2Q 18 Earnings Call Presentation February 5, 2018
Agenda John Chiminski, Chairman & Chief Executive Officer 2Q 18 Highlights Matt Walsh, Executive VP & Chief Financial Officer Business Update by Segment 2Q 18 and YTD Segment Financial Performance EBITDA & Adjusted EBITDA Adjusted Net Income and Adjusted Net Income per Share Capitalization Highlights FY 18 Updated Financial Guidance Question & Answer Session 2
Disclaimer Statement Forward-Looking Statements This presentation 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 our 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 our expectations and projections. Some of the factors that could cause actual results to differ include, but are not limited to, the following: general industry conditions and competition; product or other liability risk inherent in the design, development, manufacture and marketing of our offerings; inability to enhance our existing or introduce new technology or services in a timely manner; economic conditions, such as interest rate and currency exchange rate fluctuations; technological advances and patents attained by competitors; and our substantial debt and debt service requirements that restrict our operating and financial flexibility and impose significant interest and financial costs; or difficulty in integrating acquisitions into our existing business, thereby reducing or eliminating the anticipated benefits of the acquisition. For a more detailed discussion of these and other factors, see the information under the caption Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30, 2017 filed with the Securities and Exchange Commission and in our Current Report on Form 8-K filed with the SEC on September 25, 2017. All forwardlooking statements in this presentation speak only as of the date of this presentation or as of the date they are made, and we do not undertake to update any forward-looking statement as a result of new information or future events or developments unless and to the extent required by law. Non-GAAP Financial Measures Management measures operating performance based on consolidated earnings from continuing operations before interest expense, expense/ (benefit) for income taxes and depreciation and amortization and is adjusted for the income or loss attributable to non-controlling interest ( EBITDA from continuing operations ). EBITDA from continuing 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. Management believes these non-gaap financial measures provide useful supplemental information for its investors evaluation of the Company s business performance and are useful for period-over-period comparisons of the performance of the Company s business. 3
Disclaimer Statement - Continued We believe that the presentation of EBITDA from continuing operations enhances an investor s understanding of our financial performance. We believe this measure is a useful financial metric to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business and we use this measure for business planning purposes. In addition, given the significant investments that we have made in the past in property, plant and equipment, depreciation and amortization expenses represent a meaningful portion of our cost structure. We believe that EBITDA from continuing operations will provide investors with a useful tool for assessing the comparability between periods of our 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. We present EBITDA from continuing operations in order to provide supplemental information that we consider relevant for the readers of our financial statements, and such information is not meant to replace or supersede U.S. GAAP measures. Our definition of EBITDA from continuing operations may not be the same as similarly titled measures used by other companies. As changes in exchange rates are an important factor in understanding period-to-period comparisons, we believe the presentation of results on a constant currency basis in addition to reported results helps improve investors ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods, as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this release, we calculate constant currency by calculating current-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding the impact of foreign exchange translation. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP. In addition, the Company evaluates the performance of its segments based on segment earnings before non-controlling interest, other (income) expense, impairments, restructuring costs, interest expense, income tax (benefit)/expense, and depreciation and amortization ( Segment EBITDA ). Under our credit agreement, our 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 defined as Consolidated EBITDA in the credit agreement). Adjusted EBITDA is based on the definitions in the our credit agreement, is not defined under U.S. GAAP, and is subject to important limitations. We have included the calculations of Adjusted EBITDA for the periods presented. Adjusted EBITDA is the covenant compliance measure used in certain covenants under our credit agreement, particularly those governing debt incurrence and restricted payments. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. 4
Disclaimer Statement - Continued Management also measures operating performance based on Adjusted Net Income/(loss) and Adjusted Net Income 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. For example, Adjusted Net Income does not reflect the impact on earnings resulting from certain non-recurring items. We believe that the presentation of Adjusted Net Income/(loss) and Adjusted Net Income per Share enhances an investor s understanding of our financial performance. We believe this measure is a useful financial metric to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business and we use this measure for business planning purposes. We define Adjusted Net Income/(loss) as net earnings/(loss) adjusted for (1) earnings or loss of discontinued operations, net of tax, (2) amortization attributable to purchase accounting and (3) income or loss from non-controlling interest in our majority-owned operations. We also make adjustments for other cash and non-cash items, partially offset by our estimate of the tax effect as a result of such cash and non-cash items. We believe that Adjusted Net Income/(loss) and Adjusted Net Income per Share will provide investors with a useful tool for assessing the comparability between periods of our ability to generate cash from operations available to our stockholders. We present Adjusted Net Income/(loss) and Adjusted Net Income per Share in order to provide supplemental information that we consider relevant for the readers of our financial statements and such information is not meant to replace or supersede U.S. GAAP measures. Our definition of Adjusted Net Income/(loss) may not be the same as similarly titled measures used by other companies. 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. 5
Business Highlights Financial Highlights 2Q 18 revenue up 25% vs. PY as reported; 22% growth in constant currency 2Q 18 YTD revenue up 24% vs. PY as reported; 22% growth in constant currency Strong revenue and EBITDA growth across all three segments in Q2 18 and YTD 2Q 18 Adjusted EBITDA of $139.3M, 39% growth vs. PY in constant currency 2Q 18 Adjusted Net Income of $60.7M; Adjusted EPS of $0.45 Operational Highlights Integration of Cook Pharmica, a biologics-focused contract development and manufacturing organization, underway and ahead of expectations; pro forma total net leverage ratio down to 4.4x Madison Biologics expansion progressing according to plan, engineering runs underway; expected to be cleared for use in 3Q 18 and will begin ramping up Wetteny Joseph appointed as Chief Financial Officer 6
Softgel Technologies Segment Update Strong revenue growth during 2Q 18 primarily driven by M&A Accucaps acquisition contributed 12 percentage points of the revenue growth and 9 percentage points of the EBITDA growth within the segment Excluding acquisition: revenue down 3%, but EBITDA up 4% vs. PY Decline in product participation revenue; partially offset by a one-time contractual settlement recorded in 2Q 18 Consumer Health volume declines within Asia Pacific region North American revenue and EBITDA modestly above prior year levels Three Months Ended As Reported Inc. / (Dec.) Constant Currency Inc. / (Dec.) (USD M) December 31, 2017 December 31, 2016 $ % $ % Softgel Technologies Net Revenue 228.1 201.9 26.2 13% 19.1 9% Segment EBITDA 50.1 43.4 6.7 15% 5.6 13% 7
