My name is Anthony Lebiedzinski, and I'm the Equity Research Analyst at Sidoti, who covers Prestige Consumer Healthcare , ticker PBH. We are very pleased to have with us today Phil Terpolilli, VP of Investor Relations and Treasury. The format will be a management presentation. We'll go over the slide deck here for about 20 or so minutes and then follow up with Q&A. We'll have a total of 30 minutes. For those in the audience who would like to ask a question, you can type your question at the bottom of the Zoom screen within the Q&A box, and I'll read the questions out loud. With no further delay, Phil, the floor is yours.
Thanks, Anthony. Thanks for having us, and thank you to everyone. I know time's busy in the conference, so taking the time to learn a little bit more about Prestige. We have a general presentation here, kind of go over sort of four major pieces of our business and strategy, give the high-level overview. We'll get into a bit about brand building and why we've been successful over the long term, some of the components of that. We'll go through financial strategy and capital allocation, and then we'll talk about kind of the goal forward, what the algorithm looks like, our expectations for fiscal 2026 and beyond. Intro to Prestige Consumer Healthcare. Who are we? What do we do, right? Ultimately, when you think about Prestige, we're a consumer healthcare company that's helping consumers care for themselves every day. It's largely through the use of over-the-counter medicines.
Many of them are shown here on the page. For context, we like putting these numbers here because it really hits home just the scale and the size of how we impact consumers' lives every day. 650 million throat drops for every cough and cold season under the Luden's throat drop and Chloraseptic sprays. That's really impactful when you have a sore throat at home or you have a younger teenager that's at home with a sore throat that's upset with it. 17 million doses of pain relief under the BC and Goody's powdered headache brands, and infections treated annually under Monistat. When we think about our mission and what we do, it's really focused around consumer healthcare and helping people in a lot of different ways, whether that's eye care, pain in the middle of the page, and infections on the bottom.
Here's another look at kind of that total portfolio. We had a few examples on the prior page. When you think about our business, it's really a diversified portfolio of brands. The pie is on the left in terms of categories they participate in, but it actually goes even beyond that. We have gastrointestinal, GI on here, or women's health as the other biggest piece of the pie here. Women's health, there's two very different brands. It's Monistat for vaginal antifungal treatment, yeast infections, and Summer's Eve for feminine hygiene and odor. Those are two very different need states that a woman is solving for and don't necessarily overlap with each other. Monistat would have a 50%+ share of market share of its category. Summer's Eve would have a 40%+ number one market share in that category as well. Very different occasions, but also market leading across each of them.
That plays out across all of these individual brands here, whether it's Dramamine that anybody in the U.S. likely knows, it's synonymous with the motion sickness category. You get on a boat, you get Dramamine. It's a constipation under the Fleet brand or some of the other iconic brands you see on the page. This baseline didn't just happen overnight. We've spent the last 10, 15+ years building out and acquiring this portfolio of leading consumer healthcare brands that we think is diversified, which is a strength, but also is set up for long-term organic growth of 2%- 3%. It provides a baseline of having a wonderful portfolio of brands that can really execute the strategy that you see on the next page. Here's kind of the simple to describe three-pillar strategy.
When we talk to investors, it's funny, we'll meet with somebody even pre-COVID, let's say, and then we meet with them again this week. They'll say, wow, I went back and looked at my notes, and you said you executed exactly what you thought you would. These are the three bullets that kind of underpin the strategy that we have. Investing for growth with a proven brand building playbook. I just kind of touched on that briefly on the prior page, but every one of those brands is going to look a little bit different. It's how do we invest in the right way across each of them to drive in aggregate 2%- 3% organic growth over time? That's the first part of the strategy. Invest in the business we have. The second is we have a very strong financial profile.
The superior business attributes, we're an asset-light model, very strong free cash flow generation, best-in-class EBITDA margins in the low 30s. That drives strong free cash flow, and we want to keep it that way, is stable over time. The third piece of it is from that free cash flow, we want to reinvest it towards capital allocation that can drive incremental sort of stair-step upside beyond just that organic growth playbook that I referenced. We think the portfolio that we have is not only set up for long-term success, but we think through capital allocation, we can further enhance that and potentially acquire brands to sit on top of that as well. We have a scalable business model. We use SAP, a variety of things that leave us well-positioned to continue to grow our business.
