Embecta Q3 2025 Earnings Report

Embecta EPS Results

• Actual EPS: $1.12
• Consensus EPS: $0.77
• Beat/Miss: Beat by +$0.35
• One Year Ago EPS: $0.74

Embecta Revenue Results

• Actual Revenue: $295.50 million
• Expected Revenue: $278.15 million
• Beat/Miss: Beat by +$17.35 million
• YoY Revenue Growth: +8.40%

Embecta Announcement Details

• Quarter: Q3 2025
• Date: 8/8/2025
• Time: Before Market Opens
• Conference Call Date: Friday, August 8, 2025
• Conference Call Time: 8:00AM ET

Embecta (NASDAQ:EMBC), a medical device company, focuses on the provision of various solutions to enhance the health and wellbeing of people living with diabetes. Its products include pen needles, syringes, and safety injection devices, as well as digital applications to assist people with managing patient's diabetes. The company primarily sells its products to wholesalers and distributors in the United States and internationally. Embecta Corp. was founded in 1924 and is headquartered in Parsippany, New Jersey.

Embecta Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Completed 100% ERP integration and transitioned over 90% of North American revenue to Ambecta-branded products, marking the end of a multi-year separation program.
• Positive Sentiment: Secured co-packaging agreements with more than 30 pharmaceutical companies for pen needles used with GLP-1 therapies, with potential to generate over $100 million in annual revenue by 2033.
• Neutral Sentiment: Q3 revenue hit an all-time high of $295.5 million, up 8.4% Y/Y on reported basis, driven by US pricing and volume, though Q4 may see a sequential decline as rebate reserve and distributor timing benefits reverse with a ~$3 million FX headwind.
• Positive Sentiment: Narrowed full-year 2025 revenue decline guidance to 3.4%–4.4% as-reported, reaffirmed a 0.8% FX headwind, and increased adjusted EPS outlook to $2.90–$2.95.
• Positive Sentiment: Paid down $112 million of term loan debt YTD—surpassing the $110 million goal with one quarter remaining—and now targets approximately $150 million in debt reduction by year-end to lower net leverage toward 3.0×.

Presentation

[Operator]

Welcome, ladies and gentlemen, to Invecta Corp. Fiscal Third Quarter twenty twenty five Earnings Conference Call. At this time, all participants have been placed in a listen only mode. Please note that this conference call is being recorded and a replay will be available on the company's website following the call.

[Operator]

I would now like to hand the conference call over to your host today, Mr. Pravesh Kandelwal, Vice President of Investor Relations. Mr. Kandelwal, please go ahead.

[Pravesh Khandelwal, VP - IR at Embecta]

Thank you, operator. Good morning, everyone, and welcome to Ambecta's fiscal third quarter twenty twenty five 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.embekta.com. With me today are Dev Kordikar, Embekta's President and Chief Executive Officer and Jay Kalgoyz, our Chief Financial Officer. Before we begin, I would like to remind you that some of the matters discussed in the conference call will contain forward looking statements regarding future events as outlined in our slides.

[Pravesh Khandelwal, VP - IR at Embecta]

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

[Pravesh Khandelwal, VP - IR at Embecta]

Deb will begin by providing some remarks on the overall performance of our business during the 2025, as well as an overview of the progress that has been made concerning our strategic priorities. Jake will then review our financial results for the 2025, as well as discuss the updated financial guidance for the fiscal year 2025. 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, Dev Kotickar.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Good morning, and thank you for taking the time to join us. As we detailed during our recently conducted Analyst and Investor Day event, we are currently in the second phase of our journey that is focused on progressing initiatives intended to position Inbpecta for long term growth. Our priorities in this phase are to continue strengthening our core business, expanding our product portfolio, and increasing our financial flexibility. Starting with the core, we completed the ERP shared services and distribution network implementation in India, which had been the only remaining market operating on BD systems. This milestone means that 100% of our revenue is now flowing through systems and marks the successful conclusion of a multi year complex separation program.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

