Q4 2023 West Pharmaceutical Services Inc Earnings Call
Operator: Thank you for standing by, and welcome to West Pharmaceutical Services' fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Thank you for standing by and welcome to the West Pharmaceutical services fourth quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. To remove yourself from the queue, please press star 1 1 again.
After the speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone to remove yourself from the queue. Please press star one one again.
Quintin John Lai: I would now like to hand the call over to Vice President, Strategy and Investor Relations, Quintin Lai. Please, go ahead. Thank you, Lateef. Good morning, and welcome to West's fourth quarter and full year 2023 conference call. We issued our financial results this morning, and the release has been posted in the investor section of the company's website, located at westpharma.com. This morning, we will review our financial results, provide an update on our business, and present an update on our financial outlook for the full year 2024. There is a slide presentation that accompanies today's call, and a copy of the presentation is available in the investor section of our website. Slide four is our safe harbor state.
I would now like to hand, the call over to Vice President strategy and Investor Relations Quintin Lai. Please go ahead.
Quintin John Lai: Thank you Latif.
Quintin John Lai: Good morning, and welcome to West's fourth quarter and full year 2023 conference call.
Quintin John Lai: We issued our financial results. This morning, and the release has been posted in the investors section on the company's website located at West pharma Dot com.
Quintin John Lai: This morning, we will review our financial results provide an update on our business and provide a present an update on our financial outlook for the full year 2024.
There's a slide presentation that accompanies today's call and a copy of the presentation is available on the investors section of our website.
Quintin John Lai: On slide four is our safe Harbor statement statements made by management on this call and in the accompanying presentation contain forward looking statements within the meaning of U S Federal Securities law.
Quintin John Lai: Statements made by management on this call and in the accompanying presentation contain forward-looking statements within the meaning of U.S. Federal Security's, These statements are based on our beliefs and assumptions, current expectations, estimates, and forecasts. The company's future results are influenced by many factors beyond the control of the company. Actual results could differ materially from past results, as well as those expressed or implied in any forward-looking statement made here.
Quintin John Lai: These statements are based on our beliefs and assumptions current expectations estimates and forecasts.
Quintin John Lai: The company's future results are influenced by many factors beyond the control of the company.
Quintin John Lai: Actual results could differ materially from past results as well as those expressed or implied in any forward looking statements made here.
Quintin John Lai: Please refer to today's press release, as well as any other disclosures made by the company regarding the risk to which it is subject, including our 10-K, 10-Q, and 8-K reports. During today's call, management will make reference to non-GAAP financial measures, including organic sales growth, adjusted operating profit, adjusted operating profit margin, and adjusted diluted EPS. Reconciliations and limitations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in this morning's earnings release. I now turn the call over to our CEO, Eric Green. Thank you, Quintin, and good morning everyone.
Quintin John Lai: Please refer to today's press release as well as any other disclosures made by the company regarding the risks to which it is subject <unk>.
Quintin John Lai: Our 10-K, 10-Q and 8-K reports.
Quintin John Lai: During today's call management will make reference to non-GAAP financial measures, including organic sales growth adjusted operating profit adjusted operating profit margin and adjusted diluted EPS.
Quintin John Lai: Reconciliations and limitations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in this morning's earnings release.
Quintin John Lai: I'll now turn the call over to our CEO Eric Green.
Eric M. Green: Thank you Quintin and good morning, everyone. Thanks for joining us today, we'll start on slide five.
Eric M. Green: Thanks for joining us today. We'll start on slide five. Last year, we celebrated West's 100th anniversary of groundbreaking healthcare innovation, which is one of the many proud highlights shown on this recap slide. I also want to thank our team members who are connected by our strong responsibility and shared values that continue to help us succeed each day. Now turning to slide six, where I will cover three main topics. First, we will examine the drivers of 2023. Second, we will discuss the challenges ahead in 2024. And third, we will talk about the drivers of growth that will return West to a long-term financial construct of sales and margin expansion in 2025. Let's begin with our financial results. I am pleased with the strong base growth in 2023, which more than offsets a decline in COVID-19-related sales of approximately $320 million, excluding pandemic-related sales. We had strong base overall organic sales growth in the mid-teens.
Eric M. Green: Last year, we celebrated west one hardest anniversary of groundbreaking health care innovation, which is one of many proud highlights shown on this recap slide.
Eric M. Green: I also want to thank our team members, who are connected by our strong responsibility and shared values that continue to help us succeed each day.
Eric M. Green: Now turning to slide six where I'll cover three main topics first we will examine the drivers of 2023 second we will discuss the challenges ahead in 2024.
Eric M. Green: And third we will talk about the drivers of growth that will return west too.
Eric M. Green: Finally long term financial construct a sales and margin expansion in 'twenty to 'twenty five.
Eric M. Green: Let's begin with our financial results I.
Eric M. Green: I am pleased with the strong base growth in 'twenty, two 'twenty, three which more than offset a decline of COVID-19 related sales of approximately $320 million.
Eric M. Green: Excluding pandemic related sales.
Eric M. Green: We had strong base overall organic sales growth in the mid teens.
Eric M. Green: Driving the space growth is expanding customer demand for our high-value product offerings, both components and devices, and for our contract manufacturing services. During the year, we made great strides with our capital expansion plans across our global network. For example, in Kinston, we expanded our footprint with new NovaPure capacity, and we're in the process of a significant expansion in our HPP processing capacity. At our Grand Rapids contract manufacturing site, we brought online new capacity for a customer's injection device in late 2022, which contributed to growth in 2023. We also have been able to successfully address our backlog of long lead times for certain products. This has been a challenge since the start of the pandemic, and thanks to the hard work of our teams, through both optimization and capacity expansion, we have exited the year with normalized lead times. Moving to slide seven.
Eric M. Green: Driving this base growth is expanding customer demand for our high value product offerings, both components and devices.
Eric M. Green: And for our contract manufacturing services.
Eric M. Green: During the year, we made great strides with our capital expansion plans across our global network.
Eric M. Green: For example in Kinston, we expanded our footprint with new Nova pure capacity and we're in the process of a significant expansion in our H P. P processing capacity.
Eric M. Green: At our Grand Rapids contract manufacturing site, we brought online new capacity for a customer's injection device in late 2022 which contributed to growth in 2023.
Eric M. Green: We also have been able to successfully address our backlog.
Eric M. Green: Long lead times for certain products.
Eric M. Green: This has been a challenge since the start of the pandemic and thanks to the hard work of our teams through both optimization and capacity expansion, we have exited the year with normalized lead times.
Eric M. Green: Moving to slide seven.
Eric M. Green: As we turn our attention to 2024, we are facing several challenges to our growth model, as indicated in our preliminary outlook from October. With greater visibility of the changing market landscapes, we expect 2 to 3 percent organic sales growth for the full year, or about 5 to 6 percentage points lower than our preliminary outlook. This difference comes from four main factors. First,
Eric M. Green: As we turn our attention to 2024, we are facing several challenges to our growth model as indicated in our preliminary outlook from October.
Eric M. Green: With greater visibility of the changing market landscape, we expect 2% to 3% organic sales growth for the full year or about five to six percentage points lower than our preliminary outlook.
Eric M. Green: This difference comes from four main factors first.
Eric M. Green: We had expected flat COVID-related sales this year, but instead, demand continues to decline, which resulted in about a 1% point decrease in organic sales. Second, timing of HVP device manufacturing capacity coming online to satisfy customer demand has been pushed out, causing a percentage point of headwind. Third, timing of a customer's upgrade to a higher HVP tier has caused a percentage point of headwind. And finally, fourth, a more widespread destocking is causing approximately two to three percentage points of headwind.
Eric M. Green: We had expected flat COVID-19 related sales this year.
Eric M. Green: Stead demand continues to decline, which resulted in about 1% point decrease in organic sales.
Eric M. Green: Second timing of HCP device manufacturing capacity coming online to satisfy customer demand has been pushed out, causing an eight percentage point of headwind.
Eric M. Green: Third timing of our customers upgrade to a higher HCP. Each year has caused a percentage point of headwind and finally fourth a more widespread destocking, just causing approximately two to three percentage points of headwind.
Eric M. Green: Towards the end of the year and into January, the industry inventory management trend that other life science tools companies have been experiencing has now reached our segment of the injectable drug value chain. While we thought we might see some impact in 2024, we were surprised by the breadth, magnitude, and speed at which customers changed their forecast. In several of these cases, customers expressed to us the same sentiment about the amount of forecast changes that were being handed to them.
Eric M. Green: Towards the end of the year and into January the industry inventory management trend and other life science tools companies have been experiencing has now reached our segment of the injectable drug value chain while.
Eric M. Green: While we thought we might see some impact in 'twenty 'twenty four we werent surprised with the breadth magnitude and speed at which customers change their forecast.
Eric M. Green: And several of these cases customers expressed to us the same sentiment at the amount of forecast changes that were being handed to them.
Eric M. Green: As we look to overall quarterly pacing for 2024, we expect that Q1 will have the largest negative impact due to destocking, as well as the timing of new HVP device capacity and customer-led HVP upgrades. We expect that proprietary products will be down by a high single decline. We expect some effect but to a lesser degree in Q2 with positive proprietary products and consolidated organic growth. And we expect the second half of the year to have better growth in Q4 in line with our long-term financial construct. As we set our 2024 guidance and quarterly cadence, we see several areas that support our expectations. First, our February order book for the second half of the year has a higher coverage ratio than prior pre-pandemic levels.
Eric M. Green: As we look to overall quarterly pacing for 2024, we expect that Q1 will have the largest negative impact due to destocking as well as timing of new AWP device spec capacity and customer led H V. P upgrades, we expect in Q1.
Eric M. Green: That proprietary products will be down by high single decline.
Eric M. Green: We expect some effect, but to a lesser degree in Q2 with positive proprietary products and consolidated organic growth and.
Eric M. Green: And we expect the second half of the year to have better growth with Q4 in line with our long term financial construct.
Eric M. Green: As we set our 2020 for guidance and quarterly cadence, we see several areas that support our expectations.
Eric M. Green: First our February order book for the second half of the year has a higher <unk>.
Eric M. Green: Average ratio than prior pre pandemic levels.
Eric M. Green: Second, we have some customers that are expected to be able to produce more drugs as the year progresses. Third, we expect HVP device capacity to improve in the second half of the year as we implement process modifications that were designed to improve manufacturing throughput. I am disappointed that we will not achieve our usual four-year organic sales and margin expansion in 2024.
Eric M. Green: Second we have some customers that are expected to be able to produce more drugs as.
