AptarGroup, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Aptar Group's 2019 First Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Introducing today's conference call is Mr. Matt Della Maria, Senior Vice President, Investor Relations and Communications. Please go ahead, sir.

Thank you, Howard, and welcome, everyone. Participating on the call today are Stephan Tanda, President and Chief Executive Officer, and Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. You can find a copy of our press release as well as a slide presentation that summarizes our results on our website. We will also post a replay of this conference call on the website. Lastly, today's call includes some forward-looking statements. Please refer to our SEC filings to review factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements. After our undertakes, no obligation to update the forward-looking information contained therein. I would now like to turn the conference call over to Stefan.

Thank you, Matt. And good morning, everyone. Thanks for joining us. As you saw yesterday, we reported strong first quarter results, including robust core sales growth. Coming off a very strong year and fourth quarter in 2018, we saw a solid first quarter performance. Our pharma segment reported well above average core sales growth, which is due to a continuing strong allergy market across all channels combined with growth in demand for our uni-dose and bi-dose delivery systems used to administer central nervous system medicines. With our industry-leading drug delivery portfolio that spans a wide variety of end market applications, we are helping patients and healthcare providers around the globe with better drug delivery options. In the consumer healthcare market, we also saw increased demands for nasal decongestion, saline rinse, and eye care delivery systems. Our beauty and home segment also grew core sales growth with increased demand from our beauty market. Demand was particularly strong for our innovative fragrance pumps, as well as our decorative color cosmetic and facial skin care solutions. Food and beverage also had a good quarter, with strong demand for our dispensing closures, which was partially offset by lower custom tooling sales. We continue to penetrate and grow our business in the infant nutrition, granular foods, and bottled water categories. Now I would like to share a few recent examples of interesting innovations that we are bringing to market. If you're following along with the presentation that accompanies our press release and is posted to our website, I'm referring now to slide four. I will highlight the first three examples, starting with a product from our pharma segment, As we highlighted in a recent press release, our BiDose nasal spray device was recently approved by the US FDA for a breakthrough therapy in the field of depression. This BiDose system is a primeless, intuitive, and easy to use device with 360 degree functionality and precise spray characteristics deliver two shots of medicine within the single device. This is the first FDA approval and US launch of a prescription drug using Aptar Pharma's patented by-dose nasal spray delivery system. The next product is from our Beauty and Home segment in China. The second photo from the left shows a customized skincare dispensing pen which features a magnetic applicator which delivers active ingredients to age spots with three times the absorption rate versus applying the formula with your finger. Turning to the food and beverage product, we continue to help our customers innovate to provide the most convenient and controlled dispensing solution for the sauces and condiments category. Here you'll see an inverted squeeze pouch featuring our flip-flip closure with a simply squeezed valve technology and a built-in tamper-evident pull-ring fitment for a line of organic barbecue sauce found in the United States. These innovations reflect how we approach and bring to life product dispensers to transform the user experience across categories, adding tangible value that did not exist before. In turn, we are helping to both revolutionize our customers' businesses by giving them first mover advantage and delight consumers who benefit from safer and more convenient healthcare, personal care, and food products. I would like to mention, as we previously disclosed, we continue to return increasing value to shareholders by raising our quarterly dividend 6% and the Board also authorized a new share repurchase program. These two actions are part of our longstanding balanced capital allocation strategy that also includes investing in our business and making strategic acquisitions. Our strong balance sheet and confidence in the long-term growth opportunities for our company allow us to provide shareholders with additional current returns while we are able to pursue long-term investment opportunities. Before I turn it over to Bob, I would like to share a few changes to APTAR's Board of Directors. Two board members, Steve Hagee and Alain Chevassu, will retire from APTAR's Board of Directors. Both have served as members of the board since 2001. Steve, of course, led the company as president and CEO from 2011 until he retired from that position in early 2017, and he was an integral part of APTAR's senior leadership team for over three decades. Alain's experience in the global beauty industry provided valuable guidance over the years. I want to personally thank both Steve and Alain for their contributions and service to Aptar and wish them well in retirement. We are thrilled to welcome Isabelle Marais-Sanpere to our board, a trained scientist and experienced transformation leader. Isabelle most recently was a member of the Executive Committee of L'Oréal. Previously, she was the CFO of Peugeot Citroën, and before that, a senior executive at the multinational Saint-Gobain. Isabelle brings tremendous breadth and depth of experience, including serving on the board of Nokia for several years. She has deep insights into French business culture and, at the same time, a strong grasp of global business imperatives. She will be a great addition to our board. With that, I will now turn it over to Bob, who is going to walk through some of the financial details that impacted the quarter. Bob?

