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Embecta (EMBC) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2023, the company generated revenues of approximately $1,121 million, representing a decline of 0.8% on an as-reported basis but an increase of 1.6% on a constant currency basis [13] - In Q4 2023, revenue totaled $281.9 million, reflecting an increase of 2.7% on an as-reported basis and growth of 2.1% on a constant currency basis [26] - Adjusted gross margin for the full year 2023 was 67%, with adjusted operating margin at 29.6% and adjusted earnings per share of $2.99 [61] Business Line Data and Key Metrics Changes - The underlying core injection business grew approximately 1.8% on a constant currency basis for the full year, normalizing for contract manufacturing headwinds [13] - In Q4, the core injection business grew an impressive 4.9% on a constant currency basis when excluding non-diabetes products [11] - Excluding contract manufacturing revenue, the core injection business in the U.S. grew by 6.6%, with a normalized growth of approximately 3.8% [51] Market Data and Key Metrics Changes - U.S. revenue in Q4 totaled $151.8 million, representing year-over-year growth of approximately 1.3% on a constant currency basis [27] - International revenue in Q4 was $130.1 million, equating to year-over-year constant currency growth of approximately 3.0%, driven by favorable comparisons in China and growth in Canada and Asia [28] - For the full year, U.S. revenues totaled $601.4 million, growing by 0.2% on a constant currency basis, while international revenues totaled $519.4 million, with constant currency growth of approximately 3.2% [52] Company Strategy and Development Direction - The company will focus on three core strategic priorities for 2024: strengthening and optimizing the core business, investing for growth, and managing operational transitions effectively [29][55] - The company is committed to new product development, particularly in the insulin patch pump for the type two market, aiming to achieve critical milestones in fiscal 2024 [25] - The company is transitioning to a standalone entity, with significant efforts to exit transition service agreements with BD by March 31, 2024 [7][54] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the unpredictable operating environment and inflation but emphasized a focus on managing through challenges [14] - The company anticipates flat to down 2% revenue growth for 2024, with expectations of a 30% adjusted EBITDA margin [39][64] - Management expressed optimism about the GLP-1 market landscape, viewing it as an opportunity for growth despite competitive challenges [75] Other Important Information - The company ended the year with a cash balance of approximately $327 million, impacted by over $140 million of one-time operating expenses and capital expenditures [38] - The company has resumed production at its plant for markets outside of China and is in the final stages of obtaining a manufacturing license for domestic products in China [47] Q&A Session Summary Question: What is driving the gross margin assumption for next year? - The gross margin assumption is impacted by FX headwinds, increased raw material and labor costs, and additional costs associated with cannulas purchased from BD [79][90] Question: What does the Medicare Part D win mean for sales? - The exclusive or dual-preferred status for three Medicare plans is expected to significantly increase market share and is incorporated into the guidance for next year [91] Question: Can you provide constant currency growth expectations for the Americas versus international? - The company does not separate constant currency guidance by region but expects stable dynamics in the U.S. with volume changes offset by pricing [94] Question: What is the expected TSA expense for 2024? - The guidance assumes TSA expenses of approximately $30 million to $35 million for 2024, down from $63 million in 2023 [100]