Becton, Dickinson & Stock

All right. Welcome back. I'm Larry Biegelsen, the medical device analyst at Wells Fargo, and it's my pleasure to host this fireside chat with the management team from Becton, Dickinson. With us, we have Tom Polen, Chairman, President and CEO; and Vitor Roque, the CFO. Also in attendance, Shawn Bevec, Senior Vice President of Investor Relations; and Adam Reiffe, Vice President of Investor Relations. Tom and Vitor, thanks so much for being here.

Great to be here.

Support of our conference for a long time. So thank you.

The best conference.

Thank you. So Tom, let's start with a big picture question. Q3 was the first quarter for the new BD, and it was a good quarter, fiscal Q3, 4.4% organic growth. You had 90% of the portfolio growing high single digits. Talk about the benefits of the more focused new BD and your top priorities over the next year.

Again, thanks for having me. We've obviously been busy getting the portfolio in the position that we want, both in terms of the number of exits that we've done over the last several years, obviously, Embecta, V. Mueller and then most recently in February, the separation of the life science business to Waters, which we think was an outstanding transaction for our shareholders.

I think recently been valued at about $20 billion based on their stock price. So great -- around 20x multiple as well. That left our focused portfolio that we've also spent a ton of time building over the last several years, whether or not it's the biologics business that we accelerated with a $1.2 billion investment, a number of years ago to our urinary incontinence franchise, to our tissue regeneration business that was built through a tuck-in M&A that we've done over the last few years, obviously, the pharmacy automation, and peripheral vascular and of course, APM, another acquisition that we've done.

And so what you saw was you saw those growth platforms that we've built over the last several years, again, really firing, high single-digit, double-digit growth across essentially all of those growth platforms. They also carry a stronger margin than the average of the company. And so as those continue to accelerate and outperform the base of the company, that also has a positive gross margin benefit to us that you continue to see across the organization.

At the same time, of course, we're executing our Excellence Unleashed strategy, which is focused on bringing and executing BD Excellence across our complete commercial agenda, our innovation agenda and our operational or delivery agenda, we can get into those. But you saw the power of that strategy come through in another strong quarter after several sequential ones in a row. But you can feel in the organization the benefits of the focus on MedTech. And I think you're just seeing the start of that benefit today.

That's helpful. Do you have an Analyst Day coming up in December?

December 10, yes.

First one in a while.

Yes.

Maybe love to get a preview from you of what we should expect. Feel free to share any numbers, but I know, you won't. But how far out will the new LRP go? I think the last one was BD 2025. Is this going to be BD 2030?

This will be boring because there's no surprises here. We're just doing what we said. So yes, as we think about the upcoming Analyst Day, what you can expect is we will give a new updated LRP outlook. It's due for that. We'll include that in not only our revenue and -- which also would not be surprising, we've clearly articulated we expect to return to mid-single-digit growth after '27 as Alaris pops up. You're seeing us actually do that ex Alaris this year, and you'll see it again next year.

The -- as we look at, then we'll give margin and cash flow expectations on that. And I think what -- some of the most exciting stuff is we'll start digging into exactly what we're doing on our compete agenda, like how we're up tempoing and transforming the commercial engine of the company, bringing it to the world-class level that we have in our delivery agenda. Operations, I don't think anyone questions BD, it's world-class in the industry when it comes to operational. We're going to be the same when it comes to commercial, and we're going to be known for that, and we're very confident of that, and we're making really good progress.

On the innovation, you know about a number of things that we've been doing. There's a number of things they don't know that we've been doing. So we'll unveil a number of new innovations that are in our pipeline that we think are exciting to help secure that growth LRP that we'll talk about. And then we'll dig a bit more into BD Excellence and how that really still has significant runway to continue our margin expansion strategy and the momentum that we've built over the last several years.

Helpful. So just one or two questions on kind of fiscal '26 because you only have one quarter left. Top line implies Q4 implies a bit of a deceleration. Why is that? And what could go better than expected? And then on the margins, it actually implies a fairly big ramp in the margins. Talk about the driver of that, please.

Sure. So if I start with the revenue, I think the confidence on the full year comes with the results we have on the Q3 and the year-to-date. So we have been delivering on our commitments and exceeding. That's why we raised the guidance for the high end of the low single digits. The Q4, yes, implies a deceleration, and that's purely mechanics because of the Alaris dynamic we have that in Q4, is the highest year quarter of Alaris last year.

So instead of like 100 basis points of pressure, it jumps to about 200 basis points of pressure in Q4, which actually is the same number that we had expected to have the pressure heading into next year for FY '27. So the dynamic of Alaris is what is actually declining a little bit the growth on Q4, but we feel very confident on the momentum we have.

So we are expecting -- again, we guided the numbers in Q4, and we are expecting to be very well positioned to deliver on that. From a margin perspective, it's the ramp on the margin is there. I think there's about 300, 400 basis points of sequential ramp on the margin. Actually, we have been able to -- we have been -- we did this last year. It's just not transparent because we had the first quarter of tariffs impacting us and was the biggest quarter of sequentially for tariffs we had.

But there are a few factors that gives us confidence on the Q4 margins we have. One is we continue to overperform, as Tom said, on our growth drivers. So those growth drivers have a better margin compared to the other products, and those continue to perform well, and we are going to continue to see the momentum heading into Q4.

Another piece, very important piece is the BD excellence. So the way it works is like the spring time of the year is where we maximize our production for the Q4. And that variance -- the favorability on the variance gets capitalized on our balance sheet and roll to the P&L in Q4. So we're going to see that favorability coming in Q4. So we have high visibility of that. So that gives us confidence on on the sequential of the margin.

And last but not least is the tariff situation. So as I mentioned, this first quarter year-over-year is the first time we're going to lap tariffs. So until Q3, it was like a headwind for us because we didn't have tariffs last year for the first 3 quarters. And in Q4, we're going to be lapping. And it's also sequentially the smaller tariff number we have because we have been implementing the actions to mitigate those tariffs. So the combination of the mix, BD excellence and the tariffs is what gives us confidence that we are going to deliver on the margin ramp in Q4.

That's helpful. So Tom, let's transition to the products. 90% of the portfolio growing high single digits in Q3. Imagine if it was 100%, but there are 10% in the portfolio that's not. So talk about those other areas and the pathway to turning them around.

Yes, sure. And first off, we're really pleased with how we built the portfolio and that 90% that's performing. And the good news is really that we see -- there's 3 factors that make up that other 10%, and I can walk through each of those. Two of them have, I think, clear turns coming. And the first one is very, very clear and well defined. That's Alaris. Obviously, we're at now record shares in Alaris. We're going to gain well over 200 basis points of share this year. We're already at that year-to-date with still a quarter to go.

The dynamic there is just the comp since we've replaced 100% of the market for Alaris pumps in a 3-year cycle rather than an 8-year cycle as part of the remediation that we entered into with the FDA of bringing that product back on the market. And that just creates a grow over. So it's a unique situation where there's a grow-over dynamic, but where actually it has nothing to do with our commercial competitiveness or the success of the business. It's continuing to actually thrive phenomenally.

And so that's -- we called it, right? We said we expect 100 basis points headwind this year, and it's playing out as expected. And we said at the beginning of this year, we expect 200 basis points of headwind in '27, and we just reaffirmed in Q3. You can expect that as we think about our outlook for '27, and that will play out. And then that goes away, right? And so as we go into '28, that 200 basis point headwind for the company from the natural growth of Alaris will disappear and that will raise back up the overall growth rate of the company. So that's very clear.

Second one was vaccines. Obviously, saw vaccines come down across essentially every pharma company saw vaccine declines this year. And of course, the suppliers who provide them their delivery devices saw the ripple effects of that.

We stated as we went into the year what we expected that to be, and it's largely played out as we expected. This quarter, Q4 will be kind of the last quarter where we lap that, and we'll start getting over that in Q1. We also said at the beginning of the year that we expect to have some better visibility by the end of the summer. Labor Day just occurred, so we're there at the end of the summer. I'd say what we see today from order patterns coming in from our pharma customers is that we don't see a repeat of the situation.

So we see -- not necessarily are we assuming a hockey stick back up in the growth, but we're certainly not assuming any continued significant headwind from that as we go into '27. So we feel good on that. Starting to come back. We'll take a conservative upfront and see where that goes, but we certainly don't see that being a repeated headwind that we'll be talking about in '27.

And then the last one is China. And China of the 3 factors, right, that one probably still has the most kind of uncertainty for all players there given value-based procurement. I think what's most important for us is that business used to be 7% of revenue. The biggest business was, in fact, our Life Science business. And so with the separation of Life Sciences, that business is now down about 4% of revenue and next year, it will be in the 3s.

So right, it's just an increasingly smaller part of who BD is. We are seeing -- and we have built into kind of our outlook for '27, a similar performance as we saw this year into our numbers. But again, it's something that we expect to not really be talking about given it's just a much smaller portion of the company. So those 3 factors, there are about 250 basis points of headwinds in '26, which is what we called out. And then we expect, again, Alaris to increase next year as we planned, vaccines to get better and China to kind of continue to be a much smaller portion of the portfolio.

So a few follow-up questions. That's super helpful. So the 250 basis point headwind from those 3 in '26, that should be less in '27 primarily because of the Pharm Systems piece.

You have Pharm Systems getting better, but you have Alaris getting similar because Alaris goes to 200 by -- it probably goes to 200.

And China, the decline -- you give the numbers, it's about 10% decline in the last few quarters. Is that VBP? And why does that continue to decline at such a rate?

Yes. So what you have is -- so the majority of the portfolio has gone through VBP. What you're continuing to see is provinces amalgamate and do additional VBPs, right? So if one province did this, then now groups of provinces will do those, and then they'll start pegging off and the starting point is the lowest price province that exists. So that still is occurring in a number of areas.

We've actually made some -- we've continued ever since the start to adjust our operating expense base in China to take it down proportionate as the revenue has come down. We've continued to do that. We've added some new capabilities in our commercial team. We've executed well through the VBP, but it's a very challenging environment. And I think we've got it pegged right for FY '27 as we did this year, but it's a situation that's just still not stable overall for China.

So you said...

I think that's true for the overall China market.

When do you -- companies have said when they expect to be through VBP. I guess, is there a point at which China flattens out or grows again?

I think there will be. I think one of the things that we've learned is until that happens, I'm not going to peg exactly a date as to when that's going to be. I think China is still just frankly, the ability to predict exactly what the Chinese government is going to do. You saw, for example, we're not in the space at all, but in diagnostics, right? It wasn't VBP, you suddenly get into DRG and grouping of products. There's many different mechanisms that people can do to manage price.

And the government has a very specific agenda to drive health care costs down so that they can redirect that funding to other areas of expenditure within the society. And so I think until we just see the stabilization, and there's -- if I talk to our team, I'll be there again in December, was there not too long ago. We have our own view as to when that could happen. But I think the thing that I've learned from spending a lot of time in China over a long period of time is let's start seeing the signs in the marketplace before I peg and share something on that.

Otherwise, let's recognize that it's our obligation to navigate it as best as we can and influence. We spend a lot of time with the government, helping to make sure that people understand the quality importance because many of these specs don't even have -- or the tenders don't have quality specifications built into them. And so we've had some success in that. But that's -- obviously, we focus on the controllables and what we can control and influencing that and then making sure that we build a prudent guidance into our numbers so that we can consistently deliver on what we say.

And on Alaris, 100 -- I think the guidance implies about $100 million in sales next year. but you've been doing well. You've been taking share. I think the perception is that's probably a floor, a little conservative given that you're taking share. Is that fair? How you do better, I guess.

It's where we want to start the year at. And I think the reality is just from a market perspective, right, we have 60% market share. You've got 3 other players that give you up the remaining 40%. We just replaced 60% of the market in 3 years. So we just moved 20% of the market per year. We upgraded it ourselves. That's our comp.

If you look at the remaining 40%, that's still on the normal 8- to 10-year replacement cycle. So you're looking at 4% to 5% of the total market coming up for grabs every year. That's true this year. And so if we took 200 basis points of share this quarter -- year-to-date, that means we took almost half of all the competitive business that became available for conversion. That's a pretty good win rate, I think anyone would say.

We expect to continue that. But it's still -- just to put it in perspective, if we take half of the business that becomes available from competition every year, 2.5 points of share versus what we've just been upgrading, which is 20 points of the marketplace from a comp perspective. So could there be some opportunity? Yes, I think there also can be some opportunity on the pull-through of the sets because the sets don't have the comp dynamic, right? The sets never had a drop. They just continue and nor did they ever have a peak. They just consume and the more pumps you have in the marketplace, the more sets that you have, they're higher margin than the pump revenue. So that's a positive. And obviously, the more share that we gain, the more pullthrough we're going to have on those sets.

And then last one on the headwinds you talked about on Pharm Systems, mid-single-digit growth, I think, in Q3. That was historically like a high single-digit growth business. I think you -- I just can't remember, you've given color on the vaccines, maybe 30% of the portfolio. My question is, based on what you told us, which sounded positive, how should we think about Pharm Systems growth going forward?

Yes. So we're not going to guide a business unit for '2027...

Can you get back to the high single-digit...

Yes. I think long term, that it's -- let's call it an accretive business to BD long term. We even said last quarter, the business grew in the teens ex vaccines, right? Continued very strong double-digit growth in biologics, well -- way past 20% growth in GLP-1s. So continued strong performance there, strong pipeline. We've got presence in the right molecule mix that we want. So more to come there. But...

Let me -- so you said that vaccines won't be a headwind, something along those lines, right, going forward next year. So if it's mid-teens ex the vaccines, you don't want people to extrapolate, oh, this is going to be mid-teens.

Well, that's a quarter, right? That was a quarter, I was commenting. We think that's -- we don't want to comment or say that. But I think it will get back to -- what it doesn't mean is that vaccines are going to be accretive, right? So I said we don't expect it to be a significant headwind. Let's assume vaccines are neutral, kind of 0%. So you go from a minus 20-some to a neutral. That's a big jump in a year. I think we want to be prudent on how we think about vaccines for next year.

Vaccines is something that there's a lot of dynamics that impact that, both seasonal intensity, geopolitical dynamics, obviously had a big role in vaccines this year. But what we can say is that the order patterns from our pharma customers are coming in much more solid this year, early still, but are not showing the types of signs that we saw going into the back end of Q4 last year.

And similar to -- just complement, similar to China, vaccines is becoming a smaller part of the business as well. So we came from like $450 million towards $300 million of revenue in total. So it's becoming a smaller part of the business. We are having good signs that we are not going to see a headwind at the same magnitude, but it's becoming a smaller part of the business as well.

That's helpful. Tom, I wanted to ask about the growth drivers. A bunch of questions here. But maybe talk about the ones you're most excited about, the ones that are driving the most growth, please?

Yes. Lot of them. APM, right? It's been a fantastic acquisition for us. That business fits really well inside of BD. You can see since we've acquired it from Edwards, which is a great organization and did great things with it, but we've been able to accelerate the performance, both on the revenue and the margin perspective. So we'll be coming up on the 3-year anniversary very soon.

We'll have expanded gross margins by about 1,000 basis points on gross margin by applying BD Excellence there, right? That's something we do exceptionally well as operational excellence. And so we applied that in the factories at APM, and we've been able to increase gross margins by about 1,000 basis points.

On the revenue side, that traditionally was a high mid-single kind of low, high single-digit growth business, and you've seen that posting double-digit growth here for quite a few quarters in a row. We still would call that long term more of a high single-digit growth business. But the moral of the story is we've been investing in sales force expansion. We expanded our U.S. sales team by 15% this year. We also put more money in the R&D pipeline, right?

They were trading off against high-margin, high-growth cardiac heart valves, et cetera. That business inside of BD, a high single-digit growth that we've been able to expand margins on. We'll put more money in that every day of the week from an R&D perspective and a selling perspective. And that's exactly what we've been doing, and you're seeing that pay off.

So we see an exciting pipeline ahead. If you recall, the reason that we -- one of the reasons that we acquired that business was to combine it with our Alaris platform as well. And so we've been hard at work. I think the first week of the announcement, I said that we had already immediately put R&D dollars into that project. So stay tuned at Analyst Day to see more on what we've been up to over the last several years. We've got some pretty exciting new innovations coming on that one.

Other areas, PureWick, I think we had shared a number of years ago that we expect that business to be a $1 billion growth platform by 2030. I think we're up to 40-some consecutive quarters of that growing double digits. It's well past the halfway mark towards $1 billion by 2030, very much on track to hit it by 2030, if not a bit sooner.

And there, again, we'll show more at Analyst Day, but we continue to expand outside of the hospital. We also announced building a new VA sales force this year. We again, in perspective, going into '26, we put about $40 million of incremental selling investment beyond what we would normally do into a number of areas, including APM into UCC and into surgery, which I can talk about in a moment.

But that new VA sales channel that we built at the start of this year, they're already well over $1 million run rate a month platform that they've built. The VA fully reimburses PureWick for veterans at home, and we see a significant runway there. We see other groups beginning to reimburse PureWick at home based on some studies that we've recently published. And so we see more opportunities there.

We have mobile PureWick launching, which we'll share more details of. This is a wearable PureWick, which will be the first one. We have it for at home. We have it for hospital. We have it for people in wheelchairs. Now we'll have it something like in a fanny pack that you can just walk around the conference. And you actually can never leave the meetings, you can just stay in the meetings all day and you do it.

So we'll have that coming very shortly. And then we have one in the works for patients with cognitive disabilities as well, too, which is very specific needs that they have. So moral of the story, there's a long runway there. I think maybe I'll share one more of the many different growth drivers, and I won't talk about all of them, but regenerative medicine is another one, right?

So if you step back at the beginning of the BD 2025 journey, we bought a company called Tepha. And Tepha was really a material science company that had a material called P4HB. And it's an amazing product that is -- we grow it with E. coli, and we sew it into threads, this material. And ultimately, then we started using it for hernia mesh and to replace plastic mesh and it biodegrades in 18 months and it leaves your abdominal wall stronger than it was before.

And we're now up to 8-year data that says the recurrence rate of a hernia with this material that disappears in 18 months is just as good as if you had plastic mesh in your body for the rest of your life. So moral of the story is you should get our Phasix mesh, not plastic mesh in your body for the rest of your life. And now we started with new -- we expanded into other hernia indications. This is a higher price, higher-margin product, highly differentiated.

Ex U.S., we now have indications for plastic surgery. So we see people as their GLP-1 weight loss and they're getting skin tucks and removals and chin lifts and arm lifts and breast lifts, this is being used significantly there. That was another one of the investments we made at the start of FY '26 was expanding our plastic surgery sales team in Latin America, specifically Brazil and across Europe, where we have those indications, and we're seeing great progress there.

We're now taking it into other areas outside of plastic surgery and outside of abdominal reconstruction. We launched parastomal hernia coming up in FY '27, which will be the first kind of new innovation in that area of high unmet need. And we have at least 3 clinical trials underway for getting into the breast space in a number of different indications as well, too.

So a lot of exciting opportunities there. And we have earlier stage things where we're looking at everything from skin substitutes to other broader reconstruction using that same biomaterial. So we've actually been able to bioengineer it, actually degrade not just in 18 months, but we can make it degrade in 24 months and 36 months and 12 months if we want, which has allowed us to start opening up these other indications that didn't exist when we acquired the company. So some exciting times ahead in surgery.

Super helpful. One product question before I turn to kind of the environment in '27. Specimen management grew 14% in the U.S. in Q3, partly due to a competitor supply issue. When do you expect that supply issue to be resolved?

Yes. First, just huge kudos to our specimen management operations team, that type of growth, it's certainly not usual nor would we ever -- no one should model 14% for U.S. specimen management. But to capitalize on a situation, this shows the strength of our operations team, right, to be able to move very nimbly and grab that amount of business from competition that quickly is not easy to do when you're talking about billions of -- making billions of things.

So it's still going on a bit now. We see -- and obviously, our commercial team doesn't like to just ship things to help competitors while their own back order. We tend to seek to get contracts to have that business long term. So we'll see where that plays out, but we will expect some longer-term benefits of that back order as we do often seek to get longer-term contracts when we supply customers in those situations.

That's helpful. Tom, obviously, there's a lot of focus on utilization and the capital equipment environment. You gave some helpful comments on, I think, the Q3 call. Have you seen any changes since then? And how are you thinking about those 2 areas in your fiscal 2027?

Yes. Well, we're not seeing any change in our capital sales. Of course, capital today, more than 90%, 95% of BD's revenue is -- more than 90% of BD's revenue is recurring revenue, not capital and -- which is a great part of our portfolio from a cash flow generation. The portion -- the small portion of BD revenue that is capital is highly connected to driving efficiencies in hospitals, right? You're talking about pharmacy robots, which are really part of the cost savings solution. It's Pyxis, which we also lease Pyxis as well, but that's also around efficiencies for nurses, et cetera.

So those are the major capital categories. Pumps, obviously, as well, which we can also lease, but that's a dynamic which is coming to an end of the upgrade cycle. So we expect a continued steady capital environment, particularly for solutions that we focus on, which are solutions which drive efficiencies and cost improvements for health care.

Then procedures?

Procedures, we're seeing a steady procedure volume. And I think we've got a very unique perspective across the industry where essentially anyone's procedure can't be done without BD. 95% of every surgery is done with the BD device, whether or not it's our ChloraPrep or our syringe, I assume that's the BD syringe that robot is holding or I would hope it is. 95% chance that it is, in the U.S. But -- so we see a good view of what's happening from an overall procedure volume, and we saw steady procedures.

What we don't see necessarily nor do we necessarily focus on is, it was orthopedics going up and it's cardiac going up and down because we just see overall procedure volume. I think even with -- and the other good one that we see that's a good indicator is blood collection, right, just given the very high category share that we have, that's just a good ubiquitous factor of how much testing, which is a good indicator of health care consumption.

And so even though that 14% in the U.S. is an outsized number, even if you strip away the competitive kind of dynamic that happened there in the quarter that we benefited from, it was still robust. And I think you saw the same thing for LabCorp and Quest. They posted quite robust numbers as well. And so you're seeing just general testing consumption going up.

We're also seeing one of the ratios we look at is the number of tubes per draw. And we continue to see that tick up a little bit, right? So that means like there's a bit more complex testing that's happening as well, too, right? People are drawing a couple extra, but they're drawing a bit more tubes today than they did a year or 2 ago. So whether or not that's more cancer screening that's going on or other complex testing that's happening, it's moving from a utilization perspective upward.

Do you guys have the ability to look like therapeutic area, cardio, orthopedic if you wanted to? Could you analyze that data?

I mean we have subsets of our product that are very specific -- of our portfolio that are very specifically used in there. And obviously, we have aspects of our portfolio like consumption of APM is a good indicator of cardiac, that's a lot of -- basically, there's no cardiac procedures, significant but don't use our APM is 90% share. So that's -- that growth rate is highly associated with cardiac, can be, although we're expanding like our new sales force is going into new areas outside of it. But for the most part, once we send kind of the general supplies category products into a hospital where they end up, we don't track that.

I wanted to ask about '27. I think the top line has been pretty clear. I think you basically said similar to 2026, low single digits. I don't know if you want to comment, I mean, what could -- maybe what could go better. This year, it's low single-digit plus, right? What would it take to get to the same place?

Well, we -- when we put out, of course, the 200 basis points of pressure on Alaris is what puts us on the category of low single digits. And we feel that, that's the right place to start the year. It's -- I think we did it this year. We want to make sure that the guidance we give out there is executable, it's prudent or responsible, so allow us to deliver on that number. Of course, we have good momentum on several of the platforms, the growth platforms that Tom has been commenting on, and we expect that momentum to continue. But we believe the low single digits is the right place to start for FY '27.

It sounds like at least Pharm Systems could be better next year than this year.

Well, there is always puts and takes. Of course, the vaccine situation is going to be a better dynamic than what we had this year, but there are going to be dynamics across our multiple divisions. We still think the low single digits is the right place to start as we head into FY '27.

And price, Tom, has been a little bit better this year versus last year? Should we expect that to continue?

We are actually stepping up our pricing work. We've been doing that. We started that kind of right when the whole situation in the Middle East occurred, we didn't hesitate. We believe that we need to assume that oil will stay high, and we weren't going to watch to see where it landed. Obviously, it had been below $100 for the last couple of months. I don't know where it is today. But we assumed it was going to be at $100 or above when we started acting...

$100 today.

Right, $100 today, but that's not new because that's been our...

That's not new. That's for us we have been expecting.

And that's what we've been expecting. And so under that premise, we started taking price -- additional price action already about 2 quarters ago. And so we do expect 2027 to have a bit more pricing in it than '26. Obviously, you saw '26, there was over $130 million of negative price from China because VBP is all price.

And so when you see us having positive price as a company, much better price rest of world, partially offset by China, at least we're fully able to more than offset China to have a net positive number still across the company. Obviously, as China continues to come down in size and stabilizes over time, we'll just -- we would expect not to change what we're doing on price, and so that will become another positive for the company.

Yes. The team has been doing a very good job on price. It has been positive since we came out of COVID and the discipline and the execution on price has been very commendable to the team, and we expect that to continue into '27.

We spent a lot of time on price.

Yes. That's helpful. On EPS, you talked about -- Vitor, you talked about on the Q3 call, modest EPS leverage. The Street came out at 5% EPS growth. We're at -- can you maybe just put a little bit more precision around what you meant by modest EPS growth, please?

Well, I'm not going to be steering to any number at this time. We're going to give formal guidance in November. But we believe that, of course, starting with the baseline of low single digits on the revenue line, the modest EPS inclusive of our capital allocation strategy, we believe is, again, the right place to start. I cannot steer like 4 or 5 or whatever number, but we believe that I think the modest EPS leverage is a good place to think about as we head into FY '27 right now.

How much upward pressure is there on the tax rate next year?

Right now, the tax rate is -- we are navigating tax rate as we have today. There's some pressure here and there, but nothing significant that would change dramatically our view.

So low single-digit top line growth, we can assume what that is. 50% of free cash flow goes to buybacks, right? That's what you get.

We haven't shared exactly like the 50%, but the share buybacks will be a priority, and we are expecting to do that -- continue to do that next year. So this year, we executed about half of the proceeds from the Waters transaction, about $2 billion straight to that, plus an additional $250 million we did in Q1.

And what we are planning to do, and we're going to share more in December and also on the Investor Day as part of our long-range plan is using capital allocation and share buybacks as a sustainable way of returning value to the shareholders. So more to come on that piece, but we expected to use the lever as buybacks as well again.

So we're doing exactly what we said. We just never shared a specific percentage.

So 50%...

We said a large -- a meaningful portion. It's a priority for us at the time.

Okay. So the 50% was not specific.

I don't know if I was ever saying that's a specific target like that.