Thank you, Stefan, and good morning, everyone. I'll briefly walk through some of the details concerning our first quarter results. If you are following the slides we published with the press release, you can refer to slide five. We reported sales growth of 6% that was comprised of core sales growth of 7% with a positive impact from acquisitions of 6% and a negative impact from currency rates of minus 7%. Comparable adjusted earnings per share totaled $1.07, compared to $0.92 adjusted earnings per share in the prior year, including comparable exchange rates. As you saw in our press release, beauty and home core sales, excluding acquisitions and keeping currencies constant, increased 3%. Looking at sales growth by market on a core basis, Core sales to the beauty market increased 4%, and this was mostly due to strong demand for fragrance pumps, as well as dispensing solutions for facial skin care and color cosmetic products. Core sales to the personal care market increased 3%, due to an increased demand for dispensing systems for baby care and hair care products. Core sales to the home care market increased 2%, due primarily to increased custom tooling sales. When we look at profitability, our beauty and home segment had an adjusted EBITDA margin of 14%. Margins were positively impacted by increased sales volumes, transformation initiatives, the timing of resident pass-throughs, and other pricing effects, and a VAT refund related to our Brazilian operations. Our pharma segment achieved a core sales growth of 15% and an adjusted EBITDA margin of 36%. The strong sales volumes, along with the project milestone payment, contributed to the strong pharma margins. Core sales to the prescription market increased 22%, primarily due to increased demand for our nasal spray systems used with allergy and central nervous system treatments and metered dose inhalers. It's worth noting that an increase in tooling sales contributed 2% to the top line, and the milestone project payment also contributed 2%. Core sales to the consumer healthcare market increased 10%, driven primarily by increased demand for decongestant nasal sprays, ophthalmic dispensers for eye care, and airless systems for dermal applications. Lastly, core sales to the injectables market were even with the prior year, mainly due to the comparison to a strong performance in the prior year first quarter and the timing of new molding capacity coming online at our production site in France, which is taking a little longer than anticipated but will be ramping up as the year progresses. Turning to our food and beverage segment, core sales increased 3% in the quarter, and this includes a negative impact from lower custom tooling sales of minus 7%. This segment had an improved adjusted EBITDA margin of 16%. Margins were positively affected by the increase in sales volume and the timing of resin pass-throughs. Looking at each market, core sales to the food market increased 2% in spite of a negative impact from lower custom tooling sales of about minus 10%. Demand increased for our leading dispensing solutions for granular foods, spreads, and infant nutrition products. Core sales for the beverage market increased 7% due to increased sales of dispensing closures for bottled water and functional drinks. On slide six, you can see that our adjusted EBITDA for the first quarter increased 15%, primarily due to year-on-year improvements in our pharma and food and beverage segments. Foreign currency headwinds affected each segment's EBITDA growth. Slide seven refers to our outlook. We are expecting adjusted earnings per share for the second quarter to be in the range of $1.09 to $1.15 per share, using an expected tax rate range for the first quarter of 29 to 31%. I'd like to point out that when we compare to the prior year adjusted earnings per share, and we compare using similar exchange rates, the midpoint of our guidance range represents an increase of approximately 7%. I'd also like to point out that last year's second quarter tax rate was 26%, and our growth would have been higher if we adjusted to equalize the tax effects. I have a few other details to share and then I will hand it back to Stefan. In the quarter, cash flow from operations was approximately $78 million, capital expenditures were approximately $52 million, and our free cash flow was approximately $26 million compared to $11 million a year ago. Looking at our balance sheet capitalization, on a gross basis, debt to capital was approximately 45%, while on a net basis it was approximately 41%, and we remain less than two times levered compared to our 2018 annual adjusted EBITDA. At this time, Stefan will provide a few comments before we move to Q&A.

