Prestige sumer Healthcare (PBH) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements and detailed notes for periods ended December 31, 2023 and 2022 Condensed Consolidated Statements of Income and Comprehensive Income Three Months Ended December 31, 2023 vs. 2022 (in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | Total Revenues | $282,741 | $275,524 | $7,217 | 2.6% | | Gross Profit | $157,938 | $150,402 | $7,536 | 5.0% | | Operating Income | $86,832 | $87,184 | $(352) | (0.4)% | | Net Income | $53,046 | $51,951 | $1,095 | 2.1% | | Basic EPS | $1.07 | $1.05 | $0.02 | 1.9% | | Diluted EPS | $1.06 | $1.04 | $0.02 | 1.9% | Nine Months Ended December 31, 2023 vs. 2022 (in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | Total Revenues | $848,366 | $841,856 | $6,510 | 0.8% | | Gross Profit | $472,631 | $471,530 | $1,101 | 0.2% | | Operating Income | $260,276 | $258,582 | $1,694 | 0.7% | | Net Income | $159,881 | $158,246 | $1,635 | 1.0% | | Basic EPS | $3.21 | $3.17 | $0.04 | 1.3% | | Diluted EPS | $3.19 | $3.14 | $0.05 | 1.6% | Condensed Consolidated Balance Sheets Balance Sheet Highlights (in thousands) | Metric | December 31, 2023 | March 31, 2023 | Change ($) | Change (%) | | :--------------------------------- | :---------------- | :---------------- | :--------- | :--------- | | Total Assets | $3,339,753 | $3,353,729 | $(13,976) | (0.4)% | | Total Liabilities | $1,739,176 | $1,906,645 | $(167,469) | (8.8)% | | Total Stockholders' Equity | $1,600,577 | $1,447,084 | $153,493 | 10.6% | | Cash and Cash Equivalents | $63,615 | $58,489 | $5,126 | 8.8% | | Long-term debt, net | $1,199,340 | $1,345,788 | $(146,448) | (10.9)% | Condensed Consolidated Statements of Changes in Stockholders' Equity Changes in Stockholders' Equity (Nine Months Ended December 31, 2023, in thousands) | Item | Amount | | :--------------------------------- | :------- | | Balances at March 31, 2023 | $1,447,084 | | Stock-based compensation | $10,283 | | Exercise of stock options | $10,818 | | Issuance of shares related to restricted stock | $0 | | Treasury share repurchases | $(30,524) | | Net income | $159,881 | | Comprehensive income | $3,035 | | Balances at December 31, 2023 | $1,600,577 | - Total Stockholders' Equity increased by $153.5 million from $1,447.1 million at March 31, 2023, to $1,600.6 million at December 31, 2023, primarily driven by net income and stock-based compensation, partially offset by treasury share repurchases[14][18] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Nine Months Ended December 31, in thousands) | Activity | 2023 | 2022 | Change ($) | | :--------------------------------- | :------- | :------- | :--------- | | Net cash provided by operating activities | $182,019 | $170,729 | $11,290 | | Net cash used in investing activities | $(5,107) | $(5,226) | $119 | | Net cash used in financing activities | $(172,571) | $(105,351) | $(67,220) | | Effects of exchange rate changes | $785 | $(979) | $1,764 | | Increase in cash and cash equivalents | $5,126 | $59,173 | $(54,047) | | Cash and cash equivalents - end of period | $63,615 | $86,358 | $(22,743) | - Net cash provided by operating activities increased by $11.3 million, primarily due to decreased working capital. Net cash used in financing activities increased by $67.2 million, mainly due to higher net debt repayments, partially offset by a decrease in common stock repurchases[117][119] Notes to Condensed Consolidated Financial Statements Provides detailed disclosures for financial statements, covering business, accounting policies, and specific financial line items 1. Business and Basis of 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, primarily through mass merchandisers, drug, food, dollar, convenience, club stores, and e-commerce channels[23] - The company operates in an economically volatile and uncertain environment, facing global supply chain constraints, rising interest rates, high inflation, and geopolitical events, which have led to changes in consumer purchasing patterns, including a shift to online[24][25] - The company adopted ASU 2021-08 (Business Combinations) effective April 1, 2023, and transitioned from LIBOR to SOFR as its reference rate for credit facilities effective July 1, 2023, with no material impact on financial statements[28][29] - New ASUs 2023-09 (Income Taxes) and 2023-07 (Segment Reporting) were issued in December and November 2023, respectively, and the company is currently evaluating