Catalent, Inc.

Good morning. Thank you for attending today's Catalan Inc. fourth quarter fiscal year 2022 earnings call. My name is Forum, and I will be your moderator for today's call. All lines will remain muted during the presentation portion of the call with an opportunity for public and private questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. It is now my pleasure to pass the conference over to our host, Paul Serdez, Vice President of Investor Relations. Mr. Serdez, please proceed.

Good morning, everyone, and thank you for joining us today to review Catalan's fourth quarter and full fiscal year 2022 financial results. Joining me on the call today are Alessandra Maselli, President and Chief Executive Officer, and Tom Castellano, Senior VP and Chief Financial Officer. Please see our agenda for today's call on slide two of our supplemental presentation which is available on our investor relations website at investor.catalan.com. During our call today, management will make forward-looking statements and refer to non-GAAP financial measures. It is possible that actual results could differ from management's expectations. We refer you to slide three for more detail on forward-looking statements. Slides four and five discuss Catalan's use of non-GAAP financial measures and our just-issued earnings release provides reconciliations to the most directly comparable gap measures. Please also refer to Catalan's form 10-K that will be filed with the SEC today for additional information on the risks and uncertainties that may bear on our operating results, performance, and financial condition. Now, I would like to turn the call over to Alessandro Maselli, whose opening remarks will begin on slide six of the presentation.

