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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2024-02-09 · 100 added, 79 removed, 169 unchanged (51% of the section changed)

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In our 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 nearly 30 million people in over 100 countries for insulin administration and to aid with the daily management of diabetes.

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.

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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 in development are targeted to challenge the current diabetes treatment paradigm, including the frequency of insulin use.

Insulin therapy in developed markets continues to transition to infusion pumps.

New drug therapies, including weekly insulin, in development 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.

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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.

We are continuing to work with BD on the process to obtain a supplemental private letter ruling to the private letter ruling BD received in connection with the Separation and the distribution in order to finalize the conditional limited extension granted by BD to the Company until November 1, 2024 of certain services under the TSA, the Logistic Services Agreement (“LSA”) and other transaction documents in a limited set of markets to support various services provided by BD to the Company, including, but not limited to, information technology, procurement, quality and regulatory affairs, medical affairs, tax and treasury services, distribution logistics, and shared services infrastructure support for order-to-cash, source-to-pay, and record-to-report (“Interim Business Continuity Processes”).

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 and respond to 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 February 9, 2024, there is no material impact to our business operations and financial performance as a result of the aforementioned conflicts.

As of May 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.

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Our unaudited Condensed Consolidated Statements of Income are as follows:

Three months ended December 31,

Three months ended March 31, Six months ended March 31,

Revenues $ 287.2 $ 277.1 3.6 % $ 564.5 $ 552.8 2.1 %

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Diluted $ 0.50 $ 0.24 108.3 % $ 0.85 $ 0.85 — %

Three Months Ended December 31, 2023 Summary (on a comparative basis)

Key financial results for the three months ended December 31, 2023 were as follows:

Three Months Ended March 31, 2024 Summary (on a comparative basis)

Key financial results for the three months ended March 31, 2024 were as follows:

• Revenue increased by $10.1 million to $287.2 million from $277.1 million;

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• Operating income decreased by $16.4 million to $39.2 million from $55.6 million;

• Net income increased by $14.9 million to $28.9 million from $14.0 million.

Six Months Ended March 31, 2024 Summary (on a comparative basis)

Key financial results for the six months ended March 31, 2024 were as follows:

• Revenue increased by $11.7 million to $564.5 million from $552.8 million;

• Gross profit decreased by $7.3 million to $371.3 million, compared to $378.6 million.

Gross profit as a percent of revenue was 65.8%, as compared to 68.5% in the prior year comparative period;

• Operating income decreased by $59.7 million to $84.7 million from $144.4 million;

• Net income decreased by $0.2 million to $49.0 million from $49.2 million.

Our revenues increased by $1.6 million, or 0.6%, to $277.3 million for the three months ended December 31, 2023 as compared to revenues of $275.7 million for the three months ended December 31, 2022.

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.

The increase in revenues was driven by $2.3 million associated with the positive impact of foreign currency translation primarily due to the weakening of the U.S.

dollar and $3.4 million of favorable changes in price.

This was partially offset by a $2.1 million decrease in contract manufacturing related to sales of non-diabetes products to BD and $2.0 million of unfavorable changes in volume.

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

Our revenues increased by $10.1 million, or 3.6%, to $287.2 million for the three months ended March 31, 2024 as compared to revenues of $277.1 million for the three months ended March 31, 2023.

Changes in our revenues are driven by the volume of goods that the Company sells, the prices we negotiate with customers and changes in foreign exchange rates.

The increase in revenues was driven by $15.0 million of favorable changes in volume.

This was partially offset by $2.5 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S.

dollar, $1.4 million of unfavorable changes in price, and a $1.0 million decrease in contract manufacturing revenues related to sales of non-diabetes products to BD.

Our revenues increased by $11.7 million, or 2.1%, to $564.5 million for the six months ended March 31, 2024 as compared to revenues of $552.8 million for the six months ended March 31, 2023.

The increase in revenues was driven by $13.0 million of favorable changes in volume and $2.0 million of favorable changes in price.

This was partially offset by a $3.1 million decrease in contract manufacturing revenues related to sales of non-diabetes products to BD and $0.2 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S.

