PARSIPPANY, N.J., Feb. 07, 2024 (GLOBE NEWSWIRE) -- Embecta Corp. (embecta) (NASDAQ:EMBC) today announced that management will host one-on-one investor meetings on Tuesday, February 13, 2024, at the Cliff Lodge, Snowbird, UT. About embecta embecta is a global diabetes care company that is leveraging its 100-year legacy in insulin delivery to empower people with diabetes to live their best life through innovative solutions, partnerships and the passion of more than 2,000 employees around the globe. For more ...

Financial Performance - Revenue for the year ended September 30, 2023, decreased by $8.7 million, or 0.8%, to $1,120.8 million from $1,129.5 million in 2022[196] - Gross profit decreased by $25.0 million to $749.9 million, with gross profit as a percentage of revenue at 66.9%, down from 68.6% in the prior year[195] - Operating income decreased by $88.1 million to $221.5 million from $309.6 million[195] - Net income decreased by $153.2 million to $70.4 million from $223.6 million, resulting in a diluted net income per share of $1.22 compared to $3.89 in the previous year[194][195] Expenses - Cost of products sold increased by $16.3 million, or 4.6%, to $370.9 million, with cost of products sold as a percentage of revenues rising to 33.1% from 31.4%[198] - Selling and administrative expenses increased by $46.5 million, or 15.8%, to $341.3 million, primarily due to increased compensation and benefit costs[200] - Research and development expenses increased by $18.3 million, or 27.4%, to $85.2 million, attributed to investments in new products[202] - Other operating expenses rose to $99.4 million from $44.7 million, primarily related to accounting, auditing, and legal services[206] Foreign Currency and Geopolitical Impact - The company faced a $26.5 million negative impact on revenues due to foreign currency translation from the strengthening of the U.S. dollar[196] - The company continues to monitor geopolitical conflicts, including the situation in Ukraine and Israel, with no material impact on operations reported as of November 29, 2023[192] Interest and Taxation - Interest expense increased to $107.0 million for the year ended September 30, 2023, from $46.2 million in 2022, primarily due to longer debt outstanding and higher interest rates[207] - Other income (expense), net decreased by $2.0 million to $(8.8) million for the year ended September 30, 2023, compared to $(6.8) million in 2022[208] - The effective income tax rate increased due to a valuation allowance against interest expense carryforwards and higher U.S. tax on foreign earnings[209] - As of September 30, 2023, the company recorded deferred taxes on undistributed earnings of foreign subsidiaries, with an anticipated $18.0 million reduction in income tax expense in fiscal year 2024[210][211] Cash Flow and Debt - Cash and cash equivalents were $326.5 million as of September 30, 2023, a decrease from $330.9 million in 2022, with net cash provided by operating activities at $67.7 million[225] - Net cash used for investing activities was primarily $26.5 million for capital expenditures to support business expansion[226] - Total principal debt outstanding as of September 30, 2023, was $1,635.8 million, with long-term debt at $1,593.9 million[218] - The weighted average cost of total debt was 7.1% as of September 30, 2023, with short-term debt representing 0.6% of total debt[219] Contracts and Obligations - The company has contractual obligations of approximately $227 million for purchase obligations and $82 million for lease obligations as of September 30, 2023[228] - The company entered into a lease agreement for approximately 278,000 square feet of manufacturing space for an initial term of ten years[220] Tax and Accounting Practices - The company incurs stock-based compensation expenses over the requisite service period based on the grant date fair value of awards, utilizing the Black-Scholes-Merton option-pricing model[232] - The company recognizes deferred tax assets and liabilities for expected future tax consequences of temporary differences between financial statements and tax basis of assets and liabilities[233] - The company evaluates factors such as prior earnings history and expected future earnings to determine the necessity of valuation allowances for deferred tax assets[234] - The company establishes reserves for uncertain tax positions based on its interpretation of tax laws and regulations, recognizing interest and penalties as part of income tax expense when applicable[236] Risks and Challenges - The company is exposed to foreign currency exchange risks that could adversely affect its financial condition and results of operations[243] - As of September 30, 2023, the company's Term Loan interest rate is set at 300 basis points over SOFR, with a 100 basis points change impacting interest expense by $9.4 million annually[246] - The company faces risks related to competitive factors, including new drug therapies for diabetes and pricing pressures from lower-cost producers[240] - The company may encounter challenges in completing strategic partnerships and acquisitions that could accelerate growth and access innovative technologies[246] - The company is subject to risks from changes in laws and regulations affecting its domestic and foreign operations, including healthcare and tax policies[246] - The company acknowledges that actual results may differ materially from forward-looking statements due to various risks and uncertainties[241]

Financial Data and Key Metrics Changes - For the full year 2023, the company generated revenues of approximately $1,121 million, representing a decline of 0.8% on an as-reported basis but an increase of 1.6% on a constant currency basis [13] - In Q4 2023, revenue totaled $281.9 million, reflecting an increase of 2.7% on an as-reported basis and growth of 2.1% on a constant currency basis [26] - Adjusted gross margin for the full year 2023 was 67%, with adjusted operating margin at 29.6% and adjusted earnings per share of $2.99 [61] Business Line Data and Key Metrics Changes - The underlying core injection business grew approximately 1.8% on a constant currency basis for the full year, normalizing for contract manufacturing headwinds [13] - In Q4, the core injection business grew an impressive 4.9% on a constant currency basis when excluding non-diabetes products [11] - Excluding contract manufacturing revenue, the core injection business in the U.S. grew by 6.6%, with a normalized growth of approximately 3.8% [51] Market Data and Key Metrics Changes - U.S. revenue in Q4 totaled $151.8 million, representing year-over-year growth of approximately 1.3% on a constant currency basis [27] - International revenue in Q4 was $130.1 million, equating to year-over-year constant currency growth of approximately 3.0%, driven by favorable comparisons in China and growth in Canada and Asia [28] - For the full year, U.S. revenues totaled $601.4 million, growing by 0.2% on a constant currency basis, while international revenues totaled $519.4 million, with constant currency growth of approximately 3.2% [52] Company Strategy and Development Direction - The company will focus on three core strategic priorities for 2024: strengthening and optimizing the core business, investing for growth, and managing operational transitions effectively [29][55] - The company is committed to new product development, particularly in the insulin patch pump for the type two market, aiming to achieve critical milestones in fiscal 2024 [25] - The company is transitioning to a standalone entity, with significant efforts to exit transition service agreements with BD by March 31, 2024 [7][54] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the unpredictable operating environment and inflation but emphasized a focus on managing through challenges [14] - The company anticipates flat to down 2% revenue growth for 2024, with expectations of a 30% adjusted EBITDA margin [39][64] - Management expressed optimism about the GLP-1 market landscape, viewing it as an opportunity for growth despite competitive challenges [75] Other Important Information - The company ended the year with a cash balance of approximately $327 million, impacted by over $140 million of one-time operating expenses and capital expenditures [38] - The company has resumed production at its plant for markets outside of China and is in the final stages of obtaining a manufacturing license for domestic products in China [47] Q&A Session Summary Question: What is driving the gross margin assumption for next year? - The gross margin assumption is impacted by FX headwinds, increased raw material and labor costs, and additional costs associated with cannulas purchased from BD [79][90] Question: What does the Medicare Part D win mean for sales? - The exclusive or dual-preferred status for three Medicare plans is expected to significantly increase market share and is incorporated into the guidance for next year [91] Question: Can you provide constant currency growth expectations for the Americas versus international? - The company does not separate constant currency guidance by region but expects stable dynamics in the U.S. with volume changes offset by pricing [94] Question: What is the expected TSA expense for 2024? - The guidance assumes TSA expenses of approximately $30 million to $35 million for 2024, down from $63 million in 2023 [100]

