Embecta Corp. 10-Q

Item 1. Financial Statements. Condensed Consolidated Statements of Income Embecta Corp. (Unaudited) Three Months Ended March 31, Six Months Ended March 31, 2024 2023 2024 2023 Revenues $ 287.2 $ 277.1 $ 564.5 $ 552.8 Cost of products sold 101.8 87.3 193.2 174.2 Gross Profit $ 185.4 $ 189.8 $ 371.3 $ 378.6 Operating expenses: Selling and administrative expense 92.3 85.2 182.6 158.0 Research and development expense 18.4 22.1 38.6 39.0 Other operating expenses 35.5 26.9 65.4 37.2 Total Operating Expenses $ 146.2 $ 134.2 $ 286.6 $ 234.2 Operating Income $ 39.2 $ 55.6 $ 84.7 $ 144.4 Interest expense, net ( 27.8 ) ( 26.8 ) ( 55.5 ) ( 52.4 ) Other income (expense), net ( 1.5 ) ( 4.3 ) ( 5.0 ) ( 11.4 ) Income Before Income Taxes $ 9.9 $ 24.5 $ 24.2 $ 80.6 Income tax provision (benefit) ( 19.0 ) 10.5 ( 24.8 ) 31.4 Net Income $ 28.9 $ 14.0 $ 49.0 $ 49.2 Net Income per common share: Basic $ 0.50 $ 0.24 $ 0.85 $ 0.86 Diluted $ 0.50 $ 0.24 $ 0.85 $ 0.85 See notes to the Unaudited Condensed Consolidated Financial Statements. Dollar amounts are in millions except per share amounts or as otherwise specified. 1 Table of Contents Condensed Consolidated Statements of Comprehensive Income Embecta Corp. (Unaudited) Three Months Ended March 31, Six Months Ended March 31, 2024 2023 2024 2023 Net Income $ 28.9 $ 14.0 $ 49.0 $ 49.2 Other Comprehensive Income (Loss), net of tax Foreign currency translation adjustments ( 2.4 ) 2.7 9.2 28.7 Total Other Comprehensive Income (Loss), net of tax $ ( 2.4 ) $ 2.7 $ 9.2 $ 28.7 Comprehensive Income $ 26.5 $ 16.7 $ 58.2 $ 77.9 See notes to the Unaudited Condensed Consolidated Financial Statements. Dollar amounts are in millions except per share amounts or as otherwise specified. 2 Table of Contents Condensed Consolidated Balance Sheets Embecta Corp. March 31, 2024 September 30, 2023 (Unaudited) Assets Current Assets Cash and equivalents $ 299.8 $ 326.3 Restricted cash 6.7 0.2 Trade receivables, net (net of allowance for doubtful accounts of $ 1.6 million and $ 1.0 million as of March 31, 2024 and September 30, 2023, respectively) 123.7 16.7 Inventories: Materials 37.4 32.1 Work in process 10.5 8.1 Finished products 105.3 111.9 Total Inventories $ 153.2 $ 152.1 Amounts due from Becton, Dickinson and Company 43.3 142.4 Prepaid expenses and other 83.3 111.4 Total Current Assets $ 710.0 $ 749.1 Property, Plant and Equipment, Net 293.2 300.2 Goodwill and Intangible Assets 24.1 24.7 Deferred Income Taxes and Other Assets 172.3 140.4 Total Assets $ 1,199.6 $ 1,214.4 Liabilities and Equity Current Liabilities Accounts payable $ 52.6 $ 53.5 Accrued expenses 119.7 118.1 Amounts due to Becton, Dickinson and Company 38.5 73.1 Salaries, wages and related items 58.5 62.1 Current debt obligations 9.5 9.5 Current finance lease liabilities 3.7 3.6 Income taxes 27.9 33.6 Total Current Liabilities $ 310.4 $ 353.5 Deferred Income Taxes and Other Liabilities 36.2 57.2 Long-Term Debt 1,591.8 1,593.9 Non Current Finance Lease Liabilities 30.8 31.5 Commitments and Contingencies Embecta Corp. Equity Common stock, $ 0.01 par value Authorized - 250,000,000 Issued and outstanding - 57,661,433 as of March 31, 2024 and 57,333,353 as of September 30, 2023 $ 0.6 $ 0.6 Additional paid-in capital 39.7 27.9 Accumulated deficit ( 510.0 ) ( 541.1 ) Accumulated other comprehensive loss ( 299.9 ) ( 309.1 ) Total Equity $ ( 769.6 ) $ ( 821.7 ) Total Liabilities and Equity $ 1,199.6 $ 1,214.4 See notes to the Unaudited Condensed Consolidated Financial Statements. Dollar amounts are in millions except per share amounts or as otherwise specified. 3 Table of Contents Condensed Consolidated Statements of Equity Embecta Corp. (Unaudited) Common Stock Shares Par Value Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive (Loss) Income Total Balance at January 1, 2023 57,213,757 $ 0.6 $ 12.7 $ ( 550.5 ) $ ( 298.9 ) $ ( 836.1 ) Net income — — — 14.0 — 14.0 Other comprehensive income, net of taxes — — — — 2.7 2.7 Stock-based compensation plans — — 5.6 — — 5.6 Dividends declared ($ 0.15 per share) — — — ( 8.6 ) — ( 8.6 ) Issuance of shares related to stock-based compensation plans 73,780 — ( 0.2 ) — — ( 0.2 ) Balance at March 31, 2023 57,287,537 $ 0.6 $ 18.1 $ ( 545.1 ) $ ( 296.2 ) $ ( 822.6 ) Balance at January 1, 2024 57,573,497 $ 0.6 $ 33.4 $ ( 530.0 ) $ ( 297.5 ) $ ( 793.5 ) Net income — — — 28.9 — 28.9 Other comprehensive loss, net of taxes — — — — ( 2.4 ) ( 2.4 ) Stock-based compensation plans — — 6.5 — — 6.5 Dividends and dividend equivalents declared ($ 0.15 per share) — — 0.3 ( 8.9 ) — ( 8.6 ) Issuance of shares related to stock-based compensation plans 87,936 — ( 0.5 ) — — ( 0.5 ) Balance at March 31, 2024 57,661,433 $ 0.6 $ 39.7 $ ( 510.0 ) $ ( 299.9 ) $ ( 769.6 ) See notes to the Unaudited Condensed Consolidated Financial Statements. Dollar amounts are in millions except per share amounts or as otherwise specified. 