West Pharmaceutical Services Inc (WST) — Q2 2025 Transcript

Good morning, and welcome to West's Second Quarter 2025 Earnings Conference Call. We issued our financial results earlier this morning, and the release has been posted in the Investors section of the company's website located at westpharma.com. On the call today, we will review our financial results, provide an update for our business and our outlook for FY '25. There's a slide presentation that accompanies today's call, and a copy of the presentation is available on the Investor page of West's website. On Slide 4, there's a safe harbor statement. Statements made by management on the call and the accompanying presentation contain forward-looking statements within the meaning of U.S. federal securities laws. These statements are based on our beliefs and assumptions, current expectations, estimates and forecasts. The company's future results are influenced by many factors beyond the control of the company. Actual results could differ materially from past results as well as those expressed or implied in any forward-looking statements made here. Please refer to today's press release as well as other disclosures made by the company regarding the risks to which it is subject, including our 10-K, 10-Q and 8-K reports. During the call, management will make reference to non-GAAP financial measures, including organic sales growth, adjusted operating profit, adjusted operating profit margin and adjusted diluted EPS. Limitations and reconciliations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in this morning's earnings release. I'll now turn the call over to our CEO, Eric Green. Eric?

Thank you, John, and good morning, everyone. Thanks for joining us today. I'll begin with a review of our performance in the second quarter and discuss the encouraging trends we are seeing in the business. Then Bernard will provide our detailed financial review, and I will close with some final thoughts. Now let's turn to Slide 5 and look at our Q2 business performance. I am pleased to report that we exceeded our expectations for the second quarter. This was driven by solid growth in HVP components. This quarter, our net sales increased 9.2%, and 6.8% on an organic basis. This strong performance was the result of robust GLP-1 elastomer growth, ongoing momentum in HVP conversions impacted by Annex-1 activity, and the continued normalization of customer ordering patterns. Our improved performance was concentrated in our higher-margin businesses, which drove the favorable margin expansion in the quarter. We believe this quarter underscores West's position as the market-leading injectable solutions company serving some of the fastest-growing areas of health care. We do this by leveraging our competitive strength to help our customers grow their commercialized products and launch new drugs across multiple therapeutic categories. Moving to Slide 6. Our Proprietary Products segment grew 8.4% on an organic basis in Q2. The key driver of this solid performance was HVP components, which increased 11.3% in the quarter. To meet the continued growth in GLP-1 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 HVP upgrades and Annex-1 related revenues. We now have 370 Annex-1 HVP Upgrade projects, up from 340 last quarter. We continue to view Annex-1 as a significant multiyear opportunity where we have sustainable competitive advantage as we are the incumbent on these commercialized drugs and have the ability to deliver higher levels of quality at scale. As demand for our products continues to improve, we are working hard to increase supply to our customers. In the quarter, a majority of the customers who 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 returning to more normal ordering patterns. Looking to the future, we expect Biologics to continue to be a meaningful contributor to our long-term growth as West continues to win in the market. West's participation rate for biologics and biosimilars is trending above our historical levels year-to-date, and our win rates for small molecules remain in line with past trends. We believe we're making progress in improving our ability to meet customer demand and increasing asset utilization. As we previously disclosed, one of our HVP plants in Europe has experienced certain constraints. We are proactively executing an initiative to expand capacity through a hiring and training program. We expect that these steps will improve production as the year progresses. The investments made to expand our HVP infrastructure over the past 5 years continue to provide us with important benefits. This includes 5 centers of excellence across our global manufacturing network, 2 in North America, 2 in Europe, and 1 in Singapore that offer a strong platform for growth as demand for HVP components normalizes. Because many of these investments now have been made, we remain confident that we will be able to drive capital expenditures back to the normal level of 6% to 8% of revenues. This level is necessary to support our long-term construct. In the longer term, we have the opportunity to align our manufacturing location with revenues. This includes further network optimization, which we can do through technology transfers. These initiatives take about 12 to 18 months and also 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 were up 0.4%. Most Standard Products have a strong regulatory moat with over half of them being spec'd into an FDA or a similar regulatory process. That being said, we're continuously converting a portion of the standard product base to HVP every year. And this business offers West a significant opportunity as it represents an ongoing pipeline for HVP conversions. Moving to our HVP Delivery Devices business, which represents approximately 13% of total company sales on Slide 7. In the second quarter, revenues increased 30%. The majority of the growth in this area was driven by strength in Daikyo Crystal Zenith containment and administration systems. HVP 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 8. 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 9, we are updating our full year 2025 guidance. As a result of the strong performance in Q2, continued momentum in our HVP 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. And with that, let me turn it over to Bernard, who will provide more details on the quarter.

