Q1 2024 Becton Dickinson & Co Earnings Call
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Hello, and welcome to Bd's first fiscal quarter 2024 earnings call at the request of BD. Today's call is being recorded and will be available for replay on BD <unk> Investor Relations website investors <unk>.
<unk> dot com or by phone at 806 887339 for domestic calls and area code plus 140 to 2201347 for international calls.
For today's call all parties have been placed on a listen only mode until the question and answer session.
Now I'll turn the call over to Greg <unk>, Senior Vice President Treasurer, and head of Investor Relations.
Greg: Good morning, and welcome to Bd's earnings call.
Greg: Gregory Guidos senior Vice President Treasurer, and head of Investor Relations I'm.
Robert J. Marcus: On behalf of the BD team. Thank you for joining us.
Robert J. Marcus: This call is being made available via audio webcast at BD dotcom.
Gregory Guidos: Earlier. This morning, BD released its results for the first quarter of fiscal 2024.
Gregory Guidos: We also posted an earnings presentation that provides additional details on our business strategy and performance. The press release and presentation can be accessed on the IR website at investors that BD dotcom.
Gregory Guidos: Leading today's calls are Tom Polen, Bd's, Chairman, Chief Executive Officer, and President and Crystal RFS Executive Vice President and Chief Financial Officer.
Thomas Polen: Tom will provide highlights of our performance and the continued execution of our BD 2025 strategy.
Robert J. Marcus: Chris will then provide additional details on our Q1 financial performance and our updated guidance for fiscal 'twenty 'twenty four.
Crystal: 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.
Speaker Change: Before we get started I want to remind you that we will be making forward looking statements I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the Investor Relations website.
Speaker Change: Yeah.
Speaker Change: Unless otherwise specified all comparisons will be on a year over year basis versus a relevant period.
Speaker Change: Revenue percentage changes are on an FX neutral basis, unless otherwise noted.
Speaker Change: When we refer to any given period, we're referring to the fiscal period, unless we specifically noted as a calendar period.
Speaker Change: I would also call your attention to the non-GAAP reconciliations included in the appendices of the press release and earnings presentation.
Speaker Change: With that I am very pleased to turn it over to Tom.
Thomas Polen: Thanks, Greg Good morning, everyone and thank you for joining US earlier today, we reported our results for the first quarter.
Thomas Polen: Overall, we executed Q1 as expected total revenue growth was largely in line with our expectations and on the bottom line. Adjusted EPS was ahead of our expectations due to good execution on our margin goals through our BD excellent operating system and the timing of a discrete tax item.
Thomas Polen: Also consistent with our plan, we delivered very strong growth in cash flow positions us well to deliver another year of growing free cash flow double digits I.
Speaker Change: I want to thank our team of over 70000 associates for their strong execution agility and unrelenting determination to deliver for our customers patients and shareholders. These.
Speaker Change: These results give us the confidence to increase our FY 'twenty for guidance.
Speaker Change: Turning to our BD 2025 strategy.
Speaker Change: During Q1, we continued to execute well against the five actions, we outlined at our Investor day to drive profitable growth and value creation. This.
Speaker Change: This includes continuing to advance our innovation pipeline, which supports our durable five 5% plus targeted revenue growth profile.
Speaker Change: We remain focused on advancing innovation in high growth areas anchored against three irreversible forces, we see reshaping healthcare today and over the next decade.
Speaker Change: <unk> care, new care settings, and chronic disease specifically.
Speaker Change: Specifically in Q1, we made meaningful progress achieving several key R&D milestones for technologies that position BD as key enablers of care shift to new settings.
Speaker Change: Our peer week portfolio, which is now the market leading platform for noninvasive urine management, and a $1 billion market growing double digits. We started a randomized clinical trial pilot for pure wix female to generate evidence to support future at home reimbursement are.
Speaker Change: Pure week program is progressing well and we remain on track to launch our next generation female external catheter later this fiscal year, which will provide a better patient experience and a more dignified way for women to manage their urinary incontinence.
In Q1, we received five 10-K clearance for our new BD many draw capillary blood collection system.
Speaker Change: Based on a recent study two thirds of patients prefer many draws finger stick collection in a retail setting over our previous experience with a traditional venous blood draw.
Speaker Change: Since it does not require a phlebotomist many draw can expand access to sample collection for several routine blood tests to new settings, such as retail clinics and pharmacies.
Speaker Change: And lastly in molecular diagnostics, we initiated a clinical trial enrollment for the BD Allianz point of care molecular platform and our first assay a rapid C. T. G C tests for in office testing and treatment.
Speaker Change: <unk> enables BD to enter into the high growth in molecular point of care market. We continue to see molecular diagnostics is a strong growth catalyst as evidenced by double digit growth this quarter, and our BD Cor and BD Max platforms, where we continue to leverage our growing installed base through menu expansion with more than 20 asked.
Operator: Hello, and welcome to BD's first Fiscal Quarter 2024 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.bd.com, or by phone at 800-688-7339 for domestic calls and area code plus 1-402-220-1347 for international calls. For today's call, all parties have been placed in a listen-only mode until the question and answer session.
Speaker Change: He is currently available on BD Max.
Speaker Change: Both nextgen pure WIC and BD. Many draw are on track to launch later this fiscal year and we anticipate our first five 10-K submission for the BD Elliot system and our first assay this fiscal year as well.
Speaker Change: Regarding our Lewis.
Speaker Change: Servicing our customers and bringing all the lyris pumps in the field up to the cleared standard remains our priority.
Customer response has been very positive with strong momentum engaging with customers and while it is still early in the process I am pleased with our progress and we as we recently shared we now believe $200 million is the floor on revenue in fiscal 'twenty four.
Operator: I will now turn the call over to Greg Roditas, Senior Vice President, Treasurer, and Head of Investor Relations. Good morning, and welcome to BD's earnings call. I am Gregory Dietus, Senior Vice President, Treasurer, and Head of Investor Relations.
Speaker Change: We are also executing well on our broad simplification strategy to drive margin expansion and double digit base EPS CAGR through FY 'twenty five.
Robert J. Marcus: On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the first quarter of fiscal 2024. We also posted an earnings presentation that provides additional details on our business, strategy, and performance. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's calls are Tom Polen, BD's Chairman, Chief Executive Officer, and President, and Chris Dolores, Executive Vice President and Chief Financial Officer.
Speaker Change: This includes accelerating adoption of our BD excellence operating system, which focuses on the application of lean principles to drive excellence everywhere every day across our plants and business and it's driving productivity gains across our operations.
In FY2023 we held 18 week long kaizen events and in Q1, FY 'twenty four alone we executed as many a trajectory which will continue through the rest of FY 'twenty four.
Thomas Polen: Tom will provide highlights of our performance and the continued execution of our BD2025 strategy. Chris will then provide additional details on our Q1 financial performance and our updated guidance for fiscal 2024. 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 Bird, President of the Interventional Segment.
Speaker Change: We have deployed this mindset outside of our factories driving greater efficiency through the organization at all levels are.
Speaker Change: Our BD excellence operating system as an important new capability, we're building to drive a world class culture of continuous improvement and lean management throughout BD.
Speaker Change: We also progressed our project re code initiatives, including our network optimization effort to drive plant efficiencies.
Speaker Change: We have multiple site consolidations, either completed or underway to reduce our footprint by approximately 20%.
Robert J. Marcus: Before we get started, I want to remind you that we'll be making forward-looking statements. I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the Investor Relations website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus a 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 note it as a calendar period.
Speaker Change: The combination of BD excellence with our re code network architecture program is supporting our FY 'twenty four goals contributing to our plan for 25% operating margins in FY 'twenty five.
Speaker Change: And also now providing visibility for continued margin expansion beyond FY 'twenty five.
Speaker Change: We're also seeing our systematic focus on cash flow continuing to yield results.
Speaker Change: Through working capital efficiencies and our BD excellence operating system driving more efficient capex spend we delivered over $850 million in operating cash flows in Q1.
Robert J. Marcus: I would also call your attention to the non-GAAP reconciliations included in the appendices of the press release and earnings presentation. With that, I am very pleased to turn it over to Tom. Thanks, Greg. Good morning, everyone, and thank you for joining us.
Speaker Change: This strong execution to start the year positions us well to deliver double digit growth in free cash flows in FY 'twenty, four and positions us to capitalize on M&A opportunities in higher growth categories, and Opportunistically return cash to shareholders.
Thomas Polen: Earlier today, we reported our results for the first quarter. Overall, we executed Q1 as expected. Total revenue growth was largely in line with our expectations, and on the bottom line, adjusted EPS was ahead of our expectations due to good execution on our margin goals through our BD Excellence operating system and the timing of a discrete tax item. Also, consistent with our plan, we delivered very strong growth in cash flow. That positions us well to deliver another year of double-digit growing free cash flow double-digit. I want to thank our team of over 70,000 associates for the strong execution, agility, and unrelenting determination to deliver for our customers, patients, and shareholders.
Speaker Change: Lastly, our teams around the world continue to make meaningful advancements on our ESG strategy.
Speaker Change: Just last week, we announced a collaboration with the Kenyan government to advance access to critical cancer diagnostics for women in Kenya through self sampling.
Speaker Change: During our commitment to expanding health equity and access around the world.
Speaker Change: We see the power of this self sampling model is applicable across other underserved markets as well as in the U S.
Speaker Change: In summary, I'm pleased with the progress we made in Q1, and a solid margin execution, which enables us to raise guidance for fiscal 2024.
Thomas Polen: These results give us the confidence to increase our FY 24 guidance. Turning to our BD 2025 strategy. During Q1, we continued to execute well against the five actions we outlined at our Investor Day to drive profitable growth and value creation. This included continuing to advance our innovation pipeline, which supports our durable 5.5% plus targeted revenue growth profile. We remain focused on advancing innovation in high-growth areas anchored by three irreversible forces we see reshaping health care today and over the next decade: Connected Care, New Care Settings, and Chronic Disease.
Speaker Change: With strong progress of our innovation pipeline and growing momentum from BD excellence in our simplification programs. We believe we are well positioned to achieve our BD 2025 goals.
Speaker Change: With that let me turn it over to Chris to review, our financials and guidance and outlook.
Chris: Thanks, Tom and good morning, everyone as Tom noted, we executed well against our performance goals in Q1.
Chris: Q1 revenue growth was largely as we expected and I'm pleased to share we exceeded both our margin and earnings goals and delivered strong cash flow that positions us well to support our double digit free cash flow growth goal.
Thomas Polen: Specifically, in Q1, we made meaningful progress achieving several key R&D milestones for technologies that position BD as key enablers of care shift to new settings. For example, in our PURE WIC portfolio, which is now the market's leading platform for non-invasion urine management in a billion-dollar market growing double digits, we started our randomized clinical trial pilot for PURE WIC female to generate evidence to support future at- Our PURE WIC program is progressing well, and we remain on track to launch our next generation female external catheter later this fiscal year, which will provide a better patient experience and a more dignified way for women to manage their urinary incontinence. In Q1, we received 510K clearance for our new BD mini-draw capillary blood collection. Based on a recent study, two-thirds of patients prefer Mini-Draw's finger stick collection in a retail setting over a previous experience with a traditional venous blood draw. Since it does not require a phlebotomist, Mini-Draw can expand access to sample collection for several routine blood tests to new settings, such as retail clinics and pharmacies.
