Q3 2022 Becton Dickinson and Co Earnings Call

August 4, 2022

An audio assistance during our call today, Please press star zero.

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Hello, and welcome to <unk> earnings call for the third quarter of fiscal 2022 at the request of BD. Today's call is being recorded and will be made available for replay through August 11, 2022 on Bd's Investor Relations website on BD dot com or by phone at 866.

Three or four to 8591 for domestic calls and area code plus 1203518, 90 713 for international calls.

Play producer 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 BD.

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 Dot com.

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

We also posted an earnings presentation that provides additional details on our performance.

The press release and presentation can be accessed on the IR website at investors not BD dotcom.

Leading today's call are Tom Polen, Bd's, Chairman, Chief Executive Officer, and President and Crystal Orifice, 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 increased revenue and EPS guidance for fiscal 2020 to.

Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment Presidents Simon Campion President of the medical segment and Dave Hickey President of the life Sciences segment.

Before we get started I want to remind you that we will be making forward looking statements I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the Investor Relations website.

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

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

In addition, the results and guidance we are presenting today are on a continuing operations basis, which excludes the historical results of Baxter, which are now accounted for as discontinued operations.

When we refer to any given period, we're referring to the fiscal period, unless we specifically note it as a calendar period I.

I would also call your attention to the basis of presentation slide which defined terms you will hear today, such as base revenues and based margin, which refer to our results excluding estimated COVID-19 only testing.

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 Q3 results, we exceeded our revenue operating margin and earnings goals and delivered another quarter of consistent strong performance in our base business with revenue growth of nine 3% our results continue.

To demonstrate the durability of Bd's performance, even during an uncertain market environment with year to date base business growth of nine 6%.

I want to thank our team of over 75000 talented associates, who continue to deliver on the grow simplify and empower pillars of our BD 2025 strategy.

Our performance reflects the team's agility and strong execution, which puts US ahead of the curve and our ability to manage inflationary pressure mitigate supply chain challenges and optimize supply for our customers.

<unk> 2025 continues to serve as our true north and is proving to be the right strategy to reinvent and transform health care now and positions us to continue to deliver strong performance in the years to come.

This is evident in our year to date results and the proof points of our performance, which include one a reliable and strengthened growth profile to our reshaped innovation and M&A strategy, three an improving margin profile for disciplined capital deployment and five our continued execution during <unk>.

Certain times.

First we have strengthened our growth profile as evidenced by our accelerating performance over the past two years in part. This reflects the durability of our core products as BD is often referred to as the backbone of health care are durable core remains in high demand and creates a stable business, particularly in times of uncertainty.

Second we.

We've been enhancing our growth by reshaping our portfolio through our innovation pipeline tuck.

Tuck in M&A and the impact of spin all increasing bd's waiting in higher growth spaces.

Our investments in innovation are targeted across three irreversible forces that we believe will continue to transform health care over the next 10 plus years in the areas of smart connected care, the shift to new care settings, and improving outcomes for patients with chronic disease and.

In fact over 60% of our R&D is now invested in these high growth areas.

Third we've taken actions to improve our margin profile and this includes simplifying our business by reducing complexities and increasing efficiencies through initiatives like project re code.

Through re code, we are simplifying our portfolio to optimize our mix.

Evelyn plant efficiency and producing more of the products most critical to our customers with.

We started this work in mid FY 'twenty as part of our BD 2025 strategy and it's been a critical contributor to navigating in performing in this challenging environment.

Yes.

We've built significant balance sheet flexibility that has enabled our disciplined capital deployment strategy to support our investments in growth.

While also returning capital to shareholders for example, with the close of the Prana acquisition, 90% of our M&A spend over the past two years has been in transformative solutions.

Fifth we continue to execute during uncertain times.

By successfully navigating the challenging macro environment, we are distinguishing BD and supporting our ability to deliver strong performance in today's environment.

Let me share. Some examples of these macro factors that are impacting health care and what BD has been focused on to stay ahead of the curve.

While our industry continues to face supply chain constraints and increased inflationary pressure. We determined early on that we would be best in class in navigating the environment and not take a wait and see approach.

Over the past two plus years, we made investments to institutionalize improvements in supply chain resilience, which are having a positive impact on our overall cost effectiveness responsiveness and sustainability.

For example, we have continued our long standing investment to systematically validate secondary suppliers for our most critical products.

We've made additional investments to increase inventory to secure availability of critical raw materials and componentry. This includes chips that have allowed us to deliver strong growth in areas such as BTB instruments.

And we're contracting directly with shippers to ensure continuity of supply for our customers.

These capabilities are now embedded in our operating principles and our teams are doing an extremely good job navigating the environment and largely offsetting these pressures.

Regarding China, while the impact from restrictions lasted longer into Q3, our recovery has been faster than anticipated with a strong rebound in June and.

Beyond the recovery of hospital patient flow, we initiated several actions to continue manufacturing and keep warehousing largely operational by working closely with our stakeholders in China to help secure key logistics capacity for ourselves and our suppliers.

I'd like to thank a number of BD, China associates, who made exceptional sacrifices to ensure product supply for our customers.

As a result of the team's efforts we expect continued strength in China in Q4 and for the full fiscal year, we're on track to deliver double digit revenue growth assuming no additional waves occur.

Finally.

Theres talk of constrained capital spending amidst recessionary concerns and as a reminder, bts revenue basis, 85% recurring.

As it relates to revenue generated by capital spending.

<unk> is well positioned with only a small percentage of our revenues attributed to capital placements or instruments.

In addition in terms of hospital Capex, we've seen many of our solutions prioritized due to their role in delivering patient outcomes, while addressing acute challenges such as optimizing nursing workflow and reducing labor costs.

These proof points are a reflection of how our BD 2025 strategy and the actions we have taken uniquely position us to lead and deliver strong results.

I will now provide more detail on the progress we are making on organic innovation, which is a key enabler to our growth strategy.

We continue to drive very strong R&D execution and deliver on the exciting opportunities in our pipeline achieving over 90% year to date on both our critical milestones and launches, which is well into the top quartile performance within our industry.

Our increased investments and strong execution in organic innovation continue to contribute to our performance.

Recent examples of how we're progressing our pipeline to drive future growth include the commercialization of the Intel volt controlled substance management system, which is part of the BD Pyxis rapid Rx solutions family extends our connected medication management offering across new care settings, that's a $700 million space growing about 10.

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And telephone is an RFID enabled pharmacy automation solution that provides storage and prescription filling of controlled substance medications, while reducing outpatient pharmacy labor costs.

Additionally, in Q3, we received FDA approval for the BD Cor Nx module and a C. T GC television to molecular assay on BD Cor meeting the milestones we disclosed on the Q2 call.

<unk> of this assay in the U S gives BD access to the STI testing category, which is expected to grow at a 7% CAGR to $600 million by 2025.

Overall, BD Cor enables entry into the high volume molecular diagnostic segment.

Do you expect it to grow at a 9% CAGR to a $2 $9 billion served market space by 2025. Our team has already received our first U S orders for the new BD Cor and is getting very positive customer feedback.

With Covid being a more endemic condition, we continue to expand our offering and have received CE, Mark and launched combination respiratory panels on both BD Cor and BD Max for the detection of multiple respiratory pathogens from one sample.

In BD interventional received five 10-K clearance and launch the ASP Rex mechanical aspiration.

Thrombectomy system in the U S. Also meeting the milestone we disclosed on the Q2 call cut.

Customer feedback has been very positive.

And there have already been several successful cases to date since launch.

During Q3, we completed the relaunch of the <unk> venous stent in the U S and Europe and last month, we launched for the first time in China.

We're seeing strong demand and gaining share with Lenovo driven by best in class clinical performance data.

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

We received five 10-K clearance for BD positive flush safe scrub.

This is a pre filled flush syringe with an integrated disinfection unit, which is designed to simplify nursing workflow and enhanced compliance with infection prevention guidelines. This is the first innovation and flush syringes in nearly a decade.

And it's a really good example of how we're driving innovation to extend leadership in our durable core and a 900 million dollar addressable space we.

We expect to launch policy flush say scrub in the first half of fiscal 'twenty three.

And our flow cytometry business, our research reagents platforms continue to be a key driver with double digit growth in this category.

Innovation and new product development are helping to fuel research reagents growth as customers continually seek to better understand human biology, and the very complex immune system through new and novel experiments.

