WST - Earnings call transcript Q3 2019 | West Pharmaceutical Services, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2019 West Pharmaceutical Services Earnings Conference call. [Operator Instructions]

I would now like turn this conference call to Mr. Quintin Lai.

You may begin.

Quintin Lai

Kevin. you, Thank welcome and third XXXX quarter Good to call. conference morning West website morning financial Investors release company's our issued and Section at results the the We in this the www.westpharma.com. posted has on located been

that that CEO, a year results, an is an XXXX. of a our presentation update There morning, will and financial copy the presentation our provide Eric Bernard website. is update CFO, our This the Birkett, accompanies and on outlook and review Investors on business of on today's call provide Green, available for slide full Section

Harbor On Statements presentation Slide X of US is the call meaning the the by Safe this management accompanying and Federal within in statements. on Securities the statements forward-looking contain made Law.

statement beliefs forecasts. estimates, current materially influenced could our and from refer the XX-K, risk in X-K is of results any by the are results and regarding implied company or results as These assumptions, The as press subject, including many the the future other disclosures here. company as reports. as to statements and factors beyond the differ made any to past expressed by well control release XX-Q, based today's expectations, company's actual made those forward-looking our are and on well Please which

the are the press of most conformity to adjusted profit limitations in margin, operating measures this reference call, provided to diluted sales profit, operating Reconciliations financial in morning's non-GAAP financial management and comparable make today's will also prepared to organic and During adjusted financial GAAP measures release. results growth, including non-GAAP EPS. the adjusted

Green. to West's call the and CEO turn over President, now Eric I'll

Eric Green

today. joining thank you Quintin. you, morning And Thank us for good everyone,

solid our we delivered quarter. As you press release, saw in another

make serve strategy, excellent implementing We we customers our value creating and continue together. the patients market-led for our to progress

of the demonstrates we on momentum year fronts. performance a the seen forward have throughout number Our

driving are differentiated value growth units market The through propositions.

growth. high-value The contributing increased we to is operations have globalization traction service, products driving services our Our are quality, of improvements and product Seiko launched robust in investments in gains to strategic gaining around our long-term investment and and newly productivity partnership. and this deepen Daikyo

good we later of our three EPS full quarters increasing strength in us, sales call. given business, of guidance growth take guidance the and details underlying year. our confidence the future are for you With and in will behind our Bernard through the and updated the the

of grew with products, quarter. organically an grew start the that performance double-digits Slide of in by up Proprietary seen Let's overview which continue sales product High-value our and the have sales on proprietary X.X% product XXXX. than XX% momentum make X. more sales throughout we

once Turning within our grew to market unit the digits. units, sales double again Biologics market strong

for and During customers Biologics large New NovaPure the saw customers. fueled biotech increased the both small demand selecting been by has demand quarter, Applications. Drug This from

paying many the year. have dividends, This drugs and as of these past is been approved now launched in

which NovaPure strong for grown our of reorders Our and approval commercial quarters products. customers' success have in three XXXX, sales post consecutive reflect the double digits

newly-approved drugs is activity. grown Volume agreements for the and pre-commercial with and containers for has Zenith CZ Crystal syringes story. use development similar support to for a

good experienced Flurotec we and Additionally, we uptake have continuing. see and components, a trend Daikyo

growth high-value set the biologics growth component anticipate to generics program. for continue with led unit. unit the double-digit AccelTRA we Looking product and market mid-single grew ahead, the growth full-year we market The the digits, stage for future sales

to from containment commercialization customers platform. phase interest early for with drugs are phase evaluation the the this Our preparing their moving of unique contract

will of also prior recent seeing on calls, this enable acceleration investment generic in self-injection we're said we interest our growth. from customers capacity A platforms self-dose and As have CZ. for further

the market generics the for full growth single-digit year. high expect unit We for

announced VialXBag decline primarily due Our to mid-single-digit the in recall. sales Pharma a previously in market unit the quarter experienced product

see to to value as continue customers However, high value inspection. they higher we legacy are as Envision adoption offerings to that for product convert them and products support Pharma our encouraged such working we are

We full-year expect unit growth of the market growth. Pharma deliver performance quarter to single-digit low fourth return in to the and

in that Proprietary Our of healthy be orders continues Product can segment committed growth sustained. us giving our to the book be confidence,