4 Table of Contents Common Stock Shares Par Value Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive (Loss) Income Total Balance at October 1, 2022 57,055,327 $ 0.6 $ 10.0 $ ( 577.1 ) $ ( 324.9 ) $ ( 891.4 ) Net income — — — 49.2 — 49.2 Other comprehensive income, net of taxes — — — — 28.7 28.7 Stock-based compensation plans — — 11.1 — — 11.1 Dividends declared ($ 0.30 per share) — — — ( 17.2 ) — ( 17.2 ) Issuance of shares related to stock-based compensation plans 232,210 — ( 3.0 ) — — ( 3.0 ) Balance at March 31, 2023 57,287,537 $ 0.6 $ 18.1 $ ( 545.1 ) $ ( 296.2 ) $ ( 822.6 ) Balance at October 1, 2023 57,333,353 $ 0.6 $ 27.9 $ ( 541.1 ) $ ( 309.1 ) $ ( 821.7 ) Net income — — — 49.0 — 49.0 Other comprehensive income, net of taxes — — — — 9.2 9.2 Stock-based compensation plans — — 13.8 — — 13.8 Dividends and dividend equivalents declared ($ 0.30 per share) — — 0.7 ( 17.9 ) — ( 17.2 ) Issuance of shares related to stock-based compensation plans 328,080 — ( 2.7 ) — — ( 2.7 ) Balance at March 31, 2024 57,661,433 $ 0.6 $ 39.7 $ ( 510.0 ) $ ( 299.9 ) $ ( 769.6 ) See notes to the Unaudited Condensed Consolidated Financial Statements. Dollar amounts are in millions except per share amounts or as otherwise specified. 5 Table of Contents Condensed Consolidated Statements of Cash Flows Embecta Corp. (Unaudited) Six Months Ended March 31, 2024 2023 Operating Activities Net income $ 49.0 $ 49.2 Adjustments to net income to derive net cash provided by operating activities: Depreciation and amortization 17.8 15.2 Amortization of debt issuance costs 3.2 3.2 Amortization of cloud computing arrangements 1.6 — Stock-based compensation 13.8 11.1 Deferred income taxes ( 39.6 ) 1.2 Change in operating assets and liabilities: Trade receivables, net ( 106.7 ) 4.3 Inventories 2.0 ( 30.7 ) Due from/due to Becton, Dickinson and Company 64.3 ( 14.9 ) Prepaid expenses and other 36.5 ( 16.0 ) Accounts payable, accrued expenses and other current liabilities 0.4 19.7 Income and other net taxes payable ( 7.0 ) 10.6 Other assets and liabilities, net ( 24.1 ) ( 5.5 ) Net Cash Provided by Operating Activities $ 11.2 $ 47.4 Investing Activities Capital expenditures $ ( 6.1 ) $ ( 10.5 ) Net Cash Used for Investing Activities $ ( 6.1 ) $ ( 10.5 ) Financing Activities Payments on long-term debt $ ( 4.8 ) $ ( 4.8 ) Payments related to tax withholding for stock-based compensation ( 2.7 ) ( 3.0 ) Payments on finance lease ( 0.6 ) ( 1.8 ) Dividend payments ( 17.2 ) ( 17.2 ) Net Cash Used for Financing Activities $ ( 25.3 ) $ ( 26.8 ) Effect of exchange rate changes on cash and equivalents and restricted cash 0.2 5.4 Net Change in Cash and equivalents and restricted cash $ ( 20.0 ) $ 15.5 Opening Cash and equivalents and restricted cash 326.5 330.9 Closing Cash and equivalents and restricted cash $ 306.5 $ 346.4 See notes to the Unaudited Condensed Consolidated Financial Statements. Dollar amounts are in millions except per share amounts or as otherwise specified. 6 Table of Contents Notes to Unaudited Condensed Consolidated Financial Statements Embecta Corp. Note 1 — Background Embecta Corp. ("Embecta" or the "Company") is a leading global medical device company focused on providing solutions to improve the health and well-being of people living with diabetes. The Company has a broad portfolio of marketed products, including a variety of pen needles, syringes and safety devices, which are complemented by a proprietary digital application designed to assist people with managing their diabetes. The Company primarily sells 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. Note 2 — Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures required by GAAP for complete consolidated financial statements are not included herein. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. In the Company's opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature. All intercompany transactions and accounts within Embecta have been eliminated. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Embecta's Annual Report on Form 10-K for the year ended September 30, 2023. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates or assumptions affect reported assets, liabilities, revenues and expenses, depreciable and amortizable lives, sales returns and allowances, rebate accruals, inventory reserves and taxes on income as reflected in the Condensed Consolidated Financial Statements. Actual results could differ from these estimates. Recently Adopted Accounting Standards There were no new material accounting standards adopted in the second first quarter of 2024. Recently Issued Accounting Standards Not Yet Adopted In November 2023, the Financial Account Standard Board issued Accounting Standards Update ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which modifies the disclosure and presentation requirements of reportable segments. This update is effective for the Company beginning with its fiscal year 2025 reporting and for interim reporting beginning with its fiscal year 2026. As this accounting standard only impacts disclosures, it will not have a material impact on the Company’s Consolidated Financial Statements. In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures. This update is effective for the Company beginning with its fiscal year 2026 reporting. As this accounting standard only impacts disclosures, it will not have a material impact on the Company’s Consolidated Financial Statements. Reclassification Certain prior period amounts have been reclassified to conform to the current year presentation. Note 3 — Third Party Arrangements and Related Party Disclosures On April 1, 2022, Embecta and Becton, Dickinson and Company ("BD") entered