Financial Data and Key Metrics Changes - For Q3 2023, the company reported revenue of $286.1 million, a decrease of 1.7% on an as-reported basis and 0.3% on a constant currency basis [53][56] - GAAP gross profit was $189.5 million with a margin of 66.2%, down from $202.9 million and 69.7% in the prior year [7][73] - Adjusted net income was $39.8 million with earnings per share of $0.69, while GAAP net income was $15.2 million with earnings per diluted share of $0.26 [8][73] - The company raised its guidance for adjusted gross margin to approximately 66%, up from 64.5%, and adjusted EBITDA margin to approximately 33.5%, up from 32.5% [9][75] Business Line Data and Key Metrics Changes - The core injection business grew approximately 0.5% on a constant currency basis when normalizing for non-diabetes products [53][6] - U.S. revenue totaled $153.9 million, reflecting a year-over-year constant currency decline of 2.6% [43][56] - International revenue was $132.2 million, showing a year-over-year constant currency growth of 2.4% [6][55] Market Data and Key Metrics Changes - U.S. revenues were relatively flat on a constant currency basis, while international revenues grew approximately 3.2%, driven by emerging markets [54][56] - The company anticipates a 3.6% constant currency headwind in Q4 due to the lack of contract manufacturing revenue [14][74] Company Strategy and Development Direction - The company is focused on strengthening its base business, separating from BD, and investing in growth initiatives, particularly in the insulin patch pump program [41][52] - The company is monitoring competitive threats from new drug developments, including once-weekly insulin and GLP-1s, and is exploring opportunities to leverage its manufacturing capabilities [20][85] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the execution of strategic priorities and raised financial guidance based on better-than-expected Q3 performance [10][75] - The company is cautious about the impact of contract manufacturing revenue and anticipates a sequential step down in margins due to temporary operational suspensions [57][82] Other Important Information - The company has begun the demerger process for its manufacturing facility in Suzhou, China, and is implementing an ERP solution during the temporary suspension of operations [16][23] - The company holds approximately $317 million in cash and cash equivalents and $1.64 billion in debt, resulting in a net leverage ratio of approximately 3.4x [56] Q&A Session Questions and Answers Question: What are the expectations for the China facility shutdown and margin improvement? - Management indicated that the timing for the facility shutdown is still being determined and that they will provide a multi-year outlook as they progress [32][64] Question: How does the company plan to address the impact of new drug developments like GLP-1s? - Management is closely monitoring the market and believes it is too early to determine the long-term impact of GLP-1s on their business, noting that growth is primarily in emerging markets [20][85] Question: What are the assumptions for base business growth and volume growth in the U.S. and international markets? - The company anticipates core injection business growth of 1.3% to 3.3% on a constant currency basis in Q4, driven by expectations in both the U.S. and China [62][74]

PART I. FINANCIAL INFORMATION This section presents Embecta Corp.'s comprehensive financial information, including statements and management's analysis [Item 1. Financial Statements and Supplementary Data (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20and%20Supplementary%20Data%20(Unaudited)) Embecta Corp.'s unaudited condensed consolidated financial statements and detailed notes for specified periods are presented [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Presents Embecta Corp.'s unaudited condensed consolidated statements of income for specified periods Condensed Consolidated Statements of Income (Unaudited) | Metric (Millions USD) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Revenues | $286.1 | $291.1 | $838.9 | $854.9 | | Cost of products sold | $96.6 | $88.2 | $270.8 | $256.9 | | Gross Profit | $189.5 | $202.9 | $568.1 | $598.0 | | Operating Income | $51.3 | $97.1 | $195.7 | $312.6 | | Net Income | $15.2 | $62.4 | $64.4 | $240.8 | | Basic EPS | $0.27 | $1.08 | $1.13 | $4.17 | | Diluted EPS | $0.26 | $1.07 | $1.12 | $4.14 | - For the three months ended **June 30, 2023**, Net Income decreased by **75.6%** to **$15.2 million** from **$62.4 million** in the prior year. For the nine months ended **June 30, 2023**, Net Income decreased by **73.3%** to **$64.4 million** from **$240.8 million**[9](index=9&type=chunk)[119](index=119&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Details Embecta Corp.'s unaudited condensed consolidated statements of comprehensive income, including foreign currency adjustments Condensed Consolidated Statements of Comprehensive Income (Unaudited) | Metric (Millions USD) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net Income | $15.2 | $62.4 | $64.4 | $240.8 | | Foreign currency translation adjustments | $1.5 | $(21.4) | $30.2 | $(37.3) | | Comprehensive Income | $16.7 | $41.0 | $94.6 | $203.5 | - Foreign currency translation adjustments positively impacted comprehensive income by **$1.5 million** for the three months ended **June 30, 2023**, a significant improvement from a **$(21.4) million** loss in the prior year period[12](index=12&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Outlines Embecta Corp.'s unaudited condensed consolidated balance sheets, showing assets, liabilities, and equity Condensed Consolidated Balance Sheets (Unaudited) | Metric (Millions USD) | June 30, 2023 | September 30, 2022 | | :-------------------- | :------------ | :----------------- | | Total Current Assets | $787.5 | $664.7 | | Total Assets | $1,252.1 | $1,086.4 | | Total Current Liabilities | $385.8 | $301.0 | | Long-Term Debt | $1,595.0 | $1,598.1 | | Total Equity | $(809.4) | $(891.4) | - Total assets increased to **$1,252.1 million** as of **June 30, 2023**, from **$1,086.4 million** as of **September 30, 2022**, primarily driven by increases in current assets such as inventories and amounts due from Becton, Dickinson and Company[15](index=15&type=chunk) - Total Equity improved from an accumulated deficit of **$(891.4) million** to **$(809.4) million**, indicating a reduction in the accumulated deficit[15](index=15&type=chunk) [Condensed Consolidated Statements of Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Presents Embecta Corp.'s unaudited condensed consolidated statements of equity, detailing changes in capital and accumulated deficit Key Changes in Equity (Millions USD) | Metric | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :---------------------- | :------------------------------ | :------------------------------ | | Net income | $64.4 | $240.8 | | Other comprehensive income (loss) | $30.2 | $(37.3) | | Stock-based compensation plans | $16.6 | $5.8 | | Common dividends | $(25.8) | — | - The accumulated deficit decreased from **$(577.1) million** at **October 1, 2022**, to **$(538.5) million** at **June 30, 2023**, primarily due to net income and other comprehensive income, partially offset by common dividends[20](index=20&type=chunk) - Embecta paid common dividends of **$0.45 per share** (totaling **$25.8 million**) during the nine months ended **June 30, 2023**[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes Embecta Corp.'s unaudited condensed consolidated statements of cash flows, categorizing operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited) | Activity (Millions USD) | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :---------------------- | :------------------------------ | :------------------------------ | | Operating Activities | $38.1 | $354.2 | | Investing Activities | $(17.3) | $(15.4) | | Financing Activities | $(39.0) | $(40.9) | | Net Change in Cash | $(13.5) | $292.3 | - Net cash provided by operating activities significantly decreased to **$38.1 million** for the nine months ended **June 30, 2023**, from **$354.2 million** in the prior year, primarily due to lower net income and increased working capital usage[23](index=23&type=chunk)[144](index=144&type=chunk) - Cash and cash equivalents decreased by **$13.5 million** during the nine months ended **June 30, 2023**, closing at **$317.4 million**[23](index=23&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanatory notes to Embecta Corp.'s condensed consolidated financial statements [Note 1 — Background](index=10&type=section&id=Note%201%20%E2%80%94%20Background) Describes Embecta Corp.'s business as a global medical device company and its spin-off from Becton, Dickinson and Company - Embecta Corp. is a global medical device company focused on diabetes solutions, offering pen needles, syringes, safety devices, and a digital application[26](index=26&type=chunk) - The company spun off from Becton, Dickinson and Company (BD) on **April 1, 2022**, becoming a standalone publicly traded entity on The Nasdaq Global Select Market under the ticker 'EMBC'[27](index=27&type=chunk)[28](index=28&type=chunk) [Note 2 — Basis of Presentation](index=10&type=section&id=Note%202%20%E2%80%94%20Basis%20of%20Presentation) Explains the basis of presentation for Embecta Corp.'s financial statements, including post-separation consolidation and cost allocations - Post-Separation (**April 1, 2022**), Embecta's financial statements are presented on a consolidated basis, prepared in accordance with Form 10-Q rules[30](index=30&type=chunk) - Prior to Separation, financial statements were derived from BD's records, with certain corporate and shared costs allocated to Embecta[31](index=31&type=chunk)[32](index=32&type=chunk) - The company capitalizes costs for cloud computing arrangements, primarily for a new ERP system, totaling **$26.6 million** as of **June 30, 2023**[39](index=39&type=chunk) [Note 3 — Third Party Arrangements and Related Party Disclosures](index=11&type=section&id=Note%203%20%E2%80%94%20Third%20Party%20Arrangements%20and%20Related%20Party%20Disclosures) Details Embecta Corp.'s ongoing agreements and financial relationships with Becton, Dickinson and Company post-separation - Post-Separation, BD ceased to be a related party, but various agreements (e.g., TSA, Factoring, Supply) govern the ongoing relationship[42](index=42&type=chunk)[44](index=44&type=chunk) Amounts Due From/To BD (Millions USD) | Category | June 30, 2023 | | :------------------- | :------------ | | Amounts due from BD | $169.0 | | Amounts due to BD | $68.6 | - Transfers of certain assets and liabilities in jurisdictions like