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Good day, and thank you for standing by. Welcome to the Q2 2025 West Pharmaceutical Services Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, John Sweeney, Head of Investor Relations. Please go ahead.

Good morning, and welcome to West's Second Quarter 2025 Earnings Conference Call. We issued our financial results earlier this morning, and the release has been posted in the Investors section of the company's website located at westpharma.com. On the call today, we will review our financial results, provide an update for our business and our outlook for FY '25. There's a slide presentation that accompanies today's call, and a copy of the presentation is available on the Investor page of West's website. On Slide 4, there's a safe harbor statement. Statements made by management on the call and the accompanying presentation contains forward-looking statements within the meaning of U.S. federal securities laws. 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. Actual results could differ materially from past results as well as those expressed or implied in any forward- looking statements made here. Please refer to today's press release as well as other disclosures made by the company regarding the risks to which it is subject, including our 10-K, 10-Q and 8-K reports. During the 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. Limitations and reconciliations 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'll now turn the call over to our CEO, Eric Green. Eric?

Thank you, John, and good morning, everyone. Thanks for joining us today. I'll begin with a review of our performance in the second quarter and discuss the encouraging trends we are seeing in the business. Then Bernard will provide our detailed financial review, and I will close with some final thoughts. Now let's turn to Slide 5 and look at our Q2 business performance. I am pleased to report that we exceeded our expectations for the second quarter. This was driven by solid growth in HVP components. This quarter, our net sales increased 9.2%, and 6.8% on an organic basis. This strong performance was the result of robust GLP-1 elastomer growth. Ongoing momentum in HVP conversions impacted by Annex-1 activity and the continued normalization of customer ordering patterns. Our improved performance was concentrated in our higher-margin businesses, which drove the favorable margin expansion in the quarter. We believe this quarter underscores West's position as the market-leading injectable solutions company serving some of the fastest-growing areas of health care. We do this by leveraging our competitive strength to help our customers grow their commercialized products and launch new drugs across multiple therapeutic categories. Moving to Slide 6. Our Proprietary Products segment grew 8.4% on an organic basis in Q2. The key driver of this solid performance was HVP components, which increased 11.3% in the quarter. To meet the continued growth in GLP-1 plunder demand, where possible, we are leveraging the investments that were made during the pandemic. GLP-1 elastomer products accounted for 8% of total company revenues in the second quarter of 2025. Our performance also reflected our progress delivering HVP upgrades and Annex-1 related revenues. We now have 370 Annex-1 HVP Upgrade projects up from 340 last quarter. We continue to view Annex-1 as a significant multiyear opportunity where we have sustainable competitive advantage as we are the incumbent on these commercialized drugs and have the ability to deliver higher levels of quality at scale. As demand for our products continues to improve, we are working hard to increase supply to our customers. In the quarter, a majority of the customers who have showed growth were those who experienced destocking in the first half of the prior year. While we believe there are some destocking headwinds to work through in generics and to a lesser extent, in biologics, broadly speaking, we're optimistic that our businesses in these markets are turning back to more normal ordering patterns. Looking to the future, we expect Biologics to continue to be a meaningful contributor to our long-term growth as West continues to win in the market. West's participation rate for biologics and biosimilars is trending above our historical levels year-to-date, and our win rates for small molecules remain in line with past trends. We believe we're making progress in improving our ability to meet customer demand and increasing asset utilization. As we previously disclosed, one of our HVP plants in Europe has experienced certain constraints. We are proactively executing an initiative to expand capacity through a hiring and training program. We expect that these steps will improve production as the year progresses. The investments made to expand our HVP infrastructure over the past 5 years continue to provide us with important benefits. This includes 5 centers of excellence across our global manufacturing network, 2 in North America, 2 in Europe and 1 in Singapore that offer a strong platform for growth as demand for HVP components normalizes. Because many of these investments now have been made, we remain confident that we will be able to drive capital expenditures back to the normal level of 6% to 8% of revenues. This level is necessary to support our long-term construct. In longer term, we have the opportunity to align our manufacturing location with revenues. This includes further network optimization, which we can do through technology transfers. These initiatives take about 12 to 18 months, and also provides us with valuable tool to improve service levels and help mitigate potential impacts from tariffs for both West and our customers. Shifting to Standard Products. Revenues were up 0.4%. Most Standard Products have a strong regulatory moat with over half of them being spec-ed into an FDA or a similar regulatory process. That being said, we're continuously converting a portion of the standard product base to HVP every year. And this business offers West a significant opportunity as it represents an ongoing pipeline for HVP conversions. Moving to our HVP Delivery Devices business, which represents approximately 13% of total company sales on Slide 7. In the second quarter, revenues increased 30%. The majority of the growth in this area was driven by strength in Daikyo Crystal

