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

Great. Thanks, everyone, for joining us this morning. It's a pleasure to have with us Becton, Dickinson. From the company, we have CFO, Chris DelOrefice. We also have Rick Byrd, EVP and President of Interventional business, and I'm Vijay Kumar, cover devices, Life Sciences here at Evercore. Chris, and Rick, thank you so much for the time this morning.

Yes. You bet.

Our pleasure.

Fantastic. And before we dive into, I have a list of questions, but if you want to make any opening comments, Chris?

Yes. Sure. Well, one, thanks, everyone, for joining. And Vijay, thanks as always for having us. Yes. I guess maybe just a quick recap, right? We just wrapped up fiscal year '24, and we set our guide for fiscal year '25. I think just a few things that I would point out. If you look at fiscal year '24, strong growth of 5% overall. Obviously, the year played out a bit different than we started. We had to adjust for some of these market dynamics, in particular, in the tool space. But if you actually bifurcate kind of the growth profile, we basically had 2 businesses, BDB, Pharm Systems that grew low single digits, about 1%. The rest of the portfolio, inclusive of navigating a low single-digit decline in China. It was almost 6% growth, right? So you see the value and durability of the BD portfolio. And I think when you think of our FY '25 guide on growth, similar kind of frame, we still have these market dynamics. We wanted to make sure we started the year with a prudent guide. So you see 4% to 4.5% organic growth assumed in there is actually China getting a little bit worse, I would call Tools and Pharm systems similar and I know we can talk more about that as we go through the discussion. But importantly, the rest of the business, 5.5% growth. Again, we have a very durable portfolio that allows us to overcome these market dynamics. I think importantly, where we're competing in these spaces. We have good leadership positions in share, BDB, Pharm systems, biologics growing double digits. I think the other important thing as you looked at how we exited '24 into '25 was gross margin. Really strong second half gross margin. I've shared this before. You see about 100 basis points improvement in our FY '25 guide. That's going to be something that continues. We have an Investor Day coming up, we really have good momentum with BD excellence and you should see our margin cadence being driven largely by gross margin and healthy reinvestment back in the business. We can talk about some of those areas as we go through. Lastly, we've been super focused on cash as well. We had strong cash conversion, 82% in fiscal year '24. It will be similar on our base in fiscal year '25. We will have to invest some cash in the advanced patient monitoring acquisition to stand up that business. So it will be a modest step back, but strong cash generation, which gives us some financial flexibility to deploy more capital in value-creating ways. For example, we did share that through the course of this year, we're going to do about $1 billion of share buybacks throughout the year. And then lastly, we did set up '25 for a nice earnings growth at just about 10% at the midpoint. So we're seeing strong leverage on margin, solid mid-single-digit growth, all supporting basically 10% earnings growth at the midpoint. So I think you see the strategy playing out, while may be clouded by a bit of these market dynamics so we can get into that a bit more. But we think it's a really good starting point for the year and I think representative of the strength of the BD portfolio and what we're doing from a BD Excellence standpoint.

Fantastic. Before we dive into some of those specifics first, maybe from a macro standpoint, a lot of changes here post-elections at HHS, CMS, FDA. What impact, if any, does BD have? I know vaccine has been a focus for investors. I'm curious how you're thinking about the macro?

Yes. And we can go deeper here depending on where you want to go. I guess, one, let's start with -- let's start with the positive. I mean I think generally, for medtech, the utilization we're seeing in the health care system has been strong, right? We expect that to continue. We don't see a change happening there. BD's portfolio is nicely indexed against that overall. And you saw that in both fiscal year '24 and the fiscal year '25 guide that I just talked about, I think of businesses like MDS, specimen management. We have Rick here, the interventional business did extremely well. So we can talk more about that. So I feel good about the core underlying kind of utilization that we're seeing in health care. I think beyond that, you have predominantly kind of the administrative change, right, with the election and call it other geopolitical dynamics that we've largely been living in as it relates to conflicts, et cetera. We continue to look at those things as it relates to like supply disruption. I think we proved we had a very resilient supply chain navigating COVID, being able to overcome those dynamics. We can talk more about the election. But I mean, look, we've worked well, first of all, health care is something that's going to be a priority. It's a very bipartisan topic, right? I think there's focus on access and there's focus on resiliency. And BD plays an important role in both of those spaces. And we've experienced this administration before, right? And I think largely, we actually had good trade and economic conditions. And I think we're all reading and watching the same things externally. I think there's positioning for political dynamics. But I think everyone is going to want to be aligned around kind of protecting health care in particular. So we'll continue to watch that, of course and adjust accordingly. But we're not alone there. And I think there's reasons to be more optimistic as it relates to prior experience that we've had in that regard that we shouldn't lose sight of.

