Good day and welcome to Perrigo's Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Bradley Joseph, Vice President, Global Investor Relations & Corporate Communications. Please go ahead.

Thank you. Good morning and welcome to Perrigo’s second quarter 2020 earnings conference call. We hope everyone is remaining healthy and safe during these times. I hope you all had a chance to review the press release we issued earlier this morning. A copy of the release and the presentation for today's discussion are available within the Investor sections of the perrigo.com website. Joining today’s call are President and CEO, Murray Kessler and CFO, Ray Silcock. I’d like to remind everyone that during this call, participants will make certain forward-looking statements. Please refer to the important information for shareholders and investors and Safe Harbor language regarding these statements in our press release issued earlier this morning. When discussing the business, Murray will reference only non-GAAP adjusted numbers for the quarter unless otherwise noted. Comparisons to prior periods will also exclude divested businesses and currency changes unless otherwise noted. In the appendix for today’s call we have provided reconciliations for all non-GAAP financial measures presented. A few other logistics to mention before we get started. First, excluding divested businesses excludes contributions from the divested animal health business, previously included in the Consumer Self-Care Americas segment, and the divested Canoderm business, previously included in the Consumer Self-Care International segment. Second, organic growth excludes the Oral Care portfolio, which includes the acquisition of Ranir, Steripod, and Dr. Fresh, the divested Animal Health business and Canoderm product and currency. And third, as a reminder, Worldwide Consumer includes the Consumer Self-Care Americas and Consumer Self-Care International segments as well as corporate. And with that, I'd like to turn the call over to Murray.

