Q2 2022 Becton Dickinson and Co Earnings Call

May 5, 2022

Hello, and welcome to Bt's, earning call for the second quarter of fiscal 2022 at.

At the request of BD today's call is being recorded and will be available for replay through May 12, 2022 on B piece investor relation website at <unk> dot com or by phone at 8663 or four to 8591 for domestic calls.

And the area code plus 12035189713 for international calls the replay bridges are now dedicated so you no longer need a conference I D to hear the replay.

For today's call all parties have been placed in a listen only mode until the question and answer session. I will now turn the call over to P. T.

Good morning, and welcome to Bd's earnings call I'm, Francesca Demartino, Senior Vice President and head of Investor Relations on behalf of the BD team. Thank you for joining us.

This call is being made available via audio webcast at BD dotcom.

Earlier. This morning, BD released its results for the second quarter of fiscal 2022.

We also posted an earnings presentation that provides additional details on our performance. The press release and presentation can be accessed on the IR website at investors Dot Bebe Dot com.

Leading today's call are Tom Polen, Bd's, Chairman, Chief Executive Officer, and President and Crystal RFS Executive Vice President and Chief Financial Officer.

Tom will provide highlights of our performance and the continued execution of our BD 2025 strategy. Chris will then provide a financial review and our updated outlook for fiscal 2022.

The Q2 results we will be discussing today include the results of our former diabetes care business as the spin of <unk> was completed on April 1st subsequent to quarter end on April 14th and 8-K was filed to provide recast historical financial information, reflecting the results of operations of our former diabetes care.

Business as discontinued operations for the 2019, 2020, and 2021 fiscal years and the first quarter of fiscal 2022.

On today's call, we will give an updated outlook for fiscal 'twenty two for both legacy BD, which includes our former diabetes care business and BD remain co. We anticipate recasting financial information for the second quarter of FY 'twenty two will be available by the end of May.

In the meantime to assist you with FY 'twenty to remain co models, we are providing estimated impacts of excluding our former diabetes care business from our Q2 results.

We don't expect the Q2 re casted financial information to differ materially from the estimated impact nor affect the updated outlook for FY 'twenty two that we are providing today.

We also do not plan to comment on diabetes care after this quarter in.

In addition to our prepared remarks, you can find this information in our earnings presentation that is posted on our IR website.

Following their prepared remarks, Tom and Chris will be joined for Q&A by our segment President.

Bear Tomas President of the medical segment, Simon Campion President of the Interventional segment, and Dave Hickey President of the life Sciences segment.

Before we get started I want to remind you that we will be making forward looking statements today.

I encourage you to read the disclaimer in our earnings presentation slides and the disclosures in our SEC filings, which are both available on the Investor Relations website.

Unless otherwise specified all comparisons will be on a year over year basis versus the relevant period.

Revenue percentage changes are on an FX neutral basis, unless otherwise noted when.

When we refer to any given period, we are referring to the physical period, unless specifically noted as a calendar period.

I would also call your attention to the basis of presentation slides, which defined terms you will hear today.

Base revenues and based margin, which refer to our result, excluding estimated COVID-19 only touching with that I am very pleased to turn it over to Tom.

Thanks, Francesca and good morning, everyone and thank you for joining US we are very pleased with our strong performance in Q2 with revenues of $5 billion in base revenue growth of over 10%. These results reflect the continued focused execution of our <unk> 2025 strategy and another quarter of consistent strong growth in our base.

We exceeded our revenue margin and earnings goals, while advancing our innovation pipeline and our tuck in M&A strategy and year to date, we generated $1 1 billion in operating cash flow.

In addition, we successfully executed the spin of our diabetes care business on April 1st which is now a standalone and publicly traded company named him vector.

It trades on NASDAQ under the ticker <unk>.

I'm very pleased with how our strategy is progressing and coming to life through our efforts to grow simplify and empower our company. We are creating an agile and resilient organization that is well positioned to deliver strong performance.

Our durable core reflects our leadership position in areas of health care that remain in high demand. These are the products and solutions that form the backbone of health care around the world and create a very stable business that weather storms and uncertainty.

Through the performance of our durable core and our cash flow initiatives, we are fueling our growth strategy with investments in organic innovation and tuck in M&A.

The investments, we're making are targeted toward higher growth spaces aligned to the irreversible forces that are transforming the future of global health care across smart connected care is shift to alternative care settings, and improving chronic disease outcomes you.

We're beginning to see the impacts of that shift in our growth.

Through the simplified pillar of our BD 2025 strategy, we're reducing complexity and driving excellence across supply chain operations, which delivers efficiencies and enhances our margin profile, while improving customer satisfaction and we're doing this by improving asset utilization and labor productivity, while also enhancing our supply.

Hi chain resilience responsiveness and sustainability, all of which are more critical than ever in today's environment.

Our focused execution of our strategy is creating momentum and gives us confidence in our outlook. Despite the challenging macro environment, which has evolved dramatically since our last earnings call.

The conflict in Ukraine increased supply chain challenges energy price escalation increased inflation and Covid driven shutdowns in China are impacting nearly every company in the world.

While BD is not immune to these challenges we believe the actions we've taken to drive our growth and simplification initiatives and empower our talented organization of over 75000 associates uniquely position us to lead in this environment and gives me continued confidence in our ability to execute during these times.

I'd like to take a few minutes to share some additional thoughts on the evolving macroeconomic environment.

Starting with supply chain and the inflation.

Like most organizations across health care BD has faced increased inflationary pressure in supply chain constraints. However.

However, our simplification strategy is driving our ability to largely offset these pressures and enabling our associates to respond to these rising challenges.

An example is every year as part of our enterprise risk management process, we invested systematically validate alternative suppliers for our most critical products.

This isn't something we started this year, we've been doing this for a decade.

And it's showing benefits in this environment.

More recently, we were able to we've invested in additional inventory to secure access to scarce raw materials and electronic components, such as semiconductor chips.

And we've directly contracted for alternative transportation methods to ensure the continuity of supply for our customers.

In addition, we are investing in capacity expansion and regional sourcing to create an agile supply chain that will be more responsive to events around the world.

A key piece of our simplify strategy is our <unk> efforts, which includes a focus on portfolio simplification, including SKU rationalization. Our strong growth profile has enabled us to accelerate the elimination of lower margin skus and optimize our mix, which enables plant efficiency and for us to <unk>.

Do some more of the products that are most critical to our customers.

All of these strategic actions have helped us to move with speed and efficiency to mitigate the challenges of this environment and we believe we are unique in our response.

Yeah.

Now regarding COVID-19.

The global Health care system continues to be more agile and better prepared amid the emergence of new variants in spikes in Covid cases, and thus while COVID-19 isn't behind US health care utilization levels Deferrable procedure volumes in lab activities are consistently returning to pre COVID-19 levels and much of the world.

However, the medical industry continues to be impacted when new variance develop in ways of Covid emerge.

