Embecta (US:EMBC)2025-05-09 15:45Part I Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Embecta Corp. as of and for the periods ended March 31, 2025 Condensed Consolidated Statements of Income For the three months ended March 31, 2025, revenues were $259.0 million, a decrease from $287.2 million in the prior year period, with net income at $23.5 million, down from $28.9 million Condensed Consolidated Statements of Income (in millions, except per share amounts) | | Three Months Ended March 31, | | Six Months Ended March 31, | | | :--- | :--- | :--- | :--- | :--- | | | 2025 | 2024 | 2025 | 2024 | | Revenues | $259.0 | $287.2 | $520.9 | $564.5 | | Gross Profit | $164.1 | $185.4 | $321.2 | $371.3 | | Operating Income | $62.9 | $39.2 | $91.6 | $84.7 | | Net Income | $23.5 | $28.9 | $23.5 | $49.0 | | Diluted EPS | $0.40 | $0.50 | $0.40 | $0.85 | Condensed Consolidated Statements of Comprehensive Income For the three months ended March 31, 2025, comprehensive income was $34.9 million, including a $11.4 million positive foreign currency translation adjustment, while the six-month period saw comprehensive income of $8.0 million, significantly lower than the prior year Condensed Consolidated Statements of Comprehensive Income (in millions) | | Three Months Ended March 31, | | Six Months Ended March 31, | | | :--- | :--- | :--- | :--- | :--- | | | 2025 | 2024 | 2025 | 2024 | | Net Income | $23.5 | $28.9 | $23.5 | $49.0 | | Foreign currency translation adjustments | $11.4 | $(2.4) | $(15.5) | $9.2 | | Comprehensive Income | $34.9 | $26.5 | $8.0 | $58.2 | Condensed Consolidated Balance Sheets As of March 31, 2025, total assets decreased to $1,120.2 million from $1,285.3 million, with total liabilities at $1,856.4 million and a total equity deficit of $736.2 million Balance Sheet Highlights (in millions) | | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $643.4 | $761.0 | | Total Assets | $1,120.2 | $1,285.3 | | Total Current Liabilities | $259.3 | $374.0 | | Long-Term Debt | $1,509.1 | $1,565.3 | | Total Equity | $(736.2) | $(738.3) | Condensed Consolidated Statements of Equity The company's total equity deficit slightly improved to $736.2 million at March 31, 2025, driven by net income offset by dividends and accumulated other comprehensive loss Changes in Total Equity (Six Months Ended March 31, 2025, in millions) | Description | Amount | | :--- | :--- | | Balance at October 1, 2024 | $(738.3) | | Net Income | $23.5 | | Other comprehensive (loss), net of taxes | $(15.5) | | Stock-based compensation plans | $16.2 | | Dividends and dividend equivalents declared | $(17.5) | | Issuance of shares related to stock-based compensation | $(4.6) | | Balance at March 31, 2025 | $(736.2) | Condensed Consolidated Statements of Cash Flows For the six months ended March 31, 2025, net cash provided by operating activities was $26.5 million, while net cash used for financing activities was $82.5 million, resulting in a net decrease in cash of $61.9 million Summary of Cash Flows (Six Months Ended March 31, in millions) | | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $26.5 | $11.2 | | Net cash used for investing activities | $(1.6) | $(6.1) | | Net cash used for financing activities | $(82.5) | $(25.3) | | Net Change in Cash | $(61.9) | $(20.0) | | Closing Cash and equivalents and restricted cash | $212.3 | $306.5 | Notes to Condensed Consolidated Financial Statements The notes detail the discontinuation of the patch pump program, new restructuring plans, revenue disaggregation, and the company's $1.5 billion debt - The company initiated two restructuring plans: the 'Patch Pump Restructuring Plan' to discontinue its patch pump program with estimated costs of $30.0-$40.0 million, and a '2025 Restructuring Plan' to streamline the organization with estimated costs of $4.0-$5.0 million4445 - A non-cash asset impairment charge of $10.4 million was recorded in the first half of fiscal 2025 to write down property and equipment due to the discontinuation of the patch pump program8992 Revenues by Geography and Product Line (Six Months Ended March 31, in millions) | Category | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | By Geography | | | | | United