Good morning, everyone. I want to begin today's call by once again thanking our people, both in the manufacturing facilities and those working from home for their incredible efforts in continuing to meet society's needs for our essential products during the COVID-19 pandemic and delivering another superior quarter financially, while at the same time, advancing the company's transformation plans and improving our balance sheet. I'm truly proud of how our team has performed. Here's why I say that. During the second quarter, our team once again maintained uninterrupted operations in all of our 27 manufacturing facilities around the world, most of which have been running 24 hours a day, 7 days a week without missing a single shift due to COVID-19 to meet the self-care and health care needs of society during the pandemic, divested the non-strategic Rosemont Rx business for $195 million at an attractive multiple, provide greater assurance of liquidity by refinancing our 2021 bonds into 2030 bonds at an attractive 3.15% coupon rate. Increased the company's cash position to approximately $850 million, achieved over 200% cash conversion, brought our net leverage down to 2.9 times, closed the Dr. Fresh Oral Care acquisition for $113 million, committed $50 million to purchase an approximate 20% stake in Kazmira, a leading supplier of hemp-based THC for CBD products to enter that market in a responsible Perrigo way. Began rolling out our new business intelligence platform to allow more sophisticated decision-making company-wide; and as I said, delivered another quarter of superior financial results, well ahead of expectations despite the constant set of challenges we faced. On our last quarterly earnings call, we did not update our original 2020 adjusted EPS guidance as the uncertainty and numerous moving pieces surrounding the pandemic did not allow us to produce an accurate projection. And while there is still significant uncertainty regarding the potential for a second wave of COVID and its implications on supply and demand, we know a lot more now than we did three months ago and have a lot more experience managing through this horrific pandemic. We know that our team has implemented best-in-class protocols and action plans, including enhanced cleaning practices and contact tracing procedures to keep our manufacturing facilities running when a colleague tests positive or is presumptive positive with COVID-19. We know that our stay-at-home colleagues can effectively keep almost all of our transformation initiatives moving forward with minimal delay, including project momentum cost savings and new products. We know that most retail and wholesale inventories have been restored, so that shouldn't be a factor going forward. But we also know that we are still playing catch up on our own depleted inventories which could limit our potential to meet consumer demand if another pantry load similar to March happened within the next two months. And while we can't forecast the potential for a second wave nor its potential timing, we can forecast the impact it would have to our business under various scenarios and we don't think there would be the same pantry load mentality, so this shouldn’t be an issue, but to maintain our conservatism, we are not assuming a second major demand increase in our forecast and this would be upside. We know which of our products see increased demand from spikes in COVID-19 infection rates and the extent to which our portfolio is also benefiting from channel shifting from traditional in-store shopping to e-commerce. We know from our experience right now in Florida, Texas, Arizona, and California, that when its surge in cases reoccurs, a corresponding spike in consumer demand reoccurs and does not appear to include a second pantry load. We believe we know the extent of the initial Q1 consumer pantry load that was due to COVID-19 and expect to retain about half of that benefit for the full year. We also know which of our products were negatively affected by lockdowns, closed doctors' offices, and stay-at-home orders. Some of these products have will be recovered. Some are recovering more slowly. And on those, we have conservatively forecasted only a modest recovery in the second half. We know that about half of the $18 million in A&P savings, we benefited from in the first half versus last year needs to be shifted to the second half of this year to stimulate awareness and remain competitive on products that were negatively impacted by lockdown. We know the incremental costs associated with operating in a lockdown environment, including benefits and bonuses for our people, safety procedures, over time pay and have built those on budgeted expenses into the balance of the year. We expect the P&L impact of $20 million to $25 million or $0.12 to $0.15 per adjusted EPS in 2020. We know how the CARES Act will positively affect our effective tax rate and have also built it into the balance of the year. And we know that after our divestment of Rosemont, we will have a negative impact of $0.06 per share in adjusted EPS. Net takeaway from a remarkably strong first half is that when all of the puts and takes we know so far in this uncertain environment are taken into consideration, we now have line of sight to reconfirm our adjusted diluted EPS guidance of $3.95 to $4.15 despite headwinds of $0.18 to $0.21 from incremental COVID-19-related impacts and the Rosemont divestiture. One could argue that this is a conservative estimate, but there is still significant uncertainty, and I believe reaffirming is prudent at this point of uncertainty. Now, I'll review each of our businesses in more detail, with a primary focus on revenues and business drivers. After which, Ray will walk you through the rest of the P&L. All net sales comparisons I refer to are versus second quarter and first half a year ago. On a consolidated basis, Perrigo reported net sales were up 6% for the second quarter and up 10% for the first 6 months. Adjusted operating income finished up 9% in the quarter and is up 10% for the first half. Adjusted diluted EPS was $1.03, up 20% for quarter and up 12% for the first half. All segments contributed to our Q2 plus 10% consolidated revenue growth, excluding divested businesses and currency. Consumer Self-Care Americas, CSCA, increased 13%; Consumer Self-Care International, CSCI increased 3% and Generic Rx increased 13%. Our worldwide consumer businesses once again delivered a solid performance with Q2 revenue growth of 9%, which included the benefit of bolt-on acquisitions. Excluding such acquisitions, Perrigo organic revenues were up nearly 3% in Q2 and, importantly, are up 7% for six months. This is well ahead of our 3% organic growth goal for which we continue to base our forecasts and guidance. Equally impressive is our organic growth over the trailing 12 months, which is plus 6% for consolidated Perrigo, plus 7% for CSCA, plus 3% for CSCI and plus 8% for Rx. Now, let's take a closer look at the drivers within each of our business segments for the second quarter, starting with Consumer Self-Care Americas. CSCA remains in good shape through this crisis. Second quarter net sales increased 13% versus a year ago. The big drivers were as follows: First, surge-related consumer demand for our OTC products continued in April and May. You may have noticed this is different than IRI MULO offtake data for May, which was negative compared to last year. Part of the reason for this is that we were still replenishing retailer and wholesaler inventories that were lowered in March and April to below normal safety stock levels as retailers attempted to keep up with surge in consumer demand. The other reason was the strength of e-commerce, which is not included in IRI MULO data. I'll speak to that in a moment. Within our strong OTC performance, there were significant differences by product category. Sales on products such as acetaminophen and famotidine never slowed, and orders are still at significantly elevated levels. Other products following the March-April surge, most notably cold cough products. Cold cough began recovering late in the quarter, which has continued into July, and the category is approaching pre-COVID levels. More regimented categories such as allergy, heartburn relief and nicotine therapy also troughed, but rebounded beginning in early May and have returned to growth versus a year ago. Taken in totality, our U.S. OTC portfolio has performed extremely well. It's clearly our strongest performing business and is the biggest driver of the company's organic growth year-to-date, just as it was last year. Second, and as I just mentioned, Perrigo's OTC strength was also bolstered by the rapid acceleration of our e-commerce business, which more than tripled versus a year ago in the quarter. The dramatic channel shift of traditional brick-and-mortar customers to e-commerce, we noted last quarter continued unabated. We're really benefiting from the investments we undertook last year as our e-commerce sales more than offset losses in traditional outlets. Third, the oral care acquisitions of Ranir, Steripod and Dr. Fresh incrementally added $63 million to year ago comparisons, although April and May sales were negatively affected by lower foot traffic and consumers not traveling. Travel sizes are a meaningful portion of the oral care portfolio, especially for Dr. Fresh. But, the oral care businesses were below our expectations. But importantly, oral care, like our regimented OTC products, appears to have fully recovered and is back on track against our internal growth expectations in June and July. And fourth, infant formula gave back much of its March gains in April and early May, but also was back on track mid-quarter, finishing up slightly for the quarter. New products were the key driver here. Turning to Consumer Self-Care International. Net sales grew 3% versus a year ago. CSCI consumer offtake was negatively impacted versus our expectations as approximately 40% of the portfolio is self-care products focused on preventative health and wellness. These products such as light treatments, sun care, skin care and weight loss were directly impacted by stay-at-home orders and school closings. Encouragingly, CSCI maintained or increased its market share in these categories that experienced lower demand market-wide. Consumer demand in Europe is recovering, albeit slower than some of the U.S. categories, I previously mentioned, and are still below pre-COVID levels. As we have projected the CSCI portfolio to recover more slowly, and we will be advertising more heavily in the second half to jumpstart business, this will have a negative impact on year-over-year margins in the second half. Of note, e-commerce, which grew rapidly and our store brand business in the U.K. were both bright spots for CSCI in the quarter. Our Rx division grew net sales 13% in the second quarter due to the continued strong performance of generic albuterol. This more than offset year-over-year declines in our base Rx portfolio. Our Rx portfolio strength in dermatological topicals was particularly sensitive to the inability of patients to get to their doctors in April and May. We did see recovery in June, but not nearly to pre-COVID levels. But I think the important point here is with the performance of albuterol, Rx net sales and operating income are still expected to be higher compared to last year, albeit to a lesser extent than would have occurred absent the COVID-19 impact on patient visits and prescriptions. So, to summarize, it was another strong quarter with all three of our business segments contributing top and bottom-line growth. The strong demand in CSCA, along with new products, like albuterol and bolt-on acquisitions, significantly exceeded declines in product categories negatively impacted by COVID, netting the strong growth we've seen year-to-date. In the second half, we are focused on getting our U.S. supply chain fully replenished, preparing for the consumer demand and supply chain implications of a potential second wave of COVID cases, launching the Voltaren Gel store-brand equivalent, integrating Dr. Fresh, launching the partnership process with Kazmira, reinvigorating our CSCI branded businesses, and continuing our transformation activities to meet our 3/5/7 business goals. We have reconfirmed our adjusted EPS guidance despite absorbing $0.12 to $0.15 of expected incremental COVID-related expenses and $0.06 of dilution from the Rosemont Rx sale. To repeat, this range prudently assumes no second wave surge in consumer demand for our essential products, a slow recovery on negatively impacted products and businesses, and it assumes we spend about half of our first half A&P savings incrementally to our original plan in the second half of the year. One last point. Business continuity still remains critical, but safety for our people comes first. None of the strong results I shared today could have been possible without the dedication of our people who have continued to go above and beyond through the pandemic. They are heroes. Thanks to their efforts, we are more confident than ever that Perrigo is very well-positioned to capitalize on three important drivers that we believe will be critical in a new normal world; healthcare, value, and e-commerce. I'll now turn the call over to Ray, who will walk you through the financial details. And then, we'll come back to answer your questions.

