Q4 2020 Becton Dickinson and Co Earnings Call

November 5, 2020

And this is the operator your conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.

[music].

Hello, and welcome to <unk> fourth fiscal quarter and fiscal year 2020 earnings call.

At the request of BD today's call is being recorded.

It will be available for replay through November 12, 2020 on the investors page of the Bebe Dot com website or by phone at 800.

Slide 858367, what domestic calls and area code 404.

5373, 406 for international calls using confirmation number 44752 to nine.

I would like to inform all participants that your lines have been you did.

Until the Q when they session segment.

Beginning today's call is Ms., Kristen Stewart senior Vice President of strategy and Investor Relations Ms. Stewart you may begin.

Thanks, Chris and good morning, everyone. Welcome to Bds review of our fiscal fourth quarter results. Joining me today, we have Tom Polen, Chief Executive Officer, and President and Chris Reidy, Executive Vice President Chief Financial Officer, and Chief administrative officer.

Turning during the Q and a portion of the call. We will have three segment presidents joining us a burden maass president of the medical segment, Patrick Kaltenbach, President of our life Sciences segment, and finding Campion President of Interventional segment.

A few logistics before we get into the call.

This call is being made available via the webcast at BD Dot Com, where you can also find accompanying slides.

Unless otherwise specified all comparisons will be made on a year over year basis versus fiscal 2019 and present changes aren't FX neutral basis. During the call we will be making some forward looking statements and it is possible that actual results could differ from our expectations.

Risks uncertainties and other factors that could cause such differences can be found in our FCC filings, including our 2019 form 10-K and subsequent forms 10-Q.

In particular, there continues to be significant uncertainty about the duration and contemplated impact the COVID-19 pandemic. The commentary we are providing today includes our best estimate based on the information that we currently have.

We have made certain assumptions and how we are managing our business, but that could change as we move forward.

We will also discuss some non-GAAP financial measures with the with respect to our performance reconciliations to GAAP measures that include the details of purchase accounting and other adjustments can be found in our press release and its related financial schedules and in the appendix of the Investor Relations slides. These are.

All available on the BD Dot com website.

That I'll turn it over to Tom Tom.

Thanks, Kristen good morning, everyone, I hope, you're doing well and thank you for joining us.

For today's call I want to address three main topics first my high level perspective on the quarter and full year performance second I'll give an update on several hot topics, we're fully focused on and finally I will share progress on BD strategy.

And I'll turn it over to Chris for a review of the P., Adele and an update on our outlook, so let's jump right into it.

First I'll start with the quarter and the full year performance.

In Q4, we had better than expected results revenue in not only our cobot related diagnostics testing, but also our core business.

That allowed us to not only deliver EPS upside, but also importantly gave us the opportunity to make some strategic investments aligned to our BD 2025 growth strategy.

Revenues were up 4.4% on a reported and FX neutral basis, as we were able to offset the overall impact of COVID-19 and grew despite the alere ship hold.

What do acknowledge the exceptional execution by our integrated diagnostic solutions business this quarter, particularly the BT territory team the.

The team exceeded our commitments successfully developing the BD their tour COVID-19 assay and an accelerated timeframe.

Securing several regulatory approvals scaling up manufacturing and continuing to advance the science behind the utility and effectiveness of rapid antigen point of care testing.

Total koby 19 testing revenues allowed us to offset the ongoing cobot headwinds and other businesses from lower hospital utilization surgical procedures routine lab testing volumes and research spending.

In fact, because of our cobot testing revenues grew able to move from a net negative cobot impact in Q3 to a net positive cobot impact in Q4.

If you exclude koby 19 testing and look at performance of the base businesses.

We're very pleased with the sequential improvement across all of our three segments during the quarter.

As you'd expect the pace of the recovery varied by both product category and by geography.

So all in the BD team was able to deliver Q4 mid single digit sales growth.

Overcoming the headwinds from COVID-19, and the Alere ship hold the latter we estimate to be 240 basis points in the quarter.

Our Q4, adjusted EPS was $2.79 down 15.7% on a year over year basis well.

While our revenues returned to growth. We did did continue to see some cobra related pressure dilution from our may equity issuance and headwinds from the last quarter of the Gore royalty contributed to our EPS decline.

As I look back on the year, we faced a number of challenges from the Alere ship hold to COVID-19, and had significant impact on health care utilization globally.

In our fiscal Q3, COVID-19 had about a $600 million negative impact to our top line.

However, the beating team executed strongly swiftly launching multiple innovative koby 19 diagnostic solutions and focusing on execution to return to growth in Q4 and finished the year with revenue was flat on an FX neutral basis.

I'm proud of the team for their hard work closing the year strong and offsetting the continued koby 19 headwinds.

I want to turn to several hot topics.

Let's start with a review of our cobot testing in the quarter.

As I said I was very pleased with the idea of teams execution. This quarter with COVID-19 testing sales coming in at approximately $440 million.

Severity, where revenues at over $340 million in the quarter.

We were able to ramp up their toward manufacturing capacity faster than originally expected a testament to be these world class manufacturing excellence.

We were also able to sustain a higher average selling price for longer than we anticipated.

Looking ahead, we do expect price erosion as additional competitors have come to market and more may do so [noise].

We continue to work diligently to expand our BD Barrett tour in BD Max manufacturing capacity.

Our previously communicated capacity expansions remain firmly intact.

We continue to monitor the supply and demand dynamics of the market and will provide you with updates on additional capacity expansions to the extent any further new capacity comes online.

On the customer side, we continue to see very strong demand for BD, veritor or and BD Max COVID-19 tests.

Regarding BD veritor or we've seen strong adoption in interest from both traditional and non traditional account in the U.S.

Since the last quarter, we have doubled our U.S. install base of active there, it's where readers to over 50000 units and we continue to see strong instrument demand.

Further extending our footprint.

We believe that this broad and very tour footprint will provide us with additional future growth opportunities beyond COVID-19 testing for current and future planned assays.

On September Thirtyth, we received the CE Mark for our COVID-19 assay on beauty their tour and we've been very pleased with the reception of the assay in international markets.

Weve signed a number of contracts that are actively leveraging one of BD strengths, which is our large international footprint and in fact, we are now shipping veritor instruments and asset sales to customers across Europe, Asia, Latin America and Canada.

As we head into the flu season, we recently launched a combination COVID-19 flu RSV test in Europe.

When our BD Max system with our partners are test.

We continue to work toward the launch of combination flu and cold in 19 assays, when our BD, Max and BD veritor platforms globally.

Now, let me take a minute and walk through our thinking on the outlook for meritor.

You've heard me say before that there are a number of variables at play.

There's a ramp up of our manufacturing the number of competitive products and Asps and then you have to take into consideration many variables around COVID-19 vaccines like their timing availability effectiveness and how widely they are adopted.

But taking all of that into consideration we are comfortable forecasting fiscal 2021 very toward testing in a range of $1 billion to $1.5 billion with the weighting of these revenues being more in the first half of the fiscal year than the second.

I know many of you also have questions on the long term durability of COVID-19 testing and the outlook for fiscal 22 and beyond again, there are many factors at play and there are a variety of scenarios that were planning for and we'll be ready to execute.

I would say, though that we do now believes that there is a higher likelihood for testing to continue into fiscal 22.

However, given the uncertainty around demands and Asps, we believe it would not be prudent for model a continuation of revenues at the same level as fiscal 21.

This leads me to our next topic, our COVID-19 testing reinvestment plans.

We are electing to reinvest a portion of our F. Y 21, COVID-19 testing profits back into the business to ensure long term global growth.

These profits will be invested consistent with our strategy and value creation framework of gross simplifying and power our top focus is investing in growth.

We activated the organization and investment plan in Q4, initiating a bottoms up process to identify high impact projects and programs based on risk adjusted returns and our capacity to execute.

As part of this initiative, we increased investment in the recently launched beauty innovation and growth fund.

We have also kick started other programs that accelerate go to market investments in the U.S. and internationally.

And ongoing R&D projects.

You've heard me talk a rep talk about our simplification efforts around project Recode.

We plan to look for ways to optimize that program even more.

We're also using COVID-19 profits to accelerate further investments in our inspire quality program that has our risk management systems.

We believe these investment program should generate returns beginning in late flight 22.

Our current reinvestment plans contemplate fiscal 2021 very toward testing revenues.

Although as I said $1 billion to $1.5 billion.

Very toward testing revenues are above this level, we plan to make additional investments to.

Words long term growth yet still allow a portion of the higher revenues to flow through to the bottom line.

Next I'd like to take a moment to update you on our readiness for a COVID-19 vaccine campaign, where.

So we continue to make great progress.

To date, we now have commitments for over 800 million needles, and syringes, which includes commitments from countries like the U.S. UK and Canada.

And various non government organizations around the world as they prepare for Cobi 19 vaccination campaigns.