On the bottom of the page, you can kind of see what that's translated into the last few years. Over the last five years, we've grown total revenue about 3.5%, organic revenue right in the middle of that 2%- 3% that I referenced before, and then adjusted earnings of about 9% on an annual basis, which is just ahead of our 6%- 8% that we talk about over the long term. The proof is in the pudding. We have the simpler to describe strategy. As I referenced earlier, we pride ourselves on doing what we say we're going to do, and that's playing out in the financials you see on the bottom.
Brand building playbook. There are a few different elements at play here, but I'll walk you through kind of top-down how we think about why we've been successful growing the brands and growing the categories that we have. When we think about a lot of the brands that we own in the portfolio, let's go back to the Dramamine example, which we'll talk about in a second. We utilize consumer insights to understand what the long-term opportunity is. Dramamine, if it's, let's say, 60% of the category roughly in terms of market share, we get to spend our time thinking about what's that consumer insight, what is the consumer telling us they don't have today that they want that can grow the category over the long term, which we think is a win not only for us, right?
We grow the sales of our brand, but also a win for retailers where they're able to increase velocity at shelf with consumers buying more product. We think if you think about competitive sets where oftentimes maybe there's, especially in the food sections of the store, there's one or two, three competitors, they're always just trying to steal share from one another. Generally speaking, in our categories, because of our leading brands, we don't have that issue, and we're able to focus on these consumer insights. Dramamine, like I said, 60% of the category, what are some of the insights? You can see on the page on the left, we broadened out the motion sickness offering after we acquired the brand in the early 2010s.
We heard from caretakers that had kids, "Hey, my kid gets motion sickness, but they don't want to, they can't take a full pill." We introduced a non-drowsy chewable product for children. Doesn't sound like rocket science to have a great flavored chewable, but that was nicely additive for the brand. From there, we heard about non-drowsy for somebody driving the car, driving the boat. They say, "Hey, I get motion sickness, but I can't get sleepy at all because I'm that captain." We introduced that product. Most recently, we've introduced nausea. Sort of the next iteration to expanding out or broadening the offering, we heard from consumers that, "Hey, I don't get motion sickness, I get nausea." Even though they're very similar ailments and largely identical in terms of where they're placed in the store, the consumer oftentimes would think about them slightly differently.
By introducing a Dramamine nausea in a different packaging and with slightly different ingredients, we've been able to further expand the brand into that category where we're now a leader in as well. Of course, all those product innovations stem from consumer insights, and we further enhance them through marketing that you can kind of see on the right hand of the page. That's Dramamine. The other aspect of one of the things that makes brand building successful for us is just being agile marketers. We like to pride ourselves and often joke about that we sit in the Goldilocks zone. What do we mean by that? We're a large company that has scale and can benefit and spend marketing dollars in a meaningful way to be relevant, but small enough that we can still pivot quickly and allocate to brands that we think there's long-term opportunities in.
We think of each of our brands sort of bottoms up individually, and we look for those opportunities and allocate them literally on the quarterly basis if we think it makes sense. The example we have on this page is some changes we made in the eye care category last fiscal year that just ended in March, where we had a number of supply constraints around our Clear Eyes brand last year. We said, "Okay, we're obviously not going to spend marketing dollars behind Clear Eyes because of the supply constraints that we're seeing. A consumer would show up at the store and not be able to buy it.
Where else could we allocate our dollars?" Right away, we identified and executed opportunities for our TheraTears brand, which is for dry eyes, Debrox, which is an earwax removal product, and Stye eye drops as well, introducing new products, content, media support, etc. As a result, the three of those brands were well above the category growth last fiscal year because of those efforts that we undertook. Being agile and going where the opportunities are at a given point in time, we think is another element of the secret sauce. Leveraging consumer insights, being agile marketers. The third is investing in content around channels that we see long-term opportunities. We always talk about e-commerce specifically here just because of the increasing relevance of it, right? As a percentage of net sales, e-commerce has increased meaningfully over the last, I call it five plus years.
When the CFO and I joined the company back in 2016, this was less than 1% of sales. Today, we're north of 16% of sales. That didn't just happen. We go after users in a lot of different ways with engaging content. We're trying to constantly upgrade the user experience. That means a lot of different things for different brands. Some of the examples on this page, in the case of Boudreaux’s Butt Paste, right? It can be sort of silly, whimsical advertisements, etc. We'll utilize influencers or micro-influencers to help drive the new mom towards the brand. In the case of Monistat, it might be investing in content to help a woman understand if I have a yeast infection, what do I do to treat it? Do I want a one-day product or a seven-day product?
