Perrigo Company plc

Good morning ladies and gentlemen and welcome to the Parago second quarter 2021 financial results conference call. All participants will be in a listen-only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question you may press star and then one. To withdraw your questions you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Bradley Joseph, VP of Investor Relations and Communications. Sir, please go ahead.

Thank you and good morning everybody and welcome to Parago's second quarter fiscal 2021 earnings conference call. I hope you all had a chance to review the press release we issued this morning. A copy of the earnings release and presentation for today's earnings discussion are available within the investor section of the cargo.com website. Joining today's call are President and CEO Murray Kessler and CFO Ray Silcott. 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 press release issued earlier this morning. A few notes before we start. First, unless stated, all financial results discussed and presented are on a continuing operations basis. They do not include any contributions from the RX business, which is accounted for as discontinued operations in the second quarter. In addition to other non-GAAP adjustments as described in the appendix, adjusted profit measures, including adjusted EPS and adjusted operating income, exclude from both periods certain costs incurred to support the operations of the RX business, which are reported in continuing operations. See the appendix for additional details and for reconciliations of all non-GAAP financial measures presented. And second, organic growth excludes acquisitions, divestitures, and currency in both comparable periods. With that, I'm pleased to turn the call over to Murray.

Thank you, Brad, and good morning, everyone. Self-care continues to be front of mind for our consumers and customers, and now that our portfolio configuration to a pure play consumer company is complete. We believe Parago is in a great position to capitalize on this trend. I'm proud of how the Parago team has successfully adjusted during these challenging times, which have impacted channel dynamics, sales mix, input costs, and consumer behavior. The good news is that the business and markets we're in are normalizing with sharp rebounds and consumer takeaway as the world is slowly and steadily reopening. Barring a broad scale step backwards due to new COVID-19 restrictions, I believe Perigo's broad diversity of product lines and geographies have helped the company weather this unprecedented storm. Let's look at the metrics. Perigo net sales for the second quarter were $981 million, 3.4% higher than a year ago, with organic net sales up 0.5%. Second quarter growth came despite comparison to the prior year demand surge in April and the residual impact of this year's historically weak cough cold season. A couple of big takeaways on net sales. It was a solid quarter for all of our businesses, X the impact of cough cold and customer inventory adjustments, which I'll detail in just a moment. The rest of the portfolio and favorable currency covered the entire negative impact of those two issues and the quarter got stronger and stronger as it progressed, led by a strong consumer takeaway. This top line growth did not translate to earnings growth for three reasons. First, advertising and promotion. As you will recall, our teams pulled almost all A and B spending in last year's second quarter as the world locked down. There was no point advertising to empty shelves in Q2, and in the face of massive uncertainty, we prioritized liquidity. That spending was moved to the fourth quarter last year in order to preserve it. This second quarter, 2021, we deliberately returned that branded advertising and promotional support to its pre-COVID levels, where it has always been and where it is most effective. This along with higher R&D negatively impacted the Q2 earnings by $14 million excluding currency. Second, we had unfavorable plant overhead absorption in the quarter as a consequence of the historically low cough cold season. And third, input costs including freight, distribution, and commodities, to name a few, rose quickly during the quarter. The team did a great job offsetting these inflationary costs with our project momentum cost savings and pricing actions in the quarter, but as a result, the planned savings did not pass through to the bottom line the way we had planned. They will when its input costs normalize. All these factors, in addition to the impact from divested businesses, led to EPS of 50 cents per share, 9 cents below a year ago. While the adjusted EPS was lower than we were looking for, we will get back the A&P impact later in the year, and we believe the COVID-related headwinds are temporary. Most importantly, our business remains strong and is getting stronger. As I said earlier, once we lapped the prior year pantry load and exited the cough cold season, we experienced higher growth and strong sales momentum across our businesses, with organic growth of plus 1.7% in May and organic growth of plus 4.2% in June. We expect this strength to continue into the second half of this year, especially as we compare against weak comps from the prior year second