Speaker Change: I'll now provide some insight into our revenue performance in the quarter additional detail can be found in today's earnings announcement and presentation.
Speaker Change: Q1 revenue was $4 7 billion with organic growth of two 4% <unk>.
Speaker Change: It was driven by high single digit organic growth in BD, interventional and solid growth in BD medical with China market dynamics, playing out as expected.
Partially offset by a decline in BD life Sciences, which was impacted by the comparison to the prior year respiratory season.
Speaker Change: As expected, China and respiratory were the primary drivers of Q1 revenue growth under indexing, our full year goal.
Speaker Change: The respiratory season alone impacted total company growth by about 150 basis points.
Speaker Change: Regionally organic growth was driven by the U S EMEA and Latin America, partially offset by the expected decline in China.
Speaker Change: Total Q1 revenue growth of one 6% reflects the divestiture of our surgical instruments platform.
Speaker Change: Turning to the segment performance.
Thomas Polen: And lastly, in molecular diagnostics, we initiated clinical trial enrollment for B.D. Elian's Point of Care Molecular Platform. And our first assay, a rapid CTGC test for in-office testing and treatment. BD Alliance enables BD to enter the high-growth molecular point-of-care market. We continue to see molecular diagnostics as a strong growth catalyst, as evidenced by double-digit growth this quarter in our BD-Core and BD-Max platforms, where we continue to leverage our growing installed base through menu expansion with more than 20 assays currently available on BD-Max. Both NextGen PureWIC and BD MiniDRAW are on track to launch later this fiscal year.
Medical revenue totaled $2 $2 billion in the quarter growing two 4% driven by growth in medication management solutions and pharmaceutical systems mid.
Speaker Change: Mid single digit growth in MMS was led by strong performance in dispensing driven by innovations in our BD pyxis portfolio that are improving nursing workflows and efficiencies.
Speaker Change: In our infusion business, we are pleased with our strong progress.
Bringing the BD awareness infusion system back to the market and continue to expect <unk> to ramp over the course of the year.
Speaker Change: Infusion also reflects strong demand for IV sets.
Speaker Change: Performance in pharmacy automation reflects the comparison to an outsized quarter in the prior year and the timing of planned capital installations.
Thomas Polen: And we anticipate our first 510K submission for the BD ELIENT system and our first assay this fiscal year as well. Regarding Alaris, servicing our customers and bringing all Alaris pumps in the field up to the cleared standard remains our priority. Customer response has been very positive, with strong momentum in engaging with customers. And while it is still early in the process, I'm pleased with our progress. And as we recently shared, we now believe $200 million is the floor on revenue for Fiscal 24.
Growth of three 4% in pharmaceutical systems was in line with our expectations and was led by strong double digit growth in pre filled devices for biologics and as expected was partially offset by customer inventory dynamics, including a slowdown in demand for anticoagulants.
Speaker Change: Growth in medication delivery solutions was about flat and slightly ahead of our expectations. Our vascular access management strategy continues to drive strong performance, particularly in catheter solutions as.
Thomas Polen: We are also executing well on our broad simplification strategy to drive margin expansion and a double-digit-based EPS CAGR through FY25. This includes accelerating adoption of our BD Excellence Operating System, which focuses on the application of lean principles to drive excellence everywhere, every day across our plants and business and is driving productivity gains across our operations. In FY23, we held 18 week-long Kaizen events.
Speaker Change: And as expected MBS growth was impacted by market dynamics in China, including volume based procurement, which continues to play out within our expectations.
Speaker Change: BD life Sciences revenue of $1 $3 billion declined two 5%, which reflects a decline in ibs as a result of a tough comparison in the respiratory season worth nearly 500 basis points. It was partially offset by strong growth in biosciences.
Thomas Polen: And in Q1 FY24 alone, we executed as many, a trajectory which will continue through the rest of FY24. We've deployed this mindset outside of our factories, driving greater efficiency through the organization at all levels. Our BD Excellence operating system is an important new capability we're building to drive a world-class culture of continuous improvement and lean management throughout BD. We also progressed our project recode initiatives, including our network optimization effort to drive plant efficiency. We have multiple site consolidations either completed or underway to reduce our footprint by approximately 20%.
Speaker Change: Performance in Ibs reflects the tough comparison in respiratory testing that was partially offset by high single digit growth in our microbiology platforms and double digit growth in molecular IBD assays on both our BD, Max and BD core platforms.
Speaker Change: Biosciences grew five 7% as expected.
Speaker Change: Despite a strong comparison in the prior year.
Speaker Change: <unk> performance was driven by strong mid single digit growth in our research and clinical platforms that reflects double digit growth in research instruments, driven by strong demand for our recently launched BD facts discover SC cell sorter.
Speaker Change: And double digit growth in clinical reagents, as we continue to leverage our growing installed base of facts Lear and facts to edge solutions.
Thomas Polen: The combination of BD Excellence with our Recode Network Architecture Program is supporting our FY24 goals, contributing to our plan for 25% operating margins in FY25 and also now providing visibility for continued margin expansion beyond FY25. We're also seeing our systematic focus on cash flow continuing to yield results. Through working capital efficiencies and our BD Excellence operating system, driving more efficient CapEx spend, we delivered over $850 million in operating cash flows in Q1.
Speaker Change: BD interventional revenues totaled $1 $2 billion in the quarter growing four 7% and eight 4% organically, which excludes the impact of the surgical instruments divestiture.
<unk> organic growth was led by surgery and UCC.
Speaker Change: In surgery double digit organic growth was led by continued market adoption of our leading physics resorbable hernia products in our advanced repair and reconstruction portfolio and strong demand for our core of craft infection prevention solution.
Speaker Change: High single digit growth in urology was led by strong double digit growth in our pure with chronic incontinence solutions.
Thomas Polen: This strong execution to start the year positions us well to deliver double-digit growth in free cash flows in FY24 and positions us to capitalize on M&A opportunities in higher growth categories and opportunistically return cash to shareholders. Lastly, our teams around the world continue to make meaningful advancements on our ESG strategy. Just last week, we announced a collaboration with the Kenyan government to advance access to critical cancer diagnostics for women in Kenya through self-sampling, furthering our commitment to expanding health equity and access around the world.
Speaker Change: With continued strong demand in both the acute care and home care settings.
Speaker Change: Mid single digit growth in Pi was in line with our expectations and reflects growth across the portfolio. It was partially offset by the expected timing of distributor orders.
Speaker Change: In our peripheral vascular disease platform, we continue to drive market penetration with our Rotarix atherectomy system in our venous portfolio.
Speaker Change: Performance in our oncology business was driven by growth in biopsy, including strong market acceptance of our recently launched BD track powered bone biopsy system.
Chris Dolores: We see the power of this self-sampling model as applicable across other underserved markets as well as in the U.S. In summary, I'm pleased with the progress we made in Q1 and the solid margin execution, which enables us to raise guidance for fiscal 2024. With strong progress in our innovation pipeline and growing momentum from BD Excellence and our simplification programs, we believe we are well positioned to achieve our BD 2025 goals. With that, I will turn it over to Chris to review our financials, guidance, and outline. Thanks, Tom. And good morning, everyone.
Speaker Change: Now moving to our P&L adjusted gross margin of 51, 1% and adjusted operating margin of 22% were ahead of our expectations due to good execution on our margin improvement goals across our portfolio of simplification initiatives and strong as SG&A expense leverage.
Speaker Change: R&D spend was in line with our expectations.
Speaker Change: In addition, as we previously shared a discrete tax item that was contemplated in our full year tax rate was realized in Q1.
Speaker Change: As a result of these items, we exceeded our Q1 operating income and our adjusted diluted EPS expectations, resulting in an EPS of $2 68.
Chris Dolores: As Tom noted, we executed well against our performance goals in Q1. Q1 revenue growth was largely as we expected, and I'm pleased to share we exceeded both our margin and earnings goals and delivered strong cash flow that positions us well to support our double-digit free cash flow growth goal. I'll now provide some insight into our revenue performance in the quarter. Additional detail can be found in today's earnings announcement and presentation. Q1 revenue was $4.7 billion, with organic growth of 2.4%.
Speaker Change: Regarding our cash and capital allocation Q1 cash flows from operations totaled over $850 million.
Speaker Change: This reflects continued improvements around working capital, including good management of inventory levels continued discipline around capex investments and leveraging our fixed asset base as a result of the benefit from our simplification programs and BD excellence operating system.
Speaker Change: We remain focused on free cash flow conversion and expect another step improvement in FY 'twenty four.
Chris Dolores: It was driven by high single-digit organic growth in BD Interventional and solid growth in BD Medical, with China market dynamics playing out as expected, partially offset by a decline in BD life sciences, which was impacted by the comparison to the prior year respiratory season. As expected, China and respiratory were the primary drivers of Q1 revenue growth under indexing our full-year goal. The respiratory season alone impacted total company growth by about 150 basis points. Regionally, organic growth was driven by the U.S., EMEA, and Latin America, partially offset by the expected decline in China.
As we execute against our <unk> 2025 strategy. We also remain well positioned to achieve our long term cash conversion target of around 90%.
Speaker Change: Beyond our investments in growth, we returned $775 million in capital to shareholders, including dividends and $500 million in share repurchases.
Speaker Change: We ended Q1 with a cash balance of $1 2 billion and our net leverage ratio of two seven times.
Speaker Change: Moving to our updated guidance for fiscal 'twenty four for your convenience the detailed assumptions underlying our guidance can also be found in our presentation.
Chris Dolores: Total Q1 revenue growth of 1.6% reflects the divestiture of our surgical instruments platform. Turning to the segment performance, BD medical revenue totaled $2.2 billion in the quarter, growing 2.4%, driven by growth in medication management solutions and pharmaceutical systems.
Speaker Change: Based on our Q1 performance, including the strong momentum in many parts of our business and progression of our margin improvement initiatives. We raised the midpoint of our FY 'twenty for organic revenue growth guidance and raised our adjusted EPS guidance, increasing the midpoint by <unk>.
Speaker Change: The increase to adjusted EPS reflects Q1 operational outperformance and a small improvement in FX.
Chris Dolores: Mid-single-digit growth in MMS was led by strong performance in dispensing, driven by innovations in our BD PIXIS portfolio that are improving nursing workflows and efficiency. In our infusion business, we are pleased with our strong progress, bringing the BD Alaris infusion system back to the market and continue to expect Alaris to ramp over the course of the year. Confusion also reflects strong demand for IV sets.
Speaker Change: As a result, we now expect to deliver organic revenue growth of five 5% to 625%, which increases our midpoint to slightly above five 8%.
Speaker Change: We now expect adjusted diluted EPS, including the impact of currency to be in a range of $12 82 to.
Speaker Change: To $13 <unk>.
Speaker Change: Which reflects about $12 94 at the midpoint.
Chris Dolores: Performance and pharmacy automation reflect the comparison to an outsized quarter in the prior year and the timing of planned capital installations. Growth of 3.4% in pharmaceutical systems was in line with our expectations and was led by strong double-digit growth in pre-filled devices for biologics, and, as expected, was partially offset by customer inventory dynamics, including a slowdown in demand for anticoagulants. Growth in medication delivery solutions was about flat and slightly ahead of our expectations.
Speaker Change: Regarding foreign currency based on current spot rates for illustrative purposes.
