Financial Data and Key Metrics Changes - For Q4 2025, Embecta generated $264 million in revenue, reflecting a 7.7% decline year-over-year on an as-reported basis or a 10.4% decline on an adjusted cost and currency basis [10] - GAAP gross profit for Q4 2025 totaled $158.5 million with a margin of 60%, compared to $173.8 million and 60.7% in the prior year [15] - Adjusted net income for Q4 2025 was $29.4 million, or $0.50 per diluted share, compared to $25.9 million and $0.45 in the prior year [17] Business Line Data and Key Metrics Changes - In Q4 2025, pen needle revenue declined approximately 13.9%, while syringe revenue declined by approximately 4.5% [12] - Safety products grew approximately 3.7%, and contract manufacturing revenue grew approximately 8.5% during the same period [12] - For the full year, pen needle revenue declined approximately 7.1%, while syringe revenues grew by 1.7% and safety products grew by 6.3% [14] Market Data and Key Metrics Changes - U.S. revenue for Q4 totaled $142 million, reflecting a year-over-year decline of 15.2% on an adjusted cost and currency basis [11] - International revenue for Q4 totaled $122 million, representing an increase of 2.8% on a reported basis but a decline of 4% on an adjusted cost and currency basis, primarily due to lower volumes in China [12] - The decline in international revenue was primarily due to lower revenue contribution from China, driven by heightened competitive intensity and local brand preferences [14] Company Strategy and Development Direction - The company ended its patch pump program and executed a restructuring plan aimed at enhancing profitability and free cash flow [5] - Embecta is collaborating with over 30 pharmaceutical partners to co-package pen needles with generic GLP-1 therapies, anticipating launches in Canada, Brazil, and India during calendar year 2026 [7] - The company aims to maintain its leadership position in core product categories while expanding into new market segments through product development programs [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the progress made during fiscal 2025 and outlined a strategic direction for sustainable growth [10] - The company anticipates a flat to down 2% revenue change for fiscal 2026, with expectations of modest declines in core injection and contract manufacturing revenue [22] - Management acknowledged the challenges posed by geopolitical tensions, particularly in China, but remains optimistic about long-term market potential [40] Other Important Information - Embecta generated approximately $182 million in free cash flow during fiscal 2025 and repaid approximately $184 million of debt [21] - The company expects to generate between $180 million and $200 million in free cash flow during fiscal 2026 [29] - A transaction to sell certain intellectual property rights associated with the discontinued patch pump program for $10 million occurred after year-end [21] Q&A Session Summary Question: Details on GLP-1 partnerships - Management is in discussions with over 30 potential GLP-1 entrants, with several already providing orders for development purposes [33][34] Question: Consumer willingness to buy non-Chinese products in China - Management noted that Q4 2025 performance in China met expectations, and steps have been taken to stabilize the situation [39][40] Question: Increased cannula costs and sourcing alternative suppliers - The company is working on identifying alternate cannula suppliers to mitigate cost increases and reduce reliance on a sole source [45][46] Question: Clarification on milestone payments to a U.S. pharmacy customer - Management explained that milestone payments are related to volume levels and marketing spend, impacting pricing dynamics [49] Question: Structure of contracts with generic GLP-1 providers - Management discussed the initial phases of contracting and the importance of reliability in supply for generic manufacturers [56][58] Question: Capital deployment and M&A opportunities - Management remains focused on debt repayment but is open to organic and inorganic investments as leverage decreases [64][65] Question: Sale of intellectual property associated with the patch pump - The sale of certain IP for $10 million will increase cash but will not impact adjusted results for fiscal 2026 [70]

