Q3 2023 Becton Dickinson & Co Earnings Call
No.
[music].
Hello, and welcome to Bd's third fiscal quarter of 2023 earnings call.
At the request of BD today's call is being recorded and will be available for replay on Bd's Investor Relations website investors Dot BD dot com.
Or by phone at 806, 90, 51564 for domestic calls and area code four zero to 5309025 for international calls.
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 Francesca Demartino Senior Vice President Investor Relations. Please go ahead good morning.
And welcome to Bd's earnings call I'm, Francesca Demartino, Senior Vice President and head of Investor Relations on behalf of the BD team. Thank you for joining us.
This call is being made available via audio webcast at BD dotcom.
Earlier. This morning, BD released its results for the third quarter of fiscal 2023.
We also posted an earnings presentation that provides additional details on our business strategy and performance.
Press release and presentation can be accessed on the IR website at investors <unk> E D dotcom.
Leading today's call are Tom Polen, Bd's, Chairman, Chief Executive Officer, and President and Crystal Orifice, Executive Vice President and Chief Financial Officer.
Tom will provide highlights of our performance and the continued execution of our BD 2025 strategy.
Chris will then provide additional details on our Q3 financial performance and our updated guidance for fiscal 2023.
Following their prepared remarks, Tom and Chris will be joined for Q&A by our segment Presidents, Mike Garrison President of the medical segment, David 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.
When we refer to any given period, we are referring to the fiscal period, unless we specifically noted as a calendar period.
I would also call your attention to the basis of presentation, slide which defined terms such as base revenues and the non-GAAP reconciliations included in the appendix.
With that I am very pleased to turn it over to Tom.
Thanks, Francesca and good morning, everyone and thank you for joining us.
Earlier today, we reported another consecutive quarter of broad based strong financial performance and significant progress advancing our innovation pipeline.
Before we detail our quarterly performance I want to highlight the five 10-K clearance. We received on July 21st from the F. D. A for the updated BD Larish infusion system.
This has been our number one priority since launching BT <unk> 2025, and we're pleased to deliver this important milestone.
For more than 20 years infusion pumps have represented the backbone of hospital operations over.
Over that time of Lyris was the first product that connected all patient modules into one integrated system in the first platform to introduce medication safety software.
Which led the way to interoperability with electronic medical records.
And later with the launch of BD Health site hilarious again led the way with integration into the full suite of BD end to end connected medication management solutions from the pharmacy to the administration of drugs at the patient's bedside.
Today, the alert system continues to advance new levels of innovation with enhanced cyber security protection, the latest wireless capabilities and new features that enable various aspects of medication management and ultimately help clinicians deliver the best care.
In short we're proud of the Alere as power of one that makes medication management safer simpler and smarter.
With this clearance we address all open recalls with the latest hardware and a new version of software as well as provide important cyber security updates.
We can now focus on bringing the updated system to the market ensuring our installed base has upgraded so customers can realize the full benefits of our latest technology.
As we return to market, we will start with upgrading or replacing the hardware and software Valero system devices in the U S market with priority towards our existing customers.
Given the breadth of our footprint this effort will happen over a multi year period.
Just two weeks into clearance.
We are well prepared.
We immediately took action at the contacted nearly all of our customers.
We activated a dedicated team with daily stand ups and have completed product training for our service teams on the cleared alert system.
As we previously shared we are prepared for clearance and a return to market.
We have invested in and developed plans for operational capacity and we've strengthened our supply chain.
We have now activated those plans, which were dependent on clearance and are moving quickly to help ensure we can reliably supply our market, leading BD alert system and deliver for our customers.
In parallel we continue to engage with the FDA on how we intend to execute our remediation plans, which includes a combination of upgrades and replacements, who will provide more information as we progress.
Before I move on I would like to thank our customers for their loyalty and patience as we work through this challenging period.
Our teams are ready and committed to provide the high quality service and partnership that you've come to expect from us.
And on behalf of the entire BD leadership team I want to extend our deep appreciation to the BD associates, who worked tirelessly to bring the updated BD alert system to market.
For their ongoing commitment to quality and ensuring we achieved this milestone in the right way in line with our values.
We'd also like to thank the F D eight for their rigorous review and engagement as we went through the clearance process.
Turning to our quarterly financial results, our strategy and purposeful investments in innovation are driving consistent higher growth and fueling strong results and momentum are.
Our results are indicative of our leadership position in our durable core and intentional shifts towards higher growth end markets and a highly motivated and talented global team, whose focus on execution is helping our customers provide more efficient and effective care.
We delivered another quarter of outstanding results with 7.9% base revenue growth was six 3% base organic and double digit adjusted earnings growth.
Once again, our results reflect our strategy in action and our strong consistent growth profile, which gives us the confidence to increase our FY2023 organic growth rate.
We also continued to make strong progress improving our on time milestones and launches to.
So another record level this year.
Starting with a few examples of our recent launches.
In our medical segment, we introduced the BD previewed two system.
First of all World technology that magnetize as the tip of certain existing BD catheters and allows them to be seen under the preview ultrasound device.
The software then guides clinicians to enter the vasculature with first stick success.
This novel approach enables BD peripheral ivs to deliver new value to patients and providers.
Our biosciences business, we are seeing a super cycle of innovation this quarter with three key new product launches.
In mid May we began shipping the BD facts discover S eight cell sorter.
Our customers are utilizing this new standard in flow cytometry to unlock life changing discovery's across immunology cancer research and cell biology by uncovering more detailed information about cells and how they interact that was previously invisible.
The first installations are complete customer feedback has been excellent and we are seeing strong demand.
We also launched the BD Rhapsody H T Express, which enables access to the fast growing single cell multi omics market.
With our high throughput research solution.
DHT Express can process up to 320000 cells per run eight fold the throughput of the BD Rhapsody platform, while leveraging Rhapsody is micro well designed to ensure high quality results for all cell types.
