- Earnings call transcript Q1 2023

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Operator

Hello everyone and welcome to the Catalent Inc.

First Quarter Fiscal Year 2023 Earnings Conference Call. My name is Daisy and I'll be coordinating your call today. [Operator Instructions] I would now like to hand the call over to your host Paul Surdez Vice President of Investor Relations to begin.

So, Paul, please go ahead.

Paul Surdez

Daisy. Thanks and first for quarter everyone to us you Catalent's review XXXX thank morning joining all today Good financial results.

the Officer; is our at Senior Slide two on and available our agenda Financial on me call our call Alessandro see are investor.catalent.com. Joining on today's Maselli, Officer. Chief Please Executive website President supplemental and Investor Vice Castellano, of Relations for Tom and Chief today President presentation which

just GAAP forward-looking our most differ financial on earnings and discuss and to forward-looking today five will also refer operating Catalent's and to financial will condition. issued may measures. three Please be and reconciliations During provides today on that performance, bear directly from and could information more slides on the SEC to slide the GAAP for for our Catalent's We non-GAAP make It XX-Q results statements use the possible refer call, expectations. release additional is you filed of risks measures. measures, to Form four financial that statements, detail that results, refer comparable and management uncertainties actual our management's non-GAAP with

remarks call six would turn I to whose on to of begin the like Maselli, Alessandro opening the Now, presentation. will slide over

Alessandro Maselli

helped Thanks with in growth excess Paul We solid headwinds call. as exchange and translation. and year lower strong welcome non-core unfavorable from demand, constant currency inflation, of revenues everyone started results related momentum the offset to COVID the foreign in a and product positive XX%

significant and vaccines and of viral these of received the this when were The as $XX of COVID-XX contracts, change Bloomington the we a new XXXX updated now contracts recognition vaccine patterns the for order set guidance our partnership. of was that timing framework vector first highlight notable occur of related which We payments determination on revenue and this to to like Anagni finish and for of long-standing agreed these our the the of the reflect sites. debt a -- in demand would results accommodate and initially will customer million in adjusted revenue expected settle in strengthened growing in second recognition the to We agreed October not and fill changing on Janssen expect for the at related the our fiscal quarter few we to contracts resolution I cover a expected First, EBITDA will which take-or-pay year. include moments. quarter factor fiscal in the in of revenues the the that I COVID-XX

Turning results. to QX our

increase EBITDA compared As X% including our $XX shown cross or a adjusted the a on discussed, quarter reported revenue quarter on fiscal to six, basis without we or of just the first $X.XX the revenues reported flat billion slide million currency of first in XXXX.

exclude organic divestitures, also constant X% and revenue declined we acquisition While in measured currency.

divestitures, compared the of and currency. adjusted XX% of or quarter When quarter reported constant decline on million as in XX% was the a declined first Our first the excluding XXXX. constant basis currency fiscal $XXX EBITDA to XX% measured acquisition

cell as business was which therapy first constant the synergies our is seven, than growth in in The more well organizational offerings Turning to commercial structure. noted and the by under growth to our currency on quarter development as Pharma in was our services non-COVID-XX from driven Biologics organic XX%. clinical our new benefit as segment, starting our gene slide non-COVID and segment, Consumer

will success. a capacity place we Slide we years, has during growth of future taking continue past, the strategically schematic the forecasting substantial capacity helped the a put and lines new fiscal we of shared time the have the few to growth unfold. continues the eight, reinvested over returns the including action last we that non-COVID-related in to on to necessary provides to in we the are years, As enable we in expect path keep to have ensure, we place two past 'XX as the us over last levers COVID-related which have activate --

our taken can of you meaningful few to back organic growth to assets the and was to these right drivers for entry plasmids. the through bring our therapy Other we large are at As date ago, have years to growth M&A, to to A see, modalities. six the business in our suites growth into scale assets. in our place which drive not future been suites online enhance year total as in gene February IPSCs now sites expected investments its ownership, through years, cell therapy utilization internal of now some running and we We high investment these XX contribute including expected new additional has XXXX, and including brought contributors revenue earnings BWI rates.

the progress. are on we campus, suites, the which addition, online progressively as same months more clients' building a new our eight opening pipeline now XX will In over come containing next

fit-for-scale drug recession updated this This is in to manufacturing. It high number among Contract we the X. in of our supplement of the capacity top capacity the to recent on led we syringe which last additional portfolio explained nutritional of to pipeline, a capabilities the factors matches made Some production solid drug that macro R&D through capital the to The industry fit-for-scale substance I factors. molecules markets. is drivers closely Metrics over sector-specific towards accounted in now have plans accelerate from orientation beginning more that investments further for require single-use our a us of on why the our Underlying in decision received [indiscernible], fiscal a particularly port are to small Metrics conservative and handling just continuation growth investments handling. tightening the is our and is Services product changes market guidance complex for the guidance. that potent economic compounds 'XX that as of highlight and and a the demand since meet key to of enable the with including have conditions number market, our in to growing updated over represents into a just drug well includes Catalent, and to growth year, to continue formulate some other the Laying solids closed briefly capacity macroeconomic business oral our oncology the led we a last in a the of existing of ago landscape, Europe, rent include further potent others. market acquisition call include oral few growth offerings October increasing adjust that the organic acquisition for the outlooks balanced to Adding as deterioration gaming will which of overall us overall year factors customers, increased and maintain pipeline. or strategy of the Having project specialized increasing likelihood in long-term innovative years particularly other for the our

are confidence impacting inflation, beginning from either repo discretionary consumer and effects We anticipate further to spending. the which is also see

seeing of lower for now end signs supplements. are nutritional demand We market

delays to European of manufacturing experiencing are lines the at our components shortages the key in due we addition, delivery suppliers. In of new

