Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2022 Second Quarter Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Introducing today's conference call is Mr. Matt DellaMaria, Senior Vice President of Investor Relations and Communications. Please go ahead, sir.

Thank you. Hello everyone and thanks for being with us today. Joining me on today's call are Stephan Tanda, President and CEO; and Bob Kuhn, Executive Vice President and CFO. Our press release and accompanying slide deck have been posted on our website. If you are following along on our website, you can advance the slides by hovering over the presentation screen and clicking on the arrows on the right and left. As always, we will post a replay of this call on our website. Today's call includes some forward-looking statements. Please refer to our SEC filings to review factors that could cause actual results to differ materially from what we are discussing today. I would now like to turn the conference call over to Stephan.

Thank you Matt, and good morning everyone. We appreciate you joining us on our call today. Some of you may be aware that Matt will be retiring at the end of this year after 32 years of dedicated service to Aptar. We are thankful for Matt's leadership and will have time to wish him well over the coming months as he transitions his role to the experienced and very capable hands of Mary Skafidas who joined us just a little over a month ago. Mary joins us from the Loews Corporation, where she most recently served as the Head of Investor Relations, Corporate Communications and ESG for many years and has prior leadership experience with McGraw Hill and Toyota Motor. Now let's turn to slide 3. As you can see, Aptar delivered a strong second quarter. Each of our segments contributed positively to our top line growth for the quarter, as well as for the first half of the year. Growth in our second quarter was achieved by increased volumes and pricing initiatives. Our team achieved this solid performance during an exceptionally dynamic and uncertain period. I think it is important to note that we are very well-positioned for continued growth. The areas of our business that were negatively impacted by the pandemic such as our prescription drug, consumer health care, and beauty solutions are now recovering. We are investing in capacity in our pharma and beauty segments following our regional manufacturing strategy that will allow us to grow with our customers as they also benefit from life returning to a new normal. Our CFO Bob Kuhn will review some details from the quarter later on in this call. But first, I would like to touch on some highlights. Aptar Pharma achieved double-digit core sales growth with increased volumes across all our major health care markets. Our prescription business has worked through the 2021 destocking situation and is ramping up towards pre-pandemic levels. Higher sales of our delivery devices for allergy, emergency, and pulmonary medicines drove the growth in the prescription drug market. As many people around the world experienced cold and cold-like symptoms including from COVID-19 Omicron infections, demand for nasal decongestion and other cough and cold treatments increased briskly in the consumer health care market. Demand also increased for our injectable medications components and Active Material Science Solutions even with tough year-on-year comparisons. Profitability in our Pharma segment is within our target range and includes the previously anticipated dilutive impact from our recent digital health care acquisitions and some start-up costs related to our expansion of our elastomer components capacity, which is on schedule and expected to progressively come on stream starting in late 2022, throughout 2023 and into early 2024. In our Beauty + Home segment, increased demand from the beauty and personal care markets, as well as our pricing initiatives, contributed to double-digit core sales growth. We saw significant year-over-year sales increases in prestige fragrance, facial skin care, color cosmetics, hair care, and sun care. Beauty + Home margins are recovering in Europe and China, but are being held back by continued labor shortages in North America and uneven demand in Latin America. We will not be satisfied until we move within our long-term target range and we will continue to diligently manage our costs while we prepare to implement further price adjustments to recover the input cost inflation. Finally, growth in our Food & Beverage segment was driven primarily by pricing with volumes up slightly. A softening of demand in the food market especially in the US, following a period of strong growth was offset by increased volumes in beverage. Margins reflect the weaker food volumes, as well as the effects of inflation. Turning to Slide 4. I want to take a moment to talk about a key priority for Aptar, capital allocation. We deployed over $3 billion in the past 5.5 years, balanced across investing in our business, making acquisitions, and returning capital to shareholders in the form of dividends and share repurchases. In the first half of 2022, we had capital expenditures of approximately $150 million. The majority of these expenditures were in our Pharma segment, including expansions in the US, France and China. We also returned over $100 million to shareholders through dividends and share repurchases. We are in our 29th year of paying an increased annual dividend total, and we have repurchased shares every year since 1999 except, of course, for 2020. Moving to Slide 5. Another steadfast focus has been ESG. And we are pleased to share the many milestones and achievements surrounding our progress in 2021 with the release of our annual corporate sustainability/ESG report, which is prepared in accordance with the global reporting initiative standards and shows our alignment to the UN Sustainable Development Goals. We also published our second UN Global Compact Communication progress report. In addition to publishing new summaries for SASB, the Sustainable Accounting Standards Board, and TCFD the Task Force on Climate-related Financial Disclosures. We are actively working toward a more sustainable future for all, as we develop faster ways to deliver critical medicines, enable families to recycle more plastics and improve our operations to reduce greenhouse gas emissions. This priority is not only good for our planet, but it's good for business, helping us mitigate enterprise risk, and I'm convinced helps us future-proof the company. Aptar is known for its focus on innovation, quality, and services that go far beyond drug delivery, dispensing, or packaging. Our technologies are often used across a number of markets we serve and we participate in a number of new product introductions each quarter. Turning to Slide 6. Our Pharma segment continues to supply nasal delivery devices for the administration of emergency medicines, such as the opioid overdose antidote naloxone, where we supply the leading brand as well as several generic players. A new acne dermal medication recently came to market with our ALS pump system. Also, our components for injectable medications have been chosen for use with a variety of drugs in the US. As shown on Slide 7, in the beauty market we supplied solutions for several new launches in the quarter, including multiple new fragrance launches in Europe and Latin America and facial skin care and hair care products in Asia. Regarding China specifically, our multinational Western customers who are doing business there, as well as our local customers, are quite bullish as things begin to open up and we were encouraged with the level of activity we saw in the quarter. Also on slide seven in the food and beverage markets, we continue to see squeeze performance come to market using our custom pouch treatments and flow-controlling closures, while we help a local Chinese food company launch a new powdered milk infant formula using our sealing and dispensing closure. We also are encouraged by the demand for our foodservice trade technology which can enhance freshness and extend shelf life and have been adopted by a major fast food chain in the US. This latest product is from Aptar CSP Technologies, a company we acquired in 2018. Many of our shareholders know this part of the business because of the extraordinary growth it achieved during COVID supplying test kit manufacturers with its Activ-Film technology. Another application of its film is for protecting and extending the shelf life of food. This is a great example of selling one technology across multiple end markets. And these are just a few examples of some of the new applications brought to market with our solutions in the quarter. With that, I will now turn it over to Bob who will share some additional comments on our quarterly results. Bob?