half deload and historically weak cold cough season. This sales momentum that we observed occurred in both CSCA and CSCI. Despite the impact from cough, cold in the quarter and last year's demand surge, CSCI delivered strong growth. Strong performance in our self-care brands that were impacted last year by country lockdowns amid the pandemic outbreak drove the results. CSCA experienced a more pronounced headwind from cough, cold than in CSCI as a result of trade inventory adjustments. which I'll also show you in just a minute. But the sales momentum throughout the quarter was also evident here. As the cough cold headwind from the prior year waned in May and June, performance in CSCA increased. Outside of cough cold, organic net sales in the quarter grew 1.3%. Ending the quarter with organic growth of nearly 4% in June gives us confidence in our top line expectations as we head into the back half of the year. I think it's worth repeating. All of our businesses grew in both the Americas and international compared to last year, except for, as I mentioned, USOTC. As I said, the strong CSCI performance in the quarter was led by our self-care brands, many of which were negatively impacted at the height of the pandemic one year ago. These self-care products, including weight loss, sun and skin care, and oral care, were up 6%, excluding currency. The loosened pandemic-related restrictions across Europe and new product launches, timed with the return of brand advertising and promotion investments, were the big drivers of the performance. Cough cold was still a headwind for CSEI in the quarter, and while the cough cold 7 across Europe will likely be lower than normal as pharmacies take a wait-and-see approach to the season, we expect a strong second half for CSEI. Within CSCA, growth in oral care and nutrition were very strong in the quarter, up 17.9% and 10.7% versus a year ago, respectively. Oral care was driven by POS strength at retail as consumers returned in-store purchases for their oral care needs and sales of travel-related toothbrush kits increased with the return of travel in the US. Nutrition had a great quarter. We launched the first national brand equivalent infant formula for babies with colic. Sales of our electrolyte hydration drinks are increasing due to consumer buying behavior. And our third party infant formula contract partners are taking share from other national brands. The strengthening of our business throughout the quarter reflects a sharp rebound in consumer purchasing in the US and Europe. This was exactly what we were looking to see. As you know, Consumer takeaway is always the leading indicator for factory shipments. The one exception, as I mentioned, was OTC in the USA, where the rebound in consumer takeaway far outpaced shipments. That's unusual, and we attribute this to factors in both this year and last. Last year, there was a significant restocking of retail shelves and inventories that were wiped out earlier due to the pandemic related demand surge that obviously didn't reoccur this year. This year, the opposite actually happened. Retailers had excess inventories of cough cold products due to the low demand this season, and they appear to be a bit more conservative buying in at normal levels going into next cough cold season. So as you see on slide 10, our shipments were outpacing consumer takeaway for the better part of last year. The good news is that this trend reversed itself in the second quarter, and since April 2021, Perigo Consumer Takeaway is now cumulatively outpacing Perigo Factory Shipments. So shipments should begin to realign with Consumer Takeaway. And to be clear, Consumer Takeaway for store brands in the OTC categories we compete in aren't just up, They're up significantly, growing 12.4% over the last 13 weeks versus a year ago. In fact, this is true for each of the individual categories for the latest 13 weeks as shown on the chart on the screen at the moment. So on a year-to-date basis, it once again appears that shipments and consumer takeaway have come into alignment as the 10.7% decline in consumer takeaway aligns with the 11% decline in Perigo OTC shipments. But the fact that we're exiting the quarter growing and growing robustly along with the apparent alignment should translate into strong second half growth. Especially encouraging to see was the sharp rebound that also occurred in cough cold with consumer takeaway of our cough cold products of 34.6%. for the quarter. That's good news and seems to make sense as the incidence of cough cold illnesses continue to trend above the prior year according to the most recent IQVIA data. This also supports a stronger upcoming cough cold season than the prior year, which is essential to our second half projections. Turning to guidance. Through the first half of the year, we are a bit behind. But we have a number of second half tailwinds. Consumer takeaway has rebounded sharply in the U.S. and Europe, including, and this is important, including USOTC. Sales momentum realized through the second quarter is expected to continue into the second half of the year compared to the prior year's second half pantry deload. The upcoming cough cold season is expected to normalize compared to the historically weak prior season a