We within offerings Health Consumer our our segment. Pharma our adjusted and growth have health therefore near-term for consumer assumptions

they health to and prioritization through signs our This are consumer the to progress biopharma While by some cash-sensitive of inventory experience as is evident remain decisions customers. pipelines robust, their goods in candidates starting levels for of the we most finished of relationship pipeline. our or

Our adjusted trends. also new forecast in reflects these

increase we made of cash of our as after Finally, elevated we utilization, the spending sheet. our have this rephase several to expenditures, flow load decision year balance years of to planned maximize prudent fiscally capital levels for CapEx free some

our targets. not significantly two for respond initially negatively Some rephasing our efficiency. during we impact impacting guidance pandemic, operating of delayed initial will growth increased past and fiscal but years, for be fiscal we base to factored urgent our XXXX vaccines direct into our interest and long-term demand this XXXX, the now the cost the therapies, the capacity into patient To will

the productivity the end conservative flight Many these diligently be reflected guidance. revised to operationalized has the expected actions this plans optimize all of and in as is new calendar year. already in are the been organization, of on team the levels. the by Given cost are we of structure historical our also management approach, working to cover This

significant While the from areas we some adjusting taking signed the are strength pandemic, of I guidance clear that exit of be step navigate as prudent business examples. as displays still the to our underlying want we

We forecast strong continue non-COVID business. our for growth overall to

its business continued record historic Our performance. Zydis

the high. invest funnel when opportunities therapy of lay gene we proven business non-COVID we thesis out new our Bioservices a initially that and the to we led our audit XX at record the like FDA Form managed operations. FDA is summer our to and to to Our overall are systems compliance XXXX, than out acquired would everything central regulators In hundreds more around independently facility audits from our was and own drug XXX of is the and as other world that inspections quality strength audits to our staff assure their internal by and and subject I the observations. XXX gears, Paragon has fiscal Shifting customer the And and the constantly consultants. of outside including quality of over Quality audits well we constantly audited. that address quality do approximately as

of millions as and will is all did considered so. do challenges the to regulators assure working said, including we vaccines is and pandemic, Catalent that of compliance quality timely, We world continue what as regulatory the evolving are of vaccines. customers routinely regulators to medicines safe, occur So routinely to inspections and provided With always efficacious despite patients many the and all people practice. receive we best and that around landscape so the

them topic observation which we all already and by they've believe have manner. we We responses and the To to take address all our to highlight Bloomington respond Brussels want to to in we and will comprehensively complete our this. observations I FDA timely so that teams holistic an this necessary implement a seriously committed changes the close resources see deployed and recent way. And and

meet close offering we to there a needs, the to notable negative P&L effects ability as be the favorable not outlook. customer excited continue our which a less some we factor drive about To these in overall their our address observations, costs macroeconomic will remarks, growth meaningful my environment. While of remediation are are full and breadth revised even related year in near-term

demand, that the supply healthier starting help lives, COVID-XX develop, With in our people those while and the manufacture sharp investments. remain focused we the fruits drop future of We growth deeply drivers alternative to enhancing are pivoted and vaccine our shareholders. products mission value better early pandemic and see cycle to in live on executing to for

would Now, to call over like to I the turn Tom.

Tom Castellano

contracts I $XXX to million previously XXXX. with The July. earnings vaccine as a decreased segment constant in but historical a first settlement Biologics In take-or-pay revenue where commentary was morning EBITDA this the place result will quarter, have providing and currency. QX XXXX presentation, announced are been of segment. slide that segments primarily these is fiscal in in nine quarter have are for growth release in start begin XXXX. considered net This segment discussion X% and the we slide compared with structure results to. was decline first on not be of Thanks, Biologics of a in our we been our segment will back reporting revenue is I'll the COVID for under on QX Alessandro. the recasted performance, that revenue both around the and expected new if quarter of

to fiscal basis the Brussels, XX.X% the is as year-over-year, We strong If the obligation by This year, XX.X% which following underutilized will to XXXX. lower related remediation revenue quarter, therapy from programs, XXX factors the for in the performance as of amount Year-over-year The second in and the this well completion first as offset margin fiscal likely decrease than the was carry client. segment's Princeton the in demand gene growth we activity the for negative primarily seen the in impact revenue capacity. would from fueled points Oxford contracted our programs. of EBITDA due included were Other include later particularly the cell in by of have offset our to an more year-over-year nearly the recorded QX, outstanding demand strong margin and COVID-related ongoing, quarter we non-COVID organically offering. facilities. in negative

the bottom of EBITDA As the shown over on slide XX, Bettera to during Consumer million, growth revenue business. our percentage segment to PCHs XX% line segment Health With segment net points points contributed and the top XX compared XX% $XXX and and an EBITDA growth fiscal first were last Bettera of net of Pharma fiscal increase the same year. driven period Both acquisition percentage revenue of the increasing inorganically XX from quarter XXXX. to quarter. generated The growth

will prescription starting from located Coast PCH our development business a did due site manage. days, offerings, QX, reminder, by driven in to products closure organic Partial structural growth, development PCH wide closed be in Florida's site As considered The was revenue a of largest decline drug four a Bettera Ian. West did variety the came clinical and modest to any but on including Hurricane organic. The growth supply. for of see not offsets withstand mandatory

