Good morning, ladies and gentlemen, and welcome to the Perrigo Second Quarter 2024 Financial Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Friday, August 2, 2024. I would now like to turn the conference over to Bradley Joseph Vice President of Global Investor Relations. Please go ahead.

Good morning, and good afternoon, everyone. Welcome to Perrigo's second quarter 2024 earnings conference call. I hope you all had a chance to review our press release issued today. A copy of the release and presentation for today's discussion are available within the Investors section of the perrigo.com website. Joining today's call are President and CEO, Patrick Lockwood-Taylor; and CFO, Eduardo Bezerra. I would 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 release issued earlier today. A few items before we start. First, unless otherwise stated, all financial results discussed and presented are on a continuing operations basis. Continuing operations include the HRA Rare Diseases business, which was classified as held for sale after the quarter end and does not include any contributions from the divested RX business, which was accounted for as discontinued operations prior to its sale. Second, organic growth excludes acquisitions, divestitures, exited product lines and currency in both comparable periods. All comments related to constant currency removed the impact of currency translation versus the prior year by applying the exchange rates used in the comparable measurement in the prior year's financial statements. And third, Patrick's discussion will focus solely on non-GAAP results, except as otherwise noted. See the appendix for additional details and reconciliations of all non-GAAP financial measures presented. And with that, I'm pleased to turn the call to Patrick.

Thank you, Brad. Good morning, good afternoon, everyone. So to begin today's call, I'd like to briefly reflect on my first 12 months as CEO, and the significant strides our team has made to advance our One Perrigo vision. As we are building out critical capabilities needed to win in self-care, we have also faced challenges, notably in the infant formula regulatory environment in the US as we work together to ensure the supply of this critical product for caregivers and babies. I've been especially proud to work alongside my team as we have addressed these issues head on and with a spirit of resiliency. We're emerging as a stronger company as a result of these efforts. I spent considerable time assessing our organization portfolio and the competitive landscape. This body of work has only reinforced my original thesis that Perrigo has a strong foundation with a robust asset base. I believe we are poised for greater scale across multiple fronts and have the capacity to drive value-accretive growth through consumer-led innovation. This work has also identified the highest potential growth opportunities within our company today and will inform our strategic go-forward portfolio, which we look forward to discussing early next year. We have also executed key cost savings and efficiency initiatives with excellence. Some of these savings will be reinvested to fund both near and long-term priorities, including brand building capabilities in the US and provide greater scale for our identified growth opportunities. Additionally, we have made significant progress in strengthening infant formula and are working through long-term sustainable growth plans for our US store brand business. Finally, when I started at Perrigo, I was excited to encounter an organization comprised of dedicated and talented individuals who are committed to excellence and achieving top-tier performance. Over the past 12…

Thank you, Patrick. Good morning and good afternoon everyone. Looking at the second quarter financials, starting with the GAAP to non-GAAP summary. Primary adjustments to our second quarter non-GAAP P&L were first, amortization expenses of $58 million, restructuring charges of $37 million, primarily related to Project Energize, and a $34 million impairment charge related to the divested HRA Pharma Rare Disease business. Full details can be found in the non-GAAP reconciliation tables attached to today's press release. From this point forward, all financial results discussed will be on an adjusted basis unless otherwise noted. This Patrick already discussed second quarter consolidated top line results. I will fast forward to operating results. Operating income of $139 million, grew 1.5% versus a year ago, as benefits from accretive initiatives including our Supply Chain Reinvention and Project Energize programs more than offset the impact from lower net sales and actions in infant formula. Excluding the year-over-year impact from infant formula operating income grew plus almost 17%. EPS was $0.53, down $0.10 from a year ago due primarily to a $0.09 per share discrete tax benefit in the prior year and a year-over-year impact from infant formula of $0.14, which was mostly offset by strong performance across the rest of our business. Year-to-date organic net sales declined 8.1%, including a known minus 5.3 percentage points impact from infant formula and minus 4.4 percentage points impact from the Upper Respiratory and Pain & Sleep Aid categories that Patrick just mentioned. These impacts more than offset plus 1.6 percentage points of growth across the rest of the business. Year-to-date adjusted operating income was down almost 10%. Excluding the year-over-year impact from infant formula operating income grew almost 17%. Year-to-date earnings per share declined $0.25, or 23% including the impact from infant formula of $0.43 and the…

Thank you, Eduardo. Operator, can we please open the call for questions?

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions] And your first question comes from the line of Chris Schott with JPMorgan. Please go ahead.

