Catalent, Inc. (NYSE:CTLT) Q4 2023 Earnings Call Transcript

Catalent, Inc. (NYSE:CTLT) Q4 2023 Earnings Call Transcript August 29, 2023

Catalent, Inc. misses on earnings expectations. Reported EPS is $0.09 EPS, expectations were $0.1.

Operator: Good morning, ladies and gentlemen. And welcome to the Catalent Incorporation Fourth Quarter Fiscal Year 2023 Earnings Conference Call. My name is Glen. I will be the operator of today’s call. At this time, all participants will be in a listen-only mode. [Operator Instructions] I will now hand you over to your host, Paul Surdez, Vice President of Investor Relations to begin. Paul?

Paul Surdez: Good morning, everyone. And thank you for joining us today to review Catalent’s fourth quarter 2023 financial results. Joining me on the call are John Greisch, Executive Chair of the Board; Alessandro Maselli, President and Chief Executive Officer; and Matti Masanovich, Senior Vice President and Chief Financial Officer. During our call today, management will make forward-looking statements and refer to non-GAAP financial measures. It is possible that future results could differ from management’s expectations. Please refer to slide two of the supplemental presentation available on our Investor Relations website at investor.catalent.com for a discussion of risks and uncertainties that could cause actual performance or results to differ from what is suggested by those forward-looking statements and slides three and four for a discussion of Catalent’s use of non-GAAP financial measures.

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Please also refer to Catalent’s fiscal 2022 Form 10-K/A and third quarter fiscal 2023 Form 10-Q for additional information on the risks and uncertainties that may bear on our operating results, performance and financial condition. Now I would like to turn the call over to John Greisch for some brief opening remarks which are covered on slide five.

John Greisch: Thank you, Paul. Good morning and thank you for joining us. As I am sure you have seen by now, we issued two press releases this morning, our preliminary fourth quarter earnings release and the release announcing several initiatives reflecting our ongoing commitment to strong corporate governance and shareholder value creation, including the appointment of four new independent directors to the Board, two of whom were nominated by Elliott. The new directors are as follows; Steven Barg, Global Head of Engagement at Elliott Management, one of Catalent’s largest shareholders; Michelle Ryan, Former Treasurer at Johnson & Johnson; Frank D’Amelio, recently retired Chief Financial Officer of Pfizer; and Stephanie Okey, Former Senior Vice President and Head of North America, Rare Diseases, and U.S. General Manager, Rare Diseases at Genzyme.

We have also established a new strategic and operational review committee of the Board to conduct a review of our business, strategy and operations, as well as our capital allocation priorities in order to maximize the long-term value of the company. The committee’s charter provides more detail about the scope of our review and is included in the Form 8-K filed this morning. In addition, I was named Executive Chair succeeding Marty Carroll as Board Chair. The Board and I are very appreciative of Marty’s leadership and look forward to his continuing contributions as an ongoing Board member. As Executive Chair, I will be working closely with Alessandro and the team to drive improved operational performance and execute on the shareholder value creation initiatives announced today, as well as Chair the Strategic and Operational Committee.

The second press release also notes that we entered into a cooperation agreement with Elliott. This agreement addresses the matters I just discussed and contains customary provisions for an agreement of this type, including a standstill voting commitments and confidentiality provisions. Elliott shares the Board’s confidence in Catalent’s leading position as a key partner for the biopharmaceutical industry and is committed to working with us to drive shareholder value. We look forward to providing an update to the market on the work of, and ultimately, recommendations by the strategic and operational review committee following our reviews. We believe that these initiatives will improve Catalent’s positioning for long-term growth and success.

We will be acting quickly and taking decisive action to strengthen operational performance, enhance profitability and create value for all stakeholders. I am personally excited to be partnering with Alessandro and the management team to drive profitable, sustainable and capital efficient growth, along with long-term shareholder value as we move forward. We are all very pleased to be working collaboratively with Elliott to accomplish these shared goals together. With that, I would like to turn the call over to Alessandro and Matti to discuss our recent performance.

