# Embecta Corp.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Embecta Corp.](/companies/embc.md) (CIK 1872789)
- Form: 10-Q
- Filed: 2024-08-09
- Accepted by EDGAR: Aug 9, 2024, 12:50 ET
- Period: 2024-06-30
- Accession: 0001872789-24-000028
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1872789/000187278924000028/embc-20240630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1872789/000187278924000028/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $272.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-10-01 to 2024-06-30 | $837.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $82.4m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-10-01 to 2024-06-30 | $275.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $190.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-10-01 to 2024-06-30 | $561.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-04-01 to 2024-06-30 | $20.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-10-01 to 2024-06-30 | $59.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-04-01 to 2024-06-30 | $85.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-10-01 to 2024-06-30 | $268.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | $55.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-10-01 to 2024-06-30 | $140.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $12.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-10-01 to 2024-06-30 | −$12.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | $14.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-10-01 to 2024-06-30 | $63.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.25 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-10-01 to 2024-06-30 | $1.10 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.25 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-10-01 to 2024-06-30 | $1.11 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 57,842,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-10-01 to 2024-06-30 | 58,143,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-10-01 to 2024-06-30 | $9.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-10-01 to 2024-06-30 | $15.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-10-01 to 2024-06-30 | $25.8m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2024-06-30 | $275.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $781.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $1.27bn | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $370.7m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-06-30 | $1.59bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-06-30 | $9.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-06-30 | −$763.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,330 characters.

### Certain Factors Affecting Forward-Looking Statements

*The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes contained elsewhere in this Quarterly Report on Form 10-Q. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and other factors described throughout this discussion and analysis, particularly in the section “Cautionary Statement Concerning Forward-Looking Statements.”*

### Company Overview

We are a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes. In the 100-year history of our business, we believe that our products have become some of the most widely recognized and respected brands in diabetes management in the world. We estimate that our products are used by approximately 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes. Our business traces its origins to 1924, when BD developed the first dedicated insulin syringe. Since then, we have built a world-class organization with a unique manufacturing, supply chain and commercial footprint.

We have a broad portfolio of marketed products, including a variety of pen needles, syringes and safety injection devices, which are complemented by our proprietary digital application designed to assist people with managing their diabetes. Our pen needles are sterile, single-use, medical devices, designed to be used in conjunction with pen injectors that inject insulin or other diabetes medications. We also sell safety pen needles, which have shields on both ends of the cannula that automatically deploy after the injection to help prevent needlestick exposure and injury during injection and disposal. Our traditional and safety pen needles are compatible and frequently used with widely available pen injectors in the market today. In addition to pen needles, we sell sterile, single-use insulin syringes, which are used to inject insulin drawn from insulin vials. We also sell safety insulin syringes, which have a sliding safety shield that can be activated with one-hand after the injection to help prevent needlestick exposure and injury during injection and disposal.

We primarily sell our products to wholesalers and distributors that sell to retail and institutional channels who in turn sell to patients or use the products to deliver insulin injections to patients.

### Key Trends Affecting Our Results of Operations

Competition. The regions in which we conduct our business and the medical devices industry in general are highly competitive. We face significant competition from a wide range of companies in a highly regulated industry. These include large companies with multiple product lines, some of which may have greater financial and marketing resources than us, as well as smaller more specialized companies. Non-traditional entrants, such as technology companies, are also entering into the diabetes care industry and its adjacent markets, some of which may have greater financial and marketing resources than us.

Pricing Pressures. We face significant pricing pressures from competitors in the pen needle and insulin syringe categories who not only can provide competitive products at lower costs, but also provide payors and customers with more choices for formulary partners in these categories. In addition, the increased scrutiny by regulators on healthcare spending, which accelerated in light of the COVID-19 pandemic, along with a shift towards volume-based procurement and group purchasing organizations, which generally values lower cost over product features, benefits and quality, have placed significant pressure on Embecta to lower price in both developed and emerging markets. These trends may reduce our operating margins, which are only partially offset by our ability to differentiate our products and sell at higher prices.

Commoditization of Injection Devices. Given the growing demand for medical devices to assist in the treatment of diabetes and difficulties around access to diabetes care due to complex and costly insurance plans, patient care is increasingly focused on providing more affordable products, which has led to the commoditization of more traditional injection delivery devices, such as insulin syringes and pen needles. Existing and new local and regional low-cost providers, in combination with a shift from insulin vials to insulin pens, have made the pen needle category highly competitive. This has forced providers to provide clinical evidence to differentiate their products.

