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

We're ready to get going here. All right. Welcome, everybody. Amit Hazan, medical technology analyst at Goldman. And this is the final day of the Goldman Healthcare Conference. And here to take us home, so to speak, is Becton Dickinson. Really excited for this conversation. We have both Chris DelOrefice, the Chief Financial Officer, here with us today. And we've got Simon Campion, who is the, technically, Executive Vice President of Interventional, but as of last week, EVP of Medical as well. So congrats on that role.

Thank you.

We can get into that as well. But -- welcome to you. And it's been an exciting week, to say the least, as you might imagine. Some of the conversations have focused on the macro stuff going on. We can't avoid it. And I think here, too, maybe we start with that, just for kind of, if nothing else, get it out of the way. But just to get your reaction. And you guys are always very good about this. You've got really good data, not only on just your business, but just overall hospital admissions and what you see. You've got -- you've shared that with us publicly in the past. So maybe let's just start there and have you just talked to us a little bit about the health of the -- especially U.S. health care system, but you can take us around in terms of just admissions, volumes and what you guys see.

Yes. Perfect. Well, thanks. Thanks for having us. Terrific to be here. Thanks for those that are hanging in there for the last day of the conference. Look forward to the dialogue here. Let me start a little bit with BD kind of just macro, where we're coming from, because I think it's important that it will feed into that. I mean, one, I do think as we navigate this macro environment, it is important for all of us that are in health care, in some form or fashion, to remember that it still is a very healthy market. Demand is there, and Simon can certainly bring it to life as it relates to what we're seeing on the interventional side. But utilization is largely in line with pre-COVID levels. So I don't think there's anything there. As it relates to BD, hopefully, what you've seen as we've outlined a very clear strategy through 2025, I think there's some unique things just to note, and it's reflected in our performance to date and our full year guide. One is we're very focused on an enhanced growth profile. So I think BD, in the past, has always been known for this durable growth profile, very resilient. That is still absolutely there and is strong. Again, we have products that touched 90% of patients that are in the hospital that are used every day. And so you're seeing strong performance in what we call our durable core. With that said, we've been on a journey of enhancing our growth profile to get to this kind of 5.5%-plus. Our first half performance, we were actually 9% growth. Granted, there were some onetime things like COVID that benefited, but even if you strip out all of that, we're well above that 5.5% growth profile. I would say, where we talked about being more like 6% to 7% growth, it's driven by increased R&D levels, increased focus on portfolio productivity. We're executing against our capital allocation strategy, which I know we can talk about more later. And importantly, our capital allocation strategy, as it relates to acquisitions, it's not about buying the onetime lift that comes with sales, it's truly about the organic lift we get from growing these assets. So actually, our growth rate benefited by about 30 basis points from deals that we've cycled over kind of a 12-month anniversary. So we feel really well-positioned from growth and the work we've done from a cash flow standpoint to enable the capital allocation, start doing a lot of deals. We've done 17 deals. And then when you think of the macro landscape tied into our commitment around margins, right, we embarked on a goal of operating margin improvement of 200 basis points at the start of the year after the embecta spin. If you recast that, it actually translates to about 250 basis points. We're well on track as it relates to margins. So 2 important points. We're very focused on execution and delivering against that. I think, equally important, we've been very proactive as it relates to getting ahead of the macro environment that you alluded to. And we're benefiting from that. So we have not changed that goal, right, despite the macro pressures that are coming through. We're well on track. As a matter of fact, we really enhanced our guidance throughout the year, right? Our most recent change, we increased our organic growth rate by 100 basis points, and we're holding all of our margin goals. so I think BD is really well-positioned. And maybe Simon can just share a little bit as it relates to the utilization that's kind of underlying that.

Sure.

Yes. So obviously, at the end of our Q2, we communicated about some softness in the U.S. due to Omicron. I think that has largely passed at this point. We track ADS on our businesses every month. And the question we're often asked is, how does it compare to pre-COVID levels? And with the exception of some of the more recent months, it localized. It has been sustainably at or above pre-COVID level. So we see sustained demand for certain of the interventional products domestically and around the world, notwithstanding some localized surges in COVID. So we're pretty comfortable with where that is right now. And then just to build on one of the comments Chris made about acquisitions and accelerated growth. That has long been one of the cornerstones of interventional and its predecessor, Bard, to take an acquisition and then incrementally iterate and build off it and drive new product development and pull-through as well with other technologies. So it's working all around right now.

