Q4 2024 Earnings Call Transcript

Hello and welcome to BD's Fourth Quarter and Full Year Fiscal 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 800-839-1337 for domestic calls and area code +1-402-220-0489 for international calls. For today's call, all parties have been placed in a listen-only mode until the question-and-answer session. I will now turn the call over to Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations.

Please go ahead.

Good morning and welcome to BD's earnings call. I'm Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations. Thank you for joining us. This call is being made available via audio webcast at bd.com.

Earlier this morning, BD released results for the fourth quarter and full year 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; 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 presentation. With that, I am very to turn it over to Tom.

Thanks, Greg and good morning, everyone. First, I'd like to take a moment to welcome Mike Feld, President of our Life Science segment, who joined BD in August from Veralto. Mike is known for building innovative, high-performing teams and his leadership principles are well aligned with BD's culture. Mike also brings deep experience in Shingijutsu Kaizen which is the heartbeat behind BD Excellence.

There is no individual more suited to lead the Life Sciences team as they continue to expand the value BD brings to our customers and I look forward to Mike's partnership as we deliver on our strategy. Earlier today, we reported strong Q4 results with 7.4% revenue growth or 6.2% organic, 120 basis points of margin expansion and adjusted diluted EPS up 11.4%. For the full year, we delivered solid organic revenue growth of 5%. Despite fiscal '24 revenue growth that was below our initial expectations, we are pleased with how we navigated complex market dynamics in China and Bioscience-Pharma.

Breaking things down, our MedTech and Diagnostics businesses grew a strong 5.9% this year, inclusive of absorbing a decrease in China, while our Bioscience-Pharma businesses grew about 1%, roughly in line with the end markets. Over the long term, we see Bioscience-Pharma as a durable, higher growth contributors to our portfolio and we remain confident in gradual market recovery, our competitive position and the team's execution. We consistently executed on margin expansion in FY '24, increasing adjusted EPS guidance each quarter and delivering full-year EPS of $13.14, adjusted operating margin of 24.2% and free cash flow of $3.1 billion, all ahead of our original plan and positioning us well moving into FY '25. I'd like to thank our global team of associates whose passionate commitment and focused execution of our strategy is making meaningful impact for the customers and patients we serve.

Reflecting more broadly on our strategic direction and progress this past year, we made important advancements on each of our top 3 priorities. which are: one, drive sustained topline growth through high-impact innovation and commercial excellence; two, execute on BD Excellence to drive operational performance; and three, effectively deploy capital. First, on growth. We advanced multiple new growth platforms that put BD in the middle of the most significant trends reshaping health care, including the use of AI and automation in connected care to transform efficiency and outcomes, the shift to new care settings and the application of medical technology to improve treatment of chronic disease.

Starting with our BD Medical segment. New biologic drugs promise to have the most significant impact on chronic disease in the history of modern medicine. In FY '24, we passed $1 billion of annual revenue in biologic drug delivery sales, driven by our leading prefillable devices and increased manufacturing capacity to serve growing GLP-1 demand. As the leader in biologics drug delivery and with a growing pipeline of targeted innovations such as our Libertas and Evolve wearable devices, we believe no company is better positioned than BD to capitalize on a significant growth opportunity.

We continue to advance our platform for pharmacy robotics which now ranks as one of the largest robotics businesses in med tech and is enabling the transformation of retail, online and hospital pharmacies with significant opportunity for future growth. We're also extremely pleased with the first year of the Alaris return to market and its role in our connected medication management strategy. We exited the year at our historical revenue run rate and continue to see strong customer preference for the Alaris Power of One. Our acquisition of advanced patient monitoring in FY '24 expands our connected care solutions in a high-growth market and enables future innovation opportunities in breakthrough closed-loop monitoring and treatment which BD is uniquely positioned to deliver across our platforms.

Integration is going as expected and the commercial teams are fully engaged in maximizing the benefits of APM for our customers. In BD Interventional, we had a fantastic year advancing our PureWick urinary incontinence platform, launching our next-gen PureWick Flex and expanding PureWick Male into the home. In our advanced tissue regeneration portfolio, Phasix and GalaFLEX are additional examples of how our tuck-in M&A strategy is now driving strong organic growth. We continue to transform hernia surgery and are expanding this platform into new applications for plastic and reconstructive procedures, driven by trends in aging and GLP-1 weight loss which increasingly call for soft tissue support to restore function and improve appearance.

