West Pharmaceutical Services - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered a clean beat and positive mix: net sales $766.5M (+9.2% YoY, +9.8% QoQ), adjusted EPS $1.84 (+21% YoY), with gross margin up 290 bps YoY to 35.7% on stronger HVP components and pricing; both revenue and EPS exceeded S&P Global consensus. Bold beat: revenue +$36.4M vs consensus, EPS +$0.303 vs consensus*.
• Management raised FY25 guidance: net sales to $3.040–$3.060B (from $2.945–$2.975B) and adjusted EPS to $6.65–$6.85 (from $6.15–$6.35); FX shifts to a +$59M revenue tailwind and +$0.27 EPS tailwind; tariff impact trimmed to $15–$20M.
• HVP components drove the quarter: +11.3% YoY; GLP‑1 elastomer products were ~8% of total sales; Annex 1/HVP upgrades expanded to 370 projects (from 340 in Q1), supporting multi‑year mix and margin improvement.
• Near‑term cadence: Q3 guide implies $785–$795M revenue and $1.65–$1.70 adjusted EPS, with typical seasonal margin step‑down on European plant shutdowns and training ramp; excluding a non‑recurring $19M incentive in Q3’24, organic growth pace is ~5–6% in Q3.
• Talent/leadership update: West appointed Robert McMahon (ex‑Agilent CFO) as incoming CFO effective Aug 4, 2025; outgoing CFO Bernard Birkett transitions to Senior Advisor through year‑end—supports continuity amid guidance raise.

What Went Well and What Went Wrong

What Went Well

• HVP components strength, mix, and pricing uplift: HVP components +11.3% YoY; consolidated gross margin +290 bps YoY to 35.7%; adjusted operating margin +230 bps YoY to 20.3%.
• GLP‑1 demand and Annex 1 conversions: GLP‑1 elastomer products ~8% of company revenue; Annex 1/HVP projects increased to 370 (from 340), underpinning multi‑year upgrades. CEO: “exceeded our expectations…strong GLP‑1 elastomer growth…momentum in HVP conversion mainly related to Annex 1”.
• Cash generation and capital discipline: YTD operating cash flow $306.5M (+8.2% YoY), YTD capex $146.5M (−23.2% YoY), YTD FCF $160.0M (vs $92.4M in 1H24); FY25 capex unchanged at $275M.

What Went Wrong

• Seasonal margin headwinds ahead: Management flagged a step‑down in margins in 2H vs Q2 due to European plant shutdowns and onboarding/training impacts; inventory built in Q2 to serve Q3.
• Generics destocking persists: Despite Q2 momentum, management still sees destocking headwinds in generics through 2H’25 (less so in biologics).
• Ongoing tariff uncertainty: FY25 tariff impact lowered to $15–$20M, but management noted evolving policy dynamics (e.g., Japan change not fully in guide); no pass‑through revenues assumed in guidance.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Q2 2025 West Pharmaceutical Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one-one again. 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.

John Sweeney (Head of Investor Relations)

Good morning, and welcome to West's Second-Quarter 2025 Earnings Conference Call. We issued our financial results early this morning, and the release has been posted in the investor 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 FY25. There is 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 four is the safe harbor statement. Statements made by management on the call and 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.

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.

Eric Green (CEO)

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 five 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 HPP 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 HPP 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 healthcare. We do this by leveraging our competitive strengths to help our customers grow their commercialized products and launch new drugs across multiple therapeutic categories. Moving to slide six, our proprietary product segment grew 8.4% on an organic basis in Q2. The key driver of this solid performance was HPP components, which increased 11.3% in the quarter. To meet the continued growth in GLP-1 plunger 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 HPP upgrades and Annex 1-related revenues. We now have 370 Annex 1 HPP upgrade projects, up from 340 last quarter.

