Catalent a global provider of advanced delivery technologies and development solutions for drugs, biologics and consumer health products, has announced financial results for the first quarter of fiscal year 2017, which ended September 30, 2016.
First quarter 2017 revenue of $442.2 million increased 5% as reported and increased 7% in constant currency from $423.0 million reported in the first quarter a year ago. All three of the Company’s reporting segments posted constant currency revenue growth for the first quarter, led by a double-digit increase in the Drug Delivery Solutions segment.
First quarter 2017 net earnings attributable to Catalent were $4.6 million, or $0.04 per diluted share, compared to net earnings of $11.9 million, or $0.09 per diluted share, in the first quarter a year ago.
First quarter 2017 EBITDA from continuing operations of $62.7 million decreased 13% from $72.1 million in the first quarter a year ago.
First quarter 2017 Adjusted EBITDA, as referenced in the GAAP to non-GAAP reconciliation provided later in this release, was $75.0 million, or 17.0% of revenue, compared to $77.6 million, or 18.3% of revenue, in the first quarter a year ago. This represents an increase of 3% on a constant currency basis.
First quarter 2017 Adjusted Net Income, as referenced in the GAAP to non-GAAP reconciliation provided later in this release, was $19.6 million, or $0.16 per diluted share, compared to Adjusted Net Income of $23.0 million, or $0.18 per diluted share, in the first quarter a year ago.
"We're pleased to start fiscal year 2017 with strong revenue growth, the completion of a strategic acquisition, and several exciting developments on the Biologics front," said John Chiminski, President and Chief Executive Officer of Catalent, Inc. "The acquisition of Pharmatek adds extensive early-phase drug development capabilities from discovery to clinic and brings spray drying technology into Catalent’s extensive portfolio of advanced delivery technologies. The Biologics project wins this quarter highlight our differentiated technology platforms in this space in support of our customers and patients."
First Quarter 2017 Segment Highlights
Revenue Highlights by Business Segment
Revenue from the Softgel Technologies segment was $186.4 million for the first quarter of fiscal 2017, an increase of 1% as reported, or 2% in constant currency, compared to the first quarter a year ago. The constant currency growth was attributable to higher end-market volume demand for consumer health products, primarily in Latin America and Asia Pacific; partially offset by lower volume at our Beinheim facility as compared to pre-suspension levels of production during the first quarter of the prior fiscal year.
Revenue from the Drug Delivery Solutions segment was $191.3 million for the first quarter of fiscal 2017, an increase of 10% as reported, or 13% in constant currency, over the first quarter a year ago. The strong performance was primarily driven by volumes related to fee-for-service development and analytical testing in the U.S., and strength within our biologics offering and our European pre-filled syringe operations. This growth was partially offset by decreased volume in our integrated oral solids development and manufacturing capabilities.
Revenue from the Clinical Supply Services segment was $75.0 million for the first quarter of fiscal 2017, a decrease of 3% as reported, or an increase of 3% in constant currency over the first quarter a year ago. This growth was primarily due to increased volume related to core storage and distribution activities.
Segment EBITDA Highlights
Softgel Technologies segment EBITDA in the first quarter of 2017 was $30.5 million, a decrease of 12% as reported, or 7% in constant currency, versus the first quarter a year ago. The decrease was primarily attributable to lower volume at our Beinheim facility as compared to pre-suspension levels of production in the first quarter of the prior fiscal year; partially offset by increased volume and higher capacity utilization within Latin America.
Drug Delivery Solutions segment EBITDA in the first quarter of 2017 was $42.0 million, an increase of 12% as reported, or 18% in constant currency. The increase was primarily driven by increased volumes and favorable product mix within our analytical services platform and our biologics offering, partially offset by decreased volumes and unfavorable product mix within our integrated oral solids development and manufacturing capabilities.
Clinical Supply Services segment EBITDA in the first quarter of 2017 was $10.5 million, a decrease of 25% as reported, or 17% in constant currency. The decrease was primarily attributable to an unfavorable service offering revenue mix to our lower margin storage and distribution business from our higher margin manufacturing and packaging business, as well as due to higher costs across the segment.
Additional Financial Highlights
First quarter 2017 gross margin of 28.1% declined 60 basis points as-reported, or 10 basis points in constant currency, from 28.7% in the first quarter a year ago. The decrease was primarily attributable to unfavorable revenue mix within our Clinical Supply Services segment during the first quarter of the current fiscal year, partially offset by favorable product mix within the Drug Delivery Solutions segment.
First quarter 2017 selling, general and administrative expenses were $98.2 million and represented 22.2% of revenue, compared to $82.3 million, or 19.5% of revenue, in the first quarter a year ago. The increase in the current year was primarily driven by higher employee related costs resulting from inflationary increases, employee retention and recruiting, health and wellness expense, and non-cash equity-based compensation plans.
Backlog for the Clinical Supply Services segment, defined as estimated future service revenues from work not yet completed under signed contracts was $308.6 million as of September 30, 2016, a 6% increase compared to the fourth quarter of fiscal year 2016. The segment also recorded net new business wins of $92.2 million during the first quarter, which represented a 6% increase year over year. The segment’s trailing-twelve-month book-to-bill ratio was 1.2x.
Balance Sheet and Liquidity
As of September 30, 2016, Catalent had $1.9 billion in total debt, and $1.8 billion in total debt net of cash and short term investments, which is modestly above the total and net debt levels as of June 30, 2016 due to the acquisition of Pharmatek. As of September 30, 2016, Catalent’s net leverage ratio was 4.5x, compared to 4.3x as of June 30, 2016. This quarter's net leverage ratio proforma for the acquisition of Pharmatek was 4.4x.
Fiscal Year 2017 Outlook
There is no change to Catalent’s previously issued financial guidance. 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 self-funded 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.