Q4 2019 Earnings Call

BBC fourth fiscal quarter and full fiscal year 2019 earnings call.

At the request a b D. Today's call is being recorded it will be available for replay through November 12, 2019 on the investors web page of the BD Dotcom website.

By phone at 805 858367 for domestic calls an area code four O 45373, 0.06 for international callers using confirmation number 599433 too.

I would like to inform all parties such a lines have been placed in listen only mode until the question and answer segment.

Beginning today's call is listening and make the Lucky senior Vice President of Investor Relations Mr. Lucky you may begin.

Thank you Dorsey good morning, everyone and thank you for joining us to review our fourth fiscal quarter result, as we referenced in our press release, we are presenting a set of slides to accompany our remarks on this call. The presentation is posted on the Investor Relations page of our website at BD Dotcom during today's call will make forward looking statements and it is possible.

All that actual results could differ from our expectations factors that could cause such differences appear in our fourth fiscal quarter press release, and then the Mdna sections of our recent FCC filing.

We will also discuss some non-GAAP financial measures with respect to our performance. Our fourth quarter results include a noncash charge in the period related to product liability matters of $582 million pertaining to certain light certain legacy Bard surgical products. This item along with the details of Peru.

Just accounting and other adjustments can be found in the reconciliations to GAAP measures in the financial schedules and our press release and in the appendix at the Investor Relations slides a copy of the release, including the financial schedules is posted on the BD Dotcom website.

As a reminder to provide additional revenue visibility, we will speak to our fourth quarter and full year 2019 revenue results on a comparable currency neutral basis. The comparable basis includes BD and barred in the current and prior year periods and excludes intercompany revenues and revenue.

He did with divestitures among other adjustments.

Before I turn the call over to Vince we would like to comment on the leadership change that was announced back in September . We're very pleased to have appointed Tom Polen as Bds next CEO effective January 28, 2020, Vince will remain chairman of the board upon his.

His retirement as CEO , while the company is energized far next phase it is truly bittersweet for all of US who have worked closely with since over the years. He has a wonderful person who they showed us that the secret to success lies and simple things like hard work perseverance and having a little fun along the way.

We're also excited to announce at our next analyst day will be held on May 28 of 2020, Tom and the management team, we'll share our vision strategy for Bds next era of value creation. So please save the date and look for more information in the coming weeks.

Leading the call. This morning, as Vince for like the ones that Chairman and Chief Executive Officer also joining us or Chris <unk> Executive Vice President Chief Financial Officer in Chief Administrative Officer, Tom Polen, President and Chief Operating Officer, Alberta, LMA Executive Vice President and President of the medical segment.

Simon Campion Executive Vice President and President of the Interventional segment, and Patrick Kaltenbach Executive Vice President and President of the Life Sciences segment. It is now my pleasure to turn the call over to them.

You Monique and good morning, everyone.

Before we discuss the company's performance I would like to spend a few moments, reflecting on the previously announced CEO succession. That's Monique just mentioned I will retire is BD CEO on January 28, 2020, while continuing to served as chairman of the board of Directors. The board has unanimously elected Tom Polen.

Our current president and COO to succeed me as Bds next CEO and President Tom supporting that reflects the leadership role he's played developing and implementing BD strategy envision.

We believe that it is the right time for leadership transition, given where we arent Bds journey as we begin the final your of the BD Board integration. We're looking ahead toward next phase of value creation, including how we leverage the capabilities, we've built to better serve our customers.

You all know Tom well and we are confident to Tom's vision energy and drive make him the right leader at the right time to deliver on BD strategic and cultural evolution.

With that let me turn it over to Tom to say a few words.

Thanks Vince.

The privilege to work alongside Vince and to learn from him for more than 15 years.

What stands out the most is what it authentic and purpose driven leader. He is this is committed to doing what is right for customers associates shareholders in our communities.

This has led the company during the most transformative period in Bds nearly 125 year history.

Under his leadership media evolved from what was largely a medical device manufacturer into one of the top five leading companies in med Tech today.

This is mainly lasting impact on our team our company and the entire med tech industry and for that we're all grateful.

It's an honor to have the opportunity to follow Vinces Bds next CEO and to lead this company as we prepare for next phase of growth and impact.

Well staying true to our purpose and core values.

We have built tremendous capabilities unmatched in our industry and assembled a leading portfolio solutions to better serve the entire health care continuum.

Discovery to diagnosis to the process of care in the treatment of disease.

As we look forward I believe we have an exciting opportunity to unleash the potential of the new BD to further impact.

Very much look forward to the journey ahead.

And with that let me turn the call back over to them.

It's time for your kind words and congratulations again.

Let's move on to slide four and our key achievements for the year.

As expected we finished fiscal year 2019, with very strong underlying performance and momentum across our businesses for the full year. We grew revenues by 0.1%, which includes the impact of D.C. beads revenue growth reflects the plant back half acceleration that we had been discussing with.

You throughout this year as expected growth was broad based reflecting the breadth and depth of the portfolio.

We also drove approximately 60 basis points of margin expansion and delivered double digit EPS growth before the impact of currency.

And we achieved all of this while overcoming significant headwinds and the impact of divestitures, while continuing to make strategic business investments.

At the same time, we are delivering on our board commitments.

If you turn to slide five I'd like to highlight the value we've already created with the BD plus board combination as we head into the third year of the deal model.

We're very pleased with the progress we've made so far.

Our core is grown stronger and we are delivering more impactful solutions to our customers.

On an underlying basis, both companies are driving strong revenue growth with legacy board growing over 6% and legacy BD growing over 5%, creating durable and sustainable topline growth.

Underlying earnings growth has been in the mid teens the integration of our two companies in cost and revenue synergy capture are on track.

In addition, we are well under way too quickly, reducing our leverage to below three times over the three year deal period.

Lastly, barges into BD into higher growth markets that we will continue to leverage and build upon beyond the deal period as we enter our next era of value creation.

Hyperlink, Q, but no the cold there and pure which are good examples of products in these new higher growth categories.

Before I move onto guidance I would also like to highlight the great work that has been done in new product innovation across the other segments.

They also continue to fuel growth from the new Polaris pump Pyxis, Es and our health side platform in the medical segment tour expanded BD Max menu BD facts research and clinical instruments and continued expansion of our BD horizon brilliant dies in life Sciences, just to name a few.

