Good day, everyone. Welcome to today's Conference Call to discuss BD's First Quarter Fiscal 2025 Earnings and BD's announcement of its Intent to Separate BD's Biosciences and Diagnostic Solutions Business from the Rest of BD. 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 1-800-839-2486 for domestic calls and area code 402-220-7223 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 Mr. Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations. Please go ahead, sir.

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. We have a lot of exciting news to discuss today. Yesterday afternoon, we issued two press releases that first discusses our first quarter results of fiscal 2025. The second announces our intention to separate BD's Biosciences and Diagnostics Solutions business. The press releases and accompanying presentations can be accessed on the IR website at investors.bd.com. For the purposes of today's call, we have posted a combined presentation and we'll be providing slide reference cues to assist you in following along with our prepared remarks. In connection with the separation announcement, the company has decided to postpone its Investor Day previously scheduled for February 26, 2025, to allow BD to focus on the transaction. The company expects to provide a comprehensive update on strategy and outlook in the future closer to the separation. 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; Mike Feld, 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 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 made 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 presentations. With that, let's turn to Slide 5, and I am very pleased to turn it over to Tom.

Thanks, Greg, and good morning, everyone. We have a number of significant updates to share on how we are creating value through our BD 2025 strategy. This includes yesterday's announcement of the planned separation of our Biosciences and Diagnostics Solutions business, our strong Q1 results, updated fiscal 2025 guidance, and progress on our innovation pipeline. So, let's jump right in. Starting with our Q1 results. We continued to demonstrate strong execution, exceeding each of our financial goals. This includes 9.6% revenue growth or 3.9% organic; we delivered 370 basis points and 340 basis points of adjusted gross and operating margin expansion, respectively; and 28% growth in adjusted diluted EPS to $3.43. Chris will provide more color on our Q1 results, but I'd like to take a moment to thank our team whose execution and momentum of BD Excellence is powering continued strong margin expansion, earnings and cash flow performance. We returned over $1 billion to shareholders in Q1. This includes $300 million in dividends and a $750 million accelerated share buyback, which we see as a value-creating action based on our view of BD's intrinsic value. With strong operational performance in Q1 and confidence in the year, we affirmed our full year currency-neutral and organic revenue growth guidance. Our Q1 outperformance enables us to derisk growth expectations for the second half and also raise the midpoint of our reported EPS guidance despite incremental translational currency impacts. Moving to Slide 6. Innovation is core to our growth strategy and we continue to make strong progress against our pipeline. I'd like to share an update on some key milestones. In BD Medical, we continue to progress our Connected Care strategy, and, as planned, submitted the next 510(k) for our BD Alaris Infusion System, that enables over-the-air software updates and includes a new…

Thanks, Tom. Echoing Tom's comments, I'm truly excited about our plan to separate Biosciences and Diagnostic Solutions. It's an exciting next step in our strategy that we believe can unlock significant value for both New BD and Biosciences and Diagnostic Solutions. Both businesses will be positioned to thrive in their respective markets and deliver value for all stakeholders, shareholders, employees, and of course, our customers and the patients they serve. Let me start on Slide 7 and our Q1 results. Strong execution drove revenue, margin and earnings ahead of our expectations. Q1 revenue grew 9.6% or 3.9% organic. Organic growth was led by our MedTech business with about 5% growth, driven by volumes and share gains across core devices and strong performance in our growth platforms, including double-digit growth in PureWick, Peripheral Vascular Disease and Phasix. Diagnostic Solutions grew modestly as strength in Lab Automation and momentum in BD MAX molecular platform IVD assays was partially offset by respiratory season timing. Q1 performance also reflects the expected decline in Biosciences, given market dynamics, the reduced research funding in China and the US. Regionally, total company organic growth was led by strong performance in the US and was partially offset by the decrease in China, predominantly in Biosciences. To allow time to share our perspective on the separation of Biosciences and Diagnostic Solutions and have sufficient time for Q&A, please refer to the slides accompanying today's call for additional performance details by segment. Turning to our P&L results. Q1 adjusted diluted EPS of $3.43 grew 28%, driven by strong operational performance ahead of our expectations and the timing of a discrete tax item that was contemplated in our full year tax rate. Consistent with our commitments, we delivered strong margin to start the year with adjusted gross margin of 54.8% and…