Thank you, Murray, and good morning, everyone. Now that Murray has gone through sales and business drivers for the quarter. I'd like to walk you through the rest of the P&L. Our consolidated GAAP net income for the second quarter was $61 million and diluted earnings per share were $0.44. On an adjusted basis, Q2 consolidated net income was $141 million. And earnings per share were $1.03, the seventh quarter in a row in which we met or exceeded market expectations. Non-GAAP adjustments to net income after tax were $80 million, primarily $73 million of amortization, which we added back, and an $18 million loss on the sale of our Rosemont subsidiary, which we excluded. Full details of these and other smaller adjustments can be found in the non-GAAP reconciliation table, attached to this morning's press release. The adjusted consolidated effective tax rate of 16.7% in this quarter is lower than in Q2 last year, primarily due to the increased interest expense tax deduction that we received, as a result of the CARES Act. From this point forward, all dollar numbers, basis points and margin percentages in my presentation will be on an adjusted basis, while growth percentages will exclude the impact of currency and divested businesses, unless otherwise described. Worldwide consumer second quarter gross profit was $373 million, an increase of 4.4%. This increase was driven by the addition of the Oral Self-Care businesses, plus growth of our U.S. OTC business, partially offset by adverse margin mix between essential and nonessential products, in our CSCI business. Q2 worldwide consumer gross margin was down 190 basis points to 39.3%, due primarily to mix in CSCI, with lower sales volumes in higher-margin categories. And the impact of the Oral Self-Care acquisitions, which have a relatively lower gross margin, than our worldwide consumer average. These were partially offset by margin improvements, from manufacturing efficiencies, in the quarter. Second quarter operating income was $132 million, up 16% versus the same quarter last year. This improvement in operating income came in part from reductions in advertising and selling expenses, delayed in response to consumer behavior arising from the COVID disruptions, as well as approximately $10 million in savings from project momentum. These improvements helped to offset gross margin decline and drove a 60 basis point expansion in operating margin this quarter. Year-to-date, worldwide consumer gross profit was $789 million, an increase of 10%, while gross margin decreased 210 basis points to 38.8%. The addition of the Oral Self-Care acquisitions and lower sales of certain CSCI high-margin products, plus manufacturing inefficiencies in the first half, all combined to negatively impact year-to-date gross margins. Operating income, as compared to prior year, increased $44 million in the first six months of this year, a 24% increase. As in Q2, this increase came from operating leverage, the reduction in advertising and promotional spending, plus $18 million in project momentum savings so far this year. Overall, a very solid performance for the Worldwide Consumer business, both quarter and year-to-date. Now let's take a look at the consumer segments in a little more detail. Q2 CSCA gross profit increased $16 million, plus 9%, as increased volume in the quarter and the addition of the Oral Self-Care portfolio helped offset price erosion, higher direct labor costs incurred to improve customer service and incremental COVID-related manufacturing costs. The gross margin of 32.9% declined 110 basis points versus last year, due to price erosion and ongoing investment in additional direct labor. Operating income for the quarter was $124 million, an increase of 9%, due primarily to the addition of the Oral Self-Care portfolio, as well as from delaying advertising spending to later in the year. The operating margin declined 50 basis points to 19.8%. Year-to-date gross profit of $426 million increased 16%. Increased volume and the addition of Oral Self-Care offset price erosion, higher direct labor costs, and incremental COVID-related costs. Year-to-date gross margin of 32.1% was down 120 basis points, driven by the same causes as those in Q2. And year-to-date operating income was $262 million, an increase of 20%, also for the same reasons as we saw the operating income increase in the second quarter. CSCI second quarter gross profit of $166 million declined 1%, while gross margin declined 180 basis points to 51.7%, primarily due to adverse margin mix. The margin mix came from reduced branded sales, as well as from higher store brand sales in the U.K., and the addition of Oral Self-Care. Both Oral Self-Care and U.K. store brand have lower gross margins than the CSCI average. These factors were somewhat offset by manufacturing efficiencies. Q2 operating income was $50 million, up 10% from last year, while adjusted operating margin was up 30 basis points to 15.6%. The impact of lower gross profit was more than offset by reduced advertising spend. Year-to-date, CSCI gross profit of $362 million was up 4.3%, while gross margin of 51.5% was down 220 basis points. The addition of the Oral Self-Care portfolio, together with adverse mix, were primarily responsible for the margin decline. Year-to-date operating income was $114 million, up 19%, while adjusted operating margin was up 80 basis points to 16.2%. The operating margin improvement was due to reduced advertising spend, partially offset by the impact of lower gross margin. Turning now to Rx, Q2 gross profit increased by 7% to $107 million as contributions from generic albuterol more than offset the lower volumes on our base business. Gross margin was 39.5%, down 220 basis points from last year, primarily due to fewer prescriptions having been written, which caused a volume decline on our higher-margin products. Operating income of $68 million was up 4.4%. However, operating margin declined 210 basis points to 25.3%, as a result of the already described gross margin decline together with an increase in R&D spending. Year-to-date, Rx net sales were $528 million, up 9.4%, as gross profit of $216 million was down 1% and gross margin declined 430 basis points to 40.9%. This decline is due to lower prescription volumes as well as price erosion on Test 162, which occurred in the first quarter. RX operating income was $142 million, with an operating margin of 27%, down 360 basis points. This was as a result of the gross margin decline, together with the impact of continued investments in selling and R&D to drive long-term growth. Moving on to the balance sheet, at quarter end on June 27, we had almost $1.5 billion in cash on our balance sheet, up $1 billion from Q1 after repaying the draw against our revolver that we made at the beginning of the pandemic crisis. This cash balance includes both the $195 million of proceeds from the sale of our Rosemont Rx business in late June as well as the proceeds from our successful $750 million, 3.15% bond offering on June 19, the purpose of which was to repay $590 million in 2021 bonds. We made the bond offering to take advantage of low interest rates, strong liquidity in the bond markets and to add certainty to our capital structure. Due to timing, we did not pay off the 2021 bonds until after the end of Q2. Had we paid the bonds at quarter end, our cash balance would have been $850 million and our net debt $2.7 billion. Additionally, cash flow from operations in the quarter amounted to $291 million, more than 200% of adjusted net income. This strong conversion ratio resulted from the March and April elevated sales collected in Q2, partially reduced by increased inventories as we replenished products sold during the sales surge. Shifting now to 2020 guidance, as Murray told you, we are reconfirming our adjusted EPS in the range of $3.95 to $4.15, despite our divestiture of Rosemont and increased COVID-related costs principally in manufacturing. The divestiture of Rosemont adversely impacts our 2020 adjusted operating income by $11 million, $0.06 per diluted share. While the increase in COVID-related cost is expected to be $25 million to $30 million, of which we anticipate recognizing to $25 million in 2020 or $0.12 to $0.15 per diluted share. In summary, I'd like to put this in perspective from the CFO chair. We've come a long way here at Perrigo over the past 18 months. We are starting to see real improvements in our financial and operational metrics. We are seeing repeatable sales growth, and we're reversing the trend on declining operating income. We have been able to meet or exceed expectations for the past seven quarters, which underscore our reliability. Our cash flow has been strong and we brought added certainty to our balance sheet. And finally, we have continued to do this while successfully weathering the COVID-19 storm.