I think one of the objectives is -- of course, one of the objectives we have is continue to increase our free cash flow conversion. We have been navigating that, and we're expecting to make significant headways into free cash flow conversion. Of course, a portion of this free cash flow conversion is going to be turning into, of course, continue our dividend policy, but also the share buyback in a more structural way going forward.

As an example, this year is well over that number.

Got it. But Tom, we're almost out of time. I want to give you the last word here. Any closing remarks you'd like to make?

I think it's really the great question that you started us off with, right? We're really excited by the momentum that we have for new BD. We've got a clear strategy that we're executing against. You've seen us share that strategy around Excellence Unleashed. Our focus is across our compete, innovate and deliver elements. We're really excited by the portfolio that we've got and the growth platforms as they continue to scale. And we look forward to sharing more, obviously, on December 10 and on our upcoming earnings call. So thank you guys for the focus today.

Great. Thanks for being here.

Hello, and welcome to BD's Third Fiscal Quarter 2026 Earnings Call. At the request of BD, today's call is being recorded and will be available for replay on BD's Investor Relations website, investors.bd.com or by phone at (800) 688-9445 for domestic calls and area code plus 1 402220-1371 for international calls.

[Operator Instructions]

I will now turn the call over to Shawn Bevec, Senior Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to BD's earnings call. I'm Shawn Bevec, Senior Vice President of Investor Relations. Thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the third quarter of fiscal 2026. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Vitor Roque, Executive Vice President and Chief Financial Officer.

Before we get started, I want to remind you that we will be making forward-looking statements. You can read the disclaimer in our earnings release and the disclosures in our SEC filings on our Investor Relations website. Unless otherwise specified, all comparisons will be made on a year-on-year basis versus the relevant fiscal period. Revenue percentage changes are on an FX-neutral basis, unless otherwise noted. Also, references to adjusted EPS refer to adjusted diluted EPS. Financials discussed here and included in the earnings release and 10-Q are presented on a continuing operations basis. Prior periods have been recast to reflect the spin-off of our Life Sciences business in combination with Waters, which is now accounted for as discontinued operations. Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentation. With that, I will turn it over to Tom.

Thank you, Shawn, and good morning, everyone. We delivered a strong third quarter with revenue, adjusted operating margin and adjusted EPS all ahead of our expectations. This was our first full quarter operating as new BD. And more importantly, the quality of this performance reflects our more focused portfolio beginning to demonstrate the growth and earnings potential we designed it to deliver. Performance was broad-based reflecting commercial momentum across our key growth platforms, strong operational execution and the expanding impact of BD excellence.

Revenue was $5 billion, up 4.4% with more than 90% of the portfolio delivering high single-digit growth. Performance continues to be driven by ongoing structural improvements across our key growth platforms where we've been focused on enhancing commercial execution and driving product innovation. This includes double-digit growth across biologic drug delivery, advanced patient monitoring, PureWick and advanced tissue regeneration, along with strong performance in peripheral vascular disease and ROA pharmacy automation. As these platforms continue to scale and growth outpaces the broader portfolio, they are becoming more meaningful drivers of top and bottom line performance. We also saw strong U.S. performance in MDS and specimen management, driven by broad underlying utilization as well as share gains.

Growth was partially offset by known dynamics concentrated in less than 10% of our portfolio, primarily the difficult prior year comparison in Alaris as well as vaccines in China, which all played out as expected. We delivered adjusted operating margin of 24.9% and adjusted EPS of $3.23, reflecting the increasing revenue contribution from our growth platforms as well as strong operational execution through BD excellence. Based on our Q3 performance, strong year-to-date execution and confidence in the continued momentum of new BD, we are updating our full year guidance. We now expect revenue growth toward the high end of our low single-digit range and are raising the midpoint of our adjusted EPS guidance. Turning to our new BD strategy. we are increasing momentum across 3 strategic pillars: compete, innovate and deliver.

Starting with compete, we continue advancing commercial excellence with greater customer focus, stronger accountability and faster decision-making. Our goal is simple. It's to convert the strength of BD's portfolio into faster growth, deeper customer partnerships and sustainable share gains. In Q3, this translated into strong outcomes across our growth platforms and a few to highlight. Within Connected Care, we're seeing the power of our portfolio with continued share gains in Alaris this quarter and over 200 basis points year-to-date. APM continued to grow above market, supported by expanded adoption of HemoSphere Alta and double-digit growth in both Smart Recovery and legacy consumables. Our incremental commercial investments going into this year are contributing roughly 100 to 150 basis points to APM's growth rate. In biopharma systems, we continue to see pipeline momentum with new customer agreements signed across the portfolio.

We're achieving high win rates across the biologics market, including GLP-1s, and we now have approximately 100 agreements signed across novel and biosimilar GLP-1 programs. That demand is being supported by the capacity investments and innovative drug delivery technologies we've built over time. This includes a new collaboration with EMS, one of Brazil's leading pharmaceutical companies in the launch of a semaglutide therapy, utilizing our Vistra injection pen in 1 of the region's largest health care markets. In interventional, our incremental commercial investments coming into the year are translating to stronger growth with PI demonstrating another consecutive quarter of acceleration. In UCC, our incremental investments in the VA channel for PureWick continue to build momentum and contributed to another quarter of double-digit growth in the platform. Together, these results demonstrate that our compete strategy is a positive accelerator for new BD.

We're winning more consistently scaling our growth platforms faster and strengthening our position with customers around the world. Our second priority is innovate. We're focusing our pipeline in attractive markets where health care needs BD most, connected care, enabling the shift to lower cost settings and advancing treatment of specific chronic diseases. Our innovation momentum continued in Q3 with BD excellence increasing the cadence and the speed of launches. We expanded our vascular portfolio in PI with the early European launch of the differentiated Liverty TIPS stent graft. Entering a market that's seen limited innovation for many years. BD Liverty brings enhanced ease of use, the broadest range of lengths available and compelling clinical trial results. This launch broadens BD presence in the approximately $2 billion global venous market, which is growing high single digits.

We also launched the Elyra Thulium Fiber laser system, expanding our kidney stone portfolio and presence in Endourology. Early customer reception has been strong, with placements accelerating since launch. The endourology market is approximately $1.5 billion and increasingly driven by disposables, a model that plays to be these strengths. Finally, we continue to expand our noninvasive monitoring portfolio in APM with the launch of the Acumen IQ Plus finger cuff and Smart Pressure controller, which pairs with our HemoSphere Alta platform and brings enhanced usability and advanced AI features to customers. This advancement in our noninvasive portfolio allows us to continue expanding our reach to underserved OR and ICU patients. These technologies are commercially available now in both the U.S. and Europe. We're investing behind markets with attractive growth, strong clinical demand and clear competitive advantages.

Collectively, these launches demonstrate a more focused innovation model that's strengthening the long-term growth profile of the company. Our third priority deliver is about operational excellence at scale, improving quality, service, productivity, margin and cash flow. Through BD Excellence, we've built one of the most resilient supply chains in our industry with back orders at record lows and service levels at record highs. Our scale, combined with BD excellence embedded across our manufacturing network is a growing competitive advantage that translates into efficiency, resiliency and consistency for our customers. Again, this quarter, we delivered approximately 8% gross productivity in our plants, with service levels above 90%. That progress was driven by plant consolidations, raw material savings, waste reduction, and higher efficiencies on our critical lines and processes.

We've also begun investing in the deployment of a standardized digital platform designed to run AI across BD's end-to-end supply chain. And we believe this represents another meaningful runway for productivity and service improvement over time. Turning to capital allocation. Our disciplined framework remains unchanged and our improving free cash flow is giving us more firepower to execute. We remain committed to returning capital to shareholders, including through share repurchases, investing selectively in high-growth tuck-in M&A and driving towards our 90% free cash flow conversion target over time.

With that, I'll turn it over to Vitor to provide more detail on our financial performance and updated guidance.

Thanks, Tom, and good morning, everyone. We delivered a strong third quarter with $5 billion in revenue, up 4.4%, reflecting broad-based growth across the portfolio in disciplined execution through a dynamic environment. As Tom highlighted, performance was broad-based driven by continued double-digit growth in several of our key platforms and strong performance in the U.S., partially offset by a difficult prior year comparison in Alaris and continued pressure in vaccines in China, all consistent with our expectations. Medical Essentials grew 3.2%. In MDS, strong U.S. performance benefited from share gains across Vascular Access Management portfolio and utilization recovery related to last year's fluid shortage. This was partially offset by continued pressure in China.

In Specimen Management, we delivered high single-digit growth driven by share gains across the BD vacating portfolio improved supply and incremental demand as customers work through competitor backorders. Connected Care grew 4.4%, led by double-digit growth in advanced patient monitoring on strength in consumables. MMS grew low single digits, led by double-digit growth in dispensing and continued strength in [ ROA pharmacy ] automation. We also saw a strong infusion set performance due to higher utilization versus last year fluid supply disruption and pulled through from Alaris share gains. This was partially offset by difficult prior year comparison in Alaris Capital. Biopharma Systems grew 5.2%, driven by continued double-digit growth in biologics led by GLP-1s. This was partially offset by lower demand for vaccine products. Excluding the impact of vaccines, biopharma systems grew in the mid-teens. Interventional grew 5.5% with solid mid-single-digit growth across the segment.

In PI, growth was led by oncology and peripheral vascular disease, reflecting strong commercial execution and new product launches, partially offset by China market dynamics. UCC was led by continued double-digit growth in periods. Surgery performance was driven by double-digit growth in infection prevention and advanced tissue regeneration. Turning to the P&L. Adjusted gross margin was 54.3% and adjusted operating margin was 24.9%, down 100 and 130 basis points, respectively, versus the prior year. Margins benefited from productivity gains to be the excellence in favorable mix. These benefits were offset by approximately 110 basis points of tariff impact. We also continue to invest in selling and R&D to support our long-term growth strategy.

Adjusted EPS was $3.23 up 4.9% and ahead of our expectations, reflecting our strong revenue performance.

Turning to cash flow and capital allocation. Year-to-date, Free cash flow was $1.7 billion, an increase of 45% versus the prior year. This reflects improved working capital and lower nonoperating cash items, including Alaris remediation outlays. Year-to-date, we returned $3.1 billion to shareholders, including approximately $2.3 billion in share repurchases and $0.9 billion in dividends. We ended the quarter with net leverage of approximately 2.9x and remain committed to our 2.5x long-term net leverage targets. Moving to our updated fiscal '26 guidance. We now anticipate revenue growth to be toward the high end of our low single-digit FX neutral range. Based on current spot rates, currency is now estimated to be a tailwind to revenue of about 100 basis points.

Moving down to the P&L. We continue to expect adjusted operating margin of approximately 25%, inclusive of the impact of tariffs. Our adjusted effective tax rate is expected to remain between 16% and 17%. Given our Q3 performance and continued productivity to BD excellence, we are increasing the midpoint of our adjusted EPS guidance and updating our range to $12.62 to $12.72. With that, I'll turn it back to Tom.

Thanks, Vitor. Before we open the call for questions, I want to recognize Mike Garrison, EVP and President of the Medical Essentials and Biopharma Systems segments who recently announced his intention to retire after more than 20 years with BD. Mike has been an impactful leader and trusted partner, and we thank him for his many contributions to the company and wish him all the best in his retirement.

As we continue to lead BD into its next chapter, I also want to welcome Peter Monuzio, who joined BD on June 1 as EVP and President of BD Interventional. Peter brings more than 30 years of global health care leadership and a strong commercial and operational mindset is well aligned with the operating system we're scaling across new BD. I also want to recognize our associates. Our results reflect what we can deliver as a more focused med tech company. Operationalizing our new BD strategy following the life sciences separation has taken a tremendous amount of work across the organization. And all of this happens because of the dedication and execution by our associates and I want to thank them for their many contributions. With that, let's start the Q&A session. Operator, can you please assemble the queue?

[Operator Instructions]

We'll take our first question from Travis Steed with Bank of America.

Congrats on a really, really nice quarter here. I guess I wanted to ask about the strength in the quarter. There was a lot of momentum in a lot of the businesses here. I think some of the 90% of the business that usually grows mid-single digits was above trend. I know if there was anything onetime that you'd call out and kind of how you thought about the revenue guidance and being able to move that up to the high end of the low single-digit range? And how much of this kind of carries into '27?

Travis, good morning and thank you. Great to connect. We're really pleased with the growth in the quarter, as you said. And I think it's really exemplified by the momentum that you're seeing in our growth platforms. Those are areas that we've been very actively building over the last 5 years. I think you're really seeing them pay off in -- and exemplify the power of the new BD. This is our first quarter as a focused med tech company. Those growth platforms, we had actually 4 of them growing double digits, the rest all growing high single digits in the quarter. And whether or not it was very great growth, very high double-digit growth in biologics, specifically in GLP-1s, even at the higher side of that, to what you're seeing in pharmacy robotics, with ROA to our APM business, continuing to build momentum, including we're seeing the benefits of some of the commercial investments that we made there as well as in UCC and in other places.

That momentum, we're continuing to invest behind both commercially and we're continuing to invest behind from an innovation perspective. We've actually reallocated a disproportionate amount of our R&D programs into those growth factors. And as those grow, not only do they accelerate the revenue of the company, given they're in faster-growing markets and we're building leading positions in and have strong pipelines, but they also all have favorable mix benefits and can help fuel gross margin and ultimately, operating margin expansion as we look ahead.

So we're really pleased with what we're seeing there and what we're building. And we're going to continue to focus on executing that as we move ahead in new BD.

And we'll take our next question from Patrick Wood with UBS.

Appreciate it. Similar vein, you mentioned obviously share gains, and it sounds very clear like volumes across a lot of these categories are doing very well. So I guess my core question is, how much of this is that innovation pipe? Did you make any big changes to your commercial approach into the market that may have enabled your commercial teams to take more share? Because a lot of these categories, you actually already have quite a high share in. So I guess has the commercial approach changed? Or is this really just the innovation platforms coming through?

It's a combination of both. So as we've launched our new BD strategy, what we call excellence unleashed inside of BD, we're hyper focused on driving excellence across those 3 pillars, which is commercial excellence, innovation excellence and delivery excellence. Delivery excellence is what you've seen us doubling down with BD excellence for obviously some time, and you've seen the benefits of that in our margin expansion. You saw us a point Mike felt as our first ever in the company's history, Chief Revenue Officer. And he just moved into that role full time really in February when we completed the transaction with Waters.

As part of that, we've begun changing everything from the compensation system of our sales reps the tools that our teams have, including beginning to deploy AI into their hands to better prepare them for account visits and where to hunt. We've been reallocating our commercial head count into the highest growth spaces, and you saw us at the beginning of the year, discussed making about a $35 million incremental investment in very targeted areas. So we grew the APM sales team by about 15% in the U.S. And we announced this morning that about 100 to 150 basis points of the APM double-digit growth this quarter came from that investment already. Just in the first couple of quarters, and we're seeing that continue to accelerate. We did the same thing in UCC. We put more sales headcount down. We've been investing in market development for PureWick and seeking reimbursement across a broad range of areas, and we had earlier gotten reimbursement in the Veterans Administration.

And so we put in a dedicated sales team to pursue that opportunity at the beginning of this year. And again, we're seeing that pay off with already a well over $1 million a month run rate in that category built this year through those investments. We did the same thing. We grew PI sales team by 15% this year in the U.S. And you're seeing, again, strong consecutive growth in that business quarter-on-quarter driven by that commercial focus. So we think there's a really continued opportunity for us as we drive towards being the best in medtech commercially. And that's going to be a hyper focus for us over the next several years. And we're complementing that again with our work in innovation.

We've spent a lot of time over the last several years, shifting our innovation portfolio into the highest growth sectors associated with the areas that we see transforming health care. We really look back many years ago, and we recognized that health care was going to be undergoing one of the most significant transformations in its history, right? It's becoming more connected, more automated, more personalized. And we were very purposeful in shifting our innovations into those areas, and now you're seeing those, which are our growth drivers starting to pay off. So we appreciate the question and look forward to continuing to update you on those. We will have an Investor Day now that we've got Vitor on board, and we will be sharing the date on that forthcoming.

And our next question will come from Larry Biegelsen with Wells Fargo.

Tom, I don't want to take away from the strong quarter here. But in the Q3 calls, you've typically given some helpful color on the following year. So my question on fiscal '27 is, in the past, you said top line growth similar to that in fiscal '26 and the Street is at about 7% EPS growth next year. So given the strength you're seeing in the business, could revenue growth next year be closer to the high end of low single digits and what are some of the puts and takes we should consider next year for the P&L? Can you -- for example, can you grow operating margins next year?

Yes. Sure, Larry. Let me turn that over to Vitor.

Yes. Larry, thanks for the question. Of course, we are very proud of the results in Q3 and the momentum that we have. Regarding FY '27 outlook, I think we have consistently characterized FY '27 as low single-digit revenue growth and that is due to the Alaris remediation coming to an end in FY '26, which creates a 200 basis point headwind next year. And we believe that's still a reasonable framework as we head into FY '27 from our revenue.

Now it's related to the earnings, if we start on a low single-digit revenue baseline, we believe a good starting point is to expect like a modest leverage on that earnings, supported by our pricing actions, productivity gains from BD excellence and our capital allocation strategy.

We will provide our formal guidance, as you mentioned, in full details on our November call. But I think important, our philosophy remains focused on establishing executable commitments and creating the opportunities for the consistent delivery against them. Thanks for the question.

And our next question will come from Vijay Kumar with Evercore ISI.

Tom, maybe I'll focus 1 on the big picture. There's been concerns around utilization environment in a CapEx environment, when I look at your APM business, I mean that seems to be humming double-digit trade. So can you just comment on the broader utilization and CapEx outlook, please?

Sure. And thanks for the question, Vijay. And great to connect. We obviously pay very close attention to hospital utilization. And we saw solid utilization across our portfolio. You can see that reflected in our Q3 results. Yes, I think as you know, BD is very uniquely positioned because of the broad use of our products across essentially every procedure and care setting and our strong positions give us really kind of a bellwether view on indicators. And so things that we watch are blood collection tubes and syringes, catheters, those types of products, which are ubiquitous with just general health care consumption.

And so you can see in our results, U.S. MDS up 6% in the quarter, indicative with strong catheter utilization, syringe, et cetera. So we think that's a positive sign -- specimen management. So if there's one business that kind of maybe is not a recurring at that rate. You saw the U.S. at 14% growth in specimen management. We're not declaring that's a 14% growth business going forward. But they are executing phenomenally. They're taking share. operationally, they're executing with excellence, and we're able to capitalize on some competitive near-term supply issues. But nevertheless, even if we take out kind of those benefits in the quarter, we still see strong utilization there. And in fact, one of the metrics we look at internally is what's the ratio between the number of needles we sell and the number of tubes we sell, which is kind of how much diagnostic testing is being done. And we have seen over the last couple of quarters, and we saw it again this quarter, an uptake in tube utilization versus needle utilization, which says more testing is being done per patient.

And whether or not that's higher acuity patients ending up in hospitals or you're seeing more testing going on because of new innovative cancer screening, testing, et cetera. Nevertheless, the testing we are seeing trending up with the number of tubes being drawn per patient collection. So those are some of the things that, again, we're going to continue to watch very closely. But overall, we see utilization start remaining solid.

We'll take our next question from Robbie Marcus with JPMorgan.

Great and congrats on a good quarter here. Tom, I'm sorry to take this angle, Travis asked about, I think all the 90% of the business growing double digits. I want to ask about the 10% that's clearly weighing on organic growth here. And what sort of any trends you could break out there? What's the visibility on to those ending? You called out a 200 basis point headwind from Alaris next year. But what are some of the other line items that are dragging down growth? And what are some of the changing dynamics there and visibility to maybe an end in sight for the type of growth rates.

Thanks for the question. So obviously, we've been talking consistently throughout the year on 3 specific headwinds, Alaris, which is extremely defined, China and vaccines. And so maybe I'll take those in a bit of reverse order. So vaccines -- and by the way, all 3 have been playing out as we expected the year. We spent a lot of time reflecting and actually adding and building some capabilities in our central organization. Just given how dynamic the markets are today, we really wanted to build some best-in-class capabilities on independently at a central company level, independent from the businesses, looking at markets where they're heading and looking further around the corner.

And so those -- that team and those capabilities you're really seeing that play out. How do we look at that going into this year, and we got it right, right, in a dynamic environment. So vaccines, we're seeing play out, again, as expected. As we said, I think, on our last call, that we expected by the end of the summer to start getting some view in terms of what that's going to look like going forward. I think on a -- it's still a bit early. We're not quite at the end of the summer, but we're seeing positive signs. We're seeing stabilization, I think, in that.

We're going to start lapping the vaccine headwind as we go into next quarter. And I would say, at this point, again, we're not through the end of the summer. But preliminary feedback that we're getting and preliminary order patterns that we're seeing aren't certainly showing a repeat of that level of headwind in '27. We'll obviously give an update on that as we get into our guidance but we're seeing positive stabilization there. I think in China, the key thing there is now as part of new BD and the separation of Life Sciences, China is a much smaller portion of BD. It's going to be down to just 4% of NBD revenue, and it's going to probably drop into the 3s as the rest of the BD is growing faster as we get into next year.

So we're going to continue to assume right, a dynamic environment in China. But I think we're going to end up seeing that just get incorporated in our outlook and kind of not as significant of a dynamic as we go forward. And then Alaris is really the one that we're going to have the last that's a very, very defined window. That's going to end next year in '27. And we've known that for a bit of time. As we said at the start of this fiscal year, it was going to be a 100 basis point headwind this year. It's playing out exactly as we said. And we said it's going to be a 200 basis point headwind next year, and it's playing out exactly as we said. And then it's not going to be a headwind anymore. And that 200 basis points will come off and lift, and we expect to be driving back to our mid-single-digit algorithm. And all that remains exactly in line. So thank you for the update, Robbie, and we'll continue to obviously provide progress there.

We'll take our next question from Joanne Wuensch with Citibank.

Just briefly for clarification. When you talk about modest EPS leverage in 2027, how do you define modest? And my second question really has a few more with products. And this may sort of grab some of the wind from your Strategy Day, but anything in particular you'd like to call out as product drivers over the next 12 to 18 months that we should pay attention to?

Joanne, why don't I take the product piece first, and then I'll turn it to Vitor to share that. Again, just as a reminder, we're not looking to give guide here. We'll do that in November, but I'll turn that to Vitor. As we think about product drivers, expect those to be in our growth platforms, continuing down the line. We've got additional launches, and we expect continued momentum in APM. The team there is doing a fantastic job. Expect at Analyst Day for us to share more about some of the innovations that told you that we'd be making particularly beginning to connect our APM monitoring technology and our Alaris pump. We'll unveil what we've been up to there. The team has made phenomenal progress, but expect that to come up in that discussion.

Our tissue regeneration business, we continue to have -- expect strong growth going forward there and have quite a few clinical trials underway for new applications of that biomaterial into new indications to continue to expand our presence in those spaces. Pharmacy automation, as you know, we recently pulled that out of MMS and have that as a focused team underneath of [indiscernible] . We brought in a new President of that category and are excited about the growth as we look ahead there. In biologics, that's going to continue to be a strong growth performer for us. You heard us announce we're up to 100 deals in the GLP-1 space, and you saw us announce the first launch of a biosimilar in our new Vistra Pen which is at a higher value capture than we just sell a syringe.

So we're excited about still the future there in biologics, not only biosimilars, but there's the number of new novel biologics that are coming down the pipeline that we have a strong presence in as well. But Connected Care, you're seeing the power of our Pyxis Pro launch with dispensing growing double digits in the quarter. We are seeing positive market traction and adoption there. And of course, the power of our overall portfolio combined with our Alaris and new AI platform BD on [indiscernible] So I probably haven't mentioned everything there. Obviously, at PureWick and -- which has new products launching also in the future, and I think we're up to over 35 consecutive quarters 7 consecutive quarters of double-digit growth in PureWick. We've got a strong road map to continue momentum there, and we'll be unveiling some new products at Investor Day that will help fuel that as well as our continued efforts on reimbursement.

We're in early stages of reimbursement for at Home and PureWick, and we see that as a really exciting factor for going as well. So again, we've been doubling down on those growth platforms over the last several years. You're starting to -- you're seeing the momentum of those, and we've got a really exciting pipeline to back that up as we go forward.

And maybe, Tran, just to complement what Tom was mentioning, if we go to the EPS. As I said, we gave early indications of where we see FY '27 starting. There will be more details on P&L specifics and numbers when we give our guidance in November. But the modest learnings average leverage is of the single-digit revenue growth baseline is an EPS starting assumption. That's what we are seeing this. And it reflects the Alaris flow-through in a dynamic environment, which we are actually working to offset via pricing actions that are already underway, some big favorability with the growth drivers that Tom just mentioned, also the BD excellence productivity. We also plan to continue to invest in our commercial and innovation to fund ourselves and leverage that growth engine for 2018 and beyond. So we'll give more guidance in FY '28, but those are like the key drivers inside that modest assumption.

We'll take our next question from Matt Taylor with Jefferies.

Good morning. I had kind of 2. I'll just put up front. So number one, if I take your guidance for top line quite literally, then the squeeze math would imply Q4 goes back to about 2.5% growth versus the 4.4% you just did. So I was wondering if you could comment on that and if that was any conservatism or other trends that we should think about? And just on next year, maybe you could just talk a little bit high level about inflation and headwinds that you're assuming to get to that modest leverage given you're tied to oil-based resins, plastics and freight and how you're hedging against that?

I'll take the kind of the macro dynamics for 271st and then turn it over to Vitor for Q4. So in terms of 27 on the macro, right, we want to take a conservative posture there. I think as you said on -- obviously, oil has been bouncing all over the place. There's certainly this -- even this past week has been a good example of that. We had shared before that if oil were to stay above $100, which it's not there right now, but if it were back when it was, it would be about a $60 million to $70 million impact on COGS. Just as a reminder, resin and molded plastic components, which obviously are a byproduct of oil. They represent just about 5% of

our COGS.

And so we already are -- we're being very proactive in terms of the actions to offset that when oil was at its peak. We weren't just going to wait around and see where it was going to head. We started taking actions back then, and that included additional pricing actions, which we continue to execute against, and we will continue to execute against those. We'd rather assume a higher input cost. And if it gets better, that can become a positive for us, but that's our philosophy that we're taking there. When it comes to Q4, Vitor?

Yes. So I'll go over here Q4, Matt. So you're talking about Q4, you're correct. So the calculation implies a step down in Q4 compared to Q3. And the major dynamic that the main dynamic reflects the Alaris comp dynamics. So we have highlighted at the beginning of the year that we're going to have higher compare -- a higher tough compare in Q4 because of the Alaris peak last year. So that adds a point of pressure on Q4 versus Q3, adding to 200 basis points of total pressure.

