Hi, this is Paul Knight. I am the life science analyst at KeyBanc, covering West Pharmaceutical. I'd like to welcome Bernard Birkett, the Chief Financial Officer, Senior Vice President of the company. Quintin Lai, Vice President and Head of Investor Relations. The format will be, I think, Quintin will may say a couple of words to kick us off. And then, we do have a Q&A screen, so you can use that on your device, or you can email me as well, paul.r.knight@key.com. So either way, I'll be able to see your questions. But thanks today, Quintin, really appreciate your time. And thank you, Bernard. Well, thank you, Paul, and thank you, and thank you, KeyBanc, for the opportunity. We really appreciate it. And, Paul, you're one of our long-standing analysts, and we appreciate all the coverage that you've provided us. For those of you who are new to West, I'll just give you a quick overview. The company is the global leader in primary packaging of injectable drugs. So let me parse that out and break it out. Primary packaging, it is packaging that is directly in contact with the injectable drug. Because it's directly in contact, that means that it's highly regulated by the global regulators that are overseeing the drug customers to make sure that the drug package is compatible, and stable, and reliable over the life of when that drug will be stored. We are global. We operate in 25 sites all around the world. We have operations in North America, Europe, Asia, South America, and it matches up with many of our customers, who are also multinational as well, that are looking to expand their drugs beyond just their home country and into other regions. Injectable drugs, that is our primary focus. We don't focus on solids, we don't focus on nasal. We focus. We believe that the intricacies of packaging and delivering injectable drugs provides us plenty of opportunity to add value to our customers and to create value for our shareholders. You know, with that, Quintin, I'll start off the questions. You know, this year, destocking, of course, has been the topic for, I would say, a year and a half. Any, any new color on how you see that unfolding? I think your guidance for the year assumes kind of a full year still happening, but any color around that, for you or Bernard? Yeah. Thanks, Paul, for the question. You know, just following on from what we said, you know, when we gave guidance initially, that we do see the impact of destocking primarily, you know, happening in the first quarter for us, and then, you know, bleeding into the second quarter, we expect to see some, but not to the same amount. And then as we get into the back half of the year, we do see us getting back to operating within our revenue long-term construct. And so we expect to see that picking up. Again, as we said, you know, in February, then we were able to look at a certain cohort of customers, which, you know, had the biggest impact really around destocking for us. And we've had a lot of conversation with those customers around that and understanding, okay, what were the main drivers, and then when do we expect to see things normalize? And when we look out into the second half of the year, and we've looked at our order coverage as a percent of our forecast, we see that getting back to, you know, pre-pandemic levels, maybe a little bit ahead in some instances of that. So I think, you know, it's really kind of a first half of the year, I think for us, and particularly here in the first quarter. Order is already better, did you say, Bernard? Yeah. Well, in February, it was... You know, when we talked about it, looking at our order coverage as a percent of forecast and comparing it to pre-pandemic levels, you know, for the back half of the year, we saw it a little bit ahead of that, of where we were pre-pandemic on it. So it's really looking at, you know, trying to take out COVID and looking at normalized, you know, trading conditions. Do you think about a customer's lead times? Do you think about lead times? Do they want a four-month lead time? What is it now, or do you even look at that metric? Yeah, we, we. You know, that's something that's high on our radar, given what we've experienced over the last number of years with COVID, where we saw some of our lead times actually go out past 50 weeks based on, you know, demand within certain areas of our business. And to counter that, you know, we, we, we typically target around, you know, on average, 12 weeks, lead times. Now, some are lower than that, and some are higher, depending on the product itself. And, you know, we, we know we needed to get back to those levels, and we're, we're pretty much there at the moment, through, you know, the COVID demand dropping off, and also we've layered in capacity into some of the areas where we saw bottlenecks, and we're extending our lead times. We continue to do that in certain areas, but, you know, we've made a lot of progress to 2023, through 2023. And what we're actually seeing is that the order patterns for our customers, again, are going back to pre-pandemic levels, so they're not placing orders as far out as they, you know, they had to during COVID times to make sure that they got product and were in the queue. So it's—I think it's better for us. It allows us to plan more effectively, and it's also better for our customers as they're able to manage their inventory over those shorter lead time periods. Okay. And, you know, one thing that, you know, as we look at your historical results, your proprietary delivery systems group was in 2022, it was 157 million. It was 307 million