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Edited Transcript of PRGO.N earnings conference call or presentation 4-Nov-20 9:30pm GMT

·53 min read

Q3 2020 Perrigo Company PLC Earnings Call DUBLIN Nov 16, 2020 (Thomson StreetEvents) -- Edited Transcript of Perrigo Company PLC earnings conference call or presentation Wednesday, November 4, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Bradley Joseph Perrigo Company plc - VP of Global IR & Corporate Communications * Murray S. Kessler Perrigo Company plc - CEO, President & Director * Raymond P. Silcock Perrigo Company plc - CFO, Principal Accounting Officer & Executive VP ================================================================================ Conference Call Participants ================================================================================ * Ami Fadia SVB Leerink LLC, Research Division - MD of Biopharma & Generics and Senior Analyst * Christopher Thomas Schott JPMorgan Chase & Co, Research Division - Senior Analyst * David Michael Steinberg Jefferies LLC, Research Division - Specialty Pharma Analyst & Equity Analyst * David Reed Risinger Morgan Stanley, Research Division - MD in Equity Research and United States Pharmaceuticals Analyst * Elliot Henry Wilbur Raymond James & Associates, Inc., Research Division - Senior Research Analyst * Gregory B. Gilbert Truist Securities, Inc., Research Division - Analyst * Randall S. Stanicky RBC Capital Markets, Research Division - MD of Global Equity Research & Lead Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good evening, and welcome to Perrigo's Third Quarter 2020 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded. I would now like to hand the conference over to Mr. Bradley Joseph, Vice President, Investor Relations and Corporate Communications. Please go ahead. -------------------------------------------------------------------------------- Bradley Joseph, Perrigo Company plc - VP of Global IR & Corporate Communications [2] -------------------------------------------------------------------------------- Thank you, and welcome, everyone, to Perrigo's Third Quarter 2020 Earnings Conference Call. We hope everyone is healthy and safe. I hope that you've had a chance to review the earnings and judicial review press releases we issued earlier today. A copy of the releases and the presentation for today's earnings discussion are available within the Investors section of the perrigo.com website. Joining today's call are President and CEO, Murray Kessler; and CFO, Ray Silcock. I'd like to remind everyone that during this call, participants will make certain forward-looking statements. Please refer to the important information for shareholders and investors and safe harbor language regarding these statements in our earnings press release. A few items to highlight before we get started. When discussing the business, Murray will reference only non-GAAP adjusted numbers for the quarter, unless otherwise noted. All comparisons of operating results against prior year periods include the previously disclosed third quarter 2019 net sales adjustments for the market withdrawal of ranitidine as well as operating results attributable to the 2019 held for sale animal health business previously included in the Consumer Self-Care Americas segment. Comparisons to prior periods also exclude: one, divested businesses, which includes contributions from the divested animal health business and the divested Rosemont business and Canoderm product, both previously included in the Consumer Self-Care International segment; and two, currency. Also of note, organic growth excludes acquisitions, divestitures and currency in both comparable periods. And lastly, in the appendix for today's call, we have provided reconciliations for all non-GAAP financial measures presented. And with that, I will now turn the call over to Murray. -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [3] -------------------------------------------------------------------------------- Thank you, Brad, and good afternoon, everyone. I want to begin today's call as I have all year, by once again thanking each of our Perrigo colleagues for their continued efforts in delivering products needed by consumers and patients during the COVID-19 pandemic, for driving our consumer self-care transformation and for once again delivering on our financial commitments, despite a major product discontinuation. Before we dive into earnings, I want to take a moment to discuss today's outcome from the judicial review process in Ireland. The Irish High Court ruled that the issuance of the notice of amended assessment by Irish revenue did not violate the company's legitimate expectations. We are obviously disappointed with the judge's decision that Irish revenue had the legal right to issue the assessment after revenue retrospectively and without warning, recharacterized Perrigo's trade of intellectual property to exclude disposals going back to 1997. While the judge did not rule in our favor, I want to remind everyone that today's decision was based on a process argument, and the judge was not considering the merits of our case under Irish tax law. We remain confident that Irish revenue is wrong on the merits of the case. And while we now need to assess whether to pursue an appeal of the judicial review decision or to proceed directly to the tax appeals commission to argue the merits, we strongly believe Perrigo will ultimately prevail. I also remind you, there was only upside to Perrigo today on the process argument and that this decision has no bearing on the actual tax assessment review. Likewise, no payment is due now and would only be due if Perrigo were to eventually be unsuccessful through any appeal of the judicial review decision and the merits of the case with the Tax Appeals Commission. Achieving that final determination is likely to take years. Notably, it wasn't all bad news on tax uncertainty this quarter. We did make progress on the $843 million U.S. subpoena tax assessment, which was accepted by the mutual agreement program under the Irish-U. S. income tax treaty. The Irish and U.S. competent authorities have a history of resolving matters to avoid double taxation. And we are optimistic that this matter could be resolved or substantially reduce our overall tax exposures to the U.S. and Ireland. But ultimately, the value of Perrigo will be determined by the success of our Consumer Self-Care transformation, not lawsuits. So I'd like to get back to the business and focus the rest of this call on how the company is performing and how are we progressing against our transformation plans. Let's start on Slide 6 with a recap of the significant progress we've made over the past 18 months on our transformation. With intense focus on expanding our consumer portfolio, we have completed 6 bolt-on self-care acquisitions that most notably added a new platform for growth, oral care. These purchases were partially funded by divesting 2 non-core businesses. We've also made meaningful investments in our go-to-market strategy, most notably in e-commerce, that are enabling us to recapture the Perrigo advantage. Our commercial teams are working round the clock to provide consumers and customers with essential products through the global pandemic. And our R&D and innovation teams have created a new product pipeline designed to always have at least $500 million in development to fuel organic growth. We've also launched our internal business intelligent platform to drive more sophisticated analytics and insights throughout our organization. And more than half of the leadership positions in the company have been infused from both external talent with world-class consumer experience and internal promotions of our up-and-coming stars. To foster greater collaboration and further enhance our ability to attract talent, we announced last week a new North American corporate headquarters to be located within the Medical