We continue to view Annex 1 as a significant multi-year 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 HPP 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 HPP infrastructure over the past five years continue to provide us with important benefits. This includes five centers of excellence across our global manufacturing network: two in North America, two in Europe, and one in Singapore that offer a strong platform for growth as demand for HPP 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 6-8% 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 12-18 months and also provide us with a valuable tool to improve service levels and help mitigate potential impacts from tariffs for both West and our customers. Shifting to standard products, revenues are up 0.4%. Most standard products have a strong regulatory moat, with over half of them being specced into an FDA or similar regulatory process.

That being said, we're continuously converting a portion of the standard product base to HPP every year, and this business offers West a significant opportunity as it represents an ongoing pipeline for HPP conversions. Moving to our HPP delivery devices business, which represents approximately 13% of total company sales on slide seven. In the second quarter, revenues increased 30%. The majority of the growth in this area was driven by strength in Daikyo Crystal Zenith containment and administration systems. HPP delivery devices include SmartDose. We continue to evaluate the best path forward for SmartDose, and we're closely managing the cost base and are in the process of introducing a new automated line in early 2026, which will further enhance the economics of SmartDose. Turning to the contract manufacturing segment on slide eight, we saw a 0.5% organic revenue increase in the quarter.

This was driven by the initial ramp-up stages of our Dublin facility, where we manufacture auto injectors and pens serving the obesity and diabetes market. This was partially offset by life cycle management of a CGM diagnostics device. We continue to expect contract manufacturing organic revenues to increase low single digits for the full year of 2025. On slide nine, we are updating our full year 2025 guidance. As a result of the strong performance in Q2, continued momentum in our HPP components business, and favorable FX environment, we are increasing our organic revenue and adjusted EPS guidance for the full year 2025. Before I turn the call over to Bernard, I would like to briefly mention the announcement made earlier this week regarding the appointment of our new CFO, Bob McMahon.

Having previously served as the CFO of Agilent Technologies, I'm looking forward to his expertise and experience as part of our West team. In the coming months, Bernard and Bob will work together to ensure a seamless transition. Let me turn it over to Bernard, who will provide more details on the quarter. Bernard.

Bernard Birkett (CFO)

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. 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 19-22. 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 HPP 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 Crystal Zenith products. The pharma and generics market units both increased high single digits, primarily due to an increase in sales of Westar products. Our contract manufacturing segment experienced 0.5% net sales growth in the second quarter, primarily driven by an increase in sales in self-injection devices for obesity and diabetes. We recorded $273.9 million in gross profit, which was $43.9 million, or 19.1% higher than Q2 of last year. Our gross profit margin of 35.7% was a 290 basis point year-over-year increase. Our adjusted operating profit margin of 20.3% was an increase of 230 basis points from the same period last year.

Finally, adjusted diluted EPS increased 21.1% for Q2. Excluding stock-based compensation tax benefit, EPS improved by 26.4% compared to the same period last year. Now let's review the drivers in both our revenue and profit performance. On slide 12, we show the contributions to organic sales increase in the quarter. Sales price increases contributed $14.6 million, or 2.1 percentage points of growth in the quarter. In addition to price, there was a positive volume and mix impact of $33.3 million, driven by greater demand for Westar and NovaChoice products and a foreign currency tailwind of $16.5 million. Looking at margin performance, slide 13 shows our consolidated gross profit margin of 35.7% for Q2 2025, up from 32.8% in Q2 2024. Proprietary products' second quarter gross profit margin of 40.1% was 310 basis points higher than the margin achieved in the second quarter of 2024.

The key driver for the increase in proprietary products' gross profit margin, in addition to sales price, was higher plant efficiency and output, driven by increased customer demand for our HPP products. Contract manufacturing's second quarter gross profit margin of 17.5% was 130 basis points greater than the margin achieved in the second quarter of 2024, primarily due to increased sales prices and positive product mix. Now let's look at our balance sheet and review how we've done in terms of generating cash for the business. On slide 14, we have listed some key cash flow metrics. Operating cash flow was $306.5 million for the six months ended June 2025. Growth of $23.3 million compared to the same period last year, an 8.2% increase, primarily due to favorable working capital management. Our second quarter 2025 year-to-date capital spending was $146.5 million, $44.3 million lower than the same period last year.