Thank you, Stephan and good morning everyone. I would like to summarize the quarter starting on slide eight. Even with the considerable currency impact this quarter, our reported sales grew by 4%. When you equalize the effects of currencies, Aptar had solid core growth of 10%. Approximately half of the increase was driven by volumes and the remainder driven by price initiatives implemented across the majority of our markets. While sales were positively impacted by these pricing initiatives margins remain compressed as costs are being passed through on a one-for-one basis. As shown on slide nine, we achieved adjusted earnings per share of $0.96 and adjusted EBITDA of $160 million. We continue to face ongoing inflation, supply chain disruptions, and labor shortages, primarily in the US. If we isolate the net inflation impact including the margin compression impact from passing on the higher cost, our consolidated adjusted EBITDA margin of roughly 19% would have been approximately 100 basis points higher in the quarter compared to the prior year. While we continue to make progress with our pricing initiatives, we have not yet fully recovered the prior year's cost increases. For a more balanced comparison, keeping exchange rates constant with the current year and adjusting for restructuring and acquisition costs, the prior year's second quarter earnings per share would have been $0.85 per share compared to our adjusted EPS of $0.96 for the second quarter of 2022. The year-over-year improvement was driven by strong results in our Pharma segment and continued recovery in Beauty and Home. Slides 10 and 11 cover our year-to-date performance and show the 11% core sales growth in our adjusted earnings per share, which were $1.92 compared to $1.89 a year ago including comparable exchange rates. Turning to some of the details by segment for the quarter. Our Pharma segment's core sales increased 12% with approximately 9% coming from strong demand and 3% coming from price adjustments related to inflation cost recovery. Pharma's adjusted EBITDA margin was 33%. Looking at sales in each pharma market, prescription core sales increased 15%, primarily due to the continued recovery in demand for allergy, emergency medicine, and pulmonary drug delivery devices. Consumer health care costs increased 13% on strong demand for devices used primarily with nasal decongestants. Our elastomer solutions for the injectables market grew core sales 9%, primarily due to higher volumes including for biologics and pricing initiatives. Turning to our Active Material Science Solutions, core sales grew 5% on demand across a variety of applications, led by active material science technology for probiotics and oral solid dose solutions. Turning to our Beauty and Home segment, core sales increased 10% over the prior year first quarter, with 7% of the growth coming from price adjustments related to inflation cost recovery, as well as good volume increases in certain markets. This segment's adjusted EBITDA margin for the quarter was 12%, slightly higher than the prior year and included a net negative inflation effect of approximately $1 million in the quarter, which is already on top of a very high level of inflation in the prior year. Neutralizing the negative effects of passing through the cost inflation, EBITDA margins would have been approximately 120 basis points higher in the quarter compared to the prior year. Looking at each Beauty and Home market, Beauty market core sales increased 19%, due to very strong demand for our pumps, especially in the prestige fragrance and facial skin care markets. Personal Care core sales increased 6%, due to higher demand for hair care and sun care dispensing systems. Home Care sales decreased 17%, primarily due to a reduction in tooling sales and lower demand for household cleaner dispensing solutions. Turning to the Food & Beverage segment, this segment achieved core sales growth of 8% in the quarter. Pricing initiatives related to cost pass-throughs contributed approximately 6% of the core sales growth in the quarter. This segment's adjusted EBITDA margin was 13% in the quarter and was impacted by softer demand for food dispensing closures and the resulting lower productivity, primarily in North America, following a period of strong growth in the prior year. Although the inflation impact was offset by lower resin costs in the quarter, we still have not fully recovered the inflationary effects from the prior year. Looking at each market, Food core sales increased 8% due to price adjustments and increased demand, primarily for food service solutions including food trays. Beverage core sales increased 11%, due to price adjustments and demand for our bottled water dispensing closures. Interest costs in the current quarter were approximately $12 million, versus approximately $7 million in Q2 of 2021. The increase was driven mainly from our first quarter $400 million 3.6% bond offering and higher interest rates from some of our local foreign borrowings. Additionally, we incurred approximately $400,000 in prepayment charges for a $75 million private placement issuance that was set to mature in Q3. Going forward, we expect our interest cost to be lower than Q2 by approximately $1.3 million. Year-to-date, cash flow from operations of $177 million and free cash flow of $42 million are slightly ahead of the prior year levels. Moving to slide 12, which summarizes our outlook for the third quarter, we expect currency headwinds to continue, reflecting the continued strengthening of the US dollar. With the majority of our sales coming from outside of the US, this impacts us significantly. Although we are seeing some recent relief in resin prices, other input costs remain challenging. Additionally, supply chain issues in the very tight labor market, primarily in the US, put additional pressure on our Beauty and Home and Food and Beverage businesses. The euro rate for the prior year third quarter was 1.18 and our guidance for the coming third quarter is assuming a 1.02 euro rate. As a reminder, we have said that roughly for every $0.01 move in the euro rate that equates to approximately $0.02 per share for the full year. So for the coming quarter, we could be looking at approximately an $0.08 currency drag on earnings compared to the prior year. We expect our third quarter adjusted earnings per share to be in the range of $0.90 to $1 per share using an estimated tax rate range of 28% to 30%. The midpoint of our guidance range represents a 10% increase over the prior year third quarter adjusted earnings per share when currency translation effects are equalized. Looking to our current estimate for depreciation and amortization, we currently expect $230 million to $240 million for the year 2022. And for capital expenditures net of any government grants, we currently expect between $290 million and $320 million. In closing, we remain committed to maintaining a strong balance sheet. Our current leverage ratio of 1.8 allows us to continue to grow shareholder value by selectively investing in our business as well as weather challenging economic environments.