China, Mexico, and Italy were deferred at Separation and are expected to close at a future date[47](index=47&type=chunk) [Note 4 — Collaboration Agreement](index=13&type=section&id=Note%204%20%E2%80%94%20Collaboration%20Agreement) Outlines Embecta Corp.'s collaboration agreement for developing an interoperable automated glycemic controller for its insulin patch pump - In **March 2023**, Embecta entered a collaboration to develop and commercialize an interoperable automated glycemic controller (iAGC) for its insulin patch pump[54](index=54&type=chunk) - An upfront payment of **$2.5 million** for project costs was expensed to Research and development during the nine months ended **June 30, 2023**[54](index=54&type=chunk) [Note 5 — Other Operating Expenses](index=13&type=section&id=Note%205%20%E2%80%94%20Other%20Operating%20Expenses) Details Embecta Corp.'s separation and stand-up costs incurred to establish standalone operational functions Separation and Stand-up Costs (Millions USD) | Period | 2023 | 2022 | | :-------------------- | :---- | :---- | | Three months ended June 30 | $25.6 | $7.7 | | Nine months ended June 30 | $61.1 | $23.5 | - These costs primarily cover accounting, auditing, legal services, supply chain, employee retention, and ERP implementation to establish standalone functions[56](index=56&type=chunk) [Note 6 — Contingencies](index=14&type=section&id=Note%206%20%E2%80%94%20Contingencies) States that Embecta Corp. was not a party to any material legal proceedings as of June 30, 2023 - The Company was not a party to any material legal proceedings as of **June 30, 2023**, or **September 30, 2022**[57](index=57&type=chunk) [Note 7 — Revenues](index=14&type=section&id=Note%207%20%E2%80%94%20Revenues) Describes Embecta Corp.'s revenue recognition policies and sales deductions for diabetes management products - Embecta sells syringes, pen needles, and other diabetes management products primarily to wholesalers and distributors[58](index=58&type=chunk) Sales Deductions (Millions USD) | Period | 2023 | 2022 | | :-------------------- | :----- | :----- | | Three months ended June 30 | $106.2 | $84.8 | | Nine months ended June 30 | $294.0 | $248.7 | - The company's contract asset balance remained stable at **$1.2 million** as of **June 30, 2023**, and **September 30, 2022**[63](index=63&type=chunk) [Note 8 — Segment and Geographical Data](index=14&type=section&id=Note%208%20%E2%80%94%20Segment%20and%20Geographical%20Data) Presents Embecta Corp.'s revenue disaggregated by geographic region, operating as a single segment - Embecta operates as a single segment, with revenue disaggregated by geographic region[64](index=64&type=chunk)[67](index=67&type=chunk) Revenues by Geographic Region (Millions USD) | Region | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | United States | $153.9 | $158.0 | $449.6 | $450.4 | | International | $132.2 | $133.1 | $389.3 | $404.5 | | Total | $286.1 | $291.1 | $838.9 | $854.9 | [Note 9 — Stock-Based Compensation](index=15&type=section&id=Note%209%20%E2%80%94%20Stock-Based%20Compensation) Details Embecta Corp.'s stock-based compensation plans, including granted units and associated expenses - Embecta granted **634,032** time-vested restricted stock units (TVUs) and **244,192** performance-based restricted stock units (PSUs) during the nine months ended **June 30, 2023**[68](index=68&type=chunk)[69](index=69&type=chunk) Total Stock-Based Compensation Expense (Millions USD) | Period | 2023 | 2022 | | :-------------------- | :---- | :---- | | Three months ended June 30 | $5.7 | $5.8 | | Nine months ended June 30 | $17.0 | $14.3 | - Unrecognized compensation expense for non-vested stock-based awards was approximately **$37.7 million** as of **June 30, 2023**, to be recognized over a weighted-average remaining life of **2.0 years**[74](index=74&type=chunk) [Note 10 — Goodwill and Other Intangible Assets](index=17&type=section&id=Note%2010%20%E2%80%94%20Goodwill%20and%20Other%20Intangible%20Assets) Summarizes Embecta Corp.'s goodwill and other intangible assets, including patents and customer relationships Goodwill and Other Intangible Assets (Millions USD) | Asset Category | June 30, 2023 | September 30, 2022 | | :------------------------------ | :------------ | :----------------- | | Patents – net | $6.3 | $5.5 | | Customer Relationships and Other – net | $3.0 | $3.4 | | Total amortized intangible assets | $9.3 | $8.9 | | Goodwill | $15.7 | $15.7 | | Total Goodwill and Other Intangible Assets | $25.0 | $24.6 | [Note 11 — Long-Term Debt](index=17&type=section&id=Note%2011%20%E2%80%94%20Long-Term%20Debt) Outlines Embecta Corp.'s long-term debt structure, including term loans and senior secured notes - Embecta has a Credit Agreement including a **$950.0 million** Term Loan (matures **March 2029**, SOFR + 300 bps) and a **$500.0 million** Revolving Credit Facility (matures **2027**, undrawn as of **June 30, 2023**)[77](index=77&type=chunk)[78](index=78&type=chunk) - The company also has **$500.0 million** in **5.00%** senior secured notes and **$200.0 million** in **6.75%** senior secured notes, both due **February 2030**[77](index=77&type=chunk)[78](index=78&type=chunk) Total Debt Outstanding (Millions USD) | Debt Type | June 30, 2023 | | :------------------------ | :------------ | | Term Loan due March 2029 | $938.1 | | 5.00% Notes due February 2030 | $500.0 | | 6.75% Notes due February 2030 | $200.0 | | Total principal debt issued | $1,638.1 | | Long-term debt (net) | $1,595.0 | [Note 12 — Earnings per Share](index=18&type=section&id=Note%2012%20%E2%80%94%20Earnings%20per%20Share) Explains the calculation of Embecta Corp.'s basic and diluted earnings per share for various periods - The calculation of EPS for periods prior to the Separation (**April 1, 2022**) uses **57,012,925** shares, the number distributed to BD shareholders[80](index=80&type=chunk) Earnings Per Common Share (Unaudited) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :---------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Basic EPS | $0.27 | $1.08 | $1.13 | $4.17 | | Diluted EPS | $0.26 | $1.07 | $1.12 | $4.14 | | Basic weighted average shares (thousands) | 57,296 | 57,802 | 57,223 | 57,799 | | Diluted weighted average shares (thousands) | 57,582 | 58,207 | 57,714 | 58,204 | [Note 13 — Income Taxes](index=18&type=section&id=Note%2013%20%E2%80%94%20Income%20Taxes) Details Embecta Corp.'s effective tax rates and the primary factors influencing their changes Effective Tax Rates | Period | 2023 | 2022 | | :-------------------- | :---- | :---- | | Three months ended June 30 | 24.4% | 15.2% | | Nine months ended June 30 | 36.0% | 15.2% | - The increase in effective tax rates is primarily due to an increase in valuation allowance on interest expense carryforwards, higher tax expense on undistributed foreign earnings, and increased non-deductible expenses[83](index=83&type=chunk) [Note 14 — Financial Instruments and Fair Value Measurements](index=19&type=section&id=Note%2014%20%E2%80%94%20Financial%20Instruments%20and%20Fair%20Value%20Measurements) Describes Embecta Corp.'s financial instruments, fair value measurements, and management of market risks - Cash and cash equivalents totaled **$317.4 million** as of **June 30, 2023**, primarily held in money market funds (Level 1 fair value)[85](index=85&type=chunk) - The company uses foreign currency forward contracts to mitigate transactional currency exposures, with notional amounts of **$6.1 million** as of **June 30, 2023**[86](index=86&type=chunk)[87](index=87&type=chunk) - Embecta transferred the majority of its trade receivables to BD under Factoring Agreements, reducing its credit risk exposure[90](index=90&type=chunk) - Three customers collectively represented approximately **39.8%** of total gross revenues for the three months ended **June 30, 2023**, indicating a concentration of credit risk[91](index=91&type=chunk) [Note 15 — Property, Plant and Equipment](index=20&type=section&id=Note%2015%20%E2%80%94%20Property,%20Plant%20and%20Equipment) Presents Embecta Corp.'s property, plant, and equipment, net, categorized by asset type Property, Plant and Equipment, Net (Millions USD) | Asset Category | June 30, 2023 | September 30, 2022 | | :------------------------------ | :------------ | :----------------- | | Land | $2.3 | $1.4 | | Buildings | $127.1 | $123.7 | | Machinery, equipment and fixtures | $577.3 | $505.1 | | Construction in progress | $39.1 | $64.9 | | Total Property, Plant and Equipment, Net | $308.7 | $301.6 | [Note 16 — Leases](index=20&type=section&id=Note%2016%20%E2%80%94%20Leases) Details Embecta Corp.'s finance and operating lease obligations, including maturity schedules - Embecta has finance leases primarily for its Holdrege, Nebraska manufacturing site and operating leases mainly for real estate, including a new Corporate Headquarters in Parsippany, NJ[95](index=95&type=chunk)[96](index=96&type=chunk)[98](index=98&type=chunk) Lease Liabilities Maturities as of June 30, 2023 (Millions USD) | Fiscal Year | Finance Leases | Operating Leases | Total Lease Payments | | :---------- | :------------- | :--------------- | :------------------- | | 2023 | $0.9 | $0.7 | $1.6 | | 2024 | $3.6 | $3.8 | $7.4 | | 2025 | $3.7 | $2.9 | $6.6 | | 2026 | $3.7 | $2.6 | $6.3 | | 2027 | $3.8 | $2.2 | $6.0 | | Thereafter | $40.1 | $13.4 | $53.5 | | Total Lease Payments | $55.8 | $25.6 | $81.4 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Embecta's financial performance, key trends, liquidity, and strategic investments post-separation from BD [Company Overview](index=22&type=section&id=Company%20Overview) Embecta is a global medical device company specializing in diabetes care solutions, spun off from BD in **April 2022** - Embecta is a leading global medical device company specializing in diabetes care solutions, with products used by nearly **30 million** people in over **100 countries**[102](index=102&type=chunk) - The company's product portfolio includes pen needles, syringes, safety injection devices, and a proprietary digital application for diabetes