into a Separation and Distribution Agreement (the "Separation and Distribution Agreement"). Pursuant to the Separation and Distribution Agreement, BD agreed to spin off its diabetes care business (the "Diabetes Care Business") into Embecta, a new, publicly traded company (the "Separation"). In connection with the Separation, the Company entered into the Separation and Distribution Agreement, which contains provisions that, among other things, relate to (i) assets, liabilities and contracts to be transferred, assumed and assigned to each of Embecta and BD (including certain deferred assets and liabilities) as part of the Separation, (ii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of Embecta's business with Embecta and financial responsibility for the obligations and liabilities of BD’s remaining businesses with BD, (iii) procedures with respect to claims subject to indemnification and related matters, (iv) the allocation among Embecta and BD of rights and Dollar amounts are in millions except per share amounts or as otherwise specified. 7 Table of Contents obligations under existing insurance policies with respect to occurrences prior to completion of the Separation, as well as the right to proceeds and the obligation to incur certain deductibles under certain insurance policies, and (v) procedures governing Embecta’s and BD’s obligations and allocations of liabilities with respect to ongoing litigation matters that may implicate each of BD’s business and Embecta’s business. Agreements that Embecta entered into with BD that govern aspects of Embecta's relationship with BD following the Separation include, but are not limited to the Transition Services Agreements ("TSA"), Trade Receivables Factoring Agreements ("Factoring Agreements"), Distribution Agreements, Cannula Supply Agreement, Tax Matters Agreement, Logistics Services Agreement ("LSA"), employee matters agreement, an intellectual property matters agreement, local support services agreements, certain other manufacturing arrangements and a process services agreement and lease agreement for a manufacturing facility located in Holdrege, Nebraska. For details on the rights and responsibilities of the parties under these agreements refer to Note 4 to the audited Consolidated Financial Statements in Embecta’s Annual Report on Form 10-K for the year ended September 30, 2023 filed with the Securities and Exchange Commission on November 29, 2023 (the “2023 Form 10-K”). On March 28, 2024, we entered into (i) a second amendment (the “TSA Amendment”) to the 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 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. As of March 31, 2024, all factoring agreements between Embecta and BD have expired and terminated as a result of the Company's implementation and onboarding of certain systems and services, 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, which, for clarity, includes enterprise resource planning (“ERP”) systems (“Business Continuity Processes”) in North America, and certain jurisdictions in Europe and Asia. The amount due from BD under the above agreements was $ 43.3 million at March 31, 2024 and is included in Amounts due from Becton, Dickinson and Company . The amount due to BD under these agreements was $ 38.5 million at March 31, 2024 and is included in Amounts due to Becton, Dickinson and Company . The closing of the transfers of certain assets and liabilities related to the Diabetes Care Business in certain jurisdictions, including China, Mexico, Taiwan, India, Brazil, and Colombia as contemplated by the Separation and Distribution Agreement did not occur at Separation. The transfers of the relevant local assets and liabilities in these certain jurisdictions are expected to close at a future date. As of March 31, 2024, the Company estimates that amounts due from BD related to certain assets and liabilities in these certain jurisdictions are $ 18.9 million and are reflected in Prepaid expenses and other . As of March 31, 2024, the Company estimates that amounts due to BD related to certain assets and liabilities in these certain jurisdictions is $ 7.0 million and are reflected in Accrued expenses . Note 4 — Collaboration Agreement In March 2023, the Company entered into a collaboration agreement with a third-party to develop and commercialize an interoperable automated glycemic controller ("iAGC") to complement the Company's insulin patch pump currently in development. The Company believes that both parties are active participants in the operating activities of the collaboration and exposed to certain risks and rewards depending on commercial success. The transaction included an upfront payment of $ 2.5 million for project costs, which was expensed to Research and development expense during the six month period ended March 31, 2023. Upon successful commercialization of the iAGC, the Company will be responsible for the sales and marketing effort and would pay a royalty to the third-party based on future product sales to customers. The Company expects that it will be the principal in the end customer sale and 100 % of product sales will be included in Revenues and any royalty payments and continued project costs after commercialization will be included in Cost of products sold as they are incurred. Note 5 — Other Operating Expenses In connection with the Separation, the Company incurred separation and stand-up costs of approximately $ 32.6 million and $ 59.0 million during the three and six months ended March 31, 2024, respectively, and incurred separation and stand-up costs of approximately $ 25.6 million and $ 35.5 million during the three and six months ended March 31, 2023, respectively. The costs incurred primarily consist of costs associated with accounting, auditing, legal services, marketing, supply chain, employee retention, the implementation of the Company's new ERP system, and certain other costs to Dollar amounts are in millions except per share amounts or as otherwise specified. 