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

Good afternoon. Welcome back. I'm Robbie Marcus, med tech analyst at JPMorgan. Very happy to introduce our next company, Becton, Dickinson. We're going to start with a presentation by Tom Polen, the CEO; and then where we're going to bring in new CFO, Chris DelOrefice, for some question and answer afterwards. But Tom, I'll turn it over to you and join you in a little bit.

Okay. Thank you. And as always, it's a pleasure to be here, Robbie. Today, I'm going to cover several topics that we discussed in depth at our recent Investor Day, including BD's strategy, our meaningful progress and how we're very well positioned to deliver on our longer-term targets and drive value for all stakeholders now and consistently over the years ahead. Go to Slide 2. Before I get started, I want to remind you that I will be making some forward-looking statements today. As such, I encourage you to read the disclaimer in today's presentation slides and disclosures in our SEC filings, which are both available on the Investor Relations website. So with that, let's turn to Slide 3 and today's presentation. So to recap, some important facts and figures. We make over 45 billion devices every year, and we serve patients in more than 190 countries. We touch more patients than any other med tech company in the world. We're the leader in nearly every major category we serve, and we have established those positions through impactful innovation, world-class manufacturing, quality and global scale. The combination of our diverse geographies and businesses with our expansive engine is a unique strength, and it's a source of durable performance. And thanks to teams around the world who are focused on executing our strategy, BD had a strong year. Strong revenue growth in each segment in FY '21, strong growth in cash flow and cash conversion and early progress in increasing margins are all testaments to the innovation, impact and execution excellence we're driving across our businesses. In FY '21, we strengthened our strategic position and also played a central role in addressing COVID-19. And given the current events, I'd be remiss not to provide some perspective on the Omicron variant. First, BD is uniquely positioned to deliver strong performance during these uncertain times. As new variants have emerged, we've adapted and continued to support the global health care community from products that are essential to patient care, to vaccination devices, to antigen and PCR testing. We've also witnessed a global health care system that's more agile and better prepared as each new variant emerges. Vaccination rates continue to rise, along with testing. And the slowdown of elective procedures, generally speaking, we've seen has improved compared to prior waves. Now with that said, we are aware of some pressures today related to staffing constraints that are impacting the delivery of some elective procedures. For BD specifically, our professional and at-home tests are in higher demand relative to previously communicated guidance. Demand for vaccination devices is generally as we expected, and the continued or indeed enhanced ability of our customers to sustain a solid base of elective procedures has been evident, thus far, in this recent Omicron wave. As a reminder, as we also noted in our Q4 results, antigen test pricing, while it's in line with our expectations, is much lower than when testing for its launch. And there's now over 40 rapid antigen tests with EUAs in the U.S. market, most of those being visually read. In summary, the pandemic remains a fluid situation that we're closely monitoring, including supply chain pressures. However, we're executing well against our plan, and we remain well positioned to deliver on our strategy through this environment. We're going to provide more robust update in early February when we report our Q1 results. But in the meantime, we remain focused on execution, and we're very pleased with our progress in both our core business and COVID testing through our first fiscal quarter. Let's go to Slide 4. As we've discussed, we built our BD 2025 strategy around 3 pillars: grow, simplify and empower. And we have specific programs to catalyze each element of our strategy, from our organic and inorganic product pipelines to how we work with our customers, to how we deliver efficiencies and margin expansion and how we engage with the world around us. Go to Slide 5. We launched BD 2025 in early 2020. And at our Investor Day recently, we shared an in-depth view of the progress we've made and the actions we've taken to create recurring and long-term value for shareholders. First, we strengthened our long-term targeted growth profile to 5.5% plus after a series of bold decisions and actions we made to accelerate our 2025 strategy. And this includes us taking actions such as increasing our organic innovation, geographic expansion and tuck-in M&A to drive growth. We also took actions to optimize our portfolio. And we announced the spin-off of our Diabetes Care business so that we can focus even more on innovations that will have the greatest impact on our strategy. Second, these actions fueled our ability to reshape our innovation pipeline, both organically and inorganically through tuck-in M&A. And we have been, and continue to be, very consciously allocating our investments into areas with higher growth profiles and higher margins, and I'll talk a bit more about that later on. Third, we made significant progress and expanded our simplification programs, which supports improving gross and operating margins and a double-digit long-term target EPS growth profile. Fourth, through