Alessandro Maselli: Thanks, John. My opening remarks will relate to slide six of our presentation. As we said in May, this fiscal year was very disappointing, largely as a result of the COVID, revenue and operational cliffs we have discussed. Additionally, as we previously explained and as our peers have also more recently disclosed, the pharma services industry is facing a macro driven pressure, primarily from the effects of lower biotech funding, slower and more cautious decision-making by customers and lackluster consumer discretionary spend. We are acting urgently to mitigate all these impacts, reducing costs at underutilized facilities, bolstering our commercial efforts to accelerate new business wins and slowing our capital deployment in affected areas.

We are also making progress on the operational improvements in our Biologics segment that we applied for you in the string. From this perspective, we see fiscal 2023 as a year of transition and fiscal 2024 as a year of improvement that will create the foundation for long-term sustainable value creation. I will spend my opening remarks reviewing our strategic, operational and financial progress. First, we have the right strategy in place to achieve the performance levels you expect from Catalent. This includes continuing to change our leadership team by bringing in new strengths, skills and fresh perspectives to bear to ensure we have the industry’s best talent on our management team. In June, we appointed Matti Masanovich as our new Chief Financial Officer.

Matti is a proven finance leader, with his experience growing and driving the profitability at public global manufacturing companies. He most recently served as a Chief Financial Officer of Tenneco Automotive until it was acquired by Apollo. Previously, he was the Chief Financial Officer of Superior Industries International and General Cable Corporation. It’s great to have the benefit of Matti’s fresh perspectives at Catalent and to have Matti join us on this call. John and I also want to thank Ricky Hopson for stepping in as Interim CFO prior Matti’s arrival and assisting Matti’s transition in these last two months. In addition, in August, we announced the appointment of Lisa Evoli as our new Chief Human Resources Officer. Lisa joins Catalent from Integra Lifesciences, a global medical technology company.

Lisa has more than 25 years of experience, achieving organizational results, building robust talent pipelines and creating an inclusive and engaged workforce for a variety of multinational public companies. As you can see, we are putting a profound emphasis on ensuring we are recruiting and retaining top talent at Catalent and making great progress on rounding out our core leadership team, including my top priority, which is to fill the Biologics’ President role, a search, which is needing completion. Second, our operational performance as a whole has shown improved trend over the last few months. While we see meaningful evidence of that, fourth — that — the fourth quarter will be a bottom for our Biologics performance, more work and time will be needed to return to our previous margin level.

Our goal remains to exit fiscal 2024 with the company-wide operating margins closer to our historical levels. Encouragingly, operational improvement has been particularly evident in our gene therapy offerings. As previously discussed, the startup phase of our ERP implementation caused underutilization at BWI in the beginning of the fourth quarter. As we expected, these challenges led revenues at the site to dip in the fourth quarter from the third quarter. However, as a result of our focus on rapid operational improvement, productivity levels at the site are in line with our high standards and revenue at the BWI is growing sequentially into the first quarter of fiscal 2024. Speaking of gene therapy, we could not be prouder of our gene therapy teams both at our manufacturing center of excellence in Maryland, as well as our packaging facility in Philadelphia, as they closely partner with our customer, Sarepta Therapeutics to deliver the first commercial dose of the Duchenne muscular dystrophy gene therapy to a five-year-old patient that was a day away from turning six and aging out of the program.

This outcome is a perfect example of our patient-first mindset. We are thankful to Doug Ingram, Sarepta’s CEO, for visiting our manufacturing team this month to celebrate this important patient milestone with our employees. At Brussels and Bloomington, we have also seen some progress in our operational execution. Of the two sites, Brussels has been trending better, with this output getting closer to historical levels. At the Bloomington, our customer received a complete response led set in June related to an FDA inspection that occurred in May and was still open at the time of the PDUFA date. We work closely with both the customer and the FDA to bring the inspection to closure as quickly as possible and we are pleased that the FDA recently approved the customer’s product, as well as another product produced on the same line.

