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

I always enjoy reading your reports, though, by the way. I think you always nail it. All right. And we are back at the 42nd Annual Goldman Sachs Healthcare Conference day 1. And we're really excited to have us as our next presenting company, Becton, Dickinson. We've got the team here, the all-star team from BD. We've got Tom Polen, the Chief Executive Officer; Chris Reidy, CFO; and Kristen Stewart, Head of IR. And I'll turn it over to Kristen to say a couple of words, and then we will get started. Go ahead, Kristen.

Thanks so much. So thanks for having us here. Just as a reminder, during today's discussion, we may make some forward-looking statements, and it's possible that actual results could differ from our expectations. There continues to be significant uncertainty around the duration and contemplated impact of the COVID-19 pandemic. Risks, uncertainties and other factors that could cause such differences could be found in our SEC filings, including the 2020 Form 10-K and subsequent Form 10. The statements made in this presentation were as of the date of the event. BD undertakes no responsibility to update such statements to reflect events or circumstances occurring after such date. I'll turn it back over to you. Thanks again, Amit.

Thanks so much. Well, Tom, Chris, Kristen, thank you so much for joining us, and welcome again to this year's conference. And I want to spend a lot of time talking about some of the investor debates that are going on out there that will deal with the longer term. But I thought we could get some of the COVID updates out of the way. Everyone kind of wants to know, and to the extent that you're able to give any, I'd love to hear them. So maybe just to start, whatever you can say about an update on utilization would be super helpful. And then for you, in particular, just given one of your competitors, Abbott, and some of their comments that came out last week around COVID testing, I wonder if you could just reflect on that as it relates to your own guidance. CDC guidelines have been out there since you gave -- had your earnings call, which talked about needing or not needing a test for vaccinating -- vaccinated individuals, which may have an impact on the market. Just your thoughts overall since you reported the quarter would be great.

Yes. So why don't we start with it, and thanks, Amit, obviously, for having us today. Really happy to be here and looking forward to this discussion. So why don't I start with the COVID testing and then utilization. I'll follow it up on that one. So whether or not anything that our competitors have announced or that the CDC announced, that doesn't change at all our outlook for the year. We remain confident in our $1.8 billion to $1.9 billion revenue for overall COVID diagnostics and the roughly $1.4 billion of Veritor profits. If you recall that we said there was going to be $1 billion to $1.5 billion at the beginning of the year, and we ended up saying we expect to be at the high end of that. Let's call that around $1.4 billion or so. Plus then you add in MAX, you add in transport swabs, you get to the $1.8 billion, $1.9 billion that we've been saying, and that remains completely unchanged. And one of the things we are very proud of is we have a lot of deep expertise in infectious disease diagnostics. We've got a number of pretty world-renowned infectious disease experts in our organization. We have deep relationships with governments around the world on public health. It's part of who we've been for decades. And we also have very close relationships with the vaccine companies. Of course, most vaccines delivered around the world are touched by our devices, whether or not it's our traditional syringes used to deliver those or, even more commonly, prefillable devices that many, many vaccines are in. And so we took that expertise, and we looked at a variety of situations of possible scenarios. And we determined that we thought that vaccines would be available in kind of the first part, first few months of the new calendar year, and that we would see testing rise up in Q1, Q2 and then significantly drop off in the back half of the year. And that's what we communicated from the start. That's what we budgeted, and that's what we planned for, and that's exactly how it's come to be. And so for us, that's really led to 3 things that we did maybe a little differently because that was our perspective. First off, we, right from the start, accelerated the depreciation of any COVID diagnostic capacity assets that we put in. You would normally depreciate capital assets over, call it, an 8-year period. We did it in this year, right from the start, so we don't have any write-off coming on, on those type of capital investments. Because we also had that perspective, we were very cautious right from the start on how much inventory we built because we view that it would be coming down, the demand in the back half of the year, and it did. And so we also don't have significant inventory write-offs because we took a unique approach on that. And then third, because it's working out exactly as we had originally expected in the beginning of the year, the reinvestment of COVID profits, we're keeping steady with, right? So there's no change to our investment plans of reinvesting that $200 million of COVID profits back behind accelerating our growth strategy, BD 2025. And that's, of course, really helpful to our teams that can stay focused and not move back and forth. Whether they get the money or not, they're staying focused on executing those investments and making sure that they're successful because we got that right. So we feel good about the outlook there in COVID diagnostics. From a utilization perspective, so we're seeing a continued recovery in utilization. We saw March get better, April then better than that. We saw May get better than April. And early on in June, we continue to see the recovery. We see inpatient recovery in the mid-90s, I'd say a little bit north of 95% in inpatient recovery. And as a reminder, I think many people are aware of our MedMined data. We can see inpatient volumes clearly on a daily basis across hundreds of hospitals in the U.S., as an example. We see that, again, very specifically in the little bit north of 95%. We see outpatient volumes in the U.S. a bit higher than that, so approaching 100% outpatient volumes in most of the procedures that we're involved in at least. In Europe, it's a little bit lighter than in the U.S., but it's stable and improving. And then as we look at utilization in China, that's back to 100%. You can see in our Q2 earnings, very strong recovery and performance in China, essentially back at or even slightly above 100% in most of the procedures that we're involved in. And then looking around the world, I'd say, over the last couple of weeks here, we've seen outbreaks in India and Japan stabilize and start to -- beginning to move towards an improving situation in those markets. Obviously, they're much, much smaller markets for us than the U.S., Europe or China. But nevertheless, markets that we're very focused on to make sure we help our associates and our customers in those. And it's good to see India stabilizing and improving. And the markets that we really have just seen, again, small markets for us, but Thailand and Malaysia. We certainly see increasingly severe outbreaks of COVID in those countries, and then we're focused on doing whatever we can with our portfolio and our teams on the ground there to help address the health care crisis as it's evolving in those geographies. But limited impact on our business, more of just making sure that we're helping society there.