Changes in Clinical Practice. Introduction of new drugs and increased penetration of oral anti-diabetic drugs (e.g., SGLT-2s), GLP-1s and GLP-1 combination products have delayed initiation of insulin therapy and contributed to less demand for our products. New drug therapies, including weekly insulin, are targeted to challenge the current diabetes treatment paradigm, including the frequency insulin is dosed (weekly vs. daily injections) and amount of insulin used. Additionally, insulin therapy in developed markets continues to transition to infusion pumps.

Decentralization of Chronic Care. Many countries are facing an aging population and a rapidly growing number of people living with diabetes. While healthcare investments in certain regions continue to grow, there is an increased burden on physicians and longer wait times for patients. Healthcare delivery for non-emergency diabetes care is expected to continue shifting outside of hospitals to primary care providers, which could have a material impact on our results of operations.

Political and Economic Instability in Emerging Markets. We operate in a number of emerging markets, many of which are subject from time to time to significant political and economic disruptions. However, the number of countries we provide products to and our proactive channel management strategies help us manage this variability.

### Recent Developments

We continue to face increases in the cost and disrupted availability of raw materials, components, and other inputs necessary to manufacture and distribute our products due to constraints and inflation within the global supply chain, as well as increases in the cost and time to distribute our products. To date we have been able to successfully mitigate this disruption and provide uninterrupted supply to our customers by increasing our inventory levels and taking other measures.

In December 2023, we submitted our first 510(k) premarket filing to the U.S. Food and Drug Administration ("FDA") for our proprietary disposable insulin delivery system.

On March 28, 2024, we entered into (i) a second amendment (the “TSA Amendment”) to the Transition Services Agreements ("TSA"), dated as of March 31, 2022 and previously amended as of July 1, 2022 by and between Embecta and BD, and (ii) a second amendment (the “LSA Amendment”) to the Logistics Services Agreements ("LSA"), dated January 1, 2022 and previously amended as of November 20, 2023, by and between Embecta and BD. Pursuant to the TSA and the LSA, originally entered into in connection with the Separation, Embecta and BD and their respective affiliates provide each other, on an interim, transitional basis, the Business Continuity Processes. Under the TSA Amendment and the LSA Amendment, BD granted Embecta, among other things, a limited extension until November 1, 2024 of certain services in a limited set of markets to support the Business Continuity Processes.

We continue to monitor the conflict in Ukraine and the associated sanctions and other restrictions. We also are monitoring the Israel-Hamas war and Houthi attacks on commercial shipping vessels and other naval vessels. As of August 9, 2024, there is no material impact to our business operations and financial performance as a result of the aforementioned conflicts. However, the full impact of the conflicts on our business operations and financial performance remains uncertain and will depend on future developments, including the severity and duration of the conflicts and their impact on regional and global economic conditions. We will continue to monitor these conflicts and assess the related restrictions and other effects on our business.

In addition, our revenues and results of operations have been affected by various fluctuations in macroeconomic conditions and regulatory and policy changes, both on a global level and in particular markets, which include inflation and slowing economic growth and contractions, a rising interest rate environment, supply chain interruptions, tariff policy changes, volatility in capital markets and the availability of credit, tax rates and the rate of exchange between the United States dollar and foreign currencies. The nature and extent of the impact of these factors among others varies by region and remains uncertain and unpredictable and may affect our business.

### Results of Operations

Our unaudited Condensed Consolidated Statements of Income are as follows:

|  | Three months ended June 30, |  | Nine months ended June 30, |  |
| --- | ---: | ---: | ---: | ---: |
|  | **2024** | **2023%** | **2024** | **2023%** |
| Revenues | $272.5 | $286.1 (4.8)% | $837.0 | $838.9 (0.2)% |
| Cost of products sold | 82.4 | 96.6 (14.7) | 275.6 | 270.8 1.8 |
| Gross Profit | 190.1 | 189.5 0.3 | 561.4 | 568.1 (1.2) |
| Operating expenses: |  |  |  |  |
| Selling and administrative expense | 85.7 | 87.6 (2.2) | 268.3 | 245.6 9.2 |
| Research and development expense | 20.4 | 22.6 (9.7) | 59.0 | 61.6 (4.2) |
| Other operating expenses | 28.1 | 28.0 0.4 | 93.5 | 65.2 43.8 |
| Total Operating Expenses | 134.2 | 138.2 (2.9) | 420.8 | 372.4 13.0 |
| Operating Income | 55.9 | 51.3 9.0 | 140.6 | 195.7 (28.2) |
| Interest expense, net | (27.8) | (27.0) 3.0 | (83.3) | (79.4) 4.9 |
| Other income (expense), net | (1.1) | (4.2) (73.8) | (6.1) | (15.6) (60.9) |
| Income Before Income Taxes | 27.0 | 20.1 34.3 | 51.2 | 100.7 (49.2) |
| Income tax provision (benefit) | 12.3 | 4.9 151.0 | (12.5) | 36.3 (134.4) |
| Net Income | $14.7 | $15.2 (3.3) | $63.7 | $64.4 (1.1) |
| Net Income per common share: |  |  |  |  |
| Basic | $0.25 | $0.27 (7.4)% | $1.11 | $1.13 (1.8)% |
| Diluted | $0.25 | $0.26 (3.8)% | $1.10 | $1.12 (1.8)% |

### Three Months Ended June 30, 2024 Summary (on a comparative basis)

Key financial results for the three months ended June 30, 2024 were as follows:

- Revenue decreased by $13.6 million to $272.5 million from $286.1 million;
- Gross profit increased by $0.6 million to $190.1 million from $189.5 million. Gross profit as a percent of revenue was 69.8%, as compared to 66.2% in the prior year comparative period;
- Operating income increased by $4.6 million to $55.9 million from $51.3 million; and
- Net income decreased by $0.5 million to $14.7 million from $15.2 million.

### Nine Months Ended June 30, 2024 Summary (on a comparative basis)

Key financial results for the nine months ended June 30, 2024 were as follows:

- Revenue decreased by $1.9 million to $837.0 million from $838.9 million;
- Gross profit decreased by $6.7 million to $561.4 million, compared to $568.1 million. Gross profit as a percent of revenue was 67.1%, as compared to 67.7% in the prior year comparative period;
- Operating income decreased by $55.1 million to $140.6 million from $195.7 million; and
- Net income decreased by $0.7 million to $63.7 million from $64.4 million.

### Revenues

Our revenues decreased by $13.6 million, or 4.8%, to $272.5 million for the three months ended June 30, 2024 as compared to revenues of $286.1 million for the three months ended June 30, 2023. Changes in revenues are driven by the volume of goods that the Company sells, the prices it negotiates with customers, and changes in foreign exchange rates. The decrease in revenues was driven by $24.4 million of unfavorable changes in volume and $2.5 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S. dollar. This was partially offset by $7.8 million of favorable gross-to-net adjustments resulting from changes in estimates, $4.9 million of favorable changes in price, and a $0.6 million increase in contract manufacturing revenues related to sales of non-diabetes products to BD.

Our revenues decreased by $1.9 million, or 0.2%, to $837.0 million for the nine months ended June 30, 2024 as compared to revenues of $838.9 million for the nine months ended June 30, 2023. The decrease in revenues was driven by $11.4 million of unfavorable changes in volume, $2.7 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S. dollar, and a $2.5 million decrease in contract manufacturing revenues related to sales of non-diabetes products to BD. This was partially offset by $14.0 million of favorable changes in price and $0.7 million of favorable gross-to-net adjustments resulting from changes in estimates.

Revenues by geographic region are as follows:

|  | Three months ended June 30, 2024 | 2023 | Nine months ended June 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| United States | $143.6 | $153.9 | $439.8 | $449.6 |
| International | 128.9 | 132.2 | 397.2 | 389.3 |
| Total | $272.5 | $286.1 | $837.0 | $838.9 |

### Cost of products sold

Cost of products sold decreased by $14.2 million, or 14.7%, to $82.4 million for the three months ended June 30, 2024 as compared to $96.6 million for the three months ended June 30, 2023. Cost of products sold as a percentage of revenues was 30.2% for the three months ended June 30, 2024 as compared to 33.8% for the three months ended June 30, 2023. The decrease in cost of products sold for the three month comparative period was primarily driven by lower net revenues and the impact of favorable profit in inventory adjustments as a result of inventory that was sold to external customers that was manufactured in anticipation of our ERP system and other Business Continuity Processes that went live during fiscal 2024. We are not expecting to record a favorable profit in inventory adjustment in the fourth quarter of fiscal 2024. This was partially offset by inflation on the costs of certain raw materials (including freight), direct labor, and overhead, and unfavorable impacts due to foreign exchange rates. We intend to continue to work to improve productivity to help partially offset the impact of these increased costs.

