So, we'll do a fireside chat for the next 30 minutes here. Hopefully, it's productive use of everyone's time here, so we'll get to as many questions as we can. I guess first here, for investors who may not have followed PBH closely, can you give us a brief introduction about the company and the core investment thesis?
Sure. Good morning, everyone. This is Chris. I apologize, I'm not on video. I'm having a little trouble here in a hotel room, but hopefully, I'll pop up soon for you all. Prestige, we're marketers and stewards of leading brands in niche categories, needs-based categories, brands that consumers know and trust that have a long heritage with consumers. Our investment thesis is essentially we've been executing on a three-part strategy, three-pillar strategy over the past several years. The first is to invest behind our leading brands, use consumer insights to drive awareness to either get more users into categories that we compete in, bring users that are light users in to become heavy users, and use consumer insights to do that, to grow categories. We do that. We look to our second pillar, which is essentially our operating model.
These are over-the-counter medicine, OTC brands that are important to consumers. They come with strong gross margins. Our gross margin guide is about 57% for the year. We use that money to invest in A&M to drive top-line growth, and we maintain our EBITDA margin in the low to mid 30% consistently. Again, brands that consumers need when they're not feeling well. The consistency and stability of the P&L leads to our third pillar, which is essentially our strong free cash flow, industry-leading free cash flow. The guide for this year is $270 million or more. We use that cash flow to create optionality for our shareholders. That comes in the form of additional M&A, reducing debt to drive that EPS growth beyond our top-line organic growth. We've done share repurchases over the years.
So creating capital allocation to create value for the shareholders, and that's probably Prestige. If I had to sum it up quickly in a nutshell, that's what I would say.
Got you. Okay. As we look at last year, FY 2026, your revenue was down about 4.3%. Free cash flow was strong, however, at $246 million. Maybe walk us through the biggest puts and takes in the year, and what should investors view as transitory versus structural?
Yeah, sure. Fiscal 2026 in the near term, certainly our biggest challenge as a company to top-line growth has been Clear Eyes, the Clear Eyes brand, which I am sure we will get into some more details on. It has been limited in terms of our supply, not on the demand side, not on the consumer side, not on the retailer side. It is really on the supply side. I like to say as fast as we can make it, we can ship it. That was really the biggest restraint to our organic growth. The rest of the portfolio has been performing well. Consumption has been strong for most of our brands. When we went out in May, we tried to frame, I am sure we will get into our acquisitions.
We tried to step back and show folks, "Hey, this is our model for the next three years." It comes with organic growth of 2%-3%, came with a top-line CAGR of about 10%. The power of the cash flow that I just talked about in terms of deleveraging led to a high single-digit EPS growth. Again, largest variable at this point in terms of the guide, even for fiscal 2027, which is 1%-3% organic growth. The biggest mover of the 1% versus the 3% will be in the Clear Eyes supply.
Mm-hmm. How has consumer shopping behavior evolved across your core categories and sales channels, particularly as we still deal with a challenging and dynamic operating environment?
I'll take that one, Anthony. If we kind of step back and you see a pressured consumer in other sections of the store when they shop every day, our category is a little bit different. When consumers are taking care of their everyday health, it is typically not the time they are looking to trade away from their trusted brand that they have used for 30 years. So, a reminder to everyone, we sell needs-based products that Chris introduced at the start of the conversation. When it is needs-based in nature, you either need it or you do not, and you go to that trusted brand. For the most part, our products continue to be bought on a consistent basis. We have not seen meaningful trade away from our products to, say, store brand or other competing products out there.
What we have seen in the challenging environment that is out there is really the channel shift. We see consumers gravitating from perhaps higher ring channels like CVS and Walgreens into more value-oriented retailers. Think Walmart, dollar stores, even Amazon. That trend has been going on for a while. We continue to see that in the marketplace as consumers kind of seek out value. The only other point you should think about there is that we also, although that shift is happening, we manage all of our channels to be product agnostic in terms of profitability and availability. We ensure our goal from our sales team and their objectives is to make sure, hey, all of our products are broadly distributed, so wherever the consumer is showing up to shop, that the product is there and available to buy.
From a profitability standpoint for us, we are managing our assortment and our relationship with the retailers to ensure it is not margin dilutive in any form as those channel shifts are occurring. That is how we think about the evolving environment.
Mm-hmm. As we look at fiscal 2027 guidance, when we look at the core or organic business, how much of that outlook is driven by unit volumes versus pricing, the mix, distribution, et cetera?
