Prepared remarks
Good day, and thank you for standing by. Welcome to the Q2 26 Emergent BioSolutions Inc Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Frank Vargo, Vice President and Treasurer. Please go ahead.
Good afternoon, everyone. And thank you for joining us as Emergent discusses its operational and financial results for the second quarter of 2026. As is customary, today's call is open to all participants. It is 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 statement speaks only as of the date of this conference call, and except as required by law, Emergent does not undertake to update any forward-looking statement 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 transformation plan, business performance, and key highlights. Richard S. Lindahl, EVP and Chief Financial Officer, will then review the second quarter 2026 financial results and provide an update on full year 2026 guidance. Joe Papa 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 08/05/2026. 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?
Thank you, Frank. Hello, everyone, and thank you for joining us to discuss Emergent's Second Quarter 26 Financial Results. This is Joe Papa, President and CEO of Emergent, and I am joined today by Richard S. Lindahl, our Chief Financial Officer. This afternoon, I will share updates on our multiyear transformation, our strong second quarter business performance and our continued work to protect and save lives. Following my remarks, Richard will detail our quarter 26 financial results and provide our updated 2026 guidance. I will close the call with a discussion of our 2026 business outlook, and the catalysts we believe will enable growth as we continue to execute on our turnaround priorities. Then we will open up the call for Q&A. I will now begin on Slide 5. For more than 25 years, Emergent has responded to complex and urgent public health threats with preparedness solutions and active response capabilities.
Today, we believe Emergent is the leader in biodefense preparedness and naloxone, serving patients, customers and government partners around the world. Our mission remains clear: to protect and save lives. That mission guides how we prioritize patient safety, quality, and compliance, and how we invest in the capabilities that matter most for our future. Our multiyear transformation plan continues to guide our business. We remain focused on improving operating performance, advancing strategic transformation for long-term growth and profitability, identifying growth opportunities aligned with our internal capabilities, and continuing to strengthen the balance sheet. As an example, through a great team effort, we achieved strong second quarter results significantly ahead of consensus and exceeded our own internal expectations. However, we also experienced some changes in NLX at the end of the second quarter.
On Slide 7, let me address the naloxone business directly. Since the NARCAN launch in 2016 and the OTC FDA approval in 2023, Emergent has maintained its leadership position and adapted to the evolving market landscape. However, recently, we saw two new nasal naloxone entrants, including a new 4 milligram over-the-counter approval on 06/16/2026, and a 10 milligram prescription agent that will launch in August 2026, and more aggressive pricing across the naloxone segment. These are changes in the signals we must proactively address. That said, opioid overdose deaths remain unacceptably high, with 45 thousand lives lost annually in the U.S. Our work as a trusted brand leader remains critical for communities across the U.S. and Canada. As market dynamics change, we need to proactively get ahead of these issues. Progressing to slide 8, as we navigate through our turnaround and broader transformation and also address the naloxone business market dynamics, we are taking action to align our resources with current business realities and prepare Emergent for 2027 and beyond.
Beginning today, we are implementing several restructuring actions intended to improve our overall cost structure, keep Emergent efficient and nimble, and align resources to the current needs of the organization. Our restructuring efforts are expected to yield annualized savings of approximately $40 million. These actions include a reduction in workforce of approximately 90 positions, the closure of two wet laboratories in Maryland, the sale of an unutilized office building for $6.4 million, and exiting a central warehouse lease. Also, we have integrated growth under one team leader and established a group where scientific discovery, portfolio strategy, clinical development, commercial insight, and external innovation will all be harmonized. The bottom line, we are taking the steps now that are needed to ensure the future of Emergent as a strong and prosperous company throughout our transformation journey.
Before handing it over to Richard for a more detailed financial review, I would like to highlight our strong second quarter performance on Slide 10. Q2 revenue was $234 million, significantly exceeding the high end of our guidance range, coming in ahead of our internal expectations. Year-to-date revenue was $390 million, reflecting strong execution and acceleration of our MCM deliveries in Q2 through our ongoing collaborative partnerships with the U.S. Government. We delivered Q2 adjusted EBITDA of $97 million with a 41% margin, and year-to-date adjusted EBITDA was $132 million with a 34% margin. These results demonstrate the excellent focus and execution our teams have brought to the business. Finally, as we continue to focus on pursuing targeted business development, we are also responding to public health threats like Ebola by initiating our Pan-Ebola Therapeutic Program. We also advanced important regulatory activities during the quarter including the receipt of Saudi FDA approval for ACAM2000 and the Singapore Health Sciences Authority approval to expand ACAM2000 to include the MPOXX indication.