Last June we estimated the total vaccines syringe and needle opportunity over a 12 to 18 month period could be in the $100 million to $150 million range and we continue to feel this is an achievable objective.

Now I'd like to update you on Alaris.

The highest priority of the organization continues to be preparing for a comprehensive five 10-K filing obtaining clearance for alaris and returning our market, leading infusion pump franchise to growth.

Over the last quarter. The team has made further progress and retired risk.

We're systematically working our way through various testing stages, and we continue to engage in open dialogue with the FDA about our progress.

My confidence level today is higher than it was last quarter that we will be able to submit our five 10-K in late fiscal Q2 or early fiscal Q3.

2021.

As I mentioned in the past our focus remains on ensuring a comprehensive submission.

It will ultimately help enable timely FDA review and clearance.

So it is not our intention to predict FDA timelines.

Given the size and complexity of the submission we do not assume any revenue contribution from a five 10-K clearance in fiscal 2021.

The last item on my Hot list, because I want to comment on innovation in our growth and our product pipeline.

[noise] category innovation remains one of the core drivers of our growth strategy.

We have been focused on improving our pipeline execution and R&D effectiveness and we continue to make great strides to that end.

This quarter R&D spending increased 8% year over year, the first meaningful increase for the company in many years.

Looking ahead, we will continue to focus on driving new innovation at a higher level of R&D investment, including through our new BD growth and innovation fund, which we established earlier this year.

Through the fund projects are funded for a maximum of two years and given be completely new product development opportunities unfunded were underfunded line extensions that have significant incremental revenue opportunities or commercial programs designed to accelerate product adoption grew.

We received a lot of great submissions across all three segments and we initiated the first round of funding in Q4.

Looking ahead to the next year or so we are advancing a robust product portfolio with many singles and doubles.

Like Weve long been known for.

We also have some more notable programs in the pipeline and I'd like to highlight a few of those for you now.

The idea is team is acutely focused on advancing our combination covidien flu assays on both our BD Veritor and BD Max platforms as soon as possible for the benefit of patients.

I also want to highlight the great strides of our women's health and cancer franchise.

That they're making.

In July we received FDA approval of the BD Unclarity HPV assay for extended Genotyping, which can improve risk stratification and support risk based patient management.

We're receiving great customer feedback on this assay and in fiscal 2021, we look forward to bringing this assay and BD core which is our new high throughput molecular diagnostic system with fully integrated specimen processing, we look forward to bringing that both of those to customers in the United States.

The BD core system and our Unclarity assay are both available in Europe, and we've been receiving very positive feedback on the initial rollout.

In BD medical in Q4, we launched the BD Ultra safe plus 2.25 ml passive safety system, which adds to our proven high growth safety portfolio in pharmaceutical systems.

It has been designed to deliver up to a two ml dose volume, while enabling an ergonomic and safe injection experience for both patients and healthcare providers.

We have launched we have secured a number of pharmaceutical partners that plan to commercially launch our new product towards the end of fiscal 2021.

Also in BD medical during fiscal 21, we'll launch the BT Pyxis Es 1.7.

Which adds new capabilities and deeper integration of pharmacy, and nursing by enhancing automation in the operating room with the Pyxis anesthesia station.

In BD interventional, we had a robust year of product launches across its three businesses of.

Of particular note the peripheral intervention team launched the 0.18 and 300 millimeter Lutonix dcbs in the U.S. and launched Lutonix in Japan.

I also launched the elevation single insertion multiple sample breast biopsy device. In addition to the Caterpillar embolization device, which represents our first foray into the world of interventional oncology or.

Our surgery business launched a completely robotic compatible version of our market, leading anatomically configured threemacs, England, our hernia mesh as well as the pure prep infection prevention products find.

Finally, our UGC business capitalize our developing position in female incontinence by launching Drydocked 2.0, which is designed to help women who suffer from an continents to use pure week at home.

But we were very excited for Patrick's appointment to the Chief Technology Officer, and we're confident that he has the right leader to deliver on our innovation strategy and product pipeline and our next phase of value creation.

And is Patrick takes on this important new responsibility, we could not have asked for a better successor, then Dave Hickey to lead Beady life Sciences and build on Patrick's track record of success.

David has been leading the Ibs team and the beauty Vera towards COVID-19 launch.

Finally, I want to provide a quick update on our strategy.

When I became CEO earlier this year outline my vision for Betis next phase of value creation, So what we call BT 2025, which.

Which included three drivers grow simplify and empower and.

And the drivers build upon beady strengths are world class manufacturing global scale are strong category leadership, and deep capabilities and software and informatics.

And we've made great progress in fiscal 2020 and building the foundation and beginning to execute against our new playbook.

As I mentioned, we've been steadfast and strengthening our R&D capabilities and continuously improving R&D effectiveness I'm excited about what is to come from the beady growth and innovation fund.

We also look to augment our internal innovation strategy through tuck in acquisitions in fiscal 2020, we executed on six tuck in transactions and higher growth markets and I'll highlight just three.

The first is Nat diagnostics, which is an early stage privately held company.

Developing a molecular diagnostic platform for point of care testing.

This acquisition broadens, our point of care testing capabilities and infectious disease and while this product is still under development and a few years from launch we are very excited about the technology and our point of care diagnostics business more broadly and how this adds in a molecular capability to that.

Another acquisition, we closed on this year with straw medical privately held medical device company that markets mechanical atherectomy and thrombectomy devices that treat peripheral arterial diseases.

This acquisition expands our robust portfolio of P E D and Venus solutions within our Beady interventions segment and.

And the third acquisition I'd like to highlight is adaptec.

And innovative startup company that developed a sense of co UO, which is an automated urine output measurement solution. It captures hourly urine output measurements and integrates this into the electronic medical record through the BT health site platform.

This is actually going to be beady interventionists first connected smart device we.

Which leverages betis interoperability position that we have today in about 70% of all U S hospitals.

We have a robust funnel of deals and we continue to increase our focus here as we move into physical 2021.

Our efforts around simplification and project re code and inspire quality all remain on track if.

If anything we have the opportunity to accelerate some projects with some of the COVID-19 test reinvestment proceeds.

As I reflect on F Y 20, I am proud of how the company work to navigate through the headwinds of Covid and the leadership hold.

A response to these challenges along with a successful launch of COVID-19 testing enabled beady to deliver flat revenue performance on an ethics neutral basis for the year.

As I look ahead, there are some challenges that we face as a company, namely Covid and the hilarious remediation the <unk>, the latter of which I.

I am confident we will resolve.

But there are many more opportunities ahead to drive growth and accelerate our impact on health care around the world we.

We have the right strategy, we're making the right investments.

With that I'd like to hand, the call over to Chris Reidy, and then I'll make a few concluding remarks.

Thanks, Tom and good morning, everyone. Thanks for joining us today.

We are pleased with our fiscal fourth quarter revenue and adjusted earnings per share performance.

Overall revenues were $4.8 billion up four 4% on both the reported FX neutral basis we.

We estimate the net impact of Covid was a positive 210 basis points as COVID-19 testing revenue more than offset the ongoing negative impact from lower utilization across our businesses.

Even after adjusting for the net COVID-19 effect. We are pleased that we're still able to grow our revenues. Despite the awareness pumps tripled we estimate the negative impact of dealership hold was 240 basis points.

BT medical revenues totaled $2.3 billion, and we're down four 9% year over year, we estimate covid negatively impacted the business by about 370 basis points.

Estimate the Alara s'posed negative impacts was 450 basis points.

Medication delivery solutions saw sequential improvement consistent with health care utilization trends, but still continue to be impacted negatively by COVID-19 on a year over year basis into.

Internationally, Mds's decline and largely reflected the impact of China's volume based procurement as well as inventory reductions we took in the quarter.

Medication management solutions Leora ship hold continues to have a negative impact on the business units overall results and there was a difficult comparison with the prior year.

International MMS sales were very strong driven by infusion pump sales in Europe.

And use dispensing, we saw a solid growth and closed the year with strong new committed contracts.

And diabetes care sales declines reflected ongoing market price pressures.

Farm system sales were up double digits this quarter and ended the fiscal year with a strong nine 4% growth driven by our Prefill and safety syringe portfolios.

BT Lifesciences revenues totaled $1.5 billion, and we're up 31, 4%.

We estimate the net positive impact of Covid was 26.2 percentage points in the quarter.

Our pre analytical systems business was down 3% year over year, we have seen sequential improvement as routine lab testing volumes improved.

Our diagnostic systems business was up 97, 3% driven by just over $440 million in COVID-19 testing.

Biosciences sales were down 9% globally. However, we saw a sequential improvement in reagent sales as research and testing continues to resume.

Beating intervention will revenues totaled just under $1 billion and we're down three 5% for the quarter.

We estimate the net net negative impact from Covid was 11.2 percentage points.

