Catalent has announced financial results for the third quarter of fiscal 2018, which ended March 31, 2018.
Third quarter 2018 revenue of $627.9 million increased 18% as reported and 13% in constant currency from $532.6 million reported in the third quarter a year ago. For the first nine months of fiscal year 2018, revenue was $1,778.1 million and increased 22% as reported and 18% in constant currency, compared to the $1,458.5 million recorded in the prior-year period. All three of the company’s reporting segments posted constant-currency revenue growth for the third quarter and year-to-date period when compared to the prior year.
Third quarter 2018 net earnings were $19.0 million, or $0.14 per diluted share, compared to net earnings of $26.0 million, or $0.21 per diluted share, in the third quarter a year ago. For the first nine months of fiscal year 2018, net earnings were $0.9 million, or $0.01 per diluted share, compared to net earnings of $48.0 million, or $0.38 per diluted share, in the same period of the prior year. The nine months of fiscal year 2018 include a net tax charge of $51.6 million as a provisional estimate of the net accounting impact of the recently enacted U.S. tax law changes. Third quarter 2018 EBITDA from continuing operations of $114.3 million, as referenced in the GAAP to non-GAAP reconciliation provided later in this release, increased 22% from $93.8 million in the third quarter a year ago. For the first nine months of fiscal year 2018, EBITDA from continuing operations was $281.5 million, an increase of 16% compared to the $241.7 million recorded in the prior-year period.
Third quarter 2018 Adjusted EBITDA (see the non-GAAP reconciliation for a discussion of this metric) was $139.0 million, or 22.1% of revenue, compared to $117.8 million, or 22.1% of revenue, in the third quarter a year ago. This represents an increase of 18% as reported, and an increase of 15% on a constant-currency basis.
Third quarter 2018 Adjusted Net Income (see the non-GAAP reconciliation) was $55.2 million, or $0.41 per diluted share, compared to Adjusted Net Income of $48.7 million, or $0.38 per diluted share, in the third quarter a year ago.
“Our financial performance for the third quarter was in-line with our expectations and positions us well for a strong close to our fiscal year 2018,” said John Chiminski, Chair, President and Chief Executive Officer of Catalent. “The integration of the Cook Pharmica acquisition, which closed during the second quarter, is progressing according to plan and builds upon the successful integration of softgel developer Accucaps last year. We are very excited to add three accomplished individuals to our Board. Their enormous collective experience in healthcare and pharmaceutical operations, finance, and product development will be of substantial benefit to the company and our shareholders."
Revenue Highlights by Business Segment
Revenue from the Softgel Technologies segment was $228.5 million for the third quarter of fiscal 2018, an increase of 9% as reported, or 3% in constant currency, compared to the third quarter a year ago. The constant-currency growth was primarily attributable to the February 2017 Accucaps acquisition. Excluding the Accucaps acquisition, Softgel revenue increased 1% in constant currency, driven by increased end-market demand for prescription and consumer health products within Asia Pacific, Latin America and Europe; partially offset by a decrease in product participation revenue and volume declines within North America.
Revenue from the Drug Delivery Solutions segment was $313.6 million for the third quarter of fiscal 2018, an increase of 34% as reported, or 29% in constant currency, over the third quarter a year ago. The constant-currency growth was primarily attributable to the Cook Pharmica acquisition which contributed 26 percentage points to the segment's revenue growth. Excluding the impact of the acquisition, segment constant-currency revenue increased 3% driven by increased volume from our biologics offerings and improved capacity utilization for products utilizing our blow-fill-seal technology platform, partially offset by a decrease in product participation revenue and lower volumes related to our analytical development services platform.
Revenue from the Clinical Supply Services segment was $104.4 million for the third quarter of fiscal 2018, an increase of 7% as reported, or 1% in constant currency over the third quarter a year ago. The constant-currency growth was due to higher volume related to storage and distribution services, partially offset by volume declines related to manufacturing and packaging services, as well as lower comparator sourcing volume.
Segment EBITDA Highlights
Softgel Technologies segment EBITDA (see the discussion of non-GAAP measures below) in the third quarter of fiscal 2018 was $52.2 million, an increase of 2% as reported, or a 3% decrease in constant currency, versus the third quarter a year ago. The decrease was primarily driven by the lower product participation revenue and volume declines for high-margin prescription products within North America; partially offset by the acquisition of Accucaps.
Drug Delivery Solutions segment EBITDA in the third quarter of fiscal 2018 was $80.8 million, an increase of 36% as reported, or 31% in constant currency. The constant-currency increase was driven by the acquisition of Cook Pharmica, which contributed 41 percentage points of the constant-currency growth in the segment EBITDA during the quarter. Excluding the acquisition, segment EBITDA decreased by 10% in constant currency, primarily driven by the timing of a standard maintenance shutdown at our European pre-filled syringe facility, decreased volume related to our analytical development services platform, the timing of licensing agreements in the prior year within our Biologics business, and a reduction in profit related to product participation activities. These declines were partially offset by strong volume and improved capacity utilization within our blow-fill-seal technology platform, as well as a favorable shift in end-market demand for certain higher margin products within our U.S. oral delivery solutions platform.