So we had 100 basis points in Q3, that jumps to 200 basis points in Q4. That's the major dynamic we have heading into Q4, different than Q3. But I think the key takeaway for us is like we continue to guide and look at the Q4 as the consistent full year framework. Like underlying the new momentum remains there. I think it's something that we have seen sustained and the sequential deceleration is just that time -- this headwind comparison of Alaris. That's the main driver.

And our next question comes from Rick Wise with Stifel.

Tom, since you took over as CEO, productivity enhancement, efficiency, manufacturing consolidation, portfolio change, investing in innovation, all these have been huge priorities. My question is, how much more is there to go in your mind and the implications for operating margins as we look ahead, not to the next quarter or '27, but to the end of the decade. I mean, I feel like your new AI productivity idea and so forth, the portfolio reshaping and the efficiencies so far all suggest to me that we should see accelerating margin expansion from here.

So you're in the mid-20s, it's bumped up a couple of hundred basis points over the last couple of years for all sorts of complicated reasons. Is dreaming of 30% in 2030? It has a nice ring to me. Is that too ambitious? Or do you need to invest more? Just help us think through the longer-term picture there.

Yes. Thank you for the question, Rick, and I appreciate the comment here. As we -- maybe just as we think about our algorithm down the P&L on margins, I can give an overview and Vitor jump in. Obviously, that all starts with continuing to drive revenue growth. And I think you're seeing, right, this year, underlying strong mid-single-digit growth, just even Alaris remediation headwind you're seeing us at mid-single-digit growth this year. And essentially, the LSD midpoint for next year with a 200 basis point Alaris puts us at that as a starting point as well.

So we're going to continue obviously focusing on driving revenue growth through any macro environment. As we go down the P&L on gross margin, as I mentioned before, those key growth platforms that we're driving have positive mix benefit, which is very purposeful. And we're going to continue to focus on accelerating those, which will help gross margin. We couldn't be more pleased with the momentum in BD excellence. Of course, that was -- is our operating system that we put in place just a number of years ago. And we've gone from 50 kaizens a year to over 2,000 kaizens this year. And you're seeing -- you saw that pan out in well over 500 basis points of margin expansion over the last several years.

And how we get that within the plants. You heard us we're at 8% productivity improvements, essentially every quarter so far this year. We could see that continuing. But also how we get that, we have a multiyear road map for that, right? And so as we think about OEE was a key driver of that, right, how efficient we're running our lines. Then we started ramping up material changes and procurement savings as part of input costs. And we're starting to see this year actually, we saw a notable pop in that as a driver. We still have much more runway there as we look ahead. And then you saw us announce AI and how AI can have a role in not only helping us on our gross margin side but also on our cash flow side as we think about taking inventory down going forward.

And so we also are applying that. We've recently brought in a new leader of our GBS organization, which is looking at how do we continue to drive efficiencies in our G&A functions, right? So that we can, again, reallocate that money to be driving the top line equation on revenue growth. And be more efficient from a corporate center perspective. And we're seeing, again, good momentum on that equation. And of course, all of that ultimately flows through to a combination of margin expansion as well as driving to our cash flow goals that we've got. You saw good momentum in the quarter there on cash flow as well.

So we certainly -- is not the time to call out a long-term margin target. But again, as I mentioned, expect -- we do have a date in mind already for our Analyst Day coming up, and we'll be sharing that quite soon, and we look forward to sharing more long-term targets, specific ones at that meeting. So thank you.

And we'll take our next question from Josh Jennings with TD Cowen.

A nice quarter. Wanted to just follow up on Rick's question just on margin. I mean I think the Alaris revenue headwind as your team has communicated very clearly. But starting in fiscal 4Q it seems like there won't be much of a margin hit. I just wanted to better understand those dynamics, just considering when Alaris Capital declined during the early days of the recall and then through the remediation that did have an impact on margins? And then how are you guys able to offset or what are you doing to offset maybe the margin impact from the capital comp that's in place starting fiscal 4Q and then through fiscal '27.

Sure. Thanks, Josh. We'll turn it to Vitor to answer. We didn't get to Rick's question on Q4. So Vitor will tackle that and then address.

Yes. I think I can combine both into one here. Of course, we are seeing like our perspective of margin in Q4 is actually a very -- we have a very clear pathway and view of delivering Q4 margin enhancements that we have sequentially in Q4 compared to Q3 and the other quarters. despite the fact that we had the Alaris [ tick ] down and the high -- the biggest pressure on the revenue starting in Q4 and of course, heading into next year, the Q4 profile of margins is something that we already have good line of sight based on the productivity gains that we drove during the year across our several platforms and actually becoming as part of our P&L in Q4. So we feel very confident about the profile of what we had into Q4.

Now if you go into -- the pressure from Alaris is just the fact that the revenue is coming down significantly on Alaris, and there is a natural drop through on the bottom line that we are factoring into our assumptions. Of course, as Tom mentioned, oil it's a factor that we are monitoring very closely and the general market dynamics is still something that we are looking. But I think the most important is we are acting on it. We are not waiting and see this impact us. We have pricing actions underway already. We have shown this in the past, and we continue to act on those pricing actions. The investment -- the commercial investments we are making today are actually a very intentional high-growth, high-margin areas that improve our mix as well.

And of course, as Tom highlighted, the importance of BD excellence on our margins going forward. So those are the actions that we are going to -- that we are already underway that are going to help us kind of mitigate some of these market dynamics and they allow us flow through. But there is nothing special, I would say, about the Alaris flow-through is just a natural takedown in the revenue dropping to the bottom line at the end of the day. And the team will continue to work to offset, and the guidance on the modest EPS, as I said, is a starting point. It's a EPS starting assumption heading into next year with the philosophy of continue to commit to numbers that we can deliver consistently to investors. Thanks for the question.

Thank you. And that will conclude today's question-and-answer session. At this time, I'd like to turn the floor back over to Tom Polen for any additional or closing comments.

Okay. Well, thank you, operator, and thanks, everyone, for your questions and continued interest in BD. We look forward to connecting with everyone again next quarter.

Thank you. This does conclude this audio webcast. On behalf of BD, thank you for joining today. Please disconnect your line at this time, and have a wonderful day.

Travis Steed, the medical device analyst at Bank of America. Next up, we have Becton, Dickinson, Tom Polen, CEO; and Vitor Roque, the newly announced CFO. I think you've been to Vegas a couple of times, but this is his first fireside chat as CFO. So welcome.

Thank you. Thanks for having me.

Maybe since it is your first fireside chat. Maybe we'll start with you just announced permanent CFO. Just kind of love to talk about your strategy as CFO. What do you think is different? What do you think is the same as we see BDX in this role?

Sure. No, thanks for the question, and thanks for having me. Very happy to be taking this new role as Chief Financial Officer in the search of pivotal time for BD. We just closed the transaction with Life Sciences last quarter, and we couldn't be happier with the new strategy that BD is taking.

From a CFO perspective, I think the philosophy here is to be making sure that we are like consistent and transparent, making sure that we understand the business drivers. And I actually feel that I'm very well positioned to do that given my more than 2 decades with the organization, and I can partner with Tom and the leadership team in order to drive that operation and unlock the growth that we are looking for while being very responsible, and that's going to translate into kind of a clear guidance and a lot of transparency on what we do.

Also, I think one very important topic for me as the CFO is making sure that we take care of our capital allocation strategy. We have been very clear on our priorities are from our capital allocation, focusing on the share buybacks, maximizing the shareholder return. I think based on what the share price is today, I think that's one of the priorities that we have on capital allocation. But also, we continue to invest in the business focusing on tuck-in acquisitions to solidify our top line growth and taking care of our balance sheet, delivering the leverage that we have been committing to this of 2.5x. So those are going to be the priorities and supporting the strategy and unlocking the growth. So I would not say it's a complete transformation from what we have in the past. I think it's more sharpening our focus and making sure we can deliver the numbers that we have been promising.

And I think we had dinner last night, obviously. So I think kind of the 2 things that stood out to me at dinner was, one, the guide that BD is executing against now and just hit the last couple of quarters on, you are responsible for that guidance. And then two, you've been an operator and worked in a lot of the businesses. I don't know if you want to elaborate on those kind of 2 points.

Sure. Yes. So of course, I have been an interim. I was an interim as a CFO since December, but I was integral part with Tom and the leadership team in terms of building the expectations for this year. And again, the objective, as I said before, is getting that consistency and transparency on where we see the markets. We have the 3 major like headwinds that we have been communicating on Alaris vaccines in China.

So we wanted to make sure that we put a guidance out there that reflects the underlying performance of the business, meanwhile being very clear on how are we going to get there. And from an operational perspective, yes, so I have been with the company for 20-plus years. I have worked in multiple regions in Europe and Latin America and North America. I have also had the chance to work in multiple businesses, even on our legacy Life Sciences business and Biosciences, but also Medication Management, specimen management across the regions, and most recently, supporting segments as well as the medical segment. So I feel that I'm very well positioned to drive that operational rigor that the company needs in order to drive the new BD strategy.

Helpful. And Tom, kind of new BD, you've been at BD a long time and kind of have a new strategy, new BD, new portfolio. Like where do you kind of see BD today and kind of the path forward here? Is this the portfolio, the right portfolio for BD? And what's the plan to kind of execute?

Yes. We're extremely excited by the portfolio of new BD. We spent the last 5 years kind of reshaping -- being very, very active in reshaping our portfolio, of course, starting with the separation of our Diabetes Care business as that wasn't the category that we wanted to remain in. We then separated our V. Mueller business on manual surgery products. And then obviously, most recently, a really phenomenal transaction for our shareholders, separating our Life Science business to Waters.

If you just step back at the beginning of just 10 years ago, right, our MedTech business was about 60% of BD or about $4.5 billion 10 years ago. And today, that same MedTech business, right, is now $19 billion. So we've radically shaped that up. Life Sciences kind of was the same $3 billion business 10 years ago, grew a little bit, but not tremendously. And so now as you look at BD, I think also for the first time ever, and I've been with BD 25 years, the clarity of our portfolio strategy is exemplified in how we've organized our segments. And now, of course, with reporting requirements, you can see the profitability profile and the growth profile of each of those very clearly. And they're clearly distinct.

So obviously, our Connected Care business, right, we've got some phenomenal assets that we've built together there. Advanced patient monitoring, you saw that grow double digits in the quarter. Really phenomenal M&A deal for us, well ahead of our deal model, continues to have great momentum on the innovation side. Now we're integrating that with our Medication Management Solutions by bringing APM, connecting it with Alaris and utilizing our AI platform and [indiscernible] to do that. If you go over to our Biopharma Solutions business. First time that's ever been a stand-alone focus within the company. Again, extremely profitable, strong growth from a Biologics business. Now Biologics, as we shared on the last earnings call, has reached 55% of revenue for our Biopharma Solutions business. Again, Biologics growing double digits now, driven in large part by GLP-1s, but also through other Biologics.

We have our Interventional segment, obviously, where all of our kind of physician preferred products sit, and double-digit growth in PureWick right now. That's well over $0.5 billion platform for us. Double-digit growth last quarter in tissue regeneration, again, becoming a greater mix within the surgery business portfolio. And then our PI business doing steady, and we've announced a series of new launches there, including Revello as an early launch in Europe.

And then you've kind of got the fourth segment, which is what BD has been historically known for, which is our Medical Essentials business, right? It continues to be used by 9 out of 10 patients that are entered into a hospital, kind of the -- some people call it the anti-AI hedge program because it just -- it won't be impacted by AI. It's everyone that gets admitted to a hospital uses those products. 35 billion devices, 100% recurring revenue per year, and that just generates a lot of cash that we end up utilizing to invest in those other 3 segments that we talked about as well as utilizing that to do other things that are value creating like share buybacks or focused tuck-in M&A.

When you think about the portfolio, some -- you've kind of called out these double-digit growth drivers, drug delivery, APM, PureWick, advanced tissue regeneration. Like what percent of your portfolio is growing double digits? What percent is growing kind of high single digits? And how do you get more of the portfolio in those faster-growing areas?

I'll turn it to Vitor in a second. But the good news is that, of course, those elements, they're becoming a larger portion of the company, right? And just given their scale, each of those, right, are now scaled like Biologics is over $1 billion business. Advanced patient monitoring is a $1 billion business. All the other ones are north of $0.5 billion businesses. And so as they're growing double digits, that's obviously weighting. I think the other thing that's really important to call out is each of those are accretive to the margin profile of the company. And so as they grow, there's also a very positive mix benefit that comes along with that versus some of the other areas. As you think about how we break up the portfolio in terms of those areas, the categories are also high single digits versus then the low single-digit category, maybe Vitor, you can share.

Yes. No, I think we mentioned before like 10% of our portfolio right now is actually on that decline situation with China, Alaris and the vaccines. But I think if you break down the other 90%, I would say that about the double-digit growth at about 30% is growing at that double-digit rate, and we are investing behind those assets in order to continue to support that growth rate. We have another important piece of our business is around 25% to 30%, also growing at solid mid-single-digit growth, so 5% to 6% in several other categories.

And we have, as Tom mentioned, our -- like another like 30% on Medical Essentials that is more like the run rate of the health care systems, which is more on the low single digits. So all those are on the positive side, but -- and we are investing on maximizing the double-digit growth markets that we are playing in, but also seeing how can we elevate the mid-single-digit growth to an even higher growth rate going forward.

Okay. And the 10% that's declining, there's kind of the 3 discrete headwinds, China, vaccines, Alaris, maybe kind of go through those. When do we actually see -- you always talk about your underlying growth like 4.5%, 5%, whatever. When do we start to see that to kind of show up?

So I'll start, and I'll turn it over to Tom. So from Alaris, we have a very clear view on the Alaris is going to end up. So by the end of this year, we are finalizing the remediation that we have been committed to the FDA and the agency to do it. It was a 3 years. So that's the end of it. In '27, we are going to hit a new run rate from a revenue perspective, which is going to be about $100 million. But of course, we're going to have a comparison to this year because that was the last upside year from the Alaris perspective. But we have a very clear view on that. That's going to be the last year, and that's going to solidify there.

From a vaccine perspective, we called out about 25% reduction this year. We have seen the pharma companies also suffering from that perspective. We are clearly not expecting necessarily the decline of the 25% continue because it will be a very dramatic situation for the health care system. So -- but we are working very closely with the pharma companies. So we are not expecting that the level of decline, but we are still not expecting that to be like a growth driver for us in the near future. And China is the one that we are still working very closely with. We are seeing what we have said before that 80% of our portfolio is going to go through VBP this year. That remains true. But China continues -- China government continues to look for other ways to contain costs, and we are just monitoring this very closely. Tom.

It's very well said.

Okay. So you'll likely have some visibility. Alaris, you kind of have good visibility on, right?

[indiscernible] That's extremely clear visibility. It's just it's going to go to about $100 million next year, and then it will start growing from that. So that creates a 200 basis point headwind next year. What's interesting is we'll be having record market share as that's happening. It's just the reality that with 60% of the market that we have, normally -- a normal cycle is you're replacing that every 8 years or so. We just replaced it in 3 years. So we replaced about 20% of the entire market every year. If you think about the competitors in that space, they're still on an 8-year replacement cycle.

They collectively across 4 competitors have about 40%, the remaining 40% of the market. And so they're on an 8-year cycle. So they're replacing about 5% of the market. All other competitors combined replace about 5% of the market every year. Again, we replaced 20% ourselves. So 4x what everyone else does combined, we've done every year for the last 3 years. And that's just a unique dynamic. Again, put in perspective, 5% of the market comes up for grabs every year from competition. We've been very clear in the first 6 months of this year, we've taken 1.5 points of the market share, right? So think about -- it's about 2.5 points have come up for grabs. We've taken a large portion of that. We're going to continue to focus.

Our entire sales team for Alaris has moved because all Alaris customers essentially have brand-new pumps that are less than 3 years old. So they're not focused on defense. They're focused heavily on offense. And we've got a great platform, obviously, connected in with our new AI solution and [ product ] creates significant benefits for our customers, and they're focused on helping customers advance care with Alaris.

Okay. And then vaccines, do you have visibility kind of the summer when contracts come up?

That's more when the pharma company will start looking at placing their orders for next year. And so again, I think as Vitor mentioned, we don't expect and we have no signs as we're watching that there will be anywhere near another decrease like we saw this year as that reset. What the exact level is, we can't. it's too early to say that. But certainly, we don't expect a repeat of this year.

Okay. And then China is just kind of more of the uncertain factor.

I think it's just a recognition that anyone trying to peg China out a year from now, you should do so with caution, just recognizing that the market is very dynamic and that it's continued to have a focus on cost constraints. We do know that, as we've said, 80% of our portfolio will have gone through VBP. It's very actively happening. We're seeing it play out as expected this year. We just also recognize that there's other -- whether or not it's DRG or other mechanisms that are in discussion that haven't been implemented yet. There's a lot of local companies and international companies lobbying against some of those, which is they've been put on pause, but we want to continue to watch that play out.

Okay. That's helpful. And then when I think about kind of the macro ACA utilization, there's med tech investors probably part of the reason why MedTech stocks haven't worked is some worries on utilization. And you have pretty good visibility and utilization. So what are you seeing from a utilization standpoint, you think?

Within our portfolio, we're seeing strong solid utilization. Obviously, areas like blood collection sets are a good indicator of diagnostic testing. You compare that to the Quest, LabCorp volumes. Diagnostic testing is pretty solid. And that's a good indicator of just broad health care consumption. Products like IV sets, which we have 70% share of, strong growth, right, in the U.S., solid mid-single-digit, 6% plus kind of growth you're seeing.

Some of that share gain. But at the same time, it's underlying utilization. That's the first thing you normally get when you go into a hospital with an IV set put into your arm, most likely a BD catheter. So I think for those indicators. And then some of our other solutions in a world where people are looking to save money and navigate a challenging economic environment, right solutions like our Rowa pharmacy robotics platform or what we're seeing with Pyxis and our Medication Management suite where it's helping with nursing workflow, we're seeing strong demand for those types of solutions.

Okay. And then kind of also on the macro side, inflation, that's probably another factor for worry on MedTech stocks. So I just want to understand where you are. You talked about resins exposure. Do you have any computer chip exposure, memory exposure? And then how you kind of have visibility on hedges and on inflation?

Go ahead.

Yes. So from a -- as we mentioned, I think the biggest topic for us that we are monitoring is the price of oil, which is connected with the resin price. The resin price in the plastic is approximately 5% of our cost, and I think we have been able to implement hedges along the way, which are going to help us this year to kind of absorb those costs and making sure that we do not get a lot of exposure. But of course, as this continued pressure on oil remains, those hedges are going to start rolling off and there will be pressures from a cost perspective coming from this. But I think the team has been working on several levers in order to help to offset this heading into '27.

In '26, we feel very confident that we have everything protected. But in '27, I think the work is right now happening already. We've continued to work with our ISC team, which has been proven year-over-year the capability of delivering high productivity. We're also working very heavily on the commercial aspect with price. That's something that we have done in the COVID times, and we actually have created a very strong discipline about price execution in the marketplace, and we continue to do that, and we are going to looking into alternatives to do.

And last but not least, I think our portfolio, I think we are investing on areas of high growth but also high margins, and that should help us continue to offset those type of pressures inflation. So inflation is real is there, but I think we have enough levers and we know the path. We have done it in the past, and we are looking to continue to do that in the future.

And I think you saw us be top tier in navigating inflationary environment last time that happened post COVID. But one of the things we said is internally, we said we're going to act early, which we did and that we were going to be the best in the industry at navigating. And I think we ultimately were, right? If you look at a 3- or 5-year basis, we were top 2 in med tech from both gross margin and operating margin performance over that time frame. And that I think it was a large part due to some of the actions that we took early on during the last inflationary cycle. And so we're taking that exact same approach in this ecosystem. We're not sitting around thinking that oil is going to drop. We're going to assume it's going to stay high, and we're going to take actions accordingly.

And what kind of levers to offset, let's say, things do get worse, kind of your levers to kind of offset that?

I think you heard Vitor talk about a few of them. One is, again, BD Excellence has become a tremendous competitive advantage for us. We've been operating at 8% productivity last year. We're operating it again this year. We announced that was again our productivity this past quarter. But that's at our top decile level for sure within this industry and most other -- pretty much every other industry. So that's a big competitive advantage in those types of environments.

The other one is pricing, right? We flex pricing as appropriate, and we have open discussions with our customers, right, where we have products that are primarily made of resins. We talk about that those may go up. And we actually have put in during the last inflationary cycle, we changed most of our contracts to have annual price increase clauses in them as well related to CPI. We saw some numbers this morning. Obviously, CPI is up in the 3s, deeper in the 3s now. And so we have that ability within most of our agreements. And again, we actually have time later this week after we leave the conference reviewing that with our team. So they've been given tasks, and we're following up with them on those actions.

Okay. That's helpful. And just in total, kind of the margin opportunity, at kind of 25% margins, which is your goal you guys there. Does it get harder going forward to continue to expand margins at the same rate? What are some of the levers on gross margin, R&D, SG&A to kind of get leverage in the P&L?

I can start and then -- so as we started BD 2025, the first couple of years, most of our operating margin expansion came from leverage in OpEx. And then you've seen in the last 2 years, this being the third, that leverage really come from gross margin. And we called it beforehand to those who have known the BD story, we said, get ready, you're going to start seeing as BD Excellence starts really hitting full steam, you're going to see operating margin expansion come from gross margin expansion. It played out exactly as we said. It's going to continue down that path, right? We expect operating margin leverage to come primarily from gross margin. I think even this past quarter, obviously, this was -- we didn't have tariffs in Q2 of last year.

So there's a tariff headwind. But if you take tariffs out and just say how did BD operationally perform ex tariffs, it was 70 basis points of gross margin expansion and 50 basis points of op margin expansion with us reinvesting into selling as part of our growth strategy in between. But again, it was coming from gross margin. Why is it coming from gross margin? It's a combination of productivity that we talked about, and it's coming from our plant consolidation strategy, right? We've talked about we've cut our manufacturing plants in the last 5 years in half, right? We were near 100. We're now in the 50 -- about 50 range, and we still have some further consolidation that will go into the 40s. Those are projects we've been investing in over the last several years, and they're really just continuing to flow through, and those will hit the gross margin line exclusively as well. And then obviously, the mix that Vitor will talk.

Yes. And again, I think this year, we have been talking about the 25% despite the tariff impact. So we've been able to kind of deliver that. So excluding the tariff, we actually had an underlying expansion of our margins. We are monitoring the inflation, which is going to be the next topic heading into. But I think we have, as Tom said, the BD excellence and the commercial execution will be the key drivers for us going forward.

Okay. And when you think about this year, you've had kind of low single-digit revenue growth, mid-single-digit EPS growth. And we've kind of already kind of talked about low single-digit revenue growth next year. I don't think that's changing given the discrete headwinds we talked about earlier. Otherwise, the base is growing like 7%, which is not possible. Should we kind of -- is there any factors, I guess, the way to phrase it next year that why EPS wouldn't still be in the mid-single-digit growth range?

It's too early. Actually, we're not giving guidance on '27 EPS, but we're focused on obviously optimizing that, more to come.

Okay. All right. I had to ask. if you go look at this year, kind of first half, second half growth, like one question we addressed and talked about last night at dinner, what we see in our models, just looking at last year, comps look tougher and so what steps up in the back half of the year on an underlying basis. And so I just wanted to kind of address the underlying acceleration in the growth rates.

Sure. So from a revenue perspective, I think we feel very good. I think we demonstrated the capacity of execution of our revenue. So we overachieved our expectations in Q1 and also Q2. We see the comparisons on the back half of the year fairly similar. We know, of course, that the Alaris situation is more acute and more pronounced on the Q4, given that last year was the largest number of Q4 of Alaris for us. And this year, we are coming down to the end of the remediation by the end of Q4. But I think if you think about our recurring business, we continue to see good progress with share gains across businesses like in MDS and specimen management in the U.S. market.

And also our capital business continues to see very strong backlog. That gives us confidence on the back half of the year. So as we said, our growth in the back half of the year is going to be similar to the first half of the year, and that gives us confidence that we can continue to deliver on that number. The comparisons are fairly easy -- not easy, but similar to the first half. Q2, you can argue because last year, we actually had a tough Q2, but it was actually because of an event that happened in the prior year. But the baseline is fairly similar. So we feel very confident about the revenue in the back half of the year.

Okay. And the same thing, we shared our models and there's the margins going higher from Q1, 2, 3, 4. I just want to understand like the Q4 step-up looks really big on margins. So I just want to get the confidence.

So I think the margin story is, I think, is very similar. So we have in implementing our BD Excellence operations, so driving volumes and savings on materials and other productivity factors. We have high visibility to those because of the what we call the cap and roll, so everything gets capitalized and amortized. So we have very clear visibility on when that's going to happen. We also have the situation on tariffs that naturally because of the actions we have been taking, the dollar amount comes a little bit down, and it becomes an easy comparison in Q4 because we didn't have tariffs on the first 3 quarters of the year and Q4 actually was the highest quarter of tariffs that we have seen so far was about $90 million last year.

So we see those factors. So the revenue continues to improve on the areas we are investing on because we are putting sales force behind like APM, which is high growth, high margins, also in surgery, advanced tissue regeneration, which is also a high growth, high margin. Peripheral interventional also drive significant above company average margins. So those are actually the sales force is gaining productivity as we go through, which is going to give us confidence from increasing margin from a mix perspective and the productivity that we have seen in our plants already operating are going to generate the P&L impact heading into the Q4 number.

And fair to say that as Vitor said, essentially the $90 million in Q4 of last year, it's going to be lower because of all the offsetting actions that we've done. We have a favorable number in Q4 for tariffs year-on-year because of all those offsetting actions that we've taken.

Yes. And last but not least, I think if you see our revenue sequential, our revenue is actually higher on the back half of the year compared to the first half of the year. And our expenses are actually pretty steady with Q4 coming a little bit down. which is part of the execution of the $200 million cost-out program that we have already implemented. It's already well underway. We have already $150 million in motion. And that expenses as they exit the organization in the back half of the year, we see the benefit on the operating margin as well. So it's a combination of the productivity of the plants, our higher operating expenses efficiency and the leverage from the revenue perspective.

Okay. That's helpful. And then another factor I wanted to make sure we addressed is the ChloraPrep ship hold. I think that's like a $480 million product. Is that right?

Well we said it's about 3% of revenue. 3.5% of U.S. U.S. ChloraPrep of total BD revenue.

Yes. Okay. And there's a 3-week ship hold, kind of the confidence that with the warning letter out there that, that comes back on the market...