Yes. Absolutely. That's a great update. I appreciate it. I think people appreciate that, Tom, so thank you for that. One quick follow-up, which is kind of related to the guidance you have for the rest of this fiscal year and also into fiscal '22, just the guidance that you gave. So this year, base, I think you said it's supposed to go 3% to 5%, maybe 4% to 6% if you exclude flu and Alaris. The recovery that you have in there, it would be interesting to hear just kind of given where you said we were, what you're anticipating in getting to that 4% to 6% excluding those things. And then same thing for fiscal '22, when you say solidly in the mid-single digits, I think you're excluding COVID diagnostics there as well. The key question would be, in terms of the recovery, how much are you expecting in terms of percent of normal or however you'd like to frame it?

Yes. Great question. So maybe let's just step back for a moment. First off, we feel really good about our business and the momentum that we see. Our teams are executing very well against our strategy, and we can see that in our core performance. And as I mentioned before, we saw the core do better in April and May, and we're continuing to see that into June. And so we see steady -- our strong execution, driving recovery across all of our businesses. As we think about the numbers for the 3% to 5% that you mentioned, the top line, and I understand you get that number just by taking the guidance that we've had out there. You subtract the $8 billion or $9 billion (sic) [ $1.8 billion or $1.9 billion ] in COVID diagnostics that we've given an outlook on, and you get to the 3% to 5% that you just described, is the math for those who haven't done it. And so I would just say that based on the strength of our core business today and how well we're executing, we certainly see that results are growing towards the high end of that range this year. So we feel very good about that outlook for the year. As we think about next year, we're not necessarily assuming that we're back to fully 100%, particularly on inpatient volumes as we head into next year, but as we move through next year, probably in the first half of next year, we'll reach that level is in our assumptions. So -- but getting close to 100% by the end of this fiscal year and then breaching it as we enter into next.

Okay. Okay. I'm going to -- I appreciate that, too. That's super helpful color. I want to -- I'll throw in this question here. Maybe it fits in later, but we'll go with the flow here on the top line and just thinking about it a bit longer term. And so we kind of get past this COVID period, and we start to think about your comments about durable mid-single-digit growth as I think your commentary about what the company aspires to grow. I think back to the pre-Bard days, you were growing 5%-plus. I think that was the commentary you used to like to say back then you do Bard. You were talking about 5% to 6%. Those are all inside of that mid-single digits, but I think the investment world understands mid-single digits is 4% to 6%. Maybe it's all semantics. Maybe it's a throwaway question. But how come you can't say 5% to 6% anymore? Why isn't 5% to 6% the right number for BD?

