Embecta Corp

Previous wording

We are a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes. In our 100-year history of our business, we believe that our products have become some of the most widely recognized and respected brands in diabetes management in the world. We estimate that our products are used by approximately 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes. Our business traces its origins to 1924, when BD developed the first dedicated insulin syringe. Since then, we have built a world-class organization with a unique manufacturing, supply chain and commercial footprint.

Current wording

We are a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes. In the 100-year history of our business, we believe that our products have become some of the most widely recognized and respected brands in diabetes management in the world. We estimate that our products are used by approximately 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes. Our business traces its origins to 1924, when BD developed the first dedicated insulin syringe. Since then, we have built a world-class organization with a unique manufacturing, supply chain and commercial footprint.

Previous wording

Changes in Clinical Practice. Introduction of new drugs and increased penetration of oral anti-diabetic drugs (e.g., SGLT-2s), GLP-1s and GLP-1 combination products have delayed initiation of insulin therapy and contributed to less demand for our products. New drug therapies, including weekly insulin, in development are targeted to challenge the current diabetes treatment paradigm, including the frequency insulin is dosed (weekly vs. daily injections) and amount of insulin used. Additionally, insulin therapy in developed markets continues to transition to infusion pumps.

Current wording

Changes in Clinical Practice. Introduction of new drugs and increased penetration of oral anti-diabetic drugs (e.g., SGLT-2s), GLP-1s and GLP-1 combination products have delayed initiation of insulin therapy and contributed to less demand for our products. New drug therapies, including weekly insulin, are targeted to challenge the current diabetes treatment paradigm, including the frequency insulin is dosed (weekly vs. daily injections) and amount of insulin used. Additionally, insulin therapy in developed markets continues to transition to infusion pumps.

Previous wording

We continue to monitor and respond to the conflict in Ukraine and the associated sanctions and other restrictions. We also are monitoring the Israel-Hamas war and Houthi attacks on commercial shipping vessels and other naval vessels. As of May 9, 2024, there is no material impact to our business operations and financial performance as a result of the aforementioned conflicts. However, the full impact of the conflicts on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflicts and their impact on regional and global economic conditions. We will continue to monitor these conflicts and assess the related restrictions and other effects on our business.

Current wording

We continue to monitor the conflict in Ukraine and the associated sanctions and other restrictions. We also are monitoring the Israel-Hamas war and Houthi attacks on commercial shipping vessels and other naval vessels. As of August 9, 2024, there is no material impact to our business operations and financial performance as a result of the aforementioned conflicts. However, the full impact of the conflicts on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflicts and their impact on regional and global economic conditions. We will continue to monitor these conflicts and assess the related restrictions and other effects on our business.

Previous wording

•Gross profit decreased by $4.4 million to $185.4 million from $189.8 million. Gross profit as a percent of revenue was 64.6%, as compared to 68.5% in the prior year comparative period;

Current wording

•Gross profit increased by $0.6 million to $190.1 million from $189.5 million. Gross profit as a percent of revenue was 69.8%, as compared to 66.2% in the prior year comparative period;

Previous wording

Six Months Ended March 31, 2024 Summary (on a comparative basis)

Current wording

Nine Months Ended June 30, 2024 Summary (on a comparative basis)

Previous wording

Key financial results for the six months ended March 31, 2024 were as follows:

Current wording

Key financial results for the nine months ended June 30, 2024 were as follows:

Previous wording

•Gross profit decreased by $7.3 million to $371.3 million, compared to $378.6 million. Gross profit as a percent of revenue was 65.8%, as compared to 68.5% in the prior year comparative period;

Current wording

•Gross profit decreased by $6.7 million to $561.4 million, compared to $568.1 million. Gross profit as a percent of revenue was 67.1%, as compared to 67.7% in the prior year comparative period;

Previous wording

Our revenues increased by $10.1 million, or 3.6%, to $287.2 million for the three months ended March 31, 2024 as compared to revenues of $277.1 million for the three months ended March 31, 2023. Changes in our revenues are driven by the volume of goods that the Company sells, the prices we negotiate with customers and changes in foreign exchange rates. The increase in revenues was driven by $15.0 million of favorable changes in volume. This was partially offset by $2.5 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S. dollar, $1.4 million of unfavorable changes in price, and a $1.0 million decrease in contract manufacturing revenues related to sales of non-diabetes products to BD.