Yes. As we said, pending the testing, we're quite confident. The -- we haven't stopped making ChloraPrep, right? So there's never been a pause in our manufacturing. It's safe. There's no patient issues, no safety signals at all. We stand by the safety of the product. It's obviously our one large pharmaceutical manufacturing plant that's considered a pharmaceutical as a skin cleansing agent. The -- essentially, what we're doing is we're doing the exact same testing that we do for a product that we ship to Europe.

So the exact same product is made on the exact same lines, gets a label for Europe. We typically do an additional testing loop on that product post terminal sterilization, and we're adding in that same testing loop on U.S. product. Again, and that product is the exact same product that we have been testing that goes to Europe that we haven't had any issues with. So that's kind of why we're adding in that same testing that's always gone well that's already been started. Again, we continue to manufacture the product. And as soon as that testing would be completed, we resume shipping each of those batches. Those shipments don't go to the end user for the most part, right? So it's filling shelves at the distributor as well. So we're not expecting end user back orders at this time, it will be refilling shelves at our distributors.

Yes. And that's what's going to do from our revenue, what gives us confidence on the revenue is exactly what Tom just mentioned. We have inventories on the channel with distributors. Those are going to continue to feed the hospitals for utilization. And once we start releasing the product after the testing that is a very well-known test that we have high confidence on we are going to start shipping back to distributors to replenish that inventory. So we do not see right now the revenue impact.

It's an extremely important product, obviously, that we take very seriously. It's used in about 95% of all U.S. surgeries.

Do you really see the risk of FDA saying, "Hey, you can't ship this or restart that in 3 weeks."?

This was a completely voluntary action upon our part. So we did that completely on our own quality department took that action with no request from the FDA.

Okay. And then one last question, PowerPort litigation, you won the first trial I don't know if there's anything you wanted to say on that before we close.

Again, we'll fight that litigation vigorously. That product has been on the market for 40 or 50 years. It's helped tens or hundreds of thousands of cancer patients navigate very safely. It's a safe and effective product. That's what the jury obviously found. It's well designed and again, has decades -- many, many decades of success. So...

Great. Well, thanks a lot. I think we're out of time.

Thank you.

Thank you.

Thank you.

Hello, and welcome to BD's Second Fiscal Quarter 2026 Earnings Call. At the request of BD, today's call is being recorded and will be available for replay on BD's Investor Relations website, investors.bd.com or by phone at (800) 688-9445 for domestic calls and area code +1-402-220-1371 for international calls. [Operator Instructions]

I will now turn the call over to Shawn Bevec, Senior Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to BD's earnings call. I'm Shawn Bevec, Senior Vice President of Investor Relations. Thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the second quarter of fiscal 2026. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Vitor Roque, Executive Vice President and Chief Financial Officer.

Before we get started, I want to remind you that we will be making forward-looking statements. You can read the disclaimer in our earnings release and the disclosures in our SEC filings on our Investor Relations website. Unless otherwise specified, all comparisons will be made on a year-on-year basis versus the relevant fiscal period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. Also, references to adjusted EPS refer to adjusted diluted EPS.

The financials discussed here and included in the earnings release and 10-Q are presented on a continuing operations basis. Prior periods have been recast to reflect the spin-off of our Life Sciences business in combination with Waters, which is now accounted for as discontinued operations. Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentation.

With that, I will turn it over to Tom.

Thank you, Shawn, and good morning, everyone. Before turning to Q2 results, I wanted to take a moment to highlight this morning our announcement of Vitor Roque as CFO. As you know, Vitor has been Interim CFO since last fall and has done a fantastic job serving as a partner to me and the leadership team. Since he stepped into the role, we've delivered 2 solid quarters of performance and closed our transaction with Waters ahead of schedule, enabling us to fully initiate our New BD strategy while also enhancing our capital allocation strategy. In partnership with a leading executive search firm, management and the Board ran a comprehensive process that evaluated a broad range of external candidates in addition to Vitor. Our goal is to identify the best candidate to lead BD's finance function.

We were focused on identifying a CFO with a demonstrated ability to lead sophisticated finance organizations in complex operating environments, deep understanding of our markets and value creation model and a strong track record of driving strategic, operational and financial performance. As we work through the process, it became clear that our best talent was already within the organization with Vitor. With 25 years at BD across our businesses, regions and segments, he brings the experience and perspective to translate strategy into results, drive consistent execution and create long-term shareholder value. I look forward to working closely with Vitor as we continue to execute on our strategy.

Turning now to our Q2 results. We delivered a solid second quarter with revenue, adjusted margins and adjusted EPS all ahead of our expectations. More importantly, performance reflected broad-based execution with more than 90% of the portfolio delivering mid-single-digit growth and tangible progress in operational innovation and commercial performance through BD Excellence. Reflecting our first half performance and improved visibility into the remainder of the year, we are raising our full year adjusted EPS guidance. This gives us confidence that the New BD strategy is delivering through a dynamic environment.

Revenue was $4.7 billion, up 2.6%. As I've discussed, we've been focused on building multiple scaled growth platforms that sit at the center of secular trends that are driving the future of health care. It is in these areas where we're focusing on enhancing our commercial execution and driving product innovation. During the second quarter, we delivered double-digit growth across these key growth platforms, including biologic drug delivery, Advanced Patient Monitoring, PureWick and Advanced Tissue Regeneration.

We also delivered mid- to high single-digit growth in oncology, peripheral arterial disease and Rowa pharmacy automation. As you can see, these platforms are scaling. They're outpacing the broader portfolio and are becoming a more meaningful driver of our long-term growth profile. As expected, results were partially offset by focused pressure in Alaris, vaccines and China. We've been clear about these factors, which represent less than 10% of revenue, and we're managing them with discipline.

We delivered adjusted operating margin of 24.2% and adjusted EPS of $2.90, reflecting strong operational execution through BD Excellence and the high quality of our revenue performance. Taken together, the quarter demonstrates the increasing quality, breadth and resilience of New BD.

We're executing against three priorities that define how we're building New BD: compete, innovate and deliver. By expanding BD Excellence into commercial and R&D, we're building a stronger operating system, one that strengthens our competitive position, accelerates innovation in attractive markets and improves the earnings and cash generating power of the company over time. Starting with compete. We're raising the bar on commercial execution with greater rigor, faster decision-making and more disciplined use of data. In Q2, those actions translated into measurable share gains and customer conversions across several key platforms. A few to highlight. Within Connected Care, APM continued to grow above market, driven by strong HemoSphere Alta adoption and a nearly 20% increase in Smart Recovery consumables demand.

With incremental sales force hiring largely complete, we're well positioned in the back half of the year. In Alaris, we drove share gains of approximately 50 basis points in the quarter and roughly 150 basis points year-to-date, with momentum continuing into Q3. In BioPharma Systems, we secured several significant long-term customer wins, including two next-generation GLP-1 programs with leading global pharmaceutical companies. Biologics are now expected to represent about 55% of segment revenue, reinforcing our confidence in the long-term growth outlook for this business.

In Interventional, we continue to build competitive momentum across Surgery with strength globally from our synthetic hernia and Advanced Tissue Regeneration portfolio and early contributions from recent launches, including Surgiphor Pulse and Avitene Flowable. In UCC, we drove continued adoption across the PureWick portfolio, including expanding our PureWick at-home initiative and adoption in the VA. This is a good example of how we're combining innovation and commercial execution to expand both our penetration and our addressable market. What's important here is that these are not isolated wins, they reflect improving commercial discipline and our ability to convert strategy into tangible outcomes.

Our second priority is innovate. We're strengthening our pipeline and increasing the pace of launches in high-growth areas that advance BD's leadership in Connected Care and enabling the shift to lower-cost settings and in advancing the treatment of specific chronic diseases. While we're still in the early innings of applying BD Excellence to R&D, we're already seeing momentum. Year-to-date, we've applied BD Excellence to five development programs, and on average, have reduced the time to launch by over 10 months. This is increasing the cadence of high-impact launches that expand our addressable markets and support sustainable long-term growth.

In Peripheral Intervention, we launched the EnCor EnCompass Biopsy System in the U.S., strengthening our position in the $450 million global breast biopsy market. The system simplifies workflow and works across all imaging modalities, enhancing both efficiency and clinical flexibility. We also advanced our peripheral vascular portfolio with the early launch of the Revello Vascular Covered Stent in Europe. This expands us into new procedural segments within PVD and addresses more complex lesions. The U.S. launch is planned for next fiscal year.

In APM, we expanded the launch of the HemoSphere Stream Module in the U.S. and Europe. Stream enables continuous noninvasive blood pressure monitoring with real-time data and extends beyond traditional care settings, significantly expanding our addressable market. Collectively, these launches in the quarter show that innovation at BD is becoming more focused, more disciplined and more impactful in the categories that matter most to our long-term growth.

Our third priority, deliver, reflects our focus on quality, operational excellence, margin expansion and cash flow generation. Our BD Excellence system and operational performance is a significant differentiator for BD and a key source of confidence in our ability to continue investing in growth while expanding earnings power. We're building a simpler, more efficient manufacturing network, reducing our footprint by roughly half to around 50 sites globally today, with actions underway to reduce it further. BD Excellence drove approximately 8% productivity in the quarter and service levels of over 90%. These actions are supporting growth, expanding margins, increasing cash flow and strengthening the resilience of our operating model. We also made strong progress on our $200 million cost-out program with a run rate of $150 million already completed and clear visibility to fully deliver by the end of next year.

Product quality is core to BD, and I want to provide an update on the FDA warning letter we received last Thursday related to our El Paso, Texas facility that manufactures ChloraPrep and PurPrep infection prevention products. In response, we voluntarily placed these products on ship hold in the U.S. while we complete additional final release testing. This additional testing is already performed for products sold in Europe. We expect this testing to take approximately 3 weeks and pending satisfactory results, we would resume shipments at that time. We are continuing to manufacture product during this period. And importantly, there's been no patient safety signals, and we stand behind the safety of these products.

Moving to capital allocation. We remain committed to a disciplined framework, which prioritizes returning capital to shareholders, investing in high-growth opportunities through disciplined tuck-in M&A and driving consistent improvement in return on invested capital. Our capital allocation actions continue to align tightly with our framework. In the quarter, we returned $2.3 billion to shareholders, including $2 billion through share repurchases. We completed the separation of our Life Sciences business at approximately a 19x EBITDA multiple, and our Advanced Patient Monitoring acquisition continues to perform well ahead of our deal model.

In closing, we are pleased with our first half performance and improved visibility into the remainder of the year as we continue to execute across our New BD growth strategy.

With that, I'll turn it over to Vitor to provide more detail on our financial performance and updated guidance.

Thanks, Tom, and good morning, everyone. I'm honored to step into the CFO role at a pivotal moment for BD as we accelerate our New BD strategy. I appreciate Tom and the Board's confidence. I firmly believe BD's finance function must support the company's strategy to drive shareholder value creation. I see tremendous opportunity ahead as we have clear, well-defined strategy to unlock growth while continuing to be diligent on our cost structure to improve P&L leverage and drive sustainable EPS growth. This must all be paired with a clear capital allocation strategy that will continue to focus on shareholder returns while maintaining a strong balance sheet. I look forward to continue to engage with the investment community in the weeks and months to come. With that, let me turn to the quarter.

We delivered solid second quarter with $4.7 billion in revenue, up 2.6%, reflecting broad-based growth across most of the portfolio, with a stronger contribution from higher-margin businesses and disciplined execution through a dynamic environment. This was partially offset by expected pressure in Alaris, vaccines and China. Medical Essentials grew 1.7%. MDS and Specimen Management delivered solid growth in the U.S., driven by share gains in Vascular Access Management and BD Vacutainer portfolio. This was partially offset by market dynamics in China.

Connected Care grew 3.3%, led by Advanced Patient Monitoring which grew 12% on strength in the U.S. consumables. MMS grew modestly with the difficult prior year comparison in Alaris capital, offset by strong infusion sets performance on increased utilization versus last year fluid supply disruption and pull-through from Alaris share gains. BioPharma Systems declined 1.8%, in line with our expectations. Continued double-digit growth in Biologics led by GLP-1s was more than offset by lower demand for vaccine products.

Interventional grew 5.3% with solid mid-single-digit growth across the segment. UCC was led by continued double-digit in PureWick. Surgery performance was driven by double-digit growth in Infection Prevention and Advanced Tissue Regeneration. PI grew -- growth was led by peripheral vascular disease and oncology, partially offset by China market dynamics. In summary, revenue performance was not driven by one business or one geography, we saw strength across multiple platforms where we have been investing, and that strength more than offset known and focused headwinds.

Turning to the P&L. Adjusted gross margin was 54.7%, down 90 basis points versus the prior year. This includes 70 basis points of positive benefit from productivity and mix, offset by 160 basis points of tariffs. Adjusted operating margins was 24.2%, down 110 basis points versus the prior year. This includes 160 basis points of tariffs and increased commercial investments in key growth areas. Importantly, both adjusted gross and operating margins were ahead of our expectations.

Adjusted EPS was $2.90, up 3.9% and ahead of our expectations, reflecting solid revenue performance, better-than-expected margins and strong operational execution. Adjusted EPS excludes approximately $450 million of noncash asset impairment charges recorded in the quarter. Following the separation of our Life Science business and combinations with Water, we exited certain activities that no longer align with the New BD strategy. These actions are part of the work to simplify BD, sharpen our focus and align resources behind the platforms that matter most to the long-term value creation.

Turning to cash flow and capital allocation. Year-to-date free cash flow was $1.1 billion, up significantly versus the prior year. The increase was driven by disciplined working capital management, including improved collections and inventory management as well as continued progress reducing nonoperational cash items. This increases our flexibility to invest in growth and return more capital to shareholders.

During the quarter, we returned approximately $2.3 billion to shareholders, including $2 billion in share repurchases and $0.3 billion in dividends. We also retired $2.1 billion of debt in the quarter. We ended the quarter with net leverage of approximately 2.9x and remain committed to our 2.5x long-term net leverage target. Our capital deployment remains aligned with the framework we laid out: return capital to shareholders, invest in focused growth and maintain balance sheet discipline.

Moving to our updated fiscal '26 guidance. While we are reaffirming our full year revenue guidance of low single digits, we expect revenue growth in the second half to be roughly similar to the first half. Based on current spot rates, currency is estimated to be a tailwind of revenue of about 120 basis points.

Moving down to the P&L. We continue to expect adjusted operating margins of approximately 25%, inclusive of the impact of tariffs. Our adjusted effective tax rate is expected to remain between 16% and 17%. Given our first half performance, the breadth of growth across the portfolio and continued productivity through BD Excellence, we are increasing our adjusted EPS guidance to $12.52 to $12.72.

With that, I'll turn it back to Tom.

Thanks, Vitor. Before we open the call for questions, I want to recognize Rick Byrd, President of the Interventional segment, who recently announced his intention to retire after nearly 25 years with BD. Rick has been a strong leader and partner over his career at BD, strengthening our portfolio and helping build a strong foundation across the Interventional business. We're grateful for his many contributions and wish him all the best in his retirement.

With that, let's start the Q&A session. Operator, can you please assemble the queue?

[Operator Instructions] And we'll take our first question from Vijay Kumar with Evercore ISI.

Maybe one on just the performance here in the quarter, both on the top and bottom line. Organic -- headline organic was 2.6%. What was underlying excluding the onetimer headwinds, right, which segments did it impact on the bottom line? Maybe for Vitor on -- it looks like TSA income was a driver. Is TSA income sustainable here in the back half? Like what's that other income that aided here in the second quarter?

Thank you, Vijay, and good morning and welcome back. Good to have you back covering BD. We are, as you said, really pleased with the performance in the quarter, and we saw it play out with really those -- our key growth platforms. We had multiple platforms growing double digits in the quarter. We talked about a number of those, BioPharma -- our Biologics business, our Advanced Patient Monitoring business, a number of others there. We're continuing to see also another major portion of our portfolio growing high single digits. And the overall 90% of the company, continuing to grow solid mid-single digits, right around 5%.

And the three areas that we called out in the beginning of the year, right, the China, the vaccine market dynamics as well as Alaris playing out as expected as well, and that's offsetting kind of that mid-single digits in the remaining portion of the portfolio, but we're really pleased with the execution that we're seeing across the team, the up-tempoing on our commercial rigor as well as the pace on innovation and launches.

I'll turn it over to Vitor to address the other questions.

Vijay, thanks for the question. So as Tom highlighted, we are very happy with our performance, both on the top line and the gross margin. We had strong performance in both of those areas. On the item that you are mentioning, it's not necessarily related to the TSA. What we had was a planned item from the very beginning of the year in a different line of the P&L on the G&A line that on the accounting when we booked, we ended up booking in the other income line. But it's just a reclassification between lines. It's not driven by the TSA. Everything played out as expected on the quarter for us.

So there was no benefit on the P&L.

No benefit on the P&L from that.

We'll take our next question from Travis Steed with Bank of America.

Maybe start with maybe thinking about the cadence of the year, both on revenue and margins. I know you said revenue growth kind of roughly similar first half, second half, but the comps do get tougher. So when I think about how some of the Alaris, China, vaccines headwinds play out to kind of get the similar growth rate in the back half of the top line. And when you think about margins, kind of the same idea how to think about margins over the course of the year and what you're assuming on inflation as well.

Sure. I'll turn that to Vitor.

Travis, thanks for the question. So starting with the revenue, I think we feel very good about the revenue we have on the back half of the year. We delivered solid performance on the first half over delivering on our internal estimations and expectations and we see good line of sight to deliver on the back half of the year, as we mentioned on the prepared remarks. The comps are pretty much similar in the back half of the year. There is no specific topics there. So we feel confident about the delivery in the back half of the year from a revenue perspective.

From a margin perspective, we also see good performance over delivering the quarter on the gross margin, which makes us increase confidence for the back half of the year. A lot of our ramp in margins in the back half of the year is driven by the execution of our BD Excellence, that has been part of our plan all year long. We are seeing results of that with achieving 8% productivity in Q2, and that's going to generate benefits for us on the later part of the year. Given our cap and roll, we have good visibility of our margin profile for the back half of the year, which also increases our confidence on delivering the margins in the back half.

Yes. And I would just say the other couple of factors there is we do end up lapping a bit vaccines, right? If you recall, that started in the very back end of last year. So we do see that not as significant of those headwinds in the back end of the year versus what we saw in the front part of this year.

I think maybe just another one since it's probably on folks' minds, just to address too, as we think about questions around oil and resin and the Middle East. From a business perspective, resins and molded plastic components, they represent about 5% of our COGS. I think we've talked about this many times in the past. But we've really very effectively, very proud of the work that our teams have done to effectively mitigate any impact this year. That's really done through the hedging actions that we took several years ago, which we're seeing benefit us here as well as obviously the normal cap and roll mechanisms and the very strong top quartile, top decile productivity benefits that we're seeing, right?

As we think about next year as well, we obviously have a very focused team, pending where oil prices and resin prices go. Obviously, we continue to drive BD Excellence. We've got multiple resin sources. And pricing actions are also something that, as you know, that's an area that BD has a lot of focus on. And right, we will make sure from a margin perspective that we seek to protect that as we -- pending where those prices stabilize over time. So thank you for the question, Travis, and we'll look forward to seeing you next week.

We'll take our next question from Robbie Marcus with JPMorgan.

Congrats on a good quarter here. Tom, I wanted to ask on sort of the New BD strategy here and really the priorities for free cash flow. I believe in the past, it used to be predominantly tuck-in M&A to drive growth accretive additions to the business. And now it seems like that's slotted #2 behind share repurchase. So maybe just give a quick overview on how you're thinking about capital allocation here and the priorities, if you don't mind.

Yes. Thanks for the question, Robbie. And so as we've communicated, as we look at the New BD, and particularly, right, in this window and given the valuation of the company today, it's -- we believe that the company is substantially undervalued. And we have a very strong focus on cash flow generation, you saw that come forth in the quarter. You can see it in our operational excellence, really operating at a top tier there. So as we think about how we deploy that cash flow, which we're obviously highly focused on continuing to increase today, at current stock price, right? We have a top priority on buying back shares as we view that as a top form of value creation for our shareholders. .

Now with that, we obviously pay a very strong dividend, which is a very high yield rate at -- a very solid yield rate at today's stock prices, again, which we view as undervalued. And we do have an active M&A pipeline. But we -- as we look at those, you've seen us be extremely disciplined in our M&A track record over the last several years. We've been focusing exclusively on deals that accelerate revenue growth, drive margins and improve our return on invested capital, right? We haven't been doing dilutive deals. And that framework doesn't change from in terms of the types of deals that we look at.

But from an allocation, so we do have an active M&A funnel. It is in a focused funnel as we are prioritizing towards share buybacks at the current valuation levels, but I would expect that we would do tuck-ins forthcoming, but again, in a focused way in that order of capital prioritization. So thank you for the question, Robbie.

We'll take our next question from Larry Biegelsen with Wells Fargo.

Tom, I thought I'd just ask on the ChloraPrep ship hold, I thought if I heard you correctly. What's assumed in the guidance, how much of U.S. Specimen Management is ChloraPrep? I assume the vast majority. And what gives you the confidence the ship hold will only last 3 weeks and that the testing will be positive?

Yes. Thanks for the question, Larry. So just a little bit of background, the ChloraPrep and PurPrep products are primarily within our surgical business with a little bit in our MDS business. And those products are made in that El Paso facility. So as we have put those products on hold from shipping them, we're continuing to manufacture full out. As I said, there's been no patient safety signals, and we stand strongly behind the safety of the products.

The testing that we are performing is testing that we've been doing for many years on the product that we ship to Europe. So we have a strong track record with that testing on this exact same product. We've extended that testing. We've added an additional testing loop -- that testing loop onto the finished goods that are going to be shipped in the U.S. That testing takes approximately 3 weeks. We're beginning that testing this week. And again, pending satisfactory results like we've seen for the product that we've been shipping to Europe. Pending that, we would resume shipment at that time. And in the meanwhile, we're not slowing down manufacturing. So I think that's an update there. Thank you, Larry, for the question.

We'll take our next question from Rick Wise with Stifel.

Look, I'm going to ask, it seems like sort of a soft question, but I'm curious to know what you're charging Vitor with, what you're tasking Vitor with as he steps into the role. Obviously, he's been there a long time. Obviously, he knows the job. Obviously, compete, innovate, deliver, he's going to be integral in making that all happen, Tom. But there's -- he's stepping into the role in a different time in BD's history. What's he prioritizing? What are his financial priorities? Is something -- anything changing or different that you're emphasizing? I'd just be curious to understand how you're both thinking about it and what we should think about it, honestly.

Obviously, Vitor and I are highly aligned on the New BD strategy and our focus on execution quarter after quarter on the commitments that we've shared. And again, we're very pleased with this quarter. We're highly focused, obviously, on the continued cash flow generation and revenue growth of the company. Those are reflected in top 2 priorities, which is commercial excellence and innovation excellence, which fuel our revenue growth. And why don't I turn it to Vitor to maybe share his priorities and financial philosophy? And again, it's -- we're joined at the hip on that.

Sure. Thanks, Tom, and thanks for the question. Of course, I'm very honored to be taking this position at pivotal moment at BD. New BD, we are very excited about what we can unlock going forward. And I have spent more than 2 decades at BD across different businesses, regions and segments. And I do have a clear view of what drives performance and what is the structural versus cyclical.

My focus, it's driving growth in partnership with Tom in the leadership team, but also setting expectations that are confident and sustainable. Communicating transparently, delivering consistently against what we commit. Over time, I think that consistency is what builds trust and drives -- preserves -- builds trust and preserves flexibility.

In terms of priority, I would say, of course, driving growth is going to be the top of our agenda. We are going to continue to drive that, but execute without disruption, making sure that we keep the team focused on delivering the commitments to this moment, maintain a clear and consistent communications so investors and shareholders understand our performance drivers, outlooks without any type of ambiguity.

And I think, as Tom mentioned before, stay disciplined with our capital allocation, protect the balance sheet, maximize returning to shareholders and invest on selective growth drivers. It's about continuity. It's not about changing drastically, but it's sharpening the execution and not changing direction. Thanks for the question.

We'll take our next question from David Roman with Goldman Sachs.

Vitor, congratulations on the permanent role here as CFO, I look forward to working with you. Maybe just dive in a little bit deeper on MMS here. Clearly, a ton of focus on the Alaris business. But maybe you could help just frame for us some of the different other pieces in that line item. For example, what are the opportunities on the pump disposable side, especially given the disruption in a competitor? I believe your pump set share, especially sets outside the pump is lower than your pump capital share. You talked a little bit about Rowa and Parata. But maybe help us just break down a little bit further. Any detail you're willing to provide on sizing the businesses in there and how you're thinking about the growth trajectory, especially in light of the previously disclosed comments around the well-known Alaris headwinds?

Yes. Thanks for the question, David. And obviously, you know the business extremely well. As we think about -- so let me start with Alaris and then we can move over to dispensing and pharmacy automation. So within Alaris, as we said, we actually saw Alaris perform modestly better than expected in the quarter. It was another quarter of share gains. As we said, about 50 basis points year-to-date, 150 basis points, which year-to-date, halfway through the year, that's hitting stride even better than we had before historically. That's really good. And we see that momentum in Q3. In fact, we have the largest Alaris competitive funnel in the history of the company today. And so we're, again, very focused on that. We lost no infusion accounts in the quarter.

As we think about the consumables growth, we actually saw and we're seeing -- in the quarter, we saw low double-digit growth in infusion sets in the quarter. And that's driven -- I think we need to recognize, one, there was an easy comp relative to the -- there's the fluid shortage last year that held that back. But it's also driven by, as you referenced, share gain pull-through that's happening there. And that's a big focus of ours, right, not only on the dedicated sets, but on the non-dedicated sets and pulling all of that through together to help support the customers and with BD solutions.

As we think about Pyxis, obviously, we're right in the middle of -- right in the early stages of our next-generation Pyxis launch, Pyxis Pro, which is the first new Pyxis platform in essentially 20 years. So again, bringing really new fantastic breakthrough innovation that's for the first time in a while. And it's a very important step in our Connected Care strategy. The new Pyxis Pro is the first AI-enabled Pyxis, and it's the first future cloud-enabled Pyxis.

Our early customer response has been strong. The launch is translating into competitive traction actually in the first half of the year now. 75% of our wins are competitive conversions which is reinforcing our view that this is really a meaningful share gain platform over time. What we're doing with that platform? So it enhances capacity, it enhances security and durability but it also has our new AI platform, BD Incada.