in the year 2023. What are the products within this proprietary delivery market? And I believe that's out of Arizona, is it not? Yeah. So there's a number of products in that category on delivery systems and admin systems. So you're looking at products like CZ, you're looking at products like Smart Dose, Self Dose, and admin systems themselves. So we have seen, you know, traction in a number of those areas over the last number of years. Now, we're still somewhat constrained within our Smart Dose product portfolio at the moment. So the demand is outstripping our ability to supply right now, and we're layering in, you know, extra capacity to be able to meet that demand. Now, we see that coming in later in 2023. It's a little bit later than we would have forecast, given the complexity of what we're trying to deliver on. But that's they're the main areas within that product platform that you just mentioned. That is not GLP-1 type product to be delivered, is it? No. Okay. And then, you know, I guess the topic of interest always is GLP-1s. What are you seeing in that market? Is it early days? Is it... And what are you doing to meet meet demand there? And I, my part of that question, too, contract manufacturing seems to be involved in GLP-1s. What happens in the contract manufacturing business? Yeah. So there's, you know, we can participate in a couple of different areas on GLP-1 through, on the elastomer side with plungers and lined seals, and then, on the contract manufacturing side through, delivery devices. Now, they're not our delivery devices, they're devices we build on behalf of other people. So there are a number of areas, you know, that we can participate in. And, you know, the capacity that we're layering in in certain areas can service those industries, but the capacity that we have is really agnostic and can go across many different areas and products. So, you know, we continue to look at, you know, where the demand is coming up from a number of different areas, and to make sure that, you know, we have that capacity in place, when that demand comes through. Whether, you know, sometimes we have to wait for, you know, look at reimbursement, we have to look at supply chain beyond us as to see when demand will actually materialize. But for us, it's making sure that we have the capacity in place, and we continue to do that right across our business. You know, Quintin, do you want to add anything to that? Yeah. With respect to kind of your first question, given that the... We really, as just a company policy, we don't really comment on specific drugs or specific customers, and the drug that you talked about really is concentrated with just a couple of customers. You know, we don't have any comment on what the growth outlooks are. We would recommend, you know, talking to the drug customers themselves. Yeah. Yeah, got it. Of your capacity expansions, dollar-wise, over $300 million, where and what are they targeted for currently? Yeah. So we're about 70% of our CapEx is targeted towards growth initiatives, and really, within our proprietary business, that's focusing around high-value products and across our high-value product network. So we have... You know, there's five sites that we look at in that area, so Jersey Shore, Kinston, Eschweiler, Waterford, and Singapore. And we continue to layer in capacity there, and it can be focused on certain areas within our business. There are certain processes within there, so you're looking at pharma wash, you're looking at Envision. And again, so it's, it's to really focus on not just one area or one product platform within that, it's, it's right across the network. So there are many drivers or of our high-value product portfolio. And then we're also currently expanding within our contract manufacturing segment at the moment. We have two areas of focus right now. One is in our Grand Rapids facility in Michigan, and then in Dublin, in Ireland, we have a facility under construction, which will be completed, you know, more or less in July of this year. And then it obviously has to get validated before we go into production. In this contract manufacturing, are you taking parts that are made by yourself and others to create a delivery system like a pen or an auto-injector? What's being made at this contract manufacturing site, kind of in general, Bernard? ... So you're looking at the injectable pens and some of the components for those products, not all. And then there could be some elements of products that we manufacture ourselves that get incorporated into those products. Yeah. Hey, Bernard, I want to ask a side question. Now that you've been in the life science technology part of the market for medical device, how do you like it? Um- You didn't like- I enjoy it. Well, I came from a med tech background, so I hope I enjoy it at this stage. I've spent long enough in it. But it's, you know, there's a lot happening in the space, so it's an exciting place to be. Right. You know, that gets probably to another question, and that is, you know, you're, you know, where is the most activity? I'm sure GLP-1s are active, but, you know, how is the strength of what used to be the core market of, monoclonals? What's the strength of the cell and gene therapy market? You know, anything that kinda looks to be like, good as usual, or you're really outstanding in terms of new, new growth rates? Let me step in on some of that. You know, to us, being a life science tools company, having thousands of customers, being involved with many of the injectable drugs that are being sold in the U.S., Europe, and in