Mile of Downtown Grand Rapids. Our $100 million Project Momentum savings initiative is already generating operating expense reductions, which have offset nearly all of the headwinds we faced so far this year. In total, we've invested more than $1 billion through M&A, increased the dividend by more than 20% compared to just 2 years ago, significantly increased infrastructure spending to support growth and service, while at the same time, accumulating $850 million in cash on the balance sheet. The team did this all the while predictably meeting or exceeding our financial commitments for 8 consecutive quarters. I am proud of the entire Perrigo team and what they have accomplished in such a short time. And while the Board of Directors and I believe the company's valuation does not yet reflect these achievements, we believe it ultimately will. And for that reason, the Board has authorized to purchase $150 million in Perrigo's stock between now and the end of the calendar year. Turning to Slide 7. We remain confident in our long-term consumer growth targets, which we have illustrated here. The 3% net sales organic growth target is achieved through a combination of the initiatives highlighted. The 5% adjusted operating income growth is expected to come from revenue growth, coupled with margin enhancement, via mix, cost savings and manufacturing efficiencies. These add another 2% of leverage as we expect sales and gross margin to grow faster than operating expenses as a result of our technology and capability investments. Though we trade at a sizable discount to leading CPG peers, our 3/5 compound annual growth rate targets surpassed peer growth expectations. On average, analysts estimate those peers to grow revenue by 2% and operating income by 4% on a CAGR basis over the next 3 years. Our consumer growth targets remain unchanged. Now let's discuss our performance for the next quarter and year-to-date, as shown on the next slide. Third quarter consolidated net sales grew plus 1.7% and were flat organically at $1.2 billion. Note, we established a $31 million net sales reserve related to the albuterol recall. This negatively affected third quarter revenue growth by about 70 basis points after including albuterol net sales prior to the recall. I'll walk through the sales growth in more detail in just a few moments. Adjusted EPS was $0.93 per share in the quarter, down 11% versus prior year, but remarkably in line with our guidance despite the albuterol recall and discontinuance. We attribute this to strong growth in Consumer Self-Care Americas, CSCA; and better-than-expected recoveries in both the Consumer Self-Care International, CSCI; and base Rx businesses. On a year-to-date basis, consolidated net sales were $3.8 billion, up a very strong plus 10% versus a year ago, behind organic revenue growth of more than 4%. Adjusted EPS is $3.10 year-to-date, which is up 4% versus a year ago, despite incremental COVID-related costs, albuterol recall-related costs and the divestiture of Rosemont. We believe this, in conjunction with our reaffirmed guidance today, validates the underlying strength of Perrigo's diversified and durable business model, the importance of our products to consumers during these difficult times, the successful execution of our ongoing transformational activities and the dedication and agility of our 11,000 team members worldwide. On Slide 9, you see the results for the Worldwide Consumer business, which is the focus of our self-care transformation. Worldwide Consumer net sales grew more than 4% in the quarter, plus 1.6% organically. Year-to-date, Worldwide Consumer revenues are up 11% versus a year ago, plus 4.6% organically, which is well above our plus-3% goal. This compares to a Worldwide Consumer business that was growing less than 1% for several years prior to the start of the transformation. It is especially worth noting that Worldwide Consumer operating profit year-to-date is up 12%. Essentially, we are achieving our 3/5 consumer growth goals 1 year early, just as we achieved our 3% revenue goal a year early in 2019. As shown on Slide 10, Consumer Self-care Americas performance has remained robust through this pandemic and was once again in the third quarter the company's primary growth engine. Third quarter net sales increased 8% versus a year ago, led by OTC with organic net sales up 4%. Oral care, allergy, digestive health and pain were the growth leaders, benefiting from consumers switching to e-commerce in these highly regimented product categories. For perspective, CSCA e-commerce revenues grew more than 140% year-over-year in the quarter, a testament to the investments I discussed earlier. Pain also benefited from continued COVID-related demand and the Voltaren store brand equivalent launch. Digestive health benefited from the market relaunch of branded Prevacid. Nutrition benefited from the launch of a new product late last year to a major customer. And oral care benefited from the Dr. Fresh acquisition and continued organic growth. Similar to what you have heard from others, our cough cold products were down in the quarter, which we attribute to lower year-over-year illnesses that we believe are due to social distancing and mask measures designed to prevent the spread of COVID as well as our belief that consumer pantries for cold cough products are still above year ago levels from the March-April consumer demand surge. Importantly, our projections for the balance of the year assume an overall weaker cough cold season. This assumption is also built into our guidance. All in all, it was another very strong quarter for CSCA within a very strong year. There are 2 other notable trends in the U.S. that are benefiting CSCA, I think, are worth mentioning. The first is shown on Slide 11, which is important data from a recently released McKinsey survey. It shows that there is a consumer shift in shopping behavior to store brand occurring through the pandemic. According to this study, 75% of consumers have tried a new shopping behavior since COVID began. 25% of consumers surveyed noted that they have tried a store brand for the very first time, with 80% of those reporting they intend to continue buying store brands. That's big. The other big behavior switch highlighted in the survey was a huge shift in shopping behavior to digital and e-commerce. We've seen that ourselves in our omnichannel data, as shown in Slide 12. Let me take a minute to explain what I mean by our omnichannel data. This refers to a broader way of measuring consumer takeaway than we've done in the past. Historically, CSCA measured and reported sellout data from IRI's MULO or Multi Outlet data. While insightful, MULO underestimates club stores significantly, and more importantly, it does not capture sellout through the e-commerce channel. As consumer buying habits continue to shift from brick-and-mortar to online, which was turbocharged by COVID, e-commerce has become a much larger component of our overall sales. And as such, it is critical to include e-commerce in our market share data to more accurately reflect consumer behavior. We refer to this as omnichannel data. For the first time, we can now measure, analyze and benchmark omnichannel performance for the entire OTC category, for total store brand within the OTC category, and we can also now measure Perrigo's share of total store brand and Perrigo's share of the overall OTC category. The omnichannel data on this slide is compiled from IRI MULO point-of-sale data plus IRI panel data and e-commerce point-of-sale data provided by Perrigo's top customers. The difference in results between MULO and omnichannel data is quite dramatic. MULO shows OTC total category revenues down 4.8% in the third quarter, with total store brand down 6.3%, and total Perrigo faring better, down 2.5%. But now compare this to the omnichannel data, which includes MULO plus the whole wholesale club channel and e-commerce sales. In this broader data