We continue to advance our innovation programs and are on track to launch more than 1500, new flow cytometry reagents Skus this year.

The majority of these new products will expand our menu of fast growing CRE generally agents as well as our recently launched BD horizon real yellow dies, allowing our customers to run higher parameter experiments with more reagent choice and flexibility.

Finally, pure week mail is the next new product and our planned portfolio expansion for managing and continents, and it's now authorized for release and we're on track to launch this quarter.

<unk> will provide nurses with a noninvasive option for urine management and men, enabling earlier Foley catheter removal and resulting in reduced risk of infection.

So as you are well aware our strategy is driven by strong execution of both organic innovation and disciplined tuck in M&A and over this fiscal year, we continued to execute our tuck in M&A strategy and have committed over $2 billion to the completion of six acquisitions.

A great example of our M&A playbook is our acquisition of Peratis systems completed just last month.

Pronto allows us to enter the new area of high growth pharmacy automation in the U S and marks an important step towards advancing our <unk> 2025 gross strategy around smart connected care and enabling new care settings.

Peratis portfolio of innovative pharmacy automation solutions powers, a growing network of pharmacies to reduce costs enhance patient safety and improve the patient experience.

By automating the more routine work within our pharmacy and implementing intelligent workflow solutions pharmacists can focus more of their time on higher value clinical work to improve medication adherence and patient safety and outcomes.

And we're seeing macro trends across the industry accelerating and growing demand for pharmacy automation solutions such as proud of these.

These trends include the centralization of pharmacy services and large fulfillment centers and.

And increased clinical demands on pharmacists in hospital and retail settings.

And of course, we're seeing increased wage inflation labor attrition and a large percentage of pharmacists reporting burnout.

And taken altogether. These trends are driving a $600 million pharmacy automation market opportunity today, that's expected to grow approximately 10% annually to our $1 $5 billion opportunity in 10 years and that's just in the U S alone.

Fraud is offering is complementary to our solutions and medication management and together with BD, we expect product solutions to outpace market growth as we leverage our commercial footprint global scale and innovation capabilities.

Not only is products strong strategic fit but the company has an attractive financial profile that meets all of our rigorous investment criteria on growth profitability and returns the.

The transaction is expected to be immediately accretive to revenue growth adjusted operating margins and adjusted EPS.

And it exceeds bd's 2025 sales growth and margin targets.

Enhancing the company's ability to achieve its long range outlook.

Given our current financial profile, we will continue to deploy capital in a disciplined way to create value through tuck in M&A.

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

I'm excited by the significant progress we continue to make advancing our BD 2025 innovation driven growth strategy to deliver even more significant impact towards improving outcomes for patients and providers.

Now before I turn it over to Chris Let me share a few updates on the strong progress our team is making to advance our ESG strategy and goals we.

We recently issued our 2021 ESG report, which highlights our first performance measurements and progress on our 2030 ESG commitments. This.

This includes launching a sustainable medical Technology Institute.

Joining the race to zero and increasing our investments in on site renewable energy and much more.

We believe that the work we're doing today can make a lasting positive impact.

We're also.

Proud to receive continued recognition for our ESG efforts.

Most recently, we were recognized as a best place to work for disability inclusion for the fourth consecutive year, we achieved a perfect score on the 2022 disability equality index, demonstrating our progress in removing barriers and creating employment opportunities for people with disabilities.

In addition, we were also named as a noteworthy company for the third straight year and diversity, Inc. 's annual ranking the top U S companies for diversity.

In summary, our BD 2025 strategy continues to serve as our true north, allowing us to demonstrate one of reliable and strengthened growth profile.

Two our reshaped innovation and M&A strategy.

Three an improving margin profile.

<unk> disciplined capital deployment and.

And five our continued execution during uncertain times.

With another strong quarter, our year to date performance gives us confidence to increase guidance.

We remain well positioned in the future deliver sustainable profitable growth.

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

Thanks, Tom Echoing Tom's comments, our Q3 results demonstrate the strength of our business and the momentum of our strategy. Additionally, the investments, we're making in inventory transportation portfolio simplification and innovation are also enabling our growth and our ability.

To deliver our critical health care offerings to our customers and their patients.

We continue to deliver strong performance, while simultaneously managing the persistent macroeconomic pressures through our simplification and mitigation programs.

Through this balanced approach and the effectiveness of our BD 2025 strategy, we are making strong progress against both our short and long term commitments.

So turning to our revenue performance, we delivered $4 $6 billion in revenue in the third quarter with strong base business growth of nine 3% were eight 8% organic which excludes the impact of acquisitions.

Importantly, however, we are benefiting from the organic contribution from tuck in acquisitions, we Anniversaried, which was about 30 basis points this quarter.

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

Price contributed 190 basis points to growth year to date.

This continues to be well below inflationary levels is one of many factors. It is ensuring we can deliver our health care offerings to our customers.

Could only testing revenues were $76 million.

Which as expected declined from $300 million last year.

Year to date Covid only testing revenues were $475 million.

<unk> unique ability to continue to deliver strong performance during this uncertain environment as reflected in the performance across our segments.

Both medical and interventional growing seven 9% and life Sciences base revenues growing 13, 2%.

Total company base business growth was also strong regionally with double digit growth in the U S grew.

Greater Asia, excluding China, and Latin America.

Along with high single digit growth in Europe .

Despite the Covid driven restrictions, we grew low single digits in China.

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

Our medical segment delivered $2 $2 billion in revenues in the third quarter growing seven 9% driven by strong performance in our pharmaceutical systems and <unk>.

Medication delivery solutions businesses.

Mds revenues increased six 4%.

Reflecting continued strong demand for durable core products.

Performance in Mds reflects continued competitive games and catheters and momentum in our comprehensive vascular access management strategy.

Despite the challenging environment in China during the quarter.

Performance at MBS also reflects higher hospital utilization levels year over year in the U S and Europe .

MMS revenues grew three 6%.

In our dispensing business strong growth was driven by continued customer adoption of our connected medication management and pharmacy automation solutions.

Worldwide performance in our infusion business was about flat with a similar level of demand in the U S for pumps under medical necessity compared to the prior year.

Pharm systems revenues grew 16, 3% driven by the continued acceleration of demand for pre fill devices for biologic drugs and our strong leadership position that is being supported by our ongoing capacity expansion and supply availability.

BD life Sciences revenue totaled $1 3 billion in the third quarter.

The decline of five 1% year over year is due to the lower Covid only testing revenues previously discussed.

Excluding COVID-19 only testing life Sciences based revenues grew 13, 2% with strong growth across both Ibs and biosciences despite supply constraints.

Impact from restrictions in China.

<unk> revenues declined 10, 5%, which reflects the decline in Covid only testing, partially offset by strong base business revenue growth of 12, 8%.

Performance in our <unk> base business was driven by continued adoption of our broader respiratory panel as well as strong growth in IBD assays, leveraging our increased BD Max installed base.

Ibs based revenues were also driven by continued demand for specimen management products with strong growth in our durable core products EBIT by price management.

Biosciences revenues increased 14, 2%, reflecting continued strong demand for reagents driven by our antibody in di strategy and continued adoption of our E Commerce platform.

Performance in Biosciences also reflects strong instrument growth driven by recently launched products.

And strategic procurement of critical components that.

That enabled us to fill orders to relieve some of the backlog from the end of Q2.

PV interventional revenues totaled $1 1 billion in the third quarter growing seven 9% with strong performance across the segment.

Revenue growth of six 4% in surgery reflects strong worldwide performance and advanced repair and reconstruction driven by continued strong market adoption of basics hernia resorbable scaffold and the revenue contribution from the chief of acquisition.

Performance also reflects double digit growth in biosurgery.

Revenues in peripheral intervention grew nine 1%.

Strong performance reflects competitive gains driven by renewables returned to the market.

Continued global penetration of Rotarix.

The acquisition of Banquo's, expanding our focus across chronic disease settings.

Partial backorder recovery also contributed to performance in the quarter.

Offsetting the impact on deferrable procedures for macroeconomic factors such as labor constraints.

Urology and critical care revenues grew seven 7% driven by continued strong demand for our pure with chronic female incontinence platform in the acute care and alternative care settings.

Strength in acute care was also aided by some back order recovery.

Now moving to our P&L in Q3, we delivered adjusted net income and EPS above our expectations with adjusted net income of $786 million or 14, 2% reported growth and adjusted diluted EPS of $2 66 were.