management[103](index=103&type=chunk) - Embecta completed its spin-off from BD on **April 1, 2022**, becoming a standalone public company[105](index=105&type=chunk) [Key Trends Affecting Our Results of Operations](index=22&type=section&id=Key%20Trends%20Affecting%20Our%20Results%20of%20Operations) Key trends impacting operations include intense competition, pricing pressures, and shifts in diabetes treatment practices - The company faces significant competition from large and specialized companies, as well as non-traditional entrants in the highly regulated medical devices industry[108](index=108&type=chunk) - Increased scrutiny on healthcare spending, volume-based procurement, and group purchasing organizations are creating significant pricing pressures, impacting operating margins[109](index=109&type=chunk) - The market for traditional injection devices (insulin syringes and pen needles) is experiencing commoditization due to demand for affordable products and competition from low-cost providers[111](index=111&type=chunk) - Changes in clinical practice, including new drug therapies (e.g., SGLT-2s, GLP-1s) and the transition to insulin infusion pumps, are delaying insulin initiation and reducing demand for traditional products[112](index=112&type=chunk) [Recent Developments](index=23&type=section&id=Recent%20Developments) Recent developments cover the ongoing impact of the COVID-19 pandemic and broader macroeconomic conditions on operations - The COVID-19 pandemic continues to impact healthcare priorities, supply chains, and economic activities, leading to increased costs and disrupted availability of raw materials[116](index=116&type=chunk) - The company has mitigated supply chain disruptions by increasing inventory levels to ensure uninterrupted supply to customers[116](index=116&type=chunk) - Macroeconomic conditions, including inflation, slowing economic growth, rising interest rates, and volatility in capital markets, continue to affect revenues and results of operations[118](index=118&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Analysis of Embecta's financial results, including revenues, gross profit, operating income, and net income performance Summary of Financial Results (Millions USD) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | % Change | 9 Months Ended June 30, 2023 | 9 Months Ended June 30, 2022 | % Change | | :-------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Revenues | $286.1 | $291.1 | (1.7)% | $838.9 | $854.9 | (1.9)% | | Gross Profit | $189.5 | $202.9 | (6.6)% | $568.1 | $598.0 | (5.0)% | | Operating Income | $51.3 | $97.1 | (47.2)% | $195.7 | $312.6 | (37.4)% | | Net Income | $15.2 | $62.4 | (75.6)% | $64.4 | $240.8 | (73.3)% | - Revenue decreased by **$5.0 million** (**1.7%**) for the three months and **$16.0 million** (**1.9%**) for the nine months ended **June 30, 2023**, primarily due to negative foreign currency translation and unfavorable price/volume in the U.S., partially offset by international price/volume increases[121](index=121&type=chunk)[122](index=122&type=chunk) - Cost of products sold increased by **9.5%** and **5.4%** for the three and nine months, respectively, driven by inflation on raw materials, direct labor, and overhead, as well as higher costs from the Cannula Supply Agreement with BD[124](index=124&type=chunk) - Research and development expenses increased significantly by **58.0%** and **25.7%** for the three and nine months, respectively, due to increased investment in the insulin patch pump program and collaboration arrangement costs[126](index=126&type=chunk) - Interest expense, net, increased by **$7.5 million** and **$55.0 million** for the three and nine months, respectively, primarily due to higher interest rates on variable rate debt and debt outstanding for a longer period in fiscal year **2023**[128](index=128&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) Assessment of Embecta's financial flexibility, cash position, debt structure, and compliance with covenants - Embecta believes its cash, cash equivalents, cash from operations, and revolving credit facility provide sufficient financial flexibility for future funding needs[132](index=132&type=chunk) - The company has **$1,638.1 million** in total principal debt issued, including a Term Loan (**$938.1M**), **5.00%** Notes (**$500.0M**), and **6.75%** Notes (**$200.0M**)[137](index=137&type=chunk) - As of **June 30, 2023**, Embecta was in compliance with all financial covenants related to its credit agreement and notes[136](index=136&type=chunk) Net Cash Flows (Millions USD) | Activity | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :------------------ | :------------------------------ | :------------------------------ | | Operating activities | $38.1 | $354.2 | | Investing activities | $(17.3) | $(15.4) | | Financing activities | $(39.0) | $(40.9) | - Net cash provided by operating activities decreased significantly due to lower net income and increased working capital usage, including a **$42.5 million** increase in inventories[144](index=144&type=chunk) - Financing activities for the nine months ended **June 30, 2023**, included **$25.8 million** in dividend payments and **$7.1 million** in long-term debt payments[147](index=147&type=chunk) [Contractual Obligations](index=29&type=section&id=Contractual%20Obligations) Details Embecta's contractual obligations, including purchase and lease commitments, with no material changes reported - Contractual obligations include purchase obligations for goods and services and lease obligations, with no material changes outside the ordinary course of business as of **June 30, 2023**[150](index=150&type=chunk)[151](index=151&type=chunk) - The company expects significant costs for information technology infrastructure as it transitions to its own systems[150](index=150&type=chunk) [Critical Accounting Policies](index=30&type=section&id=Critical%20Accounting%20Policies) Confirms no changes to Embecta's critical accounting policies as detailed in the 2022 Form 10-K - There have been no changes to Embecta's critical accounting policies as of **June 30, 2023**, which are detailed in the 2022 Form 10-K[152](index=152&type=chunk) [Cautionary Statements Regarding Forward-Looking Statements](index=30&type=section&id=Cautionary%20Statements%20Regarding%20Forward-Looking%20Statements) Highlights risks and uncertainties associated with Embecta's forward-looking statements, including competitive and economic factors - The report contains forward-looking statements subject to numerous risks and uncertainties, including competitive factors, product profitability, BD's performance under separation agreements, increased operating costs, changes in reimbursement practices, foreign currency fluctuations, and geopolitical instability[153](index=153&type=chunk)[154](index=154&type=chunk) - Other risks include the impact of the Separation, dis-synergy costs, and the ability to complete strategic partnerships or acquisitions[162](index=162&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Embecta's exposure to foreign currency exchange and interest rate risks, and management strategies, are outlined - Embecta is exposed to foreign currency exchange rate risk due to global operations and mitigates this through forward contracts[157](index=157&type=chunk)[158](index=158&type=chunk) - Interest rate risk primarily relates to the Term Loan, with a **100 basis point** change in interest rates impacting annual interest expense by **$9.4 million** based on **June 30, 2023**, borrowings[160](index=160&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirms effective disclosure controls, with reliance on BD for certain internal control processes during transition - Embecta's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of **June 30, 2023**[161](index=161&type=chunk) - The company continues to rely on BD for certain material processes and internal control over financial reporting during the TSA period[163](index=163&type=chunk) - No changes in internal control over financial reporting during the fiscal quarter ended **June 30, 2023**, have materially affected or are reasonably likely to materially affect Embecta's internal control over financial reporting[163](index=163&type=chunk) PART II. OTHER INFORMATION This section provides additional information, including risk factors, exhibits, and official signatures [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) No material changes to Embecta's risk factors from those described in the 2022 Form 10-K are reported - No material changes to Embecta's risk factors from those described in the 2022 Form 10-K[166](index=166&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amended bylaws and certifications - Exhibits include Amended and Restated Bylaws (effective **August 2, 2023**), Certifications of CEO and CFO (pursuant to SEC Rule 13a–14(a) and Section 1350), and financial statements formatted in iXBRL[167](index=167&type=chunk) [Signatures](index=34&type=section&id=Signatures) Official signatures of Embecta Corp.'s key executives certify the accuracy of the report - The report is signed by Devdatt Kurdikar (President and CEO), Jacob Elguicze (SVP, CFO), and Brian Capone (VP, Controller and Chief Accounting Officer) on **August 8, 2023**[170](index=170&type=chunk)

Embecta Corp. (NASDAQ:EMBC) Q2 2023 Earnings Conference Call May 12, 2023 8:00 AM ET Company Participants Pravesh Khandelwal - Vice President, Investor Relations Dev Kurdikar - Chief Executive Officer Jake Elguicze - Chief Financial Officer Conference Call Participants Cecilia Furlong - Morgan Stanley Sam Eiber - BTIG Travis Steed - Bank of America Securities Anthony Petrone - Mizuho Securities Operator Welcome, ladies and gentlemen to the Fiscal Second Quarter 2023 Embecta Earnings Conference Call. At this ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2023 Or For the transition period from to Commission file number 001-41186 EMBECTA CORP. (Exact name of registrant as specified in its charter) (State or other jurisdiction of in ...

