Total revenues | $275,524 | $274,470 | $1,054 | 0.4% | | Gross profit | $150,402 | $155,060 | $(4,658) | (3.0)% | | Operating income | $87,184 | $82,594 | $4,590 | 5.6% | | Net income | $51,951 | $50,215 | $1,736 | 3.5% | | Basic EPS | $1.05 | $1.00 | $0.05 | 5.0% | | Diluted EPS | $1.04 | $0.99 | $0.05 | 5.1% | | Comprehensive income | $58,921 | $51,428 | $7,493 | 14.6% | Nine Months Ended December 31, 2022 vs 2021 (in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $841,783 | $819,843 | $21,940 | 2.7% | | Total revenues | $841,856 | $819,876 | $21,980 | 2.7% | | Gross profit | $471,530 | $471,784 | $(254) | (0.1)% | | Operating income | $258,582 | $252,494 | $6,088 | 2.4% | | Net income | $158,246 | $153,295 | $4,951 | 3.2% | | Basic EPS | $3.17 | $3.05 | $0.12 | 3.9% | | Diluted EPS | $3.14 | $3.02 | $0.12 | 4.0% | | Comprehensive income | $147,789 | $149,889 | $(2,100) | (1.4)% | Condensed Consolidated Balance Sheets This section presents the company's condensed consolidated balance sheets as of December 31, 2022, and March 31, 2022 As of December 31, 2022 vs March 31, 2022 (in thousands) | Metric | Dec 31, 2022 | Mar 31, 2022 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Total current assets | $408,847 | $293,267 | $115,580 | 39.4% | | Total Assets | $3,749,774 | $3,670,681 | $79,093 | 2.2% | | Total current liabilities | $160,176 | $143,422 | $16,754 | 11.7% | | Total Liabilities | $2,062,911 | $2,093,070 | $(30,159) | (1.4)% | | Total Stockholders' Equity | $1,686,863 | $1,577,611 | $109,252 | 6.9% | Condensed Consolidated Statements of Changes in Stockholders' Equity This section details the changes in the company's stockholders' equity for the nine months ended December 31, 2022 and 2021 Stockholders' Equity Changes (Nine Months Ended December 31, 2022 vs March 31, 2022) (in thousands) | Metric | March 31, 2022 | December 31, 2022 | Change ($) | | :-------------------------------- | :------------- | :---------------- | :--------- | | Common Stock (Par Value) | $544 | $548 | $4 | | Additional Paid-in Capital | $515,583 | $532,508 | $16,925 | | Treasury Stock (Amount) | $(133,648) | $(189,114) | $(55,466) | | Accumulated Other Comprehensive Loss | $(19,032) | $(29,489) | $(10,457) | | Retained Earnings | $1,214,164 | $1,372,410 | $158,246 | | Total Stockholders' Equity | $1,577,611 | $1,686,863 | $109,252 | - Treasury share repurchases amounted to $55.5 million for the nine months ended December 31, 2022, significantly increasing from the prior year[19] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash flows from operating, investing, and financing activities for the nine months ended December 31, 2022 and 2021 Nine Months Ended December 31, 2022 vs 2021 (in thousands) | Activity | 2022 | 2021 | Change ($) | | :-------------------------------- | :----- | :----- | :--------- | | Net cash provided by operating activities | $170,729 | $196,796 | $(26,067) | | Net cash used in investing activities | $(5,226) | $(253,218) | $247,992 | | Net cash (used in) provided by financing activities | $(105,351) | $46,546 | $(151,897) | | Cash and cash equivalents - end of period | $86,358 | $21,018 | $65,340 | - Cash and cash equivalents increased by $59.2 million for the nine months ended December 31, 2022, reaching $86.4 million, primarily due to a significant decrease in cash used for investing activities compared to the prior year's Akorn acquisition[22] Notes to Condensed Consolidated Financial Statements (unaudited) This section provides detailed notes to the condensed consolidated financial statements, explaining accounting policies, acquisitions, and financial instrument details Note 1. Business and Basis of Presentation This note describes the company's business, its operating environment, and the basis of financial statement presentation - Prestige Consumer Healthcare Inc. develops, manufactures, markets, sells, and distributes over-the-counter (OTC) healthcare products in North America, Australia, and other international markets[24] - The company operates in an uncertain economic environment characterized by global supply chain constraints, rising interest rates, high inflation, and geopolitical events, which could impact product demand and costs[25][26] - No new accounting pronouncements were adopted in fiscal 2023, and recently issued ASUs (2022-02, 2022-01, 2021-08, 2020-04) are not expected to have a material effect on the consolidated financial statements upon adoption[29][30][31][32] Note 2. Acquisition (Akorn) This note details the acquisition of Akorn Operating Company LLC's consumer health business assets - On July 1, 2021, the company acquired the consumer health business assets from Akorn Operating Company LLC for $228.9 million in cash, adding brands like TheraTears[33] Akorn Acquisition Asset Allocation (July 1, 2021, in thousands) | Asset Category | Amount | | :--------------- | :----- | | Inventories | $6,455 | | Goodwill | $1,098 | | Intangible assets | $225,410 | | Total assets acquired | $232,963 | | Total purchase price | $228,914 | - The acquisition resulted in $195.9 million allocated to non-amortizable intangible assets (trademarks) and $29.5 million to amortizable intangible assets (customer relationships and trademarks), amortized over an estimated weighted average useful life of 12.5 years[36] Note 3. Inventories This note provides a breakdown of inventory components and changes over the period Inventories (in thousands) | Component | December 31, 2022 | March 31, 2022 | | :------------------------ | :---------------- | :------------- | | Packaging and raw materials | $20,306 | $16,984 | | Work in process | $453 | $338 | | Finished goods | $137,763 | $103,020 | | Total Inventories | $158,522 | $120,342 | - Inventories increased by $38.2 million from March 31, 2022, to December 31, 2022, primarily driven by a rise in finished goods. The company also reported a reduction in inventory values for obsolete and slow-moving items of $4.5 million at December 31, 2022[38] Note 4. Goodwill This note details the company's goodwill by segment and discusses impairment considerations Goodwill by Segment (in thousands) | Segment | March 31, 2022 | December 31, 2022 | Change ($) | | :------------------------ | :------------- | :---------------- | :--------- | | North American OTC Healthcare | $548,291 | $547,741 | $(550) | | International OTC Healthcare | $30,685 | $28,861 | $(1,824) | | Consolidated | $578,976 | $576,602 | $(2,374) | - Goodwill decreased slightly by $2.4 million to $576.6 million as of December 31, 2022, primarily due to foreign currency exchange rate effects on the International OTC Healthcare segment and a minor adjustment related to acquisition[40] - No events indicating potential impairment of goodwill were identified as of December 31, 2022, despite economic uncertainties and rising interest rates that could impact future impairment analyses[41][42] Note 5. Intangible Assets, net This note presents the company's intangible assets, net, and related amortization and impairment considerations Intangible Assets, Net (in thousands) | Category | March 31, 2022 | December 31, 2022 | Change ($) | | :------------------------ | :------------- | :---------------- | :--------- | | Indefinite-Lived Trademarks | $2,476,559 | $2,468,913 | $(7,646) | | Finite-Lived Trademarks and Customer Relationships (Net) | $220,076 | $201,415 | $(18,661) | | Total Intangible Assets, Net | $2,696,635 | $2,670,328 | $(26,307) | - Total intangible assets, net, decreased by $26.3 million, primarily due to foreign currency exchange rate effects and amortization of finite-lived assets. Amortization expense for finite-lived intangible assets was $16.9 million for the nine months ended December 31, 2022[44][45] - No events indicating potential impairment of intangible assets were identified as of December 31, 2022, though rising interest rates and economic conditions could impact future fair value assessments[47][48] Note 6. Leases This note outlines the company's lease costs, weighted average lease terms, and discount rates Total Net Lease Cost (in thousands) | Period | 2022 | 2021 | Change ($) | Change (%) | | :------------------------ | :----- | :----- | :--------- | :--------- | | Three Months Ended Dec 31 | $17,089 | $12,150 | $4,939 | 40.6% | | Nine Months Ended Dec 31 | $50,864 | $40,628 | $10,236 | 25.2% | - Total net lease cost increased significantly, primarily driven by a substantial rise in variable lease costs, which grew from $9.77 million to $14.73 million for the three months ended December 31, 2022, and from $33.42 million to $43.74 million for the nine months ended December 31, 2022[50] Weighted Average Lease Terms and Discount Rates (December 31, 2022) | Lease Type | Remaining Lease Term (years) | Discount Rate | | :--------------- | :--------------------------- | :------------ | | Operating leases | 3.43 | 3.29% | | Finance leases | 1.92 | 2.95% | Note 7. Other Accrued Liabilities This note provides a breakdown of other accrued liabilities and their changes Other Accrued Liabilities (in thousands) | Category | December 31, 2022 | March 31, 2022 | Change ($) | | :------------------------ | :---------------- | :------------- | :--------- | | Accrued marketing costs | $35,936 | $36,149 | $(213) | | Accrued compensation costs | $10,436 | $19,587 | $(9,151) | | Income taxes payable | $6,973 | $2,670 | $4,303 | | Accrued production costs | $5,435 | $3,686 | $1,749 | | Total Other Accrued Liabilities | $70,983 | $74,113 | $(3,130) | - Total other accrued liabilities decreased by $3.1 million, primarily due to a significant reduction in accrued compensation costs, partially offset by an increase in income taxes payable and accrued production costs[51] Note 8. Long-Term Debt This note details the company's long-term debt instruments, repayments, and borrowing capacity Long-Term Debt (in thousands) | Debt Instrument | December 31, 2022 | March 31, 2022 | Change ($) | | :-------------------------------- | :---------------- | :------------- | :--------- | | 