West Pharmaceutical Services, Inc. (WST) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2020 West Pharmaceutical Services' Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]It is now my pleasure to introduce Vice President of Investor Relations, Quintin Lai.

Thank you, Andrew. Good morning and welcome to West's First Quarter 2020 Conference Call. We issued our financial results this morning and the release has been posted on the Investors' Section on the company's website located at westpharma.com.This morning, CEO, Eric Green, and CFO, Bernard Birkett, will review our results, provide an update on our business and present our update financial outlook for the full year 2020. There is a slide presentation that accompanies today’s call and a copy of that presentation is available on the Investors Section of our website.On slide two is our Safe Harbor statements. Statements made by the management on this call and in the accompanying presentation contain forward-looking statements within the meaning of U.S. Federal Securities Law. These statements are based on our beliefs and assumptions, current expectations, estimates, and forecasts. The company’s future results are influenced by many factors beyond the control of the company and actual results could differ materially from past results, as well as those expressed or implied in any forward-looking statement made here. Please refer to today’s press release as well as any other disclosures made by the company regarding the risk to which it is subject, including our 10-K, 10-Q, and 8-K reports.During today’s call, management will make reference to non-GAAP financial measures including organic sales growth, adjusted operating profit, adjusted operating profit margin, and adjusted diluted EPS. Reconciliations and limitations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in this morning’s earnings release.I now turn the call over to West's CEO and President, Eric Green. Eric?

Thank you, Quintin, and good morning, everyone. Thank you for joining us today.The past several months have been some of the most difficult times for our communities across the world as we face challenging circumstances related to COVID 19. This pandemic has made clear the importance of global health care and the criticality of the role West plays during these unprecedented times. Our mission to improve patient lives cannot be any more meaningful than in times like today. We take great pride that for nearly 100 years we have provided innovative, high-quality products and solutions for the containment and delivery of injectable medicines. Despite the COVID-19 challenges, the West team remains focused on creating and delivering value to all our stakeholders.West has two priorities that are guiding us through this pandemic. First and foremost, we're focused on the well-being and safety of our team members across the globe. Our crisis management team was engaged at the outset implementing precautionary measures across our company to protect our teams.It seems nearly every day I learned about another great way that our team is stepping up to deliver the critical components to meet the urgent needs of our customers and their patients while looking out for the safety of one another. These moments are not only inspirational, but they serve as a testament to the collective strength of the One West team and I'm grateful for their unwavering commitment to our mission.In addition, our culture of philanthropy and community involvement has our team members offering their time, unique skills and knowledge in support of local response efforts.Turning to slide four. Our second priority is the continuity of manufacturing and supply of components and solutions to our customers. The strong tenets of our market led strategy and globalization of the manufacturing network are contributing to the resiliency of West's business in today's climate.I'm pleased to say that the growth trends we experienced throughout 2019 have continued in the first quarter and the outlook for the balance of the year remains positive.Despite the current challenges so far, we have been able to maintain operations at normal capacity. For the benefit of our customers, we have been able to leverage our world-class global manufacturing network by enabling the right capabilities, scale and flexibility to keep up the increase in demand.Because of the constantly changing environment and its effect on the economy, we conduct business impact analyses daily and make adjustments as they are required. These assessments are an integral part of our business continuity plans within each of our global sites and operations network. Throughout the past several months, we have monitored our supply chain including our close partner Daikyo and at this time, do not foresee any negative impact from direct or indirect suppliers.As the pandemic has intensified as expected we have seen an increase in customer orders in recent weeks. We are monitoring order flow to ensure that we're addressing the true demand for our products.As shown on slide five, despite today's uncertain environment, I am pleased to report that we had a strong first quarter performance and we entered the second quarter well-positioned. We had 13% organic sales growth in the first quarter largely through strong high-value product sales. This resulted in double-digit growth in adjusted EPS for the first quarter.As we enter the second quarter, the demand for our products continues to be solid from both existing customers as well as new opportunities from companies looking to develop COVID-19 solutions. Each day seems to bring new challenges; supply chain, transportation, government regulations. And I want to emphasize that across West, we're operating with a sense of urgency to address and manage these issues.Now I'll turn it over to our CFO, Bernard Birkett who will provide more detail on our first quarter financial performance. Bernard?