Embecta Corp. (NASDAQ:EMBC) Q1 2023 Earnings Conference Call February 14, 2023 8:00 AM ET Company Participants Pravesh Khandelwal - Vice President, Investor Relations Dev Kurdikar - Chief Executive Officer Jake Elguicze - Chief Financial Officer Conference Call Participants Cecilia Furlong - Morgan Stanley Marie Thibault - BTIG Travis Steed - Bank of America Operator Welcome, ladies and gentlemen to the Fiscal First Quarter 2023 Embecta Earnings Conference Call. [Operator Instructions] Please note that this ...

PART I. FINANCIAL INFORMATION Presents Embecta's unaudited condensed consolidated financial statements and management's discussion for Q4 2022 [Item 1. Financial Statements and Supplementary Data (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Embecta Corp.'s unaudited condensed consolidated financial statements for the three months ended December 31, 2022, including statements of income, comprehensive income, balance sheets, equity, and cash flows, along with detailed notes explaining the company's background, accounting policies, and financial positions post-separation from BD [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Provides a snapshot of Embecta's financial performance for the three months ended December 31, 2022, compared to the same period in 2021, showing significant declines in revenue, gross profit, operating income, and net income | Metric | 3 Months Ended Dec 31, 2022 (Millions USD) | 3 Months Ended Dec 31, 2021 (Millions USD) | Change (%) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------- | | **Revenues** | **275.7** | **289.3** | **(4.7%)** | | **Cost of products sold** | **86.9** | **85.4** | **1.8%** | | **Gross Profit** | **188.8** | **203.9** | **(7.4%)** | | **Operating Income** | **88.8** | **116.6** | **(23.8%)** | | **Net Income** | **35.2** | **98.8** | **(64.4%)** | | **Basic EPS** | **0.62** | **1.73** | **(64.2%)** | | **Diluted EPS** | **0.61** | **1.73** | **(64.7%)** | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Details the comprehensive income for the three months ended December 31, 2022 and 2021, highlighting the impact of foreign currency translation adjustments on net income | Metric | 3 Months Ended Dec 31, 2022 (Millions USD) | 3 Months Ended Dec 31, 2021 (Millions USD) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | **Net Income** | **35.2** | **98.8** | | Foreign currency translation adjustments | **26.0** | **(8.8)** | | Other Comprehensive Income (Loss) | **26.0** | **(8.8)** | | Comprehensive Income | **61.2** | **90.0** | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents Embecta's financial position as of December 31, 2022, compared to September 30, 2022, showing an increase in total assets and a decrease in total equity, primarily due to changes in current assets and liabilities | Metric | December 31, 2022 (Millions USD) | September 30, 2022 (Millions USD) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total Current Assets | **761.7** | **664.7** | | Total Assets | **1,196.9** | **1,086.4** | | Total Current Liabilities | **370.3** | **301.0** | | **Long-Term Debt** | **1,597.1** | **1,598.1** | | Total Equity | **(836.1)** | **(891.4)** | | Total Liabilities and Equity | **1,196.9** | **1,086.4** | - **Cash and cash equivalents increased** from **$330.9 million** to **$385.2 million**[15](index=15&type=chunk) - **Inventories increased** from **$122.8 million** to **$143.4 million**[15](index=15&type=chunk) - **Accrued expenses increased** from **$104.3 million** to **$156.8 million**[15](index=15&type=chunk) [Condensed Consolidated Statements of Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Outlines the changes in Embecta's equity for the periods ended December 31, 2021, and December 31, 2022, reflecting the impact of net income, other comprehensive income, stock-based compensation, and dividends | Metric | Balance at Oct 1, 2022 (Millions USD) | Net Income (Millions USD) | Other Comprehensive Income (Millions USD) | Stock-based Compensation (Millions USD) | Common Dividends (Millions USD) | Issuance of Shares (Millions USD) | Balance at Dec 31, 2022 (Millions USD) | | :-------------------------------- | :------------------------------------ | :------------------------ | :---------------------------------------- | :-------------------------------------- | :------------------------------ | :-------------------------------- | :--------------------------------------- | | Common Stock (Par Value) | **0.6** | — | — | — | — | — | **0.6** | | Additional Paid-In Capital | **10.0** | — | — | **5.5** | — | **(2.8)** | **12.7** | | Accumulated Deficit | **(577.1)** | **35.2** | — | — | **(8.6)** | — | **(550.5)** | | Accumulated Other Comprehensive Loss | **(324.9)** | — | **26.0** | — | — | — | **(298.9)** | | Total Equity | **(891.4)** | **35.2** | **26.0** | **5.5** | **(8.6)** | **(2.8)** | **(836.1)** | - **Common dividends** of **$0.15** per share, totaling **$8.6 million**, were paid[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Details Embecta's cash flow activities for the three months ended December 31, 2022, compared to 2021, showing a significant decrease in cash provided by operating activities and changes in financing activities post-separation | Activity | 3 Months Ended Dec 31, 2022 (Millions USD) | 3 Months Ended Dec 31, 2021 (Millions USD) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net Cash Provided by Operating Activities | **60.4** | **138.8** | | Net Cash Used for Investing Activities | **(4.7)** | **(4.3)** | | Net Cash Used for Financing Activities | **(6.1)** | **(134.5)** | | Effect of exchange rate changes on cash | **4.7** | — | | Net Change in Cash and cash equivalents | **54.3** | — | | Closing Cash and cash equivalents | **385.2** | — | - **Operating cash flow decreased** primarily due to **lower net income** and **changes in working capital**, including **increased inventories** and **amounts due from BD**[21](index=21&type=chunk)[137](index=137&type=chunk) - **Financing activities** in **2022** included **debt payments** (**$2.4 million**), **tax withholding for stock-based compensation** (**$2.8 million**), and **finance lease payments** (**$0.9 million**)[21](index=21&type=chunk)[141](index=141&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Details Embecta's accounting policies, financial positions, and transactions post-BD separation [Note 1—Background](index=9&type=section&id=Note%201%E2%80%94Background) Embecta Corp. is a global medical device company focused on diabetes solutions, spun off from Becton, Dickinson and Company (BD) on April 1, 2022, becoming a standalone publicly traded entity - Embecta provides pen needles, syringes, safety devices, and a digital application for diabetes management[24](index=24&type=chunk) - The **Separation** from BD occurred on **April 1, 2022**, via a pro-rata distribution of Embecta common stock to BD shareholders[25](index=25&type=chunk)[26](index=26&type=chunk) - Embecta common stock commenced regular-way trading on Nasdaq Global Select Market under "EMBC" on **April 1, 2022**[26](index=26&type=chunk) [Note 2 - Basis of Presentation](index=9&type=section&id=Note%202%20-%20Basis%20of%20Presentation) Explains that Embecta's financial statements are now consolidated post-separation (April 1, 2022), whereas prior periods were derived from BD's combined financial statements, and outlines key accounting policies and estimates - Post-Separation (**April 1, 2022**), financial statements are presented on a consolidated basis[28](index=28&type=chunk) - Prior to Separation, financial statements were derived from BD's consolidated statements, with certain corporate and shared costs allocated to the Diabetes Care Business[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - Net Investment from Becton, Dickinson and Company was reclassified as Common Stock and Accumulated Deficit as part of the Separation[33](index=33&type=chunk) - The Company adopted ASU **2021-08** at the beginning of fiscal year **2023**, which did not materially impact financial statements[37](index=37&type=chunk) [Note 3 — Third Party Arrangements and Related Party Disclosures](index=10&type=section&id=Note%203%20%E2%80%94%20Third%20Party%20Arrangements%20and%20Related%20Party%20Disclosures) Details the agreements and financial arrangements between Embecta and BD post-separation, including ongoing services, asset/liability transfers, and the cessation of related party reporting after April 1, 2022 - BD ceased to be a related party to Embecta after **April 1, 2022**[38](index=38&type=chunk) - Agreements with BD include