Were 16, 7% reported growth.

As we anticipated on a year over year basis margins improved significantly we delivered base business gross margin of 52, 9% up 180 basis points and base operating margin of 22, 2% up 450 basis points year over year.

Base operating margin includes a favorable impact of approximately 75 basis points from an employee benefit related item that has it related negative offset in our other income and expense line and thus is neutral to our adjusted EPS.

Q3 base gross margin increased in line with our expectations.

Key drivers of gross margin include our simplification and inflation mitigation initiatives, such as mix optimization and price management, along with increased volume utilization given our strong base revenue growth.

These actions enabled us to offset the impact of inflation and deliver margin improvement.

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

Q3 base operating margin reflects very strong operating expense leverage with base SG&A as a percent of sales leveraging by about 200 basis points, excluding the employee benefit related item.

Partially offset by inflationary impacts primarily in shipping.

R&D of six 2% of sales reflects our innovation investments aligned to our strategy in support of our long term growth outlook.

Our tax rate in Q3 was lower than anticipated due to the timing of certain discrete items that occurred in the quarter.

Regarding our cash and capital allocation cash flows from operations totaled approximately $1 $5 billion year to date.

Q3 cash flow from operations reflects a higher than normal inventory balance by about $400 million.

As we continued our strategic investments in raw materials.

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

During Q3, we paid down approximately $500 million in debt and ended the quarter with a strong cash balance of $2 6 billion.

And our net leverage ratio of two seven times.

In addition, we are pleased by our recent debt upgrades from both Moody's and Fitch, which reflect the strength of our business and disciplined approach on balance sheet management and capital deployment.

Our current cash and leverage position and continued focus on cash flow provide us the flexibility to advance our balanced capital allocation framework in support of our BD 2025 growth strategy.

Turning to our fiscal 'twenty two guidance assumptions.

First the macro considerations that support our guidance.

Our guidance assumes the continued easing of COVID-19 restrictions and no significant or lasting disruptions to deferrable procedure volumes.

Our guidance also assumes there are no prolonged and larger scale restrictions and countries continue to be more efficient in managing safety protocols.

And the containment of any new COVID-19 barriers to allow continuity of care for patients.

Regarding China, specifically, we expect continued recovery from the recent restrictions over the balance of the fiscal year <unk>.

Additionally, while we anticipate continued inflationary and supply chain pressure in Q4, we are not planning for significant escalation of macro headwinds.

Moving to our updated guidance for fiscal 'twenty, two we have increased and narrowed both our revenue and EPS ranges.

We now expect base revenues to grow 875% to 925% on an FX neutral basis.

This is an increase of 125 basis points at the midpoint from our previous guidance of 725% to 825% growth.

100 basis points of the increase is driven by strong growth and continued momentum in our base business.

Additionally, with the closure of Parana, we are increasing our forecast by 25 basis points.

For Covid only testing.

We now assume up to $500 million in revenue.

This reflects year to date revenues of $475 million and minimal additional revenue in Q4 as testing demand has slowed as expected.

Based on current spot rates for illustrative purposes currency is now estimated to be a headwind of approximately 225 basis points.

We're about 425 million to total company revenues on a full year basis.

This is an incremental impact of about 25 basis points or approximately $50 million compared to our prior guidance and is primarily driven by the strengthening of the U S dollar versus the euro.

All in we are increasing our total reported revenue guidance by $190 million at the midpoint to a range of $18 75 to $18 $83 billion.

We now expect based operating margins to improve by approximately 275 basis points.

Over 19, 6% in fiscal 'twenty one.

This is an increase of 25 basis points compared to our prior guidance and solely reflects the Q3 employee benefit related item that has a corresponding negative adjustment to other income and expense and is neutral to adjusted EPS.

Despite this challenging macro environment persisting, our focused execution on driving profitable revenue growth combined with our simplify programs gives us the confidence that we will be able to continue to offset inflationary pressures.

A few additional items for your models.

We now expect approximately $30 million in year over year improvement in interest other compared to our prior guidance of $60 million to $75 million. This reduction.

<unk> reflects the offsetting impact to the Q3 employee benefit item that was recorded in G&A.

Again these items are neutral to adjusted EPS.

We have narrowed our expected effective tax rate to a range of 13, 5% to 14%.

From 13, five to 14, 5% previously.

Our updated guidance still assumes share repurchases that at a minimum offset any dilution from share based compensation.

<unk> does not assume a material change in shares outstanding.

Altogether, we are raising our adjusted EPS guidance to a range of $11 28.

To $11 35.

Compared to $11 15.

To $11 30.

Previously, which reflects an increase of <unk> <unk> at the midpoint.

This reflects our strong Q3 base business revenue performance and increased outlook in Q4.

And our margin profile to maintain our full year margin improvement commitments.

We expect minimal impact from incremental Covid only testing revenues as we intend to reinvest that to support our momentum into 2023.

We still expect operating margin on Coke would only testing to be modestly above our base business margins for the full fiscal year.

Okay.

Additionally, while the product acquisition has an accretive margin profile. The income is expected to be offset by onetime deal related costs.

Regarding FX based on current spot rates and our inventory outlook, we expect minimal incremental impact as incremental translational FX headwinds are expected to be offset by favorable FX on inventory flow through.

As you think about Q4, the following are a few key considerations.

Starting with base growth in Q4, we increased our organic growth and expect strong mid single digit growth, excluding the impact of acquisitions above the five 5% plus targeted growth profile, we outlined at our Investor day.

This includes absorbing the impact of a difficult prior year comparison in Q4 of fiscal year, 'twenty, one where the Delta Varian search drove high acuity and demand for infusion sets and products used in the care of Covid.

Additionally, we delivered initial shipments of our combination flu COVID-19 assays and benefited from the normalization of lab utilization and research activity.

We also have a tough comparison to $316 million of Covid only testing revenue in Q4 of last year as we expect minimal additional revenues this year with the decline in testing.

Regarding margins, we expect sequential improvement in base gross margins and at a level near year to date gross margin of 53, 8%.

While the impact of increased inflation on our business is expected to continue we see a larger benefit from our offsetting initiatives.

Regarding base operating margins, we continue to expect significant year over year margin expansion in Q4.

Sequentially. The improvement is driven by gross margin as well as continued strong leverage in selling and G&A and slightly lower R&D expense.

For the full year, we continue to expect to invest in R&D at about 6% of sales.

While it is premature to provide guidance for fiscal year 'twenty three.

Especially in a macro environment that remains uncertain.

We recognize that offering a more proactive perspective during this time is helpful.

To begin.

While we expect macro challenges to persist we are not assuming they worsen and would anticipate that as we move towards the back end of the year. There may be some modest relief from some of the current supply chain complexity.

We will reassess the environment ahead of providing guidance in November .

So with that caveat on an operational basis, excluding the impact of currency, which based on current spot rates would be a headwind to consider for next year.

We remain confident in the strong value, creating framework, we outlined at our Investor day.

And expect to deliver five 5% plus base revenue growth and double digit adjusted EPS growth. This framework continues to be supported by a strong growth profile and continued margin improvement.

We expect the Covid only testing revenues and related earnings will be at a level significantly below FY 'twenty two.

More likely at a run rate similar to the implied Q4, FY 'twenty two were approximately $100 million for the full year.

We will have a positive contribution from a full year benefit of revenue and income from Perata that will partially offset the reduced COVID-19 testing.

So importantly, despite the anticipated reduction in Covid only testing on an all in basis, we would expect adjusted EPS to be right around double digit growth, which implies very strong double digit base adjusted EPS growth.

Based on what we see it appears current external thinking largely reflects this.

We will share more details regarding FY 'twenty three on our year end earnings call in November .

In closing we are very pleased with our strong performance to date and the consistency of execution against our strategy that is enabling these results.

This gives us confidence in our ability to continue this momentum into FY 'twenty, three and create long term value for all of our key stakeholders.

With that let me turn it back to Tom for a few additional comments.

Thanks, Chris.

<unk> 2025 strategy is proving to be an effective winning strategy is reflected in the proof points of our execution and our continued strong performance.

We expect continued momentum and remain well positioned to drive long term growth and value for all stakeholders.

Like to thank our associates worldwide once again for their tireless commitment to our purpose of advancing the world of health before.

Before we turn to Q&A I want to officially congratulate and welcome Simon and his new role as ahead of the medical segment and thank Alberto Mas for an exemplary nearly 30 year career at BD we.

