Fagron NV (FAGR) Earnings Call Transcript & Summary

Hello, and good morning, everyone. Welcome to Fagron's Q3 2026 Trading Statement Webcast. I am joined today by our CEO, Rafael Padilla; and our CFO, Karin de Jong. We will start by discussing the company's performance and a closer look at regional developments. And afterwards, we will open the floor for questions. With that, I will hand over to Rafael.

Thanks, Ignacio, and good morning all. We're pleased to report another quarter of growth. Revenue reached EUR 281.3 million, up 23.2% or 19.5% at constant exchange rates. Organic growth was at CR was 3.4%. Performance was led by EMEA and Latin America, together with Brands and Essentials in North America, which grew 26.1% organically. Our acquisitions also made a strong contribution. In North America, Compounding Services was impacted by the third-party industry-wide IV bag recall earlier in the year. Supply has now stabilized, and we expect volumes to recover progressively through the fourth quarter. During the quarter, we completed the acquisition of Injeplast in Brazil. This means all previously announced acquisitions are now closed and integration is on track. Finally, we're confirming our full year outlook to revenue of EUR 1.125 billion to EUR 1.150 billion with an adjusted EBITDA margin of 19.5% to 20%. Let's now look at the regions. In EMEA, growth was broad-based across countries with organic growth of 6.5%. Compounding Services led the way with 13.3% organic growth, driven by important new customer wins and strong underlying demand. Brands grew 7.3%, supported by new product launches. Growth in Essentials came mainly from our recent acquisitions. Successful fair. Our acquisitions in Brazil added further growth and reported revenue also benefited from currency. In North America, Brands and Essentials had another strong quarter with organic growth of 16.1% in brands and 28.8% in. Compounding Services was impacted by the third-party industry-wide IV bag recall, now fully resolved. And this explains the organic decline of 2.8% for the region. We continue making progress across our expansion projects and expect to bring them online over the next 2 years. Moving to our outlook. We now expect full year revenue of EUR 1.125 billion to EUR 1.150 billion and an adjusted EBITDA margin of 19.5% to 20%. CapEx will remain at around 3.5% of revenue excluding the one-off projects already announced. Looking ahead, we believe compound service in North America has reached an inflection point with IV bag supply stabilized. At the same time, our expansion projects remain on track. Together, we had more than $500 million of revenue capacity in the '25, '28 period, including Tampa, Wichita and Las Vegas. As said, all announced acquisitions now closed, and they will contribute for the full year in '27. We're also happy to announce that we will hold a Capital Markets Day at our Wichita facility in October 2027. We'll discuss our upcoming growth cycle as well as visiting the current Wichita site and at that time, the almost completed expansion. To conclude, Fagron is the only global vertically integrated player in the fast-growing fragmented pharmaceutical compounding market with a defensive high cash-generating business model. Our diverse geographical footprint makes this model resilient, and this quarter shows the strength of that diversification. Together with demographic trends and our focus on personalization, this is the basis for our success. Our quality focus and operational excellence initiatives continue to unlock global synergies, while disciplined M&A remains a key part of our growth. Sustainability is a strategic cornerstone for us, as together, we create the future of personalized medicine. With that, let's open the line for questions.

[Operator Instructions] The first question comes from Stijn Demeester.

I'm Stijn Demeester, ING. I have a couple. The first one is on U.S. Compounding. Can you take us through the quarterly performance there because despite the absence of GLP-1 comps, organic growth actually declined versus the first half. So what feasibility do you have on resolution of the IV bag issue and the subsequent volume recovery in the fourth quarter? Can you help us understand what the underlying performance of the life are related to that and was during the quarter? Second question on the guidance, the upper and the lower end of the range is just around EUR 25 million revenue delta for Q4 and is U.S. compounding here, the main driver? Or should there -- should we take into account other moving parts? And then on '27, you mentioned there a strong outlook, the midterm objective if I'm recalling right, an acceleration of organic growth actually embedded as of 2027. Can you reassure that, that is still in the cards for next year?

