Embecta (EMBC) - 2024 Q4 - Annual Results

Executive Summary & Strategic Update Strategic Decisions and Restructuring The company is discontinuing its insulin patch pump program and restructuring to focus on its core business and debt repayment - The company is discontinuing its insulin patch pump program and initiating an organizational restructuring plan to streamline operations and reduce costs[3] - Strategic priorities are shifting to concentrate resources on the core business and prioritize using free cash flow for debt repayment to gain financial flexibility[3] - The company has successfully transitioned approximately 98% of its revenue to its own ERP system and distribution infrastructure, with only India remaining as a deferred market[3] Projected Restructuring Impact in FY2025 | Metric | Estimated Amount | | :--- | :--- | | Total Pre-Tax Charges | $35 million - $45 million | | - Cash Charges (Workforce/Program Discontinuation) | $25 million - $30 million | | - Non-Cash Charges (Asset Impairments) | $10 million - $15 million | | Annualized Pre-Tax Cost Savings | $60 million - $65 million | Financial Performance Fourth Quarter Fiscal Year 2024 Financial Highlights Q4 FY2024 saw revenue growth driven by the U.S, but profitability metrics like adjusted operating and EBITDA margins declined Q4 FY2024 Financial Performance vs. Q4 FY2023 | Metric | Q4 2024 | Q4 2023 | Change | | :--- | :--- | :--- | :--- | | Reported Revenues | $286.1M | $281.9M | +1.5% | | Adjusted Revenues (Constant Currency) | $290.2M | $281.9M | +4.1% | | Gross Margin | 60.7% | 64.5% | -3.8 p.p. | | Adjusted Gross Margin | 61.4% | 64.8% | -3.4 p.p. | | Net Income | $14.6M | $6.0M | +143.3% | | Adjusted Net Income | $25.9M | $34.1M | -24.0% | | Diluted EPS | $0.25 | $0.10 | +150.0% | | Adjusted Diluted EPS | $0.45 | $0.59 | -23.7% | | Adjusted EBITDA | $73.0M | $79.6M | -8.3% | | Adjusted EBITDA Margin | 25.2% | 28.2% | -3.0 p.p. | Q4 2024 Revenue by Geography (Adjusted Constant Currency Growth) | Region | Revenue (Reported) | Adjusted Constant Currency Growth | | :--- | :--- | :--- | | United States | $167.4M | +10.3% | | International | $118.7M | -3.1% | | Total | $286.1M | +4.1% | - The quarterly revenue increase was driven by $13.7 million in favorable pricing and a $2.3 million increase in contract manufacturing, partially offset by unfavorable adjustments and currency impacts[10] Twelve Months Ended September 30 Fiscal Year 2024 Financial Highlights Full-year FY2024 revenues were flat while net income rose, though adjusted profitability metrics saw a decrease Full Year FY2024 Financial Performance vs. FY2023 | Metric | FY 2024 | FY 2023 | Change | | :--- | :--- | :--- | :--- | | Reported Revenues | $1,123.1M | $1,120.8M | +0.2% | | Adjusted Revenues (Constant Currency) | $1,127.2M | $1,120.8M | +1.1% | | Gross Margin | 65.5% | 66.9% | -1.4 p.p. | | Adjusted Gross Margin | 65.7% | 67.0% | -1.3 p.p. | | Net Income | $78.3M | $70.4M | +11.2% | | Adjusted Net Income | $143.1M | $172.6M | -17.1% | | Diluted EPS | $1.34 | $1.22 | +9.8% | | Adjusted Diluted EPS | $2.45 | $2.99 | -18.1% | | Adjusted EBITDA | $353.4M | $378.7M | -6.7% | | Adjusted EBITDA Margin | 31.4% | 33.8% | -2.4 p.p. | Full Year 2024 Revenue by Geography (Adjusted Constant Currency Growth) | Region | Revenue (Reported) | Adjusted Constant Currency Growth | | :--- | :--- | :--- | | United States | $607.2M | +1.0% | | International | $515.9M | +1.3% | | Total | $1,123.1M | +1.1% | - The full-year revenue increase was primarily driven by $27.7 million in favorable pricing, which was largely offset by unfavorable volume changes and negative foreign currency translation[12] Fiscal Year 2025 Financial Guidance The company projects a slight revenue decline for FY2025 but anticipates improved profitability with higher adjusted EBITDA and EPS FY2025 Financial Guidance | Metric | Guidance Range | | :--- | :--- | | Reported Revenues | $1,093M - $1,110M | | Reported Revenue Growth | (2.7)% - (1.2)% | | Adjusted Constant Currency Revenue Growth | (2.5)% - (1.0)% | | Adjusted Gross Margin | 63.25% - 64.25% | | Adjusted Operating Margin | 29.00% - 30.00% | | Adjusted EBITDA Margin | 35.50% - 36.50% | | Adjusted Earnings per Diluted Share | $2.70 - $2.90 | - The company is unable to provide a quantitative reconciliation for forward-looking non-GAAP measures like adjusted EPS and adjusted EBITDA without unreasonable effort[14] Balance