Greg Rodetis:

Good morning and welcome to BD's earnings call. I'm Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations. Thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD releases results for the third quarter of fiscal 2024. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer. Following this morning's prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents

Chris DelOrefice:

Thanks, Tom and good morning, everyone. As Tom noted, the quarter's results reflect strong performance across multiple parts of our portfolio, even amid the previously noted transitory market dynamics and macro factors. Importantly, with strong execution of our BD Excellence programs, we exceeded our margin, earnings and cash flow goals. I'll now provide some further insight into our adjusted revenue performance. Q3 revenue grew 5.2% organic, driven by volume growth and share gains. Regionally, over 90% of our revenue which includes our 3 largest geographies, grew 6% plus organic. This strong performance was partially offset by a decrease in China from continued market dynamics. BD Medical growth was led by MMS with exceptional performance in infusion systems, driven by the BD Alaris return to market and higher utilization of infusion sets, partially offset by a tough prior year comparison in dispensing. Broad volume growth and share gains across our MDS consumable portfolio in developed markets also contributed to the segment's growth. Pharm Systems had another quarter of increasing demand with double-digit growth in prefilled devices for biologic drugs, primarily GLP-1s. This growth was offset by transitory market dynamics across the industry, including expected customer inventory destocking. BD Life Sciences performance was led by IDS with high single-digit growth in specimen management which reflects both increased utilization and customer upgrades to higher-value products to provide an enhanced patient experience. The segment's growth was partially offset by transitory market dynamics in biosciences that resulted in lower market demand for instruments. Given our leading portfolio in instruments and reagents, we significantly outperformed the category in the quarter. Strong organic growth in BD Interventional was led by high single-digit growth in UCC with continued momentum in our PureWick franchise, delivering another quarter of double-digit growth. Surgery delivered another strong quarter across all 3 major platforms with double-digit organic growth across advanced repair and reconstruction, infection prevention and biosurgery. We continue to make excellent progress with conversion to our bioresorbable Phasix technology which we see as a durable contributor to future growth. BDI performance was also supported by peripheral intervention with double-digit growth in peripheral vascular disease that was partially offset by a decrease in oncology, driven primarily by market dynamics in China. Now moving to our P&L. We realized strong sequential and year-over-year margin improvement with adjusted gross margin of 54.3% and adjusted operating margin of 25.2%, both above our expectations. The gross margin year-over-year increase of 170 basis points was primarily driven by increased productivity and cost improvement from our BD Excellence initiatives and moderating inflation. Our operating margin increased by 220 basis points year-over-year, driven by the increase in gross margin and healthy operating expense leverage with expenses increasing slightly on a dollar basis year-over-year. As a result of these items, we exceeded our Q3 operating income and adjusted diluted EPS expectations, resulting in adjusted diluted EPS of $3.50 which grew double digits or 18.2% on a reported basis. Regarding our cash and capital allocation, I'm really pleased with our strategic choices and the execution on cash flow. As a result, year-to-date free cash flow increased $1.2 billion year-over-year to $2.2 billion reflecting continued improvement in working capital, including continued inventory optimization, planned phasing certain cash flow items and the ability to leverage our capital expenditures as we benefit from BD Excellence productivity gains. We remain focused on free cash flow conversion and are on track to deliver another double-digit step improvement in fiscal year '24, with our year-to-date free cash flow conversion above 80% and we remain well positioned to achieve our long-term cash goals. Net leverage improved to 2.4x and cash and short-term investments totaled $5.3 billion, inclusive of about $3.4 billion in proceeds from the February debt refinancing and the Critical Care acquisition financing in June. Moving to our updated guidance for fiscal year '24. The detailed assumptions underlying our guidance can be found in our presentation. As we look ahead, we are confident in a strong close to fiscal year '24. We remain focused on driving multiple areas of momentum and share gains across our portfolio, including Alaris. For the full year, even with this broad-based momentum, it is prudent for us to reflect the latest market dynamics which others are also experiencing. As a result, we now expect organic revenue growth to be 5% to 5.25% for the full year. Based on the strength of our margin performance, we were able to absorb the revised organic revenue growth guidance and are raising our adjusted diluted EPS guidance range to $13.05 to $13.15 on a reported basis. This reflects an increase of $0.05 at the midpoint and $0.10 at the bottom of the range. We believe we are well positioned to achieve our updated adjusted operating margin guidance of over 50 basis points improvement which implies full year adjusted operating margins of over 24%. We continue to expect margin acceleration in Q4, driven by our BD Excellence and continuous improvement efforts and continued expense leverage on our expected strong revenue performance, including Alaris. Looking ahead to fiscal year '25. While it's too early to provide guidance as we are in our planning process, I can offer the following thoughts. We are continuing to monitor dynamics in select markets. Even in an environment where these dynamics continue to exist, we are confident in delivering strong performance, particularly our ability to exceed our 25% adjusted operating margin goal and deliver double-digit EPS growth, given the increasing benefit to gross margin from accelerating BD Excellence momentum. We think 10% EPS growth would be a good starting point for fiscal year '25, including Critical Care and the expected impact of Pillar 2. So in summary, based on the durability of our portfolio and momentum in Alaris, we are confident in delivering another year of strong growth. Our team's execution supported overdelivering on our margin expectations. And as a result, as we enter Q4, we are on track to exceed our full year margin improvement goals, deliver another year of double-digit free cash flow growth and once again increase our fiscal year '24 earnings outlook. Our strategy is demonstrating positive momentum and we remain well positioned to continue to deliver on our BD 2025 value creation objectives. With that, let's start the Q&A session. Operator, can you please assemble our queue?

Robbie Marcus:

Great, two for me. First, I wanted to ask on guidance, particularly fourth quarter. What's implied there in revenue guidance and the margins, it looks like, by my math, about 6.5% organic growth and still healthy operating margin performance. Maybe just walk us through some of the things that happened in third quarter that led to the touch lower organic growth and the confidence in fiscal fourth quarter, both from a revenue and a margin perspective where you did well in the quarter.

Chris DelOrefice:

Yes. Thanks, Tom. Thanks, Robbie, for the question. Yes, Q4 is actually pretty straightforward. So to your point on the top line revenue organic it implies upper 6% range, consistent with what you shared, maybe a little north of that. It's really attributed to one key dynamic. It's the continued momentum of Alaris. By the way, we obviously have a much stronger line of sight based on our committed contract position. This is the strongest quarter that we have this year as it relates to line of sight of that because now we're 3 quarters in that. In addition to that, if you recall, last year in Q4, we have a favorable comp in Alaris as well because we had stopped shipping under medical necessity, as we got the approval and we're preparing for launch. So you actually have a favorable comp and you have continued momentum with Alaris which as you saw was very positive in the quarter. The rest of the portfolio, we actually assume similar performance. So we're not making assumptions of significant market recovery or things of that. We're going to continue to outperform in those spaces from a relative standpoint. So I feel good about revenue. Margin, hopefully, everyone had an opportunity to see, Q3 was really strong. We outperformed margin. It led to the outperformance on EPS. The story there is straightforward. Gross margin, it basically just have to repeat Q3 which is already flowing through our cost base, right? We're in our cap and roll period there. So there's not a substantive change in terms of gross margin. On operating margin, the gross margin will flow through. We're actually increasing expenses slightly from an OpEx standpoint where you end up with that, call it, high 6% growth. You get a little bit of a natural leverage there that will flow through and we feel really good about that. I think importantly and we can talk more about this, pretends well for '25 as we think of margins.

Chris DelOrefice:

Yes. Thanks, Robbie. Yes. Look, we're excited about '25. It's setting up nicely to deliver strong performance. First, top line, I'll just reiterate, we're extremely pleased. Our strategy is paying off in terms of strength of portfolio. Continue to focus on driving volume and share gains. And what you're really seeing in this quarter is the ability to deliver strong performance despite these market dynamics, most notably BDB, Pharm Systems and as Tom noted, China. So we're not dependent on one thing. The durability of our portfolio sets us up nicely. And then from a margin standpoint, I shared that on the momentum we have this year, we expect to now exceed 25%. I think importantly, what you'll see different in '25 going forward is the significant majority of that will come from gross margin. And actually, if you look at where we are in the back half of the year, you can kind of think of Q3 as sort of a nice number directionally to think of '25 and carrying that through. So I feel very good about line of sight to margin. As you noted, we're excited about Critical Care. It just gives us another positive catalyst to continue to deliver double-digit earnings growth. We are contemplating headwinds from Pillar 2. So still more to come on that. It's premature to share specifics but we do anticipate that's a headwind that we will absorb as part of that. And so all that collectively sets us up nicely, to your point, I think what I see externally where the Street is, we would see that more in the low end of the range and it would be 10% and that is on a reported basis. So FX at this point, there's a modest headwind into the year but we've contemplated that. The other thing, just we did actually activate formally. We had talked about doing this but partially derisk transactional FX. But we are active with now cash flow hedges that gives us another lever just to help solidify that performance.

Travis Steed:

I guess first two questions here. I wanted to focus on the guide change. And so I think China biosciences and pharma were the big reasons why you lowered the revenue guide this quarter. But it sounded like things were all on kind of track over the course of the quarter. So just curious like what changed, what kind of surprised you, when it happened. And I thought you didn't assume those markets to get better. So I was just kind of curious if there's -- are you changing your assumptions on when those things get better kind of going forward?

Travis Steed:

Okay. And then I guess the follow-up question is more into next year, kind of what kind of revenue growth do you need to kind of get to that double-digit reported EPS growth. Before you were kind of talking about BD at 5.5% plus, is that still possible if some of these headwinds that you're seeing this year, linger into next year? Just kind of doing the math this year, kind of ex-Alaris, looks like the growth is close to looking at 3.5% to 4%. I just wanted to see how to think about the next year revenue growth.

Chris DelOrefice:

Travis, just maybe one other -- just 2 things. One, in my prepared remarks, I did say even in an environment where these dynamics continue, we're confident in delivering strong performance. we did that this quarter. This is still quality growth. I think just to put in context your Alaris comment, these transitory market dynamics, just those 2 areas alone are worth more than Alaris benefit, right? You've got high single-digit growth businesses that are nearly $4 billion, Pharm Systems used to be consistent double-digit grower. We're still seeing that strong biologics performance. That's a significant headwind we're absorbing. And to Tom's point, we're well outperforming those markets and so we continue to perform well there. And as those recover, those market trends are definitely long-term durable trends and we feel good about that. So I'd just add to consensus, what that means is -- the rest of our portfolio, look at -- BDI across the board was really strong, MDS performing well, specimen management performing, there is strong growth throughout our portfolio.

Operator:

Our next question will come from David Roman with Goldman Sachs.

Tom Polen:

Yes. I'll start off, David, thanks for the question. This is Tom and then I'll turn it to Mike Garrison who we have here with us in the room. Really in MMS, I'd break it into kind of -- we've got 3 or 4 categories. One is the consumables space, let's just start off with that. We see really strong growth in overall procedure volumes driving strong growth in the consumables of IV sets, etcetera, that fit along with Alaris. So as you mentioned, Alaris is not only back to its historical run rate but we believe we took share in the quarter as we look at independent market data and as well as our own. So we feel really good about the position there. And then, of course, that starts pulling through other elements of our connected care portfolio, inclusive of interoperability, health site and other solutions. We do have the next-gen Pyxis launching in the back half of next year which we're excited about long term and Mike can comment on that. And then, of course, we have pharmacy automation, both in the U.S. and Europe and the overall trends there around pharmacy shortages, labor costs and big demands for productivity improvements which we are ideally suited to address and are by far the market leader in each of those spaces when it comes to those customer needs. So maybe, Mike, some more details on what we're seeing there.

Tom Polen:

Thanks for the question, David.

Tom Polen:

Go ahead, David.

Chris DelOrefice:

Yes. Thanks, David. It's Chris. Yes, I think the exciting pivot is -- and think of Q3 as kind of an indicator of what' '25 would be, full year '25, based on the comments I shared. So we talked about exceeding now 25% operating margin in FY '25. So it implies north of 100 basis points of improvement. The significant majority of that is coming from gross margin. So you're seeing all the benefit of BD Excellence flow through which, to your point, creates an opportunity for us to kind of reshape below gross margin. The intent is to, as part of that 10% starting point, is to drive more investment in R&D and more investment in business building growth, digital capabilities, commercial go-to-market, etcetera. Our principle will always be to sort of get natural leverage from kind of our G&A space and we've also talked about that we're advancing a global business services model there as well. So that will be a minor catalyst in '25. The leverage will be there but it is also a go-forward catalyst. So that's how we think of the formula, more value out of gross margin. To your point, that lends itself nicely to the natural flow-through on sales and then reinvestment to support growth and leverage kind of your core infrastructure base.

Operator:

Our next question will come from Patrick Wood with Morgan Stanley.

Tom Polen:

Yes. Thanks, Patrick, for the question. So we've got a great team in China. We still view it as a large market with significant unmet needs and we continue to serve that market opportunity across the breadth of our portfolio. We continue to invest in advancing health care practices and access in China. As you mentioned, we see -- VBP [ph] has been playing out in MDS as expected. Just as a note there, our volumes in MDS China are actually up very nicely. So if you look at the -- even the categories where we're seeing VBP [ph], we see price pressure but we're seeing strong volume growth in those categories in MDS that are complementing that. So our plants are very busy in China because of higher volumes in those spaces. The lower research funding, as you mentioned, that's been broadly commented on across the board. And we do think there will be an end in sight to that as the market ultimately recovers and research investment. We don't see that as a long term, that China will be de-investing in research over the long term. We expect that will recover and that's more of a transitory dynamic. And then some of these other factors, they are related. There are economic challenges at a macro level happening in China, where I think that combines with the anticorruption and some of the actions that distributors take when there's uncertainty and they'll pause to pull inventories down a bit, those dynamics, I think, will evolve as just clarity in the economy and those processes end up coming into light. So -- which, again, we would expect to be more transitory in nature. So we continue to invest in the market. We still see it as a long-term attractive space, an important market for us. And we do have areas of the business that are continuing to do really well in China beyond some of those transitory spaces that we see. So maybe that's a high-level overview of what we see and as we look forward.

Larry Biegelsen:

Two quick ones for me and I'll ask them both upfront. On Alaris, the $350 million in fiscal '24 sales implies about a $600 million annual run rate using the implied Q4 sales of about $150 million, if I'm doing the math right, is that the right way to think about fiscal '25 Alaris [ph] sales, about $600 million? And just lastly, Chris, the last two years, growth in margins have been very back-end weighted. And obviously, it's caused a lot of investor anxiety, is there any way or do you expect fiscal '25 to look different from a cadence standpoint?

Tom Polen:

But the other big thing that we had this year was, of course, Alaris was a ramp in the second half given that we just launched at the very end of Q4. So you're going to have much more ratable performance in Alaris Q1 through Q4 of next year as well. So we would expect much more smooth which we're very much looking forward to being back at that as we look forward. Just on Alaris, we're not certainly going to give guidance by any product line for '24; we're not at that point. I think that's -- I wouldn't take the run rate necessarily from that and take it through '25. But back to my commentary, we're back at, at least the $100 million historical run rate. Cannot [ph] be an opportunity to do better than that as we go into '25 for sure. And we'll give more color on that on the November call.

Rick Wise:

Maybe back to the fiscal '25 guide. I just want to make sure I'm thinking about it correctly. It's been talked about several times but I just want to hear your language one more time. The 25% EPS growth commentary and the operating margin for over 25% clearly includes Critical Care, if I understand correctly. But to make sure it -- doesn't that sort of imply that everything else on a total basis is not going to grow as fast in fiscal '25 as it has in '24? And if I'm thinking about it remotely correctly, maybe I'm too deep into earnings season, I'm not thinking about it clearly. Are you -- does that imply you're being conservative or careful in this initial commentary? Just to make sure we're thinking about it correctly.

Operator:

Our last question will come from Vijay Kumar with Evercore ISI.

Tom Polen:

Yes, it's a great question, Vijay. So let me start with maybe the bioscience and then touch base on Pharm Systems and then touch base on China. So on Pharm Systems -- or on biosciences, I think, as you mentioned, it's been widely commented on across the tools companies. Again, we see ourselves outperforming the market this year. That's pretty straightforward. There's very few that are flat like we are in that space. And you heard us make -- share in our prepared remarks some of the really exciting innovations that we see driving that. And not only are they driving that in this environment, as the market ultimately recovers, those same technologies around FACSDiscover and the continued cadence of new innovations not only with sorters but next year, launching our first analyzer in that segment, continued innovation with dies and other technologies that are allowing more and more multiplexing in that category are all just going to benefit us as that market picks up and people can begin to buy systems in larger volumes. So we feel good about that. And it really comes down to the timing of the recovery which, as you mentioned, we're assuming it's going to continue to be tight through the balance of this year which is how we've updated our guidance. And then we would expect at some point in '25, again, let's watch Q4, we'll update '25 guidance in November on that. I think we'll benefit from that timing to get clarity as with the whole market. On Pharm Systems, look, we continue to see that strong demand on biologics underlying which is also differentiated versus peers, double-digit growth again in biologics within that space. We see no slowdown there. Obviously, GLP-1s are a big component of that and our position that we have on some of the large current market molecules is benefiting us. We also shared we've got a position with a number of new GLP-1s that are moving through the pipeline towards launch are already having our device spec-ed in. And then we also see -- we have over 40 signed agreements for biosimilar GLP-1s, the early molecules of GLP-1s that we start seeing launch as early as the next 12 months there and that will play out over the longer term as those play out. But we really like our position there. Of course, the destocking that's happening that, as you mentioned, everyone is seeing across that the sector, has really been focused on the anticoagulant and vaccine segment for us. And I think broadly for others and that can't continue forever. So we would expect that as we move into FY '25 and again, we'll give more specifics on timing as we go into guidance. But certainly, as we go to the back half of that, we would expect that to be -- start coming, returning to more normalized growth. On China, look, we have China -- we don't have -- as we think about the numbers that we've shared around double-digit EPS growth for next year, we don't have a major assumption of China returning back to high growth next year in that. We've taken a conservative position in our internal monitoring -- modeling on that. And we'll continue to watch that market play out as we go forward but we've taken a conservative stance on our own internal modeling there as we look at and build our plan for the 10% EPS growth number. So we still see -- and again, that will be related to the biopharma research spending that's happening in China will be something we'll continue to watch closely and how that overall macro recovery -- market recovers, we'll continue to watch the China macroeconomic environment overall. We do see MDS. We don't see a change in terms of the timing of VBP [ph] starting to decline. We've seen that play out this year as we expected. We don't expect that to be as significant next year for MDS, just given the scale that happened this year. I think we've said that in the past, we don't expect that to change, i.e., we see less pressure in MDS next year in China from VBP [ph] but more to come on China as we give guidance. But hopefully, that just gives some color on China and what we've built into some of our preliminary thinking as we shared the number on EPS for next year.

Tom Polen:

Okay. Thank you, operator and thank you to all of our investors for joining us on our call today. We are pleased to deliver strong, above-market, broad-based growth and are well positioned to achieve our increased FY '24 earnings guidance. As we look ahead to FY '25, we are excited by multiple growth opportunities across our portfolio, momentum in BD Excellence, driving continued strength in gross margins and cash flow and welcoming the Critical Care team to BD. We look forward to connecting with everyone again in November and thank you for your continued support of BD. Thank you, operator.

As you think of the second half of fiscal '24, the following are some considerations:

First, regarding revenue, the midpoint of our guidance reflects about 7.5% second half organic sales growth with nearly 250 basis points contribution from Alaris and just over 5% growth in the remainder of the BD portfolio. We expect Q3 organic growth of at least 6% with Q4 further accelerating, driven in part by Alaris momentum and improving grow-over dynamics in China.

Travis Steed:

Congrats on a good quarter. I wanted to ask about the second half ramp, both from a revenue and margin perspective. So on revenue growth, you need to step up closer to kind of above the full year range in the second half, curious what the underlying drivers there are and how much of that is dependent upon the increased demand you're seeing in Alaris?

Christopher DelOrefice:

Yes. Thanks for the question, Travis. Yes. So first of all, we were pleased with the quarter. To your point on revenue, one, we did see strong acceleration quarter-over-quarter as expected on revenue. We tried to outline the ramp. Clearly, the back half guidance at our midpoint implies about 7.5% growth. But when you unpack that with the momentum that we have in Alaris, we now expect nearly 250 basis points contribution to our second half growth. That would put us at least $300 million for the full year. So if you strip that out, the rest of the BD portfolio has to perform at just over 5%. We feel confident in that. We have strong areas of momentum.

Operator:

We'll go next to Robbie Marcus with JPMorgan.

Christopher DelOrefice:

I would just add, I think Q2 is certainly representative of the growth rate that we need. We feel good about that. There's all kinds of puts and takes in the P&L. I mean just -- Alaris was a modest contribution. It wasn't significant. It's really most predominant in the second half, and that will be a strong driver for us. I articulated the second half drivers. Keep in mind, in Q2, you had some of these other negative comps, right?

Operator:

We'll go next to Vijay Kumar with Evercore.

Thomas Polen:

Yes. Thanks for the question. So first off, we are really happy that we delivered on our #1 priority last year, which is the clearance of the BD Alaris system. And we said our #1 priority for this year became the relaunch of Alaris and remediation and return to it being a contributing growth driver. And we're certainly delivering exactly on that goal like we did last year. Really proud of our manufacturing team. Hopefully, you heard it in our prepared remarks, right? We went from clearance at the end of Q4 to this past quarter, Q2, setting an all-time record in both the production and shipment numbers of Alaris. That's a combination for sale and remediation, but it really reflects that core manufacturing excellence capability that BD has, which we think is best-in-class in the industry, and this is a great example of it.

Operator:

We'll go now to Larry Biegelsen with Wells Fargo.

Christopher DelOrefice:

Yes. Thanks, Larry. Good question. Yes, first of all, to your point, it's a little early to get into 2025. TSA is not material. That's a normal dynamic that happens. As a matter of fact, year-over-year, we're down. So we're actually absorbing that already. And by the time you get through this year, it's not substantive.

Operator:

We'll go now to Matthew Taylor with Jefferies.

Christopher DelOrefice:

Yes. Thanks for the question. I guess -- so 2 things. One on margin. If you think of margin, a lot of the momentum comes from 2 things like I shared, right? One, we just exit those one-timers in the first half. So high confidence that's done. It's behind us. The second thing is, our cost improvement initiatives with -- when you think of a cap and roll period and inventory, we have a strong line of sight to that, and we already know the embedded inflation dynamics that are all locked up. So we have a high degree of confidence in what's flowing through gross margin.

Matthew Taylor:

Can I just ask...

Matthew Taylor:

I just want to ask a follow-up. You mentioned in the presentation some enhancements to Alaris and Pyxis. So I was hoping you could just talk about the importance of those submissions.

Operator:

We'll go next to Matt Miksic with Barclays.

Operator:

And that will conclude today's question-and-answer session. At this time, I'd like to turn the floor back over to Tom Polen for any additional or closing comments.

Operator:

Thank you. This does conclude this audio webcast. On behalf of BD, thank you for joining today. Please disconnect your lines at this time and have a wonderful day.

Greg Rodetis:

Good morning, and welcome to BD's earnings call. I'm Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the first quarter of fiscal 2024. We also posted an earnings presentation that provides additional details on our business, strategy and performance. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's calls are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued execution of our BD 2025 strategy. Chris will then provide additional details on our Q1 financial performance and our updated guidance for fiscal 2024. Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Mike Garrison, President of the Medical segment; Dave Hickey, President of the Life Sciences segment; and Rick Byrd, President of the Interventional segment. Before we get started, I want to remind you that we will be making forward-looking statements. I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the Investor Relations website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. When we refer to any given period, we are referring to the fiscal period unless we specifically noted as a calendar period. I would also call your attention to the non-GAAP reconciliations included in the appendices of the press release and earnings presentation. With that, I’m very pleased to turn it over to Tom.

Christopher DelOrefice:

Thanks, Tom, and good morning, everyone. As Tom noted, we executed well against our performance goals in Q1. Q1 revenue growth was largely as we expected and I'm pleased to share we exceeded both our margin and earnings goals and delivered strong cash flow that positions us well to support our double-digit free cash flow growth goal. I'll now provide some insight into our revenue performance in the quarter. Additional detail can be found in today’s earnings' announcement and presentation. Q1 revenue was $4.7 billion with organic growth of 2.4% that was driven by high-single digit organic growth in BD Interventional and solid growth in BD Medical with China market dynamics playing out as expected, partially offset by a decline in BD Life Sciences, which was impacted by the comparison to the prior year respiratory season. As expected, China and respiratory were the primary drivers of Q1 revenue growth under indexing our full year goal. The respiratory season alone impacted total company growth by about 150 basis points. Regionally, organic growth was driven by the U.S., EMEA and Latin America, partially offset by the expected decline in China. Total Q1 revenue growth of 1.6% reflects the divestiture of our surgical instruments platform. Turning to the segment performance. BD Medical revenue totaled $2.2 billion in the quarter, growing 2.4%, driven by growth and medication management solutions and pharmaceutical systems, min-single digit growth in MMS was led by strong performance in dispensing, driven by innovations in our BD Pyxis portfolio that are improving nursing workflows and efficiencies. In our infusion business, we are pleased with our strong progress, bringing the BD Alaris Infusion System back to the market and continue to expect Alaris to ramp over the course of the year. Infusion also reflects strong demand for IV sets. Performance in Pharmacy Automation reflects the comparison to an outsized quarter in the prior year and the timing of planned capital installations. Growth of 3.4% in Pharmaceutical Systems was in line with our expectations and was led by strong double-digit growth in pre-filled devices for biologics and as expected, was partially offset by customer inventory dynamics, including a slowdown in demand for anticoagulants. Growth in Medication Delivery Solutions was about flat and slightly ahead of our expectations. Our Vascular Access Management strategy continues to drive strong performance particularly in Catheter Solutions. As expected, MDS growth was impacted by market dynamics in China including volume based procurement, which continues to play out within our expectations. BD Life Sciences revenue of $1.3 billion declined 2.5% which reflects a decline in IDS as a result of a tough comparison in the respiratory season worth nearly 500 basis points. It was partially offset by strong growth in biosciences. Performance in IDS reflects the tough comparison in respiratory testing that was partially offset by high-single digit growth in our Microbiology platforms and double-digit growth in Molecular IVD assays on both our BD MAX and BD COR platforms. Biosciences grew 5.7% as expected despite a strong comparison in the prior year. BDB performance was driven by strong mid-single digit growth in our research and clinical platforms that reflects double-digit growth in research instruments, driven by strong demand for our recently launched BD FACSDiscover S8 Cell Sorter and double-digit growth in Clinical Reagents as we continue to leverage our growing installed base of FACSLyric and FACSDuet solutions. BD Interventional revenues totaled $1.2 billion in the quarter, growing 4.7% and 8.4% organic, which excludes the impact of the surgical instruments divestiture. BDI organic growth was led by surgery and UCC. In surgery, double-digit organic growth was led by continued market adoption of our leading Phasix resorbable hernia products in our advanced repair and reconstruction portfolio and strong demand for our ChloraPrep infection prevention solution. High-single digit growth in urology was led by strong double-digit growth in our PureWick chronic incontinence solutions with continued strong demand in both the acute care and home care settings. Mid-single digit growth in PI was in line with our expectations and reflects growth across the portfolio. It was partially offset by the expected timing of distributor orders. In our peripheral vascular disease platform, we continue to drive market penetration with our Rotarex Atherectomy System and our Venous portfolio. Performance in our oncology business was driven by growth in biopsy, including strong market acceptance of our recently launched BD Trek powered bone biopsy system. Now moving to our P&L. Adjusted gross margin of 51.1% and adjusted operating margin of 20.2% were ahead of our expectations due to good execution on our margin improvement goals across our portfolio of simplification initiatives and strong SSG&A expense leverage. R&D spend was in line with our expectations. In addition, as we previously shared a discrete tax item that was contemplated in our full-year tax rate was realized in Q1. As a result of these items, we exceeded our Q1 operating income and our adjusted diluted EPS expectations, resulting in an EPS of $2.68. Regarding our cash and capital allocation, Q1 cash flows from operations totaled over $850 million. This reflects continued improvements around working capital, including good management of inventory levels, continued discipline around CapEx investments and leveraging our fixed asset base as a result of the benefit from our simplification programs and BD Excellence Operating System. We remain focused on free cash flow conversion and expect another step improvement in FY '24. As we execute against our BD 2025 strategy, we also remain well positioned to achieve our long-term cash conversion target of around 90%. Beyond our investments in growth, we returned $775 million in capital to shareholders, including dividends and $500 million in share repurchases. We ended Q1 with a cash balance of $1.2 billion and a net leverage ratio of 2.7 times. Moving to our updated guidance for fiscal '24. For your convenience, the detailed assumptions underlying our guidance can also be found in our presentation. Based on our Q1 performance, including the strong momentum in many parts of our business and progression of our margin improvement initiatives, we raised the midpoint of our FY '24 organic revenue growth guidance, and raised our adjusted EPS guidance, increasing the midpoint by $0.09. The increase to adjusted EPS reflects Q1 operational outperformance and a small improvement in FX. As a result, we now expect to deliver organic revenue growth of 5.5% to 6.25%, which increases our midpoint to slightly above 5.8%. We now expect adjusted diluted EPS, including the impact of currency to be in a range of $12.82 to $13.06, which reflects about $12.94 at the midpoint. Regarding foreign currency based on current spot rates, for illustrative purposes, currency has improved modestly and for the full year is now estimated to be a headwind of approximately 25 basis points to total company revenues and approximately 360 basis points to adjusted EPS growth on a full year basis. As you think of phasing over the balance of fiscal '24, the following are some considerations. First, we continue to expect organic sales growth to be higher than our full year range in the second half, partially driven by the expected ramp in Alaris along with the easing of prior year comparisons, such as China. Second, our updated guidance reflects an improved margin cadence over the balance of the year. Specific to Q2, adjusted gross margin is in line with our prior expectation and continues to reflect significant sequential improvement given the lessening impacts from inflation, prior year inventory reductions and FX. We now expect Q2 adjusted operating margin to expand by 25 basis points to 50 basis points year-over-year, driven by our continued margin improvement efforts and continued leverage in SSG&A. Third, the discrete tax item realized in Q1 was largely a shift from Q2 and results and revised phasing of our full year effective tax rate. Based on this timing dynamic, we currently expect our Q2 tax rate to be nearly 17%. We expect strong operating performance to offset the tax phasing impact, and as a result, there are no changes to our expectations for Q2 adjusted earnings per share. Lastly, we remain confident in delivering about 50 basis points of adjusted operating margin improvement for the year. As a reminder, the first half inventory impact is transitory and behind us as we exit Q2. And as FX and inflation moderate at a meaningful rate to the back half, coupled with a continuation of the first half margin improvement, we expect to deliver from our strong simplification portfolio, we can naturally achieve our second half margin goals. In summary, based on the strength of our portfolio and new innovation, we have clear line of sight to deliver our FY '24 revenue guide which at the midpoint is above our 5.5% plus target and results in a three year CAGR of nearly 7% growth. I'm pleased with the continued strong execution by our talented organization to start the year, which supported over delivering on our margin and operating income goals and increasing our earnings outlook. With a strong quarter of cash flow, we remain well positioned to deliver another year of double-digit free cash flow growth, which increases our capacity to support additional value creating opportunities including M&A. We remain well positioned to continue to deliver against our BD 2025 strategy and financial targets. With that, let's start the Q&A session. Operator, can you assemble our queue?

Christopher DelOrefice:

Good morning, Rick.

Tom Polen:

Yeah. Thanks for the question, Rick, and good to connect. So, as you said, Q1 played out as expected, total revenue growth was largely in line with our expectations, as you said, there were really two factors that we recognize we're going to be playing out in Q1. One was the flu compare given the large kind of early timing last year that was about 150 basis points that we knew was going to happen and then value-based procurement in China. And those two factors played out actually exactly as we expected in China, in fact that we were watching that and we saw VOBP stay focused within MDS which was just our assumption. We had really strong growth in BDI within the quarter, double-digit, mid-teen growth, high-single digit growth in life sciences and so we saw that play out. China actually did a little bit better than budgeted in Q1 and so we feel good that that's going to continue to play out for the year. I think, as we also think about the back part of the year to your question, something else we are looking at as we started and gave guidance to begin, '24 was, of course, Alaris. We were really pleased to have Alaris back with new improvements. Our new 510(k), it's a big deal to be back servicing our customers fully. It's a great product and highly unique and so, of course, Q1 was really the first quarter with Alaris relaunched and our team backed it proactively upgrading and remediating our base and we wanted to get feedback and engagement. And it's been quite positive, and I think that part also, as we look ahead, that confidence in those early engagements and the progress we're making is what's led us to also comment that we're seeing now $200 million as the floor for the year. In the other aspects, as you think about the growth drivers that we've been talking about and we often call out six specific platforms, we saw a really great growth in PureWick this quarter. Pharm systems, we have signaled very clearly the anticoagulant topic that was going to create a slower compare or slower growth in Q1. We're seeing the underlying business there do really well. Biologics grew double-digits in the quarter. Flow playing out, strong demand for FACSDiscover, Molecular double-digit growth as you heard in the prepared remarks, Peripheral Vascular and Pharmacy Automation, those trends in the marketplace continue with strong outlooks for those businesses. So again, we saw very clearly the two factors that we knew were going to impact us in Q1 and they played out as expected. Chris, any other comments to add.

Tom Polen:

Thanks for the question, Rick.

Christopher DelOrefice:

Yeah. Thanks, Rick. Yeah. We were definitely pleased with the margin progression and operating income delivery Q1 and it was strong and exceeded expectations. We basically passed that through to your point. The other thing we did is we actually accelerated margin improvement in Q2 by about 25 basis points to 50 basis points, so de-risks the back half of the year. We did that on a couple of things. Whenever you start the year, you want to ask -- you want to see a couple of things. One, to recall some of these transitory headwinds like China. We knew we had a transitory item in inventory that hit us in the first quarter that was 200 basis points. We have outsized FX in the quarter. All those played out as expected and we have stronger delivery on calling inflation dynamics and more importantly, our margin improvement program. So, we continue to accelerate those. We've had two years now of consistent track record of delivering against our margin expectations, back to pre-pandemic levels 400 basis points over two years. If you look at our margin progression throughout the year, basically, with these transitory items behind you, the level of cost improvement we delivered in Q1 alone with moderating outsized inflation through the back half of the year. It goes from nearly -- in Q1, we said it was almost 2x what we're calling for the full year and outsized inflation 100 basis points. It cuts in half in Q2 and then moderates in the back half. So, we just have to keep executing against our margin improvement portfolio, which is really strong. And that's what gave us confidence with the Q1 performance and our ongoing programs to raise for the year and we're focused on executing against that.

Operator:

We'll take our next question from Travis Steed with Bank of America. Please go ahead. Your line is open.

Tom Polen:

Yeah, Travis. This is Tom. Thanks for the question. Good morning. So, on pharm systems specifically, again, as I mentioned, we saw that play out as expected with the impact of the one customer that we mentioned in anticoagulants and strong underlying growth beyond that, again, double-digit growth in biologics. Our capacity continues to -- those investments that we made continue to play out as expected. We have capacity to meet customer needs, and we're engaged very actively in that space. And as we think about the slight raise on revenue, again, we feel really Alaris the floor of 200, as we see now for the year based on, again, early engagement with customers. We thought that was prudent to do given our outlook in that space. I don't know, Mike, if you have any other comments to add.

Travis Steed:

Great. And last question, Chris, just on margin in Q1 was a nice kind of core outperformance on margins in Q1, especially without the revenue upside. Just curious kind of go through what got better in Q1 on the margin side and confidence, and what gets better if you think about that 300 basis point step-up in margins from Q1 to Q2, just to give some confidence that that 300 basis point step-up sequentially is achievable?

Travis Steed:

Super helpful. Thanks, Chris

Vijay Kumar:

Good morning, Tom, and thanks for taking my question. My first one, Tom, if I just look at Q1 organic 2.4 right? A lot of questions on, look utilization is strong. Why is this optically 2.4 well below medtech sort of trends we've seen so-far. Can you help us bridge? I think you mentioned 150 basis points of respiratory, does that include COVID? I think you mentioned China. What was the China impact in Q1? I think you mentioned some timing elements, customer orders. What was that impact? And Alaris, it looks like it was not a contributor to growth, so maybe just help us draw bridge between the 2.4 and what it should have been without some of these underlying one-time items?

Christopher DelOrefice:

No. Just I mean on Alaris, Alaris played out as expected actually. Again, what we've highlighted is, it was going to be a journey as you think of the natural progression of engaging with customers and the natural kind of life cycle of then placement, revenue recognition, etc. We're actually very pleased with our progress there. And as a matter of fact, right, we declared the $200 million more of a floor that was part of what gave us confidence to increase the low end of the revenue guide. And so we're continuing to focus on executing there and that was as expected on the flip side, what it does is, in the back half of the year, gives you almost basically a full point of growth tailwind that will help, which so, when you look at the back half, think of that or kind of moderate the expectation that you're seeing around feeling like that growth is outsized versus the front half of the year. It's as expected with the ramp we were expecting on Alaris.