their potential impact on future disclosures[30][31] 2. Inventories Inventories (in thousands) | Component | December 31, 2023 | March 31, 2023 | | :------------------------ | :---------------- | :---------------- | | Packaging and raw materials | $22,093 | $20,634 | | Work in process | $555 | $220 | | Finished goods | $125,989 | $141,267 | | Total Inventories | $148,637 | $162,121 | - Inventories decreased by $13.5 million from March 31, 2023, to December 31, 2023, primarily due to a reduction in finished goods[32] - Inventory values include a $5.8 million reduction for obsolete and slow-moving inventory at both December 31, 2023, and March 31, 2023[32] 3. Goodwill Goodwill by Segment (in thousands) | Segment | March 31, 2023 | FX Effects | December 31, 2023 | | :------------------------ | :--------------- | :--------- | :---------------- | | North American OTC Healthcare | $498,936 | $0 | $498,936 | | International OTC Healthcare | $28,617 | $325 | $28,942 | | Consolidated Total | $527,553 | $325 | $527,878 | - Goodwill increased slightly by $0.3 million due to foreign currency exchange rates, primarily in the International OTC Healthcare segment[33] - No events indicating potential impairment of goodwill were identified as of December 31, 2023, following impairment charges of $48.8 million recorded in fiscal 2023[33] 4. Intangible Assets, net Intangible Assets, Net (in thousands) | Component | March 31, 2023 | FX Effects & Additions | December 31, 2023 | | :--------------------------------- | :--------------- | :--------------------- | :---------------- | | Indefinite Lived Trademarks | $2,168,902 | $1,223 | $2,170,125 | | Finite-Lived Trademarks and Customer Relationships (net) | $172,991 | $(14,587) | $158,404 | | Total Intangible Assets, Net | $2,341,893 | $(13,364) | $2,328,529 | - Amortization expense for finite-lived intangible assets was $14.8 million for the nine months ended December 31, 2023, a decrease from $16.9 million in the prior year period[34] - No events indicating potential impairment of intangible assets were identified as of December 31, 2023, following impairment charges of $321.4 million recorded in fiscal 2023[36] 5. Leases Total Net Lease Cost (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | Three Months Ended December 31, | $16,831 | $17,089 | $(258) | (1.5)% | | Nine Months Ended December 31, | $54,926 | $50,864 | $4,062 | 8.0% | Weighted Average Lease Terms and Discount Rates (December 31, 2023) | Lease Type | Remaining Lease Term (years) | Discount Rate | | :--------------------------------- | :--------------------------- | :-------------- | | Operating leases | 2.95 | 3.80% | | Finance leases | 1.03 | 2.93% | 6. Other Accrued Liabilities Other Accrued Liabilities (in thousands) | Component | December 31, 2023 | March 31, 2023 | | :------------------------ | :---------------- | :---------------- | | Accrued marketing costs | $29,648 | $30,471 | | Accrued compensation costs | $9,940 | $14,292 | | Income taxes payable | $5,953 | $10,645 | | Total Other Accrued Liabilities | $65,063 | $72,524 | - Total other accrued liabilities decreased by $7.5 million from March 31, 2023, to December 31, 2023, primarily due to decreases in accrued compensation costs and income taxes payable[41] 7. Long-Term Debt Long-Term Debt Composition (in thousands) | Debt Type | December 31, 2023 | March 31, 2023 | | :--------------------------------- | :---------------- | :---------------- | | 2021 Senior Notes (3.750%, due 2031) | $600,000 | $600,000 | | 2019 Senior Notes (5.125%, due 2028) | $400,000 | $400,000 | | 2012 Term B-5 Loans (SOFR + 2.00%, due 2028) | $210,000 | $360,000 | | Total Long-Term Debt, net | $1,199,340 | $1,345,788 | - Long-term debt, net, decreased by $146.4 million from March 31, 2023, to December 31, 2023, primarily due to a $150 million reduction in 2012 Term B-5 Loans[42] - The company amended its ABL Revolver (ABL Amendment No. 9) on December 8, 2023, increasing the commitment from $175 million to $200 million and extending the maturity to December 8, 2028, with no changes to interest terms[44] - All discontinued reference rates (LIBOR) for the ABL Revolver and Term Loan were transitioned to SOFR effective April 4, 2023, and July 1, 2023, respectively[43] 8. Fair Value Measurements Carrying Value vs. Fair Value of Debt (in thousands) | Debt Instrument | December 31, 2023 Carrying Value | December 31, 2023 Fair Value | March 31, 2023 Carrying Value | March 