Catalent announced financial results for the fourth quarter and fiscal year 2018, which ended June 30, 2018.
Fourth quarter 2018 revenue of $685.3 million increased 11% as reported and 9% in constant currency from $616.9 million reported in the fourth quarter a year ago. For fiscal year 2018, revenue was $2,463.4 million and increased 19% as reported and 16% in constant currency, compared to the $2,075.4 million recorded in the prior-year period. The Company's fourth quarter and fiscal year 2018 revenue growth over the prior fiscal year was primarily driven by the Biologics and Specialty Drug Delivery and Clinical Supply Services segments.
Fourth quarter 2018 net earnings were $82.7 million, or $0.61 per diluted share, compared to net earnings of $61.8 million, or $0.49 per diluted share, in the fourth quarter a year ago. For fiscal year 2018, net earnings were $83.6 million, or $0.63 per diluted share, compared to net earnings of $109.8 million, or $0.87 per diluted share, in fiscal 2017. The fiscal year 2018 results include a net tax charge of $42.5 million as a provisional estimate of the net accounting impact of the U.S. tax law enacted in December 2017. Fourth quarter 2018 EBITDA from continuing operations of $172.0 million, as referenced in the GAAP to non-GAAP reconciliation provided later in this release, increased 32% from $130.5 million in the fourth quarter a year ago. For fiscal year 2018, EBITDA from continuing operations was $453.5 million, an increase of 22% compared to the $372.2 million recorded in the prior year.
Fourth quarter 2018 Adjusted EBITDA (see the non-GAAP reconciliation for a discussion of this metric) was $181.5 million, or 26.5% of revenue, compared to $159.1 million, or 25.8% of revenue, in the fourth quarter a year ago. This represents an increase of 14% as reported, and an increase of 11% on a constant-currency basis.
Fourth quarter 2018 Adjusted Net Income (see the non-GAAP reconciliation) was $90.0 million, or $0.67 per diluted share, compared to Adjusted Net Income of $82.6 million, or $0.65 per diluted share, in the fourth quarter a year ago.
“Our financial performance for the fourth quarter was in line with our expectations and positions us well heading into fiscal year 2019,” said John Chiminski, Chair, President and Chief Executive Officer of Catalent, Inc. “We're excited to have closed another acquisition on August 14th -Juniper Pharmaceuticals- which adds to our spray drying capability and creates a European early-stage formulation and development center of excellence. The integration of both Juniper and our Bloomington biologics acquisition, which closed during the second quarter, is progressing according to plan. We're also very pleased to have strengthened our balance sheet by paying down $450 million of floating-rate term loan with the proceeds from our July 2018 equity offering. These strategic steps allow us to play a role in the continued consolidation of this fragmented industry."
In fiscal 2018, the Company engaged in a business reorganization to better align its internal business unit structure with its "Follow the Molecule" strategy and the increased focus on its biologics-related offerings. Under the revised structure, it created two new operating segments from its former Drug Delivery Solutions segment:
- Biologics and Specialty Drug Delivery, which encompasses manufacturing and development of biologic cell-lines, blow-fill-seal unit-doses, prefilled syringes, vials, cartridges and other injectable and inhaled formats; analytical development and testing services for large molecules; and development and manufacturing for inhaled products for delivery via metered dose inhalers, dry powder inhalers, and intra-nasal sprays; and
- Oral Drug Delivery, which encompasses comprehensive formulation and analytical development capabilities using advanced processing technologies such as bioavailability enhancement, controlled release, particle size engineering; and taste-masking for solid oral dose forms.
Each of the two new segments reports through a separate management team. The Company's operating segments are the same as its reporting segments. All prior-period comparative segment information has been restated to reflect the current reportable segments in accordance with ASC 280 Segment Reporting, as discussed in Note 1 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K (the "Consolidated Financial Statements").
Fourth Quarter 2018 Segment Highlights
Revenue Highlights by Business Segment
Revenue from the Softgel Technologies segment was $241.0 million for the fourth quarter of fiscal 2018, a decrease of 6% as reported, or 7% in constant currency, compared to the fourth quarter a year ago. The constant-currency decline was primarily attributable to a decrease in product participation revenue and volume declines for both prescription and consumer health products within North America and Europe; partially offset by strong demand for consumer health products within Latin America.
