Q2 2023 Viatris Inc Earnings Call

Good morning My.

My name is Todd and I will be your conference operator today.

At this time I would like to welcome everyone to the Beatrice 2023 second quarter earnings call and webcast.

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After the Speakers' remarks be a question and answer period.

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Thank you.

I will now turn the call over to bill to Blue ski.

Head of global coupled sorry head of global capital markets. Please go ahead.

Good morning, everyone. It's my pleasure to welcome you to our second quarter 2023 earnings call.

With us today is our CEO Scott Smith.

President Rajiv Malik.

Yeah, So sanjeev and ROA and.

And Jeff now for my Eye Care Division.

During today's call, we will be making forward looking statements on a number of matters, including our financial guidance for 2023 and various strategic initiatives.

These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections.

Please refer to todays slide presentation, and our SEC filings for a full explanation of those risks and uncertainties limits applicable to forward looking statements.

We will be referring to certain actual and projected non-GAAP financial measures to supplement investors' understanding and assessment of our financial performance reconciliations of those non-GAAP measures to the most directly comparable GAAP measures are available on our website and in the appendix of today's slide presentation.

An archived copy of today's presentation and other earnings materials will be available on our website at investor <unk> Beatrice Dot com following the conclusion of today's call.

With that I will now hand, the call over to our CEO Scott Smith.

Good morning to everyone on the call I am pleased to report the second quarter of 2023 was one of the strongest quarters, we've had to date of Beatrice.

Could not be more pleased with our overall execution.

The positive momentum of the base business continues to push US forward. We are laser focused on delivering our pipeline and are excited about new product launches.

In the second quarter, we delivered total revenues of $3 $9 billion, representing approximately 2% year over year growth on an operational adjusted basis, and adjusted EBITDA of $1 3 billion and free cash flow of $447 million.

Both of which were ahead of our expectations.

Based on our performance this quarter and in the first half of the year, we are reaffirming our full year financial guidance for 2023.

These results signal the beginning of what we expect to be a growth journey for V interests and set us up well for future success as we prepare to bring phase one of our strategic plan to successful completion and initiate phase two beginning in 2024.

Well Im proud of our strong performance the foundation the company has built and the stability and predictability that we believe has clearly been a cheat my focus is on the future and on the trajectory of the company moving forward.

Now, let's turn our attention there.

On executing our planned divestitures, we are on track to announce all transactions in 2023.

As we said executing these planned divestitures as a matter of strategic choice not a necessity.

I am extremely pleased with where we are in the process.

We are currently in advanced stages of discussions with potential buyers and anticipate announcing at least one significant divestiture in the third quarter, possibly more.

As a result, I will not be in a position to take any further questions on this topic during Q&A today, but very much look forward to discussing in detail with you at an appropriate time in the future.

Okay.

The company has laid out clear capital allocation and business development priorities for phase two and we are fully dedicated to executing on these priorities, which will allow us to continue our move up the value chain.

We intend to earmark, approximately 50% of our free cash flow annually to be returned to shareholders in the form of dividends and especially share repurchases.

With the remaining capital, we intend to invest in our businesses, both organically and Inorganically.

I continue to be focused on looking for strategically significant transactions and ophthalmology, gastroenterology and dermatology as well as evaluating other therapeutic areas should the right opportunities arise.

Does it become apparent to me that there are many assets that could fit our needs and our transact at all.

I am optimistic about our ability to execute high quality business development deals not only through M&A, but also through strategic licensing agreements and partnerships when the time is right.

In summary, I'm very proud of our execution to date, the health of the company and a strong foundation that has been built looking ahead I believe in the future trajectory of the company and I'm very excited for what's to come.

I'll now turn the call over to Rajiv to provide you with an update on our operations and our pipeline and then to Sanjeev, who will give you more details of our financial results 2023 guidance and capital allocation activities.

Rajiv.

Thanks, Scott and good morning, everyone.

Our strong performance this quarter highlights the momentum of our business like never before and further reinforces the predictability of our base business.

It's very diversified from a geography, that's portfolio point of view.

The performance of the last 10 quarters demonstrates that our business model upbringing access has never relied on any one product or any one market that sent off our underlying business is enabling us to position the company that is far fees to grow.

Our continued new product revenue performance is another key feature of our plan and for this year again, we remain on track to deliver on our expectation of approximately 500 million U S dollars off new product revenue.

And they provide the commercial segment highlights for the quarter I will be making certain comparison on an operational basis.

Excluding the negative impact of foreign currency dates what's your plan.