2021 Senior Notes (3.750%, due 2031) | $600,000 | $600,000 | $0 | | 2019 Senior Notes (5.125%, due 2028) | $400,000 | $400,000 | $0 | | 2012 Term B-5 Loans (variable, due 2028) | $440,000 | $495,000 | $(55,000) | | Total Long-term debt, net | $1,424,095 | $1,476,658 | $(52,563) | - Long-term debt, net, decreased by $52.6 million, primarily due to $55.0 million in voluntary principal repayments against the 2012 Term B-5 Loans. The company has no required principal payments until maturity in 2028 and 2031[52][53] - As of December 31, 2022, the company had no outstanding balance on its 2012 ABL Revolver and a borrowing capacity of $155.3 million[52] Note 9. Fair Value Measurements This note presents the fair value measurements for the company's debt instruments Fair Value of Debt Instruments (in thousands) | Debt Instrument | Carrying Value (Dec 31, 2022) | Fair Value (Dec 31, 2022) | Carrying Value (Mar 31, 2022) | Fair Value (Mar 31, 2022) | | :------------------------ | :---------------------------- | :-------------------------- | :---------------------------- | :-------------------------- | | 2021 Senior Notes | $600,000 | $496,500 | $600,000 | $534,000 | | 2019 Senior Notes | $400,000 | $379,000 | $400,000 | $397,000 | | 2012 Term B-5 Loans | $440,000 | $437,800 | $495,000 | $493,144 | - The fair values of the 2021 Senior Notes and 2019 Senior Notes were significantly lower than their carrying values at December 31, 2022, indicating a market discount, while the 2012 Term B-5 Loans' fair value was close to its carrying value[57] - All listed debt instruments are measured in Level 2 of the fair value hierarchy, based on quoted prices for similar instruments in active markets or identical/similar instruments in inactive markets[56] Note 10. Derivative Instruments This note describes the company's derivative instruments, specifically interest rate swaps, and their financial impact Interest Rate Swaps (in thousands) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Gain Recognized in Other Comprehensive Loss | $0 | $561 | $0 | $1,631 | | Loss Reclassified from Accumulated Other Comprehensive Loss into Income | $0 | $(735) | $0 | $(2,185) | - The company's interest rate swap, hedging $200.0 million of variable interest debt, settled on January 31, 2022, resulting in no gains or losses recognized or reclassified for the periods ended December 31, 2022[58][59] Note 11. Stockholders' Equity This note details the company's common stock, preferred stock, and share repurchase activities - The company is authorized to issue 250.0 million shares of common stock and 5.0 million shares of preferred stock. No dividends have been declared or paid on common stock through December 31, 2022[60][61] Share Repurchases (Nine Months Ended December 31, 2022 vs 2021) | Type of Repurchase | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Shares repurchased for employee restricted stock awards (Number) | 99,522 | 63,614 | | Shares repurchased for employee restricted stock awards (Amount) | $5.5 million | $2.9 million | | Shares repurchased under share repurchase program (Number) | 914,236 | — | | Shares repurchased under share repurchase program (Amount) | $50.0 million | — | - The company repurchased $50.0 million of common stock under its share repurchase program during the nine months ended December 31, 2022, in addition to shares repurchased for employee restricted stock awards[63] Note 12. Accumulated Other Comprehensive Loss This note provides a breakdown of accumulated other comprehensive loss components and their changes Accumulated Other Comprehensive Loss (in thousands) | Component | December 31, 2022 | March 31, 2022 | Change ($) | | :-------------------------------- | :---------------- | :------------- | :--------- | | Cumulative translation adjustment | $(29,871) | $(20,204) | $(9,667) | | Unrecognized net gain on pension plans | $382 | $1,172 | $(790) | | Total Accumulated Other Comprehensive Loss | $(29,489) | $(19,032) | $(10,457) | - Accumulated other comprehensive loss increased by $10.5 million, primarily due to negative currency translation adjustments and a decrease in unrecognized net gain on pension plans[64] Note 13. Earnings Per Share This note details the calculation of basic and diluted earnings per share and related share counts Earnings Per Share (Three Months Ended December 31) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------ | :----- | :----- | :--------- | :--------- | | Basic EPS | $1.05 | $1.00 | $0.05 | 5.0% | | Diluted EPS | $1.04 | $0.99 | $0.05 | 5.1% | | Weighted average shares outstanding (Basic) | 49,693 | 50,303 | (610) | (1.2)% | | Weighted average shares outstanding (Diluted) | 50,186 | 50,935 | (749) | (1.5)% | Earnings Per Share (Nine Months Ended December 31) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------ | :----- | :----- | :--------- | :--------- | | Basic EPS | $3.17 | $3.05 | $0.12 | 3.9% | | Diluted EPS | $3.14 | $3.02 | $0.12 | 4.0% | | Weighted average shares outstanding (Basic) | 49,919 | 50,225 | (306) | (0.6)% | | Weighted average shares outstanding (Diluted) | 50,392 | 50,799 | (407) | (0.8)% | - Both basic and diluted EPS increased for both the three and nine months ended December 31, 2022, driven by higher net income and a reduction in weighted average shares outstanding[67] Note 14. Stock-Based Compensation This note outlines the company's stock-based compensation costs and unrecognized compensation expenses Stock-Based Compensation Costs (in thousands) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Pre-tax stock-based compensation costs | $2,433 | $2,234 | $9,756 | $7,331 | | Income tax benefit recognized | $49 | $132 | $924 | $644 | | Cash received from stock option exercise | $5,684 | $3,011 | $7,173 | $5,718 | - Pre-tax stock-based compensation costs increased by $2.4 million for the nine months ended December 31, 2022, reaching $9.8 million. Cash received from stock option exercises also increased to $7.2 million[70] - As of December 31, 2022, there were $3.9 million of unrecognized compensation costs for stock options (weighted average period of 1.9 years) and $11.4 million for RSUs and PSUs (weighted average period of 1.7 years)[71] Note 15. Income Taxes This note presents the company's income tax provision and effective tax rates Income Tax Provision and Effective Tax Rate | Period | Provision (2022) | Provision (2021) | Effective Rate (2022) | Effective Rate (2021) | | :-------------------------------- | :--------------- | :--------------- | :-------------------- | :-------------------- | | Three Months Ended Dec 31 | $16.2 million | $15.3 million | 23.7% | 23.3% | | Nine Months Ended Dec 31 | $47.4 million | $48.2 million | 23.0% | 23.9% | - The effective tax rate for the nine months ended December 31, 2022, decreased to 23.0% from 23.9% in the prior year, primarily due to discrete items related to state tax rate legislative changes and stock-based compensation[77] Note 16. Employee Retirement Plans This note details the company's employee retirement plans and net periodic benefit expense Net Periodic Benefit Expense (Income) (in thousands) | Period | 2022 | 2021 | | :-------------------------------- | :----- | :----- | | Three Months Ended Dec 31 | $30 | $(12) | | Nine Months Ended Dec 31 | $138 | $(36) | - The company completed the termination of its U.S. qualified defined benefit pension plan during the first quarter of fiscal 2023, resulting in a settlement loss of $0.4 million and no further contributions required[80] Note 17. Commitments and Contingencies This note describes the company's legal matters and claims incidental to its business - The company is involved in various legal matters and claims incidental to its business, which are regularly assessed for potential loss. Management believes that reasonably possible losses from these routine matters will not materially adversely affect the business[81] Note 18. Concentrations of Risk This note identifies concentrations of risk related to customers, brands, and manufacturing - The company's revenues are concentrated in OTC Healthcare, with Walmart accounting for approximately 19.9% and 19.8% of gross revenues for the three and nine months ended December 31, 2022, respectively[82] - Approximately 36.9% and 38.7% of gross revenues for the three and nine months ended December 31, 2022, respectively, were derived from the top five selling brands[82] - The company relies on a single primary distribution center and one manufacturing facility, and 133 third-party manufacturers (27 with long-term contracts covering 70.5% of gross sales for the nine months ended December 31, 2022), posing risks of disruption, increased costs, or supply chain issues[83][84][85] Note 19. Business Segments This note outlines the company's reportable business segments and their performance metrics - The company operates in two reportable segments: North American OTC Healthcare and International OTC Healthcare, with performance evaluated based on contribution margin (gross profit less advertising and marketing expenses)[87] Total Segment Revenues (Three Months Ended December 31, 2022, in thousands) | Segment | Revenue | | :------------------------ | :------ | | North American OTC Healthcare | $236,884 | | International OTC Healthcare | $38,640 | | Consolidated | $275,524 | Total Segment Revenues (Nine Months Ended December 31, 2022, in thousands) | Segment | Revenue | | :------------------------ | :------ | | North American OTC Healthcare | $731,456 | | International OTC Healthcare | $110,400 | | Consolidated | $841,856 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance drivers, segment-level analysis, and the impact of the economic environment. It also discusses liquidity, capital resources, and critical accounting policies General Prestige Consumer Healthcare Inc. develops, manufactures, markets, sells, and distributes well-recognized, brand-name over-the-counter (OTC) healthcare products - Prestige Consumer Healthcare Inc. is a