Good day, ladies and gentlemen, and welcome to the Repligen Corporation’s Fourth Quarter of 2022 Earnings Conference Call. My name is Chuck, and I will be your coordinator. All participants will be in a listen-only mode. [Operator Instructions]. Please note that there will be a question-and-answer session following the company’s formal remarks. In order to accommodate all individuals who wish to ask a question, there will be a limit of two questions at that time. I would now like to turn the call over to our host for today’s call, Ms. Sondra Newman, Head of Investor Relations for Repligen. Please go ahead, ma’am.

Thank you, Chuck, and welcome everyone to our fourth quarter and year-end report. On this call, we will cover business highlights and financial performance for the three and 12-month periods ended December 31, 2022. We’ll also provide financial guidance for the full year 2023. Repligen’s President and CEO, Tony Hunt; and our CFO, Jon Snodgres, will deliver our report, and then we’ll open the call up for Q&A. As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risks related to our business is included in our quarterly report on Form 10-Q, our annual report on Form 10-K, the current report of Form 8-K which we are filing today, and other filings that we make with the Securities and Exchange Commission. Today’s comments reflect management’s current views, which could change as a result of new information, future events or otherwise. The company does not obligate or commit itself to update forward-looking statements, except as required by law. During this call, we are providing non-GAAP results and guidance. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to our Web site and on sec.gov. Non-GAAP figures in today’s report include the following. Revenue growth at constant currency; gross profit and gross margin; operating expenses, including R&D and SG&A; operating income and operating margin; income tax expense; net income and earnings per share; as well as EBITDA and adjusted EBITDA. These adjusted financial measures should not be viewed as an alternative to GAAP measures but are intended to better enable investors to benchmark Repligen’s current results against historical performance and the performance of our peers when evaluating investment opportunities. Now I’ll turn the call over to Tony Hunt.

Thank you, Sondra. Good morning, everybody, and welcome to our 2022 year-end report. We are really pleased with the way the year played out given the market dynamics in the bioprocessing industry, especially in the second half of the year, where we dealt with FX headwinds, changing order patterns, declining COVID vaccine demand and cost inflation. We finished the year at close to 802 million in revenue driven by base business growth. Organically, our base business was up 35% in the quarter and 39% for the full year while overall organic growth for the company was up 4% in the quarter and 22% for the year. Our Q4 sales were especially impressive, given we essentially recovered $38 million drop in COVID-related revenue year-over-year with an increase in base revenue. For the year 2022, our overall business performance was outstanding, driven primarily by our filtration and chromatography franchises, which were up 23% and 45%, respectively. Within each of these franchises, our base business was up over 50%. Overall, our results demonstrate our ability to continue to differentiate ourselves in the bioprocessing market, which has allowed us to consistently grow above the market growth rate. As we progress through the year, our product mix did change as COVID revenues declined and this became one of the major drivers of margin performance in the fourth quarter, which I will discuss in more detail later. Before moving into the discussion of our Q4 performance and outlook for 2023, I want to highlight some of our key accomplishments and our progress against our five strategic priorities in 2022. Priority number one was advancing innovation. Over the last few years, we have focused on increasing the pace of R&D product launches to build on our foundation of disruptive and innovative technologies. 2022 was no exception, with…

Thank you, Tony, and good day, everyone. Today, we are reporting our financial results for the fourth quarter 2022 as well as providing our financial guidance for the year 2023. Unless otherwise mentioned, all financial measures discussed reflect adjusted non-GAAP measures. As shared in our press release this morning, we delivered revenue of 186.8 million in the quarter and 801.5 million for the full year. The highlight once again was the continued strength of our base business which grew by 35% organically in the fourth quarter and 39% organically for the full year. Within our base business, we saw continued strength in our gene and cell therapy business, which grew at 36% and 52% as reported for the fourth quarter and full year, respectively, and represented between 14% and 15% of total revenue for the year. For the total business in the fourth quarter, organic revenue growth was 4% and constant currency growth was 5% while overall reported revenue was flat year-over-year. For the full year, organic growth was 22%, constant currency growth was 25% and reported revenue growth was 20%. FX headwinds for the quarter and full year were slightly greater than 9 million and 33 million, respectively, reflecting a 5 point headwind on reported growth for both periods. We expect these headwinds to remain through the first half of 2023 and overall, we expect foreign exchange to be a 1 point headwind for the full year. Inorganic M&A had approximately 1 point of positive impact on reported growth for the fourth quarter and nearly 3 points of favorable impact for the full year. Digging deeper into our overall revenue performance, our 35% base business organic growth in the fourth quarter was essentially offset by reductions in COVID-related revenue of 38 million. For the full year period, the overall…

We will now begin the question-and-answer session. [Operator Instructions]. And the first question will come from Jacob Johnson with Stephens. Please go ahead.