Let's now business market of the Manufacturing, of to Contract turn growth sales delivery this posted a our by of devices. continues be drug primary growth in sales and segment X%. The diagnostic to diabetes organic driver led

as a have XXXX. second we calls, growth strong performance contract it discussed As especially against half manufacturing comp is on from prior moderating, comes

single be moderation further to expect and year the QX high digits. in to in continue XXXX growth We expect full

Slide that needs unique conference, to in we continued drug progress PDA product week, cartridge Sweden, serve. the Pre-filled X at Syringe recently announcements to X, made two which this use highlighted of launched high-value self-injection the markets portfolio. the our NovaPure new demonstrate introduced devices. higher Turning volume delivery a we support our Earlier components, and our designed We specifically we with are mL for

unmet market. solved the an components in These need

and biologic drugs that sensitive being in often developed, from increase highest components require the delivered on-body these offering new quality meets products West or autoinjector this challenge. an cartridge through Given the are injector that

agreements platform injector, with success self-injection potential We in they future technologies subcu injectable for XX delivery II to SmartDose is commercial therapy for the our seen which smart these across The growth in we demonstrates dose also ML increase of the our enables and customer volume. represent up and highlighted Gen have development West.

announced to also we our Daikyo stake we XX%. that in week, Last increased minority

and partnered to solutions reliable, our containment For West over and quality, Daikyo decades, together high customers. are bring to innovative drug four

our for we look Our increased to come. commitment to our investment long-term partnership demonstrates collaborations years to strategic the continued and forward

Bernard like to time, detail our our Birkett, call into over more around CFO, the performance. financial to Bernard? turn At go I'd to this

Bernard Birkett

morning everybody. Eric, and you, good Thank

end for some and proprietary sheet the numbers And market I Biologics review guidance to solid we margin growth finally, QX you take takeaways. by in in where quarter review unit. performance balance will at quarter the Let's especially XXXX. we'll in look first more addition detail. our the growth through in saw saw we led continued the strong We'll products XXXX profits, revenues

up described acquisition. to are in sales are representing and non-US X $XXX.X and First X.X% points XX GAAP of XX. sales summarized results net XX related measures financial growth our a to We on of of recent recorded Slide million basis organic the QX, of Slide inorganic growth reconciliation

We Biologics also saw our market in two organic of contract growth unit. proprietary in growth double-digit product our with manufacturing and in units sales market

in We are see improvement profits. to continued pleased gross

QX in $XXX.X last same was of year. $XX.X recorded X% XXX period million gross year. basis from We million margin last of the gross profit or our And points expansion above profit, XX.X%

recorded the same period improvement to year $XX.X in adjusted this We profits also for operating million compared in $XX.X saw quarter XX% increase. last an with million

our point adjusted XX XX.X% And same the operating last year. was of basis profit period from margin an expansion

and grew approximately based EPS when XX% diluted tax is adjusted compensation excluded. stock benefit Finally, X%

and contributions what's show in Volume driving in revenue profit. million sales percentage the contributed So growth growth. or both quarter. the to X, the points X.X slide growth $XX.X and we mix On of

is percentage increase points $X.X and rates price growth points. currency X.X or the changes of exchange a $XX.X foreign contributed of percentage reduced reduction X.X in million million by Sales or sales

XX.X% basis consolidated of Products' the third margin XXX up of from XXXX. Slide performance, XXXX. Looking at XX.X% third shows in Proprietary margin our points of for XX.X% achieved quarter QX above margin was XXXX, gross margin gross in QX profit quarter X profit the

gross on mix products improvement key continued for price overhead in profit focusing Products sales sold drivers costs. and production offset products, margin were favorable of increases by Proprietary The high-value partially increased the efficiencies,

Our double-digit generate and high-value organic sales growth. represented XX% a proprietary of and QX products devices product sales,

impact. operating of closely profit a margin XX increased the gross profit XX.X% QX to and points expenses. expand as quarter did Contract points we an headwind grew Manufacturing and margin continue to R&D third SG&A by We to compared XX quarter. basis margins manage due expense year income basis profit on and Adjusted over other see period by gross XXXX, prior FX

how let's terms compared look flow done and in at $XXX.X the X, XX% for sheet Slide our increase. Now of key Operating we million some the review listed to more metrics. flow in cash cash cash period generating an at business. million was XXXX, balance increase have same year-to-date $XX.X On XXXX of we've