Or a surgery and our peripheral intervention businesses, both saw a solid sequential improvements as elective procedures continue to return closer to pre covid levels and several geography's, most notably in the United States.

The peripheral intervention business was particularly strong in Japan on the heels of a successful lutenist launch.

The urology in critical care business performed well with the U S. Returning to growth so offset by an international decline.

Now turning to the P&L gross margins were 54, 8% or 55.1% on an FX and basis, the latter down 200 basis points year over year.

While we benefited from higher margin COVID-19 testing revenues it was more than offset by the continued drag from lower volumes, which drove unfavorable manufacturing variances.

We are actively managing our cash in inventory balances globally, and we expect to see more covid related manufacturing variances in fiscal 2021 negatively impacting our gross margin line.

S SG&A expensive $1.2 billion was 25.1% of revenues up 110 basis points year over year.

S. SG&A includes a 25 million dollar investment to the Beady Foundation this quarter and support of our longstanding commitment to advancing the world of health and supporting the communities, where we live and work which.

We continue to see higher shipping costs related to the pandemic and we also had elevated levels of spends related to Zurich tour and the quarter.

R&D expense of 279 million, representing five 8% of revenues was up 20 basis points year over year.

In dollar terms spending was up 8% on a year over year basis, as we invested in Covid diagnostics and other growth initiatives, which.

We expect fiscal 2021 spending on R&D to continue to be higher as we continue to focus on innovation and implement some of the reinvestment plans Tom mentioned earlier.

Operating income was $1.1 billion, resulting in an operating margin of 23, 9%.

On an FX neutral basis margins decreased 320 basis points, mainly reflecting the contractions and gross margin as well as higher SG&A and R&D.

[noise] interests. Other expense net was 110 million, resulting in a decline of $4 million on a year over year basis, we had favorability an interest expense this quarter as we repaid that.

The adjusted tax rate came in is expected in the high teens at 18.7%.

Preferred dividends in the quarter with $22.8 million.

Adjusted earnings per share with $2 79.

As previously discussed and this includes a <unk> headwind from FX.

For the year, we generated three $5 billion in cash flows from operations and our free cash flows was 2.7 billion net of $810 million in capital expenditures.

In line with our goal of continuing to increase the strength and flexibility of our balance sheet, we paid down $950 million of that in the quarter, bringing our total debt repayment to $1.7 billion for the year. This resulted in a net leverage ratio of three times as 310 times as of September 30th two.

Thousand 20.

Now we wanted to share some blood thoughts on fiscal 2021.

As we look ahead the greatest uncertainty we see as the recent COVID-19 resurgence is around the world and the potential impact. This may have on general health care utilization procedure volumes and diagnostic testing, including Covid testing.

Our guidance assumes no major system wide shutdowns of elective procedures.

Assuming no significant changes in utilization and procedure volumes associated with COVID-19 resurgence is we're comfortable forecasting low to mid single digit FX neutral revenue growth, excluding the covid testing revenues.

Our covid testing revenues in fiscal 2020, where approximately 580 million.

On a total company level inclusive of Covid testing, we expect FX neutral revenues to grow in the high single to low double digit range.

Consideration and looking at the Street consensus we would suggest a phasing that shifts earnings from Q4 into the first half of the year.

I also want to take a moment to address F Y 22 by making a few observations.

Regarding our COVID-19 testing revenues, we see this is perhaps the biggest variable to our fiscal 22 outlook.

Depending on the level of success of our term fiscal 2021, it could make for a difficult comparison to our revenues and earnings in fiscal 2022.

And regarding Alaris as Tom mentioned, we have a higher level of confidence today and our ability to submit the five 10-K at the end of fiscal Q2 2021 or early Q3.

We would assume a contribution beginning sometime in fiscal 2022.

Keep in mind, we ship pumps on the medical necessity in fiscal 2020, thus, we would not necessarily assume there is a one for one pent up demand when we obtained five 10-K clearance.

Regarding the remainder of our business and assuming a more normal healthcare.

Utilization environment, we would assume the business will return to an underlying mid single digit growth rate in fiscal 2022.

With that let's move on to Q on a.

Thank you we will.

I'll now open the call for questions.

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

At any point. Your question is answered you may remove yourself from the queue by pressing the pound key.

In order to allow for board participation excuse me for broad participation.

Please limit your questions to one and one follow up.

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

Thank you.

Your first question comes from Bob.

Bob Hopkins with Bank of America.

Oh, hi, Thank you and good morning good.

Good morning about 20, Bob Good morning. So just the first question is maybe a clarification on the 2021 guide that you're you're giving.

Can you just sort of sum all that up for us in terms of what does that imply for revenue dollars and and how much is assumed in there in terms of total covert testing not just not just fair tour.

And then I know you said you're going to reinvest some of that is like what is sort of the maybe the net EPS impact of covert testing, including that reinvestment.

Yeah. So on the issue of the the guide related to you know that we guided very tour at 1 billion to 1 billion five when you add BD Max that's running at around 400 or in that area. So you can add that on top of that.

Okay, and then you know any clarity on just the thoughts on reinvestment just trying to get at because what we're trying to do obviously is get a sense of the underlying business versus.

You know you PS contribution on the underlying business versus you know total testing. So we have a kind of reinvestment plans in place. So the way the way to think about how much is within the one to one and a half billion of of revenue that we're forecasting a our guidance assumes a certain amount of reinvestment Oh, that's who we're not letting it all.

Flow through as you think about if it very tours looking like it will be above 1.5 billion or we would look to invest more than that going forward and you know we would we'd likely up I have some investment in the depending on the investments in the pipeline and we'll talk to that in a moment.

And and you know, let some of it flow through to the bottom line as well so we'll assess that as we're going through the years, but if it's over the 1.5, we would look to invest more but still allow you know <unk> a portion of that <unk> flow.

Flow to the bottom line as well I think it's fair to say, we plan to reinvest among the the initial one to one and a half billion range what were investing roughly 20% of the profit back into the business Bob Okay. Thank you very much.

Our next question comes from the line of David Lewis with Morgan Stanley.

Good morning, David.

Good morning, guys. How are you. So I I appreciate it's a very tight guidance in a very uncertain environments. I think a lot of investors will largely view this as a floor, but I, but I didn't want to come back to the underlying business a t. more time here I think everyone's trying to compare the forward year 2021 to a base year, which is 19 and I appreciate you all.

Pack built into that.

I would say David the the core is strong you saw that in the fourth quarter as well.

It's doing wells the margins are improving to your point around the 19 to 21.

There are a number of things we are seeing synergies.

From the the board transaction over that period of time kicking in.

Colbert.

Which which were in.

12 million tests per months, starting in March of 21, that's our capacity ramp on very tour and so those capacity plans remain firmly intact and so that's the basis of our outlook that we've shared I made the comment of course, we do continue to monitor the supply demand dynamics of the market and we will provide you with any updates on additional capacity expand.

She is beyond that if we were to make those but we won't provide those until that capacity where to come on line.

So that's just a little bit of background. There is we could come to Asp's. We had said 20 dollar aspie, we did a little bit better than that in queue for as I mentioned, but we do expect to see.

Pricing headwinds ASP erosion as there are more competitors in the market now than there were at the start of queue for and we expect that there will be other entrance and so we would expect that that 20 dollar ASP could come down as we move through the year.

Okay. Thanks, David.

Your next question comes from Amazon with Goldman Sachs.

Good morning, good morning, good morning.

Just one clarification for this coming fiscal year on utilization can you just talk a little bit more to what you're assuming in the guidance are underlying hospital.

Admissions and utilization versus what you've been seeing and what the impact would be not just somebody beady medical with just an entire business routine diagnostic testing as well.

Certainly don't expect that it would retrench back if there is a significant resurgence retrench back to the the lower utilization levels that we saw last year, but of course, that's difficult to predict and could it be somewhere between where it is today and there could be could it stay where it is could be.

We overlap.

The Cove it period.

But you know then rebounding in the in the second half of the period. So you know when you cut through all of that you think in the mid single digits for the underlying business I think that it's an important point to reiterate VJ is as as Chris mentioned right because of the timing of our fiscal year, we don't and anniversary the at the lower utilization rates.

From a covert impact until Q3 right. The first and second quarter. Our compares are still at a pre covance basis.

Utilization and so that obviously has an impact on that and so I would still be even despite that at the time.

As mid single digit low single digits and the base business is actually quite strong.

Understood and then one quick on the margins and free cash flows here.

Is that maybe a mom I just wanted to check if im doing the math right is the implied operating margins.

Lumpiness from the Covid dropped through and what have you. We did a lot to offset that we reduced inventory levels as we talked about.

So it did feel like a lot of lumpiness, but we were able to offset a good portion of the drag to be an.

Solid Dizzy.

Physician as we exited the year, so but going forward I don't see anything.

That would be lumpy in nature.

On Thanksgiving.