Hi. Good morning. Maybe, Tony, just to start, on the third quarter call last year, you talked about 16% to 20% base business growth. You're guiding to 12% to 16% this morning. Has anything kind of changed in terms of the demand you're seeing or the end markets or is this just building in some conservatism and perhaps you could still end the year closer to that 16% to 20%?

Yes. I would say that where we were in -- at our Q3 earnings call and where we were at the beginning of the year versus now, it's changed a little bit. And I think the main area where it's changed is in our chromatography business. So we were expecting much higher growth coming from chromatography in 2023 based on resin availability from the main players in our industry. That softened in Q1. It's actually softened over the last six to eight weeks, and it really has slowed down what we can do in the first half of the year because it's outside our control. We've had conversations. We know that capacity is coming on. Customers have to accept kind of manufacturing from the new facilities and that's really probably the biggest driver in terms of the first half slower traction on resin availability. But I would say, Jacob, if I had to point to one thing, that's the difference between where we were in November and where we were in January versus where we are today.

Okay. Thanks for that, Tony. And then just maybe on the process analytics side, I think that was a key focus at your Investor Day. It seems integral to the system strategy you have. And it seems like that's a real opportunity for you all over the next five years, but it does seem like it's a bit softer this quarter. So could you maybe kind of square the near-term performance there versus the long-term opportunity?

Yes. I love this business. When you look at the funnel of opportunities that we have and the activity that we have in the marketplace, it's really high. The need for at-line, in-line technologies couldn't be any higher. So I just think that there's some conservatism at the customer level in terms of the dollars they want to spend and the approval process of getting everything kind of pushed through for approval on these capital equipment purchases. We like what we launched with the RPM system in Q4. We got some orders in December, which was very encouraging. We're doing a lot of demos of the technology. We think this is the foundation piece that allows our customers to go from benchtop KR2i all the way up to our ARTeSYN kit using the technology from our analytics business to be a major differentiator versus other products that are in the marketplace. So while yes, last year was lower in terms of overall growth, I don't think it's that much different, Jacob, than a lot of other companies who have the analytical products, quality control products that are in the marketplace. And so I think it's a function of that. The other thing I would say about our analytics business is we don't -- that is orders that come in, in the quarter or shipped in the quarter, so it's not like any of the other franchises where you might be operating two, three, four months ahead with an order book.

Got it. Thanks for taking the questions, Tony.

Thanks, Jacob.

The next question will come from Dan Arias with Stifel. Please go ahead.

Good morning, guys. Thanks for the questions. Tony, I know parsing through the quarters on an outlook is difficult. But just on the first half of the year versus the second half of the year split that you see right now for '23, does the base case sort of assume some improvement in 2Q that lends evidence to the idea that the destocking phenomenon is subsiding and that resin availability is maybe getting better again, or really should we just be thinking about 1Q and 2Q similar with 3Q being the improvement quarter?

I personally think it's more Q3 improving, so second half of the year being better than the first half of the year. The piece, Dan, that I found really encouraging was that on our -- when we looked at our pharma orders in Q4, right, it was -- highest quarter we had in orders in all of 2022 was in Q4 for pharma. When you look at the book to bill, it was nicely over 1. So that's actually really encouraging. And if you look at pharma for the year for Repligen, we were also over 1 on a book to bill. The places where we see the challenges are at the CDMO level. So I think if the CDMOs begin to bounce back, and we definitely saw some improvement in Q4, but not enough for me to say, hey, that's going -- how much does it continue Q1, Q2? So looking at it right now, I would say it's second half of the year stronger than the first half of the year. The other thing to remember is our COVID revenues are going to be pretty much in Q1, evenly split in Q1 and Q4 with very little revenue in Q2 and Q3. So base business, I would expect we would see orders definitely beginning to pick up in Q2. But I think from a revenue point of view, it's the second half of the year.