Working capital of approximately $1.076 billion at June 30, 2025, increased by $88.6 million from December 31, 2024, primarily due to increases in our current assets. Our cash balance at June 30, 2025, of $509.7 million, was $25.1 million higher than our December 2024 balance. The increase in cash is primarily due to cash from operations, offset by $134 million of share repurchases and our capital expenditures. Turning to guidance, slide 15 provides a high-level summary. Based on a strong second quarter result and positive impact of foreign currency exchange, we are increasing our full year 2025 revenue guidance. We expect net sales in a range of $3.04 billion-$3.06 billion, compared to prior guidance of $2.945 billion-$2.975 billion. There is an estimated full year 2025 tailwind of approximately $59 million based on current foreign exchange rates, compared to our prior guidance of a headwind of approximately $5 million.

We expect organic sales growth to be approximately 3%-3.75%, compared to 2%-3% in our prior guidance. I would note there is a mixed shift in the updated guidance, with HPP components now expected to be up mid to high single digits for the year. We are increasing our full year 2025 adjusted diluted EPS guidance to a range of $6.65-$6.85, up from the previous range of $6.15-$6.35. Full year 2025 adjusted diluted EPS guidance assumes a $0.27 tailwind based on current foreign exchange rates, compared to prior guidance of no foreign currency impact. The updated guidance also includes EPS of $0.04 associated with first half 2025 tax benefits from stock-based compensation. Our guidance excludes future tax benefits from stock-based compensation. Moving on to tariffs.

Based on the tariffs that have been set, we believe the impact to our business for the nine months will be $15 million-$20 million for FY 2025, compared to our prior estimate of $20 million-$25 million. However, there is still a lot of uncertainty here, and we appreciate that this number could be more or less depending on retaliatory tariffs and other factors. We continue to monitor the situation, and we are utilizing every available mitigation lever to offset this impact. We are not currently incorporating any estimate for tariff-related pass-through revenues in our guidance at this point. Moving on to third quarter guidance, we anticipate revenue to be in the range of $785 million-$795 million, which translates to approximately 2.5%-3.5% of third quarter organic sales growth. Third quarter adjusted diluted EPS is expected to be in a range of $1.65-$1.70.

As a reminder, our Q3 2024 results included an approximate $19 million customer incentive payment in our drug delivery device business. That does not recur in Q3 2025. Excluding the impact of this incentive, Q3 organic growth is approximately 5-6%. Lastly, our 2025 CapEx guidance is $275 million for the year, unchanged from prior guidance. I would now like to turn the call back over to Eric.

Eric Green (CEO)

Thanks, Bernard. To summarize on slide 16, we are delivering on the finance outlook we shared with you last quarter, and this is reflected in our upward adjustment to guidance. Our HPP 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, HPP 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.

I extend my sincere thanks to all the West team members who did an outstanding job in contributing to our successful second quarter. Operator, we're ready to take questions. Thank you.

Operator (participant)

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. In the interest of time, we ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. Our first question comes from Paul Knight with KeyBanc. Your line is open.

Paul Knight (Managing Director and Research Analyst)

Hi, Eric. You mentioned that Crystal Zenith was a component of the growth. What was driving Crystal Zenith? I know you've had this product many years, but is it getting to critical mass, or what's the dynamics with Crystal Zenith?

Eric Green (CEO)

Yeah. Good morning, Paul. It's driven by customer demand on a particular drug launch. We continue to see interest in Crystal Zenith, so this was encouraging. There is an element of timing to that, however, it's this increased demand based on a particular drug launch.

Operator (participant)

Thank you. Our next question comes from Justin Bowers with Deutsche Bank. Your line is open.

Justin Bowers (Analyst)

Hi, good morning, everyone. 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. Just maybe give us a state of the union on where we are in destocking in general, and then a second part of that would just be what market conditions does West need to see to return to durable high single-digit growth?

