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

Great. Thanks, everyone, for joining us this morning. I'm Vijay Kumar, the med tech and life science tools analyst at Evercore. It's a pleasure to have with us Becton, Dickinson. Representing the company, we have Rick Byrd, EVP, President of BD Interventional and the CFO, Chris DelOrefice. Chris and Rick, thank you both for joining us this morning.

Yes, thanks for having, good to be here.

Fantastic. So Chris, maybe I'm going to start off with you. When I look at your Q4 stock reaction, it's a pretty unusual reaction for BD. General view is BD is a pretty steady idea and the volatility was something that caught people off. When I just think about the guidance and the cadence here of Q1, right? The prior -- I guess the comment was -- expectation was double-digit EPS, and that was changed to like mid-singles. Why is FX having such an outsized impact for Becton, Dickinson? Wasn't that something that was known like a couple of months prior guidance? Maybe just walk us through on the guidance.

Yes, sure. Happy to. Thanks, everyone, for taking the time. Hope everyone had a good holiday. Those celebrating Thanksgiving. So yes, look, earnings call. Well, let me walk through the components of the guide because there's really a lot to be excited about in the BD story. The only change versus what we shared, call it, in August, and our commitment to top line growth of 5.5% plus. And we've always characterized our earnings growth as double digits on an FXN basis. It's obviously hard to predict. FX, there was literally 1 thing. When we talked in August through, call it, the early conferences in September, we were in like a net neutral FX position. FX literally moved that much in a 3-month period, some unprecedented movements that happened, both translational, transactional. We can certainly talk more about that. But the only reason we're having this discussion is because of FX, everything else remains largely intact, and it's very difficult when you get that degree of movement, timing of movement and mix of movement. When I say mix, I'll give you an example, the peso strengthened against the dollar to a degree that hasn't existed in 5-plus years. And Mexico is an important sourcing location from us where we get efficient manufacturing. And again, the timing of that was something that's just -- it's hard to pivot and adjust your organization to think of absorbing that, that quickly. With that said, the year is not over. We have a lot of good stuff in front of us, and we're going to continue to work hard. But I do think it's important to kind of unpack the guide, right? And like what was sort of true to what we've been doing. And maybe some of the questions that folks have had since I've been having various investor discussions. So first of all, growth, I think very much intact, right, 5.75% at the midpoint of our guide, extremely strong growth rate. That includes absorbing another small step-down in COVID-only testing. If you exclude that, it's really about 6%. That does include the benefit of Alaris coming back and getting that cleared. But growth is very much intact. As a matter of fact, our 2-year growth rate, past 2 years, about 7%. If you include this guide, it's just over 6.5% organic growth. It's really strong there. Margin. We've been first quartile in managing margin over the past couple of years since 2021, since we launched our Investor Day. We're going to have another year of margin growth. In '23, we actually delivered on our original Investor Day commitment that we had set of about 400 basis points. We got back to pre-pandemic margin levels. We were 70% on the way towards our goal to get to 25%, by FY '25. And we're still improving margin by 50 basis points. Despite all of some of these other dynamics that we're going to talk about, including FX. FX is about a 75 basis point drag on margin in the year, if you exclude that, it would be well north of 100 basis points. When you think of margin, we do think of growing over FX, and we're doing that. So we're really well positioned from that standpoint moving 80% towards our 25% by '25 goal. We absolutely have a strong line of sight to 25% by '25. We're still tracking ahead and pacing ahead of the goal, and we have more tailwinds coming as you think of '25, whether it be Alaris, whether it be the getting more benefit out of our ReCoDe programs or what we're doing from a manufacturing excellence, we can talk more about that. All of that translated to a midpoint of our EPS guide, excluding FX of 9.25%. It's our first guide for the year. Remember, we divested a V. Mueller business that's worth 75 basis points of lost EPS. If you exclude that, you're double digits, double digits as well within our range on an FXN basis. Additionally, important to note is there are some things in our guide this year that were around cash management. We're really focused on improving our cash conversion. We had a 14-point improvement in cash conversion in the year. We grew our operating cash flow by 20%, our free cash flow by 40%. We made some intentional choices around inventory management, taking inventory down to keep improving cash flow in fiscal year '24. It's going to give us more firepower for M&A. It gives us more capital allocation flexibility. As a matter of fact, if anyone looked and have a chance to read through the multiple pages of the 10-K, we did actually formalize -- we always do share repurchases to avoid any dilution from share-based compensation, but we did an outsized version now. We've more than doubled it, it's about $0.5 billion. Capitalizing what we think is at a very attractive price in the marketplace. So we'll continue to look at that. We have $1.4 billion in cash before doing this. So cash is earning strong interest, and we want to preserve firepower as well for M&A. We don't want to lever up just for, call it, a short-term impact when we think we have strong runway, but it's something we'll keep looking at. So I think all that's intact. Then when you get to the reported guide, it was all FX. And again, I don't know maybe it's not fully appreciated, but literally, again, sitting there August, September, it was either immaterial or almost no year-over-year FX impact. And then just again, the degree and mix of movement created an FX headwind that was hard to pivot to and cover north of 300 basis points. Some of that's just translational, by the way, which has no economic -- underlying economic impact that you shouldn't want me to cover, right? It's about 100 basis points of that. I think whether the questions was the dislocation on the bottom line. And some of that is the dynamics of like our sourcing structure, the Mexico dynamic that I outlined. Again, the year is not over. We're going to work hard to see what we get back. It's just the timing of all that happening and in good faith being able to kind of lean in and commit to absorb all that day 1 what would have been challenging. I think the other question I've got asked right is where -- can you do 5.5% plus, can you do 10% on the bottom or double digits, however you think of it? The past 2 years, including this guide '24, on an FXN basis, like 100%, like I said, top line growth will be about 6.5% organic. Bottom line, we're well north of double digits. I think what's gotten a little bit lost in maybe the BD story is we had a spin like obviously, you can't look back at past earnings and you have to sort of reset BD, value was given with the spin there. And then we had $2 billion of testing revenue in 2021. Take testing out, you can -- we didn't get any credit for it anyway. We're trying to drive a base business that can deliver this 5.5% plus double-digit growth. We've been pretty prescriptive in sharing kind of like what a margin drop-through looks like on testing. You can run it at any number you want. But if you look at our base, even including FX, and I'm pivoting to a reported metric. Our CAGR through this period will be 14% base earnings growth, inclusive of FX headwinds, including this year. So the question of like, can BD do that? Yes, we can do it with a strong growth profile. We can do it with the outsized margin we've been driving, and that's what we've been doing. There's been a little bit of an anomaly here with the timing of FX. But we think as we look at our guide, like we feel good about where we are, and they call it upside opportunities we have that we're going to try and deliver.

