Embecta Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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. Over the close to 100 year history of our business, we believe that our products have become one of the most widely recognized and respected brands in diabetes management in the world. We estimate that our products are used by nearly 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 sliding safety arm 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. Separation from BD Pursuant to the Separation and Distribution Agreement, the Separation from BD was completed on April 1, 2022. 57,012,925 issued and outstanding shares of Embecta common stock were distributed pro-rata to BD stockholders as of the close of business on March 22, 2022, the record date for the distribution, determined by applying a ratio of one share of Embecta common stock for every five shares of BD common stock. "Regular-way" trading of Embecta common stock began on April 1, 2022, under the ticker symbol "EMBC". Periods Prior to Separation Prior to the Separation, the Company was referred to as the Diabetes Care Business. For periods prior to April 1, 2022, the Condensed Consolidated Financial Statements included certain assets and liabilities that were historically been held at the BD corporate level but are specifically identifiable or otherwise allocable to the Diabetes Care Business. Periods Post Separation For the period subsequent to April 1, 2022, as a standalone publicly traded company, Embecta presents its financial statements on a consolidated basis. The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. 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. The increased scrutiny by regulators on healthcare spending, which has 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 Dollar amounts are in millions except per share amounts or as otherwise specified. 17 Table of Contents lower pricing. 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) and GLP-1s and GLP-1 combination products have delayed initiation of insulin therapy and contributed to less demand for our products. COVID-19 Impacting Delivery and Allocation of Healthcare. The COVID-19 pandemic has accelerated the adoption of, and reimbursement by governments and private payers for, the delivery of healthcare using digital technologies, including telehealth technologies and other at-home self-care solutions and various media for virtual engagement with healthcare providers. Our ability to adapt the delivery of our products and sales and marketing efforts to these trends, including with the development of our diabetes care app, may materially affect our results of operations. The pandemic has also caused hospitals and other healthcare providers to reassess their prioritization and allocation of their healthcare resources. In many cases, providers were forced to balance between diverting resources toward COVID-19 needs and maintaining routine care, including for people living with long term conditions. If this trend persists, particularly in regions where COVID-19 continues to spread, it could have an adverse impact on the delivery of care for people with diabetes and our sales and marketing efforts. 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 COVID-19 Pandemic Impacts and Response and Global Economic Conditions Various governmental measures to slow and control the spread of COVID-19 have led to a shift in healthcare priorities, supply chain constraints and the disruption of economic activities worldwide. As further discussed below, our future operating performance may be subject to further volatility due to the significant uncertainty with respect to the duration and overall impact of the COVID-19 pandemic. The impacts of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows is dependent on certain factors including: • the extent to which resurgences in COVID-19 infections or new strains of the virus, result in the imposition of new governmental lockdowns, quarantine requirements or other restrictions that may disrupt our operations; • the continued momentum of the global economy’s recovery from the pandemic and the degree of pressure that a weakened macroeconomic environment would put on the global demand for our products; and • the effectiveness of vaccines and vaccination efforts. 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. The military conflict in Russia and Ukraine and the sanctions imposed by the United States government and other nations in response to this conflict have caused significant volatility and disruptions to the global markets. For all periods presented, our net sales in Russia and Ukraine were not material to our consolidated net revenues. Although operations in both Russia and Ukraine do not constitute a material portion of our business, there is uncertainty around the military conflict and the impact it will have on the global economy, supply chains and fuel prices generally, and therefore our business. Refer to the "Risk Factors" set forth in the 2022 Form 10-K for further details. Dollar amounts are in millions except per share amounts or as otherwise specified. 18 Table of Contents In addition, our revenues and results of operations may and 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 U.S. 