Thank you, Eric and good morning. I hope everyone is healthy and safe during this time.So let's review the numbers in more detail. We'll first look at Q1 2020 revenues and profits where we saw strong sales and EPS growth led by strong revenue performance primarily in our Biologics and Generics market units and Contract Manufacturing. I will take you through the margin growth we saw in the quarter as well as some balance sheet takeaways. And finally, we'll review guidance for 2020.First up, Q1. Our financial results are summarized on slide six and the reconciliation of non-U.S. GAAP measures are described in slides 13 to 16. We recorded net sales of $491.5 million representing organic sales growth of 12.7% and 30 basis points of inorganic growth.Proprietary Products sales grew organically by 11.8% in the quarter. High-value products, which make up more than 63% of Proprietary Products sales grew double-digits and had solid momentum across all market units throughout Q1.Looking at the performance of the market units, the Biologics market unit delivered strong double-digit growth. We continue to work with many biotech and biopharma customers who are using West and Daikyo high-value product offerings.The Generics market units experienced high single-digit growth led by sales -- excuse me, of Westar and FluroTec components. Our Pharma market unit saw mid single-digit growth with sales led by high-value products and services including: Westar, NovaPure and FluroTec components. And Contract Manufacturing had double-digit organic sales growth for the first quarter led once again by sales of diagnostic and health care-related injection systems.Moving to slide seven. We continue to see improvements in gross profit. We recorded $167 million in gross profit $20 million or 13.6% above Q1 of last year and gross profit margin of 34% with a 90 basis point expansion from the same period last year.We saw improvement in adjusted operating profit with $88 million reported this quarter compared to $71.3 million in the same period last year or a 23.4% increase. Our adjusted operating profit margin of 17.9% was a 180 basis point increase from the same period last year. And finally, adjusted diluted EPS grew 36% for Q1. Excluding stock tax benefit, EPS grew by approximately 31%.So what's driving the growth in both revenue and profit? On slide eight, we show the contributions to sales growth in the quarter. Volume and mix contributed $51.1 million or 11.5 percentage points of growth. Sales price increases contributed $6.6 million or 1.5 percentage points of growth. And changes in foreign currency exchange rates reduced sales by $9.7 million or a reduction of 2.2 percentage points.Looking at margin performance, slide nine shows our consolidated gross profit margin of 34% for Q1 2020, up from 33.1% in Q1 2019. Proprietary Products' first quarter gross profit margin of 40.2% was 130 basis points above the margin achieved in the first quarter of 2019. The key drivers of the continued improvement in Proprietary Products gross profit margin were favorable mix of products sold driven by growth in high-value products.Production efficiencies and sales price increases, partially offset by increased overhead costs, Contract Manufacturing's first quarter gross profit margin of 14.3% was 30 basis points above the margin achieved in the first quarter of 2019. Our adjusted operating profit margin of 17.9% was a 180 basis point increase from the same period last year, largely attributable to our Proprietary Products' gross profit expansion.Now let's look at our balance sheet and review, how we've done in terms of generating more cash for the business. On slide 10, we have listed some key cash flow metrics. Operating cash flow was $57.1 million for the first quarter of 2020, an increase of $9.5 million compared to the same period last year, a 20% increase. Our Q1 2020 capital spending was $32.1 million, $3.3 million higher than the same period last year and in line with guidance.Working capital of $633.1 million at March 31, 2020 was $74 million lower than at December 31, 2019, primarily due to a reduction in our cash and cash equivalents. Our cash balance of March 31 of $335.3 million was $103.8 million less than our December 2019 balance, primarily due to $115 million of expenditures under our share repurchase program. Our capital and financial resources including overall liquidity remains strong.Turning to guidance. Slide 11 provides a high-level summary. Full year 2020 net sales guidance continues to be in a range of between $1.95 billion and $1.97 billion. This includes an estimated headwind of $26 million based on current foreign exchange rates, compared to prior guidance, which forecasted a $15 million headwind. We expect organic sales growth to be approximately 8%. We expect our full year 2020 reported diluted EPS guidance to be in a range of $3.52 to $3.62 compared to prior guidance of $3.45 to $3.55. Capital expenditure will be in the range of $130 million to $140 million.There are some key elements I want to bring your attention to as you review our guidance. Estimated FX headwind on EPS has an impact of approximately $0.07, based on current foreign currency exchange rates, compared to prior guidance of $0.04. The revised guidance also includes a $0.07 EPS impact from our first quarter tax benefits from stock-based compensation.So to summarize the key takeaways for the first quarter. Strong top line growth in both Proprietary and Contract Manufacturing, gross profit margin improvement, growth in operating profit margin, growth in adjusted diluted EPS and growth in operating and free cash flow, our sales and EPS projections for 2020 and performance are in line with our long-term construct of approximately 6% to 8% organic sales growth and EPS expansion.I'd now like to turn the call back over to Eric.