Japan, it means that we have to have a kind of a very broad landscape of looking at technologies and capabilities, because as you just mentioned, the landscape continues to change. So, large molecule research continues to be robust. There's a strong pipeline, and so on our biologic side, we continue to feel very positive about the future. And you know, many of those drugs, because of the sensitivity of those molecules, are going to want our highest value products, like NovaPure. And then as those drugs mature and become more prevalent, then they may start to go into dedicated delivery devices. And if they go into an auto-injector, we can either participate through contract manufacturing. We also sell our own auto-injector, and we also have wearable devices that for drugs that can't be formulated down to one cc, if they need to be down to 10 milliliters, then you're probably going to be looking at a wearable device, and that gives us a SmartDose. We're also involved with all the new and more things like gene and cell therapy. A little bit less so in cell therapy, because that's mostly bagged product for the cells. If they're looking to deliver cells in maybe smaller volumes, whether they be in vials, then maybe we can get involved there. On the gene therapy side, they very typically use our best products. And so you're talking about NovaPure, they're talking about CZ. The only difference there between that and biologics is the volumes right now in the cell, gene therapy are really small because of the patient cohorts that they're going after. You know what? A couple of questions. Number one is, this is for the operator. Somebody's video is stopped, so I don't know if you could look at that from one of the participants. The other question is, regarding your 12-week lead times, Quintin, that's kinda normal, right? I mean, it was much longer during COVID. So I think what you mean by the positive aspect of 12-week is it would suggest maybe destocking is subsiding. Is that kind of the implication? You know, we go from more than 12, down to 12, we're kind of getting past destock. Is that the right way to think about it? I don't think so. I wouldn't say that necessarily. I think our target was always to get back to, you know, that 12-week lead time, and as I said- Yeah ... lower in some instances, and sometimes it's a little bit higher, but that, that's the run rate that we actually- I got it. want to be able to run with. And, and that's what our customer's expectation is. Got it. Okay. That's not really around destocking. Okay, got it. You know- Well, that said- Yeah. You know, a customer waiting 50 weeks is what you're saying. Yeah, they shouldn't have to be waiting 50 weeks. And- Yeah ... so that, that is, in essence, you know, why we also had to put a increase the level of capacity that we have around certain parts of our operation to be able to meet those lead times on a consistent basis. So that's, you know, that's the cadence that we want to run at. Quintin, you were going to add something there. Yeah. I mean, look, one of the things, and again, destocking, inventory management, whatever you want to call it, I think that there is a function of that, is that, look, when lead times extend of a product that is very critical, not easily switched, then companies who are reliant on these critical components will probably add more safety stock. As they get more confidence in the supplier of being able to get returned to more regular lead times and delivery times it allows them to manage their inventory. Yeah. And so, I mean, you know, it's kind of the effect. And so, you know, we're working through that. But we believe that that is what the industry needs, that's what they expect. And when we take a look at drug customers today, quality, availability, scientific, and regulatory support are the three main drivers for all their decision-making. And, you know, as we're looking ahead toward the future, we want to make sure that we ping very well on all three parameters. And I think that's important to understand, you know, people ask, why are we deploying so much capital? You know, part of it is to make sure that we have that capacity in place, so if a spike in demand comes, that we have enough headroom to be able to respond to that within our normal lead time range. So we don't get lead times being pushed out to 50 weeks if something, you know, happens within our industry or sector. Yeah. We'll always be able to supply within that 12 weeks, so we don't get these whipsaw effects. Again, you know, that's part of the thinking and that's, you know, the experience that we have had in COVID has taught us a lot on how we manage our infrastructure and network optimization, and then managing that supply chain with our customers. And then, you know, kind of talking growth dynamics, of course, GLP-1s, of course, we've had a record number of biologic approvals. What play do you see rules like Annex 1? I guess the better question, really, in my view, is customers seem to want to go to pre-sterilized products. What portion of the market do you think is pre-sterilized today, Bernard or Quintin? Yeah, so I'll start with that. Maybe let's look at it from the way that we like to look at it. So today, approximately 75% of our proprietary product volume is standard, and 25% is HVP. HVP starts at pharma grade wash. It can then go to pharma grade wash and sterilization. It can go to pharma grade wash, sterilization, and Envision. It could go to FluroTec coating, it could go to NovaPure quality by design. So those are kind of the rungs that you have