Ambekta has reported its fiscal fourth quarter and full year 2024 results, surpassing initial projections since its spin-off in April 2022. The company saw a constant currency compounded annual adjusted revenue growth of 1.3% and achieved an adjusted EBITDA margin of 31.4%. However, Ambekta announced the discontinuation of its insulin patch pump program, citing high investment costs, competitive pressures, and insufficient monetization strategies. Looking ahead, the company expects a slight decline in adjusted revenue for fiscal 2025 but aims to strengthen its core business, expand its product portfolio, and enhance financial flexibility, with plans to repay approximately $110 million in debt.
Key Takeaways
- Ambekta's Q4 adjusted revenue increased by 4.1% year-over-year to $290.2 million.
- The full year adjusted revenue grew by 1.1% on a constant currency basis to $1.127 billion.
- The adjusted EBITDA margin for fiscal 2024 was reported at 31.4%.
- The insulin patch pump program has been discontinued due to high investment requirements, market competition, and low monetization potential.
- Ambekta's strategic priorities include debt reduction, maintaining dividends, and exploring potential mergers and acquisitions (M&A).
Company Outlook
- Ambekta expects a decline in adjusted revenue of 1-2.5% for fiscal 2025.
- The adjusted gross margin is projected to be between 63.25% and 64.25%.
- Adjusted earnings per share are estimated to range from $2.70 to $2.90.
- The company anticipates repaying around $110 million in debt.
- The adjusted EBITDA margin is forecasted to be between 35.5% and 36.5%.
Bearish Highlights
- The discontinuation of the insulin patch pump program reflects challenges in product development and market competition.
Bullish Highlights
- Ambekta's focus on reducing debt and creating financial flexibility is aimed at enabling strategic M&A opportunities.
- The company plans to leverage its global commercial channel and manufacturing capabilities to expand its product portfolio.
Misses
- Despite overall growth, Ambekta is bracing for a potential revenue decline in the coming fiscal year.
Q&A Highlights
- CEO Dev Koudicar emphasized the necessity of the company's strategic changes, including the termination of the patch pump program, to ensure a stronger future.
- Koudicar also highlighted debt repayment as the current top priority, which is expected to enable future M&A activities.
- CFO Jake Elguis mentioned the company's efforts to optimize operating cost structures post-separation.
Full transcript - Embecta Corp (EMBC) Q4 2024:
Operator: Good day, and welcome to the IMVETA 4th Quarter of Fiscal Year 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr.
Pravesh Khandelwal, Vice President of Investor Relations. Please go ahead.
Pravesh Khandelwal, Vice President of Investor Relations, Ambekta: Thank you, operator. Good morning, everyone, and welcome to Ambekta's fiscal 4th quarter and full year 2024 earnings conference call. The press release and slides to accompany today's call and webcast replay details are available on the Investor Relations section of the company's website at www dotmbekta.com. With me today are Dev Koudicar, Ambekta's President and Chief Executive Officer and Jake Elguis, our Chief Financial Officer. Before we begin, I would like to remind you that some of the matters discussed in the conference call will contain forward looking statements regarding future events as outlined in our slides.
We wish to caution you that such statements are, in fact, forward looking in nature and are subject to risks and uncertainties, and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include, but are not limited to, factors referenced in our press release today as well as our filings with the SEC, which can be accessed on our website. In addition, we will discuss certain non GAAP financial measures on this call, which should be considered a supplement to and not a substitute for financial measures prepared in accordance with GAAP. A reconciliation of these non GAAP measures to the comparable GAAP measures is included in our press release and conference call presentation. Our agenda for today's call is as follows.
Dev will start by presenting an overview of our strategic priorities following the spin off and will highlight key accomplishments to date. He will also share insights into our future strategy and provide details of the restructuring plan announced today. Jake will then review our financial results for the Q4 and full fiscal year 2024 as well as discuss the preliminary guidance for fiscal 2025. 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 Goodacre.
Dev Koudicar, President and Chief Executive Officer, Ambekta: Good morning and thank you for taking the time to join us. Since the spin, which occurred on April 1, 2022, our strategic priorities over the past two and a half years have been focused in 3 areas. These included the need to strengthen and optimize our core business, the requirement to separate and stand up the organization from our former parent and to invest in growth opportunities. I'm pleased to report that during the past two and a half years, we made significant progress within each of these objectives. First, we strengthened our core business by securing exclusive end work preferred contracts with key Medicare Part D plans, as well as establishing our products as a top choice within major national formularies among other accomplishments.
2nd, we successfully completed major standard programs including the implementation of our own ERP, shared services and distribution network covering approximately 98% of our revenue base with only India remaining. We also executed a complex program to transfer the legal entity ownership of our manufacturing facility in China. I'm proud to say that we completed these activities and more, while avoiding interruptions to our customers, as well as avoiding disruptions to the people with diabetes who use our products daily. Finally, we continue to invest in growth. A testament to that is the clearance of our open loop patch pump, which occurred in Q4, as well as the launch of a small pad CLP-one 10 meter set in Germany, with the intent to address the needs of a growing customer base.