Yes. Well, those are really helpful introductory remarks. We're going to get into a lot of that. Let's stick with the macro for a little bit longer, just to get through it, and talk a little bit about manufacturing and supply chain. Been a big topic this week, again, as you might imagine. Let's start with just a high-level update. I mean, you guys talked about it on the last call, facing some new pressures. What's the latest from you on supply chain, generally?

Yes. So. Let me weave in our margin goals because I think that's important, too, right? So we talked about the 250 basis points of margin. About half of that, when we started the year, was actually driven by volume utilization. Given our strong growth profile, we're doing really well there. There was another 50 basis points that was really more FX that we had planned for that was carried over. We're also delivering against that. So that left about 50 basis points of additional improvement that was essentially cost improvement programs, net of inflation. And to your point, as you can imagine that inflation bucket has increased. So inflation pressure started at the back of our fiscal year last year, have progressed through the year and have accelerated. We're well on track against that goal. I mean if you think of the BD profile, I guess, the areas that most impacted us, about a little over 35% of our COGS is raw materials and about 25% of that is resin. So resin was one. Transportation was another key area that's affecting everyone. Actually, these macro pressures are affecting everyone. Labor is probably the other area in pockets, depending on your footprint. But we have really good line of sight. I mean, we've been very focused on being proactive in many fronts. So as we think of the balance of the year to achieve the 250 basis points, what you're going to see is a few things. One, we did talk about our absolute operating margin stepping down and being kind of a low watermark from Q2 to Q3. So on a sequential basis. With that said, you have to remember last year was also very low. We actually have an increase in the amount of margin improvement quarter-over-quarter. And I'll talk about some of the initiatives and what we're doing there. And then in Q4, that further steps up. So you get a dynamic of, just if you think of it sequentially, Q2, you have low watermark, it steps down to Q3, and then Q4, you actually step up above that Q2 level. All this restated for embecta, of course, now, just to kind of keep it simple. And you do actually see outsized margin improvement year-over-year through the back half of the year. So some of the things we're doing is, one, I will emphasize the strong growth profile. It's given a lot of latitude to accelerate initiatives like Project RECODE, where we're simplifying our portfolio, driving strong portfolio mix. That's one. Two is, you've seen us take some pricing actions, relatively modest in the grand scheme of things, but I think outpacing kind of what others have done from a marketplace because we were proactively ahead of that. And we're doing that because we're actually adding capacity, and we're investing in things to ensure that we can deliver to our customers. This outsized demand, going back to the growth profile, we're investing in inventory, we're investing in transportation modes, we're investing in capacity. So it's not only an important lever as you think of inflation mitigation, but it's actually a very important lever to deliver against the high demand that we're experiencing and the customer experience. Obviously, there's continued cost containment and cost improvement. But those are some of the big things that we've been doing and feel really good and reinforce that coming out of the last quarter.

If I'm summarizing that, it feels like you're acknowledging there's a lot of pressures continuing. But at the same time, you're saying, we've been prepared for it. It's basically been in our numbers, we can handle this.

That's right. I mean, look, it's my job to sort of expect the unexpected. I think the procurement team has done an amazing job. We've established nerve centers in critical areas, whether it be chips, whether it be transportation. We've been not only focused on partnering with our Tier 1 suppliers, but really getting deep into Tier 2, Tier 3. I know we'll probably talk about China a little bit later. But even there as an example, we're using the power of BD. We have strong relationships with government agencies, et cetera, where we're actually helping our Tier 1 supplier's suppliers to ensure that they can get access to goods, et cetera. So it takes that kind of proactiveness and planning to navigate that. With that said, I'm sure what you heard throughout the week as it is impacting everyone. There's just -- it's more difficult to predict, of course, right, because you don't always know exactly where it's coming from. And you can never touch and feel everything. So I don't want to make it sound like it's a lot of work. It's a lot of team focus and proactive planning.

