Embecta Q2 2025 Earnings Report

Embecta EPS Results

• Actual EPS: $0.70
• Consensus EPS: $0.66
• Beat/Miss: Beat by +$0.04
• One Year Ago EPS: $0.67

Embecta Revenue Results

• Actual Revenue: $259.00 million
• Expected Revenue: $261.77 million
• Beat/Miss: Missed by -$2.77 million
• YoY Revenue Growth: -9.80%

Embecta Announcement Details

• Quarter: Q2 2025
• Date: 5/9/2025
• Time: Before Market Opens
• Conference Call Date: Friday, May 9, 2025
• Conference Call Time: 8:00AM ET

Embecta (NASDAQ:EMBC) Corporation (NASDAQ: EMBC) is a global diabetes-care company that develops and manufactures products designed to support insulin delivery and diabetes management. Its portfolio includes pen needles, insulin syringes, safety needles, lancets and other injection-related products used by people with diabetes and healthcare professionals.

The company also provides solutions intended to improve the safety, convenience and effectiveness of diabetes care, including connected and digital tools associated with insulin delivery. Embecta serves customers through healthcare providers, pharmacies, distributors and other channels in markets around the world.

Embecta became an independent publicly traded company in April 2022 after being separated from Becton, Dickinson and Company, where its operations formed the former Diabetes Care business. The company is headquartered in Franklin Lakes, New Jersey, and is led by Chief Executive Officer Devdatt “Dev” Kurdikar.

Embecta Q2 2025 Earnings Call Transcript

Key Takeaways

• Second quarter revenue totaled $259 million, exceeding the prior guidance range of $250 million–$255 million, with half the upside from constant currency performance and half from lower FX headwinds.
• Full-year constant currency revenue guidance was lowered by 150 bps due to anticipated US volume declines tied to customer inventory reductions, although as-reported revenue guidance remains intact and adjusted operating/EBITDA margins were raised on disciplined expense management.
• A new restructuring plan was launched in Q2, with expected pretax charges of $4 million–$5 million to drive $7 million–$8 million in pretax cost savings in the second half of FY25, primarily through SG&A efficiencies.
• The company made a $27.4 million payment on its Term Loan B in Q2 and has reduced debt by ~$60 million year-to-date, staying on track to hit its $110 million FY25 debt reduction target.
• Ambecta advanced its co-packaging strategy by securing purchase orders to bundle its pen needles with potential generic GLP-1 drugs and will offer retail packaging for branded GLP-1 injectables, aiming to capture growth in a fast-expanding market.

Presentation

[Devdatt Kurdikar, CEO at Embecta Corp]

Long-term success. Turning to some fiscal second-quarter highlights: second-quarter revenue totaled $259 million, which exceeded our expectations of between $250 million and $255 million 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: during the second quarter, we published the updated FITR 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.

[Devdatt Kurdikar, CEO at Embecta Corp]

Additionally, during Q2, Embecta 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 increased 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. I'm also pleased to announce that we are continuing to advance our efforts to co-package our pen needles with potential generic GLP-1 drugs, as well as making our pen needles available in retail packaging appropriate for use with branded GLP-1 drugs delivered by pen injectors.

[Devdatt Kurdikar, CEO at Embecta Corp]

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 Analysts 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. 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.

[Devdatt Kurdikar, CEO at Embecta Corp]

We expect the plan to be substantially complete by the end of fiscal year 2025. As a result, we anticipate incurring total pre-tax charges of between $4-$5 million, the majority of which are expected to be cash-related. This action is expected to drive meaningful efficiencies, with estimated pre-tax cost savings of between $7-$8 million during the second half of fiscal 2025. 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 million on our Term Loan B facility during the quarter. While on a year-to-date basis, we have reduced debt by approximately $60 million, which puts us well on track to achieve our goal of reducing debt by approximately $110 million during fiscal 2025.

[Devdatt Kurdikar, CEO at Embecta Corp]

Finally, as we reflect on our second quarter results and look ahead to the remainder of the year, we are updating our fiscal 2025 guidance. 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 U.S. volumes primarily associated with anticipated reductions in customer inventory levels tied to store closures at a specific U.S. 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.

[Devdatt Kurdikar, CEO at Embecta Corp]

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 margins. 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 2025. 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 U.S.

[Devdatt Kurdikar, CEO at Embecta Corp]

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 of years. On the slide, you will see an example of the new Embecta branded packaging contrasted with the legacy BD Nano second-gen packaging. 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 refresh look while maintaining the visual elements that healthcare 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.