Got you. And I think one related because Mexico is a big manufacturing hub for you guys. How are you thinking about tariffs, some of the proposals we heard either in China or Mexico?

Yes. So tariffs, again, this -- it's a little tricky, premature to kind of speculate on that. When I go back to what I shared before, I think a lot of this is -- I don't want to be dismissive of it, right, but there's clear positioning that's happening I think a lot of what you read and what you hear even from some of the leadership is nobody wants to end up in a situation that is going to be disruptive to economic dynamics and certainly within health care, again, I go back to health care, and we spend a lot of time, of course, as BD and have strong access to shaping policy and engaging in those things. And we think it's easy to gain bipartisan support on some of those key things, access, resiliency and so again, I don't think it's sort of like the probable outcome is sort of what you're hearing out there. We leave China before again. It was very manageable. That one, we've done a nice job with our global network and positioning ourselves to be more China for China. We're not dependent on large exports from there. So we're well positioned in that regard. Broadly speaking, we do have a large and regional manufacturing network with strong presence in the U.S., presence in European hubs, et cetera. So that, of course, helps. Again, I think this is one of those things that it would be broad-based. It's not a BD specific topic per se. We're watching it. We're doing our part as it relates to shaping and making sure we're protecting health care and whenever we enter those discussions we get positive reception through those.

Understood. And do you import from China, Chris?

We had only one small part of our portfolio that we were sourcing from there, which was our or COVID-only assay that we had developed, but that's obviously a very small portion of our business now, and we had alternative sources, but so nothing substantive.

That's helpful. Then switching over to some of the fiscal '25 guidance dynamics. You did call out 125 basis points of headwinds between biosciences Pharm Systems in China. How -- when you look at those assumptions, right, Chris, how conservative are these assumptions?

Yes. So one, we wanted to be prudent. The reality is you're still seeing market dynamics play out in tools. We're not alone there. BDs, we have a bigger portfolio and folks that are tracking some of the pure plays in those spaces. I think it's -- they're more familiar with it. The important thing we're trying to do is make sure that we're competing. I think we consistently posted strong results in the market. And so we're winning business there. We do have a strong BDB portfolio. Our portfolio is actually also nicely indexed against clinical, which has more stability to it as well. It's the research side and funding there that's been more impacted. So it's simple -- so that's one area. The other area was Pharm Systems. That one is really just working through inventory in the system, and there were some kind of dynamics around vaccinations where you saw kind of a pullback there. But that business is super healthy. We've got strong leadership positions as it relates to portfolio, manufacturing scale and capability. Biologics, which is now about 45% of that business is growing double digits. It's our prefilled syringes in there predominantly. That's where you see the GLP-1 trends that's been part of that growth rate. That one we probably have the -- I'm going to call it the best line of sight to the inventory will work itself through and we see this as probably the -- call it, the last year of that. I think tools is a little more uncertain because there's a connection to funding dynamics. And then the other thing we contemplated was China, which is 2 things. That ties into the tools discussion, right, with funding and then a little bit on volume-based procurement where they're more rolling out some national tenders. What we did there in our guide was we had declined in China about 3% last year. We actually -- our guide assumes kind of mid-single-digit decline. So I would think of the years where we're setting up the year or 2 with everything we know, of course, these things can evolve. But prudent starting point on those areas that are most market impacted. And then when you look at the rest of our portfolio, again, it's 5.5% growth on the guide for those versus, call it, flattish to low single digit collectively on those market impacted. That's what gets you to the 4% to 4.5%. But that 5.5% is strong contribution from interventional. Our supplies business is continuing to do well and competing and driving both category and share and -- so I think we've properly set up the year with everything that we know. And yes, it's a little softer than what you're used to seeing. If you look at our CAGR through '21 through 2025, it's almost 6%, 5.9%, inclusive of this guide. But I think what it really illustrates is that the durability of our growth profile to deliver mid-single digits despite all those dynamics that you're seeing in those areas that the pure-play companies are also experiencing and we continue to compete in. So I think it's an appropriate posture. Like I said, with the margin, we're still able to deliver double-digit EPS. Our total revenue growth is actually about 9% at the midpoint with APM. I wouldn't underplay that. I know it doesn't show up as organic, but that's going to add to our organic portfolio growth profile in the subsequent year once we lap that. That's probably an area where if you ask me where there's some opportunities for upside, I think we've got good momentum in that business. We have good momentum in our supplies business, and we can talk to Rick in a bit, but he's doing some great things in UCC and surgery as example. So...

