8-K
WEST PHARMACEUTICAL SERVICES INC (WST)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) – October 27, 2022
| WEST PHARMACEUTICAL SERVICES, INC. |
|---|
(Exact name of registrant as specified in its charter)
| Pennsylvania | 1-8036 | 23-1210010 |
|---|---|---|
| (State or other jurisdiction<br><br>of incorporation) | (Commission File Number) | (IRS Employer<br><br>Identification No.) |
| 530 Herman O. West Drive, Exton, PA | 19341-0645 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 610-594-2900
| Not Applicable |
|---|
| (Former name or address, if changed since last report.) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||
|---|---|---|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||
| --- | --- | ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| --- | --- | ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.25 per share | WST | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On October 27, 2022, West Pharmaceutical Services, Inc. (the “Company”) issued a press release announcing its third-quarter 2022 financial results. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.
Item 7.01 Regulation FD Disclosure.
The information set forth in “Item 2.02 Results of Operations and Financial Condition,” including the exhibit referred to therein, is incorporated herein by reference.
A copy of the Company’s presentation materials used during the call will be available through the Investors link at the Company’s website, http://www.westpharma.com, and is also attached hereto as Exhibit 99.2 and incorporated herein by reference.
The information in this report (including the exhibits attached hereto) is being furnished pursuant to Item 2.02 and Item 7.01 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liabilities of that section, nor will it be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific referencing in such filing.
Item 9.01 Financial Statements and Exhibits.
| (d) | Exhibit No. | Description |
|---|---|---|
| 99.1 | West Pharmaceutical Services, Inc. Press Release, dated October 27, 2022. | |
| 99.2 | West Pharmaceutical Services, Inc. Presentation, dated October 27, 2022. | |
| 104 | The cover page from the Company’s Current Report on Form 8-K, dated October 27, 2022, formatted in Inline XBRL. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| WEST PHARMACEUTICAL SERVICES, INC. | |
|---|---|
| /s/ Bernard J. Birkett | |
| Bernard J. Birkett | |
| Senior Vice President, Chief Financial and Operations Officer | |
| October 27, 2022 |
EXHIBIT INDEX
| Exhibit No. | Description |
|---|---|
| 99.1 | West Pharmaceutical Services, Inc. Press Release, datedOctober 27,2022. |
| 99.2 | West Pharmaceutical Services, Inc. Presentation, datedOctober 27, 2022. |
| 104 | The cover page from the Company’s Current Report on Form 8-K, dated October 27, 2022, formatted in Inline XBRL. |
4
Document
Exhibit 99.1
West Announces Third-Quarter 2022 Results, Updates Full-Year 2022 Guidance and Declares Fourth-Quarter 2022 Dividend
- Conference Call Scheduled for 9 a.m. EDT Today -
Exton, PA, October 27, 2022 – West Pharmaceutical Services, Inc. (NYSE: WST) today announced its financial results for the third-quarter 2022 and updated full-year 2022 financial guidance.
Third-Quarter 2022 Summary (comparisons to prior-year period)
•Net sales of $686.9 million declined 2.8%; organic net sales growth was 4.3%.
•Reported-diluted EPS of $1.59 declined 31.2%.
•Adjusted-diluted EPS of $2.03 declined 1.5%.
•Company is updating full-year 2022 net sales guidance to a new range of $2.830 billion to $2.840 billion, compared to a prior range of $2.950 billion to $2.975 billion.
•Company is updating full-year 2022 adjusted-diluted EPS guidance to a new range of $8.15 to $8.20, compared to a prior range of $9.00 to $9.15.
•The Company also announced that its Board of Directors has approved a fourth-quarter 2022 dividend of $0.19 per share, a 5.6% increase over the $0.18 per share paid in each of the four preceding quarters. This is the thirtieth consecutive annual increase in the Company's dividend. The dividend will be paid on November 16, 2022, to shareholders of record as of November 9, 2022.
“Adjusted-diluted EPS” and “organic net sales” are Non-U.S. GAAP measurements. See discussion under the heading “Non-U.S. GAAP Financial Measures” in this release.
“While our base, non-COVID-19 demand continues to grow, we have had multiple constraints that impacted our financial results,” said Eric M. Green, President, Chief Executive Officer and Chair of the Board. “Delays in expansion projects as well as customer delivery timing and mix-shift related productivity impacts resulted in lower-than-expected overall high-value product (HVP) net sales. We expect to resolve these issues in early 2023.”
Mr. Green concluded, “We project our full-year 2023 base business, led by our Biologics market unit, to exceed our financial construct of 7% to 9% annual organic net sales growth. While we expect a further decline in COVID-19-related net sales, our base business growth will more than offset the decline, resulting in overall organic net sales growth in 2023.”
Proprietary Products Segment
Net sales declined by 1.7% to $567.0 million. Organic net sales growth was 5.5%, with currency translation decreasing net sales growth by 720 basis points. HVP net sales represented over 70% of segment net sales and generated mid-single digit organic net sales growth, led by customer demand for NovaPure®, Westar® and Envision® components and self-injection devices.
The Biologics and Generics market units had mid-single digit organic net sales growth, and the Pharma market unit had low-single digit organic net sales growth.
