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

Interesting first quarter, we start with that. Why don't you sort of catch us up on like you saw happening in the first quarter and how it starts or is it for the path [indiscernible].

Yes. Excellent. No, I appreciate it. And thanks, everyone, for taking the time. Those that are here, those that are listening. Yes. So look, whenever you start the year, I think you've made certain assumptions at the start of the year. And what was really nice about the quarter as the quarter played out largely as expected. As you think of revenue, we had 2 dynamics that we were expecting, right? There was China -- there were some China headwinds, in particular, VBP. And then we had the respiratory comp dynamic, which is a combination of -- you're starting to see respiratory season move from kind of like -- would it look like in the pandemic back to a more normal pre-pandemic kind of dynamic, which we can talk more about, of course. Those 2 items played out as expected. They did create kind of the headwind that we're planning for on top line, if you exclude those items. We were strong mid-single-digit growth right around 5%. So it was really isolated against those 2 items. The other important thing was, of course, we're always making assumptions around level of cost improvement we can drive, inflationary dynamics, other macro dynamics, and we executed really strong from an operating performance standpoint, actually over delivered on margin. So that always gives you momentum and confidence as you're moving through the year, seeing those plans play out. We can talk more about that. So at the end, on the back of Q1, we felt very bullish and confident in the year. We did a few things. One, we lowered the bottom end of our revenue guidance up. So we increased it. So we derisked the bottom. Some of that was actually not on the back of just call the base performance, but our confidence in Alaris, which we can certainly talk more about. And then on the back of the margin and operating performance delivery, we increased our guidance, $0.09 at the midpoint on EPS. And then actually, equally importantly, I know folks had some concerns around can we drive this phasing of margin improvement through the year? And we actually improved our Q2 outlook from a margin as well. So we now expect to increase margin in Q2 by 25 to 50 basis points. And what we did is actually derisk the second half of the year. And then lastly, we've been very focused on cash flow as well. That was extremely strong in the quarter. So it gives a lot of confidence in double-digit growth. So I think it validated a lot of our going-in assumptions. We're executing strongly and it gave us confidence to increase our guidance overall.

Excellent. There are a couple of things I wanted to discuss first. Shifted revenue margins [indiscernible]. What are the ones sort of heads up on [indiscernible]? So how do we think about that being moved into the remainder of the year? Or is that just lost?

Yes. So we -- to your point, we shared that in Q1. It was part of our original plan. And then -- the way we plan a quarter, there was even a further. So what happened was during the pandemic, you ended up with the shift in how the season played out with a heavier to -- so remember, our fiscal period, Q1 is really others, Q4. So think of the predominant portion of the respiratory season being calendar Q4 and calendar Q1. During the pandemic, you have this dynamic shift where you had a much heavier Q4, our fiscal Q1. When you started seeing us move back to kind of pre-pandemic normal seasonality, which has more balance between those 2 quarters. The other thing we had is we did still have last year, we were cycling through outsized testing, COVID-only testing. And so it is a combination of both dynamics. Again, both were as expected. So I would say a portion of it was just a prior year comp with more elevated testing with COVID only in particular, and then some of it was more of a shift partially into Q2, but also partially re-kind of balancing the back of the year. So we continue to monitor the season. It's still a bit early in this quarter. What you typically look for is how is the testing trend line look. Sometimes you get kind of that second spike, sometimes it can actually soften. We're actually seeing sort of what I would call stable. We're monitoring it. We'll see how it plays out over the next few weeks. And maybe it's just a reminder for everyone. BD's -- the size of BD's flu assay business was typically, we would say, it is around $75 million to $100 million pre-pandemic. Since then, we had a much larger installed base on our BD MAX offering, in addition to the rollout of combination assays, and so now we would say that it's about 1.5x to 2x those pre-pandemic levels is the size of our flu season, so -- or our flu business. So you're talking order of magnitude, call it, $150 million, $200 million, maybe a little north of that, depending on how that season plays out. So I think for now, it looks like things are playing out. As we shared in Q1, we'll continue to watch those testing trend lines and see how they play out for the balance of the quarter.