Your next question comes from the line up of Robbie Marcus with J P. Morgan.

Hi, good morning Rabbit.

Hi, good morning.

Two questions both on on free cash flow capital allocation, maybe just to follow up on V. J 's question.

That this is more of a floor and a beautiful target rather than a you know it could be better could be worse and in certain areas that great question. Obviously, we have been focusing things very very closely we do see as we said sequential improvement.

In our in our businesses and so we took that into account obviously, we're watching the potential for a resurgence very closely and I think we were very clear when we gave the guidance that we are not assuming a major resurgence that would have a big impact on utilization.

And in elective surgeries, so we're not assuming that.

It's kind of expand your offering there and are you thinking about anything on the non instrument decide and then you mentioned that you double the installed base here recently to to over 50000 units does that include the roughly 11000 into the nursing homes and I'm curious what the utilization you would expect in total for very.

Like tore post pandemic in order to help us Gage the longterm value creation that you drive in there. So a few on very tori. Thanks.

Yeah, good questions, Brian So yeah, the double double installed base of over 50000 does include those that have been put in the nursing home as I mentioned, we are looking at what additional menu we.

We can put on that platform, we have a number of of of opportunities that we think are pretty exciting of course, we've never had a an installed base in the nursing home segment itself and so part of that work that we've done is actually identifying what specific assays are relevant to the nursing home segment. There's other segments that we now have virtual replacements and then we wouldn't have.

Looked at before in terms of is there some unique menu that is more relevant to these segments that haven't been traditional call points for us and so we're actually just wrapping up we've just wrapped up that work and again will be using that that would be an area of investment is in additional menu expansion on Vera tour.

Reinvest some of those profits to add additional menu that we think are relevant to some of the new car points.

We have very towards placed in so that we see longevity there.

Beyond the COVID-19 testing itself of course as you know we are expanding the menu there very actively working on our COVID-19 flu assay as we've always said will provide timing on that when we're ready to when we get EUA and we launched that same thing on on on BT Max beyond the assay that we.

Already launched in in Europe, with our partners Sir test. So we feel really good about the momentum on <unk>, you're great feedback from our customers on that and again, we do see longevity on the the installed base not only for COVID-19, which as I mentioned before we think we will have more along jeopardy. If you ask me.

This time last quarter said, how much testing is going to happen in FY twenty-two I would just say that I feel more confident today that there will be longer testing runway beyond 21 of covid testing into 22 and.

Actually beyond.

Obviously, then our work on adding menu to that will prolong the growth opportunities for very tour beyond the covid window.

Thanks, Brian for the man Oh, sorry.

But yeah I was gonna say anything on the non instrument or are you guys looking to develop anything that would be an antigen tests that would not be on the virtual platform.

We're looking at that Brian and again, if we decided to do that will will share that when we're ready to launch it but I would just say it at this point, particularly in developed markets. We are very confident in the value that the instrument platform brings again just as a reminder are instrumented platform is that a very different cost base.

And most any other instrumented platform right and that 200 5300 dollar range. So it's not a significant capital is not a challenge for any customer when it comes to that it wouldn't even be a challenge significantly to bring it into the whole necessarily but.

That's and we get the benefits or I can remember we were one of the original inventors of lateral flow testing, our first technologies, where manual as we're all and all of those technologies move to instrumented platforms, because they got higher performance on flu and RSV and Covid is of course, even a more critical assay to get right and we.

See the benefits of an instrumented platform when it comes to sensitivity specificity. We still believe strongly in that we continue you've seen us put out a number of support a number of publications, whether or not it's comparisons of technologies or recent publication you probably saw around.

The role of antigen testing versus molecular testing when it comes to projecting infectivity.

And that was relative to sell culture methods, which are the reference for ability to for patient to be effective. So we're going to continue to invest very heavily behind scientific evidence you can expect more of that from US again that would support the value of very towards the technology that we're we're deploying.

Great. Thank you Yep. Your next question comes from the line of Larry College coach with Raymond James.

Hey, Larry My last one and we're good morning, everyone.

Two questions I guess first for you.

You, obviously bed and a and a couple of spots during a call that you are more confident in.

In the timing for the filing of the.

<unk> five 10-K, so just again want to get a little sense of what makes you more confident than where we were three months ago is it just you know.

Again, you have knocked off some of the key objectives there that that.

We're in the way.

And as part of that question given the.

Some of the hardware recalls that you've had recently.

How does that.

How does that get handled does that does that have to find its way into our filing as well and then I guess, Chris for you obviously heard the commentary around pulling some of the four Q for 21 into the first half as you talked about the various headwinds and tailwind as you look at the first.

Order numbers that that are out there for the consensus.

Have any just any high level thoughts is sort of have those have those field.

In Q4, we wanted to correct that and that we think that some of that should be moved to the to the first half.

I would say move a little bit more of that to the Q2.

Then to Q1, but Q1 is still a bit light.

Given what were looking at.

And so you know that we just wanted to kind of get the the quarterly phasing right right up front out of the box as we.

And through the year and so you know.

That's why we were very specific around take it out of the fourth quarter put it in the first half and I would add a little bit more in Q2 than Q1.

Now we're.

We are definitely seeing better management and continued.

Use of.

Procedures early in this resurgence, but again, that's one of the caveat that we had to make we can't predict.

The extent of everything.

On a forward looking basis, so our assumptions, we do recognize that that particularly in Europe. There can be some increase but if it is a significant increase that would be something that not in our current assumptions.

Thanks for the comment print some in your prepared remarks, you gave some good color on fiscal 2022 I heard.

5% plus top line growth.

As for that and.

And we're not predicting where that's going to be in 22, but at some point 22, we would expect that to start kicking back and it's probably not as big a a pent up demand because of the medical necessity amounts that we've had.

In 20 and potentially into 21, but those are the things to keep in mind.

But we do feel that the base business.

In 22 on an underlying basis.

But what we're doing is we're taking a portion of those profit and we're further investing in our growth and innovation fun, we're investing behind further growth opportunities and right. We're continuing that work on accelerating inorganic innovation or or tuck in M&A again, all in the spirit of driving that that durability and consistency of.

Gross profile. So just to summarize that we feel good about our capabilities are innovation and the factors that are in <unk> in our control as we think about the business going forward.

Thanks, so much.

Your next question comes from that line of requires so let's Stifel.

Good morning, everybody.

It's it's nothing else is clear, it's very clear that innovation.

Is a top priority for you and one element of that as you discussed is is R&D spending a new emphasize strongly the 8% growth. There. So my question really is.

How do we think about R&D going forward I mean, historically or in recent years been more around that plus or minus the 6% of sales range are you, suggesting that I mean that we should think about that is.

There is a percentage of sales or a growth is meaningfully higher going forward just again any perspective that'd be great. Thank you <unk>, let me comment on on just at a high level perspective, and then turn it to Chris to talk about kind of how we think about it within the P&L. So obviously, you're gonna see R&D at what will.

<unk> higher than a normalized level in 2021 because of the reinvestment of the very tour proceeds I would expect it to see that of course, we're as I mentioned that 8% growth that you saw in queue for we're coming off of relatively flat R&D growth over the last five six years during the synergy window and so it is as you mentioned to notable.

<unk> up and we will be continuing to increase R&D because of not just our based strategy has that in it but we're using this opportunity to reinvest those very toward proceeds and leveraging that growth and innovation fund and the way that we're selecting incremental.

Projects through that process, which was a process that was very successful obviously at Bard and the John has helped implement here at at BD. So as we think about going forward on the P&L.

Beyond what we're gonna see in 21, I'll I'll turn that over to Chris, but you would expect to see R&D growing.

In line with with revenue on a forward basis beyond 21.

At least in that level. So sure. So I would say in reemphasize. We clearly are as you said focus on innovation.

Some of some of the trends here.

Maybe Simon as well yeah, thanks, Yeah, and again, referring to that survey that we've just complete certainly the the majority of physicians. We we spoke to Ah reflected on on patient sentiment being being one of the driving driving factors moving here and you would have some significant day that came out about.

The oncology patients that breath.

Breast cancer and cold on patient patients in particular that the decline in screening that's happened.

In the early phase of Covid.

Going to.

Contribute to an extra 36000 deaths, a 30 to 33000 deaths in the us from cancer because of a lack of screening in the early phases of of of Covid and so as you as you walk around different cities in the U S and certainly where I live in Rhode Island, you see Billboards now with hospitals and practices encouraging patient.

To to.

To go with it and and I think the protocol that they that they have influenza there are certainly establishing great great framework for patients to feel comfortable about it but still I think hospitals Wanna do procedures physicians Wanna do them in the big the big variable here is getting the patients back in for screening and subsequent subsequent procedures after that.

Thanks for the questions are up.

Our next question comes from the line at Max Taylor with you B S.