In addition, the transition from BD to Ambecta branded products in The US and Canada has significantly advanced with greater than 90 of our North American revenue base having been changed over to Ambecta branded product. Consistent with our ERP implementation approach, we are executing the brand transition project in a phased manner to minimize risk. The transition began in North America in 2025 and in line with our plan is expected to extend to international markets in 2026. On the portfolio expansion front, I'm pleased to share that we continue to make meaningful progress in our efforts aimed at positioning the utilization of our pen needles with GLP-one therapies delivered via pen injectors. As we highlighted at our recent Analyst and Investor Day, we are actively collaborating with over 30 pharmaceutical companies to co package our pen needles with their generic GLP-one therapies.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Several of these companies have already signed agreements with us and placed purchase orders for our pen needles. Our products are already part of multiple generic GLP-one regulatory submissions with potential commercialization beginning as early as 2026. We continue to believe that we are well placed to partner with these generic drug companies given our decades long reputation for quality and reliability, regulatory approvals in most markets, and a world class distribution network. We are also making progress introducing Penn Newells in retail small packs that patients can purchase for use with weekly GLP-one injection treatments, thereby supporting patient needs and broadening our commercial relevance. Together, the co packaging and retail packaging prospects represent a significant long term opportunity that could generate more than $100,000,000 in annual revenue for Ambecta by 02/1933.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

In line with our commitment to enhance financial flexibility, in fiscal Q2, we initiated a restructuring plan aimed at streamlining our organization. This plan is now substantially complete and we continue to expect this action will drive meaningful efficiencies with estimated pretax cost savings of between 7 and $8,000,000 during the 2025 or approximately $15,000,000 on an annualized basis. And finally, during the third quarter, we paid down approximately $52,000,000 of principal under our term loan B facility, bringing total year to date debt reduction to approximately $112,000,000 With this, we have achieved our fiscal twenty twenty five debt reduction goal of paying down approximately $110,000,000 with one quarter remaining during which we anticipate making an incremental debt payment. With stand up related cash usage largely behind us and cost optimization initiatives underway, we believe we are well positioned to continue strengthening our balance sheet, thereby enabling us to make future organic and inorganic investments. Turning to some fiscal third quarter highlights.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Third quarter revenue reached all time highs, totaling $295,500,000 This significantly exceeded our expectations and was due entirely to over performance within The US. The strong performance in The US in relation to our prior expectations was due to pricing and volume, which contributed equally. First, favorable pricing driven by year to date rebate reserve adjustments. And second, the timing of certain distributor orders in advance of the July 4 holiday, as well as incremental stocking related to our brand transition program. Overall, our Q3 results reflect strong commercial execution and are consistent with our expectation that the second half of the fiscal year would be stronger than the first from a top line perspective.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Finally, as we reflect on our third quarter results and look ahead to the remainder of the year, we are narrowing our previously provided as reported revenue guidance range. And we are raising and narrowing our fiscal twenty twenty five guidance ranges for other key financial metrics. Now, let's review our revenue performance for the third quarter. During the 2025, Ambecta generated $295,500,000 in revenue, reflecting growth of 8.4% on a reported basis or 8% on an adjusted constant currency basis. Within The US, revenue for the quarter totaled $160,200,000 representing year over year growth of 11.6 on an adjusted constant currency basis.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

This performance was aided in part by a favorable comparison to the prior year period, as well as the aforementioned rebate reserve adjustments and timing of orders. We expect the timing related benefits from these orders to reverse in the fourth quarter. Turning to our international business, revenue for the third quarter totaled $135,300,000 representing growth of 5% on a reported basis and 4.2% on an adjusted constant currency basis. Growth in the quarter was primarily due to Latin America and Asia, which benefited from a favorable comparison to the prior year when order volumes were lower as customers normalized their purchasing patterns following our ERP transition. This was partially offset by year over year decline in China.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

While from a product family perspective, during the quarter, pen needle revenue grew approximately 6.8%, syringe revenue grew by approximately 14.5%, Safety products grew approximately 6.5%. And contract manufacturing grew approximately 47.2%. The year over year growth in pen needle revenue was primarily driven by increased product volumes as pricing was relatively flat year over year. The increase in pen needle volumes were aided by the timing of distributor orders mentioned earlier as well as a favorable comparison to the prior year period. Turning to our syringe products, they grew in the quarter by 14.5, primarily driven by increased pricing as volumes were lower than the prior year period.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

The increase in syringe revenue from pricing was due to a combination of increased US prices aided in part by the year to date rebate reserve adjustment that occurred during the quarter coupled with increased pricing in most international markets. While our safety products grew 6.5%, primarily due to improved pricing as volume increases within The US were offset by volume declines in international markets. That completes my prepared remarks. And with that, let me turn the call over to Jake to review other Q3 financial highlights as well as provide our updated financial guidance for fiscal year twenty twenty five. Jake? Thank you, Deb, and good morning, everyone.