At this time Stephan will provide a few closing comments before we move to Q&A. Thank you, Bob. In closing on Slide 13, we have started to emerge from the effects of COVID only to find ourselves facing new economic uncertainties, having exposure across multiple end markets such as prescription drugs, beauty, personal care, food, and over-the-counter pharmacy products, and with a presence in 20 countries makes us more resilient to shifting cycles and downturns. We understand that capital allocation is especially paramount in times like these. Our strong balance sheet allows us to help mitigate the effects of a potential downturn in the global economy as we selectively and prudently look to allocate capital to grow our business. In the decade prior to the pandemic, our pharma business delivered an average core sales growth of 8%. This segment is now a much larger part of our business today than it was in 2009, when we navigated the global financial crisis in good form. We are particularly encouraged by the current recovery of our prescription drug and consumer healthcare market. And our order book supports the expectation of continued strong momentum in the second half of the year. In addition, our project pipeline continues to strengthen in both number of opportunities and in value, as stringent regulatory standards increase and as our customers continue to explore new ways to deliver medicines. Our investment in R&D as well as laboratory analytical services has positioned us at the forefront of drug delivery innovation, whether it be liquid, powder, single-dose, multi-dose and via routes such as needle, pulmonary, ophthalmic, dermal, oral or injected our broad portfolio of innovative devices, components, and active material solutions will enable us to grow consistently in the healthcare sector for many years to come. The beauty business is expected to continue to recover, and our customer-centric focus with a deep history of innovation positions us to take advantage of the evolving and growing facial skin care markets in both Western markets and in Asia. We will remain focused on pricing initiatives to help offset continued rising input costs and managing our expenses. I'm confident that we can achieve our long-term profit margins across each of the businesses as we move forward in the new post-pandemic era. Our broad portfolio of innovative solutions and services, diverse market presence, and our solid balance sheet give me the confidence that we will be able to continue to navigate turbulent waters, return value to shareholders in the form of dividends and share repurchases, as well as take advantage of growth opportunities that present themselves. With that, I would like to open the call up for questions.

