Embecta Corp.

Welcome, ladies and gentlemen, to the fiscal second quarter 2024 and 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 in 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 2024 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 Kodekar, MBECTA's president and chief executive officer, and Jake Alguiz, 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 fiscal second quarter of 2024, as well as an overview of our strategic priorities. Jake will then provide a more in-depth review of our 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, Jeff Kudecker. Jeff?

Good morning, and thank you for taking the time to join us. Let's start with our strategic priorities on slide five. We remain committed to the same tree of strategic priorities that have guided us since we established ourselves as an independent company. These priorities form the basis of our decisions and actions, and they are remaining focused on strengthening our base business while maintaining our global leadership position in the category of insulin injection devices, separating ourselves from our former parent in a thoughtful manner to mitigate risk and position us for long-term success as an independent company, And finally, investing in growth, most notably around our insulin patch pump program that is being developed for the Type 2 market, as well as seeking M&A and additional partnership opportunities. During this past quarter, we made significant progress within each of these goals. Turning to some second quarter highlights. The second quarter was a strong quarter for MBECTA, one in which we generated approximately $287 million in revenue. which represented an increase of 3.6% on an as-reported basis and 4.5% on a constant currency basis. When normalizing for the transient contract manufacturing revenue that we generate based on sales of non-diabetes products to our former parent, our constant currency revenue grew 4.9% as compared to the prior year period. This solid performance exceeded our expectations and occurred while simultaneously implementing our own ERP system, operationalizing our new distribution network, including seven new distribution centers, and standing up shared service capability in markets comprising 25% of our revenue in over 100 countries and serving approximately 5,000 customers. We also implemented these systems and processes in our third manufacturing plant. Thus, At the end of the second quarter, we have completed the implementation of our ERP system and operationalized our distribution network and shared service capability across approximately 85% of our revenue base, servicing customers in U.S., Canada, EMEA, and parts of Asia, and at all three of our manufacturing plants in the U.S., Ireland, and China. Additionally, we successfully completed the remaining steps in the demerger process for our manufacturing entity in China and have transitioned its legal ownership from BD to MBECTA. We have also resumed manufacturing at this facility for products for supply to our customers in China. We have previously commented that this facility was producing goods for export to other markets, so now the plant is fully operational. All of these accomplishments were achieved in alignment with our projected timelines. The transfer of ownership of this important plant from BD to MBECTA and the restarting of domestic China production marks the completion of a significant separation project that our team has been meticulously working on since prior to our spin-off date. Lastly, as it relates to separation activities, to facilitate the phased implementation of our ERP solution, distribution network, and shared services capabilities, we had requested an extension for certain TSAs and related agreements from BD. BD granted that limited extension, which has allowed us to implement our ERP system and associated distribution and shared services capabilities in a phased manner with the goal of completing these implementations in all markets except in certain limited deferred closing jurisdictions by early fiscal year 2025. It goes without saying that these implementations are highly intricate, and I'm proud of our team for bringing these complex projects to near completion. Related to our objective of entering the infusion pump market, we sponsored the publication of a paper titled, Opportunities to Overcome Under Utilization of Enhanced Insulin Delivery Technologies in People with Type 2 Diabetes, a Narrative Review. This paper aims to inform healthcare providers particularly primary care physicians and those less familiar with technology, about the benefits of insulin pumps for people with type 2 diabetes. It highlights the safety and effectiveness of innovative technologies like insulin delivery systems in improving glycemic outcomes. Despite the proven efficacy, these technologies are often overlooked in primary care settings. The review explores the clinical and economic advantages of tubeless insulin delivery devices and explains how this technology can address common challenges associated with traditional insulin delivery methods. And speaking of insulin patch pumps, we continue to make progress in terms of insulin patch pumps that are being developed. I'll share more about these accomplishments in the following slide. To summarize, During the second quarter, strong operational execution led to results that exceeded our internal expectations, and based on these results, we are raising and tightening our guidance range for key financial metrics, which Jake will be discussing later. Turning to the advancements we made in terms of our insulin patch pump program. Our 510K application for the open-loop version of our insulin patch pump continues to be under FDA review, and we continue to have ongoing dialogue with the FDA. As a reminder, we submitted our 510K application to the FDA in late calendar year 2023. In parallel, during the second quarter, we also continued the development of a closed-loop insulin patch pump that is targeted towards those individuals who have type 2 diabetes, including further collaborating with Tidepool concerning the adaptation of their FDA-approved type 1 algorithm into a Type II algorithm that could be used in our closed-loop insulin patch pump system. As we continue to progress throughout this year, we will continue to provide updates to the investment community regarding the status of FDA's review at the appropriate times, as well as progress we make regarding our closed-loop Type II patch pump. Lastly, I would like to provide a review of our second quarter revenue performance in a bit more detail. As I mentioned at the outset, during Q2, we generated revenue of $287.2 million, which represented an increase of 3.6% on an as-reported basis and an increase of 4.5% on a constant currency basis, or 4.9% when normalizing for the impact of year-over-year changes in the revenue of non-diabetes products that we contract manufacture and sell to BD. Our Q2 revenue exceeded our previously communicated expectations, primarily due to the timing of customer orders in advance of our aforementioned EMEA and parts of Asia-focused ERP system and associated capabilities implementation, and in advance of a price increase in the U.S. Q2 revenue also benefited from a better-than-expected product and geographic mix. We estimate that the timing of customer orders impacted our second quarter results positively by approximately $16 million, and we currently expect that the timing benefit will unwind during fiscal Q3. Within the U.S., during the quarter revenue total $147.6 million, which represented year-over-year growth of approximately 0.8% on a constant currency basis. When normalizing for year-over-year contract manufacturing revenues, Our underlying Q2 constant currency revenue growth within the U.S. was approximately 1.5%. Volume was the primary contributor of growth in the quarter, aided by our contract wins with the top three Medicare Part D plans going into effect in January 2024. As we have previously noted, we are the preferred or dual preferred brand on the formularies for these plans. These additional Medicare Part D plan volumes were somewhat offset by the unwinding of certain customer orders that benefited us in our fiscal first quarter, as was discussed on our first quarter earnings call. Pricing was flat in the quarter as compared to the year-ago period, which was expected. During Q2, our international revenue totaled $139.6 million, which equated to year-over-year constant currency growth of approximately 8.7%. Growth in our international business was due to increased volumes and can be largely attributed to the timing of certain customer orders in advance of previously mentioned ERP and associated capabilities implementations that occurred within the quarter. Pricing within our international business remained relatively flat. That completes my prepared remarks And with that, let me turn the call over to Jake to take you through our second quarter financial results, as well as our updated full-year financial guidance in more detail.