our disciplined capital deployment strategy, we're driving very strong cash flow, and that's enabling investment into our business and capital return to shareholders. And lastly, our strong global team is hyper-focused on executing these plans, and we've been continuing to do exactly that since our last update at Investor Day. Let's go to Slide 6. We're focused on delivering a new wave of long-term growth built upon 2 axes. The first is our durable core. The second is transformative solutions. And we consider each in a unique way to optimize performance. Our durable core represents about 80% of our revenues today, and it's comprised of the products and solutions that form the backbone of health care around the world. It includes market-leading products like Vacutainer tubes, catheters, syringes, acute care pumps, IV sets and hernia mesh, just to name a few. We're the leader in nearly every major category we serve, with about 85% recurring revenue in our core. And this creates a very stable and resilient business that delivers reliable, consistent growth. We're also increasingly impactful to our customers due to our core innovations that we're continually bringing to market. They have an impact on health care. They expand our leadership positions. And they often redefine the basis of competition in each of our markets that we lead in. We also continue to invest in our best-in-class manufacturing and distribution capabilities, which allows us to deliver products at low cost in more than 190 countries around the world. That's a source of meaningful competitive advantage. Also fueling growth in our durable core are our broad and unrivaled digital capabilities, reflected by more than 2 million BD smart devices on the market today. And investing in these capabilities and a focused innovation pipeline, we believe that we can grow our total addressable market for our durable core from $45 billion in '21 to $60 billion in FY '25, with our WAMGR also growing over the same period, and we expect BD to consistently outperform that market growth. Let's go to Slide 7. Virtually everything I described that makes up our durable core was formed from BD identifying new forces with the potential to reshape and transform health care. And in each of these moments, ultimately, we catalyze new ways of growth over the course of our 125-year history, whether that was BD creating the whole category of disposable medical devices or innovating TB and HIV diagnostics, health care worker safety or, more recently, end-to-end medication management. Today, we see that the future of health care is changing again. And I see 3 irreversible forces that are going to shape health care in new ways and that we're investing behind. The first is smart connected care, in which AI informatics and robotics will transform health care processes, tools and treatments in new ways. The second is the shift to new care settings. We see care increasingly moving to surgery centers, ambulatory centers, retail clinics all the way into the home. And that's creating significant opportunities for us to reinvent solutions that are going to improve patient outcomes in those settings while lowering costs. And this force is only accelerating during COVID. The third area is improving chronic disease outcomes. I think you've all known BD as tackling infectious disease throughout our history, and we're going to continue to do so. And while improving chronic disease has traditionally fallen more to the pharma industry and treatment through medications, we believe that we're entering an era of technology innovation that's going to allow us to step up in a meaningful way to impact chronic disease treatment more than ever before. That's, of course, also been enabled through the Bard acquisition. And these 3 trends I just went through create tremendous opportunity for innovation. And they're going to be the catalysts for the ability of health systems to deliver better outcomes for the next 10 years. And BD is right at the center of these trends. We're uniquely positioned to make an impact. And you're beginning to see that now and where we're investing in our new product pipeline. You're seeing it in where we're investing in M&A, and you're beginning to see it already in our growth rate. And we're poised to continue to deliver transformative solutions as we lean in to shape the future of health care and help us grow faster in the years ahead. Slide 8. So if we look at transformative solutions, they already represent about $4 billion or 20% of our revenues today, growing at high single digits. The performance of our durable core, it fuels our investments in transformative solutions, which are the breakthrough advances in those higher-growth spaces that are aligned with the irreversible forces that we believe are transforming the future of health care and that we're targeting with our organic R&D and our inorganic M&A investments. Take smart connected care, for example. We're focused in categories that are growing nearly twice as fast as our durable core. And we're leveraging our technical know-how to make smart devices, increase automation and informatics in laboratories. And we're developing ever more connected medication management solutions. And this automation and smart technology is particularly suited to help address the real shortage of health care workers that's accelerating interest in these types of solutions. If you look at new care settings that we're enabling, we're focused on fast-growing categories where we're working on addressing areas like blood collection and diagnostics in the point-of-care, non-acute medication management, self-administered drug delivery and the