This strong execution, which occurred in a challenging macro environment, led to financial outcomes that exceeded 2024 expectations that were set prior to spin. This included delivering a constant currency compounded annual adjusted revenue growth rate of approximately 1.3% and an adjusted EBITDA margin of approximately 31.4%. This compared to initial pre spin expectations, which call for a flattish constant currency revenue CAGR, including significantly higher contract manufacturing revenue of non diabetes products for BD and an adjusted EBITDA margin of approximately 30%. As a reminder, we have provided these initial expectations in March of 2022 in a vastly different economic climate, unaware of the unprecedented challenges that would soon follow. Since that time, we navigated historic inflation, a rapidly rising interest rate environment, geopolitical conflicts and supply chain and labor issues.
Despite these factors, which we estimate cost us roughly 500 basis points negative margin impact, our team delivered. Lastly, during this most recent quarter, we initiated a debt pay down plan. This multi year commitment to reduce our debt obligations should position IMVEXXA with greater financial flexibility as we move forward. Turning to Slide 6, as we embark on the next phase of our journey, we recognize that building on our past accomplishments will require both prudent management of our capital structure and thoughtful investments to broaden our product portfolio to support future growth. Hence, this morning we announced a restructuring plan aimed at streamlining operations and reducing costs.
This restructuring program includes the decision to discontinue our insulin patch pump program. Following the recent U. S. FDA clearance that we received in the open loop version of the pump that could be used by people with Type 1 or Type 2 diabetes, the decision to seize the pump program may come as a surprise. However, it is important to understand that we did not intend to do a full market launch of this product as the open loop product currently cleared requires additional enhancements to be commercially competitive, including extensions of the products shelf life, as well as enhancements in the form of making the device compatible from a bring your own device perspective.
Most importantly, our goal since Spin was to come to market with a closed loop version of a patch pump that had a specific label designation for people with Type 2 diabetes. While our product development team has executed this program extremely well, achieving all internal milestones to date, it would take several more years of significant investment for us to complete a clinical study, obtain FDA clearance and build up the necessary commercial and support functions before fully commercializing that product and achieving the scale for it to be accretive to EBITDA. Additionally, we recognize the pump market has continued to evolve and we anticipate that competition in closed loop Type 2 indicated products may continue to intensify and our offering would require incremental investments to be market competitive. I also want to point out that upon FDA clearance of our open loop pump, which we announced in September, we performed a market check to identify potential opportunities that would allow us to monetize the asset. Since that did not surface any viable options, we acted promptly to discontinue the program.
The accompanying reorganization is designed to enhance the organization's profitability and cash flow, create a leaner and more efficient operation that would have greater financial flexibility to take advantage of opportunities that leverage our global commercial channel and strengthen high volume manufacturing. In terms of financial impact, we currently anticipate that we will incur pre tax cash charges associated with this reorganization of between $25,000,000 $30,000,000 Additionally, we anticipate that there will be non cash charges associated with asset impairments and asset write offs, which we currently estimate to be in the range of between $10,000,000 $15,000,000 on a pre tax basis. We expect that this restructuring will be largely complete during the first half of fiscal year twenty twenty five and will deliver annualized pre tax cost savings of between $60,000,000 $65,000,000 Lastly, given the recency of this decision, we have postponed our Analyst and Investor Day to the spring of 2025. This delay allows us to fully focus on executing this restructuring plan, so that when we come together for our Analyst and Investor Day, we will be able to provide a fuller view of a more streamlined organization. In summary, we believe this strategic reorganization is a proactive step to improve our financial health, enhance profitability and strengthen the company for the years ahead.
Moving to Slide 7. Moving forward, our focus will be on the next phase of IMVEXXA's transformation, which will be guided by 3 key strategic priorities continuing to strengthen the core business, expanding our product portfolio and increasing financial flexibility. First, I would like to explain how we are planning to strengthen the core business further. In addition to continuing to deepen our relationships with customers and maintain our leading share of categories, we intend to progress the implementation of our brand transition plan and seek growth opportunities. By advancing our brand transition plan, we are ensuring that Empekta's identity remains strong, clear and resonates across our markets.
We have been planning this transition since the spin off and we intend for the execution of this program to begin in phases during fiscal year 2025. Notably, we are not changing the product names or color schemes associated with our packaging. This is important as people with diabetes will continue to experience the same look and feel of our boxes that they have been accustomed to for many years. The U. S.
Will be the 1st region to undergo this transition, followed by Europe and then the other regions. We expect to be largely complete in the next couple of years, but successful execution will involve a carefully coordinated transition of packaging, labeling, registrations and regulatory certificates among other things. As with the separation activities we were discussing a year ago, our continued stand up and transition activities will involve temporary suspensions of our ability to manufacture or promote product in certain markets, which we intend to mitigate through inventory management and other measures that we successfully employed over the past year. Separately, we are actively pursuing other growth opportunities, identifying new areas to expand our reach and increase our impact. This includes both growing within our current markets and exploring untapped potential.