All those sorts of things so that it deepens the connection with the Monistat brand specifically. When they go to make that purchase, Monistat will be top of mind. It's all those kind of things that we were early in making investments in, and therefore we believe we have shares equal to or greater than offline market share in the vast majority of the strategic brands that we compete in. The fourth thing when it comes to brand building and success from a sales and marketing perspective is innovation. Typically on an annual basis, we'll introduce anywhere from three to five new product introductions across the portfolio. Oftentimes, we call them singles and doubles, but we're not looking for one big product launch to be the silver bullet that drives a new $100 million business that we're unlocking.
It's ones and twos that, going back to the Dramamine example earlier, help connect with consumers in a different way and extend that brand through a better claim, a better experience, better scent, fragrance, whatever it is. In certain cases, actually help us expand into new technology or form factors or expand the category opportunity. A couple of the examples on the page, a great one is Fleet. Fleet in the middle of the page here is a traditional enema suppository, very kind of last line of defense around constipation relief. It's when the user just can't deal with constipation anymore and they need fast relief. A stool softener is a slightly more slower acting formula, but for a consumer, they will perceive Fleet as a kind of a highly efficacious product and potentially be interested in purchasing a stool softener from Fleet as well.
Expanding into that logical adjacency made a lot of sense for that brand. You can see some other examples on the page. Summer's Eve historically has been more sprays, washes, wipes, recently introducing a whole body deodorant product. Summer's Eve has had a lot of success around its ultimate odor protection brand or fragrance and focused around feminine odor. Expanding into the whole body deodorant category made a lot of sense for that brand as well. Probably the last example, just to I think is noteworthy here, is Monistat. That's another great example of thinking outside of the box where I referenced before Monistat, deep connection with the consumer, very need state focused. A woman might get a yeast infection every four to five years and looks to treat it. It's very kind of healthcare-centric and more specific kind of acute need.
Monistat's introduced a maintain subline of its brand around sort of broader odor control and preventative product. It allows the brand to move from just, "I only use this when I'm sick," to, "Can I use this on a more recurring basis to help maintain the right pH balance for my body?" That's the last element of innovation and the brand building playbook we have. The last thing from just an organic growth perspective we like to talk about is the broader portfolio in the international segment. This is about 16% of our sales today. It does grow ahead of the company average. If we talk about the 2%- 3% organic, we would expect the international business to grow at a 5%+ rate over time.
You can see on the left hand of the page kind of the geographic breakdown of that brand, the portfolio, and many of the key brands. It's really headlined by Hydralyte, which is a leading rehydration product in the Australian market. If you go to Australia and New Zealand, it's really synonymous with the category there, most similar to like a Pedialyte or a Liquid IV for those of you in the U.S. It's driven really long-term success for that market for us. We're looking to continue to expand that brand not only in per capita consumption, household penetration, but also expanding it geographically into other regions throughout Southeast Asia and Asia. You can see on the right side of the page sort of the proven playbook that we have, just like the U.S.
business innovation, digital and retail marketing, and the geographic expansion I just mentioned are all going to be factors in driving that long-term 5%+ growth for this segment. It's grown, as you can see in the middle of the page, well above that, right in the double digits. We see good long-term opportunity here. Financial strategy, free cash flow. If you think about our business, I mentioned before, best-in-class sort of EBITDA margins, asset-light model, so low capital intensity, that enables a stable to growing free cash flow profile over time. You can see that on the page here at left, where we've increased our free cash flow while reducing our net leverage since fiscal 2021 quite meaningfully. We've guided to a long-term leverage target of being less than three times, so certainly 2.4x would be less than that.
That journey we've been on from our prior higher leverage range really gives us the ability to be more flexible with our capital allocation. In fiscal 2025, we repurchased about $50 million in shares. We'd expect to continue repurchasing in fiscal 2026. I bought back shares in Q1, which was end of June for us. We built some cash in advance of future inorganic opportunities. The business attributes I mentioned before, the capital-light CapEx model. We also have certain tax attributes that are cash tax savings for us that also drive further in a strong free cash flow conversion, and the nature of the EBITDA margins I mentioned before. We feel very fortunate to have the financial profile we do. That doesn't just happen. We manage the business effectively by strategy, and it enables the capital allocation ideations I have on the right. What are the priorities around capital allocation?
One, it's always invest in the current brands that we own to drive organic growth. We talk about marketing. We spent well over $150 million last fiscal year. We'll do so again this year. It's a lot of money reminding consumers around our brands and the long-term connection with them. Number two would be M&A. We'd see long-term opportunities to acquire and continue to consolidate consumer healthcare brands into our portfolio. Three, strategic share repurchases. Typically, we'll offset dilution in Q1 for our portfolio. Further in the remainder of the year, if it's opportunistic to do so, we'll be buying back shares as well and have ample share repurchase authorization right now. Fourth, just net deleveraging at 2.4x. That's less impactful, but we'll balance that against building near-term cash to enhance those first three opportunities.
