Embecta Q2 2025 Earnings Call Transcript

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Provided by Quartr
May 9, 2025

There are 7 speakers on the call.

Operator

And long term success. Turning to some fiscal second quarter highlights. Second quarter revenue totaled $259,000,000 which exceeded our expectations of between $250,000,000 and $255,000,000 that we provided on our last earnings call. As compared to the midpoint of our prior guidance range, approximately half of the overachievement in the quarter was due to constant currency performance, while the other half was due to foreign exchange being less of a headwind than we previously anticipated. Turning to some additional highlights.

Operator

During the second quarter, we published the updated fitter forward expert recommendations in Mayo Clinic proceedings. This is an important milestone in our commitment to improving clinical outcomes as the recommendations support the best global practices for insulin injection technique, device optimization, and provider training. Additionally, during q two, MBECTRA conducted a company wide employee engagement survey through Great Place to Work, a global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market leading revenue, employee retention, and increase innovation. We had a tremendous response rate from our employees worldwide, and we are pleased to announce that we have received certification as a great place to work for 2025 in eight countries. This recognition is a testament to the effort our teams have put into building a strong, authentic, and inclusive culture.

Operator

I'm also pleased to announce that we are continuing to advance our efforts to co package our pen needles with potential generic GLP one drugs, as well as making our pen needles available in retail packaging appropriate for use with branded GLP one drugs delivered by pen injectors. We expect this will enable us to expand into a fast growing market while leveraging our world class distribution and commercial expertise. We have received several purchase orders from generic manufacturers to co package our pen needles, and we look forward to sharing more details about these partnerships and the market potential at our upcoming Analyst and Investor Day. We have completed the majority of the steps required to implement the discontinuation of our insulin patch pump program and the associated restructuring plan announced in November 2024. This progress has occurred within our previously expected timeline.

Operator

Additionally, our stand up activities are largely complete with only India yet to be transitioned to our ERP system and distribution network within the next few months. Therefore, we continue to be focused on reducing our cost structure. And during the second quarter, we initiated a separate restructuring plan aimed at streamlining our organization. We expect the plan to be substantially complete by the end of fiscal year twenty twenty five. As a result, we anticipate incurring total pretax charges of between 4,000,000 to 5,000,000 the majority of which are expected to be cash related.

Operator

This action is expected to drive meaningful efficiencies with estimated pretax cost savings of between 7 to $8,000,000 during the second half of fiscal twenty twenty five. Turning to the next slide. In line with our commitment to enhancing financial flexibility, we continue to reduce our debt, making an aggregate principal payment of approximately $27,000,000 on our term loan B facility during the quarter. While on a year to date basis, we have reduced debt by approximately $60,000,000 which puts us well on track to achieve our goal of reducing debt by approximately $110,000,000 during fiscal twenty twenty five. Finally, as we reflect on our second quarter results and look ahead to the remainder of the year, we are updating our fiscal twenty twenty five guidance.

Operator

While our teams delivered slightly better than expected financial performance during the first six months of the year, we are adjusting our full year 2025 constant currency revenue outlook to account for lower projected US volumes, associated with anticipated reductions in customer inventory levels tied to store closures at a specific US retail pharmacy customer. That said, our as reported revenue guidance remains largely intact, supported by favorable foreign exchange movements as compared to our previously provided guidance. In terms of gross margins, we have updated our guidance to reflect the lower constant currency revenue expectations as well as the estimated impact of currently implemented incremental tariffs, which are expected to be a headwind of approximately 25 basis points to our full year adjusted gross margin. However, even with these headwinds, we are raising our guidance ranges for adjusted operating and adjusted EBITDA margins for the year due to disciplined expense management and the initiation of the previously mentioned restructuring plan in the second quarter. We are also reaffirming our adjusted earnings per share outlook for fiscal year twenty twenty five.

Operator

Turning to the next slide, I would like to provide an update on our brand transition plan and walk through the key elements of its execution. This initiative has been in planning since our spin, and I'm pleased to report that the transition is now underway in The US and Canada. We are executing the program in phases as intended and are preparing to transition most of the remaining markets in the next fiscal year, in line with our original plan. We continue to expect the global transition to be completed within the next couple years. On the slide, you will see an example of the new Invecta branded packaging contrasted with the legacy BD nano second gen packaging.

