Q3 2023 Embecta Corp Earnings Call

August 8, 2023

Please standby welcome ladies and gentlemen to the fiscal third quarter 2023, and back to our earnings conference call.

At this time all participants have been placed in a listen only mode. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay following the completion of this call.

I'd now like to hand, the conference over to your host today, Mr. Profession tend to wall Vice President of Investor Relations. Please go ahead.

Thank you operator, good morning, everyone and welcome to Ambac does fiscal third quarter 'twenty two 'twenty three earnings conference call.

That's release and slides to accompany today's call and webcast replay details are available on the Investor Relations section of the company's website at Www Dot Ambac dark Dot Com with me today are Beth car to car <unk>, President and Chief Executive Officer, and Jake Louise Our Chief Financial Officer.

Before we begin I would like to remind you that some of the matters discussed in the conference call will contain forward looking statements regarding future events as outlined in our slides.

Wish to caution you that such statements are in fact forward looking in nature and are subject to risks and uncertainties and actual events or results may differ materially.

<unk> that could cause actual results or events to differ materially include but are not limited to factors referenced in our press release today as well as our filings with the SEC, which can be accessed on our website.

In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered as supplemental and not a substitute for financial measures prepared in accordance with GAAP.

A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation.

Our agenda for todays call is as follows.

That will begin by providing an update on the progress we've made on our strategic priorities for 2023 as well as some remarks on the overall performance of our business during the third quarter and year to date period.

Jack will then provide a more in depth review of our Q3 financial results as well as our updated financial guidance for the year.

And we will then open up the call for questions, but that said I.

I'd now like to turn the call over to our CEO , Jeff Gordon at car Dev.

Thank you previous good day, everyone and thank you for taking the time to join US This morning.

This time last year, we announced the results of our very first quarter as an independent public company and I am pleased to say that we have made tremendous progress standing up our organization since then.

I'm, especially energized by the continued execution of our global team across all elements of our business and strategic priorities. Because we are not just here to build a new company, but to also continue our mission of developing and providing solutions that make life better for people living with diabetes.

At them better we keep their needs front and center, because we want everyone to be able to enjoy life unlimited by diabetes.

As we turn to the next slide you will see the strategic priorities that will help us advance towards decision.

First we remain focused on strengthening our base business, while maintaining our global leadership position in the category of insulin injection devices.

Second we continue to make progress in standup and separation activities to ensure success as an independent company.

And finally, we remain focused on accelerating our constant currency revenues as we continue investing in growth most notably around our insulin <unk> program that is being developed for the type two market.

As well as seeking M&A on additional partnership opportunities.

We are moving with purpose and urgency in each of these three areas.

During the third quarter, our team's disciplined execution was the key to delivering solid financial results that once again exceeded our expectations, while also advancing the strategic priorities.

In terms of strengthening our base business. We recently initiated a pilot launch of a final date spend needle.

Our nano pro hub design in Japan.

Today with more than one out of three people injecting with the 34 gauge pennies in Japan, we are proud to provide another option for them to choose from.

We look forward to getting feedback from our customers regarding this new product over the next several months.

We also made progress in our separation efforts as demonstrated by the exit of several transition service agreements as we continue to build up our internal organization.

And processes.

This includes the implementation of our own global HR information system.

The rollout of our new customer relationship management system.

And the setting up of our global IP network.

Importantly, we also began the demerger process for our manufacturing facility in Suzhou China.

As we've noted before this was a deferred entity at the time of our separation from BD.

The transfer of the Suzhou plant bechtel photos of specific process involving several steps.

Including obtaining licenses.

<unk> products and undergoing inspections.

The first step is operating a business license and we have done so.

Now as required by local regulations and as we have long planned we have temporarily suspended operations at our manufacturing facility as we go through the rest of the steps.

During this temporary suspension period began.

<unk>, our new enterprise resource planning system at the facility.

Also as a reminder, we have built up enough inventory to ensure continuity of products supplied to our customers. During the time that the shutdown is anticipated to last.

Finally come and invest for growth perspective, a patch pump program continues to make good progress, including on the development effort required for the integration of type two insulin dosing algorithm.

We have also initiated a small observational study in partnership with the <unk> Center for Health research to analyze adults with type two diabetes currently using type <unk> algorithm.

As you might recall, our type well collaboration and specifically for the type two closed looped patch pump.

Based on the plan of the attachment program. We've previously laid out our initial focus is on the filing of a five 10-K and obtaining FDA clearance in the U S for the open loop worsen.

This is expected to be followed by a clinical study for our closed loop version with.

The intention to subsequently obtained FDA clearance for use of the closed loop system in individuals with type two diabetes.

Overall, even as our team has been working on critical projects to stand up a vector exit TSA and drive future growth.

Our global team has continued to execute commercially.

This has allowed our core injection business to remain stable and once again raise our guidance for key financial metrics for fiscal year 2023.

Now, let's review, our third quarter and year to date revenue performance in a bit more detail.

During Q3, we generated revenue of $286 1 million, which represented a decrease of one 7% on an as reported basis.

<unk>, 3% on a constant currency basis.

When normalizing for the impact of year over year changes of the non diabetes products that we contract manufacture and sell to BD.

Our underlying core injection business grew approximately 0.5% on a constant currency basis.

These results exceeded our previously communicated expectations, which called for a sequential decline in our as reported revenue dollars from Q2 to Q3.

In relation to our previous expectations from a product standpoint, Q3 revenue came in stronger primarily due to the performance of our tenured 50 products as well as slightly more than anticipated contract manufacturing revenue during the quarter.

While from a geographic perspective.

Q3 revenue came in better than we previously thought in most countries.

Including the U S and China.

Regarding the U S. During the quarter revenue totaled $153 9 million, which was a year over year constant currency decline of approximately $4 1 million or two 6%.

This was driven by two things that contributed almost equally.

The first being lower year over year contract manufacturing revenue from the sale of certain non diabetes products to BD.

Which impacted the U S by about $2 3 million.

And the second being unfavorable changes in volume, which had an impact of approximately $1 8 million.

As a reminder, during the third quarter of 2022.

Our business in the U S benefited from the timing of distributor orders.

And as a result had a difficult comparison.

Had it not been for these timing items that positively impacted the year ago quarter.

Also in the U S for our core injection products would have been up modestly.