For financial guidance. In addition have you been making set in comparison to our Q2 'twenty two reserve on a divestiture adjusted operational basis as defined in our news release.

This quarter total net sales grew 1.5 parsing on an operational basis due to a strong performance across various geographies and product portfolio as well.

We believe achieving this top line growth for the first time as we add to it.

It reflects the power of our platform.

Well talk about steady and consistent execution.

That'd be getting to our commercial segment highlights.

Our well balanced business have developed market their brands make up approximately 55% of our net sales.

In quarter, two delivered another strong quarter.

Europe performed ahead of our expectations.

A 2% year over year growth on an operational basis.

Italy, Spain, and U K as well as several other markets drove the strong momentum for the quarter.

A solid performance of genetics in Europe was another contributing factor.

Our North America business was flat year over year on an operational basis and also performed ahead of expectations.

Genetics live or the better than expected performance led by Leonard of Mike Vick, Sheila and Xu Lei.

Our brands business was supported by strong demand in epinephrine market and your battery, which grew 12% this year or the last year.

You probably will see only in there for life long acting muscarinic aging available in the market continues to show a significant growth and then drives about a 30% market share in the broader long acting obliged COPD market.

<unk> is well on its way to become the number one product in this space.

Our new launches in North America are on track and we are very excited about our recent introduction of brianna our genetic with Symbicort.

We expect that this launch could be 180 days first to fly genetic exclusivity, which is subject to fda's future determination of that issue if and when another anda filer becomes eligible for final approval it.

For the second half of the year, we believe that market segment is twice for year over year growth and we remain confident to meet or exceed our full year expectation are both North America and Europe .

And Marty markets had another strong quarter and delivered 10% year over year at breakthrough growth led by stronger than expected performance of genetics and brands like Lipitor Lyrica and Celebrex.

Emerging Asia and Middle East was strong performing geographies.

We remain confident for this segment to deliver better than expected for the full year and grow versus the prior year.

Jazz performed in line with our expectations and we anticipate continuing to meet our expectations for the full year.

In greater China, we delivered 1% operational growth in this quarter.

Primarily due to lag that and other retail driven products in China.

We remain on track to meet our planned expectations for the year.

Our team in China has been focused on continuing to expand our presence in the private channel, while navigating and managing the evolving policy dynamics on the ground.

We have also been very focused on building and expanding our pipeline of new products in China.

To that that our NDA as far Dymista and perform received approval from FDA in this quarter.

In addition to this our partners the NBA for Triad was also accepted by.

Eight other products are under active review.

Moving to Ikea <unk> launch continues to progress as planned and it's second quarter as part of this.

During the quarter drives this program was optimized to drive increased value per script and achieved the highest quarterly T X launch to date.

Furthermore, we remain focused on maximizing its potential including increasing share of Medicare prescriptions driving continued growth in total prescriptions and launching the brand's first direct to consumer campaign in the fourth quarter, which together, we believe for wide support for our.

Near and longer term expectations for the brand.

We are also excited by the continued progress of our eye care pipeline, which is aimed at addressing a danger of beacon related disorders.

Our NDA review of them all 140 for the reversal of an energy assets program is under active review with a <unk> date of September 28 of this year.

We have completed patient enrollment in our first pivotal phase III trial off and not a one for one for the treatment of best Myopia and expect top line data in Q3 of this year.

And we remain on track to initiate the second phase III trial later this year.

We have initiated patient enrollment in the first phase III study them at 148 for the treatment of dry eye disease and expect top line data in 'twenty four.

We are initiating a phase III program of <unk> nine for the treatment of Black Friday later this year.

And Mark one for two for nitrogen disturbances and I'm not one for six plus in Europe neurotrophic retro Patty also remain on track.

Switching to other pipeline upticks and beginning with the news, we announced today I Don T a depot.

The FDA has accepted for review, our recently submitted NDA and assigned a <unk> date of March 24.

Our application is backed by a phase III efficacy and safety data and we believe <unk> could improve patient experience through fewer injections greater tolerability and increased compliance.

We are feeling very confident in the strength of our <unk> clinical program and continue to believe that we remain on track to launch in the second half of 'twenty four.

We are equally excited about the potential opportunity to also bring this product to patients in Europe .

We expect to file later this year.

Our Botox Biosimilar program is progressing well from the development characterization absolute validation of drug substance and drug product perspective.

We remain on track to fight out R&D by the end of this year.

