Q1 2024 Embecta Corp Earnings Call - Q&A

February 9, 2024

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Operator: Welcome, ladies and gentlemen, to the Fiscal First Quarter 2024 Embecta Earnings Conference Call. At this time, all participants may disconnect at this time. Polark, Embecta. Please note that this conference call is being recorded and the recording will be available on the company's website for replay following. I would now like to hand the call over to your host today, Mr. Pravesh Kandilwal, Vice President Please go ahead.

Welcome, ladies and gentlemen to the fiscal first quarter 2024, and better earnings conference call. At this time, all participants have been placed in a listen only mode. Please.

Please note that this conference call is being recorded and a recording will be available on the company's website for replay following the completion of this call Oh.

I'll now like to hand, the call over to your host today, Mr progressed scandal wall Vice President of Investor Relations. Please go ahead.

Pravesh Kandilwal: Thank you, operator. Good morning, everyone, and welcome to Embecta's fiscal first quarter 2024 earnings conference call. The press release and slides to accompany today's call and webcast replay details are available on the investor relations section of the company's website at www.embecta.com. With me today are Dev Kodekar, Embecta's President and Chief Executive Officer, and Jake Elguiz, our Chief Financial Officer.

Thank you operator.

Good morning, everyone and welcome to <unk> fiscal first quarter 2024 earnings conference call. The press release and slides to accompany today's call and webcast replay details are available on the Investor Relations section of the company's website at Www <unk> Com with me today are Jeff Carney car <unk>.

Excellent and Chief Executive Officer, and Jake I believe our Chief Financial Officer.

Pravesh Kandilwal: Before we begin, I would like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events, as outlined in our slide. We wish to caution you that such statements are, in fact, forward-looking in nature and are subject to risks and uncertainty, and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include, but are not limited to, factors referenced in our press release today, as well as our filings with the SEC, which can be accessed on our website. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP.

Before we begin I would like to remind you that some of the matters discussed in the conference call will contain forward looking statements regarding future events as outlined in our slides we wish to caution you that such statements are in fact forward looking in nature and are subject to risks and uncertainties and actual events or results may differ materially.

The factors that could cause actual results or events to differ materially include but are not limited to factors referenced in our press release today as well our filings with the SEC, which can be accessed on our website. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures.

I was prepared in accordance with GAAP.

Pravesh Kandilwal: A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation. The agenda for today's call is as follows. They will begin by providing some remarks on the overall performance of our business during the fiscal first quarter of 2024, as well as an overview of our strategic priorities. Jake will then provide a more in-depth review of our Q1 financial results as well as our updated financial guidance for the year. We will then open the call for questions. With that said, I would now like to turn the call over to our CEO, Jeff Golding. Good morning, and thank you for taking the time to join us.

Reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation.

Our agenda for todays call is as follows.

Dave will begin by providing some remarks on the overall performance of our business during the fiscal fourth quarter of 2024 as well as an overview of our strategic priorities. Jack will then provide a more in depth review of our Q1 financial results as well as our updated financial guidance for the year.

We'll then open the call for questions with that said I would now like to turn the call over to our CEO Jeff <unk>.

Yes.

Good morning, and thank you for taking the time to join us.

Jeff Golding: With the introduction of the first specialized insulin delivery device in 1924, this year marks the 100th year of our journey to deliver better diabetes care through innovation. Whether you're newly diagnosed or transitioning to a new line of therapy, our mission is to make a person with diabetes's everyday experience as comfortable and convenient as possible while advancing towards a new generation of life-changing solutions. We have been one of the leaders in insulin delivery for nearly a hundred years, and through our insulin delivery products, we touch an estimated 30 million people living with diabetes in over a hundred countries. Developing and providing solutions that make life better for people living with diabetes is at the core of everything we do and is what drives our global team.

With the introduction of the first specialized insulin delivery device and 1924. This year marks the 100th year of our journey to deliver better diabetes care through innovation.

Whether you're a newly diagnosed or transitioning to a new line of therapy. Our mission is to make a person with diabetes everyday experience as comfortable and convenient as possible.

While advancing towards a new generation of life changing solutions.

We have been one of the leaders in insulin delivery for nearly 100 years and to our insulin delivery products. We've got to an estimated 30 million people living with diabetes and over 100 countries developing.

And providing solutions that make life better for people living with diabetes is in the quarter for everything we do and it's what drives our global team.

Jeff Golding: Turning to our strategic priorities for fiscal year 2024, we will continue to be focused on the same three core strategic priorities that we have had since we became an independent company. These priorities have served as the foundation for our actions and decision making, driving our company forward, and they include, Remaining focused on strengthening our base business while maintaining our global leadership position in the category of insulin injection devices, separating ourselves from our former parent in a thoughtful manner to mitigate risk and position us for success as an independent company. And finally, investing in growth, most notably around our insulin patch pump program that is being developed for the type 2 market, as well as We are advancing with determination and a sense of urgency on each of these objectives, and I'm very pleased with the progress that we've made in these areas. Now, turning to some first quarter highlights.

Turning to our strategic priorities for fiscal year 2024.

We will continue to be focused on the same three core strategic priorities that we have had since we became an independent company.

These priorities have served as the foundation for our actions and decision, making driving our company forward and to include.

Remaining focused on strengthening our base business, while maintaining a global leadership position in the category of insulin injection devices.

Separating ourselves from our former parent in a thoughtful manner to mitigate risk and position us for success as an independent company.

And finally investing in growth most notably around our insulin patch pump program that is being developed for the type two market as well as seeking M&A and additional partnership opportunities.

We are advancing with determination in the sense of urgency in each of these objectives and I am very pleased with the progress that we've made in these areas.

Turning to some first quarter highlights.

Jeff Golding: First, we published our 2024 Environmental, Social, and Governance report. This report provides a summary of the progress we made in 2023 to develop our ESG strategy, including establishing policies and systems that underscore our commitment to delivering our products and solutions responsibly, and with a view to how our business impacts the broader communities in which we operate. Next, the team's hard work gained recognition, leading to the acceptance of six Embecta abstracts as posters for presentation at the upcoming Advanced Technologies and Treatments for Diabetes, or ATTD, conference in March. We believe that posters like these continue to validate our value proposition that a larger insulin reservoir would benefit a person with type 2 diabetes and potentially facilitate more adults using a single pump for a full three days, resulting in a greater health Additionally, Embecta is set to host an industry-sponsored symposium at ATTD focused on unlocking the potential of insulin pumps for personalized type 2 diabetes care.

First we published our 2020 for environmental social and governance report.

This report provides a summary of the progress we made in 2023 to develop our ESG strategy, including establishing policies and systems that underscore our commitment to delivering our products and solutions responsibly and with a view towards how our business impacts the broader communities in which we operate.

Next the team's hard work gained recognition leading to the acceptance of six <unk> posters for presentation at the upcoming advanced technologies and treatments for diabetes or <unk> conference in March.

We believe that poster presentations like these continue to validate our value proposition that the larger insulin reservoir would benefit a person with type two diabetes and potentially facilitate more adults using a single pump for a full three days, resulting in a greater health economic benefit to patients and payers.

Additionally, and vector is set to host an industry sponsored symposium at <unk> focused on unlocking the potential of insulin pumps for personalized type two diabetes care.

Jeff Golding: These educational objectives align with our commitment to innovation and improvements in diabetes care. By supporting this symposium, we are excited about the potential to help advance informed decision making around insulin pump therapy for patients with type two diabetes. During Q1, we also notably advanced our separation programs by completing the implementation of our ERP system for approximately 60% of our revenue base and our manufacturing facility within the U.S., while also operationalizing new shared services capabilities on a distribution network serving the U.S. and Canadian markets. Furthermore, we made significant progress in terms of the development of our insulin patch pumps that are being developed specifically for the type 2 market, including the filing of a 510K premarket I'll share more about these ladder accomplishments in the following slides.

These educational objectives aligned with our commitment to innovation and improvements in diabetes care.

By supporting the symposium, we are excited about the potential for helping advance informed decision, making around insulin pump therapy for patients with type two diabetes.

During Q1, we also notably advanced our separation programs by completing the implementation of our ERP system for approximately 60% of our revenue base and our manufacturing facility within the U S.

While also operationalized, a new shared services capabilities under distribution network, serving the U S and Canadian markets.

Furthermore, we made significant progress in terms of the development of our insulin patch pumps that are being developed specifically for the type two market.

Including the filing of a five 10-K pre market application for the open loop version offered insulin patch pump with the FDA.

I'll share more about this later accomplishments in the following slides.

Finally during the first quarter solid execution led to financial results that exceeded our internal expectations and based on these results coupled with our outlook for the remainder of the year, we are raising our financial guidance ranges for revenue and adjusted earnings per share.

Next I would like to get into a bit more detail regarding the advancements we've made in terms of our separation efforts.

As I just mentioned during Q1, our team made significant progress in the global implementation of our ERP system shared services capabilities and distribution network.

Jeff Golding: Finally, during the first quarter, solid execution led to financial results that exceeded our internal expectations, and based on these results, coupled with our outlook for the remainder of the year, we are raising our financial guidance ranges for revenue and adjusted earnings per share. Next, I would like to get into a bit more detail regarding the progress we made in terms of our separation efforts. As I just mentioned, during Q1, our team made significant progress in the global implementation of our ERP system, shared services capabilities, and distribution networks. These are complex programs, and we have adopted a phased implementation approach to mitigate the separation risk.

These are complex programs and we've adopted a phased implementation approach to mitigate the separation risks.

As of today, we have implemented our ERP system, and operationalized shared services capabilities, and our new logistics and distribution network to support the U S and Canadian markets.

In addition, we implemented our own ERP in Suzhou, China and holders, Nebraska, which are two of our three manufacturing plants.

During our fiscal second quarter, we plan to implement our systems capabilities and processes in traditional markets as well as at our remaining manufacturing plant in Ireland.

As such by the end of our fiscal second quarter, we anticipate having slightly more than 85% of our revenue base and all three of our manufacturing locations on our own ERP platform.

Jeff Golding: As of today, we've implemented our ERP system and operationalized shared services capabilities and a new logistics and distribution network to support the U.S. and Canadian markets. In addition, we implemented our own ERP system in Suzhou, China and Holdridge, Nebraska, which are two of our three manufacturing plants. During our fiscal second quarter, we plan to implement our systems, capabilities, and processes in additional markets, as well as at our remaining manufacturing plant in Ireland. As such, by the end of our fiscal second quarter, we anticipate having slightly more than 85% of our revenue base and all three of our manufacturing locations on our own ERP platform. We anticipate implementation of our ERP system and the relevant shared service capabilities in all markets, excluding those in deferred closing jurisdictions within a few quarters, to facilitate the phased implementation of our ERP solution, distribution network, and shared services capabilities. We have requested an extension of certain TSAs and related agreements from BD. BD agreed to provide a limited extension contingent upon securing an additional private letter ruling from the IRS.

We anticipate implementation of our ERP system and the relevant shared service capabilities in all markets, excluding those in deferred closing jurisdictions within a few quarters.

To facilitate the phased implementation of our ERP solution distribution network and shared services capabilities.

We have requested an extension for certain TSA and related agreements from BD.

<unk> agreed to provide a limited extension contingent upon securing an additional private letter ruling from the IRS.

This ruling would enable us to extend specific TSA for a limited set of markets until early fiscal year 2025.

Throughout the company, we have been and will continue to exert substantial efforts to mitigate the risks associated with potential disruption as we transition away from TSA with BD and implement and integrate our own systems and processes.

While we have been generally successful avoiding major disruptions there is a possibility of temporary sales disruption in specific countries as we navigate the complexities of securing all necessary product registrations licenses.

<unk> licenses and the requirement, while concurrently standing up our own systems and capabilities.

Lastly, and as we've mentioned on prior earnings calls we have completed several important steps in the demerger process for our Suzhou, China manufacturing entity in order to ultimately transfer that legal entity from BD to them better.

I am pleased to report that we have completed the China legal entity transfer and we anticipate resuming domestic production for the Chinese market in our fiscal second quarter, which is in line with our previous expectations.

Jeff Golding: This ruling would enable us to extend specific TSAs for a limited set of markets until early fiscal year 2025. Throughout the company, we have been and will continue to exert substantial efforts to mitigate the risks associated with potential disruptions as we transition away from TSAs with BD and implement and integrate our own systems and processes. While we have been generally successful at avoiding major disruptions, there is the possibility of temporary sales disruptions in specific countries as we navigate the complexities of securing all necessary product registrations, licenses, and other requirements while concurrently standing up our own systems and capabilities. Lastly, and as we've mentioned on prior earnings calls, we completed several important steps in the demerger process for our Suzhou, China manufacturing entity in order to ultimately transfer that legal entity from I am pleased to report that we have completed the China Legal Entity Transfer and we anticipate resuming domestic production for the Chinese market in our fiscal second quarter, which is in line with our previous expectations.

We had previously commented that this plan was already manufacturing products for export to other markets.

This is a significant accomplishment by our team and culminates a process that has spanned years in planning and execution.

Turning to our insulin patch pump program.

A month ago, we announced the submission of our five key application for the open loop version of our insulin patch pump to the FDA.