As you know this is currently happening in China as the government takes meaningful steps to prevent the spread of new variance.

These efforts have had an unexpected impact on health care procedures lab testing in the supply chain as reflected in our second quarter China results.

And while this is continuing into the third quarter, we expect to mitigate most of the impact over the balance of the year, assuming there isn't any additional extended waves that require more significant COVID-19 prevention actions.

We continue to monitor the situation very closely.

Despite the above complexities.

The need for critical health care products and services has never proven to be more important in our portfolio is well positioned to support clinicians and patients around the world.

Moving on I'll now provide more detail on the progress, we're making on organic innovation, which is a key enabler to our growth strategy.

As we shared at the November Investor Day.

<unk> been focused on enhancing our R&D productivity and it's having an impact.

We significantly improved our on time milestones and on time launch metrics, which are both over 90% year to date in.

In addition to enhanced productivity our increased investments in organic innovation are contributing to our performance.

Some recent examples of how we're progressing our pipeline to drive future growth include BD evolved.

Which is a fill at time of use time delayed drug delivery system and was released for clinical trials in January .

Multiple clinical trials are now underway by our pharmaceutical customers and we see cigna.

Significant commercial interest with several signed development agreements.

We also launched new to World BD reagent technology in April which was developed with novel dye technology and AI guidance.

BD horizon real yellow 586 flow cytometry reagents are the first in a series and they have the potential to accelerate discovery and drug development by enabling greater insights from biological samples.

And we received five 10-K clearance of our trek bone biopsy device that was submitted to the FDA last quarter with launch expected later this fiscal year. This.

This device allows for faster sampling and is available on a broad range of sizes to accommodate a variety of procedural needs.

Beyond these achievements, we also hit several key milestones across our pipeline this quarter.

Consistent with our strategy to bring new transformative solutions to our portfolio that improves chronic disease outcomes, you released BD libertad.

Pre filled wearable injector that enables simple self administration of larger volume doses for chronic disease.

We've completed five clinical trials with our five ml product and are accelerating development of our tenant el product with clinical release targeted in late FY 'twenty three early 'twenty four.

The BD Cor Amex module in CTG see TV two assay on BD Cor are now under FDA review.

Already CE marked outside of the U S.

Clearance in the U S will give BD access to the high volume sexually transmitted infections testing market when a fully automated and integrated platform.

This assay already cleared on BD Max is the only FDA cleared triplex assay for the three most prevalent non viral stis.

The ask Rex mechanical aspiration Thrombectomy system is also currently under FDA review and is expected to launch this fiscal year.

Already CE marked outside the U S. The system is uniquely designed with a three in one method of action that removes fresh thrombus and or a thromboembolic material and peripheral vasculature.

Also expanding our venous portfolio as the recent FDA approval of the Lenovo venous stent.

The relaunch of Lenovo reflects strong execution by the team with shipments to customers already occurring this month.

In addition to organic innovation, our strong cash flows are also enabling execution of our tuck in M&A strategy fiscal year to date, we've completed we've committed approximately $500 million to the completion of four acquisitions.

In addition to the three acquisitions in the prior quarter in Q2, we closed sites hognose, whose differentiated flow cytometry assays for the detection of minimal residual disease and cancer brings an important addition to our biosciences business and accelerates our strategy to support chronic disease management.

We believe that the current environment, coupled with our strong cash flow and robust M&A funnel positions us well to create value through our tuck in M&A strategy, while remaining disciplined.

Beyond our investments in R&D and M&A, our disciplined capital allocation framework gives us the flexibility to also return capital to shareholders through a competitive dividend and share repurchases when appropriate.

Yeah.

I am excited by the significant progress we continue to make advancing our BD 2025 innovation driven growth strategy to deliver even more significant impact toward improving outcomes for patients and providers and in that spirit. We also recently announced the inaugural members of our external scientific Advisory Board.

SAP is comprised of top medical key opinion leaders science and technology experts and experienced innovation leaders the.

<unk> is a new governance mechanisms for BD, which will meet to review and advise on Bd's technology capabilities, our innovation pipeline tuck in M&A opportunities and early stage investments.

Finally I'd.

I'd like to comment on the strong progress, we're making advancing our ESG strategy and goals.

One of the actions, we announced this quarter that I'm, particularly pleased with is the formation of our sustainable Medical Technology Institute.

This is another step forward as we advance our 2030 ESG commitments and Bt's focus on ensuring our portfolio leads the way on reducing the environmental impacts of medical products.

We are proud to receive continued external recognitions for our ESG efforts, including recently being named to Newsweek's inaugural list of America's most trusted companies.

The Forbes 2022 list of best employers for diversity as well as ranking number one in the health care equipment and services industry and Forbes America's Best large employers list.

In summary.

I'm very pleased with the progress that we're making advancing our <unk> 2025 strategy and our strong execution navigating a challenging environment, which is reflected in our strong Q2 performance. This.

This performance gives us confidence in our updated guidance, which raises the midpoint of our revenue and EPS ranges.

We remain well positioned to deliver consistent and sustainable growth and create value for all of our stakeholders.

With that let me turn it over to Chris to review, our financials and outlook.

Thanks, Tom.

Echoing Tom's comments, our Q2 results demonstrate the strength of our business and the momentum of our strategy. Additionally, we remain committed to supporting our customers and their patients and have made investments in many areas, including inventory transportation portfolio simplification and innovation so that we.

You can continue to do our best to ensure continuity of delivering critical health care offerings.

We are delivering strong performance, while simultaneously managing the increasing macroeconomic pressures through our simplification and mitigation programs.

This balanced approach is helping us make strong progress against both our short and longer term commitments.

Turning to our revenue performance, we delivered $5 billion in revenue in the second quarter comprised of $4 $8 billion in base business revenues, which had strong growth of 10, 2%.

Were nine 6% organic which excludes the impact of acquisitions.

Our revenue performance is supported by our durable core portfolio and an increasing contribution from the transformative solutions, we are bringing to the market through our innovation pipeline and tuck in acquisitions.

Price contributed 180 basis points to growth in Q2.

While this is well below inflationary levels. It is one of many factors that is enabling our investments to ensure we can continue to deliver our health care offerings to our customers.

Covid only testing revenues were $214 million, which as expected declined from $474 million last year.

<unk> unique ability to continue to deliver strong performance during these uncertain times.

As reflected in the performance across our segments with medical growing six 4%.

Life Sciences base revenues growing 17, 1%.

And intervention will growing 11, 2%.

Total company base business growth was also strong regionally with double digit growth in the U S and Europe , along with mid single digit growth.

In America.

<unk> helped to offset lower than normal mid single digit growth in China, which was impacted by restrictions implemented to mitigate the spread of COVID-19 late in the quarter.

Let me now provide some further insight into each segment's performance.

Our medical segment deliver $2 $4 billion in revenues in the second quarter growing six 4%.

