Embecta (EMBC) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q1, the company generated revenue of $277.3 million, representing an increase of 0.6% on an as-reported basis and a decline of 0.3% on a constant currency basis [4] - GAAP gross profit for Q1 was$ 185.9 million with a margin of 67%, compared to $188.8 million and 68.5% in the prior year [6] - GAAP net income for Q1 was$ 20.1 million, down from $35.2 million in the prior year, with diluted earnings per share of$ 0.35 compared to $0.61 [7] - Adjusted EBITDA for Q1 totaled approximately$ 90.4 million with a margin of 32.6%, down from $110.2 million and 40% in the prior year [7] Business Line Data and Key Metrics Changes - The core injection business grew by 0.5% on a constant currency basis when normalizing for non-diabetes products [4] - The insulin patch pump program has seen significant advancements, including the submission of a 510(k) application for the open loop version to the FDA [3] Market Data and Key Metrics Changes - Revenue in the US totaled$ 148.6 million, representing a year-over-year decline of approximately 0.5%, while international revenue was $128.7 million, equating to flat year-over-year constant currency growth [59] Company Strategy and Development Direction - The company is focused on three strategic priorities: strengthening the base business in insulin injection devices, thoughtful separation from the former parent company, and investing in growth, particularly in the insulin patch pump program [42] - The company plans to implement its ERP system and shared services capabilities in additional markets, aiming for over 85% of revenue base on its own ERP platform by the end of Q2 [56] Management's Comments on Operating Environment and Future Outlook - Management noted that while they have generally avoided major disruptions during the transition away from TSAs with BD, there is a possibility of temporary sales disruptions in specific countries [2] - The company reaffirmed its full-year 2024 financial guidance, expecting revenue to be flat to down 2% compared to 2023, with a focus on mitigating risks associated with the ERP transition [8] Other Important Information - The company has completed the legal entity transfer for its Suzhou, China manufacturing facility and anticipates resuming domestic production for the Chinese market in Q2 [57] - The company is increasing its adjusted earnings per share guidance from a range of$ 1.90 - $2.10 to$ 1.95 - $2.15 due to improvements in foreign exchange rates [47] Q&A Session Summary Question: Feedback from FDA on patch pumps and timing of approval - Management indicated that the review process is underway and they are in communication with the FDA, but they cannot comment on timing [11][54] Question: Constant currency growth expectations for the US versus internationally - Management expects growth outside the US to exceed that of the US, with international markets growing in the mid-single-digit range [23] Question: Plans for commercialization of the open-loop patch pump - The company plans a limited market release of the open-loop pump, dependent on FDA approval timing [17] Question: Clarification on ERP transition and customer ordering patterns - Management explained that customers often place orders in advance during ERP transitions to avoid stock-outs, leading to some lumpiness in orders [24][26] Question: Production environment for patch pumps and CapEx plans - The company is working with a contract manufacturer for production and has established a pilot production line, with total CapEx expected to be between$ 50 million to $60 million for 2024 [31][69]