Q4 2022 Becton Dickinson and Co Earnings Call

November 10, 2022

And we shouldn't need any audio assistance during our call today, Please press star zero.

[music].

Hello, and welcome to Bd's earnings call for the fourth quarter and full year fiscal 2022 at the request of BD. Today's call is being recorded and will be available for replay through November 17, 2022 on Bd's Investor Relations website on BD Dot com.

Or by the phone at <unk>, six three or four to 8591 for domestic calls and area code plus 12035189713 for international calls.

Replay breaches 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 Heska 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 dotcom earlier.

Earlier. This morning, <unk> released its results for the fourth quarter and full year 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 BD 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 additional details on our FY 'twenty two financial performance and our guidance for fiscal 2023.

Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment Presidents, Mike Garrison President of the medical segment, Dave Hickey President of the Life Sciences segment, and Rick Byrd President of the Interventional 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 IR 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 in.

In addition, the results and guidance we are presenting today are in a continuing operations basis, which exclude the historical results of inductor, which are accounted for as discontinued operations. When we refer to any given period, we are referring to the fiscal period, unless we specifically note it as a calendar period.

I would also call your attention to the basis of presentation slide which defined terms you will hear today, such as base revenues and base margins, which refer to our results. Excluding estimated COVID-19 only testing with that I am very pleased to turn it over to Tom.

For the full fiscal year, we exceeded our revenue and earnings guidance and achieved our margin expansion goal.

Our performance this year confirms BD 2025 is the right strategy and it's working.

Our results reflect our strategy in action and the focused execution and dedication of our global teams to reliably served our customers controlled costs and increase productivity during a challenging environment.

At Investor Day in November 2021, we outlined our plan to build sustained shareholder value creation in five key focus areas today I'm pleased to review the progress we've made to achieve this plan.

First we delivered consistent performance and Durably strengthened our growth profile.

Our FY 'twenty two results are on track with our long range targets to deliver five five.

Plus topline and double digit EPS growth with operating margin improvement back toward our pre pandemic level.

2022, we drove nine 4% revenue growth in our base business.

Additionally, we achieved our margin expansion goals in an increasing inflationary environment.

Both leveraging our revenue performance and realizing savings and efficiencies from several of our multi year simplification and cost improvement initiatives.

As a result, we delivered $11 35, and adjusted diluted EPS.

Second we continued to reshape our portfolio by advancing our innovation pipeline and M&A strategy towards higher growth markets.

In FY 'twenty, two we continued to transform our innovation pipeline with about 60% of our new product development invested in three market spaces that are reshaping healthcare and helping to fuel our growth smart connected care, enabling new care settings, and improving chronic disease outcomes.

We believe our current pipeline is the most exciting in the history of the company.

In addition, we deployed over $2 billion this year towards six tuck in acquisitions, all of which were allocated towards higher growth markets. This.

This includes product systems, our largest acquisition since barred which is aligned to our focus on smart connected care and enabling new care settings.

<unk> the global leader in the fast growing pharmacy automation market enables us to provide solutions to help pharmacies address rising costs and labor shortages.

With today's transformative solutions from pharmacy automation to biotech drug delivery devices to high throughput molecular diagnostic systems and new dies in instruments for immuno oncology and multi omics research to at home solutions for urinary incontinence, we are systematically creating a new wave of future growth for <unk>.

BD.

Third we executed our simplification programs and managed our cost structure.

Like every other company, we face tremendous inflationary pressure.

We saw the pressure coming early on and we took action immediately putting in place an inflation task force to attack it from every side.

We also prioritized, our internal cost reduction programs and significantly leveraged our selling and G&A expense.

<unk> strong operating leverage.

In addition, we actively managed our portfolio, including spending and Becker as well is actually more than 2500 Skus as we accelerated our project re code initiatives to simplify our portfolio and exit products that add complexity in our plants.

A leaner portfolio and less complex manufacturing processes allow us to improve output with the same fixed cost base and optimize our mix to produce more of the products most critical to our customers.

We furthered our investments and what matters to our customers strengthening our supply chain validating secondary suppliers and building key component inventory all factors that have been even more important is supply constrained environment and.

And finally, as we drove strong revenue growth beyond our original expectations, we leveraged our scale on excellence in manufacturing as volumes in our plants recovered from FY 2020, one lows due to COVID-19 disruptions and procedures.

As a result in FY 'twenty, two we were able to absorb significant increases in inflation during the year and improve our margin profile back towards Bd's pre pandemic levels of 25% in FY 'twenty five.

Fourth we maintained a disciplined and balanced capital deployment strategy.

Over the last few years, we significantly strengthened our balance sheet and improve flexibility and.

This has allowed us to advance our balanced capital allocation framework and support growth enhancing investments in capital R&D and tuck in M&A.

We're now at two eight times net leverage in both Moody's and Fitch upgraded our debt this year, reflecting the strength of our business and disciplined approach on balance sheet management and capital deployment.

Also this framework gave us the flexibility to return capital to shareholders, We just announced our 50 <unk> consecutive year of dividend increases.

<unk>, our longstanding recognition as a member of the S&P 500 dividend aristocrats index, a distinction that reflects the consistency and reliability of our dividend policy.

And finally <unk>.

Our strong teams continued to execute and create value even during uncertain times.

Our execution in FY 'twenty, two is a testament to our growth mindset at BD.

We firmly believe Theres nothing we can't do.

Things, we haven't done yet.

And by navigating successfully the challenging macro environment, we are distinguishing BD and supporting our ability to consistently deliver strong performance.

These capabilities are now all embedded in our operating principles.

And with the strong execution abilities across our network.

They're having a positive impact on our overall cost effectiveness responsiveness and sustainability.

In summary, these proof points reflect how BT <unk> 2025, and the actions we've taken in FY 'twenty, two and over the past several years uniquely position us to lead and deliver strong and consistent results.

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

Okay.

In FY 'twenty, two we significantly advanced our innovation pipeline launching 25 key new products.

We are on track to achieve our new product revenue contribution as outlined at Investor day, and are increasing our portfolio weighting in attractive faster growing markets.

Our product launches reinforce our leadership position in our durable core.

And expand our offering and higher growth spaces across smart connected care, enabling new care settings, and improving outcomes for chronic disease.

Launches strengthened our position in strategic areas, such as medication safety Immunology research reagents, molecular and point of care diagnostics.

Referral vascular disease and incontinence.

Examples include positive flush safe scrubbed, our next generation flush product <unk>.

Preview, our peripheral vascular access system.

BD Cor, our fully automated high throughput molecular system and related women's health and STI assays and the pure weak male external catheter.

Im excited by the progress we've made advancing our innovation driven growth strategy and the strides we've made to improve outcomes for patients and providers and create value for our stakeholders.

I'll now share a few updates on the progress our team made this year to advance our ESG strategy and goals.

Together, we advance serves as a framework for our ESG strategy.

In July we published our 2021 ESG report.

Which provides details about our ESG strategy and progress against our 2030 commitments.

Highlights include the launch of the BD sustainable Medical Technology Institute.

Average to reduce our greenhouse gas emission, including joining the UN race to zero and increasing our investments in on site renewable energy.

Just last month BD in Sandy, Utah was awarded the Blue Sky Legacy award for making significant strides towards Utah's environmental sustainability.

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

We also made progress on our workforce IV and Eagles, ending FY 'twenty, two with increased diversity at the executive and management levels, and we remain committed to having an inclusive workplace.

We're proud to receive continued recognition for our ESG efforts. Most recently, we were named to Forbes 2022 list of the world's best employers a recognition of BD as a great place for the world's best talent to work as part of a healthy and inclusive community.

Before I turn it over to Chris.

As we look forward to FY 'twenty, three I would like to provide some perspective on the macro environment.

And BT <unk> 2025, as we move towards the second half of our strategic plan period.

Starting with the macro environment.

Our BD 2025 strategy and the capabilities, we've built over the past two years position us well to navigate what we expect to be some persistent macro challenges and uncertainty facing all companies.

We reiterate our conviction in the three irreversible forces shaping healthcare and our strategy to address them.

For example, as it relates to smart connected care Theres, an increasing need for digitalization and automation of health care processes as providers look for ways to increase efficiency and address labor and inflationary challenges rigor.

Regarding inflation and supply chain, our perspective continues to be the challenges are going to persist not escalate at least through 2023.

And although inflation could potentially start easing somewhat we do expect that we'll remain well above what we have seen historically.

Companies that have processes systems and capabilities to navigate this environment will continue to thrive over the next couple of years.

And as we move forward.

Can expect to see continued relentless focus on execution of BD 2025, which will continue to serve as our true north.

This includes delivering impactful innovations for our customers by expanding our leadership positions in our durable core.

And continuing to invest to expand our portfolio and the higher growth areas that are transforming healthcare.

In addition, <unk> remains our number one priority and we're making good progress.

While we don't comment on the status of the review or approval timing, we are taking all the steps necessary to provide the required regulatory information and support our customers upon clearance.

We will also continue our investments to increase manufacturing capacity to strengthen our supply chain and increased supplier redundancy to help ensure we continue to reliably supply our products for our customers.

We will continue to focus on initiatives to return our margin profile to FY 19, pre pandemic levels in FY 'twenty five.

This includes accelerating initiatives like project re code, including our efforts around operating model simplification, resulting in BD, becoming a more agile and less complex organization.

We expect to continue our balanced approach to capital deployment.

Our priorities include investing in our business through R&D and Capex after investing organically and returning value through dividends we.

We will continue to execute our tuck in M&A strategy and return value to shareholders through share repurchases.

We expect to continue to stay ahead of the curve as we navigate the macro environment leveraging the capabilities. We have built that are now embedded in our operating principles.

We recently celebrated <unk> 125th year anniversary as a company.

Demonstrating our durable model underpinned by our tradition of relentless focus on innovation and operational excellence.

We're really excited about what the future holds and with the performance of our global teams, we will continue to grow our impact on customers and patients.

And advance the world of health.

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

Thanks, Tom.

Echoing Tom's comments, we delivered strong consistent results this fiscal year, which reflects our growth strategy playing out as planned.

Through execution of our BD 2025 strategy, we were fulfilling our short term commitments, while progressing towards our long term goals.

Beginning with our revenue performance, we exceeded our revenue growth expectations for the fourth quarter and full year.

We delivered $4 $8 billion in revenue in Q4 with base business growth of eight 6% were six 8% organic.

Perata contributed about 140 basis points to growth in the quarter and about 40 basis points to the full year.

Cobot only testing revenues were $37 million, which as expected declined from $316 million last year.

For the full fiscal year, we delivered $18 $9 billion in revenue with base business growth of nine 4% were eaten a 5% organic.

Covid only testing revenues were $511 million, which as expected declined from $2 billion last year.

Total company base business growth was strong across all three segments with double digit growth in BD life Sciences, and high single digit growth in BD medical and BD interventional.

Base revenue growth was strong regionally as well with double digit growth in the U S, China, and Latin America, along with high single digit growth in EMEA.

Our revenue performance continues to be 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.

We also continue to benefit from the organic contribution from tuck in acquisitions, we Anniversaried, which was about 20 basis points for the full year.

Let me now provide some high level insight into each segment's performance in the quarter.

Further detail can be found in today's earnings announcement and presentation.

BD medical revenue totaled $2 4 billion in the fourth quarter growing 10, 2% with strong performance across the segment.

Growth was driven by strong growth in Mds of 8%.

Driven by continued execution of our comprehensive vascular access management strategy.

MMS growth of 11, 5% driven by strong demand of our connected medication management and pharmacy automation strategies, including our recent acquisition of Parana.

As customers focus on automation to drive efficiency to help address can streams labor market.

And another quarter of double digit growth of 12, 8% in pharmaceutical systems based on our strong leadership position in pre physical solutions for biologics and vaccines.

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

The decline of 11, 6% year over year is due to the expected lower COVID-19 only testing revenues previously discussed.

Excluding COVID-19 only testing life Sciences based revenues grew eight 3% with strong growth across both Ibs and biosciences.

