Okay, we're live. Good. Okay, good morning, everyone. My name is Eric Coldwell, Baird's Healthcare Services and, and Distribution Analyst. It's fantastic to be back to the CDMO industry, which I've been involved in on and off since the mid-1990s, and, and good to have some old friends back in our, our coverage. I'm sure everyone here is very familiar with Catalent. I'm not gonna make any big introduction. I do wanna thank Alessandro Maselli and Matti Masanovich for being here today and, and doing this presentation with us in a very busy time. And I think, Alessandro, you wanted to make a couple of quick introductory comments, and then we'll jump right into the Q&A. Oh, first of all, Eric, thanks for having us. Thank you. It's great to be back here. You know, it's been surely a pretty busy last 12 months. I'm sure you have a lot of questions about it. I would say where I stand today, we are seeing the company with the continued strength in our top line. Even in face of additional COVID erosion, we are seeing a significant demand for our services, which, you know, not only speaks about the end market, that is, still continues to be resilient, but also the competitive position of the company continues to be strong. So our year is really depending on execution. So I'm glad of how we are retooling the team with Matti and a new CHRO. I hope soon we're gonna announce a new president of Biologics, which has been my highest priority since Matti joined. So really pleased, excited about what is ahead of us and ready to execute. Very good. Matti, I'm gonna put you on the, on the spot here, just because you are relatively new to the organization, and maybe there are some new faces in the room. Maybe a quick introduction, where you were and- Sure ... and your time at Catalent. Came out of, 25 years of industrial manufacturing, primarily automotive. Came from Tenneco, most recently. Tenneco, went through, a significant acquisition back in 2018. Yeah. On the heels of that, went to work and really was gonna take the company into two pieces, and Apollo came in and made us an offer we couldn't say no to. Was looking for an opportunity over about six to seven months. Wanted to get back to be a CFO of a publicly traded company again. I've done a few of those. Really saw the opportunity at Catalent, and it really fit my experience really, really well, from where they were and what I could bring to the table. So from a you know operational CFO perspective, which is what I consider myself, I think there's a lot of work we can do, and we can drive a lot of shareholder value. That's great. Boy, I could do a setup that lasts five minutes with all the moving pieces in a COVID world, and this economy, and everything else. But clearly, you have tremendous opportunities ahead to either get past challenges like COVID headwinds or work through some of the site transitions, some of the new approvals coming in. There's a lot, but I think one of the interesting things with your fiscal 2024 outlook was the ramp and the phasing, which is a little maybe more similar on revenue, a little less similar on EBITDA. Probably be helpful to just set the frame on how the quarters play out, how you envision them playing out, and what the big individual buckets are, and markers are that we should be watching over the next few quarters. Yeah. Yeah. So when we gave the guide at midpoint, we advised that 2/3 of the EBITDA would be generated in the back half of the year, versus 1/3 up front. And really, what that does, there's one significant activity that's going on, which is a facility in the biologics group that we need to really turn around that facility. And it's gonna—It buys us a couple of quarters to get that tracking, but you'll see sequential improvement in those, in that P&L, as we move forward for the first half, but then really striking in the second half. We also have some restructuring savings that we've gotten in place, in running. We executed on those in late 2023. We'll get the full benefit of those in 2024, as well as some incremental actions. So, I do think that, you know, the opportunity for us is really all execution of our plan and of our turnaround plan. That plant is Bloomington. There's no surprises in what plant it is, and we face some challenges there. Most recent challenges with some FDA activity, and really, we need to get after the infrastructure side of that house and adjust the infrastructure costs. You know, the FDA activity, observations, even 483s. You know, the 483s at various levels, it's pretty common actually in this industry. I think- Mm-hmm. One thing that gets maybe lost on people is how frequent observations occur in the scheme of things across your massive global network, all of the sites, all of the moving pieces. Have you done any analysis on how your regulatory profile compares to peers on an apples-to-apples basis, whether it's number of rooms, number of sites, square footage? Have you, have you ever looked at that and said, "Here's how we