Our first question comes from George Staphos with Bank of America. George, please proceed.

Yes. Hi, everybody. Good morning. Thanks for the details. My two questions. One is on start-up costs particularly around Pharma. And then I had a question on the operating leverage in Food and Beverage. Stephan, Bob, could you tell us what level of start-up costs you might have had in the businesses in 2Q, and as you look out to 2022 what your expectations are? And in particular, if you could provide some granularity on Pharma particularly as regards to injectables? And then on Food and Beverage obviously some really good core revenue growth a lot as pricing, we get it. But I was a little bit interested in the lack of operating leverage in Food and Beverage despite the growth, despite the pricing, EBITDA was down there. If you could provide us a bit more color in terms of what was going on underneath the hood there? Thank you.

Sure. Good morning, George. Look as you know, we are deploying about $180 million in capital in our injectable divisions and that's over a number of years. We're starting up capacity latter part of this year all next year and into the following year. So we will have the tune of a couple of million dollars every quarter of start-up costs, as you prove out the equipment as you validate with customers and bring on labor ahead of the revenue stream. So I think that's about the order of magnitude. In Food and Beverage, it is really this is a double whammy. One is if you have lower volumes, the efficiencies in the plants really go down, especially in North America that are tuned to high volumes. So that's really what you see.

Okay. I mean, can you just give us a bit more context of what was going on within food? You had commented in the past that you were encouraged by the pickup in food. There's kind of a delayed improvement there during the COVID cycle, and you were encouraged I think in total about that level of activity being able to continue going forward. Are you suggesting now that that probably was a one-off bump that comes down? And if so sorry for the double dip here, how do you deal with that? Thank you guys. I’ll turn it over.

Let's separate the demand picture from the margin this quarter. Clearly, we benefited from increased in-home food consumption and cooking, which boosted our condiment segment. However, the lack of movement impacted our on-the-go beverage sales. We are currently adjusting to this new normal, and the balance is leaning toward condiments. While the market is slowing down, I don't believe this will completely hinder us. The new normal involves hybrid work, meaning people are spending significant time at home but also dining out more. This represents an adjustment to a new demand pattern. In beverages, we are seeing growth as people are out and about.

Okay. Congrats to Matt and to Maria as well, and Matt's it's been great working with you. Thank you, sir.

Thank you George. Same.

Our next question comes from Mark Wilde of BMO. Mark, the line is yours.

Thanks. Stephan I wondered if you could just update us on what you're seeing in terms of European activity; your commentary during the prepared comments made Europe sounded a little better than I might have expected. And then if you could also just talk about what you and your customers are doing to prepare for potentially a rough winter from an energy perspective in Europe?

Sure. Let me tag team with Bob here, but let me kick it off. So, let's first separate the demand pictures from the cost picture. So, from the demand side, we're really encouraged by what we're seeing. We have a very strong order book in pharma in our most profitable divisions prescription drug, as well as consumer health care. And we see that continuing in the second half of the year for sure of quarter three. We also see good demand pickup in beauty. Now, remember, and not all, and maybe by short – long shot, what we sell to our European customers is for European consumption. A lot of the finished products get exported to Asia, get exported in part also to the US and that is really driven by demand around the world for things like luxury fragrances, prestige fragrances, skin care, where we record and comment on the demand in Europe. It is really a demand benefit from just overall people being out and about more, traveling more, travel retail picking back up, and that really helps us. On the cost side, clearly, Europe is in the throes of substantial inflation, and that really comes in – it's different than in the US. One is energy. Maybe Bob, can talk to how we manage our own energy costs. But that's not the whole picture. Of course, most of our suppliers are less sophisticated and backed with their energy purchases. So we just get it in the form of additional input costs on the supply side anything from metal springs, to aluminum parts, to transportation. So this energy-triggered inflation in Europe is substantial. And then the second part is wages. So, we actually anticipate higher wage costs in quarter three. Some of that is one-off. And maybe I'd just remind everybody, we about to deploy about 2,500 people in the US, but we employ more than 8,000 people in Europe, 5,000 of those alone in France. And all of those employees have representation and labor relations are very tense as massive inflation is putting strains on household budgets, especially for entry-level workers, low wage earners. In the US, you've heard us say that we had to raise entry-level wages by 30%. In Europe, we anticipate one-time payments in quarter three. Some of them are strongly encouraged by the government, for example, the French government. And yes, if you look out, maybe we will not have these one-time payments in quarter four, but this is a taste of things to come. Most wages and salaries are adjusted on a calendar year basis. So we'll have some one-time impact in quarter three, included in our guidance. But clearly, wage inflation is a topic. And maybe it's a stronger topic in Europe than it is in the US. Now maybe Bob, you can highlight some of our own energy setup in purchases.