Operator

Importantly, product names and color cues will remain unchanged, a deliberate decision informed by customer research. At the same time, we are introducing a modern refreshed look while maintaining the visual elements that health care providers and people with diabetes easily recognize our products. We remain focused on ensuring operational readiness along the supply chain, including inventory management, customer communication, and regulatory compliance. This thoughtful phased approach is designed to ensure a smooth transition while preserving the trust of those who rely on our products every day. Now let's review our revenue performance for the second quarter.

Operator

During the second quarter of fiscal year twenty twenty five, Embekta generated $259,000,000 in revenue, reflecting a 9.8% decline year over year on an as reported basis or a 7.7 decline on an adjusted constant currency basis. Within The U. S, revenue for the quarter totaled $135,200,000 reflecting a year over year decline of 8.4% on an adjusted constant currency basis. The year over year decline was expected and is primarily due to two factors, both of which relate to the timing of price increases that went into effect. First, in advance of a price increase that went into effect on April first of twenty twenty four, we saw certain customers purchase additional products that positively impacted our second quarter of twenty twenty four results.

Operator

Similarly, in advance of a price increase that went into effect on January first of twenty twenty five, we saw certain customers purchase additional products and that positively impacted our first quarter of twenty twenty five results and resulted in an offsetting reduction in the second quarter. As such, the combination of these two factors led to a difficult comparable for our US business. Turning to our international business, during q two, revenue totaled hundred and $23,800,000, which equated to a 7% and a $10,000,000 decline on an adjusted constant currency basis as compared to the prior year period. Like The US, this decline was expected and due to certain customers purchasing additional products in advance of ERP implementations in certain regions in the prior year period. While from a product revenue perspective, during the quarter, thin needle revenue declined approximately 12.1%, syringe revenue grew by approximately 1.7%, safety products grew approximately 4.2%, and contact manufacturing grew approximately 73%.

Operator

The decline in year over year pen needle revenue was primarily driven by the timing issues associated with price increases that went into effect within The US, coupled with the unfavorable prior year comparison stemming from ERP related inventory builds within our international markets. Turning to our syringe products, they grew in the quarter by 1.7%, driven by international markets, specifically Latin America and Asia. While our safety products grew 4.2% as compared to the prior year period due to the annualization of share gains resulting from a competitor discontinuing their product and exiting the market. That completes my prepared remarks. And with that, let me turn the call over to Jake to review other Q2 financial highlights as well as provide our updated financial guidance for fiscal year twenty twenty five.

Speaker 1

Jake? Thank you, Deb, and good morning, everyone. Given the discussion that has already occurred regarding revenue, I'll start my review of Invecta's second quarter financial performance at the gross profit line. GAAP gross profit and margin for the second quarter of fiscal twenty twenty five totaled 100 and 60 4 point 1 million and 63.4%, respectively. This compared to $185,400,000 and 64.6 percent in the prior year period.

Speaker 1

While on an adjusted basis, our Q2 twenty twenty five adjusted gross profit and margin totaled $165,000,000 and 63.7%. This compared to 185.8 and 64.7 percent in the prior year period. The year over year decline in adjusted gross profit and margin was primarily driven by the impact of net changes in profit and inventory adjustments, as well as the lower year over year revenue that Deb mentioned earlier. These headwinds were partially offset by manufacturing cost improvement programs, lower supply chain functional spend, lower freight costs, and our ability to drive year over year price increases. Turning to GAAP operating income and margin.

Speaker 1

During the second quarter, they were $62,900,000 and 24.3%. This compared to $39,200,000 and 13.6% in the prior year period. While on an adjusted basis, our Q2 twenty twenty five adjusted operating income and margin totaled $81,400,000 and 31.4%. This compared to 74,900,000.0 and twenty six point one percent in the prior year period. The year over year increase in adjusted operating income and margin is primarily due to lower R and D expenses associated with the discontinuation of our insulin patch pump program, as well as lower SG and A expenses, primarily driven by lower TSA costs, as well as lower compensation and marketing expenses.

Speaker 1

This was offset by the adjusted gross profit changes I just outlined. Turning to the bottom line. GAAP net income and earnings per diluted share were 23,500,000.0 and $0.40 during the second quarter of fiscal twenty twenty five, as compared to $28,900,000 and $0.50 in the prior year period. While on an adjusted basis, during the second quarter of fiscal twenty twenty five, net income and earnings per share were $40,700,000 and $0.70 as compared to $38,900,000 and $0.67 in the prior year period. 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 well as a reduction in interest expense.