Revenues by geographic region are as follows:

Three months ended December 31,

Three months ended March 31, Six months ended March 31,

2024 2023 2024 2023

United States $ 147.6 $ 146.4 $ 296.2 $ 295.7

International

139.6 130.7 268.3 257.1

Total $ 287.2 $ 277.1 $ 564.5 $ 552.8

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

Cost of products sold

Cost of products sold increased by $4.5 million, or 5.2%, to $91.4 million for the three months ended December 31, 2023 as compared to $86.9 million for the three months ended December 31, 2022.

Cost of products sold as a percentage of revenues was 33.0% for the three months ended December 31, 2023 as compared to 31.5% for the three months ended December 31, 2022.

The increase in cost of products sold for the three month comparative period was primarily driven by the negative impact of foreign currency translation primarily due to the weakening of the U.S.

dollar, the impact of inflation on the costs of certain raw materials (including freight), direct labor, and overhead, and 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.

Cost of products sold increased by $14.5 million, or 16.6%, to $101.8 million for the three months ended March 31, 2024 as compared to $87.3 million for the three months ended March 31, 2023.

Cost of products sold as a percentage of revenues was 34.2% for the three months ended March 31, 2024 as compared to 31.5% for the three months ended March 31, 2023.

Cost of products sold increased by $19.0 million, or 10.9%, to $193.2 million for the six months ended March 31, 2024 as compared to $174.2 million for the six months ended March 31, 2023.

Cost of products sold as a percentage of revenues were 34.2% for the six months ended March 31, 2024 as compared to 31.5% in the six months ended March 31, 2023.

The increase in cost of products sold for the three and six month comparative periods 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.

Selling and administrative expenses

Selling and administrative expenses increased by $17.5 million, or 24.0%, to $90.3 million for the three months ended December 31, 2023 as compared to $72.8 million for the three months ended December 31, 2022.

The increase for the three month comparative period was primarily driven by an increase in compensation and benefit costs due to increased headcount.

Selling and administrative expenses increased by $7.1 million, or 8.3%, to $92.3 million for the three months ended March 31, 2024 as compared to $85.2 million for the three months ended March 31, 2023.

Selling and administrative expenses increased by $24.6 million, or 15.6%, to $182.6 million for the six months ended March 31, 2024 as compared to $158.0 million for the six months ended March 31, 2023.

The increase for both the three and six month comparative periods were primarily driven by an increase in compensation and benefit costs due to increased headcount and increased outbound freight and warehousing costs.

This was partially offset primarily by lower TSA and LSA costs with BD incurred in the current year periods.

Research and development expenses

Research and development expenses increased by $3.3 million, or 19.5%, to $20.2 million for the three months ended December 31, 2023 as compared to $16.9 million for the three months ended December 31, 2022.

The increase for the three month comparative period was primarily driven by increased spending on our insulin patch pump platform.

Research and development expenses decreased by $3.7 million, or 16.7%, to $18.4 million for the three months ended March 31, 2024 as compared to $22.1 million for the three months ended March 31, 2023.

Research and development expenses decreased by $0.4 million, or 1.0%, to $38.6 million for the six months ended March 31, 2024 as compared to $39.0 million for the six months ended March 31, 2023.

The decrease for the three and six month comparative periods were primarily driven by an upfront payment made in connection with a collaboration arrangement in the prior year.

This was partially offset by increased spending in the current year periods on our insulin patch pump platform.

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.

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

Other operating expenses

We incurred other operating expenses of $29.9 million and $10.3 million for the three months ended December 31, 2023 and 2022, respectively, driven by costs related to the Separation.

The costs incurred primarily relate to accounting, auditing, legal services, supply chain, employee retention, increased 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.

We incurred other operating expenses of $35.5 million and $26.9 million for the three months ended March 31, 2024 and 2023, respectively, and $65.4 million and $37.2 million for the six months ended March 31, 2024 and 2023, respectively, driven by costs related to the Separation.

The costs incurred primarily relate to accounting, auditing, legal services, marketing, supply chain, employee retention, increased 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.

During the three months ended December 31, 2023, the Company recorded approximately $1.9 million of severance costs related to the optimization of certain business functions.

These costs were primarily recorded in the U.S.

Severance costs related to the optimization of certain business functions were not material in the comparable prior year period.

