Ladies and gentlemen, thank you for standing by, and welcome to Aptar's 2020 Second Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Introducing today's conference call is Mr. Matt DellaMaria, Senior Vice President, Investor Relations and Communications. Please go ahead, sir.

Thank you, and welcome, everyone. Participating on our call today are Stephan Tanda, President and Chief Executive Officer; and Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. You could find a copy of our press release, as well as the slide presentation file that summarizes our results on our website. If you are following along on our website, you can advance the slides by hovering over the presentation screen and clicking on the arrows on the right and left. We will also post a replay of this conference call on our website. Today's call includes some forward-looking statements. Please refer to our SEC filings to review factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements. Aptar undertakes no obligation to update the forward-looking information contained therein. I would now like to turn the conference call over to Stephan.

Thanks, Matt, and good morning, everyone. Thank you for joining us. Let me start by expressing my hope that you and your families are continuing to do well and staying safe during this difficult time. I would also like to take a moment to thank our global workforce for the tremendous dedication and commitment they had shown throughout this pandemic. I am extremely proud of how the entire organization has risen to the challenge so that we could maintain our production, critical drug delivery and dispensing systems for patients and consumers around the world. Before I comment on the results, I would like to share a few updates related to COVID-19 starting on slide three. We are proud to live up to our purpose and responsibility to society. And as previously shared, we are an essential supplier to several critical industries, including pharmaceuticals and consumer products. Our teams are further motivated by the many expressions of gratitude by our customers for honoring our commitments to them. To that end, we are constantly adapting our approach and we recently issued new remote and flexible work guidelines to support our people and to ensure the minimum number of potential onset employees during this time. We also thinking of what's coming next and we have formed several work teams to address the future of work, including the future of customer engagement in the new normal of the post-COVID-19 era. Turning now to slide four, you will see but a sample of our global solutions, which are critical to society today. Our drug delivery, dispensing, sealing and active packaging solutions can be found on a number of medicines, sanitizers, cleaners, food and beverage products. Turning to slide five. I would like to offer a few comments on the quarter. Our Pharma business delivered another…

Thank you, Stephan, and good morning, everyone. I'll walk through some of the details concerning our second quarter results and the impact of the COVID-19 pandemic, starting with slide seven. For the second quarter 2020, reported sales declined 6% and were negatively impacted by changes in currency exchange rates, the timing of passing on lower resin costs to customers and COVID-19 related impacts. The positive contribution coming from recent acquisitions helped to offset the headwinds coming from the changes in currency rates. And as a result, core sales also declined 6%. Taking a look at our segment performances. Our Pharma segment achieved core sales growth of 6% and an adjusted EBITDA margin of 35% compared to a very strong second quarter a year ago. Looking at sales growth by market on a core basis. Core sales to the prescription market, decreased 6%, due to the lower tooling sales and a difficult comparison to the prior year. Core sales to the consumer healthcare market increased 10%. Strong demand for our products used on nasal decongestant and cough and cold treatments were the reasons for the growth. Core sales to the injectables market increased 26%, due to increase demand across a variety of applications. Finally, core sales to the active packaging market increased 21%, due to strong growth in our probiotics, diabetes, and active film products. Turning to our Beauty and Home segment. Core sales decreased 13%, due to the negative impact of COVID-19. The significant negative effects of COVID-19 on the beauty market were partially offset by an increase in sales to the personal care market. Beauty and Home's adjusted EBITDA margin was 8% in the quarter and was negatively impacted by the sales decline in the quarter. Looking at sales growth by market on a core basis. Core sales to…

Thank you, Bob. To close, I would like to cover a few takeaways as can be seen on slide 14. While there is uncertainty due to the effects of COVID-19, we continue to invest in our company for the long-term. Our cash generation remained strong and our product innovation served the greater good of society. The initial reopenings resulted in improved demand for our -- some of our products, including beauty products towards the end of the second quarter. We will continue to monitor the evolving status of the pandemic, as well as the trajectory of reopening by country and by state. As we manage our company for the long-term, we will continue to focus on providing tangible value to patients, consumers, and our customers, made up of many of the world's leading brands. And I would like to open up the call for questions.

[Operator Instructions] Your first question comes from Ghansham Panjabi with Baird. Your line is open.

Hi. Good morning, everybody.

Hi, Ghansham.

Good morning, Ghansham.

Yeah. So, Stefan, maybe you could just expand on your comments related to the COVID-19 vaccine, and obviously, the supply chain has to a position for any sort of vaccine. There's obviously, a lot of people on the planet and there's only so much supply. So, how are your customers kind of managing the buildup of inventory ahead of that? And just more broadly touch on COVID-19 activity as it relates to that segment.

