Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2024 First Quarter Conference Call. [Operator Instructions] Introducing today's conference call is Ms. Marry Skafidas, Senior Vice President, Investor Relations, and Communications. Please go ahead.

Thank you. Hello, everyone, and thanks for being with us today. Joining me on today's 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 on our website under the Investor Relations page. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. As always, we will also post a replay of this call on our website. And now I would like to turn the conference call over to Stephan.

Thank you, Marry, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our first quarter results. Later in the call, Bob Kuhn, our CFO, will provide additional details on key drivers for the quarter. Starting on Slide 3. For the first quarter, I'm pleased to report that Aptar achieved core sales growth of 5% and delivered adjusted EPS of $1.26, a more than 30% increase over the prior year quarter. Strong demand for our Pharma segment's proprietary drug delivery systems, and improved performance for the injectables unit as well as the recovery in North American consumer end markets contributed positively to our quarterly results. Our Pharma segment, continued to see robust sales of our proprietary drug delivery systems with high single-digit core sales growth in the quarter following more than 30% core growth in the first quarter of 2023. Demand was broad-based with growth in every region and across several end market categories from emergency medicines, through allergy treatments, and central nervous system therapeutics. As a reminder, our proprietary portfolio of drug delivery systems is expected to grow within our 7% to 11% long-term core sales range target also this year after strong double-digit core sales growth in 2023. The injectables unit saw a marked improvement over the prior year quarter as the ERP system implementation headwind from the first quarter of 2023 did not repeat, and demand for elastomeric components for the biologics market continue to grow nicely. 2024 continues to be a build-out year for injectables as this final phases of the capacity expansions announced in [ 2020 ] for France and the U.S. come online and are expected to be validated for commercialization in early 2025. In our Beauty segment, first quarter core sales growth was…

Thank you, Stephan, and good morning, everyone. Starting on Slide 6, I would like to summarize the quarter. Our reported sales increased 6%. This included a currency translation benefit of approximately 1%. Therefore, core sales grew 5%, primarily due to strong growth in Pharma's proprietary drug delivery systems, and improved injectable sales as well as in recovering North American market. As shown on Slide 7, we reported first quarter adjusted earnings per share of $1.26, which is a 31% increase over the prior year's adjusted EPS. During the quarter, we achieved adjusted EBITDA of $179 million, which increased from the prior year's first quarter by 16%, driven by expanding margins in all 3 segments. Improved operational performance and a lower tax rate led to a higher earnings per share result versus the range provided in our outlook. Turning to some of the details by segment for the quarter. Our Pharma segment's core sales increased 13% due to volume growth, especially in our proprietary drug delivery systems, and elastomeric components. Looking at sales in the Pharma segment by market, we will start breaking out our proprietary drug delivery systems, which performed extremely well in the quarter. Prescription core sales increased 10%, driven by strong sales of allergic rhinitis, asthma, central nervous system therapeutics and emergency medicines. Core sales for Consumer health care increased 2%, due to higher demand for nasal saline and nasal decongestants solutions, which more than offset the decline in dermal. Injectable Core sales increased 54% over the prior year quarter which was adversely impacted by an ERP system implementation, affecting operations and shipping days, which did not repeat. We saw increases in several end markets, including elastomeric components for biologics and small molecules. Core sales for our active material science solutions improved in the quarter, increasing 2% with…

Thanks, Bob. In closing, following a very strong start in quarter 1. We see our momentum continuing in quarter 2 and the balance of the year. Demand for our proprietary drug delivery systems will continue in the second quarter as well demand for elastomeric components for biologics. As a reminder, we expect our proprietary drug delivery systems to grow within our long-term core sales target range of 7% to 11% for the full year. We see demand for our consumer dispensing, especially for our closure technology to build in quarter 2 as the North American market continues to recover from this [ destocking ]. Improving EBITDA margins through cost management and operational performance continues to be a strong focus. With that, I would like to open the call up for your questions.

[Operator Instructions] The first question comes from the line of George Staphos with Bank of America.