home incontinence market. And in chronic disease outcomes, again, we're focused on categories that are well-accretive to BD's core growth. And we're developing new solutions for chronic conditions like peripheral vascular disease and stage kidney disease, while innovating in the tissue regeneration and reconstruction space and molecular diagnostics. We believe the opportunities we're pursuing here will expand our total addressable market within transformative solutions from $15 billion in FY '21 to $25 billion in FY '25 in markets growing in the high single digits. And these markets are ones that we have the right to win in. BD's capabilities make us the clear choice to lead in these spaces and transform the future, and we're executing exactly on that opportunity. So let's go to Slide 9. Now that I've explained our vision for growth, I want to talk about how we're executing this shift. R&D continues to be a key enabler of growth. And we've been very focused on increasing our R&D productivity, and it's paying off. Not only have we increased our R&D investments to competitive levels in the past year, we've rebalanced our portfolio, and we've shifted that to higher growth opportunities. Today, about 60% of our new product development is focused on markets growing in excess of 6%. Our portfolio is balanced to ensure continued strong growth in our durable core that also includes a number of high-growth opportunities, while increasing the mix towards even higher growth transformative solutions. And as a result, we expect the net incremental revenue from new products to more than double by FY '25, supporting strong future growth. Let's go to Slide 10. So to reshape our portfolio, we're absolutely have reallocated our organic investments. We've raised those investments, and we're making great product -- progress on our productivity. But we're also driving our tuck-in M&A strategy to a new level, and that's never been more evident than over the past 2 years, with 16 transactions closed since the beginning of FY '20. We're building a strong track record in identifying and executing deals and then integrating those new products and businesses into our portfolio. Some of our tuck-in acquisitions reinforce our durable core like Velano Vascular, which is driving a one-stick hospital stay vision, which customers are extremely excited about; and ZebraSci, which allows us to support smaller biopharma companies, not just with our devices, but also with their broader registration and clearance efforts. And these acquisitions are doing very well. But since FY '20, about 80% of the capital we've deployed towards M&A has been in transformative solutions and advancing the 3 innovation themes I discussed earlier. So examples include GSL Solutions, which brings smart connected devices to better manage medications in the retail setting. Or our recent Scanwell acquisition that we announced this past quarter, which advances our focus on enabling new care settings and accelerates smart connected care through smartphone-enabled at-home diagnostic tests, like the BD Veritor At-Home COVID-19 Test. Or our Straub Medical or another acquisition we recently announced in Q1 then closed, which helped improve chronic disease outcomes in patients with vascular disease. We have a track record of organically growing what we buy in a meaningful way. And this is possible. As many of the acquisitions we completed had little to no revenue at the time that we acquired them over the last 2 years. In FY '21, revenue contributions from deals closed in FY '20 and '21 was approximately $100 million. And we expect the revenue from these same deals to organically grow 2x in FY '22. A great example of organically growing what we buy, leveraging the capabilities of BD. Let's go to Slide 11. So how does all of this translate to our targeted growth? First, we have a reliable growth profile, with a significant percentage of our sales derived from leadership positions in categories with attractive growth rates that we believe will expand the WAMGR of our durable core from about 4% to 4.5 -- 4.4% in FY '25. We expect to continue delivering above-market performance in our durable core by focusing our investments on extending category leadership and geographic expansion. Additionally, we've strengthened our growth profile as we've purposely shifted our strategy investment mix into higher-growth, higher-margin opportunities. And by FY '25, we expect the transformative solutions will be more than 25% of our revenue with a very strong WAMGR. It's about 2x that of our durable core. And based on our progress in this strategy, we recently raised our long-term growth target to 5.5% plus. And we see this growth profile not only accelerating but derisked, given the strong leadership positions we hold and our focus on portfolio management, including tuck-in acquisition opportunities. We go to Slide 12. Our BD 2025 strategy is also driving significant margin expansion. And it's also margin expansion is a new element that we added to our performance incentive plan this year. We're targeting about 400 basis points of adjusted operating margin expansion through FY '25 versus our FY '21 margin base. More specifically, we expect to exceed pre-pandemic margin levels in FY '24. This margin expansion through FY '25 will be enabled by the following key drivers. First, we expect Project Recode to drive $300 million in cumulative savings by year-end 2024. We're going to capitalize on our scale. And with our growth profile, we're actively leveraging our resource base in all functional areas, and we continue to drive annual cost improvement initiatives. We've also initiated enhanced programs to