Hello, and welcome to BD's Third 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) 839-1246 for domestic calls and area code +1 402 220-0464 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 third 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; Rick Byrd, President of the Interventional segment; and Bilal Muhsin, President of our Future Connected Care 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 on our Investor Relations website. Unless otherwise specified, all comparisons will be made on a year-on-year basis versus the relevant fiscal period. Revenue percentage changes are on an adjusted FX-neutral basis unless otherwise noted. Reconciliations between GAAP and non-GAAP measures are included in the appendices of this earnings release and presentation. With that, I am pleased to turn it over to Tom.

Thank you, Greg, and good morning, everyone. As you saw in our press release, in Q3, we sequentially improved growth across the company. We accelerated commercial initiatives and increased our organic growth trajectory through market headwinds. We continued our strong track record of executing BD Excellence to drive gross margin upside. Additionally, we fulfilled our commitment to announce a definitive agreement to separate our Biosciences and Diagnostics business through a transaction that we believe will unlock meaningful value for our shareholders. Turning to details of the quarter. Revenue grew 8.5% to $5.5 billion or 3% organic. New BD organic growth was 4%. Our BD Excellence lean operating system remains a flywheel for value creation, delivering Q3 adjusted gross margin of 54.8%, up 50 basis points year-over-year. Adjusted operating margin of 25.8%, up 60 basis points year-over-year and supported delivering $3.68 in adjusted diluted EPS, each exceeded our expectations. As we communicated last quarter, we've been taking actions to accelerate revenue growth. This includes further investing in growth opportunities by adding selling and marketing resources, capitalizing on new product launches and continuing to drive BD Excellence to optimize product supply. The combination of these actions has already begun delivering results, as you saw play out in a number of key areas. Pharm Systems improved sequentially to nearly 5% growth as we delivered another quarter of double-digit growth in biologics. BDI accelerated to nearly 7% growth in the quarter, with double-digit growth in UCC and mid-single-digit growth in PI and Surgery. APM delivered double-digit pro forma growth ahead of our deal model. As expected, growth in both BDB and DS increased sequentially by approximately 250 basis points. This performance allowed us to deliver sequentially improved growth across the company through continued market headwinds in China, certain subsegments of Pharm Systems such as…

Thanks, Tom. Starting with our Q3 revenue performance. Revenues of $5.5 billion grew 8.5% or 3% organic. New BD organic growth was 4%. Regionally, total company organic growth was led by performance in the U.S. and Greater Asia outside of China, partially offset by China. In BD Medical, as we expected, Pharm Systems showed sequential improvement with 4.8% growth as we anniversaried the impact of customer inventory destocking and delivered another quarter of double-digit growth in biologics, driven by increased orders for GLP-1s. We continue to monitor market dynamics as volatility in subcategories such as generic anticoagulants and vaccines remain. MMS delivered solid mid-single-digit growth as we continue to secure competitive wins at several large health systems in the quarter across both infusion and dispensing and are tracking ahead of our goals for upgrading and securing our Alaris installed base. MDS grew low single digits as volume growth in vascular access management and hypodermics in the U.S. was offset by ongoing change in clinical practice following the fluid shortage and volume-based procurement pressure in China as expected. APM delivered 13% pro forma growth in the quarter. This was driven by strong commercial execution, incremental selling investment made as part of our acquisition thesis and new product innovation, including the recent launch of the HemoSphere Alta Monitor. Our Interventional segment delivered nearly 7% growth in the quarter with 12% growth in UCC, supported by the recent launches of PureWick Flex at Home and PureWick Male, which continued to outpace the new product ramp of PureWick Female. Surgery delivered mid-single-digit growth, driven by double-digit growth in our advanced tissue regeneration platform from incremental investments in our Phasix sales force, our recent Phasix umbilical launch and continued adoption of GalaFLEX for plastic and reconstructive surgery. Peripheral Intervention also grew mid-single digits. Our focus…

[Operator Instructions]. And our first question will come from Patrick Wood with Morgan Stanley.

I'd love on the RemainCo side, the plus 4% growth. If we think about flowing into Q4 and then to your point, APM drops into being organic, and we're seeing that biologics pipe flowing through into PS and urology is strong. I know we're not talking about '26 yet in the kind of midterm, but is it the right framework? Is there any reason we would be wrong to think that RemainCo should be stable in that kind of mid-single-digit plus kind of a range as just a conceptual framework? Is there anything that would be wrong with that thought process when we're looking a little bit more midterm?

Yes. Thank you for the question, Patrick. We are pleased with the performance, as you mentioned, across a number of areas, whether or not in the BD Interventional business, continued strength of UCC, which was underlying about 10% last quarter, continued that this quarter, strong performance across MMS. And as you mentioned, good to see as we expected, the recovery in Pharm Systems driven by double-digit biologic growth. And as you shared, we also continue to secure more and more contracts for biosimilars in that category in GLP-1s, which has been a key strategic focus of ours. You saw that continue to play out, as you mentioned, in areas across -- also the sequential improvements in the Life Science business, particularly 250 basis points in BDB and DS. As you said, 4% growth for the New BD, which is also about where we expect to be for the full year. And so those trends that you're seeing across BD Interventional, across the Connected Care medical segment. We expect those largely to continue. There's nothing different that we would expect fundamentally from those. I think as we -- as you also mentioned, we saw very strong growth in APM ahead of our deal model, 12% growth -- sorry, 13% growth for the quarter. And that's really driven by strong execution from that team, some great innovations hitting the market. And then as part of our deal thesis to start with, and we had shared this at the time of the announcement, we were going to make incremental investments in selling in certain areas of innovation, and the team has been executing those really well on those sales investments in APM, and you're starting to see that come through. You also saw us announce that we're making some outsized continued investments more broadly in the company behind areas of opportunity in Q4, specifically in our selling organization, think about areas like UCC, other areas in Interventional and in the Medical segment, Connected Care on some big new product launches like the Pyxis Pro that we're doubling down and investing behind as we go into Q4 to help set us up for FY '26 and beyond. So thank you, Patrick, for the question.

Our next question will come from Rick Wise with Stifel.

Thinking about one question, I guess I'm going to focus on the -- just something nearer term. And maybe, Chris, you can talk a little bit about your implied operating margin guide for the fiscal fourth quarter. My initial back of the envelope calculation suggests that just as I do the math, that implies sort of a step down in operating margins relative -- flat or down, I should say, relative to the prior quarter. Just help us think through the headwinds or the mix issues that might relate to that? Is it China? Is it conservatism? Is this tariffs? Just help us think through the sequential margin dynamics given your excellent performance and outperformance this quarter.

Yes, Rick, thanks. Look, we've been really strong this year in terms of quality P&L. You see the benefit of BD Excellence playing out in our margin profile consistently quarter-over-quarter. I'd suggest we've been best-in-class in terms of margin, EPS flow-through. If you look at our full year guide now, 9.4% at the midpoint, a significant raise in the quarter. And that's while absorbing 2 points for the full year of growth from total tariffs. So as you think of what to expect in Q4 as you squeeze the balance of the year, first of all, on gross margin, it's going to be about flat year-over-year. And by the way, just as a reminder, right? We have $90 million of tariffs that are all flowing through in Q4, right? So that's nearly 150 basis points. So that shows the power of BD Excellence and what we're getting in terms of net productivity, offsetting inflation that's fully absorbing in gross margin, the tariffs. The operating margin is as planned. There'll be a slight sequential step down quarter-to-quarter, and it's largely driven by just the timing of our investments. And as you saw in our updated guidance, we're actually fueling the business with more investment to continue to fuel those areas of momentum that Tom mentioned. So all in all, I think when you look at the print, it's extremely strong EPS. It really demonstrates the power of BD to compound earnings at a compelling growth rate despite macro factors. So we're very pleased with that.

Chris, congrats again on the excellent performance this quarter.

Our next question will come from Larry Biegelsen with Wells Fargo.

Chris, 2 for you. I'm going to try to ask them both together. First, usually on the Q3 call, you give some helpful commentary on the following year, particularly on the P&L. So is there anything you can share with us today on whether you can increase the margins year-over-year in fiscal '26 given the tariff impact? Color on FX today or high-level thoughts on EPS growth? And second, what can you say about the post-separation margin outlook? You've talked about it, the operating margin post separation being similar to the current BDX operating margin. Does that include TSAs and MSAs? And any color you can share with us today on below-the-line items like tax rate? Obviously, you know we're all trying to build RemainCo P&Ls here.

Yes. Thanks, Larry. Appreciate it. Maybe with the separation first, something that we shared. There's always a couple of ways to look at this. The key questions tend to be, do you have dislocation in margin. We shared last time publicly that there will actually be very difference in terms of operating margin pre-separation and post separation. So that's within a reasonable range, plus or minus. So you should see a healthy margin come out, plus you're going to continue to get the benefit of BD Excellence carrying through. So you'll continue to have those same dynamics. So that's very positive. There's always stranded costs when you have these things. There will be a TSA that largely offsets that. So those 2 factors, coupled with the fact that with the $4 billion cash we get and at least half of that going towards share buybacks, creates another lever that will create some EPS accretion tied to that. So we actually think when you kind of separate the pieces of BD and think of the earnings that goes with the separation that you're getting meaningful value for and then the earnings that's left and then the TSA on top of that and then the EPS accretion from the share buybacks positions us well to not have any leakage as you think of the sum of the parts there. And so it sets up nicely for New BD. Tom talked about the New BD growth rate, right? And so that's where we stand with the separation. We'll obviously provide more details as we give our November guide and help everyone try and bifurcate those pieces in more detail. It's still a bit early. As you think of '26, look, it's early given various macro factors, et cetera, to give full color. But a couple of things. One thing we shared on the call was our tariff outlook for '26. We know expectations out there were set last quarter. We said that it would be about $275 million in '26, which is a meaningful improvement from where you are. So as you think of where EPS may be sitting today based on prior expectations, that should be positive. I think the other thing I would say is, as you see us doing now, right? BD Excellence, we're in early innings there. That becomes a strong underlying favorable margin dynamic that will play out in our P&L. Obviously, you do need to contemplate the incremental impact from tariffs, the $275 million, less than $90 million that we already have in our base. But it's a better outlook. Folks should see that as a better outlook versus where we were last quarter, rough math, I think, where most people were assuming that's about an $85 million benefit from where folks were sitting. So I think those 2 things are favorable things you should think about as we head into '26.

Our next question will come from Travis Steed with Bank of America.

I guess just a bigger picture question on kind of the growth outlook for the RemainCo business, kind of the New BD, if you will. Like what do you -- how do you kind of see this business growing kind of versus the 5.5% plus longer term? And then -- and also, how should we think about kind of capital deployment, the new strategy on capital deployment kind of post separation?

Yes. Thanks, Travis. I can start off with that. And obviously, I made some earlier comments, I think to Rick's question earlier, similarly related. Maybe I can -- we're obviously very focused on executing in '25 and chopping wood through the balance of the year, but I could give a little bit of -- and it's too early to talk details about '26, but maybe just give a little bit of thoughts to share related to that. So we're obviously encouraged by the recent sales performance across the portfolio as we execute our commercial initiatives. The series of new innovations that you see that we talked about on the call, particularly most of those we actually started investing in at the start of BD 2025 as part of the portfolio strategy we talked about them. Obviously, it takes a couple of years for those to come through. They're starting to hit the market. We're excited about those launches. And you're seeing us take incremental some of the flywheel benefits of the efficiencies we're getting from BD Excellence. We're reinvesting a portion of those behind those launches, behind our selling organization to keep driving that growth. And we're going to continue to lean into those investments as we go into Q4 to build on that momentum. Obviously, as we think going forward, too, we're going to continue to look at what is a dynamic macro environment. As we go into next year, we're going to be prudent about that. We're going to monitor. We're going to study how certain market dynamics play out, continuing to focus on China, certain subsegments of Pharma Delivery, specifically vaccines. And obviously, life science research market, will obviously give a Holdco guide as it comes to '26, and we'll incorporate all of those in. As we've…

Great. And Chris, on the Q4 EPS, I think there's some investments there. Anything else kind of driving the change in the Q4 EPS?

No, it's just -- I mean, largely, it's the investment profile really, Travis. There's nothing else there. Again, I mean, it was a strong quarter, a significant raise. I mean we took the midpoint up above our prior top end of the guide, 9.5% EPS growth at the midpoint with 0% FX benefit for the year, super strong. Margins remain intact. The only dynamic you have flowing through Q4 that's nuanced is really the tariff impact flowing through there, which is not new news. That stays intact. And then we want to continue to invest behind the business. Again, I think it's its best-in-class management of margin, EPS leverage and flow-through and I feel really good about that.

Our next question will come from Robbie Marcus with JPMorgan.

Maybe on urology, it was a great print double-digit percent growth. Maybe just speak to the trends there. Was there anything onetime in the quarter? And how you're feeling about that and the Interventional business moving into next year?

Yes, Robbie, this is Tom. Thanks for the question. Now urology is continuing. There's nothing onetime there at all. It's a continuation of the trends. As we had said last quarter, of course, urology had a comp on a onetime settlement they had in Q2. But underlying that, when you exclude the settlement, which wasn't related to business performance, that business grew 10% last quarter. So this is really a continuation of that very strong momentum that they've been building as they've both been driving the male PureWick, which continues to scale even faster than the original female PureWick, it's doing fantastic. Obviously, continuing to expand PureWick into the home. We continue to advance our clinical study aimed at getting at-home reimbursement. And so the growth that we're getting at home is all out of pocket today. We see a meaningful opportunity to unlock additional upside there through the trial that's progressing very well, and we expect to conclude in '26. We also have a series of new launches that will be coming up here very soon, including the first mobile PureWick. That next product that we'll be launching in Q4, actually heading into FY '26 will be for patients who are in wheelchairs because it will be the first wireless battery-driven version of a mobile PureWick and then we have versions coming in the future that would allow people to be completely to walk around with kind of a fanny pack type version. So we've got a strong runway ahead in continued innovation in that space that we're really excited about. I think as you think about the broader areas of the Interventional business, again, the acquisition we did at the start of BD 2025 of TIFA, the team is doing a really nice job iterating serially on new…

Great. Maybe just to follow on to the last question. Chris, it sounds like there's increased SG&A investment in fourth quarter coming in below Street expectations on EPS. How do we think about where that is, what it's funding? And should we carry that level of investment in SG&A into next year?

Look, I think a real positive thing we've talked about BD Excellence was not just the impact it has on margin and the opportunity to compound earnings, which we've done, right? Again, best-in-class margin and EPS flow-through with almost 9.5% at the midpoint. But importantly, we want to keep investing in both innovation and commercial execution. You've seen us do that throughout the year. And we're going to continue to invest behind all the areas of momentum. Tom has mentioned them a couple of times on the call, and that's part of our strategy. Again, we feel really good about an almost double-digit EPS number at the midpoint, and this sets us up to continue some momentum as we think about 2026, driving those areas of growth. Thanks, Robbie.

And this 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.

Okay. Thank you, operator, and thanks, everyone, for joining today and for your support of BD. We look forward to connecting with everyone again in November.

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.