Stephan, you mentioned again that you expect pharma to grow in its normal core growth range of 7% to 11%. And that's -- terrific given the comparisons, obviously, saying and doing are 2 different things, but taking that at base value, how should we expect the various end markets or product categories really to trend this year within that 7% to 11%. That's my first question. Second question to you both. In terms of the timing issues that you mentioned in terms of beverage closures in Europe, should we be worried at all about what the implications are longer term for plastics and beverages in Europe? Yes, you're benefiting from the tethered closure, but is the tide going out to sea, so to speak, and that's something else you're going to have to worry about longer term.

Thanks, George, and we could hear you just fine. Look, within pharma, the proprietary drug dispensing solutions are growing really, really nicely and we don't see that to change for the year. And then, of course, in biologics, we are rebounding from the situation with last year, plus we see continued good growth. For us, the COVID hangover was not significant in injectables, so we just benefit from the growth. . Now the year-over-year comparisons for every quarter is going to be a bit -- scary, sorry, for the technical term. But overall, we see good growth in injectables as well, same for active material solutions returning to growth. So it's really broad-based, led by the proprietary drug dispensing solutions, and that obviously bodes well for the business. Now in terms of beverage, look, right now, everybody is transitioning to the tethered caps. There is some inventory effect. There's some technical effect of getting machines adjusted to the new caps. But overall, we don't see any concern to the beverage business. I think we have passed plastic peak panic even in Europe now that may not be true for some capitalist. But overall, the reality of carbon footprint and total life cycle analysis in prevails, you saw Unilever also pushing out their goals to 2030. I think there's just a general pragmatism that returns.

The next question comes from the line of Ghansham Panjabi with Baird.

Obviously, very, very strong growth in pharma, and I know the reasons for that in terms of the base effect from last year. Did the operating margins come in, in line with what you thought they would? I'm just asking because last year, in the first quarter, obviously, margins were down on a year-over-year basis. And you have built up very nice operating leverage over that level, but I just thought there would be a little bit more [ mean aversion ] just given the extent of growth? And maybe a parallel question. Is that mix related just because of injectables having that sort of outsized growth?

I would say pretty much in line with expectations. Remember that when injectable grows much faster, and 50% is much faster, that has a negative mix impact on overall pharma. And therefore, you don't see bigger expansion than you might have liked. So overall, this is -- fully in line. The other point I would make, if there's one business, we keep reinvesting in, including cost is, it's of course, pharma. We keep reinvesting in innovation and new business development. So margins are in line with what we expected.

Okay, sure. And then for fragrance, just to expand on your sort of outlook for the rest of the year. I mean, obviously, comparisons are going to be difficult. We've talked about that in the past. Are you expecting growth to still remain positive for that segment? What's -- the customer sentiment at this point specific to that market?

Yes. Sentiment remains positive. Of course, the comparison quarter 1, in particular, given the boom of launches last year is difficult, but we would expect fragrance to continue to end the year somewhere in the 3% to 6% range. We see the regions continuing to perform well. And as a reminder, what we sell in Europe ends up all over the world, especially in this segment and also some good strength in Latin America. So overall, I think the 3% to 6% makes sense.

The next question comes from the line of Daniel Rizzo with Jefferies.

You mentioned that the capacity expansions in pharma are coming to an end. I was just wondering, post that, what your capacity utilization would be with those segments? And I don't know at what point you would think you would have to expand further, like what we can expect, I guess, over the next 5 years?

Yes. I think we are done with big new buildings. And again, if you come on the trip with us later this year, you will see it. I mean it's a phenomenal state-of-the-art new building. We're done with that kind of -- but within the building, we can further create capacity. So certainly, we have ample capacity -- as this new capacity is being validated and then the capacity increments if they need it down the road in the 5-year period, they will be more of a smaller increments as we increase cavity counts, as we further automate within the existing building. I mean, we may add another wing in Congress, but that's nothing like what we had to do in Granville.

When you do the expansions within the facility, is it easier or in terms of getting approval or making sure it makes -- inspections that you [indiscernible]?

Of course, every new tool has to be validated. Every new machine has to be validated. But it is in the context of an ecosystem where the crew is fully -- up to speed, and that can be happening in the ordinary course. It's not a massive, big investment like the new Granville 2 facility. I mean, we've made investments all along. We didn't make a big deal out of it. As we upgraded per se, as we upgraded Granville 1, but the Granville 2 is really massive.