Thanks, Bob. So let me summarize a few key takeaways. It was a very good quarter, and I'd like to leave you with the comments as shown in slide eight. We are off to a positive start to the year with core sales growth across all three segments. We did see improved profitability over prior year due to the mix of business, benefits from our transformation, and positive effects of a decline in resin costs. Our board of directors authorized the repurchase of up to 350 million of Aptar's common stock, and we increased the quarterly cash dividend by 6% to 36 cents per share. This will be our 26th consecutive year of paying an increased annual dividend. Looking to the second quarter, we anticipate continued positive product sales growth across most of our application fields, though we are not expecting the same level of custom tooling sales as a year ago. So in closing, our drive to adapt to changing markets and create differentiating solutions that help our customers win has always been a key to our success. We will continue to shape the future of consumer dispensing and drug delivery by making it easier, more efficient, and more pleasant for people to use the products and medicines they buy. In doing so, we are creating value for all customers and stakeholders. With that, we'd like to open it up for your questions.

Ladies and gentlemen, if you have a question or comment at this time, please press star then 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. In the interest of time and fairness to all participants, please limit yourself to two questions and one follow-on question. Then come back into the queue if you have more questions as time allows. Again, to ask a question, please press star, then 1 on your telephone keypad. Our first questioner comes from the line of George Staffos from Bank of America Merrill Lynch. Your line is open.

Hi, everyone. Good morning. Thanks for the details, and really congratulations on a real strong start to the year. I guess the first question I had, to the extent it's possible to quantify it, When we look at, I think you said the VAT effect in Brazil and also you had the milestone payment, how much do they contribute to your performance relative to your guidance? And then relatedly, when you looked at your original guidance relative to what transpired this quarter, where were the particular surprises to your forecast? And I had a couple of follow-ups.

Sure. So First, I think the resin positive was slightly more than what we had anticipated. So for beauty and home, it was about $3 million, and for food and beverage, it was about $1 million. The VAT actually added about $0.03 to EPS, and again, that was not in our original guidance, and neither was the milestone payment, which was also about $0.02. And then, of course, the stronger... Pharma outperformance also was better than we had anticipated.

Okay. Thanks for that, Bob. I guess the related question I had, within pharma, what transpired better than your forecast? Was it just a stronger allergy season? Did flu season come in ultimately stronger than it started back last fall? Was that part of what drove it? And then, you know, there were lots of puts and takes in the release and your discussion on tooling. You know, food tooling was down. You had posers elsewhere. What was the ultimate, when you put it all together, impact to your margin as a company in total from the puts and takes in tooling? Thank you.

George, let me take the first one, and then maybe Bob can address the second one. Pharma is really, both in prescription and in consumer health care, firing in all cylinders. I don't think it's been a particularly strong or exceptionally strong flu season, but we continue to see tremendous strength in the allergic rhinitis business and the natal congestion business, and that's across all channels. In addition, of course, our CNS, central nervous system, delivery systems continue to grow, both the Narcan-type products. In addition, of course, we had the launch of J&J's Provato, which you saw some pipeline fill affecting the first quarter. So it's really across the board and very strong picture all around.

George, I can take your tooling question. I know you focused on what the puts and take was on the margin, but on the resin side, I gave you about $4 million on the positive, on the margin side. Tooling sales, we don't really get into dissecting the exact margin, but just overall, we were down about $4 million in total compared to last year on tooling sales. So I would say that it's fair to say that the positive impact from the resin pass-throughs was more than the negative that the tooling sales brought.

Okay. That's great. I'll turn it over. Thank you, guys.

Thank you. Our next question or comment comes from the line of Adeline Rodriguez from UBS Equity Research. Your line is open.

Thank you. Good morning, guys. Clearly, you sort of benefit from lower resident costs. Do you get to keep that, or do you have to pass that to your customers over the next couple of months or so?

Yeah, the math works the same way up and down. So with a... Depending on the contract, anywhere between 60 to 90 days lag, we pass it on. Now, if it's 90 days, again, the math works. If it's at the beginning of the quarter, it's 90 days. By the end of the quarter, it's 180 days. So you have a lag effect, and it works the same way up as it does down.

Okay. That makes sense. And one quick one on food and beverage. I think over the past several quarters, you've had that issue with a beverage customer in China. What can you tell us on that? What's the status of that? Have you seen any improvement in there?

I was looking forward to have a call without talking about that.

No chance.

So it was not really a factor this quarter. But the visibility remains limited. They played very closely to the chest.

Okay, that's it. Thank you.

Thank you. Our next question or comment comes from the line of Danshab Punjabi from Robert W. Baird. Your line is open.

