Q4 2023 Catalent Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to the Catalans incorporation fourth quarter fiscal year 'twenty Free earnings Conference call. My name is Glenn and I'll be the operator for today's call. At this time, all post spin will be a listen only mode. If you would like to ask a question. During your presentation. You may do so by pressing star one on panels.
Pat I will now hand, you over to you host Paul <unk>, Vice President of Investor Relations to begin Paul.
Good morning, everyone and thank you for joining us today to review <unk> fourth quarter 2023 financial results. Joining me on the call are John <unk> Executive Chair of the Board Alessandro Maselli, President and Chief Executive Officer, and Matt Even front of Itch, Senior Vice President and Chief Financial Officer.
During our call today management will make forward looking statements and refer to non-GAAP financial measures. It is possible that future results could differ from management's expectations. Please refer to slide two of the supplemental presentation available on our Investor Relations website at Investor <unk> Dot com for a discussion of risks in them.
Certainties that could cause actual performance or results to differ from what is suggested by those forward looking statements and slides three and four for a discussion of catalyst use of non-GAAP financial measures.
Please also refer to catalyst for fiscal 2022 Form 10-K, and third quarter of fiscal 2023 Form 10-Q for additional information on the risks and uncertainties that may bear on our operating results performance and financial condition now I would like to turn the call over to John <unk> for some brief opening remarks.
Which are covered on slide five.
Thank you Paul Good morning, and thank you for joining us.
As I'm sure you have seen by now we issued two press releases. This morning, our preliminary fourth quarter earnings release.
Andrew release announcing several initiatives, reflecting our ongoing commitment to strong corporate governance and shareholder value creation, including the appointment of four new independent directors to the board two of whom were nominated by Elliot.
The directors are as follows.
Steven barred global head of engagement at Elliott management, one of <unk> largest shareholders.
Michelle Ryan former Treasurer at Johnson <unk> Johnson.
Frank Damelio recently retired Chief financial Officer of Pfizer.
Stephanie Oaky, former senior Vice President and head of North America rare diseases at U S General manager rare diseases at Genzyme.
We've also established a new strategic and operational review committee of the board to conduct a review of our business strategy and operations as well as our capital allocation priorities in order to maximize the long term value of the company.
The committee's charter provides more detail about the scope of our review and is included in our form 8-K filed this morning.
In addition, I was named executive chair, succeeding Marty Carol as Board Chair.
The board and I are very appreciative of Marty's leadership and look forward to his continuing contributions is an ongoing board member.
As executive chair I'll be working closely with Alessandro and the team to drive improved operational performance.
And to execute on shareholder value creation initiatives announced today as well as chair of the strategic and operational Committee.
The second press release also notes that we entered into a cooperation agreement with Elliott.
This agreement addresses the matters I just discussed.
And contains customary provisions for an agreement of this type, including a standstill voting commitments and confidentiality provisions.
Elliot shares the boards confidence in catalysts, leading position as a key partner for the biopharmaceutical industry and is committed to working with us to drive shareholder value.
We look forward to providing an update to the market on the work of it ultimately recommendations by the strategic and operational review Committee.
Following our reviews.
We believe that these initiatives will improve catalyst positioning for long term growth and success.
We will be acting quickly and taking decisive action to strengthen operational performance.
Enhanced profitability and create value for all stakeholders.
I'm personally excited to be partnering with Alessandro and the management team to drive profitable sustainable and capital efficient growth along with long term shareholder value as we move forward.
We're all very pleased to be working collaboratively with Elliott to accomplish the shared goals together.
With that I would like to turn the call over to Alessandro and Matti <unk> to discuss our recent performance.
Thanks, John .
My opening remarks relate to slide six of our presentation.
As we said in May.
This fiscal year was very disappointing.
Largely as a result of the coffee.
And operational fleets, we have discussed.
Additionally, as.
As we previously explained and as our peers.
<unk> also more recently disclosed the fiber must have DCC industry is facing a macro driven pressure.
Primarily from the effects of lower biotech funding slower and more cautious decision, making by customers and lackluster consumer discretionary spend.
We are acting to urgently to mitigate all of these impacts.
Do you think cost at underutilized facilities.
All studying our commercial air forces to accelerate new business wins as loading our capital deployment and effective data yes.
We are also making progress on the operational improvements in our biologic segment that we outlined for you in the spring.
From this perspective, we see fiscal 'twenty three is a year of transition.
And fees calculate before as a year of improvement.
That will create the foundation for long term sustainable value creation.
I will spend my opening remarks deep link our strategic.
Operational and financial progress.
First.
We have the right strategy in place, but achieved the performance levels you expect from covenant.
This includes continuing to change our leadership team by bringing in new strengths.
Skills and fresh perspectives to bear to ensure we have the industry best talent on our management team.
In June we appointed <unk>, as our new Chief Financial Officer.
Matti is a proven finance leader with.
Deep experience growing and driving the profitability get poverty global manufacturing companies.
He most recently.
<unk> as a chief financial officer authentic automotive until it was acquired by Apollo.
Previously he.
He was the Chief financial Officer head of superior distinctive National and General Cable Corporation.
It's great to have the advantages of Matisse fresh perspectives that covenant.
And to have <unk> join us on this call.
John and I.
Also want to thank <unk> for stepping in as interim CFO prior to <unk> arrival and FCC modest transition in these last two months.
In addition.
In August we announced the appointment of <unk> as our new Chief Human Resources Officer.
Lisa joins Katherine from Integra Lifesciences.
Our global Medical Technology company.
These days more than 25 years of experience achieving book and they say <unk> results.
Building robust talent pipelines.
And creating an inclusive and engaged workforce put up by the idea of multinational public companies.
As you can see we.
We are putting up profound emphasis on a shooting we are recruiting and retaining the top talent that covenant.
And making great progress on rounding out our core leadership team, including.
Including my top priority.
We choose to field the biologics price it enrolled.
As such which is nearing completion.
Second.
Our operational performance as a whole have shown improved trends over the last few months.
Why do we see meaningful evidence of that.
The fourth quarter will be a ballroom for all our biologic for four months.
More work and time will be needed to return to our previous margin levels.
Our goal.
Mains to exit fiscal 'twenty four.
Company wide operating margins.
Those are always study called levels.
And constantly.
Operational improvement.
Being particularly evident in our gene therapy offerings.
As previously discussed the startup phase of our ERP implementation caused the under utilization at BWI in the beginning of the fourth quarter.
As we expected this.
These challenges led revenues at the site to deep in the fourth quarter from the third quarter.
However.
It is also our focus on rapid operational improvement.
The DTA levels had decided that in line with our high standards.
And revenue like the BWI is growing sequentially into the first quarter of fiscal 'twenty four.
Speaking of gene therapy.
We could not be prouder of our gene therapy teams, both the tower manufacturing center of excellence in Maryland.
As well as at our packaging facility in Philadelphia.
Stay closely partner with our customer <unk> therapeutics to deliver the first commercial dose of visa Duchenne muscular dystrophy gene therapy.
