West Pharmaceutical Services, Inc.

Good day, and thank you for standing by. Welcome to the West Pharmaceutical Services' fourth quarter 2025 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host for today. John Sweeney, Vice President of Investillations. Please go ahead.

Good morning, and welcome to West's fourth quarter and full year 2025 earnings conference call, which has been webcast live. With me today on the call are West's CEO, Eric Green, and CFO, Bob McMahon. Earlier today, we issued our fourth quarter and full year financial results. A copy of the press release along with today's slide presentation containing supplemental information for your reference has been posted in the investor section of the company website located at investor.westfarmer.com. Later today, a replay of the webcast will also be available in the investor section of our website. On the call, we will review our financial results and provide an update to our business and outlook for FY26. Statements made by management on the call and 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 other disclosures made by the company such as a 10-K and 10-Q regarding the risks to which the company is subject. During the call, management will make reference to non-GAAP financial measures including organic sales growth, adjusted operating profit, adjusted operating profit margin, free cash flow, and adjusted diluted EPS. Limitations and reconciliations of non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in this morning's earnings release and today's slide presentation. I'd now like to turn the call over to our CEO, Eric Green. Eric?

Thank you, John, and good morning, everyone. Thanks for joining us today. I'm pleased to report we delivered another solid quarter. with fourth quarter revenues, adjusted EPS, and cash flow coming in above our expectations. Before I get into the details of the quarter, I would like to take a moment to reflect on what we accomplished in 2025. We returned to growth and had many notable achievements. Our performance in the year underscores the effectiveness of our growth strategy and our team's relentless focus on execution to deliver for our customers. And we enter 2026 with momentum. Our company surpassed the $3 billion mark in net sales, achieving year-over-year organic growth of over 4%. We also expanded operating margins. delivered 8% adjusted earnings per share growth, and grew our free cash flow by 70%. Our growth was fueled by increasing demand for high-value product components as we continue to meet the evolving market and customer needs. Our growth in that business is driven by three key drivers, the rise of biologics and biosimilars, the increase in global regulatory requirements, such as Annex I, which continues to drive HVP conversion, and the expanding GLP-1 market. These are long-term secular growth drivers that we believe West is uniquely positioned to capitalize on. We continue to address the needs of our customers through scientific support and innovation. A recent example is the launch of the WestSynchrony pre-fillable syringe system. Synchrony marks a significant shift in drug delivery solutions by offering a full verified platform from a single supplier. Designed specifically for biologics, this system sets up a new standard in drug delivery by accelerating syringe selection through its comprehensive performance and regulatory data packages. In early 2025, we announced our intention to conduct a comprehensive evaluation of the SmartDose 3.5 ML business. After our portfolio review, we announced last month the sale of the business, which aligns with our ongoing commitment to our customer development pipeline and patient-centric approach for large, on-body delivery devices to drive durable and profitable growth. We expect to close this transaction mid-year. For our contract manufacturing segment, we continue to scale up operations in Dublin for drug handling. And I'm pleased to announce that just earlier this month, we commenced commercial production on this program. This remains an exciting and long-term growth opportunity for the CM business. Finally, we strengthened our executive leadership team in 2025, with five out of the 10 members having joined in the last 12 months. This season, leadership team is already making meaningful contributions to our organization. With that, I'd like to turn to the fourth quarter performance. Revenues of $805 million exceeded our expectations and were up 7.5% reported and up 3.3% on an organic basis. Adjusted operating margins in the quarter were 21.4%, and adjusted EPS of $2.04 was up 12% compared to prior year. Free cash flow in the fourth quarter was $175 million, more than double the prior year level. Let's take a closer review of each of the business segments. First, HVP components in our proprietary product segment representing 48% of our company's total net sales and continues to be the primary driver of revenue growth and profitability. This business grew over 15% in the fourth quarter and was up 9% for the full year of 2025. HVP components have been tracking on a strong recovery throughout the year to align to the market demand. This business is a key differentiator for us because of our quality, scale, and technology. And once customers are specced into our products and reference our drug master file, there is a dependency there that makes it highly unlikely that customers will change partners. Growth was led by strong GLP-1 performance and continued recovery in our non-GLP-1 business. We continue to see increasing demand in this business and continue to ramp capacity. Bob will talk about our outlook in more detail, but we're