Becton, Dickinson and Company

Hello and welcome to BD's fourth quarter and full year fiscal 2023 earnings call. At the request of BD, today's call is being recorded and will be available for replay on BD's Investor Relations website, investors.bd.com, or by phone at 800-688-7339 for domestic and area code 1-402-2211. 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 Greg Roditas, Senior Vice President, Treasurer, and Head of Investor Relations.

Good morning, and welcome to BD's earnings call. I'm Greg Roditas, Senior Vice President, Treasurer, 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 fourth quarter and full year of fiscal 2023. 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 Poland, BD's Chairman, Chief Executive Officer, and President, and Chris DeLaurifus, Executive Vice President and Chief Financial Officer. Tom will provide highlights of our performance and the continued execution of our BD2025 strategy. Chris will then provide additional details on our Q4 and FY23 financial performance and our 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. 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. 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 such as base revenues and the non-GAAP reconciliations included in the appendix. With that, I am very pleased to turn it over to Tom.

Thanks, Greg. Good morning, everyone, and thank you for joining us. Earlier today, we reported our results for the fourth quarter and full year of FY23, a year characterized by strong differentiated performance driven by our BD 2025 strategy in action, impactful new innovations, and our diversified business portfolio designed to help our customers navigate today's challenging environment. The diversification of our portfolio offers both durability through our leading positions and consistent demand for products essential to everyday patient care, and strong growth through a purposeful shift into higher growth markets, anchored against three irreversible forces we see shaping healthcare, connected care, new care settings, and chronic disease. Additionally, we have built capabilities and fostered a culture of operational excellence, where we make disciplined and strategic capital allocation choices, proactively address macro headwinds through our simplification programs, and execute with speed and agility, all of which have and continue to play a key role in delivering strong, consistent performance. This unique profile can be seen in both our current and two-year performance, and where our purposeful shift into higher growth markets has enabled us to drive the plus side of our targeted 5.5% plus revenue growth profile. In FY23, we delivered 7% base revenue growth with base organic growth of 5.8%. Our team drove significant margin expansion and delivered $12.21 in adjusted EPS, which represents double digit currency neutral growth of 11%. Over the past two years, we have made excellent progress toward our BD 2025 financial targets, delivering a 7% base organic revenue CAGR and 390 basis points of operating margin expansion. We are now over 70% of the way to and tracking ahead of our 25% adjusted operating margin target by FY25. As a result, on the bottom line, we delivered an implied base EPS CAGR of 20% currency neutral. We also ended FY23 with strong execution of our strategic priorities. First, We delivered our number one priority, obtaining FDA clearance for the updated BD Alaris infusion system. Post-clearance, our priority remains remediation, scaling up manufacturing, and engaging with customers on the many benefits of the updated system that include advanced cybersecurity, wireless connectivity, and other clinical and patient safety upgrades. We are confident in our remediation plan and have begun the process, prioritizing our existing customers. We are making good progress with active contracting and shipments of our first units to customers taking place ahead of schedule at the end of September. We are excited to deliver the benefits of the updated Alaris system to our customers and their patients, including the power of one integrated infusion platform with a centralized user interface for all major types of infusions, as well as the value added through interoperability and other innovations that connect data from Alaris, Pixis, and the rest of our medication management offering into the industry's only end-to-end solution for safer, simpler, and smarter medication management from the pharmacy to the floor to the bedside. The clearance of the BD Alaris infusion system gives us further confidence in our ability to achieve our BD 2025 strategy and financial targets. Second, we significantly advanced our innovation pipeline. launching 27 key new products that benefit researchers, providers, and patients, integrating AI, robotics, and other advanced technologies. Our products are helping researchers gain deeper insights faster, like our FACTS Discover S8 Cell Sorter with CellView image technology and FACTS Duet Premium Sample Preparation System, which apply novel technologies like high-speed cell imaging and liquid handling robotics and our BD Horizon Real Yellow and Real Blue reagents, which were developed using AI guidance. Our pharmacy automation business continues to grow double digits and is helping our customers serve