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 December 31, 2022 2021 % Revenues $ 275.7 $ 289.3 (4.7) % Cost of products sold 86.9 85.4 1.8 Gross Profit 188.8 203.9 (7.4) Operating expenses: Selling and administrative expense 72.8 62.2 17.0 Research and development expense 16.9 16.7 1.2 Other operating expenses 10.3 8.4 22.6 Total Operating Expenses 100.0 87.3 14.5 Operating Income 88.8 116.6 (23.8) Interest expense, net (25.6) — nm Other income (expense), net (7.1) — nm Income Before Income Taxes 56.1 116.6 (51.9) Income tax provision 20.9 17.8 17.4 Net Income $ 35.2 $ 98.8 (64.4) % Net Income per common share: Basic $ 0.62 $ 1.73 nm Diluted $ 0.61 $ 1.73 nm nm = not meaningful Three Months Ended December 31, 2022 Summary (on a comparative basis) Key financial results for the three months ended December 31, 2022 were as follows: • Revenue decreased by $13.6 million to $275.7 million from $289.3 million; • Gross profit decreased by $15.1 million to $188.8 million from $203.9 million. Gross profit as a percent of revenue was 68.5%, as compared to 70.5% in the prior year comparative period; • Operating income decreased by $27.8 million to $88.8 million from $116.6 million; and • Net income decreased by $63.6 million to $35.2 million from $98.8 million. Dollar amounts are in millions except per share amounts or as otherwise specified. 19 Table of Contents Revenues Our revenues decreased by $13.6 million, or 4.7%, to $275.7 million for the three months ended December 31, 2022 as compared to revenues of $289.3 million for the three months ended December 31, 2021. Changes in our revenues are driven by the volume of goods that we sell, the prices we negotiate with customers and changes in foreign exchange rates. Of this decrease, $15.6 million was attributable to unfavorable effects from foreign currency translation primarily due to the strengthening of the U.S. dollar. Subsequent to the Separation Date, we contract manufacture certain products for BD that favorably impacted our revenues in the current period. Changes in price and volume period over period favorably impacted our revenues from customers primarily in our international regions. Changes in price and volume period over period unfavorably impacted our revenues from customers primarily in the U.S. Cost of products sold Cost of products sold increased by $1.5 million, or 1.8%, to $86.9 million for the three months ended December 31, 2022 as compared to $85.4 million for the three months ended December 31, 2021. Cost of products sold as a percentage of revenues was 31.5% for the three months ended December 31, 2022 as compared to 29.5% for the three months ended December 31, 2021. The increase in cost of products sold between periods was primarily driven by the negative impact of inflation on raw materials costs (including freight), direct labor, and overhead. We intend to continue to work to improve productivity to help offset these increased costs. Selling and administrative expenses Selling and administrative expenses increased by $10.6 million, or 17.0%, to $72.8 million for the three months ended December 31, 2022 as compared to $62.2 million for the three months ended December 31, 2021. The increase was primarily driven by an increase in compensation and benefit costs due to increased headcount attributed to the Separation and Embecta becoming a stand-alone publicly-traded company. Research and development expenses Research and development expenses increased by $0.2 million, or 1.2%, to $16.9 million for the three months ended December 31, 2022 as compared to $16.7 million for the three months ended December 31, 2021. The increase for the three month comparative period was primarily driven by timing of research and development projects. Other operating expenses We incurred other operating expenses of $10.3 million and $8.4 million for the three months ended December 31, 2022 and 2021, respectively, driven by costs related to the Separation. The costs incurred primarily relate to accounting, auditing, and legal services, including costs to establish certain stand-alone corporate functions and other transaction costs attributed to being a stand-alone publicly traded company. Interest expense, net Interest expense, net increased to $25.6 million for the three months ended December 31, 2022, primarily due to the higher interest rates on our variable rate debt that was issued on March 31, 2022. If the United States Federal Reserve continues to raise the benchmark interest rate, then we would expect the interest expense on our variable rate debt to increase during the remainder of fiscal 2023. See "Liquidity and Capital Resources" below and Note 10 to the Condensed Consolidated Financial Statements included elsewhere in this report for a further description of our long-term debt. Other income (expense), net Other income (expense), net, was $(7.1) million for the three months ended December 31, 2022. The costs incurred primarily relate to amounts due to BD for tax liabilities incurred in deferred jurisdictions where BD is considered the primary obligor. Dollar amounts are in millions except per share amounts or as otherwise specified. 