Embecta's Q4 2025: Contradictions Emerge on GLP-1 Partnerships, China Strategy, Cannula Sourcing, and M&A Flexibility

Date of Call: November 25, 2025

Financials Results

• Revenue: $264M in Q4, down 7.7% YOY as-reported and down 10.4% YOY on an adjusted constant-currency basis
• EPS: $0.50 per diluted share (adjusted) in Q4, up from $0.45 prior year; GAAP $0.45 in Q4, up from $0.25 prior year
• Gross Margin: Adjusted Q4 gross margin 60.6%, compared to 61.4% in the prior year; GAAP Q4 gross margin 60.0% vs 60.7% prior year
• Operating Margin: Adjusted Q4 operating margin 25.3%, compared to 21.1% in the prior year; GAAP Q4 operating margin 21.4% vs 9.2% prior year

Guidance:

• Adjusted constant-currency revenue expected flat to down 2% vs 2025; as-reported revenue guide $1.071B–$1.093B (-0.9% to +1.1%).
• Adjusted operating margin guidance 29%–30% (≈180 bps lower at midpoint vs 2025).
• Adjusted EPS guidance $2.80–$3.00 on ~60M diluted shares; assumes ~$150M debt repayment, ~$93M net interest, ~23% adjusted tax rate.
• FX tailwind ~1.2%; Italy payback ~-0.1% offset.
• Free cash flow $180M–$200M, including ~$20M CapEx and ~$30M one-time brand transition spend.
• Quarterly cadence expected similar to FY25 (≈48% of adjusted revenue in H1).

Business Commentary:

* Revenue Performance and Challenges: - Embecta Corp reported revenue of $264 million for Q4 2025, reflecting a 7.7% decline year-over-year on an as-reported basis and a 10.4% decline on an adjusted constant currency basis. - The decline was primarily driven by unfavorable comparisons to the prior year's fiscal fourth quarter due to additional distributor orders, the July 4 holiday's impact, and year-over-year price unfavorability totaling approximately $7 million due to milestone payments to a large U.S. pharmacy customer.

• Impact of Geopolitical and Market Factors:
• The international segment saw a 2.8% increase in reported revenue, but a 4% decline on an adjusted constant currency basis, largely due to lower volumes and pricing headwinds within China.

• This was attributed to heightened competitive intensity in China, fueled by growing preferences for local Chinese brands amidst evolving U.S.-China geopolitical and trade dynamics.

• GLP-1 Partnership Strategy:

• Embecta is collaborating with more than 30 pharmaceutical partners to co-package pen needles with generic GLP-1 therapies, with several already having signed agreements.

• While revenue from these partnerships is not assumed in fiscal year 2026 guidance, it is expected to be a significant growth driver contributing to a $100 million annual revenue opportunity by 2033.

• Financial Position and Debt Reduction:

• Embecta generated approximately $182 million in free cash flow during fiscal year 2025 and paid down approximately $184 million of debt.
• With leverage now at 2.9x net debt to adjusted EBITDA, the company aims to maintain financial flexibility for potential organic and inorganic growth opportunities.<
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted they "exceeded our previously provided FY25 adjusted gross margin, adjusted operating margin and adjusted EBITDA margin ranges," generated approximately $182M in free cash flow and repaid ~$184M of debt, and stated "we enter fiscal 2026 confident in the direction of the company." These statements emphasize execution, cash generation and deleveraging.

Q&A:

• Question from Marie Thibault (BTIG): Can you give more detail on the GLP-1 partnerships — how many partners have signed POs, timing, and how this might impact fiscal 2026 (understanding it's not assumed in guidance)?
  Response: Engaged with 30+ potential GLP-1 entrants; a handful have placed development orders and shipped in 2025; commercial timing is controlled by partners and uncertain — not assumed in base FY26 guidance though high-end could add ~1% revenue.

• Question from Marie Thibault (BTIG): What are you seeing on the ground in China regarding consumer preference for local brands and how is that playing out?
  Response: Q4 China performed in line with expectations; company reorganized sales, introduced a more price‑competitive/lower‑cost pen needle and expects a smaller China headwind in 2026 while viewing China as an important long‑term market.

• Question from Michael Polark (Wolfe Research): Why have cannula costs increased and what is the opportunity to source alternative suppliers to mitigate cost pressure?
  Response: Cannulas are currently sole‑sourced from former parent (BD) under an agreement through 2032; company has identified alternate suppliers, is running trials and expects to qualify at least one alternative well before 2032 to reduce cost and supply risk.

• Question from Michael Polark (Wolfe Research): Can you clarify the $7M year‑over‑year unfavorable price comment tied to milestone payments to a large U.S. pharmacy customer?
  Response: The $7M unfavorable impact reflected timing of contractual payments (rebates, marketing contributions and milestone/volume payments) to a large pharmacy customer, which affects quarter‑to‑quarter price comparatives.

• Question from Anthony Petrone (Mizuho): How will contracts with generic GLP-1 providers be structured during clinical and commercial phases — duration, minimums, economics, and stickiness?
  Response: Early engagements include NDAs, quality agreements and development orders; commercial supply will be bulk pen needles for co‑packaging (creating stickiness), with minimal incremental CapEx and expected favorable incremental margin, but specific commercial terms will be set post‑approval.

• Question from Anthony Petrone (Mizuho): With leverage declining, what's the appetite for capital deployment and tuck‑in M&A over the next few years?
  Response: Priority remains debt paydown (targeting $600M cumulative FCF 2026–2028); as leverage declines below targets the company is open to organic and opportunistic inorganic investments if value‑accretive.

