Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2023 First Quarter Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Introducing today's conference call is Ms. Mary Skafidas, Senior Vice President of Investor Relations and Communications. Please go ahead.

Thank you. Hello everyone, and thanks for being with us today. Joining me on the call are Stephan Tanda, President and CEO; and Bob Kuhn, Executive Vice President and CFO. Our press release and accompanying slide deck have been posted to our Web site. We will also post a replay of this call on our site Today's call includes some forward-looking statements. Please refer to our SEC filings to review factors that could cause actual results to differ materially from what we are discussing today. I would now like to turn the conference call over to Stephan.

Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our results for the first quarter. Later in the call, Bob Kuhn, our CFO, will provide additional details on the quarter. I will also give an update on our progress on key initiatives. Starting on slide three, for the first quarter, I am pleased to report that Aptar achieved core sales growth of 4%, and delivered adjusted EPS of $0.95 per share due to strong demand for our Pharma and Beauty dispensing solutions. We guided our adjusted earnings per share for the first quarter to be in the range of $0.85 to $0.93 per share. Our adjusted EPS includes a $0.12 impact from startup costs in our injectables expansion program, and the rollout of the new enterprise resource planning or ERP system. Originally, we anticipated that the costs would be closer to $0.08. Our Pharma segment experienced significant demand for our proprietary dispensing devices in every region and across every end-use category, including nasal decongestion, eye care, cough and cold, saline rinses, as well as allergic rhinitis, emergency medicines and depression therapies. This growth was in line with the brisk market demand. The one area where we anticipate that there is inventory buildup is in emergency medicines. On March 29, the FDA approved Narcan for over-the-counter or OTC usage, as we previously indicated. Anticipation of this approval has benefited our Pharma segment as this new distribution channel for Narcan ramps up. Demand for the OTC channel should moderate over time. When looking at core sales growth over the long-term for our Pharma segment, we expect to remain in our 6% to 10% target range. For injectables, the impact of startup costs and the implementation of the new…

Thank you, Stephan, and good morning, everyone. Starting on slide seven, I would like to summarize the quarter. Our reported sales increased 2%. When we neutralize for currencies and acquisitions, our core sales grew 4% primarily due to strong demand for our Pharma and Beauty solutions. As shown on slide eight, we reported first quarter adjusted earnings per share of $0.95. This represents a 2% increase over the prior-year adjusted EPS. We achieved adjusted EBITDA of $154 million, which was a decrease of 2% from the prior year's first quarter. We delivered strong core sales growth despite a difficult comparison to the prior-year quarter due to substantial sales of active film used for at-home COVID-19 test kits which did not repeat. Lower adjusted EBITDA was also negatively impacted due to startup costs for our capacity expansion and an enterprise resource planning system implementation in our injectables division. Turning to some other details by segment for the quarter, our Pharma segment's core sales increased 7%. Approximately, 4% of the continued growth came from increased volumes, especially for our proprietary dispensing devices, and our prescription and consumer healthcare divisions where sales were up across the board. Looking at sales in the pharma segment by market, prescription core sales increased 37%, primarily due to strengthened demand for allergic rhinitis, asthma, and depression therapies, and emergency medicine device. Consumer healthcare core sales increased 24% on strong demand for cough and cold, eye care, nasal decongestions, and saline rinses. Core sales for our asthma solutions for the injectables market decreased 34% primarily due to the ERP system migration, leaving our injectables division with a shipping bottleneck and fewer shipping days for the quarter. The impact of the ERP system implementation is transitory as demand for biologic applications remain strong. Turning to our active material science…