Eric M. Green: As the year progresses.
Eric M. Green: Third we expect <unk> device capacity to improve in the second half of the year as we implement process modifications that were designed to improve manufacturing throughput.
Speaker Change: I am disappointed that we're not but we will not achieve our usual full year organic sales and margin expansion in 2024.
Eric M. Green: As I've outlined, outside of further COVID demand reduction, some of the impact is time-related to new capacity and timing of customer upgrades. This is an industry-wide situation, not a change in market share or patient demand for drug volume. Looking beyond 2024, we continue to be bullish on our growth construct, and our teams will have another active year of capital investments in 2024. Moving to slide 8.
Speaker Change: As I've outlined outside of further COVID-19 demand reduction some of the impact this time related to new capacity and timing of customer upgrades as for Destocking.
Speaker Change: This is an industry wide situation not a change of market share or patient demand for drug volumes.
Speaker Change: Looking beyond 2024, we continue to be bullish on our girls construct and our teams will have another active year of capital investments in 2024 move.
Speaker Change: Moving to slide eight.
Eric M. Green: We will be expanding our industry-leading capacity with major HVP expansion projects in Jersey Shore and Eschweiler, as well as other projects across the global network. Another driver of growth with a bright future comes from our HVP devices, which include our injection delivery device platforms and Crystal Zenith Containment Solutions in the admin system.
Speaker Change: We will be expanding our industry, leading capacity with major <unk> expansion projects in Jersey shore and S Y there as well as other projects across our global network.
Speaker Change: Another driver of growth with a bright future. It comes from our <unk> devices, which includes our injection delivery device platforms Crystal Zenith containment solutions in the admin systems.
Eric M. Green: HVP devices had very strong double-digit organic sales growth in 2023 and now represent 10% of overall sales. West's platforms are an integral part of our customers' drug-device combination products that are making a difference to patients. And this year, we have had multiple capital expansion projects that will increase capacity for smart dose, self-dose, and admin systems, with some expected to come online in the second half of 2024 and fully online in 2025. As mentioned at the outset, contract manufacturing contributed growth from new capacity at our Grand Rapids site to support a customer's injection device platform. Looking ahead, we're excited to have started a significant expansion at our Dublin facility, which is already dedicated to contracted demand for future injection device manufacturing.
Speaker Change: HCP devices had very strong double digit organic sales growth in 2023, and now represent 10% of overall sales.
Speaker Change: West platforms are an integral part of our customers' drug device combination products that are making a difference to patients.
Speaker Change: And this year, we have had multiple capital expansion projects that will increase capacity for smart dose self dose and had been systems with some expected to come online in the second half of 'twenty 'twenty, four and fully aligned in 2020 five.
Speaker Change: As mentioned at the outset contract manufacturer had growth contribution from from new capacity at our Grand Rapids site to support our customers' injection device platform.
Speaker Change: Looking ahead, we're excited to have started a significant expansion at our Dublin facility, which is already dedicated to contracted demand for future injection device manufacturing.
Eric M. Green: We expect to be completed and validated in 2024, which places us in a great position for 2025 growth. I also want to take some time to talk about the dynamics of future demand related to our growth drivers for HVP components. As you know, we have been building HVP capacity for several years and expect to continue to do so in 2024. We see a robust runway of volume growth over the next few years. As a foundation, we expect volume growth of existing drugs with increasing aging patient populations, expanding geographical reach, and evolving treatment guidelines and market conditions.
Speaker Change: We expect to be completed and validated in 'twenty, 'twenty, four which places us in a great position for 2025 growth.
Speaker Change: I also want to take some time to talk about the dynamics of future demand related to our growth drivers for H B P components.
Speaker Change: As you know we have been building the HCP capacity for several years and expect it to continue to do so in 2024.
Speaker Change: We see a robust runway of volume growth over the next few years.
Speaker Change: As a foundation, we expect volume growth of existing drugs, but the increase in the aging patient populations expanding geography.
Speaker Change: Geographical reach and evolving treatment guidelines and market conditions.
Eric M. Green: In addition to overall volume growth, we continue to experience and see certain drugs have breakthrough growth. For example, we are experiencing a similar surge in demand for components associated with drugs treating diabetes and obesity. Our responsibility as an industry leader in primary packaging is to be prepared for incremental jumps in demand. And lastly, the area with the most potential for future growth is our HPP capacity to support and make shifts. For MixShift, we see a combination of volume from new drugs that enter the market and from legacy drugs that upgrade from either a standard component or lower to a higher HPP category. The mixed shift of legacy to HVP has historically been a smaller contributor for us compared to the contribution from newly approved drugs. However, with the industry landscape changing, regulators are introducing new regulations for higher quality, lower particulate, and more standardized solutions.
Speaker Change: In addition to overall volume growth, we continue to experience and see certain drugs have breakthrough growth. For example, we're experienced a similar surge in demand for components associated with drugs treating diabetes and obesity, our responsibility as the industry leader in.
Primary packaging is to be prepared for an incremental jobs and demand.
Speaker Change: And lastly, the area with the most potential for our future growth is our <unk> capacity to support and mix shift.
For our mix shift, we'll see a comment some volume from new drugs to the market and from legacy drugs that upgrade from either a standard component or lower to a higher HPV category.
Speaker Change: The mix shift of legacy to HCP has historically been a smaller contributor for us compared to contribution from newly approved drugs.
Speaker Change: However, with the industry landscape changing regulators are introducing new regulations for higher quality, lower particulate and more standardized solutions and therefore customers are looking to upgrade the standard primary components.
Eric M. Green: And therefore, customers are looking to upgrade their standard primary components. When we look at that over the next few years, we estimate that several billions of our primary containment components, in standard form, could benefit from a mixed shift to our modern formulation and HPP processes. We recognize this makeshift will take time, but we anticipate as new regulatory changes are enforced.
Speaker Change: When we look at that over the next few years, we estimate that several billions of our primary containment components in standard form.
Speaker Change: Could benefit from a mix shift to our modern formulation and <unk> processes.
Speaker Change: We recognize this mixed shift will take time.
Speaker Change: But we anticipate as new regulation changes are enforced.
Eric M. Green: This adoption will accelerate. By considering our combination of growth drivers from volume, price, and HVP mix shift, we can confidently assert that we will be well-equipped to navigate the challenges and continue to fuel our long-range financial construct of 7 to 9 percent annual organic sales growth and at least 100 basis points of operating margin expansion per year. Now, I'll turn the call over to Bernard. Hey, Bernard?
Speaker Change: This adoption will accelerate.
By considering our combination of growth drivers from volume price at H B P mix shift we can confidently assert that we will be well equipped to navigate the challenges and continue to fuel our long range financial construct of 7% to 9% annual organic sales growth.
Speaker Change: 100 basis points of operating margin expansion per year.
Speaker Change: Now I'll turn the call over to Bernard Bernard Thank.
Bernard J. Birkett: Thank you, Eric, and good morning. Let's review the numbers in more detail. We'll first look at Q4 2023 revenues and profits, where we saw low single-digit organic sales growth and an increase in diluted EPS and operating profit. I will take you through the driver's impact on sales and margin in the quarter, as well as some balance sheet takeaways. And finally, we will review our 2024 guidance. First up, Q4. Our financial results are summarized on slide 9, and the reconciliation of non-U.S. gap measures is described in slides 17 to 21. We recorded net sales of $732 million in the quarter, representing organic sales growth of 1.4%. COVID-related net revenues are estimated to have been approximately $7 million in the quarter, an approximate $48 million reduction compared to the prior year. Looking at slide 10, proprietary products organic net sales declined by 0.3% in the quarter.
Bernard J. Birkett: Thank you Eric and good morning.
Bernard J. Birkett: To review the numbers in more detail.
Bernard J. Birkett: First look at Q4 of 2023 revenues and profit.
Bernard J. Birkett: We saw low single digit organic sales growth and an increase in diluted EPS and operating profit.
Bernard J. Birkett: I will take you through the drivers impacting sales margin in the quarter as well as some balance sheet takeaways.
Bernard J. Birkett: And finally, we will review our 2024 our guidance <unk>.
Bernard J. Birkett: First up Q4.
Bernard J. Birkett: Our financial results are summarized on slide nine and the reconciliation of non U S. GAAP measures are described on slide 17 to 21.
Bernard J. Birkett: We recorded net sales of $732 million in the quarter, representing organic sales growth one 4%.
Bernard J. Birkett: Covid related net revenues are estimated to have been approximately $7 million in the quarter and.
Bernard J. Birkett: An approximate 48 million reduction compared to the prior year.
Bernard J. Birkett: Looking at slide 10.
Bernard J. Birkett: <unk> products organic net sales declined by 3% in the quarter.
Bernard J. Birkett: As we anticipated, in addition to the COVID decline, we continued to experience a destocking of inventory by certain of our customers during the fourth quarter. High-value products, which made up approximately 75% of proprietary product sales in the quarter, generated low single-digit growth, led by customer demand for HVP components and devices. Looking at the performance of the market unit, Pharma market units had low single-digit growth, led by demand for Dikeo and NovoPure components, partially offset by a reduction in sales related to COVID. The biologics and generics market units experienced low single-digit and mid-single-digit declines, respectively, due to a reduction in sales related to COVID-19 vaccines.
Bernard J. Birkett: As we anticipated in addition to the Covid decline, we continue to experience a destocking of inventory by certain of our customers during the fourth quarter.
Bernard J. Birkett: High value products, which made up approximately 75% of proprietary product sales in the quarter.
Generated low single digit growth.
Bernard J. Birkett: Led by customer demand for HV P components and devices.
Bernard J. Birkett: Looking at the performance of the market units.
Bernard J. Birkett: Our pharma market unit had low single digit growth.
Bernard J. Birkett: Led by demand for <unk> no pure component.
Bernard J. Birkett: Partially offset by a reduction in sales related to Covid.
Bernard J. Birkett: The biologics and generics market units experienced low single digits and mid single digit declines respectively. Due to a reduction in sales related to COVID-19 vaccine.
Bernard J. Birkett: Our contract manufacturing segments showed high single-digit net sales growth led by an increase in sales of medical device and diagnostic products. We recorded $278.2 million in gross profit, which was $16.1 million or 6.1% higher than Q4 of last year, and our gross profit margin was 38 percent, with a 100 basis point increase from the same period last year. Our adjusted operating profit increased to $159.9 million this quarter, compared to $158.7 million in the same period last year. However, our adjusted operating profit margin, 21.8%, was a 60 basis point decrease from the same period last year. Finally, Adjusted Diluted EPS was Lows 3.4% for Q4, and excluding stock-based compensation tax benefits of one cent in Q4, EPS increased by approximately 6.4 percent.