Across BD Life Sciences, we continue to reinvent the field of flow cytometry with the launch of the 3 in 4 laser FACSDiscover S8 Sorter and multiple new reagents using unique AI algorithms to optimize dye designs that are enabling new scientific insights. In Diagnostics, our new high-throughput molecular platform, BD COR and Onclarity HPV assay, continued to gain traction with self-collection and new care settings for cervical cancer screening now available in many countries around the world, representing a meaningful new growth opportunity for BD. While these and other new BD innovations are playing a key role in transforming care, most every significant healthcare procedure uses a BD COR device whether robotic surgeries, valve transplant, new cancer treatment or advanced vascular procedures, BD syringes, catheters, pumps, surgical prep, blood collection and other products are there.

In FY '24, we saw strong growth across our core devices, driven by share gains and procedural volumes. Turning to operational performance; we launched BD Excellence about 18 months ago. And it's been incredible to see the momentum behind simplifying our company, improving quality and accelerating margin progression. Through BD Excellence, our team has made strong progress on network optimization, increasing plant productivity and delivering double-digit improvements in waste and operating equipment efficiency or OEE.

All of this drove margins, EPS and cash flow above plan. We have much more headroom going forward through BD Excellence and it positions us well to deliver on our goals for FY '25 and beyond. On our third priority of strong stewardship of value-creating capital deployment, our focus on cash generation enabled strong growth in free cash flow, increased free cash flow conversion and allowed us to return capital to shareholders through dividends and share buybacks. Earlier this morning, we announced our 53rd consecutive year of dividend increases, extending our long-standing recognition as a member of the S&P 500 Dividend Aristocrats Index, a distinction that reflects the consistency and reliability of our dividend policy.

Meaningful return of capital to shareholders will remain a key priority in our capital allocation strategy going forward. Beyond those priorities, in FY '24, we expanded our position as a leader in corporate responsibility, with significant progress toward our 2030 corporate sustainability goals. We became one of a handful of med tech companies to have near- and long-term greenhouse gas emissions reduction targets and net zero targets approved by the science-based target initiative. We surpassed both our Scope 1 and Scope 2 greenhouse gas emissions targets.

And as part of our ongoing health equity strategy, we advanced partnerships around the world in areas such as improving access to cervical and breast cancer screening. We are pleased to be recognized for our efforts, most recently being named a 3BL's list of the 100 Best Corporate Citizens and ranking in the top 2 in health care. Looking ahead to FY '25, we will continue to execute in alignment with each of those 3 priorities. We have more than 25 planned new product launches this year and calling out just a few.

In BD Medical, we're launching our next-generation Pyxis platform which includes the cadence of hardware and software upgrades and releases which will begin to roll out by the end of calendar year '25 and continue for the next several years. This will be the first system to use BD's new advanced AI platform that will integrate data across BD smart devices. We have a number of new launches planned in our advanced patient monitoring business to revolutionize hemodynamic monitoring. The next-gen HemoSphere Alta Monitor will feature a full range of sensors enabled with predictive IQ algorithms that provide comprehensive pressure, flow and tissue oxygenation insights for varying acuities.

New Swan IQ and ForeSight IQ smart sensors will provide new patient insights, including new-to-world right heart pressures and cerebral oxygenation. In BD Life Sciences, we plan to launch the first BD FACSDiscover Analyzer, the A8, to provide customers with high-throughput sample analysis with the same innovative technologies as our breakthrough Cell Sorter. And lastly, in BD Interventional, in our PureWick platform, we're advancing the pivotal study for at-home reimbursement and expect to continue the cadence of innovation with the launch of PureWick Portable, a solution that restores mobility to people's lives.

We look forward to sharing a full portfolio update at our Investor Day on February 26 at the New York Stock Exchange. We believe we are well positioned heading into FY '25, with the strength of our portfolio enabling us to effectively navigate market dynamics and the momentum of BD Excellence driving margin expansion to deliver a strong earnings and cash profile. I'll now turn it to Chris to provide further color on our financials and outlook.

Thanks, Tom and good morning, everyone. As Tom noted, we delivered competitive organic revenue growth for the fourth quarter and full year even while navigating market dynamics in China and Bioscience-Pharma. And importantly, with strong execution of our BD Excellence programs, we exceeded our full-year margin, earnings and cash flow goals. I'll now provide some further insight into our Q4 revenue performance.

BD Medical organic growth was led by MMS with another quarter of exceptional performance in infusion systems, driven by the BD Alaris return to market. Higher pull-through and utilization of infusion sets also contributed to MMS growth. The unit's performance was partially offset by a tough prior year comparison in dispensing. Our MDS consumable portfolio also contributed to the segment's Q4 growth.

We continue to advance our position in the U.S. with broad volume growth and share gains, particularly in our hypodermic and vascular access management portfolios, where our quality and agility to meet increased demand has positively benefited healthcare delivery across our markets. Pharm systems performance reflects another quarter of double-digit growth in prefilled devices for biologic drugs, primarily GLP-1s which was partially offset by market dynamics across the industry, including expected customer inventory destocking. Rounding out the BD Medical segment, in early September, we closed the acquisition of Edwards Critical Care, now Advanced Patient Monitoring or APM which contributed $74 million to BD Medical revenue.