There are additional products and solutions in the pipeline that we are equally as excited about and I'll touch on those later in the presentation.

All in all we're proud of our organizations performance and strong execution.

Before I review the guidance for 2020, I want to touch on the recent news with respect to our Covington facility in Georgia. Many of you already know that we entered into an agreement with the state of Georgia to ensure that we can continue to provide critical medical devices that are sterilized said or Covington facility.

Based on this agreement and our business continuity efforts. We're confident we can continue to meet customers' demand for these essential products without interruption.

Ladies safely operating in full compliance with our parents as proactively adopted the most advanced and best available technology and is a meeting a fraction of our allowable limit.

We remain confident in science has confirmed that our operations are both safe for both employees and the community.

Now moving on to slide six you will see our initial guidance for fiscal year 2020, which reflects continued momentum across our businesses and strong revenue growth of 5% to 5.5%.

On the bottom line, we expect to deliver adjusted EPS between 12, 50 and $12.65. This represents currency neutral growth of 9.5% to 11% that is driven by strong underlying growth that is reaching high teens.

All in all we expect to drive earnings growth of about 7% to 8.5%. Our outlook is based on our current view of the environment.

As Monique stated in her opening remarks, Tom the team look forward to sharing more details about the vision and strategy for Bds Nextera value creation at our next analyst day in New York City on May 28, 2020, I'll now turn things over to Chris for a more detailed discussion of our fourth quarter financial performance and our fiscal year.

2020 guidance.

Thanks, Vince and good morning, everyone before I move to slide eight I'd also like to take a moment to congratulate Vince on his upcoming retirement as CEO of BD and thank him for his many years of partnership friendship and wisdom under Vinces leadership BD has transformed into a top five leading Medtech company.

Laying the foundation for our next phase of growth.

Vince is known and respected for his deep commitment to our purpose or culture and the development of our associates I think it's an understatement to say that you'll be missed by all of us.

I'd also like to congratulate Tom on his appointment I look forward to my continued partnership with Tom as he guides BD through its next phase of growth and value creation, while remaining committed to Bds purpose and core values.

Now moving on to slide eight I'll review, our fourth quarter revenue and EPS results as well as the key financial highlights for the quarter and the total year.

Fourth quarter revenues grew 6.2% on a comparable currency neutral basis.

Fourth quarter revenue growth was broad based and inline with our expectations for continued acceleration in the second half of the fiscal year.

I'll provide more color on fourth quarter revenue growth in a moment when I take you through the results by segment and geography.

Fourth quarter, adjusted EPS was $3.31 growing 13% over the prior year or 12.3% on a currency neutral basis.

For the total year revenues grew 5.1% on a comparable currency neutral basis adjusting for the impact from DCP is revenue growth would've been approximately 5.5% for the full year.

We also expanded our margins in fiscal 2019 on an underlying basis, we drove 130 basis points of operating margin expansion during fiscal 2019, driven in part by the realization of approximately $100 million and Bard cost synergies.

The leverage in the business model was evident in our fourth quarter results were operating margins of 27.4% expanded 150 basis points on a currency neutral basis.

Full year, adjusted EPS of $11.68 grew 6.1% or 11.9% on a currency neutral basis.

Growth was driven by strong operating performance, which mitigated the notable headwinds we faced throughout the year I'll provide more color on fiscal 2019 EPS growth later in my remarks.

We also continue to de lever during the fourth quarter paying down approximately $675 million of debt and $2 billion for the full fiscal year as a result, our gross leverage ratio declined to 3.5 times as of September Thirtyth.

We remain on track to achieve our commitment to de lever below three times over the three years ending December 2020.

Additionally, we are also very pleased to have continued our longstanding record of delivering an increasing dividends.

Fiscal 2019 marked our 47 year of consecutive dividend increases.

Now moving on to slide nine I'll review, our medical segment revenue growth.

BD medical revenues grew 5.3% in the fourth quarter and 5.1% for the full fiscal year.

As expected fourth quarter performance in the medical segment was driven by ongoing momentum and share gains and medication management solutions and continued strength in pharmaceutical systems.

Growth in medication delivery solutions was driven by our leading vascular access and vascular care portfolio's performance in diabetes care reflects strength in emerging markets that included a particularly large tender in the quarter.

Now turning to slide 10, and the BD Life Sciences segment.

Revenues increased 6.9% in the fourth quarter and 4.9% for the full fiscal year was which was at the high end of our guidance range.

Revenue growth in the fourth quarter was driven by strong performance in diagnostic systems and bio Sciences units.

Strengthen our molecular platforms with continued double digit growth and BD Max as well as in our microbiology solutions for I'd see and blood culture drove growth in diagnostic systems.

[noise] Bio sciences growth was strong globally in research and clinical instruments sales as well as research reagents.

Growth in Preanalytical systems reflects a tough comparison to the prior year. When we brought on additional capacity to meet demand for our push button blood collection subs.

Now turning to slide 11 in the BD Interventional segment.

Revenues increased 7.7% in the fourth quarter and 5.5% for the full fiscal year.

Video as fourth quarter results included a reduction of approximately 50% versus our originally budgeted DCB related sales, which is consistent with the trend we have been seeing since the FDA letter.

While the market is contracted we continue to maintain stable share and our leading position excluding the DCB impact VDI segment revenues would have grown in the low double digits in the fourth quarter.

Our overall revenues and peripheral intervention grew solidly in the mid single digits as our wave link co Vera and de Novo products continue to perform extremely well.

Excluding the DCB impact fourth quarter revenue growth in P. I would have also been in the low double digits.

Fourth quarter revenue growth in surgery of 8.9% reflect strong performance and biosurgery and the U.S. as pro gel sales continue to ramp ongoing strength and infection prevention and biosurgery in Europe , where we continue to see the benefit from our revenue synergy investments and global strengthened hemostats.

Revenue growth in urology and critical care of 9.9% continues to be driven by acute urology as well as continued strength in our targeted temperature management business.

Now moving on to slide 12, and our geographic revenues developed markets revenues grew 5.7% in the fourth quarter driven by broad based strength in all three segments.

By geography performance was strong in both the us in Europe .

For the full fiscal year developed markets grew 4.5%.

Emerging markets revenues grew 8.8% for the fourth quarter and full fiscal year growth on the quarter was driven by high single digit growth in China, and the broader Asia Pacific region, and double digit growth any M&A.