Strong performance across our pharmaceutical systems.

Medication management solutions.

The medication delivery solutions businesses was partially offset by an expected decline in diabetes care.

Excluding diabetes care BD medical revenues grew seven 5%.

Mds revenues increased five 3%, reflecting continued strong demand for our durable core products.

Performance in MBS reflects execution of our comprehensive vascular access management strategy, including early momentum of our one stick Hospital said.

Which is driving competitive gains and catheters and vascular care devices, particularly in the U S.

Performance also reflects a tough comparison due to a decline in syringe utilization for vaccinations.

MMS revenues grew seven 8%.

In our dispensing business high single digit revenue growth was driven by continued strong worldwide demand for connected medication management solutions in both acute and non acute care settings.

Within our infusion business revenue growth reflects strong performance in infusion sets driven by increased pump placements outside the U S. During the course of the Covid pandemic.

Pharm systems revenue grew 12, 2% driven by continued strong demand for <unk> devices supported by our differentiated and expanding supply capacity.

Demand for these devices continues to be aided by the fast paced vial to prefill device conversion for biologics vaccines and other injectable drugs.

<unk> was also aided by the expansion of services provided to small and mid sized pharma customers through the recent acquisition of zebra side.

BD life Sciences revenue totaled $1 $5 billion in the second quarter to.

The decline of four 2% year over year is solely due to the lower COVID-19 only testing revenues previously discussed.

Excluding COVID-19 only testing life Sciences base revenues grew 17, 1%.

<unk> revenues declined six 8%, which reflects the decline in COVID-19 only testing, partially offset by strong base business revenue growth of 21, 8%.

Okay.

Performance in our Ibs base business includes sales of our new combination fluid COVID-19 assays for BD <unk> and BD Max that were ahead of our expectations and also reflects the soft comparisons to the prior year, where the flu season was limited.

Demand for our combination assays was driven by strong adoption of our broad broader respiratory panel and timing of dealer stocking.

Ibs base revenues were also driven by strong demand for specimen management products and strong performance in our molecular diagnostics portfolio driven by growth in both BD Cor and BD Max reagents with increased utilization across our larger installed base.

Biosciences revenues increased five 6% driven by continued strong demand for research reagents as a result of lab utilization, having returned to more normal pre COVID-19 levels and increasing adoption of our E Commerce platform.

Instrument and production in the quarter was limited by supply challenges for electronic components.

And as a result, we ended the quarter with a record backlog.

We expect to fulfill those orders over the balance of the year.

Yes.

BD interventional revenues totaled $1 $1 billion in the second quarter growing 11, 2%.

This reflects strong performance across the segment with double digit growth in the U S and China.

Our strong global performance is driving our ability to offset the impact of planned product line discontinuation.

Particularly in Pi and UCC of lower margin nonstrategic products as part of our portfolio simplification strategy.

The segment's result also reflect the easier prior year comparison, resulting from adult ovarian.

Revenues in surgery grew 17, 5%.

Again as a reminder, Q2 reflects a soft comparison to the prior year when revenues declined seven 7%.

Excluding the soft comparison revenues grew in the high single digits driven by hernia biosurgery.

And infection prevention, including the recent acquisitions of cheaper and tissue med.

Revenues in peripheral intervention grew eight 5%.

Performance was driven by double digit growth in the U S with strength across our peripheral vascular disease end stage kidney disease and oncology platforms.

We continue to expand our peripheral vascular innovations and are driving strong growth through share gains from our recent acquisition of <unk> and then close.

Urology and critical care revenues grew eight 8% driven by continued strong demand for our pure with chronic female incontinence platform.

Both acute and non acute care settings, as we continue to expand our addressable market and deliver transformative solutions for alternate care settings.

Also contributing to growth with continued back order recovery in acute urology and continued solid performance in targeted temperature management with our smart connected care enabled Arctic Sun platform.

Now moving to our P&L in.

In Q2, we delivered adjusted net income and EPS above our expectations with adjusted net income of $937 million and adjusted.

Diluted EPS of $3 18.

We delivered base gross margin of 55, 2% and base operating margin of 24% in Q2.

Key drivers of gross margin include a benefit from our strategic portfolio initiatives, including mix optimization.

<unk> increased volume utilization, given our strong base revenue growth.

And while inflation was broadly in line with our expectations. We did realize an escalating impact during the quarter. It was largely offset by our simplification and inflation mitigation initiatives in.

In addition, as expected we have favorable FX that was recorded in inventory in 2021 that benefited our GP this quarter as it flowed through sales.

We leveraged our base SG&A as a percent of sales by over 200 basis points driven by our focus on leveraging our base G&A expenses, partially offset by inflationary impacts primarily in customer shipping.

R&D of six 4% of sales reflect some accelerated phasing of investments and planned increases year over year consistent with our strategy to support our long term growth outlook.

Our tax rate in Q2 was higher than anticipated due to the geographic mix of sales.

Regarding our cash and capital allocation.

Cash flows from operations totaled approximately $1 $1 billion year to date.

Q2 cash flow from operations reflects a higher than normal inventory balance as we made strategic investments to increase stocking of raw materials.

Such as electronic components as part of our actions to optimize product delivery to meet customer customer demand in this uncertain environment.

We ended Q2 with a strong cash balance of $3 1 billion.

And our net leverage ratio of two eight times our.

Our cash balance includes the receipt of a cash distribution from <unk> at the end of Q2.

In accordance with the tax free nature of the spin and consistent with our capital allocation priorities, including our net leverage goals, we intend to utilize $1 billion of the impact of distribution over the coming quarters for debt Paydown.

The remaining $400 million of the distribution provides additional flexibility and will likely be deployed early in fiscal 'twenty three with a bias towards share repurchases subject to market conditions and other strategic considerations.

With the spin are impacted now complete we have achieved our targeted dividend payout ratio of about 30% as we have maintained our dividend.

Our current cash and leverage position and continued focus on strong cash flows provides us the flexibility to advance our balanced capital allocation framework and support our BD 2025 growth strategy through investments in R&D capital and M&A.

As Francesca mentioned to assist you with your FY 'twenty two models, we have provided our best estimates of the impact of the spin on certain line items for Q2 in today's slide presentation.

We estimate of $260 million impact to revenue of 100 basis points to adjusted gross margin and 160 basis points to adjusted operating margin and.

<unk> 45 to adjusted EPS.

Turning to our fiscal 'twenty two guidance assumptions first some macro considerations that support our guidance, while we still expect some global Covid driven variability our guidance assumes the continued easing of COVID-19 restrictions.

And no significant or lasting disruptions to deferrable procedure volumes.

Regarding China, specifically, we expect to mitigate the impact from the current lockdowns over the balance of the fiscal year. As we are assuming the restrictions will ease in may with recovery ramping up through fiscal Q3.

In addition, our guidance assumes that the port congestion does begin to ease and we will not have a lasting impact on our China business and other markets.

