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 22, 2020
| 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 22, 2020, West Pharmaceutical Services, Inc. (the “Company”) issued a press release announcing its third-quarter 2020 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 22, 2020. | |
| 99.2 | West Pharmaceutical Services, Inc. Presentation, dated October 22, 2020. | |
| 104 | The cover page from the Company’s Current Report on Form 8-K, dated October 22, 2020, 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 and Chief Financial Officer | |
| October 22, 2020 |
EXHIBIT INDEX
| Exhibit No. | Description |
|---|---|
| 99.1 | West Pharmaceutical Services, Inc. Press Release, dated October 22, 2020. |
| 99.2 | West Pharmaceutical Services, Inc. Presentation, dated October 22, 2020. |
| 104 | The cover page from the Company’s Current Report on Form 8-K, dated October 22, 2020, formatted in Inline XBRL. |
4
Document
Exhibit 99.1
West Announces Third-Quarter 2020 Results
- Conference Call Scheduled for 9 a.m. EDT Today -
Exton, PA, October 22, 2020 – West Pharmaceutical Services, Inc. (NYSE: WST) today announced its financial results for the third-quarter 2020 and updated full-year 2020 financial guidance.
Third-Quarter 2020 Summary (comparisons to prior-year period)
•Net sales of $548.0 million grew 20.1%; organic sales growth was 18.2%.
•Reported-diluted EPS of $1.09 increased 45%.
•Adjusted-diluted EPS of $1.15 increased 46%.
•Company is raising full-year 2020 net sales guidance to a new range of $2.10 billion and $2.11 billion.
•Company is raising full-year 2020 adjusted-diluted EPS guidance to a new range of $4.50 and $4.55.
“Adjusted-diluted EPS” and “organic sales growth” are Non-U.S. GAAP measurements. See discussion under the heading “Non-U.S. GAAP Financial Measures” in this release.
“Third-quarter results were robust across the entire business, led by High-Value Products (HVP) and Biologics. Additionally, we benefited from incremental sales related to the COVID-19 pandemic including components used with treatments and supporting therapies as well as potential vaccines currently in clinical trials,” said Eric M. Green, President and Chief Executive Officer. “I am proud of our team members for their relentless passion and sense of urgency to help our customers and the patients we jointly serve. Continued excellence in executing our market-led strategy and our global operations position us well for the remainder of the year and into 2021.”
Proprietary Products Segment
Net sales grew by 22.1% to $421.5 million. Organic sales growth was 20.3%, with currency translation increasing sales growth by 180 basis points. HVP components represented over 65% of segment sales and generated double-digit organic sales growth.
Our Biologics market unit had strong double-digit organic sales growth, led by Flurotec®, Daikyo® and NovaPure® film-coated components, as well as Westar® and Envision® components. Our Generics market unit posted high single-digit organic sales growth, and our Pharma market unit grew organic sales by mid-single digits. Both Generics and Pharma market units were led by sales of film-coated and Westar components.
Contract-Manufactured Products Segment
Net sales grew by 14.0% to $126.6 million. Organic sales growth was 11.7% with currency translation increasing sales growth by 230 basis points. Segment performance was led by strong sales of healthcare-related injection and diagnostic devices.
Financial Highlights (first nine months of 2020)
Operating cash flow was $323.8 million, an increase of 24.2%. Capital expenditures were $116.7 million. Free cash flow (operating cash flow minus capital expenditures) was $207.1 million, an increase of 20.4%.
Full-Year 2020 Financial Guidance
Full-year 2020 net sales guidance is expected to be in a range of $2.10 billion and $2.11 billion, compared to a prior range of $2.035 billion and $2.055 billion.
•Organic sales growth is expected to be approximately 14% to 15%, compared to a prior guidance of 12%.
•Net sales guidance includes an estimated full-year headwind of $4 million for the full-year 2020 based on current foreign exchange rates, compared to prior guidance of a headwind of $26 million.