Lastly, pricing in the U S was flat in the quarter as compared to the year ago period as increases in the average selling prices of like for like products was offset by a rebate reserve adjustment that positively impacted the year ago quarter.

Did not reoccur this quarter.

Turning to our performance outside of the U S.

During Q3 international revenue totaled $132 2 million, which equated to year over year constant currency growth of approximately $3 2 million or two 4%.

Growth internationally was primarily due to favorable pricing dynamics as well as an increase in product volumes.

Were aided by a competitor product supply shortage in certain regions.

Turning to our revenue performance for the first nine months of the year.

<unk> related revenues of $838 9 million, which represented a decrease of one 9% on an as reported basis, but an increase of one 4% on a constant currency basis.

When normalizing for the impact of year over year changes in the non diabetes products, we contract manufacture and sell to BD.

Underlying core injection business grew approximately 8% on a constant currency basis.

From a regional perspective U S revenues totaled $449 6 million, which was relatively flat on a constant currency basis.

While international revenues totaled $389 3 million, which equated to year over year constant currency growth of approximately three 2% driven primarily by emerging market performance.

That completes my prepared remarks, and with that let me turn the call over to Jay to discuss our Q3 financial results in a bit more detail as well as provide updated fiscal 2023 financial guidance and underlying assumptions.

Jake.

Thank you Deb and good morning, everyone.

Before I discuss the financial results I would like to remind the investment community that impactor was spun off from BD on April one of 2022.

And that the financial results during the pre spin periods, where based on carve out accounting principles and do not reflect what impact. This financial results would have been had in back to operated as a standalone public company.

Therefore, the financial results for the nine month periods, ending June 32023, and June 30 of 2022 are not meaningfully comparable.

Given the discussion that has already occurred regarding revenue I will start my review of going back to this financial performance for the third quarter at the gross profit line.

GAAP gross profit and margin for the third quarter of fiscal 2023 totaled $189 5 million and 66, 2% respectively.

This compared to $202 9 million and 69, 7% in the prior year period.

The year over year decline in GAAP gross profit and margin was expected and was due to a combination of factors which include the impact of inflation on the cost of certain raw materials directly Burke and overhead.

Product and geographic mix.

Incremental standup and separation costs.

And FX.

This was somewhat offset by manufacturing productivity improvement programs and increases in the average selling prices of our products.

While on an adjusted basis gross profit and margin for the third quarter of 2023 was $189 6 million and 66, 3%.

As compared to our prior outlook, our adjusted gross margin during the third quarter of 2023 was better than we previously expected and this was due to higher than anticipated revenue.

Favorable geographic and product mix.

And our ability to manage the costs incurred to stand up the organization.

Turning to GAAP operating income and margin.

During the third quarter, they were $51 3 million at 17, 9% respectively.

This compares to operating income and margin of $97 1 million and 33, 4% respectively in the prior year period.

The decline in year over year GAAP operating income and margin is primarily due to the GAAP gross profit changes I just discussed.

An increase in selling and administrative expenses associated with separating and standing up and back to operate as a publicly traded company.

An increase in research and development expenses related to our insulin patch pump program.

As well as an increase in the amount of certain onetime separation related expenses that we do not anticipate reoccurring in the future.

While on an adjusted basis during the third quarter of 2023 operating income and margin totaled $79 8 million and 27, 9%.

The adjusted operating income and margin performance during the third quarter of 2023 was better than we previously anticipated and this was due to the yogurt achievement at the adjusted gross profit and margin line that I referenced earlier.

Turning to the bottom line.

Net income and earnings per diluted share were $15 2 million and 26 during.

During the third quarter of fiscal 2023.

This compared to $62 4 million and $1 seven in the prior year period.

The decline in year over year, GAAP net income and diluted earnings per share is primarily due to the GAAP operating profit drivers I just discussed.

As well as an increase in year over year interest expense associated with our variable interest rate debt.

While on an adjusted basis net income and earnings per share were <unk> $39 8 million and 69.

During the third quarter of fiscal 2023.

Lastly from a P&L perspective for the third quarter of 2023, our adjusted EBITDA and margin totaled approximately $92 2 million and 32, 2%.

Like our adjusted operating profit due to the revenue and gross profit over achievement in the quarter.

Our adjusted EBITDA during Q3 also exceeded our previous expectations.

Finally, with respect to our balance sheet and financial condition at quarter end.

As of June 32023, we held approximately $317 million in cash and cash equivalents at.

And approximately $1 64 billion in debt.

Which taken together with our last 12 months adjusted EBITDA resulted in a net leverage ratio of approximately three four times.

That completes my prepared remarks as it relates to our back this financial results for the third quarter of fiscal 2023.

Next I'd like to discuss our <unk> updated 2023 financial guidance and certain underlying assumptions.

Beginning with revenue.

Our year to date performance, we are tightening our constant currency revenue guidance range. As we are now calling for full year 2023 constant currency revenue growth of between 0.5% and 1%.

This is an increase of 50 basis points on the low end with about half of the increase due to our core injection business.

And about half due to contract manufacturing revenue.

As it relates to the contract manufacturing of non diabetes products that are sold to BD. Our updated full year constant currency revenue range assumes no additional revenue associated with this during the fourth quarter.

This compares to approximately $10 million of contract manufacturing revenue that was generated during the fourth quarter of 2022.

And while we continue to make progress in this area our updated full year constant currency revenue guidance range continues to assume an immaterial amount of revenue associated with any recently announced partnership agreements.

Turning to about effects, they remain unchanged from our previous expectations and as such our updated guidance continues to call for a foreign currency headwind of approximately two 5% during 2023.

On a combined basis, we are raising the bottom end of our full year as reported revenue guidance from a range, which called for a decline of between one five and two 5%.

To a new range, which calls for a decline of between one five and 2%.

In dollar terms this equates to a revenue range of between $1.107 billion and $1 billion $113 million.

All totaled our updated full year revenue guidance range implies the following for the fourth quarter.

And as reported revenue decline of between two 4% on the low end and.

And a decline of 0.4% on the high end.

And FX headwind of approximately 0.1% on both the low and high ends.

And our constant currency revenue decline of between two 3% on the low end.

And a decline of 0.3% on the high end.

This implied constant currency range includes a headwind of approximately three 6% related to the lack of contract manufacturing revenue in Q4.

While we anticipate that our core injection business will grow between one 3% and three 3% on a constant currency basis.

