Catalent, Inc. Reports Third Quarter Fiscal 2019 Results

  • Q3’19 revenue of $617.5 million decreased 2% as-reported, but
    increased 2% in constant currency, from Q3’18, while
  • Q3’19 YTD revenue of $1,792.3 million increased 1% as-reported,
    or 3% in constant currency, from the prior-year period.
  • Double-digit organic segment EBITDA growth within Biologics and
    Specialty Drug Delivery, Oral Drug Delivery and Clinical Supply
    Services segments; Juniper acquisition continues to out-perform
    management expectations.
  • FY’19 financial guidance range tightened.
  • Signed agreement to acquire biologics CDMO Paragon Bioservices,
    Inc., expected to close in Q4’19.

SOMERSET, N.J.–(BUSINESS WIRE)–Catalent, Inc. (NYSE: CTLT), the leading global provider of advanced
delivery technologies and development solutions for drugs, biologics and
consumer health products, today announced financial results for the
third quarter of fiscal year 2019, which ended March 31, 2019. As a
reminder, ASC 606, the new revenue accounting standard applies to our
fiscal 2019 results, and the prior standard applies to fiscal 2018.

Third quarter 2019 revenue of $617.5 million decreased 2% as reported,
but increased 2% in constant currency, from the $627.9 million reported
in the third quarter a year ago, primarily driven by the Biologics and
Specialty Drug Delivery segment and the impact of the Juniper
Pharmaceuticals acquisition within the Oral Drug Delivery segment,
partially offset by a reduction in revenue from comparator sourcing
arrangements, due to the ASC 606 changes, pursuant to which we now
record such revenue on a net versus the former gross basis. Excluding
the impact of the change in accounting related to comparator sourcing
arrangements and the impact of the Juniper Pharmaceuticals acquisition,
revenue increased 3% in constant currency driven by strong organic
growth within our Biologics and Specialty Drug Delivery segment. For the
first nine months of fiscal year 2019, revenue was $1,792.3 million and
increased 1% as reported and 3% in constant currency, compared to the
$1,778.1 million in the prior-year period. The year-to-date revenue
growth was driven by the Catalent Indiana (formerly Cook Pharmica) and
Juniper Pharmaceuticals acquisitions, offset by the change in accounting
related to comparator sourcing arrangements. Excluding the
aforementioned acquisitions and the accounting change, year-to-date
revenue increased 2% in constant currency.

Third quarter 2019 net earnings was $31.7 million, or $0.22 per diluted
share, compared to net earnings of $19.0 million, or $0.14 per diluted
share, in the third quarter a year ago. For the first nine months of
fiscal year 2019, net earnings were $66.3 million, or $0.46 per diluted
share, compared to net earnings of $0.9 million, or $0.01 per diluted
share, in the prior-year period.

Third quarter 2019 EBITDA from operations of $135.4 million, as
referenced in the GAAP to non-GAAP reconciliation provided later in this
release, increased $21.1 million from $114.3 million in the third
quarter a year ago. Third quarter 2019 Adjusted EBITDA (see the non-GAAP
reconciliation for a discussion of this metric) was $154.3 million, or
25.0% of revenue, compared to $139.0 million, or 22.1% of revenue, in
the third quarter a year ago. This represents an increase of 11% as
reported, and an increase of 14% on a constant-currency basis.

Third quarter 2019 Adjusted Net Income (see the GAAP to non-GAAP
reconciliation) was $71.2 million, or $0.49 per diluted share, compared
to Adjusted Net Income of $55.2 million, or $0.41 per diluted share, in
the third quarter a year ago.

“Our Biologics and Specialty Drug Delivery and Oral Drug Delivery
segments continue to meet our overall expectations, and we are pleased
with the progress we have made towards our margin expansion goals,” said
John Chiminski, Chair and Chief Executive Officer of Catalent, Inc. “We
are also excited by our pending acquisition of viral vector developer
and manufacturer Paragon Bioservices, which we believe will bring
extraordinary benefits to patients and accelerate Catalent’s financial
growth.”

Fiscal Year 2019 Outlook

Management is tightening the range of its previously issued financial
guidance due to increased visibility to our full-year results. For
fiscal year 2019, Catalent expects revenue in the range of $2.50 billion
to $2.52 billion, Adjusted EBITDA in the range of $605 million to $615
million, and Adjusted Net Income in the range of $268 million to $278
million. The Company expects self-funded capital expenditures in the
range of $175 million to $185 million and fully diluted share count in
the range of 146 million to 147 million shares on a weighted-average
basis, taking into account the issuance of 11.4 million shares in the
July 2018 equity offering. This guidance does not include the potential
effects of the Paragon acquisition and related transactions.