Thank you, Eric, and good morning. Now let's review the numbers in more detail. We'll first look at Q2 2025 revenues and profits where we saw increases in organic sales, adjusted operating profit and diluted EPS compared to the second quarter of 2024. I will take you through the drivers impacting sales and margin in the quarter as well as some balance sheet takeaways. And finally, we will provide an update to our guidance. First up, Q2. Our financial results are summarized on Slide 10, and the reconciliation of non-U.S. GAAP measures are described in Slides 19 to 22. We recorded net sales of $766.5 million, representing an organic sales increase of 6.8%. Looking at Slide 11. Proprietary Products organic net sales increased 8.4% in the quarter, primarily driven by increased HVP volumes and positive sales price. High-value products, which made up 74% of Proprietary Product sales in the quarter increased 12.6% led by customer demand for Westar and NovaChoice products. The biologics market unit delivered high single-digit organic net sales growth, driven by an increase in sales of NovaChoice and Daikyo C

Thanks, Bernard. To summarize on Slide 16, we are delivered on the financial outlook we shared with you last quarter, and this is reflected in our upward adjustment to guidance. Our HVP component business is improving, and we see opportunities for increased returns in our contract manufacturing business. Our strategy is delivering strong results and gives us confidence that our business can return to achieving our targeted long-term growth construct. Specifically, we're seeing improving trends in our most profitable business HVP Components. We will continue to capitalize on the opportunities where we have excellent competitive advantages and unique offerings for our customers. Longer term, we're well positioned to capture the strong demand in the biologics market and benefit from the process improvements underway. In closing, I would like to thank you for your interest in West and extend my sincere thanks to all the West team members who did an outstanding job and contributed to our successful second quarter. Operator, we're ready to take questions.

[Operator Instructions] Our first question comes from Paul Knight with KeyBanc.

Eric, you mentioned that Crystal

Yes. Paul, it's driven by customer demand on a particular drug launch. We continue to see interest in Crystal

Our next question comes from Justin Bowers with Deutsche Bank.

Just a couple of quick ones. Eric, generics was particularly strong in the quarter, and I think we're anticipating that to be a little more challenged through the year. So -- just maybe give us a state of the union on where we are in destocking in general? And then second part of that would just be what market conditions do -- does West need to see to return to durable high single-digit growth?

Yes. Thanks, Justin. On the generics market, we have seen continued destocking effect in 2025. We expect that to continue somewhat in the second half of the year. We were encouraged with the momentum in the second quarter in that particular market segment. However, we continue to see the destocking effect in that particular area. We mentioned earlier that in pharma that has dissipated last year. And then we're seeing that become more normalized and a ramp-up in demand in biologics for the balance of the year. Really the key growth driver to get to our long-term growth algorithm is around the high-value product components. That is the key driver of growth, both not just the topline, but also the margin expansion. You're seeing that. We mentioned earlier in the year that we will see a build throughout the year based on -- you think about the key drivers there is GLP-1, Biologics, also Annex-1 around HVP Upgrades. And in all 3 of those will be stronger in the second half than the first half of this year. So there's very good momentum as we build throughout the year to get back to the normal algorithm of growth that we've had at West for quite some time.

Our next question comes from Larry Solow with CJS Securities.

Bernard, best of luck to you. Good to see the business getting back on track as you're departing. I guess first question would be on the Annex-1. Eric, you mentioned it continues to increase sequentially, at least the Q and the backlog. Is that translating into actual revenue growth so fast or a lot of these clients. Can you just give us kind of a little more color on that -- on that [ 390 ], I think you mentioned -- I imagine it's all kind of in different stages of discussions? Or how is that translating into revenue?