Growth in China was lower than we anticipated in the fourth quarter as we saw a pricing pressure late in the quarter in some of the more basic medical devices within our our Mds portfolio.

This is related to new volume based purchasing being adopted in certain provinces in the and annual tender process.

Looking ahead to fiscal year 2020, we expect high single digit growth in China, driven by double digit growth in the BD life Sciences, and BD interventional segments and single digit growth in the medical segment.

Turning to slide 13, which recaps the fourth quarter income statement.

As discussed revenues with strong growing 6.2% in the quarter on our comparable basis.

Moving down the PNM gross profit grew approximately 5% year over year.

Gross margin was a strong 57.1%.

Currency headwinds abated as anticipated and margin pressure from lower DCP sales and raw materials was more than offset by accelerated revenue growth continuous improvement and synergy capture.

SSG and as a percentage of revenue was 24%.

SGN a reflects our disciplined spending as well as continued achievement of Bard cost synergies.

R&D as a percentage of revenues was 5.6% for the full fiscal year, we invested $1 billion, an R&D, which reflects our continued commitment to drive innovation.

Fourth quarter operating margins of 27.4%, although highest quarterly adjusted operating margins to date, increasing 200 basis points or 150 basis points on a currency neutral basis, reflecting the leverage in our model.

Tax rate was 17% in the quarter, bringing our full year tax rate to 14.4% inline with the lower end of our guidance range.

As expected, we paid preferred dividends of $38 million in the quarter. As a reminder, the preferred shares will convert in may of 2020.

As previously discussed adjusted earnings per share of 3031 cents grew 13% versus the prior year and 12.3% on a currency neutral basis.

Now turning to slide 14, and our gross profit in operating margins for the fourth quarter.

As previously discussed gross and operating margins were strong in the fourth quarter, as 57.1% and 27.4% respectively.

For the full fiscal year, we delivered gross margin and operating margins in line with our guidance ranges.

Operating margins expanded 60 basis points on a currency neutral basis.

Looking back over a multiyear period, we're proud to have delivered 800 basis points of currency neutral operating margin expansion over the last six years. This demonstrates our strong execution and ability to drive continuous improvement.

Now moving on to slide 15 in our fiscal 2019 EPS growth.

Revenue growth combined with solid operating performance drove strong underlying EPS growth of 16.5% in fiscal 2019.

The results, we were able to mitigate the impact from headwinds divestitures NSX and delivered EPS of $11.68. This is in line with our expectations of what we have been sharing with you since our earnings call and May.

Since may currency continued to pressure the piano and we were able to offset the additional FX pressures that materialized over the back half of the year.

Moving on to slide 17, and our full fiscal year 2020 revenue guidance.

We expect currency neutral revenue growth of 5% to 5.5% on a comparable basis. Our revenue guidance includes an estimated 40 basis points impact from pricing, primarily driven by the China Mds tender process for certain basic products as well as an estimated 30 basis point impact from DCB sales.

Which are expected to be lower year over year until we anniversary the impact of the FDA letter toward the middle of the fiscal year.

From a phasing perspective, we expect revenue growth in the first half of the fiscal year to be approximately 100 basis points below the full year guidance range, driven by first quarter revenue growth of 1% to 2%.

In our MMS business, we are planning to make some improvements to our alaris pumps software, including upgrades to alarm prioritization and optimization. We're in discussions with the FDA about the timing of implementation of these upgrades and the possibility of bundling them with new software version release.

This is expected to move the timing of some sales from Q1, so the balance of the fiscal year.

Beyond MMS, the first quarter will also be impacted by pricing and dcbs.

By segment for the full year, we expect BD medical revenues to grow between four and 5%. We expect BD life Sciences revenues to grow between six and 7% and we expect the BD interventional revenues to grow between five and 6%.

Similar to fiscal 2019, we expect revenue growth to be driven by recent product launches across all three segments and strengthen both developed and emerging markets. We anticipate developed market growth of around 4.5% to 5% in fiscal 2020.

In emerging markets, we expect high single digit growth driven by a diversified base with high single digit growth in China as previously discussed and strengthening may.

Now moving on to slide 18 in our fiscal 2020 EPS guidance.

Starting on the left side of the chart growing off of fiscal 2019, adjusted EPS of 11, 68, we expect underlying EPS growth that is breaching high teens, 15.5% to 17%.

Strong operating performance will help us to mitigate the headwinds from the exploration of the Gore royalty tariffs and FX.

As a reminder of the Gore royalty expired toward the end of fiscal 2019, an increase in size from our original deal model view, resulting in a five percentage point headwind to growth in fiscal 2020.

Tariffs are expected to impact growth by approximately one percentage point and we continue to actively work with our partners to minimize the unfavorable impact to the company.

Currency is expected to be a headwind of about two and a half percentage points in fiscal 2020. This assumes a euro to dollar exchange rate.

Of.

$1.11 cents.

All in we expect to deliver adjusted EPS of $12 in 50 to $12.65, which represents growth of 7% to 8.5% and 9.5% to 11% on a currency neutral basis.

From a phasing perspective, lower anticipated first quarter revenue growth combined with the impact of negative foreign currency translation and the absence of the Gore royalty are expected to result in first quarter EPS of $2.55 to $2.65.

We continue to expect to achieve approximately $100 million and cost synergies in fiscal year 2020.

Committed to fully realizing $300 million, an annualized cost synergies over the three year deal period.

Now turning to slide 19, I'd like to walk through the balance of our guidance expectations for the full fiscal year 2020.

On a reported basis revenue growth for the total year is expected to be between four and 4.5%.

This reflects a currency headwind of approximately 100 basis points.

Adjusted gross profit as a percentage of revenue is expected to be approximately 56% to 57%.

This is due to strong underlying performance, including cost synergy capture.

Adjusted SSG in a is expected to be 24% to 24.5% of sales. This is an improvement of approximately 50 to 100 basis points compared to fiscal 2019 and is driven by the leverage in our business model and our continued cost discipline.

We expect to invest approximately $1 billion and R&D, which is in line with fiscal year 2019. This represents 5.5% to 6% of revenues and reflects our continued commitment to invest in new products and platforms.