Bernard J. Birkett: Our contract manufacturing segments showed high single digit net sales growth led by an increase in sales medical device and diagnostic products.
Bernard J. Birkett: We recorded $278 2 million and gross profit.
Which was $16 1 million or six 1% higher than Q4 of last year.
Bernard J. Birkett: And our gross profit margin of 38% of the 100 basis point increase from the same period last year.
Bernard J. Birkett: Our adjusted operating profit increased to $159 9 million.
Bernard J. Birkett: This quarter.
Bernard J. Birkett: <unk> to $158 7 million in the same period last year.
Bernard J. Birkett: Our adjusted operating profit margin of 21, 8% with a 60 basis point decrease from the same period last year.
Bernard J. Birkett: Finally, adjusted diluted EPS Rose three 4% for Q4 <unk>.
Excluding stock based compensation tax benefit of <unk> and Q4 EPS increased by approximately six 4%.
Bernard J. Birkett: Now, let's review the drivers in both our revenue and profit performance. On slide 11, we show the contributions to sales growth in the quarter. Sales price increases contributed $39 million, or 5.5 percentage points of growth in the quarter, as did a foreign currency tailwind of approximately $18.5 billion. Offsetting this was a negative mixed impact of $29.3 million, primarily due to a reduction in COVID-19 related net demand of $48 million and de-stocking trends in the sector by certain customers.
Bernard J. Birkett: Now, let's review the drivers in both our revenue and profit performance.
Bernard J. Birkett: On slide 11, we show the contributions to sales growth in the quarter.
Bernard J. Birkett: Sales price increases contributed $39 million or five five percentage points of growth in the quarter as data foreign currency tailwind of approximately $18 5 million.
Bernard J. Birkett: Offsetting price was a negative mix impact of $29 3 million.
Bernard J. Birkett: Primarily due to a reduction in COVID-19 related net demand $48 million.
Bernard J. Birkett: Destocking trends in the sector by certain of our customers.
Bernard J. Birkett: Looking at margin performance on slide 12, proprietary products' fourth quarter gross profit margin of 42.7 percent is 110 basis points higher than the margin achieved in the fourth quarter of 2022, a key driver for the increase in proprietary products' gross profit margin related to sales price increases, offset by inflationary pressures at our plants and mix from the reduction in COVID revenue. Contract Manufacturing had a fourth quarter gross profit margin of 17.9%. 250 basis points greater than the margin achieved in the fourth quarter of 2022. The increase in margin can be attributed to sales price increases and a favorable mix of products sold. Let's look at our balance sheet and review how we've done in terms of generating more cash. On slide 13, we have listed some key cash flow metrics. Operating cash flow was $776.5 million for the year, an increase of $52.5 million compared to the same period last year, a 7.3% increase. Operating cash flow in the period primarily benefited from favorable working capital management.
Bernard J. Birkett: Looking at margin performance on slide 12 proprietary.
Bernard J. Birkett: Products fourth quarter gross profit margin of 42, 7% was 110 basis points higher than the margin achieved in the fourth quarter of 2022.
Bernard J. Birkett: The key driver for the increase in proprietary products gross profit margin related to sales price increases.
Bernard J. Birkett: Offset by inflationary pressures at our plants in mix from the reduction in <unk> revenues.
Bernard J. Birkett: Contract manufacturing fourth quarter gross profit margin of 17, 9%.
Bernard J. Birkett: It was 250 basis points greater than the margin achieved in the fourth quarter of 2022.
Bernard J. Birkett: The increase in margin can be attributed to sales price increases and.
Bernard J. Birkett: And a favorable mix of products sold.
Speaker Change: And let's look at our balance sheet and review, how we've done in terms of generating more cash.
Speaker Change: On slide 13, we have listed some key cash flow metrics.
Speaker Change: Operating cash flow was $776 $5 million for the year.
Speaker Change: An increase of $52 5 million compared to the same period last year.
Speaker Change: Seven 3% increase.
Operating cash flow in the period, primarily benefited from favorable working capital management.
Bernard J. Birkett: In 2023, we spent $362 million dollars on capital expenditure, a 27.2% increase over 2022. We continue to leverage our CapEx to increase our high-value product manufacturing capacity and our contract manufacturing capacity. Working capital of approximately $1.26 billion decreased by $135.9 million from 2022, primarily due to an increase in our current portion of long-term debt and a reduction in our cash balance. Our cash balance at December 31st, $853.9 million, is $40.4 million lower than our December 2022 balance.
Speaker Change: In 2023, we spend 362.
Speaker Change: Million on capital expenditures and 27, 2% increase over 2022.
Speaker Change: We continue to leverage our Capex will increase our high value product manufacturing capacity and our contract manufacturing capacity.
Speaker Change: Working capital of approximately $1.26 billion decreased by $135 9 million from 2022.
Speaker Change: Primarily due to an increase in our current portion of long term debt and reduction in our cash balance.
Speaker Change: Our cash balance at December 31, eight.
Speaker Change: $853 9 million was $44 million lower than our December 2022 balance.
Bernard J. Birkett: The decrease in cash is primarily due to increased capex and share repurchase, offset by your work in capital management. Turning to guidance, slide 7 provides a high-level summary. Full year 2024 Net Sales Guidance will be in a range of three to $3.025 billion. There is an estimated headwind of $8 million based on current foreign exchange rates.
Speaker Change: The decrease in cash is primarily due to increased capex and share repurchases offset by our working capital management.
Turning to guidance slide seven provides the high level summary.
Speaker Change: Full year 2024, net sales guidance will be in a range.
Speaker Change: Of three three.
Speaker Change: <unk> $3.0 billion to $5 billion.
Speaker Change: There is an estimated headwind of $8 million based on current foreign exchange rates, we expect.
Bernard J. Birkett: We expect organic sales growth to be approximately 2-3%. We expect our full year 2024 adjusted diluted EPS guidance to be in a range of $7.50 to $7.75. Also, CAPEX guidance of $350 million for the year. There are some key elements I want to bring your attention to as you review our guidance. Estimated FX headwinds on EPS have an impact of approximately $0.02 based on current foreign currency exchange rates, and our guidance excludes future tax benefits from stock-based compensation.
Organic sales growth to be approximately 2% to 3%.
Speaker Change: We expect our full year 2024, adjusted diluted EPS guidance to be in a range of $7 50 to $7 75.
Speaker Change: Also our capex guidance $350 million for the year.
Speaker Change: There are some key elements I want to bring your attention to as you review our guidance <unk>.
Speaker Change: Estimated FX headwind on EPS as an impact of approximately two <unk> based on current foreign currency exchange rates.
Speaker Change: And our guidance excludes future tax benefits from stock based compensation.
Eric M. Green: I would now like to turn the call back over to Eric. Thank you, Bernard. To summarize on slide 14, our proven growth strategy continues to deliver unique value, the breadth of our high-quality product offerings, and this is evident in a robust, committed order book. Despite the headwinds and challenges in the sector, our team is committed to overcoming these obstacles to meet the anticipated growth expectations. I'm confident and excited about the future for West as we continue to make a difference to patient health across the globe. Lateef, we're ready to take questions. Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the question queue, you may press star 11 again.
Speaker Change: I would now like to turn the call back over to Eric.
Eric M. Green: Thank you Bernard.
Eric M. Green: Summarized on slide 14, our proven growth strategy continues to deliver unique value the breadth of our high quality product offerings. This is evidenced by our robust committed order book, despite the headwinds and challenges in the sector. Our team is committed to overcome these obstacles to meet the anticipated growth XP.
Eric M. Green: Patients on <unk>.
Eric M. Green: Confident and excited about the future for west as we continue to make a difference to patient health across the globe.
Eric M. Green: Latif, we're ready to take questions. Thank you.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone to remove yourself from the question queue. You May Press Star one one again, we ask that you limit yourself to one question and one follow up please standby, while we compile the Q&A roster.
Operator: We ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of David Windley of Jeffries. Your question, please, David. Thanks. Good morning. Thanks for taking my question. I'm going to start with an easier one and then a higher level one.
Speaker Change: Our first question comes from the line of David Windley of Jefferies. Your question. Please David.
David Howard Windley: Thanks, Good morning, Thanks for taking my question.
David Howard Windley: I'm going to start with an easier one and then and then a higher level one so.
David Howard Windley: So, Eric, I appreciate the comments that you gave us around the cadence of recovery or reacceleration, in 24. Just so I understand you correctly, you said negative double digits in proprietary products. Could you talk to, could one of you talk to where you think overall growth will be, like where will organic sales growth be in 1Q, all in, and then how does that ramp through to the fourth quarter? Sounds like it gets to what you would call normal in the fourth quarter.
David Howard Windley: Eric I appreciate the comments that you gave us around the cadence of recovery or Reacceleration.
David Howard Windley: And in 'twenty four just so if I understood you correctly you said.
David Howard Windley: Negative double digits and proprietary products could you talk to.
One of you talk to where you think overall growth like where organic sales growth be.
David Howard Windley: In one queue all in and then how does that ramp through to the fourth quarter. It sounds like gets to what you would call normal in the fourth quarter just want to understand that more precisely thank you.
Eric M. Green: Thanks; I just want to understand that more precisely. Thank you. Yeah, Dave, I just want to make one correction, and hopefully it came across clear. The proprietary products anticipated, performance in Q1 is a high single-digit decline, just to be clear. And I would say the majority of that change in our view has come from de-stocking, while I mentioned two other factors. The majority is de-stocking, and specifically 75% of that de-stocking is coming from six customers. So I just wanted to kind of give you a little color around that aspect. Bernard, do you want to cover it?
Speaker Change: Yes, Dave I, just want to make one correction.
Speaker Change: And hopefully hopefully came across clear the proprietary products anticipated performance.
Dave: Performance in Q1 is high single digit decline.
Speaker Change: Okay just to be clear.
Speaker Change: And I would say a majority of.
Speaker Change: That the change in our view as come from Destocking, while I've mentioned two other factors majority is destocking.
Speaker Change: Destocking and it's specifically 75% of that Destocking is coming from six customers. So I just wanted to kind of give you a little color around that aspect.
Speaker Change: Brian do you want to cover.
Bernard J. Birkett: Yeah, on a consolidated basis, we would see growth between six to seven percent, or negative six to seven percent, for Q1. And then, as we said, we would expect to see growth ramping as we move through the year and get back to constructs. Okay. That's helpful.