Five year old patient.
It was a day away from turning seeks an aging out of the program.
This outcome is a perfect example of why our patient first mindset and we are thankful to Doug Ingram.
<unk> seal for visiting our manufacturing team this month to celebrate this important patient milestone with our employees.
But also send Bloomington, we've also seen some progress in our operational execution.
Of the two sites.
But also there's been training data with <unk> getting closer to historical levels.
At the Bloomington.
Customer receive a complete response letter setting June related to an FDA inspection that occurred in May It was still open at the time of the <unk> date.
We work closely with both the customer and the FDA to bring the inspection to closure as quickly as possible and we are pleased that the FDA recently approved the cashless product as well as another product produced on the same line.
Aside from the specific issues at Brussels and Bloomington.
Our values always put the patient first.
And this was evident in the Bloomington over the summer, we're really prioritized everything needed to bring the FDA inspection that occurred in may to a successful closure.
While these activities at the some impact on our anticipated productivity improvements at the site.
The decreased costs in the first quarter of fiscal 'twenty four.
Where does <unk>.
Our customers and our patients given the lead that the extremely rapid.
And positive outcomes with our customers' products.
We continue to expect to complete the tech transfer activities related to large programs at Bloomington during fiscal 'twenty four.
And then into fiscal 'twenty five with the more normalized margins.
Cadillac's overall inspection track record remains as strong as ever with the 14 successful regulatory inspections in the last few months, including an FDA inspection at our sterile field Phoenix facility and I need it.
That's resulted in zero observation and no form of 483.
Our pharma and consumer health segment is expected to grow revenue in the mid to high single digits in fiscal 'twenty four.
Product approvals, including a dozen of new approvals seem to January I'd expect it to contribute to year on year growth.
In addition supply issue is supply chain.
Issues related to one of our top products have recently been resolved and new production orders are underway.
Finally, our consumer business, which fell short of expectation in fiscal 'twenty three has been leveling out.
From a financial perspective.
Spike our assumption of a significant incremental cost reduction.
And previously mentioned continued to biotech funding softness we see as resilient top line for the fiscal year.
Including the double digits non coffee.
Revenue growth.
While we are pleased with our top line momentum our ultimate focus will be on improving our EBITDA margin financial forecasting and cash flow generation, which will lead to enhanced shareholder value creation.
For example, we previous announced two separate cost reduction plans during fiscal 'twenty three.
And we already realized approximately $40 million of cost savings in the back half of fiscal 'twenty three.
We expect a total of over $100 million incremental savings in fiscal 'twenty four.
The effects of our plan continue to bear fruit.
When completed the annualized run rate savings from these plants are expected to be in the range of $150 million to $170 million.
We've also embedded the mechanisms in the company, including our lean program called the Katherine weight designed to deliver better operational consistency.
This level of utilization.
Use waste.
And greater efficiency.
We will keep you appraised on our progress regarding announced savings plan.
A new cost initiatives in the coming quarters.
Turning back to deal with it all biologic segment.
As you will recall from June .
We disclosed that our biologics margins were being impacted by significant investments that.
That we made at our facilities operating in new modalities, including our cell therapies and plasmids. It just before the start of the because of reduced biotech funding.
While we continue to believe but all of these assets will create great value with time for innovator in patients as well as the shareholders.
Our prior expectation for <unk> growth related to these assets in fiscal 'twenty three.
Optimally utilized.
It is out this facility are now experiencing a lower level of utilization and running at below breakeven levels, leading to a decrease of several hundred points in EBITDA margin of our biologics segment in Q4.
We continue to actively address all aspects of teasing bonds to maximize our ability to effectively leverage these assets and delivered body tools stakeholders in the near term.
Most importantly.
Our advanced capabilities continue to Gardner substantial commercial interest.
Positioning the company for long term sustainable growth.
As a result.
Once utilization normalizes, we continue to expect the biologics segment to return to its.
Historical EBITDA margin.
Regarding our forecasting process.
We have been working hard to improve our rigor and discipline, including embedding a greater concern about Tvs them in our future assumptions.
More work remains.
But on the Med is guidance, we are implementing plans to strengthen our forecasting and internal control processes.
Given the extensive footprint we have built over the last several years.
And our focus on improving our margins.
Also reducing our capex in fiscal 'twenty four.
The 8% to 10% of sales.
And we expect to maintain this lower level of capex intensity over the coming years as we grow into our existing footprint.
With that I will.
I'd like to close by saying that our board.
Management team and I are.
Collectively focused on executing on our mission to improve the lives of patients every day.
While striving to create value for all of our stakeholders.
We are taking decisive actions to bring our operational performance consistently to levels, we achieved across the company prior to the pandemic.
Finally, as John mentioned earlier.
Look forward to working more closely we deem as an executive chair and want to welcome to our board the four new members announced today.
I am looking forward to working with them as well as adjunct to drive long term shareholder value for our investors.
I continue to have the utmost confidence and optimism in the tab on its leading market position long term opportunities and growth prospects as the industries essential partner.
We know what needs to be done to deliver the level of financial performance that we all expect.
And we are doing so.
I will now turn it to Marty for a discussion of our Q4 financial results and the details of our fee scale 24 guidance.
Thank you Alessandro.
Very happy to be part of the Cadillac team and contributing to the meaningful impact our company has not helping people live longer healthier lives.
In my first two months of Catlin deeply focused.
On bolstering, our internal finance team and improving our financial processes.
Physician catalog for long term success.
I look forward to meeting many of our investors and analysts in the coming weeks.
Starting with the consolidated numbers on slide seven net revenue in the quarter was $1 1 billion down 17%, both on a reported basis and on a constant currency basis compared to the prior fourth quarter.
Mergers and acquisitions had minimal impact on our results.
Our fourth quarter, adjusted EBITDA decreased 61% to $139 million or a margin of 13% versus a margin of 27, 8% in the prior year quarter.
On an organic constant currency basis, our fourth quarter, adjusted EBITDA declined 65% compared to the fourth quarter of the prior year, primarily driven by a decline in corporate demand.
Speak further to the major drivers of these results and the segment commentary.
Adjusted net income was $16 million or <unk> <unk> per diluted share compared to adjusted income of $195 million or $1 eight per diluted share last year.
Reconciliations from GAAP net earnings to each of adjusted EBITDA and adjusted net income or in the appendix of the slide deck.
Excluded from net income are noncash asset impairments totaling $85 million on an after tax basis.
These noncash impairments couple of several assets in both of our business segments.
The largest noncash impairment is related to the partially constructed biologics development and manufacturing facility near Oxford UK.
Now, let's discuss our segment performance our commentary around our segment growth will be in constant currency.
As shown on slide eight fourth quarter net revenue and our biologics segment was $406 million, a decrease of $239 million or 37% compared to the prior fourth quarter.
The decline is primarily driven by significantly lower year on year corporate demand.
Fourth quarter, Covid revenue declined approximately $180 million to approximately $65 million.
Our Covid work is no longer focused on take or pay arrangements and is now tied to more standard ordering arrangements based on rolling forecasts with binding periods, which are typical arrangements in our business.