Financial Data and Key Metrics Changes - For fiscal year 2025, the company generated adjusted revenues of approximately $1.08 billion, reflecting a decline of 3.9% on an adjusted cost and currency basis [13] - The fourth quarter revenue was $264 million, a 7.7% decline year-over-year on an as-reported basis, or a 10.4% decline on an adjusted cost and currency basis [10] - GAAP net income for fiscal 2025 was $95.4 million, compared to $78.3 million in the prior year, while adjusted net income was $173.9 million, up from $143.1 million [21][22] Business Line Data and Key Metrics Changes - Pen needle revenue declined approximately 7.1% year-over-year, totaling $784.1 million, primarily due to advanced distributor ordering in the prior year and pricing headwinds [14] - Syringe product revenues grew by 1.7% year-over-year, driven by improved pricing, while safety products grew 6.3% due to a combination of improved pricing and volume increases [15] - Contract manufacturing revenue grew approximately 53.9% compared to the prior year [15] Market Data and Key Metrics Changes - U.S. revenue for the fourth quarter totaled $142 million, reflecting a year-over-year decline of 15.2% on an adjusted cost and currency basis [11] - International revenue for the fourth quarter was $122 million, representing an increase of 2.8% on a reported basis but a decline of 4% on an adjusted cost and currency basis, primarily due to lower volumes and pricing headwinds in China [12] - The decline in international revenue was largely attributed to lower revenue contribution from China, driven by heightened competitive intensity and local brand preferences [14] Company Strategy and Development Direction - The company ended its patch pump program and executed a restructuring plan aimed at enhancing profitability and free cash flow [5] - The company is advancing its GLP-1 strategy, collaborating with over 30 pharmaceutical partners to co-package pen needles with generic GLP-1 therapies, anticipating a $100 million annual revenue opportunity by 2033 [6][8] - The company aims to maintain leadership in core product categories while expanding its portfolio through new product development programs [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's direction despite a complex geopolitical and trade backdrop, focusing on maintaining leadership in core categories and delivering strong profitability and cash flow [58][59] - The company anticipates flat to down 2% revenue growth on an adjusted constant currency basis for fiscal year 2026, with expectations of modest declines in core injection and contract manufacturing revenue [25][26] - Management highlighted the importance of stabilizing the situation in China and remains optimistic about long-term growth in that market [39] Other Important Information - The company generated approximately $182 million in free cash flow during fiscal year 2025 and repaid approximately $184 million of debt, ending the year with a net leverage level of approximately 2.9 times [23] - The company sold certain intellectual property rights and long-lived assets associated with the discontinued patch pump program for $10 million, which will not impact adjusted results for fiscal year 2026 [54] Q&A Session Summary Question: Details on GLP-1 partnerships - The company is in discussions with over 30 potential GLP-1 entrants, with several already providing orders and submitting regulatory submissions [33][34] Question: Consumer willingness to buy non-Chinese products in China - The company has taken steps to stabilize the situation in China and introduced a more price-competitive pen needle [38] Question: Increased cannula costs and sourcing alternative suppliers - The company is working on identifying alternate cannula suppliers to mitigate cost increases and has made significant progress [41][43] Question: Milestone payments to a large U.S. pharmacy customer - Milestone payments are related to contract terms that include rebates and marketing spend, which can lead to year-over-year price fluctuations [44] Question: Capital deployment and M&A opportunities - The company remains focused on paying down debt but is open to organic and inorganic investments if value-creative opportunities arise [52]

Financial Performance - Q4 FY2025 - Reported revenue was $264 million, a decrease of 7.7% compared to the prior year period[16] - Adjusted revenue was $263.3 million, a decrease of 10.4% on an adjusted constant currency basis compared to the prior year period[16] - Adjusted EBITDA was $89.9 million with a margin of 34.1%, compared to $73 million and 25.2% in the prior year period[16] Financial Performance - FY2025 - Reported revenue was $1,080.4 million, down 3.8% compared to the prior year period[17] - Adjusted revenue was $1,079.7 million, down 3.9% on an adjusted constant currency basis compared to the prior year period[17] - Adjusted EBITDA was $415.3 million with a margin of 38.5%, compared to $353.4 million and 31.4% in the prior year[17] FY2026 Financial Guidance - The company projects reported revenue between $1,071 million and $1,093 million, representing a growth rate between -0.9% and 1.1%[18] - Adjusted constant currency revenue growth is expected to be between -2.0% and 0.0%[18] - Adjusted operating margin is projected to be between 29.0% and 30.0%[18]

