All right, good afternoon, everyone. My name is Mike Sarcone. I'm an analyst on the U.S. Medical Supplies and Devices team here, and this is the last session for Jefferies' 2025 New York Healthcare Conference. This is a fireside chat with Embecta. From the company, we've got Jake Elguicze, CFO, and we're also joined here by Pravesh Khandelwal, who heads the IR function. Gentlemen, thank you both for being with us today. Yeah, Mike, thanks for having us, and thanks for saving the best for last. Appreciate it. Absolutely. That was the plan. Maybe just, you know, a high level, Jake, for those who aren't as familiar with Embecta, maybe you can just give us a high-level overview, talk about, you know, the company's value proposition and, you know, some growth drivers. Yeah, sure. Embecta was the spinout of the diabetes business, which occurred from Becton Dickinson on April 1st of 2022. We are a public company for the last three-plus years. I would say, you know, for us, we're about $1.01 billion in revenue, you know, strong free cash flow generation, strong profitability. We're in close to 140 different countries, have three main product categories. We operate within the pen needle space, safety products, and then syringe. You know, around, let's call it 85% of our revenue tends to be tied into that pen needle and safety product categories. That has certainly been, you know, growing somewhere in the magnitude of, let's call it 2%-2.5% over the last few years. You know, if you step back for a second, I think, you know, since SPIN, you know, really the first stage of the company's life has really been focused on trying to separate ourselves and stand ourselves up as quickly as we could, which I'm pleased to say is now largely complete. While doing that over the last, you know, three years, trying to keep the business, you know, as stable as possible. Very intentionally, we haven't done anything in terms of cost optimization or additional meaningful product development or whatnot. I think that really, you know, sort of sets the stage for the next stage of the company's life. We recently had an analyst day in which we talked about some financial goals and objectives through 2028 and what some new product opportunities are and sort of what the margin profile and cash flow profile looks like. You know, I think, you know, if you think about the financial targets that we sort of set out immediately prior to SPIN, we talked about a revenue CAGR from 2022 through 2024 that would be relatively flat. We talked about an adjusted EBITDA margin of around 30%. I'm pleased to say that during that period of time, we ended up exceeding both of those metrics. We're certainly a management team, I think, that is going to err on the side of, you know, being a little bit more cautious and trying to put out multi-year financial targets that we have a high degree of visibility into and likelihood that we would meet, if not exceed. That certainly was the case for the targets that we put out there through 2024. Ultimately, we ended up exceeding both the top line and the bottom line despite needing to absorb significant inflationary impacts that were never originally contemplated as part of the initial guide. Yet we were able to exceed both the top line and the bottom line by roughly 150 basis points each. Great. Thank you for the overview. Yeah, let's drill down into some of those targets. Starting with the core injection business, I think you've talked about a 1%-2% CAGR decline over the LRP period. Maybe just to kick off, can you talk about the factors that are leading to that decline and maybe what gets you to flattish performance eventually? Sure. So again, I think over a multi-year period of time, we're certainly going to put out targets that are going to allow for the unforeseen and for us to be able to, again, meet or exceed, you know, those financial objectives given what may, you know, happen over a multi-year period of time. You know, our business from 2022 through 2024 had grown around 1.3%. Included in that was an assumption that our pen needle business and our safety products business actually grew somewhere between 2%-2.5% during that time. And really it came down to our syringe business, which is a legacy technology, and particularly the syringe business within the U.S. sort of seeing some pressure there and some transition to other technologies, whether that's pen needles that we benefited from or maybe pumps, which we don't have a pump in our business. Again, sort of the core-based business had kind of historically grown around 1.3%. You know, the sort of base case assumption that we had was despite the pen needle business and the safety business sort of growing 2%-2.5% over the last couple of years, over the next three years, we sort of view that as kind of flat. We'll have to see whether or not that proves to be, you know, conservative or not, but that is certainly sort of the base case working assumption is that that business remains relatively flat. The drivers of the potential 1%-2% decline largely then kind of comes back to two things. One, the U.S. Syringe business, as well as we continue to manufacture certain non-diabetes products in some of our manufacturing locations and sell them back to Becton until they, you know, sort of take over the product registrations and insource that business themselves. Our sort of working assumption is that the U.S. syringe business and the contract manufacturing business, which combined totals up to around $55 million or so in revenue in 2025, you know, could get cut in half or could go to zero by 2028. Again, we'll sort of see, you know, whether or not that happens, but that's sort of the premise behind what would happen in terms of the 1%-2% decline in kind of the core-based business. Got it. Okay. That is very helpful. Then again, within that core business, how do you think about parsing out volumes versus price? I would say in developed markets, again, because of what we're assuming in terms of the syringe business as well as the contract manufacturing business, that would essentially mean that volumes would be down slightly and that pricing could be down slightly. That's somewhat offset