Earnings Call Transcript - EBS Q1 2026

Operator, Operator

Good day and thank you for standing by. Welcome to the Q1 2026 Emergent BioSolutions Earnings Conference Call. Operator instructions: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Frank Vargo, Vice President, Treasurer.

Frank Vargo, Vice President, Treasurer

Good afternoon, everyone, and thank you for joining us as Emergent discusses its operational and financial results for the first quarter of 2026. As is customary, today's call is open to all participants. It's being recorded and is copyrighted by Emergent BioSolutions. In addition to today's press release, a slide presentation accompanying this webcast is available to all webcast participants. Turning to Slide 2. During today's call, Emergent may make projections and other forward-looking statements related to its business, future events, prospects or future performance. These forward-looking statements are based on our current intentions, beliefs and expectations regarding future events. Any forward-looking statements speak only as of the date of this conference call, and except as required by law, Emergent does not undertake to update any forward-looking statements to reflect new information, events or circumstances. Investors should consider this cautionary statement as well as the risk factors identified in Emergent's periodic reports filed with the SEC when evaluating these forward-looking statements. During today's call, Emergent may also discuss certain non-GAAP financial measures that include adjustments to GAAP figures to provide additional transparency regarding the company's operating performance. Please refer to the tables included in today's press release. Turning to Slide 3. The agenda for today's call includes remarks from Joe Papa, President and Chief Executive Officer, who will provide an update on the company's leadership in public health preparedness, business performance and key highlights. Rich Lindahl, EVP and Chief Financial Officer, will then review the first quarter 2026 financial results and provide an update on full year 2026 guidance. Joe will conclude with a discussion of the company's key catalysts for growth, followed by a question-and-answer session. Finally, for the benefit of those who may be listening to the replay of this webcast, this call was held and recorded on April 30, 2026. Since that time, Emergent may have made announcements related to topics discussed during today's call. With that, I would now like to turn the call over to Joe Papa. Joe?