Full-year 2020 adjusted-diluted EPS is expected to be in a range of $4.50 and $4.55, compared to a prior range of $4.15 and $4.25.
•Full-year adjusted-diluted EPS guidance includes an estimated headwind of approximately $0.02 based on current foreign currency exchange rates, compared to prior guidance of a headwind of $0.07.
•The revised guidance includes an $0.18 EPS impact from tax benefits from stock-based compensation in the first nine months of 2020.
•For the remainder of the year, our EPS guidance range assumes a tax rate of 24% 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 2020 would provide a positive adjustment to our full-year EPS guidance.
Third-Quarter 2020 Conference Call
The Company will host a conference call to discuss the results and business expectations at 9:00 a.m. Eastern Time today. To participate on the call please dial 877-930-8295 (U.S.) or 253-336-8738 (International). The conference ID is 7564183.
A live broadcast of the conference call will be available at the Company’s website, www.westpharma.com, in the “Investors” section. 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.
An online archive of the broadcast will be available at the website three hours after the live call and will be available through Thursday, October 29, 2020, by dialing 855-859-2056 (U.S.) or 404-537-3406 (International) and entering conference ID 7564183.
| Investor Contact: | Media Contact: |
|---|---|
| Quintin Lai | Michele Pelkowski |
| Vice President, Investor Relations | Vice President, Global Communications |
| (610) 594-3318 | (610) 594-3054 |
| Quintin.Lai@westpharma.com | Michele.Pelkowski@westpharma.com |
Forward-Looking Statements
Certain forward-looking statements appear in this release and include such words as “raising,” “continued,” “position,” “potential,” “expected,” “to be,” “includes,” “estimated,” “assumes,” “would provide,” 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 duration and severity 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 COVID-19; 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; average profitability, or mix, of the products we sell; dependence on third-party suppliers and partners; increased raw material costs; fluctuations in currency exchange; and the ability to meet development milestones with key customers. 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 and Part II Item 1A, entitled “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Report on Form 10-Q for the period ended June 30, 2020, respectively.
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
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 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, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| Net sales | $ | 548.0 | 100% | $ | 456.1 | 100% | $ | 1,566.7 | 100% | $ | 1,369.3 | 100% | |
| Cost of goods and services sold | 353.4 | 65 | 308.3 | 68 | 1,010.0 | 65 | 916.8 | 67 | |||||
| Gross profit | 194.6 | 35 | 147.8 | 32 | 556.7 | 35 | 452.5 | 33 | |||||
| Research and development | 12.5 | 2 | 9.3 | 2 | 34.0 | 2 | 28.7 | 2 | |||||
| Selling, general and administrative expenses | 76.2 | 14 | 64.8 | 14 | 225.7 | 14 | 203.7 | 15 | |||||
| Other expense (income), net | 6.7 | 1 | 6.4 | 1 | 6.2 | — | 1.6 | — | |||||
| Operating profit | 99.2 | 18 | 67.3 | 15 | 290.8 | 19 | 218.5 | 16 | |||||
| Interest expense, net | 1.9 | — | 1.1 | — | 4.9 | — | 3.9 | — | |||||
| Other nonoperating (income) expense | (0.4) | — | 1.3 | 1 | (0.3) | — | 0.2 | — | |||||
