Matti Masanovich
Senior Vice President & Chief Financial Officer at Catalent
Thank you, Alessandro. I'd like to begin with an update regarding the status of both our annual report on Form 10-K for the fiscal year ended June 30, 2023 and quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2023. While we have implemented improvements in our accounting and finance staffing and related closing processes, as we noted in our notification of late filing on Form 12b25 filed on Monday, we were unable to file our 10-K and 10-Q on time.
We require additional time to complete procedures related to management's assessment of the effectiveness of our internal controls over financial reporting as of June 30, 2023 and other closing procedures. This has included procedures related to management's assessment of the measurement and timing of a non-cash goodwill impairment of approximately $700 million, which relates primarily to acquisitions in the company's Consumer Health and Biomodalities reporting units in its Pharma and Consumer Health and Biologics segments, respectively.
Please note that for purposes of providing our preliminary first quarter fiscal '24 earnings, we have assumed that the non-cash goodwill impairment will be included in our first quarter results. We are also incurring substantial time to review other closing procedures supporting our 10-K and 10-Q for both reporting periods. We expect to file the Form 10-K on or before November 27, and we expect to file Form 10-Q promptly following the filing of our 10-K.
Additionally, based on currently available information and subject to completion of our evaluation of the potential impairment charge, as well as the preparation of our financial statements and assessment of our internal controls, we do not expect any material change to the financial results to be included in Form 10-K compared to the financial information reported in the preliminary earnings release Catalent furnished with the SEC on Form 8-K filed on August 29, 2023. We appreciate your patience as we work through and complete our closing procedures.
Moving on to our preliminary first quarter results, starting with the consolidated numbers on Slide 6. Net revenue in the quarter was $982 million, down 4% on a reported basis and 6% on a constant currency basis compared to the prior first quarter. This decline is primarily attributed to the significant reduction in COVID revenue of approximately $85 million in the quarter, as well as a one-time $30 million licensing fee in the prior year. This was partially offset by constant currency revenue growth in the rest of Biologics of 11% and 5% in PCH.
The Metrics acquisition, which is reported in the PCH segment and closed in October of 2022, accounted for 2% growth on a consolidated basis. Our first quarter adjusted EBITDA decreased 38% to $115 million or a margin of 11.7% versus margin of 18.3% in the prior year quarter. On an organic basis, our first quarter adjusted EBITDA declined 45% compared to the first quarter of the prior year, primarily driven by a decline in COVID revenue.
I will speak further to the major drivers of these results in the segment commentary. Adjusted net loss was $19 million or a loss of $0.10 per diluted share, compared to adjusted net income of $61 million or $0.34 per diluted share last year. Reconciliations from GAAP net earnings to each of adjusted EBITDA and adjusted net income are in the appendix to the slide deck. Excluded from adjusted net income are the non-cash goodwill impairments, totaling $700 million I just reviewed.
Now, I'll discuss our segment performance, where commentary around segment growth will be in constant currency. As shown on Slide 7, first quarter net revenue in our Biologics segment was $447 million, a 16% decrease compared to the prior year quarter. The decline is primarily driven by significantly lower year-on-year COVID demand. First quarter COVID revenue of approximately $100 million represents a decline of approximately $85 million from the prior year period. On a non-COVID basis, Biologics revenue in the first quarter was in line with the first quarter of 2023. When excluding the one-time $30 million licensing fee signed in the prior year, non-COVID year-on-year revenue growth in the segment is approximately 11%. This result was driven by double-digit revenue growth in gene therapy, non-COVID drug product and drug substance, offset by a decline in cell therapy.
The bar chart on Slide 7 illustrates the Biologics commercial and development revenue streams, where the classification of development versus commercial is driven by the contractual language, which does not always align with the regulatory status of a given product. The large drop in development revenue in the first quarter had two primary drivers: First, the year-on-year decline in COVID revenue that has been designated as development revenue; And second, a large gene therapy product whose revenue was treated as development revenue a year ago is now treated as commercial revenue.
Moving to EBITDA. The Biologics segment's first quarter EBITDA was down $61 million year over year to $52 million, but was up $64 million sequentially from a $12 million loss in the fourth quarter. The sequential improvement from the fourth quarter to the first quarter is primarily a result of improved productivity and schedule adherence in the BWI and Brussels facilities. Margin was 11.6% compared to 21.5% recorded in the prior year and up 1,400 basis points sequentially. The year-on-year drop in EBITDA margin was primarily driven by COVID declines as well as underutilization at new modality facilities, including our cell therapy business.
We reduced our cell therapy cost structure during the quarter and expect improved performance in the second half of fiscal 2024. Similarly, in Bloomington, we have formalized a transformation project that will help drive margin improvement this year and in the future. When combining these prudent actions and our projected increase in revenue growth, we expect our Biologics segment to improve margins on a year-over-year business -- on a year-over-year basis, with a more pronounced impact as we exit the fiscal year.
Our non-COVID, non-Sarepta Biologics business is expected to grow in the low- to mid-teens in fiscal '24, as we launch GLP-1 production and bring on incremental capacity and improve productivity. Importantly, we have high visibility over this growth given the strong demand from customers. As a result of our unique scale and capabilities in sterile fill/finish, we continue to install and qualify new pre-filled syringe lines in our global network and are excited to have more pre-filled lines on order as part of our committed capex spend coming online in fiscal '25 and '26. We believe this investment will drive a highly attractive return on capital for Catalent over the long term as we install and validate those lines in our existing facilities.