Brian: On a consolidated basis, we would see the growth between six 7%.
Brian: Our negative six seven.
Brian: That decline in Q1.
Speaker Change: And then as we said we would expect to see <unk> ramping.
Ramping as we move through the year and getting back to construct.
Speaker Change: In Q4.
David Howard Windley: And then a little more conceptually, Eric, you said in your comments that you were emphatic about not a change in market share, not a change in patient demand. You also later said that in your interactions with clients about the breadth, magnitude, and speed of the changes in their forecasts, I guess I would be curious about how you draw the confidence that it's not a change in patient demand if those customers are changing their own forecasts. So, you know, I want you to want to understand that.
Speaker Change: Okay. That's helpful. Thank you and then a little more conceptually Eric you said in your comments you were emphatic about not a change in market share not a change in patient demand. You also though later said that in your interactions with clients about the magnitude and speed of the changes in their forecasts.
Speaker Change: I guess I would I would be curious.
Eric M. Green: From what you draw the confidence that it's not a change in patient demand. If those customers are changing their own forecast so want to understand that and then in this destocking is the destocking.
Eric M. Green: And then in this de-stocking, is the de-stocking still more in lower value, either the low end of high value or bulk standard products? Or are you now dealing with destocking kind of up and down the product portfolio? Thank you. Yeah, David.
Eric M. Green: Phil more in and lower lower value either low low end of high value or bulk standard products or are you now dealing with destocking kind of up and down the product portfolio. Thank you.
Eric M. Green: So first of all, in regards to when we have our conversations with customers, what they're finding is a combination of two factors. One is, as they look at their inventory levels, they see an opportunity to leverage a little more working capital. In addition to that, you add in the factor that in the beginning of 2023 and all of 2022, our lead times were significantly higher, probably 3x and 3 to 4X. And what we've been able to do successfully due to both optimization and capital deployment that is now online and keeping up with the demand, we were able to bring those lead times well before pre-pandemic levels. And so, therefore, if you add those two factors together, it gave them confidence to be able to be more aggressive on inventory management. From a destocking look at our portfolio, you're right, one of the areas that was more pronounced was in the standard and bulk areas, but we're also seeing it in some cases in parts of our HVP portfolio.
Phil: Yes, David So first of all in regards to.
Speaker Change: When we have our conversations with customers, but there is a combination of two factors one is as they look at there.
Speaker Change: Inventory levels, they see an opportunity to.
Speaker Change: Leveraged little more working capital management. In addition to that you add onto the factor that in the beginning of 'twenty.
Speaker Change: <unk> 23 in 2000, and all of 2022, our lead times, we were significantly higher.
Speaker Change: Probably three X.
Speaker Change: And three to Forex and what we've been able to do successfully due to both optimization and capital deployment that now is online and keeping up with the demand.
Speaker Change: We were able to bring those lead times to well before pre pandemic levels.
Speaker Change: And so therefore, if you add those two factors together gave them confidence to be able to be more.
Speaker Change: Aggressive inventory management from a from a destocking that look at our portfolio you're right. One of the areas that was more pronounced was.
On the standard and.
Speaker Change: Bulk areas, but we're also seeing it in <unk>.
Speaker Change: Some cases in parts of our HCP portfolio. So it is I would say it's across a broader set.
David Howard Windley: So it is, I would say, it's across a broader set. But I would say the primary area has been the bulk of the standard area. Okay. Thank you. I'll drop out.
Speaker Change: But I would say the primary.
Speaker Change: Primary area has been the bulk.
Speaker Change: Of the standard area.
Speaker Change: Okay. Thank you I'll drop out come back in later thanks.
Paul Richard Knight: Come back in later. Thanks. Thank you. Our next question comes from the line of Paul Knight of KeyBank Capital Markets. Please go ahead, Paul.
Speaker Change: Thank you.
Our next question.
Speaker Change: Comes from the line of Paul Knight of Keybanc Capital markets. Please go ahead Paul.
Eric M. Green: Thank you, Eric. On the $250 million of CapEx this year, and then I think it was a little higher last year. When does this, like for example, last year's CapEx, when does this translate into revenue? Is that what you're alluding to earlier? Is it second half 24?
Paul Richard Knight: Thank you Eric on the $250 million of Capex. This year and then I think it was.
Paul Richard Knight: A little higher last year when does this like for example last year's Capex. When does this translate into revenue is that what you are alluding to earlier is that second half 'twenty four.
Eric M. Green: Yes, Paul Thanks, and good morning, So last year, we did approximately $362 million of capital. This year, we're forecasting about $350 million and I would say.
Eric M. Green: Last year we did approximately $362 million dollars in capital. This year we're forecasting about $350 million dollars, and I would say, still, that same algorithm about 70%. Approximately 70% is growth, and 30% is maintenance, just to give you that kind of context. When we look at the type of capital we're putting in on the HVP capacity, what we're seeing is a transition. So we had Novapur completed last year, and now we're in HVP finishing processing, which is important for the broader portfolio. So that is in line, will be in line in 2024, and will really bring some benefit in 2024, but really 2025 and beyond. The other area I should just be clear on is that about roughly a third of our capital, growth capital, is going into our contract manufacturing business. And we kind of highlighted that we've expanded Grand Rapids already, that is up and running and fully utilized. We have a major project underway in Dublin that will be validated at the end of 2024.
Eric M. Green: Still that same algorithm above 70% approximately 70% is growth and 30% of this maintenance just as just to give you that kind of context. When we look at the type of capital we're putting in.
Eric M. Green: On the HCP capacity, what we're seeing is a transition so we get Nova peer completed last year and now we're in HCP, finishing.
Eric M. Green: Finishing processing.
Eric M. Green: Which is important for the broader portfolio and so that is in line will be in line in 2024 and really.
Eric M. Green: Some benefit in 'twenty, four, but really 25 and beyond the other area. It should just be clear on its call. It by roughly a third of our capital growth capital is going into our contract manufacturing business.
Eric M. Green: We kind of highlighted that we've expanded Grand rapids already that is up and running and fully utilized.
Eric M. Green: We have a major project underway in Dublin that will be a validated end of 2024. This is a significant facility of 175000 square feet.
Eric M. Green: This is a significant facility, 175,000 square feet, that has demand already committed, so we're pretty confident to get that up and running by the end of the year and producing product for all of 2025. So it will be a good return in a short period of time. Those are the two probably bigger projects that are going on.
Eric M. Green: That has demand already committed so we're pretty confident to get that up and running you ended the year in.
Eric M. Green: And producing product for all of 2025, so it will be a good return in a short period of time.
Eric M. Green: Those are the two probably the bigger.
Eric M. Green: Projects are going on but yes, it's more near term than long term.
Eric M. Green: But yes, it's more near term than long term. And I guess my follow-up and last question would be, you know, you have guided to a long-term growth rate of seven to nine percent, yet in this same period of the last couple of years or so, GLP ones have emerged as a, you know, a significant class of therapeutic. Does that square up with your historical guidance of 7 to 9 with this GLP-1 demand out there? Well, Paul, that is an area that we've always talked about, and we do feel that there could be an incremental upside as that market evolves. I do feel very confident; we feel very confident that we are participating quite well with our customers that are in that space, not just with our proprietary products, as you think about the different formats, whether it's an auto-injector or a pen with multiple uses. So cartridges and pre-filled syringes are used.
Speaker Change: I guess my follow up and last question would be you.
Speaker Change: <unk> guided to a long term growth rate of 7% to 9% yet in the same period of last couple of years or so.
Speaker Change: <unk> has emerged as a significant class of therapeutic.
Speaker Change: Does that square up with your historical guidance of seven to nine with this GOP one demand out there.
Speaker Change: Well that is that is an area that we've always talked about is that we do feel that could be an incremental upside.
Speaker Change: As that market evolves I do feel very confident we feel very confident that we are participating in quite well with our customers that are in that space not just in our proprietary products as you think about the different formats, whether it's.
Speaker Change: Auto injector or a pen with multiple users so cartridges and pre filled syringes.
Jacob Johnson: So we do participate in the proprietary side, but we're also participating on the contract manufacturing side, which is kind of driving some of these large investments that we're making today. So we see that as upside to our long-term construct because we would consider that more of a breakout drug, a similar kind of effect that we had during the COVID time period. Okay, thanks. Thank you. Our next question comes from the line of Jacob Johnson of Stevens. Question, please, Jake. Hey, thanks. Good morning.
Speaker Change: So we do participate in the proprietary side, but we're also participating on the contract manufacturing side, where.
Speaker Change: Which is kind of driving some of these these large investments that we're making today.
Speaker Change: So we'll see that is that as upside to our.
Speaker Change: Long term construct because we would consider that more of a breakout drug.
Speaker Change: Similar kind of effect that we had during the Covid time period.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Comes from the line of Jacob Johnson of Stephens. Your question. Please Jacob.
Jacob Johnson: Hey, Thanks, Good morning, maybe Eric just first following up on that last comment about contract manufacturing business, maybe we don't have the most visibility.
Bernard J. Birkett: Maybe, Eric, just first following up on that last comment about contract manufacturing. Yeah, that's a business maybe we don't have the most visibility into in terms of the future growth outlook. But clearly, you're deploying capital into that segment right now. So should we think about that business growing kind of above its historical range for the next couple of years? Or how should we think about their term profile on these investments and capacities you're making there? Bernard, would you like to take that one, please?
Jacob Johnson: Visibility into in terms of the future growth outlook, but clearly youre deploying capital into that segment right. Now so should we think about that business growing kind of above its historical range for the next couple of years or how should we think about our term profile on these investments in capacity Youre, making there.
Jacob Johnson: Well, yes, but Bernard would you like to take that one please.
Jacob Johnson: Yeah, so we would expect contract manufacturing to be growing within our construct. The investments that we're making in that area are very specific and tied to specific customers and businesses. And as Eric said, Before we make the investments, we have a level of visibility as to the type of commitment we're going to get, and that that does support the long-term growth of that business and tie it in with our comps. Now again, we always say, if we can do more and there's an opportunity to do more, we will. And we feel at this point that it is important to make these investments. Got it.
Bernard J. Birkett: We would expect say a contract by contract manufacturing to be growing within our construct.
The investments that we're making in that area are very specific.
Bernard J. Birkett: And tied to specific.
Bernard J. Birkett: Customers and business and as Eric said.
Bernard J. Birkett: Before we make the investments we have a level of visibility as to the type of commitment we're going to gas and that does support the long term growth of that business and.
