West Pharmaceutical Services, Inc.

We issued our financial results this morning, and the release has been posted in the investor section on the company's website located at westfarmer.com. This morning, Eric Green and Bernard Burkett will review our financial results, provide an update on our business, and present an update on our financial outlook for the full year 2023. There's a slide presentation that accompanies today's call, and a copy of that presentation is available on the investor section of our website. On slide four is our State Harbor Statement. Statements made by the management on this call and in the accompanying presentation contain forward-looking statements within the meaning of U.S. federal securities law. These statements are based on our beliefs and assumptions, current expectations, estimates, and forecasts. The company's future results are influenced by many factors beyond the control of the company. Actual results could differ materially from past results, as well as those expressed or implied in any forward-looking statements made here. Please refer to today's press release as well as any other disclosures made by the company regarding the risk to which it is subject, including our 10-K, 10-Q, and 8-K reports. During today's call, management will make reference to non-GAAP financial measures, including organic sales growth, adjusted operating profit, adjusted operating profit margin, and adjusted diluted EPS. reconciliations and limitations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in this morning's earnings release. I now turn the call over to our CEO, Eric Green. Eric? Great.

Thank you, Quentin, and good morning, everyone. Thanks for joining us today. We will start on slide five. On April 14th, Wes turned 100 years old. This is a major milestone that we're very proud of. Over the course of our 100-year history, the West name has come to mean so much to so many people. I would like to recognize our founder, Herman O. West, and the past generations of leadership that have built West to who we are today. In addition, I want to especially thank our 10,000-plus team members who are motivated by our purpose of improving patient lives and making a difference in the communities in which we work and live. Moving to slide six, I am pleased to report that we delivered a solid first quarter. This was driven by overall organic sales growth of over 2%. Excluding COVID-19, our base organic sales grew high teens. Our end markets remain stable, even in this uncertain macroeconomic environment. As expected, we saw a drop in COVID-19-related sales compared to last year. That said, our biologics market unit, excluding COVID, again grew double digits, and we expect this trend to continue for the rest of the year. With a focus on reprioritization of longer lead time components, our generics and pharma market units delivered an especially strong quarter of double-digit organic growth. In addition, our contract manufacturing had solid growth while delivering components for injection-related devices. This overall performance is a result of our team members across the globe as they remain focused on our strategic initiative of execute, innovate, and grow. The resiliency of the business continues to be a reflection of our team members, and I want to acknowledge these efforts and say thank you. Turning to slide seven. In addition to our financial performance, there were several other significant accomplishments in our quarter. I would like to highlight a few. In February, we opened our new R&D lab in Radnor, Pennsylvania. This investment supports our capability enhancements while meeting the growing needs of customers in the changing regulatory environment across the globe. The lab's applied research will include containment and systems for advanced therapies and biomaterials, along with advanced design and engineering for drug delivery. In addition, the lab will also test and develop elastomer glass systems, and the work done here will support our future R&D ambitions for new containment and packaging solutions. Our product innovations have been recognized with several notable awards, including the Best Technologies Award at Interfax for our West Ready Pack with Corning's Valor Ready-to-Use Vials. And as we continue to make tremendous stride in ESG, we have announced a stability partnership with the Philadelphia Eagles, who are recognized as environmental stewards across all areas of their business. We look forward to sharing more detail on our ESG efforts in our corporate responsibility report to be published shortly. Shifting to slide eight. Our robust capital investments through expansions and optimizing productivity across our global operations remain on track. We continue to drive forward the expansion of additional HVP capacity with the anticipated growth of our customers' biologic portfolios and drug launches. This includes the installation and validation of new manufacturing equipment for HVP plungers and finishing capabilities, which will continue to come online throughout 2023 and into 2024. Moving to slide nine, we are reiterating our full year 2023 organic sales growth outlook of three to 4% and are raising our 2023 financial outlook for overall net sales and adjusted diluted EPS. While Bernard will go over more details in his remarks, I want to make a few high-level comments. We continue to see a decline in overall COVID-19 sales and now expect $60 million for the full year 2023 instead of $85 million. Even with this change, we are reaffirming full year 2023 overall organic sales guidance we continue to expect mid-teens proprietary products base organic sales growth for the year. Contract manufacturing is now expected to be double-digit growth compared to prior high single-digit outlook, as we expect to see continued demand for certain injection devices as seen in Q1. Now, I'll turn the call over to Bernard. Bernard?