Sure. Maybe Mark before I do that, I'll give you a little bit of quantitative color on the first part of your question, which was Europe and the strength. In fact, if I look at all of our regions, we were up in core sales in all the regions, but Europe was actually up about 15% in the quarter on a consolidated basis. And it actually was up double-digits if I look at each segment in Europe. So Europe was definitely strong in the quarter for us. Turning to the energy situation, particularly, in Germany which seems to be the biggest focus these days. We've got essentially guaranteed supply for all of our electricity in Germany. And I think the government itself has a certain backup possibilities as it turns to electricity front. The real question is around gas. And for us, we only use natural gas to primarily heat the facilities with a few small exceptions in some of our plants on some decorating machines and things like that. But for the most part gas for us is primarily used for heating. So in theory, the machines themselves injection-molding machines they do throw off a certain amount of heat. Now as Stephan said, we cannot control what is how our suppliers are run and the indirect impact that will have on that. But we look at this risk as low to minimal for us in the second half of the year.

Our next question comes from Kyle White of Deutsche Bank. Kyle, please go ahead.

Hi. Good morning. Thanks for taking my question. Just two parts real quick on that one. I was wondering if you could quantify that one-time payment that you expect in the third quarter that's included in your guidance? And then related just on price/cost. It looks like price/cost does continue to improve here sequentially, but you still noted that you haven't recovered last year's cost increases. When do you expect that to be recovered? And how should we think about price/cost going into the second half?

Yes. Maybe on the first one, we baked in about $0.5 in the third quarter guidance of that one-time payment.

Yes, I can take the point on the net price/cost impact. So we were slightly positive in this quarter, which is again the cumulative effects of the pricing initiatives that we started last year as well as I would say a little bit of a flattening of the raw material curve. We're still in the hole by I would say roughly about $30 million. Last year we had about $28 million of a net negative. We had another $5 million in the second quarter. Now of course this $0.05 that Stephan is referring to will also be another inflationary impact. But again, a lot is going to depend on what happens around the raw material prices going forward. But again, we're going to continue to be very diligent in passing those through. We've been very transparent with our customers on that. It's impossible for me to tell you when we will recover that delta of about $32 million. It's hard for us to quantify with all the uncertainty that's out there right now.

Got it. I'll follow up by asking if the $0.05 is primarily in Beauty and Home, and if you anticipate that this will be a one-time payment next year as well.

So this is really spread across all of our businesses. When you look at our geographic footprint obviously, we have many more pharma and beauty facilities in France than we have in some of the other countries but it's – in principle, it's spread across all the businesses, they are active in Europe. And I think this will be all baked into whatever the outcome of wage negotiation is with Unions and Works Council and this is done on a site-by-site and country-by-country basis. But to ensure continuity of operation for us this year in the context of European and country labor relations this is required. And as I said, in some cases the government basically holds your hand very strongly to do this.

Thanks, guys.

Our next question comes from Ghansham Panjabi of Baird. Ghansham, please go ahead.

Yes. Thanks. Good morning everyone. And Matt big congrats to you. It really has been a pleasure working with you over the years and congrats on your retirement.

Thanks guys.

First off maybe – yeah, thanks Matt. Maybe you could just disaggregate for us the various end markets within Beauty and Home? And give us a sense as to where they are from a volume standpoint relative to the pre-COVID baseline?

Sure, I can address that, Ghansham. In the quarter, Beauty experienced a growth of about 19%, driven primarily by the prestige segment, although the masstige sector also saw an increase, particularly in fragrance, facial, and skin care. Improvements are also noted in color cosmetics. While we haven't reached 2019 volume levels yet, we are very close. In terms of total sales dollars, we are above 2019 levels due to pricing. We are optimistic about the volume growth we are witnessing; with 7% of the 10% growth in Beauty and Home attributed to pricing, that leaves 3% for volume. However, this 3% is somewhat impacted by a decline in tooling sales this quarter. To clarify, when I mentioned core sales growth, which excludes acquisitions, the actual sales in Beauty and Home, aside from the tooling decline, would have been around 5%. We remain positive about the volume growth trend, and if it continues, we anticipate surpassing 2019 volume levels in the latter half of the year. Personal Care is still on an upward trajectory, growing about 6%. Similar to the first quarter, we are noticing a slight shift, with increased demand for hair care and sunscreen as more people vacation, while demand for hand sanitizers and similar products has decreased. We are also encouraged by the personal care sector. Household sales have declined, mainly due to a significant tooling sale from last year related to a new product launch. Additionally, some disinfectant cleaners are down, similar to the trend we see with hand sanitizers in personal care.

