Ladies and gentlemen, thank you for standing. Welcome to Aptar's 2024 Second Quarter Conference Call. At this time, all participants are in listen-only mode. Later we will conduct the question-and-answer session. Introducing today's conference call is Mrs. Mary 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 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 on our website. If you are following along on our website, you can advance the slides by hovering over the presentation screen and clicking on the arrows on the right and left. As always, we will also post a replay of this call on our website. 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 second 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 second quarter, I'm pleased to report that Aptar achieved core sales growth of 3% and delivered adjusted EPS of $1.37 per share, a 12% increase over the prior year quarter. We grew adjusted EPS double-digits for the first half of the year and in the quarter. Additionally, due to our confidence in our performance, we recently raised the dividend by approximately 10% on top of an almost 8% increase last year. The positive results in the quarter were driven by strong demand for our pharma proprietary drug delivery systems as well as continued broad based margin improvement. Our pharma segment continued to see healthy demand for our proprietary drug delivery systems with 7% core sales growth in the quarter following more than 13% core sales growth in the second quarter of 2023. Additionally, proprietary drug delivery systems had double-digit growth in the quarter on top of growing more than 30% in the prior year quarter. One of the key drivers for this quarter was our drug delivery systems used for central nervous system drugs. Over the last decade, we have seen a growing number of pharma companies repurposing drugs from injectable to nasal delivery. This spans from emergency medicines used to reverse the effect of opioid overdose to nasal treatments for migraines, depression and epilepsy. The wider benefits of nasally delivered medications such as over the counter nasal sprays have come to light even more in the new study. According to the July 2024 study, funded by the National…

Thank you, Stephan, and good morning everyone. Starting on Slide 6. I would like to summarize the quarter. Our reported sales increased 2%. This included a currency translation headwind of approximately 1%. Therefore, core sales grew 3%, primarily due to strong growth in pharma's proprietary drug delivery systems as well as a progressively recovering North American market for both beauty enclosures. As shown on Slide 7, we reported second quarter adjusted earnings per share of $1.37, which is a 12% increase over the prior year's adjusted EPS. During the quarter, we achieved adjusted EBITDA of $193 million, which increased from the prior year's second quarter by 6% driven by expanding margins. Free cash flow increased to $75 million in the quarter compared to $7 million in the prior year quarter. Turning to some of the details by segment for the quarter, our Pharma segment's core sales increased 7% due to volume growth, especially in our proprietary drug delivery systems and Aptar home solutions. Looking at sales in the Pharma segment by market, I will start by breaking out our proprietary drug delivery systems, which performed well in the quarter. Prescription core sales increased 16%, driven by strong sales of allergic rhinitis, central nervous system therapeutics as well as pain and emergency medicines. Core sales for consumer healthcare increased 6% due to higher demand for eye care, nasal saline and nasal decongestant solutions. Injectables core sales decreased 10% over the prior year quarter. As Stephan mentioned, sales declined compared to the prior year quarter as sales normalized following last year's strong second quarter catch up from the ERP implementation in the first quarter of 2023. We continue to see good growth in our higher value elastomeric components, including those used for GLP-1 applications. Core sales for our active material science solutions…