Michael Garrison:

That's right. And just to remind that last year, we had the Certificate of Medical Necessity, how we were shipping, we're not doing that now. So, it becomes more like a step over to get to there, and then growth on top of that, so that's what we're seeing in first quarter. So, it's actually, starting from ground zero in terms of selling process and ramping it up. I actually feel really good about that. I feel really pleased with the way our manufacturing ramp-up has gone and that scale-up is going quite well. So, we're able to supply product to our customers. I think the customer response, yeah, they're recognizing that, Alaris is almost like a different system. It's a different category in a way it's, the power of one with all the infusion modalities as a single system, the most advanced interoperability in the category, 750 live sites, order of magnitude more than anyone else. Yeah, so, it's almost being recognized a little differently that way, so that's good. And we have sort of exceeded, we set certain expectations, we've exceeded those relative to return to market in terms of upgrading the fleet in the field. So, it's early, but I think the way things have progressed, that's what -- those are the sort of the elements that led us to build confidence to say that we think 200 is the floor.

Christopher DelOrefice:

Yeah. Again, it's basically a continuation of Q2 when you move out of Q2, both FX, the inventory dynamic goes completely away, which is almost 75 basis points still in Q2, so right off the bat, you pick that up as you move through Q2. That's probably the biggest item FX continues to moderate. We have reasonable signals on FX, obviously can continue to move, but that moderates down. The other thing is outsized inflation moves from about 100 basis points, which is our full year average in Q2 that further moderates down significantly. And then again, if you just continue the cost improvement and margin improvement initiatives, we already executed in Q1 throughout the year, it gets you to where we need to be from a margin standpoint.

Christopher DelOrefice:

Thanks, Vijay for the question.

Lawrence Biegelsen:

Good morning. Thanks, for taking the question. Mike, why would medical growth in fiscal '24 be in line with the corporate average given the tailwinds in MMS and pharm systems, you just said you expect pharm systems to grow high-single digits in 2024, so what are the expectations for MMS and MDS this year. Last year, Medical was 90%, was above the corporate average.

Lawrence Biegelsen:

That’s helpful. And Tom, China was down 5% in this quarter in Q1. Talk about what you're seeing there and you're confidence. I think in the past, you said you expect China to be flat to up low-single digits this year. Thanks for taking the question.

Lawrence Biegelsen:

Thank you.

Operator:

We'll take our next question from Robbie Marcus with J.P. Morgan. Please go ahead. Your line is open.

Christopher DelOrefice:

Yeah, Robbie. Thanks for the question. Actually, at J.P. Morgan, as you know, we outlined a strong plan outlining all of our margin improvement initiatives. I think gross margin is the next stage of accelerated focus for us and we already have a great pipeline of margin improvement initiatives there through Project Recode, right? We actually already completed our 20% goal SKU rationalization. We're actually going to go further there. The network architecture, Tom, highlighted in our prepared remarks the strong progress there with initiatives underway that reduced our network by 20%. As a matter of fact next year, the network architecture value we get out of that actually doubles going into '25, you're going to really start seeing the benefits of that. BD excellence is another one. We're getting great traction this year. It's part of the momentum we have in this year on margin that will continue into next year. You also have the Alaris dynamic. As that fully ramps up and scales, we'll get margin leverage there. So, all those things coupled with the continued strong growth profile of being able to consistently do 55 plus which we've been well above gives us strong confidence in 2025 and the 100 basis points, as a matter of fact, as we exit this year. Doing everything we did, we really should be well positioned to carry that kind of momentum into next year. It's premature to kind of make a formal commitment and manage all the puts and takes but certainly high confidence in the '25 and great momentum there.

Robbie Marcus:

Great. Really helpful. Just a quick follow-up. China VBP is a headwind you've talked about. How do we think about where that's hitting each of the business units and the size, just so we can, kind of try and back out that headwind in our models? Thanks.

Robbie Marcus:

Great. Thank you.

Operator:

We'll take our next question from Patrick Wood with Morgan Stanley. Please go ahead. Your line is open.

Michael Garrison:

Yeah. I'll take that. So for pharmacy automation, yeah, we feel really good on that, like I mentioned, the tough compare because, they were incentivized Parata and the team there was incentivized to finish their Q4 strong. So, they had already lined up installations last year for their finishing. They had a record for them quarter last year. So, it's a little bit of a tough compare. Order book looks good, especially in the sort of Retail Long-Term Care channels. Yeah. And we continue to leverage our BD Salesforce to talk to our acute-care customers about starting to transform the pharmacy in the acute care with our IDN customers. So, we see that continuing to grow throughout the year. Overall, it's been -- yeah, we've described it as sort of a low double-digit grower, and that's sort of what we have projected and expected for the rest of the year.

Tom Polen:

I turn that to Dave. Thanks for the question, Patrick.

Tom Polen:

Yeah. That testing treat concept with 15 minutes or less time to [Multiple Speakers] core component.

Tom Polen:

Thank you.

Tom Polen:

Good morning, Patrick. Sorry, Matthew.

Christopher DelOrefice:

Yeah. It's Chris. Thanks, Matt, for the question. Appreciate it. Yeah, when we started the year, we talked about kind of the inflationary dynamics and supply-chain. One of the biggest ones that we were still seeing play out through the year was wage dynamics in our supply-chain organization, that continues but it's playing out as expected. So, nothing new there. Regarding FX, good news is moderately favorable. We passed through both the revenue and earnings on that. So, stable at this point and moving in the right direction. We'll continue to watch it, and I think we're happy with the operational performance in passing through both the $0.07 operational beat and the $0.02 of FX.

Michael Garrison:

Yeah. For pharm systems, that the capacity that's freed up for anti-coagulants, there is, some of it where the teams are, hunting for home for that. And there's been some success there, but I think we also just took a strategic decision to look at the anticoagulant market overall and it returning to more of a post-COVID normalization there and our converting lines over to biologics to help accelerate our ability to have capacity to serve in that area and that's playing out pretty well. So, we've been able to -- there has been some increased demand that's come in for biologics that, we'll be able to recognize later in the year and then, we'll be able to serve that, in part because of these line conversions. So, it's been a little bit of both relative to that anticoagulant dynamic.

Matthew Miksic:

That's super helpful. You bet. And just one follow-up if I could on cash flows and sort of M&A and I remember last quarter, Chris, you emphasized a bunch of times, and part of that impact was, bringing up excess inventory having an impact on margins, you threw that you made nice progress on leverage. Could you talk a little bit about, what that looks like for the rest of the year, drove M&A outlook and the kinds of things, maybe the size of things that you might be -- we might expect in the next, six, 12, 18 months. Thanks.

Tom Polen:

Extremely well said. Remains an active part of our growth strategy and I think as we've shared in the past, we've been focused on accretive growth, accretive margin acquisitions, which has been our track record and we've executed well against those over the last several years. I think we've clearly built a good track record of that. And so, we've got a strong healthy M&A, you know, active pipeline focused again in strategic areas where the market has significant structural or macro tailwinds to drive sustainable growth and where we can bring meaningful additional value either through our channel or global footprint, our manufacturing prowess. And again, we remain very disciplined on strong returns accretive growth. We haven't been doing dilutive deals that remains, right? Our emphasis is we're focused on delivering on our 25% operating margin goals. And but we're going to continue to focus on that and we have a strong pipeline. Thanks for the question.

Tom Polen:

Thank you all for joining our call. As you heard, we had good momentum to start the year and we look forward to sharing our progress towards delivering our BD 2025 goals and increased outlook for FY '24 on our next call in May. Thank you very much and have a great rest of the day.

Greg Rodetis:

Good morning, and welcome to BD's earnings call. I'm Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the fourth quarter and full year of fiscal 2023. We also posted an earnings presentation that provides additional details on our business, strategy and performance. The press release and presentation can be accessed on the IR website at investors.bt.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Crystal DelOrefice, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued execution of our BD 2025 strategy. Chris will then provide additional details on our Q4 and FY '23 financial performance and our guidance for fiscal 2024. Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Mike Garrison, President of the Medical segment; Dave Hickey, President of the Life Sciences segment; and Rick Byrd, President of the Interventional segment. Before we get started, I want to remind you that we will be making forward-looking statements. I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the Investor Relations website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis, unless otherwise noted. When we refer to any given period, we are referring to the fiscal period unless we specifically noted as a calendar period. I would also call your attention to the basis of presentation slide, which defines terms such as base revenues and the non-GAAP reconciliations included in the appendix. With that, I am very pleased to turn it over to Tom.

Chris DelOrefice:

Thanks, Tom. We delivered strong, consistent results this fiscal year, which reflect the diversity of our portfolio and our BD 2025 strategy in action. Beginning with our revenue performance. We delivered $5.1 billion in revenue in Q4, exceeding our expectations with base organic growth of 7% and total base growth of 6.3%, which reflects the impact from the surgical instrumentation divestiture. For the full fiscal year, we delivered $19.4 billion in revenue with base organic revenue growth of 5.8% that is 100 basis points higher than our initial guidance. Total base revenue growth was 7%, driven by strong performance in BD Medical and BD Interventional. Base revenue growth was strong regionally as well with high single-digit growth in EMEA and Latin America and mid-single-digit growth in the U.S. and Greater Asia despite low single-digit growth in China. Our revenue performance continues to be supported by our durable core portfolio and an increasing contribution from higher-growth spaces that are driving the plus side of our targeted 5.5% plus revenue growth profile. We also continue to benefit from the organic contribution from tuck-in acquisitions we anniversaried, which was about 40 basis points for the full year. Over a 2-year period, we drove a strong base organic revenue CAGR of about 7%, which is well above our long-term target. Let me now provide some high-level insight into each segment's performance in the quarter. Further detail can be found in today's earnings announcement and presentation. BD Medical revenue totaled $2.6 billion in the fourth quarter, growing 6.2% with strong performance in Medication Management Solutions and Pharmaceutical Systems. BD Medical performance reflects a decline in medication delivery systems resulting from softness in China driven by market dynamics, including some impacts from volume-based procurement. This was partially offset by strong performance in catheter solutions in North America and Europe through continued execution of our vascular access management strategy. MMS delivered exceptional growth of 13.7%, driven by double-digit growth in both dispensing and pharmacy automation as customers focus on solutions, which improve workflows and efficiencies and help pharmacies address rising costs and labor shortages. Pharmaceutical Systems delivered another quarter of double-digit growth of 10.6% driven by continued strong demand for prefillable solutions for biologics, partially offset by a slowdown in China exports of anticoagulants. Ed Life Sciences revenue totaled $1.3 billion in the fourth quarter. Excluding COVID-only testing, Life Sciences base revenues grew 3.8%, driven by strong double-digit growth in Biosciences. Life Sciences base business growth reflects IDS base business growth of 0.6%, driven by continued adoption of our BD KIESTRA microbiology lab automation solution and strong IDAST instrument placements and continued growth of our molecular IVD assays, leveraging the BD core system and our expanded BD MAX installed base. Growth was partially offset by the comparison to prior year COVID-related recovery in China and a decline in specimen management that was driven by distributor and customer stocking in the prior year. PDB [ph] grew 11.7%, driven by strong demand for our recently launched BD Fax Discover SH cell sorter that is enabling an entirely new level of biological depth of speed, ease of use and solution integration for researchers across fields like immunology, cancer research and cell biology. BDs performance also reflects strong growth in clinical reagents, leveraging our increasing installed base of FaxleRic [ph] analyzers in facto-ed automation. BD Interventional revenues totaled $1.2 billion in the fourth quarter, growing 9.6% and 12.8% organic. The strong double-digit organic growth was driven by surgery growth of 5% or 15.5% organic, which excludes the impact from the divestiture of the surgical instrumentation platform of 10.5 percentage points. Organic growth reflects strong market adoption of our leading Phasix Hardie products in our advanced repair and reconstruction portfolio and strong demand for our ChloraPrep infection prevention solution. PI grew 11.7%, which reflects strong performance in peripheral vascular disease driven by global penetration of the rotor atherectomy system and our venous portfolio in China. Growth was aided by improved supply and distribution stabilization in EMEA following a new ERP implementation in fiscal '22. Urology grew 11.7%, primarily driven by continued strong demand for our PureWick chronic incontinence solutions in both the acute care and alternative care settings. Now moving to our P&L. Q4 adjusted diluted EPS of $3.42 reflects strong double-digit growth of 24% or 25% on a currency-neutral basis. Gross margin increased 20 basis points to 52.6%, and as anticipated, we delivered very strong margin improvement with adjusted operating margin of 25.4%, up 340 basis points. As expected, margin improvement was driven by leverage on our strong revenue performance, our ability to offset outsized inflation, lower SSG&A driven by our simplification initiatives, moderated R&D expense as a percent of sales due to investment timing and a favorable comparison to last year's COVID profit reinvestment. Full year adjusted diluted EPS of $12.21 grew 7.6% or 11% currency-neutral. This includes delivering an additional $0.14 of currency-neutral earnings versus our original guidance. Additionally, we absorbed almost 400 basis points associated with reduced COVID-only testing, implying base currency-neutral EPS growth of approximately 15%. For the full year, gross margin of 53.5% was flat to the prior year despite absorbing over 200 basis points of outsized inflation and cost of goods sold. Operating margin of 23.5% was up about 90 basis points or 110 basis points when excluding the 20 basis point impact from the accounting treatment of an employee benefit-related item, exceeding our margin goal for the year. The employee benefit item is recorded in G&A and is fully offset in other income with no resulting impact to EPS. While delivering our margin goals, we also maintained investment in R&D at 6% of sales or about $1.2 billion to advance our pipeline of innovation programs that will support our strong growth profile in fiscal year '24 and beyond. As anticipated, we made significant progress towards achieving our pre-pandemic margin improvement goals. Our FY '23 adjusted operating margin is ahead of our 2019 spin adjusted margin, which is particularly significant given it includes overcoming 500 basis points or almost $1 billion of outsized inflation in the past 3 years. Over the next 2 years, we remain well positioned to return to our targeted 25% operating margins. Regarding our cash and capital allocation. Cash flows from operations totaled approximately $3 billion in FY '23. As expected, cash flow accelerated over the back half of the year and was strongest in Q4 due to normalization of working capital, including continued moderation of our inventory balances. We remain focused on free cash flow conversion and as anticipated, delivered a step-up in FY '23 with free cash flow increasing by over $600 million. We are planning another step improvement in FY '24 and expect free cash flow to increase double digits. This will be achieved through further moderation of inventory levels by the end of the year and continued discipline around CapEx investments through focused prioritization and areas of targeted reduction, both of which we expect to more than offset cash investments to support the Alaris remediation. As we execute against our BD 2025 strategy, we remain well positioned to achieve our long-term cash conversion target of around 90%. Beyond our investments in growth, we paid down over $700 million in debt this fiscal year and returned $1.1 billion in capital to shareholders through dividends. We ended the year with a cash balance of $1.4 billion and a net leverage ratio of 2.6 times This is our strongest net leverage position since FY '21, which positions us well to capitalize on opportunities to accelerate our investment in higher-growth categories through our tuck-in M&A strategy. Moving to our guidance for fiscal '24. For your convenience, the detailed assumptions underlying our guidance can also be found in our presentation. As demonstrated by our results over the past 2 years, BD has the ability to deliver strong performance in the most challenging times. Our performance reflects strong execution of our BD 2025 strategy, the benefit of our diversified and durable portfolio or simplification and outsized cost improvement programs and bold, purposeful capital allocation and investment decisions, all further optimized by our ability to execute with agility. As we look to fiscal '24, while the macro landscape has evolved since our last earnings call, I'm pleased to share we remain committed to the revenue growth profile we previously outlined. And at the midpoint of our guidance, we expect to deliver another year of organic growth above our 5.5% plus profile. Let me share some of the key puts and takes contemplated in our guidance. First, we see strong momentum in many parts of our business. We have 6 key areas in our portfolio now totaling over $5 billion or 25% of our sales that we expect to deliver high single to double-digit growth. These include our farm systems pre-fillable syringes, which are benefiting from the strong trends in biologics, our bioscience business, our peripheral vascular disease platform, our medication management systems business, including pharmacy automation and infusion given the recent clear Delaris pump, urinary incontinence supported by our PureWick franchise; and finally, our molecular diagnostic platforms. This allows us to deliver strong results despite some heightened macro dynamics affecting many industries, most notably in China, along with increasing risk and complexity as the result of the war in the Middle East and other geographies. Specific to the health care industry, providers continue to feel the pressure of elevated inflation and labor dynamics. And while they remain very focused on cost and working capital management, our portfolio has proven to be more resilient in this type of environment given BD's essential role in the health care ecosystem and our ability to transform health care processes and drive efficiencies. As it relates to BD, the largest headwind we anticipate from these macro dynamics is in our China business, where we see market softness and increasing levels of volume-based procurement, predominantly impacting our MDS business along with some impact in farm systems from reduced demand as our Chinese pharmaceutical customers export business slow. As a result, we are projecting China to be flat to modest growth in FY '24, which creates nearly a 75 basis point headwind to our revenue growth this year. Taking these factors into account, we expect to deliver base organic growth of about 6% at the midpoint, which is consistent with the view we provided on our last earnings call. We still expect COVID-only testing to step down from the $73 million reported this year and result in a headwind to organic growth of over 25 basis points. This brings the midpoint of our total organic growth to 5.75% within our 5.25% to 6.25% range. To help simplify our reporting, unless there's a significant change in the COVID-only testing market. Effective this year, we will no longer be reporting base organic growth that excludes COVID-only testing. However, it was important to give us context with our initial guidance. As a reminder, while the sale of the surgical instrumentation platform that closed in Q4 FY '23 does not impact our organic growth, we'll have nearly a 75 basis point impact to total revenue growth in FY '24 and is accounted for in our total currency-neutral revenue growth guidance of 4.5% to 5.5%. Moving to margins and earnings. We plan to deliver another year of strong profitable growth, including progressing our adjusted operating margin towards our FY '25 goal of 25%, while generating cash flow improvements to support our strong and reliable growth profile. On gross margin, we expect to be about flat year-over-year on a reported basis, including the impact of currency headwinds of approximately 75 basis points. Excluding the impact of currency, we expect gross margin to improve with our simplification strategy more than offsetting 150 basis points of headwinds from outsized inflation of about 100 basis points and another 50 basis points from inventory reduction efforts that occurred in FY '23 and that we plan to further moderate down by the end of FY '24, which will improve cash flow. The value from our simplification programs continue to be driven by our recode network optimization, SKU rationalization and operating model simplification programs. Additionally, our BD excellence program, which focuses on the application of lean principles is driving productivity gains across our operations. As it pertains to OpEx, we anticipate SG&A expense leverage on strong revenue performance and continued benefit from our operating model simplification programs. After 3 consecutive years of investing in R&D at over 6% on average, in FY '24, we anticipate a consistent year-to-year dollar spend in R&D that is needed to advance our pipeline, which will result in some modest leverage. As a result, we expect adjusted operating margin to improve by around 50 basis points on a reported basis over the 23.5% reported in FY '23, primarily driven by SSG&A leverage. This puts us well on track to achieve our 25% margin goal by FY '25. For tax, assuming no major legislative or regulatory changes, we expect our adjusted effective tax rate to be between 13% and 15%. As a reminder, it would not be unusual for our tax rate to fluctuate on a quarterly basis given the timing of discrete items. Given all these considerations, we expect adjusted EPS growth before the impact of currency of 8.25% to 10.25% or 9.25% at the midpoint. This includes absorbing about a 75 basis point headwind from the divestiture of the surgical instrumentation business, and as a result, implies double-digit earnings growth, excluding the divestiture of 10% at the midpoint and within a range of approximately 9% to 11%. Let me now walk you through the estimated impact from currency. As a reminder, we manage our business and provide guidance on a currency-neutral basis to best represent underlying performance we provide perspective on currency using current spot rates, consistent with what other companies are discussing in their forward outlook, we are accounting for a headwind to our reported results as we translate currency to a stronger U.S. dollar, along with normal FX translation, given our global manufacturing and distribution footprint, we also faced the impact of currency fluctuations in our P&L, including the impact from the sourcing and timing of inventory production and movements throughout our network. Since our last call in August, the U.S. dollar significantly strengthened against most major currencies and the change over this time period accounts for nearly two thirds of the expected FX impact. Additionally, as it relates to sourcing from Mexico, where we have a large manufacturing footprint, the dollar weakened versus the peso by about 10%, taking the average rate over the last 4 months ending in October versus the average over the first 9 months of fiscal year '23, with the peso achieving peak rates that in that time frame had not been seen in well over 5 years. Based on current spot rates for illustrative purposes, currency is estimated to be a headwind with approximately 75 basis points to total company revenues and approximately 375 basis points to adjusted EPS growth on a full year basis. All in, including the estimated impact of currency, we expect revenues to be between approximately $20.1 billion to $20.3 billion and adjusted EPS to be in a range of $12.70 to $13, which represents growth of 4% to 6.5%. As a reminder, currency can fluctuate over time, and it would not be prudent to deviate from our investment profile that is resulting in consistently strong base organic growth, which is delivering an expected 3-year base organic CAGR of about 6.8%, well above our 5.5% plus growth profile. We continue to deliver margin improvement, resulting in earnings growing 1.3x the rate of sales. And with our focus on improved cash conversion, we expect to deliver double-digit free cash flow growth. As you think of fiscal '24 phasing, the following are considerations for Q1 in context on how revenue and margin will index through the remainder of the year. As it relates to Q1, we expect organic revenue growth to under index the full year by over 200 basis points, and we expect a decline in adjusted EPS versus the prior year of about $0.55 to $0.60. There are 3 key items to consider First, sales was driven by the prior year base and COVID-only respiratory testing comparison, along with the market dynamics in China. These impacts are about equally weighted and primarily impact the IDS and MDS business with a modest impact in farm systems associated with China. We also expect Alaris revenues to ramp over the year and be weighted to the second half. Second, we expect operating margin to decline by around 350 basis points on a reported basis in Q1 with 200 basis points driven by inventory-related FX dynamics and another 200 basis points from the negative absorption impact from our planned inventory reductions, which we expect to partially offset through our simplification and cost mitigation initiatives while also overcoming outsized inflation. Lastly, we had a discrete tax item in Q1 of last year that creates a negative comparison. As you think about the remainder of the year, we expect organic sales growth to be higher than our full year range in the second half, partially driven by the ramp-up of Alaris. We expect our Q2 margins to expand significantly on a sequential basis, resulting in year-over-year operating margin being nearly flat on a reported basis or slightly up on a currency-neutral basis. In closing, we are very pleased with our performance this past year, particularly given our ability to navigate another year of significant macro complexity and inflationary pressure. The momentum in our durable and strong portfolio, along with our track record of successfully executing and delivering against our commitments, gives us confidence in our ability to continue this momentum into FY '24 and create long-term value for all of our stakeholders. Let me take a moment to thank our talented employees across BD who through growth mindset and an unwavering commitment to our purpose or core to delivering this performance. With that, let's start the Q&A session. Operator, can you assemble our queue, please?

Robbie Marcus:

Okay. good morning. Thanks for taking the questions. I wanted to start on how you think about reported EPS growth because the range of $12.70 to $13 is just slightly higher than the original guidance for fiscal '20 of 12 [ph] I believe, 1,250 to 12.65. So just thinking about how you're managing reported EPS versus underlying organic constant currency EPS and how we should think about your ability to deliver the double-digit reported EPS growth going forward? Thanks.

Robbie Marcus:

Yes. Very helpful. And you talked a lot about operating margins. It came in below - the Street in fourth quarter and just below the fiscal '23 guide. And first quarter is coming in pretty far substantially sequentially down. How do we think about your confidence levels for being able to achieve the stated operating margin guidance in the back half of the year? Thanks a lot.

Tom Polen:

Ravi, this is Tom. Just to add to Chris's excellent summary there, just to call out, we feel great about the performance in FY '23 as well as our outlook for '24. And just to give a little bit more detail on that inventory number. So in Q3, you saw meaningful improvements in our cash flow, including a $200 million reduction in inventory. In Q4, if you haven't seen yet, it's a $300 million reduction in our inventory in Q4 that we just achieved. Obviously, that - the inventory reduces within that quarter, the variance is then from producing less inventory from manufacturing, caps and rolls into the first half of next year. And so just to put it in perspective the scale that we've been taking inventory down at. And obviously, that has a meaningful benefit to cash flow and why we see such strong cash flow, growing nice double digits next year all in, which is really enables our continued strategy on our tuck-in M&A strategy, investing behind growth, right, continuing to drive the flywheel. Thanks again for the question.

Vijay Kumar:

Hey, guys. Thanks for taking my question Sorry, there were a lot of numbers being thrown around. But if you can just -- let's start with Q1 on the top line com. Your Q4 performance was pretty impressive. I think for Q1, you said 200 basis points below the annual guide. Your comps don't seem crazy, right? It's pretty easy. So what's changing here? What are you assuming for pricing China headwinds Aleris?

Chris DelOrefice:

Yes. Yes, Vijay, thanks for the question. Yes. On sales, we indicated that our organic growth in Q1 was under-indexed by 200 basis points. There's really 2 factors, maybe 3. The key factors are, one, the respiratory testing dynamics, both in our base and the COVID only, which we're going to now just report as our base business, right? It was still more indexed in Q1 of last year. So as that normalizes year-over-year. The other one is some of the China slowdown that I noted, which is mostly in our medical business, we're still seeing strong performance, in particular, in BDI, which has been a source of strength for us. The good news is we've baked that into our planning by the time that we ramp up to the back of the year that normalizes throughout the year. So those are the 2 small items. The third one I would point to, of course, that we've articulated is the Alaris. As that comes back, we talked about that being a ramp throughout the year. So those are probably the key 3 considerations. To your point, I think especially on the back of absorbing 75 basis points of a China headwind in our growth rate, 5.75 really implies organic growth of 6% north. So it's just -- it's another year of really strong performance. I think it's -- when you think of BD, we're not dependent on one area of growth. I think that offers a source of confidence in complex times like this. And I think the growth is broad-based, right? We talked about the 6 key areas within our portfolio that offer opportunity to deliver that outsized growth of either high single digits to double digits. So we continue to focus on that, transforming our portfolio through organic investments in R&D and the tuck-in work we've done. If you noticed '23, the impact from our tuck-in acquisitions are now contributing 40 basis points to growth after having anniversaried them for 1 year.

Vijay Kumar:

Understood, Tom. And then one on margins here. I think in the Q1 gross margin is 350 basis points below. I just maintain your OpEx dollars, I still end up with an operating margin close to 21.5%. I think your guidance is implying sub-20% for Q1. So is there some investments that's being pulled forward into Q1? And I think you mentioned gross margin flattish year-on-year. Are you planning to exit at 55%? Like what drives the gross margin from 51% to 55% as the year progresses?

Vijay Kumar:

Q1 op margins, yes and gross margin progression?

Vijay Kumar:

So sorry, the OpEx dollars, are you expecting it to be constant sequentially? Or is that stepping up, Chris?

Vijay Kumar:

Thanks, guys.

Larry Biegelsen:

Thanks for taking the question. Just I'd love to focus on China a little bit, 13% decline in Q4. What were the drivers of that? How much was the anticorruption initiative versus VBP? And how are sales going to be flat to up in fiscal '24, given the Q4 decline. And just one follow-up on fiscal '24, Chris. The tax guidance, does that include the Pillar 2 changes? And how should we think about the tax rate going forward? And the FX headwind of 75 bps to sales, how can that be a 375 basis point impact to EPS?

Tom Polen:

And specifically on China, I'd really focus on 2 key areas. One is VOBP and then the topic related to farm systems, which Chris mentioned, which obviously we overcame at a global level, but you see it acute the topic within China, and we ended up reallocating the supply to other customers that were outside of China. So on the farm systems, one is, as Chris mentioned in the prepared remarks, we're just seeing specifically within China, basically a slowdown in exports of pharmaceutical products, specifically anticoagulants from China and so lower demand as those companies are seeing significant drops in their exports. So that's really one again, that ended up showing up in our - it will show up in our China numbers as a decline, but that same volume that would have gone to them gets reallocated to other customers globally who are - still have that business in their prefilled syringes for anticoagulants. And so we make - we didn't see it at a pharmaceutical systems level. So that's one and was notable within the quarter. I think the other one is really more VP - and again, primarily focused within the MDS business. We continue to see strong high single-digit, double-digit growth -- strong double-digit growth in Interventional and high in life sciences. So really, they continue at our historically expected growth rates, not only in '23, but through as we look ahead towards '24, that's our outlook there as well. It's really acute within specifically the MDS business and then the continuation, annualization of what we're seeing in China anticoagulants and exports So when it comes to anticorruption campaign, that's obviously a macro topic. We feel very strong about our compliance system, et cetera, nothing we're worried about. I think we saw some stabilization in the market on that versus maybe when it first came out in customers' reactions, but I wouldn't overly attribute it to that topic as much as the other 2 that I mentioned.

Travis Steed:

I'll ask the Alaris question. Are you still penciling in $200 million for the full year? And any help on maybe what you've expected in kind of Q1 just to help with the ramp for Aleris? And is that -- when you think about margins, is that one of the drivers of the second half margin ramp?

Mike Garrison:

Just really pleased that we were able to manufacture and ship product to the first customers ahead of schedule. We have been sort of planning for that more in Q1 of this year, but the team was able to execute to be able to ship products in end of September. And overall, I think that our discussions with the customers are going well, and we're able to start to line up for focusing on our existing customers for remediation out in the field. The other point that I would make is that we continue to sort of make solid progress just working with the customers. And we've mentioned before how important interoperability was during COVID. And certainly, for a lot of our customers, that's a key consideration in the discussions that we're having with them. So that's good for health care. I think that's good for public health. And so we're really happy that that's a key consideration from their perspective. And we're well positioned in that area.

Matt Miksic:

Great. So with all the swing in FX and dominating the questions around the guide here. I have one sort of follow-up on that and then a follow-up on your growth and sort of growth priorities and other sort of investment provides you're making during the year, but out FX, the swing obviously is expecting everybody and we're starting to get a sense of that into year-end and early next year. But if you could maybe highlight the way that, that is managed through your P&L, how it at all there's any...

Matt Miksic:

That’s the first question.

Matt Miksic:

Yes. And that's kind of actually dovetails nicely into the part 2, which is -- so you're making some choices that are impacting the margins as you talked about inventory takedowns, which are -- have an absorption effect, which I think everyone would agree is those are solid fundamental cash-generative decisions. And just with the questions as I think everyone is seeing there will be some -- there is some pressure here before the open, and it kind of gives the impression of a company that is under some pressure or defensive posture, but your actions obviously are saying the opposite. And I was wondering if you could talk a little bit about some of your continued efforts to either invest inorganically or highlight some of the drivers that you think are going to be significant growth leaders in the early and mid part of the year in 2024.

Tom Polen:

And Matt, I think, as Chris said, we just set the inventory piece aside, create awareness in that, but it's really irrelevant at the end of the day in terms of we're delivering right our 6% top line organic growth, and we're delivering double-digit EPS growth organic, and then it's really FX is what gets flowed through, right? We're not going to cut R&D or cut other investments that we're making to drive our strong growth profile, which is a 7% CAGR over the last couple of years. We're not going to cut that to do FX when - particularly when we look at the cash flow, which is what we use to invest behind that growth has 0 impact from FX really that we see. We're continuing to drive actually outsized free cash flow. Think about in FY '23, we grew free cash flow by $600 million in the year, right? That's strong free cash flow growth, and we expect continued strong growth as we look at '24 and beyond. So I think in terms of we are extremely excited by our portfolio and what we have today. And I think you're seeing outsized performance across our different segments. I mean, if you look at BD Interventional, the strong growth in surgery with our bioabsorbable materials really taking off, and you can see there's been several quarters of strong growth there. PI doing well and obviously, PureWick now with the mail product. You heard us in our prepared remarks actually say that's going to be a bigger product than we thought it was going to be. When we originally put out our guide and declared which products were going to be over $50 million, we just increased PureWick mail to be one of those products that's going to be over $50 million, quite clearly. It's on one of the fastest ramps of any product we've ever seen at the company is doing extremely well, and we're adding capacity as fast as we can, really strong adoption by nurses in particular. In our Life Science business, great growth in Biosciences, I think you're seeing us be a standout within maybe peers in that area. The strength of our fax Discover platform, combined with our dies has done really well. You saw that continue through Q4, and we expect continued strong growth. We see strong demand for that platform and our combination with the unique dies to allow really another level of multiplex testing as well as whole new insights into the cells that you can now visually see in addition to fluorescence. Obviously, when it comes to bid Medical that bold investment that we made in capacity right in the middle of COVID, we're seeing pay off with another just very strong performance in farm systems, and we see just the durable trends there, whether or not it's the GLP-1s, other biologics that we're very well positioned from not only a portfolio offering and technology perspective, but from a capacity perspective, because of those bold investments, we're well positioned to continue to capitalize on those. And of course, in MMS, what we've built now with a $700 million pharmacy robotics business. Really, if you look across med tech, it's hard to name many automation or robotics businesses larger than our franchise that we've now built there in the pharmacy. And that's growing strong double digits. We expect that could continue through '24. And obviously, the return of Alaris has been our number one goal here for a couple of years, and we couldn't be more pleased to achieve that goal at the end of '23, and that gives us another talent and confidence in our long-term plan and our confidence in this year. So a lot of really good things happening. As we think about M&A, you did ask that question. As Chris also mentioned, we ended '23 at strong leverage, 2.6 times leverage, strong - strong cash flow, increasingly strong cash flow as we go into '24. And so we have a strong, robust M&A pipeline. We're still focused on larger-sized tuck-in M&A, which is still our priority, as we've shared, and we're not changing from that. We're going to continue to be very disciplined on the targets that we go after as we have been to make sure that they drive accretive growth and profitability for the company, and we see a number of opportunities to do that. And so - and I think you - we're really pleased with how we've executed on the M&A that we've done. We're really pleased with the track record that we've built there. You can see, as Chris shared, 40 basis points of underlying organic growth driven through the acquisitions that we've done over the last couple of years. And that's a lever we're going to continue to pull in a very systematic way. And I think you're seeing all the other actions that we're taking, including optimizing cash flow fit into that growth algorithm. So thank you for the question.

Operator:

Thank you. All right. This does conclude the question-and-answer portion of our call. So I would like to turn the floor back over to the speakers for any closing or additional remarks.

Operator:

Thank you. This does conclude the audio webcast. On behalf of BD, thank you for joining today. Please disconnect your lines at this time, and have a wonderful day.+

Francesca DeMartino:

Good morning, and welcome to BD’s earnings call. I’m Francesca DeMartino, Senior Vice President and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the third quarter of fiscal 2023. We also posted an earnings presentation that provides additional details on our business, strategy and performance. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today’s call are Tom Polen, BD’s Chairman, Chief Executive Officer and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued execution of our BD 2025 strategy. Chris will then provide additional details on our Q3 financial performance and our updated guidance for fiscal 2023. Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Mike Garrison, President of the Medical segment; Dave Hickey, President of the Life Sciences segment; and Rick Byrd, President of the Interventional segment. Before we get started, I want to remind you that we will be making forward-looking statements. I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the IR website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis, unless otherwise noted. When we refer to any given period, we are referring to the fiscal period unless we specifically noted as a calendar period. I would also call your attention to the basis of presentation slide, which defines terms such as base revenues and the non-GAAP reconciliations included in the appendix. With that, I am very pleased to turn it over to Tom.

