Embecta Corp. Common Stock 2026 Q3 Earnings Call

Good morning, everyone, welcome to Embecta's fiscal third quarter 2026 earnings conference call. The press release and slides to accompany today's call, along with webcast replay details, are available on the Investor Relations section of our website at www.embecta.com. With me today are Dev Kurdikar, Embecta's Chairman and Chief Executive Officer, and Jake Elguicze, 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, including those referenced on slide two of today's conference call presentation. Such statements are, in fact, forward-looking in nature and are subject to risks and uncertainties, 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. We do not intend to update or revise any forward-looking statements, including any charts, financial projections, or other data referenced in this presentation, whether as a result of new information, future events, or otherwise, except as required by applicable law. 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 comparable GAAP measures is included in our press release and conference call presentation, which are also included in the Investor section of our website at www.embecta.com.

Our agenda for today's call is as follows. Dev will begin with a review of the company's performance during the third quarter, followed by an update of the Owen Mumford acquisition, and then a discussion of the progress we have made with our strategic objectives. Jake will take you through our third quarter financial results in more detail, as well as our updated fiscal year 2026 guidance. We will open the call for questions. With that, I will now turn the call over to Dev.

Good morning, everyone, and thank you for joining us today. Before I talk about our recent acquisition of Owen Mumford, let me briefly comment on our third quarter results. During the third quarter, Embecta generated total revenue of approximately $272 million, which is a decrease of 8.1% year-over-year on an as-reported basis, and a decline of 8.9% on an adjusted constant currency basis. On a sequential basis, our third quarter financial performance improved significantly, with revenue increasing approximately $50 million, GAAP operating income increasing approximately $14 million, and adjusted operating income increasing approximately $21 million as compared to our second quarter results. The sequential increase was due to a combination of factors, including improved performance within the U.S. and international, as well as the initial contribution from the Owen Mumford acquisition, which closed midway through the quarter.

I will return to our U.S. and international performance for the quarter in more detail, but first, let me spend a few minutes on Owen Mumford, because we continue to be excited about what this acquisition means for Embecta's future. We closed the transaction on May 15th, and integration is progressing as planned. Our conviction in the strategic rationale remains unchanged. As a reminder, Owen Mumford broadens our product offerings well beyond insulin injection devices with the addition of a pharmaceutical services business and a wider portfolio of medical devices. Within pharmaceutical services, the portfolio includes a range of auto-injectors designed to support pharmaceutical partners anchored by the new Adaptis platform. OM's medical devices include those used for point-of-care testing and self-injection, among others. On Adaptis specifically, it's an award-winning next generation auto-injector designed with a single form factor that accommodates both 1 ml and 2.25 ml fill volumes.

What that practically means is that Adapt is a single final assembly process and was designed from the start to address customers' needs for reduced manufacturing changeovers, simplified supply chain logistics, and large scale production. We estimate the total addressable auto-injector market to be approximately $2.4 billion, growing at a double-digit CAGR driven by the adoption of biologics, the emergence of generic GLP-1 therapies, and the broader shift towards self-injection as the preferred modality across multiple chronic care categories. Adaptis is already supporting customer clinical development programs today, and our commercial contract pipeline includes secured long-term agreements with several partners. Stepping back, the addition of auto-injectors to our portfolio significantly expands our addressable market, meaningfully broadening our opportunity set well beyond our historical insulin injection footprint and significantly increases our weighted average market growth rate potential.

As we expand our work with pharmaceutical companies, from pen needles that can be used with either branded or generic GLP-1 drugs, to the development of a multi-dose pen injector and Owen Mumford's pharma services business, we are now serving a different customer base with needs distinct from our legacy insulin injection devices business. This opportunity requires dedicated leadership focus. To that end, I'm pleased to announce that Jeff Mann has been appointed President, Pharma Services and Product Management, and Chief Legal Officer. In this expanded role, Jeff will assume responsibility for the new pharma services organization, bringing together a combination of Embecta and Owen Mumford talent dedicated to this important effort. This new organization will have dedicated leadership and staff focused on this important growth platform as we expand our capabilities and strengthen our partnerships across the pharmaceutical industry. Turning to our manufacturing and distribution footprint.