On a non COVID-19 basis biologics revenue in the fourth quarter declined 16% versus the fourth quarter of 2022.
In the fourth quarter, our drug product and drug substance offerings, excluding COVID-19 and cell and gene therapies, each grew double digit year on year.
However, with our core gene therapy business.
However, while our core gene therapy business was the strongest source of growth for catalyst in the first three quarters of fiscal 'twenty three.
In the fourth quarter gene therapy revenue was down over the prior fourth quarter. This was in line with our expectations as a result of production issues outlined on our third quarter earnings call in June .
As you can see on the Bar chart. There were notable movements in our biologics commercial and development revenue streams.
The classification of development versus commercial is driven by contractual language, which does not always align with our regular status regulatory status I think given product.
The large drop in development revenue in the fourth quarter has two primary drivers first year on year decline in Covid revenue that had been designated as development revenue and second a large gene therapy product, whose revenue what drew the development revenue a year ago and is now treated as commercial revenue.
When looking at the full year for Biologics code related revenue declined over 50% from $1 3 billion.
In fiscal 'twenty, two to approximately $625 million in fiscal 'twenty three.
Non COVID-19 biologics revenue increased by approximately 12% across the full year.
Moving to EBITDA.
<unk> segment fourth quarter, EBITDA was down $206 million to.
To a loss of $12 million.
Margin was negative at two 9% compared to the positive 30% recorded in the prior fourth quarter.
The drop in EBITDA was primarily driven by the Covid declines and resulting underutilization as well as underutilization at new modality facilities.
We are working to align our costs in these areas to be in line with demand and expect margins to improve on a year over year basis, primarily in the second half of the fiscal year.
As shown on slide nine the pharma and consumer health segment generated net revenue of $662 million.
An increase of $19 million or 3% compared to the prior year fourth quarter.
With segment EBITDA of $187 million.
Down $11 million or a 6% decline over the same period.
The segment's revenue growth was primarily driven by the October 2022 acquisition of metrics, which contributed contributed four points to the segment's top line growth and five points of the change in adjusted EBITDA.
On an organic basis, the segment declined 1% as growth in clinical and clinical supply services was more than offset by continued supply chain challenges related to a top products and a decline in prescription product revenue.
EBITDA margin of 28, 2% was lower by 260 basis points year over year from the 38% recorded in the prior fourth quarter.
The decline was primarily the result of lower organic volume unfavorable product mix and cost inflation.
Slide 10 discusses our debt debt.
Maturities related ratios and Capex plans.
Our debt load remains well structured it permits us good flexibility.
Our nearest maturity is not until 2027.
Our primary debt covenant is the ratio of net first lien debt over the trailing 12 months adjusted EBITDA.
Covenant requires this ratio to remain below six five times and at June 30, the actual level was two eight times.
<unk> overall net net debt leverage ratio as of June 32023 was six four times a sequential increase from the third quarter at four nine times driven by the lower year on year LTM adjusted EBITDA as measured at fiscal year end.
Because the EBITDA portion of the net debt leverage ratio as calculated on an LTM basis. We expect this ratio to move higher ultimately, peaking at the end of the second quarter due to a significant decline in cobalt revenue on a year over year basis, and then improving in the second half of the fiscal year back to current levels as our EBITDA improves.
We expect to be free cash flow neutral.
In fiscal 2024.
Reducing our leverage is our top priority.
This is this is being achieved by maximizing EBITDA through continued revenue growth improved utilization better productivity and continued cost structure alignment.
At the same time, we are focusing on a number of opportunities to deliver incremental free cash flow in 2024 above and beyond our current guidance. These incremental opportunities include first working capital, which includes accounts receivable inventory and contract assets at June 30 was over $2 billion.
We have a significant opportunity ahead of us to reduce working capital and drive free cash flow for the company.
Our initial focus will be on reducing accounts the accounts receivable balance of over $900 million.
Reducing our inventory balance of over $700 million and reducing our contract asset balance of over $400 million. Our goal is to drive sustainable improvement in these categories to deliver incremental free cash flow, while simultaneously working to restore our historical EBITDA margin.
Second we will ensure all capex spend is either aligned with our core values of patient first quality safety and compliance or contributes to key strategic initiatives with shorter more appropriate payback periods.
And finally with our newly created strategic and operational review Committee of the Board we plan to continue to evaluate our strategy and portfolio.
These activities to enhance cash generation balance.
Balanced with returning to a more normalized EBITDA margins should improve our overall net debt leverage.
Our target for our overall net debt.
<unk> remained less than three times.
Our combined our combined balance of cash cash equivalents and marketable securities as of June 32023 was $280 million, an increase of $78 million from March 31 2023.
For a $50 million partial pay down of our revolver.
We were able to make in the quarter.
The increase in cash was driven by strong cash collections in the quarter.
I would now like to discuss our contract assets, which.
As of June 32023 had a balance of $436 million, a sequential decrease of $16 9 million and flat year on year.
We're working with key customers to further reduce this reduces balance.
Through more favorable contract terms that are more aligned with our manufacturing timelines.
At June 30, we had one strategic customer a majority of whose business relates to our gene therapy platform that represented 20% of our $1 $4 billion in aggregate net trade receivables and contract assets. We are confident that our contract asset balance is fully collectible.
The same customer was less than 10% of total revenue in the fourth quarter, but represented nearly 10% of our revenue for fiscal 2023 compared to approximately 5% in fiscal 2022.
Finally, capex in fiscal 2023 were $601 million or 14% of revenue.
In light of the significant capital investments, we have already put into the business. We are reducing capex in fiscal 2024 by more than 30% to a range of 8% to 10% of revenue.
Now please turn to our financial outlook for fiscal 'twenty four as outlined on slide 11.
We expect our 2024 net revenue in the range of $4 3 billion to $4 5 billion representing growth of 3% at the midpoint. This.
This includes COVID-19 revenue of approximately $130 million.
Our roughly $500 million decrease from 2023.
Our non Covid business is expected to continue to deliver strong performance with full year revenue growth of approximately 15% to 20%.
This is driven by roughly 30% growth in our non Covid biologics portfolio, primarily driven by significant growth from our largest customer as well as completion of tech transfer activities.
In PCH we.
We expect mid to high single digit growth.
Current FX rates, which we use in this forecast are forecasted to have a positive impact of 1% to two percentage points on our revenue.
We project that inorganic revenue, which reflects one remaining quarter of the metrics acquisition will not have a meaningful impact.
We expect adjusted EBITDA in the range of $680 million to $760 million.
Well this is a slightly wider range than usual as Alessandro mentioned earlier. This is reflective of our new more conservative approach to forecasting.
These temporary these February low margin levels anticipated for 2024 reflect our low facility utilization as our reliance on Covid revenue declines.
As we ramp up our non COVID-19 business and align our cost structure, we expect margins to recover towards historic levels as we exit fiscal 2024.