Third Quarter 2019 Segment Highlights

Revenue Highlights

Revenue from the Softgel Technologies segment was $214.5 million for the
third quarter of fiscal 2019, a decrease of 6% as reported, or 1% in
constant currency, compared to the third quarter a year ago. The
constant-currency decline was primarily driven by lower volume for
prescription products in North America, and decreased volume in our
consumer health business resulting from a shortage of ibuprofen supply,
partially offset by strong demand for consumer health products in Europe.

Revenue from the Biologics and Specialty Drug Delivery segment was
$172.1 million for the third quarter of fiscal 2019, an increase of 4%
as reported, or 5% in constant currency, over the third quarter a year
ago. The constant-currency growth was primarily driven by favorable
end-customer demand for our biologics drug product offerings, partially
offset by timing-related declines in our biologics drug substance
offering and lower volumes associated with products utilizing our
respiratory and ophthalmic drug delivery platforms.

Revenue from the Oral Drug Delivery segment was $161.7 million for the
third quarter of fiscal 2019, an increase of 9% as reported, or 12% in
constant currency, over the third quarter a year ago. The
constant-currency increase was primarily driven by the Juniper
acquisition, which closed in August 2018, and contributed 11 percentage
points to the segment’s revenue in constant currency. Excluding the
impact of the Juniper acquisition, segment revenue increased 1% due to
increased revenue from product participation related activities,
partially offset by lower end-market demand for certain high-margin
offerings, primarily in our U.S. commercial oral delivery solutions
platform.

Revenue from the Clinical Supply Services segment was $77.8 million for
the third quarter of fiscal 2019, a decrease of 25% as reported or 23%
in constant currency, over the third quarter a year ago. The
constant-currency decline resulted from the change to the way we record
comparator sourcing revenue under ASC 606, which decreased third quarter
revenue by 25 percentage points on a constant-currency basis. Excluding
the impact of ASC 606, revenue increased 2% driven by increased volume
related to our manufacturing and packaging services offering.

Segment EBITDA Highlights

Softgel Technologies segment EBITDA (see the discussion of non-GAAP
measures below) in the third quarter of fiscal 2019 was $48.4 million, a
decrease of 7% as reported, or 2% in constant currency, versus the third
quarter a year ago. The decrease was primarily driven by lower volume
for prescription products within North America, and decreased volume in
our consumer health business resulting from a shortage of ibuprofen
supply, partially offset by strong demand for consumer health products
within Europe.

Biologics and Specialty Drug Delivery segment EBITDA in the third
quarter of fiscal 2019 was $41.8 million, an increase of 11% as
reported, or 12% in constant currency. The constant-currency growth was
driven by increased demand for our biologics drug product offering,
partially offset by timing-related declines within our biologics drug
substance offering.

Oral Drug Delivery segment EBITDA in the third quarter of fiscal 2019
was $50.9 million, an increase of 18% as reported, or 21% in constant
currency, primarily driven by the Juniper acquisition, which closed in
August 2018 and contributed 13 percentage points to the constant
currency growth. Excluding Juniper, segment EBITDA increased 8%, driven
by increased revenue from product participation related activities,
partially offset by lower end-market demand for certain high-margin
offerings, primarily in our U.S. commercial oral delivery solutions
platform.

Clinical Supply Services segment EBITDA in the third quarter of fiscal
2019 was $20.3 million, an increase of 8% as reported, or 14% in
constant currency. The increase was primarily attributable to increased
manufacturing and packaging services volume, and improved capacity
utilization across the network.

First Nine Months of Fiscal 2019 Segment Highlights

Catalent has decided to discontinue providing six-month and nine-month
segment data in its earnings releases. Such data will continue to be
available during the earnings conference call discussed below as well as
in its Quarterly Report on Form 10-Q, which will be filed later today.

Additional Financial Highlights

Third quarter 2019 gross margin of 32.2% increased 170 basis points
as-reported, from 30.5% in the third quarter a year ago. The increase
was primarily attributable to the adoption of ASC 606, which drove the
treatment of comparator sourcing revenue on a net basis rather than the
former gross basis within our Clinical Supply Services segment.
Favorable mix within our Biologics and Specialty Drug Delivery and Oral
Drug Delivery segments also contributed to the third quarter gross
margin expansion.

Backlog for the Clinical Supply Services segment, defined as estimated
future service revenues from work not yet completed under signed
contracts, was $346 million as of March 31, 2019, an 8% increase
compared to the second quarter of fiscal 2019. The segment recorded net
new business wins of $113 million during the third quarter, which is an
increase of 40% compared to the net new business wins recorded in the
same period of prior year. The segment’s trailing-twelve-month
book-to-bill ratio was 1.2x. The backlog, net new business wins, and
book-to-bill ratio are presented on the basis of ASC 606 revenue
recognition.

