Q1 2021 Becton Dickinson and Co Earnings Call

February 4, 2021

[music].

Hello, and welcome to Bebe's first fiscal quarter 'twenty 'twenty, one earnings call at the request of BD today's call is being recorded and it will be available for replay through February 11th 'twenty 'twenty, one on the investors page and the BD dotcom website or.

By phone and 8558592 056 for domestic calls and area code 4045373, 406 for international calls using confirmation number 6993448, I would like to.

To inform all parties that your lines have been placed in a listen only mode until the question and answer segment.

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

Welcome to Bd's review of our first fiscal quarter results. Joining me today, we have Tom Polen, Chief Executive Officer, and President, Chris Reidy, Executive Vice President and Chief Financial Officer, and Chief administrative officer during the Q&A portion of the call. We will have our three segment presidents joining us as well a third of them off.

And of the medical segment, Dave Hickey President of the Life Sciences segment, and Simon Campion President of the Interventional segment.

New 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 the accompanying slides for today's.

Carl.

During the call, we will be making some forward looking statements and it is possible that risks.

And could differ and sorry actual results could differ from our expectations risks uncertainties and other factors that could cause such differences can be found and our earnings release and in our SEC filings, including our 'twenty and 'twenty form 10-K, and subsequent form 10, Qs and in particular.

And there continues to be significant uncertainties about the duration and contemplated impact of the COVID-19 pandemic. This commentary we are providing today includes our best estimate based upon 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 be discussing some non-GAAP financial measures with respect to our performance. The reconciliation 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 the appendix of the Investor Relations fly.

These are also available on the BD Dot com website.

Unless otherwise specified all comparisons will be on a year over year basis versus fiscal 'twenty and 'twenty. When we discuss revenue per cent changes, they arent and FX neutral basis, unless otherwise noted.

With all that said it is my pleasure to turn it over to Bd's CEO and President Tom Polen, Thomas Thank you Kristen and good morning, everyone and thank you for joining us.

We're very pleased with our Q1 results, which were ahead of our expectations, reflecting the tremendous effort and execution of BD 70000 associates.

The central role of our products and solutions and health care and a greater resiliency of the health care system and treating both COVID-19 and non COVID-19 patients.

Our fiscal year has just started I'm proud of the team for the momentum we are building and their dedication to our purpose of advancing the world of health.

Revenues increased 25, 8% on a reported basis or 24, 3% or and FX neutral basis, with 23 percentage points of growth coming from our COVID-19 diagnostic revenues.

But we did see some benefits from timing and the quarter. We were very pleased with the performance of the base business, which was up 4% against the backdrop of Covid resurgence is around the world.

We're seeing the early benefits of some of the actions we've taken to drive our base performance.

Our adjusted EPS was $4.55 were up 72% versus the prior year. This was also well above our expectations as a result of three factors.

First our revenues came in above our plan driven by higher acuity driving increased demand greater resiliency and procedural volumes and exceptional execution and Covid diagnostics.

Second we benefited from favorable product mix like Vera tour, but also from our higher acuity products.

Third our investment spending such as and R&D was lighter and earlier and ramping.

So as you can see we started this year with strong momentum and that is despite the COVID-19 resurgence. We did start to see some impact of the resurgence and are more elective procedure related businesses late in December and that continued into January. However, we are feeling more confident and the resiliency of our base business relative to what we saw early on.

And the pandemic.

Well the health care markets continue to be dynamic with COVID-19, and there are a number of moving parts there.

Momentum within BD, and our conviction and our strategy lead us to raise our financial guidance for fiscal 'twenty 'twenty one.

Our focus is not only on fulfilling our near term commitments, but also on advancing our strategy and creating value for our shareholders over the longer term and I'm feeling even greater confidence with the progress of the BD team is making and advancing the BD 'twenty and 'twenty five.

Gross simplify and empower initiatives and our ability to create substantial shareholder value today.

Today I want to focus my remarks on three key topics and then I'll turn it over to Chris who will provide additional remarks on our quarter's performance and comment on our outlook then we'll take your questions.

So let's jump right in.

First let me start with the <unk> remediation and our overall quality and compliance initiatives.

Chris remediation has and continues to be my number one priority and the team is making strong progress our focus remains on submitting a comprehensive 500 10-K filing for the alert system and remain on track to submit it in late fiscal Q2 or early fiscal Q3 2021, we.

We also continue to make progress on executing our holistic and supplier quality initiatives throughout the organization.

Second as you know we have a very strong focus on gross and ensuring a durable mid single digit revenue growth profile. So let me share some of the exciting highlights and our pipeline and other growth initiatives.

We continue to increase our investments and strengthen our pipeline across three innovation themes that leverage our core strength.

First we're applying smart devices robotics analytics and AI to improve care processes second, we're enabling new care settings to enhance patient experience and lower costs and this includes investing and products designed for use and the home markets and and sales channels to support these patients and third we're investing to.

Improved diagnosis and treatment of chronic disease.

So in line with these innovation and investment priorities in Q1, we acquired the medical assets of Cubic's, which expands our medication management offerings by combining our cloud based easy to deploy analytics platform with a smart tabletop dispensing device to create solutions for the fast growing non acute care market.

This extends our medication management solution from the hospital into the long term care surgery centers and other non acute locations.

Another smart device, we plan on launching this quarter is the sense of co automated urine output system, which leverages, BD and leading position and acute urology, along with BD is broad EMR interoperability capabilities and install base.

Also within BD interventional, the BD pure with your and collection system and catheter continues to be a significant driver of growth for our urology and critical care business.

As a female external urinary catheter and urine collection system that we sell into the acute care and long term care settings, but we're now actively extending that directly to patients with our new pure with dry dock system for the home and this launch is exceeding our expectations and and factor with revenues now exceed Lou tonics.

And exciting launch later this year designed to improve the diagnosis and treatment of cervical cancer.

The U S launch of our new BD Cor with our BD on clarity HPV assay with extended Genotyping.

With BD core BD is going to enter the high throughput molecular testing market with a very unique fully automated sample to answer platform and a highly differentiated assay with unique claims that can improve rich risk stratification and support risk based patient management.

The system has been CE marked and it's been very well received by our customers during our launch in Europe.

These are just a few of the many products and our pipeline and you can find further details on our new innovations and the supplemental earnings presentation posted to our website.

As we've as we've previously shared we're investing a portion of our various where profits to advance our BD 'twenty and 'twenty five strategy, we expanded the size of the BD innovation and growth fund and additional innovation projects are being initiated on a rolling basis.

We're investing to accelerate our simplification initiatives, including re code and enhancing our quality and compliance programs. We're also increasing funding and our BD University to support advanced employee education and leadership development as part of our strategy.

As we always do with our spending we're taking a disciplined approach and the timing of the spending was lighter and Q1 and we expect it to step up in Q2 and remained higher for the balance of the fiscal year.

As we've mentioned before we continue to actively evaluate tuck in acquisitions to supplement our growth strategy and we executed on three strategic tuck ins transactions. So far this year, including cubic's as medical assets that I mentioned earlier.

We continue to apply a disciplined financial and strategic evaluation process to these transactions and have a robust funnel.

Lastly, I'd like to update you on our Covid diagnostics outlook and specifically Verity.

Antigen testing continues to become more widely used and both traditional and non traditional settings.

We have been highly successful with our BD Verit Tor plus COVID-19 launch meritor.

Meritor has been well received for the ease of use performance and automated digital data and informatics capabilities that are provided with a handheld platform.

We've nearly tripled our active reader base into the pandemic and now have more than 70000, and BD Verity, where analyzers globally.

Which we intend to leverage and the future with planned non COVID-19 menu expansion, which we've already begun investing behind.

As previously shared we continue to make good progress on advancing nuke, Covid diagnostics, and our pipeline, including combination flu, a b and COVID-19 assays on both BD Max and territory.

We also continue to explore home testing on BD Verity War and.

It has been our practice, we'll provide updates to these programs upon launch.

Turning to the quarter's performance.

Our Q1, COVID-19 diagnostics revenues were higher than we expected and $867 million, which included better than expected BD Verity and rapid point of care antigen test revenues of $688 million and higher BD, Max Covid assays and collection swabs and transport devices.

The higher than expected <unk> revenues were the result of our ability to scale, our manufacturing faster, which is a testament to our manufacturing excellence.

Well as realizing higher pricing and we anticipated.

However, since we've been saying since last fall, we do expect pricing to move lower as capacity came online and this is what's playing out.

We recently lowered our pricing to allow the broadest patient access to our best in class BD Vera toward plus systems. We believe this price adjustment in the best interest of our customers and patients around the world as we've now ramped our manufacturing capacity and there are emerging mutations.

And that are making it more transmissible.

We also believe this isn't the best interest of our shareholders. As we believe this move allows us to maintain our leadership position and the point of care market.

With respect to our fiscal 'twenty 'twenty, one and Barrett to our revenue guidance as we've been discussing there continues to be many variables at play besides the evolving pricing environment, including the rollout and adoption of vaccines and the circulation of new Covid variance it.

It's also difficult to pinpoint when the market supply for antigen tests will exceed market demand for.

For modeling purposes, we would suggest using and a S P and the low to mid teens.

Given all this we expect verity our revenues to be towards the high end of our previous range of one to one $5 billion.

We continue to expect Vera tour revenues to be more weighted to the first half of our fiscal year and given the evolving pricing and capacity environment. We would expect our fiscal Q2 revenues to be lower than our just reported Q1 results.

Before turning it over to Chris to review the financials I want to close with a few thoughts.

Well, we were very pleased with their performance of their tour and other COVID-19 diagnostic revenues and the quarter, what excites us more was the improving momentum and resiliency of the base business.

While we saw some headwinds and our procedure base businesses from the resurgence late in December and that continued into January the impact was much more limited than at the start of the pandemic.

Moreover, given the momentum and our base business the investments, we're making and our BD 2025 strategy. We believe we are positioned to emerge strong.

We remain on track to submit our Alere has five 10-K filing in late fiscal Q2 or early Q3.

And we're making great progress and advancing our BD 'twenty and 'twenty five strategy and I'm, particularly pleased with the investment programs, we've identified and initiated.

These investments allow us to further fulfill our purpose of advancing the world of health and bring new innovations to patients and expand access.

Increased spending will be more evident and our P&L later in this fiscal year, but we believe these initiatives will translate into revenue accretion beginning in late FY 'twenty two and beyond.

The investments, we're making are also towards simplification initiatives, which.

Which reduce complexities drive cost efficiencies enhance our quality programs and improved cash flows.

This quarter, we made several advancements on this front, including inventory reductions that we absorbed and our gross margin and the quarter that helped us strengthen our cash flows.

Our re code efforts are on track to achieve our targeted $300 million and cost savings by the end of fiscal 2024.

We're also advancing our sustainability initiatives, because we view sustainability as a strategic imperative.

And we recently announced the first of our 2030 and beyond goals our climate change targets were.

And we're committed to reducing scope, one and two greenhouse gas emissions and 46% by 2030 and to be carbon neutral across direct operations by 2040.

The science based target is aligned with the one five degrees C global emissions reduction pathway and we look forward to sharing more detail behind our 2030 sustainability plan with you and future engagements.

And finally, I'm very proud of the organization for being named for four consecutive years.

To the human rights campaign's foundations best place to work for LGBTQ equality list and for the second straight and year to the gender equality index.

Inclusion and diversity is an important focus for BD as we continue to attract develop and retain the best talent as well as benefit from diversity of background and thought.