set, the OTC market was actually up 1.2% in the third quarter. Total store brands still declined but to a lesser extent at 2.8%. And notably, Perrigo grew 3.5%, which is fully aligned with total Perrigo OTC factory shipments for the quarter, which were up 3.4%. What this clearly demonstrates is that Perrigo has a very high share of store brand omnichannel sales, which is the result of its investments in this area over the past few years and is clearly a major driver of the CSCA business. Turning to Consumer Self-Care International. Net sales were down 2% versus a year ago. CSCI is a bit of a mixed bag when looking at the impact on our business from COVID-related consumer behavior. Certain categories benefited from increased usage, while others were negatively impacted by lockdowns across Europe. On the positive side, sales grew in the pain category, driven by the fever reducer, Solpadeine; in the VMS category driven by new products within the Davitamon supplement brand; new innovations to the XLS weight management brand; and finally, strong e-commerce growth across most of the businesses. These were more than offset by lower sell-in of cough cold products for the same reason as the U.S. as well as life treatments due to school closings. Importantly, as you see on Slide 14, CSCI's branded business in total has outperformed other self-care peers in Europe. Consumption for both Perrigo and the total market is recovering to near pre-COVID levels, which explains why the business performed a little better than we anticipated in this third quarter. However, we're closely monitoring the recent lockdowns, albeit somewhat less restrictive, that were put into effect in countries, including France, Germany, Spain, Italy, Belgium, U.K. and Ireland. We will adjust our plans as need be in the fourth quarter based on consumer behavior changes resulting from these lockdowns. Turning to Rx. Net sales in the third quarter were $20 million lower than the prior year, as $23 million in albuterol net sales during the first half of the quarter were more than offset by a $31 million reserve established for the early September albuterol recall and discontinuance of $9 million in lower-margin products. The underlying Rx business or what I'll refer to as the base Rx business, which completely excludes albuterol and discontinued products, recovered faster than expected during the quarter, albeit is still below pre-COVID levels. As you can see, base Rx sales were down 1.2% versus a year ago in Q3, which is a big improvement from Q2's 14% decline, when doctors' offices were closed due to lockdowns and derm topical prescriptions, as reported by IQVIA, reported similar declines. Notably, our most profitable derm topicals business returned to above pre-COVID and year ago levels in the quarter, which is good news. So while halting albuterol sales is clearly a hit to our Rx business, we did the right thing for patient safety. We will relaunch when the problem is solved. And in the meantime, our base business is stabilizing, and we have a full pipeline of new products to restart growth on this important cash-generating business. So to summarize, consolidated net sales are up 10% year-to-date, highlighted by greater than 4% organic revenue growth. And our Worldwide Consumer business is meeting or exceeding our plus-3% organic revenue and plus-5% adjusted operating income growth targets, a full year earlier than expected. And plans are in place to restart growth on Rx. So looking to the rest of 2020. We remain focused on ending the year strong by getting our U.S. supply chain fully replenished, keeping up with consumer demand in certain categories and continuing our transformation activities. Within our reaffirmed adjusted EPS guidance range, we assume the following: one, continued strength for CSCA in Q4, driven by e-commerce and new products, even with a double-digit decline in cough cold built in; two, no new major surge in consumer demand for our essential products between now and the end of the year; three, the Q3 recoveries in CSCI and the Rx base businesses are sustained; four, Perrigo's albuterol remains off the market; and five, there's no accretion impact in Q4 from the share repurchases between now and the end of the year. So bottom line, it's been a heck of a year. Perrigo is growing again. Our Consumer Self-Care transformation is working, and we remain confident that Perrigo is well positioned to continue to grow by capitalizing a new normal world where self-care, value and e-commerce are more important than ever before. And again, we believe we will ultimately prevail on the Irish tax NOA. And with that, I will turn the call to Ray to discuss the financial details. Ray? -------------------------------------------------------------------------------- Raymond P. Silcock, Perrigo Company plc - CFO, Principal Accounting Officer & Executive VP [4] -------------------------------------------------------------------------------- Thank you, Murray, and good afternoon, everyone. Now that Murray has gone through the sales and business drivers for the quarter and year-to-date, I would like you -- to walk you through the rest of the P&L, starting with Slide 19. On a consolidated basis, the company reported a GAAP net loss of $155 million in the quarter, a loss of $1.13 per diluted share. On an adjusted basis, consolidated net income for the quarter was $128 million, and adjusted diluted EPS was $0.93 a share. Adjusted net income for the quarter included $283 million of non-GAAP adjustments, the largest of which was the $202 million impairment of goodwill in our prescription Rx business. This was primarily as a consequence of our voluntary recall of albuterol and the fact that the timing of this product returning to market is unclear at this time. In addition, as always, our non-GAAP adjustments included the removal of amortization, which this quarter amounted to $75 million. And we also removed $20 million from the early debt extinguishment of our 2021 bonds. These bonds were repaid as a result of our having issued $750 million of new 10-year bonds at the end of Q2. Additionally, we removed a $22 million increase in the valuation of the Tysabri contingent milestone, which we recorded as a result of the strong performance by Biogen's Tysabri business in the third quarter. Full details of these and other smaller adjustments can be found in the non-GAAP reconciliation table attached to this afternoon's press release. Moving on to taxes. In our Q3 GAAP results, we reported tax expense for the quarter despite having a pretax book loss. This was primarily because the Rx goodwill impairment taken this quarter is nondeductible for tax purposes. We also recorded a noncash base erosion and anti-abuse, or BEAT, tax in Q3. The BEAT tax arose from the impact of the additional interest expense deductions provided by the CARES Act as well as from our early adoption of other new tax regulations. The non-GAAP adjusted tax rate in the quarter was 15.8%. Tax rate adjustments included the nondeductible Rx goodwill impairment, the tax impact of all our non-GAAP adjustments and the BEAT tax. We removed the BEAT tax since it was as a result of regulatory changes, and we believe that leaving it in our results will inhibit the comparability of our tax rate to both prior and future periods. From this point forward, unless otherwise noted, all dollar amounts, including year-over-year changes, basis points and margin percentage changes as well as year-over-year margin changes will be on a non-GAAP adjusted basis. Growth percentages are also based on our non-GAAP adjusted numbers and, in addition, exclude the impact of currency and the divested businesses. Before moving to the business segment results, I would like first to review gross profit and margin performance at the Perrigo consolidated level. This is moving on to Slide 20. Q3 consolidated gross profit for the third quarter was $471 million, $14 million lower than