Hey, guys. Good morning. You know, I guess going back to the pharmaceutical segment, you know, comparisons get quite a bit more difficult for the segment. To cue onward, just given the fantastic sort of 2018, How are you thinking about volumes for the segment as the year progresses? And then related to that, you mentioned injectables was flat for the quarter. I'm just trying to reconcile that versus your primary competitor in that market that reported pretty strong sales for that segment as well. So just some context there would be helpful.

Yeah, sure, Gancham. I mean, overall, our guidance for the pharma growth has not changed significantly. It's 6% to 10%. Indeed, we have now several quarters where we were above 10%, so it's inevitable that we will have a reversion to mean, but we feel very good about the 6% to 10% range, given the pipeline we have and what we see in the marketplace. On your second question on injectables, yes. I wouldn't read too much into any particular quarter and please realize that with West our overlap is minimal in our pharma business but indeed in injectables it is there. So we're really facing at the moment some operational bottleneck in France. They're solvable, we're making some changes to address it. We're adding capacity and the capacity being as we speak and we will add additional capacity later in the year. So we're also facing a pretty strong comparison, and Q2 looks to be better from that point of view. So nothing fundamental has changed with injectable business.

Okay, that's helpful, Stephan. And then just in terms of the beauty and home segment, you know, you've had several quarters of pretty good growth in that segment from a volume standpoint. Your customers are doing quite well on a multi-region basis. Just focusing on the first quarter and EBIT margins, even with the resident tailwind up 40 basis points year over year, you are cutting out costs as part of your transformation initiatives, et cetera. Are you where you thought you would be in terms of margins for this segment at this point? Just some color there would be helpful as well.

Yeah, we certainly have our sleeves rolled up and are heavy as work, but maybe this is a good point to address the the overall transformation. So if you remember, the first year really our strong focus was on the top line. Year two, which is where we're now, is really in improving operations, and then year three is about fine-tuning the footprint, reducing headcount, and G&A, especially in Europe and North America. The target is to achieve the 80 million improvements run rate by the end of 2020. and be comfortably in our long-term targets, which from an EBITDA point of view is 15% to 70%. On the top line, after more than two years of decline or no growth, we now have racked up, indeed, as you said, seven quarters of consecutive top-line growth with expanding margins. So clearly the top line has benefited from the transformation efforts, And in addition to securing more business, so from a share point of view, pricing discipline has also greatly benefited. So are we where we thought we would be at the moment on the top line? I would say yes. Maybe even a little bit ahead of the game. In operations, these additional sales have clearly highlighted the need for additional improvements and investments in operations. And we are knee-deep into improving performance at a handful of sites, We talked about earlier the decorative site in France, the anodizing site. And on top of that, of course, we bought a startup with Revolve that also needs attention. So we're working at a handful of sites. I have to say improvements are quite visible on service levels. OTFs has moved from, you know, I almost don't dare to say, to much higher levels by several tens of points. Our anodizing facility is up to running at normal levels following the startup. But I would say the operational challenges are certainly a bit more than I had anticipated. So on that one, I would say we're clearly a bit behind. And then lastly, the headcount reductions and G&A improvements, they are fully mapped out. They are actually being discussed with stakeholders in the respective countries. So I feel pretty good about that. So overall, Bob mentioned last time that we started the year with initiatives underway that will net us about the 50 million run rate in improvement, and we continue to build on that to ensure that we meet the target of the 80 million by the end of 2020. I think that's probably kind of walking around all the topics that you might think of.

Okay, awesome. Thanks so much.

Thank you. Our next question or comment comes from the line of Mark Wilde from BMO Capital Markets. Your line is open.

Good morning, Stephan, and congratulations on a good quarter. I wondered if you could just walk us around the activity across the portfolio and what it tells you about sort of the state of the global economy. You've got some products that are very much kind of consumer staples, but you've got things like high-end fragrances, which are really more consumer discretionary.

Yeah. I mean, look, pharma, I would kind of exclude. It's not really connected to any large extent to the overall industrial consumer activity. And we spoke about the demand there. In beauty and home, we certainly see continued good demand at the luxury end, at the premium end, particularly when it comes to fragrance, when it comes to color cosmetics. Particularly in Asia We are well represented in fragrance wish we would be larger in color cosmetics And Asia continues to pull like the locomotive China travel retail and so on we do see some self softness in personal care and home care particularly in the United States so we see a pullback there, but Overall, on balance, we continue to expect product sales growth in beauty and home. And then food and beverage, really, this is really still driven very much by innovation and conversion, that our growth rate is not as closely related to general consumer demand and continue to expect good growth in that segment.

