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spk07: Good morning. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to the VITRIS 2023 Second Quarter Earnings Call and Webcast. All participants' lines have been muted to prevent any background noise. After the speakers, there will be a question and answer period. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you need to ask further questions, you may reenter the queue. Lastly, if you should require operator assistance, please press star zero. Thank you. I will now turn the call over to Bill Zabluski, Head of Global Capital Markets.
spk06: Please go ahead. Good morning, everyone. It is my pleasure to welcome you to our second quarter 2023 earnings call. With us today is our CEO, Scott Smith, President Rajiv Malik, CFO Sanjeev Narua, and Jeff Now from our iCare division. During today's call, we will be making forward-looking statements on a number of matters, including our financial guidance for 2023 and various strategic initiatives. These forward-looking statements are subject to risk and uncertainties that could cause future results or events to differ materially from today's projections. Please refer to today's slide presentation and our SEC filings for a full explanation of those risks and uncertainties and limits applicable to forward-looking statements. We will be referring to certain actual and projected non-GAAP financial measures to supplement investors' understanding and assessment of our financial performance. Reconciliations of those non-GAAP measures to the most directly comparable GAAP measures are available on our website and in the appendix of today's slide presentation. An archived copy of today's presentation and other earnings materials will be available on our website at investor.beatrice.com following the conclusion of today's call. With that, I will now hand the call over to our CEO, Scott Smith.
spk13: Good morning to everyone on the call. I am pleased to report that the second quarter of 2023 was one of the strongest quarters we've had to date at Beatrice. I could not be more pleased with our overall execution. The positive momentum of the base business continues to push us forward. We are laser-focused on delivering our pipeline and are excited about new product launches. In the second quarter, we delivered total revenues of $3.9 billion, representing approximately 2% year-over-year growth on an operational adjusted basis. and adjusted EBITDA of $1.3 billion and free cash flow of $447 million, both of which were ahead of our expectations. Based on our performance this quarter and in the first half of the year, we are reaffirming our full-year financial guidance for 2023. These results signal the beginning of what we expect to be a growth journey for Vietris and set us up well for future success as we prepare to bring phase one of our strategic plan to successful completion and initiate phase two beginning in 2024. While I'm proud of our strong performance, the foundation the company has built, and the stability and predictability that we believe have clearly been achieved, my focus is on the future and on the trajectory of the company moving forward. Now let's turn our attention there. On executing our planned divestitures, we are on track to announce all transactions in 2023. As we've said, executing these planned divestitures is a matter of strategic choice, not of necessity. I am extremely pleased with where we are in the process. We are currently in advanced stages of discussions with potential buyers and anticipate announcing at least one significant divestiture in the third quarter, possibly more. As a result, I will not be in a position to take any further questions on this topic during Q&A today. but very much look forward to discussing in detail with you at an appropriate time in the future. The company has laid out clear capital allocation of business development priorities for Phase 2, and we are fully dedicated to executing on these priorities, which will allow us to continue our move up the value chain. We intend to earmark approximately 50% of our free cash flow annually to be returned to shareholders in the form of dividends, and especially share repurchases. With the remaining capital, we intend to invest in our businesses both organically and inorganically. I continue to be focused on looking for strategically significant transactions in ophthalmology, gastroenterology, and dermatology, as well as evaluating other therapeutic areas should the right opportunities arise. It's become apparent to me that there are many assets that could fit our needs and are transactable. I am optimistic about our ability to execute high-quality business development deals, not only through M&A, but also through strategic licensing agreements and partnerships when the time is right. In summary, I am very proud of our execution to date, the health of the company, and the strong foundation that has been built. Looking ahead, I believe in the future trajectory of the company, and I'm very excited for what's to come. I'll now turn the call over to Rajiv to provide you with an update on our operations and our pipeline, and then to Sanjeev, who will give you more details of our financial results, 2023 guidance, and capital allocation activities. Rajiv?
