Embecta Stock

Thank you. Welcome, ladies and gentlemen, to Embecta Corporation's fiscal third quarter 2026 earnings conference call. [Operator Instructions] 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 turn the call over to your host today, Mr. Pravesh Khandelwal, Vice President of Investor Relations. Mr. Khandelwal, please go ahead.

Good morning, everyone, and welcome to Embecta's fiscal third quarter 2026 earnings conference call. The press release and slides to accompany today's call, along with webcast replay details, are available on the Investor Relations section of our website at www.embecta.com. With me today are Devdatt Kurdikar, Embecta's Chairman 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 2 of today's conference call presentation. 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. We do not intend to update or revise any forward-looking statements, including any charts, financial projections, or other data referenced in this presentation, whether as a result of new information, future events, or otherwise, except as required by applicable law.

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 comparable GAAP measures is included in our press release and conference call presentation, which are also included in the investor section of our website at www.embecta.com. Our agenda for today's call is as follows. Dev will begin with a review of the company's performance during the third quarter, followed by an update of the Owen Mumford acquisition, and then a discussion of the progress we have made with our strategic objectives. Jake will then take you through our third quarter financial results in more detail, as well as our updated fiscal year 2026 guidance. We will then open the call for questions. With that, I will now turn the call over to Dev.

Good morning, everyone, and thank you for joining us today. Before I talk about the recent acquisition of Owen Mumford, let me briefly comment on our third quarter results. During the third quarter, Embecta generated total revenue of approximately $272 million, which is a decrease of 8.1% year-over-year on an as-reported basis and a decline of 8.9% on an adjusted constant currency basis. While on a sequential basis, our third quarter financial performance improved significantly with revenue increasing approximately $50 million, GAAP operating income increasing approximately $14 million, and adjusted operating income increasing approximately $21 million as compared to our second quarter. The sequential increase was due to a combination of factors, including improved performance within the U.S. and international, as well as the initial contribution from the Owen Mumford acquisition, which closed midway through the quarter.

I will return to our U.S. and international performance for the quarter in more detail, but first let me spend a few minutes on Owen Mumford because we continue to be excited about what this acquisition means for Embecta's future. We closed the transaction on May 15th and integration is progressing as planned. Our conviction in the strategic rationale remains unchanged. As a reminder, Owen Mumford broadens our product offerings well beyond insulin injection devices with the addition of a pharmaceutical services business and a wider portfolio of medical devices. Within pharmaceutical services, the portfolio includes a range of auto-injectors designed to support pharmaceutical partners anchored by the new Aidaptus platform, while OM's medical devices include those used for point-of-care testing and self-injection, among others.

On Aidaptus specifically, it's an award-winning next-generation auto-injector designed with a single form factor that accommodates both 1 mL and 2.25 mL fill volumes. That practically means that Aidaptus has a single final assembly process and was designed from the start to address customers' needs for reduced manufacturing changeovers, simplified supply chain logistics, and large-scale production. We estimate the total addressable auto-injector market to be approximately $2.4 billion, growing at a double-digit CAGR, driven by the adoption of biologics, the emergence of generic GLP-1 therapies, and the broader shift towards self-injection as the preferred modality across multiple chronic care categories. Aidaptus is already supporting customer clinical development programs today, and our commercial contract pipeline includes secured long-term agreements with several partners.

Stepping back, the addition of auto-injectors to our portfolio significantly expands our addressable market, meaningfully broadening our opportunity set well beyond our historical insulin injection footprint, and significantly increases our weighted average market growth rate potential. As we expand our work with pharmaceutical companies, from pen needles that can be used with either branded or generic GLP-1 drugs, to the development of a multi-dose pen injector and Owen Mumford's Pharma Services business, we are now serving a different customer base with needs distinct from our legacy insulin injection devices business. This opportunity requires dedicated leadership focus. To that end, I'm pleased to announce that Jeff Mann has been appointed President of Pharma Services and Product Management and Chief Legal Officer.

In this expanded role, Jeff will assume responsibility for a new pharma services organization, bringing together a combination of Embecta and Owen Mumford talent dedicated to this important effort. This new organization will have dedicated leadership and staff focused on this important growth platform as we expand our capabilities and strengthen our partnerships across the pharmaceutical industry. Turning to our manufacturing and distribution footprint. As part of the Owen Mumford acquisition, we added 4 sites. These include 3 manufacturing plants, 2 of which are in the UK and 1 in Malaysia, as well as a warehousing center in the U.S. This broadening of our manufacturing and distribution base creates options for future network optimization and further strengthens our presence in emerging markets.

Now, let me turn to the progress we made against our strategic priorities during the quarter. First, in terms of strengthening our core business, I'm pleased to announce that our market-appropriate pen needles continue to progress through review with the U.S. FDA and with BSI for CE Mark certification in Europe. In addition, we expect that we will launch market-appropriate syringes in additional countries in the coming months. Finally, we completed our brand transition in key European, Asian, and Latin American markets during the quarter. Currently, more than 90% of Embecta revenue is now represented by products commercially launched and shipped under the Embecta label. We remain on track to substantially complete global brand transition by the end of calendar year 2026.

Second, expanding our product portfolio. We continue to build commercial momentum with our B2B co-packaging opportunity as generic GLP-1 therapies featuring Embecta pen needles launched in Canada, Brazil, and most recently South Africa. This follows the initial launch in India. In the coming months, we also expect to launch a pen needle small pack format in the U.S. to support those patients using Zepbound, which was recently made available in a pen injector format. Small packs have already been launched in Canada and Australia.

Third, increasing our financial flexibility. During the quarter, we borrowed approximately $180 million under our revolving credit facility to fund the Owen Mumford acquisition, which included the acquisition of OM's cash. We subsequently repaid approximately $53 million in debt, reflecting our continued commitment to disciplined deleveraging. We also returned approximately $9 million of capital to shareholders through share repurchases during the quarter.

Moving to slide 7, I want to take a moment to introduce Nimesh Muzumdar, who recently joined Embecta as SVP and President, North America. Nimesh brings more than 25 years of experience leading commercial organizations across U.S. retail pharmacy, hospital, and institutional markets. Most recently, he served as SVP and Head of Generics at Sandoz, where he restored the division to profitable growth and helped lead its commercial strategy through the company's 2023 spinoff from Novartis. His prior experience includes leadership roles across retail generics, OTC, institutional, hospitals and clinic channels at Sandoz, Ranbaxy USA, Watson Laboratories, and Dr. Reddy's.

Now, turning back to our third quarter revenue performance. Within the U.S., revenue for the quarter totaled approximately $121 million, reflecting a year-over-year decline of 24.6% on both a reported and adjusted constant currency basis. In addition to the effects of favorable one-time contributions in the prior year, as noted at that time, the year-over-year decline was driven by factors largely consistent with those that impacted our fiscal second quarter results. With regard to pen needles, our share of category in Q3 were generally in line with our expectations. Total prescriptions for insulin pens in the retail channel appeared sequentially stable, declined year-over-year in Q3 at a slightly greater rate than in Q2. Customer and payer mix impact on net pricing was greater in Q3 as compared to Q2. Syringes and safety products were generally in line with our expectations.

We continue to monitor factors that may be impacting market volume, including trends in the insured population enrolled by ACA marketplaces and Medicaid, as well as the accelerated adoption of GLP-1 therapies. On a sequential basis, U.S. revenue increased by approximately $25 million compared to the second quarter, reflecting a normalization in distributor order timing, as well as a modest contribution from Owen Mumford as the acquisition closed slightly earlier than originally expected. Since joining Embecta, Nimesh has brought a fresh perspective and rigorous commercial lens to our North America business.

Through a comprehensive assessment of our commercial organization, customer engagement model, and go-to-market capabilities, his initial findings confirmed that while our brand equity, customer trust, and product quality remain strong, there are meaningful opportunities to enhance commercial execution by strengthening strategic customer partnerships, anticipating evolving customer needs, and leveraging data-driven insights to inform decision-making and drive growth. As this will take time, we expect that the combination of strong leadership, disciplined execution, and a clear strategic focus will strengthen our U.S. business.

Turning to our international business, revenue for the quarter totaled approximately $151 million, representing an increase of 11.5% on a reported basis and 9.7% on an adjusted constant currency basis. Year-over-year growth was driven by continued strength across Latin America and Asia, and contribution from Owen Mumford, partially offset by the anticipated softness in China. Meanwhile, from a product family perspective, during the quarter, adjusted constant currency pen needle revenue declined approximately 18.6%, primarily driven by the same U.S. factors just discussed. Turning to our syringe products, revenue was roughly flat year-over-year, as continued declines in the U.S., driven by the ongoing long-term shift towards insulin pens, were largely offset by strong performance internationally, particularly in Latin America and Asia.

Moving to our safety products, they delivered solid growth of 4.6% in the quarter, by gains in the U.S. Finally, contract manufacturing revenue, which we generated through the manufacturing and sale of non-diabetes products back to Becton Dickinson, declined a modest 3.6%, consistent with the continued insourcing of these products by BD. With that, let me turn the call over to Jake.

Thank you, Dev, and good morning, everyone. Given the discussion that has already occurred regarding revenue, I will start my review of Embecta's third quarter financial performance at the gross profit line. GAAP gross profit and margin for the third quarter of fiscal 2026 totaled $153.3 million and 56.4%, respectively. This compared to $197.1 million and 66.7% in the prior year period. While on an adjusted basis, our Q3 2026 adjusted gross profit and margin totaled $158.0 million and 58.2%, compared to $198.6 million and 67.2% in the prior year period.

The year-over-year decline in adjusted gross profit was primarily driven by lower year-over-year revenue in the U.S., as well as the impact of net changes from profit and inventory adjustments period over period. This was somewhat offset by the addition of Owen Mumford and our international business. While from a sequential perspective, Q3 2026 adjusted gross profit improved by approximately $26 million from Q2 of 2026, primarily due to improved performance within the U.S. and international, as well as the initial contribution from the Owen Mumford acquisition, which closed midway through the quarter.

Turning to GAAP operating income and margin, during the third quarter of 2026, they were $48.7 million and 17.9%. This compared to $94 million and 31.8% in the prior year period. While on an adjusted basis, our Q3 2026 adjusted operating income and margin totaled $69.4 million and 25.5%. This compared to $109.1 million and 36.9% in the prior year period. The year-over-year decrease in adjusted operating income was driven by the decline in adjusted gross profit as operating expenses remain roughly consistent with the prior year period, despite the addition of Owen Mumford due to cost optimization activities identified. Whereas in terms of sequential performance, adjusted operating profit improved by approximately $21 million due to improvement in gross profit.

Turning to the bottom line, during the third quarter of 2026, we generated GAAP net income of $21.1 million and earnings per diluted share of $0.36. This compared to GAAP net income of $45.5 million and earnings per diluted share of $0.78 in the prior year period. While on an adjusted basis, during the third quarter of fiscal 2026, net income and earnings per share were $32.6 million and $0.56, compared to $65.5 million and $1.12 in the prior year period. The decrease in year-over-year adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers I just discussed, as well as a higher year-over-year adjusted tax rate driven by the lower U.S. revenue in the quarter. In terms of sequential performance, adjusted earnings per share improved by $0.29 due to a combination of the improved revenue and gross profit, as well as a lower share count due to the repurchase of approximately 2.7 million shares during the third quarter.

Turning to the balance sheet and cash flow, during the third quarter, we generated approximately $41 million in free cash flow, and we repaid approximately $53 million of outstanding debt. While our last 12 months net leverage as defined under our credit facility agreement was approximately 3.7x, this compared to our covenant requirement, which requires us to stay below 4.75x. Finally, at the quarter end, we amended and extended our revolving credit facility through December 30th of 2028.

That completes my prepared remarks on our third quarter 2026 results. Next, I'd like to discuss our updated 2026 financial guidance and certain underlying assumptions. Beginning with revenue, on an as-reported basis, we are reaffirming our prior revenue guidance range of between $1,015,000,000 and $1,035,000,000, which would represent a year-over-year decline of between 4.2% and 6.1%. In terms of our adjusted organic constant currency assumptions, at the low end they are unchanged as compared to our prior guidance. The high end is slightly lower, driven primarily by assumptions regarding customer and payer mix in the U.S., partially offset by improved international expectations.

Turning to M&A, we're raising our expectations for Owen Mumford primarily driven by the fact that the acquisition closed 2 weeks earlier than initially expected. Turning to our thoughts on FX, we currently expect foreign currency to be a tailwind of approximately 1.3% as compared to our prior guidance, which called for FX to be a tailwind of approximately 1.5%. In terms of adjusted operating margin, we are raising our adjusted operating margin guidance from a range of between 22.25% and 23.25% to a new range of between 23.5% and 24%. As we mentioned on our second quarter earnings conference call, we initiated a review of our cost structure, and the improvement in our operating margin guidance reflects the implementation of operating expense cost controls and cost optimization efforts, which we expect will generate a further annualized benefit in 2027.

We're also raising our adjusted earnings per share guidance from a range of between $1.55 and $1.75 to a new range of between $1.80 and $1.90. This increase is primarily driven by the operating expense cost controls and cost optimization efforts I just mentioned. This includes the following guidance assumptions. A lower adjusted tax rate of approximately 27%, as compared to our prior assumption of approximately 28%. A lower interest expense assumption of approximately $95 million, as compared to our prior assumption of approximately $97 million. And a reduction in our weighted average diluted share count to approximately 58.6 million shares as compared to our prior guidance of approximately 59.4 million shares, reflecting share repurchases made under our share repurchase program.

Turning to the balance sheet and cash flow, we expect to repay at least $150 million of debt during 2026. For reference, through the first 9 months of 2026, we have repaid approximately $128 million in debt. Lastly, in terms of free cash flow, our thoughts are largely unchanged from our prior expectation of generating free cash flow of approximately $100 million. This includes approximately $18 million to $20 million of capital expenditures, a significant majority of which we expect to occur in the fourth quarter of fiscal 2026.

That completes my prepared remarks, and at this time, I would like to turn the call over to the operator for questions. Operator?

Thank you so much. [Operator Instructions] One moment for our first question that comes from Marie Thibault with BTIG. Please proceed.

I wanted to start here to try to follow up on some of the discussion we had last quarter about competitive share shifts, low-cost competitors, and some of the pressures you were seeing with some of the regional players as well. So any updates on what you've heard from your customer base and your strategies for sort of offsetting some of this, you know, low-cost competition?

Yes, good morning, Marie, and thanks for the question. Look, we are pleased with our performance in Q3. With respect to the share question, it was tracking, it is tracking within the range of expectations that we laid out in the last quarter. We saw share stability in Q3, and so we were pleased with that. We continue to make progress on our market-appropriate syringes and pen needles, which obviously over time will help us combat some of these low-cost players. Our pen needle is under review with the U.S. FDA. That review is progressing as you might expect.

It's also under review with BSI for CE Mark. Our syringes have already launched in China, which is a tough low-cost market, but over time certainly will expand that to other geographies around the world. Overall, I'd say we are tracking within the range of expectations that we laid out 90 days ago and pleased with the progress that we've made on new products.

All right, that's encouraging to hear, Dev. Glad to hear it. And then I wanted to follow up, you made some reference to watching trends in the U.S. market overall and some of the volume lightness that was seen last quarter. What's the latest there? I know you talked about potential impact from maybe insurance headlines or GLP-1s, but would love to hear more of what you heard, and whether you think that's a trend you'll continue to see or whether we're seeing some improvement there as well.

Yes, Marie, we continue to watch that. I mean, since we spoke 90 days ago, you know, we've noted with interest other public commentary around ACA enrollment trends and Medicaid trends. Obviously, as the insured population changes, that potentially has impact on insulin pen TRx. It's a trend we had noted also 90 days ago that we had seen a decline in insulin pen TRx year-over-year. I'm pleased to say that in Q3 we saw sequential stability. As I noted in my prepared remarks, the year-over-year decline in Q3 was slightly greater than in Q2, but I would say sort of within the range of variability that we've seen in this data in the past. So, you know, our guide continues to assume no further recovery or deterioration, but obviously, you know, these are macro factors that we will continue to monitor closely.

One moment for our next question. That comes from Travis Steed with Bank of America. Please proceed.

Hey, this is [ Gratia ] for Travis. I just kind of wanted to first ask about the revenue guidance. You reiterated it, but beat the street by about $17 million. And I think that means the Q4 guide implies about $270 million, which is just a little bit lower than where the street is today. So any more color on potential changes and expectations for Q4?

Versus prior expectations on the Q2 call? Yes, look, we did reiterate the guide, as you noted. I mean, we are pleased with the progress that we made in Q3, and expect, obviously, to continue making that progress in Q4. We are tracking within the range of all the expectations that we had laid out 90 days ago. I mean, the Owen Mumford contribution has been tracking along the lines, our U.S. performance has been tracking along within the range of expectations, international is performing strongly. So at this point, we just thought it was prudent to stick with the guide that we laid out 90 days ago and continue to execute in Q4.

Hopefully just like we did in Q3. Great, super helpful. And then maybe just on how to think about 2027 revenue growth and any preliminary thoughts on how the headwinds that you've seen in 2026 either stayed the same or changed, and how to think about maybe an updated LRP framework.