developer, manufacturer, marketer, seller, and distributor of well-recognized, brand-name over-the-counter (OTC) healthcare products in North America and international markets[98] - The company's growth strategy involves both organic development of existing brands through new product lines, extensions, and advertising, and strategic acquisitions of 'non-core' OTC brands to reinvigorate their performance[99] Acquisition This section details the acquisition of Akorn Operating Company LLC's consumer health business assets - On July 1, 2021, the company acquired the consumer health business assets from Akorn Operating Company LLC for $228.9 million in cash, adding brands such as TheraTears to its portfolio[100] - The acquisition was accounted for as a business combination, with $195.9 million allocated to non-amortizable intangible assets (trademarks) and $29.5 million to amortizable intangible assets (customer relationships and trademarks)[102] Economic Environment This section discusses the volatile economic environment and its impact on the company's operations - The company operates in a volatile economic environment marked by global supply chain constraints, rising interest rates, high inflation, and geopolitical events, which are expected to continue impacting prices, supply, and product demand[104] - Despite experiencing solid consumer consumption and share gains in fiscal 2022, the company notes changes in purchasing patterns, including reduced retailer visits and a shift to online purchasing[104] - Labor and raw material shortages, along with increased input and shipping costs, have impacted the supply chain, though no material disruption to overall operations, sales, or liquidity has occurred to date[105] Results of Operations (Three Months Ended December 31, 2022 compared to the Three Months Ended December 31, 2021) This section analyzes the company's financial performance for the three months ended December 31, 2022, compared to the prior year Total Segment Revenues (3 Months) This section provides a breakdown of total segment revenues for the three months ended December 31 Total Segment Revenues (Three Months Ended December 31, in thousands) | Segment | 2022 | 2021 | Change ($) | Change (%) | | :------------------------ | :----- | :----- | :--------- | :--------- | | North American OTC Healthcare | $236,884 | $240,857 | $(3,973) | (1.6)% | | International OTC Healthcare | $38,640 | $33,613 | $5,027 | 15.0% | | Total Consolidated | $275,524 | $274,470 | $1,054 | 0.4% | North American OTC Healthcare Segment (3 Months) This section details the revenue performance of the North American OTC Healthcare segment for the three months ended December 31 - Revenues for the North American OTC Healthcare segment decreased by $4.0 million (1.6%) for the three months ended December 31, 2022, primarily due to declines in Women's Health and Eye & Ear categories, partially offset by growth in Cough & Cold and Gastrointestinal[109] International OTC Healthcare Segment (3 Months) This section details the revenue performance of the International OTC Healthcare segment for the three months ended December 31 - Revenues for the International OTC Healthcare segment increased by $5.0 million (15.0%) for the three months ended December 31, 2022, driven by increased consumer demand across key brands, easing COVID-19 restrictions, and a rise in consumer illnesses[110] Gross Profit (3 Months) This section analyzes the company's gross profit performance for the three months ended December 31 Gross Profit (Three Months Ended December 31, in thousands) | Segment | 2022 | 2021 | Change ($) | Change (%) | | :------------------------ | :----- | :----- | :--------- | :--------- | | North American OTC Healthcare | $126,330 | $134,067 | $(7,737) | (5.8)% | | International OTC Healthcare | $24,072 | $20,993 | $3,079 | 14.7% | | Total Consolidated | $150,402 | $155,060 | $(4,658) | (3.0)% | | Gross Profit % of Total Revenues | 54.6% | 56.5% | (1.9) pp | (3.4)% | - Consolidated gross profit decreased by $4.7 million (3.0%), with gross profit as a percentage of total revenues declining to 54.6% from 56.5%, primarily due to increased supply chain costs and product mix[112] Contribution Margin (3 Months) This section analyzes the company's contribution margin performance for the three months ended December 31 Contribution Margin (Three Months Ended December 31, in thousands) | Segment | 2022 | 2021 | Change ($) | Change (%) | | :------------------------ | :----- | :----- | :--------- | :--------- | | North American OTC Healthcare | $101,499 | $99,160 | $2,339 | 2.4% | | International OTC Healthcare | $18,480 | $15,661 | $2,819 | 18.0% | | Total Consolidated | $119,979 | $114,821 | $5,158 | 4.5% | | Contribution Margin % of Total Revenues | 43.5% | 41.8% | 1.7 pp | 4.1% | - Consolidated contribution margin increased by $5.2 million (4.5%), with the percentage of total revenues rising to 43.5% from 41.8%, mainly due to lower advertising and marketing spend[116][117][118] General