Sure. Thanks, Ghansham. Look, as we are all aware there are many hundreds of projects going on, and we are following in all of them closely. Of course, you see the big ones in the headlines, Bayer, Pfizer, Zeneca, Sanofi just this morning, but also in China Sinovac, CanSino, many, many more. About a third of our COVID-related projects are vaccine-related and two-thirds are treatment related. And then we have additional projects in nasal inhalation -- in nasal inhalation space, as well as respiratory space. So, the activity is tremendous. There is also displacement of traditional business, like, say, the traditional flu vaccine, assets are being rededicated to COVID. And then -- you have the question of SKU coded, non-coded prefilled syringe or vial. So, there are many moving parts. We are in discussions with many of our clients on that. We're not going to comment on any individual project. But as I mentioned in my remarks, the safe assumption here is that we will benefit from the uplifting business related to COVID in line with our market share in the injectable space. And clearly, it is an active space. And like everybody else are, we are following it very closely.

Okay. And then in terms of the Beauty and Home segment, I think you mentioned -- I think Bob mentioned that beauty was down 33%, core sales in the quarter. Can you just sort of break that out by month? And then related to that, just touch on the detrimental margins in 2Q for that segment, because it looks pretty significant. I assume some of that is just inventory drawdown, but just help us bridge the two quarters year-over-year.

Maybe let me take the first part and then Bob cover the second part. Clearly, April was the low point, some improvement in May and then June was very good mount as there were effective reopening around the world, especially Europe and the U.S. made its impact. We also see continued good momentum into July. So, what you really see is the effect here of two -- not great months and one solid months. And I let Bob address the margin side.

More or so -- I mean, I think, it's important to keep in mind that of the three segments, Beauty and Home has the widest and most diverse product offering. So, as a result has more facilities than the other segments. And when you have particular -- parts of that market in this case, the beauty market, as you referenced, Ghansham, being down 33%, you've got big portions of dedicated factories, which are running fairly below a breakeven facility. But then contrast that with personal care side, where we've got some facilities which are running at record all time high. So, Stephan mentioned, you have a couple months there with really low volumes coming out of that. We've mentioned -- before we can't completely take them entirely offline. You do have to kind of run in the low idle mode. So, once you have certain of those factories, particularly on the beauty side, running at very low levels, that really explained kind of that incremental margin, that you were referring to.

Thanks so much.

Your next question comes from George Staphos with Bank of America Securities. Your line is open.

Hi, everyone. Good morning. Thanks for all the details. Stephan, I was wondering if you could maybe dig a little bit deeper into your COVID project activity. I think on the last call, you had mentioned there were something around 50 or so serious projects. That's my phrasing. You might phrase it a little bit differently. And in more recent discussions you had mentioned, you're working on around 75, is there a way that you can update us on where those projects stand currently or yet the 75 or a higher level? And relatedly from what you're seeing from customers, do you think the dosage per packs will be low single digits or high single digits per pack, just trying to get a size for market with COVID-19 when it ultimately occurs.

Sure. I'll try to add a bit more color to what I mentioned in response to Ghansham's question. Look, of course, the numbers are trending up. I think, we said before, there were hundreds of COVID-related project in the industry. Now, this is probably about 2,000 the ones that are irrelevant for us certainly now, -- well above a couple hundred and we said the 75% -- 75 number certainly has gone a bit higher. Let me not get into that more, but it is higher than 75, probably approaching triple digits. Now, in terms of your question around doses, that is really differs by geography. I think, in the U.S., it's likely that you get, multi-dose vials and don't pin me down, whether it's below five or close to 10, but it will be multi-dose vials. In other geographies, Asia, we believe there will be a significant part of that also in prefilled syringes. And in Europe, it's a mix of both. So, the other effect, of course, that I tried to hint that, a lot of the traditional flu vaccine, capacity's being repurposed in the industry towards COVID. And a lot of that traditional flu vaccine capacity is prefilled syringe. And there is a realignment of the supply chain for the traditional flu vaccine, which also provides opportunity. So, again, it's an active space, and we will participate well in line with our market share.

Thanks, Stefan. So, my related follow-on, and the other question, I'll turn over. So, if the supply chain on traditional flu vaccines is being somewhat displaced by the increase in COVID infrastructure that you mentioned -- Ghansham was talking to, that would suggest there's potentially a larger flu season for you -- we'd expect that anyway, just because of what's been happening, but also given that you're producing things like flu mist dispenser. So, would it be sensible to expect a stronger flu season for Aptar given that context? And my other question, I know you're not going to comment to margin by segment for any quarter, let alone third quarter. But would it be fair to say, Bob, given where we are right now, no guarantees in life, obviously that we should be seeing some sequential improvement in margin across the businesses off of the lows from 2Q, particularly around Beauty and Home and Food and Beverage where I'm going. Thank you.

