Q1 2025 Embecta Corp Earnings Call
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Speaker Change: Please note that today's conference is being recorded and a replay will be available on the company's website. Following the call I would now like to hand, the call over to your speaker, Mr. Purvis, Cornwall, Vice President of Investor Relations. Please go ahead Sir.
Purvis Cornwall: Thank you operator, good morning, everyone and welcome to M. Victor.
Purvis Cornwall: Fourth quarter <unk> 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 Jeff.
Purvis Cornwall: <unk>, President and Chief Executive Officer, <unk>, <unk>, our Chief Financial Officer.
Purvis Cornwall: 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.
Purvis Cornwall: 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.
Purvis Cornwall: 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.
Purvis Cornwall: 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 <unk>.
Purvis Cornwall: A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation.
Purvis Cornwall: Our agenda for todays call is as follows.
Purvis Cornwall: I will begin by providing some remarks on the overall performance of our business during the fiscal fourth quarter of 2025 as well as an overview of our strategic priority.
Good day and thank you for standing by. Welcome, ladies and gentlemen to the Inbeta fiscal 1st quarter 2025 earnings conference call.
Speaker Change: <unk> will then review our financial results for the fiscal first quarter of bringing 25 as well as discuss the updated financial guidance for fiscal year 2025.
At this time all participants are in a listen only mode after the speaker's presentation, there will be a question and answer session to ask a question during this session, you'll need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised to withdraw your question, please press star11 again.
Jeff: Following these updates we will open the call for questions with that said I would now like to turn the call over to our CEO Jeff <unk>.
Jeff: Good morning, and thank you for taking the time to join us.
Speaker Change: Having successfully delivered on our previous three year outlook we.
Please note that today's conference is being recorded and a replay will be available on the company's website following the call.
Jeff: We have now pivoted to the next phase of <unk> transformation.
As we move forward, we are focused on three key priorities that will drive our growth and success.
I would not like to hand the call over to your speaker, Mr. Purvishondawal, vice president of Investor Relations. Please go ahead, sir.
Jeff: First strengthening our core business.
Jeff: We are targeting to execute the seamless brand transitioned to ensure our identity resonance globally, while maintaining the trust of our customers.
Thank you operator.
Good morning everyone and welcome to Beta's fiscal 1st quarter 2025 earnings conference call.
Jeff: At the same time, we are continuing to identify opportunities within our core portfolio that bolster our leadership position in insulin injection devices.
The press release and slides to a company today's call and webcast replay details are available on the investor relations section of the company's website at www.mbeta.com with me today, our deer and Beta's president and chief executive officer and Jake Egui, a chief financial officer.
Jeff: Second expanding our product portfolio.
Jeff: We believe we are well positioned to introduce market appropriate products that leverage our expertise in high volume manufacturing and the strength of our global commercial channel.
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.
Jeff: Such initiatives potentially include utilizing our capabilities to manufacture products for partners that already have a commercial channels as well as use our global commercial presence to sell products manufactured by others.
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: And finally, increasing our financial flexibility.
Jeff: This began with our decision this past November to discontinue our insulin patch pump program.
The factors that could cause actual results of 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.
Jeff: Each year, the restructuring plan intended to generate significant cost savings.
Jeff: And prioritize debt reduction, including the plan to pay down approximately $110 million in debt during 2025.
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 GA.
Jeff: Importantly, given the free cash flow generation capabilities of the company.
Jeff: Coupled with the fact that cash use towards separation activities is largely behind us we expect to be able to materially reduce our outstanding debt. During the next few years.
A 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.
Jeff: Thereby enhancing our financial agility.
That will begin by providing some remarks on the overall performance of business during the fiscal first quarter of 2025.
Jeff: The successful execution of these priorities will position us for sustainable success, as we continue to evolve and transform the vector for the future.
As well as an overview of our strategic priorities.
Jake will then review our financial results for the fiscal 1st quarter of 2025, as well as discuss the updated financial guidance of fiscal year 2025.
Jeff: Turning to some fiscal first quarter highlights.
Jeff: The first quarter marked a solid start to the fiscal year from better slightly exceeding our internal expectations.
Following these updates, we will open the call for questions.
Jeff: We generated approximately $262 million in revenue.
With that said
I would now like to turn the call over to our CEO Jeff Kodeer.
Jeff: Representing a five 6% declining year over year on a reported basis and a four 8% decline on an adjusted constant currency basis.
Good morning and thank you for taking the time to join us.
Having successfully delivered on the previous 3 year outlook.
We have now reverted to the next phase of invecta's transformation.
Jeff: As we have mentioned before quarterly year over year growth rate comparisons will be impacted by the phased ERP implementations that occurred during fiscal 2024 and the associated changes in distributor inventory in advance of these implementations.
As we move forward, we are focused on 3 key priorities that will drive our growth and success.
First, strengthening our core business.
We are targeting to execute the seamless brand transition to ensure our, our identity resonates globally while maintaining the trust of our customers.
Jeff: Turning to our brand transition program I am pleased to report that this important initiative remains on track with a focus on executing a seamless transition that strengthens our identity ensuring.
At the same time, we are continuing to identify our opportunities within our core portfolio.
Jeff: Ensuring it remains clear consistent and resonates across our global markets.
Jeff: We're also making progress in securing external distribution agreements and partnerships as part of our strategy. We are advancing our efforts to pull package of pen needles with potential generic <unk> drugs and in retail packaging, enabling us to expand the use of our products into a fast growing market by leveraging our world.