year ago. Retailer inventories have come down and consumer takeaway is now cumulatively above our shipments. While we can't precisely predict retailer inventory behavior, this data suggests the major portion of the inventory headwind should be behind us. We've taken a number of pricing actions. which have been accepted by retailers given the global inflationary environment and those will help as well. And the divestiture of the Latin American businesses, which would have been a $50 million headwind in the second half, is now expected to be offset by sales to our former RX business, which is now a major contract customer. And finally, we expect strong momentum from new products in the second half. All these factors support higher net sales in the second half thus allowing us to reaffirm our revenue guidance. We expect this robust top line performance along with lower variable expenses specifically like the Q4 reduction in A&P I referred to earlier and productivity improvements to generate strong second half adjusted EPS growth. Although for the full year We will be shy of our operating growth income growth target of 5% due to the already realized lower volumes in the first half and higher input costs in the second half. So we expect our adjusted EPS within our original range, but towards the lower end of the 250 to 270 per share. To be clear, this EPS guidance is before we put any of the nearly $2 billion in cash We have at our disposal to work. Now let's turn to the efforts to restore certainty to our business and your investment. Over the last few months, we have made substantial progress on reducing uncertainty in the Irish tax NOAA. For those of you less familiar with this dispute, Perigo received a notice of assessment of 1.65 billion euros at the end of 2018 following an audit of a 2013 tax return for Elan. The company Perigo subsequently merged with. The assessment relates to the tax treatment of Elan's sale of its Tesabri drug. It asserts that intellectual property sales transactions were not part of Elan's trade. As a result, the notice argues that these transactions should have been treated as chargeable gains subject to a 33% capital gains tax rather than the 12.5% applicable to trading income. Perigo maintains that ELAN filed correctly. On July 13th, we filed an 8K saying that after an extensive exchange of information, we received written confirmation from Irish Revenue that based on the information that they have now that they didn't have back in 2018, They would not object if the Tax Appeals Commission adjusted the amount of the assessment to less than 1 billion euros, equating to a reduction of at least 40% from the original 2018 assessed amount. And to be clear, this was agreed to without revenue conceding any point. They use the exact same methodology that they've been using all along with that more current information. So this is not any discussion or settlement. It is just a restatement of the high end of the range. As I said in the interview in the Irish Times, even though we still believe that Elon filed correctly and that ultimately, in a long drawn out battle, we will win, we believe the right thing to do right now is to settle this case at a number that makes sense, that can be accomplished. But the starting point for any negotiation would be from this new lower starting point. And from that point, we will either come to a shareholder-friendly settlement through our ongoing discussions, or we will proceed to the Tax Appeals Commission hearings to be held this November, where we strongly believe in our position. We also completed the sale of our generic RX business this quarter in July. This completed Perigo's transformation to a pure-play consumer self-care leader. We were able to announce and close the sale within four months, a great effort by many in the organization to make this happen so quickly. And as I said, we'll have nearly $2 billion at our disposal to drive shareholder returns and accelerate our growth. Our first priority is to be acquisitive going forward and put this cash to work. This is a big value-enhancing opportunity for Perigo, but it's got to be done with discipline, and it has to be done within our five areas of focus. A North American-based investment would likely center around private or value label. A European-based investment would likely center on branded assets. Ultimately, any acquisition would need to be both revenue and margin accretive and deliver a return above our weighted average cost of capital. We have a strong track record in this area and see it as a huge value creation opportunity. So in summary, we have momentum and a number of tailwinds heading into the second half of the year. We've made significant progress to reduce uncertainty for shareholders and are looking to put our balance sheet to work with accretive acquisitions. Parago's pure play consumer business model is highly defensible. Our self-care solutions are differentiated and on trend. Our portfolio offerings are well diversified across categories and geographies. We have world-class consumer industry talent, and our business fundamentals are extremely durable. With that, I will now turn the call over to our CFO, Ray Selcock, to discuss our financial results in more detail. Ray?

