Prestige sumer Healthcare (PBH) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents the unaudited condensed consolidated financial statements and detailed notes, outlining the company's financial performance and position Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, 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, and specific financial line items for the periods ended December 31, 2020 and 2019 Condensed Consolidated Statements of Income and Comprehensive Income Presents the company's financial performance, including revenues, gross profit, operating income, net income, and diluted EPS for the three and nine months ended December 31, 2020 and 2019 Three Months Ended December 31, 2020 vs 2019 (in thousands) | Metric | 2020 | 2019 | Change | % Change | | :----------------------------- | :----- | :----- | :----- | :------- | | Total Revenues | $238,788 | $241,552 | $(2,764) | (1.1%) | | Gross Profit | $138,887 | $137,495 | $1,392 | 1.0% | | Operating Income | $73,443 | $76,404 | $(2,961) | (3.9%) | | Interest Expense, Net | $20,138 | $24,275 | $(4,137) | (17.0%) | | Net Income | $40,873 | $38,058 | $2,815 | 7.4% | | Diluted EPS | $0.81 | $0.75 | $0.06 | 8.0% | Nine Months Ended December 31, 2020 vs 2019 (in thousands) | Metric | 2020 | 2019 | Change | % Change | | :----------------------------- | :----- | :----- | :----- | :------- | | Total Revenues | $705,604 | $711,775 | $(6,171) | (0.9%) | | Gross Profit | $410,416 | $408,313 | $2,103 | 0.5% | | Operating Income | $226,465 | $217,238 | $9,227 | 4.2% | | Interest Expense, Net | $63,345 | $73,772 | $(10,427) | (14.1%) | | Net Income | $129,168 | $105,235 | $23,933 | 22.7% | | Diluted EPS | $2.55 | $2.05 | $0.50 | 24.4% | Condensed Consolidated Balance Sheets Details the company's financial position, including assets, liabilities, and stockholders' equity as of December 31, 2020, and March 31, 2020 As of December 31, 2020 vs March 31, 2020 (in thousands) | Metric | Dec 31, 2020 | Mar 31, 2020 | Change | | :----------------------------- | :----------- | :----------- | :----- | | Cash and Cash Equivalents | $62,103 | $94,760 | $(32,657) | | Total Current Assets | $301,211 | $365,654 | $(64,443) | | Total Assets | $3,468,769 | $3,513,905 | $(45,136) | | Total Current Liabilities | $126,163 | $149,881 | $(23,718) | | Long-Term Debt, Net | $1,548,692 | $1,730,300 | $(181,608) | | Total Liabilities | $2,145,548 | $2,342,934 | $(197,386) | | Total Stockholders' Equity | $1,323,221 | $1,170,971 | $152,250 | Condensed Consolidated Statements of Changes in Stockholders' Equity Outlines changes in equity components, including stock-based compensation, share repurchases, net income, and comprehensive income for specified periods Changes in Stockholders' Equity (in thousands) | Item | 3 Months Ended Dec 31, 2020 | 3 Months Ended Dec 31, 2019 | 9 Months Ended Dec 31, 2020 | 9 Months Ended Dec 31, 2019 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Stock-based compensation | $1,588 | $1,780 | $5,944 | $5,682 | | Treasury share repurchases | $(8,877) | $(94) | $(11,116) | $(50,950) | | Net income | $40,873 | $38,058 | $129,168 | $105,235 | | Total other comprehensive income (loss) | $11,381 | $3,497 | $26,930 | $(311) | | Total Stockholders' Equity (End of Period) | $1,323,221 | $1,156,494 | $1,323,221 | $1,156,494 | Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the nine months ended December 31, 2020 and 2019 Nine Months Ended December 31, 2020 vs 2019 (in thousands) | Activity | 2020 | 2019 | Change | | :-------------------------------------- | :------- | :------- | :------- | | Net cash provided by operating activities | $176,520 | $160,998 | $15,522 | | Net cash used in investing activities | $(17,347) | $(8,305) | $(9,042) | | Net cash used in financing activities | $(195,710) | $(151,988) | $(43,722) | | Net change in cash and cash equivalents | $(32,657) | $1,061 | $(33,718) | | Cash and cash equivalents - end of period | $62,103 | $28,591 | $33,512 | Notes to Condensed Consolidated Financial Statements (unaudited) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies and specific line items 1. Business and Basis of Presentation Describes the company's operations, the impact of COVID-19, and the basis for preparing the unaudited interim financial statements - Prestige Consumer Healthcare Inc. develops, manufactures, markets, sales, and distributes over-the-counter (OTC) healthcare products in North America, Australia, and other international markets, operating as a holding company and parent guarantor of its senior credit facility and senior notes[21] - The COVID-19 pandemic has not had a material negative impact on operations, overall demand for most products, aggregate sales and earnings, or liquidity to date, despite causing volatility[22] - Sales varied, with Women's Health, Oral Care, and Dermatological categories positively impacted, while Cough & Cold and Gastrointestinal categories were negatively impacted due to reduced incidence levels and usage rates[22] - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with GAAP for interim financial reporting and include all necessary recurring adjustments for a fair statement of financial position, results of operations, and cash flows[23] - The company adopted ASU 2018-13 (Fair Value Measurement) and ASU 2016-13 (Credit Losses) effective April 1, 2020, neither of which had a material impact on the Consolidated Financial Statements[25][26] 2. Inventories Details the composition of inventories, including raw materials, work in process, and finished goods, along with provisions for obsolescence Inventories (in thousands) | Component | December 