Okay. Okay. So just one quick note on electronic components. And maybe you can speak to that just for a second. You guys talked about backlog last quarter, and you expressed confidence in the backlog kind of filling over the balance of the year. That's been a theme this week. I'm not sure, it's been mixed in terms of what we've heard. On the electronic component part, for you, has it changed much since last quarter in terms of your ability to get what you needed?

Yes. I'll point you back to what I shared before. I mean, it is one of the areas we called out that we're actually investing in inventory. So we did see a lift in inventory. That, coupled with the proactive planning that I alluded to, we feel good. And by the way, the growth rate in Life Sciences was very strong despite that, right? So it actually gives you further confidence as you think of our growth rate in the second half. And maybe one other important point that I don't think I mentioned upfront. Part of that 1% increase that I talked about from our full year growth rate change, it was actually an acceleration of our second half growth, too, which should signal confidence despite a China shutdown, et cetera. So we're feeling really good about our underlying performance there.

Okay. Okay. Terrific. So I want to ask this question to kind of close it up on the supply chain stuff, which is, you've gone through everything that we're seeing, the chips, the inflation and all of that. That's a lot of noise that's going on now. I think we can all imagine a world where that starts to dissipate and go away. But for you guys, internally, are you making structural changes because of the environment that we've seen over the last year or 2 to your supply chain that are kind of more medium and long-term focused?

Yes. I mean there's -- so one, I think we had a lot of things underway already. If you think of -- we had already had Project RECODE, which had elements of SKU productivity and simplification, which goes a long way to -- it can help with transportation costs and throughput from your plants, all of those things. We had network optimization program. Combine those, we're going to deliver about $300 million of savings by 2024. We've accelerated a lot of that. We're also -- we have a simplified pillar within BD. And certainly, we're looking at every lever. We do have operating margin leverage as part of that. And I think, if you look again, how do you keep simplifying the business to unlock value in 3 ways: one, get more capacity out of what you have today and then leverage the growth profile; two, reinvest in new capabilities; and then certainly, three, offset headwinds and/or deliver against our financial performance. So without getting into specifics, it's fair to say that I've got a list of items that we can look at to pursue to help deliver our financial goals and navigate the puts and takes. I think the best-performing companies, typically, there's always headwinds. It's how you navigate those headwinds and make trade-offs and find those offsets.

Okay. Okay. Let's talk about pricing. This is one area where you really stood out in med tech. I think a lot of folks are now talking about it, and we'll see what they'll be able to deliver. That's all forward-looking. But for you guys, you've already started to deliver. 180 basis points is just a number that's now embedded into my brain. It's a big number from what we are used to seeing in med tech. So I think people understand, you've talked publicly enough about how you've gotten there. I think the big question for us now is, is it sustainable through the year? And then maybe even more importantly, what happens next fiscal year for you? Like if this inflation is -- sometimes I get this reaction from med tech, where people kind of in -- the companies I talked to feel like or think inflation is a 1-year phenomenon and then it goes back to how things were in the last 10, 15 years, but very much for flexibility that we're living in a world of inflation for a longer period of time. So take us through, is this an annual thing that you can now deliver if inflation is persistent into fiscal '23 for you?

Yes. So. First of all, as it relates to this year, to your point, we were very proactive with this, right? And you are seeing the 180 basis points. It was 150 year-to-date. Given the time of how we executed, right, and we executed against that, against our whole portfolio, against region, against product line, it was a very holistic approach to that. It's already showing up in our results, so it should give you confidence that, that will continue. And then, of course, there's just a carry effect into future years. So without getting, of course, in the specifics of guidance for future years, it certainly needs to be a lever in this kind of environment. But we're very thoughtful about it. Again, I'll go back to what I said a little bit. It's not the biggest thing that we're doing. We have a very efficient supply chain, where we deliver quality products to folks. And you take syringes or whatever it may be, I mean, these could cost $0.10 to the customer, right? And we have a very automated manufacturing supply chain and most of the costs are resin, in that case, as an example, right? And so when you get that kind of lift, you need to take actions. And we're owning actions on our side, too, to your point, to take lean actions, throughput enhancements, OEE, all of the above, you name it, because we have to take accountability for that. But at the same time, we are investing in our supply chain, right? So demand has gone up. We're actually producing at record levels. So when you hear in terms of backlog and supply disruption, in our case, our volumes are actually up. And we're actually absorbing and trying to meet the need of our customers at record levels of volume. And frankly, in some cases, that volume is coming from areas that aren't able to deliver reliable supply. So if we don't have -- if we don't use that as a lever, it prohibits us from making some of those investments to ensure that we can actually deliver health care for patients, for customers. So yes, you should continue to see that as a lever that we will deploy, but that will be coupled with many other things. And I'm sure we'll talk about the 2025 glide path, and I can hit on some of that.

