Part I. Financial Information Financial Statements (Unaudited) The unaudited statements show quarterly revenue growth but decreased gross and operating profit, with net income boosted by a significant tax benefit Condensed Consolidated Statements of Income Financial Performance Summary | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $287.2M | $277.1M | $564.5M | $552.8M | | Gross Profit | $185.4M | $189.8M | $371.3M | $378.6M | | Operating Income | $39.2M | $55.6M | $84.7M | $144.4M | | Net Income | $28.9M | $14.0M | $49.0M | $49.2M | | Diluted EPS | $0.50 | $0.24 | $0.85 | $0.85 | Condensed Consolidated Balance Sheets Financial Position Summary | Balance Sheet Item | March 31, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Cash and equivalents | $299.8M | $326.3M | | Total Current Assets | $710.0M | $749.1M | | Total Assets | $1,199.6M | $1,214.4M | | Long-Term Debt | $1,591.8M | $1,593.9M | | Total Liabilities | $1,969.2M (derived) | $2,036.1M (derived) | | Total Equity | $(769.6)M | $(821.7)M | Condensed Consolidated Statements of Cash Flows Cash Flow Summary | Cash Flow Activity (Six Months Ended March 31) | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $11.2M | $47.4M | | Net Cash Used for Investing Activities | $(6.1)M | $(10.5)M | | Net Cash Used for Financing Activities | $(25.3)M | $(26.8)M | | Net Change in Cash | $(20.0)M | $15.5M | Notes to Condensed Consolidated Financial Statements - As of March 31, 2024, all factoring agreements with former parent company BD have expired and terminated due to the implementation of new ERP systems and business continuity processes42 - Separation and stand-up costs related to the spin-off from BD amounted to $32.6 million for the quarter and $59.0 million for the six months ended March 31, 2024, primarily for implementing the new ERP system46 Revenue by Geography (in millions) | Revenue by Geography (in millions) | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | United States | $147.6 | $146.4 | $296.2 | $295.7 | | International | $139.6 | $130.7 | $268.3 | $257.1 | | Total | $287.2 | $277.1 | $564.5 | $552.8 | - The effective tax rate for the quarter was (191.9)% compared to 42.9% in the prior year, primarily due to a discrete tax benefit of $18.8 million76 - The company has significant customer concentration risk, with three customers accounting for 42.0% of total gross revenues and four customers representing 63.6% of total gross trade receivables8384 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth drivers, margin pressures from inflation and operational issues, and the impact of separation costs on operating income Results of Operations - For the three months ended March 31, 2024, revenue increased 3.6% to $287.2 million, driven by volume increases but partially offset by negative foreign currency translation and unfavorable pricing109 - Cost of products sold as a percentage of revenue increased to 34.2% from 31.5% year-over-year, driven by inflation, manufacturing variances from a plant shutdown, and unfavorable foreign exchange112 - Selling and administrative expenses rose 8.3% for the quarter, primarily due to increased compensation, benefits, and outbound freight costs113 - Research and development expenses decreased by 16.7% for the quarter, mainly due to a prior-year upfront payment for a collaboration agreement114 - Other operating expenses increased to $35.5 million for the quarter, driven by costs related to the Separation from BD and the implementation of a new ERP system115 Liquidity and Capital Resources Debt Summary (as of March 31, 2024) | Debt Summary (as of March 31, 2024) | Amount (in millions) | | :--- | :--- | | Term Loan due March 2029 | $931.0 | | 5.00% Notes due February 2030 | $500.0 | | 6.75% Notes due February 2030 | $200.0 | | Total principal debt issued | $1,631.0 | | Less: current obligations & issuance costs | $(39.2) | | Long-term debt (net) | $1,591.8 | - Cash and equivalents decreased by $20.0 million during the six months ended March 31, 2024, while net cash from operating activities saw a significant decrease to $11.2 million from $47.4 million in the prior year126127 - The increase in trade receivables is a direct result of the company now being responsible for collections following its ERP implementation and the termination of factoring agreements with BD128 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency and interest rate fluctuations, managed through derivatives and exposed via its Term Loan - The company's primary interest rate risk is associated with its Term Loan B facility; a 100 basis point change in interest rates would affect annualized interest expense by $9.3 million143 - The company uses foreign currency forward exchange contracts to manage exposure from transactions denominated in currencies other than an entity's functional currency141 Controls and Procedures Management affirmed the effectiveness of disclosure controls while noting the ongoing multi-phase ERP system implementation post-separation - Management concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective144 - The company is implementing a new ERP system in phases and still relies on some of BD's systems and controls for certain international markets during the transition145146 Part II. Other Information Risk Factors No material changes to risk factors have occurred since the last annual and quarterly reports - No material changes have been made to the risk factors previously described in the 2023 Form 10-K and the Q1 2024 Form 10-Q150 Exhibits This section lists filed exhibits, including agreement amendments with BD, officer certifications, and iXBRL data - Exhibits filed include amendments to agreements with BD, CEO/CFO certifications, and iXBRL data files151 Signatures
Embecta (EMBC) - 2024 Q2 - Quarterly Report