Speaker 1

This was partially offset by an increase in our adjusted tax rate from approximately 18% in Q2 of twenty twenty four to approximately 25% in Q2 of twenty twenty five. Lastly, from a P and L perspective, for the second quarter of twenty twenty five, our adjusted EBITDA and margin totaled approximately $97,100,000 and 37.5% as compared to $90,800,000 and 31.6% in the prior year period. Turning to the balance sheet and cash flow. At the end of the second quarter, our cash balance totaled approximately $212,000,000 while our last twelve months net leverage, as defined under our credit facility agreement, stood at approximately 3.7 times. As a reminder, our net leverage covenant requires us to stay below 4.75 times.

Speaker 1

As Deb mentioned earlier, we continue to be focused on more aggressively delevering. And during the second quarter, we paid down $27,400,000 of Term Loan B debt. I'm pleased to say that we remain on track to achieve our goal of reducing our gross debt by $110,000,000 during fiscal twenty twenty five, as well as getting our net leverage levels to approach approximately 3x by year end. That completes my prepared remarks on our second quarter twenty twenty five results. Next, I would like to discuss Invecta's updated 2025 financial guidance and certain underlying assumptions.

Speaker 1

Before I begin, I want to acknowledge the evolving tariff landscape and provide some important context regarding our global operations. As a reminder, we manufacture our products across three key facilities: Dunleary, Ireland Holderidge, Nebraska and Suzhou, China. We do not perform any manufacturing in either Canada or Mexico. It's important to note that tariff regulations extend beyond manufacturing location and require detailed analysis of trade classifications and rules of origin to determine potential exposure. As it relates to our global operations, we have now incorporated the impact of tariffs currently in effect, notably the incremental 125% tariffs for raw material and finished goods being imported into China with The US as the country of origin.

Speaker 1

The incremental 145% tariffs for imports into The US from China. And incremental baseline 10% tariffs for imports into The US from certain other countries. We have also assumed that certain exemptions are applicable to certain materials and finished goods being imported into The US. We have not incorporated the potential incremental tariffs that may be implemented after the current pause on tariffs has expired. Given the uncertainty surrounding the evolving global trading, Our estimates remain subject to change, and we will continue to monitor the situation and provide updates when appropriate.

Speaker 1

As always, we remain committed to mitigating potential impacts where possible to make sure we continue supporting our customers and the people living with diabetes who rely on our products. Now, let me discuss our updated guidance, beginning with revenue. On an adjusted constant currency basis, we are lowering our previously provided guidance range by 150 basis points on both the low and high ends, as we now call for revenue to decline between 2.54% as compared to 2024. At the low end of the range, we estimate that volume will be a headwind of approximately 3%, and that pricing will be a headwind of approximately 1%. Meanwhile, at the high end of our constant currency revenue guidance range, we estimate that volume will be a headwind of approximately 1.5%, and that pricing will be a headwind of approximately 1%.

Speaker 1

As Deb noted earlier, the additional 1.5% volume headwind, which we have incorporated into our outlook, is driven by lower projected US volumes, primarily associated with anticipated reductions in customer inventory levels tied to store closures at a specific US retail pharmacy customer. We believe this is transitory and does not reflect any fundamental change in the stability of our base business. Turning to our thoughts on FX. Since we provided our updated fiscal twenty twenty five financial guidance in early February, the U. S.

Speaker 1

Dollar has weakened against most currencies. And as a result, we currently expect FX to be a headwind of approximately 0.8% as compared to our prior guidance, which called for FX to be a headwind of approximately 2.2%. Additionally, our as reported 2025 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. This equates to a tailwind of approximately 0.4%. On a combined basis, our as reported revenue guidance remains largely unchanged at a range of between 1,073,000,000 and $1,090,000,000 Turning to adjusted gross margin.

Speaker 1

We are lowering our previously provided guidance range by 50 basis points and now expect adjusted gross margin to be in the range of between 62.7563.75%. The reduction in our current versus prior adjusted gross margin guidance is primarily due to the reduction in our constant currency revenue, as well as the incremental impact of tariffs. This is somewhat offset by favorable profit and inventory adjustments and cost improvement actions we are taking within cost of sales. While from an adjusted operating margin standpoint, we are raising our guidance from a range of between 29.530.5% to a new range of between 29.7530.75%. This improvement in adjusted operating margin is primarily driven by the expected cost savings associated with the restructuring plan announced this quarter.

