WEST PHARMACEUTICAL SERVICES INC Q3 FY2024 earnings call

• Eric Green expressed support for team members affected by hurricanes and closed Florida manufacturing site ahead of Hurricane Milton. - Q3 had solid performance with revenues and adjusted EPS at higher end of expectations, West team executed well. - Increased adjusted EPS guidance for full year 2024. - Strong position in biologics, with HVP components in critical therapeutic areas. - Starting to see early traction with long-term growth initiatives like GLP-1s. - Ramping up production of HVP delivery devices. - Observed signs of stabilization in de-stocking trend. - Bernard Birkett reviewed Q3 financial results, including net sales, organic sales decline, margin performance, balance sheet metrics.

In Q3 2024, net sales were $746.9 million, with organic sales decline of 0.5%. Proprietary products organic net sales decreased 0.5%, with high value products (approx 75% of proprietary sales) down low-single digits, offset by increase in drug delivery devices. Pharma market unit had mid-single digit increase, biologics market had low-single digit decline (offset by drug delivery devices), generics market unit declined mid-single digits. Contract manufacturing segment revenue on constant currency basis was consistent with Q3 2023. Proprietary products third quarter gross profit margin was 39.2%, down 420 basis points from Q3 2023, driven by lower production volumes in high margin HVP components and mix shift to lower margin drug delivery devices. Contract manufacturing third quarter gross profit margin was 19.9%, 130 basis points greater than Q3 2023 due to production efficiencies.

• Increased full year 2024 net sales guidance to $2.875 billion to $2.905 billion from prior $2.87 billion to $2.9 billion, reflecting foreign exchange impact. - Expect organic sales decline of approximately 1.5 to 2%. - Raised full year 2024 adjusted diluted EPS guidance to $6.55 to $6.75 from prior $6.35 to $6.65. - CapEx guidance remains at $375 million, unchanged.

• Factors beyond company control influencing future results, actual results could differ materially from forward-looking statements. - De-stocking trends with some customers continuing into 2025 could impact performance.

Q: Congrats on the quarter. On organic growth guidance, any worsened vs prior expectations? And about the $19 million fee.

A: $19 million was contemplated based on volumes, guide is just rounding change. No real material change to outlook.

Q: Inter-quarter, margin profile to return to 2023 levels once LRP growth. Visibility on getting back to that.

A: Down to when demand normalizes and mix normalizes. When that happens, margins adjust back to 2023 levels.

Q: Quarter was solid, higher end driven by slower de-stocking or demand?

A: A couple factors, execution and some customers accelerating programs.

Q: CapEx plans, peak year or 2025 similar?

A: CapEx guidance for 2025 to be given in February, looking at demand and capacity needs, trending to normalized level.

Q: Wearable injection devices, update on Phoenix, Grand Rapids, Dublin facilities.

A: Phoenix facility ramp-up started in Q3, meeting expectations. Grand Rapids still in ramp-up, Dublin to commence manufacturing early 2025.

Q: 3Q benefiting from timing, meeting customers ahead of schedule. Broader or specific customers? Backlog?

A: Work is broad in biologics and pharma, requests already in production plans, ready to respond if orders come in Q4.

Q: EPS guide change, $0.10 operational driven by?

A: Driven by mix, operating margin stronger than anticipated, managing mix and costs.

Q: Nova brand, what it includes, pricing, participation rate.

A: Nova brand includes NovaPure (laminated) and NovaChoice (non-laminated). NovaChoice ASP $0.15 - $0.30 per unit, 50%-60% margin. Participation rate high, high on drug molecule, some dual sourcing for new launches.

Q: Contract manufacturing, margin potential moving forward.

A: Slight uptake on contract manufacturing with drug handling, margins relatively consistent in high teens, longer term could see significant step up.

Q: Inning of de-stocking, components. Margins on normalization.

A: De-stocking not equal across portfolio, pharma closer to end, biologics still seeing some. When demand normalizes and mix normalizes, margin to return to 2023 levels and grow 100 basis points per year.

Q: Customer orders, smaller more frequent vs historical.

A: Order patterns closer to pre-COVID, different from pandemic period, lead times more in line with pre-pandemic.