We expect the margin for our biologics segment to improve modestly as we move sequentially from our 2023 fourth quarter to the first quarter of 2024 and progressively improve through the year with a more pronounced ramp in the second half.
In addition, given the historical historically seasonal nature of our PCH business, where revenue and EBITDA generation is the latest in the first quarter and more weighted to the back half of the year combined with our expected productivity ramps later in the year, we forecast roughly two thirds of our consolidated adjusted EBITDA to be.
In the second half of the year.
Well this is more back half weighted in most years. The overall expected revenue split is more balanced with approximately 55% expected in the second half of 2024.
We expect adjusted net income in the range from $113 million to $175 million.
Adjusted net income growth in fiscal 2024 is being impacted by all of the items affecting adjusted EBITDA as well as the following items.
First an expected effective tax rate in the 25% to 27% range compared to 25, 5% in fiscal 'twenty three.
Second an increase in interest expense due to rising interest rates.
As a reminder, with our rate hedge in place nearly 70% of our debt is effectively fixed rate.
And finally increased depreciation expense due to substantial investments we have previously made.
I'd now like to share an update regarding the status of our filing of our fiscal 'twenty three Form 10-K.
As we continue to improve our accounting finance staffing and related processes and we continue to bolster our internal finance resources. Some additional steps remain to finalize our 10-K.
This will not allow us enough time to file for all of our closing procedures excuse me. This will not allow enough time for all of our closing procedures to be completed today. Therefore, the completion of our financial statement closing processes and subsequent filing with the SEC will require more time extending beyond today's deadline.
Tomorrow, we plan to file our notification of late filing on form <unk> 25.
Our team is working expeditiously.
Additionally to finish the 10-K within the 15 day Grace period permitted by the form <unk> 25 filing.
We do not expect any change to the numbers, we released today.
We appreciate your patience.
To close.
I want to summarize with you my top priorities as catalyst CFO , which are partnered with Alessandro to improve our margins by.
By supporting productivity and cost alignment plans to delivering incremental free cash flow by reducing the capex and the working capital intensity of the business and finally, strengthening our internal controls and processes over financial reporting and forecasting.
All of these priorities are within our control.
Operator. This concludes our prepared remarks, we'll now open up the call for questions.
Thank you.
Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on telephone keypad now.
If you plan to ask your question. Please ensure your mute locally.
With our first question comes from Jeff <unk> from Morgan Stanley to Josh Your line is now open.
Hey, guys good morning, and thanks for the time here.
Alessandro and Matti.
Can you just help us build a bridge from the $715 million or so in 'twenty three EBITDA to 720, and 24, you called out Covid assumptions of about $130 million, but could you clarify the contribution from <unk> at the midpoint here.
Sounds like Youre expecting very substantial growth given your 30% non core biologics growth assumption.
No.
Any any sort of color versus the 425, you generated this year would be great. Thank you.
Hey, David It's Alessandro here. Thanks, a lot for your question look first of all.
We are pleased here today to be able to show a new guidance for fiscal 'twenty four in in fees, all but as we disclosed a significant drop a further drop in our revenues, but still seeing resilience in our top line and so that's something that is speaking to the underlying strength.
A lot of business as we shipment as you're pointing out.
Some of that growth is related to our gene therapy business that we choose.
Now running at full speed in their software.
Some of the challenges that we shed during the spring.
So.
Applying that he's a he's a he's a pleasing Gaza is also well balanced A&H won the best dose each tool.
As we shared during the spring.
In our biologics business that is still some work to do to restore previous margin.
We are working expeditiously on addressing under utilization in sum up a full month's improvements.
Some more time.
Work is required in the first half of gear, but we are confident that the studying just sequentially our margins over the quarters. So I will turn it now to Maggie to give you a little bit more granularity on the breach.
Yes. So you asked about going from the 714 of EBITDA 23 to our I'll go to the midpoint or approximate midpoint to 720 honestly is alessandra point of his comments and my comments were seeing.
Covid demand down year on year of approximately half a billion dollars and that has a high margin profile attached to it and it leaves behind cost we have to action. So there is a statement down or from an EBITDA perspective related to that down volume.
Replacing that down volume.
As we mentioned with one of our largest customers in gene therapy should be up year on year, we talked about some one of our facilities and Alessandro mentioned this is doing better which is Brussels and.
Some of the performance underlying processes doing better as well as Bloomington, turning the corner.
So those are primarily the big the biggest pieces and we've got the.
The biologics other piece, which is growing at a very rapid rate year over year.
Got it that's helpful.
Maybe maybe the last point that without deal also pointing to you all to do with some of the one off impacts when he quoted in the last fiscal year is something that you should consider as you model. These.
Got it yes, it makes sense.
And then my next question really is around the strategic review that's underway.
Any color you guys can share around sort of the anticipated timeline for that to be completed and then you know understanding that there's a few moving pieces here in terms of the balance sheet initiatives you spoke about Matti <unk>.
Currently anticipate having to me.
The need to raise capital either via equity or debt or do these anticipated working capital improvements and the cut in Capex et cetera, I mean, do you feel pretty confident that you wouldn't need to pull that lever.
Critical for sure yes.
This is John I'll take the first part of that question.
Firstly Alessandro the team the board, we all look forward to working and partnering with Elliot towards achieving our shared goals that we talked about in our prepared comments.
The agreement between the company and Elliot.
It was really designed with the primary primary intent of enhancing long term shareholder value.
Specifically to your question the mandate included in the charter.
Of this strategic and operational review Committee is to review, our businesses and strategies with the objectives of one improving our operational performance.
To strengthen the financial profile of the company along the lines of some of Matt's comments around portfolio assessment.
And three maximizing the long term value for our shareholders.
We've got our first meeting of the committee in September we've obviously been doing a lot of work.
Head of that anyway.
Some of our our board appointments are part of that the two nominated by Elliott as well as two emanated from a search that we had been conducting.
So I think over the next few months, it's hard to put a specific timeline on it I think it's going to come down to.
<unk> rose proposals that he and the management team will bring to the Canadian to the board.
But certainly by our next earnings call, which we should have some traction to speak to you about in.
We're acting with a sense of urgency not just at the committee level, but Alexandra and his team.
To address all of the initiatives in.
Come up with the actions appropriate to drive and maximize long term value for our shareholders.
Yeah, and then just to answer your the back side of your question I think sitting here today, we've got ample liquidity to manage the affairs of the company between cash and revolver availability.
We also have what I would call a significant and unique opportunity sustainably take down the working capital intensity in the Capex intensity of the company.
Which we're looking at for the for the year and so and then with the return to profitability in the back half of the year on the operational improvements that will make I don't necessarily believe.
Issued to go after from a capital <unk> debt raise.
Got it very helpful. Thanks for the time guys.
Thank you.
With our next question comes from David Windley from Jefferies. David Your line is now open.
Hi, Thanks, I'll start with the first question just a slight follow up to <unk> with the.
For Mr garage the <unk>.
Strategic review you mentioned the first meeting in September .
Could you tell us when you would expect to be in a position to report our findings of the committee or plans as a result of the committee what approximate time frame would you put on that.
