Becton, Dickinson and Company

Hello and welcome to BD's first fiscal quarter 2021 earnings call. At the request of BD, today's call is being recorded. It will be available for replay through February 11, 2021 on the investors page of the BD.com website or by phone at 855-859-2056 for domestic calls and area code 404-537-3406 for international calls using confirmation number 699-3448. I would like to inform all parties that your lines have been placed in a listen-only mode into the question and answer segment. Beginning today's call is Ms. Kristen Stewart, Senior Vice President of Strategy and Investor Relations. Ms. Stewart, you may begin.

Thanks, Stephanie. And welcome to BD's review of our first fiscal quarter results. Joining me today, we have Tom Polin, Chief Executive Officer and President, Chris Reedy, Executive Vice President, Chief Financial Officer, and Chief Administrative Officer. During the Q&A portion of the call, we will have our three segment presidents joining us as well. Alberto Mas, President of the Medical segment, Dave Hickey, President of the Life Sciences segment, and Simon Campion, President of the Interventional segment. A few logistics before we get into the call. This call is being made available via webcast at bd.com where you can also find the accompanying slides for today's call. During the call, we will be making some forward-looking statements and it is possible that risks could differ, sorry, actual results could differ from our expectations. Risks, uncertainties, and other factors that could cause such differences can be found in our earnings release and in our SEC filings, including our 2020 Form 10-K and subsequent Form 10-Qs. In particular, there continues to be significant uncertainties about the duration and contemplated impact of the COVID-19 pandemic. This commentary we are providing today includes our best estimate based upon the information that we currently have. We have made certain assumptions in how we are managing our business, but that could change as we move forward. We will also be discussing some non-GAAP financial measures with respect to our performance. The reconciliations to GAAP measures that include the details of purchase accounting and other adjustments can be found in our press release and its related financial schedules in the appendix of the investor relations slides. These are also available on the BD.com website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus fiscal 2020. When we discuss revenue percent changes, they are on an FX neutral basis, unless otherwise noted. With all that said, it is my pleasure to turn it over to BD's CEO and President, Tom Poland. Tom?

Thank you, Kristen, and good morning, everyone, and thank you for joining us. We are very pleased with our Q1 results, which were ahead of our expectations, reflecting the tremendous efforts and execution of BD's 70,000 associates, the essential role of our products and solutions in healthcare, and the greater resiliency of the healthcare system in treating both COVID and non-COVID patients. Well, our fiscal year has just started. I'm proud of the team for the momentum we are building and their dedication to our purpose of advancing the world of health. Revenues increased 25.8% on a reported basis or 24.3% on an FX neutral basis with 20.3 percentage points of growth coming from our COVID-19 diagnostic revenues. While we did see some benefits from timing in the quarter, we were very pleased with the performance of the base business, which was up 4% against the backdrop of COVID resurgences around the world. We are seeing the early benefits of some of the actions we have taken to drive our base performance. Our adjusted EPS were $4.55, or up 72% versus the prior year. This was also well above our expectations as a result of three factors. First, our revenues came in above our plan, driven by higher acuity driving increased demand, greater resiliency in procedural volumes, and exceptional execution in COVID diagnostics. Second, we benefited from favorable product mix, like Veritor, but also from our higher acuity products. Third, our investment spending, such as in R&D, was lighter and earlier in ramping. So as you can see, we started this year with strong momentum, and that is despite the COVID resurgence. We did start to see some impact of the resurgence on our more elective procedure-related businesses late in December, and that continued into January. However, we are feeling more confident in the resiliency of our base business relative to what we saw early on in the pandemic. While the healthcare markets continue to be dynamic with COVID-19, and there are a number of moving parts, the momentum within BD and our conviction in our strategy lead us to raise our financial guidance for fiscal 2021. Our focus is not only on fulfilling our near-term commitments, but also on advancing our strategy and creating value for our shareholders over the longer term. And I'm feeling even greater confidence with the progress the BD team is making in advancing the BD 2025 grow, simplify, and empower initiatives, and our ability to create substantial shareholder value. Today, I want to focus my remarks on three key topics, and then I'll turn it over to Chris, who will provide additional remarks on our quarter's performance and comment on our outlook. Then we'll take your questions. So let's jump right in. First, let me start with the Alaris remediation and our overall quality and compliance initiatives. Alaris remediation has and continues to be my number one priority. and the team is making strong progress. Our focus remains on submitting a comprehensive 510 filing for the ALERIS system and we remain on track to submit it in late fiscal Q2 or early fiscal Q3 2021. We also continue to make progress on executing our holistic inspire quality initiatives throughout the organization. Second, as you know, we have a very strong focus on growth and ensuring a durable mid single digit revenue growth profile. So let me share some of the exciting highlights in our pipeline and other growth initiatives. We continue to increase our investments and strengthen our pipeline across three innovation themes that leverage our core strengths. First, we're applying smart devices, robotics, analytics, and AI to improve care processes. Second, we're enabling new care settings to enhance patient experience and lower costs. This includes investing in products designed for use in the home markets, and in sales channels to support these patients. And third, we're investing to improve diagnosis and treatment of chronic disease. So in line with these innovation and investment priorities, in Q1, we acquired the medical assets of Cubex, which expands our medication management offering by combining a cloud-based, easy-to-deploy analytics platform with a smart tabletop dispensing device to create solutions for the fast-growing non-acute care market. This extends our medication management solution from the hospital into the long-term care surgery centers and other non-acute locations. Another smart device we plan on launching this quarter is the Sensica automated urine output system, which leverages BD's leading position in acute urology, along with BD's broad EMR interoperability capabilities and install base. Also within BD Interventional, the BD Purwick urine collection system and catheter continues to be a significant driver of growth for our urology and critical care business. PureWIC is a female external urinary catheter and urine collection system that we sell into the acute care and long-term care settings. But we're now actively extending that directly to patients with our new PureWIC dry dock system for the home. And this launch is exceeding our expectations. And in fact, PureWIC revenues now exceed Lutonix. An exciting launch later this year designed to improve the diagnosis and treatment of cervical cancer, is the U.S. launch of our new BD-Core with our BD on Clarity HPV assay with extended genotyping. With BD-Core, BD is going to enter the high-throughput molecular testing market with a very unique, fully automated sample-to-answer platform and a highly differentiated assay with unique claims that can improve risk stratification and support risk-based patient management. The system has been CE marked and has been very well received by our customers during our launch in Europe. These are just a few of the many products in our pipeline, and you can find further details on our new innovations in the supplemental earnings presentation posted to our website. As we've previously shared, we're investing a portion of our Veritor profits to advance our BD 2025 strategy. We expanded the size of the BD Innovation and Growth Fund, and additional innovation projects are being initiated on a rolling basis. We're investing to accelerate our simplification initiatives, including recode and enhancing our quality and compliance programs. We're also increasing funding in our BD university to support advanced employee education and leadership development as part of our strategy. As we always do with our spending, we're taking a disciplined approach and the timing of the spending was lighter in Q1. We expect it to step up in Q2 and remain higher for the balance of the fiscal year. As we've mentioned before, we continue to actively evaluate tuck-in acquisitions to supplement our growth strategy. And we executed on three strategic tuck-ins transactions so far this year, including Cubex's medical assets that I mentioned earlier. We continue to apply a disciplined financial and strategic evaluation process to these transactions and have a robust funnel. Lastly, I'd like to update you on our COVID diagnostics outlook and specifically Veritor. Antigen testing continues to become more widely used in both traditional and non-traditional settings. We have been highly successful with our BD Veritor Plus COVID-19 launch. Veritor has been well received for the ease of use, performance, and automated digital data and informatics capabilities that are provided with our handheld platform. We've nearly tripled our active reader base since the pandemic and now have more than 70,000 BD Veritor analyzers globally, which we intend to leverage in the future with planned non-COVID menu expansion, which we've already begun investing behind. As previously shared, we continue to make good progress on advancing new COVID diagnostics in our pipeline, including combination flu AB and COVID-19 assays on both BD Max and Veritor. We also continue to explore home testing on BD Veritor and has been our practice. We'll provide updates to these programs upon launch. Turning to the quarters performance, our Q1 COVID-19 diagnostics revenues were higher than we expected at $867 million, which included better than expected BD Veritor rapid point of care antigen test revenues of $688 million and higher BD Max COVID assays and collection swabs and transport devices. The higher than expected Veritor revenues were the result of our ability to scale our manufacturing faster, which is a testament to our manufacturing excellence, as well as realizing higher pricing than we anticipated. However, since we've been saying since last fall, we do expect pricing to move lower as capacity came online, and this is what's playing out. We recently lowered our pricing to allow the broadest patient access to our best-in-class BD Veritor Plus systems. We believe this price adjustment is in the best interest of our customers and patients around the world as we've now ramped our manufacturing capacity and there are emerging mutations that are making it more transmissible. We also believe this is in the best interest of our shareholders as we believe this move allows us to maintain a leadership position in the point of care market. With respect to our fiscal 2021 Veritor revenue guidance, as we've been discussing, there continues to be many variables at play besides the evolving pricing environment, including the rollout and adoption of vaccines and the circulation of new COVID variants. It's also difficult to pinpoint when the market supply for antigen tests will exceed market demand. For modeling purposes, we would suggest using an ASP in the low to mid-teens. Given all this, we expect Veritor revenues to be toward the high end of our previous range of $1 to $1.5 billion. We continue to expect Veritor revenues to be more weighted to the first half of our fiscal year. And given the evolving pricing and capacity environment, we would expect our fiscal Q2 revenues to be lower than our just reported Q1 results. Before turning it over to Chris to review the financials, I want to close with a few thoughts. While we were very pleased with the performance of Veritor and other COVID diagnostic revenues in the quarter, what excites us more was the improving momentum and resiliency of the base business. While we saw some headwinds in our procedure-based businesses from the resurgence late in December and that continued into January, the impact was much more limited than at the start of the pandemic. Moreover, given the momentum in our base business, the investments we are making, and our BD 2025 strategy, we believe we are positioned to emerge strong. remain on track to submit our LARIS 510 filing in late fiscal Q2 or early Q3. And we're making great progress in advancing our BD 2025 strategy. And I'm particularly pleased with the investment programs we've identified and initiated. These investments allow us to further fulfill our purpose of advancing the world of health, bring new innovations to patients and expand access. Increased spending will be more evident in our P&L later in this fiscal year, but we believe these initiatives will translate into revenue accretion beginning in late FY22 and beyond. The investments we are making are also towards simplification initiatives, which reduce complexities, drive cost efficiencies, enhance our quality programs, and improve cash flows. This quarter, we made several advancements on this front, including inventory reductions that we absorbed in our gross margin in the quarter that helped to strengthen our cash flows. Our recode efforts are on track to achieve our targeted $300 million in cost savings by the end of fiscal 2024. We're also advancing our sustainability initiatives because we view sustainability as a strategic imperative. And we recently announced the first of our 2030 and beyond goals, our climate change targets. We're committed to reducing scope one and two greenhouse gas emissions 46% by 2030 and to be carbon neutral across direct operations by 2040. This science-based target is aligned with the 1.5 degree C global emissions reduction pathway. And we look forward to sharing more detail behind our 2030 sustainability plan with you in future engagements. And finally, I'm very proud of the organization for being named for four consecutive years to the Human Rights Campaign Foundation's Best Place to Work for LGBTQ Equality List and for the second straight year to the Gender Equality Index. Inclusion and diversity is an important focus for BD as we continue to attract, develop, and retain the best talent, as well as benefit from diversity of background and thought. I look forward to answering your questions during the Q&A portion of this call, and I'll turn it over to Chris now.