Cost of products sold increased by $4.8 million, or 1.8%, to $275.6 million for the nine months ended June 30, 2024 as compared to $270.8 million for the nine months ended June 30, 2023. Cost of products sold as a percentage of revenues was 32.9% for the nine months ended June 30, 2024 as compared to 32.3% in the nine months ended June 30, 2023. The increase in cost of products sold for the nine month comparative period was primarily driven by the impact of inflation on the costs of certain raw materials (including freight), direct labor, and overhead, the impact of negative year-over-year manufacturing variances primarily attributable to the planned temporary shutdown of our Suzhou, China facility as it relates to production for the domestic Chinese market, and unfavorable impacts due to foreign exchange rates. We intend to continue to work to improve productivity to help partially offset these increased costs. This was partially offset by the impact of profit in inventory adjustments as a result of inventory that was sold to external customers that was manufactured in anticipation of our ERP system and other Business Continuity Processes that went live during fiscal 2024, as well as lower net revenues.

### Selling and administrative expenses

Selling and administrative expenses decreased by $1.9 million, or 2.2%, to $85.7 million for the three months ended June 30, 2024 as compared to $87.6 million for the three months ended June 30, 2023. The decrease for the three month comparative period was primarily driven by actions taken in the current period to reduce headcount and marketing expense in addition to lower TSA and LSA costs with BD. This was offset by increased outbound freight and warehousing costs.

Selling and administrative expenses increased by $22.7 million, or 9.2%, to $268.3 million for the nine months ended June 30, 2024 as compared to $245.6 million for the nine months ended June 30, 2023. The increase for the nine month comparative period was primarily driven by an increase in compensation and benefit costs due to increased headcount on average in the current period in addition to increased outbound freight and warehousing costs. This was partially offset primarily by lower TSA and LSA costs with BD incurred in the current year period.

### Research and development expenses

Research and development expenses decreased by $2.2 million, or 9.7%, to $20.4 million for the three months ended June 30, 2024 as compared to $22.6 million for the three months ended June 30, 2023. Research and development expenses decreased by $2.6 million, or 4.2%, to $59.0 million for the nine months ended June 30, 2024 as compared to $61.6 million for the nine months ended June 30, 2023. The decrease for the three and nine month comparative periods were primarily driven by timing of payments made in connection with our insulin patch pump platform.

### Other operating expenses

Other operating expenses incurred primarily relate to accounting, auditing, legal services, marketing, supply chain, employee retention, costs associated with the implementation of our new ERP system and other Business Continuity Processes, and certain other costs to establish certain stand-alone functions to assist with the transition to being a stand-alone entity. As we continue to stand-up various corporate functions as a stand-alone publicly-traded company, we expect to incur similar costs associated with the same type of activities in the current year.

For the three and nine months ended June 30, 2024, we recognized costs associated with the amortization of cloud computing arrangements. For the three and nine months ended June 30, 2023 there were no amortization of implementation costs associated with cloud computing arrangements due to the timing of when these projects were placed into service.

Other operating expenses are as follows:

|  | Three months ended June 30, 2024 | 2023 | Nine months ended June 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Costs related to the Separation | $25.8 | $27.0 | $89.6 | $64.1 |
| Amortization of cloud computing arrangements | 2.2 | — | 3.8 | — |
| Other | 0.1 | 1.0 | 0.1 | 1.1 |
| Total | $28.1 | $28.0 | $93.5 | $65.2 |

### Interest expense, net

Interest expense, net increased by $0.8 million to $27.8 million for the three months ended June 30, 2024 as compared to $27.0 million for the three months ended June 30, 2023. Interest expense, net increased by $3.9 million to $83.3 million for the nine months ended June 30, 2024 as compared to $79.4 million for the nine months ended June 30, 2023. The increases for both comparative periods were primarily a result of higher interest rates on our variable rate debt which is attributable to increases in SOFR that impacted our Term Loan. This was partially offset by an increase in interest income from amounts held in interest bearing accounts and money market funds. It remains unclear whether the United States Federal Reserve will increase or decrease the benchmark interest rate during the remainder of fiscal 2024. An increase in the benchmark interest rate would result in an increase in interest expense on our variable rate debt and a decrease in the benchmark interest rate would result in a decrease in interest expense on our variable rate debt.