Yeah, most of it is volume. When we think about pricing, other than obviously through COVID, where we were able to offset inflation dollar for dollar, where we were still, by the way, growing volume, just at a lower rate. We are mostly volume driven. So how we get price in our categories is largely through innovation, right? We come up with a better proposition for a consumer and our edict to our folks is, every new innovation has to be margin accretive to the brand.
Innovation is really important in OTC. Every one of our strategic plans has a path towards innovation. That is how long it takes to put them out there. So it is consumer for new innovation to get out there. It is what distinguishes us from private label and other brands. That is largely how we get price for the journey of volume driven.
Mm-hmm. Right. Can you just talk about the key swing factors that could affect the high end and the low end of the guidance that you put out there for FY 2027?
Yeah. Again, the biggest variable is going to be our Clear Eyes supply. I am sure we will get into it in a number of things that have been going on in the industry, not specific to Prestige, really.
That would be the largest swing factor, right? Our brands are consistent, they are stable, right? Our categories are consistent. If you look at our pie chart, you are going to see a whole bunch of categories that we compete in. If you really peel that onion back, you will see even further diversification within our category. The diversified portfolio really leads to stability in our top line, our results, as well as our consumption for consumers, obviously.
Mm-hmm. Speaking of Clear Eyes, can you give us an update on the Pillar5 Eyecare manufacturing site that you acquired, and where are you in terms of restoring supply and what type of milestones should investors be on the lookout for?
Yeah. If we step back, really what has gone on in the industry, in sterile eye care specifically, is there has been a lot of increased activity from FDA. It is not really moving the regulations, but it is increased enforcement actions coming out of inspections. We mentioned on one of our earnings calls that all of our eye care, Clear Eyes and TheraTears, all of our sterile eye care facilities, including our own Pillar5, have been inspected at this point, which was important as other folks are now, I think, also facing similar headwinds. Back when we were trying to assess, essentially, good tailwinds in the category of eye care, Clear Eyes was doing very well, the leader in units by far from other brands, as well as private label. We were looking globally for a partner that we could get enough capacity out of.
To be fair, Clear Eyes commands, to give you an idea, about 50 million bottles a year. Some facilities and other brands might need 5 - 10. As we looked and even considered greenfielding something, it was three years out maybe plus. Pillar5 was one of our contract manufacturers. We have been working with them for a number of years, and they were by far out ahead of having been inspected by FDA, having been through a lot of the remediation efforts, as well as having room for expanded capacity. In December of last year, we acquired Pillar5 and, to date, what I could say is getting in there, we bought them from a private equity firm that clearly had other priorities for them. If you can make a sterile facility, you want to make vaccines or GLP-1s.
Getting in there were a number of consultants who were calling the shots there and a number of folks who had aseptic food experience, but not aseptic eye care experience. Happy to say at this point now, those consultants are gone. We have brought permanent people in. They are sterile eye care folks. I think I mentioned to somebody the other day that I had interviewed someone who had sterile eye care about eight years ago, and I said, "Well, I'm really sorry, but that's not relevant anymore." Getting the right team in place was huge. We're making investments in the facility and especially getting them to focus on you're not a standalone unit anymore. You're a manufacturing part of the family now. I think we're making the right move there.
What we're doing now is essentially focusing on supply, right? We have to balance short-term desire for product with long-term desire for capacity and what line down in order to make improvements in the process. We're trying to balance that right now. The team is focused, and I think, if you look on our shelf, you're good. But a number of folks are experiencing some changes. To the consumer and the retailer referring Clear Eyes, but for right now.
Chris?
I think I may have lost Chris entirely. Yeah.
Yeah. I think I can have it.
I can take over the balance of that question. Chris was mentioning is, hey, if you go to the shelf today, you will see Clear Eyes in a very abbreviated manner. Historically, at its highs, maybe had seven or eight SKUs at shelf. Right now, we are focused on really the two core SKUs, which are Max Red and Base Red. As we improve that consistency of supply around Clear Eyes, we will then look to re-expand into those other SKUs like we have had historically and get back to full distribution. The retailers are very supportive of that strategy. We know that the consumer, there is kind of long heritage and connection with them in the space and the category. Clear Eyes in general has a very unique proposition as more of an opening price point product in eye care.
It has a lot of valuable traits that retailers and consumers are going to be receptive to as supply comes back online.
That is kind of our North Star in terms of what we are moving towards, and it is really a multi-year objective to get to that point.
Mm-hmm. Okay. Got you. All right. Just to kind of finish up the topic of Clear Eyes, as far as just a general expected timeline as to when things could get back to normal in terms of shelf availability, do you have any updated thoughts on that?