Thanks, Bob. In closing, as we emerged from the challenging operating environment of the last few years, looking ahead for 2023, Aptar is energized for the future and well positioned to create continued, long-term value for all our stakeholders. Our recent realignment of our Beauty and Closure segments presents opportunities to break into new markets and is already helping us capture new corners of existing markets with our differentiated technologies and strong intellectual property. The distinctive advantage of our proprietary product is especially true for our Phrama business, which operates in highly regulated market. Our pipeline for proprietary pharma technologies remains strong as we continue to support the conversion of drugs to our nasal delivery devices such as epinephrine and medicines for migraines. Additionally, this year we will see several key investments come online furthering our effort to streamline operation and increase capital efficiencies by leveraging common assets. Our drive to leverage our fixed cost base and reduce our SG&A as a percentage of sales remains a key focus in 2023 and beyond. We look forward to sharing on our progress in the coming quarters. Before I open the call up for questions, I now want to touch on the announcement we made earlier today. Our Director, Candace Matthews has been elected by her peers to be the next Independent Chair of Aptar's Board of Directors, succeeding George Fotiades who has served as our Independent Chair for the last 5 years. We are very fortunate to have benefited from George's CEO experience, financial expertise, his wisdom, his unflappable demeanor, and his extensive understanding of Aptar's business. All of which has contributed greatly to our overall success and the creation of shareholder value. I am happy to note that we will continue to benefit from George's counsel as he will remain on our Board. Since joining the Board two years ago, Candace has become an invaluable contributor to our Board with deep experience across each of our end-use markets. Candace held leadership roles at Amway, Novartis, Bausch & Lomb, L'Oréal, and Coca-Cola amongst others. I very much look forward to working even closer with Candace in her new role as Independent Chair and leveraging her deep global operating experience, her extensive knowledge of our markets, her sound judgment, and inclusive leadership. With that, I would like to open up the call for your questions.

Thank you. [Operator Instructions] Our first question today comes from the line of Ghansham Panjabi from Baird. Please go ahead. Your line is now open.

Hi, good morning, everyone. This is Matt Krueger filling in for Ghansham. Thanks a lot for taking the time to answer our questions. I guess I just wanted to start off on the CapEx front. So, CapEx has been elevated since 2021. Just wanted to see what's the timeline that we can expect this investment to really translate into tangible operating income, and what's the expected return threshold on the elevated spending that we've seen over this time horizon?

Good morning, Matt. So, as you know, we have three major projects coming online successively. And, roughly, you could say about one year after they come online you will start to see things drop into the bottom line, but they are not all the same. I think you will see the leading best-in-class custom beauty site in Oyonnax, start to contribute already in the second quarter, and then progressively the China plant will come online in the second-half and start contributing towards the end of the year, and then, of course, injectables next year. Now as you know, we've taken down capital expenditure this year from prior year. But given the extremely brisk demand in our proprietary dispending devices and the very strong order book, we thought it prudent to accelerate some of the capacity increases now. Usually, our returns on new capacity are well above 20%, now those probably will be higher than that given the economics of our proprietary devices.

Yes, and maybe I can just mention a little bit on the capital return. So, while we don't disclose return specifically project-by-project, I think we've said in the past that for the French custom beauty, we're essentially consolidating five different business units or workshops, rather, into one facility, obviously in a much more efficient manner. Custom beauty for us is a strategic investment, and it's difficult to pin exactly what that return is going to be on that other than the cost savings involved, but it leads to new projects, it leads to additional dispensing solutions, et cetera. China is similar in that there's multiple different factories that we're operating under today, and now we're putting it all under one roof. A large part of that facility is really to supply the growth that we see in the horizon for the Pharma business there. And then, obviously, the big one that Stephan was referring to on the injectables, you can expect injectable-like margins on that business.

Got it, that's really helpful. That's great context. And then just as a follow-up, can you talk about any impact that you've seen or you expect to see from Narcan or similar products entering the OTC retail channel? Would you expect any one or two quarters to see significant impact from a stocking period? And then just given that this is a product line that you've highlighted very frequently in the past, could you maybe talk about any potential financial benefit to Aptar more specifically or any sort of general market opportunity, that would be really helpful. Thanks.