We expect to announce Simon successor, and BD interventional soon.

Also like to welcome Rishi Grover, our new EVP and chief integrated supply chain officer.

He brings more than 20 years of experience in manufacturing and supply chain roles and we're thrilled to have him join our executive leadership team.

He succeeds Alex Conroy, who will be retiring after more than 30 years of BD I'd like to thank Alex for his contributions to BD throughout his career that include a vast array of roles and responsibilities most notably in recently, Alex led the organization through unprecedented challenges, including the COVID-19 pandemic and globe.

Supply chain crisis.

For the purpose of today's Q&A session, Chris will take financials, Dave will answer life science questions. Simon will address PDI and I will take BD medical with that let's start the Q&A session.

Operator could you assemble a queue.

And at this time, if you ask a question. Please press star one if at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key.

To allow for broad participation. Please limit yourself to one question and one related follow up lastly to provide optimal sound quality. Please pickup your handset while youre asking a question.

And our first question comes from Larry <unk>.

Listen with Wells Fargo. Please go ahead.

Good morning, Thanks for taking the question and congratulations on another strong quarter here.

So Tom and Chris I wanted to just ask about 2023, a couple of follow up questions and thank you for providing all that color and one on pricing.

So Chris on 2023 could you just talked about is that base sales growth of five 5% plus is that organic.

How much do you think.

Current rates FX would impact sales and EPS and what's assumed for <unk> returning to the market and I just had one follow up on pricing.

Let me maybe why don't we first start just with a quick comment on the <unk>, which will will do once upfront and then I can walk you through the 2023, Hey, Larry This is Tom Thanks, and good questions.

So first off just overall on 'twenty three as you heard from Chris We feel really good about our overall position for 'twenty three and obviously, Chris gave some very specific color on that today. It is still early though and we're not going to get into any specific product assumptions today will click down into that level on a regular Q4 guidance call, but specific to <unk>.

Really no change to what we shared before.

<unk> remains our number one priority we're confident in the resources that we've invested in our submission and the team and the leadership that we have working on this and we.

We're focused on making sure that we get all the information to the FDA that's required to get clearance on that product and so no change from that as again as we think about Q4 and guide for 'twenty three we will share more but we're not going to get a product line details at this time.

And so I'll build on some of the comments that we made in the <unk>.

The opening comments.

So first as we think of 2023, we certainly know theres still a lot of uncertainty that remains in the marketplace.

We actually wanted to try and give some context, because we know there's questions out there. One obviously, we have significantly strong growth profile in 'twenty two right.

Our guide.

With supply on an organic basis about 825% growth when you strip out parana.

So folks.

There was questions about how you're going to cycle over that growth can you still deliver at Euro 500, plus in addition to that we knew there were sort of the open question is it related to Covid testing and how do you think of that dynamic.

Would it may do in terms of your earnings profile. So I think with that as a backdrop. We wanted to just reaffirm we're extremely confident in our 55 plus growth profile that we outlined I actually think an interesting way to think of that is if you do kind of two year math.

It would imply a growth rate of about 7% 'twenty two 'twenty three.

So any way you look at that it's a really strong base growth profile, we do see the impact of Covid only testing dropping significantly as we said.

Planning for roughly $25 million kind of this quarter based on what we said and kind of see that more as.

A more normalized run rate, obviously, if there is upside to that.

It provides that embedded hedge to our portfolio that we've always talked about so that will be a headwind against contemplated with that said you see the power of our capital allocation strategy going to work.

We're pleased to announce the closing of the prana acquisition.

So that will be.

Offsetting element against the Covid only revenue that is not part of the 505, plus so you think of the 505 plus is pure organic we always said, we're not reliant on the onetime lift from tuck in M&A.

To benefit as part of that strategy is the organic lift we got as we cycle and anniversary those acquisitions.

And then from an earnings profile, we're committed to the double digit base adjusted EPS earnings growth.

Importantly, though the most important thing that we share despite that kind of COVID-19 only headwind.

We think we can get right about a double digit adjusted EPS growth profile as well and an all in basis, given the strength of the business and will continue to drive margin improvement into next year. All of that obviously, we always think and talk about guidance on an FX neutral basis. So it doesn't contemplate the currency that we've been talking about.

Al.

That will impact every company, we're not different in that regard.

I can try and help give you a little bit of context, obviously, we set the year, but one simple way to think about it is.

Euro is the predominant currency that has changed and impacted PD certainly if you look at the change from 'twenty one to 'twenty. Two we're currently we've talked about a $425 million headwind the percentage change in the euro from 'twenty one to 'twenty two.

It is exactly the same as the current average rate we're planning in 'twenty two to the current spot rate of 102, which would imply basically a similar kind of year over year headwind on currency.

We would do some sort of margin drop through on that for BD. The margin tends to drop through at a lower rate given the mix of business and other dynamics.

That said I do think it's important to think of underlying is the most important metric on a FX neutral basis right. We're still generating that local cash we have a very efficient cash allocation model.

We will be able to put that.

Cash to work so all in all I think with where we are with 22.

It's a great year, we're on track to finish out a very strong year and I think you can see based on where we share we feel confident in having momentum going into 2023.

Alright, that's super helpful. Given the time here I'll drop there I appreciate the comprehensive answer guys. Thanks again.

Well take our next question from Vijay Kumar with Evercore ISI. Please go ahead.

Hey, guys.

I'll limit myself to him.

One question, maybe a core partner.

One on fiscal 'twenty three of the five 5% organic that does not include prior to correct and.

Chris When you said double digit EPS, that's on a reported basis I just wanted to confirm.

And when you look at that.

Cash flows year to date, it's been training and below I know, there's some inventory build up.

Anything else Thats going on in the free cash line item.

Yes, thanks for the questions just to confirm the 55 plus does not include parana.

Our commitment that we outlined in Investor Day again, you always run the business on an operational basis and think of operational commitments. So both the double digit commitment on base revenues and then what we just shared here despite the COVID-19 only.

Grow over given the drop in coal, but only revenue we are confident in a.

And right about a double digit growth profile and an all in basis as well, which is a great signal on the strength of our total business and the continued momentum we have as it relates to margin improvement that we've committed to as well. If you remember we committed to about 25% through the 2025 period, we shared that last quarter as it.

At least the FX again, this is going to apply to any company actually.

Actually.

We've been absorbing currency this year, but those commitments, we make our always on an FX neutral basis, you will have to adjust for revenue and there will be some.

Translational drop through on that that would have to be contemplated as you think of the final growth rate, but we need to wait and see where FX lands, but again, that's not different from anyone and it doesn't impact youre certainly not reflective of your underlying business and then it doesn't impact the underlying cash that you've learned locally and we have a very efficient.

Capital deployment model that will continue to put that to work.

Continue to drive our strategy as it relates to tuck in M&A and other things. So we're feeling really good about that growth profile regarding free cash flow.

There's been a there's really.

Three big dynamics.

We remain extremely focused on cash remember there is a few ways to look at this one we committed to a net leverage ratio of around two five times.

We're right at $2 seven now.

We've been executing on our M&A strategy. So you can see we're putting that to work we pay down debt as well consistent with what we shared as part of the <unk> spend.

So we continue to execute against against our capital allocation strategy. In addition to that on the strength of the business and the disciplined approach we've applied to the balance sheet and how we're navigating that we did get two debt rating upgrades.

Past quarter, so that was great to see there are some differences in cash flow. The biggest difference is really just the year over year nuances as it relates to Covid only testing.

And losing the higher base on Covid only testing. There was also we also funded the pension you can see that in the queue.

And then the third thing that we've talked about as well as the one trade off we made intentionally is investing in inventory and theres about $400 million investment, we're making there that I would call outsized inventory levels drew.

Driven by three factors one of the most critical ones of course is procuring strategic components.

Raw materials et cetera to enable the strong growth profile as you can imagine there is still long lead times.

We're very efficient supply chain and a lot of our product is.

Spending time not in the plans, but rather on the water so to speak that into customers. So we've made that investment and you do have everyone will have inflation kind of flow through inventory as well. So we're not different in that regard as well that explains the free cash flow. We remain very focused on that we're going to continue to look at inventory, but in the short term I think.

It's a prudent trade often as an enabler to the strong results.