And one of the things you mentioned, not any on to get there as Alaris.

Yes.

So why don't -- I can't talk about BD without pointing out Alaris, and I doubt you can either. So why don't you share with us, remind us what you've said about the full year comment, the floor that you've established and how that rollout is going so far?

Yes. So obviously, that was our #1 priority when we rolled out BD2025 was getting Alaris clearance. It's been hyper focused throughout the organization. We've made very strategic choices as well around kind of maintaining our service and customer support organizations during that time, which was served to be a very thoughtful way. We wanted to keep supporting our customers in the field during that time. We got asked the question often, when are we going to get clearance. And we said, we're focused on executing against everything that the FDA needs to see and we successfully did that last year. So huge milestones to your point. I think as a reminder, with folks maybe sometimes underappreciated, is normally in normal course of business, you always have kind of like you're engaging with customers real time. You probably have 6 months, plus or minus, of like an order book, so to speak. You were unable to engage with customers at all until you had clearance. So what we've seen at this point from the back end of last year is like really strong customer engagement. Our priority is to make sure that we're upgrading all the pumps in the field to the cleared standard. We're getting really good engagement from our customers. So that's extremely positive. As you can imagine, the focus on manufacturing ramp-up and preparedness on many fronts as well. That's going extremely well. So we feel good about that. And then based on the initial engagement with customers, we're seeing good momentum there. And while it's still early, it gave us the confidence to basically -- last year, we talked about expecting this to be about $200 million this year. It was kind of order of magnitude of what we framed. Last year, we were still operating under medical necessity, and we had about $100 million in our base last year. Medical necessity goes away, you're back to kind of a normal go-to-market model, focused on upgrading all the pumps and before we kind of got into this year, we said it could be about $200 million. With the progress we've made engaging with customers, we've now shifted that to a floor. We haven't actually given like a formal range. We normally don't talk about our business at that depth, but we know this is important. So I think you should see that as a positive signal but there's good progress there. And we now see $200 million as a floor.

Well, if my memory serves, was there about a $400 million business before as spoke?

That's correct.

So can you help me through the mechanics of what gets you from $200 million to $400 million? And I have to imagine with 2 manufacturers not having a proper pump. I don't know how to word that any differently, on the market for a couple of years, there's a fair amount of pent-up demand.

Yes, that's fair. Everyone's asked the question. We haven't really quantified it but it's a fair assumption. We basically were only operating under medical necessity for call it, a few year period, since the original ship hold. So there's natural attrition of pumps out there and need to replenish and upgrade those pumps. So which does give us a nice growth opportunity for a couple of years. I think the way to think of this year, again, we're not going to -- we'll kind of share insights as we go throughout the year. But you have $200 million as before modest contribution to actual percentage growth in the first half of the year because you're still cycling over that $100 million of medical necessity that we had in our business. That went completely away for the most part. It is not substantive by the end of the year. And so you'll see a ramp. We've kind of shared that you should start seeing us exit this year at a rate that would probably be more in line to set us up for the following year, getting back to that kind of normal baseline level, and then that should be able to continue beyond that because to your point, there is pent-up demand. So we do see this as a nice growth opportunity, not only for this year or next year. And I think there will probably be a multiyear period where we're getting through that. That's our commitment actually to the regulators around ensuring that over a few year period, we're upgrading our full fleet. So...

So when you say get back to a level and jump off on the fourth quarter of this year, looking at the next fiscal year. Is $400 million next fiscal year, the wrong number to be hunting towards?

Yes, I think it's -- I mean, we haven't gotten that specific, but I don't think it's unreasonable to think that we should be back at that way.

All right. One more question on this topic before I move on. Is there a way to quantify the pent-up demand that's in the market? Not necessarily in the market for Alaris, but in the market generally?

Yes. I mean we haven't done that specifically, but one way to think of it is if it was $400 million, call it, an annual replenishment, we were roughly on a ship hold for a few year period, but we did have medical necessity of about $100 million per year. Actually, it was a little higher than that during the quarter of COVID supporting all the patients, the healthcare system, but it gives you kind of an order of magnitude of potential demand that's out there. There's nuances with like how we go to market and execute and what we're doing to support our customers during this time. But certainly, it lends itself to a nice opportunity over a couple of years. With that said, I just -- I can't underscore enough like the focus on -- it's such a critical component of the healthcare system and being out there to support our customers and how we do this and doing it in the right way. It is a top priority for us.

