Please stand by. Welcome, ladies and gentlemen, to the Embecta Corp.'s Fiscal First Quarter 2026 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 a replay will be available on the company's website following the call. I would now like to hand the conference call over to your host today, Mr. Pravesh Khandelwal, Vice President of Investor Relations. Mr. Khandelwal, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Embecta's fiscal first quarter 2026 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.embecta.com. With me today are Devdatt Kurdikar, Embecta's President and Chief Executive Officer, and Jake Elguicze, 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, including those referenced on slide two of today's conference call presentation. Such statements are, in fact, forward-looking in nature and 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, which are also included in the Investors section of our website www.embecta.com. Our agenda for today's call is as follows. Dev will begin with an overview of Embecta's fiscal first quarter 2026 performance and discuss progress across our strategic priorities. Jake will then review the financial results for the first quarter and share our updated thoughts for fiscal year 2026. Following these updates, we will open the call for questions. With that said, I would now like to turn the call over to our CEO, Devdatt Kurdikar.

Good morning and thank you for taking the time to join us. Over the past year, and particularly since we reported our fiscal year 2025 results, we have continued to make meaningful progress executing our strategic roadmap we outlined at our Investor Day last year. As a reminder, that roadmap is built around a phased approach consisting of standing up the organization, seeding growth, and ultimately transforming the company into a broad-based medical supplies company which serves chronic care patients and drug delivery partners. The stand-up phase was focused on becoming a fully independent company by building our own systems, supply chain, and commercial capabilities while keeping the base business stable. Fiscal year 2025 largely marked the completion of that phase with the operationalization of our own ERP, distribution, and shared services infrastructure allowing for the complete migration of our revenue into our systems and the successful exit of all TSAs and LSAs. I am pleased to say that we were able to complete the stand-up phase and all the associated complex initiatives while keeping our constant currency revenue stable. That work behind us, we are now firmly in the seed growth phase. This is where the company's focus is now. This phase's goals focus on staying competitive in the core, selectively expanding the portfolio in areas that leverage our existing strengths, and building financial flexibility through disciplined capital allocation. The priorities in this phase are intended to position Embecta over time as a broader medical supplies company and a drug delivery partner, building on our foundation as a leader in global insulin delivery. One important element of strengthening the core has been our brand transition. This initiative is not a change to the product or product names. It is a change to packaging and branding that establishes Embecta as…

Thank you, Dev. Good morning, everyone. Given the discussion that has already occurred regarding revenue, I will start my review of Embecta's first quarter financial performance at the gross profit line. GAAP gross profit and margin for 2026 totaled $161.7 million and 61.9% respectively. This compared to $151.7 million and 60% in the prior year period. While on an adjusted basis, our Q1 2026 adjusted gross profit and margin totaled $163.5 million and 62.6%. This compared to $164.2 million and 62.7% in the prior year period. The slight year-over-year decline in adjusted gross profit and margin was primarily driven by the unfavorable year-over-year pricing dynamics that Dev mentioned earlier and mix. These headwinds were partially offset by manufacturing cost improvement programs and lower manufacturing functional costs. Turning to GAAP operating income and margin, during 2026, they were $83.3 million and 31.9%. This compared to $28.7 million and 11% in the prior year period. While on an adjusted basis, our Q1 2026 adjusted operating income and margin totaled $79.3 million and 30.4%. This compared to $80.5 million and 30.7% in the prior year period. The small year-over-year decrease in adjusted operating income is primarily due to the decline in adjusted gross profit that I just mentioned coupled with an increase in R&D expenses that is associated with a variety of projects underway at the company including the development of market-appropriate pen needles and syringes, the development of a pen injector, as well as project costs associated with becoming cannula independent. This was partially offset by lower year-over-year SG&A expenses due to the restructuring initiative we announced mid last fiscal year. Turning to the bottom line, GAAP net income and earnings per diluted share were $44.1 million and $0.74 during 2026, as compared to zero in the prior year period. While on…

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Our first question comes from Marie Thibault with BTIG. Your line is open.

Hi, good morning. This is Sam on for Marie. Thanks for taking the questions here. Devdatt Kurdikar and Jake Elguicze, maybe I can start on the quarter and maybe more of a deeper dive in terms of the dynamics we saw, whether it's distributor ordering, maybe what you're seeing in that US business, the pricing impact that you're now calling out. Volumes? And then also maybe a piece on China in terms of the recovery in the back half that you're expecting?