20 Table of Contents Income tax provision The effective tax rates were 37.3% and 15.3% for the three months ended December 31, 2022 and 2021, respectively. The increase in the Company’s effective tax rate from the prior comparative period is primarily due to the establishment of a valuation allowance against the utilization of interest expense carryforwards generated during the three months ended December 31, 2022 resulting from U.S. interest deduction limitation rules, increased tax expense on undistributed earnings of foreign subsidiaries and increased U.S. taxes on the earnings of foreign subsidiaries, partially offset by tax benefits from non-taxable permanent differences. LIQUIDITY AND CAPITAL RESOURCES We believe that our cash and our cash 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. In February 2022, and in connection with the Separation, Embecta issued $500.0 million aggregate principal amount of 5.00% senior secured notes due February 15, 2030. Interest payments on the 5.00% Notes are due semi-annually in February and August until maturity, with the first interest payment due in August 2022 . In March 2022, we entered into a credit agreement, providing for the Term Loan in the amount of $950.0 million, with a seven -year term that matures in March 2029 and a Revolving Credit Facility in an aggregate principal amount of up to $500.0 million, with a five -year term that matures in 2027. The interest rate on the Term Loan is 300 basis points over SOFR, with a 0.50% SOFR floor. Principal and interest payments on the Term Loan began on June 30, 2022. Such quarterly principal payments are calculated as 0.25% of the initial principal amount, with the remaining balance payable upon maturity. Principal amounts repaid under the Term Loan may not be reborrowed by us. Borrowings under the Revolving Credit Facility bear interest, at Embecta’s option, initially at an annual rate equal to (a) in the case of loans denominated in United States dollars (i) the SOFR or (ii) the alternate base rate or (b) in the case of loans denominated in Euros, the EURIBOR rate, in each case plus an applicable margin specified in the credit agreement. A commitment fee applies to the unused portion of the Revolving Credit Facility, equal to 0.25% per annum . As of December 31, 2022, no amount has been drawn on the Revolving Credit Facility. Additionally we have outstanding the 6.75% Notes, which carry an interest rate of 6.75% and are due February 2030. Interest payments on the 6.75% Notes are due semi-annually in February and August until maturity, with the first interest payment due in August 2022. 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 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 December 31, 2022, we were in compliance with all of such covenants. The following is a summary of Embecta's total debt outstanding as of December 31, 2022: Term Loan $ 942.9 5.00% Notes 500.0 6.75% Notes $ 200.0 Total principal debt issued $ 1,642.9 Less: current debt obligations (9.5) Less: debt issuance costs and discounts (36.3) Long-term debt $ 1,597.1 Dollar amounts are in millions except per share amounts or as otherwise specified. 21 Table of Contents The schedule of principal payments required on long-term debt for the next five years and thereafter is as follows: 2023 $ 7.1 2024 $ 9.5 2025 $ 9.5 2026 $ 9.5 2027 $ 9.5 Thereafter $ 1,597.8 Certain measures relating to our total debt outstanding as of December 31, 2022 were as follows: Total debt $ 1,606.6 Short-term debt as a percentage of total debt 0.6 % Weighted average cost of total debt 6.7 % For additional information related to the Company's debt related activities, refer to Note 10 within the Notes to Condensed Consolidated Financial Statements within this Form 10-Q. Leases In conjunction with the Separation, we entered into a lease agreement with BD pursuant to which the Company would lease approximately 278,000 square feet of manufacturing space and equipment at BD's manufacturing facility in Holdrege, Nebraska for an initial term of ten years. The lease is classified as a finance lease. Base rent payments commenced in the third quarter of 2022. The Company has an option to extend the lease term for an additional period of up to five years. Maturities of our finance lease and operating lease liabilities as of December 31, 2022 by fiscal year are as follows: Finance Lease Operating Leases Total 2023 $ 2.7 $ 2.2 $ 4.9 2024 3.6 2.6 6.2 2025 3.7 1.3 5.0 2026 3.7 1.1 4.8 2027 3.8 0.2 4.0 Thereafter 40.1 — 40.1 Total lease payments $ 57.6 $ 7.4 $ 65.0 On April 1, 2022, we entered into a real estate lease for a new Corporate Headquarters located in Parsippany, New Jersey, United States. The lease commenced during the second quarter of fiscal year 2023 and is in existence for an initial term of ten years. We have an option to extend the lease for additional periods of six years and four years, respectively. For additional information related to our leases, refer to Note 15 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 owes BD a service fee calculated as 0.1% of annual revenues related to countries subject to the agreement, in exchange for the services provided by BD pursuant to the Factoring Agreements. Access to Capital and Credit Ratings In January 2023 and January 2022, Moody’s Investor Services and Standard & Poor’s Ratings Services assigned credit ratings to Embecta of Ba3 and B+, respectively. Dollar amounts are in millions except per share amounts or as otherwise specified. 