I definitely want to hit that before the end. But it does seem -- I mean, let's keep it in perspective, too. And inflation is what, 8%, latest number. You guys are getting 180 basis points. That's exciting for us in med tech. But for you, is this kind of -- ratio is not the right word, but as you -- what I'm hearing is like it's not a bad way to think about we can extract a little bit, but we're also going to have to take a little bit ourselves.

Yes. I think that kind of framework around a fair share percent is reasonable. I think the other thing to know, right, when you think of the health care system, our price increases aren't really putting pressure in the grand scheme of things, right, the cost of those syringes, et cetera. It's the labor pressure in some of these other macro areas. And what's important is, this is where BD can actually help and collaborate and find ways to drive efficiency through our portfolio, connected care strategy, all those things. That's another thing, as we engage there, that we're focused on.

Okay. Let's just spend a second on China, and I know we want to move on to interventional, too. You guys had assumed, I think, that the restrictions would ease in May or so, and then you could mitigate the impact throughout the year. I just want to get a sense, I mean, that's another kind of thing that's out of your control. Do you feel like that's gone as you had expected?

Yes. When we shared at the time, we said, it definitely would be fluid. And calendar Q2 or our fiscal Q3, right, we expected some recovery to happen through May, not be near full in May, and kind of ramped back up through June, certainly not be at 100%, and you would see recovery of the majority of that in Q4. I think all of that relatively play down. I think it was a little bit slower start, right, based on what you saw in the news, but it wasn't materially different from that kind of glide path. And again, even if you go back, we went into our guide knowing that there is that kind of lockdown pressure coming, and yet we actually increased the growth profile over second half. So whether it be the recovery we expect in Q4 from China and/or just natural strength in our business, we feel good about our growth profile for the balance of the year.

And just given what we're seeing from China in the last couple of years with pricing, value-based purchasing, just beyond you guys, for sure, does it change the way BD thinks about China? Do you have to think about China differently because of what you've seen in the last couple of years than you might have 10 years ago?

We've already been worked on that. This is where I think Simon can amplify. The BDI business has had really strong progress there. I mean, we talked about at our Investor Day, China is about a $1.3 billion business. We expect it to grow double digits, achieve about $2 billion by that 2025. I think localization of R&D is critical, and this is where Simon can probably share some examples. We've done some M&A as well to support that. We do support kind of local manufacturing and/or supply to help all of those things. So we feel really good about that glide path and where we are. And again, this is an example where, [ the OBPs ], some of these things are always going to be there. I think there's higher value areas that they're focused on now predominantly. So we still feel really good about the China story.

Okay. Just one final quick one for you. What's hospital CapEx? What's CapEx spending for you or CapEx -- sorry, capital equipment for you as a percent of total sales? Is it meaningful?

No, it's actually -- it's a very small percent. I mean, it's probably 15% of our total portfolio. And again, I think we're -- the areas of care that we're in, if someone needs a pump, or it's less sort of flexible or discretionary when you think of decision. So that's not something we've seen. That's a major headwind by any means.

Okay. All right. Let's move to Simon. And talk a little bit, Simon, maybe we'll start with interventional and just a long-term guide and let you talk about that. You guys are looking for 6% to 7% growth through 2025. And pre-COVID, you were closer to about 6% growth in '18 and '19, had some impairments in key categories like PCPs, but we don't need to relive that. But what drives the confidence that you can get back to kind of Bard level growth here and better than you've done, so far, kind of since the acquisition?