One of the most promising opportunities on the horizon for Embecta is the growth for GLP-one therapy. We believe that while GLP-1s may delay the progression to insulin independence, they do not eliminate the need for insulin. Furthermore, as GLP-one administration methods continue to evolve from auto injectors to pen injectors, which require pen needles, we anticipate incremental benefit to our business. As noted on an earlier call, we recently launched our new small pack pen needle product in Germany, specifically targeted for GLP-one administration. This product introduction marks an important milestone and we plan to expand this offering to additional markets in the future.
We are confident that this will help address the growing demand for pen based GLP-one administration, meeting the needs of an increasing number of patients using pens and pen needles. We will share more of our thoughts on the broader GLP-one market opportunity and how we intend to benefit in the coming years at our Investor Day in the spring. Our next strategic priority is to widen our product offering by leveraging our core strengths. One of the strongest assets is our global commercial channel comprising of 600 plus commercial resources with deep customer relationships with over half of these resources serving customers in the faster growing emerging markets. Adding market appropriate products that can be delivered via our existing channels will allow for increased productivity of our commercial resources.
Another core strength is our expertise in high volume While identifying the right products to manufacture will take time, we While identifying the right products to manufacture will take time, we intend to start exploring the possibilities now. Lastly, increasing financial flexibility is an important priority for us. We recognize that without that we are going to be limited in the strategic options available to us that could transition the company towards higher growth markets. Improving operational efficiencies at the heart of this priority. We are committed to refining our processes, eliminating inefficiencies and optimizing every aspect of our operations.
This approach goes beyond cost cutting. It ensures we remain lean, agile and ready to adapt. Additionally, we believe that reducing net leverage and debt creates a stronger financial base that enables us to make strategic investments and remain resilient regardless of market conditions. In summary, by strengthening the core business, expanding our product portfolio and increasing financial flexibility, our plan is to build a strong foundation for IMVEXXA's future. Now let's review our revenue performance for the quarter and the full fiscal year.
Before beginning our normal review, I wanted to highlight an event we worked through during the Q4. The Italian government introduced legislation back in 2015 requiring medical device companies that supply goods and services to the Italian National Healthcare System to pay back a portion of their proportional revenues to contribute to any deficit created by government budget overspend for medical devices each year. The payment amounts are calculated based on the amount by which the regional ceilings for that given year were exceeded. Numerous medical device companies challenged the enforceability of the law, primarily on the basis that the legislation was unconstitutional. The Italian Administrative Court referred the question regarding the constitutionality of the law to the Italian Constitutional Court, which in July 2024 issued a ruling upholding the law as constitutional.
Following the ruling of the Italian Constitutional Court, the appeal before the Italian Administrative Court will proceed with respect to the remaining legal arguments asserted by the appellants regarding the enforceability of the payback law. Since the law was enacted, our Q4 and full year revenue includes a reduction to revenue of $4,100,000 related to fiscal years 2015 to 2023. Given that this amount relates to prior years, we have normalized for this amount when calculating our adjusted constant currency revenue growth rates for both the quarter and the full year. Additionally, our 4th quarter and full year results also include a $1,200,000 reduction of revenue associated with fiscal year 2024. Given that this amount relates to the current year, we have not normalized for this impact, although it was not something that was previously contemplated in our prior financial guidance.
As litigation before Italian courts is still pending, final resolution is unknown at this time and it is possible that the amount of Ambecta's liability could differ from the amount currently accrued. Finally, you will notice that in addition to a typical geographic revenue disclosures, we are also providing a breakdown of our revenue on a product family basis. With that, I will now begin a review of our revenues for the Q4. All amounts that I will refer to are on an adjusted revenue and adjusted constant currency basis unless otherwise noted. In the Q4 of fiscal year 2024, Amvecta's adjusted revenues totaled $290,200,000 which represents an increase of 4.1% as compared to the prior year period or 3.3% if you were to exclude contract manufacturing revenue.
This exceeded our prior expectations with the outperformance in the quarter primarily related to the timing of orders from some distributors. The additional orders occurred as distributors attempted to mitigate any potential impact from the then looming U. S. Sports drive. While from a product family perspective, during the quarter, pen needle revenue grew approximately 2.8%, syringe revenue grew approximately 4.8%, safety products grew approximately 5.8% and contract manufacturing grew approximately 96%.
Within the year, during the quarter revenues totaled $167,400,000 which represented year over year growth of 10.3% on an adjusted constant currency basis. The year over year growth was primarily driven by the impact of the aforementioned distributor order timing, favorable pricing and growth in the sales of non diabetes products that were manufactured and sold to BD. Turning to our international business, during Q4, revenue totaled $122,800,000 which equated to a 3.1% decline on an adjusted constant currency basis as compared to the prior year period. The year over year decline within our international business was due to the as expected timing of orders within China in advance of the ERP implementation as well as absorbing the full year 2024 $1,200,000 impact of the Italian payback measure, which was all recorded in the Q4. This was partially offset by year over year increases in Canada, Latin America and Asia.