Vijay This is Tom just to add to Chris's comment on it but we view that that increase in the inventory levels impact on cash flow. It was call. It transitory in nature, that's a strategic investment that as we see supply chain stabilize we can back off on that additional inventory as <unk>.

Shipping times transit times get back to a more normalized level right. It can be more than a month additional nowadays to get product with day from Asia to the U S. Right at that normalizes that will naturally pull back inventory.

<unk> levels as well and so when we see that that just has a temporary investment.

To help navigate the very dynamic circumstance that exist today, but we already have planned line starting to pull that down as we look at it.

That's helpful. Congrats on the print.

Thanks again.

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

Great.

That's on a good quarter and thanks for taking the questions.

Maybe to start.

Chris just maybe walk us through some of the drivers of operating margin expansion next year.

I realize you're not giving exact numbers, but.

The base business has been sequentially down just a little bit each quarter in fiscal 'twenty two.

With.

With next year, how do we think about the drivers of that margin expansion.

Yes, thanks, Robbie so first as it relates to this year.

The margin has played out exactly as planned as a matter of fact year to date, we're sitting at basically 80% of our full year goal of about 250 basis points or we actually increased our margin improvement more to account for a.

Call It an accounting dynamic and re class of line related to employee benefits, but we remain well on track.

We did explain that this quarter as it relates to GP, specifically would be the low watermark as you think of timing dynamics in particular the.

Outsized inflation that started at the beginning of the year, how that rolls through inventory and then from the time, we started the year things have only gotten a lot more complex inflation increased and supply chain complexity increase which also increase things such as transportation et cetera. So.

As we've come into the year just to maybe give you a little bit of context on margin.

Theres, probably been about 100 basis points of.

To our P&L as it relates to outsized inflation or above what we contemplated coming into the year given the additional complexity. It's about a 50% increase from what we originally planned despite all of that we're still holding our margin commitment for the year, which is really strong.

As you think of the components this year and I share that because it will play into next year as well.

Our volume leverage we talked about coming into the year was supposed to be about 100 basis points given the strong revenue growth profile, we've done stronger there that's been part of.

Navigating the outsized inflation on the other end that I just articulated.

And then really beyond that its been cost improvement programs that we've we've dug into an enhanced.

We've also been delivering our portfolio actions there is multiple components to that one given the strong growth profile right, we've been able to be more aggressive with.

Navigating portfolio mix and simplifying our portfolio.

We have price management as part of that that we are fully executing against which is very strong.

And then the third component to navigate this year has really been again on the strong growth profile. The leverage we are experiencing in operating margin and selling and G&A. So as you think of 'twenty three it's going to be all those same levers you don't navigate this complexity doing just one thing.

We certainly with another strong growth profile, we would expect leverage in terms of volume flowing through our plants.

We will continue to drive a strong CIP agenda, we will start to get more benefit from the SKU rationalization program as part of project re code, we talked about you'll start getting early benefit from some of the architecture simplification work. We also talked about and we will certainly continue to get more leverage on the operating margin with a strong.

Profile on sales.

And G&A. In addition to that we've always talked about kind of the simplification principle beyond just supply chain and.

And we're looking to also drive simplification through all of our functions.

Without that will also help so we continue to build an inventory of things that we're doing that give us confidence as we move into 'twenty three.

And then maybe just a reminder for everyone. Our goal is to get to about 25% by 2025.

Implies roughly 100 basis points per year after 2022.

And if you think about kind of normally you would probably just do that on a ratable basis.

I think you can anticipate 2023 under indexing in that 100 basis points, given youre going to have the rollover of this outsized inflation.

And then on the backend towards 25, you'll get more of a full benefits from project re code.

And we also talked about the leverage you get from <unk> coming back.

So those things will give you a slight lift in call. It 24, 25, and 'twenty three will probably slightly under index versus kind of that 100 basis points equally but it will still improve year over year.

That's really helpful and maybe just a quick follow up your pricing.

Thank you said 190 bps positive as one of the best if not the best in large cap Med Tech how sustainable is that do we think of that as you are able to take that as a one time or is this the new normal on pricing.

As we move forward into subsequent years.

Tal does take that Ravi good morning, So just as we think about inflation and Chris hit a lot of the things that we do to offset that pricing just being one and the last thing that we look at and we put an inflation task force in well over a year ago, recognizing what we saw was going to be inflation. This year end and when we expect to continue.

Can you be inflation in 'twenty three and so.

Just to make that clear we've got a ton looking at that.

And taking action around improving our own internal continuous improvement within our plants restructuring our organization getting costs out within that looking at our supply chain and how we get costs out there and taking action and we're seeing those things come through its helping our margin and we are as part of that where we can offset those internally we do pass.

On pricing, we do expect to continue to drive very large significant actions within BD to offset inflation as we look ahead, but we'll continue also where we can't fully offset that to continue to.

Asset pass that through in price.

And we do that in all markets around the world and across all business areas.

Great. Thanks, a lot.

Well take our next question from Travis Steed with Bank of America. Please go ahead.

Okay, great quarter.

I don't want to put a finer point on 23 com.

Hi.

I was getting 22% margin at around $12 and for FY, Thank Travis Youre breaking up.

We can't hear you very well.

Alright can you hear me now.

Is that better.

Yes keep speaking.

Okay, sorry about that so I'll just put a finer point on some of the FY 'twenty three comments.

It's giving Rob $12 in earnings for FY 'twenty, three just to make sure. That's the right ballpark and on the 100 basis points inflation versus prior expectations talk a little bit about what's changed there and to think through like the total inflation impact you're absorbing this year is that closer to 150 to 200 basis points for the $500 million.

I'm trying to think about it there is some relief what the opportunity could be on that front.

Maybe to start with the $12 commentary Chris Trinity.

Yes.

I think as it relates to kind of sharing any specifics on a number we wouldn't do that for sure I think I think we laid out the framework.

Pretty clear.

We did say that.

We of course look and are aware of kind of external thinking and the time coming into this print.

It seemed reasonable knowing that folks would not have contemplated the carryover on currency.

Anyway that's.

I don't think theres much more to add there I would just go back to again the commitment on the 55 plus growth profile double double digit adjusted EPS growth on the base.

And even having confidence of right around double digit growth.

Adjusting for the.

The dropdown of the Covid only testing.

And Travis on your comment around what changed as we went through the year very similar to what probably every business of around.

The the world and particularly in the U S would have seen.

And we recognized and we took the position very early on well over a year ago again that it was going to be no company that escaped inflation and no company that escaped supply chain challenges and we've been taking action to that extent.

Those challenges labor became more expensive as you went through the year, particularly in areas like manufacturing, where there were shortages and you had to pay.

Pay more to get talent to run plants think about it.

You saw low watermarks for unemployment trying to staff for example, overnight shift when now there's tons of jobs for people to work day shift having to change that.

All of our plants, which we pretty much run most of our plants 24 seven.

Shipping continue to increase as we went through the year.

And you saw that as well things like power <unk>.

Significantly <unk> tons of power.

In our manufacturing plants running large presses et cetera, those costs went up as well and so those are the general inflationary pressures that you saw across the country very much in line with inflation continued to go up as we went through the year just versus everyones expectations and that certainly didn't escape any business and so while it may be starting the year tour.

That 150, 200 basis point headwind ended up being more of a $2 50, or so as Chris mentioned and again, we're really pleased with the team's work.

To overcome all of that and still deliver on our expectations that we set at the beginning of the year I think that really speaks to the power of the strategic planning that the team has done a strong execution and the foresight to make investments in areas like the strategic inventory builds that we did at.

And navigate a very challenging environment.

Maybe Joe that's helpful. One quick.

Just one other frame for everyone. Because I know you are all navigating things have changed a lot from the start of year to where we are and when you think of that through the lens of BD.

<unk>.

There's really been two key things that have changed one kind of a macro factor right. When we started our initial guide and talked about what the year would be like we were contemplating pretty significant outsized inflation.

As the year progressed.

Whether it be the conflict in Ukraine, and Russia, the Covid, China shutdown. The complexity only grew inflation grew as I had noted earlier on the call and the supply chain complexity inquiries.

So again about a 50% increase than what we originally contemplated about a 100 basis point headwind.

Then when you think of what's happening from BD. Our initial guide when you kind of restate everything firm <unk>, we were at 6% we're sitting here at 9% at the midpoint, that's 300 basis points or about a half a billion dollars. So.

With more complexity, we've actually strengthened our growth profile and overcome all of those headwinds.

