Catalent, a global provider of advanced delivery technologies and development solutions for drugs, biologics and consumer health products, has announced financial results for the second quarter of fiscal year 2017, which ended December 31, 2016.
Second quarter 2017 revenue of $483.7 million increased 6% as reported and increased 10% in constant currency from $454.9 million reported in the second quarter a year ago. For the first six months of fiscal year 2017, revenue was $925.9 million and increased 5% as reported and 9% in constant currency, compared to the $877.9 million recorded in the prior-year period. All three of the Company’s reporting segments posted constant currency revenue growth for the quarter and year-to-date period, led by strong performance within the Softgel and Drug Delivery Solutions segments.
Second quarter 2017 net earnings attributable to Catalent were $17.4 million, or $0.14 per diluted share, compared to net earnings of $30.7 million, or $0.24 per diluted share, in the second quarter a year ago. For the first six months of fiscal year 2017, net earnings attributable to Catalent were $22.0 million, or $0.17 per diluted share, compared to net earnings of $42.7 million, or $0.34 per diluted share, in the same period of the prior year.
Second quarter 2017 EBITDA from continuing operations of $85.2 million, as referenced in the GAAP to non-GAAP reconciliation provided later in this release, decreased 13% from $97.4 million in the second quarter a year ago. For the first six months of fiscal year 2017, EBITDA from continuing operations was $147.9 million, a decrease of 13% compared to the $169.6 million recorded in the prior-year period.
Second quarter 2017 Adjusted EBITDA (see the non-GAAP reconciliation) was $98.1 million, or 20.3% of revenue, compared to $101.1 million, or 22.2% of revenue, in the second quarter a year ago. This represents an increase of 2% on a constant currency basis.
Second quarter 2017 Adjusted Net Income (see the non-GAAP reconciliation) was $34.7 million, or $0.27 per diluted share, compared to Adjusted Net Income of $38.9 million, or $0.31 per diluted share, in the second quarter a year ago.
"We're pleased with our performance during the second quarter, where we recorded double-digit revenue growth on a constant currency basis and announced our second strategic acquisition of the fiscal year," said John Chiminski, President and Chief Executive Officer of Catalent, Inc. "Once closed later this year, the acquisition of Accucaps will add extensive softgel development and manufacturing capabilities in North America, as we continue to build on our market-leading position in the softgel space. Additionally, the integration of the Pharmatek acquisition announced during the first quarter is progressing according to our expectations and is already creating value for the company and our shareholders."
Second Quarter 2017 Segment Highlights
Revenue Highlights by Business Segment
Revenue from the Softgel Technologies segment was $201.9 million for the second quarter of fiscal 2017, an increase of 11% as reported, or 14% in constant currency, compared to the second quarter a year ago. The constant currency growth was attributable to higher end-market demand for prescription products in Europe, which includes increased volume at the Beinheim facility compared to lower production levels in the prior year due to the temporary suspension of operations. Increased demand for consumer health products in Europe and Latin America also contributed to the growth.
Revenue from the Drug Delivery Solutions segment was $214.0 million for the second quarter of fiscal 2017, an increase of 5% as reported, or 8% in constant currency, over the second quarter a year ago. The growth was primarily driven by favorable end-customer demand for certain higher margin offerings within our U.S. oral delivery solutions platform, increased volume related to our biologics offering, and increased activity within the analytical services platform. The acquisition of Pharmatek also contributed to the segment's revenue growth.
Revenue from the Clinical Supply Services segment was $77.0 million for the second quarter of fiscal 2017, in-line with the prior year as reported, or an increase of 8% in constant currency over the second quarter a year ago. This growth was primarily due to increased volume related to storage and distribution activities.
Segment EBITDA Highlights
Softgel Technologies segment EBITDA in the second quarter of fiscal 2017 was $43.4 million, an increase of 25% as reported, or 32% in constant currency, versus the second quarter a year ago. The increase was primarily attributable to a favorable mix shift to higher margin prescription products in Europe, and increased volume and reduced costs at the Beinheim facility driven by the temporary suspension of operations in the prior year.
Drug Delivery Solutions segment EBITDA in the second quarter of fiscal 2017 was $50.0 million, a decrease of 19% as reported, or 16% in constant currency. The decrease was primarily driven by a $12.5 million resolution of volume commitments recorded in the prior-year period. Excluding this event, segment EBITDA increased 6% due to increased demand for certain higher margin offerings with our U.S. oral delivery solutions platform, increased volume related to our biologics offering, and favorable product mix within our analytical services platform. The acquisition of Pharmatek also contributed to the segment's EBITDA growth.
Clinical Supply Services segment EBITDA in the second quarter of fiscal 2017 was $11.6 million, a decrease of 13% as reported, or 2% 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 administrative costs across the segment.