Yes. We just -- I mean, we don't see the -- we still feel very confident in the growth capabilities of the company. We just wanted to widen up. Even in that 5% to 6%, as we had done the Bard deal, we've gotten feedback from investors pretty clearly that, that was -- because there were some challenges in that window, where there was just external factors that came up that pressured that 5% to 6% range. And so it was just opening up the aperture of, again, in the spirit of consistent durable that in any situation, we are delivering that. But again, we feel -- and that's why we iterated for next year, solid mid-single digits is certainly towards that in that range that you just mentioned, more so than the other end of the spectrum. I think you should read that as such, we reinforce solid.

Yes. Sounds good. I want to ask a couple more COVID questions, and then I want to bring Chris in here and do some of the painful walk-throughs of the P&L, perhaps not so painful hopefully. So on COVID testing next year, we're all making guesses. But how are you thinking about where testing is going to be necessary? And maybe you can just give a quick comment on what you're seeing in the Southern Hemisphere these days with RSV generally, and if that's informing you of what might be coming in terms of the flu season in the Northern Hemisphere next year, next winter.

Yes. Nothing I could comment on yet around the flu, although we do anticipate that flu will be back. And I think all the experts that we speak to see the same trend. And that's why we prioritized getting the flu COVID assay cleared on Veritor, which we have the EUA for. Obviously, there's not much demand for that today because there's no flu where Veritor is traditionally used. But we are beginning -- we will be producing that shortly for validation and have that scaled up and available as the flu season approaches here at the end of the summer. So that's an assay that we view will likely be the more durable, long-term assay is the flu COVID combination test, right, when you have symptoms that you wanted to test for both at the same time. So that's that. In terms of as we think about COVID testing by itself, just as a stand-alone test for screening purposes, that's something that's still to be evolved. I think it's too early to call how that will play out. But I can tell you a couple of the factors that we're watching and are considering. And we've got -- again, our team of infectious disease experts are debating this pretty much every week and updating their outlook based on a number of factors. And those include the prevalence of vaccination and in each society that we're serving, each market that we're serving, what is the vaccination rate, that will influence how much testing gets done. The prevalence of variants and how effective the vaccines remain against those variants will obviously have an influence on that. The kind of the mental status of the culture and around relying on just the vaccine versus when it's time to send the kids back to school. One can argue and we can generate data that says based on vaccination rates and particularly, let's say, in a high school where the vaccine has been approved for certainly that age group, do you need to do screening in a high school for vaccinated kids? One can argue either side of that equation that you do or you don't. From a science perspective, I think that ultimate answer to that is still to be determined both in markets across the U.S. as well as in Europe and other geographies as we get back to normal. And the same thing on businesses, how much testing is happening in what different locations. We do test our associates in a number of locations. We tend to do it more in our manufacturing sites, where there's a higher density of associates than, let's say, in some of our office locations, where there's not as high of a density of associates. And so we even see ourselves making those types of choices, as we know many others will. So I think those are some of the factors that we're evaluating, and we'll get a better sense as we go through the summer.

Okay. One final one on -- yes, sorry, go ahead.

I was just going to say, we're in discussions with a lot of governments around the world who are wrestling with those exact same questions.

Okay. So one quick final one on the COVID stuff, and we'll move on. I'm just thinking about whether there are structural impacts we should be considering to the health care system and just -- and what that might imply for BD. ED visits are expected to remain depressed from when we talk to hospitals for some time, maybe somewhat permanently as some of that volume move to urgent care and things like that. Some accelerated migration from inpatient to outpatient, from outpatient to ASC, that seems to be evolving, too, due to COVID or accelerating due to COVID. When we think about it from a BD perspective, is there -- are there implications for you as a company from those changes?

