What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-08 compared with 2025-05-09 · 74 added, 66 removed, 226 unchanged (38% of the section changed)

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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.

Global Trade.

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to global manufacturing sites and markets, these new tariffs may have a financial impact on our cost of goods, our profit margins, our business generally and our global distribution strategy.

These new tariffs have also caused foreign governments and private purchasers to consider transitioning away from products originating from certain countries (including the U.S.) in favor of buying “local” products, which may impact the company’s business and operations.

These new tariffs may cause foreign governments and private purchasers to consider transitioning away from products originating from certain countries (including the U.S.) in favor of buying “local” products resulting in the additional possibility that local manufacturers, brands and other competitors may engage in aggressive competitive pricing to take advantage of the uncertain global trade environment and transition customers away from global manufacturers, all of which may impact the company’s business and operations.

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

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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.

Given our global business, we expect recently announced tariffs will result in additional cost for us and our suppliers as well as influencing potential future decisions by foreign governments and private purchasers to source non-U.S., “locally” manufactured products instead of products originating from certain countries (including the U.S.).

Given our global business, we expect recently announced tariffs will result in additional cost for us and our suppliers, and there is the potential that such tariffs may influence future decisions by foreign governments and private purchasers to source non-U.S., “locally” manufactured products instead of products originating from certain countries (including the U.S.) and that local manufacturers, brands and other competitors may engage in aggressive competitive pricing or other strategies to take advantage of the uncertain global trade environment and transition customers away from global manufacturers.

We will continue to monitor the evolving tariff environment and we will focus on optimizing operations and leveraging existing strategies to reduce the impact from tariffs.

On November 22, 2024, the Company's Board of Directors approved a plan to discontinue internal and external investment in the research and development of our patch pump program.

Restructuring actions associated with the Patch Pump Restructuring Plan to discontinue the patch pump program are substantially complete as of March 31, 2025.

Total cumulative pretax costs to be incurred by the Company to implement the Patch Pump Restructuring Plan are estimated to be between $30.0 million to $40.0 million.

As a result, the Company incurred organizational restructuring plan (the "Patch Pump Restructuring Plan") costs of $34.3 million during the nine months ended June 30, 2025.

Restructuring actions associated with the Patch Pump Restructuring Plan to discontinue the patch pump program are substantially complete as of June 30, 2025.

In addition, we discontinued our commercial operation plans for the insulin delivery system, including the previous intended limited launch.

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During the second quarter of fiscal 2025, the Company initiated restructuring actions in connection with the 2025 Restructuring Plan to streamline the organization and optimize resources.

The Company expects the 2025 Restructuring Plan to be substantially completed by the end of fiscal year 2025.

Total cumulative pretax costs to be incurred by the Company to implement the 2025 Restructuring Plan are estimated to be between $4.0 million to $5.0 million.

As a result, the Company incurred organizational restructuring plan costs of $3.5 million during the nine months ended June 30, 2025.

The 2025 Restructuring Plan is substantially complete as of June 30, 2025.

We continue to monitor the conflict in Ukraine and the associated sanctions and other restrictions.

We also are monitoring the Israel-Hamas war and Houthi attacks on commercial shipping vessels and other naval vessels.

As of May 9, 2025, there is no material impact to our business operations and financial performance as a result of the aforementioned conflicts.

We also are monitoring the conflicts in the Middle East and Houthi attacks on commercial shipping vessels and other naval vessels.

As of August 8, 2025, 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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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.

On July 4, 2025, the One Big Beautiful Bill ("OBBB") Act, which includes a broad range of tax reform provisions, was signed into law in the United States and we continue to assess its impact.

We currently do not expect the OBBB Act to have a material impact on the Company's results of operations in fiscal year 2025.

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

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Our unaudited Condensed Consolidated Statements of Income are as follows:

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

Three months ended June 30, Nine months ended June 30,

Revenues $ 295.5 $ 272.5 8.4 % $ 816.4 $ 837.0 (2.5) %

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Diluted $ 0.78 $ 0.25 212.0 % $ 1.18 $ 1.10 7.3 %

Three Months Ended March 31, 2025 Summary (on a comparative basis)

Key financial results for the three months ended March 31, 2025 were as follows:

• Revenue decreased by $28.2 million to $259.0 million from $287.2 million;

• Gross profit decreased by $21.3 million to $164.1 million from $185.4 million.

