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

All right. Good morning, everyone. I'm Larry Biegelsen, the medical device analyst at Wells Fargo. I'm pleased to have BD kick off the first day of our 2021 Virtual Healthcare Conference. Very, very sorry about the technical glitches Hopefully, the rest of the day will go more smoothly. Joining us from the company are the President and CEO, Tom Polen; the new CFO, Chris DelOrefice. And somewhere in the background is Kristen Stewart, Vice President of Strategy and Investor Relations. In terms of format, it was supposed to be a 30-minute fireside chat, but I think it's down to 13 minutes now. So Tom and Chris are going to have to speak very quickly to get in all my questions. We were also going to do a polling question, but we're going to skip that, given the time constraint. So Tom, Chris and Kristen, thanks a lot for being here.

Thanks, Larry. Good to see you.

So before we jump into Q&A, Tom, I believe you'd like to make some opening remarks. So Tom?

And just we'll do this very quickly, but Kristen just has a couple of disclaimer comments.

Yes. I'll try to do this superfast. Just a reminder, during today's discussion, we'll have some forward-looking statements. It is possible actual results could differ from expectations. Risks, uncertainties and other factors could cause such differences can be found in our SEC filings, including the 2020 Form 10 and subsequent Form 10s. Statements made in the presentation as of today's date, BD undertakes no responsibility to update such statements to reflect events or circumstances occurring after such dates. Tom?

Okay. Thank you. So Larry, maybe I can start off with those comments. Obviously, it's great to be here with you and your clients and the investment community here today. It's also great to have Chris DelOrefice here. It's his fourth official day, so we're putting them right in the hot seat, joining your conference here today. I've been with BD 20 years, and I've never felt more excited about the future and what we're delivering today across the company, and we talked a lot about this, Larry. Our teams are energized by both what we're delivering today as we're focused on executing our strategy as well as how we're defining what's next in health care, how we're simplifying the company, how we're driving growth and innovation and how we're creating value for our shareholders and other stakeholders. And you can feel that across our 70,000 associates and the energy within the organization today. Just -- we've got a few weeks left, of course, in FY '21. We're entering FY '22 with strong momentum in our base business. We're ramping up contributions from new products and our tuck-in acquisitions. We've got an exciting innovation pipeline, which we've expanded through our Growth and Innovation Fund, as you're aware. We've got a much stronger balance sheet today and stronger cash flows to continue to drive our growth and innovation agenda as well as return capital to our shareholders, as you saw us start to do last quarter. As I've also discussed in the past, we've been very purposefully moving our innovation investments towards higher growth markets in each of our businesses. We've been doing that systematically over the last 18 months. And I've discussed 3 major innovation themes that we're focused on and investing behind across the company, and I'll touch base on those very quickly. And I think that will set the tone for the rest of the discussion. So first, we believe that we can advance the quality and cost of care through driving greater application of smart devices, connected care, AI informatics and robotics and automation. And you've seen us doing that at scale, which is quite unique, I think, in the industry, doing it at scale. And whether it's been our integrated medication management strategy, our KIESTRA Lab Automation strategy or more recently, you're seeing us start to smartify routine medical devices like our Sensica, smart Foley catheter, and you're going to see much more of that ahead. We're driving that strategy forward. And in fact, just in the last 2 weeks, you saw another new clearance in that category with our BD COR system. It's the first entry into the high throughput molecular testing market for us. BD COR is very differentiated. It's a fully automated advanced robotic platform that uses pretty advanced sample management software algorithms to use -- to set a new standard in lab efficiency. And we're launching that with our HPV assay with extended genotyping, targeted the high-throughput laboratories. If we look at the next major area that we're focused on, given our scale, our relevance and our overall capabilities, we believe very passionately that we can have a central role -- that we will have a central, we do today, in enabling care-to-shift to nonacute care settings. And we're investing, again, quite a bit behind this strategy. Whether or not it's our acquisitions we did earlier this year of 2 leaders in nonacute medication management to extend our footprint into their, our launch of the PureWick DryDoc product earlier this year at home for managing urinary incontinence or new self-injection platforms that we've been launching in Pharma Systems. Again, we've been -- you can see us making progress on this. Again, a big milestone in that, that we're really pleased, we just hit in the last 2 weeks is the EUA of our Veritor at-home test, again, moving testing into the non-acute setting. This is the first at-home COVID-19 rapid test that uses computer vision technology from your smartphone, Apple or Android, to interpret and provide digital results to anyone that you want them to be, right? It's a closed loop digital read, digital reporting, no opportunity for air and we can talk about that more. But we're really excited about that. That's our fourth COVID rapid test. Point-of-care test as a reminder. We launched the original Veritor for professional use. Then we launched a manual version for international. Then we launched the flu-COVID combo, which is doing great. And now we've launched -- we're launching the at-home test. And then the final category that we're investing behind from an innovation perspective is, we believe very passionately that we are well positioned to make a meaningful impact on improving outcomes in several chronic diseases. And you're familiar with what diseases we're focused on, conditions like peripheral vascular disease, end-stage renal disease, urological conditions and cancer. And we've been expanding our impact in those spaces, whether or not it's the acquisition of the Straub Medical business for atherectomy, which is doing very well. We're ahead of our deal model there. Our recent acquisition of TVA expands our presence in tissue reconstruction. We're just the pipeline across our interventional segment overall, which we'll talk a lot more about at our upcoming Analyst Day. Another recent launch that we had in just the last 2 weeks there is the launch of our FACSSymphony A5 SE, and that's our first BD spectral analyzer that enables researchers to do even higher cellular and analysis parameters. And of course, what they're using that for is to gain broader insights into pioneering new discoveries and treatments, primarily for cancer and other immune-related conditions, but it's a critical platform for advancing cancer therapy. So I think we just need to wrap those opening comments up, Larry. I think what all those new products illustrate is how we've been strengthening our innovation capabilities, our execution capabilities. It reinforces our ability to drive continuous innovation to deliver durable, consistent mid-single-digit topline growth through time. And you're seeing us use very actively both our organic R&D and tuck-in M&A to do that and apply innovation in a way that allows us to leverage our category leadership position across what are just many foundational areas of health care. And obviously, we're looking forward to sharing much more about that at our November 12 Analyst Meeting.