The MPOXX study in Africa, or MOSA, is also evaluating TEMBEXA, has over 100 patients enrolled in the study sponsor, Panthera, with Africa CDC and other partners opening additional sites. Turning to Slide 11. Our MCM business remains core to Emergent's mission and is a key growth driver. We continue to support the U.S. Government and allied government partners with critical products and capabilities that help prepare for, respond to, and recover from serious public health threats. Today, we announced that we are seeking to collaborate with AI leaders and partners to address the potential risk of bioterrorism and improve biodefense response preparedness. In Q2, MCM revenue was $168 million, the highest second quarter revenue since 2020. We received multiple U.S. government contract awards and international product orders, including a contract modification of $52.7 million for ACAM2000 and a $64.5 million contract modification for botulism antitoxin.
Year-to-date, we have secured over 10 contract awards. International momentum is also building, and we continue to see the realities of our world becoming increasingly dangerous with Ebola virus on the rise in Africa. International MCM sales represent approximately 20% of our total first half 2026 MCM revenues, reflecting continued engagement with the U.S. and allied governments and the importance of bio-preparedness in an increasingly dangerous world. Let me now hand the call over to Richard. Following Richard's comments, I will spend some time elaborating on our business outlook and growth catalysts.
Thank you, Joe. Good afternoon, everyone, and thank you for joining our call today. We delivered a strong second quarter and first half of 2026 with revenue and adjusted EBITDA exceeding both our internal expectations and the analyst consensus. We continue to advance key strategic priorities, generated strong operating cash flow, and maintained a solid cash position while also making the $50 million Ebanga investment milestone payment during the quarter. And we improved our capital structure with the April 2026 term loan refinancing which lowered interest expense, extended maturities, and enhanced our financial flexibility. Performance in our medical countermeasures segment remained very solid and consistent with our full year outlook even as we accelerated some deliveries into the second quarter. In the commercial segment, recent developments in the naloxone market have led to increased competitive intensity with implications for our near- to medium-term outlook and the book value of our NARCAN asset group.
As Joe highlighted, we have responded by implementing actions to drive greater efficiency and cost savings as we exit this year and prepare for 2027. We expect these restructuring actions to generate approximately $40 million in annualized net savings and other improvements, partially offset by approximately $11 million of cost to achieve. We also executed a transaction to sell our underutilized building in Gaithersburg, Maryland for approximately $6 million. In light of the increasingly competitive landscape for NARCAN, we recorded a noncash impairment charge of approximately $191 million in the second quarter. This accounting adjustment reflects our updated assessment of the product's expected future cash flows in the context of current market dynamics, including pricing and competitive factors. Importantly, this charge is noncash and does not affect our cash position, liquidity, operating cash flow, or adjusted EBITDA.
It does, however, reduce our GAAP net income for the quarter and is an important factor in understanding the year-over-year comparison. Turning to slide 13. Our second quarter results exceeded expectations and reflect continued progress on execution. Total revenue for the second quarter of 2026 was $234 million which came in above the $185 million high end of our prior Q2 revenue guidance. This outcome was primarily driven by our continued strong partnership with the U.S. Government which resulted in the acceleration of medical countermeasure deliveries into Q2. Adjusted EBITDA for the quarter was $97 million representing a 41% adjusted EBITDA margin compared with $33 million and a 23% margin in the prior year period. Adjusted gross margin was 58%, up from 49% in the second quarter of 2025, largely driven by product mix and overall volume. Operating expenses were $54 million in the quarter, down approximately $2 million year over year, demonstrating continued cost discipline across the business.
Moving on to Slide 14, we highlight the notable revenue elements driving the second-quarter comparison. MCM revenue was the primary contributor to the year-over-year increase, supported by accelerated deliveries and contract activity related to ACAM and BAT. Commercial revenue continues to reflect NARCAN's market leadership position while year-over-year performance was affected by new competitive pressure and continued pricing and volume dynamics. Turning to slide 15. Year-to-date results were also quite strong. Total revenue was $390 million for the first six months of 2026, up from $363 million in the prior year period, driven primarily by accelerated MCM deliveries and strong execution with the U.S. and international government customers. Adjusted EBITDA was $132 million year-to-date, representing a 34% margin compared with $112 million and a 30% margin in the prior year period. Adjusted gross margin was 56%, up 100 basis points year over year, reflecting the benefit of product mix and disciplined operational execution.