Thank you, Chris. Building off our strong performance in the quarter, I'd like to share more details about our plan to separate BD's Biosciences and Diagnostics Solutions business to enhance strategic focus, drive growth through targeted capital deployment and unlock significant value for what will become the New BD and the separated business. This separation decision was the result of a comprehensive business portfolio evaluation launched in early 2024, and this is the next natural step of our evolution, building on the strong foundation and momentum of BD 2025 and the high-growth platforms we've built and have been scaling. The New BD will be well-positioned as a pure-play MedTech company with leading positions in large attractive end markets. With this added focus, we're excited about the opportunity for New BD to drive concentrated capital deployment in high-impact R&D as well as growth-accretive M&A, which positions us to deliver differentiated and durable growth rates in MedTech. At the same time, we're also excited about the opportunity for Biosciences and Diagnostics Solutions to realize its full market potential as a pure-play leader in Life Sciences Tools & Diagnostics, continuing to accelerate growth through its strong innovation pipeline and industry-leading solutions. As we turn to Slide 11, let me start by setting some context on why this is the next natural step in our evolution, building on the strong foundation and momentum of BD 2025. Over the past five years, we've been transforming into a faster-growing, more profitable organization, positioned at the forefront of long-term growth trends. We've been systematically increasing our WAMGR and long-term growth by intentionally shifting our portfolio mix towards higher-growth markets and executing against a strong innovation pipeline. In fact, by the end of this year, we're on track to have more than doubled new product revenue since the…

Thank you. [Operator Instructions] We'll go first this morning to Travis Steed of Bank of America.

Hi, congrats on the spin.

Good morning, Travis.

Hey, good morning. Congrats on the spin. I guess, one question for Tom on the spin. Why now? How you're thinking about the different separation options, spin versus sell? And how you manage the dissynergies? And then, Chris, wanted to ask on the Q2 guide. Looks like 2.75% on revenue, but you've got the 150 basis point licensing headwind. And there is still the 50 basis points to 75 basis points from China Pharm Systems? Just trying to get the kind of the true underlying growth on Q2. Thank you.

Hey, thanks, Travis. I'll start, and then, turn it to Chris. So, obviously, we're really excited about both the performance in Q1 as well as the announcement today on the New BD and the separation and the opportunities ahead for our Life Science business. Just as we step back, this process started in the first half of FY '24, as we really took time to reflect on the strong progress that we've had been making against our BD 2025 strategy as we were coming into our last year. As I discussed on the call, BD 2025 has really transformed BD into more faster-growing portfolio, more profitable organization positioned at the forefront of multiple long-term growth trends. And those are, obviously, indicated by a number of the new growth platforms that we've built, whether or not that's our advanced patient monitoring business, our urinary incontinence business, peripheral vascular, our tissue reconstruction business that we've built, biology drug delivery, which we are now the world leader in, and pharmacy automation. At the same time, of course, over the last several years, we created and have embedded BD Excellence across the company and you're seeing over the last number of quarters how that's impacting accelerated gross margin performance and cash generation. And this quarter was certainly no exception to that with very strong performance in that camp. And so, as we reflected on that, we've looked at how we've meaningfully increased the intrinsic value of the company through execution of that strategy and looked at ways that we could further unlock that in the next phase. And we believe that the separation that we're announcing today, we're extremely excited about this as a next step in unlocking significant value for all of our stakeholders. We believe that the separation both positions New BD…

Yeah. And Travis, on the question on sales in Q2, maybe just bigger picture on top-line performance. One, it was great to see outperformance in Q1. So, really strong start to the year where we're exiting ahead of our plan. If everyone recalls kind of at the start of the year, there were some questions about the ramp. So, a couple of things. It's nicely derisks the remaining portion of the year in each quarter, the second half, by about 25 basis points. So, I think you have a much more balanced top-line profile first half to second half. As you think about Q2, you called it out. I mean, think of it as a very discrete one-time kind of headwind with the prior year licensing comp. If you take that out, we're right at the midpoint of our guidance at 4.25%. And if you think of that more broadly, you do have those market dynamics that are still playing out in the first half of the year, most notably in China, BDB, a little bit in Pharm Systems. Those are directionally worth about that 125 basis points for the year. It's probably similar in that range in the quarter. So, it puts kind of the core business then operating at sort of a 5%-plus level. So, right in line, if not ahead of plan and a more derisked revenue profile that we feel good about.