Our phase III study for ARX, <unk> and low dose program and USA remains on track with nearly 800 of the plant because that 100 women in their order.

We are targeting completion of enrollment by March 24.

And our phase III study for it affects our generalized anxiety disorder in Japan is very long scheduled and we are targeting an NDA filing in the first half of 'twenty five.

Lastly, all our complex injectable programs are moving ahead as planned.

Before I turn the call to <unk>.

Wanted to thank our colleagues for another strong quarter and consistent performance.

With that Sandeep.

Thank you Rajiv and good morning, everyone.

We had another excellent quarter and are seeing the results. So far the efforts which include revenue growth versus prior year.

Unless otherwise stated I will be making year on year comparison on a divestiture adjusted operational basis as defined in our earnings release.

The second quarter exceeded our expectation.

We're encouraged by the fundamentals and continued strong operational performance.

The branded business and new product revenue is contributing to favorable gross margin.

In the quarter versus prior year net sales from emerging market Europe , and greater China grew.

The revenue growth included the impact of new product and we expect this momentum will continue with our recent bringing our launch.

We continue to invest behind future growth, which includes the Ik divisions commercial investment and late stage pipeline programs.

We believe that our unique global platform, which is diversified across product categories has proven its ability to continue to generate significant and sustainable free cash flow and.

And we remain confident in the durability of this performance moving forward.

Okay.

Turning to Q2 in first half 'twenty three highlights.

To summarize the results versus the prior year on a reported basis, including the Biosimilar business in 2022.

Net sales were slightly ahead of expectations and grew at one 5% versus the prior to.

This performance is consistent with our expectation for the business over the long term.

On a reported basis foreign exchange had an impact of approximately 2% on net sales for the second quarter 2022.

The diverse portfolio of growth drivers included brand performance in the emerging markets Europe and greater China.

We expect this I mean, it tends to continue in the second half aided by product seasonality and the continued ramp of new products.

New product revenue in the quarter met expectations and included sales of all strengths of Lenalidomide.

Adjusted gross margin of approximately 60% in the quarter exceeded our expectation and was driven by positive portfolio mix and lower than expected inflation on Cogs.

We reported strong adjusted EBIDTA, which included the anticipated step up in SG&A associated with eye care Division and the.

R&D to advance key programs across I Kid injectable and complex product.

We had another solid quarter of free cash flow of $447 million ahead of our expectations.

The year on year decline was primarily driven by lower adjusted EBITDA due to the Biosimilar divestiture the impact of foreign exchange and anticipated timing of working capital.

We are delivering on our capital allocation priority and continue to pay down debt to reach our gross leverage target of three times.

We remain in a strong balance sheet position and are committed to our investment grade rating.

In the quarter, we paid down short term debt of $181 million for a total of approximately $6 1 billion since the beginning of 2021.

We expect to pay down the 500 billion matured in Q4 from cash on hand.

Additionally, we returned approximately $144 million of capital to our shareholders in the quarter for the dividend.

The strong performance in the first half this year gives us continued confidence in our phase two work.

Although we're not providing guidance beyond 2023, it remains our expectation to generate at least $2 3 billion of free cash flow from the Rebased business before any associated transaction costs and taxes.

We are reaffirming our 2020 financial guidance ranges and expect full year revenue adjusted EBITDA and free cash flow to be at the midpoint of the ranges.

We're closely watching foreign exchange a select currencies.

While we have absorbed the impact of foreign exchange headwinds in the first half versus what we had assumed in our February guidance. It is possible that we may encounter a slight headwind in the second half.

Now a few update on the expected phasing for the rest of the year.

We continue to expect total revenue to be higher in the second half due to the launch and ramp of new products as.

As well as normal productions analogy, particularly in developed markets.

We expect adjusted EBITDA to be slightly lower in the second half driven by two factors.

First gross margin moderating due to less favorable portfolio and segment mix as well as expected higher cogs driven by inflation.

And second the investment, we're making behind future growth driver. This include DTC investment and cleared via.

Pipeline and organic R&D.

We anticipate free cash flow to be slightly lower in the second half based on that and adjusted EBITDA outlook.

An increase in capital expenditure and one time costs.

Yeah.

As a reminder.

Our free cash flow guidance does not include any transaction costs and taxes associated with the Biosimilar divestments the <unk> acquisition.

<unk> divestiture.

Additionally.

Our adjusted EBITDA and free cash flow ranges exclude any.

Wired IP R&D unsigned deals.

In the second quarter, we incurred $10 million of IP R&D related to our investments in Japan.

