Hello, and welcome to BD's Second 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 +1 (800) 723-5792 for domestic calls and area code +1 (402) 220-2664 for international calls. [Operator Instructions] I will now turn the call over to Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations.

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 its results for the second 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 Polen, BD's Chairman, Chief Executive Officer and President; and Chris DelOrefice, 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; Dave Hickey, President of the Life Sciences segment; and Rick Byrd, President of the Interventional segment. Before we get started, I want to remind you that we'll 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 made on a year-over-year basis versus a 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. With that, I am very pleased to turn it over to Tom.

Thanks, Greg. Good morning, everyone, and thank you for joining us. Second quarter revenue growth accelerated significantly as expected, driven by the strength of our portfolio, increasing volumes across our consumables and Alaris. Margin performance drove adjusted EPS ahead of our expectations and consistent with our plan, we delivered very strong cash flow and are on track to deliver another year of double-digit free cash flow growth. These results give us the confidence to once again increase our FY '24 adjusted EPS guidance. Turning to our BD 2025 strategy. We continue to execute well on the actions we outlined at our Investor Day to drive profitable growth and value creation. This includes advancing our innovation pipeline, which supports our durable 5.5% plus targeted growth profile. One such area is the strong cadence of new innovation across our connected medication management suite, which delivers many unique benefits to our customers. Q2 was the second full quarter since clearance of our new Alaris system and first half Alaris sales have already eclipsed our total FY '23 performance. Our return to market is ramping faster than initially planned, which wouldn't be possible without our manufacturing team who have executed extremely well in scaling Alaris production. Q2 set an all-time record in both the number of BD Alaris pumps manufactured and the number of pumps shipped in a quarter to upgrade our customers to the cleared version of the pump. We have also seen acceleration of committed contracts, inclusive of competitive conversions as health systems value the capability of Alaris and look to standardize their fleet. This offers confidence in the planned second half contribution to growth and will support momentum heading into FY '25. The Alaris 510(k) clearance is just the beginning. As we have shared, we are excited about our innovation roadmap,…

Thanks, Tom, and good morning, everyone. As Tom noted, we executed well on our performance goals in Q2. As expected, we delivered strong acceleration in our revenue growth, we exceeded both our margin and earnings goals and delivered very strong free cash flow growth. I'll now provide some insights into our revenue performance in the quarter. Q2 revenue was $5 billion, with organic growth of 5.7%, driven by strong volume. Growth was led by double-digit growth in BD Interventional with low single-digit growth in BD Medical and BD Life Sciences. Total Q2 revenue growth of 4.7% reflects the divestiture of our surgical instruments platform. Regionally, organic growth was driven by the U.S., partially offset by expected market dynamics in China. In BD Medical, growth was led by Medication Management with strong performance in infusion systems driven by the BD Alaris return to market and mid-single-digit growth across our Medication Delivery Solutions portfolio in the U.S. and EMEA. Strong demand in our Pharmaceutical Systems, pre-fill devices for biologic drugs offset transitory market dynamics across the industry, including customer inventory destocking. BD Life Sciences performance was led by Integrated Diagnostic Solutions with high single-digit growth in our microbiology platforms and mid-single-digit growth in specimen management, which offset a comparison to the prior year and transitory market dynamics in select segments in Biosciences. BD Interventional Organic growth was led by continued strong growth in UCC with continued momentum in our PureWick franchise, delivering another quarter of double-digit growth, along with related licensing revenue. Surgery delivered another strong quarter with double-digit organic growth, supported by global adoption of our Phasix resorbable scaffold. Lastly, growth was supported by Peripheral Intervention with double-digit growth in our peripheral vascular disease platform, where we continue to drive market penetration with our Rotarex atherectomy system and our venous portfolio.…

[Operator Instructions] Our first question will come from Travis Steed with Bank of America.

Congrats on a good quarter. I wanted to ask about the second half ramp, both from a revenue and margin perspective. So on revenue growth, you need to step up closer to kind of above the full year range in the second half, curious what the underlying drivers there are and how much of that is dependent upon the increased demand you're seeing in Alaris? And then on the margin side, curious how much of the outperformance in Q2 was onetime versus underlying? And how you're thinking about the second half and how much of that's kind of derisked versus 3 months ago?