Yeah, it's hard to put a pinpoint.
<unk> line on come.
Coming out with with the conclusions or recommendations from the companion to the board.
I hesitate to put a specific timeline on it.
I'd just reiterate what we said in our prepared comments.
Working with Elliott with a sense of urgency working between Alessandro and his team.
And the board really to drive the things that we spoke to assume we're going to be taking some actions sooner rather than later, but to put a specific timeline on it I think would be.
Again prudent at this point in time.
Okay. Thank you for that from a four.
Alessandro and Matty Matty congrats on the new seat.
On guidance you've commented both in prior calls and today about.
Trying to improve the the accuracy or the conservatism in your guidance.
Wanted to maybe understand practically how how youre doing that but maybe more specifically.
To look at the.
The BCH segment outlook in the mid <unk> mid to high single digit growth rate on that which quite honestly seems pretty optimistic.
The environment the comments by some of your peers on dim.
Demand the potential for a slowing economy.
All seem like they would point to a more conservative assumption, there and so I guess I would.
Yes.
Substantiate that the way you're going about guidance. This time around is more conservative than the mistakes that were made in the past. Thanks.
Yes.
I'll call are first the probably the second popped in and leaning into the first part the look we've got to our BCH segment.
I know there is always a hard there to really understand Francois you evaluate the business primarily on year to year basis, because again, we have a business that is.
A high level of concentration in that in few offset to Phil and the way you look at the performance of PCH into fees totaling two three was assure below expectations below what you expect from a business that should really growing to meet the single digits and so when you extend your time of observation that they may have in Asia.
Evaluation on a longer period, you would see the PCH is really.
Doing day in the middle of the range that we expect the PTH to grow where you extend your evaluation on Oh, not one not two euros is on the human mind can between the yields.
I mean, I've got equal contributions to the growth there.
He can go but some more specifics as we pointed out in our prepared remarks.
Some of the reasons why we went up we weren't impacted the PCH last year were delayed approval on some new programs and as such launches.
Consumer health, which on a two year basis. It was was really not performing as expected.
And the one key product that we chose a significant impact on revenues and more so on profitability, which was impacted by a supply chain disruption and in reality didn't didn't contribute to the story of last year. So all of these elements on a little bit to returning back now be consumer royalties are stable.
While at the approvals have happened in the second half philosophies KPN and now we expect these launches to contribute.
And finally that he did he the distraught about Denali is back on track and not only we need to satisfy the end count at the end of.
Market demand, but we also need to restore safety stock levels, which.
Of course, we will create the shut them higher than normal demand for these for these very asset I would also add to that to get all underlining in the business.
Still have a very good franchises like diabetes, which continues to be on I parcel growth.
Overall across the board, but there are elements to be optimistic and I would say that that is a lot of realism in how we guide and get the CHF four four in the mid to high single digits.
And we feel pretty good about that guidance.
We did that with regards to the second part of your question I'm going to be very brief.
<unk> for me that maybe its multi study goes I know you're not going to bid.
The word commodity to.
Elaborate more.
Belief that we've been surely.
Learning a lot in the last 12 months.
Sometimes learning the otway, but we're learning a lot and I'll tell you about how we should be thinking about the coffee, but also how we should be thinking about the growth profile of some of these new modality. He said during these time.
<unk> video, though.
Both and we also have changed a little bit our internal mechanism to go after the forecast and to be able to forecast from ground up. So I feel that these improvements have brought at the right level of balancing concept, but the visa I mean, our in our future.
Our forecast and as such are again, I feel confident about the guidance, but if we can go.
Today.
I think Thats fair everything you just said Alessandro I mean, I think at the end of the day going to a ground up forecast looking at I'm looking at pulling out any any stretch that's in there pulling at any items that you know.
I, just don't have a business or a plan behind it I think the critical nature of the forecast and getting on it sooner.
It will allow us to identify pockets of under utilization sooner and then we'll get after that after those pockets of better utilization. So I think that's what's really what's really driving it.
Great. Thank you that's helpful.
Our next question says from the line of Jacob Johnson of Stephens Jacob Your line is open.
Hey, thanks.
Good morning, maybe a question on Bloomington, I think from some recent headlines it seems like there could be some new therapies ramping there.
Full year could you just how should we think about utilization.
In FY 'twenty for given the Covid roll off and then some of these new tech transfers and then maybe kind of longer term with this kind of reset in COVID-19 at Bloomington, how should we think about the long term growth opportunity.
And kind of fill finish wrongly.
Living Denise.
A launch pad for many new therapies, hence out has always been and will always be.
Sometimes in some of the reasons why it seemed to use it for.
More inspections more than other facilities because of that reason because that he has a lot of work going on at that a lot of launches a lot of launches that I'd also be quieting google's inspections, sometimes that the timing is a is a challenging one of you need to work through these situations.
We continue to be pleased about the pipeline, we have assets, which are very heavily utilized that we've been sharing all along that we are seeing a significant demand in pre filled syringe is and so that capacity is very highly utilized.
And I believe that the little we are at the song of the pipeline, but also some of the franchisees, where we expect to play a major role one of the biggest one being good <unk>. One is something that we'd be investing go on investing enough for a few years now coming to fruition and we are very excited about the deal.
Community coming from that.
Specific therapeutic area, which we expect to be a very dominant one India is to come.
Got it that's helpful. Thanks, Alessandro and then I guess the follow up maybe on that the kind of these newer modality cell therapy plasmid. This is an area of underutilization.
They're earlier stage assets and clearly a drag on your margin potentially just kind of thinking about the strategic review and cost initiatives using as a proxy for kind of near term profitability versus the long term strategy. How much are you willing to accept the near term drag on profitability from these assets.
Well, maybe kind of looking to the long term growth opportunity from those end markets and I'm just kind of curious if you still view those as is key to your strategy.
Yeah look.
First of all the you know.
You always need to start to film the clinical promise and the success. He said that you've seen in the clinical trial to host some of these.
And I have to say that.
The last few months have been exciting in these areas right. So these are areas, which we believe will continue to drive a lot of growth into the industry also areas that they have an incredible promise so having a significant impact on patients and are meeting unmet needs. So surely strategically these are areas where we.
Need to stay in and we need to stay with the possible so being a significant player with significant market share and adopt all being said we need to be realistic at all with these did curve of growth of these areas, which we don't expect to be linear it's going to be more looking like an exponential curve in our opinion.
We thought that this lower start possibly due to funding capacity due to the industry see getting out our manufacturing processes, which are positioning. These therapies also for financial sustainability and when all of these will come together. This is gonna be a great growth engine for the industry and for sure for Callaway in the meantime, we need to.
Understand that the growth profile, and we need to adjust the cost structure, making sure that we can mitigate those.
Those are short term margin impacts as we go forward, but overall I believe that we need to avoid that to jump up that is the long term opportunity here.
Makes sense, thanks for taking the questions.
Thank you.
Okay.
With our next question comes from Jack Meehan from need from research Jackie Your line is now open.