spk09: Thanks, Scott, and good morning, everyone. Our strong performance this quarter highlights the momentum of our business like never before and further reinforces the predictability of our base business, which is well diversified from a geography as well as portfolio point of view. The performance of the last 10 quarters demonstrates that our business model of bringing access has never relied on any one product or any one market. The strength of our underlying business is enabling us to position the company well for phase two growth. Our continued new product revenue performance is another key feature of our plan, and for this year, again, we remain on track to deliver on our expectation of approximately $500 million of new product revenue. As I provide the commercial segment highlights for the quarter, I will be making certain comparisons on an operational basis, which excludes the negative impact of foreign currency rates versus the plan that supports our financial guidance. In addition, I will be making certain comparisons to our Q2-22 results on a diversified adjusted operational basis as defined in our earnings lease. This quarter, total net sales grew 1.5% on an operational basis due to a strong performance across various geographies and product portfolios. We believe achieving this top-line growth for the first time as Viatris reflects the power of our platform, well-thought-out strategy, and our consistent execution. Let me get into our commercial segment highlights. Our well-balanced business of developed markets, where brands make up approximately 55% of our net sales in quarter two, delivered another strong quarter. Europe performed ahead of our expectations, delivering 2% year-over-year growth on an operational basis. Italy, Spain, and the UK, as well as several other markets, drove the strong momentum for the quarter. A solid performance of generics in Europe was another contributing factor. Our North America business was flat year-over-year on an operational basis and also performed ahead of expectations. Generics delivered a better-than-expected performance led by Leonard & White, Vexela, and Zulin. Our brand business was supported by strong demand in epinephrine market and upelary, which grew 12% this year over the last year. Upelary, which is the only nebulized long-acting musclenic agent available in the market, is continues to show significant growth and enjoys about a 30% market share in the broader long-acting nebulized COPD market and is well on its way to become the number one product in this space. Our new launches in North America are on track, and we are very excited about our recent introduction of Brena, our generic to Simicot. We expect that this launch will be 180 days first to file generic exclusivity, which is subject to FDA's future determination of the issue if and when another ANDA filer becomes eligible for final approval. For the second half of the year, we believe the developed market segment is poised for year-over-year growth, and we remain confident to meet or exceed our full-year expectation of both North America and Europe. Emerging markets had another strong quarter and delivered 10% year-over-year operational growth led by stronger than expected performance of generics and brands like Lipitor, Lyrica, and Celebrex. Emerging Asia and Middle East were strong performing geographies. We remain confident for this segment to deliver better than expected for the full year and grow versus the prior year. JANs performed in line with our expectations, and we anticipate continuing to meet our expectations for the full year. In Greater China, we delivered 1% operational growth in this quarter, primarily due to Viagra and other retail-driven products in China. We remain on track to meet our planned expectations for the year. Our team in China has been focused on continuing to expand our presence in the private channel while navigating and managing the evolving policy dynamics on the ground. We have also been very focused on building and expanding our pipeline of new products in China. To that end, our NDAs for Dimesta and Performance received approval from SFTA in this quarter. In addition to this, our partner's NDA for Troia was also accepted. while eight other products are under active review. Moving to iCare, Trovia's launch continued to progress as planned in its second quarter as part of the address. During the quarter, Trovia's bridge program was optimized to drive increased value per script and achieve the highest quarterly TRX launch to date. Furthermore, we remain focused on maximizing its potential including increasing share of Medicare prescriptions, driving continued growth in total prescriptions, and launching the brand's first direct-to-consumer campaign in the fourth quarter, which together we believe provides support for our near and longer-term expectations for the brand. We are also excited by the continued progress of our eye care pipeline, which is aimed at addressing a range of vision-related disorders. Our NDA review of MR140 for the reversal of mid-ray assay program is under active review with a PRUFA date of September 28th of this year. We have completed patient enrollment in the first pivotal phase 3 trial of MR141 for the treatment of pest biopsy and expect top-line data in Q3 of this year. And we remain on track to initiate the second phase 3 trial later this year. We have initiated Patient enrollment in the first Phase III study, MR148, for the treatment of dry eye disease will expect top-line data in 2024. We are initiating a Phase III program of MR139 for the treatment of blepharitis later this year. MR142 for night vision disturbances and MR146 for neurotrophic keratopathy also remain on track. Switching to other pipeline updates and beginning with the news we announced today around GA Depot. The FDA has accepted for review our recently submitted NDA and has signed a PDUFA date of March 8, 2024. Our application is backed by Phase III efficacy and safety data, and we believe GA Depot could improve patient experience through fewer injections, greater tolerability, and increased compliance. We are feeling very confident in the strength of our GA Depot clinical program and continue to believe that we remain on track to launch in the second half of 24. We are equally excited about the potential opportunity to also bring this product to patients in Europe, which we expect to file later this year. Our Botox biosimilar program is progressing well from the development, characterization, as well as validation of drug substance and drug product perspective. We remain on track to file our IND by the end of this year. Our phase three study for our Zulane low-dose program in USA remains on track with nearly 800 of the planned 1,200 women enrolled. We are targeting completion of enrollment by March 24th. and our Phase III study for effects or generalized anxiety disorder in Japan is well on schedule, and we are targeting an NDA filing in the first half of 2025. Lastly, all our complex injectable programs are moving ahead as planned. Before I turn the call to Sanjeev, I want to thank our colleagues for another strong quarter and consistent performance. With that, Sanjeev.