Balance Sheet and Liquidity

As of March 31, 2019, Catalent had $2.2 billion in total debt, and $2.0
billion in total debt net of cash and short-term investments, which is
in-line with the total debt and net debt as of December 31, 2018.
Catalent’s total net leverage ratio as of March 31, 2019 was 3.3x, a
modest sequential improvement compared to the total net leverage of 3.4x
as of December 31, 2018.

Earnings Webcast

The Company’s management will host a webcast to discuss the results at
8:15 a.m. ET today. Catalent invites all interested parties to listen to
the webcast, which will be accessible through Catalent’s website at http://investor.catalent.com.
A supplemental slide presentation will also be available in the
“Investors” section of Catalent’s website prior to the start of the
webcast. The webcast replay, along with the supplemental slides, will be
available for 90 days in the “Investors” section of Catalent’s website
at www.catalent.com.

Upcoming Conference Presentation

The Company is announcing that Wetteny Joseph, Senior Vice President &
Chief Financial Officer, and Thomas Castellano, Vice President Finance,
Investor Relations, & Treasurer will present at the Bank of America
Merrill Lynch 2019 Health Care Conference at 8:00 a.m. PT on Tuesday,
May 14, in Las Vegas, NV. A live webcast of the presentation will be
accessible through the Company’s website at http://investor.catalent.com
and will be available for replay following the event.

About Catalent, Inc.

Catalent, Inc. (NYSE: CTLT) is the leading global provider of advanced
delivery technologies and development solutions for drugs, biologics and
consumer health products. With over 80 years serving the industry,
Catalent has proven expertise in bringing more customer products to
market faster, enhancing product performance and ensuring reliable
clinical and commercial product supply. Catalent employs over 11,000
people, including over 1,800 scientists, at more than 30 facilities
across 5 continents and in fiscal 2018 generated approximately $2.5
billion in annual revenue. Catalent is headquartered in Somerset, N.J.
For more information, please visit www.catalent.com.

Non-GAAP Financial Measures

Use of EBITDA from operations, Adjusted EBITDA, Adjusted Net Income
and Segment EBITDA

Management measures operating performance based on consolidated earnings
from operations before interest expense, expense/(benefit) for income
taxes, and depreciation and amortization (“EBITDA from operations”).
EBITDA from operations is not defined under U.S. GAAP and is not a
measure of operating income, operating performance or liquidity
presented in accordance with U.S. GAAP and is subject to important
limitations.

The Company believes that the presentation of EBITDA from operations
enhances an investor’s understanding of its financial performance. The
Company believes this measure is a useful financial metric to assess its
operating performance from period to period by excluding certain items
that it believes are not representative of its core business and uses
this measure for business planning purposes.

In addition, given the significant investments that Catalent has made in
the past in property, plant and equipment, depreciation and amortization
expenses represent a meaningful portion of its cost structure. The
Company believes that EBITDA from operations will provide investors with
a useful tool for assessing the comparability between periods of its
ability to generate cash from operations sufficient to pay taxes, to
service debt and to undertake capital expenditures because it eliminates
depreciation and amortization expense. The Company presents EBITDA from
operations in order to provide supplemental information that it
considers relevant for the readers of the Consolidated Financial
Statements, and such information is not meant to replace or supersede
U.S. GAAP measures. The Company’s definition of EBITDA from operations
may not be the same as similarly titled measures used by other companies.

Catalent evaluates the performance of its segments based on segment
earnings before other (income)/expense, impairments, restructuring
costs, interest expense, income tax expense/(benefit), and depreciation
and amortization (“segment EBITDA”). Moreover, under the Company’s
credit agreement, its ability to engage in certain activities, such as
incurring certain additional indebtedness, making certain investments
and paying certain dividends, is tied to ratios based on Adjusted
EBITDA, which is not defined under U.S. GAAP and is subject to important
limitations. Adjusted EBITDA is the covenant compliance measure used in
the credit agreement governing debt incurrence and restricted payments.
Because not all companies use identical calculations, the Company’s
presentation of Adjusted EBITDA may not be comparable to other similarly
titled measures of other companies.

Management also measures operating performance based on Adjusted Net
Income/(Loss) and Adjusted Net Income/(Loss) per share. Adjusted Net
Income/(Loss) is not defined under U.S. GAAP and is not a measure of
operating income, operating performance or liquidity presented in
accordance with U.S. GAAP and is subject to important limitations. The
Company believes that the presentation of Adjusted Net Income/(Loss) and
Adjusted Net Income/(Loss) per share enhances an investor’s
understanding of its financial performance. The Company believes this
measure is a useful financial metric to assess its operating performance
from period to period by excluding certain items that it believes are
not representative of its core business and the Company uses this
measure for business planning purposes. The Company defines Adjusted Net
Income/(Loss) as net earnings/(loss) adjusted for amortization
attributable to purchase accounting and adjustments for other cash and
non-cash items included in the table below, partially offset by its
estimate of the tax effects of such cash and non-cash items. The Company
believes that Adjusted Net Income/(Loss) and Adjusted Net Income/(Loss)
per share will provide investors with a useful tool for assessing the
comparability between periods of its ability to generate cash from
operations available to its stockholders. The Company’s definition of
Adjusted Net Income/(Loss) may not be the same as similarly titled
measures used by other companies.