Yes. The Annex-1 is a multiyear process. The interest level by our customers to upgrade current formulas through pharmaceutical washing, Envision inspection, sterilization has increased. And you're correct, we had about 370 projects that we have secured in the last quarter and built upon. And it does take some time to deliver the end results before they become commercialized or we actually get revenues from these upgrades. But very encouraged. We mentioned earlier in the year that we expect about 150 basis points due to Annex-1 and we're pleased with the track record we have so far to be able to achieve that. So it's good momentum. It is a -- it's a significant variation between one client to the next. When you think about the complexity of the volume, where they are already on the -- whether it's standard products for HVP being upgraded. So each one is handled independently and there is -- there's commonality, but which is moving more towards our higher end of HVP, which is very positive. So more to come, Larry, but it's very strong momentum and will be a contributive growth for a number of years to come.

Our next question comes from Dan Leonard with UBS.

I'm trying to better understand the moving parts of the guidance update. Specifically, it looks like your organic revenue guidance increase was driven entirely by the Q2 beat and you didn't change your view for the second half of the year. So is that correct? Number one. And did you see any kind of pull-forward dynamic into the Q2 period that would be the second related part of that question?

Dan, we had built into our original guidance, HVP components already. We're starting to forecast that we would expect to see stronger growth in the second half of the year, and we continue to hold that view where last quarter, we said HVP components will be up mid- single digits. Now we're back to seeing it being mid-single digit to high single-digit growth for the year, and higher growth in the second half versus the first half. And so we are passing through the beat in Q2, and we remain positive on the second half, particularly around HVP components. On the timing perspective and pull forward, we didn't really see a lot of that in Q2. The results were driven by increased demand around NovaChoice products. And again, that called out Daikyo C

And just a modeling point, if I may. If you look at what happened last year, we had an incentive payment about of $47 million. So if you exclude that, the implied organic growth for our business would be 5% to 6% in the third and fourth quarter of the year.

Our next question comes from Michael Ryskin with Bank of America.

You guys called out GLP a little bit more in the quarter. It seems like that drove some of the beat. I know there was talk about a large customer there sort of ramping production. Just wondering how -- anything you could do to quantify that? I know you called out 8% of total sales. It was 7% last quarter. Just wondering if you think that's durable, how we should expect that to continue to ramp in the second half, yes, if you could just draw into the GLP contribution?

Yes, Michael, the GLP contribution is strong. We are able to respond to our customers demand as they continue to increase throughout the balance of 2025. I won't comment on 2026 at this point in time. But fortunately, we're in a very good position to be able to respond to our customers with the -- leveraging the assets we had put in a few years ago during the COVID vaccine pandemic period. And so we're able to respond accordingly to be able to support them. It's for multiple drugs within GLP. It's different to be plungers. There are some vials as you know in the marketplace. And so that's been a positive growth driver for us. But what's really encouraging, and that was an element of the HVP components growth. But if you look at the first half for HVP components growth, on organic basis, let's call it, between the first and second quarter, it was roughly between low single digit to mid- single digit. When we look at the back half of this year, it's going to be a high single digit to double digit. That gets you back to the mid-single to high single for the full year. So we expect HVP components to continue to grow for the balance of the year. And GLP-1 is one of the levers, but obviously, we're seeing with the demand that we have. We're working with our customers in the biologics space. And also as I mentioned earlier by Larry's question around Annex-1 and the HVP Upgrades, all look very positive for the balance of the year.

Our next question comes from Mac Etoch with Stephens.

Maybe just following up on Larry, I appreciate the commentary there. But I just want to kind of understand the additional customers that you've added, when they take time to ramp and get to the full run rate as it were. But if we were to look out over 2025 and then into 2026, I think you've added roughly 100 and you expected half of those to contribute to 2025. Should that be proportional as we look towards 2026 growth. So customers in 2025 ramping, but also the additions of -- the recent additions as well?

