Embecta Corp.

Welcome, ladies and gentlemen, to the fiscal fourth quarter and full year 2023 in back to earnings conference call. At this time, all participants have been placed in a listen-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 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 post-quarter and full-year 2023 earnings conference call. The press release and slide 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 Kordekar, MBECTA's president and chief executive officer, and Jake L. Lewis, our chief financial officer. Before we begin, I would 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 our 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 some remarks on the overall performance of our business during the fourth quarter and full fiscal year of 2023, as well as an overview of our strategic priorities for 2024. Jake will then provide a more in-depth review of our Q4 and full year 2023 financial results, as well as our financial guidance for fiscal year 2024, which we introduced in today's press release. Finally, Dev will provide some thoughts on the GLP-1 market landscape and we will close the call with a question and answer session. With that said, I would now like to turn the call over to CEO, Dev Kodekar. Dev?

Good morning, everyone, and thank you for taking the time to join us. The completion of fiscal 2023 marks our first full fiscal year as a standalone company, a company that is dedicated to developing and providing solutions that make life better for people living with diabetes, and I could not be prouder of our teams around the world. Turning to some fiscal 2023 highlights. It is my pleasure to share that our fiscal year 2023 results exceeded our expectations as our team's commitment, resilience, and strategic focus played a pivotal role in our success. And the team's efforts did not go unnoticed as InBECTA was recognized as the winner of the MDDI Reader's Choice Company of the Year for 2022, which is one of several external recognitions our team received. Additionally, our associates have continued to make significant advancements in the process of establishing Embecta as an independent company, with the goal of exiting as many transition service agreements with BD as possible by March 31st, 2024. Along those lines, we've made substantial progress by implementing our own global HR information system, launching a new customer relationship management system, and establishing our global IT network. Throughout these activities, we have been diligent in minimizing any potential disruptions to our customers and people with diabetes who rely on our products daily. As we had mentioned on a prior call, we have initiated the demerger process for our pseudo-China manufacturing entity so that we could transfer that entity from BD to Embecta. This is a multi-step process, and I'm pleased to inform you that during the past few months, we have achieved several important milestones. These include obtaining business and product licenses, implementing our ERP solution, and transferring ownership of land and buildings. We have also resumed production at that point for markets outside of China, and we are currently in the final stages of obtaining our manufacturing license, which will enable us to produce domestic products for China. We also initiated the deployment of our ERP solution, along with the operationalization of our distribution network and shared service infrastructure for the US, including our holders manufacturing plant in Canada. This implementation began earlier this month, and we are pleased with the progress we've made so far. As mentioned in the past, to minimize the potential for disruption, we are taking the approach of implementing our ERP system in phases. With the ERP implementations in Shuzhou, China, the U.S., and Canada, we have now implemented our systems in two of our three manufacturing plants, and the markets are presenting approximately 60% of our revenue. Turning from separation activities that occurred during 2023 to actions taken to strengthen and optimize our core, we continue to demonstrate a strong commitment to ensuring broad and preferred access to our products for patients. To this end, effective January 2024, three of the top Medicare Part D plans, which are a critical and growing segment of the payer market providing pharmacy benefits for seniors, who comprise a disproportionately high percentage of people with diabetes, with advantage in Becta as an exclusive or dual preferred band on the formulary list. Previously, these Medicare plans were open access and broadly covered all brands of pen needles and syringes without advantaging any one brand. Additionally, we remain committed to new product development and remain excited about the progress we are making in terms of our insulin patch pump that is being developed specifically for the type 2 market. We are working to achieve critical milestones in fiscal 2024 and plan on sharing more at the appropriate time. Lastly, we were proud to celebrate this year's Diabetes Awareness Month by ringing the NASDAQ opening bell, along with representatives of several organizations that make supporting the people who are living with diabetes their sole focus. Our company is honored to recognize the people with diabetes, caregivers, healthcare providers, and advocacy organizations working together to improve access to education and continue to progress towards the vision of a life unlimited by diabetes. Now let's review our fourth quarter and full-year revenue performance in a bit more detail. During Q4, we generated revenue of $281.9 million, which represented an increase of 2.7% on an as-reported basis and growth of 2.1% on a constant currency basis. When normalizing for the impact of year-over-year changes of the non-diabetes products that we contract, manufacture, and sell to Beading, Our underlying core injection business grew an impressive 4.9% on a constant currency basis. The