AptarGroup, Inc.

Ladies and gentlemen, thank you all for standing by. Welcome to APTAR's 2024 Third 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 Mrs. Mary Skircidis, Senior Vice President, Investor Relations and Communications. Please go ahead.

Good morning. Hello, everyone, and thanks for being with us today. Our speakers on the call today are Stefan Tanda, President and CEO, and Bob Kuhn, Executive Vice President and CFO. Also joining us on the call today is Vanessa Kanu, our CFO designate. Our press release and accompanying slide deck have been posted on our website under the investor relations page. During this call, We will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure, and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during the earnings call. As always, we will post a replay of this call on our website. I would now like to turn the conference call over to Stefan.

Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our third quarter results. Later in the call, Bob Kuhn, our CFO, will provide additional details on key drivers for the quarter. Starting on slide three for the third quarter, I am pleased to report that after I achieved core sales growth of 2% and delivered adjusted EPS of $1.49 per share, a 6% increase over the prior year's quarter, We grew adjusted EPS by 15% for the first nine months of the year and are well positioned to grow adjusted EPS double digits for the full year. The positive results in the quarter were driven by strong operational improvements, ongoing demand for our pharma proprietary drug delivery systems, growing pharma royalty revenues, and increased demand for our food closures technologies. This quarter, Aptor's adjusted EBITDA margin was at the top end of our long-term range at 23%. While our pharma segment has consistently performed within its long-term target range for both core sales and adjusted EBITDA margin, Closures joins pharma this quarter with core sales of 4% and adjusted EBITDA margins of 17%. The Closures segment returned to its core sales long-term target range was driven by increased demand around the world, a focus on converting end markets to higher value dispensing closures and the reinvigoration of innovation globally, altogether delivering improved top line sales. The segment's increased margins were also driven by a consistent focus on reducing costs, including the recent plant closing in France, a steady improvement in plant utilization, up about 10% over the past 18 months, and an ongoing focus on efficiency. Now, turning back to our pharma segment, We continue to see good demand for a proprietary drug delivery system, especially for allergy sprays, central nervous system, and emergency medicines, with 12% core sales growth in the quarter, following the 15% core sales growth in the third quarter of 2023. Pharma delivered adjusted EBITDA margins at the high end of the long-term target range due to sales of higher value products and increasing royalty revenues. Royalties are a newer, steadily growing revenue stream that may perhaps cause some lumpiness down the road. We believe the growing revenue stream from royalties is a testament to the value of the regulatory expertise and services that we offer to our customers, especially in the early stages of the drug development process. Some smaller clients, often startup ventures, choose to award APTA royalties on final product sales in lieu of service fees. In the quarter, we also had a number of exciting developments for our pharma business. As a reminder, one of the first nasally-delivered emergency medicines approved by the FDA was Narcan or Naloxone using Aptar's unidose device. About a year ago, this medicine was approved by the FDA for over-the-counter distribution to try to stem the tide of opioid deaths in the U.S. And recently, the Centers for Disease Control and Prevention released preliminary data showing that drug overdose deaths fell by almost 13% in the last 12 months. We are extremely encouraged by the significant drop in drug overdose deaths. Additionally, in August, the FDA, on European Commission, approved another important nasally delivered emergency medicine, NEFI, and your NEFI, nasally delivered epinephrine, is now available on the market. We have been working on this project for about six years, and it capitalizes on our delivery system proven FDA required reliability of 99.999% for emergency medications. This reliability is backed by some 30 years of field data, which is essential when you're dealing with the dosing and dispensing of lifesaving medications. As we have said, when a new medication is launched, it generally takes a few years to hit the steady sales trajectory. Over time, we believe we will see nasally delivered epinephrine become an exciting new application. Over the last few years, we have focused our capital allocation toward organic growth for our pharma business, but we are always exploring potential acquisitions that can strengthen our market position and deepen our moat. So recently, we acquired all technology assets from the proprietary portfolio of Cipnos, a company focused on intranasal delivery platforms for local, systemic, and central nervous system indications. all growth areas for APTA Pharma. This transaction offers additional intellectual property to fit a wide range of therapies and offers the opportunity to precisely target areas of the nasal cavity to enable enhanced systemic local or even direct nose to brain delivery. Acquiring the IP assets of the SIP nodes expands our patent product portfolio and supports new product development to further supplement intranatal delivery applications and R&D innovation platforms. Two weeks ago, our board of directors visited a new state-of-the-art injectable facility in Grandville in Normandy in France, just as some of our newly installed, highly automated manufacturing lines were being tested. We are bullish about the future of our injectables business. The majority of new drugs that come on the market are in injectable format, and 50% of those are biologics. To meet this growing market need, our Normandy, France, and Congress New York facilities will be focused on higher value components and services, including premium fill and premium code, which are designed to optimize drug integrity and patient safety. Requirements for ready-to-use components which are sterilized are only increasing with the launch of NX1 in Europe in 2023. Looking ahead, we see a number of biologic projects filling our pipeline, including GLP-1 and blood factor drugs developed from blood derivatives. As an aside, we recently celebrated a capacity expansion at our Congress New York facility, a key step in our global expansion program, which supports growing proprietary drug delivery systems in our injectable business in North America. The building extension enhances warehousing, clean room and manufacturing capabilities and adds an additional nearly 30,000 square feet of manufacturing footprint. I also want to touch on two exciting announcements from our active material science division. Earlier this week, we announced that we were awarded a contract from the U.S. federal government to advance development of our active shield sterilization technology. This innovative solution sterilizes medical devices without the need for a power source, making it ideal for remote environments, military settings, and healthcare facilities with limited or no current sterilization capabilities. In September, we also announced that NSORP, a technology that mitigates nitrosamine impurities, has been accepted into the FDA's Emerging Technology Program, which helps promote the adoption of innovative approaches to pharmaceutical product design and manufacturing. Our ability to mitigate nitrosamine formation with active material science introduces a critical quality control element designed to ensure patient safety. We are eager to collaborate with the FDA to empower pharma brands with this innovative offering. Before I touch on recognitions and new innovations for quarter three, I want to provide an update as we recently closed on the previously announced JV with a pump manufacturer in China, acquiring a 40% stake. As a reminder, through this partnership, APTA will have access to cost-effective pump manufacturing, faster go-to-market agility, and a more complete end-to-end local supply chain, all of which will further strengthen our competitiveness in the region and beyond. Additionally, we will have access to competitive mold and machine building capabilities that can be used globally and will provide us with high-quality and lower-cost capital investment alternatives. Finally, the partnership will also give us access to much-needed energization capabilities used across our pharma and beauty segments. Now, turning to the recent recognitions received in the quarter, Time named APTA among the world's best companies of 2024. This Great recognition reflects our steadfast commitment to employee satisfaction and transparency in environment, social and governance data reporting. We were also recently named to 3BL's ranking of the 100 best corporate citizens. This ranking evaluates roughly 1,000 companies based on 223 ESG factors across seven pillars. Now switching to new launches and innovation as shown on slide four, For our pharma segment, our nasal spray and bag on mouth technology was featured on new nasal saline launches in the US, including one for the brand Sudafed. We have also entered into an exclusive collaboration agreement with PulmoTree to lead the development and promotion of their Colibri non-propellant liquid inhaler platform. We are providing our robust support services and will be the main point of contact for customers. Now turning to our beauty business, Pooch is featuring our prestige fragrance pump on its Paco Rabanne Lady Million fragrance in Europe. Our dispensing pumps are featured on Tresemme hair care products by Unilever in Latin America and the BioStove Eucerin brand cleansing gel in Europe. Finally, our NeoDropper technology for the controlled application of serums is featured with the Freyda brand hair care product in Asia. In closures, we continue to bring innovation to store aisles with our solutions. Campbell launched its paste taco sauces in an easy squeeze inverted bottle using our closure with simply squeeze valve. Kraft Heinz and IHOP teamed up to launch a syrup with our poor spout closure. In personal care, our new lightweight desktop is the dispensing solution for Paul Mitchell's clean beauty shampoo and conditioner. Now I would like to turn the call over to Bob.