Jeff: Plus distribution network and commercial expertise.
Jeff: Execution of our restructuring plan announced in November 2024.
Jeff: Weighted to the discontinuation of the insulin patch pump program remains on track with completion expected by the end of the first half of fiscal year 2025.
As well as use our global commercial presence to sell products, manufactured.
Jeff: In line with our commitment to enhancing financial flexibility, we continue to reduce our debt, making an aggregate principal payment of approximately $32 million.
bothers.
And finally, increasing our financial flexibility.
Jeff: On our term loan b facility during the quarter.
Jeff: Finally, based on our first quarter performance and outlook for the remainder of the year, we are updating our fiscal 2025 financial guidance.
This began with our decision this past November to discontinue our insulin patch pump program.
Initiate a restructuring plan intended to generate significant cost savings.
Jeff: This updated guidance reflects recent foreign exchange rates, which are unfavorable as compared to the foreign exchange rates used when we set our initial guidance ranges.
And prioritize debt reduction.
Including the plan to pay down approximately $110 million in debt during 2025.
Jeff: Importantly, our constant currency revenue guidance remains unchanged.
Importantly
Jeff: Additionally, we raised our adjusted operating and EBITDA margin guidance ranges, while maintaining our previously provided adjusted earnings per share guidance range, despite having to absorb an incremental <unk> <unk> headwind from the aforementioned foreign exchange pressure.
Given the free cash flow generation capabilities of the company.
Coupled with the fact that cash used towards separation activities is largely behind us.
We expect to be able to materially reduce their outstanding debt during the next few years.
Thereby enhancing our financial agility.
Jeff: Turning to slide six I'd like to provide an update on our upcoming brand transition plan and walk through the key elements of its execution.
The successful execution of these priorities will position us for sustainable success as we continue to evolve and transform and back up for the future.
Jeff: We have been planning this transition since spin.
Turning to some fiscal 1st quarter highlight.
Jeff: And we intend to execute the program in phases, starting in the second half of fiscal year 2025, beginning with the U S and Canada.
The 1st quarter marked a solid start to the fiscal year for Mbekta.
Slightly exceeding our internal expectations.
Jeff: We expect we will be globally complete in the next couple of years.
We generated approximately $262 million in revenue.
Jeff: On the slide you will see as an example, the transition from our old BD nano packaging design to our new <unk> branded packaging.
Representing a 5.6% decline year over year on the reported basis.
And a 4.8% decline on adjusted constant currency basis.
As we have mentioned before,
You will note that the product names and color associated with the packaging is not changing this is a conscious choice based on research we have conducted.
Quarterly year over year growth rate comparisons will be impacted by the phased ERP implementation that occurred during fiscal 2024.
Jeff: At the same time, we are providing a modern and refreshed look through the product packaging, while maintaining visual cues that will enable our customers and people with diabetes to identify products.
And the associated changes in distributed inventory in advance of these implementations.
Turning to our brand transition program. I'm pleased to report that this important initiative remains on track.
Jeff: We are focused on ensuring operational readiness throughout the supply chain, including inventory management customer communications and regulatory compliance.
With a focus on executing a seamless transition that strengthens our identity.
Ensuring it remains clear, consistent, and resonates across our global markets.
Jeff: This thoughtful phased approach is intended to ensure a seamless transition while maintaining the trust of healthcare providers and people with diabetes, who rely on our products daily.
We are also making progress in securing external distribution agreements and partnerships.
Jeff: Now, let's review our revenue performance for the first quarter.
Jeff: During the first quarter of fiscal year, 2025, <unk> generated 261 $9 million in revenue, reflecting a five 6% decline year over year on an as reported basis or four 8% decline on an adjusted constant currency basis.
As part of our strategy, we are advancing our efforts to pull package our pen needles with potential generic GLP-1 drugs and in the retail packaging, enabling us to expand the use of our products into a fast growing market by leveraging our world-class distribution network and commercial expertise.
Execution of a restructuring plan announced in November 2024.
Jeff: The year over year decline was expected and was primarily driven by an unfavorable comparison as the prior year period benefited from the timing of certain orders in advance of our ERP system implementation in North America.
Related to the discontinuation of the insulin patch pump program remains on track with completion expected by the end of the first half of fiscal year 2025.
Jeff: And as mentioned in our prior call. The additional revenue generated in our fiscal 2020 for fourth quarter as distributors versus product to mitigate potential disruptions from the den looming U S port strike.
In line with our commitment to enhancing financial flexibility, we continue to reduce our debt, making an aggregate principal payment of approximately $32 million on our term loan facility during the quarter.
Jeff: In regard to our prior expectations. Our Q1 revenue came in slightly ahead, primarily due to timing and we expect this to normalize during Q2.
Jeff: Within the U S revenue for the quarter totaled $141 $7 million, reflecting a year over year decline of four 6% on an adjusted constant currency basis.
Jeff: This decline was primarily driven by the same two factors mentioned previously.
Jeff: A challenging comparison to the prior year period due to order timing related to the ERP implementation in the U S, which benefited the year ago period, and additional distributor orders, which occurred during the fourth quarter of last year due to the den looming U S port strike.
Jeff: Turning to our international business, our Q1 revenue totaled $122 million, which equated to a five 1% decline on an adjusted constant currency basis as compared to the prior year period.
Jeff: The year over year decline within our international business was primarily due to distributor rebalancing as well as a difficult comparison due to inventory purchases in advance of the ERP implementation.