constant currency growth of our core injection products was aided in part by an easy comparable as the fourth quarter of 2022 was negatively impacted by the timing of certain distributor orders, which positively impacted our revenue in the third quarter of 2022. When normalizing for both the year-over-year contract manufacturing revenue headwinds, as well as the timing of certain distributor orders, our core product lines grew approximately 3.4%. These results exceeded our previously communicated expectations, primarily due to the performance of our pen needle products. While from a geographic perspective, Q4 revenue came in better than we previously expected in most countries, including the U.S., Canada and Latin America. Regarding the U.S., during the quarter, revenue totaled $151.8 million, which represented year-over-year growth of approximately 1.3% on a constant currency basis. This was driven by higher pricing on certain core injection products, partially offset by lower year-over-year contract manufacturing revenue from the sale of certain non-diabetes products to BD. Unfavorable changes in volume mainly related to our syringe business where end-user demand in the U.S. market continues to decline. Excluding contract manufacturing revenue, our core injection business grew by 6.6% in the U.S. However, this was aided by an easy comparable I mentioned earlier associated with the timing of certain distributor orders, which positively impacted our revenue in the third quarter of 2022. When normalizing for both the year-over-year contract manufacturing revenue headwinds, as well as the timing of certain distributor orders, our core product lines within the U.S. grew approximately 3.8%. Turning to our performance outside of the U.S. During Q4, international revenue totaled $130.1 million, which equated to year-over-year constant currency growth of approximately 3.0%. Growth internationally was primarily due to a favorable comparison in China, as last year the country was facing COVID restrictions, as well as year-over-year growth within Canada and Asia. For the full year, MBECTA generated revenues of approximately $1,121,000,000, which represented a decline of 0.8% on an as-reported basis, but an increase of 1.6% on a constant currency basis. When normalizing for the impact of year-over-year contract manufacturing headwinds, MBEX's underlying core injection business grew approximately 1.8% on a constant currency basis. From a regional perspective, U.S. revenues totaled $601.4 million, which grew by 0.2% on a constant currency basis, or 0.5% when normalizing for the impact of year-over-year changes of contract manufacturing. While international revenues totaled $519.4 million, which equated to year-over-year constant currency growth of approximately 3.2%, driven primarily by performance within emerging markets, as well as the benefit we saw from a competitive product supply shortage. Lastly, before I turn the call over to Jake, I'd like to share some strategic priorities for fiscal 2024. In 2024, we will continue to be focused on the same three core strategic priorities that we had in 2023. These priorities have served as the foundations for our actions and decision-making driving our company forward. They are, first, strengthen and optimize the core-based business. In a rapidly evolving market landscape, we will continue to be diligent in supporting our customers and people with diabetes. While the operating environment and inflation remains unpredictable, we will maintain our focus on managing through any challenges that may arise. And as Jake will go through when he provides our fiscal 2024 guidance, you will see that it is consistent with the expectations we had laid out pre-spin in March of 2022. Separate and stand up as an independent company. We've been on a transformative journey to become an independent entity. This process involves complex projects like the implementation of an ERP system, setting up our own distribution network, and exiting many of our transition services agreements with DD. As I mentioned earlier, we have implemented our ERP solution and operationalized our distribution network and shared services infrastructure to support our business in the U.S. and Canada and at two out of our three manufacturing plants. We have learned a great deal from these implementations and are now focused on accomplishing the same in the remaining markets and at our plant in Ireland. We have previously commented that our transition service agreements are generally set to expire on March 31, 2024. To allow for phasing of the remaining implementations of our ERP solution, distribution network, and shared services capabilities, we have requested for an extension of certain TSAs and related agreements from BIDI. BD recently agreed, in principle, to grant a limited extension conditioned upon obtaining a supplemental private later ruling from the IRS, which would allow us to extend certain THS for a limited set of markets until early fiscal 2025. We have been expanding. And we continue to expend significant effort across the company to mitigate the risk of potential disruption as we have to exit TSAs and replace them with our own systems and processes. While we have generally been successful so far, there could potentially be some temporary disruption of sales in certain countries as we work through obtaining all the appropriate product registrations and licenses, among other requirements. Our third priority is invest for growth. Despite the competitive challenges in our industry, we remain committed to investing for growth. We understand that transitioning the company to growth over time by new product development or inorganic business development initiatives is an important goal for us, and we are keenly focused on sustainably improving the long-term constant currency revenue growth profile of Invecta. With that, let me turn it over to Jake to go through our financial highlights.