Three Months Ended June 30, 2025 Summary (on a comparative basis)

Key financial results for the three months ended June 30, 2025 were as follows:

• Revenue increased by $23.0 million to $295.5 million from $272.5 million;

• Gross profit increased by $7.0 million to $197.1 million from $190.1 million.

Gross profit as a percent of revenue was 66.7%, as compared to 69.8% in the prior year comparative period;

• Operating income increased by $38.1 million to $94.0 million from $55.9 million;

• Net income decreased by $5.4 million to $23.5 million from $28.9 million.

Six Months Ended March 31, 2025 Summary (on a comparative basis)

Key financial results for the six months ended March 31, 2025 were as follows:

• Net income increased by $30.8 million to $45.5 million from $14.7 million.

Nine Months Ended June 30, 2025 Summary (on a comparative basis)

Key financial results for the nine months ended June 30, 2025 were as follows:

• Revenue decreased by $20.6 million to $816.4 million from $837.0 million;

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• Operating income increased by $45.0 million to $185.6 million from $140.6 million;

• Net income decreased by $25.5 million to $23.5 million from $49.0 million.

• Net income increased by $5.3 million to $69.0 million from $63.7 million.

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

Our revenues decreased by $28.2 million, or 9.8%, to $259.0 million for the three months ended March 31, 2025 as compared to revenues of $287.2 million for the three months ended March 31, 2024.

Our revenues increased by $23.0 million, or 8.4%, to $295.5 million for the three months ended June 30, 2025 as compared to revenues of $272.5 million for the three months ended June 30, 2024.

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

The decrease in revenues was driven by $26.6 million of unfavorable changes in volume and $6.0 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S.

This was partially offset by $2.5 million of favorable changes in price and a $1.9 million increase in contract manufacturing revenues related to sales of non-diabetes products to BD.

Our revenues decreased by $43.6 million, or 7.7%, to $520.9 million for the six months ended March 31, 2025 as compared to revenues of $564.5 million for the six months ended March 31, 2024.

The increase in revenues was driven by $13.5 million of favorable changes in volume, $6.8 million of favorable changes in price, a $1.7 million increase in contract manufacturing revenues related to sales of non-diabetes products to Becton, Dickinson and Company ("BD"), and $1.0 million associated with the positive impact of foreign currency translation primarily due to the weakening of the U.S.

Our revenues decreased by $20.6 million, or 2.5%, to $816.4 million for the nine months ended June 30, 2025 as compared to revenues of $837.0 million for the nine months ended June 30, 2024.

The decrease in revenues was driven by $31.0 million of unfavorable changes in volume and $7.0 million associated with the negative impact of foreign currency translation primarily due to the strengthening of the U.S.

This was partially offset by a $4.8 million increase in contract manufacturing revenues related to sales of non-diabetes products to BD and $4.1 million of favorable changes in price.

This was partially offset by $10.9 million of favorable changes in price and $6.5 million increase in contract manufacturing revenues related to sales of non-diabetes products to BD.

Cost of products sold

Cost of products sold decreased by $6.9 million, or 6.8%, to $94.9 million for the three months ended March 31, 2025 as compared to $101.8 million for the three months ended March 31, 2024.

Cost of products sold as a percentage of revenues was 36.6% for the three months ended March 31, 2025 as compared to 35.4% for the three months ended March 31, 2024.

The decrease in cost of products sold for the three month comparative period was primarily driven by lower volumes partially offset by the impact of net changes in profit in inventory adjustments period over period.

Cost of products sold increased by $6.5 million, or 3.4%, to $199.7 million for the six months ended March 31, 2025 as compared to $193.2 million for the six months ended March 31, 2024.

Cost of products sold as a percentage of revenues was 38.3% for the six months ended March 31, 2025 as compared to 34.2% in the six months ended March 31, 2024.

The increase in cost of products sold for the six month comparative period was primarily driven by the impact of net changes from profit in inventory adjustments period over period and a non-cash asset impairment charge recorded in the first quarter of fiscal year 2025 to write down the carrying value of certain property and equipment as a result of the Company's Patch Pump Restructuring Plan.

Cost of products sold increased by $16.0 million, or 19.4%, to $98.4 million for the three months ended June 30, 2025 as compared to $82.4 million for the three months ended June 30, 2024.