And under Bilal's leadership, he's really brought in a new team of AI specialists, data specialists who are building out Incada as our solution that all of our devices, whether or not it's Alaris or Pyxis or APM or other software platforms will all feed into this AI model that will help customers improve that end-to-end medication management workflow, improve inventory visibility. And ultimately, that's our platform that we view connecting in our patient monitoring and the drug delivery side to take things to a next level of breakthrough innovation.

On the pharmacy automation side, at the same time, we've recently hired in a new President of that business to give it even further focus with -- under Bilal's leadership. And that's still a subset within MMS, but we brought in another level of leadership there because we do see a significant opportunity both with Parata and Rowa. The trends around automation and labor shortages certainly are not changing anywhere, particularly Europe, right? When you go into hospitals, labor shortages are the #1 topic we hear time and time again, and pharmacy automation is a fantastic solution.

The other thing you're seeing in the U.S. is as people are wanting to ship drugs directly to patients' homes from a population health, pharmacy automation and these lights out automated warehouses really become key. Same thing on the direct consumer, the large direct-to-consumer places that we could be buying our own goods that are now offering pharmaceutical services to deliver those medications for home. They don't have pharmacists counting pills and putting them in amber vials in their warehouses, right? They're using, in many cases, our automation to do that, and then they're shipping those to you, those online retailers.

And so again, future growth opportunity because we do see that is a trend which is going to continue going forward, and we see very strong interest from both online retailers but also from hospitals as well as pharmacy providers directly. So overall, within that MMS business, there are a number of different levers that we're focused on executing against, and we'll continue to drive those. Thanks for the question.

We'll take our next question from Matt Miksic with Barclays.

Congrats on a really strong quarter here. I wanted Tom, if we could talk just a little bit about some of the initiatives that you mentioned around BD Excellence and excellence in manufacturing. It's one of the areas that it seems like the organization continues to just drive more efficiency, more cost-outs, more back-end fixed asset rationalization and it's kind of in the middle of another big wave currently. So color, strategy, pace, any comments there?

And then just a follow-up on your comments on oil to the extent the -- your positioning is around hedges and there's sort of a time window that those hedges work well and then less well. Just how much protection you have out into the future? And maybe what, if any, options you have in the past, you've pulled -- I don't say pull, but you've made some changes in price and been able to offset some of that in addition to internal mitigation? Any strategies you're putting in place or have after maybe some of the temporary benefits of hedging start to wear off if that's the situation we find ourselves in, say, in 9 or 12 months?

Yes. Thanks for the question, Matt. Two great questions. On BD Excellence, so again, BD Excellence, as you know, didn't exist really 3, 3.5 years ago, and it's something that I couldn't be more proud of the teams who are driving that. It's now deeply embedded in the company. This year, we'll do over 2,000 Kaizens across the organization. That's up substantially from last year and last year essentially doubled from the year before.

So as you said, it's at significant scale, and it continues to scale with momentum, right? Every one of our plants, every one of our business units has dedicated BD Excellence leadership. Our leadership team is involved in Kaizens directly themselves. I was just out at plants engaged in those recently. And what we're seeing in every case, right, is we're improving safety in our plants. We're at record safety levels. We're improving quality in our plants. We're improving delivery. We're really pleased from our customer service levels over 90%. I was out with our sales team earlier this week, meeting with a very large customer.

And the feedback that we hear from our sales team, right, the best service levels they've seen for our customers. It's allowing them to focus on selling product, not back orders. And that's all a result of that momentum. And obviously, cost, right, what you're seeing. I think certainly top quartile, perhaps top decile, very likely top decile.

Overall, what you're seeing an 8% productivity, which was, by the way, what we delivered last year as well. So it has momentum. And you're seeing that complemented with a very aggressive posture on our network architecture, right? We've cut that in nearly half over the last several years to now about 50 sites, and we still have more underway. That's allowing us to, again, have more scaled facilities where we can also invest in informatics, AI, BD Excellence capabilities that create a flywheel effect.

And what I'm really excited by right now, and so our appointment of Mike Feld to Chief Revenue Officer. He comes with a very strong lean background, and he's applying BD Excellence and he has a team of folks who are helping apply BD Excellence to our commercial processes now, right? That same processes of how do you solve problems, how do you continuously improve every single day on our sales execution, on our funnel management, on how long it's taking us to close deals, on our value propositions, that same problem-solving mindset and continuous improvement, right? We're taking that into our selling organization today. And we're starting to see some early benefits of that.

We're also taking it and we have dedicated BD Excellence people who just work in our R&D organization now. And I talked about the first five projects that this past 2 quarters this year that we applied BD Excellence to. And on average, we pulled the time lines forward 10 months, right? That's on the first five projects that we did. We've got many more planned in the back half of the year. But we see BD Excellence now, and that was -- this was the year that we were going to start expanding it beyond operations as we started getting -- as we kind of have that going. And we're excited about where that can take our commercial side and our innovation side now as well.

As we think about -- and we see it -- the last thing I'll say on that is we see that as a long-term strategic advantage for BD across each of those avenues. When it comes to oil and resin, I mean, you nailed it. Hedging works for this year, it works well for us. As we think about next year, obviously, you've got kind of this 5 to 6 months flow-through of the P&L that we can see. And so the good thing is then you have visibility to mitigate it, right? And we have teams taking actions against those. And that includes teams looking at pricing, right, and those are very active.

We obviously have been monitoring where oil is going to be. I think it's fair to say we are not assuming that oil will reset to a lower price. We're taking the assumption that it will remain high, including into next year and are going to be taking actions accordingly under that assumption. Obviously, if that were to get better, that's great, but that's certainly not a posture that we would take.

Maybe, Vitor?

No, I think everything you said, Tom, is spot on. We have the hedging programs, especially for the North America resins that we buy, which is approximately 50% of our resin in North America is hedged. And that gives us the flexibility. We also have multisource of suppliers from a resin perspective to also give us flexibility to navigate this cost environment that we have for '26. But as Tom mentioned, we are monitoring the cost, tracking that very closely, given that it's an important part of our raw material component. But given that our cap and roll timing, we have -- the teams are working to offset these through efficiencies and price is also a very important topic for us heading into FY '27.

We'll take our next question from Josh Jennings with TD Cowen.

Just thinking about the potential for the portfolio to drive an acceleration in organic revenue growth back into the mid-single-digit range over the next 12, 18, 24 months. I was hoping to just touch on the expectation for the weighted average market growth rate of the portfolio. It seems like the tuck-in M&A strategy has evolved at least for the near term and you guys are making additional investments in some higher-growth segments like biologics, drug delivery, APM and regenerative technologies as well as, I guess, in the urology space adjacencies to PureWick.

But I mean, how should investors think about the weighted average market growth rate of the portfolio and the evolution here over the next 24, 36 months? And is the reacceleration going to be driven by a combination of increase in WAMGR and share gains or primarily stable WAMGR and share gains in your various business units?

Yes. Thanks, Josh. So to your point, our view of the long-term New BD growth profile continues to be -- we continue to be very confident in our ability to deliver durable mid-single-digit growth over time. And you can see that in our broader portfolio continuing to perform well, just around 5%. In fact, this quarter, that 90% of the portfolio that we've talked about.

As you said, we've built over the last several years a number of scaled growth platforms that we're continuing to double down on. And just as a reminder, in the beginning of this fiscal year, we announced that we were investing about $35 million of incremental selling resources behind those. And again, you're seeing that pay off, right? We increased the APM U.S. selling organization by 15%. Our peripheral vascular growth focus, we increased the U.S. region PI sales force by 15%.

We put more money specifically behind the supporting veterans and getting access and penetrating that category with PureWick for at-home use. In biologic drug delivery, right, we've supported additional resources there as well. And we put more feet on the street, more sales focus on Advanced Tissue Regeneration, right? We have certain claims for tissue reconstruction and cosmetic use in Europe and in Brazil. And we put more resources in those markets to pursue that. That was part of that $35 million investment, right?

So to your point, we're taking a number of these high-growth categories that we've invested in, many of those being tuck-in acquisitions that we've done over the last several years. And we're focused on scaling those as rapidly as we can with commercial investments and making them a higher weighted mix of BD's portfolio, right? And so in fact, again, in the quarter, biologic drug delivery, Advanced Patient Monitoring, PureWick, Advanced Tissue Regeneration, they all grew double digits in the quarter. And then again, we saw that supplemented with a number of other categories growing high single digits.

So we'll continue. We also have a lot of our R&D investments that we've been executing over the last several years, our organic R&D investments. They're fueling into those categories, right? And so we've been putting more money behind next-generation PureWicks, which are coming, next indications and applications in tissue regeneration. We have a number of new solutions coming out in biologic drug delivery as well. And obviously we are hyper-focused on the GLP-1 market and share gains in that category.

And same thing in Advanced Patient Monitoring, right? The system that connects with Alaris is advancing really well in our pipeline. That will be a really exciting new opportunity. So our innovation funnel, as it continues to now drive launches later this year, into next year and beyond, it's going to continue. It's hyper-focused in higher growth, higher WAMGR spaces as well as higher margin spaces.

We have a -- our innovation portfolio has a higher gross margin profile than the current gross margin profile of the company, and that's something we've been very purposeful in driving. Higher WAMGR markets, higher profitable markets is what we've comprised our innovation pipeline of.

At the same time, right, we're not stopping looking at tuck-in M&A. Again, we've been very clear in what our capital allocation priorities are. And we've been very clear in the use of the term focused tuck-in M&A. And again, we are active in exploring those right opportunities that fit into our model for focused tuck-in M&A to supplement and drive revenue growth because that is a priority for us, right? But we also recognize the value of the stock today and what we see as undervalued and what gives the best return for shareholders with the use of our capital.

But the good news is we have strong cash generation, and we think we can do that in a balanced focused way. So I appreciate the question, Josh, and we look forward to continue to give updates on that as we move forward.

We'll take our next question from Joanne Wuensch with Citibank.

A couple of things just looking forward. At the beginning of this, you highlighted pressures which you had already explained previously from Alaris, vaccines and China. And I'm curious how that rolls off or eases over the next couple of quarters. And I know we're way too early to be thinking about fiscal year '27, but I'm sort of curious how you think about sort of the New BD's template for revenue and EPS growth.

Yes. Thanks, Joanne, and look forward to hopefully seeing you soon. For the headwinds, first off, our view hasn't changed on those, right? We're focused on executing with excellence through those dynamics, and they are playing out as expected this year. I think that's important that we really spent the time studying those and got those -- they're playing out as we expected.

I think as for each of them, obviously, China is going to continue to become a smaller portion of our revenue, around 4% of New BD today and -- we'll probably drop below that just as the rest of the portfolio grows as we go into '27 perhaps into the 3s. So I think the market dynamics in China, as we've talked before, we do expect the value-based procurement will be -- have gone through the majority of our portfolio. But I think that market, right, continues to just have challenging dynamics.

As we think about Alaris, that's a very clear path that we understand. Again, it's a very unique situation where we're actually moving at record share levels and continuing to grow, but it's obviously because of the compare versus that very large upgrade cycle that we went through as part of remediation. So we have 100 basis points of Alaris headwind this year. We've been very clear that, that will move to 200 basis points of headwind next year. And just as we've completed the remediation this year, and then that will stabilize. So we'll have that headwind in '27. And then in '28, Alaris will no longer be a headwind. And that's -- we're very, very confident that that's exactly how that will play out.

And then when it comes to vaccines, look, there's been a significant drop in vaccine demand. You see that across essentially every pharma company that's in the vaccine space and in companies that are supplying devices for their use of which we're by far the market leader in. With that drop that occurred this year, I think the question is, are you going to see another subsequent drop next year? I think many folks would comment that, that's not what is expected. We'll know more about that as we start getting orders from our partners there going into next year. But at this point, our view would not be that there would be a repeat of that at that same scale next year, but we'll have more to come on that. But thank you for the question.

We'll take our next question from Shagun Singh with RBC.

Just a quick follow-up there on Alaris. When in 2027, would you expect that transition to kind of complete? I'm just trying to figure out when do you return to kind of that mid-single-digit growth? Is it sometime during '27? Or should we think about it in FY '28?

And then just a quick follow-up on GLP-1. It seems like you continue to be positive on it, but just wondering if there is any negative impact we should expect given oral GLP-1s, et cetera, to your pharmaceutical business.

Yes. I think it's, again, a 200 basis point headwind next year from Alaris. You're looking at -- we're basically 18 months from the end of '27 and those -- that dynamic subsiding and then that underlying performance of the company popping back through. I think that's what we've shared and what you can expect and what we have confidence in. As we think about GLP-1, any other comments on that, Vitor?

No, I was just going to mention that the Alaris remediation, we are driving the finish of the remediation this year -- this fiscal year. And we're going to hit a run rate starting next year in '27, but the 200 basis points is driven by the comparison that we have in '26 that are a higher base compare. But '27 and '28 going forward is going to be like a run rate revenue from Alaris. It's just the comparison of '26 that is like higher '26 compared to the '27 number.

Yes. And then we'll continue to obviously grow off that '27 base for Alaris. And then essentially, when you start hitting 2031, 2032 and the newest Alaris pumps that we've put out start hitting a 7-, 8-year replacement cycle, right, it will restart again kind of in that window. But it will not have any negative impact on our growth after '27. So that will have completed. And again, the 90% of the portfolio today in BD is growing about 5%. You would expect, again, as that headwind comes off, we'll see that come up. And we're very confident in that and continuing to drive that underlying business in the ways that we discussed with our portfolio with innovation and commercial execution.

On GLP-1s, so how we kind of think about that, our view is unchanged. Oral GLP-1 is expected to be incremental and complementary. It's great to see the progress on that and how it's helping so many people around the world. Injectables expected to continue to remain a backbone of the category for the foreseeable future. And of course, a number of the next-generation treatments that include protecting against muscle wasting are coming out in that injectable format as well. GLP-1s, they remain a strong growth driver for us and a big focus. As we said, we actually announced on this call, two new significant deals with large pharmaceutical companies for new novel GLP-1 molecules, and that continues to be a focus of ours is ensuring those come into our devices.

We also now have over 80 GLP-1 biosimilar deals signed to be in our devices, and those are not just in our syringes, but they also could be deals that we've signed with our auto-injectors or with our pens, which come at higher ASPs, several times higher ASP than when we just sell a syringe, which is really what we're selling today in GLP-1. So the value opportunity for BD in biosimilars is actually higher per dose than it is with the novel GLP-1s that exist in the market today. And again, we're really pleased with how our commercial team has been partnering with customers there to get that combination of both new novel GLP-1s that are coming to market, but also biosimilars so that we have the broadest exposure to those categories.

I'd say the other thing is, and we shared a new update today. I think the last update we shared was that biologics, which, again, not only are GLP-1s growing strong, but biologics are growing strong, which is a larger category. Last update we shared was biologics had reached 50% of the total pharma systems business unit revenue. Today, we shared that it's now reached 55% -- about 55% of our revenue. And so again, you've got that benefit of a high-growth category become an increasing weight of one of our businesses. And that's a theme that obviously we're focused on across those major growth platforms.

So again, we're pleased with the momentum there. Our teams are executing to support ensuring that continues as new molecules come to market and as eventually biosimilars come to market to make sure that BD is a company that has leading exposure to those trends. Thank you for the question.

That will conclude today's question-and-answer session. At this time, I'd like to turn the floor back over to Tom Polen for any additional or closing remarks.

Well, thank you, operator, and thanks, everyone, for your questions and your continued interest in BD. We look forward to connecting with everyone again next quarter.

Thank you. This does conclude this audio webcast. On behalf of BD, thank you for joining today. Please disconnect your lines at this time, and have a wonderful day.

Good morning. Thanks very much for joining us. Very pleased today to have with us Tom Polen from Becton, Dickinson. Thanks so much. My name is Matt Miksic. I cover medical devices here at Barclays.

So the first question is probably has to be, I guess, what's happened in the last week or so, implications for oil, exposure to Middle East. So maybe if you could sort of step into those 2 issues, folks are trying to get their arms around what all this might mean to Becton.

For us, we really see no impact for this year. I think kind of the days of oil and resins being closely tied, it's not the same. The other thing is since we've been implementing BD Excellence, and if you remember, we put in some hedging strategies around currency, we also put in much more aggressive hedging strategies around oil, our resin prices. So we're highly hedged from a resin perspective. And even if oil were to stay at or slightly above where it is today, it's very low single-digit millions of dollars, which is basically nothing for BD in the fiscal year. So we'll continue to monitor, obviously, for future years as we see where this heads, but for FY '26, we don't see any impact for that at all.

Okay. That's -- and maybe just maybe draw some comparisons if this were to play out for a longer period of time. I guess, as of yesterday afternoon, it felt like it was going to end quickly. And then as of this morning, there's some questions again. But if this were to go on for higher for longer, how might this be similar or different to sort of last time we have to deal with elevated.

I think the other thing that is very different. I'm heading out to the business roundtable after this, and we've got a lot of folks, which I'm looking forward to understanding where this is heading as we'll be in D.C. But the other thing is we have, again, through BD Excellence and the work that we've done over the last couple of years, if you go back 3 years ago, we would have been primarily just sole-sourced for a number of our resins. So think about Vacutainer tubes and syringes, et cetera, we would flush we'd be sole-sourced across that. That's not the case. Like today, we have 3 different vendors for Vacutainer tubes. And that was a significant cost savings.

But what that also creates is when there's variances and you can actually, again, now have a much better leverage point from negotiation to optimize costs. So we're in a much better spot than we've been historically where it's been a sole-source resin supplier versus where we are today. Again, we hedge more than 50% of our resins are hedged. So that's allowing us, again, to not see an impact in FY '26. That's not the case of where we were a number of years ago. And I think, obviously, beyond oil, we've done the same thing from a currency perspective, and we talked about how we did that a few years ago. BD historically, prior to 3 years ago, never hedged currencies ever on the income statement. There's some balance sheet hedging, but never that would impact the income statement. And so that's something that we've matured into quite sophisticatedly over the last couple of years as well.

Yes. I think a welcome change. I think that's something that's been a debate for years. Is it a good idea? Is there economic value? So you've started to enter that end of the pool, which is great.

Stability, right? If it's with the new BD, that stability through different cycles, that's why we really want to make sure that we deliver.

And then just in terms of timing, these are resin providers. So I would imagine there's like a -- there's a turns element of production on that for them and then there's a turns element production for you, which kind of...

With 120 days of finished goods, plus then you have -- again, we have silos full of resins at our factories, which have additional raw material. And then you've got obviously the hedging that takes place. And so all of that, that's why, as I mentioned, there's really no impact at all in FY '26.

And for the most dependent products on resin, I think what we saw last time was you were in that sort of end of the spectrum of medical devices and MedTech where given there's 2 suppliers maybe of syringes or whatever the product is, that you were able to pass through some of the price increases to the extent that they were elevated and prolonged. So not that we're there yet, but that's...

It's always a lever, and we certainly have done that in the past.

Okay. So I wanted to -- and then just lastly, just on Middle East as a percentage of your business or exposure, is that sub-5%, sub-2%. What would you describe?

2%, within that 2% range. And it's actually been a good growth contributor for us over time, and we're still deeply engaged with markets there. I was just in Riyadh in the last month or 2. But certainly, for right now, that's obviously paused. And we're continuing to get product flow into the region, et cetera. We have a very sophisticated supply chain throughout Europe and the Middle East, but that's -- obviously, we're very focused on continuing to support the health care system there as they're going through a very challenging time.

Okay. So obviously, absent the events of the last week or so, it's been a super busy year at BD. So congrats on the -- sort of the partnership and the divestiture, call it. So maybe you've highlighted a few sort of key strategies. So I wanted to talk about -- I won't go through what you've described as your connected devices and lower-cost convenience settings, and growth technologies kind of being paraphrasing the 3 elements of your strategy. But maybe on smart connected, maybe talk a little bit about what the opportunity is there. You've obviously been in connected devices for a while in terms of infusion pumps. And now with the Edwards patient monitoring critical care business, you're also kind of on that side. Maybe talk about the opportunity for infusion systems and Smart Care?

And then maybe just to step back to what you brought up upfront. We have been very active in transforming the company through the first phase of our strategy, which we've just completed, right? BD 2025, just ended at the start of -- at the end of last fiscal year, and we're on to the next. And we really are pleased with how we've set up the organization for the next phase and long-term growth. As you said, we've done significant transformation, 3 major divestitures over that period of time, the separation of the Diabetes Care business, the separation of our V. Mueller business, selling that in Surgical Instruments.

And then obviously, most recently, right? The RMT with Waters of our $3.2 billion Life Sciences business. And that was a great transaction, I think, for both parties and really excited for where that's going to head. And obviously, our shareholders will own about a little under 40% of that new entity as it goes forward. At the same time, we've built very systematically a number of entirely new growth platforms that didn't really exist at the start of BD 2025, So we have now the world's largest biologic drug delivery business, over half of our Pharma Systems business, Catalyzed by GLP-1s, that business growing double digits.

Tissue reconstruction, we had a hernia business, but we didn't have a regenerative medicine business, which is what we have today and a really exciting platform. Again, an acquisition that we did early in BD 2025 that we've spawned half a dozen products off of and have probably nearly a dozen products in the pipeline off of that. The connected care business, right? We're now the world leader in pharmacy automation, a $700 million business, heading towards a $1 billion advanced robotics running pharmacies.

I was in Europe all last week, really, really heightened interest there as people are focused on how do they transform their cost structure and pharmacy robotics definitely play a very important role. And then in the broader medication management connected care business, we'll get to what you described. We've also built a urinary incontinence business that's at scale heading towards $1 billion by 2030. We've built a very strong peripheral vascular business that we're going to continue to double down on. And we've not only supplemented that heavily with tuck-in M&A, so we've done 3 very large non-strategic exits.

We've done about 20 strategic tuck-ins, building these growth platforms, and we're investing, obviously, in those as we go forward, both organically and inorganically. As we go back to the connected care strategy, so we're in an exceptionally unique position in what we've built. And you'll continue to see us even through the balance of this year, announce new innovations that we're coming out with has been in our pipeline, but we haven't shared quite yet. And so what we've assembled very purposely, very proactively is the ability of the only company that actually has all the understanding of our software and the pharmacy that is managing the inventory of the drugs that then compounds the drugs using our Pyxis prep that then moves them up to the floor.

Any drug that a nurse administers to the patient, the vast majority of those go through our Pyxis cabinet. And they're looking at a screen and determining what the patient needs and then we're giving them those drugs out of the cabinets. And then we're infusing those, and we actually have a line in -- with our catheter and our IV set going to our pump in the majority of patients in hospitals today. And now we have connected to those patients, a monitoring system that's understanding what is the physiological response of these drugs that the patient is getting. And are they where we want them to be.

And so as you think about AI and technologies, the ability to integrate, the physiological response of a patient to the medications that they're getting and closing that loop is something that our customers get exceptionally excited about, you and I today, your body is not waiting for you to go to 180 over some other number, blood pressure and just hang out there for 10 minutes and then swoop you back into 120 over 80, it doesn't do that. On a microsecond basis, your body is making adjustments. That doesn't happen when you're sick, if you're in an ICU, you swing up at some point when you swing up so far, the alarms will go off, the nurse will come in. They'll look, they'll start trying to change the infusion rates, give you more fluids, maybe give you a vasopressor, et cetera.

And then we'll try to swing you back into the range and then you'll swing back out. And that's completely unhealthy for your body. It causes organ damage, it extends length of stay. And there's no reason for it, the pump can do that on its own in the future. And you can do many other things that we've been doing quite a bit of work on. And we will be integrating, and we shared that, obviously, at the time of the acquisition, the APM technology with our infusion technology, and we'll be making more announcements on that as we go through this year and into early next year.

And the timeline for that, I mean, imagine there's -- that is a new category. And I know it's hard to resist the urge to kind of make the comparison to insulin pumps and closing the loop for patients who are looking for time and range over a 10, 20, 30, 40-year period on their lives, and you're kind of talking about time and range for other kinds of metrics in...

The indication is way broader, beyond insulin in the [indiscernible] setting.

Of course. No, this will be anything, but the concept being the same, if you don't want to wait for something bad to happen in intervene.

We shared at the time of the acquisition, the first step will be integrating the monitor into the Alaris pump. The Alaris has modules that snap on. We've shared that we're working on that, and we'll look forward to obviously communicating updates on that...

And then the next step would be sort of...

The algorithms.

And a conversation with regulatory and so on to begin to...

We have.

Okay. Great. That's exciting. All right. And then -- so that's -- and also, you mentioned the divestitures and the tuck-ins, but one of the divestiture acquisitions Bard really brought in, and we talked a fair amount about this when we relaunched here at Barclays is just the capabilities on the M&A front. So maybe with all the focus on the sort of, call it, a divestiture of the Diagnostics and Biosciences business, flow cytometry business, the spotlight has maybe taken off of the activity level in tuck-in. But maybe talk a little bit about what that activity level looks like, the ways you're augmenting your internal organic R&D with opportunities.

Yes. I think just to step back a bit, we've absolutely developed a very strong track record on M&A, both on the divestiture side, I think everyone would view our RMT, the first-ever RMT in MedTech as a major success, in a very challenging window of life sciences industry overall. I think that showed the capabilities of our team. At the same time, the acquisitions that we've done, including the most recent APM, which is well ahead of our deal model. It's going exceptionally well, grew nearly 10% last year. We'll grow high-single-digits again this year. We've been integrating. We've been very prudent and thoughtful on the types of acquisitions that we've done. As I described before, many of the key growth drivers, including in peripheral vascular, in the surgery business, TFA, even our recent -- you saw us make some announcements on Surgiphor. These are just great examples of tuck-ins that we've done, TFA, tuck-in that we did, probably launched 4 or 5 new products off of that. We've got a very strong pipeline of, as I mentioned, probably near 10 different iterations that are coming after that.

And so we do really, really well with those. So we will continue to do tuck-in M&A. Now that we also just completed the APM was 1.5 years ago, not that long ago for a $4.2 billion acquisition. Obviously, we've been busy doing the RMT. We will continue to do a balanced capital allocation strategy, which is what we've communicated very clearly for new BD, which is a heightened mix of share buybacks continuing our strong dividend policy and -- but continuing also to do tuck-in M&A, focused tuck-in M&A that accelerates our growth, high-growth spaces, high-margin spaces that are accretive. That's where we're focused. And we have a strong track record of those, and we'll be continuing those.

And then the margin structure, obviously, the RMT, the 2 businesses that you moved into that partnership were among the higher spend in sort of R&D and sort of that process has unleashed a fair amount of internal R&D. Maybe talk about the way you expect to -- the obvious question is how much of that comes through and how much of that finds a home in projects and programs elsewhere in the P&L?