While there could be additional lockdowns in China and other markets. Our guidance assumes countries continue to be more efficient in managing safety protocols and the containment of new COVID-19 variance to allow continuity of care for patients.

Additionally, we anticipate continued inflationary and supply chain pressure over the balance of the year and into next fiscal year.

But we are not planning for significant escalation of macro headwinds.

While these pressures are meaningful we believe we are on track with our margin recovery initiatives and will continue to proactively manage this.

We expect to be able to largely offset these incremental inflationary impacts given our strong performance in Q2 and increased focus in the back half of our fiscal year to execute our companywide mitigation initiatives.

As our first half results include diabetes care, we are providing guidance today on a legacy BD basis that includes diabetes care. So you have a like for like comparison versus our February guidance.

Then we are also providing remain co guidance for the full fiscal year, which excludes diabetes care in all four quarters, along with the spin impact for each guidance metric.

This has also lead out on the FY 'twenty two guidance summary, slide in the guidance section in our earnings presentation.

As a reminder, going forward, our first half diabetes care results will be reflected as discontinued operations and we will only be discussing remain co performance.

Now moving to our updated guidance for fiscal 'twenty two.

We are well positioned for strong growth across our three segments, given our performance and momentum in our base business and thus on a legacy BD basis before adjusting for the diabetes care spin we are increasing our base revenue guidance.

We now expect legacy BD base revenues to grow 675% to 775% on an FX neutral basis from $18 3 billion in fiscal 'twenty one.

This is an increase of 100 basis points from our previous guidance of 575% to 675% growth.

When a remain co basis, we expect base revenues to grow 725% to eight 5% on an FX neutral basis.

This is an acceleration of approximately 50 basis points over BD legacy growth as our diabetes care business was a negative contributor to growth rates the.

The spin impact also includes a small contribution of revenues BD will earn in connection with agreements with <unk>.

For Covid only testing, we continue to assume approximately $450 million in revenue as expected testing demand has slowed.

And our full year Covid only revenue expectations are weighted to the first half of the year.

Based on current spot rates for illustrative purposes currency is now estimated to be a headwind of approximately 200 basis points or about 400 million to total company revenues on both a BD legacy and remain co basis on a full year basis.

This is an incremental impact of 75 basis points or $150 million compared to our prior guidance and is driven by the strengthening of the U S. Dollar.

So all in we are increasing our legacy BD total reported revenue guidance by $50 million to a range of $19 six to $19 8 billion.

On a remain co basis, we expect total revenues of $18 five to $18 7 billion.

Okay.

On a legacy BD basis, we still expect base operating margins to improve by approximately 200 basis points over 21, 7% in fiscal 'twenty one.

Despite a more challenging macro environment anticipated over the back half of the year or.

Our focused execution on driving profitable revenue growth combined with our simplify programs gives us the confidence that we will be able to offset the incremental inflationary pressures.

On a remain co basis, the impact of spin enhances our anticipated base margin expansion by approximately 50 basis points and as a result, we expect base operating margins to improve by approximately 250 basis points in comparison to 19, 6% in FY 'twenty one as recast.

Good.

We also still expect operating margin on Covid only testing to be modestly above our base business margins.

A few additional items for your models.

While at remain co basis, we expect $60 million to $75 million in year over year improvement in interest other which reflects a minimal benefit from the use of invective proceeds compared to our legacy BD expectation of $50 million to $75 million.

On a legacy BD basis, we now expect an effective tax rate of 13% to 14%.

For the full year compared to 12, 5% to 13, 5% previously due to geographic mix as reflected in our revised guidance.

For remain co. We anticipate an effective tax rate of 13, five to 14, 5%, which reflects the tax rate, excluding our diabetes care business.

Our updated guidance still assumes share repurchases that at a minimum offset any dilution from share based compensation and thus does not assume material change in shares outstanding.

All in on a legacy BD basis, we expect adjusted EPS to be between $12 85 and.

And $13 compared to $12 80.

The $13 previously, which reflects an increase of two five at the midpoint.

The core drivers of the increase include $12 five driven by the momentum and strength in our base business.

With a series of strategic mitigation actions, we discussed earlier are expected to largely offset increased inflationary pressures.

And a <unk> <unk> headwind from a higher effective tax rate.

So operationally this is an increase of seven five.

We expect an estimated incremental negative impact from currency of about five.

Resulting in a $2 five <unk> increase to our adjusted reported earnings guidance at the midpoint.

While at remain co basis, we anticipate adjusted EPS of $11 15 to.

To $11 30.

This reflects an adjustment from the impact of spend of about $1 70.

This accounts for a half year of TSA income of about $35 million that will be realized in the second half of the fiscal year and recorded in other operating income on an adjusted basis.

And it includes the contribution from supply agreements with <unk> and the benefit from financing, which are both expected to be minimal.

As you think about the TSA income next year for your models it would not be accurate to double the half year of TSA income as the services provided an income received will decline over time.

As a reminder, BD shareholders received <unk> shares upon completion of the spin.

As you think of the commitments, we made during our Investor day on our BD remain co basis, our long term targeted growth profile has been enhanced and increases our confidence in our ability to deliver our five 5% plus base revenue growth targets.

Additionally, we are now targeting more than 400 basis points of base operating margin expansion through fiscal year 'twenty five against the re casted fiscal year 'twenty one margin.

And notably based on what we know today, all things being equal we think BD remain co can deliver the absolute pre pandemic operating margin level of legacy BD, which was about 25% by the end of that same time period.

As we previously shared this will lend itself nicely to double digit EPS growth and a strong value proposition.

As you think about phasing for the balance of the year. The following are a few key considerations as you think of your remain co base revenue and earnings.

We continue to expect base revenue growth to be fairly ratable in the back half of the year.

Regarding our margins and P&L.

First on a year over year basis for Q3, we expect significant improvement and base operating margin compared to the recast at 17, 7% in the prior year.

Additionally, we expect that Q3 year over year improvement to be larger than what we delivered in Q2.

Sequentially from Q2 to Q3, we expect a modest step down due to a stronger Q2, primarily driven by product mix, most notably our flu Covid combo test and increased inflationary pressures in the second half.

As a result, Q3 is now projected to be the low watermark for the year.

In Q4, we expect the impact of increased inflation on our business to continue however, we see a larger benefit from our offsetting initiatives flowing through.

In addition, we continue to see our SG&A and R&D dollars relatively evenly spread over the remainder of the year, which will drive strong operating leverage on Q4 as higher revenue dollars.

Yeah.

At the midpoint of our full year guidance range, our average tax rate for the balance of the year is about 14, 5%, which is best to apply for the subsequent quarters.

So in summary, we are advancing our BD 2025 strategic objectives, our underlying business is strong as evidenced by our strong base revenue and earnings performance. We remain focused on execution and are confident in delivering against our performance goals. Despite navigating a complex math.