Thank you, Murray, and good morning, everyone. Before we get into the quarterly results, I would like to echo Murray's comments on the strong business trends we saw developed during the second quarter. Although we experienced some turbulence this quarter, which made for a difficult comparison to prior year as Murray explained earlier, I too remain encouraged by the sequential monthly top line growth trends. We had improved growth versus prior year in each month of the quarter. In addition, we saw continued normalization of consumer takeaway in the quarter. This is not an easy operating environment, but our team performed exceptionally well in managing the various and evolving trends across our businesses. I would like to thank all our colleagues for their dedication and continued efforts in driving our business forward. With that, let's take a look at our second quarter results. As a reminder, all the figures presented today are from Perigo's continuing operations and exclude the RX business which was divested on July 6. The RX business was accounted for as discontinued operations in the second quarter. On a consolidated basis, the company reported a gap loss from continuing operations of $112 million for the second quarter of 2021 or a loss of 84 cents per diluted share. On an adjusted basis, consolidated net income from continuing operations was $68 million and adjusted diluted EPS from continuing operations was 50 cents a share, a 15.3% decline compared to the prior year. The adjusted EPS decline versus prior year is primarily because we reinstated advertising and promotion spending in the quarter to pre-COVID-19 levels. Lower cough cold volumes were partially offset by strong performance across the balance of our portfolio, while unfavorable overhead absorption was offset by operating expense reductions. We also had a higher effective tax rate in the quarter, 23%, as compared to 18% in Q2 last year. Last year's adjusted ETR was favorably impacted by the passage of the CARES Act. Non-GAAP expense adjustments of $179 million, included impairment charges of $159 million, primarily from the held for sale Latin American business. $54 million of amortization, which we always add back, $13 million of unusual litigation expenses, and $9 million of restructuring costs. Non-GAAP adjustments to the tax rate for the quarter included $11 million of tax expense arising from the pre-tax non-GAAP adjustments, $62 million from the intra-company transfers of intellectual property as a result of the RX divestiture, as well as the effective evaluation allowance release in the US. Full details of these and other adjustments can be found in the non-GAAP reconciliation table attached to this morning's press release. From this point forward in this presentation, all dollar numbers, basis points, and margin percentages will be on an adjusted continuing operations basis, unless stated otherwise. Since Murray has already covered net sales for the second quarter, I will begin with our gross profit. Consolidated gross profit was $4 million higher than prior year, primarily due to favorable currency translation partially offset by adverse plant overhead absorption. Increased material costs, including resin and inbound freight, were largely offset by pricing and procurement actions taken in the quarter. Consolidated gross margin for the quarter was 38.4%, 90 basis points lower than the prior year, primarily due to that lower overhead absorption and also to a less favorable product mix as compared to last year. Consolidated operating income for the quarter was $118 million, $14 million below prior year, primarily driven by the reinstatement of the advertising and promotion spend. Now let's turn to the segment results starting with CSCA. Gross profit in the quarter for CSCA of $197 million was $9 million lower than prior year. as the impact of new product introductions and a strong performance in oral care were more than offset by lower plant overhead absorption and lower sales in OTC as well as by raw material cost inflation. Procurement actions helped offset increased freight and raw material costs. Importantly, we were able to take some pricing in the quarter and overall CSCA pricing was held flat to prior year. Lower plant overhead absorption was the primary driver of a 120 basis points margin decline in the quarter. Operating income was $107 million, $17 million lower than prior year, due to unfavorable gross profit flow through and higher operating expenses, including customer freight and investments in A&P and R&D this quarter. Moving on to consumer self-care international, CSCI gross profit was $179 million, up $13 million from last year, an 8% increase. Favorable currency translation and proactive pricing and procurement actions in the quarter combined to more than offset higher input costs, reduced volumes, and the impact of the Rosemont divestiture. Adverse product mix, primarily higher growth in lower margin categories such as pain, cough, cold led to a 180 basis point decline in gross margin versus last year. Operating income was $47 million, $3 million lower than last year as gross profit flow through was more than offset by an increase in operating expenses primarily driven by adverse currency translation impact and by the reinstatement of our advertising and promotion spending to pre-COVID-19 levels. Moving now to the balance sheet and operating cash flow. Consolidated cash on the balance sheet at the end of the second quarter was $336 million, down $145 million from the $481 million cash balance at the end of the first quarter. This decrease was driven by three primary factors. 100 million dollars in various rx related tax payments with no pnl impact 60 million dollars in investing and financing activities including capex all offset by cash collected during the quarter importantly we believe that our goal of 100 operating cash flow conversion for the full year is achievable based on the positive business trends we see as we exit the second quarter. These include increased consumer takeaway as well as monthly sequential sales volume increases. I would like to note that our $336 million of cash for the second quarter balance sheet does not include the $1.5 billion in proceeds from the sale of the RX business which closed after the quarter ended. In conclusion, our second quarter results represent the tremendous efforts made by the entire team as we continue to navigate through a challenging business environment. The positive trends we saw during the quarter, including increased consumer takeaway and growth momentum across our businesses, give us confidence in our strong second half expectations. Operator, can you please open the line for questions?