Cost of products sold as a percentage of revenues was 33.3% for the three months ended June 30, 2025 as compared to 30.2% for the three months ended June 30, 2024.

The increase in cost of products sold for the three month comparative period was primarily driven by higher volumes and the impact of net changes in profit in inventory adjustments period over period.

Cost of products sold increased by $22.5 million, or 8.2%, to $298.1 million for the nine months ended June 30, 2025 as compared to $275.6 million for the nine months ended June 30, 2024.

Cost of products sold as a percentage of revenues was 36.5% for the nine months ended June 30, 2025 as compared to 32.9% in the nine months ended June 30, 2024.

The increase in cost of products sold for the nine month comparative period was primarily driven by the impact of net changes from profit in inventory adjustments period over period and non-cash asset impairment charges recorded to write down the carrying value of certain property and equipment as a result of the Company's Patch Pump Restructuring Plan.

This was partially offset by lower volumes in the current period compared to the prior year period.

Selling and administrative expenses

Selling and administrative expenses decreased by $12.7 million, or 13.8%, to $79.6 million for the three months ended March 31, 2025 as compared to $92.3 million for the three months ended March 31, 2024.

Selling and administrative expenses decreased by $21.9 million, or 12.0%, to $160.7 million for the six months ended March 31, 2025 as compared to $182.6 million for the six months ended March 31, 2024.

The decrease for both the three and six month comparative periods was primarily driven by lower TSA and LSA costs with BD in addition to lower compensation and marketing expense recognized in the current periods.

Selling and administrative expenses decreased by $1.3 million, or 1.5%, to $84.4 million for the three months ended June 30, 2025 as compared to $85.7 million for the three months ended June 30, 2024.

Selling and administrative expenses decreased by $23.2 million, or 8.6%, to $245.1 million for the nine months ended June 30, 2025 as compared to $268.3 million for the nine months ended June 30, 2024.

The decrease for both the three and nine month comparative periods was primarily driven by lower TSA and LSA costs with BD in addition to lower compensation expense recognized in the current periods.

Research and development expenses

Research and development expenses decreased by $10.4 million, or 56.5%, to $8.0 million for the three months ended March 31, 2025 as compared to $18.4 million for the three months ended March 31, 2024.

Research and development expenses decreased by $10.3 million, or 26.7%, to $28.3 million for the six months ended March 31, 2025 as compared to $38.6 million for the six months ended March 31, 2024.

The decrease for both the three and six month comparative periods was primarily driven by a reduction in payments made in connection with the development of our insulin patch pump program in the current periods as compared to the prior periods, given the discontinuation of the patch pump program.

Research and development expenses decreased by $16.0 million, or 78.4%, to $4.4 million for the three months ended June 30, 2025 as compared to $20.4 million for the three months ended June 30, 2024.

Research and development expenses decreased by $26.3 million, or 44.6%, to $32.7 million for the nine months ended June 30, 2025 as compared to $59.0 million for the nine months ended June 30, 2024.

The decrease for both the three and nine month comparative periods was primarily driven by a reduction in payments made in connection with the development of our insulin patch pump program in the current periods as compared to the prior periods, given the discontinuation of the patch pump program.

We expect our research and development expenses to decrease sequentially in fiscal year 2025 compared to fiscal year 2024.

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Other operating expenses are as follows:

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

Three months ended June 30, Nine months ended June 30,

2025 2024 2025 2024

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Interest expense, net

Interest expense, net decreased by $1.1 million to $26.7 million for the three months ended March 31, 2025 as compared to $27.8 million for the three months ended March 31, 2024.

Interest expense, net decreased by $0.9 million to $54.6 million for the six months ended March 31, 2025 as compared to $55.5 million for the six months ended March 31, 2024.

The change for both periods was relatively flat.

Interest expense, net decreased by $1.2 million to $26.6 million for the three months ended June 30, 2025 as compared to $27.8 million for the three months ended June 30, 2024.

Interest expense, net decreased by $2.1 million to $81.2 million for the nine months ended June 30, 2025 as compared to $83.3 million for the nine months ended June 30, 2024.

The decrease for both the three and nine month comparative periods was primarily driven by lower debt levels and lower short-term interest rates in the current periods as compared to the prior periods.

It remains unclear whether the United States Federal Reserve will increase or decrease the benchmark interest rate during the remainder of fiscal 2025.

