Q2 2024 Embecta Corp Earnings Call - Q&A
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Operator: Ladies and gentlemen, this is the fiscal second quarter 2024 Embecta 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 would now like to hand the conference call over to your host today, Mr. Pravesh Khandelwal, Vice President of Investor
Speaker Change: Welcome, ladies and gentlemen to the fiscal second quarter, 'twenty 'twenty, four and back to earnings conference call.
Speaker Change: At this time, all participants have been placed in a listen only mode.
Speaker Change: 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.
Speaker Change: I would now like to hand, the conference call over to your host today, Mr. Professed Kendall wall Vice President of Investor Relations. Please go ahead.
Speaker Change: Thank you operator, good morning, everyone and welcome to <unk> fiscal second quarter 2024 earnings Conference call.
Pravesh Khandelwal: Thank you, operator. Good morning, everyone, and welcome to Embecta's fiscal second 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 Kurdikar, Embecta's President and Chief Executive Officer, and Jake Elguicze, our Chief Financial Officer. 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, 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 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 Dot Dot Com with me today are Dave car to car <unk>, President and Chief Executive Officer, and Jay categories, Our Chief Financial Officer.
Speaker Change: 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.
Speaker Change: Actual events or results may differ materially.
Pravesh Khandelwal: 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.
Speaker Change: The factors that could cause actual 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.
Speaker Change: I was prepared in accordance with GAAP.
Speaker Change: Reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation.
Speaker Change: Our agenda for today's call is as follows.
Speaker Change: I will begin by providing some remarks on the overall performance of our business during the fiscal second quarter of <unk> 24, as well as an overview of our strategic priorities.
Speaker Change: Jason will then provide a more in depth review of our Q2 financial results as well as updated financial guidance for the year.
Speaker Change: We will then open the call for questions.
Pravesh Khandelwal: 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. Dev will begin by providing some remarks on the overall performance of our business during the fiscal second quarter of 2024, as well as an overview of our strategic priorities. Jake will then provide a more in-depth review of our Q2 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, Devd Kurdikar. Good morning, and thank you for taking the time to join us.
Speaker Change: That said I would now like to turn the call over to our CEO, Jeff critical path.
Devdatt Kurdikar: Let's start with our strategic priorities on slide five. We remain committed to the same trio of strategic priorities that have guided us since we established ourselves as an independent company. These priorities form the basis of our decisions and actions, and they are: 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 long-term success as an independent company.
Jeff: Good morning, and thank you for taking the time to join us.
Jason: Let's start with our strategic priorities on slide five.
Jeff: We remain committed to the same three strategic priorities that have guided us since we established ourselves as an independent company.
Jeff: These priorities form the basis of our decisions and actions and they are <unk>.
Jeff: Remaining focused on strengthening our base business, while maintaining a global leadership position in the category of insulin injection devices.
Jeff: Separating ourselves from our former parent in a thoughtful manner to mitigate risk and positioning us for long term 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.
Devdatt Kurdikar: 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. During this past quarter, we made significant progress on each of these goals. Now, some second quarter highlights.
Jeff: During this past quarter, we made significant progress within each of these goals.
Devdatt Kurdikar: The second quarter was a strong quarter for Embecta, one in which we generated approximately $287 million in revenue, which represented an increase of 3.6% on an as-reported basis and 4.5% on a constant currency basis. When normalizing for the transient contract manufacturing revenue that we generate based on sales of non-diabetes products to our former parent, our constant currency revenue grew 4.9% as compared to the prior year period. This solid performance exceeded our expectations and occurred while simultaneously implementing our own ERP system, operationalizing our new distribution network, including seven new distribution centers, and standing up shared service capability in markets comprising 25% of our revenue in over 100 countries and serving approximately 5,000 customers.
Jeff: Turning to some second quarter highlights.
The second quarter was a strong quarter for them better one in which we generated approximately $287 million in revenue, which represented an increase of three 6% on an as reported basis and four 5% on a constant currency basis.
Jeff: When normalizing for the transient contract manufacturing revenue that we generate based on sales of non diabetes products to our former parent.
Jeff: Constant currency revenue grew four 9% as compared to the prior year period.
Jeff: This solid performance exceeded our expectations and occurred while simultaneously implementing our own ERP system.
Jeff: Operationalized, our new distribution network, including seven new distribution centers and standing up shared service capability in markets comprising 25% of our revenue in over 100 countries and serving approximately 5000 customers.
Jeff: We also implemented the systems and processes in our third manufacturing plant.
Thus at the end of the second quarter, we have completed the implementation of our ERP system and operationalized, our distribution network and shared service capability across approximately 85% of our revenue base servicing customers in the U S.
Devdatt Kurdikar: We also implemented these systems and processes in our third manufacturing plant. Thus, at the end of the second quarter, we had completed the implementation of our ERP system and operationalized our distribution network and shared service capability across approximately 85% of our revenue base, servicing customers in the U.S., Canada, EMEA, and parts of Asia, and at all three of our manufacturing plants in the U.S., Ireland, and China. Additionally, we successfully completed the remaining steps in the demerger process for our manufacturing entity in China and have transitioned its legal ownership from BD to Embecta.
Jeff: Canada, EMEA and parts of Asia and at all three of our manufacturing plant in the U S Ireland and China.
Jeff: Additionally, we successfully completed the remaining steps in the demerger process for our manufacturing entity in China and have transitioned its legal ownership from BD to investor.
Devdatt Kurdikar: We have also resumed manufacturing at this facility for products for supply to our customers in China. We have previously commented that this facility was producing goods for export to other markets, so now the plant is fully operational. All of these accomplishments were achieved in alignment with our projected timeline.
Jeff: We have also resumed manufacturing at this facility for products for supply to our customers in China.
Jeff: We have previously commented that this facility was producing goods for export to other markets. So now the plant is fully operational.
Jeff: All of these accomplishments were achieved in alignment with our projected timelines.
Devdatt Kurdikar: The transfer of ownership of this important plant from BD to Embecta and the restarting of domestic China production marks the completion of a significant separation project that our team has been meticulously working on since prior to our spin-off date. Lastly, as it relates to separation activities to facilitate the phased implementation of our ERP solution. We had requested an extension for certain TSAs and related agreements from BD. BD granted that limited extension, which has allowed us to implement our ERP system and associated distribution and shared services capabilities in a phased manner with the goal of completing these implementations in all markets except in certain limited deferred closing jurisdictions by early fiscal year 2025. It goes without saying that these implementations are highly intricate, and I'm proud of our team for bringing these complex projects to near completion.
Jeff: The transfer of ownership of this important plan from BD to inverter and the restarting of domestic China production marks the completion of a significant separation project that our team has been meticulously working on since prior to our spinoff date.
Jeff: Lastly, as it relates to separation activities to facilitate the phased implementation of our ERP solution distribution network and shared services capabilities. We have requested an extension for certainty of season related agreements from BD.
Jeff: BB granted that limited extension, which has allowed us to implement our ERP system and associated distribution and shared services capabilities in a phased manner with the goal of completing these implementations in all markets, except in certain limited deferred closing jurisdictions by early fiscal year 2025.