Yeah. In terms of the overall availability, if you went to the stores today, it's not as though there's zero product for six months. It's just very sporadic. If you walk into your local drugstore today, maybe the product's in and available, and a week from now, it's out of stock. That's, as we improve consistency of supply, that should improve. Then in terms of those additional SKUs that you alluded to, we see that as more of a multi-year process. As we get, we expect increased supply overall for Clear Eyes in the second half of this fiscal year. As we get that sort of increased production rate, that gives us the ability to go and add those incremental SKUs and then bring them back to consumer availability. We would expect that as you kind of go into the future years.
But, certainly in the near term here, it's more about increasing total production and focusing on those two core SKUs.
Got you. Okay. Yeah. Thanks for that. Okay. Then moving on to the GI brands, like Fleet, Dramamine, Hydralyte. They certainly helped to offset some of the pressure in FY 2026. So what's driving the strength in that category?
Yeah. So a couple of different reasons, not any one specific. When we look at our GI franchise, and remember all the categories we participate in, it's really individual brands that solve individual ailments. When we look at GI, we've seen success really across our four largest brands in that category. So it's Dramamine for motion sickness and nausea in the U.S. Fleet, globally with enemas and suppositories, Gaviscon in Canada as an antacid, and Hydralyte in Australia and certain other countries for oral rehydration. All of those brands have grown nicely over the last few years, and we'd expect that to continue. They all have sort of their own individual tailwinds. The one that's kind of most topical that people certainly ask us about is Dramamine and Fleet, and it really relates to GLP-1 use.
As GLP-1 use has increased, the number one and number two side effects of using those drugs are nausea and constipation, which are the solutions that Fleet and Dramamine offer, and they are the leading brands in those categories. We have done our best to lean into marketing, innovation, et cetera, to capitalize on that, and we would expect that to be a tailwind for both of those brands going forward. Set that aside, Dramamine has its own successes outside of that. We have been able to successfully expand from motion sickness into nausea, introduce kids' SKUs, other formats in terms of chews, powders, et cetera, to help grow that franchise over time, and we see a lot of runway for that to continue. Hydralyte in Australia, a little bit different of a story.
Oral rehydration, there has been broader consumer interest in that wellness category. We focus a little more on clinical hydration but have expanded out into areas like sports, et cetera. In Australia, we really dominate the market there with a clear number one position. Brand has been around for 20+ years, so we have an objective to continue to increase per capita consumption, household penetration. We see a path to do that. The last one is Gaviscon in Canada. We have had a lot of success over the years through marketing. It solves acid reflux in two different ways, which is a little bit unique in the marketplace, and it leans on global heritage. Although we own the rights just in Canada, it is well-known in the U.S. with consumers and in Europe as well with some other owners.
We see tailwinds behind all four of those brands going forward.
Mm-hmm. That is great to hear. Okay. In terms of just innovation, you mentioned that that is a big part of the overall growth strategy. As we look at the different brands that you have out there, which ones do you think have the most runway here in the next few years?
Sure.
Hi. Just interrupt me please if interrupt me please if. There you go. Go ahead, Phil. Sorry.
Yeah. Innovation, our playbook is very simple. When we look across our portfolio of brands, we look to introduce three to five new product, new kind of singles and doubles, new products on an annual basis. We've got about 18 brands in our portfolio that represent the vast majority of our sales. We have a multi-year innovation pipeline, our innovation team internally, that's how long it takes to introduce products, has that roadmap that they're rolling forward on an annual basis and looking to introduce those new products. They're typically, I mentioned singles and doubles before. They're going to be products that are tangentially close to what we're doing with our existing product base. We're not inventing new drugs or things like that.
Think of it a little bit more similar to some of the new product innovation you might see in other consumer product companies if you follow them. Let's use a couple examples. In the last handful of years here, we've introduced, we have a wart treatment product called Compound W. We introduced a more sort of higher efficacy version called Compound W NitroFreeze, which is the coldest wart treatment on the market and most similar to replicating the experience you would get if you went to a dermatologist and had a wart burned off. That's one example where historically it might be patches or salicylic acid that is a more value-oriented proposition. We brought that product to the marketplace, and it was highly incremental in terms of consumer use, feedback, et cetera.
That's one great example where we've introduced a new product that's led to sort of incremental growth for our brands. Going back to your question, Anthony, about GI, another example is with Fleet. We recently launched a mini enema kit. We know those GLP-1 users that might be using the category for sort of severe constipation. Historically, they hadn't used enema suppositories. It's more of kind of a scary proposition, a new thing to use and understand. The mini enema kit is much more kind of palatable. It's easy to understand. You can put it in a travel suitcase, all those types of things. Those are two examples where innovation has been incremental for us and the category, which is an overriding objective of ours. We're not just looking to steal share from a competitor. We want to grow the total pie and solve consumer needs.