The expected acceleration in constant currency revenue growth within our core injection business. During the fourth quarter is largely attributed to anticipated performance in both the U S and China.

Moving to margins.

Based on the performance that was achieved year to date, we are raising our expectations for adjusted growth.

That operating and adjusted EBITDA margins as we now anticipate that our adjusted gross margin will be approximately 66%.

Up from our prior guidance of approximately 64, 5%.

Our adjusted operating margin is expected to be approximately 29, 5%.

Up from our prior guidance of approximately 28%.

While our adjusted EBITDA margin is now projected to be approximately 33, 5% for full year 2023.

Up from our previous guidance of approximately 32, 5%.

Our updated guidance ranges imply a sequential step down in our margin profile from the third quarter to the fourth quarter.

And this is expected to occur through a combination of factors, including lower anticipated revenue dollars in Q4 versus Q3.

And the associated negative manufacturing variances.

The ongoing temporary suspension of our manufacturing operations of our facility in China.

Unfavorable product mix.

And incremental standup cost and FX headwinds.

Continuing down the P&L. We currently expect net interest expense will be approximately $112 million or slightly favorable as compared to our previous expectation, which call for interest expense of approximately 100.

During 2023.

While our assumptions regarding our non-GAAP tax rate and weighted average shares remained unchanged at approximately 25% and $57 7 million shares respectively.

At the bottom line this translates into our new full year 2023 adjusted earnings per share range of between $2 75.

And $2 80.

Which is an increase from our previous range of between $2 50.

And $2 60.

Or a raise of approximately 23 at the midpoint.

In summary, the better than previously anticipated performance in the third quarter is translating into our increased full year financial guidance as our thoughts regarding the fourth quarter are largely unchanged from when we last provided guidance in may.

In closing during the first nine months of the year, we made good progress in each of our three major strategic priorities, including strengthening the base business Seth.

Separating abstaining ourselves off as an independent entity.

And investing in growth initiatives.

And it has been the focus on execution by our global team.

<unk> of our base business that has allowed us to generate solid fee events, thereby allowing us to raise our financial guidance.

The year to date.

That completes my prepared remarks at this time I'd like to turn the call over to the operator for questions.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster one moment for our first question.

And our first question comes from Mccallum Petsmarts of Morgan Stanley . Please go ahead.

Thanks, guys for taking the question.

Just across the business I know you touched on it briefly in your remarks.

I'd appreciate some extra clarity if possible on pricing, specifically, where you've been able to take price capturing both products and geographies and then how you expect that to trend as we head towards your fiscal year 2020 full thanks.

Hi.

Kevin This is Dan.

Thanks for the question so with regard to pricing.

Ever since we spun off now five quarters ago.

We've been able to consistently take price.

But the idea of geographies.

Most recently in the most recent quarter.

We were able to get some price in U S as well as in geographies outside the U S pricing is something that happens to us on a rolling basis, because we certainly have contracts that roll in and out across various geographies pricing overall globally can also get affected by customer mix.

And whether it's a tender business and whether it be won a tender or not versus normal what I would call sort of retail channel business, but I think consistently we've been able to take price.

We really don't want to project price going forward.

Certainly on efforts to optimize sprays in various markets around the world.

We will continue.

Pricing actually has also helped us in this recent inflationary environment.

Allowing us to offset the inflationary pressures that we.

We've certainly experienced some spin Jake is there anything you'd like to add yes, sure maybe just a little bit more color.

Regarding regarding the impact so I would say at a consolidated level.

We saw pricing drive.

Little less than about 1% of positive year over year constant currency revenue growth for total <unk> total and vector that was largely due to two pricing tailwind that we saw outside of the U S.

Pricing in the U S was flat.

I would say that.

In the U S. We actually did see like for like pricing increases.

Of about that would've driven about 1% of revenue growth in the U S year over year, but that was offset by about a 1% headwind.

Coming from certain rebate reserve adjustments that were made in the third quarter of 2022 that did not reoccur in were a headwind then in terms of.

2023, so we continue to be pretty pleased by our ability to drive price.

Pulse in.

In the U S on a like for like basis as well as through most countries internationally.

Alright, good thanks a lot.

Thank you one moment for our next question.

And our next question comes from Marie <unk> of BPI. Please go ahead.

Good morning, Devin Jake nice quarter.

Wanted to start here and talk a little bit more about the revenue guidance.

It seems to me that.

Contract manufacturing revenue was strong this quarter and we aren't expecting any of this quarter or next quarter. So I understand that dynamic, but maybe you could walk us through your assumptions for base business growth.

Any thoughts on sort of volume growth I know you just talked about pricing volume growth in the U S International and emerging market segment for them for the rest of the year.

Yes so.

Maybe I'll start and then Jeff can certainly weigh in here.

One of the reasons, why we sort of break out the contributions from contract manufacturing revenue.

As compared to sort of the core injection business is because all along we've known that it's going to be somewhat transient in nature as SPD <unk>.

Begins to just sort of in source.

Their ability to manufacture that product itself right. So I think it's important for the investment community to understand that there's going to be some ebbs and flows in any given quarter as it relates to kind of the contract manufacturing revenue.

And while we did generate about $3 million worth of contract manufacturing revenue in the third quarter of.

Of 2023, it was still a headwind year over year.

Of about $2 3 million.

And that equated to about just under 1% of our constant currency headwind.

In the quarter itself now as we sort of move forward here for for the fourth quarter.

Contract manufacturing is going to be a much much larger headwind for us as compared to the fourth quarter of 2022. So right now given what we know we're not factoring in any additional contract manufacturing revenue.

For the fourth quarter of 2023 and that compares to about $10 million worth of contract manufacturing revenue that we generated in the fourth quarter of 2022, so that alone equates to about a three 6% constant currency headwind in Q4 versus versus the year ago period.

So if you were to sort of normalize for that.

Our guidance for the core injection business actually implies a step up in.

In Q4, and right now we're anticipating that the core injection business on a constant currency.

Basis grow somewhere between one 3% and three 3%.

And that sort of acceleration in year over year constant currency revenue growth, it's largely coming from both.

Our expectations for the U S as well as for for China.

And maybe just a couple a couple points, maybe you'll probably remember contract manufacturing is very low margin business for us.

And certainly as it deems.

Deals off of it allows us to think about what we wanted to do with that.

<unk> in our plants right. So.

