Becton, Dickinson and Company

Stand by, your program is about to begin. If you should need any audio assistance during your call today, please press star zero. Hello and welcome to BD's earnings call for the first quarter of fiscal 2022. At the request of BD, today's call is being recorded. and will be made available for replay through February 10, 2022, on BD's Investor Relations website at bd.com or by phone at 800-839-2461 for domestic calls and area code 1-402-220-7219 for international calls. The replay bridges are now dedicated, so you no longer need a conference ID to hear the replay. For today's call, all parties have been placed in a listen-only mode until the question-and-answer session. I will now turn the call over to BD.

Good morning, and welcome to BD's earnings call. I'm Francesca DiMartino, Senior Vice President and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at BD.com. Earlier this morning, BD released its results for the first quarter of fiscal 2022. We also posted an earnings presentation that provides additional details on our performance. The press release and presentation can be accessed on the Investor Relations website at investors.bd.com. Leading today's call are Tom Pollin, BD's Chairman, Chief Executive Officer and President, and Crystal Orifis, Executive Vice President, and Chief Financial Officer. Tom will provide highlights of our performance and the continued progress we have made against our BD 2025 strategy. He will then turn the call over to Chris for the financial review and our updated outlook for fiscal 2022. Following the prepared remarks, Tom and Chris will be joined for a Q&A session by our segment presidents, Alberto Mas, President of the Medical Segment, Simon Campion, President of the Interventional segment, and Dave Hickey, President of the Life Sciences segment. Before we get started, I want to remind you that we will be making forward-looking statements today. I encourage you to read the disclaimers in today's presentation slides 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 the relevant period. Revenue percentage changes are on an FX neutral basis unless otherwise noted. When we refer to any given period, we are referring to the fiscal period unless we specifically note it as a calendar period. I would also call your attention to the basis of presentation slide, which defines terms you will hear today, such as base revenues and base margins, which refer to our results excluding COVID only testing. With that, I am very pleased to turn it over to Tom.