Thank you. We will now begin the question-and-answer session. Our first question today will come from Chris Schott of JPMorgan. Please go ahead.

Thank you for the question. My first inquiry is regarding the slide that mentioned our year-to-date performance being ahead of expectations. I'm trying to reconcile that with our decision to maintain our topline guidance. Could you clarify the relationship between our strong performance in the first half of the year and our guidance for the rest of the year? My second question is broader and pertains to the growth of e-commerce. Is there a difference in margin that we should consider when comparing e-commerce to traditional channels? Additionally, how does Perrigo's presence in the e-commerce space compare to its traditional channel presence? I want to understand if Perrigo is benefiting from this e-commerce trend or if it's more about maintaining our market position. Thank you.

Let me address that. Good morning Chris, it's Murray. First of all, there is no margin difference; they are quite similar. Secondly, I believe we hold a larger market share because of our investments and our status as the preferred partner for store brands in our categories due to these investments. Our e-commerce business is more advanced than I initially realized, and the investments were made with that in mind. It's not solely about shipping products to customers for e-commerce; we are integral to the process. We create content, manage websites, design promotions, and conduct analytics to evaluate performance. Numerous team members are dedicated to ensuring we provide input and direction, which is evident when searching for products on Amazon, where you can see our contributions to brand development. For basic care, Perrigo originated the brand and has recently sold it to Amazon, while still maintaining benefits that give Perrigo leverage for several years. E-commerce growth is undoubtedly advantageous for Perrigo. Addressing your initial question regarding our unchanged guidance, it stems from two factors. First, most of the initial demand surge for essential products occurred in the first half of the year, which we did not include in our plans. Generally, we’ve seen a return to normalcy in nearly the entire CSCA portfolio, with only minor effects anticipated going forward, meaning we did not factor in any upside for the second half. Thus, while we benefitted in the first half, the products negatively impacted started declining towards the end of that period around May, as consumer demand indicated trends. We expect a modest recovery in the latter half of the year. Essentially, we outperformed in essential products and now aim to return to a standard estimate for the remainder of the year, reflecting pre-COVID levels overall. However, we anticipate some decline in products that were adversely affected, as I don’t expect them to return to normal COVID levels. While some may view this approach as conservative, I believe it’s a sensible strategy for our organization. Three months ago, there was a lot of uncertainty, but I hope you noticed in my comments that we have a much clearer perspective now, in case a second wave arises, and we understand the implications. I prefer to sit here at midyear with a better insight into our business so that you can rely on us, with the potential for more upside than downside.

