Travis Steed: Hey guys. Thanks for taking the question. I did want to follow-up a little bit. I think we talked a lot about margins and EBITDA margins and stuff already, but the guidance does imply a pretty big step down sequentially from Q1. And I am not sure you did some explanations for that, but anything else to call out on the EBITDA margin, operating margin side, what’s built in from a macro standpoint, currency inflation? And just looking at the earnings side, like you raised the guidance by $0.40 at the midpoint, but given FX has gotten a little bit better, I am just curious why there wasn’t a little bit more of a tailwind on the EPS side with FX rates?
Jake Elguicze: Yes. Travis, so I will try and take that and Dev feel free to jump in. So, I think largely, our thoughts on margin, obviously, we got off to a really good start. Quite frankly, we expected the first quarter of the year margins to be strongest. That said, we did do a little bit better in terms of our adjusted gross margins, largely because of the additional revenue and the mix of that revenue. And then from an adjusted operating margin and then flow through to EBITDA margins, even more significant over-performance largely because of the timing benefit as it relates to certain OpEx spending related to separation and standup costs. Now, as we move forward during the remaining quarters of the year, we would expect those gross margins to kind of trend from sort of the upper-60s, first going into kind of the mid-60s in Q2, primarily because of the fact that we would expect to see some of that distributor order benefit that positively impacted our revenue in the first quarter to reverse itself in the second quarter.
That tends to be, in the U.S., at a higher gross margin area. And then, second, we are not going to get that same positive impact, if you will, from the revaluation of our inventory. And in fact, now that the inventory is actually valued at a higher cost on our balance sheet, as we sell that product through the remainder of the year, it’s actually going to result in slightly lower gross margins. So, the expectation from a gross margin standpoint in Q2 is to get into the mid-60s, eventually in the second half of the year to get into the low-60s or very consistent with what we think our gross margin profile would look like in 2024. From an operating margin standpoint, again, very strong operating margins in the first quarter. We are anticipating seeing a pretty large step-up in OpEx spending, both on the R&D side sequentially as well as on the SG&A side.
And certainly on the SG&A side, a lot of that is related to separation and standup costs and just the timing of hiring as well as we move throughout the year. Now, all that said, we are going to €“ we are certainly going to do our best to try and manage our OpEx spending lower. But we are certainly, right now, essentially reaffirming our full year total OpEx spending as a percentage of revenue of 37%, 7% in R&D and 30% for SG&A, which is really unchanged from our original guidance. And then from an earnings standpoint, I would tell you that right now, we are raising about $0.40 at the midpoint, about half of that is because of updated FX rates. As compared to, I would say, our initial expectations, we saw very little benefit to our adjusted earnings from FX in the first quarter.
And really, we would expect to see that benefit largely play out in the remainder of the year. And then, look, our base business performed better than we had originally anticipated, and we would expect about half of the adjusted earnings range to come from just improved base business performance. Now, coming back to OpEx, I would say despite OpEx coming in well below those levels in Q1, we are continuing to expect total OpEx to approximate that 37% for the entirety of the year. So all said, I would say we continue to just be mindful of very large separation projects that we need to execute on during the course of 2023. But we are really pleased with our ability to increase our adjusted earnings so meaningfully after only one quarter of the year being done.
Travis Steed: Got it. Helpful color. And then you also mentioned some continued progress with the patch pump program. Curious what kind of progress you are making there, anything additional to share? In one of your €“ the patch pump competitors scooping up patents and any thoughts on that if you thought the patent landscape looks about to get a bit more competitive?
Dev Kurdikar: Yes. Tavis, good morning, this is Dave. I will take that. Obviously, we follow all the public announcements in the pump space. And I really don’t want to comment on competitor moves on acquisition of patent products. Let me just say that our patent products program is progressing as we would expect in line with our internal expectations, nothing new to share. I would say that certainly, from a €“ our own perspective of what that product can do for us in the market, I mean nothing has changed vis-à -vis our outlook on our product in light of all the announcements that have taken place in the marketplace. Nothing new to share with respect to milestones, as I have said in the past, when we have a meaningful milestone, Travis, we will share it for now. We are just focused on keeping our heads down and getting the work done.
Travis Steed: Great. Got it. Thank you.
Operator: We currently have no further questions in the queue. I would like to turn the call over to Mr. Pravesh Khandelwal.
Pravesh Khandelwal: Thank you, operator, and thank you everyone that joined us on the call today. This concludes Embecta’s first quarter 2023 earnings conference call. Have a nice day.
Operator: This does conclude the program. You may now disconnect. Everyone, have a great day.