Look, on 2027, obviously, I mean, this has been a year of change. So we want to execute Q4, let 2026 play out before we really comment on 2027. And that will give us some time to really understand, particularly with some of those macro factors that I laid out before, sort of where they level out. With respect to our LRP, I think our plan right now is to update it sometime towards the end of calendar year next year. And the idea behind that is certainly we have a lot of initiatives going on that will have progressed by that time, whether it's our new products on the syringe or pen needle, the GLP-1 opportunities that we've spoken about previously.

And now particularly with Zepbound being launched in KwikPen, that opens up an additional revenue opportunity as well. And obviously with the Owen Mumford acquisition, we are excited about the pen injector that we have in development, the auto-injector that we are developing with Owen Mumford. So we want all these initiatives to progress over the next 12 to 18 months or so before we update our LRP.

Makes sense, thank you.

[Operator Instructions] We have a question from Ryan Schiller with Wolfe Research. Please proceed.

Two from me. So with the Owen deal now closed and integration work underway, how are you thinking about capital allocation? And then within that, Owen, can you remind us the timeline that Aidaptus should really start contributing more revenue growth?

So, on Owen Mumford, you know, I'll take your second one first, and I'll let Jake comment on capital allocation. On Owen Mumford, look, I mean, it's been 6, you know, it closed midway sort of in May, right? So, it's been under 3 months that we've had Owen Mumford, if you will, under our watch. The integration is going well. It's proceeding quite well. The Aidaptus program is tracking to the R&D timelines that they have. I think, again, as I said before, would like some more time before we actually lay out revenue expectations for Aidaptus. But stepping back from specific expectations for Aidaptus, I mean, let me just again reiterate, I mean, this is a $2 billion plus TAM, right? Significant expansion of our TAM, current TAM for insulin injection devices, and it's growing, you know, in the double-digit.

Owen Mumford has a history of being in the auto-injector space. As you may know, Humira auto-injector is produced by Owen Mumford. So with the auto-injector portfolio that they have, plus Aidaptus, we think it is going to be a significant revenue contributor over the years, but with respect to specific numbers, Ryan, I'm going to sort of wait on that till we close out 2026. Let some of the program development continue to proceed as it is before we lay out specific numbers. But, Jake, you want to talk about capital allocation?

Sure, Ryan. Yes, I'd say, look, in terms of capital allocation, it's primarily going to be focused on continued debt reduction. You know, I think at spin we were given a fair amount of debt and leverage. You know, in the years following spin, there was a fair amount of cash that we needed to use associated with separation and stand-up work. And then really over the last couple of years we've been able to make some significant progress in terms of delevering. Now obviously we acquired Owen Mumford, but yet we were still able to repay more debt in the quarter than we expected just 90 days ago. So really going to be the focus moving forward is primarily on continued debt reduction.

Ladies and gentlemen, this will conclude our Q&A session for today, and I will pass it back to Dev Kurdikar for final comments.

As we close the call, I just want to thank my colleagues across Embecta for their continued focus and commitment. This was a quarter of solid progress with sequential improvement in our U.S. business, continued strength internationally, and the successful close of the Owen Mumford acquisition. We are not standing still, and the steps we are taking, strengthening our commercial execution in the U.S., integrating Owen Mumford, and maintaining discipline in our cost structure and capital allocation are purposeful and aligned with our long-term strategic roadmap. Thank you for joining us today and for your continued interest in Embecta.

And this concludes our conference. Thank you all for participating. You may now disconnect.

Today, I'm joined by Dev Kurdikar, CEO and President of Embecta. Thanks for joining us today, Dev.

It's a pleasure to be here. Thank you for having us.

Maybe just to start out Q1 earnings last week, talking a little bit about a U.S. business reset. So the U.S. business was stable around $1 billion post spin, but you started to see some instability earlier this year and then worsening in March, leading to cutting fiscal year '26 guidance. So can you just maybe start out by walking us through what changed? How much was customer-specific share loss versus broader market softness?

Yes, happy to do so, listen. So Q1 calendar year, Q2 fiscal year, unquestionably a challenging quarter for the company, right? The U.S. business, which is approximately 50% of our global business, right, has been stable for a long period of time. And this is now our fifth year post spin, even while we've had COVID waves and inflation and disruptions, that business has been stable.

But this quarter, most recent quarter that we reported, we did see some signs of some of instability. But also, we had a confluence of factors that really sort of all unfortunately came together in the quarter. So if I just sort of listing them, right? I think the one that you referred to or a couple that you referred to share loss. So with us in the U.S., our customers are certainly retailers where most patients would get their products. But the product flows through drug wholesalers. And we obviously contract with payers as well.

What we saw is that with one particular retailer, we lost some share. That does not mean our products are no longer available at that retailer. But certainly, we were the #1 position, now we are the #2 position. And that impact on our revenue guide for the year, I would say, was maybe disproportionate to the volume lost, primarily because the patients that can move from our product to a competitive product, we think they are on payer plans. They're obviously reimbursed a range of products. And by definition, on those payer plans, the rebates are less than what they would be on a preferred or exclusive plan.

The second factor, and I know you mentioned this, Gracia, was sort of market softness, right? So one of the things we follow, one of the lead indicators that we have, if you will, we just watch insulin pen prescriptions. And insulin pen prescriptions have been stable for a long period of time. Again, recently, we saw some early signs of insulin pen prescriptions declining with a more pronounced decline in retail. And so that was a second factor that really came to light in the quarter that really led to us rethink about how we see the rest of the year.

There were some other factors like inventory, we've gone through ERP transitions, brand transitions. We don't have direct line of sight into inventory because all the product does flow through wholesalers. And so there was an adjustment we made for that.

Syringe. Syringe has been in the long-term decline because patients are using pen instead of vials. And what happened actually last year was that, that decline got mitigated because a large wholesaler was buying syringes. We think to serve their customers that were compounding pharmacies. And since that business has declined, that compounding pharmacy drug business has declined, it is impacting sort of our syringe uptake. So we think syringe will just go back to its sort of long-term secular decline that's been happening for a number of years.

Swabs was a decision made by us to discontinue the product globally. It was comparatively a low-margin product for us. It uses an active ingredient that we were unable to find a qualified supplier for. So we just decided to discontinue that, right? So having said all of these, these all factors sort of came together. Some of these we knew at some point might impact us, which is why we sort of started on our diversification strategy, which I'm hoping we can talk a little bit more about to make the business more resilient over time.

And maybe just to double-click on that. So you talked about it a little bit, but what's more transient versus the structural changes? And for the ones that are transient, how can you give investors' confidence that the issue is contained there?

So if you think about just various factor by factor, right? So if you take the competitive share loss, right, certainly, over the past several weeks, we've seen stability in share. Now obviously, we want to think hard about what do we want to do to win back that share. And certainly, we intend to come up with the right value propositions to try to win back that share, right?

Market softness, I think that's the one that I think we still need a few more quarters of data to see where that stabilizes, right, where this insulin pen prescription stabilizes. I think syringe, as I said, will just continue down that now the previous secular decline, swabs is just out of the picture. The inventory corrections, we expect will be made during the year. Wholesalers in general are trying to be more efficient with inventory, not just for our products, but for everybody else's products as well.

So I think the big ones that we are watching is uncertainty around sort of market volumes, seeing how that shapes out and then figuring out our own action plans to see how we can regain some of that share.

And then maybe on the large customer that had the share decline. So what maybe was the biggest factors in those changes? And what are you doing to sort of stabilize that count and also contain that, so it's not broader into other customers as well?

Yes. So it's one of the retailers, it's a large retailer. Every retailer has its own sort of unique dynamics, right? And they're not -- I would necessarily not call them sort of replicas of each other, right? They have different considerations, different dynamics. Some of them, we have multifaceted relationships with.

In this particular case, I would say the single largest factor was price. It wasn't product quality. I should also say that we don't think the competitive landscape has changed. It's not like suddenly there's a new entrant or suddenly excess capacity. Sometimes some of those things can cause pricing dislocations. I don't think it's that. It is really a choice that a customer made to increase their purchasing of products that have lower upfront cost.

We have strong relationships, like I said earlier, sort of our customers are wholesalers, payers, retailers. It's a pretty symbiotic relationships, and we maintain strong relationships with all of them. I mean if you think about our payer customer base, right, which really drives a lot of adoption of our products because we are covered in formularies, either as exclusive or preferred access in almost half of all the covered lives that we have contracts with. Most of the covered lives in the country, we have some contract with.

So I think it provides sort of an interconnected system that we operate in. Now in this case, admittedly, like I said, it was a choice that a particular customer made, but we don't intend to be sort of just complacent about it. We want to think of a place where we can regain that share.

And then just on the market softness, maybe the insulin prescriptions and pen market volume trends have worsened a bit. So what do you think is driving that acceleration? Is that GLP-1 affordability, ACA disruption, or pump adoption?

Yes. So let me first sort of describe what we see, right? And we use IQVIA data for insulin pens. We look at total prescriptions as well as new prescriptions. And if you look at insulin pens in total, that has been relatively stable. And then more recently, we saw a decline. The decline was greater in long-acting than in fast-acting, right? Fast-acting insulin is used by -- it's used for mealtime insulin for multiple daily injection users. But it was greater in long-acting. It was also observed in new prescriptions. So that was insulin pens.

And then if you look at insulin pens by channel, now most of insulin pens are in the retail, right, greater than 75%. Some of the remainder -- most of the remainder is in long-term care. The decline was more acute in the retail channel than in the long-term care channel. Long-term care channel is actually growing.

Then when you look at the pen needle market, now the pen needle market is not like a single source of data. We get a variety of data sources that we sort of aggregate together. So it tends to be more imprecise because sometimes there are internal inconsistencies. But from the data we put together, we sort of see that the pen needle decline in retail is even greater than the decline in pens in the retail.

So we ask ourselves, as we mentioned before, a long period of stability in the U.S. marketplace. So what changed in that December-ish time frame, right, or January-ish time frame? You brought up pump adoption. Pump adoption has been growing steadily, right? And certainly, I haven't seen any signs of that pump adoption is suddently now increasing at a much faster rate than before.

GLP-1s. GLP-1s have been announced in January 2018, but something did change in GLP-1s, right? The products got far more affordable, particularly late last calendar year, right? So GLP-1 affordability increased. And then the other thing that happened is ACA subsidies expired. Now initially, when those subsidies expired, I know there was some press reports saying that 1 million people less had enrolled, which does not seem like a big number. But more recent press reports have said that number could be much bigger. But we know ACA subsidies expire.

And as we put this all together, you could think about scenarios in which, look, if patients have lost insurance. And if they want to be on insulin, they are going to continue taking insulin, right? Because insulin prices have come down, they can go get co-pay assistance program from pharma companies, they could get older kinds of insulin, right? There are some other brands now you can get for $35 a month.

But pen needles, if they don't have insurance and if they want our pen needles, that's probably going to cost them even more than insulin. So in that case, what they might want to do is shift to a lower cost. That could be a cash pay product, it could be a private label product. It could be something they buy online versus going to retail and so on and so forth, right? That might explain why pen needles decline in retail are even greater than pen decline in retail.

And secondly, if you are -- if you suddenly use insurance and you are sort of going along the progression of type 2 diabetes, particularly, you may not see a doctor, you may not get on insulin at all. Now you could ask, but that's a factor that should also affect GLP-1s, except because GLP-1s have certainly become more affordable, our thesis is that maybe the penetration is happening at a faster rate for GLP-1s than it is.

And so some of the data that we have seen, the new prescriptions for insulin coming down, new starts, these are just new patients starting on insulin is now coming down a little bit, but GLP-1s are increasing. These might be a couple of factors. But I think it's going to take probably a few quarters to get enough data to understand whether that was really tied to because we only have 3 months of data right now, right? And all these changes are pretty recent.

So when we thought about -- when we talked about our guidance a little bit before, so when we talked about it, because some of this is so new and evolving, what we did in our guidance was assume sort of that there is -- that the conditions we saw sort of persist through the rest of the year, that the share loss is where it is now and just stays that way, that the market softness will stay that way, and that remains to be seen.

I guess just maybe with that data, obviously, you said it's preliminary, but how are you setting up your strategy for the rest of the year to maybe be able to hit the guidance, but also maybe provide some better than expected or just position Embecta more broadly to shift into the new structural changes in the market?

Yes. So that is what -- honestly, that's a strategy we've been pursuing now for a while, right? I mean it started with the termination of our patch pump program now 18 months ago, right? And just to remind everybody, I mean, that was really sort of predicated on our thought of the GLP-1 headwinds, they're not going away anytime soon. The pump space was going to get more competitive as we've seen it has. So we terminated the patch pump program. We said, let's focus on paying down debt because that creates some financial flexibility in case we wanted to do an acquisition. And so we brought net leverage down.

Then at the last -- at the Analyst Day a year ago, we said, look, we are going to pursue a diversification strategy. We were at its core right from spin really an insulin injection delivery company. And we said we need to diversify. We need to -- even within insulin injection, given that we are a premium priced product and there was going to be likely pricing pressure, we need to have some alternatives for our customers that want lower-priced products, right? So we started a program on a new pen needle. We started a program on new syringe.

The new syringe actually had its first commercial sale in China. And as we get registrations and regulatory approvals, we'll expand that around the world. The new pen needle is now under regulatory review in the U.S., Brazil and for CE Mark in Europe. And again, as those approvals come in, that product will go on.

We also said, look, these GLP-1s, they're going to turn generic. And because they're going to be generic forms of Ozempic and Ozempic comes co-packaged with pen needles, these generic drug companies are going to want to co-package pen needles, right? So remember, we had no real B2B channel, but we built that.

And now fast forward today, of the 30 generic drug companies that we are talking to, 40% of them have chosen us as a supplier. Those that are now launched in India, majority of them come co-package with our pen needles. Two of them have gotten approved in Canada. And while we can't use company names, we are looking forward to those launches. And I read just yesterday that those launches might occur this month. In fact, the first U.S. FDA tentative approval is our partner, though that is still some years away.

We think Brazil might still happen this year. China, we think, is going to likely happen next year. My point is that was a brand-new strategy. And at that time, we said, look, this could be at least $100 million opportunity. We said that a year ago. And that was predicated on a few assumptions. That was predicated on we will only count patients with type 2 diabetes indication and obesity. If anything, GLP-1 companies are pursuing additional indications.

We said these drugs would only be available really with the affordability restrictions that existed a year ago. As we talked about, affordability has gotten better. And we said, listen, the U.S. really is not going to be a market for us because Novo comes co-package with their pen needles and Lilly is in an auto-injector in the U.S. But in February, Lilly launched Zepbound with a pen in the U.S., right? And as they have launched more pens, it has created more opportunity for us to have our pen needles be used for those. And so my point is that $100 million opportunity, if anything, over the last year, registering more and more real.

Then came the Owen Mumford transaction, where now we are adding a bunch of medical devices that are not insulin injection delivery. Those devices are primarily sold in a handful of European countries and the U.S. And as you know, we have a global infrastructure, particularly in Latin America and Asia that's strong. And so we are looking forward to the transaction closing so that we can take those products and put it in our commercial channels hands.

Additionally, now we have access to an auto-injector. I mean the company makes the auto-injector for Humira, have made. They make auto-injectors for EpiPens. They make a reusable pen injector for other applications, including, I think, growth hormones. So now we have a drug delivery franchise. And it really vastly builds out on this diversification strategy that we laid out a year ago, right? So you asked sort of the longer term.

Longer term, I think of this company as, yes, core insulin injection delivery company, but then a portfolio of medical devices that is not insulin injection and then a channel to serve pharma companies where we can supply pen needles, auto-injectors, and we are developing a pen injector so that we can supply drug delivery devices to pharma companies that are looking for a partner to supply those devices, right?

So it changes the profile of the company significantly. And so that's why we're so excited about the Owen Mumford transaction because it really accelerates our transformation that we began a little over a year ago.

Yes. Maybe just to follow up on that, like why was Owen Mumford the right transaction right now? And how have you set yourself up for -- to really capitalize on the synergies that it's going to provide for you guys and maybe what risks in integration exists today?

Yes. Yes. So a lot of factors sort of came together, right? So number one, I go back to if we hadn't terminated the patch program when we did and paid down that debt, that created the ability to do the transaction at all because obviously, when we spun off, we had a lot of debt that we've been sort of paying down, right?

Secondly, as you think about sort of -- I say, the 3 things need to come together, right, actionability, affordability and strategic fit. Strategic fit, we just talked about. Owen Mumford was clearly a company that we have been watching, and it was great timing for us that it became actionable when it did. And the affordability piece, we have been paying down debt, so we could actually get it financed for this month when it closes.

Now we were also able to structure the transaction in such a way that $100 million is upfront, but $50 million is really contingent on hitting the milestones associated with the new product, which we'll be happy to pay, right? Because it is really going to build out our B2B franchise, it's going to inflect some growth in the company. So that's why we are so excited about it.

If you think about the synergies, right, that we can get from this transaction, clearly, I talked about we could take the medical device portfolio and globalize it. We put it in the hands of our commercial people around the world. That was not -- is not in our model really. But we are looking forward to doing that and capturing those revenue synergies.

