AptarGroup, Inc.ATRNYSE
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Operator: Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2025 Third Quarter Results Conference Call [Operator Instructions] Introducing today's conference call is Mrs. Mary Skafidas, Senior Vice President, Investor Relations and Communications. Please go ahead.
Marry Skafidas: Thank you. Hello, everyone, and thanks for being with us today. Our speakers for the call are Stephan Tanda, our President and CEO; and Vanessa Kanu our Executive Vice President and CFO. Our press release and accompanying slide deck have been posted on our website under the Investor Relations page. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. As always, we will also post a replay of this call on our website. I would now like to turn the call over to Stephan. Stephan, over to you.
Stephan Tanda: Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our third quarter results. Later in the call, Vanessa Kanu, our CFO, will provide additional details on key drivers for the quarter. Starting on Slide 3. For the third quarter, we delivered adjusted earnings per share of $1.62. During the quarter, growth in our Pharma segment was driven by solid demand for proprietary drug delivery systems for central nervous system therapeutics, asthma, COPD and ophthalmic treatments. We saw moderating demand for emergency medicine dispensing systems. We also captured significant growth in injectables during the quarter from increased demand for elastomeric components for GLP-1 medications and solid growth in our Active Materials Science division. When you step back and look at our Pharma segment's performance for the first 9 months of the year, prescription has a 7% core sales increase, injectables at 6% and growing and active material science is up 8%. Consumer Healthcare continues to be affected by the destocking and is down 11%. Additionally, royalties continue to contribute positively to our top and bottom line results. And we're continuing to invest in the ongoing growth and innovation within pharma. To that end, we have signed an agreement to acquire Sommaplast, a Brazil-based provider of oral dosing pharma packaging solutions, including droppers, dispensers and dosing cups. Aptar has been manufacturing in Brazil for 25 years, and this acquisition, which is subject to regulatory approvals and anticipated to close later this year is expected to further reinforce our footprint in the region. It also helps position us to capitalize on growth in Brazil's oral dosing, over-the-counter and nutraceutical markets, which are projected to grow at mid- to high single digits through 2030. This growth is driven by an expanding population, rising middle class and aging demographic. In our Beauty segment, for the quarter, we saw revenue growth in a number of regions over the previous year quarter, such as Asia, Latin America and certain end markets in North America. At the same time, in Europe, our largest region, sales were flat as we continue to see softness in our higher-value products such as facial skin care and in certain prestige fragrance end markets. Our Prestige fragrance pumps did have modest volume growth in the quarter. Additionally, we saw lower sales for our full pack solutions that service the India market in the U.S. due to the challenges at one of our larger customers. In the first 9 months, Beauty reported sales rose 2%, while core sales held steady overall. Strong 11% growth in Personal Care helped balance softer demand in Prestige fragrance and facial skin care. Turning to the Closures segment for the quarter. While product volumes were up, lower tooling sales and pass-throughs of lower resin pricing impacted core sales growth. For the first 9 months, closures reported and core sales rose 1%, driven by a 5% increase in product sales, partially offset by lower tooling sales and the pass-through of lower resin pricing. Food and beverage markets saw solid growth and Personal Care declined. Turning to innovation. I'd like to highlight recent technology launches and key news as shown on Slide 4. Starting with the Pharma segment, our Unidose liquid system is used in the newly FDA-approved Enbumyst by Corstasis Therapeutics, the first intranasal loop diuretic for treating edema linked to heart failure, liver and kidney disease. This approval underscores the growing role of nasal drug delivery in systemic treatment and our commitment to patient-centric solutions. An Aptar proprietary nasal system is also used in a Phase I clinical trial for a powder nasal spray managing Parkinson's OFF periods. Managing Parkinson's OFF episodes means treating periods when medication wears off and symptoms like stiffness or tremors return, often by adjusting medication timing or using fast-acting rescue treatments for on-demand relief. During the quarter, we signed an exclusive partnership with French biotech company, Dianosic, to develop a bioresorbable intranasal insert for long-term local drug delivery in chronic allergic rhinitis and rhinosinusitis. This collaboration also explores nose-to-brain delivery for neuropsychiatric and neurodegenerative diseases. Next, our HeroTracker Sense technology has also received FDA 510(k) clearance as a