the prior year. Consolidated gross margin for the quarter was 38.8%, down 170 basis points compared to prior year. The principal drivers of these declines were the $22 million albuterol recall charges; the divestiture on June 19, 2020 of our higher-margin Rosemont business; as well as unfavorable portfolio mix. The unfavorable mix was as a result of strong store brand sales in the quarter with weaker performance from our branded businesses. Q3 consolidated operating income was $184 million, $24 million lower than the prior year, primarily due to the Rx albuterol recall, which also resulted in a 150 basis point reduction in operating margin for the quarter. Consolidated operating margin was 15.2%, 220 basis points lower than the prior year. In addition to the impact from the albuterol recall, operating margin was adversely impacted by higher variable compensation costs, the result of strong worldwide consumer business performance so far this year. Year-to-date, our consolidated operating income was $609 million, $15 million higher than prior year, driven by the strong performance of our consumer businesses, especially U.S. OTC. Moving on to Slide 21. I'd like to continue with the Worldwide Consumer business, where third quarter gross profit of $393 million was 1.3% higher than previous year, but gross margin was down 120 basis points to 39.2%. The major cause of this margin reduction in Q3 was mix within our consumer portfolio; strong growth in our lower-margin CSCA store brand business, especially U.S. OTC; and the addition of the newly acquired Dr. Fresh business; contrasted with lower sales in our higher-margin CSCI business. Third quarter Worldwide Consumer operating income was $141 million, $13 million lower than the prior year. While our operating margin was 14%, 180 basis points down from prior year. This was primarily as a result of gross margin flow-through and that year-over-year increase in variable compensation costs. Year-to-date, Worldwide Consumer operating income was $423 million, $31 million or 12.5% higher than in the prior year. Growth of our CSCA business, much of which came from strong U.S. OTC performance, as well as the impact of the oral care acquisitions of the last 15 months and the growth of store brand in the U.K., were partially offset by increased COVID-related expenses and several divestitures. Now let's look at the individual consumer segments in more detail, moving on to Slide 22. Consumer Self-Care Americas gross profit increased $12 million versus last year's Q3, up 6% to $222 million, while gross margin of 33.5% declined 50 basis points. Successful new product launches, the continued strength of the U.S. OTC business and the acquisition of Dr. Fresh were largely offset by our normal pricing pressure, despite operating efficiencies in the quarter. While the gross margin declined 50 basis points this quarter versus prior year, we are making considerable progress improving our gross margin each quarter this year on a sequential basis. We have increased gross margin 210 basis points from the first quarter, 150 basis points from Q1 to Q2 and 60 more from Q2 to Q3. Operating income grew $11 million or 9% in the third quarter to $134 million. And operating margin was 20.1%, up 30 basis points, as operating leverage on gross margin flow-through was partially offset by increased brand investments and by promotion. Year-to-date, CSC America's operating income was $395 million, an improvement of $52 million compared to prior year, up 16%. While our operating margin improved 30 basis points to 19.8%, strongly driven by U.S. OTC and by our acquisitions, as I said earlier. Moving on to Slide 23. Consumer Self-Care International Q3's gross profit was $171 million, 4.3% lower than the prior year, while gross margin declined 150 basis points to 50.4%, primarily from adverse product mix and also from increased commodity costs for a specific brand. CSCI operating income in Q3 was $51 million, $12 million lower than the prior year, while the operating margin was down 310 basis points to 15.1%, due primarily to gross margin flow-through as operating expenses remained flat compared to the prior year. Year-to-date, CSC International operating income was $165 million, down $3 million compared to prior year, despite strong store brand growth in the U.K., but up 7.4% when divested businesses and currency are excluded. Operating margin year-to-date is 15.9%, down 40 basis points from prior year, principally due to the divestment of higher-margin businesses this year. Turning now to the Rx segment on Slide 24. Q3 gross profit decreased by $16 million to $78 million, primarily due to $22 million of albuterol recall costs, in line with our expectations. Gross margin of 37.1% was down 380 basis points, entirely due to the recall. Rx operating income was $44 million, $12 million lower than the prior year, principally due to the gross profit shortfall, but partially offset by reduced operating expenses, including lower R&D and lower administrative expenses. Year-to-date operating income was $168 million, down $17 million or 8% compared to prior year, as the positive impact of albuterol sales in the first half was more than offset by the sharp reduction in the number of scripts written by doctors during the pandemic lockdown. The cost of the subsequent recall of albuterol this quarter had a further adverse impact on Rx year-to-date operating income. Moving now to the balance sheet on Slide 25. Operating cash flow in the quarter was $63 million, a conversion ratio of 49%, which was in line with our expectations. This follows a strong conversion rate last quarter at 206%. The timing of sales within the second quarter as a result of the COVID-19 distortions was responsible in the changing Q3 versus prior quarter. Year-to-date operating cash flow and cash conversion remains strong with a cash conversion ratio year-to-date of 124%. And our elevated cash position, we have $849 million on the balance sheet as of the end of Q3, provides optionality for additional bolt-on acquisition opportunities to further propel our self-care transformation. This cash position will also allow us to go into the market at what we believe is a great discount to repurchase $150 million in shares that will help offset those used in our management compensation programs. Finally, we are reaffirming our original guidance for this year of 6% to 7% net sales growth, better than 3% (sic slide 26 " at least 3%") organic net sales growth and adjusted diluted EPS in the range of $3.95 to $4.15 per share. Strong business fundamentals and a lower-than-expected tax rate for the year have enabled us to absorb $0.12 to $0.15 per share in incremental COVID-19 costs, $0.14 per share for the cost of the albuterol recall and a loss of $0.06 per share from divesting the Rosemont Rx business. In summary, year-to-date business results are very strong, and our outlook for the remainder of the year remains positive as the investments we are making in the business continue to take hold. With that, I would now like to turn the call back to Murray. Murray? -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [5] -------------------------------------------------------------------------------- Thank you, Ray. Operator, we'll go ahead and open it up to questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Greg Gilbert from Truist. -------------------------------------------------------------------------------- Gregory B. Gilbert, Truist Securities, Inc., Research Division - Analyst [2] -------------------------------------------------------------------------------- I'm going to first get the one out of the way that you probably don't want to discuss, but it's inevitable to come up. So about the Irish issue, is there any precedent for Ireland settling with companies? And in what scenario would you not appeal the first step that didn't go your way? I'm just trying to understand why you wouldn't want to drag