Yes. It speaks well to kind of the future pipeline, but in many of these Annex-1 projects we work with our customers, they take multiple quarters to get through the process, validation and to then move from their current particular product, they are buying from us, they'll support their current drug in the market as they transition to a higher level of product, it does take time. There are examples where it be only 2 quarters. There are some examples where there are 4-plus quarters. So as we think about the timing and the pacing, we've been -- the regulations were put in place in middle to the end of 2023. We started to seeing a ramp up in '24, and we continue to see that ramp up throughout 2025. But it is a long process. And we believe this is a multiyear. So it's not a customer, it's multiple customers with a number of projects we're working on.

Our next question comes from Daniel Markowitz with Evercore ISI.

Congrats on the good quarter. I had a 2-parter on Annex-1. The first is it's good to see the continued strong sequential project growth. I was curious if you could tell us the contribution in the quarter. I think it was 200 basis points in the first quarter, so I would love the comparable for the second. And then the second part, it seems like there were about 200 projects just 9 months ago, and now we're almost double that. It's been a steep ramp all around in the number of projects. I was wondering if it's fair to use the number of projects as a proxy for the revenue contribution if we take into account the 12- to 18-month project time through commercialization?

Yes, Daniel, when you look at -- as mentioned earlier, we look at the Annex-1 contribution this year over the full year, there's a little bit of timing from a revenue recognition perspective. So we do feel really comfortable with 150 basis points in 2025. Obviously, we will keep pace with our customers' demand and accelerate that if we need to. But because it is a multi-quarter event and it does take a long -- this is a multiyear upgrades you will see for West for our customers it's really hard to really articulate, it's going to be all in 2025 or 2026. This will be a multiyear process, and we'll update you as we get ready towards the end of the year, how it's going to translate into 2026. But it is positive momentum, candidly, on the number of projects that we're getting, the interest level. And when we first started talking about Annex-1, one of the decision criteria for our customers to determine do they bring -- do they invest in the capital internally or do they have West handle these processes. And what we're finding is that our proven network strategy, the scale, the quality, the capabilities we have in-house is capturing a significant portion of those opportunities. But right now, we're still stating we're 150 basis points this year. We'll give further color when we get close to next year.

Our next question comes from Doug Schenkel with Wolfe Research.

So one model cleanup question, which I'll come back to in a second and then one longer-term question, which I want to start with now. So, as I'm sure you appreciate, a key area of focus for the investment community is really getting a handle on where West is in returning to normalized growth. First half organic revenue growth was around 4.5%, excluding catch-up payments, you're guiding us to expect 5% to 6% organic revenue growth in the second half. Acknowledging you're not going to give us 2026 guidance today, I'm just wondering, as currently built and with no material changes in policy dynamics are there any things you would want us to contemplate as we update our out-year model? Because if not, it would seem to be logical to just continue to -- to model you on kind of a straight line of slow but steady improvement the way that we're seeing things play out this year? So that's the first question. The second is I just want to clarify what is embedded into guidance for tariffs? Is it current rates? Is it where rates were a month ago? Some companies in earnings season thus far have embedded assumptions for worse than currently outlined tariff policies. So I just want to see what exactly is in guidance? And is there any potential for upside to your targets if the current proposals remain as currently proposed?

Bernard, do you want to?

Yes, I'll start answering your question on the tariffs. So really, it's based on what we knew when we were putting the guidance together. Now there was a change yesterday around Japan that isn't fully contemplated in our guide, but we don't think that's overly material. So it was based on what we knew that had kind of rolled out over the last couple of months. And so we are going to continue to monitor that situation, and we will update based on any changes that occur from a materiality perspective. We're also working on a number of mitigation efforts within our supply chain itself and also with our customers, and we continue to do that. And based on what we understand today, that's embedded into our guidance. But given the way this scenario is playing out and how it's changing over the next -- how it has been changing and will continue to change, we'll contemplate that in the guidance when we move into Q3.