Got you. And now before we move on to Rick, I guess one last question on this China topic in these headwinds, right? Why these 125 basis points of headwinds in fiscal '25, first half loaded. Are we assuming markets normalize in the back half?

Yes. So when you think of the -- so first of all, they're phasing, we've gotten a little bit of questions on the phasing. Our phasing is not near as extreme as it was last year, right? Like earnings are super balanced, it's basically said it's double-digit growth first half, second half on earnings. You're going to see consistent out the gate strong margin with what I would call normal margin ramp that you would expect throughout the year. So I feel really good about, call it, the middle of the P&L. There's always some quarterly fluctuation, but I think just that's a good indication, thinking first half, second half super balanced. Even on top line, it's 48% first half, 52% second half. BD has always had a little bit of like as you think of just the dollars, a natural ramp as you grow through the year. It's not far off from kind of historical norms there. I think what folks are maybe reacting to a little bit is some of the actual growth rates in the first half. You have 2 things happening there. Q1, in particular. Last year, this time in Q1, remember, our BDB business on the strength of the innovation cycle we were going through with Fax Discover and even Pharm Systems. Those 2 businesses were still growing mid-single digits, basically. And so we have to lap that comp. And then people say, "Yes, but your Q1 last year was kind of the low watermark in terms of growth rate. But what happened last year was that was the final year of moving kind of COVID respiratory into our base business and you still had chunk of your business there. So it doesn't help this year, right? It's not a comp that actually helps this year. It was kind of a year-over-year comp. So you have that dynamic in Q1. We had a little bit of licensing revenue in Q2 and those are really the dynamics. You actually see, I would call it, relatively stable performance throughout. As a matter of fact, the guide is -- if you look at '24, we've lowered the guide versus where we were -- what we delivered in '24 and so a much smoother line. So I really think it is much more manageable. And like I said, on the bottom line, it's super balanced.

Understood. And so back half, look, we're assuming destocking to be over China to get back to like normalized...

We start lapping China in the -- by the second half in Q4, there's a little bit of that. But you don't need massive, like favorable comps to drive this, and we're not assuming a significant turn on market dynamics through the year, maybe a slower ramp in safe arm systems as we move through the inventory dynamics. So there's a little bit of that. China, for sure, we had a favorable comp last year in our MDS business. We actually grew China in Q4 where you started seeing kind of new volume-based procurement rollout late last year in other businesses. So you have kind of portfolio mix in there that does improve as you move through the second half.

Got you. And maybe Rick for you on urology. Really strong double-digit growth in Q4. How are you thinking of sustainability? Were there any one-offs in Q4?

