Embecta Corp. Q3 FY2025 earnings call

• Core business: Completed ERP shared services and distribution network implementation in India, with 100% of revenue flowing through Embecta's systems. BD to Embecta brand transition in U.S. and Canada advanced to over 90% of North American revenue base.
• Portfolio expansion: Progress in pen needles for GLP-1 therapies, collaborating with over 30 pharma companies, co-packaging and retail packaging prospects with potential $100M+ annual revenue by 2033.
• Financial flexibility: Restructuring plan complete, expecting $7-$8M pretax cost savings in H2 2025; paid down $52M of term Loan B, $112M YTD; target net leverage 3x by year-end.

During the fiscal third quarter of 2025, Embecta generated $295.5 million in revenue, reflecting 8.4% growth on an as-reported basis or 8% on an adjusted constant currency basis. In the U.S., revenue totaled $160.2 million, a 11.6% year-over-year growth on an adjusted constant currency basis. International revenue was $135.3 million, with 5.0% growth on a reported basis and 4.2% on an adjusted constant currency basis. Product family performance: pen needle revenue grew ~6.8%, syringe ~14.5%, safety products ~6.5%, and contract manufacturing ~47.2%.

• Revenue: As-reported range narrowed to 3.4%-4% decline; adjusted constant currency range 3%-3.6% decline. FX: Foreign currency a 0.8% headwind, tailwind of ~0.4% from Italian payback measure.
• Margins: Adjusted gross margin range 63.25%-63.5%, adjusted operating margin 30.75%-31%, adjusted EBITDA margin 37.25%-37.5%.
• EPS: Narrowed to $2.90-$2.95 range.

• Geopolitical and trade uncertainties affecting China revenue.
• Tariff impacts and potential preference for local Chinese brands in the market.

Q: Marie Thibault asked about guidance and margin dynamics, specifically timing benefits reversing and margin fluctuations.

A: Jake Elguicze explained revenue decline in Q4 due to distributor orders not repeating, margin step-down due to revenue drop, profit/inventory impact, and SG&A/R&D spending. Dev Kurdikar emphasized long-term stability.

Q: Anthony Petrone inquired about CMS competitive bidding and China tariff impacts.

A: Dev Kurdikar said CMS impact too early to tell, tariff rates reduced with minimal incremental impact, and preference for local brands in China.

Q: Gracia Mahoney asked about free cash flow and store closures.

A: Jake Elguicze noted strong free cash flow generation, and Dev Kurdikar said store closures impact too early to determine but watched closely.

Q: Michael Polark followed up on China and GLP-1.

A: Dev Kurdikar explained revised China guidance due to geopolitical/trade factors, and GLP-1 syringe use limited by indication in U.S.