Good morning that morning, Matt How're you. Good morning, if you've only temporary crest, thanks for taking that through the question.

I just wanted to ask you about the forward years, you made some comments before I guess, what I'm wondering is if there is a testing cliff at some point. If you have a task compare are there things that you would do proactively like a buyback or you can phase down some of those investments that you're making now and growth to kind of smooth earnings and and.

<unk> help with that transition.

Sure Great question and and thanks to.

Wow us to add some clarity there that's exactly the thought process you know as we as we initially looked at as we thought that it could be very much a cliff from 21, 22 and that one way to mitigate that cliff would be to make investments in 21 that help US you know.

Drive long term growth.

But also are kind.

Kind of one year.

Investment bolus is that will kind of mitigate that that cliff to a certain extent that logic still continues as we think about testing extending into twenty-two because it wouldn't be characterized as I said by a cliff, but it's certainly the potential for a downward slope and by making some of these investments in.

And 21, it would help mitigate that slope to a certain extent the biggest variable is is what that slope looks like.

But I think we're very comfortable that we can do that and 21.

And then see where that that testing and 22 is going.

So.

It's looking less like a cliff those investments certainly are the kinds of investments that we could make that that would be an expense in 21, but not only would go away and twenty-two but would potentially drive increases in 22.

In earnings by investing in in.

A variety of things R&D.

Mmk kind of deals that become more creative in near to that kind of thing. So it's exactly what you're.

Your question implies what we're doing.

Alright.

Thanks for ethics Huh.

I just had one follow up on on the pricing and testy have you actually seen any price pressure yet or is this just something that you're thinking could happen and so you're being a conservative and baking and some potential pressure for <unk> special.

Yeah, it's the latter we haven't seen the pressure yet but.

As Tom mentioned I think earlier in the queue for the the.

<unk> was a bit higher than we had signalled, but we don't think it's prudent to continue to think that that would hold up as other competitors move into the market and the different dynamics that will be facing as we go throughout the year. So we had originally signaled the $20.

ASP.

We think it was it certainly was higher than that in our queue for but we.

Think that that will be under pressure as we go through and that is what we have in our.

In our guidance assumptions.

Okay, great. Thank you.

And Chris I'm Gonna take just one more question just given the time apologies to that is left in the queue.

Thank you and your last question comes from the line up just Jennings with counting.

Hi, Good morning Guy Good morning. Good morning, Thanks for taking the questions. I was hoping you may be able to share just a percentage of the revenue base level to hospitals capital equipment budgets.

And if you could talk about just the recovery of the camp capital franchise might be hard to parse out with a lot of moving pieces with feretory instrument placements and and the allowance allow a ship hauled but.

Anything you can share just about.

Nah, not very tori instruments, and hilarious pumps, but on the cat, but just how 'bout press the capital franchise recovered and physical for Q and your outlook for the chunk of the revenue basically just for 21.

Yeah. The the you know and this is consistent with what we've said in the past the percentage of revenue that are focused on on Capitol.

Is is in that kind of 15% range, we've said that in the past.

And you.

You might imagine where you know where that is it's in areas like eastern and and.

In in the side for the most part a little bit and Biosciences.

We have seen pressure on on capital drain the third quarter, particularly and we have seen that improve a lot of it has to do with the inability to install during the third quarter, because hospitals weren't allowing people to come in.

Not patients appropriately so and so we did see that pressure, we saw that sequentially improve into.

Into a Q4 and so we would expect that to continue to improve through 21 as well.

And we don't Ah.

Assuming that there's no major resurgence as we said we would are guidance contemplates that assuming and being at normal levels and 21.

I would say that it actually we.

We did see some improvements on the capital in the research area BTB, we thought across the board Yeah, I'd say dispensing is another area, obviously capital part of that the operating leases, we still do sales southern capital.

But I I comment we did see the U S. Dispensing business returned modest growth in queue for and we ended the year with with strong net gains and committed contracts made a very strong Q4.

And committed contracts in and we we ended the year net positive there.

Yeah from a competitive perspective as well so what we're seeing good good sign theories you mentioned it a little bit.

Difficult with with hilarious.

Fully compare that but.

What we're seeing the restarting of and we're able to get back into labs now to do those installation keister installation with a big complex those are big complex as as walls chain.

Change electricity socket that they weren't happening on the pandemic that are restarting now.

Great. Thanks for that and just one follow up just on the.

<unk> is a small piece of the overall revenue pie, but.

A little bit more important for just an intervention segment voyage, a Phd analysis of T. C. T was probably the most compelling rebuttal of the cats analyst Metanalysis, maybe you could help us you've given up the on the state of affairs of the truck could've blown market and relative to the high watermark in a 2018.

Just to my questions just trying to get a sense of with this word you P. H E D to out there. The other datasets that have been presented in the last 12 months I mean could Lou tonics from where it sits today become a girl driver for intervention along the next 12 to 24 months.

Thanks for taking the questions Yeah, Hi, it's assignments, there's I think over over the past a pre covid certainly we had seen a I think a significant rebound in a in a little tonics tonics.

Onyx business.

Around the.

780, 80% of Q1 19 numbers, so before katsanos and so on Hum over the past several months or Q3 will argue three that obviously deteriorate deteriorated quite a lot, but I would say.

Coming out of September we were pretty much at the pre covid levels, which were in that 70% to 80% of pre covid levels. If that's all making sense and again some some some recent work that that we've done.

A year ago and have just repeated a year ago about 80% of physicians that we surveyed were.

We're less uncomfortable with Paclitaxel safety based on based on Katsanos and based on the F. D. A panel and so on so forth and now that has flipped the the recent data that we got that is flip that 80% or not comfortable with.

The textile safely in the voice or data and the date of that that was provided the tunnel and and so on and so forth I think that that reiterate the safety of.

Of Paclitaxel in general and under Tonics Dystonic, specifically, so it was a a significant driver force and.

Q4.

And the peripheral business, both domestically and and in Japan, where we've we've had a really successful launch since we commercialized fully in December and we continue to get FTA approvals on the zero eight platform and the 300 millimeters balloon platform and the low profile Avi platform, so where.

Where.

Pretty pleased with where we are right now on the time.

Okay.

Thank you for the question.

So thanks, everyone for the good dialogue. This morning, [noise], we've shared with you the challenges opportunities and successes.

Q4, and fiscal 2020, and they are influencing our expectations for the year ahead one.

One thing we didn't talk about though where the people of beady. The 70000 associates around the globe rallied around our purpose of advancing the world of health at a time when they need with most urgent so I want to close with a message to the BB team.

Thank you for your focus on our purpose for your resilience when he came to executing our most critical priorities and your willingness to embrace bold new ideas you delivered a strong queue for that exceeded our expectations to finish a trying year on a high note.

By building on the bold actions, we took in FY 20, and by continuing to execute our long term strategy to grow simplifying empower it will address healthcare's immediate needs, while bringing more innovative new solutions that will support our growth across all three of our segments.

And F Y 21, there will be no shortage of opportunities for you to think boldly make a meaningful impact and change more lives for the better.

On behalf of the entire executive team I want to say, thank you to be D associates around the world for your efforts sacrifices and achievements over the past year.

You showed the world and each other just how vital beady as to the delivery of health care.

Again, and let's keep going forward.

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

Yeah.

[music].

Hello, and welcome to <unk> fourth fiscal quarter and fiscal year 2020 earnings call.

At the request of BD today's call is being recorded.

It will be available for replay through November 12, 2020.

The investors page of the baby Dotcom website or by phone at 800 5858367, what domestic calls and area code 4045373 406 for international.

No calls using confirmation number both for 75 to two nine I.

I would like to inform all participants that your lines have been muted.

Until the Q1 day session segment.

Beginning today's call is Ms., Kristen Stewart senior Vice President of strategy and Investor Relations Ms. Stewart you may begin.

Thanks, Chris and good morning, everyone. Welcome to beat his review of our fiscal fourth quarter results. Joining me today, we have Tom Polen, Chief Executive Officer, and President and Chris Reidy, Executive Vice President Chief Financial Officer, and Chief administrative officer.

Morning during the Q and a portion of the call. We will have three segment presidents joining us a burden maass president of the medical segment, Patrick Kaltenbach, President of our life Sciences segment, and Simon Campion President of Interventional segment a.

A few logistics before we get into the call.

This call is being made available via the webcast at BD Dot Com, where you can also find accompanying slides.

Risks uncertainties and other factors that could cause such differences can be found in our FCC filings, including our 2019 form 10-K and subsequent forms 10-Q.

In particular, there continues to be significant uncertainty about the duration and contemplate it impact the COVID-19 pandemic. The commentary we are providing today includes our best estimate based on the information that we currently have.

We have made certain assumptions and how we are managing our business, but that could change as we move forward.

We will also discuss some non-GAAP financial measures with the with respect to our performance reconciliations to GAAP measures that include the details the purchase accounting and other adjustments can be found in our press release and its related financial schedules and in the appendix of the Investor Relations slides. These are.