Yes. No, no one offs to speak about. And actually, UCC had an overall strong year for the entire year. And so it's really driven by the strength of PureWick, and the PureWick franchise, both in the acute care setting and in the home care setting. And so if you step back and you think about what PureWick addresses in the home care, it's urinary incontinence, which hundreds of millions of patients suffer from this issue. And it's a wonderful product to address that issue, especially in long-term care, elderly, things like that. And so that's the challenges that it addresses there. And then in the acute care market, you're really addressing urinary tract infections due to indwelling catheters. So it allows an external catheter to be placed and actually replace those in-dwelling catheters. And so we're seeing both growth in the acute care space as well as in the home care space. Strength, both female and male. We launched male a couple of years back. And as we say, the male is growing faster than actually the female. And so overall, the franchise, what I think, 29th consecutive quarter of double-digit growth. And so if we think about then the durability going forward so some key things, we launched next-generation female actually at the end of last year. It's called PureWick Flex. It's got greater comfort, it's got greater, I would say, fitting and stability there. So therefore, its capture rate has even improved. Again, one of the best features out there from these external catheters. And so that allows us to both upgrade as well as take share. So we're really seeing great uptake in PureWick Flex. And then on the other launch piece, we put PureWick male in the home care setting and seeing great response there in the home care setting. So when you think about durability, we have great opportunity with Flex, continued in the home care space, continued in acute care, male is taking off and still lots of opportunity for conversions and share capture as well in the acute care. And then we're just tapping into the home care market for male. And then when we think from an innovation perspective, at the end of the year, we're coming out with a portable system. And so allow patients that with incontinence issues to travel outside the home. Our first product will be more as a wheelchair based, and then we'll have subsequent innovations around more mobility for a lifestyle solution from that aspect. So again, good new products from a growth perspective there. Other aspects of growth we really have just begun to tap into the ex U.S. So all of this growth has really come from the U.S. And so we have an opportunity ex U.S. where we actually develop. We're working on more evidence generation. So in these areas where we can get reimbursement, we'll get reimbursement ex U.S. as well as tapping into the markets, maybe Japan, the U.K., some of the Nordic countries, China, for instance, where we're going to launch and get good traction there. And that's very early stage of market shaping market development. And then finally, our home care business is all still self-pay. So it's not reimbursed. And we're in the final stages of generating the evidence that we need to satisfy CMS for reimbursement. And so that will really unlock PureWick to a whole another population of patients for us. So still at the -- in the early innings of PureWick. And as we say, we have said this, it's about -- we expect it to be a $1 billion franchise by around 2030.

That's extremely helpful. On the reimbursement front, is that a fiscal '25 for you guys? And what kind of market it does open for you if you do have reimbursement.

Yes. I don't think we've quantified it, but it's significant. The patient population that opens up too. And I don't want to speculate in aspects with CMS, but we will complete our work to develop the evidence by the end of the calendar year, '25. So we should be prepared to have all of our evidence in there and then depending on the decisions that are made, et cetera.

Understood. Then I think a couple of other product categories within surgical, hemostat sealants and hernia meshes come up for you guys. What is your share position? I think you've been gaining share in both of those categories. Maybe talk about your share position and sustainability of share gains?