This marks a critical milestone in the program we.

We are pleased to have this filing complete and we look forward to working with the FDA through the review process.

We are also continuing our development of a closed loop insulin patch pump that is targeted for use by individuals who have type two diabetes.

The pump hardware is expected to be substantially the same across both the open loop and closed loop solutions.

This should allow us to streamline development across our patch pump platform, while also addressing our potential market need for an open loop pump tailored for type two users.

One noteworthy feature of our pumps is the insulin reservoir size.

Accommodating up to 300 units.

We believe this enhancement is crucial.

During the type two users typically required up to a 100 units of insulin daily.

Jeff Golding: We had previously commented that this plant was already manufacturing products for export to other markets. This is a significant accomplishment by our team and culminates a process that has spanned years in planning and execution. Turning to our insulin patch form program.

Our goal is to have a three day wear indication for our pumps.

Doug will provide an appropriate supply of insulin that better aligns the needs of users and peers with the pump replacement cycle.

Why not open loop submission is under FDA review.

We are also actively advancing our closed loop pump development in collaboration with tight pool.

Jeff Golding: A month ago, we announced the submission of our 510k application for the open loop version of our insulin patch pump to the FDA. This marks a critical milestone in the program. We are pleased to have this filing complete, and we look forward to working with the FDA through the review process. We are also continuing our development of a closed loop insulin patch pump that is targeted for use by individuals who have type 2 diabetes. The pump hardware is expected to be substantially the same across both the open loop and closed loop versions.

As a reminder, site will already has a standalone type one algorithm cleared by the FDA.

And we are working with them to adapt their algorithm into a type two closed loop system.

We are pleased with the progress made so far and proud of the team that has managed to execute this program. While also maintaining their focus on multiple separation activities.

Now, let's review, our first quarter revenue performance in a bit more detail.

During Q1, we generated revenue of $277 3 million.

Which represented an increase of 0.6% on an as reported basis and a decline of <unk>, 3% on a constant currency basis.

Jeff Golding: This should allow us to streamline development across our platform while also addressing a potential market need for an open-loop pump tailored for Type 2 users. One noteworthy feature of our pumps is the insulin reservoir size, accommodating up to 300 units. We believe this enhancement is crucial, considering that Type 2 users typically require up to 100 units of insulin daily. Our goal is to have a three-day wear indication for our pumps, which would provide an appropriate supply of insulin that better aligns the needs of users and payers with the pump replacement cycle. While our open loop submission is under FDA review, we are also actively advancing our closed-loop pump development in collaboration with Tidepool. As a reminder, Tidepool already has a standalone Type I algorithm cleared by the FDA, and we are working with them to adapt their algorithm into a Type II closed-loop system.

When normalizing for the impact of year over year changes of the non diabetes products that we contract manufacture and sell to BD.

Underlying core injection business grew 0.5% on a constant currency basis.

Our Q1 revenue exceeded our previously communicated expectations, primarily due to the timing of customer orders in advance of our aforementioned ERP implementation as well as FX tailwind in relation to our original outlook.

As a reminder.

When we provided our initial financial guidance for fiscal year 2024, we indicated that we generated approximately 49% of our fiscal year 2023 as reported revenue dollars during the first half of that year end.

And that we anticipated generating a slightly lower percentage of the midpoint of our annual as reported revenue dollars range. During the first half of 2024 weeks.

We continue to believe that this will be the case as the positive impact from the timing of customer orders that occurred during Q1 is expected to unwind during fiscal Q2.

Jeff Golding: We are pleased with the progress made so far and proud of the team that has managed to execute this program while also maintaining their focus on multiple separation activities. Now, let's review our first quarter revenue performance in a bit more detail. During Q1, we generated revenue of $277.3 million, which represented an increase of 0.6% on an as-reported basis and a decline of 0.3% on a constant currency basis.

And while these remain our assumptions as I mentioned earlier, we do plan on implementing our ERP system and other previously noted associated capabilities for additional markets within our fiscal second quarter.

And as such we May see some atypical ordering patterns within the next few quarters.

Turning back to our Q1 results from a geography perspective revenue came in better than we previously expected in many regions, including the U S, Canada and Asia.

Regarding the U S. During the quarter revenue totaled $148 6 million.

Which represented a year over year decline of approximately 0.5% however.

Jeff Golding: When normalizing for the impact of year-over-year changes in the non-diabetes products that we contract, manufacture, and sell to BD, our underlying core injection business grew 0.5% on a constant currency basis. Our Q1 revenue exceeded our previously communicated expectations, primarily due to the timing of customer orders in advance of our aforementioned ERP implementation, as well as FX tailwinds in relation to our original outlook. As a reminder, when we provided our initial financial guidance for fiscal year 2024, we indicated that we generated approximately 49% of our fiscal year 2023 as reported revenue dollars during the first half of that year and that we anticipated generating a slightly lower percentage of the midpoint of our annual as reported revenue dollar range during the first half of 2024.

However, when normalizing for contract manufacturing revenue headwinds our U S core injection business grew by <unk>, 9%.

While during Q1.

International revenue totaled $128 7 million, which equated to flat year over year constant currency growth.

That completes my prepared remarks, and with that let me turn the call over to Jay to take you through the first quarter financial results as well as our updated full year financial guidance in more detail.

Jake.

Thank you Deb and good morning, everyone.

Given the discussion that has already occurred regarding revenue I will start my review of <unk> financial performance for the first quarter at the gross profit line.

GAAP gross profit and margin for the first quarter of fiscal 2024 totaled $185 9 million and 67% respectively.

This compared to $188 8 million and 68, 5% in the prior year period.

While on an adjusted basis, our Q1 2024, adjusted gross profit and margin totaled $186 3 million and 67, 2%.

This compared to $188 9 million and 68, 5% in the prior year period.

The year over year decrease in adjusted gross profit and margin was due to the negative impact of foreign currency translation, primarily due to the weakening of the U S dollar.

Jeff Golding: We continue to believe that this will be the case as the positive impact from the timing of customer orders that occurred during Q1 is expected to unwind during fiscal Q2. And while these remain our assumptions, as I mentioned earlier, we do plan on implementing our ERP system and other previously noted associated capabilities for additional markets within our fiscal second quarter. And as such, we may see some atypical ordering patterns within the next few quarters. Turning back to our Q1 results, from a geographic perspective, revenue came in better than we previously expected in many regions, including the U.S., Canada, and Asia. Regarding the U.S., during the quarter, revenue totaled $148.6 million, which represented a year-over-year decline of approximately 0.5%.

The impact of negative year over year manufacturing variances, including the temporary shutdown of our Suzhou, China facility as it relates to production for the domestic Chinese market.

As well as the impact of inflation on the cost of certain raw materials direct labor and overhead.

These headwinds were somewhat offset by a variety of cost improvement initiatives and our ability to generate positive year over year pricing.

As compared to our prior outlook, our adjusted gross margin during the first quarter was better than we previously expected and this was due to the higher than anticipated revenue that Deb referred to earlier as well as favorable geographic and product mix and FX.

Turning to GAAP operating income and margin during the first quarter, they were $45 5 million and 16, 4%.

Jeff Golding: However, when normalizing for contract manufacturing revenue headwinds, a U.S. core injection business grew by 0.9%. Why did our international revenue totaled $128.7 million, which equated to flat year-over-year constant currency growth? That completes my prepared remarks, and with that, I will turn the call over to Jake to take you through the first quarter financial results as well as our updated full year financial guidance in more detail.

This compared to $88 8 million and 32, 2% in the prior year period.

While on an adjusted basis, our Q1 2024, adjusted operating income and margin totaled $77 5 million and 27, 9%.

This compared to $101 6 million and 36, 9% in the prior year period.

The year over year decrease in adjusted operating income and margin is primarily due to the adjusted gross profit changes I just discussed.

Jake Elguiz: Thank you, Dev, and good morning, everyone. Given the discussion that has already occurred regarding revenue, I will start my review of Embecta's financial performance for the first quarter at the gross profit level. Gap gross profit and margin for the first quarter of fiscal 2024 totaled $185.9 million and 67%, respectively.

An increase in SG&A costs associated with standing up the organization.

As well as higher R&D expenses associated with our insulin patch pump program.

The adjusted operating income and margin performance during Q1 was better than we previously expected primarily due to the over achievement at the gross margin line, coupled with the timing of R&D spending within the quarter.

Jake Elguiz: This compared to 188.8 million and 68.5% in the prior year period. While on an adjusted basis, our Q1 2024 adjusted gross profit and margin totaled $186.3 million and 67.2%. This compared to 188.9 million and 68.5% in the prior year period.

Turning to the bottom line GAAP.

GAAP net income and earnings per diluted share was $20 1 million and 35 during the first quarter of fiscal 2024.

Which compared to $35 2 million and 61 in.

In the prior year period.

While on an adjusted basis net income and earnings per share were <unk> $35 3 million and 61 during the first quarter of fiscal 2024.

This compared to $55 4 million and 96 in the prior year period.

Jake Elguiz: The year-over-year decrease in adjusted gross profit and margin was due to the negative impact of foreign currency translation, primarily due to the weakening of the U.S. dollar, the impact of negative year-over-year manufacturing variances, including the temporary shutdown of our Suzhou, China facility as it relates to production for the domestic Chinese market, as well as the impact of inflation on the cost of certain raw materials, direct labor, and overhead. These headwinds were somewhat offset by a variety of cost improvement initiatives and our ability to generate positive year-over-year prices. As compared to our prior outlook, our adjusted gross margin during the first quarter was better than we previously expected, and this was due to the higher-than-anticipated revenue that Deb referred to earlier, as well as favorable geographic and product mix and FX. Turning to GAAP Operating Income and Margin, during the first quarter, they were $45.5 million and 16.4%, this compared to 88.8 million and 32.2% in the prior year period. While on an adjusted basis, our Q1 2024 Adjusted Operating Income and Margin totaled $77.5 million and 27.9%, respectively. This compared to 101.6 million and 36.9% in the prior year period.

The decrease in year over year, adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers I just discussed.

An increase in year over year interest expense associated with the ryzen sofa.

And the impact that had on our variable interest rate debt.

As well as an increase in our adjusted tax rate from approximately 25% to approximately 26%.

I would like to point out that due to certain discrete tax items, our adjusted tax rate in Q1 was higher than our full year guidance, which calls for an adjusted tax rate of approximately 22%.

As we move forward throughout the remainder of the year, we would expect our adjusted tax rate to be below 22%.

Lastly from a P&L perspective, so the first quarter of 2024, our adjusted EBITDA and margin totaled approximately $94 million and 32, 6%.

This compared to $110 2 million and 40% in the prior year period.

Turning to the balance sheet and cash flow.

As of December 31, our cash balance totaled $298 7 million, which was down from our fiscal year end 2023 balance of $326 5 million.

The decline in cash during the first quarter was primarily due to an increase in accounts receivable.

As a reminder, at the time of spin and <unk> entered into factoring agreements with BD, and which BD would collect receivables on <unk> behalf in exchange for fees.

Jake Elguiz: The year-over-year decrease in Adjusted Operating Income and Margin is primarily due to the Adjusted Gross Profit changes I just discussed, an increase in SG&A costs associated with standing up the organization, as well as higher R&D expenses associated with our insulin patch pump program. The adjusted operating income and margin performance during Q1 was better than we previously expected, primarily due to the overachievement at the gross margin level, coupled with the timing of R&D spending within the quarter. Gap net income and earnings per diluted share were $20.1 million and $0.35 during the first quarter of fiscal 2024, which compared to $35.2 million and $0.61 in the prior year period.

The increase in accounts receivable is a direct result of our implementation of certain business continuity processes in North America, including our ERP system that went live in November of 2023.

In exploration and termination of a portion of the factoring agreement between them back to NBD for services in the United States.

As such impacted is now responsible for the collection of any outstanding trade receivables in the U S and an increase in accounts receivable is a direct result of this impact and.

And we expect to convert these outstanding receivables into cash during fiscal 2024.

That completes my comments on our fiscal Q1 results.

Next I'll provide an update on our full year 2024 financial guidance.

Beginning with revenue.

On a constant currency basis, we are reaffirming our previously provided guidance range, which called for revenue to be flat to down 2% as compared to 2023.

Jake Elguiz: While on an adjusted basis, net income and earnings per share were $35.3 million and $0.61 during the first quarter of fiscal 2024. This compared to $55.4 million and 96 cents in the prior year period. The decrease in year-over-year adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers I just discussed, an increase in year-over-year interest expense associated with the rise in SOFR and the impact that it had on our variable interest rate debt, as well as an increase in our adjusted tax rate from approximately 25% to approximately 26%. I would like to point out that, due to certain discrete tax items, our adjusted tax rate in As we move forward throughout the remainder of the year, we would expect our adjusted tax rate to be below 22%.

The low end of the guidance range continues to assume that about half of the decline will result from reduced contract manufacturing revenue in 2024 as compared to the prior year.

While the remaining 1% headwind continues to factoring competitive shifts negatively impacting volume.

Finally, the low end of our constant currency revenue guidance range continues to assume that pricing will be flattish as compared to the prior year.