by additional volumes that we would expect to generate in emerging markets. Got it. You know, maybe that takes us to the next one. I guess, can you talk around the assumptions that you have baked into the guide around regional and product family growth rates? Yeah. So again, I think despite the fact that our safety products and our pen needles had historically grown somewhere between 2%-2.5% globally, I think we're taking a bit of a conservative approach in the outlook given that it is three years in nature. Who knows what could happen over a three-year period of time that that business would be flat and that largely that the syringe business and the contract manufacturing business would sort of be the ones that would be down slightly, causing the 1%-2% decline. I think in terms of regional growth, it's probably reasonable to think that, you know, sort of the developed markets would be down slightly and that emerging markets, which represents about 20% or so of our business, would be up sort of mid-single digit. Okay. And then I think you also did talk about some new revenue streams and adjacencies. You know, how much of your LRP growth is expected to come from some of those new revenue streams? Yeah. So this is something that's exciting for us. I think, again, our overall constant currency revenue growth rate assumptions assume that the total company would remain flat and largely driven by these new revenue streams. There's a few things that now that we have our own ERP system in place, we now have the ability to add additional products, you know, into our ERP. Whereas before, you know, we were prohibited from putting in additional SKUs into our former parent's ERP system. Now it opens up, you know, a much bigger opportunity for us to really, I would say, do a couple of things. You know, leverage our existing manufacturing capabilities. We have three highly automated facilities that make $8 billion units of single-use disposable plastic-oriented product a year. How can we sort of better leverage those kind of core competencies and begin to sort of migrate into other medical supplies, medical device product areas, and not solely be sort of an insulin delivery company? That is obviously going to take some time, but I think we have a really good backbone in order to do that. The second thing is that, you know, with the SPIN came a commercial presence and a channel in well over 140 countries. That is something where it made the separation complex, but now that we are through that and we have sort of successfully navigated all of that, it is something that we can really leverage moving forward. Something as simple as distribution agreements. You know, we have already begun to enter into and have signed several distribution agreements to be able to leverage that channel. Included in our LRP is some revenue contribution from some of these distribution agreements. For instance, you know, we signed distribution agreements with some companies regarding BGMs. BGMs, obviously a legacy technology for sort of the U.S. market, but something that is very, very applicable for international markets. We would expect that to be the case for a period of time. That is one example. Another is distributing pumps, so insulin pumps. There are companies out there that do not necessarily have the ability to, or financial capability to build out that direct sales force presence and have come to us and want us to distribute their pumps in certain markets, you know, for them. That is something that we see as an opportunity moving forward. Lastly, I would say some ultrasound products as well. You know, moving forward, I think the new product revenue generation is going to come from a combination of these distributed products. It's also going to come from GLP-1 uptake. As GLP-1s go generic, we've been having conversations with probably close to 25 different generic pharmaceutical companies over the last, let's call it 15 to 18 months at some degree. We've reached some agreements with some. This largely has to do with the mode of how GLP-1s are administered. Today, it is largely administered via like a single-use auto injector, which we do not manufacture ourselves today. The manufacturing of an auto injector may be something that we would look to do at some point in the future. However, as these generic companies come to market with a GLP-1, what they're looking to do is actually come to market and administer that through a pen, like a multi-dose pen injector. Instead of a single-use auto injector, it will become a multi-dose pen injector. They want to partner with us just given our, I would say, leading market share, you know, position, our ability to, you know, the continuity of supply, our manufacturing capabilities. You know, we're really the market leader in sort of the pen needle category. They want to partner with us and have our pen needles used with their pen injectors as GLP-1s become generic. At the analyst day, you know, we talked about this being at least a $100 million market opportunity for us on an annual basis once we get to sort of the 2033 timeframe. This could be something that is meaningful, you know, for us in terms of sustainable revenue growth moving forward. That is really interesting. I guess the follow-up there, you said you've been having talks with 25 different generics companies. I guess where do you stand in that process? You know, how complex, if at all, are those negotiations? You know, when could you actually start to see some revenue on that front? Yeah. So varying degrees, obviously, is where things stand. You know, for several of them, we already have, you know, POs in hand. We're anticipating generating, you know, some amount of revenue in the back half of 2025 as they kind of continue to go through some of their testing. You know, some of these generics go, depending on what country that we're talking about, you know, mostly OUS at first, could start to generate revenue as early as 2026. It's exciting. It could be a really nice opportunity for us over a multi-year period of time. You know, probably one of the larger markets, the U.S., doesn't go generic until 2031. And I think at that point, that's where we'll also