In closing based on the continued strong underlying fundamentals of the business, we're well positioned for the remainder of the year and look forward to 2024 and beyond.

With that I'd like to hand, it back to the operator to begin taking your questions. Thank you.

Thank you at this time, if you would like to ask a question. Please press the star one on your telephone keypad.

Wish to remove yourself from the queue you may do so by pressing star two.

We remind you to please pickup your handset and please limit yourself to one question.

We'll take our first question from Glen Santangelo with Jim go.

Go ahead.

Oh, yeah, thanks, and good morning.

Hey, Scott just a couple of quick questions for you I. Appreciate that you don't want to talk about the divestitures, but maybe you could just answer one high level question.

Been in your seat now for just over four months and I'm kind of curious.

From your perspective is it fair to say that you are happy with how the process has been run and you're happy with the demand you saw on the process. Because you know it's obvious that you werent your seat win when this process started and you kind of inherited and I. Appreciate we're far along as you don't want to give any comments, but I was wondering if you could just comp.

At a high level, if you are happy with where you're at in the demand you're seeing.

Thank you very much Glen for the question, Yes, I would say I'm very happy with what I've seen this is a very well performing businesses theres been lots of demand. There has been lots of interest in these assets. We're very excited on where we are in the process.

I would say that we're in discussions with multiple potential buyers of multiple assets.

We're looking forward to giving people the details on that.

Time, and the place where we can.

Just one other comment.

He is really important and it's important to remember that these divestitures represent a cash pooling so it'll be coming to us to help us accelerate towards our desired leverage ratios. What they do is they really set us up well going into 2024 and beyond and the critical thing for the future is our ability to deliver on our capital allocation plans in 'twenty four.

Beyond which include capital returned to investors through divestitures.

Particularly share buybacks and also business development, M&A and licensing and partnerships.

Very happy with the process I'm very happy to be accelerating into 'twenty four and beyond.

Okay.

Thank you we'll take our next question from Jason <unk> with Bank of America.

Oh, Hey, guys. Thank you for taking my questions.

Curious are there any alternative structures that you guys would consider with these divestitures to minimize the tax consequences.

And then with <unk> just wondering you know what's going to drive a growth inflection here do you really think that the DTC could be needle moving for for this product.

So first of all thank you Jason for the question I can't comment on deal structures or anything like that at this point in time that would just be all speculation I'll turn it over though.

Two four.

For the third question. Please yes, hi, this is Jeff now yeah, and I think it's a great question, we look at the marketplace for dry eye disease, There's about 2 million patients currently being treated by about $16 million that have been diagnosed so I think among other things that we talked about on the prepared remarks, including.

And Medicare.

And many of the other tactics that we're taking into account that 14 million patients that are sort of sitting on the couch waiting for a new therapy is not something that's really unlocked to us today and Thats really I think the benefit that that DTC campaign brings forward.

Thanks, Jeff.

So we'll take our next question from Ash Verma with UBS.

Hi, good morning, Thanks for taking my question.

So for the OTC business.

Not asking about the spin off but just wanted to understand any business James. Thank you can highlight.

The other or are they going to see players in Europe .

The strong start to the year like MAU flagging more of a normalization of that.

So anything that you can shed on that.

And then just one.

Ametek's Injectables.

If you get a sense on the timing of some of the key launches for these products I think we are estimating a $1 billion peak since may 2027.

So I just wanted to understand if you have confidence in the approval timeline Tim Thanks.

Thank you Ashleigh I'd ask Rajiv to to address your questions.

Yeah. So it is in our business as shell.

Do you see it performing.

Exactly as we had anticipated and planned, especially this during this year of the deal and transition.

We are very happy in fact, how the overall business in Europe . Because this is being done at the European business at 2% a solid performance in Europe overall, and OTC, playing its role and OTC just let me put it like that or this is Tony.

Very for us as a huge growth driver within the within the region, but yes, it's a really steady Eddy business.

As we expected.

To your question about the comp.

<unk> injectable every program and it's not that every brokers go more to come in <unk> 47. In fact, we should be looking into a launching these products.

<unk>.

If we are optimistic later this year early next year.

And then from then onwards, I think every year, you're going to see to see key perhaps getting launched.

I would say 'twenty four 'twenty 546, leading to 2720 $8 billion franchise. We said we have about eight flips compliant plus market opportunities, which we have already secured we have both.

37 products in this pipeline and we are adding more and from the highest point of view, we could not be more pleased yes. We there is always a little bit of <unk>.

The FDA.