Thanks, Francesca. Welcome aboard. We're very happy to have you on the team. Good morning, everyone, and thank you for joining us. We are very pleased with our strong performance in Q1. It reflects the continued execution of our BD2025 strategy and another quarter of consistent, strong growth in our base business. We made meaningful progress and delivered on our revenue, margin, earnings, and cash flow goals while advancing our innovation pipeline and our tuck-in M&A strategy. Our performance, along with the progress we are making delivering across our key priorities, gives us the confidence to increase our full-year revenue and earnings guidance for both our base business and COVID testing. We were able to deliver these results in an uncertain market environment, demonstrating demand across our broad portfolio of products essential to patient care, along with BD's unique ability to deliver strong performance in the face of an ongoing global pandemic. The market impacts from COVID-19 dynamics continue to be in focus, particularly in the healthcare sector. However, we've witnessed a global healthcare system that's more agile and better prepared as each new variant has emerged. In Q1, healthcare utilization levels continued at rates similar to what we saw in the fourth quarter of fiscal 21, remaining slightly below pre-pandemic levels until mid-December, then only declining modestly as a result of Omicron. While we saw some slowdowns in deferrable procedures in the back half of December in certain regions due to hospital-imposed restrictions and staffing constraints, overall our customers were able to continue to provide care to support patients and sustain a solid base of deferrable procedures. These challenges to procedure levels had minimal impact on our business in the first quarter. In addition, we saw routine lab testing return to normal levels in Q1, and research lab activity remained strong. With that said, as we look ahead, there are some pressures today related to staffing constraints that are impacting the delivery of some deferrable procedures, coupled with supply chain dynamics. We continue to watch these market dynamics closely. Despite the continued recovery uncertainty and inflationary pressures, I'm pleased with our team's focus on execution. Our segments are delivering strong, profitable growth, and our strategic initiatives to enhance margins are progressing well. As seen in our results, we're off to a strong start, being very active and intentional in executing our inflation mitigation initiatives across procurement, shipping, and continuous improvements in our plants, as well as appropriate pricing-related actions. Further, we intend to be best in class in navigating the current inflationary environment. We see signs of continued pressure on shipping, labor, raw materials, and electronic components over the remainder of the year, since our last guidance update. However, we believe we have a clear path to accelerating margin recovery and we expect to offset any inflationary impacts through various cost containment and pricing related initiatives already realized in Q1 that will enable us to deliver on our full year objectives. I'll now give a high level summary of our financial performance. Q1 revenues of $5 billion reflect continued strong momentum in our base business And through our focused execution, we grew base business revenues 8.3% in the first quarter. We also saw increased demand for our professional and at-home COVID tests relative to our previously communicated guidance, which was fueled by the Omicron variant. As expected, in comparison to the prior year, COVID-only testing revenues declined, driven by lower antigen test pricing and volumes and the number of new entrants to the market with over 40 EUAs now granted in the U.S. We have also continued to execute our cash flow initiatives, and we delivered strong operating cash flow of approximately $700 million. Our strong cash flow continues to enable investments in R&D and Tuck and M&A, which are fueling our BD 2025 strategy. In Q1, we closed three acquisitions, ScanWell, TissueMed, and VenClose. And just this week, we announced the acquisition of Cytognos, whose differentiated flow cytometry assays for the detection of minimal residual disease in cancer bring an important addition to our biosciences business. These acquisitions advance our strategy to expand in higher growth spaces that complement our durable portfolio and bring new transformative solutions across smart connected care, new care settings, and improving chronic disease outcomes. Our disciplined capital allocation framework gives us the flexibility to deploy capital towards value-creating opportunities in both R&D and M&A for future growth, as well as return capital to shareholders through a competitive dividend and share repurchases when appropriate. As we look across the balance of FY22, our Q1 momentum and focus on execution are driving our strong FY22 outlook. As we have communicated, we see our growth profile as de-risked, as we're leaders in areas of healthcare that remain in high demand and are driving base revenues. We have strengthened our growth profile through new product launches and acquired assets in higher growth spaces that are adding to our performance. And we continue to support increased testing demand. While we expect the recent demand surge to be temporary, in the event that COVID-19 cases persist longer than anticipated, our testing portfolio provides a natural hedge against deferrable procedure softness, and other COVID-related headwinds. In addition to our de-risk growth profile, we're also confident in our ability to improve our gross margins given the strong progress we've made to date through focused execution against our detailed plans to offset inflationary pressures and deliver cost improvement. All of this gives us the confidence to increase our full-year revenue and earnings guidance while remaining appropriately prudent given the current uncertain environment. So turning to innovation. We remain focused on enhancing our R&D productivity, and it's having an impact. During the quarter, we progressed our innovation pipeline, launching several new products. Examples include BD Core, where we recently launched our molecular MX module, which fully completes the CE Mark system. The MX is built off of our BD Max assay technology, which will allow us to leverage the BD Max menu of infectious disease tests into the high-throughput lab segments. We also launched BD Keister Identifa, which received the 510 clearance this quarter and is designed to fully automate and integrate the preparation of microbiology bacterial identification testing using smart connected robotics. Beyond these achievements, we also hit several milestones across our pipeline. We submitted the 510 to the FDA for our TREC bone biopsy device. The TREC biopsy system will provide interventional radiologists with an easier and faster way to perform bone biopsies without the need to use multiple devices, thus reduces the cost per procedure, inventory needs, and reduces procedure time. Our Pyxis ES version 1.7 software is now live in limited commercial release at four sites in anticipation of full commercial launch. This software adds new capabilities like enhanced automation and controlled substance management via improved connectivity with our C2 Safe offering and enables deeper integration of pharmacy and nursing areas. We're also very proud of our new BD Facts Discover S8 cell sorter, which is currently profiled as a cover story of the January issue of Science Magazine. The S8 is a landmark advancement in flow cytometry that has the potential to transform a wide range of disciplines from immunology and genomics research to cell-based therapeutics. For the first time, we can sort cells at high speeds while separating cells not only based on which antibodies or other markers we see, but also based on new imaging parameters. To put this leapfrog technology in perspective, the most advanced flow cytometers today can analyze and sort cells based on three non-fluorescent parameters and have processing speeds of up to 15 megabytes per second. The S8 analyzes and sorts on 11 non-fluorescent parameters and has processing speeds of up to 2,000 megabytes per second. We encourage you to visit bdbiosciences.com slash CellView to learn more about this exciting new innovation. I'm excited by the significant progress we continue to make advancing our BD2025 innovation-driven growth strategy. To that end, I am pleased to report that our Board of Directors recently approved the spinoff of Invecta, which is scheduled to occur on April 1st. We remain on track for a successful Invecta spin. We continue to believe the spin is a significant value-creating opportunity for our shareholders, as both BD and Invecta are well-positioned for success. Invecta will be one of the largest pure-play diabetes companies in existence today, with an ability to focus on its strategic goals, drive strong cash flow, and allocate its capital more efficiently and effectively to drive higher revenue growth. Further, we expect that the spinoff will not have an impact on the long-term growth targets we laid out at Investor Day. And instead, we expect it to enhance both our sales and earnings growth profile and create an opportunity for additional shareholder value. Finally, regarding our progress on advancing our ESG strategy, which serves as a framework through which we address the most relevant ESG issues for our company and our stakeholders. We continue to make strong progress against our goals. We launched our inaugural 2021 Global Inclusion, Diversity, and Equity Report, in which we shared our ID&E foundation, strategy, and actions towards the healthy workforce and communities pillar of our 2030 ESG goals. BD's commitment to ID&E sets a new standard for how the company will work together to innovate new products and solutions, and we firmly believe that the more diverse people and perspectives there are at the table, the better outcomes we can produce to deliver what's next in healthcare. We also published our second annual cybersecurity report to update stakeholders on the state of healthcare cybersecurity, BD's impacts on advancing cybersecurity maturity, and anticipated trends for 2022. We're very proud to be the first and only MedTech company to publish a cybersecurity report. Through our leadership position in healthcare cybersecurity in our annual report, we're working to address cybersecurity challenges specific to our industry. We also continue to receive external recognition of our ESG efforts, including just recently being named one of America's most just companies in the annual Just 100 ranking and ranking in the top three within our industry. I'm proud of the progress we're making advancing both our BD 2025 and ESG strategies. The actions we're taking are driving excellent momentum. We believe we are well positioned to deliver and create value for all of our stakeholders. With that, let me turn it over to Chris to review our financials and outlook.