Jeff: It goes without saying that these implementations that are highly intricate and I'm proud of our team for bringing these complex projects near completion.
Jeff: Related to our objective of entering the infusion pump market responsive the publication of a paper titled opportunities to overcome under utilization of enhanced insulin delivery technologies in people with type two diabetes a narrative with you.
Devdatt Kurdikar: Related to our objective of entering the infusion pump market, we sponsored the publication of a paper titled Opportunities to Overcome Underutilization of Enhanced Insulin Delivery Technologies in People with Type 2 Diabetes, a Narrative Review. This paper aims to inform health care providers, particularly primary care physicians and those less familiar with technology, about the benefits of insulin pumps for people with type 2 diabetes. This highlights the safety and effectiveness of innovative technologies like insulin delivery systems in improving glycemic outcomes.
Jeff: This paper aims to inform health care providers, particularly primary care physicians and those less familiar with technology.
Jeff: The benefits of insulin pumps for people with type two diabetes.
Jeff: It highlights the safety and effectiveness of innovative technologies like insulin delivery systems and improving glycemic outcomes. Despite.
Devdatt Kurdikar: Despite their proven efficacy, these technologies are often overlooked in primary care settings. This review explores the clinical and economic advantages of tubeless insulin delivery devices and explains how this technology can address common challenges associated with traditional insulin delivery methods.
Jeff: Despite the proven efficacy. These technologies are often overlooked in primary care settings.
Jeff: The review explores the clinical and economic advantages of stimulus insulin delivery devices and explains how this technology can address common challenges associated with traditional insulin delivery methods.
Devdatt Kurdikar: And speaking of insulin patch forms, we continue to make progress in terms of insulin patch forms that are being developed. I'll share more about these accomplishments in the following slides. To summarize, during the second quarter, strong operational execution led to results that exceeded our internal expectations, and based on these results, we are raising and tightening our guidance range for key financial metrics, which Jake will be discussing later. Now, on to the advancements we made in terms of our Influence Platform Program.
Jeff: And speaking of insulin patch pump, we continue to make progress in terms of insulin patch pumps that are being developed.
Speaker Change: Share more about these accomplishments in the following slides.
Speaker Change: To summarize during the second quarter strong operational execution led to results that exceeded our internal expectations and based on these results, we are raising and tightening our guidance range for key financial metrics with Jake we'll be discussing later.
Speaker Change: Turning to the advancements we've made in terms of financial investment program.
Devdatt Kurdikar: Our 510k application for the open loop version of our insulin patch form continues to be under FDA review, and we continue to have ongoing dialogue with the FDA. As a reminder, we submitted our 510k application to the FDA in late calendar year 2023. In parallel, during the second quarter, we also continued the development of a closed-loop insulin patch pump that is targeted towards those individuals who have type 2 diabetes, including further collaboration with Tidepool concerning the adaptation of their FDA-approved type 1 algorithm into a type 2 algorithm that could be used in our closed-loop insulin patch pump system.
Speaker Change: Our <unk> application for the open loop version of our insulin patch pump continues to be under FDA review and we continue to have ongoing dialogue with the FDA.
Speaker Change: As a reminder, we submitted our five 10-K application to the FDA in late calendar year 2023.
Speaker Change: In parallel during the second quarter. We also continued the development of our closed loop insulin patch pump that is targeted towards those individuals who have type two diabetes, including further collaborating with tight blue concerning the adapt patients of their FDA approved type one algorithm.
Speaker Change: Into type two algorithm that could be used in a closed loop insulin patch pump system.
Devdatt Kurdikar: As we continue to progress throughout this year, we will continue to provide updates to the investment community regarding the status of FD's review at the appropriate times, as well as progress we make regarding our closed loop type 2 patch pump. Lastly, I would like to provide a review of its second quarter revenue performance in a bit more detail. As I mentioned at the outset, during Q2, we generated revenue of $287.2 million, which represented an increase of 3.6% on an as reported basis and an increase of 4.5% on a constant currency basis or 4.9% when normalizing for the impact of year over year changes in the revenue of non-diabetes products that we contract, manufacture, and sell to BD.
Speaker Change: As we continue to progress throughout this year, we will continue to provide updates to the investment community regarding the status of Fda's review at the appropriate times as well as progress we make regarding our closed loop type two patch pump.
Devdatt Kurdikar: Our Q2 revenue exceeded our previously communicated expectations primarily due to the timing of customer orders in advance of our aforementioned EMEA and parts of Asia-focused ERP system and associated capabilities implementations and in advance of a price increase in the U.S. Q2 revenue also benefited from a better than expected product and geographic mix. We estimate that the timing of customer orders impacted our second quarter results positively by approximately $16 million, and we currently expect that the timing benefit will unwind during fiscal Q3.
Speaker Change: Lastly, I would like to provide a review of our second quarter revenue performance in a bit more detail.
As I mentioned at the outset during Q2, we generated revenue of $287 2 million.
Devdatt Kurdikar: Within the US, during the quarter, revenue totaled $147.6 million, which represented year-over-year growth of approximately 0.8% on a constant currency basis. When normalizing for year-over-year contract manufacturing revenues, our underlying Q2 constant currency revenue growth within the US was approximately 1.5%. Volume was the primary contributor of growth in the quarter, aided by our contract wins with the top three Medicare Part D plans going into effect in January 2024. As we have previously noted, we are the preferred or dual preferred brand on the formularies for these plans.
Speaker Change: Which represented an increase of three 6% on an as reported basis and an increase of four 5% on a constant currency basis.
Speaker Change: Four 9% when normalizing for the impact of year over year changes in the revenue off non diabetes products that we contract manufacture and sell to BD.
Our Q2 revenue exceeded our previously communicated expectations, primarily due to the timing of customer orders in advance of our aforementioned EMEA and parts of Asia focused ERP system and associated capabilities implementations.
Speaker Change: And in advance of a price increase in the U S D.
Speaker Change: Q2 revenue also benefited from a better than expected product and geographic mix.
Speaker Change: We estimate that the timing of customer orders impacted our second quarter results positively by approximately $16 million and we currently expect that the timing benefit will unwind during fiscal Q3.
Speaker Change: Within the U S. During the quarter revenue totaled $147 6 million, which represented year over year growth of approximately 0.8% on a constant currency basis.
Speaker Change: When normalizing for year over year contract manufacturing revenues, our underlying Q2 constant currency revenue growth within the U S was approximately one 5%.
Speaker Change: Volume was the primary contributor of growth in the quarter.
Speaker Change: Aided by our contract wins with the top three Medicare part D plans going into effect in January 2024.
Speaker Change: As we have previously noted we are the preferred or dual preferred brand on the formularies for these plants.
Devdatt Kurdikar: These additional Medicare Part D plan volumes were somewhat offset by the unwinding of certain customer orders that benefited us in our fiscal first quarter, as discussed on our first quarter earnings call. However, pricing was flat in the quarter as compared to the year-ago period, which was expected. During Q2, our international revenue totaled $139.6 million, which equated to year-over-year constant currency growth of approximately 8.7%. Growth in our international business was due to increased volumes and can be largely attributed to the timing of certain customer orders in advance of the previously mentioned ERP and associated capabilities implementations that occurred during the quarter. Pricing within our international business remained relatively flat.