Changing in time, but we have taken that into consideration while modeling August .

Thank you we'll take our next question from David <unk> with Sandler.

Thanks, so much.

At the outset of the.

The evolution of.

The company's overall strategy I think you had called out.

Three therapeutic vertical I think it was derm Gi and ophthalmology.

And I'm just wondering is that something.

Your words too closely going forward are you looking at other therapeutic burden.

So you'd think how are you thinking about that as you think about your branch strategy more broadly.

And then secondly, just any comments you might have on epinephrine and how youre thinking about the intranasal.

Another formulations that might come to market and how you're thinking about potential pressure.

Yes.

B Penn.

Thank you.

Yes. Thank you David for the question I'll answer the first one and then I'll kick it over to Rajiv.

We're focused on looking for strategically significant transactions initial.

Initial focus on the three therapeutic areas that you called out ophthalmology.

In dermatology.

However, we are looking for other things, which may be adjacent to that we are a little bit agnostic. What we're really looking for is assets that can use the leverage.

That we have the strength that we have is based company.

<unk> in terms of commercialization in terms of research and development.

In terms of distribution in terms of market access that's the important thing is that we.

We look at it and are interested in assets for which we can use the strong company that we have to.

To be able to maximize commercial lives and going forward.

So regarding epinephrine.

Yes.

First of all after maybe a few years, we have seen growth in this overall market epinephrine market.

The growth this year.

And we have also participated as a growth market, which is being well served today and not by just want their baidu three players and there's still.

I would say there was an unmet.

Need out there.

Patients out there so we welcome.

The more competition or a different dosage form from patients in front of you having said that we have followed NEF fee.

First very closely from a size perspective, and actually have some of the sun.

From.

However.

Execution, because there was a public hearing.

And we got to see the signs from that point of view.

We have raised our wise to highlight those concerns to FDA, but having said that we have always taken.

<unk> got us into the consolidation while doing the modeling for that.

Yes from 'twenty four 'twenty five we knew there would be other dosage forms, yes, but there will be always a place for <unk>.

Emergency use.

Like Epipen, we just been dead in the market so yes.

It's a market, which is going to evolve and we are watching it very carefully and closely.

Yeah.

Thank you we'll take our next question from Ralph <unk> with Evercore.

Hi, guys. Thanks for taking my question Scott.

Scott I remember during your closing time at Celgene, you were spending a lot of time on Louisiana modest commercial planning and I'm sure you've taken a fresh look at V interest expectations on the monthly Glatiramer acetate zone.

Do you think it is a less than $500 million product and also and this may not be a popular question.

The amount of time the divestitures are taking it's just odd, especially given a lot of disclosures and so I think the street would really appreciate just finding out what's going on why is it taking as long as it is and when does it come to a closure on that.

So thank you second question first I think.

We expect to announce all three divestitures in 2023.

And we expect to announce significant one at least one in the third quarter.

Plex transaction, sometimes to make sure you're doing the right thing.

Getting the right partnerships and I don't think were delayed at all I am very very happy with the progress that we're making on all of these divestitures and very excited in that.

We'll be getting these done and announced them or at least announced in 'twenty three and again for me.

Important thing here is these divestitures represent.

The ability to cash flows and ability for us to be able to get to our desired leverage ratios and then move into phase two of the strategy and beyond 24.

For for execution of our capital allocation strategies.

In terms of MFS I will say, yes. It did.

A lot of.

Commercial planning for <unk> and I've been involved in the Ms market.

And other ways for I'll.

I'll, just say without getting into specific guiding to any specific number I think you know this is a great asset its going to have a very significant potential not only for its ability to reduce injections, but also because of the.

Clinical data, that's being generated here and maybe I'd ask Rajiv.

So to dig in a little bit more on launch.

Scott I would just say that we are very excited with this clarity about.

Peru for data and launch and I will just say.

This protocol for this safe effectively when fallout I met with a preference schedule and with fewer.

Injection.

Injection site reactions than other people or other products and expect it to improve the compliance and overall overall patient experience and patient satisfaction. So I look forward to bringing this product to the market.

One other point I would just go back to the divestitures Sanjeev go back to the divestiture point and we've said that.

It's a matter of strategic choice.

These are well performing assets and we want to make sure.

We do it the right way to get the best value for the company, because we're able to meet our financial commitments, we've laid it out.

Without these divestitures.

Just do as Scott pointed out accelerate what we're trying to do but we are well positioned as a company even without the divestitures with everything that is going into financial outlook of the company.