Speaker 1

Moving to earnings. Our better than expected second quarter earnings performance coupled with the restructuring plan we announced today as well as favorable shifts in foreign exchange are enabling us to absorb the impact of the lower adjusted constant currency revenues and incremental tariffs, thereby allowing us to maintain our previously provided adjusted diluted earnings per share guidance range of between $2.7 and $2.9 Our updated guidance range continues to assume that our annual net interest expense will be approximately 107,000,000 that our annual adjusted tax rate will be approximately 25%, and that our weighted average diluted shares outstanding will be approximately $58,900,000 dollars Our guidance also continues to assume that we will use between 50,000,000 and $60,000,000 of cash during fiscal twenty twenty five associated with separation costs, largely related to brand transition. While as it relates to capital expenditures, we now expect to incur approximately $15,000,000 during the year, down from our prior estimate of approximately $20,000,000 For cash usage associated with the discontinuation of our insulin patch pump program, our guidance now assumes that we will use between 20,000,000 and $25,000,000 as compared to our previous estimates of between 25,000,000 and $30,000,000 Lastly, for the same reasons we increased our adjusted operating margin guidance range, we are also raising our adjusted EBITDA margin guidance range from a range of between 3637% to a new range of between 36.2537.25%.

Speaker 1

And before I turn the call over to the operator, I wanted to take a moment to remind everyone that we will be hosting our inaugural Analyst and Investor Day on May 22 in New York City. We are looking forward to providing a deeper look into our portfolio, value creation opportunities, and long term financial objectives. We hope to see many of you there. Please RSVP by following the instructions on this slide. With that, I would like to now turn the call over to the operator for questions.

Speaker 1

Operator?

Speaker 2

Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please limit yourself to one question and a follow-up.

Speaker 2

First question comes from the line of Callum Tishmarsh of Morgan Stanley. Your line is now open.

Speaker 3

Great. Thank you, guys. Good morning. Would love for you to maybe dig a bit deeper into kind of growth and demand dynamics across pen and syringes. Just walk us through what you're seeing domestically and internationally, how we should think about modeling these products for the remainder of the year, Kind of most keen to get a bit more color on some of those moving parts in The U.

Speaker 3

S. You called out the customer inventory bits and store closures. Are you now comfortable that they are kind of isolated issues and behind you? Thanks a lot.

Operator

Good morning, Calum, and thanks for the question. So, maybe some context is in order here. As you may remember, fiscal twenty twenty four, we had a number of rolling ERP implementations throughout the year. U. S.

Operator

And Canada went live in the first quarter, then we had EMEA and Asia in quarter two. And then we had China and Latin America in the following quarters, America as recent as Q1 twenty twenty five. And our goal as we did that was to ensure that we maintain product continuity. As you know, these implementations in our case coupled with changes in distribution network and setting up new shared services are pretty complex. And so we were very careful to make sure that the distributors through which our products flow had enough inventory of these products that they could maintain continuity of supply in case there were any hiccups.

Operator

Now the executions went very well. We did not have hiccups, but that leads to unfavorable year over year comparisons for both our U. S. Business and our international business. That was obviously further compounded by the fact that the end of last year, as we mentioned on prior calls, there was a looming port strike.

Operator

And so particularly in The U. S, some distributors purchased products ahead of that port strike in September and certainly that impacted our Q1 twenty twenty five results and year to date 2025 results. And then finally, the third effect that just to keep in mind because it does impact certainly geographic year over year comparisons as well as comparisons for product family was the shift in price increases, which obviously from a business standpoint is a good thing. Last year, which is in fiscal twenty twenty four, we had a U. S.

Operator

Price increase on of April of twenty twenty four. And this year, we had it on 01/01/2025. So certainly, that's going to help us through the remainder of the year, but again, leads to unfavorable comparisons. So those were the dynamics that really drive both for the quarter and the year to date comparisons for adjusted revenue by geography and in total. And you can imagine with pen needles being approximately 76% of our total revenue that impacts the pen revenue business quite significantly.