Thanks, Travis.

Great.

Thank you. We go next now to Larry Biegelsen of Wells Fargo.

Good morning. Thanks for taking the question, and congrats on the separation announcement. Hey, Tom, I'd love to get your thoughts on the tariffs and the export controls that were announced. So, the 10% China tariff, I think, went into effect. And then, if the 25% tariff on Mexico and Canada go into effect, what would be the impact on BD and your ability to offset that? Thanks for taking the question.

Yeah, thanks for the question, Larry. So, our largest footprint by far is in North America from a manufacturing perspective and particularly in the US is by far our largest footprint. Mexico would be playing an important role after that followed by Europe and then Asia. Obviously, as we think about tariffs, it was positive to see the leaders in the US, Mexico and Canada advance their discussions and achieve a temporary resolution this past week. And we continue to monitor this closely inclusive of if any future potential tariffs could include carve-offs for -- carve-outs for medical devices, right, to prevent what could be risks of shortages, wanting to prevent negative impacts to healthcare costs and make sure that public health is protected. I think it's -- at this point there, there's no really confirmation in the form or timing of when any tariffs would take place. And so that's something we'll monitor very closely and we can then frame any potential impact of that at that time, but too early at this point and something that we're managing very closely.

Thank you.

Thank you. We go next now to Patrick Wood of Morgan Stanley.

Beautiful. Thank you so much for taking the question, and congrats obviously on the separation. I guess -- and apologies for the crackly voice. I guess, if you end up going down the sale route and with a cash injection, are there any areas that you particularly feel you'd like to bulk up on or parts of the business which you could throw a little bit of extra investment? And I guess, connected to that too is obviously the value of your time internally as a team. Are there any areas of the business where you're going to have a little bit more time on your plates once the process is done? Any areas you kind of get to spend a little bit more time on that you wish you could previously give it a bit more attention? I'd love to hear. Thanks.

Yeah, great question, Patrick. I think, in terms of priority -- well, let me start with the last component first. If you look at each of our businesses, we've been performing extremely well versus the markets and peers in each of the sectors in which we participate. And so, as we look at the fundamental question of how we've been operating each of the businesses, whether or not it's our core medical businesses, our interventional businesses, our life science businesses, each of them are performing at or above their market growth rates and peer groups. So, we feel really strong about how we're performing. Some of those markets, of course, are in different cycles like the research spending at this point or last year, but we've been navigating that extremely well as you look at the broader market growth overall and peer sector. So, as we think about where -- from a capital allocation perspective, obviously, high-growth accretive opportunities are a priority for us. It's been a priority for us as you can see how we've been deploying capital over the last several years. We think our Interventional segment, of course, overall has a number of tremendous market opportunities in it that we have a right to play in and win on. That we would look to continue to invest behind. I think certainly that there are others, but that whole sector overall is quite attractive and we certainly spent a lot of time focusing and building our funnels in that category. We'll continue to focus, as you know, we have been on accelerating our R&D funnel organically as well, and that's something we'll continue to allocate our time towards, which is making sure that we maximize the value of our new product launches. We've got some really exciting things that we've launched over the last many years and many more things to come as we've discussed whether or not those are in APM, more in the incontinence space, maximizing our penetration in biologics and the wearables category with new launches we have coming there to further new launches in surgery and peripheral vascular. And so, making sure that we maximize growth in the sectors that we're in today and then continuing to shift our portfolio into those high-growth, high-margin accretive spaces. Good news is we find ourselves in newcom -- in NewCo in being in large, very attractive markets where we have very much a right to win in and look forward to that.

Great stuff. Thank you so much.

Thank you. We go next now to Matt Taylor of Jefferies.

Great. Thanks for taking...

Matt, good morning.

Hey, good morning. So, the question I wanted to ask was really on the operational performance. A nice start to the year. And with the FX headwinds, you weren't able to raise guidance as much as maybe the performance deserved. I know you called out the ongoing headwinds from China and some of the funding that we've seen. And I was just hoping that you could give us some color on that. I know you didn't change the number, but maybe just talk about the trend in China and some of the headwinds that you've been seeing.

Yeah, thanks for the question. Let me maybe just start bigger picture to your point on Q1 and just the guide and how we were thinking about that. I touched on top-line already. Obviously, it's -- yeah, it's early in the year, really strong start into Q1. We're ahead of plan. We over-delivered on all of our financial metrics. The first point we addressed was this question that was out there at the start of the year on the ramp and we're nicely derisking the second half of growth by 25 basis points and actually even Q2 a little bit. So, it provides for a nicer glide path as you think of moving top-line throughout the year. The market dynamics to date have been playing out as planned as part of that. We will come back to your question, those are areas that, of course, we continue to monitor. I think the other just two points is when you look down the P&L, I mean, this was an exceptionally high-quality P&L in operating income, gross margin of 54.8%, up 378 basis points, actually above where we exited last year. So, you're seeing the benefit of BD Excellence play out as expected, even slightly better than planned. So, really strong performance there. That all translated into strong operating income, EPS. It gave us the confidence to increase operational EPS by nearly $0.18 at the midpoint. And then to your point, look, there's translational FX that everyone has been talking about. We actually have this nicely dialed in. This is pure translation. It's over a full point on our earnings. And despite that, we're delivering strong double-digit EPS growth at 10% at the midpoint. So, I think a good start of the year. We increased our guide at the midpoint and we remain focused on executing against that.

And maybe for China, let me turn it to Mike Feld to make some comments there.

Thank you, Tom. As many of you I'm sure have read, our high-end FACSDiscover platform was recently impacted by a ban as it directly targets spectral analyzers and analyzers with 26-plus colors. That said, it is important to remember that while the FACSDiscover portfolio is our newest offering, we do have the most robust lineup of flow cytometers in the world with many models that are not impacted by this ban. The ban also does not impact our clinical and research reagent portfolio or our clinical instrumentation offering anchored by our FACSLyric platform. Additionally, while we appreciate the US government's national security concerns, we believe the previous administration erred in its risk assessment in this case, and we are actively engaging with policymakers during the 60-day commentary period to advocate for a different approach tied to this ban. While not material at the BDX level, this ban was unplanned. We will continue to give updates related to this matter once we know more post the conclusion of the commentary period.

Maybe any commentary on just overall research spending, how we're seeing?

Yeah. Overall research spending, it's a cautious scenario for us. We continue to monitor very closely NIH spending, specifically how that impacts grants and the funding of research in the US market. Additionally, it's great to remember that we do have a very robust clinical portfolio as well as many research projects go on for years, where we will continue to serve those customers with our research reagents.

Okay. Thanks, Mike.

Great color.

Thank you. We go next now to David Roman of Goldman Sachs.

Thank you, and good morning, everybody. I wanted just to dive in a little bit more on some of the end market performance here and what you're just observing as things evolve. I think for some of the sort of problem children businesses that you saw last year, whether that was Pharm Systems, Biosciences, China, you contemplated no improvement in the '25 guidance, but as we kind of start the year, it looks like both Biosciences and Pharmaceutical Systems deteriorated from where you exited 2024. So, maybe you could just give us an update on what's happening in these categories and the extent to which you think you can get back to consistent performance at least what you saw in '24 and which would imply an improvement to the balance of this year?

Yeah. Thanks for the question, David. Let me start with BDB and then Pharm Systems. So, Biosciences, just as you recall, we had not seen the slowdown in research spending at the start of FY '24. So -- and we had commented on that as being a dynamic that we would expect -- creates more challenging comps in the first half of this year, and that was a major contributor to our phasing as we had easier comps in the back half. And that was based upon the strength of the pipeline that we had in BDB. You saw us be impacted by slowdown in research spending on a lag versus peers, probably a six to -- up to nine to 12-month lag versus what other peers were seeing because of the strength of that funnel that we had built. So, that's the number one factor there. I think in terms of -- so that's a fundamental question of what is the timing of research spend recovery. And we still want to be cautious on that, and we have a cautious outlook built into our budget for the year. That's something we'll continue to monitor very closely, both in the US and in China, which are the two major markets that we've seen that research spending slowdown impact those markets. So, that's something again that we're poised to capitalize on with a very strong position when those markets do recover and that's our focus at this time. In Pharm Systems, we expect that to begin to recover in the back half of this year. As you've seen a number of companies announced, there is still some destocking happening, particularly in vaccine categories as there's been some slower vaccine uptake in a number of areas this past year. Those are factors that you were seeing across the market overall. We continue to be extremely well-positioned in the biologic space and GLP-1s. I think our number of GLP-1 biosimilar contracts is now up to 50 plus. We continue to make really strong progress there as well as on signing new molecules overall, as we think about the number of biologic drugs that have been cleared here in the last several years, we're winning about 80% of those are ending up in BD devices. And that's a fact that we had shared at the beginning of -- or in the middle of last year and as we think about molecules approved even to date since then, we continue to maintain that very high win rate there. So -- but that's what we're focused on as those markets recover. We feel very confident in our position to capitalize on those. And again, that's -- the timing of those is as I described. Thanks, David.

Thank you.

Thank you. We go next now to Robbie Marcus of JPMorgan.

Great. Good morning, and congrats on this announcement. I'm sure there's been a lot of work put behind it. Either Chris or Tom, you talk about in the slides the desire, this will allow for better streamline and focused capital allocation. Maybe you could give us some examples of how you're thinking about what that might entail versus the limitations as a combined company today? Thanks a lot.

Yeah, great question, Robbie, and thanks for your comments. I think as we look at across these businesses, and let me start on the Life Science side, we're present in a number of extremely attractive markets with market-leading positions. As you think about immunology research and what's happening there around cell therapy and immuno-oncology, our position in that marketplace is, we are the undisputed leader. And as we have to make trade-offs between continuing to advance in near adjacent spaces there, whether or not that's single cell, which we have made investments in, is there opportunity to make further investments to even grow that faster. Same thing as we look at the infectious disease space and near adjacencies that we're in, including in oncology screening, for example, now with our leading position in HPV screening. We really look at that space as -- of course, it's not one that we've been allocating huge amounts of capital to, right? If you just step back and look over the last 10 years of how the company has deployed capital, company has deployed about $43 billion of capital towards M&A over the last 10 years. Obviously, the vast majority of that, $36 billion of that being the acquisition of Bard and CareFusion, right, followed by the acquisition of Advanced Patient Monitoring, Parata and other tuck-ins. But the 99.5%-plus of that has gone towards building our position on the MedTech side. With that said, two of the three highest businesses with R&D as a percentage of revenue are Diagnostics and Biosciences. And so, we've been investing organically there. But there's certainly opportunities for that business as a focused entity to accelerate capital deployment in a way to create value there, we think off of extremely -- in extremely attractive markets on extremely attractive core businesses. On New BD, as I described earlier, we are now in a number of extremely attractive areas, and I described some of those before. Our ability to just continue to double-down on shifting our portfolio, both organically and inorganically through tuck-in M&A into higher-growth, high-margin accretive growth spaces for us is really the opportunity ahead that this transaction we think will afford. And it's that focus that we're excited about. We think we've got a great portfolio in the four segments that we outlined. Not only from a growth opportunity perspective, but it's with a really unique cash flow generation profile, 90%-plus recurring revenue. The momentum of BD Excellence on gross margin expansion, fueling both cash flow and continued op margin expansion could be invested back behind fueling growth. We think both are going to be in great positions to unlock value in new ways.

