Becton, Dickinson and Company

Hello and welcome to BD's third quarter fiscal 2024 earnings conference call. At the request of BD, today's call is being recorded and will be available for replay on BD's investor relations website at investors.bd.com or by phone at 800-839-2385 for domestic calls and area code 1-402-220-7203 for international calls. 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 Rodetis, Senior Vice President, Treasurer, and Head of Investor Relations. Please go ahead.

Good morning, and welcome to BD's earnings call. I'm Greg Rodetis, Senior Vice President, Treasurer, and Head of Investor Relations. Thank you for joining us. This call is being made available via audio webcast at BD.com. Earlier this morning, BD released his results for the third quarter of fiscal 2024. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Poland, BD's Chairman, Chief Executive Officer and President, and Chris DeLaurifus, Executive Vice President and Chief Financial Officer. Following this morning's prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Mike Garrison, president of the medical 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. You can read the disclaimer in our earnings release and the disclosures in our SEC filings available on the Investor Relations website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant fiscal period. Revenue percentage changes are on an FX neutral basis unless otherwise noted. Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentation. Specifically during the quarter, we recorded accruals resulting from recent developments relating primarily to the Italian government medical device payback legislation, which essentially relate to years prior to the current fiscal year. We are presenting adjusted revenues excluding the impact of these accruals. With that, I am very pleased to turn over the time.