Moving to Slide 16. The notable year-to-date revenue elements show the same dynamics we saw in the quarter. MCM revenue was the primary driver of the year-over-year increase, supported by the timing of product deliveries, accelerated contract awards, and meaningful international sales. Commercial revenue continues to reflect NARCAN's strong leadership position while year-to-date performance has been pressured by a more competitive naloxone market. Overall, the first half reflects strong MCM performance offsetting pressure in the commercial portfolio. On Slide 17, we highlight continued stability in our financial metrics. We ended the second quarter with $140 million of cash and $190 million of total liquidity. While cash has declined versus the prior year period, the business continued to generate significant operating cash flow while also absorbing the $50 million Ebanga investment milestone payment during the quarter.
In addition, we have already received $145 million of cash through July from the $190 million accounts receivable balance at June 30, which further improves our operating cash flow and liquidity. Gross debt was $590 million as of June 30, 2026, compared with $700 million in the prior year. Net debt was $450 million and our net leverage ratio remained stable year over year at 1.9x trailing 12-month adjusted EBITDA. On Slide 18, turning to capital allocation, our priorities remain focused on strengthening the business and creating long-term shareholder value. We completed the April 2026 term loan refinancing establishing a new $150 million term loan with maturity extended to 2031, reduced interest rates, and enhanced operating and financial flexibility. In addition, our board authorized a new $75 million debt repurchase program and as previously mentioned, we have a $50 million share repurchase program through March 2027.
During the second quarter, we repurchased 1.1 million shares for approximately $9 million, bringing year-to-date repurchases to 1.9 million shares for $18 million. As of quarter end, $37.5 million remained available under the authorized share repurchase program. We continue to balance debt reduction, disciplined share repurchases, and investments in international MCM growth, internal R&D including the Ebanga program, and business development opportunities. Turning to slide 19, we have updated our revenue and profitability guidance. We are revising full-year 2026 total revenue guidance to a range of $645 million to $675 million, compared with our prior range of $720 million to $760 million. The revision primarily reflects lower expected commercial revenue in the second half of the year, driven by increased competitive pressure in NARCAN, as well as continued pricing and volume pressure across the naloxone market.
For MCM, we continue to expect contributions from U.S. Government procurement and sales, with the first half benefit from accelerated deliveries already reflected in our year-to-date results. We are also revising our profitability outlook to reflect updated revenue expectations, the anticipated impact of restructuring actions, and the NARCAN noncash impairment charge. Our GAAP net loss guidance is now expected to be within a range of negative $245 million to negative $225 million which includes the effect of noncash items and restructuring-related expenses. Adjusted net income guidance is now expected to be $10 million to $30 million. We are revising adjusted EBITDA guidance to $130 million to $150 million compared with our prior range of $155 million to $175 million. At the midpoint, the adjusted EBITDA reduction is substantially less than the revenue reduction because the lower revenue outlook is partially offset in 2026 by the impact of the cost savings initiative announced today, along with continued operating expense discipline.
We are also revising adjusted gross margin guidance to 42% to 44% reflecting the expected mix impact from lower commercial revenue. For the third quarter, we expect total revenue to be between $110 million and $130 million. Q3 outlook reflects an anticipated step down following the accelerated MCM deliveries in the first half, as well as continued commercial pressure from the evolving naloxone marketplace. Even with the lower revenue outlook, we remain focused on cash generation, disciplined capital management and execution of our cost savings program to support profitability and liquidity through the balance of 2026. In summary, Q2 was a strong quarter for Emergent and capped a solid first half of the year. We exceeded the high end of our Q2 revenue guidance, delivered EBITDA of $97 million with a 41% margin and generated strong operating cash flow. We ended the quarter with $140 million of cash which increased significantly in early Q3 through accounts receivable collections, and during the quarter, we continued to execute our capital management priorities.
Following the April 2026 term loan refinancing we have enhanced financial flexibility through extended maturities, lower interest expense, and improved covenant flexibility. We will continue to demonstrate financial discipline as we sustain our current business, pursue growth opportunities and create shareholder value over time. And with that, I would like to turn the call back over to Joe to discuss our business outlook and growth catalysts before we go into Q&A. Joe?