Yes, as I mentioned earlier in my remarks, clearly we do anticipate that both in quarter 1 and quarter 2, some of the sales for Narcan contribute to filling the pipeline for going over-the-counter. And that then growth will normalize. In general, Narcan is a lumpy business because of many nontraditional distribution channels. So, it is a contributor to growth, but keep in mind all emergency medicines, including Narcan but also others, make up maybe about 15% of our prescription unit's business. So, while it is growing nicely and it might be lumpy, and there is some inventory build, in the context of the overall Pharma business it is still relatively small.

Got it, that's great. That's it for me, thank you very much.

Thank you. The next question today comes from the line of George Staphos from Bank of America. Please go ahead. Your line is now open.

Good morning. Hope you're all doing well, Stephan, Mary, and Bob, thanks for the detail. Two questions, one on operations and then the second on injectables more from a market or development standpoint to the extent you can comment. So, on operations, Stephan or Bob, can you just relay why the ERP system takes through the end of the year to fully implement? What are the steps for the mile markers? We're analysts, we're just seeing from outside, to the extent that you can relay what do you have to do from a management standpoint to implement this, and along the timeline that you have? Relatedly, you talked a bit about how you're trying to maximize efficiency, both in terms of margin and also capital. Can you talk a bit, recognizing it's difficult [live mic] (ph), in terms of what that might mean for footprint? And then the second question, just could you remind us again on the expansion that you're seeing in injectables with some of your newer elastomeric products are allowing you to do in terms of new product development and the end markets that you're getting into. You mentioned a couple earlier in the call, if you can provide a couple details there? Thank you, guys.

Sure. Let's tag team on ERP, Bob, and then I'll come back on capital. So, just to put this in context, let me say this, Aptar is one of the few companies who has a single instance with a global SAP integrated system. And most of the time when we do an SAP project, it's an upgrade from a previous version to a new version at the site and, frankly, usually it's not a big deal. In this case, we are taking basically a business that's been built on the manual processes in a pharma environment, from that to the fully integrated system. And you plan everything out, but you never plan for everything. So, this is really getting -- making this huge leap and bringing this business in the 21st century from an ERP point of view. Now, to your question, so basically, in quarter 1, we had a number of days the plant being down for that project implementation, and then the systems starting up and all the processes being ironed out. So, that led to significantly fewer invoice days with that fewer sales. So, we are now very much on the other end of the ERP implementation. Just to give you one highlight, our invoiced revenue in April is about 25% higher than it was in March. So, we're getting back to a normal, steady state. But we have this lost revenue from the first quarter, and we will not recover that lost revenue until we are through the year because we have to keep supplying the ongoing business, our customers obviously pick up the stuff up the moment it's ready to go. So, that's really what the catch-up is all about. Yes, there will still be some inefficiency in quarter 2, that Bob gave you a range for that. But as far as the ERP implementation is concerned, most of that is behind us. Maybe Bob, you add, then we'll come back to the capital?

Yes, no, I mean I think you summarized it well, Stephan. I mean, obviously, the injectables business is different from our normal legacy Pharma business, so there were more processes, more stages in the production. And as Stephan said, being that it's pharma we had an abundance of caution to make sure that everything was operating the way it should be. So, there's no concerns there going forward, it's just that it was a little bit more than what we had anticipated going into the quarter, but the trend is in the right direction, as Stephan pointed out in terms of April. So, the remainder of the year is more tied to the $0.02 to $0.03 in Q3 and Q4, is more tied to capacity increase in the new technology than it is at all with the ERP.