Thank you, Stefan, and good morning, everyone. Starting on slide five, I would like to summarize the quarter. are reported in core sales increased 2% as currency and acquisition effects did not impact the quarter. Results for Q3 were driven by strong growth in pharma's proprietary drug delivery systems, as well as strong closure sales worldwide. As shown in slide six, we reported third quarter adjusted earnings per share of $1.49, which is a 6% increase over the prior year's adjusted EPS. During the quarter, we achieved adjusted EBITDA of $208 million, which increased from the prior year's third quarter by 8%, driven by expanding margins. Free cash flow more than doubled to $255 million for the nine months ended September 30th, compared to $124 million in the prior year, due to improved profitability and strides we have made in better managing our working capital. Turning to the details by segment for the quarter, our pharma segment's core sales increased 7% due to volume growth, especially in our proprietary drug delivery systems, and active material science solutions. Looking at sales in the pharma segment by end market, I will start by breaking out our proprietary drug delivery systems, which performed well in the quarter. Prescription core sales increased 20%, driven by strong sales of emergency medicine and central nervous system therapeutics, as well as allergy medications. Core sales for consumer healthcare decreased 6% due to non-product revenue in the prior year that did not repeat in 2024. Injectables core sales decreased 12% over the prior year period. While revenue from Elastomeric components was down slightly, the division faced a difficult comparison due to substantial service revenue from a customer's product launch in the prior year quarter that did not repeat. However, we continue to see demand for our higher value Elastomeric components, including those used for GLP-1 applications. For the first nine months of the year, sales of injectable components grew 13%. Core sales for our active material science solutions improved in the quarter, growing 10%, with increased demand across a number of end markets, particularly probiotics. Farmers adjusted EBITDA margin was 36%, a one-point improvement from the prior year quarter due to increased sales of higher value products, increased royalties on customer sales, and ongoing efforts around operational improvements. Moving to beauty, this segment's core sales decreased 6% in the quarter, with approximately 4% of the decline attributed to lower tooling sales and 2% due to less favorable product mix. Prestige fragrance faced a difficult comparison this quarter, up against double-digit growth in the prior year period. Personal care and home care markets grew globally in the quarter, with North America showing modest volume growth across all beauty end markets. As we look closer at the beauty end market, which includes fragrance, facial skin care, and color cosmetics, Core sales decreased by 14% in the quarter. Overall softer demand for prestige fragrance dispensing solutions after a period of substantial growth and lower tooling sales drove the decline. Core sales for the personal care market increased 5% due to demand for body lotions and hair care products, mainly in Europe and North America. Home care core sales increased 18% driven by rebounding sales in North America, primarily for our products used on air care applications. Beauty's adjusted EBITDA margin for the quarter was approximately 13%, more than a half-point improvement over the prior year period, even with lower core sales. Turning to the closure segment, core sales increased 4%, which is within the long-term target range due to increased demand across each region. When looking at sales by end market for closures, core sales to the food market increased 10%, driven by strong sales growth in Europe, North America, and Latin America for our products used on sauces and condiments. Beverage core sales increased 1%, with sales of our products used on functional sports drinks contributing positively to the results. Sales grew across all regions, with the exception of North America, which saw lower demand. Core sales for personal care closures decreased 3%. Growth in Latin America and Asia could not offset the decline in Europe for the quarter. In our fourth category, which includes beauty, home care, and health care, core sales decreased 3% due to large tooling sales in the prior year quarter. Product sales were up 10% driven by growth in home care. The segment's adjusted EBITDA margin was 17% for the quarter, a nearly two-point improvement compared to the prior year quarter. In the third quarter of 2024, we had capital expenditures of approximately $66 million, the majority being allocated to our pharma segment. Reported depreciation and amortization expense increased by almost $4 million over the prior year quarter to approximately $67 million, or 7% of sales. Slide 7 and 8 cover our year-to-date performance and show a core sales increase of 3% and our adjusted earnings per share, which were $4.12, up 15% compared to $3.58 a year ago, including comparable exchange rates. Moving to slide 9, which summarizes our outlook for the fourth quarter, we anticipate our growth to continue and expect fourth quarter adjusted earnings per share, excluding any restructuring expenses, acquisition costs, and changes in the unrealized fair value of equity investments, to be in the range of $1.22 to $1.30 per share. The estimated tax rate range for the fourth quarter of 20 to 22% includes a potential tax benefit as part of our ongoing tax planning, which more than offsets anticipated retroactive tax rate increases in France with a comparable adjusted prior year effective tax rate of 24%. Based on the fourth quarter guidance, full year adjusted EPS would be in the range of $5.34 to $5.42 a double-digit increase over full year 2023. We currently estimate depreciation and amortization for 2024 to be between $260 to $270 million. We expect our capital expenditures in 2024 to be between $280 and $300 million, with the majority of capital allocated toward our pharma segment. In closing, we continue to have a strong balance sheet with a leverage ratio of approximately 1.1, which allows us to continue to invest in the business, pursue strategic opportunities, and continue to return value to shareholders in the form of dividends and repurchases. In addition to our cash dividend payments to shareholders, which totaled approximately $30 million in the quarter, we repurchased about 95,000 shares for approximately $14 million. Over the last five years, we have returned more than $780 million to shareholders through dividends and share repurchases. At this time, Stefan will provide a few closing comments before we move to Q&A.