XX. slide Moving EBITDA to consolidated our adjusted on

a XX% declined year-over-year quarter compared basis, constant COVID-related adjusted Our activity. decreased the of EBITDA or year revenue. first the due quarter first primarily, adjusted EBITDA to to prior of in XX.X% decline million On to the first our XX% currency $XXX quarter net

shown on diluted on ago. income jurisdictions, income quarter, Note quarter Slide XX, over adjusted diluted compared in because expectation $XX first the a the $XXX our tax remainder in net year. year share, quarter of million tax than full Slide $X.XX XX, was that which the shows first our As net of $X.XX weighting per of in per leverage This the or to above September XXXX X.X XXXX target times adjusted normalize million our was year X.X X.X fiscal XX, of to debt-related higher share X.X income front-loaded acquisition the we first times. expect rate higher or XXXX XXXX. Catalent’s our we September of ratio closed on and which leverage pro X, compares forma ratios as On was times. net allocation XXXX leverage as opposed on to X.X capital October a June long-term assume net XX, net of slightly priorities. basis, XX, have for would times to and and times been XX, the Catalent's ratio metrics June

million and balance combined million negatively remains of as and stabilization that strategic by course. $XXX still cash of appropriate, levels. supply the time to we was is securities decision hold of are XX, inventory flow feel cash June as Our will the to comfortable our reverse When $XXX XX, to marketable impacted chain, our equivalents of XXXX more begin Note September XXXX. increased we free compared with

free will when cycle for an release, as thereby Biologics customers, approach This expectation progress The year, as shortening XX, large fiscal we back contract on September XXXX. programs, balance of As on are the realization this asset however, in that our within is commercial versus in invoice this is entirely we $XX throughout XX, and time. of million programs. to where to the based difference XXXX, is affects cash affecting flow. majority June delaying it make negatively The figure compared cash able decrease of development million, was overwhelming completion percentage to $XXX was revenue our of related segment recorded increase increase notably a some particularly

point I that free in impact. contract had a decrease flow, note our final negative regarding a cash also the liabilities As

to Biologics Our are liabilities proceeds and to gene arise cash segment, contract predominantly therapy upfront our our within related linked programs.

last out over several programs these and these play we obligations shift mature and have As customers, quarters. this are gene seen the performance the large already therapy to several revenue recognized with balances met, will

positions for moderated as a from Moving a and macroeconomic Catalent expenditures. be as This CapEx previous approach XX% We generation. navigate capital overall expect to of XXXX to XX%, our we percentage of on projection environment, to through XX% and more now free between fiscal better spend flow cash rate to capital deployment, our challenging revenue CapEx, of XX%. prudent down

to several non-COVID This a revenue leverage previously put pandemic and the than in sooner. capabilities we we the and and has capabilities new growth. build initiatives shared, As have accelerated continued strong planned for position to address new anticipated assets these modalities today earlier lead to company

the $X.XXX versus impact low be which our to guidance. orientation. outlook expected the net range adjusted X% with the the in quarter. fiscal fiscal a turn at year we metrics, decline an the basis XXXX conservative billion representing incremental billion, expect to one now end We a of macroeconomic reported outlined the $X.XXX Now longer of our XX. an closed of X% approximately environment revenue slide new continues revenue for of to XXXX. and a in which just at will outlook increase originally EBITDA on on end FX challenging both assumes of headwind August, full This also acquisitions persist to reflects previous justifies range after and percentage first point on more adjusted back as high It than our financial as end compared

a to guidance and announced growth. As we August of on revenue the FX our approximately reminder, three a EBITDA negative percentage impact points four included in already adjusted

So rate constant after organic essentially the revenue taking expected revised range. into to the be of guidance account in at flat XXXX midpoint is these considerations expected fiscal currency our net growth

For fiscal $X.XX we X% range full end billion, EBITDA, a low end range $X.XX year representing the adjusted of to high of of an X% of XXXX. the at decline compared increase at a to expect now the range of the billion and

year, of year-on-year the efficiency be of number first second XXXX because quarter, decline we more we headwinds to inflationary are the the the pressures, that of of our are last volume quarter declines, our underutilization on weighted in cost our This generation we foreign related XX% EBITDA which impact pound. XXXX back COVID US, accounts greater of a but are historically where the There start-up that be are by of will be In factors expect revenue cost back as versus Princeton saving our more from are The a XX%. capacity seasonal to chain actions. also our on assumptions, our the period. and of has revenue started implementation we continue other than familiar which and profile just to offset in margin quarter. margins impact that to to of COVID absorbing swings the year much related the led each supply additional we EBITDA related pronounced have approximately our is negatively activities, include organic half You to reviewed in approximately now factors nature expect in business realized the of with half Oxford, and to in the at XX% EBITDA that adjusted corporate weighted the for fiscal more to acquisitions even network partly of of the costs FX and across our translation outside the we higher that exchange as majority translations bring euro pockets domestic. Note while costs the fiscal

ANI year driven adjusted million, to decline to on of We from Moving XXXX. XXXX full to is compared to a now a foresee of several decline basis we income. fiscal $XXX million fiscal range by The of as-reported X% being net XX% for $XXX expect decline ANI representing an a items.

First, acquisition, to inclusion closed the used Metrics in the October. the which new debt of fund

other Second, servicing new acquisition, the the from of raised debt part Bettera interest well current the we rate environment. rising as the variable in full year increases in interest-related as

heavily base, also saw compared expense larger towards weighted a rate increased tax expectations due asset But to earnings. the to XX.X% as rate depreciation And our XX% remain for our in experience XXXX from fiscal the the to to geographic our significantly mix we'll guidance. higher US. full more we XXXX unchanged reminder, in Next due is the a effective prior range which fiscal of tax finally, XX%

remarks million Operator, expect the XXX prepared Session XXX to we'd the share in concludes to be our Question-and-Answer to million questions. to range shares. this of open We for count like and continue now our call

Operator

of unmute please you. with Barclays. Instructions] go please your Luke Thank Our and your from line ahead. Luke, proceed first of kindly line [Operator question the comes please Luke, question. Sergott

Paul Surdez

Sorry, operator.