Current wording

Our revenues decreased by $13.6 million, or 4.8%, to $272.5 million for the three months ended June 30, 2024 as compared to revenues of $286.1 million for the three months ended June 30, 2023. Changes in revenues are driven by the volume of goods that the Company sells, the prices it negotiates with customers, and changes in foreign exchange rates. The decrease in revenues was driven by $24.4 million of unfavorable changes in volume and $2.5 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S. dollar. This was partially offset by $7.8 million of favorable gross-to-net adjustments resulting from changes in estimates, $4.9 million of favorable changes in price, and a $0.6 million increase in contract manufacturing revenues related to sales of non-diabetes products to BD.

Previous wording

Our revenues increased by $11.7 million, or 2.1%, to $564.5 million for the six months ended March 31, 2024 as compared to revenues of $552.8 million for the six months ended March 31, 2023. The increase in revenues was driven by $13.0 million of favorable changes in volume and $2.0 million of favorable changes in price. This was partially offset by a $3.1 million decrease in contract manufacturing revenues related to sales of non-diabetes products to BD and $0.2 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S. dollar.

Current wording

Our revenues decreased by $1.9 million, or 0.2%, to $837.0 million for the nine months ended June 30, 2024 as compared to revenues of $838.9 million for the nine months ended June 30, 2023. The decrease in revenues was driven by $11.4 million of unfavorable changes in volume, $2.7 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S. dollar, and a $2.5 million decrease in contract manufacturing revenues related to sales of non-diabetes products to BD. This was partially offset by $14.0 million of favorable changes in price and $0.7 million of favorable gross-to-net adjustments resulting from changes in estimates.

Previous wording

Cost of products sold increased by $14.5 million, or 16.6%, to $101.8 million for the three months ended March 31, 2024 as compared to $87.3 million for the three months ended March 31, 2023. Cost of products sold as a percentage of revenues was 34.2% for the three months ended March 31, 2024 as compared to 31.5% for the three months ended March 31, 2023. Cost of products sold increased by $19.0 million, or 10.9%, to $193.2 million for the six months ended March 31, 2024 as compared to $174.2 million for the six months ended March 31, 2023. Cost of products sold as a percentage of revenues were 34.2% for the six months ended March 31, 2024 as compared to 31.5% in the six months ended March 31, 2023. The increase in cost of products sold for the three and six month comparative periods was primarily driven by the impact of inflation on the costs of certain raw materials (including freight), direct labor, and overhead, the impact of negative year-over-year manufacturing variances primarily attributable to the planned temporary shutdown of our Suzhou, China facility as it relates to production for the domestic Chinese market, and unfavorable impacts due to foreign exchange rates. We intend to continue to work to improve productivity to help partially offset these increased costs.

Current wording

Cost of products sold increased by $4.8 million, or 1.8%, to $275.6 million for the nine months ended June 30, 2024 as compared to $270.8 million for the nine months ended June 30, 2023. Cost of products sold as a percentage of revenues was 32.9% for the nine months ended June 30, 2024 as compared to 32.3% in the nine months ended June 30, 2023. The increase in cost of products sold for the nine month comparative period was primarily driven by the impact of inflation on the costs of certain raw materials (including freight), direct labor, and overhead, the impact of negative year-over-year manufacturing variances primarily attributable to the planned temporary shutdown of our Suzhou, China facility as it relates to production for the domestic Chinese market, and unfavorable impacts due to foreign exchange rates. We intend to continue to work to improve productivity to help partially offset these increased costs. This was partially offset by the impact of profit in inventory adjustments as a result of inventory that was sold to external customers that was manufactured in anticipation of our ERP system and other Business Continuity Processes that went live during fiscal 2024, as well as lower net revenues.

Previous wording

Selling and administrative expenses increased by $7.1 million, or 8.3%, to $92.3 million for the three months ended March 31, 2024 as compared to $85.2 million for the three months ended March 31, 2023. Selling and administrative expenses increased by $24.6 million, or 15.6%, to $182.6 million for the six months ended March 31, 2024 as compared to $158.0 million for the six months ended March 31, 2023. The increase for both the three and six month comparative periods were primarily driven by an increase in compensation and benefit costs due to increased headcount and increased outbound freight and warehousing costs. This was partially offset primarily by lower TSA and LSA costs with BD incurred in the current year periods.