So it's not something that's unexpected.

And it's not something that impacts us on the bottom line any material way.

And then with respect to revenue you asked about volume I mean, clearly with the growth rates, we're talking about for Q4.

Admittedly with easy comparisons because U S.

Had a timing benefit in Q3 of prior year quarter, which obviously moderated sales in Q4, a variety of quarters. So that helps from a growth comparison in China. You remember was still in the tools of Covid and what's coming.

Sort of dealing with that and so allows us somewhat of an easy comparison in China for fourth quarter as well, having said all of that.

That growth is going to come primarily from volume.

And that's what we anticipate the overall from a guidance perspective, what we've done is we've taken the outperformance in Q3 and totaled just added that to our expectations for full year expectations for Q4, frankly haven't changed materially from what we said we are pleased that our business across the board.

Operating at the higher end of the range and so we've taken the low end of our guidance up as you can see.

Maintained our expectations, mainly bolstered them, a little bit higher confidence in Q4, and Thats what <unk> done.

Okay. That's very helpful detail. Thank you for that maybe I can ask my follow up on China could be here that you've initiated the demerger process for the.

China facility as we get closer now what are your best expectation for when that facility will be shut down how long that might take in and when we should start modeling an improvement in gross margins again.

Thank you for taking the question.

Sure Mike.

So China, you remember was a deferred into the long planned in fact, we've been planning for more than a year and a half men seven steps enrolling the first step of which is getting a business license and we've actually done so already.

So with the receipt of their business license.

As required by local rags and again as long plan, we've suspended manufacturing operations. We wanted to take advantage of the fact that since the operations are suspended we wanted to do our first deployment of an ERP solution and that's going that's going on right now obviously when you.

B plant.

You want to be able to test that in the run through different manufacturing work orders and whatnot to make sure. It's all operating so all of that process is going on right now maybe with respect to <unk>.

Timing.

We've refrained from actually talking about timing.

Clearly, we don't want to get ahead of the regulatory authorities, we won them due to follow the process and secondly, obviously it would be competitively sensitive information, China and emerging markets tend to be fairly competitive market, having said all of that.

We certainly built up enough inventory to cover and maintain continuity of product supply to our customers. During the anticipated time everything so pod is going per plan and certainly our thoughts are all incorporated in the guidance that we gave for this year.

And Murray, maybe I'll just jump in here as it relates to.

Two the potential margin pressure.

Obviously as that as Deb said, we're anticipating.

Sequential step down in part due to the fact that we're going to see some some negative manufacturing variances as a result of this temporary suspension.

Again, I think it's still too early at this point in time, and we certainly don't want to jump in front of any regulators regarding regarding timing.

But we will see.

Some continued year over year margin pressure as a result of that in the nearer term.

And then I think it's probably still a little bit too early to talk specifically about calendar <unk> for 2024, but obviously this is something that we've known about for quite a long period of time dating back to the pre spin periods.

And we still feel very comfortable and think that.

Adjusted EBITDA margin of approximately 30% for 2024 is still very reasonable.

Alright, thank you so much.

Thank you and as a reminder to ask a question. Please press star one on your telephone one moment for our next question.

And our next question comes from Travis Steed of Bank of America Securities. Please go ahead.

Thanks for taking the question I guess the first one I'll ask on the patch pump. Just curious have you already started the trial with the patch pump I know you've said.

Timing not in 2024, but is there a chance that we could see something in 2025, there just any additional color you can provide on that that pipeline program. Thank you.

Yes Tavis.

When you when you ask about the trial I assume you are talking about a trial for the closed loop pump.

The data of which will be submitted to the FDA with a five 10-K for the closed loop, we have not started their trial.

Our focus right now is on the open loop system.

As we've said we wanted to do the open loop gain to the FDA first what we have done is we started a small observational study with Titan.

And actually we started the development work on engineering.

The tide pool.

The engineering work required to integrate the dipole algorithm with our system and so certainly you can see that we are working in parallel on a closed loop system.

Our initial focus is still getting on the <unk>.

Getting the FDA 510, Ks for the open loop system.

With respect to time when you look at.

I know, we've said in 24 no revenue.

Recognize that as we go through 2024.

We certainly want to provide a multiyear outlook.

And as part of that certainly we'll be talking about the patch pump.

As we as we go through 2024 as well but to answer your question directly the trial that we have is an observational study certainly will provide us data led to the help with the development of the closed loop system, but it's not the data that we get submitted to the FDA for <unk>.

The closed loop.

Clearance.

Okay, great and the follow up there's been a lot of conversation on kind of the competitive threats from on the pharma side of things.

One once weekly and funds and to GOP ones. So the way I'd ask the question first is are you spending money today like on R&D and manufacturing.

Products that could actually benefit from <unk> and then the other way I'd ask the question on once we go and funds just trying to think about like your overall mix of your business, but does it matched over market, where roughly half of those patients are on basal only on funds and how would you would you think about the impact if a patient has gone from 7% basal injections per week.

<unk> per week.

Yes Travis.

With respect to <unk>, I mean, thats a market we will watch closely.

I think it's frankly too early to say what impact it will have over the long run we watch those we get all the market data, we see what's going on with the prescriptions.

Right now the data is a little bit confounding because there are a lot of prescriptions also for obesity as we've all been reading in the press and also the progression from.

All the way from diet and exercise for tight due to the oral drugs to injectable drugs and then finally to insulin I mean, thats a multiyear process. So youre going to take some time for us to fully understand you also know that this is mostly a developed market primarily a U S phenomena.

It really is coming from emerging markets, what we've seen and you'll see the ones by the way have been around for a number of years. What we've seen is our U S. Business has stayed fairly stable over that time, the renewal project project sort of going out in the future what we do to our business, but it is something that we are watching carefully with it.

Respect to the program.

With respect to your question on.

What are we doing if you will broadly speaking to maybe take advantage of the <unk> in the new drug space I mean, again I don't want to talk specifically about R&D programs, but it is an area we're watching closely.

Certainly some of the ways. These drugs are delivered matches well with our manufacturing competencies.

Molding plastic parts.

Attaching.

Needles to them to create delivery devices for these drugs. So it's an area of interest.

Interest for our status, but honestly I don't want to go beyond that with respect to where we are spending money on specific programs with respect to once weekly insulin.

Largely put it in the same category of new brands I mean, once you take insulin on a weekly basis right. There is always the danger of.