and Administrative (3 Months) This section details changes in general and administrative expenses for the three months ended December 31 - General and administrative expenses increased slightly to $26.5 million from $26.0 million, primarily due to higher compensation costs, partially offset by reduced professional fees and acquisition costs from the prior period[119] Depreciation and Amortization (3 Months) This section details depreciation and amortization expenses for the three months ended December 31 - Depreciation and amortization expenses remained relatively flat at $6.3 million for the three months ended December 31, 2022, compared to $6.2 million in the prior year[120] Interest Expense, Net (3 Months) This section analyzes net interest expense for the three months ended December 31 - Net interest expense increased to $17.9 million from $16.9 million, despite a decrease in average indebtedness, due to a rise in the average cost of borrowing from 4.2% to 5.0%[121] Income Taxes (3 Months) This section details the provision for income taxes and effective tax rate for the three months ended December 31 - The provision for income taxes increased to $16.2 million from $15.3 million, with the effective tax rate rising to 23.7% from 23.3%, primarily due to discrete items related to stock-based compensation[122] Results of Operations (Nine Months Ended December 31, 2022 compared to the Nine Months Ended December 31, 2021) This section analyzes the company's financial performance for the nine months ended December 31, 2022, compared to the prior year Total Segment Revenues (9 Months) This section provides a breakdown of total segment revenues for the nine months ended December 31 Total Segment Revenues (Nine Months Ended December 31, in thousands) | Segment | 2022 | 2021 | Change ($) | Change (%) | | :------------------------ | :----- | :----- | :--------- | :--------- | | North American OTC Healthcare | $731,456 | $734,978 | $(3,522) | (0.5)% | | International OTC Healthcare | $110,400 | $84,898 | $25,502 | 30.0% | | Total Consolidated | $841,856 | $819,876 | $21,980 | 2.7% | North American OTC Healthcare Segment (9 Months) This section details the revenue performance of the North American OTC Healthcare segment for the nine months ended December 31 - Revenues for the North American OTC Healthcare segment decreased by $3.5 million (0.5%) for the nine months ended December 31, 2022, primarily due to a decline in the Women's Health category, partially offset by an increase in Cough & Cold sales[126] International OTC Healthcare Segment (9 Months) This section details the revenue performance of the International OTC Healthcare segment for the nine months ended December 31 - Revenues for the International OTC Healthcare segment increased significantly by $25.5 million (30.0%) for the nine months ended December 31, 2022, mainly driven by increased sales of the Hydralyte brand in Australia due to easing COVID-19 restrictions and higher consumer illnesses[127] Gross Profit (9 Months) This section analyzes the company's gross profit performance for the nine months ended December 31 Gross Profit (Nine Months Ended December 31, in thousands) | Segment | 2022 | 2021 | Change ($) | Change (%) | | :------------------------ | :----- | :----- | :--------- | :--------- | | North American OTC Healthcare | $404,448 | $420,161 | $(15,713) | (3.7)% | | International OTC Healthcare | $67,082 | $51,623 | $15,459 | 29.9% | | Total Consolidated | $471,530 | $471,784 | $(254) | (0.1)% | | Gross Profit % of Total Revenues | 56.0% | 57.5% | (1.5) pp | (2.6)% | - Consolidated gross profit remained relatively flat, decreasing by $0.3 million (0.1%), with gross profit as a percentage of total revenues declining to 56.0% from 57.5%, primarily due to increased supply chain costs and product mix[129] Contribution Margin (9 Months) This section analyzes the company's contribution margin performance for the nine months ended December 31 Contribution Margin (Nine Months Ended December 31, in thousands) | Segment | 2022 | 2021 | Change ($) | Change (%) | | :------------------------ | :----- | :----- | :--------- | :--------- | | North American OTC Healthcare | $304,889 | $313,531 | $(8,642) | (2.8)% | | International OTC Healthcare | $52,448 | $37,845 | $14,603 | 38.6% | | Total Consolidated | $357,337 | $351,376 | $5,961 | 1.7% | | Contribution Margin % of Total Revenues | 42.4% | 42.9% | (0.5) pp | (1.2)% | - Consolidated contribution margin increased by $6.0 million (1.7%), with the percentage of total revenues slightly decreasing to 42.4% from 42.9%. The North American segment saw a decrease due to lower gross profit margin, while the International segment increased due to lower advertising and marketing spend as a percentage of net sales[133][134][135] General and Administrative (9 Months) This section details changes in general and administrative expenses for the nine months ended December 31 - General and administrative expenses decreased to $79.7 million from $80.7 