BD Life Sciences performance was led by IDS. Strong mid-single-digit growth in specimen management was driven by volume growth as investment in our U.S. direct sales team drove increased demand and customer upgrades to higher-value products to provide an enhanced patient experience. Within our Diagnostics business, our results reflect some tough prior-year comparisons in lab automation and ID/AST. Offsetting these impacts was good traction leveraging our molecular platform installed base with double-digit growth in both BD MAX and BD COR.

BD Life Sciences growth was partially offset by transitory market dynamics in Biosciences that resulted in lower market demand for research instruments and reagents. Clinical Solutions grew double digits, led by our FACSLyric cell analyzer and cancer reagents. We continue to outperform our life science peers given our portfolio mix of leading instruments, including the BD FACSDiscover, antibodies, dyes and software. We remain excited about the growth opportunities in BDB as a number of new innovations are driving share gains.

Strong organic growth in BD Interventional was led by double-digit growth in UCC with continued momentum in our PureWick franchise. PureWick Female grew double digits and PureWick Male delivered its strongest quarter since its launch in acute care. We are also very pleased with the male direct-to-consumer launch, where the first few months of revenues exceeded our expectations. Surgery delivered another quarter of above-market growth.

Within advanced repair and reconstruction, continued strong market adoption of Phasix hernia resorbable scaffold drove double-digit growth. It was partially offset by a tough comparison to the prior year in synthetic mesh. Performance in Surgery was also driven by double-digit growth in infection prevention due to increased demand for ChloraPrep related to strong procedural volumes. BDI performance was also supported by peripheral intervention with double-digit growth in peripheral vascular disease and high single-digit growth in end-stage kidney disease.

PI growth was partially offset by a decrease in oncology due to prior year distributor inventory stocking in the U.S. Now, moving to our P&L. Q4 adjusted diluted EPS of $3.81 reflects double-digit growth of 11.4%. Consistent with our commitments, we delivered strong margin progression in Q4 with adjusted gross margin up 30 basis points sequentially and 200 basis points year-over-year to 54.6% and adjusted operating margin up 140 basis points sequentially and 120 basis points year-over-year to 26.6%.

Margin expansion was driven by strong leverage on our revenue performance and simplification and efficiencies from BD Excellence. For the full year, we delivered adjusted diluted EPS of $13.14 which represents growth of 7.6%. Adjusted gross margin of 53.3% was in line with our expectations. As planned, strong execution of BD Excellence enabled us to absorb outsized inflation, transactional FX and about 50 basis points from inventory optimization carryover that supported strong fiscal year '24 cash flow.

Adjusted operating margin expanded 70 basis points to 24.2%, exceeding our margin goal for the year, driven by shipping and SG&A leverage. While delivering strong margin performance, we also invested $1.1 billion in R&D to advance our pipeline of innovative programs that will support future growth. Regarding our cash and capital allocation, our strategic choices of strong execution on cash flow optimization drove a $1 billion or 47% increase in free cash flow to $3.1 billion and a larger-than-expected improvement in free cash flow conversion by 22 percentage points to 82%. Broad-based improvements in working capital, including our strategic choice to optimize inventory levels, continued expense management and our ability to leverage capital expenditures from BD Excellence productivity gains were all key factors driving strong execution this year.

We also benefited from the timing of certain discrete cash items. Our strong cash position supported our acquisition of APM while also returning $1.6 billion of capital to shareholders through dividends and share repurchases. Cash and short-term investments on September 30 totaled $2.2 billion, inclusive of about $900 million in proceeds from February's debt refinancing. After closing the Advanced Patient Monitoring acquisition, we ended the year with net leverage of 3x which was in line with our expectations.

We believe we are well positioned to deleverage to our 2.5x target over the next 12 to 18 months. We remain focused on underlying cash flow improvements. Despite the timing impact of some discrete cash items, we expect next year's organic free cash flow conversion to be consistent with this year due to strong execution in working capital. As expected, due to integration-related investments for APM, we anticipate a moderate step back in free cash flow conversion to around 75%.

However, we expect this will still result in another strong year of free cash flow dollars which will support investments in growth, debt repayment and returning capital to shareholders. Given the outperformance this year and our confidence in next year's plans, we believe we are in a strong position to execute our net leverage commitments and plan to deploy about $1 billion towards share repurchases over the next 12 to 18 months, while still delivering on our deleveraging target of about 2.5x within this time frame. We see this as a value-creating opportunity based on our view of BD's intrinsic value.