Yes. First off, surgery couldn't be more pleased with the surgery business. Fantastic growth both in the quarter and in the fiscal year. Sometimes it gets missed because people forget the divestiture of the surgical instrument business. And so that looks like we have to look at the organic growth to see the true growth and it's really been strong. And the growth has been strong, to your point, across all 3 platforms. So that business, if you think about it is primarily the hemostat business, the infection prevention aspects of the portfolio and then the hernia piece. So I'll finish with the hernia piece because that's probably the one that gets the most press and is the most -- one of the greatest prospects for growth. But surgical -- the hemostat business, to your point, we have great position in powder hemostats. And so that's in great strength in the U.S. And then outside the U.S., strong double-digit growth there. And then we've talked about our innovation portfolio there as we're continuing to build out the basic hemostat portfolio that will make us very competitive and continue to be very competitive in that space. So good prospects for biosurgery. Our infection prevention has primarily been based on ChloraPrep, such a strong franchise, again, #1 infection prevention product and in the U.S., we've had competitors come in, have not really made a mark at all, if at all, taken any position. So we've maintained our position and continue to strengthen through our market shaping work, we've been able to develop ex-U.S. the portfolio. And so we're starting to see really good conversions into ChloraPrep outside the U.S. But I think the one thing that maybe is not as obvious is we did a small tuck-in acquisition of a company, a product called Surgiphor, which is an external wound irrigation. So more perioperative wound irrigation for the aspect of infection prevention. And so that is actually providing us really good growth prospects there. We've seen that get into guidelines. We've got innovation coming out that's going to strengthen it, maybe more indications. And so we've been looking for ways to innovate around ChloraPrep and broaden it. And so this Surgiphor is really a great opportunity for us to kind of grow that portfolio. So good strength there across those 2. And then as you say, hernia again, market-leading positions there. And what we're doing there is really transforming that space with our product Phasix, where we're upgrading clinical practice from, say, polypropylene mesh or even biologics, expensive biologics to this bioresorbable material that we have about 12 years of clinical evidence, 75 publications that show the -- not only the efficacy, the safety, the less complications. And so very strong podium presentations really counting the strength of Phasix. And so what that allows us to do is create a hernia transformation strategy, we're really moving people from polypropylene mesh to Phasix. And we've been doing it with -- I wouldn't say standard sheets, so to speak, of the bioresorbable material Phasix. Now you're going to see us continue with innovation where we'll have fit for purpose type devices. So our first one will be Phasix umbilical so we'll replace one of the most common aspects with bioresorbable material. So just when you think about these things, think about having a polypropylene mesh in your belly for all that time compared with the ability to have this bioresorbable material that stays in maybe 6 months and then gets resorbed into the body. So it's really just a great preference there. And then you'll see us doing things like parastomal. So these more fit-for-purpose type aspects. That's continuing to innovate and continue to do gain share.

Rick's got some exciting spaces, team's done an outstanding job. And I think the nice thing is they all have runway, too. They're in earlier innings and PureWick, for example, we said we see that as a $1 billion platform by 2030. So I think surgery has got some great runway as well, when you think of the penetration there the opportunity on patients, but us capitalizing on that. So...

And then we'll put a little teaser out for Investor Day, where we'll talk more about, say, some of the adjacencies where we think we can use the bioresorbable material and drive growth into the future.

Got you. And maybe, Chris, on some of these more targeted sort of segment-level questions. Some of your life science peers, they've noted a stable environment, maybe even improving environment. So when you look at bioscience, right, that smells like Life Sciences, why shouldn't let biosciences come in better versus how you've thought about fiscal '25?

I think -- so one, our Biosciences business, like I said, is one has been very competitive. I mean we've been outperforming kind of the peer set in the space. When you look at our biosciences business, there's really 2 components, a core research component and then a clinical component, right? There's more durability with clinical as you think of oncology and serving patients, et cetera, there. So that's actually been a consistent, durable performer and it's been part of why we've had elevated positive growth rate relative to others in the market. Research, we're well positioned from a technology standpoint. We've got FACSDiscover. We're in the cover of Science magazine, as you think of kind of future innovation, we have the S8 analyzer that we'll be launching, again, we'll share a lot more of the innovation journey in our Investor Day that will be a big part of what we do. That business will come back. There's going to continue to be research in all these critical areas. So I think it's just a question of when and when we start seeing better line of sight to that. Again, I think we're trying to be prudent with a starting point for the year. Obviously, if the market returns earlier, we're well positioned to continue to compete and win business there. And if we're doing that in a higher market, we'll take that. But the portfolio is really, really well positioned, and we feel good about that business. Does that answer your question?

It does. It does. If I'm hearing you, it seems like conservative assumptions and not baked in much. And if it comes back that's upside.

Yes. I think we're all just -- I think everything here it's just a question of when it comes back, right? It's a space that has too much critical research happening that it will come back. It's just a question of when.

Understood. On the Pharm Systems, that's the other copy trade with the destocking. But there's a lot of positives, right, whether you look at biosimilars, GLP-1s, and biologics, which is almost half the revenues out there. What does biologics been growing for you guys, right, if destocking does end, is this entire franchise high single double-digit grower for you guys?