Joseph Papa, President and Chief Executive Officer

Thank you, Frank, and good afternoon, everyone. Welcome to our first quarter 2026 earnings call. This is Joe Papa, and I'm joined today by Rich Lindahl, our Chief Financial Officer. Let's turn to Slide 5. Our aspiration at Emergent is to be the leader in solving public health threats around the world. Over the last 25 years, we have built what we believe is the most diverse biodefense product portfolio in the world. Our medical countermeasures address anthrax, smallpox, mpox, Ebola, botulism and complications from smallpox vaccination, alongside the leading branded naloxone franchise with our NARCAN Nasal Spray, which has a decade of trusted brand leadership. We believe in our unique position within the industry to demonstrate just how public-private partnerships are critical to national security. Turning to Slide 6. Since implementing our multiyear transformation plan in 2024, we have stabilized and rightsized the company in order to provide Emergent with a strong foundation for future growth. 2026 marks a pivotal year of our transformation as we invest in high-growth opportunities. I'm pleased to note that this process is now well underway. We are focusing on segment revenue growth and improved operating performance. We are generating strong cash flow for continued investment in internal R&D and quality capabilities. We have identified product acquisition opportunities that address unmet medical needs and have the potential for sustainable long-term revenue growth. Debt reduction will remain a priority for us. In 2025, we reduced our net debt levels by approximately 22%, and we have planned for further improvement on our balance sheet and credit ratings. Collectively, these activities are about putting in place the foundations for creating sustainable long-term value creation. Let's move to Slide 8, we'll take a look at our first quarter highlights. Thanks to the great efforts of our Emergent team our first quarter results are evident in both our top and bottom-line performance. We reported first quarter revenue of $156 million, which exceeded the high end of our guidance range and was ahead of internal expectations. Adjusted EBITDA came in at $36 million, also above our internal expectations, representing a 23% margin. It's driven by continued efforts to deliver a lean and operationally efficient customer-centric business model. For example, net working capital improved by over $100 million since Q1 2025. We improved our cash balance by $11 million versus the prior year to $160 million, and our total liquidity increased to $260 million. Our strong cash position enabled the repayment of $110 million in debt last year. On the capital allocation side, we continue to create value. In April, we announced the refinancing of our prior term loan, which enabled us to secure a more favorable interest rate. We also amended our revolver to $50 million and established a new delayed draw term loan facility for $75 million. We also continued our share repurchase program, buying back $9 million in shares in the first quarter. Since the start of the share repurchase program in 2025, Emergent has repurchased approximately $34 million of shares. Turning to our business performance. Overall, medical countermeasures performed very well, reflecting increased global demand and strategic diversification in our international markets, which now represent 37% of our total MCM revenue. We received four contracted product orders in the quarter. With respect to the naloxone business, we continue to maintain share leadership. We command a competitive pricing strategy and recently launched our newest product offering, the NARCAN Nasal Spray carrying case and a multipack configuration, both of which are already performing very well in the first month of launch. We believe on Slide 9, the world is an increasingly dangerous place and public health preparedness in the face of potential threats is critical. We are proud of our long-standing partnership with the government of Canada. And in Q1, we announced a $140 million multiproduct agreement. We also executed a $54 million legal award with ASPR and approximately $21.5 million delivery order to supply BioThrax to the Department of Defense. Our MCM business represents an important driver of our future growth. And with the added flexibility from our recent financing, we see multiple opportunities to acquire high-growth and complementary products to our MCM portfolio. Our mission on Slide 10 to protect to save lives is answered every day with the work we do to drive access, awareness and availability of life-saving naloxone. We are in lockstep with U.S. public interest customers, Canadian health officials, retail customers and all the communities in need. We're keeping pulse on the staggering overdose death rates and ensuring our best efforts to help combat the thousands of lives lost each month. We believe over-the-counter access to NARCAN should be more publicly accepted and normalized, just as other life-saving emergency tools are like defibrillators or fire extinguishers. This week, there was news about national opioid settlement funds of over $50 billion, which supports states, local municipalities, tribes and other entities to help turn the tide in the detrimental effects of the opioid crisis. The Purdue settlement alone released over $5 billion for states for education and naloxone purchase. There's a tremendous amount of work left to be done to expand access and awareness to naloxone and to ultimately bring the number of overdose deaths down to zero. Federal and state programs also continue to support naloxone funding and services through the SOR and substance use block grants. We just announced a new awareness effort with professional baseball player Davis Schneider. Davis Schneider shares his personal story in his late brother's honor. Our goal is to raise the awareness of NARCAN and help save lives from opioid poisoning, so no more families feel the same heartbreak. Additionally, we recently announced a partnership with British Columbia to supply NARCAN Nasal Spray for the province's take-home naloxone program. This order called for an additional investment of CAD 18 million by the government of British Columbia. In the U.S., the public interest channel performed in line with our expectations for the quarter. The U.S. FDA approved our NARCAN Nasal Spray carrying case and multi-pack options, delivering on our promise to offer new line extensions to patients and customers. We will continue to engage the public across the country, especially on college campuses with our ready-to-rescue campaign to help drive adoption where young adults are present. Since 2016, Emergent has delivered more than 100 million doses of NARCAN Nasal Spray to people, communities and businesses across the U.S. and Canada to help save lives from opioid poisonings. On Slide 11, we are pleased to share that as part of our durable and sustainable footprint we are now expanding our Canton manufacturing site in Massachusetts. Our new strategic partnership with Substipharm Biologics enables us to restart the manufacturing of the Canton facility to support the Japanese encephalitis vaccine. Emergent entered into a U.S. distribution agreement with Substipharm to support the product opportunity with the U.S. government following U.S. FDA approval. This opportunity establishes our new approach to external manufacturing partnerships, moving beyond a fee-for-service CDMO approach to one that allows us to share the product's potential success. In addition, just yesterday, we announced a second strategic manufacturing partnership with SAB Biotherapeutics to advance their type 1 diabetes autoimmune candidate. This work will be led by our Winnipeg team. We're excited for the ability to partner with such a dynamic company. Let's hear from Rich, who will run through our financial results. Rich?