So we're focusing on a couple of things. Number one, continuing to move our durable core from the product leadership definition that you have heard at Bard to category leadership definition here, and we got some great examples about that, that I'll share. But also, as we move into more transformative solutions, and we have examples of that today, coupled with our traditional focus on out-executing our competition in the marketplace. And we're a highly competitive group. And so we take pride in outwitting, outsmarting and outfighting our competition day to day in the marketplace. But back to the durable core and to build again off of what Chris said about acquisitions. We make acquisitions. They may be early stage in the past 4 or 5 years. We've had a ton of acquisitions at BD from early-stage technology plays that may never see the light of day, all the way through to the SPAC that you saw we invested in last year, all the way through to revenue-ready deals that you've seen with Venclose, for example. And then we incrementalize and build off those. So the Lutonix deal that Bard did, for example, we've had 18 incremental launches or label expansions on the Phasix technology that we have in hernia. We've got 12 on the PureWick technology. We expect -- we've already incrementalized it twice. We expect another 4 between now and 2025. With respect to transforming our business, the acquisition of Tepha -- and we alluded to this in -- at the Investor Day. That opens up an entirely new vista for us, which -- and the way the lens through which we look at it is, is the technology familiar to us? Is the call point familiar to us? And is the disease state familiar to us? If we can check one of those 3 boxes, then we have -- our confidence is good. Check 2, it's high, and check 3, it's exceptional. And with Phasix, we believe we can move into the breast reconstruction space in a very, very meaningful way over the coming -- towards the back end of this or/and beyond in a patient population that we feel is very, very underserved females with breast cancer. And that supports our hypothesis with respect to female incontinence that UCC is also going after. And we will -- we are working on clinical trial data. We just published our first publication on female incontinence in the past week or 2. So those couple of things drive our confidence that we will get to where we believe we rightly should be at 6% or 7%.

Okay. So I mean -- so if we kind of put some numbers behind that, new products, the way you guys talk about new products, is that you'll be able to achieve about $500 million in incremental sales by '25. That's a big number, even for you guys. You're a big company, but that's a big number. Just a little bit of an understanding how that scales. Like when you think about kind of the -- from now until then, how does that -- how does that look? I mean, is that linear? Is it -- are you waiting for -- some of these things that you mentioned, could it take a little time for you?

A lot of our stuff is what we would call singles and doubles. So there's no one home run. There are several launches every year in our businesses, some have more. Peripheral intervention typically has more launches than the others, simply because of the breadth of their portfolio: peripheral arterial disease, peripheral venous disease, oncology and biopsy, in particular and ESKD. So they have a lot of runway, a lot of green fields to play in. So it's not -- $150 million doesn't come from one single thing. It's a bunch of $20 million, $30 million launches that help us get to that number. And of course, that -- the benefit of that is it derisks our portfolio as we move forward. We're not banking on any one thing. But we do have a good mix of the $20 million or $30 million product launches, all the way through to the bigger ones, which we feel you will begin to hear more about later on over the coming years.

Okay. So let's spend just a second on DCBs because that's interesting to talk about. And you mentioned some of the things that have been going on that maybe all of us haven't paid as much attention to anymore since we don't ask the question as much as we used to. So what's your thoughts on -- where is this market today? And with all the label expansions and now that we're like a couple of years past some of the data that has come out, do you anticipate that we might go back to some of the growth rates we saw prior to that?

I think, in time, we may get there. I mean, it bottomed out, for sure, and it's shown slow but steady recovery, I would say, to a number that I would classify as meaningfully less than it used to be across all our different competitors. That's very -- that's a very U.S.-centric way of looking at it. So for example, 18 months or so ago, we launched Lutonix in Japan, and we will launch a new lens in Japan later this year. We will launch Lutonix in China, right? So there is continued opportunity to grow that business by moving it into new geographies. I think we will need an inflection of different technology in the United States to get it back to the meaningful number that it used to be. But again, to put it in context, we have several other technologies in our bag that are far greater than Lutonix ever was, even at its peak. So that's the way -- the expression we use is, we have a lot of legs in our stools. And Lutonix is a shorter leg than it used to be.

