4Q 18 Earnings Call Presentation August 28, 2018
Agenda John Chiminski, Chair & Chief Executive Officer 4Q 18 Highlights Wetteny Joseph, Senior VP & Chief Financial Officer Segment Reporting Structure Changes Business Update by Segment 4Q 18 and YTD Segment Financial Performance EBITDA & Adjusted EBITDA Adjusted Net Income and Adjusted Net Income per Share Capitalization Highlights FY 19 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, 2018 filed with the Securities and Exchange Commission. All forward-looking 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 4Q 18 revenue of $685.3M, up 11% vs. PY as reported, 9% in constant currency Full year 18 revenue up 19% vs. PY as reported, 16% in constant currency Strong 4Q 18 and full-year revenue and EBITDA growth driven by Biologics and Specialty Drug Delivery and Clinical Supply Services segments 4Q 18 Adjusted EBITDA of $181.5M, 11% growth vs. PY in constant currency 4Q 18 Adjusted Net Income of $90.0M; Adjusted EPS of $0.67 per diluted share Operational Highlights Closed the acquisition of Juniper Pharmaceuticals, a European early development Center of Excellence with dose-form development and early manufacturing capabilities Issued 11.4M shares of common stock at a price to the public of $40.24 and used the net proceeds ($445M) plus cash on hand to pay down $450M of floating rate debt; pro forma net leverage ratio reduced to 3.4x Organic and inorganic investments in our Biologics business continue to pay off; the integration of the Bloomington facility is very far advanced 6
Segment Reporting Structure Changes Catalent, Inc. (CTLT) Softgel Technologies Drug Delivery Solutions Clinical Supply Services FY 18 Net Revenue $917M FY 18 Net Revenue $1,176M FY 18 Net Revenue $430M Unchanged Split into Two Segments Unchanged Biologics and Specialty Drug Delivery FY 18 Net Revenue $602M Biologics: Drug Substance, GPEx Biologics: Drug Product Blow-Fill-Seal Inhalation Analytical Services (large molecule) Oral Drug Delivery FY 18 Net Revenue $574M Modified Release, Other oral solids Analytical Services (small molecule) Spray Dry Dispersion Micronization Former Juniper Pharmaceuticals SMARTag 7
Softgel Technologies 4Q 18 revenue and EBITDA below PY due to North America and Europe Decline in high-margin product participation revenue negatively affects segment EBITDA margin North American and European revenue and EBITDA below prior-year levels due to lower sales of consumer health and prescription products; Ibuprofen shortage impact Accucaps modestly below PY at revenue line, but strong EBITDA performance driven by product mix and operational efficiencies Increased demand across Latin America; favorable product mix in Asia Pacific following divestiture of lower margin businesses Three Months Ended As Reported Inc. / (Dec.) Constant Currency Inc. / (Dec.) (USD M) June 30, 2018 June 30, 2017 $ % $ % Softgel Technologies Net Revenue 241.0 257.1 (16.1) (6%) (17.8) (7%) Segment EBITDA 59.0 65.2 (6.2) (10%) (5.0) (8%) 8
Biologics and Specialty Drug Delivery 4Q 18 revenue up sharply, and EBITDA more than double the PY period Bloomington site continues its strong start, contributing 71 and 116 percentage points to the segment s revenue and EBITDA growth, respectively BSDD organic growth: revenue up 27%, Segment EBITDA up 35% Strong drug substance performance in Madison and drug product performance in Europe; Madison 3 rd suite continues to ramp up nicely BFS: comprehensive operating systems review largely complete; 4Q performance modestly above our expectations; strong growth vs. PY due to improved capacity utilization Three Months Ended As Reported Inc. / (Dec.) Constant Currency Inc. / (Dec.) (USD M) June 30, 2018 June 30, 2017 $ % $ % Biologics and Specialty Drug Delivery Net Revenue 195.5 97.3 98.2 101% 95.1 98% Segment EBITDA 60.4 23.8 36.6 154% 35.9 151% 9