Thanks, Bob. Looking to the fourth quarter, we anticipate a solid finish to a strong year. The top line is expected to grow in the fourth quarter, even with some customers having indicated seasonal inventory right-sizing in the beauty and coffin cold end markets. In pharma, we expect continued growth across a number of end markets, especially for proprietary drug delivery systems for allergy, emergency medicines, and central nervous systems therapies. At the same time, we do see demand for cuff and cold OTC remedies softening after week 23, 24 cold and flu season. On the other hand, initial indications from the southern hemisphere point to a stronger 24, 25 cold and flu season. The pharma segment will deliver solid double-digit adjusted EBITDA growth in 2024 due in part to sales of higher value products and royalties. We anticipate 2025 to be another solid year for our pharma business. Our closure segment has returned to growth and we expect it to finish the year strong with healthy adjusted EBITDA margin improvements over the prior year. Beauty is battling a tough macro environment with progressive market recovery in North America, continued weakness in China, and facing very challenging comparisons after substantial growth of fragrance dispensing solutions in 2023. Innovation, cost mitigation, improved operational leverage, and accelerating efficiencies remain key priorities for our teams. Before we open the call for questions, I want to recognize that this will be Bob's last earnings call with Aptar as CFO, certainly not as a shareholder. Bob has decided to retire after 37 years with Aptar, 16 of those years as CFO. Bob has become a trusted friend and colleague and has been strategic partner in driving the overall growth of the company over the years. I would also like to officially welcome Vanessa Kanu, who has joined a CFO designate and will take on the role of CFO on January 1st. I'm really pleased to welcome Vanessa to the Aptar team. She brings with her tremendous experience as a CFO in financial reporting, global operations and cost management that Aptar and our shareholders will benefit from greatly. Bob will stay in the CFO role through the end of the year, and then will be available as an advisor through 2025 to ensure a smooth transition. Bob has always put what is best for APTA above all else, and while he will be greatly missed, we are happy he will have a bit more time for himself and his family in this next phase of life. Congratulations, Bob, and welcome to the team, Vanessa. I'm glad that some of our shareholders and self-side analysts had the opportunity to already meet Vanessa while touring our French beauty and pharma plants a few weeks ago. I look forward to introducing many more of you to her over the coming quarters. With that, I would like to open up the call for questions.