Base business growth was driven by <unk> growth of eight 6% enabled by continued leverage of our molecular testing menu across our expanded BD Max installed base and continued demand for our leading clinical microbiology and specimen management platforms.

All right.

And lastly, BBB growth of seven 5% driven by continued demand for our expanded suite of flow cytometry instruments as researchers are able to do even higher parameter cellular analysis for cancer and other immune related conditions.

BD interventional revenues totaled $1 1 billion in the fourth quarter growing five 7%.

Growth was driven by surgery growth of five 4%.

Supported by our advanced repair and reconstruction portfolio with strong market adoption of our leading basics hernia products.

PDI growth of four 8%, which reflects continued expansion of our venous portfolio.

Highlighted by <unk> in the U S.

The global relaunch of Lenovo.

Pim performance also reflects increased back orders primarily related to our BVI specific European ERP system implementation.

Urology growth of seven 2% reflects continued strong demand for our pure with female incontinent solutions.

In both acute.

And alternative care settings.

Yes.

Now moving to our P&L Q.

Q4, adjusted diluted EPS of $2 75.

Increased 28%.

Base business gross margin of 52, 5% was up 80 basis points and base operating margin of 22, 5% was up 430 basis points year over year.

Full year adjusted diluted EPS of $11 35.

<unk> grew six.

6%.

As we anticipated we made significant progress towards achieving our pre pandemic margin improvement goals, despite increasing inflation pressures.

For the full year base business gross margin of 53, 4% was up 110 basis points and base operating margin of 22, 4% was up 280 basis points.

The key full year drivers of gross margin include our simplification and inflation mitigation initiatives and increased volume utilization given our strong base revenue growth.

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

Base operating margin reflects strong operating expense leverage with based selling and G&A as a percent of sales leveraging by 180 basis points, partially offset by significant inflationary impacts primarily in shipping.

To put this in perspective shipping expense increased at a double digit rate and our base business.

This increase in shipping was offset with focused efforts on cost management and leverage of selling and G&A, which only grew at about one third the rate of sales and was the primary driver of 21% currency neutral growth and base operating income.

This is a testament to the tremendous work by our organization to mitigate inflation and execute our margin enhancement initiatives.

This was also a key enabler and supporting continued investment in R&D at just over 6% of sales to advance our innovation pipeline.

Regarding our cash and capital allocation cash flows from operations totaled approximately $2 5 billion in FY 'twenty two.

Operating cash flow reflects our higher inventory balance of about $600 million year over year.

The increase reflects the impact of inflation longer in transit lead times and our strategic.

<unk> investments in raw materials to optimize product delivery.

To meet customer demand.

As expected our free cash flow conversion. This year was below our long term target.

We remain very focused on cash flow conversion and we are taking actions to moderate inventory down.

But in the short term, we believe it's a prudent tradeoff to ensure we support our customers while delivering strong results.

As we execute against our BB 2025 strategy and supply chain constraints normalize.

We expect to migrate towards our long term cash conversion target.

In addition to investing in R&D at over 6% of sales to advance our pipeline of innovative programs. We also invested over $2 billion and six tuck in acquisitions across our businesses that will support our strong growth profile in 2023 and beyond.

Beyond our investments in growth consistent with what we shared regarding the planned use of <unk> proceeds we paid down $500 million in long term debt. This fiscal year and returned $1 6 billion in capital to shareholders through dividends and share repurchases.

We ended the year with a cash balance of $1 billion.

And our net leverage ratio of two eight times.

Okay.

Moving to our guidance for fiscal 'twenty three.

For your convenience the detailed assumptions underlying our guidance can also be found in our presentation.

Continued margin improvement and double digit base earnings growth on a currency neutral basis.

As a reminder, we manage our business on a currency neutral basis to best represent underlying performance.

Consistent with what other companies are discussing in their forward outlook, we are accounting for a headwind to our reported results as we translate currency to a stronger U S. Dollar.

Beyond that changed our guidance has only strengthened in a complex macro environment, where we continue to see elevated inflation and geopolitical uncertainty.

Starting with revenues I'll provide you some insights into some of our key guidance assumptions.

On a currency neutral basis, we expect base revenues to grow five 5% to 625%, which is a strong growth of 575% at the midpoint.

This midpoint is above our five 5% plus target we outlined during our Investor day, given the confidence we have in our strengthening growth profile.

Our revenue guidance includes two proactive strategic portfolio management actions that are consistent with our BD 2025 strategy and support our value creation goals.

First building on our FY 'twenty two achievements our base revenue guidance includes planned strategic portfolio exits as part of the acceleration of our portfolio simplification and re code programs.

These actions will enable increasing manufacturing efficiency and capacity and ensure the reliable supply of the products that matter the most to our customers.

We expect these actions to impact revenue by approximately 100 basis points, while being accretive to margin.

Second offsetting this revenue impact is a positive contribution of approximately 100 basis points from the full year benefit of our recent acquisitions with Toronto being the predominant driver.

We will continue to be active in portfolio management as a lever to create value for all stakeholders.

While we arent providing segment specific guidance, we are on track to achieve our long range plan commitments and we are assuming strong performance across the segments in FY 'twenty three.

We expect medical segment growth to be above the total company range, which includes the acquisition of Corona light.

Life sciences' growth to be below.

Given strong prior year comparisons and interventional to be at the high end of the range.

Consistent with what we shared we expect Covid only testing revenues and related earnings to be at a level significantly below FY 'twenty two with revenues more in line with the <unk> of our Q4 FY 'twenty two results were approximately 125 to 175.

For the full year.

Regarding <unk> consistent with what we've done in the past we were only modeling shipments related to medical necessity.

While we will be prepared when clearance is received we continue to anticipate a gradual ramp to revenues upon clearance.

Regarding our assumptions on earnings.

We expect operating margins to improve by at least 100 basis points over the 22, 6% reported in FY 'twenty two.

Despite the 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 and make meaningful progress to achieving pre pandemic operating margin levels of about.

25% in <unk>.

Why 25.

First to give you some color on inflationary assumptions as a reminder, outsized inflation in FY 'twenty two.

It was a headwind of over 200 basis points, and we expect a similar level of incremental outsized inflation in FY 'twenty three.

The primary drivers of the incremental inflation, our raw material costs and labor, which are about equally weighted.

Even though we see some signs of cost normalizing in certain areas a lot of the outsized inflation is from inventory we manufactured in FY 'twenty two as there is about a four to six month lag from production to sell through.

Labor costs, especially in our manufacturing plants have continued to increase.

We have taken proactive actions to ensure we are differentiating BD to retain our skilled workforce.

Lastly, transportation costs have stabilized and we've begun to see some downward movement on certain rates.

However, we are still above more normalized levels.

We remain committed to leading through the macro complexity, while making investments to support our customers.

To offset these inflationary impacts we continue to leverage our strong growth profile and drive outsized cost reduction and other mitigation programs.

We expect over 80% of the improvement in operating margin to come from SG&A drew.

Driven by internal cost containment and leveraging.

The balance is expected to come from slight improvement in gross margin and R&D as we normalize back closer to our target of 6% of sales.

Okay.

Our simplification initiatives include continuing to execute on project re code.

You will recall, when we announced <unk> code. It was intended to deliver $300 million in savings by the end of fiscal year, 'twenty, four with portfolio and network optimization, representing about 70% of the savings.

We are accelerating these efforts and are also making significant progress with the third pillar of re code operating model simplification, which will result in BD, becoming a more agile and less complex organization.

In addition to provide some color below operating income we expect.

An increase of approximately $50 million to $75 million in interest other.

This is primarily driven by increased pension expense, which we fully covered in our guidance and as a result of the negative movement in the financial markets.

For tax based on what we know today, assuming no major legislative or regulatory changes.

We expect our adjusted effective tax rate to be between $13 five and 14, 5%.

It would not be unusual for our rates will fluctuate above or below this range on a quarterly basis, given the timing of discrete items.

Our guidance assumes no material change in average common shares outstanding from our average FY 'twenty two share balance.

This takes into account the conversion of all outstanding preferred shares on June one.

2023 the.

The benefit from the FY 'twenty two share repurchase associated with the use of the <unk> distribution.

And our commitment to mitigate the dilution from share based compensation.

So on an all in basis, we expect adjusted EPS before the impact of currency to be around double digit growth in within a range of approximately 9% to 11%.

This includes absorbing about a 300 basis point headwind.

The anticipated decline in cobot only testing.

And as a result implies a very strong low teens base earnings growth of approximately 12% to 14%.

Let me now walk you through the estimated impact from currency.

As a reminder, we manage our business and provide guidance on an operational basis will provide perspective on currency using current spot rates.

Since our last call in August the U S dollar strengthened against all major currencies based on current spot rates for illustrative purposes currency is now estimated to be a headwind of approximately 450 basis points or about 850 million to total company revenues on a full year.

Basis.

This currency headwind has nearly doubled since our August call.

Our guidance assumes the euro at <unk>, 99, which is down about 4% since August .

The Chinese one Japanese yen British.

British pound.

In Canadian dollar have also all declined even more than the euro since August .

By almost two times the euro movement.

For context. These four currencies combined are in line with our total euro exposure.

The currency headwind to EPS growth.

It is also nearly doubled since our August earnings call.

At current rates currency would represent a total headwind of approximately 420 basis points to.

To adjusted EPS growth.

All in including the estimated impact of currency, we expect revenues to be between approximately $18 six to $18 8 billion.

And adjusted EPS to be in a range of $11 85 to.

To $12 10.

As you think of fiscal 'twenty three phasing there are three key items to consider.

First FX at current spot rates, we expect the headwind to revenue will be over indexed to the first half.

For the full year, we expect the drop through to earnings to be below our Bds operating margin.

Due to the expected benefit from inventory flow through in Q1, the drop through is expected to start well below the full year average and most significantly impact the second and third quarters.

Second is the grow over impact of Covid related dynamics.

As a reminder, in FY 'twenty to almost 80% of Covid only testing revenue was realized in the first half of the year with strong margin drop through as reinvestment was weighted to the latter part of the year.

In addition, there is also a comp to a strong first half performance in FY 'twenty two.

It's a combo testing in the base business.

And the third is inflation nearly 40% of the full year inflation headwind is expected to occur in Q1, as we sell through inventory manufactured in FY 'twenty two in the first half of the year.

As a result of these items as you think of the progression of our total operating margin expansion through the year for Q1, you should expect that year over year decline driven primarily by the year over year comparison of higher Covid only testing.

We expect operating expansion to ramp over the remainder of the year with the majority occurring in the second half.

As a reminder, there were some tough comparisons to the prior year in Q1, such as the benefit of about $50 million in licensing revenues and life Sciences.

As a result of these dynamics, we expect Q1 base revenue growth and adjusted EPS to be under indexed relative to an equal quarterly phasing of the full year.

So this guide coupled with our FY 'twenty. Two results has is progressing very well towards our FY 'twenty five goals, including.

Two year revenue CAGR, assuming the FY 'twenty three midpoint of 575% that is well above the five 5% plus target at around seven 5%.

Achievement of nearly 400 basis points of margin improvement, where over 70% of the way towards our FY 'twenty five objectives.

And two consecutive years of strong double digit adjusted earnings growth in our base business.

In closing we are very pleased with our performance, particularly given the macro complexity and inflationary pressure we navigated.

The consistent execution, we delivered and our ability to mitigate these challenges through FY 'twenty two enabled our 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 our BD 2025 strategy is demonstrating strong momentum and performance positioning BD to be increasingly well positioned to drive long term growth and value for all stakeholders and successfully navigate and differentiate in today's challenging environment.

I'd like to thank our associates worldwide once again for their tireless commitment to our purpose of advancing the world of health.

And before I turn it to Q&A.

One of them officially congratulate and welcome Mike and Rick to their new roles, leading the medical and interventional segments respectively.

Both Mike and Rick are highly effective leaders, who have demonstrated strategic and operational excellence and their nearly two decades at BD.

They are focused on driving growth and meaningful outcomes has been critical as we pursue our BD 2025 strategy and they are well rounded seasoned leaders with a track record of developing strong teams that deliver impactful results there.