Appreciate it. Thanks a lot.

Thanks, Robbie, for the question. Yeah.

Thank you. We go next now to Joanne Wuensch of Citibank.

Good morning. Thank you for taking the question. Two brief ones. I want to make sure I understand the EPS gating for the remainder of the year, particularly with the lower tax rate in the first quarter and how that blends out for the remaining of the year? And then, I just want a few comments, if you can, on how Critical Care is being integrated and what you're seeing from those early days? Thanks.

Yeah. Thanks, Joanne. Yeah, on the EPS guide, there's really -- the simple way to think of it, all the operating strength that we had in Q1 has already been delivered, right, and is reflected in our updated guide. So, we have $0.18 -- roughly rounding up $0.18 increase at the midpoint of the guide on an operational basis. As you think of rolling through kind of the balance of the year, the core kind of operating plan then remains intact where we derisk the top-line a little bit. The two big changes that you need to roll through is just the translational FX on the top-line, which is roughly ratable through the remaining three quarters. Q2 is the highest of the three. So, cumulatively that we had said there's about $250 million. And then, the second thing was on the tax rate. We actually moderated our tax rate down slightly by 0.25 point for the full year. We had a favorable discrete item that was timing in Q1. So, I would just take the balance to go tax rate and just spread that ratably over the remaining quarters. You can have other discrete items that may play out. We'll share those as they occur, but you will end up with a higher tax rate as a result of that favorable discrete item through the back half of the year. So, I think it's about 16.8% is what the average is for the balance to go. So, very straightforward. I mean, basically the strength of the operating results already delivered in Q1 reflected in our guide, just need to true-up for the translational FX and the tax rate on the back half of the year, and you have a more derisked sales growth profile in the second half.

And Joanne, great question on APM. We're off to a fantastic start with the APM part of BD. The past quarter grew high-single-digits, ahead of our deal model. The teams there, I was just with the team out in Irvine last week at the sales meeting, extremely high energy, great cultural fit. Our integration planning is at or ahead of schedule. We've invested a bit more in selling already as they've come into the organization as well as in R&D. Teams are already focused on revenue synergy planning ex-US, which has been our focus, particularly in Asia and parts of Europe. And as we look at R&D, we've already got the core team stood up working on the integration of the APM technology with our Infusion platform. I've already seen some initial work that's been done there. Really excited by how fast the team's been able to move and get that team together and already start on advanced prototyping, et cetera. So, we're doing exactly what we said, and if anything, team is off to a bit of a stronger start. So, great to have the APM team part of BD.

Thank you.

Thank you. We go next now to Matt Miksic of Barclays.

Hey, thanks so much for taking the question. Can you hear me okay?

We can. Good morning, Matt.

Great. Good morning. So, back to the separation for a sec. Congrats on all the work that went into this. Wanted to get a sense of what's your -- you mentioned two or three different mechanisms of separation. And maybe if you could talk a little bit about the process and was there a process run for these assets before this point, and what are some of the factors that might drive you towards one of those options or with the other? Thanks.

Yeah, thanks, Matt, for the question. Obviously, as we said, we'll be sharing more as that process advances and we expect to conclude that process and announce the final form of the transaction within FY '25. Obviously, that timing can vary based on some of those transaction formats can happen sooner than later. At the end of the day, I'll stick to what I shared earlier, which is we're focused on transaction structures that maximize shareholder value creation and that can take a number of forms, which we've communicated, can range from RMT structures to outright sales to spin, we think there's multiple different ways to unlock value there. And again, we'll be focused on doing so in a way which maximizes value creation for our shareholders in the company.

Great. Thanks.

Thank you. And ladies and gentlemen, that does conclude today's question-and-answer session. At this time, I would like to turn the floor back over to Mr. Tom Polen for any additional or closing comments.

Thank you. And thanks, everyone, for joining today and for your continued support of BD. I couldn't be prouder of our team whose execution of our strategy has positioned us for the journey ahead. This is an exciting time for BD, and we look forward to sharing more about the separation plan as we progress. Thank you, and have a great rest of the day.

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