Just maybe on some of those comments here, Chris. Where are we on FX as FX changed since guidance? You mentioned sourcing in a manufacturing sort of impact? Anything -- any changes there? And when you say a commitment of 25% margins by '25, is that on a reported basis, Chris, is that the commitment or?

I typically quote that on a reported basis, yes. So we're still well on track there. I mean FX, you have to look at every currency. The peso hasn't moved in the right direction, but all like the core, like euro has moved in the right direction. So if it plays out like last year, last year, it's actually -- if you go back to our '23 guide, the same thing happened, a bit different because it was a lot more translational versus the dislocation you got. But we had over 400 basis points negative headwind on top line and bottom line on FX. Yet, as the year progressed, we got a good portion of that back. It was about half of it back or so just based on the natural FX movement. So it looks like the mean, like the euro, the British pound, they're moving in the right direction. You have to start getting to its timing and averaging that happens over the time period. So certainly, we'd be happy to see it keep moving in that direction. And if it's there, that will be part of the equation to give that back.

Understood. And then tax was another drag for the guidance. Why did tax go up for fiscal '24?

Yes. Tax was something that was expected. I mean actually, if you go back and look historically, BD's tax rate has probably been more like, call it, a 14% to 16% tax rate. There's a series of things as you went through COVID and mix dynamics and where your COVID testing was and innovation and combination of discrete items, et cetera, that affect that. We haven't had significant benefit from tax over the past few years and we've been more absorbing that within our growth rate. So I would call it more of a normalized tax rate, nothing major there.