Current wording

Selling and administrative expenses increased by $22.7 million, or 9.2%, to $268.3 million for the nine months ended June 30, 2024 as compared to $245.6 million for the nine months ended June 30, 2023. The increase for the nine month comparative period was primarily driven by an increase in compensation and benefit costs due to increased headcount on average in the current period in addition to increased outbound freight and warehousing costs. This was partially offset primarily by lower TSA and LSA costs with BD incurred in the current year period.

Previous wording

Research and development expenses decreased by $3.7 million, or 16.7%, to $18.4 million for the three months ended March 31, 2024 as compared to $22.1 million for the three months ended March 31, 2023. Research and development expenses decreased by $0.4 million, or 1.0%, to $38.6 million for the six months ended March 31, 2024 as compared to $39.0 million for the six months ended March 31, 2023. The decrease for the three and six month comparative periods were primarily driven by an upfront payment made in connection with a collaboration arrangement in the prior year. This was partially offset by increased spending in the current year periods on our insulin patch pump platform. In December 2023, we submitted our first 510(k) premarket filing to the U.S. Food and Drug Administration ("FDA") for our proprietary disposable insulin delivery system.

Current wording

Research and development expenses decreased by $2.2 million, or 9.7%, to $20.4 million for the three months ended June 30, 2024 as compared to $22.6 million for the three months ended June 30, 2023. Research and development expenses decreased by $2.6 million, or 4.2%, to $59.0 million for the nine months ended June 30, 2024 as compared to $61.6 million for the nine months ended June 30, 2023. The decrease for the three and nine month comparative periods were primarily driven by timing of payments made in connection with our insulin patch pump platform.

Previous wording

We incurred other operating expenses of $35.5 million and $26.9 million for the three months ended March 31, 2024 and 2023, respectively, and $65.4 million and $37.2 million for the six months ended March 31, 2024 and 2023, respectively, driven by costs related to the Separation. The costs incurred primarily relate to accounting, auditing, legal services, marketing, supply chain, employee retention, increased costs associated with the implementation of our new ERP system and other Business Continuity Processes, and certain other costs to establish certain stand-alone functions to assist with the transition to being a stand-alone entity. As we continue to stand-up various corporate functions as a stand-alone publicly-traded company, we expect to incur similar costs associated with the same type of activities in the current year.

Current wording

Other operating expenses incurred primarily relate to accounting, auditing, legal services, marketing, supply chain, employee retention, costs associated with the implementation of our new ERP system and other Business Continuity Processes, and certain other costs to establish certain stand-alone functions to assist with the transition to being a stand-alone entity. As we continue to stand-up various corporate functions as a stand-alone publicly-traded company, we expect to incur similar costs associated with the same type of activities in the current year.

Previous wording

Interest expense, net increased by $1.0 million to $27.8 million for the three months ended March 31, 2024 as compared to $26.8 million for the three months ended March 31, 2023. Interest expense, net increased by $3.1 million to $55.5 million for the six months ended March 31, 2024 as compared to $52.4 million for the six months ended March 31, 2023. The increases for both comparative periods were primarily a result of higher interest rates on our variable rate debt which is attributable to increases in SOFR that impacted our Term Loan. This was partially offset by an increase in interest income from amounts held in interest bearing accounts and money market funds. It remains unclear whether the United States Federal Reserve will increase or reduce the benchmark interest rate during the remainder of fiscal 2024. An increase in the benchmark interest rate would result in an increase in interest expense on our variable rate debt and a reduction in the benchmark interest rate would result in a decrease in interest expense on our variable rate debt.

