Becton, Dickinson and Company Price & Performance (BDX)

To allow BD to focus on the transaction.

The company expects to provide a comprehensive update on strategy and outlook in the future closer to the separation.

Leading today's call are Tom Poland, BD's Chairman, Chief Executive Officer of and President, and Chris Dolorifis, Executive Vice President and Chief Financial Officer. Following this morning's prepared remarks, Tom and Chris will joined for Q and A by our segment presidents.

Mike Garrison, President of the Medical segment Mike Feld, [indiscernible] President of the Interventional Assignment.

Before we get started, I want to remind you that we will be making 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 With that, let's turn to Slide five. I am very pleased to turn it over to Tom. Thanks, Greg, and good morning, everyone. We have a number of significant updates to share on how we are creating value through our BD2025 strategy. This includes yesterday's announcement of the planned separation of our biosciences and Diagnostic Solutions business, our strong Q1 results, updated fiscal twenty twenty five guidance, and progress on our innovation pipeline.

So let's jump right in.

Starting with our Q1 results.

Continue to demonstrate strong execution exceeding each of our financial goals. This includes 9.6% revenue growth or 3.9% organic We delivered $370,000,000 and three forty basis points of adjusted gross and operating margin expansion respectively and 28% growth in adjusted diluted EPS to $3.43 Chris will provide more color on our Q1 results. But I'd like to take a moment to thank our team whose earnings and cash flow performance. We returned over $1,000,000,000 to shareholders in Q1. This includes $300,000,000 in dividends, a $750,000,000 accelerated share buyback.

Which we see as a value creating action based on our view of BD's intrinsic value.

With strong operational performance in Q1 and confidence in the year, we affirmed our full year currency neutral and organic revenue growth guidance. Our Q1 outperformance enables us to derisk growth of our reported EPS guidance despite incremental translational current [indiscernible] Moving to Slide six, Innovation is core to our growth strategy and we continue to make strong progress against our pipeline. I'd like to share an update on some key milestones.

In BD Medical, we continue to progress our connected care strategy and as planned submitted the next five ten for our BD Alaris Infusion System.

That enables over the air software updates, and includes a new ETCO2 module.

Bedia Laris is the only infusion system with an integrated ETCO2 module. Enhancing patients' safety by monitoring their respiratory system and pausing the pump when necessary to reduce the risk of opioid overdose.

The pace advanced patient monitoring. Where we received five ten clearance on the next gen HemoSphere Ulta monitor and the new SwanIQ and ForesightIQ smart sensors. In BDI, we continue to advance our and advanced tissue regeneration and expand into new applications. Most recently, we received EU approval for the prevention of incisional hernias, using the Phasix resorbable mesh. This makes Phasix the first resorbable mesh with a broad indication for preventing incisional hernias. Our U. S. Trial remains underway. We also enrolled the first patients in our Galliflex capsular contraction prevention clinical trial. This product is BD's first in a series of new innovations using our resorbable biomaterial to improve outcomes in patients undergoing breast surgery. Finally, in Life Sciences, we continue to and remain on track to launch the first BDFAX Discover analyzer. The A-eight in the second half of this fiscal year. Additionally, in our molecular diagnostics portfolio, we're continuing to advance our position in the $2,000,000,000 high volume molecular testing market. Our BdOnClarity HPV assay is the only test with extended genotyping to be FDA approved for self collection. And we're seeing accelerating sales funnel momentum as a result of recent changes in U. S. Cervical cancer screening guidelines and increased U. S. Reimbursement.

Before I turn it over to Chris, to provide further color on our financials and outlook, I want to again express my appreciation of our team's strong work in advancing our BD2025 strategy, a strong quarter and for what's ahead. Chris?

Thanks, Tom. Echoing Tom's comments, I'm truly excited about our plan to separate biosciences and diagnostic solutions. It's an exciting next step in our strategy that we believe can unlock significant value for both new BD and biosciences in Diagnostic Solutions. Both businesses will be positioned to thrive in their respective markets deliver value for all stakeholders, shareholders, employees and of course, our customers and the patients they serve. Let me start on Slide seven and our Q1 results. Strong execution drove revenue, margin and earnings ahead of our expectations. Q1 revenue grew 9.6% or 3.9% organic. Organic growth was led by our MedTech business with about 5% growth driven by volumes and share gains across core devices, and strong performance in our growth platforms including double digit growth in PureWick, Peripheral Vascular Disease and Phasix, Diagnostic Solutions grew modestly as strength in lab automation, and momentum in BD Max molecular platform IVD assays was partially offset by respiratory season timing. [indiscernible] Q1 performance also reflects the expected decline in biosciences given market dynamics that reduced research funding in China, and The U. S. Regionally, total company organic growth was led by strong performance in The U. S, was partially offset by the decrease in China, predominantly in biosciences.