Turning to Slide 9. For the full year, IMVEKTA generated adjusted revenues of approximately $1,127,000,000 which represented an increase of 1.1% on an adjusted constant currency basis and remained unchanged at 1.1% if you were to exclude contract manufacturing revenue. Globally, our pen needle and safety product lines grew approximately 2.6% and 2.5% respectively as compared to fiscal 2023. Together, these two product categories represented around 86% of our consolidated fiscal year 2024 revenue. However, this growth was offset by a decline of approximately 9% within our syringe product lines, primarily driven by 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. Lastly, the contract manufacturing revenue of non diabetes products declined approximately 1.5% as compared to the prior year. While from a regional perspective, U. S.
Revenues totaled $607,200,000 which is an increase of 1% on an adjusted constant currency basis. Growth in the U. S. Was primarily due to favorable pricing dynamics, partially offset by continued end market volume declines for syringe products. Meanwhile, international revenues totaled $520,000,000 which equated to year over year adjusted constant currency growth of approximately 1.3%.
Growth internationally was driven primarily by volume growth within Canada, China and Asia, partially offset by declines within EMEA and Latin America. Lastly, and before I turn the call over to Jake, I want to highlight that since then we have been able to successfully increase the prices of our products, particularly within the U. S. To help offset inflationary pressures. However, during 2025, we anticipate that pricing will turn into a headwind as we seek to renew agreements whose terms are expiring.
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 2025. Jake?
Jake Elguis, Chief Financial Officer, Ambekta: Thank you, Deb, and good morning, everyone. Given the discussion that has already occurred regarding revenue, I will start my review of IMVEXXA's financial performance for the Q4 at the gross profit line. GAAP gross profit and margin for the Q4 of fiscal 2024 totaled $173,800,000 60.7 percent respectively. This compared to $181,800,000 64.5 percent in the prior year period. While on an adjusted basis, our Q4 2024 adjusted gross profit and margin totaled $178,300,000 61.4 percent.
This compared to $182,600,000 64.8 percent in the prior year period. The year over year decrease in adjusted gross profit and margin was expected and was primarily driven by the impact of lower absorption at our plants as we intentionally reduced inventory levels from Q3 to Q4 as we are now substantially complete with our ERP implementations. Additionally, the year over year decline in gross margin in the quarter was also due to revenue mix as well as from the impact of inflation on the cost of certain raw materials, direct labor, freight and overhead and the negative impact of foreign currency translation, primarily due to the weakening of the U. S. Dollar.
These headwinds were somewhat offset by favorable pricing. While from a sequential basis, we saw a step down in adjusted gross margin from Q3 to Q4. This was something that we expected to occur and noted on our Q3 earnings conference call and is due to the profit and inventory benefit we experienced within our Q3 results. Turning to our GAAP operating income and margin. During the Q4, they were $26,200,000 9.2 percent.
This compared to $25,800,000 9.2 percent in the prior year period. While on an adjusted basis, our Q4 2024 adjusted operating income and margin totaled $61,200,000 21.1 percent. This compared to $65,200,000 and 23.1% in the prior year period. The year over year decrease in adjusted operating income is due to the adjusted gross profit changes I just discussed as total operating expenses were in line with the year ago quarter. Importantly, total operating expenses were flat as compared to the year ago period despite absorbing approximately $2,500,000 of additional amortization expense associated with the ERP system implementations that occurred during this year.
As Deb mentioned earlier, we are continuing to focus on managing operating expenses and becoming a more efficient organization as we move forward. Turning to the bottom line, GAAP net income and earnings per diluted share was $14,600,000 $0.25 during the Q4 of fiscal 2024, which compared to $6,000,000 $0.10 in the prior year period. While on an adjusted basis, net income and earnings per share were $25,900,000 $0.45 during the Q4 of fiscal 2024. This compared to $34,100,000 $0.59 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 an increase in year over year interest expense associated with the rise in sulfur and the impact that that had on our variable interest rate debt.
This was somewhat offset by a reduction in our adjusted tax rate from approximately 14% in Q4 of 2023 to approximately 9.5% in Q4 of 2024. The lower non GAAP tax rate was due to certain tax planning initiatives, which were completed before year end as well as the geographic mix of profitability. Lastly, from a P and L perspective, for the Q4 of 2024, our adjusted EBITDA and margin totaled approximately 73,000,000 dollars 25.2 percent. This compared to $79,600,000 28.2 percent in the prior year period. Turning to the balance sheet and cash flow.
At the end of the Q4, our cash balance totaled approximately $274,000,000 while our last 12 months net leverage as defined under our credit facility agreement stood at approximately 3.8 times. As a reminder, our net leverage covenant requires us to stay below 4.75 times. Our ending cash balance includes a use of cash during the year of approximately $165,000,000 associated with one time separation activities. Lastly, during both our second and third quarter earnings calls, I mentioned that we expected to end this year with a cash balance of approximately $300,000,000 and that would have been the case. However, we proactively paid down an additional $25,000,000 of our term loan B debt before fiscal year end.