As of today, we have two outstanding fixed debt notes, one due 2028, one due 2031, both at very attractive loan costs and don't have any variable debt outstanding. A strong sort of financial position. This is just a last reminder around M&A. I mentioned before that's number two on the priority list. A couple of things to think about. One, in general, if you just think about market shares across the store, our categories in particular tend to be more fragmented globally. You don't see the high concentration like you do in maybe shampoo or laundry or other sections of the store. Because of that fragmentation, it's consumers looking for very specific need states. We think that creates a lot of niche categories, which is where we've been successful, going back to the motion sickness category example.
We think there's opportunities to continue to buy those brands that might be, say, $20 million- $50 million in revenue type of thing. That translates into the market shares of larger companies as well. You think about the two largest in the category on the page here. They both represent maybe a little over 10% of sales, which would be lower than the overall broader consumer CPG landscape. Plenty of M&A opportunities, and we have plenty of capacity, as you can see on the right side of the page. We think we have ample debt capacity to continue to go do M&A. The last few things just on the road ahead, and you can certainly go back and look at our August earnings call for sort of a full understanding of the fiscal 2026 outlook.
We did talk about a little bit of a challenge around our Clear Eyes franchise, particularly around the supply. Still seeing long-term consumption growth opportunities, but have had limited ability to supply it. We have actually announced the intent to acquire one of the third-party manufacturers for that, which we expect to close in calendar Q4. See that as sort of a short-term issue that we're working through. Still expecting the same free cash flow that we did starting the year of $245 million or more, and the capital allocation I referenced before should enhance shareholder value. This is the long-term organic growth algorithm that I referenced earlier, or organic growth of 2%- 3%. The high free cash flow generation helps provide financial leverage to drive a much stronger earnings growth average. There is upside potential associated with smart and disciplined capital allocation.
We have proven this value creation strategy over the last five, ten plus years, and we think it's sustainable and repeatable. These are kind of the bullets behind that, right? We talked about earlier, diversified portfolio of leading trusted brands drives an established organic growth playbook, strong free cash flow and financial profile. The platform is scalable, and it's reinforced by that proven and repeatable M&A. We think this is set up to drive superior shareholder value creation over time, and hope you do as well as we've gone through this. Happy to take any questions.
Thank you very much, Phil. Thank you. for the terrific overview of PBH. As a quick reminder, if you do have a question, you can type it into the Q&A box. First, I know you touched on this a little bit as far as the Clear Eyes situation. If you could just maybe provide us with a quick update on what you're seeing now. I know you referenced the PILLAR5 PHARMA acquisition, just hoping to get a little bit more details as to what the objective of that acquisition was. I have a few other questions as well.
Yeah, thanks for the question, Anthony. We talk about eye care and Clear Eyes specifically. We began talking about supply chain tightness or challenges in May of last year, so May of 2024. It really relates to the long-term demand that we've seen in this category. Redness relief and eye care in general have seen long-term macro growth that has caused really limited ability to meet demand in terms of capacity. You're balancing expanding capacity, shutting down a line, stalling those upgrades, and then getting back up and running against funding near-term supply opportunities to keep the product on shelf. It's this constant push and pull that came to a head in May of last year that caused us to have really limited supply and not have the safety stock that we did before.
If you think about what happened more recently in the August timeframe that we talked about, we've been making a number of strategic decisions to well position the brand for the long term. Ultimately, we got to a point where we have one critical supplier that we've decided to acquire, PILLAR5 , the reference that I'll mention in a second. They went down for a routine maintenance upgrade in the middle of May. Essentially, what turned into a one or two-week shutdown was a shutdown for the remainder of fiscal Q1. When you don't have safety stock, you don't have the new suppliers that we intend to bring online, that causes a shortfall in Clear Eyes revenue above and beyond what we guided to. You asked for the latest update on Clear Eyes. There are a couple of factors to think about. First, we had that shortfall in Q1.