Contract-Manufactured Products Segment
Net sales declined by 7.5% to $120.0 million. Organic net sales declined by 1.2% with currency translation decreasing net sales growth by 630 basis points. Segment performance was affected by a decline in components for healthcare diagnostic devices.
Financial Highlights (first nine months of 2022)
Operating cash flow was $493.2 million, an increase of 16.5%. Capital expenditures were $189.7 million, an increase of 7.2% over the same period last year. Free cash flow (operating cash flow minus capital expenditures) was $303.5 million, an increase of 23.2%.
During the first nine months of 2022, the Company repurchased 563,334 shares for $202.9 million at an average share price of $360.03 under its share repurchase program.
Full-Year 2022 Financial Guidance
•Full-year 2022 net sales are expected to be in the range of $2.830 billion to $2.840 billion, compared to a prior guidance range of $2.950 billion to $2.975 billion.
◦Organic net sales growth is expected to be approximately 7%, compared to a prior guidance range of approximately 11%.
◦The Company expects a full-year decline in COVID-19 related net sales of approximately $85 million, unchanged from prior guidance.
◦Net sales guidance, based on current foreign currency exchange rates, includes an estimated fourth-quarter 2022 headwind of approximately $60 million.
•Full-year 2022 adjusted-diluted EPS is expected to be in the range of $8.15 to $8.20, compared to a prior guidance range of $9.00 to $9.15.
◦Based on current foreign currency exchange rates, fourth-quarter adjusted-diluted EPS guidance includes a $0.17 headwind.
◦The revised guidance includes a $0.16 EPS positive impact from the first nine-months 2022 tax benefits from stock-based compensation.
◦For the fourth-quarter 2022, our EPS guidance range assumes a tax rate of 23% and does not include potential tax benefits from stock-based compensation. Any tax benefits associated with stock-based compensation beyond those recorded in the first nine months of 2022 would provide a positive adjustment to our full-year adjusted-diluted EPS guidance.
◦Full-year 2022 capital spending is expected to be in a range of $300 million to $320 million, compared to prior guidance of $380 million.
Third-Quarter 2022 Conference Call
The Company will host a conference call to discuss the results and business expectations at 9:00 a.m. Eastern Time today. The live audio-only webcast will be made available via the Company's Investor Relations website at https://bit.ly/3cgSM9S.
To participate and ask questions during the conference call, you must register in advance at https://bit.ly/3eipdG3. Upon registration, all telephone participants will receive the dial-in number along with a unique PIN number that will be used to access the call.
Management will refer to a slide presentation during the call, which will be made available on the day of the call. To view the presentation, select "Presentations" in the "Investors" section of the Company's website.
A replay of the conference call and webcast will be available on the Company's website for 30 days.
| Investor Contact: | Media Contact: |
|---|---|
| Quintin Lai | Michele Polinsky |
| Vice President, Investor Relations | Vice President, Global Communications |
| (610) 594-3318 | (610) 594-3054 |
| Quintin.Lai@westpharma.com | Michele.Polinsky@westpharma.com |
Forward-Looking Statements
This release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include such words as, “updating,” “expect,” “will be,” “to resolve,” “project,” “is expected,” “includes,” “assumes,” “guidance,” “would provide,” “future,” “will,” “may,” and other similar terminology. These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this release. There is no certainty that actual results will be achieved in-line with current expectations. These forward-looking statements involve a number of risks and uncertainties. The following are some of the factors that could cause our actual results to differ materially from those expressed in or underlying our forward-looking statements: the prolonged effects of the global COVID-19 pandemic, including prevailing economic conditions and general uncertainties relating thereto that may be unknown and unforeseeable; customers’ changing inventory requirements and manufacturing plans and customer decisions to move forward with our new products and product categories, including any re-prioritization of product needs due to the COVID-19 pandemic; other potential impacts from COVID-19, including interruptions or weaknesses in our supply chain, illness in our workforce and access to transport for our products; disruptions or limitations in the Company’s manufacturing capacity; average profitability, or mix, of the products we sell; dependence on third-party suppliers and partners; increased raw material, energy and labor costs; fluctuations in currency exchange; and the ability to meet development milestones with key customers; and the consequences of other geopolitical events, including natural disasters, acts of war, and global health crises. This list of important factors is not all inclusive. For a description of certain additional factors that could cause the Company’s future results to differ from those expressed in any such forward-looking statements, see Part I Item 1A , entitled “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and other filings with the United States Securities and Exchange Commission, including the Company’s quarterly reports on Form 10-Q and current reports on Form 8-K.
Except as required by law or regulation, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Non-U.S. GAAP Financial Measures
This release contains certain non-GAAP financial measures, including organic net sales and adjusted-diluted EPS. For the purpose of aiding the comparison of our year-over-year results, we may refer to net sales and other financial results excluding the effects of changes in foreign currency exchange rates. Organic net sales exclude the impact from acquisitions and/or divestitures and translate the current-period reported sales of subsidiaries whose functional currency is other than the U.S. Dollar at the applicable foreign currency exchange rates in effect during the comparable prior-year period. We may also refer to financial results excluding the effects of unallocated items. The re-measured results excluding effects from currency translation and excluding the effects of unallocated items are not in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and should not be used as a substitute for the comparable U.S. GAAP financial measures. The non-U.S. GAAP financial measures are incorporated into our discussion and analysis as management uses them in evaluating our results of operations and believes that this information provides users a valuable insight into our overall performance and financial position. A reconciliation of these adjusted non-U.S. GAAP measures to the comparable U.S. GAAP financial measures is included in the accompanying tables.