| Income before income taxes | 97.7 | 18 | 64.9 | 14 | 286.2 | 18 | 214.4 | 16 | |||||
| Income tax expense | 21.1 | 4 | 10.9 | 2 | 52.1 | 3 | 42.5 | 3 | |||||
| Equity in net income of affiliated companies | (5.7) | (1) | (2.3) | — | (13.7) | (1) | (5.9) | — | |||||
| Net income | $ | 82.3 | 15% | $ | 56.3 | 12% | $ | 247.8 | 16% | $ | 177.8 | 13% | |
| Net income per share: | |||||||||||||
| Basic | $ | 1.11 | $ | 0.76 | $ | 3.35 | $ | 2.40 | |||||
| Diluted | $ | 1.09 | $ | 0.75 | $ | 3.28 | $ | 2.36 | |||||
| Average common shares outstanding | 73.9 | 74.0 | 73.9 | 73.9 | |||||||||
| Average shares assuming dilution | 75.8 | 75.5 | 75.6 | 75.3 |
WEST PHARMACEUTICAL SERVICES
REPORTING SEGMENT INFORMATION
(UNAUDITED)
(in millions)
| Three Months Ended<br>September 30, | Nine Months Ended<br>September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Sales: | 2020 | 2019 | 2020 | 2019 | ||||||||
| Proprietary Products | $ | 421.5 | $ | 345.2 | $ | 1,194.5 | $ | 1,045.9 | ||||
| Contract-Manufactured Products | 126.6 | 111.1 | 372.5 | 323.6 | ||||||||
| Eliminations | (0.1) | (0.2) | (0.3) | (0.2) | ||||||||
| Consolidated Total | $ | 548.0 | $ | 456.1 | $ | 1,566.7 | $ | 1,369.3 | ||||
| Gross Profit: | ||||||||||||
| Proprietary Products | $ | 171.9 | $ | 131.8 | $ | 492.8 | $ | 406.3 | ||||
| Contract-Manufactured Products | 22.7 | 16.0 | 63.9 | 46.2 | ||||||||
| Gross Profit | $ | 194.6 | $ | 147.8 | $ | 556.7 | $ | 452.5 | ||||
| Gross Profit Margin | 35.5 | % | 32.4 | % | 35.5 | % | 33.0 | % | ||||
| Operating Profit (Loss): | ||||||||||||
| Proprietary Products | $ | 107.5 | $ | 72.9 | $ | 312.9 | $ | 238.7 | ||||
| Contract-Manufactured Products | 18.8 | 11.6 | 52.1 | 33.5 | ||||||||
| Stock-based compensation expense | (10.0) | (5.4) | (27.6) | (18.8) | ||||||||
| General corporate costs | (12.4) | (9.0) | (39.5) | (30.1) | ||||||||
| Adjusted Operating Profit | $ | 103.9 | $ | 70.1 | $ | 297.9 | $ | 223.3 | ||||
| Adjusted Operating Profit Margin | 19.0 | % | 15.4 | % | 19.0 | % | 16.3 | % | ||||
| Other unallocated items | (4.7) | (2.8) | (7.1) | (4.8) | ||||||||
| Reported Operating Profit | $ | 99.2 | $ | 67.3 | $ | 290.8 | $ | 218.5 | ||||
| Reported Operating Profit Margin | 18.1 | % | 14.8 | % | 18.6 | % | 16.0 | % |
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, 2020 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | ||||
|---|---|---|---|---|---|---|---|---|
| Reported (U.S. GAAP) | $ | 99.2 | $ | 21.1 | $ | 82.3 | $ | 1.09 |
| Pension Settlement ^(1)^ | — | 0.3 | 0.8 | 0.01 | ||||
| Restructuring and severance related charges^(2)^ | 4.5 | 1.1 | 3.4 | 0.04 | ||||
| Amortization of Acquisition-related Intangible Assets ^(3)^ | 0.2 | — | 0.7 | 0.01 | ||||
| Adjusted (Non-U.S. GAAP) | $ | 103.9 | $ | 22.5 | $ | 87.2 | $ | 1.15 |
| Nine months ended September 30, 2020 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | ||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Reported (U.S. GAAP) | $ | 290.8 | $ | 52.1 | $ | 247.8 | $ | 3.28 |
| Pension Settlement ^(1)^ | — | 0.8 | 2.6 | 0.03 | ||||
| Restructuring and severance related charges^(2)^ | 6.7 | 1.7 | 5.0 | 0.06 | ||||
| Amortization of Acquisition-related Intangible Assets ^(3)^ | 0.4 | 0.1 | 2.9 | 0.04 | ||||
| Adjusted (Non-U.S. GAAP) | $ | 297.9 | $ | 54.7 | $ | 258.3 | $ | 3.41 |
| Three months ended September 30, 2019 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | ||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Reported (U.S. GAAP) | $ | 67.3 | $ | 10.9 | $ | 56.3 | $ | 0.75 |