Jeff: While from a product family perspective during the quarter pen needles revenue declined approximately eight 5%.
Jeff: <unk> revenue declined approximately four 2%.
Jeff: Safety products grew approximately 11, 3% and contract manufacturing grew approximately 153%.
Jeff: The decline in pen needles revenue was primarily due to the additional revenue that occurred during the fourth quarter of 2024 associated with the potential U S port strike as well as revenue generated during 2024 as distributors procured incremental inventory in advance of the ERP implementations.
Jeff: Turning to our finished products, while the decline during the quarter four 2% due to volume declines within the U S. The rate of decline was lower than what we have experienced recently.
Jeff: While our safety products grew 11, 3% as compared to the prior year period due.
Jeff: Due to the annualized <unk> of share gains due to a competitor discontinuing their product and exiting the market.
Jake: That completes my prepared remarks, and with that let me turn the call over to Jake <unk>.
Speaker Change: We'll review the other financial highlights as well as provide our updated financial guidance for fiscal year 2025.
Jake: Jake.
Jake: Thank you Deb and good morning, everyone.
Jake: Given the discussion that has already occurred regarding revenue I will start my review of <unk> first quarter financial performance at the gross profit line.
Jake: GAAP gross profit and margin for the first quarter of fiscal 2025 totaled $157 1 million and 60% respectively.
Jake: This compared to $185 9 million and 67% in the prior year period.
Jake: While on an adjusted basis, our Q1 2025, adjusted gross profit and margin totaled $164 2 million and 62, 7%.
Jake: This compared to $186 3 million and 67, 2% in the prior year period.
Jake: The year over year decline in adjusted gross profit and margin was primarily driven by the lower year over year revenue that Dave mentioned earlier as well as from the impact of net changes in profit and inventory adjustments.
Jake: These headwinds were partially offset by lower freight costs and our ability to drive year over year price increases.
Jake: Turning to GAAP operating income and margin during the first quarter, they were $28 7 million and 11%.
Jake: This compared to $45 5 million and 16, 4% in the prior year period.
Jake: While on an adjusted basis, our Q1 2025, adjusted operating income and margin totaled $85 million and 37%.
Jake: This compared to $77 5 million and 27, 9% in the prior year period.
Jake: The year over year increase in adjusted operating income and margin is primarily due to lower R&D expenses associated with the discontinuation of our insulin patch pump program.
Jake: As well as lower SG&A expenses, primarily driven by lower TSA costs. In addition to lower compensation and marketing expense recognized in the current period.
Jake: This was offset by the adjusted gross profit changes I outlined above.
Jake: Turning to the bottom line GAAP net income and earnings per diluted share were both zero during the first quarter of fiscal 2025 as compared to $20 1 million and 35 in the prior year period.
Jake: While on an adjusted basis during the first quarter of fiscal 2025, net income and earnings per share were <unk> $38 3 million and 65.
Jake: As compared to $35 3 million and 61 in.
Jake: In the prior year period.
Jake: The increase 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.
Jake: As well as a reduction in our adjusted tax rate from approximately 26% in Q1 of 2024 to approximately 25% in Q1 of 2025.
Jake: The lower year over year adjusted tax rate was due to tax planning initiatives, partially offset by the impact of pillar II.
Jake: Lastly from a P&L perspective for the first quarter of 2025, our adjusted EBITDA and margin totaled approximately $97 3 million and 37, 2% as.
Jake: As compared to $94 million and 32, 6% in the prior year period.
Jake: Turning to the balance sheet and cash flow.
Jake: At the end of the first quarter, our cash balance totaled approximately $217 million, while our last 12 months net leverage as defined under our credit facility agreement.
Jake: To date, approximately three seven times.
Jake: As a reminder, our net leverage covenant requires us to stay below 475 times as.
Jake: As Deb mentioned earlier, we continue to be focused on more aggressively delevering.
Jake: During the quarter, we paid down $32 4 million of term loan b debt and we remain on track to achieve our goal of reducing our debt by $110 million during fiscal year 2025.
Jake: That completes my prepared remarks on our first quarter 2025 results.
Jake: Next I would like to discuss <unk> updated 2025 financial guidance and certain underlying assumptions.
Before we begin I want to acknowledge the evolving tariff landscape and provide some important context regarding our global operations.
Jake: First our updated financial guidance does not factor in any newly implemented or proposed tariffs. Following the recent administration change and as such remain consistent with those tariffs in place when we provided our initial fiscal year 2025 guidance in late November of 2024.
Jake: We manufacture our products across three facilities.
Jake: Leary Ireland.
Jake: Holdridge, Nebraska and Suzhou China.
Jake: We do not perform any manufacturing in either Canada or Mexico.
Jake: We should note that the tariff regulations include other elements beyond manufacturing location and require analysis of the specific rules to determine impact.
Jake: Regarding the U S. Most of the products that we sell in the United States are manufactured either in Ireland or domestically within the U S.
Jake: In fact less than 1% of our global revenue is derived from products, we manufacture in China and sell into the U S.
Jake: And those products are currently exempt from tariffs.
Jake: As it relates to China most of our revenue in China is from products manufactured at our plant in China.
Jake: Less than 1% of our global revenue is derived from products, we manufacture in the U S and sell into China.
Jake: And those products are currently exempt from tariffs turning to Canada, approximately 1% of our global revenue is derived from products, we manufacture in the U S and sell into Canada, and our products were not included.