First question is on <unk> ones I was wondering if you can elaborate more for investors just frame out the opportunity you see here and within your guidance. If these ramp as expected could you share what percentage of <unk>.
Sales will day represent just from a concentration perspective.
Well look first of all.
The reason why I'm speaking about the G. L. P. One category and not necessarily specific to draw. It out is because as you know as a company policy and agreement with customers, we never really speak specifics of customers of products.
I would tell you that overall.
In fiscal 'twenty, four we're going to start to see the fruits of all of the good old in D. C area, but even more so we're going to see that indeed in the peace kept 25, I believe and I do believe that the second half of fiscal 'twenty, four and surely to feast kept 25, they're going to start to be an inflection point for <unk>.
These category.
The moored assets will come to Felicia to.
Accelerate the amount of operating getting fees of volumes and output. So we're very excited we have vertical meted to our customers and we have a lot a lot of confidence that these will be significant contributors to the future growth story of Cabot.
Great and I wanted to also ask about the Tara how did that perform within PCH in the quarter maybe for John .
Was wondering if you could comment on just as you do the strategic review.
How you feel about kind of the long term.
<unk> from this business or whether it's something you would consider potentially divesting.
So look I will take a little bit of the question and that will lead to John to close it out.
As we said.
The consumer market as highlighted by some of our peers is going through a little bit of a correction.
So from an inventory level standpoint to preserve cash and the consumer discretionary spend which probably odeon keating towards a more less expensive, but dosage forms.
That being said from a commercial standpoint that we have.
Disclosed at the time of the acquisition.
The portfolio of customers of these assets that were not a significant presence of the beacon.
Consumer companies with the biggest brands and we are pretty pleased with the progress that our commercial team has done in building the relationship been penetrating that these.
Different segment of the market, which was not present at the time of the acquisition of course, and I think that puts over 19 OE industry. So it will take some time, but we believe we are we are close to signing some additional work in business with some of these.
Blue chip companies that which will drive additional growth in this area that's been said.
As we as John mentioned, we are exploding goals the potential strategic options under the table too to make sure that we streamlined the portfolio of the company and we accelerate the shareholder value creation and as such are all options that off the table.
Just to add this sandoz comment.
Albeit some of them may be repetitive I think TNI.
Are going to work with the community and just to be clear on the objectives of the committee again.
To drive actions to improve operations perform a strategic review of the company as well as the individual businesses.
Portfolio assessment as Alexandra just said do we have all the pieces that we want.
As well as allocating capital among the portfolio of individual businesses all with it.
Objective of driving long term shareholder value.
I think it would be premature to comment on any specific business at this point in time clearly understand your question, but.
Give us some time to go through those those activities and initiatives.
And as I said earlier, we'll report back on the findings that Alexander and I recommend to the committee and ultimately to the board.
But coming in on specific actions today I think it would just be premature.
Understood. Thank you.
Yeah.
Yeah.
Thank you.
With our next question comes from Sean Dodge from RBC capital markets. Sean Your line is now open.
Yeah, Thanks, Dan and good morning.
So maybe going back to the guidance one more time.
The significant growth youre expecting from the gene therapy customer.
Im dependent is that on.
The Embarq data that will come out later this year, how big of a swing factor does that have the potential to be for you all if that readout good versus bad and how are you handicapping that.
Isn't it.
Yeah.
Any any upside.
None of that is included so if it does get expanded blip it doesn't expand its not included in the forecast.
Yeah look that's great.
Great.
I do know that that being said I just want to make one other point right, which is as we said many times that you know the <unk>.
Got it.
You know as we should.
I mention it gets decent demand, thus far and if he wants to basically cost, but it doesn't mean that the duration. We did that caspase one related to one program and in fact.
I'm happy to share that the relationship with that specific estimates across several different programs some of that closer to full approval some of them a little bit there getting to in the pipeline, but we are pretty pleased about that took our bank line.
Okay. That's good color there.
And then on Bloomington, and the challenges you've had there can you talk about the changes you've made in terms of.
Personnel or oversight at that facility that give you confidence and maybe give clients confidence that Bloomington has turned the corner.
You are on a path to restoring that kind of consistency and operational excellence here.
Sure look first of all.
I just want to.
Give a shout out to the Bloomington team because there's always a.
Coming to the news as of late to four.
Some of these challenges about that this is the what's the C D D.
As it played an incredible role during the pandemic.
Serving our United States and the war to with any cable that football but producing.
<unk> vaccine doses, so whichever saved millions of lives and IHS alone not to be lost stuff.
And <unk> zone, because it's easy to move on from these so the Bloomington team is a team that is accomplished on historical niche on which will never be taken away from them that being said clearly the work has changed now and that the work is already different and as such you need different skills and talent and.
Since the beginning of year as you said, we have made several changes to both our insight leadership, where we have a new general manager up there as well as in several leadership positions at the sites and are both the site.
<unk>.
And our quality function and we are very pleased with the progress he's and sustainable provinces that the DS team is driving their look and get to not all yet to cost reductions, but also driving good customer excellence and services because at the end of the day in the long term, we're thinking that those seats to make sure.
We believe that on our customers' expectations and we continue to serve patients so changes at that point.
At progressed over the last three four months I would say and we have the confidence that we have now in place the leadership before these new face of the site, which is more launching new products and therapies as opposed to do one only if at all about the pandemic is set up.
Yeah.
Okay. That's very helpful. Thanks again.
Thank you.
Our next question comes from Jon <unk> from UBS, John Your line is now open.
Good morning, Thanks for taking my question, just maybe starting off your clarification I guess, just given the strategic review I didn't hear.
Confirmation of that $6 5 billion of revenue capacity that was talked about in the fiscal <unk> Q update are you confirming that number still.
So look when you when you think about where.
Where we need to put the sweet spot of utilization of these companies and where are we going to get the most of our operating leverage and we believe that our you know what that Angel visit they show you won't put achieving these businesses between 70 and 80% of utilization across the board to get assets.
And what that utilization in our current footprint can translate to at least six months like billions of course, they get all of these but educated and keeps being in the data.
Therapeutic categories, having that pipeline and we need that item on the business. So all of which we are working very actively in it. So the potential of our network is that one and I guarantee you we're going to do everything that we possibly can to continue to fill our facilities and to get to that level of utilization.
Generates a healthy level of cash flows.
Thanks, and just a.
A follow up here on the Brussels facility I appreciate the color in the prepared remarks on the improvements there just any additional details you can provide on timelines and improvements in how you expect to get to maybe more of a normal productivity level. There. Thank you.
Well look we have we've seen very good progress if drama from that facility. So we are pleased with the Wii out or what we are already seeing I believe that some of the lines of for some vertically to go product they've recorded equal drank without boots in the last few months, so pretty pleased at what we're doing there and I believe that the.
But our sense is on the right trajectory.
And as we go through the fiscal.
First part of the year, which is really be slow it also because of preplanned.
<unk> say shutdowns at the facilities that we're looking to the second half of the year, we're going to continue to see progress and we are gonna go in P&C plus those that he couldn't get to optimal levels.
