Hello, and welcome to BD's Second Fiscal Quarter 2025 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) 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.

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 2025. 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; 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. Tariff commentary is based on tariff policies as of April 30th and does not include any of the tariffs that have been announced, but currently are delayed or threatened. And we note that, international trade policies, trade restrictions and tariffs are rapidly evolving and there can be no assurance as to how the landscape may change and what the ultimate impact on our guidance and results of operations will be. Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentation. With that, I am pleased to turn it over to Tom.

Thank you, Greg, and good morning, everyone. My comments this morning will focus on our Q2 results and the strategic actions we are taking to not only navigate the near-term environment with agility, but to ensure BD is best positioned to deliver long-term value. Starting with our Q2 results, revenues came in below our expectations, growing 6% or 0.9% organic. This performance was largely attributable to market dynamics concentrated in Life Sciences, which reflects the change in research funding policy versus what was initially anticipated as well as the slower return to normal levels of blood culture testing in our Diagnostics business. We are not satisfied with this quarter's top-line growth and it is not reflective of the mid-single-digits growth we've been consistently delivering over the last several years. I will share more on the decisive actions we are taking, including specific investments to reaccelerate organic sales growth in this dynamic market. Importantly, we were able to offset these challenges to exceed our adjusted EPS growth expectations, as we continue to consistently execute and deliver strong performance down the P&L. Specifically, we delivered adjusted gross margins of 54.9%, which increased year-over-year by 190 basis points. Our strong margin performance is being fueled by momentum in BD Excellence, with now four consecutive quarters of strong gross margin expansion. We continue to scale BD Excellence across the organization, including nearly tripling the number of Kaizens year-on-year, with over 600 completed year-to-date. As planned, we are now beginning to embed this system in our R&D and commercial operations and just held our first ever BD Excellence Leadership Summit three weeks ago. We continue to see BD Excellence as a key catalyst to drive gross margin expansion over the next five years and support increasing growth investments in commercial programs and R&D. Chris will…

Thanks, Tom. Starting with some further insight into our Q2 revenue performance, revenue grew 6% or 0.9% organic. As a reminder, organic growth includes a previously disclosed headwind of about 150 basis points from the outsized prior year licensing comparison in BDI with the largest impact in UCC followed by PI. As Tom discussed, performance in Life Sciences was the main driver of lower than expected Q2 organic growth and resulted from lower biosciences instrument demand, given changes in government policy focus and a slower recovery in our back tech, blood culture business. Outside of diagnostics and biosciences, organic growth in our MedTech business was 1.9%, which includes a headwind of approximately 170 basis points from the prior year licensing compare. Alaris performance remains strong and we are pleased with the recent new clearance. We realize strength across many other key platforms. This includes double-digits growth in biologics, primarily GLP-1s which led to pharm systems return to growth this quarter, which is trending in line with our expectations for the full year. In UCC, PureWick delivered another quarter of strong double-digits growth with continued adoption of the male and female portfolios. PureWick male had its strongest quarter post launch and PureWick Flex also continued its strong trajectory in the acute and direct-to-consumer at home channel. In surgery, our hernia transformation strategy to move the standard-of-care from synthetic mesh to our Phasix bio-resorbable mesh continue with strong market adoption and double-digits growth. Lastly, underlying growth was strong across all PI platforms in the U.S., partially offset by volume based procurement in China. Regionally, total company organic growth was led by performance in the U.S., Greater Asia outside of China and Latin America that was partially offset by a decline in EMEA and double-digits decrease in China as expected. Turning to our…

[Operator Instructions] And our first question is from Larry Biegelsen with Wells Fargo.

Good morning. Thanks for taking the question. Chris, let's get the tariff question out of the way here. The $0.25, is that net or gross, in other words, net after mitigation? You talked about it starting in Q4, fiscal Q4. So obviously, people are going to try to annualize that. Is that the right way to think about it in fiscal '26 or is there going to be -- obviously you'll have some mitigation, I assume. So what's the right way to think about it for fiscal 2026? And I had one follow-up. Yes, sure.

Thanks, Larry. Appreciate the question. Certainly a top of mind topic. Look one big shout out to the BD team to your point. This is a net number after significant work to mitigate tariffs on multiple fronts both short-term, long-term. As you can imagine we've been navigating our advanced capabilities and supply chain, getting proactive with inventory movements, looking at sourcing alternatives across our broad network. And so, there's been a lot of significant progress across multiple groups to mitigate this in 2025. Obviously the situation remains extremely fluid. We'll see how the next few months play out, as it relates to further tariff rates et cetera that are on the horizon. You're exactly right. While on one hand -- you can't do simple math and just annualize it, it is fair to say though that we only have about three months on average of tariffs in our guide. There's a little bit in Q3, but when you think of kind of our fiscal year and where we are in our cap and roll period. So at minimum you need to do some sort of annualization factor would be fair and then from there I think what we'll do is, we'll look and see where rates come in, and then we're not done in terms of efforts to mitigate, take action, et cetera. I think the last comment I would just make and we can get more into, this as we get through the call. I think despite that and everything that BD is navigating in the macro environment, you're really seeing the power of BD through BD Excellence with margin progression and our ability to still deliver and compound strong EPS growth at 8% in the midpoint.

Thanks for the question. That's super helpful. Just one follow-up for Chris or Tom. Just maybe put just flesh out a little bit more how the second half organic growth improves? I think it was 0.9% in Q2, 3% you said for Q3, Chris. I think you've been a little bit higher in Q4. Put a little bit give us a little bit more meat on the bone there and kind of what gets better in the second half of the year and your level of confidence there?

Speakers, are you able to hear us?

I can hear you. This is Larry. I was the one who asked the question. Yes.

Thank you, Larry. To our speakers, Mr. Polen or Mr. DelOrefice, are you able to hear us? You may be on mute.

Thanks, can you guys hear me now? Just confirm Larry.

I can. Did you hear the question Chris?

Yes, I did. Yes, I heard the question. Perfect. Thanks Larry for the question. So obviously, in this guide you saw us reflect our best thinking on the macro landscape, which had evolved pretty quickly and dynamically as we're in Q2. If you remember Q1 we were well on track actually ahead of plan. As you think of the full year, so first half ex-licensing we're about 3% growth. As you step into the second half our implied guide is about 4%, so 1% step-up. What we did share in the call is, we expect Q3 to be similar to the first half, so right around 3%. What that implies is, just over 5% in Q4. There's really four key items in Q4. It's actually pretty straightforward, as you think of that acceleration and they're all about equally weighted. First thing is, we start cycling over APM, which now becomes organic growth contributor actually off of an easy comp as well. So you have that dynamic. You have Pharm Systems which has actually been playing out as planned through the year. You saw a step-up in growth there, continued momentum in biologics. So you'll see a stronger Q4 there. Again also off of the easier comp. BDI, we've always talked about that profile being a six plus grow. We expect high single-digits growth in BDI, partially driven by an easy comp in surgery. It's also an area, where we've actually added investment to our plan in the spirit of taking action and driving areas of momentum. And then lastly, actually in BDB, again we cycle through easiest comp last year at the end of the year is when market dynamics started affecting us and we have an exciting launch with FACSDiscover A8. So those four items explain the sequential step-up from Q3 to Q4. We feel really good about that.

Our next question comes from Robbie Marcus with JPMorgan.

Great. Good morning and thanks for taking the questions. I just want to follow-up on that last one. Just maybe a different angle of the question. You brought organic sales growth down for the year about 100 bps, 50 bps of that you highlighted was from some of the known headwinds like China, pharm systems, destocking and biosciences and then 50 bps from it looks like the rest of the business. Chris, maybe you could help us understand sort of where it's coming in a little soft in the remaining part of the business? And then of that 125 to up now 175 headwind, what's kind of doing better and what's maybe doing worse?

Yes. Thanks Robbie. That's a great question as well. So the 175 basis points, it was around, it's actually slightly over that, think of it a little bit higher. Here's the easy way to break it down. There's really three key drivers that we're adjusting for in the guide, two of which are very much market driven. So about 80% of the impact and I would say 60% of that 80% is both BDB and China. If you remember China, we originally said would be a mid-single-digits decline. We're now saying it's going to be a high single-digits decline. Some of that is just trying to make sure, we're thoughtful about the environment because China was actually tracking relatively in line in the first half. But we did start seeing some incremental, volume-based procurement in areas in particular BDI which we can touch on. And as you can imagine that the research spend in that area, so there's a little bit of overlap with BDB. BDB is the other one. Again that's fully market driven. There were a lot of changes that happened mid-to-late quarter in Q2 including how you saw Europe react, as it relates to standing up defense fund, some of that coming at the expense of research as an example. Obviously in the U.S. in NIH there was a specific reduction there taking place? So we've reflected that in. The other big areas in the DS business predominantly back tech. So we described that on the call. Last year we had a third-party supplier create a supply challenge. We're fully back on supply. Team's done a great job there. Inventory is in the channel. But as you can imagine the healthcare system puts conservation efforts in place, to ensure that they're appropriately following protocols, taking care of the most critical patients. It's taking them longer to ramp back to normal utilization level. So, we're partnering with our customers to get that back, give them confidence that supplies there which is there. Those are the big areas. There's some smaller puts and takes everywhere else, but that's the way I would think of it.

Our next question comes from Matt Taylor with Jefferies.

Hi. Thank you for taking the question. So just following on the discussion about tariffs and mitigation actions, I was hoping that you could delve into some of the different levers that you can pull and when you might look to pull them. A lot of companies have been talking about pricing selectively and then using global footprint and looking at different sourcing. So maybe you can talk about any actions you could take in the short-term and then when the dust settles and we know more about how the landscape will look next year, what could you do in different scenarios next year and beyond?

Thanks, Matt, for the question. This is Tom. So, as we shared in the prepared remarks, this team has a very strong track record of being highly proactive and effective in navigating macro challenges. We did that during COVID, supply chain and inflation headwinds that followed, and certainly tariffs represent a dynamic external factor that we jumped all over to very proactively manage that situation as well. And so, a couple of the levers that we pulled early on and then I can talk about some of the ones that we're continuing to pull. Right off the bat, we actively started positioning inventory in the right geographies to get ahead of the tariff, and create a buffer against near-term cost impacts. So that was an area, for example, we've gotten in quite a bit of inventory on Veritor to get ahead of that and have enough inventory for the balance of the year. That's the one product that we import from China as an example, less than 1% of U.S. revenue, but that is the one product that we import from China, and we're able to get ahead of that for inventory for the rest of this year. We continuously look at our global sourcing footprint. As I shared, we have the largest -- we are the largest U.S manufacturer in MedTech, and that's a significant strength to us. We also have a very dynamic global footprint as well. And so, we do have, particularly on our high volume consumables, it's very often that we have multiple sourcing options. And we shared some examples in the prepared remarks. As an example, essentially, all the vacutainer that we sell in China, historically and today is sourced from our Sumter, South Carolina plant. We make the exact same product in Plymouth, England…

Our next question comes from Travis Steed with Bank of America.

Hi, thanks for taking the question. I guess, Chris, I wanted to ask kind of a higher level bigger picture question. I think we came into the year thinking that we were going to set a more conservative guidance. And then, just trying to think about the philosophy here, like, there is an acceleration now in kind of the back half of the year again. I'm just trying to get confidence in the guide again and trying to understand like is the business, the macro just changing so much it's hard to capture, is that just a tough business to model? Just trying to take a bigger picture, how do we kind of improve the execution here going forward?

Travis, this is Tom. Let me start on that and then I'll turn it to Chris. Certainly, we're not pleased with the -- obviously, the change in our revenue, and we take that very seriously and we're very focused on the actions to accelerate in the back half of the year. As you mentioned and as we called out earlier, and we've shared it. We shared in the back half of last year, we shared again earlier this year that we've been monitoring the market dynamics, particularly in research spending and biopharma in China. I think biopharma, we're seeing recover to our initial expectations, and that's a positive. Obviously, research funding had a meaningful change that happened within Q2, which was the environment did become more volatile-than-anticipated, particularly with the government changes that were announced in February, around NIH grant funding. When that grant funding change happened, we saw, basically a freeze on capital purchases for research use in many cases. As we shared in our prepared remarks, we continue to see growth in reagents, but we did see a freeze on that. We've also seen, even in Europe, as Chris mentioned, as there is some uncertainty on where government spending was going, we saw, for example, in NHS, orders that we had in hand get put on pause as they were looking at how they were going to be allocating their government spending in the face of an evolving environment, including increasing defense spending, et cetera. So, I think what we want to do is be, make sure that we represent that and what we're assuming is, that continued pressure and dynamic change through the balance of FY '25, right, which is a step down from what we saw not only coming into the year, but it's a step down from what we saw in Q1 as well. And that was, you can see, very clearly aligned with activities that decisions that were announced in new administrations that happened within the quarter. On China, we want to really get ahead of what we're beginning to see in the macro environment there. As Chris mentioned, year-to-date through Q2, we're essentially on what our original expectations were for China. With that said, we've been monitoring the environment. Research spending pressure continues to be in existence in China, and of course the VoBP environment is something we watch very closely. And so, we wanted what we've built into our outlook is some incremental dynamics in China and adjusted that from mid-single-digits decline to high single-digits decline in our forward outlook. And so, those are the main factors.

Yes, I mean, that addresses top line. Maybe just one other comment there, because, again the market dynamics, there are isolated right China and then significant dynamics playing out in life sciences and in BDB in particular that's not different from others that are in that space. When you look at kind of MedTech or think even New BD or full year guide is solidly in mid-single-digits still ex-licensing. So there's a lot of strength in the business that's certainly getting lost in that. And by the way, that includes -- that comment includes the China headwind in that number. So that's just the last comment on growth. I think one of the other just more important things that I touched on briefly is think of the strong consistent execution on earnings. We feed every single quarter on earnings. There was one that was a match. You're seeing 8% earnings growth. So, we're basically holding our guide ex-tariffs, right. Tariff was clearly a new event for everyone. We did a really nice job of managing that in 2025. Generally came in better than I think folks were thinking externally and the power of our supply chain and capabilities and our track record there in terms of COVID and how we navigated macro should give a lot of confidence around how we're driving our P&L. I mean, we're absorbing 5% EPS growth headwinds, 2% tariff, 3% on the revenue and we're still delivering 8% earnings growth. I think it's the highest quality, highest leverage P&L and with the BD Excellence momentum going forward it should give confidence that, we're able to deliver strong results even in an environment like that and compound earnings.

Great. Thank you. I wanted to ask about the Life Sciences separation. I know you heard said it was on track, but there's been a lot of change in the macro environment and also in valuation. So just kind of wanted to double click on the on track comment and see if there's anything else you could say on the process?

Yes. This is Tom, Travis. Good question. So as we shared, nothing has changed. The planned separation process remains on schedule and there continues to be very strong interest in the assets. As we progress, we're going to continue to be thoroughly evaluating all the transaction options, net of tax, to make sure that, we get the best outcomes for shareholders. That remains our priority, maximizing shareholder value through this process, and we continue to expect to announce the transaction this summer. So, we remain very focused on that.

And our next question comes from Patrick Wood with Morgan Stanley.

Perfect. Thank you so much for taking the question. I'll keep it to one. We've talked about a lot on this call, but obviously, you guys have done very, very well on the efficiency side over the years. There's been a lot of exercises, I'm sure, internally that have gone through to land us to where we are now. I guess, my question is kind of to what extent you build muscle tissue in that skill set internally with the employees, but, also, it's a lot of work, right? It's kind of exhausting in its own way. So I guess what's the interplay here between the capacity for people to keep doing these exercises and kind of remain happy, versus the skill set of the muscle tissue that you guys have built up in that arena? And how do you make sure that, you don't end up, because there's obviously everyone has limited time. There's a bit of an interplay between market and product development and efficiencies that everyone has a certain amount of time. How do you sort of balance those things internally? I know it's a very vague question, but I'm just curious.

Thanks, Patrick. Good question. So maybe I'll let me start on that and then maybe I'll ask Mike Feld to also weigh in, who's taking a broad role in the company, leading BD Excellence. One is, I go to a lot of -- a fair number of Kaizens. I just was actually in Singapore a couple of weeks ago hosting the annual CEO Kaizen that I host every year, which is where I'm in the plant for the full week with the team. We had eight Kaizens going on concurrently that week, some amazing achievements. They are the most inspirational, engaging activities that I ever see, period. I mean, it's like the energy of a sales meeting you find when we do Kaizen. It's unbelievable. Because of what -- of course, what's happening is, it's the teams that are doing the work on a daily basis are given time to step outside of running the line and stepping back and working to improve and transform what they do to make it better, to make it safer, to make it better quality, to make it lower cost, to make it more efficient, for them, for the company, for our customers. And it's unbelievable what they achieve. And of course, when we're doing those, they have the full support of the organization. We typically have, for example, IT leadership to do things that they may say, how am I going to get that done that normally takes a month, and it happens within like two hours sometimes. And again, it's inspiring and it's showing what can be done and that momentum builds upon itself. And so, we are still in early innings, right? We're only -- we started it in the back half of '23. We will again triple the number of Kaizens that we do this year and it has still been largely focused within our ISC or operations and warehousing organization where you can see the impacts directly in our gross margin. Again, still early stages, even on the gross margin side. What we've begun this year is beginning to expand those into -- expand BD Excellence into R&D and into the commercial space. So, as an example, we just did a Kaizen last week on one of our key clinical trials. The outcome of that was accelerating the clinical trial four months. Team left really excited, inspired by what they were able to achieve in that and those plans and inspires others. We do a lot of storytelling in the organization to share those best practices and inspire others in the organization of what teams are doing, and give them exposure to that. So, actually see it as a -- it's a huge positive from a culture. It builds momentum in and of itself, by sharing those stories and what people are achieving. And maybe Mike, anything to add to that?

Yes. Thanks, Tom. And I mean, I couldn't be more excited, Patrick, about the journey we're on. And as Tom mentioned, we're in the early stages of this. I think one of the maybe misconceptions is, as we put in lean and continuous improvement processes and standard work, this actually frees up time. It allows our associates to spend less time on some of the more mundane tasks and spend more time on the things around creativity, strategy, problem-solving to really drive results. So, as we extend these philosophies into our operating mechanisms, our commercial footprint, R&D, as Tom mentioned, I expect excitement to continue to grow, as well as even more time to spend on the things that are popping up like tariffs, to really resolve those to the most efficient manner.

Our next question comes from David Roman with Goldman Sachs.

Thank you. Good morning, everyone. I'll limit myself also to one here. I guess, I think about the evolution of organic growth here the past several quarters. A lot of the dynamics that have impacted your business really have stemmed from end market dynamics. So, if you kind of take that as context, can you talk us through the process by which you gather market and competitive intelligence? Do you have a central team to validate business assumptions? And do you think, you have the right people in place to get the best intel on what's happening in your business and markets?

Yes, David, this is Tom. I'll take that. Obviously, the teams that are most close to those markets are the teams in the businesses. And we do have a central group that does -- has a central strategy group. And we've continued and we use outside perspectives as well too as we form those views. I think what you've seen is, the two areas, most notably research spending and the pharma space, you saw, I think everyone in those spaces have to make adjustments. Obviously, we're unique within MedTech to have those within our portfolio. There's not really other players within MedTech who have those dynamics that have exposure to those spaces, but the pure plays have been -- have had to make those adjustments from that perspective. So that's an area we certainly always continue to challenge ourselves is to see how we get ahead of those, David. Obviously, the policy change here in the U.S. that we saw and the change on research spending. We had adjusted research spending down going into the year. It then stepped down further with obviously the new administration's policy changes. And I think, if you look in years prior, we were one of the first to identify VoBP as an example in the years back and we were talking about that ahead of the curve. I think we were out ahead of the curve on inflation. We were the first one to be pulling that out and addressing it from a pricing perspective right after COVID. I think the same thing on the supply chain dynamics, what we're able to see ahead around the corner there. And so, on many of those, I think the discussion on these calls were how we were getting and seeing around the corner on those. And so, it's an area that we do well in a number of spots. Obviously, we always look to hold ourselves to a higher bar and continue to do better in some of these most recent spaces of life sciences and pharma.

And our last question comes from Matt Miksic from Barclays.

Thanks so much for putting me in. So, just a combination question here, but it has to do with, I think, and one of the questions we get often is, how you're going back to the period of hyperinflation? You were I think the only company in the universe that were -- in our coverage universe that was really getting so deep into these cost optimization programs that you were able to kind of raise margins during the hyper growth in hyperinflation period. And the question is how sort of a follow-up to an earlier question, how much more is there to lean into there? And then, the combination, it applies here, Tom, is what, if anything, can have you been doing, can you do around internal optimizations around AI to your point about getting away from mundane less productive, less value added and towards more value creation?

Thanks. Yes. Great question. So, appreciate and we appreciate the acknowledgment of the work that we did to navigate the hyperinflationary environment that existed post-COVID. We're proud of that work and applying a lot of the same lessons and experience to the tariff environment as well. So, look, as we think about maybe the last part of the question, AI, we're taking an approach on both innovation as well as our internal systems, and taking one where we are investing in a moderate level, seeking to learn, confirm that we get value and then proceed, which we think is a prudent approach to demonstrate value creation that comes with any investment. And so, obviously, we've talked a lot about just launched a new AI-based platform in APM that we're really excited about. We've got the new AI platform that we'll launch with the Pyxis Pro later this fiscal year in MMS. And obviously, we have the use of AI already in areas like Kiestra and diversion analytics. And we continue to have quite a few other programs in AI within our pipeline. We also funded an AI incubator within our R&D organization, put a leader in place of that and a nimble, agile team who's doing prototyping and pilots in new spaces that we can apply AI to. But, we're keeping it small, nimble and, again, rapid prototyping, apply, understand the business models for those, and then we'll fund those as business models are confirmed. As we think about it internal, and Chris can speak to this perhaps a bit further. Again, we are using and applying AI on things from back office processes like expense reviews. We just announced managers don't review expenses anymore. We've taken that off of people's plates, because we have AI doing that as an example. We're using it in our manufacturing area to optimize scheduling on the lines, right? What products in what order do you make to be able to minimize changeover and maximize OEE on line throughput? Other areas like inventory management, we use AI in. And so, we're using in very focused spaces, again, where we know that there's clear tangible value that we can get out of the technology.

Just the last comment maybe tying Patrick's question and yours a little bit. Just all these initiatives, as you talk about the energy in the organization, these all actually enhance the work experience across the board. And importantly, in this profile for earnings growth, like we're adding investment in key areas, selling, R&D, you see that in the back half of the year. And so, these all create a lot of energy and momentum and feel really good about that.

Thank you. 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 remarks.

Thanks everyone for joining today and for your support of BD. We are acutely focused on navigating the near-term environment and believe we are well-positioned to accelerate growth as markets recover. We look forward to updating you on our progress on our next earnings call. Thank all of you for your time today.

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.