If you go sort of to the manufacturing cost, we have 3 plants. They have 2 plants in U.K. and 1 in Malaysia. That over time, allows us the opportunity to do some manufacturing network optimization and our company is a world-class manufacturing operation, right? But we really didn't factor in any manufacturing cost synergies in the modeling that we did.

R&D, look, they're well known, particularly in the drug delivery space for their R&D expertise. Some of these auto-injectors I mentioned, these are bespoke auto-injectors that were developed for pharmaceutical companies. The auto-injector, Aidaptus, for which the contingent payments are based on. I mean that's a novel auto-injector that I think affords pharma companies with a lot of flexibility with respect to their manufacturing without really giving up on any of the patient-centric features that pharma companies want, right?

And then on the OpEx side, we just dialed in a modest amount of OpEx synergies. So what we need to do, get right about it is, obviously, we don't want to disrupt the innovation that's going on. So we really want to protect their R&D, but we certainly want to globalize medical devices. We want to look for these manufacturing synergies and over time, sort of get them in.

And then on the OpEx side, we'll take a look to see because they have commercial infrastructure is concentrated in a few countries, but it's also the same countries we are present in. And certainly, a lot of the back office that we can rationalize. Not to mention some of the savings we can get by consolidating some of the logistics suppliers and our distribution network and so on and so forth. So very excited about the transaction.

Maybe just now we're a year past Investor Day, like you gave an LRP, obviously, a little preliminary to change that LRP. But how should we think about maybe 2027 and especially now that you've made that acquisition and things have changed in the business. So what's the right framework to think about Embecta growth in the medium and long term now?

Yes. So look, I mean, realistically and candidly, right, obviously, we need to take a new look at the LRP, right, given that -- given what we're going through this year, right? But there are a few things we want to do.

First, like I said, we want to execute on 2026. We want to see where some of these big drivers, particularly market softness in insulin pens where that settles, get our action plans together to win back some of that competitive share, we want to do that. We want to close the transaction. We want to sort of absorb Owen Mumford, right, integrate these companies. We want to globalize the medical device, and we really want to make sure that we do what we can to support the auto-injector development. We finished '26. We set the guide for '27. We do all of this work.

I think in late calendar year 2027, here's what we hope to be at, right? We hope that the B2B pen needle franchise has advanced. And certainly, that trajectory becomes clear as more generic launches take place. The new pen needle, new syringes, which are sort of in the very early stages right now, getting regulatory approval, certainly, we have a much better sense of where we're going to launch them and when.

Medical devices from Owen Mumford have been globalized, right? And we will have a much finer sense of what sort of the overall growth algorithm for the company looks like because really, our goal is that the aspirational profile of the company is now becoming real. Because, yes, while you still have insulin injection delivery, you now have medical devices that treat or are used by patients other than those with diabetes.

And you have now a channel into pharma companies selling drug delivery devices, certainly an auto-injector, a pen injector and pen needles and a pen injector that's in development right now that is advanced enough that we can begin to have serious conversations with pharma companies that are looking for a pen injector as part of their development programs for new drugs.

Makes a lot of sense. I guess just even despite the reset in the U.S. this year, you are still expecting meaningful free cash flow and debt repayment. So just what kind of gives you the confidence in the cash flow durability? And then for those may be less familiar with how attractive your free cash flow can be. Can you just walk us through that?

Yes, yes. So look, even after the reset, we said base number is sort of like $100 million free cash this year, right? And by the way, I should also talk a little bit about maybe the change in capital allocation that we did this year, right? So we reduced our dividend to be $0.15 a share a quarter down to $0.01.

And really, that was sort of a couple of ideas here, right? One is, given our valuation, we thought that would be a worthwhile option to pursue share buybacks. So we got a $100 million share authorization from the Board, a 3-year authorization from the Board. But what it really allows us to do over time is to deploy that free cash in the most meaningful way in, sort of, the real time, right, whether it be share buybacks or debt paydown.

And currently, certainly, our thought is those are going to be the 2 primary sources of free cash. The free cash that we mentioned for this year 2026, that's after about $40 million in onetime costs, $30 million for brand transition, which is still on track to be substantially done by the end of this calendar year. So some of that might bleed over. Owen Mumford integration will take some cash next year, particularly systems integration. Those tend to be the pricy part of these integrations, right, as you meld these ERP systems together.

And then depending upon what happens with the auto-injector platform, obviously, the contingency payments that might need some of that free cash as well that we need to make. So -- but there are puts and takes, right? We'll be -- we added about $30 million for 4 months' worth of Owen Mumford revenue. Next year, if you just annualize that, that's $90 million worth.

Certainly, we'll -- as I said, we'll look to globalize some of the medical devices and see what extra revenue can we get. I mean, GLP-1 B2B revenue next year, as I said, should be more than this year. New pen needles, new syringes should be accretive next year again versus this year, just given we're in the ramp-up phase.

So while we don't want to give -- certainly don't want to give guidance for fiscal 2027 as people think about free cash for next year, those are sort of the puts and takes that one should think about how does $100 million this year, what could that be next year?

With the last minute, maybe I wanted to give you opportunity to talk on anything that you wanted to mention today that we haven't gotten to so far.

Yes. Look, so we just finished the 4-year mark, right? We started off as a core insulin injection delivery company, spent a lot of time and effort, as you know, just standing up the company. ERP systems, distribution systems, payroll systems, even finding new office space in dozens of cities around the world, right? And then like I said, 18 months ago, we said, listen, we need to diversify both our product portfolio and customer base. And that is exactly what we have been doing.

Unquestionably, the most recent quarter was a difficult one, but it's not causing us to deviate from our strategy. We still believe that's the right strategy. And in fact, the work that we've done over the last 12 months, 18 months really has prepared us to the point where we are today with the Owen Mumford acquisition closing and really looking forward to see what we can do with that acquisition to accelerate our transformation.

Okay. Well, thank you so much.

Thank you. Thank you for having us. Appreciate it.

Welcome, ladies and gentlemen, to Embecta Corp.'s Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 turn the call over to your host today, Mr. Pravesh Khandelwal, Vice President of Investor Relations. Sir, you may begin.

Good morning, everyone, and welcome to embecta's fiscal second quarter 2026 earnings conference call. The press release and slides to accompany today's call, along with webcast replay details are available on the Investor Relations section of our website at www.embecta.com.

With me today are Dev Kurdikar, embecta's Chairman 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 2 of today's conference call presentation. 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. We do not intend to update or revise any forward-looking statements, including any charts, financial projections or other data referenced in this presentation, whether as a result of new information, future events or otherwise, except as required by applicable law.

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 at embecta.com.

Our agenda for today's call is as follows. Dev will begin with an assessment of the company's performance during the second quarter and associated financial guidance implications. We will also share the progress we have made on our strategic objectives and will discuss the expected imminent closing of the Owen Mumford acquisition.

Jake will then take you through our second quarter financial results in more detail as well as our updated fiscal year 2026 guidance. Dev will then conclude with our updated approach to capital allocation, and we will open the call for questions.

With that, I will now turn the call over to Dev.

Good morning, everyone, and thank you for joining us today. I want to start the call by addressing our second quarter performance and full year guidance revision.

This was a difficult quarter for embecta. Our results were below expectations with consolidated revenues down 14.4% year-over-year on an as-reported basis or 17.4% on an adjusted constant currency basis. As a result, we are updating our full year guidance to account for the underlying factors that impacted performance during the quarter and that we expect to persist for the remainder of the year.

We have a number of initiatives underway already to counteract them as we transition from our roots as a spun-out insulin injection delivery company toward a more diversified broad-based medical supplies company. We are actively laying the foundation to one day serve patients beyond those solely with diabetes. Our strategic priorities, along with our recent acquisition of Owen Mumford, will help us get there.

Turning to the second quarter. While our International business performed in line with our prior outlook, our U.S. business fell short of expectations due to a combination of factors that I'm going to take you through now. The largest contributor to the lower year-over-year U.S. revenue is share loss within our pen needle product category, most of which is concentrated at a single customer.

We estimate that the remainder is spread across smaller regional and independent pharmacy customers. It is important to understand that the patients switching to competitive products are likely not on payer plans where we have preferred access. That means that the revenue impact of the switching is estimated to be greater than what is indicated by an average unit price.

The second largest contributor is overall market volume softness for insulin pens and pen needles in the retail channel. We believe this contributes to most of the remaining pen needle revenue decline.

And as it relates to the insulin pen market, we are seeing signs of decline in overall insulin pen prescriptions. This is driven by a decline in the retail channel, but is being partially mitigated by growth in the long-term care channel. We are also seeing volume softness in longstanding accounts where we have a stable share position.

Additionally, more patients choosing to acquire pen needles from channels where we do not participate or where products are lower priced is driving additional pressure on retail pen needle volumes. The remaining pen needle decline is related to inventory reductions at certain accounts and additional net pricing pressure.

Finally, a reduction in syringe and safety products revenue comprised the remainder of the overall U.S. revenue decline. As a result, we are revising our fiscal 2026 revenue guidance to a range of between $1.015 billion and $1.035 billion. This reflects both the U.S. revenue shortfall in the second quarter and our updated expectations in the U.S. for the remainder of the fiscal year.

International is performing as expected, and our outlook there is unchanged. Additionally, the revised range includes approximately $30 million in revenue contribution from the acquisition of Owen Mumford, which is expected to close by the end of this month. This compares to our previous guidance range of between $1.071 billion and $1.093 billion.

As a reminder, during our first quarter earnings conference call, we had commented that we expected to be closer to the lower end of that revenue guidance range. Excluding the anticipated 4-month contribution from Owen Mumford, our current organic revenue outlook at the midpoint is approximately $995 million or a reduction of approximately $75 million from the low end of our prior expectations.

Pen needles account for approximately 70% of the $75 million revenue guidance reduction or approximately $53 million. Given that pen needle market volume estimates can be somewhat imprecise, it is not possible to exactly calculate the individual contributions of competitive share loss and market volume softness on our product volumes.

Our estimate is that share loss accounts for nearly half of the pen needle revenue reduction or approximately $25 million, while overall market volume softness is estimated to account for approximately $20 million. The remaining pen needle headwinds we are seeing are related to inventory reductions at certain accounts and additional net pricing pressure, which together accounts for approximately $8 million of the revenue guidance reduction.

Turning to syringes. They account for approximately $13 million of the remaining $22 million revenue guidance reduction, most of which stems from lower syringe use associated with compounded drugs.

While our decision to discontinue our swab products accounts for approximately $5 million of the revenue guidance reduction. For context, in late 2025, our sole supplier of the active ingredient in our alcohol swabs exited the API manufacturing space.

Despite extensive efforts, we were unable to qualify an alternate supplier under applicable FDA standards. And while we remain committed to supporting our customers and patients through this transition, we recently made the decision to cease production of alcohol swaps. This product line had lower gross margins than our insulin injection devices.

Finally, a reduction in estimated growth of safety products accounts for the remaining amount of approximately $4 million. Our guidance assumes that share loss and softness in market volumes persist throughout the remainder of the year without any further deterioration or recovery.

Taken together, these are the drivers behind our performance in the second quarter as well as the full year revenue guidance revision. Considering the magnitude of the guidance reduction, we have initiated a review of our cost structure and organizational footprint. We will communicate findings and resulting actions as part of our standard quarterly reporting once that work has been completed.

Now let me briefly touch on our strategic priorities. First, we continue to advance our global brand transition program during the quarter. More than 75% of embecta revenue is now represented by products commercially launched and shipped under the embecta label, and we remain on track for substantial completion by the end of calendar year 2026.

Second, in terms of the development of market-appropriate pen needles and syringes, we continue to make meaningful progress during the quarter. These products are designed to compete in price-sensitive markets and may help mitigate share loss.

Market appropriate syringes have launched commercially in China, and we are monitoring customer feedback. We plan to expand availability of these products in additional geographies upon the receipt of regulatory approvals. Regarding new pen needles, we have active regulatory submissions under review by the U.S. FDA, Brazilian authorities, and BSI for CE Mark certification in Europe.

Third, portfolio expansion. During the quarter, we made meaningful progress on our GLP-1 B2B strategy, building directly on what we shared with you last quarter. At that time, we reported that we were collaborating with over 30 pharmaceutical partners with more than 1/3 having selected embecta as their preferred device supplier or having executed agreements in place.

Three months later, the pipeline has continued to develop and now approximately 40% of our identified partners are either in active contract negotiations or have executed agreements in place. We also note that our partners have received Canadian approval and the first U.S. FDA tentative approval for a generic semaglutide injection product.

Additionally, this quarter, we moved from pipeline to execution as several of our partners launched generic GLP-1 therapies co-packaged with embecta pen needles in India. That is a meaningful proof-point of our B2B value proposition and our commercial execution.

Furthermore, our small pack GLP-1 retail configuration launched in Canada and Australia. These products are designed specifically to meet the needs of the growing out-of-pocket GLP-1 user population, and we expect to extend availability of such configurations into the U.S. market in the coming months to serve those patients who need pen needles to administer Zepbound in a pen injector.

Regarding our fourth priority, financial flexibility, during the first 6 months of the year, we repaid approximately $75 million of outstanding principal of our Term Loan B. Disciplined deleveraging has been a consistent priority and this repayment of debt is consistent with our track record of applying free cash flow to strengthen the balance sheet and preserve strategic optionality. That financial discipline is what creates the capacity to pursue transactions like Owen Mumford.

When we announced this acquisition in March, we noted that Owen Mumford had earned a global reputation for innovation, quality and patient-centered design. The more time we spend with this team in this business, the more confident we are in that view.

At its core, this acquisition accelerates our transformation into a broad-based medical supplies company, one that serves both pharmaceutical partners seeking drug delivery platforms and chronic care patients across diabetes, obesity, autoimmune diseases, and the anaphylaxis markets.

More specifically, we are adding a differentiated drug delivery platform designed to support pharmaceutical companies seeking a device to deliver injectable drugs. In addition, we will expand our product portfolio beyond insulin injection devices and capitalize on our global presence, thereby diversifying our revenue base.

Finally, given the nature of the products being added to the portfolio, we expect to be able to leverage our core manufacturing strengths and optimize our manufacturing and distribution network, all of which is consistent with the strategy we presented at our 2025 Investor Day.

Next I'll provide a brief overview of the business we are acquiring. Owen Mumford is a privately held U.K.-based innovator with a 70-year track record of developing medical devices and drug delivery technologies.

OM brings a diversified portfolio of devices that serve chronic care and point-of-care testing markets, including self-injection systems, lancing devices and venous blood collection solutions. These are durable, clinically established franchises with long-standing customer relationships.

Their top 10 customers have maintained relationships averaging 20 years, which speaks to the stickiness of their platform and the quality of their execution. Like embecta, Owen Mumford also has a September 30 fiscal year-end. And during fiscal year 2025, they generated revenue of approximately GBP 69.4 million with approximately 80% of their revenue concentrated in the U.K. and the United States. Their business is split between medical devices, which represents approximately 60% of revenue, and pharmaceutical services, which represents the remaining 40%.

We view the pharmaceutical services business as the higher growth area of the 2, anchored by the Aidaptus auto-injector platform, which I will discuss next. Aidaptus is an award-winning next-generation auto-injector designed with a single form factor that accommodates both 1 ml and 2.25 ml fill volumes.

What that practically means is that Aidaptus has a single final assembly process and was designed from the start to address customers' needs for reduced manufacturing changeovers, simplified supply chain logistics and large-scale production.

We estimate the total addressable auto-injector market to be approximately $2.4 billion, growing at a double-digit CAGR. This is driven by the adoption of biologics, the emergence of generic GLP-1 therapies and the broad shift towards self-injection as a preferred modality across multiple chronic care categories.

Aidaptus is well positioned to capture a meaningful share of that growth as the platform is already supporting customer clinical development programs with a commercial contract pipeline that includes secured long-term agreements with several partners.

The strategic alignment with our existing GLP-1 B2B strategy is also worth highlighting as Aidaptus deepens our relevance to pharmaceutical partners who need a drug delivery device to go alongside their injectable therapy.

During fiscal year 2026, Aidaptus is expected to generate a small amount of revenue as market penetration and growth are expected in future years. To that point, the acquisition of Owen Mumford was structured as an upfront payment of GBP 100 million at closing and up to an additional GBP 50 million in performance-based payments based on the net sales of Aidaptus.

Regarding synergies, we have assumed a modest level of operational synergies in our financial model, reflecting opportunities to leverage embecta's manufacturing scale and infrastructure alongside Owen Mumford's capabilities.

And while we have not assumed any revenue synergies in our financial model, given that OM generates approximately 80% of their revenue in only 2 countries, we believe that the commercial opportunity of pairing Owen Mumford's portfolio with embecta's presence in over 100 countries could be significant.

That completes my prepared remarks at this time. And with that, let me turn the call over to Jake to take you through the financials in more detail. Jake?

Thank you, Dev, and good morning, everyone. Since Dev outlined the items impacting Q2 revenue, I will keep my comments brief. During the second quarter, embecta generated approximately $222 million in revenue, which is a year-over-year decline of 14.4% on an as-reported basis or 17.4% on an adjusted constant currency basis.