Chris DelOrefice:

Thanks, Tom. Echoing Tom’s comments, our BD 2025 strategy is driving consistent performance in an outsized growth profile. We are advancing our innovation pipeline and delivering against our revenue, margin, and EPS goals. We’re also making progress strengthening our balance sheet with lower inventory and net leverage, consistent with the commitments we made. With strong year-to-date results, we are well on track to achieve our updated FY 2023 guidance. And with the addition of Alaris return to market, we are increasingly confident in achieving our BD 2025 long-term targets of 5.5% plus organic revenue growth and double-digit adjusted EPS growth. Beginning with some color on our revenue performance. We delivered strong Q3 base revenue growth of 7.9% or 6.3% organic. Base organic growth includes growing over prior year respiratory testing sales which negatively impacted base growth by approximately 100 basis points. Additionally, our tuck-in acquisition strategy continues to enable profitable growth with organic growth from acquisitions that have anniversaried contributing about 40 basis points in the quarter and are expected to contribute 50 basis points for the full year. COVID-only testing revenues were $8 million in the quarter, which as expected, declined from $76 million last year. Revenue growth was strong across BD Medical and BD Interventional with growth of 12.2% and 8.1%, respectively. As expected, BD Life Sciences revenues declined due to lower COVID-only testing revenues compared to the prior year. Life Sciences base revenues, which exclude COVID-only testing, were about flat, given the comparison to prior year respiratory testing sales that negatively impacted base growth by about 400 basis points. On an underlying basis, Life Sciences base revenues grew approximately 4%. Total company base revenue growth was strong across all regions with high single-digit growth in the U.S. and internationally, including strong double-digit growth in China. Strong performance in our Medical segment reflects execution of our growth strategies across our key end markets. This includes an MDS where we continue to drive growth in Vascular Access Management with our BD PosiFlush vascular care and PIVC Catheter Solutions. In Medication Management Solutions, our investments in high-growth areas like pharmacy automation are driving strong growth, led by our Parata acquisition and BD ROWA. Our MMS dispensing platform reported double-digit growth, reflecting our continuous innovations in BD Pyxis, including the BD HealthSight portfolio. And in Pharm Systems [ph], in the higher-growth pharma and biotech drug delivery end market, our capacity expansion investments and strong leadership position in pre-fillable solutions with BD Hypak and newer innovations in products such as BD Neopak, BD Effivax and BD Hylok are driving our 13th consecutive quarter of double-digit growth, while supporting the increased demand in high-growth categories like biologics. Life Sciences base business growth was about flat and approximately 4% underlying when adjusting for the respiratory testing sales comparison. This reflects execution of our growth strategies across our key end markets, including microbiology, molecular diagnostics and single-cell analysis. It was partially offset by impact of some U.S. distributors destocking in specimen management. In our IDS business, double-digit growth in microbiology reflects demand for our BD Kiestra lab automation solution, including continued adoption of the IdentifA and Total Modular Track Solutions and strong demand for our blood culture and ID/AST reagents. Continued strong growth in molecular IVD assays reflects leverage of BD COR and the incremental BD MAX installed base. In Biosciences, high single-digit growth was driven by our clinical business with strong double-digit growth in cancer reagents, leveraging the growth in our installed base of FACSLyric analyzers and adoption of FACSDuet automation. Performance in Research Solutions reflects continued strong growth in research reagents enabled by our innovative BD Horizon dyes. Strong performance in our Interventional segment reflects execution of our growth strategies across our key end markets, including Advanced Repair and Reconstruction, PVD and incontinence, where our newer innovations in high-growth areas are continuing to contribute nicely to growth. Our Surgery business unit delivered strong double-digit growth driven by continued market adoption of Phasix’s hernia resorbable scaffold and our PI business unit, double-digit growth in Peripheral Vascular Disease was driven by broad-based strength across the portfolio, including global penetration of Rotarex. In our UCC business unit, high single-digit growth was driven by strength across the portfolio, including strong double-digit growth of our PureWick solutions for addressing chronic incontinence in both the acute and alternate care settings and double-digit growth in Endourology. Further details regarding each segment’s performance in the quarter can be found in today’s earnings announcement and presentation. Now moving to our P&L. We reported Q3 adjusted diluted EPS of $2.96, which included gross margin of 52.6% and operating margin of 23%. Operating margin improved 100 basis points year-over-year and includes an unfavorable 100 basis point impact from the accounting treatment of an employee benefit-related item that gets recorded in G&A and is fully offset in other income with no resulting impact to EPS. Excluding this item, operating [Technical Difficulty] and was ahead of our expectations driven by strong execution against our margin improvement initiatives. Foreign currency was a 50 basis point headwind to both gross margin and operating margin. Gross margin performance reflects leveraging our strong revenue growth and the benefit of our simplification and inflation mitigation initiatives that enabled us to overcome 200 basis points of outsized inflation. Our Q3 margin drivers are aligned with what we have been anticipating throughout the year, which is that most of the full year margin improvement will come from SSG&A expense leverage. Q3 SSG&A expense increased about 4% year-over-year. Excluding the employee benefit-related item, we drove about 150 basis points of leverage in SSG&A, which reflects shipping efficiency and good leverage in selling and G&A expense. As expected, R&D as a percentage of sales of 5.9% and normalized back towards our expected full year average of about 6% in Q3, given our spending was over-indexed in the first half. In summary, we continue to execute well and fully delivered our Q3 operating margin goal with operating improvement, excluding the employee benefit item nicely leveraged by 200 basis points. Below operating margin, the improvement in other income reflects the offset to the employee benefit-related expense recorded in G&A. Our tax rate in Q3 was 15.7% due to benefits realized that were not previously contemplated. Regarding our cash and capital allocation. Cash flows from operations totaled $1.7 billion year-to-date, as expected, operating cash flows improved substantially in Q3, including a reduction in inventory from the prior quarter. We anticipate a continued normalization of working capital in Q4, including further improvements in our inventory balance as we trend toward levels that are closer to the prior year. We ended Q3 with a cash balance of approximately $1 billion. During the quarter, we repaid over $1 billion in debt maturities, utilizing the proceeds from the February debt refinancing. We ended the quarter with a net leverage ratio of 2.9 times. We continue to move towards our net leverage target of 2.5 times. In summary, we executed well against our cash and net leverage improvement goals this quarter. We remain committed to enhancing our cash conversion and net leverage positions and expect more progress in Q4, including benefiting from the net proceeds from the divestiture of our Surgical Instrumentation Platform which will increase our capacity to deploy cash towards tuck-in M&A. Moving to our guidance for fiscal 2023. For your convenience, the detailed assumptions underlying our guidance can also be found in our presentation. Starting with our updated revenue guidance before the divestiture of the Surgical Instrumentation Platform. Given our strong third quarter performance, we are raising the midpoint of our base revenue guidance by 25 basis points to 7% and we now expect base revenues to be between 6.8% and 7.1%. This includes increases in the midpoint of both organic and inorganic revenue growth and reflects strong third quarter organic performance as well as inorganic momentum driven by our Parata Pharmacy Automation Solution, demonstrating our strong execution and M&A integration capabilities. Inorganic revenue is now expected to contribute approximately 135 basis points to full year base revenue growth. For the full year, base organic revenue growth is now expected to be 5.5% to 5.8%, which continues to reflect strong fourth quarter organic revenue growth of about 6%. Our guidance continues to include the impact of strategic portfolio exits, which has moderated slightly from our original assumption. Finally, adjusting for the impact of the recently completed Surgical Instrumentation divestiture adjusts our updated base revenue growth guidance by 20 basis points to a range of 6.6% to 6.9% to reflect net inorganic revenue adjustments to base growth of approximately 115 basis points. Our increased base organic revenue growth guidance of 5.5% to 5.8% is not impacted. Over a two year period, we are driving strong base organic revenue CAGR of about 7%, which is well above our long-term target. Our segment-specific growth assumptions have not changed. For COVID-only testing, our guidance only includes year-to-date revenues of $56 million. All in, we expect reported revenues to be approximately $19.3 billion, which is an increase from our previous guidance of $19.2 billion to $19.3 billion. Regarding the Alaris 510(k) clearance. As previously disclosed, we expect to ramp our return to market in our infusion business over time with our existing customers and remediation taking first priority. As we scale our manufacturing capacity and ensure we are taking the necessary actions to deliver our products in the right way, we are well positioned to engage with customers and execute as quickly as possible. However, we do not expect any material incremental revenue contribution from Alaris for the remainder of FY 2023, and we expect to begin a more regular rhythm of shipment and installation of devices and recognizing revenue as we progress through FY 2024. Within our FY 2023 guidance range, we expect to absorb any initial investments beyond the sales and service organizations we retained to successfully support our return to market. Regarding our assumptions on earnings, we continue to expect operating margins to improve by at least 100 basis points for the full year. We are executing as planned and have line of sight to our targeted margin improvement. Below operating income, our assumption regarding interest other remains unchanged. We have lowered our effective tax rate guidance to be between 13% and 13.5%. The midpoint of our updated tax guidance range is essentially equivalent to our FY 2022 actual effective tax rate of 13.3% and as a result, is not incrementally contributing to FY 2023 EPS growth. Our adjusted EPS guidance range of $12.10 to $12.32 remains unchanged, but reflects absorbing a $0.02 negative impact from the divestiture of our surgical instrumentation platform and a $0.05 negative impact from the latest FX rates. We are raising our base business earnings forecast by $0.07 based on our strong third quarter performance, including consistent execution of our margin goals, offsetting the impact of the divestiture and FX. On a currency-neutral basis, we now expect adjusted EPS growth of about 10% to 11.5% and driven by very strong mid-teens base business growth of approximately 14.5% to 16%, an increase of 50 basis points from our prior expectation. As a result, given our strong growth and execution on a year-to-date basis versus our original guidance in November. We’ve increased our adjusted base business earnings per share by about $0.27, which added 225 basis points to growth, resulting in the 14.5% to 16% growth on our base. This also includes absorbing another year of outsized inflation of about 200 basis points. These strong base business results enabled us to fully absorb an increased earnings headwind associated with the loss of COVID-only revenue as well as lost earnings associated with the recent surgical instrumentation divestiture and still increase our total FXN growth rate by 75 basis points to 10% to 11.5% double-digit earnings growth. As you think about Q4, the following are a few key considerations. We’ve outlined more detail in the accompanying presentation slides. First, our increased organic guidance continues to reflect strong growth of about 6% in Q4. As a reminder, we’ve now anniversaried the acquisitions of Parata and MedKeeper. Second, as you think about margins, as we’ve described throughout the year, most of the full year improvement is expected to come from SSG&A expense leverage with the balance from slight improvement in gross margin, which has been muted year-to-date because of outsized inflation. For operating margin, we continue to expect significant year-over-year margin expansion in Q4. However, versus our last update in May, the amount of expansion needed has been reduced by about 75 basis points, and thus, we de-risked our Q4 delivery. There are several factors driving Q4 operating margin, including expense leverage, on expected strong revenue performance, inflation mitigation actions to offset outsized inflation and cost of goods sold, SSG&A expense reductions driven by the timing of spend and the full quarter impact of our more recent simplification initiatives. Also, R&D as a percentage of revenue will continue to moderate lower to about 5% of sales, resulting in full year spend of about 6%. Finally, there is also a favorable comparison to the prior year reinvestment of COVID-only testing profits. As we look ahead to FY 2024, we remain confident in our ability to deliver against our BD2025 strategic and financial goals. While it is premature to commit to specifics, I can offer the following thoughts as we look ahead. As discussed, we continue to operate in a macro environment that remains uncertain and an inflationary environment that has moderated but remains elevated. We are especially focused on monitoring how various governments such as China respond to economic and other dynamics. With that said, med tech in general has proven to be much more durable during times of uncertainty, including economic downturns. And certainly, BD has a proven strategy and has demonstrated not only the ability to be resilient, but to deliver strong growth in earnings during the most challenging times. Our market-leading portfolio, strong innovation pipeline, continued shift into high-growth end markets and track record of execution gives us confidence in delivering against our 5.5% plus target next year. With respect to Alaris, we are excited to shift our focus and reengage with our customers. The clearance of Alaris offers much needed certainty to our stakeholders. As previously noted, it increases our confidence in executing against our BD2025 targets. Just two weeks after clearance, it would be premature to provide a range of expected revenue in FY 2024. However, consistent with what we’ve shared we expect to ramp revenues back to our pre-ship hold level of approximately $400 million over time. Our focus will be replacing and upgrading pumps for our existing customers. At this juncture, knowing we have some level of Alaris revenue in our FY 2023 base of around $100 million, we would anticipate a modest level of revenue above that, which could result in about a 50 basis point tailwind to growth in FY 2024. As a result, based on current assumptions and the macro environment factors I mentioned we are monitoring, our base growth with Alaris would be approximately 6%. We will share more about other assumptions across our portfolio when we solidify our FY 2024 plans. As a reminder, if you look outside of our base business, in FY 2023, we have realized nearly $16 [ph] million in COVID-only revenue. Based on current dynamics, we would not expect material revenue in FY 2024 and which results in an expected headwind of about 30 basis points that you need to adjust for. Additionally, the sale of the surgical instrumentation platform will have nearly a 75 basis point impact to total growth. This does not impact our organic growth, which should be considered in your total FXN revenue growth. We will true up for currency when we provide FY 2024 guidance in November. Regarding earnings, we remain confident in our double-digit earnings growth profile of about 10% currency-neutral EPS growth. This includes absorbing the reduction to earnings associated with lower COVID-only testing revenue and the divestiture impact. Combined, these items are worth about 125 basis points. We will share more details when we give our guidance, but given we expect to finish FY 2023 at 70% of our 25% operating margin goal by 2025. At this point, we are tracking ahead of our 2025 margin goals. Importantly, this gives us the flexibility to deliver on our margin goals while investing to maximize growth and deliver on our double-digit earnings growth target. As we finalize our plans, we will look at optimizing the ratio of growth versus margin increase that delivers against these goals. In summary, we see our value proposition as differentiated and importantly, have consistently executed against our commitments, which gives us confidence in our ability to continue to deliver against our future goals. In closing, we are consistently delivering multiple periods of outsized financial performance. I would like to thank our associates around the world who are working hard to deliver on our purpose and help us achieve these results. As we look forward and as reflected in our FY 2023 guidance and our progress towards our BD 2025 long-term targets, we are well positioned for continued growth. With that, let’s start the Q&A session. Operator, can you assemble our queue?

Vijay Kumar:

Hey guys, thanks for taking my question and congrats on a good execution here. Tom, maybe my first question here on Alaris. I think you mentioned 50 basis points contribution to growth in fiscal 2024. That would imply, I think total Alaris revenues of $200 million. Can you talk about – is there any supply chain constraints in terms of delivering pumps for next year? My understanding, yes, the markets hasn’t undergone a replacement cycle in three years. So why are we assuming a modest Alaris contribution or ramp in fiscal 2024?

Mike Garrison:

Thanks, Vijay, for the question. And this is Mike Garrison. And there are no near-term supply chain constraints. We were able to secure componentry. We are scaling up manufacturing, as Tom mentioned, from our current run rate up to what we look to supply the entire market. And that will take a little bit of time. We want to make sure that we train people effectively get all the componentry in place and get the cells working the right way, but there’s no supply chain constraints at this time.

Tom Polen:

Yes. Great question. Obviously, so I’ll break that into two questions. On the biopharma side and Dave can comment further. Obviously, you saw very strong growth out of our Biosciences business. I think that the pace of innovation that we’re driving in that business across instrumentation and reagents as well as just the customer base being perhaps more research-focused and large pharma focused then dependent upon the smaller biotech funding that you’re seeing impact from other companies. We’re seeing strong durability in our performance within the Biosciences business. When it comes to specific drug categories, obviously, you saw another phenomenal quarter out of Pharma Systems in Q3. We feel really good about the continued momentum of that business. We don’t – all of our customers there, it’s a confidential relationships between us and our customers, so we don’t comment on any specific molecules or individual customers. But obviously, the capacity that we’ve been adding, and as we’ve said before, we have five to six extra capacity of the nearest competitor in that space. As there’s large molecules coming to market, of course, our capacity position is an advantage, and we have discussions with customers around that. So we can’t comment on any specific one, but we’re certainly in a very good position to serve very large, fast-growing markets. Dave you have comments on Biosciences?

Vijay Kumar:

Thanks guys.

Operator:

Thank you. We’ll take our next question from Larry Biegelsen with Wells Fargo. Please go ahead.

Tom Polen:

Hi Larry, great set of questions. So, I’ll start and I’ll turn it over to Mike. So when it comes to remediation and CMN, so first off, the 510(k) fully replaces the CMN process. So the CMN process essentially ended and the 510(k) clearance replaces that program. As we think about moving forward in terms of remediation, of course, our focus is prioritizing existing customers to update or replace existing devices to the cleared version. That’s our number one priority now with clearance, and that’s the focus of our efforts is within our existing customer base. To your point, there is a lot of pent-up demand as people have aged fleets. And that is also one of that among our existing customers, those with older pumps are our top priority to get those upgraded or replaced to the current cleared version. So that’s how we view that. And then as we think about EPS, of course, we’ve been driving a very strong growth profile. And in our BD 2025 strategy and Chris can add in further here. In our BD 2025 strategy, we had included the relaunch of Alaris in that. That was very clear at the time. As we set bold margin goals to reach and later updated those goals and increase them to 25% operating margin by 2025. We’re obviously very much on track to that goal. And as we think about the EPS and the margin impact, which was about 80 bps, if you recall at the time, right, that’s coming back in and will continue to come back in, in line with the strategy that we’ve put out. So maybe we start with Chris, anything to add there on the margin side? Alaris is a good question. And then, Mike, if anything to add on the remediation pent-up demand.

Larry Biegelsen:

Thanks you so much guys.

Tom Polen:

Maybe just one last one to add on to Mike’s good comment, so it’s great to be back. Obviously, we’re focused on prioritizing our existing customers and replacing existing devices to the cleared version with a big focus on the older systems. But the other big thing that this allows us to do beyond servicing our customers and helping them refresh their fleets and make sure they have the cleared technology, the most modern technology with all the incremental benefits and upgrades that are in this version, which are fantastic is that we can continue now. We have a basis by which to innovate upon. And that’s a big deal, right? We’ve had a great track record of being first in a number of areas in infusion, right? We were the first company with fully integrated system. We still are the only company and will be with one system approach, right? One interface, much easier for clinicians. We led the way with guardrails with interoperability. Now we have the most advanced wireless cybersecurity on the latest pump, the most modern that’s available. And as we think going ahead, we see other innovations that we already have plan to build upon this, which will continue to add value to our customers. And we already have planned a cadence of additional 510(k)s going forward. And that’s a big deal. Of course, we also have and we’re the first company, and they’re the only company who have integrated pumps beyond being stand-alone devices, but making them part of improving the overall medication management ecosystem, right, with Alaris and our software in the pharmacy. And that has been something that customers have significantly valued. It’s one of the reasons that, as Mike mentioned, most Alaris customers have stuck with us over this time because of all the value that I described. We’re going to now be able to continue to add to that and continue to advance our innovation leadership built upon this 510(k). And so our teams are really excited about that and our R&D teams are already on working on what’s next. So thanks for the question, Larry.

Operator:

Thank you. We’ll take our next question from Robbie Marcus with JPMorgan.

Tom Polen:

Robbie, good question, and I appreciate the recognition of the team. Yes. At this point, again, we’re two weeks into clearance. And I think what we’ve shared in the preliminary outlook for 2024 is what we think is a prudent number to share today. As we continue to advance, we’ll continue to update that. I think it’s also important to recognize that there was – the last couple of years have not been normal years by any means, there’s been a global pandemic and a lot going on in the healthcare system. We also had placed quite a large number of pumps during the global pandemic because Alaris is such a trusted and essential part of delivering healthcare, it was needed in much more significant levels than it has ever been needed before. And so a number of customers added into their fleets at that point in time. So we’re going to get a better sense as we continue beyond the two week period, we get in further periods, get into the months and we’ll continue to update as that moves. Maybe Chris, any other comments to add there? Mike?

Robbie Marcus:

Great. And sorry, but one more Alaris question. In the approval, you talked about that there – some of the pumps out there would have to be replaced and some would have to be remediated. Can you maybe speak to exactly what makes a pump qualify for replacement versus remediation and what percentage needs to be replaced versus remediated and the difference in costs associated with it? Thanks.

Robbie Marcus:

Great. Thanks a lot.

Operator:

Thank you. We’ll take our next question from Patrick Wood with Morgan Stanley.

Tom Polen:

Thanks, Patrick, for the great questions. We’ll start with Chris.

Tom Polen:

Great. And obviously, on MMS, a really strong quarter prior to Alaris clearance obviously occurring. And so some really good things happening in the base business there, Mike?

Patrick Wood:

Thanks for taking the questions.

Patrick Wood:

Thank you.

Tom Polen:

Hey good morning, Matt.

Tom Polen:

Sure. Turn that to Mike.

Mike Sarcone:

That does help. Thank you. And then just one question on Pharm Systems. You’ve been posting some really strong growth there. It looks like you’re on a mid-teens growth trajectory. Do you think you can just discuss kind of key drivers and how you view the sustainability of that – the growth in that business looking out to 2024 and through the 2025 plan?

Tom Polen:

Mike, and maybe just to complement what the good feedback that Mike gave is, we have a nice cadence of innovation in that business that’s supporting those overall trends as well as, of course, the over $1 billion of capacity that we’ve added. And so you’ve got these great kind of the unmet needs and continued demand cycle that’s happening from pharma driven by biologics. We invested ahead of the curve right in the middle of the pandemic, a pretty bold decision to add capacity in that period of time, and you can see that paying off now. And then a series of innovations, not only on our high-pack syringes but also on the self-injection side. These biologics – people are moved. They don’t – it’s moving from sitting in a clinic with IV in your arm or going into a clinician to get injections as these are becoming biologics are addressing chronic disease. The focus is enabling patients to deliver these medications subcutaneously by themselves in the home, not be an infusion or an injection by a clinician. And so our self-injection business is also doing well and has a number of new innovations, wearables, as an example, our Libertas platform. We’re seeing solid demand. Our auto infuser that’s wearable. Our pen, for example, that has quite a number of biosimilar insulins coming to market and a large percentage of those are coming in our pen format. We’re seeing strong demand there in addition to the high pack business. And so all that wraps up what – and supports what Mike said. Thanks for the question.

Operator:

Thank you. At this time, I would like to turn the floor back over to Tom for any closing remarks.

Operator:

Thank you. This does conclude today’s audio and webcast. On behalf of BD, we thank you for joining today. Please disconnect your line at this time, and have a wonderful day.

Francesca DeMartino:

Good morning, and welcome to BD's earnings call. I'm Francesca DeMartino, Senior Vice President and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the second quarter of fiscal 2023. We also posted an earnings presentation that provides additional details on our business, strategy, and performance. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer, and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued execution of our BD 2025 Strategy. Chris will then provide additional details on our Q2 financial performance and our updated guidance for fiscal 2023. Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment Presidents, Mike Garrison, President of the Medical segment; Dave Hickey, President of the Life Sciences segment; and Rick Byrd, President of the Interventional segment. Before we get started, I want to remind you that we will be making forward-looking statements. I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the IR website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. When we refer to any given period, we are referring to the fiscal period unless we specifically note it as a calendar period. I will also call your attention to the basis of presentation slide, which defines terms such as base revenues and the non-GAAP reconciliations included in the appendix. With that, I am very pleased to turn it over to Tom.

Chris DelOrefice:

Thanks, Tom. Echoing Tom's comments our BD 2025 strategy is driving consistent performance and demonstrates our strong growth profile. With our year to date performance, we are well on track to achieve our FY 2025 long-term targets. Beginning with some color on our revenue performance, we delivered strong Q2 base revenue growth of 8.7% or 7% organic. This includes growing over prior year flu COVID combination sales, which negatively impact growth by over 200 basis points and an impact from one-time strategic portfolio exits of about 50 basis points. Adjusting for these impacts, organic volume growth was in the strong mid-single digits at nearly 6%. In addition to the inorganic revenue contribution from M&A, we continue to drive organic growth from acquisitions that have anniversaried, which was about 30 basis points in the quarter. COVID-only testing revenues were $16 million in the quarter, which as expected declined from 214 million last year. Total company base business growth was strong across BD Medical, and BD Interventional with growth of 12.2% and 9.3% respectively. Base revenue growth in BD Life Sciences of 2.2% includes a negative impact of about 800 basis points, due to the comparison to higher combination flu COVID testing sales last year attributable to the Omicron wave, coupled with the timing of this year's respiratory season that peaked earlier than normal during fiscal Q1 and then declined. Base revenue growth was strong across all regions with high-single-digit growth in the U.S. and double-digit growth internationally, including 9% growth in China. For the full-year, we expect to deliver high-single-digit growth in China. Our growth continues to reflect consistent performance of our durable core portfolio and our shift into attractive and higher growth end markets. Strong performance in our Medical segment reflects execution of our growth strategies across our key end markets. This includes our durable core where we continue to drive growth in vascular access management with our BD Posiflush and Catheter Solutions. In Medication Management Solutions, our investments in high growth areas like pharmacy automation are driving strong growth led by our Parata acquisition and BD ROWA. In our Dispensing platform, continuous innovations in BD Pyxis, including the recent launch of BD Pyxis ES 1.7 and the BD HealthSight portfolio drove double-digit growth. And in Pharm Systems in the higher growth pharma and biotech drug delivery end market our capacity investments and newer innovations in products such as BD Effivax, BD Hylok, and BD Neopak are driving continued double-digit growth. Strong underlying performance in our Life Sciences segment reflects growth in our durable core in specimen management and execution of our growth strategies across our key end markets, including single cell analysis, microbiology, and molecular diagnostics. In our IDS business, growth in microbiology reflects demand for our BD Kiestra lab automation solution, including adoption of the recently launched IdentifA and Total Modular Track solutions. Double-digit growth in Molecular IVD assays reflects continued leverage of our large install base. In Biosciences, high teens growth was driven by new innovations, in BD Horizon dyes, and our expanded antibody portfolio that drove double-digit growth in research reagents and continued strong demand for our BD FACSymphony, flow cytometry analyzers. Strong performance in our Interventional segment reflects execution of our growth strategies across our key end markets, including advanced repair and reconstruction, PBD, oncology, and incontinence. Our newer innovations in higher growth areas are all contributing nicely to growth. Our surgery business unit delivered strong double-digit growth with continued market adoption of Phasix hernia resorbable scaffold, driving double-digit growth in advanced repair and reconstruction, and double-digit growth in biosurgery that was aided by Arista. In our PI business unit, the relaunch of Venovo and global penetration of Rotarex are driving high single-digit growth. In our UCC business unit, high-single-digit growth continues to be driven by strong double-digit growth of the PureWick franchise that was aided by the recent launch of PureWick Male. Across BDI, procedure volumes were also strong in the quarter contributing to growth, particularly in our surgery business unit. Further details regarding each segment's performance in the quarter can be found in today's earnings announcement and presentation. Now, moving to our P&L. We reported Q2 adjusted diluted EPS of $2.86, which included gross margin of 54.2%, it was slightly ahead of our expectations and operating margin of 22.7% that was in-line with expectations. Our margin performance reflects leveraging our strong revenue growth, the benefit of our simplification and inflation mitigation initiatives, and strategic portfolio exits that enabled our ability to more than overcome nearly 200 basis points of outsized inflation, which was in-line with our expectations. Gross margin also reflects negative FX, which was slightly higher than anticipated. SSG&A expense increased 5% year-over-year. Half of the SSG&A increase was driven by the unfavorable impact of an employee benefit related item that gets recorded in G&A and is offset in other income with no resulting impact to EPS. Excluding the employee benefit-related item, we drove about 50 basis points of leverage in SSG&A with shipping growth in-line with revenues and good leverage in selling expense. As expected, our phasing of R&D continues to be weighted to the first half of the year with R&D as a percent of sales of 6.5% in Q2. Our R&D investments are aligned to our long-term growth strategy and have been a catalyst to increased velocity of product development. In summary, we continue to execute well and fully delivered our Q2 operating margin goal with operating improvement, excluding the employee benefit item nicely leveraged by 80 basis points, including absorbing a 30 basis point headwind from lower COVID-only testing. Our tax rate in Q2 was lower than anticipated, due to the timing of certain discrete items that were contemplated to occur during the year. Regarding our cash and capital allocation. Cash flows from operations totaled $584 million year-to-date. Operating cash flow reflects an elevated inventory balance that has enabled our strong performance and ability to meet peak demands and support our customers' needs while navigating the complexity of the macro environment. We remain focused on reducing our inventory balance and have several initiatives underway to do so. As a result, while we saw peak inventory levels during the quarter, we exited the quarter with positive progress towards reducing inventory. We expect inventory to continue to decline over the balance of the year with the most prominent reduction expected in Q4 to levels similar to the prior year. We're also driving more effective capital expenditures for the full-year and expect expenditures to be similar to the prior year. We ended the quarter with a cash balance of approximately $2 billion, which includes the proceeds from debt refinancing during the quarter that will be utilized to repay maturing debt over the balance of the year. We ended Q2 with a net leverage ratio of 3.1x. We expect to pay down our commercial paper over the balance of the year and move towards our net leverage target of 2.5x. As the year progresses and we build cash, we will increase our capacity to deploy cash towards tuck-in M&A. Moving to our guidance for fiscal 2023. For your convenience, the detailed assumptions underlying our guidance can also be found in our presentation. Given our quarter performance, we are confident in raising the midpoint of our revenue and adjusted EPS guidance ranges. The strength of our base revenue growth and consistent execution of our margin goals is enabling our ability to offset lower COVID-only testing revenues and the latest FX rates, while reinvesting in the business to drive future growth. Starting with revenues, I will provide some insights into some of our key guidance assumptions. First, we are well-positioned for strong growth across our three segments, which are delivering at or above our expectations, and thus, we are increasing our base revenue guidance. On a currency-neutral basis, we now expect base revenues to grow 6.5% to 7%. This is an increase of 50 basis points at the midpoint from our prior guidance of 5.75% to 6.75%, and is driven by our Q2 revenue outperformance and the confidence we have in our team's continued strong execution and our consistent growth profile. Following our strong FY 2022 growth of 9.4%, we again increased our revenue guidance in FY 2023, which at the midpoint brings our two-year average growth to about 8% or 7% organic, which is well above our 5.5% plus target. Increased base revenue guidance includes both higher organic and inorganic growth expectations for the full-year. We now expect inorganic revenue to contribute approximately 125 basis points of base revenue growth for the full-year, which is an increase of 25 basis points, driven by the strong execution of Parata. Organic based revenue growth is now expected to be 5.25% to 5.75%, an increase of 25 basis points at the midpoint. Both our base revenue and base organic revenue growth continue to include a reduction of approximately 100 basis points, resulting from our planned one-time strategic portfolio exits. While we aren't providing segment-specific guidance, we are on track to deliver strong performance across our segments this fiscal year, in-line with our long-term planned commitments. We expect Medical segment growth to be above the total company range, which includes the acquisition of Parata, Life Sciences growth to be below given strong prior year comparisons and Interventional to be above the total company range. For COVID-only testing, we are now assuming about $50 million in revenue versus our previous expectation of about $50 million to $100 million, driven by the reduced testing volumes as a result of the early peak and rapid decline of the respiratory season. All-in, we are increasing our reported revenue guidance by approximately $50 million at the midpoint to a range of $19.2 billion to $19.3 billion, compared to $19.1 billion to $19.3 billion previously. Regarding Alaris, we continue to only model shipments related to medical necessity in-line with fiscal 2022 demand. Regarding our assumptions on earnings, we continue to expect operating margins to improve by at least 100 basis points for the full-year. We are executing as planned and the actions required for the year to drive margin improvement remain unchanged. Our focus on driving profitable revenue growth, combined with the significant simplify actions in place, including the previously planned operating model programs that we recently announced, gives us the confidence that we will again deliver meaningful margin expansion this year, while absorbing about 200 basis points of outsized inflation and the incremental decline in COVID-only revenue, which has a higher margin profile. Below operating income, our assumptions regarding interest other remains unchanged, and we have narrowed our effective tax rate guidance to 13.25% to 14%. We expect adjusted EPS to be between $12.10 and $12.32, which represents an increase of $0.015 at the midpoint. This reflects a base business increase of $0.115 that is driving our ability to offset incremental headwinds of approximately $0.05 each from COVID-only testing and foreign currency. Our adjusted EPS guidance reflects currency-neutral growth that is around double digits and within a range of approximately 9.5% to 11%. This includes very strong mid-teens base business growth of approximately 14% to 15.5%, which is over 100 basis points higher than we previously anticipated and is driving our ability to absorb the decline in COVID-only testing. Our updated guidance reflects significant progress towards delivering the BD 2025 financial targets we laid out at our Investor Day, including

Robbie Marcus:

Oh, great. Good morning everyone and thanks for taking the questions. Maybe to start, I wanted to ask on guidance. This is the second quarter in a row where you guys have had a really good performance on the top line, beat, and raised guidance, But on the bottom line, we're seeing guidance go up again by a little less than the beat on the bottom line. So, maybe spend a minute and talk through some of the puts and takes and how you're thinking about managing the rest of the year in guidance to be able to offset any headwinds. And it'd also be great – it looks like FX isn't changing on the top line, but it's getting worse on the bottom line. So, maybe throw that in there as well.

Robbie Marcus:

Really helpful. Maybe just a quick follow-up. I could probably anticipate your answer here, but given the focus, any updates on Alaris or upcoming data points or catalysts we can be looking out for on the pathway to approval?

Operator:

Thank you. Our next question will come from Larry Biegelsen with Wells Fargo. Your line is open.

Tom Polen:

Okay. Good morning, Larry and thanks for the great question. Great to connect as always. We're extremely excited about the pipeline that we have and our outlook going forward. We're not looking to adjust our long-term commitment at this time, but we are feeling very positive about the momentum that we have as you described. I think as we look at where we are today, what stands out, and hopefully it became clear in our discussions this morning, are the number of high-growth platforms that we've built and that we've continued to systematically progress across the company. And we talked about a few of those. Whether or not it's Pharm Systems, which is now the 11th quarter in a row of double-digit growth, and the macro environment of now biologics being – more biologics being in pharma's pipeline and small molecules today, first time in history, and some big blockbuster products coming down the pipe. And we are well-positioned as the leader in injectable drug delivery to benefit from that trend with the significant capacity we've added, as well as the innovation pipeline we have, both for professional delivery, but also enabling wearables and self-injection products that we've been investing in are coming to market now as well. Pharmacy automation, right now, a $500 million-plus platform growing in the teens. Huge trends that are going to continue to fuel that going forward, labor shortages, the need for pharmacists to move more front of the – front-off to be serving patients doing wellness checks, et cetera, we're going to continue to see strong demand for pharmacy automation, and we're really pleased with that platform that we've built. B2B, huge super cycle of innovation there. The FACSDiscover, we've started shipping to the early adopter sites and really a tremendous opportunity to help bring new insights and new discoveries in the areas of cell therapy and immuno-oncology and just understanding the immune system overall. When you think about who is getting Nobel Prizes in those fields that I just described, almost all of them were using flow cytometry. And I'm convinced you're going to see a whole new set of discoveries being uncovered with the new technologies that we're rolling out there right now. Really excited. And of course, that's complemented not only on the capital side with FACSDiscover. And the product we're launching now is just the first in a whole family that we're going to be continuing to roll-out. We're rolling out the high-end sorter first, but we're going to be offering mid-and-lower-end sorters or cell analyzers, utilizing that same technology over the next several years. That's complemented by our new die portfolio and expanding antibody portfolio, as well as informatics technologies that we have launched and will continue to launch. BD Interventional, you heard us talk about a number of great growth platforms that have been developed there, and we're seeing good strong growth out of the BDI segment. This was another strong quarter there. And you're seeing a number of the acquisitions that we've done over the last few years or had done just before BD and Bard came together, things like PureWick and the [indiscernible] innovation that's happening there, TIFA, which we acquired over the last few years and how we're expanding that into new applications, we gave an example of umbilical hernia. Straub Medical and how that's being expanded globally. And you're seeing the benefits of that in the PI business. We're really pleased with the growth momentum that's happening there. And of course, medication delivery, a continuing strong growth in our portfolio there from catheters to picks and eventually through our planning horizon and our aim to get Alaris back on market. So, we're really pleased with the momentum. We're really pleased with the launches we've done to date. We've had about 10 key launches so far this fiscal year that's coming off of 25 key launches last year. And we continue to be on track for about that same number again this year and pretty much every year as we look forward. Thanks for the question.

Chris DelOrefice:

Yes. Thanks, Larry. I'll take that one. Yes, to your point, if you recall, given that we made the decision to maintain investment in service, field support, et cetera, there was about that 80 basis point headwind to our margin as part of Alaris. We've been very clear, while we haven't been – said we weren't going to predict timing, we did say as part of our FY 2025 plan. The good thing about margin, and just if you step back again, we delivered 50% of our goal, right, through FY 2022. We're on-track this year. That would put us 70% towards our goal. We have multiple levers to deliver both. In essence, the way we think of it is how do we get to double-digit EPS growth on a consistent basis. We're not dependent on one variable. And given 70% of the way there, we feel really good between the strong growth profile that we expect to continue and natural leverage you get. The Recode initiatives we put in place, that will continue to accelerate through the back half of the year. We just announced kind of the third leg of Project Recode, operating model simplification. Those have been announced, continuing to drive portfolio mix as we've been doing. So, there's a host of things that I think give us confidence and the ability to actually, sort of navigate the balance between top line growth and margin improvement as we continue to progress through the back half of the year while delivering on both commitments, the 25% margin and double-digit EPS growth. So, I think we're really well-positioned when you think of it that way, gives us a lot of flexibility.

Operator:

Thank you. Our next question will come from Vijay Kumar with Evercore ISI. Your line is open.

Tom Polen:

Yes. Great question, Vijay, and appreciate the comments. So, we'll go around. We've got the segment presence here in the room. I think you're right. What you're seeing is outperforming market growth rates in a number of categories, and we're really pleased with that, driven really through strong innovation, capacity investments that we've made and strong execution. Why don't we start with the Medical segment and Mike can speak to what we're seeing in both Pharm Systems, but also pharmacy automation and medication management overall.

