Good day, and welcome to the Perrigo Third Quarter 2019 Financial Results Conference Call. All participants are in a listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Brad Joseph, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning and welcome, everyone, to Perrigo's third quarter 2019 earnings conference call. I hope you all had a chance to review the press release we issued earlier this morning. A copy of the release is available on 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 forward-looking statements. Please refer to the important information for shareholders and investors and safe harbor language regarding these statements in our press release issued earlier this morning. When discussing the business, Murray will reference only non-GAAP adjusted numbers for the quarter. Comparisons to prior year will also exclude exited businesses and currency changes. Ray's discussion of financial results during this call will address both GAAP and non-GAAP results and, where noted, comparisons to prior year will exclude exited businesses and currency changes. Located on our website is the appendix for today's call which provides reconciliations for all non-GAAP financial measures discussed. A couple of other housekeeping notes to mention before we get started. Excluding exited businesses excludes contributions from the exited animal health and infant foods businesses from both 2018 and 2019. Organic growth excludes Ranir, the exited animal health and infant food businesses and currency. And as a reminder, worldwide consumer includes the Consumer Self-Care Americas and Consumer Self-Care International segments as well as corporate unallocated. One final note, given Ranir's global reach, the company has finalized operational reporting lines where the US operations of Ranir are included in the Consumer Self-Care Americas market segment and its non-US operations are included in the Consumer Self-Care International segment. And with that, I'd like to turn the call over to Murray.

Good morning, everyone. I'm pleased with the company's third quarter results. And it's worth noting that this is the first time I've said that about a quarter even though this is the fourth quarter in a row that our results have met or exceeded expectations. What differentiates this quarter is that our top line is growing again as many of the initiatives we implemented as part of our strategic plan are beginning to take effect. And while a meaningful portion of this quarter's double-digit growth is due to the bolt-on acquisition of Ranir, the organic growth results were also solid. Really, the company hit on almost all cylinders from a revenue perspective with one exception – infant nutrition, which was explained last quarter and which will be further detailed in a moment. Cost control also benefited the company's results as we enjoyed overhead savings from project momentum. All in all, I like the direction we are headed. We are executing well and I believe we are on track to achieve our stated 3/5/7 long-term consumer growth objective. Let me go into a bit more detail. Total Perrigo consolidated net sales grew just over 10% versus year ago. All segments contributed to this growth, including a 9% increase in Consumer Self-Care Americas, a 10% increase in Consumer Self-Care International and a 13% increase in generic Rx. CSCA net sales growth of 9% was led by the incremental addition of US ruxolitinib sales of $54 million and an increase of 3% or $13 million of organic net sales growth on our OTC business. From a consumption basis, OTC category growth remained strong, growing 2% in revenue during the third quarter versus year ago, according to IRI. For the same period, store brand retail dollars grew 2.8%, outpacing national brand growth of 1.6%,…

Thank you, Murray. And good morning, everyone. Now that Murray has gone through the sales highlights for the quarter, I'd like to walk you through the rest of the Q3 P&L, briefly focus on the balance sheet and provide some color and commentary on our outlook for the rest of 2019. Consolidated reported net income for Q3 was $92 million and reported diluted EPS was $0.67 per share, which included an $18 million or $0.11 charge for our voluntary retail market recall of ranitidine, the cost of which was removed from our adjusted net income for the quarter. Consolidated adjusted net income for the quarter was $142 million and adjusted EPS was a $1.04 per share, up $0.11 from Wall Street consensus, our third sequential quarterly earnings beat and our fourth sequential quarter of meeting or exceeding market expectations. Adjusted net income includes $50 million of non-GAAP adjustments. We're adding back $81 million of amortization, $18 million related to the acquisition of Ranir, $18 million from the ranitidine recall, an $11 million impairment of Evamist, an Rx brand, and $17 million of restructuring, business separation and unusual litigation. And then, we're subtracting the $72 million gain from the sale of the animal health business together with $31 million in tax impacts from all of these adjustments. Our reported consolidated effective tax rate for the quarter was 5.2%, much lower than in recent quarters, primarily as a result of the tax loss that arose from the sale of the animal health business despite the fact that we have a $72 million book gain. Since we excluded that gain from our adjusted results, we have eliminated the associated tax impact as well. This increased Q3 effective tax rate from a GAAP rate of 5.2% to a non-GAAP effective tax rate of 20.1%.…

Thanks, Ray. So, to sum up my thoughts on the quarter and the outlook for the rest of the year. Our worldwide consumer businesses continue to gain momentum and I'm excited about the future. We've raised our 2019 adjusted EPS guidance, which reflects the strength of worldwide consumer businesses expected to continue in the fourth quarter and earlier-than-anticipated project momentum savings, offsetting mix and supply issues in Rx. Operator, we'll now take questions.

