Becton Dickinson and Co

NYSE:BDX

Earnings Call Transcript 2023-Q1

[Operator]

Hello, and welcome to BD's First Fiscal Quarter of 2023 Earnings Call. At the request of BD, today's call is being recorded, and a replay of the call will be made available on BD's Investor Relations website on bd.com. The call is also being made available by phone at [phone] for domestic calls and area code [phone] for international calls. [Operator Instructions] I will now turn the call over to BD.

[Francesca DeMartino]

Good morning, and welcome to BD's earnings call. I'm Francesca DeMartino, Senior Vice President and Head of Investor Relations. On behalf of the BD team, 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 2023. We also posted an earnings presentation that provides additional details on our performance. 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.

Tom will provide highlights of our performance and the continued execution of our BD 2025 Strategy. Chris will then provide additional details on our Q1 financial performance and our updated guidance for fiscal 2023. Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Mike Garrison, President of the Medical segment; Dave Hickey, President of the Life Sciences segment; and Rick Byrd, President of the Interventional segment.

Before we get started, I want to remind you that we will be making forward-looking statements. I encourage you to read the disclaimer in our earnings release and the disclosures in our SEC filings, which are both available on the Investor Relations website. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period. Revenue percentage changes are on an FX-neutral basis unless otherwise noted. When we refer to any given period, we are referring to the fiscal period unless we specifically note it as a calendar period. I will also call your attention to the basis of presentation slide, which defines terms such as base revenues and continuing operations.

With that, I'm very pleased to turn it over to Tom.

[Tom Polen, Chairman, Chief Executive Officer and President]

Thanks, Francesca. And good morning, everyone. And thank you for joining us.

We delivered another quarter of strong performance in Q1. Our results reflect the momentum of our BD2025 strategy, which we are driving through a powerful combination of innovation and strong execution. We exceeded our revenue and earnings expectations in Q1 despite market disruption in China and continue to drive consistent, durable performance in our base business, with revenue growth of 5.2% and $2.98 in adjusted diluted EPS.

Our results are a testament to the continued relentless focus by our team of talented associates who are delivering BD products and solutions that are enabling our customers to provide high-quality, cost-effective care to patients around the world.

In Q1, we continue to make excellent progress driving all three pillars of our strategy to accelerate growth, simplify the company and empower our associates. Our growth continues to reflect consistent performance of our durable core, which has become known as the backbone of health care and our continued shift into attractive and higher growth end markets through investments in both R&D and tuck-in M&A. These higher-growth transformative solutions are focused in the three areas we see reshaping health care and where we are currently investing approximately 60% of our R&D. And that's in smart connected care, enabling new care settings and improving chronic disease outcomes.

Today, we have what I believe is the most exciting innovation pipeline in the history of the company. And through our investments, we are systematically increasing the WAMGR across our portfolio and supporting our strong growth profile. I'll have a few of the end markets that are driving our growth and some of the key products recently launched and in our pipeline that we're excited about.

Our Medical segment is focused on improving medication delivery across a wide range of settings, making it safer, simpler and smarter across end markets that include medication management solutions, pharmacy automation, pharma and biotech drug delivery and vascular access management, where we recently launched PosiFlush SafeScrub, consistent with the expected launch timing we shared on our Q3 FY2022 call. A prefilled flush syringe with an integrated disinfection device, PosiFlush SafeScrub, is designed to simplify nursing workflow and enhance compliance with infection prevention guidelines. It's a good example of how we're driving continuous innovation that extends our leadership in our durable core and within the broader $9 billion vascular access management market.

Another milestone in our vascular access portfolio was clearance of our new PowerMe midline catheter by the Chinese regulatory agency NMPA. This was designed by our R&D center in China for China and is our first midline in this geography and offers up to 30 days of continuous venous access while reducing patient complications. We're excited about the opportunity PowerMe creates to help develop and category for vascular access in China, and we look forward to the expected launch later this quarter.

Our BD Life Sciences segment provides solutions from sample collection and discovery to diagnosis and serves dynamic end markets like single cell analysis, clinical microbiology, point-of-care and the molecular diagnostics market, where we continue to advance our strategy of menu expansion with initial sales outside the U.S. of our BD MAX respiratory viral panel or RVP. This multiplex respiratory panel detects COVID-19, flu A and B and RSV in a single test and is an ideal solution for endemic respiratory testing. This aligns to our strategy to accelerate our growth in the $4 billion molecular diagnostics end market that's growing about 9%. The RVP panel is currently under FDA EUA review for U.S. launch.

We also continue to progress our strategy in blood collection at the point-of-care. Point-of-care is one of the fastest-growing categories in diagnostics today that we believe will accelerate as diagnostic testing migrates to new and more convenient care settings such as retail clinics and pharmacies and even the potential of at home. Our BD MiniDraw capillary blood collection system is a disruptive innovation that enables collection of a high-quality blood sample without a venipuncture and is designed to provide a better patient experience across a broad range of care settings. We remain on track for 510(k) submission by the second half of FY2023.

Our BD Interventional segment, which provides solutions for chronic disease management, serves end markets that dramatically improve people's lives, such as oncology, incontinence, advanced repair and reconstruction and the $5 billion peripheral vascular disease market, a space that's growing about 6%. Within PVD, we continued our strategy to globalize the BDI portfolio with the recent launch of our Venovo venous stent in China. The first stent in this market, specifically designed for iliofemoral venous disease.

Within the $3 billion oncology end market, the space also growing about 6%, we achieved a significant milestone, completing safety testing for a multimodality vacuum-assisted biopsy system, and we're on track for FDA submission and launch in FY2024. The BD multimodality VAB device is expected to be the first vacuum-assisted biopsy system designed to work across all three imaging modalities of ultrasound, CT and MRI, allowing customers to consolidate capital equipment, standardize consumables and simplify physician and nurse training. These launches and milestones are good examples of how we're strengthening our position in attractive end markets across our portfolio.

Our purposeful strategic investments in R&D as well as tuck-in M&A and CapEx are supported by our strong flexible balance sheet and disciplined and balanced capital deployment strategy. This framework also gives us the flexibility to return capital to shareholders through a competitive dividend and share repurchases.

In Q1, we also continued to simplify our company with programs across our manufacturing network, our portfolio and most recently, our operating model. More specifically, we continue to make progress on our RECODE portfolio simplification program, where we are reducing SKUs of older generation products in order to focus on the most important products needed to deliver care today. We remain on track to remove 20% of our total portfolio by 2025, having achieved more than half of these SKU reductions thus far.

In addition, we have numerous initiatives underway to consolidate our manufacturing footprint in more cost-effective locations. All of these efforts are designed to reduce complexity, drive supply chain excellence, and make BD more agile while supporting the achievement of our margin expansion goals. Our BD2025 strategy is balanced, robust and resilient. And our foresight planning and agility are enabling us to deliver strong performance despite the continued macro environment, challenging all companies.

To share some perspective specific to health care, overall, the environment continues to stabilize and is in line with our view that challenges are going to persist, not escalate at least through 2023. While inflation is easing in some areas, we do expect that it will remain well above what we have seen historically and have planned for another year of outsized inflation primarily in labor and raw materials. We see continued labor pressure with different market dynamics impacting hiring and increasing wages for certain roles primarily in our manufacturing organization. Across raw materials, some categories of resins used in finished goods are beginning to show signs of improvement while other materials such as packaging and rubber are still inflated versus historic prices.

In terms of the COVID pandemic, broadly speaking, we see stabilization. While there continues to be surges in certain pockets around the world, similar to our customers, we have become more accustomed to managing through COVID-driven dynamics and have been effective at avoiding any extended manufacturing and distribution disruptions.

Specific to China, we anticipate that the recent COVID restrictions that impacted us in Q1 will affect our peers as well. Our local teams are navigating these restrictions well, which reflects the resiliency and strength of our China organization and the diversity and durability of our business. By successfully navigating the challenging macro environment, we are distinguishing BD and supporting our ability to continue delivering strong performance.

Before I turn it over to Chris, I’ll share a few updates on the strong progress our team is making to advance our ESG strategy and goals. In December, we published our second annual ID&E report, which provides details about our progress towards our 2030 ESG goals for promoting a healthy workforce and communities. The report highlights our improvements towards increasing diversity at the management and executive levels and spotlights our global associates who are advancing our culture and driving meaningful change within BD and the communities that we serve.

We also published our third annual cybersecurity report. BD was the first in med tech to outline our ongoing efforts to advance cybersecurity in a report, including our work to protect against cyber-attacks and empower customers with information about cyber risks and vulnerabilities. We’re proud to receive continued recognition for our ESG efforts, most recently being named for the fourth consecutive year to both Newsweek’s list of America’s Most Responsible Companies, ranking in the top 25%, and the Bloomberg Gender-Equality Index, recognizing our ongoing commitment to workplace equality.

In summary, I’m proud of our progress and momentum. Our associates are bringing our BD2025 strategy to life as we operate as a more agile, innovative med tech leader. BD is well positioned to drive profitable growth and create long-term value. First, our growth profile is consistent and durable. Second, we are enhancing our leadership positions through purposeful portfolio shifts into higher-growth markets, increasing the WAMGR across our portfolio. Third, we are improving our margin profile through our differentiated growth, enhanced simplification programs and ongoing supply chain excellence. And fourth, we are committed to remaining disciplined and maintaining a strong and flexible balance sheet.

We see an increasing capacity through our BD2025 time frame to support value creation and continued strong growth through tuck-in M&A. All of this adds up to a compelling financial profile with a long-term targeted base revenue growth of 5.5% plus and double-digit EPS growth. Our updated guidance for FY 2023 reinforces our confidence in our ability to achieve these targets.

With that, let me turn it over to Chris to review our financials, guidance and outlook.

[Chris DelOrefice]

Thanks, Tom. Echoing Tom’s comments, we delivered another quarter of strong performance in Q1, which demonstrates our consistent, reliable, durable growth profile in our BD2025 strategy, playing out as planned. So first, beginning with our revenue performance. We exceeded our expectations for the quarter, delivering $4.6 billion in revenue with base business growth of 5.2% or 3% organic. We see underlying organic growth more at mid-single-digits when adjusting for strategic product exits, the licensing fee comparison in life sciences, and several COVID-driven comparisons.

COVID-only testing revenues were $32 million, which is expected, declined from $185 million last year. Total company base business growth was strong across BD Medical and BD Interventional with approximately 6% growth. Base revenue growth in BD Life Sciences of 3.3% reflects the comparison to licensing revenues that impacted growth by almost 400 basis points. Base revenue growth was strong regionally as well with mid-single-digit growth in the U.S., EMEA and Asia Pacific. Revenues in China declined slightly, which reflects the impact of COVID restrictions, offset by strong performance from new product introductions in BDI and research solutions in BDB. For the full year, we continue to expect to deliver near double-digit growth in China.

Our base business revenue performance continues to be supported by our durable core portfolio, and an increasing contribution from the transformative solutions in our innovation pipeline and tuck-in acquisitions. We also continue to benefit from the organic contribution from acquisitions we anniversaried, which was about 30 basis points in the quarter.

Let me now provide some high-level insight into each segment’s performance in the quarter. Further detail can be found in today’s earnings announcement and presentation. BD Medical revenue totaled $2.2 billion in the quarter, growing 6.1%. BD Medical performance reflects strong growth in both Medication Management Solutions and Pharm Systems, which more than offset a decline in Medication Delivery Solutions.

The decline in MDS of 1% was driven by COVID-related comparisons and the impact of recent COVID restrictions in China as well as planned strategic portfolio exits. We continue to see strong performance in Vascular Access Management outside the U.S. Double-digit growth of 15.5% in MMS was driven by strong demand for our pharmacy automation solutions, including both Parata and Rowa. We’ve been very pleased with customer response and the performance of Parata.

As expected, growth in MMS also reflects the comparison to higher dispensing installations and infusion set utilization in the prior year driven by COVID dynamics. We continue to have a very healthy backlog of customer orders for Pyxis and BD HealthSight, which reflects the strength of our connected medication management portfolio. And despite strong growth of 18% in Q1 of last year, Pharm Systems delivered another quarter of double-digit growth of 10.6%, driven by continued penetration in the high-growth biologic and vaccine markets.

BD Life Sciences revenue totaled $1.3 billion in the quarter. The decline of 7.3% year-over-year is due to the expected lower COVID-only testing revenues. Life Sciences base revenues grew over 7%, excluding the licensing grow over as previously discussed. Growth was driven by growth in Integrated Diagnostic Solutions base revenue of 1.3%, or 6.4% when excluding the licensing comparison. This strong underlying mid-single-digit growth was driven by BD Kiestra that is helping to address laboratory labor shortages through automation and informatics and continued leverage of our molecular testing menu across our expanded BD Max installed base.

In addition, there was strong demand for our respiratory testing portfolio that was partly aided by the timing of orders. High single-digit growth of 9.2% in Biosciences reflects continued growth from new product launches combined with strong double-digit growth in research reagents, enabled by our differentiated content and dye strategy. We continue to see demand for our expanded suite of flow cytometry analyzers and sorters as researchers continue to do even higher parameter cellular analysis for cancer and other immune-related conditions.

BD Interventional revenues totaled $1.1 billion in the quarter, growing 5.6%. Growth was driven by surgery growth of 3.1%, which reflects strong performance in advanced repair and reconstruction driven by continued strong market adoption of Phasix, Hernia, resorbable scaffold and double-digit growth in biosurgery, aided by the Tissuemed acquisition. Growth in surgery was tempered by planned strategic portfolio exits and then expected decline in BD ChloraPrep due to a tough comparison to the prior year as a result of dealer stocking. Peripheral Intervention grew 10.8%, which reflects double-digit growth in PVD, driven by the Venovo relaunch, coupled with continued global penetration of Rotarex, and the acquisition of Venclose, which addresses chronic venous insufficiency.

Additionally, growth was strong in oncology, within Greater Asia due to an improved backlog situation associated with prior year supplier constraints. Urology growth of 1.8% reflects double-digit growth in our PureWick, chronic, incontinence solutions and endourology that benefited from reduced back order due to improved supplier performance. Offsetting this strong performance was a difficult comparison in urological drainage due to shore step back order release and distributor stocking in the prior year.

Now moving to our P&L. We reported Q1 adjusted diluted EPS of $2.98, which included gross margin of 54.7% and operating margin of 22.9% that were consistent with our expectations. While we are no longer providing a specific breakout of the impact to margins from COVID-only testing, you will recall the comparison to higher testing in the prior year is weighted to the first half and as expected is the driver of the decline in reported Q1 margins year-over-year.

Excluding the COVID impacts to margins in Q1 of both years, both gross and operating margins in our base business were up slightly year-over-year. The improvement in base margins was delivered despite around 350 basis points of outsized inflation that as expected was primarily driven by selling through inventory that included peak inflation impacts from FY 2022, such as increases in certain raw materials noted earlier as well as the impact of labor inflation and elevated shipping.

We were able to offset a large portion of this impact to our simplification and inflation mitigation initiatives and the benefit from strategic portfolio access of lower-margin products as planned. We expect the impact from inflation to moderate as we move through the year. Base margin performance also includes growing over the impact from licensing revenues in the prior year. As expected, we had favorable FX that was recorded in inventory that benefited our GP as it flow through sales.

R&D of 6.4% of sales reflects our innovation investments aligned to our strategy in support of our long-term growth outlook. Q1 reflects timing of project spend. We expect R&D to remain elevated in Q2 and normalize over the balance of the year to around our long-range target of 6%. Our tax rate in Q1 was lower than anticipated due to the timing of certain discrete items that were planned for during the year.

Regarding our cash and capital allocation; cash flows from operations totaled approximately $400 million in the quarter. Operating cash flow reflects an impact of approximately $300 million from higher inventory balances. The increase reflects the impact of inflation and our strategic investments in raw materials to optimize product delivery and meet customer demand. We've seen good progress in December and January on WIP [ph] and finished goods rightsizing with January inventory dollars down sequentially from December.

We are working to moderate strategic raw material purchases as stability improves in select markets. However, we continue to make prudent trade-offs where necessary to ensure we support our customers while delivering strong results. Assuming continued stabilization of the macro environment and supply chain, we expect to continue to manage inventory levels down and by the end of the fiscal year had this be a positive source of cash and meaningful progress towards meeting our long-term cash conversion goals. We paid down approximately $500 million in long-term debt in Q1 and ended the quarter with a cash balance of approximately $600 million and a net leverage ratio of 3 times. As the year progresses and we build cash, we can increase our capacity to deploy cash towards tuck-in M&A.

Moving to our guidance for fiscal 2023. For your convenience, the detailed assumptions underlying our guidance can also be found in our presentation. Given our first quarter performance, we are confident in increasing our revenue and EPS guidance, given the strength of our base revenue growth, consistent execution of our margin goals, and reflecting the latest FX rates.

Starting with revenues, I will provide some insights into some of our key guidance assumptions. First, we are well positioned for strong growth across our three segments, which are delivering at or above our initial expectations despite the impact of restrictions in China, and thus, we are increasing our base revenue guidance. On a currency-neutral basis, we now expect base revenues to grow 5.75% to 6.75%. This is an increase of 50 basis points from our prior guidance of 5.25% to 6.25% and is driven by our Q1 revenue outperformance and the confidence we have in our consistent durable growth profile.

Our base revenue guidance continues to include planned strategic portfolio exits that will enable increasing manufacturing efficiency and capacity and ensure the reliable supply of the products that matter most to our customers. We initiated these actions in Q1 and for the full year, continue to expect the impact to base revenue growth of approximately 100 basis points while being accretive to margin. Offsetting this revenue impact, we continue to expect a positive contribution of approximately 100 basis points from the full year benefit of our recent acquisitions with Parata being the predominant driver.

While we aren't providing segment-specific guidance, we are on track to deliver strong performance across our segments this fiscal year, in line with our long-term planned commitments. We expect Medical segment growth to be above the total company range, which includes the acquisition of Parata; Life Sciences growth to be below given strong prior year comps and Interventional to be above the midpoint.

For COVID-only testing, we are now assuming about $50 million to $100 million in revenue versus our previous expectation of about $125 million to $175 million and is driven by reduced testing volumes and the continued shift in the market to combination testing for respiratory illness. Regarding Alaris, we continue to only model shipments related to medical necessity in line with fiscal 2022 demand.

Regarding our assumptions on earnings, we continue to expect operating margins to improve by at least 100 basis points while absorbing the decline in COVID-only revenue, which has a higher margin profile. Despite the challenging macro environment persisting, our focused execution on driving profitable revenue growth, combined with our simplified programs, gives us the confidence that we will be able to continue to mitigate inflationary pressures and make meaningful progress to achieving operating margin levels of about 25% in fiscal year 2025.

We continue to expect over 80% of the improvement in operating margin to come from SSG&A [ph], driven by internal cost containment and leverage. The balance is expected to come from slight improvement in gross margin and R&D as we normalize back closer to our target of 6% of sales.

Below operating income, our assumptions regarding interest, other and tax remain unchanged. We continue to expect adjusted EPS before the impact of currency to be around double-digit growth and within a range of approximately 9% to 11%. This includes absorbing about a 350 basis point headwind from the anticipated decline in COVID-only testing, which is about 50 basis points more than we previously anticipated. As a result, this implies a very strong low-teens base earnings growth of approximately 12.5% to 14.5% compared to 12% to 14% previously anticipated.

Let me now walk you through the estimated impact from currency. As a reminder, we manage our business and provide guidance on an operational basis, but provide perspective on currency using current spot rates. Since our last call in November, the U.S. dollar weakened against all of our major currencies. Based on current spot rates, which assumes the euro at $1.08 for the remainder of the year. For illustrative purposes, currency is now estimated to be a headwind of approximately 200 basis points, or about $370 million to total company revenues on a full year basis, which is an improvement of approximately 250 basis points compared to our prior view.

The currency headwind to adjusted EPS growth has also declined significantly since our November earnings call. At current rates, currency would represent a total headwind of approximately 230 basis points to adjusted EPS growth compared to approximately 420 basis points previously.

All in, including the estimated impact of currency, we are increasing our reported revenue guidance by approximately $500 million to a range of $19.1 billion to $19.3 billion compared to $18.6 billion to $18.8 billion previously and are raising our adjusted EPS guidance to be between $12.07 and $12.32, which is an increase of $0.22 at the midpoint compared to our prior guidance range of $11.85 to $12.10.

As we think of fiscal 2023 phasing, there are various items to consider. We have outlined more detail in the accompanying presentation slides, but the following are key areas to note. First, regarding margins. We expect Q2 operating margin to be similar to our FY 2022 full year margin. This demonstrates our strong focus on profitable growth given the continued impact of inflation and the grow-over impact of our COVID-only testing revenue, both of which we expect to be most prominent in the first half of the year. As a reminder, COVID-only testing has a higher margin and reinvestment of COVID-only testing profit was weighted to the back half of the year.

As the year progresses and we continue to benefit from our simplification and inflation mitigation programs, we anticipate margin expansion to be most prominent and to increase through the second half. Second, regarding FX. At current spot rates, we expect the headwind to revenue and EPS will be over-indexed to the first half with about 90% of the full year impact to revenue and about 80% of the full year impact to EPS occurring in the first half. For the full year, we expect the FX drop-through to earnings to be in line with our BDX operating margin.

Lastly, a couple of timing items to note. We expect R&D as a percentage of sales to remain elevated in Q2 and normalize over the balance of the year to around our long-term target of 6%. Additionally, the midpoint of our full year effective tax rate guidance indicates an effective tax rate over 16% for the balance of the year, which is best to assume occurs evenly throughout the year as the exact timing of any other discrete items is hard to predict.

In closing, we are very pleased with our performance, which demonstrates our consistent, reliable, durable growth profile and our BD 2025 strategy continuing to progress as planned. As we look forward and as reflected in our FY 2023 guidance, we are well positioned for growth with excellent momentum in our base business.

With that, let me turn it back to Tom for few additional comments.

[Tom Polen, Chairman, Chief Executive Officer and President]

Thanks, Chris. The future has never been brighter for BD. We have demonstrated a powerful combination of innovation and strong execution and have the talent, vision and momentum to continue delivering robust performance.

As we move through the back half of the fiscal year, you can expect to see continued relentless focus on execution of our strategy. I'd like to thank our associates worldwide once again for their tireless commitment to our purpose of advancing the world of health.

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

[Operator]

[Operator Instructions] Thank you. And our first question comes from Vijay Kumar with Evercore ISI. Please go ahead.

[Vijay Kumar, Evercore ISI]

Hey guys. Congrats on the quarter and thanks for taking my question. Tom, maybe at a high level, when I look at this guidance here and Q1 performance, I think your prior comments were Q1 organic to be a couple of 100 basis points below the annual guide. And I'm looking at the annual guide – prior annual guide of 4.75, which included the product exits. So I think the Street was looking at sub 3%. You came in at 3%, slightly better. But the base here was increased by 50 basis points. It looks like underlying business momentum is accelerating. So maybe just talk about what's giving you confidence? I think you mentioned some new products. So what's driving this confidence in organic guide raise?

[Tom Polen, Chairman, Chief Executive Officer and President]

Good morning Vijay. And thanks for the great question. I'll turn that over to Chris.

[Chris DelOrefice]

Yes. Thanks, Vijay. Thanks to everyone for joining the call. Maybe a couple of macro comments. One, I just think this represents another quarter of strong execution, consistent with what we shared overall. When you think of our kind of forward-looking view from our updated guidance, I think, a few key things, not that we highlighted and then I'll address your question maybe with where we see some pockets of strength.

But one, we did increase to your point, 50 basis points of growth on our base business. That strength is pretty broad-based when you think of it. I'll come back to that. And that's despite the fact that you had the restrictions and impacts in China as well. So we more than absorbed that. We also absorbed the COVID-only testing revenue, which given the testing dynamics in the marketplace are not surprisingly down when you think of COVID only relative to our position in the market. That's a higher-margin offering, and we absorbed that as well. I think importantly, we continue to execute against our margin, and we committed to our – at least 100 basis points of margin improvement and then we incorporated FX.

Yes, and to your point, when we're entering the year, I mean, one, Q1 is still under-indexed relative to our full year guide. Right? So that still holds together. We know there was about 100 basis points of headwind associated with the licensing revenue impact in our Life Sciences business that you saw in our results. We had estimated there is maybe about another 100 basis points of other dynamics, comp-related issues, mostly attributed to COVID. We also had some difficult comps in the quarter in certain areas like pharma systems, for example, grew 18%, Q1 last year, and we still delivered north of 10% growth in this quarter.

So, I think that continues to be a source of strength for us. I think the flu season, there is probably a timing dynamic there. It peaked a bit earlier than we thought and was a higher spike. As we go through this call, Dave can certainly amplify that, but it's played out like it's played out in other areas with a quick season that's going to abate. So I think you have a timing dynamic there as well.

So there is various items such as that. But largely speaking, I think, things are very consistent. We feel really good about the first quarter of the year, and it gave us confidence to increase our guidance.

[Vijay Kumar, Evercore ISI]

Understood. And then just one follow-up for me, Chris. And perhaps, Tom, you can chime in. One on, did you – a few questions here on combo and flu revenue contribution. I think on the prior call you had said you expect somewhere around 150-ish for the year. Did the estimate change? What was the China impact here in the quarter? And Chris, did I hear you correctly on gross margins? Should they be up sequentially here into 2Q? Or should gross margins be flattish or down?

[Chris DelOrefice]

Yes, real quick on gross margin, we didn't give specific guidance on gross margin, we more – just to give you kind of an anchor how to expect Q2 to play out. We said it would be in line roughly with how we ended our full year fiscal year 2022, which when you think of the inflationary environment we're in, in the first half of the year, right, we talked about peak inflation rolling through in Q1 and Q2. We had a 350 basis point impact of inflationary pressure in Q1. And so, a Q2 margin similar to how we exited the year is what we're thinking. We did not specifically highlight gross margin.

[Tom Polen, Chairman, Chief Executive Officer and President]

Vijay, on the other two questions that you asked, on China specifically, so China declined slightly in the quarter, obviously due to the COVID impact. We did see at the end of this month – last month, January, starting to see some recovery there. So, we're optimistic for the year, we still – as you know, we delivered double-digit growth in China. Last year, we said high singles or near double or about that this year, and that's unchanged. We think we will be able to recover in the back portion of this year. We still have our four-pronged strategy that we have in China we remain very confident in.

We've got a very strong team there that's been navigating that challenging environment. Again, they delivered 10% plus growth in 2022, and we expect another strong 2023. And that strategy that focuses on bringing our global pipeline to China continuing to drive China tailored R&D. And you heard us talk about a new launch there in the midline of a product developed in China for China. We continue to move in to expand our market coverage into lower-tier settings, continue to manage through the BOBP where it exists, that's in our run rate. And we continue to strengthen our local presence in China, both our manufacturing presence as well as clinical expertise as we continue to train thousands and thousands of clinicians each year. That formula has worked very well for us in the past, and we continue to double down on that.

I think as we think about the combo test, I'll turn that over to Dave to speak a little bit about what we're seeing there.

[Dave Hickey, President-Life Sciences Segment]

Thanks, Tom. Hey Vijay, good to hear you. Thanks for the question. Yes, so just on COVID and combo, as I think about both of those. I mean, as you saw in the quarter, we posted COVID-only revenues of $32 million. And as we said on the call, we now expect COVID only for the full year to be between $50 million and $100 million. I think Chris commented right, we are seeing obviously stabilization in the market. We are seeing a decline in testing for COVID only. Actually, as that testing shifts to these combination tests, and actually, for us, in Q1, our performance in that area did actually help offset that COVID-only decline. We had anticipated that that's the way that was going to become the standard of care. I'm actually very proud of the team in terms of the way they sort of anticipated and reacted and built these combination test supplies to support the Q1 performance.

And I think if you think about the installed base that we've grown on BD MAX, the fact that we've released these combination assays on both BD MAX, BD Veritor, BD COR actually now in Europe is CE-marked. I think that dynamic, and we can talk about it later, the dynamic of what that looks like for the full year on the respiratory testing obviously continues to play out. But yes, COVID only, we definitely see a decline.

[Vijay Kumar, Evercore ISI]

Sorry, did the prior guidance on that, I think you mentioned 150-ish for the year. Did that change?

[Dave Hickey, President-Life Sciences Segment]

Yes. So for the year, we think COVID only now will be in the range of $50 million to $100 million.

[Vijay Kumar, Evercore ISI]

Sorry, on the combo test. I think flu combo...

[Dave Hickey, President-Life Sciences Segment]

So, yes. So, we never really – so, if I think about that, the way – if you think about what we said from a, let's say, a flu season pre-pandemic, we had said that was always in the $75 million to about $100 million range on the antigen testing and so on and so forth. There is obviously a lot of unknowns right now in terms of how the full year is going to play out. Obviously, quarter one, we saw the season start early, if you track those CDC graphs, we saw the season start early, it peaked, and we were able to respond to that. If we were looking at it now and for all the assumptions we have, we would think it will be about 1.5 times, let's say, a normal season. So $75 million to $100 million, we would say 1.5 times. And that's really enabled and driven by the installed base increases that we have and the fact that we have developed to launch these combination sets across those platforms.

[Operator]

Okay, we'll take our next question from Matt Taylor with Jefferies. Please go ahead.

[Matt Taylor, Jefferies]

Hi, thanks for taking the question. Sorry for the delay there. So, congrats on quarter, even though I'm not a – usually congrats on a good quarter guy, but that was very nice. So...

[Tom Polen, Chairman, Chief Executive Officer and President]

We appreciate that, Matt. Thank you.

[Matt Taylor, Jefferies]

Of course, Tom. I had a question, a follow-up on Chris’ comments on just the operating margin expansion improvement being more back-half weighted. I was hoping you could just talk a little bit more about that and maybe unpack that and talk about the sources of it just because there’s been so many moving parts and it’s an important part of the story.

[Chris DelOrefice]

Yes. No problem. Thanks, Matt. I appreciate the question. Yes, things are pretty consistent with what we shared when we started the year, and it seems to be playing out as such. Some of the key factors to contemplate. First of all, we talked about that from a full year standpoint, inflationary headwinds being another 200-plus basis points. This is on the back of two other years with last year also being over 200 basis points. So, we’ve been navigating an extremely challenging macro environment, right, when you think of that on a cumulative basis.

What we did say around the inflationary pressures, it would be significantly weighted towards the first half of the year will be highlighted in Q1 that you saw flow through because a lot of this was inventory that was built last year that sold through. 350 basis points of outsized inflation. That’s on top of, I think, of normal inflation merit increases that everyone takes that would happen in any kind of environment, more of those 3% level. So, you’re really talking about, call it, 400 basis points plus of costs that you have to contend with within your P&L.

So then when you think of the mitigation offset to that, so -- by the way, so when you think of our Q1 performance and margin on the back of a 350 basis point inflationary pressure in the quarter, we’re very pleased with how we started the year, because we knew the front half was going to be kind of the more challenging times. As we progress through the back half, there’s a few things that will play out. One, it starts with our internal focus on cost improvement initiatives, simplify, whether it be Project RECODE, driving outsized cost improvement through our plants and other facilities.

We’re very focused on portfolio, whether it be driving mix. We took this bold strategic action around portfolio product exits that contributed within the quarter. And so, you don’t do this was one thing. The strong growth rate, of course, gives you natural leverage. And then as we go through the back half of the year, while we’ll still be in an elevated inflationary environment, the cost of materials will subside. You’re seeing some of that subside in certain pockets of raw materials as an example, while other areas, like labor is continuing to persist. But you should see it trend down from that 350 basis points to get to our average of over 200 basis points that we talked about.

So then when you think of kind of the dynamics within the P&L between GP and operating margin and where it will play out, GP, we said would be largely in line to just a slight improvement for the full year. And again, that goes back to the fact that we’re absorbing the significant inflationary pressures. So, you’re doing a lot of work to kind of stay flat to slightly above. And then the majority of it will end up showing up in operating margin as you think of leveraging your cost base there, some cost improvement actions we’re also taking in OpEx, and we also continue to normalize our R&D spend in the second half.

If you saw in Q1, and we expected in Q2 to have more outsized R&D above 6%, so the back half will be below 6% to normalize to our 6% rate. So, I think those are the biggest puts and takes as you think of the year, but we’re very pleased again with Q1, how we started and how focused we’ve been on the margin profile.

[Matt Taylor, Jefferies]

Okay. I mean that was very comprehensive. Exactly what I was looking for. Thank you so much.

[Chris DelOrefice]

Thanks.

[Tom Polen, Chairman, Chief Executive Officer and President]

Thanks, Matt.

[Operator]

And we’ll take our next question from Larry Biegelsen with Wells Fargo. Please go ahead.

[Tom Polen, Chairman, Chief Executive Officer and President]

Good morning, Larry.

[Larry Biegelsen, Wells Fargo]

Good morning, Tom. Good morning, Chris. Thanks for taking the question and I’ll reiterate my congratulations on the nice quarter here. Chris, just one follow-up to Matt’s question. How much visibility do you have? I mean, the second half margin ramp is pretty strong. How much visibility do you have on that? And trying to calculate the numbers here quickly, but it implies, I think, pretty low OpEx growth, if I’m not mistaken. Just color on that, please?

[Chris DelOrefice]

Yes. Thanks, Larry. There’s a few things that obviously, I would call naturally. Well, kind of like, for example, we had reinvestment of the higher COVID-only margin from the first half and reinvestment was in the back half. That will stop. We talked about timing differences of the R&D spend. I mean, you got a 50 basis point swing just timing there from first half to second half as an example. I had also indicated on the call some of the SSG&A [ph] that we had incurred in Q1, there’s timing elements there. So there’s timing elements in probably R&D, SSG&A. You have the lack of reinvestment that you just stopped at. Those were onetime in nature.

The other dynamic that you have in GP that I mentioned is the trend of some abatement while still elevated, but it’s all on a relative basis of the raw material cost in the second half in GP. Short of something significant changing, we have pretty strong line of sight to those dynamics. And then from there, it’s really just continuing the rhythm of our cost improvement initiatives. So, I think to your point, obviously, the macro environment has been fluctuating. So, we keep monitoring that. But I think given where we are, we feel pretty confident and we’re certainly well on track to deliver the, at least 100 basis points of improvement for the year.

[Larry Biegelsen, Wells Fargo]

That’s helpful. And just one quick follow-up. Tom, it looks like Parata is doing really well. I mean the $86 million inorganic contribution in Medical. It looks like there was one other acquisition there, but I assume most of it’s Parata. So any color on how Parata is doing? It looks like it’s doing better than the initial expectations. Thanks.

[Tom Polen, Chairman, Chief Executive Officer and President]

Larry, you’re right. We’re at or actually a bit ahead of the deal model there. We couldn’t be more pleased with Parata. And we’ve got Mike here in the room. So let me turn it over to Mike to talk about what the other acquisition is that’s in those numbers and a bit more about Parata.

[Mike Garrison, President-Medical Segment]

Yes. The other acquisition is the acquisition of MedKeeper. That’s a pharmacy automation software that helps automate the processes that a pharmacy tech would use to prepare IV medications in the pharmacy hood. So that contributed a small amount into that acquisition number. From a Parata perspective, I think what we’re seeing there, and we are really pleased with it, is the combination of the energy and the product that Parata provides and the energy that the people from Parata are providing, along with the sort of discipline and coaching that BD and the scale that we provide to access new markets, access acute care settings and help drive the transformation of the pharmacy for acute care.

So Parata is continuing to grow very strong in the alternate site in the retail area. And then we’re starting to open up the discussions with IDNs that are looking to transform their pharmacy operations. So I think that bodes really well for the future. We are very pleased with it, and we hope to continue to see the same type of response from our customers.

[Tom Polen, Chairman, Chief Executive Officer and President]

I think we – fair to say, Larry, we don’t see any change in the trajectory around the macro factors that are driving demand for that, right? The labor shortages, the need to repurpose pharmacists to do more things in the retail setting, like wellness checks and vaccines and address patients, all of that, right, drives the demand for automation and robotics. And it’s really a great example of our smart connected care strategy, one of the three transformational areas that we’re focused on. It’s a great example of us bringing that to life. So really good momentum in the Medical segment there.

[Operator]

We’ll take our next question from Robbie Marcus with JPMorgan. Please go ahead.

[Tom Polen, Chairman, Chief Executive Officer and President]

Good morning, Robbie.

[Robbie Marcus, JPMorgan]

Good morning and congrats on nice quarter. Chris, maybe to dig into some of the points you made already. COVID testing is a high-margin business going down. How much of the base business upside in guidance is coming from the combo COVID test? And then a lot of competitors are outperforming on COVID testing and potentially raising numbers for the year. I guess, how are you thinking about just Becton, Dickinson in the framework of COVID testing and your assumptions underlying how testing will be used for the balance of the year? Thanks.

[Tom Polen, Chairman, Chief Executive Officer and President]

Yes. Good question, Robbie. So I'll start with the COVID and Dave can add in here. But I would say a few things. One is, so our COVID testing as you know is primarily in professional settings. And when we talk about our – and molecular, to a degree as well, too, we don't have a strong presence in At Home. We do have an At Home test, but it's not it's a – it's not nearly as big of a presence as in our professional setting. So I think perhaps where you see the most outsized performance there is in company – is from companies with a large At Home presence where you've just seen a lot of the COVID testing migrate to At Home versus in professional settings since it's so easy to do and people can do that without going into a clinician. So I think that's one factor probably influencing some of the delta for us. As you know, we do have a combo test in development for At Home, and we'll share once we get that, hopefully that EUA and able to launch that.