And I look forward to answering your questions. During the Q&A portion of this call and I'll turn it over to Chris now thanks.

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

We are very pleased with our fiscal first quarter revenue and adjusted earnings per share performance, both of which exceeded our expectations.

Total revenues were over $5 $3 billion in line with our January 12th per your announcements.

Revenues increased 25, 8% on a reported basis and 24, 3% on and FX neutral basis.

COVID-19 diagnostic revenues accounted for 23 percentage points of gross.

The better than expected performance came from three areas.

First our base business performed better than expected. This was a result of stronger execution from our associates greater resiliency and procedure volumes as health care facilities managed both COVID-19 and non COVID-19 patients and the higher acuity resulted in both favorable product mix and increased demand for several product lines.

Keep in mind, though that some of the our business segments are still operating below pre COVID-19 volume levels.

Second our Covid diagnostic revenues were higher than expected. This included not only viridor revenues, but also Max and swab and transport revenues.

Lastly, we estimate at about 100 million and revenues were attributable to stocking and timing.

And as COVID-19 searches were occurring we observed some of our customers moving to more of a just in case level of inventory and maintaining higher levels of our critical need products on hand.

We also saw some of our U K customers buying more ahead of Brexit.

The hundred million includes higher than expected revenues and our MMS infusion systems business due to COVID-19.

BD medical revenues totaled nearly $2 $3 billion and grew six 9% on an FX neutral basis.

And our outperformance was primarily in medication delivery solutions as well as and medication management solutions.

Mds revenues were up five 6%, while hospital utilization remains below pre COVID-19 levels and husband and ongoing headwind, we benefited from the acuity of care associated with the treatment of Covid patients.

We saw increased demand for pics vascular prep and maintenance as I mentioned, we believe stocking of critical need products helped the quarter.

Finally, as expected there was $37 million and revenues associated with Covid vaccination syringes and needles.

Now turning to our MMS business revenues grew eight 4% with growth and both medication dispensing and infusion systems.

And dispensing, we had strong growth internationally and once again and exited the quarter with strong committed contracts and the U S and.

And infusion systems, we continued to support U S. Customers' response during the pandemic under medical necessity and experienced another quarter of strong demand in Europe.

And diabetes care revenue growth of five 4% was above our expectations, reflecting distributor inventory stocking and addition to and easy comparisons to last year.

We still view this business to be more of a flattish business on a normalized basis.

Pharm systems sales remained strong growing nine 5% driven by ongoing demand from our market, leading pre filled syringe portfolio.

BD life science revenues totaled nearly $2 billion and were up 74, 1% on and FX neutral basis.

As I mentioned previously Covid diagnostic revenues were $867 million and the quarter, excluding COVID-19 diagnostic revenues BD life Science revenues were down two 4%, which was better than we expected.

Integrated diagnostic solution revenues increased by 106% due to COVID-19 diagnostic testing revenues.

Excluding these COVID-19 diagnostic testing revenues ideas revenues were down just one 2%.

There were several puts and takes from the base business, we saw stronger than expected performance and our specimen management blood culture, and women's health and cancer product lines.

We also saw some element of distributor stocking of critical to the health care testing. However.

However, while we have seen improvements routine diagnostic testing activities are not fully back to pre COVID-19 levels and a significantly lighter flu season negatively impacted the base revenue growth and the quarter on a year over year basis.

Now turning to Biosciences revenue declined by five 2% due to a difficult comparison as a result of prior year licensing revenue.

In addition, clinical and research activities are not yet fully back to pre COVID-19 levels overall operational performance and biosciences was better than expected.

BD intervention revenues totaled nearly $1 $1 billion and were up 5% on and FX neutral basis with all business units posting growth, we observed that elective procedures, particularly those conducted in an outpatient setting.

Greater resiliency and Q1 compared to the initial wave of Covid. This.

This was likely driven by processes and care settings that enabled elective procedures to continue despite the resurgence and a greater willingness on the part of patients to attend to their scheduled elective procedures.

Surgery sales were up one 3% as strong sales growth and our infection prevention business was offset by the ongoing headwinds related to lower procedures due to the pandemic.

Peripheral interventions sales were up five 9%.

Growth was driven by strong performance across our peripheral arterial disease platforms.

Urology and critical care and turned in another quarter of strong growth with revenues up 8%.

Jewelry continues to fuel the growth and our acute urology franchise, while our new connected Arctic Sun system is driving double digit growth and our targeted temperature management business.

This is another example of BD, leveraging our digital capabilities and broad EMR interoperability footprint to bring new innovations to market.

Now turning to the P&L, we were really pleased with our gross margin performance and the quarter. Our adjusted gross margins were 58, 2%, which expanded 170 basis points year over year on a reported basis.

On an FX neutral basis, our gross margin expanded 250 basis points, which was primarily driven by COVID-19 diagnostic and higher acuity products.

Well S SG&A and R&D spending were both higher on a year over year basis, the level of spending was lower than we anticipated, particularly R&D, reflecting mainly timing.

Operating margins were 31, 6% up 830 basis points on and FX neutral basis, which was driven by higher gross margins and reduced SG&A and R&D spending.

Net interest expense was 118 million and down slightly on a sequential basis.

Other income was $30 million versus $27 million a year ago.

And the adjusted tax rate came in at 14, 6%, which was in line with our expectations.

Our adjusted non-GAAP EPS were $4 55.

And fiscal Q1, the preferred shares are dilutive, therefore, and calculating the adjusted non-GAAP EPS preferred dividends amount of $23 million was excluded from the numerator, while the diluted share count would be adjusted to include the dilutive impact of the convertible preferred shares and it would be $299.

$1 million.

As we've been discussing our BD 2025 strategy includes a focus on driving cash flow and we were really pleased with the continued progress of these initiatives and our cash flow performance, we generated $1 5 billion and cash flow from operations and the quarter and $1 3 billion and free cash flows.

We have also been focused on strengthening our balance sheet as we previously communicated we paid down $265 million of debt and the first fiscal quarter. Our net leverage ratio declined to two five times as of December 31, 2020 from 3.0 times at the end of September 2020.

A few weeks ago, Moody's upgraded our credit to and investment grade rating and we are committed to maintaining a full investment grade credit rating across the major credit rating agencies.

We believe we're approaching a turning point and our capital allocation and the past a significant amount of our cash was dedicated to repaying the debt, but looking ahead, we expect to have greater flexibility to refocus our cash deployment on growth opportunities, including tuck in M&A and other capital deployment options.

Next I want to address fiscal 2021 guidance.

While we observed greater resiliency and Q1 as it relates to procedure volumes, we still view of COVID-19 resurgence has to be a significant risk factor to our forward outlook as it could impact general health care utilization procedure volumes and diagnostic testing, including Covid testing.

And a lot of weeks of December as the resurgence has picked up we started to see pressure and some of our procedure based products.

This trend continued into January.

Updated our guidance to incorporate some impact from the resurgence into our forecast for fiscal Q2, and we continue to monitor the trends.

Our guidance continues to assume no major system wide shutdowns of elective procedures.

And given the strength of our Q1 performance along with our outlook for the remainder of the fiscal year, we are comfortable forecasting FX neutral revenue growth and the range of 10% to 12% compared to our prior range of high single to low double digits. This would include our assumption of Vera tour revenues being toward the high end of our original guidance.

Range of one to $1 5 billion.

Using current exchange rates, we expect FX to add approximately 200 basis points to revenue growth versus our prior guidance of about 100 basis points.

We expect our non-GAAP EPS for fiscal 2021 to be and the range of $12 75 to $12 85, which is above our prior guidance range of $12 48, and 12 60, a raise of 30 at the midpoint of the range.

So for these reasons, while we are extremely pleased with our strong execution in fiscal Q1, we want to caution against your AAA during our fiscal Q1 revenue margin and EPS performance going forward.

While we are not giving quarterly guidance, we thought it might be helpful to provide some context on this quarter's strength as you contemplate phasing for the rest of the year.

Our Q1 revenues operating margins and adjusted EPS are likely to be the highest absolute levels for the year due to two factors virtue of pricing and the ramp of our planned investment spending.

In addition, the stocking over $100 million will unwind and the remainder of the year.

And as Tom mentioned, we expect very to our revenues in fiscal Q2 to be lower than Q1.

As we've discussed in the past, we expected our Covid test pricing to decline and this is playing out for you.

Expect <unk> to be well positioned for broad access as we look ahead.

Regarding our operating margins our fiscal Q1, EPS benefited from the higher barrier to our revenues and margin profile as well as the timing of investment spending we expect investment spending, particularly in R&D to meaningfully step up in Q2. The combination of these two factors, where our results and our operating margins moving in.

The low to mid Twenty's and our fiscal Q2.

And the second half of the year, given our expectations for lower <unk> revenues and for investment spending to continue to ramp at a similar rate to fiscal Q2, we would expect operating margins and the low twenty's.

Also seeing some impact from the resurgence in January and like many others. We are also continuing to see pressure from higher shipping costs as well as some other headwinds however, due to the strength of our Q1 results were able to offset these headwinds and raise our full year EPS guidance.

With that I'll turn it back to Christian who will help moderate our Q&A.

Thanks, so much everybody and with that I'm going to open it up to the operator, Stephanie Stephanie.

Stephanie could you please read the instructions.

The floor is now open for questions. At this time, if you have a question or comment. Please press star followed by one on your Touchtone phone if at any point. Your question is answered you may remove yourself from Q, our pricing and the pound key and order to allow.

Our broad participation. Please limit your questions to one and one follow up we ask that while you pose. Your question you. Please pick up your handset to provide optimal sound quality.

Thank you our first question is coming from.

David Lewis from Morgan Stanley.

Good morning, and thanks for taking the questions and congrats on a nice start to the year just two from me.

Team so firstly just.

Earnings reconciliation and Chris you know, obviously, you beat by more than about 50 raised by 30, and so and I know you gave some parameters there, but we had pricing reductions and our model. We had 20 per cent reinvestment of that upside and the model even when you make those kind of adjustments as well as stocking it's still a little hard to reconcile the upside in the quarter relative to the guide so I appreciate it.

Less visible environment, but is there anything else is that investment going higher or and.

Anything else, who may not be thinking about that would explain a why we're not getting that sort of that pull through and into second and third quarter. Because I think that's going to be the key question. This morning of the call Troy David. Thanks for the question and I would say first of all its early and the year. Obviously, so we're raising but some of the factors that you mentioned, we do see.

Playing out and the remainder of the year. So we had a few things going on and obviously, we mentioned that very tour, we would expect that revenue to come down and the remainder of the year and moderate as we've talked about.

We also had timing and the base business that we would expect to moderate and to your point, we do expect the investment spending both in the the very to our reinvestment program that we've discussed as well as R&D and and quality to ramp. So we started those programs and.

In Q1.

We watch those that spending with some prudence as we as we looked at the pandemic playing out.

And so we got started but the ramp really comes and the second third and fourth quarter.

And so when you put all that into context, you also have to take into consideration a little bit of of impact from the resurgence that we saw that we mentioned we have playing out in Q2, so with all of those factors coming into play.

We felt that it was prudent to think about the guidance that we gave is appropriate at this point it is okay.

Okay, Thomas Cook and.

Good morning, and thanks for the comment just to reiterate what Chris mentioned that other topic is is that and what we still are in the middle of a pandemic, we want to be prudent, but we did see some increases impact and procedure volumes and this late December and throughout January and it's certainly less than what we had seen earlier in the pandemic, but there are new street.