8 Table of Contents establish certain Business Continuity Processes and stand-alone functions to assist with the transition to being a stand-alone entity. Note 6 — Contingencies The Company was not a party to any material legal proceedings at March 31, 2024 or September 30, 2023, nor is it a party to any material legal proceedings as of the date of issuance of these Condensed Consolidated Financial Statements. Note 7 — Revenues The Company’s policies for recognizing revenue have not changed from those described in the 2023 Form 10-K. The Company sells syringes, pen needles and other products used in the management of diabetes which are primarily sold 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. End-users of the Company’s products include healthcare institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry, and the general public. Measurement of Revenues Payment terms extended to the Company’s customers are based upon commercially reasonable terms for the markets in which the Company’s products are sold. Because the Company generally expects to receive payment within one year or less from when control of a product is transferred to the customer, the Company does not generally adjust its revenues for the effects of a financing component. The Company’s allowance for doubtful accounts reflects the current estimate of credit losses expected to be incurred over the life of its trade receivables. Such estimated credit losses are determined based on historical loss experiences, customer specific credit risk, and reasonable and supportable forward-looking information, such as country or regional risks that are not captured in the historical loss information. Amounts are written off against the allowances for doubtful accounts when the Company determines that a customer account is uncollectible. The allowance for doubtful accounts for trade receivables is not material to the Company’s Condensed Consolidated Financial Statements. The Company’s gross revenues are subject to a variety of deductions which are recorded in the same period that the underlying revenues are recognized. Such variable consideration includes rebates, sales discounts, and sales returns. Because these deductions represent estimates of the related obligations, judgment is required when determining the impact of these revenue deductions on gross revenues for a reporting period. Rebates provided by the Company are based upon prices determined under the Company’s agreements primarily with its end-user customers. Additional factors considered in the estimate of the Company’s rebate liability include the quantification of inventory that is either in stock at or in transit to the Company’s distributors, as well as the estimated lag time between the sale of product and the payment of corresponding rebates. The Company’s liability attributed to variable consideration at March 31, 2024 and September 30, 2023 was $ 177.2 million and $ 36.4 million, respectively. Sales deductions recorded as a reduction of gross revenues for the three months ended March 31, 2024 and 2023 were $ 138.5 million and $ 95.2 million, respectively. Sales deductions recorded as a reduction of gross revenues for the six months ended March 31, 2024 and 2023 were $ 265.2 million and $ 187.8 million, respectively. Disaggregation of Revenues Disaggregation of revenue by geographic region is provided within Note 8. Contract Assets and Liabilities The Company does not have contract liabilities. Contract assets consist of the Company’s right to consideration that is conditional upon its future performance pursuant to private label agreements and are presented within Prepaid expenses and other in the Condensed Consolidated Balance Sheets. The Company’s contract asset balance was $ 1.2 million as of both March 31, 2024 and September 30, 2023. Note 8 — Segment and Geographical Data Operating segments are identified as components of an enterprise in which discrete financial information is available for evaluation by the chief operating decision-maker (“CODM”) in making decisions regarding assessing business performance and allocating resources and capital. Management has concluded that the Company operates in one segment based upon the information used by the CODM in evaluating the performance of the Company’s business and allocating resources and capital. Disaggregation of Revenues The Company has distribution agreements with regional or national distributors (including wholesalers and medical suppliers) to ensure broad availability of its products as well as a direct sales force in certain countries and regions around Dollar amounts are in millions except per share amounts or as otherwise specified. 