| Restructuring and related charges ^(2)^ | 1.8 | 0.4 | 1.4 | 0.01 | ||||
| Pension settlement ^(1)^ | — | 0.6 | 2.1 | 0.03 | ||||
| Argentina currency devaluation | 1.0 | 0.3 | 0.7 | 0.01 | ||||
| Tax law changes | — | 1.0 | (1.0) | (0.01) | ||||
| Adjusted (Non-U.S. GAAP) | $ | 70.1 | $ | 13.2 | $ | 59.5 | $ | 0.79 |
| Nine months ended September 30, 2019 | Operating<br>profit | Income<br>tax<br>expense | Net<br>income | Diluted<br>EPS | ||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Reported (U.S. GAAP) | $ | 218.5 | $ | 42.5 | $ | 177.8 | $ | 2.36 |
| Restructuring and related charges ^(2)^ | 3.8 | 0.9 | 2.9 | 0.03 | ||||
| Pension settlement ^(1)^ | — | 0.6 | 2.1 | 0.03 | ||||
| Argentina currency devaluation | 1.0 | 0.3 | 0.7 | 0.01 | ||||
| Tax law changes | — | 1.0 | (1.0) | (0.01) | ||||
| Adjusted (Non-U.S. GAAP) | $ | 223.3 | $ | 45.3 | $ | 182.5 | $ | 2.42 |
(1)During the three and nine months ended September 30, 2020, the Company recorded a pension settlement charge of $1.1 million and $3.4 million, respectively, within other nonoperating (income) expense, as it determined that normal-course lump-sum payments for each of our U.S. qualified and non-qualified defined benefit pension plan exceeded the threshold for settlement accounting.
During the three and nine months ended September 30, 2019, the Company recorded a pension settlement charge of $2.7 million within other nonoperating (income) expense, as it determined that normal-course lump-sum payments for each of our U.S. qualified and non-qualified defined benefit pension plans exceeded the threshold for settlement accounting.
(2)During the three and nine months ended September 30, 2020, the Company recorded $4.5 million and $6.7 million, respectively, in restructuring and severance related charges. During the three and nine months ended September 30, 2019, the Company recorded $1.8 million and $3.8 million, respectively, in restructuring and related charges.
(3)During the three and nine months ended September 30, 2020, the Company recorded $0.2 million and $0.4 million, respectively, of amortization expense within operating profit associated with an acquisition of an intangible asset during the second quarter of 2020. During the three and nine months ended September 30, 2020 the company recorded $0.5 million and $2.5 million, respectively, of amortization expense in association with an acquisition of increased ownership interest in Daikyo.
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 ^(4)^
| Three months ended September 30, 2020 | Proprietary | CM | Eliminations | Total | ||||
|---|---|---|---|---|---|---|---|---|
| Reported net sales (U.S. GAAP) | $ | 421.5 | $ | 126.6 | $ | (0.1) | $ | 548.0 |
| Effect of acquisitions and/or divestitures | — | — | — | — | ||||
| Effect of changes in currency translation rates | (6.3) | (2.4) | — | (8.7) | ||||
| Organic net sales (Non-U.S. GAAP) ^(4)^ | $ | 415.2 | $ | 124.2 | $ | (0.1) | $ | 539.3 |
| Nine months ended September 30, 2020 | Proprietary | CM | Eliminations | Total | ||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Reported net sales (U.S. GAAP) | $ | 1,194.5 | $ | 372.5 | $ | (0.3) | $ | 1,566.7 |
| Effect of acquisitions and/or divestitures | (1.2) | — | — | (1.2) | ||||
| Effect of changes in currency translation rates | 10.7 | — | — | 10.7 | ||||
| Organic net sales (Non-U.S. GAAP) ^(4)^ | $ | 1,204.0 | $ | 372.5 | $ | (0.3) | $ | 1,576.2 |
(4)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.