Bernard J. Birkett: And ties in with our construct.
Bernard J. Birkett: Now again, we always say if we can do more in this opportunity to do more we will.
Bernard J. Birkett: But we feel at this point it is important to make these investments.
Speaker Change: Got it and then just.
Bernard J. Birkett: And then just on destocking and kind of visibility to this subsiding as we maybe get into the back half of the year. I know your portfolio is a bit different than the bioprocessing peers, but it took a while before we kind of found the bottom of destocking or before really kind of numbers bottomed and kind of accelerated last year, but maybe there's some unique dynamics around that. And I think investors and some of us have scar tissue from this.
Speaker Change: On the Destocking and kind of visibility to that.
Speaker Change: Lighting as we need to get into the back half of the year.
I know your portfolio is.
Speaker Change: A bit different than the bio processing peers, but it took a while before we kind of found the bottom of Destocking before really kind of numbers bottomed in kind of accelerated last year that maybe there are some unique dynamics around that and I think investors and some of us have scar tissue from this can you just talk about your visibility.
Jacob Johnson: Can you just talk about your visibility into that destocking, closing, and maybe kind of the order book, how firm the order book is, the back half of the sheet? Yes, Jacob, just on the order book, when we look at the order book for the back half of the year and compare where we are today versus where we were pre-COVID, the order book actually looks stronger, and so we're a bit ahead of where we thought we would be on that compared to pre-COVID trends and rates. So that's giving us... You know, a level of confidence in the back half and seeing that. I won't say rebound, but the acceleration back to trending back to our normal construct growth rate, and so on. Based on that analysis, we don't see it as being a long-term problem. We would expect that we'd get through it this year.
Speaker Change: <unk> into.
Speaker Change: That destocking, concluding and maybe kind of the order book how firm. The order book is the back half of this year.
Yes, Jacob just on the order book when we look at the order book for the back half of the year and compare where we are today versus where we were pre COVID-19.
Jacob Johnson: Order book actually looks stronger.
Speaker Change: And so we're a bit ahead of where we thought we would be on that compared to pre COVID-19 trends and rates, so that thats, giving us.
Speaker Change: Our level of confidence in the back half and seen das.
Speaker Change: I won't say rebound, but say acceleration back to are trending back to a normal comp stroke growth rates.
Speaker Change: And so that.
Speaker Change: Based on that analysis.
Speaker Change: <unk>.
Speaker Change: Don't see it as being a long term problem. We would expect we would get through with this year and as we said in the back half trending towards.
Bernard J. Birkett: And as we said in the back half, trending towards and into that construct, particularly in Q4. Got it. Thanks for taking the questions, Bernard. Thank you. Thank you. Our next question... comes from the line of Derik DeBruin of Bank of America. Your question, please, Derik. Hi, good morning.
Speaker Change: Into that construct particularly in Q4.
Speaker Change: Got it.
Speaker Change: Thanks for taking the questions Mark.
Speaker Change: Thank you.
Speaker Change: Thank you our next question.
Speaker Change: Comes from the line of Derik de Bruin Bank of America your.
Your question please Derrick.
Speaker Change: Hi, good morning, Thanks for taking my question so.
Derik de Bruin: Thanks for taking my question. So can we talk a little bit about the margin cadence and just how to think about this and, obviously, you're suffering from some headwinds from, you know, Kingston not being fully utilized, you've, it sounds like you're taking some headwinds from proprietary products, how should we think about the margin impact and exiting 2024?
Speaker Change: Can we talk a little bit about them margin cadence and just how to think about this and.
Speaker Change: Obviously youre suffering from some headwinds from <unk>.
Speaker Change: Kingston not being fully utilized.
It sounds like you are.
Speaker Change: You are taking some headwind from proprietary products, how should we think about the margin impact and exiting 2024, I mean, assuming that this doesn't linger conducted that last analyst question that this doesn't linger and you do have some visibility back half of the year or are we back at a more normalized margin rate exiting the year.
Bernard J. Birkett: I mean, assuming that this doesn't linger, as the last analyst asked, that this doesn't linger, and you do have some visibility back after a year, are we back at a more normalized margin rate exiting the year? Yeah, Derik, that's what we would expect to see. Q1 obviously is going to be... pressured from a margin point of view based on what we're seeing from a revenue perspective. We see a high correlation there, but again, we do see it trending back to more normal rates of operating margin. You know, as we progress through the year, and it will be a gradual shift, I think, quarter over. Got it. I mean, but just more on the, just sort of, anyway. That's fine. I'll do that.
Speaker Change: Yes, Derrick that's what we would expect to see Q1, obviously is going to be.
Pressured from a margin point of view based on what we're seeing from a revenues perspective, we see a high correlation there.
Speaker Change: But again, we do see a trending back in.
Speaker Change: More normal rates of operating margin.
Speaker Change: As we progress through the year and it will be a gradual shift I think quarter over quarter.
Speaker Change: Okay.
Speaker Change: Got it I mean, but just more on the.
Speaker Change: And just sort of that anyhow, that's fine I'll do that and then can we talk about pricing I mean, you've enjoyed better than expected pricing for the last couple of years is that sustainable or are you getting pushback from customers.
Derik de Bruin: And then can we talk about pricing? I mean, you've enjoyed better than expected pricing for the last couple of years. Is that sustainable?
Eric M. Green: Or are you getting pushback from customers? Hey Derik, I mean, we are going to, I know last year we were up between 5 to 6% as compared to the year before. I think we're between three and four. Before that, as you know, in the history of this company, we were probably one or two. We're not retreating back to the old levels.
Speaker Change: As Eric I mean, we are going to I know last year, we were up between 5% to 6% as we.
Speaker Change: And the year before I think we are between three and four before that as you know the history of this company, we are one or two.
Speaker Change: We're not retreating back to the history levels. So.
Derik de Bruin: So we're probably more near the three plus mark from a pricing, net price contribution standpoint. And just to be clear, any mixed shift that occurs, we do not classify that as price. So this is pure price, net price contribution. Got it.
Speaker Change: We're probably more near the three plus mark.
Speaker Change: From a pricing net price contribution and then just just to be clear any mix shift that occurs we do not classify that as price. So this is pure price.
Speaker Change: Price contribution.
Speaker Change: Got it and I appreciate the commentary on the 75% of this is tied to fixed customers I mean.
Eric M. Green: And I appreciate the commentary on the 75% of this is tied to six customers. I mean, your level of confidence that you can get sort of like the pickup in 2Q that you're seeing and going forward. I mean, just like, is there a chance that this gets moved out again?
Speaker Change: Your level of confidence that you can get sort of like the pickup into Q that youre seeing and going forward. I mean, just like is there a chance that this gets moved out again that there is going to take Seth I mean since the worst surprises last time just.
Derik de Bruin: That it's not going to take stuff? I mean, since you were surprised this last time, just, you know, it seems, I mean, you're a little bit more limited than say with the bioprocessing vendors you're going through, just given the breadth of the CDMOs and things are there. So can you just sort of like, what are your conversations with these people, your level of confidence? I mean, do you get surprised again?
Speaker Change: It seems youre, a little bit more limited than say, what the bio processing vendors are going through just given the breadth of the CD models and things are there. So can you just sort of like what are your conversations with people your level of confidence I mean, do you get surprised again.
Eric M. Green: Yeah, it's absolutely a continued focus for us, Derik, absolutely. We're not pleased with the impact it's had on us. We pride ourselves; we have pretty much access to a large part of the market. And, however, based on the conversations and the data we've been looking at with our customers, there will be some in Q2 that have some destocking, but not as pronounced in Q1. So it's really, most of what we're seeing is really a Q1 phenomenon. Kemp.
Speaker Change: Yes, it's absolutely a continued focus for us Derek absolutely I mean this.
Speaker Change: We're not pleased with the.
Speaker Change: The impact has had on us.
Speaker Change: Prior to ourselves we have.
Speaker Change: Access to.
Speaker Change: A large part of the market.
Speaker Change: However, based on the conversations and the data we've been looking at with our customers.
Speaker Change: There will be some still in Q2.
Speaker Change: That has some destocking, but not as pronounced in Q1. So it's really most of it that we're seeing is really the Q1 phenomenon.
Derik de Bruin: Thank you, we'll get back in the queue. Thank you. Our next question comes from the line of Matt LaRue from William Blair. Please go ahead, Matt.
Speaker Change: Okay.
Speaker Change: Thank you I'll get back in the queue.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Matt Larew.
Matt Larew: And Blair. Please go ahead Matt.
Matt LaRue: Hi, good morning. You know, asking about the order book here, I think one thing we saw on the bioprocessing side is that, at some point during that saga, companies started referencing green shoots or, you know, early indicators of order and demand. And then it just took longer for some of those orders to convert, or for sort of the green shoots to turn into dollar signs. So just, you know, understanding said that the order book is outpacing pre-pandemic levels, good coverage, what sort of level of confidence, whether that's written contractually or something else that sort of the order activity today will convert to, you know, revenue dollars in the P&L as you see them. Once the orders are confirmed at this stage, we've pressure tested a lot of that, so we have a good level of confidence that they will convert into revenues in that period. You know, so I think we've done a lot of pressure testing here over the last month or two to make sure that that is the case.
Matt Larew: Hi, good morning.
Matt Larew: Asking about the the order book here I think one thing we saw on the Bioprocess Society.
Speaker Change: At some point during that saga.
Matt Larew: Company started referencing green shoots are early indicators of ordering demand and then just take longer for some of those orders to convert.
Matt Larew: Or for US are the green shoots that turned into a dollar signs. So just I understand you said that they've ordered bumpkins outpatient pre pandemic levels coverage, what sort of the level of confidence, whether thats contractually or something else.
Matt Larew: That sort of order activity today will convert to revenue in the P&L.
Matt Larew: You can see them.
Matt Larew: Yes.
Matt Larew: Once.
Matt Larew: The orders are confirmed at this stage, we've pressure tested a lot of that so.
Matt Larew: We would have.
Matt Larew: Good level of confidence that they will convert into revenues in that period.
Matt Larew: So I think we've done a lot of pressure testing here over the last month or two to make sure that that is the case.
Bernard J. Birkett: And so that will be our expectation, and that's what we're basing our level of confidence on. Again, the order book will continue to build as we move through the year. But, as I said, we are ahead of where we were pre-pandemic.
Matt Larew: So that will be our expectation.
Matt Larew: Expectation and that's what we're basing our level of confidence on.
Matt Larew: Then the order book will continue to build as we move through the year, but as I said, we are ahead of where we are.