As a result of the items I just detailed operating margin is expected to be between 26 and 27% of revenues on a currency neutral basis, we expect strong operating margin expansion of approximately 150 basis points.

We expect our tax rate to be between 14 and 16%.

For fiscal year 2020, we anticipate our adjusted average fully diluted share count to be approximately 287 million shares.

For modeling modeling purposes, I'd like to remind you that net income reflects the deduction of approximately $76 million of preferred dividends.

Preferred shares will convert in May of 2020 at which time the final preferred dividends will be paid the conversion is about neutral to fiscal 2020 EPS.

Cash flow is expected to be strong with operating cash flow of about $4.2 billion to $4.3 billion in fiscal year 2020.

Capital expenditures are expected to be between 900 million and $1 billion.

In summary, I'm excited about the momentum we have across our business and I'm confident that we will deliver on our commitments in fiscal year 2020 and beyond.

Now I'd like to turn the call back over to Vince who will provide you with an update on our product portfolio.

Thank you, Chris turning to slide 21, and our planned product launches by segment as we've been discussing with you we have a very robust pipeline across the entire company. There are a number of things. We're excited about I will touch on just a few recent launches here.

Starting with the BD medical segment.

Early in fiscal year 2020, we expect to launch BD insight Auto guard blood control pro our latest generation of active safety.

Catheters. This catheter adds new features to the world's best selling Pee Dee catheter, which allow a nurse to know that they can ULA is in the vein potentially increasing first stick success and ease of use.

We are also continuing to build our BD health site platform with new applications as part of our connected medication management strategy.

BD health side clinical advisor represents the next generation platform and integration of met mines have served surveillance advisor. This application will deliver expanded access to timely patient insights for infection prevention and anti microbial stewardship.

We also look forward to launching the BD and Teviot. The one ml disposable auto injector, a two step push on skin device that is designed to effectively and safely inject a variety of drugs have different viscosities and different volumes.

This is bds first device to combine syringe and auto injector technology in a true systems integration approach.

Now moving onto the BD life Science segment.

In fiscal year 2020, we continue to ramp the launch of our BD core high throughput molecular system building off of strong interest in excellent feedback from initial placements in Europe .

The initial launch includes the BD Unclarity HPV assay for the detection and extended junior tightening of HPV, the core system performance and sample preparation and processing steps necessary to complete molecular assay workflows and decreases manual user interactions. This.

System is CE, Mark and is not yet available for sale in the us or other markets with additional registration requirements.

Over the coming years, we plan to continue seeking regulatory authorizations to sell the BD core systems around the world while expanding the content menu to include many additional assay for infectious diseases, including and Tehrik disease, STS eyes and viral load.

We're also looking forward to a full access launch of the BD Facsymphony, Essex high parameter Self's order, which offer six way sorting and supports the simultaneous analysis of up to 30 parameters, giving researchers the ability to better understand self phenotypes for immunology and Multiomics research.

This will be a unique high parameter sorting solution significantly raising the competitive bar. We will also extend our capabilities under successful facsmelody platform with new enhance for waste sorting capabilities broadening the application space.

Within the BD interventional segment in our critical care business, our new already axon stat launch will allow us to leverage Bds informatics capabilities that will enable this platform to move from a standalone device to a solution.

BD targeted temperature management solution will be the first and only comprehensive TTM solution that is indicated to treat all appropriate patients from adults to neonates.

We are particularly proud of the new guard rail and monitoring features of the Arctic SUNS that that wireless Lee connect to the OEM are at the point of care, enabling advanced analytics that supports data driven clinical decision and benchmarking.

And our dialysis access platform. We are excited that the wave linked Q product platform, our new innovative solution that provides a minimally invasive nonsurgical auction for creating critical fistulas for patients with end stage kidney disease.

We'll launch in next generation device that will continue to facilitate excellent procedural success rates with optimized visibility and better connectivity.

And in our oncology platform, we are looking forward to launching our caterpillar embolization device and elevation breast biopsy device later this year.

Before I move on I would like to point out that we have included slides in the appendix of today's presentation.

That provide an update on our sustainability initiatives and awards. The we're proud to have earned during fiscal year 2019.

I hope you find the information useful and understanding Bds commitment to these important initiatives.

Moving on to slide 22, I would like to reiterate to key messages from our presentation today.

In the year of significant headwinds, we delivered a strong finish to fiscal 2019 inline with our planned second half acceleration.

Growth was broad based across businesses and regions, which reflect the breadth and diversity of our portfolio.

Integration of BD, and Bart and related cost and revenue synergy capture are on track.

And we're confident in delivering on our commitments in the third year of the bar deal model.

And last but.

And last but certainly not least I would like to take a moment to thank the 65000 BD associates around the world, who embody our values and come to work everyday to fulfill our purpose to advance the world of health.

It's been a great privilege, leading a team of such talented associates over the years.

As we move forward I'm excited by the opportunities ahead to continue to build upon our capabilities and invest in our growth a strategy.

We also like to thank our analysts who provide excellent coverage on the company and our shareholders for choosing to invest in PD Your partnership and support over the years has helped BD become the company. We are today and provides us with the ability to continue to do great things for our customers and their patients around the world we.

Look forward to sharing more with you at our upcoming analyst day in May as we entered the next era of value creation for BD. So thank you we will now open the call to questions.

The floor is now open for questions. At this time, if you have a question for comment. Please press star one on your Touchtone phone.

Any point. Your question is answered you may removed himself from queue by pressing the pound key.

In order to allow for broad participation. Please limit your question to one.

He asked that while you pose your question. Please pick up your handset to provide optimal sound quality.

Thank you. Your first question is coming from the line of David Lewis with Morgan Stanley .

Good morning, first off Tom Congratulations and Vince. Thank you for your leadership and value creation, I think Monique got it right with her bittersweet comment, but thank you both.

Thank you very much David.

And then just two quick questions from me now asking both here in the interest of speaking takes a long one for Chris maybe one for Tom really centering on 2020, So Chris just first off S. A little below the street, we discuss the impact of FX at our conference a few months ago I'm kind of curious on your philosophy. This year is it fair to say the the 250 basis points in beds some cushion for.

Thanks volatility across the year given the experience. This prior year and then for Tom you five to five and a half a little tighter than normal so how should investors interpret that range relative to the deal model of five to six and what are some of the key tailwinds and headwinds to consider this year. Thanks, so much nice quarter.