Rick Byrd:

Great. So thanks, Mike. Thanks, Vijay, for the question. And Tom, for the opportunity to talk about BDI. So, first off, really pleased with the results in the quarter, 9.3% growth overall with all businesses contributing. And like you said, you pointed out surgery at almost 14%. And so, this strong performance across the segment really reflects the execution of our growth strategy across those key end markets that Chris pointed out, advanced repair and reconstruction, PVD, oncology, incontinence, and our newer innovations in higher growth areas are all really contributing nicely to growth. So, in UCC, we continue to see the growth of the PureWick franchise, aided by the recent launch of PureWick Male. PureWick continues to have really a strong presence in the acute and the alternate care setting for us for chronic incontinence and surgery. Like you said, growth is really driven by continued market adoption of Phasix, our hernia resorbable scaffold. Biosurgery growing double digits, aided by Arista. So, really good there. And then finally, in PI business, we're really – we're seeing improvements across our global supply chain as well as benefits of a lot of the strategic investments that we've made in the past. We have strong global penetration of Rotarex. We're really pleased with the relaunch of Venovo. And then our global expansion strategy is paying off, oncology in China is really strong. So, we feel confident with the overall external market conditions, including the recovery of elective procedures, improving their supply chain. And then you combine that with the success of, again, the strategic investments we've made, whether they be tuck-in M&A or products like as Tom mentioned, Rotarex, Phasix or with our new product launches such as PureWick Male. Team is executing extremely well, and we believe we have the right strategy to drive continued success.

Dave Hickey:

Yes, for sure. Vijay, it's Dave. Great question. So, again, I mean, just to reiterate for the segment. So, I mean, as you saw in the in the release, just a tremendous strong quarter for BDB at 18.7% and even good core growth in IDS, if you strip away the headwind from the 800 bps of respiratory climb over from same period last year. I'll maybe pick a couple of highlights. I mean, in BDB, we continue to see really strong growth across the board, whether it's the Life Science research reagents, clinical reagents, the demand for the new instruments. Actually, from a Life Science research reagent perspective, so this is the dyes, the Horizon dyes that Tom talked about, that's actually our tenth successive quarter of double-digit growth now. You've heard us talk about BD Max before, which was obviously instrumental in the COVID, sort of pandemic from a respiratory perspective. But how do we now leverage the BD Max for take-up of IVDs and assay utilization and assay penetration? And again, we continue to see really good growth in molecular reagents, eight successive quarters of IVD double-digit growth, which is great. And then maybe on the automation side, we – when you think about the staffing challenges that the labs are facing, we're really starting to see the traction for BD Kiestra, BD COR that Thomas talked about. If you think – you asked a specific question on the sustainability and the customers relative to BDB. The good thing about BDB and just the breadth of platform and reagents that we have is, we've got a very strong diversity of customer base, so not just by a pharma, for sure biopharma, but academia, large academic medical centers, big research institutions. So, I think the diversity of base really helps us there and the types of research that they're doing, right? So, you think about cell therapy, gene therapy, immuno-oncology, all the stuff in terms of fighting that chronic disease in oncology. So, I think we feel really good about that base. And then from that sustainability, I was just reflecting back as we were getting ready for today, and when you look at the segment overall, even for the first half of this year, we've actually had two PMA supplements approved and eight 510(k)s in the first 6 months of this year. So, that all builds to the momentum as we go forward here. Hope that helps.

Chris DelOrefice:

Yes. So, a couple of things. One, if you remember, from a full-year standpoint, we're absorbing over 200 basis points. It's a second consecutive year of inflationary pressures. It was actually more prominent in the first half of the year. It will abate some combination of some moderation of inflation, coupled with, of course, the cost improvement actions and mitigation actions that we're taking in the second half. So, we expected modest improvement in GP through from a full-year standpoint. So, I think you would expect basically similar, to be slightly ahead of our Q3 FY 2022 gross margin, which was 52.6%. So, you'll see slight improvement. And then that will further expand as we move into Q4. But we're right on track. And I think the other thing to point out is, remember, we have about five months of inventory that flows through our sales. So, we have a strong line of sight to basically the inflation that is sitting in that inventory, all the cost improvement that has actually been driven that's part of that inventory cost. And as that sells through in the back half of the year, it gives us strong confidence in our cost base to achieve those goals.

Matt Miksic:

Hey good morning. Thanks so much for taking the questions and congrats on a strong quarter here. I wanted to just – I want to go back to the guidance, Chris, if we could, just because there had been some changes. And I know, Robbie touched on this earlier. But maybe just to clarify a bit further on the bottom line just because a sensitivity around beats and raises this quarter is so significant, it seems. So, if I remember correctly, last quarter, a significant part of the raise was, sort of an FX tailwind. There was also the lower COVID – higher margin COVID headwind as well. But sort of a big part of that lift, offsetting that was an FX tailwind. In this quarter, you've actually got another [indiscernible] FX headwinds that you're absorbing. Is that the right way to think about, sort of the relative puts and takes last quarter or this quarter?

Tom Polen:

I think just to add to Chris' comment, obviously, the update here has COVID essentially out for the balance of the year, right? So, the number that we have now in COVID guidance is basically the COVID number that we have year-to-date.

Matt Miksic:

Got it. That's super helpful. And the slides are also really helpful material to, sort of walk through this stuff. The other – again, on guidance on the top line. So, you did make a change, as you pointed out, you're expecting a heavier contribution, positive contribution from your inorganic adds, if you will specifically. And so, I know that last quarter, I don't want to say controversy, but there was this question of you have inorganic adds and you have a portfolio exits, which are basically discontinued products not sold to another company, but coming out of the – coming out of your revenue build. And the way I think you were describing it was those things are, kind of offsetting each – not exactly organic, but we're thinking about it organically. And I would agree with that. Now, you sort of shifted back to more traditional organic description, but you're still sitting those 100 basis points of portfolio exits. So, even though it's $5.25 to $6.25, it is – it seems to be a little bit stronger on the base business on the organic side. Is that a fair way to read the strength on the top line?

Tom Polen:

And I think we're seeing the benefits. Obviously, given the strength of the business, taking those actions on that portfolio is exactly the – it's the right time to be doing that. As a reminder, those products that we're just exiting have less than half of the average GP of the company. They're growing much less than the average of the company and are in areas that are just not strategic in terms of relevant growth platforms as we go forward. And so, they also come with operational efficiency benefits, organizational efficiency benefits, et cetera. And so, they're just going to make us that much stronger as we go forward and make sure that we're focusing our resources and investments in those areas that move the needle the most for customers and for us.

Operator:

Thank you. Our next question will come from Joanne Wuensch with Citi. Your line is open.

Joanne Wuensch:

Good morning and thank you for the taking the questions. A couple of miscellaneous things all at once. What was the impact of price in the quarter? If you stop planned exits, does that mean your organic revenue growth rate goes up 100 basis points? And is there a plan to stop planned exits? And then bigger picture, there were a lot of BD Veritor’s and BD MAX’s, et cetera, placed or sold during the pandemic for testing? What happens to all of those now? And how do you increase utilization on them for other things? Thank you.

Chris DelOrefice:

Yes. So, pricing, Joanne, so the Q will come out this evening and we – aftermarket. And pricing will be disclosed in there as we consistently have. What we've shared is it's the last thing we think about, right, as it relates to inflation mitigation. And so, what we're really focused on is driving cost improvement, portfolio mix, the strength of growth and volume leverage. All of those dynamics are significant contributors to mitigating the 200 basis point inflation. You'll probably see something consistent in terms of what we've done last year. If you think of how last year played out, it accelerated through the year. But you'll be able to see that at the end of the day. In terms of portfolio, I mean, the simple answer to the question is, these were onetime in nature. There's always smaller adjustments you make in your portfolio, but we made a decision to really take a deep look at our portfolio this year, as Tom described. These weren't strategic products. There's market alternatives. The GP profile is significantly reduced. Removing these freeze up capacity and other costs. All of those products, not being sure they still require quality support, regulatory support, there's a lot of tie up as it relates to shipping and thinking of other infrastructure support. So, there's benefit beyond just the GP lift you get. But to answer your question simply, yes, if we stopped doing that, our results would have been better by roughly 100 basis points this year. This quarter was a little light. It was closer to 50 basis points in the quarter. But from a full-year, we're still estimating about 100 basis points. We do view these as one-time in nature this year. We don't anticipate doing that in the future beyond smaller things that we would just absorb and not even talk about.

Dave Hickey:

Yes, Joanne, thanks for the question. And you're right. I mean, through the pandemic, obviously, Veritor and BD MAX installed base did increase. We've not given specifics around exactly what those numbers are. We're very pleased. We continue to ship those platforms today. And if I break it down, so for Veritor right now, a lot of our focus is actually on converting the emergency authorizations that we got for COVID and our combination assays to 510(k). And obviously, once that is done, that would leave the Veritor, if you like, with approved assays for flu A, flu B, COVID, RSV, Strep A, which will really create a really nice anchor point of care clearway platform for infectious disease testing. So that is our focus there. For BD MAX, one of the big benefits of that platform that labs sees an attribute is its complete sample-to-answer automation and integration within a two to three hour window from sample to result. We placed many MAXs during the pandemic just for COVID and combination testing. And then when you think about the rest of the menu, we're now starting to drive adoption of our regular IVD assays. So, there are really two strategies. One is to increase assay utilization and assay penetration of our regular IVDs onto that BD MAX installed base and where we got emergency use authorization on BD MAX during the pandemic, like our quad assay for BD MAX, moving those EUAs to 510(k) as well. And [it's that] [ph] IVD traction and momentum that you've seen us sort of perform eight quarters double-digit growth.

Operator:

Thank you. Our last question will come from Rick Wise with Stifel. Your line is open.

Rick Wise:

Hey, Tom. Hi, Chris. Listen, I'm just listening to everything you're saying today, and I keep hearing you both say in many different ways that – and Chris said it, you're well on track to hit your fiscal 2025 long-term targets. Gosh, I accept it. I believe. I think this quarter supports that notion. So, my question is, is it right for us to believe, and I feel like everything you're saying today is suggesting it, that you're now approaching sustainably perhaps a 6% plus top line territory? Is it right for us – again, I accept that you're going to hit the 25 and 25 on the operating margin. My question on operating margin is more, how are you getting ready, Tom, it's a crazy question, for the next target, which I think it's going to be 30%? I don't know if it's – if that's going to take another 5 years. But is that conceptually the wrong way to think about what you're trying to do, where Becton is going? And maybe just as part of that, you're role in your – just your latest thoughts on the role that tuck-in M&A is going to play? You're doing all these great things internally. What role is tuck-in M&A going to play in this journey? Thank you.

Chris DelOrefice:

Yes. Just maybe a few small adds. I mean, one, look, I do think the value proposition that BD offers is unique. And we're not changing in our commitments. We talked about 5.5 plus, but to your point, what's been clear, right, our two-year growth, 7% organic. We're clearly in the plus side of the equation. I think for all the reasons Tom noted, we have a portfolio that has the ability that we want to continue to try and drive the plus. But our commitment is 5.5%. I think the nice thing about that is that is maybe underappreciated. There's very few companies in med tech that can deliver that outsized growth, but still have this nice durable profile. It's very de-risked. So, you get this benefit of strong mid-single digits, it's extremely reliable, while we're posting outsized growth and improving margin in a very complex environment and haven't even fully capitalized maybe on some of the levers Tom talked about, like the firepower we'll have with tuck-in M&A going forward, or margin, really, I'll go back to – we're committed to double-digit earnings growth, which isn't easy to do. Obviously, we can moderate that depending on the growth profile, what we want to make sure we do is, consistently invest in the right areas to drive that growth, right? We continue to increase R&D, et cetera. So, all those factors would be sort of contemplated, but certainly confident in double-digit EPS growth, being able to consistently do that. So, I think it's a nice balance of you're seeing an inflection in growth and really strong growth that's differentiated. You're seeing differentiation and execution and you have a de-risked portfolio. It's hard to find all those pieces. It should make people feel good.

Chris DelOrefice:

Thanks for the question, Rick.

Francesca DeMartino:

Good morning, and welcome to BD's earnings call. I'm Francesca DeMartino, Senior Vice President and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the first quarter of fiscal 2023. We also posted an earnings presentation that provides additional details on our performance. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued execution of our BD 2025 Strategy. Chris will then provide additional details on our Q1 financial performance and our updated guidance for fiscal 2023. Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Mike Garrison, President of the Medical segment; Dave Hickey, President of the Life Sciences segment; and Rick Byrd, President of the Interventional segment. Before we get started, I want to remind you that we will be making forward-looking statements. I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the Investor Relations website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. When we refer to any given period, we are referring to the fiscal period unless we specifically note it as a calendar period. I will also call your attention to the basis of presentation slide, which defines terms such as base revenues and continuing operations. With that, I'm very pleased to turn it over to Tom.

Chris DelOrefice:

Thanks, Tom. Echoing Tom’s comments, we delivered another quarter of strong performance in Q1, which demonstrates our consistent, reliable, durable growth profile in our BD2025 strategy, playing out as planned. So first, beginning with our revenue performance. We exceeded our expectations for the quarter, delivering $4.6 billion in revenue with base business growth of 5.2% or 3% organic. We see underlying organic growth more at mid-single-digits when adjusting for strategic product exits, the licensing fee comparison in life sciences, and several COVID-driven comparisons. COVID-only testing revenues were $32 million, which is expected, declined from $185 million last year. Total company base business growth was strong across BD Medical and BD Interventional with approximately 6% growth. Base revenue growth in BD Life Sciences of 3.3% reflects the comparison to licensing revenues that impacted growth by almost 400 basis points. Base revenue growth was strong regionally as well with mid-single-digit growth in the U.S., EMEA and Asia Pacific. Revenues in China declined slightly, which reflects the impact of COVID restrictions, offset by strong performance from new product introductions in BDI and research solutions in BDB. For the full year, we continue to expect to deliver near double-digit growth in China. Our base business revenue performance continues to be supported by our durable core portfolio, and an increasing contribution from the transformative solutions in our innovation pipeline and tuck-in acquisitions. We also continue to benefit from the organic contribution from acquisitions we anniversaried, which was about 30 basis points in the quarter. Let me now provide some high-level insight into each segment’s performance in the quarter. Further detail can be found in today’s earnings announcement and presentation. BD Medical revenue totaled $2.2 billion in the quarter, growing 6.1%. BD Medical performance reflects strong growth in both Medication Management Solutions and Pharm Systems, which more than offset a decline in Medication Delivery Solutions. The decline in MDS of 1% was driven by COVID-related comparisons and the impact of recent COVID restrictions in China as well as planned strategic portfolio exits. We continue to see strong performance in Vascular Access Management outside the U.S. Double-digit growth of 15.5% in MMS was driven by strong demand for our pharmacy automation solutions, including both Parata and Rowa. We’ve been very pleased with customer response and the performance of Parata. As expected, growth in MMS also reflects the comparison to higher dispensing installations and infusion set utilization in the prior year driven by COVID dynamics. We continue to have a very healthy backlog of customer orders for Pyxis and BD HealthSight, which reflects the strength of our connected medication management portfolio. And despite strong growth of 18% in Q1 of last year, Pharm Systems delivered another quarter of double-digit growth of 10.6%, driven by continued penetration in the high-growth biologic and vaccine markets. BD Life Sciences revenue totaled $1.3 billion in the quarter. The decline of 7.3% year-over-year is due to the expected lower COVID-only testing revenues. Life Sciences base revenues grew over 7%, excluding the licensing grow over as previously discussed. Growth was driven by growth in Integrated Diagnostic Solutions base revenue of 1.3%, or 6.4% when excluding the licensing comparison. This strong underlying mid-single-digit growth was driven by BD Kiestra that is helping to address laboratory labor shortages through automation and informatics and continued leverage of our molecular testing menu across our expanded BD Max installed base. In addition, there was strong demand for our respiratory testing portfolio that was partly aided by the timing of orders. High single-digit growth of 9.2% in Biosciences reflects continued growth from new product launches combined with strong double-digit growth in research reagents, enabled by our differentiated content and dye strategy. We continue to see demand for our expanded suite of flow cytometry analyzers and sorters as researchers continue to do even higher parameter cellular analysis for cancer and other immune-related conditions. BD Interventional revenues totaled $1.1 billion in the quarter, growing 5.6%. Growth was driven by surgery growth of 3.1%, which reflects strong performance in advanced repair and reconstruction driven by continued strong market adoption of Phasix, Hernia, resorbable scaffold and double-digit growth in biosurgery, aided by the Tissuemed acquisition. Growth in surgery was tempered by planned strategic portfolio exits and then expected decline in BD ChloraPrep due to a tough comparison to the prior year as a result of dealer stocking. Peripheral Intervention grew 10.8%, which reflects double-digit growth in PVD, driven by the Venovo relaunch, coupled with continued global penetration of Rotarex, and the acquisition of Venclose, which addresses chronic venous insufficiency. Additionally, growth was strong in oncology, within Greater Asia due to an improved backlog situation associated with prior year supplier constraints. Urology growth of 1.8% reflects double-digit growth in our PureWick, chronic, incontinence solutions and endourology that benefited from reduced back order due to improved supplier performance. Offsetting this strong performance was a difficult comparison in urological drainage due to shore step back order release and distributor stocking in the prior year. Now moving to our P&L. We reported Q1 adjusted diluted EPS of $2.98, which included gross margin of 54.7% and operating margin of 22.9% that were consistent with our expectations. While we are no longer providing a specific breakout of the impact to margins from COVID-only testing, you will recall the comparison to higher testing in the prior year is weighted to the first half and as expected is the driver of the decline in reported Q1 margins year-over-year. Excluding the COVID impacts to margins in Q1 of both years, both gross and operating margins in our base business were up slightly year-over-year. The improvement in base margins was delivered despite around 350 basis points of outsized inflation that as expected was primarily driven by selling through inventory that included peak inflation impacts from FY 2022, such as increases in certain raw materials noted earlier as well as the impact of labor inflation and elevated shipping. We were able to offset a large portion of this impact to our simplification and inflation mitigation initiatives and the benefit from strategic portfolio access of lower-margin products as planned. We expect the impact from inflation to moderate as we move through the year. Base margin performance also includes growing over the impact from licensing revenues in the prior year. As expected, we had favorable FX that was recorded in inventory that benefited our GP as it flow through sales. R&D of 6.4% of sales reflects our innovation investments aligned to our strategy in support of our long-term growth outlook. Q1 reflects timing of project spend. We expect R&D to remain elevated in Q2 and normalize over the balance of the year to around our long-range target of 6%. Our tax rate in Q1 was lower than anticipated due to the timing of certain discrete items that were planned for during the year. Regarding our cash and capital allocation; cash flows from operations totaled approximately $400 million in the quarter. Operating cash flow reflects an impact of approximately $300 million from higher inventory balances. The increase reflects the impact of inflation and our strategic investments in raw materials to optimize product delivery and meet customer demand. We've seen good progress in December and January on WIP [ph] and finished goods rightsizing with January inventory dollars down sequentially from December. We are working to moderate strategic raw material purchases as stability improves in select markets. However, we continue to make prudent trade-offs where necessary to ensure we support our customers while delivering strong results. Assuming continued stabilization of the macro environment and supply chain, we expect to continue to manage inventory levels down and by the end of the fiscal year had this be a positive source of cash and meaningful progress towards meeting our long-term cash conversion goals. We paid down approximately $500 million in long-term debt in Q1 and ended the quarter with a cash balance of approximately $600 million and a net leverage ratio of 3 times. As the year progresses and we build cash, we can increase our capacity to deploy cash towards tuck-in M&A. Moving to our guidance for fiscal 2023. For your convenience, the detailed assumptions underlying our guidance can also be found in our presentation. Given our first quarter performance, we are confident in increasing our revenue and EPS guidance, given the strength of our base revenue growth, consistent execution of our margin goals, and reflecting the latest FX rates. Starting with revenues, I will provide some insights into some of our key guidance assumptions. First, we are well positioned for strong growth across our three segments, which are delivering at or above our initial expectations despite the impact of restrictions in China, and thus, we are increasing our base revenue guidance. On a currency-neutral basis, we now expect base revenues to grow 5.75% to 6.75%. This is an increase of 50 basis points from our prior guidance of 5.25% to 6.25% and is driven by our Q1 revenue outperformance and the confidence we have in our consistent durable growth profile. Our base revenue guidance continues to include planned strategic portfolio exits that will enable increasing manufacturing efficiency and capacity and ensure the reliable supply of the products that matter most to our customers. We initiated these actions in Q1 and for the full year, continue to expect the impact to base revenue growth of approximately 100 basis points while being accretive to margin. Offsetting this revenue impact, we continue to expect a positive contribution of approximately 100 basis points from the full year benefit of our recent acquisitions with Parata being the predominant driver. While we aren't providing segment-specific guidance, we are on track to deliver strong performance across our segments this fiscal year, in line with our long-term planned commitments. We expect Medical segment growth to be above the total company range, which includes the acquisition of Parata; Life Sciences growth to be below given strong prior year comps and Interventional to be above the midpoint. For COVID-only testing, we are now assuming about $50 million to $100 million in revenue versus our previous expectation of about $125 million to $175 million and is driven by reduced testing volumes and the continued shift in the market to combination testing for respiratory illness. Regarding Alaris, we continue to only model shipments related to medical necessity in line with fiscal 2022 demand. Regarding our assumptions on earnings, we continue to expect operating margins to improve by at least 100 basis points while absorbing the decline in COVID-only revenue, which has a higher margin profile. Despite the challenging macro environment persisting, our focused execution on driving profitable revenue growth, combined with our simplified programs, gives us the confidence that we will be able to continue to mitigate inflationary pressures and make meaningful progress to achieving operating margin levels of about 25% in fiscal year 2025. We continue to expect over 80% of the improvement in operating margin to come from SSG&A [ph], driven by internal cost containment and leverage. The balance is expected to come from slight improvement in gross margin and R&D as we normalize back closer to our target of 6% of sales. Below operating income, our assumptions regarding interest, other and tax remain unchanged. We continue to expect adjusted EPS before the impact of currency to be around double-digit growth and within a range of approximately 9% to 11%. This includes absorbing about a 350 basis point headwind from the anticipated decline in COVID-only testing, which is about 50 basis points more than we previously anticipated. As a result, this implies a very strong low-teens base earnings growth of approximately 12.5% to 14.5% compared to 12% to 14% previously anticipated. Let me now walk you through the estimated impact from currency. As a reminder, we manage our business and provide guidance on an operational basis, but provide perspective on currency using current spot rates. Since our last call in November, the U.S. dollar weakened against all of our major currencies. Based on current spot rates, which assumes the euro at $1.08 for the remainder of the year. For illustrative purposes, currency is now estimated to be a headwind of approximately 200 basis points, or about $370 million to total company revenues on a full year basis, which is an improvement of approximately 250 basis points compared to our prior view. The currency headwind to adjusted EPS growth has also declined significantly since our November earnings call. At current rates, currency would represent a total headwind of approximately 230 basis points to adjusted EPS growth compared to approximately 420 basis points previously. All in, including the estimated impact of currency, we are increasing our reported revenue guidance by approximately $500 million to a range of $19.1 billion to $19.3 billion compared to $18.6 billion to $18.8 billion previously and are raising our adjusted EPS guidance to be between $12.07 and $12.32, which is an increase of $0.22 at the midpoint compared to our prior guidance range of $11.85 to $12.10. As we think of fiscal 2023 phasing, there are various items to consider. We have outlined more detail in the accompanying presentation slides, but the following are key areas to note. First, regarding margins. We expect Q2 operating margin to be similar to our FY 2022 full year margin. This demonstrates our strong focus on profitable growth given the continued impact of inflation and the grow-over impact of our COVID-only testing revenue, both of which we expect to be most prominent in the first half of the year. As a reminder, COVID-only testing has a higher margin and reinvestment of COVID-only testing profit was weighted to the back half of the year. As the year progresses and we continue to benefit from our simplification and inflation mitigation programs, we anticipate margin expansion to be most prominent and to increase through the second half. Second, regarding FX. At current spot rates, we expect the headwind to revenue and EPS will be over-indexed to the first half with about 90% of the full year impact to revenue and about 80% of the full year impact to EPS occurring in the first half. For the full year, we expect the FX drop-through to earnings to be in line with our BDX operating margin. Lastly, a couple of timing items to note. We expect R&D as a percentage of sales to remain elevated in Q2 and normalize over the balance of the year to around our long-term target of 6%. Additionally, the midpoint of our full year effective tax rate guidance indicates an effective tax rate over 16% for the balance of the year, which is best to assume occurs evenly throughout the year as the exact timing of any other discrete items is hard to predict. In closing, we are very pleased with our performance, which demonstrates our consistent, reliable, durable growth profile and our BD 2025 strategy continuing to progress as planned. As we look forward and as reflected in our FY 2023 guidance, we are well positioned for growth with excellent momentum in our base business. With that, let me turn it back to Tom for few additional comments.

Operator:

[Operator Instructions] Thank you. And our first question comes from Vijay Kumar with Evercore ISI. Please go ahead.

Tom Polen:

Good morning Vijay. And thanks for the great question. I'll turn that over to Chris.

Vijay Kumar:

Understood. And then just one follow-up for me, Chris. And perhaps, Tom, you can chime in. One on, did you – a few questions here on combo and flu revenue contribution. I think on the prior call you had said you expect somewhere around 150-ish for the year. Did the estimate change? What was the China impact here in the quarter? And Chris, did I hear you correctly on gross margins? Should they be up sequentially here into 2Q? Or should gross margins be flattish or down?

Tom Polen:

Vijay, on the other two questions that you asked, on China specifically, so China declined slightly in the quarter, obviously due to the COVID impact. We did see at the end of this month – last month, January, starting to see some recovery there. So, we're optimistic for the year, we still – as you know, we delivered double-digit growth in China. Last year, we said high singles or near double or about that this year, and that's unchanged. We think we will be able to recover in the back portion of this year. We still have our four-pronged strategy that we have in China we remain very confident in. We've got a very strong team there that's been navigating that challenging environment. Again, they delivered 10% plus growth in 2022, and we expect another strong 2023. And that strategy that focuses on bringing our global pipeline to China continuing to drive China tailored R&D. And you heard us talk about a new launch there in the midline of a product developed in China for China. We continue to move in to expand our market coverage into lower-tier settings, continue to manage through the BOBP where it exists, that's in our run rate. And we continue to strengthen our local presence in China, both our manufacturing presence as well as clinical expertise as we continue to train thousands and thousands of clinicians each year. That formula has worked very well for us in the past, and we continue to double down on that. I think as we think about the combo test, I'll turn that over to Dave to speak a little bit about what we're seeing there.

Vijay Kumar:

Sorry, did the prior guidance on that, I think you mentioned 150-ish for the year. Did that change?

Vijay Kumar:

Sorry, on the combo test. I think flu combo...

Operator:

Okay, we'll take our next question from Matt Taylor with Jefferies. Please go ahead.

Tom Polen:

We appreciate that, Matt. Thank you.

Chris DelOrefice:

Yes. No problem. Thanks, Matt. I appreciate the question. Yes, things are pretty consistent with what we shared when we started the year, and it seems to be playing out as such. Some of the key factors to contemplate. First of all, we talked about that from a full year standpoint, inflationary headwinds being another 200-plus basis points. This is on the back of two other years with last year also being over 200 basis points. So, we’ve been navigating an extremely challenging macro environment, right, when you think of that on a cumulative basis. What we did say around the inflationary pressures, it would be significantly weighted towards the first half of the year will be highlighted in Q1 that you saw flow through because a lot of this was inventory that was built last year that sold through. 350 basis points of outsized inflation. That’s on top of, I think, of normal inflation merit increases that everyone takes that would happen in any kind of environment, more of those 3% level. So, you’re really talking about, call it, 400 basis points plus of costs that you have to contend with within your P&L. So then when you think of the mitigation offset to that, so -- by the way, so when you think of our Q1 performance and margin on the back of a 350 basis point inflationary pressure in the quarter, we’re very pleased with how we started the year, because we knew the front half was going to be kind of the more challenging times. As we progress through the back half, there’s a few things that will play out. One, it starts with our internal focus on cost improvement initiatives, simplify, whether it be Project RECODE, driving outsized cost improvement through our plants and other facilities. We’re very focused on portfolio, whether it be driving mix. We took this bold strategic action around portfolio product exits that contributed within the quarter. And so, you don’t do this was one thing. The strong growth rate, of course, gives you natural leverage. And then as we go through the back half of the year, while we’ll still be in an elevated inflationary environment, the cost of materials will subside. You’re seeing some of that subside in certain pockets of raw materials as an example, while other areas, like labor is continuing to persist. But you should see it trend down from that 350 basis points to get to our average of over 200 basis points that we talked about. So then when you think of kind of the dynamics within the P&L between GP and operating margin and where it will play out, GP, we said would be largely in line to just a slight improvement for the full year. And again, that goes back to the fact that we’re absorbing the significant inflationary pressures. So, you’re doing a lot of work to kind of stay flat to slightly above. And then the majority of it will end up showing up in operating margin as you think of leveraging your cost base there, some cost improvement actions we’re also taking in OpEx, and we also continue to normalize our R&D spend in the second half. If you saw in Q1, and we expected in Q2 to have more outsized R&D above 6%, so the back half will be below 6% to normalize to our 6% rate. So, I think those are the biggest puts and takes as you think of the year, but we’re very pleased again with Q1, how we started and how focused we’ve been on the margin profile.

Chris DelOrefice:

Thanks.

Operator:

And we’ll take our next question from Larry Biegelsen with Wells Fargo. Please go ahead.

Larry Biegelsen:

Good morning, Tom. Good morning, Chris. Thanks for taking the question and I’ll reiterate my congratulations on the nice quarter here. Chris, just one follow-up to Matt’s question. How much visibility do you have? I mean, the second half margin ramp is pretty strong. How much visibility do you have on that? And trying to calculate the numbers here quickly, but it implies, I think, pretty low OpEx growth, if I’m not mistaken. Just color on that, please?

Larry Biegelsen:

That’s helpful. And just one quick follow-up. Tom, it looks like Parata is doing really well. I mean the $86 million inorganic contribution in Medical. It looks like there was one other acquisition there, but I assume most of it’s Parata. So any color on how Parata is doing? It looks like it’s doing better than the initial expectations. Thanks.

Mike Garrison:

Yes. The other acquisition is the acquisition of MedKeeper. That’s a pharmacy automation software that helps automate the processes that a pharmacy tech would use to prepare IV medications in the pharmacy hood. So that contributed a small amount into that acquisition number. From a Parata perspective, I think what we’re seeing there, and we are really pleased with it, is the combination of the energy and the product that Parata provides and the energy that the people from Parata are providing, along with the sort of discipline and coaching that BD and the scale that we provide to access new markets, access acute care settings and help drive the transformation of the pharmacy for acute care. So Parata is continuing to grow very strong in the alternate site in the retail area. And then we’re starting to open up the discussions with IDNs that are looking to transform their pharmacy operations. So I think that bodes really well for the future. We are very pleased with it, and we hope to continue to see the same type of response from our customers.

Operator:

We’ll take our next question from Robbie Marcus with JPMorgan. Please go ahead.

Robbie Marcus:

Good morning and congrats on nice quarter. Chris, maybe to dig into some of the points you made already. COVID testing is a high-margin business going down. How much of the base business upside in guidance is coming from the combo COVID test? And then a lot of competitors are outperforming on COVID testing and potentially raising numbers for the year. I guess, how are you thinking about just Becton, Dickinson in the framework of COVID testing and your assumptions underlying how testing will be used for the balance of the year? Thanks.

Dave Hickey:

Yes. Hey Robbie. I mean I think, Tom, you captured well. I think when we did our At Home COVID test; we made a very deliberate decision to pursue a digital strategy. You saw the acquisition that we made of Scanwell. We were very much aligned to the test, treat and trace reporting dynamics. And we intentionally sort of targeted that digital ecosystem with a higher price, higher margin rather than the visually red at-home test. We still think on a go-forward basis, as the sort of, let's say, the sort of the government contracts and things abate, as testing perhaps becomes more regulated At Home, 510(k) environments and so on, a digital ecosystem, again plays into the smart connected care of BD will be important. But I think for us, we just look at it all as we're seeing the softening in the COVID decline. We firmly believe that the standard of care going forward will be these – in an endemic type of approach, these combination tests and we've built a portfolio across BD MAX, BD COR, Veritor and potentially Veritor At-Home across all of these combination portfolios.

Chris DelOrefice:

Well, just the way you started your question, Robbie. So if you think of us absorbing the COVID-only and increasing our base revenue guidance by the 50 basis points, it wasn't like a swap out into combination testing. It was actually broadly based across the business. As Dave mentioned earlier, we still see the combo part of our portfolio at that 1.5 times, and we'll continue to watch how it plays out. There was a little bit of strength there, but it wasn't outsized relative to the other areas we also had stressed.

Robbie Marcus:

Great. I'll leave it there. Thanks a lot.

Operator:

And we’ll go next on Matt Miksic with Barclays. Please go ahead.

Chris DelOrefice:

Yes. I think that – I mean, there's other puts and takes within there. But generally speaking, yes, that's how we see the year playing out.

Chris DelOrefice:

Yes. I think just real quick on China. Thanks, Matt, for the questions. So I mean, last year is just an interesting proxy, right? We went through restrictions in our fiscal Q3. Despite that, we navigated. We had an impact in the quarter. We actually still grew in that quarter last year and posted around double-digit growth in fiscal year 2022. This quarter, we saw a modest decline, 1%, and in China specifically, and normally if you think of it as a double-digit growth business. With that said, Q1 last year, was a strong comp for us in China. We had a very strong quarter for various dynamics, including some new products that were introduced, et cetera. So we would say the impact is probably just south of 50 basis points, if you want to think about it, plus or minus in the quarter headwind just to give you some direction. We did highlight we still feel great, as Tom mentioned earlier, with the core strategy with that business, short of like further disruptions occurring this year and these being a more kind of acute. We should see again around double-digit growth for the year is what we had shared. So we did see some trends, recent trends, like we're watching it. So we're watching it closely, but it looks like you're starting to kind of see some turnaround in that market. It's still early. So we'll look at it and we'll update, of course, in Q2. But I think longer term, our strategy and performance in China is really strong.

Chris DelOrefice:

Yes. I think, COVID, I can let Dave and Tom jump in here too, kind of half accurate, I think, in your depiction. There’s significant market dynamics on call it, COVID-only testing in the marketplace this year. If you think of last year, there was a lot of government intervention and school requirements and businesses. I mean there’s – a lot of that has subsided. So there’s a portion of the reduced testing that’s just market dynamics playing out in terms of total volume, and that’s not just shifting the combination testing. With that said, we still feel good about our combo assay in having that because we do see that as the assay of choice as folks have are symptomatic going in and want to get tested for flu. So we saw strength in our platform. But as Dave articulated, the flu season did kind of spike early. So we’ll have to kind of continue to watch that as we navigate through Q2. So it certainly wasn’t a one-for-one shift by any means, not even really close to that.

Tom Polen:

Thanks Dave. Thanks Matt.

Tom Polen:

Good morning, Rick.

Tom Polen:

Great questions, Rick. Thank you. So on the innovation side; obviously, we appreciate the comments there. We’re really pleased with the momentum that we have. And as I’ve said many times, we think we have the most exciting pipeline in the company’s history. If you look at last year in FY 2022, we had 25 new product launches, things like our HealthSight diversion management moving into the operating room or the new Pyxis ES platform or a series of new dyes and the first of their kind in BDB or our core high-throughput platform. Asprex [ph] in the U.S. or PureWick Male are all great examples of products that we launched last year that are going to help drive growth this year. As we think about – and we highlighted quite a few this quarter as well. As we look ahead, as you know, there’s no – you can’t say for BD, hey, there’s these three or four products that are going to drive our performance and that if they go really well or don’t go as well, that it’s going to change our outlook and our thesis. That’s one of the strengths of BD. We’ve got a lot of singles, a lot of doubles. We’ve got triples here and there. But we’ve got a deep bench. What’s – what I’d point you to is we’ve been systematically moving our portfolio into higher-growth markets and shifting our WAMGR up. We talked a lot about that at JPMorgan this year. We gave updates specifically on our progress versus the WAMGR goals that we set at Analyst Day two years ago, and we’re very much on track to those. We’re really pleased with how our portfolio is progressing. We’re really pleased with how we’re executing R&D. We’ve shared before we exited FY 2022 with our best performance ever, 87% on-time launches, 84% milestone delivery. That’s up significantly versus where we’ve been in the past, and so we’re pleased with how our R&D team is performing. We highlighted quite a few of the many exciting launches that we have coming up this year or submissions that we have. Certainly, think about Life Sciences, facts discover is a breakthrough new platform. Any time you’re on the cover of Science Magazine, we’ll consider that an exciting technology, and we’re launching that later this year. A lot of exciting interest from our customers as well as the new dyes that are associated with that to take advantage of the spectral technology and in FACSDiscover. YODA around capillary blood collection, enabling blood collection by non-phlebotomists, non-venepuncture, really highly preferred by patients. 75 out of 100 will prefer or more blood being drawn with that device than a venepuncture. And we see that as starting to enable more routine care in places, like retail. When you look at the majority of clinical decisions being driven by diagnostic data it’s hard for care to move into new settings if you’re not getting that diagnostic data available there. You still got to go into the old system. They have your blood drawn. We’re working to change that. That’s something that we’re going to be excited about as we go forward. In BD Medical, obviously, we’ve got products and pharm systems that we’ve talked about in the past, including Libertas as well as new vaccine delivery solutions that we’ve launched recently in BDI, we’ve talked about quite a few. We highlighted PureWick in the past, PosiFlush in MDS, list goes on again in JPMorgan went through those pretty deeply, and I highlighted a few here on the call today. I think as we think about tuck-in M&A, we’re going to remain extremely disciplined. I’ve shared in the past, of course, many times, we’re still focused on tuck-in M&A exclusively. We’re very focused on maintaining that strong balance sheet that we have, and we are going to continue to increase the amount of cash that we generate, and we feel really good about how that looks over the next several years. We have our very focused priorities. We don’t disclose specific market categories that we’re focused on there. But we’ve obviously pointed very specifically to three areas of focus around smart connected care, around technologies that enable the shift to new care settings and around technologies that help us improve chronic disease outcomes in the chronic disease spaces that we’re focused in, like oncology, peripheral vascular disease, et cetera. And so, over the last three years, 90% plus of the M&A dollars that we’ve spent have been focused in those three categories, and we would certainly expect that continue going forward, that level of focus. Thanks for the question.

