Embecta (EMBC) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents Embecta Corp.'s unaudited condensed consolidated financial statements and management's discussion and analysis for the periods ended June 30, 2025 Item 1. Financial Statements (Unaudited) This section presents Embecta Corp.'s unaudited condensed consolidated financial statements, including income, comprehensive income, balance sheets, equity, and cash flows, with detailed notes on accounting policies and transactions Condensed Consolidated Statements of Income This section provides the condensed consolidated statements of income, detailing revenues, expenses, and net income for the specified periods Condensed Consolidated Statements of Income (in millions, except per share amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $295.5 | $272.5 | $816.4 | $837.0 | | Cost of products sold | $98.4 | $82.4 | $298.1 | $275.6 | | Gross Profit | $197.1 | $190.1 | $518.3 | $561.4 | | Total Operating Expenses | $103.1 | $134.2 | $332.7 | $420.8 | | Operating Income | $94.0 | $55.9 | $185.6 | $140.6 | | Interest expense, net | $(26.6) | $(27.8) | $(81.2) | $(83.3) | | Other income (expense), net | $4.8 | $(1.1) | $2.9 | $(6.1) | | Income Before Income Taxes | $72.2 | $27.0 | $107.3 | $51.2 | | Income tax provision (benefit) | $26.7 | $12.3 | $38.3 | $(12.5) | | Net Income | $45.5 | $14.7 | $69.0 | $63.7 | | Basic EPS | $0.78 | $0.25 | $1.18 | $1.11 | | Diluted EPS | $0.78 | $0.25 | $1.18 | $1.10 | - Net Income for the three months ended June 30, 2025, increased by $30.8 million (209.5%) to $45.5 million compared to $14.7 million in the prior year[11][120] - Net Income for the nine months ended June 30, 2025, increased by $5.3 million (8.3%) to $69.0 million compared to $63.7 million in the prior year[11][120] Condensed Consolidated Statements of Comprehensive Income This section presents the condensed consolidated statements of comprehensive income, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income (in millions): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $45.5 | $14.7 | $69.0 | $63.7 | | Foreign currency translation adjustments | $25.0 | $(6.4) | $9.5 | $2.8 | | Other Comprehensive Income (Loss), net of tax | $25.0 | $(6.4) | $9.5 | $2.8 | | Comprehensive Income | $70.5 | $8.3 | $78.5 | $66.5 | Condensed Consolidated Balance Sheets This section provides the condensed consolidated balance sheets, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in millions): | Asset/Liability/Equity | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash and equivalents | $230.6 | $267.5 | | Total Current Assets | $681.5 | $761.0 | | Property, Plant and Equipment, Net | $262.7 | $290.4 | | Goodwill and Intangible Assets | $22.7 | $23.7 | | Total Assets | $1,157.3 | $1,285.3 | | Total Current Liabilities | $275.5 | $374.0 | | Long-Term Debt | $1,458.8 | $1,565.3 | | Total Liabilities and Equity | $1,157.3 | $1,285.3 | | Total Equity | $(669.6) | $(738.3) | - Total Assets decreased to $1,157.3 million as of June 30, 2025, from $1,285.3 million as of September 30, 2024[17] - Total Equity improved to $(669.6) million as of June 30, 2025, from $(738.3) million as of September 30, 2024[17] Condensed Consolidated Statements of Equity This section outlines changes in total equity, including net income, other comprehensive income, and stock-based compensation Condensed Consolidated Statements of Equity (in millions, except shares): | Item | Balance at April 1, 2024 | Net Income | Other comprehensive (loss)/income | Stock-based compensation | Dividends declared | Issuance of shares | Balance at June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Equity | $(769.6) | $14.7 | $(6.4) | $6.5 | $(8.6) | $(0.1) | $(763.7) | | | Balance at April 1, 2025 | Net Income | Other comprehensive income | Stock-based compensation | Dividends declared | Issuance of shares | Balance at June 30, 2025 | | Total Equity | $(736.2) | $45.5 | $25.0 | $5.9 | $(8.7) | $(1.1) | $(669.6) | - Total Equity improved from $(736.2) million at April 1, 2025, to $(669.6) million at June 30, 2025, primarily due to net income of $45.5 million and other comprehensive income of $25.0 million[20] Condensed Consolidated Statements of Cash Flows This section presents the condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Nine Months Ended June 30, in millions): | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $107.7 | $9.1 | | Net cash used for investing activities | $(2.0) | $(15.8) | | Net cash used for financing activities | $(145.1) | $(36.8) | | Effect of exchange rate changes on cash and equivalents and restricted cash | $(1.2) | $(1.2) | | Net Change in Cash and equivalents and restricted cash | $(40.6) | $(44.7) | | Closing Cash and equivalents and restricted cash | $233.6 | $281.8 | - Net cash provided by operating activities significantly increased to $107.7 million for the nine months ended June 30, 2025, from $9.1 million in the prior year[25] - Net cash used for financing activities increased to $145.1 million for the nine months ended June 30, 2025, from $36.8 million in the prior year, primarily due to higher debt payments[25] Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures for the financial statements, covering accounting policies, significant transactions, restructuring, related party arrangements, and financial instruments Note 1 — Background This note provides background information on Embecta Corp., a global medical device company focused on diabetes solutions - Embecta Corp. is a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes, offering a broad portfolio of pen needles, syringes, and safety devices[28] Note 2 — Basis of Presentation This note details the basis of presentation for the unaudited financial statements, including compliance with U.S. GAAP and SEC instructions - The accompanying unaudited financial statements are prepared in accordance with U.S. GAAP and SEC instructions, with all necessary adjustments included and of a normal and recurring nature[29] - No new material accounting standards were adopted in the third quarter of fiscal year 2025, and recently issued ASUs are not expected to have a material impact on the Company's Consolidated Financial Statement results[33][34][35][36][37] Note 3 — Third Party Arrangements and Related Party Disclosures This note describes third-party and related party arrangements, particularly those with Becton, Dickinson and Company (BD) post-spin-off - Embecta was spun off from Becton, Dickinson and Company (BD) on April 1, 2022, entering into various post-separation agreements including Transition Services, Factoring, Distribution, and Supply Agreements[38][39] - As of June 30, 2025, amounts due from BD were $10.1 million (in Amounts due from Becton, Dickinson and Company) and $9.2 million (in Trade receivables, net), while amounts due to BD were $19.5 million (in Amounts due to Becton, Dickinson and Company) and $3.5 million (in Accounts payable)[41] Note 4 — Business Restructuring Charges This note details business restructuring charges, including costs associated with discontinuing the patch pump program and organizational streamlining - The Company approved a plan on November 22, 2024, to discontinue internal and external investment in its patch pump program, incurring $34.3 million in organizational restructuring costs during the nine months ended June 30, 2025[44] - A separate 2025 Restructuring Plan, initiated in the second quarter of fiscal year 2025 to streamline the organization, incurred $3.5 million in costs during the nine months ended June 30, 2025, and is also substantially complete[45] Restructuring Program Charges (Nine Months Ended June 30, 2025, in millions): | Cost Type | Employee Termination | Non-Employee Related | Total | | :--- | :--- | :--- | :--- | | Cost of products sold | $0.4 | $6.3 | $6.7 | | Selling and administrative expense | $0.6 | — | $0.6 | | Research and development expense | $6.8 | $4.7 | $11.5 | | Other operating expenses | $14.0 | $5.0 | $19.0 | | Total | $21.8 | $16.0 | $37.8 | Note 5 — Other Operating Expenses This note provides a breakdown of other operating expenses, including separation-related costs and those from the discontinued patch pump program Other Operating Expenses (in millions): | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Costs related to the Separation | $9.7 | $23.0 | $26.3 | $83.9 | | Amortization of cloud computing arrangements | $2.6 | $2.2 | $7.8 | $3.8 | | Costs associated with the discontinued patch pump program | $0.3 | — | $15.6 | — | | Business optimization and severance related costs | $1.0 | $2.8 | $4.6 | $5.7 | | Other | $0.7 | $0.1 | $0.6 | $0.1 | | Total | $14.3 | $28.1 | $54.9 | $93.5 | - Other operating expenses decreased for both the three and nine months ended June 30, 2025, primarily due to lower costs related to the Separation and business optimization, partially offset by new costs associated with the discontinued patch pump program[48] Note 6 — Contingencies This note addresses contingencies, confirming no material legal proceedings for the specified periods - The Company was not a party to any material legal proceedings at June 30, 2025, or September 30, 2024[51] Note 7 — Revenues This note outlines revenue recognition policies and details sales deductions and variable consideration liabilities - The Company's revenue recognition policies remain consistent with the 2024 Form 10-K, primarily from selling diabetes management products to wholesalers and distributors[52] - Sales deductions recorded as a reduction of gross revenues were $143.0 million for the three months ended June 30, 2025 (vs. $124.5 million in 2024), and $436.3 million for the nine months ended June 30, 2025 (vs. $389.7 million in 2024)[56] - The liability attributed to variable consideration was $143.9 million at June 30, 2025, a decrease from $149.6 million at September 30, 2024[56] Note 8 — Segment and Geographical Data This note confirms the Company operates in one segment and provides revenue breakdowns by geographic region and product line - Management has concluded that the Company operates in one segment[58] Revenues by Geographic Region (in millions): | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | United States | $160.2 | $143.6 | $437.1 | $439.8 | | International | $135.3 | $128.9 | $379.3 | $397.2 | | Total | $295.5 | $272.5 | $816.4 | $837.0 | Revenues by Product Line (in millions): | Product Line | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Pen Needles | $216.9 | $201.3 | $596.3 | $629.3 | | Syringes | $35.1 | $31.7 | $92.3 | $92.5 | | Safety | $34.8 | $32.4 | $103.2 | $96.5 | | Other | $3.2 | $3.5 | $9.9 | $10.6 | | Contract Manufacturing | $5.5 | $3.6 | $14.7 | $8.1 | | Total | $295.5 | $272.5 | $816.4 | $837.0 | Note 9 — Stock-Based Compensation This note details stock-based compensation expense, including grants of Time-Vested and Performance-Based Restricted Stock Units Total Stock-Based Compensation Expense (in millions): | Period | 2025 | 2024 | | :--- | :--- | :--- | | Three Months Ended June 30, | $5.9 | $6.5 | | Nine Months Ended June 30, | $22.2 | $20.4 | - During the nine months ended June 30, 2025, Embecta granted 1,576,493 Time-Vested Restricted Stock Units (TVUs) and awarded 538,031 Performance-Based Restricted Stock Units (PSUs)[62][65] - The total unrecognized compensation expense for all non-vested stock-based awards as of June 30, 2025, is approximately $30.9 million, expected to be recognized over a weighted-average remaining life of approximately 1.9 years[70] Note 10 — Goodwill and Other Intangible Assets This note provides a breakdown of goodwill and other intangible assets, including patents and customer relationships Goodwill and Other Intangible Assets (in millions): | Asset Type | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Patents – net | $5.3 | $5.7 | | Customer Relationships and Other – net | $2.0 | $2.4 | | Total amortized intangible assets | $7.3 | $8.1 | | Goodwill | $15.4 | $15.6 | | Total Goodwill and Other Intangible Assets | $22.7 | $23.7 | Note 11 — Cloud Computing Arrangements This note details capitalized costs and amortization expenses related to cloud computing arrangements Capitalized Cloud Computing Arrangement Costs, Net (in millions): | Item | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total Capitalized implementation costs | $71.6 | $70.8 | | Less: accumulated amortization | $(14.2) | $(6.3) | | Total Capitalized implementation costs, net | $57.4 | $64.5 | Amortization of Cloud Computing Arrangements (in millions): | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Amortization Expense | $2.6 | $2.2 | $7.8 | $3.8 | Note 12 — Long-Term Debt This note describes the Company's long-term debt, including the Term Loan B Facility and Revolving Credit Facility, and principal payments made - Embecta's Credit Agreement includes a $950.0 million Term Loan B Facility (maturing March 2029) and a $500.0 million Revolving Credit Facility (maturing March 2027), with no amount drawn on the Revolving Credit Facility as of June 30, 2025[73][75] Total Debt Outstanding (June 30, 2025, in millions): | Debt Type | Amount | | :--- | :--- | | Term Loan due March 2029 | $789.1 | | 5.00% Notes due February 2030 | $500.0 | | 6.75% Notes due February 2030 | $200.0 | | Total principal debt issued | $1,489.1 | | Less: current debt obligations | $(9.5) | | Less: debt issuance costs and discounts | $(20.8) | | Long-term debt | $1,458.8 | - During the nine months ended June 30, 2025, the Company made $112.2 million in principal payments on the Term Loan, including $105.0 million in discretionary prepayments, and made $68.5 million in interest payments, with a weighted-average interest rate of 6.5% on total borrowings[77][78] Note 13 — Earnings per Share This note provides a detailed calculation of basic and diluted earnings per common share for the specified periods Earnings Per Common Share (in millions and shares in thousands, except per share amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $45.5 | $14.7 | $69.0 | $63.7 | | Basic weighted average number of shares outstanding | 58,490 | 57,768 | 58,239 | 57,641 | | Diluted weighted average shares outstanding | 58,495 | 57,842 | 58,721 | 58,143 | | Earnings per common share - Basic | $0.78 | $0.25 | $1.18 | $1.11 | | Earnings per common share - Diluted | $0.78 | $0.25 | $1.18 | $1.10 | Note 14 — Income Taxes This note discusses the effective tax rates and factors influencing income tax provision or benefit for the periods - The effective tax rate for the three months ended June 