Thank you, Bernard. Our company is financially strong. Today, more than ever, the pursuit of our mission is priority and not taken for granted.West products are needed by patients across the globe and in many cases for the administration of life-saving medicines. As the market leader we are committed to ensure continuity of supply to our customers around the globe.In addition, we are supporting our many customers that are developing potential solutions to address COVID-19 with components for diagnostics, antiviral therapeutics and vaccines. We are confident in our long-term growth strategy.Although these are trying times, we are optimistic and dedicated to doing what is necessary supporting the healthcare industry, as it works to resolve this global pandemic. We will emerge from this experience collectively stronger. And on behalf of all of the team members at West, it is our wish that you stay healthy and safe, in the days ahead.Andrew, we're ready to take questions. Thank you.Question-and-Answer Session

[Operator Instructions] And our first question comes from the line of Larry Solow with CJS Securities.

Hey good morning guys. And thanks for taking my questions and congrats on a good quarter, good start.

Great, thank you Larry.

Just on the Proprietary sales question on that side of it. Obviously very good growth and coming from the usual suspects here. I'm particularly impressed with the margin side. And the growth side, 130 bps up, year-over-year. And I think, last year Q1 was also a very good quarter.So, on a full year basis it was up over 150 bps. I'm not asking will these trends continue. But just what -- if you peel back the onion a little bit it seems like obviously mix is driving a lot of that.And is that just mix within mix as you not only increase your high-value products percentage but maybe go up to scale within high-value products to more of like say the NovaPure and stuff like that? Can you give us a little more color on that?

Yes, Larry. Good morning and thank you for the question, it's good to hear your voice. You're absolutely correct. There's -- what's happening with Proprietary is really two levers are being pulled simultaneously.One is the high-value product mix effect but more importantly is that we're seeing increased growth and contribution of that growth with the products that have even higher margins. You start thinking about NovaPure, Daikyo, Crystal Zenith, even the FluroTec.And when you look at those in totality, that's roughly let's say about half of the incremental growth when it comes to the high-value products and with a much higher margin. So the mix shift is occurring through high-value products, but even more pronounced with the higher-margin subsets of that portfolio.The second lever that we are holding and the team is doing a really good job is this globalization of our operations. And as you know, we've been on this journey for a couple of years now and the team has done a phenomenal job to start implementing lean processes and initiatives across our plants which is allowing us to be more efficient and more effective and higher throughput.So the combination of both of them is giving us that type of margin expansion in Proprietary. And what excites me is if we think about the future pipeline it is around the NovaPure the FluroTec the CZ the self-injection portfolio. And that's what's really exciting as we think about the long-term growth trajectory of this business.