Moving to our guidance for fiscal year '25. Our initial fiscal year '25 guidance is anchored on high single-digit revenue growth driven by the contribution from APM and a broad-based competitive organic revenue growth profile that captures a prudent view of market dynamics in China and Bioscience-Pharma. We expect increasing momentum from BD Excellence to drive significant margin expansion which will enable delivery of strong adjusted EPS growth of about 10% at the midpoint. This growth includes increased acquisition-related interest expense and a higher tax rate inclusive of Pillar 2. We expect to deliver total revenues in the range of $21.9 billion to $22.1 billion in fiscal year '25 which reflects a modest foreign currency translation impact of 25 basis points and currency-neutral adjusted revenue growth of 8.8% to 9.3%.

This includes strong performance from our newly acquired APM business, consistent with what we previously shared, plus organic revenue growth of 4% to 4.5%. This includes absorbing about 125 basis points impact from China and Bioscience-Pharma with China expected to decrease by mid-single digits. Across the balance of our portfolio which represents about 75% of our total organic revenue, we expect to deliver mid-single-digit growth around our 5.5% plus growth profile. Moving to margins and earnings.

We are confident in delivering another year of strong operational performance, particularly our ability to expand adjusted operating margin by about 100 basis points and exceed our 25% margin goal we set over 2 years ago. The primary driver of margin expansion in fiscal year '25 is expected to come from gross margin with an increasing benefit from accelerating BD Excellence momentum. Below gross margin, we expect some leverage primarily in shipping and G&A, offset by increasing investments in selling and R&D to further support our growth profile. We expect interest and other to be up year-over-year, primarily due to the debt issued in connection with the Advanced Patient Monitoring acquisition.

For tax, we expect our adjusted effective tax rate to be between 14% and 15.5% which includes the impact of Pillar 2. As a reminder, it would not be unusual for our tax rate to fluctuate on a quarterly basis given the timing of discrete items. Given these considerations, we expect to deliver adjusted diluted EPS of $14.25 to $14.60, inclusive of a modest foreign currency translation headwind. As you think about fiscal 2025 phasing, we expect first half revenue growth to be modestly below the low end of our total revenue guidance and the second half to be modestly above the high end. This includes our expectation of a heavier impact to first half revenue growth from the expected decrease in China revenues, a larger impact from Bioscience-Pharma dynamics in Q1 and the comparison to prior year licensing revenue in Q2. As revenue dollars increase sequentially throughout the year, we expect the benefit from BD excellence and strong OpEx leverage to result in increasing adjusted gross and operating margins throughout the year.

This results in strong year-over-year growth in OIBT each quarter. Based on a ratable tax rate, we expect first half and second half adjusted EPS growth rate to be ratable which implies about 10% growth at the midpoint of our full year guidance range and is a nicely balanced phasing profile. In closing, our strategy is demonstrating positive momentum. We expect to deliver competitive growth that appropriately plans for market dynamics in China and bioscience pharma.

Accelerating momentum in BD Excellence is supporting strong margin expansion, enabling investment in R&D to support further growth. This coupled with strong cash generation and a disciplined approach to capital allocation is expected to drive continued value creation for all of our stakeholders. With that, let's start the Q&A session. Operator, can you please assemble our queue?

[Operator Instructions] Our first question is from Vijay Kumar with Evercore ISI.

Maybe on this guidance question here. Thanks for all the details. The 125 basis points of headwinds on pharma, biosciences in China, it looks like you're assuming essentially those 3 segments are flattish for the year. I know China is down.

But when you look at all 3, is that flattish? And the reason I ask is, it looks like those 3 segments together maybe grew slightly here in Q4. And when I look at this comparison versus some of your life science tools peers, they're all declining mid- to high singles given some of these dynamics. So I just want to understand that your trends in those 3 segments are coming in about peers but the guidance does feel like conservative. And related to that on phasing here, is Q1 going to be still in that 4% to 4.5% -- any impact on hurricane, IV fluids?

Okay. Vijay, I appreciate the comments there. So I'll start off with just some comments on some of our assumptions for the year and then I'll turn it over to Chris to speak to the phasing. So stepping back more broadly as we think about the life science and bioscience space, as you said, we recognize for the full year, we obviously had to make an adjustment midyear that was below our initial guide to reflect the dynamics that are going on in that market.

And while we had a very strong Q4, we also recognized that while it was within our range, it was the organic number was modestly below the Street expectation given those dynamics. What I think as we step back, we're really pleased with how our teams have navigated those spaces. If you just break out FY '24, we grew 5% overall as a company. That's 5.9% in our med tech diagnostics business and about 1% in that biopharma or biosciences-pharma space for the full year.