Yes. Then on your question on footprint and expansion, let's bifurcate this. Clearly, we continue to examine our footprint, especially also in Beauty and Closures, to see for additional optimization opportunities, as I mentioned earlier. And once we are ready to discuss these we will. This is, of course, also often subject to labor negotiations, those are ongoing. And once we have white smoke we will inform you. Now, in terms of the expansion, on the expansion and the kind of product, yes, we highlighted that the GLP-1 because that's a very good example of the kind of biologics that benefit from our premium products. You know this is a rapidly growing category, and multiple elastomeric components go into each auto-injector, and multiple CMOs are involved to supply the three drugs that are on the market and, of course, multiple drugs are in clinical trials and approval processes for additional indications, whether it's obesity or non-alcoholic steatohepatitis or non-alcoholic fatty liver disease. So, we see this as a very strong growth platform, and it's also going to do a lot of good for people. That's just one example. Clearly, some of the vaccine business is much weaker, especially since China did not rollout a booster. But on the other hand, we also see some of the smaller molecules continue to grow. So, overall, we feel well-positioned to take advantage of the projects that we have in the pipeline and the projects that are in front us. And yes, building the capacity to take advantage of that.

Thank you for all the thoughts. Good luck in the quarter, guys.

Thanks, George.

Thank you. The next question today comes from the line of Angel Castillo from Morgan Stanley. Please go ahead. Your line is now open.

Hello, good morning. This is actually Stefan Diaz sitting in for Angel. Thanks for taking my question. I was just wondering if you could provide some details on what you're seeing across the supply chain. I know you called out maybe some destocking still to work through, specifically in Closures in the North America?

Sure. So, it is indeed more of a Closures topic. And, as you know, we supply into the food side of things, into beverages, and into personal care and home care. We see the food side and the condiment side starting to normalize. Beverages is also very strong, that's more in Europe, to be honest, than in the U.S. And then personal care and home care is still in a destocking mode, and we expect it to normalize in the second-half. I said it previously, but it still boggles the mind how much the North America supply chains have been impacted by multiple whiplashes up and down. So, this is still an inexact science, and I mean to quote one customer who should know all this, they can't reconcile it. But that's what we see.

Great, thanks for the color. And then would you be able to provide a year-over-year EPS bridge? I know you called out FX to be a slight tailwind, and maybe the tax rate will be another tailwind. Is the rest of that just coming from volume and price, or what are you expecting?

Are you referring to the outlook or are you referring to the Q1?

I'm just referring to the outlook. For example, last year, you guys did $0.98, and now you're guiding to $1.11 to $1.19. What are some of the puts and takes there?

Sure. So, I mean the easiest way to do this, Stefan, would be start with the first quarter $0.95 for this year. And in Q1, we typically have some higher stock comp expense due to [subs] (ph) investing, that was about $0.05 more in Q1 that'll be in Q2. We talked about the ERP $0.12 $12 million negative moving to $4 million to $6 million. So, if you take the $0.95, you add those two, you're getting closer to the range. And as we've said, that the order book looks good in both prescription and consumer healthcare as well as it does in Beauty. So, we feel that that's an achievable range for Q2.

From an FX, if I tread into dangerous waters here, we still had a headwind in quarter 1. Quarter 2 might be neutral, maybe a little tailwind. And, of course, if we stay at this FX it will flip to a tailwind in the second-half.

Great, thanks for the color, guys.

Thank you. The next question today comes from the line of Daniel Rizzo from Jefferies. Please go ahead. Your line is now open.

Good morning. Thank you for taking my question. If we think about Pharma margins, going forward past this year, I know there's some costs with injectable startups, but I was just wondering if the margin squeeze we've been seeing is something that's going to occur over the next couple years or if there is an inflection point where, with the new products you're launching, you would see things or margins, I should say, rebounding within the segment?

Yes, I mean, in general, this is of course all mix-dependent. Remember, our proprietary devices across Rx and CHC are the most profitable. And then comes active materials and injectables. So, if, like we have right now, the proprietary devices grow rapidly that has a positive effect, of course, in quarter 1 that's been eaten up by the ERP in injectables. And so, it is all mix-dependent. The last piece of the puzzle is, of course, digital health, which this year should be a drag of about $0.08 to $0.10 on an EPS basis for the year. And as that starts to improve and become contributing, we certainly stand by our EBITDA range.