Got it. Very helpful. And then for my second question as it relates to just global consumer elasticity and the enormity of inflation that everybody is facing and the choices that are being made and some of your customers are talking about, elasticity, which is a very different message from three months ago. Just curious as to what you're seeing from a real-time standpoint as it relates to new product development, have things slowed? And if you could just give us some insight into which category specifically may have slowed or maybe everything is stable. Thank you.

Yes, let's begin with pharmaceuticals, which make up about 40% of our business. We are not seeing any negative impact, and in fact, we have a very strong order book in both prescription and consumer healthcare. In consumer healthcare, the return of cold and cough products is noteworthy, partly due to Omicron presenting symptoms similar to those illnesses. This situation doesn't affect us negatively. On the Beauty and Home side, there is clearly pent-up demand as people are traveling again, and currently, we do not observe significant price sensitivity in the luxury and prestige categories. However, we are monitoring potential impacts on the masstige market as inflation affects consumer spending. In the Food sector, we expect to see trends we've observed during past slowdowns, such as a shift towards larger pharmaceutical products and club store formats. Not all of those stores have high-quality closures in line with our raw demand, and there is a trend of consumers moving towards private label brands. It's important to note that while we do supply private label, not all of those closures are comparable in quality to our premium offerings. Therefore, we anticipate there could be some impact from these trends, in addition to the demand patterns we discussed earlier.

Okay. Thank you, Stephan and Matt, congrats again.

Thank you, Ghansham.

Our next question comes from Adam Josephson of KeyBanc. Adam, the line is yours.

Stephan, Bob, good morning, and I'd just like to echo Ghansham's comments Matt that it's been a pleasure and a privilege working with you all these years. So thank you for everything.

Thanks, Adam. Thanks.

Bob, I have a question regarding guidance. Looking at historical data, your fourth quarter earnings are usually lower than your third quarter earnings due to seasonality. Although I understand you don't provide guidance for the fourth quarter, is there anything this year that might differ from the typical seasonal pattern where earnings tend to be lowest in the first and fourth quarters?

It's hard to say. I mean we are in unusual times, right?

Yes.

So, anything can really happen. But I think the biggest factor that I see is that $0.05 that Stephan referred to that we baked into Q3, we're not expecting anything like that in Q4. Although, as Stephan mentioned as well, we're going to see the new labor rates kick in, in Q1. So you do have that on the horizon that I can see between Q3 and Q4. We'll have to see what currency is going to do, right? I mean, if you look at it that's $0.08 just comparatively with our Q3 results of last year. So you take that all in you got the $0.08 and the $0.05 for Q3 that's $0.13. Now last year's euro rate in Q4 was starting to come down. So the impact assuming we hold at 1.02 is going to be slightly less but there's still going to be a pretty big delta. So for me those are probably the biggest factors that I see that could influence the Q4. As far as volume demand and anything else, the pharma business as Stephan said both the Rx and the CHC business looks really strong for the remainder of the year. I haven't gone back and looked at what that has been in past fourth quarters but that's one thing that looks really solid for Q4.

There are some outlier scenarios to consider. For example, if there is an additional variant pickup, it could have both positive and negative effects depending on how it unfolds. Additionally, we must also consider the potential energy disruptions in Europe that may arise beyond our current expectations.

No, I appreciate that Stephan. And Bob one more in terms of your guidance range. So I think the last two quarters, it's been wider than it used to be. It's been a $0.10 range, whereas, before then it was an $0.08 range. Correct me if I'm wrong there. Are you thinking about this as the new width of the range just given how uncertain just about everything is, or do you view this as temporary and you want to get back to an $0.08 range? Any thoughts you've had along those lines?

Yeah. I mean I would love to get back to a tighter range because a tighter range means there's a little bit more certainty on the horizon. So, yeah. No I think the $0.10 range that we've kept for Q3 is really indicative of the uncertainties that that are surrounding us right now but I would love to be able to get back to an $0.08 range in the near future. That just means that things are becoming more certain and predictable.

Yeah. And Bob just one last one on the labor tightness particularly in the US. Can you help us with how long it's been this bad for? Is it getting any better? Is it getting worse? What are you seeing on the horizon? Just any better understanding of what's going on there would be helpful. Thanks very much.