And underway et cetera, and when we gave guidance at the beginning of the year, we said it excluded and.

Pass out a resurgence while there has been a resurgence and we've been navigating that very well and and it actually are raising our outlook and the mill all the research and so we'll continue to evaluate it as things go forward and what we're certainly pleased with how we started the year.

Okay. So the state and factors you've mentioned, but we're not missing anything.

And it sounds like.

Okay second question for you, maybe Tom more strategic you know it.

And this is obviously going to be very good year, and we'll see significant upside the balance sheet, obviously and dramatically better shape now than it was a year ago and you think about 2022, Tom how are you thinking about the durability of Covid testing I know, it's a challenging question and then and the ability to sort of manage through what is likely going to be sort of a volatile or void driven earnings period as you head into 'twenty two.

And how you're thinking about sort of 'twenty, two and beyond Covid wise and sort of managing the earnings process. Thanks. So much yeah I'll start on that and then I'll turn it to Chris as well to share. Some comments, let me maybe focus on specifically Covid testing and then Chris can make some broader comments on the broader business and we've shared by the way and the <unk>.

Past, we still remain very confident and and expect our revenues, excluding COVID-19 diagnostic testing and <unk> pump revenues to grow and those mid single digits on and FX neutral basis for 'twenty, two and that remains our aim and and our expectation and in terms of Covid testing as we go into 'twenty, two certainly as I had shared.

Before as we got into Covid rapid testing and last July obviously, we didn't have a high expectation that there would be much testing and 22 and as kind of each quarter is gone.

Past.

Since that launch in July we said, we're feeling more confident there's going to be some level of testing in FY 'twenty, two and and that certainly remains the case I think what one of the ways to think about as our capacity has gone up in this space as we recognize the new strains coming into market as antigen testing continues to increase.

And it's free.

Receptivity and people understand now the value and increasing ways of getting a test result in 15 minutes.

You saw us take some actions this quarter to get pricing in that low to mid teen level, which we think will be more actually position us well to as I said to maintain a leadership position for whatever market continues to evolve.

Into FY 'twenty two rate, that's part of the thinking where the actual market ends up in 'twenty. Two I don't know at this point and time I think there definitely should be some level of testing and our aim is to make sure that we're positioned.

To be a leader and however that testing evolves and and other things that we're investing and as well be it our combination assay, which is progressing well and our pipeline and the flu COVID-19 assay for our exploration of home testing are all aimed with that thought in mind as well and so maybe Chris just maybe some broader comments on 'twenty two so yes.

Obviously, we're not going to go through 'twenty, two with any level of precision, but I think it is important to give some high level comments on it and as Tom mentioned.

And the level of Covid testing is a variable debt that will.

Have a big impact on 'twenty, two we do see the sustainability of testing, but at what level, it's really hard to suggest at this point and.

In addition, there is a lot of other uncertainty around Covid and general the resurgence as mutations the uptake of the vaccine and.

And in our business, obviously hilarious and when that comes back and 'twenty two.

We'll have an impact.

Would remind you that on our November call. We said, we expected our revenues, excluding COVID-19 diagnostic testing and the <unk> pump revenues to grow and mid single digits on and FX neutral basis, and we continue to see that as a reasonable assumption.

And we can't predict when the FDA clearance for <unk> and our focus on making a comprehensive filing to support a timely approval is.

Is there, but we would expect some clearance sometime in fiscal 'twenty two.

We'd also look at the second half of 'twenty, one as a proxy of what to expect and 22, because both the gross and operating margins are impacted but by several factors our operating margin in fiscal 'twenty. One reflects these incremental investments, we're making as part of the best.

And that's been program a territory that really helps drive durable growth well aligned with our 2025 strategy.

And we don't expect those investments to to continue into 'twenty, two so they'll exit exiting 'twenty one.

And will roll off and that should help margins going into 'twenty two.

The other thing I'd point out is that Q1 fiscal 'twenty two will obviously be the most difficult comp from a margin perspective.

Given the very strong quarter, we just reported.

For example, most likely.

Faced the most difficult comparison with Covid revenues as well as from the impact of the timing and stocking that we talked about so we would expect our operating margin to compress year over year from the 31, 6% that we just achieved so we'll update you more on our thoughts on 'twenty two as we progress through the year, but we just started.

Important to provide some of those highlights and and as you mentioned, Dave we feel really good about the progress of our strategy overall and the underlying business momentum that we continue to build upon.

Thanks for the Capex so much of the detail. Thank you.

Your next question comes from Robbie Marcus with JP Morgan.

Hey, Ravi Oh, great.

And congrats on a good quarter also and and thanks for taking the question.

I wanted to touch on you know and I'm one of the slides and the back do you have that the underlying basis ex Covid grew 4% and the quarter, which was a really healthy rate. How are you thinking about that base business Cove ex COVID-19 growth through the cadence of the year here you know, that's a pretty healthy start and what was.

Tough quarter, how should we think about that component of the business throughout fiscal 'twenty one.

Okay. Thanks, Ravi I'll, let Chris answer that Yeah, I think one way to think about that is what I mentioned about 22 is that we expect the base business to be a.

Ramping at a at a mid single digits so that.

It's consistent with that so I think that we feel that the underlying business is solidly and that kind of perspective.

And as we talked.

<unk> talked about the base business, we expect to be kind of and that low to mid single digit.

A level four for the full year and so there is some pressures and the second half of the year on a.

Our business by business basis, as you think about MMS there will be some.

Issues, it's going to be lumpy.

And the remaining quarters.

MMS.

A significant amount of revenue and the third quarter during the pandemic last year, although parts of the business will will ramp nicely.

China for example, as we lap the the Covid impact that.

Really was in Q2 there.

And China, So we will start seeing some revenue growth.

And from that.

But again, that's more of a compare it's not an indication of the underlying business, but the underlying business really is in that low to mid single digit.

Basis.

Some general.

Issues with compare to the based on the <unk> ship hold some of Thats been negated by medical necessity. So.

Theres a number of factors going on but the bottom line of it all is think about the base business for the remainder of this year and that low to mid single digits and exiting into 'twenty, two and the mid single digit basis.

Okay. Thank you, Rob and great maybe.

Maybe just a quick follow up you you're generating a pretty significant amount of cash here.

And you got the balance sheet and a great spot last year, when things were looking pretty down for Covid and and now things are looking up.

So how are you approaching the uses of this cash and particularly as we go into next year and to follow up on the last question. There there is a.

You know question Mark about how to bridge some of the earnings you know what.

What are you thinking about uses of cash M&A opportunities across the business and and how much of that might get returned to shareholders.

Rob I'll start with it and and turn it over to Christopher Some further details obviously from you see us investing behind our growth strategy, you see us, making investments and capacity for example capacity investments and rapid testing capacity investments and helping the vaccination campaigns, whether or not that's with.

Needles, and syringes or that.

The $1 billion to investment you saw us.

Announced last quarter related to our pharmaceutical systems pre <unk> devices, and we're going to continue to invest in growth part of that investing for growth is also our tuck in M&A strategy and you saw us begin to accelerate our efforts in that last quarter Youre seeing that continue into this fiscal year and and you heard me mentioned, we have a robust.

Funnel to continue that we remain very focused with an emphasis on tuck in M&A is up and iterating since transitioning and into the role that I'm in today.

And as we think about more broad deployment of capital to create shareholder value, maybe Chris comment on that sure absolutely and and I would just say a few things first.

We were very proud of the fact that we really focused on cash during the pandemic and if you look back and fact that the third quarter of last year, our cash flow actually increased year over year. Despite the fact.

And that the revenues were suppressed from from Covid and that was the result of a number of actions that we took and the business around inventories receivables and payables.

And so we're very proud of that we really focused on cash.

As we mentioned at your conference last month, Robbie we paid down two.

$265 million of debt that kind of gets us down to the targets. So we see the the leverage ratio of floating down naturally without the need to pay down debt, which really says at the end of the 5 billion ish that we've paid down debt over the last couple of years.

That strong cash flow that we're generating will be available to allocate two two other value enhancement. So we've talked about primarily the tuck in M&A and share repurchase.

And as we get through this pandemic and as that safety net of cash that we've had.

To ride out the pandemic isn't as necessary, we will have the ability towards the end of this year and you've seen our you know our tuck in M&A ramping up the pipeline is good we would continue to look at a number of opportunities and you know by the end of this year I think we will be also talking about.

Giving that cash back to shareholders because once we get through this period, we don't see the need to build up cash on the balance sheet and so we would be returning that to shareholders.

After a certain amount of tuck in M&A. So this puts us in a very good position, we've got great cash flow generation and better than ever and that puts us at a great position to allocate that appropriately and we continue just as Chris mentioned these are all programs with momentum.

We have a cash committee that meets them.

Every week and and we continue to have teams dedicated to that work. So I appreciate the recognition there Robbie and and.

We're going to continue that and I think that our recognition also came from Moody's and we felt really good about the fact that they upgraded us to investment grade and in fact, not only good day and upgrade us.

But they kept the positive outlook, which we really appreciate it as well and.

So that puts us full investment grade across all three.

Rating agencies, and we fully intend to stay that way.

Thanks for the question operator.

As a reminder, please limit yourself to one question. Your next question comes from the line of Vijay Kumar with Evercore ISI.

Good morning, Juan and good.

Morning, guys and congrats on a solid points here, so maybe I'll limit from one question, perhaps and to partner.

And on the revenue guidance Tom.

Did anything change out of outside of.

You know the better tour come.

Coming in at the high end and the reason I ask is you guys. Just did 680 in Q1, the guide of one and a half implies a pretty drastic falloff in medical revenues and the back half.

And Chris and the margins here I think.

And would imply a sub 25% op margins for <unk>.

<unk> two <unk> to get to the guide.

And that's below your pre pandemic levels I'm curious.

And any incremental expenses and the back half and thank him.

Hey, Vijay and and nice approach with a two part one question.

So on the revenue side on <unk>.

And I think the key thing to meant to talk about there is the pricing comment that I made is one big piece that drives that right. We said we were above 20, and the last quarter and as we think about looking forward, we've talked about modeling low to mid teens. So that that's the number one adjustment there and again we've been through.

It's not new news at all and the fact that we've been talking about that we expect pricing to head and.

And that level as our capacity comes online and we are in a better cost positions et cetera, and as more capacity is coming into the marketplace.

And so we've taken actions as planned and and that is why we gave guidance that said expect the revenues to be highly weighted to the first half of the year and we've said that from day, one I think the there remains uncertainty around the effectiveness and timing of the vaccines, especially with with additional.

Additional variants that are out there et cetera, but we can't predict what's going to happen there on the second half of the year and so we remain projecting that there'll be very strong demand for antigen testing.

In the first half of the year and that the second half of the year is less certain and obviously if demand stays very high and depending on the the dynamics with capacity and demand and how those curves crossover and maybe.

And maybe there could be opportunity and the back half of the year, but it's way too early to the price to think about that is because it's far from certain or able to be confirmed so our aim is to position ourselves to be a leader in this space. However, it ends up evolving and as we go forward there'll be more clarity there, but certainly it's certainly a very dynamic.

<unk>.

And maybe Christian and part too sure on margins Vijay Q1 margins were obviously very very strong and that was a function of a number of things first the COVID-19 testing, obviously, but the base business was very very strong as well and we drove some synergy.