For sure. Again, when you think of the strength of our portfolio, nothing's really changed as it relates to, call it, the underlying fundamental capability of our portfolio deliver growth at that 5.5% plus. We're just navigating some market dynamics of anything. We've only taken actions that have further strengthened our portfolio, adding APM $1 billion business. We characterize it as a consistent 6% to 7% grower that over indexes versus the 5.5% plus, but that's a nice add. When you think of Pharm systems, couldn't be more excited. If you look back pre-kind of this inventory destocking for multiple years, it was a consistent double-digit grower the total business. Biologics, specifically, where we're positively indexed against the GLP-1 trends, but there's a lot of other areas in there when you think of the biologics portfolio. It's about 45% of the total business. It's been -- that's been consistently growing double digits even through these market dynamics. So the trends there are super durable. We've done a nice job of winning business since 2023. I want to say 19 of 23 FDA-approved drugs. We've been selected as the partner of choice in there. And even on the biosimilar side, we've got like 40 biosimilar deals. So we keep building momentum around contracts. We have scale manufacturing. We're focused on quality. We have a good innovation pipeline as you think of technology that will be useful for future drugs, wearable devices as well. So there's a lot of exciting things there that will continue. And that business, for sure, will get back to consistent high single-digit, if not double-digit growth. That one is the one that I would say is there's a stronger line of sight to. I think we're working through the inventory dynamics. We got a little bit hit with I think the vaccination kind of fatigue dynamic a little bit. I think of that as a bit of a onetime time reset, right? You got to clear out the inventory. We should as we cycle over that, get through that one. But that probably has the strongest line of sight to future, especially when you think of us continuing to contract business like I just shared. So we're really excited. That's a business to continue to look at as a durable performer.

I think a while ago, you had quantified GLP-1s as a $1 billion opportunity. Is that still intact? Or is it now conservative?

Well, I hope it's conservative. It's -- but no, it's still -- it's not $1 billion yet, just to be clear, right? It's -- our total biologics is about $1 billion 45%. GLP-1s has been a core part of the double-digit growth we're experiencing there, but we see that getting to $1 billion in that similar time frame. And again, that's another one that we can bring to life a little bit more as we think of our Investor Day. This one is nicely indexed against key trends we talk about, right? If you think of chronic disease, innovating there in durable disease states and then even at home and like the concept of wearable devices and which gets at the core of cost of health care, convenience. So it's a good opportunity.

Understood. Another key element for fiscal '25 guidance was Alaris. I know the streets looked at this backlog assumptions. But what is your fiscal '25 assuming for Alaris? And why can't backlog come back? I mean all the services we do on capital seems to be trending in the right direction?

Yes. I mean, look, so we -- it was great to get back to market last year. We exceeded our initial external guide there and even exceeded our internal plans that we had set throughout the year, kind of stretched goals. So did an amazing job of scaling many. We literally had to scale manufacturing up to be prepared. It was kind of a 0 start as you think of it in terms of getting committed contracts and engaging with customers and to be able to do all of that at a scale level and exit the year at our normal run rate of $400 million. As you think of '25, we said it will be a contributor to our growth rate overall. So it will certainly be north of $400 million. And another important contributor won't be quite as large as it was last year because last year, we have a smaller baseline where we only had about $100 million of medical necessity revenue in the 2023 baseline, but it's still a meaningful contributor to growth. I think importantly, what we're seeing is there is strong interest in the platform. It's certainly the preferred choice by nurses, clinicians, they see the value of power of one. They see the value of Interop. As you start thinking of the cycles that are happening and labor shortages and time as it relates to training new nurses and cost of labor and making every step that they do more efficient, having 1 connected device with multiple add-ons with LVP, et cetera, operated through one central processing unit, Interop. They're starting to be actually more of a move towards standardization as well, right, versus having hybrid setups in the hospital? Does that also then creates complexity for them. So we've been very competitive as we've been in the marketplace. I think this is a nice opportunity for us to maintain, expand our share position, which is already a strong leadership position. This will happen over the next few years. So it should be a positive contributor here beyond '25 and kind of locked up the core of our business. So we're feeling really good about that. And we can talk a little bit about further innovation even as you think of advanced patient monitoring coming in, I think it's a really exciting opportunity to be able to connect hemodynamic monitoring with our fluid management Alaris pump system. And that's something that we've actually already funded in our pipeline is creating kind of closed-loop opportunities with monitoring -- hemodynamic monitoring and the fluid management side of things.