Class II medical device. This Bluetooth-enabled sensor transforms traditional inhalers into smart, data-driven tools for patients and providers. Finally, we inaugurated our expanded pharma research and development center in France, which helps boost capabilities across our proprietary drug delivery business. It's one of Aptar's 11 global innovation centers. Over 10% of our pharma workforce is dedicated to research and development, supported by nearly 4,700 active and pending patents. The center integrates advanced technologies, digital simulation, rapid prototyping, predictive modeling, data utilization and artificial intelligence. It is aimed at accelerating and derisking development of next-generation drug delivery solutions. Turning to our Beauty segment. During our recent Investor Day, we showcased our award-winning technology for the Clarins reloadable total eye-lift serum featuring our patented ALS packaging with a highly recyclable reload and double tamper seal system. In fragrance, Christian Dior is using our prestige fragrance pump for its new launch Miss Dior Essence Parfum. Finally, our Precise dropper technology used for the controlled and targeted application of liquid formulas is a dispensing solution for the indie brand basic lab in Europe. Lastly, in Closures, Marzetti's Buffalo Wild Wings sauces in the U.S. feature our poor spout closure, a more lightweight sustainable solution that delivers convenience. In the beverage concentrate market, our flip top non-drip solution was chosen by PepsiCo for their SodaStream syrups. Moving to Slide 5. All of this would not be possible without tremendous teams around the world. We take great pride in the numerous recognitions we have earned, including being named among the top 100 of the world's best companies for women by Forbes. This honor highlights our ongoing efforts to build an inclusive culture that empowers individuals to grow, connect and reach their full potential through meaningful development opportunities and inclusive initiatives. Before I turn the call over to Vanessa to share further details on the quarter, I want to highlight that we continue to focus on returning capital to shareholders through share repurchases and by increasing our dividend. To date, 2025 has been a banner year for share repurchases, and we plan to lean in more. In addition, we recently announced an increase to our quarterly dividend by nearly 7% to $0.48 a share. This underscores the strength and resilience of our business model as well as our confidence in Aptar's long-term growth prospects. We are very proud of having paid an increasing annual dividend for the last 32 years. Now I would like to turn the call over to Vanessa.
Vanessa Kanu: Thank you, Stephan, and good morning, everyone. Let me begin by summarizing the highlights for the quarter on Slide 6 and 7. Our reported sales increased 6% and core sales, which adjust for currency effects and acquisitions, grew 1% compared to the prior year period. Before moving further, I want to call out that this quarter, we had a couple of atypical items impacting our reported net income. First, as a result of the BTY transaction that closed this quarter, we recorded a gain on the remeasurement of the previously held minority interest of approximately $27 million, which increased our net income. And as this gain is nontax impacting, it reduced our reported effective tax rate for the quarter to 17.1%. Our adjusted effective tax rate, which excludes the impact of this item, was 20.8%, in line with expectations. Second, as we mentioned on our prior quarter call and in our recent Investor Day, we are engaged in litigation to actively and vigorously defend our pharma IP portfolio and products. This resulted in atypical litigation costs of approximately $4 million that impacted our net income. As the gain on remeasurement of our equity investment and the litigation costs incurred in the quarter are both atypical and not indicative of operational earnings of our business, we have excluded both of these items from our adjusted EBITDA and adjusted earnings per share for the quarter. All references that I now make to adjusted EBITDA and adjusted earnings per share exclude these items. A full reconciliation is provided in our earnings press release and in our 10-Q. With those high-level comments, let's take a closer look at segment performance. Turning to Slide 8. Our Pharma segment's core sales increased 2%. Let me break that down by market, starting with our proprietary drug delivery systems. Prescription core sales increased 3%, driven by strong year-over-year demand for dosing and dispensing technologies for central nervous system applications, asthma and COPD therapeutics. We also saw growth for emergency medicine, albeit at a slower rate. And royalty payments continued to contribute positively to revenue in the quarter. Consumer Healthcare core sales decreased 11%, primarily due to lower sales of nasal decongestant and nasal saline. Sales for ophthalmic solutions continued to grow in the quarter, but could not offset the overall decline in cough and cold volumes. Injectables core sales increased 18% with strong demand for elastomeric components used for biologics, GLP-1 and regulatory-driven