9 Table of Contents the world. In the United States and Canada, the Company utilizes its large and small key account managers that call on payers, retailers, wholesalers and institutional customers, and field-based territory managers that call on health care providers and pharmacies. In certain markets within Europe, the Company has dedicated sales representatives and in certain regions of the Middle East and Africa, the Company has distribution agreements. In Asia, the Company has distribution agreements, and in China the Company relies on its own commercial team to support sales execution. In Latin America, the Company maintains distribution agreements and direct sales representatives. The Company disaggregates its revenue by geography as management believes this category best depicts how the nature, amount, and timing of revenues and cash flows are affected by economic factors. Revenues by geographic region are as follows: 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 (1) 139.6 130.7 268.3 257.1 Total $ 287.2 $ 277.1 $ 564.5 $ 552.8 (1) For the three and six months ended March 31, 2024 and 2023, no individual country outside of the United States generated net revenues that represented more than 10.0% of total revenues. Note 9 — Stock-Based Compensation Stock-Based Compensation Expense Total stock-based compensation expense for the three and six months ended March 31, 2024 and 2023 and the respective income tax benefits recognized by the Company in the Condensed Consolidated Statements of Income are as follows: Three months ended March 31, Six months ended March 31, 2024 2023 2024 2023 Cost of products sold $ 1.1 $ 0.6 $ 2.0 $ 1.2 Selling and administrative expense 4.9 4.7 10.8 9.3 Research and development expense 0.5 0.5 1.1 0.8 Total Stock-Based Compensation Expense $ 6.5 $ 5.8 $ 13.9 $ 11.3 Tax benefit associated with stock-based compensation costs recognized $ 0.5 $ 0.7 $ 1.2 $ 1.5 The following table summarizes the Company's total stock-based compensation expense by classification of award for the three and six months ended March 31, 2024 and 2023: Three months ended March 31, Six Months Ended March 31, 2024 2023 2024 2023 Equity Awards $ 6.5 $ 5.6 $ 13.8 $ 11.1 Liability Awards — 0.2 0.1 0.2 Total $ 6.5 $ 5.8 $ 13.9 $ 11.3 Dollar amounts are in millions except per share amounts or as otherwise specified. 10 Table of Contents The following table summarizes the Company's total stock-based compensation expense by award type for the three and six months ended March 31, 2024 and 2023: Three months ended March 31, Six Months Ended March 31, 2024 2023 2024 2023 Time-Vested Restricted Stock Units (TVUs) $ 5.2 $ 4.0 $ 10.6 $ 8.1 Performance-Based Restricted Stock Units (PSUs) 0.4 0.6 1.3 0.7 Stock Appreciation Rights (SARs) 0.9 1.2 2.0 2.5 Total $ 6.5 $ 5.8 $ 13.9 $ 11.3 Time Vested Restricted Stock Units ("TVUs") During the six months ended March 31, 2024 , Embecta granted 1,393,808 restricted stock units ("RSUs") in the form of TVUs to employees. TVUs vest on a graded basis over a period of three years . The related stock-based compensation expense is recorded over the requisite service period, which is the vesting period or is based on retirement eligibility. These awards accumulate dividend equivalents, which are provided as additional units and are subject to the same vesting requirements as the underlying grant. A summary of TVUs outstanding as of March 31, 2024 and changes during the six months ended March 31, 2024 are as follows: RSUs (in thousands) Weighted Average Grant Date Fair Value Nonvested at October 1 1,188.8 $ 29.42 Granted* 1,393.8 17.42 Distributed** ( 479.7 ) 28.70 Forfeited, canceled or expired ( 38.2 ) 23.51 Nonvested at March 31 2,064.7 $ 21.59 Expected to vest at March 31 1,954.6 $ 21.64 *Includes accumulated nonvested dividend equivalents **The RSUs distributed include shares withheld for taxes that are not formally issued to the market. The weighted average grant date fair value of TVUs granted during the six months ended March 31, 2024 is $ 17.42 and the total fair value of TVUs vested during the six months ended March 31, 2024 is $ 13.8 million. At March 31, 2024, the weighted average remaining vesting term of TVUs is 2.1 years. Performance Based Restricted Stock Units ("PSUs") During the six months ended March 31, 2024 , Embecta awarded 541,958 RSUs in the form of PSUs to certain executive officers and employees which cliff vest after three years , subject to continued employment of the recipients and the achievement of certain performance metric targets. The Company has identified certain performance metrics associated with these awards and certain targets will be fully established at a future date. The Company has determined that the service inception date precedes the grant date for these awards as (a) the awards were authorized prior to establishing an accounting grant date, (b) the recipients began providing services prior to the grant date, and (c) there are performance conditions that, if not met by the accounting grant date, will result in the forfeiture of the awards. As the service inception date precedes the accounting grant date, the Company recognizes stock-based compensation expense for each separately-vesting tranche over the requisite service period based on the fair value at each reporting date. The requisite service period is equal to the vesting period or is based on retirement eligibility. These awards accumulate dividend equivalents, which are provided as additional units and are subject to the same vesting requirements as the underlying grant. As of March 31, 2024 , there were 725,912 RSUs in the form of PSUs that have been awarded, inclusive of accumulated dividend equivalents, for which a grant date has not yet been established. Dollar amounts are in millions except per share amounts or as otherwise specified. 