Revenue from the Biologics and Specialty Drug Delivery segment was $195.5 million for the fourth quarter of fiscal 2018, an increase of 100% as reported, or 98% in constant currency, over the fourth quarter a year ago. The constant-currency growth was partially attributable to the acquisition of Catalent Indiana (formerly Cook Pharmica), which contributed 71 percentage points to the segment's revenue growth. Excluding the impact of the acquisition, segment revenue increased 27% in constant currency, driven by favorable end-customer demand for our U.S. based drug substance and European drug product biologics offerings, as well as higher volumes associated with products utilizing our respiratory and opthalmic drug delivery platforms.
Revenue from the Oral Drug Delivery segment was $153.7 million for the fourth quarter of fiscal 2018, a decrease of 11% as reported, or 14% in constant currency, over the fourth quarter a year ago. The constant-currency decline was primarily driven by a prior-year contractual settlement recorded within the segment, a decrease in product participation revenue and lower volume related to our integrated oral solids development and commercial manufacturing capabilities.
Revenue from the Clinical Supply Services segment was $107.6 million for the fourth quarter of fiscal 2018, an increase of 8% as reported, or 5% in constant currency over the fourth quarter a year ago. The constant-currency growth was due to higher volume related to storage and distribution services, partially offset by lower comparator sourcing volume.
Segment EBITDA Highlights
Softgel Technologies segment EBITDA (see the discussion of non-GAAP measures below) in the fourth quarter of fiscal 2018 was $59.0 million, a decrease of 10% as reported, or 8% in constant currency, versus the fourth quarter a year ago. The decrease was primarily driven by the lower product participation revenue and volume declines for high-margin products within North America and Europe, partially related to a shortage of supply of ibuprofen, an active pharmaceutical ingredient. These declines were partially offset by strong demand for consumer health products within Latin America.
Biologics and Specialty Drug Delivery segment EBITDA in the fourth quarter of fiscal 2018 was $60.4 million, an increase of 154% as reported, or 151% in constant currency. The constant-currency growth was partially attributable to the Catalent Indiana acquisition, which contributed 116 percentage points to the segment's EBITDA growth. Excluding the impact of the acquisition, segment EBITDA increased 35% in constant currency driven by favorable end-customer demand for our U.S.-based drug substance and European drug product biologics offerings, as well as higher volumes associated with products utilizing our respiratory and opthalmic drug delivery platforms.
Oral Drug Delivery segment EBITDA in the fourth quarter of fiscal 2018 was $50.0 million, a decrease of 25% as reported, or 27% in constant currency. The constant-currency decline was primarily driven by a prior-year contractual settlement recorded within the segment, a decrease in product participation revenue and lower volume related to our integrated oral solids development and commercial manufacturing capabilities.
Clinical Supply Services segment EBITDA in the fourth quarter of fiscal 2018 was $21.7 million, an increase of 27% as reported, or 20% in constant currency. The increase was primarily attributable to higher demand and favorable product mix within our storage and distribution services, as well as improved capacity utilization across the network.
Fiscal 2018 Segment Highlights
Revenue Highlights by Business Segment
Revenue from the Softgel Technologies segment was $917.3 million for fiscal year 2018, an increase of 7% as reported, or 4% in constant currency, compared to a year ago. The constant-currency growth was attributable to the February 2017 Accucaps acquisition, which contributed 7 percentage points to the segment’s constant-currency revenue growth during the year. Excluding the Accucaps acquisition, Softgel revenue declined 3% in constant currency, due to a decrease in product participation revenue and decreased end-market demand for consumer health products in Europe and Asia-Pacific; partially offset by strength in the Latin America region.
Revenue from the Biologics and Specialty Drug Delivery segment was $601.9 million for fiscal year 2018, an increase of 72% as reported, or 68% in constant currency, over a year ago. The constant-currency growth was partially attributable to the Catalent Indiana acquisition, which contributed 50 percentage points to the segment's revenue growth. Excluding the impact of the acquisition, segment revenue increased 18% in constant currency, driven by favorable end-customer demand for our U.S.-based drug substance and European drug product biologics offerings, as well as higher volumes associated with products utilizing our respiratory and opthalmic drug delivery platforms.
Revenue from the Oral Drug Delivery segment was $573.9 million for fiscal year 2018, an increase of 2% as reported, or a decrease of 1% in constant currency, over a year ago. The constant-currency decline was primarily driven by a prior-year contractual settlement recorded within the segment, a decrease in product participation revenue and lower volume related to our analytical development services platform; partially offset by favorable end-customer demand related to our integrated oral solids development and commercial manufacturing capabilities.