Core Insights - The company reported a decrease in revenue for the fourth quarter and the full fiscal year 2025, primarily due to advanced distributor ordering and ongoing business dynamics in China [2][10][11] - Despite the revenue decline, the company achieved higher profitability metrics, including increased GAAP operating margin and net income year over year [3][10] - The company completed the first phase of its strategic roadmap and initiated the second phase focused on growth, operational efficiency, and debt reduction [3][9] Fourth Quarter Fiscal Year 2025 Financial Highlights - Reported revenues were $264.0 million, down 7.7% from $286.1 million in the prior year [6][10] - U.S. revenues decreased by 15.2%, while international revenues increased by 2.8% on a reported basis [6][8] - Gross profit was $158.5 million with a margin of 60.0%, compared to $173.8 million and 60.7% in the prior year [6][19] - Net income was $26.4 million, with diluted earnings per share of $0.45, compared to $14.6 million and $0.25 in the prior year [6][19] Twelve Months Ended September 30 Fiscal Year 2025 Financial Highlights - Reported revenues totaled $1,080.4 million, down 3.8% from $1,123.1 million in the previous year [11][19] - U.S. revenues decreased by 4.6%, while international revenues decreased by 2.8% on a reported basis [11][19] - Gross profit was $676.8 million with a margin of 62.6%, compared to $735.2 million and 65.5% in the prior year [11][19] - Net income was $95.4 million, with diluted earnings per share of $1.62, compared to $78.3 million and $1.34 in the prior year [11][19] Strategic Initiatives and Future Outlook - The company aims to strengthen its core business and expand its product portfolio, particularly in the GLP-1 strategy [9][12] - Fiscal year 2026 guidance anticipates reported revenues between $1,071 million and $1,093 million, with an expected revenue growth of -0.9% to 1.1% [12][13] - The company plans to maintain a strong adjusted operating margin of 29.0% to 30.0% in fiscal year 2026 [12][13] Balance Sheet and Liquidity - As of September 30, 2025, the company had $228.6 million in cash and equivalents and $1.417 billion in debt principal outstanding [15][19] - The company repaid approximately $72.4 million of outstanding principal under its term loan B facility during the fourth quarter [9][15] - A quarterly cash dividend of $0.15 per share was declared, payable on December 18, 2025 [16]

Core Insights - The upcoming bilateral meeting between U.S. President Donald Trump and Chinese President Xi Jinping on Oct. 30 at the APEC Summit has raised hopes for a potential de-escalation in the U.S.-China trade war, which could significantly impact the healthcare sector and related ETFs [1][11]. Healthcare Sector Impact - The healthcare sector is heavily reliant on global supply chains, particularly from China, making it vulnerable to trade disruptions and tariff increases that raise input costs for medical devices and pharmaceuticals [3][5]. - Approximately 30% of Active Pharmaceutical Ingredients (APIs) used in the U.S. healthcare system are sourced from China, with over 90% of generic sterile injectable drugs depending on APIs from either India or China [6]. - Nearly 99% of medical gloves and about 60% of syringes used in the U.S. are imported from China, highlighting the sector's dependence on Chinese manufacturing [7][8]. Financial Implications for Companies - Major pharmaceutical and medical device companies, such as Johnson & Johnson and GE HealthCare, have expressed concerns about the financial impact of U.S. tariffs, with JNJ anticipating $400 million in tariff-related costs and GE HealthCare expecting about $500 million in total tariff impact for the year [9][10]. - A reduction in tariffs resulting from the U.S.-China trade talks could lower supply-chain costs and alleviate uncertainty, which would be beneficial for healthcare ETFs [11]. ETFs to Watch - **Health Care Select Sector SPDR Fund (XLV)**: This fund has $36.93 billion in assets under management and charges 8 basis points in fees. Its top holdings include Eli Lilly (12.30%), Johnson & Johnson (8.74%), and AbbVie (7.60%) [13][14]. - **iShares U.S. Healthcare ETF (IYH)**: With net assets of $2.93 billion and a fee of 38 basis points, its top holdings are Eli Lilly (11.94%), Johnson & Johnson (8.41%), and AbbVie (7.34%) [15]. - **Vanguard Health Care ETF (VHT)**: This fund has net assets worth $15.3 billion and charges 9 basis points in fees. Its top holdings include Eli Lilly (10.33%), AbbVie (5.76%), and United Healthcare (4.94%) [16].