I see. And then on Q1 guidance, I think this cadence really caught people off, Chris. Think $0.55, $0.60 of EPS headwinds for Q1. I think you called out top line, some headwinds from respiratory. When I look at your Q1 last year base business, right? I think that was the easiest comp. So in that tougher comp from respiratory never -- it was hard to digest. Maybe give us some flavor?

Yes. I'll come back to the growth. The growth is the smallest driver of the EPS dynamic. It's -- the biggest item is tax. We had a discrete tax item in Q1 last year that had like a 6% effective tax rate. So whenever we start the new guide short of us being 100% aware of a discrete item, you always have discrete items throughout the years as you work through regulatory agencies, et cetera, get things confirmed and officially approved then lend itself into confirmed accounting treatment. So we just -- that was half of it right there, call it, maybe not quite 40%. We expect to probably have discrete items again this year. There could be another one in Q1 that could possibly temper that a bit. We have to see those again play out quarter-to-quarter. We signaled them as we become aware of them and we certainly share if there's like an inflection in tax rate. Top line, so you're looking at last year's Q1 growth rate of about 3% organic. That is affected by -- it didn't create an easy comp. That was all a '22 to '23 comp. So vaccination is still coming down. We had licensing revenue in our Life Science business in '22 that created a negative comp for '23. We have the dynamics of COVID stocking that is still happening in distributors in '22 that created a comp for '23. If you look back and see our UCC business, our surgery business. So there's those examples throughout all that meant was '22 to '23 established like a true good baseline of volume. And now you have a different dynamic of '23 to '24, we actually have some changes that moderate the growth rate. I mean, one, we didn't really talk about this, but it was implied. A layer should start from 0, right, versus having medical necessity in your growth rate. The other big one was China. We have 2 discrete items, kind of our medical business, MDS, in particular, volume-based procurement, which we can certainly touch on. And then we had a discrete China customer that had an inventory build that's in our anticoagulant part of our portfolio there. We don't share specifics on customers, et cetera, but they're basically in a situation where they're trying to penetrate outside of the China market, that strategy is not paying out. They're going to have to bleed down that inventory and it creates kind of an inventory bleed down dynamic, that's onetime. In nature, our farm systems business, of course, is still really strong. And then you have a little bit of the respiratory dynamic. Every year, as you kind of come down and get to what I would call a normal respiratory season. Last year was still a bit outsized in our Life Sciences business. I think more importantly, we don't need some outrageous growth rate from, call it, Q2 to Q3. It's in the mid-6% range and you have an Alaris ramp. And if you take Alaris out, you're right at 6%, consistent with our guide. So I don't think the Q1 dynamics shouldn't be anything concerning. As a matter of fact, if I go back and talk about the past 2 years on margin progression and how we've executed against growth, like BD has been very good. It's predicting macro dynamics and then owning them and delivering them within reason, within any of the quarters and certainly for the full year. So we manage things quarter-to-quarter. There's always going to be dynamics throughout the quarters to play out.

And let's maybe start with the Alaris, Chris. You mentioned you're starting pretty much -- see any of ramp throughout the year? Like what is causing this first half versus second half Alaris ramp dynamic? Is that because earlier customers that you upgrade is that's on BD's [ diam] that's why we're not recognizing revenues?

No, it's -- so before -- one, our #1 priority was to get clearance. You get clearance until that point in time, you are starting from 0 with customers. There's no pipeline build. You're not having discussions with customers. You don't even have a clear product to actually talk to them about. So you get clearance, and now you're starting from ground zero. We've engaged with every single customer. You're working through their portfolio of assets. They all have large fleets across many locations, as you can imagine, some of them are mixed fleets, both age and maybe even competitors. Obviously, BD has strong share. So we have the -- we talk about in the U.S., 70% of infusions are typically done with the -- a BD pump as an example. So you're working through all those dynamics. There are -- if you take the sort of bookends of how to think of this. Our #1 priority is to get all of our customers up to our cleared pump per the FDA. Some of those are near term where we can go out and just actually simply remediate them, you do software upgrades. There have to be some component change-outs. Those will be done. But at the same time, you actually want to replace some pumps, a picture if you have a pump that's 10-plus years old. Those are just going to be replaced, fall into a more traditional kind of commercial cycle. But you do all those at the same time and coordinate them so that you're upgrading their fleet. So you have to coordinate timing with customers, you can do all that. So there's -- as you can imagine, there's a huge ramp of all that planning coordination, scheduling, in the meantime, you're doing your final supply chain ramp-up. Obviously, we were very prepared as it relates to component buys, et cetera. But you would expect there would be a natural ramp up there. So it would be a normal dynamic. That's really what's playing out.