see another kind of inflection. That is pretty interesting. I think there's also, you've mentioned the concept of market-appropriate pen needles and syringes. You know, what does that opportunity look like and what can we expect from a revenue contribution standpoint there? Sure. There, we tend to be a more premium featured product and as a result of that, have historically been able to kind of price our products at a premium. There are some markets that are more price-sensitive in nature. Kind of coming back to the point that I made maybe a few minutes ago about, as we were kind of going through separation, we really did not have the ability to introduce new SKUs, new products to the pre-existing ERP system until we had our own setup. Now that that is done, you know, we do think that there is an opportunity for us in terms of being able to come to market with a lower featured, lower cost alternative on both the pen needle and the syringe side that is, again, going to be very market-specific, OUS-focused, and hopefully will allow us to win some of these international tenders that we really did not historically compete in. Okay. Have you talked about potential revenue contribution there or? Yeah. So I think some of these products will not be available until probably most likely the end of fiscal 2027. I think it is something that would generate some revenue beginning in 2028 and, you know, may total up to about, let's call it around 1% of our overall revenue in 2028. It is still relatively small in 2028, but the idea being that there could be more upside, if you will, outside of the LRP period. Got it. Okay. And then, you know, you've also, you know, what has been the revenue contribution from some of your synergistic partnership opportunities that you've spoken about? Considering this is, you know, relatively near term, can you size up those opportunities and maybe discuss which regions you're focused on? Yeah. This is really where it comes down to how do we leverage that commercial channel and distribution. It kind of comes back to the distribution agreements. All that we've put into the LRP is distribution agreements that we have already signed, already reached, and already have a good idea as to how that's going to sort of play out. That really kind of comes back to the BGM, the pump, and the ultrasound products. Again, all of these things largely internationally focused, including China. Got it. Okay. Very helpful. Then, you know, maybe we can, you know, one or two on margins and cash flow. I guess you've talked about a decline in your adjusted operating margin over the LRP period. You know, maybe talk us through the drivers there and what's causing that. Sure. So, you know, and I'll talk sort of from maybe midpoint to midpoint of our kind of 2025 guide to the midpoint of our 2028 guide. That would indicate essentially that our margins could decline. I say could decline because who knows exactly what's going to happen, but could decline around 125 basis points at the midpoint of each guide. That really comes down to two things. One, it comes down to our thoughts on incremental tariffs and the impact that incremental tariffs may have. We have factored in incremental tariffs associated with sort of the U.S. and China that were sort of talked about and have since been paused, but were sort of contemplated in kind of that mid-April-ish timeframe, sort of the 145%, 125% type tariff levels. We did factor in incremental tariffs impacting our business through the LRP. We'll have to see exactly how that kind of plays out. About half of the expected decline in the operating margins is due to those incremental tariffs. If that weren't to occur, then obviously we would see some benefit for that. The other half of the operating margin decline has to do with R&D and sort of ramping up R&D expense by about 50 basis points. That's really focused on us becoming cannula independent. The cannula is the needle that goes into our products. We source those needles today from our former parent. As part of the separation, they continue to provide us with a multi-year agreement in which we can continue to procure the needles from them. That obviously comes at a markup. You know, for us, for a few different reasons, it would, you know, it would benefit us to introduce the potential for additional cannula suppliers over time. You know, it would always be good for us to have, you know, a sort of dual or more supply and not necessarily be beholden to one particular company in terms of supply. It could potentially introduce some price benefits as well. We factored in the additional expenses associated with sort of qualifying, you know, one or more alternate cannula supplier through 2028. However, the benefits in terms of, you know, potentially procuring those products at a lower cost from another supplier are something that would fall outside of the LRP 2028 timeframe. Again, you know, sort of factoring in all the costs associated with it, but then, you know, post 2028 is probably when we would see the future benefit. Got it. And just a clarification on the tariffs. We had some kind of relative de-escalation, you know, from that 145%, you know, moving down. So is there automatic upside, you know, to that adjusted operating margin figure as well, just based on the kind of post-de-escalation? Yeah. I would say, you know, largely, if you sort of step back, most of our products because of, you know, sort of the Section 98 Nairobi Accords are largely exempt from tariffs. You know, we factored in the incremental headwinds associated with the U.S. and China situation. Obviously, they were temporarily paused, but we did factor that in. You know, if that were not to occur or if those tariffs were sort of, you know, in the future, if those proposed tariffs were exempt because of sort of medical necessity, like the historical tariffs were, yeah, that would be something that would probably cause somewhere between a 50-60 basis point improvement in terms of our operating margins. Okay. Helpful. You also mentioned generating around $600 million in cumulative free cash flow over the LRP period. Can you talk about the priorities, what the priorities are for