Catalent(US:CTLT)2023-06-12 16:55Financial Data and Key Metrics Changes - Net revenue for Q3 2023 was $1.04 billion, down 19% on a reported basis and a 17% decrease on a constant currency basis compared to Q3 2022 [34] - Adjusted EBITDA decreased 69% to $105 million, representing 10.1% of net revenue versus 26.6% in the prior year quarter [34] - Adjusted net income was negative $17 million or negative $0.09 per diluted share, compared to adjusted net income of $188 million or $1.04 per diluted share in the third quarter a year ago [35] Business Line Data and Key Metrics Changes - Biologics segment net revenue was $475 million, a decrease of 32% compared to Q3 2022, primarily driven by significantly lower year-on-year COVID demand [37] - COVID revenue in Q3 was approximately $120 million, down 68% year-on-year, with a notable component sourcing settlement impacting margins [38][40] - Pharma and Consumer Health segment generated net revenue of $563 million, an increase of 1% compared to Q3 2022, with segment EBITDA down 10% [46] Market Data and Key Metrics Changes - Non-COVID growth in Biologics was approximately 11% year-on-year, with gene therapy being the strongest source of growth [42] - The company expects a significant year-on-year reduction in COVID revenue in fiscal 2024, with long-term COVID agreements now tied to standard ordering arrangements [41] Company Strategy and Development Direction - The company is focused on improving its cost structure and has developed a cost reduction plan targeting $100 million in savings for fiscal 2024 [26][28] - Catalent aims to return to historical performance levels and is committed to remaining a leading CDMO partner, with strong customer retention noted [30][31] - The company is evaluating its portfolio to ensure sustainable, profitable growth and is limiting new capital expenditures [28] Management's Comments on Operating Environment and Future Outlook - Management acknowledged operational challenges due to the COVID-19 pandemic and is working to address productivity issues and improve forecasting [6][23] - There are initial signs of recovery in biotech funding, although the path back to previous activity levels is expected to be gradual [111] - The company anticipates continued depressed margins in the Biologics segment for Q4 due to ongoing operational challenges [57] Other Important Information - The company recorded a goodwill impairment of $210 million related to its Consumer Health business [12] - A material weakness in internal control over financial reporting was identified, leading to a reevaluation of financial processes [14][15] Q&A Session Summary Question: Expectations for Biologics segment in Q4 - Management expects a decline in Biologics revenues in Q4 compared to Q3 due to lower COVID revenue and ongoing operational challenges [61][62] Question: Update on gene therapy customer conversations - Management indicated that they are working collaboratively with customers to improve working capital efficiency and cash flow generation [67][89] Question: Clarification on cost reduction targets - The $100 million cost reduction target includes remediation costs, with progress being made on headcount reductions and other actions [94] Question: Impact of the $26 million revenue correction - The $26 million correction from fiscal 2022 has been accounted for and will not impact fiscal 2023 financial statements [98] Question: CapEx and capacity alignment - Management stated that current capacity is capable of delivering estimated revenues, but they are pulling back on CapEx due to mismatches with revenue expectations [135]