[Jake Elguicze, SVP & CFO at Embecta]

Given the discussion that has already occurred regarding revenue, I will start my review of Invecta's third quarter financial performance at the gross profit line. GAAP gross profit and margin for the 2025 totaled $197,100,000 and 66.7% respectively. This compared to $190,100,000 and 69.8% in the prior year period. While on an adjusted basis, our Q3 twenty twenty five adjusted gross profit and margin totaled $198,600,000 and 67.2%. This compared to $190,300,000 and 69.8 percent in the prior year period.

[Jake Elguicze, SVP & CFO at Embecta]

The year over year decline in adjusted gross margin was driven by the impact of net changes in profit and inventory adjustments, as during the 2024, we incurred a large favorable profit and inventory adjustment resulting from the buildup of inventory associated with the various 2024 ERP implementations and the ultimate sale of that product into the market. During the 2025, while profit and inventory did impact us positively, it was not to the same extent as it was in the prior year period. Turning to GAAP operating income and margin, during the third quarter they were $94,000,000 and 31.8%. This compared to $55,900,000 and 20.5% in the prior year period. While on an adjusted basis, our Q3 twenty twenty five adjusted operating income and margin totaled $109,100,000 and 36.9%.

[Jake Elguicze, SVP & CFO at Embecta]

This compared to $83,300,000 and 30.6% in the prior year period. The year over year increase in adjusted operating income is primarily due to lower R and D expenses associated with the discontinuation of our insulin patch pump program and higher revenue and gross profit as compared to the prior year period. Turning to the bottom line, GAAP net income and earnings per diluted share were $45500000.0.78 during the 2025, as compared to 14,700,000.0 and 25¢ in the prior year period. While on an adjusted basis, during the 2025, net income and earnings per share were 65,500,000.0 and $1.12 as compared to $43,000,000 and $0.74 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 and a positive year over year impact from FX.

[Jake Elguicze, SVP & CFO at Embecta]

This was partially offset by an increase in our adjusted tax rate from approximately 22% in 2024 to approximately 25% in 2025. Lastly, from a P and L perspective, for the 2025, our adjusted EBITDA and margin totaled approximately $131,000,000 and 44.3%, as compared to 99,200,000 and 36.4% in the prior year period. Turning to the balance sheet and cash flow. During the 2025, we generated approximately $81,000,000 in free cash flow, inclusive of a benefit of approximately 26,000,000 from trade receivables factoring, and our cash balance totaled approximately $234,000,000 While our last twelve months net leverage as defined under our credit facility agreement stood at approximately 3.2 times. As a reminder, our net leverage covenant requires us to stay below 4.75 times.

[Jake Elguicze, SVP & CFO at Embecta]

As Deb mentioned earlier, we remain focused on reducing our outstanding debt so that we can create the financial flexibility necessary to change the revenue profile of Ambecta. And as such, during the third quarter, we paid down $52,400,000 of outstanding term loan B debt. I'm pleased to report that we have already exceeded our fiscal twenty twenty five debt reduction target by repaying $112,000,000 through the first nine months of fiscal twenty twenty five, and we now expect to reduce our outstanding debt by approximately $150,000,000 during 2025. We continue to target net leverage levels of approximately three times by fiscal year end. That completes my prepared remarks on our third quarter twenty twenty five results.

[Jake Elguicze, SVP & CFO at Embecta]

Next, I'd like to discuss Invecta's updated 2025 financial guidance and certain underlying assumptions. Beginning with revenue, on an adjusted constant currency basis, we are narrowing our range, now calling for a decline of between 33.6%, the midpoint of which is consistent with our prior adjusted constant currency range. This updated adjusted constant currency range consists of an improved outlook within The US, including the rebate reserve adjustments that positively impacted our Q3 results, offset by an updated outlook for China. Turning to our thoughts on FX, we are reaffirming our previously provided guidance for FX, which called for foreign currency to be a headwind of 0.8% versus the prior year. 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.

[Jake Elguicze, SVP & CFO at Embecta]

This equates to a tailwind of approximately 0.4%. On a combined basis, we are narrowing our full year as reported revenue guidance from a range which called for a decline of between 2.94.4% to a new range which calls for decline of between 3.44%. In dollar terms, this equates to a revenue range of between 1,078,000,000 and 1,085,000,000 or a midpoint of 1,081,000,000, which is also consistent with the midpoint of our prior as reported revenue dollar range. Turning to margins. For adjusted gross margin, we now expect a new range of between 63.2563.5%, as compared to the prior range of between sixty two point seven five percent and sixty three point seven five percent.