Thank you, Stefan. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. And please note in the interest of time and fairness to all participants, please limit yourself to three questions and then come back in the queue if you have more questions as time allows. And as a reminder, that is staff followed by one to ask any questions today. Report here briefly whilst questions are registered. We have the first question on the phone lines from George Staffos with Bank of America. You may proceed.

Hi. Thanks, everyone. Good morning. I guess I'll start, Bob, and I'm sure everyone's going to say this from the bottom of our heart. Thank you for everything you've done to support our research of Aptron industry over the years. We really, really appreciate it, and we will miss you, and we welcome Vanessa. Thanks, Bob. I guess my first, yeah. All of our baseball debates notwithstanding. I guess the first question I had for you, for the team, do you have, given the macro holding everything else constant, recognizing comparisons are tough and China is weak, do you have the elements in place so that beauty, which is making progress, can be at 15% margin in 2025? What do you need to do? What needs to go right? Can you get there? Related question, how far off right now is China in beauty from normal if there's a way to dimensionalize that? And then I'll follow on. Thank you.

Yeah, thanks, George, and thanks for your nice words to Bob. Look, as you said, beauty is progressing. We had very strong fragrance launches, and as we kind of... The dust settled from that. The pipeline fill probably was more than 2x what the sell-through was. So the comparisons in the fragrance is holding beauty back. At the same time, North America is coming back after a long period of negative sales growth. So I've learned better after... many years than to paint myself in the corner. But, you know, if all regions fired, then I'm quite confident that beauty will do well. On China, it's not so much a matter of decline. It's a matter of not growing, not rebounding with vigor from COVID as, frankly, the whole industry had expected. So and that depresses not only our Asia sales, but also our sales in Europe, you know, because a lot of our beauty clients fill there and then sell their products to China. So it's the lack of growth, especially for Western clients. We actually see decent progress from our Chinese clients. This whole notion that you've got to have a Western brand is gradually fading from the Chinese consumer, but the Chinese consumer is still staying much more on the sidelines than we would like. I think there is some caution about the stimulus package. And as we all know, confidence is lost in a hurry and needs to be rebuilt over time. So it's not a decline, but it's a lack of bounce back from COVID. And that's really what needs to happen with China.

Stefan, and I recognize that maybe kind of a point of clarification on that question and my follow on. So recognizing China beauty touches more than just China itself. Obviously it affects your production around the world and particularly in Europe. Is there a way to say, okay, your level of activity as much as you can analyze is that X right now related to China beauty demand. And it would be at X times some number or indexed in a normal environment. And then my follow on, Is there a way to dimensionalize some of the inventory issues that you mentioned into fourth quarter for cough and cold? And I think you all said for beauty. Thank you.