using that cash? Yeah, sure. This has been something I think that, you know, for the first, you know, let's call it three years since SPIN, you know, the free cash flow capabilities have really sort of been masked of this company. I say that because there was, you know, a significant amount of cash that was used over the first, let's call it three, three and a half years, you know, towards separation, towards setting up our own ERP system and distribution network in 140 countries. You know, most recently, you know, doing brand transition, you know, from the Becton labeled boxes to our own Embecta labeled boxes. Now that we are, you know, largely through that, you know, we stated that we intend to, you know, to generate somewhere around, let's call it $135 million of free cash flow in 2025. Obviously, that would indicate a pretty significant improvement in the second half of the year in 2025 and that we would intend to pay down at least $110 million in debt in 2025. We're well on our way to doing that. I think importantly, you know, on a potential flattish constant currency revenue business through 2028 with relatively flat margins, generating at least $600 million in free cash flow is very meaningful. Right now, we're sort of assuming that, you know, that we would pay down somewhere between, let's call it $450-$500 million in debt, that we would continue to pay, you know, a dividend at the same dividend per share that we have, you know, historically. So around $107 million in cumulative dividends as well. That largely our cash balance, you know, we would expect our cash balance to, you know, to be to end this year in 2025 somewhere, you know, around a $250 million mark. Our cash balance would be relatively flat, you know, through by the end of 2028. If we were to accomplish all that, our net leverage levels, you know, by the end of this fiscal year in 2025 would go down to, you know, let's call it around three times net levered. By 2027, it could be sort of in the low to mid-twos as defined under our credit facility. Certainly by 2028, you know, it'll get to, you know, most likely slightly below, you know, two times. As early as kind of fiscal 2027, it's going to free up a tremendous amount of additional balance sheet flexibility for us to continue to sort of augment, if you will, the base business and continue to sort of transform it, you know, over time focused on, you know, how do we improve, you know, sort of the constant currency revenue growth profile and how do we sort of diversify the business from what it is today. Got it. And have you talked about, you know, what a target debt ratio is for you? Yeah. So I think over the longer term, you know, this business had a fair amount of leverage on it, you know, at SPIN. And, you know, that combined with the need to spend a fair amount of cash in terms of separation and stand-up has really caused the leverage levels to sort of be elevated. You know, our most recent quarter, it was around 3.7 times. You know, we still have very, very significant cushion as compared to the covenant. The covenant requires us to stay under four and three quarters. You know, by the end of this year, again, through a combination of delevering and just EBITDA growth, you know, we'll be closer to a three times net leverage mark. You know, I think over the longer term, there may be periods where we go significantly below three, like I just sort of talked about through kind of 2027, 2028. You know, if there is M&A opportunities out there, you know, a willingness to sort of take that up into the mid to upper threes for the right deal or deals. As long as there's a path back down closer to like a three times net leverage mark over the long term, I think trying to maintain in or around that three times net leverage mark would allow us, you know, the flexibility to do deals, integrate them, and then yet drive leverage levels down just given the free cash flow nature of our business. Got it. Okay. That is helpful. Thanks for the clarification. I guess one on tariffs, you talked about, you know, 50% of the operating margin degradation reflecting the incremental tariffs. On a gross basis, have you talked about what the tariff impact is and what type of mitigation strategies you may be able to implement? Sure. So, you know, for us, those incremental tariffs would be, you know, on an annual basis somewhere to the tune of, let's call it, you know, $9 million-$10 million. In the grand scheme of things, relatively small. You know, we do have, you know, three manufacturing facilities. Again, the majority of our products tend to not be exposed to tariffs because of the exemptions and medical necessity of those products. We are not facing some of the tariff headwinds, if you will, that some other medical device companies are. You know, to date, we have not necessarily factored in the ability to, you know, if those tariffs were to remain, to sort of push those tariffs to our customers in the form of price increases that have not been factored in. Obviously, that's something that we'll always, you know, consider. Okay. You know, we only have 20 seconds left. You know, maybe we'll just end it with an open-ended one. You know, what do you think is the most kind of misunderstood or underappreciated aspect of the story for investors? Yeah. I mean, admittedly, I think, you know, because of the separation and all the work that had to go into it over the last couple of years, I think that sort of, you know, masked, I think, the free cash flow capabilities of the company. I think that's going to become very, very evident. I think that, you know, over time, I think the core base business has remained very stable. I do think that there are, you know, natural growth adjacencies, if you will, for us to take advantage of over the next, let's call it three plus years, whether it's GLP-1s, whether it's some of these distribution agreements, or even broadening out, you know, the product portfolio. I think you'll see that occur in the next, you know, few years coupled with some pretty significant delevering. Okay. Great. That's all the time we have. Jake, Pravesh, thank you very much for your time today. Yeah. Thanks for having us.