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Randall Stanicky with RBC Capital Markets.

Hey, Randall.

Hi, good morning. This is actually Ashley Ryu on for Randall. Murray, can you talk a little bit about the organic growth rate that you saw in CSCA in the quarter and what your expectation is for the balance of the year? New launches were again fairly light in the quarter. So, if you could just talk about your expectations there as well. I know, for Ranir, it will take some time to ramp up, but I'm talking kind of outside of that and when we should expect that pickup.

You don't need to expect to see a pickup. It's already strong. As I went through in the detail of my comments, your OTC business, which is the lion's share of our business, was up over 3% in the quarter. And I believe that was the same in the last quarter and I shared that consumer takeaway was strong with that. And likewise, that our retail infant formula business in the US, which is the biggest, most important part of that nutrition business, was up 4%. The only issue that makes it look like, organic growth isn't as strong as the infant formula contract business that I highlighted. From a new product standpoint, you should feel very encouraged that with a light quarter and new product sales in CSCA that we got those kind of growth rates which means that we're obviously building our business and doing a better job with consumer and partnering and getting distribution gains, et cetera. For the fourth quarter, as I said, I expect the total infant nutrition business to be up and be a driver of the total growth for the quarter. So, we won't be looking at anymore declines on infant nutrition as they have a very strong new products quarter starting out, launches that are in place and that are imminently shipping. So, those are not like promises to happen. That's about to really happen. So, I feel very, very good about the organic growth across the whole company.

Okay. Sorry, just to clarify, when should we expect to see new launches pick up, not the business. And then also, I know there's a lot of moving pieces, but just on a more housekeeping note, can you just touch on the recall which I know you've adjusted out of revenue and gross profit? Can you just kind of talk about that gross profit adjustment? Thanks.

Well, I believe – what was the number, Ray, for the total…

$18 million in covering the US and Europe.

Right. And that $18 million was a combination of bringing back inventory from wholesalers. It wasn't a consumer recall and any inventory that we had on hand and any raw ingredients or materials that were there. So, that's everything involved with the recall. We didn't adjust for any loss of sales. In fact, I'm not sure in the US we'll see any loss of sales because consumers will gravitate to other products. But this was not something unique to Perrigo. It was worldwide and industry-wide and there's been a lot of clarity provided actually in the last couple of days on that by the FDA.

Great.

As far as new products go, I'm not going to speak to future new product launch. That's competitive. It's my job to get to the 3/5/7 numbers I have promised everywhere and I have many tools in my toolbox to do that. New products is a key component of it. As a company, we actually had a good quarter new product wise. So, it was more driven by CSCI, but I'm really not going to dissect it down by division, by brand. That's what you're paying me for.

Got it. Thanks.

Thanks, Ashley. Next question please.

Our next question comes from Ami Fadia with SVB Leerink.

Good morning. Ami?

Ami, your line is open.

Hi, good morning. Can you hear me okay?

Yes.

Okay. Sorry about that. Can you talk to – just on Zantac, are there expectations for additional recalls into second quarter? And can you talk about any additional impact that you might have baked in in your sort of guidance update into fourth quarter for this year? And then, I have another question.

We don't expect it to – the FDA already tested all the other products in the GI category, and said they were clear. And this wasn't – we built a reserve for it. So, it's an estimate. The only way it would vary, Ray, if it was – so it came in a little more or little less, but…

There'll be some sort of true-up, but we estimated we think pretty accurately

What the total impact.

Yeah, the total impact.

Got it. Now, with regards to the infant formula, you talked about some of the moving parts this quarter, but as we think about the contractual win earlier this year, and once we sort of stabilize, how should we think about the run rate for this business as we maybe exit 2019 and think about 2020?