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Other income (expense), net

Other income (expense), net, was $(0.4) million and $(1.5) million for the three months ended March 31, 2025 and 2024, respectively.

Other income (expense), net was $(1.9) million and $(5.0) million for the six months ended March 31, 2025 and 2024, respectively.

The costs incurred for the three and six month periods ended March 31, 2025 are primarily attributed to unfavorable impacts from foreign exchange.

The costs incurred for the three and six month periods ended March 31, 2024, are primarily attributed to amounts due to BD for income taxes payable incurred in deferred jurisdictions where BD is considered the primary obligor.

Other income (expense), net, was $4.8 million and $(1.1) million for the three months ended June 30, 2025 and 2024, respectively.

Other income (expense), net was $2.9 million and $(6.1) million for the nine months ended June 30, 2025 and 2024, respectively.

The income generated for the three and nine month periods ended June 30, 2025 was primarily attributed to favorable impacts from foreign exchange.

The costs incurred for the three and nine month periods ended June 30, 2024, was primarily attributed to amounts due to BD for income taxes payable incurred in deferred jurisdictions where BD is considered the primary obligor and the unfavorable impacts from foreign exchange.

We do not expect to incur any additional amounts where BD is considered the primary obligor in the current fiscal year.

Income tax provision (benefit)

The effective tax rates were 34.4% and (191.9)% for the three months ended March 31, 2025 and 2024, respectively.

The increase in the Company's effective tax rate compared to the prior period is primarily due to the absence of non-recurring tax benefits recognized in the prior period related to withholding taxes on undistributed foreign earnings and tax reserves, partially offset by favorable tax impacts primarily resulting from overall higher earnings reflected in the current period.

The effective tax rates were 33.0% and (102.5)% for the six months ended March 31, 2025 and 2024, respectively.

The increase in the Company's effective tax rate compared to the prior period is primarily due to the absence of non-recurring tax benefits recognized in the prior period related to withholding taxes on undistributed foreign earnings, Swiss tax law changes and tax reserves, partially offset by favorable tax impacts primarily resulting from overall higher earnings reflected in the current period.

The effective tax rates were 37.0% and 45.6% for the three months ended June 30, 2025 and 2024, respectively.

The decrease in the Company's effective tax rate compared to the prior period is primarily due to favorable tax impacts resulting from overall higher earnings reflected in the current period.

This was partially offset by higher taxes on undistributed foreign earnings and reduced tax benefits from non-taxable income.

The effective tax rates were 35.7% and (24.4)% for the nine months ended June 30, 2025 and 2024, respectively.

This was partially offset by favorable tax impacts primarily resulting from overall higher earnings reflected in the current period.

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

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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 March 31, 2025:

The following is a summary of Embecta's total debt outstanding as of June 30, 2025:

Term Loan $ 789.1

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Thereafter 700.0

Certain measures relating to our total debt outstanding as of March 31, 2025 were as follows:

Certain measures relating to our total debt outstanding as of June 30, 2025 were as follows:

Total debt $ 1,468.3

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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 March 31, 2025, we were in compliance with all of such covenants.

As of June 30, 2025, we were in compliance with all of such covenants.

The credit agreement and the senior secured notes are secured by substantially all assets of Embecta and each subsidiary guarantor, subject to certain exceptions.

During the six months ended March 31, 2025, the Company paid an aggregate principal amount of approximately $59.8 million on the Term Loan, of which $55.0 million was discretionary.

Debt extinguishment charges as a result of this discretionary prepayment were not material to the Company's Condensed Consolidated Statements of Income.

During the six months ended March 31, 2025 , the Company made interest payments of $52.5 million on debt outstanding.

During the nine months ended June 30, 2025, the Company paid an aggregate principal amount of approximately $112.2 million on the Term Loan, of which $105.0 million was discretionary.

Debt extinguishment charges as a result of these discretionary prepayments were not material to the Company's Condensed Consolidated Statements of Income.

During the nine months ended June 30, 2025 , the Company made interest payments of $68.5 million on debt outstanding.

We may, from time to time, seek to retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchase, or privately negotiated transactions, or otherwise may redeem some or all of our debt pursuant to its terms.