Revenue from the Clinical Supply Services segment was $430.4 million for fiscal year 2018, an increase of 23% as reported, or 20% in constant currency over a year ago. This growth was due to higher volume related to storage and distribution services, as well as due to increased lower-margin comparator sourcing activities.
Segment EBITDA Highlights
Softgel Technologies segment EBITDA for fiscal year 2018 was $196.4 million, an increase of 3% as reported, or 2% in constant currency, versus a year ago. The constant-currency increase was driven by the acquisition of Accucaps, which contributed 5 percentage points of the constant-currency growth in segment EBITDA during the period. Excluding the acquisition, segment EBITDA decreased by 3% in constant currency, due to lower product participation revenue and a shortage of supply of ibuprofen, an active pharmaceutical ingredient; partially offset by favorable product mix within North America.
Biologics and Specialty Drug Delivery segment EBITDA for fiscal year 2018 was $146.8 million, an increase of 132% as reported, or 128% in constant currency. The constant-currency increase was primarily driven by the Catalent Indiana acquisition, which contributed 113 percentage points of the constant-currency growth in segment EBITDA during the period. Excluding the acquisition, segment EBITDA increased by 15% in constant currency, primarily driven by favorable end-customer demand for our U.S.-based drug substance and European drug product biologics offerings, partially offset by lower levels of capacity utilization within our respiratory and opthalmic drug delivery platforms.
Oral Drug Delivery segment EBITDA for fiscal year 2018 was $172.9 million, a decrease of 3% as reported, or 6% in constant currency. The constant-currency decrease was primarily driven by a prior-year contractual settlement recorded within the segment, a decrease in product participation revenue and lower volume related to our analytical development services platform; partially offset by favorable end-customer demand related to our integrated oral solids development and commercial manufacturing capabilities.
Clinical Supply Services segment EBITDA for fiscal year 2018 was $76.2 million, an increase of 39% as reported, or 32% in constant currency. The increase was primarily attributable to higher demand for our storage and distribution services, as well as improved capacity utilization across the network. Increased volume related to lower-margin comparator sourcing activities modestly contributed to the segment’s EBITDA growth.
Additional Financial Highlights
Fourth quarter 2018 gross margin of 34.1% decreased 80 basis points as-reported, from 34.9% in the fourth quarter a year ago. The decrease was primarily attributable to a decrease in product participation revenue within the Oral Drug Delivery and Softgel Technologies segments, partially offset by the Catalent Indiana acquisition.
Fourth quarter 2018 selling, general and administrative expenses were $124.3 million and represented 18.1% of revenue, compared to $107.3 million, or 17.4% of revenue, in the fourth quarter 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 $273.2 million as of June 30, 2018, a 2% increase compared to the third quarter of fiscal year 2018. The segment recorded net new business wins of $93.8 million during the fourth quarter, which is an increase of 60% compared to the new business wins recorded in the same period of prior year. The segment’s trailing-twelve-month book-to-bill ratio was 0.9x. Please note that fourth quarter and prior period ratios have been re-calculated in light of the change in revenue recognition due to the adoption of ASC 606, a new accounting rule, pursuant to which the Company will recognize revenue relating to comparator procurement on a net basis.
Balance Sheet and Liquidity
As of June 30, 2018, Catalent had $2.7 billion in total debt, and $2.3 billion in total debt net of cash and short-term investments, which is in-line with the total debt and net debt as of March 31, 2018. As of June 30, 2018, Catalent’s total net leverage ratio was 4.2x, a sequential improvement compared to the total net leverage of 4.5x as of March 31, 2018. On a pro forma basis for the acquisition of Catalent Indiana, the debt pay down of $450 million completed in July, and the acquisition of Juniper Pharmaceuticals, Catalent’s total net leverage ratio as of June 30, 2018 would have been 3.4x.
Fiscal Year 2019 Outlook
For fiscal year 2019, the Company expects revenue in the range of $2.50 billion to $2.59 billion. Catalent expects Adjusted EBITDA in the range of $597 million to $622 million and Adjusted Net Income in the range of $260 million to $285 million. The Company expects self-funded capital expenditures in the range of $175 million to $185 million and fully diluted share count in the range of 146 million to 147 million shares on a weighted-average basis, taking into account the recent issuance of additional shares in connection with the recent equity offering.