And a continuous improvement kind of margin improvements as well so all things.

And we're positive in Q1, as we think about the rest of the year you would expect that COVID-19 testing to moderate as you model that out obviously and then don't forget you also have the unwind of the timing that we saw the 100 million and Q1 that that <unk> and the remainder of the year, but the most important thing is the <unk>.

Ramping of investments that we've discussed so we're investing in R&D, we're investing and quality, we're investing and and.

And the Verity of reinvestment.

Program and all of those things kind of ramp in Q2, Q3, and Q4, and so don't think about that as an indication of our pre pandemic margins. It's just completely different and then.

And <unk> investments go away into 'twenty two the beauty of it is they they begin to drive.

Improvements and growth and revenue generation and margin expansion and those things will kick in.

Towards the latter half of FY 'twenty two so.

And then you get to pick up and margins by them going away and then the benefit of those those investments and driving revenue growth and margin improvement going forward.

And so.

You can't look at that as well those are different than pre pandemic.

Margin so.

And that's the way to think about 'twenty, one is that as it plays out.

Thanks, guys.

Your next question is from Bob Hopkins with Bank of America.

Oh, Thanks for taking my question and good morning, and I was wondering about good morning, and I'll just stick to one topic.

And especially since you mentioned it sears' failure and number one priority on an awareness refiling.

Are you guys just waiting on the FDA at this point or is there more work to be need the BD needs to do and if theres more work you know what still needs to be done.

And looking for a little more detailed update there. Thank you sure and thanks, Bob and and good to connect so as I mentioned, we remain on track for the submission in late fiscal Q2, or early Q3, and and we're not waiting on anything specific from from the FDA. These are our very comprehensive.

Submissions right think thousand.

<unk> thousand plus page.

<unk> that take time to prepare and have a lot of comprehensive data in them and so.

We've always said from the start our focus isn't on.

And rushing into our submission, but it's around ensuring a comprehensive submission that is going to achieve our ultimate goal, which is a timely FDA review and clearance and so that and that remains our focus.

From that perspective, obviously.

Q2, Q3 is coming up upon us here the teams are making great progress and we continue to iterate.

That timeline will continue as we have and the past as.

And as we get to that date those dates.

And we'll provide updates at public conferences or.

As appropriate so okay.

And that everything is into the agency and and just waiting to hear back from them. You guys are still putting the package together to submit correct. You can expect that once we submit we will communicate.

That and appropriate for them, but we haven't we are preparing to submit in the timeline and I mentioned, great. Thanks very much.

Your next question is from Richard No winter with SBB and Nowhere Inc.

Thank you very much.

Just given that you're clearly accelerating.

Tuck in M&A.

And from the capital deployment standpoint.

And with rates and kind of sense, especially with the Covid windfall and your free cash flow generation should we be thinking about the contribution from what you might do.

And more aggressive kind of M&A front going forward as maybe giving you more towards kind of a upper mid single digit kind of growth profile or even maybe high single digits I'm just trying to think through that.

The shift from the re prioritization here clearly more addressable more on offense is that is that where we're headed once we return to a more normalized environment.

Okay. Thanks, and thanks for your question, obviously, our number one focus is on durable mid single digit revenue growth and and that's our aim here and so we really see.

And we often referred to it inside inorganic innovation, we look at our pipeline and we look at the market spaces that we participate in and I walk through three of our our three key areas of innovation focus.

Earlier in the call and we evaluate constantly what products and initiatives, we can fund organically and drive in house to advance that strategy and and create shareholder value and value for patients and providers and we also are constantly looking at the external landscape as well, let's see.

And what may be out there that could get to market and sooner than we could or maybe has some great talent that created some really exciting innovations.

Side of BD that we can bring bring in house and so we're going to continue to do that but it's all in line with.

I'd say, a more holistic approach to driving that durable mid single digit revenue growth profile debt.

And that people really.

And I've come to appreciate from from BD. Thanks for the question.

Your next question comes from the line of Brian Weinstein with William Blair.

Hey, guys. Good morning, Thanks for taking the question Ryan Good morning.

And just just from some things on <unk> can you just talk about your capacity now and you mentioned, making additional investments and testing so where was that in Quebec.

Capacity, and then where would that get you and I.

And just how to reconcile the capacity expansion that you're going through with the thoughts on the slowdown in demand how do I reconcile this and it's also about building for at home testing and you'd see some thoughts on exploration. There can you just tell me what that means thanks.

Sure, Brian It and go to connect as always so.

The capacity is as we've communicated and in the past right that we were at.

Going to 12 million tests in March and is what we communicated on our last earnings call.

And.

We're on track for that and we're also on track for the Max capacity expansion that we had described before and I don't think it's a fair thing to say that we continue to sell all of that capacity as we look forward, that's not known to us, particularly in the back half of the year, but we're positioned.

As a global pandemic, it's going on and the world as we think about opening up.

<unk> and schools and other things people are going to look at what different types of testing technology. They can use and and our aim is to make sure that things are available to health care systems as needed. So we're doing that and we've also shared right, where we're actually depreciating those assets within the year.

So that as things unfold and 22 and 23 of those assets won't be burdened on our P&L, because we were able to fund that within the profits that are generated within this fiscal year. So that's that's our approach and.

And nothing more than that.

At this point, we'd probably not want to comment more on the home space other than dimension that we are actively exploring that has been has been our practice.

As we advance our work in that and the combination assays that we share that are in development will really end up sharing more about those as we actually gain.

Gain EUA and and head towards launch if if those occur. So I think that's it maybe we do have Dave Hickey on the phone I can pause and Dave I don't know Theres any other comments to add from you.

No I mean, Brian Hi, its Tom.

Tom you've captured and eloquently I think capacity, we've moved to 12 million tests per month from next month, you mentioned, Max and Max actually we did increase capacity to $1 9 million tests.

For the molecular assay from.

From from last month actually and there are a variety of additional topics like the claims home testing OTC that we're exploring right now as well as additional menu to leverage and 70000, plus the territories that they're going to be out there and.

Ed.

And those decisions take place we will we'll share more details as we get as we get those decisions and those.

Mark it's still are not well defined today as you know Brian So thank you for the question.

Yes.

Your next question comes from Larry Big Olson with Wells Fargo.

Good morning, lots and taking the question and I.

Just want me on you have more anytime you have the a b teekay panel coming up on February 17th.

And as you guys know that tends to get outsized attention.

By investors. So it sounds like you guys requested the panel what do you think.

Topics or key issues are going to be every every panel has them.

Do you expect FDA and the.

Panel to debate, whether it should be six month efficacy.

The focus of 12 month data your level of confidence and the outcome and and do you still see this as kind of $150 million opportunity, which is kind of what bard thought it was before.

Before the acquisition thanks for taking the questions. Thanks, Larry and good great question.

And let me maybe make a short comment here and then we have Simon Campion and on the phone and and we'll turn it over to him who was actually much as deeply versed and and this is so first off just as a reminder, we have nothing in our forward looking plan for be Teekay approval right.

And it's not in our 'twenty, one plan and it's and no forward looking outlook that we have as we think about how we model things within the company.

Today, the connex revenues are less and 1% of our overall BD revenue and in this indication specifically again is not included in our forecast and as.

As we go into the panel and time, and we'll share more detail and this the <unk>.

One thing that we have as we know this is a highly underserved market.

And we know that our clinical trial data shows very strongly that it's safe and photonics is safe and this patient population I think it's the first product that has gone through a trial and the U S. It has the ability to do that now the question is.

Are the clinical outcomes that were shown in our trial sufficient enough for it to be warranted for an approval and so Simon let me turn it over to you to talk a little bit more about that.

Yes, thanks, though.

And as Tom just reiterated that the safety profile.

DCD and going to be Teekay, and particularly has been I think has been the has been well discussed and the data that we're providing demonstrating continued safety of the new products product.

In relation to.

And we did request.

And we're meeting as you as you know below the knee patients.

Critical limb ischemia.

R R.

And a very bad way with the most serious form of peripheral arterial disease and multiple comorbidities.

And some of the most important thing for this patient population.

Our E auctions and D and <unk>.

Opportunity to expand the gap between between these frequent intervention that they will have so as we move into panels certainly there will be a debate around the around the clinical data that we have that we've acquired.

But I think more importantly.

This is Ed this is another too and the armamentarium of.

Off to the condition tactful for BD came to banking.

You can think back 20 years ago and ethics.

Our policy and intervention.

PTA balloons and off label.

Playbooks debt and.

And today.

Wide range of technology available to them all the way up to co Cola balloons and drug Eluting stents.

And <unk> today.

As I said, the most serious form of peripheral arterial disease, the wound product available on that PPA. So.

And that's suggesting this is the silver bullet for all PTK cushion with adjusting but this is another tool that Ken and hence the outcomes for different patients.

Physicians to debt each and every patient.

Yeah and another two.

To treat them with <unk>.

On February.

Moving to 17.

We've gone through a comprehensive preparation for and will absolutely put our best foot forward on that day to come.

And panel of American water application.

Thank you.

Okay. Thank you for the question.

Your next question is from Larry Cohen, with Raymond James and good morning, Larry.

Morning, everyone.

And so so Tom I wanted to just touch on the investment spend that you guys talked a lot about and certainly really.

And up the conversation around that over the past couple of quarters, and I guess, I'm really focused and on the R&D side of things.

And I feel like I've heard this story in the past here at BD.

And and and Theres been some.

<unk> with with innovation and really getting.

Products out onto the market that were considered to be more than just evolutionary.

So I get the sense that things are probably different this time around but I'm just trying to understand.

And if there's a new approach or are you investing differently or anything that you can kind of speak to to help us get comfortable that these investments hopefully can lead to visible.

Product introductions truly is good and fair question.

So a couple of and let me start with just overall R&D effectiveness and and I can get a little bit of color on the types of initiatives that we're investing and here and and also how we think about our overall innovation system. So as you know John Deford joined US as our Chief Technology Officer about three years ago.

And really under his leadership there has been tremendous progress within the organization and and with the segment teams and the business teams and and advancing our.

Our ability to.

To drive innovation.

Actually over that time period, we've gone from kind of the and.

The midpoint of of not being where we wanted in terms of on time milestone delivery or on time launches.

And to being.

As we benchmark ourselves to being and a top quartile within the industry of hitting our milestones and most importantly, hitting our launches right and our launches are now and about 80 plus percent of our launches are on time.

Which is up very notably over the last three years up over 30 percentage points.

Around 30 percentage points and in fact, so we see the progress being made and that's.

And as a result of a lot of system improvements new capabilities brought in.

And taking some of the best practices actually from Bard and the acquisition.

And and applying those across the company. So that's that's something we're going to continue to build upon as we think about the innovations that we're investing and you know as we.

And we look at those there's not.

And there's a few as I think about them kind of.

New to world innovations that are in and our pipeline I mean, one and some of the ones. We've already talked about right non COVID-19 menu expansion on their tour and Max to take it to capitalize on our expanded footprint. We have a strong track record of developing new assays on Max and and and <unk> right and it's just examples of that.

Other initiatives are accelerating programs that we already had and our pipeline and allowing them to to come to market a year or two earlier than we originally projected that's an area of investment that we're making and there are a number of areas and each of the segments, which were.

And it accelerating new products into the pipeline, but they are all very much in line with our strategy and and areas that were confident that we have internal capabilities and of course, what we're also doing it's complementing that is that tuck in M&A strategy that I mentioned before and we do think about often and and we'll have those discussions internally.