Yeah. Let me take that Adam. I would say, it's certainly been the worst earlier this year. But if you talk about uncertainty, we've certainly been surprised how persistent this has been. And it's certainly been worse in Q2 than we thought when we guided. And then other factors were better. I would say it is getting better. I think on the last earnings call I said on any day we are missing 20% of the workforce in the Midwest. Now it's probably around 15% and dropping a bit. A slowdown in the overall economy may help, but that's certainly the picture. And it is us, of course, in two ways. One is just the inefficiency of manufacturing the constant rescheduling lower yields. But secondly, also with new sales opportunities, because if you have lead times that are not satisfactory you missed that revenue. It is getting better, but it's getting better at a slower rate than any of us would like to see.

Thanks very much, Stephan.

Our next question comes from Justin Lin of William Blair. Justin, please go ahead.

Hi, good morning. When you talk about the cadence of your pharma growth across the four business units for the rest of the year and as we start seeing some tougher comps in certain markets and I guess what are you saying about the Pharma margin progression for the coming quarters?

We typically don't provide detailed guidance, but qualitatively, we are confident in our 6% to 10% growth range for the segment. In comparison to 2019, prescriptions are on track to match that year, and we expect to finish the year significantly ahead of 2019, aligning with an approximate 8% long-term growth rate. Consumer Healthcare is exhibiting a strong recovery and sustained growth, already exceeding 2019 levels, and we anticipate a robust second half. Injectables are also showing promising growth amidst difficult comparisons. As we enhance our capacity, we feel optimistic about the pipeline and its composition, especially as we direct more of our sales to premium products once that capacity becomes available. While we participated somewhat in the COVID vaccine space, for us, COVID primarily served to enhance the visibility of our injectable business and its capabilities, which has been advantageous for our pipeline. One area that will face challenging comparisons in the fourth quarter is our active material solutions, given our substantial business in at-home COVID tests, which we do not expect to see replicate. However, this is a long-term outlook. As mentioned in my prepared remarks, we are very optimistic about the growth potential of our pharmaceutical business, which is performing strongly. This acceleration can be attributed partially to easier comparisons for prescriptions in the first half, and we anticipate continued progress in the latter half. Overall, we are very positive about growth across all divisions.

Thank you. That's really good detail. And I'm going to zoom out a little bit. You touched on your pharma project pipeline. Can you just elaborate on that a little bit more and maybe highlight the opportunities you're most excited about in the foreseeable future?

Yeah. We really cannot disclose individual projects. We tried to give you a sense that both the number of opportunities and the risk-weighted value of the pipeline keeps going up. We talked earlier that clearly emergency treatment, central nervous systems is a great growth driver in addition to allergic rhinitis in the prescription area. In consumer health care, it's really all of the above. We have decongestions, we have ophthalmic, we have dermal treatments and significant geographic growth opportunities in consumer health care. In injectables, it's biologics. Biologics is really driving the pipeline. We are now close to 40% of the sales in injectables being biologics and climbing. And in active material solutions, it's just a field that keeps surprising us in terms of problems we can solve for customers including for oral solid dose drug deliveries, especially drugs that are a bit more sensitive to being exposed to oxygen or moisture, depending on the drug. So all of these things go in the pipeline and the fact that we have now a much more capable service capability including trainers, training devices, it allows us to engage much earlier in the development cycle with our customers, make money on the services and then, obviously, have the device of choice. The other one we continue to be excited about is digital therapy. So we see projects being in the pipeline, contracts being signed. While this is a drag on earnings at the moment, we could certainly see that reversing over the coming years.

Appreciate that detail. Thank you so much.

Our next question comes from Gabrial Hajde of Wells Fargo Securities. Gabrial, please go ahead.

Stephan, Bob, good morning. Matt, echo what everyone else has said, pleasure working with you.

Thanks, Gabe.

I haven't heard much about the drug grading facility in France. And I was curious, if you can kind of give us an update of where that sits and maybe remind us kind of the objective there. I know it was going to enable you better service your customers on time and full delivery stuff like that, maybe expand some of your capabilities there. But just, your ability I think there was a little bit of plant consolidation going on there too. So just, where we're at with that and when we can expect that to contribute to beauty and home.

Yes, good morning, Gabe. This project is truly unprecedented for that region, as we have five very small facilities clustered around the village where we produce high-end decorative products. This setup has served as our calling card, but managing five sites and transporting products between them is not efficient or modern. Therefore, we are consolidating operations into a state-of-the-art facility that will open next spring. Our customers are enthusiastic about this change and recognize its potential. I can confidently say that many see Aptar embracing the next generation and showing commitment to innovation. Additionally, this new facility is designed to be sustainable, with a significantly lower carbon footprint compared to the five separate facilities and their associated transportation. This marks the beginning of a new wave of innovation for us. Although it requires a substantial investment, we are very confident that it will yield positive returns.

All right. Thank you. And then I was curious. There have been some articles out there on nasally delivered vaccines. I think in the past you guys really haven't talked about that much in the way in terms of opportunity for you. I'm just curious if there's anything in the development pipeline that is different today than it was before. Or we should just not get that very excited about it?