Their broad experiences across multiple BD businesses and segments position them well for their new roles as we advance our growth agenda and build bd's future.

With that let's start the Q&A session.

Operator can you assemble our queue.

Secondly on the floor is now open for questions. At this time, if you have a question or comment. Please press star one on your Touchtone phone if at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key in order to allow for broad participation. Please limit your questions to one and one follow up.

We ask that while you're posing your question. Please pickup your handset to provide optimal sound quality. Thank you and our first question is coming from Larry <unk> with Wells Fargo. Please go ahead.

Good morning, Thanks for taking the question and congratulations on a strong finish to the year.

First for Chris on.

On the topline guidance it implies only about $4 seven 5% excluding perata in testing.

<unk> grew six 8% organic in Q4, eight 5% for the full year. So why the deceleration in fiscal 2023, it seems conservative given the momentum and can you talk about assumptions for pricing and those divestitures and I had one follow up.

Yes, sure Larry Thanks for the question well.

We're very pleased with our growth rate.

As you noted I think what we're delivering is a testament to our strategy playing out delivering consistent growth in both our durable core balanced with acceleration through transformative solutions.

Coupled with the actually organic contribution from the tuck in M&A that we're starting to see as we anniversary Act.

Acquisitions more than a year, there's about a 20 basis point contribution to growth.

So as you noted nine for this year really strong year in a year by the way, where we actually had an increasing complex environment, our ability to grow double digits in China. As an example, with some of the dynamics, we saw play out there eight 5% organic.

I think I think there's a few things that I think will give you some color to kind of understand our underlying growth rate remains extremely strong as it relates to our 23 guide if you think of it as a two year period of seven 5% growth over two year period Comping.

Comping over that nine 4%.

This is well above our 505, plus even if you adjust out from an inorganic standpoint, the growth is still at about 7%.

So.

I think it's a strong indication that we're actually consistently delivering this growth.

<unk>.

On the strategic portfolio exits, let me give some color, though this is a bit different and it's certainly consistent with our simplification strategies.

And really it's the strength of our underlying business and the strong growth outlook that allows us to take these strategic bold actions to create value for our customers and our shareholders.

These are the kinds of things that.

<unk> should want us to do and we're very fortunate to be able to take this opportunity.

It's consistent with our relentless focus on portfolio and what we're essentially doing different from SKU rationalization, which is really.

Simplifying the Skus that we go to market with the require work investment and re registrations et cetera. These are pure portfolio exits you almost need to think of them. It's a one time kind of divestitures. We took a step back looked at our portfolio trying to understand where we can best create value again, both through the lens of our customer and through the.

Lens of our investors.

These are areas for example to fit a typical divestiture growth profile. These are not accretive to growth.

These are significantly dilutive to margin.

In many cases, well below half our existing margin rate.

And the right thing to do I would also point to the fact that while these are dilutive to margin they did actually benefit our earnings and.

And so we had absorbed that in a very strong earnings guide right. When you think of our bottom line of 9% to 11% double digits at the midpoint on an FX neutral basis.

And Thats on an all in Comping over the Covid only lost revenue year over year, and so adjusting for that we still delivered about 12% to 14% of base earnings growth. So we think this is the right thing to do for the long term, it's the right thing to do.

Our underlying business I actually think it's fair to.

Think of that 1% impact roughly differently almost like an inorganic adjustment.

The rest of our portfolio continues to perform strong as a matter of fact, we if you look at the $5 75, it's above the 505 mid point and then I'll go back to the two year, which is again on an organic basis over 7%.

So hopefully that helps kind of explaining that part of the guide we feel great about our revenue and certainly feel good about the bottom line.

That's very helpful and just one follow up it's been about the comments on <unk> were encouraging and.

In your prepared remarks, it's been about a year and a half since you filed what can you share about the review process and are you still confident you can bring <unk> back before 2025 since I think the.

BD 25 margin target assumes about $80 to 80 basis points contribution from <unk>. Thanks for taking the questions. Yes, good morning, Larry and I as always great to create to connect.

Thanks for that question. So as we mentioned on several occasions getting <unk> back on the market. It is our number one priority we remain confident in the resources, we've invested in our submission in the team and leadership cast to prioritize this in our process and we are confident that we will get clearance.

What we also want to be continue to be prudent on Larry and thoughtful about is the process with the FDA and so therefore, that's why we're not predicting timelines given how inherently complex those submissions are.

As you said and as we've shared in the past the relaunch of <unk> is included within our strategic plan as we provided at Investor Day, and there is no change to that.

We just as I mentioned before.

We want to not predict those timelines, but we are prepared for launch when that clearance.

So that we can best support our customers and as you know we did launch <unk>, the new <unk> pump in it.

In Canada, this past year, and we're getting very positive feedback from customers. There. So thank you for the question.

Yes.

And we will take our next question from Vijay Kumar with Evercore ISI. Please go ahead.

Hey, guys. Thanks for taking my question.

One Chris maybe I wanted to start with guidance and I had one for Tom on the guidance.

What.

I guess what are you assuming for vaccine I think vaccine.

Vaccines for $150 million of contribution in fiscal 'twenty two.

Is that zero is that a headwind.

And <unk> emergency use is that similar to fiscal 'twenty two is that below.

And related to that I think.

And I think in the past you've said active discussions with the FDA Hasnt change.

Active discussions with the FDA really fulfill errors.

Hey, Jay Good morning. This is Tom So no. We continue to have active discussions with the FDA on awareness and as I mentioned things are progressing towards our process and we'll obviously give an update when we get ultimately clearance on that but we don't want to try to predict the timing on that and so therefore again as we have been.

Being prudent we haven't reflected that in our guidance specific approval timing. So we do have the same run rate of medical necessity in our guidance, which is about $100 million same as 'twenty. Two we've carried that forward into 'twenty three.

And to your question on vaccines it as a headwind in 'twenty three that we're jumping over there.

Relatively limited vaccination.

Demand ongoing for <unk> for Covid, and so that's definitely a headwind that we're jumping over in Mds, but we have that covered.

Understood and Tom Sorry can you quantify what the headwind is related to that sorry, My second question here.

It looks like your pro forma organic here was really strong perhaps in the teens.

Maybe talk about what's driving the strong contribution from product and is that part of the revenue synergies as far as the deal.

Yes P J so on.

On the Hypo, we won't share the specific number there, but it is a.

There's very limited revenue vaccine related and hypo that we have planned for 23 related to Friday, you're right very strong performance in parana.

At or slightly ahead of our deal model on that so we're off to a great start and we're seeing really strong demand and let me turn it over to Mike garrison here, who.

Who of course led that that acquisition when he was leading MMS and now continues to be over that is leading the medical segments. So Mike.

Yes, Hi, Vijay Thanks for the question on product yet we're very excited about product also the med keeper of the Med bank acquisitions that are in the portfolio.

Just a great teams with a passion for their craft and it may be the things that are differentiating our approach. The extensive diligence we did prior to the acquisition a real focus on culture in the first.

30 days.

Working with the teams and then we also set up an integration management office within MMS with some of our senior leaders to really guide.

Focus in each individual work stream across the functions to make sure that the acquisition goes well out of the gate, but.

But I think the main thing is the value proposition is very strong and clear for perata that directly addresses the labor shortages in the clinical efficiencies that customers are seeking especially right now.

And as well as their long term goals around smart connected care data driven decision, making things like that so at both the addresses short term needs and long term needs and Thats why customers are reacting so favorably to it.

Fantastic. Thank you guys.

Sure.

And we will take our next question from Robbie Marcus with Jpmorgan. Please go ahead.

Oh, great. Thanks for taking the questions.

Maybe to follow up on some of the 'twenty three guidance questions. I was wondering if you could help us with some detail maybe around what youre assuming for the Covid flu combo tests, we're off to the worst startup flew in over a decade, so what what youre assuming in there.

Just for flu in fiscal 'twenty, three and remind us where those tests ended up on sales in fiscal 'twenty two.

And also how do we think about pro rata down the P&L. It's a 100 bps on the topline just remind us of what you're assuming on the bottom line for that thanks.

Yes. Thanks, Robbie appreciate it yes, I can take the Perata question as it relates to the margin and then either Dave and Tom can maybe talk about Covid flu, how we're thinking about and proud of what we've shared publicly is it is immediately accretive.

To BD, we werent specific with the amount, but actually we did say, it's actually even accretive to our long range outlook.

Which is think of it as about 25% from an operating margin. So it is certainly a positive contributor on the Bottomline.

I will just just reinforce remember as you think of our total all in so proud I think is a great example of adding a strategic asset with strong growth profile strong accretion on the margin standpoint, we did have to jump over the COVID-19 only which was.

$300 million plus drag on the top line that also had a higher slightly higher margin profile. So I think when you look at our total guide at 9% to 11% that's very strong and when you kind of reverse into the math, we had shared that the cobot only was about a 300 basis points headwinds in total at <unk>.

<unk> of 12% to 14%.

Base earnings growth profile, which is really strong well very consistent with what we shared in Investor day, especially again in an inflationary environment, where we're going to have similar levels of inflation year over year.

Robbie This is Tom good to connect this morning, and we've got Dave on the call down in.

With our Latin America team at the kickoff meeting but.

Tag Tag Dave into the conversation here in just a moment, but related to flu combo. So we are in our assumptions we do have.

That moderating a bit versus this past year, where we saw a lot of demand for the flu COVID-19 combo driven by Covid.

To your point there is a potential we don't see it as significant of a demand driven by the COVID-19 side of the combo test necessarily as we look going forward in 'twenty three certainly there can be a greater potential for the flu side demand in differentiating between flu and Covid I think as you said, it's off to an early start the flu season still to be determined.

The scale of it in Australia, we saw an early start to the season, but we saw a very narrow one time peak and that demand and so actually the area under the curve was less than than normal and so there was a severe very short flu season in Australia that did not end up creating significant demand.

And testing because it was such a short duration still to be determined how that rolls out in the U S and so we want to be prudent upfront, maybe Dave I'll turn it to you to share some more commentary.

Yes, Thanks, Tom.

Robert Thanks for the question.

As I get into answering that I'd just given this is my first chance on the Q&A here I do want to just recognize inside the life Sciences team globally and all the associates for.

Another outstanding year in fiscal 'twenty, two I mean, you saw the quarter growth of over 8%.

Our record base growth and 13, 8% for the year so.

Life Sciences continues to be strong.

<unk> I'll just build upon.

What <unk> said is in.

If you think about it pre pandemic, we were always in this range right of the $75 million to home grade, we would considering the normal flu season.

I think also to remember that that was on virtual only.

We have not really anticipated I'll see a normal flu season during the pandemic. It's all definitely in October we are seeing more visits to the urgent.

Urgent care centers and things on influenza like illness.

But again when you look at it we think the season has started about eight to nine weeks early.

Very quickly in Australia, so it's a little bit early to call. What it would look like I think if we were looking at the range. This year.

Based on just Leverages <unk> installed base, we would expect that.

About flu range of about virtual base to be about $130 million to $150 million.

Great really helpful and maybe a follow up Chris and Tom 100 bps margin expansion is really healthy given all the headwinds maybe you give some good color in the slides, but I was hoping for maybe just a little more details on how do we think about.

Inflation and raw materials costs or any of those other headwinds if you could put any framework surround.

And then how do we think about FX on the operating margin line as a negative thanks a lot.

Yes, Ravi thanks, so yeah as it relates to a 100 basis points. As you noted definitely another strong year of margin enhancement that will put us about 70% on track to deliver against our FY 'twenty five goal of about 25%, So really strong progress having delivered almost.

Half of that in the first year.

So not only do we feel good about what we delivered last year, continuing that momentum in driving towards our long term objectives.

Yes, there's a couple of ways to think about one the predominant driver of margin improvement. This year is really going to be leveraging our strong growth profile focused on cost containment more at the operating margin level and selling and G&A.

So that's that's about 80% plus of that 100 basis points improvement that we're expecting the.

The balance is really there is a little bit of moderating R&D back to our 6% goal, we've actually been over indexed two years in that area.

So obviously like other areas you would expect to without impacting project spend just leverage your base with a strong growth profile to 6% is a good outcome. There the balance which is which is really minor then as in GP. So GP youre going to kind of see that's where we are experiencing most of the inflationary impacts.

Matter of fact, you're seeing a little bit of relief in shipping, it's still above historic what we'd call normal levels.

Youre seeing some benefit there as well that that's playing out mostly in the operating margin side.

As it relates to where we're seeing the most inflationary pressures, it's still raw materials.

It's shifted a bit more from kind of regulated residents to other materials.

As packaging would be an example.

We do have a carryover effect to of the inventory that was built in 2002.

And so a lot of that will hit in the first half of the year.

And the other big area, where you still continue to say I would say escalating pressures is labor.

So labor and raw materials is about 50 50, each of what we're realizing in GP.

Obviously, we're taking a ton of action within GP.

In this order in terms of how we think of them not necessarily size, but as we always think of driving cost improvement one it starts with our growth profile outsized volume in our plants leveraging our plants.

Portfolio favorable mix to the extent, we can drive that outsized cost improvement again going back to our plant mindset as it relates to growth mindset and driving more efficiency.

And then other.

Factors, such such as prices as well would be part of that equation lastly.

So that's how we're thinking about inflation this year and what we're doing to mitigate it.

And we're very pleased with the progress that we've had year to date as it relates to FX, we gave some color.

The team can support you through that in more detail the.

The drop through from sales to earnings is slightly lower as consistent with what we've shared in the past on a full year basis, youre going to see sort of quarterly phasing dynamics play out differently. Because you have the nuance of how FX impacts cost and inventory and.

And how that flows through you got that four to six month lag.

So youll see a little bit more favorability in the first half and it normalized to the full year drop through that we shared by the by the end.

That's great and maybe just to add to Chris's comments and it's good question Ravi.

Back to we are facing as all companies are serious inflationary pressures that are happening across the industry and all industries. I think just just want to call out our plants. They are doing a phenomenal job.

Yes.

The last thing that we look to do in any situation is is price and so as you as you heard Chris walk through the order of priorities for us.

Our plants really have risen and almost doubled the level of normal continuous improvement that we've done historically, they've risen to that task and working to offset as much of that cost.

As possible. The other thing is the action that we talked about earlier around that strategic portfolio exit as we're bringing in M&A and we have strong underlying growth taking this time to.

Evaluate our portfolio and look at where they are non strategic products that are diluting our operational effectiveness in our plants that we can get better performance out of our lines out of our staffing out of our resource deployment and take those actions set us up for strength in the long term.

We're doing that this year and that is helping US also have a role in offsetting those inflationary pressures that is making us more efficient in our plants and helping make sure that we can deliver the products that matter most that we're focusing our resources on delivering those products that matter most for our customers that are going to be driving value for us and our shareholders long term.

Thanks, a lot for taking the questions.

Okay.

And we will take our next question from Matt Taylor with Jefferies. Please go ahead.

Good morning, Matt.

Hey, good morning, and thank you for taking the question.

So I had two questions I guess the first one I wanted to ask was.

You probably won't comment on litigation, but I was hoping you could address some.

Some of the ethylene oxide issues from two angles. One is maybe just talk about some of the things that you have done already with the regulatory agencies to work with them to mitigate risks there and to improve.

The plants and then any commentary you can make on litigation to get investors comfortable.

With that risk would be helpful.

Sure Good question, Matt and I appreciate it so as you know BD is among the world's largest producers of medical products that are critical for patient care and our devices and products. They estimate FDA sterilization standards, just as background I think everyone's aware that numerous types of devices and other sensitive medical products.

For many of them eto as the only type of sterilization that can be used in fact about 50% of all medical products across the industry use eto for sterilization and the majority of those products they use etfs for sterilization.

Other sterilization methods will damage the products like radiation or steam or.

Chloride dioxide or vaporized hydrogen peroxide, they actually will damage those products <unk> has used and you wouldn't be able to ensure the required level of sterility given the materials that are used in those products and so we're very confident in the systems, we've been investing in for decades, and can say that our sterilization facilities use <unk>.

Best available Eto admissions control technology in the industry.

We achieved more than 90, 995% destruction of Eto from our stack admissions.

And in accordance with the broad FDA challenge, we continue to invest in cycle optimization, and eto technology upgrades extending outside of our plants now.

And so we take the safety of our associates and the communities. We are in very seriously and therefore have a long history of proactively upgrading our emissions control technology supported by continuous investments backed here here. Good question. So if you go all the way back to even let's go back to 1997, we proactively upgraded our emissions control.

Shipment in Georgia, the thermal oxidizer as all the way back then and began routing.

Back then exhaust in Georgia to the primary emissions control equipment, its something thats still isn't necessarily routine across the industry. Today, we are at the forefront of that.

Today, we have programs and procedures in place to ensure compliance with all applicable regulatory requirements, including EPA Osha state environment mental protection agencies, FDA or facilities or at least 20 times more efficient at removing eto per cubic meter of air than what's currently required by the clean Air Act.

And we're working with the FDA and other industry leaders to develop look at new sterilization cycles that could even take emissions down further than what's ever been possible before just as it relates to our outstanding litigation. There are no new cases that have been brought into the third quarter and we have not taken any accrual.

In connection with any of the outstanding Eto cases, we've gone through a rigorous process internally and externally and we do intend to vigorously defend any such cases, given our strong position in the way that we operate.

Thanks for the question.

Thank you I'll leave it there thank you very much.

And we'll take our next question from Josh Jennings with Cowen. Please go ahead.

Hi, good morning, Thanks for taking the questions.

Jeff.

Probably two for Chris just on on the <unk> I was hoping to just view.

This is the run rate of Soliris revenues in the U S on medical necessity shipments.

Where.

<unk> pre mediation.

In aviation that revenue run rate.

Partially just think about what you're absorbing on the margin side.

Assuming that <unk> is not going to be back in play in the U S in fiscal 'twenty three.

What was the margin drag in 2022, and if there is a margin drag in 'twenty three.

And just how you are maintaining the.

The structure of the Atlantis franchise to be ready for launch once remediation group.

We were able to fully commercialize again, thanks for taking the questions.

Yeah. Thanks, Thanks, Josh appreciate it yes, so I'll just ask I'll share some things that we've shared in the past.

One from a total sales point, we had always talked about that business being roughly $400 million is the way to think of it.

From a medical necessity standpoint, we've talked about a $100 million per year, that's what we had last year roughly in.

We're planning sort of consistently this year. So that gives you that kind of frame as you think of the size I will remind you win.

Pond clearance you would expect a gradual ramp over time, we have not shared a specific timeline, but thats hard to predict but maybe just to give a little context. Some folks have sort of asked like okay. We're talking less than a year over year. It wouldn't be less linear would ramp up over some timeframe probably over 12 month period that should help you.

Little bit, but certainly well within our LR <unk> time period.

Margin, we haven't shared specifics by year, what we did share if you go back to the deleveraging that occurred from our FY 2019.

There was about an 80 basis point headwind to our margin.

And is that largely stays the same and we will adjust.

As the product comes back if you think of it.

One we made investments in regulatory quality of course, we maintained our service and field organization and so as the sales come back you would get natural leveraging to occur as we've made those investments to continue to support our <unk>.

Install base of <unk> customers.

And maybe just one other thing to add Josh is.

As Chris mentioned, so we kept our commercial team we kept our service team, which as we relaunch again that we'll see that positive flow through since those expenses are already on the P&L and the recovery of that that 80 bps of dilution that we currently have on the P&L just what there is a benefit that we're seeing right. Now is we're seeing very strong demand.

On other capital areas within MMS, particularly in the Texas area, where we're able to utilize some of those additional service.

Capabilities that we have to actually help us in the installs on the pyxis side and maybe since we have Mike here today, who again with recently leading that business, maybe Mike. If you just want to comment on some of the broader demand we're seeing on the capital side on the MMS.

Thanks, Tom.

Even though there is a we recognize the tough economic environment.

Certainly there.

We're not experiencing the same degree of <unk>.

Capital pressure that maybe had been communicated.

<unk>.

We finished Q4 with a record year for bookings have a strong implementation schedule planned for 2003.

And I think Theres a couple of reasons for that one one is the strategy continues to resonate with the connected Med management solutions.

Again addressing the labor shortages in our ability to flex and implement both with business model, but also.

Highly skilled.

Service.

A lot of ex nurses excite people.

These are people that are customers are increasingly seeing the value of partnering with us because we can we can flex to meet their needs.

So both of those things I think are really helping we're getting a lot of utilization.

Out of the infusion side of the business.

Thanks, Mike Thanks for the question Josh.

Thanks, a lot.

And we will take our next question from Matthew Wilson with Keybanc. Please go ahead. Your line is open.

Hey, good morning, and thank you for taking the questions.

Just a clarification for me I think last quarter, you said that.

You would expect.

Organic revenue growth of about five five plus percent.

Base growth not including product.

At that time.

Strategic exits included.

And that number or are those new.

If they were included.

A little bit of softness logo velocity, while three months versus what you were thinking.

No I appreciate the question Yeah, no that hasn't been contemplated at that point again, we took a hard look at our portfolio and the spirit of simplification.

So this is different from our core re code program that has a different lens similar principles, but a very different lens in terms of a pure exit we really wanted to make sure we were focusing on organization and higher value, creating areas and so this was an add.

And again I think there's so many puts and takes across the year looking at two year metric. However, you look at a 7% growth on an organic basis is extremely strong.

And we think this is an appropriate action to take we could easily put that back in right in our base growth would go up by 100 bps, but this is the right thing to do for all stakeholders over the long term and we will be creating significant value and has not impacted our bottom line performance at all.

They're onetime in nature.

Thank you very much.

Thank you. Thank you.

We will take our final question from Rick Wise with Stifel. Please go ahead.

Good morning.

Good morning, good morning.

Tom.

You highlighted multiple times.

<unk>.

On.

Other things on transformative solutions M&A portfolio.

And you and excellent Chief Financial Officer, both highlighted the balance sheet strength as maybe I think the language was new lever.

Right now what's your sense of urgency on the external technology M&A front, how do you view your current opportunities and.

Does the collapse in <unk>.

Tech valuations.

Multiple compression.

Does that present more opportunities just how are you thinking about it.

Great question, Rick and great to connect so.

And I agree we have a very strong CFO by the way that's not too but.

So we do have a very strong funnel and continue to be very focused specifically on tuck in M&A no change to our strategy. There as we've articulated many times, we're going to continue to focus our M&A as we have over 95% of our M&A to date has been in those transformative solution categories as you called out <unk>.

Connected care, enabling the shift to new care settings, and improving outcomes and chronic disease. We've also shared that expect more perata like in size tuck in M&A is as we look look forward. So it may not be we've done 19 in the last two and a half years, maybe fewer deals going forward, but of larger scale and impact.

Given the benefits that we have and the execution that the businesses are focused on the ones that we've done to date.

I'd say that.

The other thing is we're going to continue our very disciplined approach to M&A really proud of the team not just for the deals that we've done but from the deals that we've walked away from.

That's something we've we're really pleased with the work that we've done and how our deals are executing the plan and the return that they are delivering for our shareholders in a meaningful way and so we're going to keep that discipline as as well, but we do see opportunities.

But we.

We will continue to be paced and appropriate about it as we go forward and staying very true to advancing our strategy continuing to move us into those higher growth markets and you see us being very active on our portfolio management not only through M&A, but obviously completing the spin of <unk> earlier this year and some of the <unk>.

<unk> targeted one time portfolio exits that we shared today that are basically puts and takes with that.

The inorganic growth that we see coming this year.

Yes.

Yes, Thank you and maybe just one final one for me I thought it would be.

Interesting to hear from you.

Mike and Rick since you've had them under the bus a little bit.

<unk> their names.

Hi.

Yes.

Mike in your new role as BD medical and Rick on the interventional side.

Boston said growth and meaningful outcomes is a priority, but I'd be curious to hear about your key priorities.

When we speak this time next year.

What are your plans for this year and what should we expect to see.

Over the coming year, we can pretend toms not listening.

Yeah.

Thanks, Eric This is Mike.

Yes.

My priority is the same as it was in the MMS role is getting <unk> back to market, it's a top priority for the company.

And so it remains my top priority.

And that.

A lot of it has to do with making sure that our innovations productive.

The dollars that we're spending in R&D get value out to customers.

And because innovation that never makes it to a customer is in productive at all.

I think that constantly.

Creating a culture, where we're developing and coaching our talent.

To be better each day and have a continuous improvement mentality.

That's really critical especially in the current environment. The same way that our customers are facing labor pressures, we are too and so if we're the best place to work and people feel that they can belong.

To a greater purpose that we provide I think that's really really important and then finally I think that there is just.

An approach to leadership that I hope that we have a performance based culture of commitment so that whenever we make a commitment we meet the commitment.

And we keep our mindset.

Around that so maybe a bit of a lean processes, but in an abundant mindset would be the way that I'd think about it and I'm really.

Last thing is Rick Rick actually interviewed me and hired me 18 years ago. So.

Everything I have I odor, Rick so thanks, Rick.

Two kind of timeline.

So Rick Thanks for the question, so as I round out pretty much 60 days in the role.

I'm truly inspired by the opportunity that we have in BVI to collectively enhance patients' lives. So.

Innovations like pure week phase <unk> de Novo.

To name a few are truly life changes for patients and then.

Also as I go around the business the commitment the capability of the team from our salesperson R&D manufacturing technicians in the plant doesn't matter everyone is really focused on the patient and so.

First.

As Chris mentioned, and we had a great year PDI grew at seven 1%, which is at the high end of our.

Our long range plan and again as we said our commitment there for next year is right. There again. So we're on track for that long range plan. So my priority is key.

Keep driving these innovations keep meeting our commitments as a segment and.

We continue to have a different than chronic disease treatment and then on the on the associates within BD and then all the customers that we serve so really a great opportunity and I appreciate the question.

I think maybe just share one of the other things is as we said within the quarter we saw.

Some back orders in BVI and one of the things that Rick just.

Focusing on helping the team is bringing some of the operational excellence from adding let mds for many years, bringing some of those capabilities from the broader BD operating side into the BDA segment, and then maybe just a couple of comments there.

Great No I think we have a great opportunity to improve the supply chain to given an example of.

The ERP system upgrade finally, bringing in fully integrating <unk> into into the BD system as well these are going to provide efficiencies to home.

Deliver.

Thanks to our customers reliably on time and things like that so again I've spent a lot of my time first off.

PDI looking at opportunities that we can continue to streamline things drive operational effectiveness exactly so thanks, Bob for that probably the great benefits of obviously being able to rotate talent across diverse groups of businesses and I think ricks background as everyone knows Mds is probably the most operationally.

Heavy business within the company just given the $1 billion of products, we make on syringes, and catheters, and bringing that where the BVI businesses had been very innovation, driven and growth driven very nice complimentary scale and leadership to be able to bring in.

Those capabilities over so great question. Thanks, Yeah. Thanks, Rick for the question.

Okay.

And there are no further questions at this time I will turn the call back over to Tom Polen for any closing remarks.

Thank you everyone for the very good questions today I just wanted to take a moment and thank our team again around the world for an extremely strong FY 'twenty to a challenging macro environment and all of the work and sacrifice that all of our 75000 associates around the world have made this past year.

To deliver for our customers and the patients that we mutually serve.

Obviously, we've outlined a very strong outlook for FY 'twenty, three and we look forward to continuing to focus relentlessly on executing our BD 2025 strategy and bring that to life. So thank you very much and have a great rest of the day.

Thank you and this does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day.

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On <unk> Investor Relations website on BD Dot com.

On the phone at <unk> 634 to 8591 for domestic calls and area code plus 12035189713 for international calls.

<unk> are now dedicated to you no longer need a conference 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 <unk> Dot com.

Earlier. This morning, <unk> released its results for the fourth quarter and full year 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 BD 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.

<unk> will then provide additional details on our FY 'twenty, two financial performance and our guidance for fiscal 2023.

Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment Presidents, Mike Garrison President of the medical segment, Dave Hickey President of the life Sciences segment, and Rick <unk> President of the Interventional segment.

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.

In addition, the results and guidance we are presenting today are in a continuing operations basis, which exclude the historical results of <unk>, which are accounted for as discontinued operations.

When we refer to any given period, we are referring to the fiscal period, unless we specifically note it as a <unk>.

Calendar period.

Thanks, Francesca and good morning, everyone and thank you for joining us I am extremely proud of our organization and our performance. This year, we closed the year with excellent momentum, having delivered strong and consistent growth in our base business for the full fiscal year, we exceeded our revenue and earnings guidance and achieved our margin expansion goal.

Our performance this year confirms BD 2025 is the right strategy and it's working.

Our results reflect our strategy in action and the focused execution and dedication of our global teams, who reliably served our customers controlled costs and increased productivity during a challenging environment.

At Investor Day in November 2021, we outlined our plan to build sustained shareholder value creation in five key focus areas today I am pleased to review the progress we've made to achieve this plan.

We delivered consistent performance and Durably strengthened our growth profile, our FY 'twenty two results are on track with our long range targets to deliver five five.

<unk> top line and double digit EPS growth with operating margin improvement back toward our pre pandemic level.

In FY 'twenty, two we drove nine 4% revenue growth in our base business.

Additionally, we achieved our margin expansion goals in an increasing inflationary environment.

Both leveraging our revenue performance and realizing savings and efficiencies from several of our multi year simplification and cost improvement initiatives.

As a result, we delivered $11 35, and adjusted diluted EPS.

Second we continued to reshape our portfolio by advancing our innovation pipeline and M&A strategy towards higher growth markets.

We believe our current pipeline is the most exciting in the history of the company.

In addition, we deployed over $2 billion this year towards six tuck in acquisitions, all of which were allocated towards higher growth markets. This.

This includes product systems, our largest acquisition since barred which is aligned to our focus on smart connected care and enabling new care settings.

<unk> the global leader in the SaaS growing pharmacy automation market enables us to provide solutions to help pharmacies address rising costs and labor shortages.

With today's transformative solutions from pharmacy automation.

<unk> drug delivery devices to high throughput molecular diagnostic systems, and new dies in instruments for immuno oncology and multi omics research to at home solutions for urinary incontinence, we are systematically creating a new wave of future growth for BD.

Third we executed our simplification programs and managed our cost structure.

Like every other company, we face tremendous inflationary pressure.

We saw the pressure coming early on and we took action immediately putting in place an inflation task force to attack it from every side.

We also prioritized, our internal cost reduction programs and significantly leveraged our selling and G&A expense.

<unk> strong operating leverage.

In addition, we actively managed our portfolio, including spinning and Baxter as well as exiting more than 2500 Skus as we accelerated our project re code initiatives to simplify our portfolio and exit products that add complexity in our plants.

And finally, as we drove strong revenue growth beyond our original expectations, we leveraged our scale and excellence in manufacturing as volumes in our plants recovered from FY 2020, one lows due to COVID-19 disruptions and procedures.

Fourth we maintained a disciplined and balanced capital deployment strategy over.

Over the last few years, we significantly strengthened our balance sheet and improve flexibility and this has allowed us to advance our balanced capital allocation framework and support growth enhancing investments in capital R&D and tuck in M&A.

Now at two eight times net leverage in both Moody's and Fitch upgraded our debt this year, reflecting the strength of our business and disciplined approach on balance sheet management and capital deployment.

Also this framework gave us the flexibility to return capital to shareholders.

We just announced our 50 <unk> consecutive year of dividend increases continuing our longstanding recognition as a member of the S&P 500 dividend aristocrats index, a distinction that reflects the consistency and reliability of our dividend policy.

And finally, our strong teams continued to execute and create value even during uncertain times.

Our execution in FY 'twenty two is a testament to our growth mindset at BD, where we firmly believe there is nothing we can't do.

Things, we haven't done yet and.

And by navigating successfully the challenging macro environment.

Our distinguishing BD and supporting our ability to consistently deliver strong performance.

These capabilities are now all embedded in our operating principles and with the strong execution abilities across our network. They are having a positive impact on our overall cost effectiveness responsiveness and sustainability.

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

In FY 'twenty, two we significantly advanced our innovation pipeline launching 25 key new products.

We are on track to achieve our new product revenue contribution as outlined at Investor day, and are increasing our portfolio weighting in attractive faster growing markets.

Our product launches reinforce our leadership position in our durable core and expand our offering and higher growth spaces across smart connected care, enabling new care settings, and improving outcomes for chronic disease.

These launches strengthened our position in strategic areas such as medication safety.

Immunology research reagents, molecular and point of care diagnostics peripheral vascular disease and in continents.

<unk> include positive flush safe scrub, our next generation flash product.

Preview, our peripheral vascular access system.

<unk> core are fully automated high throughput molecular system and related women's health and STI assays and the pure weak male external catheter.

I am excited by the progress we've made advancing our innovation driven growth strategy and the strides we've made to improve outcomes for patients and providers and create value for our stakeholders.

I'll now share a few updates on the progress our team made this year to advance our ESG strategy and goals.

Together, we advance serves as a framework for our ESG strategy.

In July we published our 2021 ESG report, which provides details about our ESG strategy and progress against our 2030 commitments.

Highlights include the launch of the BD sustainable Medical Technology Institute.

Efforts to reduce our greenhouse gas emission, including joining the UN race to zero and increasing our investments in on site renewable energy.

Just last month BD in Sandy, Utah was awarded the Blue Sky Legacy award for making significant strides towards Utah's environmental sustainability.

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

We also made progress on our workforce and Eagles, ending FY 'twenty, two with increased diversity at the executive and management levels, and we remain committed to having an inclusive workplace.

We're proud to receive continued recognition for our ESG efforts. Most recently, we were named to Forbes 2022 list of the world's best employers.

Our recognition of BD as a great place for the world's best talent to <unk>.

Work as part of a healthy and inclusive community.

Before I turn it over to Chris.

As we look forward to FY 'twenty, three I would like to provide some perspective on the macro environment.

And BT <unk> 2025, as we move towards the second half of our strategic plan period.

Starting with the macro environment.

Our BD 2025 strategy and the capabilities, we have built over the past two years position us well to navigate what we expect to be some persistent macro challenges and uncertainty facing all companies.

We reiterate our conviction in the three irreversible forces shaping healthcare and our strategy to address them.

For example, as it relates to smart connected care.

There's an increasing need for digitalization and automation of healthcare processes as providers look for ways to increase efficiency and address the labor and inflationary challenges rigor.

Regarding inflation and supply chain, our perspective continues to be the challenges are going to persist not escalate at least through 2023.

And although inflation could potentially start easing somewhat we do expect that we'll remain well above what we have seen historically.

Companies that have processes systems and capabilities to navigate this environment will continue to thrive over the next couple of years.

And as we move forward you can expect to see continued relentless focus on execution of BD 2025, which will continue to serve as our true north.

And this includes delivering impactful innovations for our customers by expanding our leadership positions in our durable core.

And continuing to invest to expand our portfolio into higher growth areas that are transforming health care.

In addition, <unk> remains our number one priority and we're making good progress.

We don't comment on the status of the review or approval timing, we are taking all the steps necessary to provide the required regulatory information and support our customers upon clearance.

We will continue to focus on initiatives to return our margin profile to FY 19, pre pandemic levels in FY 'twenty five.

This includes accelerating initiatives like project re code, including our efforts around operating model simplification, resulting in BD, becoming a more agile and less complex organization.

We expect to continue our balanced approach to capital deployment.

Our priorities include investing in our business through R&D and Capex after investing organically and returning value through dividends we.

We will continue to execute our tuck in M&A strategy and returned value to shareholders through share repurchases.

We expect to continue to stay ahead of the curve as we navigate the macro environment.

<unk> the capabilities, we have built that are now embedded in our operating principles.

We recently celebrated <unk> 125th year anniversary as a company.

Demonstrating our durable model underpinned by our tradition of relentless focus on innovation and operational excellence.

We're really excited about what the future holds and with the performance of our global teams, we will continue to grow our impact on customers and patients.

And advance the world of health.

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

Thanks, Tom.

Echoing Tom's comments, we delivered strong consistent results this fiscal year, which reflects our growth strategy playing out as planned.

Through execution of our BD 2025 strategy, we are fulfilling our short term commitments, while progressing towards our long term goals.

Beginning with our revenue performance, we exceeded our revenue growth expectations for the fourth quarter and full year.

We delivered $4 $8 billion in revenue in Q4 with base business growth of eight 6% were six 8% organic.

Parodic contributed about 140 basis points to growth in the quarter and about 40 basis points to the full year.

Covid only testing revenues were $37 million, which as expected declined from $316 million last year.

For the full fiscal year, we delivered $18 $9 billion in revenue with base business growth of nine 4% or eight 5% organic.

Covid only testing revenues were $511 million, which as expected declined from $2 billion last year.

Total company base business growth was strong across all three segments with double digit growth in BD life Sciences at high single digit growth in BD medical and BD interventional.

Base revenue growth was strong regionally as well with double digit growth in the U S, China, and Latin America, along with high single digit growth in EMEA.

We also continue to benefit from the organic contribution from tuck in acquisitions, we anniversaried.

Which was about 20 basis points for the full year.

Let me now provide some high level insight into each segment's performance in the quarter.

Further detail can be found in today's earnings announcement and presentation.

BD medical revenue totaled $2 $4 billion in the fourth quarter growing 10, 2% with strong performance across the segment.

Growth was driven by strong growth in Mds of 8%.

Driven by continued execution of our comprehensive vascular access management strategy.

MMS growth of 11, 5% driven by strong demand of our connected medication management and pharmacy automation strategies, including our recent acquisition of Parana as customers focus on automation to drive efficiency to help address the constrained labor market.

And another quarter of double digit growth of 12, 8% in pharmaceutical systems based on our strong leadership position in <unk> solutions for biologics and vaccines.

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

The decline of 11, 6% year over year is due to the expected lower COVID-19 only testing revenues previously discussed.

Excluding COVID-19 only testing life Sciences based revenues grew eight 3% with strong growth across both Ibs and biosciences.

BD interventional revenues totaled $1 1 billion in the fourth quarter growing five 7%.

Growth was driven by surgery growth of five 4%.

Supported by our advanced repair and reconstruction portfolio with strong market adoption of our leading basics hernia products.

<unk> growth of four 8%, which reflects continued expansion of our venous portfolio.

Highlighted by <unk> in the U S and the global relaunch of Lenovo.

<unk> performance also reflects increased back orders primarily related to our BVI specific European ERP system implementation.

Urology growth of seven 2% reflects continued strong demand for our pure with female incontinence solutions in both acute.

And alternative care settings.

Now moving to our P&L Q.

Q4, adjusted diluted EPS of $2 75.

Increased 28%.

Base business gross margin of 52, 5%.

Up 80 basis points and base operating margin of 22, 5% was up 430 basis points year over year.

Full year adjusted diluted EPS of $11 35.

Grew <unk> six.

6%.

As we anticipated we made significant progress towards achieving our pre pandemic margin improvement goals, despite increasing inflation pressures.

For the full year base business gross margin of 53, 4% was up 110 basis points and base operating margin of 22, 4% was up 280 basis points.

The key full year drivers of gross margin include our simplification and inflation mitigation initiatives and increased volume utilization given our strong base revenue growth.

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

To put this in perspective shipping expense increased at a double digit rate and our base business.

This is a testament to the tremendous work by our organization to mitigate inflation and execute our margin enhancement initiatives.

This was also a key enabler and supporting continued investment in R&D at just over 6% of sales to advance our innovation pipeline.

Regarding our cash and capital allocation.

Cash flows from operations totaled approximately $2 5 billion.

In FY 'twenty two.

Operating cash flow reflects a higher inventory balance of about $600 million year over year.

The increase reflects the impact of inflation longer in transit lead times.

And our strategic investments in raw materials to optimize product delivery.

To meet customer demand.

As expected our free cash flow conversion. This year was below our long term target.

We remain very focused on cash flow conversion and we are taking actions to moderate inventory down but.

But in the short term, we believe it's a prudent tradeoff to ensure we support our customers while delivering strong results.

As we execute against our BD 2025 strategy and supply chain constraints normalize.

We expect to migrate towards our long term cash conversion target.

Beyond our investments in growth consistent with what we shared regarding the planned use of impact of proceeds we paid down $500 million in long term debt. This fiscal year and returned $1 6 billion in capital to shareholders through dividends and share repurchases.

We ended the year with a cash balance of $1 billion.

And our net leverage ratio of two eight times.

Okay.

Moving to our guidance for fiscal 'twenty three.

For your convenience the detailed assumptions underlying our guidance can also be found in our presentation.

Our FY 'twenty three guidance aligns with the framework, we communicated last quarter and the value creation model and long term targets, we outlined at our Investor day to deliver five 5% plus base revenue growth continued margin improvement and double digit base earnings growth on a currency neutral basis.

Okay.

As a reminder, we manage our business on a currency neutral basis to best represent underlying performance consistent with what other companies are discussing in their forward outlook. We are accounting for a headwind to our reported results as we translate currency to a stronger U S. Dollar.

Beyond that change our guidance has only strengthened in a complex macro environment, where we continue to see elevated inflation and geopolitical uncertainty.

Starting with revenues I'll provide you some insights into some of our key guidance assumptions.

First on a currency neutral basis, we expect base revenues to grow five 5% to 625%, which is a strong growth of 575% at the midpoint.

This midpoint is above our five 5% plus target we outlined during our Investor day, given the confidence we have in our strengthening growth profile.

Our revenue guidance includes two proactive strategic portfolio management actions that are consistent with our <unk> 2025 strategy and support our value creation goals.

Okay.

Yeah.

First building on our FY 'twenty two achievements our base revenue guidance includes planned strategic portfolio exits as part of the acceleration of our portfolio simplification and Rico programs.

These actions will enable increasing manufacturing efficiency and capacity and ensure the reliable supply of the products that matter the most to our customers.

We expect these actions to impact revenue by approximately 100 basis points, while being accretive to margin.

Second offsetting this revenue impact is a positive contribution of approximately 100 basis points from the full year benefit of our recent acquisitions with Toronto being the predominant driver.

We will continue to be active in portfolio management as a lever to create value for all stakeholders.

While we arent providing segment specific guidance, we are on track to achieve our long range plan commitments and we are assuming strong performance across the segments in FY 'twenty three.

We expect medical segment growth to be above total company range, which includes the acquisition of Corona light.

Life Sciences' growth to be below given strong prior year comparisons and interventional to be at the high end of the range.

For the full year.

Regarding <unk> consistent with what we've done in the past we were only modeling shipments related to medical necessity.

While we will be prepared when clearance is received we continue to anticipate a gradual ramp to revenues upon clearance.

Regarding our assumptions on earnings.

We expect operating margins to improve by at least 100 basis points over the 22, 6% reported in FY 'twenty two.

Make meaningful progress to achieving pre pandemic operating margin levels of about 25%.

FY 'twenty five.

First to give you some color on inflationary assumptions as a reminder, outsized inflation in FY 'twenty two was a headwind of over 200 basis points and we expect a similar level of incremental outsized inflation in FY 'twenty three.

The primary drivers of the incremental inflation, our raw material costs and labor, which are about equally weighted.

Labor cost, especially in our manufacturing plants have continued to increase.

We have taken proactive actions to ensure we are differentiating BD to retain our skilled workforce.

Lastly, transportation costs have stabilized and we've begun to see some downward movement on certain rates high.

However, we are still above more normalized levels.

We remain committed to leading through the macro complexity, while making investments to support our customers.

To offset these inflationary impacts we continue to leverage our strong growth profile and drive outsized cost reduction and other mitigation programs.

We expect over 80% of the improvement in operating margin to come from SG&A.

Driven by internal cost containment and leveraging.

The balance is expected to come from slight improvement in gross margin and R&D as we normalize back closer to our target of 6% of sales.

Okay.

Our simplification initiatives include continuing to execute on project re code.

In addition to provide some color below operating income we expect.

An increase of approximately $50 million to $75 million in interest other.

This is primarily driven by increased pension expense, which we fully covered in our guidance and as a result of the negative movement in the financial markets.

For tax based on what we know today, assuming no major legislative or regulatory changes.

We expect our adjusted effective tax rate to be between $13 five.

14, 5%.

It would not be unusual for our rates will fluctuate above or below this range on a quarterly basis, given the timing of discrete items.

Our guidance assumes no material change in average common shares outstanding from our average FY 'twenty two share balance.

This takes into account the conversion of all outstanding preferred shares on June one.

2023 to.

The benefit from the FY 'twenty two share repurchase associated with the use of the <unk> distribution.

And our commitment to mitigate the dilution from share based compensation.

So on an all in basis, we expect adjusted EPS before the impact of currency to be around double digit growth and within a range of approximately 9% to 11%.

This includes absorbing about a 300 basis point headwind from.

The anticipated decline in cobot only testing.

And as a result implies a very strong low teens base earnings growth of approximately 12% to 14%.

Let me now walk you through the estimated impact from currency.

As a reminder, we manage our business and provide guidance on an operational basis will provide perspective on currency using current spot rates.

Since our last call in August the U S dollar strengthened against all major currencies.

Based on current spot rates for illustrative purposes currency is now estimated to be a headwind of approximately 450 basis points or about $850 million to total company revenues on a full year basis.

This currency headwind has nearly doubled since our August call.

Our guidance assumes the euro at <unk>, 99, which is down about 4% since August .

The Chinese one Japanese yen.

British pound.

In Canadian dollar have also all declined even more than the euro since August .

By almost two times the euro movement.

For context. These four currencies combined are in line with our total euro exposure.

The currency headwind to EPS growth.

It is also nearly doubled since our August earnings call.

At current rates currency would represent a total headwind of approximately 420 basis points to.

To adjusted EPS growth.

All in including the estimated impact of currency, we expect revenues to be between approximately $18 six to $18 8 billion.

And adjusted EPS to be in a range of $11 85 to.

To $12 10.

As you think of fiscal 'twenty three phasing there are three key items to consider.

First FX at current spot rates, we expect the headwind to revenue will be over indexed to the first half.

For the full year, we expect the drop through to earnings to be below our Bds operating margin.

Due to the expected benefit from inventory flow through in Q1, the drop through is expected to start well below the full year average and most significantly impact the second and third quarters.

Second is the grow over impact of Covid related dynamics.

In addition, there is also a comp to strong first half performance in FY 'twenty two.

<unk> two combo testing in the base business.

And the third is inflation nearly 40% of the full year inflation headwind is expected to occur in Q1.

As we sell through inventory manufactured in FY 'twenty two in the first half of the year.

As a result of these items as you think of the progression of our total operating margin expansion through the year for Q1, you should expect a year over year decline.

Given primarily by the year over year comparison of higher Covid only testing.

We expect operating expansion to ramp over the remainder of the year with the majority occurring in the second half.

As a reminder, there were some tough comparisons to the prior year in Q1, such as the benefit of about $50 million in licensing revenues in life Sciences.

As a result of these dynamics, we expect Q1 base revenue growth and adjusted EPS to be under indexed relative to an equal quarterly phasing of the full year.

So this guide coupled with our FY 'twenty. Two results has is progressing very well towards our FY 'twenty five goals, including.

Two year revenue CAGR, assuming the FY 'twenty three midpoint of 575%.

As well above the five 5% plus target at around seven 5%.

Achievement of nearly 400 basis points of margin improvement, where over 70% of the way towards our FY 'twenty five objectives.

And two consecutive years of strong double digit adjusted earnings growth in our base business.

In closing we are very pleased with our performance, particularly given the macro complexity and inflationary pressure we navigated the.

The consistent execution, we delivered and our ability to mitigate these challenges through FY 'twenty two enabled our 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.

I'd like to thank our associates worldwide once again for their tireless commitment to our purpose of advancing the world of health.

Before I turn it to Q&A.

I want to officially congratulate and welcome Mike and Rick to their new roles, leading the medical and interventional segments respectively.

Both Mike and Rick are highly effective leaders, who have demonstrated strategic and operational excellence and their nearly two decades at BD.

Theyre broad experiences across multiple BD businesses and segments.

<unk> them well for their new roles as we advance our growth agenda and build bd's future.

With that let's start the Q&A session.

Operator can you assemble our queue.

We ask that while you pose your question. Please pickup your handset to provide optimal sound quality. Thank you and our first question is coming from Larry <unk> with Wells Fargo. Please go ahead.

Good morning, Thanks for taking the question and congratulations on a strong finish to the year.

First for Chris on.

On the topline guidance it implies only about $4 seven 5% excluding perata in testing.

Yes sure Larry Thanks for the question.

We're very pleased with our growth rate.

Coupled with the actually organic contribution from the tuck in M&A that we're starting to see as we anniversary Act.

Acquisitions more than a year, there's about a 20 basis point contribution to growth.

So as you noted nine for this year really strong year in a year by the way, where we actually had an increase in complex environment, our ability to grow double digits in China. As an example, with some of the dynamics, we saw play out there eight 5% organic.

Comping over that nine 4%.

This is well above our 505, plus even if you adjust out from an inorganic standpoint, the growth is still at about 7%.

So I also think it's a strong indication that were actually consistently delivering this growth.

On the strategic portfolio exits, let me give some color, though this is a bit different and it's certainly consistent with our simplification strategies.

And really it's the strength of our underlying business and a strong growth outlook that allows us to take these strategic bold actions to create value for our customers and our shareholders.

These are the kinds of things that investors should want us to do and we're very fortunate to be able to take this opportunity.

Consistent with our relentless focus on portfolio and what we're essentially doing different from SKU rationalization, which is really.

Simplifying the Skus that we go to market with the require work investment re registrations et cetera. These are pure portfolio exits you almost need to think of them. It's a one time kind of divestitures. We took a step back looked at our portfolio trying to understand where we can best create value again, both through the lens of our customer and through the.

Lens of our investors.

So these are areas for example that would fit a typical divestiture growth profile. These are not accretive to growth.

These are significantly dilutive to margin.

In many cases, well below half our existing margin rate.

And the right thing to do I would also point to the fact that while these were dilutive to margin they did actually benefit our earnings and.

And so we had absorbed that in a very strong earnings guide right. When you think of our bottom line of 9% to 11% double digits at the midpoint on an FX neutral basis.

Our underlying business I actually think it's fair to.

Think of that 1% impact roughly differently almost like an inorganic adjustment.

The rest of our portfolio continues to perform strong as a matter of fact, we.

If you look at the $5 75, it's above the 505 mid point and then I'll go back to the two year, which is again on an organic basis over 7%.

So hopefully that helps kind of explaining that part of the guide we feel great about our revenue and certainly feel good about the bottom line.

That's very helpful and just one follow up it's been about the comments on <unk> were encouraging.

In your prepared remarks, it's been about a year and a half since you filed what can you share about the review process.

Still confident you can bring <unk> back before 2025 since I think the BD 25 margin target assumes about 80% 80 basis points contribution from Larry Thanks for taking the questions. Yes, good morning, Larry and it's always great to create to connect.

As you said and as we've shared in the past the relaunch of <unk> is included within our strategic plan as we provided at Investor Day, and there is no change to that.

We just as I mentioned before.

Not predict those timelines, but we are prepared for launch when that clearance.

It comes so that we can best support our customers and as you know we did launch <unk> the new <unk> pump in.

In Canada, this past year, and we're getting very positive feedback from customers. There. So thank you for the question.

Okay.

And we will take our next question from Vijay Kumar with Evercore ISI. Please go ahead.

Hey, guys. Thanks for taking my question.

One Chris maybe I wanted to start with guidance and I had one for Tom on the guidance.

What.

I guess, what are you assuming for vaccine that vaccine.

Vaccines for $150 million of contribution in fiscal 'twenty two does.

Or is that zero is that a headwind.

And the <unk> emergency use is that similar to fiscal 'twenty two is that below.

And related to that I think.

And I think in the past you've said active discussions with the FDA Hasnt change.

Active discussions with the FDA relative to LLS.

Hey, Jay Good morning. This is Tom So no. We continue to have active discussions with the FDA on awareness and as I mentioned things are progressing towards our process and it will obviously give an update when we get ultimately clearance on that but we don't want to try to predict the timing on that and so therefore again as we have been.

And to your question on vaccines it as a headwind in 'twenty three that we're jumping over there.

Relatively limited vaccination.

Demand ongoing four for Covid and so that's definitely a headwind that we're jumping over in Mds, but we have that covered.

Understood and Tom Sorry can you quantify what the headwind is related to that sorry, My second question here.

It looks like your pro forma organic here was really strong perhaps in the teens.

Maybe talk about what's driving the strong contribution from product and is that part of the revenue synergies as far as the deal.

P J so on.

On the Hypo, we won't share the specific number there but it is.

There's very limited revenue vaccine related and hydro that we have planned for 23 related to Friday, you're right very strong performance in parana.

At or slightly ahead of our deal model on that so we're off to a great start and we're seeing really strong demand and let me turn it over to Mike garrison here.

Of course led that that acquisition when he was leading MMS and now continues to be over that is leading the medical segments. So Mike.

Yes, Hi, Vijay Thanks for the question on product yet we're very excited about product also the med keeper of the Med bank acquisitions that are in the portfolio.

30 days.

Of working with the teams and then we also set up an integration management office within MMS with some of our senior leaders to really guide and focus in each individual work stream across the functions to make sure that the acquisition goes well out of the gate.

Fantastic. Thank you guys.

Sure.

And we will take our next question from Robbie Marcus with Jpmorgan. Please go ahead.

Oh, great. Thanks for taking the questions maybe.

Maybe to follow up on some of the 'twenty three guidance questions.

I was wondering if you could help us with some detail maybe around what youre, assuming for the Covid flu combo tests, we're off to the worst start of flu in over a decade, so what what youre assuming in there or just for flu in fiscal 'twenty, three and remind us where those tests ended up on sales and <unk>.

Fiscal 'twenty two.

And also how do we think about pro rata down the P&L. It's a 100 bps on the topline just remind us of what you're assuming on the bottom line for that thanks.

Yes. Thanks, Robbie appreciate it yes, I can take the <unk> question as it relates to the margin and then either Dave <unk>, Tom can maybe talk about Covid flu, how we're thinking about it.

<unk>, what we've shared publicly is it was immediately accretive.

To BD, we werent specific with the amount, but actually we did say, it's actually even accretive to our long range outlook.

Which is think of it is that about 25% from an operating margin. So it is certainly a positive contributor on the bottom line.

Well just just reinforce remember as you think of our total all in so proud I think is a great example of adding a strategic asset with strong growth profile strong accretion on the margin standpoint, we did have to jump over the COVID-19 only which was.

$300 million plus drag on the top line that also had a higher slightly higher margin profile.

I think when you look at our total guide at 9% to 11%, that's very strong and when you kind of reverse into the math, we had shared that the COVID-19 only was about a 300 basis points headwinds in total it implies a 12% to 14%.

This earnings growth profile, which is really strong well very consistent with what we shared in Investor day, especially again in an inflationary environment, where we're going to have similar levels of inflation year over year.

Robbie This is Tom good to connect this morning, and we've got Dave on the call down in.

With our Latin America team at the kickoff meeting but ill.

Tag Tag Dave into the conversation here in just a moment, but.

Related to flu combo. So we are in our assumptions we do have.

That moderating a bit versus this past year, where we saw a lot of demand for the flu COVID-19 combo driven by Covid.

To your point there is the potential we don't see it as significant of a demand driven by the Covid side of the combo test necessarily as we look going forward in 'twenty three.

They can be a greater potential for the flu side demand in differentiating between flu and Covid I think as you said, it's off to an early start the flu season still to be determined the scale of it in Australia. We saw an early start to the season, but we saw it very narrow onetime peak and that demand and so actually the area under the curve.

It was less than than normal.

So there was a severe very short flu season in Australia that did not end up creating significant demand and testing because it was such a short duration still to be determined how that rolls out in the U S until we want to be prudent upfront, maybe Dave I'll turn it to you to share some more commentary.

Yes. Thanks.

Tom.

Robbie Thanks for the question.

Just to get into answering that I just given this is my first chance on the Q&A here I do want to just recognize inside the life Sciences team globally and all the associated for.

Another outstanding year in fiscal 'twenty, two I mean, you saw the quarter growth of over 8%.

Record base growth of 13, 8% for the year so.

Life Sciences continues to be strong.

Full respiratory I'll just build upon.

What <unk> said is <unk>.

Do you think about it pre pandemic, we were always in this range right of the $75 million to 100, we would considering a normal flu season I think also to remember that that was on virtual only.

We have not really anticipated all seen a normal flu season during the pandemic. It's all definitely in October we are seeing more visits too.

Urgent care centers and things on influenza like illness.

But again when you look at it we think the season has started about eight to nine weeks early.

Very quickly in Australia, so it's a little bit early to call. What it would look like I think if we were looking at the range for this year.

Based on just leverage at the very top of our installed base, we would expect that so.

That flu range, although very small base to be about $130 million to $150 million.

Shan and raw materials costs or any of those other headwinds if you could put any framework surround.

And then how do we think about FX on the operating margin line as a negative thanks a lot.

Ravi Thanks, So yeah as it relates to a 100 basis points. As you noted definitely another strong year of margin enhancement that will put us about 70% on track to deliver against our FY 'twenty five goal of about 25%, So really strong progress having delivered almost.

Half of that in the first year.

So not only do we feel good about what we delivered last year, continuing that momentum in driving towards our long term objectives.

Yes. There is there is a couple of ways to think about one the predominant driver of margin improvement. This year is really going to be leveraging our strong growth profile focused on cost containment more at the operating margin level and selling and G&A.

So that's that's about 80% plus of that 100 basis points improvement that we're expecting the.

The balance is really there is a little bit of moderating R&D back to our 6% goal, we've actually been over indexed two years in that area.

So obviously like other areas you'd expect to without impacting project spend.

Average year base with a strong growth profile to 6% is a good outcome. There the balance which is which is really minor then as in GP. So GP youre going to kind of see that's where we are experiencing most of the inflationary impacts.

Matter of fact, you're seeing a little bit of relief in shipping, it's still above historic what we'd call normal levels.

Youre seeing some benefit there as well that that's playing out mostly in the operating margin side.

As it relates to where we're seeing the most inflationary pressures, it's still raw materials.

It's shifted a bit more from kind of Reg resins to other materials.

Such as packaging would be an example.

We do have a carryover effect to of the inventory that was built in 2002.

And so a lot of that will hit in the first half of the year.

And the other big area, where you still continue to say I would say escalating pressures is labor.

So labor and raw materials is about 50 50, each of what we're realizing in GP.

Obviously, we're taking a ton of action within GP, probably in this order in terms of how we think of them not necessarily size, but as we always think of driving cost improvement one it starts with our growth profile outsized volume in our plants leveraging our plants.

Portfolio favorable mix to the extent, we can drive that outsized cost improvement again going back to our plant mindset as it relates to growth mindset and driving more efficiency.

And then other.

Factors, such such as prices as well would be part of that equation lastly.

So that's how we're thinking about inflation this year and what we're doing to mitigate it.

And we're very pleased with the progress that we've had year to date as it relates to FX, we gave some color.

Certainly the team can support you through that in more detail the.

The drop through from sales to earnings is slightly lower consistent with what we've shared in the past on a full year basis, youre going to see sort of quarterly phasing dynamics play out differently. Because you have the nuance of how FX impacts cost and inventory and.

And how that flows through you got that four to six month lag.

So youll see a little bit more favorability in the first half and it normalize to the full year drop through that we shared by the by the end.

That's great and maybe just to add to Chris's comments and it's good question Ravi.

Yes.

The last thing that we look to do in any situation is is price and so as you as you heard Chris walk through the order of priorities for us our plants really have risen and almost doubled the level of normal continuous improvement that we've done historically, they've risen to that task and working to offset as much of that cost.

As possible. The other thing is the action that we talked about earlier around that strategic portfolio exit as we were bringing in M&A and we have strong underlying growth taking this time to.

We're doing that this year and that's helping US also have a role in offsetting those inflationary pressures at making us more efficient in our plants and helping make sure that we can deliver the products that matter most that we're focusing our resources on delivering those products that matter most for our customers that are going to be driving value for us and our shareholders long term.

Thanks, a lot for taking the questions.

Okay.

And we will take our next question from Matt Taylor with Jefferies. Please go ahead.

Good morning, Matt.

Hey, good morning, Thank you for taking the question.

So I had two questions I guess the first one I wanted to ask was I know you.

You probably won't comment on litigation, but I was hoping you could address.

And some of the ethylene oxide issues from two angles. One is maybe just talk about some of the things that you have done already with the regulatory agencies to work with them to mitigate risks there and to improve the plants and then any commentary you could make on litigation to get investors comfortable with that risk would be.

Helpful.

Sure Good question, Matt and I appreciate it so as you know <unk> is among the world's largest producers of medical products that are critical for patient care and our devices and products. They estimate FDA sterilization standards.

Just as background I think everyone's aware that numerous types of devices and other sensitive medical products for many of them eto as the only type of sterilization that can be used in fact about 50% of all medical products across the industry use eto for sterilization and the majority of those products they use etfs for <unk>.

Our realization.

Other sterilization methods will damage the products like radiation or steam or.

Best available Eto admissions control technology in the industry.

We achieved more than 90, 995% destruction of Eto from our stack admissions.

And in accordance with the broad FDA challenge, we continue to invest in cycle optimization, and eto technology upgrades extending outside of our plants now and.

And so we take the safety of our associates and the communities. We are in very seriously and therefore have a long history of proactively upgrading our emissions control technology supported by continuous investments backed here here. Good question. So if you go all the way back to even let's go back to $19 97, we proactively upgraded our emissions control equipment.

In Georgia, the thermal oxidizer. So all the way back then and began routing.

Back then exhaust in Georgia to the primary emissions control equipment, it's something that still isn't necessarily routine across the industry. Today, we are at the forefront of that.

And we're working with the FDA and other industry leaders to develop look at new sterilization cycles that could even take admissions down further than what's ever been possible before just as it relates to our outstanding litigation. There are no new cases that have been brought into the third quarter and we have not taken any accrual.

Thanks for the question.

Thank you I'll leave it there thank you very much.

And we'll take our next question from Josh Jennings with Cowen. Please go ahead.

Hi, good morning, Thanks for taking the questions.

Jeff.

Two for Chris just on.

<unk> I was hoping to just view.

It's the run rate of Polaris revenues in the U S on medical necessity shipments.

We're pre pre mediation.

Aviation that revenue run rate set and ultimately just thinking about what you are absorbing margin side without assuming that <unk> is not going to be back in play in the U S in fiscal 'twenty three.

What was the margin drag in 2022, and if there is a margin drag in 'twenty three.

Just how you're how you're maintaining.

The structure of Atlantis franchise to be ready for launch.

<unk> grid.

Well to fully commercialize again, thanks for taking the questions.

Yeah. Thanks, Josh appreciate it yeah. So I'll just start shell share some things that we've shared in the past.

One from a total sales point, we had always talked about that business being roughly $400 million as to way to think of it.

From a medical necessity standpoint, we've talked about a $100 million per year, that's what we had last year roughly in.

We're planning sort of consistently this year. So that gives you that kind of frame as you think of the size I will remind you win.

Palm clearance you would expect a gradual ramp over time, we have not shared a specific timeline, but thats hard to predict but maybe just to give it a little context. Some folks have sort of asked like okay. We're talking less than a year over year. It wouldn't be less linear would ramp up over some timeframe probably over 12 month period that should help you are live.

But certainly well within our LR <unk>.

Time period.

Margin, we haven't shared specifics by year, what we did share if you go back to the deleveraging that occurred from our FY 2019 there.

There was about an 80 basis point.

<unk> to our margin.

And is that largely stays the same and we will adjust.

As the product comes back if you think of it.

And maybe just one other thing to add Josh is.

As Chris mentioned, so we kept our commercial team we kept our service team, which as we relaunch again that we will see the positive flow through since those expenses are already on the P&L and the recovery of that that 80 bps of dilution that we currently have on the P&L just what there is a benefit that we're seeing right. Now is we're seeing very strong demand.

Other capital areas within MMS, particularly in the Pyxis area, where we're able to utilize some of those additional service.

Thanks, Tom.

Even though there is we recognize the tough economic environment.

And uncertainty there we're not experiencing the same degree of.

Capital pressure that maybe had been communicated.

Elsewhere.

In fact, we finished Q4 with a record year for bookings have a strong implementation schedule planned for 23.

And I think Theres a couple of reasons for that one is the strategy continues to resonate with the connected Med management solutions.

Again addressing the labor shortages in our ability to flex and implement both with business model, but also these highly skilled.

Service.

A lot of ex nurses excite people.

These are people that are customers are increasingly seeing the value of partnering with us because we can we can flex to meet their needs.

So both of those things I think are really helping we're getting a lot of utilization out of.

Out of the infusion side of the business.

Thanks, Mike Thanks for the question Josh.

Thanks, a lot.

And we will take our next question from Matthew Wilson with Keybanc. Please go ahead. Your line is open.

Hey, good morning, and thank you for taking the questions.

Just a clarification for me I think last quarter you said.

You would expect.

Organic revenue growth of at least five five plus percent.

Base growth not including product.

At that time, what are the strategic Act ethics included.

In that number or are they or are those new.

And if they were included.

Theres, a little bit of softness our logo velocity three months versus what you were thinking.

No I appreciate the question, yes that hasn't been contemplated at that point again, we took a hard look at our portfolio and the spirit of simplification.

This is different from our core re code program.

It has a different lens similar principles, but a very different lens in terms of.

Pure exit we really wanted to make sure we were focusing on our organization and higher value, creating areas and so this was an add.

And again I think there's so many puts and takes across the year looking at two year metric. However, you look at a 7% growth on an organic basis is extremely strong.

And we think this is inappropriate actions I think we could easily put that back in right in our base growth would go up by 100 bps, but this is the right thing to do for all stakeholders over the long term.

We will be creating significant value and has not impacted our bottom line performance at all and they're onetime in nature.

Thank you very much.

Thank you. Thank you.

We will take our final question from Rick Wise with Stifel. Please go ahead.

Good morning.

Good morning, good morning.

Tom.

You highlighted multiple times.

Focus.

On among other things on transformative solutions M&A portfolio.

<unk>.

And you and excellent Chief Financial Officer, both highlighted the balance sheet strength as maybe I think the language was new lever.

Alright.

What's your sense of urgency on the external technology M&A front, how do you view your current opportunities.

Sure.

Does the collapse.

Valuations multiple compression.

At present more opportunities just how are you thinking about it.

Great question, Rick and great to connect so.

And I agree we have a very strong CFO by the way that's not too but.

So we do have a very strong funnel and continue to be very focused specifically on tuck in M&A no change to our strategy there as we've articulated many times.

We're going to continue to focus our M&A as we have over 95% of our M&A to date has been in those transformative solution categories. As you called out smart connected care, enabling the shift to new care settings, and improving outcomes and chronic disease. We've also shared that expect more perata like in size tuck in M&A is as we look.

Look forward. So it may not be we've done 19 in the last two and a half years may be fewer deals going forward, but of larger scale and impact.

Given the benefits that we have and the execution that the businesses are focused on and the ones that we've done to date.

I'd say that.

The other thing is we're going to continue our very disciplined approach to M&A really proud of the team not just for the deals that we've done but from the deals that we've walked away from.

But.

Very targeted onetime portfolio exits that we shared today that are basically puts and takes with that.

On the inorganic growth that we see coming this year.

Yes.

Thank you for the question.

Thank you and maybe just one final one for me I thought it'd be interesting to hear from you.

Mike and Rick since you threw them under the bus and a little bit.

<unk> their names.

Okay.

Mike in your new role as BD.

Medical and Rick on the interventional side, the Boston said growth and meaningful outcomes is a priority, but I'd be curious to hear about your key priorities.

When we speak this time next year.

What are your plans for this year and what should we expect to see over the coming year, we can pretend toms not listening.

Yeah.

Thanks, Rick this is Mike.

Yes. So my priority is the same as it was in the MMS role is that getting <unk> back to market. It's a top priority for the company.

And so it remains my top priority.

Beyond that.

A lot of it has to do with making sure that our innovations productive that the dollars that we're spending in R&D get value out to customers.

Because innovation that never makes it to a customer is unproductive at all.

I think that constantly.

Creating a culture, where we're developing and coaching our talent.

To be better each day and have a continuous improvement mentality.

I think thats really critical especially in the current environment. The same way that our customers are facing labor pressures, we are too and so if we're the best place to work and people feel that they can belong.

To a greater purpose that we provide I think that's really really important and then finally I think that there is just.

<unk> approach to leadership that I hope that we have a performance based culture of commitment so that whenever we make a commitment we meet the commitment.

And we keep our mindset.

Around that so maybe a bit of a lean processes, but in an abundant mindset would be the way that I'd think about it and I'm really the last thing is Rick Rick actually interviewed me and hired me 18 years ago. So.

Everything I have I odor, Rick so thanks, Rick.

Two kind of timeline.

So Rick Thanks for the question, so as I round out pretty much 60 days in the role.

I'm truly inspired by the opportunity that we have in BVI to collectively enhance patients' lives. So.

Innovations like pure week phase <unk> de Novo just to name a few are truly life changes for patients and then.

First.

As Chris mentioned, and we had a great year PDI grew at seven 1%, which is at the high end of our.

Our long range plan and again as we said our commitment there for next year is right. There again. So we're on track for that long range plan to my priority is key.

Keep driving these innovations keep meeting our commitments as a segment and.

Continue to have a different than chronic disease treatment and then on the on the associates within BD and then all the customers that we serve so really a great opportunity and I appreciate the question.

I think maybe just share one of the other things is as we said within the quarter we saw.

Some back orders in VDI, one of the things that Rick just youre.

Focusing on helping the team is bringing some of the operational excellence matting, let mds for many years, bringing some of those capabilities from the broader BD operating side into the BVI segment, and then maybe just a couple of comments there.

Great No I think we have a great opportunity to improve the supply chain to give an example of.

The ERP system upgrade finally, bringing in fully integrating DDI into into the BD system as well these are going to provide efficiencies to whole.

Deliver.

<unk> to our customers reliably on time and things like that so again I've spent a lot of my time first off.

PDI looking at opportunities that we can continue to streamline things drive operational effectively exactly so thanks, Bob for that probably the great benefits of obviously being able to rotate talent across diverse groups of businesses and I think rich background as everyone knows Mds is probably the most operationally.

Heavy business within the company just given the $1 billion of products, we make onto ranges and catheters, and bringing that where the BVI businesses had been very innovation, driven and growth driven very nice complimentary skill and leadership to be able to bring in.

Those capabilities over so great question. Thanks, Yeah. Thanks, Rick for the question.

Okay.

And there are no further questions at this time I will turn the call back over to Tom Polen for any closing remarks.

Thank you everyone for the very good questions today, I, just want to take a moment and thank our team again around the world for an extremely strong FY 'twenty to a challenging macro environment and all of the work and sacrifice that all of our 75000 associates around the world have made this past year.

To deliver for our customers and the patients that we mutually serve.

Thank you and this does conclude today's teleconference. You may disconnect. Your line at this time and have a wonderful day.

Q4 2022 Becton Dickinson and Co Earnings Call

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