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Catalent, Inc. Reports First Quarter 2016 Results

The following excerpt is from the company's SEC filing.

Revenue increased 1% as reported and 11% in constant currency to $423.0 million from first quarter 2015; organic revenue growth of 9%

Adjusted Net Income increased 54% to $20.7 million from first quarter 2015

Launched the new OptiForm® Solution Suite platform at the CPhI Worldwide Conference, designed to pair the optimal, most innovative drug delivery technologies to each developmental molecule with the commitment to provide candidate formulations

Announced Dr. Donald E. Morel will be joining its Board of Directors

On October 29, 2015, Board of Directors authorized a $100 million share repurchase program

Somerset, N.J. -

Catalent, Inc. (NYSE: CTLT), the leading global provider of advanced delivery technologies and development solutions for drugs, biologics and consumer health products, today announced financial results for the first quarter of fiscal year 2016, which ended September 30, 2015.

First quarter 2016 revenue of $423.0 million increased 1% as reported and 11% in constant currency from $418.3 million in the first quarter a year ago. All three of the Company’s reporting segments posted constant currency revenue growth for the quarter, led by a double-digit improvement in the Development and Clinical Services segment.

First quarter 2016 net earnings attributable to Catalent were $9.1 million, or $0.07 per diluted share, compared to a net loss of $19.5 million, or $0.18 per diluted share, in the first quarter a year ago. The first quarter of fiscal year 2015 included one-time costs related to the Company's initial public offering (IPO) including a sponsor advisory agreement termination fee of $29.8 million. Additionally, the increase in profitability in the current quarter was partially attributable to a reduction in net interest expense due to the Company’s lower levels of outstanding debt compared to the same period a year ago as a result of the IPO during the first quarter of fiscal year 2015.

First quarter 2016 EBITDA from continuing operations of $72.2 million nearly doubled from $36.6 million reported in the first quarter a year ago.

First quarter 2016 Adjusted EBITDA, as referenced in the GAAP to non-GAAP reconciliation provided later in this release, was $77.6 million, or 18.3% of revenue, compared to $83.4 million, or 19.9% of revenue, in the first quarter a year ago. On a constant currency basis, first quarter 2016 Adjusted EBITDA of $83.8 million was in line compared to $83.4 million a year ago.

First quarter 2016 Adjusted Net Income, as referenced in the GAAP to non-GAAP reconciliation provided later in this release, was $20.7 million, or $0.16 per diluted share, compared to Adjusted Net Income of $13.4 million, or $0.13 per diluted share, in the first quarter a year ago.

"We are pleased to start the fiscal year with solid top-line results highlighted by constant currency revenue growth across all three of our reporting segments,” said John Chiminski, President and Chief Executive Officer of Catalent, Inc. “Looking ahead to the remainder of the year, we are confident that we will continue to benefit from our industry leading partnerships, service offerings, and technologies. We remain focused on expanding our market share and delivering value to our shareholders.”

First Quarter 2016 Segment Highlights

Revenue Highlights by Business Segment

Revenue from the Oral Technologies segment was $247.7 million for the first quarter of fiscal 2016, a decrease of 5% as reported, or an increase of 7% in constant currency, compared to the first quarter a year ago. This constant currency growth was attributable to increased demand for the Company’s softgel offering, partially offset by decreased end-market customer demand for higher margin offerings within the Company’s modified release technologies platform.

Revenue from the Development and Clinical Services segment was $122.9 million for the first quarter of fiscal 2016, an increase of 19% as reported, or an increase of 23% in constant currency, over the first quarter a year ago. This increase was primarily attributable to organic growth in the Company’s analytical services and clinical services offerings, as well as to revenue contribution from the Micron acquisition, which occurred in the second quarter of 2015.

Revenue from the Medication Delivery Solutions segment was $55.7 million for the first quarter of fiscal 2016, a decrease of 2% as reported, or an increase of 5% in constant currency, over the first quarter a year ago. This constant currency growth was primarily due to higher revenue from the Company’s blow-fill-seal technology platform and revenue from the completion of project milestones from its biologics offerings, partially offset by decreased demand for injectable products at the Company’s European pre-filled syringe operations.

Segment EBITDA Highlights

Oral Technologies segment EBITDA in the first quarter of 2016 was $51.1 million, a decrease of 11% as reported but unchanged in constant currency versus the first quarter a year ago. Segment EBITDA increased within our softgel offering primarily due to higher sales and more effective absorption of fixed costs through higher capacity utilization, which was offset by decreased demand for higher margin offerings within the Company’s modified release technologies platform.

Development and Clinical Services segment EBITDA in the first quarter of 2016 was $27.2 million, an increase of 27% as reported, or an increase of 32% in constant currency. This strong EBITDA improvement was primarily driven by increased sales across the segment and a favorable shift in revenue mix within analytical services. The Micron acquisition also contributed to the improved performance during the first quarter.

Medication Delivery Solutions segment EBITDA in the first quarter of 2016 was $7.8 million, a decrease of 21% as reported, or a decrease of 18% in constant currency. This decrease was primarily attributable to lower demand and an unfavorable revenue mix shift from injectable products at the Company’s European pre-filled syringe operations and incremental cost investment in the Redwood Bioscience business. These decreases were partially offset by increased profits generated by the Company’s blow-fill-seal technology platform and its biologics offerings.

Additional Financial Highlights

First quarter 2016 gross margin of 28.7% declined 130 basis points from 30.0% in the first quarter a year ago. The decrease was attributable to an unfavorable shift in revenue mix within the Company’s Oral Technologies and Medication Delivery Solutions business segments.

First quarter 2016 selling, general and administrative expenses were $82.2 million and represented 19.4% of revenue, compared to $81.4 million, or 19.5% of revenue, in the first quarter a year ago.

Backlog for the Development and Clinical Services segment was $430 million as of September 30, 2015, a 3% increase compared to the fourth quarter of fiscal year 2015. The segment also recorded net new business wins of $129.5 million during the first quarter, which represented an 8% increase year over year. The segment’s trailing-twelve-month book-to-bill ratio was 1.1x.

Share Repurchase Program

On October 29, 2015, the Company’s Board of Directors authorized a share repurchase program to use up to $100.0 million to repurchase shares of its outstanding common stock. Under the program, the Company is authorized to repurchase shares through open market purchases, privately negotiated transactions or otherwise in accordance with applicable federal securities laws. The Company currently intends to conduct all open market purchases in accordance with the “safe harbor” provisions of Rule 10b-18 under the Securities Exchange Act of 1934. The repurchase program has no time limit and may be suspended for periods or discontinued at any time. The number of shares to be purchased and the timing of purchases will be based on the level of the Company’s cash balances, general business and market conditions, and other factors, including legal requirements, debt covenant restrictions and alternative investment opportunities.

Balance Sheet and Liquidity

As of September 30, 2015, Catalent had $1.9 billion in total debt, essentially unchanged compared to the debt level as of June 30, 2015. As of September 30, 2015, Catalent’s leverage ratio was 4.0x, compared to 3.9x as of June 30, 2015.

Fiscal Year 2016 Outlook

There is no change to Catalent’s previously issued financial guidance. For fiscal year 2016, the Company continues to expect revenue in the range of $1.81 billion to $1.90 billion. Catalent expects Adjusted EBITDA in the range of $434 million to $457 million and Adjusted Net Income in the

range of $203...


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