Operator

Particularly when you think about the ERP implementations in which regions they occurred because in certain regions, they are primarily a pen needle business. So those are really the factors. Now with syringes, we are again seeing some strength in both Latin America and Asia. And we have the opportunity to optimize our pricing in The US, and that has helped our syringe results as well. The second part of your question was about the adjustments that we've made for store closures.

Operator

So maybe some background there. You know, obviously, we are aware of some planned store closures at a major US retail pharmacy chain. But I do wanna point out that we sell product to a third party distributor that serves that aforementioned pharmacy chain, but also serves other customers. Now, obviously, we don't have any particular insight into the timing of the plant store closures. But what we did notice was in the late Q2, we noticed a change in the ordering pattern by the distributor that we supply product to.

Operator

Now we believe it's linked to the planned store closures. And so what we've tried to do is estimate and be prudent in the incorporation of that impact into full year guidance. I should also note that in case of store closures, obviously, the pharmacy chain is going to obviously try to retain those patients within their own network. Sometimes these patients might leave and go to other pharmacy chains. But at the end of the day, our products are chronic use, medically necessary products.

Operator

And so we do expect that these patients, if they are not purchasing it from a store that they used to but is now closed, will go into other retail outlets to purchase these products. And given our strength in The US, it is quite possible that those patients will continue using our products. There might be a timing lag here because as I mentioned, the product flows through distributors and it takes time for the demand signals to adjust. So look, I mean, to to to sort of sum it up, we've tried to be as prudent as we can in estimating this. We recognize it's early in the process of store closures, and certainly, we'll update as we go along here.

Speaker 3

Great. Just a follow-up there. I think the Street's kind of shaking out at, I think, 7%, eight % quarter over quarter growth into fiscal year Q3. Are you happy with that given the guide cut? Where should we be taking that little guide cut out of numbers for the year?

Speaker 3

Thanks a lot.

Speaker 1

Yes, Callum, thanks for the question. This is Jake. Maybe I'll jump in here. I think what if you think about our guide for the first half of the year, we always thought for the reasons that Deb outlined that the second half of the year was going to be stronger than the first half of the year. And really nothing has necessarily changed in that thought pattern in terms of second half strength versus the first half because of just all the one off items that sort of impacted the first half of twenty twenty four in terms of the ERP go lives and whatnot.

Speaker 1

So we were down on a six month basis, think our constant currency revenues were down around 6.3%. And in the second half of the year, I think it's probably reasonable to think that we would sort of see flat to slightly positive overall constant currency revenue growth in the second half of the year. And probably, I would say low single digit constant currency revenue growth, if you will, particularly in the third quarter. So hopefully that gives a little bit more context into sort of the our thoughts in the second half of the year regarding constant currency revenue. So we certainly expect to see despite the 150 basis point call down if you will to our full year constant currency revenue guidance range.

Speaker 1

We certainly do expect there to be an improvement and see some momentum as we move throughout the second half of the year.

Speaker 3

Appreciate it guys. Thank you.

Speaker 2

Thank you. One moment for our next question. And our next question comes from the line of Marita Bulb of BTIG. Your line is now open.

Speaker 4

Hi. Good morning. Thank you for taking the questions. Wanted to ask my first one here on tariffs. I heard you say 25 bps of full year adjusted a full year adjusted impact to adjusted gross margins there.

Speaker 4

Wanted to get a little bit more detail on some of this. How much of that impact is coming from sort of The US China tariffs as we get those trade talks hopefully started here this weekend? And in terms of annualizing some of this, given you're kind of on a different fiscal year, how should we think about this in the next fiscal year? Of course, understand there will be mitigation and a lot of fluid dynamics here.

Speaker 1

Yes, Marie, thanks for the question. Yes, so you're correct. I mean, now, just given our manufacturing footprint and the way that our products flow, we are thinking that there is going to be around a $3,000,000 or 25 basis point impact to our full year margins, 3,000,000 of incremental expense associated with these tariffs in the second half of the year. That does relate to exactly what you were referring to, the dynamic between China and The U. S.

Speaker 1

And the reciprocal tariffs with each of those countries. Right now, obviously, we're going to try and do whatever it is that we can in order to offset those impacts to the extent possible, whether that's taking costs out of the system or potentially trying to find ways to pass along any of those cost increases in the form of pricing. Based on what we know right now, if we had to provide sort of an estimate for maybe an annualized impact and again, keep in mind, this is obviously very, very fluid even given some of the news coming out this morning regarding the talks this weekend. But if we had to think about like an annualized impact, I think it's probably reasonable to think that we would see maybe around call it a 8,000,000 to $9,000,000 impact in 2026 based on what we know right now. And that's obviously a gross number, right?

Speaker 1

That doesn't take into consideration any potential offsets that we would try and do. And only really relates to sort of The U. S.-China dynamic. It doesn't take into consideration if you will any of the tariffs that have sort of been put on pause right now.

Speaker 4

Yeah, incredibly helpful, Jake. Thank you for that detail. And then I guess I'll ask my follow-up. I heard you say that Embacta had received several POs from generic GLP-one makers. Very exciting to see that step.

Speaker 4

What does that actually mean, a PO? Does that mean they sort of said, Hey, we want to work with you and we need to understand how your packaging will work so we can put this together for the regulators? Or is it a step further than that? I'm not sure exactly where this falls in kind of the pharma regulatory process.

Operator

Yeah, good morning, Marie. So it is a very exciting and a really important strategic milestone in this process. As we've commented before, we've been in discussions with multiple generic drug manufacturers as they are pursuing generic GLP-one entry in markets around the world. And this is a substantive step forward of them, several of them, actually sending purchase orders for bulk pen needles that they will then acquire and use for their own internal purposes, including any testing they might have to do as part of their regulatory submissions. So we are very excited about it.

Operator

It's a very tangible and specific milestone that has been accomplished. And we'll certainly share more about all of this at our Investor Day coming up here in a couple of weeks.

Speaker 4

Okay. Very good. Looking forward to it. Thanks so much.

Operator

Thank you, Marie.

Speaker 2

Thank you. One moment for our next question. Our next question comes from the line of Anthony Petrone of Mizuho Financial Group. Your line is now open.

Speaker 5

Thank you and good morning. Maybe just a follow-up on tariffs. Just in terms of pull forward of stockpiling, did you notice any of that in the first quarter, any of the retail chains sort of buying ahead? And did that sort of flow through to and back to in terms of the revenue performance in the first quarter here? And then I'll have a couple of follow ups.

Speaker 5

Thanks.

Operator

Yeah. Anthony, maybe I'll take that. So specifically about I assume you're specifically talking about The US here. A couple of points to note, right? The tariffs that we have incorporated into our guidance are really U.

Operator

S.-China related for the majority of the impact, vast majority of the impact. In The U. S, we have historically benefited from certain exemptions that apply to finished goods that apply to our category of finished goods. So we don't really pay a tariff currently on those products given they are for chronic medical use. We did not see any stockpiling in The US as a result of potential tariff impacts.

Operator

And let me also point out that really the product that's coming from China into The US is very, very limited to begin with. I mean, it's a low single digit percent of our US revenue. So for all those reasons, you know, finished good product being imported into China just being being imported from China into US just being a low, low number in our U. S. Of our U.

Operator

S. Business and the fact that we do benefit from certain exemptions help

Speaker 1

us.

Speaker 5

That's helpful. Maybe follow-up would be just on the Type two market specifically, And I had the pump companies out there with a decent quarter here. Last night, one reported earlier last week reported. Maybe just like an update on the dynamic between multiple daily injection and pumps, what you're seeing there? And if you could segment the market in type two, you know, where MDI is is more sticky.

Speaker 5

You know, is there a specific segment where you really just see durability there? Thanks for taking the questions.

Operator

Anthony, the best indicator that we track internally to see what's going on for our pen needle business in particular is the TRXs for insulin pens. Right? That's something that we've been tracking for a long period of time. And so far, we've seen stability in The US, both in insulin pens as well as what we believe the underlying pen needle market to be. Obviously, we have better data on insulin pens than the pen needle market, just given that we are such a large portion of the pen needle market.

Operator

We see our numbers, but it's hard to get total market numbers. And so I would say that's the best indicator. Obviously, we follow what market participants are saying. I also want to point out just the vastness of the numbers, right? We're talking about seven eight billion people on injection in The US.

Operator

And, when you compare to pump numbers, they're typically talking about maybe tens of thousands. So, it's going to take some time before any big change gets reflected in our numbers. Not to mention that the incidence of type two diabetes, that's still a growth factor here, right? So all these things wash out, which is why the indicator that we most closely track is the total prescriptions for insulin pens, we've seen stability so far.