And then margin as a consequence, we need to remind ourselves that this opportunity we have.
All the demand we want because we are still catching up to some of the demand of accounting from the <unk>.
And are we expecting the second half of the year of these proceedings are due to come back.
Thanks for taking the questions.
Thank you.
Our next question comes from Justin <unk> from Deutsche Bank, Justin Your line is now open.
Hi, good morning, everyone.
The prepared remarks, you mentioned about returning to historical margin levels.
The logic segment.
And also about returning to.
Three ex target leverage level can you.
Provide us a framework on order of magnitude and perhaps duration.
Reaching those milestones.
Well sure look.
At the moment, where we stand today that is a significant amount of revenue so that we have to Claude.
Our biologic segment, which are translating embedded needle EBITDA levels and.
And this is not the functional.
I didn't get the below market from product mix.
Our product is a function of oh, but the things that we are discussing terms of under utilization or productivity improvements. So that is a significant opportunity for us.
We need to work on these programs and revenue and returning those revenues and contributing to the bottom line.
Our labor energy steady census at the bottom line. So as we as we work through fiscal 2014, we enter fiscal 'twenty five as we shared that with the normalized margins.
We have a line of sight that we'd be down because I didn't get to what do we expect it to be.
And as such debt.
<unk> will take care of Oh they'd be dilutive I also believe that <unk> will be absolutely focused on our two BD and solve our working capital with all the initiatives that he has highlighted and Luke.
Looking at the progress that he has already accomplished in the last few weeks since he's joined the I'm very confident that the you know there would be a significant change in the <unk> business.
Having shut down the cash flow, but also repositioning the company going forward basically continue to grow the top line for less need of coffee to be infused into the company to operate so it's.
It is not a is a pretty simple playbook grow the EBITDA.
Working capital and improve cash flow.
Okay. So just to clarify then should we think of normalized margins in terms of the pre pre pandemic margins in the biologic assignments and then my other quick follow up is just on the on the.
The C 19 revenue outlook does that include other respiratory.
Program revenue for that large customer as well.
So first of all Oh.
I believe that the way I would respond to the first part of your question that is nothing that is not in our control or that would prevent us to get back to the historical marching celebrity biologics nothing.
The product mix is the same the pricing gets the seem to keep commence out the team.
Is that is a pretty empty spaces to be and so we will get there so maybe out of work and time.
The second part of your question, we will that will over time tried to cut about.
The other respiratory vaccine work from the pure coffee to work.
It's more appropriate because we believe that.
These out of less.
Hum Danny constellation Danny for data and so the simple answer to your question is no.
Yes.
Got it thank you Alessandro.
Yeah.
Thank you.
With our next question comes from Derik de Bruin from Bank of America. Derrick Your line is now open.
Okay.
Hi, Good morning, and thank you for taking my question.
Just.
Just one really just looking at the cost savings I'm just sort of.
Interested in.
Have you done I assume you've done a systemic.
Somatic review of all your facilities and look for potential other areas, where there may need to be investment into remediation how should we think about that.
$151 70 number in respect to.
In terms of.
I mean have you is that a net number after you sort of look at all your facilities and what you might have to spend it just basically just like what's your confidence in that.
Keeping that cost number.
It's matti.
Highly confident I think get into the cost savings number and then the overall costs you remember that when we get to from 25 to $150 million to $170 million at all Sondra outlined which is the cumulative cost savings against the baseline is.
It's really got hard actions behind it. So if you think about what's been done at the company, it's head count related and taking down significant numbers of heads both in the corporate section as well as then somebody underperformed under our underutilized facilities. So we've got we've got that we do have more work to do.
As we talked about earlier that strategic review Committee, who will look at.
We'll be looking at capacity as well of utilization as well and we'll be looking we're taking a step further so there could be more it could be more to come.
Okay.
Sorry, just one follow up then on when you look at the cell and gene therapy demand I mean, obviously, a big impact from early stage biotech I think at one point you know cat.
Catlin had said there was maybe like a 150 programs you had ongoing.
And in terms of the cell and gene therapy area. It sounds like how are you looking at that.
Triaging, our pipeline looking at that pipeline longer term and.
Basically sort of adjusting it for the health of our clients basically just like what your your basically your outlook in terms of the early stage for this LNG therapy business.
Sure look I don't believe that early stage.
Got it.
<unk> is one part of the equation on the other part of the equation is that as we continue to have good success in bringing.
Offsets to commercialization that we build out our track record of commercializing the product.
And now this.
Is stocks equities, increasing that we believe will become and we have become ingalls are the partner of choice to the calling of offsets, which maybe have been early stage elsewhere, and we're going to be able to be the pattern of choices to transition them into commendation. So most busy because he engaging groups.
In the later.
Phase two which is which is in fact possible. So we believe that that market share in that specific area.
The Egypt is a is significant but will become even more significantly as a result of our truck vehicles.
So.
Now, we believe that our outgrowth and that will be both coming from.
Our continued focus on the commercial team and we need either they see Joseph and she is a little bit of the nature of the week, but also being.
Betty surgical and going after the opportunity in late stage as these pipeline like yours.
And position ourselves as the partner of choice for commercial losses.
Thank you.
Thank you.
Our next question comes from Max Smock from getting Max Your line is now open.
Great. Thanks for taking my questions.
Just a couple of clarifying ones for me here, starting with GOP ones I'll Sanjay I believe I kind of heard you wrong, but I believe you mentioned seen significant assets were all coming to fruition in fiscal 2025 on the <unk> side I just wanted to clarify that are you expecting to be involved with another major GOP one besides the one that has been well discussed here over the last.
Year or so.
Okay.
So what I said he said.
The reality is that for <unk> to be one of these.
A large amount of demand that they need capacity needs to be satisfied right across the board and our job is to see them always to bring these capacity as fast as possible online to satisfy that demand. We are trying to do everything we can possibly can across all our facilities and I believe what we are pleased that the almost.
All our that I've seen in pes facilities or some way in some in some way different ways involved that we need to set up Utica area, which as I said there is one that will be very exciting for me is to come so we're.
We're happy about that rollout at all or will increase as of these off of additional capacity coming online it would be very much just spread across the network.
Understood. Thank you and then.
SRP 901.
Just confirming your guidance does not assume that the upcoming data readout from strip. This positive at the label remains restricted to boys aged four to five.
You mentioned I just wanted to confirm that and then if that readout is positive one distributor told you about how manufacturing plans might change, but I guess put it another way what level of strength and growth is currently assumed in guidance and what should that go to the upcoming readout positive. Thank you.
Yeah look so should look in any in any way the readout from the study is gonna be a an important event from us.
You know probably from a from a business standpoint, but from a patient standpoint. So that is in fact, a big deal for us I wouldnt want that to be underestimated.
I do believe that you need to always think about the the length of these but office and all these processes really you know if you like whatever happens today is going to have on it but the 18th time.
But clearly as.
As you think about our growth into the future that it is a.
That there will be important to us one that.