Core Insights - Medtech companies are facing increased tariff uncertainty due to a Section 232 investigation initiated by the Trump administration into medical equipment [1][5] - The investigation began on September 2 and was disclosed by the Department of Commerce [1] - Industry group Advamed is lobbying for exemptions from tariffs, highlighting that 70% of medical equipment used in the U.S. is domestically produced [2] Industry Implications - Advamed's CEO stated that the investigation will demonstrate the strength of U.S. medtech manufacturing and that lower tariffs could lead to increased manufacturing and job growth, benefiting access to lifesaving technologies and reducing costs for hospitals and patients [3] - The investigation encompasses a wide range of medical products, including syringes, IV bags, and complex devices like insulin pumps and imaging machines [4] Potential Outcomes - Major medical device firms, such as Siemens Healthineers and GE Healthcare, have not publicly commented on the investigation, while Philips indicated no immediate operational or financial impact should be assumed [4] - Analysts expect that the investigation may lead to additional tariffs for the medtech industry, potentially following a gradual increase similar to the approach taken with pharmaceuticals [6]

Group 1 - The U.S. will impose a 100% tariff on any branded or patented pharmaceutical product entering the country starting October 1 [1] - Companies that have started construction on drug manufacturing plants in the U.S. will be exempt from this tariff [1][2] - Trump indicated that the initial tariff on pharmaceuticals will be small, with plans to increase it to 150% and potentially up to 250% within a year to a year and a half [3] Group 2 - In addition to pharmaceuticals, a 25% duty on heavy trucks and a 50% levy on kitchen cabinets and bathroom vanities will also take effect on October 1 [2] - The Department of Commerce is conducting national security investigations into imports of robotics, industrial machinery, and medical devices, which may lead to additional tariffs [3][4] - Personal protective equipment and other medical consumables are included in the scope of the new investigations, but pharmaceuticals are being examined separately [4]

Financial Performance - Q3 FY2025 - Reported revenue reached $295.5 million, an increase of 8.4% compared to the prior year period[13, 15] - Adjusted constant currency revenue growth was 8.0%[13, 15] - GAAP gross profit was $197.1 million with a margin of 66.7%[15] - Adjusted EBITDA was $131.0 million with a margin of 44.3%[15] - GAAP net income per diluted share was $0.78, compared to $0.25 in the prior year period[15] - Adjusted net income per diluted share was $1.12, compared to $0.74 in the prior year period[15] Financial Performance - Nine Months Ended FY2025 - Adjusted revenue was $816.4 million, a decrease of 2.5% compared to the prior year period[28] - Adjusted constant currency revenue decreased by 1.7%[28] FY2025 Updated Financial Guidance - Reported revenue is projected to be between $1.078 billion and $1.085 billion, representing a decline of 4.0% to 3.4%[16] - Adjusted constant currency revenue growth is expected to be between -3.6% and -3.0%[16] - Adjusted earnings per diluted share are projected to be between $2.90 and $2.95[16] - Adjusted EBITDA margin is expected to be between 37.25% and 37.50%[16] Strategic Priorities - The company paid down approximately $52 million of term loan B during the third quarter, reaching approximately $112 million in year-to-date debt reduction[11] - The company expects to generate pre-tax cost savings of between $7 million and $8 million during the second half of FY 2025 from the restructuring plan[11] - The company significantly advanced the U S and Canada brand transition, with substantial completion expected by the end of FY 2025[8, 24]