Understood. And then maybe I'm switching my questions up a bit. But since we're on Alaris, I think your Q4 GAAP gross margins had a $600 million charge. I think it was mostly related to Alaris. Why are we having an Alaris charge now post approval? What does that charge related to, Chris?

Yes. This is directly related to our commitment to ensure that pumps in the field are remediated and brought up to the cleared standard. It goes to that example in analog that I had talked about. So these pumps that are nearer term, they may need software upgrades. You have to do component upgrades. And you have to go out in the field, you have to fix it. We've been doing this throughout this time period, but we've only been focused on the official recalls. That was all we had line of sight to. Then you got a cleared pump and you -- the amount of changes we've made to bring this pump up to, call it, best-in-class current day standards requirements, et cetera is very different than just the nuanced recalls that may have been out there at the time. And so when we got clearance, there was also a dialogue, of course, with the regulatory authorities about how best to do that, what needs to change, what time line does that need to happen under. And we have a commitment to make sure that our customers that have a pump that's a couple of years old actually has a pump that's brought up to those cleared standards. So you look at all the costs associated with that, that will be incurred over a multiyear period. So you're talking about, call it, $250 million per year roughly, very much contemplated in our cash flow. I think the important thing is it doesn't affect our capital allocation strategy at all. We've actually been inclusive of that, taking actions that will further improve our cash conversion over time. And so that's basically what that charge represents.

So this charge, just to be clear, Chris, that's for expenses BD will be incurring over time to upgrade existing field pumps?

Not for anything we're selling in, just for ones that are pure remediation. So again, components, labor, software upgrades, obviously, like the travel and engagement back and forth to do that.

Got you. So maybe one last here on China before we switch to Interventional. China VBP again, this was surprising. Like why didn't we know a VBP impact was coming, Chris? And what is this related to within MDS?

So one, I mean, we were one of the first to signal that like there's macro dynamics playing out in China. We actually had a lot of discussions back there. But that said, we haven't seen a big impact on our business. Even last year, our total China business, when you take out that farm customer dynamic, that's a one-off. It's really still high single-digit growth. But we were certainly aware that like as China was going through kind of the COVID dynamics coming out of that and having their own sort of macroeconomic dynamics, they were dealing with, you started seeing a ramp-up of the number of provinces that were again going through tenders and the scale of the tenders, et cetera. And so we basically signaled that there's likely to be something there. We're managing -- it's very different from last time. We're managing within our growth rate, right? I mean, growth rate is 5.75%. When you think of our book of business in China, we still have interventional growing double digits, which Rick can certainly touch on. The Life Sciences business remains extremely strong. It's primarily in our medical business and kind of vascular access space. And now the more you go through that, obviously, you've kind of run that through the system, and it creates like a baseline where you can't just keep going down, right? So look, China is still a strong market. There's a ton of unmet need. We have a good strategy for China, where for more kind of localization. We've got local manufacturing. We have a cadence of local innovation. We have a really strong interventional business. Life Science is doing well. We've been able to manage that within our holistic growth rate. We're not exposed in terms of China sourcing for outside of China. So if there's other like macro, geopolitical kind of disruptions, we're relatively insulated. I feel good about our strategy there from a manufacturing standpoint. So I mean, remember, the numbers that we're projecting, we're trying to project full year. We'll still have, said low-ish single-digit growth for the market this year. So it's not like it all just happened. It's also, I think, an appropriate kind of posture in terms of an initial guide. As we go through these, we've done really well in terms of winning tenders, maintaining volume and maintaining a healthy business. So we'll continue to still a contributor to growth. It just moderated back on share, and we're absorbing that within our total growth rate.

Sorry, did you say low single-digit growth for China in fiscal '24?

Yes.

And that is inclusive of the customer impact and this VBP. Are we done with that VBP, Chris? Or should China revert back to normal so when you look at the out years?