If you look at Q4, we were 7.5% growth in the med tech diagnostics space, 1.3% in the bioscience-pharma space. So as you mentioned, Q4 was a little bit of an uptick in the bioscience-pharma versus the full year period. But both of those, obviously, very strong on the med tech diagnostic core businesses. And even at 1% for the full year or the 1.3% for the quarter, it was very competitive versus what you're seeing more broadly in the market in those spaces.

And so we're pleased with our portfolio. We're pleased with how our teams are executing. And as we look forward, I think we've been -- let me start with maybe just a comment on China since you commented on that, too and how we've built that into our assumptions for FY '25. I think I've been consistent in taking a cautious view on China in the near term but also being very positive on the long term, given the large structural unmet healthcare needs and the opportunity for our local capabilities and portfolio to help serve those. And so in China, you're seeing value-based procurement dynamics pretty broad across the industry.

We continue to see all throughout FY '24, we expect it to continue very strong volume growth in China but offset by the impact of VBP on price. Long term, we -- because we're holding a very strong position in the market, we think that's the right thing to do long term and we feel good about our long-term strategic position. But for FY '25, we built in mid-single-digit decline in China into our guide assumptions. That assumes continued very strong volume growth, continued holding our position very nicely there.

But overall, that combination still resulting in a mid-single-digit decline that we've built into our guide. We think that's prudent. On the bioscience-pharma space, it's -- we've seen some uptick, as you mentioned, in Q4. I think it's still too early to forecast with high certainty what a recovery curve and timing looks like there. And so we're taking a prudent position on our guide and have that continuing at a rate similar to '24. Again, we really like our position in both the pharma space and in biosciences.

We've got a lot of great innovation. We're extremely well positioned in the biologics. It's interesting, those 2 spaces that are going through transitory market dynamics. Of course, those 2 have been 2 of the fastest-growing businesses for BD over the last several years.

And we expect they'll return to being 2 of the fastest-growing businesses in BD over the more mid- and long term. But we do think, given those dynamics that you mentioned, it's prudent for us to take a position that we've built into our guide. Just on the hurricane and then I'll turn it over to Chris on phasing. On the hurricane, we're not seeing any impact of that today.

I'd say we're monitoring closely the -- any impacts that it could have on procedure volumes. I'm not seeing that broadly at this point. That's just something we're watching and we'll monitor as we see the recovery of that. There's some modest and small.

We're focused on servicing our customers. People are using maybe larger volume syringes a bit more as replacement. There are some other products that could help substitute for those where there's gaps in IVs. But overall, we're focusing on servicing our customers during this period of time but we don't see a significant impact to the business.

It's something we're monitoring.

Vijay, it's Chris. On the phasing, just so a couple of things. One, relative to where we were last year, like to Tom's point, we've taken a very prudent posture as it relates to the market dynamics that are real. We're not alone there, to your point.

We have businesses competing there. As you think of our total phasing and balance across the year, it's actually pretty balanced certainly on earnings, first of all, I shared in the script, first half, second half, very balanced relative to the midpoint of the growth rate of our guide at about 10%. So you don't see a lot of fluctuation there. You're going to see a strong starting gross margin as you think of Q1 and a steady kind of normalized increase as we move through the year sequentially there.

So I think as it relates to kind of P&L dynamics, very strong. On revenue, we did share that you're going to have a first half, second half dynamic where the growth rate will be below the low end of the total guide range for the first half. It will be above for the second half. One way to think of it, though, is maybe more look at the dollar phasing as a percent of dollars by quarter as we move through the year.

We tend to have a lower first half versus second half. We're about 48%, 52% when you think of dollars as a percent of total, with Q1 being lower than the average of the 48%. You're going to see some nuances with the growth rate in Q1 that will be low. Remember, the market dynamics will be most prominent in Q1. And actually last year, both BDB and pharm systems, where we had these businesses, we're still at about mid-single digits if you go back and look at their performance.

So you actually also have a comp in the quarter that's impacting us.

And we will take our next question from Larry Biegelsen with Wells Fargo.

Congrats on a nice quarter here. I wanted to just ask one question on Alaris, Tom. Did Alaris meet your goal of $350 million for fiscal '24? It sounds like Q4 was about $100 million or slightly below, I think, your expectation for $150 million in Q4. And how are you thinking about Alaris sales in fiscal '25 relative to fiscal '24?

Yes. Thanks for the question, Larry. I'll start off and maybe turn it to Mike here in a moment. But we're really pleased with the first full year of Alaris launches.

As we had shared midyear as we updated our outlook for Alaris. We expected Alaris to be back at the historical run rate within the first year of launch. And in fact, we saw that come through as expected. And so we feel good as we go into FY '25, also with having built a backlog of committed contracts which is something that we're also focused on rebuilding as we relaunched here this year.

Maybe, Mike, any additional comments to that?