Tom Polen:

I just want to thank everyone for your time today. Great series of questions. Obviously, we’re – we feel really good about the performance as we started this year, and we look forward to providing updates in the future. Thank you.

Francesca DeMartino:

Good morning, and welcome to BD's earnings call. I'm Francesca DeMartino, Senior Vice President and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the fourth quarter and full year of fiscal 2022. We also posted an earnings presentation that provides additional details on our performance. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued execution of our BD 2025 strategy. Chris will then provide additional details on our FY '22 financial performance and our guidance for fiscal 2023. Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Mike Garrison, President of the Medical segment; Dave Hickey, President of the Life Sciences segment; and Rick Byrd, President of the Interventional segment. Before we get started, I want to remind you that we will be making forward-looking statements. I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the IR website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. In addition, the results and guidance we are presenting today are on a continuing operations basis, which excludes the historical results of Embecta, which are accounted for as discontinued operations. When we refer to any given period, we are referring to the fiscal period unless we specifically note it as a calendar period. I would also call your attention to the basis of presentation slide, which defines terms you will hear today, such as base revenues and base margins, which refer to our results excluding estimated COVID-only testing. With that, I am very pleased to turn it over to Tom.

Christopher DelOrefice:

Thanks, Tom. Echoing Tom's comments, we delivered strong, consistent results this fiscal year which reflects our growth strategy playing out as planned. Through execution of our BD 2025 strategy, we are fulfilling our short-term commitments while progressing towards our long-term goals. Beginning with our revenue performance. We exceeded our revenue growth expectations for the fourth quarter and full year. We delivered $4.8 billion in revenue in Q4, with base business growth of 8.6% or 6.8% organic. Parata contributed about 140 basis points to growth in the quarter and about 40 basis points to the full year. COVID-only testing revenues were $37 million, which is expected decline from $316 million last year. For the full fiscal year, we delivered $18.9 billion in revenue with base business growth of 9.4% and or 8.5% organic. COVID-only testing revenues were $511 million, which, as expected, declined from $2 billion last year. Total company base business growth was strong across all three segments with double-digit growth in BD Life Sciences and high single-digit growth in BD Medical and BD Interventional. Base revenue growth was strong regionally as well with double-digit growth in the U.S., China and Latin America, along with high single-digit growth in EMEA. Our revenue performance continues to be supported by our durable core portfolio and an increasing contribution from the transformative solutions we are bringing to the market through our innovation pipeline and tuck-in acquisitions. We also continue to benefit from the organic contribution from tuck-in acquisitions we anniversaried, which was about 20 basis points for the full year. Let me now provide some high-level insight into each segment's performance in the quarter. Further detail can be found in today's earnings announcement and presentation. BD Medical revenue totaled $2.4 billion in the fourth quarter, growing 10.2% with strong performance across the segment. Growth was driven by strong growth in MDS of 8%, driven by continued execution of our comprehensive vascular access management strategy; MMS growth of 11.5%, driven by strong demand of our connected medication management and pharmacy automation strategies, including our recent acquisition of Parata as customers focus on automation to drive efficiency to help address the constrained labor market, and another quarter of double-digit growth of 12.8% in Pharmaceutical Systems based on our strong leadership position in prefillable solutions for biologics and vaccines. BD Life Sciences revenue totaled $1.3 billion in the fourth quarter. The decline of 11.6% year-over-year is due to the expected lower COVID-only testing revenues previously discussed. Excluding COVID-only testing, Life Sciences base revenues grew 8.3% with strong growth across both IDS and Biosciences. Base business growth was driven by IDS growth of 8.6%, enabled by continued leverage of our molecular testing menu across our expanded BD MAX installed base and continued demand for our leading clinical microbiology and specimen management platforms. And lastly, BDB growth of 7.5%, driven by continued demand for our expanded suite of flow cytometry instruments as researchers are able to do even higher parameter cellular analysis for cancer and other immune-related conditions. BD Interventional revenues totaled $1.1 billion in the fourth quarter, growing 5.7%. Growth was driven by surgery growth of 5.4% and supported by our Advanced Repair and Reconstruction portfolio with strong market adoption of our leading Phasix hernia products. PI growth of 4.8%, which reflects continued expansion of our venous portfolio highlighted by Venclose in the U.S. and the global relaunch of Venovo. PI performance also reflects increased back orders primarily related to a BDI specific European ERP system implementation. Urology growth of 7.2% reflects continued strong demand for our PureWick Female incontinence solutions in both acute and alternative care settings. Now moving to our P&L. Q4 adjusted diluted EPS of $2.75 increased 28%. Base business gross margin of 52.5% was up 80 basis points and base operating margin of 22.5% was up 430 basis points year-over-year. Full year adjusted diluted EPS of $11.35 grew 0.6%. As we anticipated, we made significant progress towards achieving our pre-pandemic margin improvement goals despite increasing inflation pressures. For the full year, base business gross margin of 53.4% was up 110 basis points and base operating margin of 22.4% was up 280 basis points. The key full year drivers of gross margin include our simplification and inflation mitigation initiatives and increased volume utilization given our strong base revenue growth. In addition, as expected, we had favorable FX that was recorded in inventory that benefited our GP as it flowed through sales this year. Base operating margin reflects strong operating expense leverage with base selling and G&A as a percent of sales, leveraging by 180 basis points, partially offset by significant inflationary impacts, primarily in shipping. To put this in perspective, shipping expense increased at a double-digit rate in our base business. This increase in shipping was offset with focused efforts on cost management and leverage of selling and G&A which only grew at about 1/3 the rate of sales and was the primary driver of 21% currency-neutral growth in base operating income. This is a testament to the tremendous work by our organization to mitigate inflation and execute our margin enhancement initiatives. This was also a key enabler in supporting continued investment in R&D at just over 6% of sales to advance our innovation pipeline. Regarding our cash and capital allocation. Cash flows from operations totaled approximately $2.5 billion in FY '22. Operating cash flow reflects a higher inventory balance of about $600 million year-over-year. The increase reflects the impact of inflation, longer in-transit lead times and our strategic investments in raw materials to optimize product delivery and meet customer demand. As expected, our free cash flow conversion this year was below our long-term target. We remain very focused on cash flow conversion and we are taking actions to moderate inventory down. But in the short term, we believe it's a prudent trade-off to ensure we support our customers while delivering strong results. As we execute against our BD 2025 strategy and supply chain constraints normalize, we expect to migrate towards our long-term cash conversion target. In addition to investing in R&D at over 6% of sales to advance our pipeline of innovative programs, we also invested over $2 billion in six tuck-in acquisitions across our businesses that will support our strong growth profile in 2023 and beyond. Beyond our investments in growth, consistent with what we shared regarding the planned use of Embecta proceeds, we paid down $500 million in long-term debt this fiscal year and returned $1.6 billion in capital to shareholders through dividends and share repurchases. We ended the year with a cash balance of $1 billion and a net leverage ratio of 2.8x. Moving to our guidance for fiscal '23. For your convenience, the detailed assumptions underlying our guidance can also be found in our presentation. Our FY '23 guidance aligns with the framework we communicated last quarter and the value creation model and long-term targets we outlined at our Investor Day to deliver 5.5% plus base revenue growth, continued margin improvement and double-digit base earnings growth on a currency-neutral basis. As a reminder, we manage our business on a currency-neutral basis to best represent underlying performance, consistent with what other companies are discussing in their forward outlook, we are accounting for a headwind to our reported results as we translate currency to a stronger U.S. dollar. Beyond that change, our guidance has only strengthened in a complex macro environment, where we continue to see elevated inflation and geopolitical uncertainty. Starting with revenues. I'll provide you some insights into some of our key guidance assumptions. First, on a currency-neutral basis, we expect base revenues to grow 5.25% to 6.25%, which is a strong growth of 5.75% at the midpoint. This midpoint is above our 5.5% plus target we outlined during our Investor Day, given the confidence we have in our strengthening growth profile. Our revenue guidance includes two proactive strategic portfolio management actions that are consistent with our BD 2025 strategy and support our value creation goals. First, building on our FY '22 achievements. Our base revenue guidance includes planned strategic portfolio exits as part of the acceleration of our portfolio simplification and RECODE programs. These actions will enable increasing manufacturing efficiency and capacity and ensure the reliable supply of the products that matter the most to our customers. We expect these actions to impact revenue by approximately 100 basis points while being accretive to margin. Second, offsetting this revenue impact is a positive contribution of approximately 100 basis points from the full year benefit of our recent acquisitions with Parata being the predominant driver. We will continue to be active in portfolio management as a lever to create value for all stakeholders. While we aren't providing segment-specific guidance, we are on track to achieve our long-range plan commitments, and we are assuming strong performance across the segments in FY '23. And we expect Medical segment growth to be above the total company range, which includes the acquisition of Parata, Life Sciences growth to be below given strong prior year comparisons and Interventional to be at the high end of the range. Consistent with what we shared, we expect COVID-only testing revenues and related earnings to be at a level significantly below FY '22, with revenues more in line with the annualization of our Q4 FY '22 results or approximately $125 million to $175 million for the full year. Regarding Alaris, consistent with what we've done in the past, we are only modeling shipments related to medical necessity. While we will be prepared when clearance is received, we continue to anticipate a gradual ramp to revenues upon clearance. Regarding our assumptions on earnings. We expect operating margins to improve by at least 100 basis points over the 22.6% reported in FY '22. Despite the challenging macro environment persisting, our focused execution on driving profitable revenue growth, combined with our simplified programs, gives us the confidence that we will be able to continue to offset inflationary pressures and make meaningful progress to achieving pre-pandemic operating margin levels of about 25% and in FY '25. First, to give you some color on inflationary assumptions. As a reminder, outsized inflation in FY '22 was a headwind of over 200 basis points we expect a similar level of incremental outsized inflation in FY '23. The primary drivers of the incremental inflation are raw material costs and labor, which are about equally weighted. Even though we see some signs of cost normalizing in certain areas, a lot of the outsized inflation is from inventory we manufactured in FY '22 as there's about a four to six-month lag from production to sell-through. Labor costs, especially in our manufacturing plants, have continued to increase. We have taken proactive actions to ensure we are differentiating BD to retain our skilled workforce. Lastly, transportation costs have stabilized, and we've begun to see some downward movement on certain rates. However, we are still above more normalized levels. We remain committed to leading through the macro complexity while making investments to support our customers to offset these inflationary impacts we continue to leverage our strong growth profile and drive outsized cost reduction and other mitigation programs. We expect over 80% of the improvement in operating margin to come from SSG&A driven by internal cost containment and leveraging. The balance is expected to come from slight improvement in gross margin and R&D as we normalize back closer to our target of 6% of sales. Our simplification initiatives include continuing to execute on Project RECODE. You will recall when we announced RECODE, it was intended to deliver $300 million in savings by the end of fiscal year '24, with portfolio and network optimization representing about 70% of the savings. We are accelerating these efforts and are also making significant progress with the third pillar of RECODE, operating model simplification, which will result in BD becoming a more agile and less complex organization. In addition, to provide some color below operating income, we expect an increase of approximately $50 million to $75 million in interest/other. This is primarily driven by increased pension expense, which we fully covered in our guidance, and is a result of the negative movement in the financial markets. For tax, based on what we know today, assuming no major legislative or regulatory changes, we expect our adjusted effective tax rate to be between 13.5% and 14.5%. It would not be unusual for our rate to fluctuate above or below this range on a quarterly basis given the timing of discrete items. Our guidance assumes no material change in average common shares outstanding from our average FY '22 share balance. This takes into account the conversion of all outstanding preferred shares on June 1, 2023, the benefit from the FY '22 share repurchase and associated with the use of the impacted distribution and our commitment to mitigate the dilution from share-based compensation. So on an all-in basis, we expect adjusted EPS before the impact of currency to be around double-digit growth and within a range of approximately 9% to 11%. This includes absorbing about a 300 basis point headwind from the anticipated decline in COVID-only testing; and as a result, implies a very strong low teens base earnings growth of approximately 12% to 14%. Let me now walk you through the estimated impact from currency. As a reminder, we manage our business and provide guidance on an operational basis, but provide perspective on currency using current spot rates. Since our last call in August, the U.S. dollar strengthened against all major currencies. Based on current spot rates, for illustrative purposes, currency is now estimated to be a headwind of approximately 450 basis points or about $850 million to total company revenues on a full year basis. This currency headwind has nearly doubled since our August call. Our guidance assumes the euro at 0.99, which is down about 4% since August. The Chinese yuan, Japanese yen, British pound and Canadian dollar have also all declined even more than the euro since August by almost 2x the euro movement. For context, these four currencies combined are in line with our total euro exposure. The currency headwind to EPS growth has also nearly doubled since our August earnings call. At current rates, currency would represent a total headwind of approximately 420 basis points to adjusted EPS growth. All in, including the estimated impact of currency, we expect revenues to be between approximately $18.6 billion to $18.8 billion and adjusted EPS to be in a range of $11.85 and to $12.10. As you think of fiscal '23 phasing, there are three key items to consider. First, FX. At current spot rates, we expect the headwind to revenue will be over-indexed to the first half. For the full year, we expect the drop-through to earnings to be below our BDX operating margin. Due to the expected benefit from inventory flow-through in Q1, the drop-through is expected to start well below the full year average and most significantly impact the second and third quarters. Second is the grow-over impact of COVID-related dynamics. As a reminder, in FY '22, almost 80% of COVID-only testing revenue was realized in the first half of the year, with strong margin drop-through as reinvestment was weighted to the latter part of the year. In addition, there is also a comp to strong first half performance in FY '22 related to combo testing in the base business. And the third is inflation. Nearly 40% of the full year inflation headwind is expected to occur in Q1 as we sell through inventory manufactured in FY '22 in the first half of the year. As a result of these items, as you think of the progression of our total operating margin expansion through the year, for Q1, you should expect a year-over-year decline driven primarily by the year-over-year comparison of higher COVID-only testing. We expect operating expansion to ramp over the remainder of the year with the majority occurring in the second half. As a reminder, there are some tough comparisons to the prior year in Q1, such as the benefit of about $50 million in licensing revenues in Life Sciences. As a result of these dynamics, we expect Q1 base revenue growth and adjusted EPS to be under-indexed relative to an equal quarterly phasing of the full year. So this guide, coupled with our FY '22 results, has us progressing very well towards our FY '25 goals, including a two-year revenue CAGR assuming the FY '23 midpoint of 5.75% that is well above the 5.5% plus target at around 7.5%, achievement of nearly 400 basis points of margin improvement or over 70% of the way towards our FY '25 objective and two consecutive years of strong double-digit adjusted earnings growth in our base business. In closing, we are very pleased with our performance, particularly given the macro complexity and inflationary pressure we navigated. The consistent execution we delivered and our ability to mitigate these challenges through FY '22 enabled our results. This gives us confidence in our ability to continue this momentum into FY '23 and create long-term value for all of our key stakeholders. With that, let me turn it back to Tom for a few additional comments.

Operator:

Certainly. The floor is now open for questions. [Operator Instructions] And our first question is coming from Larry Biegelsen with Wells Fargo.

Christopher DelOrefice :

Yes. Sure, Larry. Thanks for the question. We're very pleased with our growth rate. As you noted, I think what we're delivering is a testament to our strategy playing out, delivering consistent growth in both our durable core balanced with acceleration through transformative solutions, coupled with the actually organic contribution from the tuck-in M&A that we're starting to see as we anniversary acquisitions more than a year. There's about a 20 basis point contribution to growth. So as you noted, 9.4 this year, really strong year, in a year by the way where we actually had an increasing complex environment. Our ability to grow double digits in China as an example with some of the dynamics we saw play out there, 8.5% organic. I think there's a few things that I think will give you some color to kind of understand. Our underlying growth rate remains extremely strong as it relates to our '23 guide. If you think of it as a two-year period at 7.5% growth over a two-year period comping over that 9.4%, this is well above our 5.5-plus even if you adjust out, from an inorganic standpoint, the growth is still at about 7%. So we -- I also think it's a strong indication that we're actually consistently delivering this growth. On the strategic portfolio exits, let me give some color on that. This is a bit different. It's certainly consistent with our simplification strategies. And really, it's the strength of our underlying business and the strong growth outlook that allows us to take these strategic bold actions to create value for our customers and our shareholders. These are the kind of things that investors should want us to do, and we're very fortunate to be able to take this opportunity. It's consistent with our relentless focus on portfolio. And what we're essentially doing different from SKU rationalization, which is really simplifying the SKUs that we go to market with, that require work, investment, reregistrations, et cetera. These are pure portfolio exits. You almost need to think of them. It's a onetime kind of divestiture as we took a step back, looked at our portfolio, trying to understand where we could best create value, again, both through the lens of our customer and through the lens of our investors. So these are areas, for example, that would fit a typical divestiture growth profile. These are not accretive to growth. These are significantly dilutive to margin, in many cases, well below half our existing margin rate and the right thing to do. I'd also point to the fact that while these were dilutive to margin, they did actually benefit our earnings. And so we had absorbed that in a very strong earnings guide, right, when you think of our bottom line of 9% to 11% double digits at the midpoint on an FX-neutral basis. And that's on an all-in comping over the COVID-only lost revenue year-over-year. And so adjusting for that, we still delivered about 12% to 14% of base earnings growth. So we think this is the right thing to do for the long term. It's the right thing to do. Our underlying business, I actually think it's fair to think of that 1% impact roughly differently, almost like an inorganic adjustment because the rest of our portfolio continues to perform strong. As a matter of fact, we -- if you look at the 5.75, it's above the 5.5 midpoint. And then I'll go back to the two year, which is, again, on an organic basis, over 7%. So hopefully, that helps kind of explain that part of the guide. We feel great about our revenue and certainly feel good about the bottom line.

Thomas Polen :

Larry, as always, great to connect, and thanks for that question. So as we've mentioned on several occasions, getting Alaris back on the market is our #1 priority. We remain confident in the resources we've invested in our submission in the team and a leadership task to prioritize this in our process and we are confident that we will get clearance. What we also want to be -- continue to be prudent on Larry and thoughtful about the process with the FDA. And so therefore, that's why we're not predicting time lines given how inherently complex those submissions are -- as you said and as we've shared in the past, the relaunch of Alaris is included within our strategic plan as we provided at Investor Day, and there is no change to that. We just -- as I mentioned before, we want to not predict those time lines, but we are prepared for launch when that clearance comes so that we can best support our customers. And as you know, we did launch Alaris -- the new Alaris pump in Canada this past year, and we're getting very positive feedback from customers there. So thank you for the question.

Vijay Kumar:

One, Chris, maybe I want to start with guidance and I had one for Tom. On the guidance, what -- I guess, what are you assuming for vaccine? I think vaccines were $150 million-ish of contribution in fiscal '22. Is that zero? Is that a headwind? And Alaris emergency use, is that similar to fiscal '22? Is that below? And related to that, I think in the past, you've said active discussions with the FDA, has that changed in active discussions with the FDA relative to Alaris?

Vijay Kumar :

Understood. And Tom, sorry, can you quantify what the headwind is? And related to that, sorry, my second question here. Parata, it looks like your pro forma organic here was really strong, perhaps in the teens. Maybe talk about what's driving this strong contribution from Parata. And is that part of your revenue synergies as part as the deal?

Mike Garrison:

Hi, Vijay, thanks for the question on product. Parata, yes, we're very excited about Parata, also the MedKeeper, the Medbank acquisitions that are in the portfolio. They are just great teams with a passion for their craft. And it may be the things that are differentiating it in our approach, the extensive diligence we did prior to the acquisition, a real focus on culture in the first 30 days of working with the teams. And then we also set up an integration management office within MMS with some of our senior leaders to really guide and focus on each individual work stream across the functions to make sure that the acquisition goes well out of the gate. But I think the main thing is the value proposition is very strong and clear for Parata. It directly addresses the labor shortages and the clinical efficiencies that customers are seeking, especially right now, and as well as their long-term goals around smart, connected care, data-driven decision making, things like that. So it both addresses short-term needs and long-term needs, and that's why customers are reacting so favorably to it.

Robert Marcus :

Great. Maybe to follow up on some of the '23 guidance questions. I was wondering if you could help us with some detail maybe around what you're assuming for the COVID flu combo tests. We're off to the worst start of flu in over a decade. So what you're assuming in there or just for flu in fiscal '23? And remind us where those tests ended up on sales in fiscal '22? And also, how do we think about Parata down the P&L? It's 100 bps on the top line. Just remind us of what you're assuming on the bottom line for that.

Thomas Polen :

Robbie, this is Tom. Good to connect this morning. We've got Dave on the call down in -- with our Latin America team at their kickoff meeting. But I'll tag Dave into the conversation here in just a moment. But related to flu combo. So we are in our assumptions, we do have that moderating a bit versus this past year, where we saw a lot of demand for the flu COVID combo driven by COVID. To your point, there is a potential. We don't see it as significant of a demand driven by the COVID side of the combo test necessarily as we look going forward in '23. Certainly, there can be a greater potential for the flu side demand and differentiating between flu and COVID. I think as you said, it's off to an early start, the flu season, still to be determined the scale of it. In Australia, we saw an early start to the season, but we saw a very narrow onetime peak in that demand. And so actually, the area under the curve was less than normal. And so there was a severe very short flu season in Australia that did not end up creating significant demand and testing because it was such a short duration still to be determined how that rolls out in the U.S., and so we want to be prudent upfront. Maybe Dave, I'll turn it to you to share some more comment here.

Robert Marcus :

Great. Really helpful. And maybe a follow-up. Chris and Tom, 100 bps margin expansion is really healthy, given all the headwinds. Maybe you gave some good color on the slides, but was hoping for maybe just a little more details on how do we think about inflation and raw materials costs? Or any of those other headwinds? If you could put any frameworks around -- and then how do we think about FX on the operating margin line as a negative?

Thomas Polen :

That's great. Maybe just to add to Chris' comment, and it's a good question, Robbie. Back to -- we are facing, as all companies are, serious inflationary pressures, right, that are happening across the industry and all industries. I think just want to call out our plants. They're doing a phenomenal job. The last thing that we look to do in any situation is price. And so as you heard Chris walk through the order of priorities for us, our plants really have risen and almost doubled the level of normal continuous improvement that we've done historically, they've risen to that task and working to offset as much of that cost as possible. The other thing is the action that we talked about earlier around that strategic portfolio exit, as we're bringing in M&A, and we have strong underlying growth, taking this time to evaluate our portfolio and look at where they're nonstrategic products that are diluting our operational effectiveness in our plants that we can get better performance out of our lines, out of our staffing, out of our resource deployment, and take those actions set us up for strength in the long term. We're doing that this year, and that's helping us also have a role in offsetting those inflationary pressures at making us more efficient in our plants and helping make sure that we can deliver the products that matter most that we're focusing our resources on delivering those products that matter most for our customers that are going to be driving value for us and our shareholders long term.

Matthew Taylor :

So I had two questions. I guess the first one I wanted to ask was, I know you probably won't comment on litigation, but I was hoping you could address some of the ethylene oxide issues from two angles. One is maybe just talk about some of the things that you have done already with the regulatory agencies to work with them to mitigate risk there to improve the plans? And then any commentary you can make on litigation to get investors comfortable with that risk would be helpful.

Operator:

And we will take our next question from Josh Jennings with Cowen.

Christopher DelOrefice :

Yes. Thanks, Josh. Appreciate it. Yes. So I'll just -- I'll share some things that we've shared in the past. One, from a total sales point, we had always talked about that business being roughly $400 million is the way to think of it. From a medical necessity standpoint, we've talked about $100 million per year. That's what we had last year roughly, and we're planning sort of consistently this year. So that gives you that kind of frame as you think of the size. I will remind you when upon clearance, you would expect a gradual ramp over time. We have not shared a specific timeline that's hard to predict. But maybe just to give a little context, some folks have sort of asked like, okay, are we talking less than a year-over-year. It wouldn't be less than a year, it would ramp up over some time frame, probably over a 12-month period that should help you a little bit. But certainly well within our LRP time period. Margin, we haven't shared specifics by year. What we did share, if you go back to the deleveraging that occurred from our FY 2019, there was about an 80 basis point headwind to our margin. And it's -- that largely stays the same, and we'll adjust as the product comes back. If you think of it, we -- one, we made investments in regulatory quality, of course, we maintained our service and field organization. And so as the sales come back, you would get natural leveraging to occur as we've made those investments to continue to support our installed base and customers.

Mike Garrison:

Yes. Thanks, Tom. Even though there's a -- we recognized a tough economic environment, the uncertainty there, we're not experiencing the same degree of capital pressure that maybe have been communicated elsewhere. In fact, we finished Q4 with a record year for bookings, have a strong implementation schedule planned for, and I think there's a couple of reasons for that. One is the strategy continues to resonate with the Connected Med Management Solutions, again, addressing the labor shortages and our ability to flex and implement both with business model, but also these highly skilled service, a lot of ex-nurses, ex-IT people. These are people that our customers are increasingly seeing the value of partnering with us because we can flex to meet their needs. So both of those things, I think, are really helping, and we're getting a lot of utilization out of the infusion side of the business.

Matthew Mishan :

Just a clarification for me. I think last quarter, you said that you would expect some organic revenue growth around like 5.5-plus percent base growth, not including Parata. At that time, were the strategic electrics included in that number? Or are those new? And if they were included, does that mean that there was a little bit of softness over the last three months versus what you were thinking?

Thomas Polen :

And they're onetime in nature?

Operator:

We'll take our final question from Rick Wise with Stifel.

Thomas Polen :

Great question, Rick, and great to connect. So -- and I agree, we have a very strong CFO, by the way, as well, too. But so we do have a very strong funnel, and we continue to be very focused specifically on tuck-in M&A. No change to our strategy there, as we've articulated many times. We're going to continue to focus our M&A as we have over 95% of our M&A to date has been in those transformative solution categories, as you called out, smart, connected care, enabling the shift to new care settings and improving outcomes in chronic disease. We've also shared that expect more Parata like in size tuck-in M&As as we look forward. So it may not be -- we've done 19 in the last 2.5 years, maybe fewer deals going forward, but of larger scale and impact, given the benefits that we have and the execution that the businesses are focused on and the ones that we've done to date. I'd say that the other thing is we're going to continue our very disciplined approach to M&A. Really proud of the team, not just for the deals that we've done, but from the deals that we've walked away from. That's something we've -- we're really pleased with, the work that we've done and how our deals are executing to plan and the return that they're delivering for our shareholders in a meaningful way. And so we're going to keep that discipline as well. But we do see opportunities will continue to be paced and appropriate about it as we go forward and staying very true to advancing our strategy, continuing to move us into those higher-growth markets. And you see us being very active. One of our portfolio management, not only through M&A, but obviously, completing the spin of Inventor earlier this year and some of the very targeted onetime portfolio exits that we shared today that are basically puts and takes with the inorganic growth that we see coming this year.

Mike Garrison:

Thanks, Rick. This is Mike. Yes. So the -- my priority is the same as it was in the MMS role, is that getting Alaris back to market. It's a top priority for the company. And so it remains my top priority. Beyond that, a lot of it has to do with making sure that our innovation is productive, that dollars that we're spending in R&D get value out to customers. And because innovation that never makes it to a customer isn't productive at all. I think that constantly creating a culture where we're developing and coaching our talent to be better each day and have a continuous improvement mentality. I think that's really critical, especially in the current environment, the same way that our customers are facing labor pressures, we are, too. And so if we're the best place to work and people feel that they can belong a greater purpose that we provide, I think that's really, really important. And then finally, I think that there's just an approach to leadership that I hope that we have a performance-based culture of commitment. So whenever we make a commitment, we meet the commitment and we keep our mindset around that. So maybe a bit of a lean processes, but in an abundant mindset would be the way that I think about it. And I'm really -- last thing is Rick actually interviewed me and hired me 18 years ago. So everything I have, I owe to Rick. So thanks, Rick.

Thomas Polen :

I think, Rick, maybe just to share one of the other things is, as we said, within the quarter, we saw some backorders in BDI. One of the things that I know, Rick, just you're focusing on helping the team is bringing some of the operational excellence from having led MDS for many years, bringing some of those capabilities from the broader BD operating side into the BDI segment. And maybe just a couple of comments there because that's a big focus.

Thomas Polen :

The great benefits of obviously being able to rotate talent across diverse groups of businesses. And I think Rick's background, as everyone knows, MDS is probably the most operationally heavy business within the company, just given the billions of products we make on syringes and catheters and bringing that where the BDI businesses have been very innovation-driven and growth driven. It's a very nice complementary skill and leadership to be able to bring in those capabilities over. So great question. .

Operator:

And there are no further questions at this time. I'll turn the call back over to Tom Polen for any closing remarks.

Operator:

Thank you. And this does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day.

Francesca DeMartino:

Good morning, and welcome to BD's earnings call. I'm Francesca DeMartino, Senior Vice President and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the third quarter of fiscal 2022. We also posted an earnings presentation that provides additional details on our performance. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued execution of our BD2025 strategy. Chris will then provide a financial review and our increased revenue and EPS guidance for fiscal 2022. Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Simon Campion, President of the Medical segment; and Dave Hickey, President of the Life Sciences segment. Before we get started, I want to remind you that we will be making forward-looking statements. I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the Investor Relations website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. In addition, the results and guidance we are presenting today are on a continuing operations basis, which excludes the historical results of embecta, which are now accounted for as discontinued operations. When we refer to any given period, we're referring to the fiscal period, unless we specifically note it as a calendar period. I would also call your attention to the basis of presentation slide, which defines terms you will hear today, such as base revenues and base margins, which refer to our results, excluding estimated COVID-only testing. With that, I'm very pleased to turn it over to Tom.

Christopher DelOrefice:

Thanks, Tom. Echoing Tom's comments, our Q3 results demonstrate the strength of our business and the momentum of our strategy. Additionally, the investments we are making in inventory, transportation, portfolio simplification and innovation are also enabling our growth and our ability to deliver our critical health care offerings to our customers and their patients. We continue to deliver strong performance, while simultaneously managing the persistent macroeconomic pressures through our simplification and mitigation programs. Through this balanced approach and the effectiveness of our BD2025 strategy, we're making strong progress against both our short- and long-term commitments. So turning to our revenue performance. We delivered $4.6 billion in revenue in the third quarter, with strong base business growth of 9.3% or 8.8% organic, which excludes the impact of acquisitions. Importantly, however, we are benefiting from the organic contribution from tuck-in acquisitions we anniversaried, which was about 30 basis points this quarter. Our revenue performance continues to be supported by our durable COR portfolio and an increasing contribution from the transformative solutions we're bringing to the market through our innovation pipeline and tuck-in acquisitions. Price contributed 190 basis points to growth year-to-date. While this continues to be well below inflationary levels, it's one of many factors that is ensuring we can deliver our health care offerings to our customers. COVID-only testing revenues were $76 million, which is expected to decline from $300 million last year. Year-to-date, COVID-only testing revenues were $475 million. BD's unique ability to continue to deliver strong performance during this uncertain environment is reflected in the performance across our segments with both Medical and Interventional growing 7.9% and Life Sciences base revenues growing 13.2%. Total company base business growth was also strong regionally with double-digit growth in the U.S., Greater Asia, excluding China, and Latin America, along with high single-digit growth in Europe. Despite the COVID-driven restrictions, we grew low single digits in China. Let me now provide some further insight into each segment's performance. Our Medical segment delivered $2.2 billion in revenues in the third quarter, growing 7.9%, driven by strong performance in our Pharmaceutical Systems and Medication Delivery Solutions businesses. MDS revenues increased 6.4%, reflecting continued strong demand for our durable COR products. Performance in MDS reflects continued competitive gains in catheters and momentum in our comprehensive Vascular Access Management strategy despite the challenging environment in China during the quarter. Performance in MDS also reflects higher hospital utilization levels year-over-year in the U.S. and Europe. MMS revenues grew 3.6%. In our dispensing business, strong growth was driven by continued customer adoption of our connected medication management and pharmacy automation solutions. Worldwide performance in our infusion business was about flat with a similar level of demand in the U.S. for pumps under medical necessity compared to the prior year. Pharm Systems revenues grew 16.3%, driven by the continued acceleration of demand for prefilled devices for biologic drugs and our strong leadership position that is being supported by our ongoing capacity expansion and supply availability. BD Life Sciences revenue totaled $1.3 billion in the third quarter. The decline of 5.1% year-over-year is due to the lower COVID-only testing revenues previously discussed. Excluding COVID-only testing, Life Sciences base revenues grew 13.2% with strong growth across both IDS and Biosciences despite supply constraints and the impact from restrictions in China. IDS revenues declined 10.5%, which reflects the decline in COVID-only testing, partially offset by strong base business revenue growth of 12.8%. Performance in our IDS base business was driven by continued adoption of our broader respiratory panel as well as strong growth in IVD assays, leveraging our increased BD MAX install base. IDS base revenues were also driven by continued demand for specimen management products with strong growth in our durable COR products aided by price management. Biosciences revenues increased 14.2%, reflecting continued strong demand for reagents, driven by our antibody and dye strategy and continued adoption of our e-commerce platform. Performance in Biosciences also reflect strong instrument growth driven by recently launched products and strategic procurement of critical components that enabled us to fill orders to relieve some of the backlog from the end of Q2. BD Interventional revenues totaled $1.1 billion in the third quarter growing 7.9% with strong performance across the segment. Revenue growth of 6.4% in Surgery reflects strong worldwide performance in advanced repair and reconstruction, driven by continued strong market adoption of Phasix hernia resorbable scaffold and the revenue contribution from the Tepha acquisition. Performance also reflects double-digit growth in biosurgery. Revenues in Peripheral Intervention grew 9.1%. Strong performance reflects competitive gains driven by Venovo's return to the market and continued global penetration of Rotarex and the acquisition of Venclose expanding our focus across chronic disease settings. Partial backorder recovery also contributed to performance in the quarter, offsetting the impact on deferrable procedures from macroeconomic factors, such as labor constraints. Urology and Critical Care revenues grew 7.7%, driven by continued strong demand for our PureWick chronic female incontinence platform in the acute care and alternative care settings. Strength in acute care was also aided by some backorder recovery. Now moving to our P&L. In Q3, we delivered adjusted net income and EPS above our expectations, with adjusted net income of $786 million or 14.2% reported growth and adjusted diluted EPS of $2.66 or 16.7% reported growth. As we anticipated on a year-over-year basis, margins improved significantly. We delivered base business gross margin of 52.9%, up 180 basis points and base operating margin of 22.2%, up 450 basis points year-over-year. Base operating margin includes a favorable impact of approximately 75 basis points from an employee benefit-related item that has a related negative offset in our other income and expense line and thus is neutral to our adjusted EPS. Q3 base gross margin increased in line with our expectations. Key drivers of gross margin include our simplification and inflation mitigation initiatives, such as mix optimization and price management, along with increased volume utilization given our strong base revenue growth. These actions enabled us to offset the impact of inflation and deliver margin improvement. In addition, as expected, we had favorable FX that was recorded in inventory that benefited our GP this quarter as it flowed through sales. Q3 base operating margin reflects very strong operating expense leverage with base SG&A as a percent of sales, leveraging by about 200 basis points, excluding the employee benefit-related item, partially offset by inflationary impacts primarily in shipping. R&D of 6.2% of sales reflects our innovation investments aligned to our strategy in support of our long-term growth outlook. Our tax rate in Q3 was lower than anticipated due to the timing of certain discrete items that occurred in the quarter. Regarding our cash and capital allocation. Cash flows from operations totaled approximately $1.5 billion year-to-date. Q3 cash flow from operations reflects a higher-than-normal inventory balance by about $400 million as we continued our strategic investments in raw materials, such as electronic components as part of our actions to optimize product delivery to meet customer demand in this uncertain environment. During Q3, we paid down approximately $500 million in debt and ended the quarter with a strong cash balance of $2.6 billion and a net leverage ratio of 2.7x. In addition, we are pleased by our recent debt upgrades from both Moody's and Fitch, which reflect the strength of our business and disciplined approach on balance sheet management and capital deployment. Our current cash and leverage position and continued focus on cash flow provide us the flexibility to advance our balanced capital allocation framework in support of our BD2025 growth strategy. Turning to our fiscal '22 guidance assumptions. First, some macro considerations that support our guidance. Our guidance assumes the continued easing of COVID-19 restrictions and no significant or lasting disruptions to deferrable procedure volumes. Our guidance also assumes there are no prolonged and larger scale restrictions and countries continue to be more efficient in managing safety protocols and the containment of any new COVID variants to allow continuity of care for patients. Regarding China, specifically, we expect continued recovery from the recent restrictions over the balance of the fiscal year. Additionally, while we anticipate continued inflationary and supply chain pressure in Q4, we are not planning for significant escalation of macro headwinds. Moving to our updated guidance for fiscal '22. We have increased and narrowed both our revenue and EPS ranges. We now expect base revenues to grow 8.75% to 9.25% on an FX-neutral basis. This is an increase of 125 basis points at the midpoint from our previous guidance of 7.25% to 8.25% growth. 100 basis points of the increase is driven by strong growth and continued momentum in our base business. Additionally, with the closure of Parata, we're increasing our forecast by 25 basis points. For COVID-only testing, we now assume up to $500 million in revenue. This reflects year-to-date revenues of $475 million and minimal additional revenue in Q4 as testing demand has slowed as expected. Based on current spot rates, for illustrative purposes, currency is now estimated to be a headwind of approximately 225 basis points or about $425 million to total company revenues on a full year basis. This is an incremental impact of about 25 basis points or approximately $50 million compared to our prior guidance and is primarily driven by the strengthening of the U.S. dollar versus the euro. All in, we are increasing our total reported revenue guidance by $190 million at the midpoint to a range of $18.75 billion to $18.83 billion. We now expect base operating margins to improve by approximately 275 basis points, over 19.6% in fiscal '21. This is an increase of 25 basis points compared to our prior guidance and solely reflects the Q3 employee benefit-related item that has a corresponding negative adjustment to other income and expense and is neutral to adjusted EPS. Despite this challenging macro environment persisting, our focused execution on driving profitable revenue growth, combined with our simplified programs, gives us the confidence that we will be able to continue to offset inflationary pressures. A few additional items for your models. We now expect approximately $30 million in year-over-year improvement in interest/other compared to our prior guidance of $60 million to $75 million. This reduction reflects the offsetting impact to the Q3 employee benefit item that was recorded in G&A. Again, these items are neutral to adjusted EPS. We have narrowed our expected effective tax rate to a range of 13.5% to 14% from 13.5% to 14.5% previously. Our updated guidance still assumes share repurchases that, at minimum, offset any dilution from share-based compensation and thus does not assume a material change in shares outstanding. Altogether, we are raising our adjusted EPS guidance to a range of $11.28 to $11.35 compared to $11.15 to $11.30 previously, which reflects an increase of $0.09 at the midpoint. This reflects our strong Q3 base business revenue performance and increased outlook in Q4 and a margin profile that maintains our full year margin improvement commitments. We expect minimal impact from incremental COVID-only testing revenues as we intend to reinvest that to support our momentum into 2023. We still expect margin on COVID-only testing to be modestly above our base business margins for the full fiscal year. Additionally, while the Parata acquisition has an accretive margin profile, the income is expected to be offset by onetime deal-related costs. Regarding FX, based on current spot rates and our inventory outlook, we expect minimal incremental impact as incremental translational FX headwinds are expected to be offset by favorable FX on inventory flow through. As you think about Q4, the following are a few key considerations. Starting with base growth in Q4, we increased our organic growth and expect strong mid-single-digit growth, excluding the impact of acquisitions, above the 5.5% plus targeted growth profile we outlined at our Investor Day. This includes absorbing the impact of a difficult prior year comparison in Q4 of fiscal year '21 where the delta variant's surge drove high acuity and demand for infusion sets and products used in the care of COVID. Additionally, we delivered initial shipments of our combination flu COVID assays and benefited from the normalization of lab utilization and research activity. We also have a tough comparison to $316 million of COVID-only testing revenue in Q4 of last year as we expect minimal additional revenues this year with the decline in testing. Regarding margins, we expect sequential improvement in base gross margins and at a level near year-to-date gross margin of 53.8%. While the impact of increased inflation on our business is expected to continue, we see a larger benefit from our offsetting initiatives. Regarding base operating margins, we continue to expect significant year-over-year margin expansion in Q4. Sequentially, the improvement is driven by gross margin as well as continued strong leverage in selling and G&A and slightly lower R&D expense. For the full year, we continue to expect to invest in R&D at about 6% of sales. While it is premature to provide guidance for fiscal year '23, especially in a macro environment that remains uncertain, we recognize that offering a more proactive perspective during this time is helpful. To begin, while we expect macro challenges to persist, we are not assuming they worsen and would anticipate that as we move towards the back end of the year, there may be some modest relief from some of the current supply chain complexity. We will reassess the environment ahead of providing guidance in November. So with that caveat, on an operational basis, excluding the impact of currency, which, based on current spot rates, would be a headwind to consider for next year, we remain confident in the strong value-creating framework we outlined at our Investor Day and expect to deliver 5.5% plus base revenue growth and double-digit adjusted EPS growth. This framework continues to be supported by a strong growth profile and continued margin improvement. We expect the COVID-only testing revenues and related earnings would be at a level significantly below FY '22 and more likely at a run rate similar to the implied Q4 FY '22 or approximately $100 million for the full year. We will have a positive contribution from the full year benefit of revenue and income from Parata that will partially offset the reduced COVID testing. So importantly, despite the anticipated reduction in COVID-only testing, on an all-in basis, we would expect adjusted EPS to be right around double-digit growth, which implies very strong double-digit base adjusted EPS growth. Based on what we see, it appears current external thinking largely reflects this. We will share more details regarding FY '23 on our year-end earnings call in November. In closing, we are very pleased with our strong performance to date and the consistency of execution against our strategy that is enabling these results. This gives us confidence in our ability to continue this momentum into FY '23 and create long-term value for all of our key stakeholders. With that, let me turn it back to Tom for a few additional comments.