stack up versus the industry averages? Oh, sure. Yeah. Sure, we do it. Absolutely, we do it. You know, we continue to have more than half of our inspections ending up with no observations, and I will tell you that, of course, not all technologies have the same level of- Yeah ... you know, scrutiny or if you like- Yeah ... when you are in the sterile fill and finish world, it's the most, you know, critical, right? Rightly so. It's a sterile injection in the vein, so you have a higher risk, and so you have a higher level of scrutiny. You know, drug substance is usually much lower. So you know, there is surely an element of that. And there is also the fact that in the sterile fill and finish, in particular, there are new regulation that came in force very recently, and so agencies are adapting their expectations according to that. With the specific to your question, not only we have done the analysis, but also some external party have done the analysis, and I will tell you that, our performance, when you look at network level, is as good or if not better than most of competitors and customers, for what it matters. But again, you know, we don't work by the averages. We work by the single events, and there are the single events that need attention to be dealt with. But as I think about Bloomington, I just want to make sure that we don't overplay the, you know, the inspections as to be the key main driver of the, you know, the erosion that we've seen and the current challenges. So when you step back and you look at Bloomington, and for a moment, you take out COVID for a moment, okay? Think like COVID never happened to Bloomington, which by the way, I'm gonna come back on that. And you go back to 2019, and you look or before then, you know, before the pandemic, call it before the pandemic and now, the base business has almost doubled. Yeah. Right? So on a like-for-like basis, but not only doubled in volumes of revenues, but also transitioned to completely different technologies. We were primarily filling at the time, and with a significant component of vials. Now, there is way more syringes, there is auto injector assembly, because some of what we're doing there is for self-medication. There are complex packaging activities. So, there is even just in the base business, the amount of change that did happen on the site is gigantic. When you overlay on top of that change, the fact that you went to have to produce one product, which is called the COVID vaccine, from 0 to billions of doses and back to millions of doses, well, you understand that there is no other, I would say, business tsunami comparable in the pharmaceutical industry as the one that this facility has been under. And again, you know, I would like to stress one point: the fact that we did so much COVID was not a strategy or necessarily a choice. We happened to be at the right time to serve as, you know, the mission to help the country to get out of the pandemic. We did it, and now we need to deal a little bit with the aftermath of it. I just want to make sure that we understand that most of the drama is given to this amount of change, and to cope with the change and readapt where we are with that change. I want to hit on gene therapy for a minute. It's actually been a pretty big growth driver behind the scenes. You know, maybe not as obvious with the COVID- Mm-hmm ... selling off and different things- Yeah - that it's masked some of that underlying performance at some level. But, the street's obviously very honed in on your largest partner and their recent launch, Mm-hmm ... Sarepta. I know Sarepta is much more than just the DMD product. It's... And you've made some announcements on other programs you have with them. I know you can't talk a lot about it. If there's anything you'd like to add, that would be great, you know, that you haven't already said. What you've said is probably all you can go. But I am curious, very specifically on the BWI facility and what you're doing there in terms of, you know, maybe not as impactful, perhaps, as Bloomington, but still a facility that's been in the headlines quite a bit, and I'd love to get an update on where you are in the progress with, getting that facility back to full productivity and what the outline is for the next year. Sure. Yeah. The way I would summarize is BWI is currently where we desire it to be and where we expect it to be. In terms of productivity, in terms of performances, it's exactly where we wanted it to be at this point in time of the journey. This doesn't mean that we don't have further opportunities to drive growth and also accretive profitability, if you like. So now we are there in a situation where gene therapy is in line with the expected margin of the rest of the company. But I do believe that the reason why we enter also in these areas is because we wanted them to be accretive to the story of the company. So as we consolidate the foundations that we have created in the last year, painfully sometimes, we have set