Thanks Bob. In closing, we had a strong first half and see that growth continue into the third quarter. We see good momentum for our proprietary drug delivery systems, driven by demand for nasally delivered central nervous system drugs as well as our proprietary drug delivery systems for allergies and eye care. As a reminder, we expect our proprietary drug delivery systems to grow within our long-term core sales target range of 7% to 11% and for the full year. While we expect 2024 to be a bit noisy for our injectable division, we see demand for higher-value products continuing to grow. For our consumer dispensing technologies, we see progressive recovery in North America as volumes come back, we expect to benefit from our continued focus on cost management and improved operational leverage. Lastly, our strong performance and continued positive outlook led to our recent dividend increase of almost 10% on top of last year's 8% increase. Before I open the call up for questions, I want to touch on the announcement we made last night. My colleague, Bob Kuhn, Aptar’s CFO has decided to retire at the end of this year. Bob has been with Aptar for 37 years, 16 of them as our CFO. I want to sincerely thank Bob for his guidance, leadership and many contributions to Aptar. No doubt, Bob is one of the best CFOs in the business. He has played an instrumental role in our success, while building a strong team and putting in place an incredible financial foundation from which Aptar can continue to grow and create shareholder value. After an extensive search process, I'm pleased to announce that Vanessa Kanu has been selected as Aptar's next CFO as of the first of January 2025. Vanessa is expected to start early in the fourth quarter of this year as CFO designate. Vanessa brings tremendous experience as a CFO in financial reporting, global operations M&A and cost management that Aptar and our shareholders will greatly benefit from. Most recently, she was the CFO of TELUS International, a technology services firm that operates in 32 countries. She also serves on the Board of Directors of Manulife Financial Corporation, a global financial services institution. I'm pleased to welcome Vanessa to the Aptar team, and I look forward to working with her and introducing her to many of you listening on the call. As a testament to the strong filings team in place, we have also promoted Dan Ackerman, the Chief Accounting Officer of the company. Dan has become a trusted adviser, value for his integrity and dedication to Aptar. He will continue to lead all corporate accounting functions, working closely with the segment finance team and continue to help the company's long-term financial planning strategy. With that, I would like to open the call up for your questions.

[Operator Instructions] Our first question comes from George Staphos with Bank of America.

Bob, it's been wonderful working with you. We appreciate all your support of our research and everyone. I'm sure everybody in the community thinks that, and we congratulate Vanessa and Dan on their next chapters in their careers and Vanessa joining Aptar as well. I guess my two questions. First of all, there's been a lot, as you might know, discussion of regarding destocking in the injectables market, not necessarily for you guys but for some of your peers. How much of that is affecting your business relative to, obviously, tough comps that you spelled out? And then secondly, my -- what I'd say is this, it looks like you're seeing a migration of share perhaps back into your traditional, your proprietary dispensing devices out of injectables or at least if you can comment if that's happening, given everything we've heard, molecule -- large molecules have been sort of gaining share in terms of remedies. And so how are you seeing growth in your proprietary dispensing systems when injectables was supposed to be where the growth was going to be?

I can only echo your thanks to Bob and the team. On your questions, let me take one at a time. Look, we did not have a huge COVID boom for our injectable business. As you know, the major benefit of COVID in our injectable business was the credibility gain as we get that debt. Of course, we see some destocking antithrombotics and things like that, that people consume more than they were in the hospital. But in the context of the overall growth of the high-value products, the GLP-1 that is more than offset. And the noisiness of the quarter is quite simply last year's quarter two, we kind of did 1.5 quarters in quarter two because we caught up from almost no sales in quarter one, that's why you have this no easy comparison. But injectable has grown for the first six months in unit sales and we expect it to continue to grow in the second half. Nevertheless, never mind the destocking in some SKUs like antithrombotics. Now on your second question, this is really -- you're talking different order of magnitude. Injectable medicines like the Pacific Ocean and then you talk about drugs administered to the node, it's maybe the Dan. So we're talking different orders of magnitude. So there's not really a big shift. We continue to see injected medicines to grow and especially biologics continue to grow. What the nasal delivery offers to many pharma companies is a way to life cycle management, maybe older drugs, maybe well-established drugs to -- with the new delivery method, one that perhaps is more efficient for that type of molecule, sometimes it's repurposing injected medicines like naloxone, sometimes it's repurposing oral dose medicines. And sometimes, it's maybe an alternative like epinephrine from the EpiPen to hopefully at the nasal delivered. But this takes nothing away from the growth of the Pacific Ocean, so to speak, in terms of overall injected medicine and biologics. And we are small part of this, and -- but we are very excited about the growth, and that's why we invested in it.

We now turn to Ghansham Panjabi with Baird.

I just want to echo George's comments for Bob. Obviously, big congrats on your retirement and amazing career and you'll certainly be missed by all of us. I guess following up on the last question. So on pharma, I mean, plus 7% core sales growth, obviously, prescription boosted that injectables down. So if the assumption, Stephan, is that injectables continues to grow in the back half of the year, it reverts towards that, should we expect a reacceleration in terms of growth or sales relative to that 7%, and how does that impact margins as well?

Yes. We don't really guide by top unit. I think we already leaned out the window by giving you some comfort that our proprietary delivery dispensing will continue to grow in the 7% to 11% in the -- for the full year despite the double-digit growth last year. And yes, you can take from my comments that we see continued growth in injectables. And yes, technically, there is a reacceleration from a decline in quarter two, but you understand the quarter two comparison.

And then for my second question, it sounds like.

Sorry, go ahead.

No, go ahead, please.

Yes. Look, on the margin, obviously, a part of that is mix dependent. As you know, certainly, our proprietary dispensing devices are before the highest margin business. Injectable is nice, but not in that range. So it will always have a mixed impact. On the other hand, as you heard Bob said, overall we also have $3.5 million of non-recurring corporate costs, Q2 that we did not adjust out. So they will not repeat in quarter three. Also, we will start to have the benefits of having shut down the closures plant in France. So we continue [indiscernible] across the board.

And then my second question was on the Beauty segment. So as it relates to North America showing pockets of growth, how do you see that unfolding in the back half of the year in context of just very, very mixed consumer spending? And then your comment on Europe specific to fragrances. I mean clearly, comparisons going to be tough for the back half of the year as well. Should we expect the same trend line for the back half, specific to Europe also for that segment?

Yes. I would say, first, North America, obviously, we compared to a relatively low base and we see broad-based recovery, not only in beauty but also in closures. And I think that bodes well for the second half of the year. Now given that Europe is so much bigger, clearly, we have this avalanche of new prestige launches coming out of COVID that don't repeat. We will also see that in the second half, albeit the comparisons will get a little bit easier. We actually have some nice growth of must each launches that's particularly in Latin America, but that's not large enough to offset the year-over-year comparison with Europe. So it's going to be a bit a mixed bag, but overall, very positive for North America, good growth in Latin America. Clearly, we're all a little bit looking at China, I'm wondering when it's going to start firing again on all drop cylinders, and that also has an impact on European sales. As you recall that a lot of our European beauty sales also feed into China. So that's why it’s a bit for a mix bag for the second half of beauty, but overall, I feel good about.

Our next question comes from Daniel Rizzo with Jefferies.

You mentioned CapEx is mostly for pharma. I was just thinking how we should think about the cadence over the next few years, if there's any projects ending or starting? And yes, how we should think about this -- I mean, towards the end of the decade?

So look, overall -- go ahead, Bob.

I was just going to say, I don't see -- we don't have anything today on the long-term horizon in terms of major CapEx other than I would say, continuing to industrialize and increase capacity for high-performing product lines as we've seen in pharma. I see the trend towards higher weighting towards pharma to continue. But again, opportunities are still out there in all three segments. We do see, though, the high point of $300 million that we touched the last couple of years beginning to decrease, as we start to leverage all those investments that we've made over the past couple of years. So overall, slight decrease from where we were at the high point continued majority spend on pharma. And again, large capital, nothing building wise or anything at the moment like we've gone through, but we'll continue to increase capacity for product lines that are performing well.

And then you mentioned in your prepared comments about, I think, royalties in pharma. I was just wondering if that's an ancillary business or it's something that's growing and could be a larger revenue driver in the coming years or how we really should think about it.

Dan, I can respond to that. So that's part of the business model, ongoing business model for our pharmacy, particularly on the proprietary door delivery system. So it is a new business model moved slightly new revenue stream. We fully anticipate will continue to grow. But at this point, we're not prepared to really disclose how big it could become.

If I just add to that. Look, every time we enter a new development project and often there is a small companies long before they get bought by bigger companies. Sometimes, they don't have all the funds and to pay for everything upfront. So we enter into milestone payment and sometimes we get royalties on the back end. So it's just part of the overall revenue mix. And it's part of our value creation model.

We now turn to Matt Larew with William Blair.

You talked about progress you've made on HVP within injectables. So I would maybe just be curious for your assessment of your overall participation rate today versus pre-COVID. And what you've seen since you've brought new capacity to bear and perhaps how that capacity and some of the products have helped both with GLPs, but more broadly in the market.

Sure. Look to the -- you may remember from Investor Day, the capacity increase has really been split over number of smaller projects. We had two legacy sites in France. Both of them have been upgraded and then a new site has been built that's still being completed and validated and then the Congress New York site and then within those different steps in the value chain. But overall, we've increased our capability and high-value products. And because of the COVID event, more and more interest by customers to work with us on new projects, biologic projects and, of course, GLP-1 is part of that. As a reminder, in GLP-1, there are two SKUs, at least one is the plunger, one is the needle shield, and we are quite happy with our participation rate overall there and see that business continuing to grow. So this is an ongoing growth trajectory. We got the capacity to grow with the market and yes, fortunately, we don't -- we're not as much exposed to the destocking.

And then in your prepared remarks, you obviously made comments about M&A diligence as well as some debt restructuring balance sheet moves [Gershweimer] obviously recently did the formulary deal. So there's been some activity in sort of M&A space within the broader packaging market, just given that you made the comments proactively, curious either from an appetite or availability perspective what you're seeing?

Look, we have a strong balance sheet and forge of strategic flexibility. As you know, we are fans of bite-size bolt-on partnerships and acquisitions and have a solid track record. And periodically, we evaluate opportunities, but we don't get into any of the details of those until they are ready to be announced but there's nothing at the moment that's ongoing.

We now turn to Gabe Hajde with Wells Fargo.

I had a question about the pipeline. Sometimes always tough on the outside. We sort of have to trust the team. But you gave us some data points that in dollar terms project and a number of projects I think versus 2019, that pipeline has been kind of consistently just above 40% or so. Can you give us an update maybe today, where it sits and where you would expect that to trend maybe over the next 18 months or some time frame that seems reasonable 24 months, as you commercialize some of these things that are in the pipeline, maybe the central nervous system treatments that you guys are working on?

Yes, sure. Look, we feel very good about the pipeline. It continues to grow. We mentioned I think last time that even though we have commercializations and that means things coming out of the pipeline. We have replenished the pipeline with the same or larger amount. I think we'll give you an update on the pipeline again in October, when we have our investor event, small commercial, we will be in France on October 2 and 3. So anybody who hasn't signed up yet. Mary would love to hear from you, and I'm pretty sure of that time we'll be able to give you an update and I don't expect a significant deviation from the trend line. Overall, whether it's nasal devices, whether it's inhalation, whether it's [obstamic], whether it’s injectables. We see goo pipeline inflow. Also on the digital health we make very good progress. I mentioned a few apps. The Biogen deal continues to help us in our business development efforts. So overall, I feel good about the pipeline. We feel good about the prospects and ultimately, that has also informed our decision to raise again our dividend after the 8% last year, almost 10% this year. So that kind of gives you a feeling of the underlying confidence in the pipeline.

And maybe just one more. I'll take another stab at the M&A question. From your vantage point, is there anything that you see in the pipeline from a size perspective that's different than what you all have done in the past or assets that you see potentially coming to market size wise that are larger in nature versus again, like what you've done in the past? .