Matt Larew: Pre pandemic.
Matt LaRue: Okay, and then another piece of this was, I think you had 1% of HVT manufacturing capacity. And I think if we dial back to, you know, Kenston and bring some of that capacity online, we'll obviously end up catching up a little quicker than you initially thought. What sort of scope of this capacity expansion? sort of the past here, getting it back to where you want it. Yeah, so specifically on the 1% down is new lines and also automation we're putting into our HVP devices. These are the proprietary devices that we manufacture like self-dose and smart dose for our customers, and these are combination devices approved with a specific drug molecule for our customers.
Speaker Change: Okay and then another piece of this was.
Speaker Change: Thank you have a 1% from HDD manufacturing capacity.
Speaker Change: I think if we dial back.
Speaker Change: Kinston and bringing some of that capacity online.
Speaker Change: Key end up catching up a little quicker than you initially thought what's sort of the scope of this capacity expansion.
Speaker Change: And sort of the path here to get it back to where you want to be.
Speaker Change: So specifically on the 1% down as new lines.
Speaker Change: So automation or put it into our <unk> devices. These are the proprietary devices.
Speaker Change: We may pressure like self dose and smart dose for our customers and these are combination devices.
Speaker Change: Approved with a specific drug molecule with our customers. So when you think about.
Eric M. Green: So when you think about that specific area, that's ongoing right now with expansion, additional capacity being brought in, the demand is there in hand, and we need to be able to get caught up to be able to support our customers. So that is on us to make sure that we execute and get that up and running in 2024, verified. We expect that to actually... commercial revenues in the second half of 2024 for those specific products. From a components perspective, Kinston and other sites' lead times are very good, and that was more of a focus last year, getting them validated and up and running.
Speaker Change: That specific area. That's can be that's ongoing right now of expansion additional capacity being brought in the demands there in hand, and we need to be able to get caught up to build to support our customers.
Speaker Change: So that is on us to make sure that we execute and get that up and running.
Speaker Change: In 2024 validated we expect that to actually.
Speaker Change: Commercial.
Speaker Change: Canoes in the second half of.
Speaker Change: Of 2024.
Speaker Change: For those specific products from our.
Speaker Change: From a component perspective, <unk> and other sites our lead times are very good.
Speaker Change: And that was more of last year getting them validated and up running.
Eric M. Green: The HPP processing that we referenced earlier this year that we'll have further completion and validation. That is to really help us support customers as they make a mixed shift to the higher end of HPP and also future drug launches that could have larger volumes than we anticipated due to what we call breakout drugs, right? Certain categories.
Speaker Change: The HCP processing.
Speaker Change: That we referenced about this year that we will have further.
Speaker Change: <unk> and validation that is to really help us support customers as they do have a mix shift to the higher end of HCP and also future drug launches that could have.
Speaker Change: Larger volumes than we anticipated due to kind of what we call breakout drugs right certain categories.
Matt LaRue: So, we're positioning ourselves well to be able to support that growth that we anticipate coming in the near future. Okay, thank you.
Speaker Change: So we're positioned ourselves well to build to support the growth that we anticipate coming.
Speaker Change: In the near future.
Speaker Change: Okay. Thank you great.
John Newton Sourbeer: Thank you. Our next question comes from the line of John Sourbeer of UBS. Your question, please, John. Hi, thanks for taking the question. Maybe just dialing in on the HVPs there on the last question. Yeah, I think they were around 75% of mix in 4Q.
Speaker Change: Great. Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of John <unk>.
Speaker Change: UBS Your question please John.
John: Hi, Thanks for taking the question, maybe just dialing in on the Hep's there on the last question.
John: I think they were around 75% of mix in <unk> is that the right level to think about for 2024 or are there dynamics at play that could mix shifts up or down with the destocking and the new capacity for the year.
Eric M. Green: I mean, is that the right level to think about for 2024? Or are there dynamics in play that could, you know, make shifts up or down with the destocking and the new capacity for the year? It's relatively the same percentage, plus or minus, because the de-stocking is kind of across broad categories. And when we look at growth in our business, particularly in proprietary, it is led by the high-value products in the component side that is leading the growth. You know, as you know, we are in a very attractive injectable market, and one of the best, the fastest growing sub-segments within the injectable space is biologics. Our participation rate remains very high, and continues to be so, and that's where a lot of the HVP growth is occurring, which is causing a mixed shift on the margins. So we anticipate that to still be a robust percentage of our overall portfolio. We appreciate that.
John: John it's relatively the same.
John: Percent is plus or minus because of the destocking is kind of across broad categories.
John: And when we look at growth in our business, particularly in the proprietary is led by.
John: The high value products in the components side.
John: That is leading the growth.
John: As you know that we are at a very attractive injectable market and one of the best the fastest growing sub segment within the injectable space is biologics.
John: Our participation rate remains very high.
John: It used to be so.
John: And that's where a lot of the <unk> growth.
John: As is occurring which is causing a mix shift on the on the margin. So we anticipate that to be still robust.
John: Percentage of our overall portfolio.
John Newton Sourbeer: And then, I guess, you know, specific to the de-stocking trends in the various proprietary product segments, you know, I think pharma and generic saw this impact first, and then now it's more broad into biologics. Do you expect the pharma side to recover faster, followed by biologics, or just any additional details on a, from a segment perspective? When we look at, yeah, no, that's a good question.
I appreciate that and then I guess specific to the destocking trends in various proprietary product segments.
John: Pharma generic saw this impact and then now it's more broad than the biologics do you expect the pharma side.
John: <unk> recovered faster followed by biologics or just any additional details or not from a segment perspective looking at yes.
Yes, that's a good question your emphasis put on but when we look at the Destocking effect that's happened for us the first half of this year.
Eric M. Green: You're absolutely spot on. But when we look at the de-stocking effect that happened for us in the first half of this year, it is across multiple customer segments and market segments. So it's both, it's not just generics and pharma but also, in some cases, biologics. So I would, I would say that for us, and where we are in the value chain is, is pretty much across all three sectors we talk about biotech, pharma, and generics. I guess just on the recovery there, would you expect them all to come back similarly, or is one, you know, you see the green shoots more impact? one segment versus another. Very similar to all three.
John: It is across multiple.
Customer segments market segments. So its both its not just the generic some firm but also in some cases in the biologics.
John: So I would I would say that for us.
John: Where we are in the value chain is pretty much across the all three sectors, we talked about biologics pharma and <unk>.
John: <unk>.
John: Generics.
John: Okay.
John: I guess just on the recovery, there, which would you do you expect them all to come back Similarly are as one.
Do you see the green shoots more packaging.
John: One segment versus another.
John: Very similar.
John Newton Sourbeer: Very similar staging coming back. Appreciate it. Thanks for taking the question. Thank you. Our next question comes from the line of Justin Bowers of Deutsche Bank. Your line is open, Justin. Thank you. Good morning, everyone.
John: All three <unk>.
John: Staging coming back.
Speaker Change: I appreciate it thanks for taking the questions.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line.
Justin Bowers of Deutsche Bank. Your line is open Justin.
Justin D. Bowers: Thank you.
Justin D. Bowers: Good morning good.
Justin D. Bowers: Good morning, everyone. So I have.
Justin D. Bowers: So I have a two-parter here, but first, I wanted to clarify the cadence and the prepared remarks. I thought I heard products would be positive in 2Q and overall. So just wanted to clarify that and then sort of the step up from 2Q to 3Q on growth and then the follow-up question would be just on the order book. You said it had a higher coverage ratio than pre-pandemic levels. Can you, can you just help me? Is that sort of like a forward 12 month or forward?
Justin D. Bowers: Two parter here, but first I wanted to I wanted to clarify the cadence in the prepared remarks, I thought I heard.
Justin D. Bowers: Prop products would be positive in <unk> and overall would be positive.
Justin D. Bowers: So just wanted to clarify that and then sort of the.
Justin D. Bowers: The step up from <unk> <unk>.
Justin D. Bowers: <unk>.
Justin D. Bowers: On growth and then.
Speaker Change: The follow up question would be just on the order book.
Speaker Change: You said it has a higher coverage ratio than pre pandemic levels can you can you just help is that sort of like a forward 12 month or forward.
Bernard J. Birkett: six month or, you know, just how do you guys look at it internally and across the business? Yes. Yes.
Speaker Change: Six month or.
Speaker Change: Just how do you guys look at it internally and across which businesses.
Speaker Change: Help us understand what that.
Justin D. Bowers: In answering your first question, yeah, we would expect proprietary to return to Q2. Now, as we said, it's going to step up over the years, so we're not going to see a huge spike. So again, there's still a level of de-stocking, so it's probably low single-digit growth.
Speaker Change: Answering your first question, yes, we would expect proprietary to return to.
Positive growth in Q2 now.
Speaker Change: As we said, it's going to step up over the year, So we're not going to see.
Speaker Change: A huge spike in or believes so again, there is still a level of destocking. So it's probably low single digit growth.
Bernard J. Birkett: And then, on a consolidated basis, we would also see a return to growth in Q2. And then, looking at the order book, we're really looking at it on a 12-month basis. Thank you. That's helpful.
Speaker Change: Proprietary and then on a consolidated basis also we would see.
Speaker Change: Returning to growth in Q2.
Speaker Change: And then looking at the order book, we're really looking at on a on a 12 month basis.
Speaker Change: So rolling 12 months.
Speaker Change: Okay.
Justin D. Bowers: And then just to clarify on the margins, too, I'm getting to it looks like if I sort of back into the EPS guide with a normalized tax rate, I'm still getting to, you know, roughly 90 to 100 basis points of margin expansion on the low end. Is that... Is that the right mask?
Speaker Change: Thank you that's helpful. And then just to clarify on the margins too I'm getting to it looks like.
Speaker Change: I sort of back into the EPS guide.
Speaker Change: With a normalized tax rate.
Speaker Change: I'm still getting too.
Speaker Change: Roughly 90 to 100 basis points of margin expansion on the low end is that is.
Speaker Change: Is that the right math.
Justin D. Bowers: Um, or is there some other dynamics in play there that I'm missing? for the year. Yeah. No, we would expect operating margin to be flat, and year over year. Yeah. Okay, thanks, I'll jump back in queue.
Speaker Change: Or is there some other dynamics in play there.
Speaker Change: That I'm missing here.
Speaker Change: For the year.
Speaker Change: Yes.
Speaker Change: No we are.
Speaker Change: We would expect operating margin to be flat.
Speaker Change: And year over year.
Speaker Change: Yes.