I think there's great opportunity from those changes. So even before we went into the pandemic, we are very focused on helping to enable the care shift from the acute into the non-acute setting. And so there's a whole series of tremendous innovation opportunities to enable that, whether or not it's in our life science business, around point-of-care diagnostics. We've certainly seen the pandemic create a much greater awareness in the value of real -- near real-time diagnostic information to be able to treat patients' point-of-care in these urgent care facilities or even now in their home. And we're getting now into over-the-counter tests for COVID, but we see the opportunity. We've shared in the past, we have an OTC assay in development for flu, COVID combination, right, with your cell phone. I don't think we would have had that test in our pipeline if it weren't for COVID and how that's opening up the interest in testing, for example, for those respiratory conditions at home and the willingness of regulators to help support that. On the -- in the Medical segment, you've seen us make 2 acquisitions, as an example, this year in the non-acute medication management space, right? Help enabling these non-acute surgery centers, urgent care centers, other locations, retail centers that are now delivering care to be able to manage medications more safely in compliance with law, particularly around narcotic management and managing their inventory levels and cash flows better. So those -- that's a great growth opportunity. By the way, that non-acute med management market is growing strong double digits. If you look at the hospital med management market, it's growing more in that 3%, 4% range, right? So great growth opportunity for us. And the same thing in BDI segment as we look at the innovations we've got there. PureWick, a great product for us in the hospital, now bigger than Lutonix. We launched a home version of that, and it's booming this year. It's doing great as we're now helping to manage urological conditions in the home. But we're looking at things like how do we bring our capabilities around dialysis and creating fistulas and dialysis access to enabling dialysis at the home. There's a number of other solutions that we're looking across the entire portfolio and saying how do these solutions evolve to be more tailored to care in these new settings. And I'd say every single one of our businesses, pharma system is other one, self-injection devices, enabling people to deliver injectable or traditionally infusible medications that required going into a health care setting, enabling them to do that in the home. That's a business growing north of 20% for us today and a great pipeline. So we see it as a tremendous innovation opportunity that we're investing behind.

Okay. Fair enough. So let's move on from there. I want to reposition kind of the conversation towards numbers and think about fiscal '22. I know that you don't have too much guidance for '22 out there. But I think that the point of the discussion, I think, can be wrapped around the idea that, I think, from an investor perspective, this is a major debate. When we look at where consensus Street expectations were prior to COVID, your company, for whatever reason, that the numbers have come down more than most companies, if not all companies in large cap med tech. And so I think one thing investors are trying to get a handle on is, is there more of that to come? And that's despite the fact that you've been a COVID beneficiary as we've been talking about. And I think people want to know, right, have we hit the floor here and there's room for upside? Or are there more revisions downwards? So my questions are trying to get to that without trying to put -- without getting you -- I know you're not going to be able to say as much as we all would love because you don't have guidance out there. But I think about fiscal '22 on the operating margin side, I'll start there. February 2020, so kind of on the eve of COVID breaking out, but before that, you guided to fiscal '20 operating margin of 25% to 26%. That contemplated interestingly enough already, Alaris off the market and also China on the low end. So we already had some of that in the guidance. Back in the Bard days, there were aspirations for well above this range by now. And we know that this year includes some onetime reinvestments that are going to go away. We know there are some cost headwinds for resin and freight, but we also know you're planning to grow sales solidly as we talked about. So probably benefiting from some COVID testing and maybe even Alaris. So can you put a floor on where margins will be next year? I think investors would want to hear that, is there a floor to where you think margins will be? And can we get back to that old February 2020 guidance?