11 Table of Contents As of both March 31, 2024 and September 30, 2023, there were approximately 57.8 thousand nonvested PSUs for which a grant date has been established with a weighted average grant date fair value of $ 30.24 . As of March 31, 2024, there were approximately 54.6 thousand nonvested PSUs for which a grant date has been established that are expected to vest with a weighted average grant date fair value of $ 30.24 . At March 31, 2024, the weighted average remaining vesting term of PSUs is 1.7 years. Stock Appreciation Rights A summary of stock appreciation rights ("SARs") outstanding as of March 31, 2024 and changes during the six months ended March 31, 2024 are as follows: SARs (in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Balance at October 1 1,831.7 $ 29.06 Forfeited, canceled or expired ( 45.3 ) 27.36 Balance at March 31 1,786.4 $ 29.10 7.2 $ — Vested and expected to vest at March 31 1,733.8 29.07 7.2 $ — Exercisable at March 31 829.6 $ 27.84 6.5 $ — No SARs w ere exercised during the six months ended March 31, 2024. Unrecognized Stock-Based Compensation Expense and Other Stock Plans The amount of unrecognized compensation expense for all non-vested stock-based awards granted as of March 31, 2024, is approximately $ 42.0 million which is expected to be recognized over a weighted-average remaining life of approximately 2.1 years. At March 31, 2024, 2.6 million shares were authorized for future grants under the Company's 2022 Employee and Director Equity Based Compensation Plan. Note 10 — Goodwill, Intangible Assets, and Cloud Computing Arrangements Goodwill and Intangible Assets Goodwill and Other Intangible Assets consisted of: March 31, 2024 September 30, 2023 Amortized intangible assets Patents – gross $ 10.6 $ 10.6 Less: accumulated amortization ( 4.8 ) ( 4.5 ) Patents – net $ 5.8 $ 6.1 Customer Relationships and Other – gross $ 5.4 $ 5.4 Less: accumulated amortization ( 2.6 ) ( 2.4 ) Customer Relationships and Other – net $ 2.8 $ 3.0 Total amortized intangible assets $ 8.6 $ 9.1 Goodwill 15.5 15.6 Total Goodwill and Other Intangible Assets $ 24.1 $ 24.7 Dollar amounts are in millions except per share amounts or as otherwise specified. 12 Table of Contents Cloud Computing Arrangements The Company capitalizes costs associated with the development of cloud computing arrangements in a manner consistent with internally developed software. Capitalized costs are included in Prepaid expenses and other and Deferred Income Taxes and Other Assets. Capitalized costs to implement cloud computing arrangements at cost and accumulated amortization were as follows: March 31, 2024 September 30, 2023 Short-term portion $ 8.4 $ 4.0 Long-term portion 50.9 34.0 Total Capitalized implementation costs $ 59.3 $ 38.0 Less: accumulated amortization ( 1.6 ) — Total Capitalized implementation costs, net $ 57.7 $ 38.0 Costs amortized during the three and six months ended March 31, 2024 were $ 1.2 million and $ 1.6 million, respectively, and are included in Other operating expenses . For the three and six months ended March 31, 2023 there were no costs recognized related to the implementation of these cloud computing arrangements due to the timing of when these projects were placed into service. As of March 31, 2024, cloud computing arrangement assets in-service have useful lives which range from approximately three to nine years . Note 11 — Long-Term Debt Credit Agreement On March 31, 2022, Embecta entered into a credit agreement (the “Credit Agreement”), providing for: • a Term Loan B Facility (the "Term Loan") in the amount of $ 950.0 million, with a seven -year term that matures in March 2029. The interest rate is 300 basis points over the secured overnight financing rate (“SOFR”), with a 0.50 % SOFR floor. The Term Loan was issued at a discount of 0.50 %. Principal and interest payments on the Term Loan commenced 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; and • a Revolving Credit Facility (the "Revolving Credit Facility") in an aggregate principal amount of up to $ 500.0 million, with a five -year term that matures in 2027. Borrowings under the Revolving Credit Facility bear interest, at Embecta’s option, 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 March 31, 2024, no amount has been drawn on the Revolving Credit Facility. The Credit Agreement and the indentures for Embecta's outstanding 5.00 % senior secured notes due February 2030 (the " 5.00 % Notes") and 6.75 % senior secured notes due February 2030 (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 the 5.00 % Notes and 6.75 % Notes. In addition, the Credit Agreement contains covenants that will limit, among other things, Embecta’s ability to prepay, redeem or repurchase its 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. The following is a summary of Embecta's total debt outstanding as of March 31, 2024: Term Loan due March 2029 $ 931.0 5.00 % Notes due February 2030 500.0 6.75 % Notes due February 2030 200.0 Total principal debt issued $ 1,631.0 Less: current debt obligations ( 9.5 ) Less: debt issuance costs and discounts ( 29.7 ) Long-term debt $ 1,591.8 The debt issuance costs on the Term Loan, 5.00 % Notes, 6.75 % Notes and the discount on the Term Loan are reported in Dollar amounts are in millions except per share amounts or as otherwise specified. 