As now that we are substantially complete with separation activities, we want to take steps to pay down debt more aggressively. That completes my comments on our fiscal Q4 results. Next (LON:NXT), I'll provide a brief review of our full year 2024 financial results. GAAP gross profit and margin for fiscal 2024 totaled $735,200,000 65.5 percent respectively. This compared to $749,900,000 66.9 percent in the prior year.
While on an adjusted basis, our 2024 adjusted gross profit and margin totaled $740,700,000 65.7 percent. This compared to $751,200,000 67% in the prior year. The year over year decrease in adjusted gross profit and margin was primarily driven by the impact of inflation on the cost of certain raw materials, direct labor, freight and overhead. The impact of negative manufacturing variances stemming from the temporary shutdown of our manufacturing facility in China and the negative impact of foreign currency translation, primarily due to the weakening of the U. S.
Dollar. These headwinds were somewhat offset by the impact of profit and inventory adjustments resulting from inventory that was sold to external customers that was manufactured in anticipation of our ERP system and other business continuity processes that went live during fiscal year 2024 and favorable pricing. Turning to GAAP operating income and margin. During 2024, they were $166,800,000 14.9 percent. This compared to $221,500,000 19.8 percent in the prior year.
While on an adjusted basis, our 2024 adjusted operating income and margin totaled 296 $900,000 26.3 percent. This compared to $331,500,000 29.6 percent in the prior year. The year over year decrease in adjusted operating income is due to a combination of factors, including the adjusted gross profit changes I just discussed, as well as an increase in adjusted SG and A. The increase in SG and A costs were all related to standing up the organization and were associated with increased compensation and benefit costs due to increased headcount as well as increased outbound freight and warehousing costs. These additional costs were somewhat offset by a reduction in TSA expenses.
Turning to the bottom line, GAAP net income and earnings per diluted share was $78,300,000 $1.34 during fiscal 2024, which compared to $70,400,000 $1.22 in the prior year. While on an adjusted basis, net income and earnings per share were 143,100,000 dollars $2.45 during fiscal 2024. This compared to $172,600,000 $2.99 in the prior year. Like my comments relating to the Q4, 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 an increase in year over year interest expense associated with the rise in sulfur, somewhat offset by a reduction in our adjusted tax rate from approximately 23% in 2023 to approximately 20% in 2024. Lastly, from a P and L perspective, during 2024, our adjusted EBITDA and margin totaled approximately $353,400,000 and 31.4%.
This compared to $378,700,000 33.8 percent in the prior year. In closing, during fiscal year 2024, we were pleased with our ability to raise our financial guidance following each quarter of the year, ultimately ending fiscal year 2024 with financial results that were above the high end of our most recently provided guidance ranges for most financial metrics. The ability to generate these results was no small task, particularly given all the separation oriented activities that we focused on during the year. This is a testament to the resiliency of our products and our people who put in countless number of hours to make IMVEXXA successful. That completes my prepared remarks on our Q4 and full year 2024 results.
Next, I would like to discuss IMVEXXA's preliminary 2025 financial guidance and certain underlying assumptions. Given that we have made the decision to discontinue the insulin patch pump program, our financial guidance metrics for 2025 will exclude all costs associated with the patch pump program for the entirety of the year. As Deb mentioned earlier, we anticipate that this restructuring and shutdown of the program will be largely complete during the first half of fiscal year twenty twenty five. Additionally, for comparability purposes, as we move forward during the year, we will also update our prior year 2024 adjusted financial results to also exclude the costs we incurred associated with the Patch Pump program. As a reminder, during fiscal year 2024, we incurred approximately $63,000,000 of total expense related to the pump program or approximately $16,000,000 per quarter.
With that, let me review our initial 2025 financial guidance ranges beginning with revenue. On an adjusted constant currency basis, we currently anticipate that our revenues will be down between 1% 2.5% as compared to 2024. At the high end of our constant currency revenue range, we have factored in that volumes remain relatively flat as declines in the U. S. Are offset by continued growth within emerging markets, most notably China and Asia.
While from a pricing perspective, during 2025, we currently anticipate that price will be a headwind of approximately 1% due to the pricing concessions that Deb mentioned earlier related to the renewal of agreements whose terms are expiring. While at the low end, we are assuming all the same factors impacting our high end, except for the potential of greater year over year headwinds associated with volumes within the U. S. Turning to our thoughts on FX, our initial guidance calls for a foreign currency headwind of approximately 0.6% during 2025. This assumption is based on foreign exchange rates that were in existence around the mid November timeframe, including a euro to U.