To allow time to share our perspective and diagnostic solutions and have sufficient time for Q and A, we please refer to the slides accompanying today's call for additional performance details by segment. Turning to our P and L results. Q1 adjusted diluted EPS of $3.43 grew 28% driven by strong operational performance ahead of our expectations and the timing of a discrete tax item that was [indiscernible] Consistent with our commitments, we delivered strong margin to start the year with adjusted gross margin of 54.8% and adjusted operating margin of 23.6%, up three seventy basis points and three forty basis points year over year respectively, both ahead of our expectations and fueled by momentum in BD excellence. Strong margin performance continued to enable outsized investments in selling and R and D to drive growth. Regarding cash and capital allocation, free cash flow of approximately $600,000,000 was in line with our expectations and was impacted by the timing of planned one time cash payments. Full year cash flow continues to be in line with our prior expectations. [indiscernible] In the quarter, we returned over $1,000,000,000 to shareholders, including dividends, and a $750,000,000 accelerated share repurchase. Cash and short term investments at December 31 totaled $728,000,000 We ended the quarter with net leverage of 2.9 times and are on track to meet our deleveraging commitments.

Turning to Slide eight and our updated fiscal twenty twenty five guidance. As we look ahead to the balance of the year, we remain focused on driving areas of momentum notably in China, and biosciences research funding levels.

We are maintaining our currency neutral total and organic revenue growth guidance. Regarding foreign currency, based on current spot rates for illustrative purposes, we expect a headwind to revenue from translational currency of approximately $250,000,000 is an increase of approximately $200,000,000 from our prior guidance view. As a result, we now expect fiscal twenty twenty five total revenues to be in a range of $21,700,000,000 For tax, we now expect our adjusted effective tax rate to be between 1415.25% On the strength of our Q1 performance, [indiscernible] and our confidence in the full year, we are increasing the midpoint of our fiscal 2025 adjusted reported EPS guidance. We now expect adjusted reported EPS of $14.3 to $14.6 which reflects growth of 10% at the midpoint. Our updated EPS guidance reflects an operational increase of $0.175 that is absorbing $0.15 of estimated incremental translational As you think about phasing over the balance of fiscal 'twenty five, the following are some considerations. Q1 revenue performance allows us to further derisk our second half growth by about 25 basis points. Our expectation for the first half organic revenue growth remains largely unchanged versus our prior expectations with some timing of revenues [indiscernible] into Q1.

As a reminder, Q2 includes the comparison to prior year licensing revenue, which creates a headwind of nearly 150 basis points, Excluding licensing, our Q2 organic revenue growth expectation reflects sequential acceleration that is around the midpoint of our full year or We expect strong gross and operating margins in Q2 with solid sequential improvement in adjusted operating margin were about flat year over year inclusive of absorbing the planned licensing comparison, Our updated expectation for Q2 adjusted EPS reflects timing impacts from our updated translational FX assumptions and a tax rate of about 16.8%, which assumes a ratable rest of year tax rate.

In summary, our strategy is demonstrating strong momentum and we are delivering on our commitments. I will now turn it back to Tom starting on Slide 10, to provide further detail on the exciting news announcing our intention to separate our biosciences and diagnostic solutions business, Thank you, Chris.

Building off our strong performance in the quarter, I'd like to share more details about our plan to separate BD's biosciences and Diagnostics Solutions business. To enhance strategic focus, drive growth through targeted capital deployment and unlock significant value for what will become the new BD and the separated business. This separation decision was the result of a comprehensive business portfolio evaluation launched in early twenty twenty four. And this is the next natural step of our evolution. Building on the strong foundation and momentum of BD2025, and the high growth platforms we've built and have been scaling. The new BD will be well positioned as a pure play med tech company with leading positions in large attractive end markets. With this added focus, we're excited about the opportunity for New BD to drive concentrated capital deployment in high impact R and D as well as growth accretive M and A. Which positions us to deliver differentiated and durable growth rates in MedTech. At the same time, we're also excited about the opportunity for biosciences and diagnostics solutions. To realize its full market potential as a pure play leader in life science tools and diagnostics, continuing to accelerate growth, through its strong innovation pipeline, and industry leading solutions.