31, 2020 | March 31, 2020 | | :---------------------- | :---------------- | :------------- | | Packaging and raw materials | $8,370 | $9,803 | | Work in process | $321 | $355 | | Finished goods | $108,320 | $105,868 | | Total Inventories | $117,011 | $116,026 | | Reduction for obsolete/slow-moving | $4,100 | $6,500 | 3. Goodwill Presents goodwill by segment and discusses the company's annual impairment testing policy and current assessment Goodwill by Segment (in thousands) | Segment | March 31, 2020 | Foreign Currency Exchange Rates Effect | December 31, 2020 | | :------------------------ | :------------- | :----------------------------------- | :---------------- | | North American OTC Healthcare | $546,643 | — | $546,643 | | International OTC Healthcare | $28,536 | $4,380 | $32,916 | | Consolidated Total | $575,179 | $4,380 | $579,559 | - Goodwill is tested for impairment annually or more frequently if conditions indicate, with no events suggesting potential impairment as of December 31, 2020, though COVID-19's severity could impact future analyses[32] 4. Intangible Assets, net Outlines the carrying values of indefinite-lived and finite-lived intangible assets, including amortization expense and impairment charges Intangible Assets, Net (in thousands) | Type | March 31, 2020 | December 31, 2020 | | :---------------------- | :------------- | :---------------- | | Indefinite-Lived Trademarks | $2,265,331 | $2,283,131 | | Finite-Lived Trademarks and Customer Relationships (net) | $214,060 | $198,594 | | Total Intangible Assets, Net | $2,479,391 | $2,481,725 | | Amortization Expense (9 months) | $14,729 (2019) | $14,729 (2020) | - During Q3 2021, an impairment charge of $1.2 million was recorded for the finite-lived intangible asset Painstop in the International OTC Healthcare segment, primarily due to a regulatory change requiring it to be prescription-only[35][36] - Estimated future amortization expense for finite-lived intangible assets is $4.9 million for the remaining three months of fiscal 2021, followed by $19.7 million in 2022 and 2023[34] 5. Leases Reports total net lease costs and the maturities of lease liabilities, distinguishing between operating and finance leases Total Net Lease Cost (in thousands) | Period | 2020 | 2019 | | :-------------------------- | :------- | :------- | | Three Months Ended Dec 31 | $13,574 | $17,406 | | Nine Months Ended Dec 31 | $41,786 | $51,805 | Maturities of Lease Liabilities as of December 31, 2020 (in thousands) | Year Ending March 31, | Operating Leases | Finance Leases | Total | | :------------------------------------ | :--------------- | :------------- | :---- | | 2021 (Remaining 3 months) | $1,983 | $706 | $2,689 | | 2022 | $6,557 | $2,826 | $9,383 | | 2023 | $6,293 | $2,826 | $9,119 | | 2024 | $6,303 | $2,826 | $9,129 | | 2025 | $4,132 | $1,412 | $5,544 | | Thereafter | $4,974 | — | $4,974 | | Total Undiscounted Lease Payments | $30,242 | $10,596 | $40,838 | | Less amount of lease payments representing interest | $(3,626) | $(556) | $(4,182) | | Total Present Value of Lease Payments | $26,616 | $10,040 | $36,656 | - A new finance lease for assets purchased by GEODIS Logistics LLC for the company's use commenced during the three months ended September 30, 2020, with an initial ROU asset and lease liability of $5.2 million[41] 6. Other Accrued Liabilities Itemizes various accrued liabilities, including marketing, compensation, and production costs Other Accrued Liabilities (in thousands) | Item | December 31, 2020 | March 31, 2020 | | :------------------------ | :---------------- | :------------- | | Accrued marketing costs | $40,377 | $34,450 | | Accrued compensation costs | $10,901 | $13,393 | | Accrued production costs | $3,229 | $5,628 | | Total Other Accrued Liabilities | $66,569 | $70,763 | 7. Long-Term Debt Details the company's long-term debt structure, including senior notes and term loans, and outlines future principal payment obligations Long-Term Debt (in thousands) | Debt Type | December 31, 2020 | March 31, 2020 | | :------------------------------------ | :---------------- | :------------- | | 2016 Senior Notes (6.375%, due 2024) | $600,000 | $600,000 | | 2019 Senior Notes (5.125%, due 2028) | $400,000 | $400,000 | | 2012 Term B-5 Loans (variable, due 2024) | $560,000 | $690,000 | | 2012 ABL Revolver (variable, due 2024) | — | $55,000 | | Long-Term Debt, Net | $1,548,692 | $1,730,300 | - As of December 31, 2020, the company had no outstanding balance on the 2012 ABL Revolver and a borrowing capacity of $123.3 million[43] Aggregate Future Principal Payments (in thousands) | Year Ending March 31, | Amount | | :-------------------------- | :------- | | 2024 | $1,160,000 | | Thereafter | $400,000 | | Total | $1,560,000 | 8. Fair Value Measurements Discusses the fair value of financial instruments, including long-term debt and interest rate swaps, categorized by fair value hierarchy levels - The fair values of cash, accounts receivable, accounts payable, and other current liabilities approximate their carrying amounts due to short maturities[47] - Long-term debt instruments (2016 Senior Notes, 2019 Senior Notes, 2012 Term B-5 Loans, 2012 ABL Revolver) and interest rate swaps are measured in Level 2 of the fair value hierarchy[48] Fair Value of Financial Instruments (in thousands) | Instrument | Carrying Value (Dec 31, 2020) | Fair Value (Dec 31, 2020) | Carrying Value (Mar 31, 2020) | Fair Value (Mar 31, 2020) | | :------------------ | :---------------------------- | :-------------------------- | :---------------------------- | :-------------------------- | | 2016 Senior Notes | $600,000 | $613,500 | $600,000 | $603,000 | | 2019 Senior Notes | $400,000 | $421,000 | $400,000 | $386,000 | | 2012 Term B-5 Loans | $560,000 | $560,700 | $690,000 | $638,250 | | 2012 ABL Revolver | — | — | $55,000 | $55,000 | | Interest rate swaps | $3,269 | $3,269 | $6,317 | $6,317 | 9. Derivative Instruments Explains the company's use of interest rate swaps for hedging variable interest debt and their fair value impact - The company uses two interest rate swaps to hedge $400.0 million of variable interest debt, with maturities on January 31, 2021 ($200.0 million) and January 31, 2022 ($200.0 million)[50][52] Fair Values of Derivative Instruments (in thousands) | Hedge Type | Final Settlement Date | Notional Amount | Other Accrued Liabilities (Dec 31, 2020) | Other Long-Term Liabilities (Dec 31, 2020) | | :---------------- | :-------------------- | :-------------- | :--------------------------------------- | :--------------------------------------- | | Cash flow (swap) | 1/31/2021 | $200,000 | $(224) | — | | Cash flow (swap) | 1/31/2022 | $200,000 | — | $(3,045) | | Total Fair Value | | | $(224) | $(3,045) | - Pre-tax losses of $3.0 million associated with interest rate swaps are expected to be reclassified into income over the next twelve months[52] 10. Stockholders' Equity Covers authorized shares, dividend policy, and details of common stock repurchases under various programs - The company is authorized to issue 250.0 million shares of common stock and 5.0 million shares of preferred stock, with no dividends declared or paid on common stock through December 31, 2020[54][55] Share Repurchases (Number of Shares and Total Amount in millions) | Period | Shares Repurchased (Employee Awards) | Amount Repurchased (Employee Awards) | Shares Repurchased (Program) | Amount Repurchased (Program) | | :-------------------------- | :----------------------------------- | :----------------------------------- | :--------------------------- | :--------------------------- | | 3 Months Ended Dec 31, 2020 | — | $0 | 0.25 | $8.9 | | 3 Months Ended Dec 31, 2019 | 0.002 | $0.1 | — | $0 | | 9 Months Ended Dec 31, 2020 | 0.031 | $1.2 | 0.28 | $9.9 | | 9 Months Ended Dec 31, 2019 | 0.031 | $1.0 | 1.62 | $50.0 | 11. Accumulated Other Comprehensive Loss Breaks down the components of accumulated other comprehensive loss, including translation adjustments and unrealized gains/losses Components of Accumulated Other Comprehensive Loss (in thousands) | Component | December 31, 2020 | March 31, 2020 | | :---------------------------------------------------- | :---------------- | :------------- | | Cumulative translation adjustment | $(16,802) | $(39,241) | | Unrealized loss on interest rate swaps, net of tax | $(2,517) | $(4,864) | | Unrecognized net gain (loss) on pension plans, net of tax | $2,088 | $(56) | | Accumulated Other Comprehensive Loss, Net of Tax | $(17,231) | $(44,161) | 12. Earnings Per Share Provides basic and diluted earnings per share calculations, including the weighted average shares outstanding and dilutive effects Earnings Per Share (EPS) (in thousands, except per share data) | Metric | 3 Months Ended Dec 31, 2020 | 3 Months Ended Dec 31, 2019 | 9 Months Ended Dec 31, 2020 | 9 Months Ended Dec 31, 2019 | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (Numerator) | $40,873 | $38,058 | $129,168 | $105,235 | | Weighted average shares outstanding (Basic Denominator) | 50,212 | 50,378 | 50,268 | 50,840 | | Dilutive effect of unvested restricted stock units and options | 349 | 453 | 367 | 386 | | Diluted earnings per share (Denominator) | 50,561 | 50,831 | 50,635 | 51,226 | | Basic EPS | $0.81 | $0.76 | $2.57 | $2.07 | | Diluted EPS | $0.81 | $0.75 | $2.55 | $2.05 | - Approximately 0.6 million shares from outstanding stock-based awards were excluded from diluted EPS calculations for both the three and nine months ended December 31, 2020 and 2019, as their inclusion would have been anti-dilutive[61] 13. Share-Based Compensation Details the company's long-term incentive plan, share-based compensation costs, and unrecognized compensation expenses - The company adopted the 2020 Long-Term Incentive Plan (2020 Plan) on August 4, 2020, making 2,827,210 shares available for issuance, comprising 2,000,000 new shares and 827,210 unissued shares from the prior 2005 Plan, with all future equity awards granted under the 2020 Plan[63][65] Share-Based Compensation Costs (in thousands) | Metric | 3 Months Ended Dec 31, 2020 | 3 Months Ended Dec 31, 2019 | 9 Months Ended Dec 31, 2020 | 9 Months Ended Dec 31, 2019 | | :---------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Pre-tax share-based compensation costs charged against income | $1,588 | $1,780 | $5,944 | $5,682 | | Income tax benefit recognized on compensation costs | $263 | $275 | $826 | $886 | | Total fair value of options and RSUs vested during the period | $0 | $465 | $6,796 | $7,830 | | Cash received from the exercise of stock options | $39 | $463 | $1,324 | $1,007 | | Tax benefits realized from tax deductions | $15 | $105 | $963 | $587 | - As of December 31, 2020, there were $7.9 million of unrecognized compensation costs related to unvested share-based compensation arrangements, expected to be recognized over a weighted average period of 1 year[65] 14. Income Taxes Presents the provision for income taxes and effective tax rates, explaining factors influencing changes, such as GILTI regulations Income Tax Provision and Effective Tax Rate | Period | Provision for Income Taxes (in thousands) | Effective Tax Rate | | :-------------------------- | :-------------------------------------- | :----------------- | | 3 Months Ended Dec 31, 2020 | $12,803 | 