Yeah, on the first question, I'm sure we can run some analysis, and the folks do, but nothing that I would like to share here. Again, solid top line in the regions. with continued productivity work is what the attractive beauty is on. A lot of the productivity work that has been done will continue to drop to the bottom line next year, and we have additional ideas. On your second question, it's a little broader. Look, if I start with consumer health care, a lot of these consumer health care companies that spun out of big pharma start to behave more like packaged goods companies. sharpen their working capital management than the pharma companies they used to be part of. I think that plays an element. Second, I think as people get ready for the 24-25 flu season, we're anticipating that this is more of a seasonal, more stringent working capital management approach, certainly nothing like what we had back in 2020. George Leal, One or 22. George Leal, And I think with respect to beauty it's the fragrance hangover of not having to tell through as as much as we had in with the launches.

George Leal, Okay, thank you i'll turn it over.

Thank you, George we now have content and jv with bad, you may proceed.

Thank you, operator. Good morning, everybody. And yeah, Bob, I just want to echo George's comments as well. Congratulate you and your family on obviously a very successful career. You'll definitely be missed by all of us. And also best wishes to Vanessa in her new role as well. I guess, you know, first off, on the pharmaceutical side and, you know, the new products that you highlighted, is that a higher new product cadence than is typical? Or is it just part of what underpins the aggregate growth of 7 to 11 percent? for that segment and I guess I'm thinking more specifically about the outlook for 2025.

I didn't quite phonetically hear what you said but I mean the headline is we are quite confident in the continued growth of the farmer segment within its target range even though we had kind of excessive growth for a couple years in some of the segments but when we kind of pull up the nets for next year, there's no reason that we think we should be outside that range.

I would just maybe... Okay, and then... Sorry, I was just going to say that as we continue to come out with our devices on new products, those continue to grow, and the categories that we're already in also continue to grow. So you get that kind of increase of the new therapies that we're on as well as the continuing growth in some of our core areas.

Yeah, so I guess that's the point. So would that point towards a higher portion of that 7% to 11% range?

I don't think we're going to be very specific about that at this point. We're still, you know, we're still getting close to that 7% to 11%.

It's your last call.

It's your last call, you know? He's trying to get you on that last call.

All right. I will let that go for now. And then also in terms of, you know, prestige fragrances and the volumes, you know, I understand the comps are difficult and so on and so forth. But, you know, having covered the ingredients producers as well that make the molecules for the fragrances, I mean, they're still seeing decent growth there. Some of the major customers are also seeing, you know, moderation, but decent growth as well. So I'm wondering what specifically are you seeing As it relates to weaknesses that seems to be a little bit more disproportionate to you.

Sure. I'll, I'll, I'll try to take that one. Gotcha. You're correct. I mean, the, the retail consumers sell through is still positive, right? It was, it was strong single digits last year, but remember we were selling double digits growth of our products, right? Now we have no visibility into what the inventory channel looked like at that time. It continues to grow in 2024, but we're down, right? So what that's telling us is that the consumer hasn't walked away from the prestige fragrance side. It's just that it's a normal channel, I would say, be stocking. And as we head into the holiday season and then quickly into Valentine's Day and Mother's Day, that then we'll be able to know better where the rebound is. Is going to come, but we're still optimistic that it's going to bounce back that this is a, this is a short term issue. So it's not that. Consumers are walking away from fragrance products. It continues to suffer.

Plus, I would say we are encouraged by our win rate. So there's certainly nothing there. The concerns with respect to share. Maybe the opposite, but certainly not the other way.

Okay, and then in terms of the half a billion, you know, share repurchase authorization, which is a pretty substantial number, is this sort of a new pivot towards, you know, maybe returning capital to shareholders more directly through share buybacks, or is it just an extension as it relates to optionality for yourselves?

Sure. So, you know, the last authorization really dates back to pre-COVID. It was April of 2019. And you're right, at that time it was $350 million, but we were a much smaller company at a much lower share price, right? So I wouldn't say that the outside $500 million is unusual or signals any change in philosophy. I think it's just more in line with where the current share price is. Ideally, we want to use that as our discretionary lever with the low leverage that we have today at 1.1, and we'll use that. to make sure that we don't go much lower than that. But at the same time, if there's actionable items that we can invest in, we can always pull back as well. So I wouldn't think, you know, from your perspective, it signals anything different philosophically on what we're going to do.

Okay, very helpful. Congrats again, Bob.

Thank you, Constance. Appreciate it very much.