On that topic, Chris, I think there was some disclosure here in the 10-K about on Alaris. Maybe talk about the -- was there any software updates that you guys had to do? And when you think about this closed-loop system with advanced monitoring rate, is that -- do you need the clinical data? Like when can we expect a closed loop product?

Yes. Can you clarify in the 10-K. Are you referring to dispensing?

Yes, yes, yes.

Yes. So that has nothing to do with Alaris, that's our dispensing business. We had a 483 earlier in 2024 in May. We did receive a warning letter last week of November there right before we issued the K, it is not at all associated with Alaris. It's focused on dispensing. Think Pyxis. It's a very different situation. It's a Class 1 exempt device. You don't have to go through the 510(k) registration and approval process. Obviously, we take any quality action seriously. But it's very manageable. We're going to make the investments, put the resources against it. A lot of the feedback was really about the broader just quality system. So very manageable. It doesn't impact revenue. We have a future generation Pyxis launch, doesn't impact that. We'll be extremely responsive to the FDA. And I think importantly, too, it's not representative of the broader work we've done quality since 2020, if you think we've launched Inspire quality. We've made massive investments, and we have a lot of positive regulatory outcomes as folks perform inspections. We had over 275 inspections last year across our network. We have over 180 sites, 37 billion devices that we manufacture. And since 2020, we've actually reduced nonconformances by 75% and field actions by about 25%. So yes, so this is, again, nothing related to Alaris, does not impact anything as it relates to sales or what we shared as it relates to Pyxis specifically and is certainly very manageable, but...

That's helpful. And then when you look at the other sort of fiscal '25 dynamics, I think margin comes up 100 commitment of 100 basis points of margin expansion. Any -- I know BD typically has some phasing, but when you think about that phasing on margin side, what visibility do we have when you look at the back half ramp?

So look, first of all, margin is, I think, a very exciting piece to the value story within BD because we do have a pivot. If you go back to the Investor Day commitments we made back in 2021, we talked about improving operating margin by 400 basis points. A year into it, we actually increased the goal to over 500 basis points. And we're on track to actually exceed that goal. We deliver this year, it will be closer to 550 basis points of margin improvement. And that's with us absorbing significant outsized inflationary pressures through 2022 and 2023. It's leading in terms of industry against anyone as it relates to pacing and degree of margin improvement. So I think it's been a source of strength for us. We haven't missed any of our margin goals. We continue to increase those goals. And even last year, as much as folks had questions about the ramp of margin, we delivered every quarter at or above what we said. And so we have a strong track record of executing against that. BD excellence has been a foundational driver here. And I think the exciting part of the pivot is as we were working through all that outsized inflation, obviously, a lot of that flowed through gross margin. So you didn't see massive improvement in gross margin. You saw some there. You got more leverage on operating margin is what we did. But this year, we said that 100 basis points, the majority of it will come from gross margin. So it sets up kind of a nice flywheel where we're driving more margin improvement on gross margin. You'll get natural leverage on operating margin. We'll also focus on G&A and shipping. But we'll be able to fuel R&D investment, which we've done this year. So we're investing in R&D at a nice pace and same thing with commercial go-to-market, putting incremental investments in place. So we have a strong line of sight. I mean, obviously, we build inventory and we carry depending on the business, call it, 4 or 5 months of inventory. So you have a good indication as to, at minimum, the first half of your margin. And we also have a strong line of sight to the initiatives that we're executing. Some of these have longer lead time, right, take network actions where you're consolidating plans, a lot of them have already happened and then you get the pull-through benefit on the back end. And lastly, if you just look at our margins in the second half of 2024, right? We were north of 54% on average, 54.4% roughly. We're kind of I don't want to say we're already there. There's work to do because there's always new inflation and things that come into the mix that have to be navigated. But at those levels, which were pure and kind of had the noise of the inventory takedown that we did to improve cash, you can already see us performing basically at the level that we need to. So we feel good about that. And I think beyond 2025, again, we'll share more at our Investor Day, but you should expect that formula to continue. Margin growth will come disproportionately from gross margin as part of BD excellence, fuel the bottom line, help drive kind of continued top line momentum, and it creates a nice flywheel of growth and EPS contribution.