Current wording

Interest expense, net increased by $0.8 million to $27.8 million for the three months ended June 30, 2024 as compared to $27.0 million for the three months ended June 30, 2023. Interest expense, net increased by $3.9 million to $83.3 million for the nine months ended June 30, 2024 as compared to $79.4 million for the nine months ended June 30, 2023. The increases for both comparative periods were primarily a result of higher interest rates on our variable rate debt which is attributable to increases in SOFR that impacted our Term Loan. This was partially offset by an increase in interest income from amounts held in interest bearing accounts and money market funds. It remains unclear whether the United States Federal Reserve will increase or decrease the benchmark interest rate during the remainder of fiscal 2024. An increase in the benchmark interest rate would result in an increase in interest expense on our variable rate debt and a decrease in the benchmark interest rate would result in a decrease in interest expense on our variable rate debt.

Previous wording

Other income (expense), net, was $(1.5) million and $(4.3) million for the three months ended March 31, 2024 and 2023, respectively. Other income (expense), net, was $(5.0) million and $(11.4) million for the six months ended March 31, 2024 and 2023, respectively. The costs incurred for all periods primarily relate to amounts due to BD for income taxes payable incurred in deferred jurisdictions where BD is considered the primary obligor.

Current wording

Other income (expense), net, was $(1.1) million and $(4.2) million for the three months ended June 30, 2024 and 2023, respectively. Other income (expense), net, was $(6.1) million and $(15.6) million for the nine months ended June 30, 2024 and 2023, respectively. The costs incurred for all periods primarily relate to amounts due to BD for income taxes payable incurred in deferred jurisdictions where BD is considered the primary obligor. We do not expect to incur any additional amounts where BD is considered the primary obligor.

Previous wording

The effective tax rates were (102.5)% and 39.0% for the six months ended March 31, 2024 and 2023, respectively. The decrease in the Company’s effective tax rate from the prior comparative period is primarily due to lower withholding taxes on undistributed foreign earnings which includes a discrete tax benefit of approximately $18.8 million related to Swiss withholding taxes from prior years, a tax benefit of approximately $17.1 million for the establishment of a deferred tax asset attributed to a higher Swiss cantonal tax rate and additional tax basis that is amortizable for income tax purposes over a period of seven years, reduced unrecognized tax benefits, and lower income in the current period which increases the variability of the effective tax rate.

Current wording

The effective tax rates were (24.4)% and 36.0% for the nine months ended June 30, 2024 and 2023, respectively. The decrease in the Company’s effective tax rate from the prior comparative period is attributable to lower withholding taxes on undistributed foreign earnings which reflects a tax benefit of approximately $18.8 million related to Swiss withholding taxes from prior years. Also contributing to the decrease was the recognition of a tax benefit of approximately $17.1 million for the establishment of a deferred tax asset as a result of a higher Swiss cantonal tax rate that contributed to an increased tax basis that is amortizable for income tax purposes over a period of seven years. The decrease in the effective tax rate was also impacted by lower tax expense due to a change in the mix of earnings among tax jurisdictions. This was partially offset by an increase in non-deductible interest expense in the U.S.

Previous wording

We believe that our cash and our equivalents and cash from operations, together with our borrowing capacity under our revolving credit facility, will provide sufficient financial flexibility to fund seasonal and other working capital requirements, capital expenditures, debt service requirements and other obligations, cash dividends on common shares, share repurchases and additional growth opportunities for the foreseeable future. However, should it become necessary, we

Current wording

We believe that our cash and our equivalents and cash from operations, together with our borrowing capacity under our revolving credit facility, will provide sufficient financial flexibility to fund seasonal and other working capital requirements, capital expenditures, debt service requirements and other obligations, cash dividends on common shares, share repurchases and additional growth opportunities for the foreseeable future. However, should it become necessary, we believe that our credit profile should provide us with access to additional financing in order to fund normal business operations, make interest payments, fund growth opportunities and satisfy upcoming debt maturities.

Previous wording

As of March 31, 2024, all factoring agreements between Embecta and BD have expired and terminated as a result of our implementation and onboarding of certain Business Continuity Processes in North America, and certain jurisdictions in Europe and Asia.

Current wording

As of March 31, 2024, all Factoring Agreements between Embecta and BD had expired and terminated as a result of our implementation and onboarding of certain Business Continuity Processes in North America, and certain jurisdictions in Europe and Asia.

Previous wording

In November 2023 and February 2024, Moody’s Investor Services and Standard & Poor’s Ratings Services published updates to our credit ratings of Ba3 and B+, respectively. These ratings remain unchanged from the initial published ratings from January 2022.