Operator:

[Operator Instructions]. And our first question comes from Larry Biegelsen with Wells Fargo.

Christopher DelOrefice:

Let me -- maybe why don't we first start just with a quick comment on the Alaris, which we'll do one upfront and then I can walk you through the 2023.

Christopher DelOrefice:

Yes. And so I'll build on some of the comments that we made in the opening comments. So first, as we think of 2023, we certainly know there's still a lot of uncertainty that remains in the marketplace. We actually wanted to try and get some context because we know there's questions out there. One, obviously, we have significantly strong growth profile in '22, right? Our guide would apply on an organic basis about 8.25% growth when you strip out Parata. So folks, we knew there was questions about how you're going to cycle over that growth? Can you still deliver at your 5.5% plus? In addition to that, we knew there was sort of the open question as it related to COVID testing? And how do you think of that dynamic? And what it may do in terms of your earnings profile? So I think with that as a backdrop, we wanted to just reaffirm. We're extremely confident in our 5.5% plus growth profile that we outlined. Actually, I think an interesting way to think of that is if you do kind of 2-year math, it would imply a growth rate of about 7% '22 to '23. So any way you look at that, it's a really strong base growth profile. We do see the impact of COVID-only testing dropping significantly as we said. We're planning for roughly $25 million kind of this quarter based on what we said and kind of see that more as a more normalized run rate. Obviously, if there's upside to that, it provides that embedded hedge to our portfolio that we've always talked about. So that will be a headwind that gets contemplated. With that said, you see the power of our capital allocation strategy going to work. We're pleased to announce the closing of the Parata acquisition. So that will be an offsetting element against the COVID-only revenue. That is not part of the 5.5% plus. So you think that the 5.5% plus as pure organic. We always said we're not reliant on the onetime lift from tuck-in M&A. And when we do benefit as part of that strategy is the organic lift we get as we cycle and anniversary those acquisitions. And then from an earnings profile, we're committed to the double-digit base adjusted EPS earnings growth. I think importantly though, the most important thing that we share, despite that, kind of COVID-only headwind, we think we can get right about a double-digit adjusted EPS growth profile as well on an all-in basis given the strength of the business, and we'll continue to drive margin improvement into next year. All of that, obviously, we always think and talk about guidance on an FX-neutral basis. So it doesn't contemplate the currency that we've been talking about. That will impact every company. We're not different in that regard. I can try and help give you a little bit of context, obviously, as we set the year. But one simple way to think about it is euro is the predominant currency that has changed and impacted BD certainly. If you look at the change from '21 to '22 where currently we've talked about a $425 million headwind, the percentage change in the euro from '21 to '22 is exactly the same as the current average rate we're planning in '22 to the current spot rate at 1 02, which would imply basically a similar kind of year-over-year headwind on currency. I think you're going to do some sort of margin drop-through on that. For BD, the margin tends to drop through at a lower rate given mix of business and other dynamics. With that said, I do think it's important to think of underlying as the most important metric on an FX-neutral basis, right? We're still generating that local cash. We have a very efficient cash allocation model, and we'll be able to put that cash to work. So all in all, I think with where we are with '22, it's a great year. We're on track to finish out a very strong year. And I think you can see based on what we share, we feel confident having momentum going into 2023.

Operator:

We'll take our next question from Vijay Kumar with Evercore ISI.

Christopher DelOrefice:

Yes. Thanks for the question. Yes, just to confirm, the 5.5% plus does not include Parata. Our commitment that we outlined in Investor Day, again, you always run the business on an operational basis and think of operational commitments. So both a double-digit commitment on base revenues and then what we just shared here despite the COVID only grow over, given the drop in COVID-only revenue, we're confident in right about a double-digit growth profile on an all-in basis as well, which is a great signal on the strength of our total business and the continued momentum we have as it relates to margin improvement that we've committed to as well. If you remember, we committed to about 25% through the 2025 period. We shared that last quarter. As it relates to FX, again, this is going to apply to any company. Actually, we've been absorbing currency this year, but those commitments we make are always on an FX-neutral basis. You will have to adjust for revenue, and there will be some translational drop-through on that, that would have to be contemplated as you think of the final growth rate. But we need to wait and see where FX lands. But again, that's not different from anyone, and it doesn't impact your -- it's certainly not reflective of your underlying business. And it doesn't impact the underlying cash that you've earned locally. And we have a capital deployment model that we'll continue to put that to work to continue to drive our strategy as it relates to tuck-in M&A and other things. So we're feeling really good about that growth profile. Regarding free cash flow, there's been a -- there's really 3 big dynamics. We remain extremely focused on cash. Remember, there's a few ways to look at us. One, we committed to a net leverage ratio of around 2.5x. We're right at 2.7x now. We've been executing on our M&A strategy. So you can see we're putting that at work. We paid down debt as well, consistent with what we shared as part of the embecta spin. So we continue to execute against our capital allocation strategy. In addition to that, on the strength of the business and a disciplined approach we've applied to the balance sheet and how we're navigating that, we did get 2 debt rating upgrades this past quarter. So that was great to see. There are some differences in cash flow. The biggest difference is really just the year-over-year nuances as it relates to COVID-only testing and losing the higher base on COVID-only testing. There was also we also funded the pension. You can see that in the Q. And then the third thing that we talked about as well is the one trade-off we've made intentionally is investing in inventory. And there's about a $400 million investment we're making there that I would call outsized inventory levels, driven by 3 factors. One of the most critical ones, of course, is procuring strategic components, raw materials, et cetera, to enable the strong growth profile. As you can imagine, there's still long lead times. We have a very efficient supply chain. And a lot of our product is spending time not in the plants, but rather on the water, so to speak, getting to customers. So we've made that investment. And you do have -- everyone will have inflation kind of flow-through inventory as well. So we're not different in that regard as well. That explains the free cash flow. We remain very focused on that. We're going to continue to look at inventory. But in the short term, I think it's a prudent trade-off and is an enabler to these strong results.

Vijay Kumar:

That's helpful, Tom. Congrats on the [indiscernible].

Operator:

We'll take our next question from Robbie Marcus with JPMorgan.

Christopher DelOrefice:

Yes. Thanks, Robbie. So first, as it relates to this year, the margin has played out exactly as planned. As a matter of fact, year-to-date, we're sitting at basically 80% of our full year goal, that 250 basis points where we actually increased our margin improvement more to account for, call it, an accounting dynamic and reclass of line related to employee benefits. But we remain well on track. We did explain at this quarter as it relates to GP specifically, would be the low watermark as you think of timing dynamics, in particular, the outsized inflation that started at the beginning of the year, how that rolls through inventory. And then from the time we started the year, things have only gotten a lot more complex. Inflation increased and supply chain complexity increased, which also increased things such as transportation, et cetera. So as we've come into the year, just to maybe give you a little bit of context on margin, there's probably been about 100 basis points of -- to our P&L as it relates to outsized inflation above what we contemplated coming into the year given the additional complexity. It's about a 50% increase from what we originally planned. Despite all that, we're still holding our margin commitment for the year, which is really strong. As you think of the components this year, and I share that because it will play into next year as well, our volume leverage we talked about coming into the year was supposed to be about 100 basis points. Given the strong revenue growth profile, we've done stronger there. That's been part of navigating the outsized inflation on the other end that I just articulated. And then really beyond that, it's been cost improvement programs that we've dug into and enhanced. We've also been delivering our portfolio actions. There's multiple components to that one. Given the strong growth profile, right, we've been able to be more aggressive with navigating portfolio mix and simplifying our portfolio. We have price management as part of that, that we're fully executing against, which is a very strong. And then the third component to navigate this year has really been, again, on the strong growth profile, the leverage we're experiencing in operating margin and selling and G&A. So as you think of '23, it's going to be all those same levers. You don't navigate this complexity doing just one thing. We certainly -- with another strong growth profile, we'd expect leverage in terms of volume flowing through our plants. We'll continue to drive a strong CIP agenda. We'll start to get more benefit from the SKU rationalization program as part of Project RECODE we talked about. You'll start getting early benefit from some of the architecture simplification work we also talked about. And you'll certainly continue to get more leverage on the operating margin with the strong growth profile on sales and G&A. In addition to that, we've always talked about kind of the simplification principle beyond just supply chain. And we're looking to also drive simplification through all of our functions. So that will also help. So we continue to build an inventory of things that we're doing that give us confidence as we move into '23. And then, again, maybe just a reminder for everyone, our goal is to get to about 25% by 2025. It implies roughly 100 basis points per year after 2022. And if you think of that, kind of normally, you would probably just do that on a ratable basis. I think you can anticipate 2023 under-indexing that 100 basis points given you're going to have the rollover of this outsized inflation. And then on the back end, towards '25, you'll get more of the full benefits from Project RECODE. And we also talked about the leverage you get from Alaris coming back. So those things will give you a slight lift in, call it, '24, '25. And '23 will probably slightly under-indexed versus kind of that 100 basis points equally, but it will still improve year-over-year.

Thomas Polen:

I'll take that, Robbie. So just as we think about inflation, and Chris hit a lot of the things that we do to offset that pricing just being one and the last thing that we look at. We put an inflation task force in well over a year ago, recognizing what we saw was going to be inflation this year, and we expect to continue to be inflation in '23. And so just to make that clear, we've done a ton looking at and taking action around improving our own internal continuous improvement within our plants, restructuring our organization, getting costs out within that, looking at our supply chain and how we get costs out there and taking action, and we're seeing those things come through. It's helping our margin. And we are -- as part of that, where we can offset those internally, we do pass on pricing. We do expect to continue to drive very large significant actions within BD to offset inflation as we look ahead. But we'll continue also where we can't fully offset that to continue to pass that through in price. And we do that in all markets around the world and across all business areas.

Travis Steed:

Great quarter. I did want to put a finer point on '23 [indiscernible] margin around [indiscernible]...

Travis Steed:

All right. Can you hear me now? Is that better?

Travis Steed:

Okay. Sure. Sorry about that. So just put a finer point on some of the FY '23 comments. I was getting around $12 in earnings for FY '23, just to make sure that's the right ballpark. And on the 100 basis points inflation versus prior expectations, talk a little bit about what's changed there. And to think through like the total inflation impact you're absorbing this year, is that closer to 150 to 200 basis points, $400 million to $500 million? Just trying to think about if there is some relief what the opportunity could be on that front.

Christopher DelOrefice:

Yes. I think as it relates to kind of sharing any specifics on a number, we wouldn't do that for sure. I think we laid out the framework that's pretty clear. We did say that we, of course, look and are aware of kind of external thinking and the time coming into this print, it seemed reasonable knowing that folks would not have contemplated the carryover on currency. Anyway, that's -- I don't think there's much more to add there. I would just go back to, again, the commitment on the 5.5% plus growth profile, double-digit adjusted EPS growth on the base and even having confidence of right around double-digit growth, adjusting for the drop-down of the COVID-only testing.

Christopher DelOrefice:

Just one other frame for everyone because I know you're all navigating. Things have changed a lot from the start of the year to where we are. And when you think of that through the lens of BD, there's really been 2 key things that have changed, one kind of a macro factor, right? When we started our initial guide and talked about what the year would be like we were contemplating pretty significant outsized inflation. As the year progressed, whether it be the conflict in Ukraine and Russia, the COVID China shutdown, the complexity only grew. Inflation grew, as I noted earlier on the call. And the supply chain complexity increased. So again, about a 50% increase on what we originally contemplated about a 100 basis point headwind. Then when you think of what's happened from BD. Our initial guide, when you kind of restate everything for embecta, we were at 6%. We're sitting here at 9% at the midpoint, right? That's 300 basis points or about $0.5 billion. So with more complexity, we've actually strengthened our growth profile and overcome all of those headwinds. And then I know there's a lot of puts and takes quarter-to-quarter. Obviously, there was also on the revenue side. Outsized COVID testing, we benefited from. That took our number up $300 million. But when you look at the EPS drop-through, it was north of $0.60 from the beginning of the year, inclusive of absorbing FX headwinds. And when you look at that then and think of what we've done from a margin standpoint, we've delivered exactly what we can actually slightly above our commitment. So we absorbed $100 million -- 100 basis points of headwind on the cost side, delivered outside performance as we've headed through the year on top line and fully held our margin commitment both on the base and EPS. So I know there's lots of puts and takes as you go through the quarter. Even tax as an example, when you restate our guide for the initial tax, it would have been 13% to 14% ex embecta. We're now 13.5% to 14%. So we know we had some onetime timing items in this quarter, but we're actually absorbing tax pressure as well in those numbers. So you'll have a Q4 true-up, of course, given the timing here. But we're not even benefiting there as you think of kind of updating. So it's been a very strong year. We're really proud of what everyone has done, our 75,000 employees navigating the complexity during this time and feel good about the momentum we have going into next year.

Thomas Polen:

And just to clarify, great question. We're expecting China, and I think this is really impressive and reflects on the strength of our China team, to still deliver right around double-digit growth this year despite the Shanghai shutdown. And even despite the Shanghai shutdown, we delivered -- we still delivered growth this quarter in China, which I think is an exceptional achievement of our team there. And to reflect on how dynamic of a year there's been for them to still be on track to deliver right around double-digit growth for this full year, again, really reflects a lot of great planning and execution on behalf of our China team. Why don't I turn it to Simon and Dave to make some colors on utilization kind of on the procedure side and then what we're seeing in the lab side. So we'll start with Simon.

Thomas Polen:

Great, Simon.

Thomas Polen:

Great. And maybe just to give just a couple of other statistics that we look at, at a macro level and utilization. As we think about Q3 and what we saw versus last year in the U.S. acute care sector, the average trend we saw over -- was about 100% of pre-COVID levels in Q3. That was up just a little bit versus Q2, where we were at -- we saw 98% to 99% of pre-COVID level, so it went up a tick in Q3. In the non-acute sector, we saw Q3 rates in the non-acute sector, we're slightly over 100% versus pre-COVID, which was also similar to what we saw in the prior quarter of Q2. And then as mentioned, we do see sequential improvements continue to occur as we look ahead. We do see in certain areas impacts of labor shortages certainly impacting certain procedures. I think the procedures that tend to be in BDI business are less impacted by them. It can be more acute in nature, let's say, putting in a fistula for someone to get dialysis that really becomes a prioritized procedure or getting your vasculature open to prevent an amputation of your leg as another example where that's a priority procedure. And at the same time as well, David mentioned a lot of fantastic automation solutions in the Life Science sector, but we have the same in BD Medical. And I think a great example of that is the Parata Solution. And if anything, that's become more attractive since we've acquired that. That is the answer to pharmacy labor shortages, and, it is the answer to higher labor costs. It automates routine tasks that can be done by robots and software. And we're seeing really strong demand on that herein as its early days in our hands. So we're really excited to have that as part of BD.

Frederick Wise:

It's hard to not ask a question about your capital priority thinking updated thoughts from two perspectives, both on the M&A side and the portfolio side. I mean Chris and his team are clearly doing a brilliant job in, I think, driving even more financial flexibility for you to make decisions. And I'm sort of curious, do you feel bolder about thinking about portfolio addition and subtraction generally now given that financial flexibility? And maybe talk about your thoughts, do you feel like, given the current environment and the market and valuations, are there more opportunities? Could we see your tuck-in strategy accelerate here?

Operator:

There are no further questions. We'll now turn the floor back over to Tom Polen for closing remarks.

Operator:

Thank you. And this does conclude today's audio webcast. Please disconnect your line at this time, and have a wonderful day.

Francesca DeMartino:

Good morning, and welcome to BD's earnings call. I'm Francesca DeMartino, Senior Vice President and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the second quarter of fiscal 2022. We also posted an earnings presentation that provides additional details on our performance. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued execution of our BD2025 strategy. Chris will then provide a financial review and our updated outlook for fiscal 2022. The Q2 results, we'll be discussing today include the results of our former diabetes care business as a spin-off of embecta, that was completed on April 01, subsequent to quarter end. On April 14, an 8-K was filed to provide re-casted historical financial information reflecting the results of operations of our former diabetes care business as discontinued operations for the 2019, 2022 and 2021 fiscal years and the first quarter of fiscal 2022. On today's call, we'll give an updated outlook for fiscal '22 for both legacy BD, which includes our former diabetes care business and BD RemainCo. We anticipate recasted financial information for the second quarter of FY '22 will be available by the end of May. In the meantime, to assist you with FY '22 RemainCo models, we're providing estimated impacts of excluding our former diabetes care business from our Q2 results. We don’t expect the Q2 recated financial information to differ material from the estimated impact nor affect the updated outlook for FY '22 that we're providing today. We also do not plan to comment on diabetes care after this quarter. In addition to our prepared remarks, you can find this information on our earnings presentation that is posted on our IR website. Following the prepared remarks, Tom and Chris will be joined for Q&A session by our segment presidents, Alberto Mas, President of the Medical segment; Simon Campion, President of the Interventional segment; and Dave Hickey, President of the Life Sciences segment. Before we get started, I want to remind you that we will be making forward-looking statements today. I encourage you to read the disclaimers in earnings presentation slides and the disclosures in our SEC filings, which are both available on the Investor Relations website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. When we refer to any given period, we are referring to the fiscal period unless we specifically note it as a calendar period. I would also call your attention to the basis of presentation slide, which defines term you'll hear today, such as base revenues and base margins, which refer to our results excluding estimated COVID-only testing. With that, I am very pleased to turn it over to Tom.

Christopher DelOrefice:

Thanks Tom. So echoing Tom's comments, our Q2 results demonstrate the strength of our business and the momentum of our strategy. Additionally, we remain committed to supporting our customers and their patients and have made investments in many areas, including inventory, transportation, portfolio, simplification, and innovation, so that we can continue to do our best to ensure continuity of delivering critical healthcare offerings. We are delivering strong performance while simultaneously managing the increasing macroeconomic pressures through our simplification and mitigation programs. This balanced approach is helping us make strong progress against both our short and longer term commitments. Turning to our revenue performance, we delivered $5 billion in revenue in the second quarter, comprised of $4.8 billion in base business revenues, which had strong growth of 10.2% or 9.6% organic, which excludes the impact of acquisitions. Our revenue performance is supported by our durable core portfolio and an increasing contribution from the transformative solutions, we are bringing to the market through our innovation pipeline and tuck-in acquisitions. Price contributed 180 basis points to growth in Q2. While this is well below inflationary levels, it is one of many factors that is enabling our investments to ensure we can continue to deliver our healthcare all offerings to our customers. COVID only testing revenues were $214 million, which is expected to decline from $474 million last year. BD's unique ability to continue to deliver strong performance during these uncertain times is reflected in the performance across our segments with medical growing 6.4%, life sciences base revenues growing 17.1% and interventional growing 11.2%. Total company base business growth was also strong regionally with double-digit growth in the US and Europe, along with mid-single digit growth in Latin America, which helped to offset lower the normal mid-single digit growth in China, which was impacted by restrictions implemented to mitigate the spread of COVID late in the quarter. Let me now provide some further insight into each segment's performance. Our medical segment delivered $2.4 billion in revenues in the second quarter growing 6.4%. Strong performance across our pharmaceutical systems, medication management solutions and medication delivery solutions businesses was partially offset by an expected decline in diabetes care. Excluding diabetes care, BD medical revenues grew 7.5%. MDS revenues increased 5.3%, reflecting continued strong demand for our durable core products. Performance in MDS reflects execution of our comprehensive vascular access management strategy, including early momentum of our one stick hospital stay, which is driving competitive gains in catheters and vascular care devices, particularly in the US. Performance also reflects a tough comparison due to a decline in syringe utilization for vaccinations. MMS revenues grew 7.8%. In our dispensing business, high single digit revenue growth was driven by continued strong worldwide demand for connected medication management solutions in both acute and non-acute care settings. Within our infusion business, revenue growth reflects strong performance in infusion sets driven by increased pump placements outside the US during the course of the COVID pandemic. Farm systems' revenue grew 12.2% driven by continued strong demand for prefill devices supported by our differentiated and expanding supply capacity. Demand for these devices continues to be aided by the fast-paced vial to pre-filled device conversion for biologics, vaccines and other injectable drugs. Growth was also aided by the expansion of services provided to small and mid-sized pharma customers through the recent acquisition of ZebraSci. BD Life Sciences revenue totaled $1.5 billion in the second quarter. The decline of 4.2% year-over-year is solely due to the lower COVID-only testing revenues previously discussed. Excluding COVID-only testing, Life Sciences base revenues grew 17.1%. IDS revenues declined 6.8%, which reflects the decline in COVID-only testing partially offset by strong base business revenue growth of 21.8%. Performance in our IDS base business includes sales of our new combination flu COVID assays for BD Veritor and BD MAX that were ahead of our expectations and also reflects the soft comparison to the prior year where the flu season was limited. Demand for our combination assays was driven by strong adoption of a broader respiratory panel in timing of dealer stocking. IDS-base revenues were also driven by strong demand for specimen management products and strong performance in our molecular diagnostics portfolio, driven by growth in both BD Core and BD MAX reagents with increased utilization across our larger install base. Biosciences revenues increased 5.6% driven by continued strong demand for research reagents as a result of lab utilization, having returned to more normal pre-COVID levels and increasing adoption of our e-commerce platform. Instrument production in the quarter was limited by supply challenges for electronic components and as a result, we ended the quarter with a record backlog. We expect to fulfil those orders over the balance of the year. BD interventional revenues totalled $1.1 billion in the second quarter, growing 11.2%. This reflects strong performance across the segment with double-digit growth in the US and China. Our strong global performance is driving our ability to offset the impact of planned product line discontinuations, particularly in PI and UCC of lower margin and nonstrategic products as part of our portfolio simplification strategy. The segment's result also reflect the easier prior year comparison resulting from the Delta variant. Revenues in surgery grew 17.5%. Again, as a reminder, Q2 reflects a soft comparison to the prior year when revenues declined 7.7%. Excluding the soft comparison, revenues grew in the high single digits driven by hernia, biosurgery and infection prevention including the recent acquisitions of Tepha and Tissuemed. Revenues in peripheral intervention grew 8.5%. Performance was driven by double-digit growth in the US with strength across our peripheral vascular disease, end stage kidney disease and oncology platforms. We continue to expand our peripheral vascular innovations and are driving strong growth through share gains from our recent acquisition of Straub and Venclose. Urology and critical care revenues grew 8.8% driven by continued strong demand for our PureWick chronic female incontinence platform in both acute and non-acute cares settings as we continue to expand our addressable market and deliver transformative solutions for alternate care settings. Also contributing to growth was continued back order recovery in acute urology and continued solid performance in targeted temperature management with our smart, connected care enabled Arctic Sun platform. Now moving to our P&L. In Q2, we delivered adjusted net income and EPS above our expectations with adjusted net income of $937 million and adjusted diluted EPS of $3.18. We delivered base gross margin of 55.2% and base operating margin of 24% in Q2. Key drivers of gross margin include a benefit from our strategic portfolio initiatives, including mixed optimization and increased volume utilization given our strong base revenue growth. And while inflation was broadly in line with our expectations, we did realize an escalating impact during the quarter that was largely offset by our simplification and inflation mitigation initiatives. In addition, as expected, we had favorable FX that was recorded in inventory in 2021 that benefited our GP this quarter as a blow-through sales. We leveraged our base SSG&A as a percent of sales by over 200 basis points, driven by our focus on leveraging our base G&A expenses partially offset by inflationary impacts primarily in customer shipping. R&D of 6.4% of sales reflects some accelerated phasing of investments and planned increases year over year, consistent with our strategy to support our long-term growth outlook. Our tax rating Q2 was higher than anticipated due to the geographic mix of sales. Regarding our cash and capital allocation, cash flows from operations totaled approximately $1.1 billion year to date. Q2 cash flow from operations reflects a higher than normal inventory balance as we may strategic investments to increase stocking of raw materials, such as electronic components, as part of our actions to optimize product delivery to meet customer demand in this uncertain environment. We ended Q2 with a strong cash balance of $3.1 billion and a net leverage ratio of 2.8 times. Our cash balance includes the receipt of a cash distribution from embecta at the end of Q2. In accordance with the tax free nature of the spin and consistent with our capital allocation priorities, including our net leverage goals, we intend to utilize $1 billion of the embecta distribution over the coming quarters for debt pay-down. The remaining $400 million of the distribution provides additional flexibility and will likely be deployed early in fiscal '23 with a bias towards share purchases, subject to market conditions and other strategic considerations. With the spin of embecta now complete, we've achieved our targeted dividend payout ratio of about 30% as we've maintained our dividend. Our current cash and leverage position and continued focus on strong cash flows, provide us the flexibility to advance our balanced capital allocation framework and support our BD 2025 growth strategy through investments in R&D, capital and M&A. As Francesca mentioned to assist you with your FY '22 models, we provided our best estimates of the impact of the spin on certain line items for Q2 in today's slide presentation. We estimate a $260 million impact to revenue, a 100 basis points to adjusted gross margin and 160 basis points to adjusted operating margin and $0.45 to adjusted EPS. Turning to our fiscal '22 guidance assumptions; first, some macro considerations that support our guidance; while we still expect some global COVID-driven variability, our guidance assumes that continued easing of COVID 19 restrictions and no significant or lasting disruptions to deferrable procedure volumes. Regarding China specifically, we expect to mitigate the impact from the current lockdowns over the balance of the fiscal year as we are assuming the restrictions will ease in May with recovery ramping up through fiscal Q3. In addition, our guidance assumes that the core congestion does begin to ease and will not have a lasting impact on our China business and other markets. While there could be additional lockdowns in China and other markets, our guidance assumes countries continue to be more efficient in managing safety protocols and the containment of new COVID variants to allow continuity of care for patients. Additionally, we anticipate continued inflationary and supply chain pressure over the balance of the year and into next fiscal year, but we are not planning for significant escalation of macro headwinds. While these pressures are meaningful, we believe we are on track with our margin recovery initiatives and will continue to proactively manage this. We expect to be able to largely offset these incremental inflationary impacts, given our strong performance in Q2, an increased focus in the back half of our fiscal year to execute our company-wide mitigation initiatives. As our first half results include diabetes care, we are providing guidance today on a legacy BD basis that includes diabetes care. So you have a like-for-like comparison versus our February guidance. Then we are also providing remain guidance for the full fiscal year, which excludes diabetes care in all four quarters, along with the spin impact for each guidance metric. This is also laid out on the FY '22 guidance summary slide in the guidance section in our RemainCo earnings presentation. As a reminder, going forward, our first half diabetes care results will be reflected as discontinued operations, and we will only be discussing RemainCo performance. Now moving to our updated guidance for are fiscal '22. We are well positioned for strong growth across our three segments, given our performance and momentum in our base business and thus on a legacy BD basis, before adjusting for the diabetes care spin, we are increasing our base revenue guidance. We now expect legacy BD base news to grow 6.75% to 7.75% on an FX neutral basis from $18.3 billion in fiscal '21. This is an increase of a 100 basis points from our previous guidance of 5.75% to 6.75% growth. On a RemainCo basis, we expect base revenues to grow 7.25% to 8.25% on an FX neutral basis. This is an acceleration of approximately 50 basis points over BD legacy growth as our diabetes care business was a negative contributor to growth rates. The spin impact also includes a small contribution of revenues BD will earn in connection with agreements with embecta. For COVID-only testing, we continue to assume approximately $450 million in revenue. As expected, testing demand has slowed and our full-year COVID-only revenue expectations are waited to the first half of the year. Based on current spot rates for illustrative purposes, currency is now estimated to be a headwind of approximately 200 basis points or about $400 million to total company revenues on both a BD Legacy and RemainCo basis on a full year basis. This is an incremental impact of 75 basis points or $150 million compared to our prior guidance and is driven by of the strengthening of the US dollar. So all in, we are increasing our legacy BD total reported revenue guidance by $50 million to a range of $19.6 billion to $19.8 billion. On a RemainCo basis, we expect total revenues of $18.5 billion to $18.7 billion. On a Legacy BD basis, we still expect base operating margins to improve by approximately 200 basis points over 21.7% in fiscal '21. Despite a more challenging macro environment anticipated over the back half of the year, our focused execution on driving profitable revenue growth, combined with our simplified programs, gives us the competence that we will be able to offset the incremental inflationary pressures. On a RemainCo basis, the embecta spin enhances our anticipated base margin expansion by approximately 50 basis points. And as a result, we expect base operating margins to improve by approximately 250 basis points in comparison to 19.6% in FY '21 as recasted. We also still expect operating margin on COVID-only testing to be modestly above our base business margins. A few additional items for your models; on a RemainCo basis, we expect $60 million to $75 million in year-over-year improvement in interest other which reflects a minimal benefit from the use of embecta proceeds compared to our legacy BD expectation of $50 million to $75 million. On a Legacy BD basis, we now expect an effective tax rate of 13% to 14% for the full year compared to 12.5% to 13.5% previously due to geographic mix as reflected in our revised guidance. For RemainCo, we anticipate an effective tax rate of 13.5% to 14.5%, which reflects the tax rate, excluding our diabetes care business. Our updated guidance still assume share purchases that at a minimum offset, any dilution from share-based compensation and thus does not assume material change in shares outstanding. All in on a Legacy BD basis, we expect adjusted EPS to be between $12.85 and $13 compared to $12.80 to $13 previously, which reflects an increase of $0.025 at the midpoint. The core drivers of the increase include $0.125 [ph] driven by the momentum and strength in our base business with the series of strategic mitigation actions we discussed earlier expected the largely offset increased inflationary pressures and a $0.05 headwind from a higher effective tax rate. So operationally, this is an increase of $0.750. We expect an estimated incremental negative impact from currency of about $0.05 resulting in a $0.025 increase to our adjusted reported earnings guidance at the midpoint. On a RemainCo basis, we anticipate adjusted EPS of $11.15 to $11.30 cents. This reflects an adjustment from the embecta spin of about a $1.70. This accounts for a half year of TSA income of about $35 million that will be realized in the second half of the fiscal year and recorded in other operating income on an adjusted basis and it includes the contribution from supply agreements, with embecta and the benefit from financing, which are both expected to be minimal. As you think about the TSA income next year for your models, it would not be accurate to double the half year of TSA income as the services provided and income received will decline over time. As a reminder, BD shareholders received embecta shares upon completion of the spin. As you think of the commitments we made during our Investor Day on a BD RemainCo basis, our long-term targeted growth profile has been enhanced and increases our confidence in our ability to deliver our 5.5% plus base revenue growth target. Additionally, we are now targeting more than 400 basis points of base operating margin expansion through fiscal year '25 against the re-casted fiscal year '21 margin. And notably, based on what we know today, all things being equal, we think BD RemainCo can deliver the absolute pre-pandemic operating margin level of legacy BD, which was about 25% by the end of that same time period. As we previously shared, this will lend itself nicely to double-digit EPS growth and a strong value proposition. As you think about phasing for the balance of the year, the following are a few key considerations as you think of your RemainCo base revenue and earnings. We continue to expect base revenue growth to be fairly rateable in the back half of the year. Regarding our margins and P&L, first on a year-over-year basis for Q3, we expect significant improvement in base operating margin compared the re-casted 17.7% in the prior year. Additionally, we expect the Q3 year-over-year improvement to be larger than what we delivered in Q2. Sequentially from Q2 to Q3, we expect a modest step down due to a stronger Q2, primarily driven by product mix most notably our flu COVID combo test and increased inflationary pressures in the second half. As a result, Q3 is now projected to be the low watermark for the year. In Q4, we expect the impact of increased inflation on our business to continue. However, we see a larger benefit from our offsetting initiatives flowing through. In addition, we continue to see our SSG&A and RD dollars relatively evenly spread over the remainder of the year, which will drive strong operating leverage on Q4's higher revenue dollars. At the midpoint of our full year guidance range, our average tax rate for the balance of the year is about 14.5%, which is best to apply for the subsequent quarters. So in summary, we are advancing our BD 2025 strategic objectives. Our underlying business is strong as evidenced by our strong base revenue and earnings performance. We remain focused on execution and our confident in delivering against our performance goals, despite navigating a complex macro environment as evidenced by our updated guidance, which increases the midpoint of both our reported revenue and adjusted EPS. Further, we are well positioned to deliver consistent and sustainable value with our long-term commitments enhancing with the completion of the spin. I'll now turn the call back to the operator to open the line for Q&A.