Jake: In the recently published but the lead retaliatory tariffs, though this remains subject to change.
Jake: Finally, as it relates to Mexico, approximately 3% of our global revenue is derived from products, we manufacture in the United States and sell into Mexico.
Jake: We continue to closely monitor these developments and remain committed to mitigating any potential impact where possible to both our customers and people living with diabetes, who rely on our products.
Jake: Now, let me discuss our updated guidance.
Jake: Beginning with revenue.
Jake: On an adjusted constant currency basis, we are reaffirming our previously provided guidance range, which called for revenue to be down between 1% and two 5% as compared to 2024.
Jake: At the high end of our constant currency revenue range. We continue to assume that volumes remained relatively flat and that price will be a headwind of approximately 1%.
Jake: While at the low end, we continue to assume all of the same factors impacting our high end, except for the potential of greater year over year headwinds associated with volumes.
Jake: Turning to our thoughts on FX.
Jake: Since we provided our initial fiscal 2025 financial guidance in late November.
Jake: The U S. Dollar has continued to strengthen against most currencies and as a result, we currently expect FX to be a headwind of about two 2% versus the prior year.
Jake: This compares to our prior guidance, which called for FX to be a headwind of approximately 0.6%.
Jake: This assumption is based on foreign exchange rates that were in existence around the late January timeframe, including a euro to U S. Dollar exchange rate of approximately 1.03.
Jake: Somewhat offsetting FX is the fact that our as reported <unk>.
Jake: 25, GAAP revenue will not be impacted by the 2015 through 2023 amount that we needed to accrue associated with the Italian payback measure, which impacted our 2024 as reported GAAP revenue.
Jake: This equates to a tailwind of approximately 0.4%.
Jake: On a combined basis, our as reported revenue guidance now calls for a decline of between two 8% and four 3%.
Jake: Resulting in an updated revenue guidance range of between $1.075 billion.
Jake: And $1 billion $92 million.
Jake: Turning to adjusted gross margin, we are reaffirming our previously provided guidance range of between 63, 5% and 64, 25%.
While from an adjusted operating margin standpoint, we are raising our guidance from a range of between 29% and 30% to a new range of between 29, 5% and 35%.
Jake: This improvement is expected to be driven by our ongoing initiatives to improve operational efficiency and reduce our expense base.
Jake: Moving to earnings.
Jake: During Q1, we exceeded our internal expectations for adjusted earnings per share by approximately <unk> 20.
Jake: And this was due to two things that contributed almost equally.
Jake: <unk> revenue came in better than we initially anticipated, which we attribute to timing.
Jake: And as Deb mentioned earlier, we expect the over performance in Q1 revenue to reverse itself during Q2.
Jake: While the second driver of our adjusted EPS over performance during Q1 was due to lower SG&A expenses.
Jake: As such we expect our ongoing cost containment efforts to absorb the impact of the incremental foreign exchange headwinds, which negatively impacted us by approximately <unk> <unk>.
Jake: Thereby allowing us to reaffirm our previously provided adjusted diluted earnings per share guidance range of between $2 70.
Jake: And $2 90.
Jake: Our updated guidance range continues to assume that our annual net interest expense will be approximately $107 million.
Jake: That our annual adjusted tax rate will be approximately 25%.
Jake: And that our weighted average diluted shares outstanding will be approximately $58 9 million.
Jake: Our guidance continues to assume that we will use between 50 and $60 million of cash during fiscal 2025 associated with separation costs largely related to brand transition.
Jake: Between $25 million and $30 million in cash usage associated with the discontinuation of our insulin patch pump program.
Jake: And approximately $20 million and capital expenditures.
Jake: Lastly, and like our adjusted operating margin range. We are also raising our adjusted EBITDA margin guidance from a range of between 35, 5% and 36, 5%.
Jake: To a new range of between 36% and 37%.
Jake: And before I turn the call over to the operator I'd like to highlight some considerations regarding the cadence of quarterly revenue expectations during 2025.
Jake: Moving forward, we may not provide any further commentary concerning the quarterly cadence of revenue on an ongoing basis.
Jake: Consistent with our initial guidance our updated financial guidance continues to anticipate that we will generate a slightly lower percentage of our annual revenue during the first half of fiscal year 2025.
Jake: Approximately 48%.
Jake: As compared to the second half of the year, and which we expect to generate approximately 52% of our annual revenue.
Jake: Based on this outlook second quarter implied revenue would be in the range of between $250 million and $255 million.
Jake: That completes my prepared remarks and at this time I'd like to turn the call over to the operator for questions operator.
Jake: Operator.
Speaker Change: Thank you as a reminder to ask a question at this time. Please press star one on your telephone and wait for your name to be announced killer <unk>. Your question. Please press star one again, one moment, while we compile our Q&A roster.
Speaker Change: Our first question is going to come from the line of Cowen Titchmarsh with Morgan Stanley. Your line is open. Please go ahead.
Cowen Titchmarsh: Thanks, a lot guys for taking the question.
Festival: A couple from me Festival.
Festival: It would be great. If you could walk through each of the three key product categories and kind of just calibrate us for how you expect these to perform through the year any pricing dynamics that are a bit more noticeable in one category over the other I just I appreciate given some of the ERP.
Festival: Dynamics from last year, they kind of thrown off some of the year over year numbers. So just any clarity for how you expect that to play out and 25 would be appreciated.
Speaker Change: Good morning Callum.
Festival: I'll start off and then.
Festival: To augment to first of all as we think about the product category performance in Q1.
