Embecta Corp. Q4 FY2024 earnings call

• Strategic priorities post-spin include strengthening core business, separating from the former parent, and investing in growth. Significant progress made, such as securing key contracts, completing major standard programs like ERP shared services, and exiting China manufacturing.
• Restructuring plan announced, including discontinuing the insulin patch pump program after FDA clearance as market check found no viable monetization options and market evolution required significant investment. The restructuring is expected to incur pre-tax cash charges of $25-$30 million and non-cash charges of $10-$15 million, with annualized pre-tax cost savings of $60-$65 million.
• Plan to strengthen core business further by advancing brand transition plan (starting in fiscal 2025, starting with US, then Europe, etc.), expanding product portfolio (e.g., launch of GLP-1 pen needle set in Germany), and increasing financial flexibility through operational efficiency and debt reduction.

In the fourth quarter of Fiscal Year 2024, Embecta's adjusted revenues totaled $290.2 million, representing a 4.1% increase compared to the prior year period or 3.3% when excluding contract manufacturing revenue. On a product family basis, pen needle revenue grew approximately 2.8%, syringe revenue grew approximately 4.8%, safety products grew approximately 5.8%, and contract manufacturing grew approximately 96%. For the full fiscal year 2024, revenues totaled $167.4 million, which was a year-over-year growth of 10.3% on an adjusted constant currency basis. Internationally, during Q4, revenue totaled $122.8 million, a 3.1% decline on an adjusted constant currency basis compared to the prior year period. For the full year, international revenues totaled $520 million, equating to year-over-year adjusted constant currency growth of approximately 1.3%.

• Fiscal 2025 preliminary guidance: Adjusted constant currency revenue expected to be down 1%-2.5% vs 2024. Adjusted gross margin预计 to be in the range of 63.25%-64.25%. Adjusted operating margin预计 to be between 29%-30%. Adjusted EBITDA margin预计 to be between 35.5%-36.5%. Adjusted diluted EPS预计 to be between $2.70-$2.90. Excludes all costs associated with the patch pump program for the entirety of 2025.
• FX headwind of ~0.6% expected in 2025, offset by a tailwind of ~0.4% from not being impacted by the 2015-2023 Italian payback measure in 2025 as in 2024.

• Italian payback law uncertainty: Final resolution of litigation is unknown, and Embecta's liability could differ from the amount currently accrued.
• Tariff impacts: Uncertainty around tariffs in China, Mexico, etc., which could impact manufacturing and product sourcing.
• FX and tax: Impact of FX fluctuations and inclusion of Pillar Two tax in guidance assumptions.

Q: Marie Thibault asked about the patch pump program, capital allocation, tariffs, and FX.

A: Dev and Jake discussed that capital allocation is focused on debt paydown, with the patch pump discontinuation being a pragmatic decision. Regarding tariffs, a small portion of US revenue is from China-manufactured products, and they will watch tariff developments. On FX, initial guidance accounts for FX rates as of mid-November, with an expected FX headwind in 2025.

Q: Kallum Titchmarsh asked about patch pump discontinuation timeline and restrictions post-spin with BD.

A: Dev explained that the patch pump discontinuation was due to no viable monetization after clearance and market check, and there are no restrictions on M&A post-spin, but separation agreements have restrictions on acquired technology.

Q: Michael Polark asked about residual value of patch pump and savings beyond patch program.

A: Dev said market check found no viable residual value options, and savings from restructuring are aligned with patch program discontinuation, with ongoing cost optimization efforts beyond the announced guidance.