Yes, okay. And then, Jon, maybe on the op margin, 22.5 to 23.5, it feels like in order to land at the midpoint of '23, you should be or we should be thinking about a step down from 4Q to 1Q rather than being flattish as a jumping off point for the year, which I think is maybe the way that you were describing things at the end of the year. Is that right? And then you called out mix as a factor. It also feels like it's a little bit of a deviation just given that it felt like more of a volume thing and a leverage thing at the end of the year rather than a mix phenomenon. So can you just add some color to the moving pieces at the margin line and then the flexibility that you might or might not have on cost and spending? Thanks so much.

Sure. Yes. So I think the first part of your question was around operating margins and kind of the stepping off point into 2023 from 2022. Yes, I think we'll start on the kind of the lower end or slightly below guidance in Q1 and then we'll build on that as we move through the full year, getting back to that -- hopefully back to the midpoint of that range at 53%. But definitely hopefully between that 52.5 and -- sorry, 22.5% and 23.5% level. So that's where I’d start it. If you look at the gross margin, I can give you a bit more color there, Dan. It's really two overarching themes that we're looking at here. The first one is the most significant here in the quarter, in the fourth quarter, which was material costs as a percentage of our overall revenue increasing, and I'll break that down a little bit further for you. And then also the higher facilities and depreciation costs that we're seeing related to our capacity expansions and business continuity work that we've been doing. I'll give kind of a comp, a sequential comp Q3 '22 to Q4 '22. We finished Q3 '22 at 57%. Q4 '22 was about 51.5%. That's a decline of about 550 basis points. So when we break this down a little bit on the material cost side, cost inflation from materials coming from our suppliers, cost us about 150 basis points of market decline Q3 to Q4, Dan. And then product mix and volume was another decliner at about 300 basis points. So those were the two primary components, about 450 basis points on the overall material side. And then the facilities and depreciation-related costs were about 100 basis points of decline in the fourth quarter. So that gives you the breakdown.

Okay. Thanks very much, Jon.

The next question will come from Puneet Souda with SVB Securities. Please go ahead.

Hi, Tony and Jon. Thanks for taking the questions. So first one, just given on the top line, Jon, wondering if you can provide us what's the base business growth for the first quarter should be. I'm not sure if I heard that. And then do you still stand by your long-term base business ex-COVID growth of 20% and the 2027-'28 revenue estimate of $2 billion?

Yes. Let me take that one, Puneet. So long term, absolutely. We believe in our company and our products and how we're doing in the market and how differentiated we are. I think 2023 is a unique year. Everybody in our industry has to kind of get through the year. And yes, we don't have guidance for Q1 on base business growth. What we're saying is 12% to 16% organic growth for the year. And obviously, as we go through the year, I will comment on exactly what happens in Q1, H1 versus H2. But this is kind of a unique year. I think -- don't forget that even though 2022 is finished, we grew 39% organically with our base business. That is so far ahead of where our industry has been growing. So I think there's a lot of goodness, a lot of momentum that the company has built up over the years. This is going to be a challenging year, guys. We're going to be in that 12% to 16% range. I said what the challenge is really on the chromatography end, but medium, long term, we love what we're doing and we love our products. We like the position we have in the market. And yes, we don't see any reason why we can't grow 20% plus for the foreseeable future with the exception of 2023 as we work through these headwinds.

Got it. Okay, that's helpful. And then on the gross margin side, Jon, was just wondering if there was any pricing pressure that you are accounting for? And Tony, maybe just on product obsoletion, product expiration, any write downs that CDMOs might be taking there? Could you elaborate a bit more on that? And if I could just squeeze in on PAT question. There was a large acquisition in this space for PAT, at least. So wondering how DRS Daylight Solutions is positioned versus the sort of light scattering capabilities that were acquired recently by a competitor? Thank you.

Yes. So maybe I'll start with the Waters acquisition of Wyatt. Great company, great technology, you know them pretty well. I think laser light scattering key technology in our industry. When I look at what we're doing with our C Technologies and with DRS, we're really in a good position in terms of in-line technologies, right? I think when you look at what we have, you can put FlowVPX in line in a manufacturing setting. We will be able to put the DRS Daylight technology in line. And our strategy is more around getting to in-line monitoring, real-time monitoring as opposed to quality control testing or offline monitoring. So I think that piece is kind of how we view it. We're more an in-line company. In terms of the question on obsolescence --

Just the pricing in obsolescence. Thank you.