Eric Green (CEO)

Yeah. Thanks, Justin. Good morning. 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 top line, 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 HPP upgrades. In all three of those, we'll be stronger in the second half than the first half of this year. There is 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.

Operator (participant)

Thank you. Our next question comes from Larry Solow with CJS Securities. Your line is open.

Larry Solow (Analyst)

Great. Good morning. First off, Bernard, best of luck to you. Good to see the business getting back on track as you're departing. I guess first question just would be on the Annex 1. Eric, you mentioned it continues to increase sequentially, at least the queue in 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? 390, I think you mentioned? I imagine it's all kinds of different stages of discussions, or how's that translating into revenue?

Eric Green (CEO)

Yeah. Good morning, Larry. The Annex 1 is a multi-year process. The interest level by our customers to upgrade current formulas through pharmaceutical washing, envision inspection, sterilization has increased. You're correct. We've had about 370 projects that we have secured in the last quarter and built upon. It does take some time to deliver the end results before they become commercialized, or we actually get revenues from these upgrades. 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. It's good momentum. It's a significant variation between one client to the next when you think about the complexity, the volume, where they are already on, whether it's standard products or HPP being upgraded.

Each one is handled independently, and there's commonality, which is moving more towards our higher end of HPP, which is very positive. More to come, Larry, but it's very strong momentum, and it will be a contributive growth for a number of years to come.

Operator (participant)

Thank you. Our next question comes from Dan Leonard with UBS. Your line is open.

Dan Leonard (Managing Director and Research Analyst)

Thank you. 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 Q2B, and you didn't change your view for the second half of the year. Is that correct, number one? Did you see any kind of pull-forward dynamic into the Q2 period? That would be the second related part of that question.

Bernard Birkett (CFO)

Hi, Dan. Yeah. We had built into our original guidance HPP components already. We were 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 HPP components will be up mid-single digits. Now we're back to seeing it be mid-single digit to high single digit growth for the year and higher growth in the second half versus the first half. We are passing through the beat in Q2, and we remain positive on the second half, particularly around HPP components. On the timing perspective and pull-forward, we did not really see a lot of that in Q2. The results were driven by increased demand around NovaChoice products, and again, we called out Daikyo CZ products as well. That is true demand in the quarter.

John Sweeney (Head of Investor Relations)

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

Operator (participant)

Thank you. Our next question comes from Michael Ryskin with Bank of America. Your line is open.

Michael Ryskin (Managing Director)

Great. Thanks for taking the question. You guys called out GLP a little bit more in the quarter. 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. Yeah, if you could just drill into the GLP contribution. Thanks.

Eric Green (CEO)

Yeah. 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. We are able to respond accordingly to be able to support them. It's for multiple drugs within GLP. It's different. It could be plungers. There are some vials, as you know, in the marketplace. That has been a positive growth driver for us. What is really encouraging, and that was an element of the HPP components growth.

If you look at the first half for HPP components growth on an organic basis, let's call it between the first and second quarter 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 high single digit to double digit. That gets you back to the mid-single to high single for the full year. We expect HPP components to continue to grow for the balance of the year. 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 biologic space. Also, as I mentioned earlier by Larry's question around the Annex 1 and the HP upgrades, all look very positive for the balance of the year.

Operator (participant)

Thank you. Our next question comes from Mac Etoch with Stephens. Your line is open.

Mac Etoch (Analyst)

Good morning. I appreciate you taking the questions. Maybe just following up on Larry's. I appreciate the commentary there, but I just want to kind of understand the additional customers that you've added. They take time to ramp and get to their full run rate, as it were. If we're to look at 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? Customers in 2025 ramping, but also the additions of the recent additions as well?