Thank you.

Good morning. Thanks for the questions. Maybe a follow-up on guidance. I'm surprised that you continue to think about the midpoint of the guidance range. I understand some of the pushes and closes that you talked about. What are your assumptions regarding the cough and cold season and just the evolution of the businesses in America and internationally, just on the topline and gross margin level? And then just separately on albuterol, you posted a pretty strong quarter better than what the scripts were indicating. So, if you can give us color on whether it was benefited from any COVID-related stocking? And how you anticipate market share and availability of inventory to meet demand for the remainder of the year? Thank you.

Hi. Let me address the assumptions on cough and cold. We have discussed the guidance multiple times, and at this point, I don't see anything that changes Perrigo's position. I have a good understanding of the business, but I'm not going to take an aggressive stance. I've never managed my career on a quarter-to-quarter basis, and I have no intention of starting now. I want to highlight how much we've accomplished in the past 18 months; this is a completely transformed company positioned strong. I understand the desire to raise guidance, but we need to maintain focus. This has been a solid start. We face incremental COVID costs of around $20 million to $25 million that were not included in the original plan. We sold Rosemont, so I effectively raised guidance slightly—by about $0.2—taking those two factors into account against our core business, which weren't anticipated when we initially provided guidance. That said, I approached it conservatively. I'm reiterating what I've said before; we anticipate normalized levels in the second half. We expect to give back about 50% of the inventory buildup during the March-April period in the U.S., primarily in essential businesses. A significant portion of that has already taken place, with those businesses normalizing. However, I've planned for further adjustments regarding cough and cold. I'm not making any strong predictions here, as the impact of pantry loads won’t be clear until the cough and cold season; we can't predict how much stock people have left or how much demand is truly incremental. Estimating this is quite complex, considering the competitive landscape and how much illness has driven consumption. Most of the rest of our portfolio has shown recovery, which is encouraging. I don't want to forecast too much, but after the second quarter, we saw cough and cold has still been significantly down. However, we have clearer insights now into e-commerce and point-of-sale data from our biggest customers, indicating that this sector is strengthening. I'm sticking to my conservative outlook, as I believe it's wise for us to concentrate on the overall business. Regarding albuterol, it definitely saw an initial positive effect, and we shared some numbers earlier. There was no pantry load for albuterol, but we built up inventory, expecting earlier approval than we actually received, which was delayed until early this year. We've had a nice boost from that, but moving forward, it hinges on capacity. Our partner Catalan is working at maximum capacity, and we're confident we can sell everything they produce this year. If they can produce more, we'll sell more, but that is our current assumption. I don't have market share figures right now, but I believe we will sell everything we make. Did I miss anything you wanted to know?

No, that was very helpful. Thank you.

Great. Thanks, Murray, I want to stay on this implied guidance question because it's an important one. Stock is down 9%. The guidance implies a 10% decline at the midpoint over last year, and that includes sort of bolt-on deals and opportunities in there. So investors are trying to understand what the real growth rate in Perrigo is because to be fair, the company hasn't grown in more than three years. So it's an important question. So on that, can you help us understand with respect to the CSCA business, what are some of the pushes on hold in the back half that could have those numbers higher or lower? And specifically, should we be thinking about the second half outlook as a normalized way to think about the Perrigo earnings base from here? Thanks.

I'm going to address the last part first, which is definitely not the case. You shouldn't view the second half as a normalized baseline; I've indicated in the previous conference call that this year is unusual. There will be significant volume and sales pulled forward to the first half, along with additional costs that are expected to be resolved later. We're looking at an increase of $25 million to $30 million in expenses. The only normalized factor is that Rosemont will be going forward without additional costs, but we are facing $20 million to $25 million in extra expenses. Some volume has shifted from the second half to the first half, and there are businesses that will have considerable benefits. Once we move past the challenges posed by the virus, we shouldn't incur costs related to air freight or API to meet the surging demand. The current operational challenges, including high absenteeism, are forcing us to run a 24/7 operation, resulting in overtime costs for the employees who are present, diverging from our standard schedules. Eventually, we will see security and PPE costs stabilize, and I won’t be paying employee bonuses and other related expenses. A significant portion of the $20 million to $25 million in costs will occur in the second half of the year, which may skew the numbers negatively, but the strength of the business remains intact. I take issue with your three-year comment; we are executing our plans successfully. I joined a company that was in decline, experiencing significant drops in revenue and volume. Our main priority was to initiate revenue growth, and we did well last year and will continue to perform well this year. Ultimately, COVID’s impact will be minimal. While bolt-ons are part of our strategy, I believe we will achieve our organic growth rate, which was met with skepticism a year and a half ago, again this year. I’m excited about the opportunities we've identified and what we have in the pipeline, and the top line looks strong. The second objective I set was to stabilize operating income, which had been declining for several years. That was our initial goal while still investing $50 million, and we're preparing for 2021 and beyond to deliver our growth targets. Nothing has changed; the business is robust. If the market reacts strongly to our success because they expect us to increase margins by small amounts, I can't control that. Our focus is on building a fantastic company that can achieve consistent and sustainable growth for both the top and bottom lines, and we're right on track.