Speaker Change: These additional Medicare part D plan volumes were somewhat offset by the unwinding of certain customer orders that benefited us in our fiscal first quarter.
Speaker Change: As was discussed on our first quarter earnings call.
Speaker Change: Pricing was flat in the quarter as compared to the year ago period, which was expected.
Speaker Change: During Q2, our international revenue totaled $139 6 million.
Speaker Change: Which equates to year over year constant currency growth of approximately eight 7%.
Speaker Change: Growth in our international business was due to increased volumes and can be largely attributed to the timing of certain customer orders in advance of previously mentioned, the ERP and associated capabilities implementations that occurred within the quarter.
Speaker Change: Pricing within our international business combined relatively flat.
Speaker Change: That completes my prepared remarks, and with that let me turn the call over to Jay to take you through our second quarter financial results as well as our updated full year financial guidance in more detail Jack.
Jacob P. Elguicze: That completes my prepared remarks. And with that, let me turn the call over to Jake to take you through our second quarter financial results, as well as our updated full year financial guidance, in more detail.
Jacob P. Elguicze: 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 second quarter with gross profit. Gap gross profit and margin for the second quarter of fiscal 2024 totaled $185.4 million and 64.6%, respectively. This compared to $189.8 million and 68.5% in the prior year period. While on an adjusted basis, our Q2 2024 adjusted gross profit and margin totaled $185.8 million and 64.7%, respectively.
Jay: Thank you Deb and good morning, everyone.
Jay: Given the discussion that has already occurred regarding revenue I will start my review of <unk> financial performance for the second quarter at the gross profit line.
Jay: GAAP gross profit and margin for the second quarter of fiscal 2024 totaled $185 4 million and 64, 6% respectively.
Jay: This compared to $189 8 million and 68, 5% in the prior year period.
While on an adjusted basis, our Q2 2024, adjusted gross profit and margin totaled $185 8 million and 64, 7%.
Jacob P. Elguicze: This compared to 190.1 million and 68.6% in the prior year period. The year-over-year decrease in adjusted gross profit and margin was due to the impact of inflation on the cost of certain raw materials, direct labor, freight, and overhead. The impact of negative year-over-year manufacturing variances primarily attributable to the planned temporary shutdown of our Suzhou, China, facility as it relates to production for the domestic Chinese market for part of the quarter and the negative impact of foreign currency translation, primarily due to the strengthening of the U.S. dollar.
Jay: This compared to $190 1 million and 68, 6% in the prior year period.
Jay: The year over year decrease in adjusted gross profit and margin was due to the impact of inflation on the cost of certain raw materials direct labor freight and overhead.
Jay: The impact of negative year over year manufacturing variances, primarily attributable to the planned temporary shutdown of our Suzhou, China facility as it relates to production for the domestic Chinese market for part of the quarter.
Jay: And the negative impact of foreign currency translation, primarily due to the strengthening of the U S. Dollar.
Jay: As compared to our prior outlook, our adjusted gross margin during the second 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.
Jacob P. Elguicze: As compared to our prior outlook, our adjusted gross margin during the second quarter was better than we previously expected, and this was due to the higher than anticipated revenue that Dev referred to earlier, as well as favorable geographic and product mix. Turning to GAP Operating Income. During the second quarter, they were 39.2 million and 13.6%, this compared to 55.6 million and 20.1% in the prior year period. While, on an adjusted basis, our Q2 2024 adjusted operating income and margin totaled $74.9 million and 26.1%. This compared to 84.9 million and 30.6% in the prior year period.
Jay: Turning to GAAP operating income and margin during the second quarter, they were $39 2 million and 13, 6%.
Jay: This compared to $55 6 million and 21% in the prior year period.
Jay: While on an adjusted basis, our Q2 2024, adjusted operating income and margin totaled $74 9 million and 26, 1%.
Jay: This compared to $84 9 million and 36% in the prior year period.
Jacob P. Elguicze: The year-over-year decrease in adjusted operating income and margin is primarily due to the adjusted gross profit changes I just discussed, as well as an increase in SG&A costs associated with standing up the organization. These additional costs were somewhat offset by a reduction in year-over-year R&D expense, primarily due to an upfront payment made in the prior year period in connection with the Tidepool algorithm collaboration agreement, as well as a reduction in TSA.
Jay: The year over year decrease in adjusted operating income and margin is primarily due to the adjusted gross profit changes I just discussed.
Jay: As well as an increase in SG&A costs associated with standing up the organization.
Jay: These additional costs were somewhat offset by a reduction in year over year R&D expense, primarily due to an upfront payment made in the prior year period in connection with the tide pool algorithm collaboration agreement as well as the reduction in TSA expenses.
Jay: The adjusted operating income and margin performance during Q2 was better than we previously expected primarily due to the over achievement at the gross margin line.
Jacob P. Elguicze: The adjusted operating income and margin performance during Q2 was better than we previously expected, primarily due to the overachievement of the gross margin, coupled with the timing of R&D spending within the quarter. Turning to the bottom.
Coupled with the timing of R&D spending within the quarter.
Jay: Turning to the bottom line.
Jacob P. Elguicze: Gap net income and earnings per diluted share were 28.9 million and 50 cents during the second quarter of fiscal 2024, which compared to $14,024,000 in the prior year period. Meanwhile, on an adjusted basis, net income and earnings per share were 38.9 million and 67 cents during the second quarter of fiscal 2024. This compared to $43.3 million and $0.75 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, as well as 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.
Jay: GAAP net income and earnings per diluted share were $28 9 million and 50 during.
Jay: During the second quarter of fiscal 2024.
Which compared to $14 million and 24.
Jay: In the prior year period.
Jay: While on an adjusted basis net income and earnings per share were <unk> $38 9 million and 67.
Jay: During the second quarter of fiscal 2024.
Jay: This compared to $43 3 million and 75.
In the prior year period.
Jay: 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.
Jay: As well as an increase in year over year interest expense associated with the rise in sulfur and the impact that had on our variable interest rate debt.
Jay: This was somewhat offset by a reduction in our adjusted tax rate from approximately 25% in Q2 of 2023 to approximately 17, 9% in Q2 of 2024.
Jacob P. Elguicze: This was somewhat offset by a reduction in our adjusted tax rate from approximately 25% in Q2 of 2023 to approximately 17.9% in Q2 of 2024. The year-over-year reduction in our adjusted tax rate was expected and was due to certain discrete tax items that occurred during the quarter.
Jay: The year over year reduction in our adjusted tax rate was expected and was due to certain discrete tax items that occurred during the quarter.
Jacob P. Elguicze: For the first six months of 2024, our adjusted tax rate was approximately 22%, which is in line with our annual adjusted tax rate expectation. Lastly, from a P&L perspective, for the second quarter of 2024, our adjusted EVADOT and margin totaled approximately $90.8 million and 31.6%. This compared to $96.7 million and 34.9% in the prior year period.