Okay. And then for my follow-on, I wondered if you could just talk a little bit about the progress you feel the company is making in terms of turning Stelmy from a regional brand into more of a global competitor?

I think the progress is quite well. I've talked to several customers over the last few months, and they recognize the substantial improvements we've made to Stelmy. We are active around the world. Congress is delivering nicely. We have good demand out of China. Now, as I mentioned, we have some capacity bottlenecks back in France that we are addressing, but overall, I think customers recognize the progress. I think service levels in that business or in that segment in general are a bit challenging the rapid demand uptick, and we're all investing to meet that additional demand.

Okay. And then the last one for me is just if we could also get some sense of where you're at in terms of trying to expand the Asian footprint. When you came in, you talked a lot about trying to grow the proportion of the firm's business that was in Asia.

Yeah. We are making progress. It's not as fast as you would like, particularly if you benchmark to Asia speed, but maybe just some anecdotal information. Of course, we have started up the second site in Guangzhou. We're looking at additional sites in China. We actually just came back from having the board meeting in China. That was a very successful trip, exposing the board to all the consumer dynamics there. And, yeah, we're looking at additional investment opportunities, not only in China, but, of course, China is the biggest part of it. And certainly the addition of Zhang Weigong to the EXCOMM has brought significantly more content of Asia also includes the senior leadership of the company.

Okay, I'll turn it over. Thanks very much.

Thank you. Our next question or comment comes from the line of Adam Josephson from KeyBank Capital Markets. Your line is open.

Good morning, everyone. Let me add my congratulations on a really good start to the year. Bob, one question on the transformation you talked about earlier. So your target is 80 million of incremental EBITDA by the end of next year. And obviously, most of that was focused on beauty and home. So last year in 2018, beauty and home EBITDA was up, I think, 12 million. And it was flat in one queue. So obviously, to the extent that most of that 80 is beauty and home, we're obviously quite a bit away from getting to that target. And obviously, almost all the company's profit growth has been in pharma, not beauty and home. So do you still expect most of that 80 to be in beauty and home by the end of next year? Just a status update would be helpful. Thank you.

Yeah. I mean, the majority, it's correct to say the majority of the 80 million is expected in beauty and home. But Remember that one pillar of the transformation is around external spend and G&A, and those two things span really across all three segments. So, you know, we haven't quantified the particulars of all that, but there is a positive within that 80 that is going to be attributable, and that has been attributable to pharma and food and beverage. But it's fair to say that the 80 million, a majority of it is going to rest in the beauty and home segments.

Thank you. And I think in response to Mark's question, you talked about I think one of the areas of softness you called out was personal and home care in the U.S. What do you make of what's going on there? What do you attribute that weakness to?

To be honest, I don't have a crystal ball there. We just see what the demand picture looks like and what our customers are looking at. But I cannot tell you more than flagging it at this stage. Thank you, Stefan.

Thank you. Our next question or comment comes from the line of Chip Dillon from Vertical Research Partners. Your line is open.

Yes, and good morning. And again, congratulations on a great quarter. I had a question about the farmer segment. As I go back over the years, it is the engine that just doesn't quit, and it is a terrific business. And I just wanted to know how much visibility you feel you have now. based on your tooling experience, I think you mentioned the sales of tooling might, I believe it was in that segment, might back off a little bit in the second quarter, which I know just might be a one-quarter thing, but I guess more broadly, how much of a visibility do you have when you see variations in your tooling equipment sales?

Yeah, I mean, the The pharma business, while the technology is basically the same technology as we use in our beauty business, I mean, it's basically fragrance pump and injection molding in the clean room, greatly simplifying, and then with significant pharma quality systems on the back end. While the technology is similar, The timelines are very different. I mean, these projects take years, sometimes decades. So, for example, the antidepressant drug that is part of our by-dose approval, that's something we've worked on for more than a decade. And often, you know, we start working with little companies, and if they have a successful project, then they get bought by a big company, in this case, J&J. So the timelines are very long. We track the pipeline out five plus years. So if you ask visibility, that visibility is quite good. What we of course never know is what is the timeline of the FDA approval and what is the ultimate uptake once the approval is obtained and the selling. The visibility there is very good. The other one I would say is on the milestone payment, and this is an inherent part of our business model. Because these things take very long, we expand significant resources in shepherding projects along. We enter into agreements with our customers that if we pass certain milestones, milestone payments become due, and as they become bigger, we highlight them for you.