While the high end of our constant currency revenue range includes all of the same factors impacting the LOE and <unk>.

Except for a slightly smaller year over year headwind associated with contract manufacturing revenue as.

As well as the ability for us to modestly raise prices.

Turning to FX <unk>.

Foreign currency rates have moved in a slightly positive manner in comparison to our initial guidance.

And as a result, we currently expect FX to be a headwind of about 0.4% versus the prior year.

This compares to our prior guidance, which called for FX to be a headwind of approximately 1%.

These FX assumptions are based on foreign exchange rates that were in existence in the late January timeframe, including a euro to U S. Dollar exchange rate of approximately one point <unk>.

On a combined basis, our updated as reported revenue guidance range calls for a decline of between 0.4% and two 4%.

Jake Elguiz: Lastly, from a P&L perspective, for the first quarter of 2024, our adjusted EBITDA and margin totaled approximately $90.4 million and 32.6%. This compared to $110.2 million and 40% in the prior year period. Turning to the balance sheet and cash, As of December 31st, our cash balance totaled $298.7 million, which was down from our fiscal year-end 2023 balance of $326.5 million. The decline in cash during the first quarter was primarily due to an increase in accounts receivable.

Resulting in an updated revenue guide of between $1.094 billion.

And $1 billion $116 million.

Turning to margins, we are reaffirming our guidance ranges for our adjusted gross margin of between 63 and 64%.

Adjusted operating margin of between $23 75, and 24, 75%.

And adjusted EBITDA margin of between 29, five and 35%.

Finally, due to improvements in FX, we are increasing our adjusted earnings per share guidance from a range of between $1 90.

Jake Elguiz: As a reminder, at the time of the spin, Embecta entered into factoring agreements with BD in which BD would collect receivables on Embecta's behalf in exchange for fees. The increase in accounts receivable is a direct result of our implementation of certain business continuity processes in North America, including our ERP system that went live in November of 2023, and the expiration and termination of a portion of the factoring agreement between Embecta and BD for services in the United States. As such, Embecta is now responsible for the collection of any outstanding trade receivables in the U.S., and the increase in accounts receivable is a direct result of this impact, and we expect to convert these outstanding receivables into cash during fiscal 2024. That completes my comments on our fiscal Q1 results.

And $2 10.

To a new range of between $1 95.

And $2 15.

Our updated guidance range continues to assume that our annual net interest expense will be approximately $116 million.

That our annual adjusted tax rate will be approximately 22%.

And then our weighted average diluted shares outstanding will be approximately $58 1 million.

This completes my prepared remarks and at this time I'd like to turn the call over to the operator for questions.

Thank you if you'd like to ask a question. Please press star one one.

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Our first question comes from Collyn Titchmarsh with Morgan Stanley. Your line is open.

Jake Elguiz: Next, I'll provide an update on our full year 2024 financial guidance, beginning with Revenant. On a constant currency basis, we are reaffirming our previously provided guidance range, which called for revenue to be flat to down 2% as compared to 2023. The low end of the guidance range continues to assume that about half of the decline will result from reduced contract manufacturing revenue in 2024 as compared to the prior year, while the remaining 1% headwind continues to factor in competitive shifts negatively impacting volume. Finally, the low end of our constant currency revenue guidance range continues to assume that pricing will be flattish as compared to the prior year.

Thank you very much for taking the question I.

I have a couple if that's okay. Firstly, maybe if you could provide some color on your own plans of entering the <unk> market with El pen needles, specifically any thoughts on Lilly's quick patents Montreal, our approval in the U K a couple of weeks back given I think come back just pen needles to other recommended choice on the label.

How should we think about quantifying this opportunity and any additional ones down the line.

Good morning, gentlemen, thanks for the question.

As I've commented before.

Every time, a pen is used all over the world whether it be put into the nearer GOP ones.

Given our strong share positions in countries around the world It certainly positions us well for a pen needle to be used.

Most of the bands that are being used out there are compatible with a pen needles.

Ben that you, particularly referenced on this call.

Jake Elguiz: While the high end of our constant currency revenue range includes all the same factors impacting the low end, except for a slightly smaller year-over-year headwind associated with contract manufacturing revenue, as well as the ability for us to modestly raise prices. Additionally, foreign currency rates have moved in a slightly positive manner in comparison to our initial guidance. And as a result, we currently expect FX to be a headwind of about 0.4% versus the prior year. This compares to our prior guidance, which called for FX to be a headwind of approximately 1%. These FX assumptions are based on foreign exchange rates that were in existence in the late January time frame, including an euro to U.S. dollar exchange rate of approximately 1.09.

That is the same that's used for insulin as well and thirdly been needed to have a strong position in the U K I would expect that as GOP presentations.

Maybe change in the ratio over time.

Between vials spends in auto injectors.

As more and more things get introduced and I think <unk> commented publicly that they certainly are thinking about introducing GOP ones in more countries with pens.

We certainly expect to benefit from it the other thing I would point out is some of the older DLP ones will.

Tune generic this year.

They have in certain countries outside the U S and those presentations that also often intense and so dagley benefit certainly our pen needle business as well.

Great and then just one more if that's okay.

On the Q1 margins spin.

Specifically on the gross margin side pretty strong that you've come in beyond the 67% for the quarter, yet you're keeping the full year guide between 60, and 64% why shouldn't those margins remain at these levels throughout the year.

Jake Elguiz: On a combined basis, our updated as reported revenue guidance range calls for a decline of between 0.4% and 2.4%, resulting in an updated revenue guide of between $1,094,000,000 and $1,116,000,000. Turning to margins, we are reaffirming our guidance ranges for our adjusted gross margin of between 63 and 64 percent, adjusted operating margin of between 23.75 and 24.75 percent, and adjusted EBITDA margin of between 29.5 Finally, due to improvements in FX, we are increasing our Adjusted Earnings per Share guidance from a range of between $1.90 and $2.10 to a new range of between $1.95 and $2.15. Our updated guidance range continues to assume that our annual net interest expense will be approximately $116 million, that our annual adjusted tax rate will be approximately 22%, and that our weighted average diluted shares outstanding will be approximately 58.1 million. This completes my prepared remarks, and at this time, I'd like to turn the call over to the operator for questions. Thank you. If you'd like to ask... Star, if the question hasn't been answered and you'd like to remove your... Press Star 1.

Yeah. Thanks, Thanks for the question Calum. So so it really comes down to.

Timing right I think in the in the first quarter.

At a very high level I think we're extremely pleased with the with the first quarter results and I think it's particularly so when you think about all the separation oriented work.

Had to occur by all of the associates I think they did a tremendous job of keeping the business stable and continuing to to advance obviously, all the ERP initiatives and separation work. So so.

Really good start I would say two to the year from a from a financial standpoint.

We talked about we talked about revenue.

In the first quarter end.

Revenue was better than we had previously expected it to be and we largely attribute that to the timing of customer orders in advance of the ERP to a far lesser extent, we did see some some benefit in the quarter in terms of revenue from <unk>.

Improved FX environment in relation to the.

To the original guide.

But really the improvement as compared to our own internal expectations for for Q1.

For for revenue really came down to the timing of the shipments from a from a margin standpoint that again in relation to our to our expectations for Q1 gross margin Q1 gross margins came in very strong at around 67, 2% on an adjusted basis again.

Callum Titchmarsh: Our first question comes from Callum Titchmarsh with Morgan Stanley. Your line is open. Thank you very much for taking the question. I have a couple, if that's okay.

Dev Kodekar: Firstly, maybe you could provide some color on your own plans for entering the GLB market with your pen needles. Specifically, any thoughts on Lily's Quick Pen from Mongero's approval in the UK a couple of weeks ago, given I think Embecta's pen needles are the recommended choice on the label. How should we think about quantifying this opportunity and any additional ones? Good morning, Calum, and thanks for the question. As I've commented before, every time a pen is used all over the world, whether it be for insulin or for GLP-1s, given our strong market positions in countries around the world, it certainly positions us well for our pen needles to be used. Most of the pens that are being used out there are compatible with our pen needles.

Largely because of the timing of the revenue that we that we saw in the quarter as well as the mix of the revenue and the fact that because revenue was a little bit better we needed to manufacture more product and had some positive variances in relation to to our original expectations. So as we think about moving forward is.

Deb mentioned I think in his in his prepared remarks.

We think that that timing benefit from a revenue standpoint will largely unwind itself in the in the second quarter of the year.

We still we still believe that the first half of the year from a revenue and margin standpoint is pretty much almost exactly in line with what we had communicated.

Our initial guide three months ago. So.

Hopefully that gives you a little bit more color in terms of.

Dev Kodekar: The Quick Pen that you particularly referenced on this call is the same pen that's used for insulin as well. And certainly, our pen needles have a strong position in the UK. I would expect that GLP presentations may be changing the ratio over time between vials, pens, and auto-injectors. As more and more pens get introduced, and I think Lily has commented publicly that they certainly are thinking about introducing GLP-1s in more countries with pens.

The reason for the margin trajectory from Q1 to Q2 on.

On a full year basis again, we reaffirmed all of our previously provided margin ranges, whether it's gross margin operating margin or adjusted EBITDA margin.

That's great. Thanks.

Thank you. Our next question comes from Travis Steed with Bank of America Securities. Your line is open.

Yes, hi, good morning. This is Caroline on for Travis. Thanks for taking my question I wanted to ask about the patch pump just following your five 10-K submission in January have you gotten any feedback from the FDA at this point and then just your thoughts on timing of approval.

Dev Kodekar: We certainly expect to benefit from it. The other thing I would point out is some of the older GLP-1s will turn generic this year. They have in certain countries outside the U.S., and those presentations are also often in pens, and so that will benefit our pen needle business as well. Great, and then just one more if that's okay.

Yes, good morning, gentlemen, and thanks for the question look we're really pleased to have gardened the submission done.

Almost a month ago now and as you can imagine this is in the very early stages Thirdly, we know the review is well underway and our team has been corresponding with the FDA.

Jake Elguiz: On the Q1 margins, specifically on the gross margin side, pretty strong there. You've come in beyond 67% of the quarter, yet you're keeping the four-year guide, then why shouldn't those margins remain at these levels for us? Yeah, thanks. Thanks for the question, Callum. So, it really comes down to timing, right?

I wouldn't want to get ahead of the FDA with the signaling timing certainly so earlier. So so early in the review process.

But nothing atypical so far and we look forward to working with the FDA in.

Responding to all the questions that we'll have and certainly when there is something substantial to communicate we will certainly do so.

Jake Elguiz: I think in the first quarter, at a very high level, I think we're extremely pleased with the first quarter results. And I think it's particularly so when you think about all the separation-oriented work that had to occur by all the associates. I think they did a tremendous job of, you know, keeping the business stable and continuing to advance, obviously, all the ERP initiatives and separation work. So, so, you know, a really good start to the year from a financial standpoint.

I should also take the opportunity to mentioned why is that is under review we continue to work on the closed loop version of the pump as well. So that work is going on concurrently and we are pleased with the progress on that evolution as well.

Thank you and then can you talk about your constant currency growth expectation for the U S versus internationally. After the core injection business ex contract manufacturing for the year and in particular thinking about growth in China actually in the quarter and then just your outlook for fiscal <unk>.

Jake Elguiz: You know, we talked about revenue in the first quarter, and, you know, revenue was better than we had previously expected it to be, and we largely attribute that to the timing of customer orders in advance of the ERP. To a far lesser extent, we did see some benefit in the quarter in terms of revenue from, you know, an improved FX environment in relation to the original guide. But really, the improvement as compared to our own internal expectations for revenue in Q1 really came down to the timing of the shipments. You know, from a margin standpoint, again, in relation to our expectations for Q1 gross margin, Q1 gross margins came in very strong at around 67.2%, on an adjusted basis, again, largely because of the timing of the revenue that we saw in the quarter, as well as the mix of the revenue.

Thank you.

Yes, so so I think.

The growth outside of the U S is really expected to to exceed the growth in the in the U S right and Thats been a trend I think largely that we've seen over the past several years essentially the U S market being relatively flattish.

And the international markets, particularly in the emerging markets for us.

And growing somewhere in the let's call it mid.

Mid single digit four ish plus percent type range, and that's sort of our thoughts right now for for 2024 is that the U S market or developed in nature still has sort of a flattish type constant currency revenue growth rate.

And if we were to to see more positive growth that's going to come from from sort of the international markets.

Jake Elguiz: And the fact that, you know, because revenue was a little bit better, we needed to manufacture more product and had some positive variances in relation to our original expectations. So as we think about, you know, moving forward, as Deb mentioned in her prepared remarks, we think that that timing benefit from a revenue standpoint will largely unwind itself in the second quarter of the year, and we still, we still believe that the first half of the year from a revenue and margin standpoint is pretty much, almost exactly in line with what we had communicated in our initial guide three months ago. So hopefully, that gives you a little bit more color in terms of the reason for the margin trajectory from Q1 to Q2 on a full year basis. Again, we reaffirmed all our previously provided margin ranges, whether it's gross margin, operating margin, or adjusted even margin. Thank you. Our next question comes from Travis Deed with Bank of America Securities. Your line is open. Yeah, hi, good morning. This is Carolyn on for Travis.