Annex 1 requirements. Services also contributed positively in the quarter. And for our active material science solutions, core sales increased 3%, driven by continued strong demand for active material science technologies for diabetes treatments. Pharma's adjusted EBITDA margin for the quarter, which excludes the impact of nonordinary course litigation costs referenced earlier, was 37.2%, a 120 basis point improvement from the prior year. The margin improvement was driven by increased sales of higher-value proprietary drug delivery systems, services and royalties. Moving to our Beauty segment on Slide 9. Core sales were flat in the quarter. While increased tooling revenues provided a lift, these gains were offset by a decline in product sales. Looking at the Beauty segment by market, fragrance, facial skin care and color cosmetics core sales decreased 5%, primarily due to lower sales of skin care dispensing products for indie brands in North America. Personal Care core sales increased 13%, driven by continued strong demand for body care and hair care applications. And core sales for Home Care, the smallest end market in our beauty portfolio, decreased 18% in the quarter due to the timing of some nonrecurring service fees in the previous year. This segment's adjusted EBITDA margin for the quarter was 12.1%, a decline of 120 basis points. The decline in Beauty margins primarily reflects less favorable sales mix and lower margin tooling sales. Moving to Slide 10. Our Closures segment core sales decreased by 1% compared with the prior year. While product sales were up 2%, this growth was more than offset by lower tooling sales and pass-throughs of lower resin pricing. When looking at the market fields for closures, food core sales decreased 4%, primarily due to lower tooling sales, while volumes increased across a number of categories. Beverage core sales increased 9%, primarily driven by increased sales for functional drinks and bottled water. Personal Care core sales decreased 8%, while in our other category, which includes beauty, home care and health care, core sales were flat. This segment's adjusted EBITDA margin was 16.1%, representing a 110 basis point decline over the prior year, primarily due to unscheduled equipment maintenance that impacted production. At the total company level, consolidated gross margins declined by 80 basis points year-over-year, while SG&A as a percentage of sales declined from 15.6% to 15.5%, a 10 basis point reduction. SG&A expense in absolute dollars increased largely due to the aforementioned nonordinary course litigation costs incurred in the quarter. Overall, consolidated adjusted EBITDA margins increased by 30 basis points to 23.2% compared to 22.9% in the prior year period. And adjusted earnings per share was $1.62, up 4% year-over-year on comparable foreign exchange rates. Slides 11 and 12 cover our year-to-date performance and show that reported sales increased 3% and core sales increased 1%. Our reported earnings per share increased 17% to $4.75 and adjusted earnings per share increased 7% to $4.48 compared to the prior year, including comparable exchange rates. The current year had a reported effective tax rate of 20.4% and an adjusted effective tax rate of 21.9% compared to the prior year reported and adjusted effective tax rate of 22.7% and 22.8%, respectively. Neutralizing both the effective tax and exchange rates for the year ago period, adjusted earnings per share would have been up 6%. Additionally, adjusted EBITDA increased 8% to $624 million, and the adjusted EBITDA margin increased by 100 basis points to 22.2%. In the first 9 months, free cash flow was $206 million, comprising cash from operations of $386 million, less capital expenditures net of government grants of $180 million. The year-over-year decline in free cash flow was largely due to higher working capital and higher pension contributions in 2025. These were partially offset by lower capital expenditures. Finally, we ended September with a strong balance sheet once again, reflecting cash and short-term investments of $265 million, net debt of $936 million and a leverage ratio of 1.22. Over the past 9 months, the company has returned $279 million to shareholders through share repurchases and dividends. So far this year, we have repurchased 1.3 million shares for $190 million, the highest repurchase amount in a decade. Of the $500 million authorized by our Board of Directors for repurchases, approximately $270 million remains available as of the end of September. Given the recent trends and the strength of our balance sheet, we expect to fully utilize this remaining authorization over the next couple of quarters. Before we move on to outlook, I'd like to provide a brief update on our emergency medicine portfolio, where we continue to see strong underlying demand, but we anticipate near-term headwinds in this end market that we expect will impact Q4 and at least the first half of FY '26. To help with your modeling, as we previously shared, in 2024, emergency use delivery systems represented approximately 5% of total company sales. For the first half of 2025, this end market accounted for 7% of Aptar's total sales. Revenue for the first half of 2025 grew roughly 