Okay. Okay. So I don't know if, Simon or Chris, you want to take the questions on medical. But I have to ask about just Alaris, maybe there's not much to say, which is great. We can just go right through it. But any update on your thinking about progress with FDA 510(k) clearance, how we should think about even sales? And hereon, we don't have to spend too much time on this.

Yes. No, I appreciate the question. I know it's important. It's certainly our top priority. I think, at this point, there's nothing new to share versus what we've shared. I mean, we are very committed and confident in the resources we've put against driving all the activity required and being very responsive with regulatory agencies, et cetera. As we shared, it's not in our current fiscal guidance. We did talk about it being part of our margin recovery through the 2025 time period, right? We actually made investments in quality and regulatory, held our sales and service organization. So as that eventually does ramp, you will get the margin leverage. With that said, the ramp typically in this kind of situation, you wouldn't expect it to be immediate. You would expect kind of a glide path up as you bring it back into the market. So nothing's changed. That's pretty much what we've shared previously.

Okay. Okay. One quick one on COVID testing, again, kind of obligatory, almost. So I think it's COVID only testing for you is at $400 million. I think the guide is $450 million. I don't know if you can give us a figure that includes a flu-COVID thing, maybe that's not important. I think the more important question, and everybody is guessing at this, but your guess is maybe a little bit better than others. So what are you thinking about how COVID testing is going to look in the next year or in the next fiscal year for you, which will include our fall?

Yes. I mean, we'll have to watch, of course, and see what happens, like are there new waves, et cetera. But what we're seeing in the market play out now, I mean, the testing has gone down significantly. We did not change our guide despite being at $400 million versus the $450 million you noted. So we expect a small kind of bleed out through the rest of the year. There's actually inventory that you've publicly heard about the retailers still have, and they're getting rid of. So we'll see. I think it will be less part of our core business. The nice thing about BD, we've never been relying on that as it relates to our base growth profile. And if anything, you just always offer this nice hedge, right? If there is some impact on elective procedures, you'd expect testing to go up. We can capitalize on that. If not, we're not dependent on that at all. So I think it will certainly be something. Our thinking right now would be it would certainly be below where it is this year, I don't know, at a significant level.

Let's spend a few minutes on the medium term.

I'm sorry, just wanted to add. I do think our focus -- just real quick. The flu combo assay is where -- we do think, as we're still navigating an environment where there's sort of respiratory illness, and is it COVID? Is it flu? We do have capability and strong performing assets there, triplex, et cetera. So I think that will be kind of the -- you'll continue to see that be more of the core, which is in our base.

That makes sense. So let's talk a little bit about medium-term numbers, just see how we can talk about it qualitatively, at least. And maybe I'm thinking fiscal '23, but we'll see where we get with the discussion. So when I think about revenues, okay, the long-term guide for you, as you mentioned, now is kind of this 5.5%-plus. And I'm wondering if that's a good starting point for us, or if there are puts and takes you'd want us to think about.

Yes. That's a good question. Obviously, it's premature to talk about '23 in any environment. This environment is even more uncertain. With that said, yes, I will anchor back to our Investor Day. And we've been consistent on reinforcing our Investor Day commitments despite the increased uncertainty. As a matter of fact, last earnings call, right, we actually increased our commitment on margin, right? We said that we're not going to sort of accept the pro forma adjustment for the embecta margin change. And we would get to about 25% operating margin by 2025. So we feel like we have a good inventory of initiatives and getting about 250 basis points of margin improvement in the first year in a highly macro-challenged environment is a big step towards that. So as you think of it sequentially, the first year, this year was our biggest ramp in that regard. And then from there, there's a couple of other key things that were drivers to think about. One, Alaris, which we already talked about, right? And I talked about the glide path, so you should probably think of that more as waiting, by definition, towards because it will be a glide, right, as you build leverage over time. We also talked about Project RECODE, which was $300 million of savings, run rate savings in 2024. So that will also have a little bit of -- more of a back-end weighting '24, '25. '23, there will absolutely be margin improvement we haven't said. So all those years will have improvement. But given those other dynamics and the inflationary pressure, we'd expect to continue. I think this year would be the highest, Q3 would probably -- fiscal '23 would be the lowest and then a glide path up from there. But you should feel good about us committing to the 25%. From a growth standpoint, we did signal that we're confident in a 5.5%-plus profile kind of throughout that time continuum. So I do think it's a reasonable anchor to think about. This year, we do have some outsized performance and some onetime things, just, for example, the launch of the COVID-flu assay. And I think there was some outsized testing in our base that we talked about and some small things like that. But overall, when you look at our underlying growth, it remains strong, and we certainly expect 5.5%-plus is a really good way to think about BD.