now a new foundation, and as we go forward, we can continue to drive utilization in the BWI. We continue to drive productivity. We're investing in digital there. There is a lot of digital technologies that is now coming into the process, like electronic patient record and others, which are really gonna drive the consistency and the productivity, and I do expect you know BWI to be accretive to the story going forward. You know, of course, we are, as anybody else, depending also on how the pipeline and the clinical results are gonna pan out in the future. But all that being equal, we expect BWI to continue to ramp. I want to hit on GLP-1s. I know you do. Everybody does. And if I don't, I get yelled at. It feels like it's a... I mean, look, I'll admit it. It feels to me like it's gonna be a much bigger driver ahead. My sense is that's probably six months or six quarters, not six weeks ahead, because things take time. Mm-hmm ... to get facilities where you need them to be, and transitions can be a, you know, exhaustive amount of work. I guess, first off, maybe you could just talk broadly about your prefilled syringe capacity or capabilities, however you want to frame that, on a global basis. Where are you positioned in prefilled syringes? Yeah, look, when I look at Catalent, call it a few years ago, we really had our prefilled syringe capacity mainly concentrated in one place, which is Brussels, and a little bit in North America. And when I think about now Catalent, Catalent now is starting to have a significant amount of prefilled syringe capacity almost in every site that we have for sterile fill and finish. And so that's great, and this is not a recent investment. Just to give you a little bit of historical perspective, before the pandemic, we did invest in vials, and that is what came to fruition during the pandemic with vaccine. During the pandemic, we decided to move on syringes, and this is what now is coming to fruition for GLP-1 and other therapeutic areas. So I believe we had the capability, call it luck, you know, however you wanna call it, also to be a little bit ahead of the curve of these dynamics. And so we are now bearing fruits. These dynamics and these investments are bearing fruits. I do believe that, you know, going forward, as we bring this capacity and we take tech transfer in, these products, I would say the majority of our fill and finish capacity is gonna be with GLP-1 going forward. How long does it take to build a new suite, a new build? I mean, a building would obviously... A new campus would be a very different story than- Yeah ... add-on capacity in an existing spot. But how long does it take from start to finish? You make the decision: we want to add prefilled syringe capacity, perhaps transition from vials or transition from another product line. From the time that decision is made, how long does it take to renovate, implement, get approvals, and go to production? Yeah, that's a great question. So look, it really depends on the starting point, right? You can start from no facility. You can start from a facility that is not fitted for a sterile suite. You can start with a sterile suite which needs to be- Transitioned ... equipped with a line and then transfer on the line. And so the timeline is very different. So I would say, I would tell you, let's speak about the engineering range, which means, start before even a product touches the line. At that range, depending on the different scenario, can go from, you know, two years to 40 years, right? Depending if you are a facility or you have no facility, or you have a facility with a suite. But I would say in the best case, you have the suite, you want to put a new line in, you want to qualify the line, that is a two-year horizon, call it. And then you need to start your tech transfer activities, which takes, you know, probably the best part of another year. So it's a really long process to bring these new capacity online, and that's why you need to start, you know, ahead of time. When you think about where we are today with GLP-1, some of those activities started, you know, a few years ago. So... What we're seeing in terms of capacity capabilities over the next several quarters or several years are really things that you began- Yeah ... several quarters or several years ago? Totally. If you chose to do something fresh today, pick a new city, a new country, build a plant, go in, it's many years. Yeah. Yeah. It is. All right. It is. Yeah. So I have one more follow-on on GLP-1s that you just said, look, eventually, maybe most of your prefilled syringe capacity, maybe all of it, will be GLP-1s at some point, or the vast majority. Doesn't that squeeze out all of the other manufacturers that have prefilled syringe needs in other therapeutic categories? And aren't there knock-on effects across the industry? I mean, I have to think the demand for this space is tremendous, and, you know, maybe I'm not as current on how you do pricing or how the market operates right now, but