Okay. Great, and then just switching gears if I just may on COVID-19, just sort of a couple of questions there. How do you gauge sort of surge in orders true -- versus sort of true demand any timing impact?And is the gear up in diagnostics and potential vaccines and therapies is that even -- is that moving the needle for you guys in the short run?And then lastly on, the COVID with the drop in oil -- a significant drop in oil, I realize there'll be some lag effect to that but I would assume that would benefit you guys on as we look out the next few quarters. Thanks.

Yes, Larry. In the COVID-19, specifically around our sales and products being introduced to support and I mentioned three areas around diagnostics, therapeutics and also vaccines. In Q1, we did not see any incremental revenue as a company due to COVID-19. We had some -- frankly Bernard can get in a little more detail, but we did have some additional costs. But what we're seeing right now and with the approach, we've taken with this -- with the market units we're able to have much more granular discussions with our customers. And as we start thinking about Q2 and Q3, we are actively working in all three corridors.To give you an example in the diagnostics our Contract Manufacturing arm of the business is currently scaling up on consumable products that are used in a couple of the devices that have been introduced in the market recently in the pipe. We won't speak about any specific customer, but these have been introduced recently into the hospitals in the clinic setting.When it comes to therapeutics there are a few that are in a market that we're already supporting and has been commercialized but they're currently, as you know, going through clinical tests to see the ability to combat COVID-19 and we're in those areas.And then lastly the vaccines, and those are a little more long-term as we look out 2021. And our FluroTec technology is a perfect candidate for the vaccine market. So it's kind of a staged approach and we'll see some of the benefit in 2020 and -- but most of it will be in 2021. You want to Bernard talk about the oil impact.

Yes. So there are some -- there'll be a tailwind from oil, but there is also some headwinds that we're going to see to offset that. So particularly around the logistics side and on freight, we're seeing some increased costs there given the well-documented issues with getting products to customers and just the supply chain itself and the impact COVID is having on that. And then, we have also some other costs that we're absorbing in supporting our employees as we're managing through the pandemic. We saw some of it in Q1 and there were some primarily showed up in our CM gross margin, which was probably impacted most by that. But I think, again, we will see some benefit, but there are other headwinds and offsets there.

Got it. Okay. Great. Thank you guys. Appreciate it.

Thank you, Larry.

Thank you. And our next question comes from the line of Paul Knight with Janney.

Hi. Eric, could you talk about what you need to do to minimize the risk of a facility shutdown. I know, you're operating in effectively a clean room operation in many sites. But do you have to go another step higher? And you do alternate shifts? What do you to reduce your risk for these facilities?

Yes. Thank you, Paul, and good morning. No, you're absolutely correct. We took a very proactive approach months ago when we started to see what we learned from our colleagues in Asia, particularly in our Qingpu facility in China, and also in South -- and Singapore. What we've done is we've taken a -- there's multiple steps that we've taken. One is the split shifts to minimize -- as they did the shift handovers minimize interaction so that social distancing is very important. Also, temperature monitoring. We also put a program in place that only essential employees were allowed to go into the facility. So you can imagine at our plants all the 25 plants around the world we have very important roles, but these are individuals that actually can work from remotely, and so we put that in place immediately.One other element we put in place is we really focused on ensuring that when our colleagues are not feeling well or there's some question about their health that they don't feel pressure to come into the office. So we relaxed some of our attendance policies. We improved. We expanded our compensation, if somebody had to stay home for a period of time with the COVID taking care of themselves and/or their family members.So those are many different levers that we put in place and to ensure that people are in the plants should be in the plants and also mitigating any risk that we have for maybe coming from the outside. This crisis management team we put in place is monitoring it daily. We can tell you, if there's absenteeism issues in any particular site.And I am very pleased and actually humbled on how well the absenteeism is very low in multiple sites. And I know in Europe it went up slightly, but it came back down to normal rates in the last several weeks, which is a real testament and our employees really understand the purpose of why we're doing this and to support the community.So, there's a lot of levers that we pull, Paul. It's not just one solution there's many. And we're not going to let off on the intensity of this -- of our approach, because we cannot afford to have an issue at a point.