Thanks, very much David and thanks for the a nice remarks the job.

On FX, you're right that.

At your conference we did talk about the volatility of FX, and we were indicating that it we weren't going to chase that.

Because we do have underlying growth of 15.5% to 17% and we didn't want to to damage.

The.

Lack of investment that drives revenue growth in the future and so as a result.

We wouldn't chase it and we were seeing volatility that was getting worse and we indicated it was about 200 basis points back in September since then we've actually seen a little bit of a worsening.

It's come back more recently, but on a 30 day average it certainly has gotten a bit worse with the volatility in currencies like the UAN and the.

The pound with Brexit, So we see a lot of volatility in those currencies and so our estimate for the year of 250.

Does.

Take into consideration there might be a little bit of movement over the course of the year.

And we don't want to be chasing that within our guidance range. So we did take that into account and the guidance range that we gave.

But right now as we see it it's it's in that 200 to 250 basis point area and again, we're very committed to driving that 15, and a half to 17 underlying.

And to do anymore than that we think wouldn't be prudent.

Hey, David and thank you again also for your kind comments regarding our range. So certainly the deal model is very much intact. We are within that five to six range as we had shared in the past.

Of course were Annualizing the impact of Dcbs and we also have assume no BTK approval within the year and so we think about it adds we.

If if DCB stay at the level that they are today, so no improvement in Dcbs and no BTK approval, we would be at the bottom half with the five to six range and if we're to get a BTK approval earlier to see a notable improvement in the DCB run rate, we could end up moving above that but at this point we were.

Making the assumption that its status quo and Dcbs and we have not included BTK within our guidance. Therefore, we thought it was appropriate to tighten the range to the bottom half.

Great. Thanks, very clear okay.

Our next question is coming from the line of Brian Weinstein with William Blair.

Hi, Good morning, Vince Congrats on the retirement to help you stay in touch and can meet up at the stone plenty for beer Gossipers again.

Congrats to you I look forward to our first Springsteen experience together.

Hey, Brian just before you go on just semi the date, albeit.

By the beers.

[laughter].

As far as medical goes I wanted to ask a little bit there can you talk about the cadence.

Given.

Some of the timing things that we typically see in medical as well as the comps that they were going to be coming up against and also the China commentary. So it sounds like there's a lot of things to kind of consider as it relates to medical and then the guide and total looks to be a little bit below trend over the last couple of years from what we've seen out of the medical segments or anything to be aware of or any kind of.

Color that you can give us by product category that would inform and kind of what you guys are thinking there. Thanks so much.

Okay, Hey, Brian This is Tom and I, certainly very much we look forward to continuing that tradition.

Since it has started there so.

As we think about BD medical.

As we noted endpoint 19, we saw 5.1% growth for the full year. We noted in our comments earlier, we have seen some pressure specifically within really Mds, China related to pricing on some of the very basic medical devices that we sell there and so we've we've reduced the guidance then to four to five.

And so just a slight reduction versus the actual is that we saw an airplane 19, reflecting that that that observation that we've made and thats really the only thing we've continued to see very strong performance in in MMS through ethylene 19, as well as farm systems for the for the year.

Slide 20, sorry.

Our next question.

Our next question is coming from the line of Kristen Stewart with Barclays.

Hey, guys filling kind of left out without this spring stand right here.

Sure Brian would extend.

Yes. It makes me think I'm going to a giant scheme or something I don't know.

After the last night I don't know.

I know, they're looking for ways to have this season.

But anyway.

And just kind of talk to your updated thoughts kind of on capital deployment and making some pretty good progress on paying down the CAD and and kind of getting close.

We are making headway towards getting down to that three times.

Levered.

Number that you kind of said rating agency. How are you just thinking about not all on as you look ahead and Tom how are you thinking about it and Dan Vince. Thanks.

The year and Tom Congratulations as well as Sheila taken up there.

Great Kristen this is Chris so I'll.

Take that question and we're going to give a lot more specificity to that very question at the analyst meeting in May and we look forward to that.

But I would point you back to this past January where I did give a little bit of color on that at a conference and so as we think about coming to the three times leverage and to be clear.

That was the commitment we had we would expect to float that down to the kind of the mid twos mid to low twos overtime.

Befitting a company like ours that we should be strong balance sheet and be in that zone. So the three times was just a commitment to the to the rating agencies to do that in three years, but we would expect to float below that.

Good news as we throw off a lot of cash and so we often think about the $6 billion of debt that we repaid over the last couple of years of three years, but as we look at 21 to 23 between that cash as well as the additional earnings growth that we have over that.

Three year period, we'll have about $11 billion with some basic assumptions.

To allocate once we've done with.

Dividends and Capex. So it's a high class problem to have and so as we think about allocating that I think it gives us room to do a number of things first and foremost we would look at the M&A and tuck in acquisition and we've talked about how we're.

We're not interested in doing another big deal we've been very public about that so this would be a an acceleration and tuck in acquisitions and some of the.

Investments, we've made particularly the the bar transaction opens up opportunities for us in those areas as well as in life Sciences and medical so we see lots of opportunities and over these last couple of years, we've done some very good acquisitions, but they've been limited so we expect to expand that.

And then we still believe that there will be money left over from that 11 billion too.

To buy back shares and that'll be part of the model on a yearly basis, we're committed to not letting the cash build up on our balance sheet. So it's a combination of those two areas I think.

And the underlying demand on I think the payout ratio is about right might be some tweaking there will be thinking more in talking to people about that but I think it's in the in the rights zone.

And again, we talk about our Capex were in the right zone with Capex you see it's increasing a little bit this year from 900 to a billion.

I think thats about right I don't think Theres a lot of movement. There. So that gives you a little bit of a sense, but more to come with some specificity unmet.

Our next question is coming from the line of Bob Hopkins with Bank of America.

Oh, thanks for taking the questions and definitely best of luck different from Tom.

I was wondering if I could just get a quick commentary from you guys on two topics.

One was just any update on the BTK regulatory filing is it kind of just in the if these hands or is there still more back and forth and.

And then I was also wondering if you could just drill down a little bit more on on China price pressure like what what products, specifically what percentage of total China does that represent.

How does that impact the growth guidance, we're trying to overall that's embedded in your guidance for this upcoming fiscal year. Thank you very much alright, well. So we'll start with Simon talked about BTK and then Tom will talk a little bit about China, yes. Good morning bumps on here so on BTK.

