Catalent(US:CTLT)2022-08-29 13:21Part I Business Catalent provides global development and manufacturing solutions for drugs, biologics, and consumer health products, with the Biologics segment being the largest contributor to fiscal 2022 revenue - Catalent provides development and manufacturing solutions for drugs, biologics, cell and gene therapies, and consumer health products across more than 50 facilities on four continents38 - The company serves a broad customer base, including 87 of the top 100 branded drug marketers, 24 of the top 25 biologics marketers, and 21 of the top 25 consumer health marketers globally in fiscal 20223951 Fiscal 2022 Net Revenue Distribution | Category | Percentage of Net Revenue | | :--- | :--- | | Biologics | 55% | | Branded Drugs | 28% | | Generic Prescription Drugs | 3% | | Over-the-Counter Drugs | 6% | | Consumer Health & Other | 8% | - As of June 30, 2022, Catalent had over 1,500 active customer development programs and introduced 153 new products for customers in fiscal 20225372 - The company's backlog as of June 30, 2022, was $2.85 billion, a decrease from $3.77 billion as of June 30, 2021, with approximately 80% expected to be recognized as revenue by the end of fiscal 2023106 - In fiscal 2022, the company's employee turnover rate increased to 19%, with voluntary turnover at 15%, primarily driven by the U.S. market, making attrition reduction a top priority123 Our Reporting Segments Net Revenue Contribution by Segment (before inter-segment eliminations) | Segment | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Biologics | 53% | 48% | 33% | | Softgel and Oral Technologies | 26% | 25% | 34% | | Oral and Specialty Delivery | 13% | 17% | 22% | | Clinical Supply Services | 8% | 10% | 11% | - The Biologics segment provides development and manufacturing for a wide range of advanced therapies, including proteins, pDNA, mRNA, cell therapy, and viral-based gene therapies, with key customers including Moderna, Johnson & Johnson, and AstraZeneca75 - The Softgel and Oral Technologies segment is a market leader in softgel development and manufacturing, also providing large-scale manufacturing of oral solid dose forms, and now offers gummy and soft chew formats following the Bettera Wellness acquisition8384 - The Oral and Specialty Delivery segment focuses on advanced formulation and manufacturing for oral, respiratory, and inhaled dose forms, including the proprietary Zydis fast-dissolve tablet technology9092 - The Clinical Supply Services segment provides comprehensive support for clinical trials, including manufacturing, packaging, storage, distribution, and inventory management of clinical materials96 - Immediately following fiscal 2022, the company adopted a new operating structure with two segments: (1) Biologics and (2) Pharma and Consumer Health74 Risk Factors The company faces significant business and industry risks, including global health epidemics, intense competition, and stringent regulations, alongside financial risks from its $4.20 billion indebtedness and stock price volatility - Business operations are exposed to risks from global health epidemics, such as COVID-19, which can disrupt customer activities, supply chains, and regulatory processes, with the duration of demand from COVID-19 products in the Biologics segment being uncertain183186 - The company operates in a highly competitive market, facing competition from other outsourced service providers and the internal capabilities of its pharmaceutical customers, driven by technology, quality, price, and speed192193 - Operations are subject to extensive regulation by the FDA, DEA, and other global authorities, with failure to comply with cGMP and other standards potentially leading to sanctions, product recalls, and operational restrictions199200 - As of June 30, 2022, the company had $4.20 billion in total indebtedness, which could increase vulnerability to adverse economic conditions, expose the company to interest rate risk on variable-rate debt, and restrict strategic activities like acquisitions268269 - The company's stock price has been volatile, ranging from $36.95 to $142.35 in the three years ended June 30, 2022, and it has no current plan to pay cash dividends, meaning investor returns may depend solely on stock price appreciation280285 Properties As of June 30, 2022, Catalent operated 58 facilities globally, totaling approximately 8 million square feet, with key manufacturing sites in Bloomington, Indiana, and Harmans, Maryland, contributing materially to net revenue Facilities by Reporting Segment and Geographic Region (as of June 30, 2022) | Geographic Region | Biologics | Softgel and Oral Technologies | Oral and Specialty Delivery | Clinical Supply Services | Corporate | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | North America | 10 | 9 | 6 | 3 | 1 | 29 | | South America | — | 3 | — | — | 1 | 4 | | Europe | 6 | 4 | 5 | 3 | 1 | 19 | | Asia-Pacific | — | 2 | — | 4 | — | 6 | | Total | 16 | 18 | 11 | 10 | 3 | 58 | - The company's facilities comprise approximately 8 million square feet of manufacturing, laboratory, office, and related space295 - Two manufacturing facilities in Bloomington, Indiana, and Harmans, Maryland, are noted as generating a material portion of the company's net revenue296 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Catalent's common stock trades on the NYSE under "CTLT", with no dividends paid or planned for fiscal 2021 or 2022, and no equity securities sold or repurchased during the period - The company's common stock trades on the NYSE under the symbol "CTLT"303 - Catalent has no current plan to pay any dividend on its Common Stock and did not declare or pay any in fiscal 2022 or 2021, intending to retain future earnings for operations, expansion, and debt repayment304 - The company did not sell any unregistered equity securities or purchase any of its own equity securities during the fiscal year ended June 30, 2022305306 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In fiscal 2022, Catalent's net revenue grew 21% to $4.83 billion, primarily driven by strong Biologics segment demand, while net earnings decreased to $519 million due to the absence of a prior-year gain on sale Key Financial Results (Fiscal Year Ended June 30) | (In millions) | 2022 | 2021 | % Change (Reported) | | :--- | :--- | :--- | :--- | | Net Revenue | $4,828 | $3,998 | 21% | | Gross Margin | $1,640 | $1,352 | 21% | | Operating Earnings | $756 | $828 | (9)% | | Net Earnings | $519 | $585 | (11)% | Net Revenue Change Drivers (FY 2022 vs. FY 2021) | Driver | Percentage Change | | :--- | :--- | | Organic | 20% | | Impact of acquisitions | 5% | | Impact of divestitures | (2)% | | Constant currency change | 23% | | Foreign currency translation | (2)% | | Total % change | 21% | Reconciliation of Net Earnings to Adjusted EBITDA | (In millions) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net earnings | $519 | $585 | | EBITDA from operations | $1,106 | $1,114 | | Adjusted EBITDA | $1,285 | $1,020 | Reconciliation of Net Earnings to Adjusted Net Income (ANI) | (In millions, except per share) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net earnings | $519 | $585 | | Adjusted net income (ANI) | $694 | $549 | | ANI per share - diluted | $3.84 | $3.04 | Segment Review Segment Performance (FY 2022 vs. FY 2021, Constant Currency) | Segment | Net Revenue Change | Segment EBITDA Change | | :--- | :--- | :--- | | Biologics | +34% | +34% | | Softgel and Oral Technologies | +26% | +27% | | Oral and Specialty Delivery | -3% | +24% | | Clinical Supply Services | +4% | +5% | - Biologics segment revenue grew 34% (constant currency), driven by strong demand for drug product, drug substance, and cell and gene therapy offerings, particularly for COVID-19 related programs387 - Softgel and Oral Technologies revenue grew 26% (constant currency), with 10% organic growth from prescription and consumer health products and 16% inorganic growth from the Bettera Wellness acquisition391393 - Oral and Specialty Delivery revenue decreased 3% (constant currency), as 6% organic growth was more than offset by a 10% negative impact from the divestiture of the Blow-Fill-Seal Business394398 - Clinical Supply Services revenue grew 4% (constant currency), driven by growth in manufacturing, packaging, storage, and distribution offerings in North America and Asia Pacific399 Liquidity and Capital Resources Summary of Cash Flows (Fiscal Year Ended June 30) | (In millions) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $439 | $433 | | Net cash used in investing activities | ($1,884) | ($649) | | Net cash provided by financing activities | $1,031 | $142 | - As of June 30, 2022, the company had $449 million in cash and cash equivalents and $721 million of unutilized capacity under its $725 million Revolving Credit Facility401426 - In September 2021, the company incurred an additional $450 million in term loans to partially fund the Bettera Wellness acquisition409 - The final $50 million installment of deferred purchase consideration for the Catalent Indiana, LLC (formerly Cook Pharmica) acquisition was paid in October 2021419614 Quantitative and Qualitative Disclosures About Market Risk The company manages market risks primarily from interest rate fluctuations on its long-term debt and foreign exchange rate volatility through interest-rate swaps and euro-denominated debt as a natural hedge - The company manages interest rate risk on its variable-rate term loans through an interest-rate swap agreement that effectively fixes the floating portion of the rate on $500 million of its term loans at 0.9985%447 - To mitigate foreign currency translation risk on its European investments, the company holds a portion of its debt in euros, with $874 million of euro-denominated debt designated as a net investment hedge as of June 30, 2022442448 Financial Statements and Supplementary Data The audited consolidated financial statements for fiscal year 2022 report total assets of $10.51 billion and total liabilities of $5.71 billion, with subsequent events including a segment reorganization and the $475 million acquisition of Metrics Contract Services Consolidated Balance Sheet Data (as of June 30) | (In millions) | 2022 | 2021 | | :--- | :--- | :--- | | Total current assets | $2,916 | $2,918 | | Total assets | $10,507 | $9,112 | | Total current liabilities | $1,072 | $1,196 | | Total liabilities | $5,712 | $4,838 | | Total shareholders' equity | $4,795 | $3,915 | Disaggregated Net Revenue by Type (Fiscal Year Ended June 30) | (In millions) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Manufacturing & commercial product supply | $2,091 | $1,865 | $1,737 | | Development services | $2,354 | $1,761 | $1,022 | | Clinical supply services | $400 | $391 | $345 | - In October 2021, the company acquired Bettera Wellness for approximately $1 billion, adding capabilities in gummy, soft chew, and lozenge delivery formats, and adding $531 million to goodwill575578582 - Effective July 1, 2022, the company reorganized from four reporting segments into two: (1) Biologics and (2) Pharma and Consumer Health757 - On August 9, 2022, the company entered into an agreement to acquire Metrics Contract Services for $475 million, which will become part of the new Pharma and Consumer Health segment760 Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of June 30, 2022, with no material changes reported during the most recent fiscal quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022763 - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of June 30, 2022, an assessment audited by Ernst & Young LLP767768 Part III Directors, Executive Compensation, and Corporate Governance Information for Items 10-14, covering directors, executive compensation, and corporate governance, is incorporated by reference from the company's 2022 Annual Meeting of Shareholders Proxy Statement - Information required for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Registrant's Proxy Statement for the 2022 Annual Meeting of Shareholders774775776777778 Part IV Exhibit and Financial Statement Schedules This section lists financial statements and schedules, including a deferred tax assets valuation allowance that increased from $65 million in fiscal 2021 to $149 million in fiscal 2022, along with various exhibits Deferred Tax Assets - Valuation Allowance Roll-Forward | (In millions) | Beginning Balance | Current Period (Charge) / Benefit | Deductions and Other | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | FY 2021 | $ (53) | $ 6 | $ (18) | $ (65) | | FY 2022 | $ (65) | $ (94) | $ 10 | $ (149) |