expecting 2026 will have a more broad-based growth profile driven by our non-GLP-1 HVP components growing high single digit to low double digits. Moving to HVP delivery devices, which represents 14% of our sales. As expected, fourth quarter revenues declined compared to prior year, driven by the incentive payment we received in the prior year quarter. However, performance was better than we expected as we saw strong growth in Crystal Zenith and improvement in admin systems revenue growth. Standard products, which represents 20% of our business, declined 1.7% on an organic basis during the fourth quarter. Standard products are an important funnel as we convert standard products to HVP components over time, which provides incremental value to our customers and generates incremental revenue and margin expansion for us. And lastly, contract manufacturing revenues increased 1.9% organically in Q4. As I mentioned, we commenced commercialization of our drug handling business at our Dublin facility, and we expect this ramp up throughout 2026. Our drug handling business is more profitable and less capital intensive than the legacy contract manufacturing business. Moving into 2026, we have robust momentum as we are well positioned to advance our strategies supported by our growth drivers of Biologics, Annex I, and GLP-1s. In biologics, inclusive of biosimilars, we continue to have great success partnering with our customers early in the pipeline, resulting in a strong participation rate of greater than 90%, which is a key indicator for future HVP components' revenue growth for this market. For Annex I, we're well-positioned to support our global customers' contamination control strategy and container closure integrity requirements outlined in the European regulations that were adopted in 2023. For West, this is a multi-year opportunity of currently 6 billion West components to be upgraded that support on-market injectable medicines. I'm pleased with the progress to date, with over 700 Annex 1 projects initiated, over half of which have been completed and now generating revenues. This represents less than 15% of the 6 billion components. We completed 65 projects in Q4 of 2025, with 325 Annex 1-related projects currently underway and more in the pipeline, we anticipate these projects will drive additional revenue growth in 2026 and beyond. Now, let me spend some time on oral GLP-1s and injectable formats. GLP-1s will continue to support our growth in 2026. As many of you are aware, oral GLP-1s have entered the market. And I want to share our view on their potential impact on the overall market. To provide context, I'd encourage you to listen to publicly available remarks from the two leading companies at producing GLP-1s and their expectation that orals will expand and not substitute injectables in the marketplace. Both companies have noted that eight of 10 patients using oral GLP-1s are new to the market. suggesting that orals will not cannibalize the injectables market and that several new injectables are about to launch. We expect growth from GLP-1 elastomers in 2026 and beyond for the following reasons. First and foremost, the adoption of GLP-1s is still in the early stages with penetration of the potential patient population in the low single digits by many estimates. market access is continuing to expand, driving volume. The available clinical evidence continues to show meaningful efficacy advantages for injectables. Historically, oral formulations show higher rates of GI adverse events and treatment discontinuations than injectables. With regard to autoinjectors and multidose pens, we believe that there will be multiple injectable formats based on customer preference. We expect any mix shift will happen over multiple years, given the installed capacity and investments that our customers have already made. The upcoming launch of injectable GLP-1 generics in Canada, China, India, and Brazil represents incremental business for us. In addition, there's an exciting clinical pipeline of GLP-1 molecules in development for obesity, diabetes, and other metabolic conditions. While many of these GLP-1s that are similar to what is currently on the market today, there are also newer combination molecules which potentially offer increased efficacy, improved tolerability, or therapeutic benefits for adjacent comorbidities. Finally, There are a number of exciting new GLP-1 molecules serving indications other than obesity and diabetes that are projected to come on the market over the next several years. These include MASH, sleep apnea, chronic kidney disease, heart failure, pediatric obesity, and cardiovascular risk reduction, with five of these six indications being treated exclusively by injectables. These indications represent potential multibillion-dollar therapeutic classes. As a result, we continue to believe that both injectables and oral formats will continue to grow. Let me turn to our operations. With our strong reputation for quality, scale, and operational excellence, we're poised to capture growth from these three key drivers as we leverage our global manufacturing network. We are actively hiring and training employees who are installing and operating new equipment to optimize our European facilities and respond to strong customer demand. We utilize tech transfers to help our customers balance production across the network, enabling West to drive future growth. We entered 2026 with momentum. and are starting the year with guidance of 5% to 7% organic revenue growth and 10% EPS at the midpoint of the range. Now, I'd like to turn the call over to Bob to discuss the financials and guidance in more detail. Bob?