23.9% | | 3 Months Ended Dec 31, 2019 | $12,496 | 24.7% | | 9 Months Ended Dec 31, 2020 | $34,572 | 21.1% | | 9 Months Ended Dec 31, 2019 | $35,381 | 25.2% | - The decrease in the effective tax rate for the nine months ended December 31, 2020, was primarily due to the application of final GILTI regulations issued in July 2020, which resulted in the release of a $5.1 million valuation allowance on foreign tax credit carryforwards[72] 15. Employee Retirement Plans Reports net periodic benefit income, company contributions to retirement plans, and any settlement gains recognized Net Periodic Benefit Income (in thousands) | Component | 3 Months Ended Dec 31, 2020 | 3 Months Ended Dec 31, 2019 | 9 Months Ended Dec 31, 2020 | 9 Months Ended Dec 31, 2019 | | :---------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Interest cost | $283 | $575 | $1,333 | $1,729 | | Expected return on assets | $(653) | $(722) | $(1,947) | $(2,164) | | Net periodic benefit income | $(370) | $(147) | $(614) | $(435) | - During the nine months ended December 31, 2020, the company contributed $0.3 million to its non-qualified defined benefit plan and $3.0 million to the qualified defined benefit plan, with an additional $0.1 million expected to be contributed to the non-qualified plan in the remainder of fiscal 2021[73] - A settlement gain of $0.2 million was recognized in Q3 2021 from a $7.0 million lump sum payout option offered to participants of the qualified defined benefit plan[74] 16. Commitments and Contingencies Discusses the company's involvement in legal matters and claims, and management's assessment of potential financial impact - The company is involved in various legal matters and claims incidental to its business, and management believes that reasonably possible losses from routine legal matters will not materially adversely affect its business, financial condition, or results of operations[75] 17. Concentrations of Risk Identifies key concentrations of risk, including revenue by brand and customer, and reliance on third-party manufacturers and distributors - Revenues are concentrated in OTC Healthcare, with the top five selling brands accounting for approximately 43.6% and 45.6% of gross revenues for the three and nine months ended December 31, 2020, respectively[76] - Walmart is a significant customer, accounting for approximately 20.7% and 21.7% of gross revenues for the three and nine months ended December 31, 2020, respectively[76] - Product distribution in the U.S. is managed by a third party through one primary distribution center, and the company operates one manufacturing facility, making disruptions to these facilities or third-party relationships a potential material impact on operations and costs[77] - The company relies on 113 third-party manufacturers, with long-term contracts covering items accounting for approximately 68.9% of gross sales for the nine months ended December 31, 2020, and the absence of long-term contracts with certain manufacturers poses a risk of supply disruption or price increases[78][79] 18. Business Segments Describes the company's reportable segments, their performance evaluation, and segment-specific financial data like revenues and assets - 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)[81] Total Segment Revenues by Geographic Area (in thousands) | Geographic Area | 3 Months Ended Dec 31, 2020 | 3 Months Ended Dec 31, 2019 | 9 Months Ended Dec 31, 2020 | 9 Months Ended Dec 31, 2019 | | :-------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | United States | $197,296 | $203,920 | $599,931 | $604,263 | | Rest of world | $41,492 | $37,632 | $105,673 | $107,512 | | Total | $238,788 | $241,552 | $705,604 | $711,775 | Consolidated Goodwill and Intangible Assets by Segment (in thousands, as of December 31, 2020) | Asset Type | North American OTC Healthcare | International OTC Healthcare | Consolidated | | :------------------ | :---------------------------- | :--------------------------- | :----------- | | Goodwill | $546,643 | $32,916 | $579,559 | | Indefinite-lived Intangibles | $2,195,617 | $87,514 | $2,283,131 | | Finite-lived Intangibles, net | $195,248 | $3,346 | $198,594 | | Total | $2,937,508 | $123,776 | $3,061,284 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion and analysis of the company's financial condition and results of operations, highlighting key performance drivers, the impact of the COVID-19 pandemic, and changes in revenues, gross profit, contribution margin, and expenses for the three and nine months ended December 31, 2020, compared to the prior year. It also covers liquidity, capital resources, and critical accounting policies General Provides an overview of the company's business model, product categories, and growth strategies, including organic development and strategic acquisitions - Prestige Consumer Healthcare Inc. develops, manufactures, markets, sells, and distributes well-recognized, brand-name over-the-counter (OTC) healthcare products primarily in North America and Australia, leveraging its brand strength, retail distribution network, low-cost operating model, and experienced management[94] - The growth strategy involves both organic development (new product lines, brand extensions, advertising) and strategic acquisitions of 'non-core' OTC brands from other companies, which are then reinvigorated through increased marketing, new strategies, and improved formulations[95] Coronavirus Outbreak Assesses the impact of the COVID-19 pandemic on the company's operations, product demand, sales, earnings, and liquidity - The COVID-19 pandemic has caused significant volatility and reduced economic