Catalent, a global provider of advanced delivery technologies and development solutions for drugs, biologics and consumer health products, has announced financial results for the fourth quarter and fiscal year 2016, which ended June 30, 2016.
Fourth quarter 2016 revenue of $532.2 million increased 4% as reported and increased 6% in constant currency from $510.1 million reported in the fourth quarter a year ago. For the fiscal year 2016, revenue was $1.85 billion, an increase of 1% as reported and an increase of 6% in constant currency. All three of the Company’s reporting segments posted constant currency revenue growth for the fourth quarter and the fiscal year, led by a double-digit increase in the Clinical Supply Services segment for the fiscal year.
Fourth quarter 2016 net earnings attributable to Catalent were $58.1 million, or $0.46 per diluted share, compared to net earnings of $153.7 million, or $1.22 per diluted share, in the fourth quarter a year ago. The decrease in profitability was primarily due to the release of a valuation allowance on deferred tax assets of $136.7 million, which was recorded as a tax benefit in the fourth quarter of the prior fiscal year. Fiscal year 2016 net earnings attributable to Catalent were $111.5 million, or $0.89 per diluted share, compared to net earnings of $212.2 million, or $1.75 per diluted share, for the same period a year ago.
Fourth quarter 2016 EBITDA from continuing operations of $134.4 million increased 10% from $121.8 million in the fourth quarter a year ago. Fiscal year 2016 EBITDA from continuing operations was $374.3 million, an increase of 4% from $360.2 million for the same period a year ago.
Fourth quarter 2016 Adjusted EBITDA, as referenced in the GAAP to non-GAAP reconciliation provided later in this release, was $141.8 million, or 26.6% of revenue, compared to $136.3 million, or 26.7% of revenue, in the fourth quarter a year ago. This represents an increase of 7% on a constant currency basis. Fiscal year 2016 Adjusted EBITDA of $401.2 million, or 21.7% of revenue, compared to $443.1 million, or 24.2% of revenue, for the same period a year ago.
Fourth quarter 2016 Adjusted Net Income, as referenced in the GAAP to non-GAAP reconciliation provided later in this release, was $64.9 million, or $0.52 per diluted share, compared to Adjusted Net Income of $33.0 million, or $0.26 per diluted share, in the fourth quarter a year ago. Fiscal year 2016 Adjusted Net Income was $153.2 million, or $1.22 per diluted share, compared to Adjusted Net Income of $167.9 million, or $1.38 per diluted share, for the same period a year ago.
"While fiscal year 2016 was clearly a challenging year overall for the company, I'm encouraged by our favorable Q4 results, which included constant currency revenue growth of 6% and Adjusted EBITDA growth of 7%,” said John Chiminski, President and Chief Executive Officer of Catalent, Inc. “We will look to carry this momentum into our 2017 fiscal year, which we expect will be a strong year. We continue to believe that ongoing market consolidation and strong demand for fewer, bigger, and better suppliers in our dynamic industry positions us well for future organic growth.”
In fiscal 2016, we engaged in a business reorganization to better align our internal business unit structure with our "Follow the Molecule" strategy. Under the revised structure, we have created a Drug Delivery Solutions ("DDS") operating segment which encompasses all of our modified release technologies; pre-filled syringes and other injectable formats; blow-fill seal unit dose development and manufacturing; biologic cell line development; analytical services; micronization technologies; and other conventional oral dose forms under a single DDS management team. Additionally, as part of the re-alignment, we have created a stand-alone Clinical Supply Services ("CSS") operating segment and management team with a sole focus on providing global clinical supply chain management services that aim to speed our customers' drugs to market. Further, as a result of the business unit re-alignment, our Softgel Technologies business now reports as a distinct operating segment. For financial reporting purposes, we present three financial reporting segments based on criteria established by U.S. GAAP: Softgel Technologies, Drug Delivery Solutions and Clinical Supply Services.
Fourth Quarter 2016 Segment Highlights
Revenue Highlights by Business Segment
Revenue from the Softgel Technologies segment was $224.8 million for the fourth quarter of fiscal 2016, an increase of 1% as reported, or 4% in constant currency, compared to the fourth quarter a year ago. This performance on a constant currency basis was attributable to higher end market volume demand for consumer health and prescription products, primarily in North America, Latin America, and Asia Pacific.
Revenue from the Drug Delivery Solutions segment was $238.2 million for the fourth quarter of fiscal 2016, an increase of 9% as reported, or 10% in constant currency, over the fourth quarter a year ago. This strong performance was primarily driven by increased volumes related to fee-for-service development work and analytical testing in the U.S., and increased volumes related to our biologics and blow-fill-seal offerings.
Revenue from the Clinical Supply Services segment was $81.5 million for the fourth quarter of fiscal 2016, an increase of 1% as reported, or 4% in constant currency over the fourth quarter a year ago. This growth was primarily due to increased volume related to core manufacturing, packaging, storage and distribution activities.
Segment EBITDA Highlights
Softgel Technologies segment EBITDA in the fourth quarter of 2016 was $59.0 million, an increase of 1% as reported, or 5% in constant currency, versus the fourth quarter a year ago. The increase was primarily attributable to the higher end market volume demand for consumer health and prescription softgel products across North America, Latin America, and Asia Pacific, as well as from effective absorption of fixed costs through higher capacity utilization across the network.