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
| 2019 Actual | 2020 Guidance | % Change | |
|---|---|---|---|
| Reported-diluted EPS (U.S. GAAP) | $3.21 | $4.36 to $4.41 | 35.8% to 37.4% |
| Restructuring and severance related charges | 0.04 | 0.06 | |
| Gain on restructuring-related sales of assets | (0.02) | — | |
| Pension settlement | 0.04 | 0.03 | |
| Amortization of acquisition-related intangible assets | — | 0.05 | |
| Argentina devaluation | 0.01 | — | |
| Tax recovery | (0.04) | — | |
| Adjusted-diluted EPS (Non-U.S. GAAP) ^(5)^ | $3.24 | $4.50 to $4.55 | 38.9% to 40.4% |
Notes:
See “Full-Year 2020 Financial Guidance” and “Non-U.S. GAAP Financial Measures” in today’s press release for additional information regarding adjusted-diluted EPS.
(5) In 2019, tax benefits associated with stock-based compensation increased adjusted-diluted EPS by $0.14. We have opted not to forecast 2020 tax benefits from stock-based compensation the upcoming quarter, as it is out of the Company’s control. Instead, we recognize the benefits as they occur. In the First-Quarter, Second-Quarter and Third-Quarter 2020, tax benefits associated with stock-based compensation increased adjusted-diluted EPS by $0.07, $0.09, and $0.02, respectively. Any future tax benefits associated with stock-based compensation that we receive in 2020 would provide a positive adjustment to our full-year EPS guidance.
WEST PHARMACEUTICAL SERVICES
CASH FLOW ITEMS
(UNAUDITED)
(in millions)
| Nine Months Ended September 30, | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Depreciation and amortization | $ | 80.6 | $ | 77.1 |
| Operating cash flow | $ | 323.8 | $ | 260.8 |
| Capital expenditures | $ | 116.7 | $ | 88.8 |
WEST PHARMACEUTICAL SERVICES
FINANCIAL CONDITION
(UNAUDITED)
(in millions)
| As of<br><br>September 30, 2020 | As of<br>December 31, 2019 | |||
|---|---|---|---|---|
| Cash and cash equivalents | $ | 519.4 | $ | 439.1 |
| Accounts receivable, net | $ | 373.0 | $ | 319.3 |
| Inventories | $ | 294.9 | $ | 235.7 |
| Accounts payable | $ | 180.3 | $ | 156.8 |
| Debt | $ | 255.7 | $ | 257.3 |
| Equity | $ | 1,718.9 | $ | 1,573.2 |
| Working capital | $ | 790.6 | $ | 717.1 |
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.