Richard Lindahl, EVP and Chief Financial Officer

Thank you, Joe, and good afternoon, everyone. Thank you for joining our call today. We started fiscal year 2026 with a strong first quarter with revenue exceeding the top end of our guidance. We've also advanced key strategic priorities and improved our cash and liquidity position versus the prior year. Execution of our 2026 turnaround plan is well underway as we work toward our near-term financial and operational goals, building on the stabilization and rightsizing actions completed over the last two years. We also expect the refinancing announced two weeks ago to provide strategically important balance sheet flexibility, lowering interest costs, extending maturities and adding access to incremental capital to support both operational execution and our longer-term growth initiatives. Turning to Slide 13. Our first quarter results were in line with our expectations and reflect continued progress on execution. Total revenue for the first quarter of 2026 was $156 million, which came in above the high end of our prior Q1 revenue guidance of $135 million to $155 million. As a reminder, on our last earnings call, we pointed out that our 2025 results benefited from a large international order that we do not currently expect to repeat in 2026. That order contributed approximately $60 million of revenue and $50 million of adjusted EBITDA to our first quarter 2025 results and significantly influences the year-over-year comparisons of these metrics. Beginning in 2026, we are adding back non-cash stock compensation to our adjusted EBITDA. This is consistent with our peers and provides a more comparable view of profitability on a cash basis. It also aligns with the covenant calculations under our new debt agreement. In the first quarter, adjusted EBITDA and adjusted EBITDA margin were $36 million and 23%, respectively, reflecting the quarterly revenue profile. Adjusted gross margin was 52%, reflecting the high fixed-cost nature of our operations. We also maintained strong cost discipline. Operating expenses were $57 million in the first quarter of 2026, down $10 million year-over-year, and R&D spend declined by about one-third compared to the first quarter of 2025. Total revenue was $156 million, supported by a solid contribution from naloxone as we continue to maintain a market leadership position. The MCM portfolio performed above our expectations, driven by U.S. government order timing and shipments. International MCM revenue was 37% of total MCM revenues in the quarter, representing continued strong demand and diversification beyond the U.S. government. On Slide 16, we highlight the sustained improvements across our quarterly financial metrics. Liquidity and cash both improved by $11 million year-over-year, and we reduced net debt by $122 million or approximately 22% versus the first quarter of 2025. As a result, we continue to see improvement in our net leverage ratio, which was 2.4x adjusted EBITDA at 1Q '26 versus 2.7x at the first quarter of '25. This level gives us meaningful financial flexibility as we evaluate capital allocation priorities to further strengthen our long-term growth profile. This observation provides a good segue to our April 2026 debt refinancing transaction, which is highlighted on Slide 16. Also noted there, we decreased our total term loan debt by $100 million versus the first quarter of 2025. And we increased finance capacity with the addition of a new fully committed delayed draw term loan of $75 million. As Joe noted earlier, the April 2026 debt refinancing was an important milestone for Emergent. First, it strengthens our ability to preserve liquidity to support ongoing operations and advance long-term strategic initiatives. Second, it lowers our interest expense, freeing cash flow that can be redeployed into value-creating investments that support growth. Finally, it meaningfully extends our maturity profile and improves covenant terms. Taken together, these actions help establish a stronger financial foundation to support durable long-term growth. Turning to capital allocation. We have several strategic growth priorities in place for 2026: growing international MCM, internal R&D investments and business development. Continued debt management will remain an important part of our turnaround in 2026. As noted, the April 2026 refinancing provides us with meaningfully greater financial flexibility and supports our long-term strategic growth plan. As a reminder, we have a $50 million share repurchase program through March 31, 2027, and we continue to utilize it, repurchasing 900,000 shares for $9 million during the first quarter of 2026. As of the end of the first quarter, $46.5 million of authorized repurchase capacity remains available under this program. At current valuation levels, we believe disciplined repurchases can be an attractive way to create shareholder value, and they reflect our confidence in Emergent's long-term prospects. One final note on our March 31 balance sheet. We previously disclosed that $50.4 million of contingent consideration could be owed to Ridgeback Bio in the second quarter of this year, assuming continued progress under our contract with BARDA. As we now expect those conditions will be met, we have reported that amount as an accrued acquisition obligation under current liabilities. On Slide 19, we highlight our revenue and profitability guidance. We are maintaining our full year total revenue guidance of $720 million to $760 million. Commercial revenues are expected to be flat to slightly up with volume offsetting anticipated price adjustments, and we expect NARCAN to maintain its leading market share. MCM revenues are consistent with prior guidance of flat to slightly down with a significant contribution from international sales. Adjusted gross margin is expected to be between 45% and 47%, reflecting product mix and expected pricing dynamics. We are updating our adjusted EBITDA guidance to account for the non-cash stock compensation add-back, and we, therefore, expect full year adjusted EBITDA to be in the range of $155 million to $175 million. And for the second quarter, we expect total revenue to be between $170 million and $185 million. In summary, we have fully commenced the turnaround phase of our multiyear plan, and we are executing with focus and urgency. We delivered solid revenue and profitability in the first quarter, in line with our internal expectations. Our term loan refinancing extended maturities out to 2031 and enhanced our financial and operational flexibility. We also returned capital to shareholders through share repurchases during the quarter and $46.5 million of authorized repurchase capacity remained available through March of 2027. And with that, I'd like to turn the call back over to Joe for a 2026 business outlook update and closing remarks before we go into Q&A. Joe?

