John Sweeney welcomes investors to West's Second Quarter 2024 Conference Call and introduces himself as the new Head of Investor Relations. He mentions that the company's financial results have been posted on their website and that the call will include a review of these results, an update on the business, and an updated financial outlook for the full year. He also mentions that there is a Safe-Harbor statement and that management will make reference to non-GAAP financial measures. The call is then turned over to CEO Eric Green.

The author thanks Quintin Lai for his partnership and contributions at West and outlines the three main topics to be discussed in the article. These include the drivers of Q2 performance, the revised outlook for the remainder of 2024, and insights on the company's long-term financial outlook. The author expresses disappointment in lowering guidance but remains confident in the company's growth potential. West is a market leader in containment and delivery of injectable medicines, with a strong position in the fastest-growing segment of Biologics. The company has achieved double-digit organic revenue growth and is currently undergoing capital expansion projects.

The company is repurposing investments made to address COVID in order to increase capacity and take advantage of new opportunities. They have expansion plans for HVP products and are seeing increased customer interest for higher quality solutions. The company is also focused on expanding their self-injection device platforms and has recently opened a new state-of-the-art facility. They expect to see significant growth and value for customers, patients, and shareholders. In addition, the company recently published their 2023 Sustainability Report and received recognition for their responsible practices. Bernard will now review the financial numbers in more detail.

In the second quarter of 2024, the company saw a decline in organic sales, operating profit, and diluted EPS compared to the same period in 2023. This was due to destocking by customers and decreased sales of high value products. The Biologics market unit experienced a decline, while the pharma and generics market units also saw decreases. However, the company expects revenues to increase in the second half of 2024. The Contract Manufacturing segment saw growth in sales, but the adjusted operating profit margin and diluted EPS declined.

In summary, the company's EPS decreased by 28.4% when excluding stock-based compensation tax benefit. The decline in EPS was driven by a decrease in organic sales, with price increases partially offset by negative volume and mix effects and a foreign currency headwind. The company's gross profit margin also decreased, with proprietary products experiencing a significant decline due to lower production volume and an unfavorable mix of products sold. However, the contract manufacturing segment saw a slight increase in gross profit margin due to higher sales prices. In terms of cash generation, operating cash flow decreased by 7.8% compared to the same period last year, primarily due to a decline in operating results. Capital spending also increased in order to expand high-value product and contract manufacturing capacity.

In conclusion, the company is the top player in the injectables market and has a strong position in Biologics. The working capital decreased due to a decrease in cash balance, but the company is making investments in growth initiatives. The guidance for 2024 has been updated, with a decrease in net sales and adjusted diluted EPS, and an increase in CapEx. The company also expects a tax benefit from stock-based compensation in the first half of 2024.

The company is optimistic about the destocking trend and is investing in growth areas with higher margins. They are confident in their market-led strategy and future growth drivers. The destocking is a result of both COVID-related factors and customers normalizing their safety stock levels. The company's improved service levels have allowed for quicker response times. The end patient demand for their products remains in-line with expectations.

Eric Green, CEO of a pharmaceutical company, is confident about the company's future despite the current market shift. He mentions that their win rates for new molecule approvals are as good, if not better, than in the past. He also talks about upcoming investments in contract manufacturing and proprietary areas. In response to a question about demand and inventory levels, Green explains that they had initially expected a quicker return to normalized demand in the second half of the year, but have since seen a slight decrease in demand during Q2 and anticipate it continuing into Q3.

The company expects to see sequential improvements over the next few quarters and return to growth in Q4. Customers are gradually returning to pre-COVID levels, but each one has a different timeline for recovery. The company has been investing in HVP products and is now focusing on biologics growth and finishing processes. The company plans to continue investing $350-400 million over the next few years.

The company has a strong presence in the GLP market, both in proprietary elastomers and contract manufacturing. They are investing in their facilities to meet the demand for GLP-1s and comply with regulatory changes. The increase in CapEx is due to a business awarded for their Dublin facility. In the long term, they aim to spend 6-8% of revenue on CapEx to meet current demand.

The company is prepared to increase their capital investment if demand for their products increases, especially in the area of finishing capacity. The 6% to 8% CapEx of revenue supports their targeted growth outlook of 7% to 9%, with a focus on high-value products. The company is confident that they will return to the 7% to 9% growth range in the future, driven by volume, price, and mix-shift.

The company has three drivers supporting its long-term growth and is expected to have a 10% CAGR. The drivers include a mix shift, changes in the regulatory landscape, and demand normalization. The company has the infrastructure and capacity in place to support this growth. The coverage ratio is improving and there are strong firm orders scheduled for Q4 and early 2025.

The company's intra-quarter demand profile has been slower to recover than expected due to the effects of COVID-19. This has led to a change in guidance for the middle of the year. However, there are strong indications for the fourth quarter and 2025, with confirmed orders and discussions with customers. The destocking programs in the Biologics and Generics segments have been impacted the most, leading to a decrease in gross and operating margins. The company expects to see a return to normal growth rates and an increase in margins in the future.