it out as long as possible, unless a settlement is at least theoretically possible. And then question number 2 is about your share buyback decision. It seems on the surface to be a bit more symbolic than a major decision on capital allocation vis-à-vis sort of additional bolt-on activity. So hoping you can comment on that as well as your view beyond the 1 50 and the relative attractiveness of shares versus more bolt-on activity. And I have more, but I'll respect the queue and get back in line. -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [3] -------------------------------------------------------------------------------- Well, Greg, the first question is the appeal -- they'll decide to appeal the -- it just came in today, Greg. The lawyers are reviewing all the information. And if they see laws that are -- that we believe we could overturn it with, then we would appeal it. Otherwise, we believe our case is even stronger on the merits of the case from the very beginning. We -- and we thought the judge -- we had a very strong process argument. And -- but our goal isn't to try to stall it. Our goal is to resolve it, win it and do what's in the best interest of shareholders. If that ultimately was a settlement that we thought was in the best interest, then we would consider that. And yes, there's precedent for doing that. As it relates to the share buyback, it was surgical in nature. I wouldn't say it was done to be symbolic because we're good on management shares over the past couple of years when we were experiencing some dilution, and shareholders shouldn't pay for that. So we went ahead and are sort of leveling that back and resetting that. But I will tell you, when we were talking about it, at this value, which we believe is that the shares are very inexpensive, it was a good time to do it. I don't know if I answered the last part, but I'll just add to it. My #1 priority in capital allocation is both getting the infrastructure right, which the investments we've made in capital to make this a world-class company, and bolt-ons that help become accretive to growth. I am delighted with what we have been able to do with oral care, be it Ranir, Dr. Fresh, Steripod, creating up and opening a whole platform of growth for us. So that's still the priority, things that will generate long-term returns for the investors. -------------------------------------------------------------------------------- Operator [4] -------------------------------------------------------------------------------- Your next question comes from Chris Schott from JPMorgan. -------------------------------------------------------------------------------- Christopher Thomas Schott, JPMorgan Chase & Co, Research Division - Senior Analyst [5] -------------------------------------------------------------------------------- Just 2 for me. I guess first, just taking a step back and thinking about the top line impact from COVID across your business this year. Can you just help us think a little bit about what the net impact we should be thinking of there? When we look at maybe some of the earlier year benefits you saw in the Americas business versus the headwinds in the international and Rx franchise. It sounds like some of those benefits you think are going to be sustainable. But I'm just trying to get color on just pushes and pulls as we think about how to look forward to 2021 and what's a reasonable baseline. My second question... -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [6] -------------------------------------------------------------------------------- Yes. I think the -- Chris, if you look at the businesses in totality, coming out of -- going into the fourth quarter, on any kind of movement or surge-related demand or pantry loading, I think that's kind of all washed out. Now it hasn't washed out by division, but I think that the sort of the pluses you got from CSCA early on in the year have been offset by CSCI and the Rx base business, especially early on when doctors' offices were closed and there was some albuterol early orders that were -- during the height of COVID, but those have been kind of offset or have been entirely offset by the recall. So I don't think there are any like lasting effects of onetime. I mean we set up this year with plus-3% organic growth target, and I think it's going to come in a little bit better than that. We're at around 4% on the consumer businesses, a little north of 4% now. So maybe we beat our 3% number by a bit but not a lot. Where I do think there was a meaningful change is the behavior and shift -- and channel shifting from e-commerce to -- or excuse me, from brick-and-mortar to e-commerce was a very big one. And based on the McKinsey study, I think what's helping our businesses around the world and store brand is a meaningful and accelerated shift of branded to store brand. And those are fundamental and should be sticky going forward. But listen, whether we're lucky or not lucky, we made big investments a few years ago, before I even got here, in e-commerce. And our market shares are much higher. And I hope you could -- I did a good job of illustrating that in that slide of the difference in omnichannel versus just pure IRI MULO, which is your traditional brick-and-mortar. And you could see how the trends changed, not only from negative to positive, but a big shift to Perrigo. I don't see that going away. -------------------------------------------------------------------------------- Christopher Thomas Schott, JPMorgan Chase & Co, Research Division - Senior Analyst [7] -------------------------------------------------------------------------------- Perfect. Very helpful. And maybe just on the topic of investments. I know you've made a lot of investments since you joined the company, kind of getting it ready for the growth targets that you're looking at. Are there any more major investments we need to think that Perrigo has to make at this point? Or do you think you've got the kind of infrastructure where it needs to be, and now it's just kind of execution, and as you mentioned, kind of loading in the bolt-ons, et cetera? I'm just trying to get a sense of like is there another like big push on expenses we need to think about at any time in the near future. -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [8] -------------------------------------------------------------------------------- The answer to that, if you sat in all the budgeting sessions that we're going through right now, I've drawn -- I basically have said to the organization, I gave you 2 years, gave you the investments that added $50 million or $60 million in total to our P&L. And that's the cap. Now I'm not saying we won't continue to invest, but those should generate either into brands that generate sales and move out of that area. But that, that pool, there is not going to be a negative P&L hit going forward as a result of further investment on top of that. That's kind of our renovation budget that we will stick with. And at some point, hopefully, that goes down. Now I'm not saying -- and I don't see any big one next year, but I'm not saying a couple of years from now when we launch a NASONEX or something like that, that comes with revenue and profit. You could invest in advertising and promotion because it's a branded launch, but I don't think that's what you're asking. I think you're thinking of it the same way that I am, that these investments that you were adding without being tied to revenues or operating profit. And so no, those need to -- as part of my chart there, and I'm not sure we left it on that algorithm chart I showed as a slide, but part of getting margin expansion is holding the line on operating expenses. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Your next question comes from Ami Fadia from SVB Leerink. -------------------------------------------------------------------------------- Ami Fadia, SVB Leerink LLC, Research Division - MD of Biopharma & Generics and Senior Analyst [10] -------------------------------------------------------------------------------- Murray, can you talk about your confidence level in driving 3% top line and 5% operating growth next year? And especially on the top line with the albuterol headwind, how should we think about some of the contributors to growth on a year-over-year basis? And then just separately, with regards to e-commerce, how much of growth is it contributing this year? And how should we think about e-commerce-related growth for your entire business as we think about next year? -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [11] -------------------------------------------------------------------------------- Yes. I'm not ready nor do I want to start providing goals for next year or guidelines. We're in the budgeting season. I'm very confident I -- the whole premise a year ago was to get 3/5/7 on the consumer businesses and then exit Rx. We still have Rx. I wasn't able to get value because it -- at the time based on the multiples in the industry, and it throws off cash. So I'm very focused on still delivering the 3/5/7, and I'm optimistic on growth of the base business. I have an anomaly I have to deal with, with albuterol. And I'm not in a position yet to say whether -- how much we deal with that. It depends on what bolt-ons, et cetera. But on the core premise for the long term, it's still intact. And I'm quite confident on the consumer businesses. But I can't even tell you with albuterol is back yet in the first quarter, midway through or not at all. They are closing in on the issues, and there are shorter-term solutions and longer-term solutions. And as all that budget comes back, you guys will be the first to know when I come and present and share the plans for next year. -------------------------------------------------------------------------------- Ami Fadia, SVB Leerink LLC, Research Division - MD of Biopharma & Generics and Senior Analyst [12] -------------------------------------------------------------------------------- Can you also elaborate on the e-commerce trends that you're seeing here? It looks like Perrigo is taking share from other store brands, because the overall store brand omnichannel declined about 2.8%. How much of this is sustainable? And could this be a driver for growth for your overall consumer business? -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [13] -------------------------------------------------------------------------------- Yes. I mean I've seen enough of the plans for next year that it is a significant driver. And I can't give you the specific numbers. I'm not -- that's more of an Investor Day type of discussion. But it -- we probably pushed up our plans for a year. We don't see that pulling back. There's been a lot of discussion internally and externally of the [surge-sal] and shift, will that return to normal levels. And I think given the investments you're seeing with our top customers, and I've been in top to tops, they are -- whether it's the Walmarts of the world or Targets, they are making big bets on e-commerce and believe that shopping behavior will continue. And not only is our investment -- and it's significant. And the amount of people that it takes to run a digital e-commerce group, we don't just ship product. You've heard me say this before. We're doing the analytics, the marketing of it, the comments, the promotions, the -- it's a very big effort, and Perrigo has a unique capability and competitive advantage of that. And we're in -- continuing to do the things to keep us ahead. But besides all that, we have a product line that also lends itself well to it because it is the regimented categories that really seem to be the ones benefiting. So it's less if somebody is -- if they're -- they get sick at the moment, they want to run to the store and get something right now. But when you're buying allergy medicines consistently over time, nicotine replacement consistently over time, it's those kind of regimented digestive health products over time. And those are where we have our highest shares. So that's sort of the double benefit for us. But yes, I think we're counting on e-commerce. With the way we're doing it today, further growth all the way to one day, looking at even more advanced opportunities. And there is -- I always describe e-commerce separately than digital because they're not the same thing. E-commerce is just what your -- what most people think of today. But digital goes all the way to digital to consumer and a much broader use of technology. So that is -- it will be a driver for sure. But again, I'm not going to break out components of 2021 yet. I want to finish 2020 strong first. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- Your next question comes from Randall Stanicky from RBC Capital Markets. -------------------------------------------------------------------------------- Randall S. Stanicky, RBC Capital Markets, Research Division - MD of Global Equity Research & Lead Analyst [15] -------------------------------------------------------------------------------- Has Perrigo been involved in any preliminary settlement discussions thus far regarding the Irish tax liability? So that's the first question. Second question, Voltaren Gel has been a nice new launch opportunity for you in CSCA. As you look at the next, let's call it, 3, 4 years, are there other specific product opportunities or categories that you're watching that could help boost the organic growth in CSCA? -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [16] -------------------------------------------------------------------------------- Well, the organic growth has been ahead of schedule and stronger than I thought. So what boosts organic growth? I think -- I'm trying to remember the organic number from last year to the year before, but it was -- CSCA was up something like, I want to say something like 7%. It was up a relatively big number. But we -- the premise on getting into oral care was to buy brands that were accretive to revenue growth, and that's just what they were and that we could build on to. And Dr. Fresh, we think with the investments we'll make there, that will be accretive. The entire wave of OTC to Rx to OTC switches, which, like a Voltaren, was not contemplated back a year ago when I was standing out. 1.5 years ago in May, I think I had a 0 in there for Rx to OTC switches. Now there's a whole host of them and the Advil dual-combination products and at least in process a few years out with Cialis and Tamiflu and others. There's -- that's a big number that can accelerate organic growth. In nutrition, we needed to get quality and service fixed. We've made big investments, and that will take a couple of years to implement. But just getting capacity expanded with a reliable product that we can service all the time and begin to promote again as well as new product launches we have next year is another area for growth. Another area for growth is something I've talked about before. And Rich Sorota, who I'm going to get on one of these future calls soon because he is passionate about this, and I think you'd enjoy hearing from him, is -- has had a lot of success in his history. And we're seeing other success from others in the whole customized brand solutions for major customers. So it's a trend that's starting to emerge that's almost an evolution of store brand. So if you think in the world of private label, it was just sort of black and white, own brand, the store brand, where they're really marketed, and brands like Equate or some of the biggest brands, if not the biggest brands in the United States. Now you see a trend on customers like Target, where they're developing exclusive brands that are branded products, not the store brand, but only available to them. And other major consumer packaged goods manufacturers are looking at that. And we are -- we think we're uniquely capable to