wstq32020presentation
Third-Quarter 2020 Results Overall Net Sales OVERALL ORGANIC SALES GROWTH $548M | 20.1% Proprietary Products Q3 2020 organic sales Q3 growth of 20.3%, led by sales of high-value 18.2% Diluted Earnings Per Share: $1.09 | 45% products, which grew double digits Adjusted Diluted Earnings Per Share: $1.15 | 46% “Third-quarter results were robust across the entire business, led by High-Value Products and Biologics. Additionally, we DD benefited from incremental sales related BIOLOGICS to the COVID-19 pandemic including components with treatments and supporting therapies as well as potential vaccines currently in clinical trials. I am GENERICS HSD proud of our team members for their relentless passion and sense of urgency to help our customers and the patients we jointly serve. Continued excellence in executing our market-led strategy and PHARMA MSD our global operations position us well for the remainder of the year and into 2021.” CONTRACT MANUFACTURING DD Eric M. Green President and Chief Executive Officer West Pharmaceutical Services, Inc. Abbreviations: LSD – low-single digit; MSD – mid-single digit; HSD – high-single digit; DD – double digit 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. 1 WST Q3 2020 Earnings
West Pharmaceutical Services, Inc. Third-Quarter 2020 Analyst Conference Call 9 a.m. Eastern Time, October 22, 2020 Eric M. Green Bernard J. Birkett President and Senior Vice President and Chief Executive Officer Chief Financial Officer A webcast of today’s call can be accessed in the “Investors” section of the Company’s website: www.westpharma.com 877-930-8295 (U.S.) To participate on the call, please dial: 253-336-8738 (International) The conference ID is 7564183 An online archive of the broadcast will be available at 855-859-2056 (U.S.) the website three hours after the live call and will be 404-537-3406 (International) available through Thursday, October 29, 2020, by The conference ID is 7564183 dialing: These presentation materials are intended to accompany today’s press release announcing the Company’s results for the third quarter 2020 and management’s discussion of those results during today’s conference call. 2 WST Q3 2020 Earnings
Safe Harbor Statement 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. Trademarks 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® is a registered trademark of Daikyo Seiko, Ltd. 3 WST Q3 2020 Earnings
We are in the business of helping our customers bring new medicines and treatments that improve the lives of patients. PASSION FOR CUSTOMERS LEADERSHIP IN QUALITY ONE WEST TEAM 4 WST Q3 2020 Earnings
COVID-19 has Introduced New Demands 1 Speed of development 2 Localization vs Globalization 3 Increased home treatment and diagnostics 5 WST Q3 2020 Earnings
West is Well Positioned for Growing Requirements Scientific & Technical Automation Digital Acceleration Expertise 6 WST Q3 2020 Earnings
Third-Quarter 2020 Results . Q3 2020 net sales of $548 million grew 20.1%; organic sales growth was 18.2% . Q3 2020 reported-diluted EPS of $1.09 increased 45%; adjusted- diluted EPS of $1.15 increased 46% . Company is raising full-year 2020 net sales guidance to a new range of between $2.10 billion and $2.11 billion and is raising full- year 2020 adjusted-diluted EPS guidance to a new range of between $4.50 and $4.55 (1) (1) Please refer to “Notes to Non-U.S. GAAP Financial Measures” on slides 16-20 and the discussion under the heading “Non-U.S. GAAP Financial Measures” in today’s press release, for additional information regarding adjusted-diluted EPS. 7 WST Q3 2020 Earnings