Joseph Papa, President and Chief Executive Officer

Thanks, Rich. Moving to Slide 21. Let me now walk through what we see as the key growth drivers we have, both near term and strategic. We entered 2026 with a stronger cash and liquidity position, further reinforced by the April refinancing. We are well positioned to invest in sustainable long-term growth via four levers: organic growth through internal R&D investments in TEMBEXA, Ebanga, and Raxibacumab; line extensions for NARCAN; growing the MCM business internationally; and accelerating business development opportunities such as KLOXXADO, the recently announced Japanese encephalitis vaccine distribution opportunity and more in the future. Moving to our pipeline assets on Slide 22. TEMBEXA, Ebanga, and Raxibacumab are all approved with incremental development programs underway. As I previously mentioned, we look forward to serving as the distributor of the Substipharm Biologics Japanese encephalitis vaccine for the U.S. government opportunity following FDA regulatory approval. Finally, we're pleased to share that just this week, ACAM2000 received Singapore Health Sciences Authority expanded approval to include PO. On Slide 23, to close, Q1 2026 has been a steady and successful continuation of the turnaround efforts in these past two years. We believe we have made significant headway and now have the opportunity to pursue growth both organically and inorganically. We have successfully stabilized the business. We have divested non-core assets. We have dramatically reduced our debt while returning capital to shareholders. Today, we are investing for segment revenue growth, investing in promising internal R&D pipeline, expanding our international MCM footprint and pursuing accretive external opportunities all through a position of improved financial strength. All the while, we are committed to patient safety, quality and compliance across the operations. With that, operator, please open the line for questions.

Operator, Operator

Operator instructions: Your first question comes from the line of Jessica Fye with JPMorgan.

Jessica Fye, Analyst, JPMorgan

I had a question on your longer-term perspective on the naloxone franchise. I know you talked about that business being flat to slightly up for 2026. How should we think about it taking maybe a several-year time horizon?

Joseph Papa, President and Chief Executive Officer

Sure. Thanks for the question. The way we're looking at NARCAN is a couple of things that are happening. Number one, we're excited about our ability to launch new innovations with NARCAN. We have the carrying case launch, which we think is perfect for college campuses. We also have the multipack, which we think will be a more efficient way to deliver NARCAN for especially high-volume users. We do think there's still some significant upside internationally, especially in Canada. We're also looking at Q2 and Q3 as being an upside from where we were in Q1 simply because of the seasonality of our business. For example, Q2 is the fiscal year-end for about 70% of the states, so we think there is some near-term upside. Beyond that, on a longer-term horizon, we do think the market is going to continue to grow because unfortunately there are still many deaths occurring due to opioid overdoses. So, we expect continued dollars spent by the federal government. We saw that in the 2026 budget for the U.S. government; the SOR grants and other grants have either increased or at least stayed stable. There's continued bipartisan support for this area of addressing opioid overdoses. On top of that, the class action settlements by large pharma companies amount to roughly $50 billion, and with the recent Purdue settlement providing about $5 billion to states, those funds are intended to be directed toward educational programs and procurement or purchase of naloxone. So, for those reasons, we expect the market will grow. We expect to hold our leading market position. We'll stay competitive on pricing, although we can't predict exact pricing dynamics. That's why for the full year we guided flat to slightly up: volume growth, hold market share and remain competitively priced. Thanks for the question.

Jessica Fye, Analyst, JPMorgan

Yes. And then maybe switching to the MCM business as you drive the international side there. Can you just remind us how to think about the margin you keep on international MCM sales and how that compares to the U.S. legacy MCM business?

Joseph Papa, President and Chief Executive Officer

Sure. I'll start, Rich may want to add to it. One of the things we've agreed to with the U.S. government is a most favored nation pricing arrangement, so our price to the U.S. government must be the lowest price we offer. By definition, prices for other countries will be higher depending on the product. As we develop more international business that will help us on gross margin. This year in Q1, about 37% of our MCM revenue came from international, which is a meaningful component of margin improvement. Rich, anything to add?

Richard Lindahl, EVP and Chief Financial Officer

I think logically, Jessica, the fact that we offer the U.S. most favored nation pricing and therefore have higher prices on international MCM business drives higher margins. You should assume international sales are above the average for the MCM segment overall.