No, just we're really -- as you mentioned, we're really proud of the performance. I think from the standpoint, yes, we did exceed the $350 million. Larry, just to answer that question directly. In the medical number which was really positive for the quarter and MMS in particular, was really positive.

There is a very difficult compared to last year with dispensing. We had a very, very strong year last year with dispensing, gained position, did a great job implementing and that continued through the year but just from a quarter-to-quarter comparison year-on-year, there's a little bit of an offset there. So Alaris actually did quite well in the quarter and we feel good. We feel good kind of feeling like next year, it's sort of business as usual.

We're back to normal in terms of operating the business and continuing to serve customers. We feel good about the committed contract backlog that's been built throughout the year and the progression of how customers have moved through our sales funnel and our ability to ramp up service, ramp up manufacturing, things like that.

Maybe just one last thing to add is we really did -- the team did a great job on the remediation efforts as well. We're very much on track. And then we do expect continued strong growth in Alaris as we go into FY '25. So thank you for the question, Larry.

And we will take our next question from Travis Steed with Bank of America.

I just wanted to push a little bit on the phasing for '25 and like especially Q1 kind of being kind of sub the guide for the full year, sub to 4% with Alaris so strong, you think you'd have a pretty easy Alaris comp. I don't know maybe there's some conservatism built in there. And then understanding like the comps get tougher throughout the year but it's another year of accelerating revenue guide. So just anything you can provide on confidence that you can still accelerate revenue growth over the course of the year against tougher comps?

Yes. Thanks, Travis. It's Chris. I'll try and give a little extra color.

I think consistent with what I've said, again, the BD profile in terms of how revenue ramps on an absolute dollar basis, it's actually pretty consistent with what you typically see. This is really all about, again, Q1, these market dynamics, you have 2 businesses that were growing mid-single digits last year. So you actually have a headwind in our comp. I know our growth rate looked low last year.

But if you recall, we were cycling through moving respiratory into our base business and there was a big respiratory comp in Q1 which has no effect on this year as you think of growth rate. So really, you have a headwind when you think of year-over-year growth rates. And we feel good. So we're not reflecting substantial improvement in market dynamics as we move through the year.

Q1 is the biggest. And then I would say we continue to see what I would call certainly well below our kind of normal growth rate on top line for those businesses that are market impacted. Like I said, more importantly, on earnings, we have a super balanced earnings per share growth profile with about right around the midpoint of our guide for first half, second half and you're going to see strong margins out of the gate with Q1 year-over-year margin improvement and then what I would call just a nice glide path of sequential margin improvement throughout the year.

And our next question is coming from Robbie Marcus with JPMorgan.

I wanted to ask -- I realize you just gave a fiscal '25 guidance here. But as we kind of strip out the macro dynamics that you called out in the guide and I think a lot of us will just put Alaris as sort of onetime growth until you get back to the steady run rate probably sometime next year, how are you looking at the underlying growth of the business through '25 and into '26 and the sustainability there?

Yes. Thanks for the question, Robbie. We feel really good about the -- how we've been moving BD into higher growth spaces. And you've seen that over the last several years, right?

If you look at our underlying topline growth, we always look at it without COVID testing in there, it's been quite strong, right, north of 6% underlying growth for the company in our core business. And then obviously, we've got some transitory dynamics here that are affecting 2 of our strongest growing businesses over that period of time which are extremely well positioned in fast-growing spaces, right, biologic drug delivery and life science research on single cell or on cell analysis. So as we think about going forward, we continue to view the overall WAMGR of our spaces at about 5%. We don't change that for the short-term transitory dynamics that one sees happening in destocking in pharma or on the life science research side.

And so we feel good about that. A number of the -- if you step back and I look at BD 2025 and how we've progressed there, we've got multiple growth platforms and levers now that -- many of which didn't exist at the start of BD 2025, whether or not that's our growth in biologics and GLP-1s which just crossed the $1 billion size this past year now, $1 billion of biologic drug delivery, the largest of any in the space and we're really well positioned there. The pharmacy automation to advanced patient monitoring now, a strong growth business. Our tissue reconstruction and infection prevention that you're seeing do really well in surgery, a PureWick platform which, as we've shared, we view as a $1 billion business opportunity by 2030, high throughput molecular on the diagnostics side.

So we really like our position and the portfolio and the spaces that we're in. We're going to continue to reshape -- to continue to advance the portfolio in those spaces and capitalize on the opportunities that we've built. So thanks for the question, Robbie.

And we will take our next question from Patrick Wood with Morgan Stanley.

Just given it's kind of topical at the moment, question around potential tariffs, supply chain impacts. Do you benefit from onshoring relative to any potential paths to go in? And how are you thinking about pricing as it interrelates within all of that?