And then I know Theres, a lot of puts and takes quarter to quarter. Obviously there was also on the revenue side outsized Covid testing, we benefited from that took our number up $300 million, but when you look at the EPS drop through.

North of 60 from the beginning of the year inclusive of absorbing.

FX headwinds and when you look at that then and think of what we've done from a margin standpoint.

We've delivered exactly what we can actually slightly above.

Our commitment so we absorbed $100 million 100 basis points of headwind on the cost side delivered outside performance as we've had it through the year on top line.

Fully held our margin to them both on the base of.

The EPS. So I know, there's lots of puts and takes as you go through quarter.

Even tax as an example, when you restate our guide for the initial tax it would've been 13% to 14 at some better we're now 13 and enhanced the 14th so we know we had some one time timing items in this quarter, but we're actually absorbing tax pressure as well in those numbers. So you'll have a Q4 true up of course, given the timing here.

We're not even benefiting there as you think of kind of updating so it's been a very strong year, we're really proud of what everyone's done our 75000 employees navigating the complexity.

During this time and feel good about the momentum we have going into next year.

No that's great. Thanks, Thanks for the extra color there and maybe just one follow up on the overall hospital environment can you talk about utilization trends hospital staffing capital spending and also the China recovery, the China returned to double digit growth in FY 'twenty three.

Thank you.

And just to clarify great question.

We're expecting China and I think this is really impressive and reflects on the strength of our China team to still deliver right around double digit growth this year.

Despite the the Shanghai shutdown and even despite the Shanghai shutdown we delivered.

Still delivered growth this quarter in China, which I think is an exceptional achievement of our team there and to reflect on how dynamic of the year. There has been for them to still be on track to deliver right around double digit growth for this full year again really reflects a lot of great planning and execution on behalf of our China team why don't I turn it to <unk>.

Simon and Dave to make some colors on utilization kind of on the procedure side and then what we're seeing in the lab side, So let's start with Simon.

Hi, good morning, So so for sure you mentioned that you mentioned labor, we definitely saw some some pressure on labor.

In Q3, and Q3 I think it was particularly relevant in.

In the peripheral intervention space, but despite despite that we still posted really really robust.

<unk>.

And VDI and NPI in particular, both domestically and internationally.

And then just a follow up on Tom's comments on China.

Posted and VDI another quarter of double digit growth.

We continue to to invest there in surgery with the tissue Med acquisition.

The NPI with the recently.

Prove an OVO venous stent in China, which is which we've done cases already and that's gone tremendously well and we just also recently got approval on the Colbert covered stent grafts. So.

Anytime we put anything into China, we get it we got a really robust return and as we've noted before that doubled.

Since <unk> was acquired by by BD.

Look forward to continued ruble scope.

Great time.

Thanks, Tom and for Life Sciences, similar theme I mean again then.

A great quarter for us in terms of double digit growth. The team continues to execute extremely well both in Ibs and BBB.

As I think about <unk> one of the best Bellwether is all measures. We have utilization is there, especially mid management business that was a big growth driver for rose in the quarter.

So that's a really good indication on the <unk> side, which I think as you know is split into both clinical and research businesses.

As Tom mentioned, the life Science research reagents and instruments on the clinical reagents.

Growth above expectations for us. So just just solid returns overall in terms of utilization and growth growth levels.

Labor it's interesting.

As you send to us over the labor shortages and challenges within our health care customers might be going.

I think we're very well positioned with some of our automation platforms.

Do you think about the slide we had in the deck on innovation relative to BD call that just got approved although molecular module got approved here in the U S. I think is our customers do see headwind with labor shortages, we have fully automated connected integrated automated solutions both.

So clinical microbiology, the molecular testing that were just ready and continued to deploy to help our customers address those headwinds.

And maybe just to give.

Just a couple of other statistics that we look at it at a macro level and utilization.

As we think about Q3, and what we saw versus last year and in the U S acute care sector. The average trend we sell over.

About 100% of pre Covid levels in Q3 that was up just a little bit versus Q2, where we were at we saw 98% 99% of pre COVID-19 levels went up a tick in Q3 and.

In the non acute sector.

We saw Q3 rates in the non acute sector were slightly over 100%.

Versus pre Covid, which was also similar to what we saw in the prior quarter of Q2.

And then as mentioned, we do see sequential improvements continue to occur.

As we look at look ahead, we do see in certain areas impacts of labor shortage is certainly impacting certain procedures I think the procedures that tend to be in BD PDI business are less impacted by them if any more acute in nature lets say putting in.

Official lift for somebody to get dialysis that that really comes to prioritize procedure or getting a vasculature opened to prevent an amputation of your leg is another example, where that's a priority procedure.

And at the same time as well David mentioned, a lot of fantastic automation solutions in the life science sector, but we have the same in BD medical and I think a great example of that is the peratis solution and if anything thats become more attractive.

Since we've acquired that.

That is the answer to pharmacy labor shortages and it is the answer to higher labor costs at automating routine tasks that can be done by robots.

And software and we're seeing really strong demand on that here and it's early days in our hands. So we're really excited to have that.

Pete.

Great. Thanks for all the color.

Okay. Thank you for the question.

And we will take off and we will take our final question from Rick Wise with Stifel. Please go ahead. Your line is open.

Good morning.

Everybody Hi.

It kind of its hard Kurt.

Not ask a question about.

Sure.

Capital priority thinking updated thoughts.

Perspective.

Both on the M&A.

I think Krishna.

Clearly doing a brilliant job.

And I think driving.

Even more financial flexibility.

For you to make decisions and sort of curious.

Hi.

Do you feel bolder about thinking about portfolio addition, and subtraction generally now given that financial flexibility and maybe talk about your thoughts do you feel like given the current environment.

<unk>.

Our market valuation are there more opportunities could be.

Your tuck in strategy accelerate here. Thanks, so much.

Thanks for the good question, Rick So earliest I'm going to step back a little bit as we think about our portfolio strategy and as you mentioned, we've been very active in executing our portfolio strategy shifting BD into those higher growth spaces. Those three transformative solution spaces that you've heard us talk so much about a smart connected care enabling.

New care settings, and improving outcomes in patients with chronic disease, all high growth markets that are reshaping the future of health care, and where BD will be at the forefront of.

And so some of those those portfolio actions that we've been doing over the last couple of years include the spin of the vector.

It also includes 19 tuck in acquisitions over the last few years and these are all going very well.

Important to also have are up and look at you heard Chris discussed that those that have already anniversaried or adding 30 basis points to our underlying growth today.

They're doing well, they're in high growth markets and Theyre driving bd's growth rate out of course is spending in vector also adds.

To that growth further 90% of the M&A that we've done to date of those 19 deals 90% of it of the spend has been in transformative solutions spaces was higher growth spaces that are reshaping our pipeline and so as we look ahead, we're certainly going to continue to be very disciplined and focused on executing.

Tuck in M&A in line with our strategy.

<unk> doing M&A that strategically aligned and advancing our leadership in and expanding our position in those prioritized high growth transformative solutions spaces that I talked about.

Those are deals that are accretive and meet rigorous financial metrics that we have we've walked away from a lot of deals that.

Don't meet those metrics were going to stay disciplined to that and we're proud of when we walk away from that perspective.

<unk>.

And then finally, we.

We see significant leverage and synergies and I think that's been a hallmark of all the deals that we've done they've been able to leverage whether or not it's being global presence strong BD commercial channels strong BD manufacturing or procurement capabilities to add more value as part of BD and they could stand alone and that is a core principle that we're going to continue to execute again.

So we certainly have a robust funnel as we look ahead. We're obviously in the very near term very focused on the product acquisition execution and making sure that that's a success I know again really.

Very much welcome the product team to BD and I know they are excited to be here and we're seeing really strong early momentum with us having come together if anything I would just say expect to probably see a focus on more perata sized deals in the future still very much tuck in but along that size versus smaller ones.

And again, we're very active in our funnel management from that perspective, we do see we certainly see whether or not and the environment before we've been very active in M&A, we still see many opportunities as we look ahead. Thanks.

Thanks for the question right.

Thank you.

And there are no further questions.

I will now turn the floor back over to Tom Polen for closing remarks.

Okay, well I'm going to keep this very brief there was a great discussion. Thank all of you for the very good questions and wish you a great rest of the day and a wonderful summer. Thank you.