31, 2023 Fair Value | | :------------------------ | :------------------------------- | :----------------------------- | :------------------------------- | :----------------------------- | | 2019 Senior Notes | $400,000 | $391,000 | $400,000 | $383,500 | | 2021 Senior Notes | $600,000 | $523,500 | $600,000 | $510,750 | | 2012 Term B-5 Loans | $210,000 | $210,263 | $360,000 | $359,550 | - The fair values of the 2019 Senior Notes and 2021 Senior Notes were below their carrying values at both periods, while the 2012 Term B-5 Loans had fair values close to their carrying values[50] - All listed debt instruments are measured in Level 2 of the fair value hierarchy, indicating observable inputs other than quoted prices in active markets[49] 9. Stockholders' Equity - The company is authorized to issue 250 million shares of common stock and 5 million shares of preferred stock, with no preferred stock issued or outstanding[51] - No dividends have been declared or paid on common stock through December 31, 2023[52] - The Board of Directors authorized a $25.0 million common stock repurchase program through May 31, 2024, which was completed in the first quarter of fiscal 2024[53] Common Stock Repurchases (Nine Months Ended December 31, in thousands, except per share data) | Repurchase Type | 2023 Shares | 2023 Amount | 2022 Shares | 2022 Amount | | :--------------------------------- | :---------- | :---------- | :---------- | :---------- | | Employee restricted stock awards | 88,953 | $5.5 million | 99,522 | $5.5 million | | Share repurchase program | 426,479 | $25.0 million | 914,236 | $50.0 million | 10. Accumulated Other Comprehensive Loss Components of Accumulated Other Comprehensive Loss (in thousands) | Component | December 31, 2023 | March 31, 2023 | | :--------------------------------- | :---------------- | :---------------- | | Cumulative translation adjustment | $(29,245) | $(32,280) | | Unrecognized net gain on pension plans, net of tax | $716 | $716 | | Total Accumulated Other Comprehensive Loss | $(28,529) | $(31,564) | - Accumulated other comprehensive loss decreased by $3.0 million from March 31, 2023, to December 31, 2023, primarily due to a positive change in cumulative translation adjustment[55] 11. Earnings Per Share Earnings Per Share (Three Months Ended December 31) | Metric | 2023 | 2022 | | :--------------------------------- | :------- | :------- | | Net income (in thousands) | $53,046 | $51,951 | | Basic EPS | $1.07 | $1.05 | | Diluted EPS | $1.06 | $1.04 | | Weighted average shares outstanding (basic, in thousands) | 49,740 | 49,693 | | Weighted average shares outstanding (diluted, in thousands) | 50,125 | 50,186 | Earnings Per Share (Nine Months Ended December 31) | Metric | 2023 | 2022 | | :--------------------------------- | :------- | :------- | | Net income (in thousands) | $159,881 | $158,246 | | Basic EPS | $3.21 | $3.17 | | Diluted EPS | $3.19 | $3.14 | | Weighted average shares outstanding (basic, in thousands) | 49,731 | 49,919 | | Weighted average shares outstanding (diluted, in thousands) | 50,134 | 50,392 | - Diluted EPS increased by $0.02 (1.9%) for the three months and $0.05 (1.6%) for the nine months ended December 31, 2023, compared to the prior year periods[56] 12. Stock-Based Compensation Stock-Based Compensation Costs (in thousands) | Metric | 3 Months Ended Dec 31, 2023 | 3 Months Ended Dec 31, 2022 | 9 Months Ended Dec 31, 2023 | 9 Months Ended Dec 31, 2022 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Pre-tax stock-based compensation costs | $2,449 | $2,433 | $10,283 | $9,756 | | Income tax benefit recognized | $241 | $49 | $910 | $924 | | Total fair value of options and RSUs vested | $0 | $63 | $12,213 | $10,352 | | Cash received from stock option exercise | $1,635 | $5,684 | $10,818 | $7,173 | | Tax benefits from RSU/option exercises | $351 | $731 | $1,490 | $3,626 | - Unrecognized compensation costs for unvested stock options were $3.1 million (weighted average period of 1.9 years) and for unvested RSUs/PSUs were $12.9 million (weighted average period of 1.7 years) as of December 31, 2023[59] RSU Activity (Nine Months Ended December 31) | Metric | 2023 Shares (in thousands) | 2023 Grant-Date Fair Value | 2022 Shares (in thousands) | 2022 Grant-Date Fair Value | | :--------------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Unvested at March 31 | 409.0 | $47.17 | 440.9 | $38.45 | | Granted | 157.1 | $62.06 | 151.0 | $55.03 | | Vested | (205.0) | $43.17 | (223.4) | $32.09 | | Unvested at December 31 | 391.9 | $54.43 | 409.0 | $47.17 | Option Activity (Nine Months Ended December 31) | Metric | 2023 Shares (in thousands) | 2023 Exercise Price | 2022 Shares (in thousands) | 2022 Exercise Price | | :--------------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Outstanding at March 31 | 1,081.0 | $43.96 | 1,100.9 | $40.62 | | Granted | 131.1 | $61.81 | 197.6 | $54.48 | | Exercised | (268.9) | $40.23 | (200.2) | $35.82 | | Outstanding at December 31 | 899.4 | $47.18 | 1,087.2 | $43.94 | 13. Income Taxes Effective Tax Rates | Period | 2023 | 2022 | Change (pp) | | :--------------------------------- | :------- | :------- | :---------- | | Three Months Ended December 31, | 23.8% | 23.7% | 0.1% | | Nine Months Ended December 31, | 23.4% | 23.0% | 0.4% | - The increase in effective tax rates for both periods was primarily due to discrete items related to stock-based compensation and state tax rate legislative changes[63] 14. Commitments and Contingencies - The company is involved in various legal matters and claims incidental to its business, which are regularly assessed for potential loss[64] - Management believes that reasonably possible losses from routine legal matters will not materially affect the financial statements[65] 15. Concentrations of Risk - Revenues are concentrated in OTC Healthcare, with approximately 37.0% (three months) and 37.8% (nine months) of gross revenues derived from the top five selling brands in 2023[66] - Walmart accounted for approximately 19.0% (three months) and 19.6% (nine months) of gross revenues in 2023, while Amazon accounted for approximately 10.7% (three months) and 10.4% (nine months)[66] - The company relies on a single primary distribution center in Clayton, Indiana, and one manufacturing facility in Lynchburg, Virginia, for certain products, posing risks from natural disasters, labor shortages, or third-party disruptions[67] - The company relies on 129 third-party manufacturers, with long-term contracts covering 72.1% of gross sales for the nine months ended December 31, 2023, highlighting a risk from manufacturers without long-term agreements[68] 16. Business Segments - The company operates in two reportable segments: North American OTC Healthcare and International OTC Healthcare, with performance evaluated based on contribution margin (gross profit less advertising and marketing expenses)[69] Total Segment Revenues (Three Months Ended December 31, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | North American OTC Healthcare | $236,565 | $236,884 | $(319) | (0.1)% | | International OTC Healthcare | $46,176 | $38,640 | $7,536 | 19.5% | | Consolidated Total | $282,741 | $275,524 | $7,217 | 2.6% | Total Segment Revenues (Nine Months Ended December 31, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | North American OTC Healthcare | $727,131 | $731,456 | $(4,325) | (0.6)% | | International OTC Healthcare | $121,235 | $110,400 | $10,835 | 9.8% | | Consolidated Total | $848,366 | $841,856 | $6,510 | 0.8% | Segment Gross Profit (Three Months Ended December 31, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | North American OTC Healthcare | $130,475 | $126,330 | $4,145 | 3.3% | | International OTC Healthcare | $27,463 | $24,072 | $3,391 | 14.1% | | Consolidated Total | $157,938 | $150,402 | $7,536 | 5.0% | Segment Contribution Margin (Three Months Ended December 31, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | North American OTC Healthcare | $96,558 | $101,499 | $(4,941) | (4.9)% | | International OTC Healthcare | $21,914 | $18,480 | $3,434 | 18.6% | | Consolidated Total | $118,472 | $119,979 | $(1,507) | (1.3)% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, results of operations, key drivers, economic factors, liquidity, capital, and accounting policies General - Prestige Consumer Healthcare Inc. develops, manufactures, markets, sales, and distributes well-recognized, brand name, over-the-counter (OTC) healthcare products in North America, Australia, and other international markets[79] - The company's growth strategy involves organic brand development through new product lines, extensions, and advertising, as well as strategic acquisitions of 'non-core' OTC brands to reinvigorate them and increase market share[80] Economic Environment - The company faces economic uncertainty due to global supply chain constraints, rising interest rates, high inflation, and geopolitical