Makes sense. So this is going to lead me right into my next question. Alaris pumps are a margin premium or margin neutral?

The way to think of it is, this is typical for any kind of capital consumable dynamic. The capital portion from a gross margin standpoint under indexes versus the BD average. Obviously, the consumables that flow through tend to have a higher margin than that. The other dynamic that we have is because we kept our service organization in place though, as you think of it from an operating margin standpoint, it does contribute to our earnings and margin goals over time. And as we continue to scale that revenue, it becomes a margin opportunity for us. So when we originally went on ship hold, there was about an 80 basis point negative impact to BD's total margin, as a result of that. And some of that was because we kept those investments in place. So as we get back to normal run rate, maybe even potential for a little bit more through that period, as we get that kind of pent-up demand back, we expect over time to get that 80 basis points of margin back, some of which is coming back this year and part of our plan.

Okay. So walk me through the margin bridge then because the first quarter we've already had upon was depressed, but it expands throughout the remainder of the year to be goals. Macro, Alaris, FX, what are some of the other pieces that bridge us there?

Yes. So Q1 had a lot of kind of -- there was 3 big chunkier things that kind of depressed our margin a little bit. Again, we actually overdelivered in Q1. So they were all planned. One was this inventory absorption dynamics. So we've been very focused on cash. Because of the strong simplification programs we have, we made a decision last year to, let's moderate our inventory levels back down. We're kind of out of the peak of the macro supply complexity. When you do that, you have a onetime kind of absorption issue in your plans because you still have the same amount of fixed overhead, right? So what that does is it creates kind of an extra cost in your inventory that has to bleed through, but you're saving on the cash, right? So our cash growth profile versus our earnings profile this year. Cash is outpacing growth, that's part of it. That was a 200 basis point impact in Q1, that by the time we exit Q2 is completely behind us. There's a little bit of residual carryover into Q2 of that as you bleed down your inventory. That's behind us. We also had some outsized negative FX that was predominantly in Q1. That also is, as you get through the back of the year, moderates pretty significantly. Obviously, FX can continue to move. But the longer we go in the year, you start feeling better about it, because some of it can just get trapped in inventory. And then the other big thing was this year, we had said outsized inflation above kind of normal 3% levels, if you think of it that way, was 100 basis points this year for the full year. Last year, it was 200 basis points. So it's cut in half. However, in Q1, it was still at that elevated kind of 200 basis points level and that significantly moderates as we go through the back half of the year. We have a pretty strong line of sight to that, right? If you think of inflation, it just shows up in 2 predominant places. One is wage, and we know kind of the rates that we've set for the year and what we're paying our employee base. And so we have a strong line of sight to that in the year-over-year comparisons. The other one is material costs, which we also have contracts and so we feel good about the inflation that we've called and how that will play out throughout the year. And so when you look at Q1, you literally had with the outsized inflation, FX and inventory, almost 600 basis points of the headwind, yet our margin did not contract nearly as much of that. And those all significantly moderate. What that means is we're driving significant levels of cost improvement to the tune of $150 million, even inclusive of absorbing the outsized inflation. So really, once we shed ourselves of those, you really get a natural glide path as you go through the quarters to get to where we need to pay. The other thing I'll say is like, look, just we've had 2 years of being very predictive with cost and headwinds. We fully executed and delivered against our margin in the past 2 years. As a matter of fact, we're one of a few companies that's back to pre-pandemic margin levels. We hit that last year from an operating margin standpoint. We're 75% last year through our goal of getting to 25% by '25. This year gets us to 80%. And so we feel really good about what we've done in the past few years. It's been top quartile performance in terms of margin execution. And we just have a strong inventory of simplification programs as we think of moving through '24 into '25.