on the HVP component side. Yeah. There is, you know, quite a bit of product, especially from our pharma and generic customers, that have been purchased in an, what we would call bulk unwashed state. Yeah. And that they wash, and they sterilize. And they're using formulations that were used decades ago, and they've been grandfathered in. As you look toward things like Annex 1, and, you know, it's just one of others that continue to, regulatory bodies are looking at to raise the bar for quality for their, the patients in their region. As you do that, you're gonna start looking at contamination, particulates, reliability. And so with that, you know, there's gonna be a re-examination of a lot of the different, packaging out there. And what we said on the call is that, you know, we estimate that several billions of our components that we currently sell could be affected by Annex 1. Super helpful. What's the margin difference between standard and high-value products? Yes, as standard products, you know, you could be looking in them between 20%-30% margin on those, and then on the high-value products, you know, it depends where it is on the high-value product curve. You could be, like, north of 40%, all the way up to 70%-80% margins on NovaPure, depending on the configuration. So there's, you know, there's quite the differential there from a margin profile perspective. And then, you know, when we look at our long-term construct and the operating margin expansion, you know, that mix shift along the HVP curve is, you know, one of the key drivers there. Within your long-term growth rate, Bernard, of, I believe it's what? seven-eight. seven- nine. seven-nine. Top. Yeah. You raised that, I remember. The high-value products growth rate is what, do you think? You're getting, like, double-digit growth within high-value products, you know, within that construct. And primarily, we see that, you know, taking place within our biologics market unit, where we see, you know, double-digit growth for that platform, and it's predominantly high-value products. And then from the generics perspective, you know, we see about half of that is high-value products and with potential to expand that. And then from the pharma market unit, you know, which is our large, we're seeing kind of a lower level of penetration there on high-value products again, but with the opportunity to shift, people up the high-value product curve, within that sector over time. ... One question that is this, what does several billion mean? You know, again, it's an It's too many to count, right? I mean, that-- look, the one thing as you look at impacts of potential regulation, timing is always indefinite. Regulators and drug customers, you know, have conversations about when things will change. So, you know, what we do is that, you know, we take a look at the long term. We look at the trends that are going on. We look at not just, you know, one regulation, but we look at also others that are being considered and are going through comment period now. And what we do is we say: What do we need to be ready with? And as we look at it, as we look at our portfolio, we say we need capacity on washing, on sterilization, on Envision, and that's what we've been doing. So for those of you who, who may have visited our Kinston site, you would have seen expansion there. You know that we, we talked on the call about expansions that we're doing at Eschweiler, another HVP site, as well as Jersey Shore. And again, all of that, you know, we're taking a look at is just trying to be ready. And the key for us, as Bernard kind of alluded to, is that customers need to be confident that if they do switch and they do move up the curve, that our lead times will be appropriate and that we won't see any elongation of lead times. Because, again, you know, the when they do make these switches, it's gonna be switches of products that are for their critical drugs that they sell. So, you know, that, that's how we're building it all. You know, it's not like that we're trying to say a point in time, a point in space, but, you know, we understand that this industry does move. It does move in one direction, which is higher quality, and that's what we're preparing for. A question on this side coming in is: What is Envision, Quintin, and what's a pricing on Envision? Envision is when you take a... You send every component through a robot that has 14 different views, where you sit there and you try to take a look at dimensional defects, contamination, fibers, and essentially just a higher level of visual quality. And there's no real price to that, I mean, because it all comes down to an upcharge relative to where you're at. So depending if you're doing an uncoated versus a coated versus a NovaPure quality. So think of it kind of more as, you know, a value add, as opposed to just a set price. Okay, but an Envision inspected product, so to speak, will be, you know, it'll be a little costlier, whether it's standard or a high value, right? I'm sorry, say that again? If a product has Envision inspection, it's going to be a little more expensive than other types of products. Is that the right way to look at that? That's right. That's right. So, I mean, just, you know, the general way to think of it is that you go from a standard bulk product to a washed product, to a washed and sterilized, to washed, sterilized, Envision, or washed, Envision, sterilized. Yeah. You know, a question that I seen, I think is kinda appropriate: We see expansions going on in fill finish globally, and, you know, expansions of glass manufacturing. It