Well, we let that flow with those businesses. We didn't restock up from the just overall R&D number. What we did do, though, is we reallocated about $50 million of corporate R&D spend into the businesses, and we did that at the start of this year. And we talked about a number of the spaces. We put that into regenerative medicine. We put it into new adjacent spaces for PureWick as an example. We put more money into APM. And so you're seeing us invest more into actual R&D projects in those high-growth spaces. We put some more into the biologic-drug-delivery space. So we'll continue to look at doing that, but we always look first at our existing portfolio and spend as a company and how we reallocate that into productive R&D spend at the project level.

So a couple of things before we get to the last couple of minutes here, I'd be remiss not to -- not to sort of ask about China, given the challenges in sort of predicting which way that's going to go and when it might inflect or stabilize. Maybe talk a little bit about how you're thinking about that business now and what you've learned over the past couple of years and how you're thinking about it differently now?

Yes. Obviously, we've shared that value-based procurement, obviously, particularly going through some of the Bard portfolio, surgery and PI primarily. And so we expect that still to have gone through about 80% of our portfolio by the end of the fiscal year. We've shared that. We feel that headwind this year. On a positive side, new BD, China will be about 4% of our revenue this year, which is down from about 7% over a couple of years before. That's a combination of just the impact of VBP, but also the fact that Life Sciences was our largest segment in China. So now with that separation, that actually further derisks China as part of our overall portfolio. So we're continuing to invest in the opportunities where they exist, but I'd say we're taking a prudent approach to China, just given there is still broader long-term uncertainty around that market.

And then a couple of the other questions that I get often is around Alaris and pumps. A lot of excitement or anticipation around the approval that came a fairly robust success in kind of coming back to the market, I almost said roaring back to the market, but now sort of moderating some of those expectations in terms of what could share gains be? What should margin contribution look like? What's the right way to think about Alaris going forward aside from the connected strategy you mentioned?

Yes. No, we couldn't be more pleased with the relaunch of Alaris and how that went. First off, we certainly are exceeding the commitments that we made to the FDA around upgrading within that 3-year period. Extremely challenging to do as you think about upgrading 60% of the market in a 3-year window, that's 20% of the market every year. Just put in comparison, you've got roughly 3 other players with another 40% still on an 8-year replacement cycle. So all competitors combined upgrade about 5% of the market a year, and we did 20%, 4x all competitors combined for the last 3 years.

So the scale and what our manufacturing team did was just outstanding and our service organization. As we're coming to the end of that upgrade process, obviously, that creates a natural grow over because you would have never normally upgraded your entire base in a 3-year window. And that was obviously part of the commitments to the FDA. And that creates a grow over this year and will create the grow over next year that's very defined. At the same time, it's a situation where that grow-over creates a revenue headwind, but we're actually going to continue to hit peak market shares at every step along the way.

And this past quarter, we shared Q1 was another like record quarter for us in terms of competitive share gain. We gained about 1 point of share just in the first quarter. Even when Alaris was hitting full stride before the ship hold, it was 1 to 2 points of share a year. And so to have that in the first quarter, we have a very strong funnel of competitive business. I think what you're seeing is our sales team has been exceptionally busy just upgrading our base, upgrading 60% of the base.

That's coming to an end, the vast majority of our customers are either upgraded or have already been contractually committed to upgrade. And so it's a service organization execution topic, not a sales execution topic. And so our sales team has pivoted heavily to competitive share focus because that's really the only opportunity for them to go after. And so I think that bodes well for the next several years of share focus for us because that's all we're going to be -- that's all we have to focus on.

And someone might say that the timing for you is good given some of the competitive...

It's all offense, no defense. Everyone has brand-new Alaris pumps. So it's not a defense game there. It's an offense game.

Yes. Yes. And your largest competitor is in a little bit of a sort of a -- I don't want to say terribly difficult situation, but it's a ship hold and it's -- there's...

We know that situation better than anyone.

Yes, I'm sure. I'm trying to describe it delicately. But no, that's -- and then maybe talk a little bit about the pull-through. Like this is -- you've upgraded and returned a lot of pumps to the market from a margin contribution standpoint. Does the consumable side, the side of that business stand to.

The consumables are higher margin than the capital. If you place the capital upfront, it's a bit of a lower margin than the consumable stream, which you're on now consumable stream for, call it, 8 to 10 years, which is the life of the pump at that higher margin profile. So yes, we would expect that to build over time as share continues to expand.

Okay. So one -- just a question about the guide this year before we wrap up is the sort of low-single-digit growth with some, I'd say, maybe conservatism and caution built in around some of the decel is assumed in Alaris and continued pressure off a smaller base in China, maybe pharma systems, in vaccines. So maybe what in that -- what can push that higher this year? What -- I understand, given the last couple of years, in particular, the desire to start this in a conservative baseline, but what are some of the things you're excited about that could potentially push you to the higher end of your range?

And so as you just described, we obviously put out a prudent guide, mid, low-single-digits guide. That assumes the 90% of the company growing strong mid-single-digits about 4.5% plus and 10% of the portfolio, which is the categories you described, Alaris, vaccines and pharma systems in China, growing less and pulling that down by about 250 basis points, those represent is what we communicated at the start. You can kind of do the math, right, to get to that solid mid-single-digits for the 90% of the portfolio.

And that includes a lot of areas growing high-single- and double-digits. So as we think about where that incremental growth opportunity comes from, it's from those high-single-digit, double-digit growth areas. Biologic drug delivery continues to grow double digits for us. Obviously, GLP-1s continue to expand. APM continues to -- with the launch of Stream, which has the opportunity now to move from an $80,000 monitor to something that's a fraction of the cost that can democratize access to hemodynamic monitoring across not just the ICU, but the general wards for high-risk patients, that's a new opportunity that we've just expanded the sales force and are investing behind.

PureWick continues to now grow very strong double digits. And we now have reimbursement in the Veterans Administration. We've put more salespeople focused in there to get veterans access to the technology. That's actually running ahead of our plans today. So it's off to a great start. It's another category that we certainly see opportunity in. Continuing in Alaris for sure, and Pyxis Pro, which is the first new Pyxis in essentially 20 years of a cabinet. I think we shared that 80-plus percent of our initial wins in the first quarter were all competitive wins in that space, and we expect that to continue to be a very strong competitive gain platform for us, which designed to be that.

It's getting very positive customer feedback, integrated with our BD Incada AI platform, which will continue to roll in Alaris and APM and our pharmacy robotics will all be under that AI umbrella, that creates, again, a flywheel effect to pull through that portfolio. So we've got quite a few growth levers that we've been investing behind. And we've talked about, we've put money behind those going into this year as well. We expanded our APM U.S. sales team by 15%. We expanded our PI sales team by 15%. We put more money behind the PureWick launch in the veterans this year. Surgery, that's another area of great momentum that we have is that regenerative medicine business.

We have claims in Europe now for plastic surgery reconstruction and breast reconstruction using our GalaFLEX, which is one of the TFA products that we had acquired a couple of years ago. And so as people are getting GLP-1 surgeries, skin -- needing chin lifts, breast lifts, triceps lift. That's all being done with our GalaFLEX resorbable mesh that disappears in 18 months and leaves everything kind of held up there. And so we put more feet on the street in Brazil across Europe. And again, that's going very well. So a number of different growth drivers that we're investing in that could provide those opportunities.

Okay. So I think with that, we're just a touch over here. We should probably call it. But thanks so much, Tom, for...

Yes. Great seeing you. Thank you. Thanks, everyone.

Hello, and welcome to BD's First Fiscal Quarter 2026 Earnings Call. At the request of BD, today's call is being recorded and will be available for replay on BD's Investor Relations website at investor.bd.com or by phone at (800) 753-5212 for domestic calls and area code 1402-220-2673 for international calls. [Operator Instructions] I will now turn the call over to Sean Bevec, Senior Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to BD's earnings call. I'm Sean Bevack, Senior Vice President of Investor Relations. Thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the first quarter of fiscal 2026. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Vitor Roque, Senior Vice President and Interim Chief Financial Officer.

Before we get started, I want to remind you that we will be making forward-looking statements. You can read the disclaimer in our earnings release and the disclosures in our SEC filings on our Investor Relations website. Unless otherwise specified, all comparisons will be made on a year-on-year basis versus the relevant fiscal period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. Also, references to adjusted EPS refer to adjusted diluted EPS.

As a reminder, beginning October 1, we began operating under our previously disclosed new BD segment structure that includes Medical Essentials, Connected Care, biopharma systems and interventional and a Assist Life Sciences segment comprised of Biosciences and Diagnostic Solutions. The financials discussed here and included in the earnings release and 10-Q have been recast to reflect this reorganization.

Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentation.

With that, I will turn it over to Tom.

Thank you, Sean, and good morning, everyone. Before we get started, I'd like to take a moment to welcome Sean to BD. We are very excited to have Sean join our team, and I look forward to partnering with him as we continue to communicate our strategy, performance and growth opportunities.

Turning to our Q1 performance. We delivered stronger-than-expected results, which reflect our disciplined execution, including accelerated commercial initiatives and strengthen our key growth platforms. Revenues of $5.3 billion increased 0.4%. New BD grew 2.5% with broad-based growth across the markets where we've been doubling down on investments. This includes double-digit growth in biologic drug delivery, PureWick, advanced tissue regeneration and pharmacy automation and high single-digit growth in EPM. We delivered mid-single-digit growth across 90% of New BD's portfolio, partially offset by 10% of our portfolio, Alaris, vaccines in China, undergoing challenging market dynamics that were in line with our expectations.

We delivered adjusted gross margin of 53.4% and adjusted EPS of $2.91, both of which were also ahead of our expectations on the strength of revenue performance and operational execution.

Later this morning, we expect to close the combination of our Life Sciences business with Waters via Reverse Morris Trust transaction. This is a significant milestone as we fully pivot to New BD and the next chapter of the company's growth. I want to thank both the BD and Waters team whose exceptional hard work and transaction experience are enabling us to close nearly 2 months ahead of schedule. We believe this transaction unlocks significant value for our shareholders through both participation in the new Waters entity and value creation in the new BD. As part of the transaction, we will receive a $4 billion cash distribution. I'm pleased to announce $2 billion will be deployed towards share repurchases through an ASR and $2 billion will be deployed towards debt paydown. Both are expected to be executed in the near term, subject to market conditions. This is in line with our enhanced capital allocation strategy, which prioritizes share repurchases, a reliable and growing dividend and focused tuck-in M&A in targeted high-growth markets, all designed to steadily increase return on invested capital.

With the completion of our Life Sciences transaction, BD enters this next chapter as a far more focused pure-play med tech company. This transformation builds on several years of deliberate portfolio shaping, including divesting 3 substantial noncore assets and the more than 20 strategic tuck-ins we've completed to strengthen our presence in some of the most attractive areas of health care. We recognized early on how the world of health care is changing rapidly. Providers everywhere seeking partners who not only deliver high-quality products, but who can help them transform care pathways, improve outcomes and reduce cost.

As we've previously discussed, we've identified 3 key trends shaping the future of health care that have guided our portfolio strategy. These include: one, the rise of smart connected devices, robotics, AI and informatics that transform the cost and quality of care; two, the shift of care towards lower cost, more convenience settings, including outpatient facilities and the home; and three, rapid growth in technologies to address chronic disease, one of the fastest-growing segments in health care.

Over the last several years, we've built multiple growth platforms, each with $1 billion-plus potential that position new BD squarely at the center of these trends. From our nearly $5 billion connected care business with AI-driven advanced patient monitoring and connected medication management, to advanced pharmacy robotics, to leading platforms for biologic drug delivery at home, urinary incontinence, vascular disease and tissue regeneration, new BD is positioned to lead in advancing the future of care.

We have leading positions in more than 90% of the markets we serve with over 90% of our revenues driven by recurring consumables. Every year, we manufacture more than 35 billion devices that reach health care providers across more than 190 countries. Few companies in health care are as foundational to the daily delivery of care, and that scale powers the strong free cash flow that underpins our strategy.

While these trends guide where we innovate and invest, BD Excellence guides how we execute. Together, they shape our strategy for the new BD, Excellence Unleashed, which is expressed through our 3 strategic priorities: compete, innovate and deliver. We've begun executing on these priorities and enhancing the speed and agility of the company. I'll share some examples of where we're seeing early positive momentum.

Compete reflects how we're elevating our commercial capabilities to win in the fastest-growing parts of the market and deliver an exceptional customer experience. We made significant progress across our commercial initiatives this quarter, including planned sales force expansion in APM, PI and advanced tissue regeneration, while accelerating initiatives to make PureWick at home available for our veterans. We're also seeing broad-based commercial success across the company. The Pyxis Pro launch is off to a good start with 85% of initial orders coming from competitive conversions. Alaris delivered our strongest quarter of competitive wins since the relaunch, increasing our category share by approximately 100 basis points. Our Medical Essentials business also gained share across multiple categories and with major U.S. health systems, including in-flush, PICCs and catheters. Pharma Systems delivered significant GLP-1 wins, with now over 80 novel and biosimilar GLP-1 molecules contracted in BD delivery devices. And BDI saw continued strength with notable conversions in oncology and peripheral arterial disease and strong adoption of recent launches of PureWick Flex and Galaflex.

These results reflect the strong execution of our teams and the growing impact of our commercial initiatives.

Turning to our second priority, Innovate. Innovate focuses on how we bring high-impact solutions to market, executing a pipeline that's now stronger, more focused and more productivity driven than ever. This quarter, we strengthened our innovation pipeline by completing the reallocation of $50 million of central R&D to the businesses to fund multiple new product innovations in our high-growth platforms. We also continue to scale BD Excellence into R&D, reducing development times and accelerating future launches by 6 to 12 months across several areas. In surgery, we entered several new markets, increasing our served markets by over $550 million in categories that offer higher growth, higher margin and long-term strategic value. This includes the U.S. launch of AvateenFlowable, a next-generation flowable hemostat that strengthens our position in biosurgery and enters us into a nearly $400 million market, growing approximately 5% annually.

We also advanced our global wound irrigation portfolio with the European launch of [indiscernible], a ready-to-use wound irrigation system that simplifies operating room workflows. In addition, we submitted Surgo4Pulse to the FDA, a pulse lavage system which can expand BD's presence in this nearly $200 million market by approximately 40%.

Finally, in Connected Care, Hemisphere Stream began targeted market release in the U.S. and Europe, following October's 510(k) clearance. Stream's smart cable compatibility can expand its addressable market tenfold and early feedback has been very positive. Finally, our third priority deliver, represents our commitment to operational excellence across safety, quality, delivery and cash flow.

As a result of the Life Sciences transaction, and the network consolidation initiatives that we began in FY '22, we've created a meaningfully simpler manufacturing network, reducing our network by nearly half to under 50 global sites, lowering costs, improving resiliency and enabling scaled smart factories. We have actions underway to improve this even further.

BD Excellence continued to drive meaningful productivity improvements of 8% in the quarter, contributing to gross margin and cash flow.

Finally, we achieved good progress on the $200 million cost-out program communicated last quarter. Already executing actions representing $150 million or 75% of the target with clear line of sight to the balance. We are pleased with our strategic progress, yet we recognize there is more work to do. This is an exciting moment for the new BD as we focus actions and raise our standards to outcompete, outinnovate and outdeliver.

With that, I'll turn it over to Vitor.

Thanks, Tom. Starting with revenue. Total company revenue of $5.3 billion grew 0.4%, with 2.5% growth in BD. In Medical Essentials, MDS performance reflects expected order timing dynamics and volume-based procurement in China that was partially offset by continued share gains in the U.S. in our vascular access management portfolio.

Within specimen management, solid growth in BD Vacutainer portfolio in the U.S. was offset by expected market dynamics in China, order timing and a tough comparison to the prior year. Connected Care delivered solid mid-single-digit growth. Performance was led by APM, which grew high single digits on strong volume across the portfolio. In MMS, growth was led by pharma automation with double-digit growth in our [indiscernible] platform. In our infusion business, growth was driven by sets, which were up strongly on increased utilization against last year's fluid supply shortage.

Alaris [indiscernible] performance was slightly ahead of our expectations despite the expected revenue decline due to a tough comparison to the prior year.

Biopharma Systems grew low single digits, with continued double-digit growth in biologics led by GLP-1s. This was partially offset by lower demand for vaccine products in line with our expectations.

Interventional delivered solid mid-single-digit growth. This includes high single-digit growth in UCC, driven by double-digit growth in PureWick. In surgery, we delivered mid-single-digit growth, led by strong performance in our advanced tissue regeneration and infection prevention portfolios. Low single-digit growth in PI reflects strength in peripheral vascular disease and oncology, partially offset by China market dynamics.

Life Sciences declined in the quarter. In [indiscernible], results were impacted by U.S. point-of-care headwinds, a difficult prior year comparison in market dynamics in China. In B2B, growth was pressured by market dynamics in China, lower life science research funding and a difficult compare from prior year licensing revenue.

Turning to the P&L. Adjusted gross margin of 53.4% was down 140 basis points versus the prior year, driven by approximately 170 basis points of tariffs, partially offset by productivity initiatives through BD Excellence. Adjusted operating margin of 21.2% was down 240 basis points versus the prior year due to the impact of tariffs and increased commercial investments in key growth areas. Despite these declines, both adjusted gross and operating margins were ahead of our expectations.

Adjusted EPS of $2.91 was down 15.2%, driven primarily by the impact of tariffs. However, earnings exceeded our expectations on the strength of both revenue performance and operational execution.

Free cash flow was $548 million in the quarter. Free cash flow conversion improved to 66% versus 59% in the prior year, driven by working capital discipline and capital efficiency.

During the quarter, we returned approximately $550 million to shareholders, including dividends and $250 million in share buybacks. We ended the quarter with net leverage of 2.9x and remain committed to our 2.5x long-term net leverage target.

Moving to our fiscal 2016 guidance for new BD. All guidance we are providing today is on a continuing operations basis and reflects the expected closing of the combination of our Life Science business with Waters. Following the closing, the separated business will be treated as discontinued operations for the full fiscal year. Our guidance includes deployment of $4 billion cash distribution we will receive as part of the transaction.

For fiscal '26, we continue to expect new BD to deliver low single-digit revenue growth. Based on current spot rates, currency is estimated to be a tailwind to revenue of about 120 basis points.

Moving down to the P&L. We continue to expect adjusted operating margin of about 25%, inclusive of impact of tariffs. Interest order net is expected to be between $600 million and $620 million. Our adjusted effective tax rate is expected to be between 16% and 17%. Weighted shares outstanding for the full year are expected to be approximately 282 million shares. Given these considerations, we are establishing an adjusted EPS guidance for new BD in a range of $12.35 to $12.65. This reflects growth of approximately 6% at the midpoint, including an impact of 370 basis points from tariffs.

The net estimated impact of the closing of the Waters transaction, including the deployment of associated $4 billion cash distribution, is approximately $2.40. Therefore, our adjusted EPS guidance for new BD remains operationally unchanged.

As we think about fiscal 2026 phasing, we expect Q2 revenue growth of approximately 2%, consistent with our full year guidance assumption, with the balance of the year also expected to be reaping the low single-digit range. We expect Q2 adjusted EPS to be in the range of $2.72 to $2.82.

Finally, we are pleased with our Q1 performance. However, with just 1 quarter behind us, we are maintaining a prudent approach to our guidance for new BD.

With that, let's start the Q&A session. Operator, can you please assemble the queue?

[Operator Instructions] Our first question is coming from Travis Steed with Bank of America.

Congrats on the RMT and getting that done ahead of schedule. I wanted to ask about the guidance, both the Q2 revenue guide, the step down in Q2, and the EPS guide as well as kind of the full year, some of the assumptions on the cadence of the year and how you're going from Q2 to the second half on both revenue and earnings?

Yes. Thanks for the question, Travis. So we're really pleased with the start of the year and Q1 performance. I think you saw our team executed well, and we saw strength across several of the high-growth areas of the portfolio. We can talk about those in just a bit. When it comes to Q2, nothing has fundamentally changed in our Q2 outlook, as you mentioned, the core growth drivers supporting new BD growth in Q1, they all remain intact and we feel really good about the trajectory of the business.

Our Q2 outlook does reflect some modest timing benefits in Biopharma Systems and MMS that we saw in Q1, and if you adjust for that, basically Q1 and Q2 are in line with each other.

I think a few things we're really pleased to be starting the year at our full year run rate. Q2 has no ramp versus Q1, and really importantly, there's no ramp first half to second half either, right, which is a much better spot and something that we really wanted to have this year that, as you know, we had that topic last year. And so just where we want to be, no ramp in the year, strong start to Q1 and executing, as you said, the RMT transaction ahead of schedule, really excited about the new BD.

We will move next with Patrick Wood with Morgan Stanley.

Tom, maybe just a midterm one around the categories you're looking at. Obviously, this year, a bit of a transition year. There's a few things like China VBP and Alaris that are kind of affecting numbers. But I guess as you look across new co-BD's categories, is there any structural change that's happened recently or in the past that would preclude you from sort of hitting that normalized mid-single-digit growth rate as a general framework. Anything that's changed one way or the other that would make you feel better or worse about that? I mean how do you feel about that?

Patrick, and thanks for the question. Absolutely not. We feel really good about our portfolio. As we talked about, we've been extremely active over the last several years in very purposely reshaping our portfolio. We've done 3 significant divestitures starting with diabetes, obviously, be Mueller and most recently, our Life Science business. We've very purposely brought in 20 tuck-in acquisitions, everything from our Prada pharmacy automation to APM and a number of others, all reshaping the portfolio in those high-growth areas that we've been talking about that we identified some time ago.

Today, as you mentioned, we do have some known headwinds that are in 10% of our portfolio. The fundamentals across the remaining 90% remain very strong, and they continue to perform at a solid mid-single-digit growth. We're continuing to lean in behind those areas. You're seeing us put meaningful commercial investment behind those, the $30 million of incremental sales investments, all 100% on track. You heard that update on the call, investing behind areas like VA, the Veterans Administration, PureWick now that's purely fully reimbursement for veterans, launching a number of plastic surgery products in Europe and Brazil, expanding our sales forces by 15% in PI and APM, right, all investing behind those growth areas, which is, again, you saw strong growth, double-digit growth, in fact, this past quarter in areas like PureWick, biologics, tissue reconstruction and others. You saw high single-digit growth in areas like APM, pharmacy automation grew double digits in the quarter. So again, we feel really good. Those aren't slowing down. We don't expect them to continue strong through the year. And we've got a great innovation pipeline that's going to continue to fuel growth in those over the next several.

Our next question comes from Larry Biegelsen with Wells Fargo.

Congrats, Tom, on the closing of the Waters deal. Tom, maybe we could talk about the other -- the 10% of the portfolio that's not growing mid-single digits. China VBP, what's the expected impact in fiscal '26? When did the -- the vaccine headwinds lap in Pharmsystems? And any change to the Alaris expectations this year and next year that you gave us on the last call?

Yes. Thanks for the question, Larry. Everything is playing out as we expected it in Q1, and we expect that to continue for the balance of the year. China was in line with our expectations in the quarter. Vaccines were relatively in line with expectations in the quarter as was Alaris. If anything, we're seeing some really strong competitive momentum in Alaris. I think as we shared on the prepared remarks, we had a record in new competitive wins in the quarter. We gained about a full point of share just in the quarter. Those take some time to come through in our run rate as we implement those and see the consumables revenue pick up. But in terms of actual contract signed, deals closed, it was a really strong quarter in Alaris, right, which is exactly what we want to see.

We're coming to the tail end of, of course, remediation, so our whole sales force is focused now on competitive gains, just as we said. And so we're pleased with that. Vaccines on the counter side of vaccines, we continue to see biologics grow very solidly. Vaccines, we expect that will continue to play out for the year as we expected, and we'll have to look at that in -- as we go into '27. Certainly, it will be a smaller portion of our revenue and Biologics will be a larger portion of our revenue. So the -- its absolute impact in '27 likely will not be anywhere near what it would be in '26, but we'll continue to monitor that very closely.

In China, the market, I was just there at the beginning of January. I think we've shared before that we expect that VOBP will have gone through 80% of our portfolio by the end of '26. We don't see any change to that assumption. And we do continue to see positive volume growth happening in China despite the price compression in the few areas that we've discussed where VOBP is happening.

So overall, we said at the beginning of the year when we gave guidance for the old BD, we expected those combined areas to be about 250 basis points of headwind in the full year, and that's consistent with what we outlined and how we think about it going forward.

Our next question comes from Robbie Marcus with JPMorgan.

I'll add my congratulations on the RMT going effective today. Two quick ones for me. I'll ask them both upfront. One, just on second quarter, it's the easiest comps of the year both on a 1- and a 2-year stack basis. So a lot of people just wanted to get help on why 2% is the right startingpoint for fiscal 2Q and any considerations there?

And then as we get to the 25% operating margin, which I think is a touch better than people were thinking, any onetime considerations or TSAs, MSAs, anything we should be aware of as we try and build up our models to get there?

I'll turn that to Vitor.

Rob, this is Vitor. So regarding Q2, so first, I think we were very pleased with Q1 performance. I think we started the year solidly and it puts us in very sound grounds for the rest of the year. But for the Q2, as Tom mentioned in his remarks, nothing fundamentally changed on Q2. We have our core drivers supporting the new BD growth in Q1, actually continuing in Q2, and we expect that trajectory to continue for the rest of the year as well.

In Q2, the only thing that happened is slight change timing situations in both pharm systems and MMS. But if you normalize for those factors, you actually had a little bit of a more normalized growth between Q1 and Q2. But I think the most important piece is that nothing fundamentally changed on our Q2. We feel very confident about the numbers going forward as well.

Both very much in line with our full year guidance.

Exactly. Very aligned with our full year guidance. And from a margin perspective, there is no specific one-timers that we are expecting. So we are still holding the 25% as we committed before, and this is in the basis of our margin performance with the strong execution of our BD excellence and also the favorable mix that we are driving through intentional investments in strategic areas like high-growth, high-margin areas like APM, UCC synergy among others. So we feel good about the 25% and there is not a specific that changes the number from 2025.

And Robbie, maybe just to share a little bit more color on the margin performance. right? We're continuing to be very focused. Our innovation pipeline and the areas where we're putting commercial investment are all -- both the innovation pipeline has a notably higher gross margin than our average portfolio and the areas that we're putting commercial investment behind that we've talked about also have a notably higher gross margin than our broader portfolio. So those help fuel margin. At the same time, obviously, BD Excellence in our operations organization is continuing to gain momentum, right? We've been at it for a couple of years. We're still in relatively early innings. You saw us talk about 8% productivity improvements in the quarter. That's world-class levels. We're really proud of the teams there and how they're executing. You also heard us talk about, I think, for the first time, share some statistics around our plant network.