Yeah.

Thank you we'll take our next question from biologic Prasad with Barclays.

Good morning, this is Sean for velocity, thanks for taking our questions.

The recent tornado damage to the Pfizer Rocky Mount facility.

The level of impact do you see these events could potentially have almost sterile injectable market.

As we think about pushing potential shortages here do you see any specific opportunities the steroids jackpot market from this instead and it won't be a trace thank you.

Yeah.

Yes first of all ill.

Really unfortunate event nobody anticipated it back.

I think we have stayed very close to the market. We have stayed close to our customers. We have stayed close to that.

The FDA from the drug shortages point of view we have.

Some overlap for us with the Pfizer portfolio coming out of the Rockies Rocky Mount facility.

If there is a need as we are seeing those the customer we will step up we are working very closely with the supply chain to make sure that we are in a position to.

The drug shortages as and when if they come to.

Yeah.

[laughter].

Thank you we'll take our next question from Nathan Rich with Goldman Sachs.

Yeah.

Great. Good morning, Thanks for taking the questions.

First you noted.

Did the generics business came in ahead of expectations.

It seems like the new product launch guidance wasn't changed.

Base business erosion was a bit better than you had anticipated could you just maybe talk about what youre seeing there. There's obviously been a lot in the news on product shortages have you seen stabilization.

Firming of generic pricing in that business.

And then as a follow up I wanted to ask on gross margin could you just go into a bit more details on what's driving the step down in the back half of the year and where you would expect gross margin to be for the full year within the guidance range that you have thank you.

Nick Let me take the first modern chicken.

Have you respond.

Responded that the first four overall from our just let me talk globally first the base business.

Yes, we haven't as I said in my prepared remarks, we have we see the momentum we have seen never before in our base business, whether it's in emerging markets or China, or Europe , or North America, Yes. It is hitting on all cylinders still adopt this.

Yeah.

D and predictability you have seen we have never seen before so it's setting up the company exactly how we have.

Planned it and I'll have you seen it up at the execution is just bringing this was a whole another level now so having said that from the genetics point of view genetics across not only just USD I'll come to you, especially because I know your question was about USA, but even in emerging markets in Europe .

Had a very solid performance in fact.

11% or 10% growth in emerging markets was largely also driven by the genetic performance.

In the U S. We always knew that.

Pricing is.

Factor two factors like you say, it's one of the demand and supply and the second issue of portfolio mix now in our portfolio mix. We are diligently work moved away from commodities more diversified complex products and Thats given that's part of the underlying stability of the mix in the U S.

<unk>, yes, the market is seeing some disruption market seeing some pickups and it may go a little bit.

They're in that direction, we may see more supply disruptions before it gets better and because of that slight disruptions because of the diversity, we have seen price stabilization.

The last several quarters in the North America, which we have not seen Florida.

A few years back so yes, we see the market the market conditions are improving as well.

And then after that guys Reza genetics, Arkansas.

And maybe I'll take the question on the gross margin so.

As I talked about the gross margin.

Came in ahead of our expectation and that's again, obviously driven by strong operational business performance in particular, we had a favorable.

Segment in our portfolio mix and.

And lower than expected inflation cost on the Cogs. So what's gone on things products like <unk>, which have a higher gross margin contributor to the.

To the to the high gross margins that we said and then we had inventory beginning of the year, which was built at the lower cost that we were able to consume giving us the benefit that we saw on the gross margin in the first half of this particular quarter two of the four.

The balance of the year, we expect.

Gross margin to step down a little bit and that's expected as we have the expected.

The impact of the inflation and then a little bit of the.

The segment mix in the portfolio mix that probably will have a little bit of a pressure on the gross margin, but thats all expected and built into the forecast and a full year basis I expect our gross margin will be within the range of 57, 5% to 58, 5%.

Okay.

I will now turn the call back over to Scott Smith CEO to make a few closing remarks.

Thank you very much obviously I'm very very pleased with the second quarter. It's one of the strongest quarters that we've had to date via trucks could not be more pleased with the overall execution of the company, but most importantly, I am very much looking forward to the road ahead and moving into phase II and beyond I think we have tremendous opportunities as a company.

For you over the next foreseeable years.

Really I'm very excited to be executing and with that forward looking view I tried to say also thank you all very much for your attention. This morning and for your questions and look forward to interacting as we go forward.

Yeah.

Okay.

This does conclude today's the interest 2023 second quarter earnings call and webcast.

Please disconnect. Your line at this time and have a wonderful day.

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