The most directly comparable GAAP measure to EBITDA from operations and
Adjusted EBITDA is earnings/(loss) from operations. The most directly
comparable GAAP measure to Adjusted Net Income/(Loss) is net
earnings/(loss). Included in this release is a reconciliation of
earnings/(loss) from operations to EBITDA from operations and Adjusted
EBITDA and a reconciliation of net earnings/(loss) to Adjusted Net
Income.

The Company does not provide a reconciliation of forward-looking
non-GAAP financial measures to their comparable GAAP financial measures
because it could not do so without unreasonable effort due to the
unavailability of the information needed to calculate reconciling items
and due to the variability, complexity and limited visibility of the
adjusting items that would be excluded from the non-GAAP financial
measures in future periods. When planning, forecasting and analyzing
future periods, the Company does so primarily on a non-GAAP basis
without preparing a GAAP analysis as that would require estimates for
various cash and non-cash reconciling items that would be difficult to
predict with reasonable accuracy. For example, equity compensation
expense would be difficult to estimate because it depends on the
Company’s future hiring and retention needs, as well as the future fair
market value of the Company’s common stock, all of which are difficult
to predict and subject to constant change. It is equally difficult to
anticipate the need for or magnitude of a presently unforeseen one-time
restructuring expense or the values of end-of-period foreign currency
exchange rates. As a result, the Company does not believe that a GAAP
reconciliation would provide meaningful supplemental information about
the Company’s outlook.

Use of Constant Currency

As changes in exchange rates are an important factor in understanding
period-to-period comparisons, the Company believes the presentation of
results on a constant currency basis in addition to reported results
helps improve investors’ ability to understand its operating results and
evaluate its performance in comparison to prior periods. Constant
currency information compares results between periods as if exchange
rates had remained constant period over period. The Company uses results
on a constant currency basis as one measure to evaluate its performance.
The Company calculates constant currency by calculating current-year
results using prior-year foreign currency exchange rates. The Company
generally refers to such amounts calculated on a constant currency basis
as excluding the impact of foreign exchange or being on a constant
currency basis. These results should be considered in addition to, not
as a substitute for, results reported in accordance with U.S. GAAP.
Results on a constant currency basis, as the Company presents them, may
not be comparable to similarly titled measures used by other companies
and are not measures of performance presented in accordance with U.S.
GAAP.

Forward-Looking Statements

This release contains both historical and forward-looking
statements. All statements other than statements of historical fact are,
or may be deemed to be, forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. These
forward-looking statements generally can be identified by the use of
statements that include phrases such as “believe,” “expect,”
“anticipate,” “intend,” “estimate,” “plan,” “project,” “foresee,”
“likely,” “may,” “will,” “would” or other words or phrases with similar
meanings. Similarly, statements that describe the Company’s objectives,
plans or goals are, or may be, forward-looking statements. These
statements are based on current expectations of future events. If
underlying assumptions prove inaccurate or unknown risks or
uncertainties materialize, actual results could vary materially from
Catalent, Inc.’s expectations and projections. Some of the factors that
could cause actual results to differ include, but are not limited to,
the following: participation in a highly competitive market and
increased competition may adversely affect the business of the Company;
demand for the Company’s offerings, which depends in part on the
Company’s customers’ research and development and the clinical and
market success of their products; product and other liability risks that
could adversely affect the Company’s results of operations, financial
condition, liquidity and cash flows; failure to comply with existing and
future regulatory requirements; failure to provide quality offerings to
customers could have an adverse effect on the Company’s business and
subject it to regulatory actions and costly litigation; problems
providing the highly exacting and complex services or support required;
global economic, political and regulatory risks to the operations of the
Company; inability to enhance existing or introduce new technology or
service offerings in a timely manner; inadequate patents, copyrights,
trademarks and other forms of intellectual property protections;
fluctuations in the costs, availability, and suitability of the
components of the products the Company manufactures, including active
pharmaceutical ingredients, excipients, purchased components and raw
materials; changes in market access or healthcare reimbursement in the
United States or internationally; fluctuations in the exchange rate of
the U.S. dollar and other foreign currencies including as a result of
the U.K.’s exit from the European Union; adverse tax legislative or
regulatory initiatives or challenges or adjustments to the Company’s tax
positions; loss of key personnel; risks generally associated with
information systems; inability to complete any future acquisitions,
including the pending acquisition of Paragon Bioservices, Inc.

Contacts

Investors:
Catalent, Inc.
Thomas Castellano
732-537-6325
[email protected]

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