Excellent. When we think about pricing, Becton has been one of the companies that's been able to take price. And in fact, when the Q-o-Q comes out is one of the first things we go looking for. How do we think about the sustainability of that?

Yes. So we shared -- I think of it in kind of 2 phases. One, just for some historical context. I think BD has typically been stronger in terms of price dynamics. I think a lot of Medtech depends on the category, but it's not unusual to see kind of low single-digit declines in many areas. BD has been closer to flat historically. As we navigated through this kind of really outsized inflation, we did take some outsized price. Importantly, though, that was not the predominant lever of solving inflation. It's really been the simplification programs underlying that and the leverage on the strong growth profile that's enabled that margin improvement. But what we did through that is we built a new muscle, new capability on pricing and really understanding the value proposition of our portfolio, focused on many pillars, contract compliance, what we're doing from service revenue, how you think of value of new product launches, portfolio mix. And so we have a holistic playbook across every region, across every business to drive price. So we view this as sort of a new capability. We don't -- we think last year was sort of the peak of price that we would take. I think on a go-forward basis, you can think of us as trying to drive towards a model of low single-digit price like order of magnitude, 1%, 2%, something in that range to kind of complement the growth profile. And we feel good about the capabilities we've built in-house, the strong focus on that.

So does that make you less, more or indifferent to delivering 5.5% plus LRP goal?

I think it's -- I think the nice thing about our growth profile. We're not dependent on one thing in terms of driving outsized growth like we have done. Also, I would say, it's nice because as -- look things happen in a given year and even take China this year that we're talking about, if you look at our top line guide, right? We're over 5.8% with absorbing a China headwind. So I think it's the beauty of BD's profile. We've done a nice job of increasing our WAMGR, and we have all these different levers that we can pull to help drive that.

Let's talk about China.

Yes.

Anything new there?

Good question. A couple of things. Maybe just to give everyone some context. So one -- that was one of the things that like when we entered Q1, did we call volume-based procurement the right way, right? It was a headwind. China was down 5%. It was very much in line with what we predicted. Actually, they did slightly better. It's very much indexed against our MDS portfolio. They've gone through this before. We have a great team in there that does a nice job of thinking of as we go through those, how do we maintain a strong volume position in the market? And how do we go to market maybe differently digital capabilities to help kind of moderate some of the pricing -- negative pricing dynamics that happen as a result of that? So I would say it's very isolated. You still have BDI and you have our Life Sciences portfolio that's growing minimum high single digits. We continue to see those that will do that. And then as we navigate through the back half of this year, this really started late in Q4 and so there's a Q4 headwind that becomes a favorable comp this year in China. It's part of that kind of growth acceleration we see in our phasing this year. And so China is playing out as expected. Look, it's still a strong market, right? We want to be there to kind of serve those patients that there's significant unmet need. We have a great portfolio. We're focused on kind of how we go to market to maintain profitability. And I think the other important thing is strategically with China, what we've done is we're not dependent on sourcing from China, right? You want to make sure that you're not dependent on manufacturing dynamics that somehow impact the rest of your business. So think of kind of like a China for China strategy, for the most part as it relates to innovation and manufacturing.

You have local manufacturing?

We do. But that's -- again, it's more China for China. We're not sourcing out of China. There was one place where we were single source, which goes back to more of our COVID portfolio, COVID-only. We're actually now dual source there. The rest of our business is not dependent on sourcing from China for the rest of the world.

And what percentage of revenue is in China?

It's about 7%.

7%. Okay. And VBP should improve in the back half of the year and then all clear into next year? Or how do we think about rolling VBP?

Yes. I mean, look, it's always there to a degree. I mean, even before this year, it's kind of just becomes a way of doing business. I think this was more of a bit of an outsized dynamic. We're not seeing that. It's playing out as expected. So I do think like it stabilizes to go through the year. We talked about China this year, still being kind of a low single-digit grower despite that. And then as we move into the back year, you kind of cycle through the negative comp and this should get back to kind of a stronger growth profile that's supportive of our kind of more total [ BD55 plus ] growth.

So let's talk about certain products. Which ones are you even most excited about?