Hey. Good morning, Sam. Good to speak with you this morning. So on the US, you know, we saw a year-over-year decline excluding CMA of about 7.4% and it was really driven by two factors: lower pricing and lower volume. But the lower volume was really channel dynamics and some contractual dynamics. On the pricing front, probably the single largest factor was a different customer and product mix than we had experienced in the same quarter last year. That impacted sort of our net pricing. And on the volume side, we had channel dynamics that were partially offset by advanced purchase ahead of a price increase that we took on January 1. That's really what was driving the US results. On China, as you remember, China last year was a significant step down for us in '25 versus '24. As we navigated through the broader trade environment and geopolitical dynamics, we put some initiatives in place in that business, reorganizing our Salesforce, introducing a new pen needle over there that can go head to head with some of the local branded companies. And those initiatives are gaining traction. In this quarter, Q1, our performance in China was in line with our expectations for the quarter. Now certainly, as we go through the year, we are anticipating some recovery in the second half of the year. For the first half of the year, China will be a headwind as we look at our year-over-year performance. And then for the second half of the year, maybe less so. Anything you'd like to add?

Yeah. Sam, I think if you just zoom out for a second, I think if you recall, I think our initial guidance for the first quarter revenue called for us to generate approximately 24% of our full-year as-reported revenue dollars during the first quarter. That would have equated to a range of somewhere between $257 million and $262 million. So the quarter largely played out as we expected, coming in closer to the higher end of that previously provided revenue range. I think, importantly, volumes continue to be positive, particularly outside of the US. Volume strength in EMEA and Latin America really actually exceeded our internal expectations. To Devdatt Kurdikar's point, I think, really, the item that was a slight incremental headwind as compared to our initial guide was some of the pricing dynamics that occurred because of just the slightly different customer mix, if you will, and sort of as compared to our original thoughts. But absent that, the quarter played out from a revenue standpoint as well as the rest of the P&L really pretty much largely as we expected.

Yeah. Very helpful. Appreciate the details, guys. Maybe just a quick follow-up. Devdatt Kurdikar, you mentioned the new oral GLP-1s that are starting to roll out at this point. Obviously, there's a place for injectables also. So maybe you can lay out what gives you or why injectables still have a place in this broader market with new orals now in place? Thanks.

Absolutely, Sam. We remain super excited about the GLP-1 opportunity. Clearly, we've been following the development in the oral GLP-1 space. And I do want to note that the launches in calendar year 2026 were expected, and we had included assumptions for them when we calculated the $100 million-plus revenue opportunity. Based on the data we have, injectables have a better weight loss profile than orals. Certainly, according to the market research reports we've read and some press reports, it appears, and obviously, this is early days, that the potential use cases for orals are for patients who might have an aversion to needles, maybe in geographies where there is limited cold storage and transport facilities, and then finally, maybe as maintenance therapy for people who want to get off injectables. It appears, again, that based on the early read on the prescriptions for the oral so far, that most of the patients who are using orals are new to the therapy. So it sort of points to market expansion. So this is all in line with what we had assumed. I also want to point out that, certainly for the major drug companies that are in the GLP-1 space, we look at their pipelines, and most of the drugs that are in development in their pipelines themselves are all injectable drugs. And look, more recently, there has been some more incremental positive traction for us in the GLP-1 opportunity. We read with interest that Zepbound in the US was an auto-injector, has gotten approval for a QuickPen. Obviously, if that drug gets delivered via pen, patients are going to need pen needles. We have a strong position in the US, so certainly we'll do our best to capitalize on the opportunity. So for all those reasons, in spite of some of the recent press on oral GLPs, we remain very, very confident in the GLP-1 opportunity for us.

Makes sense. Thanks so much for taking the questions.

Thank you. And our next question comes from Travis Steed with Bank of America Securities. Your line is open.

Hey. This is Gracia on for Travis. I wanted to follow-up maybe on the strength in the international this quarter. You called out EMEA and Latin America. Just kind of wanted to see specifically any more color on what improved versus Outlook three months ago and gives you the confidence and visibility there that that strength continued throughout the rest of the year.

Yeah. Look. In two words, it's just superior execution. I think particularly in Latin America, our team over there is driving growth. They have won a new customer over. That's a large customer that's driving growth as well. So really, it's not one single factor, Gracia. I would point to just good execution by our team in those regions.

Great. And then maybe just one follow-up on the pricing headwind. Any way to sort of quantify that incremental headwind that you're seeing and maybe what's baked in on the top end and low end of the guide in regards to that now since those dynamics have changed around?