Drug Delivery Solutions Segment Update Strong revenue growth of 30% and EBITDA growth of 58% in 2Q 18 Cook Pharmica acquisition off to a strong start: contributed 21 and 40 percentage points to the segment s revenue and EBITDA growth, respectively Excluding acquisition: revenue up 9%, EBITDA up 18% vs. PY Biologics: Strong revenue and EBITDA growth within Madison driven by the completion of project milestones and larger commercial programs U.S. Oral Delivery: favorable end-market demand for high-margin offerings Timing revenue and EBITDA favorability within European Pre-Filled Syringe BFS: comprehensive operating systems review continues; 2Q performance below prior year levels Decline in product participation revenue had negative effect on EBITDA margin Three Months Ended As Reported Inc. / (Dec.) Constant Currency Inc. / (Dec.) (USD M) December 31, 2017 December 31, 2016 $ % $ % Drug Delivery Solutions Net Revenue 285.4 214.0 71.4 33% 64.4 30% Segment EBITDA 81.1 50.0 31.1 62% 29.1 58% 8
Clinical Supply Services Segment Update 2Q 18 performance significantly above PY; revenue +36%, EBITDA +55% Revenue and EBITDA growth across core storage and distribution services, globally; improved capacity utilization across the network continues Increased lower-margin comparator sourcing volumes; minimal impact on segment profitability Backlog of $306M as of December 31, 2017 decreased 8% from the prior quarter; LTM book-to-bill ratio of 0.9; net new business wins of $80M decreased 26% vs. prior year 3Q 18 and 4Q 18 up against a strong comparable prior year period Three Months Ended As Reported Inc. / (Dec.) Constant Currency Inc. / (Dec.) (USD M) December 31, 2017 December 31, 2017 $ % $ % Clinical Supply Services Net Revenue 108.7 77.0 31.7 41% 28.0 36% Segment EBITDA 19.0 11.6 7.4 64% 6.4 55% 9
2Q 18 by Business Segment 10
2Q 18 YTD by Business Segment 11
Operating Earnings to EBITDA 12
EBITDA Adjustments 13
Summary Adjusted Net Income and ANI per Share Note: The diluted share count for purposes of ANI per share in the quarter ended December 31, 2017 differs from the count for GAAP EPS purposed because ANI is positive. 14
Capitalization and Capital Allocation Capitalization Term Loan covenant-light structure provides attractive cost of capital and maturity profile (1) (2) 1% principal amortization per year No significant maturities until 2024 Reduced TL spread as part of 2Q 18 debt issuance: USD 50 bps and EUR 75 bps 380M, 4.75% EUR 8-yr notes issued in 2Q 17 $450M, 4.875% USD 8-yr notes issued in 2Q 18; proceeds used in Cook acquisition Capital Allocation Capital expenditures of ~7% of revenues Ongoing capital allocation will be focused on: Capex to drive organic growth M&A to supplement organic growth Share repurchase Debt reduction Note: For important information concerning these pro forma calculations, see Exhibit 99.2 to Catalent s Current Report on Form 8 K, filed October 24, 2017 with the SEC. Total net leverage ratio of 4.4x, pro forma for the Cook acquisition; plans to de-lever back to pre-transaction levels within 18 months 15
FY 18 Revised Full-Year Guidance Notes: (1) FY 17 capital expenditures include customer-funded projects; FY 18 guidance is only Catalent spend (2) Share count is fully diluted and represents the weighted average as of June 30 Revenue, Adjusted EBITDA, Adjusted Net Income guidance ranges calculated based on: 1.20 USD/EUR, 1.36 USD/GBP Includes impact of Cook Pharmica acquisition from closing date (10/23/17) through the remainder of the fiscal year Effective tax rate reduced to 27.5% to 28.5% as a result of recent U.S. tax law changes 16
FY 18 Revised Guidance Bridge Revenue Adj. EBITDA (USD M) Base Business CSS Comparator FX Impact $15 $20 $45 - $55 $17 - $22 $2,415-$2,475 $2,309-$2,405 $8 - $12 $3 $5 $537-$557 $521-$547 1 2 3 FY 18 Prior Guidance FY 18 Revised Guidance 1 Base Business: Revenue $45M-$55M, Adjusted EBITDA $8M-$12M; continued strength from the Accucaps acquisition, controlled release, and Madison Biologics; Cook Pharmica acquisition off to a fast start 2 CSS Comparator: Revenue $17M-$22M, no material Adjusted EBITDA impact; uptick in comparator projects in 2H 18, revenue recorded gross with minimal impact to profitability; potential revenue recognition change in FY 19 will allow for net treatment 3 FX impact: Revenue $15M-$20M, Adjusted EBITDA $3M-$5M further USD weakening vs. EUR and GBP; FY 18 revised guidance assumes EUR 1.20 and GBP 1.36, up from prior guidance which assumed average rates of EUR 1.16 and GBP 1.30 17
Supplemental Information 18
Detailed Adjusted Net Income and ANI per Share Note: The diluted share count for purposes of ANI per share in the quarter ended December 31, 2017 differs from the count for GAAP EPS purposed because ANI is positive. 19
Reconciliation of Actual to Adjusted Results 20
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