Sheet, Liquidity and Other Updates The company maintained a solid cash position, actively paid down debt, and continued its quarterly dividend program - In Q4, the company paid down an aggregate principal amount of approximately $27.4 million on its term loan B facility[15] - As of September 30, 2024, the company had $274.2 million in cash, $1.601 billion of debt, and its $500 million Revolving Credit Facility remained undrawn[16] - The Board of Directors declared a quarterly cash dividend of $0.15 per share, payable on December 18, 2024[16] Condensed Consolidated Financial Statements Condensed Consolidated Statements of Income FY2024 net income and EPS increased year-over-year, driven by a significant income tax benefit despite lower operating income Consolidated Statements of Income (Full Year) | (In millions, except per share data) | Twelve Months Ended Sep 30, 2024 | Twelve Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Revenues | $1,123.1 | $1,120.8 | | Gross Profit | $735.2 | $749.9 | | Operating Income | $166.8 | $221.5 | | Net Income | $78.3 | $70.4 | | Diluted EPS | $1.34 | $1.22 | Consolidated Statements of Income (Fourth Quarter) | (In millions, except per share data) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Revenues | $286.1 | $281.9 | | Gross Profit | $173.8 | $181.8 | | Operating Income | $26.2 | $25.8 | | Net Income | $14.6 | $6.0 | | Diluted EPS | $0.25 | $0.10 | Condensed Consolidated Balance Sheets Total assets and liabilities increased, while total equity improved but remained negative as of September 30, 2024 Balance Sheet Summary (as of September 30) | (In millions) | 2024 | 2023 | | :--- | :--- | :--- | | Total Current Assets | $761.0 | $749.1 | | Cash and equivalents | $267.5 | $326.3 | | Total Inventories | $171.5 | $152.1 | | Total Assets | $1,285.3 | $1,214.4 | | Total Current Liabilities | $374.0 | $353.5 | | Long-Term Debt | $1,565.3 | $1,593.9 | | Total Equity | $(738.3) | $(821.7) | Condensed Consolidated Statements of Cash Flows Net cash from operations declined sharply in FY2024, leading to an overall net decrease in cash for the year Statement of Cash Flows Summary (Twelve Months Ended September 30) | (In millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $35.7 | $67.7 | | Net Cash Used for Investing Activities | $(15.8) | $(26.5) | | Net Cash Used for Financing Activities | $(73.4) | $(48.7) | | Net Change in Cash | $(52.3) | $(4.4) | | Closing Cash and equivalents | $274.2 | $326.5 | Non-GAAP Financial Measures & Reconciliations Reconciliation of Net Income to EBITDA and Adjusted EBITDA FY2024 Adjusted EBITDA was $353.4 million, reconciled from GAAP Net Income with major adjustments for interest and one-time costs Reconciliation of GAAP Net Income to Adjusted EBITDA (Full Year) | (In millions) | FY 2024 | FY 2023 | | :--- | :--- | :--- | | GAAP Net Income | $78.3 | $70.4 | | Interest expense, net | $112.3 | $107.0 | | Income taxes | $(34.1) | $35.3 | | Depreciation and amortization | $36.2 | $32.6 | | EBITDA | $192.7 | $245.3 | | One-time stand up costs | $111.2 | $93.7 | | Stock-based compensation expense | $26.6 | $21.9 | | Other Adjustments | $22.9 | $17.8 | | Adjusted EBITDA | $353.4 | $378.7 | - One-time stand-up costs, primarily related to the global ERP implementation and other separation activities, were a major adjustment, totaling $111.2 million for the full year[28][30] Reconciliation of GAAP to Adjusted Operating & Net Income FY2024 GAAP operating and net income were adjusted upwards to $296.9 million and $143.1 million respectively after non-GAAP items Reconciliation of GAAP to Adjusted Operating Income (Full Year) | (In millions) | FY 2024 | FY 2023 | | :--- | :--- | :--- | | GAAP Operating Income | $166.8 | $221.5 | | One-time stand up costs | $112.5 | $93.7 | | Business optimization & severance | $7.4 | $5.6 | | Italian payback measure | $4.1 | — | | Other Adjustments | $6.1 | $10.7 | | Adjusted Operating Income | $296.9 | $331.5 | Reconciliation of GAAP to Adjusted Net Income & EPS (Full Year) | (In millions, except per share) | FY 2024 | FY 2023 | | :--- | :--- | :--- | | GAAP Net Income | $78.3 | $70.4 | | Total Pre-tax Adjustments | $130.4 | $117.7 | | Non-GAAP Income tax provision | $(35.8) | $(51.5) | | GAAP Income tax provision (benefit) | $(34.1) | $35.3 | | Adjusted Net Income | $143.1 | $172.6 | | GAAP Diluted EPS | $1.34 | $1.22 | | Adjusted Diluted EPS | $2.45 | $2.99 |