patients more efficiently and with fewer errors across various care settings. Our robotic microbiology platform, BD Keystra, hit record sales this year, and we continue to drive strong double-digit growth in our BD Core and BD Max molecular platforms, leveraging our growing installed base through menu expansion that includes our new vaginal panel and our OnClarity HPV assay for thin prep on BD-Core, and now greater than 20 assays on BD-Max. We continue to enable the care shift to new settings, including at home, through innovations such as our PureWix system franchise for urinary incontinence that we expanded to include solutions for male patients. Purewick Mail has been one of the fastest ramps of a new product in our history and continues to exceed our expectations. Given the strong adoption, we have now designated this as a greater than $50 million incremental growth opportunity. Pharmaceutical systems, which achieve 13 consecutive quarters of double digit growth, continues to empower the delivery of new biologics, many administered by patients at home such as the growing drug class of GLP-1s for diabetes and weight loss, and other molecules which will be delivered through our self-injection solutions. We are playing an increasing role in addressing chronic diseases, like peripheral arterial disease and improving outcomes in tissue reconstruction. This year, we expanded the impact of new products such as our Rotarex atherectomy system, Venovo venous stent system, and Venclose RF ablation catheters. helping to address an area of high unmet need for the 10 million patients each year who are suffering from venous disease. In surgery, our teams accelerated the growth of Phase X mesh to allow more patients to benefit from tissue repair performed with our resorbable synthetic biomaterial. And of course, we continue to drive a relentless focus on improving clinician and patient satisfaction with PivoPro and BDnexiva with near-port IV access. a core element of our one-stick hospital stay vision that enables needleless blood draws, which is a major satisfaction for patients, and BD PIXUS ES 1.7.4, which now fully integrates our C2 Safe system into the PIXUS ES platform, enabling security and automated controlled substance management for pharmacists. I'm really pleased with how our R&D team executed in FY23. again reaching a new record level of on-time milestones and launches. Our enhanced focus on programs with the potential to move the needle in terms of growth has positioned us well to drive our WAMGR expansion. We are on track to both achieve our target of over 100 new product launches by FY25 and our new product revenue contribution target as outlined at Investor Day, creating a new wave of margin accretive growth for BDs. Third, in addition to our investments in R&D, our tuck-in M&A strategy has been very impactful. Targeted in higher growth markets, M&A is complementing the plus side of our 5.5% plus growth profile and also contributing to growth on an organic basis as we anniversary those assets. This includes our acquisition of Parata Systems, which is part of our pharmacy automation business that is growing double digits. At nearly $700 million in revenue, BD Pharmacy Automation is one of the largest robotics and healthcare process automation businesses in med tech. Focused on improving pharmacy labor efficiency and reducing errors, there's never been a greater need for these solutions. Fourth, we continued our simplification initiatives in FY23 and actively managed our portfolio, divesting our surgical instrumentation business and executing a program of strategic portfolio exits, allowing us to continue to reallocate our resources into more strategic, higher growth areas, and further reduce complexity across our company. We also progressed our Project Recode network and SKU rationalization programs, exiting more than 2,300 incremental SKUs in FY23, and are pleased that we have now streamlined our portfolio by 20% compared to 2019, achieving our goal laid out at investor day two years early. We are seeing the benefits in our manufacturing plants and in our simplified portfolio with customers. We will continue to advance this initiative as we keep executing BD 2025. In addition, we initiated our operating model simplification initiative to reduce our organizational complexity and increase agility. As a result, we were able to absorb continued outsized inflation during the year as planned and advanced operating margins towards our 25% target. And lastly, we strengthened our balance sheet, inclusive of executing on our planned inventory reductions and maintaining a disciplined and balanced capital deployment framework. This allows us to support organic and inorganic investments in growth while returning capital to shareholders. We just announced our 52nd consecutive year of dividend increases, continuing our longstanding recognition as a member of the S&P 500 Dividend Aristocrats Index, a distinction that reflects the consistency and reliability of our dividend policy. Lastly, I'm also very pleased with how we've advanced our ESG strategy and goals. In July, we published our 2022 ESG report. which provides details about our strategy and progress against our 2030-plus commitments. Highlights include progress in health equity and diversity, as