Yes. Thanks for the question, Patrick. From a tariff perspective, when we saw this dynamic that happened in the past, we were -- we didn't see significant impacts from that. Just as a reminder, from a China perspective, our strategy has always been strong local manufacturing in China for China.

There's actually only really one product that we export from China today. And it's quite small in the grand scheme of BD. So as we go forward, that's something we'll certainly watch but our strategy is -- has been across the board and particularly given the volumes that we talk about when we're moving billions of units, right, our network is set up to serve local markets with heavy local manufacturing in many cases. We're a very strong domestic manufacturer in the U.S.

Obviously, many things in Europe are served out of Europe, etcetera. But that's a space that we'll continue to obviously monitor that. But we do well navigating it the last time. Thanks for the question, Patrick.

And we will take our next question from David Roman with Goldman Sachs.

I wanted to just to dig in a little bit more here on the P&L. And as we look at FY '25, there are some sort of discrete items here. You have a year-over-year kind of gross margin normalization as well as accretion from M&A, offset by tax headwinds and higher interest expense. And at the same time, as we look at Q4, we did see a churn in operating expense growth after kind of many quarters of year-over-year declines.

So can you maybe just help us think about the construct of the P&L here both in FY '25 and how we should think about it beyond that point in terms of normalized growth drivers across the various line items?

Yes. Thanks for the question. I appreciate it. So we couldn't be more excited about kind of how we're shaping the P&L.

The focus on BD excellence. You saw it in the back half of FY '24, all the progress we're making on gross margin. So we talked about year-over-year delivering about 100 basis points of operating margin improvement. However, this will be the first year that is predominantly coming from gross margin allows us to kind of reshape the P&L.

We have differentiated levels that will enable growth as you think of selling specifically and R&D, so both shorter term and long term. And so we view this as a very healthy P&L. Obviously, if you go back to BD 2025 when we first rolled that out, at the time the market complexity and significant outsized inflation was not there. So we've been doing great things in gross margin but a lot of it has been covering those headwinds.

Now you're seeing that play out. '25 is the first year that shows up, as we talk more in our upcoming Investor Day. That strategy will certainly continue and we see that as a key value driver on a go-forward basis. Thanks for the question, David.

And we'll move next to Matt Miksic with Barclays.

Tom, I just wanted to circle back. You mentioned -- and congrats on the quarter and the kind of really well thought and thoughtful and put together guide. I thought on taking into account the market dynamics is super helpful. But for my question, I just wanted to drill down a little bit more into what you're doing in AI.

You mentioned the first of a series of products or technologies or enabling systems that you're rolling out. And just anything you can flesh out on your strategy there and maybe how you're putting some of the data that you're generating at BD to work to kind of fuel those strategies.

Yes. Thank you for the question, Matt. You're kind of teeing us up for our Investor Day on February 26, where we'll actually get to highlight and demo some of what we're doing there which we're really excited about. So if you just step back, BD has been focused in this space for quite a number of years.

We have several products on the market today that utilize AI, whether or not that started with algorithms that we use for basically automating -- creating autonomous microbiology where there's software reading the petri dishes and determining is there growth or not and in some cases, what the bacteria is. And that's been built into [indiscernible] platform. We then partnered with Microsoft and utilize that technology to be looking at all the data across our platforms to determine where narcotic diversion could be happening in the healthcare system and identifying specific clinicians that are at risk describing why we believe that they are at risk and then helping hospital systems get them help and stop that from occurring.

Of course, our new to BD business that we're really excited about, advanced patient monitoring has been doing a great job using AI building into their algorithms to help predict where there could be hemodynamic changes in the future. And we're really excited about how that can integrate in now with our infusion pump technology to help create closed loops in the future using AI combined with the devices that actually can impact patient care and be able to predict something is going to occur adjust therapy and help prevent it from ever occurring is really exciting concepts that we're working on. We did mention, as you said also on the call, the application of AI in a new platform that will be cutting across all BD devices.

We'll be sharing more of that at our Investor Day on February 26 but its first launch will be taking place with our new Pyxis platform. And so think about new series of BD devices as we're launching them with Pyxis being the first of AI-enabled devices that will be able to connect into an AI cloud-based platform that will be able to take data from devices across our businesses and be able to use that to create better outcomes, create better efficiencies for clinicians and for staff that are analyzing that data. Again, we'll go much deeper on that hands-on at our Investor Day coming up in February but a little bit of a sneak preview.

I'd say just one other maybe comment, Matt, is we are -- we certainly see significant opportunity on the innovation side, particularly given we have millions of smart devices out there, right? We have about 3 million smart devices out there generating data. And so right, the opportunity to use that data to do new things and create outcomes. So we think we're really uniquely positioned there.