The next question comes from the line of Matt Larew with William Blair.

I wanted to circle back to injectables. And just get your updated thoughts on participation rate. And really now that we've emerged from the pandemic, your assessment of how customers in the space view referencing sole source or multisource arrangements and perhaps within multisource, if there's a greater preference to spread volume. And to the extent your participation rate has improved, just how important your expanding global footprint has been to those discussions?

Yes. We could spend hours on that question. Look, fundamentally, just to back up, you have -- fix basic SKUs, you have plungers, you have stoppers, you have needle shields, and they can be coated or uncoated. Now there are many more, depending on the level of quality assurance, the level of data that you provide. So as we said, the pandemic has really helped us to demonstrate to the industry that our capabilities are equivalent to the market leader. That allows that we participate in every new project in a new molecule, long-term biologic project, people don't start having dual sourcing. They pick the horse, they're going to ride. If you have a massive, big product like we were with the COVID vaccines, people did want to have a second source just for security of supply. You don't want to run out of a COVID vaccine. That's all behind us. In general, I can say our product pipeline for biologics is very strong, and keeps building. And whether people choose us or other providers has a lot of factors. Technical capability, obviously, is an important 1 that's almost a qualifier, but then it has to do with geographic footprint -- ability to provide the support for a particular biologic molecule or vaccine in a particular geography. And then what is not talked about that much, but also a very important business model. We fundamentally have a business model with some other people. We are not getting into the auto-injector business. We are not competing with our customers. And sometimes, customers prefer to deal with somebody who's not competing with them. So those all play a factor, and absolutely having -- the ability to supply in region for region is critical.

Okay. As a follow-up, just wanted to check on emergency medicine and if you've seen any sort of change in demand for the Narcan product would be one. And then obviously, there's maybe an opportunity on the nasal delivery of epinephrine, which could start to develop in the back half of the year. So just curious for your assessment of what that opportunity might look like.

Sure. Let's talk Narcan first. We've spoken before about the importance of the over-the-counter approval. Now it's not -- it turns out it's not so important for people walking into a CVS or Walgreens or Rite Aid, and picking up Narcan that business is not so meaningful. But what it has allowed is for states to make bulk purchases of Narcan and then to distribute that in the states to harm reduction agencies to schools, police stations and so on, and disburse the settlement money each state has received and will be receiving for the next 10 to 20 years. So it has greatly facilitated much broader distribution into schools, into community centers into prime responders. And who knows maybe 1 day, we all have a set of Narcan our homes. So that's really helping the Narcan distribution. On epinephrine, we're all very excited about it, but I would caution in the end product launches day 1, and no single product changes the game for us. But of course, in totality, they start to build. A lot will depend on what is the reimbursement philosophy of the health insurers and the payers. But certainly, we think this product makes a ton of sense. And if patients are really excited about it, eventually it should receive good reception.

The next question comes from the line of George Staphos with Bank of America.

Bob, just looking at net cash from operations, it was down a touch from first quarter '23. There probably was just some timing effects here, but could you remind us what was going on in terms of CFO being a little bit lower this first quarter versus last quarter? And then if you could talk more broadly about your goals for SG&A as a percentage of sales, this year, if you care to update us. Obviously, you have, progress in the first quarter. What should we expect for this year?

Thanks, George. The slight decrease in the cash flow from operations, I think it was primarily due to more working capital, in particular, in some of the inventory areas and also in receivables. Remember, the first quarter was a little bit strange because you had the holiday weekend right at the quarter end. So our receivable balance was a bit higher than what we'd normally expect, but then all those were collected once we got into April. So I wouldn't -- look too much into that. And then when we look at the SG&A as a percentage of sales, we haven't really changed our target. We expect to be at a run rate of 15.1% by the fourth quarter. That's not for the full year, of course, that's kind of run rate going out, and we haven't really modified -- where we stand on that.

The next question comes from the line of Gabe Hajde with Wells Fargo.