Yes, when you say we're done, first of all, no one is insulated from VBP. And so it's a strategy that they have. Anyone that says that, it's just a question of when they go through it. It's how do you best position your portfolio through new innovation, what are the relationships you've built from thinking of like a government affairs standpoint, you adapt your go-to-market strategies to maintain profitability, et cetera. I think BD has been earlier going through this. And I think our portfolio -- again, the more your portfolio sort of goes through it. By definition, your base becomes smaller where it becomes less of the headwind. I think the other thing I would say is like our interventional business is much more -- the categories are much smaller. They're -- even our Life Sciences business to a degree. So they're the one, maybe not like the initial targeted areas and two, it'd be hard to have the same degree of impact unless they literally went through every single category across your business at the same time, which is an unlikely scenario.

Understood. And maybe, Rick, switching over to you. That Q4 interventional number was a really, really strong number. I'll make sure to bring it up on the next call which means your Q1 better be strong. And it was really a broad-based, right, across all segments. Maybe just high level, what drove that performance? Were there any one-offs in the most recent quarter that drove interventional?

Great. Yes. Thanks, Vijay, for the call and the recognition. I think it was a really, really strong quarter and a great year for interventional. I think all businesses, Q4 double digit led by our surgery business on the organic piece. And then as Chris said, we had the divestiture of the surgical business as well, which will allow that team to now focus on the growth drivers. I think when we think about the growth across intervention, I'll probably think about it as maybe these 3 pillars. The first one are the markets that we play in, right? We play in really strong markets. And so in PI, it's the peripheral vascular disease, oncology incontinence in our UCC business and the advanced repair and reconstruction. So really strong markets that really drive good growth in those markets. The second being the investments in the innovation and the products that we have. So Rotarex, Venovo, Venclose, when we look at our peripheral business, our Phasix within our surgery business. PureWick, great product within our UCC business. So these are really strong platforms that are driving growth. Recently, we just launched our Trek bone biopsy needle in our oncology business. So that investment in innovation is driving our growth. And then the third piece, I thought you've heard us talk about, especially in intervention, the work that we're doing in operational effectiveness, improving our supply, improving the flow of our products from a supply chain perspective. So that was a tailwind for us, and it will continue to be a tailwind for us. So all of those forces are really putting a nice sustainable growth within the Interventional segment.

And when you look at the macro, Rick, I think your division comes close to -- from a utilization perspective, when we look at hospital trends, how do you characterize macro from a utilization standpoint? What you're seeing globally across the regions right now, stable versus last quarter?

Yes. It's definitely stable. I mean we're seeing good momentum within the growth. But again, I think the portfolio that we have, and you've seen this throughout the last quarters, we don't really have those one-off impacts from utilization. It's been somewhat stable from that aspect. So continued, I think, momentum within utilizations, but nothing really outsized.

Got you. And then you did -- within surgery, I think we called out Phasix. How big is that product for you guys? And are you gaining share? Who do you compete with in that space?

Sure. Well, I think just hernia alone, the categories of around, I think we've said over $2 billion just in the category of hernia alone for Phasix. And so Phasix is -- our strategy there is we call it hernia transformation is moving people from traditional mesh to this higher value clinical product in that. And then we have a whole transformation strategy in order to do that. And so we acquired Phasix from a Tepha acquisition and the first applications were kind of moving bioresorbable -- I mean biomaterials into Phasix from maybe the complex ab walls. And now what we're seeing is people are choosing to go from standard mesh moving towards a Phasix material, the bioresorbable material. And so we have a whole strategy to move them and upgrade them. And we're just in the midst of that journey. And then we saw on our call, we're going to actually be launching a first specific product for Phasix in the umbilical space. So again, just continued great growth of the product, great demand for the product. It's a trend moving into these bioresorbable in order to get this permanent mesh out of the body, both patients and physicians are choosing to go to the product that removes itself over time. So really great growth out of Phasix and lots of applications. And we're just in the beginning really of that runway.

Understood. And I liked your Q4 earnings presentation, Rick, where you laid out a number of key pipeline products within that segment. I think a few you called out as having greater than $50 million revenue potential. Can you touch upon them? And what is launching right now? What is expected to launch in the coming years? What are you most excited about?