And if technologies are better developed in house or that we should be going outside because we have.

We don't have those capabilities in house, and we'll either look at do they exist today and in someone else's pipeline and is that a and opportunity for tuck in M&A, where do we need to be doing collaborations with debt with outside groups and many of those many R&D programs that we have today I think probably a record level of R&D.

<unk>, where we have external partnerships in place.

Actually the BD core would be one that I mentioned before were very strong external partnerships with the robotics.

That's a very advanced automation system.

And so we brought in robotic experts that helped us with that launch and it's going really well in Europe, and we're bringing it to the U S. Here, but that's one that we probably wouldn't have been able to develop and the same way. If we had tried to do it and our own but we are seeing successes with that approach and we're seeing it and many other areas as well. So that's kind of maybe just a little bit of color, Larry and and how we think about it overall.

But with that progress that we've made and the way that we've thought through making these investments and how we also think about where it's smarter for us to do tuck in M&A, we're confident and it wasn't.

And that.

Okay very good thank you for that.

Your next question comes from Matt Taylor with UBS.

Alright, Thank you for taking the question and.

And so I just wanted to ask you about the merits of our pricing from.

From the standpoint of how that came about and usually you would think about it as being more of a competitive dynamic but it seems like.

From your comments youre being a little bit more proactive to lower price to make it a better value proposition for stakeholders and so I wanted to understand them and how.

And I came about and B do you expect it to go down further in the future do you think this is Ed.

And a point of equilibrium.

Yeah. Good good question Matt.

So, yes, you're right and it's a combination of.

We do and we've always said that we believe the pricing would head in this direction our capacity is increasing and we want to be proactive and maintaining that leadership position. There is but there is additional capacity coming in the industry now is as well too and.

And there will be further capacity coming and we're not the only company who's adding and capacity and so we think about that.

Louis Stickley, and where pricing as a result of that is going today and where.

And we best position our products to remain a leader and that and that's how we.

Developing and we spend a lot of time thinking those things through has to win and.

How we optimize our pricing again to also serve.

Is to continue evolving customer base as more non traditional areas of health care get into wanting to do antigen testing and making sure that it's appropriately priced to enable the broadest access to the product and while we're still in the middle of a pandemic and so we've gotten very positive receptivity to the pricing. We already had started we've already started to roll that.

A couple of weeks ago.

And <unk>.

Last month and so.

And so.

Good question. Thank you Matt.

Thanks.

Your next question is from Josh Jennings with Cowen.

Hi, good morning, Thanks for taking the question just one good morning, just one quick one on fair tour, just with the U K and South African variance I think I think the UK ran some studies and rapid antigen testing and and.

Confirm and confirm that there was no change.

Change in sensitivity and specificity, but something about this and South Africa variant and <unk>.

K variant and future variants.

And what is what do you expect it to and so just.

Monitor those variants and and ensure that the sensitivity and specificity arent altered by by so many patients and the virus and and a subsequent vintages and you guys are testing four thanks, Ed Good question, Josh and and that's certainly something that our teams are all over and let me turn it over to Dave Hickey and we've got on the line the president of our life Science segment.

Alright, Thank you Tom and John Great question, So to your point and obviously several several newly identified variants reported recently.

And it could well be able to is right and recognizing that this is an RNA virus very much like our influenza and HIV that get indulge and mutate.

And for US and we've got two different types of platforms right. So we've obviously got the BD volatile antigen test will call. The BD Max molecular PCR test. So let me take Max first so the BD Max and for the assays that we have on the Max we've already completed.

And in silicone analysis, which is a computer model based on sequencing.

And to look at those mutations and from.

Everything that we can see around those mutations and the lineage of.

The sequence, we have no impact on the BD Max assays.

BD very tool, which is obviously more and minor asset based on the top of the protein based on early analysis again, we have no evidence to show that the U K, South Africa, and indeed, Brazilians vary and will have an impact on the test, but we continue to take actions to look at that so to confirm and mana.

And monitor the performance and.

And again, we've done that for the ones that are already out there and.

Any potential new emergent strains and this is a critical topic for us because you know I think the thing to remember here is as these variants come online and a moat, which is reportedly more transmission will it makes the importance of rapid testing and access to testing as important if not more important than Ed.

John.

Thanks for the question John.

Thanks, John.

Okay. Thank you.

And no further questions at this time I would like to turn the floor back over to Tom Polen for closing remarks.

Okay, well, thank you and thanks, obviously to everyone for your questions just before we sign off I would be remiss if I did not thank BD 70000 associates around the globe, who everyday rally around our purpose of advancing the world of health.

Your efforts and achievements this quarter were noticed.

You continue to work tirelessly to make sure that our needed products reached the frontline to combat this pandemic, while executing on our strategic agenda and.

And I'm proud of how we've started our fiscal 2021 and I'm looking forward to continuing to deliver on our goals of developing innovative devices, and making meaningful health impacts to people around the world.

And on behalf of the entire executive team. Thank you for your efforts and sacrifices.

And would we go together and like you I am proud to be BD.

For listening today, and we look forward to connecting and future investor meetings with everyone, who has joined the call and until then I hope everyone stays safe and healthy.

Thanks, everyone.

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

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Hello, and welcome to Bd's first fiscal quarter 2021 earnings call at the request of BD. Today's call is being recorded it will be available for replay through February 11th 'twenty 'twenty, one on the investors page and the BD dot com website or by phone.

And at 8558592 056 for domestic calls and area code 4045373, 406 for international calls using confirmation number 6993448, I would like to inform all PAH.

And that your lines have been placed in a listen only mode until the question and answer segment.

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

And then of the medical segment, Dave Hickey President of the Life Sciences segment, and Simon Campion President of the Interventional segment.

And you logistics before we get into the call. This call is being made available via webcast at BD Dot Com, where you can also find the accompanying slides for today's.

Carl.

During the call, we will be making some forward looking statements and it is possible that risk.

We have made certain assumptions and how we are managing our business, but that could change as we move forward. What we will also be discussing some non-GAAP financial measures with respect to our performance reconciliations to GAAP measures that include the details of purchase accounting and other adjustments can be found.

And our press release and its related financial schedules and the appendix of the Investor Relations slides. These are also available on the BD Dot com website.

Unless otherwise specified all comparisons will be on a year over year basis versus fiscal 'twenty and 'twenty. When we discuss revenue per cent changes they are and a FX neutral basis, unless otherwise noted.

With all that said it is my pleasure to turn it over to Bd's CEO and President Tom Polen, Thomas Thank you Kristen and good morning, everyone and thank you for joining us.

We are very pleased with our Q1 results, which were ahead of our expectations, reflecting the tremendous efforts and execution of BD 70000 associates.

The central role of our products and solutions and health care and a greater resiliency of the health care system and treating both COVID-19 and non COVID-19 patients.

Well our fiscal year has just started and I'm proud of the team for the momentum we are building and their dedication to our purpose of advancing the world of health.

Revenues increased 25, 8% on a reported basis or 24, 3% on and FX neutral basis, with 23 percentage points of growth coming from our COVID-19 diagnostic revenues.

While we did see some benefits from timing and the quarter. We were very pleased with the performance of the base business, which was up 4% against the backdrop of Covid resurgence is around the world.

We're seeing the early benefits of some of the actions we have taken to drive our base performance.

Our adjusted EPS.

And $4 55.

We're up 72% versus the prior year. This was also well above our expectations as a result of three factors first our revenues came in above our plan driven by higher acuity driving increased demand greater resiliency and procedural volumes and exceptional execution and Covid diagnostics.

Second we benefited from favorable product mix like Vera tour, but also from our higher acuity products.

Third our investment spending such as and R&D was lighter and earlier and ramping.

And so as you can see we started this year with strong momentum and that is despite the COVID-19 resurgence. We did start to see some impact of the resurgence and are more elective procedure related businesses late in December and that continued into January. However, we are feeling more confident and the resiliency of our base business relative to what we saw early on.

And the pandemic while.

And while the health care markets continue to be dynamic with COVID-19, and there are a number of moving parts the momentum within BD and our conviction and our strategy lead us to raise our financial guidance for fiscal 2021.

Gross simplify and empower initiatives and our ability to create substantial shareholder value.

So let's jump right in.

First let me start with the <unk> remediation and our overall quality and compliance initiatives.

<unk> remediation has and continues to be my number one priority and the team is making strong progress our focus remains on submitting a comprehensive 500 10-K filing for the <unk> system and we remain on track to submit it in late fiscal Q2 or early fiscal Q3 2021, we.

We also continue to make progress on executing our holistic inspire quality initiatives throughout the organization.

Second as you know we have a very strong focus on gross and ensuring a durable mid single digit revenue gross profile. So let me share some of the exciting highlights and our pipeline and other growth initiatives.

We continue to increase our investments and strengthen our pipeline across three innovation themes that leverage our core strength.

We're applying smart devices robotics analytics, and AI to improve care processes second, we're enabling new care settings to enhance patient experience and lower costs and this includes investing and products designed for use and the home markets and and sales channels to support these patients and third we're investing to.

Improved diagnosis and treatment of chronic disease.

So in line with these innovation and investment priorities in.

In Q1, we acquired the medical assets of Cubic's, which expands our medication management offering by combining our cloud based easy to deploy analytics platform with a smart tabletop dispensing device to create solutions for the fast growing non acute care market.

This extends our medication management solution from the hospital into the long term care surgery centers and other non acute locations.

Another smart device, we plan on launching this quarter is the centrica automated urine output system, which leverages, BD and leading position and acute urology and.

Long with BD is broad EMR interoperability capabilities and install base.

Also within BD interventional, the BD pure with urine collection system and catheter continues to be a significant driver of growth for our urology and critical care business.

Pure is a female externally urinary catheter and urine collection system, and we sell them to the acute care and long term care settings, but we're now actively extending that directly to patients with our new pure week dry dock system for the home and this launch is exceeding our expectations and and factor with revenues now exceed <unk> tonics.

And exciting launch later this year designed to improve the diagnosis and treatment of cervical cancer is the U S launch of our new BD Cor with our BD on clarity HPV assay with extended Genotyping.

With BD core BD is going to enter the high throughput molecular testing market with a very unique fully automated sample to answer platform and our <unk>.

Highly differentiated assay with unique claims that can improve rich risk stratification and support risk based patient management.

The system has been CE marked and has been very well received by our customers during our launch in Europe. These.

And these are just a few of the many products and our pipeline and you can find further details on our new innovations and the supplemental earnings presentation posted to our website.

And as we've previously shared we are investing a portion of our various where profits to advance our BD 2025 strategy. We expanded the size of the BD innovation and growth fund and additional innovation projects are being initiated on a rolling basis.

And we're investing to accelerate our simplification initiatives, including re code and enhancing our quality and compliance programs. We're also increasing funding and our BD University to support advanced employee education and leadership development as part of our strategy.

We continue to apply a disciplined financial and strategic evaluation process to these transactions and have a robust funnel.

Lastly, I'd like to update you on our Covid diagnostics outlook and specifically <unk>.

Antigen testing continues to become more widely used and both traditional and non traditional settings.

We have been highly successful with our BD Verit Tor plus COVID-19 launch and <unk>.

Territory has been well received for the ease of use performance and automated digital data and informatics capabilities that are provided with our handheld platform.

We've nearly tripled our active reader base into the pandemic and now have more than 70000, and BD <unk> analyzers globally.