Currency has improved modestly and for the full year is now estimated to be a headwind of approximately 25 basis points to total company revenues and approximately 360 basis points to adjusted EPS growth on a full year basis.
Speaker Change: As you think of phasing over the balance of fiscal 'twenty for the following are some considerations first we continue to expect organic sales growth to be higher than our full year range in the second half.
Chris Dolores: Our vascular access management strategy continues to drive strong performance, particularly in catheter solutions. As expected, MDS growth was impacted by market dynamics in China, including volume-based procurement, which continues to play out within our expectations. ED Life Sciences revenue of 1.3 billion dollars declined 2.5 percent, which reflects a decline in IDS as a result of a tough comparison in the respiratory season worth nearly 500 basis points.
Speaker Change: Partially driven by the expected ramp and awareness along with the easing of prior year comparisons such as China.
Speaker Change: Second our updated guidance reflects an improved margin cadence over the balance of the year.
Speaker Change: Specific to Q2 adjusted gross margin is in line with our prior expectation and continues to reflect significant sequential improvement given the lessening impacts from inflation.
Chris Dolores: It was partially offset by strong growth in bioscience. Performance in IDS reflects the tough comparison in respiratory testing that was partially offset by high single-digit growth in our microbiology platforms and double-digit growth in molecular IVD assays on both our BD-Max and BD-CoR platforms. Biosciences grew 5.7% as expected, despite a strong comparison in the prior year. BDB performance was driven by strong mid-single-digit growth in our research and clinical platforms that reflected double-digit growth in research instruments driven by strong demand for our recently launched BD FACTS DISCOVER S8 cell sorter and double-digit growth in clinical reagents, as we continue to leverage our growing installed base of FaxLear and FaxDuet solutions. BD interventional revenues totaled $1.2 billion in the EDI Organic Growth was led by Surgery and UCC.
Prior year inventory reductions and FX.
Speaker Change: We now expect Q2, adjusted operating margin to expand by 25 to 50 basis points year over year, driven by our continued margin improvement efforts and continued leverage in SG&A.
Speaker Change: Third the discrete tax item realized in Q1 was largely a shift from Q2 and results and revised phasing of our full year effective tax rate.
Speaker Change: Based on this timing dynamic we currently expect our Q2 tax rate to be nearly 17%.
Speaker Change: We expect strong operating performance to offset the tax phasing impact and as a result, there are no changes to our expectations for Q2 adjusted earnings per share.
Speaker Change: Lastly, we remain confident in delivering about 50 basis points of adjusted operating margin improvement for the year.
Speaker Change: As a reminder, the first half inventory impact is transitory and behind us as we exit Q2.
Speaker Change: And is FX and inflation moderate at a meaningful rate through the back half coupled with a continuation of the first half margin improvement, we expect to deliver from our strong simplification portfolio. We can naturally achieve our second half margin goals.
Chris Dolores: In surgery, double-digit organic growth was led by continued market adoption of our leading Phasics-resorbable hernia products in our advanced repair and reconstruction portfolio and strong demand for our ChlorPrep infection prevention solution. High single-digit growth in urology was led by strong double-digit growth in our PUREWIC chronic incontinence solution, with continued strong demand in both the acute care and home care settings. Mid-single-digit growth in PI was in line with our expectations and reflects growth across the portfolio. However, it was partially offset by the expected timing of distributor orders. In our peripheral vascular disease platform, we continue to drive market penetration with our Rotarix atherectomy system and our venous portfolio.
Speaker Change: In summary, based on the strength of our portfolio and new innovation, we have clear line of sight to deliver our FY 'twenty four revenue guide, which at the midpoint is above our five 5% plus target and results in a three year CAGR of nearly 7% growth.
Speaker Change: I am pleased with the continued strong execution by our talented organization to start the year, which supported over delivering on our margin and operating income goals and increasing our earnings outlook.
Speaker Change: With a strong quarter of cash flow, we remain well positioned to deliver another year of double digit free cash flow growth, which increases our capacity to support additional value creating opportunities including M&A.
Speaker Change: We remain well positioned to continue to deliver against our BD 2025 strategy and financial targets.
Chris Dolores: Performance in our oncology business was driven by growth in biopsy, including strong market acceptance of our recently launched BD-TREC powered bone biopsy. Now moving to our P&L. Adjusted Gross Margin of 51.1% and Adjusted Operating Margin of 20.2%.
With that let's start the Q&A session.
Speaker Change: Operator can you assemble our queue.
Speaker Change: At this time, if you have a question. Please press star and one if at any point. Your question has been answered humira remove yourself from the queue by pressing star and two in.
Chris Dolores: We're ahead of our expectations due to good execution on our margin improvement goals across our portfolio of simplification initiatives and strong SSG&A expense leverage. R&D spend was in line with our expectations. In addition, as we previously shared, a discrete tax item that was contemplated in our full-year tax rate was realized in Q1. As a result of these items, we exceeded our Q1 operating income and our adjusted diluted EPS expectations, resulting in an EPS of $2.68. Regarding our cash and capital allocation, Q1 cash flows from operations totaled over $850 million.
Speaker Change: In order to allow for broad participation. Please limit yourself to one question and one follow up lastly, terrified optimal sound quality. Please pickup your handset when you when you ask your question.
Speaker Change: Thank you and our first question will come from Rick Wise with Stifel. Please go ahead. Your line is open.
Rick Wise: Good morning, Rick Tom Hi, Chris.
Rick Wise: You used the word <unk>.
Rick Wise: <unk> repeatedly in gist.
Speaker Change: Picking up on that.
Speaker Change:
Heading into the quarter.
Speaker Change: No you were very clear about.
Chris Dolores: This reflects continued improvements around working capital, including good management of inventory levels, continued discipline around CapEx investments, and leveraging our fixed asset base as a result of the benefit from our simplification programs and BD Excellence operating systems. We remain focused on free cash flow conversion and expect another step improvement in FY24. As we execute against our BD 2025 strategy, we also remain well-positioned to achieve our long-term cash conversion target of around 90%. Additionally, beyond our investments and growth, we returned $775 million in capital to shareholders, including dividends and $500 million in share repurchase. We ended Q1 with a cash balance of $1.2 billion and a net leverage ratio of 2.7 times.
Speaker Change: Things like currency and the peso divestitures.
Speaker Change: Lou.
Speaker Change: Benefit if you will timing shift but.
Speaker Change: The setup.
Speaker Change: Your new guidance clearly.
Speaker Change: Is that the rest of the year, we're going to see.
Accelerating organic growth.
Speaker Change: Second half.
Speaker Change: I think your language on the slide above full year guide.
Speaker Change: Help us maybe you could talk in a little more detail.
Speaker Change: The drivers of.
Speaker Change: Acceleration in the things that are most critical.
Creating better outlook that you're feeling confident about.
Speaker Change: Yeah. Thanks for the question, Rick and good to connect so as you said Q1 played out as expected total revenue growth was largely in line with our expectations. As you said there were really two factors that we recognize we're going to be playing out in Q1, one was the the flu compare given the large kind of early timing last year that was about.
Chris Dolores: Moving to our updated guidance for Fiscal 24. For your convenience, the detailed assumptions underlying our guidance can also be found in our presentation. Based on our Q1 performance, including the strong momentum in many parts of our business and progression of our margin improvement initiatives, we raised the midpoint of our FY24 Organic Revenue Growth Guidance and raised our Adjusted EPS Guidance, increasing the midpoint by nine cents.
Speaker Change: 150 basis points that we knew was going to happen and then value based procurement in China and those two factors played out actually exactly as we expected in China. In fact, we were watching that it we saw <unk> stay focused within Mds, which was just our assumption we had really strong growth in VDI within.
Chris Dolores: The increase to adjusted EPS reflects Q1 operational outperformance and a small improvement in FX. As a result, we now expect to deliver organic revenue growth of 5.5% to 6.25%, which increases our midpoint to slightly above 5.8%. We now expect adjusted diluted EPS, including the impact of currency, to be in a range of $12.82 to $13.06, which reflects about $12.94 at the midpoint of the year.
Speaker Change: Within the.
The quarter double digit mid teen growth high single digit growth in life Sciences, and so we saw that play out China actually did a little bit better than budgeted in Q1, and so we feel good that that's going to continue to play out for the year. I think you know as we also think about the back part of the year to your question something else. We're looking at as we started and gave guidance to begin.
<unk> 24 was of course Solaris, we are really pleased to have <unk> back.
Speaker Change: With new improvements, our new 500, 10-K, it's a big deal to be back servicing our customers fully it's it's a great product and highly unique and so of course Q1 was really the first quarter with hilarious relaunched and our team back to proactively upgrading our remediated our base and we wanted to get feedback and engagement.
Chris Dolores: Regarding foreign currency, based on current spot rates, for illustrative purposes, currency has improved modestly and for the full year is now estimated to be a headwind of approximately 25 basis points to total company revenues and approximately 360 basis points to adjusted EPS growth on a full year basis. As you think of phasing over the balance of Fiscal 24, the following are some considerations. First, we continue to expect organic sales growth to be higher than our full year range in the second half, partially driven by the expected ramp in ALARIS along with the easing of prior year comparisons such as China. Second, our updated guidance reflects an improved margin cadence over the balance of the year. Specific to Q2, Adjusted Gross Margin is in line with our prior expectations and continues to reflect significant sequential improvement given the lessening impacts from inflation, prior inventory reductions, and FX.
Speaker Change: And it's been quite positive and I think that's part also as we look ahead that confidence in those early engagements and the progress. We're making is what's led us to also comment that we see now $200 million adds to the floor for the year.
Speaker Change: The other aspects as you think about the growth drivers that we've been talking about.
Speaker Change: And we often call out six specific platforms, you saw really great growth in pure weak this quarter Pharm systems, we had signaled very clearly the anti coagulant topic that was going to create a slower compare or slower growth in Q1, we're seeing the underlying business. There do really well biologics grew double digits in the quarter.
Speaker Change: Slow playing out strong demand for facts discover molecular double digit growth as you heard in the prepared remarks.
Speaker Change: Referral vascular and pharmacy automation those trends in the marketplace continue with strong outlooks for those businesses. So again.
Chris Dolores: We now expect Q2 Adjusted Operating Margin to expand by 25 to 50 basis points year-over-year, driven by our continued margin improvement efforts and continued leverage in SSG&A. Third, the discrete tax item realized in Q1 was largely a shift from Q2 and results in a revised phasing of our full year effective tax rate. Based on this timing dynamic, we currently expect our Q2 tax rate to be nearly 17%.
Speaker Change: We saw very clearly the two factors that we knew were going to impact us in Q1, and they played out as expected Chris any other comments that.
Chris: I would just you know sometimes it's easier just bigger picture right I'm sure you're looking at our balance to go plans, which were very confident in to Tom's point.
Chris: We've expressed confidence in <unk> and establishing a floor now I think the <unk> dynamics important if you look at the balance to go it's about 7% revenue growth last few years, we delivered right around 7%. This year actually if you think about it <unk> is going to cycle over medical necessity, it's not a significant contributor to growth.
Chris Dolores: We expect strong operating performance to offset the tax phasing impact, and as a result, there are no changes to our expectations for Q2 adjusted earnings per share. Lastly, we remain confident in delivering about 50 basis points of adjusted operating margin improvement for the year. As a reminder, the first half inventory impact is transitory and behind us as we exit Q2, and as FX and inflation moderate at a meaningful rate through the back half.