Infant nutrition has been a winner for Perrigo for years. It had a pickup this summer. A couple of things all went wrong on it at the same time. But I expect it to return back to good solid growth this year and next year. It has – while I don't want to be real specific, I guess I can on these because they're already launched to customers. We have two major new product launches that have already hit the marketplace, one of which begins shipping imminently, like within days, that have been worked on for 10 years. They are major new products for that segment. So, I'm not going to give you specifics on what growth rate I expect for infant formula next year. We'll do that along with all of our sort of estimates of how we see the next year shaping up when I get to the major conferences in January. I'll give you a score card review of how I think we do across the board on all of our businesses and all of our initiatives and where I see the direction going and guidance for the coming year like normal. But I'm bullish on infant formula. It was a hiccup. I think it's corrected.

Thank you.

Thanks Ami.

Our next comes from Gregg Gilbert with SunTrust.

Thanks. Good morning.

Good morning.

Good morning. What can you say about the timeline and process to separate the Rx business? And then I have another question.

No update from last quarter. As I told you, we continue to prepare for it and we continue to evaluate it, but we'll do it when we can maximize value for shareholders. I'm not going to be dumb about it. And it's still a pretty volatile market with what's been going on externally and in the environment in that whole industry. So, right now, I'm thrilled with the way they've stabilized the business, the leadership's super and still we're focused on our consumer mission and we're trying to be very transparent with the consumer numbers and giving you worldwide consumer numbers that allocate all the overhead, all those things to that, so you can sort of model underneath it, but the answer is we continue to prepare and I'll do it when it's the right time.

Okay. And on the tax front, Ray, can you talk about that the new issue you just raised? You framed the maximum potential, I guess, financial outlay should you not prevail. But can you talk about the implications for the tax rate longer term? And on the Irish front, gentlemen, have you have interacted with the authorities over there at all to better understand their side of the story? Or are we just waiting for the actual process just to move forward with no interaction before then?

Yeah. I don't think there's any – based on what we see right now, there's no implication for the longer term tax right from the new NOPA principally because we plan to change the structure because of tax changes in Ireland and the US that have taken place in the last 12 months which render that particular structure inefficient, which is 267A if you're familiar with the tax code in the US. So, from the most recent NOPA which we do intend to contest very strongly as a technical difference that has been raised by the IRS. We think we have strong grounds on which to win that and we feel that the IRS is in a less strong position than we are. So, I don't see this having an impact on our tax rate going forward.

As far as the Irish case goes, the update I told you was before, there is briefs that are submitted by both sides going back and forth. But April 29, it holds, is when the judicial review goes. And just to reinforce for everybody on the call, the judicial review is about whether Ireland violated our legitimate expectations based on history to – a company we were buying in Élan was doing things properly, which we believe they did and every adviser that I've had look at this tells me that they did. We're not having debate yet on the merits of the tax assessment at all. That's what happen afterwards. As it relates to the briefs and all that, I don't think there's any surprises that we've seen so far. So, we're steady as you go as we head towards April.

Sorry, one last one, Murray. You sounded pleased with the organic growth of the business and how things are going operationally. So, on the M&A front, what's your appetite and flexibility to do another Ranir-like deal in the near to intermediate term or should we think smaller? Thanks.

Well, I think Ranir is probably, based on sort of the cash flow of the company and the debt leverage we're trying to get to, would be sort of the high side of where we're going. But I do have an appetite for continued bolt-on M&A. There were two slides I presented on May 9. As I've gone to investor meetings around the country, everybody seems to get. What it looked like when we're winning, what it looked like when we stop winning. And when it looks like when we were winning, there was a certain level of bolt-on M&A that was – I don't have the number right in front of me and there was a certain level of innovation that offset downward pricing pressure. And we are now, in the current quarter, exceeding that. That's why the total growth is you're seeing double-digit growth on an apples-to-apples basis and I expect that to continue as we roll in Ranir. But on the longer term, I'm still holding true to the growth rates that I've said of the 3/5/7. to supplement above and beyond that, I'm going to go after bolt-on opportunities that give us repeatable growth platforms.

Thank you.