All available on the BD Dot com website.

That I'll turn it over to Tom Tom.

Thanks, Kristen good morning, everyone, I hope, you're doing well and thank you for joining us.

Then I'll turn it over to Chris for a review of the PML and an update on our outlook. So let's jump right in it.

First I'll start with the quarter and the full year performance.

In Q4, we had better than expected results revenue and not only our cobot related diagnostics testing, but also our core business.

That allowed us to not only deliver EPS upside, but also importantly gave us the opportunity to make some strategic investments aligned to our BD 2025 growth strategy.

Revenues were up 4.4% on a reported and FX neutral basis, as we were able to offset the overall impact of COVID-19 and grew despite the alere ship hold.

What do acknowledge the exceptional execution by our integrated diagnostic solutions business this quarter, particularly the BT territory team the.

The team exceeded our commitments successfully developing the BD their tour COVID-19 assay in an accelerated timeframe.

Securing several regulatory approvals scaling up manufacturing and continuing to advance the science behind the utility and effectiveness a rapid antigen point of care testing.

Total COVID-19 testing revenues allowed us to offset the ongoing cobot headwinds and other businesses lower hospital utilization surgical procedures routine lab testing volumes and research spending in.

In fact, because of our cobot testing revenues, we were able to move from a net negative cobot impact in Q3 to a net positive cobot impact in Q4.

If you exclude koby 19 testing and look at the performance of the base businesses.

We're very pleased with the sequential improvement across all of our three segments during the quarter.

As you'd expect the pace of the recovery varied by both product category and by geography.

So all in the BD team was able to deliver Q4 mid single digit sales growth overcoming the headwinds from COVID-19, any alere ship hold the latter we estimate to be 240 basis points in the quarter.

Our Q4, adjusted EPS was $2.79 down 15.7% on a year over year basis.

While our revenues returned to growth we Didnt did continue to see some cold weather related pressure dilution from our may equity issuance and headwinds from the last quarter of the Gore royalty contributory EPS decline.

As I look back on the year, we faced a number of challenges from the Alere ship hold to COVID-19, and its you can give it can impact on health care utilization globally.

And our fiscal Q3, COVID-19 had about $600 million negative impact to our top line.

I'm proud of the team for their hard work closing the year strong and offsetting the continued koby 19 headwinds.

Now I want to turn to several hot topics.

Let's start with a review of our cobot testing in the quarter.

As I said I was very pleased with the idea of Cds execution. This quarter with Kobe 19 testing sales coming in at approximately $440 million.

Meritor revenues at over $340 million in the quarter.

We were able to ramp up their toward manufacturing capacity faster than originally expected estimate to be these world class manufacturing excellence we were.

We're also able to sustain a higher average selling price for longer than we anticipated.

Looking ahead, we do expect price erosion as additional competitors have come to market and more may do so.

We continue to work diligently to expand our BD Barrett tour in BD Max manufacturing capacity.

Our previously communicated capacity expansions remain firmly intact.

We continue to monitor the supply and demand dynamics of the market.

And we'll provide you with updates on additional capacity expansions to the extent any further new capacity comes online.

On the customer side, we continue to see very strong demand for BD Veritor Corp, and BD Max Koby 19 test regards.

Regarding BD veritor or we've seen strong adoption and interest from both traditional and non traditional account in the U.S.

Since the last quarter, we have doubled our U.S. installed base of active there to our readers to over 50000 units and we continue to see strong instrument demand further extending our footprint.

We believe that this broad and very tore footprint will provide us with additional future growth opportunities beyond COVID-19 testing for current and future planned assays.

On September Thirtyth, we received the CE Mark for our COVID-19 assay on beauty their tour and we've been very pleased with the reception of the assay in international markets.

Signed a number of contracts that are actively leveraging one of BT strengths, which is our large international footprint and in fact, we're now shipping veritor instruments and asset sales to customers across Europe, Asia, Latin America and Canada.

As we head into the flu season, we recently launched a combination COVID-19 flu RSV test in Europe.

On our BD Max system with our partner Sir test.

We continue to work toward the launch of combination flu and cold in 19 assays, when our BD, Max and BD veritor platforms globally.

Now, let me take a minute and walk through our thinking on the outlook for meritor.

You've heard me say before that there are a number of variables at play.

There's a ramp up of our manufacturing the number of competitive products and I guess piece and then you have to take into consideration many variables around COVID-19 vaccines like their timing availability effectiveness and how widely they are adopted.

I know many of you also have questions on the long term durability of COVID-19 testing and the outlook for fiscal 22 and beyond.

Again, there are many factors at play and there are a variety of scenarios that were planning for and we'll be ready to execute.

I would say, though that we do now believes that there is a higher likelihood for testing to continue into fiscal 22.

However, given the uncertainty around the man's and Asps, we believe it would not be prudent model a continuation of revenues at the same level as fiscal 21.

This leads me to our next topic, our COVID-19 testing reinvestment plans.

We are electing to reinvest a portion of our F. Y 21, COVID-19 testing profit back into the business to ensure long term durable.

These profits will be invested consistent with our strategy and value creation framework of growth simplifying and power our top focus is investing in growth.

We activated the organization and investment plan in Q4, initiating a bottoms up process to identify high impact projects and programs based on risk adjusted returns and our capacity to execute.

As part of this initiative, we increased investment in the recently launched BT innovation and growth fund.

We have also kick started other programs that accelerate go to market investments in the U.S. and internationally.

And ongoing R&D projects.

You heard me talk a rat talk about our simplification efforts around project Recode, we plan to look for ways to optimize that program even more.

We're also using koby 19 profit to accelerate further investments in our inspire quality program enhance our risk management systems.

We believe these investment program should generate returns beginning in late flight 22.

Our current reinvestment plans contemplate fiscal 2021 Vera toward testing revenues although.

As I said $1 billion to $1.5 billion.

Vera toward testing revenues or above this level, we plan to make additional investments.

Its long term growth yet still allow a portion of the higher revenues to flow through to the bottom line.

Next I'd like to take a moment to update you on our readiness for a COVID-19 vaccine campaign, where.

So we continue to make great progress.

To date, we now have commitments for over 800 million needles, and syringes, which includes commitments from countries like the U.S. UK and Canada.

And various non government organizations around the world as they prepare for Cobi 19 vaccination campaigns.

Last June we estimated the total vaccines syringe and needle opportunity over a 12 to 18 month period can be in the $100 million to $150 million range and we continue to feel this is an achievable objective.

Now I'd like to update you on Alaris.

Over the last quarter. The team has made further progress and retired risk.

We're systematically working our way through various testing stages, and we continue to engage in open dialogue with the FDA about our progress.

My confidence level today is higher than it was last quarter that we will be able to submit our five 10-K in late fiscal Q2 or early fiscal Q3.

2021.

As I mentioned in the past our focus remains on ensuring a comprehensive submission.

Will ultimately help enable timely FDA review and clearance.

It is not our intention to predict the FDA timelines.

Given the size and complexity of the submission we do not assume any revenue contribution from a five 10-K clearance in fiscal 2021.

The last item on my Hot list, because I want to comment on innovation in our growth and our product pipeline.

Category innovation remains one of the core drivers of our growth strategy.

We have been focused on improving our pipeline execution and R&D effectiveness and we continue to make great strides to that end.

This quarter R&D spending increased 8% year over year, the first meaningful increase for the company in many years.

Looking ahead, we will continue to focus on driving new innovation at a higher level of R&D investments, including through our new BD growth Innovation fund, which we established earlier this year.

Through the fund projects are funded for a maximum of two years and give be completely new product development opportunities unfunded were underfunded line extensions that have significant incremental revenue opportunities or commercial programs designed to accelerate product adoption through.

We received a lot of great submissions across all three segments and we initiated the first round of funding in Q4.

Looking ahead to the next year or so we are advancing a robust product portfolio with many singles and doubles.

Like Weve long been known for.

We also have some more notable programs in the pipeline and I'd like to highlight a few of those for you now.

The S. team is acutely focused on advancing our combination covidien flu assays on both our BD Veritor and BD Max platforms as soon as possible for the benefit of patients.

I also want to highlight the great strides of our women's health and cancer franchise.

That they're making.

In July we received FDA approval of the BD Unclarity HPV assay for extended GGR typing, which can improve risk stratification and support risk based patient management.

We are receiving great customer feedback on this assay.

And in fiscal 2021, we look forward to bringing this assay and BT core which is our new high throughput molecular diagnostic system with fully integrate especially on processing, we look forward to bringing that both of those to customers in the United States.

The BD core system and our Unclarity assay are both available in Europe, and we've been receiving very positive feedback on the initial rollout.

In BD medical in Q4, we launched the BD Ultra safe plus 2.25 ml passive safety system, which adds to our proven high growth safety portfolio in pharmaceutical systems.