Our of XXXX, expectations. in equivalents. with year-to-date was cash at than September and XX, than XXXX $XX.X capital a line spending in year the to cash capital at higher primarily higher our due December XX, $XX.X million million, million million was $XXX.X our Working $XX.X ago and increase

Our at a million balance, of was balance $XX.X XX% increase. million cash XXth December September our $XXX more XXXX than

Turning to provides guidance, a high-level Slide XX summary.

net a year FX we of full in between in range and $X.XXX be raising billion. increase billion sales XXXX despite First, to our are $X.XXX expectation headwinds, of

to compared million. organic current year guidance sales rate over a We be full negative for foreign reported the headwind XXXX of million of XXXX $XX X% sales, $XX assumes on approximately a of based net exchange impact sales currency to rates year expect which full grows prior

we of between diluted raising $X.XX and of range year full EPS $X.XX remains to guidance $X our $XXX new guidance at the and $X.XX. are $XXX between compared prior Second, XXXX CapEx to million million. to adjusted a guidance

your FX currency There EPS has as you guidance. I our current compared prior diluted bring exchange on want are based to headwind on approximately rates to of attention of to, elements some foreign impact key Estimated review an $X.XX guidance $X.XX. adjusted

$X.XX have approximately the months an first the of year. We of for impact seen nine

is back XXXX. made perspective, XXXX recall. low compensation of SG&A throughout experienced due impacts to a QX was around more patterns XXXX adjustments QX unusually with line expected to SG&A in the be accruals From expense in to to expense The comp the spend

in for cash top EPS line 'XX Contract free Manufacturing, operating over growth improvements, both the margin, adjusted Proprietary year-to-date and to adjusted and gross and growth quarter diluted the takeaways key growth profit operating profit So, in and strong in summarize flow. growth QX

construct and EPS to with sales improvement sales of than greater growth. X% date profit margin of and expansion. for raised our XXX long-term to and basis are points Operating in EPS Our performance line of organic approximately XXXX X% projections

back to Eric. turn like now I'd the over call to

Eric Green

Bernard. you, Thank

and our I Before the line a open demand takeaways. to key questions, for Across few with business products for conclude want customers segments, our are driving services. we

global product future will driving cost-effective manufacturing deliver and efficient to contribute have expansion we to margin investments Our value and new team resulted on ensure and continue capital. launches is R&D increased high that initiatives growth product to invested our in return our operations

take questions. to strong we're and are we ready confident performance With the poised we quarter, year Kevin, to out us. the in we're of see ahead another finish this opportunities solid

Operator

Janney. first Paul with Instructions] question Knight [Operator comes Our from

Unidentified Analyst

It's actually for the Mike quarter. Paul. Congratulations on on

Eric Green

Mike, morning. Great. Thank you, good

Unidentified Analyst

Proprietary quarter, specifically more Eric, CZ to numbers or it additionally, give then XXXX? you yet really can highlights the this that is and Thank talk portfolio And you. Biologics. meaningful on can an update in your through you in become the around Product has

Eric Green

previously of the When of it's into area, products being Yes. being this you you, into marketplace, in marketplace. strong but very also we Biologics Mike. reorders launched the a grow look at products to launched business, Thank combination continue new and adopted actually the

So area. and this committed order confident this book with very strong performance a we're very the year we particular see for

the our when of extremely And being pipeline molecules high. in and, about be participation this continue new approved thinking to and space, you we start

the regards to So in our I'm In forward. question, CZ very part about actually confident we was that portfolio. particular, second of as look part it in interesting

would two the lot we and we the approvals less is approvals, that again in for QX you previous if a it would than had Biologics, years, I significantly that. recall see had of and it around year five Biologics make two

year. we we with to this demand have had demand the studies the also and CZ earlier a also facility DAS we're CZ one active nicely area, continuing vial that's Arizona driving momentum the mostly being and gain seeing the both underway. our the cartridges feasibility approval with that we're SmartDose Scottsdale, to The due syringe also in active are requested handle in customers by to invest So

Unidentified Analyst

under Thank too, think call, as you Bernard. then And and you you queue. about in the we number. significantly some there It's CapEx chime maybe, about I'll increasing maybe And we you forward, continued smaller just outlook down guys to from for your of a how in million, hop the then the can Eric XXXX $XXX work is back look Can on volume on come room towards for for peak color as in provide spend? reduction million visibility as in but that footprint? as do talk demand $XXX increases,