Thank you. Your next question comes from Daniel Wizzo with Jefferies. Your line's open.

Hi, everyone. Thanks for taking my question. You mentioned in the prepared remarks or in the release that it takes a couple years, I think, for new products to kind of ramp. I was wondering if OTC Narcan is like that, too, where we still haven't hit the run rate yet, or is it kind of a different product because of its unique use where it's already kind of ramped up?

It is almost impossible to answer, Dan, because every product is different. That we know for sure. But just to give a few data points. So take Spravato. Spravato, we thought, you know, was going to be a huge blockbuster right out of the gate. I mean, saving lives. And it launched just before COVID, and it was a dud for a while. But... You may have seen the Wall Street Journal article earlier this week. I mean, it's taking off like a rocket ship now, five years later, as doctors have gotten comfortable with it. Narcan, I don't think we're done at all. I'm really encouraged with the CDC data that opioid deaths are down for the first time ever. I think it was 12%, 13%. We're not claiming this is a one-to-one relationship with Narcan, but certainly people say, hey, the broader availability of Narcan is one of the components to fight this scourge. And certainly here, anecdotally, that municipalities are even doubling down on distribution, making Narcan available, free vending machines and things like that. So I certainly don't think that has run its course, you know. And, you know, NEPI, we'll see. We'll see. I think there's a good case for it. Certainly our customer is very bullish on it. But, you know, it takes a few years for prescribers to get comfortable with the product, consumers to pick up on it. So as we always say, no single product changes the trajectory of APTA, but collectively we have built up quite a head of steam here.

Thank you. That's helpful. And then you talked a little bit about cough and cold about your customers kind of managing inventory a little bit differently than they used to as it's been spun out. But the rest was kind of garbled. Just in terms of just this winter, garbled in terms of what I heard because of my phone, is the cough and cold season starting off slower than expected? I mean, has it just been mild winter being an issue yet, or is it too soon to say that, or how should we think about it?

Yeah, Dan, I tried to enunciate better. So the point was that actually, no worries, I'm just poking. The point was that the 23-24 cough and cold season turned out to be a lighter one. And as people now do their balances, getting ready for the 24-25 cough and cold season, they have a bit more inventory than they would like. I think that's the long and short of it. Anecdotally, and our customers tell us, who track this much more closely, that in the southern hemisphere, the cough and cold season is stronger, meaning worse for people, better for us, this year than it was last year. So for what that is worse. So we think this is a year-end effect and not much more.

And for the record, it was my phone, not you, that was garbled. No worries. And sorry, last question. What's the sales cycle for beauty products? How long does it take to get like a new product? I guess it kind of varies depending on what you're creating. But I was wondering, as you kind of take back North America, so to speak, is there a couple years kind of ramp time? And I'm just talking about from a revenue perspective.

Yeah, that, that really ranges, uh, as you can imagine in China, it can be as quickly as four months in with Western clients. It's usually more like 18 to 36 months with the Indies in North America, it can be six to eight months. So that kind of gives you a distribution. Uh, we certainly continue to do well with Indies in North America through our fusion, uh, PKG unit. Um, We certainly have all the capacity to react quickly to an uptick.

Thank you very much.

Thank you. We now have Matt Leroux with William Blair. Your line's open.

Hi, good morning. I wanted to ask about injectables, obviously up here to date here, but down in the quarter. obviously other peers had talked about the stocking you'd referenced that really hasn't been an issue for you. Just wanted to check to make sure that was still the case. And then I guess thinking about or maybe asking about when we can get back to perhaps a more regular cadence of growth in injectables, obviously in light of capacity coming online in Normandy and at Congress. Thanks.

Yes. So fundamentally, clearly, This is a little odd year, given the comparisons versus last year, the ERP and so on, plus some of the destocking and more in the antithrombotic area. But fundamentally, the pipeline continues to build. We are quite bullish for next year. GLP-1 keeps growing. Biologic projects keep coming in. um without giving an outlook for 25 certainly continue to see this business growing very nicely high single digits low double digits in that in that range okay and then maybe just on profitability for the injectable side obviously you're

the nasal delivery business much larger, more mature. You've recently added a lot of capacity for injectables. Could you give us a sense for sort of where you're seeing profitability right now and what the opportunity is for improvement there as you scale?

Yeah, so the general sequence is, as you rightly say, our proprietary drug dispensing devices are probably the most profitable. followed by active materials and injectables, kind of being when everything is steady-state and good capacity utilization around in line with company profitability. So as that business grows, the profitability will continue to improve, but if it grows much faster than the rest of the pharma portfolio, that will put a little lid on the overall profitability.