13 Table of Contents the Condensed Consolidated Balance Sheets as a reduction of debt and are amortized as a component of Interest expense, net over the term of the related debt using the effective interest method. The schedule of principal payments required on long-term debt for the next five fiscal years and thereafter is as follows: 2024 $ 4.8 2025 9.5 2026 9.5 2027 9.5 2028 9.5 Thereafter 1,588.2 The estimated fair value of long-term debt (including current portion) at March 31, 2024 was $ 1,441.8 million compared with a carrying value (which includes a reduction for unamortized debt issuance costs and discounts) of $ 1,601.3 million. Fair value was estimated using inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability and would be considered Level 2 in the fair value hierarchy. Note 12 — Earnings per Share The calculation of earnings per basic and diluted common share for the three and six months ended March 31, 2024 and 2023 was as follows: Three Months Ended March 31, Six Months Ended March 31, ($ in millions and shares in thousands, except per share amounts) 2024 2023 2024 2023 Net Income attributable to Embecta $ 28.9 $ 14.0 $ 49.0 $ 49.2 Basic weighted average number of shares outstanding 57,687 57,260 57,580 57,186 Stock awards and equity units (share equivalent) 120 253 396 426 Diluted weighted average shares outstanding 57,807 57,513 57,976 57,612 Earnings per common share - Basic $ 0.50 $ 0.24 $ 0.85 $ 0.86 Earnings per common share - Diluted $ 0.50 $ 0.24 $ 0.85 $ 0.85 Earnings per diluted share is computed by giving effect to all potentially dilutive stock awards that are outstanding. The computation of earnings per diluted share excludes the effect of the potential exercise of stock-based awards, when the effect of the potential exercise would be anti-dilutive. For the three months ended March 31, 2024 and 2023, 4.2 million and 2.2 million, respectively, and for the six months ended March 31, 2024 and 2023, 2.8 million and 1.8 million, respectively, of dilutive share equivalents issuable under stock-based compensation plans were excluded from the diluted shares outstanding calculation because the result would have been antidilutive. Note 13 — Income Taxes The Company is subject to income tax in the various jurisdictions in which it operates. A significant portion of the Company's earnings are taxed in jurisdictions with tax rates that are lower than the statutory tax rate of the United States. The effective tax rate can change from quarter to quarter because of variability in global pretax income or geographical mix of the Company's earnings, changes in tax laws and matters related to tax audits. The effective tax rates were ( 191.9 )% and 42.9 % for the three 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, reduced unrecognized tax benefits, and lower income in the current period which increases the variability of the effective tax rate. 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 Dollar amounts are in millions except per share amounts or as otherwise specified. 14 Table of Contents 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. Note 14 — Financial Instruments and Fair Value Measurements The following reconciles Cash and equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets as of March 31, 2024 and September 30, 2023, to the total amounts shown in the Condensed Consolidated Statements of Cash Flows: March 31, 2024 September 30, 2023 Cash and equivalents $ 299.8 $ 326.3 Restricted cash 6.7 0.2 Cash and equivalents and restricted cash $ 306.5 $ 326.5 Cash and equivalents as of March 31, 2024 includes cash held in money market funds and other cash equivalents. All cash and equivalents are Level 1 in the fair value hierarchy. Interest income on Cash and equivalents was $ 2.9 million and $ 2.7 million for the three months ended March 31, 2024 and 2023, respectively, and $ 6.3 million and $ 3.8 million for the six months ended March 31, 2024 and 2023, respectively, and is included as a component of Interest expense, net . Restricted cash consists of cash not readily available for use in the Company's operating activities. The Company's restricted cash balance is primarily pledged as collateral for bank guarantees related to certain customer performance guarantees and property leases internationally. Foreign Currency Risks and Related Strategies The Company has foreign currency exposures throughout Europe, Asia, Canada and Latin America. Transactional currency exposures that arise from entering into transactions, generally