Let’s the move question. to next

Operator

course. Of

Savant from comes of go Stanley. Tejas Our Morgan Please next ahead. Tejas. question

Tejas Savant

just should you a morning in bridge Hey, kick about as you help guys. assuming impact top the But segment have and midpoint. line assumptions time things assuming new of the us growth just PCH Ian embedding off well road. and that Hurricane and the build the like at outlook no what curious down to be I you're Good are the for by. payment the Perhaps to old on Tom, trimmed biologics COVID guide, just between I'm in $XXX can deal? impact And your metrics here. the can the million also the It non-COVID growth by terms EBITDA Alessandro your addition new and appreciate sounds was recaptured the as

Alessandro Maselli

it in see Alessandro Tom. I'll first recorded here. as Tom, a in non-COVID thanks of for quickly to bit part and to like the and the of continue expected expect more we will range you this I question. to hand would we So cover year. Tejas plus the growth then quarter, through you little we over Look XX% as details? the a give

Tom Castellano

Sure.

Tejas. guidance. the So good Related question, to

as down more related assumptions seeing I those the as to seeing items. well would impacts related as driver timing this say and biologic-related to willing the that much the not levels consumer We're at stock the hold are from conditions our thinking only I consumer chain how they well, are of a your of of as candidates safety discretionary they're the some as related customers approach think down. item especially, probably pharma as terms the Both their and year hurricane have to on the the of I spend that it we're call revenue are those. of more those say cash-sensitive Health in managing there we're the business. of we call that seeing macroeconomic to side their well health cash Consumer as that pipeline as seeing worsening of and they we as decisions that impactful say is as guidance. would and pertains some in about overall backdrop XX% of related. I take of what well full the the supply inventory would recognition view not confidence that's of view our here of in preservation customers. the the to The related we both prioritization to customers timing look point we're time if progression to timing there the the of at as XX% to

those say So larger that see continue I here. would factors we are the to

nearly Your comments as US strengthening October. also -- that is dollars acquisition around say fiscal same And the macroeconomic maybe they the that quite our That year. included given conservative further close is I the not a in two just us much metrics. landscape is offset, of we're in directionally That did here. the at the orientation look well Those but to would obviously remainder guidance now the the things exactly seeing more are in as of approach.

Tejas Savant

outlook your quality two on That's as to decision on one and the unrelated of the it. Alessandro, super spending Got helpful. an follow-up. one sort questions, front And here. CapEx trim then

the front noted are you operational. on now So, quality Bloomington Brussels and that both

given just to over macro, about the with of us you least at CapEx to back impact little any the can customers them on with activities sort as decision push well projects. XXX any you letters to the around demand noise meet talk ramp of the your your irrespective to terms bit a you've you're can ability that? here some Has as of term your received the ability any share in this given had conversations in of to pull So, particularly of to second what customer the address on continue CapEx, happens that future to out confidence update, near manufacturing site, XXXX? And these taking at fiscal any just and for

Alessandro Maselli

sure. provided Look there. on terms that in the of first prepared I comprehensive what we pretty status describing would remarks the say Yes, question, the in is

the customers are was them more confident with that on pretty have approach done transparent because we With any go in time, continue -- in our fully comprehensive observation with really sure that presentation to sure addressing reality to flight. that a illustrates sharing responses that that's our color question. updates. as that I I said expected. slide But point for when good to very question for we we our to you at what it's a the So, CapEx, of adding are we there keep and your are this already and slide have eight believe regards Look, what as we

recall and to of there time be of XXXX never environment, the you fiscal As in the the in to CapEx I replace believe that continue had you to drive make we enough decided across concern the several the us of a weeks our capacity. were capacity will next we sure you more composition front very that capacity have was in the same is plenty of runway and that more the quarters current the will excess sure long-term the is in assessment not in that than as given for the enough we that we be one position for did capacity have growth. few I there we I making to board ago, had tell we that mode macroeconomic the of having

not our really that outlook long-term So, is affecting here.

Tom Castellano

period the near-term Oxford year. that have to to the the only add both revenue fiscal in current delay really projects And I'll Princeton. decision related would XXXX in come contribute fiscal during fiscal have to two that in impact and just XXXX our and Tejas Those expected now online CapEx that on the an versus I are say we would year

Tejas Savant

Thank the helpful. you. Very color Appreciate guys.

Operator

Thank you.

next Sean Our RBC is open. Capital Dodge from go question Markets. ahead. from Sean, your Please line is

Sean Dodge

seeing guidance sensitive on decisions cash just you're a for The moment. Maybe staying Hi, good changes from the morning. some the there from customers.

us decisions or PCH or cash-sensitive the something can give ones you that that of said is in clarify States you're more of Is more the happening characterization the making any or you too? pockets these that us there? maybe give and kind clients happening then on then United both smaller to biologics too? Is seeing the context And side. decision? is larger And Europe any you Tom there only, Just in