Yes, I was going to answer it. So obsolescence, we're not seeing that as an issue, right? And I think it's really the inventory buildup at our customer level that just has to work through it. And then Jon can answer the question on margin.

Could you repeat the question on margin? Just want to make sure I get it right.

Yes, Jon, just pricing, are you seeing a decline in pricing or pricing impact? And what's the pricing assumptions that you have for '23? Just wondering if there's an impact from that in gross margin? Thank you.

Yes. We have not been seeing pricing pushback of significance. We did finish '22 with just above 5% price achievement as we had indicated we were gunning toward. So that wasn't a major issue. For 2023, we definitely have raised prices again, working with our customers with the intent to cover inflation, and we expect for 2023 that we should be able to get 4% to 5% price achievement this year.

Thanks, guys.

Thanks, Puneet.

The next question will come from Marta Nazarovets with JPM Chase [ph]. Please go ahead. The next question will come from Liza Garcia with UBS. Please go ahead.

Hi, guys. Good morning. Thank you for taking the questions. So let's start with cell and gene therapy. Obviously, those accounts, it seems like over 20 now doing a million -- generating $1 million. The order book feels pretty good. Can you maybe talk to kind of how to think about the cadence across 2023 in your assumptions for the growth there? It seems a little bit kind of lower than the order book at the moment? And I know obviously tough comps, but it would be great to dig in there.

Yes. So cell and gene therapy, a great year last year, no doubt about it. But like every other business we have, right, we saw orders slowdown in the second half of the year. I think what people forget is that 50% of our cell and gene therapy revenue comes from CDMOs. And so we're telling and calling out that CDMO order book has been really light, and it's got to pick up. So when you think about our cell and gene therapy growth and any upside in cell and gene therapy, it's going to come from the CDMOs coming back to where they were in the early part of 2022.

Great. Thanks. And then maybe just new product introductions and how to think about the cadence for this year? It's obviously 10 this year. It was in the 9 to 12. It would be great to kind of dig in there and understand a little bit better kind of what you're hoping for?

Yes. So one of the big things we've been doing for the last three-plus years is really focused on increasing the cadence of bringing new products to market. And as I said in my prepared remarks, right, we had a really good year last year. 7% of our revenue came from products launched in '21 and 2022. And if you go to this year, you add in the products going to get launched this year. Overall, the products then launched 2021, 2022 and 2023 will be around 14%. That's exactly what we want to see, right? We're investing at a level of 5% into R&D, 5.5%. And you can see based on the traction we're getting in the marketplace with our new products, we're more than covering the cost of running R&D at the company. So we're really thrilled with how well our R&D programs are going, the products that we have in the portfolio and it's exactly what you would want from a disruptive, innovative company like Repligen that our R&D products are actually gaining traction and they become a catalyst for growth. So maybe back to I think -- I'm not sure it was Puneet or Jacob about are we standing behind long-term growth. This is where the extra 5%, 7% is going to come from on an annual basis. It's going to come from what we're doing on the R&D side and that's why it's so important to us to continue to, even in a tough year like 2023, maintain our investment in R&D, get the products out because they are the stepping stones and foundation for the next five-plus years.

Great. Thanks, guys.

The next question will come from Matt Larew with William Blair. Please go ahead.

Hi. Good morning. Obviously, the biggest top line delta outside of COVID is chromatography, as Tony you called out and going from 45% in '22 to 10% in '23. Could you help us maybe if resin availability was not a problem, what would growth look like? In other words, what does the demand look like? And at this point, is the issue more on customers -- you're waiting on customers to accept the new products or are you still actually waiting on the raw material availability, the resin availability and then the product will be accepted by customers?

Yes. So maybe a quick synopsis of how we manage our chromatography business with back comps. If you went back five years ago, Repligen was procuring resins to pack into our chromatography column. So the interaction was directly with the suppliers of resins. But we made a conscious decision really in 2018-2019 to really move away from Repligen procuring to the customers shipping us the resin or having it dropped shipped from the supplier. So it's not our conversation or our interaction with the main players on the resin supply. It's actually our customers. They're not getting the resins fast enough. And so we have quite a large order book. And if we were -- if there was no limitation on resin, I think we would be right around that 25% mark in terms of growth. And so when you're at 10, right, and you just -- your resin supply is not coming in at the pace that it was even coming in, in Q3 and Q4, it's definitely disappointing. It's outside our control. And therefore, we know capacity is coming online. We've had those conversations with the various players. But I think there is an acceptance piece that also happens where people have to qualify in a new manufacturing location so that it starts to get used. So I do think it's going to improve as we go through the year, but it's definitely much lower than we were anticipating even back in January.