All right. Thanks, Murray.

Thanks. Good morning. Murray, what are your latest thoughts on the dispute with the Irish revenue? And what do you expect in terms of next steps and when? And then my second question is on your CBD announcement. I realize the Kazmira arrangement is certainly a long-term play. But when do you think this product line could be meaningful to Perrigo? And does it rely on proof that CBD actually helps patients in a proven way? Or does it rely simply on the ability for you to differentiate based on purity and consistency? And the other things we already know about Kazmira that probably led you to select them and then to select you? Thank you.

Regarding Kazmira, you are correct that it is a long-term strategy. At the outset, we have exclusive rights to private label products. Kazmira is known for their focus on producing CBD-only, THC-free, and metal contaminant-free products. However, they are relatively small and lack the funding to scale up and implement good manufacturing practices. Our goal is to work with them and the FDA to achieve the necessary certifications and ensure that we meet those standards. We will be investing in equipment and processes. While they currently maintain good practices on a smaller scale, we want to ensure everything aligns with Perrigo's standards before launching products. Many of our customers are asking for this, but we want to provide assurance that it has been done in a reliable manner. You can expect to see products from Perrigo in the next couple of years, though Kazmira may release some branded products sooner as they operate primarily as an API, of which we own a 20% stake. Our focus is on obtaining clean and reliable CBD that eliminates the perception of unpredictability in the market. When we say a product contains a certain level of CBD, it truly does, and it comes from full spectrum CBD oil rather than a dry isolate. Additionally, when we claim a product is THC-free, it genuinely is THC-free. I am excited about this partnership, though it will take time to develop. The initial step involves securing certification for scaling. Kazmira may pursue some branded products, which we will monitor. Following that, we will prioritize private label products, without excluding other international opportunities. The third step will involve proving efficacy, which will likely take a few more years due to the need for traditional clinical trials to gain FDA confidence. However, we anticipate some guidance on this, particularly regarding ingestibles, in the near future. Concerning the Irish tax dispute during the quarter, we had a judicial review and expect to receive an answer in about six months. Our legal team has effectively communicated our belief that our case meets the standards of legitimate expectations under Irish law. The judge has acknowledged the complexity of the matter and requires time to provide a response. We will see if this prompts the Irish revenue to negotiate reasonably. As it stands, we await the outcome of the judicial review. If we don't prevail, we will enter the normal appeals process, where we still believe the calculations are flawed. This could either affirm our position in tax appeals court or significantly reduce the obligations. Given that much of this is already reflected in our stock, I see almost any outcome as favorable for Perrigo. Our balance sheet has improved significantly, putting us in a robust position to manage various potential scenarios.

Thanks.

Thank you. Good morning. First question on the CSCA segment and specifically language in the press release around pricing pressure. Generally, I guess, the language always seems like it's reserved for the Rx segment and not the CSCA segment. I understand it's probably a normal part of the business, but maybe you could just provide a little bit more clarity in terms of the magnitude, what that number looked like this quarter versus recent trends? And then I'm just curious, what drives pricing pressure in the CSCA business? Makes sense, obviously, if there's an incremental competitor on a specific product, but given your dominant share across most SKUs, I would think that, that's somewhat of an anomaly. So, is it just buying more shelf space or trying to understand the dynamic there that might drive pricing pressure or price erosion kind of outside just a new competitor coming in the market? And then just as a quick follow-up. You guys didn't include any of the metrics for the individual product segments within CSCA or CSCI, anything that perhaps more you could call out in terms of over-performance or underperformance where you saw relative wind losses? Thank you.

I'm working on that and will revisit it. Regarding the first point about pricing pressure, we discussed this during our May 9 Investor Day presentation, which is why I sometimes get asked how our market share is increasing even when our revenues aren't as high. The reason is that we primarily serve as a private label supplier in the U.S., so our volume tends to grow at a faster rate than our revenues. Historically, it's been a few percentage points higher than before, as mentioned by the previous President of CTI; this is just a normal aspect of our business. It's important to note that we need to bid for contracts. We don't have control over shelf pricing; retailers like Walmart, Target, or CVS decide whether to raise their prices or not, independent of our revenue. We negotiate our revenues based on bids that retailers put out. When new competitors enter the market, like those who received regulatory approval recently for omeprazole, they can try to undercut our prices. However, we remind our partners that we offer a comprehensive range of products, and if we make concessions in one area, we expect them to expand distribution or consider new items. Overall, this situation wasn't intended to signal a major concern. In fact, for CSCA, the pricing levels were normal, and we had a strong second quarter in part due to COVID, which delayed many typical bids to later this year or early next year. It wasn't a significant issue in the second quarter; it was just a carryover from the previous year. We have predictions about the yearly pricing impact and are ahead of our plan in that regard. In terms of category performance, we're supplying over half of the U.S. demand for certain medications, and that demand remains significantly high. Allergy products have been performing exceptionally well, as have our gastrointestinal offerings, benefiting from changes like the banning of specific competitor products. Our RGI business remains robust. The cough and cold category initially started strong but contributed to our overall giveback, although it has nearly fully recovered as we move past July and return to growth. Nicotine replacement products faced a slowdown as consumers stocked up but are now back on a growth path. In Oral Care, while we faced challenges in travel-related purchases, that business has bounced back nicely. I'm optimistic about our U.S. operations. On the infant formula side, we're facing challenges unrelated to COVID, specifically capacity issues that hinder our ability to promote and market our products effectively. We experienced a good surge in demand but had to give some of it back due to supply constraints. We are making significant investments, but these will take time to enhance our capacity. This is primarily a supply issue rather than a demand problem. I believe I addressed all key points. Regarding international markets, we've seen similar patterns; demand for certain products remains high, although our CSCI business was impacted by lockdowns and school closures. In Europe, we outperformed major branded companies during the quarter, maintaining or gaining market share in categories that suffered. Of course, categories like light treatments suffered due to school closures, and Sun Care sales were down as travel decreased. However, these areas should recover. Did I cover everything adequately? I omitted our RX segment, where dermatological visits were particularly hit, impacting our routine maintenance scripts. We'll see how quickly that recovers.