Have you taken too much. So I think we got to wait and watch to see what happens with once weekly insulin with respect to sort of the proportion of our product that goes into basal insulin looses mulch.

Multiple daily injections.

The market data on that is not very clear at.

At the point of dispensation, we don't get data that tells us whether patients are using our products one daily injections of weekly injections.

And so rather.

Rather than sort of your.

Estimate I'm, just going to say that.

Again, that's going to be a U S phenomena our growth is in emerging markets.

We don't expect any of these new drugs frankly.

Whether it would be once weekly insulin or these new DLP drugs to make their way into emerging markets in an immaterial way, Florida for a period of time.

Great. Thanks, a lot for that helpful.

Bonds.

Thanks Dennis.

Thank you I would now like to turn the conference back to Dev courtesy car for closing remarks.

Thank you before we conclude the call I would like to express my gratitude to all my colleagues around the world.

We're just incredibly immense amount of work that <unk> been doing over the past year and a half to stand up.

<unk> independent company.

That they have been doing so without impacting on our customers through what has been a fairly challenging operating environment.

And in the midst of the spin is a testament to their commitment to fulfilling our mission of developing and providing solutions that make life better for people with diabetes.

You all for attending the call. We look forward to speaking with you again in a few months and thank you for your interest in our business.

This concludes today's conference call. Thank you for participating and you may now disconnect.

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Welcome, ladies and gentlemen to the fiscal third quarter 2023, and vector earnings conference call at.

At this time, all participants have been placed in a listen only mode.

Please note that this conference call is being recorded and that the recording will be available on the company's website for replay following the conclusion of this call.

I'd now like to hand, the conference over to your host today, Mr. <unk> <unk> Vice President of Investor Relations. Please go ahead.

Thank you operator.

Good morning, everyone and welcome to <unk> fiscal third quarter 2023 earnings Conference call.

This release and slides to accompany today's call and webcast replay details are available on the Investor Relations section of the company's website at Www Dot <unk> Dot Com with me today are <unk>, <unk>, President and Chief Executive Officer, and Jay <unk>, Our Chief Financial Officer.

Before we begin I would like to remind you that some of the matters discussed in the conference call will contain forward looking statements regarding future events as outlined in our slides.

We wish to caution you that such statements are in fact forward looking in nature and are subject to risks and uncertainties and actual events or results may differ materially.

Factors that could cause actual results or events to differ materially include but are not limited to factors referenced in our press release today as well as our filings with the SEC, which can be accessed on our website.

In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered as supplemental and not a substitute for financial measures prepared in accordance with GAAP.

A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation.

Our agenda for today's call is as follows.

Jack will then provide a more in depth review of our Q3 financial results as well as our updated financial guidance for the year.

And we will then open up the call for questions, but that said I.

I'd now like to turn the call over to our CEO , Jeff Gordon <unk> Dev.

Thank you good day, everyone and thank you for taking the time to join US This morning.

Adam vector, we keep their needs front and center, because we want everyone to be able to enjoy life unlimited by diabetes.

As we turn to the next slide you will see the strategic priorities that will help us advance towards decision.

First we remain focused on strengthening our base business, while maintaining our global leadership position in the category of insulin injection devices.

Second we continue to make progress in standup and separation activities to ensure success as an independent company.

As well as seeking M&A and additional partnership opportunities.

We are moving with purpose and urgency in each of these three areas.

During the third quarter, our team's disciplined execution was the key to delivering solid financial results that once again exceeded our expectations, while also advancing the strategic priorities.

In terms of strengthening our base business. We recently initiated a pilot launch of refinery gate spend needle.

Our nonaccrual hub design in Japan.

To date with more than one out of three people injecting with 30 40 gig spend even in Japan. We are proud to provide another option for them to choose from.

We look forward to getting feedback from our customers regarding this new product over the next several months.

We also made progress in our separation efforts as demonstrated by the exit of several transition service agreements as we continue to build up our internal organization systems and processes.

This includes the implementation of our own global HR information system.

The rollout of our new customer relationship management system.

And the setting up of our global IP network.

Importantly, we also began the demerger process for our manufacturing facility in Suzhou China.

As we've noted before this was a deferred entity at the time of our separation from BD.

The transfer of the Suzhou plant backed off all of the specific process involving seven steps.

Including obtaining licenses.

Between products and undergoing inspections.

The first step is operating a business license and we have done so.

Now as required by local regulations and as we have long planned we have temporarily suspended operations at our manufacturing facility as we go through the rest of the steps.

During this temporary suspension.

We began implementing our new enterprise resource planning system at the facility.

Also as a reminder, we have built up enough inventory to ensure continuity of products supplied to our customers. During the time that the shutdown is anticipated to last.

Finally come and invest for growth perspective.

Bachelor program continues to make good progress, including on the development effort required for the integration of type was insulin dosing algorithms.

We have also initiated a small observational study in partnership with the <unk> Center for Health research to analyze adults with type two diabetes currently using the <unk> algorithm.

As you might recall, our type well collaboration is specifically for the type two closed looped patch pump.

Based on the plan of the passport program. We've previously laid out our initial focus is on the filing of a five 10-K and obtaining FDA clearance in the U S for the open loop worsen.

This is expected to be followed by a clinical study for our closed loop version with the intention to subsequently obtain FDA clearance for use of the closed loop system in individuals with type two diabetes.

Overall, even as our team has been working on critical projects to stand up a vector exit TSA and drive future growth.

Our global team has continued to execute commercially.

This has allowed our core injection business to remain stable and once again raise our guidance for key financial metrics for fiscal year 2023.

Now, let's review, our third quarter and year to date revenue performance in a bit more detail.

During Q3, we generated revenue of $286 1 million, which represented a decrease of one 7% on an as reported basis and 10% on a constant currency basis.

When normalizing for the impact of year over year changes in the non diabetes products that we contract manufacture and sell to BD.

The underlying core injection business grew approximately <unk>, 5% on a constant currency basis.

These results exceeded our previously communicated expectations, which called for a sequential decline in our as reported revenue from Q2 to Q3.

In relation to our previous expectations from a product standpoint, Q3 revenue came in stronger primarily due to the performance of our <unk> hundred 50 products.

As well as slightly more than anticipated contract manufacturing revenue during the quarter.

While from a geographic perspective.

Three revenue came in better than we previously targeted most countries.