Jay: For the first six months of 2024, our adjusted tax rate was approximately 22%, which is in line with our annual adjusted tax rate expectations.
Jay: Lastly from a P&L perspective for the second quarter of 2024, our adjusted EBITDA and margin totaled approximately $98 million and 31, 6%.
Jay: This compared to $96 7 million and 34, 9% in the prior year period.
Jay: Turning to the balance sheet and cash flow.
Jacob P. Elguicze: Turning to the balance sheet and cash. At the end of the second quarter, our cash balance totaled $306.5 million, while our last 12 months' net leverage, as defined under our credit facility agreement, stood at approximately 3.8 times. As a reminder, our Net Leverage Covenant requires us to stay below 4.75%.
At the end of the second quarter, our cash balance totaled $306 5 million.
While our last 12 months net leverage as defined under our credit facility agreement stood at approximately three eight times.
Jay: As a reminder, our net leverage covenant requires us to stay below 475 times.
Jay: From a cash flow perspective, our cash balance as of March 31 is approximately $20 million lower than the balance that existed as of September 30.
Jacob P. Elguicze: From a cash flow perspective, our cash balance as of March 31st is approximately $20 million lower than the balance that existed as of September 30th, and this is largely attributed to cash that has been used related to separation-related activities, which include product registration and labeling costs, warehouse and distribution set-up costs, and legal costs associated with patents and trademark work.
Jay: And this is largely attributed to cash that has been used related to separation related activities, which include product registration and label and costs warehousing and distribution setup costs.
Jay: Legal costs associated with patents and trademark work.
Jacob P. Elguicze: Temporary Headcount Resources within Accounting, Tax, Finance, Human Resources, Regulatory, and IT, and one-time business integration and IT-related costs primarily associated with our global ERP implementation. We estimate that during the first six months of fiscal year 2024, we will use approximately $90 million of cash towards these separation activities. As we look forward, we currently estimate that we will end fiscal year 2024 with a cash balance roughly comparable to the balance that existed at the end of the second quarter.
Jay: Temporary head count resources within accounting tax finance human resources regulatory and IP.
Jay: Sure.
Jay: And onetime business integration and related costs, primarily associated with our global ERP implementations.
We estimate that during the first six months of fiscal year 2024, we used approximately $90 million of cash towards the separation activities.
Jay: As we look forward. We currently estimate that we will end fiscal year 2024, with a cash balance roughly comparable to the balance that existed at the end of the second quarter.
Jay: This includes an expectation that for the full year, we will use between approximately 180 and $190 million of cash towards separation activities.
Jacob P. Elguicze: This includes an expectation that for the full year, we will use between approximately $180 and $190 million of cash towards separation activities. This compares to cash used for separation activities of approximately $145 million during fiscal year 2023.
Jay: This compares to cash used for separation activities of approximately $145 million during fiscal year 2023.
Jay: Given that we expect to be complete with most separation projects by the end of this fiscal year.
Jacob P. Elguicze: Given that we expect to be complete with most separation projects by the end of this fiscal year, we would expect to see an improvement in our cash balances in fiscal year 2025 and beyond, which would allow us additional flexibility in terms of capital allocation, including debt repayment. Additionally, we now show trade receivables globally on our balance sheet given our previously mentioned ERP implementation and the exit of our factoring agreements with BD.
Jay: We would expect to see an improvement in our cash balances in fiscal year 2025 and beyond.
Jay: Which would allow us additional flexibility in terms of capital allocation, including debt repayment.
Jay: Additionally, we now show trade receivables globally on our balance sheet, given our previously mentioned ERP implementations and the exit of our factoring agreement with BD.
Jay: I am pleased to report that following the implementation of our ERP system and shared service functionality in November of 2023 within North America.
Jacob P. Elguicze: I'm pleased to report that following the implementation of our ERP system and shared service functionality in November of 2023 within North America, the cash collections associated with those receivables have continued to trend in a positive direction, and this has returned to more typical levels of accounts receivable within North America. This is important as it will allow us to focus our attention on the newly generated accounts receivable that exists within EMEA and ASIA and turn those receivables into cash following our March 2024 ERP implementations and shared service capabilities in those regions. That completes my comments on our fiscal Q2 results.
Jay: But the cash collections associated with those receivables have continued to trend in a positive direction and that this has returned to a more typical levels of accounts receivable within North America.
Jay: This is important as it will allow us to focus our attention on the newly generated accounts receivable that exists within EMEA and Asia and turning those receivables into cash following our March of 2024, ERP implementations and shared service capabilities in those regions.
Speaker Change: That completes my comments on our fiscal Q2 results.
Jacob P. Elguicze: Next, I will provide an update on our full year 2024 financial guidance, beginning with Revenant. Given our performance during the first half of the year, we are tightening our constant currency revenue guidance range, as we are now calling for full year 2024 constant currency revenue to be flat to down 0.5% as compared to 2023. This compares to our prior guidance range, which called for full-year constant currency revenue to be flat to down 2% as compared to the prior year, or an increase of approximately 75 basis points at the midpoint.
Speaker Change: Next I will provide an update on our full year 2024 financial guidance.
Speaker Change: Beginning with revenue.
Speaker Change: Given our performance during the first half of the year, we are tightening our constant currency revenue guidance range. As we are now calling for full year 2020 for constant currency revenue to be flat to down 0.5% as compared to 2023.
Speaker Change: This compares to our prior guidance range, which called for full year constant currency revenue to be flat to down 2% as compared to the prior year.
Speaker Change: Or an increase of approximately 75 basis points at the midpoint.
Speaker Change: The low end of our updated constant currency revenue growth guidance range is driven entirely by year over year headwinds associated with reduced contract manufacturing revenue of non diabetes products.
Speaker Change: As we now expect our underlying core injection diabetes product revenues to be flat.
Speaker Change: Compared to a 1% decline assumed in our prior guidance.
Speaker Change: While the high end of our constant currency revenue range is unchanged as compared to our prior guidance.
Speaker Change: Turning to FX, we are reaffirming our previously provided guidance, which called for a foreign currency to be a headwind of approximately 0.4% versus the prior year.
Jacob P. Elguicze: The low end of our updated constant currency revenue growth guidance range is driven entirely by year-over-year headwinds associated with reduced contract manufacturing revenue of non-diabetes products, as we now expect our underlying core injection diabetes product revenues to be flat, compared to a 1% decline assumed in our prior guidance, while the high end of our constant currency revenue range is unchanged as compared to our prior guidance. Turning to FX, we are reaffirming our previously provided guidance, which called for foreign currency to be a headwind of approximately 0.4% versus the prior year. These FX assumptions are based on foreign exchange rates that were in existence during late April, including an euro to US dollar exchange rate of approximately 1.08.
Speaker Change: These FX assumptions are based on foreign exchange rates that were in existence. During the late April timeframe, including a euro to U S. Dollar exchange rate of approximately 1.0.
Speaker Change: On a combined basis, our updated as reported guidance range calls for revenue to be down between 0.4% and 0.9% as compared to 2023.