Okay, thanks. I appreciate it. Bob, congrats.

Thanks, Matt. Appreciate it very much.

Your next question comes from Gabe, Haiti, with Wells Fargo. You may proceed.

Stefan, Bob, Mary, good morning. I want to echo all the kind words to you about Mr. Keene. Stefan, you said it. You guys are kind of a story of kind of singles and doubles. I noticed this Sudafed nasal product that you highlighted as a new item this quarter. Can you talk about, I guess, at least in meetings sometimes, you talk about Europeans more inclined to use nasal cleansing and things like that as part of their daily routine. TAB, Mark McIntyre, based on sort of your dialogue with with the customer here or no sensitive, but just is that sort of their intention to maybe bring some of that type of behavior here with with a branded product. TAB, Mark McIntyre, Just maybe again it's over the counter is more accessible for consumers and you might get a bigger pop initially from over the counter versus maybe something like messy just trying to dimensionalize the opportunity there.

Yeah, I think that the product I was referring to was Sudafed nasal rinse. So that's just, you know, nice to have another strong US brand on the nasal rinse. It's not a breakthrough innovation, but an additional adoption. On your larger point, though, it is true that historically, when it comes to decongestants, when it comes to allergy sprays, Europe was a bit more ahead with adoption of these nasal sprays, whereas the U.S. consumer was used to popping pills. And that gap is still there, but it's narrowing. We have high hopes for Halion with its side-actuated nasal spray that they have launched with the O-Triven brand in Europe, and they will bring in the U.S. with a more U.S. brand. That will make further inroads, but I think it's too early to call that in terms of P&L impact. And remember, Halion is the spinoff of GSK.

Okay. Thank you for that. And then you mentioned kind of working on NEFI for years, and I'm just going to try to, you know, get to Gonson's question. You said good growth for 25 pharma. But just, you know, as you look across, you know, the platform in pharma, we go into the presentation you guys provided at the France site visit, I think, you know, weighted value of pipeline is still up 41%, which is pretty robust given a lot of the commercialization that you've had. So just, I know it's tough, but, you know, maybe from a Stage 8 perspective, projects that you're working on that you're excited about, maybe over the next two or three years that we could be hearing about or just how to think about, you know, again, it just, I guess, gives you confidence in the 7% to 11% growth. How should we think about it?

Sure. And thanks for referring to that. Indeed, the pipeline keeps filling. And if I walk through the pharma side of this, On the allergy side, more and more combination products where several active ingredients are combined with new launches. Then we've talked several times about the large increase in projects for central nervous systems, keying off of the success of Spravato and Narcan and hypoglycemia, what was it? Baximi. Baximi and so on. and pain management, and there are many more of these types of programs in the pipeline. On the consumer healthcare, Ophthalmic continues to go from strength to strength with our Ophthalmic dispenser that allows for no preservation in the solution. We just talked about the new site actuation that we think will be a long-term growth driver for consumer healthcare. dermal, and so on. And then we have mentioned on this call, but as you know, within injectables, it's not just a volume story, it's also an upgrading of the product mix with much more high-value products, whether that's for GLP-1s, whether that's for biologics, whether it's in response to NX-1 in Europe. So it's not only growing with the market, but mix enriching and therefore boosting the margins. Active material, we mentioned the contract with the FDA. I mean, that's a pipeline. Frankly, that's an early stage ideation, but clearly is another nod to the FDA recognizing the strengths of our material science. It goes back, if you remember, During COVID, we were working on sterilizing masks. We didn't have enough masks. We got a government contract to that, and the FDA now also gives us an award for the, what was it? The nitrosamine mitigation. So that just shows you there's a lot of technology under the hood that keeps feeding the pipeline What I just talked about with sterilization and ENZORP, those are very early stage. I'm not going to give any timeline, but six would be extremely short. That's just the nature of the pharma business. It's a pipeline business. We keep building the pipeline and great things come out of the pipeline.

Great. Thank you. And Bob, maybe one for you just so we can calibrate. I know Q1 you tend to have a little bit higher incentive comp, or I should say stock-based comp expense flowing through. Is there anything else that we should be mindful of when thinking about kind of the first half or the first quarter for 25?

No, not that comes to mind, Gabe. You're right with the substance investing, the rules that we have. We do have a higher stock comp expense in Q1, but now that I'm leaving, that should go down a little bit. Old people like myself. But nothing else really comes to mind that's material. I'd have to really scrub through to see if there's anything unusual. I mean, to me, it's more the, you know, some of these trans-empty stocking things, how quickly they rebound and, you know, how quickly they come back. But nothing else that I would mention.