As we commented last time, we're going to have an indirect obsession with FDA that has that has taken place. We're currently going through an available data set that we have.

On the on BTK.

And over the next next couple of months, we would expect to to file file that data with with FDA.

This is a this is an active pmeight. So we continue to work on it and continuing to interact with FDA and we'd expect the next couple of months to be able to file or something.

Hi, Bob This is Tom just a quick now as we mentioned earlier, we do expect continued strong double digit growth in both life Sciences, and the interventional segment in China, and so as you indicated.

The topic, we see in China, specifically concentrated in medical and even more specifically, we see within that the Mds business insults, let me turn it over to Alberto to lead to answer your question a bit more detail.

Yes, I think it's important to put this in the overall context, where the Chinese government and an authority. So tried to a few initiatives in the past to control health expenditure frankly with the with mixed results. This is the latest version of a trying that they're calling into the value based purchasing and tendering process.

This new process significantly overweights, the price component and the pricing pressure that we're seeing.

We're seeing this sibling up in Mds basic products not necessarily in broader categories.

So in Q4 is seeing some selected cities and provinces and introducing this new tendering system.

And we are expecting continued impact in fiscal year 20, as Chris and Tom has already highlighted so we're being prudent than we're moderating growth in Mds.

Typically in Mds basic products categories in China somewhat.

Thank you so yes ought to be clear, it's not a national program. At this point. This is actually couple provinces with some cities experimenting and we'll have to see how this works. We've seen this happened in other geographies around the world. It has not played out very well.

For the government's because of the lack of focus on quality. So we'll see what happens here and we'll keep you informed.

Got it thanks.

Our next question comes from the line of Rick Wise with Stifel.

Good morning, everybody and.

Vince its been just a pleasure knowing your all these years.

Let me start with.

The new product pipeline I mean, it clearly a couple of years are spending roughly $1 billion on R&D.

I'm just curious.

Maybe Tom as you are reflecting on that R&D spend what are your top priorities as you as we look ahead and maybe highlight for US if you could just as part of that.

The products you would have us focus on most.

That have.

The most growth potential.

As we look at.

Fiscal year ahead.

Hey, Rick This is Tom and thanks for the question. So as we think about R&D, obviously, you heard Vince walk through quite a wide and diverse range of the portfolio and so as we think about specific products I wouldnt extend those beyond the list that that actually Vince went through high in the script in is described in our.

Slides, so I want iterate those again I would just say as we think in internally and are focused on the portfolio. Obviously, we continue to strengthen the mode in the core businesses in which we participate and we're very focused on continuing to shift our portfolio into higher growth sectors, and we look to combine really the focus in those two.

The areas is how we direct our investments going forward.

Thank you.

Okay.

Yeah.

Okay.

Just getting thinking about the guidance for next year.

I don't want to.

We are dwell on the flu season, but obviously.

This year was.

Had a tough comp that you're just ended.

Any early thoughts on flu season assumptions and what's in your model at this point and would that is that also potentially depending on the severity of this season, maybe potentially some upside to the numbers.

Sure right. So the assumption is for normal flu season, which is essentially what we had this past year 2019.

So we don't expect the same unfavorable compare we had in 2019, so thats our assumption, it's really way too early to tell.

As it is always this time of year.

Some indication of some some severity the flu season.

In Australia et cetera, but that doesn't always play out here. So it's way too early to tell.

And within the guidance range.

Yes, if it's a severe flu season that would bump us up in the guidance range.

And if it was significantly weaker than a normal flu season, it could take you down.

And we're talking probably 30.

Basis points of revenue on either side of that 20 to 30 at this point.

And so thats kind of the way, we think about it and very similar to the way we think about it in the first quarter of every year.

I appreciate it thank you.

Our next question comes from the line of VJ Kumar with Evercore ISI.

Hey, guys. Thanks for taking my question in win so congrats on a successful career.

Sure the best next phase of life and not be emit maybe.

Starting with would the quarterly cadence here, Chris on I guess, the Q1 impact on NMS up I think you mentioned software changes so.

I think your main competitor is talking about off rollout of new platform can you, maybe just talk about the competitive dynamics and whether the software rollout whether thats just stuff.

The phenomena or usually when I hear software I think about integration issues. So just maybe give some color on on what's changing there.

Sure VJ, so I'm going to get started on that.

We did say that we expect revenue growth to be between one and 2% and one of the drivers of that is the timing of the upgrades in the Alaris pump software World, which all have Tom talk about our moment, but you also have the tough compare on the DCB impact.

That you get the full brunton, the first quarter, and then a tough compare and farm systems, which grew extremely well in the first quarter of of F. 119, you've got a little bit of that China Mds impact that we've referred to we also expect diabetes care flow.

Growth to be flat in the first quarter.

And pricings most acute in Q1, having said that despite the 1% to 2% growth in the first quarter. We expect the first half to be relatively close to guidance of within a 100 basis points to kind of have the similar split between first half in second half that you had and 19.

Driven by a number of those factors so for a little bit more color on the alaris pump upgrades alternative to Tom if VJ.

Just a note as you know lyricists that the clear leader and product choice in not only the infusion market, but also as part of a broader medication management solution that our customers are investing in and it's part of our process and our strategy and the business to continually iterate and make enhancements to the platform and so you've seen us do.

Thats certainly on the hardware side with significant investments such as the new Alaris and to pump launch, which has been extremely well received by our customers and we've been making those same type of investments in software upgrades over the last couple of years.

And this upgrade rate here, it's a continued reflection on those investments.

And we will be forthcoming.

We just in terms of bone momentum, maybe just one other comment there on your question, we saw an F. wind 19.

Near or at I'd say record levels of continued share gains both in the infusion ended dispensing business. So about 200 basis points of gain and infusion and 100 and dispensing and we see.

No slowdown in that momentum.

That's helpful or common Chris second one quick housekeeping on share count.

From my understanding may felicitous when when.

It steps up the conversion not kicks in.

It just looks like that to 87, maybe it's a tad higher than what the street was expecting maybe some comment on share count.

Yes, so thats we did.

Give that guidance in the in the script of the 287.

We don't think that the conversion of the preferred dividends is going to be that meaningful and obviously we issue some.