Frank, thank you, Richard. Turning to Slide 21, I would like to write context around our business outlook and the catalysts we believe can enable growth from 2026 and beyond. Our growth outlook is focused on four principal areas: First, expanding international MCM orders and opportunities. Second, launching additional line extensions for the naloxone business, including the NARCAN nasal spray carrying case, and multipack configurations. Third, driving organic growth through internal R&D programs, including TEMBEXA, Ebanga and raxibacumab. And fourth, accelerating growth through selective external business development opportunities that are value accretive. Additionally, as I previously mentioned, we are unifying R&D and business development into the growth organization which we believe will help us make faster, more informed portfolio decisions and allocate capital with greater discipline.
Turning to Slide 22. Near-term pipeline and current asset strategy is focused on maximizing the value of programs where Emergent has differentiated experience, clear mission alignment, and the potential to support sustainable growth. The important note here is that our pipeline is about focusing our resources on assets and programs where Emergent can lead, where capabilities matter and where we can continue to help protect and save lives against public health threats. Now moving to our summary on Slide 23. While Emergent is continuing to execute on its multiyear transformation plan, we are taking decisive action now to address NARCAN business realities, prepare the company for 2027 and beyond, and remain focused on our mission to protect and save lives. We are restructuring our business operations to improve overall cost structure, drive efficiencies, and align resourcing to the current needs of the organization.
Our MCM business continues to support the U.S. and international preparedness, and our naloxone business continues to deliver on Emergent's mission to protect and save lives. We remain committed to patient safety, quality and compliance across the enterprise while pursuing growth initiatives and creating long-term value for shareholders. With that, I look forward to your questions. Operator, if we can please open the line for questions.
Questions and answers
Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Raghuram Selvaraju of H.C. Wainwright & Co. Your line is now open.
Thanks very much for taking our questions. Firstly, with respect to the NARCAN situation, I was wondering if you could provide us with some additional granularity on any potential initiatives that you think are likely to be particularly effective in, A, slowing the pace at which NARCAN sales might erode, and B, potentially leveraging the brand recognition that you have in order to position the franchise more effectively as the key line of defense against next-gen fentanyl analogs, which as I understand are significantly more addictive and more likely to be fatal than fentanyl itself. Secondly, I was wondering if you could just give us some more insight into your strategic thinking behind the reorientation of the company away from what sounds like basic R&D and how you anticipate redeploying those resources, particularly with potentially greater focus going forward on strategic in-licensing and asset acquisition. And then lastly, I was wondering if you could give us a sense of, given the fact, I think you said this multiple times in your prepared remarks, that we are increasingly living in a more and more dangerous world, whether you are seeing any emergent trends in MCM contract procurement demands outside of the United States. Thank you.
Sure. A lot of good questions there. I'll take them one at a time, to make sure I answer all of them. On the NARCAN initiatives: yes, absolutely we are looking at things to continue to keep the share we have today and potentially grow that share. Number one, the NARCAN brand itself is important. We have that brand name and consumers recognize it. Number two, as the market leader, we are continuing to bring out new innovation. That new innovation includes things like the carrying case that is perfect for college students that clip it onto their backpack, as an example. We are also looking at multipacks where we are putting additional NARCAN together to make it easier for high-volume users and first responders who need multiple doses. And packs beyond just the two nasal sprays in one kit. For example, beyond the carrying case and the multipacks, we are also expanding exposure for our wall kits.
So those are the innovation initiatives we are pursuing beyond the brand name. And to be clear, we still believe we are the market leader and we believe we have over a 50% market share of the naloxone market. Having said that, we recognize that with additional competition we expect there will be some price pressures on the product, and that is why we made some of the decisions we talked about today. But we clearly believe NARCAN will continue to be the gold standard here and we are prepared for that. We want to be realistic about our expectations and the potential issues for NARCAN from a pricing perspective with two new competitors coming into the space. On the second question, on the R&D side, the answer is that R&D remains pivotally important to us. We are continuing to invest behind products like TEMBEXA, Ebanga, and raxibacumab. We are continuing to pursue MOSA trials in Africa to get additional data on TEMBEXA.