Yes. Thanks for the question, Travis. Yes. So first of all, we were pleased with the quarter. To your point on revenue, one, we did see strong acceleration quarter-over-quarter as expected on revenue. We tried to outline the ramp. Clearly, the back half guidance at our midpoint implies about 7.5% growth. But when you unpack that with the momentum that we have in Alaris, we now expect nearly 250 basis points contribution to our second half growth. That would put us at least $300 million for the full year. So if you strip that out, the rest of the BD portfolio has to perform at just over 5%. We feel confident in that. We have strong areas of momentum. I think one thing that you saw in our core performance this quarter was -- our core consumables that are anchored against the core of health care, performing really well as you see strong utilization in the health care system. We continue to see great momentum in areas like PureWick, driving strong outsized double-digit growth in that platform, momentum in PVD. And so there's a lot of pockets of strength that we'll continue to build on there. From a margin standpoint, so first, the drivers of the margin that we articulated at the start of the year have played out as expected. To your point, we had really strong execution in the quarter. This is driven by our cost improvement initiatives, the momentum on BD Excellence. So we over-delivered 2 quarters in a row, and we're well on track to deliver the full year, which is at least 50 basis points increase year-over-year. We're just over 24%. As you think of the performance in the quarter, it really wasn't one thing. I would just say strong execution throughout and we remain…

We'll go next to Robbie Marcus with JPMorgan.

Nice quarter. I'll try and ask one that answers a couple of things. As you look at the balance of the year, you said you just need 5% in the base business. So if we look at second quarter, excluding the Urology payment and Alaris, what did the base business do so we could get that kind of comparison? And then maybe while you're at it, speak to some of the underlying trends in Pharm Systems and MMS where results came in a little lower, but it sounds like you're very confident for the rest of the year.

Thanks, Rob. So I think as we look at the quarter and as we look forward to the year, we feel really good about the momentum and the diversity of BD's portfolio. And I'd say, as you look at the areas across the company, we see particular strengths in Medical, in Intervention, in the Life Science businesses that are focused in the health care provider space, right, that are benefiting from strong utilization across the board. You can see our volumes, if you compare volumes this year versus last year, you're seeing strong growth from a volume perspective. And that's, of course, being supplemented by our very strong innovation pipeline as well. That's allowing us -- that strength of our diverse portfolio is allowing us to overcome what we see as transitory market dynamics that you're seeing across companies in the life science research area as well as in the B2B pharm systems marketplace where you're seeing destocking in certain areas. With that said, we're seeing really strong growth continue, right, around double-digit growth in biologics. The biologics are now over 40% of our Pharm Systems business. So we feel really good about that. And that percentage in weighting is only increasing, right, towards $1 billion of biologic sales in that area. And so as we think about -- that's one of the strengths of BD's portfolio is those puts and takes across and being able to deliver in multiple different environments, really strong revenue performance. So Chris, anything to add?

I would just add, I think Q2 is certainly representative of the growth rate that we need. We feel good about that. There's all kinds of puts and takes in the P&L. I mean just -- Alaris was a modest contribution. It wasn't significant. It's really most predominant in the second half, and that will be a strong driver for us. I articulated the second half drivers. Keep in mind, in Q2, you had some of these other negative comps, right? You mentioned licensing. There was also a licensing headwind that was in our Life Sciences business, and we were cycling through some very large capital installs. That's a space that -- we still feel good about customer interest, have strong momentum, and there were some timing dynamics there with the launch of our technology in BDB and a really strong install result in the quarter. So net-net, there's always lots of puts and takes. The 5% is something that we're confident in as we think of the second half.

We'll go next to Vijay Kumar with Evercore.

I guess my one question here is on Alaris, the $300 million, Tom, can you give us a sense on what the implied exit rate number is in Q4 for Alaris? Because I understand from a growth perspective, it might be a little tricky. I know you have some upgrades going on. What is the dollar revenue number implied for Q4? And I know Alaris was raised from $200 million to $300 million, but the organic for fiscal was maintained. Is that just conservatism?