[Devdatt Kurdikar, CEO at Embecta Corp]

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. During the second quarter of fiscal year 2025, Embecta generated $259 million 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 $135.2 million, 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 1st of 2024, we saw certain customers purchase additional products that positively impacted our second quarter of 2024 results.

[Devdatt Kurdikar, CEO at Embecta Corp]

Similarly, in advance of a price increase that went into effect on January 1st of 2025, we saw certain customers purchase additional products and that positively impacted our first quarter of 2025 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 U.S. business. Turning to our international business, during Q2, revenue totaled $123.8 million, which equated to a 7% and a $10 million decline on an adjusted constant currency basis as compared to the prior year period. Like the U.S., 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.

[Devdatt Kurdikar, CEO at Embecta Corp]

While from a product family perspective, during the quarter, pen needle revenue declined approximately 12.1%, syringe revenue grew by approximately 1.7%, safety products grew approximately 4.2%, and contract manufacturing grew approximately 73%. 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 U.S., 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.

[Devdatt Kurdikar, CEO at Embecta Corp]

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 2025. Jake?

[Jake Elguicze, CFO at Embecta Corp]

Thank you, Dev, and good morning, everyone. Given the discussion that has already occurred regarding revenue, I'll start my review of Embecta's second quarter financial performance at the gross profit line. GAAP gross profit and margin for the second quarter of fiscal 2025 totaled $164.1 million and 63.4%, respectively. This compared to $185.4 million and 64.6% in the prior year period. While on an adjusted basis, our Q2 2025 adjusted gross profit and margin totaled $165.6 million and 63.7%. This compared to $185.6 million and 64.7% 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 Dev 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.

[Jake Elguicze, CFO at Embecta Corp]

Turning to GAAP operating income and margin. During the second quarter, they were $62.9 million and 24.3%. This compared to $39.2 million and 13.6% in the prior year period. While on an adjusted basis, our Q2 2025 adjusted operating income and margin totaled $81.4 million and 31.4%. This compared to $74.9 million and 26.1% in the prior year period. 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, as well as lower SG&A expenses primarily driven by lower TSA costs, as well as lower compensation and marketing expenses. This was offset by the adjusted gross profit changes I just outlined.

[Jake Elguicze, CFO at Embecta Corp]

Turning to the bottom line, GAAP net income and earnings per diluted share were $23.5 million and $0.40 during the second quarter of fiscal 2025, as compared to $28.9 million and $0.50 in the prior year period. While on an adjusted basis, during the second quarter of fiscal 2025, net income and earnings per share were $40.7 million and $0.70, as compared to $38.9 million 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. This was partially offset by an increase in our adjusted tax rate from approximately 18% in Q2 of 2024 to approximately 25% in Q2 of 2025.

[Jake Elguicze, CFO at Embecta Corp]

Lastly, from a P&L perspective, for the second quarter of 2025, our adjusted EBITDA and margin totaled approximately $97.1 million and 37.5%, as compared to $90.8 million 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 million, while our last 12 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. As Dev mentioned earlier, we continue to be focused on more aggressive delivering, and during the second quarter, we paid down $27.4 million of Term Loan B debt.

[Jake Elguicze, CFO at Embecta Corp]

I'm pleased to say that we remain on track to achieve our goal of reducing our gross debt by $110 million during fiscal 2025, as well as getting our net leverage levels to approach approximately three times by year-end. That completes my prepared remarks on our second quarter 2025 results. Next, I would like to discuss Embecta's updated 2025 financial guidance and certain underlying assumptions. 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: Dun Laoghaire, Ireland; Holdrege, 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.

[Jake Elguicze, CFO at Embecta Corp]

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 U.S. as the country of origin, the incremental 145% tariffs for imports into the U.S. from China, and incremental baseline 10% tariffs for imports into the U.S. from certain other countries. We have also assumed that certain exemptions are applicable to certain materials and finished goods being imported into the U.S. 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 trade environment, our estimates remain subject to change, and we will continue to monitor the situation and provide updates when appropriate.

[Jake Elguicze, CFO at Embecta Corp]

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 2.5% and 4% as compared to 2024. At the low end, 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%.

[Jake Elguicze, CFO at Embecta Corp]

As Dev noted earlier, the additional 1.5% volume headwind, which we have incorporated into our outlook, is driven by lower projected U.S. volumes primarily associated with anticipated reductions in customer inventory levels tied to store closures at a specific U.S. 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 2025 financial guidance in early February, the U.S. 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%.

[Jake Elguicze, CFO at Embecta Corp]

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 $1.73 billion and $1.90 billion. Turning to adjusted gross margin, 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 62.75% and 63.75%. 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.