spk11: Thank you, Rajiv, and good morning, everyone. We had another excellent quarter and are seeing the results of our efforts, which include revenue growth versus prior year. Unless otherwise stated, I will be making year-on-year comparison on a divestiture-adjusted operational basis as defined in our earning release. The second quarter exceeded our expectation. We're encouraged by our fundamentals and continued strong operational performance, our branded business and new product revenue is contributing to favorable gross margin. In the quarter versus prior year, net sales from emerging market Europe and greater China grew. The revenue growth included the impact of new product, and we expect this momentum will continue with our recent Brainerd launch. We continue to invest behind future growth driver, which includes the IK Division's commercial investment and late-stage pipeline programs. We believe that our unique global platform, which is diversified across product categories, has proven its ability to continue to generate significant and sustainable free cash flow. And we remain confident in the durability of this performance moving forward. Turning to Q2 and first half 23 highlights, the summarized results versus prior year on a reported basis, including the biosimilar business in 2022. Net sales were slightly ahead of expectation and grew at 1.5% versus the prior year. This performance is consistent with our expectation for the business over the long term. On a reported basis, foreign exchange had an impact of approximately 2% on net sales versus the second quarter 2022. The diverse portfolio of growth drivers included brand performance in the emerging market, Europe, and Greater China. We expect these revenue trends to continue in the second half, aided by product seasonality and the continued ramp of new products. New product revenue in the quarter met expectation and included sales of all strengths of lenalidomide. Adjusted gross margin of approximately 60% in the quarter exceeded our expectation and was driven by positive portfolio mix and lower-than-expected inflation on COGS. We reported strong adjusted EBITDA, which included the anticipated step-up in SG&A associated with the ICARE division and the R&D to advance key programs across ICARE, injectable, and complex product. We had another solid quarter of free cash flow of $447 million ahead of our expectation. The year-on-year decline was primarily driven by lower adjusted EBITDA due to the biosimilar divestiture, the impact of foreign exchange, and anticipated timing of working capital. We are delivering on our capital allocation priority and continue to pay down debt to reach our gross leverage target of three times. We remain in a strong balance sheet position and are committed to our investment-grade rating. In the quarter, we paid down shortened debt of $181 million for a total of approximately $6.1 billion since the beginning of 2021. We expect to pay down the $500 million maturity in Q4 from cash on hand. Additionally, we returned approximately $144 million of capital to our shareholders in the quarter through the dividend. The strong performance in the first half of this year gives us continued confidence in our Phase 2 outlook. Although we're not providing guidance beyond 2023, it remains our expectation to generate at least $2.3 billion of free cash flow from the rebased business before any associated transaction costs and taxes. We are reforming our 2023 financial guidance ranges and expect full-year revenue, adjusted EBITDA, and free cash flow to be at the midpoint of the ranges. We are closely watching foreign exchange of select currencies. While we have absorbed the impact of foreign exchange headwinds in the first half versus what we had assumed in our February guidance, it is possible that we may encounter a slight headwind in the second half. Now, a few updates on the expected phasing for the rest of the year. We continue to expect total revenue to be higher in the second half due to the launch and ramp of new products, as well as normal product seasonality, particularly in developed markets. We expect adjusted EBITDA to be slightly lower in the second half, driven by two factors. First, gross margin moderating due to less favorable portfolio and segment mix, as well as expected higher COGS driven by inflation. And second, the investment we're making behind future growth driver. This includes DTC investment in , pipeline, and organic R&D. We anticipate free cash flow to be slightly lower in the second half based on our adjusted EBITDA outlook and increase in capital expenditure and one-time costs. As a reminder, our free cash flow guidance does not include any transaction costs and taxes associated with the biosimilar divestments, the ICARE acquisition, or the planned divestiture. our adjusted EBITDA and free cash flow ranges exclude any acquired IPR&D for unsigned deals. In the second quarter, we incurred $10 million of IPR&D related to our investments in Japan. In closing, based on the continued strong underlying fundamentals of the business, we're well positioned for the remainder of the year and look forward to 2024 and beyond. With that, I'd like to hand it back to the operator to begin taking your questions. Thank you.
