Embecta (EMBC) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2023, the company reported revenue of $286.1 million, a decrease of 1.7% on an as-reported basis and 0.3% on a constant currency basis [53][56] - GAAP gross profit was$ 189.5 million with a margin of 66.2%, down from $202.9 million and 69.7% in the prior year [7][73] - Adjusted net income was$ 39.8 million with earnings per share of $0.69, while GAAP net income was$ 15.2 million with earnings per diluted share of $0.26 [8][73] - The company raised its guidance for adjusted gross margin to approximately 66%, up from 64.5%, and adjusted EBITDA margin to approximately 33.5%, up from 32.5% [9][75] Business Line Data and Key Metrics Changes - The core injection business grew approximately 0.5% on a constant currency basis when normalizing for non-diabetes products [53][6] - U.S. revenue totaled$ 153.9 million, reflecting a year-over-year constant currency decline of 2.6% [43][56] - International revenue was $132.2 million, showing a year-over-year constant currency growth of 2.4% [6][55] Market Data and Key Metrics Changes - U.S. revenues were relatively flat on a constant currency basis, while international revenues grew approximately 3.2%, driven by emerging markets [54][56] - The company anticipates a 3.6% constant currency headwind in Q4 due to the lack of contract manufacturing revenue [14][74] Company Strategy and Development Direction - The company is focused on strengthening its base business, separating from BD, and investing in growth initiatives, particularly in the insulin patch pump program [41][52] - The company is monitoring competitive threats from new drug developments, including once-weekly insulin and GLP-1s, and is exploring opportunities to leverage its manufacturing capabilities [20][85] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the execution of strategic priorities and raised financial guidance based on better-than-expected Q3 performance [10][75] - The company is cautious about the impact of contract manufacturing revenue and anticipates a sequential step down in margins due to temporary operational suspensions [57][82] Other Important Information - The company has begun the demerger process for its manufacturing facility in Suzhou, China, and is implementing an ERP solution during the temporary suspension of operations [16][23] - The company holds approximately$ 317 million in cash and cash equivalents and $1.64 billion in debt, resulting in a net leverage ratio of approximately 3.4x [56] Q&A Session Questions and Answers Question: What are the expectations for the China facility shutdown and margin improvement? - Management indicated that the timing for the facility shutdown is still being determined and that they will provide a multi-year outlook as they progress [32][64] Question: How does the company plan to address the impact of new drug developments like GLP-1s? - Management is closely monitoring the market and believes it is too early to determine the long-term impact of GLP-1s on their business, noting that growth is primarily in emerging markets [20][85] Question: What are the assumptions for base business growth and volume growth in the U.S. and international markets? - The company anticipates core injection business growth of 1.3% to 3.3% on a constant currency basis in Q4, driven by expectations in both the U.S. and China [62][74]