events, which are expected to continue impacting prices, supply, and product demand[81] - Consumer purchasing patterns have shifted, with reduced frequency of retail visits and increased online purchases[81] - While no material disruption has occurred to date, the volatile environment has impacted labor and raw material supply, leading to shortages, delays, backorders, and price increases from suppliers, which could materially affect operations and liquidity if conditions worsen[82] Results of Operations: Three Months Ended December 31, 2023 vs. 2022 Total revenues increased by 2.6% to $282.7 million, driven by international growth, with gross profit up 5.0% Total Segment Revenues Total Revenues (Three Months Ended December 31, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | North American OTC Healthcare | $236,565 | $236,884 | $(319) | (0.1)% | | International OTC Healthcare | $46,176 | $38,640 | $7,536 | 19.5% | | Consolidated Total | $282,741 | $275,524 | $7,217 | 2.6% | - North American OTC Healthcare revenues slightly decreased by 0.1%, primarily due to declines in Cough & Cold and Oral Care, partially offset by growth in Eye & Ear Care (up 17.9%)[85][84] - International OTC Healthcare revenues significantly increased by 19.5%, driven by strong growth in Gastrointestinal (up 22.4%), Eye & Ear Care (up 25.6%), and Women's Health (up 25.4%)[86][84] Gross Profit Gross Profit (Three Months Ended December 31, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | North American OTC Healthcare | $130,475 | $126,330 | $4,145 | 3.3% | | International OTC Healthcare | $27,463 | $24,072 | $3,391 | 14.1% | | Consolidated Total | $157,938 | $150,402 | $7,536 | 5.0% | - Consolidated gross profit margin increased to 55.9% in Q3 2023 from 54.6% in Q3 2022[88] - North American OTC Healthcare gross profit margin increased to 55.2% from 53.3%, primarily due to reduced logistics costs[89] - International OTC Healthcare gross profit margin decreased to 59.5% from 62.3%, primarily due to increased supply chain costs and product mix[90] Contribution Margin Contribution Margin (Three Months Ended December 31, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | North American OTC Healthcare | $96,558 | $101,499 | $(4,941) | (4.9)% | | International OTC Healthcare | $21,914 | $18,480 | $3,434 | 18.6% | | Consolidated Total | $118,472 | $119,979 | $(1,507) | (1.3)% | - North American OTC Healthcare contribution margin decreased by 4.9% and as a percentage of revenues decreased to 40.8% from 42.8%, mainly due to increased advertising and marketing spend[93] - International OTC Healthcare contribution margin increased by 18.6% but as a percentage of revenues slightly decreased to 47.5% from 47.8%, primarily due to the decrease in gross profit margin[94] General and Administrative - General and administrative expenses remained relatively flat at $26.0 million for the three months ended December 31, 2023, compared to $26.5 million in the prior year[95] Depreciation and Amortization - Depreciation and amortization expenses decreased to $5.6 million for the three months ended December 31, 2023, from $6.3 million in the prior year, primarily due to lower amortization expense following impairment charges on finite-lived brands in fiscal 2023[96] Interest Expense, Net Interest Expense, Net (Three Months Ended December 31) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | Interest expense, net (in thousands) | $16,575 | $17,917 | $(1,342) | (7.5)% | | Average indebtedness (in billions) | $1.3 | $1.4 | $(0.1) | (7.1)% | | Average cost of borrowing | 5.4% | 5.0% | 0.4% | 8.0% | - Despite a decrease in average indebtedness, the average cost of borrowing increased, leading to a 7.5% decrease in net interest expense[97] Income Taxes Income Taxes (Three Months Ended December 31) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | Provision for income taxes (in thousands) | $16,529 | $16,166 | $363 | 2.2% | | Effective tax rate | 23.8% | 23.7% | 0.1% | 0.4% | - The slight increase in the effective tax rate was primarily due to discrete items related to stock-based compensation[98] Results of Operations: Nine Months Ended December 31, 2023 vs. 2022 Total revenues increased by 0.8% to $848.4 million, driven by international growth, with gross profit up 0.2% Total Segment Revenues Total Revenues (Nine Months Ended December 31, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | North American OTC Healthcare | $727,131 | $731,456 | $(4,325) | (0.6)% | | International OTC Healthcare | $121,235 | $110,400 | $10,835 | 9.8% | | Consolidated Total | $848,366 | $841,856 | $6,510 | 0.8% | - North American OTC Healthcare revenues decreased by 0.6%, primarily due to declines in Women's Health (down 6.6%), Analgesics (down 4.6%), and Cough & Cold (down 4.2%), partially offset by growth in Eye & Ear Care (up 7.8%) and Dermatologicals (up 5.3%)[101][100] - International OTC Healthcare revenues increased by 9.8%, mainly driven by growth in Women's Health (up 25.2%), Eye & Ear Care (up 20.5%), and Analgesics (up 132.3%)[102][100] Gross Profit Gross Profit (Nine Months Ended December 31, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | North American OTC Healthcare | $403,499 | $404,448 | $(949) | (0.2)% | | International OTC Healthcare | $69,132 | $67,082 | $2,050 | 3.1% | | Consolidated Total | $472,631 | $471,530 | $1,101 | 0.2% | - Consolidated gross profit margin slightly decreased to 55.7% in the nine months ended December 31, 2023, from 56.0% in the prior year, primarily due to increased supply chain costs and product mix, partly offset by pricing actions[104] - North American OTC Healthcare gross profit margin increased to 55.5% from 55.3%, driven by product mix and pricing actions, partially offset by increased supply chain costs[105] - International OTC Healthcare gross profit margin decreased to 57.0% from 60.8%, primarily due to increased supply chain costs and product mix[106] Contribution Margin Contribution Margin (Nine Months Ended December 31, in thousands) | Segment | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | North American OTC Healthcare | $302,792 | $304,889 | $(2,097) | (0.7)% | | International OTC Healthcare | $54,040 | $52,448 | $1,592 | 3.0% | | Consolidated Total | $356,832 | $357,337 | $(505) | (0.1)% | - North American OTC Healthcare contribution margin decreased by 0.7% and as a percentage of revenues slightly decreased to 41.6% from 41.7%, mainly due to a slight increase in advertising and marketing spend[109] - International OTC Healthcare contribution margin increased by 3.0% but as a percentage of revenues decreased to 44.6% from 47.5%, primarily due to the decrease in gross profit margin[110] General and Administrative - General and administrative expenses remained flat at $79.7 million for both the nine months ended December 31, 2023, and 2022[111] Depreciation and Amortization - Depreciation and amortization expenses decreased to $16.9 million for the nine months ended December 31, 2023, from $19.1 million in the prior year, primarily due to lower amortization expense following impairment charges on finite-lived brands in fiscal 2023[112] Interest Expense, Net Interest Expense, Net (Nine Months Ended December 31) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | Interest expense, net (in thousands) | $51,900 | $50,188 | $1,712 | 3.4% | | Average indebtedness (in billions) | $1.3 | $1.5 | $(0.2) | (13.3)% | | Average cost of borrowing | 5.4% | 4.5% | 0.9% | 20.0% | - Despite a decrease in average indebtedness, the average cost of borrowing increased significantly, leading to a 3.4% increase in net interest expense[113] Income Taxes Income Taxes (Nine Months Ended December 31) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | :--------- | | Provision for income taxes (in thousands) | $48,822 | $47,361 | $1,461 | 3.1% | | Effective tax rate | 23.4% | 23.0% | 0.4% | 1.7% | - The increase in the effective tax rate was primarily due to discrete items related to stock-based compensation and state tax rate legislative changes[114] Liquidity and Capital Resources Liquidity is driven by operating cash flows and debt facilities, with $1.2 billion outstanding debt and covenant compliance Liquidity - The primary source of cash is cash flow from operations, supplemented by debt facilities, primarily for acquisitions[115] - The company expects cash generated from operations and existing credit facilities to be adequate for working capital and capital expenditures for the next twelve months, excluding acquisitions[115] Cash Flow Activities (Nine Months Ended December 31, in thousands) | Activity | 2023 | 2022 | Change ($) | | :--------------------------------- | :------- | :------- | :--------- | | Operating Activities | $182,019 | $170,729 | $11,290 | | Investing Activities | $(5,107) | $(5,226) | $119 | | Financing Activities | $(172,571) | $(105,351) | $(67,220) | | Net