Transition Services, Factoring, Distribution, Cannula Supply, Tax Matters, and Logistics Services[39](index=39&type=chunk)[40](index=40&type=chunk) - Amounts due from BD were **$123.4 million** and due to BD were **$69.7 million** as of **December 31, 2022**[42](index=42&type=chunk) - Transfers of certain assets and liabilities in jurisdictions like China, Mexico, and Italy were deferred and are expected to close at a future date[43](index=43&type=chunk) [Note 4 — Other Operating Expenses](index=12&type=section&id=Note%204%20%E2%80%94%20Other%20Operating%20Expenses) Reports the separation and restructuring costs incurred by Embecta during the three months ended December 31, 2022 and 2021, primarily for establishing standalone functions - **Separation and stand-up costs**: **$9.9 million** (Q4 **2022**) vs. **$8.4 million** (Q4 **2021**)[50](index=50&type=chunk) - **Restructuring related costs**: **$0.4 million** (Q4 **2022**)[50](index=50&type=chunk) - Costs primarily cover accounting, auditing, legal, supply chain, employee retention, and establishing standalone corporate functions[50](index=50&type=chunk) [Note 5 — Contingencies](index=12&type=section&id=Note%205%20%E2%80%94%20Contingencies) States that Embecta was not a party to any material legal proceedings as of December 31, 2022, or September 30, 2022 - **No material legal proceedings** as of **December 31, 2022**[51](index=51&type=chunk) [Note 6 — Revenues](index=12&type=section&id=Note%206%20%E2%80%94%20Revenues) Describes Embecta's revenue recognition policies, product sales channels, and the impact of variable consideration (rebates, discounts, returns) on gross revenues - Products sold include syringes, pen needles, and other diabetes management products, primarily to wholesalers and distributors[52](index=52&type=chunk) - **Variable consideration** (rebates, sales discounts, sales returns) reduced gross revenues by **$92.6 million** in Q4 **2022** (vs. **$85.8 million** in Q4 **2021**)[54](index=54&type=chunk)[56](index=56&type=chunk) - Contract asset balance was **$1.2 million** as of **December 31, 2022**[58](index=58&type=chunk) [Note 7 — Segment and Geographical Data](index=13&type=section&id=Note%207%20%E2%80%94%20Segment%20and%20Geographical%20Data) Confirms Embecta operates as a single operating segment and provides a disaggregation of revenues by geographic region, showing a decline in international revenues - Embecta operates in one segment[59](index=59&type=chunk) | Region | 3 Months Ended Dec 31, 2022 (Millions USD) | 3 Months Ended Dec 31, 2021 (Millions USD) | | :------------- | :--------------------------------------- | :--------------------------------------- | | United States | **149.3** | **150.9** | | International | **126.4** | **138.4** | | Total | **275.7** | **289.3** | - **International revenues decreased** by **$12.0 million**, while **U.S. revenues** slightly **decreased** by **$1.6 million**[61](index=61&type=chunk) [Note 8 — Stock-Based Compensation](index=13&type=section&id=Note%208%20%E2%80%94%20Stock-Based%20Compensation) Details the types of stock-based awards granted (TVUs, PSUs, SARs), the associated compensation expense, and the remaining unrecognized expense - Granted **572,884** Time Vested Restricted Stock Units (TVUs) and **244,192** Performance Based Restricted Stock Units (PSUs) in Q4 **2022**[62](index=62&type=chunk)[63](index=63&type=chunk) - **Total stock-based compensation expense**: **$5.5 million** (Q4 **2022**) vs. **$4.6 million** (Q4 **2021**)[65](index=65&type=chunk) - **Unrecognized compensation expense** for non-vested awards: **$38.9 million**, expected to be recognized over **2.4 years**[69](index=69&type=chunk) [Note 9 — Goodwill and Other Intangible Assets](index=15&type=section&id=Note%209%20%E2%80%94%20Goodwill%20and%20Other%20Intangible%20Assets) Provides a breakdown of Embecta's goodwill and other intangible assets, including patents and customer relationships, as of December 31, 2022, and September 30, 2022 | Asset Category | December 31, 2022 (Millions USD) | September 30, 2022 (Millions USD) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Patents – net | **5.4** | **5.5** | | Customer Relationships and Other – net | **3.2** | **3.4** | | Total amortized intangible assets | **8.6** | **8.9** | | Goodwill | **15.7** | **15.7** | | Total Goodwill and Other Intangible Assets | **24.3** | **24.6** | [Note 10 — Long-Term Debt](index=15&type=section&id=Note%2010%20%E2%80%94%20Long-Term%20Debt) Outlines Embecta's long-term debt structure, including the Term Loan B Facility, 5.00% Senior Secured Notes, and 6.75% Senior Secured Notes, along with associated covenants and payment schedules - **Total principal debt issued**: **$1,642.9 million** as of **December 31, 2022**[73](index=73&type=chunk) - Comprises a **$950.0 million Term Loan** (SOFR + **300** bps, **0.50%** floor, matures March **2029**), **$500.0 million 5.00% Notes** (due Feb **2030**), and **$200.0 million 6.75% Notes** (due Feb **2030**)[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - **Long-term debt** (net of current obligations, issuance costs, and discounts): **$1,597.1 million**[73](index=73&type=chunk) - **Estimated fair value of long-term debt**: **$1,497.7 million** (carrying value **$1,606.6 million**) as of **December 31, 2022**[74](index=74&type=chunk) - The company was in **compliance with all debt covenants** as of **December 31, 2022**[71](index=71&type=chunk) [Note 11 — Earnings per Share](index=16&type=section&id=Note%2011%20%E2%80%94%20Earnings%20per%20Share) Explains the calculation of basic and diluted earnings per common share, noting the share distribution post-separation and the exclusion of anti-dilutive awards - **Basic EPS**: **$0.62** (Q4 **2022**) vs. **$1.73** (Q4 **2021**)[77](index=77&type=chunk) - **Diluted EPS**: **$0.61** (Q4 **2022**) vs. **$1.73** (Q4 **2021**)[77](index=77&type=chunk) - Basic weighted average shares outstanding: **57,113 thousand** (Q4 **2022**) vs. **57,013 thousand** (Q4 **2021**)[77](index=77&type=chunk) - **2.0 million** dilutive share equivalents were excluded from diluted EPS calculation in Q4 **2022** due to being anti-dilutive[79](index=79&type=chunk) [Note 12 — Income Taxes](index=17&type=section&id=Note%2012%20%E2%80%94%20Income%20Taxes) Discusses the effective tax rates for the periods and the primary reasons for the increase in the effective tax rate in Q4 2022 - **Effective tax rate**: **37.3%** (Q4 **2022**) vs. **15.3%** (Q4 **2021**)[81](index=81&type=chunk) - **Increase** in **effective tax rate primarily due to a valuation allowance against interest expense carryforwards**, **increased tax expense on undistributed foreign earnings**, and **increased U.S. taxes on foreign earnings**[81](index=81&type=chunk) [Note 13 — Financial Instruments and Fair Value Measurements](index=17&type=section&id=Note%2013%20%E2%80%94%20Financial%20Instruments%20and%20Fair%20Value%20Measurements) Addresses Embecta's cash and cash equivalents, foreign currency exposures and hedging strategies, nonrecurring fair value measurements, and concentration of credit risk - **Cash and cash equivalents**: **$385.2 million** as of **December 31, 2022** (Level **1** fair value hierarchy)[82](index=82&type=chunk) - Uses **foreign currency forward contracts** to mitigate transactional currency exposures. **Notional amounts of undesignated foreign exchange contracts increased** to **$26.7 million** (Dec **2022**) from **$5.1 million** (Sep **2022**)[83](index=83&type=chunk)[84](index=84&type=chunk) - Transferred majority of trade receivables to BD under Factoring Agreements, reducing credit risk exposure[86](index=86&type=chunk) - **Three customers represented approximately 40.5%** of total gross revenues for Q4 **2022**[87](index=87&type=chunk) [Note 14 — Property, Plant and Equipment](index=18&type=section&id=Note%2014%20%E2%80%94%20Property,%20Plant%20and%20Equipment) Provides a detailed breakdown of Embecta's property, plant, and equipment, net, as of December 31, 2022, and September 30, 2022 | Asset Category | December 31, 2022 (Millions USD) | September 30, 2022 (Millions USD) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Land | **2.4** | **1.4** | | Buildings | **127.9** | **123.7** | | Machinery, equipment and fixtures | **550.6** | **505.1** | | Construction in progress | **50.7** | **64.9** | | Total Property, Plant and Equipment, Net | **314.3** | **301.6** | [Note 15 — Leases](index=18&type=section&id=Note%2015%20%E2%80%94%20Leases) Details Embecta's finance and operating lease liabilities, including the manufacturing site in Holdrege, Nebraska, and