[Jake Elguicze, SVP & CFO at Embecta]

This includes our updated thoughts on the incremental impact of tariffs, which we now expect to have a negligible effect during fiscal year twenty twenty five. From an adjusted operating margin perspective, we now expect a new range of between 30.7531%, as compared to the prior range of between 29.7530.75%. While in terms of adjusted EBITDA margin, we now expect a new range of between thirty seven point two five percent and thirty seven point five percent as compared to the prior range of between 36.2537.25%. Lastly, due to the improved margin outlook, we are increasing and narrowing our adjusted earnings per share guidance from a range of between $2.7 and $2.9 to a new range of between $2.9 and $2.95 or an increase at the midpoint of approximately $12.5 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 slightly changed to approximately $58,800,000 as compared to approximately $58,900,000 before. Our guidance also assumes that we will use between 50,000,000 and $55,000,000 of cash during fiscal twenty twenty five associated with separation costs largely related to brand transition, which is slightly lower than our prior expectations, which called for one time cash usage of between 50,000,000 and $60,000,000 and approximately $22,000,000 associated with the discontinuation of our insulin pump program as compared to our prior expectations, which called for cash usage of between 20,000,000 and $25,000,000 While as it relates to capital expenditures, we now expect to incur approximately $13,000,000 during the year, down from our prior estimate of approximately $15,000,000 That completes my prepared remarks.

[Jake Elguicze, SVP & CFO at Embecta]

And with that, I would like to turn the call over to the operator for questions. Operator?

[Operator]

Thank Our first question comes from the line of Marie Thibault from BTIG.

[Marie Thibault, MD & Medical Technology and Digital Health Analyst at BTIG]

Good morning. Thanks for taking the questions and congrats on another very strong quarter. Wanted to ask one here, I guess, Jake, for you on the guidance. Certainly heard that some of the timing benefits you saw in fiscal 3d would be reversing in fiscal 4d. But I think you also called out equal contribution from pricing benefits.

[Marie Thibault, MD & Medical Technology and Digital Health Analyst at BTIG]

Wasn't so clear to me that those would be reversing. Can you help me to think about how we should be modeling fiscal fourth quarter when it comes to revenue and some of those pricing dynamics?

[Jake Elguicze, SVP & CFO at Embecta]

Yeah, sure, Marie. Thanks for the question. So, to start off, I think we're really, really pleased with the third quarter results. I think in comparison to our own internal expectations, we did better by approximately $14,000,000 or so in terms of revenue contribution. Again, as we said in our prepared remarks, that all entirely due to The US and it was sort of equally split between some of the pricing items that you were referring to coupled with improved volumes due to distributors buying in advance of the July 4 holiday.

[Jake Elguicze, SVP & CFO at Embecta]

So if you were to think about the implied midpoint if you will of our fourth quarter revenue, we're essentially going from about $295,000,000 in revenue in Q3 down to a midpoint of around $265,000,000 in Q4. And really that's driven by the fact that we don't expect those distributor orders to happen in the fourth quarter of the year, and from the third quarter to the fourth quarter that's driving about half of the potential sequential decline in revenue. And The US rebate reserve adjustments are not necessarily expected to also reoccur in the fourth quarter. That positively impacted our third quarter results by about $7,000,000 We also expect there to be around a $3,000,000 incremental headwind from FX going from Q3 to Q4. And then you heard us talk about China in the fourth quarter.

[Jake Elguicze, SVP & CFO at Embecta]

Our estimates are there's certainly been an impact I would say from like a geopolitical standpoint, and right now we're projecting that China revenue in the fourth quarter is going to be slightly lower than the China revenue that we're seeing in the third quarter. So it really comes down to those dynamics.

[Marie Thibault, MD & Medical Technology and Digital Health Analyst at BTIG]

Okay, that's helpful. Jake, if I can also ask a similar question on margins. I'm working through my model here and it just looks like we'd have to bake in a pretty sharp decline in gross margins, operating margins, EBITDA to get to the I guess really the high end of the range for the guide. What are some of the dynamics there? Of course, understand revenue is going to be a bit lower than it was this quarter, but what else should we be thinking about?