ROE environment as evidenced by our updated guidance, which increases the midpoint of both our reported revenue and adjusted EPS.

Further we are well positioned to deliver consistent and sustainable value with our long term commitments enhancing with the completion of the spin.

I'll now turn the call back to the operator to open the line for Q&A.

At this time, if you have a question. Please press star one if at any point. Your question is answered you may remove yourself from the queue by pressing the pound key in order to allow for broad participation. Please limit yourself to one question and one related follow up lastly.

To provide optimal sound quality. Please pick up your handset while you ask your question we will take our first question from Vijay Kumar with Evercore ISI. Your line is now active.

Hey, guys. Congrats on a good print here and thanks for taking my question.

My first one maybe maybe on.

On the updated guidance here.

We did close to 9% organic for first half.

I'm looking at the legacy BD.

The midpoint of seven 5%, which implies.

And those five five ish for the back half.

And I just wanted to make sure. This is a comp issue.

Or is there any timing impact first half versus second half.

Any change in first half versus second half organic kittens.

On an underlying basis.

I appreciate the question with Chris Hope you're well.

No your math is correct so.

Our first half growth extremely strong here at about 9% on a year to date basis.

Obviously, we had benefited from some onetime items, but we also overcome some some headwinds in that period too I think when we talked last quarter and we would frame this quarter as you know.

Probably from a call it underlying adjusting for some of those puts and takes around seven ish percent growth.

The back half Youre right five 5% growth.

I think theres a couple of things to contemplate there of course, China, there will be a pretty significant.

That impact in Q3 as they recover we expect a recovery. The recovery started in May we expect that to ramp through June and we expect to make.

The majority of that up in the back half.

Additionally, we do have some comps as you think of the back half of the year in particular, our life Sciences business. We did have a our triplex launch there. So if you look at Q4 that was a peak performance period for that business. So theres a couple kind of comps.

Along with the China.

Situation that will cycle through Q3 into Q4 to consider that in the back half, but five 5% growth is consistent with our long term outlook of $5 five plus on top of a front half of 9%. So all in a really strong year I think the other thing I would point to if you look at the quarter performance from.

A top line standpoint.

We actually increased our organic guide more than the beef on the base business in Q2, so it actually implies stronger second half performance. So we actually did strengthen our second half outlook. Despite some of those headwinds that I noted so hopefully that helps.

That was helpful, Chris and maybe one on.

On.

<unk>.

The longer term LLP guidance that you laid out at the analyst day appreciate aldea.

Detailed in the earnings deck, and making comparison easier.

The longer term five and a half on comp for longer plus in margins and double digit earnings are there any cadence issues. When we think Chris for fiscal 'twenty, three and I'm not asking for specifics.

2010 guidance on us.

Early for that but you start thinking about any moving pieces here.

I think FX co.

<unk> diagnostic testing and drop off comes to my mind. So when you think about the base of $11 15 to $11 30 in fiscal 'twenty two.

Should we still expect that LLP to be intact for fiscal 'twenty over at that pace.

Yeah. It's a great question, obviously to your point there is a lot of moving parts and one if you remember our Investor Day Guide, we actually stripped out testing, we see testing is something that will move more to kind of.

MC opportunity here that gets more embedded.

In the base, so we need to see how that plays out this year, obviously I think an important caveat just to see how COVID-19 dynamics, the macro inflationary environment plays out as well. So I think some some big considerations, but what I would point you to over the long term horizon definitely over the long term horizon, obviously, there can be fluctuations year to year.

<unk>, but youre seeing it play out this year was definitely the enhanced growth profile of the 505 plus.

We're well north of that this year, given our strong focus on innovation and R&D the <unk>.

Benefit we're getting from tuck in acquisitions.

As a matter of fact, just as a reminder, youll see that we did provide the onetime lift associated with the tuck in acquisitions, which was roughly 60 basis points.

That was never part of our 505, plus what was part of our 505 plus was taking those acquisitions and growing them. These are profitable double digit growth opportunities.

They are actually enhancing our growth profile on a year to date basis by about 30 basis points above that 60 basis points. So true organic growth once we have cycled over the anniversary. So I think we're going to continue to focus on our growth strategy. We remain confident in the 505, plus the spin of diabetes certainly enhances that.

Confidence you did see a 50 basis point lift here.

Just in this year alone as a result of that as we've talked about that was a drag on growth.

As you think of operating margin I shared a couple of key things. One this was a very important year for US is when we have committed to 400 basis points, we were going to deliver half of that in one year.

So doing that in the face of the inflationary environment, we're in with inflation normal inflation being 2%, we're talking about 8% Forex inflation happening.

Is quite a testament to cost improvement I don't know if you picked up in the talk track, we did commit that we're going to do better than 400 basis points over that timeframe.

Not only that we think that by 2025, we can get back to the legacy operating margin of about 25%.

And as you asked how are we going to do that.

Think of all the structural change we've made this year to compensate for the inflation.

We've actually done more cost improvement and enhancement through our simplification programs that are actually creating more underlying value that we expect to carry over the long term so.

Definitely we feel really good about our long term.

Investor Day outlook of course, assuming.

This environment that we're in at some point kind of settles back to more normal here hopefully as we exit this year into next year.

There may be a little bit of typical choppiness from year to year within that but we certainly expect to deliver continued strong growth in each year and strong margin improvement next year.

That's helpful. Chris Thanks for taking my questions.

We will take our next question from Pat speed with Bank of America. Your line is now open.

Hi, Thanks for taking the question and congrats on a great quarter, Chris I'd, just love to get a little bit more color on some of the operating margin bridge.

19, 6% as the base for FY 'twenty, one 250 basis points.

On top of that get you to kind of a low 22% range when I'm thinking about 2003, it sounds like youre comfortable at somewhere around 50 to 75 basis points of operating margin expansion in 'twenty three because love to see if that is how we should be thinking about it which gets me to like a low $12 range for earnings next year.

The early comment to that.

Yeah no. Thanks I. Appreciate the question look again, I think as it relates to 'twenty three it's a little premature to give specifics at this stage.

I think certainly though with call. It by 200 200 basis points deliver this year 250, if you adjust for impact.

And with <unk>.

To get to what I said by the end of 2025 to get back to the 25% operating margin legacy.

Youre going to expect kind of.

A relatively ratable.

Call It glide path to get there the only thing I would point out is I do think 'twenty three will be a transition period, because you are still going to have.

Structural impact of inflation, that's been ongoing that will carryover into 'twenty three so I do view that a little bit as a transition year and you'll get more lift as the environment normalizes over that time is how I would probably think of a ramp curve if that makes sense.

Yes. It does thank you for that I appreciate that extra color.

Then when you look at some of the incremental inflation impacts that youre offsetting and pretty much essentially all the way offsetting love to get a little bit more color on some of the pressures that you've seen.