30, 2025, was 37.0% (vs. 45.6% in 2024), primarily due to favorable tax impacts from higher earnings, partially offset by higher taxes on undistributed foreign earnings and reduced tax benefits from non-taxable income[81] - For the nine months ended June 30, 2025, the effective tax rate was 35.7% (vs. (24.4)% in 2024), primarily due to the absence of non-recurring tax benefits recognized in the prior period related to withholding taxes, Swiss tax law changes, and lower tax reserves, partially offset by higher current period earnings[82] - The One Big Beautiful Bill (OBBB) Act, signed on July 4, 2025, is not expected to have a material impact on the Company's results of operations in fiscal year 2025[83] Note 15 — Receivables Sale Agreement This note describes the Company's trade receivables sale agreement and the amount of receivables sold - During the third quarter of 2025, the Company entered into a trade receivables sale agreement, selling $26.2 million of trade receivables during the nine months ended June 30, 2025, which resulted in derecognition from the balance sheet[84][85] Note 16 — Financial Instruments and Fair Value Measurements This note details financial instruments, fair value measurements, and the Company's management of foreign currency and asset impairment Cash and Equivalents and Restricted Cash (in millions): | Item | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash and equivalents | $230.6 | $267.5 | | Restricted cash | $3.0 | $6.7 | | Total | $233.6 | $274.2 | - The Company uses foreign currency forward exchange contracts to manage transactional currency exposures, with notional amounts of $2.7 million at June 30, 2025, and $4.5 million at September 30, 2024[87][89] - Non-cash asset impairment charges of $10.6 million were recorded in the first nine months of fiscal year 2025 to write down property and equipment due to the discontinued patch pump program[91] Note 17 — Property, Plant and Equipment This note provides a detailed breakdown of property, plant, and equipment, including impairment charges related to the patch pump program Property, Plant and Equipment, Net (in millions): | Category | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Land | $3.1 | $3.1 | | Buildings | $121.6 | $121.7 | | Machinery, equipment and fixtures | $593.5 | $607.3 | | Leasehold improvements | $12.9 | $11.9 | | Construction in progress | $57.9 | $35.1 | | Total Gross PP&E | $789.0 | $779.1 | | Less: accumulated depreciation | $(526.3) | $(488.7) | | Total Property, Plant and Equipment, Net | $262.7 | $290.4 | - Non-cash asset impairment charges of $10.6 million were recorded during the nine months ended June 30, 2025, to write down certain property and equipment as a result of the Company's plan to discontinue the patch pump program[94] Note 18 — Leases This note outlines the Company's finance and operating lease liabilities, including remaining lease terms and discount rates - The Company's finance leases primarily relate to its manufacturing site in Holdrege, Nebraska, with a weighted-average remaining lease term of 11.8 years and a discount rate of 6.8% as of June 30, 2025[96][98] - Operating leases primarily relate to real estate, with a weighted-average remaining lease term of 6.0 years and a discount rate of 6.8% as of June 30, 2025[97][98] Maturities of Lease Liabilities (June 30, 2025, in millions): | Fiscal Year | Finance Leases | Operating Leases | Total | | :--- | :--- | :--- | :--- | | 2025 | $0.9 | $1.8 | $2.7 | | 2026 | $3.7 | $3.6 | $7.3 | | 2027 | $3.8 | $2.0 | $5.8 | | 2028 | $3.9 | $2.0 | $5.9 | | 2029 | $3.9 | $1.8 | $5.7 | | Thereafter | $32.3 | $7.5 | $39.8 | | Total lease payments | $48.5 | $18.7 | $67.2 | | Less: amount representing interest | $(16.0) | $(1.9) | $(17.9) | | Present value of lease liabilities | $32.5 | $16.8 | $49.3 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of Embecta's financial condition and results of operations, covering business overview, key trends, recent developments, liquidity, and capital resources Company Overview This section provides an overview of Embecta's business as a global medical device company focused on diabetes solutions - Embecta is a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes, with products used by approximately 30 million people in over 100 countries[101] - The Company's broad portfolio includes pen needles, syringes, and safety injection devices, primarily sold to wholesalers and distributors[102][103] Key Trends Affecting Our Results of Operations This section discusses key trends impacting Embecta's operations, including competition, pricing pressures, and changes in clinical practice - Embecta faces significant competition, pricing pressures leading to commoditization of injection devices, and potential financial impacts from global trade tariffs[104][105][106][107] - Changes in clinical