Well, like everything in pharma things take many, many years. So a lot of these are in early stage clinical trials using sometimes very rudimentary devices. That has nothing to do with how it eventually would get commercialized. So yeah, if you're in that part and you finally have a candidate that moves to Phase 3 and looks good you kind of look for a commercialization and investor partner which got experience in this field. So we are aware of these. I cannot get into where we are participating in that. But clearly that will be a very exciting prospect.

Our next question comes from Angel Castillo of Morgan Stanley. Angel, please go ahead.

Hi. Thanks for taking my question. Just wanted to quickly circle back discussion around recession that you mentioned just change for the portfolio from restructuring as well as Pharma being better and a number of end-markets perhaps being closer to the low-end of where they should be. So as you think about recession planning or just scenario analysis internally? How would you kind of frame the potential downside to sales or EBITDA from current levels based on everything that we have?

What we indicated is that comparing to our performance in 2008 serves as a useful benchmark, with the notable difference being that pharmaceutical sales constituted 20% of our revenue back then, whereas now they make up 40%. This shift has a considerable effect on our bottom line as well. In times of a typical downturn, we expect to see consumers trading down, particularly in food, where there is a shift toward more club store purchases and away from premium options. This shift might also affect the masstige fragrance market, and with reduced travel, we anticipate a decline in beauty product sales. However, the overall effect on the company will be manageable. The downturn related to COVID-19 was atypical, mainly impacting our prescription and consumer healthcare sectors, but those challenges are now behind us. In a standard recession, people will continue to take their medications regularly, demonstrating our resilience. That said, we are not being complacent; we are actively reviewing our costs and exploring ways to enhance efficiency through shared services and greater automation in our plants to reduce expenses. We recognize the potential for slower demand coupled with rising costs, and we are diligently seeking productivity improvements to alleviate some of this impact.

Thank you for that information. I would like to discuss sustainable solutions. Could you provide an update on consumer acceptance of these solutions? Specifically, have you noticed any changes as we approach our target years, especially considering that customers may be more price sensitive due to ongoing inflation? I'm interested in your observations on this matter.

Yes, it's really not one answer. I mean first of all, we're very much focused and proud of the work we're doing with our own operations. And you see that in our sustainability report and then the recognition and ratings we get. And we will continue to drive that. And that is very important because it's not only that it's the right thing to do but most of our brand new customers say, hey, you get it you are on the table a real important partner to us because you get it and when we need to think about our Scope 3 emissions we can count on that to help us with that. That's number one. Number two. Clearly, recycled content, recyclability, higher PCR content is important, but where, in which country, to which brand varies greatly. It won't surprise you that in some European countries this is a lot more hot topic than it is in some other countries. So, it varies greatly, but we are at the ready adding products with up to 100% PCR content having products that are mono-material. There's very much in demand for example our mono-material pump. And I will not hide sometimes we're a bit disappointed that people think they're done when they make their primary container recyclable and the dispensing cap or a pump then doesn't get as much attention. But clearly if customers are serious about the commitments they've made they also have to pick up more of the sustainable dispensing devices. But we are ready to go here and continue to make investments in those innovations.

Thank you and wishing you all the best, Matt.

Thanks.

Great, thanks Angel.

Our next question comes from Daniel Rizzo of Jefferies. Daniel, please go ahead.

Hi. Just to talk a little bit more about Sustainable Solutions. Is it mostly outside of pharma, I mean are pharma products using recyclable material or sustainable products as well?

Yes. This is a great example of how we utilize strategies across the entire company. Initially, this was primarily a focus for branded consumer goods, but it has now transitioned into pharma, starting with consumer health care. Our consumer health care clients increasingly demand fully recycled mono-material solutions, which we have already developed for consumer products. Additionally, in the realm of prescription drugs, we expect to see a shift in propellant over the next few years to one that has even lower greenhouse gas emissions and less impact on the ozone layer, which is crucial for our customers. So, it began on the consumer side, but it is quickly advancing into the pharmaceutical sector.

Okay. And then are we seeing a restocking tailwind, or are customers being a little more cautious given or they use volatility particularly in Europe?

So, through the first half we do not see a significant restocking situation here or there. But clearly, given the order books we have and the lead times we have, customers kind of sell the stuff as soon as they get it and fill it whether so the demand for the second half of the year, will go to more normalization. We'll see. But currently, we cannot say that we see significant restocking.

We have no further questions on the line. So, I'll hand back to Mr. Tanda.

Very good. Thanks for all your questions. We look forward to seeing you on the road.

This concludes today's call. Thank you for joining. You may now disconnect your lines.