Thanks, Greg, and good morning, everyone. We continue to make excellent progress advancing our BD 2025 strategy. This quarter demonstrates the durability of our portfolio and strength of new innovations delivering mid-single digit organic revenue growth of 5.2%. Growth was broad-based and reflects strong volume and share gains across the portfolio. Our team executed very well through transitory market dynamics in BDB and PS and macro factors in China. We continue to grow above the market and believe we are extremely well positioned as these markets recover. We have growing momentum from our BD Excellence operating system that enabled us to deliver significant sequential and year over year adjusted gross margin increases. This drove strong operating margin expansion, contributed to over 18% adjusted earnings per share growth, and is allowing us to raise our earnings guidance once again. Our team's excellent execution also drove over 100% year-to-date growth in free cash flow, reaching over 80% free cash flow conversion year-to-date, with margins, earnings, and cash flow all ahead of plan. As a reminder, our strategy consists of three pillars, driving growth through innovation and tuck-in M&A, simplifying through BD excellence, and empowering our organization with the capabilities and systems to deliver on our strategy. I'd like to provide updates on each of these this morning, starting with our growth pillar and the critical care acquisition. Things continue to progress well towards a successful close. And as we've gotten to know more members of their team, we only become more excited to welcome them to the BD family. Critical care significantly advances our connected care strategy to use AI and digital tools to help clinicians deliver more efficient and higher quality care. Additionally, It adds a high-growth business that is immediately accretive to margins and earnings. Turning to several of our most significant long-term growth drivers. To begin with, our connected medication management strategy has strong momentum, with Q3 setting another new all-time record for the number of Valeris pumps shipped in a quarter. The scale of upgrading our fleet is unprecedented, and I'm very proud of the work our teams are doing to support our loyal customer base and deliver ahead of our commitments. Customer feedback has been very positive and we gained a market position in the quarter. We are now back at our historical quarterly run rate of about $100 million and have built a healthy committed contract backlog, which puts us in a position to be above our historical run rate for FY25. Our connected medication management portfolio, which includes Alaris, is just one example of how BD is at the forefront of combining AI, automation, and robotics to improve the core processes that run healthcare. Through our strategy, BD is advancing our leadership in automating the pharmacy, the medication management process, and the microbiology lab. Today, BD has a $4 billion-plus business in healthcare automation and informatics AI, and we'll increase this to over $5 billion as we complete the acquisition of critical care. This expands BD in the smart critical care space and creates new opportunities to combine AI-driven monitoring with systems such as infusion technologies to simplify nursing workflow and improve patient care. Looking ahead to 2030, we view healthcare process automation and informatics AI as having the potential to become a business exceeding $7 billion as we continue to build more connected, automated, and intelligent solutions to transform the core processes underlying care delivery. Turning to other key platforms, Q3 was the 28th consecutive quarter of double digit growth in our PureWIC platform. And our recently launched next generation female external catheter, PureWIC Flex, is expected to support this continued momentum. PureWIC Flex delivers improved performance for a wider range of body types, both in acute and home care settings. Given the incredible response from the first PureWix Flex users, we couldn't be more excited about the impact this will have on patients and their providers. As I think about PureWix overall, we see this as having the potential to become a billion-dollar franchise by 2030, continuing its double-digit growth momentum. We're also advancing our impact in immune health and oncology, continuing the super cycle of innovation within BD Biosciences, which positions it well as a long-term growth driver. Coming off the landmark BD FACTS Discover S8 cell sorter launch in FY23, we recently released additional three and four laser configurations, which contain the same new-to-world BD Spectral FX and BD CellView technologies, enabling new discoveries in a broader range of fields. We expect to continue our innovation cadence with our FY25 launch of the BD FACTS Discover A8 analyzer, which will provide customers high throughput sample analysis with the same innovative technologies. The combination of BD FACTS Discover and our BD Real Blue and Real Yellow reagents were used in the world's first 50 color flow cytometry experiment, which was published this year in the Journal of Cytometry. This serves as a testament to these groundbreaking new technologies. The immune health and oncology space remains a primary focus for research, and as the market returns to growth, we believe our leading technology and portfolio position us well to capitalize on future opportunities in this space. Finally, within our pharmaceutical systems business, in Q3, biologics drug delivery continued to grow double digits. Biologics now represent over 40% of our total pharmaceutical systems revenue, and we see it as a significant growth opportunity, including GLP-1s. Since the start of BD 2025, we've been implementing a strategy to enhance our innovation leadership, expand our manufacturing scale, and prioritize quality excellence to be the preferred partner for biologic drug delivery. And we believe that no other company in med tech is better positioned than BD to capitalize on this trend. First, the majority of biologics that use a prefilled syringe have and continue to be launched in the BD device. Since 2023, BD has been the chosen partner for 19 out of the 23 new biologic drug approvals that use a prefilled syringe. Second, as we consider the significant clinical potentials of GLP-1s, the strength of BD's innovation in this category, and our previously announced capacity expansion, we view GLP-1 drug delivery as a potential $1 billion product category by 2030. Today, we serve multiple market leaders, have device contracts with multiple novel GLP-1 therapies advancing through clinical trials, and beyond novel molecules, we now have over 40 signed GLP-1 biosimilar agreements across our pen, auto-injector, and syringe platforms. We are actively supporting biosimilars for early generation GLP-1s that are entering the market over the next 12 months. Outside of GLP-1s, our customers are working to develop next-generation biologics that have the potential to revolutionize care in conditions like Alzheimer's, certain immunological disorders, and types of cancer. Many of these are extremely complex molecules and proteins that will involve significantly greater volumes per injection and higher viscosity compared to therapies presently available in the market. At the same time, we see the trends to enable patient self-treatment that point to the need for wearable on-body injectors. We've developed the BD Libertas and BD Evolve wearable injectors to support the unique delivery needs of these therapies. who are actively supporting multiple customers, testing their pipeline molecules with our wearable solutions, and have provided product to support their clinical trials. While this is a longer-term opportunity that we expect to develop in line with drug development timelines, we believe we are well positioned for this future trend and are getting very positive feedback on our platforms. Moving to our simplification strategy in BD Excellence, First, let me express my gratitude to everyone in our organization who is accelerating BD Excellence through our global supply chain through the completion of over 500 Kaizen events this year. I'd especially like to thank those working in our manufacturing plants and warehouses who improved product quality and reliability for our customers this year while delivering double-digit improvements in both waste reduction and production yield. We are seeing the outcomes of BD Excellence in accelerating margin progression and delivering strong cash flow. Our plans to reduce our manufacturing network by over 20% remain on track. And as we are consolidating our plant architecture, we're investing in smart factories. Our top 30 sites are already accelerating performance, leveraging smart automation and digital capabilities, such as predictive analytics. We're excited about the opportunity to further accelerate manufacturing productivity through the combination of BD Excellence and our Smart Factory Strategy. The momentum in our simplification programs, including BD Excellence, positions us for success as we finish FY24 and as we look ahead to FY25 and beyond. Lastly, we continue to empower our organization through strong corporate responsibility and recently issued our FY23 Corporate Sustainability Report. Notably in FY23, we reduced Scope 1 and 2 greenhouse gas emissions 18% versus our FY19 baseline, surpassing our goal of 13%. We doubled the number of sites using green electric power and solar power, and we reduced our water usage by 21% and waste by 18% over the same time frame. In summary, we delivered above market mid single digit organic revenue growth and significant margin expansion and cash flow generation. On the strength in the quarter, we are once again raising our adjusted diluted EPS guidance for fiscal 2024 and believe we are well positioned for continued strong financial performance next year. We have leadership positions in many of the most significant trends reshaping healthcare, positioning us well in FY25 and beyond. I'll now turn it over to Chris to review our financials and outlook.