Liabilities for costs associated with these activities were not material to any period presented.

Interest expense, net

Interest expense, net increased by $2.1 million to $27.7 million for the three months ended December 31, 2023 as compared to $25.6 million for the three months ended December 31, 2022.

The increase for the three month comparative period is primarily a result of higher interest rates on our variable rate debt, primarily as a result of increases in SOFR that impacted our Term Loan, which was partially offset by an increase in interest income from amounts held in interest bearing accounts and money market funds.

If the United States Federal Reserve resumes raising the benchmark interest rate, then we would expect the interest expense on our variable rate debt to increase during the remainder of fiscal 2024.

Interest expense, net increased by $1.0 million to $27.8 million for the three months ended March 31, 2024 as compared to $26.8 million for the three months ended March 31, 2023.

Interest expense, net increased by $3.1 million to $55.5 million for the six months ended March 31, 2024 as compared to $52.4 million for the six months ended March 31, 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 reduce 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 reduction 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 $(3.5) million and $(7.1) million for the three months ended December 31, 2023 and 2022, respectively.

The costs incurred primarily relate to amounts due to BD for income taxes payable incurred in deferred jurisdictions where BD is considered the primary obligor.

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

Other income (expense), net, was $(1.5) million and $(4.3) million for the three months ended March 31, 2024 and 2023, respectively.

Other income (expense), net, was $(5.0) million and $(11.4) million for the six months ended March 31, 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.

Income tax provision (benefit)

The effective tax rates were (40.6)% and 37.3% for the three months ended December 31, 2023 and 2022, respectively.

The decrease in the Company’s effective tax rate from the prior comparative period is primarily due to a tax benefit of approximately $17.1 million for the establishment of a deferred tax asset related to tax law changes in Switzerland.

The tax law changes instituted a higher cantonal tax rate and additional tax basis that is amortizable for income tax purposes over a period of seven years.

The effective tax rates were (191.9)% and 42.9% for the three months ended March 31, 2024 and 2023, respectively.

The effective tax rates were (102.5)% and 39.0% for the six months ended March 31, 2024 and 2023, respectively.

The decrease in the Company’s effective tax rate from the prior comparative period is primarily due to lower withholding taxes on undistributed foreign earnings which includes a discrete tax benefit of approximately $18.8 million related to Swiss withholding taxes from prior years, a tax benefit of approximately $17.1 million for the establishment of a deferred tax asset attributed to a higher Swiss cantonal tax rate and additional tax basis that is amortizable for income tax purposes over a period of seven years, reduced unrecognized tax benefits, and lower income in the current period which increases the variability of the effective tax rate.

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.

The following is a summary of Embecta's total debt outstanding as of December 31, 2023:

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

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

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 March 31, 2024:

Term Loan $ 931.0

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Thereafter 1,588.2

Certain measures relating to our total debt outstanding as of December 31, 2023 were as follows:

Certain measures relating to our total debt outstanding as of March 31, 2024 were as follows:

Total debt $ 1,601.3

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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, 2023, we were in compliance with all of such covenants.

As of March 31, 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.

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

Maturities of our finance lease and operating lease liabilities as of December 31, 2023 by fiscal year are as follows:

Maturities of our finance lease and operating lease liabilities as of March 31, 2024 by fiscal year are as follows:

Finance Lease Operating Leases Total

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

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

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.

In November 2023, the portion of the Factoring Agreement between Embecta and BD for services to the U.S.

for the Company’s U.S.

subsidiary expired and terminated as a result of our implementation and onboarding of certain Business Continuity Processes in North America.

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 have 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 November 2023 and June 2023, Moody’s Investor Services and Standard & Poor’s Ratings Services published updates to our credit ratings of Ba3 and B+, respectively.

In November 2023 and February 2024, Moody’s Investor Services and Standard & Poor’s Ratings Services published updates to our credit ratings of Ba3 and B+, respectively.

These ratings remain unchanged from the initial published ratings from January 2022.

Cash and cash equivalents were $298.7 million as of December 31, 2023 as compared to $326.5 million as of September 30, 2023.

Cash and equivalents and restricted cash were $306.5 million as of March 31, 2024 as compared to $326.5 million as of September 30, 2023.