Aside from the specific issues at Brussels and Bloomington, our value’s always put the patient first and this was evident in the Bloomington over the summer where we prioritized everything needed to bring the FDA inspection that occurred in May to a successful closure. While these activities had some impact on our anticipated productivity improvements at the site and led to increase costs in the first quarter of fiscal 2024, they were the right move for Catalent, for our customers and our patients, given they led to extremely rapid and positive outcomes for our customer’s products. We continue to expect to complete the tech transfer activities related to large programs at Bloomington during fiscal 2024 and enter fiscal 2025 with more normalized margins.

Catalent’s overall inspection track record remains as strong as ever with the 14 successful regulatory inspections in the last few months, including an FDA inspection at our sterile fill finish facility in Anagni, Italy that resulted in zero observation and no Form 483. Our Pharma and Consumer Health segment is expected to grow revenue in the mid-to-high single digits in fiscal 2024. Product approvals, including a dozen of new approvals since January are expected to contribute to year-on-year growth. In addition, supplying issue — supply chain issues related to one of our top products have recently been resolved and new production orders are underway. Finally, our Consumer Health business, which fell short of expectation in fiscal 2023 has been leveling out.

From a financial perspective, despite our assumption of a significant incremental COVID reduction and previously mentioned continued biotech funding softness, we see a resilient topline for the fiscal year, including double digits non-COVID revenue growth. While we are pleased with our topline momentum, our utmost focus will be on improving our EBITDA margin, financial forecasting and cash flow generation, which will lead to enhanced shareholder value creation. For example, we previously announced two separate cost reduction plans during fiscal 2023 and we already realized approximately $40 million of cost savings in the back half of fiscal 2023. We expect a total of over $100 million in incremental savings in fiscal 2024, as the effects of our plan continue to bear fruit.

When completed, the annualized run rate savings from these plans are expected to be in the range of $150 million to $170 million. We also embedded the mechanisms in the company, including our lean program called The Catalent Way, designed to deliver better operational consistency, increase level of utilization, reduce waste and greater efficiency. We will keep you appraised on our progress regarding announced savings plan and new cost initiatives in the coming quarters. Turning back to the overall Biologics segment. As you will recall, from June, we disclosed that our Biologics margins were being impacted by significant investments we — that we made at our facilities operating in new modalities, including cell therapies and plasmid, just before the start of the period of reduced biotech funding.

While we continue to believe all of these assets will create great value over time for innovator and patients, as well as to shareholders, our prior expectation for high growth related to these assets in fiscal 2023 did not materialize. As a result, this facility are now experiencing a lower level of utilization and are running below breakeven levels, leading to a decrease of several 100 points in the EBITDA margin of our Biologics segment in Q4. We continue to actively address all aspects of this imbalance, to maximize our ability to effectively leverage these assets and deliver value to all stakeholders in the near-term. Most importantly, our advanced capabilities continue to garner substantial commercial interest, positioning the company for long-term sustainable growth.

As a result, once utilization normalizes, we continue to expect the Biologics segment to return to its historical EBITDA margin. Regarding our forecasting process, we have been working hard to improve our rigor and discipline, including embedding greater conservativism in our future assumptions. More work remains, but under Matti’s guidance, we are implementing plans to strengthen our forecasting and internal control processes. Given the extensive footprint we have built over the last several years and our focus on improving our margins, we are also reducing our CapEx in fiscal 2024 to around 8% to 10% of sales and we expect to maintain this lower level of CapEx intensity over the coming years as we grow into our existing footprint. With that, I would like to close by saying that our Board, management team and I are collectively focused on executing on our mission to improve the lives of patients every day, while striving to create value for all of our stakeholders.

We are taking the decisive actions to bring our operational performance consistently to levels we achieved across the company prior to the pandemic. Finally, as John mentioned earlier, I look forward to working more closely with him as an Executive Chair and want to welcome to our Board the four new members announced today. I am looking forward to working with them, as well as Elliott to drive long-term shareholder value for our investors. I continue to have the utmost confidence and optimism in the Catalent’s leading market position, long-term opportunities and growth prospects as the industry’s essential partner. We know what needs to be done to deliver the level of financial performance that we all expect and we are doing so. I will now turn it to Matti for a discussion of our Q4 financial results and the details of our fiscal 2024 guidance.