We'd expect that to continue into the Q2 timeframe. In Q3 and Q4, we expect a meaningful step up in terms of Clear Eyes supply. What gives us confidence in that or conviction that we get well back to baseline? First, we've brought on two new suppliers. One of them began shipping a small amount of product at the end of Q1. They've begun to ship more meaningful product. The other additional supplier is coming online in Q3. That's a third-party supplier as well that will produce a limited portion of Clear Eyes. PILLAR5 , which is the manufacturer we intended to acquire, has been a partner of ours since 2016, producing Clear Eyes. They're in the process of installing a high-speed line to meet Clear Eyes' demand. We expect that high-speed line to come online in the Q3 timeframe. What gives us confidence in those?
Obviously, you have a long runway of visibility with eye care in particular. It's a challenging category just from a management perspective around manufacturing. It's sterile. It's a sterile environment. Think more like vaccines and injectables, less like Anthony's Cookie Company. Because of that, you don't have a lot of supply out there. There's a scarcity of supply. That's even more impactful for Clear Eyes, which needs a very high volume requirement. Because it's an opening price point product, we probably need the equivalent of about 50 million bottles a year, whereas other eye care brands may need 5, 10, 15, that type of thing. Scarcity of supply for those volume requirements.
As we looked at PILLAR5 , we said, "Hey, having a third-party owner, particularly a private equity owner, we don't think is the right path for a strategic brand like this for us, especially given what I just talked about with the volume needed. It's in the best interest for us that they are solely focused around the attention around eye care and solely to our products." A private equity owner, say, may diversify the portfolio and say, "I don't want to have 90% of my volume be Prestige." As an example, they may try to bring others onto the line, and we're saying, "No, we want to be solely dedicated to us.
Understood. Okay. Switching gears here, as you mentioned, PBH has been a strong producer of free cash flow for years and likely will continue here. As you guys look to deploy that free cash flow, do you have an internal investment hurdle rate or target? How do you guys think about deploying your free cash flow?
Sure. We look at our weighted average cost of capital all the time, and we're looking for return on invested capital metrics that exceed our weighted average cost of capital. We're constantly balancing share repurchases, debt reduction, and future M&A against those return hurdles. Certainly, over time, we'd love to, as a company, have an increasing return on invested capital. That's kind of the North Star when we think about capital allocation with the business. As I referenced before, Anthony, at 2.4x today or at the end of June, we're in the very fortunate position that we don't have to do one specific capital allocation effort, whether it's debt reduction or share repurchases. We can do a lot of different things at once, and we think that can be a long-term driver of value.
Gotcha. I guess the last question, given the time constraints here. You talked about how e-commerce has grown dramatically over the last several years. Can you just go over for those in the audience who may have missed as far as what drove that large increase and that you have a goal in mind as far as how much e-commerce will represent? I believe you've said before that you're kind of channel-agnostic, but maybe you could just speak to the e-commerce side of the business.
Yeah, it's a great question. E-commerce obviously has been a fast-growing channel. For context, it went basically overnight when COVID hit from about 5% of our sales to about 10% of our sales. Then even off that higher base, it has sort of increasingly crept up. We think that's a lot due to our early investments in the channel, investing around content, engine optimization, media, marketing, etc. That's been a benefit. When you also think about our brands in general, especially the brands that may not be as well known with consumers that have a hard time retaining a lot of shelf space, think non-core brands for us. The Amazon space or e-commerce space is an unlimited shelf. A loyal consumer may not be able to find their product at the Walgreens, but they can go online and get it, and it's there tomorrow.
It's been a benefit for those non-core or non-strategic brands as well in our portfolio. You mentioned the profit element of it. We, over time, would expect all of our channels to be profit-agnostic. We manage it that way by strategy. It doesn't just happen, and it's largely driven by product assortment. We're ensuring that for e-commerce, for example, maybe instead of a one pack of eye care, eye drops, you have to sell a two-pack for it to be cost-effective from a shipping perspective. The other element is the dollar channel where you're going to have likely a smaller SKU count or pack size as an example. You're constantly kind of managing that so that you're profit neutral across channels. We remind everyone too, when you show up at, let's say, the drug channel, they have a much higher price point. That's not driven by us.
That's driven by them trying to have a different kind of cost profile or profit profile versus others. The last thing that I think was asked about was just long-term growth opportunity. We don't sit here and say we think the 16 can be 30 or 20 or 40. What we've said is we want to be ready, willing, and able when the consumer shows up in greater numbers to be able to scale to the point we just made, profit neutral, and making sure our products are widely available. We'll see ultimately where it goes, but we think we're well positioned to be a net winner if that happens.
Thank you very much, Phil, for sharing the PBH story. Thank you also to everyone listening in. We'll wrap it up here and enjoy the rest of your day. Thank you.
Thanks, Anthony. Thanks, everyone.
Take care.