spk07: Thank you. At this time, if you would like to ask a question, please press the star 1 on your telephone keypad. Wish to remove yourself from the queue? You may do so by pressing star 2. We remind you to please pick up your handset and please limit yourself to one question. We'll take our first question. from Glenn Santangelo with Go ahead.
spk12: Oh, yeah, thanks. And good morning. Hey, Scott, just a couple of quick questions for you. I appreciate that you don't want to talk about the divestitures. But maybe you just ask answer one high level question. You know, you've been in your seat now for for just over four months. And I'm kind of curious, you know, you know, from your perspective, is it fair to say that you're happy with how the process has been run and you're happy with the demand you saw in the process because, you know, it's obvious that, you know, you weren't in your seat when this process started and you kind of inherited. And I appreciate we're far along, so you don't want to give any comments. But I was wondering if you could just comment at a high level if you're happy with where you're at and the demand you're seeing.
spk13: Thank you very much, Glenn, for the question. Yes, I would say I'm very happy with what I've seen. These are very well-performing businesses. There's been lots of demand. There's been lots of interest in these assets. We're very excited on where we are in the process. I would say that we're in discussions with multiple potential buyers on multiple assets, and we're looking forward to giving people the details and the time and the place when we can. Just one other comment that I think is really important, and it's important to remember that these divestitures represent a cash bullet that will be coming to us to help us accelerate towards our desired leverage ratios. What they do is they really set us up well going into 2024 and beyond. The critical thing for the future is our ability to deliver on our capital allocation plans in 24 and beyond, which include capital return to investors through divestitures, particularly share buybacks, and also business development, M&A, licensing, and partnerships. So very happy with the process and very happy to be accelerating into 24 and beyond.
spk07: Thank you. We'll take our next question from Jason Gerberry with Bank of America.
spk04: Oh, hey, guys. Thank you for taking my questions. Curious, are there any alternative structures that you guys would consider with these divestitures to minimize the tax consequences? And then with Turviya, just wondering, you know, what's going to drive a growth inflection here? Do you really think that the DTC could be needle-moving for this product?
spk13: So, first of all, thank you, Jason, for the question. I can't comment on deal structures or anything like that at this point in time. That would just be all speculation. I'll turn it over, though, for the eye care question, please.
spk10: Yeah, hi, this is Jeff now. Yeah, I think it's a great question. When we look at the marketplace for dry eye disease, there's about 2 million patients currently being treated, but about 16 million that have been diagnosed. So I think, among other things that we talked about on the prepared remarks, including increase in Medicare and many of the other tactics that we're taking into account, That 14 million patients that are sort of sitting on the couch waiting for a new therapy is not something that's really unlocked to us today, and that's really, I think, the benefit that that DTC campaign brings forward. Thank you, Jeff.
spk07: We'll take our next question from Ash Verma with UBS. Yes.
spk08: Hi, good morning. Thanks for taking my question. So for the EU OTC business, not asking about the spin-off, but just wanted to understand any business trends that you can highlight. Some of the other OTC players in Europe had particularly strong start to the year, but now flagging more of a normalization of that growth trend. So anything that you can share on that? And then just on complex injectables, I wanted to get a sense around the timing of some of the key launches for these products. I think you're estimating $1 billion in peak sales by 2027. So I just wanted to understand if you have confidence in the approval timelines here. Thanks.
spk13: Thank you, Ash. And I'd ask Rajiv to address your questions.
spk09: Yeah. So within our business, Ash, you know, the OTC is performing exactly as we had anticipated and planned, especially during this year of the deal and transition. And we are very happy, in fact, how the overall business in Europe, because this is predominantly a European business, a 2% solid performance in Europe overall, and OTC playing its role. And OTC, just let me put it like that, OTC is not a For us, it's a huge growth driver within the region, but yes, it's a pretty steady, steady business, and it's performing as we expected. To your question about complex injectable, every program, and it's not that every product is going to come in 27. In fact, we should be looking into launching these products later, if we are optimistic, later this year or early next year. Then from then onwards, I think every year you're going to see two to three key products getting launched over the next, I would say, 24, 25, and 26, leading to 27, 28, the billion-dollar franchise, we said. We have about eight first-to-market opportunities, which we have already secured. We have about – 37 products in this pipeline, and we are adding more. And from the science point of view, we could not be more pleased. Yes, there's always a little bit of, with FDA, you know, changing in time, but we have taken that into consideration while modeling all this.