And most recently, we announced the launch of the BD facts do at premium sample preparation system.
A new robotic system to automate clinical flow cytometry, enabling the only walkaway automation for both HIV and leukemia and lymphoma testing.
And in our Beady eye segment, we launched the BD track powered bone biopsy system, expanding our presence in oncology beyond the manual biopsy market.
The BD <unk> system allows for faster sampling with sizes to accommodate a variety of procedural needs.
Our differentiated offering enables the ability to collect large intact samples, while providing the clinical versatility to biopsy delicate areas that require precise targeting as well as bones that require power.
We've also achieved several crucial development milestones this quarter.
These include five 10-K submission of the site right nine ultrasound system, which is part of our vascular access management strategy.
The site Rite nine was developed to be the first integrated system that combines catheter and ultrasound navigation into a single device to simplify workflow capital management and training for clinicians for the placement of BD picks.
You know our Ids business, we are expanding the strategy for our BD on clarity HPV franchise to enable patients to self collect samples with the aim to promote health care equity by making cervical cancer screening assessable to women, who historically haven't participated.
Who have had limited access to testing.
This is already in use across Sweden, Denmark, the Netherlands, Australia, and New Zealand clinical.
Clinical trials are set to start in India Africa, and the U S. Later this year.
Divestiture allows us to focus speedy surgery strategic investments and advanced repair and reconstruction and surgical complications, which are driving results and helping to address unmet needs in health care.
Proceeds from the sale strengthen our cash in net leverage position and support our tucking an acquisition strategy.
We also continue to make progress on our other simplification initiatives, including the reduction of 20 per cent of our S. K used by FY 25 <unk>.
Ongoing network architecture optimization, and our operating model initiatives to transition certain beady shared service center activities to a third party to optimize our back office processes and services.
Looking externally.
Let me share some perspective on the macro environment.
Overall, the macro environment is in line with our view the challenges will persist not escalate.
However, uncertainty remains we.
We continue to monitor various factors, including how health systems governments distributors and suppliers are managing inflation inventory and other supply chain dynamics.
Broadly speaking inflation is moderating but is still elevated.
The supply chain has continued to stabilize.
And we're very pleased with our progress to reduce Backorders, we expect to exit the year at pre pandemic levels, which is enabling us to shift our focus to reducing raw material and some finished goods inventory, which is contributing to our cash flow improvement.
While overall procedure volumes are healthy our portfolio has been more durable and less impacted by significant shortlived fluctuations in procedure volumes.
Overall, the capabilities, we have built and the durability of our portfolio have positioned as well.
Before I turn it over to Chris I'd like to share an update on our ESG strategy and goals.
We recently issued our 15th annual ESG report.
The details are progress on the four pillars of our ESG strategy.
Company Health Human Health community Health and Planet Hell.
The F Y 22 report highlights are notable progress energy and waste reduction health care access and diversity.
He achieved minutes include a reduction in greenhouse gas emissions of 10% from an F Y 19 baseline an increase in the number of locations using renewable energy the establishment of product recycling pilots around the world and completion of our baseline assessment for scope three emissions the.
The report also highlights are ongoing work in advancing health equity and under resource communities and the products solutions and programs, we're investing in that directly address these inequities.
He has always played a tremendous role in addressing health disparities in access to health care around the world and we're proud of our continued focus in this area.
We're also proud to receive continued recognition for our commitment to talent and creating an inclusive culture.
Most recently, we were recognized as the best place to work for <unk> disability inclusion for the fifth consecutive year, achieving a top score on the disability equality index and were named to U S News and World Report's inaugural best companies to work for a list.
In summary.
We continued to deliver consistent strong results.
Our teams are working unwaveringly to achieve key milestones et cetera. This up for continued growth and consistent performance.
In this quarter is another reflection of our focus and determination and achieving our <unk> 2025 goals.
We continued to grow simplify and empower beady.
And evolve into an agile innovative medical technology company with a durable compelling growth profile.
With that let me turn it over to Chris to review, our financials guidance and outlook.
Thanks, Tom Echoing Tom's comments or BB 2025 strategy is driving consistent performance and an outsized growth profile, we are advancing our innovation pipeline and delivering against our revenue margin and EPS goals were also making progress strengthening our balance sheet with.
Lower inventory and net leverage consistent with the commitments, we made with strong year to date results. We are well on track to achieve our updated FY twenty-three guidance.
And with the addition of <unk> return to market, we are increasingly confident in achieving our BB 2025 long term targets are five 5% plus organic revenue growth and double digit adjusted EPS growth.
Beginning with some color on a revenue performance, we delivered strong Q3 base revenue growth of 7.9% were $6, 3% organic.
Based organic growth includes growing over prior year respiratory testing sales, which negatively impacted based growth by approximately 100 basis points.
Additionally are tucked in an acquisition strategy continues to enable profitable growth.
With organic growth from acquisitions that are anniversary contributing about 40 basis points in the quarter.
And are expected to contribute 50 basis points for the full year.
Covid only testing revenues were $8 million in the quarter.
Which is expected declined from $76 million last year.
Revenue growth was strong across BB medical and BB intervention will with growth of 12.2% at 8.1% respectively.
As expected BB Lifesciences revenues decline due to lower Covid only testing revenues compared to the prior year.
Lifesciences base revenues, which exclude COVID-19 only testing whereabouts flat given the comparison to prior year respiratory testing sales that negatively impacted base growth by about 400 basis points.
When an underlying basis Lifesciences base revenues grew approximately 4%.
Total company based revenue growth was strong across all regions with high single digit growth in the U S and internationally, including strong double digit growth in China.
Strong performance in our medical segment reflects execution of our growth strategies across our key and markets.
This includes an MBA us where we continue to drive growth in vascular access management with our BB positive flush vascular care MPI VC catheter solutions.