S. Dollar exchange rate of approximately 1.08. Somewhat offsetting FX is the fact that our as reported 2025 GAAP revenue will not be impacted by the 2015 through 2023 amount that we needed to accrue associated with the Italian payback measure, which impacted our 2024 as reported GAAP revenue. This equates to a tailwind of approximately 0.4%. On a combined basis, our as reported revenue guidance calls for a decline of between 1.2% and 2.7% resulting in an initial revenue guide of between $1,093,000,000
: $1,110,000,000
Jake Elguis, Chief Financial Officer, Ambekta: Turning to adjusted gross margin, we currently anticipate that our 2025 adjusted gross margin will be in the range of between 63.25 percent 64.25 percent or a decline at the midpoint of approximately 200 basis points as compared to 2024 levels. The largest anticipated year over year headwind being that we will not see the same level of benefit in 2025 that we did in 2024 related to profit in inventory, which alone is expected to be a year over year headwind of approximately 150 basis points. Additional gross margin headwinds are associated with pricing and inflation, which are somewhat offset by a variety of productivity initiatives identified by our manufacturing team. Continuing down the P and L, given that we are largely complete with separation, including the establishment of necessary internal full time resources, we expect that our adjusted SG and A as a percentage of revenue will be flattish as compared to 2024 levels. While from an adjusted R and D perspective, which excludes the Patch Pump program, we expect R and D as a percentage of revenue to approximate 2%.
All totaled, we anticipate that our adjusted operating margin during 2025 will be between the range of 29% 30%. Moving to earnings, during 2025, our initial guidance calls for an adjusted diluted earnings per share range of between $2.70 $2.90 and it's based on a weighted average diluted share amount of 58,900,000 shares. Our initial adjusted earnings per share range includes an assumption that during 2025, we will repay approximately $110,000,000 in debt and that our annual net interest expense will be approximately $107,000,000 Our guidance assumes that we will use between $50,000,000 $60,000,000 of cash during fiscal 2025 associated with separation costs, largely related to brand transition, between $25,000,000 $30,000,000 in cash usage associated with the discontinuation of our insulin patch pump program and approximately $20,000,000 in capital expenditures. While from a tax perspective, our initial adjusted earnings per share range assumes that our annual adjusted tax rate will be approximately 25%, which includes the impact of Pillar 2. Lastly, our initial guidance for fiscal year 2025 calls for an adjusted EBITDA margin of between 35.5%
Dev Koudicar, President and Chief Executive Officer, Ambekta: 36.5%.
Jake Elguis, Chief Financial Officer, Ambekta: 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 2025. Moving forward, we may not provide any further commentary concerning the quarterly cadence of revenue on an ongoing basis. During fiscal year 2024, we generated approximately 50% of our adjusted revenue dollars during the first half of the year, including approximately 25% during the Q1. During 2025, we currently anticipate generating a slightly lower percentage of our annual revenue during both the Q1 and first half of twenty twenty five as compared to the prior year periods. Since the first half of twenty twenty four revenue was positively impacted by customers buying additional product in advance of our ERP implementations, as well as because of the additional orders we received from some U.
S. Distributors during Q4 of 2024 due to the then looming U. S. Port strike. That completes my prepared remarks.
And at this time, I would like to turn the call over to the operator for questions. Operator?
Operator: Thank And our first question will come from the line of Marie Thibault with BTIG. Your line is open.
Marie Thibault, Analyst, BTIG: Hi, good morning. Congrats on a great quarter and guide. I wanted to ask here about the patch pump program and try to understand a little bit better what's coming next. Congrats on making a decision there. But want to understand a little bit about what you're hoping to do with the free cash flow generation in addition to paying down debt.
Are there other capital allocation priorities that you want to highlight, whether that's I know you pay a dividend, but increasing a dividend or share repurchases or potentially M and A, anything else to consider there?
Dev Koudicar, President and Chief Executive Officer, Ambekta: Good morning, Mariel. Maybe I'll kick off and then Jake can augment as needed. So regarding the patch pump, it was truly just a very pragmatic capital allocation decision. And it was after achieving a pivotal milestone. As I said in my prepared remarks, we did a market check as well.
With regard to capital allocation, our number one priority right now is to pay down debt, because we think that being able to do that will actually create the financial flexibility to make some M and A moves. Continuing to invest in the patch pump would have squeezed out any opportunities for us either on the M and A side or frankly even making additional investments in our own manufacturing or commercial capabilities. So just to be very clear about that, even though I covered it exhaustively, I believe in the prepared remarks, this was purely a capital allocation decision, had nothing to do with the design of the pump or the performance of our team with respect to meeting internal milestones. As you pointed out, we already pay a dividend to our shareholders. At this point, we don't see any change in that.
And our focus certainly in fiscal 2025 is going to be on paying down that debt, creating the financial flexibility. We still have one more separation related thing to do, which is brand transition, executing that very well. That's a complex program as well. And certainly, when it comes to M and A, we'll share more of those thoughts at the upcoming Analyst Day. But we certainly intend to find opportunities that are going to allow us to leverage our global commercial channel of 600 plus commercial employees around the world, particularly in emerging markets, which are faster growing, as well as leverage our manufacturing competencies, particularly in injection molding and the fact that we make 8,000,000,000 devices a year with robust quality standards.