And if I can just add to that just to connect the dots here. We commented that the Suzhou entity. The demerger process is complete we plan to start production for the domestic China market in this quarter that plant was already producing product for export markets, but primarily emerging markets. So from a manufacturing standpoint, we are really glad to get.

Some of the separation work done to us and really.

Symptoms are the foundation to capitalize if you will on the growth that we expect over the continued long term in the emerging markets.

Thank you.

Thank you. Our next question comes from Murray Tivo with BTG. Your line is open.

Good morning, Devin Jake Thanks for taking the questions and nice quarter.

I wanted to ask you a follow up on the patch pump.

Planning to broadly launch or broadly commercialize the open loop patch pump and as a follow up on that now that you have got that submitted should we expect R&D investments to step up to stay flat. How are you think about the investment needed to get the closed loop pump to FDA submission.

Carolyn: Thanks for taking my questions. I wanted to ask about the patch pump just following your 510k submission in January. Have you gotten any feedback from the FDA at this point, and then just your thoughts on timing of approval? Yeah, good morning, Carolyn, and thanks for the question.

Hey, Thanks, Good morning, Yes, we do plan.

Time to commercialize the open loop.

Our view is that we will do a limited market release of the open loop pump all the work that we've done so far.

Dev Kodekar: Look, we're very pleased to have gotten the submission done almost a month ago now. As you can imagine, this is in the very early stages. Certainly, we know the review is well underway, and our team has been corresponding with the FDA. I wouldn't want to get ahead of the FDA with signaling timing, certainly so early, so early in the review process. But nothing atypical so far, Carolyn.

Indicates to us that there is a segment of the market that would benefit <unk> be interested in an open loop pump, but obviously the timing of that is all dependent upon the review and eventual approval of the process with respect to R&D expenses for the year.

<unk> comments are more but thirdly, we've included our anticipated expenses for fiscal 2024 in the guidance and it's a little too early to sort of comment long term.

Beyond 24 at this point, but I'll, let Jake add additional color sure.

Dev Kodekar: We look forward to working with the FDA and, you know, responding to all the questions that we'll have. And certainly when there is something substantial to communicate, we will certainly do so. I should also take the opportunity to mention that while that is under review, we continue to work on the closed loop version of the pump as well. So that work is going on concurrently.

Marie I think R&D spending in the first quarter was probably actually a little bit lower than what we had sort of originally internally expected it to be just due to.

Some timing issues and we certainly expect that to pick up in terms of R&D spending as we move.

Throughout the remaining quarters of the year in and I think continue to expect that R&D as a percentage of revenue is.

Is most likely going to exceed.

Dev Kodekar: And we are pleased with the progress on that version as well. Thank you. And then can you talk about your constant currency growth expectations for the US versus internationally for the core injection business x contract manufacturing for the year and, in particular, thinking about growth in China, actually in the quarter and then just your outlook for fiscal 2024. Thank you. Yeah, so I think, you know, the growth outside of the U.S. is really expected to exceed the growth in the U.S.

7% ish type level for fiscal 2024.

Okay. That's very helpful. Let me ask my follow up on the ERP systems in that transition.

I think I heard you say that you know the sales results this quarter benefited from the timing of customer orders related to that transition.

Can you help clarify what that means or are they ordering ahead of time to avoid disruption during the transition and then as part of the ERP transition.

Exactly remains to be done and is there risk around the IRS letter for extension do you have any control what's the plan if that doesn't come through thanks for taking the questions.

Dev Kodekar: And that's been a trend, I think, largely that we've seen over the past several years, essentially the U.S. market being relatively flattish, and, you know, the international markets, particularly in the emerging markets for us, growing, you know, somewhere in that, let's call it, mid single-digit, fourish plus percent, you know, type range. And that's sort of our thoughts, you know, right now for twenty twenty four is that, you know, the U.S. market, which is developed in nature still has, you know, sort of a flattish type constant currency revenue growth rate. And if we were to see, you know, more positive growth, that's going to come from sort of the international markets. And if I can just add to that, just to connect the dots here, you know, we commented that the Suzhou entity, the demerger process is complete, and we plan to start production for the domestic Chinese market.

Sure Murray I'll take that so with respect to ordering patterns during an ERP implementation in this case, it's an ERP implementation plus we're standing up our own shared services capabilities and we're standing up our own distribution network. It's quite typical in transitions like this that you have.

Pause in taking new orders as Youre moving inventory from all distribution centers to new distribution centers and so in circumstances like these customers with often placed orders in advance because certainly we don't want and they don't want any stock outs to occur and so it's quite typical to get some lumpy.

Peanuts during an ERP transition and so the timing effect that J P referred to because we were implementing in the U S and Canada, certainly we had some timing timing benefit and I think as I said in my prepared remarks, we're going to do a phased implementation around the world as we continue there will be some atypical.

Ordering factories.

Dev Kodekar: In this quarter, that plant was already producing product for export markets, but primarily emerging markets. So from a manufacturing standpoint, we are really glad to get some of this separation work done that us and really, you know, strengthens our foundation to capitalize, if you will, on the growth that we expect over the continued long term in emerging markets. Thank you. Thank you. Our next question comes from Marie Thibault with BTIG. Your line is open.

That might actually go from quarter to quarter as we complete these implementations.

With regard.

To the private letter ruling that you're referring to.

As you remember BD agreed in principle to grant this unlimited extension conditioned upon and updating an acceptable supplemental private letter ruling from the IRS and that would allow us to extend some of this DSS until early fiscal 2025 and that again. The reason for that is so that we can phase out these implementations and.

Potentially you did use some of the implementation risk that is inherent in complex implementations like these.

We've done significant work on preparing the filings we've been closely cooperating with BD and providing them with all the necessary information, we anticipate that the filing will be made soon and.

Marie Thibault: Good morning, Dev and Jake. Thanks for taking the questions and for the nice quarter. I wanted to ask here a follow-up question on the patch pump. Are you planning to broadly launch or broadly commercialize the open loop patch pump? And as a follow-up on that, now that you've got that submitted, should we expect R&D investments to step up or stay flat? How are you thinking about the investment needed to get the closed loop pump to work? Thanks, Murray. Good morning.

And thirdly, we worked with them to make sure that our filing is well positioned obviously I don't want to comment.

Under review or outcome, we didn't want to get in front of the IRS, but suffice to say that we have contingency plans and we've incorporated or try to be prudent in our guidance in contemplating the range of potential outcomes that can occur in ERP implementations of this sort.

That's all really helpful. Thank you guys.

Thank you as a reminder, if you'd like to ask a question. Please press star one one.

Our next question comes from Michael <unk> with Wolfe Research Your line is open.

Dev Kodekar: Yes, we do plan, you know, at the right time, to commercialize the open loop. Our view is that we will do a limited market release of the open loop pump. All the work that we've done so far indicates to us that there is a segment of the market that would benefit from and be interested in an open-loop pump. But obviously, the timing of that is all dependent upon the review and eventual approval of the process. With respect to R&D expenses for the year, I mean, I'll let Jake comment some more, but certainly, we've included our anticipated expenses for fiscal 2024 in the guidance, and it's a little too early to sort of comment long-term beyond 2024 at this point. But I'll let Jake add additional color.

Hey, good morning, Thank you I have.

Two one boring one on the balance sheet and then a question on the patch pump on the balance sheet, Jake really appreciated the comments about the factoring agreement.

We noticed the step up in.

<unk>.

That is a 100 million a good good level. They are firm vector to carry or what do you expect this number to change one way or the other as you move through the transition.

Yes, Michael.

I think there could be a little bit of variability.

In the coming quarters, just as we bring on FERC first obviously, 60% of our revenue in the U S and Canada and then the remaining 40% over the next several quarters. So we could see some variability from quarter to quarter.

Jake Elguiz: Sure. Murray, I think R&D spending in the first quarter was probably actually a little bit lower than what we had sort of originally internally expected it to be, just due to some timing issues. And we certainly expect that to pick up in terms of R&D spending as we move throughout the remaining quarters of the year. And I think I will continue to expect that R&D as a percentage of revenue is most likely going to exceed a 7%-ish level for fiscal 2024. Okay, that's very helpful.

But I think right now our expectation is is that as we move throughout the year, we start to in a more meaningful way start to to collect that cash that is now sort of sitting on the balance sheet in terms of of AOR during the remaining quarters of the year.

The follow up on the patch pump program.

The question is on the production side.

He asked about R&D I appreciate the comments there but.

Hello, I imagine in parallel you're thinking about how to.

Create a production environment to make a lot of.

Patch pumps in.

And looking at some of the incumbents here, it's been it's a very.

Exquisite process and takes a long time and dollars.

Where are you in that I know youre not youre reluctant to comment on timing.

Dev Kodekar: Were they ordering ahead of time to avoid disruption during the transition? And then, as part of the ERP transition, what exactly remains to be done? And is there risk around the IRS letter for extension? Do you have any control?

But I have to imagine theres, some kind of planning going on for <unk>.

Commercial production of this product and I'd love to get a flavor for how youre thinking about that and if you are putting capex dollars to work today on a project like that.

Dev Kodekar: What's the plan if that doesn't come through? Thanks for taking, Dear Marie. I'll take that. So, with respect to ordering patterns during an ERP implementation, in this case, it's an ERP implementation, plus we are standing up our own shared services capabilities, and we are standing up our own distribution Network. It's quite typical in transitions like this that you have a pause in taking orders as you're moving inventory from, you know, old distribution centers to new distribution centers. And so, in circumstances like these, customers will often place orders in advance because, certainly, we don't want, and they don't want any stockouts to occur.

Mike This is Dave good morning, Thank you and you're absolutely right.

<unk> been working on commercial production of the product.

For a while now actually even before the submission was made.

I would say there are three specific things that we've focused on.

Number one is.

Recognizing that there is expertise in production.

Maybe not inherent in the company.

We went through a RFP process and selected a contract manufacturer.

That could help us with production that's sort of point number one and we are working with that contract manufacturer now for over a year.

The second thing I would point out is.

Dev Kodekar: And so, it's quite typical to get some lumpiness during an ERP transition. And so, the timing effect that Jake referred to, because we were implementing in the U.S. and Canada, certainly, we had some timing benefit. And I think, as I said in my prepared remarks, we are going to do a phased implementation around the world as we continue. There will be some atypical ordering patterns that might actually go from quarter to quarter as we complete these implementations, to the private ledger ruling that you're referring to. As you remember, BD agreed in principle to grant us a limited extension, conditioned upon obtaining an acceptable supplemental private letter ruling from the IRS, and that would allow us to extend some of these TSAs until early fiscal 2025. And again, the reason for that is so that we can phase out these implementations and potentially reduce some of the implementation risk that is inherent in complex implementations like these.

As we were designing the pump and going through the product development process.

We're well aware that manufacturing.

A very complex.

Precision engineered medical device.

<unk> is going to be something that is going to be critical to the long term commercial success of the product.

So we embed a design for manufacture ability thinking in the product development process itself.

And the third thing I would say is.

<unk> R&D site, we actually established a pilot production line and manufactured ourselves.

I won't give you a specific number but let me just say a fair number of devices that we used in the testing that was used to generate the data as part of our FDA submission.

With respect to capital.

Jay comment on it but obviously there was some capital spend on the production lines that I mentioned at the pilot production lines that I mentioned at the R&D Center, but.

Dev Kodekar: We've done significant work on preparing the filings. We've been closely cooperating with BD and providing them with all the necessary information. We anticipate that the filing will be made soon. And certainly, we worked with them to make sure that our filing was well positioned. Obviously, I don't want to comment on the review or outcome, and I wouldn't want to get in front of the IRS.

Nothing unusual Jake do you want to comment anymore.

I would agree Dev and Mike I think from a from a capex standpoint.

For our fiscal 2024, we would expect total capex and this is sort of inclusive of.

The spending that occurs as it relates to ERP.

To be somewhere between let's call it $50 million to $60 million in 2024, and that's probably 60% or so focused on on sort of the software as a service.

Dev Kodekar: But suffice to say that, you know, we have contingency plans, and we've incorporated or tried to be prudent in our guidance in contemplating the range of potential outcomes that can occur in ERP implementations of this sort. It's all really helpful. Thank you. Thank you. As a reminder, if you'd like to ask... Star.

Capital cash spend that actually shows up as a reduction of cash flow from operations in our in our cash flow statement and then the remaining 40% of that is showing up in appearing on the Capex line within within our cash flow statement, so somewhere between $50 million to $60 million in total.

Operator: Our next question comes from Michael Polark and Carolina. This is a presentation on the California Department of Health and Human Services website. We are a community-based health organization. We are the largest provider of antibiotics. We have two of the largest providers of antibiotics.

Capex I think for for 2024.

Thanks for the color.

Thank you there are no further questions at this time I'd like to turn the call back over to Dev for any closing remarks.

Thank you Michelle before we conclude the call I would like to express my gratitude to all my colleagues around the world. Our results truly are a testament.

Michael K. Polark: We have over 40,000 patients. In fact, we have over 70,000 patients. We have over 60,000 patients. We have over 60,000. Good morning.

So their continued relentless focus.

Who are developing and providing solutions that make life better for people living with diabetes.