The speaker discusses the biologics and generic market, which will see a rebound in revenue and margin as it normalizes. They also mention improved throughput and customers realigning their reordering patterns based on lead times. The speaker addresses the destock issue and mentions previous comments made after 4Q and 1Q earlier this year.

The situation and conversations with customers are evolving, and the company is seeing a step up in the third and fourth quarters, mainly driven by the biologics market. The company is confident in this outlook based on information from customers and internal metrics. The company has been managing costs tightly and expects to see some improvement in gross margins due to cost-cutting measures.

The company is closely managing costs in order to support future growth, but there have been unexpected challenges with de-stocking that have extended longer than anticipated. The company is still maintaining its outlook for the year, but the magnitude of the de-stocking has been larger than expected. The company is not making significant cost cuts, but is using appropriate cost management to navigate through the de-stocking period. The de-stocking was originally expected to be from six customers, but has now broadened and worsened, leading to a larger impact on the company's organic guide for the year. The company is not sure what caused this change, but is closely monitoring the situation.

In this paragraph, Bernard Birkett and Eric Green discuss the reasons behind the company's decision to lower their guidance for the third and fourth quarters. They mention that the level of intra-quarter orders was lower than expected and that customers have been delaying orders, causing a longer period of de-stocking. They also mention that their coverage rate for Q3 and Q4 was in line with pre-COVID levels, but the actual orders confirmed have not accelerated as anticipated. As a result, the company has decided to be transparent and adjust their guidance, which has led to a significant drop. However, they are optimistic about a return to growth in Q4, although it is not as strong as originally anticipated.

The recovery in the industry has been more gradual than expected and has affected the pace of customers' inventory work down. However, the company is confident in its ability to meet demand and is moving back to a long-term construct. They have a better understanding of customers' pace of inventory work down and believe this will carry on in the future, giving them conviction in the third quarter.

Eric Green, CEO of a company, discusses the company's recent conversations with customers and how it has given them more clarity and conviction in their near-term plans. He also mentions their focus on meeting service levels and investing in capacity to prepare for future growth. In response to a question about the company's EPS guidance, Green explains that they expect a slight decline in organic growth and a greater decrease in operating margin due to capacity additions. However, he also mentions the potential for better than expected margin expansion as revenues recover.

In the second quarter, the company saw a significant impact on margin due to a decrease in volume and a shift in mix, particularly in the high volume manufacturing operation. This was driven by a drop in biologics and generics. However, when growth returns, the margin is expected to recover quickly. The company also discussed repositioning the capacity brought on during COVID for non-COVID applications and the timeline for this transition. There is concern about customers going below pre-pandemic inventory levels due to shorter lead times and increased capacity in the industry.

The speaker, Eric Green, responds to a question about investors' concerns regarding the structural impact of the current situation on the company's assets. He explains that the assets have been repurposed and are ready to respond to demand, and that the company's customers are not expected to reduce their safety stock levels further. Another question is asked about the company's visibility, and Green clarifies that the variability in demand has been primarily from larger customers rather than smaller ones.

David Windley asked a question about the company's revenue breakdown and the level of visibility for large versus small customers. Eric Green previously stated that approximately 50% of revenue comes from large customers, where visibility is higher due to their high volume and strong relationship with the company. The remaining revenue comes from smaller customers, which are more unpredictable and have a lower impact on revenue fluctuations. The opening of a new facility in Dublin is not expected to significantly impact Q4 revenue.

Eric Green, the CEO of the company, clarifies that while the company's forecasting accuracy for large customers is historically accurate, there is currently a disconnect due to variability in orders. He explains that smaller accounts are harder to predict on a quarter-to-quarter basis, but larger accounts have a more significant impact on revenues. The company's confidence is improving, but there have been cuts to this year's orders and order patterns have been affected.

The company's coverage was encouraging earlier in the year, but the fill-in on top of that was not as expected. The exact number of coverage rates and go-get is not being disclosed, but the company is confident in delivering it based on conversations with customers and understanding their order patterns. The size of what they have to go-get is not as large, and their guidance has been adjusted to reflect that. Management had similar conversations earlier in the year when six customers unexpectedly reduced their orders, and they are having those conversations again now. The company is looking at pre-COVID levels for growth rate comparisons.

The speaker discusses the company's projected growth rate and how it is affected by the increase in biologic sales. They mention that the current growth rate is higher than the 8% midpoint of their long-range targets, and they attribute this to the growth in biologic sales over the past five years. They also mention that the company's base and overall size have doubled, which is why they are projecting a 7% to 9% growth rate going forward.

The company is currently investing in capacity expansion to meet future demand, which is expected to grow in areas such as GLP, biologics, and regulatory changes. The higher level of CapEx is targeted at growth and the company is looking at a 12-36 month timeline for installation. This is necessary to meet future demand and respond effectively.

The speaker discusses their plans to avoid extended lead times like those experienced during the COVID pandemic and return to normal levels of CapEx in the next year or two. They also mention their target growth rates and focus on high-value products. The call concludes with information on accessing a replay of the presentation.

This summary was generated with AI and may contain some inaccuracies.