We're gonna be upsetting that with a little attention.
Understood. Thank you.
Thank you.
Our next question comes from Rachel when installed from J P. Morgan ratio. Your line is now open.
Good morning, Thank you for taking the questions and kicking in here.
I wanted to follow up on David's earlier question on piece needs to get some additional color on the assumptions to it it's not mid single to high single digit growth next year, you highlighted some of the supply chain.
<unk> resolved in China tailwind turned estimate that you've got to have all but can you walk us through what youre seeing from some of the macro headwinds that you've highlighted this year and then what are you assuming for that magnitude and duration of those macro headwinds in 2004 for P. C H.
Sure sure first of all look and we said.
All along.
C H.
Hey, there's some macro she then dynamics primarily related to the consumer health.
There you know consumer discretionary spend is really what can drive of end market demand that we've been pretty open and forthcoming about these in the fall of last year.
But when the when you think about the rest of the footprint.
P C H is a larger.
Commercial approved a pharmaceutical product or products that are late stage and.
Due to be approved.
So the way you think you need to think about the dynamics in that business is less macro related and more pipeline related though and as I said last year was a disappointing one because of some of the.
Assets, we had in the pipeline, which were expected to drive growth on top of the base business were a little bit delayed we have been.
Open about how we would get into those approvals a dozen of them do they have been in the last six months in this such that they are now launching good there would have been the stock we are producing commercial volumes. So that's the other dynamic that is.
The specific product for which we have resolved the supply chain disruption and now we do have the primary majidi also to be able to deliver that important product and as always happens in these cases after one year of suspension of Tony you said the end market demand, but you also double down on inventory to deal with so that he's on it.
Demand in the short term and to finally.
We are we are pleased with the way we are winning business.
And it is early.
Early stage data as well so across the board.
I believe that the BCH is posed for off what a good year. When you look at the year over what I don't know if the last two years, that's really where it needs to be you know mid to single digits clearly because last year was kind of flat this year looks a little bit higher but you know.
This business is performing now is we expect it to perform.
Great that was really helpful. And then my follow up I just wanted to ask about conversations that you've been having with customers. So given some of the recent challenges can you give us any color on what your win rates have been with new customers. In recent months and then can you just kind of has there been any discussions around cancellations or requests.
Our concessions from customers given some of those challenges.
Sure look.
As you can I I've been always pointing out that the data set of our customers, especially our existing customizing them. So we have a leading to the kind of a.
A full months is a is a little bit wider so and as we shared in discrete but just to point to one example on one side you have a CRA L.
Which makes it through the news and you have an inspection and then you got the title for ADT observations you may now hang it doesn't need to get to the end user and we are shedding now that today just for the very thoughtful so providing a little bit of a more balanced view, which is off to get to from the external world, but surely as long as the customers get a real time so.
So when you think about some of those challenges to get old one the perspective is a little bit different and the fact of information available is that they'd be different.
According to our quality agreements, we do share with our customers all our regulatory.
Outcomes include both of the ones that are on in putting the products into one that is not impacting that brought us to provide that prospect, you'll get little compliance profile of the company.
And with regards to all the other news of course, you know me and the rest of the management team are on the frontline all the time and providing perspective on the news that they've been coming up in the recent months, including the ones that are coming up today, and we're gonna be there's always transparent providing perspective, but also shooting customers there.
Covenant has been here for decades, and it will be here for decades to come.
Okay.
Thank you.
With our last question comes from team Danny from Wells Fargo. Tim Your line is now open.
Great. Thank you.
So first off just wanted to follow up on <unk>.
Earlier answer to the last today's many G. L. P. One question Alessandro I think you said that all your sterile facilities are involved in <unk> one project in some way so.
Can you just update us on the global count of sterile fill finish line's currently offering commercial scale and what percent of those pre filled syringe <unk> cartridge capacity.
So look.
I would tell you that at the moment we have.
A pretty sizable capacity instead, our fill and finish I believe at the moment.
I would say that probably close.
Close to 40% of our capacity and proceed with <unk> and we are rapidly increasing debt. So.
I believe that.
Our capacity will become a skewed towards <unk>.
In calendar 'twenty four and what you should think about is that you know most of our state RFP and I finish volumes will come from pre filled syringe. He says we go forward.
I just would like to point you out also to the fact that our survey said that's not fine.
Finished with the feeling of operations, but we provide also packaging to our customer we provide the auto injector assembly to our customers. So that a lot of color OLED capacities, which seems to be on Cds that predated the India led all the economics of these franchisees are specific schedules into one.
That you'd need dimension so.
We have a particularly large footprint we are pleased.
With this coming online what will be coming online and we believe that the.
We also think that we're going to be able to play a major role in our in these therapeutic areas.
No no that's really helpful. And then my second one here is on free cash flow generation effort. So.
Matti you called out.
The inventory balance.
Second priority in working capital opportunities behind accounts receivables. So appreciate muted cat capacity utilization is likely inflating the balance here, but.
Given supply chain and supplier lead times, a normalized why haven't we seen inventories come down.
Already and you know or why is that not higher in the back.
In order in terms of working capital initiatives.
Well I mean, I think right now I wouldn't say there maybe it wasn't maybe as my phrasing of the ordering but it is high on the on the on the pool I think from a ease of getting the cash I think it's in receivables we ship the product we have an outstanding receivables. We gotta go collect it so it's a lot easier to go on that interest and it comes back comes in quicker inventory.
You have to burn it off and you have to utilize it and burn it off and then changed their ordering patterns and look at the U S iron ore process to really get at what I'll call. The <unk> and the underlying metrics of the iOS and bring it down and so I do think there's a little bit more work to do from a inventory perspective, I do think that the company, but it's really hadn't focused on it two days as much as that.
It showed up and I think when you sit here and look at the inventory balance I think it's a bit bloated I do think we have an opportunity to take it down like I said, the burden of those inventory balances to bring it down to a more more normalized number where we're at is sustainable and I think the idea here is to your point the supply chain has leveled out.
See it I think is the more normalized with some products currently they're not clearly fix out currency effects and what else have stuff on boats that we have to look at look at the whole supply chain in totality, but I do believe there's a special opportunity sitting here looking at the working capital in total I don't think there's going to be much different team. That's gonna be commercial team is going to be going after receivables that manufacturing team and supply chain, so it'd be going.
After inventory.
Alright got it thanks for the time appreciate it.
Thank you.
No further questions on the line and I will now hand back to Alessandro Maselli for closing remarks.
Thank you I'd like to thank everyone on the CASM 19, before tactical need to make to lock customers and patients is a showcase by the delivery in partnership with our customers direct therapeutics of the first dose.
<unk> and <unk>.
Gene therapy to a young child in the U S suffering from DMD, making any study called milestone in the promise of treating these are 30 Boe condition we.
Main focus on the on leading covenant towards sustainable and profitable growth and increasing shareholder value and I believe that actions announced today has placed us on a clear path to doing so.
Thank you everyone for taking the time to join our call and your continued support of gathering.
Thank you ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
[music].