Great. Thanks so much and congrats on the progress here in nutritionals. I had a couple of questions on this lost customer. So maybe just can you elaborate a little bit more what happened here? It sounds like this wasn't a very profitable business you walked away from. But -- are there any particular segments within CSCA that we should be watching here? And maybe the second part of the question there was, I just want to make sure I caught the comment regarding the impact on 2025. It sounds like wins elsewhere will offset the business you lost, but just maybe talk a little bit about the margin profile of that new business versus what you lost. So just a little bit more color on that front, and I just have 1 follow-up after that. Thank you.

Yes. Hi, Chris, this is Patrick. I hope you're well. Thank you for the question. This was a margin-dilutive business. We looked at it very carefully. It was one customer. It was several molecules of subcategories. And we're reporting it because really it was a one-off. It was impactful in terms of revenue, but positive in terms of margin expansion. And then you're right to pick up on the other points. Our net gain, we have a net gain in contract 1 this year in our store brand business. And we'll start to see that revenue flowing in late quarter four, but more predominantly in 2025. So net, it is -- we're not seeing any change in revenue outlook as a result of the loss of that more unprofitable customer. And you're correct again to say that the businesses won versus that business lost is more margin accretive, yes.

Okay. Very helpful. And then just my last question was just on the nutritional business. It seems like you're making good progress here. But just at this stage, how confident are you that you're fully through this process and that there won't be any meaningful setbacks in terms of the recovery in nutritionals? I mean, at this point, are you confident to say that the remediation that was put forth was successful and that this business is kind of in a good place going forward?

Yes. I've been very close to the remediation work. As you know, I chair the steering committee. The remediation work has been executed extremely well across the three sites. All the key performance indicators show that we are fully quality compliant. I've not seen any backslide in terms of those KPIs as we've been through the remediation effort, and we're on the other side of that. So really now, it is into normal manufacturing operations, but in a much more quality compliant way.

And Chris, just to add a little bit color there. So the team now is 100% focused on recovering the share on our store brand business, as well as growing the other pieces of the business that were impacted. So that's 100% now, with the situation more under control from the production and release the payment side. It's the team 100% now focused on the market side to regain the business, and working closely with our customers to get products back on shelf. Q – Chris Schott: Perfect. And then, just as a follow-up on that one. In terms of the share regain, and any pushback at all from customers? Or so far, is that product you're producing -- kind of finding a home I guess, in terms of customers?

Yes. I mean, this continues to be a capacity-constrained industry, generally. And we're not having any problem repipelining our business. Q – Chris Schott: Perfect. Thank you.

Thanks, Chris. Next question.

Yes. Your next question comes from the line of Korinne Wolfmeyer with Piper Sandler. Please go ahead. Q – Korinne Wolfmeyer: Hi. Good morning, guys. Thanks for taking the question. First, I'd like to touch on the guidance reduction. If I understand correctly it looks like to be solely coming from that that SKU rationalization, and then the Upper Respiratory. So can you confirm those are the main things driving that guidance reduction? And then on the SKU rationalization, can you comment on how quick of a decision that was? Because it obviously, wasn't factored into expectations last quarter. And then, what gives you confidence that we might not see another -- you might not have to have another guidance reduction for further SKU rationalization this year? Thanks.

Yes. So let me – Eduardo, here. Let me clarify. So the change in guidance that we talked at that midpoint is about four percentage points. 2.5% are related to the -- mainly the impact that we saw in the second quarter and that's mainly related to the lower global seasonal demand for cough and cold and allergy, and some impact related to the US retailer destocking. While 1.5% comes from lower distribution in the US store brand. So when we talk about the SKU rationalization, that was already considered as part of our plan. So the four percentage points reduction on our full year guidance, are related to those two impacts 2.5% and 1.5% ,okay? Q – Korinne Wolfmeyer: Got it. That's, helpful. And then can you touch on expectations into 2025? I know you're not guiding that far out, but you have previously laid out some commentary on how to think about 2025. With the top line impacts we're seeing but offset in the P&L, is there any reason that 2025 expectations would it still be intact with the number you delivered today?

Yes. So, again, it's still early in the process and we're seeing a lot of industry dynamics mainly on consumer demand being significantly impacted. But at this stage, you remember, as we have positioned before, we expect of course the significant impact we had in the first half of infant formula to not repeat. So we expect a significant portion of that being recovered. And so -- and at the same time, remember we mentioned that we would recover that, but also we needed to build some finished goods safety stock. So I would say a significant portion of the impact that we mentioned that took place in the first half of 2024 should be recovered in 2025, which also implies that the product will benefit from the price increases that we had in 2023. That's number one. It's going to be very important to understand how consumption and also the upcoming cough and cold selling season takes place, right? Because we saw a very significant impact to the whole industry in the first half. So that's going to be a very important item that we're going to be taking a look. And also, remember that we mentioned before, we continue to expect Opill to be dilutive for the next -- for the first -- since the launch until the next 18 months. So those are the three key factors that we're looking right now, but it's fair to assess right now that we mentioned in the previous quarter that would be $3 plus, and that's what we're looking right now.