WEST PHARMACEUTICAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in millions, except per share data)
| Three Months Ended<br>September 30, | Nine Months Ended<br>September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Net sales | $ | 686.9 | 100% | $ | 706.5 | 100% | $ | 2,178.2 | 100% | $ | 2,100.8 | 100% |
| Cost of goods and services sold | 418.9 | 61 | 418.3 | 59 | 1,304.1 | 60 | 1,225.6 | 58 | ||||
| Gross profit | 268.0 | 39 | 288.2 | 41 | 874.1 | 40 | 875.2 | 42 | ||||
| Research and development | 13.6 | 2 | 13.1 | 2 | 42.6 | 2 | 39.1 | 2 | ||||
| Selling, general and administrative expenses | 66.3 | 10 | 91.9 | 13 | 231.2 | 11 | 264.8 | 13 | ||||
| Other (income) expense, net | 1.9 | — | 1.8 | — | (4.0) | — | 3.0 | — | ||||
| Operating profit | 186.2 | 27 | 181.4 | 26 | 604.3 | 27 | 568.3 | 27 | ||||
| Interest expense, net | 0.7 | — | 1.4 | — | 4.0 | — | 4.9 | — | ||||
| Other nonoperating expense (income) | 49.3 | 7 | (1.1) | — | 49.1 | 2 | (3.6) | — | ||||
| Income before income taxes | 136.2 | 20 | 181.1 | 26 | 551.2 | 25 | 567.0 | 27 | ||||
| Income tax expense | 20.4 | 3 | 12.0 | 2 | 85.8 | 4 | 73.0 | 4 | ||||
| Equity in net income of affiliated companies | (4.8) | (1) | (6.5) | (1) | (17.5) | (1) | (20.1) | (1) | ||||
| Net income | $ | 120.6 | 18% | $ | 175.6 | 25% | $ | 482.9 | 22% | $ | 514.1 | 24% |
| Net income per share: | ||||||||||||
| Basic | $ | 1.62 | $ | 2.37 | $ | 6.49 | $ | 6.95 | ||||
| Diluted | $ | 1.59 | $ | 2.31 | $ | 6.36 | $ | 6.78 | ||||
| Average common shares outstanding | 74.4 | 74.1 | 74.4 | 74.0 | ||||||||
| Average shares assuming dilution | 75.7 | 76.0 | 75.9 | 75.8 |
WEST PHARMACEUTICAL SERVICES
REPORTING SEGMENT INFORMATION
(UNAUDITED)
(in millions)
| Three Months Ended<br>September 30, | Nine Months Ended<br>September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales: | 2022 | 2021 | 2022 | 2021 | ||||||||
| Proprietary Products | $ | 567.0 | $ | 577.0 | $ | 1,822.0 | $ | 1,708.0 | ||||
| Contract-Manufactured Products | 120.0 | 129.7 | 356.5 | 393.2 | ||||||||
| Eliminations | (0.1) | (0.2) | (0.3) | (0.4) | ||||||||
| Consolidated Total | $ | 686.9 | $ | 706.5 | $ | 2,178.2 | $ | 2,100.8 | ||||
| Gross Profit: | ||||||||||||
| Proprietary Products | $ | 247.3 | $ | 267.3 | $ | 810.3 | $ | 811.5 | ||||
| Contract-Manufactured Products | 20.7 | 20.9 | 63.8 | 63.7 | ||||||||
| Gross Profit | $ | 268.0 | $ | 288.2 | $ | 874.1 | $ | 875.2 | ||||
| Gross Profit Margin | 39.0 | % | 40.8 | % | 40.1 | % | 41.7 | % | ||||
| Operating Profit (Loss): | ||||||||||||
| Proprietary Products | $ | 188.6 | $ | 195.5 | $ | 615.9 | $ | 594.3 | ||||
| Contract-Manufactured Products | 14.7 | 16.8 | 48.0 | 51.9 | ||||||||
| Stock-based compensation expense | (6.0) | (11.4) | (17.0) | (27.5) | ||||||||
| General corporate costs | (10.9) | (18.1) | (43.6) | (45.5) | ||||||||
| Adjusted Operating Profit | $ | 186.4 | $ | 182.8 | $ | 603.3 | $ | 573.2 | ||||
| Adjusted Operating Profit Margin | 27.1 | % | 25.9 | % | 27.7 | % | 27.3 | % | ||||
| Other unallocated items | (0.2) | (1.4) | 1.0 | (4.9) | ||||||||
| Reported Operating Profit | $ | 186.2 | $ | 181.4 | $ | 604.3 | $ | 568.3 | ||||
| Reported Operating Profit Margin | 27.1 | % | 25.7 | % | 27.7 | % | 27.1 | % |
WEST PHARMACEUTICAL SERVICES
RECONCILIATION OF NON-U.S. GAAP MEASURES (UNAUDITED)
Please refer to “Non-U.S. GAAP Financial Measures” for more information
(in millions, except per share data)
Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS
| Three Months Ended September 30, 2022 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Reported (U.S. GAAP) | $186.2 | $20.4 | $120.6 | $1.59 | ||||||
| Unallocated Items: | ||||||||||
| Pension settlement (2) | — | 20.0 | 29.6 | 0.39 | ||||||
| Amortization of acquisition-related intangible assets (3) | 0.2 | 0.1 | 0.7 | 0.01 | ||||||
| Tax law changes (5) | — | (3.2) | 3.2 | 0.04 | ||||||
| Adjusted (Non-U.S. GAAP) | $186.4 | $37.3 | $154.1 | $2.03 | Nine Months Ended September 30, 2022 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | |
| --- | --- | --- | --- | --- | ||||||