Speaker Change: Okay. Thanks ill jump back in queue.
Speaker Change: Thank you.
Bernard J. Birkett: Thank you. Our next question comes from the line of David Windley of Jeff. The question, please. Dave.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Comes from the line of David Windley of Jefferies. Your question. Please David.
David Howard Windley: Thanks, around the horn here. I wanted to ask a couple of follow-up questions, Eric, just to clarify for, you know, the broader audience. When you talk about participation rates, I interpret that to mean that you're spec'd in on the product. You and I have talked about how on, you know, a big customer, a big, important product. West likes to be in a position of a sole source. Can you help us to translate, or?
Speaker Change: Thanks.
David Howard Windley: Around the horn here.
David Howard Windley: I wanted to ask a couple of follow ups, Eric just to.
David Howard Windley: To clarify.
David Howard Windley: Four.
Eric M. Green: The broader audience when when you talk about participation rate.
Eric M. Green: I interpret that to mean.
Eric M. Green: That youre specced in on the product.
Eric M. Green: And I have talked about how on.
Eric M. Green: Big customer big important products.
Eric M. Green: West likes to be in a position of a sole source position can you help us to translator.
Eric M. Green: to translate between participation and share. Yeah, I would say... When we say participation rate, what we mean is that when we are, our customers, when they file their Regulatory Filings, it is pointing towards The West product that's in their filings, and therefore, we tend to have a pretty high if they share, it's usually a very large percentage of that, if not all. Do customers in the market look at a secondary source and or test for that secondary source?
Eric M. Green: Let's translate between participation.
Eric M. Green: Sure.
Speaker Change: Yes, I would say.
Speaker Change: I just wanted to say when we say participation rate is that when we are our customers when they file there.
Speaker Change: Regulatory filings it is pointing towards.
Speaker Change: The west.
Speaker Change: Product.
Speaker Change: That's in their filings and therefore, we tend to have a pretty let's say.
Sure, it's usually a very large percentage of that if not all.
Speaker Change: Due to customers in the market look at secondary source and our tests for that second sorry secondary source, yes.
Eric M. Green: Yes, but when we look at our participation rate, it tends to be a pretty large share of the volume, of the doses, basically. So that's what we mean by participation. It's a win-win for us, Dave, and it's pretty consistent historically, and we've been tracking that for both ourselves and our partners at the molecule level.
Speaker Change: But when we look at our participation rate.
Speaker Change: It tends to be a pretty large share of the number of the volume.
Speaker Change: The the doses basically so that's why when we say that's what we mean by participation.
Speaker Change: It's a win rate for us Dave.
And it's pretty consistent historically, and we've been tracking that for both ourselves and our partners.
Speaker Change: At the molecule level absolutely.
David Howard Windley: And then you talked about, Well, your market share is 70%, that's not a number that really has changed in a very long time, maybe even higher than that. You've talked about participation rates in biologics being 90% or better, um, just the elephant in the room, I suppose. In a competitor's conference call recently, they talked about a project that they had been included in, of a recently launched large molecule, sounds GLP-1, sounds very significant, and sounds, you know, a little bit like a market share take. I gather that you're, Your prepared remarks were kind of addressing that, but I just want to throw it out there and ask for more specificity about your participation rate in GLP-1. Yeah, no; our participation rate in GLP-1s is very strong. And there might be other components that are used in the final packaging configuration that are provided by someone else in the market. That's been historically true,
Speaker Change: Got it.
Speaker Change: And then you've talked about.
Speaker Change: Youre Martin will your market share is 70%.
Speaker Change: Another number that really has changed in a very long time, maybe even higher than that you've talked about participation rate in biologics being 90% or better.
Speaker Change:
Speaker Change: Just elephant in the room I suppose in a competitors' conference call recently talked about a project that they.
Speaker Change: Have been included on.
Speaker Change: Of a recently launched large molecule it sounds <unk> one.
Speaker Change: Sounds very significant sounds a little bit like a market share take I gather that your.
Speaker Change: Your prepared remarks, we're kind of addressing that but I just wanted to throw it out there and.
Speaker Change: Ask for more specificity about your participation rate in <unk>.
Speaker Change: Yes, no our participation in <unk> was very strong and there might be other components that are used in the final packaging configuration that are provided by someone else in the market.
Speaker Change: Historically true.
Eric M. Green: But the way we are positioned with our customers in that particular space is very strong on proprietary components but also on the contract manufacturing side. So I would say that in all cases, when you look at a final primary packaging containment, there's multiple elements that go into it, hence the reason why we're driving towards more of an integrated system approach that we've been talking about building towards. We would like to have more components than just one or two items in that whole system. So, yes, others will probably be participating with their own products, but I feel really comfortable where we are with our position. I got it.
Speaker Change: But the way we are positioned for.
Speaker Change: With our customers in that particular space is very strong on.
Speaker Change: Our proprietary components, but also on.
Speaker Change: On the contract manufacturing side.
Speaker Change: I would say that in all cases, when you look at the final primary packaging containment. There is multiple elements that go into it. Hence the reason why we are driving towards more of a integrated system approach, we've been talked about building towards.
Speaker Change: I think there are more components.
Speaker Change: Just one or two items on that whole system. So yes, others will probably you participated in with their own products, but I am pretty I feel really comfortable where we are with our with our position.
David Howard Windley: And then, last question for me. From a capital allocation standpoint, you've, this is maybe a two-parter, I apologize, you've talked about CapEx, you've talked about a lot of that being growth, that CapEx number, you know, continues to be relatively high in 2024. I guess I want to kind of understand to what extent you're catching up on capacity. You've talked about long lead times, you talked about demand in hand, things like that. Or is there a risk of some mismatch of capacity as you're still spending aggressively on CapEx? And then there are the alternative uses of free cash flow. You know, stock's going to get dislocated on this news. You bought back stock in 2023.
Speaker Change: Got it and then.
Speaker Change: Last question for me.
Speaker Change: From a capital allocation standpoint, you've maybe a two parter I apologize.
Speaker Change: You've talked about Capex, you've talked about a lot of that being growth that capex number continues to be relatively high.
Speaker Change: In 2024.
Speaker Change:
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: I want to kind of understand.
Speaker Change: To what extent youre catching up on capacity you've talked about long lead times you talked about.
Speaker Change: Land in hand things like that or is there a risk of some mis mismatch of capacity as you're spending still aggressively on Capex and then in terms of alternative uses of free cash flow.
Speaker Change: Stock's kind of get dislocated on this news you bought back stock in 2023.
Eric M. Green: You know, how aggressively might management want to step in and buy back stock as a sign of confidence in the long-term growth outlook? Dave. Dave, let me address the first part, and then maybe I'll turn it over to Bernard on the second part.
Speaker Change: How how aggressively might management want to step in and buy back stock as a sign of confidence in our long term growth outlook. Thank you.
Speaker Change: Dave Let me address the first part and then maybe I'll turn it over to Bernard on the second part.
Eric M. Green: When I look at the capital that we have in front of us today for 2024, the $350 million, it is true that we would like to be able to get our capital as a percentage of sales back to the high single-digit range. However, while 70-plus percent of our capital is still around growth, these are commitments that our customers we're working with, whether it's near-term or more mid-term, that we need to be able to support. So on the contract manufacturing side, it's very clear; it's very near-term. These are contracts we have agreed upon for a number of years ahead of us where we need to get the installed capacity in place immediately so we can start producing product for them.
Bernard J. Birkett: When I look at the capital that we have in front of us today.
Speaker Change: <unk> 2020 for the $350 million.
Speaker Change: It is true that we would like to be able to get our capital as a percentage of sales back to high single digit range. However.
Bernard J. Birkett: While 70 plus percent of our capital is still around growth. These are commitments that are customers. We're working with whether it's near term or mid term that we need to build support so in the contract manufacturing side.
Bernard J. Birkett: Clear, it's very near term. These are contracts. We have agreed upon for a number of years ahead of us that we need to get the installed capacity in place.
Bernard J. Birkett: Immediately.
Bernard J. Birkett: So we can start producing product for them.
Bernard J. Birkett: On the on the proprietary side.
Eric M. Green: On the proprietary side, we are anticipating future growth with new drug launches that are occurring or will occur, and based on the volumes that we've been asked to be able to support, these are the types of investments we need to make. So, for example, HVP processing is not just a NOVA peer play, but it's the ability to build, take our HVP portfolio and support the growth, not just in volume but also new drug launches, any particular categories that can have outsized growth rates, and then also on this makeshift effect that is upon us today due to regulatory changes requiring higher quality, lower particulates to meet these regulations that are going in place. So those are the drivers why we feel good, and confident about the investments we're making because we know the return on these investments is very positive for us and, obviously, for our customers. That's the lens that we currently have.
Bernard J. Birkett: Our anticipated future growth with new drug launches that are occurring at all or will occur and based on the volumes that we've been asked to be able to support these are the types of.
Bernard J. Birkett: <unk>, we need to make.
Bernard J. Birkett: So for.
Bernard J. Birkett: For example, <unk> processing.
Bernard J. Birkett: Is that just a novo peer play, but it's the ability to build our <unk> portfolio and support the growth. That's just on the volume, but also new drug launches any particular categories that are going to have outsized growth rates and then also on this mix shift effect that is.
Bernard J. Birkett: On us today, due to regulatory changes, requiring higher and higher quality lower particulate.
Bernard J. Birkett: To meet these regulations are going into place. So those are the drivers why we feel good.
Bernard J. Birkett: Confident about the investments, we're making because we know the return on these investments have very positive for us and obviously for our customers.
Bernard J. Birkett: And so we currently have do you want to touch on the on the capital yet and then Dave I think it's important to realize the growth to deploy capex in this way. It takes time for us to layering capacity. It takes 12 to 24 months.
Eric M. Green: Do you want to, Bernard, touch on capital? Yeah, Dave, I think it's important to realize the growth to deploy CAPEX. In this way, it takes time for us to layer in capacity. It takes 12 to 24 months. And so based on Bacterics Commons.
Speaker Change: And so based on and just.
Speaker Change: <unk> comments, what we're seeing from a demand perspective, we need to layer that in.
Bernard J. Birkett: While we're seeing from a demand perspective, we need to layer that in at this time so we don't actually run into long lead times like we experienced with COVID, and then it's difficult to respond to growth in the market and not capture all the opportunities. The thinking behind layering in this capacity, and again, it's around very specific areas. And we do expect our CapEx to kind of level off here, possibly after 2024, because we have a lot of the investment done. And again, it's a very deliberate, disciplined approach to capital deployment. We review it on a regular basis, based on all the analysis we have, feedback, or input from our customers. We need to continue deploying as we've outlined in 2024 to be prepped for the next number, and is there another part to that question? Share or purchase. Yeah, on the buyback.