Within the U.S., revenue for the quarter totaled approximately $95 million, reflecting a year-over-year decline of 29.4% on an adjusted constant currency basis. The lower U.S. revenue is attributed to the factors that Dev described earlier.

Turning to our International business. Revenue for the quarter totaled approximately $126 million, representing an increase of 2.1% on a reported basis, but a decline of 4.1% on an adjusted constant currency basis.

Results within International were in line with our expectations as revenue within China was lower as compared to the prior year period, given ongoing market dynamics and the broader geopolitical and trade environment. These declines were partially offset by continued strength across Latin America, Asia, and Canada.

Meanwhile, from a product family perspective, during the quarter, adjusted constant currency pen needle revenue declined 20.4%, syringe revenue declined 14.6%, safety product revenue declined 2.3%, and contract manufacturing revenue declined 43.2%.

GAAP gross profit and margin for the second quarter of fiscal 2026 totaled $127.8 million and 57.6%, respectively. This compared to $164.1 million and 63.4% in the prior year period. While on an adjusted basis, our Q2 2026 adjusted gross profit and margin totaled $131.8 million and 59.4%. This compared to $165 million and 63.7% in the prior year period.

The year-over-year decline in adjusted gross profit and margin was primarily driven by the lower year-over-year revenue in the U.S. as well as lower year-over-year revenue in China. These headwinds were partially offset by net changes in profit and inventory adjustments and FX.

Turning to GAAP operating income and margin. During the second quarter of 2026, they were $35 million and 15.8%. This compared to $62.9 million and 24.3% in the prior year period. While on an adjusted basis, our Q2 2026 adjusted operating income and margin totaled $48.6 million and 21.9%. This compared to $81.4 million and 31.4% in the prior year period. The year-over-year decrease in adjusted operating income was driven by the decline in adjusted gross profit as operating expenses remained consistent with the prior year period.

Turning to the bottom line. During the second quarter of 2026, we generated a GAAP net loss of $4.1 million and a loss per diluted share of $0.07. This compared to GAAP net income of $23.5 million and earnings per diluted share of $0.40 in the prior year period.

While on an adjusted basis, during the second quarter of fiscal 2026, net income and earnings per share were $16.1 million and $0.27 as compared to $40.7 million and $0.70 in the prior year period.

The decrease in year-over-year adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers I just discussed as well as a higher year-over-year adjusted tax rate driven by the lower U.S. revenue in the quarter.

Turning to the balance sheet and cash flow. During the 6-month period ended March 31, 2026, we generated approximately $47 million in free cash flow, and we repaid $75 million of outstanding debt. While our last 12 months net leverage as defined under our credit facility agreement was approximately 3x. This compared to our covenant requirement, which requires us to stay below 4.75x.

That completes my prepared remarks on our second quarter 2026 results.

Next, I'd like to discuss our updated 2026 financial guidance and certain underlying assumptions. Beginning with revenue. On an as-reported basis, we are lowering our guidance from a range of between $1.071 billion and $1.093 billion to a range of between $1.015 billion and $1.035 billion.

This new range assumes an organic as-reported revenue range of between $985 million and $1.05 billion. It also assumes that we will close the acquisition of Owen Mumford by the end of this month, which would then generate 4 months of contribution or approximately $30 million.

In terms of adjusted operating margin, given the expected decline in U.S. revenue as compared to our prior projections, we are lowering our adjusted operating margin guidance from a range of between 29% and 30% to a new range of between 22.25% and 23.25%.

We are also lowering our adjusted earnings per share guidance from a range of between $2.80 and $3 to a new range of between $1.55 and $1.75. The largest driver of this reduction is the impact of the lower U.S. revenue and associated gross profit, which accounts for most of this change.

In addition to the U.S. revenue and gross profit impact, the addition of Owen Mumford, including the interest expense on the associated borrowings is expected to be dilutive by approximately $0.15.

Over the longer term, we continue to expect that the acquisition of Owen Mumford will contribute to revenue growth in fiscal year 2027 and beyond, that OM will be immaterial to embecta's fiscal year 2027 adjusted operating income and to be accretive thereafter, that OM will be dilutive to adjusted net income in fiscal year 2027 to be immaterial to embecta's fiscal year 2028 adjusted net income and to be accretive thereafter, and that the acquisition will generate high single-digit return on invested capital by year 4 with increasing contribution thereafter.

Lastly, because of the lower expected U.S. profitability, coupled with the addition of Owen Mumford, we now expect that our adjusted tax rate will increase from approximately 23% to approximately 28%, thereby reducing our adjusted EPS as compared to our prior expectations by approximately $0.10.

Turning to the balance sheet and cash flow. Despite the reduction in our revenue and profitability guidance ranges, we continue to target repaying approximately $150 million in debt during 2026.

Lastly, in terms of free cash flow and inclusive of the addition of Owen Mumford, we now expect to generate free cash flow of between $95 million and $105 million. This compares to our prior guidance range of between $180 million and $200 million. This updated guidance range includes approximately $40 million in one-time use of cash associated with brand transition and the Owen Mumford acquisition.

That completes my prepared remarks. And at this time, I would like to turn the call back to Dev to discuss our updated capital allocation framework. Dev?

Recently, our Board authorized a 3-year share repurchase program of up to $100 million and concurrently reduced our quarterly dividend from $0.15 per share to $0.01 a share. We believe that this change in our capital allocation will provide us with additional flexibility to deploy capital towards share repurchases or additional debt reduction, which are currently our primary focus areas. We expect to commence share repurchases beginning in the current quarter, subject to market conditions and our share price, amongst other factors.

That completes my prepared remarks, and I will now turn the call over to the operator for questions. Operator?

[Operator Instructions] Our first question comes from the line of Marie Thibault with BTIG.

I want to spend a little time better understanding the U.S. weakness this quarter and assumptions going forward. I think you said in your commentary that in the U.S. pen needle segment, the losses were concentrated at a single customer. I wanted to understand if that was the same customer as was referenced last quarter, where there were pricing concessions made and why, if so, the volumes weren't stabilized by that move?

And then secondly, you called out weakness in insulin pen prescriptions. Can you tell us a little bit more about what's driving that? Could that be short-lived? Or is that a long-term trend?

Let me start by taking the market question first on insulin pens and pen needles, and then go to the competitive loss question. So first on insulin pens, if we look at prescriptions for insulin pens, we have now begun to see a decline maybe more pronounced in the most recent quarter that we reported. That decline is actually greater in the retail channel than it is in other channels. And insulin pens are sold primarily in retail, but some in long-term care and very little in the specialty care channel.

So insulin pen is mostly stored and sold in retail, and there has been a decline. That decline is greater in long-acting than fast-acting. And it seems to be driven by a decline in new prescriptions. That obviously translates into the pen needle market as well, but maybe a bit exacerbated in the pen needle market because what we are also seeing is a decline in retail that maybe is a little bit faster for pen needles than there is for insulin pens.

Now some of this is likely being caused by shift in purchasing patterns from retail to perhaps lower cost channels or where pen needles are available at a lower price. We've also seen declines in accounts, as I referenced, where we believe we have a stable share position, so more indicative of market than anything else. And those are the market trends that we are seeing. Of all the variables that we try to account for in our guidance, this is perhaps the one where there is maybe more uncertainty because what we are observing is more of a recent shift than certainly what we've seen over the past several years. So that's about the market.

Now with respect to the competitive loss, yes, it was the same customer that we had referred to earlier. Obviously, I don't want to talk about pricing at any specific customer or even broadly in the U.S. market. But I think what we've ended up is the share loss at that customer is a little bit deeper than we anticipated.

But I want to point out a couple of factors that I referenced in my prepared remarks. So when there is a shift in share at a particular retailer, we believe that much of that share loss occurs with patients who are not on preferred plans with us. And so they can move to a different brand of pen needles and still use their insurance plan. And so when that happens, the revenue impact of that share loss is higher since if we are not on a preferred plan for that patient, obviously the rebate amount for that payer plan is less for us.

Secondly, while, yes, most of that competitive loss was concentrated at the aforementioned account, we are seeing some declines in smaller regional players as well as independent pharmacies. Now with these smaller regional players and independent pharmacies, the rebates that these retailers get are obviously less than our large customers. And so that has an impact on the revenue as well. And so the competitive share loss affects us maybe at a higher rate than one might imagine just by using an average unit price.

So those are the 2 factors that are impacting the U.S. results this quarter and drove the majority of the guidance revision for the year.

Okay. That's helpful. And just to clarify, could GLP-1s be an impact on the insulin prescriptions? Is that anything you're seeing in the field?

It's hard to definitively state what it is. But certainly, as we explored what the factors were that could be leading to market softness, right? The 2 factors that actually bubbled to sort of the top of the mind are, one, GLPs. And now you could ask sort of what's changed in GLP-1s and GLPs have been around. And we do wonder whether the increasing affordability of GLP-1 drugs certainly over the past several months could have played a factor in increasing penetration rate. Now if that were to be the case, what would result is obviously a larger number of patients sort of would try GLP-1s before they start insulin. And could that be having an effect? Certainly, that's possible, but it's hard to conclusively state that.

The second thing, obviously, that occurred in December of 2025, so the beginning of our fiscal second quarter, is the expiration of the ACA subsidies. And could that be having an impact on the insured population, particularly as it affects sort of insulin uptake and doctors' visit and getting sort of progressively treated for type 2 diabetes? Maybe. Those are the 2 factors that potentially have shown an inflection point at the beginning of the quarter, Marie, but it's hard at this point to conclusively state the contribution of those factors or whether there are others.

Yes. Lastly for me, and then I'll hop back in queue. I understand it's early right now. But as we think about embecta long term, beyond this fiscal year, do you envision that you can return to sales growth here from this level?

Yes, absolutely. That's certainly what our intention is, that's what our target is, and that's what we believe the Owen Mumford acquisition will position us for, right?

So let me zoom back a little bit. Almost 1.5 years ago, we announced the termination of the patch program. And then at the Analyst Day a year ago, we sort of conveyed our strategic intent to diversify into being a broad-based medical supplies company and really get further into chronic care drug delivery and build out our B2B segment.

Prior to the acquisition of Owen Mumford, we started some initiatives. We wanted to expand our portfolio of syringes and pen needles, and you heard today about the advances that we've made over there. And we laid out a plan to really go deeper into the B2B segment and establish relationships with generic drug companies wanting to enter the generic GLP-1 market.

And we, at that point, pointed out that that was a $100 million opportunity for us. Everything that we've seen since then, I think, further validates that $100 million opportunity, including the launch of generic GLP-1 therapies in India that actually have our pen needles co-packaged with them. Obviously, we noted with excitement, Canadian approvals. We still expect Brazil and China to launch generic GLP-1s as well. Obviously, timing is a little bit uncertain. China might actually end up being in 2027 rather than 2026. But certainly, the advances that we are making over there do position us to get back to revenue growth.

And then on top of that, if you add the Owen Mumford acquisition, it really diversifies our product portfolio into chronic care, broad-based medical supplies. Their medical devices business is really concentrated in a few countries. And while we haven't assumed any revenue synergies in our model, certainly we are excited about the prospect of taking that bag of products and putting it into the hands of our commercial people all over the world.

And then the auto-injector platform that I talked about Aidaptus, we believe that that is certainly a product that's differentiated. It allows for reducing supply chain complexity and manufacturing changeovers, which we believe pharmaceutical partners will accept.

And over time, by the way, it has a list of secured customers, a pipeline that's developing, and it fits in very nicely with what has been our focus, which is establishing smaller -- deeper relationships with pharmaceutical companies that are looking for drug delivery options. I think you take that and you combine it with our efforts on developing a pen injector, certainly will leverage Owen Mumford's expertise since they have right now a reusable pen injector in their portfolio.

And over time, we see ourselves as being a company that can provide an auto-injector, a pen injector and pen needles as a suite of products that will be available to pharmaceutical companies. And I think all of these initiatives absolutely are designed and with the intent of really returning us to revenue growth.

One final point I want to mention, sorry Marie, is talking about Aidaptus. I mean, we certainly believe that that could be a $100 million product line for us.

Our next question comes from the line of Anthony Petrone with Mizuho Financial Group.

So maybe on the pen needle contract, obviously a competitive loss there. But just wondering the length of the contract in terms of the loss there and when maybe it comes up for renewal, do you think looking ahead, whenever there is another request for proposal there, an RFP that you can look at that contract and be more competitive on the next go around. And then I'll have a couple of follow-ups.

Yes. Anthony, on that, maybe it's worth clarifying. It's not like we've lost all the share. It's just our share position is reduced versus what it was. So it's not like we are out of that customer entirely.

Now with respect to when we can get back, look, I mean, we have action plans right now underway to not only stem competitive losses, but also figure out ways to get back and win that share. So I don't want to sort of forecast exactly when that will happen, but I do want to convey that we are not going to be standing still waiting for contract renewals or what have you since it's not like we are completely out of those accounts. I think our share position has been reduced in those accounts, and we are certainly going to work as hard as possible to bring our share position back up.

That's helpful. I don't know, is there any timing you can put around those efforts? Is that a multiyear effort? Or is it something that you can see in a range of a 12- to 15-month time frame? Or is it, again, longer term?

Yes. Look, I don't expect it to be a multiyear effort, honestly. So again, I don't want to put a specific time frame on it, obviously, for competitive and other reasons, but maybe I'll leave it at that. I don't expect it to be a multiyear effort, no.

No, all good. And then just when you think about the pressure, you kind of highlighted almost 3 areas here. There's lower-cost providers coming in. There's the GLP-1 question that Marie asked. And then just legacy, there was this pressure moving away from multiple daily injections to patch pumps as well as automated insulin delivery devices.

When you think of those 3 buckets, it seems like the lower cost strategy kind of won the day here. But if you had to bucket those 3 headwinds, how would you kind of weight, if you had to put a weighted average on those 3 competitive headwinds in the pen needle business, how would you weight those?

And then just a real quick one here would be, you had a trade receivables factoring agreement where there were receivables sold, I think, to Becton. It was roughly like $64 million. Just given the impacts in the business here, I want to make sure that that trade receivable agreement is intact.

Yes. I'll let Jake take the trade receivable agreement. But with respect to sort of putting a weight on each of the factors, maybe there are 3 different things, I think, factors that affect the market in 3 different ways, right? The increasing affordability of GLP-1 drugs potentially affects insulin pen prescriptions. And we have seen insulin pen prescriptions trend downwards most recently. Could that be because of the increasing affordability of GLP-1 drugs? Maybe so. And what we've seen over there is the long-acting insulin, which is what you would expect the GLP-1 effect to be concentrated on, is decreasing faster than long-acting insulin.

With respect to movement towards maybe lower-priced products, what it is is really maybe more a shifting of where patients are buying pen needles. So instead of the traditional retail channel and maybe they are going to retail, but maybe more patients buying sort of cash pay products or over-the-counter products or in channels where lower-priced products are available, that affects the pen needle market.

And then thirdly, you asked about pump adoption. The way sort of we think about that is we look at fast-acting, right, so mealtime insulin prescription trends. And yes, while there has been a decline in fast-acting insulin, really what's driving, I believe, the total prescription decline has been the decline in long-acting.

So really, pump adoption is something that, as you know, this business has been dealing with for a number of years. It's hard at this point to look at the data and say that that is the primary factor, Anthony. So I would say it's more towards a shift towards lower-priced products and potentially the 2 other factors I outlined earlier in my question -- in my answer to Marie, is that the increasing affordability of GLP-1 drugs. Could the impact of the ACA subsidies have had some impact on the overall market volume as well? Potentially. But it's going to take months, maybe a couple of quarters to really get the data.

And then, Anthony, on the receivables factoring program, this is a standard AR factoring program that we have actually with a third-party bank. So very common in the industry to have something like this. It doesn't have anything to do with Becton, Dickinson in any way. It was something, I think, that we put into effect around a year or so ago. We continue to factor receivables under normal due course, and we would continue to expect to do so in the future. So none of that has necessarily really changed by this.

And in terms of liquidity and whatnot, we continue to expect good free cash flow, continue to expect to repay $150 million in debt during the course of this year, which was our original guidance assumption coming into the year. And obviously that's despite the revenue call down in the U.S. today.

[Operator Instructions] Our next question comes from the line of Ryan Schiller with Wolfe Research.

I was hoping we could look out further to next fiscal year. Understanding there is no formal guidance in place, but maybe how are you thinking about the FY '27 revenue growth given all the pressure in the U.S.?

Yes, Ryan, I think it's too early to comment on that. As you heard me say, right, some of the trends that we are observing now in the most recent quarter are all sort of early. So really, our plan right now is to focus on executing on 2026, closing the impending Owen Mumford acquisition, getting those products in our bag, advancing the pipeline, both on our B2B products for pen needles as well as the auto-injector platform. And really, then we'll talk about 2027. It's far too early at this point for me to comment on 2027.

Okay. And then OUS finished in line with your expectations in the quarter. I'm hoping you can give us the latest on what you're seeing in China and any updated growth outlook there?

