Embecta Corp. Q2 FY2025 earnings call

Strategic Priorities

• Strengthening core business: Global brand transition underway in US and Canada, on track for substantial completion in H2 2025; initiatives within core portfolio to solidify customer relationships.
• Expanding product portfolio: Advancing initiatives to bring market-appropriate products to patients, including partnerships with generic drug manufacturers for co-packaging pen needles with generic GLP-1 drugs and expanding pen needle availability in retail packaging for branded GLP-1 drugs.
• Increasing financial flexibility: Insulin patch pump program restructuring plan substantially complete, on track to deliver cost synergies; committed to paying down ~$110 million in debt in fiscal 2025.

Second Quarter Highlights

• Revenue totaled $259 million, exceeding expectations; ~half of overachievement due to constant currency performance, half due to less foreign exchange headwind than anticipated.
• Published updated FITTER Forward Expert Recommendations in Mayo Clinic Proceedings; conducted company-wide employee engagement survey, received Great Place to Work certification in 8 countries.
• Advancing co-packaging of pen needles with generic GLP-1 drugs; majority of steps for insulin patch pump program discontinuation complete; initiated restructuring plan to streamline organization, expecting pre-tax charges of $4-5 million, pre-tax cost savings of $7-8 million in H2 2025.
• Reduced debt by ~$27 million during the quarter, on track to reduce debt by ~$110 million in fiscal 2025.
• Brand transition plan underway in US and Canada, with transition to continue in remaining markets in next fiscal year, expected to be completed in next couple of years.

During the second quarter of fiscal year 2025, Embecta generated $259 million in revenue. By product family: pen needle revenue declined approximately 12.1%, syringe revenue grew by approximately 1.7%, safety products grew approximately 4.2%, and contract manufacturing grew approximately 73%. Pen needles accounted for a significant portion of total revenue, impacting the overall revenue performance.

Revenue

• Adjusted constant currency revenue outlook lowered by 150 basis points, now expecting decline of 2.5%-4% vs 2024; additional 1.5% volume headwind due to lower projected US volumes from customer inventory reductions at a specific US retail pharmacy. As-reported revenue guidance largely intact at $1.073B-$1.090B.

Gross Margin

• Adjusted gross margin guidance lowered by 50 basis points, expected to be in range of 62.75%-63.75% due to lower constant currency revenue and incremental tariffs.

Operating and EBITDA Margins

• Adjusted operating margin guidance raised to 29.75%-30.75% due to disciplined expense management and restructuring plan. Adjusted EBITDA margin guidance raised to 36.25%-37.25%.

EPS

• Reaffirmed adjusted earnings per share guidance range of $2.70-$2.90.

• Tariffs: Incremental tariffs expected to be a headwind of ~25 basis points to full-year adjusted gross margins; uncertainties surrounding evolving global trade environment. - Global trade uncertainties: Impact on manufacturing and product flow. - Store closures: Potential impact on US volumes if not managed properly.

Q: Kallum Titchmarsh asked about growth and demand dynamics across pen and syringes, including US customer inventory and store closures.

A: Dev Kurdikar explained context of ERP implementations, port strike, and price increases affecting year-over-year comparisons; store closures impact is transitory and being prudently reflected in guidance.

Q: Marie Thibault inquired about tariffs, specifically US-China tariffs and annual impact.

A: Jake Elguicze said ~$3 million or 25-basis point impact to full-year margins from US-China tariffs, annualized impact estimated at ~$8-9 million in 2026.

Q: Anthony Petrone asked about tariffs and stockpiling, and type two market.

A: Dev Kurdikar noted limited US-China product import impact on US business due to exemptions; stability seen in insulin pen PRXs.

Q: Michael Polark asked about store closures scale and new efficiency program.

A: Dev Kurdikar said scale and pace of store closures led to guidance reflection; Jake Elguicze mentioned efficiency program focused on SG&A, expecting $7-8 million savings in H2 2025, annualized impact ~$15 million in 2026.