You all for attending our fiscal <unk> earnings call Q2 earnings call and for your interest in our business.

Jake Elguiz: Thank you. I have two, one boring question on the balance sheet and then a question about the patch pump. On the balance sheet, Jake really appreciated the comments about the factoring agreement. We noticed the step up in AR. Is $100 million a good level of AR for Embecta to carry, or would you expect this number to change one way or the other as you move through the trial? Yeah, Michael.

Thank you for your participation. This does conclude the program you may now disconnect everyone have a great day.

[music].

Dev Kodekar: I mean, I think there could be a little bit of variability, you know, in the coming quarters, just as we bring on, you know, first, obviously, 60% of our revenue in the US and Canada and then the remaining 40% over the next several quarters. So we could see some variability from quarter to quarter, you know, but I think right now, you know, our expectation is that as we move throughout the year, we start to, in a more meaningful way, start to collect that cash that is now, you know, sort of sitting on the balance sheet in terms of, of AR during the remaining quarters of the year. The follow-up on the patch pump program, the question is on the production side, you know, Marie asked about R&D, and I appreciate the comments there, but, You know, I imagine in parallel, you're thinking about how to create a production environment to make a lot of Patch Pumps.

Dev Kodekar: And, you know, in looking at some of the incumbents here, it's been, you know, it's a very delicate process and takes a long time and dollars, where are you in that? I know you're reluctant to comment on the timing of all this, but I have to imagine there's some kind of planning going on for commercial production of this product, and I'd love to get a flavor for how you're thinking about that Mike, this is Dev. Good morning. Thank you. And you're absolutely right.

Dev Kodekar: We went through a RFP process and selected a contract manufacturer that could help us with production. That's sort of point number one, and we've been working with that contract manufacturer now for over a year. The second thing I would point out is that, as we were designing the pump and going through the product development process, we were well aware that manufacturing a very complex precision engineered medical device is going to be something that is going to be critical to the long-term commercial success of the product. And so we embedded design for manufacturability thinking in the product development process itself.

Dev Kodekar: And the third thing I would say is, at our R&D site, we actually established a pilot production line and manufactured ourselves, I won't give you a specific number, but let me just say, a fair number of devices that we used in the testing that was used to generate the data as part of our FDA submission. With respect to capital, I'll let Jake comment on that, but obviously, there was some capital spent on the production lines that I mentioned, the pilot production lines that I mentioned at the R&D center, but nothing unusual. Jake, do you want to comment any more? Yeah, I would agree, Dev, and Mike. I think from a CapEx standpoint, for our fiscal 2024, we would expect total CapEx, and this is sort of inclusive of the spending that occurs as it relates to DRP, to be somewhere between, let's call it 50 to $60 million in 2024, and that's probably 60% or so focused on sort of the software as a service capital, cash spend, that actually shows up as Thanks for the color.

Operator: Thank you. There are no further questions at this time. I'd like to turn the call back over to Deb for any questions. Thank you, Michelle. Before we conclude this call, I would like to express my gratitude to all my colleagues around the world. Our results truly are a testament to their continued relentless focus on developing and providing solutions that make life better for people with diabetes. Thank you all for attending our fiscal earnings call and Q2 earnings call and for your interest in our business. Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone have a great day. I love you inside....

[music].

Jeff Gooding: A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation. The agenda for today's call is as follows. They will begin by providing some remarks on the overall performance of our business during the fiscal first quarter of 2024, as well as an overview of our strategic priorities. Jake will then provide a more in-depth review of our Q1 financial results, as well as our updated financial guidance for the year. We will then open the call for questions. With that said, I would now like to turn the call over to our CEO, Jeff Gooding. Good morning, and thank you for taking the time to join us.

Jeff Gooding: With the introduction of the first specialized insulin delivery device in 1924, this year marks the 100th year of our journey to deliver better diabetes care through innovation. Whether you're newly diagnosed or transitioning to a new line of therapy, our mission is to make a person with diabetes's everyday experience as comfortable and convenient as possible while advancing towards a new generation of life-changing solutions. We have been one of the leaders in insulin delivery for nearly a hundred years, and through our insulin delivery products, we touch an estimated 30 million people living with diabetes in over a hundred countries. Developing and providing solutions that make life better for people living with diabetes is at the core of everything we do and is what drives our global team.

Jeff Gooding: Turning to our strategic priorities for fiscal year 2024, we will continue to be focused on the same three core strategic priorities that we have had since we became an independent company. These priorities have served as the foundation for our actions and decision making, driving our company forward, and they include remaining focused on strengthening our base business while maintaining our global leadership position in the category of insulin injection devices, and separating ourselves from our former parent in a thoughtful manner to mitigate risk and position us for success as an independent company. And finally, investing in growth, most notably around our insulin patch pump program that is being developed for the type 2 market, as well as seeking M&A and additional partnership opportunities. We are advancing with determination and a sense of urgency in each of these objectives, and I'm very pleased with the progress that we have made in these areas. Turning to some first quarter highlights.

[music].

Jeff Gooding: First, we published our 2024 Environmental, Social, and Governance report. This report provides a summary of the progress we made in 2023 to develop our ESG strategy, including establishing policies and systems that underscore our commitment to delivering our products and solutions responsibly and with a view to how our business impacts the broader communities in which we operate. Next, the team's hard work gained recognition, leading to the acceptance of six Embecta abstracts as posters for presentation at the upcoming Advanced Technologies and Treatments for Diabetes, or ATTD, conference in March. We believe that posters like these continue to validate our value proposition that a larger insulin reservoir would benefit a person with type 2 diabetes and potentially facilitate more adults using a single pump for a full three days, resulting in a greater health Additionally, Embecta is set to host an industry-sponsored symposium at ATTD focused on unlocking the potential of insulin pumps for personalized type 2 diabetes care.

Welcome, ladies and gentlemen to the fiscal first quarter 2024, and better earnings conference call. At this time, all participants have been placed in a listen only mode.

Please note that this conference call is being recorded and the recording will be available on the company's website for replay following the completion of this call.

I'll now like to hand, the call over to your host today, Mr. Pervez scandal wall, Vice President of Investor Relations. Please go ahead.

Thank you operator, good morning, everyone and welcome to <unk> fiscal first quarter 2024 earnings conference call. The press release and slides to accompany today's call and webcast replay details are available on the Investor Relations section of the company's website at Www dot.

<unk> Dot com with me today are <unk>, <unk>, President and Chief Executive Officer, and Jake I believe our Chief Financial Officer.

Before we begin I would like to remind you that some of the macro as discussed in the conference call will contain forward looking statements regarding future events as outlined in our slides we wish to caution you that such statements are in fact forward looking in nature and are subject to risks and uncertainties and actual events or results may differ materially.

Jeff Gooding: These educational objectives align with our commitment to innovation and improvements in diabetes care. By supporting this symposium, we are excited about the potential to help advance informed decision making around insulin pump therapy for patients with type two diabetes. During Q1, we also notably advanced our separation programs by completing the implementation of our ERP system for approximately 60% of our revenue base and our manufacturing facility within the U.S., while also operationalizing new shared services capabilities on a distribution network serving the U.S. and Canadian markets. Furthermore, we made significant progress in terms of the development of our insulin patch pumps that are being developed specifically for the type 2 market, including the filing of a 510K premarket I'll share more about these ladder accomplishments in the following slides.

The factors that could cause actual results or events to differ materially include but are not limited to factors referenced in our press release today as well our filings with the SEC, which can be accessed on our website. In addition, we will discuss certain non-GAAP financial measures on this call, which can be considered a supplement to and not a substitute for financial measures.

It was prepared in accordance with GAAP.

Reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation.

Our agenda for today's call is as follows.

I'll begin by providing some remarks on the overall performance of our business during the fiscal fourth quarter of 2024 as well as an overview of our strategic priorities. Jack will then provide a more in depth review of our Q1 financial results as well as our updated financial guidance for the year.

Jeff Gooding: Finally, during the first quarter, solid execution led to financial results that exceeded our internal expectations, and based on these results, coupled with our outlook for the remainder of the year, we are raising our financial guidance ranges for revenue and adjusted earnings per share. Next, I would like to get into a bit more detail regarding the progress we made in terms of our separation effort. As I just mentioned, during Q1, our team made significant progress in the global implementation of our ERP system, shared services capabilities, and distribution networks. These are complex programs, and we have adopted a phased implementation approach to mitigate the separation risk.

We will then open the call for questions with that said I would now like to turn the call over to our CEO Jeff <unk>.

Yes.

Good morning, and thank you for taking the time to join us.

With the introduction of the first specialized insulin delivery device and 1924. This year marks the 100th year of our journey to deliver better diabetes care through innovation.

Whether you're a newly diagnosed or transitioning to a new line of therapy.

Mission is to make a person with diabetes everyday experience as comfortable and convenient as possible.

While advancing towards a new generation of life changing solutions.

Jeff Gooding: As of today, we've implemented our ERP system and operationalized shared services capabilities and a new logistics and distribution network to support the U.S. and Canadian markets. In addition, we implemented our own ERP system in Suzhou, China, and Holdridge, Nebraska, which are two of our three manufacturing plants. During our fiscal second quarter, we plan to implement our systems, capabilities, and processes in additional markets, as well as at our remaining manufacturing plant in Ireland. As such, by the end of our fiscal second quarter, we anticipate having slightly more than 85% of our revenue base and all three of our manufacturing locations on our own ERP platform. We anticipate implementation of our ERP system and the relevant shared service capabilities in all markets, excluding those in deferred closing jurisdictions within a few quarters, to facilitate the phased implementation of our ERP solution, distribution network, and shared services capabilities. We have requested an extension of certain TSAs and related agreements from BD. BD agreed to provide a limited extension, contingent upon securing an additional private letter ruling from the IRS.

We have been one of the leaders in insulin delivery for nearly 100 years and to our insulin delivery products with touch an estimated 30 million people living with diabetes and over 100 countries.

Developing and providing solutions that make life better for people living with diabetes is at the core of everything we do and it's what drives our global team.

Turning to our strategic priorities for fiscal year 2024.

We will continue to be focused on the same three core strategic priorities that we've had since we became an independent company.

These priorities have served as the foundation for the actions and decision, making driving our company forward and they include.

Remaining focused on strengthening our base business, while maintaining a global leadership position in the category of insulin injection devices.

Separating ourselves from our former parent in a thoughtful manner to mitigate risk and positioned us for success as an independent company.

And finally investing in growth most notably around our insulin patch pump program that is being developed for the type two market as well as seeking M&A and additional partnership opportunities.

We are advancing with determination in the sense of urgency in each of these objectives and I am very pleased with the progress that we've made in these areas.

Turning to some first quarter highlights.

First we published our 2020 for environmental social and governance report.

Jeff Gooding: This ruling would enable us to extend specific TSAs for a limited set of markets until early fiscal year 2025. Throughout the company, we have been and will continue to exert substantial efforts to mitigate the risks associated with potential disruptions as we transition away from TSAs with BD and implement and integrate our own systems and processes. While we have been generally successful at avoiding major disruptions, there is the possibility of temporary sales disruptions in specific countries as we navigate the complexities of securing all necessary product registrations, licenses, and other requirements while concurrently standing up our own systems and capabilities. Lastly, and as we've mentioned on prior earnings calls, we completed several important steps in the demerger process for our Suzhou, China manufacturing entity in order to ultimately transfer that legal entity from BD to Embecta.

And with a view towards how our business impacts the broader communities in which we operate.

Next the team's hard work gained recognition leading to the acceptance of six <unk> abstract posters for presentation at the upcoming advanced technologies and treatments for diabetes or <unk> conference in March.

Additionally, vector is set to host an industry sponsored symposium at ATV focused on unlocking the potential of insulin pumps for personalized type two diabetes care.

These educational objectives aligned with our commitment to innovation and improvements in diabetes care bye.

By supporting the symposium, we are excited about the potential for helping advance informed decision, making around insulin pump therapy for patients with type two diabetes.

Jeff Gooding: I am pleased to report that we have completed the China Legal Entity Transfer and we anticipate resuming domestic production for the Chinese market in our fiscal second quarter, which is in line with our previous expectations. We had previously commented that this plant was already manufacturing products for export to other markets. This is a significant accomplishment by our team and culminates a process that has spanned years in planning and execution. Now, turning to our insulin patch form program.

During Q1, we also notably advanced our separation programs by completing the implementation of our ERP system for approximately 60% of our revenue base and our manufacturing facility within the U S.

While also operationalize a new shared services capabilities under distribution network, serving the U S and Canadian markets.

Furthermore, we made significant progress in terms of the development of our insulin patch pumps that are being developed specifically for the type two market.

Including the filing of a five 10-K pre market application for the open loop version offered until impactful for DFT.

I'll share more about this later accomplishments in the following slides.

Jeff Gooding: A month ago, we announced the submission of our 510k application for the open loop version of our insulin patch pump to the FDA. This marks a critical milestone in the program. We are pleased to have this filing complete, and we look forward to working with the FDA through the review process. We are also continuing our development of a closed-loop insulin patch pump that is targeted for use by individuals who have type 2 diabetes. The pump hardware is expected to be substantially the same across both the open loop and closed loop versions.