And Chip, maybe I can add a little point on the custom tooling for pharma. So as we've highlighted in the past, the pharma business tends to be increasing in step functions. So when we see custom tooling sales in pharma, a lot of times it's our customers investing in capacity increases versus purely a new product on the market. So a lot of what we saw in the past really was capacity increases that our customers were forecasting going forward. And again, I wouldn't look too much negatively into Q2 that we're just up against some difficult comps on tooling sales. But, you know, pharma truly is, you know, a step function type of grower when it comes to the tooling.

I totally understand. That's super helpful. So to say it differently is don't worry about the tooling from quarter to quarter, but do be focused on, what's in the pipeline. And if you could just tell us as you look out, I know it takes years to get some of these drugs and pharma products approved. How does the backlog compare, say, over the last seven to 10 years today? Is it about what it was? Is it higher or lower in terms of what the potential is?

Look, the backlog in the project pipeline is very solid. And, of course, it increases as the overall size of the business increases. We often talk about converting categories in our food and beverage business, but that also applies to quite some extent to the pharma business. So take both Narcan and the esketamine product. Those were existing molecules that have been known for many years that were administered one way, And the innovation is really administering it in a different way and or for different indication. So that is the innovation. So there's also conversion and particular, I think with the antidepressant approval, we get more and more interest and credibility in the central nervous system category. I mean, it's very clear. I mean, to cross the blood-brain barrier through the nasal cavity is a lot cleaner and quicker than sending a pill through the gastrointestinal tract.

Gotcha. That's very helpful. Thank you.

Thank you. Our next question or comment comes from the line of Debbie Jones from Deutsche Bank. Your line is open.

Hi. Good morning. I have two questions on the longer-term growth. So first in your beauty and home segment, can you talk about how dependent you think you're going to be on your customer growth rates over the next few years versus the opportunity to pick up, you know, some small to mid-sized business? And if you could kind of elaborate on how your customer concentration may have changed a bit in the last year or so.

Well, I mean, ultimately, we depend 100% on our customers, Debbie, but to get at the question behind the question, you're right. We really look at this conceptually in three different categories, kind of the large Western multinational that were traditional driver for growth, then the small and independent brands, which have become, in the last few years, much more important, and then lastly, the regional champions players, which in many cases become large multinationals in their own right. And sometimes one of these categories is stronger than the other. So let me just give some examples. Before the transformation, we were overly dependent on the large rest of multinationals. They didn't win out against the small and independent brands and the regional champions. All of them have retooled themselves, decentralized, put more emphasis on the regions, and start to win again. So we see a comeback of them kind of getting their fair share of the market. Small and independent brands continue to do well, and of course the ones that continue to do very well get bought up by the big ones, and we see many examples of those. And then lastly, of course, the regional champions, I would say in-country, and again, coming back from China, we continue to see them being much more agile, much faster, and taking the lion's share of the growth. One additional one I would highlight is, of course, as distribution channels change, again, taking China as an example, you see a shift from multi-level marketers no longer getting their fair share of the growth and more and more being done via e-commerce. And there you see more and more small and independent brands really jumping on the e-commerce bandwagon. So the channel also plays a big role.

Okay, thanks. That's helpful. And then another, again, a bit broad question, but I wanted to talk about your pharma growth and over the next couple of years and the various the drug delivery applications that you have. You've done a pretty good job of making sure that you're on trend, whether it be developing the product or buying the application. And my question is really, what in the pipeline for the next two to three years is expected to grow kind of ahead of your long-term targets and what is kind of looking to grow maybe below? And are you kind of positioned to take advantage of the drug delivery trends that you're seeing over the next couple of years?

Yeah, look, it's really across the board. I think the one area that we maybe expect additional growth that is yet to materialize is the whole area of connected devices and how that will apply to different categories. And compliance might be more important in central nervous system drugs than in allergy drugs. So we'll have to see how the whole connected devices space data revenue impacts us. So I can't really call it out. But other than that, I don't see any. led up in allergy that's just the nature of our civilization, and I'm very encouraged by what I see in the central nervous system category.