Yes, very pleased with our International performance, certainly performing per expectations. With regard to China, just as a reminder, obviously we don't disclose China separately, but we think about Greater China, which includes Mainland China, Taiwan, and Hong Kong. And over there, we sell the product to 3 or 4 national distributors that then go on to sell to sub distributors.

Certainly, last year, fiscal 2025, there were significant declines and we took a bunch of steps to stabilize the situation. We are seeing early signs of sequential stability. We really reordered our sales team, that had a more price competitive pen needle that we launched over there. We will see likely some headwinds this year, but certainly it's going to be significantly less than what we saw last year.

And look, over the long term, our view on China hasn't changed, right? The market is growing there in mid-single digits. We have a strong commercial and manufacturing infrastructure over there. The new pen needle that I referenced where we've already submitted for regulatory approvals, that is being developed and manufactured over there.

And finally, I also mentioned in the GLP-1 generic space that there are Chinese companies that want to get into the generic GLP-1 market as well. And obviously, we want to partner with them. So for all those reasons, we continue to remain optimistic on how China will end up. Now obviously cognizant of the fact that China -- the geopolitical considerations when it comes to China can impact in the short term, but we still remain optimistic in our long-term view on China.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Dev for closing remarks.

As we close the call, I just want to thank my colleagues across embecta for their continued focus and commitment. This was a difficult quarter. But I do want to be clear, we are not standing still and actions are already underway to address the issues we face.

The steps that we are taking, closing the Owen Mumford transaction, reshaping our capital allocation and executing on our strategic priorities, are purposeful steps to build a stronger, more flexible company for the long term and are aligned with our strategic road map. Thank you for joining us today and for your continued interest in embecta.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Welcome, ladies and gentlemen, to the Embecta Corp.'s Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions]. 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 Dev 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 2 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, Dev 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 road map we outlined at our Investor Day last year.

As a reminder, that road map 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 standup 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. And I am pleased to say that we were able to complete the standup phase and all the associated complex initiatives while keeping our constant currency revenues stable.

With that work behind us, we are now firmly in the seed growth phase, and this is where the company's focus is now. This phase's goals focused 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 an independent company in the minds of patients, health care professionals and channel partners. We have taken a disciplined phased approach. As of today, more than 95% of U.S. and Canadian revenue has transitioned to the Embecta brand. With North America largely complete, we have been executing the next phase globally. Transitions are underway in select international markets, and we expect most regions to be substantially complete by the end of calendar year 2026.

We continue to demonstrate a strong commitment to ensuring broad and preferred access to our products for patients, particularly within the Medicare Part D channel, which remains an important and growing segment of the payer market serving senior citizens who represent a high percentage of people living with diabetes.

Effective January 2026, we contracted with an additional Medicare Part D payer for exclusive access to our products. In addition, we renewed our advantage formulary access with the top 3 Medicare Part D payers that we had existing relationships with. Collectively, these actions further strengthen our business, supporting stable access and share and enhancing the long-term competitiveness of our portfolio.

Another key area of focus in the seed growth phase is portfolio expansion through market-appropriate pen needles and syringes. Our approach here is intentional. We are leveraging what we already do well to address segments and geographies where there is meaningful demand but where our share today remains relatively low.

Since fiscal year 2025, we have moved from concept to execution. Product designs for these market appropriate offerings have been finalized. Production equipment has been installed and manufacturing validation is now underway. With this foundation in place, we are progressing towards expected regulatory submissions and eventually commercial launches supported by go-to-market strategies, informed by more than a century of experience in insulin delivery.

We have also continued to advance our GLP-1 strategy, which we view as an extension of our core capabilities rather than a departure from them. Today, we are collaborating with more than 30 pharmaceutical partners across various stages of the sales cycle, primarily focused on co-packaging our pen needles with generic GLP-1 therapies.

More than 1/3 of these partners have already selected us as a supplier and have either executed contracts or are in contract negotiations, reflecting tangible progress beyond early stage discussions. Several partners have signed agreements and place purchase orders and our pen needles are included in multiple partner-managed regulatory submissions. While we do not control the timing of regulatory approvals or launches we remain operationally ready to support our partners as programs advance.

Looking ahead, our partners are anticipating initial generic GLP-1 launches in markets such as Canada, Brazil China and India beginning in calendar year 2026, with additional emerging markets expected to follow over time. This expectation is consistent with recent public news reports indicating that regulatory approvals for generic injectable semaglutide have been granted to some companies in India with multiple manufacturers preparing for commercial launches following patent expirations in March 2026.

In parallel, we are expanding the availability of consumer-friendly Embecta-branded small pack configurations in Canada and select European markets. These formats are designed for out-of-pocket customers, including many GLP-1 users and allow us to participate in the category using existing manufacturing and commercial infrastructure.

Recently, there has been significant amount of news related to development and launch of oral GLP-1 therapies. It should be noted that the launch of oral GLP-1 was expected and explicitly included in our assumptions underlying the estimated $100 million plus opportunity we had discussed at our Analyst and Investor Day in May 2025.

While it is early in the adoption of oral GLP-1s, we continue to believe in the opportunity as previously outlined. Importantly, we expect to support this incremental volume within our existing manufacturing footprint and without significant incremental capital investment. We also expect this to support attractive margin flow-through over time.

Beyond generics, we are also engaged in early stage discussions with several branded pharmaceutical companies around co-packaging opportunities for drugs in development. While these discussions are in early stages, they represent potential upside beyond the opportunity we shared at Investor Day last May.

Finally, we remain focused on increasing financial flexibility. Following the significant deleveraging achieved through fiscal year 2025, we continue to focus on free cash flow generation and disciplined capital allocation to create strategic optionality as we progress through the seed growth phase.

In summary, while fiscal year 2025 marked the completion of our standup phase, Embecta today is focused on execution, portfolio expansion and positioning the company for durable long-term growth.

With that context, let me now review our revenue performance for the first quarter. During the first quarter of fiscal year 2026, Embecta generated approximately $261 million in revenue, reflecting a 0.3% decline year-over-year on an as-reported basis or a 2% decline on an adjusted constant currency basis. These results were largely in line with our expectations, driven by performance within our international business.

Within the U.S., revenue for the quarter totaled approximately $131 million reflecting a year-over-year decline of 7.6% on an adjusted constant currency basis. The decline was driven by a combination of lower pricing as well as lower volumes reflecting channel dynamics. This was somewhat offset by order timing.

Turning to our international business. Revenue for the first quarter totaled approximately $130 million representing an increase of 8.4% on a reported basis and an increase of 4.6% on an adjusted constant currency basis. This performance was driven by strength across EMEA and Latin America. And while China remained a headwind in the quarter, the results there were largely in line with our expectations.

As we have discussed previously, we continue to expect the recovery in China to be more fiscal second half weighted given ongoing market dynamics and the broader geopolitical and trade environment. Meanwhile, from a product family perspective, during the quarter, adjusted constant currency pen needle revenue declined approximately 4.4%, syringe revenue grew by approximately 5.3% and Safety product revenue grew approximately 7.3%, and contract manufacturing revenue declined approximately 16.7%.

The year-over-year decline in pen needle revenue was primarily driven by the same factors that impacted our U.S. and China results. This was partially offset by growth within EMEA and Latin America.

Turning to our syringe products. Revenue increased year-over-year, driven by improved performance within Latin America, EMEA and Asia, which more than offset the ongoing declines in the U.S. As we have previously discussed, U.S. syringe revenues continue to be impacted by long-term shifts in diabetes treatment towards insulin pens, and this trend remains consistent with our expectations.

Moving to our safety products. They delivered solid growth in the quarter, driven by gains within the U.S. and EMEA. Finally, the contract manufacturing revenue that we generate through the manufacturing and sales of nondiabetes products back to Becton, Dickinson declined, as expected, due to the continued in-sourcing of these products by BD. And before I turn the call over to Jake, I'd like to briefly touch upon our financial guidance for the year.

Today, we reaffirmed our previously provided financial guidance ranges. However, we now expect to be closer to the lower end of those guidance ranges driven by incremental U.S. pricing headwinds. Somewhat offsetting this incremental pressure within the U.S. is an improved outlook for our international business.

With that, let me turn the call over to Jake.

Thank you, Dev, and 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 the first quarter of fiscal 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 the first quarter of 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 the first quarter of fiscal 2026 as compared to 0 in the prior year period.

While on an adjusted basis, during the first quarter of fiscal 2026, net income and earnings per share were $42.3 million and $0.71 as compared to $38.3 million and $0.65 in the prior year period. The increase in year-over-year adjusted net income and diluted earnings per share is primarily due to a reduction in interest expense as well as a lower year-over-year adjusted tax rate driven by tax planning activities. This was partially offset by the adjusted operating profit drivers I just discussed.

Turning to the balance sheet and cash flow. During the first quarter of 2026, we generated approximately $17 million in free cash flow. Additionally, we repaid approximately $38 million of outstanding debt and further reduced our last 12 months net leverage level to approximately 2.8x as defined under our credit facility agreement compared to our covenant requirement of below 4.75x.

That completes my prepared remarks on our first quarter 2026 results. Next, I would like to discuss our 2026 financial guidance and certain underlying assumptions.

Beginning with revenue. On an adjusted constant currency basis, we are reaffirming our previously provided guidance range, which called for revenue to be flat to down 2% as compared to 2025 levels.

Turning to our thoughts on FX. We are reaffirming our previously provided guidance, which called for foreign currency to be a tailwind of approximately 1.2% during 2026. Likewise, we are reaffirming our previously provided guidance associated with the Italian payback measure of an estimated 0.1% year-over-year headwind.

On a combined basis, our as-reported revenue guidance continues to call for a range of between negative 0.9% to positive 1.1%, resulting in a revenue guide of between $1.71 billion and $1.93 billion. As Dev previously mentioned, we currently expect that we'll be closer to the lower end of that range.

Turning to adjusted operating margin and adjusted diluted earnings per share. We are also reaffirming those previously provided guidance ranges of between 29% and 30% for adjusted operating margin and for between $2.80 and $3 in terms of adjusted EPS. Like my comments regarding our expectations concerning revenue, we currently expect to be closer to the lower end of those ranges because of the incremental headwinds we are now anticipating within the U.S. during the first half of the year.

Turning to the balance sheet and cash flow. We continue to expect that during 2026, we will repay approximately $150 million in debt and that we will generate between $180 million and $200 million in free cash flow, although closer to the low end of that range. And finally, before I turn the call over to the operator, I'd like to highlight some considerations regarding the cadence of quarterly revenue expectations during 2026. Moving forward, we may not provide any further commentary concerning the quarterly cadence of revenue on an ongoing basis.

During fiscal year 2025, we generated approximately 48% of our adjusted revenue dollars during the first half of the year. and approximately 52% of our adjusted revenue dollars during the second half of the year.

During fiscal year 2026, we previously expected a similar cadence of revenue performance. Currently, we expect to generate approximately 46% of our adjusted revenue dollars during the first half of the year and approximately 54% of our adjusted revenue dollars during the second half of the year. As compared to our initial expectations, the lower expected revenue in the first half is driven by customer mix, competitive intensity and channel dynamics within our U.S. business. Meanwhile, we now expect the second half of the year to be better than previously expected due to a continuation of the strength of performance internationally.

That completes my prepared remarks. And at this time, I would like to turn the call over to the operator for questions. Operator?

[Operator Instructions]. And our first question comes from Marie Thibault with BTIG.

This is Sam on for Marie. Maybe I can start on the quarter and maybe more of a deeper dive in terms some of the dynamics we saw, whether it was distributor ordering, maybe what you're seeing in that U.S. 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?

Good to speak with you this morning. So on U.S. we saw a year-over-year decline, excluding CMA of about 7.4% and it was really driven by 2 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 driven -- what was driving the U.S. results.

On China, as you remember, China last year was a significant step down for us in '25 versus '24 as we navigated the broader trade environment and geopolitical dynamics. And we put some initiatives in place in that business, including reorganizing our sales force, introducing a new pen needle over there that can go head-to-head with some of the local branded companies and those initiatives that 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. Jake, anything you'd like to add?

Yes, 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%. And 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 U.S. Volume strength in EMEA in Latin America really actually exceeded our internal expectations.

To Dev'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 a 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.

Yes. Yes. Very helpful. Appreciate the details, guys. Maybe just a quick follow-up. Dev, 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 what gives you or why injectables still have in place in this broader market with new orals now in place.

Absolutely, Sam. We remain super excited about the GLP-1 opportunity. Clearly, we've been following the developments 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.

You know, based on the data we have, injectables have better weight loss profiles. And 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 therapies for people who want to get off injectables, it appears, again, that based on the early read on prescriptions for the oral so far, that most of the patients who are using orals are new to the therapy. So 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, certainly, we look at their pipelines and most of the drugs that are in development, their pipelines themselves are all injectable drugs. And look, more recently, there has been some more incremental sort of positive traction for us in the GLP-1 opportunity. We read with interest that Zepbound in the U.S. which was an auto-injector has gotten approval for a quick pen. Obviously, if that drug gets delivered via pen, patients are going to need pen needles. We have a strong position in the U.S. 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.

And our next question comes from Travis Steed with Bank of America Securities.

This is Gracia on for Travis. I wanted to follow up maybe on the strength in the international market this quarter. You called out EMEA and Latin America. Just kind of want to see specifically any more color on what improved versus the outlook 3 months ago and gives you the confidence and visibility there that strength continued throughout the rest of the year.

Yes. Look, in 2 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 1 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 end of the guide in regards to that now in 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 contract 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.

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 U.S. market for the full year, and in terms of international and improved outlook internationally as compared to the original guide. So I think volumes remaining stable now as compared to, say, previously at the midpoint, 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 U.S. 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.

[Operator Instructions]. Our next question comes from Ryan Schiller with Wolfe Research.

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.

Yes. Ryan, first off, it's the pen injector project that we have started. Look, we are in the early phases. I strongly believe we have the R&D capabilities, the manufacturing capabilities, certainly develop the product. And given the relationships we've established now with 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.

And then just one more for me on the GLP-1 opportunity. So you sized this as $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?

Yes. 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 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 that 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 assume that the delivery format that was in place then would remain sort of static. Particularly in the U.S., Mounjaro and Zepbound pens would continue to be available only in auto-injector all through this period. But as I noted earlier, we read with interest that Lilly does have FDA approval. For their quick pen 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 the estimate as well. So all these reasons give us confidence that the $100 million plus opportunity is still real. And over the past 9 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 India couple of companies have already gotten approval and have talked publicly about launching generic semaglutide in 2026. Canada, 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 teams.

Thank you. This concludes our question-and-answer session. I'd like to turn the call back over to Dev 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 meta.

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

Hi, everyone. My name is Caroline Borowski, and I'm a Vice President here at the JPMorgan Healthcare Investment Bank. It is my pleasure to introduce the CEO of Embecta, Dev Kurdikar.

Thank you, Caroline. It's a pleasure to be here. As Caroline said, I am the President and CEO of Embecta. And I'm pleased to be joined here today by Jake Elguicze, our Chief Financial Officer. We have Ginny Blocki, our Head of Strategy; and Pravesh Khandelwal, our Head of Investor Relations.

So in the next 20 minutes or so, what I thought we would do is go through three things. First is talk a little bit about where we are, where we've come from, where we're going. Spend some time talking about the core foundation of our business, particularly talking about its durability, its resilience, its cash flow generation capabilities. And then I wanted to give you an update on some strategic initiatives that we began to pursue last year. That's our FLS language.

This page tries to capture in one slide what Embecta is and it's a diabetes injection supplies leader. It's a stable, profitable business with a global presence. We are, by far, the #1 producer of injection supplies. About 30 million people around the world, we estimate, use our product at least once a year. We make 8 billion units in three facilities, and those 8 billion units go from those three facilities into over 100 countries, where 500 of our commercially focused employees work to get those products into the hands of patients working with our channel partners.

We did about $1.1 billion in revenue last fiscal year. Highly profitable, as I said, 38% adjusted EBITDA margin, it's $415 million in adjusted EBITDA and $180 million plus in free cash. And we've been in this business for over 100 years. I mean, just on the data point around the durability of this business.

The products that we make are best-in-class. You will see on this page the product categories that we supply to patients, pen needles, #1 globally, safety pen needles and safety insulin syringes, #1 globally and in insulin synergies, #1 globally, and you see those share positions over there.

You also see some key channels and geographies. And essentially, around the world, we are in -- we have a go-to-market that's really tailored to that country. So retail pharmacy hospital in some countries. And then we also have tender markets in some emerging markets.

What is perhaps not directly visible on this page is these products are medically necessary. The chronic use. They're not elective in nature. And what underpins our leadership in these product categories is the fact that we are able to manufacture the volume we talked about with high quality, these are reliable products and in spite of what has happened around the world, particularly over the last 5 years, we've been able to keep customer's shelves stocked. This is a really important demonstration of our reliability that customers really value.

Those plants that I mentioned. We do have a world-class manufacturing infrastructure. We have three plants, one in Ireland, one in China, one in Holdrege where we manufacture these products at scale. We have great expertise in high volume injection molding of plastics. I mean we literally start with plastic pellets and make medical devices. We have great expertise in automated assembly because you can imagine to make billions and billions of units, you need automated assembly. And finally, we take those products and put them in retail packaging. We have hundreds of SKUs all over the world. And so we are expert at high-speed packaging as well.