[Jake Elguicze, CFO at Embecta Corp]

While from an adjusted operating margin standpoint, we are raising our guidance from a range of between 29.5% and 30.5% to a new range of between 29.75% and 30.75%. This improvement in adjusted operating margin is primarily driven by the expected cost savings associated with the restructuring plan announced this quarter. 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 $2.70 and $2.90.

[Jake Elguicze, CFO at Embecta Corp]

Our updated guidance range continues to assume that our annual net interest expense will be approximately $107 million, that our annual adjusted tax rate will be approximately 25%, and that our weighted average diluted shares outstanding will be approximately 58.9 million. Our guidance also continues to assume that we will use between $50 million and $60 million of cash during fiscal 2025 associated with separation costs largely related to brand transition. While as it relates to capital expenditures, we now expect to incur approximately $15 million during the year, down from our prior estimate of approximately $20 million. For cash usage associated with the discontinuation of our insulin patch pump program, our guidance now assumes that we will use between $20 million and $25 million, as compared to our previous estimates of between $25 million and $30 million.

[Jake Elguicze, CFO at Embecta Corp]

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 36% and 37% to a new range of between 36.25% and 37.25%. 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 Analysts and Investor Day on May 22nd 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. Operator.

[Operator]

Thank you. At this time, we'll conduct the question-and-answer session.

[Operator]

As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and a follow-up. Please stand by while we compile the Q&A roster. Our first question, Kallum Titchmarsh of Morgan Stanley. Your line is now open.

[Kallum Titchmarsh, VP and Healthcare Equity Analyst at Morgan Stanley]

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.S. You called out the customer inventory bits and store closures.

[Kallum Titchmarsh, VP and Healthcare Equity Analyst at Morgan Stanley]

Are you now comfortable that they are kind of isolated issues and behind you? Thanks a lot.

[Devdatt Kurdikar, CEO at Embecta Corp]

Good morning, Kallum, and thanks for the question. Maybe some context is in order here. As you may remember, fiscal 2024, we had a number of rolling ERP implementations throughout the year. U.S. and Canada went live in the first quarter. Then we had India and Asia in quarter two. Then we had China and Latin America in the following quarters, Latin America as recent as Q1 2025. Our goal as we did that was to ensure that we maintained 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.

[Devdatt Kurdikar, CEO at Embecta Corp]

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. 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 at the end of last year, as we mentioned on prior calls, there was a looming port strike. Particularly in the U.S., some distributors purchased products ahead of that port strike in September. Certainly, that impacted our Q1 2025 results and year-to-date 2025 results.

[Devdatt Kurdikar, CEO at Embecta Corp]

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 2024, we had a U.S. price increase on the 1st of April of 2024, and this year we had it on January 1st, 2025. Certainly, that's going to help us through the remainder of the year, but again, leads to unfavorable comparisons. 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.

[Devdatt Kurdikar, CEO at Embecta Corp]

You can imagine with pen needles being approximately 76% of our total revenue, that impacts the pen revenue business quite significantly, particularly when you think about the ERP implementations and which regions they occurred because in certain regions, they are primarily a pen needle business. Those are really the factors. Now, with syringes, we are, again, seeing some strength in both Latin America and Asia. We had the opportunity to optimize our pricing in the U.S., 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. Maybe some background there. Obviously, we are aware of some planned store closures at a major U.S. retail pharmacy chain.

[Devdatt Kurdikar, CEO at Embecta Corp]

I do want to point out that we sell product to a third-party distributor that serves that aforementioned pharmacy chain, but also serves other customers. Obviously, we do not have any particular insight into the timing of the planned store closures. What we did notice was in late Q2, we noticed a change in the ordering pattern by the distributor that we supply product to. We believe it is linked to the planned store closures. What we have 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, the pharmacy chain is going to try to retain those patients within their own network. Sometimes these patients might leave and go to other pharmacy chains.

[Devdatt Kurdikar, CEO at Embecta Corp]

At the end of the day, our products are chronic use, medically necessary products. We do expect that these patients, if they're not purchasing it from a store that they used to but is now closed, will go into other retail outlets to purchase these products. Given our strength in the U.S., 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 these demand signals to adjust. Look, I mean, long 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.

[Kallum Titchmarsh, VP and Healthcare Equity Analyst at Morgan Stanley]

Great.

[Kallum Titchmarsh, VP and Healthcare Equity Analyst at Morgan Stanley]

Just to follow up there, I think the street's kind of shaking out at, I think, 7-8% 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 our numbers for the year? Thanks a lot.