Great. And then if I could squeeze in one more on Opill. Can you provide a little bit of color around the sell-in versus sell-out differential that you're -- you're seeing? We're able to get some scanner data, and it doesn't fully align with your previous comments on the sales you've been recognizing. And I understand there's also a heavy DTC component that's not factored in the data we get. But any color you can provide on what you're seeing versus sell-in and sell-out?

Yeah. Hi, this is Patrick. So very good sell-in, very good distribution. Obviously, a new consumer, a new category. We're learning and refining the model. I would say 30% to 40% of our sales are on e-commerce. Obviously, that channel lends itself to subscribe and save, and we're seeing that. Key learnings, probably shifting media more to awareness generation, how to operationalize the insurance support that we have with Caremark. We're working through that. That is significant additional volume opportunity for us. We're learning as well sort of back to the future that having retail distribution is not sufficient. Those retailers that are supporting the brand launch with incremental display clear signage are seeing a materially different sell-through rate. We want to get that executed across all retailers. It's very important for the category and the consumer. And lastly, continuing to develop our social influencing, our HCP network. The role of HCPs and the conversion to this is extremely important, given some of the broad considerations the consumer has in terms of safety, side effects, effectiveness, et cetera. And so we continue to see good awareness build. We continue to see sales growth. We've just gone through a critical milestone in terms of share. So we're learning and improving. This was never going to be optimized day one, but I'm actually quite pleased with our ability now to read and react and enhance our marketing execution.

Great. Thanks so much.

Thanks, Korinne.

Thank you. And your next question and last question comes from the line of Daniel Biolsi with Hedgeye. Please go ahead.

Thank you. So for the infant formula, my anecdotal evidences, your demand certainly exceeds your supply. Did you lose any shelf space? And when do you plan on being able to build safety stock? Can you do that without losing shelf space?

Well, so, we're looking to how much can we start doing in 2024, but I think that's going to be very difficult given that there's still a lot of demand for store brand products in the marketplace. So we're seeing that more to take place in the first half of 2025.

Okay. And then one other question. Do you have any plans to reduce your inventories of phenylephrine ahead of a possible FDA decision like a competitor announced?

Sorry, could you repeat? The inventories of what?

Phenylephrine.

No. Understood what the FDA said. It's not in force or legal requirements and there still continues to be demand for those products. So we continue to supply it. And no, we've not made a tactical decision to reduce those inventory whilst we continue to see good demand. And I would say that phenylephrine-based products, it's -- so irrespective of what happens here the great majority of consumers, of course, will use alternative products. And there tends to be a less profitable category for us anyway. So, no plans and we see it as potentially positive as people move to different formulations.

Okay. Thank you. And then for the retailer inventory levels for cough and cold, does that require you to carry more if they're carrying less? Or do you think this is just sort of a onetime little reduction they've had in the last quarter or two?

Yes, we're seeing that as more of a one-time, right? So I think what we're seeing is after a COVID situation and now that the industry per se has been adjusting that, so that's getting more into a normalized levels across the whole industry. And so it's going to be interesting, which on the other side means that probably for the cough and cold season, depending on how these start to shape up, there will be a need to replenish stocks in the third and the fourth quarter of the year.

Thank you.

And that is all the questions that we have. At this time, I would like to turn it back to our President and CEO, Patrick Lockwood-Taylor for closing remarks.

Yes. Thank you very much. Thank you for joining us today. Thank you for those questions. I know we have a number of calls later with you, which we look forward to. So really from my vantage point, I think we're on track with our key reliability and our cost-saving initiatives. We are set for revenue recovery in the second half accelerating, particularly in quarter four. Our earnings per share adjusted for last year's tax benefit and infant formula are a healthy plus 24% versus quarter two a year ago. Our US store brand business is a key focus for us and we are forecasting growth for that driven by the volume share growth we're seeing in that category and net new contract wins that are realized as I mentioned in late 2024 and 2025. We are also accelerating the acquisition and development of world-class leadership and talent, which will also be a core driver for us going forward. So, our business is stabilizing and we can now turn more of our organizational capacity to accelerating more profitable growth being realized in 2024 and of course, through to 2025. So net, it was a stabilizing six months for us but now we're turned squarely back to growth. Thank you very much for joining us.

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.