Okay, that's helpful. And then, Jon, just on the facilities and depreciation headwind. I guess as we think about how that should pace throughout the year and then '24, obviously '21 and '22 were CapEx heavy years, you talked about 69% for '24. I presume that should begin to sort of moderate in the back half. But just as we're building out our gross margins, if we could -- you could help us think about one half versus two half, again, understanding the comments to Dan's question about op margins having a low in Q1 and building from there. But any initial help particularly on the depreciation side would be helpful.

Yes, sure. So the 60 million of CapEx that we mentioned is a '23 number, not a '24 number, just to be clear on that one. As we look at the facilities and depreciation costs, they will -- I would say from a gross margin modeling perspective, maybe you start at the lower end of the overall gross margin at the beginning of the year and then scale it up as we go through the year. That would be my recommendation for the current time.

But I think the most important piece on depreciation and facility cost is that, it's a fixed cost, right? And so as our volumes increase, right, margins are going to improve. So we've made this big investment, as everybody knows, over the last three years to build out capacity to give us dual manufacturing capacity and business continuity plans. So this is going to pay off as we go through the next few years and margins will improve.

And I think even the second half of 2023 should improve from the first half of 2023. So that's kind of the scaling that we talked about and the layering in; lighter first half, better second half.

Okay, great. Thanks for the questions.

The next question will come from Brandon Couillard with Jefferies. Please go ahead.

Hi. Thanks. Good morning. Jon, on the mix dynamics, could you just stack rank the segments from highest gross margin to lowest gross margin? Aside from the COVID runoff, what exactly are the mix in '23, where those come from?

In 2023? So the declining revenues from much of the COVID related volume was high margin filtration, right? So it's hallow fiber, it's flat sheet filtration, which are really high margin products for us, the consumable components. We don't give specific margins for every product, Brandon, but I can tell you those are very high contribution margin products. And they're coming in being replaced with OPUS, being replaced with systems and fluid management products that are coming in at a lower pace. And we think as we've got facilities built out, as Tony and I talked about earlier, as we start to pump volume through our facilities, so those costs will get spread out better and we'll gain margin traction over time. But I can tell you the OPUS margins, you've known that for a long time, are a bit lower than the others and then systems and fluid management are a bit lower clearly than the filtration stuff, the specific filters and consumables.

Got it. And then Tony, how are you feeling about the M&A pipeline? Obviously [indiscernible] company valuations reset at all and then the portfolio [indiscernible]?

Yes, you broke up a little bit, but I got the gist of the question. I would say M&A pipeline is pretty similar in 2023 as we saw in 2022. We continue to be active in the sense that we have lots of different companies that we're talking to. I think our pace of M&A, Brandon, is not going to be too dissimilar to what we've seen over the last four or five years. I think we had a big pickup in 2020-2021 during COVID where we were systematically building out our fluid management business. But I think a deal a year pace is probably a good assumption. And to your second part of that question, I do think that the multiples have come down a little bit, but it's all in the eye of the beholder.

The next question will come from Matt Hewitt with Craig-Hallum. Please go ahead.

Good morning. Thanks for taking the questions. Maybe for the first one, I'm trying to piece two different comments that you made together. First, you were talking a little bit about the resin availability and some of the inventory issues, and then also the fact that obviously those resins are acquired by your customers and then shipped to you. Does that create or lengthen the inventory channel issues that you've kind of been facing over the past couple of quarters where the customers are having to churn through inventory? Does this kind of exacerbate that problem or is it a completely different issue?

I think it's a different issue, Matt. I think it's more that if I looked at the last two or three years, and I'm certain that the major resin suppliers would give you this exact same view I think the demand is exceptionally high. I think customers are placing orders six to nine months out. That has not come in, whereas the rest of the industry has, as capacity has come online. So that's the one area in our industry where it really hasn't. It's come down a little bit in terms of lead times, but not enough to change the order pattern or the length of time it takes for those resins to get, a, procured and then delivered, whether it's directly to the customer or a drop ship to us.