satisfy that given our ability to handle complexity and unique products all the time. And again, that would be an opportunity for higher margins. So growth isn't the problem here. Growth isn't the challenge. I got to get rid of -- over time, I got to get rid of the overhang. And by the way, I'm not even -- you know I can't comment on your first question. But growth isn't my concern on -- the business is growing, growing profitably. We had some margin erosion. Some of it no big deal. Some of it was self-inflicted because we put society ahead of ourselves. And CSCA is just growing so fast that it diluted a little bit of margins. But there's still a gross margin opportunity. And on Project Momentum, we started with operating expenses. We're benefiting from that now. We'll benefit more from it next year. But we can do a better job of gross margins, and we're deep into it right now. And The Street was right to point it out. And that's an opportunity as well. So we've had 2 solid years of growth between that and the bolt-ons, and there are plenty of bolt-ons out there as well. Between the bolt-ons and the new initiatives and OTC switches, we -- there is just nothing but upside. We just have to go after it profitably, get our margins up and get rid of this turn overhang and do it responsibly. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Your next question comes from David Risinger from Morgan Stanley. -------------------------------------------------------------------------------- David Reed Risinger, Morgan Stanley, Research Division - MD in Equity Research and United States Pharmaceuticals Analyst [18] -------------------------------------------------------------------------------- Murray, so some of my questions have been answered. I just have 2, please. First, you had briefly touched on the U.S. tax litigation. Could you just provide some more detail on that, please? And then second, you also touched on the opportunity to restart growth in Rx. Obviously, the second quarter of this year was impacted by the pandemic. You have an easy comp next year. But any more color on how we should think about Rx prospects? -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [19] -------------------------------------------------------------------------------- Yes. On the Rx prospects, what I'm referring to is something we talked a lot about is that the new product pipeline had kind of dwindled as so much energy in Rx was focused on albuterol. So I mean -- and so that was kind of the big push for a number of years when the history of Rx had been that it was many singles and doubles. And what I'm excited about when I see my Rx team present their plans is the number of approvals that they've been getting and the number in the pipeline and expected approvals, which is at a step change from where it's been over the past few years. And I think you'll see it start to play out next year and really even more in the year after that. So I -- and next year, I do think you're correct. Absent what happens with albuterol, I think you have some easy comps in the earlier part of the year. And they've got some other areas of opportunity they're working on as well. They're -- we're not pulling back on Rx. I mean it's an important business. It generates a lot of cash, and we have not pulled back investment, and we have given them the resources to grow the business. And it's unfortunate what happened to albuterol because it colored some really great success they were having. This was going to be a hero year for them, but they'll bounce back. First part of your question again? -------------------------------------------------------------------------------- David Reed Risinger, Morgan Stanley, Research Division - MD in Equity Research and United States Pharmaceuticals Analyst [20] -------------------------------------------------------------------------------- That was... -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [21] -------------------------------------------------------------------------------- Yes. Yes, the U.S. tax. The Athena tax of 800-and-however-much million dollars it is, we've talked about before that, that is basically taxing -- it's a different kind of tax, but it's addressing the same income that Ireland is. And there is an agreement between Ireland and the U.S. that you wouldn't do that, that you wouldn't double tax. And if there is a dispute between the 2, there is this authority that you go to. And Ray mentioned the specific name of it. What's the name of it, Ray? The MO... -------------------------------------------------------------------------------- Raymond P. Silcock, Perrigo Company plc - CFO, Principal Accounting Officer & Executive VP [22] -------------------------------------------------------------------------------- MAP. It's called MAP. Just blanking on what the M stands for, but it's a special commission that adjudicates disputes of this nature. And they've agreed to take the -- they've agreed to take it and review which country would be the one to tax the income. -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [23] -------------------------------------------------------------------------------- Right. So the important -- I think the important part of it is we submitted it. We believe there was a conflict, but they have to review the criteria. And this commission that stands between the U.S. and Ireland that would then negotiate it and debate it out, they accepted it in August. So that's the news there. And I -- from our perspective, it could make it go away or it could make it -- the overall combined one might be a deduction against the other, but it should bring the total down significantly. So it's hard for me to quantify. But my belief and I think our lawyers' belief is that just took out a chunk of the overhang. I just can't tell you from where -- from which authority. But that's a battle between the U.S. and Ireland now. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- Your next question comes from Elliot Wilbur from Raymond James. -------------------------------------------------------------------------------- Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [25] -------------------------------------------------------------------------------- I wanted to go back to some of your commentary around the growth differential in omnichannel versus brick-and-mortar. I'm just wondering if you could help us with some specifics on the e-commerce and club market relative to the size of the brick-and-mortar channel? Just trying to get a sense of how big that market is, how important it is currently for Perrigo and whether or not there are categories there that are still significantly underrepresented relative to Perrigo's existing base that might provide for significant immediate growth opportunities outside of just sort of increased usage by consumers of e-commerce means of purchase. And then a question for Ray. I won't profess to have the strongest working capital projection skills on The Street, but still struggle with sort of trying to predict your relative cash flow from operations versus adjusted net income and cash conversion metrics. Just wondering if you could provide some help there with respect to fourth quarter. And then how do we think about that longer term? Will CFO always be somewhat higher than adjusted net income or roughly equivalent? Just trying to get a little bit better handle on that metric. -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [26] -------------------------------------------------------------------------------- Do you want -- why don't you do the second one, and I'll come back to e-com. -------------------------------------------------------------------------------- Raymond P. Silcock, Perrigo Company plc - CFO, Principal Accounting Officer & Executive VP [27] -------------------------------------------------------------------------------- Yes. I mean on the cash conversion, we did have a lower cash