Chris: In the first half despite seeing very strong progress.
Chris: But what that does is it adds about a point to growth more in the second half right.
Chris: So we see really good momentum there. So when you think of as sort of a layer of suggested you're at six.
Chris Dolores: Coupled with a continuation of the first half margin improvement we expect to deliver from our strong simplification portfolio, we can naturally achieve our second half margin goal. In summary, based on the strength of our portfolio and new innovation, we have clear line of sight to deliver our FY24 revenue guide, which at the midpoint is above our 5.5% plus target and results in a three-year kegger of nearly 7% growth. I'm pleased with the continued strong execution by our talented organization to start the year, which has supported over-delivering on our margin and operating income goals and increasing our earnings outlook. With a strong quarter of cash flow, we remain well positioned to deliver another year of double-digit free cash flow growth, which increases our capacity to support additional value-creating opportunities, including M&A. We remain well-positioned to continue to deliver against our BD 2025 strategy and financial targets. With that, let's start the Q&A session. Operator, can you assemble our queue? At this time, if you have a question, please press star and 1. If at any point your question has been answered, you may remove yourself from the queue by pressing star and 2.
Chris: And we cycle over the China compare in Q4, which had declined as well so.
Chris: I think plans are intact, the strong underlying fundamentals and kind of the six key areas, we keep pointing to like Tom mentioned, a biologics are well positioned and feel good about the rest of the year.
Speaker Change: Thanks for the question Rick.
Speaker Change: And just as a follow up.
Speaker Change: I'd ask about.
Speaker Change: The EPS guide that.
Speaker Change: <unk>.
Speaker Change: Seven.
Chris: Chris I think.
Chris: I'm calculating correctly you beat operationally.
Chris: You've raised nine cents at the midpoint.
Chris: For the full year talk about your confidence.
Chris: In that driving that midpoint EPS range.
Chris: Yes.
Chris: Again, how margins are in more detail are going to.
Chris: Or mix or volume are going to help you get to those.
Speaker Change: EPS target. Thank you.
Speaker Change: Yeah. Thanks. Thanks, Thanks, Rick Yeah, we were definitely pleased with the margin progression in operating income delivery Q1. It was it was strong and exceeded our expectations, we basically pass that through to your point.
Speaker Change: The other thing we did is we actually accelerated margin improvement in Q2.
Operator: In order to allow for broad participation, please limit yourself to one question and one follow-up. Lastly, to provide optimal sound quality, please pick up your handset when you ask your question. Thank you. And our first question will come from Rick Wise with Stiefel. Please go ahead. Your line is open. Good morning, Rick, Tom. Hi, Chris.
Speaker Change: By about 25 to 50 basis points, so de risked the back half of the year. We did that on a couple of things whenever you start the year you want to ask you you want to see a couple of things one did.
To recall some of these transitory headwinds like like China, We knew we had a transitory item in inventory that hit us in the first quarter. There was 200 basis points, we had outsized FX in the quarter all of those played out as expected and we have stronger delivery on calling inflation dynamic.
Thomas Polen: You've used the word confidence repeatedly, and I'm just picking up on that. Heading into the quarter, we knew you were very clear about things like currency and the peso divestitures, the flu benefit, if you will, time shift. But the setup and your new guidance clearly say that the rest of the year we're going to see accelerating organic growth in the second half, I think your language in the slide, above full year guidance. Help us. Maybe you could talk in a little more detail about the drivers of sales acceleration and the things that are most critical to creating that outlook that you're feeling confident about. Thanks for the questions.
And more importantly, our margin improvement program. So we continue to accelerate those.
Speaker Change: We've had two years now of consistent track record of delivering against our margin expectations.
Speaker Change: Back to pre pandemic levels 400 basis points over two years.
Speaker Change: If you look at our margin progression throughout the year basically with these transitory items behind you the level of cost improvement we delivered in Q1 alone with moderating outsized inflation through the back half of the year. It goes from early in Q1, we said it was almost two X what we're calling for the full year.
Speaker Change: Outsized inflation of 100 basis points. It cuts enhancing Q2, and then moderates in the back half. So we just have to keep executing against our margin improvement portfolio, which is really strong.
Speaker Change: And that's what gave us confidence with the Q1 performance and our ongoing programs too.
Thomas Polen: So, as you said, Q1 played out as expected, and total revenue growth was largely in line with our expectations. As you said, there were really two factors that we recognized were gonna be playing out in Q1. One was the flu compare, given the large kind of early timing last year. That was about 150 basis points that we knew was gonna happen. And then there was value-based procurement in China. And those two factors actually played out exactly as we expected. In China, in fact, we were watching that.
Speaker Change: Raise for the year and we're focused on executing against that.
Speaker Change: Thanks, Chris.
Speaker Change: We will take our next question from Travis Steed with Bank of America. Please go ahead. Your line is open.
Travis Steed: Hi, Thanks for taking the question I'll take the first question on revenue just curious if there's anything.
Travis Steed: To call out in some of the kind of non fluid areas Pharm systems MMS.
Travis Steed: Any kind of growth outlook, there is still so on track with your expectations.
Thomas Polen: We saw DOBP stay focused within MDS, which was just our assumption. We had really strong growth in BDI within the quarter, double-digit mid-teen growth, and high single-digit growth in life sciences. And so we saw that play out.
Travis Steed: The decision to raise the revenue guidance.
Travis Steed: Just curious what's giving you the confidence at this stage to go ahead and raise that revenue guidance at this point.
Travis Steed: Yes, Travis this is Tom Thanks for the question good morning.
Thomas Polen: So on farm system, specifically again as I mentioned, we saw that play out as expected with the impact of the the one customer that we mentioned in our anti coagulant and strong underlying growth beyond that again double digit growth in biologics are capacity continues to those investments that we made continue to play out as expected.
Thomas Polen: China actually did a little bit better than budgeted in Q1. And so we feel good that that's gonna continue to play out for the year. I think, as we also think about the back part of the year, to your question, something else we were looking at as we started and gave guidance to begin 24 was, of course, Alaris.
Thomas Polen: We were really pleased to have Alaris back with new improvements, our new 510K. It's a big deal to be back servicing our customers fully. It's a great product and highly unique.
Thomas Polen: We have capacity to meet customer needs and we're engaging very actively in that space.
Thomas Polen: And as we think about the slight raise on revenue again, we feel really a laris the floor of 200 as we see now for the year based on again early engagement with customers. We thought that was prudent to do given our outlook in that space.
Thomas Polen: And so, of course, Q1 was really the first quarter with Alaris relaunched and our team back to proactively upgrading and remediating our base. And we wanted to get feedback and engagement. And it's been quite positive. And I think that part also, as we look ahead, that confidence in those early engagements and the progress we're making is what's led us to also comment that we now see $200 million as the floor for the year. In the other aspects, as you think about the growth drivers that we've been talking about, and we often call out six specific platforms, you saw really great growth in PURWIC this quarter. For farm systems, we had signaled very clearly the anticoagulant topic that was going to create a slower comparison or slower growth in Q1.
Speaker Change: If you have any other comments that.
Speaker Change: Just also comment that in addition to the <unk>.
Speaker Change: Double digit demand in biologics <unk> been pretty successful in terms of entering.
Speaker Change: The development agreements for future pipeline of molecules in this space.
Speaker Change: Our innovation portfolio around high pack and Neo pack and also the wearables portfolio with liver Tox and evolve that continues to progress really well and additional developments a development agreement in this area are occurring.
Speaker Change: We've described our Pharm systems business as a high single digit grower.
Thomas Polen: We're seeing the underlying business there do really well; biologics grew double digits in the quarter. Slow playing out, strong demand for FACTS-DISCOVER, double-digit growth in molecular double-digits, as you heard in the prepared remarks, peripheral vascular, and pharmacy automation, those trends in the marketplace continue with strong outlooks for those businesses. Again, we saw very clearly the two factors that we knew were going to impact us in Q1, and they played out as expected. Chris, any other comments to add? Sometimes it's easier just to look at the bigger picture, right?
Speaker Change: Going back to the Investor day.
Speaker Change: And we continue to see that in 'twenty, four and that's our expectation despite any early part of the year headwinds.
Speaker Change: Great.
Speaker Change: Last question, Chris just on margins in Q1 was a nice kind of core outperformance on on margins in Q1, especially without the revenue upside just curious as to kind of go through what got better in Q1 on the margin side and confidence and what gets better and if you think about the 300 basis point step up in margins from Q1 to Q2, just to give some confidence that that three <unk>.
Speaker Change: Basis points step up sequentially it is achievable.
Chris Dolores: I'm sure you're looking at our balance-to-go plans, which we were very confident in, to Tom's point. We've expressed confidence in ALARIS in establishing a floor now. I think the ALARIS dynamic's important.
Chris: Yes, Thanks Charles.
Chris: <unk>.
Chris: So first of all in the quarter. It wasn't one thing I'd, just say execution as kind of a theme here. Our organization is hyper focused consistent with what we've done.
Chris Dolores: If you look at the balance-to-go, it's about 7% revenue growth. Last two years, we delivered right around 7%. This year, actually, if you think about it, ALARIS is going to cycle over medical necessity. It's not a significant contributor to growth.
Chris: It's predominantly our cost improvement programs we have.
Chris: Some mixed benefit as well, which has been part of our strategy on portfolio as well.
Chris: So all of that I would say the headwinds kind of played out as expected and we over delivered through good focus execution on our margin improvement initiatives.
Chris Dolores: In the first half, despite seeing very strong progress, but what that does is it adds about a point to growth in the second half, right? So we see really good momentum there. So when you think of this sort of a layer suggested, you're at six.
Chris: To your point, the Q1 step up.
Chris: The step up from Q1 to Q2 about 300 basis points that we've signaled.
Chris: Think of it this way again, we had two what I would call pretty transitory items in Q1, we felt the outsized FX, coupled with the inventory reduction and absorption dynamic.
Chris Dolores: And we cycle over the China comparison in Q4, which declined as well. So I think plans are intact, the strong underlying fundamentals in kind of the six key areas we keep pointing to, like Tom mentioned, of biologics are well positioned, and I feel good about the rest of the year.
Chris: Those two items alone as you head into Q2 or about 30%. So those were 400 basis points. There are only about 30% of that value in Q2, So you pick up momentum there.
Chris Dolores: Thanks for the question, Rick. Yeah, and just as a follow-up, I'd ask about the EPS guide. $0.07, Chris, I think I'm calculating correctly. You beat operational EPS. You raised $0.09 at the midpoint for the full year. Talk about your confidence in that driving that midpoint EPS raise and, you know, again, how margins are, in more detail, are going to, or mix or volume are going to help you get to those EPS targets. Thank you.
Chris: Coupled with the fact that the outsized inflation, which was almost two <unk>, what we call. It for the year in Q1, it starts moderating significantly almost in half.
Chris: Q2, and then it further moderates by the back half of the year. So.
Chris: Really it's just cycling over those kind of onetime items outsized inflation monitoring back and us continuing to deliver what we already delivered in Q1. So we're confident that that progression continues with that you naturally get the sequential step up that we're driving towards and again feel good about our operating margin.
Chris Dolores: Yeah, thanks, Rick. Yeah, we were definitely pleased with the margin progression and operating income delivery. Q1 was strong. It exceeded expectations. We basically passed that through, to your point. The other thing we did is we actually accelerated margin improvement in Q2 by about 25 to 50 basis points, so it de-risks the back half of the year. We did that on a couple of things. Whenever you start the year, you want to ask yourself, you want to see a couple of things. One question: did we call some of these transitory headwinds, like China?
Chris: This is why we improved our phasing increased Q2 and feel good about the line of sight, we have to the back half of the year.
Speaker Change: Super helpful. Thanks, Chris.
Speaker Change: Okay.
Speaker Change: We will take our next question from Vijay Kumar with Evercore ISI. Please go ahead. Your line is open.
Vijay Muniyappa Kumar: Good morning, Tom and Thanks for taking my question My first one comp if I just look at Q1 organic coupon floor rate.
Vijay Muniyappa Kumar: Lot of questions on luck utilization of strong licensed optically a coupon for well below mitek sort of prints. We've seen so far can you can you help us bridge.
Chris Dolores: We knew we had a transitory item in inventory that hit us in the first quarter that was 200 basis points. We had outsized FX gains in the quarter. All those played out as expected, and we had stronger delivery on calling inflation dynamics and, more importantly, our margin improvement program. So we continue to accelerate those. We've had two years now of a consistent track record of delivering against our margin expectations, back to pre-pandemic levels, 400 basis points over two years. If you look at our margin progression throughout the year, basically with these transitory items behind you, the level of cost improvement we delivered in Q1 alone, with moderating outsized inflation through the back half of the year, it goes from, really, in Q1 we said it was almost 2X what we're calling for the full year in outsized inflation, 100 basis points.
Vijay Muniyappa Kumar: The bridge I think you mentioned 150 basis points of respiratory does that include Covid I think you mentioned, China what was the China impact in Q1, I think you mentioned some timing elements customer orders what was that impact in <unk>.
Vijay Muniyappa Kumar: It looks like it was not a contributor to growth. So maybe just help us draw bridge between the coupon for and what it should have been without some of these underlying onetime items.
Speaker Change: Yeah, Great question Vijay maybe just those two items that we've referenced from the start of our guide flu and China. Those two combined if you take those out it's about 5%.
Speaker Change: Underlying growth just just excluding those two items. So that those are quite significant if you look at procedure volumes et cetera, youre seeing that flow through in <unk> in the base business, where those two items arent. So as an example, if you look in interventional, you'll see that very strong growth in surgery, right double digit growth which is.
Chris Dolores: It cuts in half in Q2 and then moderates in the back half. So we just have to keep executing against our margin improvement portfolio, which is really strong, and that's what gave us confidence with the Q1 performance and our ongoing programs to race for the year, and we're focused on executing against that. Thanks, Chris. We'll take our next question from Travis Steed with Bank of America. Please go ahead; your line is open.
Speaker Change: And getting the benefit of procedure volume machine in UCC.
Speaker Change: 9% growth there as an example, you know solid in NPI, a little bit of inventory timing there, but we're seeing those factors play out again concentrate on those two topics, which again played out as we expected.
Speaker Change: The large flu compare just given the early timing last year in China.
Speaker Change: Your line was about about five Chris.
Thomas Polen: Hey, thanks for taking the question. I'll take the first question on revenue. Just curious if there's anything to call out in some of the kind of non-flu areas, farm systems, MMS, if you think the growth outlook there is still on track with your expectations and the decision to raise the revenue guidance. What's given you the confidence at this stage to go ahead and raise that revenue guidance at this point? Yeah, Travis. This is Tom.
Speaker Change: Yeah.
Speaker Change: I mean on <unk>.
Speaker Change: <unk> played out as expected actually again, we've highlighted as he was going to be a journey as you think of the natural progression of engaging with customers.
Speaker Change: And the natural kind of lifecycle of then placement revenue recognition et cetera.
Speaker Change: We're actually very pleased with our progress there.
Speaker Change: And as a matter of fact, we declared the 200 millions more of a floor that was part of what gave us confidence to increase the low end of the revenue guide and so we're continuing to focus on executing there.
Thomas Polen: Thanks for the question. Good morning. So on farm systems specifically, again, as I mentioned, we saw that play out as expected with the impact of the one customer that we mentioned in anticoagulants and strong underlying growth. Beyond that, again, double-digit growth in biologics, our capacity continues to those investments that we made continue to play out as expected. We have capacity to meet customer needs.
Speaker Change: And that was as expected on the flip side, what it does is.
Speaker Change: In the back half of the year. It gives you almost basically a full point of growth tailwind that.
Speaker Change: That will help which so when you look at the back half I think of that it will kind of moderate the expectation that you are seeing around feeling like.
Speaker Change: That growth is outsized versus the front half of the year its as expected with the ramp we were expecting on awareness Yep I will turn it to Mike here I think it's obviously this is the first quarter that we've relaunched alero and so the focus is first on engaging customers getting agreements in place for remediation and upgrades and that's those are the key metrics that we look.
Mike Garrison: And we're engaging very actively in that space. But, And as we think about the slight raise in revenue, again, we feel it really alerts the floor of 200, as we see now for the year, based on, again, early engagement with customers. We thought that was prudent to do, given our outlook in that space. I don't know, Mike, if you have any other comments?
Mike Garrison: In the first quarter of launch because that's what's indicating how the revenue is going to evolve in the back half of the year and Thats. What we are feeling good about and just to remind that last year, we had the <unk>.
Mike Garrison: Certificate of medical necessity, that's how we were shipping we're not doing that now so it becomes more of like a step over to.
You get to there and then growth on top of that so that's that's what we're seeing in first quarter. So it's actually starting from ground zero in terms of the selling process and ramping it up I actually feel really good about that I feel really pleased with the way our manufacturing ramp up has gone in.
Mike Garrison: Just to also comment that, in addition to the double-digit demand for biologics, we've been pretty successful in terms of entering development agreements for future pipelines of molecules in the space. You know, our innovation portfolio around HiPak and Neopak and also the wearables portfolio with Libertas and Evolve, that continues to progress really well. Additional developments, development agreements in this area, are occurring. We've described the farm systems business as a high single-digit grower, you know, going back to investor day, and we continue to see that in 24. You know, that's our expectation, you know, despite any early part of the year headwinds. Great.
Mike Garrison: Yeah that scale up is going quite well, so we're able to supply product.
Mike Garrison: To our customers I think the customer response, there recognizing that <unk> is almost like a different system.
Mike Garrison: Different category in a way it's the.
Mike Garrison: <unk>, one with all the infusion modalities as a single system. The most advanced interoperability in the category.
Mike Garrison: 750 live sites.
Mike Garrison: Order of magnitude more than anyone else.
Mike Garrison: So it's almost being recognized a little differently.
Mike Garrison: That way so that's good.
Mike Garrison: And we've sort of exceeded we set certain expectations, we've exceeded those relative to the REIT.
Mike Garrison: And last question, Chris, just on margins in Q1. It was a nice kind of core outperformance on margins in Q1, especially without the revenue upside. Just curious to kind of go through what got better in Q1 on the margin side and confidence and what gets better if you think about the 300 basis points step up in margins from Q1 to Q2, just to give some confidence that that 300 basis points step up sequentially is achievable. Yeah, Travis.
Mike Garrison: Turning to the market in terms of upgrading the fleet in the field.
Mike Garrison: It's early but I think the way things have progressed, that's what those are the sort of the elements that led us to build confidence.
Mike Garrison: To say that we think 200 is the floor.
That's helpful and Chris maybe one quick one for you.
Mike Garrison: The margins still imply a 300 basis point step up in back half versus peer to peer levels.
Chris: Can you just talk I think inflation was part effect, but just maybe a similar bridge on margins.
Chris Dolores: So first of all, in the quarter, it wasn't one thing. I just say execution is kind of the theme here. Our organization is hyper-focused, consistent with what we've done. It's predominantly our cost improvement programs. You know, we had some mixed benefits as well, which has been part of our strategy in the portfolio as well. So all of that, I would say the headwinds kind of played out as expected, and we over-delivered through good focus execution on our margin improvement initiatives. To your point, the Q1 step-up...
Chris: From the 22 to 26 in back half.
Chris: Yes again.
Chris: It's basically a continuation of Q2, when you move out of Q2.
Chris: Both FX the inventory dynamic goes completely away, which is almost 75 basis points still in Q2, so right off the bat you pick that up as you move through Q2, that's probably the biggest item FX continues to moderate.
Chris: We have reasonable signals on FX, obviously can continue to move.
But that moderates down the other thing is.
Chris: Outsized inflation moves from about 100 basis points, which is our full year average in Q2 that further moderates down significantly and then again if you just continue the cost improvement and margin improvement initiatives, we already executed in Q1 throughout the year. It gets you to where we need to be from a margin standpoint.
Chris Dolores: The step up from Q1 to Q2, about 300 basis points that we've signaled. If you think of it this way again, we had two, what I would call pretty transitory items in Q1 with the outsized FX, coupled with the inventory reduction and absorption dynamic. Those two items alone, as you head into Q2, are about 30%.
Fantastic Thanks: Fantastic Thanks, guys.
Chris Dolores: So those were 400 basis points. There were only about 30% of that value in Q2. So you pick up momentum there, coupled with the fact that the outsized inflation, which was almost 2x what we called for the year in Q1, starts moderating significantly, almost half in Q2. And then it further moderates in the back half of the year. So really, it's just cycling over those kind of one-time items, outsized inflation moderating back, and us continuing to deliver what we already delivered in Q1. So we're confident that that progression will continue. With that, you naturally get the sequential step-up that we're driving towards. And again, we feel good about our operating margin, which is why we improved our phasing, increased Q2, and feel good about the line of sight we have to the back half of the year. Super helpful. Thanks, Chris. We'll take our next question from Vijay Kumar with Evercore ISI. Please go ahead. Your line is open. Good morning, Tom.
Speaker Change: Thanks, Vijay for the question.
Speaker Change: We will take our next question from Larry Michelson with Wells Fargo. Please go ahead. Your line is open.
Larry Biegelsen: Good morning, Thanks for taking the question.
Larry Biegelsen: Mike.
Larry Biegelsen: Why would medical growth in fiscal 'twenty four would be in line with the corporate average given the tailwind to the MMS in Pharm systems.
Just said you expect pharm systems to grow high single digits in 2024, so what are the expectations for MMS and Mds. This year last last year medical was 9% was above the corporate average.
Larry Biegelsen: So therefore for the auto I'll talk first about Mds business is actually showing really good momentum underlying.
Larry Biegelsen: Which is masked a little bit by the impact of <unk> in China. So the <unk> is a headwind for the year, yes, it's playing out as we expected and built into our plan.
Larry Biegelsen: But we're seeing strong momentum in the U S strong momentum.
Larry Biegelsen: And catheters and.
Larry Biegelsen: Somewhat driven by some of the new recent product launches that we've had.
Larry Biegelsen: The site Rite nine next even airport Tivo Pro. These advancements are are working out in the field and being very attractive to customers as we advanced the ones that hospital stay the vision. We're also watching injection systems in hypodermic.
Thomas Polen: And thanks for taking my question. My first one, Tom, if I just look at Q1 organic 2.4, right? A lot of questions on look, utilization is strong. Why is this optically 2.4 well below MedTech sorts of prints we've seen so far?
Larry Biegelsen: We're aware of some of the recent recalls agency action in this area and we've ramped our capacity to prepare to serve market needs arise in the U S.
Thomas Polen: Can you help us, Bridge? I think you mentioned 150 basis points for respiratory. Does that include COVID? I think you mentioned China.
Larry Biegelsen: So that's sort of Mds from MMS perspective, the way that.
Larry Biegelsen: Sort of seeing it and thinking about it as infusion sort of returning to be.
Thomas Polen: What was the China impact in Q1? I think you mentioned some timing elements, customer orders, what was that impact? And ALARES, it looks like it was not a contributor to growth, so maybe just help us draw a bridge between the 2.4 and what it should have been without some of these underlying one-time items. Yeah, great question, Vijay.
Larry Biegelsen: Contributor to growth versus maybe flat to a drag with.
Larry Biegelsen: With return of <unk> and then also we're really excited for very.
Larry Biegelsen: Very soon our upcoming market release of the ex U S infusion system BD nexis.
Larry Biegelsen: Our dispensing business continues to perform very well, it's got solid growth.
Larry Biegelsen: Both in the quarter in hospital and alternate site, our Med Bank acquisition grew.
Thomas Polen: Maybe just those two items that we've referenced, you know, from the start of our guide, flu and China, those two combined, if you take those out, it's about 5% underlying growth, just, just excluding those two items. So those are quite significant. If you look at procedure volumes, etc., you're seeing that flow through to the base business where those two items aren't. So, as an example, if you look at interventional radiology, you'll see that very strong growth in surgery, right?
Larry Biegelsen: <unk> grew double digits in the quarter and continues to expand our presence in non acute settings. So I feel good about that pharmacy automation that proposition continues to resonate really well.
Larry Biegelsen: For both ROA and Perata as we noted previously and in the presentation. This quarter last year was actually proud as strong Q4 finish for their fiscal year. So created a bit of a tough compare this was expected in our timing ramp of installs is weighted more towards the back half. So those are sort of the things that give me confidence.
Thomas Polen: Double-digit growth, which is getting the benefit of procedure volume. You're seeing in UCC, 9% growth there as an example, solid in PI, a little bit of inventory timing there, but we're seeing those factors play out. Again, I'd concentrate on those two topics, which again played out as we expected the large flu compare, just given the early timing last year in China, underlying was about, about five.
Larry Biegelsen: Since around Mds and MMS.
Speaker Change: That's helpful. Tom.
Speaker Change: China was down 5% in this quarter in Q1.
Speaker Change: Talk about what Youre seeing there and your confidence I think in the past you said you expect China to be flat to up low single digits. This year. Thanks for taking the question.
Speaker Change: Yes, Thanks, Larry.
Speaker Change: That expectation remains unchanged, China played out essentially exactly as we expected in the quarter was a little bit favorable to budget, but we saw and what we expected was V. L. P. As Mike described specifically within Mds, which is where it remained we didn't see it expand to other areas at all we're not seeing that it's our view is.
Thomas Polen: I mean, on ALARIS. ALARIS played out as expected. Actually, again, what we've highlighted is that it was going to be a journey as you think of the natural progression of engaging with customers and the natural kind of lifecycle of then placement revenue recognition, etc. We're actually very pleased with our progress there, and as a matter of fact, right, we declared that $200 million was more of a floor. That was part of what gave us confidence to increase the low end of the revenue guide. And so we're continuing to focus on executing there, and that was as expected. On the flip side, what it does is...
As we had projected and we also expected to see strong growth in <unk>, which we've had over the last several years, we saw that play out in the quarter mid teens growth in <unk> in Q1, and we saw solid growth in our high seem very high single digits on the cusp of double digit growth in life Sciences in China, and so I.
Speaker Change: Base business in China is continuing to do well, we'll we saw <unk> start in the back half of last year, and so again, that's going to become a tailwind for us as we think about the compare in China as we go over that so thanks for the question on queue. Thank you.
Thomas Polen: In the back half of the year, it gives you almost a full point of growth tailwind, that will help, which so when you look at the back half, think of that, it'll kind of moderate the expectation that you're seeing around feeling like that growth is outsized versus the front half of the year. It's as expected with the ramp we were expecting on Alaris. Yeah. Turn it to Mike here.
Speaker Change: We'll take our next question from Robbie Marcus with Jpmorgan. Please go ahead. Your line is open.
Robbie Marcus: Thanks for taking the question.
Robbie Marcus: I wanted to ask I know were in fiscal 2004 here, but wanted to look out to 'twenty five.
Robbie Marcus: Yep.
Robbie Marcus: Based on operating margin guidance. It implies about 100 basis points expansion next year to get to your long range plan target.
Mike Garrison: I think this is obviously the first quarter that we've relaunched Alaris, and so the focus is first on engaging customers, getting agreements in place for remediation and upgrades, and that those are the key metrics that we look at in the first quarter of launch because that's what's indicating how revenue is going to evolve in the back half of the year. And that's what we, right, are feeling good about. And I just want to remind you that last year we had, you know, the certificate of medical necessity; that's how we were shipping. We're not doing that now.
Robbie Marcus: So I'm sure the answer is pretty similar to the 24, but how do we think about the implied about 100 basis points next year and your confidence in that.
Speaker Change: Yes, Robert Thanks for the question.
Speaker Change: Actually at Jpmorgan as you know we outlined a strong plan outlining all of our margin improvement initiatives I think gross margin is the next stage of accelerated focus for us and we already have.
Speaker Change: A great pipeline of.
Robert: Our margin improvement initiatives there through project re code right, we actually already completed our 20% goal of SKU rationalization, we're actually gonna go further there.
Mike Garrison: So it becomes more of like a step over to, you know, get to there and then growth on top of that. So that's what we're seeing in the first quarter. So it's actually, you know, starting from ground zero in terms of the selling process and ramping it up. I actually feel really good about that.
Robert: The network architecture, Tom highlighted in our prepared remarks, the strong progress there with initiatives underway that reduce our network by 20%. Its a matter of fact next year. The network architecture value, we get out of that actually doubles going into 25, so you're going to really start seeing the benefits of that.
Robert: BB excellence is another one we're getting great traction this year as part of the momentum we have in this year our margin that will continue into next year. You also have the awareness dynamic is that fully ramps up and scales. We will get margin leverage there. So all of those things coupled with the continued strong growth profile.
Mike Garrison: I feel really pleased with the way our manufacturing ramp-up has gone. And that scale-up is going quite well. So, you know, we're able to supply product to our customers. I think the customer response, they're recognizing that, you know, Alaris is almost like a different system. It's a different category in a way.
Robert: Of being able to consistently do five five plus which we've we've been well above.
Robert: <unk> gives us strong confidence in 2025, and the 100 basis point as a matter of fact as we exit this year.
Robert: Doing everything we did we really should be well positioned to carry that kind of momentum into next year, it's premature to kind of make a formal commitment and manage all of the puts and takes but certainly high confidence in the 25 and.
Mike Garrison: It's, you know, the power of one with all the infusion modalities as a single system, the most advanced interoperability in the category, 750 lab sites, an order of magnitude more than anyone else. So it's almost being recognized a little differently that way. So that's good. And we've sort of exceeded our expectations. We set certain expectations. We've exceeded those relative to the return to market in terms of upgrading the fleet and the field. So it's early, but I think the way things have progressed, those are the sort of the elements that led us to build confidence to say that we think 200 is the floor. That's helpful. And Chris, maybe one quick one for you.
Speaker Change: Great momentum, there and maybe Ravi and good morning.
Speaker Change: To add to Chris's. Good comments, there I think another way just to think about it is as we launched <unk> 2025 in 'twenty. Two it was a four year roadmap ahead right and so the end of 'twenty four will be <unk>.
Speaker Change: 75% of the way through BD 2025, as you think about the margin number that we set out as our guide for FY 'twenty four that's 80% of the way through our margin goal right. So from a timing perspective, 75% of the way through <unk>, 2025% to 80% of our margin goal. We're clearly on track slightly ahead.
Speaker Change: And we're seeing really good momentum in our programs as evidenced this quarter I think you've heard us talk about BD excellence, obviously as we started beta 2025, and our focus was let's get a layers back number one take those learnings apply them across the company to make sure. We were building capabilities second was optimize our portfolio for growth spending backed up.
Chris Dolores: The margins still imply a 300 basis points step up in the back half versus your two levels. Can you just talk? I think inflation was part of it, which is maybe a similar bridge on margins from the 23 to, you know, 26 in the back half. Yeah, again, um... You know, it's basically a continuation of Q2. When you move out of Q2, both FX, the inventory dynamic goes completely away, which is almost 75 basis points still in Q2. So right off the bat, you pick that up as you move through Q2. That's probably the biggest item.
Speaker Change: Obviously, we sold the Mueller, we drove tuck in M&A, that's driving accretive growth, we rebalanced, our R&D into high growth spaces.
Speaker Change: And we built our portfolio of simplification programs, starting with re code, which are on track and Youre seeing those play out along the way and starting last year, we began to develop capabilities for BD excellence right and it's our operating model operating system to drive a whole new scale of lean capabilities across.
Chris Dolores: FX continues to moderate. We have reasonable signals on FX, which obviously can continue to move, but that moderates down. The other thing is, outsized inflation moved from about 100 basis points, which is our full-year average in Q2, and that further moderated down significantly, and then again, if you just continue the cost improvement and margin improvement initiatives we already executed in Q1 throughout the year, it gets you to where we need to be from a margin standpoint. Fantastic.
Speaker Change: <unk> the company and last year, we we had thousands of associates across the company engaged in BD excellence. This year were really pressing the pedal on that program now as we've made progress on those first three areas that I mentioned and so as we said in the prepared remarks, if you think about the <unk> that we did all of last year.
Speaker Change: BD excellence.
Speaker Change: We did just as many in Q1 of this year just completed and that is going to continue to scale as we go through the year and so we see really good momentum there, it's giving us visibility not only on our 25 margin goal Bose. We also indicated it is giving us visibility beyond 'twenty five to continue margin progression.
Chris Dolores: Thanks, guys. Thanks, Vijay, for the question. We'll take our next question from Larry Biegelsen with Wells Fargo. Please go ahead. Your line is open. Good morning.
Speaker Change: As we look ahead. So thanks for the question Ross.
Speaker Change: Great.
Speaker Change: Helpful. Just a quick follow up.
Speaker Change: China GBP.
Mike Garrison: Thanks for taking the question. Mike, you know, why would medical growth in fiscal 24 be in line with the corporate average, given the tailwinds and MMS and farm systems? You know, you just said you expected farm systems to grow in the high single digits in 2024. So what are the expectations for MMS and MDS this year? Last year, medical, you know, was 9% was above the corporate average.
Ross: Headwinds you've talked about how do we think about where thats hitting each of the business units and the size just so we can.
Speaker Change: Try and back out that that headwind in our models. Thanks.
Speaker Change: Hey, Robyn, it's almost all within Mds specifically.
Robyn: Essentially it is all within Mds.
Speaker Change: That's where we see it.
Speaker Change: Great. Thank you.
Speaker Change: Thanks.
Speaker Change: Well take our next question from Patrick Wood with Morgan Stanley. Please go ahead. Your line is open.
Mike Garrison: Yeah, so I'll talk first about MDS. The business is actually showing really good underlying momentum, which is masked a little bit by the impact of VOBP in China. So the VOBP is a headwind for the year. It's playing out as we expected and built into our plan, but we're seeing strong momentum in the U.S., strong momentum in catheters, and some of that is driven by some of the new recent product launches that we've had. SiteRight 9, Next Even Year Report, VivoPro, these advancements are working out in the field and are very attractive to customers as we advance the ones that cost most favor vision. We're also watching injection systems and hypodermics. We're aware of some of the recent recalls, agency action in this area, and we've ramped up our capacity to serve if market needs arise in the U.S. So that's sort of MDS.
Patrick Kaltenbach: Amazing. Thank you two quick ones I guess, the first is pharmacy automation completely get that.
Patrick Kaltenbach: The timing of that year end.
Patrick Kaltenbach: Outside of things, but just curious how you're seeing things on orders, whether its like all the mix and kind of the outlook for the rest of the year based on what you're hearing from the customers right now from the order book.
Speaker Change: Yeah, I'll take that so for pharmacy automation deal we feel.
Speaker Change: Really good on that like I mentioned.
Speaker Change: A tough compare because they were incentivize brought up and the team. There was incentivize. The finished their Q4 strong. So they had already lined up installations last year for their finishing they had a record for them.
Mike Garrison: From an MMS perspective, the way that I'm sort of seeing it and thinking about it is infusion sort of returning to be a contributor to growth versus maybe flat to a drag with the return of Valeris. And then also, we're really excited for our upcoming market release of the ex-U.S. infusion system, BD Nexus. Our dispensing business continues to perform very well. It's got solid growth, both in the quarter and at the hospital and alternate sites. Our med bank acquisition grew double digits in the quarter and continues to expand our presence in non-acute settings.
Speaker Change: Quarter of last year.
Speaker Change: So it's a little bit of a tough compare order book looks good, especially in the sort of a retail long term care channels.
Speaker Change: We continue to leverage our BD salesforce to talk to our acute care customers about starting to transform the pharmacy in.
Speaker Change: In the acute care with our IBM customers. So we see that continuing to grow throughout the year.
Speaker Change: Overall, it's been a.
Speaker Change: So we've described it as sort of a.
Speaker Change: Low double digit grower and that's that.
Speaker Change: That's sort of what we have projected and expected for the rest of the year.
Mike Garrison: So I feel good about that. Pharmacy automation, that proposition continues to resonate really well for both ROA and Parata. As we noted previously and in the presentation, this quarter last year was actually Parata's strong Q4 finish for their fiscal year, so it created a bit of a tough compare.
Speaker Change: And then maybe quickly one either if you tell me Dave.
Speaker Change: Elliott's molecular.
Molecular point of cash, obviously, a very fast growing but very competitive market just curious how you're seeing that product fit in the interplay between high and low plex.
Speaker Change: Curious, how you're going to fit into that market. Thanks ill turn that to Dave. Thanks for the question Patrick Thanks, Patrick.
Thomas Polen: This was expected, and our timing ramp of installs is weighted more towards the back half. So those are sort of the things that give me confidence around MDS and MMS. That's helpful. And Tom, you know, China was down 5% in this quarter in Q1. Talk about what you're seeing there and your confidence.
Dave Hickey: To pick it up on Leds.
Dave Hickey: Just take a step back if you look at.
Dave Hickey: The molecular dynamics overall.
We have said that this is one of the sort of six growth drivers full for BD right. So we continue and if you look at the divergence of the market.
Theres a real thesis is playing out in terms of the way customer evolution will happen right. So you think about the centralization of high volume molecular cervical cancer testing, we satisfy that would be cool. If you think about BD Max in the acute setting.
Thomas Polen: I think in the past, you said you expected China to be flat to upload single digits this year. Thanks for taking the question. Yep. Thanks, Larry. That expectation remains unchanged.
Dave Hickey: Seeing good as you heard Tom say in the prepared remarks, good double digit growth.
Thomas Polen: China played out essentially exactly as we expected, and the core was a little bit favorable to budget. What we saw and what we expected was VOBP, as Mike described, specifically within MDS, which is where it's remained. We didn't see it expand to other areas at all.
Dave Hickey: But clearly there is a decentralization of relevant testing to the point of care in these new care settings.
Dave Hickey: And obviously elliott's will be will be.
Dave Hickey: Entry there in this sort of high single digit market.
Dave Hickey: If I think about it specifically on aliens the way to think about it is what is what is different about it.
Thomas Polen: We're not seeing that. Our view is as we had projected. And we also expected to see strong growth in BDI, which we've had over the last several years. And we saw that play out in the quarter, with mid-teens growth in BDI in Q1. And we saw solid growth, very high single digits on the cusp of double-digit growth in life sciences in China. And so that business in China is continuing to do well. We saw VOBP start in the back half of last year.
Dave Hickey: Youll hear will be that we would anticipate it to be CLIA waived giving critical results within less than 50 minutes. It can be used in a wide variety of settings.
Dave Hickey: What is the unmet needs that it will actually address and deliberately we've actually selected CTG see as our first assay because when you look at all the CDC NIH reports there is an increasing burden of STI. So it will increase access to testing.
Thomas Polen: And so, again, that's going to become a tailwind for us as we think about and compare China as we go over there. Thanks for the question. Thank you. We'll take our next question from Robbie Marcus with JP Morgan. Please go ahead. Your line is open.
Dave Hickey: About it now.
Dave Hickey: One of those unfortunate patients and you're in a clinic you could get that resolved diagnosing a potential treatment administered while you are in a in a clinic in a decentralized settings. So deliberately we think <unk>.
Dave Hickey: It is really the right assay to lead with and then of course because of the capabilities in these less than 15 minute results, we see a strong roadmap behind it focused on respiratory assays or their STI assays vaginitis, etcetera that test and treat concept with 15 minutes or less time to resolve this leaner.
Chris Dolores: Oh, great. Thanks for taking the question. I wanted to ask, I know we're on fiscal 24 here, but I wanted to look out to 25 and, you know, based on operating margin guidance, it implies about 100 basis points of expansion next year to get to your, your long-range plan target. You know, so I'm sure the answer is pretty similar to fiscal 24.
Dave Hickey: The core components.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Chris Dolores: But how do we think about the implied about 100 basis points next year and your confidence in that? Yeah, Robbie, thanks for the question. Actually, at J.P. Morgan, as you know, we outlined a strong plan outlining all of our margin improvement initiatives. I think gross margin is the next stage of Margin Improvement Initiatives there through Project Recode, right? We've actually already completed our 20% goal of SKU rationalization, and we're actually going to go further there.
Speaker Change: We will take our next question from Patrick Mexico with Barclays. Please go ahead. Your line is open.
Speaker Change: Okay.
Speaker Change: Patrick.
Speaker Change: [laughter].
Patrick Kaltenbach: Isn't that that's okay.
Patrick Kaltenbach: Oh.
Patrick Kaltenbach: Just a couple of follow ups on some of the factors that played through Q1, you talked about last call last quarter.
Patrick Kaltenbach: And I have one follow up on one was.
Chris Dolores: The network architecture, Tom highlighted in our prepared remarks, the strong progress there with initiatives underway that reduce our network by 20%. As a matter of fact, next year, the network architecture value we get out of that actually doubles going into 25. So you're going to really start seeing the benefits of that. BD Excellence is another one.
Patrick Kaltenbach: Obviously, a lot of detail and questions that came after around the peso and around wages if.
Patrick Kaltenbach: If you could just sort of.
Patrick Kaltenbach: It sounds like Youre, most of the way through that and during Q2 and just maybe a quick update on that and then the anti coagulation business in China. I think there was something that you were hoping was going to find that capacity would find a new home.
Chris Dolores: We're getting great traction this year. It's part of the momentum we have this year on margin that will continue into next year. You also have the Alaris dynamic.
Patrick Kaltenbach: Perhaps in this quarter next quarter and an update on that and then just one follow up if I could.
Chris Dolores: As that fully ramps up in scale, we'll get margin leverage there. So all those things, coupled with the continued strong growth profile of being able to consistently do 5.5 plus, which we've been well above, gives us strong confidence in 2025. And the 100 basis points, as a matter of fact, as we exit this year.
Patrick Kaltenbach: Yeah, its Chris Thanks, Matt for the question appreciate it yes.
Speaker Change: We started the year and we talked about kind of the inflationary dynamics and supply chain one of the biggest ones that we were still seeing play out through the year was.
Chris: Wage dynamics in our supply chain organization that continues but.
Chris: But it's playing out as expected so nothing new there.
Chris Dolores: Doing everything we did, we really should be well-positioned to carry that kind of momentum into next year. It's premature to kind of make a formal commitment and manage all the puts and takes, but certainly high confidence in the 25, and great momentum there. Maybe, Robbie, and good morning.
Regarding FX good news is moderately favorable we pass through.
Chris: Both the revenue and earnings on that so stable at this point and moving in the right direction, we'll continue to watch it and.
Chris: I think we're happy with the operational performance and passing through both the <unk> <unk> operational beat in the two cents of FX.
Thomas Polen: Just to add to Chris's good comments there, I think another way to think about it is that when we launched BD2025 in 22, it was a four-year roadmap ahead, right? And so the end of 2024 will be 75% of the way through BD2025. As you think about the margin number that we've set out as our guide for FY24, that's 80% of the way to our margin goal, right? So from a timing perspective, 75% of the way through BD2025, 80% of our margin goal, we're clearly on track slightly ahead, and we're seeing really good momentum in our programs, as evidenced this quarter. I think you've heard us talk about BD excellence.
Chris: Maybe Mike for farm system for farm systems.
Chris: But the capacity that's freed up.
Anticoagulant there is some of it where the teams are hunting for home for that and there's been some success there, but I think we also just took a strategic decision to look at the anti coagulant market overall and it returning to more of a post COVID-19 nor.
Chris: Normalization, there and are converting lines over to biologics to help accelerate our ability to have capacity to serve in that area and that is playing out pretty well. So we've been able to.
Chris: There's been some increased demand thats come in for biologics that we.
Thomas Polen: Obviously, as we started BD2025, right, our focus was to get Elaris back, number one, take those learnings, apply them across the company to make sure we were building capabilities. Second, to optimize our portfolio for growth, Smin and Becta. And obviously, we sold D. Mueller.
Chris: We'll be able to recognize later in the year and then we'll be able to serve that in part because of these line conversions. So it's been a little bit of both relative to that anti coagulant dynamic.
Speaker Change: Thanks for the question. That's helpful. You bet and just one follow up if I could on <unk>.
Speaker Change: Cash flows and sort of M&A and I remember.
Thomas Polen: We drove Tuck and M&A that's driving accretive growth. We rebalanced our R&D into high-growth spaces. And we built our portfolio of simplification programs, starting with Recode, which is on track, and you're seeing those play out. And along the way, and starting last year, we began to develop capabilities for BD Excellence, right? And it's our operating model, or operating system, to drive a whole new scale of lean capabilities across the company.
Speaker Change: Last quarter, you know, Chris you emphasized a bunch of times and part of that impact was.
Speaker Change: Bringing up excess inventory, having an impact on margins you through that.
Speaker Change: You made nice progress on leverage.
Speaker Change: Could you talk a little bit about.
Speaker Change: What that looks like for the rest of the year in terms of M&A outlook.
Chris: The kinds of things maybe the size of things that you might be we might expect in the next 612 18 months.
Thomas Polen: Last year, we had thousands of associates across the company engaged in BD Excellence. Now, this year, we're really pushing the pedal on that program this year, as we've made progress on those first three areas that I mentioned. And so, as we said in the prepared remarks, if you think about the Kaizans that we did all of last year through BD Excellence, we did just as many in Q1 of this year, just completed. And that's going to continue to scale as we go through the year. And so, we see really good momentum there. It's giving us visibility, not only on our 25% margin goal, but we also indicated it's giving us visibility beyond 25 to continue margin progression as we look ahead.
Speaker Change: Yes. Thanks for the question Matt I. Appreciate you recognize we've definitely been extremely focused on cash flow performance.
Speaker Change: It was really pleased with the quarter. It was really strong cash flow strong double digits gives.
Speaker Change: It gives us confidence for the year. It played out in all the areas that we've been trying to leverage one we're getting more efficient with our capex expenditures.
Part of this is from our simplification efforts and BD excellence that we're driving through our plants.
Speaker Change: In addition, you saw improvement in inventory and you saw improvement in our collection cycle as well so all really positive things we sit at basically at our net leverage target and.
Speaker Change: So we're well positioned and consistently we will remain disciplined as you think of M&A.
Thomas Polen: So, thanks for the question. Great, really helpful. Just a quick follow-up, you know, China and VBP are a headwind you've talked about. How do we think about where that's hitting each of the business units and the size just so we can, you know, kind of try and back out that headwind in our models? Thanks. Hey Robbie, it's almost all within MDS specifically. Escapistically, it is all within MDS; that's where we see it. Great, thank you. We'll take our next question from Patrick Wood with Morgan Stanley. Please go ahead. Your line is open.
Speaker Change: But as you can imagine we we always have.
Speaker Change: You know an active portfolio of things that we look at it we're going to remain disciplined it's been a nice contributor organically to growth last year delivered nearly 40 basis points. So certainly something that we're going to continue to focus on as part of our growth strategy and more to come on that Tom I don't know if you want it.
Thomas Polen: That is extremely well said it remains an active part of our growth strategy and I think as we've shared in the past right. We've been focused on accretive growth accretive margin acquisitions, which has been our track record and we've executed well against those over the last several years I think we've clearly built a good track record of that and so we've got a strong healthy M&A.
Mike Garrison: Amazing. Thank you. Two quick ones.
Mike Garrison: I guess the first is pharmacy automation completely understands the timing of their year end and that side of things. But just curious, you know, I just think things like orders, whether it's like order mix and kind of the outlook for the rest of the year based on, you know, what you're hearing from the customers right now in the order book. I'll take that. So, for Pharmacy Automation, you know, we feel really good about that. Like I mentioned, the Tough Compare, because they were incentivized, Parata and the team there were incentivized to finish their Q4 strong, so they had already lined up installations last year for their finishing. They had a record for their quarter last year. So, it's a little bit of a tough compare.
Thomas Polen: Active pipeline.
Thomas Polen: Focused again in strategic areas, where the market has significant structural or macro tailwind to drive sustainable growth and where we can bring meaningful additional value either through our channel our global footprint, our manufacturing prowess and again, we remain very disciplined on strong returns accretive growth.
Thomas Polen: We haven't been doing dilutive deals that remains our emphasis is we're focused on delivering on our 25% operating margin goals.
Thomas Polen:
Thomas Polen: And what we're going to continue to focus on that and we have a strong pipeline.
Speaker Change: Thanks for the question.
Speaker Change: At this time I'll return the call to Tom for any closing comments.
Mike Garrison: Order Book looks good, especially in the sort of retail, long-term care channels. You know, and we continue to leverage our BD sales force to talk to our acute care customers about starting to transform the pharmacy in the acute care with our IDN customers. So, we see that, you know, continuing to grow throughout the year. You know, overall, you know, it's been a, you know, we've described it as sort of a, you know, low double-digit grower, and, you know, that's sort of what we have projected and expected for the rest of the year. Brilliant.
Speaker Change: Okay.
Thomas Polen: Thank you all for joining our call as you heard we had good momentum to start the year and we look forward to sharing our progress towards delivering our BD 2025 goals and increased outlook for FY 'twenty four on our next call in May. Thank you very much and have a great rest of the day.
Thomas Polen: Okay.
Speaker Change: Thank you. This does conclude today's program on behalf of BD. Thank you for joining today. Please disconnect. Your lines at this time that type of a wonderful day.
Speaker Change: Okay.
Dave Hickey: And then maybe quickly one either for you, Tom or Dave, you know, Allianz, molecular point of care is obviously a very fast growing but very competitive market. Just curious how you're seeing that product fit in, the interplay between like high and low plex, you know, just curious how you're going to fit into that market. Thanks. I'll turn that to Dave.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Dave Hickey: Thanks for the question. Thanks, Patrick. And for picking up on Allianz, you know, if you just take a step back, if you look at the molecular dynamics overall, we have said that this is one of the sort of six growth drivers for BD, right? So, you know, we continue. And if you look at the divergence of the market, there's a real thesis playing out in terms of the way customer evolution will happen. So you think about the centralization of high volume molecular cervical cancer testing. We satisfy that with BD core. You think about BD Max in the acute setting, you know, and we're seeing good, as you heard Tom say in the prepared remarks, good double-digit growth there. But clearly, there is decentralization of relevant testing to the point of care and these new care settings. And obviously, Allianz will be our entry into this sort of high, you know, single digit market. If I think about it specifically about Allianz, the way to think about it is, you know, what is different about it?
Speaker Change: Mhm.
Speaker Change: [music].
Dave Hickey: You know, our goal here will be that we would anticipate it to be clear waved, giving critical results, you know, within less than 15 minutes. It can be used in a wide variety of settings. You know, what are the unmet needs that it will actually address? And deliberately, we've actually selected CTGC as our first assay because when you look at all the CDC and NIH reports, there is an increasing burden of STIs. So it will increase access to testing.
Speaker Change:
Speaker Change: Hum.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Uh-huh.
[music].
Dave Hickey: You know, and I think about it now, you know, if you're one of those unfortunate patients and you're in a clinic, you could get that result diagnosed and potential treatment administered while you're in a clinic in a decentralized setting. So, deliberately, we think CTGC is really the right assay to lead with. And then, of course, because of the capabilities and these less than 15 minute results, we see a strong road map behind it, you know, focused on respiratory assays, other STI assays, vaginitis, et cetera. That test and treat concept with 15 minutes or less time to result in the clinic while you're there.
Speaker Change: Hello.
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Speaker Change: Okay.
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Dave Hickey: I love it. Thank you. Thank you. We'll take our next question from Patrick Miksic with Barclays. Please go ahead.
Operator: Your line is open. Good morning, Patrick. Hi, this is Ness. It's OK.
Speaker Change: Yeah.
Chris Dolores: Just a couple of follow-ups on some of the factors that played through Q1 that you talked about last quarter. And I have one more follow-up. One was, obviously, a lot of detail and questions that came after about the peso and around wages. If you could just sort of, you know, sounds like you're most of the way through that entering Q2, and just maybe a quick update on that. And then the anti-coagulation business in China, I think that was something that you were hoping that the capacity would find a new home, perhaps in this quarter or next quarter, and an update on that. And then just one follow-up, if I could. Yeah, it's Chris.
Chris Dolores: Thanks, Matt, for the question. Appreciate it. Yeah, when we started the year, we talked about kind of the inflationary dynamics in the supply chain. One of the biggest ones that we were still seeing play out through the year was wage dynamics in our supply chain organization. You know, that continues, but it's playing out as expected. So nothing new there.
Chris Dolores: Regarding FX, the good news is moderately favorable. We passed through both revenue and earnings on that. So stable at this point and moving in the right direction. We'll continue to watch it. And, you know, I think we're happy with the operational performance and passing through both the 7 cent operational beat and the 2 cents of FX, maybe Mike for farm systems. Yeah, for farm systems, the capacity that's freed up for anticoagulant, there is some of it where the teams are hunting for homes for that, and there's been some success there.
Mike Garrison: But I think we also just took a strategic decision to look at the anticoagulant market overall and see it returning to more of a post-COVID normalization there, and we are converting lines over to biologics to help accelerate our ability to have capacity to serve in that area, and that's playing out pretty well. So we've been able to, there's been some increased demand that's come in for biologics that we'll be able to recognize later in the year, and then we'll be able to serve that, in part, because of these line conversions. So it's been a little bit of both relative to that anticoagulant dynamic.
Chris Dolores: Thanks for the question, Matt. That was super helpful. You bet. And just one follow-up, if I could, on cash flows and some sort of M&A. And I remember last quarter, Chris, you stressed a bunch of times how important it was, you know, freeing up excess inventory, having an impact on margins. You threw that out, you know, you made nice progress on leverage. Could you talk a little bit about, you know, what that looks like for the rest of the year and the future of M&A and the kinds of things, maybe the size of things that you might expect in the next, you know, 6, 12, 18 months? Yeah, thanks for the question, Matt.
Chris Dolores: I appreciate you recognizing that we've definitely been extremely focused on cash flow performance. I was really pleased with the quarter.
Chris Dolores: It was really strong cash flow, strong double digits. It gives us confidence for the year. It played out in all the areas we've been trying to leverage. For example, we're getting more efficient with our CapEx expenditures. Part of this is from the simplification efforts in BD Excellence that we're driving through our plans. In addition, you saw improvement in inventory, and you saw improvement in our collection cycle as well. So all really positive things.
Chris Dolores: We sit basically at our net leverage target, and so we're well positioned and consistently will remain disciplined as you think of M&A. But as you can imagine, we always have, you know, an active portfolio of things that we look at. We're going to remain disciplined. It's been a nice organic contributor to growth last year, you know, delivering nearly 40 basis points. So certainly something that we're going to continue to focus on as part of our growth strategy, and more to come on that. Tom, I don't know if you want to add anything.
Thomas Polen: That was extremely well said. It remains an active part of our growth strategy. I think, as we've shared in the past, right, we've been focused on accretive growth and accretive margin acquisitions, which has been our track record. And we've executed well against those over the last several years.
Thomas Polen: I think we've clearly built a good track record of that. And so we've got a strong, healthy M&A, you know, active pipeline focused, again, on strategic areas where the market has significant structural or macro tailwinds to drive sustainable growth and where we can bring meaningful additional value either through our channel, our global footprint, or our manufacturing prowess. And again, we remain very disciplined on strong returns and accretive growth. We haven't been doing dilutive deals.
Thomas Polen: That remains, right, our emphasis as we're focused on delivering on our 25 percent operating margin goals, and you know we're going to continue to focus on that, and we have a strong. Thanks for the question. At this time, I'll return the call to Tom for any closing comments. Thank you all for joining our call. As you heard, we had good momentum to start the year, and we look forward to sharing our progress towards delivering our BD2025 goals and increased outlook for FY24 on our next call in May. Thank you very much, and have a great rest of the day. Thank you. This does conclude today's program. On behalf of BD, thank you for joining us today. Please disconnect your line at this time and have a wonderful day. Do not forget to hunter watch the preview on Cartoon and Disney Channel Video, Thanks for watching! The Lord. And I hope you enjoyed this.