Sure. So let me take a shot at that, Amit. And I think one thing I'll start with is when we talk about mid-single-digit growth on a sustainable recurring basis, we also say double-digit TSR, and that implies a level of margin improvement to get to that double digit. And so that is intact, and we see the ability to drive those margins. But let me -- we -- you're right, we haven't gotten through our budgeting process yet for '22. We're right in the midst of that, so we're not in a position to give guidance in a detailed way for '22. But we do provide some color, and we've talked about some color as to how to think about that. So one way to think about it is, if you look back at the second quarter, our gross margin was 53.8%. Now there's a lot of puts and takes in there. We had a lift from COVID testing, but that was entirely offset by COVID reinvestment, and we had some quality spending. So when you net all of that out, the underlying gross margin was about 70 basis points higher than the 53.8%. Now it's important to point out that we do expect that margin to drift down over the remainder of this year. We won't have the lifts from COVID testing as much, and we are going to have the spending that we have on the COVID reinvestment. So it's expected that it go down. And a point that I'm making there is, don't use the margins in the second half of the year as a jumping off point for '22. We know that they're going to be more depressed. Operating margin in the quarter was 24.5%. And we expect that to go down, drift down for the second half of this year into the low 20s. Again, some of that spending from reinvestment of COVID is there. Other factors that we look at. FX is continuing to have a drag into the third quarter on margins as that rolls through our inventory. We think that abates in the fourth quarter and should abate -- should not be a pressure going forward. We'll see where the dollar goes. But right now, as we look at it, that shouldn't be an impact. Manufacturing variances as plants get back to capacity. We're not expecting that to get back to 100% by the end of this year. But as we've said, we would expect that to be more like 100% utilization going into next year. The 2 other variables that we've talked about are what we're seeing in raw material costs and what we're seeing in shipping costs. And so raw material costs really for us is primarily resins. That's more of a factor of resins being a byproduct of oil production. And so we did see some pressure that will roll through our inventory, will put pressure on margins in the second half of this year. It remains to be seen whether that continues into next year or not. And obviously, we're doing a lot to try to offset that. And the other cost is shipping cost, and you can pick up the papers and see that every company is being impacted by shipping cost. You see the ships off of Los Angeles Harbor waiting to come in. A lot of that was driven by COVID. We certainly did a lot more airfreight, and there are a lot less passenger planes going. So shipping was a higher cost this year and will flow through our inventory through the second half of this year, but it remains to be seen whether that's a continuing into next year or not. Now we have a lot of initiatives, continuous improvement initiatives. We talked about Recode. So those are all the factors that we have going into this. When you think about what we said pre-COVID on the gross margin, for example, we're in that 56%-ish kind of range. We see that as very achievable, particularly as Alaris comes back into the market in '23 and beyond and Recode starts to kick in and we get improvements there. So we see that ability to drive that continuous improvement and drive that mid-single digits on the top and double digits on TSR in the bottom, which again implies leverage in the model. So we do think the model is intact.

Okay. And so I mean, you just kind of -- you're able to go there on gross margin, you laid out all these variables, and I totally appreciate that for operating margins. But is that to say that just in terms of scenarios, that a kind of you think about fiscal '19, 25.3% operating margin, kind of that 25% to 26% guidance that you gave in February of '20. Is 25% to 26% roughly speaking? Or is it even a broader range than that of a scenario of outcomes for operating margin next year?

So again, we're reluctant to give a specific number on operating margin because that is guidance for '22. So we need a little bit more time to see where the raw material costs go, where shipping costs go and all the efforts that we have going into it. We do see manufacturing variances stabilizing, so that's an improvement. And we don't see as much drag on FX going forward. So I pointed to the second quarter of 24.5%. I'd say, don't be concerned about it going down in the second half of the year because we expect that to happen. But I think the same theory holds, as I mentioned, on gross margin that there are things that we can do to improve that. There is leverage that we'll get. We just want to get a little bit more insights into the shipping costs, et cetera, that are impacting us this year and think about how that -- does that stick? Can we offset it? Can we pass some of those costs through? Do we have to pass those costs through before we get digital on '22? But you should take away that the model is intact. We can improve margins on a go-forward basis year-after-year in a durable kind of way.

Okay. That's great to hear. And I promise this will be my last question on this. I know I'm pushing a little too hard, but this is the debate that I hear the most often. Some -- the clarity, if we can provide any, I think, would be terrific. And that is circling back to what I was saying at the beginning, that numbers for you in terms of consensus numbers have come down more than the average for large cap. And so the Street is sitting here at $13.11 for next fiscal year. And when I do the math on my own and think about that kind of 25%-ish operating margin, and I don't -- if I take out COVID testing and take out Alaris kind of thinking about a worst-case scenario, I can get to about $12 in earnings. So it's well below that figure. And I know that's not a real number because I know you will have COVID testing and hopefully, you'll have Alaris. But I wanted to get a sense from you on -- you obviously have other levers you can pull. You've got a really strong balance sheet at the moment and can come back with that. How to think -- how for investors to think, and I mean, I think they've seen that the numbers come down. They want to know, has there been enough? Can we be more assured to that from here, it's upwards? What can you say to that $13.11, if anything, with regard to a couple of those metrics that I mentioned?