### Other income (expense), net

Other income (expense), net, was $(1.1) million and $(4.2) million for the three months ended June 30, 2024 and 2023, respectively. Other income (expense), net, was $(6.1) million and $(15.6) million for the nine months ended June 30, 2024 and 2023, respectively. The costs incurred for all periods primarily relate to amounts due to BD for income taxes payable incurred in deferred jurisdictions where BD is considered the primary obligor. We do not expect to incur any additional amounts where BD is considered the primary obligor.

### Income tax provision (benefit)

The effective tax rates were 45.6% and 24.4% for the three months ended June 30, 2024 and 2023, respectively. The increase in the Company’s effective tax rate from the prior comparative period is primarily due to an increase in non-deductible interest expense in the United States and higher U.S. tax on foreign earnings. This was partially offset by lower tax expense due to a change in the mix of earnings among tax jurisdictions.

The effective tax rates were (24.4)% and 36.0% for the nine months ended June 30, 2024 and 2023, respectively. The decrease in the Company’s effective tax rate from the prior comparative period is attributable to lower withholding taxes on undistributed foreign earnings which reflects a tax benefit of approximately $18.8 million related to Swiss withholding taxes from prior years. Also contributing to the decrease was the recognition of a tax benefit of approximately $17.1 million for the establishment of a deferred tax asset as a result of a higher Swiss cantonal tax rate that contributed to an increased tax basis that is amortizable for income tax purposes over a period of seven years. The decrease in the effective tax rate was also impacted by lower tax expense due to a change in the mix of earnings among tax jurisdictions. This was partially offset by an increase in non-deductible interest expense in the U.S.

### LIQUIDITY AND CAPITAL RESOURCES

We believe that our cash and our equivalents and cash from operations, together with our borrowing capacity under our revolving credit facility, will provide sufficient financial flexibility to fund seasonal and other working capital requirements, capital expenditures, debt service requirements and other obligations, cash dividends on common shares, share repurchases and additional growth opportunities for the foreseeable future. However, should it become necessary, we believe that our credit profile should provide us with access to additional financing in order to fund normal business operations, make interest payments, fund growth opportunities and satisfy upcoming debt maturities.

The following is a summary of Embecta's total debt outstanding as of June 30, 2024:

|  |  |
| --- | ---: |
| Term Loan | $928.6 |
| 5.00% Notes | 500.0 |
| 6.75% Notes | 200.0 |
| Total principal debt issued | $1,628.6 |
| Less: current debt obligations | (9.5) |
| Less: debt issuance costs and discounts | (28.3) |
| Long-term debt | $1,590.8 |

The schedule of principal payments required on long-term debt for the next five years and thereafter is as follows:

|  |  |
| --- | ---: |
| 2024 | $2.4 |
| 2025 | 9.5 |
| 2026 | 9.5 |
| 2027 | 9.5 |
| 2028 | 9.5 |
| Thereafter | 1,588.2 |

Dollar amounts are in millions except per share amounts or as otherwise specified.

Certain measures relating to our total debt outstanding as of June 30, 2024 were as follows:

|  |  |
| --- | ---: |
| Total debt | $1,600.3 |
| Short-term debt as a percentage of total debt | 0.6% |
| Weighted average cost of total debt | 7.2% |

The credit agreement and the indentures for the 5.00% Notes and the 6.75% Notes contain customary financial covenants, including a total net leverage ratio covenant, which measures the ratio of (i) consolidated total net debt to (ii) consolidated earnings before interest, taxes, depreciation and amortization, and subject to other adjustments, must meet certain defined limits which are tested on a quarterly basis in accordance with the terms of the credit agreement and indentures governing the 5.00% Notes and the 6.75% Notes. In addition, the credit agreement contains covenants that limit, among other things, our ability to prepay, redeem or repurchase our subordinated and junior lien debt, incur additional debt, make acquisitions, merge with other entities, pay dividends or distributions, redeem or repurchase equity interests, and create or become subject to liens. As of June 30, 2024, we were in compliance with all of such covenants. The credit agreement and the senior secured are secured by substantially all assets of Embecta and each subsidiary guarantor, subject to certain exceptions.

For additional information related to the Company's debt related activities, refer to Note 11 within the *Notes to Condensed Consolidated Financial Statements* within this Form 10-Q.

### Leases

Maturities of our finance lease and operating lease liabilities as of June 30, 2024 by fiscal year are as follows:

|  | Finance Lease | Operating Leases | Total |
| --- | ---: | ---: | ---: |
| 2024 | $0.9 | $1.3 | $2.2 |
| 2025 | 3.7 | 4.1 | 7.8 |
| 2026 | 3.7 | 2.3 | 6.0 |
| 2027 | 3.8 | 1.8 | 5.6 |
| 2028 | 3.9 | 2.1 | 6.0 |
| Thereafter | 36.2 | 11.3 | 47.5 |
| Total lease payments | $52.2 | $22.9 | $75.1 |

For additional information related to our leases, refer to Note 16 within the *Notes to Condensed Consolidated Financial Statements* of this Form 10-Q.

### Factoring Agreements

In conjunction with the Separation, we entered into the Factoring Agreements with BD. Embecta owed BD a service fee calculated as 0.1% of annual revenues related to countries subject to the Factoring Agreements, in exchange for the services provided by BD pursuant to the Factoring Agreements.

As of March 31, 2024, all Factoring Agreements between Embecta and BD had expired and terminated as a result of our implementation and onboarding of certain Business Continuity Processes in North America, and certain jurisdictions in Europe and Asia.

### Access to Capital and Credit Ratings

In May 2024 and June 2024, Moody’s Investor Services and Standard & Poor’s Ratings Services published updates to our credit ratings. Our Moody's Investors Services credit rating is B1 and our Standard & Poor's Rating Services credit rating is B+.

Cash and equivalents and restricted cash were $281.8 million as of June 30, 2024 as compared to $326.5 million as of September 30, 2023.

The primary sources and uses of cash that contributed to the $44.7 million decrease were:

|  |  |
| --- | ---: |
| September 30, 2023 Cash and equivalents and restricted cash balance | $326.5 |
| Cash provided by operating activities | 9.1 |
| Cash used for investing activities | (15.8) |
| Cash used for financing activities | (36.8) |
| Effect of exchange rate changes on cash and equivalents and restricted cash | (1.2) |
| June 30, 2024 Cash and equivalents and restricted cash balance | $281.8 |

Net cash provided by operating activities was primarily attributable to:

|  |  |
| --- | ---: |
| Net income | $63.7 |
| Non-cash adjustments related to depreciation and amortization, stock-based compensation, and deferred income taxes | 12.5 |
| Change in accounts payable and accrued expenses | 34.5 |
| Change in trade receivables | (156.2) |
| Change in inventories | (32.8) |
| Change in amounts due from/due to Becton, Dickinson and Company | 49.2 |
| Change in prepaid expenses and other | 53.7 |
| Change in income and other net taxes payable | 7.2 |
| Change in other assets and liabilities, net | (22.7) |
| Net cash provided by operating activities | $9.1 |

The change in accounts payable and accrued expenses is primarily due to timing attributable to payments to vendors during the nine month period ending June 30, 2024.

As a result of the implementation of certain Business Continuity Processes, including our ERP system that went live in November 2023 for our North America business operations and in March 2024 for our EMEA and Greater Asia business operations as well as the expiration and termination of the Factoring Agreements between Embecta and BD, we are now responsible for the collection of any outstanding trade receivables in those respective regions. The increase in trade receivables is a direct result of this impact, and we expect to convert these outstanding trade receivables into cash in line with contractual customer payment terms.

The change in inventories is driven by actions taken to increase raw material purchases and finished goods in the current year in anticipation of our ERP system and other Business Continuity Processes that went live during fiscal 2024. We expect inventory levels to decrease during the remainder of fiscal 2024.

The change in amounts due from/due to Becton, Dickinson and Company primarily relates to the expiration and termination of the Factoring Agreement between Embecta and BD as we are now responsible for the collection of any outstanding trade receivables on a global basis.

The change in prepaid expenses and other are primarily driven by a reduction in payments to BD for future payments made to third parties on our behalf as a result of our implementation of certain Business Continuity Processes, including our ERP system, that went live in fiscal 2024.

The change in income and other net taxes payable was primarily due to the timing of required tax payments.

The change in other assets and liabilities, net is primarily due to costs capitalized during fiscal 2024 associated with the implementation of our ERP system.

All other movements related to working capital were due to timing of payments and receipts of cash in the ordinary course of business.

Net cash used for investing activities was comprised of capital expenditures of $15.8 million for the nine months ended June 30, 2024 to support further expansion of our business and operations.

Net cash used for financing activities was primarily attributable to:

|  |  |
| --- | ---: |
| Dividend payments | $(25.8) |
| Payments on long-term debt | (7.2) |
| Payments related to tax withholding for stock-based compensation | (2.8) |
| Payments on finance lease | (1.0) |
| Net cash used for financing activities | $(36.8) |

### Contractual Obligations

Our contractual obligations as of June 30, 2024, which require material cash requirements in the future, consist of purchase obligations and lease obligations. Purchase obligations are enforceable and legally binding obligations for purchases of goods and services which include inventory purchase commitments. Over the next several years, we expect to incur material costs associated with operating and maintaining our information technology infrastructure. Lease obligations include lease agreements for which a contract has been signed even if the lease has not yet commenced. Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2023 Form 10-K for further details. As of June 30, 2024, there have been no material changes to our contractual obligations outside the ordinary course of business.

### Critical Accounting Policies

Our significant accounting policies, which include management’s best estimates and judgments, are included in Note 3 to the Consolidated Financial Statements included in the 2023 Form 10-K. A discussion of accounting estimates considered critical because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates are disclosed in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2023 Form 10-K. There have been no changes to our critical accounting policies as of June 30, 2024.

### Cautionary Statements Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995 and other securities laws. Forward-looking statements include those containing such words as “anticipates,” “believes,” "can," “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “outlook,” “plans,” "possible," “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements that reflect Embecta’s expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts relating to discussions of future operations and financial performance (including volume growth, pricing, sales and earnings per share growth and cash flows) and statements regarding Embecta’s strategy for growth, future product development, anticipated product and regulatory clearances, approvals, and launches, competitive position and expenditures. Forward-looking statements are based upon our present intent, beliefs or expectations, are not guarantees of future performance and are subject to numerous risks, uncertainties, and changes in circumstances that are difficult to predict. Although Embecta believes that the expectations reflected in any forward-looking statements it makes are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such risks and uncertainties include, but are not limited to:

- Competitive factors that could adversely affect Embecta’s operations, including adoption of new drug therapies for treatment of diabetes, new product introductions by Embecta’s competitors, the development of new technologies, lower cost producers that create pricing pressure, and consolidation resulting in companies with greater scale and market presence than Embecta.
- The risk that Embecta is unable to replace the services, including the Business Continuity Processes, that BD currently provides to it on substantially similar terms as the terms on which BD is providing these services under the TSA, the LSA, and other transaction agreements or that BD terminates such services.
- Any failure by BD to perform its obligations under the various separation agreements entered into in connection with the Separation and distribution, including the cannula supply agreement.
- Any events that adversely affect the sale or profitability of one of Embecta’s key products or the revenue delivered from sales to its key customers.
- Increases in operating costs, including fluctuations in the cost and availability of oil-based resins, other raw materials, and energy as well as certain components, used in its products, the ability to maintain favorable supplier

arrangements and relationships, and the potential adverse effects of any disruption in the availability of such items.

- Embecta’s ability to obtain clearance from the FDA of any product, to market and sell such products successfully, to anticipate the needs of people with diabetes, and future business decisions by Embecta and its competitors.
- Changes in reimbursement practices of governments or private payers or other cost containment measures.
- The adverse financial impact resulting from unfavorable changes in foreign currency exchange rates, as well as regional, national and foreign economic factors, including inflation, deflation, and fluctuations in interest rates, and their potential effect on its operating performance.
- The impact of changes in United States, federal laws and policy that could affect fiscal and tax policies, healthcare and international trade, including import and export regulation and international trade agreements. In particular, tariffs or other trade barriers imposed by the United States or other countries could adversely impact its supply chain costs or otherwise adversely impact its results of operations.
- Any future impact of the COVID-19 pandemic or geopolitical instability on Embecta’s business, including disruptions in its operations and supply chains.
- New or changing laws and regulations affecting Embecta’s domestic and foreign operations, or changes in enforcement practices, including laws relating to healthcare, environmental protection, trade, monetary and fiscal policies, taxation (including tax reforms that could adversely impact multinational corporations) and licensing and regulatory requirements for products.
- The expected benefits of the Separation from BD.
- Risks associated with indebtedness and our use of indebtedness available to us.
- The risk that dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the Separation will exceed Embecta's estimates.
- The impact of the Separation on Embecta's businesses and the risk that the Separation may be more difficult, time-consuming or costly than expected, including the impact on its resources, systems, including ERP, procedures and controls, diversion of management’s attention and the impact on relationships with customers, suppliers, employees and other business counterparties.
- The risk that we may not complete strategic collaborative partnerships and acquisition opportunities that enable us to accelerate our growth or strategic collaborative opportunities that give us access to innovative technologies, complementary product lines, and new markets.