Vijay Kumar:

Hey guys. Congrats in a good print here and thanks for taking my question. My first one maybe on the updated guidance here. We did close to 9% organic for first half and I'm looking at the legacy BD [rate] (ph). The midpoint of 7.25%, which implies mid-single 5.5-ish for the back half. I just want to make sure this is a comp issue or is there any timing impact first half versus the second half? Any change in first half or second half organic cadence on an underlying basis?

Vijay Kumar:

Yeah. That was helpful for us. And maybe one on the longer-term LRP guidance that you laid out at the Analyst Day. Appreciate all the details in the earning deck and making comparison easier. The longer term 5.5 on top $400 plus and margins in double-ish earnings. Are there any cadence issues when we think Chris for fiscal '23, and I'm not asking for a specific '23 guidance, I know it's early for that, but just thinking about any moving pieces here, I think FX, COVID diagnostic testing drop off, comes to my mind. So when you think about the base of $11.15 to $11.30 in fiscal '22, should we still expect that LRP to be intact for fiscal '23 over the base?

Vijay Kumar:

That's helpful, Chris. And thanks for taking my questions.

Travis Steed:

Hi, thanks for taking the question and congrats on a great quarter. Chris, I'd just love to get a little bit more color on some of the operating margin bridge. I see you have 19.6% as the base for FY '21, 250 basis points on top of that gets you to kind of the low 22% range. When I'm thinking about '23, it sounds like you're comfortable somewhere around 50 basis points to 75 basis points of operating margin expansion in '23. Just love to see if that's how we should be thinking about it, which gets me to like a low $12 range for earning next year. If you have any early comments to that.

Travis Steed:

Yeah, it does. Thank you for that. I appreciate the extra color. And then when we look at some of the incremental inflation impacts that that you're offsetting pretty much essentially all the way offsetting, love to get a little bit more color on some of the pressures that you've seen and also when you think about pricing, it was 1.1% last quarter, 1.8% this quarter. Is that how we should be thinking about it going forward, kind of the high 1% to 2% range, into '23 as well?

Christopher DelOrefice:

I think the only build is just to reinforce I think the strong underlying growth profile is really creating opportunities to drive some of that simplification. For example, the strategic skew rationalization efforts, right? We're absorbing that within our growth rate. It unlocks value in the form of margin, drives enhanced mix, new product innovation launches is a way that will more look to create value in the marketplace and get value back for that versus thinking of things just as price. It's really a bigger picture though. The price is actually extremely modest relative to the level of inflation but thanks.

Operator:

We will take our next question from Robbie Marcus with JPMorgan. Your line is open.

Tom Polen:

I would just say, maybe I'll make a comment, Robbie, this is Tom good morning. On the inventory situation, that's a very strategic investment that we're making to increase inventory on what I would describe a scarce raw materials. So think about raw materials like semiconductors and chips or other components that are difficult to get. You can see companies across the industry running into challenges on those. We have a very systematic approach to secure those assets and we'll take the higher impact in our inventory to be able to best serve our customers. And that's a commitment that we make. I don't think that -- we'll end up taking that down as situations stabilize over time. So we don't see that as a long term, we've been very, very focused on our cash flow as, you know, moving that from 75% free cash flow conversion to 90% as an ongoing 90% plus as an ongoing target. We're not changing that at all. And we continue to have a very strong focus on inventory. We just see this as a transient and strategic investment that's paying off for us and it's paying off for our customers.

Robbie Marcus:

Great. And maybe just sneak in two very quick questions here, one what was the size of the combo flu COVID 19 testing revenues in quarter, and should we assume going forward that there's no revenue from the cannula agreement with embecta, or was this more just a timing issue? Thanks.

Tom Polen:

Maybe just we could turn it over to Dave's answer, not just the, the COVID combo test question, but maybe just give some overall color and what was a, a strong momentum in life sciences across both IDs and, and significant demand we're seeing in BDB as well. So, Dave?

Christopher DelOrefice:

Thanks David and Robbie, maybe just a couple other small things to just give you a little color in terms of what would've comprised the, the revenue there, obviously there was almost no flu season last year, so you kind of got back to flu season. Additionally obviously the combo has a slightly higher value proposition. You benefited from that. Additionally there was a little bit of stocking giving. It was, it was new and you did have a lot of testing demand in that period where it was hard to get access to tests. So those were sort of the factors that, that played into where we were. But again, adjusting for that really strong underlying, especially in the back of still having back water in, in certain areas, both in life sciences and total.

Christopher DelOrefice:

Yeah. And Rob, we just one just on strategy piece, just one more piece, there would be, we're very committed to just looking at what, what are the unmet needs for, our patients around the world on a go forward basis. So we, we are committed to, developing more combo tests and we talk to the analyst day around the potential for an at home combo test, using the, the platform that we acquired in, in December. So the innovation piece of the strategy still continues and, and obviously as timelines firm up on that, we'll commune as it gets better though.

Lawrence Biegelsen:

Good morning guys. Thanks for taking the question and congrats on nice quarter here. Tom, on Alaris any update on the timing is it is fiscal 2023, reasonable assumption for, for when that's back in the us and at the investor last year, you talked about a new pump launching outside the us in fiscal 2022, I believe. Sorry if I'm wrong on the date. I can't remember if it was '22 or three, but any update on that? Thank you.

Lawrence Biegelsen:

And then thank you. Thank you for that just quickly, the supply constraint in Biosciences. Can you quantify that and, were there other supply constraints that hurt you this quarter? Thanks for taking the questions.

Christopher DelOrefice:

Larry, thanks for the question. So we, we've got, I mean, when you look at the backlog overall, we, we've not quantified it in terms of, the absolute number of instruments. This is, this is an instrument topic for us. It primarily sort of relates to the clinical side of the business. But as Chris had said in his in remarks, we anticipate with the supply with some of the supply securements that we've done the procurement leverage that we've been able to get. We expect this to clear up over the course of the year. So it just becomes a timing topic for us in the year. And the team is very confident about that. What we are doing to sort of mitigate any short term is we're obviously working on an allocation strategy. the research instrument base is, is still very strong. So we're prioritizing what we have to get everything out. And then we're just driving hard and aggressive on procurements Of those chips and those electronic components. We have a lot of the instruments sort of ready, built, ready to go. So as those things come in, we'll just execute and chip in the back half of the year.

Rick Wise:

Hi Tom. Hi, Chris. Let's start off perhaps with BD interventional, we haven't had a chance to dive into that strong quarter. Clearly comps helped a couple things. Maybe you could comment on and, and more expansively. I was a little surprised by that China double digits help us understand, what's happening there and how sustainable that performance is. And curious in general, are you all seeing the electric procedure volume recovery continue into April and maybe last on interventional help us think about the key drivers beyond recovery, beyond comps as we look at not just the next quarter, but the next sort of year ahead. Is, is it product, is it execution? Is it pipeline, help us think through the, the drivers there? Thank you.

Simon Campion:

Good morning, Rick. Listen, fir firstly again, just reflection on the quarter really solid quarter across all, all three of our business units and, and, the soft compare in, in some areas certainly helped helped us, but I'm still, very proud of the team for executing across are broad and complex and clinically relevant portfolio. And then you might recall from, from analyst day all the plans that we had and please to say that all, all those, you know programs that we that we shared with the broad community at analyst day, that they, they are all on track now specifically about perform in, in the quarter in China, in particular the peripheral inter intervention business is extremely strong in China. And you, you you'll have heard us say in the past that BDI in China has doubled in, in revenue since since bar was acquired by BDI. And that has been led by, by peripheral intervention and the oncology business in particular. We, we had some background challenges with Encore probes over the past several months, and that's, that's begun to alleviate, we had a, a backlog in, in sterilization and that's begun to alleviate and that has certainly helped drive our business forward. But even in, in ESKD and [indiscernible] in China they, they performed a extra ordinary well in the last quarter as they do as they do very, very frequently and that performance NPI was also reflected in surgery. And, and to a lesser extent in, in UCC as well now, moving forward our, our outlook for the future, as, as we're, we're focused on, on innovation and trying to out execute the competition. And, I've heard Tom mention in his, in his prepared remarks about the relaunch of the, of Ben Novo. So we've just brought that back into the market in the last in the last two weeks. And, and that's supported by the three year vernacular data which, which I think is unparalleled data in the in the Venus space. We're super pleased with the response from our sales team and our customers to the relaunch of that product. And that will certainly be a driver this year and next year, particularly when we couple that with the with the expected clearance anticipated clearance of the thrombectomy catheter which we hope to receive this quarter or, or next quarter. And that will put us in a very, very strong position in the venous space the track biopsy device, the Tom refer to as well, that's, that's due for launch imminently. And then in our UCC business the puric platform continues to, to, I would say, exceed our expectations and in late Q3, early Q4 we do expect to launch the mail version of puric, which we hold will be a, a driver of growth. And then finally a comment on our, our acquisitions NAFA acquisition has really performed very, very well. The tissue made acquisition, which was a acquisition for the China biosurgery market that we hope to bring to other geographies, but the Chinese team again, has executed on that. And then and then van close as well has performed very, very well in in the PI space. And just referring back to TIFA and, and the plans that we shared with you about our, our, our anticipated expansion to the breast space over the next several, several years now, we do expect to begin enrolling patients in a pilot study here in Q4 in one of the categories that we're investigating for breast. So a lot of, a lot of momentum behind the PDI team across all businesses and in the usual ways innovation in organic M&A and executing the field.

Tom Polen:

Sure. Yeah. Thank you for the question, Rick, and, and I'll, I'll start off and then I'll turn it to Chris. So, as we had described that at, at analyst day, we've really rethought how we view our portfolio and our approach to growth. And we, are looking at how we invest in our, in our large essential to healthcare durable core portfolio and fast growing transformative solutions. And those three areas that you mentioned, smart, connected care, new care settings, chronic disease outcomes. And we're, we're really pleased with the performance of both. Hopefully there's something I said in the in my prepared remarks that, that I think is an important takeaway for everyone, which is our for we've had a focus over the last several years of increasing BDS R&D execution capabilities. And you may have heard me say that we reached a peak performance past actually year to date where over 90% on time milestone deliveries and on time launches, that's absolutely top quartile in the industry and something that we're really proud of, the momentum that we've had there. If you look at the pipeline that we shared at analyst day as well, all very much on track, and you're seeing a us announce those executions. And as we look at milestones for those things also very much on track, which is giving us a lot of confidence as we look out over the LRP and the years ahead to your point, we've been, we're really pleased with how we're executing that tuck and M&A strategy, right? We've got very strong core growth. We're staying very disciplined to making sure that we're creating value for our shareholders through the, in the acquisitions that we're doing. We don't have to go out and buy growth. We've got strong growth in our core, and we're adding value on top of that with 80% of those tuck and M&A focused in those high growth transformative solutionaries. And you heard Chris describe that. So we're gonna continue there. We have a very strong, robust pipeline. We think that actually this men, if anything, is creating incremental opportunities for us as we look ahead, and so we're gonna stay active and disciplined in there, but we do see the opportunity for that to continue to shift BDS growth rate upward. As we look ahead over the next coming years in terms of our decision and how we're using the cash from the, the spin. Let me turn it over to Chris on that.

Operator:

We have no further questions on the line at this time. I will turn the program back over to Tom Polen for any additional or closing remarks.

Operator:

Thank you. This does conclude today's audio webcast. Please disconnect your lines at this time and have a wonderful day.

Francesca DeMartino:

Good morning, and welcome to BD's earnings call. I'm Francesca DeMartino, Senior Vice President and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the first quarter of fiscal 2022. We also posted an earnings presentation that provides additional details on our performance. The press release and presentation can be accessed on the Investor Relations website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued progress we have made against our BD2025 strategy. He will then turn the call over to Chris for the financial review and our updated outlook for fiscal 2022. Following the prepared remarks, Tom and Chris will be joined for a Q&A session by our segment presidents, Alberto Mas, President of the Medical segment; Simon Campion, President of the Interventional segment; and Dave Hickey, President of the Life Sciences segment. Before we get started, I want to remind you that we will be making forward-looking statements today. I encourage you to read the disclaimers in today's presentation slides and the disclosures in our SEC filings, which are both available on the Investor Relations website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. When we refer to any given period, we are referring to the fiscal period unless we specifically note it as a calendar period. I would also call your attention to the basis of presentation slide, which defines term you'll hear today, such as base revenues and base margins, which refer to our results excluding COVID-only testing. With that, I am very pleased to turn it over to Tom.

Christopher DelOrefice:

Thanks, Tom. Echoing Tom's comments, our Q1 results demonstrate the strength of our business and the momentum of our strategy. We are enhancing our growth profile through the portfolio and investment actions we are taking, while also executing on margin improvement and inflationary-mitigation programs to deliver our long-term margin expansion targets and double-digit earnings growth profile. To that end, I'd like to recognize our associates across supply chain for their contributions. We have an incredible team around the world that is not only addressing the challenges that all companies are facing in today's environment, but they are excelling and driving performance. Turning to our revenue performance. We delivered $5 billion in revenue in the first quarter comprised of $4.8 billion in base business revenues, which had strong growth of 8.3%, and 7.8% organic, which excludes the impact of acquisitions. COVID-only testing revenues were $185 million, which, as expected, declined from $866 million last year, as this was our highest revenue quarter for COVID testing last year given higher pricing and volumes. The year-over-year decline in total company revenues of 5.9% is entirely attributable to the decline in testing revenues. BD is uniquely positioned to deliver strong performance during these uncertain times. The breadth and diversification of the total BD portfolio, including COVID diagnostic testing, provides insulation against COVID-driven procedure fluctuations, as demonstrated by the revenue performance across our segments, with BD Medical growing 6%, Life Sciences based revenues growing over 17% and Interventional growing 3.8%. Total company base business growth was also strong regionally, with double-digit growth in the U.S., China and Latin America. Let me now provide some further insight into each segment's performance. Our Medical segment delivered $2.4 billion in revenues in the first quarter, growing 6%, led by our Medication Delivery Solutions and Pharmaceutical Systems businesses. MDS revenues increased 7.3%, reflecting strong demand for our durable core products, particularly in the U.S., driven by competitive gains in catheters and vascular care devices. Our leadership position in these markets allow us to provide a strong value proposition to our customers in terms of the breadth of our portfolio as well as the cost and quality of our products. Importantly, as input costs such as resins have increased, we've been able to take appropriate price actions and accelerate cost mitigation programs while continuing to invest in innovation to support our strong value proposition. In MMS, revenues were down slightly due to the difficult prior-year comparison given the high number of infusion pump placements last year in the U.S. and Europe to support COVID-related hospital needs. Excluding this impact, our MMS business reflects continued execution of our medication management strategy, which drove strong demand worldwide for our dispensing solutions. This was particularly evident in the U.S., where we saw another strong quarter of customer signings. The traction we are getting reflects the value our Pyxis platform provides our customers. Revenue growth of 1.6% in Diabetes Care reflects our category leadership position. Growth was aided by the timing of certain orders. Pharm Systems revenue grew nearly 18%, driven by continued strong demand for pre-fillable devices. Growth was also enabled by our focused execution on capacity expansion that allowed us to fulfill certain orders earlier than originally anticipated. Demand for pre-filled devices continues to be aided by the fast-paced vial to pre-filled device conversion for biologics, vaccines and other injectable drugs. BD Life Sciences revenue totaled $1.5 billion in the first quarter. The decline of 24.8% year-over-year is solely due to lower COVID-only testing revenues previously discussed. Excluding COVID-only testing, Life Sciences base revenues grew 17.2%, with licensing revenue in IDS contributing about 400 basis points to the segment's base growth and about 100 basis points to the total company based revenue growth. In IDS, base business revenues had strong growth of 20.3%, including about 600 basis points from licensing revenue. Performance was driven by our specimen management, microbiology and molecular platforms as routine lab testing returned to pre-pandemic levels. Growth in BD MAX IVD assays was also strong, reflecting the leverage we are getting on the larger installed base. Performance in our base business includes sales of our combination flu COVID assay that were in line with our expectations. Indications are the respiratory season will be a normal to low flu season. Biosciences revenues increased 9%, driven by strong demand for research solutions as a result of lab utilization returning to normal levels and continued research on COVID variants. Contributing to Life Sciences Q1 growth were the 2 new FACSSymphony instruments that we launched in FY '21. As the evolution of flow cytometry continues to move from large labs to more midsized independent labs, we now provide a complete suite of analyzers for researchers from the benchtop A1 to the A5 SE, our first spectral analyzer that enables researchers to do even high-parameter cellular analysis to gain broader insights into pioneering new discoveries and treatments for cancer and other immune-related conditions. Our new e-commerce site also contributed to growth in Q1. BD Interventional revenues totaled $1.1 billion in the first quarter, growing 3.8%. BDI's performance reflects strong growth in Surgery and UCC. Q1 performance was impacted by temporary supply chain disruptions, and consistent with our ReCoDe initiative, product line discontinuations of lower-margin products in our PI and UCC businesses. While these strategic discontinuations create a temporary headwind to revenue growth, it demonstrates our commitment to simplifying our portfolio and enhancing margins. We had a strong start to the year in our Surgery business, with revenue growth of nearly 9% despite some modest slowdowns towards the end of December due to Omicron. Strength in the quarter was driven by double-digit growth in advanced reconstruction and repair, with strength in hernia as deferrable procedures recovered, and the recent acquisition of Tepha. Tepha provides us with a vertical integration strategy for our current Phasix platform, but more importantly, it provides us with exciting new opportunities to expand our horizon into new high-growth areas of tissue repair, reconstruction and regeneration. Double-digit growth in biosurgery and high single-digit growth in infection prevention was also driven by the recovery of deferrable procedures and continued market adoption of Sterile BD ChloraPrep. Revenues in Peripheral Intervention declined 3.1% as a result of a product recall from fiscal '21 and the previously mentioned supply disruptions and product line discontinuations that support our margin enhancement goals. However, we saw continued acceleration in our atherectomy platform in China as we have leveraged the capabilities of our sales force. We are also experiencing positive momentum from our recent acquisition of Venclose. Urology & Critical Care revenues grew 7.7%, driven by continued strong demand for PureWick in our acute urology portfolio. We're also seeing continued adoption of our PureWick solutions in the home as we advance our strategy to expand our addressable market and deliver transformative solutions for alternate care settings. Also contributing to growth was remediation of Q4's temporary supply disruption within acute urology. Now moving to our P&L. We delivered adjusted net income and EPS above our expectations in Q1, with adjusted net income of $1.1 billion and adjusted diluted EPS of $3.64. We had strong execution of our margin enhancement initiatives in Q1 and delivered base business gross margin of 55.4% and operating margin of 24.3%. We remain on track to deliver our full year base margin goals, with our base margin performance in Q1 ahead of our expectations for the quarter and also above our full year base margin expectations, due to our ability to realize some of our inflation mitigation and pricing initiatives sooner than we previously anticipated. In addition, our Q1 base business operating margin also included a benefit of about 40 basis points from licensing revenues in Life Sciences that was included in our full year plan. Excluding the licensing revenue, base gross and operating margin would have been nearly 55% and 24%, respectively. Other key drivers of gross margin in Q1 include a benefit from increased volume utilization given our strong base revenue growth and, as expected, favorable FX we experienced in 2021 but was recorded in inventory and benefited our GP this quarter when sold. We did realize a negative impact from inflation in the quarter, which was broadly in line with our expectations and was partially offset by our cost improvement and inflation mitigation actions, which are occurring as planned. We are making very good progress with strong sequential improvement and our full year base gross margin improvement goal remains on track despite continued inflationary pressures. SSG&A was in line with expectations and increased year-over-year, driven by variable expenses, including selling and commissions, and inflationary impacts, primarily in shipping, that we have previously shared. The increase in SSG&A as a percent of sales is a function of lower testing sales. However, we did leverage SSG&A versus our base revenue, which is contributing to our base operating margin improvement. R&D increased year-over-year, consistent with our strategy to invest more to support our long-term growth outlook. As anticipated and communicated on our prior earnings call, our tax rate benefited from the timing of discrete items, resulting in a lower effective tax rate in the quarter. Regarding our cash and capital allocation. Cash flows from operations totaled approximately $700 million in the first quarter. We ended Q1 with a strong cash balance of $1.9 billion and an adjusted net leverage ratio of 2.8x. Our cash balance reflects our strategic investments in M&A during the quarter. Our current cash and leverage position and continued focus on strong cash flows provide us the flexibility to advance our balanced capital allocation framework and support our BD2025 growth strategy through investments in R&D, capital and M&A. During Q1, we invested in R&D at over 6% of sales to advance our innovation pipeline. We also invested over $400 million in 3 additional tuck-in acquisitions across our businesses that will support our strong growth profile in 2022 and beyond. Turning to our fiscal '22 guidance assumptions. First, the macro considerations that support our guidance. While we still expect some global COVID-driven variability, our guidance assumes the continued easing of COVID-19 restrictions, the stabilization of deferrable procedures and no significant disruptions to deferrable procedure volumes. Additionally, we see signs of continued inflationary and supply chain pressure over the balance of the year, with some stabilization by the end of the year. However, we believe we have a clear path to margin recovery, and we expect to offset any incremental inflation impact through various cost containment and pricing-related initiatives already realized in Q1. Our guidance doesn't contemplate a more significant step increase in market-driven supply chain and inflationary disruption. A few comments on testing-specific assumptions. Our base business revenue assumptions include sales of our combination flu COVID assays. We anticipate a normal to light flu season based on what we've seen so far from the CDC surveillance reports. Moving to our updated guidance for fiscal '22. We are well positioned for strong growth across our 3 segments, which are delivering at or above our initial expectations and, thus, we are increasing our base revenue guidance. While we aren't providing segment-specific items, relative to our revised total company base growth outlook, we expect our Medical segment growth to be slightly below and our Life Sciences and Interventional segment growth to be slightly above total company growth. We now expect base revenues to grow 5.75% to 6.75% on an FX-neutral basis from $18.3 billion in fiscal '21. This is an increase from our previous guidance of 5% to 6% growth and is driven by our Q1 revenue outperformance and confidence in the strength and resilience of our base portfolio, and our Q1 acquisitions, which account for about 25 basis points of the increase. For COVID-only testing, we are now assuming $450 million in revenue, which is a little more than double our original expectation of $200 million. As we communicated last quarter, higher testing revenues position us well to manage through this period of uncertainty and also provide the potential to create value through reinvestment in our business. Given our increased testing revenue expectations, we currently plan to reinvest a portion of the testing profits over the balance of the year, but we'll ensure they are value-creating opportunities and would not invest at a level that would result in our full year testing margins dropping below our base margins. Should those investment opportunities not materialize as anticipated, we would allow the incremental profits to flow through. Based on current spot rates, for illustrative purposes, currency is now estimated to be a headwind of approximately 125 basis points or about $250 million to total company revenues. This is an incremental 75 basis point headwind compared to our prior view. All in with our base revenue, COVID-only testing revenue and the illustrative currency impact, we now expect reported revenues in the range of $19.55 billion to $19.75 billion in fiscal '22, compared to $19.3 billion to $19.5 billion previously announced. We still expect operating margins in our base business to improve by approximately 200 basis points over our fiscal '21 base operating margin of 21.7%. Given the planned reinvestment, we also still expect operating margin on COVID-only testing to be modestly above our base business margins. A few additional items for your models. We now expect $50 million to $75 million in year-over-year improvement in interest other or an incremental $25 million benefit. We still expect an effective tax rate of 12.5% to 13.5% for the full year. Our guidance still assumes share repurchases that, at a minimum, offset any dilution from share-based compensation. All in, we are raising our adjusted EPS guidance to be between $12.80 and $13, which is an increase of $0.50 at the midpoint from our prior guidance of $12.30 to $12.50. This includes absorbing the negative impact of currency, which we estimate to be about $0.10. The increase reflects our strong Q1 base business performance and our expectations for increased COVID testing net of reinvestment. As a reminder, our fiscal '22 guidance continues to include our Diabetes business. As Tom mentioned, the embecta spin has now been approved by the Board of Directors. As we proceed towards the spin date, I want to provide a few reminders Restated financials for RemainCo will not be made public until the completion of the spinoff. Given the higher but declining margin profile of embecta, one should expect BD margins to be lower after they're restated. However, off the restated FY '21 financials, we are still targeting about 400 basis points of base operating margin expansion through FY '25. BD is expected to receive a distribution of approximately $1.44 billion, equivalent to multiple years of cash generated by the Diabetes Care unit. We remain excited for what's ahead for embecta and making this a successful and value-creating opportunity for everyone. As you think about phasing for the balance of the year, the following are a few key considerations as you think of our base revenue and earnings. Regarding sales, we remain confident in the durable nature of our portfolio and the strength of our underlying sales. In Q2, we expect some impact from Omicron on hospital staffing and procedures. But recall, Q2 is a relatively easy compare due to the significant COVID resurgence we experienced in Q2 of fiscal '21. As a result, we anticipate base revenue growth in Q2 to be above our full year guidance range, with the remaining quarters being equally balanced. Regarding our margins and P&L, as I noted, Q1 had the benefit from licensing, which added about 40 basis points to operating margin, which will not repeat in Q2. While we expect improvement versus the prior year, we also previously shared that Q2 would be the quarter with the largest inflationary impact. So given those 2 dynamics, you would expect a sequential step down in margin, and we expect Q2 to represent the low watermark for base operating margin for the year. We remain well on track to achieve our base operating margin guidance of approximately 200 basis points improvement. As we progress through the second half of the fiscal year, in Q3, we expect the impact of inflation on our business to stabilize and see a modest pickup of cost improvement and price-related benefits flowing through, with Q4 being the highest benefit. As a reminder, we see our SSG&A and R&D costs relatively evenly spread through the year. As expected, our tax rate in Q1 benefited from the timing of discrete items. At the midpoint of our full year guidance range, that would imply we expect our average tax rate for the balance of the year to be about 13.7%, which is best to apply for the subsequent quarters. Regarding COVID-only testing sales, we expect the vast majority of testing revenues to occur in fiscal Q2 and then trend down as Omicron subsides. In future years, we would not expect this level of COVID-only testing to repeat. In summary, we are continuing to advance our BD2025 strategic objectives with focused execution against our key priorities. As we look forward, and as reflected in our FY '22 guidance, we are well positioned for growth with excellent momentum in our base business, increased investments in our innovation pipeline, tuck-in M&A momentum, strong progress executing our balance sheet and cash flow initiatives and clear visibility to meaningful margin improvement. Thanks for your time. Operator, we can now open the line for Q&A.

Vijay Kumar:

Maybe my first question, some clarification on the Q1 numbers here. Can you quantify what the contribution from combo test. There's some confusion on whether it was an abnormal contribution. I think in the past you've said it's about $75 million to $100 million. So was it in line with expectations? Has anything changed on combo test? And this licensing fee, it looks like maybe it was $40 million or $50 million contribution from a dollar perspective. Is that the right way to think about it?

Christopher DelOrefice:

Yes. And just to confirm, on the licensing revenue, yes, so it was worth 40 basis points. You can do the math. It's roughly $50 million. We also had -- you heard me reference, we're actively driving our ReCoDe initiative and SKU productivity and have been very intentional about making choices there to enhance our profitability. Given the strong growth profile, this affords us the luxury of being able to absorb some headwinds as we simplify our portfolio. And primarily in the BDI business, there was some impact there as well, and that actually had a negative impact in the quarter of about 30 basis points.

Christopher DelOrefice:

Yes, thanks for the question. Let me approach this 2 ways. So let me first talk about the quarter and how we delivered in the quarter maybe relative to what folks are seeing from kind of an external expectation standpoint. So obviously, we're very pleased with our Q1 results, clearly reflected strong base revenue growth which exceeded our expectations. As you noted, there was also a strong execution against our margin enhancement objectives, actually realizing benefit earlier in some areas, which will help us going forward because certainly we're seeing continued market-driven supply and inflation pressure as you look out into the back end of the year. Finally, we -- as you noted, we did realize incremental revenue from COVID-only testing. You can see that in our results. That actually had a strong margin as well in the first quarter. The good thing here is the strength is nicely balanced between our base and the increment from testing. There were a couple of timing items as we think comparing to, again, kind of more what I would frame as external expectations. First, we had signaled there was -- we had expected a discrete tax item in Q1, which did play out as expected. So we had a lower effective tax rate in the quarter. We're still confident in our full year expected tax rate. So thus, you would expect a slight increase over our full year average through the balance to go there. You had highlighted the licensing impact, which I don't think was contemplated in the external view. That was planned on our side. Those 2 items alone explain what I would call the delta you're seeing between our total results relative to the external view. I think the other 2 new considerations to think about that don't really show up in the quarter, one is we talked about reinvestment of the testing upside, which will obviously happen through the course of the year as we find those value-creating opportunities. And then we talked about the negative FX, which was worth about $0.10, which, again, that will also play out through the back of the year. So actually, when you think of that, that implies that we actually have a stronger balance to go on the back end to account for absorbing those items. So similar to what you said, bigger picture, I think the simple way to think of this is we increased sales by $250 million. That included a base increase of $150 million, testing of $250 million to $400 million. We did offset currency headwinds of $150 million. So that nets to the $250 million. I think also importantly, if you take our Q1 actual results against our new base guide and look at our implied guide for Q2 to Q4, it's actually in line with our previous guide, which means we did not take our revenue projections down in the future. And I think everyone is acknowledging there's actually more uncertainty given Omicron. We mentioned how we exited December heading into January. So that's actually signaling strength in how we feel about the back half. And then our EPS, we increased $0.50, absorbing $0.10 of currency. And if you do the drop-through on EPS to sales, it's an extremely high conversion of sales to earnings, implying strong margin on that, fully leveraging our base and gives us confidence actually that we're on track to deliver our margin commitment. So I think in light of all that, we see this as actually especially strong in light of continued market uncertainty and is reflective of our strong base business growth and our focus on execution.

Robert Marcus:

Yes. And congrats on a good quarter. Chris, maybe I could just follow up on that a little bit and get a little more from you. You raised EPS by less than the beat. Should we think of that as any changes to the inflationary environment? Or maybe what went into the view to not raise it as much? Was the licensing, did it come earlier than expected? Or just anything we can get and help us phase through the rest of the year versus where we were before.

Thomas Polen:

And Robbie, this is Tom. I think you've heard me used the word prudent pretty nonstop since the COVID pandemic hit. And so I would view our guide today is prudent with -- as the market continues to remain more stable, that there's opportunity for upside as we move through the year.

Christopher DelOrefice:

Yes. Thanks, Robbie. Yes. Obviously, so one, as the CFO, of course, it's going to be contingent on there'll be strong value-creating opportunities. We've always looked to innovation, I think, first. I think also anything that we can do to accelerate the great programs that we have in place to build capability and execute against our Simplify agenda, which will lead to margin, I think, would be the 2 areas that we would continue to prioritize. I would likely see that kind of phase more second half. Certainly, with the new guide in our plan, some of that will happen in Q2, but it will probably be more kind of spread throughout the year is the way to think about that.

Matthew Mishan:

Just first, could you go a little bit deeper on the Peripheral Intervention issues around the recall and supplier constraints and how long that's expected to last? And is there any way to quantify the magnitude? And was that originally contemplated in the guidance as well?

Simon Campion:

Matthew, Simon. Yes, I'd be happy to provide that information, but before I do so, I think it's fair to say we're reasonably happy with the performance of BDI in the quarter. And with respect to PI, we're happy with the position of that portfolio. We're happy with our competitiveness. We're happy with our ability to continue to strengthen that portfolio as you've seen the acquisition of Venclose during the quarter. So the issues we face are -- I would classify them as extremely acute in nature and I feel time-bound. Three issues generally have been the source of the majority of the problem today. But this time last year, we recalled the Venovo venous stent and so we've got a headwind for 4 quarters at this point in time. We expect 2 things from that. Number one, it's almost annualized. And number two, we do expect it to be back in the market in the second half of this financial year. And just to reiterate, that is not an implant issue. In fact, in September of last year, we published 3-year data from the [indiscernible] study on Venovo, which showed 84% [indiscernible] and 0 fractures and 0 migration. So we are very confident that this is going to have an impact on the market again. Second issue was the backorder and supplier challenges in the NPI. PI does have the most complex portfolio, the most complex products and the most complex supply chain certainly within BDI. And we've experienced headwinds from raw material capacity to COVID impact in supplier sites to sterilization capacity in the past number of quarters. We do see light at the end of the tunnel on a number of those issues, particularly in relation to sterilization. And we expect to begin to see material improvements in our performance with respect to back order by the end of this quarter. And then finally, as Chris and Tom have remarked, SKU rationalization has impacted PI more so than any other business this past quarter. And as we discussed in other fora, these product discontinuations are being done strategically with a view to enhancing margins and increasing efficiencies across our entire cycle from manufacturing to sales rep time allocation.

Matthew Mishan:

Okay. And just lastly on Alaris. And I'm sorry if I missed it in the prepared remarks. I know it wasn't previously assumed in guidance, but it says that FDA clearance of Alaris is not expected now in FY '22. Did something change in the conversations with the FDA?

Operator:

[Operator Instructions]. We'll take our next question from Larry Biegelsen with Wells Fargo.

Thomas Polen:

Okay. Thank you for the question, Larry. Why don't we start with the last question first. I'll turn it to Chris on the growth pretty clear answer.

Thomas Polen:

And on pricing, Larry, so as you know, as you know BD very, very well, we've been focused on pricing for many years and had begun the journey with putting in resources in every business that are dedicated to pricing, pricing leadership at the company level as well. And obviously, in an environment where there's record levels of inflation, it's been an area that has been ever more important. And so we began our journey of working on pricing in an inflationary environment last year and began taking actions. And you're starting to see and will continue to see the impacts of that flow through in the year. We take those actions very serious in discussions with our customers. We understand they work in a reimbursement-constrained environment. And so if you look at where we are implementing price most significantly, it is -- and we're very transparent with our customers, by the way, on where we're raising price and why we're raising price and the impacts of inflation as the driver of that. But where you see it most is in those products that we're selling for a dime, a quarter or low dollars, where BD over decades has invested billions of dollars of capital in creating extremely efficient, fully automated manufacturing facilities that allow us to be one of the only companies on the planet who can sell billions of devices at dimes and quarters and dollars. And because of the way that we've just continued to refine our manufacturing capabilities over the year in a best-in-class ways, any increases in variable costs like resins, as an example, or chips, et cetera, they tend to flow right through and directly impact product margins and profitability. And so we can share what those impacts are on those raw material increases with our customers, and we have those discussions, and we've been raising price actively, particularly in those product categories. And so while we're not giving out -- not sharing a specific number on price through the year, we are -- have been very, very active on that. And it's -- we're doing it in every region around the world, it's not a U.S. or Europe thing, it's equal across all geographies and directly related to passing through a portion of the inflationary impacts that we're getting on raw materials. Of course, at the same time, we're taking a number of actions beyond pricing, passing it all through to our customers, and that includes us taking cost actions within the company, continuing to drive significant continuous improvement in our manufacturing plants and always look at ways to be more efficient and look at prices, that last resort. But we have certainly been doing more price this year than we have seen historically.

Operator:

We'll take our next question from Matt Taylor with UBS.

Thomas Polen:

Thank you for the question, Matt. So on the supply chain and inflation perspective, we don't have -- there's not assumptions that there's any major material reversal of the cost. There are some areas where we expect continued trending. Resins, for example, have been heading in a moderately to minorly favorable direction, as an example. We expect that to continue. But overall, we don't see major abatements in areas like shipping, as an example, or chips. That's -- we bake that into our outlook as we go forward. We do think those supply chain dynamics will continue certainly longer than most of the world thought at this time last year, and we see them -- many of them continuing through '22. So we have that built into our considerations and outlook. The other question was.