50% year-over-year, while Q3 showed more modest growth. For Q4 2025, we expect a more pronounced deceleration mainly due to elevated inventory levels at a large customer and expect revenue contribution for the full year 2025 to be about 5% of total sales. While demand from other customers remains healthy, we expect this inventory normalization to extend into 2026. Based on what we currently know about end market demand, funding dynamics and customer inventory positions, we anticipate 2026 revenues from this end market to be approximately 35% lower than 2025. Given the high-value nature of this portfolio, this will have a compressing effect on overall margins prior to any mitigation actions. Now on to outlook for Q4, summarized on Slide 13. We expect continued strength across the majority of our Pharma businesses in Q4, particularly injectables, driven by rising demand for higher-value elastomeric components, fueled by growth in biologics, GLP-1 therapies and Annex 1 compliance requirements. Partially offsetting the growth in injectables is softer demand for emergency medicine that I just spoke about. For the consumer businesses, we anticipate Beauty will have positive core sales growth in Q4 and product sales volumes for closures will also continue to grow. In terms of earnings per share, we anticipate fourth quarter adjusted earnings per share to be in the range of $1.20 to $1.28 per share. Our effective tax rate range for the fourth quarter is 19.5% to 21.5%. Our guidance for the quarter is assuming a EUR 1.17 euro to USD exchange rate. Additionally, as you will model depreciation and amortization, due to the closing of the BTY transaction and other timing and FX impacts, we expect fourth quarter depreciation and amortization expense to be between $75 million and $80 million. With that, I will turn it over to Stephan to provide a few closing comments before we move to Q&A.
Stephan Tanda: Thank you, Vanessa, for the review of our emergency use delivery systems business. Now let me step back and share the bigger picture. In the short term, we faced some headwinds due to tough comparables from the exceptionally steep onetime ramp-up of the unique naloxone distribution channels as well as uncertain and evolving landscape around government funding. Steady state, our customers expect this market to grow in the low to mid-single digits. Over the past 2 years, our prescription division serving this market has grown at brisk double-digit rates. After a period of destocking, we anticipate more stable sales of our dispensing systems. Looking ahead, we expect our pharma pipeline to continue to be strong and robust. As I shared during the Investor Day, it has been contributing 7% to 10% of revenue annually. What is important is that our revenue stream in pharma is largely based on the treatment of chronic diseases with the help of our proprietary solutions, resulting in a long-term stable to growing business with new launches layered on top of that base. We believe this is possible because together with the molecule, our dispensing system form a combination medicine, which is part of the regulatory filing and remains embedded in the drug master file. Vanessa touched on injectables, I want to highlight that we are seeing good and strong growth in the very areas where we have invested, GLP-1, Annex 1 and biologics. Our investments in added capacity and capabilities in high-value products are paying off. Closures is performing well. The reorganization we started 2 years ago has delivered solid growth and innovation traction. Beauty has lowered its cost base and breakeven point, which we believe is giving it a competitive footprint. We have reinforced operational efficiency and cost discipline as an important part of our culture, and these efforts sharpen our execution. We also keep a close eye on shareholder returns, strategic capital allocation and bolt-on acquisitions. Bolt-ons are a core strength. Take our Brazilian Pharma Packaging acquisition as just the most recent example. As we look to the future, we remain confident in our ability to deliver sustainable profitable growth. We believe our business model is resilient. Our pipeline is robust and our teams are focused. With the right mix of innovation, operational discipline and strategic investments, we think we are well positioned to continue creating value for our customers, our employees and our shareholders. With that, I would like to open up the call for your questions.
Operator: [Operator Instructions] Your first question comes from the line of Ghansham Panjabi with Baird [Operator Instructions].
Ghansham Panjabi: Can you hear me okay?
Stephan Tanda: Yes, hi Ghansham.
Vanessa Kanu: Hi, Ghansham.
Ghansham Panjabi: Just so I can understand your comments specific to '26 for Pharma. So is it right to assume that you're assuming 7% to 10% growth just from the new product pipeline, et cetera? And then emergency medicine is roughly 11% of pharma, and that's going to be down 35%, and that's how we should calibrate as it relates to the growth expectation for next year? And then related to that, where are we on the cough and cold, specific to Europe in terms of the destock? Is it going to drag into 4Q? And yes, where are we on that?