Thank you, Eric, and good morning. Now let's review the numbers in more detail. We'll first look at Q2 2025 revenues and profits where we saw increases in organic sales, adjusted operating profit and diluted EPS compared to the second quarter of 2024. I will take you through the drivers impacting sales and margin in the quarter as well as some balance sheet takeaways. And finally, we will provide an update to our guidance. First up, Q2. Our financial results are summarized on Slide 10, and the reconciliation of non-U.S. GAAP measures are described in Slides 19 to 22. We recorded net sales of $766.5 million, representing an organic sales increase of 6.8%. Looking at Slide 11. Proprietary Products organic net sales increased 8.4% in the quarter, primarily driven by increased HVP volumes and positive sales price. High-value products, which made up 74% of Proprietary Product sales in the quarter, increased 12.6% led by customer demand for Westar and NovaChoice products. The biologics market unit delivered high single-digit organic net sales growth, driven by an increase in sales of NovaChoice and Daikyo CZ 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. And our gross profit margin of 35.7% was a 290 basis point year-over-year increase. Our adjusted operating profit margin of 20.3% with 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 HVP 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 6 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, was $509.7 million, which 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 results 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 to $3.06 billion, compared to prior guidance of $2.945 billion to $2.975 billion. There is an estimated full year 2025 tailwind for 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% to 3.75%, compared to a 2% to 3% in our prior guidance. I would note there is a mix shift in the updated guidance with HVP 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 to $6.85, up from the previous range of $6.15 to $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 on our business for the 9 months will be $15 million to $20 million for FY 2025, compared to our prior estimate of $20 million to $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 to $795 million, which translates to approximately 2.5% to 3.5% third quarter organic sales growth. And third quarter adjusted diluted EPS is expected to be in a range of $1.65 to $1.70. And 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% to 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.

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

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

Yes. 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 just increased demand based on a particular drug launch.

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

Thank you, Justin. In the generics market, we have experienced ongoing destocking effects in 2025, and we anticipate this trend will continue to some extent in the latter half of the year. We were pleased to see positive momentum in the second quarter for this market segment, although the destocking effects persist. As we noted earlier, this trend in pharmaceuticals has lessened since last year, and we are now observing a return to normalcy along with an increase in demand for biologics for the remainder of the year. The primary growth driver contributing to our long-term growth strategy centers on high-value product components. This is crucial for both top-line growth and margin expansion. As mentioned earlier this year, we expect to see a build throughout the year, particularly regarding key drivers such as GLP-1, biologics, and Annex-1 related to HVP upgrades. All three of these areas are projected to perform better in the second half than in the first half of this year. There is strong momentum as we progress through the year, aiming to return to the normal growth pattern we have experienced at West for a considerable time.

Bernard, I wish you all the best. It's great to see the business getting back on track as you leave. My first question is about Annex-1. Eric, you mentioned that both the Q and the backlog continue to grow sequentially. Is that translating into rapid revenue growth for many of these clients? Could you provide more details on this? I believe you indicated that it's in various stages of discussions. How is that evolving into revenue?

Yes, the Annex-1 initiative is a long-term process. Our customers are showing greater interest in upgrading their current formulas through pharmaceutical washing, Envision inspection, and sterilization. You're right; we secured around 370 projects in the last quarter and have built on that. It does take time to see the final results and realize revenue from these upgrades, but we are optimistic. Earlier this year, we anticipated about 150 basis points from Annex-1, and we are pleased with our progress toward that goal. There is considerable variation between clients, especially regarding the complexity and volume of their needs, whether they are upgrading standard products in HVP. Each case is managed individually, but there is a trend towards our higher-end HVP, which is encouraging. More developments are expected, and we believe this will contribute to growth for several years to come.

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

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

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

You mentioned GLP more this quarter, which seems to have contributed to the positive results. There was also discussion about a significant customer increasing production. Can you provide any quantification of that? You indicated that GLP represented 8% of total sales, up from 7% last quarter. Do you believe this trend is sustainable, and how do you anticipate GLP's contribution will evolve in the second half?

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

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

Yes, it reflects positively on our future pipeline. However, many of the Annex-1 projects we undertake with our customers take several quarters to complete the validation process and transition from their current products to higher-level offerings. This can take time, with some cases requiring only two quarters and others more than four. As we consider the timing and pacing, regulations were established in mid to late 2023, and we've begun to see an increase in activity in 2024, which we expect to continue into 2025. This is a lengthy process that we anticipate will span multiple years, involving multiple customers and various projects we're engaged in.