Clinical Supply Services segment EBITDA in the third quarter of fiscal 2018 was $18.8 million, an increase of 20% as reported, or 8% in constant currency. The increase was primarily attributable to higher demand and favorable product mix within our storage and distribution services, as well as improved capacity utilization across the network.
First Nine Months of Fiscal 2018 Segment Highlights
Revenue Highlights by Business Segment
Revenue from the Softgel Technologies segment was $676.3 million for the first nine months of fiscal 2018, an increase of 13% as reported, or 9% in constant currency, compared to the same period a year ago. The constant-currency growth was attributable to the February 2017 Accucaps acquisition, which contributed 10 percentage points to the segment’s constant-currency revenue growth during the period. Excluding the Accucaps acquisition, Softgel revenue declined 1% in constant currency, due to a decrease in product participation revenue.
Revenue from the Drug Delivery Solutions segment was $824.8 million for the first nine months of fiscal 2018, an increase of 29% as reported, or 26% in constant currency, over the same period a year ago. The constant-currency growth was partially attributable to the Cook Pharmica and Pharmatek Laboratories acquisitions which contributed 18 percentage points to the segment's revenue growth. Excluding the impact of the acquisitions, segment revenue increased 8% in constant currency, driven by favorable end-customer demand for certain higher margin offerings, primarily in our U.S. operations within our oral delivery solutions platform, and increased volume from our biologics offerings; partially offset by a decrease in product participation revenue and lower volume related to our analytical development services platform.
Revenue from the Clinical Supply Services segment was $322.8 million for the first nine months of fiscal 2018, an increase of 29% as reported, or 25% in constant currency over the same period a year ago. This growth was due to higher volume related to storage and distribution services, as well as due to increased lower-margin comparator sourcing activities.
Segment EBITDA Highlights
Softgel Technologies segment EBITDA in the first nine months of fiscal 2018 was $137.4 million, an increase of 10% as reported, or 7% in constant currency, versus the same period a year ago. The constant-currency increase was driven by the acquisition of Accucaps, which contributed 8 percentage points of the constant-currency growth in segment EBITDA during the period. Excluding the acquisition, segment EBITDA decreased by 1% in constant currency, due to lower product participation revenue; partially offset by an historical contractual settlement and favorable product mix within North America.
Drug Delivery Solutions segment EBITDA in the first nine months of fiscal 2018 was $209.3 million, an increase of 38% as reported, or 35% in constant currency. The constant-currency increase was primarily driven by the acquisitions of Cook Pharmica and Pharmatek Laboratories, which contributed 30 percentage points of the constant-currency growth in segment EBITDA during the period. Excluding the acquisitions, segment EBITDA increased by 5% in constant currency, primarily driven by favorable end-customer demand for certain higher margin offerings, primarily in our U.S. operations within our oral delivery solutions platform, and increased volume from our biologics offerings, partially offset by operational inefficiencies with respect to products utilizing our blow-fill-seal technology platform and lower volumes related to our analytical development services platform.
Clinical Supply Services segment EBITDA in the first nine months of fiscal 2018 was $54.5 million, an increase of 44% as reported, or 37% in constant currency. The increase was primarily attributable to higher demand for our storage and distribution services, as well as improved capacity utilization across the network. Increased volume related to lower-margin comparator sourcing activities modestly contributed to the segment’s EBITDA growth.
Additional Financial Highlights
Third quarter 2018 gross margin of 30.5% decreased 90 basis points as-reported, from 31.4% in the third quarter a year ago. The decrease was primarily attributable to a decrease in product participation revenue within the Drug Delivery Solutions and Softgel Technologies segments, partially offset by the Cook Pharmica acquisition.
Third quarter 2018 selling, general and administrative expenses were $117.0 million and represented 18.6% of revenue, compared to $100.9 million, or 18.9% of revenue, in the third quarter a year ago.
Backlog for the Clinical Supply Services segment, defined as estimated future service revenues from work not yet completed under signed contracts, was $313.6 million as of March 31, 2018, a 3% increase compared to the second quarter of fiscal year 2018. The segment also recorded net new business wins of $108.0 million during the third quarter, which represented a 9% increase year over year. The segment’s trailing-twelve-month book-to-bill ratio was 1.0.
Balance Sheet and Liquidity
As of March 31, 2018, Catalent had $2.8 billion in total debt, and $2.4 billion in total debt net of cash and short-term investments, which is in-line with the total debt and net debt as of December 31, 2017. As of March 31, 2018, Catalent’s total net leverage ratio was 4.5x, a sequential improvement compared to the total net leverage of 4.8x as of December 31, 2017. On a pro forma basis for the acquisition of Cook Pharmica, Catalent’s total net leverage ratio as of March 31, 2018 would have been 4.3x.
Fiscal Year 2018 Outlook
Management is reaffirming its previously issued financial guidance. For fiscal year 2018, the company expects revenue in the range of $2.42 billion to $2.48 billion. Catalent expects Adjusted EBITDA in the range of $537 million to $557 million and Adjusted Net Income in the range of $212 million to $232 million. The Company expects self-funded capital expenditures in the range of $152 million to $165 million and fully diluted share count in the range of 133 million to 135 million shares on a weighted-average basis, taking into account the recent issuance of additional shares in connection with the Cook Pharmica acquisition.