Jacob P. Elguicze: On a combined basis, our updated as reported guidance range calls for revenue to be down between 0.4% and 0.9% as compared to 2023, resulting in an updated revenue guide of between $1,111,000,000 and $1,116,000,000. Turning to Marge, We are raising the midpoint of our Adjusted Gross, Adjusted Operating, and Adjusted EBITDA margin guidance by 125 basis points each, as we now expect an adjusted gross margin of between 64.5% and 65%, adjusted operating margin of between 25.25% and 25.75%, and an adjusted EBITDA margin of between 31% and 31.5%.
Speaker Change: Resulting in an updated revenue guide of between $1 billion $111 million and $1 billion $116 million.
Speaker Change: Turning to margins.
Speaker Change: We are raising the midpoint of our adjusted gross adjusted operating and adjusted EBITDA margin guidance by 125 basis points. Each as we now expect adjusted gross margin of between 64, 5% and 65%.
Speaker Change: Adjusted operating margin of between 25, 25% and 25, 75% and.
Speaker Change: And adjusted EBITDA margin of between 31% and 31, 5%.
Speaker Change: Finally, due to a combination of improved revenue and margin outlook, we are increasing our adjusted earnings per share guidance from a range of between $1 95.
Jacob P. Elguicze: Finally, due to a combination of improved revenue and margin outlook, we are increasing our adjusted earnings per share guidance from a range of between $1.95 and $2.15 to a new range of between $2.20 and $2.30, or an increase at the mid-point of 20 cents. 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 would like to turn the call over to the operator for questions. Operator.
Speaker Change: And $2 15.
Speaker Change: To a new range of between $3 20.
Speaker Change: And $2 30.
Speaker Change: Or an increase at the midpoint of 'twenty.
Speaker Change: Our updated guidance range continues to assume that our annual net interest expense will be approximately $116 million.
Speaker Change: That our annual adjusted tax rate will be approximately 22%.
Speaker Change: And that our weighted average diluted shares outstanding will be approximately $58 1 million.
Speaker Change: This completes my prepared remarks and at this time I would like to turn the call over to the operator for questions.
Speaker Change: Operator.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.
Operator: Thank you. As a reminder, to ask a question, please press Star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please stand by. We'll compile the Q&A roster. Our first question comes from the line of Travis Steed with Bank of America Securities. Your line is now open.
Speaker Change: Please standby will propel the Q&A roster.
Speaker Change: Our first question comes from the line of Travis Steed with Bank of America Securities. Your line is now open.
Travis Lee Steed: Hi, Good morning. This is carolyn on for <unk>. Thanks for taking the question I wanted to just start up risks with our full year guidance. It looks like you beat expectations by about $8 5 million and then raised the full year guide by 'twenty two.
Caroline Borowski: Hi, good morning. This is Caroline. I'm here for Travis.
Caroline Borowski: Thanks for taking the questions. I wanted to start out first with the full-year guidance. It looks like you beat three expectations by about $8.5 million and then raised the full-year guide by $22 million. So I'm wondering if you can speak to any one-time impacts in the quarter. I believe you said previously that about $16 million was pulled forward, and then contract manufacturing was a 40-bit headwind. So I just wanted to confirm that I got that right and see if there's anything else that we should be taking into consideration for the full-year guidance here. Thanks, and then I have one follow-up question.
Travis Lee Steed: I'm wondering if you can speak to any one time impact in the quarter. I believe you said previously that about $16 million was pull forward and then contract manufacturing with a 40 bps headwind.
Carolyn: Just wanted to confirm that I got that right. If there was anything else that we should be taking into consideration for the full year guidance. Derek Thanks, and then I have one follow up.
Jacob P. Elguicze: Yeah, thanks, Caroline. I think you might have had the numbers just transposed.
Derek: Thanks Caroline.
Speaker Change: Thank you might've had the numbers just transpose.
Derek: We did very well in the quarter I'm not necessarily going to referred to consensus expectations, but I think we did beat our own internal expectations by about $22 million in the quarter and we did refer to about <unk>.
Derek: $16 million of.
Derek: Of that being attributed to timing there is simply no advance of the ERP implementations, we saw customers order some additional product in our.
Derek: International markets.
Derek: Probably by about $10 million in the quarter.
Derek: In the U S in advance of our normal April one.
Derek: Price increase we saw some additional volumes in the U S and we estimate.
Derek: To be a timing benefit of about $6 million in the quarter. So.
Derek: $16 million, we would expect.
Derek: To support our reverse from.
Derek: From.
Derek: Q2.
Derek: Into Q3.
Derek: And then the underlying business did quite well.
Derek: About $6 million better than what we had previously.
Derek: Previously internally expected largely largely due to.
Derek: The U S.
Derek: In relation to the to the full year, we're raising our midpoint of the guidance range on the top line by about $8 5 million.
Derek: Mid point of $6 million.
Derek: Occurred in the U S in the second quarter, but obviously, we are affecting us some additional favorability.
Derek: The back half of the year information to prior guidance.
Jacob P. Elguicze: We did very well in the quarter. I'm not necessarily going to refer to consensus expectations, but I think we beat our own internal expectations by about $22 million in the quarter, and we did refer to about $16 million of that being attributed to timing. So, a very strong quarter, I think, for us, particularly when you think about all the work that had to occur related to the ERP implementation.
Derek: Very strong quarter I think for up for US, particularly when you think about all the work that had to occur related to the to the ERP implementations.
Speaker Change: Thank you yes.
Devdatt Kurdikar: Thank you. Yes, I had that transposed. I appreciate the correction there. And then, second question: can you provide an update on your plans for entering the GLP-1 market with pen needles? I know recently it looks like Lily got approval for QuickPen. I'm not sure if there's anything more you can say about that. Just again, on your outlook for entering the GLP-1 market. Thank you. Yeah, Caroline. Hi, this is Dev. I'll take that,
Speaker Change: That transcends depreciate that correction there and then second question can you provide an update on your plans for entering the <unk> market with pen needles I know recently it looks like we got an approval for a quick Pat I'm not sure. If there's anything more you can say there just again on your outlook for entering the <unk> market. Thank you.
Speaker Change: Yes, Caroline Hi, this is Dave I'll take that yeah. As you correctly pointed out we did get approval for the quick Bend quick one as you know is the same.
Devdatt Kurdikar: Yeah, Caroline. Hi, this is Dev.
Devdatt Kurdikar: I'll take that. Yeah, as you correctly pointed out, Lilly did get approval for the QuickPen. QuickPen, as you know, is the same pen that's used for insulin delivery. And, you know, pens used for insulin delivery typically use our pen needles in most markets around the world. We do have a leading share.
Dave: And that's used for insulin delivery in Ben's used for insulin delivery.
Dave: Can you use a pen needles in most markets around the world.
Dave: Do have leading share.
Our expectation is as DLP presentation forms continue to evolve and more and more of them become available in <unk>.
Devdatt Kurdikar: You know, our expectation is that as GLP presentation forms continue to evolve and more and more of them become available in pens, certainly our pen needles can be used with them. We continue to have discussions with
Caroline: Certainly our pen needles can be used with it and we continue to have discussions with.