The primary sources and uses of cash that contributed to the $20.0 million decrease were:

September 30, 2023 Cash and cash equivalents balance $ 326.5

Cash used for operating activities (13.1)

September 30, 2023 Cash and equivalents and restricted cash balance $ 326.5

Cash provided by operating activities 11.2

Cash used for investing activities (6.1)

Cash used for financing activities (25.3)

Effect of exchange rate changes on cash and cash equivalents 1.5

December 31, 2023 Cash and cash equivalents balance $ 298.7

Net cash used for operating activities was primarily attributable to:

Effect of exchange rate changes on cash and equivalents and restricted cash 0.2

March 31, 2024 Cash and equivalents and restricted cash balance $ 306.5

Net cash provided by operating activities was primarily attributable to:

Net income $ 49.0

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Net cash used for operating activities $ 11.2

The change in accounts payable and accrued expenses is primarily due to timing attributable to payments to vendors in the first six months of fiscal 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 during fiscal 2024 in line with contractual customer payment terms.

The change in inventories is driven by an increase in raw material purchases in the current year offset by current year product sales of certain inventory levels that had been built up at the end of fiscal 2023 in anticipation of our ERP system and other Business Continuity Processes that went live during the first half 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.

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

The change in accounts payable and accrued expenses is primarily due to timing attributable to payments to vendors in the first quarter of fiscal 2024.

As a result of our implementation of certain Business Continuity Processes in North America, including our ERP system, that went live in November 2023, and the expiration and termination of a portion of the Factoring Agreement between Embecta and BD for services to the U.S.

subsidiary, we are now responsible for the collection of any outstanding trade receivables in the U.S.

The increase in trade receivables is a direct result of this impact, and we expect to convert these outstanding receivables due from customers into cash during fiscal 2024 in line with contractual payment terms.

The change in inventories is driven by product sales of certain inventory levels that had been built up at the end of fiscal 2023 in anticipation of our North America ERP system and other Business Continuity Processes that went live in November 2023 .

The change in amounts due from/due to Becton, Dickinson and Company primarily relates to the termination of the portion of the Factoring Agreement between Embecta and BD for services to the U.S.

subsidiary as we are now responsible for the collection of any outstanding trade receivables in the U.S.

The change in prepaid expenses and other are primarily driven by a reduction in payments during the first quarter of fiscal 2024 to BD for future payments made to third parties on our behalf as a result of our implementation of certain Business Continuity Processes in North America, including our ERP system, that went live in November 2023.

The change in prepaid expenses and other are primarily driven by a reduction in payments during the first half of fiscal 2024 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 associated with the implementation of our ERP system.

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 primarily comprised of capital expenditures of $2.7 million and $4.7 million during the three months ended December 31, 2023 and 2022, respectively, to support further expansion of our business and operations.

Net cash used for investing activities was comprised of capital expenditures of $6.1 million for the six months ended March 31, 2024 to support further expansion of our business and operations.

Net cash used for financing activities was primarily attributable to:

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Payments on finance lease (0.6)

Net cash provided by financing activities $ (13.5)

Net cash used for financing activities $ (25.3)

Contractual Obligations

Our contractual obligations as of December 31, 2023, which require material cash requirements in the future, consist of purchase obligations and lease obligations.

Our contractual obligations as of March 31, 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 significant costs associated with information technology infrastructure as we transition to our own systems.

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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Form 10-K for further details.

As of December 31, 2023, there have been no material changes to our contractual obligations outside the ordinary course of business.

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 March 31, 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 our 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 Embecta's 2023 Form 10-K.

There have been no changes to our critical accounting policies as of December 31, 2023.

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

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.

There have been no changes to our critical accounting policies as of March 31, 2024.

Cautionary Statements Regarding Forward-Looking Statements

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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 extend the TSA, the LSA, and other transaction agreements or replace the services, including the Interim Business Continuity Processes, that BD currently provides to it on substantially similar terms as the terms on which BD is providing these services or that BD terminates such services.

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

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.

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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.

• 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.

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• The risk that dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the Separation will exceed Embecta's estimates.

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

• 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.

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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.

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis