Becton, Dickinson & Aktie

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.

All right. Good morning, everyone, and welcome to the 2025 Wells Fargo Healthcare Conference. This is the first fireside chat we're hosting, and I'm pleased to host the management team from Becton, Dickinson.

With us, we have Tom Polen, Chairman, President and CEO and Adam Reiffe, Vice President of Investor Relations with us in the audience as well to format Q&A. [Operator Instructions] So let's jump right in. Tom, thanks for being here. Thanks for being a supporter of our conference call.

Great conference. Great to be here.

So Tom, let's just start with a big picture question or a couple. A couple of years ago, Alaris' return to market was a top priority for you. You've successfully accomplished that. Talk about your top priorities over the next 12 months as you create the new BD.

Sure. Thanks. And again, thank you for having me and thanks to everyone for kicking off the conference here. So you're right, Alaris was a key focus on getting that back to market. We're really pleased with how we not only executed the return, but how we've been executing commercially since then. We committed to upgrade the entire 2.2 million fleet of Alaris within the 3-year window. That was a commitment we made to the FDA when we returned to market. We're in the second full year now, wrapping that up, and we're very much on track to complete the upgrade within the 3-year commitment.

At the same time, right, we're back to gaining share in Alaris. As I think everyone knows, prior to the ship-hold, we had a very strong trajectory of taking share. I think on the Q3 call, we highlighted a number of recent IDN wins, and we continue new wins that we're posting here in Q4 and feel really good about the momentum in that platform. We continue to innovate on that platform. We actually have a next-gen in development that we'll talk about in the future, but we really like where we're heading there.

Of course, the last big thing that we were focused on that we made a commitment on in the spring was we said, come summer, we're going to announce the separation form for our Life Science business. And we're extremely pleased to have delivered on that commitment as well, having recently announced, of course, the separation the RMT, the first RMT in the history of the MedTech industry with Waters for that, a great organization, one of the fastest-growing life science companies, extremely complementary portfolio with both flow cytometry but also in the diagnostic space, I think a very meaningful value-creation opportunity for our shareholders as we look forward.

And so our first when it comes to our priorities over the next 12 months, certainly, number one is completing the execution of that transaction. So -- and we can get into that, but it's very much on track to be completed in the first part of calendar '26. We have our separation teams fully up and running with their integration teams on their side. We've begun filing with the SEC, that required documentation. So everything is hitting stride on the time line just as we have committed there.

Second major priority that we're focused on is executing our commercial strategy. And in Q3, we talked about incremental investments in our selling organization as well as behind new innovations in our pipeline. We can talk more about some of those. We've got a really exciting pipeline. Second focus is on optimizing the growth from those and through the commercial investments that we've been making, setting us up for FY '26 and beyond.

Third priority is continuing to execute our margin expansion strategy of BD Excellence. You've seen us deliver very strong margin expansion over the last couple of years, best-in-class in industry. And you're seeing that drive strong earnings growth from margin expansion -- gross margin expansion, right? This year is no exception, right? While there's dynamics in the macro environment that we see impacting revenue a bit, we're still delivering 9.5% EPS growth at the midpoint, including absorbing tariffs, right, strong, driven by margin expansion, driven by BD Excellence. So continuing to drive that, which is enabling those investments that I described as well as well as our fourth priority, which is continuing to execute our capital allocation strategy.

You heard us, we're going to have a really tremendous opportunity as we create the new BD with $4 billion of cash coming in.

You heard us, we're going to have a really tremendous opportunity as we create the new BD with $4 billion of cash coming in. Of course, our shareholders will own almost 40% of the new Waters organization. BD will also receive $4 billion of cash, which we've committed to allocate at least half of that to share buybacks. So we'll be executing upon that as we enter into FY '26. But beyond that, we've also recently communicated an updated capital allocation strategy, utilizing our very strong cash flow as well with a preference in share buybacks.

We recently completed the $1 billion share buyback for this year. We had indicated we were going to complete that in Q4 on the last earnings call. That has now been completed. That will bring up our total return to shareholders this year to about $2.2 billion of capital return to shareholders, about $1 billion through share buybacks, $1.2 billion through our dividend policy. So those are our focuses for the next 12 months.

That's helpful, Tom. So can you talk about the growth algorithm for the new BD? And you've talked about buybacks beyond the majority of the $4 billion cash you're going to receive being a big component of that. Why is that the right capital allocation strategy? When are you going to be in a position to talk about kind of what the EPS kind of targets are?

Yes. So just as we think about the new BD, today, the new BD, Q3, right, new BD grew about 4%. And we expect actually full year is going to be relatively similar to that for the new BD. Mid-single-digit growth profile, we're highly -- that's our outlook for the new company. And we can get into the key catalysts that we see there. We've got quite a few new innovations coming to the market. And new BD is going to be positioned in extremely attractive markets, whether or not it's biologic drug delivery, smart connected care, whether it's APM or our new AI solutions around medication management, a series of interventional spaces that we play in and are delivering very strong growth in like urinary incontinence and tissue reconstruction, et cetera. So we're really excited by the portfolio of the new BD, by our innovation pipeline of the new BD that supports that mid-single-digit growth profile.

You follow down the P&L with a very strong margin expansion that we see. And as we've shared before, BD Excellence is in early innings. BD Excellence didn't exist 2.5 years ago, right? It's actually pretty phenomenal, the momentum that we're getting from that across our very large-scale manufacturing facilities of just driving Kaizen and engaging our associates in continuous improvement. I mean we're seeing waste drop by half in our plants over the last couple of years. We're seeing quality and recalls down meaningfully. We're seeing service levels now at record levels, which allows our sales team to not have to deal with back orders, but to focus on gaining share.

And of course, we're seeing productivity improvements that are very meaningful, things like you're seeing our CapEx spending come down, but we're actually getting -- because of the productivity on the lines, we're producing 2.4 billion units more than we did just 2 years ago or we have the capacity to do that because of the productivity improvements on the line. So all of those things are driving margin improvement. And that flows down to strong EPS performance, high single digits, obviously, this year, very, very high single digits right on the cusp of double, and we'll see where we get in Q4, maybe we ground to that mark.

That's helpful. But the share buyback beyond the $4 billion, you're talking about using, I think, at least 50% of free cash flow going forward for share buyback, the majority. So that's -- why is that the right approach as opposed to spending more on tuck-in M&A to drive growth?

Two things. One is, first off, just at our share price today, we think we're meaningfully undervalued. And as we look at our internal plan, there's no better return than buying back our shares. We're highly confident in our plan. And again, it's a very good return for us from an investment perspective to buy back our shares and for our shareholders. So that's number one. As long as we're in and around anywhere near this space, we'll be buying back shares.

Second is we've done about 22 tuck-in acquisitions over the last 5 years. And as you look at one of the things that BD is extremely good at is serial innovation. Once we bring in a technology, we do extremely well at serially innovating it. And a number of the new exciting pipeline projects that we have that we're investing behind actually are coming from tuck-ins that we've already done. So if you think about in our surgery business, for example, we bought the Tepha business, a biomaterial. We started with hernia. We then proliferated and you've seen us launch just this year, umbilical hernia, kind of rounding out those options. Next year, we're launching the first GI application with that biomaterial. We announced that we're enrolling women already for a breast indication with that biomaterial. And we have 3 or 4 additional indications that we have underway there.

The same thing in APM. We bought APM just about a year ago this week. And we're now delivering new products into the pipeline, combining it with Alaris as an example. We're doing the same thing. We bought Surgiphor. We're iterating Surgiphor. Obviously, PureWick, we've got a tremendous number of new innovations in PureWick. We bought Straub Medical. We have new indications for below the knee that we're investing in behind there. And so we've built this very strong pipeline, and we want to continue to really get the value out of the tuck-ins that we've done.

We will continue to do tuck-ins, right? Our team remains very active in tuck-ins. I think the point is focused tuck-ins as we continue to execute on the exciting innovation pipeline that we have today, we'll continue to supplement that with tuck-ins. I consider that inorganic R&D. We'll continue to spend north of $1 billion on R&D, which is what we do today and maximize the value that we get out of that. Again, supplementing it with tuck-ins, but with a bias towards share buybacks.

Got it. That's helpful. One of the most common questions I get on the new BD is the margin profile post-separation. Chris, your CFO, has talked about it being similar and I think he's talked about it more on the operating margin side. So the questions I've gotten from investors are, A, how do you define similar? We're assuming within 100 basis points, maybe even within 50 basis points, and this is all in after stranded costs, TSA, MSA. And then gross margin is something you haven't commented on. Is that similar as well?

Also very similar, yes.

Okay. And so it's within kind of, call it, 50 or within 100 basis points is the right way to think about it?

I'll let Chris stick to the one concept, but it's very -- it's almost on top of it, yes.

Okay. Just a question that...

I would just say on the stranded costs, as Chris mentioned, we have TSAs that will obviously transition where we'll continue to provide those services for Waters at the beginning of the separation. Those will pay off. And we've actually already stood up teams and have them actively working. I spent a chunk of time yesterday on this of eliminating stranded costs. So we're going to be extremely proactive on eliminating stranded costs as part of our separation plans.

So that will be an opportunity over time because when you say the similar operating margin, that includes the stranded costs. So as you eliminate the stranded costs, obviously, it improves the margin profile.

Right. The faster you eliminate those, the better you get the ramp, yes.

Let me transition to kind of the current business. And a more short-term oriented question, which is kind of the acceleration implied in the Q4 guidance going from 3% organic to 5% organic. Talk about the drivers of that and your level of confidence, please?

Yes. So obviously, you saw us have a meaningful acceleration Q2 to Q3 as we shared, driven by pretty much strength across the portfolio, as we mentioned. You saw very strong growth in BD Interventional. We expect that strength in Interventional to continue. You saw double-digit growth in UCC. You saw strong mid-single-digit growth in the rest of the businesses, overall Interventional, very strong mid-single digit, almost high single-digit profile. We expect that to continue.

We expect continuation in our medical businesses. You saw mid-single-digit strong performance in MMS, driven by Alaris as well as Pharmacy Automation, dispensing, very strong order book coming in, in Q3. That's continuing in Q4. We expect that will continue, solid performance there. As well as Pharm Systems, you saw an acceleration as we expected in the back half of the year. We always mentioned that can be lumpy, but we certainly expect positive growth in Pharm Systems in the quarter.

I think the 2 big things as we look at what are accelerating, it really comes down to 2 items. APM becomes organic. And so you saw us post a very strong, I think, about a 13% growth in APM in Q3. APM is doing extremely well. We're really pleased with the integration and how that's gone.

We've been very purposeful in keeping them focused as an independent business, because their strategy is working. And we're just supercharging the strategy by putting more investment in selling. We're putting more investment in R&D than they had within Edwards for the whole reason why Edwards says recognized, right, this could get more focused attention and investment if it was part of a different company. And we're doing exactly that, which is part of our investment thesis, and it's working. And so that growth will become organic.

The second thing is essentially the run rate that we had for BACTEC, we assume that we would -- we need about 85% of the historical run rate of BACTEC before the ship-hold happened or before the supply shortage happened for Q4. We exited that at Q3, so we were already at that run rate. That needs to continue. It is continuing. We're seeing solid performance in BACTEC so far in the quarter, but that is also a lift because there's an easy comparison versus prior year when there was a supply issue.

Any way to quantify the benefit from APM becoming organic...

Those are over a point by themselves, right? The combination of those 2 is over a point.

Got it. That's helpful. And this year, you're seeing a 175 basis point headwind from 3 items: China, Pharm Systems, some of the issues within that business on anticoagulants, I think, and then Biosciences. Talk about how much -- what kind of recovery you expect in Q4 and beyond in those 3 areas, please?

Yes, absolutely. And those are 3 macro, right, secular issues that you see across the peer groups in all 3 of those sectors. So in Biosciences, obviously, we're in the process of separating that with Waters. And we -- the good positive thing is we saw about 200 basis points of sequential growth improvement in that business, Q2 to Q3, we expect to continue to see sequential improvements as we think about that going into '26 and beyond, but that will obviously transition into Waters, and they're going to do a phenomenal job. It's a great business. We have a very strong win rate. It's really around market recovery in the research spending sector. You actually saw us talk about that all of our clinical reagent. The reagent business actually grew mid-single digits last quarter. It's really that research sector and the timing of the recovery. And so that's -- again, that's going to do great in Waters' hands.

Pharm Systems, we indicated that -- and you saw that across the sector, right? You saw destocking happening, essentially every peer experienced that. And I think most peers said we expect to see recovery beginning in the back half of our fiscal '26. And we saw that. We posted nearly a 4.8% growth rate in Q3, which was a meaningful acceleration. Again, that business, if you look back over 10 years, it's never a linear business. And if you look back before the ship-hold or before the slowdown in that market, the destocking, that business was growing double digits for 3, 4 years in a row. And since we launched BD 2025, that business has grown $800 million. It's a phenomenal business. So -- but it always had some lumpiness to it. We expect that will continue, though, in a very positive direction as we head into '26. So we feel good about that.

And then China, VoBP. So you're seeing VoBP go through our -- the legacy Bard business today, primarily within the surgery and the Peripheral Intervention business and a bit in our PICC business, which came from Bard. We expect that will have completed by the end of '26. So we do expect China to decline high single digits this year. We expect it will continue to decline mid- to high single digits next year and then stabilize thereafter. By the end of next year, and we spend a lot of time going into granular detail on this, 90% of BD's portfolio -- new BD's portfolio will have gone through VBP by the end of next year. And so that's what gives us confidence in the stability.

And we have seen that when product categories go through VBP, we then see more stabilized growth because what is happening, like last quarter, we had negative growth in China. It was more low to mid-single-digit negative growth in China last quarter in Q3. Volumes grew double digits. So we're seeing strong share maintenance. We're seeing strong volume growth. It's that pricing from the bidding processes that are happening there through value-based procurement. But then once those prices come down, that volume then lifts sales. And we're seeing that again in the categories that have gone through that.

I think when you were talking about Pharm Systems and the growth, you might have said fiscal '26, I think you meant fiscal '25 in terms of...

Well, I just mean that we expect continued momentum into '26, the recovery of that space.

Got it. That's helpful. One follow-up question on Alaris. I guess one of your competitors has a voluntary pause on their new pump. I think you said you're in year 2 of remediation. Is Alaris still accretive to your growth? And how is this -- the competitor issues potentially benefiting you?

Yes. Look, we don't comment on specific competitors. And -- but we do recognize that we're here to support customers in need. I mean it's a serious issue that's being faced there. And obviously, Alaris has a very strong track record, extremely strong preference by clinicians and nurses, very strong iteration from an innovation perspective. We've now submitted twice to the FDA for new innovations, some of which have already launched now since we got the initial 510(k), and that's something we're going to continue to do as we look forward. So yes, we have a lot of active discussions with customers.

As we mentioned, we signed quite a few in Q3, some meaningful contracts. We're continuing to do that in Q4, and we're just going to focus on keep chopping wood, continue to execute as we do. And we're maybe in that same category, we're extremely excited by the new Pyxis launch and Pyxis Pro, which is the first new Pyxis platform, I think certainly ever since we bought CareFusion in 2014 and for a while since they had owned it.

And so this is the first AI-enabled Pyxis. It's a new system, holds 30% to 40% more drugs in the exact same space than our current version and the competition, which means nursing stock-outs happen a lot less, meaning that nurse can get the drug when they need it rather than hunting for it, big productivity improvement. But most transformational, it's AI-enabled. And we have a large language model that we partner with Amazon and a third party on called BD An ka taa, which we're unveiling and now have installed at a number of sites. And what this allows one to do is it starts with Pyxis data, but we're going to be plugging all the data from our APM instruments, all of the Alaris instruments, all of our software in the central pharmacy, like Pyxis Logistics and our compounding platform and utilizing all of that data to optimize the cost and safety and quality of the end-to-end medication management process. And we're seeing phenomenal feedback from customers because what the AI is allowing them to do is just gain data immediately. It's basically ChatGPT for medication management. So you can just say, An ka taa, please describe to me which words are stocking out of medications at what frequencies and how should I change my Pyxis refill. It will immediately pull up all the analysis, put charts out just like ChatGPT and tell you, please tell me which nurses in my hospital are most likely to be diverting narcotics. And it will tell you and then tell you exactly why, right? What recommendations would you have to reduce my inventory levels to improve my cash flow, which medications are overstocked. They'll tell you all of that information. You can just open query just like you would with ChatGPT on all data from BD instruments in the future. So we're seeing a lot of excitement from customers, and that just shows the power our discussions with customers as they see that, they recognize that how do I put more and more platforms into that AI system because the more BD platforms you have, the more powerful it becomes. So we're really excited about that. Again, it's launching on Pyxis, but we'll be adding all of our platforms in the future.

Is there any way to frame the financial opportunity for BD for Pyxis Pro, any broad strokes you can share?

Yes. So first off, Pyxis overall, it also has had -- it has lumpiness in that market. And I think you see us and really one main competitor in that space, we're going into a large open contract period. So there's a cycle coming up actually in '26, '27, '28, where there's a larger-than-normal amount of both our competitive business that comes up available. And so it's not by accident that we're launching a really breakthrough new platform in that exact phase. So we think there's opportunities from a share perspective. There's a value capture on upcharging for software, which is part of our model as well as well as for the new instrument. And so those are kind of the 3 main categories that we see.

And then on the third one is obviously the power of An ka taa and pulling through more and more BD products, right? Because again, the more value that you have, An ka taa becomes more and more powerful. If you use our software that's managing inventory in the central pharmacy, it knows what's there. If you're using our software that's compounding medications, it has the data from that. If you're using Alaris, it knows what's being infused into the patient. If you have the data from our APM systems, you know how the patient is responding to the medications that's being infused into them, obviously, and you know what's available to the nurses and what's happening to how nurses are engaging with those medications with our Pyxis. And suddenly, you have an end-to-end view from the inventory through how actually patients are responding to those medications at the end of the day. There's no one else on the planet that has that data set, which is extremely unique. And so again, applying AI now to that, we're really excited by and that, I think, provides us opportunities more of a portfolio play from a share perspective.

So historically, your share has been relatively split with Omnicell, 50-50, call it?

A little higher than that, yes, but 60-40 maybe.

60-40. How does this -- how do you think this impacts your win rate going forward?

We won't call out an exact destination point for that, but we feel good about our share momentum today. And we think, certainly, with the excitement that we're seeing with Pyxis Pro and what that provides, the early feedback from our limited commercial release is extremely positive there. So we're going to be on the offense. And I mentioned our number two priority after getting the Water separation complete was commercial execution, and that will certainly be a focus of it.

And you're in limited launch now, not full launch?

Correct. Full launch is in Q1 '26.

Q1 fiscal '26?

Yes, in a couple, 2 months.

Got it. So Tom, let's transition to fiscal '26 and beyond. The guidance there this year for fiscal '25 is 3% to 3.5% organic. You're going to be exiting it at 5% organic. We talked about that earlier. You have talked about on the Q3 call being prudent with the fiscal 2026 guidance. So is 3% to 3.5% or something slightly better or a good starting point for fiscal '26?

Yes. I think, as you said, you're seeing us deliver increasing sequential growth Q2 to Q3, Q3 to Q4. And obviously, we're very focused on -- we're excited by the new BD and obviously creating the new Waters as well in partnership with them. I think as it comes to '26, we're going to be very prudent on our guide as it comes to that, right? We certainly recognize that it's a dynamic macro environment. And we had a strong track record of -- we had 14 quarters sequentially of delivering on our -- beating our revenue commitments, right, 3 years prior to when those 3 factors of China and the pharma market slowdown and the life science research spending slowdown happened that got us off of that trajectory. We don't like that. We own that. And so we're going to take a prudent approach. We are where we're at today this year from those dynamics. We're going to take a prudent approach as we look at giving our guide next year so that we account for just the macro environment in which we operate while we're executing our strategy.

Maybe just a follow-up to that. I mean, can we rule out a deceleration that it should be at least...

No, you're seeing continued sequential momentum. So we're not -- correct, we're not expecting.

Okay. Got it. How do you thread the needle saying, hey, we're a mid-single-digit grower versus the guide -- the prudent -- guidance being prudent? How do you strike the right balance?

I think we'll make it clear that from mid-single digits is where we're very confident that we'll be over the long term. Obviously, this year, we're just below that. We're going to put out a guide, as I mentioned, that is -- and look, we're valued where we're at right now. We want to make sure that we set up for success next year. We'll make it very clear. We've made very clear where our ambition is. And where we end is one thing, where we start is another thing to give us that space in the room. So well, stay tune for the November call, but I think the key takeaway is we want to be prudent in how we give our guide. That doesn't mean that's our ambition on where we end, but we're going to be very prudent in where we start.

That's helpful. Price was something that was a tailwind for you a few years ago. Now it's, call it, flattish. You disclosed that in your SEC filings. Why is it less than it was a couple of years ago? And how do you see price contributing to growth going forward?

Yes. So we're really pleased with the work that we've done on pricing, particularly since the COVID pandemic, right? We took the opportunity, as you saw the major supply chain interruptions during COVID and the spike in inflation immediately post-COVID to build additional pricing capabilities in each of the businesses and centrally. And you saw us actually do what was best-in-class within the MedTech industry at recovering margin from inflation during that period. You saw us at 3%, 4% price in some years early on.

Obviously, we're now past that immediate shock period of that, but we're continuing to execute price in a very systematic way. And what it's been allowing us to do this year and will continue to allow us to do next year is while it's not now a tailwind, what it's allowing us to do is with China VoBP having been an increased element. Again, we've got China volumes growing double digits. You've got China declining high single digits. Put in perspective, if you do the math, that's all price. So if you -- and we've shared this publicly before, that's about $240 million of negative price from China in '25 and '24. And you're seeing us meaningfully expand gross margins in light of that. There's not many companies that can absorb $240 million of negative price from China while meaningfully expanding their gross margin.

And one of the reasons that we're able to do that is that because we're fully offsetting that China price with price from the rest of world, right? And so the pricing discipline and capabilities that we have in the rest of world are allowing us to fully offset the China price during this higher intensity period of VBP. As that wanes at the end of '26 heading into '27, we'll be continuing that price discipline that we have, and we would expect that will return to a tailwind at that point.

That's helpful. On the Q3 call, Chris, your CFO, gave some helpful commentary on EPS in fiscal '26. I mean I think the message was basically the Street -- take where the Street is at today, which was $14.66, add kind of the incremental tariff benefit that we're seeing, call it, $85 million. I think you used that number, which is about $0.25, gets you to about $14.90. I guess, did we interpret his comments correctly is the question.

So I think -- I don't follow all the math exactly on that one. But I think what the key point was from where consensus was, he essentially raised it up by about 2 percentage points on tariffs, right? And that was the takeaway that you just shared. All that math ended up being where consensus was at the time. Basically said we're going to be better than where consensus was and it was about 200 basis points better than where consensus was. So we're really pleased to have done that on a forward look for FY '26.

That's obviously a result of 2 things. One is policy improved on China. One of our biggest areas, the biggest area for us from a tariff perspective were the tariffs that China had instituted on U.S. imports. We're a very large net exporter from the U.S. We are the largest manufacturer of medical devices in the world, but also in the U.S. And so that had an impact on us that obviously, those rates went down. So that was an improvement. But we've also been extremely active with our teams internally mitigating tariffs. And so the combination of our own internal work on tariff mitigation as well as that change in tariff policy, right, allowed us to improve our outlook on tariffs for '26. and thus improve one to signal to make sure that people updated their models in a positive way.

Hopefully, I got the math right. I checked with Adam before. I think I'm okay.

Appreciate it. Appreciate it.

And I think this is a bit in the weeds, but I think that excludes currency, which is right now a tailwind.

Yes, I think it did.

So that could be upside. Okay. And you talked about, Tom, the environment and some of those issues and macro issues that impacted you, China, et cetera. Investors are looking at some of the Medicaid cuts and some of the exchange subsidies going away and the impact that could have on the number of patients insured and capital equipment spending by hospitals, how are you thinking about the macro environment going forward?

Yes. It's a great question. I spent a lot of time with customers, particularly over the last couple of weeks and with this topic, we bring up every time. We also have added -- one of the things I did since I've been CEO has added one of the -- actually the largest U.S. public health care provider in the country, the University of California Health System, the recent CEO to our Board of Directors, and we have a lot of discussions on that topic as well since California is a key area for us, think about Medicaid reimbursement, et cetera.

So I think one of the things that we see are focus -- people really focus on getting larger. I think a lot of our customers say we know this is coming. How do we navigate it? One is having scale, we think, is going to be a continued benefit for us. Having technologies that make us more productive from a labor utilization because the reality is the number one cost that they can control is productivity, whether or not it's G&A back office or upfront labor, you're going to have to become more productive. And we're getting more and more discussions around our tools around productivity.

As you know, we actually have one of the largest robotics businesses in MedTech at about $800 million robotics business, but it's very different than anyone else. Ours pretty much exclusively focuses on productivity improvements. It's not clinical outcomes, it's productivity, right? Doing things that pharmacists would do, but robots. Obviously, our microbiology automation is another example of that. Our connected medication management is another example of that. It doesn't use robots, but uses AI to again manage productivity across the process.

And so I'd say we're seeing heightened interest in those solutions as they are really beginning to consider how do I get after my cost base to manage what potentially could be a tighter funding environment. So I think that's a positive for us. The other thing is, obviously, as they look at consolidating purchases and again, looking at who can they partner with to navigate that, we see incremental opportunity in that.

And one of the investments, I think we shared last quarter that we've been making additional investments in our commercial organization as we made additional investments in our mid-market key account team. So we always have a single point of contact for the largest IDNs in the country. We've recently added a mid-market team for the next tier of IDNs. So as they're navigating this type of environment, the opportunity to form very specific partnerships with us across our portfolio to help them as they do more business with us to help them navigate, we see that as an opportunity for a company like us.

That's helpful. Tom, a minute left, I want to give you a chance to make some closing remarks, what you're excited about, how you're thinking about shareholder return with the new BD.

Sure. I've got 45 seconds to do that. So we're really excited by the new BD. I shared that earlier on. As you think about a strong mid-single-digit growth profile with position in extremely exciting markets. We address about a $70 billion served market, the new BD, markets like biologic, GLP, drug delivery, automation and AI, use of robotics and MedTech to streamline processes and drive efficiencies across core things like medication management and pharmacy and patient -- advanced patient monitoring. Obviously, in attractive end markets such as interventional with areas like urinary incontinence that you see doing extremely well, tissue reconstruction, et cetera, with a very unique gross margin expansion driven by our BD Excellence program with significant momentum and still meaningful runway ahead, dropping down to strong earnings performance with a very specific capital allocation strategy that we think is highly focused on creating shareholder value as we look ahead that we articulated before. So again, we're very focused on executing the 4 priorities that we started off the discussion with and appreciate the time.

Thank you, Tom. Thanks for being here, everyone. Good luck with the new BD.

Thank you.

Hello, and welcome to BD's Third Fiscal Quarter 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) 839-1246 for domestic calls and area code +1 402 220-0464 for international calls. [Operator Instructions].

I will now turn the call over to Greg Rodetis, Senior Vice President, Treasurer and Head of Investor Relations.

Good morning, and welcome to BD's earnings call. I'm Greg Rodetis, Senior Vice President, Treasurer and Head 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 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.

Following this morning's prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Mike Garrison, President of the Medical segment; Mike Feld, President of the Life Sciences segment; Rick Byrd, President of the Interventional segment; and Bilal Muhsin, President of our Future Connected Care segment.

Before we get started, I want to remind you that we'll 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. Reconciliations between GAAP and non-GAAP measures are included in the appendices of this earnings release and presentation.

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

Thank you, Greg, and good morning, everyone. As you saw in our press release, in Q3, we sequentially improved growth across the company. We accelerated commercial initiatives and increased our organic growth trajectory through market headwinds. We continued our strong track record of executing BD Excellence to drive gross margin upside. Additionally, we fulfilled our commitment to announce a definitive agreement to separate our Biosciences and Diagnostics business through a transaction that we believe will unlock meaningful value for our shareholders.

Turning to details of the quarter. Revenue grew 8.5% to $5.5 billion or 3% organic. New BD organic growth was 4%. Our BD Excellence lean operating system remains a flywheel for value creation, delivering Q3 adjusted gross margin of 54.8%, up 50 basis points year-over-year. Adjusted operating margin of 25.8%, up 60 basis points year-over-year and supported delivering $3.68 in adjusted diluted EPS, each exceeded our expectations.

As we communicated last quarter, we've been taking actions to accelerate revenue growth. This includes further investing in growth opportunities by adding selling and marketing resources, capitalizing on new product launches and continuing to drive BD Excellence to optimize product supply. The combination of these actions has already begun delivering results, as you saw play out in a number of key areas. Pharm Systems improved sequentially to nearly 5% growth as we delivered another quarter of double-digit growth in biologics. BDI accelerated to nearly 7% growth in the quarter, with double-digit growth in UCC and mid-single-digit growth in PI and Surgery.

APM delivered double-digit pro forma growth ahead of our deal model. As expected, growth in both BDB and DS increased sequentially by approximately 250 basis points. This performance allowed us to deliver sequentially improved growth across the company through continued market headwinds in China, certain subsegments of Pharm Systems such as vaccines and the life science research market. Building off our Q3 performance, we reaffirmed our organic revenue guide range for the year and raised our earnings guidance $0.18 at the midpoint. Turning to an update on several strategic initiatives.

As committed last month, we announced that we entered into an agreement to combine our Biosciences and Diagnostic Solutions business with Waters through a tax-efficient Reverse Morris Trust. We strongly believe that Waters is the right partner and firmly believe in management's strategy and ability to unlock the value of these assets. The transaction is progressing well towards an expected closing around the end of the first quarter of calendar year 2026. We're pleased to have named Brooke Story to lead BD's integration and separation management office. Brooke has most recently led the integration of Edwards Critical Care, which she will continue to oversee as part of her expanded scope. Her rich experience, including her tenure as President of the Diagnostics business, makes her the ideal choice for this role.

Upon closing, New BD will be established as a scaled pure-play medical technology company with uniquely leading positions and a best-in-class consumable revenue profile of over 90%, a deep innovation pipeline and strong margin expansion fueled by BD Excellence. The company's strong growth and earnings profile will be supported by enhanced capital allocation with an emphasis on share buybacks as we continue to pay competitive dividends and execute focused tuck-in M&A.

As previously communicated and aligned with our emphasis on share buybacks, we intend to use at least half of the approximately $4 billion cash distribution from Waters to buy back shares, with the balance for debt repayment as we continue to progress toward our 2.5x long-term net leverage target. Moving to an update on our innovation pipeline. We had some great launches and milestones this quarter as investment decisions we made at the start of BD 2025 are now advancing to market. In BD Life Sciences, BDB's innovation super cycle continued in Q3. We saw strong traction with the successful launch of FACSDiscover A8, which features breakthrough spectral and real-time cell imaging technologies and has exceeded our sales targets since launch. We're also launching our first Made in China for China clinical analyzer this quarter. BDB's R&D pipeline includes over 25 new product launches across instruments, reagents and informatics as well as continued expansion in the high-growth Single-cell Multiomics segment.

In DS, as blood culture momentum continues, we are excited about the next-generation BACTEC launch in fiscal 2026, which is expected to drive renewal of legacy systems and accelerate share gains. In molecular, innovation remains focused on leveraging the increased BD MAX installed base with continued growth of IVD revenue per system.

Most customers today use just under 3 assays, while top users adopt 5 or more of our 14-assay menu. Our commercial team is focused on driving further menu adoption, supported by the upcoming launch of several new assays in 2026. Also in molecular, our BD COR platform is addressing a new $1 billion market for HPV testing. And last week, we submitted to FDA the first ever at-home self-collection kit for HPV screening using a simple dry swab. We expect approval in mid-FY '26. Today, in the U.S., approximately 30% of women have not been screened as recommended, and this population represents over 60% of cervical cancer deaths. We believe at-home self-collection can significantly improve access to screening and play an important role in reversing still rising deaths from cervical cancer.

Moving to BD Medical. We recently announced that our BD Libertas Wearable Injector has entered into its first pharma-sponsored clinical trial. This device is being used for self-injection of complex biologic drugs by patients at home rather than going to an infusion clinic. We also announced another BD-sponsored studies that 100% of study participants would likely use the Libertas device if prescribed.

Separately, we continue to expand signed agreements for GLP-1s, now reaching over 70 signed agreements for GLP-1 biosimilars. Biologics now represent 50% of total Pharm System sales, and we are exceptionally well positioned to capitalize on the wave of new molecules coming to market over the next decade. Moving to our portfolio of connected care solutions. Within MMS, we began limited commercial release of our new BD Pyxis Pro, completing installs at several customer sites with our BD Incada enterprise AI software to follow this quarter. Pyxis Pro is our first redesigned hardware platform and includes multiple new features designed to improve nurse workflow, enhance drug availability for patients and transform productivity using artificial intelligence. Pyxis Pro is our first product line to feed data into our new Incada AI platform and will be followed by Alaris, HemoSphere Alta Monitor and other devices, creating future data sets, which will be unique in our industry.

While still very early in our introduction, we are looking forward to this innovative journey over the next coming years. Following the APM acquisition, we immediately began investing in capabilities to develop increased connectivity and interaction between our Alaris infusion system and our HemoSphere Alta to high hemodynamic monitoring system, recognizing that critical care nurses can spend 50% of their time manually adjusting infusions today.

We're advancing through early milestones in our innovation process with prototypes now working in lab models. We have a strong cadence of new solutions under development across connected care that BD is uniquely positioned to deliver. And I'm pleased to have Bilal Muhsin, EVP and President of our Future Connected Care segment with us on the call today. Bilal joined BD in July from Masimo and is known for his deep knowledge of the sector, a strong track record of transformative innovation and his commercial focus on driving growth. This is an exciting next step in our journey to becoming the New BD, and I look forward to Bilal's partnership. In MDS, we recently received FDA clearance for CentroVena One, our rapid insertion central catheter, and we're on track to launch this quarter. This is BD's first entry into the $500 million central line market, and CentroVena is designed to transform the efficiency and safety of insertion and reduce the risk of serious complications.

In our BD Interventional segment and advanced tissue regeneration platform, we continue to expand indications for Phasix with the EU launch of the world's first reservable scaffold with broad indications to prophylactically prevent incisional hernias. With more than 2.5 million laparotomies performed annually across the U.S. and Europe, incisional hernias affect an estimated 30% of patients and up to 50% among high-risk populations. These preventable hernias often lead to a cycle of complications such as recurrence, surgical site infections and reoperations. The U.S. clinical trial is ongoing with full patient enrollment anticipated in FY '26.

Lastly, our BD Excellence operating system continues to be a key enabler of our strong margin execution and is expanding our competitive advantage in manufacturing, streamlining internal processes and optimizing our supply chains in today's tariff environment. In Q3, customer service levels measured as on-time in full deliveries, or OTIF, reached their highest level in over 5 years and continued positive momentum into Q4. Over the last 2 years, BD Excellence has been used to reduce manufacturing waste by more than 35% and OEE or efficiency of equipment is up significantly, creating capacity to produce an additional 2.5 billion units on the same production lines. We continue to be in the early innings of BD Excellence and see a long runway ahead across operations, commercial, R&D and process excellence.

This also applies to our Life Science businesses, which are being separated, where BD Excellence has accelerating momentum and margin expansion initiatives are progressing well. We'll be transitioning these capabilities to Waters to continue this progress.

In closing, we achieved our objectives in Q3 and are fully engaged in executing our commercial initiatives to ensure we accelerate organic revenue growth through market dynamics. Simultaneously, we are focused on closing the transaction with Waters that will position BD for its next chapter of long-term success.

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

Thanks, Tom. Starting with our Q3 revenue performance. Revenues of $5.5 billion grew 8.5% or 3% organic. New BD organic growth was 4%. Regionally, total company organic growth was led by performance in the U.S. and Greater Asia outside of China, partially offset by China. In BD Medical, as we expected, Pharm Systems showed sequential improvement with 4.8% growth as we anniversaried the impact of customer inventory destocking and delivered another quarter of double-digit growth in biologics, driven by increased orders for GLP-1s.

We continue to monitor market dynamics as volatility in subcategories such as generic anticoagulants and vaccines remain. MMS delivered solid mid-single-digit growth as we continue to secure competitive wins at several large health systems in the quarter across both infusion and dispensing and are tracking ahead of our goals for upgrading and securing our Alaris installed base. MDS grew low single digits as volume growth in vascular access management and hypodermics in the U.S. was offset by ongoing change in clinical practice following the fluid shortage and volume-based procurement pressure in China as expected. APM delivered 13% pro forma growth in the quarter. This was driven by strong commercial execution, incremental selling investment made as part of our acquisition thesis and new product innovation, including the recent launch of the HemoSphere Alta Monitor.

Our Interventional segment delivered nearly 7% growth in the quarter with 12% growth in UCC, supported by the recent launches of PureWick Flex at Home and PureWick Male, which continued to outpace the new product ramp of PureWick Female. Surgery delivered mid-single-digit growth, driven by double-digit growth in our advanced tissue regeneration platform from incremental investments in our Phasix sales force, our recent Phasix umbilical launch and continued adoption of GalaFLEX for plastic and reconstructive surgery. Peripheral Intervention also grew mid-single digits. Our focus on commercial execution in new accounts and the creation of a dedicated women's health sales team all contributed to improved sequential performance in the business.

Lastly, in BD Life Sciences, as expected, Biosciences and Diagnostic Solutions decreased low single digits with each demonstrating significant sequential positive momentum of approximately 250 basis points in the quarter. We expect continued positive momentum into Q4. In BDB, reagents and service, which represented about 75% of BDB revenues in Q3 grew at healthy mid-single digits, excluding the impact from the planned exit of a legacy platform. This was offset by a year-over-year decrease in instrument sales, driven by continued market dynamics in China and Europe. Sequentially, research instruments improved in the U.S. and EMEA by approximately 40% and 80%, respectively, driven by the launch of the FACSDiscover A8 with sales well ahead of our initial plans and strong demand heading into Q4.

While research funding in Europe continued to be constrained within our prior expectations, the U.S. is showing early signs of stabilization in the academic and biopharma end markets. While year-over-year performance in Diagnostic Solutions reflects the decrease in our point-of-care business and in BACTEC due to the previous supply disruption, we are very encouraged by the sequential improvements that played out and expect the business to return to growth next quarter. In Q3, BACTEC utilization increased over 20 percentage points sequentially, exiting the quarter at over 80% of historic levels, and already in line with our Q4 planning assumptions.

BD MAX IVD continue to grow double digits amid favorable reimbursement dynamics playing out in the molecular diagnostics space that are a growth tailwind for this platform. As these positive trends continue to take hold and temporary growth headwinds continue to fade, the Biosciences and Diagnostic Solutions business is on a sound trajectory back to its historic mid-single-digit plus growth rate. Rounding out the Life Sciences segment, year-over-year growth in specimen management was led by the BD Vacutainer portfolio, partially offset by China market dynamics.

Turning to the P&L. We continued strong execution down the P&L and as a result, exceeded both our adjusted margin and earnings targets with Q3 adjusted operating income growing double digits and adjusted diluted EPS growing 5.1% to $3.68. We delivered strong adjusted gross margin of 54.8% and adjusted operating margin of 25.8%, which increased by 50 and 60 basis points year-over-year, respectively. Gross margin expansion continued to be primarily fueled by momentum in BD Excellence, driven by manufacturing productivity, waste improvement and network optimization. Further leverage in operating margin was driven by active management of shipping and G&A costs while investing in selling and marketing to drive growth.

Regarding cash and capital allocation, year-to-date free cash flows were approximately $1.7 billion, which increased sequentially by $1 billion. BD Excellence continued to drive productivity gains, allowing us to leverage capital expenditures. We also realized sequential cash benefits from improved collections and the timing of payables. This was partially offset by increased inventory levels and cash payments related to tariffs.

We ended the quarter with net leverage of 2.8x and continue to make progress towards our 2.5x net leverage target. We also see share repurchases as a value-creating opportunity given our view of the intrinsic value of BD. We expect to complete our $1 billion buyback by the end of September, which is ahead of our original commitment.

Moving to our updated fiscal '25 guidance. Building off our Q3 performance, we reaffirmed our currency-neutral revenue guidance, including total revenue growth of 7.8% to 8.3% and organic revenue growth of 3% to 3.5%. While uncertainty from market headwinds continue to persist, we expect year-over-year organic growth to improve sequentially in Q4. This improvement is largely driven by the expected contribution from APM's organic growth and continued momentum in BACTEC as well as a favorable comparison to the prior year in DS. Regarding foreign currency, based on current spot rates for illustrative purposes, we now expect translational FX to be immaterial or approximately a $10 million increase year-over-year to revenue. We raised our adjusted EPS guidance by $0.18 at the midpoint to a range of $14.30 to $14.45.

This reflects growth of about 9.4% at the midpoint, which is an increase of approximately 1.4% compared to our prior guidance and reflects strong Q3 performance and incremental Q4 investments in selling and marketing to accelerate our organic growth trajectory. Based on current spot rates, we expect the FX impact to EPS to be about neutral for the full year. Our EPS guidance continues to include an estimated tariff impact of about $90 million or 2% to EPS growth for the full year, which, as a reminder, is predominantly weighted to Q4. For the full fiscal year, given the strength of our continued gross margin expansion, including additional investments in selling and the impact from tariffs, we remain on track to deliver our goal of 25% operating margin by 2025.

As you think about the full year impact of tariffs in fiscal 2026, the landscape remains fluid, but based on policies in place today, we currently anticipate a full year 2026 tariff impact of around $275 million. This is a notable improvement compared to initial expectations and reflects the results of our team's ongoing active mitigation efforts and tariff rates that moderated on a net basis since our last update.

In closing, we remain focused on navigating the current environment to deliver on our revenue and increased earnings commitments while positioning BD with continued momentum beyond 2025.

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

[Operator Instructions]. And our first question will come from Patrick Wood with Morgan Stanley.

I'd love on the RemainCo side, the plus 4% growth. If we think about flowing into Q4 and then to your point, APM drops into being organic, and we're seeing that biologics pipe flowing through into PS and urology is strong. I know we're not talking about '26 yet in the kind of midterm, but is it the right framework? Is there any reason we would be wrong to think that RemainCo should be stable in that kind of mid-single-digit plus kind of a range as just a conceptual framework? Is there anything that would be wrong with that thought process when we're looking a little bit more midterm?

Yes. Thank you for the question, Patrick. We are pleased with the performance, as you mentioned, across a number of areas, whether or not in the BD Interventional business, continued strength of UCC, which was underlying about 10% last quarter, continued that this quarter, strong performance across MMS. And as you mentioned, good to see as we expected, the recovery in Pharm Systems driven by double-digit biologic growth. And as you shared, we also continue to secure more and more contracts for biosimilars in that category in GLP-1s, which has been a key strategic focus of ours. You saw that continue to play out, as you mentioned, in areas across -- also the sequential improvements in the Life Science business, particularly 250 basis points in BDB and DS. As you said, 4% growth for the New BD, which is also about where we expect to be for the full year.

And so those trends that you're seeing across BD Interventional, across the Connected Care medical segment. We expect those largely to continue. There's nothing different that we would expect fundamentally from those. I think as we -- as you also mentioned, we saw very strong growth in APM ahead of our deal model, 12% growth -- sorry, 13% growth for the quarter. And that's really driven by strong execution from that team, some great innovations hitting the market. And then as part of our deal thesis to start with, and we had shared this at the time of the announcement, we were going to make incremental investments in selling in certain areas of innovation, and the team has been executing those really well on those sales investments in APM, and you're starting to see that come through.

You also saw us announce that we're making some outsized continued investments more broadly in the company behind areas of opportunity in Q4, specifically in our selling organization, think about areas like UCC, other areas in Interventional and in the Medical segment, Connected Care on some big new product launches like the Pyxis Pro that we're doubling down and investing behind as we go into Q4 to help set us up for FY '26 and beyond. So thank you, Patrick, for the question.

Our next question will come from Rick Wise with Stifel.

Thinking about one question, I guess I'm going to focus on the -- just something nearer term. And maybe, Chris, you can talk a little bit about your implied operating margin guide for the fiscal fourth quarter. My initial back of the envelope calculation suggests that just as I do the math, that implies sort of a step down in operating margins relative -- flat or down, I should say, relative to the prior quarter. Just help us think through the headwinds or the mix issues that might relate to that? Is it China? Is it conservatism? Is this tariffs? Just help us think through the sequential margin dynamics given your excellent performance and outperformance this quarter.

Yes, Rick, thanks. Look, we've been really strong this year in terms of quality P&L. You see the benefit of BD Excellence playing out in our margin profile consistently quarter-over-quarter. I'd suggest we've been best-in-class in terms of margin, EPS flow-through. If you look at our full year guide now, 9.4% at the midpoint, a significant raise in the quarter. And that's while absorbing 2 points for the full year of growth from total tariffs. So as you think of what to expect in Q4 as you squeeze the balance of the year, first of all, on gross margin, it's going to be about flat year-over-year. And by the way, just as a reminder, right? We have $90 million of tariffs that are all flowing through in Q4, right? So that's nearly 150 basis points.

So that shows the power of BD Excellence and what we're getting in terms of net productivity, offsetting inflation that's fully absorbing in gross margin, the tariffs. The operating margin is as planned. There'll be a slight sequential step down quarter-to-quarter, and it's largely driven by just the timing of our investments. And as you saw in our updated guidance, we're actually fueling the business with more investment to continue to fuel those areas of momentum that Tom mentioned. So all in all, I think when you look at the print, it's extremely strong EPS. It really demonstrates the power of BD to compound earnings at a compelling growth rate despite macro factors. So we're very pleased with that.

Chris, congrats again on the excellent performance this quarter.

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

Chris, 2 for you. I'm going to try to ask them both together. First, usually on the Q3 call, you give some helpful commentary on the following year, particularly on the P&L. So is there anything you can share with us today on whether you can increase the margins year-over-year in fiscal '26 given the tariff impact? Color on FX today or high-level thoughts on EPS growth? And second, what can you say about the post-separation margin outlook? You've talked about it, the operating margin post separation being similar to the current BDX operating margin.

Does that include TSAs and MSAs? And any color you can share with us today on below-the-line items like tax rate? Obviously, you know we're all trying to build RemainCo P&Ls here.

Yes. Thanks, Larry. Appreciate it. Maybe with the separation first, something that we shared. There's always a couple of ways to look at this. The key questions tend to be, do you have dislocation in margin. We shared last time publicly that there will actually be very difference in terms of operating margin pre-separation and post separation. So that's within a reasonable range, plus or minus. So you should see a healthy margin come out, plus you're going to continue to get the benefit of BD Excellence carrying through.

So you'll continue to have those same dynamics. So that's very positive. There's always stranded costs when you have these things. There will be a TSA that largely offsets that. So those 2 factors, coupled with the fact that with the $4 billion cash we get and at least half of that going towards share buybacks, creates another lever that will create some EPS accretion tied to that. So we actually think when you kind of separate the pieces of BD and think of the earnings that goes with the separation that you're getting meaningful value for and then the earnings that's left and then the TSA on top of that and then the EPS accretion from the share buybacks positions us well to not have any leakage as you think of the sum of the parts there. And so it sets up nicely for New BD.

Tom talked about the New BD growth rate, right? And so that's where we stand with the separation. We'll obviously provide more details as we give our November guide and help everyone try and bifurcate those pieces in more detail. It's still a bit early.

As you think of '26, look, it's early given various macro factors, et cetera, to give full color. But a couple of things. One thing we shared on the call was our tariff outlook for '26. We know expectations out there were set last quarter. We said that it would be about $275 million in '26, which is a meaningful improvement from where you are. So as you think of where EPS may be sitting today based on prior expectations, that should be positive. I think the other thing I would say is, as you see us doing now, right? BD Excellence, we're in early innings there. That becomes a strong underlying favorable margin dynamic that will play out in our P&L.

Obviously, you do need to contemplate the incremental impact from tariffs, the $275 million, less than $90 million that we already have in our base. But it's a better outlook. Folks should see that as a better outlook versus where we were last quarter, rough math, I think, where most people were assuming that's about an $85 million benefit from where folks were sitting. So I think those 2 things are favorable things you should think about as we head into '26.

Our next question will come from Travis Steed with Bank of America.

I guess just a bigger picture question on kind of the growth outlook for the RemainCo business, kind of the New BD, if you will. Like what do you -- how do you kind of see this business growing kind of versus the 5.5% plus longer term? And then -- and also, how should we think about kind of capital deployment, the new strategy on capital deployment kind of post separation?

Yes. Thanks, Travis. I can start off with that. And obviously, I made some earlier comments, I think to Rick's question earlier, similarly related. Maybe I can -- we're obviously very focused on executing in '25 and chopping wood through the balance of the year, but I could give a little bit of -- and it's too early to talk details about '26, but maybe just give a little bit of thoughts to share related to that.

So we're obviously encouraged by the recent sales performance across the portfolio as we execute our commercial initiatives. The series of new innovations that you see that we talked about on the call, particularly most of those we actually started investing in at the start of BD 2025 as part of the portfolio strategy we talked about them. Obviously, it takes a couple of years for those to come through. They're starting to hit the market. We're excited about those launches. And you're seeing us take incremental some of the flywheel benefits of the efficiencies we're getting from BD Excellence. We're reinvesting a portion of those behind those launches, behind our selling organization to keep driving that growth. And we're going to continue to lean into those investments as we go into Q4 to build on that momentum.

Obviously, as we think going forward, too, we're going to continue to look at what is a dynamic macro environment. As we go into next year, we're going to be prudent about that. We're going to monitor. We're going to study how certain market dynamics play out, continuing to focus on China, certain subsegments of Pharma Delivery, specifically vaccines.

And obviously, life science research market, will obviously give a Holdco guide as it comes to '26, and we'll incorporate all of those in. As we've talked about as well, we see BD Excellence still in early innings. And we expect to continue to benefit from that momentum and its impact on our margins. We still see more runway ahead there. And we're going to continue chopping wood on tariffs, too, right? We're pleased with the progress that we announced here this morning, but we're not done. We have teams still working on that, dedicated teams across each of the businesses, a sign to keep whittling that down. And there's very specific actions that we're taking on that. We've got -- obviously, we've talked about changing sourcing flows, things like Vacutainer and flush sourcing those for China out of markets other than the U.S. We've talked about changing components and kits to get more U.S.-made components in certain kits to allow them to comply with USMCA and tariff exemptions.

And of course, we're working with suppliers to optimize our sourcing locations as well, too, as part of that matrix. And that's something that we've got a steering team on top of all over as we continue to look to offset that further. So hopefully, that gives a little bit of color of how we're thinking about things. And as we look ahead, we obviously look forward to giving more updates as we move in through Q4.

Great. And Chris, on the Q4 EPS, I think there's some investments there. Anything else kind of driving the change in the Q4 EPS?

No, it's just -- I mean, largely, it's the investment profile really, Travis. There's nothing else there. Again, I mean, it was a strong quarter, a significant raise. I mean we took the midpoint up above our prior top end of the guide, 9.5% EPS growth at the midpoint with 0% FX benefit for the year, super strong. Margins remain intact. The only dynamic you have flowing through Q4 that's nuanced is really the tariff impact flowing through there, which is not new news. That stays intact. And then we want to continue to invest behind the business. Again, I think it's its best-in-class management of margin, EPS leverage and flow-through and I feel really good about that.

Our next question will come from Robbie Marcus with JPMorgan.

Maybe on urology, it was a great print double-digit percent growth. Maybe just speak to the trends there. Was there anything onetime in the quarter? And how you're feeling about that and the Interventional business moving into next year?

Yes, Robbie, this is Tom. Thanks for the question. Now urology is continuing. There's nothing onetime there at all. It's a continuation of the trends. As we had said last quarter, of course, urology had a comp on a onetime settlement they had in Q2. But underlying that, when you exclude the settlement, which wasn't related to business performance, that business grew 10% last quarter. So this is really a continuation of that very strong momentum that they've been building as they've both been driving the male PureWick, which continues to scale even faster than the original female PureWick, it's doing fantastic.

Obviously, continuing to expand PureWick into the home. We continue to advance our clinical study aimed at getting at-home reimbursement. And so the growth that we're getting at home is all out of pocket today. We see a meaningful opportunity to unlock additional upside there through the trial that's progressing very well, and we expect to conclude in '26. We also have a series of new launches that will be coming up here very soon, including the first mobile PureWick. That next product that we'll be launching in Q4, actually heading into FY '26 will be for patients who are in wheelchairs because it will be the first wireless battery-driven version of a mobile PureWick and then we have versions coming in the future that would allow people to be completely to walk around with kind of a fanny pack type version.

So we've got a strong runway ahead in continued innovation in that space that we're really excited about. I think as you think about the broader areas of the Interventional business, again, the acquisition we did at the start of BD 2025 of TIFA, the team is doing a really nice job iterating serially on new applications and indications with that biomaterial. So you saw Rick and the team start by getting indications in the hernia space to replace plastic mesh there. You then saw us start to -- you saw us get approval for the first application to prevent hernias after laparotomy surgeries first launching in Europe right now.

We're investing behind that. That's one of the areas of incremental investment we're making is investing behind that launch and market shaping. And we've got that clinical trial underway to bring that innovation to the U.S. I think actually the first indication of that same biomaterial for GI indications launches next year in '26. So again, we're excited by what's happening there. In the surgery space, we like the innovation pipeline that we've built over the BD 2025 window here. And then, of course, in PI, solid growth there. They obviously feel the impact of VOBP in China.

But in other areas, we're excited by some new launches coming up there, particularly one in the breast biopsy space as well as some new vascular applications that we're going to be getting into that we haven't been in before that start to launch in '26 that we've talked about in the past. So Robbie, I hope that gives some color, but really driven by innovation on the UCC side.

Great. Maybe just to follow on to the last question. Chris, it sounds like there's increased SG&A investment in fourth quarter coming in below Street expectations on EPS. How do we think about where that is, what it's funding? And should we carry that level of investment in SG&A into next year?

Look, I think a real positive thing we've talked about BD Excellence was not just the impact it has on margin and the opportunity to compound earnings, which we've done, right? Again, best-in-class margin and EPS flow-through with almost 9.5% at the midpoint.

But importantly, we want to keep investing in both innovation and commercial execution. You've seen us do that throughout the year. And we're going to continue to invest behind all the areas of momentum. Tom has mentioned them a couple of times on the call, and that's part of our strategy. Again, we feel really good about an almost double-digit EPS number at the midpoint, and this sets us up to continue some momentum as we think about 2026, driving those areas of growth. Thanks, Robbie.

And this 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.

Okay. Thank you, operator, and thanks, everyone, for joining today and for your support of BD. We look forward to connecting with everyone again in November.

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. Welcome to the Waters and BD Biosciences and Diagnostic Solutions Announcement Conference Call. [Operator Instructions] This call is being recorded. [Operator Instructions]. It is now my pleasure to turn the call over to Mr. Caspar Tudor, Head of Investor Relations at Waters Corporation. Please go ahead, sir.

Thank you, Leila. Good morning, everyone, and thank you for joining us on short notice. Earlier today, we announced Waters combination with BD's Biosciences & Diagnostic Solutions business via a Reverse Morris Trust. I hope everyone has had the opportunity to review the press release we issued. We've also posted our slide deck presentation and additional materials to our respective Investor Relations websites. A replay of this call will be available shortly after its conclusion.

Before we begin, I would like to remind you that today's call may contain forward-looking statements. Actual results and future events may materially differ from these statements based on factors described in today's release in our investor presentation, the Risk Factors section of our Form 10-K and most recent 10-Q and in subsequent filings we make with the SEC as well as BD's most recent 10-K, 10-Q and other SEC filings. We do not undertake any duty to update forward-looking statements.

Today's call also contains certain non-GAAP financial measures. Please refer to our most recent earnings release and investor presentation for important disclosures regarding such measures. Additionally, in connection with the transaction, Waters intends to file with the SEC a registration statement, which will include a proxy statement containing important information regarding the transaction.

On the call today, Dr. Udit Batra, Waters' President and Chief Executive Officer; Tom Polen, BD, Chairman, CEO and President; Amol Chaubal, Waters' Senior Vice President and Chief Financial Officer; and Christopher DelOrefice, BD's Executive Vice President and Chief Financial Officer. After the prepared remarks, we will open the call up for Q&A.

I'll now turn the call over to Udit to begin today's presentation.

Thank you, Caspar, and good morning, everyone. We are thrilled to announce today that Waters has agreed to issue 39.2% of its shares to BD's shareholders and assume $4 billion of debt to acquire the BD Biosciences & Diagnostic Solutions business. This is a rare and powerful opportunity to unite two industry leaders with complementary capabilities, a legacy of pioneering science and a shared, deep-rooted culture of innovation.

Over many decades, both organizations have earned the trust of researchers, clinicians, manufacturers and regulators by developing technologies that define the categories that they have created and support science at scale, both reliably and consistently in high-volume regulated settings.

In fact, both Waters liquid chromatography and BD's flow cytometry instrumentation have supported Nobel Prize-winning research. That speaks volumes about the caliber of innovation embedded in both companies, which is at the core of this combination.

Today is about uniting those trends to create something even greater. Today's announcement is a significant value creation opportunity. It creates an innovation leader with robust financial strength, serving high-volume regulated applications with industry-leading brands.

For 2025, the combined company is expected to generate pro forma revenue of about $6.5 billion with adjusted EBITDA of approximately $2 billion. Around 10% of product sales will be spent on R&D, which will sustain the company's high caliber of innovation. The company will approximately have 16,000 employees and be headquartered in Milford, Massachusetts.

This combination positions us to deliver exceptional long-term benefits for customers and shareholders by uniting Waters' leadership, downstream -- in downstream analytical workflows with BD's strength in cellular analysis and diagnostics. There are four key reasons why this transaction stands out.

First, it significantly expands our opportunity set in large and attractive markets. The combination doubles our total addressable market to approximately $40 billion, spanning a broader range of durable, volume-driven end markets that grow 5% to 7% annually. These are areas where demand is tied to consistent growth drivers like pill count, infection rates and disease detection serving the needs of a global aging population.

Second, it offers an unparalleled strategic fit, allowing Waters to immediately apply its commercial tools while also advancing our stated strategic ambition in high-growth areas.

Third, the combination enhances the stability of our growth. Over 70% of revenue is annually recurring. In addition, over half of combined instrument revenue consists of routine replacement, which takes place after 5 to 10 years. The high degree of annual revenue recurrence results in a more resilient and predictable growth profile smoothing out capital purchasing cycles while retaining strong exposure to long-term growth drivers.

And fourth, the transaction supports an industry-leading financial outlook. We expect significant cost and revenue synergies, a rapid path to industry flagship margin levels and strong growth at both the top and bottom line. The combination is expected to deliver mid- to high single-digit revenue growth, mid-teens adjusted EPS growth as well as rapid EPS accretion and leading cash flow generation.

In short, this is a highly complementary combination from a strategic, operational and financial standpoint that is expected to create significant long-term value for our shareholders. We will now cover each of these value drivers in more detail.

This combination more than doubles Waters' total addressable market to $40 billion, up from $19 billion TAM. It also adds greater breadth across end markets and applications, reducing dependency on any single segment. A defining strength of the combined company is the unique focus on downstream regulated applications. These are nondiscretionary, high-volume workflows where testing is mandated by regulation or quality standards.

Demand is driven by stable growth factors such as global pill count, disease burden and routine safety testing across pharma and biopharma, food and environmental and diagnostics segments. The benefit of serving these applications is that associated demand is truly recurring and is tied to critical needs rather than discretionary budget cycles.

They also enable a strong financial profile and offer consistent growth across various market cycles, as you've seen with our chemistry and service business over the past several years.

In short, this combination places us at the center of some of the most attractive and durable end markets in science and health care. Combination creates a unique opportunity to deliver significant value across multiple dimensions all at the same time. It unlocks immediate commercial impact by enabling us to apply our proven execution pay book at greater scale.

We expect to create meaningful value within the Biosciences & Diagnostic Solutions business by deploying our core enterprise growth initiatives, just as we've done very successfully at Waters. This includes instrument replacement across an additional 70,000 installed base and increasing service plan attachment like the 800 basis point increase we've achieved at Waters over the past 5 years. It also includes improving e-commerce adoption across a larger consumables portfolio and driving new product launch excellence.

These are the same levers that have driven Waters' transformation, and we are confident in our ability to replicate that success here. At the same time, our customer bases are naturally complementary. Waters has expertise in downstream pharmaceutical applications and food and environmental workflows while BD Biosciences & Diagnostic Solutions has expertise in pharma, clinical and diagnostics. This presents attractive cross-selling opportunities such as for our Tandem quad mass spectrometers into pharma drug metabolism and pharmacokinetics.

Finally, the combination offers an unparalleled strategic fit as it enables us to accelerate our entry into several of our defined high-growth adjacencies, all simultaneously. This includes bio separations, bioanalytical characterizations and multiplex diagnostics.

One of the most compelling aspects of the combination is how it enhances our growth stability. If there's one thing we could all benefit from in the tool space, it's more consistency. This combination supports a more resilient and recurring growth while that would bridge CapEx cycles.

We're bringing together iconic brands with deep customer trust, which is an incredible starting base. Together, these brands will make up over 80% of the combined company's revenue. Each of these brands offer exceptional innovation that solves customers' unmet needs. This is sustained by an industry-leading R&D spend at 10% of product sales.

Together, the new Waters will derive approximately 70% of its revenue from annually recurring sources, which is a significant step-up from where we are today. Even on the instrument side, there is a high degree of recurrence as over half of this revenue will be linked to routine replacement, which takes place every 5 to 10 years. This high degree of recurring revenue will form a solid foundation of durability and predictability that will benefit us through various market conditions.

Let's now turn to the financial outlook for the combined company. First, let me set the stage. This combination brings together two strong and growing businesses. Waters has delivered mid-single-digit plus historical growth and currently has a growth potential into the high single digits over the near to midterm, which we outlined at our Investor Day earlier this year. BD's Biosciences & Diagnostic Solutions business has also historically grown at mid-single-digit plus with approximately 80% annual recurring revenue.

With this strong foundation and the benefit of approximately $290 million in expected revenue synergies, we view the combined company as having a solid and realistic mid- to high single-digit revenue growth profile over the near to midterm that investors can truly believe in. Importantly, the combination also offers a significant margin development opportunity. We expect to begin with an adjusted operating margin of approximately 27% and intend to expand that by around 500 basis points by 2030. This puts us on a rapid path to reaching industry flagship margins levels within just a few years.

Now with a more detailed look. The first thing to point out is that this transaction offers a compelling financial profile and yields outstanding financial benefits across every dimension. We see significant synergy potential with $200 million in cost savings expected by year 3 and $290 million in revenue synergies expected by year 5, driving strong value creation. Amol will discuss these synergies in more detail later in the call.

The combined company offers an industry-leading financial outlook with projected mid- to high single-digit annualized revenue growth and mid-teens annualized EPS growth through the end of the decade. We also expect the deal to be adjusted EPS accretive in year 1.

As I mentioned a moment ago, this financial outlook will place us at the top of the sector and comes with approximately 500 basis points of expected adjusted operating margin expansion over 5 years. Not only are the financial benefits compelling, but the transaction multiple is attractive at 13.8x with run rate synergies and 18.9x on a pre-synergy basis.

Finally, our balance sheet will remain healthy and flexible with rapid deleveraging supported by strong free cash flow generation. I will now hand it over to Tom to highlight the strength and trajectory of the BD Biosciences & Diagnostic Solutions business and share his thoughts on why this exciting opportunity is such a good fit.

Thank you, Udit, and hello, everyone. We are very pleased to be here with the Waters' team. We believe this transaction represents both a tremendous outcome for the Biosciences & Diagnostic Solutions business and create significant value for shareholders. Before I introduce the business in more detail, I want to share some background on BD's perspective and what led us here.

Earlier this year, following a comprehensive portfolio evaluation, BD announced its commitment to separate this business to enhance focus and unlock value. Since then, we conducted a thorough process engaging widely with a large number of interested parties and assessed all transaction options. I'm pleased to honor our commitment and deliver a strong outcome for our shareholders.

Ultimately, we determined that an RMT with Waters is the ideal structure to immediately unlock value for BD's shareholders and create a unique opportunity to participate in the upside of the combined company with a shared culture of pioneering science, complementary portfolios, commercial strengths and a strong financial profile.

We're extremely excited to be establishing a new leader in the life science tools industry. Additionally, this transaction also enables our shareholders to capture the tremendous long-term opportunity of the new BD, which will be a scaled pure-play med tech leader with enhanced focus, greater opportunity to drive growth investments and accretive capital allocation opportunities.

Turning to the businesses. BD Biosciences is the undisputed pioneer that invented the modern field of flow cytometry, helping scientists revolutionize our understanding of cell biology in the fields of cancer, infectious disease and immune health, enabling countless breakthrough therapies. BD Diagnostics Solutions is a pioneer in microbiology research and clinical diagnostics with multiple world firsts in advancing the diagnosis of conditions such as sepsis, TB, COVID and other infections and then applying robotics and AI to advance infectious disease testing.

Both serve attractive and complementary end markets to Waters where there is significant headroom for growth. And importantly, our business model is a natural fit with Waters, combining instruments, consumables, informatics and service. The businesses are anchored by a vast installed base of products in both flow cytometry within our Biosciences business and microbiology together with fast-growing molecular diagnostics within our diagnostic solutions.

For as long as I can remember, there's never been a time when both biosciences & diagnostic solutions had such an exceptionally strong innovation pipelines. In biosciences, we're transforming flow cytometry with continued series of innovations, including our new FACSDiscovery instruments, new antibodies, dies and assays, along with scaling our single-cell multiomics platform.

In fiscal year 2024, Biosciences generated $1.5 billion in revenue, addressing a $7 billion market growing high single digits. Key growth drivers include advanced QC workflows for therapeutics and increasing demand for single cell resolution to understand complex disease biology.

On the Diagnostic Solutions side, the business is expanding its omics menu for medium throughput laboratories through BD MAX, is expanding into the high throughput molecular space with BD core. Our Onclarity HPV assay is set to transform cervical cancer screening globally by enabling at-home self-collection.

And in Microbiology, we're excited about the upcoming launch of our next-generation BACTEC system. In fiscal year 2024, Diagnostic Solutions delivered $1.8 billion in revenue, addressing a $15 billion market growing mid-single digits plus, driven by rising infectious disease testing, antimicrobial resistance surveillance and greater lab automation to improve throughput and efficiency.

Overall, this business is well positioned to create value under any separation structure with focused investments in capital deployment dedicated to the life science industry.

Biosciences & Diagnostic Solutions operate with a strong portfolio and pipeline in market segments growing mid- to high single digits. In fiscal 2024, together, these businesses generated approximately $3.4 billion in revenue with over 80% recurring revenue and an approximately 26% adjusted EBITDA margin. including around $100 million of estimated allocated corporate costs necessary to support the business.

The portfolio is diversified across end markets and geographies, but all are tied to resilient regulated categories requiring differentiated capabilities. With Waters' operational focus, execution playbook, deep life sciences expertise, highly complementary portfolio and strong commitment to innovation, we see a step change opportunity ahead to unlock the full potential of biosciences and diagnostics. We are confident that Waters under Udit's leadership, represents the best path to create substantial value for shareholders while ensuring our employees continue their legacy of delivering innovative, meaningful solutions for global health care.

With that, I will turn the call back to Udit to talk about Waters' strong foundation and the promising path that lies ahead for the combined company.

Thank you. Thank you, Tom, for your remarks and for what has been a thorough and collaborative process. At Waters, we too have built a highly repeatable business model centered around downstream regulated applications where high throughput, compliance and reliability are critical.

This business model enables us to simplify complex instruments without losing sophistication. It is underpinned by compliant enterprise software that assures data integrity, industry-leading chemistry capabilities and an award-winning dedicated service business.

Our model centers on four integrated pillars: instruments, informatics, consumables and service, which together have created a durable ecosystem. Our business is a razor/razor-blade model. However, the razor is actually Empower, our compliant informatics platform, which serves as the interface between manufacturing QA/QC labs and regulators.

Approximately 80% of novel drugs submitted to the FDA, EMA and the China NMPA are done so using Empower. We have a broad installed base of instrument systems across liquid chromatography, mass spectrometry, light scattering and others, which themselves are razor blades as they're replaced every 5 to 7 years. Then, of course, we have service and chemistry, which we categorize as annually recurring revenue.

What sets Waters apart is our deep customer loyalty, driven by decades of breakthrough innovation, exceptional service coverage and consistent reinvestment in R&D at around 10% of product revenue. Our expertise in downstream high-volume applications enables us to capture growth across an exciting mix of fast-growing testing opportunities in manufacturing settings, such as biologics, GLP-1s and generic off-patent therapeutics.

For many of you, who've followed Waters in recent times, this dashboard will look familiar. Over the past 5 years, we've executed a focused and disciplined transformation built around enterprise-wide growth initiatives. We embedded instrument replacement programs into our commercial cadence, grew service plan attachment to over half of our installed base, expanded e-commerce and elevated operational execution. These actions helped drive consistent commercial momentum.

At the same time, we revitalized our innovation engine, launching major products like the Alliance iS, Xevo TQ Absolute and MaxPeak Premier Columns, each of which has solved critical unmet needs and achieved vertical commercial success. And we expanded into high-growth adjacencies like bioseparations, bioanalytical testing and specialty clinical diagnostics, both organically and through M&A including our acquisition of Wyatt Technology.

The transformation at Waters was deliberate, successful and built on a model that is now fully embedded in how we operate. Waters enters this transaction from a position of strength. In 2024, our total revenue was around $3 billion with EBITDA of $1.1 billion and an industry-leading adjusted operating margin of 31%.

We serve essential roles in pharma with approximately 85% of our segment revenue tied to development and manufacturing QA/QC. We have a balanced global footprint and a robust installed base of over 170,000 systems that continues to drive recurring revenue and service growth. Importantly, Waters' stand-alone organic growth, adjusted EBITDA margin and free cash flow as a percentage of revenue have all been well above the peer group average, highlighting the strength and durability of our financial model.

Next, I want to highlight the powerful strategic fit of this deal and how it fast tracks our ambitions into multiple high-growth adjacencies, all simultaneously. First, the combination allows us to meaningfully accelerate innovation in our bioseparations high-growth adjacency. Waters is an innovation leader in chemistry separations and has launched a number of very successful large molecule chromatography columns, such as MaxPeak Premier, which have grown mid-double digits for several years now.

By pairing together the deep chemistry expertise at Waters and the deep biology expertise at BD, we will be able to create next-generation consumables that would support the next wave of high-volume pharmaceutical growth in biologics and novel modality areas.

Next, bioanalytical characterization. Waters is uniquely positioned to bring flow cytometry downstream into large molecule QA/QC given our Empower platform and our established presence in these labs. This is the perfect time to do so as flow cytometry instruments are already seeing adoption in large molecule QA/QC within cell therapy, particularly in quality control and release testing of cell-based products.

By adding flow cytometry into our large molecule characterization suite, we extend our capabilities beyond molecular composition, which are currently served by mass spec and light scattering into structural and functional analysis of receptor interaction and biological response. This allows us to measure the impact of therapeutic agents based on precise characterization of live cells.

We have long been looking for a partner that brings deep biologics expertise, including a strong portfolio of reagents. BD brings exactly that, enabling us to accelerate our entry into these application areas. It provides us with the capabilities needed to significantly shape and increasingly participate in the exciting growth area of downstream large molecule testing.

This combination also meaningfully advances our long-term ambition to bring LC-MS further into Multiplex diagnostics. This is an area where we believe there is a significant unmet need and value creation opportunity as more proteins are becoming relevant for early disease detection or minimal residual disease monitoring. In these workflows, there is often cross-reactivity between biomarkers, which is an area -- which is where other systems fall short.

Waters brings world-class expertise in liquid chromatography, mass spec and validated analytical methods, but we lack regulatory and market access capabilities, global commercial reach in core and specialty labs as well as reagents and automated sample draft. With this combination, BD brings the diagnostics infrastructure we're missing and has a trusted presence among customers that we will ultimately scale towards with this technology.

Now that I have covered the strategic and operational logic behind this transaction. I will now turn it over to Amol to cover the financial benefits. Amol?

Thank you, Udit, and good morning, everyone. I'm excited to walk you through the financial benefits of this compelling strategic combination. It has sound industrial logic and offers an industry-leading financial outlook. We expect to create significant shareholder value through both cost and revenue synergies.

We expect approximately $200 million of annualized cost synergies by year 3 post closing, which largely stem from optimizing our manufacturing and supply chain, from procurement and from other efficiencies across SG&A. These synergies are net of both increased scale and conclude targeted investments in commercial and R&D.

We are also very confident that we can deliver approximately $290 million of annualized revenue synergies by year 5 post closing as we deploy our proven execution model to instrument replacement, e-commerce and service and pursue the high-growth adjacencies, as Udit outlined.

We will also unlock several unique cross-selling opportunities by leveraging the complementary strengths of two trusted, market-leading portfolios. Together, this translates to approximately $345 million of annualized EBITDA contribution expected by year 5. The combined business has a high-quality financial profile and significant long-term upside.

The 5-year growth and profitability projections set us apart from our peers and will place us at the top of the industry. The combined company is positioned to deliver a compelling compounded growth profile over the next 5 years that investors can believe in.

This includes mid- to high single-digit expected revenue CAGR growth, approximately 500 basis points of expected adjusted operating margin expansion and mid-teens expected adjusted EPS CAGR growth. This is all while maintaining our commitment to investing 10% of product sales into R&D.

By 2030, we expect to reach $9 billion in revenue and $3.3 billion in adjusted EBITDA with an industry-leading 32% adjusted operating margin percentage. This is a business that pairs world-class innovation with world-class financial performance, creating significant and durable value for shareholders.

As we've said in the past, our focused approach and strong free cash flow profile positions us well to execute on this opportunity. We also expect to reduce net leverage to below 2x within 18 months.

The combination structure has Reverse Morris Trust in which BD will spin off its Biosciences & Diagnostic Solutions business and simultaneously merge it with Waters in a tax-efficient transaction valued at approximately $17.5 billion.

On a pro forma basis, Waters' shareholders will own approximately 60.8% of the combined company, and BD's shareholders will own approximately 39.2%. Waters is expected to assume approximately $4 billion of net debt as BD will receive an approximately $4 billion of cash distribution prior to closing, subject to adjustments.

In summary, our strong financial foundation will be enhanced further and will enable significant value creation for the combined company's shareholders. I will now turn it back to Udit to share some further details and closing remarks.

Thank you, Amol. The name of the combined company will remain Waters and will be listed on the New York Stock Exchange under the ticker WAT. Amol and I will lead the combined management team. We will retain our corporate headquarters in Milford, Massachusetts while maintaining a strong presence in key BD Bioscience & Diagnostic Solution sites.

The transaction is expected to close around the end of the first quarter of calendar year 2026, subject to receipt of required regulatory approvals, Waters' shareholder approval and satisfaction of other customary closing conditions.

In summary, this is a combination of two pioneering businesses uniquely suited for each other. Waters and BD Biosciences & Diagnostic Solutions share a rich legacy of innovation, complementary expertise in regulated high-volume settings and a deep commitment to science and solving customers' unmet needs. Together, this combination will create a company with broader capabilities, best-in-class technologies, industry-leading financials and a clear runway for sustainable long-term growth.

This transaction is not just additive, it is transformational. It creates a life science and diagnostic leader with a strong foundation and a clear focus built to shape the future of regulated science and deliver meaningful value to shareholders, customers and employees alike. We continue to execute at a high level at Waters, and we are seeing further strong momentum in our business.

We look forward to going through our second quarter financial results with you all at our upcoming earnings call on August 4. With that, I will turn the call back to Caspar.

Thank you, Udit. Leila, we are now ready to open the line for questions.

[Operator Instructions] Our first question will come from Jack Meehan with Nephron.

Udit and team, this is a big transformative move for you at Waters. I wanted to start with the revenue synergy opportunity. Can you talk about any customer dialogue you've had around the flow cytometry cross-selling the QA/QC or LC into diagnostics?

And I'll squeeze in my second question here as well, which is I know we'll have earnings soon, but investors are very curious, need to ask any color on the momentum you're seeing in the base business through 2Q.

Sure. So Jack, firstly, thank you. Let me start with the strategic rationale and how the revenue synergies fit in. I mean this is absolutely a perfect fit. I mean you've seen us talk about our operational rhythm over the last 5 years with instrument replacement, with service attachment increase, with e-commerce adoption.

Here comes BD with 70,000 more instruments that are planted in every laboratory around the globe. 20.000 are up due for replacement in the next 2 years. We're chomping at the bit to get going. E-commerce at 20% penetration, and we've reversed the journey to 40% already at Waters over the last 5 years. We intend to do the same over a much larger consumables portfolio at BD.

And service attachment at BD Biosciences & Diagnostic Solutions starts at 40%, which is where we were 5 years ago as well. And you can see how far we've come over the last 5 years there as well. So we get to apply these operational levers on day 1. So really excited about that. And that gets us immediate revenue momentum.

Second, on the strategic side, we've been very explicit about the adjacencies, right? We have said, look, we want to do to biologics and large molecule QA/QC what we have done in the small molecule space. And for that, we need additional reagents capabilities so we can continue to advance separation science for biologics.

I mean you're familiar with what we've done with MaxPeak Premier which grows almost 40%, 50% in year 3 to 4 of its launch. Now with a large portion of reagents that we've been looking for, for a while that come from BD, we're able to advance that agenda rapidly. So bioseparations advances immediately.

Second, in bioanalytical characterization you asked a question around flow cytometry. You will be familiar from our Investor Day presentations that we listed a variety of different instruments that we wanted to have in the biologics characterization suite and flow was one of them. And here comes the leader in flow cytometry who invented it and has won Nobel Prizes with it, right? So we could not be more excited.

And it's already used now in QA/QC and in early disease detection, right? So marry that with Empower and it's going to be present in every QC lab just like we've done with light scattering. And yes, customers have shown us their flow cytometry instruments. I've seen it personally in a variety of QC labs.

And then finally, taking LC-MS into diagnostics. Again, at Investor Day, one of the most positive feedbacks that we got was how our investors and analysts were positively surprised how far we had come in taking LC-MS into specialty diagnostics. And we were very open that we still needed capabilities on the regulatory side, on sample prep, on automation. And here, we're consummating a combination with a leader in that space, which should overnight accelerate the growth into that area.

Amol will add a couple of facts before we move on to your second question.

Yes. No. I mean, look, all these adds up really well, and Udit covered it really, really well here.

Super. And on your question on earnings, look, the momentum on the business remains really strong. Today is about the deal. So let's focus on that today, Three weeks from now, I promise we will give you all the details that you want on the earnings. I can just say the momentum remains strong.

Sounds good. If I can squeeze in one more. I think something that people historically have loved about the Waters' thesis is that you have these market-leading businesses and obviously, the bioscience and microbiology businesses effect and bring that as well. But there's some portion that are market-leading businesses, I think molecular and point-of-care players, but more competitive. Can you talk about the strategic fit of those businesses? And what you think about those for the long term?

Yes. I mean, look, what people love about Waters is the quality of the asset Waters is. And this business that we are inheriting is exactly that, right? BD pioneered flow. It has supported Nobel Prize-winning research.

The molecular diagnostic -- the microbiology piece of BD is also very unique, very well moted, it does really well. And so if you look at it from that vantage point, almost 80% of this company is iconic brands that are trusted by customers and have an outstanding reputation in the marketplace.

Now within the diagnostic piece when you get into the molecular part or the point-of-care part, again, there, you look at how BD has launched really nice innovation in the market that's doing resoundingly well in the market. like BD MAX and BD Core. And that's also very critical to our thesis because that really helps LC-MS in diagnostic find channels, it finds regulatory and market access expertise that accelerates assay menu production. It also helps us get into automation of LC-MS. So that's a huge value creator for our significant adjacency.

Jack, this is Tom Polen as well. Just to add on, particularly on the molecular side, Obviously, as Amol described, a world leader and a pioneer in microbiology and in molecular really have been a pioneer in syndromic testing in the mid-throughput segment of the marketplace.

As you know, BD MAX continues to grow strong mid-teens growth rate. It's been at that growth rate for many years, and it continues at that growth rate today. And BD Core is quite a new platform to marketplace entering into an entirely new growth segment for BD that we haven't been in the past with a highly differentiated assay or cervical cancer screening.

And the first company to really pioneer the application of women's self-sampling for annual cervical cancer screening by themselves at home, which we think is a game changer in that space, and we're extremely well positioned to be the leader in, in transforming how care is delivered there. So I think we're really excited about the future of our -- of the molecular platform. And again, that's going to do phenomenally in Waters' hands.

Our next question will come from Rachel Vatnsdal with JPMorgan.

First off, I just wanted to dig into the cadence of the synergies that you highlighted today. So you walked us through the $200 million of cost synergies by year 3 and $290 million of revenue synergies by year 5. So how should we think about the cadence of that? Is it going to be more front half loaded for either of those and walk us through the assumptions there?

Yes. I mean, look, these synergies will gradually appear through the P&L costs roughly in 3 years and revenue roughly in 5 years. And these synergies are super crisp, right, like we've very cleanly identified areas where there are manufacturing or supply chain overlaps.

Our abilities to consolidate volumes from a direct procurement point of view, places where on the commercial side, we can really leverage our presence in both the businesses and the technology in both the businesses and really leverage our positioning together with BD's in how we service this business.

Also keep in mind, we get now much more denser on our service organization that allows us to make premier offerings such as 24 hours turnaround time, et cetera. On the revenue synergy side, we've sort of adequately discussed, right? On one hand, we are able to apply all our commercial initiatives like instrument replacement, e-commerce and service attached.

The three adjacencies are really fantastic and it's a very unique, unparalleled match here where BD brings all the three missing skill sets that we were searching in the market for and meaningfully accelerates these adjacencies. And the cross-selling opportunities are very real and very crisp.

So we should be able to deliver these revenue synergies over the course of 5 years.

And I think the question also was annually. So cost is 1/3, 1/3, 1/3 for the 3 years, right, roughly around that. So I hope that helps you get more clarity, Rachel.

Yes, that's helpful. Then just as my follow-up here, I wanted to dig in R&D. So you highlighted the 10% of revenue spend on R&D there. Can you just walk us through how are you thinking about the innovation pipeline for the combined company? Where are you seeing some of that spend? Should we see some of the R&D more focused on the diagnostics side and some of the progress there or more on flow cytometry for BD specifically moving forward?

Rachel, it's too early to tell exactly how the portfolio allocation will occur. But all I can tell you is, I mean, I'm -- I mean, you know me now for several years, I'm excited about just what toys are coming into the shop.

Let me start with the bioseparations area. We spend -- in the chemistry business, we spend 70% of our R&D on biologics. That will continue. And now we have access to a world-leading provider of reagents. I can tell you our chemistry team is super, super excited. I mean you should look for good news coming out immediately from there.

Second, on the diagnostics side, I mean you heard my colleague, Jan Ting Bennett talk about this at the Investor Day. We are in search for regulatory capabilities so that our assays get into customers' hands as fast as possible with LC-MS. We wanted to get more market access into high-throughput labs. And here we go, we have global reach here, right?

So I'm super excited about what we're going to be able to do there. And then finally, on bioanalytical, this is flow cytometry. I mean, BD is by far the leader in that area. We get to combine our understanding of informatics, compliant informatics, Empower. I mean, look at what we've just finished doing with multi-angle light scattering. We took it into QA/QC in record time probably 6 months before what we had actually promised our customers. And we intend to do exactly the same here and we start even further with flow cytometry in QA/QC.

It's actually used to release cell therapies today, right? So I'm super excited. Now don't ask me exactly where we will put what pennies. We will just -- simply we're spending a ton on R&D. And you know our discipline. I think when we met last time, we talked a bit about the unmet need and the proof of concept. We have an Innovation Board.

We intend to welcome the vast group of R&D colleagues at BD Life Sciences, BD Biosciences and Diagnostics into our Innovation Board where we will look at unmet needs carefully. We will have an exacting view of the proof of concept, so they'll go through exactly the same process, but I'm super excited about what's coming.

I mean, it's going to be a little bit fluid, right? I mean look, 5 years ago, when we took over the Waters business, it was very similar, coming in as mid-single-digit plus. And over the course of time, we created a very unique idiosyncratic growth drivers like GLP-1, like PFAS, like India Generics. And this is going to be the same.

There is so much opportunity here to create these unique idiosyncratic growth drivers over the course of next 5 years here.

Our next question will come from Tycho Peterson with Jefferies.

I wonder if you could maybe look at this from a customer perspective as we think about cross-selling and some of these adjacencies, How many labs have flown PCR but not LC-MS? Like how do you think about it from kind of a customer opportunity set?

Yes. I mean, the cross-selling opportunity is also pretty immense. Tycho, in fact, when Tom and I first spoke and we spoke to the teams there, that was the most exciting opportunity, meaning they really -- I mean think Wyatt when we -- with Wyatt also, it was the same thing. I mean, a tool that is used in late-stage development and customers almost begging to take it into QA/QC, right?

We have some of the largest customers saying, hey, please attach it to Empower. And it's exactly the same here. And exactly the same here with a much larger business, right? So flow cytometry belongs in QA/QC for cell therapy, for lipid nanoparticles and larger particles, and it will get there with the help of Empower. And you can go to any large pharma lab and if you visit it and you'll find flow cytometry in the development lab but not necessarily in QA/QC. And we intend to get it there.

So just take the total portfolio of labs that we have, it belongs in each and every biologics characterization lab, right? So it's like multi-angle light scrapping, and we can do the dimensionalization offline as well with you.

On bioseparations, it's something similar, right? I mean we launched MaxPeak Premier almost 3 years ago now. It basically reduced the affinity of large molecules to surfaces and customers have still been adopting it 3 years post launch. and it's been growing 40% to 50%. And now we have access to a much larger portfolio of antibodies.

And we've been out in the market looking for reagents players to sort of take highly unique antibodies and conjugate them or attach them to our particles in these columns. And now we have access to it. And again, when the teams met in the diligence time frame, I mean, the two teams, we could not stop them from talking to each other. So we're really looking for the deal to close and get going in the earnest.

And on the other side of the equation, look at it this way, right, we have traction of the access BD has to the specialty labs and core labs in the world. That's going to open so much more doors for LC-MS in diagnostics. BD has such a dense diagnostic service network that we're going to be able to offer 24-hour premier service, which is a meaningful value accretion.

BD has so much capability in developing menus and biomarkers that's going to massively accelerate how quickly we bring biomarkers and assays on LC-MS in diagnostics and the automation capabilities is also going to fast track how we automate and simplify LC-MS in diagnostics.

And with that, Amol is not moving into R&D. I just want to be clear.

Great. And then a follow-up, just I want to stress test the assumptions around these commercial excellence synergies. I mean I get service e-commerce, but what is it that you can do that BD was not already doing on those fronts?

Look, I mean, over the last 5 years, what started off as back of the envelope exercise has morphed into a highly systematic process and system KPI-driven instrument replacement, how we do it in our CRM system, how automatically when an instrument becomes due for replacement, becomes an opportunity in the CRM, gets meticulously tracked.

And that discipline by itself is very accretive, right? And we've mastered that act over the last 5 years, and you see that in our numbers. and in our relative performance versus our peer group. We feel highly confident about this act, and that act is going to now be redeployed on this entire installed base, both on the flow side as well as on the diagnostic side.

Yes. And I think just to sort of embellish on that, Tycho, look, when we came into the business, I remember telling you this anecdote before as well, I mean, we had an installed base, but we did not know exactly when things were going to get replaced, and we did not know when to go to the customers. And we had sort of lost -- we had built a replacement debt. And we quickly caught up with that by first sort of putting all the instrument -- the installed base into a CRM system.

We intend to do that -- do the same here -- exactly the same here. And second, we came up with a new platform and said, hey, dear customer, instrument's about to be replaced. Here is a new platform, Alliance iS, and that gives the customer a trigger to replace.

It's playing out exactly the same. BD has 75,000 instruments installed, 20,000 are up for replacement in the next 2 years, 20,000. They have two new platforms, one on the microbiology side that is going through clinical trials that will be launched in 2026, think Alliance iS.

And on the molecular side already, and on the flow side, sorry, already, there is the FACSDiscover S8, right, that has been launched recently. So both of these new platforms, along with an installed base that could now -- that will now get married with the cadence that we've developed, and you met some of our colleagues when we had the Investor Day when Rob Carpio, we hired with an expressed intent to systematize our KPIs even more. And Rob has the background that he does, and you sort of have met him and you can sort of imagine how that will get deployed in this business.

No, we are super thankful to BD because they're gifting us a business with amazing innovation that's going to drive this replacement cycle on every angle, right? It's like a deja vu of EQ Absolute, Alliance iS and Arcage plc.

And Tycho, this is Tom with BD. I'd say as we got to know, obviously, Udit, Amol and the team and the playbook that they've executed over the last several years, and we understood how that playbook had panned out to really produce obviously exceptional growth and performance that Waters has over the last several years, we became convinced ourselves that, that playbook was highly applicable to these businesses and creating the value that's been described very well here by Udit and Amol.

Whether or not that's the -- again, we, as a large company with med tech and life sciences, the opportunity to have focused life science company here and apply that playbook to the service sector, particularly in the Biosciences business. We don't have a channel that's focused on the pharma QA/QC lab. We know we're getting a lot more interest.

Again, most cell therapies use our technology for release increasingly, but there's a whole set of unmet needs that still exist in that sector that Waters understands inherently genetically in their DNA that is going to be a big positive to really capitalizing on that opportunity. And those types of opportunities, they continue through in multiple different areas.

Again, as a pure-play life science focused company with a proven playbook and track record that we see as variable -- very, very applicable to the business, the two businesses that are combining here today.

Let's make one or two other sort of embellishments on e-commerce and service attach since you asked about the three. On service attachment, we again started with about 40% back 5 years ago. It's exactly the same scenario, a leading, highly reputed service organization where attachment rate is around 40%, and we deploy tactics like, a, ensuring that each time you're selling something, you're quoting the instrument service revenue.

The same thing with renewals. I mean so the tactics are very well proven and across the globe, and we intend to deploy them on day 1. And on e-commerce, just to sort of give you a benchmark, antibody -- companies that have antibody portfolios usually have e-commerce penetration between 50% and 75% -- 50% to 75%. And so there is a nice headroom here and you'll remember from the Sigma days, it was exactly like that.

So I mean, we're -- we know that this can work, and there are two technology stacks, and we have to assess which one we want to back more. and we will put everything on that on the distribution centers are global. So I don't want to get into more tactics but you can be sure that we've looked at that very carefully.

Our next question will come from Puneet Souda with Leerink.

And congrats on this transformative acquisition here and the deal. An important question for you. You led the transformation at Waters 5 years ago when you joined. And an important part of that has been the discipline and the KPIs that Amol had talked about and that you implemented across the org and the commercial org as well.

Could you maybe take a minute and help us understand where you see the most significant opportunities on the BD side that you can immediately deploy in terms of overall execution that helps you drive these synergies and the -- you have an aggressive margin improvement profile that you're expecting here. Maybe just help us understand how do you plan to execute on that disciplined execution and KPIs needed for BD that might not be there today and where the opportunities are, despite that sort of the tough macro backdrop we're in.

So Puneet, thank you for your question. First, it's the team that does the work, and I'm fortunate enough to talk about it. And when we take a step back, look, I mean we're inheriting from BD, a market-leading business that every customer in their segment knows. These are iconic brands. They are sort of -- they have defined the categories, be it flow, be it microbiology testing, I mean these are brands that have defined the category.

So nobody needs reminders of what these brands are. Now to sort of deploy the same sort of playbook, I mean, the first thing is transparency. Where are these instruments? Where are they placed? We know that -- our BD colleagues know where they're placed, getting them into a CRM system like Amol said, and then basically, in a very disciplined way, going customer by customer and saying, "Hey, how old is the instrument? Does it require replacement?" I mean we've done that and I'm making -- I'm sort of oversimplifying it. There are several other steps.

And of course, new products, they have a huge role in triggering that conversation and triggering that transition. And we're inheriting a business that has both those factors, meaning a transparency on the installed base; and second, a set of new products that are going to trigger this conversation, right? So this is fantastic.

And again, like our Waters business, customers are very loyal. They don't switch from one vendor to the other, especially when you're doing a great job in this sector as well. They are regulated segments with 80% -- over 80% of recurring revenues. And so I think the characteristics are quite similar to what we inherited and the KPIs would be rather the same.

And on e-commerce, for instance, I mean, we look at the number of customers coming on e-commerce, when I could go into all of the KPIs, but you really look at the number of customers coming in, what the affinity is, what the fallout rate is. And then you sort of apply that model again and again and again and step by step, you start to reach the -- I mean, where we are today is 40% penetration. The ambition is even higher. We will take it for a larger business from 20% to over 50% in penetration for e-commerce.

And I mean, to answer your other question on margin expansion. I mean, look, the assumptions are very prudent. The underlying business that we are inheriting, we are only making modest assumptions of 30 to 40 basis points of margin expansion each year.

Where the margin expansion really comes from is the cost and the revenue synergies, which, as we outlined, are very real and prudently estimated and have a high degree of confidence that we'll achieve the cost synergies in 3 years and the revenue synergies in 5 years. So we feel really comfortable and confident that we can get to 32% margin by year 5.

Amol, following upon that margin question, if I may. At the Investor Day, you had laid out a 35% op margin target for 2030. Now it's 32%. Obviously, the mix is going to change here with pro forma. Can you maybe just help us understand, is there conservatism there? Is that -- where is the room for upside? Because now you're projecting a 40 bps margin expansion annually versus sort of 60 to 70 bps that you had before. Obviously, this has implications for the valuation expectations for Waters that were established at the Investor Day.

Yes. Look, I mean, the underlying Waters margin profile that we communicated on the Investor Day, really doesn't change. The assumptions we are making on the BD's stand-alone business are pretty prudent and gives us a meaningful upside potential if we are able to execute all the programs that we are inheriting from BD on margin expansion well, right? So we've risk adjusted those programs.

If those programs really work well there should be a meaningful upside to the stand-alone margin. And as we discuss on cost and revenue synergies, there is upside to those numbers, and that would further accrete the margin. What's most typical is when you look at EPS, EPS is already accretive in the first year. And with what we are outlining produces mid-teens EPS growth. So financially, it is pretty robust.

And then you take one step back and look how compelling the combination is, right? Not one, not two, but all the three life science adjacencies that we have get accelerated. It produces an amazing 70% recurring -- annually recurring business that brings growth stability on the back of a business that has more than 80% of revenue coming from market trusted iconic brands.

We feel really great about this because that's going to create long-term meaningful value for shareholders.

Our next question will come from Brandon Couillard with Wells Fargo.

I think the consensus is kind of modeling somewhere around 3% to 4% organic growth from the BD assets the next couple of years. How do you get comfortable that this business is kind of a mid-single-digit plus grower? Did you consider just acquiring the flow asset as opposed to the combined entity? You talk about kind of the appeal of two different sides.

Yes. Let me first start, and I'll let Tom comment on the transaction that was on offer. Look, I mean, historically, the BD Bioscience & Diagnostics business has grown mid-single digit plus, right? And you rightly commented, there are two portions to it. The flow business which historically has been a high single-digit grower through thick and thin. And the Diagnostics business and in the Diagnostics business itself, 65% is microbiology, where BD defines the category globally, right? And that grows mid-single digits -- has been growing mid-single digits long-term.

In the next few years, and in fact, just last year, BD launched first, in the flow area, the FACSDiscover S8, which is a new platform, it basically is going to -- it's setting a new standard in the industry and the presales have been tremendous from what we learned from the team. And on the microbiology side, the team is launching a new platform next year where the clinical studies are going extremely well.

So both of these businesses have historically grown mid-single digit plus, are coming up -- have had new launches or are coming up with new launches very, very soon that should trigger even further growth.

Now if you look at the current sort of trends, as with every other sort of business, they've experienced one or two challenges in the current time frame. First, the A&E and the drug discovery market has been slow, and we've modeled a sort of a slow recovery on that front. They had supply issues on the BACTEC business that have been resolved. That started middle of last year that is now in the baseline and has been resolved and is nicely coming up through the penetration, and we expect upside from that.

And the third is the slowdown in the China business. And not unlike everybody else, BD also experienced some challenges there with importation of their high-end flow business that has also been resolved. So you took -- you take all of those three things, they go into the baseline, you start with a lower base and you start to grow from that base and you are very quickly in the mid-single digit, mid-single-digit plus range. And for the pro forma business, we think by the end of 2026, we will already be in the mid-single digit plus range for the full year.

This is Tom. Just to add on, I thought Udit described it exceptionally well. I would describe it as you think about Biosciences has always grown high single digits, as Udit described, and the diagnostics business has always grown mid-single digits. There's those three areas in the kind of the huge short term over the last 12 months with academic government spending. I would describe as the biosciences business is spring loaded to recover as that markets come back. It's reset at a lower base and the innovations that we're launching are truly changing the category.

We just launched the FACSDiscover A8, which is off to an exceptionally strong start. We're ahead of our initial plans by a good margin in terms of the number of instruments purchased there right off the bat. BACTEC, again, there was a supplier issue last year, that is fully back with full optimized supply. And the run rate of that has been moving up basically 10 points a quarter back towards its historical level and very much on track.

That's going to have obviously a relatively simple comp as that continues to grow over -- as we head into next year. And then China, if you think about China for the flow business, there had been an import ban on certain flow cytometers into Europe that -- or into China that has been basically mitigated with exceptions and is poised to just have that permanently eliminated, which is in active review and then processed through the federal government.

But in the meantime also, we've actually localized the #1 selling BD flow cytometer in China. We Just went live on making that now in China, which does two parts. One is it gets around the import ban. Second is it actually gets around tariffs completely as well because we're importing that product from the U.S. to China that's now being made in China local as the FACSLyric which is by far and away the #1 selling BD flow cytometer there. So there's a number of different factors that really position that business -- both businesses well to return to that long-term strong growth profile.

Thank you, Tom. Look, we are reaching the top of the hour. I want to conclude firstly by thanking you all for jumping on to the call so quickly. I want to reiterate that this is a fantastic strategic fit. I mean, we get access to a larger total accessible market of $40 billion that grows 5% to 7% over the mid- to long term. It's a fantastic strategic fit. It allows us as Waters to apply our operational levers on day 1.

And all at once gives us access to the three strategic faster-growing adjacencies that we've been talking about for the last several years. It increases growth stability. Going forward, our recurring revenues will be over 70%, and these are in areas which are dependent on nondiscretionary spending. So really fantastic there as well.

And finally, the industry leading -- it will be an industry-leading financial outlook, right, with significant cost and revenue synergies, the deal is accretive -- EPS accretive in year 1 and has a mid-teens EPS growth every single year for the next 5 years.

So thank you again. for joining us, and we'll talk to you in the coming days.

This now concludes the call. Thank you for joining us, and have a good day. You may disconnect at this time.

Yes. One additional disclosure that we needed. So the session is not open to the press. There you go.

All right. So I want to thank Tom Polen, Chairman and Chief Executive Officer of Becton, Dickinson. I appreciate you're making the time. I know you're on the -- you have a lot of different priorities right now. So very much appreciate your making the time to be here.

I want to kind of start with, I think, maybe a strategic topic that I get a ton of questions on is like where are we in the biosciences or life sciences separation process?

Sure. So we had shared when we first announced the separation that we would expect to announce the actual form of the transaction this summer, which remains on track. We said that's kind of an American summer between Labor Day and Memorial Day or Memorial Day and Labor Day, and that continues.

So the other things that we've shared in the context of that, which is no different from when we announced is that as you think about forms of separation, right, academically, there's 3 kind of macro forms of separation: a spin, a sale and a merger of RMT. We view that -- obviously, 2 of those 3 don't have stand-up costs and also have synergies that you have the opportunity to participate in and so that those 2 could create outsized value versus the third option. Obviously, that would be a sale or an RMT. And so again, we continue through our process.

And as you think about setting that deadline, how do you have control over the timing of the -- I mean, it seemed like spin, you can total -- you could decide right now we're going to spin or we're going to do nothing or the other 2. How can you control the timing there? And how do you have the certainty that you can get an answer by the summer?

I think the other things that we've shared before is that we didn't start the discussion with the press release that we had already had dialogue with a number of parties at the time that we put out the press release. And so again, we have a process by which bids are due, et cetera, at certain phases along that, and we're progressing through that.

Okay. And in a scenario where -- so I had a group of -- we had a group of investors in your offices in early May. And one of the takeaways or at least feedback that I got from that meeting as well, either -- the way people read the comments was either you're going to proceed with a sale or you're going to do nothing and that spin is sort of off the table? How would you respond to that?

I would just say that we're focused on -- obviously, we wouldn't be in a process if we were doing a spin or if that was the focus. So those 3 options all can create shareholder value, but we're clearly focused on creating outside shareholder value for that opportunity.

And has anything changed in your sort of assessment of what would be an appropriate valuation given the move down in Becton stock?

No, we still view it as -- and we would look at anything in terms of not only where the stock is priced today but also historical full value for the assets. They're phenomenal assets, right? I think that's always important to recognize is that these are blue-chip phenomenal assets with biosciences having likely the -- not likely, the best innovation pipeline in its history.

We invented the category of flow cytometry, of course, with Stanford University, which is where that business is still headquartered very nearby in San Jose. With the FACSDiscover, which is really an entirely new class of flow cytometers that have the ability not just to measure fluorescence, but now imaging and combine all of that. The only thing that does it on the planet is our FACSDiscover.

We keep launching. We just launched the A8 very recently. We started getting orders for that already. That's a great business. The leader in the category in a very attractive category, and then obviously, a leader in infectious disease and in molecular testing, a very attractive asset as well, too. So we view those as both attractive assets, and we look at it both ways, as I mentioned.

And you've obviously -- you've been on the acquirer side of a number of acquisitions, at least from the time that I spend in corporate development, it's hard to get the buyer to think about a business outside of its current performance. So how do you get people to see biosciences obviously facing some cyclical pressures right now, which probably doesn't impact a 5-year view. But how do you get people to see beyond current performance and sort of give you fair value for the assets?

Obviously, anyone that's looking at those sectors, is already in those sectors. So they know them very well, and they're staying in those sectors, most likely. For us, Diagnostic Systems, obviously, again, you've got our molecular continuing to grow double digits. BACTEC recovery moving in a solid direction. And then even in our bioscience, you've got clinical continuing to grow at a certain rate, and you've got the life science, basically reset of the base.

We -- as you know, we saw pressure in life sciences 12 to 18 months after most of the market did because we were launching FACSDiscover and that had an outsized demand at launch. So you're seeing that impact us more this year while it hit most people last year or the year before. Again, I think people would view and say, we understand those dynamics and you're coming to a base and you have the opportunity beyond that.

And the other question I've gotten is, are you committed to the business as being separated together? Or are you willing to separate them in some form or fashion separately?

Yes. No new news. We've always shared that those businesses -- they really have no commonalities from a separate headquarters, separate sales forces, separate service organization, separate manufacturing plants. So we would -- we can separate those. It's obviously easier for a single transaction, but there's no reason they could not be separated.

Because it would seem like that would open up the aperture of potential buyers?

So there are people that could be interested in holdco or separate.

Okay. Last one, I promise, we'll talk about the business. But the -- this topic is one of the ones we get the most questions on. So as you kind of do your own internal senior planning and you contemplate one of these outcomes, what are some of the things you're stretching out as use of proceeds in a scenario where you do execute a sale? And how are you thinking about prioritizing use of that capital?

Yes. And obviously, the amount of capital would vary based upon the type of transaction. I think just a general statement on capital is that -- so first off, we are continuing to be committed over the midterm to leverage ratio of in that 2.5x. It doesn't mean you need to go there immediately, but -- and we're very much on track for that just naturally as well, too.

Just as a note, the event by itself is not a massive leveraging event. It's about half a turn if we didn't pay any debt down, right? That's what you're talking about.

Meaning the sale?

It was just a separation.

Oh, just a separation.

It's about half a turn if one didn't pay down debt. So it's not a massive leveraging event in and of itself.

Oh, your leverage ratio goes up, because you lose profits, right?

Correct. So as you just think about what you need to do.

Yes.

In any case, regardless of those proceeds or our organic proceeds, certainly, any proceeds and available cash we would use to buy back stock. Certainly at this and around this price level, there's no better investment that we can make than buying back shares.

And would you leave any dry powder on the balance sheet? Or you would be able to fund future M&A through...

I think we'd be hyper focused again in this environment even regardless of a transaction, just with our organic cash flows of buying back shares. There's no better investment than buying back our shares in and around the stock price for sure. So we've done, of course, a number of -- we've done 20 tuck-in acquisitions just since I've been CEO. And we're integrating in the APM business. That's going very well. We've been funding additional sales reps in that business. We funded additional R&D in that business.

Of course, combination is bringing together all the therapy information. We know what therapy people have been given through Alaris, through Pyxis, et cetera. Now we know the physiological response to the therapy and we're beginning to put the 2 together, to be able to close loop more, the optimization of delivering that therapy. And so that's a project we've put several million dollars into fund.

We've got a number of other new things that we're moving through the pipeline on recent acquisitions that we've made, whether or not it's the acquisition of TVA, for example, we're launching. We've been getting new hernia meshes that are bioabsorbable approved. We just got umbilical approved a few months ago.

We have the first GI application of using that biomaterial launching next year in parastomal. We just recently entered into the breast clinical -- into a breast clinical study to expand there. And we've got 2 more indications for breast that we want to move forward in there. And the same thing holds true like Surgiphor, which is a companion product to ChloraPrep. We've got new products moving through the pipeline there. We've got them moving through, obviously, the PureWick acquisition that had happened. We've got innovations launching every year.

And that list goes on through other products. STROBE Medical, we're in development for a below-the-knee indication for that smaller French size. And so we've taken a number of the tuck-ins that we've done. MedBank, our non-acute Pyxis product. It's a great product, but you could never -- it's never been integrated into Pyxis. Launching next year, MedBank users will be able to see an IDN, will be able to see all the medications out of their ambulatory surgery centers, et cetera, through the same portal of Pyxis.

So we've been investing organically to start optimizing and getting more and more of a flywheel going from the tuck-ins that we've been doing. So I think we feel really good about that and a strong innovation pipeline for '26. So again, I just used that to reiterate there's no better use of any cash in terms of buying back shares.

Got it. Very helpful. And I want to go into the pipeline in a little bit more detail because I think macro considerations now, I think, are overshadowing a lot of the underlying business dynamics, but I can't not touch on the macro. So maybe we could start with kind of the way you've been characterizing the business and maybe paraphrasing a little, sort of 3 problem children franchises and then you've got the rest of the business. Maybe kind of break down the performance for us over the past couple of years? And then I'd love to get in kind of the back half of the year here?

Sure. So I think one of the things that we recognize and discuss is we have a complex portfolio. We probably have one more complex portfolios in med tech. And we've been simplifying that, whether or not it was the separation of embecta, the separation of V. Mueller and now the separation of Life Sciences, really turning BD into a very focused med tech company.

With that said, today, of course, we are the only med tech company with exposure to a few specific markets, right? We're the only med tech company with exposure to the life science market. There is no one else. There is no other med tech company with exposure to the pharma device market. We compete with pure-play competitors in that space as well. Each of those spaces do have market macro factors going on.

And so as you look at kind of BD's trend over the last many years, go back to BD 2025, the start of that. First off, we've been growing at about 5.6% revenue -- a 5.6% revenue CAGR since we launched BD 2025 in '21, and that's inclusive of the midpoint of our guide this year at [ 3.25% ]. Our base business over that time period has been pretty stable, particularly the last 3 years. And the swing factors have been essentially 3 dynamics. One is the slowdown in research spending, the destocking in the pharma medical device channel and then China, the OBP.

And if you look back at BD historically, those 3 areas have typically been 70 to 130 basis points of tailwind. They've always -- those 3 areas have always been accretive growth drivers to the company, BDB, Pharm Systems and China. And this year, those 3 factors are about 180 basis points headwind. And so it's basically kind of the base BD growing at about 5%. And those 3 factors, 180 negative to get you to the 3.25%.

And historically, if you go back to '23, the rest of BD was growing 4.5%. Those 3 added 130 basis points, and we were growing 5.8%. So they swung in that period of time. And they swung across the sectors, right? Life Sciences is down versus where it was in '23. Pharma destocking, you see that across the peers. And China, VoBP, we see going through BDI. I think what's most important is kind of where does it go from here?

So again, we feel good about the base business and what we're doing. We can talk about some of the drivers there. But obviously, we're in the process of separating Life Sciences, which will change our exposure to that segment. It also will change our exposure in China. Today, we're -- 5% to 6% of our revenue is in China. That will go down to about 4%. As we look forward, the largest segment in China is Life Sciences. And then you've got -- and China, overall, I would say, within BDI, we continue to expect VoBP this year, where China is growing -- declining about double digits, continue through '26 for VoBP pressure, particularly as it finishes through the BDI business, '27 then being a year for rebound.

And in Pharm Systems, we're already starting to see improvements there sequentially. We saw sequential improvements last quarter. We strongly expect to see -- and we can see it now in our numbers, sequential improvement in Q3 and that can continue. As now, of course, since we launched BD 2025, we've grown Pharm Systems about $800 million. It's now about -- half of that business is biologics drug delivery. We are the world leader in biologic drug delivery, fueled by GLP-1s.

Just as a note, we do not include vaccines in when we say biologics, a number of our peers do use that within their biologics number, we do not, and so it's a sizable scaled business there. So that's how we think about those 3 factors and how they come off. Life Science being separated; Pharm Systems, back half of this year beginning to improve; and China still some time for VoBP to finish going through the.

And then as you think about first half performance of the business, I think -- I appreciate -- I think we all appreciate the royalty dynamic in Q2. But if you look at the first half of the year, growing, I think, roughly 2.5%-ish between the 2 quarters, you do need a pretty big ramp to get into the back half of the year. And it seems like 2 of those 3 businesses are facing incremental headwinds, especially biosciences, every headline you read about the NIH seems to be worse than the prior one. Now who knows bark versus bite. But how should we think about the ramp from the 2.5% in the first half to sort of the implied 4.5-ish percent in the back half of the year to get to the full year guide?

China is likely similar, right? Pharm Systems, we expect some recovery in the back half of the year, not back to double-digit growth, but beginning to get back towards at least BD median growth rate versus being dilutive to that growth rate. We do have FACS, the A8 launch, which is now. And I would say, while the market remains constrained for overall instrument placements in the sector, what we see is that allowing and we can see it now already, is increasing our win rate among that.

One of the things that we can't control is the market environment for spending. What we can control is our win rate within that environment, right? And new technologies allow us to win. They're going to -- so and so group is going to have 100 things that they're going to buy. We want that to be close to 100 of BD devices.

And why does your win rate go up when the market is more constrained?

Because of our new innovation.

Because of innovation, okay.

Our FACS A8, again, is the first system that you can actually see the cells of -- that you're analyzing versus just the fluorescent dyes as an example. And we can see that already. We were seeing -- this Friday, we got a big pharma client, for example, who's standardizing on that platform, is putting in a number of purchase orders for those because they recognize there's new science that I never knew about and do things about cells that I can only see with FACSDiscover in A8. If want a sorter, I can get an S8 for sorting technology.

So those are the main things along with BACTEC -- continued recovery in the BACTEC franchise. Those are the main drivers.

And as you kind of just thought about framing the outlook for the rest of the year, you're still placing some onus on improvements in different parts of the business. So just in terms of like internal organizational pressure to kind of hit the number, now hit a revised number? Like, how do you think about the balance between the 3% to 3.5% that you've articulated versus taking a more potentially conservative stance just to take the pressure off the organization and allow you to kind of navigate some of this uncertainty, not saying you want to be unambitious in your targets, but how do you think about balancing that?

We take, obviously, the roll-ups that the businesses have. We provide some level of rebate or discounting to those numbers from the businesses. And again, what we shared was that, there are certain assumptions that we have in that, right? So when we put out that guide, we made it clear, we're assuming that this is based upon the research environment that we saw in Q2 couldn't dictate what was going to happen. We didn't assume some radical change in NIH funding versus what had happened in February and the reduced funding, still not a visibility to that. So those are some of the baseline assumptions that we put into them.

And on that point, it seems like you exited Q2 at a worse place than how -- the market for research funding seemed probably worse in March than it was in January. So have you kind of contemplated a continuation of the exit rate trends or kind of the average performance?

No, closer towards the exit of what we saw. And we did see, obviously, in Q2, there's notable worsening in both February when the administration announced the reduction in spending and then a little bit later than mid-February when Europe, basically, you saw a shift. We had purchase orders that literally got put on hold as governments were looking at redirecting towards defense spending and that was clear in Germany, U.K., et cetera. A number of the governments there said we're holding on purchasing instruments for research spending and we're sort of making decisions around defense.

Okay. Maybe we can turn to the kind of future BD for a second, and I think most of that is contained within the business that's performing 5%. I know that's the China piece and the Pharm Systems component. But is 5% like a good baseline number for thinking about market growth for new BD post separation? And how are you guys thinking about that?

I think we've said our WAMGR overall is right around or slightly under 5%. Now that's a long-term WAMGR that includes -- that's not for new BD. That's just BD current, what we say is holdco, and doesn't -- we don't adjust WAMGR for temporary reductions in pharma destocking or life sciences. So it would be -- an applicable WAMGR today would be lower because of those macro dynamics. But overall from the long term, that's the growth rate.

As you think about the new BD, it's a very exciting portfolio as we look at -- basically, if you walk through the 3 areas, we continue to have our Medical Essentials business, right? We treat -- 3.9 million patients an hour are touched by our Medical Essentials business, right? Huge consumable portfolio, durable recurring revenue with specific types of innovations that we're doing to continue to keep that fresh, as we then -- and generates meaningful cash. The other 3 segments -- and that has a much lower WAMGR than the rest of the business, right, lower single-digit profile, but has a specific role within the portfolio.

Then we go into the Connected Care biopharma solutions and interventional sectors, which have higher WAMGRs and higher growth rates. If you look at, for example, let's start with BD Interventional. Since we bought Bard, we've been growing at about a 7% CAGR in that business, and we continue to expect that business to outperform. One is the thing about UCC and PureWick. That's now over $0.5 billion franchise, up from essentially nothing when we bought Bard.

It will soon become half of the UCC business in total. And we've got a great pipeline there, right? We started with female only in hospitals. Now it's men and women in hospitals, men and women at home. Later this calendar year, we'll launch for men and women mobile, particularly in -- specifically for people in wheelchairs. And then there'll be a -- after that in our pipeline is a product for people walking around mobile, like with fanny pack on walking around, managing urinary incontinence on the board walks here, right, as an example.

In the surgery space, what you've seen us do is take a plastic mesh business, settle major litigation, right, which we spent $1.5 billion plus of cash of last many years, getting rid of legacy Bard litigation that came at the time of the acquisition, good to have that move behind us. And what we've been doing is then replacing plastic mesh with bioresorbable material, our P4HB material. And so that's -- no one should get plastic mesh from a hernia perspective. We have data that says 7 years out, the recurrence rate is just the same with something that disappears 18 months from you having surgery.

And we've been extending that to different types of hernias. As I mentioned before, we just got umbilical. We now have the first GI application launching next year in parastomal. As I mentioned, we now have multiple new products in for breast reconstruction moving forward in our pipeline, including the first that's already started clinical studies. And then in PI, and we continue to have serial innovation with next year having some really nice launches. We've got one for a liver graft coming in for stenosis of the liver. We've got one for covered stents, a category that's really led by one competitor with no new innovation in 10 to 15 years and the first in the world, multimodality biopsy device launching there.

So we're excited by that. In our Connected Care business, one of the other things that I didn't mention, but in Q4, APM becomes organic, right? And so that's obviously a nice pop of a business. That's growing 7%-plus, suddenly becoming organic in Q4. That business will continue as we think ahead within our Connected Care business. We've brought in innovations that are combining those insights with the therapy insights to start doing things that no other company on the planet can do. And that's moving through our pipeline, right, starting to close the loop on therapy management rather than nurses and doctors having to intervene every minute and trying to optimize that for the patient.

Pharmacy robotics and automation, now a $700 million business that we've built through the acquisition of Parata and a number of other tuck-ins like MedBank that's in early innings in that space. Of course, we just shipped our first new Pyxis since the launch of Pyxis...

You just shipped.

We just shipped the first limited commercial release one on the truck, I think, last Thursday, which is great.

The impact of that gets blunted at all because of the leasing model? Like when CareFusion launched Pyxis ES way back in 2013, there was huge bolus of revenue. And of course, the installed base is much smaller than -- and I think the market dynamics were a little bit different. Then you move to the leasing model after you acquired it. How should we think about the impact of a Pyxis Refresh on the business here?

One is, I think it really -- it's a great product, and we'll share more about that in the future. But competitive gains, we expect to shift incrementally, the number of share gains that we're getting. There is the opportunity for price premium. It holds 40% to 50% more medications than the current -- any competitive system with the exact same footprint. And it's also connected from the cloud perspective, and it's the first product that will leverage our new [indiscernible] software, which is BD's first enterprise-wide AI platform.

So we've got AI in a number of systems today like our APM system has AI built in, our Kiestra system has AI built into it, but it's in each platform. [indiscernible] is a cloud-based platform that we've partnered with Amazon on and a large language model company that's embedded in [indiscernible], that all of the data from future Alaris Systems, Pyxis, EPM will go into to allow users to do new things that they can't do today. And the first launch of that software is with the new Pyxis Pro, which is an AI-enabled, cloud-enabled Pyxis system. So we really like what we have going on there.

Can Pyxis Pro offset the slowdown that will naturally occur when you complete the Solaris upgrade cycle?

There'll be 2 things in that business. There's obviously other things going on in BD, and that would be more of a '27 topic that when we complete that cycle.

Okay. So the upgrade cycle on Alaris is still...

We said it's a 3-year cycle. That's what we committed to the FDA, is a 3-year cycle. So we're in year 2 of that upgrade cycle.

And can that business still grow in fiscal '26?

Yes, we're not giving '26 guidance, but...

Yes, I know.

But it will still be in the middle of upgrading in '26, yes.

So it's not like a bell curve where you have a lot in '24 -- a little in '24, a lot in '25 and a little in '26 in terms of the...

We're not giving the '26 guidance, but it still has runway in '26 and then obviously, we have -- we also have a next-gen Alaris deep in the pipeline that we'll focus on immediately afterwards...

And that will be a large volume pump syringe and PCA offering or it will be...

Right.

Okay.

And then the last business of the new BD. So I talked through Medical Essentials, the Connected Care, the Interventional business, obviously, the last of that being our Biopharma Solutions business, which, again, we made some meaningful capital investments. In the middle of COVID, we invested $1.2 billion in capacity expansion, and that really played off. It allowed us -- paid off. It allowed us from '21 to '23 to grow that business at a 13% CAGR. We more than tripled our sales of biologic delivery devices, became the world leader with more than a $1 billion biologic drug delivery business. That $800 million that we've grown since we launched that capacity expansion, that's mostly all been in the biologics space.

And today, we have strong presence with hundreds of millions of dollars of revenue in GLP-1 drug delivery. We have strong presence with new novel GLP-1s coming out in the future in our devices, and we have north of 60 biosimilar GLP-1s already signed in our devices as well as we think about a very large generic drug cycle that will be coming up in the future. And so that business, as it moves out of the destocking phase, again, we see that returning towards high single-digit growth long-term business. And you'll start seeing -- won't jump straight there, but you'll see it start to improve.

And I appreciate the opportunity for that to contribute to growth and the investments that you've made, but you started by sort of talking about the things that BD has that don't look like a typical med tech company and this is on that list. So why doesn't Pharm Systems enter the discussion for separation also?

We always look at what optimizes shareholder value. And that's something we constantly look at. It's a very distinct business than Life Sciences. Obviously, there is no life science company with those types of assets, a med device. It also relies on BD. It can't live without BD, right?

Most of the technologies in that business are shared across businesses. So for example, one of the biggest differentiators in Pharm Systems is our needle technology. We're the actually only competitor in that space who makes our own needles. And that technology, particularly when it comes to biologic drugs; for example, biologic drugs are becoming more viscous, and the key concern is time to delivery, right?

Can I even deliver it in time to use an injection subcu or do I need to move it to infusion? If I'm going to move it to subcu, can I do it with a device I hold in my hand? Is it a device that I need to wear a Libertas or our Evolve system, which we have. And one of the factors in that decision process is the needle technology. And we're the only company in the world with an ultra-thin wall technology that allows a smaller gauge size to a thinner needle, a larger internal diameter because of very proprietary technology that we have.

We use that same technology in our ultra-thin wall needle push button, for example. It allows us to get blood out of your body very quickly and fill up the tubes. So you're not sitting there watching the tubes fill up for a long time and they fill up significantly faster. We use that same technology in catheters. We use it in other things for the drug delivery. We also use it and apply it in our Pharma Systems. There's many other technologies that we share across our different drug delivery platforms, which is how that business was born, right, out of sharing technology across the other business. Always looking at -- actively looking at portfolio though.

I want to switch gears over to the P&L. There are questions. Obviously, feel free to raise your hand. But the -- I know you said you headed to D.C. after this. Tariffs obviously are still in focus, although maybe less in focus than they were a few months ago. I mean you gave guidance right before there was this temporary relief offered on China. So maybe just remind us kind of what you said and what the assumptions were in your guidance, where we are today and maybe give us a little window of what you're hoping to get out of your [indiscernible] time in D.C.?

Sure. So starting on the -- what we announced last time, which was $90 million of tariff exposure in the year for this year for FY '25. We mentioned that's essentially all in Q4 for us, just given we're on a unique fiscal year of October through September. The changes don't have a meaningful impact on that number within this year, right? Obviously, this year, we were able to make certain moves, move inventory in and out ahead of time to minimize.

I think what it does definitely do is it's a very -- it's a positive for '26, the changes that have announced. Because what we did share was that the #1 source of tariff cost for us in '26 and beyond is the tariffs that China places on U.S. imports. So that's a much larger number when the tariffs were before they were cut down in China. That was a much larger number because we only -- we have very -- we have one product that we really import from China into the U.S. We're a very large U.S. net exporter with nearly 30 plants in the U.S.

So with China's tariff rate coming down, I think after the last earnings call, people were looking at the 90 million and saying, okay, can we just multiply that times 4 and annualize it, certainly a lower number than that today. So that's a net positive for us, and we continue to do a lot of work, as you mentioned.

And why wouldn't the $90 million go down?

It's just a factor of how you think about what's coming in from -- because the second biggest piece is U.S. is the #1 place we manufacture, Europe is the #2, Mexico is the #3. And so Mexico inbound as well has a factor.

That's not US FDA compliant.

Correct, correct, takes time. Could it come down a little bit? Yes, but not from a mean.

Okay. And then what are some of the other legislative considerations? We're watching lots of headlines on cuts to Medicaid. Who knows what's going to happen with extension of subsidies. What are some of the other things on the docket for you guys from a policy perspective?

We work closely with American Hospital Association, for example, on more of those funding for providers and that we're very close as a company and as an industry with them and other organizations. I think as an industry, one of the things we're very focused on is med tech is an industry that is a U.S. powerhouse, right? The U.S. is the largest manufacturing base for med tech globally.

U.S. companies are leaders globally in this space, and we are very large net exporters. So med tech is an industry that never left the U.S. And I think it's important to use med tech as a case study and to not encourage it to go the other way around of needing to leave the U.S. because of unintended consequences on tariffs.

Again, for us, as an example, some of the tariff repercussions were, in fact, for us to move sourcing outside of the U.S., right? And we shared #1 thing that we began to do because we're not importing a lot from China, was for products that we are selling into China. We started sourcing vacuutainer tubes. For example, we've always shipped from South Carolina, our plant there to China. Now we're shifting to source from our facility in the U.K., where we happen to make the same thing.

We have flush product that historically our flush syringes always came out of Columbus, Nebraska, and we would ship those to China. We have a facility now in China that's going to source just for China for that. And so again, I think there's more downside to tariff impacts from a U.S. manufacturing perspective in the med tech industry than there are in many others. And so making sure that, that's understood, and it's not about getting med tech industry back to the U.S., it's about keeping a strong med tech industry from U.S. companies and manufacturing in the U.S.

Okay. We have just about a minute left. So maybe I'll turn it back to you for any kind of closing or takeaway remarks that you want to make. It's been a dynamic, I think, month or so since your earnings call. There's been quite a bit of, I think, volatility around the stock and questions kind of about the direction of the business. But maybe you want to kind of wrap up any thoughts? I know you've been on the road a lot meeting with investors and others, kind of some of your takeaways from those meetings and what you'd like to leave people with?

I think, obviously, we're hyper focused on navigating the near-term macro challenges of China and Life Science spending and the pharma destocking, which we constructively see coming to a wrap. We're hyper focused on revenue growth, right? And in that same time, obviously, continuing to deliver strong performance. And I think that's one of the important dynamics is that while there are challenging macro dynamics that we're navigating, and again, we are hyper focused on accelerating revenue growth despite those macro dynamics, and we talked about how we're doing that.

At the same time, right, our other systems, our BD Excellence systems are allowing us to drive -- we drove 190 basis points of gross margin expansion last quarter. Inclusive of tariffs, we're delivering 8% EPS growth all in and that's absorbing, just to put it in perspective, right? China down 10% on a $1.3 billion business due to VoBP. That's us absorbing about $135 million of pricing headwind, negative price out of China this year.

So while we're absorbing 135 basis points of negative pricing pressure, we're still expanding gross margins well over 100 basis points because of pricing capabilities in the rest of the world that we built during COVID, the power of BD Excellence and still driving strong margins.

And so I think that's the -- the formula of BD is we've always been a mid-single-digit growth company, right, literally up until this year with the temporary dynamics of those macro factors. The underlying business remains strong. We've built new capabilities with BD Excellence that are allowing us to navigate a challenging macro environment and still continue to grow earnings in a meaningfully positive way. And we've got a really exciting innovation pipeline with a lot of big launches happening here as we head into '26. So I appreciate the time and the discussions we've had today.

Excellent. Thanks, Tom.

Okay. Thank you.