The medication management solutions are investments in high growth areas like pharmacy automation are driving strong growth led by our per our acquisition and BB rollout.
Our MMS dispensing platform reported double digit growth reflecting.
Reflecting our continuous innovations in BB pyxis, including the BB Healthsight portfolio.
And inform systems and the higher growth pharma and biotech drug delivery and market our capacity expansion investments and strong leadership position and pre Filmable solutions with BB high pack newer innovations in products such as BB neopets.
<unk> and Beebe high lock or driving or 13th consecutive quarter of double digit growth, while supporting the increased demand and high growth categories like biologics.
Lifesciences based business growth was about flat and approximately 4% underlying when adjusting for the respiratory testing sales comparison.
This reflects execution of our growth strategies across our key and markets, including microbiology.
Molecular diagnostics and single cell analysis.
There was partially offset by impact of some U S distributors destocking and specimen management.
When our ideas business double digit growth in microbiology reflects demand for BB Keister lab automation solution include.
Including continued adoption of the identify and total modular track solutions and strong demand for our blood culture and Ivy Aspie reagents.
Continued strong growth in molecular IBD assays reflects leverage a BB core.
The incremental beady Max installed base.
And Biosciences high single digit growth was driven by our clinical business with strong double digit growth and cancer reagents <unk>.
Leveraging the growth and our installed base.
<unk>, Eric analyzers and adoption effects to add automation.
Performance and research solutions reflects continued strong growth and research reagents enabled by our innovative BB horizon dies.
Strong performance in our interventions segment reflects execution of our growth strategies across our key and markets include.
Including advanced repair reconstruction, TVD, and incontinence, where newer innovations in high growth areas are continuing to contribute nicely to growth.
Our surgery business unit delivered strong double digit growth driven by continued market adoption of physics hernia resorbable scuffle.
And our <unk> business unit.
Double digit growth and peripheral vascular disease was driven by broad base strength across the portfolio, including global penetration of wrote a Rex.
And our UCC business unit high single digit growth was driven by strength across the portfolio.
Including strong double digit growth of our pure which solutions for addressing chronic incontinence and both the acute an alternate care settings and.
Double digit growth and Endo urology.
Further details regarding each segments performance in the quarter can be found in today's earnings announcement and presentation.
Now moving to our P&L.
We reported Q3 adjusted diluted EPS of $2.96.
Which included gross margin of 52.6% an operating margin of 23%.
Operating margin improved 100 basis points year over year and includes an unfavorable 100 basis point impact from the accounting treatment of an employee benefit related item that gets recorded and GMA and is fully offset and other income with no resulting impact to EPS.
Excluding this item operating margin increased 200 basis points and was ahead of our expectations driven by strong execution against our margin improvement initiatives.
Foreign currency was a 50 basis point headwind to both gross margin and operating margin.
Gross margin performance reflects leveraging our strong revenue growth and.
And the benefit of our simplification and inflation mitigation initiatives that enabled us to overcome 200 basis points of outsized inflation.
R Q3 margin drivers are aligned with what we have been anticipating throughout the year.
Which is that most of the full year margin improvement will come from SS G&A expense leverage.
Two three SS G&A expense increased about 4% year over year.
Excluding the employee benefit related item, we drove about 150 basis points of leverage NSS, G&A, which reflects shipping efficiency and good leveraged in selling and G&A expense.
As expected R&D as a percentage of sales.
Five 9% normalized back towards are expected full year average of about 6% in Q3, given our spending was overindexed in the first half.
In summary, we continue to execute well and fully delivered R. Q3 operating margin goal with operating improvement excluding the employee benefit item nicely leveraged by 200 basis points.
Hello operating margin improvement in other income reflects the offset to the employee benefit related expense recorded and G&A.
Our tax rate in Q3 was 15.7% due to benefits realized that were not previously contemplated.
Regarding our cash and capital allocation <unk>.
Cash flows from operations totaled $1.7 billion a year to date.
As expected operating cash flows improved substantially in Q3, including a reduction in inventory from the prior quarter.
We anticipated continued normalization of working capital in queue for including further improvements in our inventory balance as we trend toward levels that are closer to the prior year.
We ended Q3 with a cash balance of approximately $1 billion during the quarter, we repaid over $1 billion in debt maturities utilizing the proceeds from the February debt refinancing.
We ended the quarter with a net leverage ratio of 2.9 times.
We continue to move towards our net leverage target of 2.5 times.
In summary, we executed well against our cash in that leverage improvement goals. This quarter, we remain committed to enhancing our cash conversion and that leverage positions and expect more progress in queue for including benefiting from the net proceeds from the divestiture of our surgical instrumentation platform, which will increase our capacity to deploy.
Cash towards tuck in M&A.
Moving to our guidance for fiscal twenty-three for your convenience the detailed assumptions underlying our guidance can also be found in our presentation.
Starting with our updated revenue guidance before the divestiture of the surgical instrumentation platform.
Given our strong third quarter performance, we're raising the midpoint of our base revenue guidance by 25 basis points to 7% and we now expect base revenues to be between six eight and seven 1%.
This includes increases in the mid point of both organic and inorganic revenue growth and reflects strong third quarter organic performance.
As well as inorganic momentum driven by our Prada pharmacy automation solution, demonstrating are strong execution and M&A integration capabilities.
Inorganic revenue is now expected to contribute approximately 135 basis points.
To full year base revenue growth.
For the full year base organic revenue growth is now expected to be 5.5% to 5.8%.
Which continues to reflect strong fourth quarter organic revenue growth of about 6%.
Our guidance continues to include the impact of strategic portfolio exits, which is moderated slightly from our original assumption.
Finally, adjusting for the impact of the recently completed surgical instrumentation divestiture adjusts are updated base revenue growth guidance by 20 basis points.
To a range of $6, 6% to six 9%.
To reflect net inorganic revenue adjustments to base growth of approximately 115 basis points.