Eric Green (CEO)

Yeah. It speaks well to kind of the future pipeline, but in many of these Annex 1 projects we work with our customers, it takes multiple quarters to get through the process. Validation, and to then move from their current particular product they are buying from us to be able to support their current drug in the market as they transition to a higher level product, it does take time. There are examples where it can be only two quarters. There are some examples where they are four plus quarters. As we think about the timing and the pacing, the regulations were put in place in the middle to the end of 2023. We started seeing a ramp-up in 2024, and we continue to see that ramp-up throughout 2025. It is a long process. We believe this is multi-year.

It is not eight customers. It is multiple customers, with the number of projects we are working on.

Operator (participant)

Thank you. Our next question comes from Daniel Markowitz with Evercore ISI. Your line is open.

Daniel Markowitz (VP)

Hey, all. Thank you for taking my question. Congrats on a good quarter. I had a two-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 we'd love the comparable for the second. The second part, it seems like there were about 200 projects just nine 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 12-18 month project time through commercialization. Thank you.

Eric Green (CEO)

Yeah, Daniel, when you look at, as mentioned earlier, when you look at the Annex 1 contribution this year over the full year, there's a little bit of timing from a revenue recognition perspective. 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. Because it is a multi-quarter event and it does take a long—this is a multi-year upgrade, 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 multi-year process. We'll update you as we get ready towards the end of the year how it's going to translate in 2026. It is positive momentum, candidly, on the number of projects that we're getting, the interest level.

When we first started talking about Annex 1, one of the decision criteria for our customers is to determine do they invest in the capital internally, or do they have West handle these processes? 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. 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.

Operator (participant)

Thank you. Our next question comes from Doug Schenkel with Wolfe Research. Your line is open.

Doug Schenkel (Managing Director)

Good morning, and thank you for taking my questions. 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. 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 5-6% 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 model you on kind of a straight line of slow but steady improvement the way that we're seeing things play out this year. 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 earning season thus far have embedded assumptions for worse than currently outlined tariff policies. 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? Thank you.

Eric Green (CEO)

Yeah. I'll start on answering your question on the tariffs. Really, it's based on what we knew when we were putting the guidance together. There was a change yesterday around Japan that isn't fully contemplated in our guide, but we don't think that's overly material. It was based on what we knew that had kind of rolled out over the last couple of months. 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. Based on what we understand today, that's embedded into our guidance.

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 guidance when we move into Q3. Yeah. I'll add to the first part of the question, if you don't mind. It's in regards to the growth of West. I'm feeling really good about the momentum we're seeing with HPP components. We mentioned the last couple of calls where we believe it'll build momentum throughout the year. I think we might have used the word transition. Year 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 demand acceleration to be able to add a number of team members in our locations to be able to address the capacity, which we believe we can correct and get the growth that we anticipate to be able to support our customers for the balance of this year going forward. There is momentum, I would say, from the back. 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.

Operator (participant)

Thank you. Our next question comes from Luke Sergott with Barclays. Your line is open.

Salem Salem (VP of Equity Research)

This is Salem Salem for Luke. Thanks for taking our questions. 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? 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? Thanks.

Eric Green (CEO)

Yeah, Luke. Let's talk, 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. In our typical going from initial start of manufacturing to more peak volumes does take, call it 9-12 months to get to fully optimized. In addition, here in Dublin, the facility that we have invested in with our customer does do the drug handling. Now, that is going through process right now, equipment's installed, but we're looking at early 2026 to start commercialization. Similar comment made earlier, there is a ramp-up phase.

I'm not going to get into the specific revenues of that site or profits, but I would say it is—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. This site that would become available in 2026 is highly regarded based on the engineering quality and the capabilities the team has built over time. We're very confident we'll be in a very good position to make a transition once the automation for that particular product is moved out of our facility and we transition to a new product for a different customer. Very positive where we are.

More work needs to be done, but we're in a good position.

Operator (participant)

Thank you. Our next question comes from Tom DeBourcy with Nephron Research. Your line is open.