Sure. Great. First off, just recently launched, which we're really excited about. You've heard us talk about our PureWick Male product in our PureWick franchise. And so we launched that in the beginning of '23. It has outpaced -- I think we've talked about our PureWick Female as one of the most rapidly growing products for BD. The uptake, the initial launch of male has been even stronger than our female product. And we've just launched that in the acute care setting, and we'll be launching it in the home care setting later in this year. We also like and I mentioned it before, our Trek bone biopsy needle in '23, which is doing really well competitively in the oncology space. So 2 products that launched in '23 that are really starting to take off and going to contribute here in '24. Short term in '24, we talked about Phasix umbilical. So we're in interactive review with FDA right now, looking for a 510(k) early this year. And then we also have, we've mentioned it in the past, our multi-modality breast biopsy system. So this is one of the only vacuum-assist biopsy that full modalities of imaging, X-ray, MRI and ultrasound that will launch at the end of this year. Really exciting, gives an opportunity to consolidate into 1 product. It's also a product that's used for vacuum-assist excision, not just biopsy, but a lot outside the U.S. When they find these lesions, they'll excise the lesion. And so there's a big opportunity there for us to kind of grow there. So excited in the short term for them. And then you may have seen primarily in our peripheral vascular space, really 2 exciting products that were just got either IDE approval or we've just started our clinical trial. Our TIPS, product, our venous shunt for portal hypertension, great product. It's in clinical trials right now, early stage of those trials, but we have good enrollment within patients and seeing good results there. And then we have our low-profile arterial stent, which is going to be a really exciting product. We're in the midst of the IDE approval to be able to start that clinical trial. Both of these [ categories ] are really brand new for us that are really all about both growing the market and taking competitive share. And we mentioned China, portal hypertension, these are big issues in China. And so these are markets that these products will be really exciting for and that will be purely incremental for us.

Got you. And just given you touch in a number of categories within Interventional, are there any product gaps or interesting -- interesting products from an M&A perspective, which would fit that portfolio?

Sure. And I think it's nice to hear when Chris talks about firepower, you know that we compete in the Interventional segment for that capital. But when you think about the armamentarium that clinicians use in this space, technology keeps advancing here, and there's always great opportunity for us, Vijay. So both -- and if you look at the history of how we've grown a lot of these businesses is to grab on to these early-stage products and then innovate on them, right? PureWick is a perfect example where that was a small acquisition. We continue to iterate on it. The female product was the first product, then we iterated and made the male and now through innovation, we're going to be growing into functional incontinence. So Rotarex, a perfect example of these products. So we have a history of taking these early-stage products and advancing this, scaling them up and doing extremely well. So yes, there's lots of exciting categories that we have our eye on.

Understood. Chris, maybe on the topic of M&A and capital deployment, you've mentioned share repo. Have you -- just given where the stock is, have you -- has the priorities changed? Maybe share repo makes more sense versus M&A? I just -- talk about your capital deployment strategy?

Yes. I mean, holistically, like we would always be opportunistic with share repo. We certainly felt this was a good time to take that action and not only accelerate what we normally do from a share-based comp dilution, but basically double that. There's a couple of factors. I mean, one, you don't want to overreact to sort of like short-term dynamics. So we're trying to capitalize on that. We'll see how the year keeps playing out as we build cash. We're committed to our dividend. We just had our 52nd year of dividend increase. We have a competitive payout ratio of about 30%. That will stay intact. We're going to be committed to an increasing dividend. It's not something we would push to sort of like we don't see the need to drive towards outsized, especially in this kind of interest rate environment. So really beyond that, it's tuck-in M&A, which has been extremely successful. I mean Rick's business has done an outstanding job across the board, he just named multiple ones in [ PVD ]. I mean you think of PureWick franchise, you may think of Tepha, really driving that. That's contributing 40 basis points to our growth profile this past year on an organic basis. So after anniversary-ing the deals that you do, so not counting the onetime lift. So it's been in a very effective way. We've -- it's actually also been profitable growth. I think Parata has been a great example, right? $1.5 billion acquisition, double-digit growth. We now have $700 million pharmacy automation robotics platform within BD, the Parata market TAM is north of $1 billion, also growing very strong. So there's more runway in that market. It was immediately accretive to margins, actually accretive to future margins. And we, of course, absorbed and managed. It's actually basically neutral to accretive like day 1, which is rare to find an asset like that. But we've been managing any dilution within our earnings growth rate. And that's going to be the strategy. So I think look for us to do more tuck-in M&A. I would say we were trying to find these ones that are a little chunkier like a Parata. With that said, we're sensitive to like we don't want to take on dilution or do things where it completely changes like the risk profile. We're not in a position where we need to do that. I think we have a good balance of driving organic through our R&D funnel, what we're shaping there and then the tuck-ins that fit those profiles.