Which we intend to leverage and the future with planned non COVID-19 menu expansion, which we've already begun investing behind.

As previously shared we continue to make good progress on advancing nuke, Covid diagnostics, and our pipeline, including combination flu, a b and COVID-19 assays on both BD Max and <unk>.

We also continue to explore home testing on BD their tour and has been our practice, we will provide updates to these programs upon launch.

Turning to the quarter's performance.

Our Q1, COVID-19 diagnostics revenues were higher than we expected at $867 million, which included better than expected BD Verity and rapid point of care antigen test revenues of $688 million and higher BD, Max Covid assays and collection swabs and transport devices.

The higher than expected <unk> revenues were the result of our ability to scale, our manufacturing faster, which is a testament to our manufacturing excellence as well as realizing higher pricing than we anticipated.

However, since we've been saying since last fall, we do expect pricing to move lower as capacity came online and this is what's playing out we recently lowered our pricing to allow the broadest patient access to our best in class BD their tour plus systems.

We believe this price adjustment and the best interest of our customers and patients around the world as we've now ramped our manufacturing capacity and there are emerging mutations that.

And that are making it more transmissible we.

We also believe this isn't the best interest of our shareholders. As we believe this move allows us to maintain our leadership position and the point of care market.

With respect to our fiscal 2021 Barrett to our revenue guidance as we've been discussing there continues to be many variables at play besides the evolving pricing environment, including the rollout and adoption of vaccines and the circulation of new Covid variance.

It's also difficult to pinpoint when the market supply for antigen tests will exceed market demand from.

And for modeling purposes, we would suggest using and ASP and the low to mid teens.

Given all this we expect <unk> revenues to be towards the high end of our previous range of one to one $5 billion.

We continue to expect <unk> revenues to be more weighted to the first half of our fiscal year and given the evolving pricing and capacity environment. We would expect our fiscal Q2 revenues to be lower than our just reported Q1 results.

Before turning it over to Chris to review the financials I want to close with a few thoughts.

While we were very pleased with their performance of their tour and other COVID-19 diagnostic revenues and the quarter, what excites us more was the improving momentum and resiliency of the base business.

While we saw some headwinds and our procedure base businesses from the resurgence late in December and that continued into January the impact was much more limited than at the start of the pandemic.

Moreover, given the momentum and our base business. The investments, we are making and our BD 2025 strategy. We believe we are positioned to emerge strong.

We remain on track to submit our Alere has five 10-K filing in late fiscal Q2 or early Q3 and.

And we're making great progress and advancing our BD 2025 strategy and I'm, particularly pleased with the investment programs, we've identified and initiated.

These investments allow us to further fulfill our purpose of advancing the world of health and bring new innovations to patients and expand access.

Increased spending will be more evident and our P&L later in this fiscal year, but we believe these initiatives will translate into revenue accretion beginning in late FY 'twenty two and beyond.

The investments we are making are also towards simplification initiatives, which.

Which reduce complexities drive cost efficiencies enhance our quality programs and improved cash flows.

This quarter, we made several advancements on this front, including inventory reductions that we absorbed and our gross margin and the quarter that helped to strengthen our cash flows.

Our record efforts are on track to achieve our targeted $300 million and cost savings by the end of fiscal 2024.

We're also advancing our sustainability initiatives, because we view sustainability as a strategic imperative.

And we recently announced the first of our 2030 and beyond goals our climate change targets were.

And we're committed to reducing scope, one and two greenhouse gas emissions and 46% by 2030 and to be carbon neutral across direct operations by 2040.

The science based target is aligned with the one five degrees C global emissions reduction pathway and.

And we look forward to sharing more detail behind our 2030 sustainability plan with you and future engagements and.

Finally, I'm very proud of the organization for being named for four consecutive years.

So the human rights campaign's foundations best place to work for LGBTQ equality list and for the second straight year to the gender equality index.

Inclusion and diversity is an important focus for BD as we continue to attract develop and retain the best talent as well as benefit from diversity of background and thought.

And I look forward to answering your questions. During the Q&A portion of this call and I'll turn it over to Chris now Thanks, Tom and good morning, everyone and thanks for joining US today, we're very pleased with our fiscal first quarter revenue and adjusted earnings per share performance, both of which exceeded our expectations.

Total revenues were over $5 $3 billion in line with our January 12th per your announcements.

Revenues increased 25, 8% on a reported basis and 24, 3% on and FX neutral basis.

COVID-19 diagnostic revenues accounted for 23 percentage points of growth.

The better than expected performance came from three areas.

First our base business performed better than expected. This was a result of stronger execution from our associates greater resiliency and procedure volumes as health care facilities managed both COVID-19 and non COVID-19 patients and higher acuity resulted in both favorable product mix and increased demand for several product lines.

Keep in mind, though that some of our business segments are still operating below pre COVID-19 volume levels.

Second our Covid diagnostic revenues were higher than expected. This included not only viridor revenues, but also Max and swab and transport revenues.

Lastly, we estimate at about 100 million and revenues were attributable to stocking and timing.

As COVID-19 searches were occurring we observed some of our customers moving to more of a just in case level of inventory and maintaining higher levels of our critical need products on hand.

We also saw some of our U K customers buying more ahead of Brexit.

The 100 million includes higher than expected revenues and our MMS infusion systems business due to COVID-19.

BD medical revenues totaled nearly $2 3 billion and grew six 9% on an FX neutral basis.

And our outperformance was primarily in medication delivery solutions as well as and medication management solutions.

Mds revenues were up five 6% while hospital utilization remains below pre COVID-19 levels and has been and ongoing headwind we benefited from the acuity of care associated with the treatment of Covid patients.

We saw increased demand for pics vascular prep and maintenance as I mentioned, we believe stocking of critical need products helped the quarter.

Finally, as expected there was $37 million and revenues associated with Covid vaccination syringes and needles.

Now turning to our MMS business revenues grew eight 4% with growth and both medication dispensing and infusion systems.

And dispensing, we had strong growth internationally and once again exited the quarter with strong committed contracts and the U S and.

And infusion systems, we continued to support U S. Customers' response during the pandemic under medical necessity and experienced another quarter of strong demand in Europe.

And diabetes care revenue growth of five 4% was above our expectations, reflecting distributor inventory stocking and addition to and easy comparisons to last year.

We still view this business to be more of a flattish business on a normalized basis.

Pharm systems sales remained strong growing nine 5% driven by ongoing demand from our market, leading pre filled syringe portfolio.

BD life science revenues totaled nearly $2 billion and were up 74, 1% on and FX neutral basis.

Integrated diagnostic solution revenues increased by 106% due to COVID-19 diagnostic testing revenues.

Excluding these COVID-19 diagnostic testing revenues ideas revenues were down just one 2%.

There were several puts and takes and the base business, we saw stronger than expected performance and our specimen management blood culture, and women's health and cancer product lines.

We also saw some element of distributor stocking of critical to the health care testing. However.

Now turning to Biosciences revenue declined by five 2% due to a difficult comparison as a result of prior year licensing revenue.

In addition, clinical and research activities are not yet fully back to pre COVID-19 levels overall operational performance and biosciences was better than expected.

BD interventional revenues totaled nearly $1 $1 billion and were up 5% on and FX neutral basis with all business units posting growth.

We observed that elective procedures, particularly those conducted in an outpatient setting and greater resiliency and Q1 compared to the initial wave of Covid. This was likely driven by processes and care settings that enabled elective procedures to continue despite the resurgence and a greater willingness on the part of patients to attend.

Two there are scheduled elective procedures.

Surgery sales were up one 3% as strong sales growth and our infection prevention business was offset by the ongoing headwinds related to lower procedures due to the pandemic.

Peripheral interventions sales were up five 9%.

Growth was driven by strong performance across our peripheral arterial disease platforms.

Urology and critical care turned in another quarter of strong growth with revenues up 8% share.

And it continues to fuel the growth and our acute urology franchise.

And our new connected Arctic Sun system is driving double digit growth and our targeted temperature management business.

This is another example of BD, leveraging our digital capabilities and broad EMR interoperability footprint to bring new innovations to market.

On an FX neutral basis, our gross margin expanded 250 basis points, which was primarily driven by COVID-19 diagnostic and higher acuity products.

While S SG&A and R&D spending were both higher on a year over year basis, the level of spending was lower than we anticipated, particularly R&D and reflecting mainly timing.

Operating margins were 31, 6% up 830 basis points on an FX neutral basis, which was driven by higher gross margins and reduced SG&A and R&D spending.

Net interest expense was $118 million down slightly on a sequential basis.

Other income was $30 million versus $27 million a year ago and.

And the adjusted tax rate came in at 14, 6%, which was in line with our expectations.

Our adjusted non-GAAP EPS were $4 55.

And fiscal Q1, the preferred shares are dilutive, therefore, and calculating the adjusted non-GAAP EPS per.

Dividends amount of $23 million was excluded from the numerator, while the diluted share count would be adjusted to include the dilutive impact of the convertible preferred shares and it would be $299 1 million.

As we've been discussing our BD 'twenty and 'twenty five strategy includes a focus on driving cash flow and we were really pleased with the continued progress of these initiatives and our cash flow performance, we generated $1 5 billion and cash flow from operations and the quarter and $1 3 billion and free cash flows.

A few weeks ago, Moody's upgraded our credit to and investment grade rating and we are committed to maintaining a full investment grade credit rating across the major credit rating agencies.

We believe we're approaching a turning point and our capital allocation in the past a significant amount of our cash was dedicated to repaying the debt, but looking ahead, we expect to have greater flexibility to refocus our cash deployment on growth opportunities, including tuck in M&A and other capital deployment options.

Next I want to address fiscal 2021 guidance.

And we observed greater resiliency and Q1 as it relates to procedure volumes, we still view of COVID-19 resurgence has to be a significant risk factor to our forward outlook as it could impact general health care utilization procedure volumes and diagnostic testing, including Covid testing.

And a lot of weeks of December as the resurgence has picked up we started to see pressure and some of our procedure based products. This.

And this trend continued into January.

We have updated our guidance to incorporate some impact from the resurgence into our forecast for fiscal Q2, and we continue to monitor the trends.

Our guidance continues to assume no major system wide shutdowns of elective procedures.

And given the strength of our Q1 performance along with our outlook for the remainder of the fiscal year, we are comfortable forecasting FX neutral revenue growth and the range of 10 to 12 per cent compared to our prior range of high single to low double digits. This would include our assumption of virtue of revenues being towards the high end of our original guidance.

This range of one to $1 5 billion.

Using current exchange rates, we expect FX to add approximately 200 basis points to revenue growth versus our prior guidance of about 100 basis points.

We expect our non-GAAP EPS for fiscal 2021 to be and the range of $12 75 to $12 85, which is above our prior guidance range of 12, 48, and 12 60, a raise of 30 at the midpoint of the range.

So for these reasons, while we are extremely pleased with our strong execution in fiscal Q1, we want to caution against extrapolating, our fiscal Q1 revenue margin and EPS performance going forward.

While we are not giving quarterly guidance, we thought it might be helpful to provide some context and this quarter's strength as you contemplate phasing for the rest of the year.

Our Q1 revenues operating margins and adjusted EPS are likely to be the highest absolute levels for the year due to two factors virtue of pricing and the ramp of our planned investment spending.

In addition, the stocking over $100 million will unwind and the remainder of the year.

As Tom mentioned, we expect very to our revenues in fiscal Q2 to be lower than Q1.