Stephan Tanda: Yes. Let me start and then Vanessa, please chime in. The 7% to 10% comment was just to reiterate what we covered at Investor Day that we have a stable growing business and on top of that is innovation, and that supports our long-term target. It was not meant to give you a guidance for '26. So when we look at out to '26, of course, we don't give guidance for '26. We made an exception for emergency medicines for the obvious reasons, and Vanessa went through that in quite some detail. Zooming out, we expect injectable to grow very nicely, high single-digit, low double-digit rates for the coming period. We expect Consumer Healthcare to return to growth. To your second question, we believe that has largely run its course with quarter 4 potentially returning to growth admittedly versus a lower base and also active material returning to growth. So the key impact will be emergency medicines and Vanessa can reiterate some of that, if you'd like.
Vanessa Kanu: Yes. No, absolutely. But I think, Ghansham, you got the number. It is -- again, we expect for the full year 2025 to be roughly 5% of the total company. And so for the pharma business specifically, it will be in that 10%, 11% range of revenue. So that goes down about 35%.
Ghansham Panjabi: And then European cold and cough or cough and cold.
Stephan Tanda: Yes, that's what I was referring to, sorry. That has largely run its course. We expect quarter 4 to potentially be growing again and certainly growing into next year.
Ghansham Panjabi: Okay. And then for my second question, so for the initial 3Q guidance, you did include the litigation cost of $0.06 to $0.07. And then you've changed that going forward? And just give us a reason as to why that is.
Vanessa Kanu: Yes. We did, Ghansham. So we did give the estimates. We said it would be roughly $5 million to $6 million a quarter, roughly $0.06 to $0.07 of EPS impact. You will see in our disclosure that the actuals for Q3 came in at about $4.4 million. We did disclose that. But this is litigation. This is litigation. The timing of the litigation is always uncertain, and you discover things through as the litigation progresses. And as we looked at the business, I mean, these are elevated litigation costs, very atypical. You know Aptar, you have a very long history with the company. We don't typically do this. So these are very atypical costs. And when you look at the underlying performance, the underlying operating performance of the business from a management perspective, this is not indicative of the underlying performance of the business. And so we certainly provided all the transparency that we need to, but we wanted to make sure that we called out what the underlying operating performance was of the business.
Stephan Tanda: You're quite right. It was when we gave the guidance.
Operator: Your next question comes from the line of Paul Knight with KeyBanc.
Paul Knight: Can you talk to the GLP-1 marketplace and Annex 1? What level of contribution to growth do you think those 2 markets represent? Is it 100, 200, 300 basis points of additional organic growth? Or can you quantify it is the first question?
Stephan Tanda: Yes. Paul, we don't break it out in that detail. But clearly, GLP-1 is a solid driver probably in the quarter and let's say, in the couple of quarters to come, top one driver of growth. Annex 1 closely behind and then obviously, biologics continues to fill the pipeline. Now we are on all of the auto-injectors. And remember, there was always 2 SKUs on an auto-injector, plunger and needle shield and 2 companies can say they're on the same auto-injector and it may very well be true. And on the plunger side, I think there's even some double sourcing. So -- we had lower growth rates in the beginning of the year quite simply because we were still validating some of our capital investments and some of the equipment. Now as of, let's say, middle of the year, early quarter 3, everything has been fully validated and we can catch up with demand. So the growth rate you're seeing is reflective of the market demand, but also a certain catch-up. That's why we feel we're going to have a very strong finish of the year. The other question, of course, that people often ask what about our oral? Is that going to crimp demand? We don't see that at the moment. One, it's still quite a bit away. Two, from everything we hear, it's more intended to serve markets that don't have cold chain capability, but pricing will be such that it will not obsolete existing investments by our clients. That's our best read.
Vanessa Kanu: And maybe the only other thing I'll add just because we did mention GLP-1 specifically, Paul, we continue to see really healthy year-over-year growth rates. For September year-to-date, we're up over 40% compared to the prior year. So to Stephan's point, we're seeing some very healthy growth there.
Paul Knight: And then lastly, Annex 1 with your large French operations, are you seeing what is that #2 or 3 benefit you said in the quarter?
Stephan Tanda: Correct. Correct. Now I don't want to make too light of it, but they basically say you need to provide sterile products. Well, this is not a change of the world. It's just some customers as a result, decide to go more towards higher value solutions.