Got it. And then obviously you built out a lot of capacity the last couple of years. As far as hiring plans are concerned, are you feeling that you're in a pretty good place from headcount standpoint or do you anticipate needing to fill some more roles given the demand that you're anticipating in the back half of the year and into '24? Thank you.

Yes. I would think that on the headcount piece, we've been -- even during the days of COVID, we tried to be pretty prudent about where we hired, what we hired, which facilities. And as we went through Q4 and again here in Q1, we continue to optimize, right? We're looking at where the demand is, what headcount we need to support the forecast that we have for the year, and we've done a lot of that optimization over the last couple of months.

Understood. Thank you.

Thanks, Matt.

The next question will come from Conor McNamara with RBC Capital Markets. Please go ahead.

Hi, guys. Thanks for taking the question. I appreciate it. If you just look at the guidance that you're giving, it's about 4% cut relative to what you were talking about in Q3. And by my math, that's about 25 million in sales. So is there any way to break that out? How much of that is the inventory destock at the customer level versus the resin impact versus anything else?

Yes, so there's a 1 point of FX, right? So I think depending on how we all do the math, it's somewhere between 3 and 4 points versus what we were talking about in January timeframe. I think the majority of that is really coming from chromatography. And I would say it's kind of -- the rest of it is just dispersed across the other business. There's no one business where I would look at it and say, we -- it might be 1% lower or 2% lower than we were thinking overall. But the main difference where we were in January versus where we are now is chromatography.

Got it. Thank you. And then just longer term margins, if you get towards that '27-'28 targets of $2 billion, what can gross margins go longer term? Can you get back to the high 50s or should we be thinking about longer term kind of in the mid-50s gross margin range? Thank you.

I would say that it’s obviously challenging to give you exact numbers on where we think margins are going to be five years from now. But I think between the investments that we've made -- capital investments we made in 2021, especially in 2022 under some finishing off work we have to do in 2023, that pretty much gives us capacity all the way out to that 2027 timeframe. So our expectation is margins are going to go up. Our expectations next year is that we can add 100, 200 basis points onto our gross margin line. And maybe after that, it becomes 50 basis points or whatever it is, 50 to 100 basis points, just hard without knowing what the product mix and what M&As we might do over the next few years to give an exact number. But it will definitely march up, Conor.

Got it. Thanks for that, Tony. I appreciate it.

The next question will come from Justin Bowers with Deutsche Bank. Please go ahead.

Hi. Good morning. It’s Asaf [ph] speaking on behalf of Justin. Just two quick questions. So firstly, you mentioned cell and gene therapy business growing significantly in '22, a little slowdown as well and also a 25% step-up in gene therapy during Q4. Which indications in cell and gene therapy are you gaining traction in? And as you look at 2023 and 2024, how are you thinking about the growth rates in these modalities?

Yes. So I think when I made the comment -- my comments on pharma in Q4, clearly that was also impacting in gene therapy in a very positive way. The challenge, as I said, is that half our cell and gene therapy business coming from CDMOs. And while we definitely saw pickup in Q4, it needs to continue to increase as we go through the next few quarters. So while we're calling 15% to 20% for cell and gene therapy, overall market growth could actually be higher than that. But that's just because we have a lot of customers sitting on inventory, right? So they're using the products and they're developing products and getting them through Phase 1, Phase 2. I think long term, cell and gene therapy with mRNA all bundled in is probably going to be growing 20% to 30% on average in the out years. But this is just a unique year because of destocking at the CDMO level.

Thank you so much for the color. I appreciate it. And just lastly, which areas of material cost inflation were greater than anticipated? And does the guide contemplate [indiscernible] at these levels in 2023 or is there like some release at some point in the year?

Yes, it's areas like plastics and stainless steel and a lot of those types of areas where we see the significant inflation. Our guidance contemplates what we believe is going to be the inflation for the '23 period, yes.

All right. Thank you so much.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Tony Hunt for any closing remarks. Please go ahead, sir.

Great. Thank you, everybody. I appreciate everybody joining today. Obviously, we've covered a lot. Obviously, the 2022 stellar year. We got some headwinds as we move through the first half of this year, but I think we're very optimistic about the second half of the year and overall and look forward to getting back on the call in a couple of months and bringing you up to speed on where we are in Q1. So thanks everybody for joining.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.