Jake? Thank you, Deb, and good morning, everyone. Before I discuss the financial results, I would like to remind the investment community that IMBECTA was spun off from BD on April 1st of 2022, and that the financial results during the pre-spin periods were based on carve-out accounting principles and do not reflect what IMBECTA's financial results would have been had IMBECTA operated as a standalone public company. Therefore, the financial results for the 12-month periods ending September 30th of 2023 and September 30th of 2022 are not meaningfully comparable. Given the discussion that has already occurred regarding revenue, I will start my review of Invecta's financial performance for the fourth quarter at the gross profit line. GAAP gross profit and margin for the fourth quarter of fiscal 2023 totaled 181.8 million and 64.5% respectively. This compared to 176.9 million and 64.4% in the prior year period. The slight year-over-year increase in GAAP gross profit and margin was due to a combination of factors which essentially net each other out. These include tailwinds from product and geographic mix, favorable year-over-year pricing, and cost improvement programs. These items were offset by the impact of inflation on the cost of certain raw materials, direct labor, and overhead, incremental stand-up and separation costs, unfavorable manufacturing variances stemming from the temporary shutdown of our China domestic manufacturing at our facility in Suzhou, and FX. While on an adjusted basis, gross profit and margin for the fourth quarter of 2023 was 182.6 million and 64.8%. As compared to our prior outlook, our adjusted gross margin during the fourth quarter of 2023 was better than we previously expected. And this was due to a higher than anticipated revenue, favorable geographic and product mix, pricing that exceeded our internal expectations, and our ability to manage the costs incurred to stand up the organization. Turning the gap operating income and margin. During the fourth quarter, they were 25.8 million and 9.2% respectively. This compared to a loss of 3 million and 1.1% respectively in the prior year period. The increase in year-over-year GAAP operating income and margin is primarily due to the GAAP gross profit changes I just discussed, as well as a decrease in year-over-year impairment expense. This was somewhat offset by an increase in costs incurred to stand up the organization. While on an adjusted basis, during the fourth quarter of 2023, operating income and margin totaled 65.2 million and 23.1%. The adjusted operating income and margin performance during Q4 was in line with our prior expectations, as the overachievement at the adjusted gross profit and margin line was offset by additional R&D spending behind our insulin patch pump program, as well as additional expenses incurred associated with employee benefits and stand-up activities. Turning to the bottom line. Gap net income and earnings per diluted share was 6 million and 10 cents during the fourth quarter of fiscal 2023. This compared to a loss of 17.2 million and 30 cents in the prior year period. The increase in year-over-year gap net income and diluted earnings per share is primarily due to the gap operating profit drivers I just discussed, somewhat offset by an increase in year-over-year interest expense associated with our variable interest rate debt. While on an adjusted basis, net income and earnings per share were $34.1 million and 59 cents during the fourth quarter of fiscal 2023. Lastly, from a P&L perspective, for the fourth quarter of 2023, our adjusted EBITDA and margin totaled approximately $79.6 million and 28.2%. Turning to our full year 2023 financial results. This slide shows guidance progression as we move throughout fiscal year 2023, ending with our actual fiscal year 2023 results. As this slide depicts, we are pleased with our ability to raise our financial guidance following each quarter of the year ultimately ending fiscal year 2023 with revenue of approximately $1,121,000,000, which was up approximately 1.6% on a constant currency basis, with adjusted gross margin of 67%, adjusted operating margin of 29.6%, adjusted earnings per share of $2.99, and adjusted EBITDA margin of 33.8%. The ability to generate these results was no small task, particularly given all the separation-oriented activities that we focused on during the year. This is a testament to the resiliency of our products and our people who put in a countless number of hours to make Embecta successful. Now let's take a closer look at our cash flow. We began the year with a cash balance of approximately $331 million, and generated approximately 68 million of cash flow from operations, while using approximately 27 million on capital expenditures, translating into free cash flow generation of approximately 41 million. Additionally, we used approximately 34 million of cash towards our dividend, ultimately ending the year with a cash balance of approximately 327 million, or roughly flat as compared to where we began the year, However, what you do not readily see is that our ending cash balance was negatively impacted by over $140 million of one-time operating expenses and capital expenditures associated with stand-up and separation activities. That completes my prepared remarks as it relates to IBEX's financial results for the fourth quarter and full year of fiscal 2023. Next, I