And so those are the areas related to which that we look into, but certainly we'll share more at the Analyst and Investor Day in spring of 2025, Greg.
Marie Thibault, Analyst, BTIG: Thank you.
Jake Elguis, Chief Financial Officer, Ambekta: Yes. Maybe just to add on just briefly here. I think in terms of cash usage, I think the way that you should sort of think about it is, we ended 2024 with a cash balance of roughly $274,000,000 on the balance sheet. I think our expectation is that we'll probably end 2025 with a similar, if maybe slightly higher amount of cash on our balance sheet. And essentially any of the savings, if you will, Marie, from not having to spend in those one time separation costs.
We expect to spend about we spent around $165,000,000 in 2024 related to one time separation costs. We mentioned that we intend to spend around $50,000,000 to $60,000,000 this year largely around brand transition in 2025. So I think those cash savings of around $110,000,000 that's really going to get repurposed into debt pay down in 2025. And to the extent that we're able to continue to generate more cash, I think we'll even more aggressively try and pay down debt. But that's sort of the base case assumptions.
And I think if you think about what our guide implies today in terms of net leverage, it would sort of indicate that by year end, we would get down to around a 3 times net levered mark. And I think as we move into 2026, the free cash flow capabilities of the company will even improve or so as we don't see any really meaningful separation oriented spending. So hopefully that provides a little
Pravesh Khandelwal, Vice President of Investor Relations, Ambekta: bit more detail for you.
Marie Thibault, Analyst, BTIG: Yes, that's very helpful. Thank you both. And then I guess I'll ask kind of a macro question. We're getting more tariff headlines of course this morning. Can you just confirm for us your thoughts on sort of any impacts, if any, from potential tariffs in China and Mexico and elsewhere?
And any thoughts on, I guess, you're including Pillar 2 in your taxes, any thoughts on FX and some of the big moves we've seen recently? Just any further thoughts on some of those macro points? Thanks so much for taking the questions.
Dev Koudicar, President and Chief Executive Officer, Ambekta: Yes. Thanks, Puneet. Again, I'll kick off with tariffs and turn it over to Jake to talk about taxes and FX. Look, obviously, tariff policy, we all expect will continue to evolve. But based on what we know today, a very, very small portion of our U.
S. Revenue is from products manufactured in China. And with respect to tariffs from China, I mean, it remains to be seen how customers may react to products that they currently source from China that might get tariffed in the future. Supply uncertainty of those products might create an opportunity for us that we certainly we stand ready to capitalize on. And look, we'll watch this space and respond accordingly.
The overnight headlines around Canada and Mexico, we don't manufacture products in Canada and Mexico. Obviously, we would need to review all those guidelines when they come out in more detail. And certainly, at this point, it's difficult to forecast any retaliatory tariffs that Canada and Mexico may apply on us. Canada and Mexico are both important markets for us. So we'll certainly watch this space, Marie.
I know it's rapidly developing and certainly we'll update on future calls as sort of our perspective becomes clearer. Jake?
Jake Elguis, Chief Financial Officer, Ambekta: Yes. Marie, as it relates to the tax rate, so I think our non GAAP tax rate in 2024 was around 20%. I think the team did a very nice job of trying to implement a variety of different planning initiatives, particularly towards the end of the year that allowed that to continue to go down. Keep in mind that also included any of the expenses in 2024 associated with the patch pump. Meanwhile, in 2025, our guidance obviously excludes any of the expenses associated with the patch pump for the full year.
So it is somewhat of an apples and oranges comparison, but if I had to try and bridge from the 20% to the 25% in 2025, I would say that around 2.5% of that 5% increase alone is due to the impact of Pillar 2. And then the remainder is really due to a mix of additional U. S. Tax on foreign earnings as well as just less R and D tax credits that we would expect to occur. From an FX standpoint, again, I think we sort of pegged our initial guidance and closed that down a couple of weeks ago with the FX rates that existed in the sort of mid November timeframe, including a euro of $108,000,000 I think that obviously we'll have to continue to keep track of how those FX moves continue to belong during the course of the year.
But in relation to year over year, I think our original our initial guide today would assume a revenue headwind of around 6,000,000 dollars And I think an adjusted earnings per share headwind year over year of around, let's call it around $0.05
Marie Thibault, Analyst, BTIG: Very helpful. Thank you and good luck. Thank
Operator: you.
Dev Koudicar, President and Chief Executive Officer, Ambekta: Thank you.
Operator: One moment for our next question. And that will come from the line of Calum Titchmarch with Morgan Stanley (NYSE:MS). Your line is open.
: Good morning, guys, and thanks for taking the question. Just on the Patch Bump, I feel like many of the points you mentioned when it comes to rationalizing the discontinuation were pretty well known for some time. We knew it would require a step up in R and D. We knew you'd need to establish that sales force and we knew competition had been intensifying in the space for many years. So why do you think it took this much time to decide to discontinue the program?
Would just love a bit more color on that thought process if possible? And then I have one follow-up. Thanks.