on an intercompany basis, in non-hyperinflationary countries that are denominated in currencies other than the functional currency are mitigated primarily through the use of forward contracts. The notional amounts of the Company’s foreign currency-related derivative instruments were as follows as of March 31, 2024 and September 30, 2023, respectively: Hedge Designation March 31, 2024 September 30, 2023 Foreign exchange contracts (a) Undesignated $ 10.1 $ 6.7 a. Represent hedges of transactional foreign exchange exposures resulting primarily from intercompany payables and receivables. Gains and losses on these instruments are recognized immediately in Other income (expense), net . These gains and losses are largely offset by gains and losses on the underlying hedged items, as well as the hedging costs associated with the derivative instruments. Gains and losses recognized to date on these instruments were not material to the Company's Condensed Consolidated Financial Statements. Nonrecurring Fair Value Measurements Non-financial assets, including property, plant and equipment as well as intangible assets, are measured at fair value when there are indicators of impairment and these assets are recorded at fair value only when an impairment is recognized. These measurements of fair value are generally based upon Level 3 inputs, including values estimated using the income approach. Concentration of Credit Risk Three of the Company’s customers represented at least 10.0% of total gross revenues individually and, in the aggregate, represented approximately 42.0 % for the three months ended March 31, 2024, and three of the Company's customers represented at least 10.0% of total gross revenues individually and, in the aggregate, represented approximately 42.0 % of total revenues for the six months ended March 31, 2024. Four of the Company's customers represented at least 10.0% of total gross trade receivables individually and, in the aggregate, represented approximately 63.6 % as of March 31, 2024. Substantially all of the Company’s trade receivables are due from public and private entities involved in the healthcare industry. The Company does not normally require collateral from its customers. Dollar amounts are in millions except per share amounts or as otherwise specified. 15 Table of Contents Note 15 — Property, Plant and Equipment Property, Plant and Equipment, Net consisted of: March 31, 2024 September 30, 2023 Land $ 2.3 $ 2.3 Buildings 121.0 124.5 Machinery, equipment and fixtures 576.3 567.2 Leasehold improvements 9.1 9.1 Construction in progress 44.2 44.8 $ 752.9 $ 747.9 Less: accumulated depreciation ( 459.7 ) ( 447.7 ) Total Property, Plant and Equipment, Net $ 293.2 $ 300.2 Note 16 — Leases Finance Leases The Company's finance lease assets and liabilities are attributed to its manufacturing site in Holdrege, Nebraska, which has an initial term of ten years and an option for the Company to extend the lease term for an additional period of up to five years . This lease is classified as a finance lease because the present value of the sum of the lease payments associated with the lease exceeds substantially all of the fair value of the manufacturing site. Operating Leases The Company's operating leases primarily relate to its real estate leases that are not classified as finance leases. Aggregate Lease Information The Company's leases are included in its Condensed Consolidated Balance Sheets as follows: March 31, 2024 September 30, 2023 Finance Leases Property, Plant, and Equipment, Net $ 32.0 $ 33.1 Total Finance Lease Assets $ 32.0 $ 33.1 Current finance lease liabilities $ 3.7 $ 3.6 Non Current Finance Lease Liabilities 30.8 31.5 Total Finance Lease Liabilities $ 34.5 $ 35.1 Weighted-average remaining lease term (years) 13.0 13.5 Weighted-average discount rate 6.8 % 6.8 % Operating Leases Other Assets $ 21.6 $ 23.0 Total Operating Lease Assets $ 21.6 $ 23.0 Accrued expenses $ 5.9 $ 5.9 Deferred Income Taxes and Other Liabilities 14.0 15.4 Total Operating Lease Liabilities $ 19.9 $ 21.3 Weighted-average remaining lease term (years) 6.8 7.3 Weighted-average discount rate 6.7 % 6.9 % Dollar amounts are in millions except per share amounts or as otherwise specified. 16 Table of Contents Supplemental cash flow information related to leases for the six months ended March 31, 2024 and 2023 were as follows: March 31, 2024 March 31, 2023 Right of use assets obtained in exchange for lease liabilities Financing Leases $ — $ — Operating Leases 1.5 14.0 March 31, 2024 March 31, 2023 Cash used for amounts included in the measurement of lease liabilities Operating cash flows from Operating Leases $ 2.9 $ 0.9 Financing cash flows from Finance Lease 0.6 1.8 Operating cash flows from Finance Lease 1.2 — Maturities of the Company's finance and operating lease liabilities as of March 31, 2024 by fiscal year are as follows: Finance Leases Operating Leases Total 2024 $ 1.8 $ 4.0 $ 5.8 2025 3.7 4.7 8.4 2026 3.7 2.4 6.1 2027 3.8 1.9 5.7 2028 3.9 2.1 6.0 Thereafter 36.2 11.3 47.5 Total lease payments $ 53.1 $ 26.4 $ 79.5 Less: amount representing interest 18.6 6.5 25.1 Present value of lease liabilities $ 34.5 $ 19.9 $ 54.4 Dollar amounts are in millions except per share amounts or as otherwise specified. 17 Table of Contents