Matti Masanovich: Thank you, Alessandro. I am very happy to be part of the Catalent team and contributing to the meaningful impact our company has on helping people live longer healthier lives. In my first two months at Catalent, I have been deeply focused on bolstering our internal finance team and improving our financial processes to position Catalent for long-term success. I look forward to meeting many of our investors and analysts in the coming weeks. Starting with the consolidated numbers on slide seven. Net revenue in the quarter was $1.1 billion, down 17%, both on a reported basis and on a constant currency basis compared to the prior fourth quarter. Mergers and acquisitions had minimal impact on our results. Our fourth quarter adjusted EBITDA decreased 61% to $139 million or a margin of 13% versus a margin of 27.8% in the prior year quarter.

On an organic constant currency basis, our fourth quarter adjusted EBITDA declined 65% compared to the fourth quarter of the prior year, primarily driven by a decline in COVID demand. I will speak further to the major drivers of these results in the segment commentary. Adjusted net income was $16 million or $0.09 per diluted share, compared to adjusted income of $195 million or $1.08 per diluted share last year. Reconciliations from GAAP net earnings to each of adjusted EBITDA and adjusted net income are in the appendix of the slide deck. Excluded from net income are non-cash asset impairments totaling $85 million on an after-tax basis. These non-cash impairments couple several assets in both of our business segments. The largest non-cash impairment is related to the partially constructed Biologics development and manufacturing facility near Oxford, U.K. Now let’s discuss our segment performance.

Our commentary around our segment growth will be in constant currency. As shown on slide eight, fourth quarter net revenue in our Biologics segment was $406 million, a decrease of $239 million or 37% compared to the prior fourth quarter. The decline is primarily driven by significantly lower year-on-year COVID demand. Fourth quarter COVID revenue declined approximately $180 million to approximately $65 million. Our COVID work is no longer focused on take-or-pay arrangements and is now tied to more standard ordering arrangements based on rolling forecasts with binding periods, which are typical arrangements in our business. On a non-COVID basis, Biologics revenue in the fourth quarter declined 16% versus the fourth quarter of 2022. In the fourth quarter, our drug product and drug substance offerings, excluding COVID and cell and gene therapies, each grew double-digit year-on-year.

However, with our core gene therapy business — however, while our core gene therapy business was the strongest source of growth for Catalent in the first three quarters of fiscal 2023. In the fourth quarter, gene therapy revenue was down over the prior fourth quarter. This was in line with our expectations and a result of production issues outlined on our third quarter earnings call in June. As you can see on the bar chart, there were notable movements in our Biologics commercial and development revenue streams, where the classification of development versus commercial is driven by contractual language, which does not always align with the regular status — regulatory status of a given product. The large drop in development revenue in the fourth quarter has two primary drivers; first, year-on-year decline in COVID revenue that have been designated as development revenue; and second, a large gene therapy product whose revenue was due to the development revenue a year ago is now treated as commercial revenue.

When looking at the full year for Biologics, COVID related revenue declined over 50% from $1.3 billion in fiscal 2022 to approximately $625 million in fiscal 2023. Non-COVID Biologics revenue increased by approximately 12% across the full year. Moving to EBITDA. The Biologics segment fourth quarter EBITDA was down $206 million to a loss of $12 million. Margin was negative at 2.9%, compared to the positive 30% recorded in the prior fourth quarter. The drop in EBITDA was primarily driven by the COVID declines and resulting underutilization, as well as underutilization at new modality facilities. We are working to align our costs in these areas to be in line with demand and expect margins to improve on a year-over-year basis primarily in the second half of the fiscal year.