As we turn to Slide 11, Let me start by setting some context. On why this is the next natural step in our evolution building on the strong foundation and momentum of BD2025.

Over the past five years, we've been positioned at the forefront of long term growth trends. We've been systematically increasing our WAMGR and long term growth by intentionally shifting our portfolio mix towards higher growth markets and executing against a strong innovation pipeline. In fact, by the end of this year, we're on track to have more than doubled new product revenue since the launch of BD twenty twenty five. We established and honed our M and A and divestiture capabilities. Deploying about $7,000,000,000 in capital to complete 20 value creating transactions since 2020. These include the spin off of IMVEXXTA Becton,, the sale of our surgical instruments business, fee Mueller, and the acquisitions of the Edwards Life Sciences Critical Care Product Group, Prada Systems, Straub Medical, TIFA, and others. We created an embedded BD excellence simplifying our operations and enabling us to deliver on aggressive long term margin expansion targets. Through our disciplined capital deployment strategy, we've built significant balance sheet capacity and strengthened cash flows allowing us to both invest in our business and return capital to shareholders through competitive dividends, value creating tuck in M and A, and share repurchases. This was all achieved while advancing our quality systems, and putting customer centricity at the heart of how we plan, and operate throughout BD.

We've achieved 70% reduction in nonconformances and a 25% since launching BD 2025. Moving on to Slide 12, [indiscernible] We have also built and have been scaling multiple new growth platforms as part of BD 2025. These platforms are directly linked to the most critical areas of healthcare, such as connected care, new care settings and addressing chronic diseases. And are some of the platforms which will reshape our growth profile for the long term. Over 25% of BD revenue now comes from platforms that are growing high single digits or more And this is just the beginning as we continue to expand our exposure to higher growth categories. [indiscernible] Moving to Slide 13, We are well on track to exceed every financial target established at our twenty twenty one Analyst Day. And we have outperformed historical averages. In November 2021, we targeted a base organic revenue CAGR of 5.5% plus through 2025. Based on the midpoint of this year's guidance, we expect to deliver 5.9%. We targeted an increase of base operating margins by 400 basis points through 2025. And in fiscal year twenty twenty two, we increased the target to five forty basis points. We are on track to deliver five sixty basis points of margin expansion to margins of 25% plus.

We also targeted double digit base adjusted EPS CAGR. And now expect to be well over double digits at 13.8%. On to Slide 14, This track record creates momentum as we move into our next phase of value creation. And positions both new BD and the Biosciences and Diagnostics Solutions business to focus Let me start by sharing a perspective on the profile of the new BD. The new company will be a med tech leader with scale and global reach across the $70,000,000,000 plus addressable market Each day, New BD will touch more patients than any other med tech company in the world. Including over ninety percent of patients admitted to a U. S. Hospital.

We Becton, BD will have an accelerating growth profile attractive margins and a best in class recurring revenue profile of over 90%. The separation will also enable enhanced focus. With targeted investment and a tailored capital deployment strategy, This will be complemented by our strong execution, driving continued margin expansion and cash generation, through BD excellence. As I look over at the biosciences and diagnostics solutions business, it's expected to be a leader across an attractive $22,000,000,000 plus addressable market. Growing at mid to high single digits. We expect the business to have a highly attractive growth in margin profile with more than 80% recurring revenue. We will also have an opportunity to further accelerate its strong innovation with significant growth potential. And realize its full market potential as a pure play life science tools and diagnostics business. Turning to Slide 15, let's go deeper on the new BD a $17,800,000,000 med tech leader. On to Slide 16, We plan to organize New BD into four operating segments. Each being market leaders in attractive end markets with significant headroom for growth. First, Medical Essentials will consist of our medication delivery solutions, that truly represent the backbone of healthcare delivery. These are our products such as IV catheters, PIKs, flush, syringes, IV sets, and blood collection systems.

We are the market leader in each of these spaces manufacturing tens of billions of devices each year. Resulting in durable recurring revenue and strong cash generation. Second, Connected Care will include our medication management solutions business. Which includes our pharmacy automation platform. And our advanced patient monitoring business, with millions of smart devices that use automation, artificial intelligence and analytics, to improve the efficiency and effectiveness of patient care, and creates compelling growth potential in new areas.

Third, biopharma systems, will bring a new name and increased focus to our Pharmaceutical Systems business unit. Which is the global leader in biologic drug delivery. Developing and manufacturing drug delivery devices for the pharmaceutical industry. Biopharma Systems is uniquely positioned to enable the transition to more biologics including GLP-one treatments. And capitalize on the large growth potential of pharmaceutical industry trends as more drugs launches rely on patient self injection Becton,. Fourth is the Interventional segment. Which will include our urology and critical care peripheral intervention and surgery businesses that advance the treatment of high burden chronic conditions peripheral vascular disease, cancer, and tissue reconstruction.

With attractive margin profiles meaningful headroom for new innovation. We'll share more about timing of this new segment structure. As we near completion of the transaction. On to Slide 17, We have an exciting and robust innovation pipeline across the new BD segment. With a significant number of $50,000,000 plus revenue opportunities Fueling above market performance, The new BD will have a meaningful runway for additional new innovation and growth and through growth accretive tuck in M and A. In conclusion, as we turn to Slide 18, New BD will deliver a durable and differentiated mid single digit growth profile supported by attractive end markets, and best in class recurring revenue. We will continue to systematically increase WamGR through disciplined capital [indiscernible] and our BD excellence operating system will continue to enable investments in [indiscernible] and meaningful margin expansion with majority being realized from gross margin. And our targeted financial profile will support strong earnings growth and value creation. Let's move to Biosciences and Diagnostics Solutions on Slide 19. We are excited by the opportunity this separation has to unlock meaningful value for customers, The business and shareholders. Turning to Slide 20.

The opportunity here is an attractive $22,000,000,000 plus addressable segment. The businesses have strong portfolios and pipelines and are positioned well for growth. Biosciences and Diagnostics Solutions operate in a market growing mid to high single digits with more than 80% recurring [indiscernible] and expected 30% adjusted EBITDA margins. Now turning to Slide 21. Each of these businesses are leaders in large attractive markets Biosciences had $1,500,000,000 in FY 'twenty four revenue, addressing a $7,000,000,000 plus market with 6% to 7% category growth. Diagnostic Solutions At $1,800,000,000 in FY 'twenty four, addressing a $15,000,000,000 plus market, with about 6% to 7% category growth. As we turn to Slide 22, biosciences is the undisputed pioneer. That created the modern field of flow cytometry. Helping scientists revolutionize our understanding of cell biology, in the fields of cancer, infectious disease, immune health. And enabling countless breakthrough therapies. Scientists and clinicians around the world continue to rely on our flow cytometry platforms and reagents to enable the next generation of discoveries including through our new Fax Discover flow cytometry platform. [indiscernible] Biosciences has a very strong innovation pipeline of future Fax Discover instruments, new antibodies, dyes and assays. This includes continuing to scale our single cell multiomics platforms.

With a significant increase in commercial headcount, to support strong double digit growth, [indiscernible] Moving to Diagnostic Solutions, This business is a pioneer in microbiology research and clinical diagnostics. With multiple world firsts in advancing the diagnosis of conditions such as sepsis, TB, COVID and other infections Becton,. And in applying robotics and AI to advance infectious disease testing. This primarily comprised of our microbiology, molecular diagnostics platforms. Which both have strong innovation pipelines. Our molecular portfolio is among the leaders in the high growth is anchored by the BD core high throughput in BD Max medium throughput systems, Our BD Core plus our unclarity HPV assays offer a complete paradigm shift in cervical cancer screening And it starts with the ease of self collection. Overall, this business is well positioned to create value under multiple types of separation structures where the investments and deployment of capital are entirely focused on the life science industry. Turning to Slide 23. Now I want to talk more about the milestones of the separation. Moving into Slide 24. In terms of the form the separation could take, we are committed to exploring all opportunities to execute the separation in a manner that maximizes shareholder value.

Separation options include a reverse Morris Trust, sale spin off, or other transaction. We expect to announce more specifics on the separation plan by the end of fiscal twenty twenty five and are targeting to complete the transaction As the company pursues the separation, we'll remain focused on execution and continuing to operate the biosciences and diagnostics solutions businesses, and the other BD businesses consistent with our BD 2025 strategy. Including continued investments in commercial growth, [indiscernible] M and A and other initiatives that are part of the company's multi year Finally, turning to Slide 25. We are excited about what the future holds. For new BD, and the Biosciences and Diagnostics Solutions businesses, As we established two strategically aligned entities, with mission critical portfolios to maximize impact. In summary, we believe the separation has the potential to unlock value through simplification. Enhanced focus and tailored investment in capital allocation. We believe New BD will have an enhanced strategic focus and growth oriented portfolio that positions the company for long term value creation.

And as a pure play life science tools and diagnostics business, we believe biosciences and diagnostics solutions will realize its full market potential while continuing to accelerate growth. In the meantime, we continue to execute against our fiscal year 2025 plan as seen in our Q1 performance.

Thank you for joining for your continued interest and support. I look forward to our next chapter and to sharing more specific details upon formalizing the form of the transaction. With that, we'll open it up to questions. We'll go first this morning to Travis Steed of Bank of America. [indiscernible] good morning. Congrats on the spend. I guess one question for Tom on the spend. Why now? How are you thinking about the different separation options, spin versus sell and how you manage the dis synergies? And then Chris, wanted to ask on the Q2 guide. Looks like 2.75% on revenue, but you've got the 150 basis point licensing headwind. And is there still the 50 to 75 basis points from China Farm Systems? Just trying to get the kind of underlying growth on Q2. Thank you. Thanks, Travis. I'll start and then turn it to Chris.

So, obviously, we're really excited about both the performance in Q1 as well as the announcement today on the new BD and the separation and the 24. As we really took time to reflect on the strong progress that we've had been making against our BD 2025 strategy, as we were coming into our last year. As I discussed on the call, BD 2025 has really transformed BD into more faster growing portfolio, more profitable organization, positioned at the forefront of multiple long term growth trends. And those are obviously indicated by a number of the new growth platforms that we've built, whether or not that's our advanced patient monitoring business, our urinary incontinence business, vascular, our tissue reconstruction business that we've built, biology drug delivery, which we are now the world leader in, and pharmacy automation.

At the same time, of course, over the last several years, we created have embedded BD excellence across the company. And you're seeing over the last number of quarters how that's impacting accelerated gross margin. Performance and cash generation. And this quarter was certainly no exception to that with very strong performance in that camp. And so as we reflected on that, have looked at how we've meaningfully increased the intrinsic value of the company through [indiscernible] that in the next phase. And we believe that the separation that we're announcing today, we're extremely excited about this as a next step in unlocking significant value for all of our stakeholders. We believe that the separation both positions New BD as a scaled pure play med tech leader with leading positions in large attractive markets, We see this as the added focus creates an exciting opportunity for new BD to drive concentrated investments not only in high impact R and D, but continued disciplined capital allocation continue accretive growth and value creating transactions perhaps even in an accelerated way as we move forward, all while continuing exceptional progress on our margins and cash generation that will fuel that as well. At the same time, right, BDB and DS are operating from a position of strength, right?

This is a decision based on portfolio and really a tremendous opportunity we see to unlock value from these great businesses to create pure play life science tools and diagnostics leaders across the large $22,000,000,000 market growing high mid to high single digits. With very attractive revenue and margin profiles. So in terms of the form that the transaction will take place, obviously, that's still to be determined. And we'll share more information as that advances, which we described should be by the end of FY 2025, Key is we're open to the transaction formats that best maximize shareholder value creation. That's our number one decision criteria. And we'll keep that at the top of our mind as we go through that process. Yes. And Travis, on the question on sales in Q2, maybe just bigger picture on top line performance. One, it was great to see outperformance in Q1, so really strong start to the year where we're exiting ahead of our plan. If everyone recalls, at the start of the year, there were some questions about the ramp. So a couple of things, it's nicely derisks the remaining portion of the year in each quarter, the second half by about 25 basis points.

So I think you have a much more balanced top line profile first half to second half.

You think about Q2, you called it out. I mean think of it as a very discrete one time kind of headwind with the prior year licensing comp. If you take that out, we're right at the midpoint of our guidance at 4.5%. And if you think about more broadly, you do have those market dynamics that are still playing out in the first half of the year. Most notably in China, BDD, little bit in Farm Systems, Those are directionally worth about that 125 basis points for the year. It's probably similar in that range in the quarter. So it puts kind of the core business then operating at sort of a five plus level. So right in line, if not ahead of plan, and a more de risked revenue profile that we feel good about. Thank you. We go next now to Larry Biegelsen of Wells Fargo.