Thank you.

Thank you, Gabe. As a reminder, it is staff followed by one if you wish to ask any further questions. And we now have a follow-up from George Daffos with Bank of America. Please go ahead.

Thanks so much. Follow-on question on pharma. When we were visiting you a few weeks ago, and then I think even on today's call, there was some reference to nasally delivered treatments targeting the brain Stefan and so I was wondering if there's a way to again recognizing it's not necessarily going to move next quarter what that opportunity might look like and if I misheard please you know correct me where you're going with the trends there and what that revenue opportunity might look like and does it come through your traditional devices does it come through powder any thoughts or that you can share would be great thank you and good luck in the quarter

Yeah, thanks, George. We're maybe not too precise with our language, but it's basically any drug that you deliver through the nose for the purposes of crossing the blood barrier to the brain through the nasal cavities. So sometimes we refer to it as the central nervous system drug. Sometimes we refer to it as direct to the brain delivery methods. This is extremely attractive for pharma clients for several reasons. One, often it's just a better delivery route. Two, it gives life cycle management opportunity to regain long periods of exclusivity from the FDA and repurposing old molecules. And many of the things we talked about from naloxone to epinephrine, those are old molecules that have a new lethal life with a much better delivery method. But of course, there are also new treatments that people are thinking about that can be more efficacious if they are delivered through the nasal cavity to the brain. That's why we're excited about that category of project in our pipeline.

Is there a way to, I'm guessing it's going to be a reason why you think, you know, comfortably about the 7-11% growth, but is there a way that that perhaps adds margin or incremental revenue beyond the trend line? for pharma in the next three years? And then separate, totally unrelated question, to the extent that you've been successful in recognizing it's a challenging topic, it's never a happy topic, about right-sizing your footprint, closing facilities where you've needed to, is there potentially more of that required to get to the margin that you need over the next couple of years in beauty? Not necessarily, you just need the markets to do what they would normally do. Thank you and good luck again in the quarter.

Yeah, on the first question, look, we don't break down the pipeline by subcategory. I think we've informed you that emergency medications are around 6% of total revenue, 5% of total revenue. for the company, and it's a rapidly growing area. That's number one. Number two, this is a sweet spot for us in terms of profitability, our proprietary drug delivery system. So if you have very good traction, not only in sales with things like Spravato and Narcan and so on, but also in the most profitable part of the portfolio, And by the way, we haven't talked more about it, but if you go back through the press release and my remarks, that's also the area that's generating more and more royalty revenue. So all of that certainly bodes well for the future. It's quite simple. If your most profitable segment is growing fast and has a strong pipeline, that will bode well. On the second part, We have more ideas, but I would not and will execute them once they're to fruition, but I will not characterize them as a prerequisite to get to the 15. It's more like to get beyond that.

Understood. Thank you so much.

Thank you. I can confirm that does conclude today's Q&A session, and I would like to hand it back to Mr. Tander for some final closing remarks.

thank you so let me end the call by zooming out uh quarter three was a very strong quarter we are on track for a solid finish to the year with good organic growth and double digit eps growth for the full year as you discussed we execute quite a number of productivity actions that will continue to fall to the bottom line into 25 and beyond and we also have additional ideas to use that productivity muscle or muscles that we have developed on an ongoing basis. And when you use those muscles, they trigger additional ideas and opportunities, especially in Europe and also in the U.S. Now, several of you have remarked you were able to look a little bit under the hood, so to speak, with the recent visits to some of our French and U.S. facilities to judge the organization's capabilities and capabilities the ability to increase the depth and width of our moats. So even in a slowing economy, we are confident in the resilience of our portfolio. Of course, our pharma business is very strong. We are encouraged by the continuous filling of our pipeline, not only pharma, but also in beauty enclosures. Customers are engaging very positively with the more agile and the more competitive Aftar. Our customers recognize the innovations, the value we bring to that brand and the direct developments from very early stage ideation to full scale global deployment. We have well positioned with increasingly competitive regional footprints around the world, strengthened even further with the closing of the pump TV in China. And last but not least, our strong balance sheet affords us the strategic flexibility to pursue Optionality, as you know, we are fans of bite-sized bolt-on partnerships and acquisitions and have a track record of delivering on those. So all this goes around not only for quarter four, but 25 and beyond. One more time, a huge thanks to Bob and all the best. And Vanessa, Mary, and I look forward to discussing more with you on the road. And if we don't speak before, I wish you all the best for the holidays.

Thank you all for joining. Thank you. That concludes the APTAR 2024 Q3 results earnings call. Please enjoy the rest of your day and you may now disconnect from the call.