spk07: Thank you. We'll take our next question from David Amsum, Will Sandler.
spk14: Thanks. At the outset of the evolution of the company's overall strategy, I think you had called out three therapeutic verticals. I think it was DERM-GI and ophthalmology. And I'm just wondering, is that something you're led to closely going forward? Are you looking at other therapeutic verticals? How are you thinking about that as you think about your brand strategy more broadly. And secondly, just any comments you might have on epinephrine and how you're thinking about the intranasals and other formulations that might come to market and how you're thinking about potential pressure, you know, on EpiPen, if any. Thank you.
spk13: Yeah, thank you, David, for the question. I'll answer the first one, and I'll kick it over to Rajiv. You know, we're focused on looking for strategically significant transactions. You know, an initial focus on the three therapeutic areas that you called out, ophthalmology, GI, and dermatology. However, we are looking for other things which may be adjacent to that. We are a little bit agnostic. What we're really looking for is assets that can use the leverage and the company that we have, the strength that we have as a base company. The strength in terms of commercialization, in terms of research and development, in terms of distribution, in terms of market access, that's the important thing is that we look at and are interested in assets for which we can use the strong company that we have to be able to maximally commercialize them going forward.
spk09: Regarding epinephrine, David, I mean, first of all, after maybe a few years, we have seen growth in this overall market, epinephrine market. There's been a healthy growth this year. And we have also participated in the growth. It's a market which is being well served today, not by, you know, just one player, by two to three players. And there's still, there are, there's a, I would say there's an unmet, you know, need over there. There's patients out there. So we welcome, you know, the more competition or a different dosage form from patient's point of view. Having said that, we have followed NEFI or this intranasal products very closely from science perspective and actually have some of the concerns from how the how, you know, its execution because there was a public hearing and we got to see the signs from that point of view. And we have raised our voice to highlight those concerns to FDA. But having said that, we have always taken these products into the consideration while doing the modeling for the, you know, out years from 24-25. We knew there would be other dosage forms there, but there will be always a place for a emergency use products like EpiPen, which has been there in the market. So, yes, it's a market which is going to evolve, and we are watching it very carefully and closely.
spk07: Thank you. We'll take our next question from Umar Rafat with Evercore.
spk01: Hi, guys. Thanks for taking my question. Scott, I remember during your closing time at Celgene, you were spending a lot of time on those AniMod commercial planning, and I'm sure you've taken a fresh look at Viatris expectations on the monthly glatiramer acetate, the Capaxone. Do you think it is a less than $500 million product? And also, and this may not be a popular question, the sheer amount of time the divestitures are taking It's just odd, especially given a lot of disclosures. And so I think the street would really appreciate just finding out what's going on, why is it taking as long as it is, and when does it come to a closure on that?
spk13: So thank you, Umar. Second question first, you know, I think we expect to announce all three divestitures in 2023. And we expect to announce, you know, a significant one and at least one. in the third quarter. You know, it's complex transactions sometimes to make sure you're doing the right thing, getting the right partnerships. And I don't think we're delayed at all. I'm very, very happy with the progress that we're making on all these divestitures and very excited that, you know, we'll be getting these done and announced and at least announced in 23. And again, you know, for me, the important thing here is that these divestitures represent an ability, a cash flow, it's an ability for us to be able to get to our desired leverage ratios and then move into phase two of the strategy and beyond in 24 and, you know, look for execution of our capital allocation strategies. In terms of MS, I will say, yes, I did a lot of commercial planning for Ozanamod and I've been involved in the MS market and in other ways before. I'll just say without getting into specific guiding to any specific number, I think this is a great asset that's going to have very significant potential, not only for its ability to reduce injections, but also because of the clinical data that's being generated here. Maybe I'd ask Rajiv to dig in a little bit more on the launch.
spk09: Now, Scott, I will just say that we are very excited with this clarity about the, you know, RUFA date and launch. And I will just reiterate that this product offers a safe, effective treatment for RMS with a preferred schedule and with fewer, you know, injection site reactions than other GA products.
spk11: and expected to improve the compliance and overall overall patient experience and patient satisfaction so look forward to bringing this product to the market and one other point i would just go back to the um the diversity sanjeev go back to the diversity point and we've said that it's a matter of strategic choice um these are well performing assets and we want to make sure we we do it the right way and to get the best value for the company because We're able to meet our financial commitments we've laid out without these divestitures. What these divestitures do, as Scott pointed out, accelerate what we're trying to do. But we are well positioned as a company, even without the divestitures, with everything that is going in the financial outlook of the company.