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

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Hello, and welcome to Bd's earnings call for the third quarter of fiscal 2022 at the request of BD. Today's call is being recorded and will be made available for replay through August 11, 2022 on Bd's Investor Relations website on BD dot com or by phone at 8663.

We're at 28591 for domestic calls and area code plus 12035189713 for international callers. The replay bridges are now dedicated to 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 BD.

Good morning, and welcome to Bd's earnings call I'm, French Huska Dimartino, 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 Dot com.

Earlier. This morning, BD released its results for the third quarter of fiscal 2020 two.

Our investments in innovation are targeted across three irreversible forces that we believe will continue to transform health care.

Over the next 10 plus years in the areas of smart connected care, the shift to new care settings, and improving outcomes for patients with chronic disease and.

In fact over 60% of our R&D is now invested in these high growth areas.

Third we have taken actions to improve our margin profile and this includes simplifying our business by reducing complexity and increasing efficiencies through initiatives like project re code.

Through re code, we are simplifying our portfolio to optimize our mix, enabling plant efficiency and producing more of the products most critical to our customers we.

We started this work in mid FY 'twenty as part of our <unk> 2025 strategy and it's been a critical contributor to navigating in performing in this challenging environment.

Yes.

We have built significant balance sheet flexibility that has enabled our disciplined capital deployment strategy to support our investments in growth.

While also returning capital to shareholders for example, with the close of the Prana acquisition, 90% of our M&A spend over the past two years has been in transformative solutions.

Fifth we continue to execute during uncertain times.

By successfully navigating the challenging macro environment, we are distinguishing BD and supporting our ability to deliver strong performance in today's environment.

Let me share. Some examples of these macro factors that are impacting health care and what BD has been focused on to stay ahead of the curve.

For example, we've continued our long standing investment to systematically validate secondary suppliers for our most critical products.

We've made additional investments to increase inventory to secure availability of critical raw materials and component tree. This includes chips that have allowed us to deliver strong growth in areas such as BTB instruments.

And we're contracting directly with shippers to ensure continuity of supply for our customers.

These capabilities are now embedded in our operating principles and our teams are doing an extremely good job navigating the environment and largely offsetting these pressures.

Regarding China, while the impact from restrictions lasted longer into Q3, our recovery has been faster than anticipated with a strong rebound in June and.

I'd like to thank a number of BD, China associates, who made exceptional sacrifices to ensure product supply for our customers.

As a result of the team's efforts we expect continued strength in China in Q4 and for the full fiscal year. We are on track to deliver double digit revenue growth assuming no additional waves occur.

Finally, there.

There is talk of constrained capital spending amidst recessionary concerns and as a reminder, bts revenue basis, 85% recurring.

As it relates to revenue generated by capital spending.

He is well positioned with only a small percentage of our revenues attributed to capital placements or instruments in.

These proof points are a reflection of how our BD 2025 strategy and the actions we have taken uniquely position us to lead and deliver strong results.

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

We continue to drive very strong R&D execution and deliver on the exciting opportunities in our pipeline achieving over 90% year to date on both our critical milestones and launches, which as well as the top quartile performance within our industry.

Our increased investments and strong execution in organic innovation continue to contribute to our performance.

Recent examples of how we're progressing our pipeline to drive future growth include the commercialization of the <unk> controlled substance management system, which is part of the BD Pyxis rapid RF solutions family that extends our connected medication management offering across new care settings.

$700 million space growing about 10%.

<unk> is an RFID enabled pharmacy automation solution that provides storage and prescription filling of controlled substance medications, while reducing outpatient pharmacy labor costs.

Additionally, in Q3, we received FDA approval for the BD Cor Nx module in our CTG see TV to molecular assay on BD Cor meeting the milestones we disclosed on the Q2 call.

Clearance of this assay in the U S gives BD access to the STI testing category, which is expected to grow at a 7% CAGR to $600 million by 2025.

Overall, BD Cor enables entry into the high volume molecular diagnostic segment.

<unk> to grow at a 9% CAGR to a $2 $9 billion served market space by 2025. Our team has already received our first U S orders for the new BD Cor and is getting very positive customer feedback.

And BD interventional received five 10-K clearance and launch the <unk> mechanical aspiration.

Thrombectomy system in the U S.

So meeting the milestone we disclosed on the Q2 call <unk>.

Customer feedback has been very positive.

And there have already been several successful cases to date since launch.

During Q3, we completed the relaunch of the <unk> venous stent in the U S and Europe and last month, we launched for the first time in China.

We're seeing strong demand and gaining share with Lenovo driven by best in class clinical performance data.

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

We received five 10-K clearance for BD posit flush safe scrub.

This is a pre filled flush syringe with an integrated disinfection unit, which is designed to simplify nursing workflow and enhance compliance with infection prevention guidelines. This is the first innovation and flush syringes in nearly a decade.

And it's a really good example of how we're driving innovation to extend leadership in our durable core and a 900 million dollar addressable space.

We expect to launch policy flush safe scrub in the first half of fiscal 'twenty three.

And our flow cytometry business, our research reagents platforms continue to be a key driver with double digit growth in this category.

We continue to advance our innovation programs and are on track to launch more than 1500, new flow cytometry reagents Skus this year.

Finally, pure week mail is the next new product and our planned portfolio expansion for managing and continents.

And it is now authorized for release and we're on track to launch this quarter.

Pure week now will provide nurses with a noninvasive option for yearend management and men, enabling earlier Foley catheter removal and resulting in reduced risk of infection.

A great example of our M&A playbook is our acquisition of Perata systems completed just last month.

<unk> portfolio of innovative pharmacy automation solutions powers, a growing network of pharmacies to reduce costs enhance patient safety and improve the patient experience.

And we're seeing macro trends across the industry accelerating and growing demand for pharmacy automation solutions such as proud as these.

These trends include the centralization of pharmacy services and large fulfillment centers and.

And increased clinical demands on pharmacists in hospital and retail settings and.

And of course, we're seeing increased wage inflation labor attrition and a large percentage of pharmacist reporting burn out.

<unk> is offering is complementary to our solutions and medication management and together with BD, we expect product solutions to outpace market growth as we leverage our commercial footprint global scale and innovation capabilities.

Not only is products strong strategic fit with the company has an attractive financial profile that meets all of our rigorous investment criteria on growth profitability and returns the.

The transaction is expected to be immediately accretive to revenue growth adjusted operating margins and adjusted EPS and it exceeds bd's 2025 sales growth and margin targets.

Thus enhancing the company's ability to achieve its long range outlook.

Given our current financial profile, we will continue to deploy capital in a disciplined way to create value through tuck in M&A.

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 towards improving outcomes for patients and providers.

Before I turn it over to Chris Let me share a few updates on the strong progress our team is making to advance our ESG strategy and goals we.

We recently issued our 2021, ESG report, which highlights our first performance measurements and progress on our 2030 ESG commitments.

This includes launching a sustainable medical Technology Institute.

Joining the race to zero and increasing our investments in on site renewable energy and much more.

We believe that the work we're doing today can make a lasting positive impact.

We're also proud to receive continued recognition for our ESG efforts.

Most recently, we were recognized as a best place to work for disability inclusion for the fourth consecutive year.

We achieved a perfect score on the 2022 disability equality index, demonstrating our progress in removing barriers and creating employment opportunities for people with disabilities.

In addition, we were also named as a noteworthy company for the third straight year and diversity, Inc. 's annual ranking the top U S companies for diversity.

In summary, our BD 2025 strategy continues to serve as our true north, allowing us to demonstrate one of reliable and strengthened growth profile too.

Two our reshaped innovation and M&A strategy.

An improving margin profile.

Our disciplined capital deployment.

And five our continued execution during uncertain times.

With another strong quarter, our year to date performance gives us confidence to increase guidance and we remain well positioned in the future deliver sustainable profitable growth.

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

Thanks, Tom Echoing Tom's comments, our Q3 results demonstrate the strength of our business and the momentum of our strategy. Additionally, the investments we are making in inventory transportation portfolio simplification and innovation are also enabling our growth and our ability.

80 to deliver our critical health care offerings to our customers and their patients.

We continue to deliver strong performance, while simultaneously managing the persistent macroeconomic pressures through our simplification and mitigation programs.

Through this balanced approach and the effectiveness of our BD 2025 strategy, we are making strong progress against both our short and long term commitments.

Importantly, however, we are benefiting from the organic contribution from tuck in acquisitions, we Anniversaried, which was about 30 basis points this quarter.