| Reported (U.S. GAAP) | $604.3 | $85.8 | $482.9 | $6.36 | ||||||
| Unallocated Items: | ||||||||||
| Restructuring and severance related charges (1) | (1.6) | (0.4) | (1.2) | (0.01) | ||||||
| Pension settlement (2) | — | 20.3 | 30.5 | 0.40 | ||||||
| Amortization of acquisition-related intangible assets (3) | 0.6 | 0.1 | 2.1 | 0.03 | ||||||
| Royalty acceleration (4) | — | 1.3 | (1.3) | (0.02) | ||||||
| Tax law changes (5) | — | (3.2) | 3.2 | 0.04 | ||||||
| Adjusted (Non-U.S. GAAP) | $603.3 | $103.9 | $516.2 | $6.80 | ||||||
| Three Months Ended September 30, 2021 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | ||||||
| --- | --- | --- | --- | --- | ||||||
| Reported (U.S. GAAP) | $181.4 | $12.0 | $175.6 | $2.31 | ||||||
| Restructuring and severance related charges (1) | 0.3 | 0.1 | 0.2 | — | ||||||
| Amortization of acquisition-related intangible assets (3) | 0.2 | — | 0.7 | 0.01 | ||||||
| Royalty acceleration (4) | — | 20.4 | (20.4) | (0.27) | ||||||
| Cost investment activity (6) | 0.9 | 0.2 | 0.7 | 0.01 | ||||||
| Adjusted (Non-U.S. GAAP) | $182.8 | $32.7 | $156.8 | $2.06 | ||||||
| Nine Months Ended September 30, 2021 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | ||||||
| --- | --- | --- | --- | --- | ||||||
| Reported (U.S. GAAP) | $568.3 | $73.0 | $514.1 | $6.78 | ||||||
| Restructuring and severance related charges (1) | 2.5 | 0.6 | 1.9 | 0.02 | ||||||
| Pension settlement (2) | — | 0.2 | 0.6 | 0.01 | ||||||
| Amortization of acquisition-related intangible assets (3) | 0.6 | 0.1 | 2.1 | 0.03 | ||||||
| Royalty acceleration (4) | — | 20.4 | (20.4) | (0.27) | ||||||
| Tax law changes (5) | — | 1.4 | (1.4) | (0.02) | ||||||
| Cost investment activity (6) | 1.8 | (0.1) | 1.9 | 0.02 | ||||||
| Adjusted (Non-U.S. GAAP) | $573.2 | $95.6 | $498.8 | $6.57 |
(1)During the nine months ended September 30, 2022, the Company recorded a benefit of $1.6 million in restructuring and severance related costs in connection with its 2020 plan related to revised severance estimates. During the three and nine months ended September 30, 2021, the Company recorded $0.3 million and $2.5 million, respectively, of restructuring and severance related costs.
(2)During the three and nine months ended ended September 30, 2022, we recorded a gross pension settlement charge of $49.6 million and $50.8 million, respectively, within other nonoperating expense (income), that fully settles the U.S. qualified defined benefit pension plan. During the nine months ended September 30, 2021, we recorded a pension settlement charge within other nonoperating expense (income), as it was determined that normal-course lump-sum payments for our U.S. qualified defined benefit pension plan exceeded the threshold for settlement accounting.
(3)During the three and nine months ended September 30, 2022, the Company recorded $0.2 million and $0.6 million, respectively, of amortization expense within operating profit associated with an intangible asset acquired during the second quarter of 2020. During the three and nine months ended September 30, 2022, the Company recorded $0.6 million and $1.6 million, respectively, of amortization expense in association with an acquisition of increased ownership interest in Daikyo. During the three and nine months ended September 30, 2021, the Company recorded $0.2 million and $0.6 million, respectively, of amortization expense within operating profit associated with an intangible asset acquired during the second quarter of 2020. During the three and nine months ended September 30, 2021, the Company recorded $0.5 million and $1.6 million, respectively, of amortization expense in association with an acquisition of increased ownership interest in Daikyo.
(4)During the nine months ended September 30, 2022, the Company increased its expected tax benefit related to the prepayment of future royalties from one of its subsidiaries by $1.3 million. During the three and nine months ended September 30, 2021, the Company prepaid future royalties from one of its subsidiaries, which resulted in a $20.4 million tax benefit.