Operator: Your next question comes from the line of George Staphos with Bank of America.
George Staphos: My 2 questions. First of all, certainly, you've had progress in your non-pharma business operationally over the years. You've been doing really quite well in closures better than we would have expected a couple of years ago, props to you on that. Beauty, we certainly recognize the challenges that you've been managing against yet the margin still seems to be slow to come around. What is the next 2 or 3 steps that are going to drive higher margin in Beauty -- when should we expect that inflection? And then a separate question, just as we think about the pharma business and the product side and recognizing you love all of your kids and you have a tremendous suite of products, and that's the reason why you've been able to grow 7% or better over the years. Should we expect that unit dose has been where you've seen most of the product activity recently? Just seems like that's the case from your slides even today and some of the commentary in the last couple of quarters. How should we think about that?
Stephan Tanda: Sure. Thanks for recognizing the progress, George. I take any compliment I can get, especially for closures. I would say that #1, 2 and 3 for beauty is volume. But clearly, we're never done with the productivity story. We have significantly strengthened the competitiveness of the footprint. We see that now flowing into project activity, including leveraging our very agile China footprint for rapid prototyping, small volume launches and so on. So that makes us quite confident that the volume is going to come. Number two, it's a regional story. As we've discussed, Europe is already well in its target range. Of course, it's a global target, not a regional target, but nevertheless, China is also doing well. Where we are currently held back is North America. We talked about the -- what is in essence, our Fusion PKG business that serves indie brands with a significant customer having issues. And then overall, of course, innovation continues to be a key driver in that business. And again, with a more competitive infrastructure that gives us confidence that, that business will grow. Now on your second question regarding our kids, yes, high dose is important. So especially also for a lot of those things in the pipeline for additional indications. I mean, I mentioned the one to treat edema and I think tachycardia is not much far behind. But we also have other formats. Of course, SPRAVATO is a good example. It's a Bidose that supports Johnson, J&J's ramp-up. And we have large volume powder inhalers and many other formats. But clearly, emergency medicines, which is primarily Unidose played a big role in the last couple of years.
George Staphos: Stephan, if I could just get a clarification point on volume in Beauty. Did you see signs of destocking in your customer base in the quarter or looking at the fourth quarter? You don't have to go into great detail. Just curious, yes or no.
Stephan Tanda: Not really. I think there's more of -- keeping the powder dry for next year. Customers really manage their year-end inventories. We actually see encouraging signs for quarter 1 order entry as opposed to destocking.
Operator: Your next question comes from the line of Matt Larew from William Blair.
Matthew Larew: I want to ask about growth expectations for the Pharma segment. So over the last kind of 12 months, core sales growth has been about 3%. Obviously, you've been dealing with the cough and cold destock. But it sounds like you've had a benefit from higher NARCAN sales given that, that was 7% -- emergency medicine as a class was 7% in the first half of the year. So as you think about kind of the more medium-term period, understanding you're not giving guidance, what's the level of confidence that 7% to 11% absent the variety of moving parts is still the right range given that, again, it's been several quarters now since you've been at the low end of that range.
Stephan Tanda: Yes. Well, first, let's acknowledge 7% to 11% is our long-term target range. It's not a quarterly and conceptually not even a yearly number. It's a long-term target range. We've been in that range for many, many years. There were some years where we've not been in that range. But I think everything we went through in September, what we have in the pipeline, the growth that we see coming out of the pipeline with launches, the injectable growth, active material growth, the lapping of consumer health care European cough and cold as Ghansham calls it. All of these things are contributed to growth. Of course, the emergency medicine situation, we've described as best as we could that kind of gets us the visibility perhaps into the middle of next year. So nothing has changed about the attractiveness of our pharma pipeline, about our pharma business, the pharma markets. And yes, we just reaffirmed the 7% to 11% growth rate in the Investor Day as the long-term target. So no reason to change that.
Matthew Larew: Okay. Very good. And then obviously, from a capital allocation standpoint, the balance has been towards pharma in recent years. And Stephan, you alluded to the validation of some equipment to bring on new capacity. As you're starting to ramp your injectables capacity and now thinking about the next level of capital investment, what are the areas that you think are most interesting? And at what point do you think from an injectable standpoint, you will need to start to think about broad capacity again?