As shown on slide nine, the Pharma and Consumer Health segment generated net revenue of $662 million, an increase of $19 million or 3% compared to the prior year fourth quarter, with segment EBITDA of $187 million, down $11 million or a 6% decline over the same period. The segment’s revenue growth was primarily driven by the October 2022 acquisition of Metrics, which contributed 4 points to the segment’s topline growth and 5 points to the change in adjusted EBITDA. On an organic basis, the segment declined 1% as growth in Clinical Supply Services was more than offset by continued supply chain challenges related to a top product and a decline in prescription product revenue. EBITDA margin of 28.2% was lower by 260 basis points year-over-year from the 30.8% recorded in the prior fourth quarter.

The decline was primarily a result of lower organic volume, unfavorable product mix and cost inflation. Slide 10 discusses our debt, debt maturities, related ratios and CapEx plans. Our debt load remains well-structured and permits us good flexibility. Our nearest maturity is not until 2027. Our primary debt covenant is the ratio of net first-lien debt over the trailing 12 months adjusted EBITDA. The covenant requires this ratio to remain below 6.5 times, and at June 30, the actual level was 2.8 times. Catalent’s overall net debt leverage ratio as of June 30, 2023, was 6.4 times, a sequential increase from the third quarter at 4.9 times, driven by the lower year-on-year LTM adjusted EBITDA as measured at fiscal year-end. Because the EBITDA portion of the net debt leverage ratio is calculated on an LTM basis, we expect this ratio to move higher, ultimately peaking at the end of the second quarter due to a significant decline in COVID revenue on a year-over-year basis and then improving in the second half of the fiscal year, back to current levels as our EBITDA improves.

We expect to be free cash flow neutral in fiscal 2024. Reducing our leverage is our top priority. This is being achieved by maximizing EBITDA through continued revenue growth, improved utilization, better productivity and continued cost structure alignments. At the same time, we are focusing on a number of opportunities to deliver incremental free cash flow in 2024 above and beyond our current guidance. These incremental opportunities include. First, working capital, which includes accounts receivable, inventory and contract assets at June 30th was over $2 billion. We have a significant opportunity ahead of us to reduce working capital and drive free cash flow for the company. Our initial focus will be on reducing the accounts receivable balance of over $900 million, reducing our inventory balance of over $700 million and reducing our contract asset balance of over $400 million.

Our goal is to drive sustainable improvement in these categories to deliver incremental free cash flow, while simultaneously working to restore our historical EBITDA margin. Second, we will ensure all CapEx spend is either aligned with our core values of patient first, quality, safety and compliance or contributes to key strategic initiatives with shorter more appropriate payback periods. And finally, with our newly created Strategic and Operational Review Committee of the Board, we plan to continue to evaluate our strategy and portfolio. These activities to enhance cash generation, balanced with returning to a more normalized EBITDA margins should improve our overall net debt leverage. Our target for our overall net debt leverage remains less than 3 times.

Our compliant — our combined balance of cash, cash equivalents and marketable securities as of June 30, 2023 was $280 million, an increase of $78 million from March 31, 2023, therefore, a $50 million partial paydown of our revolver that we were able to make in the quarter. The increase in cash was driven by strong cash collections in the quarter. I would now like to discuss our contract assets, which as of June 30, 2023, had a balance of $436 million, a sequential decrease of $69 million and flat year-on-year. We are working with key customers to further reduce this balance through more favorable contract terms that are more aligned with our manufacturing timelines. At June 30th, we had one strategic customer, a majority of whose business relates to our gene therapy platform that represented 20% of our $1.4 billion in aggregate net trade receivables and contract assets.

We are confident that our contract asset balance is fully collectible. The same customer was less than 10% of total revenue in the fourth quarter, but represented nearly 10% of our revenue for fiscal 2023, compared to approximately 5% in fiscal 2022. Finally, CapEx in fiscal 2023 was $601 million or 14% of revenue. In light of the significant capital investments we have already put into the business, we are reducing CapEx in fiscal 2024 by more than 30% to a range of 8% to 10% of revenue. Now please turn to our financial outlook for fiscal 2024 as outlined on slide 11. We expect our 2024 net revenue in the range of $4.3 billion to $4.5 billion, representing growth of 3% at the midpoint. This includes COVID revenue of approximately $130 million, a roughly $500 million decrease from 2023.