Dave, any other comments to add there on COVID?

[Dave Hickey, President-Life Sciences Segment]

Yes. Hey Robbie. I mean I think, Tom, you captured well. I think when we did our At Home COVID test; we made a very deliberate decision to pursue a digital strategy. You saw the acquisition that we made of Scanwell. We were very much aligned to the test, treat and trace reporting dynamics. And we intentionally sort of targeted that digital ecosystem with a higher price, higher margin rather than the visually red at-home test.

We still think on a go-forward basis, as the sort of, let's say, the sort of the government contracts and things abate, as testing perhaps becomes more regulated At Home, 510(k) environments and so on, a digital ecosystem, again plays into the smart connected care of BD will be important. But I think for us, we just look at it all as we're seeing the softening in the COVID decline. We firmly believe that the standard of care going forward will be these – in an endemic type of approach, these combination tests and we've built a portfolio across BD MAX, BD COR, Veritor and potentially Veritor At-Home across all of these combination portfolios.

[Tom Polen, Chairman, Chief Executive Officer and President]

I think the good thing, Robbie that we would look at as is that we're really getting more to a durable revenue number in that, right? So I think as we look at 2023, it's a number that could be very much in line with how we think about it playing out in future years as well at that level where there's not still significantly high numbers that would drop in the future that were really at a kind of a durable level of performance in those categories.

Chris, any other?

[Chris DelOrefice]

Well, just the way you started your question, Robbie. So if you think of us absorbing the COVID-only and increasing our base revenue guidance by the 50 basis points, it wasn't like a swap out into combination testing. It was actually broadly based across the business. As Dave mentioned earlier, we still see the combo part of our portfolio at that 1.5 times, and we'll continue to watch how it plays out. There was a little bit of strength there, but it wasn't outsized relative to the other areas we also had stressed.

[Tom Polen, Chairman, Chief Executive Officer and President]

Typically, yes. Just to add we typically wouldn't raise unless it was a highly unusual situation, trying to predict expectations on a full year basis on flu or a flu combo test just because it can drop off so quickly. And in fact, we are seeing, right, that's happening if you look at the CDC charts, those charts are showing significant drop-off like what happened in Australia. Rapid early peak and then a rapid drop, unclear if there could be second or third peaks in the future, but that's not something we can easily predict. So typically in Q1, we try to be conservative around that – those outlooks in that specific product category. More after Q2, we get a sense of where the full year plays out.

[Robbie Marcus, JPMorgan]

Great. I'll leave it there. Thanks a lot.

[Tom Polen, Chairman, Chief Executive Officer and President]

Thanks.

[Operator]

And we’ll go next on Matt Miksic with Barclays. Please go ahead.

[Matt Miksic, Barclays]

Hey thanks. Wanted to follow-up with a couple of questions; one on sort of the margin side and then just a couple of clarifications on the revenue side. And just too sort of maybe summarize and make sure we've got a clear understanding of the sort of dynamics this year. I mean you have these significant restructuring efforts underway that you've talked about, that sounds like on a full year basis you're expecting those to kind of offset the inflationary – outsized inflationary cost at the COGS line, at the gross margin line?

I'm guessing you're probably not fully offsetting those here in the first half. But as you pointed out, that 350 basis point of inflationary hedge or inflationary pressure are going to sort of ease in the back half. So full year, you sort of manage that to sort of neutral and then the benefits that you're getting here to get you to that 100 basis points really happened below the gross profit line in the form of leverage, in the form of timing as you pointed out. Is that the right way to think about the overall margin picture front half, back half, just to summarize and make sure I'm clear on it anyway? And then as – I have a couple of quick revenue follow-ups.

[Chris DelOrefice]

Yes. I think that – I mean, there's other puts and takes within there. But generally speaking, yes, that's how we see the year playing out.

[Matt Miksic, Barclays]

Great. And then on the revenue side, just some other folks who have had some China pressure in the quarter as you did and obviously managed through that to deliver the beat here. But if you could maybe quantify that is sort of one clarification is give a sense of what the growth might have been if it's a 50 basis point overall hit to growth on the clarification on the combo testing, COVID testing changes that you made in terms of your expectation of COVID-only testing. It sounds like that's – that maybe not so much of an expectation that COVID testing in total is coming down, but it sounds like it's a bit more of a mix shift that's just – you're getting COVID testing in the form of that combo testing. So not directionally inconsistent, it seems with what other folks are talking about. They just don't have that combust [ph] exposure. And then I'll leave it there just with those two clarifying points would be super helpful? Thanks.

[Chris DelOrefice]

Yes. I think just real quick on China. Thanks, Matt, for the questions. So I mean, last year is just an interesting proxy, right? We went through restrictions in our fiscal Q3. Despite that, we navigated. We had an impact in the quarter. We actually still grew in that quarter last year and posted around double-digit growth in fiscal year 2022. This quarter, we saw a modest decline, 1%, and in China specifically, and normally if you think of it as a double-digit growth business. With that said, Q1 last year, was a strong comp for us in China. We had a very strong quarter for various dynamics, including some new products that were introduced, et cetera.

So we would say the impact is probably just south of 50 basis points, if you want to think about it, plus or minus in the quarter headwind just to give you some direction. We did highlight we still feel great, as Tom mentioned earlier, with the core strategy with that business, short of like further disruptions occurring this year and these being a more kind of acute. We should see again around double-digit growth for the year is what we had shared. So we did see some trends, recent trends, like we're watching it. So we're watching it closely, but it looks like you're starting to kind of see some turnaround in that market. It's still early. So we'll look at it and we'll update, of course, in Q2. But I think longer term, our strategy and performance in China is really strong.

[Tom Polen, Chairman, Chief Executive Officer and President]

I think just to add in there, we had seen even versus the first half of January to the back half of January, we started seeing good recovery towards the back half of January as the COVID outbreak began to subside.

[Chris DelOrefice]

Yes. I think, COVID, I can let Dave and Tom jump in here too, kind of half accurate, I think, in your depiction. There’s significant market dynamics on call it, COVID-only testing in the marketplace this year. If you think of last year, there was a lot of government intervention and school requirements and businesses. I mean there’s – a lot of that has subsided. So there’s a portion of the reduced testing that’s just market dynamics playing out in terms of total volume, and that’s not just shifting the combination testing.