million, primarily due to acquisition costs in the prior period related to the Akorn acquisition, partially offset by increased compensation costs in the current period[136] Depreciation and Amortization (9 Months) This section details depreciation and amortization expenses for the nine months ended December 31 - Depreciation and amortization expenses increased to $19.1 million from $18.2 million, attributable to higher amortization expense from brands acquired in 2022[137] Interest Expense, Net (9 Months) This section analyzes net interest expense for the nine months ended December 31 - Net interest expense increased to $50.2 million from $48.3 million, despite a decrease in average indebtedness, due to a rise in the average cost of borrowing from 4.1% to 4.5%[138] Loss on Extinguishment of Debt (9 Months) This section details the loss on extinguishment of debt for the nine months ended December 31 - A loss on extinguishment of debt of $2.1 million was recorded during the nine months ended December 31, 2021, related to the amendment of the 2012 Term Loan[139] Income Taxes (9 Months) This section details the provision for income taxes and effective tax rate for the nine months ended December 31 - The provision for income taxes decreased to $47.4 million from $48.2 million, with the effective tax rate decreasing to 23.0% from 23.9%, primarily due to discrete items related to state tax rate legislative changes and stock-based compensation[140] Liquidity and Capital Resources This section discusses the company's liquidity position, capital resources, and cash flow activities Liquidity This section outlines the company's sources of cash and expectations for financing operations - The company's primary source of cash is from operations, supplemented by debt facilities for acquisitions. It expects to finance operations for the foreseeable future through operating cash flow and existing credit facilities[141] Cash Flow Summary (Nine Months Ended December 31, in thousands) | Activity | 2022 | 2021 | Change ($) | | :-------------------------------- | :----- | :----- | :--------- | | Operating Activities | $170,729 | $196,796 | $(26,067) | | Investing Activities | $(5,226) | $(253,218) | $247,992 | | Financing Activities | $(105,351) | $46,546 | $(151,897) | | Net change in cash and cash equivalents | $59,173 | $(11,284) | $70,457 | Operating Activities This section details net cash provided by operating activities for the nine months ended December 31 - Net cash provided by operating activities decreased by $26.1 million to $170.7 million for the nine months ended December 31, 2022, primarily due to increased working capital, partially offset by higher net income before non-cash items[143] Investing Activities This section details net cash used in investing activities for the nine months ended December 31 - Net cash used in investing activities significantly decreased to $5.2 million from $253.2 million, primarily due to the absence of a large acquisition like Akorn in the current period[145] Financing Activities This section details net cash used in financing activities for the nine months ended December 31 - Net cash used in financing activities was $105.4 million, a significant change from $46.5 million provided in the prior year, mainly due to lower net borrowings ($107.0 million) and $50.0 million in common stock repurchases[146] Capital Resources This section outlines the company's total outstanding indebtedness and borrowing capacity - As of December 31, 2022, total outstanding indebtedness was $1.4 billion, consisting of $600.0 million in 2021 Senior Notes, $400.0 million in 2019 Senior Notes, and $440.0 million in 2012 Term B-5 Loans[147][151] - The company made voluntary principal repayments of $55.0 million on the 2012 Term Loan, eliminating required payments until maturity. It also had $155.3 million in borrowing capacity on its 2012 ABL Revolver[147][148] Covenants This section describes the financial covenants associated with the company's debt facilities - The company's debt facilities include financial covenants requiring maintenance of specific leverage (less than 6.50 to 1.0), interest coverage (greater than 2.25 to 1.0), and fixed charge ratios (greater than 1.0 to 1.0)[152][153] - As of December 31, 2022, the company was in compliance with all applicable financial and restrictive covenants and anticipates continued compliance over the next twelve months[153] Critical Accounting Policies and Estimates This section discusses the critical accounting policies and estimates used in preparing the financial statements - The preparation of financial statements requires management to make estimates and assumptions, particularly for intangible asset valuation, stock-based compensation, debt fair value, sales returns, trade promotions, inventory obsolescence, and income taxes[154] - No material changes to critical accounting policies occurred during the nine months ended December 31, 2022[154] Recent Accounting Pronouncements This section