And thanks for your question. Very good question. The first one on the U.S. compounding business. When you look at the last 5 quarters, so we have had, of course, 2 quarters last year with the normalization of the GLP-1s, which we already announced, and we have commented many times, then the first quarter of this year having the same pattern as the other 2 quarters with the normalization of the GLP-1s. And then in Q2, we had this effect of the GLP-1 effect and the third-party industry-wide IV bag recall that we also commented that impacted the last part of the quarter in Q1 and then fully in Q2. And then also as explained, we would have an impact during Q3 because of the revalidation of these IV bags to fulfill IV bags. So this is what we have seen during this third quarter. When you compare with the first half is, of course, lower, and that's because during the second quarter, of course, the last weeks of the first quarter and the second quarter, we still had some batches from some plants of this vendor. So this vendor has different plants, different factories, and we had different taxes from these different factories. Not all these factories were affected, only some of them. And of course, we're holding these batches for our committed supply program, which we have discussed many times since we start with. Remember, we have said we are always standing orders, daily standing orders that CSP committed supply program. Those are the loyal customers, which we serve, and we reserve inventory for them. So therefore, we have good visibility on our sales. And then, of course, is the new customers that we're adding or new SKUs to those customers. So during Q3, we didn't have this inventory while we were revalidating. So at the end of Q3, we had that one revalidated. So we can now again compound with those IV bags. And at this moment, so we are now in Q4, some days, days in October, so we're gaining traction, and we are delivering, of course, first the loyal customers and then the business on top. Of course, during Q4, it will not be one big step or big jump because we need to respect the sales cycle of the customers. That's quite clear to all of us. However, we see a nice date of recouping these sales. We also need to say that when -- yes, go ahead, please. Please -- just I always wanted to finish that saying that the normalizing the GLP-1s would be at the year-to-date growth of 6% this time. And the last comment is that we see a strong underlying demand of the hospital sourcing market and, which you also asked.

Yes. When do you expect to be at the normal run rate? Is that somewhere along the first half? Or is the end of Q4?

Yes. We believe that will be during the first quarter of next year. So you said first half, that's correct. However, we see good pay, and we're having now almost the assortment back online completed. So we're quite confident that during Q1, we should be the business back where we left it during Q1 this year. And then maybe it's time to comment on the Anazao because you also asked a question on Anazao, so how is Anazao performing? We see nice developments at our Anazao, mainly driven by our Tampa facility. Remember, it's time that our 503B facility in Vegas is at 90% capacity. So therefore, now we are expanding that site. So the whole growth comes from the 503A facility in Tampa, the new one, and that's mainly driven by strong health and wellness driver longevity and of course, the telehealth platforms, which in the U.S., as you have asked many times during the course, it's huge. The telehealth platforms.

Yes. Maybe to comment on the guidance. So indeed, the range in the guidance, the EUR 25 million is driven by compounding services in the U.S. and the pace of the sales increase in Q4. So as Rafa mentioned, the industry-wide recall had an impact on our output that has stabilized now and the volumes are increasing throughout Q4. We do have an impact of timing of sales cycles and also commitment of orders to other players in the market. And that determines the pace of growth in Q4 and therefore, the range that we have given in our guidance. That's the main driver. And then at the last question on 2027, so the operational elements are behind us. So we expect 2027 to be on track. We have all the M&A integration behind us. We have the capacity expansion coming online. We invested in quality and in operations this year. So 2027 will be a very good year for us, reminds that the demand in the market in the U.S. is very strong and that remains strong. So we keep on track to our long-term guidance.

The following question comes from Frank Claassen from Degroof Petercam.

Yes, I have 2 questions. First of all, on EMEA. Well, that was a strong organic growth, the strongest I can remember, 6.5%. Could you elaborate what were the main drivers? And is this growth the new normal? Is this sustainable? That's my first question. . And then secondly, on the situation in the Middle East, it continues to be, let's say, volatile there. Is there a change in the impact of the situation in the Middle East. So do you see impact of higher oil prices, higher API prices, logistical costs? Could you elaborate on that one?