Bernard Birkett

Yes.

at continue on to focusing would and really to our So maintenance we to to always CapEx drive and certain million. in level last X% the which make about targeting, investment is and a spend two, we business of we X% revenues that No, there can for sure obviously appropriate the we've amounts, automation always CapEx, be but make is CapEx, what that of it's the we're were year - on running the - sure about $XX investing we or for and have that's growth. growth is typically growth been the

that more of which investing covers provide to in on But for equipment on in compared and are investments CapEx investments hopefully the that faster facilities you. automation, a lot so and it in returns buildings

Operator

comes Our next from Solow with Larry CJS question Securities.

Larry Solow

Just just my some that any timing there questions, high would or on that the investment. was is was a option of of any that or Was expiring level on couple great. kind be of maybe, one reason there that thoughts Daikyo on for that

Eric Green

it around the Larry, and for of think because between technology a products it's it's Daikyo very but in about space. discussions quite very how Biologics and relationship particularly the and important deep had our supports both a portfolio, and a the obviously, with while when long growth high-value companies we've their you parts

a how relationship build dialog good two forward from partnership. this and There continuously firms their and distribution also partner that does we have no license Daikyo to was actions in position agreements, both technology particularly to products, we've XX% can with products the their the and to and very but engaged So, high-value but bring in space. thrust XX% previous major growth between reinforce increase were that of Biologics on put and Larry us as we the share required our this stronger in we in that the a a a to been due exclusive and existing

Larry Solow

guys generation I product SmartDose And already prior sort the have commercialized, faster. advantages think of of if which now you - can obviously then the investors, next adoption to help of the guess on just shown of can and know I you - that's being SmartDose, sort you further also you I kind that at just over - the highlight

Eric Green

version out being asked smaller what is drug - the particularly first towards by that original seeing a our was environment the they we're customers, them and doses to that with and from to you're and move biologic we space molecules to there molecules infusion in came take technology that with Larry, want targeted that what allow certain subcu. IV

in - be that that and molecules to tend these market so already. the And are

to West underway through we and currently past but the of dose and our technology have the customers So, we are development as news it allows handle is actually we driving launch from because good IV that the, this the speak ML with to for we obviously, at on. cartridge the subcu XX customers about of the don't time can as our indicated there larger the volumes point agreements us several talk in support development we're or working as specific itself, molecule many this

Larry Solow

And couple Bernard. then a just for

the seeing you back complete, guys will one those you On start that I or restructuring benefit that that's to and reinvested that's money did you $XX business? program guess annually, some that million be save whole particular the pretty much expect into some of is will of benefits get

Bernard Birkett

the start the by see phased completed we'll be will XXXX to work the end and through it benefits vast - will of in be come a on of it's done majority basis. So the QX and

of move harvest able So, we be we benefits. the as to those through year, will more

Larry Solow

then just I little may it. And call the question have late, joined last you addressed

on the rate quarter options, expenses? Just related there more - was to tax an that additional lower credit there was that the in was this

Bernard Birkett

point, major this were to there expenses within adjustments the tax quarter. at More to the options related and no other

Operator

from question Blair. comes next Our John with William Kreger

John Kreger

relationship the did other ownership stake? Daikyo ownership increased, other than The of part stake any the change

Eric Green

the with the technology major we increase and was mentioned but do agreement. No, and change it's distribution of Daikyo an stake have the same between it as agreements, relatively and the in earlier, exclusivity as I've license

John Kreger

the benefit, in small impact think mentioned acquisition the I in again, that release or then, the of guys was press that higher stake you quarter? you deal the other a was just some did And there

Eric Green

No. we've in allows our customers, largest way that the distributors, to which of The well. That has had that the gone acquire quarter of very with the actually Korea world. with transaction companies has some so biosimilar work - with was end due gone to was benefits by the conversations due the already directly smoothly South is integration part to quite that seen and the we to last us -

John Kreger

And you do the you maybe little think talk one then, key the bit segment, pharma about Eric, more, can better kind you more how a 'XX just out client to driving we what view as is beyond. of look growth and to