When we started the last phase of BD strategy, we talked about investing behind the network simplification. And you're seeing the outputs of that, combined with obviously the separation of our Life Science business, more than cutting our manufacturing network in half. So when we started the journey several years ago, we had a little over 90 manufacturing plants. We're under 50 today. And so these are fewer plants, more scaled plants where we're getting more leverage, more costs being spread over higher volume in these sites, also all helping to contribute to our operating margin. So that's been something systematic that we've been working on. We're really pleased with that.

And when you think about that drop from nearly 90 to under 50 plants, about half of that, over 20, that's over 20 plant closures and a little over 20 plants going to Waters as part of the RMT, but a dramatically simplified network that we're investing behind as we go forward as well. It just helps us further on the op margins.

We will move next with Joanne Wuensch with Citibank.

Congrats on getting to this phase. Two questions. The first one has to do more macro, if you're seeing anything in the quarter on things like nursing shortages, weather impacts or anything on the ACA, and then I was hoping you could maybe flesh out some of the contracts you have in for the GLPs and if there's anything noteworthy you can share with us there?

Joanne, thanks for the question. So utilization as we think about just the broader hospital demand trends, we continue to see steady utilization levels in line with hospital surveys that we monitor. So the CapEx environment, we also see remaining solid. We haven't seen any weather effects through January and into February. And then I would just say, overall, too, as we think about utilization, over 90% of our revenue is consumables, particularly for new BD, which provides a very resilient base and the portion that is CapEx, we're seeing that solid as well. You saw that come through very clearly in MMS.

If you exclude kind of the dynamic of Alaris and the grow over -- MMS grew nearly 6% in the quarter, and that includes CapEx there. So really strong. Pharmacy Automation is actually one of our largest percent businesses of CapEx and it grew double digits, 10% in the quarter. And that's a mix of both strong CapEx purchases in Europe and in the U.S. there as we think about pharmacy automation. Again, that's a big labor savings play, and that's a big part of our CapEx spending as well as helping where there are shortages of pharmacists or other clinicians, a lot of our solutions help in that environment.

When it comes to GLP-1s, we're in a really good position there. Certainly, it's a modest portion of our business today, about 2% of our revenue, but it's a high-growth area and certainly a growth opportunity as we look forward. Today, we support some of the largest molecules that are on the market. We continue to have a very high win rate on both new novel molecules that are coming to market. and on biosimilars. We updated some information today on the call. We now have more than 80 novel and biosimilar GLP-1s contracted in our devices. And we're continuing to see momentum in injectables.

Obviously, there's always the question in the news. I know some investors of ours have asked a question about how do we think about oral injectables? Reality is, is we're seeing continued momentum in injectable GLP-1s. We continue to see the largest pharma companies putting billions of dollars, some very recent announcement and multibillion dollar investments in injectable capacity, including in the U.S. And people really view that orals as complementary rather than displacing injectables at scale.

So we're continuing to be bullish on that and continue to focus on having a very high win rate on both new novel and biosimilar molecules in the space.

We will move next with Matt Taylor with Jefferies.

Tom, as a follow-up to that question, I think previously, you talked about the potential for the GLP-1 franchise within BD to get to about $1 billion by the end of the decade. Do you still feel the same way about the trajectory long term given all these deals that you've signed? And maybe you could address that and where it is now and where it is today?

Yes, we still feel very much with that on track. Our growth rate continues to be very strong as we share double digits. We're nearing that halfway point on that journey now. So -- and again, you haven't seen the number of new novel molecules coming to market that will be over the next several years. And of course, as you look at the back half of this decade, you start really hitting stride on the biosimilars. And when we talk about our biosimilar portfolio, it's very broad geographically, right? So our biosimilar portfolio includes biosimilars across China, Southeast Asia, Europe, Latin America, Canada and the U.S. It's a very broad global. And so as you think about certain patent expiries, varying geographically, we have good exposure across those different time points. Thank you for the question.

We will move next with Matt Miksic with Barclays.

Congrats on getting to the starting line, I guess, is one way to think about it. So when you mentioned -- just a question on the innovate part of your plan and the investments you're making in R&D. Maybe some sense of when -- I understand the commercial investments this year execute and compete, but when do you think we'll start to see things come through the pipeline or maybe come through at a faster pace from these R&D investments that you're making in the kind of innovate segment of your strategy?

Yes. Thank you. You're going to see those continue to come through this year. We've got a lot of great launches happening. We talked about some of the very recent ones that are just ramping up like Pyxis Pro. We couldn't be more pleased with how that one has been going, as we mentioned, really strong competitive share gain. Hemisphere Stream just launching now. You're going to continue to see throughout this year and into next, '27 is quite a big year for launches as is '28 across the portfolio. At the same time, we've shared we've put $50 million that we took from efficiencies and shifting from corporate expenses moving that into R&D. And we just started quite a few new R&D programs as well this fiscal year, not only what we would normally start with our traditional increase, but that bolus of money starting more projects in tissue regeneration, some adjacencies in PureWick that we're really excited about, additional biologic drug delivery investments and also in the connected care space.

The other thing that we're seeing some really positive, still early, but very positive results. As we shared, we're taking BD Excellence into commercial and into innovation. And we actually have some dedicated resources now that go across working with our different R&D teams doing kaizens to accelerate our innovation time lines. And we've been doing quite a few of those. We started that really in late last year. We've been doing those throughout Q1. And we've seen a number of R&D projects where we've accelerated time lines to launch by 6 and even up to 12 months on that. And so we're going to continue to get after that. We've got a goal to do all of our key development programs we're focused on driving those kaizens and accelerations this year. They're all scheduled with the teams.

And so that capability and that momentum that we saw in operations through BD Excellence, we're really pleased with some of the early signs that we're seeing taking those same processes and systems into innovation and also into our commercial organization. So we'll continue to provide updates on that as it progresses. And we'll look forward to sharing more through the year and eventually at an Analyst Day in the future on that innovation pipeline. Thanks for the question, Matt.

We will move next with Shagun Singh with RBC Capital Markets.

I just wanted to get a better handle on the 3 areas of headwinds, Alaris, Vaccines and China. It seems like vaccines in China will hopefully be behind us this year. But how should we think about Alaris beyond this year? Do you get to that 5% or mid-single digits next year? Or will Alaris be a headwind? And then just very quickly on M&A. Is there an opportunity for you guys to be more aggressive under the new BD strategy on M&A to help raise the weighted average market growth here?

Yes. Thank you for the question, Shagun. So on Vaccines and China, I think you described those, Alaris, we communicated at the end of -- as we gave the guide to start this year, the Holdco BD guide that we do expect Alaris to step up in '27 100 basis points headwind this year, stepping up to a 200 basis point headwind in '27. That's just, again, as we fully completed the remediation. We expect to actually be at record share levels as that dynamic is happening. It's just the grow over from the remediation that's happening there, but we expect to be in a stronger-than-ever competitive position on Alaris.

As it comes to tuck-in M&A, so as we've communicated, for new BD, we're very focused on a balanced capital allocation strategy. We're pleased, obviously, this year between the $200 million-plus share buyback that we did, $250 million buyback that we did in Q1, plus the $2 billion buyback that we're doing now through the ASR, but that significant return of capital to our shareholders. We are -- as part of that balanced capital allocation strategy, we have communicated that we're focused on focused tuck-in M&A. Our focus remains on tuck-in M&A, not transformational M&A. And we do have of a robust pipeline from that perspective.

When it comes to the criteria for those tuck-in M&A, they remain unchanged versus what we've shared in the past. That means accretive to revenue growth and accretive from an EPS perspective. We're not looking at dilutive M&. And we do see, with the new BD, there's a number of very attractive high-growth sectors that we're in that we see the opportunity to supplement that [indiscernible] with tuck-in M&A. So more to come on that, but we'll continue to do it in a focused way and very much aligned with that balanced capital allocation strategy that we've communicated. Thanks for the question.

[indiscernible]

By the way, the -- just for the -- for those who congratulated earlier on the deal with Waters is officially closed now.

Operator?

Our next question comes from Rick Wise with Stifel.

Tom, you seem very well set up for the rest of the year. I think Vitor said it, and I apologize if these are not the exact words, but I think you said prudent guidance for fiscal '26. You're well set up for a stable, predictable outlook without the usual second half ramp we've seen in the past, that's great. And sort of a variation, a little bit of Matt's question, I can't believe you're investing in sales force the way you are, the M&A you've done, the focus on faster growth businesses, the cost cutting. My question is, if there would be some upside to this thoughtfully prudent guidance in the next 2, 4, 6 quarters, do you think it would be from all of the above? Is it more likely from the new products? Is it more likely to come from the expanded sales efforts? Is it the -- some of the the growth drags are a little less? Just any color on how we should just reflect on that?

And just -- since this is not exactly 1 question, I'll ask at a half. When are you going to -- where are you with your CFO search, announcement, timing? And maybe talk to us a little bit about what you're looking for in your new partner?

Yes. Thank you for the questions. So when it comes to the CFO search, we continue. That is well underway, and we look forward to providing an update when that's completed. In the meanwhile, of course, Vitor is doing a great job stewarding the company and obviously doing a great job here on the call. So more to come on that, but we're running a thoughtful process focused on continuity of execution, financial discipline. And obviously, it's a really important moment in the company's evolution, and we're going to make sure we get the right person there.

When it comes to upside to guidance for the year, look, again, we're really pleased with how we started the year. As we think about the areas that we're investing behind, those areas of high growth and higher margin urinary incontinence, pharmacy automation, connected care, APM, tissue regeneration, biologics, right, those are the areas that we're putting our investments behind both commercially and disproportionately from an R&D perspective. And so those are areas that could be natural areas of opportunity for us.

I think as Mike Felt now also as Chief Revenue Officer, who's been running the Life Science segment essentially as of today. He's now full time in that role. We see opportunity -- the reason we created that role, it's never existed in the history of BD, is we've been very good commercially. You don't get to our category-leading shares in 90% of the markets in which we compete without being good commercially. But we think there's another level of performance that we can reach, just like we've always been good operationally, but we're reaching and we're executing at levels that we've never executed at before operationally. We view that same opportunity exists commercially. And when we execute that, that will deliver higher growth. We're convinced of that. And so more to come there. As Mike is now fully in that role, we'll provide more exposure to our investors on the programs that he's executing it not only has to do with sales force expansion, but we've changed compensation plans for our selling organization around the world going into this year.

We're putting in new tech stacks for our sales teams to help them be more effective. We're optimizing our management systems and processes with our selling organization, and Mike is leading that, working with our teams around the world. So again, like we've seen in operations, we believe that there's opportunities, meaningful opportunities to help accelerate growth as well through that commercial excellence, and complementing that with our innovation pipeline, the growth areas that we've been focusing on and of course, complementary tuck-in M&A over time as well. So thanks for the question, Rick.

We will move next with Josh Jennings with TD Cowen.

Congratulations on officially breaking through the tape there on the Waters transaction. Wanted to just get help thinking about the pricing environment. Hospitals demand for concessions versus whether that's stepped up. And just with all the innovation that's on TAP from BD, can that help drive price premiums and pricing going to be a tailwind in fiscal '26 and into the out years, and help with organic revenue growth and gross margin expansion?

Yes. Thanks for the question, Josh. So we continue to see, I'd say, a stable pricing environment relative -- there's always pressure from our customers for pricing. That's something that we've obviously navigated for quite some time. And we're very focused on obviously articulating and delivering value to our customers and outcomes, both clinical outcomes and financial outcomes through the technologies that we provide.

Pricing, what we're seeing so far in Q1, details will come out further in the 10-Q that will be filed later today. But overall, pricing is generally flat to slightly positive. That's up a little over 50 basis points ex China positive price, offset by the pricing dynamic that we see in China. As we think about that going forward, we expect to continue to have positive pricing in the rest of the world. And as China VOBP abates as we move into '27, we would expect -- and beyond, that pricing dynamic to continue to be more of a positive for us as we go forward as VOBP lessons from that perspective.

I think as we think about new product innovations and pricing there, we're entering into a lot of new product categories with our products, probably more so than ever before. Historically, we've done a lot of serial innovations where we're upgrading base products. We're continuing to do that in a number of cases. But more so than ever before, we're entering into new spaces. I think actually all of the -- all of the new products that we shared today are brand new spaces for us, Abeteen-Flowable, a brand-new biosurgery space for us that we've never been in before a $400 million market. Surge4, which is complementary to ChloraPrep, but it's for once in the surgery, ChloraPrep before the surgery. That's a whole new market for us. And HemoSphere Stream is really extending -- the HemoSphere platform into the general ward, expanding it to about 30,000 -- 300,000 monitors that we don't tap into today. So a brand-new market space for us with HemoSphere Stream.

So there, we make sure that pricing equals the value of the products and what they're delivering to our customers. I think the other thing is, in areas -- and we have a number of new products launching in pharmacy automation, for example, for CentralFill where the Pyxis Pro, which, by the way, Pyxis Pro launched at a premium to the base Pyxis. But it's all associated with very clear data that we have that it's delivering greater economic value to our customers, right? Those areas, for example, is meaningfully helping with nursing workflow by reducing drug shortages on the floor or in the case of pharmacy automation, it's reducing labor costs associated with preparing medications and pills, and it's enabling many places, let's say, like online pharmacies that are delivering to your home for them to do that in warehouses and they're starting from scratch. They never even hired pharmacists in the first place there. They go straight to the robots and automation in the warehouses and are delivering medications to home and able to do that in a cost-effective manner.

So I think our solutions are well tailored to this environment that we're in and expect we'll continue to see as is our innovation pipeline. So thanks for the question.

We will move next with Jason Bedford with Raymond James.

Congrats on the progress here. So I had a question on Alaris. It was down year-over-year, but you mentioned you being 100 basis points of category share. I'm guessing the share commentary is on an installed basis. So my questions are, one, is your expectation that you continue to gain share at this rate? And then, two, just to level set, what is your share position today?

Yes. Thanks, Jason, for the question and bringing us on here on the call. Our share position is nearing 60% overall. And yes, you're right. So obviously, through the remediation efforts that we've been doing over the last 3 years, we've been upgrading about 20% of the market per year. And so as this is now coming to the tail end of that and peaked last year, you physically can't -- even if we took all competitive share that's opening up this year, we still would see declining growth and the same dynamic would happen next year just because of what it means for us in terms of the scale in which we just upgraded the marketplace.

But yes, we are pleased with our performance on share capture in the first quarter. We have a very strong funnel as we go forward. And we continue to innovate very rapidly on Alaris. Not only on the current platform, we've had -- of course, had a new 510(k) approved since the original one that allowed us to relaunch the platform, but we're continuing to bring new features to Alaris. We have another one planned for submission late this year that will add further new features to that. And of course, we also continue to have and we've shared in the past a whole new Alaris platform, which is moving forward very nicely through our innovation pipeline, and we'll look forward to sharing more details on in the future. But we feel good about Alaris. We feel good about our overall connected medication management platform. It's great to have Alaris and our new Pyxis Pro out there together as well. As we also shared Pyxis had a really strong competitive quarter in Q1 with the launch of Pyxis Pro and has a really strong pipeline as we look forward as well. So thank you for the question, Jason.

And that will conclude today's question-and-answer session. At this time, I would like to turn the floor back over to Tom Polen for any additional or closing comments.

Okay. Thank you, operator. In summary, we delivered a solid Q1 results that exceeded our expectations, and we believe positions us well to achieve our full year guidance. As we navigate transitory headwinds in contained areas within our business, our broader portfolio continues to perform well, and we're actively investing in high-growth, high-margin areas. To our Biosciences and Diagnostic Solutions colleagues transitioning to Waters, I want to thank you for your passion, professionalism and the tremendous contributions you've made to BD. You're stepping into an exciting new opportunity with a strong growth-driven life science leader, and we're proud of all you've accomplished and wish you every success in this next chapter.

Of course, with the completion of the transaction this morning, we're very excited to fully pivot to our strategy for the new BD. We look forward to updating you on our progress next quarter, and thank you all for your time today.

Thank you. This does conclude this audio webcast. On behalf of BD, thank you for joining today. Please disconnect your lines at this time, and have a wonderful day.

Hello, and welcome to BD's Fourth Quarter and Full Year Fiscal 2025 Earnings Call. At the request of BD, today's call is being recorded and will be available for replay on BD's Investor Relations website, investors.bd.com or by phone at (800) 839-2383 for domestic calls and area code +1 402 220-7202 for international calls. [Operator Instructions]

I will now turn the call over to Adam Reed, Vice President, Investor Relations.

Good morning, and welcome to BD's earnings call. I'm Adam Reed, Vice President of Investor Relations. Thank you for joining us. This call is being made available via audio webcast at bd.com. Earlier this morning, BD released its results for the fourth quarter and full year fiscal 2025. The press release and presentation can be accessed on the IR website at investors.bd.com. Leading today's call are Tom Polen, BD's Chairman, Chief Executive Officer and President; and Chris DelOrefice, Executive Vice President and Chief Financial Officer.

Before we get started, I want to remind you that we will be making forward-looking statements. You can read the disclaimer in our earnings release and the disclosures in our SEC filings on our Investor Relations website. Unless otherwise specified, all comparisons will be made on a year-on-year basis versus the relevant fiscal period. revenue percentage changes are on an adjusted FX neutral basis unless otherwise noted. Beginning October 1, we began operating under our previously disclosed new BD segment structure that includes medical Essentials, connected care, biopharma systems and Interventional and a fifth Life Sciences segment comprised of Biosciences and Diagnostic solutions. Reconciliations between GAAP and non-GAAP measures are included in the appendices of the earnings release and presentation.

With that, I am pleased to turn it over to Tom.

Thank you, Adam, and good morning, everyone. As you saw in our press release, our Q4 and full year performance was in line with the preliminary results we announced last month. During our prepared remarks today, Chris and I will provide additional context on the drivers of our performance. I'll also provide an update on the immediate steps we are taking to accelerate our strategy as we transition into new BD, and I'll conclude with our fiscal '26 guidance and outlook on Q1, after which we'll take your questions.

With that, let's jump in. Q4 revenue of $5.9 billion increased 7% and 3.9% organic. New BD delivered strong organic growth of 4.9%, accelerating 90 basis points sequentially. For the full year, record revenue of $21.8 billion increased 7.7% and 2.9% organic. New BD grew 3.9% organic. We delivered adjusted diluted EPS of $3.96 for Q4 and a record $14.40 for the full year, which represents 9.6% earnings growth including a 2-point impact from tariffs. We also returned $2.2 billion to shareholders, inclusive of a $1 billion share buyback. Earlier this morning, we announced our 54th consecutive year of dividend increases.

During the quarter, we had a greater-than-anticipated impact in macro areas we've been closely monitoring, specifically farm systems vaccines and Biosciences academic and government research. Vaccines are approximately 20% of our farm systems business. While we plan for a slowdown in Q4, further reductions in demand evolved rapidly late in the quarter as most Q4 vaccine demand typically occurs in September and continues into Q1 and Q2. In our biosciences business, research funding remains subdued, but sales in the U.S. and EMEA continued to improve sequentially, led by strong demand for our new fax Discover platform.

In Diagnostic Solutions, the business returned to positive growth in the quarter as [ BD Bactec ] utilization continued to recover. Together, Biosciences and Diagnostic Solutions delivered flat growth for the quarter, excluding the impact of discontinued platforms. Outside of these 2 areas, we delivered strong growth across a broad range of the portfolio, demonstrating new BD's attractive profile with over 90% consumables revenue and a strong cadence of new innovation. This includes high single-digit growth in BD Interventional driven by double-digit growth in PureWick and advanced tissue regeneration.

We delivered double-digit pro forma growth in advanced patient monitoring, which in the first year of integration, performed well ahead of our deal model and is on track to continue this momentum in fiscal '26 and beyond. In Farm Systems, Biologics grew high single digits, driven by GLP-1s, and MMS had a record quarter for Alaris pump installations, including several new competitive wins, solidifying our leadership position now and for years to come as we complete our fleet upgrade in FY '26.

Our BD excellence operating model helped to drive strong P&L leverage throughout the year with adjusted gross margin up 140 basis points, fueling 80 basis points of adjusted operating margin expansion, while we invested in selling and innovation which will continue to be our engine for growth in the new BD. This supported robust 9.6% adjusted diluted EPS growth, inclusive of tariffs while we also delivered on our full year goal to reach a record 25% adjusted operating margin. While we are navigating specific transitory market dynamics that are expected to continue into fiscal 2026, we have strong business fundamentals, high confidence in our continued long-term mid-single-digit growth profile and a proven track record of delivering value through periods such as this.

We are acting with speed to optimize our performance during this time and emerge stronger. We've already begun implementing decisive actions to accelerate our strategy as we create the new BD with a focus on boldly advancing BD excellence across our commercial and innovation organizations while identifying cost optimization opportunities to reinforce our commitment to long-term profitable growth.

Let me highlight 3 specific initiatives underway. First, as part of accelerating our focus on commercial excellence, we're rearchitecting our operating model to build a more focused, agile vertical organization. This includes commercial teams directly aligned with each business unit to best support customer needs, drive share gains and accelerate growth. We're also taking immediate action to expand our sales force in targeted high-growth markets, investing an incremental $30 million to capitalize in areas that either are or have the potential to grow in the high single digits or double digits. These include opportunities such as the recent VA reimbursement for PureWick at home and new surgery innovations launching in Europe and a 15% increase in both the PI and APM sales forces.

Finally, we've announced that Mike Fell's role has been expanded to include the newly created position of Chief Revenue Officer. Michael will apply his expertise in BD excellence to accelerate our initiatives to become a best-in-class commercial organization to deliver incremental growth. Michael will remain President of Life Sciences until the close of the RMT with Waters. Second, over the last several years, we've built positions in multiple attractive markets and are investing to capture opportunities and new product innovation.

Going into FY '26, we've moved nearly $50 million of corporate costs into R&D and the businesses to fuel future innovation and growth in attractive high-growth markets, such as tissue regeneration, PureWick adjacent markets, biologic drug delivery and connected care. Additionally, we focused investments behind planned new product launches, including our recently launched [ BD NCADA AI-enabled ] platform that unifies BD device data into 1 intelligent ecosystem, and our next-generation BD Pyxis Pro medication dispensing platform as well as new planned launches in APM, MDS, UCC, surgery and MMS.

We are pleased we also recently received 510(k) clearance for HemoSphere Stream, our continuous noninvasive blood pressure monitoring module, an impressive clearance in less than 30 days paves the way for commercial launch in 2026. Third and finally, we initiated a 2-year $200 million cost-out program, proactively addressing stranded corporate costs with approximately half expected this year.

Before I turn it over to Chris to provide additional color on our performance. On behalf of the leadership team, I want to take a moment to thank Chris for his leadership, hard work and dedication to BD over the past 4 years. I'm confident the CFO transition ahead will be seamless and wish Chris well in his new endeavors.

With that, I'll turn it to Chris.

Thanks, Tom. Before I begin, I want to take a moment to thank the entire team at BD. It has been a privilege and a career highlight to serve as the CFO of this company and getting to work hand-in-hand with our talented and committed colleagues to advance the world of health. I am proud of the accomplishments we achieved together that enabled us to deliver against our BD 2025 strategy, including the meaningful work to advance the margin profile of BD while simultaneously transforming our portfolio that has us well positioned for the future. I look forward to partnering with [indiscernible] and my entire leadership team to ensure a seamless transition as BD enters its next phase of value creation.

Let's pivot to our performance results, starting with revenue. Organic growth was led by high single-digit growth in BD Interventional with strong performance across our growth platforms. This includes double-digit growth in UCC driven by PureWick and high single-digit growth in surgery led by our advanced tissue regeneration platform, including continued strong adoption of [ Phasix ] resorbable mesh. Growth in PI reflects strength across the oncology portfolio and [indiscernible].

In BD Medical, mid-single-digit organic growth was led by APM, which grew double digits on a pro forma basis with strong growth across all product lines. We feel really good about the momentum in APM continuing into FY '26, which will be further supported by significant sales force expansion currently underway. MDS also delivered a strong quarter with solid mid-single-digit growth in our Vascular Access Management portfolio. In MMS, we achieved a record sales quarter for our [ Alaris ] pump installations and we feel good about our strong backlog of committed contracts in dispensing.

Lastly, in Farm Systems, strong performance in Biologics continued with high single-digit growth driven by GLP-1s, this was offset by lower demand for vaccine products. In BD Life Sciences, GS returned a positive growth in the quarter with a greater than 300 basis point improvement in growth sequentially, driven by our molecular platforms and continued recovery in [ BD Back tech ] utilization, which exceeded 85% of historical levels in the U.S. In B2B, as Tom shared, research spending remains subdued, but sales continue to improve sequentially in the U.S. and EMEA led by demand of our new fax Discover platform. As a combined unit, and DS increased approximately low single digits on a reported basis and was approximately flat on a currency-neutral basis, excluding the impact of discontinued platforms. Rounding out the Life Sciences segment, solid growth in specimen management was driven by the BD Vacutainer portfolio, partially offset by China market dynamics.

Turning to the P&L. In Q4, as Tom shared, we continued strong execution down the P&L with momentum from BD excellence while investing in key growth areas. We delivered adjusted gross margin of 54.2% and adjusted operating margin of 25.8%, including an impact from tariffs of about 140 basis points. Adjusted diluted EPS of $3.96 grew 3.9%, including a 6-point tariff impact. For the full year, adjusted gross margin of 54.7% and adjusted operating margin of 25% increased by 140 and 80 basis points year-over-year, respectively, inclusive of absorbing about a 40 basis point impact from tariffs. We delivered adjusted diluted EPS of $14.40, which represents strong growth of 9.6%, including a 2-point tariff headwind.

We continue to execute against our cash flow and capital allocation strategy with fiscal '25 free cash flows of $2.7 billion. Underlying free cash flow was strong overall and in line with our long-term target and inclusive of Alaris remediation, tariffs and other discrete payments, free cash flow conversion was 64%. We ended the fiscal year with net leverage of 2.8x and made progress towards our net leverage target of 2.5x.

With that, I'll turn it back to Tom.

Thanks, Chris. As we look ahead, we remain focused on executing the Waters transaction. The combination of our Biosciences and Diagnostic Systems business with Waters continues to be a significant strategic and financial opportunity to unlock value for our investors. Our teams are partnering exceptionally well to set up a successful combination and momentum for the new company. Last month, we received FTC clearance and remain on track to close around the end of the first quarter of calendar year 2026, subject to obtaining required regulatory approvals and customary closing conditions.

We've begun executing our new BD strategy and the work we've done since establishing BD 2025 has set the foundation for the long-term sustainable success of the new BD. During this period of strategic progress, we delivered $5.4 billion of organic growth, the most substantive period of organic growth in BD's history. We created multiple new growth platforms achieved best-in-class adjusted gross and operating margin expansion near the top of our peer group and increased adjusted operating margin to 25% in FY '25, a record level for BD with more room ahead.