offset inflationary pressures and deliver on our margin goals, and those are going well. And finally, as you know, our profit profile was impacted by the Alaris ship-hold. And as we realize deleveraging of manufacturing and service and field resources that were strategically important to maintain, we'll see those reverse as Alaris ultimately returns to market. We expect that these will contribute to delivering a strong margin profile and supporting double-digit EPS growth through FY '25. As it relates to the planned spin-off of our diabetes business, now called embecta, everyone saw that our Form 10 was filed with the SEC in December. And while restated financials for RemainCo will not be made public until the completion of the spin-off, let me just provide a few reminders. First, given the higher but declining margin profile of embecta, one should expect BD margins to be lower after they're restated. However, off of the restated '21 financials, we're still targeting 400 basis points of base margin, operating margin expansion through FY '25. Further, we expect that the spin-off will not have an impact on the long-term growth targets we laid out at Investor Day, but instead, we expect them to enhance both our growth and our earnings profile and create an opportunity for additional shareholder value. Let's go to Slide 13. Our strong cash flow profile and balance sheet will continue to be important enablers of the growth strategy and long-term value creation that I just outlined. We strengthened our free cash flow conversion in the past 2 years, averaging about 90%. And while this can fluctuate some year-to-year, we expect to maintain that free cash flow conversion of around 90%. Our capital allocation priorities and approach can be categorized in 4 main buckets. We're going to continue to invest in organic growth, with an emphasis of investing in R&D at competitive levels of about 6% of sales. After we invest in R&D, we expect to have about $18 billion of cash to invest through 2025. We expect to deploy capital expenditures efficiently at about $1 billion a year to acquire key technology and capacity-building assets to support growth. We intend to continue our very long and reliable track record of increasing our dividend each year and maintain a competitive payout ratio. After investing organically and returning value in the form of dividends, there's going to be enough capital to support both tuck-in acquisitions and share repurchases, which, on average, is about $2 billion in cash available annually. Consistent with what we've shared, we don't expect to execute transformational acquisitions. However, given our balance sheet strength and cash flow profile, we could consider, and would consider, digesting something over $2 billion that's highly aligned with our BD 2025 strategy. We expect share repurchases to also be a consistent part of our value proposition going forward. And you saw us resume that program last year, the first time in 7 years. At a minimum, going forward, we expect to buy shares to offset dilution from share-based comp each year. However, the amount will be influenced by the acquisition pipeline. This capital allocation approach allows for consistent and compelling value creation. Let's go to Slide 14. You've just heard me talk about our purpose. This extends beyond the 45 billion products we produce. Our company's impact on human health, communities and the planet sits at the forefront of every decision we make. We're a purpose-driven organization with global health impact and ESG is not new to us. It's central to our identity as a good corporate citizen. And we're very pleased to have been recently named to Wall Street Journal's 250 Top Managed Companies list, including being in the top 10 of all companies across all industries for advancing the UN Sustainable Development Goals. We're also pleased that today, we were just named among the top 100 Overall Companies on the JUST 100, and we're among the top 3 in our industry. Let's go to Slide 15. In summary, BD is well positioned to create long-term value. Our reliable and strengthened growth profile is supported by a strong core with leadership positions in key categories that will be enhanced by an innovation pipeline and tuck-in M&A strategy that's balanced. But it's very purposely indexed towards higher growth areas, and we're executing that well. Additionally, we have clear simplification programs that are also progressing well, and they're a key part of delivering on our expanded operating margin goals. We're committed to strong cash flow generation and maintaining a disciplined capital deployment strategy, all of which support a compelling financial profile. And through FY '25, in summary, we're targeting base revenue growth of 5.5% or higher, double-digit EPS growth and strong cash flows enabled by solid revenue growth, expanding operating margins and continued focus on optimizing our cash conversion. These factors support a strong balance sheet, and they provide us with the flexibility to deploy capital against value-creating opportunities at a level that we haven't been able to in recent years. All of this again reinforces a compelling value proposition for our shareholders. BD's future is very bright, and our opportunity to make an impact has never been greater. And this isn't theoretical. It's not overly ambitious. This is happening right now. So thank you for the opportunity to speak with you today. I look forward to providing further details on our progress on our February 3 earnings call. Robbie, Chris and I look forward to taking your questions. And I think Chris will turn on his camera now and look forward to our discussion.