Next I would like to get into a bit more detail regarding the advancements we've made in terms of our separation efforts.

As I just mentioned during Q1, our team made significant progress in the global implementation of our ERP system shared services capabilities and distribution network.

These are complex programs and we've adopted a phased implementation approach to mitigate the separation risks.

Jeff Gooding: This should allow us to streamline development across our platform while also addressing a potential market need for an open-loop pump tailored for Type 2 users. One noteworthy feature of our pumps is the insulin reservoir size, accommodating up to 300 units. We believe this enhancement is crucial, considering that Type 2 users typically require up to 100 units of insulin daily. Our goal is to have a three day wear indication for our pumps.

As of today, we have implemented our ERP system, and operationalized shared services capabilities, and our new logistics and distribution network to support the U S and Canadian markets.

In addition, we implemented our own ERP in Suzhou, China and holders, Nebraska, which are two of our three manufacturing plants.

During our fiscal second quarter, we plan to implement our systems capabilities and processes in traditional markets as well as at our remaining manufacturing plant in Ireland.

Jeff Gooding: That would provide an appropriate supply of insulin that better aligns the needs of users and payers with the pump replacement cycle. While our OpenLoop submission is under FDA review, we are also actively advancing our closed-loop pump development in collaboration with Tidepool. As a reminder, Tidepool already has a standalone Type I algorithm cleared by the FDA, and we are working with them to adapt their algorithm into a Type II closed-loop system.

As such by the end of our fiscal second quarter, we anticipate having slightly more than 85% of our revenue base and all three of our manufacturing locations on our own ERP platform.

We anticipate implementation of our ERP system and the relevant shared service capabilities in all markets, excluding those in deferred closing jurisdictions within a few quarters.

To facilitate the phased implementation of our ERP solution distribution network and shared services capabilities.

We have requested an extension for certain TSA and related agreements from BD.

Jeff Gooding: We are pleased with the progress made so far and proud of the team that has managed to execute this program while also maintaining their focus on multiple separation activities. Now, let's review our first quarter revenue performance in a bit more detail. During Q1, we generated revenue of $277.3 million, which represented an increase of 0.6% on an as-reported basis and a decline of 0.3% on a constant currency basis.

Media agreed to provide a limited extension contingent upon securing an additional private letter ruling from the IRS.

This ruling would enable us to extend specific TSA for a limited set of markets until early fiscal year 2025.

Jeff Gooding: When normalizing for the impact of year-over-year changes in the non-diabetes products that we contract, manufacture, and sell to BD, our underlying core injection business grew 0.5% on a constant currency basis. Our Q1 revenue exceeded our previously communicated expectations, primarily due to the timing of customer orders in advance of our aforementioned ERP implementation, as well as FX tailwinds in relation to our original outlook. As a reminder, when we provided our initial financial guidance for fiscal year 2024, we indicated that we generated approximately 49% of our fiscal year 2023 as reported revenue dollars during the first half of that year and that we anticipated generating a slightly lower percentage of the midpoint of our annual as reported revenue dollar range during the first half of 2024.

While we have been generally successful avoiding major disruptions there is a possibility of temporary sales disruption in specific countries as they navigate the complexities of securing all necessary product registrations licenses ended requirement, while concurrently standing up our own systems and capabilities.

I am pleased to report that we have completed the China legal entity transferred and we anticipate resuming domestic production for the Chinese market in our fiscal second quarter, which is in line with our previous expectations.

You had previously commented that this plan was already manufacturing products for export to other markets.

This is a significant accomplishment by our team and culminates a process that has spanned years in planning and execution.

Jeff Gooding: We continue to believe that this will be the case as the positive impact from the timing of customer orders that occurred during Q1 is expected to unwind during fiscal Q2. And while these remain our assumptions, as I mentioned earlier, we do plan on implementing our ERP system and other previously noted associated capabilities for additional markets within our fiscal second quarter. And as such, we may see some atypical ordering patterns within the next few quarters. Turning back to our Q1 results, from a geographic perspective, revenue came in better than we previously expected in many regions, including the U.S., Canada, and Asia. Regarding the U.S., during the quarter, revenue totaled $148.6 million, which represented a year-over-year decline of approximately 0.5%.

Turning to our insulin patch pump program.

A month ago, we announced the submission of our five 10-K application for the open loop version of our insulin patch pump to the FDA.

This marks a critical milestone in the program.

We are pleased to have this filing complete and we look forward to working with the FDA through the review process.

We're also continuing our development of a closed loop insulin patch pump that is targeted for use by individuals who have type two diabetes.

The pump hardware is expected to be substantially the same across both the open loop and closed loop solutions.

This should allow us to streamline development across a patch pump platform, while also addressing our potential market need for an open loop pump tailored for type two users.

One noteworthy feature of our pumps is the insulin reservoir size.

Eliminating up to 300 units.

We believe this enhancement is crucial considering the type two users typically required up to a 100 units of insulin daily.

Jeff Gooding: However, when normalizing for contract manufacturing revenue headwinds, our U.S. core injection business grew by 0.9 percent. Why did our international revenue totaled $128.7 million, which equated to flat year-over-year constant currency growth? That completes my prepared remarks, and with that, I will turn the call over to Jake to take you through the first quarter financial results, as well as our updated full year financial guidance in more detail.

Our goal is to have a three day wear indication for our pumps.

Doug will provide an appropriate supply of insulin that better aligns the needs of users and peers with the pump replacement cycle.

Why not open loop submission is under FDA review.

We are also actively advancing our closed loop pump development in collaboration with Typhoon.

As a reminder, we will already has a standalone type one algorithm cleared by the FDA.

And we are working with them to adapt their algorithm into type two closed loop system.

We are pleased with the progress made so far and proud of the team that has managed to execute this program. While also maintaining their focus on multiple separation activities.

Jake Elguiz: Thank you, Deb, and good morning, everyone. Given the discussion that has already occurred regarding revenue, I will start my review of Embecta's financial performance for the first quarter at the gross profit level. Gap gross profit and margin for the first quarter of fiscal 2024 totaled $185.9 million and 67%, respectively. This compared to 188.8 million and 68.5% in the prior year period. While on an adjusted basis, our Q1 2024 adjusted gross profit and margin totaled $186.3 million and 67.2%, this compared to 188.9 million and 68.5% in the prior year period.

Now, let's review, our first quarter revenue performance in a bit more detail.

During Q1, we generated revenue of $277 3 million, which.

<unk> entered an increase of <unk>, 6% on an as reported basis and a decline of <unk>, 3% on a constant currency basis.

When normalizing for the impact of year over year changes of the non diabetes products that we contract manufacture and sell to BD.

Our underlying code injection business grew 0.5% on a constant currency basis.

Our Q1 revenue exceeded our previously communicated expectations, primarily due to the timing of customer orders in advance of a full mentioned ERP implementation as well as FX tailwind in relation to our original outlook.

As a reminder, when.

When we provided our initial financial guidance for fiscal year 2024.

We indicated that we generated approximately 49% of our fiscal year 2023 as reported revenue dollars during the first half of that year.

Jake Elguiz: The year-over-year decrease in adjusted gross profit and margin was due to the negative impact of foreign currency translation, primarily due to the weakening of the U.S. dollar, the impact of negative year-over-year manufacturing variances, including the temporary shutdown of our Suzhou, China facility as it relates to production for the domestic Chinese market, as well as the impact of inflation on the cost of certain raw materials, direct labor, and overhead. These headwinds were somewhat offset by a variety of cost improvement initiatives and our ability to generate positive year-over-year prices. As compared to our prior outlook, our adjusted gross margin during the first quarter was better than we previously expected, and this was due to the higher-than-anticipated revenue that Deb referred to earlier, as well as favorable geographic and product mix, and FX. Turning to GAAP Operating Income and Margin, during the first quarter, they were $45.5 million and 16.4%, this compared to 88.8 million and 32.2% in the prior year period. While on an adjusted basis, our Q1 2024 Adjusted Operating Income and Margin totaled $77.5 million and 27.9%, respectively. This compared to 101.6 million and 36.9% in the prior year period.

And that we anticipated generating a slightly lower percentage of the midpoint of our annual as reported revenue dollars range. During the first half of 2024.

We continue to believe that this will be the case as the positive impact from the timing of customer orders that occurred during Q1 is expected to unwind during fiscal Q2.

And as such we May see some atypical ordering patterns within the next few quarters.

Turning back to our Q1 results from a geography perspective revenue came in better than we previously expected in many regions, including the U S, Canada and Asia.

Regarding the U S. During the quarter revenue totaled $148 6 million, which.

<unk> entered a year over year decline of approximately 0.5%.

However, when normalizing for contract manufacturing revenue headwinds our U S core injection business grew by <unk>, 9%.

While during Q1.

International revenue totaled $128 7 million, which equated to flat year over year constant currency growth.

Jake.

Thank you Deb and good morning, everyone.

Given the discussion that has already occurred regarding revenue.

Jake Elguiz: The year-over-year decrease in adjusted operating income and margin is primarily due to the adjusted gross profit changes I just discussed, an increase in SG&A costs associated with standing up the organization, as well as higher R&D expenses associated with our insulin patch pump program. The adjusted operating income and margin performance during Q1 was better than we previously expected, primarily due to the overachievement at the gross margin level, coupled with the timing of R&D spending within the quarter. Gap net income and earnings per diluted share were $20.1 million and $0.35 during the first quarter of fiscal 2024, which compared to $35.2 million and $0.61 in the prior year period.

I'll start my review of <unk> financial performance for the first quarter at the gross profit line.

GAAP gross profit margin for the first quarter of fiscal 2024 totaled $185 9 million and 67% respectively. This.

This compared to $188 8 million and 68, 5% in the prior year period.

While on an adjusted basis, our Q1 2024, adjusted gross profit and margin totaled $186 3 million and 67, 2%.

This compared to $188 9 million and 68, 5% in the prior year period.

The year over year decrease in adjusted gross profit and margin was due to the negative impact of foreign currency translation, primarily due to the weakening of the U S dollar.

The impact of negative year over year manufacturing variances, including the temporary shutdown of our Suzhou, China facility as it relates to production for the domestic Chinese market.

Jake Elguiz: While on an adjusted basis, net income and earnings per share were $35.3 million and $0.61, respectively, during the first quarter of fiscal 2024. This compared to $55.4 million and 96 cents in the prior year period. The decrease in year-over-year adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers I just discussed, an increase in year-over-year interest expense associated with the rise in SOFR and the impact that it had on our variable interest rate debt, as well as an increase in our adjusted tax rate from approximately 25% to approximately 26%. I would like to point out that due to certain discrete tax items, our adjusted tax rate in Q1 was higher than our full year guidance, which calls for an adjusted tax rate of approximately 22%.

As well as the impact of inflation on the cost of certain raw materials direct labor and overhead.

These headwinds were somewhat offset by a variety of cost improvement initiatives and our ability to generate positive year over year pricing.

Turning to GAAP operating income and margin during the first quarter, they were $45 5 million and 16, 4%.

This compared to $88 8 million and 32, 2% in the prior year period.

While on an adjusted basis, our Q1 2024, adjusted operating income and margin totaled $77 5 million and 27, 9%.

Jake Elguiz: As we move forward throughout the remainder of the year, we would expect our adjusted tax rate to be below 22%. Lastly, from a P&L perspective, for the first quarter of 2024, our adjusted EBITDA and margin totaled approximately $90.4 million and 32.6%, this compared to $110.2 million and 40% in the prior year period. Turning to the balance sheet and cash, As of December 31st, our cash balance totaled $298.7 million, which was down from our fiscal year-end 2023 balance of $326.5 million. The decline in cash during the first quarter was primarily due to an increase in accounts receivable.

This compared to $101 6 million and 36, 9% in the prior year period.

The year over year decrease in adjusted operating income and margin is primarily due to the adjusted gross profit changes I just discussed.

An increase in SG&A costs associated with standing up the organization.

As well as higher R&D expenses associated with our insulin patch pump program.

Turning to the bottom line GAAP.

GAAP net income and earnings per diluted share was $20 1 million and 35 during the first quarter of fiscal 2024.

Which compared to $35 2 million and 61 in.

In the prior year period.

While on an adjusted basis net income and earnings per share were <unk> $35 3 million and 61 during the first quarter of fiscal 2024.

This compared to $55 4 million and 96 in the prior year period.

The decrease in year over year, adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers I just discussed.

An increase in year over year interest expense associated with the ryzen sofa.

And the impact that had on our variable interest rate debt.

As well as an increase in our adjusted tax rate from approximately 25% to approximately 26%.

I would like to point out that due to certain discrete tax items, our adjusted tax rate in Q1 was higher than our full year guidance, which calls for an adjusted tax rate of approximately 22%.

As we move forward throughout the remainder of the year, we would expect our adjusted tax rate to be below 22%.