[Jake Elguicze, CFO at Embecta Corp]

Yeah, Kallum, thanks for the question. This is Jake. Maybe I'll jump in here. I think if you think about our guide for the first half of the year, we always thought for the reasons that Dev outlined that the second half of the year was going to be stronger than the first half of the year.

[Jake Elguicze, CFO at Embecta Corp]

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 2024 in terms of the ERP go-lives and whatnot. We were down on a six-month basis. I think our constant currency revenues were down around 6.3%. In the second half of the year, I think it is 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. I would say low single-digit constant currency revenue growth, if you will, particularly in the third quarter. Hopefully, that gives a little bit more context into our thoughts in the second half of the year regarding constant currency revenue.

[Jake Elguicze, CFO at Embecta Corp]

We certainly expect to see, despite the 150 basis point call down, if you will, to our full-year constant currency revenue guidance range, we certainly do expect there to be an improvement and see some momentum as we move throughout the second half of the year.

[Kallum Titchmarsh, VP and Healthcare Equity Analyst at Morgan Stanley]

Appreciate it, guys. Thank you.

[Operator]

Thank you. One moment for our next question. Our next question comes from Marie Thibault of BTIG Your line is now open.

[Marie Thibault, Managing Director and Digital Health Analyst at BTIG]

Hi, good morning. Thank you for taking the questions. Wanted to ask my first one here on tariffs. I heard you say 25 basis points of full-year adjusted impact to adjusted gross margins there. Wanted to get a little bit more detail on some of this. How much of that impact is coming from sort of the U.S.-China tariffs as we get those trade talks hopefully started here this weekend?

[Marie Thibault, Managing Director and Digital Health Analyst at BTIG]

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.

[Jake Elguicze, CFO at Embecta Corp]

Yeah, Marie, thanks for the question. Yeah, you're correct. I mean, right 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 million or 25 basis point impact to our full-year margins, $3 million 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. and the reciprocal tariffs with each of those countries.

[Jake Elguicze, CFO at Embecta Corp]

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, just even given some of the news coming out this morning regarding the talks this weekend—but if we had to think about an annualized impact, I think it's probably reasonable to think that we would see maybe around, call it a $8-$9 million impact in 2026 based on what we know right now. And that's obviously a gross number, right?

[Jake Elguicze, CFO at Embecta Corp]

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

[Marie Thibault, Managing Director and Digital Health Analyst at BTIG]

Yeah. Incredibly helpful, Jake. Thank you for that detail. I guess I will ask my follow-up. I heard you say that Embecta had received several POs from generic GLP-1 makers. Very exciting to see that step. What does that actually mean, a PO? Does that mean they have 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 am not sure exactly where this falls in kind of the pharma regulatory process.

[Devdatt Kurdikar, CEO at Embecta Corp]

Yeah, good morning, Marie.

[Devdatt Kurdikar, CEO at Embecta Corp]

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 the generic GLP-1 entry in markets around the world. 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. We are very excited about it. It's a very tangible and specific milestone that has been accomplished. We'll certainly share more about all of this at our Investor Day coming up here in a couple of weeks.

[Marie Thibault, Managing Director and Digital Health Analyst at BTIG]

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

[Devdatt Kurdikar, CEO at Embecta Corp]

Thank you, Marie.

[Operator]

Thank you. One moment for our next question.

[Operator]

Our next question comes from Anthony Petrone of Mizuho Financial Group. Your line is now open.

[Anthony Petrone, Managing Director Equity at Mizuho Financial Group]

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? Did that sort of flow through to Embecta in terms of the revenue performance in the first quarter here? I will have a couple of follow-ups. Thanks.

[Devdatt Kurdikar, CEO at Embecta Corp]

Yeah. Anthony, maybe I will take that. Specifically about, I assume you are specifically talking about the U.S. here. A couple of points to note, right? The tariffs that we have incorporated into our guidance are really U.S.-China related for the majority of the impact, vast majority of the impact.

[Devdatt Kurdikar, CEO at Embecta Corp]

In the U.S., we have historically benefited from certain exemptions that apply to finished goods, that apply to our category of finished goods. We do not really pay a tariff currently on those products given they are for chronic medical use. We did not see any stockpiling in the U.S. as a result of potential tariff impacts. Let me also point out that really the product that is coming from China into the U.S. is very, very limited to begin with. I mean, it is in low single-digit % of our U.S. revenue. For all those reasons, finished good product being imported from China into the U.S. is just a low, low number in our U.S. business, and the fact that we do benefit from certain exemptions helps us.

[Anthony Petrone, Managing Director Equity at Mizuho Financial Group]

That is helpful. Maybe follow-up would just be on the type two market specifically.