Including the U S and China.

Regarding the U S. During the quarter revenue totaled $153 9 million, which was a year over year constant currency decline of approximately $4 1 million or two 6%.

This was driven by two things that contributed almost equally.

The first being lower year over year contract manufacturing revenue from the sale of certain non diabetes products to BD.

Which impacted the U S by about $2 3 million.

And the second being unfavorable changes in volume, which had an impact of approximately $1 8 million.

As a reminder, during the third quarter of 2022.

Our business in the U S benefited from the timing of distributor orders.

And as a result had a difficult comparison.

Had it not been for this timing item that positively impacted the year ago quarter.

The U S for a quota injection products would have been up modestly.

Lastly, rising in the U S was flat in the quarter as compared to the year ago period.

The average selling prices of like for like products was offset by a rebate reserve adjustment that positively impacted the year ago quarter.

Did not reoccur this quarter.

Turning to our performance outside of the U S.

During Q3 international revenue totaled $132 2 million, which equated to year over year constant currency growth of approximately $3 2 million or two 4%.

Growth internationally was primarily due to favorable pricing dynamics as well as an increase in product volumes.

What aided by a competitive product supply shortage in certain regions.

Turning to our revenue performance for the first nine months of the year, we generated revenues of $838 9 million, which represented a decrease of one 9% on an as reported basis, but an increase of one 4% on a constant currency basis.

When normalizing for the impact of year over year changes in the non diabetes products, we contract manufacture and sell to BD.

Underlying core injection business grew approximately 8% on a constant currency basis.

From a regional perspective U S revenues totaled $449 6 million, which was relatively flat on a constant currency basis.

While international revenues totaled $389 2 million, which equated to year over year constant currency growth of approximately three 2% driven primarily by emerging market performance.

Jake.

Thank you Deb and good morning, everyone.

Before I discuss the financial results I would like to remind the investment community that impactor was spun off from BD on April one of 2022.

Therefore, the financial results for the nine month periods, ending June 32023, and June 30 of 2022 are not meaningfully comparable.

Given the discussion that has already occurred regarding revenue I will start my review of <unk> financial performance for the third quarter at the gross profit line.

GAAP gross profit and margin for the third quarter of fiscal 2023 totaled $189 5 million and 66, 2% respectively.

This compared to $202 9 million and 69, 7% in the prior year period.

Product and geographic mix.

Incremental standup and separation costs.

And FX.

This was somewhat offset by manufacturing productivity improvement programs and increases in the average selling prices of our products.

While on an adjusted basis gross profit and margin for the third quarter of 2023 was $189 6 million and 66, 3%.

As compared to our prior outlook, our adjusted gross margin during the third quarter of 2023 was better than we previously expected and this was due to higher than anticipated revenue.

Favorable geographic and product mix.

And our ability to manage the costs incurred to stand up the organization.

Turning to GAAP operating income and margin.

During the third quarter, they were $51 3 million and 17, 9% respectively.

This compares to operating income and margin of $97 1 million and 33, 4% respectively in the prior year period.

The decline in year over year GAAP operating income and margin was primarily due to the GAAP gross profit changes I just discussed.

An increase in selling and administrative expenses associated with separating and standing up and back to operate as a publicly traded company.

An increase in research and development expenses related to our insulin patch pump program.

As well as an increase in the amount of certain one time separation related expenses that we do not anticipate reoccurring in the future.

While on an adjusted basis during the third quarter of 2023 operating income and margin totaled $79 8 million and 27, 9%.

Turning to the bottom line.

GAAP net income and earnings per diluted share were $15 2 million and 26 during.

During the third quarter of fiscal 2023.

This compared to $62 4 million and $1 seven in the prior year period.

The decline in year over year, GAAP net income and diluted earnings per share is primarily due to the GAAP operating profit drivers I just discussed.

As well as an increase in year over year interest expense associated with our variable interest rate debt.

While on an adjusted basis net income and earnings per share were $39 8 million and 69.

During the third quarter of fiscal 2023.

Lastly from a P&L perspective for the third quarter of 2023, our adjusted EBITDA and margin totaled approximately $92 2 million and 32, 2%.

Like our adjusted operating profit due to the revenue and gross profit over achievement in the quarter.

Our adjusted EBITDA during Q3 also exceeded our previous expectations.

Finally, with respect to our balance sheet and financial condition at quarter end.

As of June 32023, we held approximately $317 million in cash and cash equivalents at.

And approximately 164 billion in debt.

Which taken together with our last 12 months adjusted EBITDA resulted in a net leverage ratio of approximately three four times.

That completes my prepared remarks as it relates to <unk> financial results for the third quarter of fiscal 2023.

Next I'd like to discuss our <unk> updated 2023 financial guidance and certain underlying assumptions.

Beginning with revenue.

Given our year to date performance, we are tightening our constant currency revenue guidance range. As we are now calling for full year, 2023% constant currency revenue growth of between 0.5% and 1%.

This is an increase of 50 basis points on the low end with about half of the increase due to our core injection business.

And about half due to contract manufacturing revenue.

This compares to approximately $10 million of contract manufacturing revenue that was generated during the fourth quarter of 2022.

Turning to our backs they remain unchanged from our previous expectations and as such our updated guidance continues to call for a foreign currency headwind of approximately two 5% during 2023.

On a combined basis, we are raising the bottom end of our full year as reported revenue guidance from a range, which called for a decline of between one five and two 5%.

To a new range, which calls for a decline of between one five and 2%.

In dollar terms this equates to a revenue range of between $1.107 billion and $1 billion $113 million.

All totaled our updated full year revenue guidance range implies the following for the fourth quarter.

And as reported revenue decline of between two 4% on the low end and.

And a decline of 0.4% on the high end.

And FX headwind of approximately 0.1% on both the low and high ends.

And our constant currency revenue decline of between two 3% on the low end.

And a decline of 0.3% on the high end.

This implies constant currency range includes a headwind of approximately three 6% related to the lack of contract manufacturing revenue in Q4.

While we anticipate that our core injection business will grow between one 3% and three 3% on a constant currency basis.

The expected acceleration in constant currency revenue growth within our core injection business. During the fourth quarter is largely attributed to anticipated performance in both the U S and China.

Moving to margins.

Based on the performance that was achieved year to date, we are raising our expectations for adjusted growth.

That operating and adjusted EBITDA margins as.