And lastly regarding could you tell if there was stocking going on in the industry in Q1?

Yes, Paul. We do not see stock and I'll tell you why. You know our business very well, it's that, we're really make to order. So November and December is really the time period of when we look at Q1 demand that we need to manufacture over the following three to four months.I will tell you this though. In recent weeks the conversations have intensified where customers are coming to us and that's where our commercial organization has done a great job of categorizing and working with customers to alleviate their concerns not to do increasing safety stock, because our lead times have not increased, because of the global network that we put in place.So and we were able to categorize any incremental revenues is it due to vaccines, therapeutics, supporting therapies, hospital enablement, and also frankly increasing safety stocks and that's what we're keeping an eye on at this point in time. That has been as pronounced. We've learned our lesson back in 2015 and 2016. And so we're very conscious of that and we have the right programs in place to monitor and manage through this.

Thank you.

Thank you. Our next question comes from the line of David Windley with Jefferies.

Hi. Good morning. This is Danlei Yan for Dave. Thanks for taking our question. I think you mentioned in Proprietary Products that your mix is improving toward higher-margin HVPs. And I want to hone in on NovaPure a little bit. Can you give us a sense of how large that is as a percentage of Proprietary Products? And what the growth is? And then is the growth being driven by existing products or an expansion of the product portfolio in that line?

Danlei, it's twofold. One is, it's expanding the NovaPure or Nova brand portfolio with additional products and capabilities. But it is -- if you think about NovaPure, it's actually close to a double for an absolute dollar value during the quarter and that's a trend that we're currently seeing that started back in late 2018 and 2019.I'll give you an example one new product portfolio we launched with NovaPure is a one with 3 ml, which we believe -- plunger which we believe can continue to help have this growth rate continue. And we have a very high participation rate on NDAs. So this is a very positive portfolio, and -- but there's a lot of runway ahead of us in that area.

And we've also seen growth in other high-value products. So with CZ, FluroTec, RU, self-injection systems. So we've seen growth -- strong growth in all of those areas through Q1 and it's represented in many of the -- in the various market units. It's not just in one market unit.

Great. Thanks for the detail. I had maybe a follow-up question. The company had a really strong first quarter, but revenue guidance was reaffirmed. And so I was wondering if you could give us some of the puts and takes of that guiding in the context of how strong Q1 was?

Yes. I want to -- let me start and then Bernard will talk a little more about the puts and takes. I just want to caution. I mean absolutely when you think about -- if you look at the resiliency of the business and how the team is executing well under these circumstances and I do truly believe the tenets that we put in place are market led the globalization of the operations digitization, which is allowing us to get better analytics and real-time information it's really allowing us to drive growth. And we saw that -- similar growth in Q1. We saw that in Q4 last year. And so we believe it's a continuation.But frankly speaking the operating environment that everybody is in today is difficult. And so we want to be -- from my point of view, we want to be prudent and stick with what we've guided. I know there's some additional elements to that that Bernard will go through and we'll get more data points over the next several weeks and months so that we -- next time we have this call, we can get better information on how the trajectory will go for the balance of the year.Bernie you want to give some puts and takes.

Yes. And the other piece on that you've got to remember is the FX headwind that we have forecasted has moved from $15 million to $26 million. So if you take that into account and we're absorbing that while maintaining guidance between $1.95 billion and $1.97 billion. So essentially it is raising guidance on revenue. And as Eric said, it's still early in the year. We're in unprecedented times with a lot of unknowns out there.So, again, we felt it was the right thing to do to maintain where we are and see how the remainder of the year progresses. But what we're seeing is that our order book is solid. Our manufacturing and operation units are functioning as they should and in line with our expectations and we weathered some storms in the first quarter. But again I don't think it's appropriate to raise it much higher at this point. You've got to think -- you've got to remember that piece on the FX.