Yes. Thanks for the question. So first off, we are really happy that we delivered on our #1 priority last year, which is the clearance of the BD Alaris system. And we said our #1 priority for this year became the relaunch of Alaris and remediation and return to it being a contributing growth driver. And we're certainly delivering exactly on that goal like we did last year. Really proud of our manufacturing team. Hopefully, you heard it in our prepared remarks, right? We went from clearance at the end of Q4 to this past quarter, Q2, setting an all-time record in both the production and shipment numbers of Alaris. That's a combination for sale and remediation, but it really reflects that core manufacturing excellence capability that BD has, which we think is best-in-class in the industry, and this is a great example of it. We continue to get really positive customer feedback. We've got positive contract momentum. And as you heard, we've got plans progressing for our next 510(k) submission later this calendar year, which will begin to continue to build new innovations on the back of the 510(k) that we got cleared in Q4. So as we think about next year, to your question, we don't put out quarterly guidance by product line by any means. But what I would say is, as Chris said, our current guide implies, as you said, over $300 million, actually closer to $350 million for the year. And we've said before that we expect certainly FY '25 to be at least at our historical run rate, right, which you kind of think of as $400 million. Anything beyond that, we'll get into as we get into FY '25 guidance. But clearly, our performance this year is positioning us really well towards that previously stated goal.

The only thing -- just small thing I would add, we did say that for Q3, you should expect total growth inclusive of Alaris of at least 6%. And then you would expect a sequential step up in Q4. So you think of that step up, a portion of that is going to be Alaris. There's also the China grow-over favorable comp that we'll have, but Alaris is a portion of that.

We'll go now to Larry Biegelsen with Wells Fargo.

Congrats on a nice quarter here. Chris, I know it's really early, but love to hear your confidence in the 25% operating margin goal in fiscal 2025. And are there items right now we should be aware of, such as TSAs rolling off or an increase in the tax rate that would make double-digit EPS growth challenging next year?

Yes. Thanks, Larry. Good question. Yes, first of all, to your point, it's a little early to get into 2025. TSA is not material. That's a normal dynamic that happens. As a matter of fact, year-over-year, we're down. So we're actually absorbing that already. And by the time you get through this year, it's not substantive. The tax dynamics and things like that are evolving. We'll share more at a future date. I think the key thing is we remain committed to our BD 2025 goals. That remains unchanged. Specifically operating margin, I'm glad you mentioned that. I just think what we've delivered through the first half of this year, the momentum we have with BD Excellence through the back half of this year sets us up nicely with the strong exit rate that gives us confidence in delivering 25% by 2025. I think the big thing that you'll see is the progression from that improvement coming from largely gross margin. So we have really great momentum inside on our improving waste, improving yield in our manufacturing lines that will drive continued momentum there. And that will be a catalyst beyond 2025 as we get to the point that we talk about that, too, that will be very positive, help facilitate reinvestment and continue to drive the top line growth as well. Thanks for the question.

We'll go now to Matthew Taylor with Jefferies.

So just because there's a lot of focus on the phasing and the ramp through the second half of the year. I guess, you gave us some math and some confidence in that. I was wondering if you could take the other side of the coin and maybe talk about any risks that you see to that ramp? I mean what would have to go wrong for you not to hit this express progression in revenue acceleration and margin expansion?

Yes. Thanks for the question. I guess -- so 2 things. One on margin. If you think of margin, a lot of the momentum comes from 2 things like I shared, right? One, we just exit those one-timers in the first half. So high confidence that's done. It's behind us. The second thing is, our cost improvement initiatives with -- when you think of a cap and roll period and inventory, we have a strong line of sight to that, and we already know the embedded inflation dynamics that are all locked up. So we have a high degree of confidence in what's flowing through gross margin. And then that operating margin, again, is you get natural leverage on top of that from the growth expansion in Q2, which we also feel good about. The momentum of Alaris is part of that kind of outsized back half growth. And we have a strong line of sight to that progression. So really with where we sit in the year, we're feeling good about that. Obviously, we continue to monitor the market dynamics that we touched on within the quarter. That's something that's -- we always have -- look for other levers and opportunities to deliver the full year, but that's probably the thing that we'll continue to watch.

Can I just ask...

Sure, go ahead.