spk07: Thank you. We'll take our next question from Balaji Prasad with Barclays.
spk05: Good morning. This is Xiaoyang for Bellagio. Thanks for taking our question. On the recent tornado damage to the Pfizer's Rocky Mountain facility, what level of impact do you see this event could potentially have on the sterile injectable market? And as we think about potential shortages here, do you see any specific opportunities in the sterile injectable market from this incident for Beatrice? Thank you.
spk09: yeah first of all uh you know really unfortunate event nobody you know anticipated it but uh having said we have stayed very close to the market we have stayed close to our customers we have stayed close to fda from the drug shortages point of view we have uh some overlap products with the pfizer's portfolio coming out of the rocky mount facility and uh look If there's a need, as we are saying to the customer, we will step up. We are working very closely with the supply chain to make sure that we are in a position to address the drug shortages as and when if they come through.
spk07: Thank you. We'll take our next question from Nathan Rich with Goldman Sachs.
spk00: Great. Good morning. Thanks for taking the questions. First, you noted the generics business came in ahead of expectations. It seems like the new product launch guidance wasn't changed, and maybe base business erosion was a bit better than you had anticipated. Could you just maybe talk about what you're seeing there? There's obviously been a lot in the news on product shortages. Have you seen stabilization or firming of generic pricing in that business? And then as a follow-up, I wanted to ask on gross margin, could you just go into a bit more details on what's driving the step down in the back half of the year and where you'd expect gross margin to be for the full year within the guidance range that you have? Thank you.
spk09: So, Nate, let me take the first part and second, have Sanjeev respond to that. The first, overall, from our – just let me talk first globally, first the base business. As I said in my prepared remarks, we see the momentum we have seen never before, and our base business, whether it's in emerging markets – or China or Europe or North America, yes, it's hitting on all cylinders. So the stability and predictability you're seeing, we have never seen before. So it's setting up the company exactly how we have planned it and how we have seen it. The execution is just bringing this to the whole another level now. So having said that, from the generics point of view, generics across, not only just USA, I'll come to USA specifically because I know your question was about USA, but even in emerging markets in Europe, generation had a very solid performance. In fact, the 11% or 10% growth in emerging markets was largely also driven by the generic performance. In the US, we always knew that the pricing is It's two factors. It's one, either demand and supply, and the second is your portfolio mix. Now, in a portfolio mix, we have diligently worked, moved away from commodities, more diversified, complex products, and that's part of the underlying stability of the mix in the USA. Demand and supply, yes. The market is seeing some disruption. Market is seeing some hiccups. And it may go a little bit further in that direction. We may see more supply disruptions before it comes better. And because of the supply disruptions, because of the diversity, we have seen price stabilization over the last several quarters. in the north america which we have not seen for you know a few years back so yes we see the market the market conditions improving as well as the uh in the north america as well as the genetics are concerned and nate i'll take the question on the gross margin so um as i talked about that gross margin uh came in ahead of our expectation and that's again obviously driven by strong operational business performance in particular we had a favorable
spk03: segment in a portfolio mix and lower than expected inflation cost on the COGS so what's going on is products like lenalidomide which have a higher gross margin contributed to the to the higher gross margin that we said and then we had inventory beginning of the year which was built at the lower cost that we were able to consume giving us the benefit that we saw on the gross margin in the first half of this particular quarter two of the year. For the balance of the year we expect gross margin to step down a little bit and that's expected as we have the expected impact of the inflation, and then a little bit of the segment mix and the portfolio mix that probably will have a little bit of pressure on the gross margin. But that's all expected and built into the forecast. On a full year basis, I expect our gross margin will be within the range of 57.5% to 58.5%.
spk15: I will now turn the call back over to Scott Smith, CEO, to make a few closing remarks.
spk02: Thank you very much. Obviously, I'm very, very pleased with the second quarter. It's one of the strongest quarters that we've had since the date of Beatrice. I could not be more pleased with the overall execution.
spk13: of the company, but most importantly, I'm very much looking forward to the road ahead and moving into phase two and beyond. I think we have tremendous opportunities as a company over the next foreseeable years. Really am very excited to be executing and with that forward-looking view. I'd just like to say also thank you all very much for your attention this morning and for your questions and look forward to interacting as we go forward.
spk07: This does conclude today's VHRS 2023 second quarter earnings call and webcast. Please disconnect your line at this time.
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