Speaker Change: At this time, so we don't actually run into long lead times like we experienced in Colbert in them.
Dave: It's difficult to respond to growth in the markets.
Not capture all of the opportunity so that's.
Dave: The thinking behind layering in this capacity and again, it's around very specific areas.
Dave: And we do expect our capex.
Dave: Kind of level off here.
It's really after 2024.
Dave: Because we have a lot of the investment on.
Dave: And again, it's a very.
Dave: Deliberate and disciplined approach to capital deployment, we reviewed on a regular basis based on all the analysis, we have feedback our input from our customers, but we need to continue deploying as we've outlined in 2024 to be prepped for the next number of years.
Speaker Change: Was there another part of that question about share repurchase.
Yes on the buyback, yes, again, we have a very deliberate process as to how we deploy the buyback.
Bernard J. Birkett: Yeah, again, we have a very deliberate process as to how we deploy the buyback, and we review that, you know, on a quarterly basis to see where we are, and we will continue to do that and deploy it where and when appropriate. Thank you very much. We have time for just one more question. Thank you. All right. Our final question comes from the line of Larry Solow of CGS Security. Another question, please? Ah, there it is. Thank you. There was a long wait there. Worth the wait. I guess just a couple.
And we review that on a quarterly basis to see where we are and we will continue to do that and to deploy it where and when appropriate.
Speaker Change: Thank you very much.
Speaker Change: We will have time for just one more question.
Speaker Change: Thank you art.
Our final question comes from the line of Larry Solow CJS Securities.
Larry Solow: Your question please.
Are there. Thank you long wait theyre worth the wait.
Larry Solow: First of all, Eric, thank you for a really good description of sort of not a great subject, but the impacts of the lower sales outlook. I really appreciate that. I guess I'm kind of just switching gears to a couple of topics. Can you just give us a little more follow-up on that, a little more color on that? ongoing sort of regulatory shift. Has this accelerated, you know, in terms of, you know, requirements for low particulate matter?
Larry Solow: Yes, just a couple first of all Eric Thank you for that.
Larry Solow: The description of sort of not a great subject, but the impacts of lower sales outlook really appreciate that.
Larry Solow: Kind of just switching gears to a couple of topics can you just give us a little more follow up on that a little more color just on that you mentioned.
Larry Solow: An ongoing sort of regulatory shift.
Larry Solow: Accelerated in terms of.
Larry Solow: Requirements for low particulate.
Eric M. Green: And is that something that's going to drive some of the legacy products to have to switch maybe over? Or is that just driving more sales of new products coming? Yeah, Larry, that's a good question.
Larry Solow: That something thats going to drive some of the legacy products to help the switch maybe over what we've got just driving more on.
Larry Solow: New products coming to the market.
Speaker Change: Yes, Thats a good question thanks for that.
Larry Solow: Thanks for that. And thank you for your patience. Absolutely. No, absolutely.
Speaker Change: Thanks for your patience.
Speaker Change: No absolutely. So there's there is a regulatory shift that's occurring called annex one.
Eric M. Green: So there's a regulatory shift that's occurring called Annex 1. We've been driven out of Europe, but it's going to obviously be a driver for a lot of multinationals because of the requirements across the globe. And what that means is that we have a pretty large part of our portfolio. As I mentioned, in the neighborhood of billions of components we produce each year, what we classify as standard, would be required to move up what we classify as the high-value product portfolio to be able to service some higher quality, lower particulates that meet these regulations. Now, when you look at our HPP mix shift historically, we talked about it for a number of years, but the success of that mix shift of West for the last several years has been really new molecules, particularly in the biologics. As more volume and demand go into that particular segment, it's higher AST, higher margin.
Being driven out of the Europe, but it's going to obviously be a driver.
Speaker Change: For a lot of the multinationals because of the requirements across the globe.
Speaker Change: That means is that we have.
Speaker Change: A pretty large part of our portfolio, we mentioned neighborhood billions of components, we produce each year that we would classify as standard that would be required to move up.
Speaker Change: Our what we classify as high value product portfolio will serve as some higher quality.
Speaker Change: Lower particulate to meet these regulations.
Speaker Change: When you look at our <unk> mixed shift historically, we talked about it.
Speaker Change: A number of years.
Speaker Change: Success of that mix shift of west for the last several years has been on really new molecules, particularly in the biologics as more volume and demand goes in that particular segment.
Speaker Change: As higher Asps higher margin and we haven't seen that benefit at west for a number of years, what we're seeing going forward that will continue that will continue to.
Eric M. Green: And we've been seeing that benefit at West for a number of years. What we're seeing going forward, that will continue. And we will continue to, because of the participation rate that we have with these new launches. We also now, because regulatory changes are being enforced, and policies are being changed. It will require a makeshift effect of existing drugs in the market.
Speaker Change: Because of our.
Speaker Change: Because of the participation rate with what we have with these new launches.
Speaker Change: We also now because of regulatory changes that are being enforced policies are being changed.
Speaker Change: It will require a mix shift effect of existing drugs in the market. So that's a great opportunity for us to work with our customers.
Eric M. Green: So that's a great opportunity for us to work with our customers where necessary to be able to transition them into a more appropriate packaging configuration that allows them to meet or exceed all the standards. We're quite excited about this opportunity. We will look at some of the investments that we need to make to be able to support it, particularly around HPP processing. We're very much aligned with where the market's going. And I would just share one more comment.
Speaker Change: Were necessary to transition them into a.
Speaker Change: A more appropriate packaging configuration that allows them to meet or exceed all the standards.
Speaker Change: We're quite excited about this opportunity we will look at some of the investments that we did the Mesa will support it particularly around the HCP processes.
Speaker Change: We are very much aligned to where the market is going and if I would just share one more comment historically here at west.
Eric M. Green: Historically, here at West, when we introduced new products or capabilities, particularly around our elastomeric components, it's usually coincided with a regulatory change. So as regulations have evolved over time, our portfolio has evolved with and exceeded those requirements, which has always put us in a good position from a regulatory perspective to be able to support our customers and ultimately their patients. So I'm feeling good about this, that we're ready to go address this item, but it will take several years. It's not a one-year event or two-year event. It does take several years, but we're ready to go on that. It sounds like it can layer in some extra growth on an annual basis, if it comes to fruition, over multiple years.
Speaker Change: When we introduce new products or capabilities, particularly around our elastomer components, it's usually coincide with the regulatory change. So as regulations have evolved over time, our portfolio has evolved with and exceeded those requirements, which is always put us in a good position.
Speaker Change: A.
Speaker Change: We'll support our customers and ultimately their patients so.
Speaker Change: I'm feeling good about this that we are ready to bill address this.
Speaker Change: This item, but it will take several years.
Speaker Change: On a one year event or two year event. It does take several years.
Speaker Change: But we're ready to go on that.
Speaker Change: It sounds like you can layer in some extra growth on an annual basis.
Speaker Change: If it comes to fruition over multiple years.
Larry Solow: If I could just click one more in on the devices and reach 10% of high-value proprietary cells, I think that's a nice significant milestone. Is that driven more by smart dose or self-dose? Is that a combination of the two?
Speaker Change: Okay, if I could sneak one more and just on the on the devices.
Speaker Change: Reaching 10% of proprietary high value project. So that's why I think that's been a significant milestone.
Speaker Change: Is that driven more by smarter self dose combination to what's really driving that growth going forward.
Eric M. Green: What's really driving that growth? It's interesting. It's actually through all of them, but the biggest drivers have been last year, and we're actually quite excited.
Speaker Change: Its actually its interesting its actually through all of them, but the biggest drivers have been.
Speaker Change: Last year, and we're actually quite excited our administration systems or admin systems continues to grow well with.
Eric M. Green: Our administration systems, our admin systems, continue to grow well. We just relaunched a new version of our vial-to-bag 13 millimeter, which partners real well with 20 millimeter into the hospital healthcare market. In the self-dose, we're seeing a nice uptick of demand in that market. I'm sorry, in that category. With discreet customers and their drug launches.
Speaker Change: We launched a new version of our bio the bag or two millimeter, which partners real well to 20 millimeter into the hospital health care market.
Speaker Change: In the self dose, we're seeing a nice uptick of demand in that market I'm sorry in that in that category.
Speaker Change: With discrete customers and their drug launches and then in smart dose is an area that we've been focused on for a number of years.
Eric M. Green: And then in smart doses, an area that we've been focused on for a number of years, but we're at a point now of inflection on volume growth where we have to get ahead of the curve. And that is an area that we're laser focused on right now. We have a dedicated team with new automated equipment coming online, so we can remove the manual processes, which allows us to be more efficient, higher volume, higher quality, to be able to support the growth of these launches. So it is kind of across multiple areas, and it's exciting to see it starting to gain traction.
Speaker Change: But we're at a point now of inflection on volume growth that we have to get ahead of the curve and that is an area that we are laser focused on right. Now we have a dedicated team with new automated equipment coming online. So we can remove the manual processes allow us to be more efficient higher volume higher quality drill support these.
Speaker Change: The growth of these launches so it is kind of across multiple areas.
Speaker Change: It's exciting to see it starting to.
Speaker Change: To gain traction.
Larry Solow: Great. Thank you for all the calls. I appreciate it. Thank you, Larry. Thank you. I would now like to turn the conference back to Quintin Lai for his closing remarks, sir. Thank you, Lateef, and thank you for joining us on today's conference call. An online archive of the broadcast will be available on our website at westpharma.com in the investor section. Additionally, you may access a replay for 30 days following this presentation by using the dial-in numbers in the conference call by the end of today's service. That concludes today's call. Have a nice day. Thank you for participating. You may now disconnect. Thank you for watching!
Speaker Change: Great. Thank you for all the color I appreciate it.
Speaker Change: Thank you Larry.
Speaker Change: Thank you I would now like to turn the conference back to Quintin Lai for closing remarks, Sir.
Speaker Change: Sure.
Quintin John Lai: Thank you Latif and thank you for joining us on today's conference call an archive online archive of the broadcast will be available on our website that was formally dot com in the investors section. Additionally, you may access the replay for 30 days. Following this presentation by using the dial in numbers and conference I'd.
Provided at the end of.
Quintin John Lai: Todays earnings release that.
Speaker Change: That concludes today's call and have a nice day.
Speaker Change: Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.