Current wording

In May 2024 and June 2024, Moody’s Investor Services and Standard & Poor’s Ratings Services published updates to our credit ratings. Our Moody's Investors Services credit rating is B1 and our Standard & Poor's Rating Services credit rating is B+.

Previous wording

Cash and equivalents and restricted cash were $306.5 million as of March 31, 2024 as compared to $326.5 million as of September 30, 2023.

Current wording

Cash and equivalents and restricted cash were $281.8 million as of June 30, 2024 as compared to $326.5 million as of September 30, 2023.

Previous wording

The primary sources and uses of cash that contributed to the $20.0 million decrease were:

Current wording

The primary sources and uses of cash that contributed to the $44.7 million decrease were:

Previous wording

The change in accounts payable and accrued expenses is primarily due to timing attributable to payments to vendors in the first six months of fiscal 2024.

Current wording

The change in accounts payable and accrued expenses is primarily due to timing attributable to payments to vendors during the nine month period ending June 30, 2024.

Previous wording

As a result of the implementation of certain Business Continuity Processes, including our ERP system that went live in November 2023 for our North America business operations and in March 2024 for our EMEA and Greater Asia business operations as well as the expiration and termination of the factoring agreements between Embecta and BD, we are now responsible for the collection of any outstanding trade receivables in those respective regions. The increase in trade receivables is a direct result of this impact, and we expect to convert these outstanding trade receivables into cash during fiscal 2024 in line with contractual customer payment terms.

Current wording

As a result of the implementation of certain Business Continuity Processes, including our ERP system that went live in November 2023 for our North America business operations and in March 2024 for our EMEA and Greater Asia business operations as well as the expiration and termination of the Factoring Agreements between Embecta and BD, we are now responsible for the collection of any outstanding trade receivables in those respective regions. The increase in trade receivables is a direct result of this impact, and we expect to convert these outstanding trade receivables into cash in line with contractual customer payment terms.

Previous wording

The change in inventories is driven by an increase in raw material purchases in the current year offset by current year product sales of certain inventory levels that had been built up at the end of fiscal 2023 in anticipation of our ERP system and other Business Continuity Processes that went live during the first half of fiscal 2024.

Current wording

The change in inventories is driven by actions taken to increase raw material purchases and finished goods in the current year in anticipation of our ERP system and other Business Continuity Processes that went live during fiscal 2024. We expect inventory levels to decrease during the remainder of fiscal 2024.

Previous wording

The change in prepaid expenses and other are primarily driven by a reduction in payments during the first half of fiscal 2024 to BD for future payments made to third parties on our behalf as a result of our implementation of certain Business Continuity Processes, including our ERP system, that went live in fiscal 2024.

Current wording

The change in prepaid expenses and other are primarily driven by a reduction in payments to BD for future payments made to third parties on our behalf as a result of our implementation of certain Business Continuity Processes, including our ERP system, that went live in fiscal 2024.

Previous wording

Net cash used for investing activities was comprised of capital expenditures of $6.1 million for the six months ended March 31, 2024 to support further expansion of our business and operations.

Current wording

Net cash used for investing activities was comprised of capital expenditures of $15.8 million for the nine months ended June 30, 2024 to support further expansion of our business and operations.

Previous wording

•Competitive factors that could adversely affect Embecta’s operations, including adoption of new drug therapies for treatment of diabetes, new product introductions by Embecta’s competitors, the development of new

Current wording

•Competitive factors that could adversely affect Embecta’s operations, including adoption of new drug therapies for treatment of diabetes, new product introductions by Embecta’s competitors, the development of new technologies, lower cost producers that create pricing pressure, and consolidation resulting in companies with greater scale and market presence than Embecta.

Previous wording

•Increases in operating costs, including fluctuations in the cost and availability of oil-based resins, other raw materials, and energy as well as certain components, used in its products, the ability to maintain favorable supplier arrangements and relationships, and the potential adverse effects of any disruption in the availability of such items.

Current wording

•Increases in operating costs, including fluctuations in the cost and availability of oil-based resins, other raw materials, and energy as well as certain components, used in its products, the ability to maintain favorable supplier