Embecta Corp.

Welcome ladies and gentlemen to the fiscal second quarter 2023 and back to earnings conference call. At this time, all participants have been placed in a list only mode. Please note that this conference call is being recorded and the recording will be available on the company's website for replay following the completion of this call. I would now like to hand the conference call over to your host today, Mr. Pravesh Kandilwal, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to MBECTA's fiscal second quarter 2023 earnings conference call. The press release and slides to accompany today's call and webcast replay details are available on the investor relations section of the company's website at www.mbecta.com. With me today are Dev Kurdekar, MBECTA's chief executive officer, and Jake Alguiz, our chief financial officer. Before we begin, I'd like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined in our slides. We wish to caution you that such statements are, in fact, forward-looking in nature and are subject to risks and uncertainties, and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include but are not limited to factors referenced in a press release today, as well as our filings with the SEC, which can be accessed on our website. In addition, we will discuss certain non-GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation. Our agenda for today's call is as follows. Dev will begin by providing an overview of EMBECTA, our strategic priorities for 2023, and some remarks on the overall performance of our business during the second quarter. Jake will then provide a more in-depth review of Q2 financial results, as well as our updated financial guidance for the year. We will then open the call for questions. With that said, I would now like to turn the call over to our CEO, Dev Kordekar.

Dev? Good morning, everyone, and thank you for joining us today. The end of the last quarter marked one year since we officially launched MBECTA and kicked off a bold new chapter for a company that has been integral to the evolution of diabetes care over the past century. It has been a remarkable year, from ringing the bell at NASDAQ twice to transitioning our global employees from BD's HR systems to our own MBECTA systems, moving into approximately 30 offices around the world, attending more than 30 conferences and symposiums, and serving an estimated 30 million people in 100 plus countries. For all those milestones, it's that last number, the 30 million people with diabetes who use our products that motivates our global team. As you know, our mission is to develop and provide solutions that make life better for people living with diabetes. And we are proud to have a role in helping them live their lives with fewer limitations. We remain driven by a sense of urgency. to accelerate the journey to better diabetes care, something we've been doing for nearly 100 years now. Our accomplishments in the first year since our spinoff from BD have made me even more excited for what the future holds for us and for people living with diabetes. Our strategic priorities for fiscal year 2023 are shown on slide five. First, we are focused on strengthening our base business while maintaining our global leadership position in the category of insulin injection devices. Second, we want to finish the work to operationally stand up and separate Mbecta as an independent company. And finally, we intend to continue investing in R&D, most notably around our patch pump that is being developed for the Type II market, as well as seek M&A and additional partnership opportunities. Moving to slide six. During the first six months of our fiscal year, we have made progress in each one of those strategic priorities, yielding results that have exceeded our internal expectations. In terms of solidifying our base business, we have continued to deepen our partnerships with key customers, resulting in winning preferred brand status, implementing growth initiatives, and signing multi-year agreements with major retailers and payers. These strengthened partnerships are in addition to us being awarded exclusive preferred status on the Express Scripts National Preferred Formulary, as well as pen, needle, and insulin syringe contract wins from the U.S. Department of Veterans Affairs, as noted last quarter. Additionally, we are helping patients shift behavior to clinically recommended best practices through a dedicated media campaign, educational materials, and retail pharmacy programs, thereby helping raise awareness of the importance of using a new needle with each insulin injection and maintaining an adequate supply of needles. And recently, we held our first industry-sponsored educational symposium at the Advanced Technologies and Treatments for Diabetes Conference. Second, we continue to make progress in our separation efforts as demonstrated by the exit of several transition service agreements as we continue to build up our internal organization, systems, and processes. We also published our inaugural ESG Strategy Report, providing a summary of how we are managing environmental, social, and governance issues. This initial report sets the stage for how we operate our business, engage with our stakeholders, and drive results that we believe will support the sustainability and strength of Embecta well into the future. And we signed a co-promotion collaboration agreement with Polyphotonics, under which our commercial teams in the UK and Ireland will promote Polyphotonics' sleep mask, used for the management of two common sight-threatening complications associated with diabetes, as well as entered into an agreement with Tidepool to help develop automated insulin delivery solutions for people with type 2 diabetes, using our proprietary patch pump. Our global team has continued to execute our key commercial programs, which is allowing us, once again, to raise our guidance for key financial metrics. Before I discuss our revenue performance, I'd like to share some additional details regarding our recently announced partnership with Tidepool. Our collaboration agreement with Tidepool is focused on the development of an automated insulin delivery system for people living with type 2 diabetes, a population that we believe could be better served by an AID system tailored to meet their unique needs. Under terms of the agreement, Invecta will leverage TypePool's expertise in diabetes management software to develop an AID algorithm for our closed-loop patch pump system that is being designed with the specific needs of people living with type 2 diabetes. The recent FDA clearance of the TypePool loop for type 1 diabetes An algorithm technology that started as a patient-led initiative affirms that Tidepool's approach to AID system development combines patients' insights with a robust diabetes management solution. We are excited to be able to work with the team at Tidepool and to collaborate on the development of a patient-centric type 2 automated insulin delivery system. Next, let's review our second quarter and first half of the year revenue performance in a bit more detail. During Q2, we generated revenues of $277.1 million, which represented an increase of 0.9% on an as reported basis and 4% on a constant currency basis. These results exceeded our internal expectations and included U.S. revenues, which totaled $146.4 million and grew 3.6%. as well as international revenues, which totaled $130.7 million and grew 4.4% on a constant currency basis. The year-over-year growth in the U.S. was primarily driven by the contract manufacturing and sale of certain non-diabetes products to BD, which did not occur in the prior year period, and accounted for approximately 2.5% of the year-over-year growth. an adjustment to our rebate reserves, which contributed approximately 1% of the year-over-year growth, and favorable pricing dynamics. This was partially offset by the unwinding of the previously communicated timing benefit of certain distributor orders in Q1. Turning to our performance outside of the U.S. During Q2, the year-over-year growth within our international business was primarily due to an increase in product volumes, which were aided by a competitive product supply shortage in certain regions, and a timing benefit of certain orders, which we expect to unwind during the remainder of the year. As we have communicated before, it is not uncommon for us to get timing benefits from distributed orders in any particular quarter that get unbound in succeeding quarters. Turning to a revenue performance for the first six months of the year, We generated revenues of $552.8 million, which represented a decrease of 2.0% on an as-reported basis, but an increase of 2.3% on a constant currency basis. The year-over-year constant currency growth was due to a combination of contract manufacturing revenue, which contributed approximately 1.3%, and our base business performance, which contributed approximately 1.0%. That completes my prepared remarks, and with that, let me turn the call over to Jake to discuss our Q2 financial results in a bit more detail, as well as provide our updated fiscal 2023 financial guidance and underlying assumptions. Jake?