(5)During the three and nine months ended September 30, 2022, the Company incurred additional tax expense of $3.2 million due to the impact of a tax law change in the state of Pennsylvania enacted during the period. During the nine months ended September 30, 2021, the Company recorded a tax benefit of $1.4 million due to the impact of a United Kingdom tax law change enacted during the period.
(6)During the three months ended September 30, 2021, we recorded a net loss on the sale of one of the Company's cost investments. During the nine months ended September 30, 2021, we recorded an impairment charge on one of our cost investments, partially offset by the gain on the sale of one of our cost investments.
WEST PHARMACEUTICAL SERVICES
RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED)
Please refer to “Non-U.S. GAAP Financial Measures” for more information
(in millions, except per share data)
Reconciliation of Net Sales to Organic Net Sales (7)
| Three Months Ended September 30, 2022 | Proprietary | CM | Eliminations | Total |
|---|---|---|---|---|
| Reported net sales (U.S. GAAP) | $567.0 | $120.0 | $(0.1) | $686.9 |
| Effect of changes in currency translation rates | 41.7 | 8.1 | — | 49.8 |
| Organic net sales (Non-U.S. GAAP) (7) | $608.7 | $128.1 | $(0.1) | $736.7 |
| Nine Months Ended September 30, 2022 | Proprietary | CM | Eliminations | Total |
| --- | --- | --- | --- | --- |
| Reported net sales (U.S. GAAP) | $1,822.0 | $356.5 | $(0.3) | $2,178.2 |
| Effect of changes in currency translation rates | 103.3 | 18.0 | — | 121.3 |
| Organic net sales (Non-U.S. GAAP) (7) | $1,925.3 | $374.5 | $(0.3) | $2,299.5 |
(7)Organic net sales exclude the impact from acquisitions and/or divestitures and translate the current-period reported sales of subsidiaries whose functional currency is other than the U.S. Dollar at the applicable foreign currency exchange rates in effect during the comparable prior-year period.
WEST PHARMACEUTICAL SERVICES
RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED)
Please refer to “Non-U.S. GAAP Financial Measures” for more information
(in millions, except per share data)
Reconciliation of Reported-Diluted EPS Guidance to Adjusted-Diluted EPS Guidance
| 2021 Actual | 2022 Guidance | % Change | |
|---|---|---|---|
| Reported-diluted EPS (U.S. GAAP) | $8.67 | $7.70 to $7.75 | (11.2%) to (10.6%) |
| Pension settlement | 0.02 | 0.40 | — |
| Cost investment activity | 0.06 | — | — |
| Restructuring and severance related charges | 0.02 | (0.01) | — |
| Amortization of acquisition-related intangible assets | 0.04 | 0.04 | — |
| Asset impairment | 0.04 | — | — |
| Royalty acceleration | (0.25) | (0.02) | — |
| Tax law changes | (0.02) | 0.04 | — |
| Adjusted-diluted EPS (Non-U.S. GAAP) (8) | $8.58 | $8.15 to $8.20 | (5.0%) to (4.4%) |
Notes:
See “Full-year 2022 Financial Guidance” and “Non-U.S. GAAP Financial Measures” in today’s press release for additional information regarding adjusted-diluted EPS.
(8)We have opted not to forecast 2022 tax benefits from stock-based compensation in upcoming quarters, as they are out of the Company’s control. Instead, we recognize the benefits as they occur. In the first nine months of 2022, tax benefits associated with stock-based compensation increased adjusted-diluted EPS by $0.16. Any future tax benefits associated with stock-based compensation that we receive in 2022 would provide a positive adjustment to our full-year EPS guidance. In full-year 2021, tax benefits associated with stock-based compensation increased adjusted-diluted EPS by $0.41.
WEST PHARMACEUTICAL SERVICES
CASH FLOW ITEMS
(UNAUDITED)
(in millions)
| Nine Months Ended<br>September 30, | ||
|---|---|---|
| 2022 | 2021 | |
| Depreciation and amortization | $89.5 | $87.9 |
| Operating cash flow | $493.2 | $423.2 |
| Capital expenditures | $189.7 | $176.9 |
| Free cash flow | $303.5 | $246.3 |
WEST PHARMACEUTICAL SERVICES
FINANCIAL CONDITION
(UNAUDITED)
(in millions)
| As of<br><br>September 30, 2022 | As of<br>December 31, 2021 | |
|---|---|---|
| Cash and cash equivalents | $729.0 | $762.6 |
| Accounts receivable, net | $485.3 | $489.0 |
| Inventories | $413.1 | $378.4 |
| Accounts payable | $188.9 | $232.2 |
| Debt | $209.4 | $253.0 |
| Equity | $2,470.8 | $2,335.4 |
| Working capital | $1,276.9 | $1,147.9 |
Trademark Notices
Trademarks and registered trademarks are the property of West Pharmaceutical Services, Inc., in the United States and other jurisdictions, unless noted otherwise.