activity, with some categories (Women's Health, Oral Care, Dermatological) seeing increased sales due to a shift to OTC products and self-care, while others (Cough & Cold, Gastrointestinal) were negatively impacted by reduced incidence levels and travel[96] - Despite initial stocking-up and subsequent temporary decline, consumer consumption and customer orders have stabilized, and the pandemic has not yet had a material negative impact on operations, overall demand, sales, earnings, or liquidity, though future impacts remain uncertain[96][97] Tax Regulations Discusses the impact of the Tax Cuts and Jobs Act of 2017 and subsequent GILTI regulations on the company's tax provisions - The Tax Cuts and Jobs Act of 2017 reduced the U.S. federal corporate tax rate to 21% and introduced a new minimum tax on Global Intangible Low-Taxed Income (GILTI), with final GILTI regulations issued in July 2020, including a high-tax exception, accounted for in the quarterly provision ended September 30, 2020[98] Results of Operations - Three Months Ended December 31, 2020 compared to the Three Months Ended December 31, 2019 For the three months ended December 31, 2020, total segment revenues decreased by 1.1% to $238.8 million, primarily due to a decline in North American OTC Healthcare, partly offset by growth in International OTC Healthcare. Gross profit increased by 1.0% to $138.9 million, with the gross profit margin improving to 58.2% due to reduced transitional costs. Contribution margin decreased by 3.0% to $100.8 million, impacted by increased advertising and marketing expenses Total Segment Revenues Analyzes revenue performance by segment, highlighting the impact of product categories and geographic markets on overall sales Total Segment Revenues (in thousands) | Segment | 3 Months Ended Dec 31, 2020 | 3 Months Ended Dec 31, 2019 | Change | % Change | | :----------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | | North American OTC Healthcare | $210,618 | $214,892 | $(4,274) | (2.0%) | | International OTC Healthcare | $28,170 | $26,660 | $1,510 | 5.7% | | Total Consolidated | $238,788 | $241,552 | $(2,764) | (1.1%) | - North American OTC Healthcare revenues decreased by 2.0%, primarily due to a negative impact from the Cough & Cold category (down 33.1%) due to COVID-19 restrictions, partly offset by growth in Women's Health (up 2.9%) and Oral Care (up 6.8%)[101][102] - International OTC Healthcare revenues increased by 5.7%, driven by increased sales in the Australian subsidiary, particularly Hydralyte, benefiting from easing shelter-at-home restrictions[101][103] Gross Profit Examines changes in gross profit and gross profit margin by segment, attributing shifts to factors like transitional costs and product mix Gross Profit (in thousands) | Segment | 3 Months Ended Dec 31, 2020 | % of Revenues (2020) | 3 Months Ended Dec 31, 2019 | % of Revenues (2019) | Change | % Change | | :----------------------------- | :-------------------------- | :------------------- | :-------------------------- | :------------------- | :----- | :------- | | North American OTC Healthcare | $121,735 | 57.8% | $120,955 | 56.3% | $780 | 0.6% | | International OTC Healthcare | $17,152 | 60.9% | $16,540 | 62.0% | $612 | 3.7% | | Total Consolidated | $138,887 | 58.2% | $137,495 | 56.9% | $1,392 | 1.0% | - Consolidated gross profit increased by 1.0%, and gross profit as a percentage of total revenues increased to 58.2% from 56.9%, primarily due to the completion of transitional costs associated with a new warehouse and distribution center and improved logistics costs[105][106] - International OTC Healthcare gross profit increased by 3.7%, but as a percentage of revenues, it decreased to 60.9% from 62.0%, mainly due to product mix[107] Contribution Margin Reviews the contribution margin by segment, detailing the influence of gross profit and advertising/marketing expenses on profitability Contribution Margin (in thousands) | Segment | 3 Months Ended Dec 31, 2020 | % of Revenues (2020) | 3 Months Ended Dec 31, 2019 | % of Revenues (2019) | Change | % Change | | :----------------------------- | :-------------------------- | :------------------- | :-------------------------- | :------------------- | :----- | :------- | | North American OTC Healthcare | $88,876 | 42.2% | $91,930 | 42.8% | $(3,054) | (3.3%) | | International OTC Healthcare | $11,930 | 42.4% | $12,006 | 45.0% | $(76) | (0.6%) | | Total Consolidated | $100,806 | 42.2% | $103,936 | 43.0% | $(3,130) | (3.0%) | - North American OTC Healthcare contribution margin decreased by 3.3%, and as a percentage of revenues, it decreased to 42.2% from 42.8%, primarily due to an increase in advertising and marketing expenses, partly offset by the gross profit increase[110] - International OTC Healthcare contribution margin decreased by 0.6%, and as a percentage of revenues, it decreased to 42.4% from 45.0%, due to a decrease in gross profit and incremental advertising and marketing expense[111][112] General and Administrative Reports on the stability of general and administrative expenses for the three months ended December 31, 2020 General and Administrative Expenses (in thousands) | Period | 2020 | 2019 | Change | | :-------------------------- | :----- | :----- | :----- | | 3 Months Ended Dec 31 | $21,395 | $21,308 | $87 | - General and administrative expenses remained relatively flat at $21.4 million for the three months ended December 31, 2020, compared to $21.3 million in the prior year[113] Depreciation and Amortization Details the decrease in depreciation and amortization expenses due to fully depreciated assets Depreciation and Amortization Expenses (in thousands) | Period | 2020 | 2019 | Change | | :-------------------------- | :----- | :----- | :----- | | 3 Months Ended Dec 31 | $5,968 | $6,224 | $(256) | - Depreciation and amortization expenses decreased to $6.0 million for the three months ended December 31, 2020, from $6.2 million in the prior year, primarily due to certain assets being fully depreciated in the first quarter of fiscal 2021[114] Interest Expense, Net Analyzes the reduction in net interest expense, driven by lower average indebtedness and borrowing costs Interest Expense, Net (in thousands) | Period | 2020 | 2019 | Change | | :-------------------------- | :----- | :----- | :----- | | 3 Months Ended Dec 31 | $20,138 | $24,275 | $(4,137) | - Interest expense, net, decreased to $20.1 million from $24.3 million, driven by a decrease in average indebtedness to $1.6 billion (from $1.8 billion) and a lower average cost of borrowing of 5.1% (from 5.4%)[115] Loss on Extinguishment of Debt Reports the loss incurred from the extinguishment of debt in the prior year, specifically the redemption of senior notes Loss on Extinguishment of Debt (in thousands) | Period | 2020 | 2019 | Change | | :-------------------------- | :----- | :----- | :----- | | 3 Months Ended Dec 31 | — | $2,155 | $(2,155) | - A loss on extinguishment of debt of $2.2 million was recorded in the three months ended December 31, 2019, related to the redemption of 5.375% 2013 Senior Notes[116] Income Taxes Examines the provision for income taxes and effective tax rate, noting the impact of earnings mix from different jurisdictions Provision for Income Taxes and Effective Tax Rate | Period | Provision (in thousands) | Effective Tax Rate | | :-------------------------- | :----------------------- | :----------------- | | 3 Months Ended Dec 31, 2020 | $12,803 | 23.9% | | 3 Months Ended Dec 31, 2019 | $12,496 | 24.7% | - The effective tax rate decreased to 23.9% from 24.7% for the three months ended December 31, 2020, reflecting fluctuations based on the mix of earnings from U.S. and foreign jurisdictions[117] Results of Operations - Nine Months Ended December 31, 2020 compared to the Nine Months Ended December 31, 2019 For the nine months ended December 31, 2020, total segment revenues decreased by 0.9% to $705.6 million, primarily due to a decline in International OTC Healthcare and lower Cough & Cold and Gastrointestinal revenues in North America. Gross profit increased by 0.5% to $410.4 million, with the gross profit margin improving to 58.2%. Contribution margin increased by 1.6% to $306.2 million, driven by gross profit increases and reduced advertising and marketing expenses in North America Total Segment Revenues Analyzes revenue performance by segment for the nine-month period, detailing impacts from product categories and international markets Total Segment Revenues (in thousands) | Segment | 9 Months Ended Dec 31, 2020 | 9 Months Ended Dec 31, 2019 | Change | % Change | | :----------------------------- | :-------------------------- | :-------------------------- | :----- | :------- | | North American OTC Healthcare | $637,851 | $639,554 | $(1,703) | (0.3%) | | International OTC Healthcare | $67,753 | $72,221 | $(4,468) | (6.2%) | | Total Consolidated | $705,604 | $711,775 | $(6,171) | (0.9%) | - North American OTC Healthcare revenues decreased by 0.3%, negatively impacted by lower Cough & Cold (down 28.5%) and Gastrointestinal (down 2.9%) revenues due to COVID-19 restrictions, partly offset by Women's Health (up 5.2%) and Oral Care (up 7.2%)[119][120] - International OTC Healthcare revenues decreased by 6.2%, primarily due to decreased sales in the Australian subsidiary, attributed to lower general consumer illnesses and reduced activities from social distancing measures related to COVID-19[119][121] Gross Profit Examines changes in gross profit and gross profit margin by segment for the nine-month period, noting effects of transitional costs and product mix Gross Profit (in thousands) | Segment | 9 Months Ended Dec 31, 2020 | % of Revenues (2020) | 9 Months Ended Dec 31, 2019 | % of Revenues (2019) | Change | % Change | | :----------------------------- | :-------------------------- | :------------------- | :-------------------------- | :------------------- | :----- | :------- | | North American OTC Healthcare | $370,072 | 58.0% | $363,875 | 56.9% | $6,197 | 1.7% | | International OTC Healthcare | $40,344 | 59.5% | $44,438 | 61.5% | $(4,094) | (9.2%) | | Total Consolidated | $410,416 | 58.2% | $408,313 | 57.4% | $2,103 | 0.5% | - Consolidated gross profit increased by 0.5%, and gross profit as a percentage of total revenues increased to 58.2% from 57.4%, primarily due to the completion of transitional costs for a new warehouse and distribution center and improved logistics costs[123][124] - International OTC Healthcare gross profit decreased by 9.2%, and as a percentage of revenues, it decreased to 59.5% from 61.5%, mainly due to product mix[125] Contribution Margin Reviews the contribution margin by segment for the nine-month period, highlighting the influence of gross profit and marketing efficiencies Contribution Margin (in thousands) | Segment | 9 Months Ended Dec 31, 2020 | % of Revenues (2020) | 9 Months Ended Dec 31, 2019 | % of Revenues (2019) | Change | % Change | | :----------------------------- | :-------------------------- | :------------------- | :-------------------------- | :------------------- | :----- | :------- | | North American OTC Healthcare | $278,519 | 43.7% | $269,241 | 42.1% | $9,278 | 3.4% | | International OTC Healthcare | $27,725 | 40.9% | $32,045 | 44.4% | $(4,320) | (13.5%) | | Total Consolidated | $306,244 | 43.4% | $301,286 | 42.3% | $4,958 | 1.6% | - North American OTC Healthcare contribution margin increased by 3.4%, and as a percentage of revenues, it increased to 43.7% from 42.1%, primarily due to the increase in gross profit and a decrease in advertising and marketing expenses driven by spend efficiencies and consumer behavior[128] - International OTC Healthcare contribution margin decreased by 13.5%, and as a percentage of revenues, it decreased to 40.9% from 44.4%, primarily due to the decrease in gross profit[129][130] General and Administrative Reports on the decrease in general and administrative expenses due to reduced compensation and travel costs General and Administrative Expenses (in thousands) | Period | 2020 | 2019 | Change | | :-------------------------- | :----- | :----- | :----- | | 9 Months Ended Dec 31 | $61,717 | $65,528 | $(3,811) | - General and administrative expenses decreased by $3.8 million, or 5.8%, primarily due to decreases in compensation costs from attrition and reduced travel costs related to COVID-19[131] Depreciation and Amortization Details the decrease in depreciation and amortization expenses for the nine-month period due to fully depreciated assets Depreciation and Amortization Expenses (in thousands) | Period | 2020 | 2019 | Change | | :-------------------------- | :----- | :----- | :----- | | 9 Months Ended Dec 31 | $18,062 | $18,520 | $(458) | - Depreciation and amortization expenses decreased to $18.1 million from $18.5 million, primarily due to certain assets being fully depreciated in the first quarter of fiscal 2021[132] Interest Expense, Net Analyzes the reduction in net interest expense for the nine-month period, driven by lower average indebtedness and borrowing costs Interest Expense, Net (in thousands) | Period | 2020 | 2019 | Change | | :-------------------------- | :----- | :----- | :----- | | 9 Months Ended Dec 31 | $63,345 | $73,772 | $(10,427) | - Interest expense, net, decreased to $63.3 million from $73.8 million, driven by a decrease in average indebtedness to $1.6 billion (from $1.8 billion) and a lower average cost of borrowing of 5.1% (from 5.4%)[133] Loss on Extinguishment of Debt Reports the loss incurred from the extinguishment of debt in the prior year for the nine-month period Loss on Extinguishment of Debt (in thousands) | Period | 2020 | 2019 | Change | | :-------------------------- | :----- | :----- | :----- | | 9 Months Ended Dec 31 | — | $2,155 | $(2,155) | - A loss on extinguishment of debt of $2.2 million was recorded in the nine months ended December 31, 2019, related to the redemption of 5.375% 2013 Senior Notes[134] Income Taxes Examines the provision for income taxes and effective tax rate for the nine-month period, noting the impact of GILTI regulations Provision for Income Taxes and Effective Tax Rate | Period | Provision (in thousands) | Effective Tax Rate | | :-------------------------- | :----------------------- | :----------------- | | 9 Months Ended Dec 31, 2020 | $34,572 | 21.1% | | 9 Months Ended Dec 31, 2019 | $35,381 | 25.2% | - The effective tax rate decreased to 21.1% from 25.2% for the nine months ended December 31, 2020, primarily due to the application of final GILTI tax regulations and the release of a valuation allowance on prior year foreign tax credits[135] Liquidity and Capital Resources Discusses the company's cash sources, financing strategies, debt structure, and compliance with financial covenants - The company's primary source of cash is from operations, supplemented by debt facilities for acquisitions, with operations financed through cash flow and existing credit facilities expected to be adequate for working capital and capital expenditures over the next twelve months, excluding acquisitions[136] Cash Flow Summary (in thousands) | Activity | 9 Months Ended Dec 31, 2020 | 9 Months Ended Dec 31, 2019 | Change | | :-------------------------------------- | :-------------------------- | :-------------------------- | :------- | | Operating Activities | $176,520 | $160,998 | $15,522 | | Investing Activities | $(17,347) | $(8,305) | $(9,042) | | Financing Activities | $(195,710) | $(151,988) | $(43,722) | | Net change in cash and cash equivalents | $(32,657) | $1,061 | $(33,718) | | Cash and cash equivalents - end of period | $62,103 | $28,591 | $33,512 | - Net cash provided by operating activities increased by $15.5 million to $176.5 million, driven by higher net income after non-cash items, partly offset by increased working capital[138] - Net cash used in investing activities increased by $9.0 million to $17.3 million, primarily due to increased capital expenditures[139] - Net cash used in financing activities increased by $43.7 million to $195.7 million, mainly due to increased debt repayments ($59.0 million) and decreased borrowings ($30.0 million), partly offset by a decrease in common stock repurchases ($40.1 million)[140] - As of December 31, 2020, total outstanding indebtedness was $1.6 billion, consisting of $400.0 million in 2019 Senior Notes, $600.0 million in 2016 Senior Notes, and $560.0 million in 2012 Term B-5 Loans, with no outstanding balance on the 2012 ABL Revolver and a borrowing capacity of $123.3 million[141] - The company made voluntary principal payments of $130.0 million on the 2012 Term Loan during the nine months ended December 31, 2020, and is not required to make further payments until its January 26, 2024 maturity due to prior optional payments[142] - The company was in compliance with all financial and restrictive covenants under its debt facilities as of December 31, 2020, and anticipates continued compliance over the next twelve