We will continue to invest in R&D. What we are changing is the decision-making structure: by putting internal R&D and external business development together under one leader, we expect to make faster decisions and allocate capital more efficiently to pipeline opportunities. That integrated approach should improve our return on investment. But to be clear, we will continue the necessary R&D work to advance our programs. On the question of the increasingly dangerous world, the answer is yes, we are seeing signals. We are hearing from governments around the world about evolving threats. Some AI leaders wrote letters of concern about the potential for AI to be used by bad actors to create or accelerate the creation of pathogens. We intend, as we announced today, to collaborate with AI leaders to help governments prepare for potential activities that could be enabled by AI, and to be front and center in biodefense preparedness given our experience. Operator, next question.
Thank you. One moment for our next question. Our next question comes from the line of Jessica Fye of JPMorgan. Your line is now open.
Hey, guys. Good afternoon. Thanks for taking our questions. First, on the financial picture: it seems like other revenue was a key driver of year-over-year revenue growth in the first half. Can you outline just what is in there and how sustainable that is? And then for NARCAN, can you elaborate on what you are seeing in the naloxone market a little more specifically and talk about what your latest price and volume expectations are for NARCAN for the rest of this year and longer term? And then lastly, as it relates to the revenue guidance update, should we take that as entirely NARCAN-related? Was there any upside from other business lines being more than offset by the NARCAN headwinds? Just want to better understand what is below the surface there. Thank you.
Hi, Jessica. Thanks for the question. On the other revenue, the biggest driver there is our BAT product, our botulism antitoxin, and we had a significant delivery that occurred in the second quarter that really drove that year-over-year increase. On naloxone and the market: the market need is still strong given the tragic rate of opioid overdoses—about 45 thousand deaths annually in the U.S.—so demand remains. That said, we have seen competitive price pressures. When new entrants come into a market, they often use price to gain share. We want to be prepared for that. To be clear, NARCAN was up versus the first quarter, so we did see growth over Q1. However, as we thought about the remainder of this year and into next year, we anticipated potential erosion when additional generic players enter the market. So we expect to see additional price erosion. We think total naloxone units could be relatively flat year over year. We will continue to look to maintain a leadership position for NARCAN. I'll hand the guidance specifics to Richard.
Thank you. The biggest driver of the change in our guidance is, in fact, the commercial segment or the view on naloxone revenue for the year. Our view on medical countermeasures has not materially changed; for that segment we thought it would be flat to slightly down on the year and that remains the case. But the factors Joe highlighted—competitive entrants and pricing pressure—drive the lower overall commercial revenue outlook for the balance of the year and for the full year.
Yes. Thank you. One moment for our final question. Our next question comes from the line of Alex Kelsey of Wells Fargo. Your line is now open.
Hey, guys. Appreciate you taking the questions. I will layer mine in sequential order as well. Just on the July comment about AR: was that through a securitization program, or is that just collecting AR in the normal course? Regardless of the mechanism, pro forma, all else equal, am I correct to think that cash pro forma is closer to the $140 million plus $145 million, so $285 million? And then second, the comment on the $75 million debt repurchase authorization: am I safe to assume that would be targeted at the senior notes, or is there any reason that you would look to address the new term loan before the bonds?
Thanks, Alex. The collections of the $145 million are all from accounts receivable related to deliveries that occurred in the second quarter and that were in the balance as of the end of the second quarter. It is not related to a securitization or any other kind of financing facility; it is simply working capital accounts receivable collection. As far as the impact on cash balance, yes, that flow is reflected in our cash balance; there are some expenses through the month, but it is safe to assume a very meaningful portion of that flowed through to our cash balance as of the end of July. And the $75 million authorization is specifically to repurchase the senior unsecured notes. There will be more detail on that in the 10-Q when we file it.
And if I am still on the line, regarding the $40 million cost savings, any sense of timing as to when we should expect that to be realized and annualized in the numbers?
Sure. We are starting now. The realization will be incremental in 2026, but the full run rate of the $40 million would be realized in a full year in 2027 and beyond.
That was the final question. This concludes the question-and-answer session. I would now like to turn it back over to Joseph Papa for closing remarks.
All right. Well, thank you, everyone, for joining us today. Please note an archived version of today's webcast as well as a PDF version of the slides used during today's call will be available later today and accessible through our Investors landing page on the company website. Thank you again for joining us. We look forward to speaking to you all in the near future. Thank you, everyone. Goodbye.
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.