Tom Castellano

cash they're Yes, both things smaller managing crossing Pharma conservative segments. making and at in as that this decisions. did it some are our health not in and Europe. our I a Sean. in this And is I dynamic products. exactly to I terms they a their capital We're side, and tied I driven our US-based not seeing our European on that think we're really products customers as both what to say consumer and dynamic is a Consumer customers as and say I chain seeing the is looking it's more Consumer approach just to would seeing Health Pharma from customers. customers believe terms Health I company, across say either. of this large say is commercial I our I by just supply think how it's would of Biologics do And macroeconomic the of mean related supply flow it's cash manage that we're in position would look backdrop. from working more well chain. and

Phase not play to seeing Phase is navigate X, pipeline their examination of Consumer also customers. only pipeline much of X large but the thing just across looking to So, side some more and more through it's some biologics the related across them programs, other biologics that there, in and Phase small and seeing Health. I X both of of I'll the we're We're that's larger The tied slow earlier, to again, board, wouldn't slowdown and and the progression and customers add environment. But they say, the the macroeconomic more only in to customers, be the Pharma the attributable and business. as smaller may

Sean Dodge

about quarter some thinking the less to meaningful anything tech you contribution all a sense you aggregate is is before, visibility we of to what that? those? how or that of guidance. that go maybe or need should give it like Is from year, transfers, give that just of on the those revenue of in more the hit than be incremental guidance, the cover the there new you to If can the back then new And share some you us about talked Okay. factors else

Tom Castellano

There's continue contributor that the say regards be change would through meaningful us the tech those year to year. be will been around I programs. several the to fiscal on are with to fiscal transfer those They There ramping a in no here. of assumptions

don't in their of those or not contributions. products. terms individual we're going to We about talk quantify customers So, what Sean,

to year. would so, And get that continues as we just as of say the growth as utilization that improved second half of I into well driver be the revenue a capacity

Alessandro Maselli

trends gene Yes. of which look growth, at was And the areas pointing see that I when a our you drivers -- these visibility but tax conviction also continue look, a give contributor asset, add, the QX. to strong have we And good in in non-COVID the into this performance to therapy, would about to the to us business.

to good. perform the these assets to is continue on So, visibility

Sean Dodge

Okay. Thanks Great. again.

Tom Castellano

Okay.

Operator

you. Thank

Dave Our your next question is Windley Please from line open. Dave, from go is Jefferies. ahead.

Dave Windley

could my wondering a -- I'm Sean's relative morning. drive kind My the Hi. don't is but It similar across if one trying of the of TCH reduced that help? of want biologics better PCH. question sounds you guidance and than I'm to taking over-assume of you some out of first mix. is us the get of Thanks. you're maybe like Thanks items leaning calling around the biologics, I kind revenue balance there. Could give for impact understanding to Good to questions. of to more that me it

Tom Castellano

Dave. Sure

Tejas, our of of products. consumer the would seeing the more down both say, we're spend as softgel around say about my I where towards mentioned it confidence related the business side environment the is that associated would I or was consumer overly more of in to with the I wouldn't business, impactful think would the their XX%, OTC dynamic on the necessarily of derisking XX% side, earlier I here, of side inflationary revenue the that we're PCH it's So that again segment. well particularly a to macroeconomic as in approach has across is Biologics just the consumer to taken was again and say I – responses, seeing pace consumer we're call PCH I we've spend, and impact, seeing the and But weighted of programs PCH taken, to large the positioning side slow also bulk our biologics the discretionary conservative more down terms side immediate really given business in overall the as cash-sensitive the consumer just new that PCH both decisions just to confidence, the PCH health really but well remainder though approach the customers think and the biologics around that on sorry, related and side. gummies segment, is impact the of spans – guidance PCH I segment. we've pharma on the as say,

you impact of the side. little So PCH the a the of half gets that large less being to of that to on probably, molecule addition PCH the business and the is it its again on of rest the part side consumer in spend on than the being side

Dave Windley

how focus modality wondering, That's Super. in business. help growth Thank you if to biologics, If is might you. relative driving I'm the helpful. then understand that I us biologics within

in gene therapy just like materially? know biologic have of tech times us we fill a not? modalities or I'm kind mix finish couple wondering remarks are You've answers. of you out the that Do the your your called prepared And does in versus guess, shared with I transfers. – specifically about of we XXXX in that sterile think change those XXXX as and

Tom Castellano

meaningful to tech ramp. materially, said going into second of really second would but Dave. half the the in be we the they part programs growth have I are doesn't start it second say, quarter, change the transfer to growth And half in as that, contributors

drug of quarter assets and our quarters. comments are first the cell products therapy that that, finish related some and on to tied expected around fill gene we've we the and have therapy on The We growth the continue. to seen sterile made said those is past side

strong is first that grow fiscal throughout in as that quarter well. So the performance the a year business saw

Alessandro Maselli

all you very, on need evaluations tell that you that know the an factors, of ex-COVID them we look COVID on them all-in dynamic excited all you even we So are the guidance, by here. make the that, the is approach basis led having which some growth because there of prospects impacted most would you to though which as macro to business. of that, a conservative important be us pretty finish about side on the reflecting particularly is after biologics our hear in the very about we the volume very look, Alessandro and But tell for tipping is we across other orientation to clearly surely at I orientation the and therapy, when modalities will a conservative answer. expected here. is the feel in all that conservative point excited see opportunities very, with non-COVID also and I we tech segment more gene the field clearly, even and basis, more reduction,

biologics be in an continue it's – basis, we So escalated on to excited.