one would think that tremendous demand, limited supply pricing could actually be quite favorable. And I know that's not always the answer, but So look, first of all, the reason why I use the word majority and not the largest majority or all of it is because I do believe it's gonna be the majority, but I do believe that GLP-1 is not the only interesting therapeutic areas that will need fill and finish capacity for what it matters, prefilled syringe capacity. So I do believe that we need to keep our options open to serve also other areas of the industry, because you never know, right? So it's important always for us to maintain a balanced, diversified portfolio. It's always been a strength of the company. And look, you know, when you think about the company today, that there's a high concentration of revenues on a couple of customers, this was not the history of Catalent. You know, up to a couple of years ago, Catalent didn't have one product that was more than 3% of the revenues. So I believe that's a strength of the portfolio. It gives resilience and mitigate volatility. And so I do believe that as we look into the future, as... Of course, GLP-1 is gonna be a major consumer of our capacity, but we need to keep our options open as well. And with the pricing, look, at the end of the day, these are large customers, which have a portfolio of relationship with Catalent. With the large player like Catalent and you have touch points in many different areas. And so pricing is always a consideration of the specific circumstances you have in that field, as well as managing the overall relationship. Yeah ... with the customer. So I would tell you, it's, it's unhealthy pricing, of course, because of the dynamics, but, you know, you got to resist the temptation of being a penny-wise and pound-foolish. Yeah, understood. COVID is roughly a $500 million headwind this year. Very high margin last year. Mm-hmm. I know I've tried to pressure you a little bit to talk about the margin profile. I don't suspect we're gonna fully get there, but, tremendously higher than the firm average right now. And, I'm just. I'm curious, when we, when we think about moving past fiscal 2024... you won't have that same headwind repeat in- Mm-hmm. Fiscal 2025. So the abatement of this headwind is pretty significant. Is there any chance you'd wanna go a step further in talking about the margin profile, just to put in perspective, and I know it's hard across multiple sites and all the other moving pieces, but to help The Street put into perspective directionally where EBITDA might have been absent this $500 million high margin headwind that's happening in fiscal 2024? So I get probably instead of speaking of specifics, because it's harder to isolate the margin of a product, because as you well know, in a manufacturing facility, you have, at the contribution margin level, you can really isolate the product. But when it comes to absorption or utilization, there you are entering how the different products consume your infrastructures, you know, to simplify the words. So it's very hard to say what is gonna be the EBITDA of a product. Well, it depends how much other products are consuming the capacity, right? So clearly, COVID, that creates a short-term EBITDA problem. So when it goes away, because it drives so much utilization, is one product, one presentation that just runs. And to replace that absorption, you need to replace it with several products, with the changeovers, you need to become more efficient. So short term, it is a challenge. Long term, I would tell you that when you face... You know, when you rebalance your utilization, on the bottom line, I don't believe there is a disproportional impact, but again, you know, there is this replacement phase that is a little bit, tricky. End-to-end, I don't believe that the company today can go back to the same margin it had before, without-- There is no external factor that is preventing us from getting back to the margin. So again, it's, you know, because of the dynamic I described, it takes time, takes work, but something that is in your control. The $130 run rate after this year, is that a reasonable run rate for the next year or the year after? Hmm. Any idea? I think we'll know after the season. I think we'll have a real good handle on it. I don't think we really know enough today to know what to expect going forward. Yeah. I think this season will dictate. Like, you saw the CDC come out and recommend it, you saw some other countries recommend it, and I think at the end of the day, we'll see what the uptake really is, 'cause a lot of the medical community is not requiring it. One thing's for certain, there aren't expected to be take or pays this year, so the margin profile would be on, if you could isolate that 130, the margin profile would be pretty similar to the firm average, I would assume. I would say yes. Yeah. So, that's good. Free cash flow. I think this is a—for me, this has always been an interesting topic in the