West Pharmaceutical Services, Inc. 2026 Q3 Earnings Call

Good morning, and welcome to West's third quarter earnings conference call, which has been webcast live. With me today on the call are West President and CEO, Michel Lagarde, and West Senior Vice President and CFO, Bob McMahon. Earlier today, we issued our third quarter financial results. A copy of the press release, along with today's slide presentation containing supplemental information for your reference, has been posted in the investors section of the company's website at investor.westpharma.com. Later today, a replay of the webcast will also be available in the investors section of our website. Before we begin, we'd like to remind you that statements made by management during this call and in the accompanying presentation contain forward-looking statements within the meaning of US federal securities law. Please refer to the accompanying Safe Harbor statement in today's presentation and press release.

In addition to other disclosures made by the company such as our 10-K and 10-Q regarding the risks to which the company is subject. During the call, management will also report on certain non-GAAP financial measures, including organic net sales, adjusted operating profit, adjusted operating profit margin, free cash flow, and adjusted diluted earnings per share. The accompanying disclosure statement, as well as reconciliations of these non-GAAP financial measures to the most comparable financial results prepared in conformity with U.S. GAAP, are provided in this morning's press release and today's presentation materials. I'll now turn the call over to our CEO, Michel Lagarde.

Michel? Thank you, Michelle, and good morning, everyone.

Thanks for joining us today. We're very pleased to welcome you to our earnings call. Before getting into the details of our strong third quarter performance, I want to begin by saying what a privilege it is for me to now be part of team West. Having joined West two months ago, my priority has been spending time with our global teams, visiting our sites around the world, and meeting with our customers and investors. It's been incredibly rewarding to connect and learn from the company's stakeholder network and start to identify how we can build on our strengths and continue to evolve. These have been valuable conversations, and I'd like to give a few examples. First was my visit to our Eschweiler manufacturing site in Germany. What was immediately apparent was a strong mission-driven culture and teamwork among the colleagues.

Confronted with the need to increase output, the team focused on execution and unlocking new efficiencies, for instance, by integrating more automation onto the production floor. This effort is helping to expand capacity and support our global network optimization to improve the service levels for our customers. A great example of our opportunity to drive more impact from continuous improvement across our company. Second, my conversations with our customers. I've called on these same customers for the last decade, so it wasn't hard to get transparent feedback from them. From all my conversations, a very clear pattern has emerged. West is firmly on the very short list of preferred partners. Our reputation, combined with our deep technical and regulatory expertise, forms an incredible foundation to build upon. We're invited to establish closer relationships with our customers.

By doing so, we will understand their current and future needs even better so we can drive innovation adoption faster and of course, keep earning their business every day by our high quality and delivery performance. A clear path to continue to strengthen our enviable leadership position. These two examples point to the opportunity I see for West to drive more impact from strengthening our continuous improvement efforts and continuing to develop more strategic customer relations, which will provide us with superior insights and allow us to better anticipate their future needs. Therefore super excited to start contributing to our company's strategy and performance, build further on 100 plus years of accumulated experience, and unlock even more impact from our talented team. With that, enable our customers to improve the lives of many more patients in need. Now let me recap our quarterly performance.

I'm pleased to report that we've had a great third quarter, exceeding our expectations for both revenues and earnings. Revenues of $874 million grew 12% organically, and adjusted EPS of $2.66 was up 36% compared to last year. Given this strong performance, we are again raising our top and bottom line full year expectations, which Bob will talk about in more detail. Let me now shift to how our segments performed in the quarter. Our Proprietary Products segment delivered 16.6% organic growth. The highlight was HVP Components, which grew 20%, driven by both GLP-1 and non-GLP-1 components demand and HVP upgrades. HVP Delivery Devices grew 26% organically after adjusting for SmartDose 3.5, led by Crystal Zenith and Administration Systems. While the West Vantage segment revenues declined 7% organically, the performance was slightly better than expected.

As a reminder, the strategy of West Vantage is shifting the business to higher value-added parts of drug handling. As a result, we're rolling off legacy programs as the new programs continue to ramp. This has a muted effect on segment growth this year and next. To conclude my remarks, I want to thank our team members for their efforts and amazing work. Our end markets remain strong. Our position as the leader is firm, and we will continue to step up our performance to exceed our customers' expectations, which in turn will deliver value to all the stakeholders of West. I now turn the call over to Bob to provide more details on our quarter performance and updated guidance.

Bob? Thanks, Michel, and good morning, everyone.

Today, I will provide some additional details on Q3 revenue and take you through the income statement and some other key financial metrics. I will then cover our updated outlook for the rest of the year. As Michel mentioned, we had a strong third quarter as revenues of $874 million increased 8.7% on a reported basis and grew 11.9% organically, exceeding our expectations overall. Price contributed just over 4 percentage points of growth in the quarter. This strong performance was driven by our proprietary segment, which increased 16.6% on an organic basis. West Vantage declined 6.6% organically, which was better than expected. Within proprietary, our HVP Components business was a standout and now represents 53% of the total company's revenues. Revenues of $467 million grew 20% organically, exceeding expectations.

The performance was broad-based and driven by multiple factors, including robust growth in biologics, continued strength in GLP-1, and positive HVP product mix shift. Diving a bit deeper into HVP Components, we had another strong quarter of growth outside of GLP-1s, growing high teens organically. This underscores our view that overall injectable market continues to provide runway for both increased volumes from existing and new drugs and for HVP upgrades across our existing portfolio. Annex 1 regulations have been driving HVP upgrades in Europe, and we are encouraged by increasing signs of upgrade activity in other geographies as regulatory frameworks continue to raise the bar on containment systems. We have added over 200 upgrade projects this year and believe upgrades can be a multi-year tailwind to our business. Our GLP-1 HVP business also performed very well, accelerating nicely in the quarter, growing well into the 30s organically.

HVP GLP-1s represented just under 12% of total revenues in the quarter. We continue to remain optimistic about the long-term growth prospects of the GLP-1 category, driven by the continued adoption of existing products, the potential for expansion into new therapeutic categories, the development of next-generation molecules, and increasing access in certain markets as generics are launched. Now looking at other product categories in the proprietary segment, HVP Delivery Device revenues were $99 million in the quarter. This was flat on a reported basis and up 26% organically after excluding currency and the impact of the SmartDose 3.5 divestiture. Both Crystal Zenith and Administration Systems contributed to growth in the quarter. Of note, in Q3, we generated $12 million in SmartDose 3.5 revenue, which was not included in our Q3 guidance. This compared to $30 million in Q3 of last year.

Both figures, along with FX, have been excluded to calculate our organic growth in the quarter. As we have previously mentioned, SmartDose 3.5 product revenues were $55 million in the second half of last year, $30 million in Q3, and another $25 million in Q4. Those figures, along with the $12 million in Q3 of this year, are excluded from our organic growth calculations. Now that we have closed the transaction and do not expect any additional SmartDose 3.5 product revenues going forward, I want to provide the SmartDose 3.5 revenue details for this year to help you with your modeling for next year. SmartDose 3.5 revenues were $100 million this year, $46 million in Q1, $42 million in Q2, and $12 million this quarter, as I just mentioned.