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

Maturities of our finance lease and operating lease liabilities as of March 31, 2025 by fiscal year are as follows:

Maturities of our finance lease and operating lease liabilities as of June 30, 2025 by fiscal year are as follows:

Finance Lease Operating Leases Total

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

During the third quarter of 2025, the Company entered into a trade receivables sale agreement with a third-party financial institution to sell certain trade receivables of the Company at a discount on an uncommitted basis.

These trade receivable sales are accounted for as a sale of assets, as the Company's continuing involvement is limited to servicing the accounts receivables.

The Company receives the sales price, equal to the trade receivable less the applicable discount, at the time of sale.

In connection with the Company's receivables sale agreement, $26.2 million of trade receivables were sold during the nine months ended June 30, 2025, resulting in derecognition of the receivables from the Company's Condensed Consolidated Balance Sheets.

Discounts recognized on the sale of trade receivables were not material to the Company's Condensed Consolidated Statements of Income.

The cash received on the sale of trade receivables during the nine months ended June 30, 2025 is presented in changes in trade receivables, net within operating activities in the Condensed Consolidated Statement of Cash Flows.

Access to Capital and Credit Ratings

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Our Moody's Investors Services credit rating is B1 and our Standard & Poor's Rating Services credit rating is B+.

Cash and equivalents and restricted cash were $212.3 million as of March 31, 2025 as compared to $274.2 million as of September 30, 2024.

Cash and equivalents and restricted cash were $233.6 million as of June 30, 2025 as compared to $274.2 million as of September 30, 2024.

The primary uses of cash that contributed to the $40.6 million decrease were:

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Effect of exchange rate changes on cash and equivalents and restricted cash (1.2)

March 31, 2025 Cash and equivalents and restricted cash balance $ 212.3

June 30, 2025 Cash and equivalents and restricted cash balance $ 233.6

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

Net cash provided by operating activities was primarily attributable to:

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Net cash provided by operating activities $ 107.7

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

The change in accounts payable and accrued expenses is primarily attributed to timing of payments to vendors and annual bonus payments.

The change in trade receivables is primarily attributed to the timing of sales.

The change in trade receivables is primarily attributed to the timing of sales and receivables factored.

The change in inventories is primarily attributed to actions taken to build inventory to support the execution of our brand transition program.

The change in amounts due from/due to Becton, Dickinson and Company is attributed to the timing of payments associated with certain agreements effectuated at Separation.

The change in prepaid expenses and other is primarily attributed to payments received from BD associated with the transfer of certain assets and liabilities related to the Diabetes Care Business in certain jurisdictions that closed in the first half of fiscal 2025.

The change in prepaid expenses and other is primarily attributed to timing of payments to vendors.

The change in income and other net taxes payable is primarily attributed to timing of required tax payments.

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

Net cash used for investing activities was comprised of capital expenditures of $1.6 million for the six months ended March 31, 2025 to support our business and operations.

Net cash used for investing activities was comprised of capital expenditures of $2.0 million for the nine months ended June 30, 2025 to support our business and operations.

Net cash used for financing activities was primarily attributable to:

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Net cash used for financing activities $ (145.1)

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

Contractual Obligations

Our contractual obligations as of March 31, 2025, which require material cash requirements in the future, consist of purchase obligations and lease obligations.

Our contractual obligations as of June 30, 2025, 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.

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Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2024 Form 10-K for further details.

As of March 31, 2025, there have been no material changes to our contractual obligations outside the ordinary course of business.

As of June 30, 2025, there have been no material changes to our contractual obligations outside the ordinary course of business.

Critical Accounting Policies

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A discussion of accounting estimates considered critical because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates are disclosed in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2024 Form 10-K.

There have been no changes to our critical accounting policies as of March 31, 2025.

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

There have been no changes to our critical accounting policies as of June 30, 2025.

Cautionary Statements Regarding Forward-Looking Statements

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government and certain foreign governments on raw materials and products, 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.

• The risk that as a result of the current global trade environment from the newly instituted tariffs, certain foreign governments, private purchasers and other customers in certain countries may consider transitioning away from products originating from certain countries (including the U.S.) in favor of buying “local” products and local manufacturers and competitors may attempt to capitalize on these sentiments and participate in aggressive competitive pricing or other strategies to transition, or divert, current and potential customers away Embecta.

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

• Embecta’s ability to obtain clearance from the U.S.

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• 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.

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

• The expected benefits of the Separation from BD.

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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