would like to discuss MBECTA's preliminary 2024 financial guidance and certain underlying assumptions. Before I go into all the details surrounding our fiscal year 2024 guidance, let me remind you that in March of 2022, in advance of the spin occurring, we laid out our expectations for our business through fiscal year 2024. Those expectations included that our revenue growth CAGR would remain flattish on a constant currency basis from fiscal year 2022 through 2024, and that our adjusted EBITDA margin would be approximately 30%. And despite needing to absorb a significant decrease in the amount of contract manufacturing revenue as compared to our initial expectations, an unprecedented inflationary environment As well as significant FX pressure as compared to our original expectations, our initial financial guidance ranges for fiscal year 2024 is aligned with our pre-spin projections. Beginning with revenue, on a constant currency basis, we currently anticipate that our revenues will be flat to down 2% as compared to 2023. At the low end of the guidance range, we are assuming about half the decline will result from no additional contract manufacturing revenue in 2024 as compared to 2023. While the remaining 1% headwind at the low end is associated with continued competitive shifts negatively impacting volume. Lastly, at the low end, we are assuming that pricing will be flattish as compared to the prior year. While the high end of our constant currency revenue range includes all the same factors impacting our low end, except for a slightly smaller year-over-year headwind associated with contract manufacturing revenue, as well as the ability for us to modestly raise prices. As such, the low end of our constant currency revenue growth for our core business, excluding contract manufacturing revenue, is a range of between negative 1 and positive 1%. Turning to our thoughts on FX, our initial guidance calls for a foreign currency headwind of approximately 1% during 2024. This assumption is based on foreign exchange rates that were in existence in the early November timeframe, including a Euro to US dollar exchange rate of approximately 1.05. On a combined basis, Our as-reported revenue guidance calls for a decline of between 1% and 3%, resulting in an initial revenue guide of between $1,085,000,000 and $1,105,000,000. Turning to adjusted gross margin, we currently anticipate that our 2024 adjusted gross margin will be in the range of between 63% and 64%. with the largest anticipated year-over-year drivers being headwinds associated with foreign exchange, increased raw material and labor costs, and the impact of negative year-over-year manufacturing variances stemming from lower syringe production, as well as the temporary shutdown of our Suzhou China facility as it relates to production for the domestic Chinese market. Continuing down the P&L, We expect that our SG&A will increase during fiscal 2024 as we incur additional expenses associated with standing up in VECTA, most notably associated with our IT systems and organization, as well as costs associated with shipping and supply chain as we move to our own distribution and transportation network. We expect this to be offset by lower year-over-year TSA expense inclusive of costs associated with the potential and conditional extension of certain TSAs as described by Deb. In addition, during fiscal year 2024, we will incur depreciation and amortization expense associated with the implementation of a portion of our ERP system, and this will appear in the other operating expense line. Turning to R&D, we anticipate continuing to invest behind our Influent Patch Pump program, And because of this, R&D as a percentage of revenue may exceed 7% during 2024. All totaled, we anticipate that our adjusted operating margin during 2024 will be between the range of 23.75% and 24.75%. Moving to earnings. During 2024, our initial guidance calls for an adjusted diluted earnings per share range of between $1.90 and $2.10. This includes an assumption that our annual net interest expense will be approximately $116 million, that our annual adjusted tax rate will be approximately 22%, as well as an assumption that we will have approximately 58.1 million weighted average diluted shares outstanding. Lastly, our initial guidance for fiscal year 2024 calls for an adjusted EBITDA margin of between 29.5% and 30.5%, which, as I mentioned earlier, is consistent with our pre-spin expectations for fiscal year 2024. And before I turn the call over to Deb for some final remarks, I'd like to highlight some considerations regarding the cadence of quarterly revenue expectations during 2024. Moving forward, we may not provide any further commentary concerning the quarterly cadence of revenue on an ongoing basis. During fiscal year 2023, we generated approximately 49% of our as reported revenue dollars during the first half of the year including approximately 25% during the first quarter. During 2024, we currently anticipate generating a slightly lower percentage of our annual revenue during both the first quarter and first half of 2024 as compared to the prior year period, due in part to reduce contract manufacturing revenue as compared to the prior year. That completes my prepared remarks, and at this time, I would like to turn the call back over to Dev for some thoughts on the GLP-1 landscape and market opportunity. Dev?