Two quick ones. Remind me, again, you guys are carrying $0.01 to $0.02 of commercialization start-up costs in pharma associated with the injectables ramp. Is that true? And then would we see that flip next year -- or go away, I guess, maybe how to think about that? .

Yes, I think you got it right...

$0.01 to $0.02 is kind of where we're looking at for this year. And yes, in theory, then you'll have that go away and then we'll have to see where we are from a fixed cost absorption in a new plant as business comes in for next year.

Okay. And then one I recent -- there's been a lot of ground covered on the CapEx side, but maybe bigger picture looking out over the next few years. Can you remind us what maintenance CapEx kind of looks like? I have a note here in our model, 125 to 150. You mentioned adding some pharma capacity, I think, in 3 key regions. And so I guess as a portion of the targeted spend this year, can you break out what's still the injectables investment carryover versus maybe what's new in pharma.

Okay. I don't know if I have in front of me what the runout is on the injectables rollout, but on your maintenance number, $125 million to $150 million. I think as we talked before, it's sometimes difficult for us to really categorize, between a maintenance of investment and, call it, a productivity improvement or cost savings, right? Very rarely will we invest like-for-like, meaning that if we're replacing an old mold or replacing an old assembly line. We're typically doing it with a more efficient, higher output type of thing. So we would say that between true maintenance of business, and some of those in-betweeners that cover also productivity and cost savings, 45% to 50% is of total CapEx would be in the ballpark. So I think you're $125 to $150 million is in the right range.

Okay. And some of the discrete projects that you have going on this year, I heard you say not on injectables, but the capacity expansions, is it just safe to say that maybe everything that you're spending above that $150 million this year is mostly pharma related?

Yes. I mean we've talked a little bit but we do have some capacity increases in some other isolated areas. But yes, I think that's a fair bet that a lot of -- the excess above the big rollouts are predominantly in the pharma area.

If you look at the growth in proprietary drug dispensing systems, it's so strong, and obviously, think about the product like Narcan, you don't want to run out of capacity. So you need to expand ahead of the curve, and we're having a keen looking there and do not hesitate to expand capacity.

Thank you. There are currently no additional questions registered. So I would now like to pass the conference back to Stephan Tanda for any closing comments. .

Great. Well, thanks for the questions. As you see, we are fully executing on the ambitious plans that we shared with you last September at the Investor Day with a strong focus both on the top line and on delivering structural and ongoing productivity gains. This is all to ensure our bottom line grows faster than our top line. You have seen that play out throughout 2023, and we're now off to a very strong start in 2024, and we see that momentum continuing into quarter 2 and the balance of the year. Our order books and project pipelines remain strong. Our customer is engaging very positively with our innovations and the overall value that we can bring to their brands and drug products, including our overall sustainability contributions. A significant number of the productivity and cost reduction efforts are well underway in all regions. We mentioned a few on the call, and they will keep adding to the bottom line throughout 2024 and 2025. In addition, our teams are energized to find additional productivity opportunities. This is becoming a point of pride in the company and taking root into our culture. We are increasing the competitiveness of our regional footprint with all the actions in Europe, Asia, and North America. And now you've also heard about Argentina and we expand capacity in Mexico. As Bob said, our strong balance sheet allows us to continue to invest in growth, productivity, and we also find the both sized acquisitions, and partnerships, and have a solid track record of delivering value for shareholders. So when you consider all the puts and takes for the coming period, proprietary drug delivery systems will continue to grow even after a year of double-digit growth, and we expect them to remain inside our overall pharma target growth, and our growth target. Injectables has a strong pipeline and has additional capacities coming online and validated through the year will be -- able to serve this demand. Digital health, we haven't talked about, but is continuing to improve with project wins. Fragrance will continue to grow after a year of double-digit growth, albeit at the lower rate. The destocking in North America for Beauty and Closures is coming to an end. And our Latin America team is executing very well against -- actually, a generally very positive economic background, but of course, with the exception of Argentina, which we are addressing. We haven't talked about Asia, but China is progressively recovering and India is pulling very strongly. And as we talk, SG&A expenses and overall manufacturing fixed cost as a percentage of sales are coming down. So all of this makes us very energized for '24, and we're looking forward to discuss more with you on the road.

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