Great. Got it. Thanks for the color.

Thank you.

Thank you. And our next question comes from the line of Juan Avendano with Bank of America.

Hi. Hello, good morning. Congrats on the quarter and thank you for the role that you're playing through this pandemic.

Thank you. We really appreciate that.

I guess my first question is you used to give us an update annually on your participation rate across your different customer segments. Can you give us such an update for 2019 across biologics, generics and pharma?And related to this question I know that this is a long-term opportunity on the COVID-19 vaccines but what participation rate do you anticipate to have among COVID-19 drugs and vaccines that are currently in development?

Yes. Juan on the participation rate last year in 2019, I'll put it this way. Our biologics participation rate is higher than it has been or equal to a little bit higher. So it's close to 100% as we get. And then in the generics and in the pharma space they actually improved. So our participation rate is -- it continued to improve.In regards to COVID-19 specifically around vaccine as customer, we won't give out customer names. But I can tell you that we're on many of the products that we currently develop and we'll be going into clinical trials hopefully soon that we can participate on that. I think reason why we have a good, very strong participation rate in vaccines is one of the characteristics is required is the coating on the elastomer. And the FluroTec technology is a market-leading technology. So we're feeling really good in that regard.Secondly around that when we start thinking about the criticality or the urgency to get these materials manufactured, it gives us the ability to flex our global operations. And as we're building 40-plus billion components a year, the demand on vaccines while it's important it's a good size, it's not going to be too much of a challenge considering we have multiple sites that can produce these products using FluroTec's technology. So that's how I would look at it from the vaccine perspective for the participation rate.

Got it. Thank you. Your backlog of committed orders on Proprietary Products, it did increase by 44% year-over-year in 2019 according to your 10-K that you filed. I was wondering, if you could give us an update on your backlog of Proprietary Products orders that are committed as of the end of the first quarter? What the magnitude of the change has been? And can you remind us what your average production lead time is from the time you receive an order until you produce it and ship it?

Yes. So we won't update the quarterly number but I can say it's solid. It's consistent. In fact with some of the discussions that we're having in regards to products used for therapeutics and/or vaccines that would ensure that that number stays solid.I think from a range of lead times I think the team has done a great job if you think about where we are today and we monitor this on a very -- on a weekly basis. We're about eight to 11 weeks on average. It does -- it is based on the product and the additional capabilities that we provide around that. But I would say, we're pretty stable at 8 weeks to 11 weeks at this point in time.

Okay. All right. Thank you.

You got to also take into account that the order patterns from customers is changing slightly. Customers are actually placing longer orders with us. So they're not -- it's not just one or two quarters. It's actually our over three, four quarters and maybe beyond. So the real positive for that is that it gives us a lot of greater visibility and being able to meet customer demand within the lead times of the 8 weeks to 11 weeks on average.

Okay. Good. Can you tell us what's embedded in your guidance -- revenue guidance for 2020 as far as the outlook by customer segment? I mean Biologics Generics and Pharma. What growth revenue growth do you expect?

So on Biologics, we're looking at double-digit growth. Pharma will be low to mid-single digits. And then Generics is mid to high single-digit growth. Contract Manufacturing will be high single digits possibly early double-digit growth.

Got it. Thank you. It seems that the pricing contribution in the sales revenue growth in 1Q was 1.5 percentage points, which is a little bit higher than your historical average. Can you talk about the pricing dynamics on high-value products maybe and your components? And how much pricing you can get given this environment?