CDMO industry broadly, and it's nice to have new blood that can come in. Sure - and take a look at items like this. I mean, you've guided to neutral this year on free cash flow. As I think about... You went through several items on the last update, where you're starting to spend a lot of time, focus. Yeah. Some may come sooner, some later, but could we just start with, with contract assets and maybe first, again, kind of a novel concept, I know a concept you really didn't talk about a few years ago? Sure. There are a lot of folks in the room who may, maybe aren't as familiar what the concept is. Could you talk briefly about what contract assets are? Sure. How they've grown over time, and then I wanna hit you with a couple of questions. First off, we inherited contracts where we're making development revenue, so we record revenue on a percentage of completion basis. Yep. What that does is, it doesn't take the asset as we build it, it puts it into contract asset versus inventory. It's just like inventory, though. Okay. It sits on a balance sheet, and it grows. The production process for many of these products is long in duration, nine to 12 months. The way the contracts were written, and we inherited these contracts, is we get to invoice that at the end when they, when we release the product to the customer. So it's a nine to 12-month build process to build the actual product, and it sits in contract asset as it builds, so you get an increasing asset balance. Then when you invoice it at the end, say, one year later, it gets invoiced, it moves from contract asset to receivable, and we collect it. So it's got nothing to do with rev rec. There's no collection issue with this. We've validated that and went through that process. I think in the third quarter, we made sure and we went to clarify that for the investors. But that's really the foundation of it, and I said it's an inherited contract. Would I do the contract again? No way. And it was never really intended, 'cause I don't think we really thought it was ever gonna grow to this level, with the products that we had. We didn't think we had a nine to 12-month manufacturing process. We didn't think it was gonna be this valuable. I think going forward, there's an opportunity for us to hopefully look at that contract and look at ways to reshape that on a prospective basis, and that's how we're focused on it. So this number, for perspective, went from $23 million a handful of years ago to over $500 million- Yeah ... this quarter, but it did have its first sequential drop- Right ... this quarter. Yeah. I appreciate you saying that you would no way do this again. That, that was actually one of my biggest follow-up questions- Right ... is, would you even consider doing something like this again? But the company did do some of these contracts after that acquisition years ago. Right. There were some in COVID, I believe. True, true. So- I think the company did X back. As it grew over time, it became a bigger and bigger issue. I think through COVID, I think the attention went to COVID, and this other, these gene therapy assets were working through the system, and it kinda came up on the company, and it came to it as a significantly large balance. And by the way, one customer makes up a lion's share of that. Yeah. So- And by the way, without, without doing COVID, a couple of things. One, that the vaccines, they were, until the full authorization, they were categorized as- Yes ... development revenues, and so as such, they were recognized as a percentage of completion, which is, when a product is a commercial product, it's not the reality. And the process for the vaccines was much shorter, so it's not- Sure. ... it was nine to 12 months. Yeah. So the time to cash in that case was much shorter. It's just that the volumes were so high that at any point in time, you were carrying a significant balance, not anymore now, but the combination of getting it as a, you know, recognizing as development and the volume, so was for a period of time, created another balance that now is gone. So really now is really fundamentally around gene therapy. Are customers open to revisiting those existing contracts that you have? And do you have to make concessions if you wanna- So the idea would be, no, we don't make concessions. And I do think, like, even the customers, I don't. It was never understood that we had a 12-month manufacturing process. Yeah. And it's the way the contracts work, it's highly favorable to the customer. But there's an acknowledgment there, and I think. And we're partners. These customers are partners with us. I think you get the perception is that we're not working together. I think we work very collaboratively with the partners. We have to, and I think it's a an unreasonable position to be in for us. We're not a bank, so we don't, and we're behaving like a bank for the customer, and that was never the intention of the underlying contract. And I think there's an understanding there. Two quick ones in