We see a clear opportunity to drive further commercial momentum. New BD will be a pure-play med tech company with a deep innovation pipeline in attractive markets and a best-in-class consumables revenue profile of over 90%. Our growth strategy is supported by BD Excellence, a differentiated capability we've created that is driving gross margin improvement operating effectiveness, cash generation and fueling reinvestment in innovation and commercial capabilities.

To give some color on the benefits we're seeing, in fiscal 2025, consumables quality hit record highs with a 50% reduction in manufacturing nonconformances. Further, we delivered world-class gross productivity improvements of over 8% in our plants this past year. These productivity gains enabled more production with less CapEx and achieving the lowest CapEx to revenue ratio in over a decade. We expect momentum to continue in FY '26. We also plan to deliver an enhanced capital allocation strategy that prioritizes internal investment, share repurchases and a reliable and increasing dividend with focused tuck-in M&A in targeted high-growth markets. all with the focus on steadily increasing ROIC.

We expect to significantly improve free cash flow conversion, excluding onetime impacts resulting from the Waters transaction, including OUS tax payments. We continue to see share repurchases as a value-creating opportunity given our view of the intrinsic value of BD. We plan to execute another $250 million share buyback this quarter in addition to it using at least half of the $4 billion in cash proceeds from the Waters transaction following the closing with the balance for debt repayment.

In summary, we see new BD delivering consistent mid-single-digit revenue growth over the long term with margin expansion driven primarily by gross margin fueled by our BD Excellence business system.

Moving to our fiscal '26 guide. I'll start with our guidance for [ holdco BD ] and then provide color on our expectations for new BD post the Waters transaction. We're taking a prudent and transparent approach with our guidance framework. This includes low single-digit revenue growth as our starting point for the year and includes the following assumptions: First, regarding Aleris capital installations. fiscal '26 is the last year of our 3-year remediation commitment. We expect sales to remain strong and above our historical run rate. However, compared to FY '25's record install levels, this creates a headwind to growth of over 100 basis points.

Second, we expect China to decline in the mid-teens. As government policies, including volume-based procurement continue, which will impact growth by about 100 basis points. Our assumptions include China VBP reaching 80% coverage of our portfolio by the end of FY '26. Third, we are assuming reductions in vaccination rates will continue to drive conservative ordering patterns in farm systems vaccines. As we've said, vaccines are about 20% of Farm Systems revenue and our guidance assumes a decline of approximately 25%, which is an impact to growth of about 50 basis points.

Excluding vaccines, we expect farm systems to grow mid- to high single digits. [indiscernible] The combined headwinds from these 3 factors impacts about 10% of BD revenue. Across the remaining 90% of the portfolio, we expect to drive mid-single-digit growth, including continued strength across our BDI, Connected Care and Medical Essentials portfolios fueled by commercial investments and our strong innovation pipeline. We're confident in delivering overall mid-single-digit growth over the long term as these dynamics exit, and we continue to advance our strong core business fundamentals. Based on current spot rates, currency is estimated to be a tailwind to revenue of about 90 basis points.

Moving down the P&L. We expect continued strong adjusted operating margin consistent with FY '25 of about 25%. This includes absorbing an incremental $185 million or 80 basis points year-over-year headwind from tariffs, in line with what we've previously communicated. Excluding tariffs, the primary driver of margin expansion is expected to continue to come from gross margin, powered by BD excellence along with some leverage in shipping and G&A. For tax, we expect our adjusted effective tax rate to be between 14% and 15%. Given these considerations, we are setting our initial adjusted diluted EPS guidance in a range of $14.75 and to $15.05.

Excluding the year-over-year tariff headwind, we expect EPS growth at the midpoint to be high single digits, which is the right way to think about our business longer term. As you think about fiscal 2026 phasing, we expect Q1 revenue to be down low single digits due to the items we covered. This includes a tough year-over-year comparison Biosciences, which also reflects prior year licensing revenue dynamics before we move to easier comparison periods beginning in Q2 and order timing in our Medical essentials portfolio. We expect Q1 adjusted diluted EPS to be in the range of $2.75 to $2.85, inclusive of tariffs, which we anticipate will be most prominent in Q1 and continue through Q3, and about a 5-point headwind to the tax rate due to a prior year comparison.

I'll now provide some context for how to think about new BD for the full fiscal year following the deal closing, which is expected to be around the end of the first quarter of calendar year 2026, subject to obtaining required regulatory approvals and customary closing conditions. We expect New BD's FY '26 revenue growth and margin profiles to be similar to HoldCo. This includes BDB and DS revenue and operating income moving to Waters along with conveyed costs. and a half a year of TSA income. Below operating income on a pro forma basis, we expect NewCo's tax rate will be about 200 basis points higher, driven largely by mix. Collectively, including the use of the cash distribution proceeds associated with the transaction and a higher tax profile, based upon projected close timing, we expected new BD pro forma adjusted EPS growth to be over 200 basis points higher than HoldCo.

In summary, as we close out fiscal 2025, we are excited to start the next chapter of BD. As we navigate transitory headwinds in contained areas, our broader portfolio is doing well, and we are actively investing in high-growth, high-margin areas. Combined with actions underway to unlock the untapped commercial potential in the new BD portfolio and reallocate resources, we are building the mechanisms to emerge stronger. We are confident in our long-term mid-single-digit growth profile and our ability to outperform our served markets. With the upcoming combination of biosciences and diagnostic solutions with Waters as a near-term catalyst, and an attractive capital allocation strategy, we are well positioned to deliver value for our shareholders, both in the near and long term.

With that, let's start the Q&A session. Operator, can you please assemble our queue.

[Operator Instructions] Our first question will come from Travis Steed with Bank of America.

I guess I'll start with, first of all, kind of bigger picture, this guidance for new BD here. Just how does that kind of reflect the conservatism you've kind of put in place. You can have confidence that this is a year that you can deliver on the initial guide and -- is that going to be kind of the same for EPS and margins as well that you have kind of the same confidence to deliver on this guidance?

Travis, thank you for the question. Yes. I think you -- as you just described, what we want to make sure we're doing is clearing the table on the macro dynamics and taking a prudent approach to our guide framework as we launch into the new BD. And so what you're seeing is we're incorporating our updated view on the operating environment, including a sharper view on certain areas of the portfolio, particularly vaccines as we've seen vaccine patterns, as I outlined on the call. Obviously, the Aleris -- success of Aleris over the last year and how we've been running ahead of performance there, and that just creates a natural headwind as we go into '26, still a very strong year in '26, a year that we expect continued share gains built into that plan as well. but a natural lapping of the success of being ahead of the -- of our commitment to the FDA on remediation.

And then, obviously, China, we've built in a prudent approach to China and what we've seen in terms of VBP. And so what we haven't done is we haven't built any improvements in the macro environment into our outlook. We think that's, again, the most prudent thing to do. If things improve, that could be an opportunity. But again, we think it's really important to clear the table on those macro dynamics, have them built into our plan in a very prudent way as we start and launch the new BD.

And as you said, we have a very strong track record on continued margin expansion. BD excellence, you saw this past year has very strong momentum. We're continuing that momentum into FY '26. You saw the margin expansion in '25, you're continuing to see that strong margin expansion underlying in '26, fully offsetting tariffs. And that flows through, right, EPS performance is driven largely by the continued gross margin expansion from BD excellence.

Great. I don't know if there's anything you want to point out on kind of the Q1 guide versus the full year and how to get confidence that this is not a ramp year and Q1 is kind of fully baked as well?

Yes, sure. Good question. So as we think about, obviously, the factors that I described, Aleris vaccines, China we're building those into Q1. Q1 guide reflects the full year -- those full year headwinds as well as the BDB comp and Med Essentials timing that we talked about. And some of the areas, particularly vaccines their greatest weighting is in Q1. So you have a disproportionate impact of vaccines in the quarter. I think we then expect growth as a step up in Q2 and Q3, which will likely be our strongest quarters in the year. And so I think very unique this year is the phasing doesn't rely on any back half for ROIC, right? We're not assuming that at the end of the year. And we're not assuming macro relief in the base either as we describe that. So we're confident in the step-ups.

We also see comps easing in Q2 and Q3. And as well as we continue to drive the continued strong momentum in areas like APM, advanced tissue regeneration, PureWick dispensing biologics, right, that 90% of the portfolio that we still see continuing to grow strong mid-single digits and that you heard us announce some incremental selling investments behind those areas of both high growth but also higher margin areas, which fuels our strategy as well. So thanks for the question, Travis.

Our next question will come from Patrick Wood with Morgan Stanley.

Tom, in the remarks you guys were opening with you mentioned capital allocation a bunch of times and incremental investment in the base business as well. Given where your stock is, I appreciate the extra being done in Q4 of the buybacks and things like that. Is there not a temptation just to get off to the RMT even more aggressive in returning capital to shareholders, just given where the yield on the stock is and the fact that you guys get swung around so much by small differentials in organic growth. Why not just get extra aggressive even beyond what you're suggesting now and just buy back a ton of stock. Is there any reason not? Is it just the payback on the base business is critical? Help us understand that capital allocation framework?

Patrick, it's Chris. Thanks for the question. Look, what we've said is we're going to continue to focus on cash generation. And as we generate cash above our plan, we're going to be in the market based on what we see as the intrinsic value of the stock and be aggressive with share buybacks. Thus, the incremental $250 million. It's important to note that we're trying to be disciplined around kind of a net leverage ratio. We did show progress through the year. We went from 3x down to 2.8x. And I think importantly, the Waters transaction here is a huge value creation unlock. And as you know, there's $4 billion of proceeds there, of which we said at least half of those will go to the share buybacks, that actually creates an opportunity post spin, where you're going to see our earnings profile increase in terms of the growth rate by over 200 basis points.

I think importantly, the value that BD shareholders will get on the earnings that moves to Waters as part of the spin is coming at a significant premium multiple, almost 2x where it's trading at BDX approaching 20x. And then I think importantly, when you look at kind of new BD and the EPS, it would imply a trading multiple of about 10x against an extremely attractive financial profile when you think of the leadership positions we have, a mid-20% margin profile an earnings profile that's going to be high single digits, right? We're having the impact of tariffs this year. If you extract that, our guide implies high single digits, plus it's going to improve by 200 basis points, strong cash generation. So we're definitely going to be in the market with those cash proceeds and see this as a significant value creation opportunity.

Patrick, maybe just to add on to Chris' good -- very good comments there is, as you said, we see the intrinsic value of the company significantly higher than as trading today and a real value disconnect, which is why we also announced the incremental $250 million buyback effective essentially immediately early this quarter. And we'll continue to obviously, as we close the transaction. execute at least half of the $4 billion into a share buyback, which will by itself then accelerate, as I mentioned on the call, at least 200 basis points higher EPS growth for new BD because of that than the initial guide for HoldCo.

I think just maybe to give a little bit more color on what Chris shared. If you look at -- we're really pleased with the transaction with Waters. Both teams are working phenomenally well together. As I shared, we just got FTC clearance on the transaction. We're moving forward to our time line. And the pace and progress of the separation and integration is certainly very much on track. If you look at the current water share price and obviously our percent ownership in the transaction, that translates to about $50 per BD share that's embedded in our current share price.

And so obviously, what that means is that if you take that $50 of value that's just for that part of the business that embedded in our price, the remaining piece then is trading at a 10x multiple. And obviously, as you think about the new BD, we have a presence in a wide range of attractive markets there's 10% of the portfolio that's going through some cyclical dynamics that we made very clear they're contained dynamics. The other 90% of the portfolio is continuing to grow solid mid-single digits.

We're #1 in 90% of the markets we play in. mid- to high 20s margins, mid-20s today going, we see continued expansion going forward and a strong recurring cash flow profile with a shareholder-friendly capital allocation policy. And we don't see that as a profile of a 10x stock. Which is, to your point, why we're buying in with now in Q1, and we'll continue to do so, obviously, as cash proceeds come in, and it's an area that we've prioritized our capital allocation strategy for. So we certainly see from a BDX shareholder perspective, you've got new BD EPS, there's buyback accretion. There's some interest benefits. You've got the Waters ownership being very accretive, all while providing improving strategic clarity, capital allocation and a long-term value creation setup for our shareholders. So we appreciate the question and happy to provide additional color.

Our next question will come from Larry Biegelsen with Wells Fargo.

One on China, the expectation that fiscal '26 is down mid-teens was a little bit weaker than I would have expected. Just remind us of what China was in Q4 on an organic basis and full year '25. I apologize if I missed it in the slides.

Thanks, Larry, for the question. We were down high single digits organic in the quarter in Q4. And again, we want to take a prudent approach to our guide going forward as we think about where could play out, continued primarily in the BD Interventional segment, as we've described before. And I think really that just continuing to watch that and recognizing it is difficult to really call China and how that market will evolve. And so we also still believe that it will have progressed through at least 80% of our portfolio will have gone through VBP in '26. We also recognize that post separation China will be about 4% of our revenue, which sets us up in future years for an easier base compare there. So that's what we've built in, again, to our assumptions and haven't included any improvements in that macro environment in our prudent guide.

One follow-up and also, I'd be remiss if I didn't say, Chris, congratulations on the new role. I enjoyed working with you and good luck. Tom, I'd love to hear your updated thoughts on the new BD strategy and the earnings algorithm because I think it's unique in Medtech. You talked a lot about it in the -- during the conference season in September. About the mid-single-digit growth, some leverage and at least 50% of free cash flow going to share buybacks, which I think is unique. Talk about the rationale and if the new BD can grow EPS double digits, you talked about 200 basis points faster than the current BD?

Thank you, Larry. Really, really good question. And as I just described a little bit as part of Patrick's response, we're really excited about the new BD as a focused Medtech leader, again, with presence in a wide range of very attractive markets that you're seeing us lean into heavily in an up-tempo way, taking actions around our commercial excellence to really drive optimal performance in areas. We're putting additional sales force investments behind those, and we're doubling down, reallocating costs within our cost structure from corporate into the businesses into R&D, into fast-growing, high-margin spaces, areas like urinary incontinence, adjacent spaces to that connected care areas, tissue reconstruction, biologic drug delivery, all markets that are attractive and that we also have leading positions in.

And we do see -- we're very confident. I think we said that 10 times on the call, we remain very confident in our long-term mid-single-digit growth profile. We're delivering that in 90% of the business even in the near term. We have again, a portion of the business in a contained way that is going through dynamics, some of which are a result of our own success, Aleris. And we're continuing to increase our free cash flow conversion, as Chris shared in his remarks.

And so we think that profile, as you mentioned is -- there's a really unique opportunity within the Medtech industry to take that profile and translate it into a continual compounder, utilizing that cash generation to continue to buy back shares, create compounding earnings growth take on top of all of that, our BD Excellence business system, which you've seen us build over the last several years.

And you've seen us start doing things that are setting records for the company, right? Record productivity, best-in-class productivity, not just in our industry but across most all industries at 8%. You're seeing us hit strides in our capital -- use of capital and getting more out of those investments. Again, we hit a more than 10-year high capital as a percentage of revenue this past year. You're seeing safety at a record level. You're seeing quality at a record level. You're seeing our service levels at a record level, all because of BD excellence. And we think we're still in early innings there [indiscernible] from a margin expansion opportunity, which fuels that profile. So as you mentioned, we think we have a very prudent, thoughtful approach to value creation going forward that fits really well with who is -- from a portfolio perspective, what that means from a margin and cash flow generation perspective and how we create maximum value in a steady, durable way for our shareholders.

Our next question comes from Robbie Marcus with JPMorgan.

Tom, I'd love to hear your update good luck. Tom, I'd love to hear your update on the new BD love to hear your updated thoughts on the new BD strategy were there any quarters that it really benefited -- and I remember $400 million to $450 million is the normal run rate. So -- is that still a good normalized run rate now that the installed base has pretty much been upgraded after the relaunch. And then I have a follow-up.

Yes, Robbie, it's Chris. Yes, thanks for the question. I guess as you think of 26, right, versus 2025, so 2 comments. One, as you think of how we relaunched Aleris, which has been extremely successful, right, when you look at this and it's given us the opportunity to not only lock up and enhance leadership position in the market, really proud of the team there. the relaunch really started progressing through '25, right? The beginning -- the front end of $25 million has the more difficult growth comp when you think of the contribution versus 24, and then it moderates as you go back through the end of '25. So actually, that's part of the Q1 dynamic. Aleris is actually the -- one of the highest comps that we're cycling over in terms of contribution to growth in '26 because it was a favorable comp in '25.

From a full year standpoint, I think just think of what we shared on the call around '26 is about a 100 basis point headwind heading into '26, that's kind of largely what played out in '25. With that said, as you think of Aleris' contribution to performance in '25, all the other market headwinds that we had experienced in '25 were actually slightly above the total benefits we got from Aleris. So hopefully, that helps give you some color as you think of one, Q1 and 26 being the hardest comp with Aleris in terms of contribution of growth and then the full year impact.

Yes. And Robbie, maybe let me give you a little bit of color on how we think about it going forward. So first off, as we shared, we're really pleased with how the team has executed. They've done an outstanding job remediating ahead of commitment, right, on a massive scale. We've locked in our installed base and leadership for many years to come, and that's really allowing us to pivot heavily to share gains and growth opportunities, not only in Aleris, which, of course, as the market leader, the remaining market is smaller, but we're going to be very focused on share gains there as well as driving -- using our sales team in MMS to drive growth in additional areas of the portfolio. And we've got the perfect timing with the launch of Pyxis Pro. Obviously, we've got pharmacy automation there, a number of new launches, including Incada that they'll be able to pivot focus to.

And now with that success of refreshing our fleet, we will see that, of course, we've got the '26 headwind of about 100 basis points. And then for modeling purposes, as you think about beyond FY '26 given that will be the last year of remediation, and you'll see the comps then roll after, that would lead to about a 200 basis point headwind for Aleris in a sequential year. And then what happens is longer term then, you're now at a normalized run rate, and the fleet replacement cycle will turn into a tailwind again essentially as you move into the 2030s. And the fleet that we've just installed in the marketplace starts hitting that 8-year or so replacement cycle again, and we see it then more normalizing thereafter.

A quick follow-up. And Chris, I'll also wish you the best at your new role. But I wanted to ask on margins, and I appreciate the slide and the bridge you got there. Historically, it's been difficult for medical device companies to show positive operating margin expansion when they're kind of 3% or below on organic growth. Just walk us through some of the levers you can pull to drive what feels like underlying operating margin expansion offsetting tariffs given there's not a lot of revenue growth to offset it?

Yes. Thanks, Robbie. I appreciate that. Look, this is the power of BD excellence, right? I mean we just executed FY '25. We had 140 basis points improvement in gross margin, 80 basis points on operating margin. That included absorbing 40 basis points of tariffs. So this is what exactly we said would happen, it started at the end of '24 into '25. Importantly, that becomes an opportunity for us to compound earnings at an attractive rate, right? We almost delivered double-digit growth in '25, despite the absorbing the tariff impact, which was 2 points but most importantly, reinvest back in the business, right, and drive incremental investment in selling most notably, which we did delever in the back half of '25. You saw that.

So as you think of '26, we're basically going to have 3 quarters of the year with a tariff impact in there. Despite that, we are still going to be about flat it implies basically an 80 basis point improvement in operating margin. The significant majority of that is going to play out exactly the same way. It's coming from gross margin. And we're doing the same thing. We're going to invest. We're starting these investments, building on what we did in Q4. You're going to see selling deleverage in the first quarter, most notably and slowly moderate throughout the year as we cycle the investments we put in Q4.

We will get a little bit of leverage in G&A and shipping is something that we consistently strive for with the incremental cost-out program that we announced as well, that will start in the front end of the year. But as we build through the year, that will become more prominent as we move through the back half of the year. So I do think you can look at this as a very attractive profile. The power of BD excellence reinvesting back of the business. If you look at the midpoint of our EPS growth rate of our guide and take the 3.5 point plus tariff impact, the midpoint is basically high single digits, right, just about 7%.

And so even as you think of 27, as we shared in the script, right, high single digit is the profile of earnings you should think about. And so we think this is one of the exciting things. It goes back to Tom's point around a great opportunity to invest in a company that can compound earnings despite macro environment.

We'll take our last question from Rick Wise with Stifel.

Chris, I was reflecting, listen to you, Tom, just -- gosh, I think I've covered Becton now maybe 30 years. I mean, Becton has always done an amazing job on consistently reducing costs and you talked about the $200 million this year. But I'm more fascinated and hoping to dig in further on the 3 major initiatives, operating model change in the commercial team alignment or realignment, the targeted sales team focus, [ Mike Bell's ] new role. I was hoping you could expand on your comments and beyond just the cost reduction stuff, I mean these seem like meaningful moves and maybe with longer-term implications.

Talk about the impact, if you would, for [indiscernible] a whole when do we start to see the benefits of these initiatives. And maybe talk us through the implications if there are by -- for divisional growth or margins. Just if you could dig into all of that then do you feel like I'm characterizing it right here?

I do, Rick, and thanks for the question. Yes, I'd love to share a little bit more about those. And as I said, we're really focusing on up temping and leaning in heavily to the launch of new BD and capitalizing on the opportunities that we have there. So first, we're starting with a really strong foundation, having built multiple growth platforms and creating and embedding BD excellence over the last several years in our operations as we executed our 2025 strategy. We want to take that excellence and that performance that you're seeing happen in our operations. We want to take that now into commercial and into innovation, right? We want excellence everywhere, every day, and that includes right, not only in our delivery side within our operations, but within our commercial side and our innovation agenda. And you're seeing us take action against that.

And so as we think about the new BD post the waters close, as I said, we're really up temping the new BD, moving at a pace and taking actions to accelerate that strategy. and reinforce our commitment to delivering long-term profitable growth. So building off of BD excellence momentum and the success in operations, as I said, we're extending that core competency to the commercial side. That starts with expanding Mike Fell's role as we get to the close of the Waters transaction as he takes on the role of Chief Revenue Officer. First time we have had that role in the company. Mike brings deep domain expertise in Kaizen, in lean, in BD excellence where we'll be using that and applying it to the commercial organization. to accelerate our initiatives there.

And taking what is a good organization today, you don't get to market leadership in 90% of your markets without being good commercially. But we think there's another level of world-class that we're going to be driving for just like we've done to build true world-class performance within our operations side. And so having a single point of responsibility and Mike, he's going to be working with our segments and our businesses, advancing commercial rigor and pace arming our teams with the latest tools and analytics. There's a lot of great technology to apply to drive that next level of world-class performance today and rearchitecting our commercial operating model moving sales direct line into the businesses like we talked about.

We also talked about we're putting increased dollars, about $30 million more than the normal run rate behind selling in very specific targeted high-growth markets. They happen to be high-margin markets as well. And I shared some examples there. Markets like PI APM, which is tracking well ahead of our deal model in '25. It delivered well ahead of our deal model. We continue to deliver well ahead of the deal model in '26. We're doubling down there, 15% increase in their sales force 15% increase in the PI sales force, and we're putting more money behind it. We got a great win with the VA, the Veterans Administration now, fully reimbursing PureWick at home, the first big contract that we have with full at-home reimbursement, we're putting sales forces behind that to help make -- help veterans access that technology.

We've got some great new launches in surgery happening in Europe. We're putting investments behind those, doubling down to accelerate already strong high single-digit, double-digit growth areas of momentum. And then we constantly, as you said, look at our cost structure and say, are all the -- are we spending in the ways that give us the best return? And so we -- we went through that look and we said we're going to move $50 million of corporate costs into the businesses to further fund innovation in some of the really exciting areas that we have. In some cases, that's investing behind launches like Pyxis Pro or our PureWick portable or Hemosphere stream or others or in other situations and the majority of that money is going into the next phase of innovations.

We see attractive spaces adjacent to PureWick that we want to capitalize on and create the next PureWick. We see opportunities to expand in tissue regeneration. We're having great growth in biologic drug delivery. It's now more than half of farm systems. We want to continue that innovation leadership in that category and double down on some innovation opportunities there. And with Belal now on board, we've actually rotated all of our software development from the corporate team under [indiscernible], and he's got a whole series of innovations that he wants to really invest behind that we're excited by.

So like most R&D investments, those will take a couple of years to bring new products to market. I think we'll see the commercial investments certainly start paying off within this year, starting to see some benefits of that. And scaling up into the next years. But I think what we're really focused on is balancing looking through a microscope to drive the quarter and the year in the very near term, we talked about some of those accelerated actions we're taking on the commercial side to do that. But we're also keeping our eye on the telescope to ensure that we emerge stronger from this near-term environment that we're navigating and drive a durable growth profile, it's led by commercial excellence, led by innovation to make sure that, again, we deliver a strong, durable long-term profile that we've talked about here on the call today.

That's a great answer. I'll just say a quick follow-up more quickly. Just when you -- Chris highlighted the or I think you did the 25% operating margin targets. And you're not that far away. You said, "I think there's more room ahead" just maybe expand on your thinking there. I mean what are you dreaming longer term over the next, whatever, 3 to 5 years?

Yes, thanks for the question. We won't certainly put out the number that we're heading towards on operating margin. But maybe some of the color I could share is we are at 25% or we ended 25%, just in line with our Analyst Day commitment that we made in 2021, we're really pleased to have delivered on that 25% by the end of '25 commitment. And that includes jumping over a kind of a last-minute 40 basis point headwind from tariffs and still delivering on that. And so great work by our team in that and BD Excellence had a really important role to play there. BD excellence is going to continue to be a major driver of our margin expansion strategy.

As we think about OP margin expansion, we do see room ahead, and we see that continuing to be driven by gross margin expansion. BD excellence and the investments that we're making in our manufacturing network consolidation and our operational excellence and productivity improvements will continue to fuel that. but also our innovation pipeline and the markets that we're investing in. And it's not the accent, you're hearing me talk about investing in higher growth and higher margin spaces, both in where we're putting additional channel resources, but also where we're putting additional R&D dollars.

So we see mix as having an important role as we think about margin progression continuing to go forward. And we see that as a real opportunity from a gross margin perspective. If we look at us versus peer groups, our portfolio in general has a lower gross margin profile. We have an extremely efficient cost base. But we see opportunities to continue to grow that gross margin line. We've been doing it the last 2 years. We see good runway ahead there. So really appreciate the question.

That does conclude today's question-and-answer session. At this time, I'd like to turn the floor back over to Tom Polen for any additional or closing remarks.

Thank you, operator, and thank you, everyone, for your questions and for joining us today. We look forward to updating you on our progress next quarter.

Thank you, ladies and gentlemen. This does conclude today's audio webcast on behalf of BD. Thank you for joining today. Please disconnect your lines at this time, and have a wonderful day.