[Jake Elguicze, SVP & CFO at Embecta]

Yeah, Marie, again, I think coming back to the first, the results in the third quarter, again, we significantly exceeded our internal estimates, very, very strong performance in Q3, in part aided by the fact that we did have a benefit from profit and inventory that impacted our results. If we think about whether it's the revenue profile going from Q3 to Q4, or the gross or operating margin profile from Q3 to Q4. This isn't something that is necessarily unusual for us. We have seen over the last several years step downs from Q3 margins, whether it's gross margins or operating margins to Q4, so it is more typical for us for that to occur, but the midpoint of our operating margin range essentially calls for operating margins to be around 24% in the fourth quarter of the year, and the step down is largely due to our thoughts on gross margin, largely due to the fact that revenue is expected to come down. So we're not necessarily expecting those same pricing benefits, we're not necessarily expecting right now to see those same benefits in terms of distributor orders that positively impacted Q3 results.

[Jake Elguicze, SVP & CFO at Embecta]

So from that perspective, we would expect the revenue impact to our margins to drive around a 400 basis point sequential decline. And then the next big driver is profit and inventory. So PII was a benefit to our third quarter margins. It's actually expected to be a slight expense in the fourth quarter and that is driving around or is expected to drive around a 300 basis point sequential move from Q3 to Q4. And then lastly in terms of OpEx, typically in SG and A we do see somewhat of a step up from Q3 to Q4 in terms of SG and A expense, and that's largely due to the timing of some commercial spending and some trade shows that typically occur in the fourth quarter of any given year.

[Jake Elguicze, SVP & CFO at Embecta]

And then lastly, we do expect there to be a slight uptick in terms of R and D expense. So we're making a lot of very, very good progress in terms of some of the value creation drivers that we outlined at the recent Analyst and Investor Day, and we do intend to spend behind some of those things. For instance, we talked about developing a market appropriate, more low cost pen needle and syringe product lines. We're going to be spending behind that. We also talked about making inroads in terms of becoming more cannula independent from our former parent, and we're gonna be spending behind that as well as we move that project ahead.

[Jake Elguicze, SVP & CFO at Embecta]

And then lastly, we're making a lot of really, really good progress in terms of working with well over 30 different generic pharmaceutical companies as it relates to the use of our pen needles with their GLP-one products. And we expect to see an uptick in terms of R and D spending associated with that as well.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Maybe, Mike, just to sort of emphasize something that Jake said, our business results may fluctuate a bit quarter to quarter, but over a longer period of time, they tend to be incredibly stable, right? So, the implied quarter four margins are fairly consistent with quarter four margins you have seen in prior years. So, I just wanted to emphasize that point as well.

[Marie Thibault, MD & Medical Technology and Digital Health Analyst at BTIG]

Okay. Very helpful. Lots of great detail. If I can sneak in one last quick one, really sort of on capital allocation. Congrats on hitting your debt pay down goal ahead of time.

[Marie Thibault, MD & Medical Technology and Digital Health Analyst at BTIG]

Did want to ask about your openness or interest in possible share repurchasing. Obviously, understand debt pay down remains a priority. But given what we see as a very attractive valuation for your stock, wondered about your thoughts on share buybacks. Thanks.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Yeah. Mary, our thoughts on capital allocation haven't changed since what we laid out at our Investor Day in May. Know, paying down debt is a priority. And then, essentially, the investments necessary to transition the company back to growth remains a key priority. So, at this point, those are the things those are the priorities we are focused on, Mary.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Anthony Petrone from Mizuho Americas.

[Anthony Petrone, MD - Equity Research at Mizuho Financial Group]

Thanks and congratulations on the quarter here. Maybe I'll start with the competitive bidding proposal from CMS. Certainly, encompasses CGMs and pumps. It also talks about other accessories around those two solutions. I'm just wondering if that goes through potentially what could be the ancillary tailwind, I would imagine to the Penn needle business.

[Anthony Petrone, MD - Equity Research at Mizuho Financial Group]

And then I'll have a couple of follow ups. Thanks.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Yeah. Anthony, I think your hypothesis is probably the right one, but obviously it's too early to tell what impact CMS, the competitive bidding proposal is going to have on pump adoption rates going forward. You know, for us, you know, as you realize that we are largely insulated just given the nature of the portfolio and the channels through which we operate. And obviously, we'll continue to monitor developments. And as it develops, if we feel like it's going to have a positive impact on our business, we'll certainly update you.

[Anthony Petrone, MD - Equity Research at Mizuho Financial Group]

No, it's helpful. And then maybe shifting gears to China. There's been obviously updates on the tariff front. Maybe Jake, if you can provide a little bit on what updated rates out there, how that potentially could flow through the P and L, but also on the demand side, I know you're local for local there, but I think there's some inventory that comes out of China that goes elsewhere. So maybe just the geopolitical backdrop, how it flows in from a tariff standpoint with the latest rates?

[Anthony Petrone, MD - Equity Research at Mizuho Financial Group]

And is there any demand impact that you're seeing? Thanks again and congrats on the quarter.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Yeah. Maybe Anthony, I'll start off and then Jake can augment as necessary. Look, on the tariff front, as you know, the tariff rates between US and China were reduced while negotiations were underway for a new agreement. That agreement is, is supposed to come due somewhere in the next week, I think August 12. So, since the last update, since our last call to now, rates are around 10%.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

So, you know, at this point for fiscal twenty twenty five, we expect a very minimal incremental tariff impact, across our business, US to China, China to US. The product that we make in China, you know, little of that comes to The US. And because we are a product focused on diabetes, we get certain exemptions under the Nairobi protocol. So, expect that those exemptions will remain. The rest of the product that's made at a plant in China is either consumed locally in China or mostly in Asian markets.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

So there we don't see much of a tariff impact. And then the final point I'll make, because you asked on the demand side. As you know, it's a fairly uncertain environment right now. We are certainly seeing a preference towards local Chinese brands as The US China relationship evolves. Are continuing to monitor it and we took the latest thoughts we had on this when we updated the guidance earlier this morning.

[Anthony Petrone, MD - Equity Research at Mizuho Financial Group]

Thank you, Dev.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Travis Steed from Bank of America Securities.

[Gracia Mahoney, Associate at Bank of America]

This is Grisha Mahoney on for Travis. Congrats on the nice quarter, and thanks for taking the question. My first one, I wanted to ask about free cash flow. So it was higher in the quarter, and you called out that 26,000,000 trade receivables benefit. But I was just wondering if there's continuing underlying strength in that and any way to potentially contribute to some upside for that $600,000,000 free cash flow LRP target you called out at your Investor Day in May?

[Jake Elguicze, SVP & CFO at Embecta]

Yes, thanks for the question. Mean free cash flow was certainly a real positive for the quarter. I think we've been saying for quite some time that this business is really a highly profitable cash flow generative business. It's just that up until recently, because we've had to use so much cash associated with stand up and separation activities, the true underlying free cash flow ability of the company was sort of masked. And now that we're complete with separation activities, we're starting to see, and it's becoming more apparent externally, what the free cash flow capabilities of Invecta are.

[Jake Elguicze, SVP & CFO at Embecta]

So, yeah, we generated around $81,000,000 of free cash flow this quarter, even if you were to sort of normalize for the factoring, we were around $55,000,000 or so of free cash flow generation. If you were to just simply annualize that, you get to a little over $200,000,000 in terms of potential annual free cash flow. So we are well on our way to being able to achieve the targets that we laid out at our Analyst Day in terms of free cash flow generation through 2028. And I think it's really going to position us well to be able to continue to delever, get the balance sheet at a point where we do have that additional financial flexibility to be able to do organic and probably importantly inorganic investments to really get the top line moving in a much more sustainable positive direction.

[Gracia Mahoney, Associate at Bank of America]

Great, thank you. And then just one more, on the store closures that you called out in Q2 that are pressured in the second half of this year, just wondering if you could walk through, how you're seeing those dynamics play out in the second half and any visibility maybe into a broader trend into 2026. And thanks for taking the questions.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Yeah, thanks for the question. Look, it's only been one quarter really, so it's too early to point to specific trends. But let me just say that it is something we are following closely. And we commented earlier that we are seeing strength in our US performance and it's pretty broad based. It is something that is potentially a result of patients that are facing their local pharmacy store closed, go to some other pharmacies to continue to procure the products.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

It's something we'll watch closely. It is potentially contributing to our US results, but it's too early to call it that. We'll certainly update, you know, as we get more information on this.

[Gracia Mahoney, Associate at Bank of America]

Great. Thank you.

[Operator]

Thank you. As a reminder to ask a question, please press star Our next question comes from the line of Michael Pollard from Wolfe Research.

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

Hi, good morning. I wanted to ask the China follow-up question. So Doug, you alluded to it there in your response to Anthony. But it sounds like tariff driven global tensions in China might be persuading the local markets to preference local manufacturers and brands. Am I reading this correct?

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

I just want to understand I'm not a China analyst by any stretch. I want to understand what you mean by the kind of geopolitical kind of environment. And it sounds like in the guidance, you're expecting that China revenue down Q over Q. So double click on that one more time, please. What what are you really saying? Thank you.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Yeah. So, what we did, Mike, for the guidance that we gave out today, we incorporated our thoughts and sort of revised distributor demand in q four. And the reason for that was really twofold. Our expectations around, you know, in the in the or or the challenging geopolitical and trade environments, may be a preference towards local Chinese brands and increased competitiveness, but also distributors potentially rebalancing their inventory towards the end of our fiscal year. As by way of background, the way our business flows in China is we sell to three or four national distributors that then sell to 200 plus sub distributors.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

And importantly, the national distributors that we sell to prepay for our products. So, that gives us a little bit more visibility into what their ordering patterns are likely to be. Now, I'm pleased to say that in spite of, you know, this potential softness in China, our US business has been performing and so we sort of netted those out as we considered our thoughts on guidance for this year. It's a fast moving environment, as you know, Mike. So, it's something that we are following closely.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Our China team, is commercially extremely strong. As you know, we have a manufacturing base there. So, and we continue to be sort of optimistic with respect to our long term outlook on China because the volume growth over there tends to be in the mid single digits.

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

Helpful, Dev. I have one more as a follow-up back to The US market, maybe a little out of bounds here. But on the GLP-one topic, you know, the compounders have been remarkably effective at growing in this market and often they're selling vials of compounded GLP-one medication with syringes. And my question for you is, you positively exposed to that syringe demand or is your product not fit that use case?

[Devdatt Kurdikar, Director, President & CEO at Embecta]

You know, we are positively exposed, right in certain markets. You know, we are only indicated for insulin deliveries. Obviously, we stick to our indications when it comes to marketing. I think when we think about GLP, Mike, more broadly, you know, it is really the generic GLP-one trends that we follow more closely because we do expect, and you might have heard of this or read about this from certain drug companies that have had earnings calls in recent weeks about their bullishness in terms of generic GLP-one adoption in various markets beginning as early as 2026 in Canada and potentially India and Brazil as well. So, really, from a business standpoint, I think that is going to be far more impactful for us than, than any potential, syringe uplift from from from, you know, compounders using our syringes or patients using our syringes.

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

Understood. That is helpful. Just one clarification there. So, hear the pen needle opportunity loud and clear on the syringe side. So, you don't have the indication it's insulin indicated, so you can't market it.

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

But does the syringe would work in this use case if a patient were to try that?

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Yeah. I mean, it is a syringe. Would work. No question about it. Right?

[Devdatt Kurdikar, Director, President & CEO at Embecta]

But, you know, it's marked for insulin. It's been indicated for insulin. Now in certain markets outside The US, actually, bodies have taken the view that it's okay to use our syringes for GLP-one delivery. But I'm not aware of that actually happening in The US.

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

Thank you for the questions.

[Operator]

Thank you. At this time, I would now like to turn the conference back over to Deb for closing remarks.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

Thank you all for joining us. Let me just emphasize that we are very pleased with our performance in Q3 and really excited about the second phase of our journey as we progress on the various initiatives we laid out during Investor Day to transition the company back to growth. Particularly pleased with the strong free cash flow generation capabilities of the company and achieving our debt pay down target. And as you heard us say, brand transition is well underway and our multi year ERP program has been completed. And I really wanted to thank and provide and send my sincere gratitude to all my colleagues at Ambecta around the world.

[Devdatt Kurdikar, Director, President & CEO at Embecta]

All of this work obviously requires significant dedication and effort by our team. And I'm very grateful for how they are executing even as uncertainty exists in the geopolitical and global trade environments. With that, thank you for calling in and for your interest in Ambecta.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Pravesh Khandelwal, VP - IR
• Devdatt Kurdikar, Director, President & CEO
• Jake Elguicze, SVP & CFO

Analysts

• Marie Thibault, MD & Medical Technology and Digital Health Analyst at BTIG
• Anthony Petrone, MD - Equity Research at Mizuho Financial Group
• Gracia Mahoney, Associate at Bank of America
• Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC