Destocking Impact and Guidance Revision
Q: Why was guidance lowered due to extended destocking?
A: The company observed that intra-quarter orders were not coming in at the anticipated rate because customers extended their destocking activities, particularly in the Biologics and Generics segments. This led to a decision to lower guidance, reflecting a more gradual recovery and an expectation to return to growth in the fourth quarter. , ,

Return to Growth Projections
Q: When do you expect to return to growth?
A: We anticipate sequential improvements over the next few quarters and expect to return to growth in the fourth quarter, driven by the Biologics segment. We are confident in our long-term growth construct of 7% to 9%, with demand normalizing and strong market positioning in areas like Biologics and GLP-1s. , ,

Margins and Cost Management
Q: How are margins being affected and managed amid destocking?
A: Margins are impacted by lower volumes and an unfavorable mix due to destocking in high-value products within Biologics and Generics. While we are managing our cost base tightly and exercising appropriate cost management, we are not making significant cost cuts to ensure we can support growth when demand returns. We expect margins to recover quickly as volumes normalize and mix improves. ,

CapEx Plans and Impact
Q: How are you managing CapEx amid weaker demand?
A: Our current higher CapEx levels, at about 12% to 13% of revenue, are focused on growth areas such as Biologics, GLP-1s, and capacity expansions in high-value products. We've pulled some CapEx into 2024 to meet customer requirements sooner. Over the next year or two, we expect CapEx to normalize to 6% to 8% of revenue, supporting our long-term growth targets. ,

Customer Visibility and Lead Times
Q: Do you have better visibility into customer orders now?
A: Yes, recent conversations with customers have provided clearer insights into their inventory levels and ordering patterns. Customers are realigning their reordering based on our improved lead times, which are now 8 to 12 weeks, compared to 30 to 50 weeks during the pandemic. This increased visibility gives us confidence in our projections. , ,

Impact on Biologics and Generics
Q: Is destocking impacting Biologics and Generics more?
A: Yes, destocking is more pronounced in the Biologics and Generics segments, where customers had built significant safety stock during the pandemic. This has impacted our mix and margins due to lower volumes in these high-value areas, but we expect improvement as demand normalizes and customers adjust their inventory levels. ,

Repositioning COVID Capacity
Q: How are you repurposing COVID-related capacity?
A: We have successfully repurposed our COVID-related capacity to produce other high-value products, such as NovaPure stoppers and plungers. This transition is complete and positions us well to meet future demand in non-COVID applications.

Importance of New Capacity
Q: Will new capacity in Dublin and other sites drive growth?
A: While new capacities in Dublin and sites like Grand Rapids will come online in the second half of the year, they are not major drivers for the fourth-quarter revenue ramp. However, they will support growth in the longer term by increasing our ability to meet customer demand in areas like contract manufacturing. ,

Confidence in Long-term Growth
Q: Can you return to 7% to 9% growth in 2025?
A: We are confident we will return to our long-term growth construct of 7% to 9%, driven by strong participation in Biologics, GLP-1s, and higher-value products. With demand expected to normalize and our capacity in place, we believe we can achieve these growth rates over the next few years. , ,

Impact of Smaller Customers
Q: Are smaller customers contributing to revenue variability?
A: While smaller customers are important, the more significant revenue variability has come from larger customers adjusting their forecasts and orders. The impact of smaller customers on overall revenue fluctuations is less pronounced. ,