Or increase based organic revenue growth guidance of 5.5% to five 8% is not impacted.
Over a two year period, we were driving strong based organic revenue category of about 7%, which is well above our long term target.
Our segment specific growth assumptions have not changed.
For Covid only testing our guidance only includes year to date revenues are $56 million.
All in we expect reported revenues to be approximately $19.3 billion, which is an increase from our previous guidance of 19, two to $19 $3 billion.
Regarding the <unk> five 10-K clearance as previously disclosed we expect a ramp or return to market in our infusion business over time with our existing customers and remediation taking first priority.
As we scalar manufacturing capacity and ensure we are taking the necessary actions to deliver our products in the right way, we are well positioned to engage with customers and execute as quickly as possible.
However, we do not expect any material incremental revenue contribution from a <unk> for the remainder of FY twenty-three and we expect to begin a more regular rhythm of shipment and installation of devices and recognizing revenue as we progress through FY 2004.
Within our FY twenty-three guidance range, we expect to absorb any initial investments beyond the sales and service organizations, we retained to successfully support our return to market.
Regarding our assumptions on earnings we continue to expect operating margins to improve by at least 100 basis points for the full year.
We are executing his plan and have line of sight to our targeted margin improvement.
Low operating income our assumption regarding interest other remains unchanged.
We have lowered our effective tax rate guidance to be between 13% and 13.5%.
The mid point of our updated tax guidance range is essentially equivalent to our FY 2002, actual effective tax rate of 13.3%.
And as a result is not incrementally contributing to FY twenty-three EPS growth.
Are adjusted EPS guidance range of $12.10.
To $12 32.
Remains unchanged, but reflects absorbing a <unk> negative impact from the divestiture of our surgical instrumentation platform and a five cent negative impact from the latest FX rates.
We are raising our base business earnings forecast by seven.
Just on our strong third quarter performance, including consistent execution of our margin goals offsetting the impact of the divestiture and FX.
On a currency neutral basis, we now expect adjusted EPS growth of about 10% to 11.5% driven by very strong mid teens base business growth of approximately 14, 5% to 16% an increase of 50 basis points from our prior expectation.
As a result, given our strong growth and execution on a year to date basis versus our original guidance in November we've increased our adjusted based business earnings per share by about 27.
Which added 225 basis points to growth, resulting in the 14.5% to 16% growth on our base.
This also includes absorbing another year of outsized inflation of about 200 basis points.
The strong base business results enabled us to fully absorb and increased earnings headwind associated with the loss of Covid only revenue as well as lost earnings associated with the recent surgical instrumentation divestiture and.
And still increase our total FX and growth rate by 75 basis points to 10% to 11.5% double digit earnings growth.
As you think about Q for the following are a few key considerations, we've outlined more detail in the accompanying presentation slides.
First our increased organic guidance continues to reflect strong growth of about 6% in Q4.
As a reminder, we've now anniversary the acquisitions of Prada and med keeper.
Second as you think about margins.
As we have described throughout the year most of the full year improvement is expected to come from SS G&A expense leverage with.
With the balance from slight improvement in gross margin, which has been muted year to date because of outsized inflation.
For operating margin we.
We continue to expect significant year over year margin expansion in queue for.
However versus our last updated may the amount of expansion needed has been reduced by about 75 basis points and thus, we derisked our queue for delivery.
There are several factors driving queue for operating margin, including expense leverage unexpected strong revenue performance inflate.
Inflation mitigation actions to offset outsized inflation and cost of goods sold.
Assess G&A expense reductions driven by the timing of spend and the full quarter impact of our more recent simplification initiatives.
Also R&D as a percentage of revenue will continue to moderate lower to about 5% of sales, resulting in full year spend up about 6%.
Finally, there is also a favourable comparison to the prior year reinvestment of Covid only testing profits.
As we look ahead to FY 2004, we remained confident in our ability to deliver against our beady 2025 strategic and financial goals.
While it is premature to commit to specifics I can offer the following thoughts as we look ahead.
As discussed we continue to operate in a macro environment the remains uncertain.
At an inflationary environment that is moderated but remains elevated.
We're especially focused on monitoring how various governments, such as China respond to economic and other dynamics.
With that said Med tech in general has proven to be much more durable during times of uncertainty, including economic downturns and certainly beady has a proven strategy and has demonstrated not only the ability to be resilient, but to deliver strong growth in earnings during the most challenging times.
Our market, leading portfolio strong innovation pipeline continued shift into high growth and markets and track record of execution gives.
Gives us confidence in delivering against our five 5% plus target next year.
With respect to allow US we are excited to shift our focus and Regan gauge with our customers <unk>.
The clearance of hilarious offers much needed certainty to our stakeholders as.
As previously noted it increases our confidence in executing against our beady 2025 targets.
Just two weeks after clearance it would be premature to provide a range of expected revenue in FY twenty-four however, consistent with what we've shared we expect to ramp revenues back to our pre ship hold level of approximately $400 million over time.
Our focus will be replacing and upgrading pumps for our existing customers.
At this juncture, knowing we have some level of laris revenue in our FY twenty-three base of around $100 million, we would anticipate a modest level of revenue above that.
Which could result in about a 50 basis point tailwind to growth in FY 2004.
As a result based on current assumptions and the macro environment factors I mentioned, we are monitoring our.
Our base growth with <unk> would be approximately 6%.
We will share more about other assumptions across our portfolio when we solidify our FY 2004 plans.
As a reminder, if you look outside of our base business in FY 2003, we have realised nearly $60 million in COVID-19 only revenue.
Based on current dynamics, we would not expect material revenue in FY 2004, which.
Which results in an expected headwinds of about 30 basis points that you need to adjust for.
Additionally, the sale of the surgical instrumentation platform.
We will have nearly 75 basis point impact to total growth.
This does not impact our organic growth, which should be considered in your total FX and revenue growth.
We will chew up for currency when we provide FY 2000 for guidance in November .
Regarding earnings we remain confident in our double digit earnings growth profile of about 10% currency neutral EPS growth.
This includes absorbing the reduction to earnings associated with lower Covid only testing revenue and the divestiture impact combine these items are worth about 125 basis points.
We will share more details when we give our guidance, but given we expect to finish FY twenty-three at 70% of our 25% operating margin goal by 25.
At this point, we're tracking ahead of our 2025 margin goals.
Importantly, this gives us the flexibility to deliver on our margin goals, while investing to maximize growth and deliver on our double digit earnings growth target as we finalize our plans we will look at optimizing the ratio of growth versus margin increase the delivers against these goals.
In summary, we see our value proposition is differentiated and importantly have consistently executed against our commitments, which gives us confidence in our ability to continue to deliver against our future goals.
In closing we are consistently delivering multiple periods of outsize financial performance.
I would like to thank our associates around the world, who are working hard to deliver on our purpose and help us achieve these results.
As we look forward and as reflected in our FY twenty-three guidance and our progress towards our Beady 2025 long term targets, we are well positioned for continued growth.
With that let's start the Q&A session. Operator can you assemble are cute.
Yes at this time, if you would like to ask a question. Please press star one.
If at any point in your question has been answered you may remove yourself from the queue by pressing star too.
In order to allow for broad participation. Please limit yourself to one question and one related follow up.
Lastly to provide optimal sound quality. Please pick up your handset while you ask your question.
Thank you I'll go ahead and take our first question from Vijay Kumar with Evercore ISI. Please go ahead.
Hey, guys.
Thanks for taking my question and congrats on a on a good execution here.
<unk> My first question <unk> I think you mentioned 50 basis points contribution to growth in physical 24 that would imply I think total allantois revenues of $200 million.
Can you talk about is there any supply chain.
Constraints in terms of five unit delivering pumps for next year <unk> the markets hasn't undergone and a replacement cyclin Sierra So <unk> to modest contribution a ramp in fiscal 24.
Okay.
Good morning, and thanks for the.
Recognition of his strong quarter by the team.
Just as we get into a <unk> I just want to take a moment just reiterate some comments that I made on the prepared remarks, which was to think our team for the efforts to get US here. This is obviously a tremendous milestone it's been our number one priority since we kicked off beady 2025, I also want to thank our customers for sticking with us through this process.
On your question. So at first I think it's important to keep in perspective or two weeks post clearance right in our teams have been heads down reaching out to our customers getting our service organization trained on that and the new pump.
We're pleased that we've contacted the vast majority of our customers and the feedback is positive.
This time.
I think the number that we've shared as is.
The prudent number.
We've always said, it's gonna be a ramp over time, and we will get back to the $400 million <unk>.
Expect but they will be wrapping overtime and at this 0.2 weeks into the process.
We see that number as appropriate we had done some pre buys on.
Materials coming into.
Into it.
India clearance, well, obviously continuing to do that but we are scaling up to an unprecedented level as we think about ourselves splitting componentry between people purchasing as well as remediating pumps. So we keep that in mind. That's a process that as it continues to evolve will continue to provide updates I don't know if there's any other feedback to that.
In the room.
No. Thanks VJ for the further question and this is Mike garrison.
And there are no near term supply chain constraints.
We were able to secure componentry, we we are scaling up manufacturing as Tom mentioned from our current run right up.
Up to what we we look to supply the entire market and that will take a little bit of time, we want to make sure that we trained people effectively get all the <unk>.
Componentry in place and get the cells working in the right way.
But there's no supply chain constraints at this time.
Thanks for the questions and get help.
That's helpful. Common then maybe one more on that.
Thank you mentioned a biotech it's being a Calvin how should we think about <unk> one opportunities within the euro form a portfolio.
Portfolio I think some of the tools Pr's are made.
Cautious comments on Biopharma spending.
Is that.
Cause for concern here or not by a scientist. Thank you yeah.
Great question.
<unk> so.
Break it into two questions.
On the Biopharma side, and Dave can comment further.
<unk> saw a very strong growth out of our biosciences business I think that the pace of innovation that were driving in that business across instrumentation Andrey agents as well as just the customer base being perhaps more research focused and large pharma focused than dependent upon the smaller biotech funding that you're seeing impacts some other companies.
We're seeing strong durability and our performance within the Bioscience business when it comes to specific drug categories. Obviously saw another phenomenal quarter at a farm systems.
In Q3, we feel really good about the continued momentum of that business and we don't all of our customers there.
Ah confidential relationships between us and our customers. So we don't comment on any specific molecules or individual customers, but obviously the capacity that we've been adding.
And as we said before we have five to six X the capacity of the nearest competitor in that space as theirs large molecules coming to market.
Of course, our capacity position is an advantage and we have discussions with customers around that so we can't comment on any specific one but we're certainly in a very good position to serve very large fast growing market.
Okay.
From Bioscience, Yes, just a VJ stages, specifically on biosciences.
I mean, obviously it was another strong quarter froze at 7%.
We're seeing good continued growth and life Science research on Clinical's, specifically on biotech biopharma.
We have the advantage to.
Owned by size business, we've got a very broad range of customer segment tried so.
Academic research biotech of course farmer Crlf hospitals, so we're not necessarily dependent upon just one or two few customer types.
And then give them specific solutions are used in fama biopharma.
Primarily used for discovery and translational research and then clinical studies for those new molecules. So it's very much earlier in the discovery process and and those types of companies still need to do that work. So that they can identify those molecules further will in future growth. So I think.
Given where we apply when not seen as what came back.
And set thanks guys.
Hey, Thanks for the question.
Thank you we will take our next question from Larry Nicholson with Wells Fargo. Please go ahead.
Oh good morning, Thanks for taking the question and congrats on the clearance of of hilarious I I do want to focus on hilarious and Tom and team I'll ask multipart question here in just one upfront so the remediation.
Remediation a replacement plan.
Tom can you talked about the cost and timeline there and it's FTA cannot allow you to witness FDA can allow you to commercialize above the $100 million a medical necessity.
Kind of a gating factor here and how should we think about the pent up demand. Tom do you think that at some point I mean, it's about $1 billion in backlog do you think at some point you will exceed $400 million per year to to exhaust that backlog in just lastly.
When you when you remove the last from the market or put it on ship Halton, sorry, you reduced EPS by about 70.
Two thirds of the year.
So when can investors expect to get back you know.
What what what they lost in earnings here. Thank you.
Great Great set of questions. So I'll start and I'll turn it over to Mike.
So when it comes to to remediation and CNN. So first off the five 10-K fully replaces a CNN process. It is C. N N process essentially ended and the five 10-K clearance replaces that program.
As we think about.
Moving forward in terms of remediation of course, our focus is prioritising existing customers to update or replace existing devices to declared version. That's our number one priority now with clearance and that's the focus of our efforts is within our existing customer base to your point. There is a lot of pent up demand as people have aged fleets and that is.
Also wanted that among our existing customers those with older pumps are our top priority to get those upgraded.
Ah replaced to the the current cleared version so.
That's how we view that and then as we think about <unk>.
<unk> of course, we've been driving a very strong growth profile and in our <unk> 2025 strategy Christian and add in further here in our BT 2025 strategy.
We had included the relaunch of hilarious and that that was very clear at the time as we said bald margin goals.
To reach and later updated those calls an increase them to 25% operating margin by 25 were obviously very much on track to that goal and as we think about the EPS in the margin impact, which was about 80 bps. If you recall at the time it that's coming back in.
And will continue to come back in in line with this strategy that we've put out so maybe we start with Chris anything to add their on the margin side.
There is a good question and then like if anything to add on the remediation pent up demand.
I think on the margin side, Tom you covered it well the risk of 80 basis points that we talked about that that was historic obviously, a lot's changed since then including moving into an inflationary environment as an as you've seen from our performance. We've been taking a lot of actions in our business to drive margin improvement across the board, but that 80 points will certainly come back it was always.
Part of our 2025 by 25 goals, you should really see that more scale.
As we are going to be going through kind of think of <unk>.
Ramp period with hilarious.
And certainly even as you think of the front and around margin right.
One.
These are dilutive to GP.
In terms of the beady level right. So just keep that in mind.
And there's going to be investments that we need to make that are incremental above and beyond the.
The investments that we retain first of all you do have some variable items, such as shipping communication materials marketing customer service ramp up all of that Additionally in the short term that there's going to be added things. We're trying to do is we get back so.
Certainly it's gonna be a contributor and I would point to our FY 2004, which is obviously preliminary we're looking at all the market factors that are out there and geopolitical dynamics et cetera, but we wanted to be prudent and provide some perspective on demand.
Momentum, we have on 24 and wherever heading.
But you will notice week committed to around 10% EPS growth, which includes absorbing.
The divestiture.
And the further headwinds in terms of Covid only revenues dropping so it actually implies based earnings growth above 11%. Some of that is of course.
The momentum we have in our base business the margin of malaria, So I think collectively.
You see is getting to those goals and the hilarious margin is certainly part of that.
Thanks, so much guys.
The only thing I would add that area and thanks. Thanks for the question is.
We are cleared to market.
<unk> system in the United States. It feels really really good to say that after three and a half years.
And.
We're also really thankful to our customers that.
Throughout this this whole process and through a pandemic and through all the challenges they face they've they've demonstrated.
Traded their preference for the hilarious system and so that is our focus and a priority first and foremost is to take care of them and make sure that the improvements that are in the cleared product get to them first so that's going to be the focus there. It is we do have the largest.
Fleet in the field, so the size and breath.
Extend the timeline is just going to take a fair amount of time to get through everything, but we're looking to do that as expeditiously as possible and scaleup manufacturing to sort of meet that need and then we also noticed.
During COVID-19 that.
Interoperability was a real benefit where nursing and nursing staff didn't have to spend as much time manually programming the pumps.
At the bedside, they were able to utilize the interoperability to interface with the electronic medical record.
That has some timeline input from.
Mentation standpoint, it takes a little bit longer to implement to get those advantages, we think there's going to be some.
Increased demand for interoperability from from the field and that May sort of extended implementation times, a little bit that's another factor to think about as we're as we're doing this upgrade and replacement.
So maybe just one line to make stayed constant.
Is.
So it's great to be back obviously, we're focused on prioritizing our existing customers and replacing existing devices to the cleared version with a big focus on the older systems, but the other big thing that this allows us to do beyond servicing our customers and and helping them refresh their fleets and make sure they have the.
Cleared technology, the most modern technology with all the incremental benefits and upgrades that are in this this version.
Which are fantastic is is that we can continue now we have a basis by which to innovate upon and that's a big deal May we've had a great track record of being first and a number of areas in infusion right. We were the first company with fully integrated system. We still are the only company and.
Will be.
With one system approach one interface.
Much easier for clinicians.
Led the way with guard rails with interoperability now we have the most advanced wireless cyber security on the latest pump related that the most modern that's available and as we think going ahead, we see other innovations that we already have planned to build upon this which will continue to add value to our customers and we already have planned it <unk>.
Additional 510 case going forward and that's a big deal of course, we also have an with the first company and they are the only company who are integrated pumps beyond being standalone devices, but making them part of improving the overall medication management ecosystem right with hilarious in our software and the pharmacy and that had been something that customers have.
Significantly value that is one of the reasons that as Mike mentioned, most hilarious customers have stuck with us over this time because of all the value that I described we're going to now be able to continue to add to that and continued to advance our innovation leadership built upon this five 10-K and so our teams are really excited about that and are R&D teams are already on working on.
What's next month so thanks for the question like.
Thank you.
Thank you we will take our next question from Robbie Marcus with J P. Morgan.
Oh, great. Thanks for the questions and congrats on a nice quarter maybe.
Maybe a follow up on Larry's question.
A lot of lot of analysts across the street.
We're thinking about how big of a backlog there could be in the market you were doing about $400 million and run right allow our sales pre recall, there's been a couple of years, where there just hasn't been enough replacement in the market I've seen estimates anywhere from a few hundred million dollars all the way up to $1 billion set of help level set.
People you know is there any number you can put around what you think could have been solved during that time it normal replacement happen, but did it and how to think about how quickly that can come back into extra sales to replace the fleets out there.
Good question and.
I appreciate that the recognition of the team.
At this point again, we're two weeks in to clearance and I think that what we've shared in the preliminary Alec for 2004 as well.
What we think is prudent number to share today as we continue to advance will continue to update that I think it's also important to recognize that there is in the last couple of years have not been normal years by any means there's been a global pandemic and a lot going on in the health care system. We also had placed quite a large number of pumps during the global pandemic because.
Hilarious is such a trusted an essential part of delivering healthcare it was needed in.
Much more significant levels and has ever been needed before it and sell it you know a number of customers added into their fleets at that point in time, and we're going to get a better sense as we continue beyond the two week period, we get in further periods get into the month and will continue to update as is it that moves maybe Chris any other comments stand there.
Like.
I mean, I think you answered well I mean, I just think I think what you talked about is there is there is the layers benefit that gives us a natural glidepath to continue to build on our momentum. We've had the past few years first two years of our BB 2025 strategy you can see what we put forth in 24, and we're talking about based growth.
Of around 6% now, which is I think an exciting commitment at this at this juncture and certainly it will be a catalyst going forward and I think beyond to Tom's point larrison in itself, but really capitalizing on the the full value proposition of our medical segment.
Great and sorry about one more elaborate question and the approval.
Talked about.
That there are some of the pumps out there would have to be replaced and some would have to be remediated, maybe speak to exactly what makes it pump qualify for a replacement versus remediation and what percentage needs to be replaced versus remediated and the difference in cost associated with it. Thanks.
Thanks.
Yeah just.
The remediation processes is very multifaceted complex, we're working with the agency.
On this on a case by case basis it needs to match. The five 10-K, the cleared product and so that's sort of what we're doing will be going out doing walk throughs at the customers customers through Covid may.
May have had mixed fleets of different ages of pumps things like that so we need to kind of go on a customer by customer basis and in some cases are pumped pumped basis. So so that's where that stands.
Our commitment is mainly to our and our priorities for our existing customers that have stuck by us.
Something just to go back to the previous question.
The run right at the insert a 2018 2019 that had a fair amount of competitive position gain.
Because our laris product was being preferred.
That time, and we regaining position in the marketplace and you'll probably in the near term here will be focused on.
The remediation and the replacement of our existing customers. So that's something just to think about from a pent up demand perspective.
Alright, Thanks, a lot.
The last thing I think if you refer to that prepared comments as well we did make the comment that.
We do continue to engage with the FDA on how we intend to execute those remediation plans and the combination of upgrades and replacements and that we will provide more information as we progressed to bring you back to those prepared remarks as well some great question.
Thank you we will take our next question from Patrick Wood with Morgan Stanley .
Amazing. Thank you so much I'll just ask two quick ones upfront if that works.
Yeah, I think you touched on the the and I. Appreciate you know guarding for 24, but the margin expansion.
If you hit your guide for this you'll obviously exit the year with a very strong finished 26% also so I guess like how you thinking about investing to support the launches next year relative to margin gain give it looks like you're running about a year at a schedule potentially any colorado that would be great and then the second one is just a quick one maybe on M. M S.
Very very strong underlying growth and given that drops into organic pretty much next quarter on woods, just curious what you're hiring some customers. How do you think about the durability within whether it's the pharmacy side or anything else just any details that'd be great. Thanks.
Thanks, Patrick for their great questions will start with Chris Yeah. Thanks, Patrick regarding margin to your point.
We've executed very strong and a very complex environment right past few years, we've had over 400 basis points of outsized inflation. Despite that we've had nearly 400 basis points of base margin expansion and so that puts a 70% of the way on track to the 25% coal. So we feel really good about that if you do sort of implied.
Math.
The next two years, you would need roughly 50 to 75.
Basis points per year, we didn't want to share specifics at this time as it relates to module profile, there's lots to consider within the P&L. It's obviously early from a guy, but I I think what it offers us the way you should think of it as we have a derisked path to twenty-five over the next few years not only that it gives us a lot of flexibility.
To continue to ensure that to your point, we're balancing an investment posture against continuing to drive outsized top line growth, while still achieving our margin goal. So those will be the puts and takes that will think about as we move forward I think the last comment I would make is we have a strong profile.
Oil and pipeline of margin improvement initiatives that have already been underway now for years. So these aren't just numbers that are on a page to go to an outcome. We have detailed plans that get there and detailed plans.
Our derisks in a way that we would plan.
Knowing the execution doesn't always happen or you have other headwinds that may happen and gives us confidence to get to that number but also some of those in the.
Efficiency plans can be reinvested back into business too. So I think it's a very good position to be and will continue to share more as we.
Get closer to 24.
And obviously like Anessa, a really strong quarter.
Prior to hilarious clearance, obviously occurring and so some really good things happening in the base business there and like.
Yeah. Thanks, Thanks for the question of MMS couple.
A couple of things.
Note there is a little bit of an easy compare to last year last year. If you recall at this time there was some COVID-19 shutdowns in China that had some implications in terms of supply chain.
Delivery, but that that was that's not the real driver here, the real driver ears, pharmacy automation and dispensing and.
The value proposition that we have around the combination of patient safety and condition productivity and those two things are resonating with our customers and.
The <unk> acquisition R. BD ROA, both growing double digits and.
You're really helping to transform the way.
Healthcare is thinking about the pharmacy and the value that it can provide moving those pharmacists to work at the top of their license instead of counting the five pills at a time and to amber bottles.
They out on the dispensing side.
<unk>.
We.
Really changed our approach a few years ago around innovation and started to focus on a cadence of innovation and dispensing.
Making it more connected making it more focused on controlled substance management.
These types of things and it's really started to pay off in the marketplace, that's really resonating and it's helping clinicians, especially during labor shortages in nurse shortages and things like that.
Dispensing the organic I think for MMS.
Some some other comments there you know from a capital.
Allocation perspective, I think are flexible models their help for some customers, where we can enter into a lease agreements and things like that so that helps for some customers, whereas other customers have the ability and they invest in the they partner with us for the long term there.
Thanks for taking the questions.
Yeah, and I'm, sorry, just one other comment on margins that you maybe because I know you mentioned the queue for exit being I remember there are some which is important as you think of us delivering and our confidence delivering Q4.
There are some timing dynamics in there right. The phasing of R&D, we've talked about there is some phasing NSS G&A there're there're some comps dynamics in there those are worth between 150 and 200 basis points. So.
Not a pure exit right that you should think of the.
The other nice thing is we actually Derisked R Q4 margin versus last guidance, it's about 75 bps, depending on how you look at it.
Relative to our last planning staff. So we feel really good about this year than as I had shared before the momentum beyond.
The question.
Thanks.
Thank you we will take our next question from Matt Taylor with Jeffries and.
Good morning, Matt.
Good morning. This is my cell phone on for Matt today, Thanks for taking my question.
Just another order.
Remediation of just curious are there any gating factors from the customer side things that might be out of your control. So we're seeing pretty robust procedure volume growth across med tech the fifth any remaining staffing constraints limit customer ability to.
Take time out to.
To remediate or replace their fleet.
Sure turn it to Mike.
I think maybe in like the acute at a particular hospital, but there's just be that's a scheduling issue more than their ability to do it at all so I would just think of it that way that there may be we can't do it this week or we can't do it. This month, we can do it next month, it's more that planning.
But that's something that we do anyway.
Whether it's under the dispensing side pharmacy automation, we're constantly flexing to optimize and work with our customers based on how they.
Ken accepted it's not our belief at this time that.
The customer side is going to be a significant barrier in the long run I think it will be more than that.
The phasing of of things over time does that help.
That does help thank you and then just one question on pharma systems.
Been posting some really strong growth there it looks like you're on a mid teen growth trajectory. You think you can just discuss kind of key driver and how you view the sustainability of that growth in that business, you know looking out to 2024 and and through the 25 plant.
Sure. So so the primary drivers around farm systems are the sort of move towards biologics and the innovation that is coming out of the pharmaceutical industry towards biologics, Yes, I think there's a question earlier around G. L. P. One.
Use a GOP one's moving from type two diabetes.
To treat a broader population for obesity. That's that's one driver that's that's significant but there's also.
Wealth of clinical data coming out around all simers treatment cancer treatments things like that and these are biological molecules that are quite sensitive to the primary container closure device that used to house them. Our technology is really well suited for.
Those types of molecules and so if we think about the end user population.
Obesity.
Mental decline with age <unk>.
Cancer. These are these are very broad patient populations and so the same sort of main driver that pharma is using there we are able to support that so we think that that yeah. There is a.
A fair amount of durability and to the long term demand here I think there are also some some factors. There is some COVID-19 reset that were also tracking very closely in the marketplace. The drugs that were used to treat during COVID-19 that went into prefill syringes for example.
Those are being reset in the marketplace and so we're watching that too.
Get a good feel for that but long term, we feel really good about our position in this place. We also just welcome the new president for that that business. So we're really happy to have her.
Start and she's coming up to speed very quickly.
And maybe just a compliment what good feedback that might gave us we have a nice cadence of innovation in that business that supporting those overall trends as well as of course over $1 billion of capacity that we've added and so you've got these great kind of unmet needs and continued demand cycled <unk>.
Happening from pharma driven by a biologics we invest it ahead of the curve right in the middle of the pandemic of pretty bold decision to add capacity.
In that period of time, and you can see that paying off now and then a series of innovations not only on our high packs oranges, but also on the self injection site. These biologics.
People are move they don't it's moving from sitting in a clinic with Ivy and your arm or going into clinician to get injections. As these are becoming biologics are addressing chronic disease that focus us is enabling patients to deliver these medications subcutaneously by themselves in the home not via an infusion.
Or an injection by a clinician and so our self injection business is also doing well and has a number of new innovations wearables as an example.
Our liver task platform.
We're seeing solid demand.
Auto.
In future that's wearable.
Pen for example that has quite a number of biosimilar mm.
Influence coming to market and a large percentage of those are coming in or.
Penn format, we're seeing strong demand there in addition to the high pack business and so all of that wraps up.
And supports what Mike said, thanks for the question.
[noise] helpful. Thank you.
Thank you at this time I would like to turn the floor back over to Tom for any closing remarks.
Before we sign off I want to again, thank our global team of Beady associate to continue to execute against our BT 2025 strategy and are making meaningful impact for our customers and their patient.
Particularly I want to thank our team for their efforts related to the clearance of the updated beady hilarious infusions system and for all the work ahead as we move forward in working with our customers to update replace existing devices and support them in their care for patients. We are meeting our commitments in delivering strong consistent performance with an increased outlook.
And we look forward to connecting with everyone again in November and operator with that we will end today's call.
Thank you. This does conclude today's audio webcast on behalf of BB. We thank you for joining today. Please disconnect. Your line at this time and have a wonderful day.
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