Thanks Gregg.

Our next question comes from David Risinger with Morgan Stanley.

Hi there. It's Zhu Shen Ng here for David Risinger. I have a couple of questions. First, could you please comment on the updated guidance, specifically implications for 4Q consensus modeling? And the second is, what is the outlook for Rx pipeline launches? Thank you

The consensus is the new midpoint is…

The new midpoint of our adjusted EPS range is basically in line with where consensus is.

Okay. So, there you go. You heard it from Brad. The new midpoint that we've raised and that goes in line with consensus as we speak. And you saw where the – Ray detailed where that was coming from. As it relates to Rx new products, other than to tell you that I think we have a robust new product pipeline excluding ProAir for next year, I'm not going to tell you when and what products we have coming. It obviously would be sort of competitive disadvantage to share that. But we have a robust product pipeline coming.

Thank you, Shen. Next question please.

Our next question comes from Patrick Trucchio with Berenberg Capital Markets. Q – IrisZhilin Long: Hi, good morning. This is Iris Long on for Patrick. Just a question regarding the consolidation of R&D and the impact on new product development. So, we know that the focus is on driving new products and we do see the strong growth in international as well as the progress in the Americas business. Can you briefly discuss how the consolidation of R&D is aiding in the development of new products? And to the extent that you can tell us, which new product or which category should we look for contributions of new products over the next year? Thanks.

Well, the first half of the question, I really like because I do believe that the consolidation of R&D is really helping to ramp up our program faster than I thought. When I go to do investor – like when I started in early following May 9, everyone – or before May 9, everybody sort of questioned whether we – what was self-care and could you do bolt-ons. And then, after May 9, when they saw Ranir and then [indiscernible] a few months later. As I've done further investor calls, everybody said, okay, I believe you now on bolt-ons, but how will innovation ramp up. And innovation is ramping up significantly. And a large part of that is that team is working together and sharing ideas and work that's been accomplished and completed across the world, not only from Europe CSCI back to CSCA, but also from region to region in Europe. As an example, taking winning skin care products in the Nordic regions and launching them under existing brand names and in other parts of Western Europe as another example. So you're really seeing like hundreds of ideas. I quoted the number of a half a billion plus in new products, that number is growing. And when I go out in my January call going forward, I'm going to spend a lot of time on innovation to share how we see that growing because I think that's the next question. I know you can do bolt-ons, can you innovate?0 And it's already starting to happen. So, which is great news, A lot of it faster than I thought. Some of it still will take a couple years. Am I going to give you specific categories? No. It's almost going to be a mindset across the business. You should expect innovation across all of our businesses in the coming year. What was the second part of your question?

Any kind of specific categories where the contribution from new products might come from?

Yeah, I'm not going to go specific other than the one I already told you. I will expect infant formula which has two major launches that they've been working on, which is the result of 10 years' worth of work, to have a significant contribution – outsized contribution from new products in the coming year. And the other thing that I would like to do, which most good consumer products companies do, is start communicating once I have a little bit more data about what I'll describe and is commonly known in the consumer world as a freshness index, which will not just talk about what kind of new products we launched in the year, but will talk about the percentage of our volume coming from either new products or some form of significant innovation or product improvement within the last three years, which as a company, great companies tend to operate in the 15% to 20% rate. That will take us little time to get there, but that's a really good measure of stickiness of new products and whether the company is innovating at the right amount or too much and there is a lot of statistical work by some really good consultants doing industry benchmark and to say that's the right number to target. I'll share that more in January when I get there as well, but we're gathering all that data as we speak. And again, I like where the company is going organically. I like where we're going on bolt-on. I like the energy I see in the team.

This concludes our question-and-answer session. I would like to turn the conference back over to Murray Kessler for any closing remarks.

Well, I think I just kind of gave you my closing remark on my last little speech there, but I think – listen, I've been here for a year now. We've delivered. We're getting more consistent which was the goal for – that most of us were pushing on. But this is the first quarter I could stand up here and be proud that the growth numbers were starting to come as we were working towards. So, this was our best quality quarter since I have been here so far. And I know we have those other issues and overhang issues and we will work through those and we'll manage those to the best interest of shareholders. And I appreciate your interest in Perrigo.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.