Yes. I think when you look at pricing, it's plus or minus 1% historically after the last three or four years. You're right it's -- at 1.5 it's a little more on the higher end of that. So it's a very -- it's not a big variance. But I think what we're seeing right now is when you think about the growth that we're seeing in high-value products particularly the areas that Bernard and I spoke of these tend to be new molecules.So when we bring a customer on to those products, the price contribution doesn't kick-in until a year or two later, right? So that anniversary is out from a new product status. So we're about 1.5 in the first quarter. It'll be plus or minus of that going forward. And I think we're able to maintain our pricing structure when you consider that our focus is to convert more customers to the higher end of high-value products.

Okay. Good. And my last one if I may. I mean not to nitpick, I mean, you're getting good margin expansion driven by your high-value product conversion and the good organic growth on Proprietary Products. But the gross margin did come in a little bit light relative to my estimate on the Contract Manufactured product segment. I guess, my question is when could we see mid to high teens gross margin in that segment relative to how it was before -- 2017 and before?

Yes. In Q1, we had some costs that we absorbed within well -- across all our operational units and there was a particular impact in CM regarding supporting employees as we go through COVID-19. So we have incurred some costs there. And that was a decision by management and it was the right decision to do that. If we exclude those costs and if business as normal our margin in CM would have been north of 15%.The impact on the Proprietary business was a lot less. But -- so that gives us encouragement to know that we're on the right track and our teams are delivering within Contract Manufacturing to get to the mid to high teens. We will be making progress throughout 2020 and into early 2021. But we are on the right track. That there were -- it was onetime cost.

Okay. Sounds good. Thank you very much and I will follow-up offline. Congratulations.

Thanks, Juan.

Thank you.

Thank you. And our next question comes from the line of Courtney Owens with William Blair.

Hi, guys. Good morning.

Good morning, Courtney.

Good morning. My first question is around the updated kind of top line guidance. I know you kind of answered this a little bit earlier for somebody else's question, but just wanted to kind of talk more about like on the organic side. So, you guys started the year very strong. And I think in your prepared remarks Eric you said that you guys didn't really see any COVID-related revenues yet in Q1. So it's probably hard to say from your vantage point, but is really I guess if you kind of look at the rest of the year that confidence that you have that you guys will be towards the higher end of your organic or your long-term organic guidance of that 6% to 8%, is that driven by just like the base demand for the business? Or is it more so related to the COVID-related like incremental demand? Or kind of if you have to pick between that mix which side does it more fall on that you have that confidence that you'll get to that 8% as opposed to the 7% to 8% that you guys talked about last quarter? Thanks.

Yes. Courtney I would say that the confidence is on the base business on the core business. We are aware of additional opportunities when it comes to the COVID-19 and the solutions that our customers are working towards. But that's a fluid and dynamic environment in regards to which therapies -- or therapeutics and/or vaccines will get through and at what time. And so when we have better visibility and clarity around that then we'll bring that into the discussion.On the CM side, it's a little bit higher in Q1 that we -- than we traditionally would see. And I think that will come down a little bit going back to what Bernard said earlier the full year probably looking at high-single-digits, maybe touching the 10% mark. But on the Proprietary side, the underlying core business, if you look at Q1 and Q4 of last year and the momentum that has been built up on the core, it's been relatively consistent. So it gives me confidence that the guidance that Bernard walked us through is really taking a lot of the opportunity to pull the 2019 out.

And it's hard to estimate like that. Now there's a lot of discussions around COVID that -- and we need to see something more concrete, and it'll probably get more visibility as we progress through the second quarter here. And we'll give you a better insight into that I think on our Q2 call. But it's still early. There's a lot of moving pieces in that area.

Okay. Got it. Thanks guys.

Thank you.

Thank you. And I'm showing no further questions at this time. So with that, I'll turn the call back over to Quintin Lai for closing remarks.

Thank you, Andrew. Thank you for joining us on today's conference call. An online archive of the broadcast will be available on our website at westpharma.com in the Investors' section. Additionally you may access a replay through Thursday April 30 by using the dial-in numbers and conference ID provided at the end of today's earnings release. That concludes this call today. Stay safe, stay healthy. Have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a wonderful day.