As part of the Owen Mumford acquisition, we added four sites. These include three manufacturing plants, two of which are in the U.K. and one in Malaysia, as well as a warehousing center in the U.S. This broadening of our manufacturing and distribution base creates options for future network optimization and further strengthens our presence in emerging markets. Now let me turn to the progress we made against our strategic priorities during the quarter. First, in terms of strengthening our core business, I'm pleased to announce that our market-appropriate pen needles continue to progress through review with the U.S. FDA and with BSI for CE mark certification in Europe. In addition, we expect that we will launch market-appropriate syringes in additional countries in the coming months. Finally, we completed our brand transition in key European, Asian, and Latin American markets during the quarter.

Currently, more than 90% of Embecta revenue is now represented by products commercially launched and shipped under the Embecta label, and we remain on track to substantially complete global brand transition by the end of calendar year 2026. Second, expanding our product portfolio. We continue to build commercial momentum with our B2B co-packaging opportunity as generic GLP-1 therapies featuring Embecta pen needles launched in Canada, Brazil, and most recently South Africa. This follows the initial launch in India. In the coming months, we also expect to launch our pen needle small pack format in the U.S. to support those patients using Zepbound, which was recently made available in a pen injector format. Such small packs have already been launched in Canada and Australia. Third, increasing our financial flexibility.

During the quarter, we borrowed approximately $180 million under our revolving credit facility to fund the Owen Mumford acquisition, which included the acquisition of OM's cash. We subsequently repaid approximately $53 million in debt, reflecting our continued commitment to disciplined deleveraging. We also returned approximately $9 million of capital to shareholders through share repurchases during the quarter. Moving to slide seven, I want to take a moment to introduce Nimish Muzumdar, who recently joined Embecta as SVP and President, North America. Nimish brings more than 25 years of experience leading commercial organizations across U.S. retail pharmacy, hospital, and institutional markets. Most recently, he served as SVP and Head of Generics at Sandoz, where he restored the division to profitable growth and helped lead its commercial strategy through the company's 2023 spin-off from Novartis.

His prior experience includes leadership roles across retail generics, OTC, institutional, hospitals and clinics channels at Sandoz, Ranbaxy USA, Watson Laboratories, and Dr. Reddy's Laboratories. Now turning back to our third quarter revenue performance. Within the U.S., revenue for the quarter totaled approximately $121 million, reflecting a year-over-year decline of 24.6% on both a reported and adjusted constant currency basis. In addition to the effects of favorable one-time contributions in the prior year, as noted at that time, the year-over-year decline was driven by factors largely consistent with those that impacted our fiscal second quarter results. With regard to pen needles, our share of category in Q3 were generally in line with our expectations. Total prescriptions for insulin pens in the retail channel appeared sequentially stable, declining year-over-year in Q3 at a slightly greater rate than in Q2.

Customer and payer mix impact on net pricing was greater in Q3 as compared to Q2. Syringes and safety products were generally in line with our expectations. We continue to monitor factors that may be impacting market volume, including trends in the insured population enrolled via ACA marketplaces and Medicaid, as well as the accelerated adoption of GLP-1 therapies. On a sequential basis, U.S. revenue increased by approximately $25 million compared to the second quarter, reflecting a normalization in distributor order timing as well as a modest contribution from Owen Mumford as the acquisition closed slightly earlier than originally expected.

Since joining Embecta, Nimish Muzumdar has brought a fresh perspective and rigorous commercial lens to our North America business. Through a comprehensive assessment of our commercial organization, customer engagement model, and go-to-market capabilities, his initial findings confirm that while our brand equity, customer trust, and product quality remain strong, there are meaningful opportunities to enhance commercial execution by strengthening strategic customer partnerships, anticipating evolving customer needs, and leveraging data-driven insights to inform decision-making and drive growth. While this will take time, we expect that the combination of strong leadership, disciplined execution, and a clear strategic focus will strengthen our U.S. business. Turning to our international business, revenue for the quarter totaled approximately $151 million, representing an increase of 11.5% on a reported basis and 9.7% on an adjusted constant currency basis.