Thanks, Tom, and welcome, Chris. A couple of questions for you, and maybe we could kick it off. You had the Analyst Day in November, and you gave your new long-range plan with the top line outlook of 5.5% plus through fiscal year '25. This came in a little bit above where BD had been growing in the past few years. So maybe just walk us through quickly the thought process behind setting this target, the key drivers that will help you get there. And is this a high conviction growth profile that you have clear line of sight to?

So Chris?

Yes, sure. Thanks, Robbie, for the question. I'll certainly build on what Tom shared a lot. I think it's important to note, too, that a lot of the work here that gives us confidence in this growth profile has been put into place since 2020, and we are confident, to your point. Not only are we confident, but we see this as a reliable growth profile. As a matter of fact, if you recall, in 2021, for the full year, our base growth was just over 8%. And that wasn't just recovery, right? We're -- if you actually look at it versus kind of pre-COVID growth rates, we were just under 5%, more like 4.5%. That does include the onetime impact of the Alaris ship-hold. If you actually adjust for that, our base business is growing nearly 7%, like 6.8%. So we're building on a position of strength as we go through this time frame of 2025. Tom talked a lot about the mechanisms. There's a handful of things that we're doing that give us confidence. So one is the increased level in organic investment, in particular, in R&D. Not only that, though, it's not about putting more fuel into the process. It's actually about enhancing productivity. You're seeing our productivity levels improve significantly. We talked about the incremental revenue coming from those R&D investments more than doubling through that 2025 time period. And we're also positioning our portfolio to higher-growth spaces. So many of these projects have high single-digit growth or double-digit growth opportunities, which we're very excited about. Again, if you also just talk about the resilient aspect of our portfolio, Tom talked about the durable core. We have about a mid-4% growth opportunity there when you look at the markets we participate in. So that would be our WAMGRs. As you know, we're leading positions within those -- in those areas. These are areas that are essential to health care, products that are used every day, it lends itself nicely to 2 things. One, that's a nice growth profile. BD is in a leadership position actually outpacing those market levels. And in addition to that, it provides the resiliency that you've seen through this COVID time frame, where we've been one of the top performers during these uncertain times. In addition to that, both through our organic portfolio and the capacity we have from a capital allocation standpoint now, we're shifting more investments towards these transformative solutions that are high single-digit growth opportunities of around 8%. Our portfolio mix is going to shift more to that. We're going to move from 20% transformative solutions in our portfolio today to roughly 25%. And again, underlying all of that is the work that we've done as it relates to focus on cash flow. Our capital allocation profile now lends itself nicely with a strong balance sheet. We have nearly -- we'll have on an annual basis up to about $2 billion that we could deploy to support supplement growth through inorganic opportunities in those high-growth spaces, in addition to other value-creating levers. I do think it's important to note, Tom talked about the inorganic tuck-in opportunities. We're not buying growth. So that growth profile is not about the onetime lift that you get from bringing assets in. Many of these things are either pre-revenue or very early in their revenue cycle. And it's really about taking the scale and capability of BD and growing those assets. So when we talk about an enhanced growth profile from inorganic opportunities, it's actually on a pro forma basis. So we're not buying growth. We're actually growing these assets. So I think just our core alone gives us confidence in that kind of 5.5% mid-single-digit level. And then we're excited about the plus opportunity when you think about the shift towards transformative solutions, what we can do in terms of augmenting our portfolio, both organically, inorganically. And again, the inorganic aspect is not about the onetime benefit. It's really about seeking assets in these transformative solutions that are high-growth opportunities.