the new corporate headquarters in Parsippany, NJ - **Finance lease liabilities**: **$35.9 million** (Dec **2022**) vs. **$36.2 million** (Sep **2022**)[93](index=93&type=chunk) - **Operating lease liabilities**: **$7.3 million** (Dec **2022**) vs. **$6.3 million** (Sep **2022**)[93](index=93&type=chunk) - **Weighted-average remaining lease term** for finance leases: **14.3 years**; for operating leases: **3.0 years**[93](index=93&type=chunk) - Entered a real estate lease for a new Corporate Headquarters in Parsippany, NJ, with an initial term of **ten years**, commencing in Q2 fiscal year **2023**[93](index=93&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Embecta's financial condition and operational results for the three months ended December 31, 2022, discussing key trends, recent developments, detailed financial performance, and liquidity and capital resources [Company Overview](index=20&type=section&id=Company%20Overview) Embecta is a leading global medical device company specializing in diabetes care, with a nearly 100-year history, offering a broad portfolio of injection devices and a digital application - Provides solutions for people living with diabetes, with products used by nearly **30 million** people in over **100** countries[96](index=96&type=chunk) - Product portfolio includes pen needles, syringes, safety injection devices, and a proprietary digital application[97](index=97&type=chunk) - Primarily sells products to wholesalers and distributors[98](index=98&type=chunk) - Completed separation from BD on **April 1, 2022**[99](index=99&type=chunk) [Key Trends Affecting Our Results of Operations](index=20&type=section&id=Key%20Trends%20Affecting%20Our%20Results%20of%20Operations) Discusses significant industry trends impacting Embecta, including intense competition, pricing pressures, commoditization of injection devices, changes in clinical practice, and the decentralization of chronic care - **Competition**: Faces **significant competition** from large and specialized companies, and non-traditional entrants[102](index=102&type=chunk) - **Pricing Pressures**: **Increased** scrutiny on healthcare spending and a shift towards volume-based procurement lead to pressure on pricing[103](index=103&type=chunk) - **Commoditization of Injection Devices**: Growing demand for affordable products and new low-cost providers **increase** competition in insulin syringes and pen needles[105](index=105&type=chunk) - **Changes in Clinical Practice**: Introduction of new anti-diabetic drugs (e.g., SGLT-2s, GLP-1s) delays insulin therapy initiation, reducing demand for products[106](index=106&type=chunk) - COVID-19 Impact: Accelerated adoption of digital healthcare technologies and telehealth, requiring adaptation of product delivery and sales efforts[107](index=107&type=chunk) - Decentralization of Chronic Care: Healthcare delivery for non-emergency diabetes care is shifting from hospitals to primary care providers[108](index=108&type=chunk) - Political and Economic Instability: Operates in emerging markets subject to political and economic disruptions, managed through product diversification and channel strategies[109](index=109&type=chunk) [Recent Developments](index=21&type=section&id=Recent%20Developments) Addresses the ongoing impacts of the COVID-19 pandemic on supply chains and economic activities, and the potential effects of global macroeconomic conditions and geopolitical instability - **COVID-19 Pandemic**: Continues to cause **supply chain constraints**, **inflation in raw material costs**, and **increased distribution costs**[110](index=110&type=chunk) - Mitigation: **Successfully mitigated disruptions** by **increasing** inventory levels[110](index=110&type=chunk) - **Russia and Ukraine Conflict**: Net sales in these regions were **not material**, but the conflict creates uncertainty for the global economy, supply chains, and fuel prices[111](index=111&type=chunk) - **Macroeconomic Conditions**: Revenues and results are affected by inflation, slowing economic growth, rising interest rates, and volatility in capital markets[112](index=112&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Provides a detailed analysis of Embecta's financial performance for the three months ended December 31, 2022, compared to the prior year, highlighting revenue decline, increased costs, and reduced profitability | Metric | 3 Months Ended Dec 31, 2022 (Millions USD) | 3 Months Ended Dec 31, 2021 (Millions USD) | Change (%) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------- | | **Revenues** | **275.7** | **289.3** | **(4.7%)** | | **Cost of products sold** | **86.9** | **85.4** | **1.8%** | | **Gross Profit** | **188.8** | **203.9** | **(7.4%)** | | **Operating Income** | **88.8** | **116.6** | **(23.8%)** | | **Net Income** | **35.2** | **98.8** | **(64.4%)** | [Revenues](index=23&type=section&id=Revenues) Revenues decreased by $13.6 million (4.7%) to $275.7 million, primarily due to unfavorable foreign currency translation effects, partially offset by favorable price and volume changes in international regions - **Decrease** of **$13.6 million** (**4.7%**) to **$275.7 million**[115](index=115&type=chunk) - **$15.6 million decrease** attributed to **unfavorable foreign currency translation**[115](index=115&type=chunk) - **Contract manufacturing for BD** favorably impacted current period revenues[115](index=115&type=chunk) [Cost of products sold](index=23&type=section&id=Cost%20of%20products%20sold) Cost of products sold increased by $1.5 million (1.8%) to $86.9 million, primarily driven by inflationary pressures on raw materials, freight, direct labor, and overhead - **Increased** by **$1.5 million** (**1.8%**) to **$86.9 million**[116](index=116&type=chunk) - **As a percentage of revenues**, **increased** from **29.5%** to **31.5%**[116](index=116&type=chunk) - **Primarily driven by inflation** on raw materials, freight, direct labor, and overhead[116](index=116&type=chunk) [Selling and administrative expenses](index=23&type=section&id=Selling%20and%20administrative%20expenses) Selling and administrative expenses increased by $10.6 million (17.0%) to $72.8 million, mainly due to higher compensation and benefit costs from increased headcount post-separation - **Increased** by **$10.6 million** (**17.0%**) to **$72.8 million**[117](index=117&type=chunk) - Driven by **increased headcount** and associated compensation/benefit costs due to becoming a standalone company[117](index=117&type=chunk) [Research and development expenses](index=23&type=section&id=Research%20and%20development%20expenses) Research and development expenses slightly increased by $0.2 million (1.2%) to $16.9 million, primarily due to the timing of R&D projects - **Increased** by **$0.2 million** (**1.2%**) to **$16.9 million**[118](index=118&type=chunk) - Primarily due to **timing of R&D projects**[118](index=118&type=chunk) [Other operating expenses](index=23&type=section&id=Other%20operating%20expenses) Other operating expenses increased to $10.3 million, driven by separation-related costs such as accounting, auditing, legal services, and establishing standalone corporate functions - **Increased** to **$10.3 million** (Q4 **2022**) from **$8.4 million** (Q4 **2021**)[119](index=119&type=chunk) - Primarily related to **separation and stand-up costs**[119](index=119&type=chunk) [Interest expense, net](index=23&type=section&id=Interest%20expense,%20net) Interest expense, net, increased to $25.6 million due to higher interest rates on variable rate debt issued post-separation - **Increased** to **$25.6 million** (Q4 **2022**) from zero (Q4 **2021**)[120](index=120&type=chunk) - Primarily due to **higher interest rates on variable rate debt** issued on **March 31, 2022**[120](index=120&type=chunk) [Other income (expense), net](index=23&type=section&id=Other%20income%20(expense),%20net) Other income (expense), net, was a net expense of $7.1 million, mainly due to amounts owed to BD for tax liabilities in deferred jurisdictions - Net expense of **$(7.1) million** (Q4 **2022**)[121](index=121&type=chunk) - Primarily related to **tax liabilities owed to BD** in deferred jurisdictions[121](index=121&type=chunk) [Income tax provision](index=24&type=section&id=Income%20tax%20provision) The effective tax rate increased significantly to 37.3% from 15.3%, mainly due to a valuation allowance against interest expense carryforwards and increased taxes on foreign earnings - **Effective tax rate**: **37.3%** (Q4 **2022**) vs. **15.3%** (Q4 **2021**)[122](index=122&type=chunk) - **Increase** due to **valuation