Our non-COVID business is expected to continue to deliver strong performance with full year revenue growth of approximately 15% to 20%. This is driven by roughly 30% growth in our non-COVID Biologics portfolio, primarily driven by significant growth from our largest customer, as well as completion of tech transfer activities. In PCH, we expect mid-to-high single-digit growth. Current FX rates, which we use in this forecast are forecasted to have a positive impact of 1 percentage point to 2 percentage points on our revenue. We project that inorganic revenue, which reflects one remaining quarter of the Metrics acquisition will not have a meaningful effect. We expect adjusted EBITDA in the range of $680 million to $760 million. While this is a slightly wider range than usual, as Alessandro mentioned earlier, this is reflective of our new more conservative approach to forecasting.

These temporary low margin levels anticipated for 2024 reflect our low facility utilization as our reliance on COVID revenue declines. As we ramp up our non-COVID business and align our cost structure, we expect margins to recover towards historic levels as we exit fiscal 2024. We expect the margin of our Biologics segment to improve modestly as we move sequentially from our 2023 fourth quarter to the first quarter of 2024 and progressively improve through the year, with a more pronounced ramp in the second half. In addition, given historical — the historically seasonal nature of our PCH business, where revenue and EBITDA generation is the lightest in the first quarter and more weighted to the back half of the year, combined with our expected productivity ramps later in the year, we forecast roughly two-thirds of our consolidated adjusted EBITDA to be generated in the second half of the year.

While this is more back half weighted than most years, the overall expected revenue split is more balanced with approximately 55% expected in the second half of 2024. We expect adjusted net income in the range from $113 million to $175 million. Adjusted net income growth in fiscal 2024 is being impacted by all of the items affecting adjusted EBITDA, as well as the following items. First, an expected effective tax rate in the 25% to 27% range, compared to 25.5% in fiscal 2023. Second, an increase in interest expense due to rising interest rates. Though, as a reminder, with our rate hedge in place, nearly 70% of our debt is effectively fixed rate. And finally, increased depreciation expense due to substantial investments we have previously made.

I’d now like to share an update regarding the status of our filing of our fiscal 2023 Form 10-K. As we continue to improve our accounting, finance staffing and related processes, and we continue to bolster our internal finance resources, some additional steps remain to finalize our 10-K. This will not allow us enough time to file for all of our closing procedures, excuse me, this will not allow enough time for all of our closing procedures to be completed today. Therefore, the completion of our financial statement closing processes and subsequent filings with the SEC will require more time extending beyond today’s deadline. Tomorrow, we plan to file a notification of late filing on Form 12b-25. Our team is working expeditiously to finish the 10-K within the 15-day grace period permitted by the Form 12b-25 filing.

We do not expect any change to the numbers we have released today. We appreciate your patience. To close, I want to summarize with you my top priorities as Catalent’s CFO, which are partnering with Alessandro to improve our margins by supporting productivity and cost alignment plans, to delivering incremental free cash flow by reducing the CapEx and the working capital intensity of the business, and finally, strengthening our internal controls and processes over financial reporting and forecasting. All of these priorities are within our control. Operator, this concludes our prepared remarks. We will now open up the call for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] With our first question comes from Tejas Savant from Morgan Stanley. Tejas, your line is now open.

Tejas Savant: Hey, guys. Good morning and thanks for the time here. Maybe Alessandro and Matti, can you just help us build a bridge from the $715 million or so in 2023 EBITDA to $720 million in 2024. You called out COVID assumptions is about $130 million, but could you clarify the contribution from Sarepta that you are assuming at the midpoint here, it sounds like you are expecting very substantial growth there given your 30% non-COVID Biologics growth assumption. So any sort of color versus the $425 million you generated this year would be great? Thank you.

Alessandro Maselli: Tejas, Alessandro here. Thanks a lot for your question. Look, first of all, we are pleased here today to be able to share our new guidance for fiscal 2024 in face of, well, as we disclosed a significant drop — a further drop in our COVID revenues, but still seeing a resilience in our topline. So that’s something that is sticking to the underlying strength of our business as we shared, and as you are pointing out, some of that growth is related to our gene therapy business, which is now running at full cylinders after the some of the challenges that we shared during the spring. So topline is pleasing us. It’s also well balanced in H1 versus H2. As we shared during the spring in our Biologics business, there is still some work to do to restore previous margin.

We are working expeditiously on addressing underutilization and some performance improvements, some more time. The work is required in the first half of the year, but we are confident that restarting sequentially our margins over the quarter. So I will turn it now to Matti to give you a little bit more granularity on the bridge.

Matti Masanovich: Yeah. So you asked about going from the $714 million of EBITDA 2023 to our — I will go to the midpoint or approximately midpoint to $720 million. Obviously, as Alessandro pointed in his comments and my comments, we are seeing COVID demand down year-on-year of approximately $0.5 billion and that has a high margin profile attached to it and it leaves behind cost that we have action. So there’s a saving down or from an EBITDA perspective related to that down volume. We are replacing that down volume, as we mentioned, with one of our largest customers in gene therapy, it should be up year-on-year. We talked about some — one of our facilities that Alessandro mentioned is doing better, which is Brussels and some of the performance underlying Brussels is doing better, as well as Bloomington during the quarter. So those are primarily the biggest pieces and we have got the Biologics other piece, which is growing at a very rapid rate year-over-year.

Alessandro Maselli: Hey, Tejas…

Tejas Savant: Got it. That’s helpful.

Alessandro Maselli: Maybe the last point I would add to — also pointing you out to some of the one-off impacts we recorded in the last fiscal year, something that you should consider as you model this.

Tejas Savant: Got it. Yeah. Makes sense. And then my next question really is around the strategic review that’s underway. Any color you guys can share around sort of the anticipated time lines for that to be completed and then understanding that there’s a few moving pieces here in terms of the balance sheet initiatives you spoke about, Matti, do you currently anticipate having the need to raise capital either via equity or debt or do these anticipated working capital improvements and the cut in CapEx, et cetera, mean that you feel pretty confident that you wouldn’t need to pull that lever?

Alessandro Maselli: You want to go first, John?

John Greisch: Yeah. This is John Greisch. I will take the first part of that question. Firstly, Alessandro, the team, the Board, we all look forward to working and partnering with Elliott towards achieving our shared goals that we talked about in our prepared comments. The agreement between the company and Elliott is really designed with the primary intent of enhancing long-term shareholder value. And specifically to your question, the mandate included in the charter of the strategic and operational review committee is to review our businesses and strategies with the objectives of; one, improving our operational performance; two, strengthening the financial profile of the company along the lines of some of Matti’s comments around portfolio assessment; and three, maximizing the long-term value for our shareholders.

We have got our first meeting of the committee in September. We have obviously been doing a lot of work ahead of that anyway and some of our Board appointments are part of that, the two nominated by Elliott, as well as two nominated from a search that we had been conducting. So I think over the next few months, it’s hard to put a specific time line on it. I think it’s going to come down to Alessandro’s proposal that he and the management team will bring to the committee and to the Board. But certainly by our next earnings call, we should have some traction to speak to you about and we are acting with a sense of urgency, not just at the committee level, but Alessandro and his team to address all of the initiatives and come up with the actions appropriate to drive and maximize long-term value for our shareholders.

Alessandro Maselli: Yeah. And then just to answer your — the back side of your question. I think right now sitting here today, we have got ample liquidity to manage the current affairs of the company between cash and revolver availability. We also have, what I would call, a significant and unique opportunity to sustainably take down the working capital intensity and the CapEx intensity of the company, which we are looking at for the year. And so — and then with the return of profitability in the back half of the year on the operational improvements that we will make, I don’t necessarily believe to have an issue to go after from a capital and/or debt raise.

Tejas Savant: Got it. Very helpful. Thanks for the time, guys.