Thanks, Paul, and welcome, everyone, to the call. Fiscal 22 was another extraordinary year for Catalan. During the year, we achieved strong results, both financially and operationally, while also making a positive impact on our global community by delivering our mission to develop and deliver products that help people live better and healthier lives. Some of our top highlights since July 21 include significantly investing in capacity and infrastructure in both North America and Europe particularly focused on servicing the high demand segments of the market. Adding another growth engine to the company through our entry in consumer-preferred dosage, Garnley dosage forms for nutritional supplements, which we continue to aggressively expand. Agreeing to acquire a new capacity that will accelerate our ability to handle demand in the attractive category of high-depot and compounds. Expanding and deepening one of our best talent tools in the industry. intensifying our long-standing commitment to sustainability, accelerating our growth strategy, and delivering regular financial results despite a difficult inflationary environment and ongoing supply chain challenges. Fiscal 2022 net revenue was $4.83 billion, which grew organically in constant currency at 20% compared to prior fiscal year. This growth was primarily driven by broad demand for our biologics offerings including the demand for COVID-19-related programs, increased demand for our customer prescription products, and a rebound in demand for our consumer health products. Adjust EBITDA for the year was $1.29 billion, reflecting cost and currency organic growth of 28% compared to fiscal 21. We also increased our Adjust EBITDA margin to 26.6%, up 110 basis points from 25.5%, we recorded in fiscal 21. Fiscal 22 adjusted net income was $694 million, or $3.84 per diluted share, up from $3.04 per diluted share in fiscal 21. Now, focusing on the fourth quarter, I'm pleased to report that we have closed out the year with strong results, as our robust business momentum more than offset headwinds from inflation and unfavorable exchange translations. As shown on slide 7, our fourth quarter revenue was $1.31 billion, increasing 10% as reported, or 15% in constant currency, compared to the fourth quarter of fiscal 21. When excluding acquisition and divestiture, organic growth was 10% measured in constant currency. This growth was primarily driven by our biologic segment, which grew double digits despite lower year-on-year revenue in the quarter from COVID-19 programs. Our fourth quarter adjusted EBITDA was $384 million, increased 10% as reported, or 16% on a constant currency basis, compared to the fourth quarter of fiscal 21. When excluding acquisition and divestiture, organic growth was 15% measured in constant currency. Our adjusted net income for the fourth quarter was $215 million, or $1.19 per diluted share, up from $1.16 per share in the corresponding prior year period. As you know, we put in place a new organizational structure effective July 1st, the start of fiscal 23, which was also the same day I transitioned to my current role as a CEO. Our new structure will help us better manage the business as it has grown over the last few years, while also enabling a value creation by giving our customers easier access to a broader array of our services. The reorganization has reduced our number of operating segments from four to two, with one focusing on biologics and the other on pharmaceuticals and consumer health. Each segment represents roughly half of the total company revenues, illustrated on slide eight. We will begin reporting our results under these new structures, starting with our first quarter earnings goal in early November. We'll also issue a restatement of recent historical results under the new structure in the coming weeks. The new pharma and consumer health segment includes the offering of three of our prior segments, soft-gen and oral technology, oral and specialty delivery, and clinical supply services, and overwhelmingly serves small molecule programs. Notable offerings in pharma and consumer health segment include our market-leading capabilities for complex oral solids, software formulation, Zadis fast-dissolve tablets, gummies and soft shoes, and clinical development and trial supply services. We have established dedicated teams focused individually on pharmaceutical, consumer health, and clinical development and supply offerings. Our long-term net revenue growth expectation for the pharma and consumer health segment is 6% to 10%, which is 200 basis points higher at the upper end than the combined growth rates of the three previous segments now included within this new segment. This is due to the commercial synergies unlocked by our new go-to-market strategy enabled by this organizational structure and greater exposure to higher growth sectors of small molecule market as a result of recent investment and acquisitions. The new biologic segment is essentially the same as the biologic segment we reported in fiscal 22. With some internal organization adjustments, we could better service the newer modalities employed by many of our biopharma customers. Our expected long-term net revenue growth rate for the biologic segment remains at 10% to 15%. There are several benefits to this important structural change. First, the simplified reporting structure enables us to be more agile in meeting and anticipating customer needs and expectations. as well as adapting to evolving customer and industry trends. Second, creating a more integrated offering makes it easier for customers to do business with Catalan, leading to an enhanced customer experience and minimized barriers for existing and potential customers to access multiple services, thereby enabling commercial synergies. Finally, it allows for even greater operational excellence, as horizontal quality and operations oversight bolsters accountability across the network. Importantly, based on our confidence in the long-term growth expected across both segments to our continued investment and synergy resulting from our reorganization, we are in a comfortable position to raise the top end of our project to consolidate the long-term growth rate to 12% compared to the previous 10% as shown in slide 8. Looking to fiscal 23, while Tom will review the details of our guidance later in the call, I would like to make some high-level remarks on our revenue outlook. I indicated on our last earnings call in May that we were comfortable projecting a fiscal 23 organic growth in line with our previous long-term organic revenue growth rate of 8% to 10% despite our focus for a considerable decline in revenue from COVID-19-related problems. Since then, given the more pronounced seasonality we project in customer ordering for these programs, as well as the facing of our fiscal year, we have further delisted the level of COVID-related care revenue in our guidance model. The new model used for the guidance we are sharing today takes into account the updated timing of the switch to single-dose formats and forecasts are roughly two-thirds decrease in COVID vaccine-related volumes in fiscal 23 compared to fiscal 22. After accounting for this additional de-risking of COVID revenue, we still expect fiscal 23 organic growth at the midpoint to be around the low end of our long-term range on a constant currency basis. Our projection of fiscal 23 revenue growth is driven by our non-COVID business, which is expected to grow organically by more than 25% at cost and currency due to several factors, including growth expansions of existing assets that came online in the past year, such as our new drug substance lines in medicine and drug product lines in Bloomington and Europe, maximizing efficiencies in other areas of our global network, including those that manufacture our GAMNI format and previously announced build-outs of our cell therapy and plasmid offerings in Europe and U.S., adding a new capacity in the next two quarters, including the opening of eight previously announced gene therapy suites in BWI and additional drug substance capacity in Bloomington. The large commercial tech transfer programs in our drug product assets we discussed on our last earnings call and later in Fiscal 23, our two new facilities currently completing construction, our commercial cell therapy facility in Princeton and our drug substance facility in Oxford will start to generate meaningful revenue. Additional growth not reflected in the Fiscal 23 guidance we are issuing today is anticipated following the closing of our recently announced agreement to acquire Metrix Contract Services, a full service specialty CDMO with a 330,000-square-foot facility in Greenville, North Carolina, for $475 million from Main Pharma, as summarized on slide 9. The acquisition of this business and facility, which has enjoyed well over $100 million in capital improvements in the last five years, will enable Catalan to accelerate existing plans to meet the increasing demand for fit-for-scale, high-potent drug manufacturing. Of course, the acquisition remains subject to customary closing conditions, including antitrust clearance. We expect to close the acquisition before December 31st. One reason for our enthusiasm about the metric business is the growth in the number of pot and compounds in the oral solids market, driven by strong growth in the oral oncology pipeline, where more than 80% of programs require pot and handling, as well as the industry shift to in silico discovery which often yields more potent and less soluble molecules. In the last several years, Catalan has seen numerous opportunities to work with the highly potent compounds, which we can now service after we complete the acquisition of Matrix. Matrix greenery facility generated the revenue of more than 90 million during our fiscal 22 from services from 30 party customers, including large pharma and emerging biotech customers, as well as manufacturing services for several main pharma-owned products. I note that our deal with the main pharma includes a long-term supply agreement to manufacture certain of its products at the Greenville facility after closing. Once acquired, the metric business will become part of our pharma and consumer health segment and is expected to deliver revenue growth comparable to the segment's projected overall long-term growth of 6% to 10%. Metrics EBITDA margin is accretive to the PCH margin, and we intend to drive this margin above 30% over time by increasing utilization. Adding important handling capabilities in fit for scale capacity through metrics represent a continuation of our strategy to maintain a balanced portfolio of offerings that closely matches the overall industry pipeline. which includes a growing number of innovative small molecules that are complex to formulate or require specialized handling. While innovation in the biologics market is more frequently mentioned in the headlines, oral delivery is still the foundation of the prescription drug pipeline with almost 6,000 oral compounds currently in development, up approximately 10% from last year, and has been the focus of recent substantial pharma M&A activities. The combination of our strategic acquisitions like Magix and our organic investments has positioned our overall portfolio for long-term success, including being in a strong position to meet our long-term targets. As I wrap up my remarks this morning, let me add that the goals and objectives for Fiscal 20 Reset by me and the rest of the executive team laid the foundation for executing on our long-term strategy. and also help a position us to deliver another strong fiscal year as we navigate the obstacle facing our industry today, which include the continuing supply chain challenges, inflationary pressures, energy supply issues in Europe, the uncertainty in the biotech funding, and lower and more seasonal demand for vaccine as we exit the pandemic. I am energized by our strategic growth ambitions, the roadmap we have in place, and the Catalan team working together to deliver for patients who rely on us. We continue to be in a strong position to succeed in the attractive markets we serve. Finally, I would like to congratulate Karen Flynn, who was elected by our board of directors last week to become the board's newest member, effective September 15. Karen recently retired after a long and distinguished career in the pharmaceutical industry, with her most recent role as Catalan's Senior Vice President and Chief Commercial Officer, and we are delighted to be able to continue current involvement with the company. Now, I would like to turn the call over to Tom.