Okay, thank you. And then you mentioned the Narcan, that filling the pipeline is kind of providing a short-term boost. Can you provide that means in terms of sales, at least for the first and second quarter?

Well, we don't break -- yes, we don't give you that much information. But as I said before, and I think Bob said, Rx was growing 30%-plus, and clearly Narcan is part of that, but overall, [indiscernible] medicines, which Narcan is a big part of it, but not everything is about 15% of Rx.

Okay, thank you very much.

Thank you. The next question today comes from the line of Kyle White from Deutsche Bank. Please go ahead. Your line is now open.

Hey, good morning. Thanks for taking the question. On the segment realignment, now that you have completed this action, just curious, any kind of early learnings or opportunities that you see whether on the commercial side or on the cost savings side? And then how should we think about, you have, previously, the long-term targets for your segment. So, how should we think about the core sales growth or maybe the EBITDA margin target for the new segment, Beauty and Closures?

Yes, maybe I start with that. We don't expect the aggregate long-term target ranges to change for the company. We may fine-tune the Beauty and Closures target ranges when we have our Capital Markets Day, in September. We do want to go through a full cycle of five-year planning before we do that. On the first part of your question, reaction has been really positive, both externally and internally. Customers feel like they're getting more attention on the closures now that it's part of that organization, maybe a bit keener on getting new business. As I mentioned earlier, we have some thoughts on footprint optimization already. You may have seen a very small deal we made in the Middle East that will free up some capacity in Europe. So, it's just the optimization over that, the four corners of Closure, is looking to be promising, both top line and bottom line. And the Beauty business is also benefiting, as we expected, from further focusing on what they need to get done.

Got it. And then some peers called out headwinds related to resin on the Beauty side. Did you guys see any headwinds in the quarter as it relates to your lag in the pass-through of resin? And are you anticipating anything in the second quarter? And maybe just broadly, what's your outlook for resin going forward?

Sure. So, I can take that. So, to start with, the resin is impacting now more the Closures business, right? In the past, we had a portion, obviously, of Closures inside of Beauty and Home. Now, within Beauty, it is one of the raw materials, but it not significant enough that there are pass-throughs or does not have a material impact on some of the more complex multi-component systems. But as we speak to resin, yes, probably about 6% of our 8% decline in core sales enclosures was due to the pass through of the lower resin prices. Now, we typically have much shorter pass through terms in our legacy food and beverage business than we did on our beauty and home closures business. So, we're looking to try to bring those more in line and shorten that cycle. But net-net, for us it hit the top line, didn't have a significant impact on the gross EBITDA dollars, but it did have, as we would anticipate a margin expansion effect on EBITDA percentages of sales. And going forward, we are expecting still resin to decline year-on-year. And last year obviously, was at much higher rates. So, we're anticipating lower rates for the remainder of the year until maybe we get to Q4 than we lapse some of the lower Q4 resin rates.

Got it. Thank you. I'll turn it over.

Thank you. [Operator Instructions] The next question today comes from the line of Gabe Hajde from Wells Fargo Securities. Please go ahead. Your line is now open.

Good morning, Stephan, Bob, Mary. I guess I wanted to revisit the CapEx question. I guess the incremental $20 million, given that it's associated with sort of legacy products, I'm assuming that's more equipment and things that are going within the existing footprint, that would maybe yield a little bit of a quicker return. Maybe that's not a fair characterization.

No, I think that's a fair characterization, Gabe. I mean, when you look at these types of investments, they are capacity related. They are related to our proprietary dispensing systems. These capacity increases don't happen overnight, right. So, we're looking at the pipeline of what we have. We're looking at our capacity constraints that we have on Horizon. We triangulate with five-year plan, et cetera, et cetera, and we feel it's the right time to increase capacity on some of those product lines, so they won't contribute until a year or later from now. But if we don't, we would find ourselves in potentially capacity constrained situation down the road.