Ladies and gentlemen, at this time we'll begin the question and answer session. To ask a question, you may press star and then 1 using a touchtone telephone. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and 2. Once again, that is star and then 1 to ask a question. We'll pause momentarily to assemble the roster. Our first question today comes from Elliott Wilbur from Raymond James. Please go ahead with your question.

Thanks. Good morning. Good morning. First question for yourself, Murray. Just want to go back to some of your comments in connection with first quarter results and specifically looking at your expectations for the recovery and cough cold based on the IQVIA fan data. Assuming you're still relying on that tool to Gage your expectations to some extent. Wanted to know if there's been any meaningful change in IQVIA's outlook for second half volumes. And given that they had expected such a significant increase, I think they expected volumes to roughly double in the current year cough cold season versus last year. You know, wondering if even though your guidance was indicated to be conservative, You're still looking for a recovery of roughly half that. Still seems like a significant increase in volumes versus what we're currently seeing. Just want to know, you know, how good your line of sight is into customer orders for the balance of the years, or do we really need to see these actual cough cold numbers turn in terms of incident rates?

Well, you know, I think you rightfully characterize it as A little bit complicated. I think all the IQV numbers versus first quarter are trending right in the same direction. The bigger issue, Elliot, for me is, you know, our consumer takeaway numbers and our shipment numbers are normally within a point or two of each other. Look at the second quarter. Our cough cold consumer takeaway was up 40% and our, you know, our actual factory shipments were still Down, you know, I don't have the exact number in front of me, but 30% or something like that. It's like a 50 or 60 point swing, which is unusual. And again, it's when you're looking at shipments versus consumer takeaway, they always come back to you always, there will be periods of time when it's up and down. And that's what I tried to show in that one graph. There was a period of time when our shipments were outpacing consumption. They caught up and now it's reversed itself and consumption, fortunately, is leading the way. So, you know, to make our projections the way the consumer takeaway is trending, then, you know, we'll hit our projections easily. I'm not going to say there's upside at this point, but it's our consumer metrics on all of our businesses are exactly what we forecasted. The lag is shipments are coming back a little slower. That looked like, you know, some inventory adjustment. and it feels like when you look at it cumulatively over the past seven or eight months they've now come to pretty darn close to to even okay so you know other factors are they you know will there be the buy-in be as as high um or there will there be a little more caution but that could result in the you know the retailers if it's a good cough cold season scrambling to order more later on so you know we'll see how it plays out but This has been a heck of a ride for the last two years and we're still trying to get back to normal and manage our way out of what's been a lot of volatility and certainly a dynamic marketplace.

Okay, and if I could follow up that question in your response with just a query into the reduction in overall customer inventories. Was it pronounced in any one channel more than other and you know on the rx side of course you most companies have fairly good insight into inventory held by the big three imagine that's not necessarily true for you guys but you know how good is your um line of sight into actual inventory levels at your you know biggest uh brick and mortar customers well well two two things um that we're normally very good as well but it is not normal times so

Normally, you're just looking at the patterns that are consistent. But what's happened over this last year is you had a complete shutdown last year of drugs channels, as an example, and then shifted to e-com and it shifted over to grocery stores. And now it's shifting back from grocery stores back into the normal store traffic level. Some give back in e-commerce, still growing, but a give back to where it was. last year so they're you know sort of your normal patterns don't apply and inventory relative to the customer and the way they're managing it and the way we track it has a numerator and a denominator it's just not how much they have in the warehouse they have to divide that by the consumer takeaway right so as that's coming up you know with no change their weeks of inventory come down and you know and they're trying to to adjust for that so As long as the consumption continues to grow the way it's going, we should be fine. But it's been an interesting one to track versus what has been something we're historically very good in and we would have to be good at.

Okay. Then maybe last question for me. I understand many of the factors as to why gross margins you know underperformed external and internal expectations for the quarter would still expect improvement in the second half of the year in both CSCA and CSCI but trying to get a little bit better sense of you know what you think is now a a good number in each of those segments or lack of a better term sort of an aspirational target I know we talked about 33 percent in the CSCA business in the second half of the year that may Be a little bit more challenging to reach in light of some of these these issues that we're talking about today. But is that still sort of your longer term expectation? That's kind of a good baseline number to improve off of and similar question on the CLCI business.