Jake Elguiz: Next, I'll provide an update on our full year 2024 financial guidance, beginning with Rabinow. On a constant currency basis, we are reaffirming our previously provided guidance range, which called for revenue to be flat to down 2% as compared to 2023. The low end of the guidance range continues to assume that about half of the decline will result from reduced contract manufacturing revenue in 2024 as compared to the prior year, while the remaining 1% headwind continues to factor in competitive shifts negatively impacting volume. Finally, the low end of our constant currency revenue guidance range continues to assume that pricing will be flattish as compared to the prior year, while the high end of our constant currency revenue range includes all the same factors impacting the low end, except for a slightly smaller year-over-year headwind associated with contract manufacturing revenue, as well as the ability for us to modestly raise prices, turning affect, foreign currency rates have moved in a slightly positive manner in comparison to our initial guidance.

Lastly from a P&L perspective, so the first quarter of 2024, our adjusted EBITDA and margin totaled approximately $90 4 million and 32, 6%.

This compared to $110 2 million and 40% in the prior year period.

Turning to the balance sheet and cash flow.

As of December 31, our cash balance totaled $298 7 million, which was down from our fiscal year end 2023 balance of $326 5 million.

The decline in cash during the first quarter was primarily due to an increase in accounts receivable.

As a reminder, at the time of spin and <unk> entered into factoring agreements with BD, and which BD would collect receivables on <unk> behalf in exchange for fees.

The increase in accounts receivable is a direct result of our implementation of certain business continuity processes in North America, including our ERP system that went live in November of 2023.

In exploration and termination of a portion of the factoring agreement between <unk> and BD for services in the United States.

As such impacted is now responsible for the collection of any outstanding trade receivables in the U S and the increase in accounts receivable is a direct result of this impact and.

Jake Elguiz: And as a result, we currently expect FX to be a headwind of about 0.4% versus the prior year. This compares to our prior guidance, which called for FX to be a headwind of approximately 1%. These FX assumptions are based on foreign exchange rates that were in existence in the late January timeframe, including a euro to US dollar exchange rate of approximately 1.09.

And we expect to convert these outstanding receivables into cash during fiscal 2024.

That completes my comments on our fiscal Q1 results.

Next I'll provide an update on our full year 2024 financial guidance.

Beginning with revenue.

On a constant currency basis, we are reaffirming our previously provided guidance range, which called for revenue to be flat to down 2% as compared to 2023.

The low end of the guidance range continues to assume that about half of the decline will result from reduced contract manufacturing revenue in 2024 as compared to the prior year.

While the remaining 1% headwind continues to factoring competitive shifts negatively impacting volume.

Finally, the low end of our constant currency revenue guidance range continues to assume that pricing will be flattish as compared to the prior year.

While the high end of our constant currency revenue range includes all of the same factors impacting the low end, except for a slightly smaller year over year headwind associated with contract manufacturing revenue.

As well as the ability for us to modestly raise prices.

Turning to FX.

Foreign currency rates have moved in a slightly positive manner in comparison to our initial guidance.

And as a result, we currently expect FX to be a headwind of about 0.4% versus the prior year.

This compares to our prior guidance, which called for FX to be a headwind of approximately 1%.

These FX assumptions are based on foreign exchange rates that were in existence in the late January timeframe, including a euro to U S. Dollar exchange rate of approximately one <unk>.

Jake Elguiz: This completes my prepared remarks, and at this time, I'd like to turn the call over to the operator for questions. Thank you. If you'd like to ask... Star, a question hasn't been answered and you'd like to remove your... Express, Star 1.

On a combined basis, our updated as reported revenue guidance range calls for a decline of between 0.4% and two 4%.

Resulting in an updated revenue guide of between $1.094 billion.

And $1 billion $116 million.

Callum Titchmarsh: Our first question comes from Callum Titchmarsh with Morgan Stanley. Your line is open. Thank you very much for taking the question. I have a couple, if that's okay.

Turning to margins, we are reaffirming our guidance ranges for our adjusted gross margin of between 63 and 64%.

Adjusted operating margin of between $23 75, and 24, 75%.

Dev Kodekar: Firstly, maybe you could provide some color on your own plans for entering the GLB market with your pen needles. Specifically, any thoughts on Lily's Quick Pen from Mongero's approval in the UK a couple of weeks ago, given I think Embecta's pen needles are the recommended choice on the label. How should we think about quantifying this opportunity and any additional... Good morning, Calum. And thanks for the question. As I've commented before, every time a pen is used all over the world, whether it be for insulin or for GLP-1s, given our strong market positions in countries around the world, it certainly positions us well for our pen needles to be used. Most of the pens that are being used out there are compatible with our pen needles.

And adjusted EBITDA margin of between 29, five and 35%.

Finally, due to improvements in FX, we are increasing our adjusted earnings per share guidance from a range of between $1 90.

And $2 10.

To a new range of between $1 95.

And $2 15.

Our updated guidance range continues to assume that our annual net interest expense will be approximately $116 million.

That our annual adjusted tax rate will be approximately 22%.

And then our weighted average diluted shares outstanding will be approximately $58 1 million.

Dev Kodekar: The Quick Pen that you particularly referenced on this call. That is the same pen that's used for insulin as well, and certainly our pen needles have a strong position in the UK. I would expect that as GLP presentations may be changing the ratio over time between vials, pens, and auto-injectors. As more and more pens get introduced, and I think Lily has commented publicly that they are certainly thinking about introducing GLP-1s in more countries with pens.

This completes my prepared remarks and at this time I'd like to turn the call over to the operator for questions.

Thank you if you'd like to ask a question. Please press star one one.

Your question Hasnt answered and you'd like to remove yourself from the queue. Please press star one again.

Our first question comes from column Titchmarsh with Morgan Stanley. Your line is open.

Thank you so much for taking the question I.

I have a couple if that's okay. Firstly, maybe just to provide some color on your own plans of entering the <unk> market with El pen needles, specifically any thoughts on latest quick patents Montreal, our approval in the U K a couple of weeks back given I think can back just pen needles to other recommended choice on the label.

How should we think about quantifying this opportunity and any additional ones down the line.

Jake Elguiz: On the Q1 margins, specifically on the gross margin side, pretty strong there. You've come in beyond 67% of the quarter, yet you're keeping the four-year guide, then why shouldn't those margins remain at least levels for us? Yeah, thanks. Thanks for the question, Callum. So, it really comes down to timing, right?

Good morning, gentlemen, thanks for the question.

As I've commented before.

Every time, a pen is used all over the world whether it be put into the nearer GOP ones.

Given our strong share positions in countries around the world.

It certainly positions us well for a pen.

Needed to be used.

Most of the bands that are being used out there are compatible with their pen needles.

Ben that you, particularly referenced on this call.

That is the same that's used for insulin as well.

Thirdly pen needle to have a strong positioning in the U K I would expect that as GOP presentations.

Maybe change in the ratio over time.

<unk> vial bends in auto injectors.

As more and more things get introduced and I think <unk> commented publicly.

They certainly are thinking about introducing DLP ones in more countries with pens.

We certainly expect to benefit from it the other thing I would point out is some of the older DLP ones.

Return generic this year.

They have in certain countries outside the U S and those presentations that also often in pens and so daily benefit certainly our pen needle business as well.

Great and then just one more if that's okay.

On the Q1 margins specifically on the gross margin side pretty strong that you've come in beyond 667% for the quarter.

Jake Elguiz: And we largely attribute that to the timing of customer orders in advance of the ERP. To a to a far lesser extent, we did see some some benefit in the quarter in terms of revenue from, you know, an improved FX environment in relation to the to the original guide. But but really, the the improvement as compared to our own internal expectations for for Q1 for for revenue really came down to the timing of the shipments, you know, from a from a margin standpoint that again, in relation to our, to our, you know, expectations for for Q1 gross margin, Q1 gross margins came in, you know, very strong at around 67.2%, on an adjusted basis, again, largely because of the the timing of the revenue that we that we saw in the quarter, as well as the mix of the revenue.

Keeping the full year guide between 60, and 64% why shouldn't those margins remain at these levels throughout the year.

Yes. Thanks, Thanks for the question Calum. So so it really comes down to.

Timing right I think in the in the first quarter.

Very high level I think we're extremely pleased with the with the first quarter results and I think it's.

So when you think about all the separation oriented work that had to occur by all of the associates I think they did a tremendous job of.

<unk>.

Keeping the business stable and continuing to to advance obviously, all the the ERP initiatives and separation work. So so.

Really good start I would say two to the year from a from a financial standpoint.

We talked about we talked about revenue in the first quarter and revenue was better than we had previously expected it to be and we largely attribute that to the timing of customer orders in advance of the ERP to a far lesser extent, we did see some some benefit in the <unk>.

Jake Elguiz: And the fact that, you know, because revenue was a little bit better, we needed to manufacture more product and had some positive variances in relation to our original expectations. So as we think about, you know, moving forward, as Deb mentioned in her prepared remarks, we think that that timing benefit from a revenue standpoint will largely unwind itself in the second quarter of the year, and we still, we still believe that the first half of the year from a revenue and margin standpoint is pretty much, almost exactly in line with what we had communicated in our initial guide three months ago. So hopefully, that gives you a little bit more color in terms of the reason for the margin trajectory from Q1 to Q2. On a full year basis, again, we reaffirmed all our previously provided margin ranges, whether it's gross margin, operating margin, or adjusted even margin.

Quarter in terms of revenue from an improved FX environment in relation to the.

To the original guide.

But really the improvement as compared to our own internal expectations for for Q1.

Jake Elguiz: Thank you. Our next question comes from Travis Deed with Bank of America Securities. Your line is open. Yeah, hi, good morning. This is Carolyn on behalf of Travis.

As Doug mentioned I think in his in his prepared remarks.

We think that that timing benefit from a revenue standpoint will largely unwind itself in the in the second quarter of the year and we still we still believe that the first half of the year from a revenue and margin standpoint is pretty much almost exactly in line with what we had communicated.

Our initial guide three months ago. So.

Hopefully that gives you a little bit more color in terms of.

The reason for the margin trajectory from Q1 to Q2 on a full year basis again, we reaffirmed all of our previously provided margin range is whether it's gross margin operating margin or adjusted EBITDA margin.

Dev Kodekar: Look, we're very pleased to have gotten the submission done almost a month ago now. As you can imagine, this is in the very early stages. Certainly, we know the review is well underway, and our team has been corresponding with the FDA. I wouldn't want to get ahead of the FDA with signaling timing, certainly so early in the review process. But nothing atypical so far, Carolyn.

That's great. Thanks.

Thank you. Our next question comes from Travis Steed with Bank of America Securities. Your line is open.

Yes, good morning, Kevin and then thanks for the question look we're really pleased to have gardened the submission done.

Almost a month ago now and as you can imagine this is in the very early stages Thirdly, we know the review is well underway and our team has been corresponding with the FDA.

I wouldn't want to get ahead of the FDA with the signaling timing certainly so earlier. So so early in the review process.

But nothing atypical so far and we look forward to working with the FDA in.

Responding to all the collections that will have and certainly when there is something substantial to communicate we will certainly do so.

Dev Kodekar: And, you know, the international markets, particularly in the emerging markets for us, are growing, you know, somewhere in that, let's call it, mid single digit fourish plus percent, you know, type range. And that's sort of our thoughts, you know, right now for twenty twenty four is that, you know, the U.S. market, which is developed in nature still has, you know, sort of a flattish type constant currency And if we were to see, you know, more positive growth, that's going to come from sort of the international markets. And if I can just add to that, just to connect the dots here, you know, we commented that the Suzhou entity, the demerger process is complete, and we plan to start production for the domestic Chinese market. In this quarter, that plant was already producing product for export markets, but primarily emerging markets.

Thank you.

Yes, so so I think.

The growth outside of the U S and is really expected to to exceed the growth in the in the U S and thats been a trend I think largely that we've seen over the past several years essentially the U S market being relatively flattish.

And the international markets, particularly in the emerging markets for us.

And growing somewhere in the let's call it mid.

Mid single digit four ish plus percent type range and Thats sort of our thoughts right now for for 2024 is that the U S.

Market or developed in nature still has sort of a flattish type constant currency revenue growth rate.

And if we were to to see more positive growth that's going to come from from sort of the international markets.

Dev Kodekar: So from a manufacturing standpoint, we are really glad to get some of this separation work done that us and really, you know, strengthens our foundation to capitalize, if you will, on the growth that we expect over the continued long term in the emerging markets. Thank you. Thank you. Our next question comes from Marie Thibault with BTIG. Your line is open.

If I can just add to that just to connect the dots here. We commented that the Suzhou entity. The demerger process is complete we plan to start production for the domestic China market in this quarter that plant was already producing product for export markets, but primarily emerging markets. So from a manufacturing standpoint, we are really glad to get some.

The separation work done to us and really.

Symptoms are the foundation to capitalize if you will on the growth that we expect over the continued long term in the emerging markets.

Marie Thibault: Good morning, Dev and Jake. Thanks for taking the questions and having a nice quarter. I wanted to ask here a follow-up question on the patch pump. Are you planning to broadly launch or broadly commercialize the open-loop patch pump? And as a follow-up to that, now that you've got that submitted, should we expect R&D investments to step up, or stay flat? How are you thinking about the investment needed to get the closed

Thank you.

Thank you. Our next question comes from Murray Tivo with BTG. Your line is open.

Morning, Devin Jake Thanks for taking the questions and nice quarter.