Devdatt Kurdikar: You know, other potential entrants into the GLP-1 space, including generic now, admittedly, they're years away. But our hypothesis is that as more GLP-1 players enter the market, it's likely that many of them will present their version of GLP-1 in a multidose pen form, and our pen needles will be applicable to it. Now, certainly as these manufacturers work to expand capacity, in some cases, they're also using vials, and with regulatory approval, our syringes can be used as well. So as more and more GLPs enter the market, more pens will become available, and certainly our pen needles can be used with those pens.
Caroline: Other potential entrants into the <unk> space, including genetic now.
Caroline: Literally there are years away.
Caroline: But.
Caroline: I'll add a hypothesis is as more GOP one players enter the market. It is likely that many of them will present their version of the GOP one in a multi dose spend form and El pen needles and be applicable for now thirdly as.
Caroline: As these manufacturers look to expand capacity in some cases. They are also using vials and with regulatory approval are sitting just can be used as well so as more and more GOP has entered the market.
Caroline: <unk>, who will become available and certainly a <unk> can be used with those pence.
Speaker Change: Thank you.
Speaker Change: Thank you.
Operator: Our next question comes from the line of Marie Thibault with VTIG. Your line is now open.
Speaker Change: Our next question comes from the line of Maria <unk> with <unk>.
Maria: Your line is now open.
Marie Yoko Thibault: Hi, good morning. Thanks for taking the questions and congrats on a very nice quarter here. I'll leave the guidance questions to others, but I did want to ask a little bit more about accounts receivables. I know Embecta is now responsible for collecting some of those receivables. The plan was to work some of this down in fiscal 24, but I know the ERP transition is still happening. I just wanted to try to understand why that receivables number ticked up a little bit and how we can expect that to look for the rest of the fiscal year.
Maria: Hi, good morning, Thanks for taking the questions and congrats on a very nice.
Maria: Quarter here.
Maria: Elisa guidance questions to others, but I did want to ask a little bit more about accounts receivables I know.
Maria: With <unk> now responsible for collecting some of those receivables. The plan was to work some of this down.
Maria: In fiscal 'twenty four.
Maria: No. The ERP transition is still happening just wanted to try to understand why that receivables number ticked up a little bit and how we can expect that to look for the rest of the fiscal year.
Jacob P. Elguicze: Yeah. So, Marie, the change in the receivable balance from, let's call it fiscal year-end, you know, 9-30-2023 to where we are now entirely has to do with the fact that we went live with our ERP implementations and the factoring agreements that we had previously in place with BD, where they would essentially factor those receivables on our behalf, have gone away, and now we're responsible. All those receivables now appear on our balance sheet, and at this point, you know, all of the factoring agreements have now ceased.
Maria: Yes.
Maria: Murray.
The change in the receivable balance from from let's call it fiscal year end.
Maria: <unk> hundred 32023, so where we are now entirely has to do with the fact that we went live with our ERP implementation.
Maria: Implementations and the factoring agreements that we had previously in place with BD, where they would essentially factor those receivables on our behalf.
Maria: Went away and now we're responsible all those receivables now appear on our balance sheet and at this point.
Maria: All of the factoring agreements have now seized so the receivables that you see on our balance sheet are 100% representative of what the AOR balances for and backed up.
Jacob P. Elguicze: So, the receivables that you see on our balance sheet are 100% representative of what the AR balance is for Embecta, you know, looks like. There's no additional receivables that we would need to put on our balance sheet coming onto our balance sheet as a result of those ERP implementations.
Maria: Look like there is no additional receivables that that we would need to put on onto our balance sheet.
Maria: From the last quarter.
Maria: From Q1, our fiscal Q1 to where we are right now we did see an increase in the AUR again entirely due to now or our EMEA and Asia receivables.
Maria: Coming onto our balance sheet as a result of the.
Maria: As a result of those ERP implementations.
Jacob P. Elguicze: I think the way that you should think about this moving forward, maybe just from a total cash standpoint, I think we said in our prepared remarks that we would expect our overall ending cash balance for fiscal 2024 to be very close to where it is right now, from a Q2 standpoint, so somewhere in or around that $300 million-ish mark. That's down about $20 million from where we were at year-end. Again, that entirely has to do with cash used for separation and stand-up activities.
Maria: And I think the way the way that you should sort of think about this moving forward maybe just from like a total cash standpoint, I think we said in our prepared remarks that we would expect.
Maria: Our overall ending cash balance for.
Maria: For fiscal 2024 to be very close to where it is right now from a from a Q2 standpoint, so somewhere around that kind of $300 million ish Mark.
Maria: It's down about $20 million from where we were at year end and again that entirely has to do with cash used for separation and standup activities. We estimate that we're going to that we're going to use somewhere between $180 and $190 million of cash this year related to separation.
Jacob P. Elguicze: We estimate that we're going to use somewhere between 180 and 190 million dollars of cash this year related to separation. That comes on top of using about 145 million dollars in the prior year. I think that's really one of the things that is distorting, if you will, the real free cash flow capabilities of the company. I think as we move into fiscal 2025 and beyond, now that we're almost past all of the separation work, you're really going to see the true free cash flow potential of this organization.
Maria: <unk> on top of using about $145 million.
Maria: The prior year, and I think Thats really one of the things that is sort of distorting. If you will the real free cash flow capabilities of the company and I think as we move into fiscal 2025 and beyond now that we're almost past all of the.
Maria: The separation work Youre really going to see the true free cash flow potential of this of this organization.
Devdatt Kurdikar: Okay, Jake, that's helpful. And then I wanted to ask you a question a little bit about some of the market dynamics, the competitive dynamics. I think near the end of your fiscal second quarter, we saw a competitor sell-off and transfer its pen needle and blood glucose meter business to another company. Wanted to hear if you've seen any disruption here now in the current quarter and any thoughts on, you know, your ability to maybe take some market share or, you know, make some efforts in those regions where that competitor was very active. Thanks for taking the question. Yeah. Hi Maria. Good morning.
Speaker Change: Okay. That's helpful. And then wanted to ask a question a little bit about some of the market dynamics competitive dynamics I think near the end of your fiscal second quarter, we saw.
Speaker Change: Petitor selloff and transfer pen needle and blood glucose meter business to another company wanted to hear if you've seen any disruption here now in the existing current quarter.
Speaker Change: And any thoughts on ability to maybe take some market share or.
Speaker Change: Make some efforts in those regions, where that competitor with very active thanks for taking the questions.
Speaker Change: Yes, hi, good morning.
Devdatt Kurdikar: Yeah, Murray, good morning. So, from our perspective, we haven't seen any disruption really with respect to the transaction you were referring to. And certainly, with respect to our sales force's focus on ensuring that we present our products with as much vigor as possible and certainly continue to gain share. I mean, that will continue. You know, we find that we certainly think that our products that compete with this competitor's products are very well positioned. We have demonstrated that. Continuity of Supply, notably through the ERP transitions that we've referred to. And so we'll continue to make efforts in that area, but I'll leave it at that.
Speaker Change: So we haven't seen any disruption really from our perspective with respect to the transaction you were referring to and certainly with respect to audit our sales force focus on ensuring that we present, our products with as much bigger as possible and.