States | $276.9 | $296.2 | (6.5%) | | International | $244.0 | $268.3 | (9.1%) | | By Product Line | | | | | Pen Needles | $379.4 | $428.0 | (11.4%) | | Syringes | $57.2 | $60.8 | (5.9%) | | Safety | $68.4 | $64.1 | +6.7% | - As of March 31, 2025, the company had total principal debt of $1,541.5 million, consisting of a Term Loan, 5.00% Notes, and 6.75% Notes, and was in compliance with all debt covenants7678 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 7.7% revenue decrease for the six months ended March 31, 2025, driven by lower volumes and unfavorable foreign currency translation, while operating income increased due to reduced operating expenses - The company faces significant pricing pressure from competitors, commoditization of its traditional injection devices, and a shift in diabetes treatment towards new drug therapies (e.g., GLP-1s) that delay or reduce insulin use102103105 - In November 2024, the company discontinued its patch pump R&D program to refocus on its core business, optimize free cash flow, and pay down debt, initiating a new restructuring plan in Q2 2025 to streamline the organization109110 Results of Operations Summary (in millions) | | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $520.9 | $564.5 | (7.7)% | | Gross Profit | $321.2 | $371.3 | (13.5)% | | Operating Income | $91.6 | $84.7 | 8.1% | | Net Income | $23.5 | $49.0 | (52.0)% | - For the six months ended March 31, 2025, the company made a discretionary principal payment of $55.0 million on its Term Loan, part of a total $59.8 million in debt payments133 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rates, with foreign currency risk managed through forward exchange contracts and interest rate risk primarily related to its variable-rate Term Loan - The company uses foreign currency forward exchange contracts to manage currency exposures from transactions denominated in currencies other than an entity's functional currency152 - The primary interest rate risk is from the Term Loan, which has a variable rate based on SOFR, where a 100 basis point change in interest rates would affect annualized interest expense by approximately $8.5 million based on the outstanding balance at March 31, 2025154 Item 4. Controls and Procedures Management concluded that as of March 31, 2025, the company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting related to a new ERP system implementation - The CEO and CFO concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to a material weakness in internal control over financial reporting156 - The material weakness is related to the ongoing, phased implementation of a new ERP system across the company's global operations, which is expected to be fully completed in the third quarter of fiscal 2025157 - A remediation plan is in progress, including enhancing control design, executing robust training, and implementing enhanced oversight, but the material weakness has not yet been fully remediated158159 Part II. Other Information Item 1A. Risk Factors This section introduces a new material risk factor regarding trade actions, highlighting that new or increased tariffs and 'buy local' initiatives could adversely impact the availability and cost of raw materials and products - A new risk factor was added concerning trade actions, warning that tariffs, retaliatory tariffs, and 'buy local' initiatives could negatively affect the business by increasing product costs, reducing margins, and potentially decreasing product competitiveness163 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications of the Chief Executive Officer and Chief Financial Officer, and iXBRL data files List of Exhibits | Exhibit | Description | | :--- | :--- | | 31.1 | Certification of Chief Executive Officer, pursuant to SEC Rule 13a–14(a) | | 31.2 | Certification of Chief Financial Officer, pursuant to SEC Rule 13a–14(a) | | 32.1 | Certification of Chief Executive Officer, pursuant to Rule 13a–14(b) and Section 1350 | | 32.2 | Certification of Chief Financial Officer, pursuant to Rule 13a–14(b) and Section 1350 | | 101 | iXBRL formatted financial statements and notes | | 104 | Cover Page Interactive Data File (Inline XBRL) |