Joseph Papa, President and Chief Executive Officer

Operator, next question. Operator, are there any more questions?

Operator, Operator

Your next question comes from Raghuram Selvaraju with H.C. Wainwright.

Raghuram Selvaraju, Analyst, H.C. Wainwright

Firstly, I wanted to ask about the tie-up with SAB and if we should be thinking about this as an indication of interest in the type 1 diabetes space strategically or if this is really more of a contractual business arrangement and not indicative of a broader strategic shift? Secondly, I was wondering if you could comment on the evolving geopolitical situation generally and how you see that potentially driving international demand for MCM products under the Emergent banner? And lastly, I was wondering if at this juncture, you could comment on the scope and footprint of the manufacturing operations at Emergent and if you feel that those are optimally rightsized for the company going forward?

Joseph Papa, President and Chief Executive Officer

I'll try to cover all of those. First, on SAB, we're delighted to partner with them. They're a great company with a specific focus on diabetes. What we're focused on is our technology and the capability we have in Winnipeg, which is well situated to help advance their product. We view this as an alignment of our capability with what they're looking for. It was more about the technology fit than a therapeutic-area strategic pivot. Second, regarding the evolving geopolitical situation, we believe the world is more dangerous and that biothreat risk is a significant concern. While nuclear threats are devastating, the risk from biological threats can be harder to contain once started and may be easier to execute. That's why it's important to work with the U.S. government and other governments globally to ensure preparedness. One bad actor with access to anthrax spores or smallpox could be devastating. Third, on the manufacturing footprint, we've streamlined our footprint, but we still have the ability to source and manufacture our existing products and to expand as needed. Restarting Canton is a great opportunity to bring additional drug substance capabilities for difficult products. Canton can handle live virus and Category B live viruses, which is a capability not widely available in the U.S. We believe expanding Canton and bringing that capability online is important for this product and for other development candidates that the U.S. government, BARDA and the Strategic National Stockpile may require. We're delighted to get started with that.

Operator, Operator

Your next question comes from the line of Rishi Parekh with JPMorgan.

Rishi Parekh, Analyst, JPMorgan

Most of my questions have been asked, but just out of curiosity, as you think about all the international opportunities that you're working on, is there any way to quantify what the backlog of those opportunities looks like as they attempt to leverage your technology? And how should we think about that margin potential as you continue to ramp on that backlog?

Joseph Papa, President and Chief Executive Officer

We do have ongoing discussions on international opportunities to bring additional MCM products to market. It's harder to quantify backlog because some projects take six months and some take two years; there is a process involved. That said, there is incremental interest in several products. For example, in Europe there used to be another manufacturer of an anthrax vaccine that's no longer operating, so countries looking for an anthrax vaccine often consider Emergent. We are developing opportunities in Europe, the Middle East and Asia where governments are assessing biothreat risks. We have the leading portfolio whether for smallpox, anthrax, botulism or Ebola. Anything we sell outside the U.S. is generally at a higher price and therefore higher margin, since costs are relatively the same. Historically, international MCM was mid-teens percentage of the business; the fact that we were at about 37% in Q1 shows progress from the expansion we initiated in 2024 and 2025.

Operator, Operator

Your next question comes from the line of Alex Kelsey with Wells Fargo.

Alex Kelsey, Analyst, Wells Fargo

Rich, I think I missed it when you were talking about the accrued acquisition obligation. Can you just mention again what exactly that's related to? And then maybe more importantly, is that a cash outflow that we should expect in 2026?

Richard Lindahl, EVP and Chief Financial Officer

Thanks, Alex. That relates to the Ebanga program. This is under our acquisition of the rights to Ebanga from Ridgeback Bio. Once we were awarded the BARDA contract back in 2023, we disclosed that part of that arrangement was ultimately a payment to Ridgeback Bio, assuming we continue to make progress under the contract, and that will be a cash outflow in the second quarter.

Joseph Papa, President and Chief Executive Officer

Alex, thank you for the question. Operator, any additional questions?

Operator, Operator

At this time, I'm showing no further questions. I would now like to turn it back to Joe Papa for closing remarks.

Joseph Papa, President and Chief Executive Officer

Thank you, operator. Thank you, everyone, for joining us on the call today. I'd like to thank all of our investors, customers and employees for your strong and continued support of our company, and we look forward to providing further updates throughout the year. Thank you, and have a great day, everyone. Thanks for joining us. Have a great day, everyone.

Operator, Operator

Yes. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.