Eric Green

demonstrate customers growth of convert number when to you from of total in pharma take the standard the ownership, about able better the thesis cost and driver John, provide out down one that product driver the to them the big of to their to we cycle the the drive products cleaner time as them large inventories quality, in other thinking number to that cost That's our continuing there, better, high-value Yes, clients system a higher we're allows so of the a unit, products. one is marketplace.

be in that The is robust. in the, second the diabetes application continues specifically to one

see in think contract about producing specifically also the we're component around When You through less primary devices all it feeling very is for the portfolio. contract manufacturing, our comfortable. pipeline requires we're strong which containment, that and is manufacturing The you space. insulin that those usually

direct we XXXX marketplace. that, the back of eventually think forward, when impact VialXBag get as impact you performance going upside is what see you in and product work see more I the but with the we through that won't

John Kreger

burden quarter? Any on in timing, but update terms of third Thank expense what also that the was of recall on the both in you.

Eric Green

so update the have market this don't timeline an at the into re-entry still working process, We're we obviously on for the Yes. point. through

of too million couple looking dollars, side, material. expense at the a so probably On you're nothing

Operator

from with comes Windley question Jefferies. last David Our

David Windley

from you revenue John's question last could headwind Bernard, quantify the VialXBag. follow-up on To there,

Bernard Birkett

think quarter the for about million was but It I $X quarter. in the

David Windley

quarter. for million the $X

about question, so of your globalized in about you've Broader footprint. automation talked in things Bernard, that, like am I investments operation strategic Okay, capacity terms much interested great. in you in as and things capacity you like of that. this year runway you've automation, when taken online, you've for the Waterford you invested in facilities your think end offline, the how targeted by say, have

Are you about a could and be - thinking be for on great? time have if that'd timeline Or kind that, with support you fairly you existing growth. curious do significant end a order you're support beginning facility where to of your footprint we period Waterford room put should in year? the other capacity by your will locations to stand - of add to the you expanding modules just where growth or I'm you to in of

Bernard Birkett

Well, at the with a end for at have process. with the we're a the years, to obviously journey, year, in we of capacity of footprint and or adequate not is completed the years, we the it's a automation, existing one it's levels two be of number believe automation going looking multi-year

production And going to years. to so the in we see for add don't coming we're that facilities have

David Windley

In starting from starting then in the factors progression or third influenced you've the things first that in kind been that year-over-year wondered, margin? out, year-over-year there you've Thanks. into maybe and the say differences driving also but about staffing terms the on were where Proprietary Products business, quarter that flattened contract kind like manufacturing, levels talked of I maybe expansion margin contract with some of there second of half and quarter in mix the with about of there, margin, efficiency more manufacturing, that certainly manufacturing focused contract kind you've talked slowed of

Bernard Birkett

Yes.

saw groups specific that so little have was we within little margin and the of more expansion see in start understand productivity, - On two was and we sure have so through manufacturing, than to where a be it quarter, areas was us. the reasoning targeting that on we margin in XXXX, and focus would the bit and has but improve behind, or we is third our expected It the the very would would've make still we of we that to to slower QX see we it that working little one a regarding expansion expected behind the it level bit contract bit for we're in have contract primary expected facilities us those. progressing have efficiency to and to margin and a focused manufacturing, we been a

that. place as So said programs we in I tackle specific to have,

in with saw quarter our most summer of expect And we in be on it have plants. Proprietary, where margin a our is and number much mix where we pretty we're to perspective, the a in line third for the of would is so, what we we been European particularly year from have standard or shutdowns,

we half normally lower absorption impact of the in first get the So third see margin. we what the bit that is level the quarter was year than and in a the little of that primarily on

in margin slows the we it something that's and that little have expansion, expected. bit So third a quarter would

Operator

And to at the our I'm turn questions host. not over back showing call like time, any to further this I'd

Quintin Lai

will you online Thank you, on in our call. joining today's section. of And thank Investors the for Kevin. available conference archive on us An be westpharma.com broadcast everyone the at website

today's access by through a ID earnings call. the concludes of conference Thursday, Additionally, nice the replay That October the numbers day. you Have end XX release. provided dialing at may the and

Operator

Ladies today's and conclude this does presentation. gentlemen,

You may have and day. a wonderful disconnect now

West Pharmaceutical Services (WST) 24 Oct 192019 Q3 Earnings call transcript