And also when you think about pricing it was one 1% last quarter. One eight this quarter is that how we should be thinking about going forward kind of all of the high 1% to 2% range and to 'twenty three as well.

Hey, Travis this is Tom and good morning, I'll start and then turn it over to Chris I think in terms of what we're seeing on the inflation side.

We saw earlier on.

Quite quite sometime early last year, we recognized obviously the impacts of inflation as well as supply chain challenges and we made a very clear statement that while there is going to be no company that wood is going to avoid inflation and supply chain challenges that we're very committed to looking to be the best in our industry. It navigate.

And those and that's been the mindset that our entire team.

<unk> approached this environment over the last two years and I think you can see the commitment and actions of our team coming through in our performance from that as well and so <unk> got our team empowered and focused on executing our strategy and as part of that they are navigating this complex environment and we're pulling a number of levers to overcome.

What are shipping.

Kips resin general raw material and inflation points that we see in those levers that the teams are pulling the range from continuous improvement being notably increased in our plants. In this environment, we're taking additional cost containment actions across all areas of the business, we're driving up and acceleration of our.

Portfolio optimization and product mix, that's always been part of our re code simplification initiatives. We saw this as an opportunity, particularly with the strong revenue growth that we're seeing to accelerate exiting lower margin products and project products that are adding complexity in our plants that when we move those out.

We can actually run our plants more efficiently and get out more of the products that our customers need most which is really important in this environment and then lastly.

We looked at as a last resort, we are taking pricing actions as well and as you can see we're able to get those which are just a portion of the overall inflationary cost that people are seeing in this environment. So all of that's being done to ensure that we're positioned to best serve our customers and our patients and really proud of the team's work there.

Chris any additional comment.

I think the only build is just to reinforce I think the strong underlying growth profile.

Is really creating opportunities to.

Drive some of that simplification for example, the the strategic SKU rationalization efforts were absorbing that within our growth rate. It unlocks value in the form of margin drives enhanced mix new product.

Innovation launches as a way that will more look to create value in the marketplace and get value back for that versus thinking of things just as price.

Really a bigger picture of the prices actually extremely modest relative to the level of inflation.

Thanks, Thanks, Craig thank.

Thank you.

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

Great.

Thanks for taking my question and congrats on a nice quarter.

Sorry to kind of follow up here, but maybe if I focus in on the second half implied guide here it looks like Theres, something like 30 <unk> benefit from FX.

And I was wondering if we're going to start to see it sounds like you are adding more into inventories I would imagine that said a slightly higher cost than previously if we're going to start to see the impact of that flow through in fiscal second half or if that's more 23 impact I'm, just really trying to get to.

<unk>.

Sort of the normalized earnings power going forward.

<unk>.

Yes.

I would just say maybe I'll make a comment Robbie this is Tom good morning on the inventory situation.

As a very strategic investment that we're making to increase inventory on what I would describe as scarce raw materials. So think about raw materials like semiconductors and chips or other components that are difficult to get and you can see.

Companies across the industry running into challenges on those we have a very systematic approach to secure those assets and we will take the higher impacted our inventory to be able to best serve our customers and that's a commitment that we make I don't think that will end up taking that down as situations stabilize over time. So we don't see that as a long term we've been.

Very very focused on our cash flow as you know moving that from 75% free cash flow conversion to 90% as an ongoing.

90% plus is an ongoing target for us we're not changing that at all and we continue to have a very strong focus on inventory. We just see this is a transient and strategic investment that is paying off for us and its.

Paying off for our customers.

Yes, yes, thanks, Robbie for the question, let me let me let me just to anchor on kind of the full year and then I'll provide you. Some second second half context and of course as always.

We can engage further in the discussion.

But in terms of the guide adjustment the best way to think of it as sort of the 100 basis points of organic growth, we actually increased our top line.

By about $188 million at the midpoint.

If you look at the EPS walk that we have provided.

We're dropping about just under 13.

Through which is basically at BD margin drop through.

With that raise so nothing has changed as we've actually reconfirmed our margin profile as a result, we've taken the guide up for the stronger growth profile above actually what was delivered in Q2.

So from a full year standpoint, everything remains intact.

There is no currency really just drops through at a margin rate the margin obviously fluctuates based on.

Currency.

Mix dynamics and or margin mix in those respective markets.

I don't think Theres anything unexpected there as a matter of fact, the currency that we've talked about that was a.

Carryover benefit into the year.

He has played out as expected so I don't think theres anything there to contemplate.

And then I think as you think of second half margins.

You can expect to see there will be a small sequential decline.

On op margin from Q2 to Q3 is really primarily driven by the fact that last year.

Q2 to Q3, you had nearly a 250 basis point decline from Q2 to Q3 and it was a low watermark.

And we're actually going to be increasing the.

The improvement in operating margin in the quarter year over year versus what we did this quarter, we did 180 basis points this quarter.

We will have a step increase there.

So youll see it relatively stable but.

A small dropdown accounting for that low point base that we're jumping off of from last year and then we will continue to increase from there as sort of the glide as you think of the.

Second half, but again, so if I tie this into your question about going forward I think the important way to think about this is on track for the 200 basis point of margin improvement for the full year 250 basis points. Adjusted when you do the pro forma form factor.

Which was half of what we said as part of our full year Investor day commitment.

Quite a big progression in one year, especially in face of the inflationary pressures, which should set us up nicely over the long term.

Great and maybe just sneak in two very quick questions here one.

What was the size of the combo flu COVID-19 testing revenues in the quarter and should we assume going forward that there is no revenue from the cannula agreement with Baxter or was this more just a timing issue.

Yes.

I can take the second one maybe holistically I mean, there will be as noted in some of the public documents.

There will be various third party agreements between <unk> and BD.

There will be a small contribution to topline, which would contemplate more supply agreements, we highlighted that as part of the 50 basis points lift there was a small contribution there there'll be a full year benefit next year, obviously, but again it was it was not substantive.

We have the TSA, we said it was worth $35 million. This year it won't quite double next year, because what's typical in the spin really the spirit of the TSA is to support them back to standing up as a standalone public company.

And it gives us an opportunity to support them, we leverage our stranded costs to do that.

So basically it keeps us whole from supporting them back to us stranded cost standpoint, and then we we shed those down as the TSA goes down in parallel so there's no impact on a net basis from an income. So you should expect the 35 to lift next year, but not quite double.

Maybe just we can turn it over to Dave to answer not just the Covid combo test question. Let me just give some overall color on what was a strong momentum in life sciences across both Ibs and significant demand, we're seeing in <unk> as well so Dave thank.

Thank you Tom Robbie Thanks for the question I mean, just pulling back a little bit.

Just want to recognize our life science segment colleagues around the world.

Just a tremendous quarter unless two successive quarters note, 17% growth excluding testing.

If I talk about the test just the overall testing dynamics at the highest level so you'll.

Remember that we have the COVID-19 testing piece, which is like the single antigen and molecular tests.