Thanks, Jake. If you haven't already seen it, we posted a separate presentation on our website this morning titled Diabetes Considerations. Please refer to this deck as we have tried to lay out the current GLP-1 landscape and how it touches various aspects of our business. GLP-1s have been a significant point of interest for investors, and I would like to take this opportunity to make a few comments regarding our observations and the impact that GLP-1s have had on our business. As we reflect over the past five years and focus on weekly GLP-1s, we observed significant growth in prescriptions with an impressive CAGR of over 40%. In contrast, insulin prescriptions have remained relatively stable experiencing a slight decline on the low single-digit CAGR basis. Regarding the number of people switching from insulin to GLP-1 drugs, the data shows that it's relatively low at around 1%. As you know, our business is highly geographically diversified, with almost 50% of our revenue being generated outside the U.S., where cost considerations usually limit the access of newer, high-priced therapies. Turning our attention to our U.S. business, we have seen continued stability over a period where weekly GLP-1s have grown at a CAGR of greater than 40%, and pump adoption for insulin delivery has steadily increased. While there may have been small decreases in volume, they have been offset by pricing dynamics, resulting in a generally fracked revenue CAGR. This data supports our hypothesis that GLP-1s have delayed the onset of insulinization but not eliminated it. Let's further focus on the differences between type 1 and type 2 diabetes. Type 1 results from an autoimmune response that leads to destruction of insulin-producing beta cells in the pancreas. There has not been any data that we have seen demonstrating that GLP-1s have the ability to reverse this process and regenerate beta cells. GLP-1s appear to enhance the body's utilization of available insulin, potentially explaining the delay, but not the elimination of insulin use. Type 2 diabetes is heterogeneous, and at diagnosis, a significant portion of patients already have elevated A1C levels. When the criteria for the diagnosis of diabetes are met, it is the result of beta cells no longer being able to keep up with demand. In this case, too, we have not seen data demonstrating GLP-1's ability to reverse this continued degradation of beta cell function. Moreover, while GLP-1s have demonstrated efficacy in reducing the total daily insulin dose It is uncertain to what extent this may translate to reduced frequency of injections and injection devices, which are key metrics for our business. Finally, we see an opportunity for Impecta to participate in the secular growth of GLP-1s over the coming years. GLP-1 presentations include vials, pens, and auto-injectors. This presents an opportunity for us Since with appropriate regulatory approvals in certain markets, insulin syringes can be used to deliver GLP-1 drugs presented in vinyls. Pen needles that we manufacture and supply today are already compatible with the pens used to deliver GLP-1s. While some pharmaceutical companies might package their own pen needles, in other cases, we offer a valuable solution. While when it comes to auto-injectors, it is worth noting that these devices involve injection molded parts with needles, an area in which we have a well-established core competency. We produce approximately 8 billion units of high-quality injection molded parts with needles annually. However, expanding into this market may require a backpack to embark upon business development or partnerships. Entering this space organically would involve a longer timeframe. as it would necessitate engaging with pharmaceutical companies during the drug development process and progressing through it with them. In summary, while we acknowledge the changing landscape brought about by GLP-1s, we see it as an opportunity to potentially expand our product offerings in line with evolving market demands. This completes my prepared remarks. And with that, let me turn the call over to the operator for questions.