As we now anticipate that our adjusted gross margin will be approximately 66%.

Up from our prior guidance of approximately 64, 5%.

Our adjusted operating margin is expected to be approximately 29, 5%.

Up from our prior guidance of approximately 28%.

While our adjusted EBITDA margin is now projected to be approximately 33, 5% for full year 2023.

Up from our previous guidance of approximately 32, 5%.

Our updated guidance ranges imply a sequential step down in our margin profile from the third quarter to the fourth quarter.

And this is expected to occur through a combination of factors, including lower anticipated revenue dollars in Q4 versus Q3.

And the associated negative manufacturing variances.

The ongoing temporary suspension of our manufacturing operations of our facility in China.

Unfavorable product mix.

And incremental standup cost and FX headwinds.

During 2023.

While our assumptions regarding our non-GAAP tax rate and weighted average shares remained unchanged at approximately 25% and $57 7 million shares respectively.

At the bottom line this translates into our new full year 2023 adjusted earnings per share range of between $2 75.

And $2 80.

Which is an increase from our previous range of between $2 50.

And $2 60.

Or a raise of approximately 23 at the midpoint.

In summary, the better than previously anticipated performance in the third quarter is translating into our increased full year financial guidance as.

That's our thoughts regarding the fourth quarter are largely unchanged from when we last provided guidance in may.

In closing during the first nine months of the year, we made good progress in each of our three major strategic priorities.

<unk> strengthening the base business.

Separating expanding ourselves off as an independent entity.

And investing in growth initiatives.

And it has been the focus on execution by our global team.

<unk> of our base business that has allowed us to generate solid fee events, thereby allowing us to raise our financial guidance.

Of the year to date.

That completes my prepared remarks.

At this time I'd like to turn the call over to the operator for questions.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster one moment for our first question.

And our first question comes from Mccallum Petsmarts of Morgan Stanley . Please go ahead.

Thanks, guys for taking the question.

Just across the business I know you touched on it briefly in your remarks, but I.

I appreciate it some extra clarity if possible on pricing, specifically, where you've been able to take price capturing both products and geographies and then how you expect this to trend as we head towards your fiscal year 2024.

Hi, Alan.

Alan This is Dan.

Thanks for the question so with regard to pricing.

Ever since we spun off now five quarters ago.

We've been able to consistently take price across the idea of geographies.

Most recently in the most recent quarter.

We were able to get some price in U S as well as in geographies outside the U S.

I think there's something kellum that happens to us on a rolling basis, because we certainly have contracts that rolled in and out across various geographies pricing overall globally can also get affected by customer mix.

And whether it's a tender business and whether it be won a tender or not versus normal what I would call sort of retail channel business, but I think consistently we've been able to take price.

Really don't want to project price going forward, but certainly on efforts to optimize sprays in various markets around the world.

We will continue.

The pricing actually has also helped us in this recent inflationary environment by allowing us to offset the inflationary pressures.

We've certainly experienced some spin.

<unk> is there anything you'd like to add yes, sure maybe just a little bit more color regarding.

Regarding regarding the impact so I would say at a consolidated level.

We saw pricing drive a little less than about 1% of positive year over year constant currency revenue growth for total total impact that was largely due to two pricing tailwind that we saw outside of the U S.

Pricing in the U S was flat.

I would say that.

In the U S. We actually did see like for like pricing increases.

Of about that would've driven about 1% of revenue growth in the U S year over year, but that was offset by about a 1% headwind coming from.

Certain rebate reserve adjustments that were made in the third quarter of 2022 that did not reoccur in were a headwind then in terms of.

2023, so we continue to be pretty pleased by our ability to drive price.

Both in.

In the U S on a like for like basis as well as through most countries internationally.

Alright, good thanks a lot.

Thank you one moment for our next question.

And our next question comes from Marie Thibault of BPI. Please go ahead.

Good morning, Devin Jake nice quarter.

Wanted to start here and talk a little bit more about the revenue guidance.

It seemed to me that.

Contract manufacturing revenue was strong this quarter and we aren't expecting any this quarter or.

Next quarter, so I understand that dynamic, but maybe you could walk us through your assumptions for base business growth.

Any thoughts on sort of volume growth I know you just talked about pricing volume growth in the U S International and emerging market segment for them for the rest of the year.

Yes so.

Maybe I'll start and then Jeff can certainly weigh in here.

One of the reasons, why we sort of break out contributions from contract manufacturing revenue.

As compared to sort of the core injection business is because all along we've known that it's going to be somewhat transient in nature as SPD <unk>.

Begins to just sort of in source.

And while we did generate about $3 million worth of contract manufacturing revenue in the third quarter of.

Of 2023, it was still a headwind year over year.

Of about $2 $3 million.

And that equated to about just under 1% of our constant currency headwind in the quarter itself now as we sort of move forward here for for the fourth quarter.

So if you were to sort of normalize for that.

Our guidance for the core injection business actually implies a step up in.

In Q4, and right now we're anticipating that the core injection business on a constant currency.

Basis grow somewhere between one 3% and three 3%.

And that sort of acceleration in year over year constant currency revenue growth, it's largely coming from both our expectations for the U S as well as for for China.

And maybe just a couple a couple points, maybe you'll probably remember contract manufacturing is very low margin business for us.

And thirdly is it.

Deals off of it allows us to think about what we wanted to do with that.

Pasadena plant right. So.

So it's not something that's unexpected and.

And it's not something that impacts us on the bottom line any material way.

And then with respect to revenue you asked about volume I mean, clearly with the growth rates, we're talking about for Q4.

Admittedly with easy comparisons.

Because U S.

Had a timing benefit in Q3 of prior year quarter, which obviously moderated itself in Q4 prior year quarter. So that helps from a growth competitors in China. You remember was still in the tools of Covid and what's coming.

Sort of dealing with that and so allows us somewhat of an easy comparison in China for fourth quarter as well, having said all of that.

That growth is going to come primarily from volume.

And that's what we anticipate to go overall from a guidance perspective, what we've done is we've taken the outperformance in Q3 and sort of just added that to our expectations for full year, our expectations for Q4, frankly haven't changed materially from what we said we are pleased that our business across the board is off.

<unk> at the higher end of the range and so we've taken the low end of our guidance up as you can see.

Maintained our expectations, mainly bolstered them a little bit higher confidence in Q4, and that's what we've done.