months[144][145] - The company does not have any off-balance sheet arrangements or financing activities with special-purpose entities[147] CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Warns that forward-looking statements are subject to risks and uncertainties, including COVID-19, competition, and economic factors - This section contains forward-looking statements, identified by words like 'believe,' 'anticipate,' 'expect,' and 'will,' which are subject to risks and uncertainties that could cause actual results to differ materially from expectations[151][153] - Key risks include the impact of COVID-19, intense industry competition, inability to achieve organic growth or successful acquisitions, dependence on limited customers and third-party manufacturers/logistics providers, economic factors (interest rates, currency), changing consumer trends, regulatory actions, product liability, intellectual property protection, and high indebtedness[154] 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 analysis of their potential impact on pre-tax earnings and cash flows Interest Rate Risk Assesses the company's exposure to interest rate changes on variable rate debt and the mitigating effect of interest rate swaps - The company is exposed to interest rate changes due to its variable rate debt (2012 Term Loan and 2012 ABL Revolver), with interest rate swaps hedging $400.0 million of this variable rate debt, leaving approximately $160.0 million exposed as of December 31, 2020[156] - A hypothetical 1.0% increase in interest rates on variable rate debt would adversely impact pre-tax earnings and cash flows by approximately $0.4 million for the three months and $1.8 million for the nine months ended December 31, 2020[157] Foreign Currency Exchange Rate Risk Analyzes the company's exposure to foreign currency fluctuations, particularly in Canadian and Australian Dollars, and their potential impact on income - Approximately 13.9% and 11.7% of gross revenues for the three and nine months ended December 31, 2020, respectively, were denominated in currencies other than the U.S. Dollar, primarily Canadian and Australian Dollars[158] - 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 $1.2 million for the three months and $3.2 million for the nine months ended December 31, 2020[159] 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 ended December 31, 2020 Disclosure Controls and Procedures Confirms the effectiveness of the company's disclosure controls and procedures as of December 31, 2020 - As of December 31, 2020, the company's management, with the participation of its CEO and CFO, concluded that disclosure controls and procedures were effective in ensuring timely and accurate reporting of information required under the Exchange Act[160] Changes in Internal Control over Financial Reporting States that no material changes occurred in the company's internal control over financial reporting during the quarter - There were no material changes in the company's internal control over financial reporting during the quarter ended December 31, 2020[161] PART II. OTHER INFORMATION Presents additional information not included in the financial statements, covering risk factors, equity purchases, and required exhibits Item 1A. Risk Factors This section refers to the comprehensive risk factors discussed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2020, noting that no material changes have occurred in the current reporting period. It also highlights that quarterly operating results and revenues may fluctuate, and future results could fall below expectations, potentially impacting the market price of securities - The risk factors discussed in the Annual Report on Form 10-K for the fiscal year ended March 31, 2020, have not materially changed in the period covered by this Quarterly Report on Form 10-Q[163] - Quarterly operating results and revenues are subject to fluctuation, and results for any one quarter are not necessarily indicative of future performance, potentially adversely impacting the market price of the company's securities if operating results fall below expectations[164] Item 2. Issuer Purchases of Equity Securities This section details the company's common stock repurchases during the three months ended December 31, 2020, under its publicly announced share repurchase program Issuer Purchases of Equity Securities (October 1 to December 31, 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | | :-------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :------------------------------------------------------------------------------------ | | October 1 to October 31, 2020 | 58,522 | $34.04 | 58,522 | $15,265,264 | | November 1 to November 30, 2020 | 73,510 | $33.96 | 73,510 | $12,769,191 | | December 1 to December 31, 2020 | 121,739 | $36.05 | 121,739 | $8,380,911 | | Total | 253,771 | | 253,771 | | - These repurchases were made pursuant to a share repurchase program announced on March 2, 2020, which permits the repurchase of up to $25.0 million of common stock through March 2021[165] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on 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 the Principal Executive Officer and Principal Financial Officer (pursuant to Rule 13a-14(a) and Section 1350), and various XBRL taxonomy documents[168] Signatures This section contains the required signatures, certifying the due authorization and filing of the report on behalf of Prestige Consumer Healthcare Inc - The report was signed on February 4, 2021, by Christine Sacco, Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) of Prestige Consumer Healthcare Inc[172]