seems to be that there's geographic centers that attract kind of this concentration. Does it matter for you, or are you more geographic agnostic, and you can ship your product to wherever easier than it seems to be for these centers of excellence in maybe Carolina, Indiana, Italy, Germany? What's your view on how you want to expand geographically? Well, I think the way, you know, or I believe the way we're set up right now, and if we look at our HVP network, we have two sites in the U.S., we have two sites in Europe, and we have one in Asia. And so it's making sure that we're expanding in each of the geographical areas to support growth in any market. So we're not just focused on one area. So obviously, we're looking at where our customers want to expand and where it's most appropriate to supply product to them from. And again, that ties back into, you know, managing our supply chain and de-risking it for our supplier and then optimizing our network. So, you know, we are cognizant that we don't want to be shipping product all over the world either, because that can add to your lead times, and it becomes more efficient. But it's so it's, you know, strategically, when we thought about where to expand, you know, that that was part of the consideration. So that, that, that wouldn't be something, you know, new for us. As you think about adding capacity, this is a question from somebody, how many years ahead of demand do you want? What do you, what is your preferred lead time? As you're ramping, you know, doing a lot of CapEx this year, whatever, next year, do you want it to be 12 weeks? Do you want it to be 6 weeks? What's the goal? The lead time, you know, it's going to vary per product, depending on the number of processes obviously involved. You know, for some products, it could be six-eight weeks, and then others it's 8-12, and then 12-16. Again, it depends on what the product platform is. But when we're looking at layering in capacity, you know, we have a five-year horizon that we look at. And then we also have to consider when we're putting that capacity in place, you could have 12-24-week lead times on the equipment itself between ordering it, getting it in, and getting it up and running. So we're always looking a couple of years out to make sure that, you know, we have that capacity in place, and also in certain areas, you know, that we have built in a little bit of headroom capacity beyond that we would normally carry, just to make sure that we can respond to spikes in demand at any point in time. So it's, it's not a simple, straightforward answer. There are a number of different things you've got to consider and factor into it. But it's understanding, primarily for us, the length of time it takes to put capacity in place. It's not something you do over a couple of months, so we always have to be planning years ahead. Right. And to kinda, to begin what you said earlier, you're thinking in the second half of the year, you're going to generally be at target inventory levels, lead times, right? Well, from a lead time perspective, you know, we're pretty close to where we need to be already. Okay. And so, we were starting to see that as we were getting to the back end of 2023. And, you know, then now it's, it's working with customers to make sure that, you know, we fully understand their forecast and when they want that delivered on. And, you know, that's something that, you know, we do on a regular basis. We have regular updates around that. So again, it's just working with through those partnerships. As you scale high value add products, Bernard, is the margin coming from gross margin expansion, leveraging SG&A? Is it half and half? And I think the goal in the past has been, what? 100-200 basis points, potentially a year. 100 basis points a year. Yeah. Nice try. So 100 basis points a year, if we can do better, you know, we're always gonna try to do that. The biggest driver on margin for us is mix shift. And then obviously, we've—you've got some pricing in there, and then you've got, you know, operational excellence. And then we probably, you know, target around 10-20 basis points from SG&A and OpEx. But really, the big driver is mix shift and moving up that HVP curve. Okay, got it. 10-20 bips from... Great. We have just a couple of minutes here left. Just checking. Sorry. One minute remaining. Any, you want to make a few closing remarks, Bernard? I know you've got a few more meetings ahead of you, but, you know, we have a few seconds left here. Yeah, yeah, you know, when we look at our business and we know we're going through, you know, a year where there's a couple of headwinds that we're facing here, but, you know, it's really getting back to that long-term construct and operating within that. You know, that's the target. We believe we have the capacity in place. You know, we're not relying on one specific thing to drive that 7-9. You know, there are a number of different levers to drive revenue growth. We've got, you know, volume, which is, you know, pretty predictable over the long term. You've got pricing 2%-3%, and then you've got mix shift. Even within that mix shift, there are a number of drivers, again, to, you know, allow us to create that expansion of revenue growth and OpEx margin expansion over the next number of years. You know, we continue to focus on that and execute. Awesome. Well, we appreciate your time, Bernard. We like your background a lot. It might be in first place right now, so appreciate your time. Thank you. Glad you like it. Thanks, Quentin. Thanks, Paul. Bye. Thanks, guys. Take care.