Sure, Gracia. This is Jake. I think, in our prepared remarks, we talked about how we think that we're going to be closer to the lower end of the revenue guidance range due to the incremental pricing headwinds. And if you recall, the original guidance that we had on the high end and the low end called for our manufacturing revenue year-over-year to be down about 50 basis points. That's really unchanged right now in terms of the current guide. From a volume standpoint, the high end of the guide called for volumes to be down about 50 basis points. The low end of the guide previously called for volumes to be down about 150 basis points. Net right now, we actually think that volumes year-over-year, I think, importantly, are coming in a little bit stronger there. And right now, the current guide calls for volumes to sort of be flattish year-over-year. And in large part, I would say, relative stability in terms of the US market for the full year. And in terms of international, an improved outlook internationally as compared to the original guide. So I think volumes remaining stable now as compared to, say, previously at the mid we would have called for about a 1% headwind. In terms of new products, the low end of the guide previously called for sort of flattish contribution from new products. The high end of the guide called for about 1% growth year-over-year coming from new products. And right now, I think the current guide calls for positive contribution of about 50 basis points. So, essentially, right now, sort of the new product contribution being around 50 basis points sort of offsetting those contract manufacturing headwinds of about 50 basis points, the core volumes being relatively flattish, and right now, just given some of the more recent pricing dynamics impacting the US business, that's really what's causing us now to be closer to the lower end of our current guidance range. As compared to previously when we initially provided guidance, we thought that pricing was largely going to be flat year-over-year.

Great. Thank you.

Our next question comes from Ryan Schiller with Wolfe Research. Your line is open.

Good morning. Thank you for taking my question. I want to click on the auto-injector project. Can you give us an idea of how long something like this takes and when this might put dollars on the board? And any comments on TAM or market sizing would be much appreciated.

Yeah. Ryan, first off, you know, it's the pen injector project that we started. Look, we are in the early phases. I strongly believe we have the R&D capabilities, the manufacturing capabilities, certainly to develop the product. And given the relationships we've established now with the generic drug companies, we certainly have the channel now to present that product. It's way too early for me to talk about timing and market sizing, but certainly as the project develops and evolves, we'll certainly be speaking more about that.

Thank you. And then just one more for me on the GLP-1 opportunity. So you said this has a $100 million revenue by 2033 at the Investor Day. The guide seems to include roughly $10 million for 2026. Can you put any finer points on what the penetration curve might look like to reach that $100 million of revenue?

Yeah. So maybe just to sort of remind everybody what was included in that $100 million. Right? So what we did when we calculated that is, obviously, we had an estimate for the number of patients on GLP-1s. We reduced that by an estimate for how many patients would be on oral, even though the current indications, while early days, are that orals are expanding the market rather than pulling patients away from injectables. We only looked at obesity and diabetes indications. We did not factor in other indications that we know pharma companies are pursuing. We factored in only reimbursement as was available then, almost a year ago. Clearly, reimbursement has expanded. Prices have come down. And then finally, in the assumptions that we made, we assumed that the delivery format that was in place then would remain sort of static. Particularly in the US, Mounjaro and Zepbound pens would continue to be available only in injector all through this period. But as I noted earlier, we read with interest that Lilly does have FDA approval for their QuickPen. And I believe has commented that they expect to be launching this in the coming weeks or so. So all of these are potential upsides to the $100 million. In addition, we recently started discussions with branded pharma companies for drugs in development where they may need a pen needle for their drugs. That's not included in their estimate as well. So all these reasons give us confidence that the $100 million-plus opportunity is still real. And over the past nine months since we spoke about it publicly, our confidence has only increased. With respect to timing, most of the timing is going to be driven by patent expirations. So in 2026, we and our partners continue to expect that China, India, Brazil, Canada might see generic launches. I mentioned in my remarks that in India, a couple of companies have already gotten approval and have talked publicly about launching generic semaglutide in 2026. Canada is still expected to get approval sometime this year. In China, our companies are working with local Chinese companies that are interested in launching generic GLP-1s. So I would say that the ramp-up to that $100 million-plus is going to be driven largely by patent expirations. Because certainly, the majority of companies that want to launch generic semaglutide in any region of the world are in discussions with us, either at the corporate level or with our local team.

Thank you.

This concludes our question and answer session. I'd like to turn the call back over to Devdatt Kurdikar for closing remarks.

As we close the call, I want to thank my colleagues across Embecta for their continued focus and execution. We are operating in an environment marked by heightened competition and an evolving geopolitical and trade backdrop, and the team continues to respond with discipline and resilience. As we move through fiscal year 2026, our priorities remain clear. We are focused on our goals of strengthening our core franchise, advancing our targeted growth initiatives, and maintaining strong profitability and cash flow to support the strategic commitments we outlined at our Analyst and Investor Day. Thank you for joining us today and for your continued interest in Embecta.

Thank you for your participation. You may now disconnect. Everyone, have a great day.