Dave Windley

Excellent. bridge, down Tejas' is margin general fixed you're back but said kind That's a decrementals little would taking revenue around cost some helpful. question of expect more My I in high as guess last We to question you business. a goes bit, conservative. normally

issues you remarks, related remediation expectation, costs inflation a to are the quality have that that challenges. that other raised in So your baseline also things is and you

as the for new same essentially forecast margin the guidance. old Your guidance the is

cost able decremental for I'm help drawdown? to that the to pull revenue you're levers the mitigate looking the on on So,

Tom Castellano

where No, take of flat year. by And we've in be savings were already in underway, the initiatives, think, cost are those the looking new action, question will good Dave. The we Yes. all be current that in look to end prior our to calendar started operationalized that year. year the this of guidance have the margins they I comparison to

the we'll in seeing those. to be second year impact related full half So of the

from we're material I here the the think component to business ramping dilutive of we the in But Oxford about of are things. sourcing the when situation related start-up quarter the certainly and side The seeing the the the that that here underutilization savings also piece and layer is in lever actions around to at that our period. into have dynamics are -- costs in margin think up utilize playing margin as Princeton is efficient way, operationalize absolutely the standpoint have business that of much more how and cost we we actions meaningful we that we large the things sites underway, ability looking we a are in pulling. span the cost terms running a have

Dave Windley

Okay. Great. Thank you.

Operator

Thank you.

Qin question from next is Our Please go Julia ahead. from Julia, line your JPMorgan. open. is

Unidentified Analyst

Good you our morning. Julia. question. on for for taking This Hi. Thank Amy is

can or areas CapEx. So of a pushout or I cutting a you to financial XXXX? slowdown and the Oxford Princeton follow-up little about of add you that guys capacity And reflection on this prudence concerned down? a about more the is are have tell you the the is, topic that of you on also bit the Could CapEx, are into me Like, which the overcapacity. related plants colors

Alessandro Maselli

spend. Look, sure. in I necessarily Well, wouldn't cuts call these our

which said, our as capacity. flow. we a And and such CDMOs drive this continue rephrasing, to is to different job we're keep is margin is rates to online reasonable going As utilization at in this levels this bring cash that to as our always a timing clearly, the

combination on which you very like. is is brought which picture a when slide you at if exciting is So, this look eight, much have a online -- how we

future, industry coming the little which also to the growth be drive continue as we In to jeopardize conservative prospects and in have pretty long-term online, looking was given slow to could that habituated feel of that a the more into brought we continue terms level the And we approach it thought but the expected, of pipeline we prudent to have levers built. company. standpoint. growth capacity online, the of so to have in our how guidance, how exciting absorption about what is down a areas already additional not keep from bit much not very many good We we to

a all thing this which I believe to do. the given right in So is approach, results prudent fiscally environment the

Unidentified Analyst

the about what we'll have off. Like revenue then confidence from around after your hop business I of year half the in that supports non-COVID especially one COVID the second and question new customers of of what the will year? the Thanks. and percentage into you stick the the based into rest come some guidance, the under ramp share visibility sectors? Thank biologics you. Can XXXX

Tom Castellano

than non-COVID we the We start on XXXX growth XX% non-COVID prepared first had with Alessandro's here on pleased we fiscal on in mine we very company saw mentioned So as a that the look basis we're the remarks, across basis. quarter. more a

growth those see we around levels. Our continue guidance assumes, to

the what growth COVID-related be that versus volumes. between of modalities that drivers business, split the the disclosed to of side not many haven't were biologics out and the will are the business do impacted of related by but health of the consumer We side have we pharma

And Just second the gene that of continues year. we the the first therapy half and is here quarter. think expectation the the about in that fiscal that cell into saw strength that

non-COVID things guidance conservative trend on we So quarter first the in just line more in of we what at to continue view to that a presented looking saw with in basis the again, really we're our today.

Unidentified Analyst

Thank you.

Operator

you. Thank

Bank Our America. Bruin Derik, ahead. next please go question of from is Derik De from

Your line is open.

Derik De Bruin

Hi. Good morning.

it's not substance still just impacted? got Just a finished. been mean starting more elaborate just I what few color and bit what on programs? little around exactly consumer the assume, little by seeing? drug you're on more then I've We the Can you you here. pacing a a more bit slowdown it's So side the would in what and did where

Tom Castellano

that about of seeing supply I same that both very it but to talking seeing and maybe types I I their into development, they really plenty I clinical in in as the to manage potentially as moving say on trial of widespread. of working in the We're are products, would care not pace the as Phase pace to here manage the of chain programs look we're of of have I customers here. X where range the where network customers but side. across that there X activity say, would Derik, it, biologics mentioned, commercial not not side are expectations levels run terms that it's through business, consumer say PCH are a side level the we But would which have both some the here and they only appear now seeing full in conservative are the on the some to But we temporary Phase willing we programs mean, the programs the to development that around more inventory So, Biologics are situation. capital. on manage across and more blown we're pharma in is look health programs

pharma I comments both So, earlier development to consumer against again, health really products side across commercial and and made back of things. the and going

based just seeing on a customer conservative from So these our necessary more is approach trends we're to of some standpoint guidance the across base.

Derik De Bruin

And questions. just Okay. of couple a housekeeping

what rates, particularly which new of macro your portion is the given the How the your you interest sensitive, for the on is debt what is macro big So expense business side? increased expectation net and would year? for consider interest macro sensitive

Tom Castellano

Sure.

So tied take borrowed to our metrics the of the considered Derik floating for take debt more of the slide XX% on good revolver structure consideration would fund into in about that and you when say, been of that's the the fixed. being view about rising has a look environment the acquisition I with XX% is deck capital interest to debt you a to rate the at

this. to as hopefully, So look that be could helpful, model you

Derik De Bruin

feel appropriately this exposure Okay. And do the you like COVID de-risked, COVID enough, for year? you've

Tom Castellano

our assumptions change have. little to around that I just COVID, the contractual we very would say given been obligations there's

nothing more side things. call so, business of in non-COVID much else we're down to Here COVID macroeconomic of the to was here, note and the environment related that around the

Derik De Bruin

Okay. Thank you.