There can be no assurance that the transactions or uncertainties described above will in fact be consummated or occur in the manner described or at all. As a result, you should not place undue reliance upon our forward-looking statements. The above list of factors is not exhaustive or necessarily in order of importance. For additional information on identifying factors that may cause actual results to vary materially from those stated in forward-looking statements, see the discussions under “Risk Factors,” included within the 2023 Form 10-K. Any forward-looking statement speaks only as of the date on which it is made, and Embecta expressly disclaims and assumes no obligation to update or revise such statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

## Market risk

As filed, 1,672 characters.

There have been no material changes in information reported since the filing of the 2023 Form 10-K except as follows:

### Foreign Currency Exchange and Other Rate Risks

We operate on a global basis and are exposed to the risk that changes in foreign currency exchange rates could adversely affect our financial condition, results of operations and cash flows.

From time to time, we enter into foreign currency forward exchange contracts with major financial institutions to manage currency exposures for transactions denominated in a currency other than an entity’s functional currency. As a result, the impact of foreign currency gains/losses recognized in earnings are partially offset by gains/losses on the related foreign currency forward exchange contracts in the same reporting period. Refer to Note 14, *Financial Instruments and Fair Value Measurements* of the Notes to Condensed Consolidated Financial Statements for further information.

Consequently, foreign currency exchange contracts would not subject us to material risk due to exchange rate movements, because gains and losses on these contracts offset gains and losses on the assets, liabilities or transactions being hedged.

### Interest Rate Risk

*Debt* - Our interest rate risk relates primarily to our Term Loan. The interest rate is set at 300 basis points over SOFR, with a 0.50% SOFR floor. Based on our outstanding borrowings at June 30, 2024, a 100 basis points change in interest rates would have impacted interest expense on the Term Loan by $9.3 million on an annualized basis. To the extent we borrow on our revolving credit facility, we will be subject to risks related to changes in SOFR.

## Controls and procedures

As filed, 2,628 characters.

An evaluation was carried out by Embecta’s management, with the participation of Embecta’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Embecta’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2024. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were, as of the end of the period covered by this report, effective and designed to ensure that material information relating to Embecta and its consolidated subsidiaries would be made known to them by others within these entities.

In 2022, the Company commenced the process of implementing a new ERP system and other Business Continuity Processes to replace the existing systems provided by BD. The ERP system is designed to accurately maintain the Company's financial records used to report operating results. The implementation of the ERP system and other Business Continuity Processes is highly complex and will occur in phases across our geographies. The first phase of the implementation began in the fourth quarter of fiscal year 2023. The second phase began in the first quarter of fiscal year 2024 and will continue thorough the fiscal year with the remaining phases expected to be completed in fiscal year 2025. A standardized internal control framework was implemented with each phase as we move away from relying on BD’s systems and controls.

The Company continues to evaluate the design and effectiveness of certain controls, including, but not limited to, the information technology controls supporting the recently implemented ERP system and certain controls supporting the Business Continuity Processes, which will continue through the end of this fiscal year and into fiscal year 2025 for Latin America and India.

Up until the second phase of the implementation of the Business Continuity Processes discussed previously, we relied on certain material processes and internal controls over financial reporting performed by BD. Subsequent to the second phase of this implementation, we have and will continue to rely on certain processes and internal controls over financial reporting performed by BD for Latin America and India.

Except as set forth above, there were no changes in our internal controls over financial reporting during the fiscal quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, Embecta's internal controls over financial reporting.

## Risk factors

As filed, 290 characters.

There have been no material changes to Embecta’s risk factors from those described in “Risk Factors” included within the 2023 Form 10-K and Embecta’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 filed with the Securities and Exchange Commission on February 9, 2024.

Filed Aug 9, 2024.
Source: SEC EDGAR, the filing index for accession 0001872789-24-000028. Last ingested by Listed: Oct 24, 2026, 15:16 ET. No prices; not investment advice.