Speaker 5

Thank you very much, Dev. Yeah.

Speaker 2

Thank you. One moment for our next question. And our next question comes from the line of Michael Polark of Wolfe Research. Your line is now open.

Speaker 6

Hey. Good morning. Thank you. I have two. I wanna follow-up first on the retail pharmacy store closure callout.

Speaker 6

I feel like US retail pharmacies have been closing stores for a long time. So I guess what's different about this is it's simply the scale. And I'm curious if you might name the name. I know Walgreens has announced 1,200 store closures expected over the next three years, but CVS also has a large program too. And and Rite Aid, I think, is dealing with BK.

Speaker 6

So if it's worth spiking out the brand, would appreciate that. But any further color on why this is different given kind of long running trend of store wind downs?

Operator

Yes, Mike. I think it's the scale. And respectfully, I'll avoid naming any specific customers. But it's really the scale and the pace at which it could happen. That's the reason why we called it out.

Operator

And like I said, we saw a change in the buying pattern for this distributor that serves that particular chain as well as serves other customers. And we just wanted to make sure that we were prudent in reflecting that as we thought about our guidance for the rest of the year. Now, as you saw in our guidance, I mean, in spite of that, we did raise our adjusted operating margins and adjusted EBITDA margins guidance either. So everything that we can control to ensure that we still pursue our priorities of maintaining profitability and paying down debt, we are absolutely going to execute on.

Speaker 6

For the follow-up, want to ask on the new efficiency program that was discussed here. Where is it focused? What are you doing? And the savings number, 7,000,000 to $8,000,000 in the second half, is it fair to multiply that by two to get a full year impact as we think about fiscal twenty twenty six? Thank you so much.

Speaker 1

Yeah, Mike. So regarding the new restructuring program, I think if you step back over the last several years as we've sort of been separating from our former parent and standing ourselves up very, very intentionally, we did not make any material changes to the organization. And we've always talked about how we would look for opportunities to continue to sort of right size the organization to continue to take cost out of the organization. And I think now that we are largely complete with all of the major separation activities, we're continuing to look for ways just to become more efficient. And we're certainly going to continue to do that moving forward as well.

Speaker 1

So if you think about the cost that we're able to take out, it's largely, I would say in sort of the SG and A area. And I think this year as we said, we would expect to see savings of between 7,000,000 to $8,000,000 in the second half of the year. And I do think it's reasonable on an annualized basis to think about something in or around that kind of $15,000,000 mark as we sort of walk into 2026. Thank you.

Speaker 2

Thank you. I'm showing no further questions at this time. I'll now turn it back to CEO, Dev Kuttigarh for closing remarks.

Operator

Thank you. As we close the call, I just want to express my sincere gratitude to my colleagues at Empector around the world. Our global team remains focused on executing the priorities we've laid out even as uncertainty exists in the macroeconomic and the global trade environment. And then finally, we look forward to engaging with all of you at our upcoming conferences and at our Investor Day on May 22, where we'll share more about our vision for Ambecta. Thanks again for calling in and for your interest in Ambecta.

Speaker 2

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

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Key Takeaways

  • Q2 Revenue Beat: Fiscal Q2 revenue of $259 million surpassed guidance of $250–255 million, with half the upside from constant currency strength and half from reduced FX headwinds.
  • Clinical & Culture Milestones: The company published updated insulin injection recommendations in Mayo Clinic Proceedings and earned Great Place to Work 2025 certification in eight countries, highlighting its focus on outcomes and engagement.
  • GLP-1 Pen Needle Partnerships: Embecta received purchase orders to co-package its pen needles with generic GLP-1 drugs and launched retail-ready packaging for branded GLP-1 injectables, aiming to capture a growing market.
  • Cost Structure & Restructuring: After winding down the insulin patch pump program, a new restructuring plan is expected to incur $4–5 million in pretax charges while delivering $7–8 million in H2 cost savings.
  • Debt Reduction & Guidance Update: The company paid down $27 million of term loan debt in Q2 (-$60 million YTD), remains on track for a $110 million reduction, lowered constant-currency revenue guidance due to US inventory shifts, but raised adjusted operating and EBITDA margin outlooks and reaffirmed EPS.
A.I. generated. May contain errors.
Earnings Conference Call
Embecta Q2 2025
00:00 / 00:00