Drug Delivery Solutions segment EBITDA in the fourth quarter of 2016 was $75.7 million, an increase of 13% as reported, or 15% in constant currency. The increase was primarily driven by increased volumes related to fee-for-service development work and analytical testing in the U.S., increased volumes related to our biologics offering, and higher demand for products utilizing our blow-fill-seal technology platform.
Clinical Supply Services segment EBITDA in the fourth quarter of 2016 was $13.7 million, a decrease of 11% as reported, or 7% in constant currency. The decrease was primarily attributable to increased costs related to a business update to enhance operational efficiency, as well further investments in the segment's infrastructure, project management and business development efforts.
Fiscal 2016 Segment Highlights
Revenue Highlights by Business Segment
Revenue from the Softgel Technologies segment was $775.0 million for fiscal year 2016, a decrease of 2% as reported, or an increase of 7% in constant currency, over the same period a year ago. This improvement on a constant currency basis was attributable to higher end market volume demand for lower margin consumer health products primarily in Asia Pacific. Partially offsetting increased revenue was a decrease in volume of prescription products primarily in Europe due to the temporary suspension of operations at our facility in Beinheim, France, which occurred between November 2015 and April 2016.
Revenue from the Drug Delivery Solutions segment was $806.4 million for fiscal year 2016, an increase of 1% as reported, or 4% in constant currency, over the same period a year ago. This growth was primarily attributable to analytical services driven by increased sales volumes related to fee-for-service development work and analytical testing in the U.S. Net revenue also increased as a result of increased volume from our biologics offerings and increased volume of products utilizing our blow-fill-seal technology platform. Partially offsetting these increases was decreased sales from our oral delivery solutions platform due to lower end customer demand for certain higher margin offerings primarily in our U.S. operations and lower revenue from product participation related activities.
Revenue from the Clinical Services Supplies segment was $307.5 million for fiscal year 2016, an increase of 7% as reported, or 10% in constant currency, over the same period a year ago. This growth was primarily due to due to increased lower-margin comparator sourcing volume and increased volume related to storage and distribution revenue.
Segment EBITDA Highlights
Softgel Technologies segment EBITDA for fiscal year 2016 was $163.8 million, a decrease of 6% as reported, or an increase of 4% on a constant currency basis. The increase was primarily driven by increased sales volumes of our lower margin consumer health products and more effective absorption of fixed costs through higher capacity utilization, partially offset by the temporary suspension of operations at our facility in Beinheim, France which occurred between November 2015 and April 2016.
Drug Delivery Solutions segment EBITDA for fiscal year 2016 was $215.2 million, a decrease of 7% as reported, or 4% in constant currency. The decline in profitability was primarily due to reduced end customer demand reducing volume of certain higher margin offerings and lower absorption of fixed manufacturing costs within our oral delivery solutions platform, partially offset by increased profit generated by our biologics offering and from products utilizing our blow-fill-seal technology platform.
Clinical Supply Services segment EBITDA for fiscal year 2016 was $53.2 million, a decrease of 6% as reported, or a decrease of 2% in constant currency. This decrease was primarily attributable to a shift to lower-margin comparator sourcing volume and increased cost related to operational efficiency activities.
Additional Financial Highlights
Fourth quarter 2016 gross margin of 35.3% declined 30 basis points from 35.6% in the fourth quarter a year ago. For fiscal year 2016, gross margin was 31.8%, a decrease of 180 basis points from 33.6% for the same period a year ago. The decrease was primarily attributable to the temporary suspension of operations at our facility in Beinheim, France which occurred between November 2015 and April 2016.
Fourth quarter 2016 selling, general and administrative expenses were $89.5 million and represented 16.8% of revenue, compared to $86.9 million, or 17.0% of revenue, in the fourth quarter a year ago. For fiscal 2016, selling, general and administrative expenses were $358.1 million and represented 19.4% of revenue, compared to $337.3 million, or 18.4% of revenue, for the same period a year ago.
Backlog for the Clinical Supply Services segment, defined as estimated future service revenues from work not yet completed under signed contracts was $292.1 million as of June 30, 2016, a 9% increase compared to the third quarter of fiscal year 2016. The segment also recorded net new business wins of $106.4 million during the fourth quarter, which represented a 10% increase year over year. The segment’s trailing-twelve-month book-to-bill ratio was 1.2x.
Balance Sheet and Liquidity
As of June 30, 2016, Catalent had $1.8 billion in net debt, essentially unchanged compared to the debt level as of June 30, 2015. As of June 30, 2016, Catalent’s net leverage ratio was 4.3x, compared to 3.9x as of June 30, 2015.
Fiscal Year 2017 Outlook
For fiscal year 2017, the company expects revenue in the range of $1.920 billion to $1.995 billion. Catalent expects Adjusted EBITDA in the range of $430 million to $455 million and Adjusted Net Income in the range of $165 million to $190 million. These guidance ranges are consistent with the organic, constant currency long-term CAGR growth expectations of 4-6% for revenue and 6-8% for Adjusted EBITDA. The Company expects capital expenditures in the range of $125 million to $135 million and fully diluted share count in the range of 126 million to 128 million shares on a weighted average basis.