Core Insights - Embecta Corp. reported strong financial results for Q3 2025, with an increase in revenues and improved profitability metrics despite a challenging geopolitical environment [2][3][8] Financial Highlights - Q3 2025 revenues reached $295.5 million, an increase of 8.4% year-over-year, with U.S. revenues up 11.6% and international revenues up 5.0% [8][10] - Gross profit for Q3 was $197.1 million, with a gross margin of 66.7%, compared to $190.1 million and 69.8% in the prior year [8][20] - Operating income for Q3 was $94.0 million, with an operating margin of 31.8%, significantly higher than $55.9 million and 20.5% in the prior year [8][20] - Net income for Q3 was $45.5 million, or $0.78 per diluted share, compared to $14.7 million and $0.25 in the prior year [8][20] Nine-Month Performance - For the nine months ended June 30, 2025, revenues totaled $816.4 million, a decrease of 2.5% compared to $837.0 million in the prior year [13][20] - Gross profit for the nine-month period was $518.3 million, with a gross margin of 63.5%, down from 67.1% in the prior year [13][20] - Net income for the nine months was $69.0 million, or $1.18 per diluted share, compared to $63.7 million and $1.10 in the prior year [13][20] Strategic Developments - The company successfully implemented its ERP system and operationalized distribution centers in India, concluding a multi-year separation program [3][5] - Embecta is focused on diversifying its product offerings, including contracts with pharmaceutical companies for co-packaging pen needles with generic GLP-1 drugs [5][8] - The company has made significant progress in its brand transition program in the U.S. and Canada, expected to be largely complete by the end of fiscal year 2025 [5][8] Financial Guidance - The updated fiscal year 2025 guidance includes expected reported revenues of $1,078 - $1,085 million, with adjusted earnings per diluted share projected at $2.90 - $2.95 [14][19] - The company anticipates adjusted gross margins of 63.25% - 63.50% and adjusted operating margins of 30.75% - 31.00% for the fiscal year [14][19] Balance Sheet and Liquidity - As of June 30, 2025, the company had approximately $233.6 million in cash and equivalents, with total debt principal outstanding at $1.489 billion [15][21] - The company reduced its debt by approximately $52.4 million during Q3 2025, achieving its fiscal year 2025 debt reduction target with one quarter remaining [8][15]

Summary of the Conference Call Company Overview - **Company Name**: Inbecta - **Background**: Inbecta was spun out from Becton Dickinson's diabetes business on April 1, 2022, and has been a public company for over three years. The company generates approximately $1 billion in revenue and operates in around 140 countries with three main product categories: pen needles, safety products, and syringes [3][4]. Financial Performance and Growth Drivers - **Revenue Composition**: About 85% of Inbecta's revenue comes from pen needles and safety products, which have been growing at a rate of 2% to 2.5% over the past few years [4]. - **Financial Goals**: The company set a revenue CAGR target from 2022 to 2024 that was expected to be flat, with an adjusted EBITDA margin of around 30%. Inbecta exceeded both metrics during this period despite facing significant inflationary impacts [5][6]. - **Future Projections**: The core injection business is projected to experience a 1% to 2% CAGR decline over the long-range planning (LRP) period, primarily due to pressures in the US syringe business and a transition to other technologies [7][9]. Market Dynamics - **Syringe Business Challenges**: The US syringe business is under pressure, with expectations that revenue from this segment could decline significantly by 2028 [10]. - **Emerging Markets Growth**: Emerging markets, which represent about 20% of the business, are expected to grow at mid-single digits, while developed markets may see slight declines [12]. New Revenue Streams and Product Development - **New Product Opportunities**: Inbecta is focusing on leveraging its manufacturing capabilities and distribution agreements to introduce new products, including blood glucose monitors (BGMs), insulin pumps, and ultrasound products [15][17][27]. - **GLP-1 Market Potential**: The company is exploring partnerships with generic pharmaceutical companies for GLP-1 products, which could represent a $100 million annual market opportunity by 2033 [20][21]. Financial Strategy and Cash Flow - **Free Cash Flow Generation**: Inbecta anticipates generating approximately $600 million in cumulative free cash flow over the LRP period, with plans to pay down at least $110 million in debt in 2025 [35][36]. - **Debt Management**: The company aims to reduce its net leverage to around three times by the end of 2025, with potential for further reductions by 2028 [39][40]. Margin and Cost Considerations - **Operating Margin Decline**: The adjusted operating margin is expected to decline by approximately 125 basis points due to incremental tariffs and increased R&D expenses related to sourcing cannulas from multiple suppliers [28][29][31]. - **Tariff Impact**: Incremental tariffs are estimated to impact the business by $9 million to $10 million annually, but most products are largely exempt from tariffs due to medical necessity [43]. Key Takeaways - **Underappreciated Aspects**: The free cash flow capabilities of Inbecta have been masked by the complexities of separation from Becton Dickinson. The company is poised for growth through new product introductions and strategic partnerships [45][46].