See the section of this release captioned "Non-GAAP Financial Measures" for an explanation of "Segment EBITDA."
First Six Months of Fiscal 2017 Segment Highlights
Revenue Highlights by Business Segment
Revenue from the Softgel Technologies segment was $388.3 million for the first six months of fiscal year 2017, an increase of 6% as reported, or 8% in constant currency, compared to the same period a year ago. The constant currency growth was attributable to higher end-market demand for prescription products in Europe, which includes increased volume at the Beinheim facility compared to lower production levels in the prior year due to the temporary suspension of operations.
Revenue from the Drug Delivery Solutions segment was $405.3 million for the first six months of fiscal year 2017, an increase of 7% as reported, or 10% in constant currency, over the same period a year ago. The strong performance was primarily driven by favorable end-customer demand for certain higher margin offerings within our U.S. oral delivery solutions platform, increased volume related to our biologics offering, and increased activity within the analytical services platform. The acquisition of Pharmatek modestly contributed to the segment's year-to-date revenue growth.
Revenue from the Clinical Supply Services segment was $152.0 million for the first six months of fiscal year 2017, a decrease of 2% as reported, or an increase of 6% in constant currency over the same prior-year period. This growth was primarily due to increased volume related to storage and distribution activities.
Segment EBITDA Highlights
Softgel Technologies segment EBITDA for the first six months of fiscal year 2017 was $73.9 million, an increase of 6% as reported, or 12% in constant currency, compared to the same period a year ago. The increase was primarily attributable to a favorable mix shift to higher margin prescription products in Europe, and increased volume and reduced costs at the Beinheim facility driven by the temporary suspension of operations in the prior year.
Drug Delivery Solutions segment EBITDA in the first six months of fiscal year 2017 was $92.0 million, a decrease of 8% as reported, or 3% in constant currency. The decrease was primarily driven by a $12.5 million resolution of volume commitments recorded in the prior-year period. Excluding this event, segment EBITDA increased 11% due to increased volume and favorable product mix within our analytical services platform and biologics offering. The acquisition of Pharmatek modestly contributed to the segment's year-to-date EBITDA growth.
Clinical Supply Services segment EBITDA in the first six months of fiscal year 2017 was $22.1 million, a decrease of 19% as reported, or 10% 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 administrative costs across the segment.
See the section of this release captioned "Non-GAAP Financial Measures" for an explanation of "Segment EBITDA."
Additional Financial Highlights
Second quarter 2017 gross margin of 30.6% declined 280 basis points as-reported, from 33.4% in the second quarter a year ago. The decrease was primarily attributable to the $12.5 million resolution of volume commitments recorded in the prior-year period within the Drug Delivery Solutions segment. Gross margin of 29.4% in the first six months of fiscal year 2017 declined 180 basis points as-reported, from the 31.2% recorded in the same period a year ago. The year-to-date decline was also attributable to the $12.5 million resolution of volume commitments recorded in the prior-year period, partially offset by a favorable shift in product mix within softgel, analytical services, and biologics.
Second quarter 2017 selling, general and administrative expenses were $96.2 million and represented 19.9% of revenue, compared to $93.0 million, or 20.4% of revenue, in the second quarter a year ago. Selling, general and administrative expenses for the first six months of fiscal year 2017 were $194.4 million and represented 21.0% of revenue, compared to $175.2 million, or 20.0% of revenue, in the same period of the prior year.
Backlog for the Clinical Supply Services segment, defined as estimated future service revenues from work not yet completed under signed contracts was $333.8 million as of December 31, 2016, an 8% increase compared to the first quarter of fiscal year 2017. The segment also recorded net new business wins of $105.0 million during the second quarter, which represented a 31% increase year over year. The segment’s trailing-twelve-month book-to-bill ratio was 1.2x.
Balance Sheet and Liquidity
As of December 31, 2016, Catalent had $2.0 billion in total debt, and $1.8 billion in total debt net of cash and short-term investments, which is essentially in-line with the total and net debt levels as of September 30, 2016. As of December 31, 2016, Catalent’s net leverage ratio was 4.5x, which is aligned with the 4.5x as of September 30, 2016. This quarter's net leverage ratio proforma for the acquisition of Pharmatek was 4.4x.
Fiscal Year 2017 Outlook
Catalent is updating its previously issued financial guidance solely for the passage of time, and is therefore tightening the revenue, Adjusted EBITDA and Adjusted Net Income ranges. For fiscal year 2017, the company expects revenue in the range of $1.940 billion to $1.980 billion. Catalent expects Adjusted EBITDA in the range of $435 million to $450 million and Adjusted Net Income in the range of $168 million to $183 million. These guidance ranges continue to be 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 $130 million to $135 million and fully diluted share count in the range of 126 million to 128 million shares on a weighted average basis.