practice, such as the introduction of new anti-diabetic drugs (e.g., SGLT-2s, GLP-1s) and a transition to infusion pumps, are delaying insulin initiation and contributing to less demand for traditional injection products[108] - Other key trends include the decentralization of chronic care and political/economic instability in emerging markets, though proactive channel management helps mitigate variability[109][110] Recent Developments This section highlights recent developments, including the discontinuation of the patch pump program and ongoing monitoring of global supply chain issues - The Company discontinued its patch pump program R&D and commercial operations, incurring $34.3 million in restructuring costs for the nine months ended June 30, 2025, to refocus on its core business, optimize free cash flow, and strengthen its balance sheet by paying down debt[112] - An additional 2025 Restructuring Plan to streamline the organization incurred $3.5 million in costs during the nine months ended June 30, 2025[113] - Embecta continues to monitor global supply chain constraints, inflation, tariffs, and geopolitical conflicts (Ukraine, Middle East), which could impact costs and distribution, though no material impact from conflicts was reported as of August 8, 2025[111][114][115] Results of Operations This section provides a detailed analysis of the Company's financial performance, including revenues, gross profit, and net income Summary of Results of Operations (in millions, except per share amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $295.5 | $272.5 | 8.4% | $816.4 | $837.0 | (2.5)% | | Gross Profit | $197.1 | $190.1 | 3.7% | $518.3 | $561.4 | (7.7)% | | Operating Income | $94.0 | $55.9 | 68.2% | $185.6 | $140.6 | 32.0% | | Net Income | $45.5 | $14.7 | 209.5% | $69.0 | $63.7 | 8.3% | | Basic EPS | $0.78 | $0.25 | 212.0% | $1.18 | $1.11 | 6.3% | | Diluted EPS | $0.78 | $0.25 | 212.0% | $1.18 | $1.10 | 7.3% | Revenues This section analyzes revenue performance, highlighting factors such as volume, price, and foreign currency translation impacts - Revenues increased by $23.0 million (8.4%) to $295.5 million for the three months ended June 30, 2025, driven by favorable volume ($13.5 million), price ($6.8 million), contract manufacturing ($1.7 million), and positive foreign currency translation ($1.0 million)[121] - Revenues decreased by $20.6 million (2.5%) to $816.4 million for the nine months ended June 30, 2025, due to unfavorable volume ($31.0 million) and negative foreign currency translation ($7.0 million), partially offset by favorable price ($10.9 million) and contract manufacturing ($6.5 million)[122] Cost of products sold This section examines the cost of products sold, including impacts from volumes, inventory adjustments, and impairment charges - Cost of products sold increased by $16.0 million (19.4%) to $98.4 million for the three months ended June 30, 2025, primarily due to higher volumes and the impact of net changes in profit in inventory adjustments[123] - For the nine months ended June 30, 2025, cost of products sold increased by $22.5 million (8.2%) to $298.1 million, mainly due to inventory adjustments and non-cash asset impairment charges from the Patch Pump Restructuring Plan, partially offset by lower volumes[124] - Gross profit as a percentage of revenue decreased to 66.7% (from 69.8%) for the three months and to 63.5% (from 67.1%) for the nine months ended June 30, 2025[118] Selling and administrative expenses This section analyzes selling and administrative expenses, noting decreases due to lower TSA and LSA costs and reduced compensation - Selling and administrative expenses decreased by $1.3 million (1.5%) to $84.4 million for the three months and by $23.2 million (8.6%) to $245.1 million for the nine months ended June 30, 2025, primarily due to lower TSA and LSA costs with BD and reduced compensation expense[125] Research and development expenses This section details research and development expenses, highlighting a significant decrease due to the discontinuation of the insulin patch pump program - Research and development expenses significantly decreased by $16.0 million (78.4%) to $4.4 million for the three months and by $26.3 million (44.6%) to $32.7 million for the nine months ended June 30, 2025, primarily due to the discontinuation of the insulin patch pump program[126] - The Company expects its research and development expenses to decrease sequentially in fiscal year 2025 compared to fiscal year 2024[126] Other operating expenses This section provides a breakdown of other operating expenses, noting decreases primarily from reduced separation-related costs Other Operating Expenses (in millions): | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Costs related to the Separation | $9.7 | $23.0 | $26.3 | $83.9 | | Amortization of cloud computing