But you're absolutely right. They go into existing facilities, no construction of new plants or anything like that.

Okay. And then maybe I'll rattle off all the risks or reasons why I'm not a good analyst. So, with the resegmentation and sort of seasonality not being what we're accustomed to over the past three years, and then kind of this ERP implementation, if we were to sort of look at even just bridging into the second-half you talked about, I'll call it the easy one ERP implementation kind of going to $0.02 to $0.03, sounds like there's really no resin headwind in the second quarter. Is there anything else that we should think about from a seasonality standpoint or projects ramping up, things like that, that would sort of cause you to deviate from historical trends in the back half?

No, I would say typically Q2 and Q3 historically have been a little bit stronger than Q1 and Q4, but there's always some exceptions to it. I think what we're seeing is the momentum and the strength in Q1, continuing on the Q2, but as it relates to maybe some of the closures business. Clearly, beverage is a big driver in the closures business for Q2 and Q3. But I don't think that's having a material effect on what we see going forward. The effect is really coming from the pharma business and the continuing strength of the beauty business right now.

Okay, thank you.

Thank you. The next question today comes from the line of Matt Larew from William Blair. Please go ahead, Matt. Your line is now open.

Yes, hi. Good morning. On the GLP-1 opportunity, you referenced participation in three of the products. Could you maybe share how you're participating? Is it the same with each of the products that will be on the market and just sort of what that sort of per unit opportunity looks like relative to a typical elastomer opportunity?

Okay. So, I think you asked about GLP-1, but you were kind of cutting out, is that correct?

That is, yes. I just wanted to understand how you're participating in each of the three products, if it's the same?

Yes, for competitive reasons, we're not going to disclose that. But just when you look at these auto injectors, the principles are all the same. They have an injection mechanism with a plunger. They have a cap with a needle shield. They have some plastic parts and multiple CMOS supply each of the two major players, Nova Nordisk and Eli Lilly. So, there are multiple opportunities to participate, and we participate in each of those three blockbusters and anticipate also participating in the ones that will be launched in the future. So, overall, this is a very interesting area and a good margin opportunity for us.

Okay. And as we think about just the ramp and maybe potential future approvals or additional indications, should we think about the opportunity ramping essentially in line with end market script growth, or are you anticipating any sort of lumpiness as these prior states going?

No, I think that's a good assumption. We certainly wouldn't provide anything else.

All right, thank you.

Thank you. There are no additional questions waiting, so I'd like to pass the conference back over to Mr. Tanda for any closing remarks.

Great. I appreciate everybody's questions of interest. I would like to just take a moment to zoom out. If we look at quarter one, we clearly have very brisk demand in our proprietary dispensing devices across RX and CHC and that's reflective of a very strong order book. I mean, both the continuous expansion of allergies, the need for emergency medications, the discovery of the nose as an integral part of personal grooming routine is really the driver behind that, and we are very bullish about continued growth for those two categories. The decline we had in injectables and active materials, of course were both transitory topics that will abate for quarter two and beyond. We had good growth in beauty in Europe and Latin America, some trepidation in the U.S. and China, with China improving. And of course we had the additional cost for substantive vesting. So, as we look at Q2, proprietary devices in pharma will continue to pull very strongly, injectables and active material normalize on a year-over-year basis. Beauty will keep pulling from what we see from the order book, more normal in North America, and we expect that China will start pulling again. Closures are starting to normalize, the corporate cost headwinds going away or more normal, and of course, foreign exchange may be awash for quarter two. And then as we look out over the second-half, some of the investments will come online and contribute. We are focused on executing our growth plans. Some of the cost actions will start to contribute and if exchange rate stays where they are, that will flip to a tailwind. So, overall, we feel very energized for 2023. Thank you, and looking forward to talk to you on the road.

This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.