As we've discussed in the past, we expected our Covid test pricing to decline and this is playing out we expect there to be well positioned for broad access as we look ahead.

Regarding our operating margins and our fiscal Q1, EPS benefited from a higher barrier to our revenues and margin profile as well as the timing of investment spending we expect investment spending, particularly in R&D to meaningfully step up in Q2.

The combination of these two factors where results and our operating margins moving into the low to mid Twenty's and our fiscal Q2.

With that I'll turn it back to Christian who will help moderate our Q&A.

Thanks, so much everybody.

And with that I'm going to open it up to the operator, Stephanie 70 could you. Please read the instructions.

Order to allow.

From a broad participation. Please limit your questions to one and one follow up we ask that while you pose. Your question you. Please pick up your handset to provide optimal sound quality.

Thank you our first question is coming from.

David Lewis from Morgan Stanley.

Good morning, and thanks for taking the questions and congrats on a nice start to the year just two from me.

Team. So first is just <unk>.

Earnings reconciliation, Chris you know, obviously, you beat by more than about 50 raised by 30, and so and I know you gave some parameters there, but we had pricing reductions and our model, we had 20% reinvestment of that upside and the model even when you make those kind of adjustments as well as stocking it's still a little hard to reconcile the upside in the quarter relative to the guide. So I appreciate it's a less.

<unk> environment, but is there anything else is that investment going higher.

And anything else, we may not be thinking about that would explain why we're not getting that sort of that pull through into and the second and third quarter. Because I think that's going to be the key question. This morning of the call Troy David. Thanks for the question and I would say first of all its early and the year. Obviously, so we're raising but some of the factors that you mentioned, we do see.

Playing out in the remainder of the year. So we had a few things going on and obviously, we mentioned that very tour, we would expect that revenue to come down and the remainder of the year and moderate as we talked about.

We also had timing and the base business that we would expect to moderate and to your point, we do expect the investment spending both in the the very two a reinvestment program that we've discussed as well as R&D and and quality to ramp. So we started those programs.

In Q1.

We watch those that spending with some prudence as we as we looked at the pandemic playing out and.

And so we got started but the ramp really comes and the second third and fourth quarter.

And so when you put all of that into context, you also have to take into consideration a little bit of a impact from the resurgence that we saw that we mentioned we have playing out in Q2, so with all of those factors coming into play.

And we felt that it was prudent to think about the guidance that we gave is appropriate at this point. It is okay for the Thomas Cook.

Morning, and thanks for the comment just to reiterate what Chris mentioned that other topic give us that and what we still are in the middle of a pandemic, we want to be prudent, but we did see some increases impacts and procedure volumes and this late December and throughout January and it's certainly less than what we had seen earlier in the pandemic, but there are new strains.

And underway et cetera, and when we gave guidance at the beginning of the year, we said it excluded the impact of a resurgence where theres been a resurgence.

And we've been navigating that very well and and have actually are raising our outlook in the middle of a resurgence.

We will continue to evaluate it as things go forward and what we're certainly pleased with how we started the year.

Okay. So the state and factors you've mentioned, but we're not missing anything.

It doesn't sound like.

Okay second question for you maybe talking more strategic and this is obviously going to be very good year will see significant upside the balance sheets, obviously and dramatically better shape now than it was a year ago. As you think about 2022, Tom how are you thinking about the durability of Covid testing I know, it's a challenging question and then the ability to sort of manage through what's likely going.

Be sort of a volatile or voice driven earnings period as you head into 'twenty, two and hi, how are you thinking about sort of 'twenty, two and beyond Covid wise and sort of managing the earnings process. Thanks. So much yeah I'll start on that and then I'll turn it to Chris as well to share. Some comments, let me maybe focus on specifically Covid testing and then Chris can make some broader com.

And that's on the broader business and we've shared by the way in the past, we still remain very confident and and expect our revenues, excluding COVID-19 diagnostic testing and alert pump revenues to grow and those mid single digits on and FX neutral basis for 'twenty, two and that remains our aim and and our expectation and in terms of Covid testing as we go and.

22 and <unk>.

Certainly as I've shared before as we got into Covid rapid testing and last July obviously, we didn't have a high expectation that there would be much testing and 22 and as kind of each quarter is gone as past.

And it's <unk>.

Receptivity and people understand now the value and increasing ways of getting a test result in 15 minutes.

You saw us take some actions this quarter to get pricing and in that low to mid teen level, which we think will be more actually position us well to as I said to maintain a leadership position for whatever market continues to evolve.

Into FY 'twenty two right that's part of the thinking where the actual market ends up and 22 I don't know at this point and time I think there definitely should be some level of testing and our aim is to make sure that we're positioned.

To be a leader and however that testing evolves and and other things that we're investing and as well be it our combination assay, which is progressing well and our pipeline and the flu COVID-19 assay or our exploration of home testing are all aimed with that thought in mind as well. So maybe Chris just maybe some broader comments on that 'twenty two so yes.

Obviously, we're not going to go through 'twenty, two with any level of precision, but I think it is important to give some high level comments on it and as Tom mentioned.

And the level of Covid testing is a variable that will.

Have a big impact on 'twenty, two we do see the sustainability of testing, but at what level, it's really hard to guess at this point and.

In addition, there is a lot of other uncertainty around Covid and general the resurgence as mutations the uptake of the vaccine and.

And in our business, obviously awareness and when that comes back and 'twenty two.

We'll have an impact.

I would remind you that on our November call.

Said, we expected our revenues, excluding COVID-19 diagnostic testing and the <unk> pump revenues to grow and mid single digits on and FX neutral basis, and we continue to see that as a reasonable assumption.

And we can't predict when the FDA clearance for <unk> and our focus on making a comprehensive filing to support a timely approval is is there, but we would expect some clearance sometime in fiscal 'twenty two.

We'd also and up look at the second half of 'twenty, one as a proxy of what to expect and 22, because both the gross and operating margins are impacted but by several factors.

Our operating margin in fiscal 'twenty, one reflects these incremental investments, we're making as part of the.

That's been program with <unk> that really helps drive durable growth well aligned with our 2025 strategy.

And we don't expect those investments to to continue into 'twenty, two so they'll exit exiting 'twenty one.

They will roll off and that should help margins going into 'twenty two.

The other thing I'd point out is that Q1 fiscal 'twenty two will obviously be the most difficult comp from a margin perspective.

Given the very strong quarter, we just reported.

For example, most likely.

Faced the most difficult comparison with Covid revenues as well as from the impact of the timing and stocking that we talked about.

We would expect our operating margin to compress year over year from the 31 six percentage that we just achieved so we'll update you more on our thoughts on 'twenty two as we progressed through the year, but we just thought it's important to provide some of those highlights and and as you mentioned, Dave we feel really good about the progress of our strategy overall and the underlying <unk>.

This momentum that we continue to build upon.

Thanks for the Capex, so much and the detail. Thank you.

Your next question comes from Robbie Marcus with Jpmorgan.

Hey, Ravi Oh, great.

And congrats on a good quarter also and and thanks for taking the question.

I wanted to touch on you know and I'm one of the slides and the back you have that the underlying basis ex Covid grew 4% and the quarter, which was a really healthy rate. How are you thinking about that base business Cove ex COVID-19 growth through the cadence of the year here you know, that's a pretty healthy start and what.

It's a tough quarter, how should we think about that component of that business throughout fiscal 'twenty one.

Okay. Thanks, Ravi I'll, let Chris answer that Yeah, I think one way to think about that is what I mentioned about 22 is that we expect the base business to be.

Ramping at a at a mid single digit so.

That's consistent with that so I think that we feel that the underlying business is solidly and that kind of perspective.

And as we talked.

<unk> talked about the base business, we expect to be kind of and that low to mid single digit.

A level four for the full year and so there is some pressures and the second half of the year on a.

Our business by business basis, as you think about MMS there will be some.

Issues, it's going to be lumpy and the remaining quarters.

<unk> had a significant amount of revenue and the third quarter during the pandemic last year other parts of the business will will ramp nicely.

China for example, as we lap the the Covid impact that really was in Q2 there.

And.

And China. So we will start seeing some revenue growth from that.

But again, that's more of a compare it's not an indication of the underlying business, but the underlying business really is in that low to mid single digit.

Basis.

Have some general.

Issues with compare to the based on the <unk> ship hold some of Thats been negated by medical necessity. So.

Okay. Thank you Raj right maybe.

Maybe just a quick follow up you're you're generating a pretty significant amount of cash here.

And you got the balance sheet and a great spot last year, when things were looking pretty down for Covid and and now things are looking up.

So how are you approaching the uses of this.

Cash and particularly as we go into next year and to follow up on the last question. There there is a.

You know question Mark about how to bridge some of the earnings you know what what are you thinking about uses of cash M&A opportunities across the business and and how much of that might get returned to shareholders that Rob Rob I'll start with it and and turn it over to Christopher Some further details obviously from you see us investing behind our growth strategy.

And making investments and capacity for example capacity investments and <unk>.

Our rapid testing capacity investments and helping.

Vaccination campaigns, whether or not that's with meals and syringes or that the $1 two investment you saw us.

Announced last quarter related to our pharmaceutical systems Prefill devices, and we're going to continue to invest in growth part of that investing for growth is also our tuck in M&A strategy and you saw us begin to accelerate our efforts in that last quarter, you're seeing that continue into this fiscal year and and you heard me mention we have a robust.

Funnel to continue that we remain very focused with an emphasis on tuck in M&A is up and iterating since transitioning and into the role that I'm in today.

And as we think about more broad deployment of capital to create shareholder value, maybe Chris comment on that sure absolutely and and I would just say a few things first.

We were very proud of the fact that we really focus on cash during the pandemic and and if you look back and fact that the third quarter of last year, our cash flow actually increased year over year. Despite the fact.

And that the revenues were suppressed from from Covid and that was the result of a number of actions that we took and the business around and inventories receivables payables.

And so we're very proud of that we really focused on cash.

As we mentioned that your conference last month, Robbie we paid down $265 million of debt that kind of gets us down to the targets. So we see the.

The leverage ratio of floating down naturally without the need to pay down debt, which really says that the another 5 billion ish that we've paid down debt over the last couple of years that strong cash flow that we're generating will be available to to allocate two two.

Other value enhancement, so we've talked about primarily the tuck in M&A and share repurchase.

And as we get through this pandemic and as that safety net of cash that we've had.

To ride out the pandemic isn't as necessary, we will have the ability towards the end of this year and you've seen our you know our tuck in M&A ramping up the pipeline is good we'll continue to look at a number of opportunities and you know by the end of this year I think we will be also talking about <unk>.

Moving that cash back to shareholders because once we get through this period, we don't see the need to build up cash on the balance sheet and so we would be returning that to shareholders.

After a certain amount of tuck in M&A. So this puts us in a very good position, we've got great cash flow generation.

And better than ever and that puts us in a great position to allocate that appropriately and we continue just as Chris mentioned these are all programs with momentum.

And we have a cash committee that meets.

Basically every week and and we continue to have teams dedicated to that work. So I. Appreciate the recognition there Robbie and we're going to continue that flow and I think that recognition also came from Moody's and we felt really good about the fact that they upgraded us to investment grade and in fact, not only did they and upgrade us.

But they kept the positive outlook, which we really appreciate it as well and so that puts us full investment grade across all three.

Rating agencies, and we fully intend to stay that way.

Thanks for the question operator.