Stock comp that would naturally floated up since we're not in a position to buy back shares at this point and so you'll see a natural floating up of that I think it's a combination of all those things that get to the 287, but we can certainly talk to after the call. If you have any further questions.

Thanks.

Our next question comes from the line of Lawrence Keusch Shacks with Raymond James.

Good morning, This is John shoe on for for Larry.

Tom if we could start maybe in the prepared comments, Vince you'd mentioned, a strategic and cultural transformation.

Can you talk about what you're seeing happening from a cultural perspective.

Yes.

Sure It certainly.

John Good question from a cultural respect that weve been very focused on continuing our focus on on growth and innovation.

And we've been talking about that quite a bit as we've gotten larger so quickly. We've also been very focused on agility and removing complexity from the organization and our process as we think that and that fits right in line with some of the actions that we're also building into our business strategy has as Chris mentioned our folks.

Hassan and plan not to do another large evan.

Transformational M&A deal fits with our focus on continuing to transform our culture from an agility perspective as we.

Simplify and remove complexity from the organization in our next phase and we'll share more about.

Not only those strategies, but our focus on culture and you'll see it actually more in action at the analyst day that Monique announced that we'll have later on in in flight 20 in May.

I would just add to Tom and I've been working on this I think it is a natural next step based on all the things that we've done and it's Tom and Chris and others are really looking at the next step of value creation as Tom just mentioned Theres a lot of work going on not just on synergies by on Bill.

In this process and that gets to both the agility that Tom was talking about foot empowerment of people with those new systems aligning with the big effort that we started a year and half go round.

Customer experience. So Tom is pulling this together in a in a in a really nice way is what I would say and I think the company is getting very excited about it. So I'm looking forward to to see how this rolls out.

Okay, Great and then just on the Bard synergies those are tracking to plan.

If we.

If we look back to Carefusion, you're clearly we're able to outperform the initial guidance. There can you just talk about maybe the covenant. So you have in 100 million remaining synergies and then.

There any potential for for upside to those numbers.

Well Youre right, we did beat the Carefusion synergies I think when we we learned a lot when we did that and I think we assess the bard synergies more accurately having said that we've already seen upside to what we initially announced and that's on the tax side. So we didnt promise any tax synergies as part of the deal and we serve.

We have seen those and that's enabled us to to offset some other headwinds.

As I look at it we are very confident and this 100 million that I referred to as the final phase I don't see.

Too much potential to raise that significantly we'll see that as we go through throughout the year.

But executing that I would remind people that when we did the bar deal people was and how you're going to get any synergies at all it was well run company. So I think getting 300 million in the three years as is.

Is quite an achievement and then on top of that as the revenue synergies, which we're seeing in the business.

And you're seeing in the results. So when you when you think about what we're driving.

On the bar deal you know the the topline growth of 5% to 6% what we've seen in the last two years.

Is that the combined company drives about 5.8% over those two years.

Legacy bar, driving 6.2, and legacy BD driving 5.6, so a lot of revenue growth some of that coming from the synergies as well. So we really feel good about what we are accomplishing right in line with our expectations.

Great. Thank you so much Vincent and Tom Congratulations to both the.

Thanks, very much appreciated.

Our next question comes from the line of Larry Biegelsen with Wells Fargo.

Good morning, Thanks for taking the questions and congratulations to Tom and Vince.

Two questions from me, one high level for Tom and one on sterilization.

So Tom you are going to step into the CE role in January I know, it's early but what changes can we expect under your leadership and then secondly on sterilization I'll ask both my questions upfront here I think the the shutdown in Georgia is supposed to and tomorrow.

Could you give us an update on where you are with the remediation your confidence in resuming production and just lastly, I think the press release you put out you said you expect to operate at a reduced capacity.

How long do you expect that process to last thanks for taking the questions.

Hey, Larry. This is this is Tom Thank you for the comments in the questions. So as you know Vincent I've worked together for it for quite some time 15, plus years and have been on.

The journey that BT has been on together and so as we think about the next phase for the company I would say that while we will share more of that of course.

In upcoming forums can expect very much a continuation of the journey that were on there is a natural of course inflection as we come to the end of the Bart integration window.

Whereas we now realize the full cost synergies we of course will be freeing up capital to create value in other ways as you heard Chris walk through and so we'll be contemplate what is a natural inflection in our strategic cycle.

Refreshing that but continuing very much in line with.

I think what has made BD a attractive place for investors that bellwether performance the dynamics of the company and building off of the new capabilities technologies and assets at the company's built over it particularly the last seven years under Vinces leadership and moving those forward into the next phase of growth.

So let me just comment on each year. This November 7th that we get back to you know.

Production up we're producing were not sterilizing and it just make sure you understand that was voluntary so that they could do some ambient air testing and that will get done and then we'll go back to producing.

Going forward, what we're talking about is we've made some process changes to further optimize eliminating fugitive emissions, we think that with those changes we can meet all customer demand going forward and we'll just continue to to optimize so we're not Sydney.

Here, saying that we're not going to be able to meet customer demand. We're very confident that we can we can do that so that's the way you should you should think about it.

You guys.

Our next question comes from the line of Bill Quirk with Piper Jaffray.

Great. Thanks, Good morning, everyone, Vince Great ride and certainly thank you for everything and I am congratulations on the neural thanks Bill.

So Chris I hate to come back to China and pricing based wanted to confirm that the guidance assumes that does continue into 20 kind of beyond what you've already experienced at the city or province level and then secondly, congrats on the initial BT core release in the you when might we see that in the U.S. Thanks guys.

So I'll start bill and.

You're right, we do have that baked into our guidance for the year that it would continue as you might expect.

The provinces are are very transparent on the kinds of.

Pricing results that they're getting.

We do expect that at some point.

They will experience some issues related to quality and that might change things, but right now it's very much focused as Alberto said on on pricing as a component of the tenders. So we do.

Expect some of that to continue throughout the year in our guidance has that baked in.

Patrick.

Let me, let me briefly comment on beauty core. It's you know we launched this product mid of 2019 in Europe , It's no CE Mark in available in Europe in select markets. We will continue to be extended into CE mark to regions and targeted towards the end of 2020 , maybe beginning of 21, but depends on the regulatory process.

To make it available to do as well.

So we're really excited about doing this momentum is seem to customer demand in Europe and also the customer feedback dosing. So we've worked.