Speaker Change: Certainly continue to gain share I mean that will continue.
Speaker Change: We find that we certainly think that our products that compete with this competitive products are very well positioned.
Speaker Change: We have demonstrated.
Speaker Change: Continue to have supply, notably even to the ERP transitions that we've referred to and so we'll continue to make efforts in that in that area.
Speaker Change: But.
Speaker Change: No.
Speaker Change: I'll leave it at that.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Calum touched Marsh with Morgan Stanley. Your line is now open.
Operator: Our next question comes from the line of Kallum Titchmarsh with Morgan Stanley. Your line is now open.
Kallum L Titchmarsh: Hey, good morning guys, thanks for taking the question. On the Patch Pump program, I know we're still in the early stages here, but now you've had some more time to consider the implications. I'm wondering when you expect the costs to begin ramping to support the commercial infrastructure behind the project. It seems just eyeballing consensus that there will be about flattish OPEX across the next few years, so just curious about how we should be thinking about midterm changes here. And then I have one follow-up question. Thanks.
Kallum L Titchmarsh: Hey, good morning, guys. Thanks for taking the question on the patch pump program I know, we're still in the early stages.
Kallum L Titchmarsh: But now you've had some more time to consider the implications I'm wondering when you expect the costs to begin ramping to support the commercial infrastructure behind the project it.
Speaker Change: It seems just eyeballing consensus that there's about flattish opex across the next few years. So just curious on how we should be thinking about mid term changes there and then I have one follow up thanks.
Speaker Change: Yes, Hi, Kevin.
Devdatt Kurdikar: Yeah, hi Kallum. So, look, our focus right now is just undergoing, you know, completing the FDA review. We submitted our 510K in late calendar 2023, as you know, and so I certainly don't want to comment on either the outcome or the timing of when we would expect a decision from the FDA. And, candidly, our focus right now is just completing that review and completing the remaining separation work and closing out FY 2024.
Speaker Change: Look our focus right now is just undergoing.
Speaker Change: Bleeding the FDA review, we submitted our five 10-K in late calendar <unk> as you know and so I certainly don't want to comment on either the outcome or the timing.
Speaker Change: Also when we would expect a decision from the FDA and candidly our focus right. Now is just completing that review and completing.
Speaker Change: The remaining separation work in closing FY 2024.
Devdatt Kurdikar: So, I'll refrain from talking about 25, you know, 25 expenses and beyond, but certainly, we are considering that as we get closer and we get, you know, more and more definitive decisions from the FDA, we are thinking about, you know, a potential investor day event or call to better provide our thoughts on FY 25 and beyond, particularly as it relates to the patch pump.
Speaker Change: So I'll refrain from talking about 25.
Speaker Change: 25 expenses and beyond but certainly we are considering that as we get closer and we get more and more definitive.
Speaker Change: A decision from the FDA.
Speaker Change: Thinking about.
Speaker Change: Potential investor day event or a call to better provide thoughts on FY, 'twenty, five and beyond particularly as it respects.
Speaker Change: Relates to the patch pump.
Devdatt Kurdikar: That's fair enough, thanks. And then, I know we've got to keep our eyes on leverage, but any change in your appetite for M&A?
Speaker Change: That's fair enough. Thanks, and then I know, we've got to keep our eyes on leverage but any change in your appetite for M&A.
Devdatt Kurdikar: You know, I think leverage is front and center in our minds here. Jake referred to the fact that, you know, we certainly expect our free cash to improve in 2025 and beyond. And, you know, we are going to be thinking, you know, pretty strongly about debt and debt paydown as well. So, again, this is something that we will update the investment community on once we've closed out 2024 and finished up the rest of the separation projects.
Speaker Change: I think leverage is front and center of our mind sure Jack referred to the fact that we certainly expect our free cash to improve in 'twenty five and beyond and.
Speaker Change: We are we are going to be thinking.
Speaker Change: Pretty strongly about debt and debt paydown as well. So again this is something that we will update the investment community on once we've closed out 2024 and finished off the rest of the separation projects, we certainly expect to.
Devdatt Kurdikar: We certainly expect ARs to have normalized, and we'll just have a better sense of the free cash that will be available to the company. And, you know, talk about our capital allocation priorities going forward from there.
Speaker Change: We have normalized and we'll just have a better sense of.
Speaker Change: The free cash that'll be available to the company and talk about our capital allocation priorities going forward from there.
Jacob P. Elguicze: And, and Callum, I think on prior calls, you know, we sort of referred to wanting to keep a larger cash balance on hand as we went through some of these ERP implementations, you know, in case, you know, something went wrong. You know, Thankfully, you know, everything has gone very, very well. I think the team has done, you know, a tremendous job as far as all that is concerned.
Jacob P. Elguicze: And Kallum, I think on.
Speaker Change: I think on prior calls, we sort of referred to wanting to keep a larger cash balance on hand.
Speaker Change: We went through some of these ERP implementations.
Speaker Change: In case something went wrong.
Speaker Change: Thankfully everything has gone very very well I think the team has done a tremendous job as far as all of that is concerned.
Speaker Change: And I think that as we as we go into the second half of the year and certainly into 2025, that's just going to provide us with a lot more flexibility in order to.
Jacob P. Elguicze: And I think that as we go into the second half, the second half of the year, and certainly into 2025, that's just going to provide us with a lot more flexibility in order to, you know, potentially pay down more material amounts of debt in addition to what we have been doing so far, which is really just paying off the 1% amortization each year for the term loan base.
Speaker Change: To potentially pay down.
Speaker Change: More material amounts of debt. In addition to what we have been doing so far which is really just paying off.
Speaker Change: The 1% amortization each year for the for the term loan B.
Speaker Change: Great. Thanks, guys.
Speaker Change: Thank you.
Operator: Thank you. As a reminder, to ask a question at this time, please press star 11 on your touchtone telephone. Our next question comes from the line of Ryan Schiller with Wolf Research LLC. Your line is now open.
Speaker Change: Minor to ask a question at this time, please press star one one touchstone telephone.
Speaker Change: Our next question comes from the line of Ryan <unk> with Wolfe Research LLC. Your line is now open.
Speaker Change: Hey, Good morning. This is Ryan <unk> on for Mike Park. Thank you for taking the question.
Ryan Schiller: Hey, good morning. This is Ryan Schiller. I'm Mike Polark. Thank you for taking the questions. I wanted to follow up on the Pash Pump. It seems to be a product that, if all goes according to plan, could really drive revenue growth. So, what changes need to be made to the Tide Pool Type 1 algorithm to fit it to Type 2, and can you give us your latest expectation on timing to get this to the FDA?
Ryan: Wanted to follow up on the patch pump seems to be a product that if all goes according to plan could really drive revenue growth.
Ryan: So what changes need to be made to the type of pipeline, although to fit it to type two and can you give us your latest expectation on timing to get this to the FDA.
Ryan: Yes.