well as improving our environmental footprint, which included a reduction of Scope 1 and 2 greenhouse gas emissions by 10% and having generated 34% of our electric power from renewable energy. In FY23, we submitted our GHG emission reduction targets to the Science-Based Target Initiative for Verification. I'm quite excited by our innovative circular economy pilots we did this past year that were the first of their kind in our industry, recycling medical waste like used syringes and vacutainers and converting these materials back into usable resins. We'll be advancing this work further in FY24 as we continue to tackle end-of-life GHG emissions and seek to lead circular economy innovation within our industry. We also continue to pioneer products and solutions that address health inequities, like our efforts to detect HPV infections and diagnose cervical cancer through at-home sample collection. We're proud that our progress continues to be recognized externally, with BD most recently named among the 100 best corporate citizens by 3BL. and among the top two in the healthcare equipment and services industry. Before I turn it over to Chris, I'd like to provide some perspective on the macro environment and BD2025 as we look forward to FY24. Starting with the macro environment, the complexity facing all companies will likely persist, and in some cases is accelerating. With China responding to economic pressures and elevated levels of geopolitical uncertainty, occurring in multiple markets. Inflation has moderated from the peak high levels overall, but remains elevated compared to pre-pandemic norms, including higher labor rates in transportation and manufacturing, higher costs of energy, and certain raw materials. While there continues to be a heightened degree of macro uncertainty as we head into FY24, consistent with what we have done the past several years, we have positioned BD to deliver strong performance through this environment. As we move forward, you can expect to see continued execution of BD 2025 with a focus on the bold actions that position BD strategically for the future. These include continuing to advance our strong organic portfolio of programs in higher growth spaces that are transforming healthcare. This includes launching another 25 key new products, including our Phasix ST umbilical product that will provide patients a reliable alternative to permanent mesh, bringing the benefits of our bioresorbable Phasix material into one of the most common abdominal wall hernia procedures. The BD multi-modality vacuum-assisted biopsy device, which is expected to be the first VAB system designed to work across all three imaging modalities of ultrasound, CT, and MRI, allows our customers to consolidate capital equipment, standardize consumables, and simplify physician and nurse training. Our next-generation PureWIC incontinence solution for the hospital and the home will be launching in FY24. And our FACTS Discover S8 CellSorter 3 and 4 laser configuration that will expand our new-to-world cell sorting instrument to the mid-parameter segment to help more researchers drive new discoveries. We're also launching our Libertas 5ml device that will provide a wearable option for higher viscous drugs that tend to require longer dosing times. And finally, our BD Nexus next generation infusion pump for Europe. These are just a few examples of the 25 key new product launches planned for FY24. We will also continue to simplify our organization this year to enable operational excellence and agility fuel investment, and deliver on initiatives that will help us achieve our 25% adjusted operating margin goal in FY25. This includes our project recode initiatives where our network optimization efforts will start generating savings in FY24 as we drive plan efficiencies and our operating model efforts where we are seeing positive early results from outsourcing certain back office functions. As we accelerate our focus on BD excellence, our unique business performance system, we will increase the adoption of lean principles beyond manufacturing with pilots outside of operations this year. I see our BD Excellence system as an important new lever we're building as we look ahead and think about our strategic plans beyond BD 2025. And lastly, we expect to continue our balanced approach to capital deployment. This includes ongoing transformation of our portfolio, by deploying capital towards larger tuck-in acquisitions and in higher growth categories that we can scale and leverage to support our growth and margin goals. As I said at the top of the call, in fiscal 2023, our teams demonstrated exceptional agility and strong execution, advancing our BD 2025 strategy. We are delivering consistent, durable performance in a challenging environment which we expect to persist for several years to come. Our continued track record combined with our growing pipeline and shift into higher growth markets is propelling us into a more innovative leader that is making a profound impact on advancing healthcare globally. We are advancing into FY24 with clarity, focus, and a growth mindset as we seek to do great things for those who rely on us, our customers, patients, associates, and shareholders. With that, let me turn it over to Chris to review our financials, guidance, and outlook.