Let me just add the other item that kind of adds to that plus. We view M&A as part of the 5.5%, the plus of the 5.5%. We only need to hit the 5.5%. And then the same thing on the diabetes spin. When that occurs, that only strengthens that growth profile. And we've talked historically that, that adds about 30 basis points to BD RemainCo as we think about that. That just further strengthens that growth profile as we look forward. .

So Tom, you've done a lot of little deals over the past few years. If I think back to Becton, let's say, like, 3, 4 years ago, right after the Bard deal, I feel like the commentary was we now have a platform. There's so many ways we can win in the hospital. We're going to keep adding and adding and adding. Why do you think we haven't seen a little more meaningful acquisition contribution over the past few years? You've done like you've done a lot of little ones, but I don't think much of that shows up in the revenue that we could at least see.

I think you see that -- I don't think that's true, Robbie. I think you've seen us raise our outlook for growth -- consistent growth as we've been evolving our portfolio. Again, we didn't buy -- you're going to see these things come to fruition. You're seeing them this year as we're doubling, going from $100 million to $200 million plus of revenue on those acquisitions that we did. We talked at our Analyst Day that we bought those at a significant discount to the normal multiples that are paid. If you think about that, that's maybe 6x, 5 to 6x of revenue we paid for those versus, let's say, 8 to 9 or so in the industry. So from a shareholder value creation perspective, that's significant value creation that we're getting by leveraging large global footprints, meaningful capabilities and scaling up manufacturing, aligned with areas that make a lot of sense for us to win in the long term. The other thing is we've acquired platforms in a number of situations. So you can probably tell in our background, Chris and I are not sitting in New Jersey right now. We're in San Diego, where we're meeting with the MMS team, but we're meeting with the point-of-care team as well. So we bought Scanwell, as an example. That's a platform that we just acquired that will be expanding menu into the home. Or think about Straub Medical, a platform for atherectomy that we're now launching thrombectomy devices on the back of. And that's a launch later on this year, which will be a great growth opportunity for us. And so I view this as part of our durable, consistent growth model that we've been building here at BD, and you're going to see it continue to pay off. As you saw revenue accelerating last year, we'll continue to -- we expect, aligned with our guidance, strong growth this year and being able to consistently do that on an ongoing basis. That's where we're focused on, on building and have been building. We'll look at larger ones that -- not transformational ones, but ones that could be up to $2 billion or even over $2 billion if they're the right acquisitions.

Yes. I mean, just real quick, Robbie. I think, to Tom's point, one, I think BD was going through a period of time when we entered COVID, some uncertainty, there was a lot of focus on cash flow, balance sheet, getting net leverage to a position that affords us the ability to consistently deploy capital in a value-creating manner. I think the other positive thing about BD is we have large leadership positions in many key areas in health care, right? So we don't need to go out and bolt on to drive that growth profile. These smaller tuck-ins are actually a nice complement to the portfolio that we can drive really efficiently. So I think that's a core part of our strategy. With that said, we're always looking, and we're going to remain disciplined about it. And as Tom noted, I think given the position we are, both from a net leverage standpoint, the cash generation, certainly, if there's a value-creating opportunity that complements our strategy, we have the capacity to execute against that.

Got it. So let's take the discussion down to the bottom line and margins. And while you've done a pretty good job over the past few years, consistently delivering on the top line, I think of late, it's been more a discussion on margins and where those have gone throughout COVID. So the new LRP calls for about 400 basis points of operating margin expansion through fiscal '25, driving double-digit EPS growth, with a good chunk of that coming upfront. So maybe walk us through some of the different levers you have to drive 400 basis points of margin expansion. And again, same sort of question, what's your line of sight to getting there? And how much has to happen to achieve that?