Okay. That's very helpful detail. Thank you for that maybe I can ask my follow up on China could be here that you've initiated the demerger process for the.

China facility as we get closer now what are your best expectation for when that facility will be shutdown, how long that might take in and when we should start modeling an improvement in gross margin.

Thank you for taking the question.

Sure Mike.

So China, you remember was a deferred into the long plan in fact, we've been planning for more than a year and a half now several steps enrolling the first step of which is getting a business license and we've actually done so already.

So with the receipt of that business license as.

As required by local rags and again as long plan, we've suspended manufacturing operations. We wanted to take advantage of the fact that since the operations are suspended and we wanted to do our first deployment of an ERP solution and that's going that's going on right now obviously when you.

B plant.

You wanted to be able to test that in the run through different.

Manufacturing, one quarters and whatnot to make sure. It's all operating so all of that process is going on right now maybe with respect to <unk>.

Timing.

We've refrained from actually talking about timing.

Clearly, we don't want to get ahead of the regulatory authorities, we want them due to followed their process and secondly, obviously it would be competitively sensitive information, China and emerging markets tend to be a fairly competitive market, having said all of that.

We certainly built up enough inventory to cover and maintain continuity of product supply to our customers. During the anticipated time everything so pod is going per plan and certainly our thoughts at all incorporated in the guidance that we gave for this year.

And Murray, maybe I'll just jump in here as it relates to.

Two the potential margin pressure.

Obviously as that as Deb said, we're anticipating.

A sequential step down in part due to the fact that we're going to see some some negative manufacturing variances as a result of this temporary suspension.

Again, I think it's still too early at this point in time, and we certainly don't want to jump in front of any regulators regarding regarding timing.

But we will see.

Continued year over year margin pressure as a result of that in the nearer term.

And we still feel very comfortable and think that an adjusted EBITDA margin of approximately 30% for 2024 is still very reasonable.

Alright, thank you so much.

Thank you and as a reminder to ask a question. Please press star one on your telephone one moment for our next question.

And our next question comes from Travis Steed of Bank of America Securities. Please go ahead.

Thanks for taking the question I guess the first one I'll ask on the patch pump. Just curious have you already started the trial with the patch pump I know you've said.

Timing not in 2024, but is there a chance that we could see something in 2025, there just any additional color you can provide on that that pipeline.

Nine program. Thank you.

Yes Tavis.

When you when you ask about the trial I assume you are talking about a trial for the closed loop pump.

The data of which will be submitted to the FDA with a five 10-K for the closed loop, we have not started their trial.

Our focus right now is on the open loop system.

We've said we wanted to do the open loop gain to the FDA first what we have done is we started a small observational study with Titan.

And actually we've started the development work on engineering.

The tide pool.

The engineering work required to integrate the type of algorithm with our system.

And so certainly you can see that we are working in parallel on a closed loop system.

Our initial focus is still getting on the <unk>.

Getting the FDA five 10-K for the open loop system.

With respect to time when you look at.

I know, we've said in 'twenty four North Avenue, but I recognize that as we go through 2024, we certainly will want to provide a multiyear outlook.

And as part of that certainly we'll be talking about the patch pump.

As we as we go through 2020 for it as well but to answer your question directly the trial that we have is an observational study certainly will provide us data led to the help with the development of the closed loop system, but it's not the data that will get submitted to the FDA for.

The closed loop five 10-K clearance.

Great and the follow up there's been a lot of conversation on kind of the competitive threats from on the pharma side of things.

One once weekly and funds in two <unk> one so the way I'd ask the question first is are you spending money today like on R&D and manufacturing.

Products that could actually benefit from <unk> and then the other way I'd ask the question on once legal and funds just trying to think about like your overall mix of your business, but does it matched over market, where roughly half of those patients who are on basal only on funds and how would you would you think about the impact if a patient has gone from 7% basal injections per week.

<unk> per week.

Yes, Kevin.

With respect to <unk>, I mean, thats a market we will watch closely.

I think it's frankly too early to say what impact it will have over the long run we watch those we get all the market data, we see what's going on with the prescriptions.

Right now the data is a little bit confounding because there are a lot of prescriptions that also for obesity as we've all been reading in the press and also the progression from.

It really is coming from emerging markets, what we've seen in <unk> by the way have been around for a number of USA wood. We have seen is our U S business has stayed fairly stable over that time.

One of the project project sort of going out in the future what we do to our business, but it is something that we are watching carefully with respect to the program.

With respect to your question on.

What are we doing if you will broadly speaking to maybe take advantage of the <unk> and the new drug space I mean, again I don't want to talk specifically about R&D programs, but it is an area we are watching closely.

Thirdly, some of the ways. These drugs are delivered matches well with our manufacturing competencies right injection molding plastic parts.

Attaching.

Needles to them to create delivery devices for these drugs. So it's an area of interest.

Interest for our status, but honestly I don't want to go beyond the aggregate expected, where we are spending money on specific programs with respect to once weekly insulin I would largely put it in the same category with new brands I mean, once you take insulin on a weekly basis right. There is always the danger of.

Have you taken too much so.

I think we got to wait and watch to see what happens with once weekly insulin with respect to sort of the proportion of our product that goes into basal insulin looses mulch.

Multiple daily injections.

The market data on that.

Is not very clear.

A dispensation, we don't get data that tells us whether patients are using our products one daily injections of weekly injections.

And so you know.

Rather than sort of your leg estimate I'm, just going to say that.

Again, that's going to be a U S phenomena growth is in emerging markets.

We don't expect any of these new drugs frankly.

Whether it would be once weekly insulin or these new DLP drugs to make their way into emerging markets in an immaterial way, Florida for a period of time.

Great. Thanks, a lot for that helpful thorough response.

Thanks Dennis.

Thank you I would now like to turn the conference back to Dev courtesy car for closing remarks.

Thank you before we conclude the call I would like to express my gratitude to all my colleagues around the world.

We're just incredibly immense amount of work that <unk> been doing over the past year and half to stand up.

<unk> independent company.

That they have been doing so without impacting our customers through what has been a fairly challenging operating environment.

And in the midst of the spin is a testament to their commitment to fulfilling our mission of developing and providing solutions that make life better for people with diabetes.

You all for attending the call. We look forward to speaking with you again in a few months and thank you for your interest in our business.

This concludes today's conference call. Thank you for participating and you may now disconnect.

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