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 ...

Table of Contents Title of each class Trading symbol(s) Name of each exchange on which registered Common Stock, par value $0.01 per share EMBC The Nasdaq Stock Market LLC (Nasdaq Glob Select Market) 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 For the quarterly period ended: June 30, 2022 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE AC ...

Embecta Corp. (NASDAQ:EMBC) Q3 2022 Earnings Conference Call August 15, 2022 8:00 AM ET Company Participants Pravesh Khandelwal – Head-Investor Relations Dev Kurdikar – Chief Executive Officer Jake Elguicze – Chief Financial Officer Conference Call Participants Travis Steed – Bank of America Cecilia Furlong – Morgan Stanley Marie Thibault – BTIG Operator Please stand by. Welcome, ladies and gentlemen, to the Third Quarter Fiscal Year 2022 Earnings Conference Call for Embecta Corp. At this time all participa ...

Embecta Corp. (NASDAQ:EMBC) Q2 2022 Results Earnings Conference Call May 13, 2022 8:00 AM ET Company Participants Devdatt Kurdikar - President and Chief Executive Officer Jake Elguicze - Senior Vice President and Chief Financial Officer Conference Call Participants Marie Thibault - BTIG Securities Cecilia Furlong - Morgan Stanley Danielle Antalffy - SVB Securities Mathew Blackman - Stifel Institutional Operator Please stand by. Welcome, ladies and gentlemen, to the second quarter of fiscal year 2022 earning ...

Table of Contents Title of each class Trading symbol(s) Name of each exchange on which registered Common Stock, par value $0.01 per share EMBC The Nasdaq Stock Market LLC (Nasdaq Glob Select Market) 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 For the quarterly period ended: March 31, 2022 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE A ...

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 For the quarterly period ended: December 31, 2021 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | |---------------------------------------------------------------------------------------------------------------------- ...