It was as expected.
Festival: Q1, if anything was maybe slightly better in general.
Festival: Theyre not expectations from a few months ago.
Festival: In total revenue and obviously pen needles comprise the majority of our revenue.
Festival: So that's sort of 0.1 and point to as you pointed out we do expect growth rates.
Festival: In the quarters this year to be somewhat lumpy given all the phased implementations that we carried out really most of the.
Festival: Last year.
Festival: Now talking specifically about Q1 before I talk about sort of future quarters.
Festival: Our Q1 performance, particularly I would say in pen needles, though it affected the other product categories as well was driven by two.
Festival: Two major factors number one and probably the most.
Festival: More sort of quantitatively important one.
Festival: Was the pull forward that we had in Q4 FY 'twenty four in the U S. In advance of the den looming port strike that I'm sure you'll remember.
Festival: As distributors procured additional inventory to avoid or mitigate potential disruptions in supply that's sort of the first factor.
Festival: The second factor was indeed, the ERP implementations and they're sort of fell into two time slots a few as one in Q1 of prior year and so that.
Festival: <unk> the growth rate year over year and some in the later part of 2024 as the inventory sort of bleed through in Q1 of this year.
Festival: And those were the two primary factors now if youll notice in the syringe category, we did actually a little bit better than what historically the declines have been.
Festival: And that's largely.
Festival: Most of the declines or volume declines in the U S and as that becomes a smaller factor.
The decline rates actually improve if you will.
Festival: That was probably the single largest factor safety products. In fact grew and that's because we were able to win some share in the market as a competitor discontinued their product and exited certain markets. So those are the three factors that impacted.
Festival: The product categories in Q1 of 25 now as we go forward.
Festival: We do expect this lumpiness to go through the year, primarily due to the same factors I've talked about regarding ERP implementations.
Please enter your dial and pin and press pound when finished.
in pen needles, so it affected
The other product categories as well.
Festival: If I just step back and look at it overall.
was driven by
Two major factors. Number one, and probably the most, uh, the, the, the most sort of quantitatively important one was
Festival: Sort of growth rates in each of our product categories.
Festival: <unk> seen slight increases in pen needles and decreases in syringes and some growth in our safety products as well.
The pull forward that we had in Q4 524 in the US.
Festival: That is nothing that we've seen in the market so far.
Festival: Would imply that there has been a change in those historical growth rates.
Festival: We don't give guidance by product categories through the year.
Festival: But I think it's fair to assume if you look at our overall revenue guidance for fiscal 2025.
Festival: You will see those rates reflected certainly in the pen needle category given that it comprises the majority of our revenue.
Speaker Change: Jake anything.
Speaker Change: Maybe I'll just quantify some of the items that <unk> talked about and maybe first off even before I do that I would say that that everything that occurred here was certainly in line with what our original expectations were in fact I think in Q1.
Speaker Change: We probably did about somewhere between $7 million to $8 million better in terms of revenue than we had originally anticipated largely due to largely due to the timing item that Dave referred to.
Speaker Change: And that really had to do with the fact that we were putting in place a price increase that was going to go into effect on on one one of 2025 and.
Speaker Change: And we saw some revenue sort of get pulled forward into our fiscal first quarter as a result.
Speaker Change: But during the during the first quarter, particularly impacting I think the pen needle category, we talked about distributors, placing orders in the fourth quarter of 2024 because of the port strike that probably impacted our business by about $10 million and then secondly, another <unk>.
Uh, we do expect this lumpiness to go through the year.
primarily due to
the same
Speaker Change: Item that impacted us was the ERP implementation.
Speaker Change: In our North American business that occurred in the first quarter of 2024.
reserve about
ERP implement.
Speaker Change: And we estimate that that resulted in additional revenue in the prior year quarter by about $6 million. So largely those two factors to a lesser extent, we saw some distributors in China.
Um, you know, if I just step back and look at overall, uh, sort of growth rates in each of for product categories.
You know, historically we've seen slight increases in pen needles and decreases in syringes and some growth in our safety products. Please enter your.
Lin Pin
Speaker Change: Rebalancing some inventory levels, and we estimate that probably impacted our business in the first quarter of 2025.
And when we finished in the market so far.
Speaker Change: By about $3 million. So those three items really drove the pen needle performance.
That would imply that there has been a change in those historical growth rates. So, you know, we don't give guidance by product category.
Speaker Change: But again.
Speaker Change: Certainly actually probably a little bit better than what we had originally anticipated coming into the year.
through the year
Speaker Change: Our implied guidance for the second quarter.
Speaker Change: Points to revenue somewhere between $250 million to $255 million and that would essentially indicate that our pen needle our performance in the second quarter would be very very similar to what we saw in the first quarter of this year. So similar performance as expected there and then as we go into <unk>.
Um, but I think it's fair to assume.
Speaker Change: The back half of the year, we would expect improvements in terms of the pen needle as well as the safety product category. So hopefully that provides you with a little bit more color regarding some of the drivers and then some of the reasons why I think the things sequentially, we're going to be a little bit better in the second half of the year as compared to the first.
Speaker Change: Yes.
Speaker Change: Yes, that's fantastic really appreciate the color of that and then just one more on the on the <unk> pen needle opportunity any sort of quantification you can give us around Germany and the progress there and then would love to hear a bit more progress on the outlook outside of Germany for the for the same program. Thank you.
Kevin: Yes, Hi, Kevin.