Given that we've been doing this for decades, our ops team has really developed deep expertise in processing of plastics. And the reason I want to bring this up is it's important not only because it really bolsters our leadership position in these devices, but this is a capability that can be extended into other medical devices. Because in addition to the equipment and operations processing, these are medical devices. So they are all being manufactured and distributed under a quality system that has been inspected dozens of times by external regulatory bodies. We are very, very proud of this.

I also mentioned that we have a very stable recurring revenue base. And you will see on this page, our revenue by product family and total going back through fiscal 2020. The first thing I want to point out is, over this period, there were a lot of external dynamics. Obviously, there was the COVID 2019 pandemic. But then this was also a period where there has been adoption of pumps, particularly in the U.S. the rapid growth in GLP-1 therapies.

But in spite of that, you see the stability in our product portfolio. In fact, if you look at the pen needles, our pen needles have stayed stable throughout. If you look at the safety products portfolio, that's grown at almost 5% adjusted constant CAGR over that time. Syringe has come down by approximately 5%. But that syringe decline is concentrated in the U.S. where there has been a steady decline in the use of insulin vials and obviously, as insulin vials are declining, the need for insulin syringes is declining. That's been a long-standing trend.

And the reason vials are declining, is really pens are more easier to use than vials for patients. So there has been a transition from vials to pen. Certainly, during COVID, it disproportionately affected seniors, so patient mortality, we think had an impact as well. And certainly, as new patients are getting diagnosed and they've been trained on injecting insulin. They are being used -- they're being trained to use pens.

Approximately 85% of our portfolio is pen needles and safety pen needles. And that is continuing to grow and sort of that's the takeaway here. Yes, stability in spite of external dynamics, and stability in spite of syringe decline being offset by pen needles and the safety product portfolio.

We became an independent company about 4 years ago, even though we've been in business as an operating business for almost 100 years, more than 100 years. So the first phase was honestly just standing up the company. At spin, essentially, what we got were commercial people and the people in the plants, but everything else had to be set up corporate functions, HR, IT. But a lot of work and effort went into setting up our own ERP to support business in over 100 countries, our own distribution network to take those products from three plants and get them into 100 countries and all the shared services facilities. And that work is now complete, it's all done, it took a long time, it consumed hundreds of millions of dollars of cash, but it's all behind us. All TSAs and LSAs that we had have been exited.

And so now we are in a very exciting phase for the company because what we are doing is pursuing initiatives that can transform this company and this phase was really marked with a big strategic shift about 14 months ago. That time, we had just actually gotten approval for an insulin infusion pump, but we terminated that program, as you know, it's a capital allocation decision. And then last year, we said the capabilities of our company are better positioned for and can be better used for transitioning ourselves into a broad-based medical supplies company. And that is sort of the stated direction that we said last year.

And so now in this phase, what we are doing is, obviously, we want to continue to maintain our global leadership in our core products, but we want to expand our product portfolio. And to expand our product portfolio, we want to do it organically, and I'll talk about that.

But we also want to create the flexibility to be able to do M&A. But we recognize to do that, we have to bring our net leverage down. And so we put a focus on increasing our financial flexibility. And over time, our goal still remains to transform ourselves into a broader-based medical supplies company.

The three priorities that we have in this phase are obviously strengthening our core business, and part of this is refreshing our brand. The brand transition work which I'll talk about in a minute here, is well underway. We are seeking growth opportunities across market. We want to expand our product portfolio, leveraging the strengths that we have. And then we want to continue to increase our financial flexibility, and I'm going through some specific examples on each one of these in the following slides.

Brand transition. So first thing I want to say is what this is not. It is not a change to the product. It is not a change to the product name. What it is, is refreshing the packaging and you will see some examples in the bottom half of the page, and it's replacing the BD name with the Embecta name. This is truly an opportunity for us to engage with our customers, patients, health care providers, channel partners to emphasize the 100-year history that we have and refresh the packaging at the same time.

This is something that we actually started planning several years ago through significant market research to make sure that we understood what we needed to do to go through this brand transition without causing any significant disruption. And so that requires, obviously, as we go through this for hundreds of SKUs, aligning manufacturing, supply chain, customer communications, getting regulatory approvals as needed before we can actually start changing the delivery of our products in a different packaging. We've done that already in U.S. and Canada. And that's approximately -- U.S. and Canada is approximately 60% of our revenue and 95% of that is already converted to the Embecta brand.

We have started this process in other markets outside of U.S. and Canada, and that work is underway. And you see a time line here, which essentially shows that in calendar year 2026, we intend to be materially done with brand transition in key markets. And so that's an exciting step towards, as I said, refreshing our brand.

We had said about 7, 8 months ago that we wanted to develop market-appropriate pen needles and syringes. Look, we understand that the products that we went through, they are full-featured products. In most markets around the world, we command a premium for these products. But there are markets that need more affordable products, still want reliability and quality, but they are not necessarily looking for the full set of features our products have. And so we are designing products to meet those local market needs.

On the right-hand side of this page, you will see where the market opportunity lies. You have syringes, left bar, 1.2 billion units or more, pen needles, 1.5 billion units or so. And you see the regions where we think that there is an addressable market that we can go after.

Now a lot has been accomplished on the development of both these projects. We've completed the product design. So we know what we want to build. We've expect the manufacturing equipment. We've ordered it, we've received it, and it's been installed. What is now happening is that we are going through the validation or manufacturing validation. And this is a process where, obviously, you're confirming process controls you're confirming that the products that are going to be manufactured for commercial sale on these lines are going to meet regulatory requirements and are going to meet our own internal product requirements.

So we're very excited about the progress that's been done here. We expect to launch near to midterm in markets that are shown here where our share is less than 5%. That's an important thing to note as well because what we are going after here is incremental volume. But we want to sell this with Embecta's brand so that patients that will use this product can still expect the same level of quality that our brand symbolizes around the world.

We've also talked about GLP-1 opportunities that could drive more than $100 million in revenue by 2033. And I want to talk a little bit more about this. But let me start by just sort of framing what GLP-1 does for our business, right? Diabetes is a progressive disease. The beta sales continue to degrade over time. And we believe that GLP-1s are most effective when there is actually insulin present in the human body. GLP-1s are delivered to patients in vials, which need syringes, pen injectors, which need pen needles and auto-injectors and auto-injectors, we don't play in.

The generic GLP that most generic drug companies are after is obviously a generic version of Ozempic. Ozempic is delivered in a pen co-packaged with pen needles. And so what generic drug companies that want to enter the generic GLP market want to do is they want to replicate the packaging of Ozempic. And that's where we come in as a supplier of pen needles.

Now they follow a very structured cycle. You'll see that on the top part of the page. The way our discussions progress is, obviously, they reach out to us. We are well known all around the world. I'll reach out to our local team members around the world. You start having some discussions, you sign an NDA, you start exchanging documents around product specs and on quality, around some manufacturing processes. Sometimes they'll order some pen needles and actually do their own testing and then they'll select a vendor. And once they select a vendor or a supplier, then we start contract negotiations and then execute the contract. I'm happy to say of the 30-plus potential partners that are in various stages of the cycle, more than 1/3 of them have already selected us as a supplier, and they are in the contract negotiation stage or they have signed contracts. Some of them have actually placed purchase orders with us. We shipped some product last year. We know we are in multiple regulatory submissions. And all of this gives us confidence that the generic GLP-1 opportunity is real. And based on what we hear from them as well as, obviously, what's reported in the press, we anticipate that Brazil, Canada, China and India, may see generic GLP-1 launches in calendar year 2026. And obviously, emerging markets will come after that U.S. and Europe in the 2031, 2032 time frame.

Now in addition to the generic GLP-1 opportunity, there is obviously branded GLP-1s that are delivered in pens, but don't co-packaged with pen needles. And as the availability of that has expanded we've made small packs available. And together, that's a $100 million-plus opportunity for us.

In addition, what is very exciting and is a recent development is that we have now been in discussions with branded pharmaceutical companies who are looking at pen injectors as a delivery form for some of the drugs in development and are looking for pen needle suppliers as well. Different ball game, right? These drugs are in development. They've got to go through clinical trials and they got to pass. In addition to the fact that this is a $100 million plus opportunity, what this is really building out for us and strategically, why this is so important, is that it's setting us up with a channel to be a B2B partner to pharma companies for drug delivery products. And this ties into what we said we want it to be. We didn't want to be just an injection delivery company. We wanted to be a drug delivery company. Obviously, we can leverage our own manufacturing and channel capabilities for growth. I've already talked about manufacturing capabilities.

But we have a very unique channel right? We can get products into the hands of patients and consumers around the world. And our patients, people with diabetes are essentially managing chronic diseases at home. So it sort of strategically also fits in with what we are trying to do: chronic care drug delivery.

The products, obviously, that are most suitable for us are high volume, plastic base, low ASP, medically necessary and require a quality system that allows patients to have confidence in the products. Let me talk about a couple of initiatives from a margin standpoint. We make about 80% of our revenue in 7 markets, and you see them listed here. And so the other 20% comes from this long tail. And this sort of tail existed because obviously, when we were part of BD, they had larger presence in all of these markets. And so we were one of the product families that got sold along with other BD products. As we were going through stand up, we wanted to maintain status quo. We just wanted to sort of clone and go.

But now that I said we are operationally independent, I think it behooves us to say, does this kind of profile makes sense? Is this an opportunity to just exit certain markets? Or will we change our go to market, use one master distributor that can then sub-distribute the products. But also given that we are getting close to launching the new pen needle new syringes to ask ourselves, can we improve our revenue and our margin position in some of these markets with those new products rather than continuing to sell our premium products.

And so obviously, this is an analysis that we want to go through. We want to go through it thoughtfully. We don't want to just rush into it. But we think that changes in here can improve our margin profile. The pointy end of our products is the cannula. It's the single largest category of raw material spend. We get all our cannulas sources from BD. It was a 10-year agreement at spin, so goes until 2032. There is a process where we can ramp down, there is ample capacity. A previous parent -- I totally believe is the single largest cannula manufacturer in the world and great quality of product.

But at the same time, as an independent company, I think it again behooves us to say, do you want to continue to be sole sourced? Is it a risk mitigation move to think about alternate suppliers? Secondly, could you improve the economics of this because this is the single largest category of raw material spend by looking at alternative suppliers. So that work is well underway as well. It started a couple of years ago. We have time. The current contract goes until 2032. But we think, over time, reducing risk, supply risk as well as introducing an alternative supplier to potentially improve economics are both sensible things to do for us as a business.

Let me talk about our capital allocation priorities. First is debt paydown. At spin, we had $1.65 billion in gross debt. Last year, with our change in strategy termination of the patch pump we said, "Look, we need to bring our net leverage down." And we made significant strides last year. We paid down almost $185 million of debt during fiscal 2025. Our net leverage, which was almost 4x at the beginning of fiscal 2025 became under 3x at the end of fiscal 2025.

We pay a dividend, right? So there is a return of capital to shareholders. But what we want to do here by bringing our net leverage down is increase our own capacity to do opportunistic M&A. Because remember, I said one of the things we need to do is expand our product portfolio. I talked about organically how we can do it. But certainly, adding products through inorganic means will accelerate the process and accelerate our transformation.

So to close, just wanted to cap sort of what you heard today, right? This is a resilient geographically diversified base business, strong free cash flow. There were a number of growth initiatives that we had highlighted at our Analyst Day in May. Significant progress made on each one of those. We're continuing to pay down debt. That will create some balance sheet flexibility for us. And then fundamentally, this phase that we are in the seed growth is an exciting phase because what we want to do here over the next 24 months or so, is really bring to life our transformation. By making progress on each one of these vectors and some potentially opportunistic M&A, we really changed the profile of this company from being simply a diabetes injection company to a broader-based medical supplies company and a drug delivery company. And that's super exciting to all of us.

So with that, I'm going to close. Thank you for your time and attention. And I'm going to turn it over to Carolyn.

Thank you. So maybe we can start with, you've been public for a few years now. When you step back, what feels most different about Embecta today versus right after the spin?

Yes. It's only 4 years ago, but it seems like a lifetime ago because I still recall in April of 2022, when we were spun off, I mean, we were faced with some pretty significant challenges. We were still in the midst of COVID, the Ukraine war had just started, inflation spiked beyond initial expectations. I'd say we had this $1.65 billion in gross debt, well, 60% of that was floating. Interest expense actually rose significantly, that consumed a lot of cash. And we only had a finite amount of time to do all the standard work. And so I'm very proud of the fact that over that time period, our team delivered on all our standard projects, highly complex projects and executed really, really well.

I think what feels most different today is that the energy and the effort and the capital that we are expanding is no more on just securing the foundation. Now it's more on how do we grow the business. And that is tremendously exciting for us, for the whole team, and we look forward to sort of showing the fruits of that over the next few years.

Great. And maybe we can talk about some China dynamics. What's the latest? And what's the clearest signal that you're watching to gauge stabilization or improvement?

Yes. Look, 5 years for me with this business in February, China, all -- most of that period has been a stable, growing business for us. I mean, we have a great team there. Our commercial team is strong. Our manufacturing plant, one of the plants I showed you is one of our newest plant.

China sort of sits in our Greater China region, which includes Mainland China, Taiwan and Hong Kong, that's about 10% in total of our revenue. We don't break out Mainland China separately. And we sell to three national distributors who actually prepay us before they receive the goods. And then they sell to 200 Tier 2 distributors that then get the product into various pharmacies.

What we saw in fiscal 2025 amidst the evolving geopolitical landscape was there was a marked shift in preference for local Chinese companies. Not just locally manufactured products because we locally manufacture products, but local Chinese brands. Now look, local Chinese brands, we've competed against forever in China so it's not new. But there was a dramatic shift in preference. Price competition intensified as well because we are premium priced and while there always has been a gap between our pricing and competitive pricing, that gap increased as competitors drop some pricing.

With that happening, our distributors that buy our product, started reducing their inventory. That impacted us in 2025. In fact, that was almost a 2-point decline for the total company year-over-year in '25 versus 24, just the step down in China.

Now we took some actions to address some of those dynamics. We reorganized our sales force, started focusing on some key accounts. We started working with a contract sales organization to increase our coverage. We actually, as part of our contingency planning, if you will, had a low-cost product at the ready at our plant, and we were able to quickly introduce that. It's at a very different price point than our premium product. and it is more suitable to compete head-to-head with some of the local Chinese brands.

Now we are doing this with care. We don't want to cannibalize our own product. So we are using a different channel, a different set of customers that we will offer this to. It will take us a few more quarters to see stability before I can sort of comment on, have we reached a stable point there. So it will take us a few more quarters.

But look, over the long term, I still remain confident that China is a great opportunity for us. First of all, the market continues to grow there in mid-single digits. I talked about our infrastructure there, commercial manufacturing. The market-appropriate pen needle I talked about is actually being developed in China. It's going to get manufactured in our China plant. Now Chinese approval takes a little long. And so it will be some time before that product actually hits patients, customer's shelves, but it is the right product for that market.

And then finally, I also talked about GLP-1 opportunities, and there are companies, Chinese companies that want to enter the generic GLP-1 market, not just in China but have global aspirations and we want to work with them as well. So for all those reasons, I believe China continues to be an attractive place for us to be. Certainly, the step down in '25 versus '24 was unfortunate. When we guided for 2026 at our call in November, we did indicate that we still would see some headwind in '26 versus '25, but to a much lesser extent than we saw in the prior year.

So pen needles continue to show resilience despite GLP-1s and pumps. Can you talk a little bit about what's really driving that stability?

Yes. Look, I mean, our pen needle business is incredibly resolute. First of all, again, just to stress a few points. These are medically necessary products. I mean we are the unrivaled leader in this business. But I think it's important to sort of think about this geographically as well, right?

I mean take Type 1 patients, they're approximately 10 million globally, only 1.5 million are in the U.S. and pump adoption in GLP-1 is still pretty much a U.S. phenomenon. If you think about Type 2 patients that use insulin, that's about 60 million to 70 million here only, about 7 million to 8 million are in the U.S. the rest are outside the U.S. So first of all, I think the understanding -- the fact that we are a geographically diverse company, where -- and we have strength in emerging markets where there are a disproportionate number of patients sort of puts our product usage in perspective.

Secondly, and as I mentioned before, GLP-1's most effective when actually there is insulin in the body. In fact, some of the data we've seen, there is a lot of concomitant use of GLP-1s with pen needles.

Thirdly, I mean, look, the insurance rate on Type 2 are still increasing. Obviously, GLP-1 is not indicated for Type 1, Type 2 is growing. And there are affordability constraints around the use of these products outside the U.S. So I think for all those reasons, our pen needles continue to strength.

Maybe one final point, particularly as it relates to the U.S. One of the indicators we track is just what's happening with TRx, total prescriptions for insulin. And within that number, you can actually tease out what's happening for insulin vials versus what's happening for insulin pens. Insulin vials have been declining steadily. I talked about that. That impacts our syringe volume in the U.S. But insulin pens have been stable all throughout this period. again, sort of showing the underlying resilience and the durability of that portfolio. And frankly, over the past few quarters, NRx, which is new prescriptions for insulin pens have been showing a slight positive trend. And so again, just exemplifying the resilience of this product portfolio.