Sorry, Chris, just a clarification. Did you say you bought a share in Q1?

We announced that we're in process. It's a $0.5 billion share buyback that we announced which that's about 2x what you would do for a normal share-based comp dilution, which normally would do throughout the year, but we accelerated that upfront to get the most benefit. In an environment right now where cash is earning so much you don't actually get a lot of, call it, EPS benefit. It's basically neutral. It's more just thinking of it as the value of the cash. And we just think it's an attractive price to buy.

Understood. And on leverage levels, you're, I think, close to like 3x gross leverage right now. Is that a comfortable range? Or would you consider taking those leverage levels up?

Yes, 2.5x was our net leverage target. We ended the year at 2.6x. So we did a nice job with cash. The way to think of it is use Parata as an analog. If we see an asset that's in that kind of chunkier range we would lever up a bit. We wouldn't look at all to -- we can do that without changing our credit rating. We're looking to maintain the consistency there and then be disciplined, integrate the asset successfully, drive growth, drive the value proposition, build cash, lever back down to kind of that target level. So I think you'll sort of see us sequence within a range there. And we're going to be disciplined like there's nothing out there, there is no need to act. I mean, you could see us actually get below 2.5x as well. It's not like we feel like when we get to a certain level, we have to act in the marketplace.

Got you. And a couple of other topics. GLP-1s have come up. I think you guys have said it's a tailwind, but there is some confusion on how big it is. Is that like meaningful for you guys? Or how does BD [ participate share ]?

Depends how you think of it. I mean I'm not going to get into the size of our portfolio mix. But what I would share is we talk about our farm system business is a $2.2 billion business. We framed that at Investor Day as being a high single-digit grower. It's a 13 quarters in a row of double-digit growth. And I would say these trends and biologics holistically, obviously, GLP-1s are part of that dynamic, is certainly enabling that. So I would say it's an important contributor to the growth. But we do have a broad portfolio. You've got biologics in other places, you have vaccines, you have the anticoagulant portion of the market. So we certainly see it as a continued catalyst there. And then when you go back and think of our farm systems business. BD's scale and capability is 5 to 6x greater than the next largest competitor. We have relationships with 70% of the top 100 biopharma. So we're very entrenched when they think of like who's go-to that can provide reliable supply has the scale to support growth. They understand the quality, regulatory processes and protocols. BD is certainly kind of go-to in that space. So it will continue to be a catalyst for us. I mean I've talked about 6 key platforms. One thing I know is BD is a massive portfolio and like what do you have to think about that are going to create the inflections for, call it, outsized growth, right? And there's 6 areas. That's one of them, our bioscience research is another, Rick touched on too, our PBD portfolio within peripheral intervention, PureWick franchise with urinary incontinence. And then we kind of broadened it to MMS because we have pharmacy automation in there, which is, again, $700 million platform, but now we have Alaris clearance as well. And then lastly, our molecular diagnostics business. So these are -- they comprise over 5 -- just over $5 billion of revenue, and they have potential to be high single-digit growth, even double-digit growth. So when you think of that against to, call it, a $20 billion roughly revenue base, I mean, you can get 200-plus basis points of growth just out of that portion of your portfolio and then kind of need everything else to grow more at that mid-single-digit level. We have, as you know, a very like durable part of our portfolio there with strong leadership. And there's parts in that portfolio that are stronger, you just talked about mesh and surgery and how that's doing. So it's not that there's not other really good, exciting growth opportunities there. It's just a lot of that fits a bit more in like our durable core. So I think you look for us to keep driving those areas as being important catalysts, I will say farm systems, I mean, we've been on this run of like double-digit growth. We have the China customer dynamic I talked about. You're going to see some noise in our farm systems business that's acute there. We manage that business globally. And then the more of these biologics grow, you get into dynamics of where -- what's the timing of clinical trials and what's the timing as they ramp up inventory like -- so in the past, historically, it's been a little bit of the choppy business quarter-to-quarter, but I do think it's something that we see as a consistent high single-digit grower.