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

Yes, Daniel. When considering the Annex-1 contribution for the full year, there are some timing factors related to revenue recognition. We are quite confident in achieving 150 basis points in 2025. We will adjust our pace based on customer demand and ramp up if necessary. This is a multi-quarter event and part of a multi-year upgrade process for West and our customers. It's difficult to specify if everything will be completed by 2025 or 2026, as it will take time. We will provide updates towards the end of the year regarding how this will impact 2026. There is positive momentum in terms of the number of projects and interest we are seeing. Initially, when we discussed Annex-1, one of the key factors for our customers was whether to invest in capital themselves or to entrust these processes to West. Our established network strategy, along with our scale, quality, and in-house capabilities, is securing a substantial share of these opportunities. For now, we are still aiming for 150 basis points this year, and we will provide more details as we approach next year.

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

Bernard, do you want to?

Yes, I'll begin by addressing your question about tariffs. Our guidance was based on the information available when we prepared it. There was a recent development concerning Japan that was not fully included in our guidance, but we believe it is not significantly impactful. Our guidance reflects what we had observed over the past couple of months. We will keep a close watch on that situation and will update our guidance if there are any significant changes. We are actively pursuing various mitigation strategies within our supply chain and with our customers. According to what we know today, those measures are incorporated into our guidance. As this situation evolves, we will take it into account when we prepare for Q3.

I would like to add to the first part of that question regarding the growth of West. I am very optimistic about the momentum we are experiencing with HVP components. We have mentioned in previous calls that we expect this momentum to build throughout the year. While I will not specifically comment on 2026, the momentum is strong. As I mentioned earlier, when we look at the second half of the year, based on current order trends and customer demand, our manufacturing capabilities are ramping up. I am confident in how our team in Europe is managing the demand acceleration, enabling us to add team members at our locations to enhance capacity. We believe we can align our resources to support the anticipated growth for our customers for the remainder of this year. There is noticeable momentum compared to the beginning of last year and the early part of this year, particularly in Q1, and we are building on that progress. It may be too early to make predictions about 2026, but overall, I am very encouraged.

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

Yes. First of all, I want to express my pride in the team for how they've ramped up our Dublin facility. We currently have some commercial manufacturing of auto-injectors taking place there, but this is just a part of several installations planned throughout 2025. We expect further ramp-up later this year for auto-injectors and pens. The process from initial manufacturing to peak volumes typically takes about 9 to 12 months to fully optimize. Additionally, our Dublin facility, which we have invested in with our customer, manages the drug handling aspect. This is currently being equipped and we're aiming for early 2026 to begin commercialization. As previously mentioned, there is a ramp-up phase involved. While I won't provide specific revenue or profit figures for that site, I believe it is a strong growth driver as we approach 2026, particularly to compensate for the cessation of CGM diagnostics device manufacturing by the end of June 2026. In terms of exploring new CGM opportunities, we're optimistic about our current discussions with clients regarding their projects, and the prospects for 2026 are highly regarded due to the engineering quality and capabilities our team has developed over time. We are confident that we will transition smoothly once automation for the current product concludes, allowing us to shift to a new product for a different customer. Overall, we are in a positive position, although there is still work ahead.

I know you have spent several years focusing on reducing supply redundancies around high-value product components. I am curious, without needing a percentage, are most of the products in the portfolio validated across multiple facilities or geographies? Additionally, do you see customer demand for further validation in different locations, perhaps due to the desire to mitigate tariffs?

Yes, Tom, you're correct. When we consider our proximity to our customers, we are in a strong position with two high-value product clients in the United States, two in Europe, and one in Asia, specifically Singapore. From a tariff perspective, we are not incurring significant costs relative to the scale of our manufacturing. For instance, our Waterford plant in Ireland primarily ships finished products to our global customers, who mostly operate in the European region. This pattern is similar across many of our high-value product plants. However, there are instances where a client wants to transfer a specific product that only has one validated site. This brings up two important aspects: first, we aim to have multiple sites to optimize our operations; second, we need to ensure that we are manufacturing in the same region as we are consuming. There is still work to be done, and while I prefer not to specify a percentage, I can say that we are very well positioned, as reflected in our net and gross tariff costs, which pose a headwind.

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

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

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

Yes, I had the chance to visit the facility with the team and review their plans, and they are executing those plans effectively. We are currently in the process of ramping up, which takes several weeks as we need to bring new team members up to speed to ensure quality and safety in the plant. There is room to speed up this process. As we've mentioned, growth is coming from several sources related to our HVP components, with biologics expected to perform better in the second half of the year. We are also experiencing ongoing growth in GLP-1 and Annex-1. In our European site, we are continuously increasing the workforce to ease some of these constraints, which is a positive development overall. We will provide updates throughout the quarter, but we are confident in our ability to meet the raised guidance of mid- to high single digits for HVP components based on our current insights.

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 the new line comes on, but just what are the hurdles to automating that SmartDose device and kind of difficulties of getting that validated? And is there any sort of indication, guidance you can give on the margin improvement that you can see on SmartDose when the new line is installed?

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

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

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

Thank you 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.