refers to recently issued and adopted accounting pronouncements - A description of recently issued and adopted accounting pronouncements is included in Note 1 to the Condensed Consolidated Financial Statements[155] CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This section provides a cautionary statement regarding forward-looking statements within the report, emphasizing that such statements are based on current expectations and assumptions subject to various risks and uncertainties that could cause actual results to differ materially. It also lists numerous factors that could impact future results - Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, and the company does not intend to update them unless required by law[157][158] - Key risk factors include price increases for raw materials, supply chain disruptions, the impact of the COVID-19 pandemic, intense competition, dependence on limited customers and third-party manufacturers, and financial factors like interest rate and currency fluctuations[160] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, specifically interest rate risk and foreign currency exchange rate risk, and provides a quantitative sensitivity analysis for each Interest Rate Risk This section discusses the company's exposure to interest rate changes on its variable rate debt - The company is exposed to interest rate changes due to its variable rate debt, with approximately $440.0 million of debt carrying a variable rate at December 31, 2022[163] - A hypothetical 1.0% increase in interest rates on variable rate debt would adversely impact pre-tax earnings and cash flows by approximately $1.1 million for the three months and $3.5 million for the nine months ended December 31, 2022[164] Foreign Currency Exchange Rate Risk This section discusses the company's exposure to foreign currency exchange rate fluctuations - Approximately 14.9% and 13.8% of gross revenues for the three and nine months ended December 31, 2022, respectively, were denominated in currencies other than the U.S. Dollar, primarily Canadian and Australian Dollars[165] - A hypothetical 10.0% adverse change in foreign currency exchange rates would result in a less than 5.0% impact on pre-tax income, approximately $2.3 million for the three months and $7.1 million for the nine months ended December 31, 2022[166] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures - As of December 31, 2022, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective[167] Changes in Internal Control over Financial Reporting This section reports on any material changes in internal control over financial reporting - There were no material changes in internal control over financial reporting during the quarter ended December 31, 2022[168] PART II. OTHER INFORMATION This section includes additional information such as risk factors, equity security purchases, and exhibits Item 1A. Risk Factors This section refers to the comprehensive risk factors discussed in the company's Annual Report on Form 10-K, noting that no material changes have occurred in the current period, but reiterating that operating results may fluctuate and could fall below expectations - The risk factors outlined in the Annual Report on Form 10-K for the fiscal year ended March 31, 2022, have not materially changed in the period covered by this Quarterly Report[169] - Quarterly operating results and revenues may fluctuate due to various factors, and results for any one quarter are not necessarily indicative of future performance, potentially impacting the market price of securities[170][172] Item 2. Issuer Purchases of Equity Securities This section details the company's common stock repurchases during the quarter, specifically those made to satisfy tax-withholding requirements for employee restricted stock awards Issuer Purchases of Equity Securities (October 1 to December 31, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------ | :----------------------------- | :--------------------------- | | October 1 to October 31, 2022 | 303 | $50.63 | | November 1 to November 30, 2022 | — | $— | | December 1 to December 31, 2022 | — | $— | | Total | 303 | — | - The purchases were made pursuant to the 2020 Plan, allowing for indirect share repurchases through a net-settlement feature to satisfy minimum statutory tax-withholding requirements upon the vesting of shares[174] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, certifications from executive officers, and XBRL-related documents - Exhibits include the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, certifications of principal executive and financial officers (Rule 13a-14(a) and Section 1350), and various Inline XBRL documents[177] Signatures This section contains the required signatures, certifying the filing of the report on behalf of Prestige Consumer Healthcare Inc - The report was signed on February 2, 2023, by Christine Sacco, Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) of Prestige Consumer Healthcare Inc[181]