Catalent, Inc. (NYSE:CTLT) is a leading global provider of advanced delivery technologies, development, and manufacturing solutions for drugs, biologics, cell and gene therapies, and consumer health products. The company operates in two reportable segments: Biologics and Pharma and Consumer Health.

Business Overview

The Biologics segment provides formulation, development, and manufacturing for biologic proteins, cell and gene therapies, plasmid DNA, induced pluripotent stem cells, oncolytic viruses, and vaccines. It also offers formulation, development, and manufacturing for parenteral dose forms, including vials, prefilled syringes, and cartridges, as well as analytical development and testing services for large molecules.

The Pharma and Consumer Health segment comprises the company's market-leading capabilities for complex oral solids, softgel formulations, Zydis fast-dissolve technologies, and gummy, soft chew, and lozenge dosage forms. It also provides formulation, development, and manufacturing platforms for oral, nasal, inhaled, and topical dose forms, as well as clinical trial development and supply services.

Catalent has a diverse customer base, serving nearly 8,000 customers globally, including many of the world's leading pharmaceutical, biotechnology, and consumer health companies. The company's extensive capabilities, growth-enabling capacity, and deep expertise in product development, regulatory compliance, and clinical trial and commercial supply enable its customers to advance and bring more products to market faster.

Financials

In fiscal year 2023, Catalent reported annual revenue of $4,276 million, annual net income of -$232 million, annual operating cash flow of $261 million, and annual free cash flow of -$322 million. The company's revenue is diversified across its two reportable segments, with the Biologics segment contributing 47% and the Pharma and Consumer Health segment contributing 53% in the latest quarter.

During the first quarter of fiscal year 2024, Catalent reported net revenue of $982 million, a 4% decrease on a reported basis and 6% decrease on a constant currency basis compared to the prior year period. The decline was primarily driven by a significant reduction in COVID-19 related revenue, partially offset by growth in the company's non-COVID Biologics and Pharma and Consumer Health businesses.

Adjusted EBITDA for the first quarter of fiscal year 2024 was $115 million, a 38% decrease compared to the prior year period, primarily due to the decline in COVID-19 revenue. Adjusted net loss was $19 million, or $0.10 per diluted share, compared to adjusted net income of $61 million, or $0.34 per diluted share, in the prior year period.

The company's Biologics segment reported first quarter net revenue of $447 million, a 16% decrease compared to the prior year period, primarily driven by lower COVID-19 related revenue. Excluding COVID-19 revenue, Biologics segment revenue grew 11% year-over-year. Segment EBITDA was $52 million, down from $113 million in the prior year period, primarily due to the decline in COVID-19 revenue and underutilization at new modality facilities, including the company's cell therapy business.

In the Pharma and Consumer Health segment, first quarter net revenue was $535 million, a 5% increase compared to the prior year period, driven by the acquisition of Metrics Contract Services in October 2022. Organic revenue in the segment declined 1%, as growth in prescription products and clinical supply services was offset by softness in the Consumer Health business. Segment EBITDA was $101 million, down 9% year-over-year, primarily due to under-absorbed capacity in the gummy network and the impact of a one-time $10 million insurance benefit received in the prior year period.

Outlook

Looking ahead, Catalent reaffirmed its fiscal year 2024 guidance, which includes net revenue in the range of $4.3 billion to $4.5 billion, representing growth of 1% to 5%, and adjusted EBITDA in the range of $680 million to $760 million. The company expects its non-COVID business to continue delivering strong performance, with full-year revenue growth in the mid to high-teens.

Catalent's Biologics segment is poised for growth, driven by continued demand for its gene therapy services, expansion of its GLP-1 product offerings, and strong demand from its largest customer, Sarepta Therapeutics. The company expects revenue from Sarepta to grow approximately 65% in fiscal year 2024 as it manufactures product for the U.S. market and the rest of the world.

In the Pharma and Consumer Health segment, Catalent recently won a substantial contract with a leading consumer health company for its gummy pill offering, which is expected to contribute to the segment's growth in the second half of fiscal year 2024. The company also continues to see strong demand for its prescription products and clinical supply services.

Liquidity

Catalent's financial position remains strong, with a well-structured debt profile and ample liquidity. As of March 31, 2023, the company had $209 million in cash and cash equivalents and $1.1 billion in available capacity under its revolving credit facility. The company is focused on reducing its leverage and improving its cash flow generation, with a target of generating over $100 million in free cash flow in fiscal year 2024.

Risks and Challenges

The company's diversified business model, strong customer relationships, and investments in capacity and capabilities position Catalent well to capitalize on the growing demand for its services across the biopharmaceutical and consumer health industries. However, the company faces risks, including potential macroeconomic headwinds, competition, and regulatory changes, which could impact its financial performance.

Conclusion

Overall, Catalent's solid first quarter results, reaffirmed guidance, and strategic initiatives to improve operations and cash flow generation suggest the company is well-positioned to deliver long-term value for its shareholders.