With that said, we still feel good about our combo assay in having that because we do see that as the assay of choice as folks have are symptomatic going in and want to get tested for flu. So we saw strength in our platform. But as Dave articulated, the flu season did kind of spike early. So we’ll have to kind of continue to watch that as we navigate through Q2. So it certainly wasn’t a one-for-one shift by any means, not even really close to that.

[Dave Hickey, President-Life Sciences Segment]

Yes. And I think the only other things that I would talk about, Matt. Just in terms of the market dynamics, we track things like bed occupancy and so on really closely. And if you look at a lot of the data sort of in our first quarter and sort of beds that were occupied by COVID-only patients was like maximum peak of like 6%, which is way down from sort of north of 22% in sort of prior period. So that COVID-only dynamics is definitely softening.

And I mean I’ll just reinforce what I said earlier on around these combination assays where the unmet need is if somebody presented symptomatically and you want to know, particularly in the respiratory season, do I have COVID, do I have flu, do I have RSV, we think that is going to be the norm on a go-forward basis. And I think we talked earlier on that we have those on MAX outside the U.S., on Veritor.

Two things I would also highlight that is for the combination assay here in the U.S., we are under EUA review with the FDA right now. And actually, just late – or BD MAX, yes. And late last month, we actually did file our EUA for an at-home combination assay. So there are also two EUAs that are under review right now. Who – as I said, right now, the season is extremely quiet. But this is also about us planning and preparing for whatever the respiratory season may be towards the end of this calendar year.

[Tom Polen, Chairman, Chief Executive Officer and President]

Thanks Dave. Thanks Matt.

[Operator]

And we’ll take our next question from Rick Wise with Stifel. Please go ahead.

[Tom Polen, Chairman, Chief Executive Officer and President]

Good morning, Rick.

[Rick Wise, Stifel]

Good morning to you. Let me start off with new products. Tom, I was looking for the last couple of quarters, handouts here. And I don’t recall, but it feels like starting off with innovation in our handouts and the passion with which you review everything is – tells us all something very important about the direction you’re heading. And I was just curious from two angles. Which do you see – which would you want us to view as the most impactful to growth margins and to the franchises, which are you most focused on? And separate, but related, maybe you know that, as Chris highlighted, the balance sheet’s getting back in such excellent shape, what are your priorities? It’s clearly tuck-in, but is there any sort of franchise or technology or area we should be thinking about?

[Tom Polen, Chairman, Chief Executive Officer and President]

Great questions, Rick. Thank you. So on the innovation side; obviously, we appreciate the comments there. We’re really pleased with the momentum that we have. And as I’ve said many times, we think we have the most exciting pipeline in the company’s history. If you look at last year in FY 2022, we had 25 new product launches, things like our HealthSight diversion management moving into the operating room or the new Pyxis ES platform or a series of new dyes and the first of their kind in BDB or our core high-throughput platform. Asprex [ph] in the U.S. or PureWick Male are all great examples of products that we launched last year that are going to help drive growth this year.

As we think about – and we highlighted quite a few this quarter as well. As we look ahead, as you know, there’s no – you can’t say for BD, hey, there’s these three or four products that are going to drive our performance and that if they go really well or don’t go as well, that it’s going to change our outlook and our thesis. That’s one of the strengths of BD. We’ve got a lot of singles, a lot of doubles. We’ve got triples here and there. But we’ve got a deep bench. What’s – what I’d point you to is we’ve been systematically moving our portfolio into higher-growth markets and shifting our WAMGR up. We talked a lot about that at JPMorgan this year. We gave updates specifically on our progress versus the WAMGR goals that we set at Analyst Day two years ago, and we’re very much on track to those. We’re really pleased with how our portfolio is progressing.

We’re really pleased with how we’re executing R&D. We’ve shared before we exited FY 2022 with our best performance ever, 87% on-time launches, 84% milestone delivery. That’s up significantly versus where we’ve been in the past, and so we’re pleased with how our R&D team is performing.

We highlighted quite a few of the many exciting launches that we have coming up this year or submissions that we have. Certainly, think about Life Sciences, facts discover is a breakthrough new platform. Any time you’re on the cover of Science Magazine, we’ll consider that an exciting technology, and we’re launching that later this year. A lot of exciting interest from our customers as well as the new dyes that are associated with that to take advantage of the spectral technology and in FACSDiscover. YODA around capillary blood collection, enabling blood collection by non-phlebotomists, non-venepuncture, really highly preferred by patients. 75 out of 100 will prefer or more blood being drawn with that device than a venepuncture. And we see that as starting to enable more routine care in places, like retail. When you look at the majority of clinical decisions being driven by diagnostic data it’s hard for care to move into new settings if you’re not getting that diagnostic data available there. You still got to go into the old system.

They have your blood drawn. We’re working to change that. That’s something that we’re going to be excited about as we go forward. In BD Medical, obviously, we’ve got products and pharm systems that we’ve talked about in the past, including Libertas as well as new vaccine delivery solutions that we’ve launched recently in BDI, we’ve talked about quite a few. We highlighted PureWick in the past, PosiFlush in MDS, list goes on again in JPMorgan went through those pretty deeply, and I highlighted a few here on the call today.

I think as we think about tuck-in M&A, we’re going to remain extremely disciplined. I’ve shared in the past, of course, many times, we’re still focused on tuck-in M&A exclusively. We’re very focused on maintaining that strong balance sheet that we have, and we are going to continue to increase the amount of cash that we generate, and we feel really good about how that looks over the next several years.

We have our very focused priorities. We don’t disclose specific market categories that we’re focused on there. But we’ve obviously pointed very specifically to three areas of focus around smart connected care, around technologies that enable the shift to new care settings and around technologies that help us improve chronic disease outcomes in the chronic disease spaces that we’re focused in, like oncology, peripheral vascular disease, et cetera. And so, over the last three years, 90% plus of the M&A dollars that we’ve spent have been focused in those three categories, and we would certainly expect that continue going forward, that level of focus. Thanks for the question.

[Operator]

And there are no further questions at this time. I’ll turn the call back over to Tom Polen for closing remarks.

[Tom Polen, Chairman, Chief Executive Officer and President]

I just want to thank everyone for your time today. Great series of questions. Obviously, we’re – we feel really good about the performance as we started this year, and we look forward to providing updates in the future. Thank you.

[Operator]

Thank you, and that does conclude today’s audio webcast. As a reminder, a replay of this call will be available on the BD Investor Relations website. Please disconnect your lines at this time, and have a wonderful day.