Oral Drug Delivery Challenging 4Q 18 driven by contract settlement realized in the PY period Decline in product participation revenue continues and negatively affected Segment EBITDA and margin profile Prior-year results included a contractual settlement U.S. and Europe commercial: volume in-line with PY levels, unfavorable product mix negatively affected profitability; end-market demand remains robust Analytical services business modestly below PY levels, but improved from 3Q 18 performance Three Months Ended As Reported Inc. / (Dec.) Constant Currency Inc. / (Dec.) (USD M) June 30, 2018 June 30, 2017 $ % $ % Oral Drug Delivery Net Revenue 153.7 173.6 (19.9) (11%) (23.9) (14%) Segment EBITDA 50.0 67.0 (17.0) (25%) (18.4) (27%) 10
Clinical Supply Services 4Q 18 performance nicely above PY; revenue +5%, EBITDA +20% Revenue and Segment EBITDA growth across core storage and distribution services, globally; improved capacity utilization across the network continues Decreased lower-margin comparator sourcing volumes during the quarter; minimal impact on segment profitability Backlog of $273M as of June 30, 2018 increased 2% from the prior quarter; LTM book-to-bill ratio of 0.9x; net new business wins of $93M increased 60% vs. the prior year period; backlog and ratio figures adjusted for ASC 606 revenue recognition change related to treatment of comparator revenue Three Months Ended As Reported Inc. / (Dec.) Constant Currency Inc. / (Dec.) (USD M) June 30, 2018 June 30, 2017 $ % $ % Clinical Supply Services Net Revenue 107.6 99.3 8.3 8% 4.9 5% Segment EBITDA 21.7 17.1 4.6 27% 3.5 20% 11
4Q 18 by Business Segment 12
Full Year 2018 by Business Segment 13
Operating Earnings to EBITDA 14
EBITDA Adjustments 15
Summary Adjusted Net Income and ANI per Share 16
Capitalization and Capital Allocation Capitalization Term loan covenant-light structure provides attractive cost of capital and maturity profile (1) (2) No significant maturities until 2024 Reduced TL spread as part of 2Q 18 debt issuance: USD 50 bps and EUR 75 bps Paid down $450M of USD TL in July 18 with equity proceeds and cash; annual interest rate savings of $20M+ 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 or debt reduction Strong free cash flow generation in FY 18: ~$200 million; ~86% of Adj. Net Income Total net leverage ratio of 4.2x, but 3.4x pro forma for the Cook and Juniper acquisitions and the $450M paydown of USD term loan 17
FY 19 Full-Year Guidance Notes: (1) FY 18 capital expenditures include customer-funded projects; FY 19 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: 1.30 USD/GBP, 1.16 USD/EUR No fundamental change to long-term outlook: organic revenue growth of 4-6%, organic Adjusted EBITDA growth of 6-8%; however, FY 19 Adjusted EBITDA guidance reflects stronger growth (7-9%) 18
FY 19 Guidance Bridge Revenue Adj. EBITDA (USD M) Base Business Organic Growth M&A ASC 606 FX Impact $95-$145 $100 $115 ($110) ($40) ($50) $2,500-$2,590 $2,463 $28-$38 ($13)-($18) $38-$52 $597-$622 $551 Guidance midpoint: 160 bps of margin expansion FY 18 Actuals 1 2 3 4 FY 19 Guidance 1 2 3 4 Base Business: Revenue $95M-$145M, Adjusted EBITDA $38M-$52M represents organic, same-store revenue and adjusted EBITDA growth across the business on a constant-currency basis; aligns with our longterm outlook of 4-6% revenue growth, but above our long-term outlook of adjusted EBITDA (guidance supports 7-9% vs. target of 6-8%) M&A: Revenue $100M-$115M, Adjusted EBITDA $28M-$38M adjustment for full-year impact of Bloomington acquisition completed in 2Q 18, as well as contribution from recently closed Juniper Pharmaceuticals (1Q 19) ASC 606 Revenue Recognition: Revenue ($110M), no Adjusted EBITDA impact related to removal of gross comparator revenue from CSS segment in FY 19; no impact to other reporting segments FX impact: Revenue ($40M)-($50M), Adjusted EBITDA ($13M)-($18M) recent USD strengthening vs. EUR and GBP; guidance assumes EUR 1.16 and GBP 1.30, down from FY 18 average rates of EUR 1.19 and GBP 1.35; further weakening of ARS and BRL (Latin America Softgel) also contributes 19
Supplemental Information 20
Detailed Adjusted Net Income and ANI per Share 21
Reconciliation of Actual to Adjusted Results 22
Quarterly Revenue and EBITDA by New Reporting Segment; FY 17 and FY 18 23
discover more. CATALENT, INC. 14 SCHOOLHOUSE ROAD SOMERSET, NJ 08873 + 1 866 720 3148 www.catalent.com