Chris talk about.

That was $214 million was in the quarter $400 million year to date.

I think youll recall that we had also said that we were biasing, our sort of overall Colby performance to the first half of the year.

Because we are seeing moderate some moderation in testing, we expect that moderation to continue through the balance of the year. So.

Overall testing dynamics are playing out with what we said I mean, we're very close to 90% of the full year testing expectation for the combo. This is obviously the flu.

And Covid assay, both on a Max.

And our virtual platforms, we have not given that number specifically because that's been a mix of a lot of puts and takes in the overall base business.

There was growth there, but as Chris had said.

If you think about that as a compared to the prior to the same period prior year, that's where we saw some of the growth come from.

We do expect from a strategy perspective going forward, we do see value in the overall.

Colby combo portfolio.

As we think Colby will move to a more of an endemic situation. It's just too early to call out as to what that number would be for the for the full year, even getting into early Q1, 'twenty three when nobody knows what the dynamics of the fluid that it would be right now.

Yeah. Thanks, David Robin maybe just a couple other small things to just give you a little color in terms of what would've comprised.

The revenue there obviously there is almost no flu season last year. So you kind of got back the flu season.

Additionally, obviously the combo has.

Slightly higher value proposition you benefited from that Additionally, there was a little bit of stocking and giving it was it was new and you did have a lot of testing demand in that period, where it was hard to get access to test. So those were sort of the factors that played into where we were but again adjusting for that.

Really strong underlying especially in the back of.

Still having back quarter in certain areas both in life Sciences in total and Robbie. This is Tom as Dave said I think we've said from the moment, we launched the test that the combo test will be to go to kind of replacement for the base, we test and so we do think flu testing, which was as Chris mentioned was basically completely absent.

Last year that this year, we did see flew back.

It's something that was causing.

Sections, we expect that that would continue going forward of course, the rate at which that and the size of that market every year varies each year, but we do believe that that combo test now back in our revenue will continue to be persistent at the goto products with it.

And Rob just one just on the strategy piece, just while multistem would be with very committed to just looking at what are the unmet needs for.

Patients around the world on a go forward basis. So we are committed to developing more combo test we talked at the analyst day around the potential for <unk>.

Home combo test.

Using the <unk> platform that we acquired in December so the innovation piece of the strategy still continues.

And obviously as timelines for the local medical community does it get better though.

Thank you Roger and thanks, Ravi I appreciate it.

Once again, if you have a question. Please press star one and we will take our next question from Larry <unk> with Wells Fargo.

Good morning, guys. Thanks for taking the question and congrats on a nice quarter here.

Tom on <unk>.

Any update on the timing as fiscal 2023 reasonable.

A reasonable assumption for when that's back in the U S and at the Investor Day last year, you talked about a new pump.

Pump launching outside the U S. In fiscal 2022, I believe sorry, if I am wrong on that date I can't remember it was 22% or three but any update on that thank you.

Thank you Larry for the question.

As you know we've mentioned on several occasions that getting <unk> back on the market as our number one priority and while we're not providing any updates on timing as we had shared before we are confident in the resources that we're investing in our submission and the team and the leadership that's tasked to to make that happen and so we still think.

It is not prudent to predict the timeline given just how inherently complex. These submissions are and particularly that certainly applies to our filing. So as we had said we don't expect clearance in 'twenty. Two therefore any of our guidance doesn't factor that in into.

Our numbers for 'twenty, two gone within medical necessity, and we will continue to provide an update as that progresses, but we continue to remain focused on making sure that the FDA has the proper information for us to get clearance on that and that will remain our focus in terms of the new pump for Europe now we remain very excited on that product and it is launched.

Later this later this year.

Absolutely yes.

And then thank you, but thank you for that just quickly the supply constraint in biosciences.

Can you quantify that in.

Are there other supply constraints that hurt you this quarter, thanks for taking the questions.

Let me take a maybe a comment overall on supply constraints and then ask Dave to comment on Biosciences, We certainly saw record backlogs across the company.

So demand was even much higher than what you saw us post in our revenue and that's across every one of the segments. We saw demand in a number of categories outstrip our ability to supply even though we were producing at record levels.

That's part of what gives us confidence as we look ahead.

We are working each and every data to get more out of our plants, we certainly see shortages in longer transit times for raw materials, we see shortages from certain suppliers, we work very aggressively with suppliers to help them secure raw materials. We have even go so far as to put our own folks to help run supplier factories in certain.

Cases, but we take we take that those partnerships very seriously to optimize getting product to our customers, but we did end with a record backlog across each of the segments and specifically to biosciences.

Turn to Dave Yes, Larry Thanks for the question so.

We've got I mean, when you look at the backlog overall, we've not quantified it in terms of.

The absolute number of instruments.

As in the instrument topic for us.

Primarily sort of relates to the clinical side of the business.

As Chris had said in his.

In his remarks, we anticipate with the supply with some of the supply secured wins that we've done the procurement leverage that we've been able to get we expect this to clear over the course of the year. So it just becomes a timing topic for us.

In the year.

He is very confident about that what we are doing to sort of mitigate any short term impact is we're obviously working on an allocation strategy.

Research instrument basis is still very strong. So we're prioritizing what we have to get everything out and then we're just driving hard and aggressive.

Procurements of those chips and those electronic components.

Have a lot of the instruments sold already built ready to go so as those things come in we will just execute and ship in the back half of the year.

Thank you very much thanks, Larry.

Well take our next question from Rick Wise with Stifel. Your line is now open.

Hi, Tom Hi, Chris.

Hello.

Got it.

Perhaps with BD interventional, we haven't had a chance to dive into that.

Strong quarter current comp helped a couple of things maybe you could comment on in more expansively Ivanhoe surprised by the China double digits.

Help us understand.

What's happening there and how sustainable that performances.

And curious.

In general are you all seeing.

The electric procedure volume recovery continue into April and maybe last on the interventional.

Uh huh.

Help us think about the key drivers.

Beyond recovery beyond comps as we look at not just the next quarter, but the net.

<unk>.

Sort of a year ahead.

Is it product execution is it pipeline help us think through that.

Roberts there thank you.

Go ahead Simon.

Good morning.

Firstly again, just a reflection on the quarter.

It was a really solid quarter across all three of our business units.

And it was a soft compare and some areas certainly helped helped us, but im still very proud of the team for.

Execute across our broad and complex and clinically relevant portfolio.

And then you might recall from analyst day, all the plans that we had in <unk>.

I'm pleased to say that all of those.

Programs that we that we shared with the with the broader community at analyst day that they are all on track no.

Now specifically about performance in the quarter in China in particular.

The peripheral intervention business is extremely strong in China, and you have heard us say in.

In the past that.

And China have doubled in revenue since the since <unk> was acquired by BD.

That has been led by by peripheral intervention in the oncology business in particular.

We had some macro challenges with the oncor probes over the past several months and that's that's begun to alleviate we had a backlog in sterilization and thats begun to alleviate.

That has certainly helped drive our business forward.

But even in <unk> and in China.

Mina.

They performed extraordinary well in the last quarter as they do do very very frequently and that performance MPI was also reflected in surgery and.

And to a lesser extent in UCC as well.

Youll moving forward.

Our outlook.

For the future.

As you know, we're focused on innovation and trying to out execute the competition and you've heard Tom mentioned in his prepared remarks about the relaunch of de Novo. So we've just brought that back into the market in the last in the last two weeks and that's supported by the three year vernacular data, which which I think is on <unk>.

<unk> data in the venous space.

Super pleased with the response from our sales team and our customers to the re launch of that product and that will certainly be a driver this year and next year, particularly when we coupled out with the.

With the expected clearance anticipated clearance of the SPX thrombectomy catheter, which we hope to receive this quarter or next quarter and that will put us in a very very strong position in the venous space.

The trek biopsy device that Tom referred to as well that's that's due for launch imminently.

And then in our UCC business.

The purely platform.

Continues to I would say exceed our expectations.

And in late Q3 early Q4, we do expect to launch the <unk> version of <unk>, which we hope will be a driver of growth.

Then finally.

Comment on.

Our acquisitions and the <unk> acquisition has.

Really performed very very well with tissue Med acquisition, which was a acquisition for the China Biosurgery market that we hope to bring to other geographies, but the Chinese team again has executed on that.

And then and then been close as well has performed very very well in the in the Pi space.

Just referring back to <unk>.

And the plans that we shared with you about.

Our anticipated expansion into the breast space over the next several several years now we do expect to.

To begin enrolling patients in our pilot study here in Q4, and one of the categories that we're investigating for breast <unk>.

A lot of a lot of momentum behind the PDI team across all businesses.

And in the usual ways.

Innovation.

Organic M&A.

And executing in the field.

If I could follow up Tom.

You highlighted and I Love your language Youre investing in three year reversible forces it sounds great.

And so my question is just reflecting on Chris's commentary about your cash position and your priorities I won't surprise.

That.

Youre going to deploy the $2 billion more towards share repo as opposed to M&A clearly, it's going so well. So I'm just wondering if you could put all of that perspective help us think about your priorities and maybe on the M&A side.

Okay.

Informatics robotics.

What's top of mind for you. Thank you sure. Thank you for the question, Rick and I'll start off and then I'll turn it to Chris. So as we had described at analyst day, we've really rethought, how we view our portfolio and our approach to growth and we are looking at how we invest in our <unk>.

Large essential to healthcare durable core portfolio and fast growing transformative solutions in those three areas that you mentioned smart connected care new care settings, chronic disease outcomes and we're really pleased with the performance of both hopefully there is something I said in the in.

In my prepared remarks that I think is an important takeaway for everyone, which is our we've had a focus over the last several years of increasing bd's R&D execution capabilities and you may have heard me say that we reached our peak performance. This past I actually year to date, we're over 90.

<unk> on time milestone deliveries and on time launches that's.

Absolutely top quartile in the industry and something that we're really proud of the momentum that we've had there. If you look at the pipeline that we shared at analyst day as well.

All very much on track and Youre seeing us announce those executions and as we look at milestones for those things also very much on track, which is giving us a lot of confidence as we look out over the MRP in the years ahead.

To your point, we've been we're really pleased with how we're executing that tuck in M&A strategy right. We've got very strong core growth, we're staying very disciplined to making sure that we're creating value for our shareholders through the acquisitions that we're doing we don't have to go out and buy growth. We've got strong growth in our core and we're adding value on top of that with 80% of those tuck in <unk>.

<unk> focused in those high growth transformative solution areas and you heard Chris described that so we're going to continue there we have a very strong robust pipeline, we think that actually this environment. If anything is creating incremental opportunities for us as we look ahead and so we're going to stay active and disciplined in there, but we do see the opportunity for that.

To continue to shift bd's growth rate upward as we look ahead over the next coming years in terms of.

Our decision and how we're using the cash specifically from the spin let me turn it over to Chris on that.

Thanks, Tom and Rick Thanks for the question. So first of all the tax free nature of the spin requires you to think about allocating between either debt <unk> share repurchase what we actually outlined in the script was we're going to prioritize a $1 billion of debt pay down thats very consistent actually with our capital allocation.

<unk>, maintaining a strong net leverage ratio, which gives us a lot of financial <unk> to actually support the strategy that Tom just outlined the balance of about $400 million plus.

We will be opportunistic about we do have a bias for that smaller remaining portion towards share repurchase but of course will be dependent on market conditions and other strategic considerations.

And then just a double down a little bit on so thats, a discreet and separate decision that we're taking associated with the spin beyond that our capital allocation strategy remains exactly intact as Tom articulated the most important thing actually I think we shared is we're doing all of this from a position of strength underlying strengths. It allows us to be.

Extremely disciplined and identify assets that have strong margin profile strong growth profile strategically fit against those three irreversible forces drive transformative solutions.

So we will look to continue to drive strong cash flow with by the way higher R&D investments. We of course have continued to prioritize our dividend.

Actually the payout ratio increased post spin another value too.

BD shareholders.

And then we expected about one $5 billion to $2 billion of excess cash after doing all of those things where tuck in M&A would continue to absolutely be our priority.

But importantly, we did agree that we would make sure at minimum we would do share repurchases that avoid any dilution from share based comp. So that's the capital allocation strategy that we're executing now.

Thanks, so much thank you.

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

Thank you operator, and thank you today for joining our call and for all of the questions. I Hope everyone took away a couple of key points from our discussion today.

BD is very well positioned to continue to deliver value in uncertain times, and we're seeing that driven by the execution of our <unk> 2025 strategy, which is led by our innovation driven growth strategy.

We had strong base business performance across all three segments were continuing execution delivering enhanced margin profile amidst macroeconomic pressures.

We've now successfully completed the spinoff of our diabetes care business as part of our simplification strategy and today, we further increase revenue and EPS guidance on strong results. Despite continued market uncertainty.

As we wrap up today's call I want to just take a moment to thank the 75000 members of the BD team and those listening today, who are working around the clock to ensure production and availability of essential products for patients and providers and who are going above and beyond to support our customers I want to thank our teams who are working to bring new <unk>.

<unk> to market that improve outcomes for patients and providers and that are reshaping the future of health care through both our durable core and transformative solutions and I want to thank our teams who are working to make BD stronger by simplifying our network our portfolio and our processes.

As I've said many times, while every company is navigating macro challenges, we're focused on being the best in our industry at doing so and to approach every challenge and every opportunity with a growth mindset and we're doing exactly that.

So thank all of you for attending today and be well.

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

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Yes.

Okay.

Thanks.

Okay.

Yes.

Sure.

Yes.

Q2 2022 Becton Dickinson and Co Earnings Call

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