It has been designed to deliver up to a two ml dose volume, while enabling an ergonomic and safe injection experience for both patients and healthcare providers.

We have launched we have secured a number of pharmaceutical partners that plan to commercially launch our new product towards the end of fiscal 2021.

Also in BD medical during fiscal 21, we'll launch the BT Pyxis Es 1.7.

Which adds new capabilities and deeper integration of pharmacy, and nursing by enhancing automation in the operating room with the Pyxis anesthesia station.

In BD interventional, we had a robust year of product launches across its three businesses of.

Of particular note the peripheral intervention team launched the 0.18 and 300 millimeter Lutonix dcbs in the U.S. and launch Lutonix in Japan.

I also launched the elevation single insertion multiple sample breast biopsy device.

Addition to the Caterpillar embolization device, which represents our first foray into the world of interventional oncology.

Finally, our UGC business capitalize our developing position in female incontinence by launching Drydocked 2.0, which is designed to help women who suffer from an continents to use pure wick at home.

Fiscal 2021 promises to be another year of innovative product launches across the interventional segment.

The team worked hard to minimize the impact of Covance on our product launch schedule, leading to further commercialization of products across all businesses.

For competitive reasons, we won't share any specifics with you, but suffice to say you should expect further commercialization activity of new products in our oncology infection prevention in acute urology platforms in particular.

Finally, I want to provide an update on our FDA PMA submission for the Lutonix drug coated balloon and its use in below the knee.

The FDA has recently notified us that our PMA supplement remains non approvable.

We are working collaboratively with the FDA to determine what our next steps may be if any.

As a reminder, our entire lutonix business today represents less than 1% of our overall sales and we do not include any revenues in our forecast related to the submission.

Before we move on I want to take a moment and acknowledge John to Ford.

He will retire from BD at the end of the calendar year.

As you all know John has had a remarkable career and has made a tremendous and lasting impact since joining BD three years ago.

I will continue to well he will continue to serve as an advisor and a consultant for us.

So we're going to Miss John's leadership, and we're going to Miss his humor, but we're very excited for Patrick's appointment to Chief Technology Officer, and we're confident that he is the right leader to deliver on our innovation strategy and product pipeline and our next phase of value creation.

It was straw medical a privately held medical device company that markets mechanical atherectomy and thrombectomy devices that treat peripheral arterial diseases.

This acquisition expand our robust portfolio of P. H D in Venus solutions within her beady intervention segment and.

And the third acquisition I'd like to highlight is adaptec.

And innovative startup company that developed a sense of co UO, which is an automated urine output measurement solution. The catcher's hourly urine output measurements and integrates this into the electronic medical record through the BT health site platform.

This is actually going to be beady interventionists first connected smart device.

Which leverages betis interoperability position that we have today in about 70% of all U S hospitals.

We have a robust funnel of deals and we continue to increase our focus here as we move into physical 2021.

Our efforts around simplification and project re code and inspire quality all remain on track if.

If anything we have the opportunity to accelerate some projects with some of the COVID-19 test reinvestment proceeds.

As I reflect on F Y 20, I am proud of how the company work to navigate through the headwinds of Covid and the leadership hold.

Ah respond to these challenges along with a successful launch of COVID-19 testing enabled BT to deliver flat revenue performance on an FX neutral basis for the year.

As I look ahead, there are some challenges that we face is accompanying namely covid and the hilarious remediation the <unk>, the latter of which I.

I am confident we will resolve.

But there are many more opportunities ahead to drive growth and accelerate our impact on health care around the world we.

We have the right strategy, we're making the right investments.

With that I'd like to hand, the call over to Chris Reidy, and then I'll make a few concluding remarks.

Thanks, Tom and good morning, everyone. Thanks for joining us today.

We are pleased with our fiscal fourth quarter revenue and adjusted earnings per share performance.

Overall revenues were $4.8 billion up four 4% on both the reported FX neutral basis we.

We estimate the net impact of Covid was a positive 210 basis points as COVID-19 testing revenue more than offset the ongoing negative impact from lower utilization across our businesses.

Even after adjusting for the net COVID-19 effect. We are pleased that we're still able to grow our revenues. Despite the <unk> pump ship hold we estimate the negative impact of dealership hold was 240 basis points.

BT medical revenues totaled $2.3 billion, and we're down four 9% year over year, we estimate covid negatively impacted the business by about 370 basis points.

We estimate the Alara s'posed negative impacts was 450 basis points.

Medication delivery solutions saw sequential improvement consistent with health care utilization trends, but still continue to be impacted negatively by COVID-19 on a year over year basis.

Internationally Mds's decline largely reflected the impact of China's volume based procurement as well as inventory reductions we took in the quarter.

Medication management solutions. The Alara ship hold continues to have a negative impact on the business units overall results and there was a difficult comparison with the prior year.

International MMS sales were very strong driven by infusion pump sales in Europe.

And use dispensing, we saw a solid growth and closed the year with strong new committed contracts.

And diabetes care sales declines reflected ongoing market price pressures.

Farm system sales were up double digits this quarter and ended the fiscal year with a strong nine 4% growth driven by our pre filled and safety syringe portfolios.

BT Lifesciences revenues totaled $1.5 billion, and we're up 31, 4%.

We estimate the net positive impact of Covid was 26.2 percentage points in the quarter.

Our pre analytical systems business was down 3% year over year, we have seen sequential improvement as routine lab testing volumes improved.

Our diagnostic systems business was up 97, 3% driven by just over $440 million in COVID-19 testing.

Biosciences sales were down 9% globally. However, we saw a sequential improvement in reagent sales as research and testing continues to resume.

Speedy intervention will revenues totaled just under $1 billion and we're down three 5% for the quarter.

We estimate the net negative impact from Covid was 11.2 percentage points.

It's related to the pandemic and we also had elevated levels of spends related to verit tour and a quarter.

R&D expensive 279 million, representing five 8% of revenues was up 20 basis points year over year.

In dollar terms spending was up 8% on a year over year basis, as we invested in Covid diagnostics and other growth initiatives.

We expect fiscal 2021 spending on R&D to continue to be higher as we continue to focus on innovation and implement some of the reinvestment plans Tom mentioned earlier.

Operating income was $1.1 billion, resulting in an operating margin of 23.9%.

On an FX neutral basis margins decreased 320 basis points, mainly reflecting the contractions and gross margin as well as higher S SG&A and R&D.

[noise] interests. Other expense net was 110 million, resulting in a decline of $4 million on a year over year basis, we had favorite ability and interest expense this quarter as we repaid that.

The adjusted tax rate came in is expected in the high teens at 18.7%.

Preferred dividends in the quarter with 22.8 million.

Just did earnings per share with $2.79 as previously discussed and this includes a two cent headwind from effects.

For the year, we generated three $5 billion in cash flows from operations and our free cash flows was 2.7 billion net of $810 million in capital expenditures.

Thousand 20.

Now we wanted to share some blood thoughts on fiscal 2021.

As we look ahead the greatest uncertainty we see is the recent COVID-19 resurgence is around the world and the potential impact. This may have on general health care utilization procedure volumes and diagnostic testing, including Covid testing.

Our guidance assumes no major system wide shutdowns of elective procedures.

Assuming no significant changes in utilization and procedure volumes associated with COVID-19 resurgence is we are comfortable forecasting low to mid single digit FX neutral revenue growth, excluding the covid testing revenues.

Our covid testing revenues in fiscal 2020 or approximately $580 million.

On a total company level inclusive of Covid testing, we expect FX neutral revenues to grow in the high single to low double digit range.

Using current exchange rates, we expect FX to add approximately 100 basis points to revenue growth on a reported basis.

We expect our adjusted non-GAAP EPS for fiscal 2021 to be in the range of $12.40 to $12.60.

Again, our guidance assumes no significant changes in utilization and procedure volumes associated with COVID-19 resurgence is.

This also does not assume any potential upside to our 1 billion to 1.5 billion in Feretory testing revenues.

While we're not giving quarterly guidance I want to point out some quarterly facing as you think about the upcoming year.

Given that we're a september year, and we will not anniversary the initial covid 1919 impact into our fiscal Q3.

In addition, U S. Biosciences also has difficult comparisons and physical Q1 due to licensing revenue in the prior year.

And then medication management solutions are infused infusion business is tougher comparisons throughout the year, given the timing of the ship hole and shipments under medical necessity as well as European sales related to cover it.

As Tom mentioned earlier, we do not assume any revenues associated with the <unk> five 10-K.

However, offsetting needs headwinds I just discussed we would expect our COVID-19 testing revenues to be more heavily weighted to the first half of our fiscal year.

In addition will anniversary of the launch of our Covid testing in the fourth quarter.

And taking all of the above into consideration and looking at the street consensus we would suggest the phasing that shifts earnings from Q4 into the first half of the year.