So I won't get specific about a particular EPS, but what I will address is the fact that you mentioned levers, and we have been pulling a number of levers. I think the first one that I would point to is the momentum of the core business, and that is very solid. And that's evident by the fact that we are raising the guidance range for next year to solid mid-single digits from previously saying mid-single digits. So we feel really good about the momentum of the core business. So that's number one. The other would be levers that we're pulling around the sustainability of COVID testing. So the work that we're doing around COVID flu assays, which we believe that will be more sustainable and will be more like an ongoing part of the core going forward. And we've got those products in an approval already on the Veritor side. We're doing some work about the at-home side of that. And so those combination assays will continue going forward. We're also doing other things like the strength of our balance sheet. We talked a lot about the fact that we're now in a position where our leverage is a full turn lower than it was last year. We're at 2.4 net leverage. That gives us a lot of options, and we have options to do M&A, and we've talked about tuck-in M&A. You've seen that we've done a lot more of that, and we'll continue to do those type of tuck-ins. But it also enables us to pull a lever we haven't in a number of years, which is share buybacks. We pointed to that on our last earnings call that we have authorization to buy back shares. And so you'll hear more about that as we go throughout the year, but that's certainly another lever that we can pull. And frankly, the portfolio actions that were taken with diabetes care, it's the right thing to do. I think it's a win-win to separate those, but we're taking that, and that will help the RemainCo BD hit that mid-single digits even more reliably because that, within BD, was a drag both on the top and the bottom line. So there's a number of actions that we're taking to address that impact of COVID, if you would, over the last 1.5 years, and we're pulling each and every one of those levers. And that includes other things that we've talked about like Recode and the ability to drive those costs out of the business. And we're well on the way. We've invested some of the COVID upside, which will help support that mid-single-digit and double-digit bottom as well. So those are just some of the levers that we're pulling to put ourselves in a strong position going forward.

That's great color. I have one more for you, Chris, and then we'll move on. And that is, you've mentioned it, but just thinking about a little bit longer term post-COVID in operating margin and how you want investors to be thinking about it. Do you aspire to have -- some companies talk about kind of 30, 50 basis points type of growth. Do you aspire to have some kind of annual operating margin improvement in kind of a more normalized world or the longer-term target of where you can get as a company?

Absolutely. I mean, that is implied in the fact that we're able to drive mid-single digits on the top and double digits in TSR in the bottom. It implies that you'd have to do at least 50 basis points of operating margin improvement a year. And so that is part of the model, and that model is intact.

Okay. Good stuff. You mentioned the diabetes spin, and I wanted to just ask one quick question around that. They actually -- we haven't gotten much pushback from investors. But one common pushback, if we have received it, goes something along the lines of this was a higher margin, good cash flow business for you in some ways that could have supported or was supporting some of the reinvestment efforts that you had going on into faster-growing areas. So the spin could have actually helped in that -- or the not spinning could have helped from that perspective. What's kind of -- what's wrong with that takeaway that some have about the diabetes spin?