Devdatt Kurdikar: Yeah, so look, from a technical aspect, you know that that type of algorithm Ryan that you referred to was obviously approved for type one. You know, we are evaluating how it needs to be adapted for type 2. The way we are proceeding with this is, you know; our open loop, as you know, is under review with the FDA. We are concurrently working with Tidepool on adapting their algorithm for type 2, and our anticipation is, You know, when we are ready, and again, this is something we can talk about after we get clearance, assuming we get clearance from FDA for open loop, we'll certainly talk a little more about the clinical trial that will be required here and the timing of the clinical trial, because, you know, from our perspective, that's a very critical element of So more on timing post-FY24 and once we have clarity on FDA's decision on the open loop.
Ryan: From a technical aspects.
Ryan: That type of algorithm, Brian that you referred to obviously was approved for that.
Ryan: Fluid for pipeline.
Ryan: We are evaluating how it needs to be adapted for type two.
Ryan Schiller: That's helpful. Thank you.
Ryan: Way, we are proceeding with this as an open loop as you know is under review with the FDA. We are concurrently working with tight pool on adapting their algorithm for type two and our anticipation is.
Ryan: When we are ready and again this is something we can talk about after we get clearance, assuming we get clearance for FDA from FDA for open loop.
Speaker Change: Certainly talk a little more about the clinical trial that will be required here and the timing of the clinical trial.
Speaker Change: From our perspective, that's a very critical element of having the dipole algorithm adapted for type two and really tested.
Speaker Change: Inpatient use and taking all of the data and then submitting that to the FDA for the <unk>.
Speaker Change: Eventual clearance of a type two closed loop pump so more on timing post after we finish FY 'twenty four and once we have clarity on the Fda's decision on the open loop.
Speaker Change: Okay.
Speaker Change: That's helpful. Thank you.
Ryan Schiller: And then one follow-up question. A lot of the major insulin companies have been looking to get approval and to launch weekly basal insulin. How are you guys thinking about this, and what gives you the confidence that Embecta will be able to continue to grow and start to scale up in major geographies? Yeah, right. So certainly we can.
Speaker Change: And then one follow up.
Speaker Change: One of the major endpoint companies have been looking.
Speaker Change: Looking to get approval and the launch weekly basal insulin.
Speaker Change: How are you guys thinking about this and what gives you the confidence that <unk> will be able to continue to grow and they start to scale up in major geographies.
Speaker Change: Yeah, Ryan So certainly weekly insulin is something we are watching very closely as well.
Devdatt Kurdikar: Yeah, Ryan, so certainly weekly insulin is something we are watching very closely as well. You know, I think one form of weekly insulin is something folks are expecting will get approved in Europe in the coming months. You know, from what we understand right now, and clearly it's not widely available in most geographies, but it'll be in pen form. It won't be packaged with a pen needle, or at least that's what indications seem to be. And as I mentioned before, if it's a pen, you know, quite possibly, our pen needles can be used with it.
Speaker Change: I think one foremost weekly insulin certainly folks that expecting will get approved in Europe in the coming months.
Speaker Change: From what we understand right now and clearly it's not widely available in most geographies, but it will be in <unk> and <unk>, because with the pen needle or at least that's what indications seem to be and as I've mentioned before if it's Ben.
Speaker Change: Quite possibly a pen needles can be used with it some.
Devdatt Kurdikar: You know, some of the factors that need to be considered when we think about the adoption of weekly insulin are obviously cost, right? Insulin, regular insulin costs have come down dramatically over the last few years. And so there's going to need to be a trade-off between cost and, you know, efficacy, if you will. Is there increased efficacy with weekly insulin versus daily insulin? Promotional focus will matter.
Speaker Change: Some of the factors that need to be considered when we think about the adoption of weekly insulin is obviously cost right insulin regular insulin costs have come down dramatically over the last few years.
Speaker Change: And so theres going to be needing to be a trade off across cost and.
Speaker Change: Efficacy. If you will is that increased efficacy with peaking insulin versus daily insulin.
Speaker Change: Most of the focus we matter.
Devdatt Kurdikar: You know, where the pharma and biopharma companies decide to spend their selling dollars. Will it be on GLP-1s or weekly insulin? A lot of the basal patients are seen by primary care physicians, who may be reluctant to prescribe weekly insulin because, obviously, dosing insulin is tricky. And so, you know, they may be potentially concerned with potentially higher hypoglycemia. I believe in type one, there is a greater potential for hypoglycemia in type two, but sort of the fear might remain.
Speaker Change: The pharma and Biopharma companies decide to spend their selling dollars will it be on GOP once weekly insulin.
Speaker Change: A lot of the basal patients are seen by primary care physicians.
Speaker Change: Who may be reluctant to.
Speaker Change: Prescribed weekly insulin.
Speaker Change: Obviously dosing of insulin is tricky.
Speaker Change: And so.
Speaker Change: Maybe potentially concerned with potentially hyper Hyatt hypoglycemia I believe in type one.
Speaker Change: There is the greater potential for hypoglycemia, and tight do but sort of the theaters Mike domain.
Devdatt Kurdikar: People that are using multiple daily injections of insulin, you know, they might, they might just want to stay because they take multiple daily injections every day anyway. So our thinking is that the extent that weekly insulin gets adopted, it might likely be with new basal patients rather than folks switching over. But look, I mean, these are all sort of hypotheses, right? We don't have enough data of real use in patients to be able to accurately or perhaps more precisely determine the impact of weekly insulin on us.
Speaker Change: People that are using multiple daily injections of insulin.
Speaker Change: Michael just wanted to stay because they take multiple daily injections every day anyway. So our thinking is that to the extent that weekly insulin gets adopted.
Speaker Change: It might likely be with new basal patients.
Speaker Change: Other than folks switching over.
Speaker Change: I mean these are all these are all sort of hypothesis right I mean.
Speaker Change: We don't have enough data of real use.
Speaker Change: Use in patients to be able to accurately.
Speaker Change: Perhaps more precisely determine the impact.
Speaker Change: Off weekly insulin on us and so it's going to take time to figure out all of it out but some of the factors that I laid out here.
Devdatt Kurdikar: And so it's going to take time to figure all of it out. But some of the factors that I laid out here, Ryan, are those that we are considering certainly, things to watch as weekly insulin gets introduced into the world.
Operator: Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Devd Kurdikar for closing remarks.
Speaker Change: Ryan are those that we are considering certainly.
Speaker Change: As things to watch as a weekly insulin gets introduced into the world.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: And I'm currently showing no further questions at this time I would like to hand, the call back over to Dev <unk> for closing remarks.
Dev: Thank you Shannon as we wrap up the call I want to extend my heartfelt appreciation to all of my colleagues at <unk> across the globe.
Devdatt Kurdikar: Thank you, Shannon. As we wrap up the call, I want to extend my heartfelt appreciation to all my colleagues at Embecta across the globe. In the last two years since our spin-off, our team has worked non-stop on executing our strategic priorities, including major separation-related programs, while never wavering from our mission of developing and providing solutions that make life better for people living with diabetes. Thank you all for attending the call and for your interest in our business.
Dev: In the last two years since our spin off our team has worked nonstop on executing our strategic priorities, including major separation related programs, while never wavering from our mission of developing and providing solutions that make life better for people living with diabetes.
Speaker Change: Thank you all for attending the call and for your interest in our business.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
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