arrangements | $2.6 | $2.2 | $7.8 | $3.8 | | Costs associated with the discontinued patch pump program | $0.3 | — | $15.6 | — | | Business optimization and severance related costs | $1.0 | $2.8 | $4.6 | $5.7 | | Other | $0.7 | $0.1 | $0.6 | $0.1 | | Total | $14.3 | $28.1 | $54.9 | $93.5 | - The decrease in other operating expenses for both periods is mainly due to reduced separation-related costs and business optimization expenses, partially offset by new costs from the discontinued patch pump program[128][134] Interest expense, net This section analyzes net interest expense, noting a decrease primarily due to lower debt levels and short-term interest rates - Interest expense, net decreased by $1.2 million to $26.6 million for the three months and by $2.1 million to $81.2 million for the nine months ended June 30, 2025, primarily due to lower debt levels and lower short-term interest rates[129] Other income (expense), net This section details other income (expense), net, primarily attributed to favorable foreign exchange impacts - Other income (expense), net, was $4.8 million for the three months and $2.9 million for the nine months ended June 30, 2025, primarily attributed to favorable impacts from foreign exchange, a shift from net expenses in the prior year periods[130] Income tax provision (benefit) This section discusses the income tax provision (benefit) and the effective tax rate changes for the periods - The effective tax rate for the three months ended June 30, 2025, was 37.0% (vs. 45.6% in 2024), and for the nine months, 35.7% (vs. (24.4)% in 2024), with changes driven by higher earnings and the absence of prior-period non-recurring tax benefits[131][132] LIQUIDITY AND CAPITAL RESOURCES This section discusses Embecta's liquidity and capital resources, including cash flow, debt, and access to capital - Embecta believes its cash, cash equivalents, cash from operations, and Revolving Credit Facility borrowing capacity will provide sufficient financial flexibility for the foreseeable future[135] Total Debt Outstanding (June 30, 2025, in millions): | Debt Type | Amount | | :--- | :--- | | Term Loan | $789.1 | | 5.00% Notes | $500.0 | | 6.75% Notes | $200.0 | | Total principal debt issued | $1,489.1 | | Less: current debt obligations | $(9.5) | | Less: debt issuance costs and discounts | $(20.8) | | Long-term debt | $1,458.8 | - During the nine months ended June 30, 2025, the Company paid $112.2 million in principal on the Term Loan, including $105.0 million in discretionary prepayments, and made $68.5 million in interest payments[137] Leases This section details the maturities of the Company's finance and operating lease liabilities Maturities of Lease Liabilities (June 30, 2025, in millions): | Fiscal Year | Finance Lease | Operating Leases | Total | | :--- | :--- | :--- | :--- | | 2025 | $0.9 | $1.8 | $2.7 | | 2026 | $3.7 | $3.6 | $7.3 | | 2027 | $3.8 | $2.0 | $5.8 | | 2028 | $3.9 | $2.0 | $5.9 | | 2029 | $3.9 | $1.8 | $5.7 | | Thereafter | $32.3 | $7.5 | $39.8 | | Total lease payments | $48.5 | $18.7 | $67.2 | Factoring Agreements This section discusses the expiration of prior factoring agreements and the initiation of a new trade receivables sale agreement - All Factoring Agreements between Embecta and BD expired and terminated as of March 31, 2024[142] - During the third quarter of 2025, the Company entered into a new trade receivables sale agreement with a third-party financial institution, selling $26.2 million of trade receivables during the nine months ended June 30, 2025[143][144] Access to Capital and Credit Ratings This section provides an overview of Embecta's credit ratings and a summary of its cash flow activities - Embecta's credit ratings are B1 from Moody's Investor Services and B+ from Standard & Poor's Rating Services as of May and June 2025, respectively[145] Cash Flow Summary (Nine Months Ended June 30, 2025, in millions): | Item | Amount | | :--- | :--- | | Opening Cash and equivalents and restricted cash balance | $274.2 | | Cash provided by operating activities | $107.7 | | Cash used for investing activities | $(2.0) | | Cash used for financing activities | $(145.1) | | Effect of exchange rate changes | $(1.2) | | Closing Cash and equivalents and restricted cash balance | $233.6 | - Net cash provided by operating activities was primarily attributable to net income of $69.0 million and non-cash adjustments of $86.5 million, along with favorable changes in trade receivables and amounts due from/to Becton, Dickinson and Company[146][147] Contractual Obligations This section confirms no material changes to the Company's contractual obligations outside the ordinary course of business - As of June 30, 2025, there have been no material changes to the Company's contractual obligations, which include purchase and lease obligations, outside the ordinary course of