Stephan Tanda: I think we have quite some time with injectables. You may remember, I disrespectfully called it the large boxes. We built 3 large boxes. There's a lot of equipment we can put in that box in injectables. And to creep capacity as needed, and those are much lower increments. So we don't foresee a next large increment for quite some time, certainly not on the books.
Operator: Your next question comes from the line of Daniel Rizzo with Jefferies.
Daniel Rizzo: I was muted. Just with the NARCAN with the emergency medicine, is that a significant margin difference between that product and others? Or is it kind of just along with the rest. I was just wondering how we should think about that effect on...
Vanessa Kanu: Dan, thanks for calling that out. I did mention that in my remarks. There is a significant margin differential. I mean, as you can imagine, emergency medicine being a high-value life-saving product with high regulatory requirements, quality requirements, et cetera. These are very high-value products to us. So certainly amongst the highest of our margin products within our overall pharma portfolio. I can't give you specifics. As you can imagine, we've got competitive reasons not to share that publicly. But as you kind of think about our overall pharma portfolio, this is amongst the highest of the margins.
Daniel Rizzo: I'm sorry, I must have missed that. I understand you talked about volume and mix. How does pricing work on an annual basis? Is it generally like a 100 to 200 basis points tailwind? Just -- I mean, across the board. I'm just wondering how that kind of plays into the things versus -- also versus -- I mean, some of your costs, which are generally not kind of called out, but I was just wondering how we should think about price versus cost.
Stephan Tanda: Yes. Clearly, pharma is about value and use pricing. So price is not very much related to cost. The material content is in relation to the other value added, whether it's quality systems, whether it's data packages, additional services, completely different mix than in our consumer-facing business. So -- the one addition I would want to add to Mary -- sorry, is that it's really our Unidose system that is quite attractive. It's not just limited to NARCAN. It's across the board in our Unidose system as our Bidose system. Clearly, anything that is life-saving and central nervous system targeting is more profitable than allergic rhinitis business, of course.
Operator: Your next question comes from the line of Matt Roberts with Raymond James.
Matthew Roberts: Can you all hear me?
Stephan Tanda: Yes. Hi, Matt.
Matthew Roberts: On the emergency medicine, again, I'm just trying to square some of that commentary with a customer in emergency medicine. It seemed like NARCAN was down, but sequentially improving, and they noted some international potential and broader market growth. So are there other categories within emergency medicine that are still growing? And if so, how much specifically is naloxone expected to be down? And maybe into '26, what gives confidence in a second half recovery and any market share changes or shifts in that category at all?
Stephan Tanda: Yes. Matt, we don't break down different indications or SKUs within the emergency medicine category, but things like neffy, things like hypoglycemia, BAQSIMI are also in that category. The -- I don't know which customer you referred to, but maybe there's one publicly traded customer is pretty important. You could look at their balance sheet and their inventory. I think that will be a big part of the reconciliation you're looking for.
Vanessa Kanu: Yes. Yes, that's exactly right, Matt. They are -- they did express some optimism going forward, which I think actually validates that things will improve. But as we said in our commentary, there is inventory in the system. So they'll have to work through -- customers will have to work through that inventory situation.
Matthew Roberts: All right. That makes sense. And maybe on Personal Care, that seem mix. It was up in Beauty, Closures was down. Home Care, I think, was down. So given some mixed signals there and another publicly traded peer recently called out sudden inventory corrections in those categories. Maybe just broadly, what are you seeing in those categories? Or what are customers saying in regard to inventory levels heading into 4Q, recognizing that they are smaller contributors overall in Beauty and Closures.
Stephan Tanda: Sure. I mean we obviously separate what is accounted for in Beauty versus what is accounted for in Closures. Those are different formats. And sometimes customers switch between these 2 formats, and we try to catch as much of that as possible. Don't hear a lot of noise around inventory or destocking in Personal Care. It's more of a rotation in formats and sometimes the pump side wins and sometimes the closure side wins. It's different by customer. I'm not sure if we can call out a trend there.
Operator: Your next question comes from the line of Gabe Hajde with Wells Fargo.
Gabe Hajde: I just want to make sure I'm doing my math right. Are we sort of implying maybe a $40 million to $45 million revenue headwind associated with what you called out specific to the emergency response medicines in H1 2026?