Mm-hmm. Got it. Okay. Shifting gears to e-commerce, it really took off after the COVID outbreak. Can you just talk about how important e-commerce is to your long-term growth algorithm and talk about the profitability versus brick-and-mortar retailers?
Sure. If we kind of step back, Chris and I joined the company back in 2017 or start of 2017, e-commerce was less than 1% of revenue.
Wow.
We knew at the time it was much larger in other categories, and we'd expect it to grow. We had made some investments at the time, making sure our products are readily available, content is up to date, refreshed, all those things, and it gradually crept higher. We get to fiscal 2020, when COVID hits, and e-commerce goes overnight from 5% - 10%. Since then, it's continued that path of double-digit growth and today represents high single digits as a percent of sales. It's made up largely of Amazon. It's low teens as a percent of sales, and then Walmart with the remainder. Our strategy is kind of quite simple when we think about that e-commerce growth. We think it'll be sort of an increasing part of the marketplace over time. We want to make sure our products are available wherever consumers shop.
I highlighted that earlier, right? Just like our other channels, we want to make sure as those key e-commerce retailers are growing, that the profitability is neutral to Prestige from a gross margin, EBITDA, profit margin perspective. We are constantly looking at the P&Ls associated with the brands and the investments we are making there, as well as the product assortment to make sure we are having the right balance of growth and profitability. As we look out, nobody has a crystal ball, right? But we would expect e-commerce to continue to grow as a percent of sales.
Sure. This year you have been certainly busy with lots of things, including a couple of strategic acquisitions here. Pillar5, you had that in December, but also Breathe Right, LaCorium Health. How do these assets fit the long-term playbook for Prestige?
Yeah. Maybe we unpack them individually. Let us start with Breathe Right, largest acquisition in the company's history. It is a portfolio of brands largely concentrated in Breathe Right, represents about $200 million in sales, and we paid just over $1 billion for those brands and portfolio. Fits very squarely with the M&A criteria that we talk about, which is, hey, how do we find brands in consumer health that have a leading heritage and connection with consumers? Breathe Right's heritage goes back to the early 1990s when the company was founded by its founder and really represents and is synonymous with the nasal strip or sleep category overall. Most consumers couldn't name another brand in that space. When you go to shelf, we are an 80% market share at brick-and-mortar, as an example. Very long and strong connection with consumers, which we love to see.
Beyond that, as we think about and unpack, hey, how do we get comfortable that we believe this is a brand that can grow for the long term? We see opportunities around innovation. We think it is differentiated versus competitors and has that strong equity with consumers. It kind of has this trifecta of opportunities for it to grow, as well as actually has an international presence. It is sold in about 20 countries today, and we see an opportunity for that growth profile to continue into the foreseeable future. So became our largest brand when we acquired it in June, and we see a lot of runway for that to continue to grow over the next few years.
Very much similar and kind of overlap to our U.S. business and what we have going on in here in terms of the profile and how we manage things. LaCorium is a little bit different. LaCorium is based in Sydney, Australia. It was a founder-led business in the late 1990s. Their son was born with terrible eczema, and they wanted to introduce therapeutic skin products that would solve consumer needs. They started with eczema and have gradually branched out to a lot of different categories, in terms of skin ailments. Think cold sores all the way to eczema and a lot of other things along the way. That has had a lot of success over the last 10 years. Their portfolio has been growing double digits on an annual basis. Funny enough, our office, we have about 60 people down in Sydney.
We are on the third floor of an office building, and they are on the sixth floor. We knew them intimately well, had bought a lot of coffees over the years to those founders, and they knew family-run business. They wanted to make a change, focus on other things as they grow older, and we were the logical candidate to step in and acquire that business. How it fits into the M&A criteria, we have this platform in Australia today that we see a lot of long-term opportunities behind. It is called Care Pharmaceuticals. We have owned it for 10 + years. This is a very logical bolt-on to that, and we see opportunities to continue growing in Australia in the therapeutics and care space, as well as expanding the brand into additional countries.
They have a presence in the Middle East today and a little bit in Canada, and we see opportunities to kind of continue that geographic expansion as well.
Slightly different, right? U.S.-centric and Australia-centric, but see opportunities for both.