Yes, I'll take that, Amit. The -- and we've heard great feedback from investors. We haven't necessarily heard that one. Obviously, we have -- we generate very strong cash across all of our businesses. And that's only improved with our focus on cash flow over the past year. You've seen that in our cash flow and our free cash flow metrics. So we don't see that hindering at all our ability to reinvest not only in the business but to drive our strategies around share buybacks, continuing to pay a very competitive dividend, invest in tuck-in M&A. We certainly see the flexibility to continue to do that without diabetes. And at the end of the day, us being able to focus our efforts at BD in those prioritized higher-growth markets that we participate in as a positive, while allowing the diabetes business and the new management team that you've seen us bring in. Dev and Jake is the CEO and CFO. They're actively building their leadership team right now, and we're already starting to work on building the Board. They'll be able to focus, utilizing the cash that, that business does generate to accelerate growth into higher, higher-growth sectors of diabetes, which having that focused team, you can imagine the talent they'll be able to get in R&D and other areas as a stand-alone public company will be at another level than perhaps from within. We wouldn't have attracted Dev or Jake, as an example, to be operating that business within BD, but they're there to run it as a public company. I think we'll see that more broadly. And there are tremendous opportunities in the diabetes space. Of course, we're in some areas that are attractive but are slower growth within that sector today. We've got products like our patch pump, which are still advancing in our pipeline, expect to hear more about that as we approach the spin, that will take focused efforts to drive the launch. There's other spaces that they can also enter into. And so the ability to optimize shareholder value, both on BD, keeping us focused in our priority markets and higher growth spaces while allowing diabetes to do the same is a win-win for ultimately will be the shareholders of both companies.

Good stuff. We have a couple of minutes left. I got to hit Alaris, I suppose, just to at least ask for an update. Not sure if there's anything you can say. I know you've already filed in terms of how things are going. But again, maybe just to ask the question about eventually, it is going to get back on the market. And how you want people to think about that potential in year 1? Obviously, it's not hard to imagine that there's pent-up demand out there for that product category, even with some of the selling you've had in the last year. So just give us a sense of update from Alaris. Anything you can say about both the filing. And then year 1, how we should anticipate the run rate of sales?

Yes. And just to clarify, we haven't been selling it at all for the last year. We have shipped under medical necessity and where a customer needs it to help address patients with COVID or other specific situations, the customer manages that with our medical affairs team, not with our sales team, just to clarify that. To your point, we have shipped to thousands of hospitals, though, over the last year plus under medical necessity as customers have added to their fleets. A large percentage of our customers have added to their fleets to help address the COVID pandemic. So that's absolutely true. As we think about the recovery then, so first off, we've indicated back half of next year would be the expected timing for a clearance, and that's based upon just looking at average clearance times for past pumps over the last 5, 6 years, recognizing this is a complex submission. And so as we think about the average being from 5.5 months to 14 months is what the history shows, we would put it towards the longer end of that, which puts us at the back half of next year. So as we think about then the ramp, there will be a ramp period, right? So we were at $200 million of Alaris sales last year under medical necessity. We're at $75 million in sales year-to-date through the end of Q2. And we expect the back half of this year, because of the prevalence of COVID and the fact that people have already added to their fleets, we expect the back half of this year to be minimum. So call it minimal, call it, $100 million this year. And then that would be the kind of the level that we would expect, maybe more normalized next year pre-clearance of the product. At that point in time, we do have some orders in hand that we just couldn't ship that we had gotten pre-ship hold. Those would be able to obviously go immediately. The majority of our business, which on a normalized run rate is in the $400 million to $450 million range, is typical pre-ship hold Alaris sales. We would expect to get back to that run rate over time, but it will take several quarters to get to that. The majority of that $400 million to $450 million is typically upgrading our existing base. And so, right, that customers still that Alaris have been aging as they -- any capital equipment does. So that cycle for replacement will come up. We'll just have to get our sales team back in reengaged. As a note, we have kept our sales team. That's something that also put a little bit of pressure on our margins, right, as we kept our entire service team and our sales team. Service does hit on the GP side. And obviously, we haven't been doing as many installs there, as you can imagine, with $100 million sales this year versus the $400 million. But those are the best salespeople and the best service people in the industry when it comes to the pump space, and we want to keep that expertise. And so as we see the Alaris sales come back in, we'll start seeing those absorb and have a higher flow-through to operating margin as well.

Great. Well, Tom, Chris, Kristen, I mean, that was a lot of color. I appreciate that. And as always, we appreciate you coming to this conference. We love having you. And I'm going to hope that next year, we're going to see you live out in California. And you're clearly doing a lot as a company to make that happen, so we appreciate everything you do, and thanks. Good luck with the rest of the conference.

Thank you, Amit. Thanks.

Thank you, Amit.

Thank you.

Take care.