I also want to take a moment to address FY 22 by making a few observations.

Regarding our COVID-19 testing revenues, we see this is perhaps the biggest variable to our fiscal twenty-two outlook.

Depending on the level of success are very term fiscal 2021, it could make for a difficult comparison to our revenues and earnings in fiscal 2022.

And regarding allow us as Tom mentioned, we have a higher level of confidence today in our ability to submit the five 10-K at the end of the fiscal Q2 2021 or early Q3.

We would assume a contribution beginning sometime in fiscal 2022.

Keep in mind, we shipped pumps under medical necessity in fiscal 2020 dusk, we would not necessarily assume there is a one for one pent up demand when we obtained five 10-K Clarence.

Regarding the remainder of our business and assuming a more normal healthcare.

<unk> environment, we would assume the business will return to an underlying mid single digit growth rate in fiscal 2022.

And with that let's move on to Q&A.

Thank you we will now open the call for questions.

The floor is now I'll think of questions. At this time, if you have a question or comment. Please press style one on your touch town's town at.

If at any point. Your question is answered you maybe move yourself from the queue by pressing the pound key.

In order to allow for board participation.

Gives me a broad participation. Please limit your questions to one and one followed lamps.

At that Wow, you pose your question. Please pick up your handset to provide optimal sound quality.

[laughter]. Thank you.

Our first question comes from.

Bob Hopkins with Bank of America.

Oh, alright, thank you and good morning.

Good morning about pointing up good morning. So just the first question is maybe a clarification on the 2021 guy that you're you're giving.

Can you just sort of some all that up for us in terms of what does it apply for revenue dollars and and how much is assumed in there in terms of total covid testing not just not just meritor and then I know you said you're going to reinvest some of that like what is sort of it maybe the net EPS impact of covid testing, including that reinvestment.

Yeah. So on the issue of the of the guide related to that we got it very tore at 1 billion to 1 billion five.

When you add beady, Max that's running at around 400.

In that area.

So you can add that on top of that.

Okay, and then you know any clarity on just the thoughts on reinvestment just trying to get it because we were trying to do obviously, it's gonna send you out the underlying business versus.

E P. S contribution on the underlying business versus total testing. So we have a kind of reinvestment plans apply to the way the way to think about how much is within the one to one and a half billion of of revenue that we're forecasting.

Our guidance assumes a certain amount of reinvestment.

Of that so we're not letting it all flow through as you think about.

If it very tour is looking like it'll be above 1.5 billion.

We would look to invest more than that.

Going forward and we would likely.

Have some investment and it depending on the investments in the pipeline and we'll talk to that in a moment.

And let some of it flowed through to the bottom line as well so we'll assess that as we've gone through the years, but if it's over the one five we would look to invest more but still allow.

Portion of that.

Floated the bottom line as well I think it's fair to say, we plan to reinvest among the initial one to one $5 billion range, what we're investing roughly 20% of the process back into the business bump. Okay. Thank you very much.

Your next question comes from the line David to the West Coast Morgan Stanley Good.

Good morning, David.

Good morning, guys how are you.

So I I I appreciate it very tight guidance and a very uncertain environments. I think a lot of investors will will largely view this as a floor, but I, but I didn't want to come back to the underlying business team one more time here.

I think everyone's trying to compare the forward year 2021 to a base here, which is 19 and I. Appreciate you all kinds of different comparisons there, but I think if people want to try to get to is if we take out some level of air tour, we get to sort of some earnings number that's sort of in that 10, 10, 50 range with reinvest and maybe it's an 11 range, but if we look at the implied revenue growth 21 over now.

<unk>, it's sort of low single digits adjusted for pumps and if you look at the margins they seem kind of down in 21 versus 19, so for atomic Christina investors want to hear is it.

It could be suggested that there is a problem in the underlying business or it could simply suggested that you're being concerned it to begin the year help us understand the strength of that core business and whether you think 21 underlying margins can be up over the base year in 19, and how you think that underlying business is sort of performing relative to that classic, 5% beady growth rate.

That you are trying to get to and then I had a quick follow up yeah.

Yeah, David Good question. So I think if you look at it on an underlying basis. We are in that that range that we're talking about that we talked about around that that 5% plus we're in that so if you look at we're in the low to mid single digits in the core of course that has and it may be on that lower side of that you have.

Got the hilarious headwind of course, which is still annualizing in the year as well. So that is a headwind that is built in to the core if you take that out your back in right in that in that range that you mentioned before so like Chris add some more commentary on that but just a reminder, on that we still do have.

Annualized nation of the hilarious impact built into that yeah, I would say David the the core is strong you saw that in the fourth quarter as well.

It's doing well the margins are improving to your point around the 19th of 21.

There are a number of things we are seeing synergies.

From the the bar transaction over that period of time kicking in.

Then obviously, it's impacted you have to to take out the covid impact the the dragon in the head back convert or but keep in mind, if we had a bit of a drag during that period in the China DPP and the hilarious.

And when you adjust for that we are seeing growth in the in the margins.

And feel very comfortable with the long term.

Few of the underlying 5% depend on the bottom.

And that's very consistent with what we've seen.

And David the only thing I would add is that our our assumption is that we still are not getting back to normalize level throughout physical 21, so our our guidance and margin forecasts itself seem that the overall business continues to see headwinds on a margin perspective, as we're still not back to pre K.

Hope it levels overall.

And I think I see your point, we are looking you're seeing some depression of the margins from the investments that we're making.

As well so we're not letting it all flow through we're making the investments that we outlined.

Totally understand so some covid adjustment factor there okay very good I think I've actually so I appreciate that clarity and then just Thomas you think about Covid testing for next year. Obviously, it's this year for you guys first half obviously higher than second half that's very consistent with some of the PCR providers have suggested in terms of what their assumptions are for peak testing can you just sort of help us understand your capacity expansion plans.

So the first half of the second half and what is embedded in terms of price pressure.

For next year, and where is that coming from and thanks, So much sure could.

Good question is David David So if you think about what we've shared before we shared 8 million tests per month by October, which which were in.

<unk> 12 million tests per month, starting in March of 21, that's our capacity ramp on very tour and so those capacity plans remain firmly intact and so that's the basis of our outlook that we've shared I made the comment of course, we do continue to monitor the supply demand dynamics of the market and we will provide you with any updates on additional capacity expansion b.

On that if we were to make those but we won't provide those until that capacity where to come online.

So that's just a little bit of background. There is we could come to Asp's. We had said 20 dollar aspie, we did a little bit better than that in queue for as I mentioned, but we do expect to see.

Okay. Thanks, David.

Your next question comes from a knit Hassan with Goldman Sachs.

Good morning, Good morning, Uhm, just one clarification for this coming fiscal year on utilization can you just talk a little bit more to what you're assuming in the guidance for underlying hospital.

Missions and utilization versus like you've been seeing and what the impact would be not to send a beady medical we just spend the entire business routine diagnostic testing as well.

Okay, Great Great question amid and good morning, so during the quarter as I mentioned, we did observe sequential improvements across our businesses that are more elective procedure oriented as well as in lab testing volumes right. We saw them through the quarter evolve to around 90% we've got.

So obviously, we have access to some pretty unique information through our beady Medline platform right, which is in about 338 hospitals that gives us literally real time.

Insights into hospital trends on inpatient admissions ICU admissions ER trends ER outpatient versus inpatient we can see that literally on a daily basis, what happened yesterday.

And these institutions, which are broadly distributed across the U S and so as we look at that we see hospital inpatient admissions training around 85% to 90% and we've posted some of this this data in our deck. So that we can share that more broadly we thought there would be some information that you'd be interested in.

So our our projections in outlook do not assume any significant change to that on the positive nor on the downside as we think about the potential of of Covid resurgence, we do see and as we talked to.

To healthcare Provider's around the world, there's been a lot of preparation of learnings from the initial covid Serge how to better keep facilities open how to make patients more comfortable with still coming in for elective procedures. So I think we certainly don't expect that it would retrenched back if there is a significant resurgence retrench back to the.

The the lower utilization levels that we saw last year, but of course, that's difficult to predict and it could it be somewhere between where it is today and there could be could stay where it is could be.

Could it get better if there's not a large resurgence could be but we've taken a more moderate middle of the road assumption that it will be relatively stable as it is today as we think about are forward looking guidance.

Simon do you want to share some of your survey work that you've done to me. So just just right. So that I think we shared some sort of a work.

On the oldest call and we've repeated that sort of a work with about 600 physicians and a surgery into MPI business and.

They are seeing volumes rebound.

Obviously significantly their capacities.

I think quite significant levels compared to pre covid their office space volumes.

Increasing for for the most part.

With a funnel of patients is pretty robust and there's still some what we term rollover patients as well the other than the mixed page.

Q4 2020 Becton Dickinson and Co Earnings Call

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