Third-Quarter 2020 Summary Results ($ millions, except earnings-per-share (EPS) data) Three Months Ended September 30 2020 2019 Reported Net Sales $548.0 $456.1 Gross Profit Margin 35.5% 32.4% Reported Operating Profit $99.2 $67.3 Adjusted Operating Profit (1) $103.9 $70.1 Reported Operating Profit Margin 18.1% 14.8% Adjusted Operating Profit Margin (1) 19.0% 15.4% Reported-Diluted EPS $1.09 $0.75 Adjusted-Diluted EPS (1) $1.15 $0.79 (1) “Adjusted Operating Profit,” “Adjusted Operating Profit Margin” and “Adjusted-Diluted EPS” are Non-U.S. GAAP financial measures. See slides 16-20 and the discussion under the heading “Non-U.S. GAAP Financial Measures” in today’s press release for an explanation and reconciliation of these items. 8 WST Q3 2020 Earnings
Third-Quarter 2020 Organic Sales Growth Q3 OVERALL ORGANIC SALES GROWTH Proprietary Products Q3 2020 organic sales growth of 20.3%, 18.2% led by sales of high-value products, which grew double digits CONTRACT BIOLOGICS GENERICS PHARMA MANUFACTURING Sales led by high-value products, Sales led by high-value Sales led by high-value products, Organic sales growth of including Flurotec® coated products, including including Flurotec®, Westar® and 11.7%, led by sales of components, Daikyo® and Flurotec® and Teflon® Envision® diagnostic and healthcare- Novapure® film-components, components components related injection devices Westar® components and Envision® components DD HSD MSD DD Abbreviations: LSD – low-single digit; MSD – mid-single digit; HSD – high-single digit; DD – double digit 9 WST Q3 2020 Earnings
Change in Consolidated Net Sales Third-quarter 2019 to 2020 ($ millions) 10 WST Q3 2020 Earnings
Gross Profit Update ($ millions) Three Months Ended September 30, 2020 2019 Proprietary Products Gross Profit $171.9 $131.8 Proprietary Products Gross Profit Margin 40.8% 38.2% Contract-Manufactured Products Gross Profit $22.7 $16.0 Contract-Manufactured Products Gross Profit Margin 17.9% 14.4% Consolidated Gross Profit $194.6 $147.8 Consolidated Gross Profit Margin 35.5% 32.4% 11 WST Q3 2020 Earnings
Cash Flow and Balance Sheet Metrics ($ millions) Cash Flow Items Financial Condition YTD YTD September 30, December 31, Q3 2020 Q3 2019 2020 2019 Depreciation and Amortization $80.6 $77.1 Cash and Cash Equivalents $519.4 $439.1 Operating Cash Flow $323.8 $260.8 Debt $255.7 $257.3 Capital Expenditures $116.7 $88.8 Equity $1,718.9 $1,573.2 Working Capital $790.6 $717.1 12 WST Q3 2020 Earnings
2020 Full-Year Guidance 2020 Full-Year Guidance (1,2) Consolidated Net Sales $2.10 - $2.11 billion Adjusted-Diluted EPS $4.50 - $4.55 (1) Please refer to “Notes to Non-U.S. GAAP Financial Measures” on slides 16-20 and the discussion under the heading “Non-U.S. GAAP Financial Measures” in today’s press release, for additional information regarding adjusted-diluted EPS. (2) The adjusted-diluted EPS guidance range does not include potential tax benefits from stock-based compensation beyond those incurred in the first nine months of 2020. Any additional tax benefits associated with stock-based compensation received in 2020 would provide a positive adjustment to this guidance range. 13 WST Q3 2020 Earnings
Our Our WE People Purpose Slide RemainTitle Resolute in Our Commitment 14 | 2020 Annual Shareholders Meeting WST Q3 2020 Earnings
Eric M. Green Bernard J. Birkett Quintin Lai President and Senior Vice President and VP, Corporate Development, Chief Executive Officer Chief Financial Officer Strategy & Investor Relations Q & A 15 WST Q3 2020 Earnings
Notes to Non-U.S. GAAP Financial Measures For additional details, please see today’s press release & Safe Harbor Statement . 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. . 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. 16 WST Q3 2020 Earnings