Daikyo®, Daikyo Crystal Zenith® and Daikyo CZ® are registered trademarks of Daikyo Seiko, Ltd. Daikyo Crystal Zenith technologies are licensed from Daikyo Seiko, Ltd.
finalwestq3oct2022
1 Third-Quarter 2022 Third Quarter Overall Net Sales $686.9M | 2.8% Diluted Earnings Per Share: $1.59 Adjusted Diluted Earnings Per Share: $2.03 Eric M. Green President and Chief Executive Officer, Chair of the Board West Pharmaceutical Services, Inc. WST Q3 2022 Earnings Cautionary Statement Under the Private Securities Litigation Reform Act of 1995 This presentation and any accompanying management commentary contain “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about product development and operational performance. Each of these statements is based on preliminary information, and actual results could differ from any preliminary estimates. We caution investors that the risk factors listed under “Cautionary Statement” in our press releases, as well as those set forth under the caption "Risk Factors" in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission and as revised or supplemented by our quarterly reports on Form 10-Q, could cause our actual results to differ materially from those estimated or predicted in the forward-looking statements. You should evaluate any statement in light of these important factors. Except as required by law or regulation, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. Non-U.S. GAAP Financial Measures Certain financial measures included in these presentation materials, or which may be referred to in management’s discussion of the Company’s results and outlook, have not been calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and therefore are referred to as non- U.S. GAAP financial measures. Non-U.S. GAAP financial measures should not be considered in isolation or as an alternative to such measures determined in accordance with U.S. GAAP. Please refer to “Reconciliation of Non-U.S. GAAP Financial Measures” at the end of these materials for more information. “While our base, non-COVID-19 demand continues to grow, we have had multiple constraints that impacted our financial results. Delays in expansion projects as well as customer delivery timing and mix-shift related productivity impacts resulted in lower-than-expected overall high-value product (HVP) net sales. We expect to resolve these issues in early 2023.” “We project our full-year 2023 base business, led by our Biologics market unit, to exceed our financial construct of 7% to 9% annual organic net sales growth. While we expect further decline in COVID-19-related net sales, our base business growth will more than offset the decline, resulting in overall organic net sales growth in 2023.”
West Pharmaceutical Services, Inc. Eric M. Green President & CEO, Chair of the Board Bernard J. Birkett Senior VP & Chief Financial and Operations Officer Third-Quarter Results 2022 Analyst Conference Call 9 a.m. Eastern Time | October 27, 2022
3 West Analyst Conference Call 9 a.m. Eastern Time October 27, 2022 A webcast of today’s call can be accessed in the “Investors” section of the Company’s website: www.westpharma.com To participate on the call by asking questions to Management, please register in advance at https://bit.ly/3eipdG3. Upon registration, all telephone participants will receive the dial-in number along with a unique PIN number that will be used to access the call. A replay of the conference call and webcast will be available on the Company’s website for 30 days. These presentation materials are intended to accompany today’s press release announcing the Company’s results for the third quarter 2022 and management’s discussion of those results during today’s conference call. WST Q3 2022 Earnings
4 Safe Harbor Statement This presentation and any accompanying management commentary contain “forward- looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about product development, operational performance and expectations regarding future events. Each of these statements is based on preliminary information, and actual results could differ from any preliminary estimates. We caution investors that the risk factors listed under our “Forward Looking Statements” in our press releases, as well as those set forth under the caption "Risk Factors" in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission and as revised or supplemented by our quarterly reports on Form 10-Q, could cause our actual results to differ materially from those estimated or predicted in the forward-looking statements. You should evaluate any statement in light of these important factors. Except as required by law or regulation, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. Certain financial measures included in these presentation materials, or which may be referred to in management’s discussion of the Company’s results and outlook, have not been calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and therefore are referred to as non-U.S. GAAP financial measures. Non-U.S. GAAP financial measures should not be considered in isolation or as an alternative to such measures determined in accordance with U.S. GAAP. Please refer to “Reconciliation of Non-U.S. GAAP Financial Measures” at the end of these materials for more information. Cautionary Statement Under the Private Securities Litigation Reform Act of 1995 Non-U.S. GAAP Financial Measures Trademarks and registered trademarks used in this report are the property of West Pharmaceutical Services, Inc. or its subsidiaries, in the United States and other jurisdictions, unless noted otherwise. Daikyo Crystal Zenith® and Daikyo CZ® are registered trademarks of Daikyo Seiko, Ltd. Daikyo Crystal Zenith technologies are licensed from Daikyo Seiko, Ltd. Trademarks WST Q3 2022 Earnings