I just want to ask a follow-up. You mentioned in the presentation some enhancements to Alaris and Pyxis. So I was hoping you could just talk about the importance of those submissions.

Yes, sure. Happy to, Matt. So on Alaris, and we'll only share a certain level of information on those at this time. We want to keep some of that surprise for customers in the market as we actually launch them. But on Alaris, we're really happy to be back at the innovation cadence. I think when we got the clearance, not only are we happy to be back servicing our customers and driving growth and getting after remediation, but we're happy to immediately jump back into innovation cadence. And you can see our team didn't hesitate in doing that. So the next 510(k) submission on Alaris later this calendar year will include customer benefits, such as over-the-air is planned for that, for software upgrades; advanced cybersecurity features; as well as a number of other components as well as making sure we continue to keep that file updated as part of our compliance strategy. So that's -- really excited about those. And on Pyxis, there hasn't been a new Pyxis instrument. There's been software upgrades, but hasn't been a new Pyxis instrument, certainly since we've owned CareFusion, and I think it's been more than 15 years. And so the new Pyxis looks different. It's got -- so it's a new hardware platform that we'll be building off of. It significantly advances our cloud strategy and connectivity as well as continuing with advanced analytics as well as hardware features built into that. So it's a significant new platform that we'll be launching and investing in to continue to serially innovate upon over the next many, many years. But we're excited about the first launches of that plan for next year. I'd say -- just say the other thing is that we do continue to invest across our connected medication management portfolio, which…

We'll go next to Matt Miksic with Barclays.

Yes, I was on mute. Sorry for that. So just one question, and it's kind of a high-level question, Chris and Tom. You talked about the sequential acceleration in growth, which is evident and the improvement in margins, which you had kind of laid out early in the year. I think when folks look at the results, we're seeing really strong margin growth and strength in the quarter. And what I just mentioned and what you described, sequential acceleration but sort of in an environment where volumes have been stronger across a bunch of med tech businesses. Maybe a touch closer to in line even after adjusting for FX. And so I guess the good news and encouraging news around Alaris is great, some of the other business lines that you've talked about is great. Was there anything that's had a surprise on the downside, something that was -- remained challenging longer or anything you'd call out? And maybe how you see that playing out the rest of the year?

Yes, I'll take that, Matt. So no, we feel good. It fits right in line with what we -- what I described before, which was you're seeing the diversity of our portfolio, which is a real strength for the company. Where again, those -- the Medical products, Intervention, Life Science businesses that are exposed to health care utilization, health care provider space, right, the vacutainers, the diagnostic systems products, et cetera, along with Intervention and all the Medical products used in that. They're benefiting from that strong utilization and our innovation pipeline that are enabling us to offset what our transitory broad dynamics in the -- that people are seeing in the life science research space and the B2B pharma systems with some destocking, particularly in vaccines and anti-coag. So we feel really good about those businesses as well. As I said, we're seeing strong double-digit growth right around double-digit growth in biologics and Pharm Systems. We've got a great pipeline there with key launches later this year, turning over to customers, Libertas and Evolve, for them to start doing trials on. We see in our B2B space, we're still in a market that's going through a cycle that we certainly see some positive signs on with NIH funding, having higher visibility. Overall, we're seeing the FACSDiscover now -- platform. We just launched the 3 and 4 lasers. So that's adding access to a more cost-effective option for customers to get into that transformational technology. So we're excited by that. And we're still over delivering, I think, versus what you're seeing comps from others in some of those spaces. And so as those markets end up rebounding, again, which we see that forthcoming over time. We think we're really well positioned there as well, which is just going to help our overall growth. And again, in the meanwhile, that diversified portfolio strength is allowing us to do very well, both on revenue and clearly on a margin perspective.

And that will conclude today's question-and-answer session. At this time, I'd like to turn the floor back over to Tom Polen for any additional or closing comments.

Okay. Thank you, operator, and thank you, everyone, and thank you for your questions and interest in BD. We look forward to sharing our progress towards delivering our BD 2025 goals and increased outlook for FY '24 on our next call. Have a great rest of the day.

Thank you. This does conclude this audio webcast. On behalf of BD, thank you for joining today. Please disconnect your lines at this time and have a wonderful day.