Price contributed 190 basis points to growth year to date.

While this continues to be well below inflationary levels is one of many factors. It is ensuring we can deliver our health care offerings to our customers.

Could only testing revenues were $76 million, which as expected declined from $300 million last year.

Year to date Covid only testing revenues were $475 million.

<unk> unique ability to continue to deliver strong performance. During this uncertain environment as reflected in the performance across our segments with both medical and interventional growing seven 9% and life Sciences base revenues growing 13, 2%.

Total company base business growth was also strong regionally with double digit growth in the U S.

Greater Asia, excluding China, and Latin America, along with high single digit growth in Europe .

Despite the Covid driven restrictions, we grew low single digits in China.

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

Our medical segment delivered $2 $2 billion in revenues in the third quarter growing seven 9% driven by strong performance in our pharmaceutical systems and medication delivery solutions businesses.

<unk> revenues increased six 4%.

Reflecting continued strong demand for durable core products.

Performance in Mds reflects continued competitive games and catheters and momentum in our comprehensive vascular access management strategy.

Despite the challenging environment in China during the quarter.

Performance at MBS also reflects higher hospital utilization levels year over year in the U S and Europe .

MMS revenues grew three 6%.

In our dispensing business strong growth was driven by continued customer adoption of our connected medication management and pharmacy automation solutions.

Worldwide performance in our infusion business was about flat with a similar level of demand in the U S for pumps under medical necessity compared to the prior year.

Pharm systems revenues grew 16, 3% driven by the continued acceleration of demand for Prefilled devices for biologic drugs and our strong leadership position that is being supported by our ongoing capacity expansion and supply availability.

Okay.

BD life Sciences revenue totaled $1 3 billion in the third quarter.

The decline of five 1% year over year is due to the lower Covid only testing revenues previously discussed.

Excluding COVID-19 only testing life Sciences based revenues grew 13, 2% with strong growth across both Ibs and biosciences, despite supply constraints in the <unk>.

Impact from restrictions in China.

<unk> revenues declined 10, 5%, which reflects the decline in cobot only testing, partially offset by strong base business revenue growth of 12, 8%.

Performance in our IVF space business was driven by continued adoption of our broader respiratory panel as well as strong growth in IBD assays, leveraging our increased BD Max installed base.

Ibs based revenues were also driven by continued demand for specimen management products with strong growth in our durable core products EBIT by price management.

Biosciences revenues increased 14, 2%, reflecting continued strong demand for reagents, driven by our antibody and <unk> strategy and continued adoption of our E Commerce platform.

Performance in Biosciences also reflect strong instrument growth driven by recently launched products.

In strategic procurement of critical components.

That enabled us to fill orders to relieve some of the backlog from the end of Q2.

PV interventional revenues totaled $1 1 billion in the third quarter growing seven 9% with strong performance across the segment.

Performance also reflects double digit growth in biosurgery.

Revenues in peripheral intervention grew nine 1%.

Strong performance reflects competitive gains driven by renewables returned to the market and continued global penetration of Rotarix.

The acquisition of <unk>, expanding our focus across chronic disease settings.

Partial backorder recovery also contributed to performance in the quarter.

Offsetting the impact on deferrable procedures from macroeconomic factors such as labor constraints.

Urology and critical care revenues grew seven 7% driven by continued strong demand for our pure with chronic female incontinence platform in the acute care and alternative care settings.

Strength in acute care was also aided by some back order recovery.

Now moving to our P&L in Q3, we delivered adjusted net income and EPS above our expectations with adjusted net income of $786 million or 14, 2% reported growth and adjusted diluted EPS of $2 66 were.

Were 16, 7% reported growth.

As we anticipated on a year over year basis margins improved significantly we delivered base business gross margin of 52, 9% up 180 basis points.

Base operating margin of 22, 2% up 450 basis points year over year.

Base operating margin includes a favorable impact of approximately 75 basis points from an employee benefit related item.

It has a related negative offset in our other income and expense line and thus is neutral to our adjusted EPS.

Q3 base gross margin increased in line with our expectations.

The drivers of gross margin include our simplification and inflation mitigation initiatives, such as mix optimization and price management, along with increased volume utilization given our strong base revenue growth.

These actions enabled us to offset the impact of inflation and deliver margin improvement.

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

Q3 base operating margin reflects very strong operating expense leverage with base SG&A as a percent of sales leveraging by about 200 basis points, excluding the employee benefit related item.

We offset by inflationary impacts primarily in shipping.

R&D of six 2% of sales reflects our innovation investments aligned to our strategy in support of our long term growth outlook.

Our tax rate in Q3 was lower than anticipated due to the timing of certain discrete items that occurred in the quarter.

Regarding our cash and capital allocation cash.

Cash flows from operations totaled approximately $1 $5 billion year to date.

Q3 cash flow from operations reflects a higher than normal inventory balance by about $400 million as we.

<unk>, our strategic investments in raw materials.

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

During Q3, we paid down approximately $500 million in debt and ended the quarter with a strong cash balance of $2 6 billion.

And a net leverage ratio of two seven times.

Our current cash and leverage position and continued focus on cash flow provide us the flexibility to advance our balanced capital allocation framework in support of our BD 2025 growth strategy.

Turning to our fiscal 'twenty two guidance assumptions.

First the macro considerations that support our guidance.

Our guidance assumes the continued easing of COVID-19 restrictions and no significant or lasting disruptions to deferrable procedure volumes.

Our guidance also assumes there are no prolonged and larger scale restrictions and countries continue to be more efficient in managing safety protocols and.

And the containment of any new COVID-19 variance to allow continuity of care for patients.

Regarding China, specifically, we expect continued recovery from the recent restrictions over the balance of the fiscal year. Additionally.

Additionally, while we anticipate continued inflationary and supply chain pressure in Q4, we are not planning for significant escalation of macro headwinds.

Moving to our updated guidance for fiscal 'twenty, two we have increased and narrowed both our revenue and EPS ranges.

We now expect base revenues to grow 875% to 925% on an FX neutral basis.

This is an increase of 125 basis points at the midpoint from our previous guidance of 725% to 825% growth.

100 basis points of the increase is driven by strong growth and continued momentum in our base business.

Additionally, with the closure of Parana, we are increasing our forecast by 25 basis points.

For cobot only testing.

We now assume up to $500 million in revenue.

This reflects year to date revenues of $475 million and minimal additional revenue in Q4 as testing demand has slowed as expected.

Based on current spot rates for illustrative purposes currency is now estimated to be a headwind of approximately 225 basis points.

We're about 425 million to total company revenues on a full year basis.

This is an incremental impact of about 25 basis points or approximately $50 million compared to our prior guidance and is primarily driven by the strengthening of the U S dollar versus the euro.

All in we are increasing our total reported revenue guidance by $190 million at the midpoint to a range of $18 75 to $18 $83 billion.

We now expect based operating margins to improve by approximately 275 basis points.

Over 19, 6% in fiscal 'twenty one.

Despite this challenging macro environment persisting, our focused execution on driving profitable revenue growth combined with our simplified programs gives us the confidence that we will be able to continue to offset inflationary pressures.

A few additional items for your models.

We now expect approximately $30 million in year over year improvement in interest other compared to our prior guidance of $60 million to $75 million.

This reduction reflects the offsetting impact to the Q3 employee benefit item that was recorded in G&A.

Again these items are neutral to adjusted EPS.

We have narrowed our expected effective tax rate to a range of 13, 5% to 14%.

From 13, five to 14, 5% previously.

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

Altogether, we are raising our adjusted EPS guidance to a range of $11 28.

To $11 35.

Compared to $11 15.

To $11 30.

Previously, which reflects an increase of <unk> at the midpoint.

This reflects our strong Q3 base business revenue performance and increased outlook in Q4.

And our margin profile to maintain our full year margin improvement commitments.

We expect minimal impact from incremental Covid only testing revenues as we intend to reinvest that to support our momentum into 2023.

We still expect operating margin on Coke would only testing to be modestly above our base business margins for the full fiscal year.

Okay.

Additionally, while the product acquisition has an accretive margin profile. The income is expected to be offset by onetime deal related costs.

As you think about Q4, the following are a few key considerations star.

This includes absorbing the impact of a difficult prior year comparison in Q4 of fiscal year, 'twenty, one where the Delta Varian Serge drove high acuity and demand for infusion sets and products used in the care of Covid.