That China customer. Is that just a Q1 dynamic, Chris or?

We largely cycle over that as you get through Q1, yes. There may be a small amount in Q2, but...

And just given farm systems has been growing so strong. Is the expectation for fiscal '24, obviously a plus and minuses, is that still like high singles? Or should that be like double digits?

Yes, we didn't guide specifically. I would go back to Investor Day, high single digits, and I often get asked the question like where do you see sort of like, what can drive you towards the high end of your guide kind of question. I'd point to those 6 areas that are areas that we doubled down in. Like when I think of our guide, like what we could control is where we're growing, and we feel really well positioned there. And think of the bottom end of the guide is more like macro unknowns, I think we feel really good about kind of what we're driving in the innovation cycle we have and where we can control. So that's a good place to be. By the way, it's an area where -- I mean, we leaned in door in COVID in some very uncertain times, but we committed to $1 billion plus of capital expansion to support the growth there. We're about halfway through that. And so doing well, it's paying off.

And just maybe on the comment, Chris, when you look at the fiscal '24 guidance, what are the sources of upside and what would cause you to comment perhaps at the low end of the guide? What variables are you looking at? And maybe just touch upon the hospital CapEx environment.

Yes. It's those 6 areas. And again, if you broaden kind of pharmacy automation to MMS with infusion in there, right, Alaris, I think, is another source. We gave some color in August, but we didn't give a formal guide on Alaris, but there's certainly pent-up demand there. We have to see how that plays out. So I have pointed those 6 areas like those are key catalysts for us to keep driving towards. FX, if they kept moving in the right direction, that's not something I control as much, but could hopefully maybe -- hopefully, we could maybe more of a bottom and can move it. I take a appointment of therapy. On the downside, it's really more the macro environment, see unknowns there, right? I mean we still have a lot of geopolitical dynamics playing out. We have a war that's happening. It's just you never know we scenario plan around the what-ifs of various things in different markets, whether it be Asia, what's happening in Europe. And we feel really -- it's usually about preparing supply chain dynamics and logistics as we think of those. It's typically less about kind of your portfolio going to market because of the nature of what we do is critical medical need. So it's usually more like supply chain disruption, and we were one of the best navigating those complexity story in COVID, and we do do scenario planning to try and prepare for those, but that would be what we'll be watching, I think, more on the downside.

And just to be clear, so far, the war hasn't had an impact on the business, any supply chain disruptions?

We have said it. There was nothing significant or material there really at this stage so.

Got you. And then one on tax, I think you did mention some discrete tax item benefits. What are those discrete tax items, Chris? And I think you didn't mention on the call, Pillar Two GMT implementation would have some implications, maybe try to quantify it?

Yes. We don't get into the specifics of discrete. Every company has a may happen at certain times throughout the year typically relate to certain events or planning or -- so we'll leave that there. I mean, we're confident in the range of the tax that we planned and know that there can always be some choppiness to that, that typically is easy to see and as we have updated results, I'll certainly frame whether there's more of a timing dynamic or ongoing. Global Minimum Tax. The good news is BD, we're sort of -- we're delayed in terms of our fiscal year, the fact that our fiscal year started early. So it's not an event for us until '25. There's a lot that's still going to play out. We get the benefit, of course, of seeing how it gets operationalized for those that may be affected this year. And second, we still expect a lot of correspondence and communications from the respective countries as they enact this. And so we're going to watch that. I wouldn't want to share something too early without being fully informed, but certainly, we know it's top of mind. It's -- folks have positioned it as forces a headwind. I do think there could be it could be a multiyear kind of effect too as you think of how people navigate it. It may not just be a onetime thing, which could be better because it gives you a bit of a glide path into it. So we'll keep folks abreast as we learn more and see how this year plays out and we get closer to our fiscal year '25.

Fantastic. I think with that, we're out of time here. Chris and Rick, I thank you both for the time this morning.

Yes. Thank you. Appreciate it. Thanks everyone.

Yes, thank you. Thank you, everybody.