5 Financial Highlights WST Q3 2022 Earnings • Third quarter 2022 net sales of $686.9 million declined 2.8%; organic net sales growth was 4.3% • Third quarter 2022 reported-diluted EPS of $1.59 compared to $2.31 in the same period last year; adjusted-diluted EPS of $2.03 compared to $2.06 in the same period last year
6 Q4 Outlook and Preliminary 2023 WST Q3 2022 Earnings • Base business to grow, led by Biologics market unit • Order book of base demand remains strong, non-COVID-19 • Focus and urgency to address capacity constraints
7 S h owc a s i n g o u r S c i e n t i f i c L eade r s h i p a nd Te ch n i ca l Exp er t i s e Col l ab o rat i o n w i t h Co r n i n g Execute. Innovate. Grow. A commitment and focus to deliver superior value to our customers and patients WST Q3 2022 Earnings S m a r t D o s e ® O n -B o dy D el ivery System
8 Investing in Capacity across the Globe AMERICAS EXPANSION PROGRESS EUROPE EXPANSION PROGRESS ASIA PACIFIC EXPANSION PROGRESS Kinston Williamsport & Jersey Shore Waterford Kovin Eschweiler Jurong, Singapore WST Q3 2022 Earnings 8
9 Third-Quarter 2022 Summary Results ($ millions, except earnings-per-share (EPS) data) Three Months Ended September 30 2022 2021 Reported Net Sales $686.9 $706.5 Gross Profit Margin 39.0% 40.8% Reported Operating Profit $186.2 $181.4 Adjusted Operating Profit (1) $186.4 $182.8 Reported Operating Profit Margin 27.1% 25.7% Adjusted Operating Profit Margin (1) 27.1% 25.9% Reported-Diluted EPS $1.59 $2.31 Adjusted-Diluted EPS (1) $2.03 $2.06 “Adjusted Operating Profit,” “Adjusted Operating Profit Margin” and “Adjusted-Diluted EPS” are Non-U.S. GAAP financial measures. See accompanying slides and the discussion under the heading “Non-U.S. GAAP Financial Measures” in today’s press release for an explanation and reconciliation of these items. (1) WST Q3 2022 Earnings
10 Overall Organic Net Sales Growth – 4.3% (Q3 2022) Proprietary Products Q3 2022 organic net sales growth of 5.5% led by sales of high-value products, which grew mid-single digits BIOLOGICS GENERICS PHARMA Sales led by COVID one-time fees, SmartDose®, NovaPure® and CZ components Sales led by high-value products, including Westar® components Sales led by high-value products, including NovaPure® and Westar® components CONTRACT MANUFACTURING Organic sales decline of 1.2%, led by a decrease in sales of components for diagnostic devices Mid-Single Digit Mid-Single Digit (Low-Single Digit)Low-Single Digit Third-Quarter 2022 Organic Net Sales Growth WST Q3 2022 Earnings
11 Change in Consolidated Net Sales Third-quarter 2021 to 2022 ($ millions) WST Q3 2022 Earnings
12 Gross Profit Update ($ millions) Three Months Ended September 30, 2022 2021 Proprietary Products Gross Profit $247.3 $267.3 Proprietary Products Gross Profit Margin 43.6% 46.3% Contract-Manufactured Products Gross Profit $20.7 $20.9 Contract-Manufactured Products Gross Profit Margin 17.3% 16.1% Consolidated Gross Profit $268.0 $288.2 Consolidated Gross Profit Margin 39.0% 40.8% WST Q3 2022 Earnings
13 Cash Flow and Balance Sheet Metrics ($ millions) Cash Flow Items YTD Q3 2022 YTD Q3 2021 Depreciation and Amortization $89.5 $87.9 Operating Cash Flow $493.2 $423.2 Capital Expenditures $189.7 $176.9 Free Cash Flow $303.5 $246.3 Financial Condition September 30, 2022 December 31, 2021 Cash and Cash Equivalents $729.0 $762.6 Debt $209.4 $253.0 Equity $2,470.8 $2,335.4 Working Capital $1,276.9 $1,147.9 WST Q3 2022 Earnings
14 2022 Full-Year Guidance 2022 Full-Year Guidance Consolidated Net Sales $2.830 - $2.840 billion Adjusted-Diluted EPS $8.15 - $8.20 WST Q3 2022 Earnings
15WST Q3 2022 Earnings Execute. Innovate. Grow. Delivering Unique Value to Customers and Patients Global Operational Effectiveness Across the Network Accelerating Investments for the Future Driven by our collective purpose to improve patient lives
16 Eric M. Green President and Chief Executive Officer, Chair of the Board Bernard J. Birkett Senior VP and Chief Financial and Operations Officer Quintin Lai VP, Corporate Strategy & Investor Relations Q & A WST Q3 2022 Earnings
17 Notes to Non-U.S. GAAP Financial Measures The Non-U.S. GAAP financial measures are incorporated into our discussion and analysis as management uses them in evaluating our results of operations and believes that this information provides users a valuable insight into our overall performance and financial position. A reconciliation of these adjusted Non-U.S. GAAP financial measures to the comparable U.S. GAAP financial measures is included in the accompanying tables. For the purpose of aiding the comparison of our year-over-year results, we may refer to net sales and other financial results excluding the effects of changes in foreign currency exchange rates. Organic net sales exclude the impact from acquisitions and/or divestitures and translate the current-period reported sales of subsidiaries whose functional currency is other than the U.S. Dollar at the applicable foreign exchange rates in effect during the comparable prior-year period. We may also refer to financial results excluding the effects of unallocated items. The re-measured results excluding effects from currency translation, the impact from acquisitions and/or divestitures, and the effects of unallocated items are not in conformity with U.S. GAAP and should not be used as a substitute for the comparable U.S. GAAP financial measures. WST Q3 2022 Earnings