Thank you.

Hey, Murray. So congrats on the very strong performance. I have a couple of questions, if I may. So first, regarding your plan to enter the CBD market in a responsible way with good manufacturing controls that makes a lot of sense, but given the company's pharmaceutical clinical expertise, does Perrigo see an opportunity to conduct efficacy studies to support any CBD claims? Second, with respect to the consumer launches ahead, and I may have missed this, I missed part of the call, but I'm interested in how you would characterize the top three most important consumer new product launches to watch for Perrigo over the next year or so? And then third, as we think about this demand surge in 2020, and obviously, there's the cost surge associated with it, any high-level points that you'd sort of frame for us, as we start to try to model 2021 relative to those comps? Thank you.

Your previous question was quite complex. Regarding the efficacy studies, the answer is yes. There are numerous clinical trials on efficacy currently available. I'm eager to see the guidance for CBD in ingested products to understand the pathway they will pursue. We will definitely explore these areas. I consider this a long-term strategy; we might not wait for efficacy claims to grow the category's potential, which is crucial. So, we'll invest within our usual budget. As for consumer launches, I'm somewhat cautious, but you are aware of our Voltaren equivalent and my belief that Voltaren is performing exceptionally well on the branded side, and their success will benefit us as well. This remains on track for the third quarter. Additionally, we are investing in R&D with $500 million in our new product pipeline. I can't disclose details about one particular product, but it pertains to one of our five core strategic growth areas. We have postponed a couple of new products in the infant formula category, but you can expect effective new products launching in the second half of the year, with one already mentioned. Another planned product is a science-based natural product. On May 9th, I mentioned we would develop a line of natural products leveraging our expertise in Europe, where our science-based naturals business generates $400 million in sales, with very little presence here. CBD could fit into that, although it's a few years away, but we aim to launch a consumer line in that category next year if everything stays on schedule. We've acquired Prevacid and are testing different spending levels to determine the right investment for a potentially large launch. There are many other projects in the works that I can't discuss yet, as sharing details could place the company at a disadvantage. Did I address all your questions? Regarding product demand and cost surges translating into the second half, that was your inquiry? I believe we are on track this year. The demand surge has created a lopsided year, and I don't anticipate maintaining a 10% growth in the first half moving forward. We aim for 3% organic growth, and with Ranir's contributions beginning in July, that's what I'll focus on since our other acquisitions to date have been minor. We may exceed that target, but I haven’t incorporated it into this year's guidance, depending on the cold cough season and any remaining adjustments. We believe that we are retaining about half of the positive impact from the products that are in high demand this year. While there have been some adjustments, the increased costs remain. Extreme demand, such as 500% for certain products, has required us to use airfreight for APIs. With a 30% absenteeism rate, we've faced heightened overhead costs. We prioritize treating our employees well, not laying them off, and providing bonuses and rewards for their dedication, especially those who worked diligently during challenging times. We've given bonuses and provided meals for our employees, and for those at high risk, we supplemented their unemployment pay when applicable. These have been additional costs, as we were also paying overtime for the majority of our workforce that kept the plants operational round-the-clock. It’s early to provide forecasts, but I expect conditions to normalize. It's encouraging that we're staying near our initial targets rather than experiencing a one-time spike followed by declines next year. Perrigo should be viewed positively based on strong fundamentals and growth potential with ongoing projects, and the COVID-related costs will eventually reduce, helping us revert to our targets. My projections of 3/5/7 remain unchanged. The only variation is that the next two years may be somewhat uneven. The first half of this year saw significant ups and downs for costs, alongside ongoing negative impacts until RX fully recovers and doctor's offices reopen, which will affect the second half this year. I anticipate a reversal next year with better cost management, even without the initial surge, but ideally with a complete recovery of products from brands that are currently underperforming. Overall, I think we are in a good position, and I feel much more confident about our trajectory now than I did three months ago. We have a solid understanding of the situation.

Thank you.

Hey, thanks so much. Just Murray, could you expand on the gross margin performance in consumer? I think it was down 200 basis points. So there's clearly a mix impact there, but how should we think about that for the second half of the year and 2021? I think consensus has gross margins improving next year? Secondly, could you quantify what the e-commerce sales were in the quarter? I think the press release said they doubled? And then finally, just how you're thinking about bolt-ons than a timing for a sale or spin of RX? Thanks.

Ray, why don't you do the first two of those, and you can talk about bolt-ons if you want, and I'll add a little bit to that.