Yes. It's a good question. So to your point, well, let's start with 2022. To get to the 400 basis points, we talked about 200 basis points improvement in '22. The nice thing that you should feel good about when you think about profile is there's about 150 basis points of that, that is largely identified with the largest portion of that 150 basis points directly attributable to volume that we're driving. So that strong growth profile that we just spent time on, we've actually moved from everyone that went through COVID was impacted by underutilization and negative volume variances and putting some pressure on the P&L. Through 2021, we actually flipped to a positive business, a strong growth profile and continuing to drive that into '22. So we view our growth profile as very strong derisked as we talked about. And so much of that improvement is coming through volume, which should give you confidence in 2022. There was another 50 basis points that we assumed would be delivered as we would typically do in any year through cost improvement, mix dynamics. Again, going back to that growth profile, we actually have the luxury of ensuring that our portfolio is positioned to the higher-margin areas. The other piece in that 50 basis points is the normal cost improvement. You would expect looking at indirect costs, plant optimization, et cetera. With that said, we know this year that we're navigating inflationary pressures, so we were ahead of this. I mean, when I first joined, the BD organization was already well progressing towards identifying multiple actions across all areas through the P&L, whether it be procurement optimization, sourcing opportunities, how do we optimize our transportation modes and optimize price as it relates to some of the transportation. We talked about what we're doing on pricing front. I think it's important to note that the BD brings significant value to our customers. We have a very efficient manufacturing organization, high quality, and so we value that. And we need to make sure that some of these inflationary pressures are directly related to just the resin cost increase, as an example. And so we have strong plans in place. When I talked in November, we talked about -- we basically had line of sight at that time to essentially up to 90% of what was needed to both mitigate the inflationary pressures that we were anticipating and deliver that 50 basis points. And over half of that was already banked and flowing -- starting to flow through the P&L. So we continue to watch the situation closely. Obviously, we further advanced that since November without getting into specifics, but we remain confident in that profile. And then longer term, to your point, there's about another 200 basis points there. One, again, the continued strength and growth will be a key element of that on 3 fronts: one, the utilization from a GP standpoint; two, the mix dynamic; three, naturally leveraging below GP to get to operating margin. We also have -- we've built some new muscle here, navigating the inflation environment and driving continued cost improvement. And you'll see the continued benefit of price actions flow through the P&L. And then probably the last big one was the deleveraging we experienced from the Alaris ship-hold, that through that time horizon, you would expect to naturally leverage back up in a positive manner. So I think we actually have a balanced plan. A lot of it is hinged on growth. And a lot of it is driven by actions we've already put in the way, so it gives us a lot of confidence looking ahead.

Great. We've got about one minute left. I want to sneak one more question. And Tom, you talked about stronger-than-expected at-home COVID testing sales in the quarter, which all of us who have probably bought a lot of them are not surprised to hear. Any way you could frame the outperformance in the quarter? .

So I don't think anything beyond the comments that we made. We look forward to our February earnings call and update on our outlook for COVID testing. But I think as the comments that I said, certainly, we're exceeding our guidance, kind of, early commentary that we had made before the $200 million for the year that the Omni virus has boosted up demand. Of course, at what pace Omni ends up trailing off, what it looks like in the back half of the year is still unknown. As a reminder, we had about $200 million, exactly $100 million in COVID-only testing in our outlook for '22. We also had an additional $75 million to $80 million of COVID-flu combination tests in there. We are seeing uptake of flu-COVID at this point as flu is happening in many parts of the world, and specifically in the U.S. where we focus sales of that product. But the flu season is also still to come, and it's largely ahead of us as we look deeper into January and February and even into March. And so we'll continue to be prudent in our outlook on that, but we'll provide absolutely an update on our February call there. But it is certainly running ahead of our expectations.

All right. I guess I'll just have to wait till then. Tom, Chris, thanks so much for joining. We're out of time, unfortunately, but I hope you have a great rest of your day.

Okay. Thank you, Robbie.

Robbie, appreciate it.

Thanks again.

Take care, everyone.