Yeah. Look, this is a terrible to save it. I don't know how to say it better. Obviously, if there is a heavy flu season that tends to be positive for us, just because of the whole decongestant nasal rinse, failing rinse, and so on. And you may add here more flu vaccination and probably there is a pent-up demand for other vaccinations that we suspect. So, yes, unfortunately if you're in the pharma business, if things are not going well in the flu season, that's good for the pharma business. I'll let Bob address that margin question.

Sure. So, thanks for the follow on George, because I did want to mention that the opposite of that incremental comment that I made is that when it does come back to volume to, I would say, above that line, I think what we've done is we've done a tremendous amount of cost savings throughout the transformation. And I think we're better positioned today for when the market does come back. And certainly, we're starting to see that in China, that beauty in fact is resilient. Once economy start getting back to normal, we do see that beauty business bouncing back. And as a reference point, if we look back to kind of 2009, when we were down significantly in the first three quarters, and then for the year finished down 9% on the top line, the following year, we bounced back with an 18% core growth rate and a 100% improvement on EBITDA. So, once you get above that, that kind of breakeven point, then you start to see the opposite effect, any incremental margin. So, I think what we're seeing here, Georges, is as we've highlighted before, and continue to believe in, it's not going to be an immediate snapback in the second half, it's going to be more of a gradual improvement. So, I don't think we'll see a dramatic improvement in the beauty and home margin. It's all really going to depend on how quickly we can get back above kind of that the breakeven points in some of those beauty factories. But once we start moving further and beyond that, then -- that's when I think we'll start to see some significant margin improvements.

Yeah. Maybe the other thing I would mention on the margin side, of course, all of this COVID-related activity also create some additional costs, some additional investment. So, we also passing on some of that with a price increases in the injectable space. And I think we did a few percentage in quarter two already.

Thank you, guys.

[Operator Instructions] Your next question comes from Neel Kumar with Morgan Stanley. Your line is open.

Hi. Thanks for taking my question. You talked about the majority of potential projects related to COVID are injectable applications. If you're ultimately chosen as a supplier, you have available capacity to meet potential demand. I know you increased the injectables capacity in France last year, but I was wondering if you have any plans to -- for further capacity additions, just given the growth potential there.

Yeah. So, I think, again, it's safe to assume that we will increase our capacity in line with our market share more or less. And our capacity situation is really -- you need to look into the details. Obviously, the beginning is the whole blastema formation, then the product formation, stamping, and so on, injection and then the finishing, washing, coding. And then you overlaid on that different product types, stoppers, needles, shields, plungers and geographies. So -- and then you -- we have, of course, discussions with each customer and supply -- and their supply chain, including the CMOs and we reserve certain capacities or commit certain capacities. In many cases, this will be a dual source situation. Nobody wants to rely on a single supplier when supply chain performance will be critical. And -- yeah, I think, that's probably what I can say about that. But clearly, we will accelerate some of the investments in line with opposition in the industry.

Great. That's helpful color. And you had a core growth decline in the prescription business, but in pharma in the quarter. I know you had some tough comps year-over-year. But were there any areas that you called out that were particularly weaker? And then you also had some pretty strong growth in active packaging. I think you had previously expected growth moderate a bit for the quarter. As we just talked about, what drove the upside to initial expectations there?

Stephan, if I can take.

Yeah. Go ahead.

Sure. The prescription side, we saw a little bit of softness on the allergic rhinitis, which we had kind of indicated before that we've kind of peaked with the -- over the counter business and the volume growth there. Saw also a little bit of softness on the CNS side as well. There -- that's partially due to difficult comps, because we did have a couple of big launches last year in new space. So, those were really kind of what we were referring to and what actually materialized on the prescription side. As it relates to active packaging, so I -- we were a little bit cautious with the strong diabetes vial sales that we experienced in first quarter, and had some thought whether that was going to continue or whether that was going to kind of level off. And in fact, we did see it continue at a very strong level in Q2 as well. The other thing that we're seeing really exceptional growth in is the probiotics. And you can see plenty of articles out there that said the nutraceutical industry is doing quite well right now as people are trying to lead a healthier lifestyle. And then, we are starting also to see some good traction on our active film projects as well. So, we'll see how the diabetes volume continues into the second half, but it did surprise us a little bit that it was continuing strong in Q2. So, really our Q2 mirrored very closely with Q1.

[Operator Instructions] And there are no further questions at this time. I'll turn the call back over to Mr. Tanda for closing remarks.

Very good. Well, overall, I think, we feel very good about the quarter and the performance we've put on the board at the bottom of the largest economic pullback in many generations, probably back to the Great Recession with Europe's GDP down 40% and the U.S. posted a 30% on an annualized basis. We've done a lot of good work in taking cost out and preparing for the upturn. And if history is going to guide, we're very excited about the future. And with that, I'll close the call, and we'll see you on the virtual road over the coming months. Thank you.

This concludes today's conference call. You may now disconnect.