In the second quarter, we experienced a 200 basis point decline, primarily due to two factors. First, the addition of the Oral-Care business accounted for about half of this decline, as it typically has a lower average gross margin. The other half was influenced by the mix of products in CSCI, where we lost sales of high-margin items, particularly our weight loss and parasite products, which are considered nonessential. This drop in sales occurred during the second quarter. Looking ahead, we will anniversary the Oral-Care acquisition in July, meaning we won't have that support moving forward. There is still uncertainty regarding the CSCI business, which is reflected in our cautious guidance for the remainder of the year. Do you have any additional questions regarding the margin?

No, I'm just wondering about 2021 in consensus has that modeling an increase year-over-year?

Yes, I think our expectation is that some of the challenges we mentioned in the first quarter will not be present in 2021. However, I believe it's still too early to make predictions about 2021 at this moment.

Yes, I want to add to what Ray mentioned. One of the reasons the margin appeared lower, particularly in CSCA, was due to the acquisition of Ranir, which has a lower gross margin. This was purely a mix issue and not due to any fundamental weakness in the company, and it was entirely incremental. Moving forward, that negative year-over-year comparison will not be there. As for COVID, we hope the situation improves and costs related to spending will decrease. Some of those costs may still carry into the beginning of the year, but we expect to regain a significant portion of that. In the first half of this year, we had shifted away from producing higher margin items to focus on what was in demand, such as phentermine and famotidine, which led us to stop making several portfolio products. We're now back to producing those items, so the comparisons should improve. There are several positive factors at play, and we saw a sequential improvement in gross margin in CSCA that we anticipate will continue. We also expect reduced overtime costs. We're attentive to these matters and we're definitely focused on them. Some of the major challenges that impacted us previously are now being addressed. Regarding e-commerce, Brad can provide those specific numbers; I don’t have them offhand as we analyze them by business. But I believe it was around 8%, if Brad wants to confirm that.

Up 140% to around $80 million, or call it, 8% across total Perrigo.

It's actually a much larger percentage for specific customers and businesses. Among our top five customers, some represent 4% of the business. While I won’t name them, there are other retailers, excluding Amazon, that account for about 20% of our business with a couple of our top five customers. This percentage varies by category and segment. Pain relief products tend to perform better in e-commerce. In Europe, we see similar percentages, but even higher since we’re not yet present in every country for e-commerce and are still in the early stages of expansion, providing plenty of opportunity for growth in this area. More importantly, the growth in e-commerce is significant enough to counterbalance the entire decline in other areas. Our results likely indicate an additional 320 basis points of growth for the total OTC business, separate from traditional grocery, drug, and brick-and-mortar sales tracked by IRI. Regarding bolt-ons and the RX business, we hit a pause in bolt-ons during the peak of the crisis, and conducting due diligence remains challenging. We’ve accumulated cash and are resuming our process. There were opportunities in the pipeline prior to the crisis, so you might see developments soon, although the overall process isn't fully operational yet. Currently, consumer multiples are holding steady despite the ongoing crisis, which has me looking for potential value buys in the near future. As for the RX separation, there have been no changes aside from the influx of cash. This year will mark the second consecutive year of growth for our RX business in both revenue and profit. The volatility has diminished on our side, but industry multiples remain low. The last time we explored selling, there were no strategic buyers participating, and until that situation changes, we will manage and invest in this area while utilizing that cash to support our consumer strategy. I have demonstrated that we can achieve a multiple on RX, having sold it for around 10 times, double what we discussed when considering the sale of our U.S. RX business. We've refined our portfolio, but progress has been slower than expected. We'll ensure that this business remains efficient, requiring minimal management oversight. It's well-led and still plays a crucial role in Perrigo until circumstances change, but this will take time.

Thanks very much.

Ladies and gentlemen, this will conclude our question-and-answer session. And at this time, I'd like to turn the conference back over to Murray Kessler for any closing remarks.

Yes, I mean, in reflection of the comments and the questions that I got today, I would just reiterate, Ray and I and the management team that was here that we've promoted and several other folks that we bought on are dramatically changing Perrigo. I'm proud of what we've accomplished over the past couple of years. This is an entirely different company than it was a couple of years ago when I joined, and it is now beginning to look a lot like the Perrigo that was a success in winning. But there's work to be done to make sure that's not something that happens over a six-month period of time. And then under delivers and gets back into that pattern again. We are focused on building a great company. We have returned the company to growth. We have built the talent and the management in this organization. We are building and have restored a winning culture to this organization. We have filled our innovation and new product pipeline, and there's probably triple the growth opportunities of what I anticipated coming in, whether it be through e-commerce or bolt-ons or new adjacencies going forward. We have work to do on finishing off our capital investments and infrastructure and getting that new product pipeline. And we are doing that while rapidly accelerating the growth of the business and at the same time, stabilizing operating income for the first time in years to position us to be able to deliver a continuous, sustainable business that delivers on its business objectives consistently over the long-term, which is the kind of company we want to be and the kind of company with we hope investors want to be a part of. So, I believe, we're right on track. I'm shocked that we are right on track despite the crisis of this company and the world went through in the first half of this year. I get it. It makes the year a bit uneven and lumpy. But basically, it hasn't changed anything. And I'm proud to be leading a company that its people were able to rise through the occasion through this crisis, keep everything on track, help society, continue to set us up for the long-term and deliver quarter-after-quarter-after-quarter after quarter, meeting or exceeding expectations. So, thank you for your interest in Perrigo.

Ladies and gentlemen, the conference has now concluded and we thank you for attending today's presentation. You may now disconnect your lines.