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 3) 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) Operating Income tax Net Diluted Three months ended September 30, 2020 profit expense income EPS Reported (U.S. GAAP) $99.2 $21.1 $82.3 $1.09 Pension Settlement - 0.3 0.8 0.01 Restructuring and severance related charges 4.5 1.1 3.4 0.04 Amortization of Acquisition-related Intangible Assets 0.2 - 0.7 0.01 Adjusted (Non-U.S. GAAP) $103.9 $22.5 $87.2 $1.15 Operating Income tax Net Diluted Nine months ended September 30, 2020 profit expense income EPS Reported (U.S. GAAP) $290.8 $52.1 $247.8 $3.28 Pension Settlement - 0.8 2.6 0.03 Restructuring and severance related charges 6.7 1.7 5.0 0.06 Amortization of Acquisition-related Intangible Assets 0.4 0.1 2.9 0.04 Adjusted (Non-U.S. GAAP) $297.9 $54.7 $258.3 $3.41 17 WST Q3 2020 Earnings
Notes to Non-U.S. GAAP Financial Measures RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) See “Notes to Non-U.S. GAAP Financial Measures”, “Safe Harbor Statement” (Slide 3) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS ($ millions, except EPS data) Operating Income tax Net Diluted Three months ended September 30, 2019 profit expense income EPS Reported (U.S. GAAP) $67.3 $10.9 $56.3 $0.75 Restructuring and related charges 1.8 0.4 1.4 0.01 Pension Settlement - 0.6 2.1 0.03 Argentina currency devaluation 1.0 0.3 0.7 0.01 Tax law changes - 1.0 (1.0) (0.01) Adjusted (Non-U.S. GAAP) $70.1 $13.2 $59.5 $0.79 Operating Income tax Net Diluted Nine months ended September 30, 2019 profit expense income EPS Reported (U.S. GAAP) $218.5 $42.5 $177.8 $2.36 Restructuring and related charges 3.8 0.9 2.9 0.03 Pension Settlement - 0.6 2.1 0.03 Argentina currency devaluation 1.0 0.3 0.7 0.01 Tax law changes - 1.0 (1.0) (0.01) Adjusted (Non-U.S. GAAP) $223.3 $45.3 $182.5 $2.42 18 WST Q3 2020 Earnings
Notes to Non-U.S. GAAP Financial Measures RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) See “Notes to Non-U.S. GAAP Financial Measures”, “Safe Harbor Statement” (Slide 3) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Net Sales to Organic Net Sales (1) ($ millions) Three months ended September 30, 2020 Proprietary CM Eliminations Total Reported net sales (U.S. GAAP) $421.5 $126.6 $(0.1) $548.0 Effect of acquisitions and/or divestitures - - - - Effect of changes in currency translation rates (6.3) (2.4) - (8.7) Organic net sales (Non-U.S. GAAP) (1) $415.2 $124.2 $(0.1) $539.3 Nine months ended September 30, 2020 Proprietary CM Eliminations Total Reported net sales (U.S. GAAP) $1,194.5 $372.5 $(0.3) $1,566.7 Effect of acquisitions and/or divestitures (1.2) - - (1.2) Effect of changes in currency translation rates 10.7 - - 10.7 Organic net sales (Non-U.S. GAAP) (1) $1,204.0 $372.5 $(0.3) $1,576.2 (1) 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. 19 WST Q3 2020 Earnings
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 3) and today’s press release for an explanation and reconciliation of these items. Reconciliation of Reported-Diluted EPS Guidance to Adjusted-Diluted EPS Guidance 2019 Actual 2020 Guidance % Change Reported-diluted EPS (U.S. GAAP) $3.21 $4.36 to $4.41 35.8% to 37.4% Restructuring and severance related charges 0.04 0.06 - Gain on restructuring-related sales of assets (0.02) - - Pension settlement 0.04 0.03 Amortization of acquisition-related intangible assets - 0.05 Argentina devaluation 0.01 - - Tax recovery (0.04) - - Adjusted-diluted EPS (Non-U.S. GAAP) (1) $3.24 $4.50 to $4.55 38.9% to 40.4% (1) See “Full-year 2020 Financial Guidance” and “Non-U.S. GAAP Financial Measures” in today’s press release for additional information regarding adjusted-diluted EPS. In 2019, tax benefits associated with stock-based compensation increased adjusted-diluted EPS by $0.14. We have opted not to forecast 2020 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-Quarter, Second-Quarter and Third-Quarter 2020, tax benefits associated with stock-based compensation increased adjusted-diluted EPS by $0.07, $0.09, and $0.02, respectively. Any future tax benefits associated with stock-based compensation that we receive in 2020 would provide a positive adjustment to our full-year EPS guidance. 20 WST Q3 2020 Earnings