Dev Koudicar, President and Chief Executive Officer, Ambekta: Yes. Thanks, Calum. I'll take that. Look, as I mentioned, I mean, at this point, as we look forward over the next several years and want to create opportunities for growth that are perhaps more aligned with the company's core strength, we decided that taking those savings and focusing on debt pay down was the best option going forward. But with regard to your question of why now, let me say this, right.
I mean, if we think about 12 to 18 months ago, there was certainly deal activity going on around pumps. There was fundraising activity going around pumps. And at that time, we were on the doorsteps of submitting our 510 application to the FDA. And we decided that going through the process, getting clearance and then looking for ways to monetize that asset was, of course, we decided to pursue, which we did. We got the clearance.
As soon as we got the clearance, we did a market check to evaluate opportunities to monetize the asset, none surfaced. And obviously, over this time, there's certainly the market has continued to evolve, not just in the pump space, but also in the drug space. And so we just made a pragmatic decision that given that the market check had not turned up any alternatives even for a 510 cleared pump, Given what we saw with respect to how we should allocate our capital in the future, we promptly after clearance decided to discontinue the program once the market check was complete.
: That's helpful. And then when thinking about new opportunities to push into, are there any restrictions we should be aware of that relates to BD post spin? I think maybe auto injectors was called out historically as something that maybe could have been developed in house, but correct me if I'm wrong there.
Dev Koudicar, President and Chief Executive Officer, Ambekta: Yes. Look, from an M and A perspective, certainly there are no restrictions. Once we have paid down debt and created some financial flexibility for ourselves, we can certainly proceed in any area that makes sense for us as a company. There are certainly as part of our separation agreements, there are restrictions on what we can do with the technology that was acquired by us at the point of separation. So there's certainly some restrictions around that.
But in terms of our go forward strategy, which is why creating this financial flexibility is so important because it really creates a vast space for us to go explore and that leverages our core competencies.
: That's helpful. Thanks a lot.
Operator: Thank you. One moment for our next question. And that will come from the line of Michael Pollark with Wolfe Research.
Michael Pollark, Analyst, Wolfe Research: Good morning. Thank you. 2 follow ups on the patch pumps decision. I'll ask the question this way. Do you think there still could be residual value here?
I agree that the pump market continues to intensify. However, as it relates to patch options, the U. S. Market is still several years away. And so you were kind of, I think, as close as anyone.
And so, while you've said you've conducted a market check, is there a chance that there's interest in absorbing or taking over your product from someone else? Or as you restructure here, does that kind of shut the door for that possibility?
Dev Koudicar, President and Chief Executive Officer, Ambekta: Mike, good morning. Thanks for the question. So look at this point, I would say the market check that we did, we arrived at the conclusion that there wasn't a viable option to monetize the asset, right? Would I ever rule anything out in the future? If But if somebody was interested in the value of the asset, the But if somebody was interested in the value of the asset, the IP, all of that, certainly we'd be open to those discussions, Mike.
Michael Pollark, Analyst, Wolfe Research: Understood. Appreciate that. The follow-up is on the savings from this update. Jake, I heard $63,000,000 of expense on the pump in fiscal 2024, sounded familiar. The guidance on a pro form a basis for the benefit from this restructuring program is $60,000,000 to $65,000,000 So it's kind of captures the spend last year, but it sounds like there might be something more than just the patch pump discontinuation in this restructuring announcement.
So is there or is this really contained to the patch program and therefore that's why the savings numbers align? Thank you so much.
Jake Elguis, Chief Financial Officer, Ambekta: Yes, Mike, you're correct. It is really the restructuring announcement that we made this morning is tied to the discontinuation of the pump, hence the alignment of the figures from 2024 into our thoughts on the annualized basis going forward into 2025 beyond. Now that said, I would say that now that we're through separation, and I think we're going to continue to look for ways moving forward to continue to reduce costs and just cost optimization. So that is certainly nothing that is necessarily factored into our numbers that we put out today in terms of our guidance. But obviously, now that we're through separation, we're going to continue to try and just be as efficient as possible in terms of our operating cost structure.
Operator: Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Deb for any closing remarks.
Dev Koudicar, President and Chief Executive Officer, Ambekta: Thank you, operator. As we wrap up the call, I want to extend my heartfelt appreciation to all my colleagues at Embekta across the globe. As you look back over the last two and a half years, our global team has executed complex major separation related initiatives with dedication and resilience and achieved the expectations that we had laid out even prior to spin. With that said, I also want to acknowledge the restructuring plan that we announced today and recognize that these changes have impacted many of our valued team members. To those affected, we are sincerely grateful for your contributions and I'm conscious of the difficult transitions that this decision has brought for so many.
We believe these changes, though challenging, are necessary steps to strengthen IMVEXX setting us up for a stronger, more sustainable future. Finally, we look forward to engaging with all of you at upcoming conferences and at our rescheduled Investor Day in spring of 2025, where we'll share more about our vision for IMVEXXA. I wish you and your loved ones a Happy Thanksgiving. Thank you.
Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
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