Vanessa Kanu: Well, we gave you a lot of data points. And I think if you sort of work through the math, again, if you think about 10%, 11% of pharma, 5% of the company, 10%, 11% of pharma declining 35% year-over-year. It's a slightly bigger number than you're coming up with, but I think you can get to the same ZIP code. 11% declines at 35%.
Gabe Hajde: Got it. I guess I appreciate it's tough in an open mic like this. But -- as it relates to the, you called it out, Stephan, is that a product line that you're currently supplying to? Or does the litigation prevent any sort of outside sales of that product? Like is it sort of progressing as normal commercially until there's a resolution?
Stephan Tanda: To the best of our knowledge, we are supplying all of that product. It's the only one that has the 99.999% proven reliability. And of course, we serve our customers with that and in this case, ARS, absolutely.
Operator: We have a follow-up question from George Staphos with Bank of America.
George Staphos: First of all, on D&A, Vanessa, you called out the $75 million to $80 million. Just from a modeling standpoint, should we be carrying that forward for the next number of quarters? Or is that just a onetime kind of step-up because of...
Vanessa Kanu: No, no, carry it forward. Yes. So the run rate -- thanks for the question, George. And we would -- as we put out our future quarters, we'll provide more clarity around some of this. But you did see a bit of a step-up because we're now going to be amortizing or we are now amortizing the intangibles from BTY. So that was the reason for the step-up. So it's essentially a new run rate. So if you take sort of the midpoint of the guide and annualize that, I think you should get pretty close.
George Staphos: Okay. Very good. The other question I had for you, just back to emergency medicines, and we appreciate all the detail that you've given us. No guarantees, no guarantees in life. But if it plays out as you expect, are we back to sort of the more normal growth rate into '27 after the step down in '26. And I think you said low single-digit growth on a going-forward basis. I just want to confirm that.
Stephan Tanda: Yes. We don't guide for '26. We for sure don't guide for '27. But based on what we've said, I think that is a fair interpretation, George.
George Staphos: Yes, Stephan, I wasn't asking you to guide.
Stephan Tanda: I know, I know.
George Staphos: I was saying I just wanted -- is the assumption that you're done with the destocking in '26, no guarantees and then it's more normal going forward. And you said -- and would you say the growth rate look normal?
Stephan Tanda: Yes. I said low to mid-single digits.
George Staphos: Understood.
Stephan Tanda: In my opening remarks. The one additional uncertainty that I hate to throw on you is, of course, that's assuming normal government funding levels. Now we've just had reconfirmation in September that this is a supportive product by the government. And of course, the opioid overdose settlement money is readily available. So of course, if those funding sources are turned off, then it will be a more difficult environment. But I wouldn't expect that for a life-saving intervention that has been proven so successfully. And then your interpretation would be my interpretation of what we're seeing.
Operator: There are no further questions at this time. I will now turn the call back to Mr. Tanda for closing remarks.
Stephan Tanda: Thank you, operator. And let me just summarize and zoom out a bit. Our teams delivered another solid quarter with adjusted EBITDA growth of 7%, continuing our well-established track record of expanding the bottom line at a faster pace than the top line. While we do face the uncertainty we discussed at length on the sales trajectory of emergency medicine, we hopefully were able to give you progressive insights that we gained ourselves since Investor Day that confirm the temporary nature of this headwind. The fundamentals of our Pharma business remain highly favorable with an attractive and growing project pipeline, a steady stream of new launches, leveraging the nasal delivery route for exciting new indications. We talked about edema. And at the same time, of course, our injectable business is now taking full advantage of a booming market with our state-of-the-art capabilities. Our novel innovations and decades of experience drive a significant body of intellectual property, including patents, know-how and trade secrets, which we protect vigorously. Now as we look towards 2026, beyond the emergency medicine topic, we see solid growth in the other parts of our pharma business and are receiving some encouraging signals from our consumer goods customers, including in fragrance and beauty at large. Given the strength of our performance and our strong balance sheet, we have and we will further accelerate capital returns to shareholders, underscoring our confidence in the business while retaining the strategic optionality of our capital structure. With that, I look forward to speaking with many of you in the coming weeks. And should we not speak before then, let me wish you already now a restful Thanksgiving in the U.S. and the holiday season around the world. With that, operator, we can now close the call.
Operator: This concludes today's call. Thank you for attending. You may now disconnect. Have a wonderful day.