Operator

Thank you.

Max, Smock your Max ahead. from from line is go is next question Please open. Our Blair. William

Max Smock

Thanks my taking questions. Hi. for

not from touched for behind change your outlook one one called is the of really factored in we and the a the results number haven't this you've ability quarter the me to you factors or of on first COVID guide for the the non-COVID reduced out work Just for to year. things for well into here, over the year. as that whether as But

that with it's or or not kind little you've get to a or maybe issue make a line this trying here, to just been your whether expectations? of of been So the sense in you able harder for, than has if part shift expected transition

Alessandro Maselli

is as to the the times, COVID on No. Look, multiple work of executed are execution. said non-COVID Alessandro here. most Look, we unrelated assets which

other. each two So to don't with that the things interfere tend

was have reached planned into As we for. something said was that settlement quarter the the we somewhat even

times And at relationship partnership so multiple more than our holistic is given the us. that much we COVID that looking and our approach approach customers have with just shared important which with

of this deliver say any work. we performance. growth to to that a the the So with point were back go non-COVID on I interference that our look, our has execute able is And remarkable non-COVID a ability QX, XX% had wouldn't plus which to I always in

Max Smock

helpful. That's it. Got Yeah.

the a system growth prioritize from had So to mentioned quarter you one going little some to was a of benefited projects last things coronavirus. some as a bit as follow-up non-COVID you backlog the related that I little suffered that bit maybe mean

an impact or if wondering, of is quarter? to quantify -- the somewhat in work through, way if is Just be kind I not the whether the there's so, should And throughout now business backlog XXXX. of any to guess had we expect this fiscal tailwind it largely or this a of

Alessandro Maselli

some Well, demand. when be the look there we at you where continue capacity bit areas little to constrained are a

would notable terms we where trying speed. are that picture. I Zydis business changed dramatically say So we business, seeing in overall, capacity I not But in than additional demand out demand are would has named not are need we even change situation to has say that what maybe terms some areas terms where more backlog to item build we backlog the still one anticipated of success the in of There like, in of treat overall at as our the dramatically. of I

Max Smock

it I’ll Thank you. leave there.

Operator

Deutsche [Operator question from Justin next Bank. is Instructions] Bowers Our

ahead. please Justin, go

line open. Your is

Justin Bowers

Good morning.

Biologics Is quarterly Just going the – for like seems PCH. on comments of the then kind that that And on weighted It that like on time And more good lead with of rate utilization run XQ? in that between true-up I'll exception have reduced the of then like PCH. there. lots settlement how you you're is PCH kind the kind Thank a stop discretionary? what's it's and should And assume split to described. does to we you. that of of

Tom Castellano

COVID-related of take around to to the your settlement. comment the timing Justin just So

run here related this terms was related into I no in the to one customer. phasing This So would quarterly rate. a to of that there's read settlement recognition

more that see volumes As know say to equally headwind than which I COVID-related two it are as it fiscal be XXXX comments you have COVID-related was that quarter. here. the there for will third the major is are first pronounced in during the in And we going would second quarter. quarter we made the the I be pronounced say, customers in in will I

through Our the volume where fiscal we second were and most third the to year. quarters quarters are declines in see we which most, we're as expected COVID-related head

In of at the capacity of Many on related online Slide talk as the X, or that where the online. you assets. materials capacity are the terms would new is we utilization, look about say, here of I has slide on to biologics-related in process those coming comment come

capacity on bringing that in we've alluded of is underutilization ramping this dynamic is So to and it as biologics some which with of as the before, given dynamic. the timing of consumer starting new the going health pharma assumption XXXX, to much that that the more well capacity see a than fill and fiscal a associated we're to

Paul Surdez

question, Next please.

Operator

you. Thank

your ahead. Jacob open. from Our Please from line is question is Stephens. go Johnson next Jacob,

Unidentified Analyst

for on Mac is This Jacob.

Just question a quick for me.

about at and the another given in of capacity what the way, cell another least revenue customer have coming. I relates of commercial or and customer a potential potentially As it BWI? it we therapy to your therapy one cell size you at gene gene business, commercial How think at should is looking and suite think

Tom Castellano

you the basis. look I of say equal. here. the lot There's No you things, that would are at look factor can't on a So programs revenue suites at at how BWI potential into would revenue a

on. your think are comments spot I

We a commercially approved had have program.

say that in would I later have are stage. We several programs

we would specific. fact we here fiscal say programs specific you're get bring in to that business I Look, we continue well attached here have here. of XXX development the therapy probably customer difficult the the will up programs for think the therapy, the that on within us. been be referring as meaningful in revenue different comment that well suites, through it. XX as XXXX, which of I assumes a it any side we've guidance as XXXX will as progress gene to that as be. have customer suites to running one pipeline individual or think I and But have that And on gene fiscal to additional investing the to continues to it's It on our

pipeline a very continues that So mature. robust to

Alessandro Maselli

asset largest assets to the going late just meaningful I if believe be be of So customers our view. in that And clearly the more also few out a seeing viral stage that one contributor pipeline factoring of the suite story BWI a helicopter progressing not within that the strength is given with the our there. of growth years We to add next and will vector largest the approval. potential we're would

Paul Surdez

All right.

Next question operator.

Operator

Thank you.

