Becton, Dickinson and Company (BDX) Earnings Call Transcript & Summary

Okay. Ladies and gentlemen, it is 1:00 p.m. The 2020 Annual Shareholders' Meeting of Becton, Dickinson & Company is called to order. I am Vincent Forlenza, Chairman and Chief Executive Officer of BD, and I am pleased to welcome you on behalf of our directors and officers. To my right, I would like to introduce Tom Polen, he's President and Chief Operating Officer. As you know, Tom will be taking over as CEO upon conclusion of the meeting. Gary DeFazio, BD's Senior Vice President and Corporate Secretary; and Alisa Zagare and Donna Bent of Computershare Trust Company, our Inspector of Election. Next, I'd like to introduce the other board members who are standing for election at this meeting. Biographical information for each director appears in our proxy statement. Cathy Burzik, Andy Eckert, Claire Fraser, Jeff Henderson, Chris Jones, Marshall Larsen, Dave Melcher, Claire Pomeroy, Rebecca Rimel, Tim Ring and Bert Scott. We are also pleased to have you with us today our Director Emeritus, Henry Becton, okay, and Ed DeGraan, retired Director, in the back there. I would now like to introduce the executive officers of BD who are here today. Sam Khichi, Executive Vice President and General Counsel; Betty Larson, Executive Vice President and Chief Human Resource Officer; Chris Reidy, Executive Vice President, Chief Financial Officer and Chief Administrative Officer. The secretary of the company will now report on matters relating to the meeting.

Mr. Chairman, the board has appointed Computershare Trust Company as inspector of election, and Ms. Bent and Ms. Zagare have taken the inspector's oath. I have proof of notice of this meeting in the form of an affidavit executed on behalf of Computershare Trust Company, which will be filed with the minutes of this meeting. Inspectors have informed me that 89% of the shares entitled to vote at this meeting are present in person or represented by proxy. A quorum is therefore present, and we may proceed with the business of this meeting.

The minutes of the 2019 annual meeting are available for inspection. I recommend that we dispense with the reading of the minutes. Any request for that? Hearing no objection, we'll move to the proposals included in the proxy statement. Each item will be discussed after it has been moved and seconded. Please hold all comments and questions that do not relate to the proposal under consideration until later in the meeting. If you wish to speak, please move to the closest microphone and give your name and the number of shares you own or represent. To ensure enough time for all of those who wish to speak, please limit your question and comments to 3 minutes. The first proposal is the election of the nominees for director listed in the proxy statement to serve for a term of 1 year. I will entertain a motion and a second to put this proposal to a vote.

I so move.

Second.

Is there any discussion of the nominees? If there's no discussion, we will move to our next item of business. The second proposal is to ratify the selection of Ernst & Young as the independent registered public accounting firm of the company for fiscal 2020. I will entertain a motion and a second to put this proposal to a vote.

I so move.

Second.

Patricia Janicek and Lee Van Horn of Ernst & Young are here to respond to questions. Are there any questions for them or any discussion of this proposal? If there's no discussion, we will move to our next item of business. Proposal 3 is an advisory vote to approve named executive officer compensation. I will entertain a motion and a second to put this proposal to a vote.

I so move.

Second.

Is there any discussion? Okay. We will move to our next item of business. The next item is the approval of an amendment to BD's 2004 equity compensation plan, which is described in our proxy statement. I will entertain a motion and a second to put this proposal to a vote.

I so move.

Second.

Any discussion? If not, we'll move on to our next item of business. That item is the approval of the French addendum to BD's 2004 plan, which is described in our proxy statement. I will entertain a motion and second to put this proposal to a vote.

I so move.

Second.

Any discussion? If there's no discussion, we'll move on to the next item of business, which is a shareholder proposal from Mr. Ken Steiner regarding special shareholder meetings. Is Mr. Steiner or his representative here to move the proposal? If not, Gary, I guess...

Yes, we'll entertain a motion to move.

We'll entertain a motion.

I so move.

Second.