Very diligently on releasing it into other regions as soon as possible.

Very good thank you.

Our next question comes from a line of Matt Taylor with CBS .

Hi, Thanks for that question. So I just wanted to ask a little bit more about the DCB dynamics you touched on this couple of times on the call but.

Have you seen any change since the FDA is second memo in August in terms of any pickup theres been some more data that's come out.

What do you think would have to happen to actually improved the trajectory of the existing.

Core DCB business. That's my first question.

So good morning map of Simon here.

Yes.

In relation to these the second letter that FDA pushed out in August .

That's fair to say that we certainly didn't see any any initial.

Uptick or decline in the in DCB utilization.

But then in in late September as you May know.

The independent analysis of the Lutonix say that was published in the in Jack I think it was September 28.

And the response, so far to that data has been has been quite favorable for us Weve, obviously trains auto sales forces on that and they've been doing pushing that message.

To our customers that for the tonics DCB is that not only effective but it's also also safe. So I would say that we are we are I'm quite pleased with with the response and market has the has shown in that regard.

But.

Qualify that it's only one month ago. So it's a it's very early but we're quite pleased with that.

I think then to your second more maybe more macro question about what it will take to really shift as market back to where it is I think that quite frankly, the is rescinding of the of the letter that's what's required to get it back to where it was.

And just a clarification on the T.K. comments before you'd mentioned that you expect you might be able to see a filing at some point.

Calendar year would that be something that could create kind of a normal filing timeline or would it be different given the fact pattern here just help us under understand that it would be a normal filing.

Cadence that was that it would be a PMA p. may supplements, so that would be probably within the typical hundred 80 day plus range. So that's the usual usual method that FDA would take to assess the.

Thanks, and congrats to Vincent Thank you.

Thanks, Matt.

Our next question comes from the line of Robbie Marcus with JP Morgan.

Great and thanks for taking the question.

It's been two years now where you've had great underlying EPS growth by single digit reported EPS growth I was wondering if you could talk philosophically about your commitment to double digit EPS growth and are there any levers you can pull throughout the year to get you backup to double digit.

Thanks.

Sure Ravi so.

When you look at the headwinds that we've had in this past year, we tend to forget that there was 600 basis points of of pressure from FX and.

You know to to jump over 600 basis points would be.

Not prudent in terms of running a long term business.

Now, we always do try to to jump over.

Some portion of the FX and we've had a good track record of being able to do that.

And so.

We when we look at the.

Guidance going forward, we would expect to have 100 basis points, but at some point you would expect that those headwinds from FX to not be 600 or not to be to 50, even.

So.

Thats as we think about it will will jump over some of it as we did in the fourth quarter and the second half of the year.

As betters or was it was it was worse than we had anticipated it kept getting worse.

The volatility of the won the the euro weakness and the the dollar's strength.

And then the volatility of the pound all of those things we're driving the the strength of the dollar and so we jumped over that in the second half of this year and we don't talk too much about that as we look at the guidance for this year.

We have another big issue to deal with and that's a drop off of the Gore royalty and that's 500 basis points and so if you take that and the 250 basis points were jumping over.

We're dealing with 750 basis points of pressure that is not part of the underlying business and I would say our ability to offset that gore royalty.

Was was better than it would have been on a stand alone Bard bases and would have been very difficult to offset any of that.

And we were able to offset a very good portion of that so we feel good about the the.

Ability to jump over headwinds.

There have been more than our share of headwinds and the past we don't see that once we get through the Gore royalty, we don't see a lot of that going forward. It goes kind of back to normal.

And we do have a business that is.

On an underlying business very reliable very predictable Tom talked about the nature of our business of having.

The the kind of moats around our business.

Strong product lines and in excellence in manufacturing and then we also will have the ability to.

To buyback some shares in the future as we paid down the debt and we've been dealing with those headwinds without the ability to do that over the last couple of years and so we have that lever back in our Arsenal as we go forward.

And that will be very helpful as well so.

Where I believe coming to a point, where some of this will be behind us and we go back to being.

Predictable BD that we've we've always been so thanks for your question.

Understood and then.

Quick follow up I'm going to sneak two very quick ones in here one was there an extra selling days in the quarter and to the urology business continues to exceed expectations can you just talk about the drivers and sustainability there on on the first we don't make a habit of talking about days some companies do with Italy.

Runs out so nothing nothing.

To speak of there and on urology, that's a great point, we very rarely talk about things like 9.9% growth in a quarter and saw past that over to Simon.

Yes, so so again urology has been a sustainable performer.

This year, we've seen sequential growth in a number of our businesses.

Particularly TTM.

And the acute urology business so.

It continues to.

To inspire us with confidence we got a cadence of new product launches that will come out.

Across the entire urology business in the next year. So let's just another leg on the legacy VDI still so we're we're very pleased with it.

Yes.

Final question comes from the line, Richard Newitter with SVB Leerink.

Hi, This is Jay.

Thanks for taking my question just had one quick question.

Our strategy and the diabetes business going forward I know last call you had mentioned.

Beating your strategic options for the teacher task.

You can provide an update on there.

Hi, Jamie this is Tom Thanks for the question.

We are continuing to advance the patch pump in our pipeline. We did as we had mentioned in the prior call withdrawal or ft application. After getting feedback from then there was a bit more comprehensive than what we had anticipated and so as we also shared on the last call. We're now progressing that primarily with a third party are.

Randy partner with deep expertise in that space, but we are progressing that that forward as that continues to advance and our pipeline.

We'll share an update on that as that ends up approaching closer to launch. Thank you.

Great. Thanks Congrats.

Yeah.

Thanks very much.

There are no further questions at this time I will turn the floor back over to Vince Lorenzo for closing remarks. Thank you very much let me start with saying we had strong performance to close out fiscal year 2019. It was broad based it was all three legs of our stool all three segments.

Performed really really well with great momentum going into this year.

Entering fiscal 2020 in the final year. The bar deal. We're confident that we will continue to deliver on our our commitments and I think you'll hear more about in May Toms vision and the company's vision in terms of how we continue to drive shareholder value I'm looking forward to that.

And then finally I'd like to say once again.

Thank you to all of you the investors the analysts who have been with US on this exciting journey and I'm confident that the company's position well for continued success. So thank you very much and greatly appreciated.

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