Sourbeer John is John, UBS. go from is question open. your next ahead. Please line Our from

John Sourbeer

inflationary and of you and Maybe specific starting Are to for one are the more from bit increases -- taking pressures inflationary can the guide. you on the customers Thanks market? little with some on you the the on a price customers just here talk Thanks. just biotech the comments pressures you question. see pricing more on in and now pushback the mentioned some updated of maybe

Alessandro Maselli

more we all win stand as inflationary are sure. going. the seeing. doing careful there different market where is relationships everything on positions. offerings. sure pulse so at the other much are around Clearly levering business areas have the offset to competing pressure and appropriate. you There Yeah, easier the that contracts opportunity But Clearly mechanisms one It more tends your and on forth. been make we be business where market that believe to we we places what are not in and and size to that long-standing can different it's a the fits you as do as are a Look are and the to around where can need every opportunities on of we commercial have are more aggressive have price you successful be very of we good there we really other I

Paul Surdez

right. All

operator. Next question

Operator

you. Thank

Jack, Please question is from Meehan ahead. Research. Nephron next is Jack line your from go open. Our

Jack Meehan

historical periods? can morning. color are to Good they provide relative cancellations? in the you or on Alessandro How Tom, quarter

Tom Castellano

in the would results we've different year, where in which to I not impact That quarter way though any seen look So quarter. the an it's the slowdown. things are I of of the here. historically. handful what first much remainder in say say we're necessarily pace fiscal wasn't being the think we of progression wouldn't cancellations we've in seen we've as than the the seeing of seen wouldn't the cancellations about a current would I that I we're customers move but say willing but overall is just what are seeing of canceled say

more the at as necessarily what a being canceled, that are programs that consumer isn’t conservative health certainly slowdown and side pharma are side and view as this the on but the slowdown of So guidance. both well was biologics contemplated was in

Alessandro Maselli

how progress side, the given we're terms selectivity. both the of going in I the outside, understanding situation. would it Selectivity to on side Look going more forward call customer Yeah. cash business

Operator

Thank you.

Evan Our next Baird. go Stover question your line Evan, from Please is ahead. is from open.

Evan Stover

want understand I sure spending to impact how I actually your business. habits consumer Yes. make

a and and said or that So And question also, in about business you $XXX would OTC fiscal big was a is at together in change XX% earlier demand. I about my I change I I I end like for $XXX answer with guess seems market million in those guidance or consumer business business. the it's strong for a on if the impact two and a It's relate million health $XXX fully what 'XX, consumer a put Bettera. cut in million. to $XXX million the that change about your behavior spending $XXX mean if that math double-digit million which cut spending $XXX look million of in impacted consumer business just that's

I how I want really just consumer So to that spending impact your make understand business? sure,

Alessandro Maselli

only event to that right? you And little full customers is of is I look that other demand There Tom carry about and And and want than I and approach, temporary inventory the one the bit end much is effects mark want as a surely how the offering. there more stock when our a to there running much the the one is market more today at market we individual orientation Well the don't uncertainty the in how these tight towards clearly of inventory our entity the compounding demand have the conservative levels. carry. a on surely are are market are on lower tell a can to is is look at would to specifics. each market be you end standpoint, you capital more refer demand tends to there times -- combination

that few probably off is once question. the -- your around these balance point dynamic market inventory effects piece the really the a serving that destocking better the in you effect to a end some compounded explain demand. period are at these are temporary the because two believe has tends months happened So I But

Operator

you. Thank

today Sergott ahead. Luke, your Please question open. Barclays. from last go is line from Luke is Our

Luke Sergott

Great. in. Thanks sneaking me for

therapy a approvals the growing? those the about and methodology gene just give and or us give in therapy us guys of some and that's size how from And and a us So you how as give of guidance potential -- cell you gene then think been of guys can business sense businesses? of a cell you factor can the you of -- sense

Tom Castellano

directional Look very So but color contributors and two we revenue sure, haven't different businesses here. some -- terms overall cell size, here biologics at I'll the are our definitely its stages very therapy cell maturity. I would gene different Luke. quantified because you they therapy I'll of and and give business in of gene rank dissect

revenue into our largest therapy that out some substance our our plasma that its it's of around here. we cell the $X.X and annually. DNA IPSCs to business biologics would second I revenue therapy drug would product and have is from contributions But there our you then would then say I etcetera contributor start business getting say from Our in here. biologics billion of revenue gene is drug service a to close contributions smaller

So in we're terms we a quarter the therapy reason growth than of why growth did basis. biologics right big two a more area first absolute is contributor on of the sure we fastest revenue across the the the overall number company saw now XX% where It's our and to seeing dollars. of in non-COVID gene for

look an our of here, most control of of many regulatory approvals are customers' cases assumptions take approach outside cases, which to terms going and not overly well. our we're in In to outside control as aggressive in

road a assuming than our impacts down have approval been us achieve any we're being guidance much not built conservative we So, a discussed. guidance now here what had with orientation that able the commercial that's into especially factors more to significant previously from

Alessandro Maselli

just Maybe in comment I color to dynamics terms one the of additional add here. adding

little to approvals could normally for only build-out need not the think a dynamic commercial is dynamic Q&A but approval, which launch is a commercial around more you about what also a sizable there is the we serve of do bit that to impact potential on that the which End stock You approval be. confidence precedes have a more

Alessandro Maselli

said, So like with we wrap guess I to call. that questions. would done up with I are the

the covering. today our support for your Thank call continued you So of join to for everybody. thanks and taking everyone time

Operator

for today's Thank call. joining you everyone

lines disconnect now may have your day. You lovely a and

Catalent (CTLT) 1 Nov 222023 Q1 Earnings call transcript