change in cash and cash equivalents | $5,126 | $59,173 | $(54,047) | - Net cash provided by operating activities increased by $11.3 million, primarily due to decreased working capital. Net cash used in financing activities increased by $67.2 million, mainly due to higher net debt repayments[117][119] Capital Resources - As of December 31, 2023, total outstanding indebtedness was $1.2 billion, comprising $400 million in 2019 Senior Notes, $600 million in 2021 Senior Notes, and $210 million in 2012 Term B-5 Loans[120][125] - The 2012 ABL Revolver had no outstanding balance and a borrowing capacity of $168.9 million as of December 31, 2023[120] - ABL Amendment No. 9 increased the aggregate revolving commitment of the 2012 ABL Revolver from $175.0 million to $200.0 million and extended its maturity to December 8, 2028[121] Future Principal Payments (in thousands) | Year Ending March 31, | Amount | | :--------------------------------- | :------- | | 2024 (remaining three months) | $0 | | 2025 | $0 | | 2026 | $0 | | 2027 | $0 | | 2028 | $400,000 | | Thereafter | $810,000 | | Total | $1,210,000 | Covenants - 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)[126][127] - As of December 31, 2023, the company was in compliance with all applicable financial and restrictive covenants under its debt agreements and anticipates continued compliance for the next twelve months[127] Critical Accounting Policies and Estimates - There were no material changes to the company's critical accounting policies during the nine months ended December 31, 2023[128] Recent Accounting Pronouncements - A description of recently issued and adopted accounting pronouncements is included in Note 1 to the unaudited Condensed Consolidated Financial Statements[129] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses exposure to interest rate and foreign currency exchange rate risks, with sensitivity analyses Interest Rate Risk - Approximately $210.0 million of the company's debt carries a variable interest rate, exposing it to changes in interest rates[136] - A hypothetical 1.0% increase in interest rates on variable rate debt would adversely impact pre-tax earnings and cash flows by approximately $0.7 million for the three months and $2.3 million for the nine months ended December 31, 2023[137] Foreign Currency Exchange Rate Risk - Approximately 17.0% (three months) and 14.1% (nine months) of gross revenues for the period ended December 31, 2023, were denominated in currencies other than the U.S. Dollar, primarily Canadian and Australian Dollars[138] - A hypothetical 10.0% adverse change in foreign currency exchange rates would impact pre-tax income by approximately $2.7 million for the three months and $6.8 million for the nine months ended December 31, 2023[139] Item 4. Controls and Procedures This section confirms effective disclosure controls and procedures, with no material changes in internal control Disclosure Controls and Procedures - As of December 31, 2023, the company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective[140] Changes in Internal Control over Financial Reporting - There were no material changes in internal control over financial reporting during the quarter ended December 31, 2023[141] PART II. OTHER INFORMATION Item 1A. Risk Factors Refers to risk factors from the Annual Report on Form 10-K, noting no material changes and potential quarterly fluctuations - Readers should carefully consider the risk factors discussed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2023[142] - The risk factors described in the Annual Report on Form 10-K have not materially changed in the period covered by this Quarterly Report on Form 10-Q[142] - Quarterly operating results and revenues may fluctuate, and results for any one quarter are not necessarily indicative of future performance, which could adversely impact the market price of securities[143][145] Item 6. Exhibits Lists all exhibits filed as part of the Form 10-Q, including corporate documents and certifications - The exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, Amendment No. 9 to the ABL Credit Agreement, and certifications from the Principal Executive Officer and Principal Financial Officer[147] Signatures This section formally concludes the Form 10-Q with required signatures, confirming due authorization - The report was signed on February 8, 2024, by Christine Sacco, Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)[151]