Thank you. If you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again. Our first question comes from Marie Thibault with CBTIG. Your line is open.

Hi, good morning. Congrats on a good quarter and thanks for taking the questions. I wanted to start here, ask a little bit about the guidance set for next year. I heard about your assumptions built into the revenue range, but wanted to ask a little more detail on the gross margin side. I think the guidance set is just a bit higher than we were expecting, consensus was expecting, and you certainly outperformed on that metric. What's sort of driving that gross margin assumption?

Yeah, Marie, and thanks for the question. So from, you know, during 2023 we generated adjusted gross margin of about You know, 67%, which certainly exceeded our initial expectations, you know, coming into the year, and we were obviously quite pleased with that. And if you think about, you know, the drivers of going from about 67% in 2023, you know, down to, let's call it the midpoint of our guidance range of about 63.5% in 2024, it's really being driven by three things almost equally. FX is a large headwind for us as we look into 2024. We expect that headwind to be about 130 basis points year over year. The next largest driver is really increased raw material and labor costs, including the additional increased costs associated with the cannulas that we purchased from BD. And then lastly, it really comes down to the negative manufacturing variances coming from the fact that we won't be able to manufacture for a period of time in our facility in China, specifically for the Chinese market. So about half of our revenue in China is product that is manufactured in China and sold in China. And until we get all the necessary product registrations and approvals from the local Chinese regulators, that manufacturing for the China for China market is going to be shut down for a period of time. So it really comes down to those three drivers, again, almost equally driving the year-over-year margin change, those being FX, the increased raw material and labor costs, and then again, some manufacturing variance headwinds coming from the China plant.

Okay, that's helpful. Jake, and as a quick follow-up on the guide, I know in the past you've had an OUS competitor supply some constraints, which was helping international sales. Is that built into your assumption for revenue next year?

It is, Marie. It is built into our assumptions for next year. Okay, that will continue.

Okay, and then I wanted to ask about the Medicare Part D win, three of the top payers there giving them back to exclusive or dual preferred status. What does that mean? And will that be material to sales in some way? How quickly do some of these preferred status wins convert into revenues?

We are extremely pleased with those wins, Marie. Medicare prescription plans used to be open access. Three of the ones that we have won now, we are either exclusive provider for our or dual preferred status. This is an important category for us because, as you know, it covers seniors. Seniors have a disproportionately high prevalence of diabetes. We win these on the same criteria as other commercial plans, quality, brand, supply continuity. It's been incorporated into our guidance. These three plans cover a large portion of the Medicare beneficiaries that have prescription plans, and so we're very pleased to have won these, and it's certainly incorporated into our guidance for next year.

All right, very helpful.

Thanks for taking the questions.

As a reminder, if you'd like to ask a question. Our next question comes from Mike Polark with Wolf Research.

Your line is open.

Good morning. Thank you for taking the question. For fiscal 24, if you said it, I missed it, but can you level set on constant currency growth expectations for the Americas versus international, maybe for the core injection business excluding contract manufacturing?

Yeah, Mike, good morning. We don't separate out our constant currency guidance by region, but let me tell you that as we look ahead into 2024, it's going to be similar to what we've spoken about previously and experienced so far. So broadly speaking, the way we see the market dynamics play out is that U.S. tends to be stable. Any The volume changes are typically offset by pricing. Emerging markets has been and will likely continue to be a source of growth for us, largely driven by demographic changes over there. And then other developed markets sort of sit somewhere in between. And so what we've seen in 2023 and certainly years prior to that resembles that, and we don't expect that to change in any material fashion for 2024.