So market appropriate products sounds simple, but execution matters. What gives you confidence you can win in those segments?

These are segments, frankly, that years ago, we used to participate in. I mean, actually at spin, we actually stepped out of some tender markets in a lot of these markets are tender markets, particularly Latin America because we didn't want to chase price now. And our idea then was and it's coming to fruition now was -- look, the products we have are not the best products for these markets. So let's step out of it and reenter with the market -- with the products that we believe will be right and we are there now.

Look, what gives me confidence is we understand the market dynamics because we used to be in that market. From an R&D and manufacturing perspective, I don't think there is anybody that has more capability than us to develop these products. I mean, we know these products inside out. And in fact, that's exemplified by just how rapidly our teams have made progress on this.

And so with the channel knowledge that we have, the distribution network that we have, with the R&D and the manufacturing capabilities that we have, I do believe that we are in a position to reenter those markets, and over time, grow our share. It's all going to be incremental. I want to stress the fact that these are not -- these new products we are developing are not for global distribution. They are meant for targeted markets and targeted segments. And obviously, you can control that with respect to where you register these products and where do you supply them and which are the channel partners that you use and they have some clarity in channels that you use for the premium product versus those that you use for these lower-priced products.

And so you've been transparent that cannula costs have pressured margins. How should investors think about that headwind going forward? And when can we expect alternative suppliers to get onboarded.

Why don't you take that, Jake?

Yes, sure. So for those of you who don't know, the cannula is the needle. I think Dev went through that during the part of the presentation. Right now, we source 100% of that product from our former parent. They're a fantastic supplier, great quality product. However, if you step back and think about what our margins were pre-spin at the gross margin line, they were about 67%. Our margins in 2025 were just under 64%. The single biggest driver of that margin compression during the post-spin period has been all associated with increased cannula cost. So despite BD being a fantastic supplier, I think for a couple of different reasons, it really makes sense for us to look at onboarding an alternate supplier or suppliers. We're always going to purchase product from BD.

But I think certainly, from a risk mitigation standpoint, it really makes a lot of sense for us to evaluate alternate suppliers. And then hopefully, I think from a cost standpoint, to introduce some additional price tension in terms of the cost of the product that we end up sourcing from BD.

So in terms of our long-range plan, we have put out some financial objectives through 2028 last May at our Analyst Day that essentially called for our adjusted operating margins to be in that kind of 28% to 30% range. And we factored in any of the additional costs that we thought would occur in terms of additional markups through that time. We also factored in, in terms of our free cash flow estimates, what it would take in order to kind of build out some additional testing equipment as we onboard some of these alternate suppliers. So I feel like our -- from a financial standpoint, we sort of built in the additional expenses that we would expect to occur. But during -- through that 2028 time frame, we didn't build in any potential cost reduction efforts, if you will, from the lower costs associated with cannula. So we would expect that to occur hopefully shortly thereafter.

And maybe just one more question. How do you balance continued debt reduction with M&A and strategic initiatives? At what leverage levels do you get comfortable and start looking at other options? And if you were to pursue M&A, what type of deal makes the most sense for you?

So maybe I'll kick it off and then let Jake talk about sort of leverage and so on. Look, the #1 priority for us is to return the company to sustainable revenue growth. So M&A that we'd be looking for would have to do that. We want to do it in an area of chronic care drug delivery where we can leverage our manufacturing competencies and start leveraging this B2B channel that we are developing and over time, bolster it, right? I mean that's strategically what we want to do but let me turn it over to Jake to talk about leverage.

Yes. I think really the hallmarks of this business, if you think back to what this business looked like even pre-spin, essentially, it was a very, very profitable high cash flow generative business. It was just one that was flat for a long, long period of time. And post-spin, our leverage levels were high. We needed to use a lot of cash to stand up and separate and beginning in 2025, as Dev mentioned earlier, our leverage levels were around 4x by the end of 2025, they were below 3x and by the end of this year, they'll be somewhere in the low to mid-2x range.

So depending on the type of M&A, the size of M&A, how much EBITDA would come along with it, what the synergy opportunities could be, we're ready operationally to do M&A now.

So that concludes our session for today. Thank you so much.

Thank you, Caroline for hosting us.

Welcome, ladies and gentlemen, to Embecta Corp.'s Fiscal Fourth Quarter 2025 Earnings Conference Call. At this time, all participants on 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 Fourth Quarter 2025 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 Dev 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 just in the conference call will contain forward-looking statements regarding future events as outlined in our slides. 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 -- 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: Deb will begin with an overview of Embecta's fiscal year 2025 performance and discuss progress across our strategic priorities. Jake will then review the financial results for the fourth quarter and full year 2025, and share our preliminary 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, Dev Kurdikar.

Good morning, and thank you for taking the time to join us. During fiscal year 2025, we achieved several key milestones. We made the decision to end our path pump program and we executed a restructuring plan aimed at enhancing our profitability and free cash flow. We completed the implementation of our own ERP system and operationalized a new distribution network and shared service capabilities in Latin America and India, marking the completion of a major complex multiyear standard program.

With this, 100% of our revenue now flows through our systems and all TSAs and LSAs that we had its been have been exited. We substantially completed our brand transition efforts in North America with more than 95% of our U.S. and Canadian revenue now converted to the Embecta brand. This was carefully managed to ensure continuity for customers and patients. And with this foundation in place, we have now commenced the next phase of the initiative globally. Transition activities have already begun in certain international markets, and we expect to be significantly complete in most regions by the end of calendar year 2026. Together, the completion of the separation and stand-up activities have freed up capacity, which we are now devoting to initiatives that we anticipate will help transition the company towards long-term sustainable growth.

Supporting this goal, we advanced our GLP-1 strategy meaningfully during fiscal 2025. We are now collaborating with more than 30 pharmaceutical partners to co-package our pen needles with generic GLP-1 therapies. Several of these partners have already signed agreements and placed purchase orders and our products are included in multiple GLP-1 partnered regulatory submissions expected to lead to commercial launches. Our generic GLP-1 partners are anticipating launches in Canada, Brazil and India during calendar year 2026. And while we do not control the timing and content of the company's regulatory submissions, nor the timing of their launches upon receiving regulatory approval we are encouraged by their momentum and remain ready to support our partners by providing them with our pen needles.

In parallel, we are continuing to expand the availability of pen needles in consumer-friendly small packs for the Canadian and select European markets. These small packs are targeted specifically towards out-of-pocket customers like GLP-1 users. Taken together, we continue to believe that the use of our pen needles with GLP-1 represents at least a $100 million annual revenue opportunity by 2033. And we anticipate that this will be a growing contributor to our results over the next several years. We also initiated new product development programs for market-appropriate syringes and pen needles aimed at strengthening and expanding our portfolio with the goal to maintain our leadership position in our core product categories.

These programs are important because we believe they will allow us to expand our reach into market segments that we do not significantly participate in. And we continue to prioritize financial discipline and debt reduction as throughout the year, we generated approximately $182 million in free cash flow and we paid down approximately $184 million of debt, exceeding our original fiscal year 2025 target of $110 million. With leverage now at 2.9x net debt to adjusted EBITDA we continue to create financial flexibility to invest in potential organic and inorganic opportunities that can reshape Embecta's long-term growth profile. In summary, fiscal year 2025 was a year of solid execution on multiple fronts while outlining and initiating a new strategic direction for the company.

From the standpoint of our financial results, we exceeded our previously provided fiscal year 2025 adjusted gross margin, adjusted operating margin and adjusted EBITDA margin ranges while our adjusted diluted earnings per share was at the top end of our previously provided guidance range. As we move into fiscal year 2026, we remain focused on the priorities and the long-term financial targets outlined at our 2025 Analyst and Investor Day. Now let's review our revenue performance for the fourth quarter and full year. During the fourth quarter of fiscal year 2025, Embecta generated $264 million in revenue, reflecting a 7.7% decline year-over-year on an as-reported basis or a 10.4% decline on an adjusted constant currency basis.

Within the U.S., revenue for the quarter totaled $142 million reflecting a year-over-year decline of 15.2% on an adjusted constant currency basis. The year-over-year decline was primarily driven by an unfavorable comparison to the prior year fiscal fourth quarter which benefited from additional distributor orders that occurred because of the then looming U.S. port strike totaling approximately $10 million as well as the unwinding of the favorable order timing associated with the July 4 holiday, that positively impacted our third quarter of 2025 results, totaling approximately $7 million.

Additionally, year-over-year price in the U.S. was unfavorable by approximately $7 million, primarily due to milestone payments made to a large U.S. pharmacy customer. Turning to our international business. Revenue for the fourth quarter totaled $122 million, representing an increase of 2.8% on a reported basis, but a decline of 4% on an adjusted constant currency basis. This decline was anticipated and primarily due to lower volumes and year-over-year pricing headwinds within China. This was driven by heightened competitive intensity in China, fueled by the growing preference of local Chinese brands amidst an evolving U.S.-China geopolitical and trade environment.

This was partially offset by performance in other emerging markets. While from a product family perspective, during the quarter, adjusted constant currency pen needle revenue declined approximately 13.9%, syringe declined by approximately 4.5%, Safety products grew approximately 3.7% and contract manufacturing revenue grew approximately 8.5% -- the year-over-year decline in pen needle revenue was driven by the same factors that impacted our U.S. and international results. Turning to our syringe products. The decrease was primarily due to ongoing end market volume declines within the U.S. This trend is not new and has persisted over the past several years and is consistent with the decrease in prescriptions for insulin vials as compared with insulin pens. This decline was partially offset by improved pricing.

Finally, our safety product ordering that occurred in Q4 of fiscal 2024 associated with the potential port strike as well as the continued end market declines in syringe volumes. Meanwhile, international revenues totaled $501.3 million, which equated a year-over-year adjusted constant currency decline of approximately 3.1% -- the decline in international revenue was primarily due to lower revenue contribution from China. Turning to our product family revenue performance. Globally, our pen needle revenue declined approximately 7.1%, totaling $784.1 million. Fiscal year 2025 pen needle revenue reflects the confluence of several transitory factors, including advanced distributor ordering in the prior year, lower China revenue and pricing headwinds in certain markets.

Turning to our syringe products. Revenue grew year-over-year by 1.7%, primarily driven by improved pricing. while our safety products grew 6.3% due to a combination of improved pricing and volume increases. Lastly, contract manufacturing revenue grew approximately 53.9% as compared to the prior year. With that, let me turn the call over to Jake for him to review other financial highlights as well as to provide our preliminary financial guidance for fiscal year 2026. Jake?

Thank you, Deb, and good morning, everyone. Given the discussion that has already occurred regarding revenue, I will start my review of Embecta's fourth quarter financial performance at the gross profit line. GAAP gross profit and margin for the fourth quarter of fiscal 2025 totaled $158.5 million and 60%, respectively. This compared to $173.8 million and 60.7% in the prior year period. While on an adjusted basis, our Q4 2025 adjusted gross profit and margin totaled $159.5 million and 60.6%. This compared to $178.3 million and 61.4% in the prior year period. The year-over-year decline in adjusted gross profit and margin was primarily driven by the lower year-over-year volume and mix and price that Deb mentioned earlier as well as the negative impact of foreign currency translation.

These headwinds were partially offset by manufacturing cost improvement programs, the favorable impact of net changes in profit and inventory adjustments and lower freight costs. Turning to GAAP operating income and margin. During the fourth quarter, they were $56.5 million and 21.4%. This compared to $26.2 million and 9.2% in the prior year period. While on an adjusted basis, our Q4 2025 adjusted operating income and margin totaled $66.7 million and 25.3%. This compared to $61.2 million and 21.1% in the prior year period.

The year-over-year increase in adjusted operating income is primarily due to lower R&D expenses associated with the discontinuation of our insulin patch pump program as well as lower year-over-year SG&A expenses due to the restructuring initiative we announced earlier this year, coupled with no TSA expenses within the current year. This was partially offset by lower revenue and gross profit as compared to the prior year period. Turning to the bottom line. GAAP net income and earnings per diluted share were $26.4 million and $0.45 during the fourth quarter of fiscal 2025 as compared to $14.6 million and $0.25 in the prior year period. While on an adjusted basis, during the fourth quarter of fiscal 2025, net income and earnings per share were $29.4 million and $0.50 as compared to $25.9 million or $0.45 in the prior year period.

The increase in year-over-year adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers, I just discussed as well as a reduction in interest expense. This was offset by an increase in our adjusted tax rate from approximately 9.5% in Q4 of 2024 to approximately 25% in Q4 of 2025. Lastly, from a P&L perspective, for the fourth quarter of 2025, our adjusted EBITDA and margin totaled approximately $89.9 million and 34.1%, as compared to $73 million and 25.2% in the prior year period.

Turning to our full year results. GAAP gross profit and margin for fiscal 2025 totaled $676.8 million and 62.6%, respectively. This compared to $735.2 million and 65.5% in the prior year. While on an adjusted basis, 2025 gross profit and margin totaled -- $687.3 million and 63.7%. This compared to $740.7 million and 65.7% in the prior year. The year-over-year decrease in adjusted gross profit and margin was primarily driven by lower year-over-year volume and mix and an unfavorable year-over-year impact from profit and inventory. This was partially offset by manufacturing cost improvement programs. Turning to GAAP operating income and margin. During 2025, they were $242.1 million and 22.4%. This compared to $166.8 million and 14.9% in the prior year. While on an adjusted basis, our 2025 adjusted operating income and margin totaled $337.7 million and 31.3%.

This compared to $296.9 million and 26.3% in the prior year period. Similar to the comments relating to the fourth quarter, the year-over-year increase in adjusted operating income and margin is due to similar factors that impacted the fourth quarter. Those being the lower R&D expenses associated with the discontinuation of our insulin patch pump program as well as lower year-over-year SG&A expenses due to the restructuring initiative we announced earlier this year coupled with the reduction in PSA expenses. This was partially offset by lower revenue and gross profit as compared to the prior year. Turning to the bottom line. GAAP net income and earnings per diluted share was $95.4 million and $1.62 during fiscal 2025, which compared to $78.3 million and $1.34 in the prior year.

While on an adjusted basis, net income and earnings per share were $173.9 million and $2.95 during fiscal 2025. This compared to $143.1 million and $2.45 in the prior year. Like my comments relating to the fourth quarter, the increase in year-over-year adjusted net income and diluted earnings per share is primarily due to the adjusted operating profit drivers I discussed as well as lower year-over-year interest expense resulting from a reduction in outstanding borrowings under our term loan B facility as we continue to pay down debt, somewhat offset by an increase in our adjusted tax rate from approximately 20% in 2024 to approximately 25% in 2025. Lastly, from a P&L perspective, during 2025, our adjusted EBITDA and margin totaled approximately $415.3 million and 38.5%. This compared to $353.4 million and 31.4% in the prior year.

Turning to the balance sheet and cash flow. During fiscal year 2025, we generated approximately $182 million in free cash flow. Additionally, during the year, we repaid approximately $184 million of outstanding debt and ended 2025 with a net leverage level of approximately 2.9x as defined under our credit facility agreement compared to our covenant requirement of below 4.75x. And finally, we recently executed an agreement with a third party to sell certain intellectual property rights and long-lived assets associated with the discontinued patch pump program for $10 million. This transaction occurred subsequent to year-end and therefore, had no impact on our fiscal fourth quarter results. That completes my prepared remarks on our fourth quarter and full year 2025 results. Next, I'd like to discuss our preliminary 2026 financial guidance and certain underlying assumptions.

Before I go into all the details surrounding our fiscal year 2026 guidance, let me remind you that in May of 2025 at our Analyst and Investor Day, we laid out our long-range plan through fiscal year 2028. Those expectations included that our revenue growth CAGR would remain flattish on a constant currency basis from fiscal year 2026 through 2028, with modest declines of approximately 1% to 2% in core injection and contract manufacturing revenue over the LRP period. Offset by contributions from new revenue streams, including GLP-1 opportunities and distributed product partnerships that were expected to build as we'll move through fiscal years 2026 through 2028. Additionally, the financial targets that we provided at our Analyst and Investor Day anticipated adjusted operating margin to be between 28% and 30% by fiscal 2028.

As R&D expenses were expected to increase from 2025 levels as we support key value creation initiatives through 2028. While SG&A expenses were expected to remain flattish as compared to 2025 levels. And despite a dynamic geopolitical and trade backdrop, I'm pleased to say that we believe our initial fiscal 2026 financial guidance is well aligned with the expectations established in our long-range plan. Beginning with revenue. On an adjusted constant currency basis, we currently anticipate that our revenues will be flat to down 2% as compared to 2025 levels. At the high end of our constant currency revenue range, we have factored in modest volume declines within our core injection business, primarily related to syringe declines within the U.S.

That reduced contract manufacturing revenues contributed to approximately 50 basis points of the decline, that pricing is relatively flat year-over-year and that the contribution from new revenue streams contribute positively by approximately 100 basis points. While at the low end of our range, we are assuming that volumes within our core injection business contribute to approximately 150 basis points of the decline. That reduced contract manufacturing revenues contribute to approximately 50 basis points of the decline. That pricing is relatively flat year-over-year and that the contribution from new revenue streams is negligible.