Okay. In Mr. Steiner's absence -- well, actually, I've already done that piece, so any discussion? Hearing none, I now declare the polls open for voting.

Shareholders who have already voted by proxy need not cast ballots, unless they wish to change their votes. Shareholders who are not shareholders of record but instead hold their shares in street name must present a valid proxy from their bank, broker or other nominee in order to vote. If anybody wants a ballot, please raise your hand. [Voting]

So while the vote is being tallied, we'll have a presentation on the operations of BD. I will do that. So once again, good afternoon. As you can see from this slide, this should be about -- yes, you can read that right. Okay. We have information posted on our website regarding forward-looking statements and non-GAAP financial measures, which we will be using in today's presentation. We will cover several key topics today. First, I will review our fiscal 2019 financial performance, and then Tom Polen will provide an overview of our company's strategy and drivers of growth. He will also review our forward growth profile and will provide some insights on BD's capital allocation priorities. BD has changed significantly over the past several years. So before I review our fiscal 2019 results, I'd like to reintroduce you to the BD of today. Today, BD is a medtech leader focused on advancing the continuum of care, from discovery to diagnosis, to the process of care, to the treatment of disease. We are a leader in each of our 3 segments with approximately $17 billion in global sales and $70 billion in addressable market opportunities. Our BD Life Science segment is dedicated to improving the diagnosis and treatment of infectious disease and cancer as well as empowering new research discoveries in immunology and cell therapy. Our Medical segment is focused on optimizing core health care delivery processes from reducing the risk of health care associated infections to improving medication management and drug delivery. Our Interventional segment is focused on advancing the treatment of high-burden diseases and conditions, such as vascular disease, renal disease and urological conditions. Our businesses are extremely global in scale, with 45% of sales from outside of the U.S. and over $2.5 billion in revenue from emerging markets. Fiscal year 2019 was a solid year for BD. We finished the fiscal year with very strong underlying performance and momentum across all of our businesses. For the full year, we drove revenue growth of 5.1%, despite the impact of a reduction in the market for drug-coated balloon technologies. Growth was broad-based, reflecting the breadth and depth of our portfolio. As planned, revenue growth accelerated over the second half of the fiscal year. We also drove approximately 60 basis points of margin expansion and delivered double-digit EPS growth before the impact of currency. And we achieved all of this while overcoming significant headwinds and the impact of divestitures, while continuing to make strategic business investments. At the same time, we continue to deliver on our Bard commitments. Moving on, we are now in the third year of the Bard deal model, and I'd like to highlight the value we've already created through the BD plus Bard combination. We're very pleased with the progress we've made so far. Our core has grown stronger, and we are delivering more impactful solutions to our customers. On an underlying basis, both companies are driving strong revenue growth with legacy Bard growing over 6% and legacy BD growing over 5%, creating durable and sustainable top line growth. Underlying earnings growth has been in the mid-teens. The integration of our 2 companies and cost and revenue synergy capture are all on track. In addition, we are well on our way to quickly reducing our leverage to below 3x over the 3-year deal period. Lastly, Bard has entered BD into higher-growth markets that will continue -- we will continue to leverage and build upon beyond the deal period as we enter our next period of value creation. WavelinQ, Venovo, Covera and PureWick are good examples of products in these new higher-growth categories. Tom will speak about this in more detail as he takes you through our long-term strategy. I would also like to highlight the great work that has been done in new product innovation across the other segments. They also continue to fuel growth. From the new Alaris pump, Pyxis ES and our HealthSight platform in the Medical segment to our expanded BD MAX menu, BD FACS research and clinical instruments and continued expansion of our BD Horizon Brilliant dyes in life sciences, just to name a few. There are numerous products and solutions in the pipeline that we're equally excited about, as you will hear from Tom today. All in all, we are proud of our organization's performance and strong execution. And since we just closed the books on our first fiscal quarter, I'm happy to report that we're off to a really solid start for fiscal year 2020. We look forward to providing you with a complete update on our February 6 earnings call, but I'd say that our quarter is consistent with the guidance we provided in November, and we are on track for the full year. Before I turn things over to Tom, I would like to highlight the various awards and recognitions BD has received. We're proud of our accomplishments, and there were many acknowledgments in 2019 that highlight the success of our business, our responsibility to the environment, our commitment to inclusion and diversity and our ethical standards. The recognitions we have received also reflect -- are reflective of our positive impact on global health and indicative of a company that is having positive social impact as well as a strong business impact. At BD, we are incredibly proud of our strong track record of performance and the lasting impact we've made to health care systems around the world. You don't stay at a company for 40 years unless you are passionate about the people and the purpose. BD is a special company and it's truly bittersweet to transition into my new role. With that, I'd like to turn things over to Tom to talk about our long-term strategy and our outlook. Thank you very much.