That's a great way to kick it off. Just 2 areas I wanted to focus on. One was Chris' role and how he'll approach the job differently? And then on the recovery. Hopefully, we have time to cover those. Chris, hopefully, we can hear you okay. I know we had some audio issues, but welcome and congratulations.

Yes. Thanks, Larry. Appreciate it.

I guess I wanted to hear -- I know it's a few days into the job, but you knew about the job for a while now so you've had a chance to think about it. So what -- how are you going to approach the job differently from your predecessor? And what are your first year priorities as CFO?

Yes. Thanks, again, Larry, for having me. It's a great question. Look, let me first say, I couldn't be more excited about joining the BD organization. When I think of BD, it's a great purpose-driven company that has both a deep and broad portfolio that includes leadership positions in many important areas in healthcare. And with that portfolio, along with our innovative pipeline of products and solutions, I really feel BD can help shape the delivery of healthcare and make a meaningful impact on healthcare outcomes around the world. So echoing Tom's comments, I really think we have strong momentum as we enter 2022, and we're well positioned for the future. As I sit here, I think about my priorities, obviously, it's early, as you noted. Clearly, I'm going to focus just on ensuring that there's a seamless CFO transition. I'm going to be immersing in the business in a very deep way and connecting with the talented colleagues throughout the BD organization. But as I hinted, and I just called it, broad focus areas, it's really about building on the great foundation here and continue to focus on portfolio, margin, cash flow optimization and will support our growth agenda and deliver compelling value proposition for our shareholders and other key stakeholders. So again, I know it's early, and that's kind of broad strokes, but I do look forward to engaging with the investment community, and certainly, we'll be able to share more specifics around each of those areas in November as part of our year-end earnings and at our Investor Day.

[indiscernible] on board and well, it's day 4, probably, by day 14, we'll have this planned now.

Looking forward to it. Nice to see you again, Chris. So Tom, and I wanted to -- kind of related question to the CFO, then I've gotten a lot random question here. But on the $12 floor for next year that people -- that predated Chris joining. So I have gotten that question from a lot of investors, kind of, is the new CFO going to reevaluate that? Is it -- did he -- is it -- is the $12 floor still intact?

The floor is the floor, and it is absolutely intact. So we feel, yes, confident as well.

And I'd love to hear, Tom, from you, any color on the recovery. During the pandemic, you've been very helpful giving us even qualitatively kind of what you're seeing and how that compares to what you assumed on the Q3 call. You didn't -- you gave some specific color that you didn't expect widespread hospital restrictions on elective procedures. The question really is that investors are asking all the companies, not just you, obviously, how is it playing out relative to your expectations?

Sure. Thank you. Good question, Larry. And obviously, as you know, we've got some pretty unique access to admins -- hospital admission data as well as procedural volume data and just a pretty broad view of the market, given our footprint. And so as we prepared our guidance ranges for fiscal Q4, we contemplated an impact from the Delta variance on elective procedures. And at that time, we were seeing an impact in some U.S. states, and we expected that there would be an impact that would continue, and we assume that it could potentially broaden. And in fact, since then, we've continued to see the Delta variant impact elective surgeries in some areas, but this was already contemplated in our guidance. So I just leave it at that. No surprise.

Okay. Any -- can I push you a little bit more? Anything, any trends you can share, any quantitative, any impact on procedures that you're able to share with us today? I know during the pandemic, in the second quarter, you gave some specific numbers.

Yes. We had mentioned at the time, and I think given the timing of our earnings call, we were maybe just right in the middle and getting an early view of where Delta was heading in terms of impact and procedure volumes. At that time, of our earnings call, I think we had shared -- we had documented about 16 major health systems, primarily in the South who had adjusted their procedure volume schedule. And so we've seen not only many of those institutions continue to have that impact in the South, but in some cases, it broadened. Again, we had assumed that within our Q4 outlook that we had provided, so there's no real change from that dynamic, and we are continuing to see some hospitals and it varies, right? It will pop up in one area, get better in another, and so that dynamic is certainly not over. I'd say, the other thing that we certainly do see is testing. We are seeing some increased level of testing, not certainly back to the peak that we saw in the first half of our fiscal year, but certainly, the Delta variant is increasing testing. And we do remain -- this is a question we've had in the past, we do remain confident in our $1.8 billion to $1.9 billion guidance range for COVID testing this year. Certainly, the increase only reinforces our confidence in that number. I'd say, the other thing that we're seeing is some early strong demand for our Veritor combination COVID-flu test. Flu season, it's normally a little early to start seeing demand for flu tests, but we're seeing pretty solid demand right now for the flu-COVID combo test. And of course, that's a pretty unique new technology that we developed and launched. We're excited about that, and we're getting really great feedback from our customers.

All right. Well, unfortunately, we're out of time. I really apologize about the technical glitch. Really appreciate you guys being here. And Chris, wish you the best in the new role.

Thanks, Larry. Appreciate it. Looking forward to [ be around ].

Thanks. We'll have the one-on-ones later today. Thanks.

Thanks.