Yeah, I mean, you know, I'll answer it. And Ray, feel free to jump in. The factors As Ray said, we had a big bump in input costs in numerous areas, right? If you're looking at operating margin versus gross margin, just take the A&P. It's coming out of the fourth quarter. It went in the second quarter, just reversing itself from last year back to 2019. But the bigger issue is with a weak, weak cough cold season, now you're feeling on margins. First off, those are high margin items. I know this may seem a bit odd, but the reality is to have 20% of the business take a massive hit and still grow our franchise and hold it the way we did, but for the move in advertising and promotion, I think it's pretty good while we're weathering this storm. Because if you add that back in, we were relatively flattish. At the gross margin line, you don't produce as much. or you don't have as much bought in in cough cold of a high margin item. So, you hit the hit there on the top and then you lose it again in unfavorable plant absorption, right? Because we have certain plants that do nothing but run cough cold products. So, that's a negative hit. Your question about whether that is permanent, of course, it's not permanent. When the cough cold season comes back, the throughput goes through the plant. That on absorbed overhead is no longer a factor in. in future years and you get the margin back, the gross margin back on the sale of the cough cold product. So there's a number of those that are temporary in nature like that. The longer term input costs when it comes to freight difficulty getting some things out of China for oral care and others are purchasing people originally when we built the plan believed by the third quarter we would be back to normal. Now they're saying You know, early next year and, you know, will it be all the way back to where it was before? We may give up a little bit of margin there, but we're pushing harder on cost increases and don't lose sight of the fact that Ray said that for the first time in years, we were actually able to pass through price increases, which has not been the case. So our customers are working with us and some of those will start to affect it. That's a long way of me saying I'm not backing off our margin goals. I don't think we'll get there in the second half of this year, but we will get there.

Anything you want to add to that, Ray? No, no. We covered all the points, Mark.

All right. Thank you. Thank you.

Our next question comes from Chris Schott from JP Morgan. Please go ahead with your question.

Hi, this is actually Catarina on for Chris. Thank you so much for taking our questions and actually to jump on your price increase comment. I think you've mentioned this, you know, for the first time in a while. Can you elaborate a bit more on the customer relationships and broader market dynamics that are enabling you to take kind of price increases? And then my second question would be, can you talk a bit about more on the demand trends that you've been seeing across consumer categories in July and maybe the first two weeks of August, any early visibility into what 3Q could look like there? Thank you so much.

Okay, well, on the latter part of the question, we did show through the first couple weeks. Now we're on July? Yes, through July 11. Through July 11. So then that data that we put in up till a couple days ago said through the middle of June and we got in the latest period so we brought that in I'll just say that it it moved those numbers up a little bit not down so from right now the data that we have in consumer takeaways through July 11th and through July 11th that trend accelerated not it didn't slow down so that's good news that's the most encouraging thing right because the shipments have to ultimately Line up and catch it. It's just taken a bit longer. Remind me what the first part of your question was, the price increase, right? Yes. The price increases. We normally, when we started this and I joined the Parago two years ago, we were, every quarter or year, we had moved from a minus 1% to 2% price erosion a year to about a 2% to 3%. Our goal was to get it back to minus 1% to 2%. In the quarter on almost the year, it's flat so far. So, you know, that's, you know, that's a pretty big swing versus what we normally plan in a year, because we would have budgeted it be down, you know, that one to 2%. And that's helped offsetting some of the volume reduction. So you, you know, you, you basically had a good job by the organization that had higher input costs of almost 19 million, $20 million that were completely offset by, you know, the purchasing group, working their side, then on the other side, you've had you know lower volume offset by pricing to some extent and by and the input costs so you know all of those coming together and but for the A&P move would have had our EPS flat versus year ago roughly flat versus year ago a little bit of tax implications as well as it goes to customer relations our customers they're partners on a normal circumstance if they thought we were coming in just to take price increases for Margin to boost our bottom line. They would resist that heavily and in fact push the other way under normal circumstances when they're not blind. They see what's going on in the world and input costs. It's affecting them. It's affecting everybody. They see what's happening to their national brand competitors who have been taking price increases. So yes, they have partnered with us.

and have accepted these price increases as you know good partners great thank you so much once again if you would like to ask a question please press star and one our next question comes from David Steinberg from Jefferies please go ahead with your question morning thanks

Morning. Thanks. A couple questions. First, in terms of new product flow, I think you'd mentioned that you're expecting strong momentum in the second half. And so could you give us some flavor of some of the products you're launching? And then sort of in the medium term, thinking about potential RX to OTC switches, you've discussed Nasonex coming up, and you've discussed potential switches like Tamiflu, Cialis, Glyce. What line of sight do you have on these potential switches? And in fact, could some big categories like dermatology or migraine break loose over time in your view?

