Catalent a global provider of advanced delivery technologies and development solutions for drugs, biologics and consumer health products, has announced financial results for the third quarter of fiscal year 2016, which ended March 31, 2016.
Third quarter 2016 revenue of $438.0 million decreased 2% as reported and increased 2% in constant currency from $446.6 million reported in the third quarter a year ago. The increase on a constant currency basis was attributable to strong performance of the Medication Delivery Solutions and Development and Clinical Services segments, which was partially offset by a decrease in the Oral Technologies segment. For the first nine months of fiscal year 2016, revenue was $1.32 billion, in line with the prior year as reported and an increase of 6% in constant currency. All three of the Company’s reporting segments have posted constant currency revenue growth year-to-date, led by a double-digit increase in the Development and Clinical Services segment.
Third quarter 2016 net earnings attributable to Catalent were $9.8 million, or $0.08 per diluted share, compared to net earnings of $31.5 million, or $0.25 per diluted share, in the third quarter a year ago. The decrease in profitability was primarily due to lower sales and higher operating expenses compared to the prior-year period. For the first nine months of fiscal year 2016, net earnings attributable to Catalent were $49.6 million, or $0.39 per diluted share, compared to net earnings of $58.5 million, or $0.49 per diluted share, for the same period a year ago.
Third quarter 2016 EBITDA from continuing operations of $70.5 million decreased 30% from $100.1 million in the third quarter a year ago. For the first nine months of fiscal year 2016, EBITDA from continuing operations was $240.1 million, an increase of 1% from $238.4 million for the same period a year ago.
Third quarter 2016 Adjusted EBITDA, as referenced in the GAAP to non-GAAP reconciliation provided later in this release, was $80.7 million, or 18.4% of revenue, compared to $110.5 million, or 24.7% of revenue, in the third quarter a year ago. On a constant currency basis, third quarter 2016 Adjusted EBITDA was $87.2 million, compared to $110.5 million a year ago.
Third quarter 2016 Adjusted Net Income, as referenced in the GAAP to non-GAAP reconciliation provided later in this release, was $25.0 million, or $0.20 per diluted share, compared to Adjusted Net Income of $50.5 million, or $0.40 per diluted share, in the third quarter a year ago.
"Our third quarter operational performance was impacted by the challenges we faced in our Oral Technologies segment related to the Beinheim facility temporary suspension. We are very pleased to announce that on April 28th, the ANSM reinstated the Beinheim GMP license,” said John Chiminski, President and Chief Executive Officer of Catalent, Inc. “While it took longer than we had anticipated to bring the facility back on line, we remain encouraged by the underlying trends across our softgel business. Our focus for the remainder of the fiscal year will be on growth in Oral Technologies and continuing to build on the momentum in our other two business segments.”
Third Quarter 2016 Segment Highlights
Revenue Highlights by Business Segment
Revenue from the Oral Technologies segment was $260.8 million for the third quarter of fiscal 2016, a decrease of 8% as reported, or a decrease of 3% in constant currency, compared to the third quarter a year ago. This performance on a constant currency basis was attributable to the temporary suspension of operations of the Company’s facility in Beinheim, France during the third quarter, lower volume of certain higher margin offerings within the Company’s modified release technologies, and lower revenue from product participation-related activities, partially offset by higher consumer health volume for certain softgel products.
Revenue from the Development and Clinical Services segment was $112.6 million for the third quarter of fiscal 2016, an increase of 9% as reported, or an increase of 11% in constant currency, over the third quarter a year ago. This growth was primarily driven by the Company’s clinical services offerings attributed to increased lower-margin comparator sourcing volume, as well as improved performance of analytical services in the U.S. related to fee-for-service development work.
Revenue from the Medication Delivery Solutions segment was $68.3 million for the third quarter of fiscal 2016, an increase of 12% both as reported and in constant currency over the third quarter a year ago. This strong performance was primarily due to increased volume of the Company’s biologics offering and products utilizing the blow-fill-seal technology platform, as well as increased demand for the Company’s injectable products at its European pre-filled syringe operations.
Segment EBITDA Highlights
Oral Technologies segment EBITDA in the third quarter of 2016 was $55.6 million, a decrease of 32% as reported, or a decrease of 25% in constant currency, versus the third quarter a year ago. The decrease was primarily attributable to the temporary suspension of operations of the softgel facility in Beinheim, France, and reduced volume of certain higher margin offerings within the Company’s modified release technologies platform. This was partially offset by higher sales and more effective absorption of fixed costs through higher capacity utilization within the Company’s softgel operations.
Development and Clinical Services segment EBITDA in the third quarter of 2016 was $19.7 million, a decrease of 17% as reported, or a decrease of 15% in constant currency. The decrease was primarily due to a shift to lower-margin comparator sourcing volume and increased costs related to business reorganization efforts to further streamline the clinical services business.
Medication Delivery Solutions segment EBITDA in the third quarter of 2016 was $12.1 million, an increase of 11% as reported, or an increase of 12% in constant currency. The increase was primarily attributable to increased profit generated by the Company’s biologics and blow-fill-seal technology offerings, as well as increased volume and favorable revenue mix shift from the Company’s injectable products at its European pre-filled syringe operations.