And I'll add to the first part of that question, if you don't mind. It's in regards to the growth of West and I'm feeling really good about the momentum we're seeing with HVP components. We mentioned the last couple of calls where we believe it will be build momentum throughout the year. I think we might have used the word transition year of 2025 into 2026. I won't comment specifically about 2026. But this momentum is -- I gave numbers a little bit earlier. We're thinking about -- when you look at the second half, based on current order trends, customer demands, our manufacturing capabilities are building up for the second half. I'm really very positive about how the team in Europe is handling the accelerate -- the demand acceleration, to be able to add a number of team members in our locations built to address the capacity, which is -- which we believe we can correct and get the growth that we anticipate to build to support our customers for the balance of this year going forward. But there is momentum, I would say, from the back -- if you think about last year, early part of this year, specifically Q1, and now we're building off of that. Like I said, too early to call on 2026, but overall, very encouraged.

Our next question comes from Luke Sergott with Barclays.

This is Salem Salem on for Luke. Just one on the auto injector capacity you guys have now. What's the current revenue capacity of the Dublin facility for auto-injectors and pens? And what's the expected OpEx leverage over time of filling that capacity? And just given the additional capacity that's coming on from the former CGM manufacturing, what's your visibility on filling what you currently have built?

Yes. First of all, on the ramp-up of our facility here in Dublin, I'm very proud of the team and how they have positioned it. We do have some commercial manufacturing of auto-injectors currently going through the facility, but it's only a portion of multiple installations that are happening throughout 2025. We'll see more ramp up towards the end of this year, again, for auto-injectors and pens, and are typical going from initial start of manufacturing to more peak volumes does take, call it, 9 to 12 months to get to fully optimized. In addition, here in Dublin, the facility that we have invested in with our customer, does handle -- does do the drug handling. Now that is going through a process right now, equipments installed, but we're looking at early 2026 to start commercialization. Similar comment made earlier, there is a ramp-up phase. So I'm not going to get into the specific revenues of that sites or profits, but I would say it is a -- we believe it's a good growth driver. As we get into 2026 to offset the CGM diagnostics device that we will stop manufacturing end of June of 2026. In regards to identifying new opportunities for the CGM, and we're excited with the current clients that we're speaking with, looking at their projects, and despite that would become available in 2026 is highly regarded based on the engineering quality and the capabilities the team has built over time. So we're very confident we'll be in a very good position to make a transition once that -- the automation for that particular product has moved out of our facility, we transitioned to a new product for a different customer. So very positive where we are. More work needs to be done, but we're in a good position.

Our next question comes from Tom DeBourcy with Nephron Research.

I know you spent several years focusing on redundancies of supply around high-value product components. And I was just curious maybe not -- may not give a percentage, but are most of the products in the portfolio validated across either multiple facilities and/or multiple geographies. And do you also see customer demand, I guess, for adding additional location validation given maybe the desire to mitigate tariffs?

Yes, Tom, you're right. When you look at our -- how we're co-located to our customers, actually, we're very well positioned today as we have 2 high-value product clients in the United States, 2 in Europe and 1 in Asia and Singapore. So when you look at our -- from a tariff perspective, we aren't introducing a lot of cost for the size of the manufacturing we do. If you think about our Waterford plant, for example, in Ireland, majority of the product -- finished product goes to our customers while they're global customers, they tend to end up in the European region. And that's pretty much the case in many of our HVP plans. However, there are a few occasions where a client may have a particular product they want to transfer to that may have only 1 site validated. So there's 2 elements to that. One is we want to have multiple sites, we can level load our operations more effectively. But secondly is make sure that we're producing in-region for the region of consumption. So there's some work to be done. I don't prefer not to give a percentage, but I'd say we're very well positioned, and you kind of see that in the net tariff or the gross tariff costs that we have as a headwind.

Our next question comes from Patrick Donnelly with Citi.

Maybe one on the margin side, really nice performance this quarter. High-value seems to be doing a little bit better, moving higher as the year goes. Can you just talk about the margin construct as we work our way through the second half? And again, just high level, those building blocks as we move forward, obviously, the CGM piece caused a bit of a headwind this year. Just trying to think about the right margin build as we work away year-end into if we go forward into '26, just given the high value momentum, the CGM piece. Again, it would be helpful to just talk through how we think about the margins in the second half and again the go forward?