22 Table of Contents The following table summarizes our Condensed Consolidated Statements of Cash Flows: Three Months Ended December 31, 2022 2021 Net cash provided by (used for) Operating activities $ 60.4 $ 138.8 Investing activities $ (4.7) $ (4.3) Financing activities $ (6.1) $ (134.5) Net Cash Flows from Operating Activities Net cash provided by operating activities during the three months ended December 31, 2022 was attributable to net income of $35.2 million and net adjustments of $25.2 million, which includes $16.9 million of non-cash adjustments related to depreciation and amortization, stock-based compensation, deferred income taxes and pension expense, and $8.3 million of net cash provided relating to changes in working capital. Cash provided relating to working capital was driven by an increase in accounts payable, accrued expenses and other current liabilities of $19.4 million, an increase of $18.2 million in income and other net taxes payables, and a decrease in trade receivables, net of $3.0 million. Offsetting the amounts above is cash used for working capital related to increases in amounts due from BD of $9.5 million, an increase of $14.7 million in inventories, an increase of $6.6 million in prepaid expenses and other, and an increase of $1.5 million in other assets and liabilities, net. The increase in accounts payable, accrued expenses and other current liabilities is related to increases in net liabilities for deferred closing entities. The increase in income and other net taxes payable is primarily due to the timing of required tax payments as compared to the amounts accrued in the ordinary course of business during the three months ended December 31, 2022. The increase in inventories is primarily driven by a concerted effort to build inventory to meet expected demand. The increase in amounts due from BD primarily relates to factored receivables for which payment has not yet been collected from BD as of December 31, 2022. 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 provided by operating activities during the three months ended December 31, 2021 was attributable to net income of $98.8 million and net adjustments of $40.0 million, which includes $15.2 million of non-cash adjustments related to depreciation and amortization, stock-based compensation, and pension expense, and $24.8 million of cash provided relating to changes in working capital. Cash provided relating to working capital was driven by a decrease in trade receivables of $30.7 million, partially offset by an increase in inventories of $4.3 million and a decrease in accounts payable and accrued expenses of $2.5 million. The decrease in trade receivables can be attributed to the timing of payments made in the normal course of business and a decrease in certain rebate and cash discount reserves. The increase in inventories is primarily driven by a concerted effort in the first three months of fiscal year 2022 to build inventory in preparation for the spin-off. The decrease in accounts payable and accrued expenses is mainly driven by the timing of payments made in the normal course of business for managed care rebates payments and a decrease in accrued professional services in connection with various market research and consulting projects. Net Cash Flows from Investing Activities Net cash used for investing activities was primarily comprised of capital expenditures of $4.7 million and $4.3 million during the three months ended December 31, 2022 and 2021, respectively, to support further expansion of our business and operations. Dollar amounts are in millions except per share amounts or as otherwise specified. 23 Table of Contents Net Cash Flows from Financing Activities Net cash used for financing activities for the three months ended December 31, 2022, represents $2.8 million of payments related to tax withholding for stock-based compensation, $2.4 million of required payments on long-term debt, and $0.9 million in payments on our finance lease. Net cash used for financing activities for the three months ended December 31, 2021, represents net transfers entirely to BD (see Note 3 within the Notes to Condensed Consolidated Financial Statements of this Form 10-Q). On February 14, 2023, the Company’s Board of Directors declared a quarterly dividend of $0.15 for each issued and outstanding share of the Company’s common stock. The dividend is payable on March 13, 2023 to stockholders of record at the close of business on February 27, 2023. Contractual Obligations Our contractual obligations as of December 31, 2022, 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 significant costs associated with information technology infrastructure as we transition to our own systems. Lease obligations include lease agreements for which a contract has been signed even if the lease has not yet commenced. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2022 Form 10-K for further details. As of December 31, 2022, 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 our 2022 Form 10-K. See Note 2 within the Notes to Condensed Consolidated Financial Statements of this Form 10-Q for information on the adoption of new accounting standards during the current fiscal year. There have been no changes to our accounting policies as of December 31, 2022. 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 Embecta's 2022 Form 10-K. 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, regulatory clearances and approvals, 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 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. • 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. • 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. • 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. Dollar amounts are in millions except per share amounts or as otherwise specified. 24 Table of Contents • 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 continuing 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 enterprise resource planning, 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 2022 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.