I wanted to ask you a follow up on the patch pump.

Fanning too broadly launch or broadly commercialize the open loop patch pump and as a follow up on that.

Now that you have got that submitted should we expect R&D investments to step up to stay flat. How are you think about the investment needed to get the closed loop pump to FDA submission.

Dev Kodekar: Thanks, Murray. Good morning. Yes, we do plan, you know, at the right time, to commercialize the open loop. Our view is that we will do a limited market release of the open loop pump. All the work that we've done so far indicates to us that there is a segment of the market that would benefit from and be interested in an open-loop pump, but obviously, the timing of that is all dependent upon the review and eventual approval of the process.

Hey, Thanks, Good morning, Yes, we do plan.

At the right time to commercialize the open loop. Our view is that we will do a limited market release of the open loop pump all the work that we've done so far.

Indicates to us that there is a segment of the market that would benefit and be interested in an open loop pump, but obviously the timing of that is all dependent upon the review and eventual approval of the process with respect to R&D expenses for the year.

Jake Elguiz: With respect to R&D expenses for the year, I mean, I'll let Jake comment some more, but certainly, we've included our anticipated expenses for fiscal 2024 in the guidance, and it's a little too early to sort of comment long-term, but, you know, beyond 24, at this point, but I'll let Jake add additional color. Sure, you know, Murray, I think R&D spending in the first quarter was probably a little bit lower than we had, you know, sort of originally internally expected it to be, just due to some timing issues. And we certainly expect that to pick up in terms of R&D spending as we move, you know, throughout the remaining quarters of the year, and I continue to expect that R&D as a percentage of revenue is most likely going to exceed, Okay, that's very helpful.

Let Jack comment more but thirdly, we've included our anticipated expenses for fiscal 2024 in the guidance and it's a little too early to sort of comment long term.

<unk> 24 at this point, but I'll, let Jake.

Some color sure.

Marie I think R&D spending in the first quarter was probably actually a little bit lower than what we had sort of originally internally expected it to be just due to some.

Some timing issues and we certainly expect that to pick up in terms of R&D spending as we move.

Throughout the remaining quarters of the year and I think continue to expect that R&D as a percentage of revenue is.

Is most likely going to exceed.

7% ish type level for fiscal 2024.

Okay. That's very helpful. Let me ask my follow up on the ERP systems in that transition.

Dev Kodekar: Let me ask you about the ERP systems in that transition. I think I heard you say that the sales result this quarter benefited from the timing of customer orders related to that transition. Can you help clarify what that means? Were they ordering ahead of time to avoid disruption during the transition? And then, as part of the ERP transition, what exactly remains to be done, and is there risk around the IRS letter for extension? Do you have any control?

I think I heard you say that you know the sales result, this quarter benefited from the timing of customer orders related to that transition.

Can you help clarify what that means or are they ordering ahead of time to avoid disruption during the transition and then as part of the ERP transition.

What exactly remains to be done and is there risk around the IRS letter for extension do you have any control what's the plan if that doesn't come through thanks for taking the questions.

Dev Kodekar: What's the plan if that doesn't come through? Thanks for taking, Dear Marie. I'll take that. So with respect to ordering patterns during an ERP implementation, in this case, it's an ERP implementation, plus we are standing up our own shared services capabilities, and we are standing up our own distribution Network. It's quite typical in transitions like this that you have a pause in taking new orders as you're moving inventory from old distribution centers to new distribution centers. And so in circumstances like these, customers will often place orders in advance because, certainly, we don't want, and they don't want any stock outs to occur.

Sure Murray I'll take that.

With respect to ordering patterns during an ERP implementation in this case, it's an ERP implementation plus we're standing up our own Chegg services capabilities, and we're standing up our own distribution network. It's quite typical in transitions like this that you have a pause in taking new orders.

As you are moving inventory from all distribution centers to new distribution centers and so in circumstances like these.

Customers will often placed orders in advance because certainly we don't want and they don't want any stock outs to occur.

Dev Kodekar: And so it's quite typical to get some lumpiness during an ERP transition. And so the timing effect that Jake referred to, because we were implementing in the US and Canada, certainly we had some timing benefit. And I think, as I said in my prepared remarks, we are going to do a phased implementation around the world as we continue. There will be some atypical ordering patterns that might actually go from quarter to quarter as we complete these implementations. With regard to the private ledger ruling that you're referring to.

So it's quite typical to get some lumpiness during an ERP transition and so the timing effect that Jack referred to because we were implementing in the U S and Canada, certainly we had some timing timing benefit and I think as I said in my prepared remarks, we're going to do a phased implementation around the world as well.

Continue there will be some atypical ordering factories.

It might actually go from quarter to quarter as we complete these implementations with regard.

To the private letter ruling that you're referring to.

Dev Kodekar: As you recall, BD agreed in principle to grant us a limited extension, conditioned upon obtaining an acceptable supplemental private letter ruling from the IRS, and that would allow us to extend some of these TSAs until early fiscal 2025. The reason for that is that we can phase out these implementations and potentially reduce some of the implementation risk that is inherent in complex implementations like these. We've done significant work on preparing the filings. We've been closely cooperating with BD and providing them with all the necessary information. We anticipate that the filing will be made soon, and we certainly have worked with them to make sure that our filing is well positioned. Obviously, I don't want to comment on the review or outcome.

As you remember BD agreed in principle to grant us unlimited extension conditioned upon an operating an acceptable supplemental private letter ruling from the IRS and that would allow us to extend some of these dsos until early fiscal 2025 and that again. The reason for that is so that we can phase out these implementations and Patel.

Needed use some of the implementation risk.

In complex implementations like these.

We've done significant work on preparing the filings we've been closely cooperating with BD and providing them with all the necessary information, we anticipate that the filing will be made soon.

And thirdly, we worked with them to make sure that our filing is well positioned obviously I don't want to comment.

On the review or outcome wouldn't want to get in front of the IRS, but suffice to say that we.

Dev Kodekar: We wouldn't want to get in front of the IRS, but suffice to say that, you know, we have contingency plans, and we've incorporated or tried to be prudent in our guidance in contemplating the range of potential outcomes that can occur in ERP implementations of this sort. It's all really helpful. Thank you. Thank you. As a reminder, if you'd like to ask... Star. Our next question comes from Michael Polark, everyone. Good morning.

Have contingency plans and we've incorporated or tried to be prudent in our guidance in contemplating the range of potential outcomes that can occur in ERP implementations of this sort.

That's all really helpful. Thank you guys.

Thank you as a reminder, if you'd like to ask a question. Please press star one one.

Our next question comes from Michael <unk> with Wolfe Research Your line is open.

Hey, good morning, Thank you.

Michael K. Polark: Thank you. I have two questions, one boring one on the balance sheet and then a question on the patch pump. On the balance sheet, Jake really appreciated the comments about the factoring agreement. We noticed the step up in Adjusted Result. Is $100 million a good level of Adjusted Result for Embecta to carry, or would you expect this number to change one way or the other as you move through the trial?

Two one boring one on the balance sheet and then a question on the patch pump on the balance sheet, Jake really appreciated the comments about the factoring agreement.

We noticed the step up in.

Sure.

That is $100 million good good level. They are firm back to carry or what do you expect this number to change one way or the other as you move through the transition.

Jake Elguiz: Yeah, Michael. I mean, I think there could be a little bit of variability, you know, in the coming quarters, just as we bring on, you know, for the first, obviously, 60% of our revenue in the US and Canada and then the remaining 40% over the next several quarters. So we could see some variability from quarter to quarter, you know, but I think right now, you know, our expectation is that as we move throughout the year, we start to, in a more meaningful way, start to collect that cash that is now, you know, sort of sitting on the balance sheet in terms of, of AR during the remaining quarters of the year. The follow-up on the patch pump program, the question is on the production side, you know, Marie asked about R&D, and I appreciate the comments there, but, You know, I imagine in parallel, you're thinking about how to create a production environment to make a lot of patch pumps and, you know, in looking at some of the incumbents here, it's been, you know, a very exquisite process and takes a long time and Um, where are you in that?

Yes, Michael.

I think there could be a little bit of variability.

In the coming quarters, just as we bring on first obviously, 60% of our revenue in the U S and Canada and then the remaining 40% over the next several quarters. So we could see some variability from quarter to quarter.

I think right now our expectation is is that as we move throughout the year, we start to in a more meaningful way start to to collect that cash that is now sort of sitting on the balance sheet in terms of of AOR during the.

<unk> quarters of the year.

The follow up on the patch pump program.

The question is on the production side.

Marie asked about R&D I appreciate the comments there but.

Hello, I imagine in parallel you're thinking about how to create a production environment to make a lot of.

Patch pumps in.

And looking at some of the incumbents here, it's been it's a very.

Was it process and takes a long time and dollars.

Where are you on that I know youre not youre reluctant to comment on timing of all this but I have to imagine theres, some kind of planning going on for.

Dev Kodekar: Um, I know you're not, you're reluctant to comment on the timing of all this, but I have to imagine there's some kind of planning going on for commercial production of this product, and I'd love to get a flavor for how you're thinking about that and if you're putting CapEx dollars to work today on a project like that. Mike, this is Dev. Good morning. Thank you. And you're absolutely

Commercial production of this product in.

To get a flavor for how you are thinking about that and if you're putting capex dollars to work today on a project like that.

Mike This is Dave good morning, Thank you and you're absolutely right.

Dev Kodekar: We have been working on commercial production of the product for a while now, actually, even before the submission was made. I would say there are three specific things that we focused on. Number one is, Recognizing that there is expertise in production that may not be inherent in the company, we went through a RFP process and selected a contract manufacturer that could help us with production. That's sort of point number one, and we've been working with that contract manufacturer now for over a year. The second thing I would point out is that, as we were designing the pump and going through the product development process, we were well aware that manufacturing a very complex precision engineered medical device is going to be something that is going to be critical to the long-term commercial success of the product.

Have been working on commercial production of the product.

For a while now actually even before the submission was made.

I would say there are three specific things that we've focused on.

Number one is.

Recognizing that there is expertise in production.

Maybe not inherent in the company.

We went through a RFP process and selected a contract manufacturer.

That could help us with production that's sort of point number one and we are working with that contract manufacturer has now for over a year.

The second thing I would point out is.

As we were designing the pump and going through the product development process.

We're well aware that manufacturing.

A very complex.

Precision engineered medical device.

<unk> is going to be something that is going to be critical to the long term commercial success of the product.

Dev Kodekar: And the third thing I would say is that at our R&D site, we actually established a pilot production line and manufactured ourselves, I won't give you a specific number, but let me just say, a fair number of devices that we used in the testing that was used to generate the data as part of our FDA submission. With respect to capital, I'll let Jake comment on that, but obviously, there was some capital spent on the production lines that I mentioned at the pilot production lines that we mentioned at the R&D center, but nothing unusual.

So we embedded design for manufacture ability thinking in the product development process itself.

And the third thing I would say is.

And I got R&D site, we actually established a pilot production line.

And manufactured ourselves.

I won't give you a specific number but let me just say a fair number of devices that we used in the testing that was used to generate the data as part of our FDA submission.

With respect to capital.

Jay comment on it but obviously there was some capital spend on the production lines that I mentioned at the pilot production lines that.

And that the R&D center, but nothing unusual Jack do you want to comment anymore.

Jake Elguiz: Jake, do you want to comment any more? Yeah, I would agree, Dev, and Mike, I think from a CapEx standpoint, you know, for our fiscal 2024, you know, we would expect total CapEx, and this is sort of inclusive of the spending that occurs as it relates to DRP, to be somewhere between, let's call it, 50 to 60 million dollars in 2024, and that's probably, you know, 60 percent or so focused on sort of the software as a service capital cash spend that actually shows up as a reduction of cash flow from operations in our cash flow statement, and then, you know, the remaining 40 percent of that is showing up and appearing on the CapEx line within our cash flow statement, so somewhere between 50 to 60 million in total CapEx, I think, for 2024.

I would agree Dev and Mike I think from a from a capex standpoint.

For our fiscal 2024, we would expect total capex and this is sort of inclusive of.

The spending that occurs as it relates to ERP.

To be somewhere between let's call it $50 million to $60 million in 2024, and that's probably 60% or so focused on on sort of the software as a service.

Opex I think four for 2024.

Jake Elguiz: Thanks for the color, Thank you. There are no further questions at this time. I'd like to turn the call back over to Deb for any, Thank you, Michelle. Before we conclude the call, I would like to express my gratitude to all my colleagues around the world. Our results truly are a testament to their continued relentless focus on developing and providing solutions that make life better for people living with diabetes. Thank you all for attending our Fiscal Earnings Call and Q2 Earnings Call and for your interest in our business. Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.

Thanks for the color.

Thank you there are no further questions at this time I would like to turn the call back over to Dev for any closing remarks.

Thank you Michelle before we conclude the call I would like to express my gratitude to all my colleagues around the world. Our results truly are a testament to their continued relentless focus.

We are developing and providing solutions that make life better for people living with diabetes. Thank you all for attending our fiscal <unk> earnings call Q2 earnings call and for your interest in our business.

Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.

Q1 2024 Embecta Corp Earnings Call - Q&A

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