Yes. So maybe bigger picture, what we've been systemically trying to do here is increase BD's WAMGR, right? We've seen now, including this guide, basically an organic growth rate of almost 7% across 3 years, which is really strong. And even this year, by the way, already includes absorbing this COVID-only dynamic that we were just moving away from. We want to stop talking about COVID and get people focused on the base. And we've done it in a few different ways. One, portfolio-type actions, right? We spun embecta. We divested V.Mueller. These were all negative to our growth profile. We were kind of more low single digit to flat growth. That's had a lift on our average WAMGR that we participate in. We've been very strategic about tuck-in M&A. We've deployed about $3 billion of capital. We're acquiring accretive margin and growth assets. We can talk more about that later, if you want, but it's been a nice contributor last year, as an example, that contributed 40 basis points to our growth profile organically. So we don't count the onetime lift. It's not about the onetime lift. It's about adding assets that are growing high single digit, double digit and strengthen your overall growth profile. And then lastly, R&D, like we've been very focused. We increased the amount of R&D. We've completely enhanced our delivery of milestones, on-time launches. So we're hyper focused on those metrics. And then the mix of our portfolio. We now have 60% of our R&D indexed against these higher-growth spaces. And so all of that has led to this 7% growth profile or just under 7% 3-year CAGR. In terms of areas, we are a big companies. We have a lot of businesses to talk about. So we try to simplify, what are the things that are -- where we're going to sort of drive differentiated capital allocation and that will be consistent, higher-growth performers. I think there are 6 key areas. Alaris is one that we talked about, that's kind of like a separate event that's happened, it's super positive. But in addition to that, if you look across our 3 segments, in BDI, you have -- in our PI business, peripheral vascular disease. You have our PureWick franchise in incontinence. That's been a consistent high single-digit grower. In Life Sciences, we have our Biosciences business, which was performed really well. It's differentiated actually versus peers in the marketplace. And then we have our molecular diagnostic business as well. So I think BD COR, BD MAX. Then in Medical, we have pharmacy automation. That's -- and I'll go through some examples of like how strategically we're driving this. And then pharma systems with prefilled syringes, and on the trends of biologics, everyone thinks of it as GLP-1. There's much more than GLP-1s that are good trends in there to think about. But certainly, we are benefiting from that positively indexed. And the nice thing about all of these are -- there are examples of capital deployment in a differentiated way going to each of these business. So pharma systems as an example. We've over-indexed capital expenditure deployment to ensure we back capacity. Pharmacy automation was a great example. We acquired Parata $1.5 billion acquisition. Basically more than -- basically doubled the size of our pharmacy automation business, maybe not quite, but we now have a $700 million robotic automation business accretive to margin, accretive to growth. And then there's been strong organic focus, like our FACSDiscover platform and BDB, that's all driven from our internal organic innovation and R&D pipeline. So you can see that strategy playing across all 3 of those buckets around how we're deploying capital in those space. Those 6 areas comprise about 25% of BD's business. And if they alone just grow, pick a number in high single digits. It can add over 200 basis points to BD's total growth rate, which means you just need the rest of BD to kind of grow more at that lower mid-single digit to get to the [ 55 plus]. So that's the strategy. And by the way, we have some other exciting assets in the other parts of this, but I think that's the best way to simplify those areas that you should stay focused on. But we certainly have other things that are exciting.

There are some Medtech companies that make acquisitions, pause, digest, make acquisitions, pause, digest. And then there are other Medtech companies that are like annual, semiannual, buy, integrate -- or it becomes organic, buy, integrate becomes organic. What do you think -- is there a mantra for BD's M&A strategy? Or is it as it comes along?