As a reminder, please limit yourself to one question. Your next question comes from the line of Vijay Kumar with Evercore ISI.

Good morning day.

One and good day.

Good morning, guys and congrats on a solid price here so maybe.

And I'll limit to one question, perhaps and to partner.

And on.

The revenue guidance com.

Did anything change out of outside of.

You know the better tour come.

Coming in at the high end and the reason I ask is you guys. Just did <unk> 80 in Q1, the guide of one and a half implies a pretty drastic falloff in medical revenues and the back half.

And Chris and the margins here I think.

And would imply a sub 25% op margins for.

Two Q2 <unk> to get to the guide.

And now that that's below your pre pandemic levels I'm curious.

And any incremental expenses and the back half. Thank you.

Hey, Vijay and and nice approach with a two part one question.

And so on and on the revenue side on <unk>, So and.

And I think the key thing to talk about there is the pricing comment that I made is one big piece that drives that right. We said we were above 20, and the last quarter and as we think about looking forward, we've talked about modeling low to mid teens. So that that's the number one adjustment there and again we've been debt.

It's not new news at all in fact that we've been talking about debt, we expect pricing to head and.

And in that level as our capacity comes online and we are in a better cost positions et cetera, and as more capacity is coming into the marketplace.

And the first half of the year and that the second half of the year is less certain and obviously if demand stays very high and depending on the the dynamics with capacity and demand and how those curves crossover and maybe.

And there could be opportunity and the back half of the year, but it's way too early to the price to think about that is because it's far from certain or able to be confirmed so.

Our aim is to position ourselves to be a leader and the space. However, it ends up and evolving and as we go forward there'll be more clarity there, but certainly it's certainly a very dynamic environment.

And maybe Chris yet and part too sure on margins Vijay Q1 margins were obviously very very strong and that was a function of a number of things first the COVID-19 testing, obviously, but the base business was very very strong as well and we drove some synergy.

And continuous improvement kind of margin improvements as well so all things.

And were positive and Q1 as we think about the rest of the year you would expect that COVID-19 testing to moderate as you model that out obviously and then don't forget you also have the unwind of the timing that we saw the 100 million and Q1 that that <unk> and the remainder of the year, but the most important thing is the <unk>.

Wrapping of investments that we've discussed so we're investing in R&D, we're investing and quality, we're investing in and.

And the Verity of reinvestment program and all of those things kind of ramp in Q2, Q3, and Q4, and so don't think about that as an indication of our pre pandemic margins. It's just completely different and then.

Investments go away into 'twenty two the beauty of it is they they begin to drive.

<unk> and growth and revenue generation and margin expansion and those things will kick in.

Towards the latter half of FY 'twenty two so.

And you get to pick up and margins by them going away and then the benefit of those investments and driving revenue growth and margin improvement going forward.

You can't look at that as well those are different than pre pandemic.

Margin so.

And that's the way to think about 'twenty, one as it as it plays out.

Thanks, guys.

Your next question is from Bob Hopkins with Bank of America.

Oh, Thanks for taking the question and and good morning, and I was wondering about good morning, and I'll just stick to one topic.

And especially since you mentioned that you're still your number one priority on an all Airbus Refiling.

Are you guys just waiting on F. D. A at this point or is there more work that we need the BD needs to do and if theres more work you know what still needs to be done.

Submissions right think thousand.

<unk> thousand plus page.

<unk> that take time to prepare and have a lot of comprehensive data and them and so we've always said from the start our focus isn't.

Q2, Q3 is coming up upon us here the teams are making great progress and we continue to iterate.

That timeline will continue as we have and the past.

As we get to that date those dates.

We will provide updates and public conferences or.

As is appropriate so okay.

And I said everything is into the agency and and just waiting to hear back from them. You guys are still putting the package together to submit correct you can expect debt.

Once we submit we will communicate that.

And that and appropriate for them, but we haven't we are preparing to submit and the timeline that I mentioned, great. Thanks very much yep.

Your next question is from Richard don't know winter with SBB Nuvaring.

Thank you very much.

Just given that you're clearly accelerating.

And M&A.

From a capital deployment standpoint.

Which makes a kind of a sense, especially with the COVID-19 windfall and your free cash flow generation should.

Should we be thinking about the contribution from what you might do.

On a more aggressive kind of M&A front going forward as maybe giving you more towards kind of a.

Upper mid single digit kind of growth profile or even maybe high single digits I'm, just trying to think through that.

The shift from the re prioritization here clearly more vessels more and offense is that is that where we're headed once we return to a more normalized environment.

Okay. Thanks for your question, obviously, our number one focus is on durable mid single digit revenue growth and and that's our aim here and so we really see.

And we often referred to it inside inorganic innovation, we look at our pipeline, we look at the market spaces that we participate in and I walk through three of our our three key areas of innovation focus.

Earlier in the call.

And we evaluate constantly what products and initiatives, we can fund organically and drive in house to advance that strategy and and create shareholder value and value for patients and providers and we also are constantly looking at the external landscape as well to see how and what may be out there that could get to.

Market sooner than we could or maybe has some great talent that created some really exciting innovations and outside of BD that we can bring bring in house and so we're going to continue to do that but it's all in line with it.

I'd say, a more holistic approach to driving that that durable mid single digit revenue growth profile debt.

And the people really.

And I've come to appreciate from from BD. Thanks for the question.

Your next question comes from the line of Brian Weinstein with William Blair.

Hey, guys. Good morning, Thanks for taking the question Ryan Good morning.

Thanks, John.

Just just from some things on <unk> can you just talk about your capacity now and you mentioned, making additional investments and testing so.

And.

Passenger and where would that get here and now.

And how to reconcile the capacity expansion that you're going through with the thoughts on the slowdown in demand how do I reconcile. This is this also about building for at home testing and you'd see some thoughts on exploration. There can you just tell me what that means.

Sure, Brian It and go to connect as always so.

The capacity is as we've communicated and in the past right that we were at a.

Go into 12 million tests in March it is what we communicated on our last earnings call.

And.

A global pandemic, that's going on and the world as we think about opening up.

And this is and schools and other things people are going to look at what different types of testing technology. They can use and and our aim is to make sure that things are available to health care systems as needed. So we're doing that and we've also shared right, where we're actually depreciating those assets within the year, so that as things unfold and 22 and 23 of those assets won't be.

And on our P&L, because we're able to fund that within the profits that are generated within this fiscal year. So that's that's our approach.

And nothing more than that.

At this point and we probably don't want to comment more on the home space other than dimension that we are actively exploring that has been has been our practice.

As we advance our work in that and the combination assays that we share that are in development will really end up sharing more about those as we actually gain EUA and and head towards launch if if those occur. So I think that's it maybe we do have Dave Hickey on the phone.

Can pause and Dave I don't know if there's any other comments to add from you.

Bryan Hi, it's Ed.

And Tom you've captured and eloquently I think capacity, we moved to 12 million tests.

And from next month, you mentioned, Max and Max actually we did increase capacity to $1 9 million tests.

For the molecular assay from.

From from last month actually and there are a variety of additional topics like.

Claims home testing OTC that we're exploring right now as well as additional menu to leverage and 70000, plus the territories that they're going to be out there and.

Ed.

Those decisions take place we will we'll share more details as we get as we get those decisions and.

And those markets still are not well defined today as you know Bryan so thanks for the question.

Your next question comes from Larry Big Olson with Wells Fargo.

Good morning, Larry for taking the question. Good morning, Hey, just warning letter from me on you have more anytime you have the PTK panel coming up on February 17th.

And as you guys know that tends to get outsized attention.

And by investors. So it sounds like you guys requested the panel what do you think the hot topics or key issues are gonna be every every panel has them.

Do you expect FDA and the panel to debate, whether it should be six month efficacy. That's the focus of our 12 month data.

And your level of confidence and the outcome and and do you still see this as kind of a $150 million opportunity, which is kind of what bard thought it was before.

Before the acquisition thanks for taking the question Thanks, Larry and good great question.

And let me maybe make a short comment here and then we have Simon Campion on the phone and and we'll turn it over to him who was obviously much deeply versed and and this is so first off just as a reminder, we have nothing in our forward looking plan for BTA approval right.

It's not in our 'twenty, one plan and it's and no forward looking outlook that we have as we think about how we model things within the company.

Today, the connex revenues are less and 1% of our overall BD revenue and in this indication specifically again is not included in our forecast and.

As we go into the panel and Simon will share more detail on this.

One thing that we have as we know this is a highly underserved market.

And we know that our clinical trial data shows very strongly that it's safe and photonics is safe and this patient population I think it's the first product that's gone through a trial and the U S. It has the ability to do that now the question is.

Are the clinical outcomes that were shown in our trial sufficient enough for it to be warranted for an approval and so Simon let me turn it over to you to talk a little bit more about that.

Yes, Thanks Paul.

Hum.

Tom just reiterated that the safety profile of <unk>.

DCD and going to be Teekay, and particular had been.

And that's been that's been well discussed and the data that we're providing and demonstrating continued safety of the new tonnage products.

In relation to.

We did request.

And have a meeting and do as you know.

Below the knee patients with critical limb ischemia.

Our and and a very bad way with the most serious form of peripheral and peripheral arterial disease and multiple comorbidities.

And some of the most important thing for this patient population.

Our options and the and.

The opportunity to expand the gap between between these frequent intervention that they will have so as we move into panels and certainly there will be a debate.

And on the around the clinical data that we have that we've acquired.

And more importantly.

This is Ed this is another too and the armamentarium of off too.

And the platform will be decay and to revenue.

If you think back to 20 years ago, and SFA and popliteal intervention.

There were a PTA balloons and off label.

Off label extent.

And today that there's a wide range of technology available to them all the way up to drug coated balloons and drug Eluting stents.

But and <unk> today.

The most serious form of peripheral arterial disease wound product available and the PTA. So we're not suggesting this is the silver bullet for all BD calculation, we're suggesting that this is another tool that can enhance the outcomes for from different patients and equipment.

Equipped physicians to debt each and every patient.

Yeah and another two.

To treat them with.

Pounds on.

February 17.

We've gone through a comprehensive preparation for and what absolutely put our best foot forward on that day to come and.

Panel of American water application.

Thank you okay. Thank you for the question.

Your next question is from Larry <unk> with Raymond James and.

And good morning, Larry.

And everyone.

So Tom I wanted to just touch on the investment spend that you guys talked a lot about and certainly we've really amped up the conversation around that over the past couple of quarters, and I guess, I'm really focused and on the R&D side of things.

I feel like I've heard this story in the past here at BD.

And and and there's been some challenges with innovation and really getting per.

Products out onto the market that were considered to be more than just evolutionary.

So I get the sense that things are probably different this time around but I'm just trying to understand if.

If there is a new approach or are you investing differently or anything that you can kind of speak to to help us get comfortable that these investments hopefully can lead to visible.

New product introductions surely there's good and fair question. So a couple and let me start with just overall R&D effectiveness and and I can get a little bit of color on the types of initiatives that we're investing and here and and and also how we think about our overall innovation systems.

So as you know John to Ford joined US as our Chief Technology Officer about three years ago and.

And really under his leadership there has been tremendous progress within the organization and and with the segment teams and the business teams and and advancing our ability.

The ability to drive innovation actually over that time period, we've gone from kind of the.

The midpoint of of not being where we wanted in terms of on time milestone delivery or on time launches.

To being.

As we benchmark ourselves to being and a top quartile within the industry of hitting our milestones and.

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