Yes. If we look at the margin in the second half, there will be a little bit of a step down from Q2 as you move into Q3 and that's typically what we see from a seasonality perspective based on plant shutdowns that we have, primarily within Europe. And also what we're seeing is that because of that, there's a less absorption based on the volumes that are being moved through the facilities. We've built inventory as we've gone through Q2 to be able to serve the market into Q3 and take account of those planned shutdowns. So you do see a little bit of impact on margin there, but that's what we would have typically seen from a seasonality perspective in the past. And also, what we're doing, Eric kind of alluded to, is to meet the demand that we're seeing in some of our plants where onboarding a large enough headcount increase in that facility. That requires a level of training. There is potentially some impact on productivity there that we're looking to mitigate, but that is something that we have to consider when we put the guide together. So I think you're going to see a little bit of a slightly lower margins as you go through the second half of the year versus Q2. But again, that's what we would typically see in normal circumstances when you bake in the seasonality and the number of working days in each quarter.

Our next question comes from Matt Larew with William Blair.

When you took down the guide last quarter around HVP to mid- to high single digits. I think the issue highlighted was a customer making sort of a change order that led to a constraint in a facility. And obviously, you've been working to ramp up labor to address that. You raised the guide back to mid- to high single digits, but it sounds like those labor constraints are still in place. So maybe I wanted to get a sense for timing to resolution there. And then given that it still exists, is that sort of a path to potential upside in terms of return to normalization if you can get the labor issues solved this year?

Yes. Matt, you're right. And I had an opportunity to be at the facility with the team to walk through the plans they put in place, and I know they're executing very well against those plans. It is a ramp-up. We expect to ramp up, that's happening as we speak. As you know, it does take several weeks to get a new team member up to speed to build to support us in the plant effectively around quality and safety. So there is an opportunity to continue to accelerate that process. But as we commented, the growth is coming from multiple angles on their HVP components that's -- we talk about the biologics will be stronger than the second half. We're seeing continued growth in GLP-1 and also in Annex-1. And then the site in Europe is one of the sites that we are continuously adding more labor to alleviate some of those constraints. So it's positive, it's net positive. But we'll update you as we go through the -- throughout the quarter for the next call, but more importantly is we want to make sure that we -- as we raised it to mid- to high single digits, it's like confidence we will be able to deliver that range for HVP components based on what we know right now.

Our next question comes from Tucker Remmers with Jefferies.

Good job on the quarter. My question really revolves around the SmartDose device. And so when we met with you guys in May I think you talked about how difficult or I'd say, more complicated that devices to assemble. And I know you're automating that process probably sometime in 2026 when the new line comes on, but -- just what are the hurdles to automating that SmartDose device and kind of difficulties of getting that validated? And is there any sort of indication, guidance you can give on the margin improvement that you can see on SmartDose when the new line is installed?

Yes. Thank you for the question. I can confidently tell you that we're on track. We're executing 2 elements simultaneously. The first one we're driving, if you think about meaningful cost improvements, and our teams are very focused on that. And that also includes the validation and commercialization of the automated line. We're looking at that late 2025 and early 2026, and we're on schedule. The initial data is very supportive. And then we'll continue to evaluate all strategic options as we go forward. But we don't comment specifically about margin on a product within the portfolio. But I can assure you that we are focused on both of those levers as we speak.

[Operator Instructions] Our next question is a follow-up from Larry Solow with CJS Securities.

Just quickly on SG&A in the quarter. I think underlying SG&A, it looks like it was up like 16%. I know that moves around a little bit quarter-to-quarter. Was there anything particular in this quarter that drove that?

No, nothing specific to call out on that, Larry. Again, currency has an impact on it because the euro-dollar rate moved pretty considerably in the quarter.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to John Sweeney, Head of Investor Relations for closing remarks.

Thank you very much for joining us today on the call. An online archive is available on our website at westpharma.com in our Investor Relations section. Additionally, you can access the replay for 30 days by using the dial-in numbers and conference ID provided at the end of today's earnings release. That concludes the call. Thank you. Have a great day.