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

Yes. Thanks for the question, Larry. So our largest split perspective and particularly in The U. S. Is by far our largest footprint. Mexico would be playing an important role after that followed by Europe and then Asia.

Obviously, as we think about tariffs, it was positive to see the leaders in The U. S. Make Mexico and Canada advance their discussions and achieve temporary resolution this past week. And we continue to monitor this closely inclusive of if any future potential tariffs could include carve outs for medical devices, right, prevent what could be risks of shortages wanting to prevent negative impacts to healthcare costs, and make sure that public health is protected. I think it's at this point there, there's no really confirmation in the form or timing when any tariffs would take place. And so that's something we'll monitor very closely and we can then frame any potential impact of that. At that time, but too early at this point and something that we're managing very closely.

Thank you.

Thank you. Now to Patrick Wood of Morgan Stanley.

Beautiful. Thank you so much taking the question.

And congrats obviously on the separation. I guess, and apologies for the crackly voice. I guess if you end up going down the sale route and with a cash Becton,, Are there any areas that you particularly feel you'd like to bulk up on or parts of the business which you could throw a little bit of extra investment? And I guess connected to that too is obviously the value of your time internally as a team. Are there any areas in the business where you're going to have a little bit more time on your plates once the process is done. Any areas you kind of get to spend a little bit more time on that you wish you could previously give it a bit more attention? I'd love to hear Great question, Patrick. I think in terms of priority, let me start with the last component first. If you look at each of our businesses, we've been performing extremely well. Versus the markets and peers in each of the sectors in which we participate. And so as we look at the fundamental question of how we've been operating each of the businesses, whether or not it's our core medical, businesses, our interventional businesses, our life science businesses, each of them are performing at or above their market growth rates and peer groups.

We feel really strong about how we're performing. Some of those markets, of course, are in different cycles. Like the research spending at this point or last year, but we've been navigating that extremely well. As you look at broader market growth overall and peer Becton,. So as we think about where from a capital allocation perspective, obviously, high growth accretive opportunities are a priority for us. It's been a priority [indiscernible] We think our Interventional segment, of course, overall has a number of tremendous market opportunities in it that we have a right to play in and win on. That we would look to continue to invest behind I think certainly there are others, but that whole sector overall is quite attractive. And we certainly spent a lot of time focusing and building our funnels in that category. We'll continue to focus as you know, we have been on accelerating our R and D funnel organically as well and that's something we'll continue to allocate our time towards, which is making sure that we maximize of our new product launches. We've got some really exciting things that we've launched over the last many years and many more things to come as we've discussed whether or not those are in APM more in the incontinence space, maximizing our penetration in biologics, and the wearables category with new launches we have coming there to further new launches in surgery and peripheral vascular.

And so making sure that we maximize growth in the sectors that we're in today and then continuing to shift our portfolio into those high growth, high margin accretive spaces.

Good news is we find ourselves in NewCo in being in large very attractive markets where we have very much a right to win in. And look forward to that Great stuff. Thank you so much.

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

Great. Thank you for [indiscernible] question I wanted to ask was really on the operational performance. Nice start to the year. And with the FX headwinds, you weren't able to raise guidance as much as maybe the performance deserve. I know you called out the ongoing headwinds from China and some of the funding that we've seen. And I was just hoping that you could give us some color on that. I know you didn't change the number, but maybe just talk about the trend In China and some of the headwinds that you've been seeing?

Yes. Thanks for the question. Let me maybe just start bigger picture to your point on Q1 and just the guide and how we were thinking about that. I touched on top line already. Obviously, it's early in the year. Really strong start into Q1. We're ahead of plan. We over delivered on all of our The first point we addressed was this question that was out there at the start of the year on the ramp and we're nicely derisked the second half of growth by 25 basis points. And actually even Q2 a little bit. So it provides for a nicer glide path as you think of moving top line throughout the year. The market dynamics to date have been playing out as planned as part of that. We will come back to your question [indiscernible] I think the other just two points is when you look down the P and L, I mean this was an exceptionally high quality P and L. And operating income, gross margin of 54.8%, up three seventy eight basis points, actually above where we exited last year. So you're seeing the benefit of BD excellence play out as Becton,. Even slightly better than planned.

So really strong performance there. That all translated into strong operating income EPS. It gave us the confidence to increase operational EPS by nearly $0.18 at the midpoint And then to your point, look, there's translational FX that everyone's been been talking about. We actually have this nicely dialed in. This is pure translation. It's over a full point on our earnings and and despite that we're delivering strong double digit EPS growth at 10% at the midpoint. So I think a good start of the year, We increased our guide at the midpoint and we remain focused on executing against that.

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

Thank you, Tom. As many of you I'm sure have read, our high end Fax Discover platform was recently impacted by a ban as it directly targets spectral analyzers and analyzers with 26 plus colors.

That said, it is important to remember that while the Fact Discovery portfolio is our newest offering, we do have the most robust lineup of flow cytometers in the world.

With many models that are not impacted by this ban. The ban also does not impact our clinical and research reagent portfolio or our clinical instrumentation offering anchored by our FaxLeerq platform. Additionally, while we appreciate the U. S. Government's national security concerns, we believe the previous administration errored in its risk assessment in this case.

And we are actively engaging with policymakers during the sixty day to advocate for a different approach tied to this ban. While not material at the BDX level, this ban was unplanned. We will continue to give updates related to this matter once we know more the conclusion of the commentary period.

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

Yes.

Overall research spending, it's a cautious scenario for us.

We continue to monitor very closely NIH spending, specifically how that impacts grants and the funding of research in The U. S. Market.

Additionally, it's great to remember that we do have a very robust clinical portfolio as well as many research projects go on for years. Where we will continue to serve those customers with our research reagents. Thank you. We go next now to David Roman of Goldman Sachs.

Thank you. Good morning, everybody. I wanted just to dive in a little bit more on some of the end market performance here and what you're just observing as things evolve? I think for some of the sort of problem children businesses that you saw last year, whether that was pharmacist systems, biosciences, China, you contemplated no improvement in the $25,000,000 guidance But as we kind of start the year, it looks like both biosciences and pharmaceutical systems deteriorated from where you exited 2024. So maybe you just give us an update on what's happened [indiscernible] at least what you saw in 2024 and which would imply an improvement to the balance of this year?

Thanks for the question, David. Let me start with BDB and then Farm Systems. So Biosciences, just as you recall, we had not seen the slowdown in research spending at the start of FY 2024. So and we had commented on that as being a dynamic that we would expect creates more challenging comps in the first half of this year. That was a major contributor to our phasing, as we had easier comps in the back half. And that was based upon the strength of the pipeline that we had in BDB. You saw us be impacted by slowdown in research spending on a lag versus peers, probably a six to up to nine to twelve month lag versus what other peers were seeing because of the strength of that funnel that we had built. So that's the number one factor there. I think in terms of so that's a fundamental question [indiscernible] And we still want to be cautious on that and we have a cautious outlook built into our budget for the year. That's something we'll continue to monitor very closely both in The U. S. And in China, which are the two major markets that we've seen that research spending slowdown impact those markets.

So that's something again that we're poised to capitalize on with a very strong position when those markets do recover. And that's our focus at this time. In Farm Systems, we expect that to begin to recover in the back half of this year. As you'd seen, a number of companies announced, right, there is still some destocking happening, particularly [indiscernible] in a number of areas this past year. Those are factors that you were seeing across the market overall. We continue to be extremely well positioned in the biologics space and GLP 1s. I think our number of GLP-one biosimilar contracts is now up to 50 plus. We continue to make really strong progress there as well as on signing new molecules overall as we think about the number of biologic drugs that have been cleared here in the last several years, we're winning about 80% of those are ending up in BD devices. And that's fact that we had shared at the beginning of or in the middle of last year and as we think about molecules approved even to date since then, we continue to maintain that very high win rate there. So but that's what we're focused on as those markets recover.

We feel very confident in our position to capitalize on those and again, that's the timing of those is as I described. Thank you. We go next now to Robbie Marcus of JPMorgan.

Great. Good morning and congrats on this this announcement. I'm sure there's been a lot of work behind it.

Either Chris or Tom, you talk about in the slides the desire this will allow for a better streamline and focus. Capital allocation. Maybe you could give us some examples of how you're thinking about what that might entail versus the limitations as a combined company today? Thanks a lot.