Tom DeBourcy (Principal and Senior Equity Research Analyst)

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

Eric Green (CEO)

Yeah, Tom, you're right. When you look at how we're co-located to our customers, actually, we're very well positioned today. We have two high-value product clients in the United States, two in Europe, and one in Asia in Singapore. When you look at our—from a tariff perspective, we aren't introducing a lot of cost for the size of manufacturing we do. If you think about our Waterford plant, for example, in Ireland, the majority of the finished product goes to our customers. While they're global customers, they tend to end up in the European region. That's pretty much the case in many of our HPP plants. However, there are a few occasions where a client may have a particular product they want to transfer that may have only one site validated. There are two elements to that.

One is we want to have multiple sites so we can level out our operations more effectively. Secondly, we want to make sure that we're producing in region for the region of consumption. There's some work to be done. I prefer not to give a percentage, but I'd say we're very well positioned. You kind of see that in the net tariff or the gross tariff costs that we have as a headwind.

Operator (participant)

Thank you. Our next question comes from Patrick Donnelly with Citi. Your line is open.

Patrick Donnelly (Managing Director)

Hey, guys. Thanks for taking the questions. 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? 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 our way year-end into. Go forward into 2026, 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. Thank you, guys.

John Sweeney (Head of Investor Relations)

Yeah. 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. That's typically what we see from a seasonality perspective based on plant shutdowns that we have primarily within Europe. 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 plant shutdowns. 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.

Also, what we're doing, and 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's 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. I think you're going to see a little bit of slightly lower margins as you go through the second half of the year versus Q2. 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.

Operator (participant)

Thank you. Our next question comes from Matt Larew with William Blair. Your line is open.

Matt Larew (Partner and Equity Research Analyst)

Hi. Good morning. When you took down the guide last quarter around HPP 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 at a facility. 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. Maybe we want to get a sense for timing to resolution there. 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?

Eric Green (CEO)

Yeah, Matt, you're right. I had an opportunity to be at the facility with the team to walk through the plans they put in place. I know they're executing very well against those plans. It is a ramp-up. We expect the 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 be able to support us in the plants effectively around quality and safety. There is an opportunity to continue to accelerate that process. As we commented, the growth is coming from multiple angles on their HPP components. We talked about the biologics will be stronger in the second half. We're seeing continued growth in GLP-1s and also in Annex 1. The site in Europe is one of the sites that we are continuously adding more labor to alleviate some of those constraints. It's positive.

It's net positive. We'll update you as we go throughout the quarter for the next call. More importantly, we want to make sure that as we raise it to mid to high single digits, it's that confidence we will be able to deliver that range for HPP components based on what we know right now.

Operator (participant)

Thank you. Our next question comes from Tucker Remmers with Jefferies. Your line is open.

Tucker Remmers (Equity Research Analyst)

Hello. Thanks for taking my question and good job on the quarter. My question really revolves around the SmartDose device. When we met with you guys in May, I think you talked about how difficult or, I'd say, more complicated that device is to assemble. I know you're automating that process probably sometime in 2026 when that new line comes on. What are the hurdles to automating that SmartDose device and kind of difficulties with getting that validated? Is there any sort of indication, guidance you can give on the margin improvement that you can see on SmartDose when that new line's installed? Thank you.

Eric Green (CEO)

Yeah. Thank you for the question. I can confidently tell you that we're on track. We're executing two elements simultaneously. The first one, we're driving. You think about meaningful cost improvements. I know the team's very focused on that. That also includes the validation and commercialization of the automated line. We're looking at that late 2025 and early 2026. We're on schedule. The initial data is very supportive. We will continue to evaluate all strategic options as we go forward. We do not comment specifically about margin on a product within the portfolio. I can assure you that we are focused on both of those levers as we speak.

Operator (participant)

Thank you. Again, to ask a question, please press star one one. Our next question is a follow-up from Larry Solow with CJS Securities. Your line is open.

Larry Solow (Analyst)

Great. Thanks. Just quickly on SG&A in the quarter. I think underlying SG&A 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? Thanks.

Bernard Birkett (CFO)

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.

Operator (participant)

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.

John Sweeney (Head of Investor Relations)

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.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.