Okay. Okay. So that kind of gets us to earnings. And you're committed to do double-digit earnings growth every year. I think that's kind of what you've talked about. I hear, too, kind of any reason to think about fiscal '23 any differently, if you'd call anything out. And essentially, is modeling 10% growth over that kind of RemainCo, $11.15 to $11.30, the right good starting point you're thinking about?

Yes. Again, it's a little early just because we also do need to see what happens with COVID only, right? It depends whether you look at it base, total. There's still a lot of moving parts as we navigate the year. But if -- again, if I go back to Investor Day, we're very confident in sort of the 10% profile throughout that, which was anchored against our base at the time, right? We wanted to eliminate some of the COVID complexity. But I think you're going to see continued momentum. And with all those pieces, if you think of 5.5%-plus, if you think of continued margin improvement even against 2022, I think it sets up for supporting that double-digit growth profile over that time frame.

Okay. So let's spend the last minute on capital allocation. M&A balance sheet in very good shape, clear focus on better growth areas. You talked about capacity for up to $2 billion in tuck-in M&A every year. How are you thinking about M&A these days, both in terms of size and adjacencies? Just the whiteboard.

Yes. That's just a great end, and we probably could spend another hour. But we outlined a very clear capital allocation strategy. We're executing against it. Actually, I don't know if you saw, we were just upgraded to BBB by Moody's. So good to see an upgrade in this environment, especially. I think a testament to our core performance, our disciplined approach on capital allocation. And this was on the back of a $1.5 billion acquisition that we just announced with Parata. Look, I think our approach has been we're going to continue to have a competitive dividend that actually increased post the embecta spin, right, because we didn't change it. We're going to invest in CapEx and R&D competitively. We expect excess cash of up to $2 billion per year. We would prioritize M&A. We did make a commitment to avoid any dilution of earnings from share-based compensation, which I think is important for everyone here to have kind of a consistent profile. We would be opportunistic with additional share repurchases, but again, would prioritize M&A. And I think what you've seen us do, 17 deals, $1.5 billion, roughly invested just under that from 2020 to now. The profile of those are margin accretion, strong growth profile that enhances this achievement -- our ability to achieve, I should say, this 2025 profile. And Parata is basically that exact financial profile, a very exciting acquisition, again, just over $1.5 billion. So it's that same principle at scale. Their year-to-date sales, just to give you order of magnitude, was -- not year-to-date, it was the most recent 12 months, was $220 million, immediately accretive from a growth standpoint, a margin profile actually above our 2025 goals level, right? So you think of that as another lever to achieve where we want to get to by 2025. And it's an exciting market. It's a $600 million market, where macro trends are all lending themselves nicely to innovative pharmacy automation solutions. The reliance on pharmacists is consistently increasing, right? You've got labor outages, you've got wage increases. Their portfolio provides really nice automated solutions. They provide cost benefits there. And -- so you have a $600 million market growing to $1.5 billion in about 10 years, so 10% growth. So I think you're seeing us execute our capital allocation, and it's paying off in our results.

I'm glad we got that, and that was a good point that we hadn't covered but we did cover a lot. So I really appreciate the conversation from both of you. It's great to see you live. And Simon, I'm going to wish you luck again on the new role.

Thank you.

And we'll see you again soon.

Yes. Thank you.

Take care. Bye-Bye.

Bye.

Thanks, everyone. I appreciate it.