Understood. I think talking about margins, I know FX has been -- historically, it's had an impact on margins, post-elections, again, the dollar is strengthened, how are you thinking about FX impact at current rates.

Yes. It's a couple of things. I mean, look, there's 2 ways to think of FX. And last year, if you remember, at the front half of the year, we had some larger transactional FX impacts. But despite that, we actually did maintain our gross margin, right? So we've been able to navigate those. We did put in hedging -- cash flow hedging in place that will partially mitigate that. So we feel good about that added capability. There's transactional FX, right, which is buying and selling across country, then there's pure translational, which has no economic impact. It can change optics. The goal for us was to make sure BD is kind of not separating from our peers as it relates to FX movement, right, and provide more consistency and certainty there. So the hedging we put in place, we'll go a long way to help with that. When we phased into that, you can never hedge 100%, and this was our first year you had to kind of step into it. Broadly, we continue to watch currency. I mean, like the peso, for example, has actually been strong. So as you think of kind of manufacturing and been relatively stable, that's a positive. I think where you could see some translational impacts that again doesn't actually impact underlying cash. It's just the math of translating to U.S. dollars for purposes of external reporting. The euro has been soft, but there's been other currencies that are stronger. So we'll have to watch it. It moves every day. If you watch today. But it's -- I think we're going -- we've positioned ourselves to be much more consistent within, call it, the macro landscape and not stand out and manage that much more positively. So.

Got you. So if I had to summarize maybe no major FX for us as based on current rates is how...

We based on what we see today. But again, it moves all the time. And I think, importantly, it's not thinking of BD is like, "Oh, I got to watch them in a differentiated way." I also don't want to chase translational FX, right, that doesn't have underlying economic business that would be disruptive long term, and that's the way other people operate too...

Got you. Last 30 seconds, Chris, tax rate, it was a wider range for this year. Where are we shaking at low end, midpoint or high end on the tax. And I think you said $1 billion of repo is assume in the guidance, is that right?

Of the share repo? Yes. Yes. So I guess real quick on tax. It did step up. We finished last year at 13.5%. The midpoint of our guide is more like 14 and 3 quarters. So a step up. Some of that includes the Pillar 2 global minimum tax regulations. So we're managing that within our 10% earnings growth. Obviously, there's a wider range on taxes. We have opportunities. We'll look at that. But we feel good that we have a good starting point there, and we've been able to absorb tax increase within a strong earnings growth profile. Glad you mentioned share repurchase, just generally, our focus on cash. The goal for us too, if you think of BD, we came off transformative acquisitions, didn't have as much flexibility on capital allocation. You've seen us be very active on the M&A front that's improving our growth profile. We feel good about digesting the APM acquisition of $4 billion and still get to a net leverage around 2.5x in 12 to 18 months. That's coming off really strong cash flow. We had 82% conversion last year. We'll have another year of strong cash flow generation overall. But with that, we've given ourselves extra flexibility. We really see the -- we've driven the intrinsic value of BD up, and we thought it was prudent to take an opportunity to do some outsized share repurchases. We'll do about $1 billion throughout the year. It is baked into our guidance. There's not massive impact as it relates to actual EPS growth because you have the interest trade-off. Think of it more as we see it as just a value-creating opportunity to buy back shares given where we see multiples now relative to what we think is the intrinsic value and just underlying strength of the business. So we're focused on execution. We feel like we've set up the year for success. And we think there's some exciting things in there. The durability of the growth profile is still there. We're navigating the market dynamics, the margin and gross margin progression specifically is really exciting. I think APM is a great opportunity and our focus on cash and being able to do all that and get to a double-digit earnings, I think, sets up for a nice year.

Great. With that, we're out of time. Chris and Rick, thank you so much for the time.

Thank you. Appreciate it. Thanks, everyone.

Thank you.