And we've been spending a lot of time thinking about that. Some of the increased R&D investment that Chris mentioned earlier is actually in this space as well. We're creating a new incubator focused on AI and our products. But more broadly, we're also applying it in operations.

Of course, our large operational footprint, there's a real opportunity to use it from a forecasting perspective, optimizing line OEE and performance. And we have initiatives applying it there on the efficiency side as well. So, thanks again for the question.

And we will take our next question from Matt Taylor with Jefferies.

I was wondering now that you've closed APM, if you could give us some additional thoughts on how you think that segment could grow over time and just how it's going to contribute to the margins going forward? And you were just talking about your connected strategy. So I was wondering if you had additional thoughts on how you could develop that and perhaps integrate it with some of the other segments there that are smart and connected and generating the data?

Yes. Thanks for the question, Matt. We couldn't be more excited about APMs coming into BD. We're really happy having Katie lead that team.

I'd say the integration could be going better, really an immediate cultural fit and they're staying heads down executing. That's our focus is making sure that as we integrate, they can stay focused on servicing customers, driving the great innovation momentum that they've got and capitalizing on the opportunities ahead. As we think about -- we did highlight for the first time in our deck and in the discussion, just some of the products that they're launching this year that we're excited about. We had shared long term, we view them as at least a 6% to 7% growth business.

We certainly see that well intact. And again, the business isn't missing a beat coming into the BD. They didn't do it, miss it at all in the month that they've been part of us and that's continuing as we go into this fiscal year. I think on the integration side, we had shared this when we announced the deal.

One of the key rationales for us coming together was the fact that one of the things when we talk to our customers on medication management is that their most critically ill patients, there's a really important connection between understanding their hemodynamics, right which is really their blood pressure real time and the medications because that's what's managing that hemodynamic -- it's being managed by medications and fluid intake and outtake. And so if you can combine the 2, what's happening in the patient's body with what's going into the patient's body which we know what's going into the patient's body through Alaris and they know what the impact of that is in the patient's body, you can really start letting algorithms and informatics start optimizing that to keep the patient stable and get better outcomes.

And that's one of the top 3 things that our customers were asking for in that space. And so we've actually -- as Chris mentioned, we -- part of our P&L this year includes some additional investments in selling, reinvestments from the gross margin expansion also in R&D. That's a project that we funded for '25 that will be led by our APM business. And so it's early but we're already getting after it right from the start.

And our teams are really excited about the opportunities to innovate in that space. So, thank you for the question.

And we will take our next question from Rick Wise with Stifel.

Maybe we can turn to capital allocation. Your $1 billion share repurchase announcement over the next 12 to 18 months certainly seems like a positive to me and highlights your views about the value inherent in the stock. A couple of things. Should we be interpreting this as Becton taking maybe a momentary step back from your tuck-in acquisition strategy near term as you integrate APM?

Is it their value -- lack of value, lack of compelling candidates and again, more broadly on capital allocation related to dividends or -- and anything else that you want to talk about?

Yes, Rick. Thanks, it's Chris. Appreciate the question. I guess first, before we get into capital allocation, it starts obviously with strong margins and healthy cash flow.

We've been extremely focused on cash flow progression. We had a really strong year in FY '24. We grew our free cash flow by $1 billion and exceeded our goal of free cash flow conversion, ending at about 82%. This gives us more financial flexibility is the way I would think of it. Our capital allocation priorities are largely unchanged.

You did see us announce a dividend increase at 9.5%. That's something that's reliable that you can continue to rely on. We've always said that we're going to prioritize remaining free cash flow for tuck-in M&A. But we're in a position where we just digested over $4 billion acquisition.

We're focused on capitalizing the value out of APM. It's an extremely exciting opportunity, a durable high single-digit grower. And so we're very excited about that. So we want to remain disciplined about our net leverage glide path down to 2.5x which we'll do in 12 to 18 months.

With that said, with the stronger cash flow position we have and continued momentum in driving a strong cash flow position in '25, we just felt like given what we see a strong intrinsic value of BD, we could kind of step up the level of share repurchases to about $1 billion over that same time frame while still consistently executing against the 2.5x net leverage. So, I think it's another important part. I appreciate you asking the question. We've been very focused on cash flow and we'll continue to do so.

Thanks for the question, Rich.

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.

Well, thank you for joining us on our call today. I'd like to take a moment and again, thank our global team of associates who are advancing our strategy, supporting our customers and improving the lives of the patients we serve. We believe we are well positioned heading into FY '25 with multiple growth drivers across our portfolio enabling us to effectively navigate market dynamics and momentum in BD Excellence driving margin expansion to deliver a strong earnings and cash profile. We look forward to connecting with everyone on our Q1 call in February, and again at our Investor Day.

Thank you for your continued support of BD.

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.