There are 2 pieces to it. I mean, one, it does tie to this kind of cash discipline color. We want to continue to drive strong free cash flow. It gives us firepower capacity to keep doing M&A. We want to be disciplined around our net leverage target. We kind of have this target of around [ 2x, 2.5x]. So we'll drive that, we'll create firepower. Then it's about being patient and strategic and disciplined on the deals that we've done. We've done -- we've done a really good job with these deals ensuring accretive to growth. They're accretive to margin. We're absorbing the EPS impact as we do these deals, right? In the first year, oftentimes, you have onetime expenses. We're absorbing all that, not impacting our growth rates. And in many cases, like Parata is actually positive. So there has to be a strong discipline and patience as you deploy these. We have really clear metrics that we guide towards. But I do think you're going to see this natural rhythm of build cash, get your net leverage down, strike on an opportunity as it becomes available, integrate it successfully, get the value of it. You may lever up a little bit. It doesn't change your credit rating as you do that and you deploy cash, focus on success, lever back down. And then another one. Yes. So it's kind of that cycle. The other thing that we did share is -- we've done $3 billion in capital deployment. The first $1.5 billion, I think the average deal size was probably $100 million, just to pick a number of programs, it's roughly I guess, 17 deals -- order of magnitude, 17, 18 deals. And then we did Parata, one deal for $1.5 billion. The chunkier ones, it's almost the same amount of work sometimes all these smaller deals. We'd like to move to these a little bit chunkier assets. I think they're more noticeable externally. They have a bigger impact on your business faster. With that said, as much as we like to do that, there's a role for these smaller ones because they become just like another way to do R&D. So think of it as a mix of, we would like the majority of it to be larger chunkier tuck-ins and then reserve like 20%, 30% to kind of the smaller supplement to your R&D portfolio.

One of the things that I've been fascinated by over the last couple of years is how much the pandemic has changed everything. And you guys are closest to the hospital. How has it changed the purchasing pattern and how you think about servicing the hospital?

That's a great question. I think -- so 2 things. The one nice thing about BD's portfolio is we were less impact. The one thing you see in our profile if someone's going to an acute care setting, they're using a BD product. So we didn't have as much of the volatility in some of our base. Actually, there were some outsized opportunities, COVID-only actually being one of them. We capitalized on from a reinvestment standpoint. I think the big trend shift that is a positive for BD or these dynamics that you see play out in the healthcare system, whether it be the number of availability of nurses, labor rates that are happening in hospitals and the pressure that they're feeling. You're seeing the same dynamic play out in like the pharmacy setting with shortage of pharmacists and pharmacists burn out, same thing cost of pharmacists because you have that same kind of supply-demand dynamic playing out with labor. So the nice thing, some of these areas where we've been driving our strategy is anchored right against those trends in the form of solutions that can actually help that, right? So the Parata acquisition is a great example. It eliminates the time of counting pills and fully automates that process that you have a highly educated pharmacist spending time, counting bills when they can actually doing other key clinical activities, right? Especially as you think of trying to drive healthcare to different care settings. So I think that's a great example. Alaris is going to be a great example. When you think of Interop. We're the leader in terms of number of Interop sites and the benefit that offers to nursing in terms of simplification of executing the work they need to do. So that's a big win. We have examples of that throughout our portfolio that lend themselves nicely. So I think some of those trends are the biggest ones and the more that you can bring value to the system with your portfolio is something that we're hyper focused on.

One of the things I didn't hear you mention in terms of healthcare trends as a movement to the ASC. And where does that fit in?

Yes. We see that. So that's certainly a trend. I mean we have -- like if you think of our strategy that we've talked about, there's 3 irreversible courses we've talked about that our whole -- again, capital allocation is anchored against it. It's chronic disease. It's new care settings and then connected care. So I touched on a couple of those. I think the ASC fits a bit right into the new care settings. We have innovation anchored against some of those things, different types of offerings. And I think we have examples of -- take for example, our Pyxis offering, where we have a typical acute care setting offering that supports medication delivery, but we also have a different form that fits in like a long-term care facility that's more conducive to that environment. Same thing with Parata, actually, like we talk about retail pharmacy. They actually have offerings for long-term care. And so that's we -- throughout our portfolio. We talked about in Life Sciences, our mini draw, which we just got regulatory clearance for. We're expected to launch later this year, right? It's a fingerstick blood draw that could be very conducive to doing that in new care setting environments and still done in a way that you got a quality blood draw. It could be done with a different type of clinician support versus what's needed in acute care setting. So we very much have a strategy anchor within our portfolio against those 3 irreversible courses.