Thank you, Eric, and good morning. We'll first look at Q1's 2023 revenues and profits. where we saw low single-digit organic sales growth and a decline in operating profit and diluted EPS compared to the first quarter of 2022. I will take you through the drivers impacting sales and margin in the quarter, as well as some balance sheet takeaways. And finally, we will provide an update to our 2023 guidance. First up, Q1. Our financial results are summarized on slide 10, and the reconciliation of non-US GAAP measures are described in slides 17 to 20. We recorded net sales of $716.6 million, representing organic sales growth of 2.3%. COVID-related net revenues are estimated to have been approximately $23 million in the quarter, an approximate $88 million reduction compared to the prior year. These net revenues in 2022 included our assessment of components associated with vaccines, treatment and diagnosis of COVID-19 patients, offset by lower sales to customers affected by lower volumes due to the pandemic. Looking at slide 11, proprietary products organic net sales remain flat in the quarter. High-value products, which made up more than 70% of proprietary product sales in the quarter, declined by low single digits due to the reduction in COVID-related net revenues. Looking at the performance of the market units, the generics market unit delivered high double-digit growth led by sales of Westar components, while the pharma market unit experienced low double-digit growth led by Envision and Westar components, as well as admin systems. And the biologics market unit saw a double-digit decline due to a reduction in sales related to COVID-19 vaccine. Our contract manufacturing segment experienced double-digit net sales growth in the first quarter, primarily driven by an increase in sales of components related to injection-related devices. Our adjusted operating profit margin of 23% was a 340 basis point decrease from the same period last year. Finally, adjusted diluted EPS declined 13.9% for Q1. Excluding stock-based compensation tax benefits, EPS decreased by approximately 16.1%. Now let's review the drivers in both our revenue and profit performance. On slide 12, we show the contributions to organic sales growth in the quarter. Sales price increases contributed $38 million points of growth in the quarter. Offsetting price was a negative mixed impact of $21.3 million, primarily due to a reduction in COVID-19 related net demand and a foreign currency headwind of approximately $20.1 million. Looking at margin performance, Slide 13 shows our consolidated gross profit margin of 37.9% for Q1 2023, down from 39.5% in Q1 2022. Proprietary products first quarter gross profit margin of 42.5% was 90 basis points lower than the margin achieved in the first quarter of 2022. The key drivers for the decline in proprietary products gross profit margin were unfavorable mix from a reduction in sales related to COVID-19 vaccines, and continued inflationary pressures on our plant costs including labor, raw materials, and overheads. These factors were partially offset by sales price increases and production efficiencies. Contract manufacturing first quarter gross profit margin of 17.6% 250 basis points below the margin achieved in the first quarter of 2022, primarily due to mix of products sold. Now let's look at our balance sheet and review how we've done in terms of generating more cash. On slide 14, we have listed some key cash flow metrics. Operating cash flow was $138.1 million for the three months ended March 2023. a decrease of $13.1 million compared to the same period last year, an 8.7% decrease, primarily due to a decline in operating results. Our first quarter of 2023 year-to-date capital spending was $82.1 million, $16.3 million higher than the same period last year. We continue to leverage our CapEx to increase our high-value product manufacturing capacity within our existing facilities in the US, Germany, Ireland and Singapore. Working capital of approximately $1.4 billion at March 31, 2023 remained consistent from December 31, 2022. Our cash balance at March 31 of $886.3 million was $8 million lower than our December 2022 balance. The decrease in cash is primarily due to our share repurchase program and higher CapEx, offset by operating cash flow for the first quarter. Turning to guidance, slide 9 provides a high-level summary. We are updating our full year 2023 net sales guidance and expect net sales to be in a range of $2.965 billion and $2.99 billion. compared to a prior guidance range of $2.935 billion to $2.96 billion. There is an estimated full-year 2023 tailwind of $15 million based on current foreign exchange rates compared to prior guidance of a 2023 headwind of $30 million. We expect organic sales growth to be approximately 3% to 4% unchanged from prior guidance. We expect our full year 2023 adjusted diluted EPS guidance to be in a range of $7.50 to $7.65, compared to a prior range of $7.25 to $7.40. Also, our CapEx guidance is $350 million for the year, unchanged from prior guidance. There are some key elements I want to bring your attention to as you review our guidance. We expect full-year COVID-19 related sales to be approximately $60 million compared to prior guidance of approximately $85 million. Net sales guidance also includes a reduction of $8 million resulting from an expected divestiture of a European facility that produced standard proprietary product components. Full year 2023 adjusted diluted EPS guidance range includes an estimated FX tailwind of approximately $0.02 based on current foreign currency exchange rates compared to prior guidance of a headwind of $0.11. The updated guidance also includes EPS of $0.15 associated with first quarter 2023 tax benefits from stock-based compensation. Our guidance does not include potential future tax benefits from stock-based compensation. I would now like to turn the call back over to Eric. Thank you, Bernard.