Understood. Appreciate that. I've two more, if I may, um, follow up to Marie's question on the, on the part D call out. Interesting. I guess my specific questions are, are why, why now, why are these plans going from open access to, um, exclusive or dual preferred? And as you consider those opportunities, can you, can you frame at a high level, kind of what the, the price volume trade-offs might be for Invecta in, in, um, in narrowing the network?

Yeah, the why now question, Mike, honestly, is going to be a little difficult to answer. These are operated by some of the same players that run commercial plants. The commercial plants are obviously under contract for us. We think about it as a win for reasons that I explained prior when I was talking about Murray. Just given the population base that it covers, and the prevalence of diabetes and then potential insulin use in that sector. With respect to price volume dynamics, you know, obviously wouldn't want to describe them for these particular plans, but generally speaking, once you get dual status or exclusive preferred status, our share increases significantly beyond what it typically is, and then there are rebates that are given. And those rebates, again, while I won't comment on these plans specifically, vary by payer. They can go into the low teens or sometimes in the high teens, sometimes slightly higher than that. But generally speaking, that's the dynamic that occurs.

Helpful. And then my last one, just on TSA, I heard the comments on limited extensions with BD. Can you level set And if you said the summary number for fiscal 23, I missed it, but I think we were thinking $60 million of total TSA expense in 23. Can you frame how much TSA expense might be in 24? And that's it. Thanks so much for taking the questions.

Thank you, Mike. I'll let Jake answer the TSA expense question for 24, but let me broadly sort of at least frame the TSA sort of where we are in the cases. So first of all, we are extremely pleased with the progress that we have made so far. I'd like to remind everybody we are talking about taking a business that had been part of a much larger business for close to 100 years and now standing it up as a separate company. And so if you think about all the separation work that our teams accomplished, including setting up the HR information system, the SUJO demerger, which was a big project for us and where we've achieved important milestones, on implementations for ERP distribution networks, shared services in 60% of our markets, and two of our three plants. We're very pleased with all of that. What we want to do essentially is for the remainder plant and the remainder of our markets really phase these implementations out. That allows us to reduce the risk of operational disruption that can happen. So this is an extension that we requested from BD. BD will undertake a supplemental private letter ruling process with DRS. And upon getting an acceptable ruling, we would get an extension that would allow us to do the remaining markets in two or potentially a few more phases, which would essentially take us through maybe early fiscal 2025 to get done. Let me turn it over to Jake to talk about the expenses.

Yeah, Mike, so in 2023, you're correct. We incurred about $63 million worth of TSA expense in 2023. And then our guidance assumes, you know, for 2024, inclusive of an extension being granted, that we would incur somewhere between, let's call it $30 to $35 million worth of TSA expense in 2024. And obviously, you know, the fact that we still are able to generate around that, let's call it that midpoint of our guidance assumes a 30% adjusted EBITDA margin, you know, that's consistent with what we had expected, obviously, pre-spin. And as we said in our prepared remarks, Prior to SPIN, we certainly did not think that we would incur nearly the amount of inflationary negative headwinds that we've obviously seen in the two-plus years now post-SPIN. Obviously, didn't think that we would incur the same level of FX headwinds. nor, quite frankly, did we originally think that we would need an extension and have to incur some additional TSA costs. So I think it really just points back to the fact that being able to still think that we can generate somewhere between that 29.5% and 30.5% adjusted EBITDA margin is really a testament to the strength and resiliency of the base business here.

Thank you so much.

Thank you.

There are no further questions. I'd like to turn the call over to Dev for closing remarks.

Before we conclude the call, I would like to express my gratitude to all my colleagues around the world for the immense amount of work that they have been doing over the past year and a half to stand up Emvecta as an independent company. And the fact that they have been doing so without impacting our customers is a testament to their commitment of fulfilling our mission of developing and providing solutions that make life better for people living with diabetes. Thank you all for attending our call and for your interest in our business.

Thank you for your participation. This does include the program, and you may now disconnect. Everyone, have a great day.