As shown on Slide 8, our Pharma and Consumer Health segment generated net revenue of $535 million, an increase of $23 million or 5% compared to the prior year first quarter, with segment EBITDA of $101 million, down $10 million or a 9% decline over the same period. The segment's revenue growth was primarily driven by the prior year's acquisition of Metrics. On an organic basis, the segment declined 1% as growth in prescription products and clinical supply services was outweighed by softness in Consumer Health.
We expect Consumer Health to decline in the first half of fiscal '24 and return to year-on-year growth in the second half of the year, in part due to the recently signed substantial contract with their premier consumer health company. Adjusted EBITDA margin of 18.9% was lower by 280 basis points year over year from the 21.7% recorded in the prior first quarter. The decline was primarily related to under-absorbed capacity in the gummy network and the impact of a one-time $10 million insurance benefit received in the first quarter of fiscal '23. PCH has strong underlying fundamentals and continues to perform at a high level.
Slide 9 discusses our debt, debt maturities, related ratios, and capex plans. Our debt load remains well structured and allows for 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 the September 30 actual level was 3.4 times. Catalent's overall net leverage ratio as of September 30, 2023 was 7.4 times, a sequential increase from the fourth quarter at 6.4 times, driven by the lower year-on-year last 12 months adjusted EBITDA. Because the EBITDA portion of the net debt leverage ratio is calculated on an LTM basis, we expect this ratio to peak at the end of the second quarter due to the significant decline in COVID revenue on a year-over-year basis and then rapidly improve in the second half of the fiscal year back to the June 30, 2023 level as our adjusted EBITDA recovers to more normalized levels.
One of our top priorities remains reducing our leverage. And as we disclosed last quarter, we are taking a number of steps to achieve this, including reducing working capital, ensuring that capex spend is aligned with our strategic initiatives with shorter payback periods, and maximizing EBITDA with revenue growth and cost structure alignment initiatives. With these initiatives underway, including the recent finalization of a contract amendment with one of our large customers in gene therapy, we expect to significantly improve our cash flow generation as we substantially reduce the level of contract assets. We now expect free cash flow to be in excess of $100 million in fiscal '24 versus our initial expectation of neutral. We continue to identify opportunities to drive further free cash flow generation for the year.
Our combined balance of cash and cash equivalents as of September 30, 2023 was $209 million, a decrease of $71 million from June 30, 2023. The decrease in cash was driven primarily by an increase in contract assets in the quarter related to the ramp-up of production to meet customer demand. As of September 30, 2023, contract assets had a balance of $543 million, a sequential increase of $107 million and up $82 million year on year. Importantly, we expect the contract asset balance to decrease going forward.
At September 30, we had one strategic customer, a majority of whose business relates to our gene therapy platform, that represented 30% of our $1.4 billion in aggregate net trade receivables and contract assets. We continue to convert the contract assets to accounts receivable and receive timely payments from the customer. As such, we are very confident about the collectibility of our contract asset balance, the reduction of which will accelerate as a result of the previously mentioned contract amendment. The same customer represented approximately 16% of consolidated revenue in the first quarter of fiscal '24 or approximately $155 million. We expect revenue contribution from this customer to also be approximately 16% of total consolidated revenue for the full fiscal year. We have clear line of sight into this outlook, given already committed orders. Finally, capex in the first quarter was $84 million. We continue to expect capex in fiscal '24 to be in the range of 8% to 10% of revenue, representing approximately $400 million.
Please now turn to our financial outlook for fiscal '24 as outlined on Slide 10. With a third of the fiscal year behind us, we are confident in reiterating our fiscal '24 guidance, which includes: net revenue in the range of $4.3 billion to $4.5 billion, representing growth of 3% at the midpoint; adjusted EBITDA range from $680 million to $760 million; and adjusted in income in the range of $113 million to $175 million. Our underlying assumptions are largely the same, with the exception that we now expect COVID revenue of approximately $180 million, $50 million more than our previous expectation of $130 million. Roughly offsetting the COVID revenue increase are unfavorable FX rates in the euro and British pound.
As a reminder, our non-COVID business is expected to continue to deliver strong performance with full year revenue growth in the mid- to high-teens for the company. This is driven by roughly 30% growth in our non-COVID Biologics portfolio, including approximately 65% revenue growth from our largest customer, which, at this point of the year, is largely contracted. Non-COVID, non-Sarepta Biologics segment growth is expected to be low- to mid-teens driven by tech transfer activities. In PCH, we continue to expect mid-to-high single-digit growth.
As we ramp up our non-COVID business and align our cost structure, we expect margins for the company and the Biologics segment to recover towards historical annual EBITDA margins as we exit fiscal '24. We forecast roughly two-thirds of consolidated adjusted EBITDA to be generated in the second half of the year. As shared on our last call, the overall expected revenue split is more balanced with approximately 55% expected in the second half of 2024.
In closing, our priorities for fiscal '24 remain intact: to improve our margins by supporting productivity and cost alignment plans; to deliver incremental free cash flow by lowering the company's working capital intensity and maximizing commercial opportunities; and finally, to strengthen our internal controls and processes over financial reporting and forecasting. With thorough, careful analysis and disciplined execution of our cost structure, we are making steady progress against these initiatives and are optimistic in our continuously improving performance throughout fiscal year 2024.
Operator, this concludes our prepared remarks. We'd now like to open the call for questions.