Right. We only have about five minutes left, so try to squeeze in a few more here. As far as gross margin, it was relatively steady last year, even with some revenue pressures. Maybe just touch on that a little bit as to the different person takes, and how do we think about gross margins going forward as you get the integration of the acquisitions done and Clear Eyes gets better. If you could just speak to that would be great.
Yeah. So kind of rapid fire. We finished last year at gross margin, just under 56%. Prior to the acquisitions, we talked about a gross margin fairly similar year-over-year. We have an ongoing cost savings program list, just like every good company does, and that goes out three years in rolling fashion. We are looking to identify cost savings and opportunities that offset any inflation we see in the marketplace. So we feel good about having a stable margin profile over time. If we get gross margin expansion, we typically look to reinvest that in higher levels of marketing that can drive faster sales growth. Now set that aside, we just updated everybody in August and said, "Hey, our gross margin outlook for the year is now just over 57%." That is entirely driven by the acquisitions.
In totality, it is slightly gross margin accretive, and that is a benefit, obviously, allows us to spend more behind those brands and the marketing efforts that any good brand building company will do. So that is how we think about the marketplace today.
Mm-hmm. Right. PBH has always been a very strong free cash flow generator, and it looks like expect that to continue. What gives you the confidence? Maybe second part of that question would be, how do you think about usage of that free cash flow between debt reduction and potential buybacks or any other future M&A?
Sure. So you kind of asked the confidence question. Chris and I would point everybody back to really the history. We have had a proven history of free cash flow that is stable to growing over time, performs well across economic environments, and it is due to a variety of factors. Strong financial profile, strong free cash flow conversion. We tend to be a fairly capital-light model. Our guidance is for 1%-3% CapEx spend as a percent of sales over time. And we have certain cash tax benefits associated with prior acquisitions. So the P&L tax rate you see, we pay a cash tax rate closer to the high teens. So all those things drive very strong free cash flow in our guidance for this year.
As we think about kind of priorities, the acquisitions have taken us from about 2.5 x leverage to just north of four. By the end of the fiscal year, our intent is to focus solely on debt reduction and to be just below four times. And if we put on an annual basis our free cash flow entirely towards debt reduction, we think we will be paying down about 2/3 a turn a year. So that would be the emphasis in the near term. Obviously, we are going to do and be disciplined around capital allocation, what is best to add shareholder value and allocate capital. And as we delever, that just rewidens those priorities and those options or optionality we have around the free cash flow. But it is a really critical part of the story to understand, and we prioritize that with investors to dive into that.
We did talk back in May about free cash flow over the next three years, we would expect to be about $900 million, which is really powerful in the context of the size of the company.
Got you. Okay. Just as we look at the long-term opportunity here, as far as once you have the supply constraints out of the way and you get the integration noise with the acquisition kind of, maybe just touch on the long-term growth algorithm that you feel is appropriate that investors should know about PBH.
Yeah. So in the near term that we offered that three-year medium outlook back in May, we would expect over the next three years, total top line growth of about 10%, and that includes organic growth of 2%-3%. That is our long-term expectation for organic growth. On the earnings side, because of the power of the cash flow and the magnification of using that, we think we generate earnings growth long term of 6%-8% on an annual basis. Over the next three years, we have talked about EPS growth we expect of about 8%. Certainly, we always get optionality in the future around cash flows and what it can drive in terms of top line and earnings. But that is kind of that outlook in the near term.
Got you. Okay. Anything to add as far as your brand portfolio versus private label products? If you could just quickly touch on that.
Yeah, nothing to note. I mentioned earlier, when the consumer, it is a tough environment and they may trade down in other categories, they are typically trading into other channels, so they still buy our products, but elsewhere. We see that in the data, private label, generally stable to declining in terms of market share in most of the categories we compete.
Mm-hmm. As we look to wrap up here, what do you think that the market underappreciates most about PBH, and any final closing remarks that you may have?
Yeah. First off, thanks to everyone for joining and kind of hearing the story. I am sure everyone is at different knowledge bases, but would encourage you, if you haven't already, to kind of go back and look at the cash flows I mentioned. The unique attributes of consumer health versus other sections like personal care and some of these broader household cleaning items like that, very different in terms of kind of how the consumer thinks about it, how the retailer, the proposition for them, and favorable in a lot of ways. We are biased, of course, but we think that power of the cash flow and the unique attributes of our categories and our ability to brand build are really the secret sauces that can create success over the next several years.
All right. Well, sounds good. Well, thank you very much for joining us here, and thanks also everyone listening in here as well. We will wrap it up, and have a productive day, everyone. Thank you very much.
Thanks, Anthony.
Take care.
See you, everyone.
Thank you. Thanks.