Great question, Robbie, and thanks for your comments. I think as we look at across these businesses and let me start on the life science side. We're present in a number of extremely attractive markets with market leading positions. As you think about immunology research and what's happening there around cell therapy and immuno oncology, Our position in that marketplace is we are the undisputed leader.

And as we have to make trade offs between continuing to advance in near adjacent spaces there, whether or not that's single cell, which we have made investments in, Is there opportunity to make further investments to even grow that faster? Same thing as we look at the infectious disease space, and near adjacencies that we're in, including in oncology. Screening, for example, now with our leading position in HPV screening. We really look at that space as of course, it's not one that we've been allocating huge amounts of capital to. Right? If you just step back and look over the last ten years, of how the company has deployed capital, Companies deployed about $43,000,000,000 of capital towards M and A over the last ten years. I'm Obviously, the vast majority of that $36,000,000,000 of that being the acquisition of Bard and CareFusion. Right, followed by the acquisition of Advanced Patient Monitoring, Parada, and other tuck ins. But the 99.5% plus of that has gone towards building our position on the MedTech side. With that said, Two of the three highest businesses with R and D as a percentage of revenue are Diagnostics and Biosciences. And so we've been investing organically there.

But there's certainly opportunities for that business as a focused entity. To accelerate capital deployment in a way to create value there, we think, of extremely in extremely attractive markets on extremely attractive core businesses. On new BD, As I described earlier, we are now in a number of extremely attractive areas and I described some of those before. Ability to just continue to double down on shifting our portfolio both organically and inorganically through tuck in M and A. Into higher growth high margin accretive growth spaces for us is really the opportunity ahead that this transaction we think will afford. And it's that focus that we're excited about. Think we've got a great portfolio in the four segments that we outlined. Not only from a growth opportunity perspective, but it's with a really unique cash flow generation profile, 90% plus recurring revenue, the momentum of BD excellence on gross margin expansion fueling both cash flow and continued op margin expansion and could be invested back behind fueling growth. We think both are going to be in great positions to unlock value in new ways. Thank you. We go next now to Joanne Wuensch of Citibank. Good morning. Thank you for taking the question.

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

Thanks.

Yes. Thanks, Joanne. Yes, on the EPS guide, there's really the simple way to think of it, all the operating strength that we had in Q1 has already been delivered. Right, and is reflected in our updated guide. So we have $0.18 roughly rounding up $0.18 increase at the midpoint of the guide on an operational basis. As you think of rolling through kind of the balance of the year, The core kind of operating plan then remains intact where we de risk the top line a little bit. The two big changes you need to roll through is just the translational FX on the top line, which is roughly ratable. Through the remaining three quarters. Q2 is the highest of the three. So cumulatively, we had said there's about $250,000,000 And then the second thing was on the tax rate. We actually moderated our tax rate down slightly by a quarter point for the full year, We had a favorable discrete item that was timing in Q1. So I would just take the balance to go tax rate and just spread that ratably over the remaining quarters. You can have other discrete items that may play out we'll share those as they occur, but you will end up with a higher tax rate as a result of that favorable discrete item, through the back half of the year.

So I think it's about 16.8% is what the average is for the the balance to go. So very straightforward. I mean basically the strength of the operating results already delivered in Q1 reflected in our guide Just need to true up for the translational FX and the tax rate on the back half of the year. And you have a more derisked sales growth profile in the second half.

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

We go next now to Matt Miksic of Barclays.

Hey, thanks so much for taking the question. Can you hear me okay? [indiscernible] To the separation for a sec. Congrats on all the work that went into this. Wanted to get a sense of what your you mentioned two or three different mechanisms of separation. And maybe if you could talk a little bit about the the process, was there a process run through the test before this point? And what are some of the factors that might drive you towards one of those options or or the other? Thanks.

Thanks Matt for the question. Obviously, as we said, we'll be sharing more as that process advances and we expect to conclude that process and announce the final form of the transaction within FY 2025. Obviously, that timing can vary based on some of those transaction formats can happen sooner than later. At the end of the day, I'll stick to what I shared earlier, which is we're focused on transaction structures that maximize shareholder value creation. And that can take a number of forms, which we've communicated can range from RMT structures to outright sales to spin We think there's multiple different ways to unlock value there. And again, we'll be focused on doing so in a way which maximizes value creation our shareholders in the company.

Thanks.

Thank you. And ladies and gentlemen, that does conclude any additional or closing comments.

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

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