Kevin: Our progress in Germany setup.
avenue sort of get pulled forward into our fiscal first quarter as a result, you know, but, but during the, uh, during the first quarter, particularly impacting, I think the the pen needle category, you know, we talked about uh distributors placing orders in the 4th quarter of 2024 because of the port strike, that probably impacted our business by about $10 million and then secondly, uh, another item that impacted us was the, the ERP implementation, uh, you know.
Kevin: Continue spud our expectations, obviously, we.
Kevin: We will follow.
Kevin: <unk> been gets adopted in Germany, and what we are striving float over there is that.
Kevin: Making sure that our pen needles do get to use for the out of pocket prescriptions.
Kevin: That are going to be filled in Germany.
Kevin: It is going to take some time.
Kevin: We are not quantifying if you will the revenue from <unk> and frankly.
our North American business that occurred in the first quarter of 2024, uh, and we estimate that that resulted in additional revenue in the prior year quarter by about 6 million. So largely those two factors to a lesser extent, uh, we saw some distributors in uh China, uh, sort of rebalancing some inventory levels and we estimate that probably impacted our business in the first quarter of 2025, uh, by about $3 million so.
Kevin: As you can imagine as wound genre in quickbooks launches into the countries around the world.
Kevin: It is going to be hard for us to distinguish pen needles useful <unk> <unk> Lugano and quick bend, if theyre going to be reimbursed because they are going to follow the same procurement channels as the pen needles used for diabetes, it's only in markets.
Kevin: When.
those 3 items really drove the uh the pen needle, uh, performance, um, but again, uh, certainly actually probably a little bit better than what we had originally anticipated coming into the year, you know, as we, uh, are implied guidance for the for the second quarter, uh, points to revenue somewhere between 250 to 255 million and, and that would essentially indicate that our pen needle performance in the 2nd quarter would be very, very similar to what we saw in, in the first quarter.
Kevin: The <unk> ones that are going to be out of pocket.
Kevin: And patients might procure a three month prescriptions for <unk>.
Kevin: Where we can actually monitor the number of small banks that are blocked.
So the point I do want to make is that.
Kevin: While pen needles might be being used for <unk> that are administered by <unk> <unk>.
Kevin: Can certainly be cannot certainly distinguish between volume thats procured through our normal channels, but we can certainly identify the small packs now.
of, of this year. So, uh, similar performance is expected there and then as we go into the back half of the year, we would expect an improvements uh in terms of the uh the pen needle, uh, as well as the safety product category so hopefully that provides you with a little bit more more color regarding, you know, some of the drivers and then some of the uh the reasons why I think we think sequentially we're going to be a little bit better in the second half of the year as compared to the 1st, but.
Kevin: When it takes some time frankly, I think the bigger opportunity flawed the use of pen needles for.
Kevin: <unk> is going to be.
Kevin: In the discussions that we're having with genetic.
Kevin: <unk> entrants.
Kevin: We are certainly working towards.
Kevin: Being able to co package of pen needles with those generic <unk>, we do think over the long term that that is a bigger opportunity and those discussions with 10 plus potential <unk>.
Yeah, that's fantastic. I really appreciate the call that. Uh, and then just one more on the, on the GLP one, pen needle opportunity, any sort of quantifications you can give us around Germany in the progress there, and then would love to hear a bit more progress on the outlook outside of Germany for the the same program. Thank you.
Kevin: Generic entrants are going very very well.
Kevin: We certainly anticipate providing.
Kevin: More color around this.
Kevin: At our analyst day planned for May 2025.
Yeah, hi, Callum, um, you know, our progress in Germany sort of
Kevin: I would request we wait until then.
To get a little bit more sort of at least a range of what this could mean for us over the next few years.
Continues for our expectations. Obviously,
We will follow um how Manjaro and equipment gets adopted in Germany. And what we are striving for over there is that
Kevin: Thanks, guys.
Kevin: Thank you one moment as we move on to our next question.
Speaker Change: Our next question comes from the line of Maria <unk> with <unk>. Your line is open. Please go ahead.
Making sure that our pen needles do get used for the out of pocket prescriptions that, uh, that are going to be filled in Germany. Uh, it's gonna take some time, um, you know, we're not quantifying, if you will, the revenue from GLP1s, and, and frankly,
Kevin: Hey, good morning, everyone. This is Sam on for Marty Thanks for taking the questions.
Speaker Change: And congrats on a nice quarter.
Speaker Change: Maybe I can start on a capital allocation question.
Speaker Change: <unk> progressing clearly on the.
As you can imagine, as Munjaro and Quicken launches in other countries around the world.
Speaker Change: Debt paydown initiatives, but I guess I'm wondering if there is a certain leverage ratio where may be you become more comfortable looking at.
It is going to be hard for us to distinguish.
Speaker Change: Opportunistic M&A and.
More related to your comments about expanding the product portfolio I guess I'm wondering if that's more of a near term opportunity or perhaps medium to longer term.
Pen needles used for GLP ones.
Via Munjaro with pen.
If they are going to be reimbursed because they're going to follow our same procurement channels as the pen needles used for diabetes. It's only in markets.
Speaker Change: Yes. So so thanks for the thanks for the question Sam So I think from from our standpoint, I think over this year, certainly and I think into into next year, we're really focused on continuing to try and create.
Where
The GOP ones are going to be out of pocket.
Uh, and patients might procure a three-month prescription for the GLP1.
Where we can actually monitor the number of small packs that are bought.
Speaker Change: Some additional financial flexibility.