Okay, well, let's do the first one. First one, we have a number of new products that were recently launched that are public. I'm not going to share anything that's not public. That's part of our moved to be part of a consumer company. We need to keep that confidential. But we've already shared with you that we have launched new versions of XLS throughout Europe. We have launched Probify, which is a launch into probiotics throughout all of Europe a few months ago and expect that to impact the second half of the year. We launched our hypoallergenic infant formula. We have signed a deal with a meaningful new contract on a branded infant formula that so far is looking incredibly promising. And we launched Burt's Bees infant formula and we had said that later in the year Burt's Bees would be rolled out to a broader line of products. and that's happening as we speak. Those are just some examples. As it relates to RxSwitch, I think the most relevant ones that are relatively new are Sklice. You also have the combo product from Advil with ibuprofen, acetaminophen combination. You have Astapro. We're not through on having all the sizes on our Voltaren equivalents. Those are just a few. The big ones, whether when they come or not come, whether it comes to Cialis and others, we still continue to hear rhetoric as those companies are launching and spinning off their consumer divisions. It's been a positive contributor and we expect that to continue.

Just some follow-up. So, in thinking about cough cold season, I don't know if this is a good read-through, but I was reading recently that Australia had their lowest historic levels of cough cold in 2021, just coming out of the winter season, even lower than last year, zero hospitalizations. Do you see any read-through from the Australian market into what could happen in the United States this fall and winter? And then, Just to follow up on the price issue, I know you said you've finally taken price versus price declines in the last few years. And the question is, if price was better, why did margins erode?

Okay, well, the second one's easy. The price was just offsetting input costs. Cost inflation. Yeah, I mean, you know... for all of it, so that was flat, was the impact of that. Australia, yeah, I think Australia is an example of what would happen if the world shut down, but that is not the norm. Australia, and we have an Australian board member who is, are still in complete lockdown, and complete mask requirements, and I caveated my comments that if If we went that far backwards again, sure, that would be a, you know, a risk to our plan. As it's happening now and schools reopening and lockdowns pretty much gone around the world with, you know, there are some exceptions. We think things, you know, will open up and we've already seen a higher level of, a significantly higher level of illnesses and you see it in the consumer Takeaway numbers that are so dramatic. So, you know, if you want me to ask if the world was a Delta variant or some other variant was to shut the world all the way back down again, would it have an impact on our business? Of course it would. But, you know, I think there'll be some masking measures, but it doesn't at least feel that way to us that anywhere in the world is willing to shut it down that hard. Everybody needs to get the world vaccinated.

Great, thanks.

And ladies and gentlemen, at this time, and showing no additional questions, I'd like to turn the floor back over to management for any closing remarks.

Thank you. You know, like I said, this has been a challenging 18 months for sure. But, you know, I'm proud to say that the team continues to make the adjustments and has is literally very close to right on track where we were or where we set up about two years ago with the transformation. I'm not going to go through the wheel again, but to sit there a couple of years and say, despite COVID, we have completely reconfigured this company, despite taking a hit on cough cold, which is almost 20% of our business and to be still growing. to be in a year with these challenges and have already sold RX, which I don't think the world expected it, and now have those resources which we're working hard on to drive even stronger results in our 3.5 long-term promise, and to be making major, major progress where we believe we've cut in half the biggest risk to the company from an uncertainty standpoint. you know the company is still progressing and and setting itself up long term for ultimately making lives better through our self-care vision so with that in mind you know I like where we sit and I'm optimistic about the future and we just got to work our way through these inventory issues and input costs which we will but they don't change the fundamental strength of the company and the long-term and the benefits that we ultimately believe our investors will get from all of this hard work over the past two years. So I thank all of the employees who've helped make that happen and I thank you for your interest in Paragon.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.