Catalent(US:CTLT)2023-02-07 18:06Financial Data and Key Metrics Changes - Net revenue for the second quarter was $1.15 billion, down 6% on a reported basis and a 2% decrease on a constant currency basis compared to the same quarter of fiscal '22 [13] - Adjusted EBITDA for the second quarter was $283 million, a decline of 9% as reported and 6% on a constant currency basis compared to the same quarter of fiscal '22 [14] - The net leverage ratio as of December 31, 2022, was 3.7x, up from 3.2x as of September 30, 2022, due to draw-downs on the revolving credit facility for the Metrics acquisition [44] Business Line Data and Key Metrics Changes - The Biologics segment reported net revenue of $580 million, a decrease of 7% compared to the second quarter of 2022, with total non-COVID revenue growth exceeding 10% [70][71] - The Pharma and Consumer Health (PCH) segment generated net revenue of $570 million, an increase of 3% compared to the second quarter of fiscal 2022, driven by the recently acquired Metrics business [72] - The adjusted net income for the second quarter was $122 million, or $0.67 per diluted share, compared to $163 million, or $0.90 per diluted share in the same quarter a year ago [75] Market Data and Key Metrics Changes - The addressable market is anticipated to grow by 40% to $100 billion by fiscal '26, with Catalent well-positioned to increase its market share [12] - COVID-related revenue is expected to exceed $600 million for fiscal '23, up from a previous estimate of approximately $550 million [82] - The company expects non-COVID growth to be in the high teens for the full year, with the second half expected to align with the growth seen in the first quarter, which was over 20% on an organic constant currency basis [84] Company Strategy and Development Direction - Catalent aims to optimize its best-in-class CDMO ecosystem, focusing on maximizing asset utilization and free cash flow generation [36] - The company has invested over $7 billion since fiscal '17 to expand its total addressable market, which has grown from $35 billion to $70 billion [25][26] - Catalent is enhancing its manufacturing capabilities, particularly in gene therapy and drug product offerings, to meet increasing demand [21][22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the demand for gene therapy and viral vector manufacturing, indicating strong growth potential in these areas [148] - The company anticipates a minimal contribution from COVID products in Q3, with a significant ramp-up expected in Q4 due to customer demand for fall booster vaccines [51][93] - Management emphasized the importance of quality and regulatory compliance, stating that strong inspection results differentiate Catalent in the market [32] Other Important Information - The company has implemented a restructuring plan that reduced headcount by approximately 700 employees, expected to generate annualized savings of $75 million to $85 million [69] - Catalent's free cash flow generation improved, with approximately $45 million generated in the second quarter, marking the first positive cash flow in several quarters [45] - The company is focused on maintaining increased inventory levels due to concerns about global supply chain stabilization [46] Q&A Session Summary Question: What factors influence the guidance range for EBITDA? - Management indicated that execution will drive where the company lands within the guidance range, with strong visibility to demand across the business [92] Question: Can you elaborate on the relationship with Moderna? - Management expressed excitement about the long-term partnership with Moderna, emphasizing the ability to support multiple products and formats [61][114] Question: What are the expectations for the Biologics segment moving forward? - Management highlighted strong visibility to volume related to major development programs, with minimal downside risk associated with upcoming approvals [116] Question: How does the company plan to address recent regulatory challenges? - Management acknowledged the occurrence of 483s but emphasized the importance of thorough responses and corrective actions to improve operations [100][126] Question: What is the outlook for the consumer health side of the business? - Management noted that consumer health products are facing challenges due to discretionary spending pressures, impacting growth projections [119]