Speaker Change: Our net.
So the point I do want to make is that
Speaker Change: Leverage our last 12 months, our net leverage as of the end of this quarter is around three seven times.
While pen needles might be being used for GLP ones that are administered via pens.
We can't certainly we cannot certainly distinguish between volume that's procured to a normal channels.
Speaker Change: Now our covenant allows us to go up to 475 times now obviously, we wouldn't want to go anywhere close to that.
But we can certainly identify the small packs. Now that's going to take some time, frankly, I think the bigger opportunity for the use of pen needles for GLP1s is going to be uh in the discussions that we are having with generic.
Speaker Change: And I think by the end of this year, assuming that we pay down around $110 million in debt, which we are well on our way to doing.
Speaker Change: We should be around three times net levered mark by the end of fiscal 2025, and I think as we move then into 2026, it's probably more likely that we will continue to focus on more aggressively.
GLP1 entrance where
We are certainly working towards.
Being able to co-package a pen needles with those generic GLP ones. We do think over the long term that that is a bigger opportunity and those discussions with 10+ potential GLP1, uh, generic entrances are going very, very well.
Speaker Change: <unk> down our debt.
Speaker Change: And allowing us to create some additional balance sheet flexibility.
Speaker Change: So I think I think it's probably a little bit more likely that will trend lower than three and somewhere into the twos.
You know, we certainly anticipate providing um.
You know, more, more color around this, uh, at our analyst they plan for May 2025. So, uh, I, I'd I'd request, we, we wait until then, uh, to, to get a little bit more sort of at least the range of what this could mean for us over the next few years.
Speaker Change: In terms of net leverage as we get into 2026, so from an M&A standpoint, obviously M&A is very very opportunistic right.
Speaker Change: But I think for.
Speaker Change: Us.
Speaker Change: We only need an incremental $10 million to $15 million of revenue per year to drive our constant currency revenue growth rates up.
Thanks guys.
Thank you. One moment as we move on to our next question.
Speaker Change: By about 1%. So I don't think we need to necessarily do highly transformative M&A in order to to create value here for shareholders, but I think in the near term our focus really is more about continuing to.
Our next question comes from the line of Marie Tebot with BTIG. Your line is open, please go ahead.
Hey, good morning everyone. This is Sam from Marie. Thanks for taking the questions, uh, this morning and congrats on a nice quarter.
Um, maybe I can start on a capital allocation question, um, things progressing clearly on the uh that pay down initiatives, but I guess I'm wondering if there's a certain leverage ratio where maybe you know you become more comfortable looking at uh opportunistic M&A and, and, uh, you know, more related to your comments about expanding the product portfolio I guess wondering if that's more of a a near term opportunity or or perhaps medium to longer term.
Speaker Change: Finalize the separation programs, which will allow us to to to really keep that free cash flow and use it towards debt repayment.
Speaker Change: Really helpful. Jack.
Speaker Change: All the color that color there.
Speaker Change: Maybe I can just use my follow up here on on long term margin progressions, and maybe how we should be thinking about.
Yeah, um, so, uh, so thanks for the, uh, thanks for the question, uh, Sam. So I think, I think, you know, from, uh from our standpoint, I think over this year certainly and I think into into next year, you know, we're really focused on continuing to try and create, uh, you know, some additional financial flexibility, uh, you know, we are, our net uh leverage, um, our last 12 months, uh, net leverage as of the end of this quarter is around 3.7 times uh.
Speaker Change: Any initiatives that you guys have going on in terms of.
Speaker Change: Either maintaining or even expanding margins, perhaps beyond fiscal 'twenty five.
Speaker Change: Okay.
Speaker Change: Sam with respect to sort of long term margin progression I mean that certainly something that we'll be discussing in our may 2025 analyst and Investor day, So I'm going to reserve.
Speaker Change: Giving ranges for that at this time.
Speaker Change: But what I will say is that.
You know, now our covenant allows us to go up to 4.75 times now obviously we wouldn't want to go anywhere close to that, and I think by the end of this year, assuming that we pay down around 110 million in debt which we are well on our way to uh to doing, uh, you know, we should be around 3 times net levered mark by the end of fiscal 2025. And I think as we move then into 2026, it's probably more likely that
Speaker Change: Our priorities around expanding product portfolio.
Speaker Change: <unk> important to us and I think as I said in the script.
Speaker Change: That comprises.
Speaker Change: Two potential vectors, where we manufacture products.
Speaker Change: All companies that already have a commercial presence or frankly distribute products that can be manufactured by others.
Speaker Change: Both of those as you can imagine are very I'm going to have different margin profiles and so as we work through the opportunities here, we need to net that out against the margin progression that we expect to see in the base business, but those are the puts and takes that we just need to work through and we'll certainly.
We will continue to focus on more aggressively, you know, paying down our debt, uh, and allowing us to create some additional balance sheet, you know, flexibility, uh, so I think, I think it's probably a little bit more likely that we'll trend, you know, lower than 3 and somewhere into the 2s, uh, in terms of net leverage as as we get into 2026, so you know, from an M&A standpoint, obviously M&A is very, very opportunistic, right? Um, you know, but I, I think.
Speaker Change: Provide more information during the analyst day.
Speaker Change: Yes.
Speaker Change: Maybe just coming back to the quarter and I think our updated guidance.