Yes. I would not say that in principle, there is something different. Clearly, today, we have a market cap that approach is $10 billion. So bolt-on side means probably something different than the market cap was half that size. But the general attitude is still the same. We love these bolt-on deals that come with good management that give us additional capabilities, technologies that we can spread across the company in leverage or geographic footprint and not a big fan of large transformative deals that tend to be much riskier

We have a follow-up question from George Staphos with Bank of America.

Following on some of the questions here at the end of the call regarding M&A and the pipeline. Obviously there were some headlines earlier in the week with some peers in the dispensing market getting together. And look, that happens all the time. Can you talk Stephan and Bob, about how the competitive landscape may be changing? Do you view some of the more recent announcements as something that Aptar will have to navigate even more carefully now from a competitive standpoint in terms of making sure your moat is as solid as ever, making sure your pipeline is growing to Gabe's point earlier? Or do you feel, hey, listen, this is a normal course. And we'll focus on our pipeline, our new products, our commercialization and the rest will take care of itself. So that's question one. And question two, I recognize having covered you a long time, you're not going to guide necessarily on the fourth quarter, but should we expect at a minimum continued increases in earnings throughout the year? Can you maintain relatively consistent trends in earnings from third quarter into fourth quarter based on the pipeline, based on the fact that you raised the dividend, based on the fact that comps can get a little bit easier in pharma from your earlier Q&A with Ghansham.

Sure. I'm going to leave the second question for you Bob. Let me take the first question. Look, these packaging assets are very attractive assets, especially for PE firms. They change hands of you referred to an incident where there was some was picked up by strategic. We don't really see a change in the competitive environment. So I would much more calls in the ordinary courts. I mean, specifically talk about that one. SiloGen respected company, a respected operator. We don't see a change in the competitive environment here and we wish you and good luck.

George, you're 100% right. We're not going to comment on the fourth quarter earnings looking forward. So I don't want to disappoint you. I got one more in me, George. Come on, I got one more in me. Don't push me out just yet. But I think the dividend increase of 10% in my opinion, was a strong signal in our confidence in the near-term future of what we're doing fourth quarter to be perfectly transparent is always very difficult to forecast, right? We've had really strong fourth quarters. We've had very weak fourth quarters, right? It depends on where we will be probably in the economic cycle and where the confidence level is, there's a lot of uncertainty going on, particularly with elections and things like that. So let's see where it goes. But certainly, sitting here today and that dividend increase should be the indicator that we see a good near-term future on the horizon.

This concludes our Q&A. I will now hand back to Mr. Stephan Tanda for closing remarks.

All right. Thank you. So as you see, we continue to focus on executing the ambitious earnings growth plan that we shared with you at the Investor Day with a strong focus, both on the top line and the structural and ongoing productivity gains to ensure that the bottom line grows faster than the top line. In that vein, Q2 was another solid quarter, continuing our double-digit adjusted EPS growth for the quarter as well as for the first half. And again, as a reminder, we had $3.5 million in non-recurring costs that was not adjusted out in the quarter. Also, we see our momentum continue in the second half with further pharma growth. You can hear from my voice, COVID is alive and well when I sit in separate rooms, so that will certainly help consumer healthcare. Also, cost management and strong operational performance continue. And we will benefit from the productivity measures such as the quarter two plant closing France. Also, as a reminder, even Islamic economy, we're confident about our future trajectory. As we just discussed, it also underpins our decision to increase our dividend yet again by 10%. Order book and project pipeline remains strong and customers continue to engage well with our innovations. They appreciate the technology and value we bring to their brands and their drug developments, including our ongoing leadership and sustainability. They're well positioned from an operational perspective, and our regional footprints gain increasing competitiveness around the world. And as we discussed, our larger investments are behind us and CapEx is kind of normalizing, adding to our cash generation. We talked about the strong balance sheet and strategic flexibility. And with that, I would say all this bodes well for the second half. Bob, Vanessa, Mary and I and Dan are looking forward to discuss with you more on the road. And again, a small commercial for our investor event in France on October 2 and 3. And with that I wish everybody good summer and see you on the road.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.