• Question from Gracia Mahoney (BofA): You sold IP/assets associated with the discontinued patch pump for $10M — how should we expect this to flow through financials and guidance?
  Response: The $10M sale is a post‑year‑end cash inflow (Q1 event), will likely generate a gain but will be excluded from adjusted results and thus does not impact the adjusted metrics used in guidance.

• Question from Gracia Mahoney (BofA): How did pharmacy closures and prior stocking dynamics play out in H2 FY25 and what visibility do you have into pharmacy volumes for 2026?
  Response: Product is medically necessary so demand shifted to other outlets as expected; impacts were incorporated into FY26 guidance and the company expects pharmacy volume effects to be manageable and reflected in their volume assumptions.

Contradiction Point 1

GLP-1 Partnerships and Market Potential

It directly impacts expectations regarding the partnerships and market potential for GLP-1 products, which are crucial for future growth and revenue projections.

Can you provide more details on your GLP-1 partnerships? How many partners have signed POs, and what is the timeline? - Marie Thibault(BTIG, LLC)

2025Q4: Embecta is in discussions with over 30 potential GLP-1 entrants. Some partnerships have already provided orders for development purposes. Several of these firms have submitted regulatory submissions, with the first generic GLP-1s expected in Canada, Brazil, and India in 2026. Embecta is optimistic about the long-term opportunity, aiming for at least a $100 million annual revenue opportunity by 2033. - Devdatt Kurdikar(CEO)

Are compounders selling GLP-1 medication with syringes? Are you positively exposed to that syringe demand, or is your product not suitable for that use case? - Anthony Charles Petrone(Mizuho Securities USA LLC)

2025Q3: As we look forward, we're confident in the continued growth of GLP-1s and its significant market opportunity. We're also excited about the potential future opportunities with the insulin and pen needles for GLP-1s. - Devdatt Kurdikar(CEO)

Contradiction Point 2

China Market Strategy and Performance

It involves changes in strategic approach and performance expectations in the Chinese market, which are critical for regional growth and revenue projections.

What is the current state of consumer willingness to purchase non-Chinese products in China? - Marie Thibault(BTIG, LLC)

2025Q4: China's Q4 performance was in line with expectations. Embecta's focus is on stabilizing the situation, introducing a more price-competitive pen needle. 2026 guidance anticipates some headwinds but less than previously experienced. Embecta remains committed to China as a long-term market, continuing to develop a market-appropriate pen needle and considering it a significant market for future growth. - Devdatt Kurdikar(CEO)

Could you provide updated tariff rates in China and explain their potential impact on the P&L? Additionally, are there any demand impacts from Chinese inventory being redirected elsewhere, and how is the geopolitical backdrop affecting tariffs and demand? - Anthony Charles Petrone(Mizuho Securities USA LLC)

2025Q3: China's performance in Q2 was approximately $10 million below our plan due largely to China-specific geopolitical challenges. - Devdatt Kurdikar(CEO)

Contradiction Point 3

Cannula Sourcing and Cost Management

It involves changes in strategic sourcing and cost management for cannulas, which are critical components in product pricing and supply chain reliability.

Could you clarify the rising cannula costs and steps to find alternative suppliers? - Michael K. Polark(Wolfe Research)

2025Q4: Embecta's cannulas are currently solely sourced from BD. The team is working to identify alternative suppliers to mitigate cost increases and reduce reliance on a single source. Progress is being made, with trials run and development work done. This initiative aims to alleviate pressure on gross margins and ensure supply. - Devdatt Kurdikar(CEO), Jake Elguicze(CFO)

Regarding the store closures mentioned in Q2 that are impacting the second half, can you explain their effects in H2 and any visibility into broader trends through 2026? - Gracia Leydon Mahoney(BofA Securities)

2025Q3: Our margin outlook assumes increased cannula costs, which we expect will be in the $16 million to $18 million range. As we work with our supplier to increase capacity, we expect any incremental costs in Q3 to be a partial offset by volume increases. - Jake Elguicze(CFO)

Contradiction Point 4

GLP-1 Partnership Opportunities and Contract Structure

It involves differing perspectives on the structure and opportunities related to GLP-1 partnerships, which are crucial for Embecta's growth strategy.

Can you provide details on your GLP-1 partnerships, including the number of partners with signed POs and their timelines? - Marie Thibault(BTIG, LLC, Research Division)

2025Q4: Embecta is in discussions with over 30 potential GLP-1 entrants. Some partnerships have already provided orders for development purposes. Several of these firms have submitted regulatory submissions, with the first generic GLP-1s expected in Canada, Brazil, and India in 2026. - Devdatt Kurdikar(CEO)

Are there any quantifications for the GLP-1 pen needle opportunity in Germany and its outlook outside the country? - Kallum Titchmarsh(Morgan Stanley)

2025Q1: Progress in Germany continues as expected. Revenue from GLP-1s is not quantified due to procurement channels. - Dev Kurdikar(CEO)

Contradiction Point 5

Embecta's Financial Flexibility and M&A Strategy

It involves Embecta's financial flexibility and strategic approach to M&A, which directly impacts its ability to pursue growth opportunities.

What is the outlook for capital deployment beyond GLP-1 given reduced leverage ratios? - Anthony Petrone(Mizuho Securities USA LLC, Research Division)

2025Q4: Embecta remains open to potential M&A opportunities that are value accretive, focusing on reducing debt and maintaining flexibility for organic and inorganic investments. The company is prepared to act on opportunities that align with strategic growth objectives. - Devdatt Kurdikar(CEO)

At what leverage ratio would Embecta pursue M&A, and is the timeline near-term or longer-term? - Unidentified Analyst(BTIG)

2025Q1: Focus is on financial flexibility, aiming for <3x net leverage by end of 2025. M&A is opportunistic, with small acquisitions likely to drive growth. Current focus is on separation programs and debt reduction. - Jake Elguicze(CFO)