Maybe one other point, Debbie, that we talked about in the past is as we continue to build out our analytical services, we continue to offer additional services to our customers, getting them to market. It's a very small piece today of the pharma revenue, but it's an area that we're emphasizing more and more, and we continue to focus on that. So from a pure growth rate perspective, you know, we're looking to expand those service offerings.

Okay, and just one quick follow-up. Are there any drug delivery mechanisms that you wish you had more exposure to or anything that kind of is looking interesting from afar that you don't have?

Well, I mean, we certainly will continue to build out our injectable ecosystem. So there are many different applications within injectables. It's not just rubber stoppers and plungers. So let me leave it at that.

Okay. All right. Thank you very much. Congratulations. Have a good quarter.

Thank you, Debbie. Thank you. Again, ladies and gentlemen, if you have a question or comment at this time, please press star then 1 on your telephone keypad. Our next question or comment comes from the line of Daniel Rizzo from Jefferies. Your line is open.

Good morning, guys. Just a quick follow-up. You mentioned in beauty and home that small independent brands are growing in importance, large multinationals are rebounding, and the regionals are also doing well. So I guess what you're saying succinctly is everybody's doing well. Is that correct? It just seems like it's broad-based.

Yes, except we see some weakness in personal care and home care in the U.S., and that affects, I think, more the multinationals and the U.S.-based players. But, yeah, when you, I mean, we had seven quarters of well above average growth. Partly of that was self-help, and partly of that is certainly the market's done well. And, again, while we sell a lot of these products into Europe, the end product often ends up in Asia, you know.

Okay. And then you mentioned new capacity in France coming online. Have you quantified what that means in terms of increased volumes or sales or what that is incrementally?

No. We won't disclose that detail for competitive reasons, as you can imagine.

Okay. And then finally, you mentioned that you have a new nasal product that's doing well. I was just wondering how many other drugs are in process that could potentially be be using your nasal system over the next, you know, say three to five years.

Yeah, again, this is really one of our sweet spots, and it goes from allergic rhinitis to decongestion and now increasingly central nervous system. But I cannot get into the details of the pipeline here.

Okay. Thank you very much.

Thank you. Our next question or comment comes from the line of Gabe Hosni from Wells Fargo Securities. Your line is open.

Good morning, gentlemen. Congrats on the quarter. A lot of questions have been asked, but I was curious about the CSP acquisition. You didn't make mention of it, just assuming that it's progressing as expected, but any surprises there to the upside or downside? And you also talked about trying to expand some new applications. I was curious if you could give us an update there.

Sure, Gabe. I can handle the CSP question. So CSP is performing well. They actually had a very strong better than we had forecasted Q1 in terms of top line. And we indicated that we're comfortable at a 10 cent per year accretion level. We're a little bit Above that, in Q1, they added about $0.03 in the first quarter, so we're comfortable that the $0.10 is a fair number going forward. We're about six months in, in terms of new application fields. We had a lot of interest from the legacy Aptar business. We got a number of new projects that we're working on. I would say from where they're performing, we're very happy. with the results we've had thus far, and we're very excited about what new developments we can bring to market in the future.

Okay. And then, I don't know if you're willing to, you sort of asked before, Stefan, putting a little bit of a finer point on this capacity that you're adding over in Stelmy. I'm assuming this is a natural extension of the capacity that you added, the mixing capacity, last year. But just maybe in terms of timing, is that something that we would expect contribution from this year or more of a 2020 event?

Yeah. I mean, just to talk through the value chain. So, basically, you buy rubber bricks or synthetic rubber bricks. They get compounded through multiple process steps, and then you go into molding where you mold the actual parts. In that molding, they're also being vulcanized to ensure that the rubber stays where it's supposed to. And then go all the finishing steps from washing, coating. And what we've invested in the U.S. is mainly the downstream part of that. And what we're talking about here is really investments and capacity increases in the upstream part, which is mainly in France. And as I said earlier, To address some of the bottlenecks, some of the added upstream capacity is already going in as we speak. It takes a little longer to start up than we anticipate, but it certainly will benefit us already this year. And as I said, also additional investments coming on stream later in the year. I think that's probably as much color as I can give you.

Thank you. Good luck.

Thank you. I'm sure I know additional questions in the queue at this time. I would like to turn the conference back over to Mr. Tanda for any closing remarks.

Thank you. Well, I appreciate all your questions. Look forward to talk to you on the road. This concludes our call today, and thanks, everyone, for joining us. Goodbye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.