[Anthony Petrone, Managing Director Equity at Mizuho Financial Group]

The pump companies out there with a decent quarter here. Last night, one reported, earlier last week reported. Maybe just an update on the dynamic between multiple daily injection and pumps, what you're seeing there. If you could segment the market in type two where MDI is more sticky, is there a specific segment where you really just see durability there? Thanks. Thanks for taking the questions.

[Devdatt Kurdikar, CEO at Embecta Corp]

Yeah. 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. So far, we've seen stability in the U.S., both in insulin pens as well as what we believe the underlying pen needle market to be.

[Devdatt Kurdikar, CEO at Embecta Corp]

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, right? I mean, we see our numbers, but it's hard to get total market numbers. 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 7-8 million people on injection in the U.S. When you compare to pump numbers, they're typically talking about maybe tens of thousands. It's going to take some time before any big change gets reflected in our numbers. Not to mention that the incidence of type 2 diabetes, I mean, that's still a growth factor here, right?

[Devdatt Kurdikar, CEO at Embecta Corp]

So all these things wash out, which is why the indicator that we most closely track is the total prescriptions for insulin pens, and we've seen stability so far.

[Anthony Petrone, Managing Director Equity at Mizuho Financial Group]

Thank you very much, Dev.

[Devdatt Kurdikar, CEO at Embecta Corp]

Yeah.

[Operator]

Thank you. One moment for our next question. Again, as a reminder to ask the question, you'll need to press star 11 on your telephone. Our next question comes from Michael Pollard of Wolfe Research. Your line is now open.

[Michael Pollard, Research Analyst at Wolfe Research]

Hey, good morning. Thank you. I have two. I want to follow up first on the retail pharmacy store closure call out. I feel like U.S. retail pharmacies have been closing stores for a long time. I guess what's different about this is it's simply the scale. I'm curious if you might name the name.

[Michael Pollard, Research Analyst at Wolfe Research]

I know Walgreens has announced 1,200 store closures expected over the next three years, but CVS also has a large program too. And Rite Aid, I think, is dealing with BK. So if it's worth spiking out the brand, I would appreciate that. Any further color on why this is different given kind of long-running trend of store windowns?

[Devdatt Kurdikar, CEO at Embecta Corp]

Yeah, Mike, I think it's the scale. Respectfully, I'll avoid naming any specific customers. It's really the scale and the pace at which it could happen. That's the reason why we called it out. Like I said, we saw a change in the buying pattern for this distributor that serves that particular chain as well as serves the customers. 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.

[Devdatt Kurdikar, CEO at Embecta Corp]

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. 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.

[Michael Pollard, Research Analyst at Wolfe Research]

For the follow-up, I 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 million-$8 million in the second half, is it fair to multiply that by two to get a full-year impact as we think about fiscal 2026? Thank you so much.

[Jake Elguicze, CFO at Embecta Corp]

Yeah, Mike.

[Jake Elguicze, CFO at Embecta Corp]

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. 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. 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. We're certainly going to continue to do that moving forward as well. If you think about the cost that we're able to take out, it's largely, I would say, in sort of the SG&A area.

[Jake Elguicze, CFO at Embecta Corp]

I think this year, as we said, we would expect to see savings of between $7 million and $8 million in the second half of the year. I do think it is reasonable on an annualized basis to think about something in or around that kind of $15 million mark as we sort of walk into 2026.

[Michael Pollard, Research Analyst at Wolfe Research]

Thank you.

[Operator]

Thank you. I am showing no further questions at this time. I will now turn it back to CEO Dev for closing remarks.

[Devdatt Kurdikar, CEO at Embecta Corp]

Thank you. As we close the call, I just want to express my sincere gratitude to my colleagues at Embecta around the world. Our global team remains focused on executing the priorities we have laid out, even as uncertainty exists in the macroeconomic and the global trade environments.

[Devdatt Kurdikar, CEO at Embecta Corp]

We look forward to engaging with all of you at our upcoming conferences and at our Investor Day on May 22nd, where we'll share more about our vision for Embecta. Thanks again for calling in and for your interest in Embecta. Thank you for your participation in today's conference. To conclude the program, you may now disconnect.

Participants

Executives

• Devdatt Kurdikar, CEO
• Jake Elguicze, CFO

Analysts

• Kallum Titchmarsh, VP and Healthcare Equity Analyst at Morgan Stanley
• Marie Thibault, Managing Director and Digital Health Analyst at BTIG
• Anthony Petrone, Managing Director Equity at Mizuho Financial Group
• Michael Pollard, Research Analyst at Wolfe Research