Turning to our thoughts on FX. Our initial guidance calls for a foreign currency tailwind of approximately 1.2% during 2026. This assumption is based on foreign exchange rates that were in existence in the early November time frame. Somewhat offsetting FX is an estimated 0.1% year-over-year headwind associated with the Italian payback measure, primarily driven by the favorable adjustment recognized in fiscal year 2025. On a combined basis, our as-reported revenue guidance calls for a range of between negative 0.9% to positive 1.1% resulting in an initial revenue guide of between $1.71 billion and $1.93 billion. Turning to adjusted operating margin. Our initial guidance range calls for a range of between 29% and 30% or lower by approximately 180 basis points at the midpoint as compared to 2025 levels. The expected decline at the midpoint is due to 2 factors contributing equally. First, adjusted gross margin is expected to decline due to increased cannula costs.

While in terms of tariffs, based on current information, we expect incremental tariffs to have a negligible impact as compared to the prior year. And second, we anticipate R&D expense to approximate 2% of revenue as we continue to invest in the development of market appropriate pen needles and syringes and advance our efforts to qualify and onboard alternate cannulas suppliers. SG&A as a percentage of revenue is expected to remain relatively consistent with fiscal 2025 levels. All total, our initial guidance range for adjusted operating margin aligns with the margin framework outlined in our Analyst and Investor Day and reflects our disciplined approach to balancing reinvestment for growth with sustained profitability as we advance through the next phase of our transformation.

Moving to earnings. During 2026, our initial guidance calls for an adjusted diluted earnings per share range of between $2.80 and $3 and it's based on a weighted average diluted share amount of approximately 60 million shares. Our initial adjusted earnings per share range includes an assumption that during 2026 we will repay approximately $150 million in debt and that our annual net interest expense will be approximately $93 million. While from a tax perspective, our initial adjusted earnings per share range assumes that our adjusted tax rate will be approximately 23% as compared to approximately 25% in fiscal year 2025 due to tax planning initiatives we put in place, U.S. tax reform and lower interest expense.

And before I turn the call over to the operator, I'd like to highlight some considerations regarding the cadence of quarterly revenue expectations during 2026. Moving forward, we may not provide any further commentary concerning the quarterly cadence of revenue on an ongoing basis. During fiscal year 2025, we generated approximately 48% of our adjusted revenue dollars during the first half of the year, with revenue split roughly evenly between the first and second fiscal quarters. During fiscal year 2026, we currently expect something similar to occur. Finally, during fiscal 2026, we expect to generate between $180 million and $200 million in free cash flow, which includes using approximately $20 million of cash for capital expenditures as well as approximately $30 million of cash on onetime spend primarily focused on advancing the global brand transition program, which remains on track to be substantially complete by the end of calendar year 2026.

Importantly, the free cash flow that we expect to generate during fiscal year 2026 keeps us firmly on pace with the commitment we outlined at our Analyst and Investor Day to generate approximately $600 million of cumulative free cash flow from fiscal 2026 through fiscal 2028 and demonstrates the strength of our cash generation model and reinforces our confidence in achieving our long-term deleveraging and investment objectives. That completes my prepared remarks. And at this time, I would like to turn the call over to the operator for questions. Operator?

[Operator Instructions] Our first question comes from the line of Marie Thibault with BTIG.

I wanted to start here and see if I could learn a little bit more about the GLP-1 partnerships that you have. Can you just give us a little more detail on how many partners you have signed POs with? And anything on timing, how they might be ordering ahead of any approvals that they get on their side, just so we can sort of get a little more detail on how this might impact fiscal year '26. Of course, understanding that it's not being assumed in your revenue guidance?

Yes, thanks for the question. So we are in discussions with 30-plus potential GLP-1 entrants. And as you remember, this is all about co-packaging of pen needles. They are moving through various stages of discussions. You can imagine, we go through quality agreements. We talk about MSAs. The orders that they provide and a handful of them have already provided orders, and we've actually shipped product during 2025. Much of the volume, I would say, is for their own development purposes as they work out what data they need beyond the data we supply for their regulatory submissions. Several of them have actually submitted to the regulatory authorities.

Now they control the timing and the content of the submissions and these submissions, we believe include -- many of them will include specs that our product satisfies. Now obviously, timing of commercial quantities is contingent on when they get approval, which 1 of them gets approval and when they get approval. As you might have heard publicly, generic GLP-1s could be available in calendar year 2026 in China, India, Brazil and Canada. So there is obviously some uncertainty associated with timing. But overall, we are very, very pleased with the progress that we made in fiscal 2025. I mean you might remember a year ago, we were just starting the discussions and the team has made tremendous progress and we continue to remain confident in the assumptions that we had laid out or the estimates that we had laid out during the Analyst Day of this being over $100 million opportunity for us by 2033.

And Marie, this is Jake. I'll just jump in, regarding guidance. I think the low end of our guidance range assumes really a negligible impact in terms of new revenue streams, mostly associated with GLP-1s while from a high end of our revenue guidance range we assume that new revenue streams, again, mostly coming from GLP-1 additional revenue would contribute positively by about 1%. So we feel very good about where this is all going. Dev mentioned that I think over the longer term that we feel that this can be at least a $100 million annual product revenue for Embecta through 2033, and we feel like we're well on our way towards achieving that.

Okay. Thank you for that clarification, Jake, on the guidance as well. I guess I'll ask my follow-up here on China. You referred to it at the beginning, some of the geopolitical tensions. What are you seeing on the ground in China in terms of consumer willingness to buy non-Chinese products. Of course, the product is made in China, but not a Chinese brand, I suppose. So any further updates on how that dynamic is playing out?

Yes, Marie, on that, first, let me just say, China in Q4 2025 performed very close or almost exactly in line with our expectations. So our thoughts when we had formulated or revised our FY '25 guidance incorporated a significant year-over-year decline, partially because of the pressures that you mentioned, partially because of some inventory rebalancing and Q4 2025 played out exactly as we thought it would. We've certainly taken steps to stabilize the situation, including reorganizing our sales team. We've actually introduced a more price competitive pen needle, which also has a lower manufacturing cost. Our guidance for 2026, does incorporate some expectations around headwind in 2026 compared to 2025. But our current expectation is that it's going to be much less as compared to what we experienced in 2025.

As we all read in the press, I mean, the situation continues to evolve. But certainly, we are focused on controlling what we can control to stabilize the situation there as quickly as possible. Maybe just 1 final comment. Over the long term, we still continue to believe that this is going to be an important market for us. The market itself is growing mid-single digits. As you know, we have strong commercial and manufacturing infrastructure in China. You've heard us refer to the development of a market-appropriate pen needle. In fact, that pen needle is being developed by our team in China, and I'm quite hopeful that it will serve a segment in China that we don't serve today as well as you asked about GLP-1s earlier.

There are generic GLP-1 companies in China that have global aspirations that obviously we want to serve as well. Over the long term, we still think it's going to be an important market for us. And we'll find a way to weather through the evolving landscape over there.

Our next question comes from the line of Michael Polark with Wolfe Research.

Two smaller ones for me. I'm interested in the Cannula comments. You talked about increased costs there and an effort to source alternative suppliers. So maybe can you just unpack that for us a little bit? Why are the costs up? And what does the opportunity set look like to find other sources to mitigate that creep.

Maybe I'll kick it off. Just as a reminder. So the entire supply of cannulas that we get is from our previous pair in PD, and we have a cannula agreement with them to supply those cannulas that goes until 2032. So it's sole sourced from BD right now. And you can imagine that we do want to have an alternate supplier for cannula. Our team has been working on this for the last couple of years. We've identified a couple of alternate cannula suppliers, and the team has made significant progress, including running some trials with alternate cannulas and doing some development work.

So I feel confident that certainly we have our current supply of Cannula to 2032, but the team is making remarkable progress, and I feel reasonably confident that we are going to have at least 1 alternative supplier here qualified certainly before -- well before our current cannula agreement runs out. With that, obviously, that allows us an alternate supply with a different cost profile because since we became independent, the increase in cannula cost to us has been a significant contributor to the pressure we faced on gross margin. Jake, anything you'd like to add?

Yes, Dev. So just to -- maybe to add a little bit more, Dev had mentioned sort of what the margin profile of the company sort of looked like at the gross margin line kind of pre-spin as to sort of where we were during, say, 2025 and exiting 2025. And pre-spin our gross margins were sort of -- we're right at spin right around, let's call it, 67%. This year for 2025, our adjusted gross margins finished just under 64%. And really, Mike, the entirety of the decline over those years really came down to just increase cannula costs. So it really is important for us to find an alternate provider both from a risk mitigation standpoint and you never want to be beholden to 1 sole source and then also to drive some price decreases in the future as well, which we would certainly hope to do.

In terms of our fiscal 2026 guidance in relation to 2025, we talked about our adjusted operating margins being down about 180 basis points at the midpoint compared to 2025 levels. About half of that is in the gross margin line entirely due to increased cannula costs. And the other half of that is just increases in terms of R&D expense as we need to make some investments in order to come to market with an alternate cannula provider as well as some of those market appropriate low-cost products for pen needles and syringes to service some of the emerging markets.

Helpful color. For the follow-up, I wanted to ask on 1 of the comments about the fourth quarter performance. I heard price unfavorable year-on-year in the U.S., $7 million mention of milestone payments to a large U.S. pharmacy customer. And I just want to make sure I understand what that is what you're saying there. The word milestone specifically trip me up. So if you can add any color on that dynamic, I'd appreciate it.

Yes, Mike, I'm happy to. Obviously, I won't talk about the specific contract, but our contracts with the U.S. change, there is a rebate level. right? There are sometimes marketing spend items that we contribute to marketing of our products. And finally, on achievement of certain volume levels typically there is an additional payment, and we often refer to them as milestone payment. At the end of the day, it all comes down to price. But depending upon the timing of the payments, it can lead to year-over-year unfavorability or favorability during the course of a quarter. .

Our next question comes from the line of Anthony Petrone with Mizuho Americas.

Happy early Thanksgiving here to everyone team's family. Maybe start on GLP-1 and the generic contracting phase. I'm wondering, Dev and or Jake, if you could talk a little bit about how those contracts are going to be structured here. So typically, when we have drug device combination solutions, you're in the clinical phase, but if you get to market, you essentially get written into the drug master file and the instructions for use, and that can be a multiyear contract. So how does contracting work with the generic GLP-1 providers in the clinical development phase and what will those look like once we get with success to a commercial phase? How long will they be? Will there be minimum quantities baked in? How do the economics work over, let's say, medium-term contract? And then I'll have a couple of follow-ups.

Yes. Anthony, so I don't want to get too far ahead of myself with respect to commercial quantities and commercial contracts until some of these generic manufacturers get approved. But let me at least provide additional color, right? So as we go through the contracting phase, you can imagine the early discussions and initials and initial discussions, we get NDAs in place. We get qualified as a vendor in our system that includes providing some data on our product from a quality standpoint, from a regulatory standpoint. We have quality agreements in place then we actually start talking about contracting, get a contract complete, but the commercial contract, I think, we'll talk about once some of these drugs are commercial.

The quantities that they are ordering now are really to do their own development work. And you can imagine the way this is all going to play out is we will be supplying bulk pen needles to these manufacturers. They are going to co-package our pen needles with their pen injector. And then they will be the ones to market that combined product to patients. They also, as I think you implied are going to be responsible for the regulatory submission for the whole package that includes the drug and the device, certainly will help with providing data, but they are responsible for that submission and our pen needle will get spec-ed in.

Now obviously, once you are part of that combination that imparts a level of stickiness to the product. But beyond that, since they're going to be doing the co-packaging, the co-packaging lines will be configured, if you will, to be accepting of our pen needles and that provides some additional stickiness, if you will, to our product as part of that combined package. But perhaps most importantly, I want to point out something that might seem obvious. We have a long history in demonstrating reliability of supply. And if you are a generic manufacturer that's introducing a generic GLP-1 drug, I would think that you would want your pen needle supplier to be somebody who can depend upon and has that generic -- has that long demonstrated reliability of supply, not to mention our pen needles are already approved in markets where you would expect generic GLP-1s to launch.

With respect to profitability, what I would also say is that these are as a appointed bulk pen needles, we don't expect to spend any significant CapEx in meeting this demand. And so we would expect that there to be some incremental margin drop-through as compared to our corporate averages of gross margin. Obviously, I won't comment on pricing. Maybe 1 final comment. Because we've established these conversations now with generic drug companies, we are also expanding the conversation to work with them on potential supply of other devices that they may use. And I think on Analyst Day, I said the most sort of nearest adjacent device to us would be a pen injector. So I'm hopeful that supplying devices to generic drug companies for their generic GLP-1 drugs is just the start as we transition from pure injection delivery for insulin company to a broader-based medical supplies company. Hopefully, that was helpful, Anthony.

No, very helpful and provide some color as we think about the next few years ahead. And then the follow-up here will just be on capital deployment. You mentioned a little bit of CapEx here, but the leverage ratios are coming down. The company in the past has talked about potentially forging additional partnerships perhaps outside of GLP-1 or being a little bit more focused a little bit on tuck-in M&A. So just a little bit to take the temperature on capital deployment outside of GLP-1 and the CapEx needs immediately. Do you see any tuck-in M&A opportunities over the next couple of years?

Yes. Thanks, Anthony. First, let me just say I'm very pleased with how our profitability metrics ended up with respect to our guidance. As you saw, we sort of exceeded the top end of our gross margin, adjusted EBITDA margin, adjusted operating margin, and that really allowed us to pay down significantly more debt in 2025 and brought our net leverage down as you pointed out to 2.9%. Our capital allocation plans remain unchanged from what I said on Investor Day. We think $600 million in free cash flow over the next 3 years. Most of that will go to bad debt pay down. We pay a dividend at this point. We are not considering changing that. And our highest priority still remains paying down debt.

But as our leverage comes down, certainly, it's already below 3% and we drive it down further in 2026. We are very open to organic and inorganic investments. And so M&A by, obviously, it's very nature, is very opportunistic. We will continue to be alert and aware if such an opportunity arises, and we feel that it is going to be value accretive to our company and help transition the company towards long-term sustainable growth. we certainly will be ready to act on it.

[Operator Instructions] Our next question comes from the line of Travis Steed with Bank of America Securities.

This is Gracia Mahoney for Travis. I just wanted to ask a follow-up on -- in your prepared remarks, you mentioned selling certain intellectual properties of $10 million associated with the patch pump subsequent to year-end. So just wondering if you could add any more details around this and what's baked into your assumptions moving forward that is associated with this.

Yes. Gracia, thanks for the question. Yes, we did sell certain IP and associated assets to a buyer for $10 million. We are pleased to be able to monetize these assets from the patch pump program that we discontinued about a year ago. I'll let Jake comment on. This is a Q1 event really for 2026 for us, but I'll let Jay comment on how you should expect to see that run through the financials. .

Yes. So obviously -- so Gracia, it will obviously be an increase to cash -- from a guidance standpoint, this isn't going to impact our adjusted results that we provided guidance metrics for today. There will be a gain most likely on the sale of these assets. And as a result of that, we're just going to normalize that for purposes of our adjusted operating margins or earnings per share.

Great. And then maybe just 1 follow-up on the pharmacy closures that you saw in earlier this year and then you had the stocking dynamic in for July 4 and ahead of the brand transition. So a lot of onetime benefits. Can you just speak to any more detail of how you saw that play out in the second half of '25 and maybe if there's any sort of visibility on that into 2026 on how the pharmacy volumes are moving forward.

Yes. So as you pointed out earlier in the year, we had commented on planned store closures at a major U.S. pharmacy chain. We don't sell directly to the pharmacy chain. We sell to a third-party distributor that also serves other customers. But I think as I said at that point, our product is medically necessary. So what happens is if a chain -- if a store closes, patients will shift to other chains of the sources to procure product. And as expected, we saw strength at some other chain outlets. And we incorporated our thoughts around what the impact of that closures will be into our 2026 guidance. In the guidance that Jake went through, he talked about 100 basis point range in the volume assumptions, that includes our thoughts on what might happen with the U.S. pharmacy volume as well. .

And maybe 1 just final point on how 2025 played out. We had started the year with the original guidance. And actually, as the year played out, we did see what I would say, China year-over-year headwinds that were not incorporated in our original guidance. But actually, the year played out, including the impact of store closures with us being within the range of our original guidance had it not been for China. So I think the store closures are playing out as we thought they would, patients will move to other outlets and we'll see strength, and we incorporated our thoughts in the 2016 guidance. Thanks, Gracia.

And I'm currently showing no further questions at this time. I'd now like to hand the call back over to Dave Kurdikar for closing remarks.

As we close the call, I just want to express my sincere gratitude to all my colleagues at the company around the world. Fiscal 2025 represented a meaningful milestone as we completed the first phase of our strategic road map, standing up our core systems and infrastructure needed for the next stage of growth. And despite a complex trade and geopolitical backdrop, we continue to perform well and strengthened our operational foundation. We enter fiscal 2026 confident...