So you've now been at BD, if I can't write, 3 years. And what is it that you have accomplished? And what is it that you want to accomplish in the next 3 years?

Yes. I think we -- so you're going to see a lot of -- the BD2025 strategy was all about increasing our WAMGR, simplifying our portfolio. So we made some very clear portfolio choices. Like I shared earlier, how we're driving our WAMGR, which leads to a stronger growth profile. I think we've fully solidified that. Personally, I've brought a lot to kind of what we do from an M&A standpoint and how we do that and think through that strategy, I think that's been a key success as part of that. The margin discipline and what we're driving in terms of an inventory of simplification programs. We can talk more about this. We're excited about getting to 25 in '25. But honestly, like we laid out in an earlier conference this year, the momentum we have and the number of initiatives as I look forward and maybe kind of a little bit to your question of like, what's next? I think we've done great work. It's continuing that momentum beyond 2025 with more of an emphasis on gross margin. What we'd really like to do is have gross margin be more the flywheel for investment, further fueling R&D, further fueling go-to-market resources. We think that's where the biggest opportunity is. It's also the area where it was most impacted by inflation. We've rolled out a whole BD excellence initiative. And we're literally like as a leadership team, we spend time in one of our plants for a full week doing the Jujutsu Kaizen event.

I'm sorry, what?

It's a Kaizen event. But literally, the principle is get out on the floor, observe what's happening and fix it immediately. Like we have a high-powered team of coaches and we're really rolling this out through every plant. Last year, for example, 18 of our sites went through one of these major Kaizen events.

Have you done a Kaizen event?

Yes. Okay. So they're fun. CFO was on the line. We're cleaning pallets. They're moving products around and getting your hands dirty, it was good. But you're seeing a ton of momentum there in terms of improving OEE, driving waste improvement through our sites. So it's a -- we've done good on the margin, say, really good. I mean, we're top quartile in terms of like how we've performed, who's been able to get back to pre-pandemic levels. But what you can hear is the excitement of -- there's more there that will continue this kind of double-digit growth profile. I think the cash focus is something, I think, I would put more in the -- we have opportunity bucket. I think generally, Medtech. When you look at inventory days or most standard metrics and compare to other industries, we're not as strong. So -- and some of that is the nature of the industry. Some of it, I think, just becomes accepted and our mindset is what's a CPG company do? And what does this company do? And can we be better? And so you're seeing us take that mindset and drive cash flow to a higher place, which will also again drive that flywheel. So I think we have the right strategy that's confident. You see it playing out in our base business. And I think we look forward to driving more of that. I think the things to look forward, go forward is more emphasis on gross margin with all the enablers we have there, and then continuing as a result of that, the margin will help with cash to focus on cash and then the inorganic kind of keep fueling the growth profile.

Excellent. So Chris, a year from now, when we're sitting here and we're talking again, what are we going to be talking about?

Yes, it's probably -- it's a little bit of what we just talked about. I mean it's -- so one, I think, of course, I think we'll have much more clarity to the success on Alaris and talk about how that's been a key enabler. We're going to be able to share more around kind of gross margin and how we see that progressing to continue our goal of consistent double-digit earnings over periods of time. I think that's going to be a huge value unlock. But largely, I think you're seeing kind of the BD story play out and what we've done the past 2 years, this year complements it. You're seeing this nice growth profile of -- we've been well above the [ 55 ] plus. I think you know there's many -- there's very few companies that are -- there's a couple I can think of that are consistently in that high single digits, and they have a different profile than BD. There's many that aspire to be where we are. And I think the nice thing is it's a bit -- it's like high growth but durability given the nature of our portfolio. So you kind of get a little bit of the best of both worlds that puts us in a differentiated place. And then I think the gross margin will drive reinvestment that will help continue that. And then obviously, the value of the earnings will become worth more to as we drive towards that double-digit earnings growth profile. So we're excited.

Well, thank you so much for joining us this morning at Citi's Unplugged meeting, and have a great day.

Yes. Thank you. Great questions. I appreciate it. Thanks, everyone, for taking the time.