18 Notes to Non-U.S. GAAP Financial Measures RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) See “Notes to Non-U.S. GAAP Financial Measures”, “Safe Harbor Statement” (Slide 4) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS ($ millions, except EPS data) Three months ended September 30, 2022 Operating profit Income tax expense Net income Diluted EPS Reported (U.S. GAAP) $186.2 $20.4 $120.6 $1.59 Pension settlement - 20.0 29.6 0.39 Amortization of acquisition-related intangible assets 0.2 0.1 0.7 0.01 Tax law changes - (3.2) 3.2 0.04 Adjusted (Non-U.S. GAAP) $186.4 $37.3 $154.1 $2.03 WST Q3 2022 Earnings Nine months ended September 30, 2022 Operating profit Income tax expense Net income Diluted EPS Reported (U.S. GAAP) $604.3 $85.8 $482.9 $6.36 Restructuring and severance related charges (1.6) (0.4) (1.2) (0.01) Pension settlement - 20.3 30.5 0.40 Amortization of acquisition-related intangible assets 0.6 0.1 2.1 0.03 Royalty acceleration - 1.3 (1.3) (0.02) Tax law changes - (3.2) 3.2 0.04 Adjusted (Non-U.S. GAAP) $603.3 $103.9 $516.2 $6.80
19 Notes to Non-U.S. GAAP Financial Measures RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) See “Notes to Non-U.S. GAAP Financial Measures”, “Safe Harbor Statement” (Slide 4) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS ($ millions, except EPS data) Three months ended September 30, 2021 Operating profit Income tax expense Net income Diluted EPS Reported (U.S. GAAP) $181.4 $12.0 $175.6 $2.31 Restructuring and severance related charges 0.3 0.1 0.2 - Amortization of acquisition-related intangible assets 0.2 - 0.7 0.01 Royalty acceleration - 20.4 (20.4) (0.27) Cost investment activity 0.9 0.2 0.7 0.01 Adjusted (Non-U.S. GAAP) $182.8 $32.7 $156.8 $2.06 WST Q3 2022 Earnings Nine months ended September 30, 2021 Operating profit Income tax expense Net income Diluted EPS Reported (U.S. GAAP) $568.3 $73.0 $514.1 $6.78 Restructuring and severance related charges 2.5 0.6 1.9 0.02 Pension settlement - 0.2 0.6 0.01 Amortization of acquisition-related intangible assets 0.6 0.1 2.1 0.03 Royalty acceleration - 20.4 (20.4) (0.27) Tax law changes - 1.4 (1.4) (0.02) Cost investment activity 1.8 (0.1) 1.9 0.02 Adjusted (Non-U.S. GAAP) $573.2 $95.6 $498.8 $6.57
20 Notes to Non-U.S. GAAP Financial Measures RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) See “Notes to Non-U.S. GAAP Financial Measures”, “Safe Harbor Statement” (Slide 4) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Net Sales to Organic Net Sales (1) ($ millions) Organic net sales exclude the impact from acquisitions and/or divestitures and translate the current-period reported sales of subsidiaries whose functional currency is other than the U.S. Dollar at the applicable foreign exchange rates in effect during the comparable prior-year period. (1) Three months ended September 30, 2022 Proprietary CM Eliminations Total Reported net sales (U.S. GAAP) $567.0 $120.0 $(0.1) $686.9 Effect of changes in currency translation rates 41.7 8.1 - 49.8 Organic net sales (Non-U.S. GAAP) (1) $608.7 $128.1 $(0.1) $736.7 WST Q3 2022 Earnings Nine months ended September 30, 2022 Proprietary CM Eliminations Total Reported net sales (U.S. GAAP) $1,822.0 $356.5 $(0.3) $2,178.2 Effect of changes in currency translation rates 103.3 18.0 - 121.3 Organic net sales (Non-U.S. GAAP) (1) $1,925.3 $374.5 $(0.3) $2,299.5
21 Notes to Non-U.S. GAAP Financial Measures RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) See “Notes to Non-U.S. GAAP Financial Measures”, “Safe Harbor Statement” (Slide 4) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Reported-Diluted EPS Guidance to Adjusted-Diluted EPS Guidance 2021 Actual 2022 Guidance % Change Reported-diluted EPS (U.S. GAAP) $8.67 $7.70 to $7.75 (11.2%) to (10.6%) Pension settlement 0.02 0.40 Cost investment activity 0.06 - Restructuring and severance related charges 0.02 (0.01) Amortization of acquisition-related intangible assets 0.04 0.04 Asset impairment 0.04 - Royalty acceleration (0.25) (0.02) Tax law changes (0.02) 0.04 Adjusted-diluted EPS (Non-U.S. GAAP) (1) $8.58 $8.15 to $8.20 (5.0%) to (4.4%) (1) See “Full-year 2022 Financial Guidance” and “Non-U.S. GAAP Financial Measures” in today’s press release for additional information regarding adjusted-diluted EPS. We have opted not to forecast 2022 tax benefits from stock-based compensation in upcoming quarters, as they are out of the Company’s control. Instead, we recognize the benefits as they occur. In the first nine months of 2022, tax benefits associated with stock-based compensation increased adjusted-diluted EPS by $0.16. Any future tax benefits associated with stock-based compensation that we receive in 2022 would provide a positive adjustment to our full-year EPS guidance. In 2021, tax benefits associated with stock-based compensation increased adjusted-diluted EPS by $0.41. WST Q3 2022 Earnings