Thomas Polen:

Yes. Thanks, Matt. Certainly, we do look at those, and we have raised price in a number of areas as appropriate across the portfolio. There are a few products, of course, in today's environment that aren't impacted by inflation in areas such as shipping or computer chips, et cetera. Instrumentation will be a good example of electromechanical inflation that we see and we raised costs there in areas such as service, where spare parts, certainly, the cost of those go up. And we do share the increases of those as well. So the answer is yes. But by far and away, the most significant increases would be on those products that we are just extremely efficient at producing and where the percentage of COGS made up of raw materials are disproportionately high.

Thomas Polen:

And Matt, just maybe one other item to add is we have been very active and we put this in place last year. We have a formal inflation task force that we've established, with multiple different pillars within that and dedicated groups, working on everything from rethinking our logistics chain, and that includes looking at alternative shipping partners in a number of areas. For example, how can you ship from Asia to the U.S. or from Europe, U.S. to Europe in more efficient ways? What parts of our supply chain have traditionally used airfreight, as an example, that we can move on to rail or boats? We've been taking actions and rethinking that, both how we get products to customers, but also from raw material suppliers into our plants. And of course, looking at the materials themselves, where there's alternative vendors and working with existing vendors on different technologies that could be more cost effective for us to use. All of those are different components within our inflation task force, it's been very active, and we're seeing the impacts of that as well.

Frederick Wise:

Tom, Chris. Tom, just this excellent quarter, just the superb margin performance, et cetera, makes me think back actually to our December -- mid-December 2019 meeting as you were about to step into the CEO role. And I'm curious about 2 aspects of your comments back then. One, you highlighted your growth-focused priorities, particularly inorganically. I'd be curious to hear just maybe update -- your updated thinking on M&A and opportunities for the rest of the year, how aggressive you hope to be or what the opportunities are. But the second part, and even more particularly, today, we've heard again and again about the clear path to that 400 basis of operating margin improvement. I was hoping you could be a little more granular about the 3 things you highlighted back in December 2019. You said we're going to reduce the manufacturing footprint. You're going to unify the end-to-end operational processes. And we've heard Chris highlighted the SKU rationalization reduction. Where are we on those initiatives? How much more is there to go? Sorry for the long question. Appreciate any color.

Operator:

And at this time, I'll turn the call back over to Tom Polen for any closing remarks.

Operator:

Thank you. And this does conclude today's audio webcast. Please disconnect your lines at this time, and have a wonderful day.

Nadia Goncalves:

Good morning and thank you for joining us today. This call is being made available via webcast at bd.com. This morning, BD released its results for the fourth quarter and full-year of fiscal 2021. You can find the press release along with an accompanying presentation on the Investor Relations website investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer, and President; and Chris DelOrefice, Executive Vice President, and Chief Financial Officer. Following the prepared remarks, Tom and Chris will be joining for Q&A by our Segment Presidents

Chris DelOrefice:

Great. Thanks, Tom. Appreciate it. Before I jump in, let me first say I couldn't be more excited about joining BD. BD is a purpose-driven company that has both a deep and broad portfolio that includes leadership positions, many important areas in healthcare. Combined with our innovative pipeline of products and solutions, we have a tremendous opportunity to shape the delivery of healthcare and make a meaningful impact on healthcare outcomes around the world. I look forward to engaging with the investment community next week during our Investor Day, and sharing more specifics around our strategy and the actions we are taking to support our growth agenda and deliver long-term value. So with that, let's get into our results. Echoing Tom's comments, we delivered on our commitments in 2021, have strong momentum as we enter 2022, and we're well-positioned for the future. Slide 13 summarizes our high-level revenue performance. Fourth quarter revenues of $5.1 billion increased 7.3% on a reported basis, and 5.9% on an FX neutral basis. And we're ahead of our expectations. Our base business revenues increased 9.8% driven by strong performance across all three segments. In Q4, we saw continued improvement in overall healthcare utilization levels and routine testing and lab activity and higher acuity. The breadth and diversification of the total BD portfolio, including COVID diagnostic testing, provides insulation against COVID-driven procedure fluctuations. For the full fiscal year, our revenues grew 15.6% or 8.1%, excluding COVID testing, which demonstrates the strength of our business and the momentum of our strategy across our segments with base growth of 6.8% in the Medical segment, 8.4% in Life Sciences, and 10.7% in the Interventional segment. Base business growth was also strong regionally, particularly in the U.S., China and Latin America. Compared to fiscal 2019, base business revenues grew 4.5% or about 7% when adjusting for the Alaris ship hold. Turning to Slide 14, our Medical segment delivered $2.5 billion in revenues in the fourth quarter growing 7.7% led by our Medication Delivery Solutions and Pharmaceutical Systems businesses. MDS revenues increased 11.3% and reflects strong demand for our core products, driven by higher acuity, and increased utilization in the U.S. and Europe and competitive gains in catheters and vascular care devices. In MMS, Q4 revenues were comparable to the prior-year despite the high number of infusion pump placements in Europe last year to support hospital needs. We continue to see solid growth in our dispensing platform and a high number of committed contracts with Q4 being one of our strongest quarters to-date for committed contracts. Revenue growth of 5.4% in diabetes care benefited from the timing associated with certain sales and slightly better than expected market demand. On a normalized basis, we see diabetes growth about flat. Pharm systems growth of 12.3% reflects continued strong growth driven by demand for our prefilled devices and enabled by capacity expansion. Demand for prefilled devices is being aided by the fast-paced vial to prefilled device conversion for biologics, vaccines, and other injectable drugs. Turning to Slide 15, BD Life Sciences revenues totaled $1.5 billion in the fourth quarter increasing 1.5%. However excluding COVID testing, Life Sciences grew 15.8%. Performance reflects strong double-digit growth in our base business in both Integrated Diagnostics Solutions and Biosciences, partially offset by declining COVID testing revenues. In IDS, 16.2% growth in the base business was driven by specimen management and microbiology, lab utilization improved, and demand increased for both core products and products used during the care of COVID patients. We're also seeing strong growth in sales of BD MAX IVD assays, which were up about 20% year-over-year. IDS base revenues also included sales of our combination fluid COVID assays for both Veritor and BD MAX that began shipping in Q4. Early demand is robust, and we believe the combination test will become the standard of care for symptomatic testing across laboratory and point of care testing as we enter the flu season. Despite increased demand driven by the Delta variant, and shipping our highest quarterly volume of over 30 million tests, COVID testing revenues declined in Q4 from $452 million to $316 million due to lower pricing in the market. Biosciences revenues increased 14.6% driven by research solutions, as lab utilization is returning to normal levels. We continue to see solid demand for research reagents globally. Our recently launched e-commerce site is a new vehicle for growth and has been well received with strong traffic. Turning to Slide 16, BD Interventional revenues totaled nearly $1.1 billion in the fourth quarter growing 8.3%. As we previously communicated, we began to see an impact on the Delta variant on elective procedures in certain U.S. states in July and August. While we contemplated some continuation of that impact, it was slightly greater than anticipated in our surgery and Peripheral Intervention businesses as hospitals reduced access and restricted elective procedures. Our surgery business grew 16.8%, reflecting the year-over-year recovery in elective procedures, with double-digit growth in infection prevention and biosurgery and strength in hernia despite some impacts from the Delta variant. Growth in infection prevention also reflects continued market adoption of our sterile ChloraPrep product. Revenues in Peripheral Intervention increased 5.5%. We saw continued strong performance in atherectomy as we have leveraged the capabilities of RPI sales force and an oncology as more people completed cancer screenings. PI also continues to be impacted by a product recall which impacted growth by about 300 basis points. Urology and Critical Care revenues grew 3.8% driven by continued strong demand for PureWick, as well as continued adoption of the recently launched Arctic Sun with our Targeted Temperature Management platform. Partially offsetting this growth was a temporary supply disruption within acute urology that is now remedy. We expect shipments to be caught up within the first quarter of FY 2022. For the full fiscal year in 2021, UCC grew 7.6%. Turning to Slide 17, and our Q4 and full-year adjusted P&L. For the quarter we delivered adjusted net income and EPS above our expectations, with net income of $770 million and diluted EPS of $2.59. On a currency neutral basis, net income declined 7.8% primarily by lower COVID testing pricing and testing-related one-time costs and reinvestment in the business, as well as higher shipping costs due to inflation, and increased R&D levels. EPS declined slightly less, or 6.5% reflecting a lower share count due to share repurchases. Our full-year adjusted net income and EPS were $3.9 billion and $13.08 respectively, with growth of 31% and 28% driven by strong revenue growth and operating margin expansion of over 100 basis points on an FX neutral basis. We delivered Q4 and full-year operating margins in line with the expectations we previously communicated for the company and for the base business. Turning to Slide 18, cash flows from operations totaled $4.6 billion in fiscal 2021, an increase of over 30% versus fiscal 2020. This improvement in our cash flow has allowed us to advance our balanced capital allocation framework and support our BD 2025 growth strategy through investments in capital, R&D, and M&A. During fiscal 2021 we invested in capital expenditures to support high-growth opportunities, including the new manufacturing lines Tom previously mentioned. In addition to investing in R&D at over 6% of sales to advance our pipeline of innovative programs, we also invested $500 million in tucking M&A across our businesses that will support our strong growth profile in 2022 and beyond. Beyond our investments in growth, we returned capital to shareholders through $1 billion in dividends and $1.7 billion in share repurchases. We ended the fiscal year with $2.3 billion in cash, and an adjusted net leverage ratio of 2.6 times. Our current cash and leverage position gives us flexibility to create value through multiple levers. And I look forward to sharing more with you about our capital allocation strategy to our upcoming Investor Day. Now turning to our fiscal 2022 guidance on Slide 20. First the macro assumptions that support our guidance range. While we recognize there will continue to be some variability, we assume there will be continued easing of COVID-19 restrictions as vaccination rates continue to increase and not expect to see continued stabilization of procedures and are not assuming significant disruptions to procedure volumes. Additionally, while we do not expect conditions to return to normal levels, we do not anticipate worsening macro supply chain constraints or inflationary pressures. Finally, we have not assumed any impact of legislation changes that would impact the broader market. Given a significant sales and income generated from testing in fiscal 2021, we previously provided a preliminary guidance score that excluded testing to help you model our underlying base business performance, we will continue to provide our revenue guidance split between base and COVID only testing through this year, along with context regarding testing margins relative to our base business. So a few specific comments on testing assumptions. Our base business revenue assumptions include sales of our combination flu COVID assays at a level comparable to a normal flu season, which you should think of as $75 million to $100 million. For COVID only testing, which is in addition to our base business combo test revenues, we assume the demand would be significantly less in fiscal 2022. Given the variability in the COVID environment driven by uncertainty around the length and intensity of break to outbreaks, our current assumptions are largely based on confirmed orders. We are assuming about $200 million of COVID only testing revenue. If testing revenues were to be substantially higher, we first would compensate for any resulting procedure softness impacting our base revenue and income, which positions as well to manage through this period of uncertainty. Any further upside would be used to create value through either reinvestment or allowing incremental profits to flow through. Regarding Alaris, as Tom noted, we are confident in the progress we were making and the resources that we've invested behind this program. As we previously shared infusion pump clearances are inherently complex, particularly our filing and not so would not be prudent to predict timelines. Consistent with what we share previously, we do not expect and our guidance does not include a 510(k) clearance in fiscal 2022. Additionally, it is difficult to predict how things will play out as shipments are only being made under the medical necessity process. But at this time we've assumed that our Alaris Capital revenues will be generally in line with fiscal year of 2021. Let me now share some perspective on what is underlying our base guidance. We are well-positioned for strong growth across our three segments with a balanced and robust innovation pipeline resulting from investments in increased productivity in R&D. Growth will be further enabled by the strategic acquisitions we've added to our portfolio that are positioned in high-growth categories. While we aren't providing segment specific guidance relative to total company base growth, we do expect our Medical segment growth to be slightly below, Life Sciences growth to be inline, and Interventional to be slightly above total company base growth. In the Medical segment, we are continuing to extend our leadership position with competitive gains in significant categories such as peripheral catheters and prefilled devices, while investing in solutions transforming healthcare through smart connected care and new care settings. Life Sciences holds leadership positions in attractive and growing categories and is investing in higher-growth spaces by enabling smart, automated laboratory workflows with solutions such as BD COR. Improving chronic disease treatment with clinically differentiated assays, research tools, and companion diagnostics, where we expect continued above market growth in research reagents and migrating point of care diagnostics to alternative care settings. Interventional is continuing its strategy of evolving from product to category leadership in chronic disease treatment, while continuing to invest in accretive high-growth spaces. These investments include increased product offerings, both organic and inorganic, expanded labeling and investments in the non-acute care space. Our PureWay product line and acquisition of Straub Medical are good examples of how we are driving growth for our BDI strategy. Turning to Slide 21 and our guidance for fiscal 2022, we expect base revenues to grow 5% to 6% on an FX neutral basis, compared to $18.3 billion in fiscal 2021. For COVID only testing, we are assuming $200 million in revenue. Based on current spot rates for illustrative purposes, currency would be a headwind of approximately 50 basis points, or about $100 million to total company revenues. All-in base plus COVID only testing and the illustrative currency, we expect reported revenues in the range of $19.3 billion to $19.5 billion in fiscal 2022. We expect operating margins in our base business to improve approximately 200 basis points over fiscal 2021 base operating margin of 21.7%. Due to the current COVID test pricing levels, we expect operating margin on COVID only testing to be modestly above our base business margins. A few additional items for your models. We expect up to $50 million in improvement in interest/other giving debt refinancing activities we completed in the fourth quarter of fiscal 2021. As you're aware, interest/other can fluctuate due to deferred compensation which is offset in SSG&A. We plan for an increasing effective tax rate of 12.5% to 13.5% given discrete tax items in 2021 will not repeat. And in terms of share count, while priority remains tuck-in M&A, we expect share repurchases to also be a consistent part of value creation. In addition to the year-over-year benefit from share repurchases completed in fiscal 2021 where our ending shares outstanding were $288 million; our guidance assumes share repurchases that at minimum offset any dilution from share-based compensation. All-in, we expect adjusted EPS to be between $12.30 and $12.50, with EPS excluding COVID only testing being well above the $12 floor we provided in August, on our third quarter earnings call. Turning to Slide 22, regarding margins, let me first take a minute to reground everyone on where we are today. There are a few key considerations that have resulted in some margin pressure, some of which will be naturally restored, and others that will be addressed by existing margin improvement programs, with further improvements through new initiatives we are pursuing. Our total operating margin of 23.9% for the full-year did improve versus 2020. In 2021, our total margin profile benefited by over 200 basis points from the COVID-19 testing margin net of investments we made to accelerate growth and other value creating programs. So it's best to look at our base operating margins excluding COVID-19 testing of 21.7%, which also improved on an FX neutral basis versus 2020. However, they do lag pre-pandemic levels as our base operating margin was primarily impacted by four key factors

Operator:

Certainly, the floor is now open for your questions. [Operator Instructions]. We'll take our first question from Vijay Kumar with Evercore ISI. Please go ahead.

Tom Polen:

Yes. Hey, Vijay, good morning. This is Tom. Thanks for the good questions here and make sure I address all of them. So Alaris, as we said, we expect that to be essentially flat to 2020. One thing about that as about $100 million contribution in 2022 and 2021. Put in perspective, that's, as Chris mentioned, that's about 2020 was closer to $300 million. So even in our -- as we think about the 8.1% growth this past year that absorbs about a point of Alaris coming down from the -- when we were getting very large numbers of additional medical necessity orders as people were adding to their fleets. So that's the assumption on Alaris. On vaccines, it's -- we still are towards the high-end of that $100 million to $150 million range that we'd expected for vaccination campaigns. And so we expect that's just kind of part of the MDS business. Now, I don't know if we were going to call that out as a guide in that growth, but we don't see it as a notable headwind in the growth rate of that business in 2022. We still have solid demand for those products. And as we said, we now have visibility to 2 billion units of syringes specifically for COVID vaccines, which we're obviously proud of being able to help deliver 2 billion COVID vaccines around the world. And I think we've shipped about 1.2 billion or 1.3 billion of those so far. So that gives a little bit of color, in terms of how much we left to ship in 2022. On the combo assay, great question. We've got Dave Hickey here, obviously, the President of our Life Sciences businesses. And so let me turn that question over to him.

Vijay Kumar:

Understood. And Tom I think I heard Chris mention the goal is exciting fiscal 2024 operating margins to be above pre-pandemic levels, fiscal 2019 operating margins were 25.3%, so when you say above pre-pandemic, is that the target in -- is exiting fiscal 2024 are you expecting to be above 25.3% or is that the annual goal fiscal 2024 overall margins to be above 25.3%. Maybe just give us some broad strokes on what's the exit there is that Alaris coming back and then base business execution or something else that's being done?

Chris DelOrefice:

Yes, that's right. Yes and thanks for the welcome as well, Vijay. Yes, just to clarify. So you're right, the pre-pandemic level was just over 25% fiscal year 2024 is our target to get above that level. We'll certainly share more next week in terms of specific initiatives. I think the way to think of it is we already had a lot of simplification efforts underway with Project Recode. Those can contribute about $300 million. That's one bucket. In addition to that, I articulated on the call even as it relates to actions we're taking and demonstrated at the end of 2021 and heading into 2022, we're increasing our initiatives, pricing, mix, portfolio optimization, and new initiatives on spend optimization as well. And then certainly, lastly, the Alaris ship hold that was an 80 basis point drag on the business going back to them. So while we're not being committed as it relates to timing, as you think through kind of the longer term timeframe, and that we will share next week, you would expect that to have a benefit over time. Thanks for the questions.

Bob Hopkins:

Well thank you and good morning, and thanks for taking the questions. And, Chris, welcome. My one -- really only have one question or one topic I wanted to cover. And, Chris, this is probably for you because it seems like a key part of this call is your assumptions on the improvement in base business operating margins from 2021 to 2022. So, a couple of things, I'd love you to comment on Chris if okay. One is I'm struggling a little bit with how to think about the starting point because Q4 base business operating margins are obviously a lot lower than full-year 2021. So maybe help me understand what's the right starting point. And then, secondly, I'd love you to talk a little bit about, how much of that 200 basis point improvement in base business you're assuming for the full-year is gross margin and just what are your assumptions on pricing embedded in that? So there's a lot in there. That's my one question. But I would love you address those things and thank you very much.

Operator:

Well take our next question from Robbie Marcus with J.P. Morgan. Please go ahead. Your line is open.

Tom Polen:

Go ahead, if you can.

Robbie Marcus:

Great. Appreciate it. And then maybe just one other, you talked about doing seven acquisitions this year, $500 million total. How do we think about the contribution of those to revenues in 2021 and 2022? And where do you put M&A in terms of capital allocation priority? How do you view the market right now in terms of asset availability and valuations? It'd be great to get your take on that? Thanks.

Robbie Marcus:

Great. Maybe just to clarify is there any revenues associated with the deals we should be thinking about in the model for next year?

Chris DelOrefice:

No, I think Tom shared the directional right. These were about $100 million in the current year 2021. And we've talked about essentially doubling that. So on an incremental basis, you can think of about another $100 million. So it's a contributor to growth of 30 to 40 bps gives us a lot of confidence in our growth profile, and then the capacity to do more of that over time. We'll certainly talk more about next year.

Matthew Mishan:

Hey, good morning guys and thank you for taking the questions. First, how should we be thinking about the return on the $200 million of investments you guys made from the bolus of COVID testing? And when you'd expect to see some of those happening. And then just were those really one-time costs or successful programs, maybe just folding into more traditional M&A at this point?

Tom Polen:

Yes, Matthew, this is Tom, good morning. The -- good question. We are not that that spend is done, right. So we're not that's not recurring spend, as we've always communicated that got cutoff last year in Q4. So that is out of our P&L going forward. And we'll share more details actually about exactly where that money was spent. And you'll see throughout the discussions next week at our Investor Day, each of the different businesses highlighting the programs that they've invested in and you'll see how that help to accelerate our growth outlook as we go-forward over the long-term. It is mixed across both innovation as well as accelerating our simplification strategy as well, and we'll share more details on that next week. But there it is balanced across both of those categories. And when we say the growth agenda, how it's balanced on that side, it is majority of the growth money that we're spending is in R&D, but there is money that we spend on expanding channels, so specifically telesales in Europe, non-acute sales channels in the U.S., and you'll hear more about those specific investments from our leaders in the U.S. region and from our European leaders next week as well. And we're excited to be able to share that. I know there's been a -- we've been busy over this last year. We're really proud of the progress that we've made on our strategy. And we're really looking forward to having our leaders share with you those details of that progress next week. Thanks for the question.

Chris DelOrefice:

Yes, go ahead.

Tom Polen:

Yes, obviously, it's a great business already. I think we're three or four years of consecutive acceleration in that business. We have Alberto Mas on the line. Maybe Alberto, if you could just comment on when do we start seeing some of that that capacity benefit to business and where that stands.

Tom Polen:

Great start. Is it fair to say, Alberto, there is a little bit of a benefit of summing that -- some of that business continues to come online. The early phase does come online in the back half of next year?

Matthew Mishan:

Not -- not one?

Matthew Mishan:

Yes.

Matthew Mishan:

Perfect. That is the reference I was looking for. Thank you.

Larry Biegelsen:

Good morning. Thanks for taking the question. Welcome, Chris. So one question for Chris, one question for Tom, I'll ask them both now. Chris, maybe I'll ask Bob's question a different way. Can you talk a little bit about the margin in EPS cadence in fiscal 2022, how much below the operating -- the base operating margin of about 23.7%, you expect Q1 to be is 100 basis points, the right way to think about it. And consensus is I think 2.84 for EPS right now. I'd love to get your reaction to that, just to calibrate it correctly to start the year. And, Tom you guys are doing really well in China. There are a lot of investor concerns about multinational companies' ability to continue to grow there, given the value-based purchasing and the recent document 551. How are you feeling about your ability to continue to grow strongly in China and any reaction to some of those initiatives? Thanks for taking the questions guys.

Chris DelOrefice:

Yes, thanks, Larry. Appreciate the question. Yes, I'll try to amplify some of the color that I provided earlier. So as we think of the year as the year progresses, first from the top-line, just to reiterate, we do actually expect relatively normalized growth with the exception of Q2 like I had shared because of the comparables. And then there's the dynamic of COVID only testing, which you'd expect to be more first half. So I would consider that that dynamic. From a margin standpoint, certainly first half, we anticipate to be lower. This is simply a matter of the inflationary dynamics that started in 2021, rolling through inventory. And the peak of when that rolls through and those costs actually hit is more like Q2. So kind of first half definitely less favorable margins versus the second half and Q2 in particular being kind of the high mark of that low, so to speak. And then obviously as the initiatives that we've already taken again, there's a lot of that banks, right, if you recall had shared about 50% of its already happening. But again, you get the dynamic of it flowing through inventory, so you end up with kind of the second half dynamic in the margin improvement throughout the back half. So the last item was just more of a discretionary tax item, I alluded to that could actually end up with some favorability in Q1, but those are very difficult to predict. So hopefully, that helps some.

Chris DelOrefice:

Yes. Thanks, Tom. So just some color, over the next three years, the Interventional segment expect to commercialize further 22 to 25 new products in China. And just an example of how we've been successful there in addition to what Tom said about doubling our business, but we recently just got approval or clearance for our Targeted Temperature Management technology in China. And we've actually just got our first two purchase orders this month from that, at margins that are creative to BDI, to BDX, and the sustained, and I would say prolific growth of our business in China. We expect to continue over the next period of time.

Operator:

And we'll take our next question from Josh Jennings with Cowen. Please go ahead. Your line is open.

Tom Polen:

Hey, Josh, maybe you just let me comment on value-based procurement. I'll turn it over to Chris for other items. We saw the bigger impact of VBP kind of is behind us. There is still some impact going forward, but like the business and the market is China is challenged with restructuring their cost base to manage through any of that. And so and that's exactly what they've been doing is restructuring cost base, as we think about that going forward to offset those headwind. So maybe Chris any other comments?

Operator:

Your final question will come from Matthew Taylor with UBS. Please go ahead. Your line is open.

Matthew Taylor:

Hey, good morning, Tom. How you doing?

Matthew Taylor:

Good, good. And Chris, welcome. Congrats on your new role at BD. So just wanted to ask two questions that are kind of related. Just conceptually when you gave us the update in the $12 floor a few months ago, could you just talk about, what's changed to give you the confidence to now put out the guidance in the mid-$12 range, and how things have developed here over the last couple of months?

Chris DelOrefice:

Yes, thanks -- thanks Matt. Appreciate the question. Look, I think, it really starts with our focus on growth. I think a strong base growth profile that we guided on, coupled with if you look at the cash flow that we shared through 2021, that gives us a lot of flexibility on tuck-in M&A, right. So we have strong organic growth profile, the enhancement we're making to our R&D portfolio. And then that coupled with the tuck-in M&A capability that we will now be able to have on an ongoing basis. Tom earlier talked about the acceleration of deals that we've done recently, those alone can contribute about 40 basis points to growth. So one, I think, there is just a very strong growth profile there. Two, is just the disciplined focus on margin improvement. We knew that was something to focus on in addition to the cash management approach we've taken over time, that's enhanced growth. And so those are the two main drivers. As a matter of fact, we're actually cycling over a headwind on tax. That's been offset by some of the capital deployment we've been able to put at work with share repurchases. So you'll see us be more disciplined there with other value creating levers too due to the strong cash flow that we have.

Chris DelOrefice:

Okay. Thanks, Matt.

Tom Polen:

Okay. Well, operator, if there's no more --

Tom Polen:

I'm sorry, go ahead.

Tom Polen:

I just thanks everyone for the good discussion today. We obviously are really looking forward to discussing all the great work that the team has been doing here over the last 20 plus months as we've been advancing our BD 2025 strategy. I personally I'm really excited to -- for next week's event. We're going to be able to share with you where we've been investing, how we've been refining, and making significant changes in our portfolio to optimize growth and margins. And you'll hear from a wide range of leaders on how they're executing and bringing to life our 2025 strategy to create value for our customers and shareholders next week. So everyone stay well, and we'll look forward to continue great dialogue next week. Thank you.

Kristen Stewart:

Hi. Good morning, everybody. And thank you for joining us. This call is being made available via webcast at bd.com. This morning, BD released its results for the third quarter of Fiscal 2021. You can find the press release along with the accompanying presentation on the Investor Relations website at investors.bd.com. Leading this morning's call is Tom Polen, BD's Chairman, Chief Executive Officer, and President, as well as Chris Reidy, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer. Following the prepared remarks, Tom and Chris will be joining. For Q&A by our 3 segment presidents. Alberto Mas, President of the Medical Segment, Simon Campion, President of interventional segments. and Dave Hickey, President of the Life Sciences segment. During the call, we will be making forward-looking statements, and it is possible actual results could differ from our expectations. Risks, uncertainties, and other factors that could cause such differences can be found in our earnings release and in our SEC filings, including our 2020 Form 10 and subsequent form 10-Q. We will also discuss non-GAAP financial measures regarding our performance. Reconciliations to GAAP measures that include the details of purchase accounting, and other adjustments, can be found in our earnings release and its related financial schedules. They are also in the appendix of the Investor Relations presentation slides available on the BD.com website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue present changes are on an FX-neutral basis, unless otherwise noted. When we refer to the base revenues, we're referring to our total revenues less our COVID diagnostic testing revenues, which include COVID-related revenues from Veritor, BD MAX, and Swabs. When we refer to base margins, we are adjusting for estimated COVID diagnostic testing profitability and the related profit we have reinvested back into our business. When we refer to any given peer group referring to the fiscal period, unless we note it as a calendar period. Finally, when we referred to NewCo during today's call we're referring to the planned spin out of our Diabetes Care business into an independently public traded Company following the effective trade date of the spin, which [Indiscernibl4e] announced on the second-quarter earnings call. RemainCo refers to BD post-separation. As a reminder, this transaction is subject to market regulatory, and other conditions, including final approval by BD's Board of Directors and the effectiveness of the Form 10 registration statement that will be filed with the SEC. With that, I'm very pleased to turn it over to Tom. Tom?

Chris Reidy:

Thanks, Tom. I'm also very pleased with our overall performance in the quarter, particularly with the base business, which showed continued strong momentum. Third-quarter revenues of $4.9 billion increased 26.9% on a reported basis and 22% on a currency-neutral basis, and we're ahead of our expectations. Our current quarter results also include 300 million in COVID diagnostic testing revenues compared to 98 million in the prior-year period. Excluding COVID diagnostic revenues in both periods our base business revenues increased 17.6%. Our base business reflects continued strong performance as the market continues to recover from the COVID pandemic, the impact from which was most acute in Q3 of last year. The BD Medical segment revenues totaled 2.4 billion and were up 7.7% versus the prior year. MDS revenues increased 24%, reflecting a strong recovery in the U.S., led by strong growth in catheters and vascular care devices. Additionally, worldwide revenues included 18 million from COVID vaccination devices. In MMS, the double-digit increase in our dispensing revenues was more than offset by the expected declines in our Infusion Solutions. As you may recall, when the pandemic started, we saw a higher level of demand for infusion pumps and sets globally. Diabetes Care benefited from an easy comparison to the prior year, the timing of sales, and slightly better than expected market demand. Pharm Systems continued to deliver strong growth with revenues up 12% driven by demand for our prefilled devices. BD Life Sciences revenues totaled $1.4 billion and were up 43%. This included the 300 million in COVID diagnostic testing revenues, 212 related to our BD Veritor system, with the remaining 88 million from BD MAX collection, transport, and swabs. Year-to-date COVID diagnostic testing revenues were over 1.6 billion. Despite lower average selling prices driven in part by geographic mix, we are still on track to deliver on our target of total worldwide revenues of 1.8 billion to 1.9 billion for the fiscal year. Excluding COVID diagnostic testing revenues, our Life Sciences segment grew revenues 27% driven by strong performances in both Integrated Diagnostic Solutions and Biosciences. IDS revenues increased 49%. Excluding COVID diagnostic testing, IDS revenues increased 27%, driven by strong double-digit performance across Specimen Management and Microbiology. Biosciences increased 27% driven by both research and clinical solutions. We continue to see strong demand for research reagents and instruments as lab activity is returning to normal levels. We also continue to see steady demand for research re-agents globally, fueled by COVID research activities related to vaccines and variants, especially from academic research and biopharma companies. BD Interventional sales totaled nearly 1.1 billion and were up nearly 35% reflecting the COVID anniversary impact on elective procedures. Surgery revenues increased 68% and peripheral intervention increased 32%. Both businesses saw the greatest recovery in the U.S. and Western Europe, which experienced the greatest impact on elective procedure volumes in the prior year quarter. We saw sequential improvement in both surgery and peripheral intervention. However, in the last several weeks, we are seeing some impact from the COVID Delta variant on elective surgeries in certain U.S. states. Urology and Critical Care revenues were up approximately 14%, driven by continued growth in our PureWick and targeted temperature management franchises. Now, turning to our P&L, as we expected and as communicated, our gross margins this year are being negatively impacted by COVID-related expenses, manufacturing variances, and FX headwinds, which are more acute in the second half of the year. Also as expected, our gross margin declined sequentially. Our gross margin was 51.5%. However, this included a net negative 90 basis point impact from COVID testing and reinvestments. The 90 basis point impact includes a negative 140 basis point impact from an inventory provision related to COVID testing. Adjusting for the net impact of COVID testing and reinvestments, our underlying base business gross margin was 52.4%. On a sequential basis, our base business gross margin declined from our second-quarter rate of 53.7% due to 3 factors. 70 basis points of incremental FX headwinds, 40 basis points from inflationary pressures, including higher raw material costs and inbound freight, as these costs rolled through our inventory, and 20 basis points of other expenses, including Alaris quality remediation. Now, turning to SSG&A. Our total SSG&A spending increased 21% on a currency-neutral basis to 1.2 billion or 25.2% of revenues. As a reminder, in the third quarter of fiscal 2020, we implemented several cost-containment measures in response to the COVID pandemic. In addition, we are continuing to see higher shipping costs. This quarter also included higher expenses related to our COVID profit reinvestment initiatives. As a reminder, the COVID testing reinvestments we made in FY '21 will not re-occur. Our R&D spending totaled 321 million, an increase of 31.1% on a currency-neutral basis. The higher R&D reflects the timing of project spending, including a higher spending related to the BD innovation and growth fund. Our R&D spending was 6.6% of revenues, which is higher than our long-term target of 6%. On a currency-neutral basis, our operating income increased 26.5% as compared to our revenue growth of 22%. Our operating margin of 19.8% was slightly below our guidance of below 20%. The inventory provision related to COVID testing I referenced earlier, negatively impacted operating margins by approximately a 150 basis points. Interest and other expenses were essentially flat year-over-year at 98 million. The adjusted tax rate was 5.8%, lower than we previously expected, due to discrete tax items that occurred this quarter. The lower tax rate essentially offsets the impact from COVID diagnostic inventory provision in the quarter. The average diluted share count used to calculate our EPS in the quarter was $291.9 million. We repurchased a total of 4.1 million shares for a total of 1 billion at an average price of approximately $242. Our adjusted EPS increased 24.5% over the prior year to $2.74 on a reported basis, and were up 25.9% on a currency-neutral basis. Now, I would like to turn to guidance for the balance of the fiscal year. Our guidance continues to assume no major widespread hospital restrictions on elective procedures related to the COVID pandemic. However, we did start to see some impact on elective procedures from the COVID Delta variant in the last one to two weeks in certain U.S. states, and have assumed some continuation of this in our guidance. That said, given the continued positive momentum of the base business, we are pleased to be able to cover this and still raise our currency-neutral revenue growth to about 14% up from our previous range of 10% to 12%. Our revised revenue range would incorporate a base business currency-neutral growth assumption of 7.5% to 8% Further, we have reaffirmed our previously communicated COVID diagnostic test revenue range of 1.8 billion to 1.9 billion. We now expect a favorable 250 to 300 basis point impact from currency. This brings our total reported revenue growth to approximately 16.5% to 17.5%. For the full year, we now expect our fiscal 2021 adjusted EPS to be in the range of $12.85 to $12.95. This higher guidance reflects the positive base business momentum and a lower tax rate. These benefits allow us to continue to invest while offsetting the COVID testing inventory provision and lower COVID selling prices. Next, I wanna share with you our expectations for gross operating margins for full-year fiscal '21 and provide you with an estimate of the net impact of COVID testing and the related reinvestments of profits on our margins. We expect our full-year adjusted gross margins to be in the range of 53.5% to 54%. And this range includes a net neutral to slight positive impact from COVID testing and reinvestments. We expect our full-year adjusted operating margin to be in the range of 23.5% to 24%. This range includes a 200 basis point contribution from the net impact of COVID testing and reinvestments. Finally, I'd like to address FY '22. We plan to provide our specific fiscal 2022 guidance on our November earnings call. But we wanted to provide some directional color today. To give you a sense as to what a floor could look like in fiscal '22, we have taken the following approach. As you know, there is a great deal of uncertainty around the level of COVID testing. Therefore, we have not modeled any testing revenue beyond the typical flu season. With the continued momentum we are seeing, we have increased confidence in our ability to deliver strong mid-single-digit revenue growth in fiscal '22 over our fiscal '21 base revenues, which as a reminder, adjust for COVID diagnostic testing revenues. With respect to Alaris, our filing is comprehensive and more complex than most submissions. As we have previously stated, it is possible that the review could be in line with [Indiscernible] timelines. However, as we have also mentioned, it was more likely to take longer for the FDA to review and ultimately grant clearance. It is inherently difficult to predict clearance timing. We are not assuming Alaris 510(k) clearance. It is difficult to predict how things will play out as shipments are only being made under the medical necessity process. At this time, we have incorporated the assumption that revenues associated with Alaris will be approximately similar to FY '21. We believe it is prudent and responsible not to definitively predict FDA clearance timelines. That said, we remain confident in our submission, and the process we are undertaking, including working closely with the FDA to obtain comprehensive 510(k) clearance. We expect to drive base business gross, and operating margin expansion. We expect the operating margin for our base business to expand more than our traditional annual target of at least 50 basis points and translate into double-digit operating income growth. For reference, we expect our base business operating margins to be between 21.5% to 22% in fiscal 2021. With these assumptions, we expect an adjusted EPS floor of at least $12. This represents approximately low-teens growth over our expected base business earnings in fiscal 2021. Now before opening it up to Q&A, I want to take a moment to comment on today's announcement of my upcoming retirement. With our strong base business momentum, our strengthened balance sheet and improved cash flows, which is evident by the increased number of tuck-in acquisitions that we've been doing and the restart of our sharp share buyback program for the first time since 2017, I feel that now is the right time for the transition as the Company is well-positioned to continue to drive shareholder value and impact the lives of patients around the world. I look forward to helping to ensure a seamless transition to the new CFO. And I'm very excited about the value creating opportunities ahead for NewCo and helping to ensure the success as a member of their board. With that, let me turn it back to Tom.

Operator:

Great. The floor is now open for questions. [Operator instructions] Your first question comes from the line of Bob Hopkins with Bank of America.

Tom Polen:

We can, Bob. Good morning.

Chris Reidy:

Thank you very much.