Okay. Hello, and thank you, Vince. It's a pleasure to be here today as I transition into my new role as the next CEO of BD. Before I talk about our long-term strategy, I just want to take a minute to congratulate and thank Vince, as he steps into his new role as the Executive Chairman of BD. So I've had the privilege of working alongside Vince and to learn from him, obviously, become close friends as well for more than 15 years. Vince led the company through the most transformative period in BD's nearly 125-year history. Under his leadership, BD evolved from what was largely a medical device company into one of the top 5 leading companies in medtech today. Vince has made a lasting impact on our team, our company and the entire medtech industry. And for all of that, all of us at BD are truly very grateful. It's an honor to have this opportunity to follow Vince as BD's next CEO and to lead this very special company at such an important time in our transformation as we prepare for our next phase of value creation. As Vince mentioned earlier, BD is a medtech leader focused on advancing health care from enabling drug discovery to disease diagnosis and improving the process of care and the treatment of disease. We operate the company through 3 segments, as you heard from Vincent, and we're well positioned to capitalize on $70 billion in addressable market opportunities that we serve. One of the drivers that has made BD so strong today is the positive impact of the Bard and CareFusion deals. As Vince discussed, we've advanced our strategy through these 2 transformational acquisitions that have more than doubled BD's revenues and brought very important new capabilities to the organization. The success of these acquisitions, combined with BD's long-standing strengths, make up what we call the DNA of the new BD. And we truly believe that over the last 8 years, we've built a company with unmatched capabilities that ideally position us in what is an evolving health care landscape. And the BD of today really has 5 distinct elements in our core: the first being world-class manufacturing, unparalleled global scale, strong category leadership, a robust innovation pipeline and deep capabilities in software and informatics. And these capabilities position BD, not just to address today's pressing health care challenges, but to continue to lead the industry as we move forward. As we come to this conclusion of this significant period of integration and we look ahead to the next phase of value creation, we're focused on how we're going to harness these capabilities to unleash the potential of new BD through 3 key strategies. That's to grow, to simplify and to empower. And our top priority and strategy is to grow, and we're going to enable our growth strategy by simplifying BD and by empowering our associates in the organization. And in a moment, I'll cover grow and simplify in more detail, but let me make just a brief comment on empower and what that means to us. We see opportunities to empower our organization to better serve our customers through digitizing our internal processes by fostering stronger, more agile teams at the same time. And this is truly a key enabler to how we will grow. And I'll turn to that now. So we always drive growth through category innovation. And that starts with product leadership, maintaining a strong portfolio of leading products in higher-growth markets that address significant unmet clinical needs. And we are very proud, as you heard from Vince, of our robust pipeline of launches for FY '20 across each of our 3 segments. As you can see, we're focused on developing solutions for both the acute and the non-acute settings, and bringing to market products that meet patients where they are, whether or not that's at the home, in the physician's office, could be the long-term care facility, outpatient surgery or the retail pharmacy. And we'll be driving growth through category innovations by building on our leading position in products, but combining that with informatics, automation and robotics to create more comprehensive solutions for our customers. And in that, we're focused on reinventing each of the market categories we serve by building those ecosystems of solutions that deliver greater outcomes than any one of our products could alone. We're actively working on this across our entire portfolio and have made significant advancements already in areas like our integrated microbiology laboratory, vascular access management, medication management or dialysis access solutions. At the same time, we aim to not just be a reliable product and solutions provider to our customers. But we're working very hard at transforming our go-to-market approach, particularly for our largest strategic customers in the world. And we're looking to move that from a traditional selling business model to a more collaborative, multifunctional team-based approach focused on delivering outcomes. And so over the last year, we've started piloting this new collaborative approach, and while we're still early in this journey, we're excited about the opportunity of how we transform, how we partner with our customers moving forward. And we're really encouraged by the initial feedback from our customers that we're hearing. At BD, as I said before, and as you heard from Vince, our global scale is nearly unparalleled. And we continue to expand globally by selectively investing in our strong regional channels and local innovation as well as local manufacturing. We're also going to leverage our scale to selectively bring the legacy Bard portfolio to new markets. This fiscal year, as an example, we expect to submit an additional 250 international registrations for BD Interventional or legacy Bard products. We've also just completed our second full year of the European biosurgery incubator, where we continue to see great momentum. And we're starting now to expand those concepts into other regions. So that's how we're going to drive growth, by advancing category innovation, delivering meaningful customer outcomes and very intentionally expanding geographically. Our second area of focus, as I mentioned earlier, is to simplify. As BD has grown very rapidly in capabilities and size, we've also grown in complexity. And I believe that if left to its own, complexity can ultimately kill momentum. And so we see simplicity as the key driver that BD is really focused on to make BD a company that's easier to do business with if you're a customer, it makes it easier for BD associates to get work done within the organization. And while we've made tremendous progress during the integration period, we still see many opportunities to further simplify our network, our portfolio, our business processes to improve our efficiency and ultimately, deliver savings that we can reinvest in driving growth as well as contribute to driving underlying margin expansion in the years ahead. I'm very energized about the opportunity to grow, to simplify and empower and the difference we're going to continue to make in the world as we impact the lives of patients. So let's take a look at how our initiatives will drive our long-term growth profile starting in FY '21. We expect to deliver sustainable and consistent revenue growth of 5% to 6%, supported by the growth strategy I just walked through. In addition, we're targeting underlying margin expansion of 50 to 100 basis points each year as a result of the simplification program and other operational excellence initiatives, and we believe strong revenue growth, coupled with significant margin expansion and efficient tax and capital structures, will result in 10%-plus earnings growth. And last but not least, we remain very committed to building upon our very long tradition of increasing our dividend. So let's turn to our capital allocation framework. And by the end of this year, as you heard from Vince, we'll have paid down $5 billion in debt. That puts us at a significant milestone where we return to below 3x gross leverage. At that point, we'll expect to have $2 billion to $3 billion in cash available each year to invest in new value creation activities. And so going forward, we see our capital allocation priorities will be to continue to invest in the business, to invest in tuck-in M&A focused in high-growth areas, to reinstate our share repurchase program and to continue our history of dividend increases, which is now in its 48th consecutive year. Taken together, we believe these capital deployment actions will fuel long-term double-digit earnings growth. As we look forward beyond FY '20 and the Bard integration, we also will focus on returning to our historically high and strong free cash flow conversion. As we wrap up, I hope I've made it clear why I'm so enthusiastic about BD's potential to thrive in an evolving health care landscape, as we complete the integrations of Bard and CareFusion, we've built a new company with capabilities that are ideally positioned to tackle health care's biggest challenges. We're going to leverage our core strengths and new capabilities to build innovative solutions and ecosystems that will enable us to grow and help our customers achieve even greater outcomes for their patients. We're going to simplify BD, continuing to create an even better experience for our customers, more value for our shareholders and a more empowering environment for our associates to advance the world of health. I've been with the company now for nearly 20 years, and I believe we've never been positioned better than we are right now to more meaningfully impact customers and our patients as well as our associates and our shareholders. And I'm honored to lead this very, very special company at such an exciting time. Thank you.

Thank you. Okay. At this time, I declare the polls closed. We will now take questions from the floor. Please give your name and number of shares you own or represent. Please also limit your question and comments to 3 minutes to allow sufficient time for all of those who may wish to participate. Okay?

My name is [ Jim White ] and my shares are held in trust, but I came into BDX via the Bard acquisition. And I just want to wish you, Vince, a very healthy transition and happy future and gratitude for all the great work you've done leading Becton, Dickinson. And Tom, all the best, God bless you in your future endeavors, and you've had a great 20-year history with Becton, Dickinson to really supply you well for the future. So great leadership and great innovation. I thank you. Comment I just wanted to make before question is, when I was here a year ago, BDX was $238 a share. Today, it's $282. That's a nice 18.4% increase. So God bless you for that. That's great work.

Thank you for everything you've said so far.

You're welcome. My question related to just the real estate and construction maintenance of it, the roughly 8.5 million square feet in the U.S. that's owned. Would that be under Chris Reidy for the Medical, Interventional and Life Sciences roll up? How do you manage that?

Well, we do manage the -- all of our real estate globally, and you could certainly talk to Chris about that. Other questions or comments?

Easy question. You knew it was coming. [ Mark Bernhardt ], 518 shares directly. Coronavirus, BD's reaction to it?

Yes. So this is a very fluid situation. And so I'll start with, of course, we're global. We have a big organization in China. There have been moves by the Chinese government in terms of extending the national holiday right now and of course, in doing that, also shutting down manufacturing of all -- for everybody in the country. So we're working with the country to make sure that everyone is safe, our people are safe and creating contingency plans and working with the Chinese government. In addition, we're working with them because we have an instrument called BD MAX, which I mentioned in my remarks, and the Chinese government has taken advantage of the flexibility of that instrument to create a diagnostic test for coronavirus. So we're actually sending some instruments to China to help them with the diagnosis. We're also looking at what do we have to start thinking about all around the globe right now as this evolves in terms of how do we work with agencies to make sure the right products are in the right place, that our people are protected, not just in China but around the globe. So all of those efforts are very early on, and we'll have more to say about them as the situation evolves.

Excellent. Congratulations.

Yes, thanks very much.

[ Mark Savatone ], 1,600 shares. I also thank all of you. Thank you.

Thank you, Mark.

I'm wondering, is there any -- has there been any discussion about splitting the stock?

All right. No, we haven't had that discussion. I mean that would be a conversation that the board would have to decide to do that. But no, no conversation around it. Any other questions? Okay. If there are no further questions, I will ask the inspectors to report the preliminary voting results. So could you do that, please?

Okay. Thank you. Mr. Chairman, on the election of directors, each director nominee received the affirmative vote of the majority of the votes cast. Proposal 2, to ratify the selection of the independent registered public accounting firm, received the affirmative vote of 96% of the votes cast. Proposal 3, the advisory vote to approve named executive officer compensation, received the affirmative vote of 90% of the votes cast. Proposal 4, to amend BD's 2004 plan, received the affirmative vote of 94% of the votes cast. Proposal 5, to approve the French addendum to the 2004 plan, received the affirmative vote of 97% of the votes cast. Proposal 6, regarding special shareholder meetings, 41% of the shares cast were voted for and 59% were voted against. That concludes our report.

Based on the report of the inspectors, I declare that the nominees for director named in the company's proxy statement have been elected to serve for a term of 1 year. The selection of Ernst & Young as the independent registered public accounting firm of the company for fiscal year 2020 has been ratified. The advisory vote on named executive officer compensation has been approved. The amendment to the company's 2004 plan has been approved. The French addendum to the 2004 plan has been approved. And the shareholder proposal regarding special shareholder meetings has not passed. These are preliminary voting results, and final results will be available after the votes have been certified by the inspectors. With that, I will entertain a motion to adjourn.

I so move.

Second.

Hearing no objection, the meeting is now ended. Thank you for coming.