business[150] Critical Accounting Policies This section states that there have been no changes to the Company's critical accounting policies as of June 30, 2025 - There have been no changes to the Company's critical accounting policies as of June 30, 2025, which are discussed in the 2024 Form 10-K[151] Cautionary Statements Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, which the Company disclaims any obligation to update - This report contains forward-looking statements subject to numerous risks and uncertainties, including competitive factors, reliance on BD services, product profitability, operating cost increases (e.g., tariffs), changes in clinical practice, and geopolitical instability[152] - Other risks include changes in reimbursement practices, foreign currency fluctuations, regulatory changes, impacts of pandemics, debt-related risks, and challenges associated with the Separation from BD and brand transition[152][155] - Embecta expressly disclaims and assumes no obligation to update or revise such statements, except as required by applicable law[153] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses Embecta's exposure to market risks, including foreign currency exchange and interest rate risks, and the strategies used to manage them - The Company is exposed to foreign currency exchange risk globally and uses foreign currency forward exchange contracts to manage transactional currency exposures, with gains and losses on these contracts largely offsetting those on the underlying hedged items[156][157][158] - Interest rate risk primarily relates to the Term Loan, which bears interest at 300 basis points over SOFR, where a 100 basis points change in interest rates would impact interest expense on the Term Loan by $7.9 million on an annualized basis, based on outstanding borrowings at June 30, 2025[159] Item 4. Controls and Procedures This section addresses the effectiveness of Embecta's disclosure controls and procedures, noting a material weakness in internal control over financial reporting and outlining the ongoing remediation plan Evaluation of Disclosure Controls and Procedures This section evaluates disclosure controls and procedures, concluding they were not effective due to a material weakness in internal control over financial reporting - As of June 30, 2025, management concluded that disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting, as described in the 2024 Form 10-K[161] - The Company commenced implementing a new ERP system and other Business Continuity Processes in phases, with the final phase (India) completed in the third quarter of fiscal year 2025, to replace existing systems provided by BD[162] Management's Remediation Plan This section outlines management's active remediation plan for the material weakness, including control design evaluation and enhanced oversight - Management is actively executing a remediation plan for the material weakness, which includes evaluating control design, implementing formal training, enhancing oversight of account reconciliations, improving control documentation, and leveraging technology for reporting and automation[163][166] - The Company believes these measures will remediate the underlying cause of the material weakness, but full remediation will not occur until these steps are completed and operating effectively for a sufficient period[163] Changes in Internal Control over Financial Reporting This section confirms no material changes in internal control over financial reporting during the quarter, as the material weakness remains - No changes in internal control over financial reporting during the three months ended June 30, 2025, have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting, as the material weakness has not yet been remediated[164] PART II. OTHER INFORMATION This part includes other required information, such as risk factors, exhibits, and signatures Item 1A. Risk Factors This section confirms no material changes to the risk factors previously disclosed in Embecta's 2024 Form 10-K and prior Quarterly Report - There have been no material changes to Embecta's risk factors from those described in the 2024 Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2025[168] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and iXBRL formatted financial statements - Exhibits include certifications of the Chief Executive Officer (31.1, 32.1) and Chief Financial Officer (31.2, 32.2), and iXBRL formatted financial statements (101, 104)[169] Signatures This section contains the required signatures of Embecta Corp.'s authorized officers, affirming the filing of the report - The report is signed by Devdatt Kurdikar (President and Chief Executive Officer), Jacob Elguicze (Senior Vice President, Chief Financial Officer), and Anthony Roth (Vice President, Controller and Chief Accounting Officer) on August 8, 2025[173]