First Nine Months of Fiscal 2016 Segment Highlights
Revenue Highlights by Business Segment
Revenue from the Oral Technologies segment was $763.6 million for the first nine months of fiscal year 2016, a decrease of 7% as reported, or an increase of 1% in constant currency, over the same period a year ago. This improvement on a constant currency basis was attributable to organic consumer health revenue growth within the Company’s softgel offering, partially offset by the temporary suspension of operations of the facility in Beinheim, France, lower volume of certain higher margin offerings within the Company’s modified release technologies platform in the U.S., and lower revenue from product participation-related activities.
Revenue from the Development and Clinical Services segment was $367.1 million for the first nine months of fiscal year 2016, an increase of 17% as reported, or an increase of 19% in constant currency, over the same period a year ago. This strong growth was primarily attributable to increased organic revenue in the analytical services business driven by the timing of resolution of volume commitments and increased sales volume related to fee for service development work and analytical testing in the U.S., as well as organic growth in clinical services due primarily to increased lower-margin comparator sourcing volume.
Revenue from the Medication Delivery Solutions segment was $195.1 million for the first nine months of fiscal year 2016, an increase of 2% as reported, or an increase of 6% in constant currency, over the same period a year ago. This growth was primarily due to increased volume of the Company’s biologics offerings and for products utilizing the blow-fill-seal technology platform. The increase was partially offset by a decrease in revenue due to the resolution of volume commitments within the Company’s blow-fill-seal technology platform that were recorded in the prior year period, and by lower volume of injectable products at the Company’s European pre-filled syringe operations.
Segment EBITDA Highlights
Oral Technologies segment EBITDA for the first nine months of fiscal year 2016 was $165.8 million, a decrease of 23% as reported, or a decrease of 15% on a constant currency basis. The decrease was driven by the temporary suspension of operations at the Company’s facility in Beinheim, France and lower volume of certain higher margin offerings within the Company’s modified release technologies platform. These declines were partially offset by higher sales and more effective absorption of fixed costs through higher capacity utilization within the Company’s softgel business.
Development and Clinical Services segment EBITDA for the first nine months of fiscal year 2016 was $80.9 million, an increase of 21% as reported, or an increase of 24% in constant currency. This strong EBITDA improvement was primarily attributable to the timing of resolution of volume commitments and increased sales volume across the segment, as well as contribution from the Micron acquisition.
Medication Delivery Solutions segment EBITDA for the first nine months of fiscal year 2016 was $37.1 million, a decrease of 5% as reported, or a decrease of 2% in constant currency. This decrease was primarily attributable to the resolution of volume commitments that were recorded in the prior year period related to the Company's blow-fill-seal technology platform and incremental resource commitments to the Redwood Bioscience business. These decreases were partially offset by higher profit generated from the Company’s biologics offerings and from products utilizing its blow-fill-seal technology platform.
Additional Financial Highlights
Third quarter 2016 gross margin of 28.8% declined 530 basis points from 34.1% in the third quarter a year ago on a constant currency basis. The decrease was primarily driven by an unfavorable shift in revenue mix within the Company’s Oral Technologies segment and increased lower-margin comparator sourcing volume in the Company’s clinical services business within its Development and Clinical Services segment. For the first nine months of fiscal year 2016, gross margin was 30.4%, a decrease of 240 basis points from 32.8% for the same period a year ago on a constant currency basis. The decrease was primarily attributable to an unfavorable shift in revenue mix within the Company’s Oral Technologies segment and the timing of the resolution of volume commitments within its Medication Delivery Solutions segment.
Third quarter 2016 selling, general and administrative expenses were $93.2 million and represented 21.3% of revenue, compared to $80.9 million, or 18.1% of revenue, in the third quarter a year ago. For the first nine months of fiscal 2016, selling, general and administrative expenses were $268.4 million and represented 20.4% of revenue, compared to $250.4 million, or 19.0% of revenue, for the same period a year ago.
Backlog for the Development and Clinical Services segment was $454.9 million as of March 31, 2016, a 5% increase compared to the second quarter of fiscal year 2016. The segment also recorded net new business wins of $129.2 million during the third quarter, which represented a 15% increase year over year. The segment’s trailing-twelve-month book-to-bill ratio was 1.1x.
Balance Sheet and Liquidity
As of March 31, 2016, Catalent had $1.9 billion in total debt, essentially unchanged compared to the debt level as of June 30, 2015. As of March 31, 2016, Catalent’s leverage ratio was 4.4x, compared to 3.9x as of June 30, 2015.
Fiscal Year 2016 Outlook
The Company is lowering certain elements of its previously issued financial guidance for fiscal year 2016, primarily due to the Beinheim facility suspension. Adjusted EBITDA is now expected in the range of $400 million to $410 million, compared to the previous range of $410 million to $435 million. Adjusted Net Income is now expected in the range of $145 million to $160 million, compared to the previous range of $185 million to $205 million. With respect to revenue, the company is narrowing its guidance range and now expects revenue to be in the range of $1.80 billion to $1.84 billion compared to the previous range of $1.78 billion to $1.84 billion. The Company is reiterating its previous guidance with respect to capital expenditures in the range of $125 million to $135 million and fully diluted share count in the range of 125 million to 127 million shares.