Speaker Change: We had from a from an earnings standpoint.
you know, for, for us, uh, you know, we only need, you know, an incremental 10 to $15 million you know, of revenue per year to drive our constant currency revenue growth rates up, you know, by about 1%, so I don't think we need to necessarily do highly transformative uh M&A, uh, in order to uh to create value here uh for uh for shareholders, uh, but I think in the in the near term, uh, our focus really is more about continuing.
Speaker Change: We ended up and we alluded to this in our prepared remarks, I think we ended up performing better than our internal expectations by about by about 20.
Speaker Change: That was really due to sort of two things almost impacting it equally one.
Speaker Change: Revenue being actually a little bit better in Q1, which is going to reverse in Q2 and the associated drop through to earnings.
Speaker Change: But then two and importantly, I think our SG&A in the quarter really drove around 10 cents of of an improvement as compared to our original internal expectations.
to, uh, uh, you know, finalize the separation programs, uh, which will allow us to, to uh to really keep that free cash flow and and use it towards uh debt repayment.
Speaker Change: And we would expect that to.
Speaker Change: To stay for the entirety of the year and really allows us if you will to sort of absorb the incremental <unk> <unk> headwind that we saw.
Really helpful Jake. I appreciate all the color the color there, um, maybe I can just use my follow up here on on long term margin progressions and maybe how we should be thinking about um any initiatives that that you guys have going on, uh, in terms of, um, either maintaining or or even expanding margins perhaps beyond fiscal 25.
Speaker Change: Spec to see because of.
Speaker Change: FX rates work.
Speaker Change: <unk> working against us in relation to our to our original guidance. So.
Speaker Change: This year is really going to be but for the company, it's really going to be focused on.
Um
Sam, with respect to sort of long term margin progression. I mean that's certainly something that we'll be discussing in our May 2025 analyst and investor today so I'm gonna reserve uh giving ranges uh for that at this time.
Speaker Change: Finishing up in and completing.
Speaker Change: The discontinuation of the patch pump program, which the team has done an excellent job and we're well on track to having that complete by the first half of the year, It's also going to be driven and.
But what I will say is that
You know, our priorities around expanding product portfolio are are important to us and, and I think as I said in the script.
Speaker Change: And focused on continuing to to more aggressively delever.
Speaker Change: And then third it really is about trying to further optimize our cost base and take expenses out of the system. If you. If you recall when we when we spun from BD, obviously, a much larger organization.
That comprises of two potential vectors, right? Where we manufacture products, uh, for companies that already have a commercial presence or frankly,
Distribute products that can be manufactured by others.
Um, both of those, as you can imagine, are very, are gonna have different margin profiles. And so, as we work through the opportunities here, we need to net that out against the, the margin progression that we expect to see in our base business, but those are the puts and takes that we just need to work through and we'll certainly provide more information during the analyst day.
Speaker Change: And two a fair amount there was sort of a lift and shift in terms of of how they did things into in terms of how we did things and I think now really there is an opportunity as we go through 2025 and into the next few years to really just look at our cost base and try and find ways to continue to take cost.
Speaker Change: And that's what we're doing.
Speaker Change: Understood. Thanks for taking the questions and looking forward to the Investor day.
Yeah, and, and Sam maybe just coming back to uh the quarter and I.
Speaker Change: Thank you.
Speaker Change: And our next question.
Speaker Change: If you would like to ask a question. Please press star one on your telephone.
Speaker Change: Our next question comes from the line of Ryan Schiller with Wolfe Research. Your line is open. Please go ahead.
Speaker Change: Good morning, Thank you for taking the questions. This is Ryan on for Mike Park.
Speaker Change: You talked about expanding your product portfolio by leveraging your commercial channel to distribute products from others.
Speaker Change: Specific types of products that come to mind that could fit well into your model and when might to start Larry into your financial model.
Speaker Change: Yes, good morning, Ryan.
Speaker Change: The types of products that we would want.
Speaker Change: Does that fit in.
Nimbly cleanly through our commercial channel and given the breadth offline commercial channel across the world those.
Speaker Change: Those products might be different so I'm going to give you some examples.
Speaker Change: In in China.
Speaker Change: For example, we do call on hospitals.
Speaker Change: So we could add products to the portfolio that our sales team can actually be able to sell into hospitals in the U S. On the other side as you know we have a strong presence with retailers and strong payer relationships. So we might look for products that can fit through that.
Speaker Change: Channel and that retail pharmacy channel is present also in several countries in Europe.
Speaker Change: In.
Speaker Change: In Germany, and Japan, we call on endocrinologists, and therefore, we might look for products that that.
Speaker Change: Also by that channel, So I think it's going to differ.
Speaker Change: In every market, but I think the unifying theme is going to be some.
Speaker Change: Place with products that can really leverage.
Speaker Change: Since then.
Speaker Change: We certainly anticipate being able to speak more about that at our upcoming analyst day.
Speaker Change: We're working hard to add these products to our portfolio and I look forward to providing some examples of that type.
Speaker Change: Thank you and I'm showing no further questions at this time I would like to hand, the conference back over to Jeff Kirker for closing remarks.
Speaker Change: Yeah.
Speaker Change: As we close the call I just want to express my sincere gratitude to my colleagues at <unk> around the world.
Speaker Change: Our global team remains focused on executing the priorities that we've laid out and finally, we look forward to engaging with all of you at our upcoming conferences and at an Investor day in late May 2025.
Speaker Change: We will certainly share more about some of the topics that were discussed today in our vision put them vector.
Speaker Change: You for calling in and for your interest in our company.
Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect everyone have a great day.