conversion rate in the third quarter. And we said that was really due to the timing of the sales, the way they were spread in the second quarter and the impact of the COVID-19 surge and what they did to our receivables. I think we do generally achieve a little over 100% cash conversion, and I think that's where we like to target. And I think that that's where we would think we're going on a go-forward basis, but we're not sort of -- we're not doing a precise kind of guidance for cash conversion quarter-by-quarter. -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [28] -------------------------------------------------------------------------------- Yes. And I think going back to -- on a Worldwide Consumer basis, I think e-commerce is about 8% of our total sales and growing, I think it was, I said in my comments, 142% in the U.S. and the Americas business. And it was up in the high 40s in European business and CSCI International. I think the growth opportunities are different internationally when I talk about e-commerce, and it's already a meaningful part of our CSCI brand. We think of e-commerce as a very -- if you're -- I don't know how familiar you are with our portfolio, but we tend to be a string of pearls, a lot of regional brands. And to go and try to make those big mega pan-European brands is unlikely, but it gives us an opportunity to address the entire European market as we broaden our e-commerce business and through like the Amazons -- or the Amazon of Europe is a significant opportunity and potential growth accelerator for that business. And even though it's a pretty meaningful number now, it's actually only in -- it's limited in the number of countries. So we're probably still only in a handful of countries with meaningful e-commerce business in CSCI. So that is, when we look at the strategic plans for CSCI, that's a big growth driver. When you go to the U.S., we've had tremendous success. And I guess there's 2 ways to look at it. You're looking at what other product categories, and there are plenty of them. I look at it in the penetration of e-commerce versus branded -- or store brand versus branded and e-commerce versus what it is in traditional brick-and-mortar, and it's well below. So I think there's a very significant penetration opportunity. And if you can bear with me for a second, imagine yourself walking into a traditional brick-and-mortar store. You go to buy your OTC product, you're faced with a side-by-side comparison, right? So you can see and you -- that there is a 30%, 40%, 50%, 60%, sometimes 70%, discount versus the national brand. When I'm sitting at home and I go online and I do either a click-and-pick or I do an Instacart order or whatever that might be, if I type in the brand, in the beginning, you would only get the brand. If I typed in ibuprofen, I'd see all the options. And that's an example of when I say we've invested in e-commerce so that we can work with our customers to show that when somebody clicks on that and to present the alternative with the price comparison, what the savings could be so that you build that penetration up over time. So we're attacking it from all angles. But I would say, as big as it's been right now, it's still relatively underdeveloped, and it's certainly underdeveloped versus store brands. I would say the national brands today have a bigger share than we do of their portfolios. Does that answer your question? Are you still there? -------------------------------------------------------------------------------- Raymond P. Silcock, Perrigo Company plc - CFO, Principal Accounting Officer & Executive VP [29] -------------------------------------------------------------------------------- We lost the line. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- Your last question comes from David Steinberg from Jefferies. -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [31] -------------------------------------------------------------------------------- I thought we lost the line there for a second. Okay. David? -------------------------------------------------------------------------------- David Michael Steinberg, Jefferies LLC, Research Division - Specialty Pharma Analyst & Equity Analyst [32] -------------------------------------------------------------------------------- I have 2 questions. The first one is on acquisitions. Murray, in your last quarterly call, you implied that Perrigo is taking a near-term pause from bolt-ons. You just completed Dr. Fresh and Steripod and called out the fact that people in the company hadn't been able to travel to complete due diligence, and consumer multiples were high. Has that changed? Are you still in sort of pause mode because you can't travel to complete due diligence and multiples are higher? Are you starting to go back on offense? And my second question perhaps is for Ray, coming back to the Rx business. Gross margins have declined. I think they were 42% in Q1, 39% last quarter, and 37% this quarter. And you called out the fact that the decline -- the 39% to 37% decline was solely due to the recall of ProAir. So I was wondering, is the baseline gross margin really 39%? Or should we expect continued softness until ProAir resolves itself? -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [33] -------------------------------------------------------------------------------- Well, the answer to the first question is back on offense. I mean you said it well that -- but it wasn't just us that had -- couldn't travel and do due diligence. But given the state of affairs, there just weren't -- deals kind of froze up. And we were fortunate that we had completed due diligence on a number of deals. We've closed on another one since then with some assets we bought from Sanofi, right, that -- the skin care products. And now we are evaluating many. I would say it's loosened up dramatically. There's a number of opportunities. I can't predict when we find one that's the right value and the right price, but we are clearly digging in again. -------------------------------------------------------------------------------- Raymond P. Silcock, Perrigo Company plc - CFO, Principal Accounting Officer & Executive VP [34] -------------------------------------------------------------------------------- Yes. On the Rx gross margin, the decline in the third quarter, as I think I said, is pretty much all attributable to the albuterol recall. It's kind of complicated because we share the profitability with Catalent. So it had a real adverse impact on our COGS that came into our COGS cost and hurt our margin. I'm not ready to guide to the specifics for Q4, but I think we don't expect that, that particular matter will have any impact on Q4. In other words, the albuterol recall cost has all been contained into the third quarter, so far. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- This concludes our question-and-answer session. I would now like to turn the conference back over to Murray for closing remarks. -------------------------------------------------------------------------------- Murray S. Kessler, Perrigo Company plc - CEO, President & Director [36] -------------------------------------------------------------------------------- Yes. I would -- as I sit here, I'll just leave you on -- I've been doing this for a long team -- a long time. I am proud of the team. What they've accomplished in 18 months has been remarkable. Perrigo is a very different company with a very different growth profile. We've had a couple of bumps. We'll work our way through those. But we think the stock is a great value. We appreciate those of you who are working with us and sticking with us through it. And we think ultimately that our consistency in delivering on our promises, which we hope we are building credibility because of, will ultimately generate the appropriate rewards. And with that, I thank you for your interest in Perrigo. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.