allowance against interest expense carryforwards** and **increased U.S. taxes on foreign subsidiaries' earnings**[122](index=122&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=24&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Embecta believes its cash, cash equivalents, operating cash flow, and revolving credit facility provide sufficient financial flexibility for its foreseeable needs, while also having access to additional financing - Believes current liquidity sources are **sufficient** for working capital, capital expenditures, debt service, dividends, share repurchases, and growth opportunities[123](index=123&type=chunk) - Credit profile should provide **access to additional financing** if needed[123](index=123&type=chunk) [Debt](index=24&type=section&id=Debt) Details Embecta's long-term debt, including the Term Loan and Senior Secured Notes, and confirms compliance with financial covenants - **Total principal debt outstanding**: **$1,642.9 million** as of **December 31, 2022**[128](index=128&type=chunk) - Includes a **$950.0 million Term Loan**, **$500.0 million 5.00% Notes**, and **$200.0 million 6.75% Notes**[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) - **Revolving Credit Facility** of up to **$500.0 million**, with **no amount drawn** as of **December 31, 2022**[125](index=125&type=chunk) - In **compliance with all debt covenants** as of **December 31, 2022**[127](index=127&type=chunk) - **Weighted average cost of total debt**: **6.7%**[129](index=129&type=chunk) [Leases](index=25&type=section&id=Leases) Describes the finance lease for the Holdrege, Nebraska manufacturing facility and the operating lease for the new corporate headquarters in Parsippany, NJ - **Finance lease** for Holdrege, Nebraska manufacturing facility (**10-year** initial term)[130](index=130&type=chunk) - New Corporate Headquarters lease in Parsippany, NJ, commenced in Q2 fiscal year **2023** (**10-year** initial term)[131](index=131&type=chunk) - **Total lease payments** (finance and operating) for **2023**: **$4.9 million**[131](index=131&type=chunk) [Factoring Agreements](index=25&type=section&id=Factoring%20Agreements) Mentions the Factoring Agreements with BD, under which Embecta pays a service fee for BD's services related to transferred trade receivables - Entered Factoring Agreements with BD post-separation[133](index=133&type=chunk) - Embecta pays BD a **service fee of 0.1% of annual revenues** related to countries subject to the agreement[133](index=133&type=chunk) [Access to Capital and Credit Ratings](index=25&type=section&id=Access%20to%20Capital%20and%20Credit%20Ratings) Provides Embecta's credit ratings from Moody's and Standard & Poor's - **Moody's Investor Services**: Ba3 (**January 2023**)[134](index=134&type=chunk) - **Standard & Poor's Ratings Services**: B+ (**January 2022**)[134](index=134&type=chunk) [Cash Flows](index=26&type=section&id=Cash%20Flows) Summarizes the net cash flows from operating, investing, and financing activities for the three months ended December 31, 2022 and 2021 | Activity | 3 Months Ended Dec 31, 2022 (Millions USD) | 3 Months Ended Dec 31, 2021 (Millions USD) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by Operating activities | **60.4** | **138.8** | | Net cash used for Investing activities | **(4.7)** | **(4.3)** | | Net cash used for Financing activities | **(6.1)** | **(134.5)** | - **Operating cash flow decreased** due to **lower net income** and **changes in working capital** (e.g., **increased inventories**, **amounts due from BD**)[137](index=137&type=chunk) - **Financing cash flow** in **2022** included **debt payments**, **tax withholding for stock-based compensation**, and **finance lease payments**[141](index=141&type=chunk) - A **quarterly dividend of $0.15 per share** was declared on **February 14, 2023**[142](index=142&type=chunk) [Contractual Obligations](index=27&type=section&id=Contractual%20Obligations) States that there have been no material changes to contractual obligations (purchase and lease obligations) since the 2022 Form 10-K, with significant future costs expected for IT infrastructure - **No material changes to contractual obligations** as of **December 31, 2022**[143](index=143&type=chunk) - **Significant future costs expected for information technology infrastructure** as the company transitions to its own systems[143](index=143&type=chunk) [Critical Accounting Policies](index=27&type=section&id=Critical%20Accounting%20Policies) Refers to the 2022 Form 10-K for significant accounting policies and critical accounting estimates, noting no changes in policies as of December 31, 2022 - **No changes to accounting policies** as of **December 31, 2022**[144](index=144&type=chunk) - **Significant accounting policies** and critical estimates are detailed in the **2022** Form **10-K**[144](index=144&type=chunk) [Cautionary Statements Regarding Forward-Looking Statements](index=27&type=section&id=Cautionary%20Statements%20Regarding%20Forward-Looking%20Statements) Provides a standard disclaimer regarding forward-looking statements, outlining numerous risks and uncertainties that could cause actual results to differ materially from projections - **Forward-looking statements are based on present intent, beliefs, or expectations** and are **not guarantees of future performance**[145](index=145&type=chunk) - Risks include competitive factors, adverse effects on key products/customers, BD's performance under separation agreements, **increased** operating costs, foreign currency fluctuations, regulatory changes, COVID-19/geopolitical instability, dis-synergy costs, and integration challenges post-separation[146](index=146&type=chunk)[148](index=148&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses Embecta's exposure to market risks, specifically foreign currency exchange rate risks and interest rate risks, and the strategies employed to manage them - Operates globally and is exposed to **foreign currency exchange rate risks**, which are managed through **foreign currency forward exchange contracts**[149](index=149&type=chunk)[150](index=150&type=chunk) - **Interest rate risk** primarily relates to the **Term Loan (SOFR + 300 bps, 0.50% SOFR floor)**; a **100 basis point change in interest rates would impact interest expense by $9.4 million annually**[152](index=152&type=chunk)[153](index=153&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of Embecta's disclosure controls and procedures, concluding they were effective as of December 31, 2022, with no material changes to internal control over financial reporting - **Disclosure controls and procedures were evaluated as effective** as of **December 31, 2022**[154](index=154&type=chunk) - **No material changes in internal control over financial reporting** during the fiscal quarter ended **December 31, 2022**[155](index=155&type=chunk) - **The company continues to rely on certain material processes and internal control over financial reporting performed by BD during the Transition Services Agreement (TSA) period**[155](index=155&type=chunk) PART II. OTHER INFORMATION Presents additional information including risk factors, exhibits, and executive signatures [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) States that there have been no material changes to the risk factors previously described in the 2022 Form 10-K - **No material changes to risk factors** from the **2022** Form **10-K**[158](index=158&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) Lists the exhibits filed with the Form 10-Q, including certifications from executive officers and XBRL financial data - **Includes certifications of CEO and CFO** (Exhibits **31.1**, **31.2**, **32.1**, **32.2**)[159](index=159&type=chunk) - **Includes iXBRL formatted financial statements** (Exhibit **101**) and **Cover Page Interactive Data File** (Exhibit **104**)[159](index=159&type=chunk) [Signatures](index=31&type=section&id=Signatures) Contains the signatures of Embecta Corp.'s President and Chief Executive Officer, Senior Vice President and Chief Financial Officer, and Vice President, Controller and Chief Accounting Officer, certifying the report - **Signed by Devdatt Kurdikar** (President and CEO), **Jacob Elguicze** (SVP, CFO), and **Brian Capone** (VP, Controller and CAO)[162](index=162&type=chunk) - **Date of signing**: **February 14, 2023**[162](index=162&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _ to _ Commission file number 001-41186 EMBECTA CORP. (Exact name of registrant as specified in its charter) Delaware 87-1583942 (State or other jurisdiction of incorporatio ...