our remaining five minutes, four minutes, here, and then I'm gonna check the iPad for audience questions. You have $1 billion of trade receivables, 82-day DSO. Over time, your DSO is roughly 60-100 days. What are you gonna do different? What are you gonna do to bring DSO down, and how quickly can you attack that? I think there's a first-half opportunity for us when we look at the terms and conditions of our receivables and what goes and what falls past due. I think it's finance, and it's the commercial team, and what gets measured, gets managed. And it's as simple as that. And when you look at amounts that are past due from our customers, I mean, it's just an untenable position for us to have $1 billion tied up in AR, by way of example. So there's an opportunity there. I think across the spectrum, with inventory, with contract asset, and AR are the three primary balances. Yeah. There's over $2 billion of opportunity here. I think when we go and we look at all those opportunities- Two billions. Yeah, $2 billion of absolute value. That's not including payables, so I'm excluding payables from that. That's the total amount, it's not the opportunity to take- The opportunity, that's the total amount. Yeah. The opportunity is a subset of that. Yeah. But we can generate meaningful free cash flow, and it's all incremental to our guide, and I think that's the real focus area for us to look at. So from a receivables, inventory is another great place, too. We can talk about inventory for half an hour, of how we can bring down inventory and, and then obviously, the contract asset. Do you have a long-term hypothetical targeted free cash flow? I mean, I never look at this industry as a double-digit free cash flow yield industry. You're a growth industry with a lot of CapEx. Sure. But the last 10 years cumulatively were negative. Yes, we've never demonstrated free cash flow generation. So are we talking low single digits for the three to five-year CAGR, mid-single digits? I haven't established a target yet. Yeah. I think that'll be part of Catalent's approach going forward. I've got to see the art of the possible here. The only thing I'd say is this is all within the management team's control- Yeah ... and it's for us to execute. There's no macro out there, so there's nothing that's gonna influence us. This is us doing our work and then going to work and getting the money. And so I think it's Getting after it. All, all I can tell you, Eric, is that when I think about the biggest priorities of the company going forward are, number one, to establish the EBITDA margins through operational improvement and restructure the capital of the company so that we position the company for cash flow generation in the midterm. I mean, and both of them go exactly in the same direction. The higher the margin, the more EBITDA you generate, and the better the capital structure, the more cash flow we're gonna generate. And that's exactly what we're gonna go about, and you know, to achieve that target is gonna be a combination of you know, operational changes, but also, you know, strategic moves. All right. I have one from the audience, which perhaps with your activities this week, you haven't had a lot of time to think about it, but I'll throw it at you. There was a unanimous vote yesterday against the effectiveness of a key ingredient in nasal decongestants, which I'm sure are in. I have no idea, but I'm sure in dozens, if not hundreds of products over the counter across the globe. Any comments on potential impact or what might happen if, let's say, this key ingredient is pulled from the market and some of those manufacturers have to take product off the shelf? What happens in that kind of a scenario? Well, it's too early to assess, you know, what is gonna be the impact, because, you know, still variables are out there. Of course, we saw the news. We are assessing with our customers. It's too early to say anything about it. I'm just gonna tell you, look, as I said, Catalent, before gene therapy and in the legacy, Catalent, no one product was, you know, too impactful at the time. The company has a very diversified portfolio, so it's gonna to be a wait and see. We've seen some of those things happening in the past, and sometimes what happens is that it creates an opportunity for reformulation activities as well. Yeah. It's just too early to say, and we need to understand all this- It sounds like it didn't immediately rise to a level of- No ... of concern. No. Yeah. Okay, great. Well, everyone, thank you very much. You know, fantastic to have you guys here. No, thanks- I know it's a busy time- ... for having us. I really appreciate your effort. Everyone, please join me in thanking Catalent for the presentation. No, thank you. Okay, and just coming up quickly, logistically, I will stay here with Cardinal, which was one of my prior exposures to Catalent in the predecessor business. And we'll have Envista Holdings, Mersana, and Elephus in the private room. Thank you very much.